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G.R. No.

132848-49

June 26, 2001

PHILROCK, INC., petitioner,


vs.
CONSTRUCTION INDUSTRY ARBITRATION
COMMISSION and Spouses VICENTE and NELIA CID,
respondents.

No common ground could be reached by the parties, hence,


on April 2, 1994, both the Cid spouses and Philrock
requested that the case be remanded to the trial court. On
April 13, 1994, the CIAC issued an Order stating, thus:
'x x x the Arbitral Tribunal hereby formally dismisses the
above-captioned case for referral to Branch 82 of the
Regional Trial Court, Quezon City where it first originated.

PANGANIBAN, J.:
SO ORDERED.'
Courts encourage the use of alternative methods of dispute
resolution. When parties agree to settle their disputes arising
from or connected with construction contracts, the
Construction Industry Arbitration Commission (CIAC)
acquires primary jurisdiction. It may resolve not only the
merits of such controversies; when appropriate, it may also
award damages, interests, attorneys fees and expenses of
litigation.

"The Cid spouses then filed with said Branch of the Regional
Trial Court of Quezon City a Motion To Set Case for Hearing
which motion was opposed by Philrock.
"On June 13, 1995, the trial court declared that it no longer
had jurisdiction over the case and ordered the records of the
case to be remanded anew to the CIAC for arbitral
proceedings.

The Case
Before us is a Petition for Review under Rule 45 of the Rules
of Court. The Petition seeks the reversal of the July 9, 1997
Decision1 and the February 24, 1998 Resolution of the Court
of Appeals (CA) in the consolidated cases docketed as CAGR SP Nos. 39781 and 42443. The assailed Decision
disposed as follows:
"WHEREFORE, judgment is hereby rendered DENYING the
petitions and, accordingly, AFFIRMING in toto the CIACs
decision. Costs against petitioner."2
The assailed Resolution ruled in this wise:
"Considering that the matters raised and discussed in the
motion for reconsideration filed by appellants counsel are
substantially the same arguments which the Court had
passed upon and resolved in the decision sought to be
reconsidered, and there being no new issue raised, the
subject motion is hereby DENIED."3
The Facts
The undisputed facts of the consolidated cases are
summarized by the CA as follows:
"On September 14, 1992, the Cid spouses, herein private
respondents, filed a Complaint for damages against Philrock
and seven of its officers and engineers with the Regional
Trial Court of Quezon City, Branch 82.
"On December 7, 1993, the initial trial date, the trial court
issued an Order dismissing the case and referring the same
to the CIAC because the Cid spouses and Philrock had filed
an Agreement to Arbitrate with the CIAC.
"Thereafter, preliminary conferences were held among the
parties and their appointed arbitrators. At these conferences,
disagreements arose as to whether moral and exemplary
damages and tort should be included as an issue along with
breach of contract, and whether the seven officers and
engineers of Philrock who are not parties to the Agreement
to Arbitrate should be included in the arbitration proceedings.

"Pursuant to the aforementioned Order of the Regional Trial


C[o]urt of Quezon City, the CIAC resumed conducting
preliminary conferences. On August 21, 1995, herein
[P]etitioner Philrock requested to suspend the proceedings
until the court clarified its ruling in the Order dated June 13,
1995. Philrock argued that said Order was based on a
mistaken premise that 'the proceedings in the CIAC fell
through because of the refusal of [Petitioner] Philrock to
include the issue of damages therein,' whereas the true
reason for the withdrawal of the case from the CIAC was due
to Philrock's opposition to the inclusion of its seven officers
and engineers, who did not give their consent to arbitration,
as party defendants. On the other hand, private respondent
Nelia Cid manifested that she was willing to exclude the
seven officers and engineers of Philrock as parties to the
case so as to facilitate or expedite the proceedings. With
such manifestation from the Cid spouses, the Arbitral
Tribunal denied Philrock's request for the suspension of the
proceedings. Philrock's counsel agreed to the continuation of
the proceedings but reserved the right to file a pleading
elucidating the position he [had] raised regarding the Court's
Order dated June 13, 1995. The parties then proceeded to
finalize, approve and sign the Terms of Reference. Philrock's
counsel and representative, Atty. Pericles C. Consunji
affixed his signature to said Terms of Reference which
stated that 'the parties agree that their differences be settled
by an Arbitral Tribunal x x x x' (p. 9, Terms of Reference, p.
200, Rollo).
"On September 12, 1995, [P]etitioner Philrock filed its Motion
to Dismiss, alleging therein that the CIAC had lost
jurisdiction to hear the arbitration case due to the parties'
withdrawal of their consent to arbitrate. The motion was
denied by x x x CIAC per Order dated September 22, 1995.
On November 8, public respondent ordered the parties to
appear before it on November 28, 1995 for the continuation
of the arbitral proceedings, and on February 7, 1996, public
respondent directed [P]etitioner Philrock to set two hearing
dates in the month of February to present its evidence and to
pay all fees assessed by it, otherwise x x x Philrock would be
deemed to have waived its right to present evidence.
"Hence, petitioner instituted the petition for certiorari but
while said petition was pending, the CIAC rendered its
Decision dated September 24, 1996, the dispositive portion
of which reads, as follows:

'WHEREFORE, judgment is hereby rendered in favor of the


Claimant, directing Respondent to pay Claimant as follows:
1. P23,276.25 representing the excess cash payment for
materials ordered by the Claimants, (No. 7 of admitted facts)
plus interests thereon at the rate of 6% per annum from
September 26, 1995 to the date payment is made.
2. P65,000.00 representing retrofitting costs.
3. P13,404.54 representing refund of the value of delivered
but unworkable concrete mix that was laid to waste.
4. P50,000.00 representing moral damages.
5. P50,000.00 representing nominal damages.
6. P50,000.00 representing attorney's fees and expenses of
litigation.
7. P144,756.80 representing arbitration fees, minus such
amount that may already have been paid to CIAC by
respondent.
"Let a copy of this Decision be furnished the Honorable
Salvador C. Ceguera, presiding judge, Branch 82 of
Regional Trial Court of Quezon City who referred this case
to the Construction Industry Arbitration Commission for
arbitration and proper disposition.' (pp. 44-45, Rollo, CAG.R. SP No. 42443) "4
Before the CA, petitioner filed a Petition for Review,
docketed as CA-GR SP No. 42443, contesting the
jurisdiction of the CIAC and assailing the propriety of the
monetary awards in favor of respondent spouses. This
Petition was consolidated by the CA with CA-GR SP No.
39781, a Petition for Certiorari earlier elevated by petitioner
questioning the jurisdiction of the CIAC.

the field of expertise of quasi-judicial bodies, their findings of


fact are accorded great respect when supported by
substantial evidence.
Hence, this Petition.6
Issues
The petitioner, in its Memorandum, raises the following
issues:
"A.
Whether or not the CIAC could take jurisdiction over the
case of Respondent Cid spouses against Petitioner Philrock
after the case had been dismissed by both the RTC and the
CIAC.
"B.
Whether or not Respondent Cid spouses have a cause of
action against Petitioner Philrock.
"C.
Whether or not the awarding of the amount of P23,276.75 for
materials ordered by Respondent Spouses Cid plus interest
thereon at the rate of 6% from 26 September 1995 is proper.
"D.

Ruling of the Court of Appeals


The CA upheld the jurisdiction of the CIAC5 over the dispute
between petitioner and private respondent. Under Executive
Order No. 1008, the CIAC acquires jurisdiction when the
parties agree to submit their dispute to voluntary arbitration.
Thus, in the present case, its jurisdiction continued despite
its April 13, 1994 Order referring the case back to the
Regional Trial Court (RTC) of Quezon City, Branch 82, the
court of origin. The CIACs action was based on the principle
that once acquired, jurisdiction remains "until the full
termination of the case unless a law provides the contrary."
No such "full termination" of the case was evident in the said
Order; nor did the CIAC or private respondents intend to put
an end to the case.
Besides, according to Section 3 of the Rules of Procedure
Governing Construction Arbitration, technical rules of law or
procedure are not applicable in a single arbitration or arbitral
tribunal. Thus, the "dismissal" could not have divested the
CIAC of jurisdiction to ascertain the facts of the case, arrive
at a judicious resolution of the dispute and enforce its award
or decision.
Since the issues concerning the monetary awards were
questions of fact, the CA held that those awards were
inappropriate in a petition for certiorari. Such questions are
final and not appealable according to Section 19 of EO 1008,
which provides that "arbitral awards shall be x x x final and
[u]nappealable except on questions of law which shall be
appealable to the Supreme Court x x x." Nevertheless, the
CA reviewed the records and found that the awards were
supported by substantial evidence. In matters falling under

Whether or not the awarding of the amount of P65,000.00 as


retrofitting costs is proper.
"E.
Whether or not the awarding of the amount of P1,340,454 for
the value of the delivered but the allegedly unworkable
concrete which was wasted is proper.
"F.
Whether or not the awarding o[f] moral and nominal
damages and attorney's fees and expenses of litigation in
favor of respondents is proper.
"G.
Whether or not Petitioner Philrock should be held liable for
the payment of arbitration fees."7
In sum, petitioner imputes reversible error to the CA (1) for
upholding the jurisdiction of the CIAC after the latter had
dismissed the case and referred it to the regular court, (2) for
ruling that respondent spouses had a cause of action against
petitioner, and (3) for sustaining the award of damages.
This Courts Ruling
The Petition has no merit.

First Issue:
Jurisdiction
Petitioner avers that the CIAC lost jurisdiction over the
arbitration case after both parties had withdrawn their
consent to arbitrate. The June 13, 1995 RTC Order
remanding the case to the CIAC for arbitration was allegedly
an invalid mode of referring a case for arbitration.
We disagree. Section 4 of Executive Order 1008 expressly
vests in the CIAC original and exclusive jurisdiction over
disputes arising from or connected with construction
contracts entered into by parties that have agreed to submit
their dispute to voluntary arbitration.8
It is undisputed that the parties submitted themselves to the
jurisdiction of the Commission by virtue of their Agreement to
Arbitrate dated November 24, 1993. Signatories to the
Agreement were Atty. Ismael J. Andres and Perry Y. Uy
(president of Philippine Rock Products, Inc.) for petitioner,
and Nelia G. Cid and Atty. Esteban A. Bautista for
respondent spouses.9
Petitioner claims, on the other hand, that this Agreement
was withdrawn by respondents on April 8, 1994, because of
the exclusion of the seven engineers of petitioners in the
arbitration case. This withdrawal became the basis for the
April 13, 1994 CIAC Order dismissing the arbitration case
and referring the dispute back to the RTC. Consequently, the
CIAC was divested of its jurisdiction to hear and decide the
case.
This contention is untenable. First, private respondents
removed the obstacle to the continuation of the arbitration,
precisely by withdrawing their objection to the exclusion of
the seven engineers. Second, petitioner continued
participating in the arbitration even after the CIAC Order had
been issued. It even concluded and signed the Terms of
Reference10 on August 21, 1995, in which the parties
stipulated the circumstances leading to the dispute;
summarized their respective positions, issues, and claims;
and identified the composition of the tribunal of arbitrators.
The document clearly confirms both parties intention and
agreement to submit the dispute to voluntary arbitration. In
view of this fact, we fail to see how the CIAC could have
been divested of its jurisdiction.
Finally, as pointed out by the solicitor general, petitioner
maneuvered to avoid the RTCs final resolution of the
dispute by arguing that the regular court also lost jurisdiction
after the arbitral tribunals April 13, 1994 Order referring the
case back to the RTC. In so doing, petitioner conceded and
estopped itself from further questioning the jurisdiction of the
CIAC. The Court will not countenance the effort of any party
to subvert or defeat the objective of voluntary arbitration for
its own private motives. After submitting itself to arbitration
proceedings and actively participating therein, petitioner is
estopped from assailing the jurisdiction of the CIAC, merely
because the latter rendered an adverse decision.11
Second Issue:
Cause of Action

Petitioner contends that respondent spouses were negligent


in not engaging the services of an engineer or architect who
should oversee their construction, in violation of Section 308
of the National Building Code. It adds that even if the
concrete it delivered was defective, respondent spouses
should bear the loss arising from their illegal operation. In
short, it alleges that they had no cause of action against it.
We disagree. Cause of action is defined as an act or
omission by which a party violates the right of another.12 A
complaint is deemed to have stated a cause of action
provided it has indicated the following: (1) the legal right of
the plaintiff, (2) the correlative obligation of the defendant,
and (3) the act or the omission of the defendant in violation
of the said legal right.13 The cause of action against
petitioner was clearly established. Respondents were
purchasers of ready-mix concrete from petitioner. The
concrete delivered by the latter turned out to be of
substandard quality. As a result, respondents sustained
damages when the structures they built using such cement
developed cracks and honeycombs. Consequently, the
construction of their residence had to be stopped.
Further, the CIAC Decision clearly spelled out respondents
cause of action against petitioner, as follows:
"Accordingly, this Tribunal finds that the mix was of the right
proportions at the time it left the plant. This, however, does
not necessarily mean that all of the concrete mix delivered
had remained workable when it reached the jobsite. It should
be noted that there is no evidence to show that all the transit
mixers arrived at the site within the allowable time that would
ensure the workability of the concrete mix delivered.
"On the other hand, there is sufficiently strong evidence to
show that difficulties were encountered in the pouring of
concrete mix from certain transit mixers necessitating the
[addition] of water and physically pushing the mix, obviously
because the same [was] no longer workable. This Tribunal
holds that the unworkability of said concrete mix has been
firmly established.
"There is no dispute, however, to the fact that there are
defects in some areas of the poured structures. In this
regard, this Tribunal holds that the only logical reason is that
the unworkable concrete was the one that was poured in the
defective sections."14
Third Issue:
Monetary Awards
Petitioner assails the monetary awards given by the arbitral
tribunal for alleged lack of basis in fact and in law. The
solicitor general counters that the basis for petitioners
assigned errors with regard to the monetary awards is purely
factual and beyond the review of this Court. Besides, Section
19, EO 1008, expressly provides that monetary awards by
the CIAC are final and unappealable.
We disagree with the solicitor general. As pointed out earlier,
factual findings of quasi-judicial bodies that have acquired
expertise are generally accorded great respect and even
finality, if they are supported by substantial evidence.15 The
Court, however, has consistently held that despite statutory

provisions making the decisions of certain administrative


agencies "final," it still takes cognizance of petitions showing
want of jurisdiction, grave abuse of discretion, violation of
due process, denial of substantial justice or erroneous
interpretation of the law.16 Voluntary arbitrators, by the
nature of their functions, act in a quasi-judicial capacity, such
that their decisions are within the scope of judicial review.17
Petitioner protests the award to respondent spouses of
P23,276.25 as excess payment with six percent interest
beginning September 26, 1995. It alleges that this item was
neither raised as an issue by the parties during the
arbitration case, nor was its justification discussed in the
CIAC Decision. It further contends that it could not be held
liable for interest, because it had earlier tendered a check in
the same amount to respondent spouses, who refused to
receive it.
Petitioners contentions are completely untenable.
Respondent Nelia G. Cid had already raised the issue of
overpayment even prior to the formal arbitration. In
paragraph 9 of the Terms of Reference, she stated:
"9. Claimants were assured that the problem and her
demands had been the subject of several staff meetings and
that Arteche was very much aware of it, a memorandum
having been submitted citing all the demands of [c]laimants.
This assurance was made on July 31, 1992 when
Respondents Secillano, Martillano and Lomibao came to see
Claimant Nelia Cid and offered to refund P23,276.25, [t]he
difference between the billing by Philrocks Marketing
Department in the amount of P125,586.25 and the amount
charged by Philrock's Batching Plant Department in the
amount of only P102,586.25, which [c]laimant refused to
accept by saying, Saka na lang."18
The same issue was discussed during the hearing before the
arbitration tribunal on December 19, 1995.19 It was also
mentioned in that tribunals Decision dated September 24,
1996.20
The payment of interest is based on Article 2209 of the Civil
Code, which provides that if the obligation consists of the
payment of a sum of money, and the debtor incurs delay, the
indemnity for damages shall be the payment of legal interest
which is six per cent per annum, in the absence of a
stipulation of the rate.
Awards for Retrofitting Costs, Wasted Unworkable
But Delivered Concrete, and Arbitration Fees
Petitioner maintains that the defects in the concrete structure
were due to respondent spouses failure to secure the
services of an engineer or architect to supervise their
project. Hence, it claims that the award for retrofitting cost
was without legal basis. It also denies liability for the wasted
unworkable but delivered concrete, for which the arbitral
court awarded P13,404.54. Finally, it complains against the
award of litigation expenses, inasmuch as the case should
not have been instituted at all had respondents complied
with the requirements of the National Building Code.
We are unconvinced. Not only did respondents disprove the
contention of petitioner; they also showed that they
sustained damages due to the defective concrete it had

delivered. These were items of actual damages they


sustained due to its breach of contract.
Moral and Nominal Damages, Attorneys Fees and Costs
Petitioner assails the award of moral damages, claiming no
malice or bad faith on its part.
We disagree. Respondents were deprived of the comfort and
the safety of a house and were exposed to the agony of
witnessing the wastage and the decay of the structure for
more than seven years. In her Memorandum, Respondent
Nelia G. Cid describes her familys sufferings arising from
the unreasonable delay in the construction of their
residence, as follows: "The family lives separately for lack of
space to stay in. Mrs. Cid is staying in a small dingy bodega,
while her son occupies another makeshift room. Their only
daughter stayed with her aunt from 1992 until she got
married in 1996. x x x."21 The Court also notes that during
the pendency of the case, Respondent Vicente Cid died
without seeing the completion of their home.22 Under the
circumstances, the award of moral damages is proper.
Petitioner also contends that nominal damages should not
have been granted, because it did not breach its obligation
to respondent spouses.
Nominal damages are recoverable only if no actual or
substantial damages resulted from the breach, or no
damage was or can be shown.23 Since actual damages have
been proven by private respondents for which they were
amply compensated, they are no longer entitled to nominal
damages.
Petitioner protests the grant of attorneys fees, arguing that
respondent spouses did not engage the services of legal
counsel. Also, it contends that attorneys fees and litigation
expenses are awarded only if the opposing party acted in
gross and evident bad faith in refusing to satisfy plaintiffs
valid, just and demandable claim.
We disagree. The award is not only for attorneys fees, but
also for expenses of litigation. Hence, it does not matter if
respondents represented themselves in court, because it is
obvious that they incurred expenses in pursuing their action
before the CIAC, as well as the regular and the appellate
courts. We find no reason to disturb this award.1wphi1.nt
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED; however, the award of nominal
damages is DELETED for lack of legal basis. Costs against
petitioner.
SO ORDERED.
G.R. No. 126619

December 20, 2006

UNIWIDE SALES REALTY AND RESOURCES


CORPORATION, petitioner,
vs.
TITAN-IKEDA CONSTRUCTION AND DEVELOPMENT
CORPORATION, respondent.

This Petition for Review on Certiorari under Rule 45 seeks


the partial reversal of the 21 February 1996 Decision1 of the
Court of Appeals Fifteenth Division in CA-G.R. SP No.
37957 which modified the 17 April 1995 Decision2 of the
Construction Industry Arbitration Commission (CIAC).

it is not liable to pay the Value-Added Tax (VAT) for Project


1; (c) it is entitled to liquidated damages for the delay
incurred in constructing Project 1 and Project 3; and (d) it
should not have been found liable for deficiencies in the
defectively constructed Project 2.

The case originated from an action for a sum of money filed


by Titan-Ikeda Construction and Development Corporation
(Titan) against Uniwide Sales Realty and Resources
Corporation (Uniwide) with the Regional Trial Court (RTC),
Branch 119,3 Pasay City arising from Uniwide's non-payment
of certain claims billed by Titan after completion of three
projects covered by agreements they entered into with each
other. Upon Uniwide's motion to dismiss/suspend
proceedings and Titan's open court manifestation agreeing
to the suspension, Civil Case No. 98-0814 was suspended
for it to undergo arbitration.4 Titan's complaint was thus refiled with the CIAC.5 Before the CIAC, Uniwide filed an
answer which was later amended and re-amended, denying
the material allegations of the complaint, with counterclaims
for refund of overpayments, actual and exemplary damages,
and attorney's fees. The agreements between Titan and
Uniwide are briefly described below.

An Arbitral Tribunal consisting of a chairman and two


members was created in accordance with the CIAC Rules of
Procedure Governing Construction Arbitration. It conducted
a preliminary conference with the parties and thereafter
issued a Terms of Reference (TOR) which was signed by
the parties. The tribunal also conducted an ocular inspection,
hearings, and received the evidence of the parties consisting
of affidavits which were subject to cross-examination. On 17
April 1995, after the parties submitted their respective
memoranda, the Arbitral Tribunal promulgated a Decision,11
the decretal portion of which is as follows:

PROJECT 1.6
The first agreement (Project 1) was a written "Construction
Contract" entered into by Titan and Uniwide sometime in
May 1991 whereby Titan undertook to construct Uniwide's
Warehouse Club and Administration Building in Libis,
Quezon City for a fee of P120,936,591.50, payable in
monthly progress billings to be certified to by Uniwide's
representative.7 The parties stipulated that the building shall
be completed not later than 30 November 1991. As found by
the CIAC, the building was eventually finished on 15
February 19928 and turned over to Uniwide.
PROJECT 2.
Sometime in July 1992, Titan and Uniwide entered into the
second agreement (Project 2) whereby the former agreed to
construct an additional floor and to renovate the latter's
warehouse located at the EDSA Central Market Area in
Mandaluyong City. There was no written contract executed
between the parties for this project. Construction was
allegedly to be on the basis of drawings and specifications
provided by Uniwide's structural engineers. The parties
proceeded on the basis of a cost estimate of P21,301,075.77
inclusive of Titan's 20% mark-up. Titan conceded in its
complaint to having received P15,000,000.00 of this amount.
This project was completed in the latter part of October 1992
and turned over to Uniwide.
PROJECT 3.9
The parties executed the third agreement (Project 3) in May
1992. In a written "Construction Contract," Titan undertook to
construct the Uniwide Sales Department Store Building in
Kalookan City for the price of P118,000,000.00 payable in
progress billings to be certified to by Uniwide's
representative.10 It was stipulated that the project shall be
completed not later than 28 February 1993. The project was
completed and turned over to Uniwide in June 1993.

"WHEREFORE, judgment is hereby rendered as follows:


On Project 1 Libis:
[Uniwide] is absolved of any liability for the claims made by
[Titan] on this Project.
Project 2 Edsa Central:
[Uniwide] is absolved of any liability for VAT payment on this
project, the same being for the account of the [Titan]. On the
other hand, [Titan] is absolved of any liability on the
counterclaim for defective construction of this project.
[Uniwide] is held liable for the unpaid balance in the amount
of P6,301,075.77 which is ordered to be paid to the [Titan]
with 12% interest per annum commencing from 19
December 1992 until the date of payment.
On Project 3 Kalookan:
[Uniwide] is held liable for the unpaid balance in the amount
of P5,158,364.63 which is ordered to be paid to the [Titan]
with 12% interest per annum commencing from 08
September 1993 until the date of payment.
[Uniwide] is held liable to pay in full the VAT on this project,
in such amount as may be computed by the Bureau of
Internal Revenue to be paid directly thereto. The BIR is
hereby notified that [Uniwide] Sales Realty and Resources
Corporation has assumed responsibility and is held liable for
VAT payment on this project. This accordingly exempts
Claimant Titan-Ikeda Construction and Development
Corporation from this obligation.
Let a copy of this Decision be furnished the Honorable
Aurora P. Navarette Recina, Presiding Judge, Branch 119,
Pasay City, in Civil Case No. 94-0814 entitled Titan-Ikeda
Construction Development Corporation, Plaintiff versus
Uniwide Sales Realty and Resources Corporation,
Defendant, pending before said court for information and
proper action.
SO ORDERED."12

Uniwide asserted in its petition that: (a) it overpaid Titan for


unauthorized additional works in Project 1 and Project 3; (b)

Uniwide filed a motion for reconsideration of the 17 April


1995 decision which was denied by the CIAC in its
Resolution dated 6 July 1995. Uniwide accordingly filed a
petition for review with the Court of Appeals,13 which
rendered the assailed decision on 21 February 1996.
Uniwide's motion for reconsideration was likewise denied by
the Court of Appeals in its assailed Resolution14 dated 30
September 1996.
Hence, Uniwide comes to this Court via a petition for review
under Rule 45. The issues submitted for resolution of this
Court are as follows:15 (1) Whether Uniwide is entitled to a
return of the amount it allegedly paid by mistake to Titan for
additional works done on Project 1; (2) Whether Uniwide is
liable for the payment of the Value-Added Tax (VAT) on
Project 1; (3) Whether Uniwide is entitled to liquidated
damages for Projects 1 and 3; and (4) Whether Uniwide is
liable for deficiencies in Project 2.

disposing of the detailed claims of the respective parties. In


Metro Construction, Inc. v. Chatham Properties, Inc.,25 we
reviewed the findings of fact of the Court of Appeals because
its findings on the issue of whether petitioner therein was in
delay were contrary to the findings of the CIAC. Finally, in
Megaworld Globus Asia, Inc. v. DSM Construction and
Development Corporation,26 we declined to depart from the
findings of the Arbitral Tribunal considering that the
computations, as well as the propriety of the awards, are
unquestionably factual issues that have been discussed by
the Arbitral Tribunal and affirmed by the Court of Appeals.
In the present case, only the first issue presented for
resolution of this Court is a question of law while the rest are
factual in nature. However, we do not hesitate to inquire into
these factual issues for the reason that the CIAC and the
Court of Appeals, in some matters, differed in their findings.
We now proceed to discuss the issues in seriatim.

As a rule, findings of fact of administrative agencies and


quasi-judicial bodies, which have acquired expertise
because their jurisdiction is confined to specific matters, are
generally accorded not only respect, but also finality,
especially when affirmed by the Court of Appeals.16 In
particular, factual findings of construction arbitrators are final
and conclusive and not reviewable by this Court on appeal.17
This rule, however admits of certain exceptions.
In David v. Construction Industry and Arbitration
Commission,18 we ruled that, as exceptions, factual findings
of construction arbitrators may be reviewed by this Court
when the petitioner proves affirmatively that: (1) the award
was procured by corruption, fraud or other undue means; (2)
there was evident partiality or corruption of the arbitrators or
of any of them; (3) the arbitrators were guilty of misconduct
in refusing to hear evidence pertinent and material to the
controversy; (4) one or more of the arbitrators were
disqualified to act as such under Section nine of Republic
Act No. 876 and willfully refrained from disclosing such
disqualifications or of any other misbehavior by which the
rights of any party have been materially prejudiced; or (5) the
arbitrators exceeded their powers, or so imperfectly
executed them, that a mutual, final and definite award upon
the subject matter submitted to them was not made.19
Other recognized exceptions are as follows: (1) when there
is a very clear showing of grave abuse of discretion20
resulting in lack or loss of jurisdiction as when a party was
deprived of a fair opportunity to present its position before
the Arbitral Tribunal or when an award is obtained through
fraud or the corruption of arbitrators,21 (2) when the findings
of the Court of Appeals are contrary to those of the CIAC, 22
and (3) when a party is deprived of administrative due
process.23
Thus, in Hi-Precision Steel Center, Inc. v. Lim Kim Builders,
Inc.,24 we refused to review the findings of fact of the CIAC
for the reason that petitioner was requiring the Court to go
over each individual claim and counterclaim submitted by the
parties in the CIAC. A review of the CIAC's findings of fact
would have had the effect of "setting at naught the basic
objective of a voluntary arbitration and would reduce
arbitration to a largely inutile institution." Further, petitioner
therein failed to show any serious error of law amounting to
grave abuse of discretion resulting in lack of jurisdiction on
the part of the Arbitral Tribunal, in either the methods
employed or the results reached by the Arbitral Tribunal, in

Payment by Mistake for Project 1


The first issue refers to the P5,823,481.75 paid by Uniwide
for additional works done on Project 1. Uniwide asserts that
Titan was not entitled to be paid this amount because the
additional works were without any written authorization.
It should be noted that the contracts do not contain
stipulations on "additional works," Uniwide's liability for
"additional works," and prior approval as a requirement
before Titan could perform "additional works."
Nonetheless, Uniwide cites Article (Art. ) 1724 of the New
Civil Code as basis for its claim that it is not liable to pay for
"additional works" it did not authorize or agree upon in
writing. The provision states:
Art. 1724. The contractor who undertakes to build a structure
or any other work for a stipulated price, in conformity with
plans and specifications agreed upon with the landowner,
can neither withdraw from the contract nor demand an
increase in the price on account of the higher cost of labor or
materials, save when there has been a change in the plans
and specifications, provided:
(1) Such change has been authorized by the proprietor in
writing; and
(2) The additional price to be paid to the contractor has been
determined in writing by both parties.
The Court of Appeals did take note of this provision, but
deemed it inapplicable to the case at bar because Uniwide
had already paid, albeit with unwritten reservations, for the
"additional works." The provision would have been operative
had Uniwide refused to pay for the costs of the "additional
works." Instead, the Court of Appeals applied Art. 142327 of
the New Civil Code and characterized Uniwide's payment of
the said amount as a voluntary fulfillment of a natural
obligation. The situation was characterized as being akin to
Uniwide being a debtor who paid a debt even while it knew
that it was not legally compelled to do so. As such debtor,
Uniwide could no longer demand the refund of the amount
already paid.

Uniwide counters that Art. 1724 makes no distinction as to


whether payment for the "additional works" had already been
made. It claims that it had made the payments, subject to
reservations, upon the false representation of Titan-Ikeda
that the "additional works" were authorized in writing.
Uniwide characterizes the payment as a "mistake," and not a
"voluntary" fulfillment under Art. 1423 of the Civil Code.
Hence, it urges the application, instead, of the principle of
solutio indebiti under Arts. 215428 and 215629 of the Civil
Code.

There would thus be some difficulty for this Court to agree


with this most basic premise submitted by Uniwide that it did
not authorize the additional works on Project 1 undertaken
by Titan. Still, Uniwide does cite testimonial evidence from
the record alluding to a concession by employees of Titan
that these additional works on Project 1 were either
authorized or documented.33

To be certain, this Court has not been wont to give an


expansive construction of Art. 1724, denying, for example,
claims that it applies to constructions made of ship vessels,30
or that it can validly deny the claim for payment of
professional fees to the architect.31 The present situation
though presents a thornier problem. Clearly, Art. 1724
denies, as a matter of right, payment to the contractor for
additional works which were not authorized in writing by the
proprietor, and the additional price of which was not
determined in writing by the parties.

Yet even conceding that the additional works on Project 1


were not authorized or committed into writing, the
undisputed fact remains that Uniwide paid for these
additional works. Thus, to claim a refund of payments made
under the principle of solutio indebiti, Uniwide must be able
to establish that these payments were made through
mistake. Again, this is a factual matter that would have
acquired a mantle of invulnerability had it been determined
by both the CIAC and the Court of Appeals. However, both
bodies failed to arrive at such a conclusion. Moreover,
Uniwide is unable to direct our attention to any pertinent part
of the record that would indeed establish that the payments
were made by reason of mistake.

Yet the distinction pointed out by the Court of Appeals is


material. The issue is no longer centered on the right of the
contractor to demand payment for additional works
undertaken because payment, whether mistaken or not, was
already made by Uniwide. Thus, it would not anymore be
incumbent on Titan to establish that it had the right to
demand or receive such payment.

We note that Uniwide alleged in its petition that the CIAC


award in favor of Titan in the amount P5,158,364.63 as the
unpaid balance in Project 3 included claims for additional
works of P1,087,214.18 for which no written authorization
was presented. Unfortunately, this issue was not included in
its memorandum as one of the issues submitted for the
resolution of the Court.

But, even if the Court accepts Art. 1724 as applicable in this


case, such recognition does not ipso facto accord Uniwide
the right to be reimbursed for payments already made, since
Art. 1724 does not effect such right of reimbursement. It has
to be understood that Art. 1724 does not preclude the
payment to the contractor who performs additional works
without any prior written authorization or agreement as to the
price for such works if the owner decides anyway to make
such payment. What the provision does preclude is the right
of the contractor to insist upon payment for unauthorized
additional works.

Liability for the Value-Added Tax (VAT)

Accordingly, Uniwide, as the owner who did pay the


contractor for such additional works even if they had not
been authorized in writing, has to establish its own right to
reimbursement not under Art. 1724, but under a different
provision of law. Uniwide's burden of establishing its legal
right to reimbursement becomes even more crucial in the
light of the general presumption contained in Section 3(f),
Rule 131 of the Rules of Court that "money paid by one to
another was due to the latter."
Uniwide undertakes such a task before this Court, citing the
provisions on solutio indebiti under Arts. 2154 and 2156 of
the Civil Code. However, it is not enough to prove that the
payments made by Uniwide to Titan were "not due" because
there was no prior authorization or agreement with respect to
additional works. There is a further requirement that the
payment by the debtor was made either through mistake or
under a cloud of doubt. In short, for the provisions on solutio
indebiti to apply, there has to be evidence establishing the
frame of mind of the payor at the time the payment was
made.32
The CIAC refused to acknowledge that the additional works
on Project 1 were indeed unauthorized by Uniwide. Neither
did the Court of Appeals arrive at a contrary determination.

The second issue takes us into an inquiry on who, under the


law, is liable for the payment of the VAT, in the absence of a
written stipulation on the matter. Uniwide claims that the VAT
was already included in the contract price for Project 1.
Citing Secs. 99 and 102 of the National Internal Revenue
Code, Uniwide asserts that VAT, being an indirect tax, may
be shifted to the buyer by including it in the cash or selling
price and it is entirely up to the buyer to agree or not to
agree to absorb the VAT.34 Thus, Uniwide concludes, if there
is no provision in the contract as to who should pay the VAT,
it is presumed that it would be the seller.35
The contract for Project 1 is silent on which party should
shoulder the VAT while the contract for Project 3 contained a
provision to the effect that Uniwide is the party responsible
for the payment of the VAT.36 Thus, when Uniwide paid the
amount of P2,400,000.00 as billed by Titan for VAT, it
assumed that it was the VAT for Project 3. However, the
CIAC and the Court of Appeals found that the same was for
Project 1.
We agree with the conclusions of both the CIAC and the
Court of Appeals that the amount of P2,400,000.00 was paid
by Uniwide as VAT for Project 1. This conclusion was drawn
from an Order of Payment37 dated 7 October 1992 wherein
Titan billed Uniwide the amount of P2,400,000.00 as "Value
Added Tax based on P60,000,000.00 Contract," computed
on the basis of 4% of P60,000,000.00. Said document which
was approved by the President of Uniwide expressly
indicated that the project involved was the "UNIWIDE
SALES WAREHOUSE CLUB & ADMIN BLDG." located at
"90 E. RODRIGUEZ JR. AVE., LIBIS, Q.C." The reduced
base for the computation of the tax, according to the Court of
Appeals, was an indication that the parties agreed to pass

the VAT for Project 1 to Uniwide but based on a lower


contract price. Indeed, the CIAC found as follows:

liberality because it was an administrative tribunal free from


the rigid technicalities of regular courts.42

Without any documentary evidence than Exhibit "H" to show


the extent of tax liability assumed by [Uniwide], the Tribunal
holds that the parties is [sic] obliged to pay only a share of
the VAT payment up to P60,000,000.00 out of the total
contract price of P120,936,591.50. As explained by Jimmy
Gow, VAT is paid on labor only for construction
contracts since VAT had already been paid on the
materials purchased. Since labor costs is [sic]
proportionately placed at 60%-40% of the contract price,
simplified accounting computes VAT at 4% of the
contract price. Whatever is the balance for VAT that
remains to be paid on Project 1 Libis shall remain the
obligation of [Titan]. (Emphasis supplied.)38

On this point, the CIAC held:

Liquidated Damages
On the third issue of liquidated damages, the CIAC rejected
such claim while the Court of Appeals held that the matter
should be left for determination in future proceedings where
the issue has been made clear.
In rejecting Uniwide's claim for liquidated damages, the
CIAC held that there is no legal basis for passing upon and
resolving Uniwide's claim for the following reasons: (1) no
claim for liquidated damages arising from the alleged delay
was ever made by Uniwide at any time before the
commencement of Titan's complaint; (2) the claim for
liquidated damages was not included in the counterclaims
stated in Uniwide's answer to Titan's complaint; (3) the claim
was not formulated as an issue to be resolved by the CIAC
in the TOR;39 and (4) no attempt was made to modify the
TOR to accommodate the same as an issue to be resolved.
Uniwide insists that the CIAC should have applied Section 5,
Rule 10 of the Rules of Court.40 On this matter, the Court of
Appeals held that the CIAC is an arbitration body, which is
not necessarily bound by the Rules of Court. Also, the Court
of Appeals found that the issue has never been made
concrete enough to make Titan and the CIAC aware that it
will be an issue. In fact, Uniwide only introduced and
quantified its claim for liquidated damages in its
Memorandum submitted to the CIAC at the end of the
arbitration proceeding. The Court of Appeals also noted that
the only evidence on record to prove delay in the
construction of Project 1 is the testimony of Titan's engineer
regarding the date of completion of the project while the only
evidence of delay in the construction of Project 3 is the
affidavit of Uniwide's President.
According to Uniwide, the ruling of the Court of Appeals on
the issue of liquidated damages goes against the
established judicial policy that a court should always strive to
settle in one proceeding the entire controversy leaving no
root or branch to bear the seeds of future litigations.41
Uniwide claims that the required evidence for an affirmative
ruling on its claim is already on the record. It cites the
pertinent provisions of the written contracts which contained
deadlines for liquidated damages. Uniwide also noted that
the evidence show that Project 1 was completed either on 15
February 1992, as found by the CIAC, or 12 March 1992, as
shown by Titan's own evidence, while Project 3, according to
Uniwide's President, was completed in June 1993.
Furthermore, Uniwide asserts, the CIAC should have applied
procedural rules such as Section 5, Rule 10 with more

The Rule of Procedure Governing Construction Arbitration


promulgated by the CIAC contains no provision on the
application of the Rules of Court to arbitration proceedings,
even in a suppletory capacity. Hypothetically admitting that
there is such a provision, suppletory application is made only
if it would not contravene a specific provision in the
arbitration rules and the spirit thereof. The Tribunal holds
that such importation of the Rules of Court provision on
amendment to conform to evidence would contravene
the spirit, if not the letter of the CIAC rules. This is for the
reason that the formulation of the Terms of Reference is
done with the active participation of the parties and their
counsel themselves. The TOR is further required to be
signed by all the parties, their respective counsel and all the
members of the Arbitral Tribunal. Unless the issues thus
carefully formulated in the Terms of Reference were
expressly showed [sic] to be amended, issues outside
thereof may not be resolved. As already noted in the
Decision, "no attempt was ever made by the [Uniwide] to
modify the TOR in order to accommodate the issues related
to its belated counterclaim" on this issue. (Emphasis
supplied.)
Arbitration has been defined as "an arrangement for taking
and abiding by the judgment of selected persons in some
disputed matter, instead of carrying it to established tribunals
of justice, and is intended to avoid the formalities, the delay,
the expense and vexation of ordinary litigation."43 Voluntary
arbitration, on the other hand, involves the reference of a
dispute to an impartial body, the members of which are
chosen by the parties themselves, which parties freely
consent in advance to abide by the arbitral award issued
after proceedings where both parties had the opportunity to
be heard. The basic objective is to provide a speedy and
inexpensive method of settling disputes by allowing the
parties to avoid the formalities, delay, expense and
aggravation which commonly accompany ordinary litigation,
especially litigation which goes through the entire hierarchy
of courts.44 As an arbitration body, the CIAC can only resolve
issues brought before it by the parties through the TOR
which functions similarly as a pre-trial brief. Thus, if
Uniwide's claim for liquidated damages was not raised as an
issue in the TOR or in any modified or amended version of it,
the CIAC cannot make a ruling on it. The Rules of Court
cannot be used to contravene the spirit of the CIAC rules,
whose policy and objective is to "provide a fair and
expeditious settlement of construction disputes through a
non-judicial process which ensures harmonious and friendly
relations between or among the parties."45
Further, a party may not be deprived of due process of law
by an amendment of the complaint as provided in Section 5,
Rule 10 of the Rules of Court. In this case, as noted by the
Court of Appeals, Uniwide only introduced and quantified its
claim for liquidated damages in its memorandum submitted
to the CIAC at the end of the arbitration proceeding. Verily,
Titan was not given a chance to present evidence to counter
Uniwide's claim for liquidated damages.
Uniwide alludes to an alleged judicial admission made by
Engr. Luzon Tablante wherein he stated that Project 1 was
completed on 10 March 1992. It now claims that by virtue of

Engr. Tablante's statement, Titan had admitted that it was in


delay. We disagree. The testimony of Engr. Tablante was
offered only to prove that Project 1 was indeed completed. It
was not offered to prove the fact of delay. It must be
remembered that the purpose for which evidence is offered
must be specified because such evidence may be
admissible for several purposes under the doctrine of
multiple admissibility, or may be admissible for one purpose
and not for another, otherwise the adverse party cannot
interpose the proper objection. Evidence submitted for one
purpose may not be considered for any other purpose.46
Furthermore, even assuming, for the sake of argument, that
said testimony on the date of completion of Project 1 is
admitted, the establishment of the mere fact of delay is not
sufficient for the imposition of liquidated damages. It must
further be shown that delay was attributable to the contractor
if not otherwise justifiable. Contrarily, Uniwide's belated claim
constitutes an admission that the delay was justified and
implies a waiver of its right to such damages.

the Court of Appeals, however, found the testimony of this


consultant suspect and ruled that the total contract price for
Project 2 is P21,301,075.77. The CIAC held:

Project 2: "as-built" plans, overpricing, defective construction

Indeed, Uniwide is bound by the amount indicated in the


above document. Claims of connivance or fraudulent
conspiracy between Titan and Uniwide's representatives
which, it is alleged, grossly exaggerated the price may
properly be dismissed. As held by the CIAC:

To determine whether or not Uniwide is liable for the unpaid


balance of P6,301,075.77 for Project 2, we need to resolve
four sub-issues, namely: (1) whether or not it was necessary
for Titan to submit "as-built" plans before it can be paid by
Uniwide; (2) whether or not there was overpricing of the
project; (3) whether or not the P15,000,000.00 paid by
Uniwide to Titan for Project 2 constitutes full payment; and
(4) whether or not Titan can be held liable for defective
construction of Project 2.
The CIAC, as affirmed by the Court of Appeals, held Uniwide
liable for deficiency relating to Project 2 in the amount of
P6,301,075.77. It is nonetheless alleged by Uniwide that
Titan failed to submit any "as-built" plans for Project 2, such
plans allegedly serving as a condition precedent for
payment. Uniwide further claims that Titan had substantially
overcharged Uniwide for Project 2, there being
uncontradicted expert testimony that the total cost of Project
2 did not exceed P7,812,123.60. Furthermore, Uniwide
alleged that the works performed were structurally defective,
as evidenced by the structural damage on four columns as
observed on ocular inspection by the CIAC and confirmed by
Titan's project manager.
On the necessity of submitting "as-built" plans, this Court
rules that the submission of such plans is not a pre-requisite
for Titan to be paid by Uniwide. The argument that said
plans are required by Section 308 of Presidential Decree No.
1098 (National Building Code) and by Section 2.11 of its
Implementing Rules before payment can be made is
untenable. The purpose of the law is "to safeguard life,
health, property, and public welfare, consistent with the
principles of sound environmental management and control."
The submission of these plans is necessary only in
furtherance of the law's purpose by setting minimum
standards and requirements to control the "location, site,
design, quality of materials, construction, use, occupancy,
and maintenance" of buildings constructed and not as a
requirement for payment to the contractor.47 The testimony
of Engr. Tablante to the effect that the "as-built" plans are
required before payment can be claimed by Titan is a mere
legal conclusion which is not binding on this Court.
Uniwide claims that, according to one of its consultants, the
true price for Project 2 is only P7,812,123.60. The CIAC and

The Cost Estimate for Architectural and Site Development


Works for the EDSA Central, Dau Branch Project (Exhibit "2A" for [Uniwide] and made as a common exhibit by [Titan]
who had it marked at [sic] its own Exhibit "U"), which was
admittedly prepared by Fermindoza and Associates,
[Uniwide]'s own architects, shows that the amount of
P17,750,896.48 was arrived at. Together with the agreed
upon mark-up of 20% on said amount, the total project cost
was P21,301,075.77.
The Tribunal holds that the foregoing document is binding
upon the [Uniwide], it being the mode agreed upon by which
its liability for the project cost was to be determined.48
(Emphasis supplied.)

The Tribunal holds that [Uniwide] has not introduced any


evidence to sustain its charge of fraudulent conspiracy. As a
matter of fact, [Uniwide]'s own principal witness, Jimmy Gow,
admitted on cross-examination that he does not have any
direct evidence to prove his charge of connivance or
complicity between the [Titan] and his own representatives.
He only made that conclusion by the process of his own
"logical reasoning" arising from his consultation with other
contractors who gave him a much lower estimate for the
construction of the Dau Project. There is thus no reason to
invalidate the binding character of Exhibit "2-A" which, it is
significant to point out, is [Uniwide]'s own evidence.49
(Emphasis supplied.)
Accordingly, deducting the P15,000,000.00 already paid by
Uniwide from the total contract price of P21,301,075.77, the
unpaid balance due for Project 2 is P6,301,075.77. This is
the same amount reflected in the Order of Payment
prepared by Uniwide's representative, Le Consultech, Inc.
and signed by no less than four top officers and architects of
Le Consultech, Inc. endorsing for payment by Uniwide to
Titan the amount of P6,301,075.77.50
Uniwide asserts that Titan should not have been allowed to
recover on Project 2 because the said project was defective
and would require repairs in the amount of P800,000.00. It
claims that the CIAC and the Court of Appeals should have
applied Nakpil and Sons v. Court of Appeals51 and Art. 1723
of the New Civil Code holding a contractor responsible for
damages if the edifice constructed falls within fifteen years
from completion on account of defects in the construction or
the use of materials of inferior quality furnished by him or
due to any violation of the terms of the contract.
On this matter, the CIAC conducted an ocular inspection of
the premises on 30 January 1995. What transpired in the
said ocular inspection is described thus:
On 30 January 1995, an ocular inspection was conducted by
the Arbitral Tribunal as requested by [Uniwide]. Photographs
were taken of the alleged construction defects, an actual

ripping off of the plaster of a certain column to expose the


alleged structural defect that is claimed to have resulted in
its being "heavily damaged" was done, clarificatory
questions were asked and manifestations on observations
were made by the parties and their respective counsels. The
entire proceedings were recorded on tape and subsequently
transcribed. The photographs and transcript of the ocular
inspection form part of the records and considered as
evidence.52
And, according to these evidence, the CIAC concluded as
follows:
It is likewise the holding of this Tribunal that [Uniwide]'s
counterclaim of defective construction has not been
sufficiently proven. The credibility of Engr. Cruz, [Uniwide]'s
principal witness on this issue, has been severely impaired.
During the ocular inspection of the premises, he gave such
assurance of the soundness of his opinion as an expert that
a certain column was heavily damaged judging from the
external cracks that was readily apparent x x x

arbitration and chose the arbitrators themselves; they must


have had confidence in such arbitrators. The Court will not,
therefore, permit the parties to relitigate before it the issues
of facts previously presented and argued before the Arbitral
Tribunal, save only where a clear showing is made that, in
reaching its factual conclusions, the Arbitral Tribunal
committed an error so egregious and hurtful to one party as
to constitute a grave abuse of discretion resulting in lack or
loss of jurisdiction. Prototypical examples would be factual
conclusions of the Tribunal which resulted in deprivation of
one or the other party of a fair opportunity to present its
position before the Arbitral Tribunal, and an award obtained
through fraud or the corruption of arbitrators. Any other,
more relaxed rule would result in setting at naught the basic
objective of a voluntary arbitration and would reduce
arbitration to a largely inutile institution. (Emphasis supplied.)
WHEREFORE, premises considered, the petition is DENIED
and the Decision of the Court of Appeals dated 21 February
1996 in CA-G.R. SP No. 37957 is hereby AFFIRMED.
SO ORDERED.

xxxx
G.R. No. 143581
On insistence of the Tribunal, the plaster was chipped off
and revealed a structurally sound column x x x
Further, it turns out that what was being passed off as a
defective construction by [Titan], was in fact an old column,
as admitted by Mr. Gow himself x x x x53 (Emphasis
supplied.)
Uniwide had the burden of proving that there was defective
construction in Project 2 but it failed to discharge this
burden. Even the credibility of its own witness was severely
impaired. Further, it was found that the concrete slab placed
by Titan was not attached to the old columns where cracks
were discovered. The CIAC held that the post-tensioning of
the new concrete slab could not have caused any of the
defects manifested by the old columns. We are bound by
this finding of fact by the CIAC.
It is worthy to stress our ruling in Hi-Precision Steel Center,
Inc. v. Lim Kim Steel Builders, Inc.54 which was reiterated in
David v. Construction Industry and Arbitration Commission, 55
that:
x x x Executive Order No. 1008 created an arbitration facility
to which the construction industry in the Philippines can have
recourse. The Executive Order was enacted to encourage
the early and expeditious settlement of disputes in the
construction industry, a public policy the
implementation of which is necessary and important for
the realization of national development goals.
Aware of the objective of voluntary arbitration in the labor
field, in the construction industry, and in any other area for
that matter, the Court will not assist one or the other or even
both parties in any effort to subvert or defeat that objective
for their private purposes. The Court will not review the
factual findings of an arbitral tribunal upon the artful
allegation that such body had "misapprehended facts" and
will not pass upon issues which are, at bottom, issues of
fact, no matter how cleverly disguised they might be as
"legal questions." The parties here had recourse to

January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner,


vs.
HON. ALBERTO A. LERMA, in his capacity as Presiding
Judge of Branch 256 of Regional Trial Court of
Muntinlupa City, and PACIFIC GENERAL STEEL
MANUFACTURING CORPORATION, respondents.
In our jurisdiction, the policy is to favor alternative methods
of resolving disputes, particularly in civil and commercial
disputes. Arbitration along with mediation, conciliation, and
negotiation, being inexpensive, speedy and less hostile
methods have long been favored by this Court. The petition
before us puts at issue an arbitration clause in a contract
mutually agreed upon by the parties stipulating that they
would submit themselves to arbitration in a foreign country.
Regrettably, instead of hastening the resolution of their
dispute, the parties wittingly or unwittingly prolonged the
controversy.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a
Korean corporation which is engaged in the supply and
installation of Liquefied Petroleum Gas (LPG) Cylinder
manufacturing plants, while private respondent Pacific
General Steel Manufacturing Corp. (PGSMC) is a domestic
corporation.
On March 5, 1997, PGSMC and KOGIES executed a
Contract1 whereby KOGIES would set up an LPG Cylinder
Manufacturing Plant in Carmona, Cavite. The contract was
executed in the Philippines. On April 7, 1997, the parties
executed, in Korea, an Amendment for Contract No. KLP970301 dated March 5, 19972 amending the terms of
payment. The contract and its amendment stipulated that
KOGIES will ship the machinery and facilities necessary for
manufacturing LPG cylinders for which PGSMC would pay
USD 1,224,000. KOGIES would install and initiate the
operation of the plant for which PGSMC bound itself to pay
USD 306,000 upon the plants production of the 11-kg. LPG
cylinder samples. Thus, the total contract price amounted to
USD 1,530,000.

On October 14, 1997, PGSMC entered into a Contract of


Lease3 with Worth Properties, Inc. (Worth) for use of Worths
5,079-square meter property with a 4,032-square meter
warehouse building to house the LPG manufacturing plant.
The monthly rental was PhP 322,560 commencing on
January 1, 1998 with a 10% annual increment clause.
Subsequently, the machineries, equipment, and facilities for
the manufacture of LPG cylinders were shipped, delivered,
and installed in the Carmona plant. PGSMC paid KOGIES
USD 1,224,000.
However, gleaned from the Certificate4 executed by the
parties on January 22, 1998, after the installation of the
plant, the initial operation could not be conducted as
PGSMC encountered financial difficulties affecting the
supply of materials, thus forcing the parties to agree that
KOGIES would be deemed to have completely complied with
the terms and conditions of the March 5, 1997 contract.
For the remaining balance of USD306,000 for the installation
and initial operation of the plant, PGSMC issued two
postdated checks: (1) BPI Check No. 0316412 dated
January 30, 1998 for PhP 4,500,000; and (2) BPI Check No.
0316413 dated March 30, 1998 for PhP 4,500,000.5
When KOGIES deposited the checks, these were
dishonored for the reason "PAYMENT STOPPED." Thus, on
May 8, 1998, KOGIES sent a demand letter6 to PGSMC
threatening criminal action for violation of Batas Pambansa
Blg. 22 in case of nonpayment. On the same date, the wife
of PGSMCs President faxed a letter dated May 7, 1998 to
KOGIES President who was then staying at a Makati City
hotel. She complained that not only did KOGIES deliver a
different brand of hydraulic press from that agreed upon but
it had not delivered several equipment parts already paid for.
On May 14, 1998, PGSMC replied that the two checks it
issued KOGIES were fully funded but the payments were
stopped for reasons previously made known to KOGIES.7
On June 1, 1998, PGSMC informed KOGIES that PGSMC
was canceling their Contract dated March 5, 1997 on the
ground that KOGIES had altered the quantity and lowered
the quality of the machineries and equipment it delivered to
PGSMC, and that PGSMC would dismantle and transfer the
machineries, equipment, and facilities installed in the
Carmona plant. Five days later, PGSMC filed before the
Office of the Public Prosecutor an Affidavit-Complaint for
Estafa docketed as I.S. No. 98-03813 against Mr. Dae Hyun
Kang, President of KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the
latter that PGSMC could not unilaterally rescind their
contract nor dismantle and transfer the machineries and
equipment on mere imagined violations by KOGIES. It also
insisted that their disputes should be settled by arbitration as
agreed upon in Article 15, the arbitration clause of their
contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating
the contents of its June 1, 1998 letter threatening that the
machineries, equipment, and facilities installed in the plant
would be dismantled and transferred on July 4, 1998. Thus,
on July 1, 1998, KOGIES instituted an Application for
Arbitration before the Korean Commercial Arbitration Board

(KCAB) in Seoul, Korea pursuant to Art. 15 of the Contract


as amended.
On July 3, 1998, KOGIES filed a Complaint for Specific
Performance, docketed as Civil Case No. 98-1178 against
PGSMC before the Muntinlupa City Regional Trial Court
(RTC). The RTC granted a temporary restraining order
(TRO) on July 4, 1998, which was subsequently extended
until July 22, 1998. In its complaint, KOGIES alleged that
PGSMC had initially admitted that the checks that were
stopped were not funded but later on claimed that it stopped
payment of the checks for the reason that "their value was
not received" as the former allegedly breached their contract
by "altering the quantity and lowering the quality of the
machinery and equipment" installed in the plant and failed to
make the plant operational although it earlier certified to the
contrary as shown in a January 22, 1998 Certificate.
Likewise, KOGIES averred that PGSMC violated Art. 15 of
their Contract, as amended, by unilaterally rescinding the
contract without resorting to arbitration. KOGIES also asked
that PGSMC be restrained from dismantling and transferring
the machinery and equipment installed in the plant which the
latter threatened to do on July 4, 1998.
On July 9, 1998, PGSMC filed an opposition to the TRO
arguing that KOGIES was not entitled to the TRO since Art.
15, the arbitration clause, was null and void for being against
public policy as it ousts the local courts of jurisdiction over
the instant controversy.
On July 17, 1998, PGSMC filed its Answer with Compulsory
Counterclaim9 asserting that it had the full right to dismantle
and transfer the machineries and equipment because it had
paid for them in full as stipulated in the contract; that
KOGIES was not entitled to the PhP 9,000,000 covered by
the checks for failing to completely install and make the plant
operational; and that KOGIES was liable for damages
amounting to PhP 4,500,000 for altering the quantity and
lowering the quality of the machineries and equipment.
Moreover, PGSMC averred that it has already paid PhP
2,257,920 in rent (covering January to July 1998) to Worth
and it was not willing to further shoulder the cost of renting
the premises of the plant considering that the LPG cylinder
manufacturing plant never became operational.
After the parties submitted their Memoranda, on July 23,
1998, the RTC issued an Order denying the application for a
writ of preliminary injunction, reasoning that PGSMC had
paid KOGIES USD 1,224,000, the value of the machineries
and equipment as shown in the contract such that KOGIES
no longer had proprietary rights over them. And finally, the
RTC held that Art. 15 of the Contract as amended was
invalid as it tended to oust the trial court or any other court
jurisdiction over any dispute that may arise between the
parties. KOGIES prayer for an injunctive writ was denied.10
The dispositive portion of the Order stated:
WHEREFORE, in view of the foregoing consideration, this
Court believes and so holds that no cogent reason exists for
this Court to grant the writ of preliminary injunction to restrain
and refrain defendant from dismantling the machineries and
facilities at the lot and building of Worth Properties,
Incorporated at Carmona, Cavite and transfer the same to
another site: and therefore denies plaintiffs application for a
writ of preliminary injunction.

On July 29, 1998, KOGIES filed its Reply to Answer and


Answer to Counterclaim.11 KOGIES denied it had altered the
quantity and lowered the quality of the machinery,
equipment, and facilities it delivered to the plant. It claimed
that it had performed all the undertakings under the contract
and had already produced certified samples of LPG
cylinders. It averred that whatever was unfinished was
PGSMCs fault since it failed to procure raw materials due to
lack of funds. KOGIES, relying on Chung Fu Industries
(Phils.), Inc. v. Court of Appeals,12 insisted that the
arbitration clause was without question valid.
After KOGIES filed a Supplemental Memorandum with
Motion to Dismiss13 answering PGSMCs memorandum of
July 22, 1998 and seeking dismissal of PGSMCs
counterclaims, KOGIES, on August 4, 1998, filed its Motion
for Reconsideration14 of the July 23, 1998 Order denying its
application for an injunctive writ claiming that the contract
was not merely for machinery and facilities worth USD
1,224,000 but was for the sale of an "LPG manufacturing
plant" consisting of "supply of all the machinery and facilities"
and "transfer of technology" for a total contract price of USD
1,530,000 such that the dismantling and transfer of the
machinery and facilities would result in the dismantling and
transfer of the very plant itself to the great prejudice of
KOGIES as the still unpaid owner/seller of the plant.
Moreover, KOGIES points out that the arbitration clause
under Art. 15 of the Contract as amended was a valid
arbitration stipulation under Art. 2044 of the Civil Code and
as held by this Court in Chung Fu Industries (Phils.), Inc.15
In the meantime, PGSMC filed a Motion for Inspection of
Things16 to determine whether there was indeed alteration of
the quantity and lowering of quality of the machineries and
equipment, and whether these were properly installed.
KOGIES opposed the motion positing that the queries and
issues raised in the motion for inspection fell under the
coverage of the arbitration clause in their contract.
On September 21, 1998, the trial court issued an Order (1)
granting PGSMCs motion for inspection; (2) denying
KOGIES motion for reconsideration of the July 23, 1998
RTC Order; and (3) denying KOGIES motion to dismiss
PGSMCs compulsory counterclaims as these counterclaims
fell within the requisites of compulsory counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for
Reconsideration17 of the September 21, 1998 RTC Order
granting inspection of the plant and denying dismissal of
PGSMCs compulsory counterclaims.
Ten days after, on October 12, 1998, without waiting for the
resolution of its October 2, 1998 urgent motion for
reconsideration, KOGIES filed before the Court of Appeals
(CA) a petition for certiorari18 docketed as CA-G.R. SP No.
49249, seeking annulment of the July 23, 1998 and
September 21, 1998 RTC Orders and praying for the
issuance of writs of prohibition, mandamus, and preliminary
injunction to enjoin the RTC and PGSMC from inspecting,
dismantling, and transferring the machineries and equipment
in the Carmona plant, and to direct the RTC to enforce the
specific agreement on arbitration to resolve the dispute.
In the meantime, on October 19, 1998, the RTC denied
KOGIES urgent motion for reconsideration and directed the
Branch Sheriff to proceed with the inspection of the

machineries and equipment in the plant on October 28,


1998.19
Thereafter, KOGIES filed a Supplement to the Petition20 in
CA-G.R. SP No. 49249 informing the CA about the October
19, 1998 RTC Order. It also reiterated its prayer for the
issuance of the writs of prohibition, mandamus and
preliminary injunction which was not acted upon by the CA.
KOGIES asserted that the Branch Sheriff did not have the
technical expertise to ascertain whether or not the
machineries and equipment conformed to the specifications
in the contract and were properly installed.
On November 11, 1998, the Branch Sheriff filed his Sheriffs
Report21 finding that the enumerated machineries and
equipment were not fully and properly installed.
The Court of Appeals affirmed the trial court and
declared
the arbitration clause against public policy
On May 30, 2000, the CA rendered the assailed Decision22
affirming the RTC Orders and dismissing the petition for
certiorari filed by KOGIES. The CA found that the RTC did
not gravely abuse its discretion in issuing the assailed July
23, 1998 and September 21, 1998 Orders. Moreover, the CA
reasoned that KOGIES contention that the total contract
price for USD 1,530,000 was for the whole plant and had not
been fully paid was contrary to the finding of the RTC that
PGSMC fully paid the price of USD 1,224,000, which was for
all the machineries and equipment. According to the CA, this
determination by the RTC was a factual finding beyond the
ambit of a petition for certiorari.
On the issue of the validity of the arbitration clause, the CA
agreed with the lower court that an arbitration clause which
provided for a final determination of the legal rights of the
parties to the contract by arbitration was against public
policy.
On the issue of nonpayment of docket fees and nonattachment of a certificate of non-forum shopping by
PGSMC, the CA held that the counterclaims of PGSMC
were compulsory ones and payment of docket fees was not
required since the Answer with counterclaim was not an
initiatory pleading. For the same reason, the CA said a
certificate of non-forum shopping was also not required.
Furthermore, the CA held that the petition for certiorari had
been filed prematurely since KOGIES did not wait for the
resolution of its urgent motion for reconsideration of the
September 21, 1998 RTC Order which was the plain,
speedy, and adequate remedy available. According to the
CA, the RTC must be given the opportunity to correct any
alleged error it has committed, and that since the assailed
orders were interlocutory, these cannot be the subject of a
petition for certiorari.
Hence, we have this Petition for Review on Certiorari under
Rule 45.
The Issues
Petitioner posits that the appellate court committed the
following errors:

a. PRONOUNCING THE QUESTION OF OWNERSHIP


OVER THE MACHINERY AND FACILITIES AS "A
QUESTION OF FACT" "BEYOND THE AMBIT OF A
PETITION FOR CERTIORARI" INTENDED ONLY FOR
CORRECTION OF ERRORS OF JURISDICTION OR
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OF (SIC) EXCESS OF JURISDICTION, AND CONCLUDING
THAT THE TRIAL COURTS FINDING ON THE SAME
QUESTION WAS IMPROPERLY RAISED IN THE
PETITION BELOW;
b. DECLARING AS NULL AND VOID THE ARBITRATION
CLAUSE IN ARTICLE 15 OF THE CONTRACT BETWEEN
THE PARTIES FOR BEING "CONTRARY TO PUBLIC
POLICY" AND FOR OUSTING THE COURTS OF
JURISDICTION;
c. DECREEING PRIVATE RESPONDENTS
COUNTERCLAIMS TO BE ALL COMPULSORY NOT
NECESSITATING PAYMENT OF DOCKET FEES AND
CERTIFICATION OF NON-FORUM SHOPPING;
d. RULING THAT THE PETITION WAS FILED
PREMATURELY WITHOUT WAITING FOR THE
RESOLUTION OF THE MOTION FOR
RECONSIDERATION OF THE ORDER DATED
SEPTEMBER 21, 1998 OR WITHOUT GIVING THE TRIAL
COURT AN OPPORTUNITY TO CORRECT ITSELF;
e. PROCLAIMING THE TWO ORDERS DATED JULY 23
AND SEPTEMBER 21, 1998 NOT TO BE PROPER
SUBJECTS OF CERTIORARI AND PROHIBITION FOR
BEING "INTERLOCUTORY IN NATURE;"
f. NOT GRANTING THE RELIEFS AND REMEDIES
PRAYED FOR IN HE (SIC) PETITION AND, INSTEAD,
DISMISSING THE SAME FOR ALLEGEDLY "WITHOUT
MERIT."23
The Courts Ruling
The petition is partly meritorious.
Before we delve into the substantive issues, we shall first
tackle the procedural issues.
The rules on the payment of docket fees for
counterclaims
and cross claims were amended effective August 16,
2004
KOGIES strongly argues that when PGSMC filed the
counterclaims, it should have paid docket fees and filed a
certificate of non-forum shopping, and that its failure to do so
was a fatal defect.
We disagree with KOGIES.
As aptly ruled by the CA, the counterclaims of PGSMC were
incorporated in its Answer with Compulsory Counterclaim
dated July 17, 1998 in accordance with Section 8 of Rule 11,
1997 Revised Rules of Civil Procedure, the rule that was
effective at the time the Answer with Counterclaim was filed.
Sec. 8 on existing counterclaim or cross-claim states, "A

compulsory counterclaim or a cross-claim that a defending


party has at the time he files his answer shall be contained
therein."
On July 17, 1998, at the time PGSMC filed its Answer
incorporating its counterclaims against KOGIES, it was not
liable to pay filing fees for said counterclaims being
compulsory in nature. We stress, however, that effective
August 16, 2004 under Sec. 7, Rule 141, as amended by
A.M. No. 04-2-04-SC, docket fees are now required to be
paid in compulsory counterclaim or cross-claims.
As to the failure to submit a certificate of forum shopping,
PGSMCs Answer is not an initiatory pleading which requires
a certification against forum shopping under Sec. 524 of Rule
7, 1997 Revised Rules of Civil Procedure. It is a responsive
pleading, hence, the courts a quo did not commit reversible
error in denying KOGIES motion to dismiss PGSMCs
compulsory counterclaims.
Interlocutory orders proper subject of certiorari
Citing Gamboa v. Cruz,25 the CA also pronounced that
"certiorari and Prohibition are neither the remedies to
question the propriety of an interlocutory order of the trial
court."26 The CA erred on its reliance on Gamboa. Gamboa
involved the denial of a motion to acquit in a criminal case
which was not assailable in an action for certiorari since the
denial of a motion to quash required the accused to plead
and to continue with the trial, and whatever objections the
accused had in his motion to quash can then be used as part
of his defense and subsequently can be raised as errors on
his appeal if the judgment of the trial court is adverse to him.
The general rule is that interlocutory orders cannot be
challenged by an appeal.27 Thus, in Yamaoka v. Pescarich
Manufacturing Corporation, we held:
The proper remedy in such cases is an ordinary appeal from
an adverse judgment on the merits, incorporating in said
appeal the grounds for assailing the interlocutory orders.
Allowing appeals from interlocutory orders would result in the
sorry spectacle of a case being subject of a
counterproductive ping-pong to and from the appellate court
as often as a trial court is perceived to have made an error in
any of its interlocutory rulings. However, where the assailed
interlocutory order was issued with grave abuse of discretion
or patently erroneous and the remedy of appeal would not
afford adequate and expeditious relief, the Court allows
certiorari as a mode of redress.28
Also, appeals from interlocutory orders would open the
floodgates to endless occasions for dilatory motions. Thus,
where the interlocutory order was issued without or in
excess of jurisdiction or with grave abuse of discretion, the
remedy is certiorari.29
The alleged grave abuse of discretion of the respondent
court equivalent to lack of jurisdiction in the issuance of the
two assailed orders coupled with the fact that there is no
plain, speedy, and adequate remedy in the ordinary course
of law amply provides the basis for allowing the resort to a
petition for certiorari under Rule 65.

Prematurity of the petition before the CA


Neither do we think that KOGIES was guilty of forum
shopping in filing the petition for certiorari. Note that
KOGIES motion for reconsideration of the July 23, 1998
RTC Order which denied the issuance of the injunctive writ
had already been denied. Thus, KOGIES only remedy was
to assail the RTCs interlocutory order via a petition for
certiorari under Rule 65.
While the October 2, 1998 motion for reconsideration of
KOGIES of the September 21, 1998 RTC Order relating to
the inspection of things, and the allowance of the
compulsory counterclaims has not yet been resolved, the
circumstances in this case would allow an exception to the
rule that before certiorari may be availed of, the petitioner
must have filed a motion for reconsideration and said motion
should have been first resolved by the court a quo. The
reason behind the rule is "to enable the lower court, in the
first instance, to pass upon and correct its mistakes without
the intervention of the higher court."30
The September 21, 1998 RTC Order directing the branch
sheriff to inspect the plant, equipment, and facilities when he
is not competent and knowledgeable on said matters is
evidently flawed and devoid of any legal support. Moreover,
there is an urgent necessity to resolve the issue on the
dismantling of the facilities and any further delay would
prejudice the interests of KOGIES. Indeed, there is real and
imminent threat of irreparable destruction or substantial
damage to KOGIES equipment and machineries. We find
the resort to certiorari based on the gravely abusive orders
of the trial court sans the ruling on the October 2, 1998
motion for reconsideration to be proper.
The Core Issue: Article 15 of the Contract
We now go to the core issue of the validity of Art. 15 of the
Contract, the arbitration clause. It provides:
Article 15. Arbitration.All disputes, controversies, or
differences which may arise between the parties, out of or in
relation to or in connection with this Contract or for the
breach thereof, shall finally be settled by arbitration in Seoul,
Korea in accordance with the Commercial Arbitration Rules
of the Korean Commercial Arbitration Board. The award
rendered by the arbitration(s) shall be final and binding
upon both parties concerned. (Emphasis supplied.)
Petitioner claims the RTC and the CA erred in ruling that the
arbitration clause is null and void.
Petitioner is correct.
Established in this jurisdiction is the rule that the law of the
place where the contract is made governs. Lex loci
contractus. The contract in this case was perfected here in
the Philippines. Therefore, our laws ought to govern.
Nonetheless, Art. 2044 of the Civil Code sanctions the
validity of mutually agreed arbitral clause or the finality and
binding effect of an arbitral award. Art. 2044 provides, "Any
stipulation that the arbitrators award or decision shall
be final, is valid, without prejudice to Articles 2038, 2039
and 2040." (Emphasis supplied.)

Arts. 2038,31 2039,32 and 204033 abovecited refer to


instances where a compromise or an arbitral award, as
applied to Art. 2044 pursuant to Art. 2043,34 may be voided,
rescinded, or annulled, but these would not denigrate the
finality of the arbitral award.
The arbitration clause was mutually and voluntarily agreed
upon by the parties. It has not been shown to be contrary to
any law, or against morals, good customs, public order, or
public policy. There has been no showing that the parties
have not dealt with each other on equal footing. We find no
reason why the arbitration clause should not be respected
and complied with by both parties. In Gonzales v. Climax
Mining Ltd.,35 we held that submission to arbitration is a
contract and that a clause in a contract providing that all
matters in dispute between the parties shall be referred to
arbitration is a contract.36 Again in Del Monte CorporationUSA v. Court of Appeals, we likewise ruled that "[t]he
provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of that
contract and is itself a contract."37
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration
must be done in Seoul, Korea in accordance with the
Commercial Arbitration Rules of the KCAB, and that the
arbitral award is final and binding, is not contrary to public
policy. This Court has sanctioned the validity of arbitration
clauses in a catena of cases. In the 1957 case of Eastboard
Navigation Ltd. v. Juan Ysmael and Co., Inc.,38 this Court
had occasion to rule that an arbitration clause to resolve
differences and breaches of mutually agreed contractual
terms is valid. In BF Corporation v. Court of Appeals, we
held that "[i]n this jurisdiction, arbitration has been held valid
and constitutional. Even before the approval on June 19,
1953 of Republic Act No. 876, this Court has countenanced
the settlement of disputes through arbitration. Republic Act
No. 876 was adopted to supplement the New Civil Codes
provisions on arbitration."39 And in LM Power Engineering
Corporation v. Capitol Industrial Construction Groups, Inc.,
we declared that:
Being an inexpensive, speedy and amicable method of
settling disputes, arbitrationalong with mediation,
conciliation and negotiationis encouraged by the Supreme
Court. Aside from unclogging judicial dockets, arbitration
also hastens the resolution of disputes, especially of the
commercial kind. It is thus regarded as the "wave of the
future" in international civil and commercial disputes.
Brushing aside a contractual agreement calling for arbitration
between the parties would be a step backward.
Consistent with the above-mentioned policy of encouraging
alternative dispute resolution methods, courts should
liberally construe arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the asserted
dispute, an order to arbitrate should be granted. Any doubt
should be resolved in favor of arbitration.40
Having said that the instant arbitration clause is not against
public policy, we come to the question on what governs an
arbitration clause specifying that in case of any dispute
arising from the contract, an arbitral panel will be constituted
in a foreign country and the arbitration rules of the foreign
country would govern and its award shall be final and
binding.

RA 9285 incorporated the UNCITRAL Model law


to which we are a signatory
For domestic arbitration proceedings, we have particular
agencies to arbitrate disputes arising from contractual
relations. In case a foreign arbitral body is chosen by the
parties, the arbitration rules of our domestic arbitration
bodies would not be applied. As signatory to the Arbitration
Rules of the UNCITRAL Model Law on International
Commercial Arbitration41 of the United Nations Commission
on International Trade Law (UNCITRAL) in the New York
Convention on June 21, 1985, the Philippines committed
itself to be bound by the Model Law. We have even
incorporated the Model Law in Republic Act No. (RA) 9285,
otherwise known as the Alternative Dispute Resolution Act of
2004 entitled An Act to Institutionalize the Use of an
Alternative Dispute Resolution System in the Philippines and
to Establish the Office for Alternative Dispute Resolution,
and for Other Purposes, promulgated on April 2, 2004. Secs.
19 and 20 of Chapter 4 of the Model Law are the pertinent
provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL
ARBITRATION
SEC. 19. Adoption of the Model Law on International
Commercial Arbitration.International commercial
arbitration shall be governed by the Model Law on
International Commercial Arbitration (the "Model Law")
adopted by the United Nations Commission on International
Trade Law on June 21, 1985 (United Nations Document
A/40/17) and recommended for enactment by the General
Assembly in Resolution No. 40/72 approved on December
11, 1985, copy of which is hereto attached as Appendix "A".
SEC. 20. Interpretation of Model Law.In interpreting the
Model Law, regard shall be had to its international origin and
to the need for uniformity in its interpretation and resort may
be made to the travaux preparatories and the report of the
Secretary General of the United Nations Commission on
International Trade Law dated March 25, 1985 entitled,
"International Commercial Arbitration: Analytical
Commentary on Draft Trade identified by reference number
A/CN. 9/264."
While RA 9285 was passed only in 2004, it nonetheless
applies in the instant case since it is a procedural law which
has a retroactive effect. Likewise, KOGIES filed its
application for arbitration before the KCAB on July 1, 1998
and it is still pending because no arbitral award has yet been
rendered. Thus, RA 9285 is applicable to the instant case.
Well-settled is the rule that procedural laws are construed to
be applicable to actions pending and undetermined at the
time of their passage, and are deemed retroactive in that
sense and to that extent. As a general rule, the retroactive
application of procedural laws does not violate any personal
rights because no vested right has yet attached nor arisen
from them.42
Among the pertinent features of RA 9285 applying and
incorporating the UNCITRAL Model Law are the following:
(1) The RTC must refer to arbitration in proper cases
Under Sec. 24, the RTC does not have jurisdiction over
disputes that are properly the subject of arbitration pursuant

to an arbitration clause, and mandates the referral to


arbitration in such cases, thus:
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.
(2) Foreign arbitral awards must be confirmed by the
RTC
Foreign arbitral awards while mutually stipulated by the
parties in the arbitration clause to be final and binding are
not immediately enforceable or cannot be implemented
immediately. Sec. 3543 of the UNCITRAL Model Law
stipulates the requirement for the arbitral award to be
recognized by a competent court for enforcement, which
court under Sec. 36 of the UNCITRAL Model Law may
refuse recognition or enforcement on the grounds provided
for. RA 9285 incorporated these provisos to Secs. 42, 43,
and 44 relative to Secs. 47 and 48, thus:
SEC. 42. Application of the New York Convention.The
New York Convention shall govern the recognition and
enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards
shall be filed with the Regional Trial Court in accordance
with the rules of procedure to be promulgated by the
Supreme Court. Said procedural rules shall provide that the
party relying on the award or applying for its enforcement
shall file with the court the original or authenticated copy of
the award and the arbitration agreement. If the award or
agreement is not made in any of the official languages, the
party shall supply a duly certified translation thereof into any
of such languages.
The applicant shall establish that the country in which foreign
arbitration award was made in party to the New York
Convention.
xxxx
SEC. 43. Recognition and Enforcement of Foreign Arbitral
Awards Not Covered by the New York Convention.The
recognition and enforcement of foreign arbitral awards not
covered by the New York Convention shall be done in
accordance with procedural rules to be promulgated by the
Supreme Court. The Court may, on grounds of comity and
reciprocity, recognize and enforce a non-convention award
as a convention award.
SEC. 44. Foreign Arbitral Award Not Foreign Judgment.A
foreign arbitral award when confirmed by a court of a foreign
country, shall be recognized and enforced as a foreign
arbitral award and not as a judgment of a foreign court.
A foreign arbitral award, when confirmed by the Regional
Trial Court, shall be enforced in the same manner as final
and executory decisions of courts of law of the Philippines

xxxx
SEC. 47. Venue and Jurisdiction.Proceedings for
recognition and enforcement of an arbitration agreement or
for vacations, setting aside, correction or modification of an
arbitral award, and any application with a court for arbitration
assistance and supervision shall be deemed as special
proceedings and shall be filed with the Regional Trial Court
(i) where arbitration proceedings are conducted; (ii) where
the asset to be attached or levied upon, or the act to be
enjoined is located; (iii) where any of the parties to the
dispute resides or has his place of business; or (iv) in the
National Judicial Capital Region, at the option of the
applicant.
SEC. 48. Notice of Proceeding to Parties.In a special
proceeding for recognition and enforcement of an arbitral
award, the Court shall send notice to the parties at their
address of record in the arbitration, or if any part cannot be
served notice at such address, at such partys last known
address. The notice shall be sent al least fifteen (15) days
before the date set for the initial hearing of the application.
It is now clear that foreign arbitral awards when confirmed by
the RTC are deemed not as a judgment of a foreign court
but as a foreign arbitral award, and when confirmed, are
enforced as final and executory decisions of our courts of
law.
Thus, it can be gleaned that the concept of a final and
binding arbitral award is similar to judgments or awards
given by some of our quasi-judicial bodies, like the National
Labor Relations Commission and Mines Adjudication Board,
whose final judgments are stipulated to be final and binding,
but not immediately executory in the sense that they may still
be judicially reviewed, upon the instance of any party.
Therefore, the final foreign arbitral awards are similarly
situated in that they need first to be confirmed by the RTC.
(3) The RTC has jurisdiction to review foreign arbitral
awards
Sec. 42 in relation to Sec. 45 of RA 9285 designated and
vested the RTC with specific authority and jurisdiction to set
aside, reject, or vacate a foreign arbitral award on grounds
provided under Art. 34(2) of the UNCITRAL Model Law.
Secs. 42 and 45 provide:
SEC. 42. Application of the New York Convention.The
New York Convention shall govern the recognition and
enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards
shall be filed with the Regional Trial Court in accordance
with the rules of procedure to be promulgated by the
Supreme Court. Said procedural rules shall provide that the
party relying on the award or applying for its enforcement
shall file with the court the original or authenticated copy of
the award and the arbitration agreement. If the award or
agreement is not made in any of the official languages, the
party shall supply a duly certified translation thereof into any
of such languages.

The applicant shall establish that the country in which foreign


arbitration award was made is party to the New York
Convention.
If the application for rejection or suspension of enforcement
of an award has been made, the Regional Trial Court may, if
it considers it proper, vacate its decision and may also, on
the application of the party claiming recognition or
enforcement of the award, order the party to provide
appropriate security.
xxxx
SEC. 45. Rejection of a Foreign Arbitral Award.A party to
a foreign arbitration proceeding may oppose an application
for recognition and enforcement of the arbitral award in
accordance with the procedures and rules to be promulgated
by the Supreme Court only on those grounds enumerated
under Article V of the New York Convention. Any other
ground raised shall be disregarded by the Regional Trial
Court.
Thus, while the RTC does not have jurisdiction over disputes
governed by arbitration mutually agreed upon by the parties,
still the foreign arbitral award is subject to judicial review by
the RTC which can set aside, reject, or vacate it. In this
sense, what this Court held in Chung Fu Industries (Phils.),
Inc. relied upon by KOGIES is applicable insofar as the
foreign arbitral awards, while final and binding, do not oust
courts of jurisdiction since these arbitral awards are not
absolute and without exceptions as they are still judicially
reviewable. Chapter 7 of RA 9285 has made it clear that all
arbitral awards, whether domestic or foreign, are subject to
judicial review on specific grounds provided for.
(4) Grounds for judicial review different in domestic and
foreign arbitral awards
The differences between a final arbitral award from an
international or foreign arbitral tribunal and an award given
by a local arbitral tribunal are the specific grounds or
conditions that vest jurisdiction over our courts to review the
awards.
For foreign or international arbitral awards which must first
be confirmed by the RTC, the grounds for setting aside,
rejecting or vacating the award by the RTC are provided
under Art. 34(2) of the UNCITRAL Model Law.
For final domestic arbitral awards, which also need
confirmation by the RTC pursuant to Sec. 23 of RA 87644
and shall be recognized as final and executory decisions of
the RTC,45 they may only be assailed before the RTC and
vacated on the grounds provided under Sec. 25 of RA 876.46
(5) RTC decision of assailed foreign arbitral award
appealable
Sec. 46 of RA 9285 provides for an appeal before the CA as
the remedy of an aggrieved party in cases where the RTC
sets aside, rejects, vacates, modifies, or corrects an arbitral
award, thus:

SEC. 46. Appeal from Court Decision or Arbitral Awards.A


decision of the Regional Trial Court confirming, vacating,
setting aside, modifying or correcting an arbitral award may
be appealed to the Court of Appeals in accordance with the
rules and procedure to be promulgated by the Supreme
Court.
The losing party who appeals from the judgment of the court
confirming an arbitral award shall be required by the
appellate court to post a counterbond executed in favor of
the prevailing party equal to the amount of the award in
accordance with the rules to be promulgated by the
Supreme Court.
Thereafter, the CA decision may further be appealed or
reviewed before this Court through a petition for review
under Rule 45 of the Rules of Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA 9285, PGSMC
must submit to the foreign arbitration as it bound itself
through the subject contract. While it may have misgivings
on the foreign arbitration done in Korea by the KCAB, it has
available remedies under RA 9285. Its interests are duly
protected by the law which requires that the arbitral award
that may be rendered by KCAB must be confirmed here by
the RTC before it can be enforced.
With our disquisition above, petitioner is correct in its
contention that an arbitration clause, stipulating that the
arbitral award is final and binding, does not oust our courts
of jurisdiction as the international arbitral award, the award of
which is not absolute and without exceptions, is still judicially
reviewable under certain conditions provided for by the
UNCITRAL Model Law on ICA as applied and incorporated
in RA 9285.
Finally, it must be noted that there is nothing in the subject
Contract which provides that the parties may dispense with
the arbitration clause.
Unilateral rescission improper and illegal
Having ruled that the arbitration clause of the subject
contract is valid and binding on the parties, and not contrary
to public policy; consequently, being bound to the contract of
arbitration, a party may not unilaterally rescind or terminate
the contract for whatever cause without first resorting to
arbitration.
What this Court held in University of the Philippines v. De
Los Angeles47 and reiterated in succeeding cases,48 that the
act of treating a contract as rescinded on account of
infractions by the other contracting party is valid albeit
provisional as it can be judicially assailed, is not applicable
to the instant case on account of a valid stipulation on
arbitration. Where an arbitration clause in a contract is
availing, neither of the parties can unilaterally treat the
contract as rescinded since whatever infractions or breaches
by a party or differences arising from the contract must be
brought first and resolved by arbitration, and not through an
extrajudicial rescission or judicial action.

The issues arising from the contract between PGSMC and


KOGIES on whether the equipment and machineries
delivered and installed were properly installed and
operational in the plant in Carmona, Cavite; the ownership of
equipment and payment of the contract price; and whether
there was substantial compliance by KOGIES in the
production of the samples, given the alleged fact that
PGSMC could not supply the raw materials required to
produce the sample LPG cylinders, are matters proper for
arbitration. Indeed, we note that on July 1, 1998, KOGIES
instituted an Application for Arbitration before the KCAB in
Seoul, Korea pursuant to Art. 15 of the Contract as
amended. Thus, it is incumbent upon PGSMC to abide by its
commitment to arbitrate.
Corollarily, the trial court gravely abused its discretion in
granting PGSMCs Motion for Inspection of Things on
September 21, 1998, as the subject matter of the motion is
under the primary jurisdiction of the mutually agreed arbitral
body, the KCAB in Korea.
In addition, whatever findings and conclusions made by the
RTC Branch Sheriff from the inspection made on October
28, 1998, as ordered by the trial court on October 19, 1998,
is of no worth as said Sheriff is not technically competent to
ascertain the actual status of the equipment and machineries
as installed in the plant.
For these reasons, the September 21, 1998 and October 19,
1998 RTC Orders pertaining to the grant of the inspection of
the equipment and machineries have to be recalled and
nullified.
Issue on ownership of plant proper for arbitration
Petitioner assails the CA ruling that the issue petitioner
raised on whether the total contract price of USD 1,530,000
was for the whole plant and its installation is beyond the
ambit of a Petition for Certiorari.
Petitioners position is untenable.
It is settled that questions of fact cannot be raised in an
original action for certiorari.49 Whether or not there was full
payment for the machineries and equipment and installation
is indeed a factual issue prohibited by Rule 65.
However, what appears to constitute a grave abuse of
discretion is the order of the RTC in resolving the issue on
the ownership of the plant when it is the arbitral body
(KCAB) and not the RTC which has jurisdiction and authority
over the said issue. The RTCs determination of such factual
issue constitutes grave abuse of discretion and must be
reversed and set aside.
RTC has interim jurisdiction to protect the rights of the
parties
Anent the July 23, 1998 Order denying the issuance of the
injunctive writ paving the way for PGSMC to dismantle and
transfer the equipment and machineries, we find it to be in
order considering the factual milieu of the instant case.

Firstly, while the issue of the proper installation of the


equipment and machineries might well be under the primary
jurisdiction of the arbitral body to decide, yet the RTC under
Sec. 28 of RA 9285 has jurisdiction to hear and grant interim
measures to protect vested rights of the parties. Sec. 28
pertinently provides:
SEC. 28. Grant of interim Measure of Protection.(a) It is
not incompatible with an arbitration agreement for a
party to request, before constitution of the tribunal, from
a Court to grant such measure. After constitution of the
arbitral tribunal and during arbitral proceedings, a request for
an interim measure of protection, or modification thereof,
may be made with the arbitral or to the extent that the
arbitral tribunal has no power to act or is unable to act
effectivity, the request may be made with the Court. The
arbitral tribunal is deemed constituted when the sole
arbitrator or the third arbitrator, who has been nominated,
has accepted the nomination and written communication of
said nomination and acceptance has been received by the
party making the request.

Art. 17(2) of the UNCITRAL Model Law on ICA defines an


"interim measure" of protection as:
Article 17. Power of arbitral tribunal to order
interim measures
xxx xxx xxx
(2) An interim measure is any temporary measure, whether
in the form of an award or in another form, by which, at any
time prior to the issuance of the award by which the dispute
is finally decided, the arbitral tribunal orders a party to:
(a) Maintain or restore the status quo pending determination
of the dispute;
(b) Take action that would prevent, or refrain from taking
action that is likely to cause, current or imminent harm or
prejudice to the arbitral process itself;

(b) The following rules on interim or provisional relief shall be


observed:

(c) Provide a means of preserving assets out of which a


subsequent award may be satisfied; or

Any party may request that provisional relief be granted


against the adverse party.

(d) Preserve evidence that may be relevant and material to


the resolution of the dispute.

Such relief may be granted:

Art. 17 J of UNCITRAL Model Law on ICA also grants courts


power and jurisdiction to issue interim measures:

(i) to prevent irreparable loss or injury;


Article 17 J. Court-ordered interim measures
(ii) to provide security for the performance of any obligation;
(iii) to produce or preserve any evidence; or
(iv) to compel any other appropriate act or omission.
(c) The order granting provisional relief may be conditioned
upon the provision of security or any act or omission
specified in the order.
(d) Interim or provisional relief is requested by written
application transmitted by reasonable means to the Court or
arbitral tribunal as the case may be and the party against
whom the relief is sought, describing in appropriate detail the
precise relief, the party against whom the relief is requested,
the grounds for the relief, and the evidence supporting the
request.
(e) The order shall be binding upon the parties.
(f) Either party may apply with the Court for assistance in
implementing or enforcing an interim measure ordered by an
arbitral tribunal.
(g) A party who does not comply with the order shall be
liable for all damages resulting from noncompliance,
including all expenses, and reasonable attorney's fees, paid
in obtaining the orders judicial enforcement. (Emphasis
ours.)

A court shall have the same power of issuing an interim


measure in relation to arbitration proceedings, irrespective of
whether their place is in the territory of this State, as it has in
relation to proceedings in courts. The court shall exercise
such power in accordance with its own procedures in
consideration of the specific features of international
arbitration.
In the recent 2006 case of Transfield Philippines, Inc. v.
Luzon Hydro Corporation, we were explicit that even "the
pendency of an arbitral proceeding does not foreclose resort
to the courts for provisional reliefs." We explicated this way:
As a fundamental point, the pendency of arbitral proceedings
does not foreclose resort to the courts for provisional reliefs.
The Rules of the ICC, which governs the parties arbitral
dispute, allows the application of a party to a judicial
authority for interim or conservatory measures. Likewise,
Section 14 of Republic Act (R.A.) No. 876 (The Arbitration
Law) recognizes the rights of any party to petition the court
to take measures to safeguard and/or conserve any matter
which is the subject of the dispute in arbitration. In addition,
R.A. 9285, otherwise known as the "Alternative Dispute
Resolution Act of 2004," allows the filing of provisional or
interim measures with the regular courts whenever the
arbitral tribunal has no power to act or to act effectively. 50
It is thus beyond cavil that the RTC has authority and
jurisdiction to grant interim measures of protection.
Secondly, considering that the equipment and machineries
are in the possession of PGSMC, it has the right to protect

and preserve the equipment and machineries in the best


way it can. Considering that the LPG plant was nonoperational, PGSMC has the right to dismantle and transfer
the equipment and machineries either for their protection
and preservation or for the better way to make good use of
them which is ineluctably within the management discretion
of PGSMC.
Thirdly, and of greater import is the reason that maintaining
the equipment and machineries in Worths property is not to
the best interest of PGSMC due to the prohibitive rent while
the LPG plant as set-up is not operational. PGSMC was
losing PhP322,560 as monthly rentals or PhP3.87M for 1998
alone without considering the 10% annual rent increment in
maintaining the plant.
Fourthly, and corollarily, while the KCAB can rule on motions
or petitions relating to the preservation or transfer of the
equipment and machineries as an interim measure, yet on
hindsight, the July 23, 1998 Order of the RTC allowing the
transfer of the equipment and machineries given the nonrecognition by the lower courts of the arbitral clause, has
accorded an interim measure of protection to PGSMC which
would otherwise been irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already
been paid a substantial amount based on the contract.
Moreover, KOGIES is amply protected by the arbitral action
it has instituted before the KCAB, the award of which can be
enforced in our jurisdiction through the RTC. Besides, by our
decision, PGSMC is compelled to submit to arbitration
pursuant to the valid arbitration clause of its contract with
KOGIES.
PGSMC to preserve the subject equipment and
machineries
Finally, while PGSMC may have been granted the right to
dismantle and transfer the subject equipment and
machineries, it does not have the right to convey or dispose
of the same considering the pending arbitral proceedings to
settle the differences of the parties. PGSMC therefore must
preserve and maintain the subject equipment and
machineries with the diligence of a good father of a family51
until final resolution of the arbitral proceedings and
enforcement of the award, if any.
WHEREFORE, this petition is PARTLY GRANTED, in that:
(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249
is REVERSED and SET ASIDE;
(2) The September 21, 1998 and October 19, 1998 RTC
Orders in Civil Case No. 98-117 are REVERSED and SET
ASIDE;
(3) The parties are hereby ORDERED to submit themselves
to the arbitration of their dispute and differences arising from
the subject Contract before the KCAB; and
(4) PGSMC is hereby ALLOWED to dismantle and transfer
the equipment and machineries, if it had not done so, and
ORDERED to preserve and maintain them until the finality of
whatever arbitral award is given in the arbitration
proceedings.

No pronouncement as to costs.
SO ORDERED.
G.R. No. 136154

February 7, 2001

DEL MONTE CORPORATION-USA, PAUL E. DERBY, JR.,


DANIEL COLLINS and LUIS HIDALGO, petitioners,
vs.
COURT OF APPEALS, JUDGE BIENVENIDO L. REYES in
his capacity as Presiding Judge, RTC-Br. 74, Malabon,
Metro Manila, MONTEBUENO MARKETING, INC., LIONG
LIONG C. SY and SABROSA FOODS, INC., respondents.
This Petition for Review on certiorari assails the 17 July
1998 Decision1 of the Court of Appeals affirming the 11
November 1997 Order2 of the Regional Trial Court which
denied petitioners' Motion to Suspend Proceedings in Civil
Case No. 2637-MN. It also questions the appellate court's
Resolution3 of 30 October 1998 which denied petitioners'
Motion for Reconsideration.
On 1 July 1994, in a Distributorship Agreement, petitioner
Del Monte Corporation-USA (DMC-USA) appointed private
respondent Montebueno Marketing, Inc. (MMI) as the sole
and exclusive distributor of its Del Monte products in the
Philippines for a period of five (5) years, renewable for two
(2) consecutive five (5) year periods with the consent of the
parties. The agreement provided, among others, for an
arbitration clause which states
12. GOVERNING LAW AND ARBITRATION4
This Agreement shall be governed by the laws of the State
of California and/or, if applicable, the United States of
America. All disputes arising out of or relating to this
Agreement or the parties' relationship, including the
termination thereof, shall be resolved by arbitration in the
City of San Francisco, State of California, under the Rules of
the American Arbitration Association. The arbitration panel
shall consist of three members, one of whom shall be
selected by DMC-USA, one of whom shall be selected by
MMI, and third of whom shall be selected by the other two
members and shall have relevant experience in the industry
xxxx
In October 1994 the appointment of private respondent MMI
as the sole and exclusive distributor of Del Monte products in
the Philippines was published in several newspapers in the
country. Immediately after its appointment, private
respondent MMI appointed Sabrosa Foods, Inc. (SFI), with
the approval of petitioner DMC-USA, as MMI's marketing
arm to concentrate on its marketing and selling function as
well as to manage its critical relationship with the trade.
On 3 October 1996 private respondents MMI, SFI and MMI's
Managing Director Liong Liong C. Sy (LILY SY) filed a
Complaint5 against petitioners DMC-USA, Paul E. Derby,
Jr.,6 Daniel Collins7 and Luis Hidalgo,8 and Dewey Ltd.9
before the Regional Trial Court of Malabon, Metro Manila.
Private respondents predicated their complaint on the
alleged violations by petitioners of Arts. 20,10 2111 and 2312 of
the Civil Code. According to private respondents, DMC-USA
products continued to be brought into the country by parallel
importers despite the appointment of private respondent

MMI as the sole and exclusive distributor of Del Monte


products thereby causing them great embarrassment and
substantial damage. They alleged that the products brought
into the country by these importers were aged, damaged,
fake or counterfeit, so that in March 1995 they had to cause,
after prior consultation with Antonio Ongpin, Market Director
for Special Markets of Del Monte Philippines, Inc., the
publication of a "warning to the trade" paid advertisement in
leading newspapers. Petitioners DMC-USA and Paul E.
Derby, Jr., apparently upset with the publication, instructed
private respondent MMI to stop coordinating with Antonio
Ongpin and to communicate directly instead with petitioner
DMC-USA through Paul E. Derby, Jr.
Private respondents further averred that petitioners
knowingly and surreptitiously continued to deal with the
former in bad faith by involving disinterested third parties and
by proposing solutions which were entirely out of their
control. Private respondents claimed that they had
exhausted all possible avenues for an amicable resolution
and settlement of their grievances; that as a result of the
fraud, bad faith, malice and wanton attitude of petitioners,
they should be held responsible for all the actual expenses
incurred by private respondents in the delayed shipment of
orders which resulted in the extra handling thereof, the
actual expenses and cost of money for the unused Letters of
Credit (LCs) and the substantial opportunity losses due to
created out-of-stock situations and unauthorized shipments
of Del Monte-USA products to the Philippine Duty Free Area
and Economic zone; that the bad faith, fraudulent acts and
willful negligence of petitioners, motivated by their
determination to squeeze private respondents out of the
outstanding and ongoing Distributorship Agreement in favor
of another party, had placed private respondent LILY SY on
tenterhooks since then; and, that the shrewd and subtle
manner with which petitioners concocted imaginary
violations by private respondent MMI of the Distributorship
Agreement in order to justify the untimely termination thereof
was a subterfuge. For the foregoing, private respondents
claimed, among other reliefs, the payment of actual
damages, exemplary damages, attorney's fees and litigation
expenses.
On 21 October 1996 petitioners filed a Motion to Suspend
Proceedings13 invoking the arbitration clause in their
Agreement with private respondents.1wphi1.nt
In a Resolution14 dated 23 December 1996 the trial court
deferred consideration of petitioners' Motion to Suspend
Proceedings as the grounds alleged therein did not
constitute the suspension of the proceedings considering
that the action was for damages with prayer for the issuance
of Writ of Preliminary Attachment and not on the
Distributorship Agreement.
On 15 January 1997 petitioners filed a Motion for
Reconsideration to which respondents filed their
Comment/Opposition. On 31 January 1997 petitioners filed
their Reply. Subsequently, private respondents filed an
Urgent Motion for Leave to Admit Supplemental Pleading
dated 2 April 1997. This Motion was admitted, over
petitioners' opposition, in an Order of the trial court dated 27
June 1997.
As a result of the admission of the Supplemental Complaint,
petitioners filed on 22 July 1997 a Manifestation adopting

their Motion to Suspend Proceedings of 17 October 1996


and Motion for Reconsideration of 14 January 1997.
On 11 November 1997 the Motion to Suspend Proceedings
was denied by the trial court on the ground that it "will not
serve the ends of justice and to allow said suspension will
only delay the determination of the issues, frustrate the
quest of the parties for a judicious determination of their
respective claims, and/or deprive and delay their rights to
seek redress."15
On appeal, the Court of appeals affirmed the decision of the
trial court. It held that the alleged damaging acts recited in
the Complaint, constituting petitioners' causes of action,
required the interpretation of Art. 21 of the Civil Code16 and
that in determining whether petitioners had violated it "would
require a full blown trial" making arbitration "out of the
question."17 Petitioners' Motion for Reconsideration of the
affirmation was denied. Hence, this Petition for Review.
The crux of the controversy boils down to whether the
dispute between the parties warrants an order compelling
them to submit to arbitration.
Petitioners contend that the subject matter of private
respondents' causes of action arises out of or relates to the
Agreement between petitioners and private respondents.
Thus, considering that the arbitration clause of the
Agreement provides that all disputes arising out of or relating
to the Agreement or the parties' relationship, including the
termination thereof, shall be resolved by arbitration, they
insist on the suspension of the proceedings in Civil Case No.
2637-MN as mandated by Sec. 7 of RA 87618
Sec. 7. Stay of Civil Action. If any suit or proceeding be
brought upon an issue arising out of an agreement providing
for arbitration thereof, the court in which such suit or
proceeding is pending, upon being satisfied that the issue
involved in such suit or proceeding is referable to arbitration,
shall stay the action or proceeding until an arbitration has
been had in accordance with the terms of the agreement.
Provided, That the applicant for the stay is not in default in
proceeding with such arbitration.
Private respondents claim, on the other hand, that their
causes of action are rooted in Arts. 20, 21 and 23 of the Civil
Code,19 the determination of which demands a full blown
trial, as correctly held by the Court of Appeals. Moreover,
they claim that the issues before the trial court were not
joined so that the Honorable Judge was not given the
opportunity to satisfy himself that the issue involved in the
case was referable to arbitration. They submit that,
apparently, petitioners filed a motion to suspend proceedings
instead of sending a written demand to private respondents
to arbitrate because petitioners were not sure whether the
case could be a subject of arbitration. They maintain that
had petitioners done so and private respondents failed to
answer the demand, petitioners could have filed with the trial
court their demand for arbitration that would warrant a
determination by the judge whether to refer the case to
arbitration. Accordingly, private respondents assert that
arbitration is out of the question.
Private respondents further contend that the arbitration
clause centers more on venue rather than on arbitration.
They finally allege that petitioners filed their motion for

extension of time to file this petition on the same date20


petitioner DMC-USA filed a petition to compel private
respondent MMI to arbitrate before the United States District
Court in Northern California, docketed as Case No. C-984446. They insist that the filing of the petition to compel
arbitration in the United States made the petition filed before
this Court an alternative remedy and, in a way, an
abandonment of the cause they are fighting for her in the
Philippines, thus warranting the dismissal of the present
petition before this Court.
There is no doubt that arbitration is valid and constitutional in
our jurisdiction.21 Even before the enactment of RA 876, this
Court has countenanced the settlement of disputes through
arbitration. Unless the agreement is such as absolutely to
close the doors of the courts against the parties, which
agreement would be void, the courts will look with favor upon
such amicable arrangement and will only interfere with great
reluctance to anticipate or nullify the action of the arbitrator. 22
Moreover, as RA 876 expressly authorizes arbitration of
domestic disputes, foreign arbitration as a system of settling
commercial disputes 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.23
A careful examination of the instant case shows that the
arbitration clause in the Distributorship Agreement between
petitioner DMC-USA and private respondent MMI is valid
and the dispute between the parties is arbitrable. However,
this Court must deny the petition.
The Agreement between petitioner DMC-USA and private
respondent MMI is a contract. The provision to submit to
arbitration any dispute arising therefrom and the relationship
of the parties is part of that contract and is itself a contract.
As a rule, contracts are respected as the law between the
contracting parties and produce effect as between them,
their assigns and heirs.24 Clearly, only parties to the
Agreement, i.e., petitioners DMC-USA and its Managing
Director for Export Sales Paul E. Derby, Jr., and private
respondents MMI and its Managing Director LILY SY are
bound by the Agreement and its arbitration clause as they
are the only signatories thereto. Petitioners Daniel Collins
and Luis Hidalgo, and private respondent SFI, not parties to
the Agreement and cannot even be considered assigns or
heirs of the parties, are not bound by the Agreement and the
arbitration clause therein. Consequently, referral to
arbitration in the State of California pursuant to the
arbitration clause and the suspension of the proceedings in
Civil Case No. 2637-MN pending the return of the arbitral
award could be called for25 but only as to petitioners DMCUSA and Paul E. Derby, Jr., and private respondents MMI
and LILY SY, and not as to the other parties in this case.
This is consistent with the recent case of Heirs of Augusto L.
Salas, Jr. v. Laperal Realty Corporation,26 which superseded
that of Toyota Motor Philippines Corp. v. Court of Appeals.27
In Toyota, the Court ruled that "[t]he contention that the
arbitration clause has become dysfunctional because of the
presence of third parties is untenable" ratiocinating that
"[c]ontracts are respected as the law between the
contracting parties"28 and that "[a]s such, the parties are
thereby expected to abide with good faith in their contractual

commitments."29 However, in Salas, Jr., only parties to the


Agreement, their assigns or heirs have the right to arbitrate
or could be compelled to arbitrate. The Court went further by
declaring that in recognizing the right of the contracting
parties to arbitrate or to compel arbitration, the splitting of the
proceedings to arbitration as to some of the parties on one
hand and trial for the others on the other hand, or the
suspension of trial pending arbitration between some of the
parties, should not be allowed as it would, in effect, result in
multiplicity of suits, duplicitous procedure and unnecessary
delay.30
The object of arbitration is to allow the expeditious
determination of a dispute.31 Clearly, the issue before us
could not be speedily and efficiently resolved in its entirety if
we allow simultaneous arbitration proceedings and trial, or
suspension of trial pending arbitration. Accordingly, the
interest of justice would only be served if the trial court hears
and adjudicates the case in a single and complete
proceeding.32
WHEREFORE, the petition is DENIED. The Decision of the
Court of Appeals affirming the Order of the Regional Trial
Court of Malabon, Metro Manila, in Civil Case No. 2637-MN,
which denied petitioners' Motion to Suspend Proceedings, is
AFFIRMED. The Regional Trial Court concerned is directed
to proceed with the hearing of Civil Case No. 2637-MN with
dispatch. No costs.
SO ORDERED.
G.R. No. 178008
October 9, 2013
SAN FERNANDO REGALA TRADING, INC., Petitioner,
vs.
CARGILL PHILIPPINES, INC., Respondent.
x-----------------------x
G.R. No. 178042
CARGILL PHILIPPINES, INC., Petitioner,
vs.
SAN FERNANDO REGALA TRADING, INC., Respondent.
These cases pertain to the reciprocal obligations of the
parties in a contract of sale to deliver the goods, receive
them, and pay the price as stipulated and the consequent
effects of breach of such obligations.
The facts and the Case
Cargill Philippines, Inc. (Cargill) and San Fernando Regala
Trading, Inc. (San Fernando) were cane molasses traders
that did business with each other for sometime. The present
controversy arose when San Fernando claimed that Cargill
reneged on its contractual obligations to deliver certain
quantities of molasses. Cargill denied this, insisting that San
Fernando actually refused to accept the delivery of the
goods. This enmity resulted in Cargills filing on March 2,
1998 a complaint for sum of money and damages against
San Fernando before the Regional Trial Court (RTC) of
Makati City in Civil Case 98-493.
Cargill alleged that on July 15, 1996 it entered into Contract
50261 covering its sale to San Fernando of 4,000 metric tons
(mt) of molasses at the price of P3,950.00 per mt. Cargill
agreed to deliver the molasses within the months of "April to
May 1997" at the wharf of Union Ajinomoto, Inc.(Ajinomoto)
along the Pasig River, Metro Manila. This was a risk-taking

forward sale in that its execution was to take place about 10


months later when the parties did not yet know what the
trading price of molasses would be.

had a contract to sell the molasses to Ajinomoto for


P5,300.00 per mt.4 San Fernando expected to earn a
P5,400,000.00 profit out of Contract 5026.

Shortly after, Cargill also entered into Contract 50472


covering another sale to San Fernando of 5,000 mt of
molasses at P2,750.00 per mt. The delivery period under
this contract was within "October-November-December
1996," sooner than the delivery period under Contract 5026.
Apparently, San Fernando had a deal with Ajinomoto for the
supply of these molasses.

As for Contract 5047, San Fernando maintained that Cargill


delivered no amount of molasses in connection with the
same. Cargill admitted its inability to deliver the goods when
it wrote San Fernando a letter on May 14,1997, proposing to
move the delivery period from "October-NovemberDecember 1996" to "May-June-July 1997." But San
Fernando also rejected the change since it had already
contracted to sell the subject molasses to Ajinomoto for
P4,950.00 per mt.5 San Fernando expected a profit of
P11,000,000.00 under this contract.

Cargill further alleged that it offered to deliver the 4,000 mt of


molasses as required by Contract 5026 within the months of
April and May1997 but San Fernando accepted only 951 mt,
refusing to accept the rest. On April 2, 1997 Dolman V, the
barge carrying Cargills 1,174 mt of molasses, arrived at the
Ajinomoto wharf but San Fernando refused to accept the
same. The barge stayed at the wharf for 71 days, waiting for
San Fernandos unloading order. Because of the delay, the
owner of the barges lapped Cargill with demurrage
amounting to P920,000.00. Cargill also suffered
P3,480,000.00 in damages by way of unrealized profits
because it had to sell the cargo to another buyer at a loss.
Cargill further alleged that it earlier sought to deliver the
molasses covered by Contract 5047 at the Ajinomoto wharf
in the months of October, November, and December 1996,
but San Fernando failed or refused for unjustified reasons to
accept the delivery. Consequently, Cargill suffered damages
by way of unrealized profits of P360,000.00 from this
contract. Apart from asking the RTC for awards of unrealized
profits, Cargill also asked for a return of the demurrage it
paid, attorneys fees, and cost of litigation.
To substantiate its claim, Cargill presented David Mozo of
Dolman Transport Corp. who testified that Cargill chartered
its Dolman V barge to carry molasses from Pasacao to the
Ajinomoto wharf in Pasig. But the barge was unable to
unload its cargo and was placed on stand-by for around
70days, awaiting orders to unload its molasses.
Consequently, Dolman Transport charged Cargill for
demurrage.
Cargill also presented Arthur Gunlao, an employee, who
testified that his company was unable to unload the
molasses covered by Contracts 5026and 5047 because San
Fernandos President, Quirino Kehyeng, advised them to
wait because Ajinomotos storage tanks were still full and
could not receive the molasses. Because of the prolonged
delay in the unloading of the goods, Cargill had no choice
but to sell the molasses to another buyer. At the prodding of
Kehyeng, Cargill wrote San Fernando on May 14, 1997
proposing changes in the delivery periods of Contract 5026
and 5047,respectively from "April to May 1997" to "May to
June 1997" and from" October-November-December 1996"
to "May-June-July 1997."3 The amendments were needed to
keep the contracts valid and maintain the good business
relations between the two companies.
In its Answer with counterclaim, San Fernando pointed out
that, except for the 951 mt of molasses that Cargill delivered
in March 1997, the latter made no further deliveries for
Contract 5026. Indeed, Cargill sent San Fernando a letter
dated May 14, 1997 proposing a change in the delivery
period for that contract from "April to May 1997" to "May to
June 1997."But San Fernando rejected the change since it

To prove its claims, San Fernando presented its President,


Kehyeng, who testified that apart from the March 1997
delivery of 951 mt of molasses under Contract 5026, Cargill
made no further deliveries. He called Dennis Seah of Cargill
several times demanding delivery but nothing came of it.
Subsequently, Cargill wrote San Fernando, proposing the
extension of the delivery periods provided in their two
contracts. But Kehyeng rejected the proposal and refused to
sign his conformity at the appropriate spaces on Cargills
letter.
Kehyeng denied that San Fernando had refused to receive
deliveries because it bought molasses from Cargill at prices
higher than what Ajinomoto was willing to pay. Kehyeng
insisted that San Fernando had always received Cargills
deliveries even on occasions when the prices fluctuated
resulting in losses to his company. He claimed that, as a
result of Cargills violation of Contracts 5026 and 5047, San
Fernando was entitled to rescission and awards for
unrealized profits of P4,115,329.20 and P11,000,000.00,
respectively, moral and exemplary damages each in the
amount of P500,000.00, attorneys fees of P1,000,000.00,
and litigation expenses.
On December 23, 2003 the RTC dismissed Cargills
complaint for lack of merit and granted San Fernandos
counterclaims. The RTC did not give credence to Cargills
claim that San Fernando refused to accept the deliveries of
molasses because Ajinomotos tanks were full. San
Fernando sufficiently proved that Ajinomoto continued
receiving molasses from other suppliers during the entire
time that Cargills chartered barge was put on stand-by at
the wharf, supposedly waiting for San Fernandos unloading
orders.
It was incomprehensible, said the RTC, for San Fernando to
refuse Cargills deliveries, considering that Ajinomoto had
already agreed to buy the molasses from it. Cargills failure
to make the required deliveries resulted in San Fernandos
default on its obligations to Ajinomoto, prompting the latter to
cancel its orders. As a result, San Fernando lost expected
profits of P4,115,329.20 representing the remaining
undelivered molasses under Contract 5026 and
P11,000,000.00 under Contract 5047.The RTC awarded San
Fernando its claims for unrealized profits,P500,000.00 in
moral damages, another P500,000.00 in exemplary
damages, attorneys fees of P1,000,000.00, and
P500,000.00 as cost of litigation.
The Court of Appeals (CA) ruled on appeal, however, that
Cargill was not entirely in breach of Contract 5026. Cargill
made an advance delivery of 951 mt in March 1997. It then

actually sent a barge containing 1,174 mt of molasses on


April 2, 1997 for delivery at Ajinomotos wharf but San
Fernando refused to have the cargo unloaded.
Consequently, the trial court erred in awarding San
Fernando unrealized profits of P4,115,329.20 under Contract
5026. The CA also ruled that since San Fernando
unjustifiably refused to accept the April 2, 1997 delivery, it
should reimburse Cargill theP892,732.50 demurrage that it
paid the owner of the barge.
The CA, however, found Cargill guilty of breach of Contract
5047which called for delivery of the molasses in "OctoberNovember-December 1996." Since San Fernando did not
accede to Cargills request to move the delivery period back,
Cargill violated the contract when it did not deliver the goods
during the previously agreed period. Cargill was liable to San
Fernando for unrealized profits of P11,000,000.00 that it
would have made if it had sold them to Ajinomoto. The CA
deleted the award of moral and exemplary damages in favor
of San Fernando for its failure to sufficiently establish
Cargills bad faith in complying with its obligations. The CA
also deleted the awards of attorneys fees and cost of
litigation.
The CA thus ordered: 1) San Fernando to reimburse Cargill
the demurrage of P892,732.50 that it paid, subject to 6%
interest per annum computed from the date of the filing of
the complaint until the finality of the decision; and 2) Cargill
to pay San Fernando P11,000,000.00 in unrealized profits
under Contract 5047. The CA deleted the award of moral
and exemplary damages, attorneys fees, and cost of
litigation. This prompted both Cargill and San Fernando to
appeal to this Court.
Issues for Resolution

mt of molasses during the agreed period, Cargill should be


regarded as having violated Contract 5026 with respect to
the undelivered balance of 1,875 mt of molasses.
Notably, Chargills chartered barge showed up with 1,174 mt
of molasses at the Ajinomoto wharf on April 27, 1997. The
barge stayed therefor around 70 days, awaiting orders to
unload the cargo. David Mozo of Dolman Transport Corp.
attested to this. Dolman V was put on stand-by at the wharf
while other barges queued to unload their molasses into
Ajinomotos storage tanks.7
In failing to accept delivery of Cargills 1,174molasses, San
Fernando should reimburse Cargill the P892,732.50
demurrage that it paid.
Ultimately, what are the liabilities of the parties under
Contract 5026?Had San Fernando accepted the delivery of
1,174 mt of molasses on April27, 1997 Cargill would have
been entitled to payment of their price of P4,637,300.00 at
P3,950.00 per mt. But, since Cargill succeeded in selling that
1,174 mt of molasses to Schuurmans & Van Ginneken for
P1,861.92 per mt.8 Cargills unrealized profit then amounted
to only P2,451,405.59. Thus:
P3,950 per mt P1,861.92 per mt = P2,088.09 x
1,174
mt = P2,451,405.59
Since Cargill failed, however, to deliver the balance of 1,875
mt of molasses under Contract 5026, it must pay San
Fernando the P2,531,250.00, representing the latters
unrealized profits had it been able to sell that 1,875mt of
molasses to Ajinomoto. Thus:

These cases present the following issues:


1. Whether or not the CA erred in ruling that Cargill was not
guilty of breach of obligation to deliver the 4,000 mt of
molasses covered by Contract 5026 during the period April
and May 1997;
2. Whether or not the CA erred in ruling that Cargill was
guilty of breach of obligation to deliver the 5,000 mt of
molasses covered by Contract5047 during the period
October, November, and December 1996; and
3. Whether or not the CA erred in deleting the award of
moral and exemplary damages, attorneys fees, and cost of
suit in favor of San Fernando.
The Rulings of the Court
One. The CA held that Cargill committed no breach of
Contract 5026 because it had earlier delivered 951 mt of
molasses in March 19976 and sent a barge containing 1,174
mt of the goods on April 2, 1997 at the Ajinomotos wharf. It
was actually San Fernando that refused to accept this
delivery on April 2.
But Contract 5026 required Cargill to deliver 4,000 mt of
molasses during the period "April to May 1997." Thus,
anything less than that quantity constitutes breach of the
agreement. And since Cargill only delivered a total of 2,125

P5,300 per mt selling price at Ajinomoto P3,950acquisition


cost = P1,350 profit per mt P1,350.00 profit margin per mt x
1,875 mt = P2,531,250.00
Cargill, of course, claimed that it had sufficient inventories of
molasses to complete its deliveries, implying that had San
Fernando accepted its initial delivery of 1,174 mt it would
have continued delivering the rest. But it is not enough for a
seller to show that he is capable of delivering the goods on
the date he agreed to make the delivery. He has to bring his
goods and deliver them at the place their agreement called
for, i.e., at the Ajinomoto Pasig River wharf.
A stipulation designating the place and manner of delivery is
controlling on the contracting parties.9 The thing sold can
only be understood as delivered to the buyer when it is
placed in the buyers control and possession at the agreed
place of delivery.10 Cargill presented no evidence that it
attempted to make other deliveries to complete the balance
of Contract 5026.
Two. The CA correctly ruled that Cargill was in breach of
Contract 5047 which provided for delivery of the molasses
within the months of October, November, and December
1996. Thus, when Cargill wrote San Fernando on May 14,
1997 proposing to move the delivery dates of this contract to
May, June, and July, 1997, it was already in default. San
Fernandos refusal to signify its conformity at the proper

space on Cargills letter-proposal regarding Contract 5047


signifies that it was not amenable to the change.
San Fernando had good reason for this: it had already
agreed to supply Ajinomoto the molasses covered by
Contract 5047 at the rate of P4,950.00 per mt.11
Consequently, Cargills failure to deliver the 5,000 mt of
molasses on "October-November-December 1996" makes it
liable to San Fernando for P11,000,000.00 in unrealized
profits. Thus:
P4,950 per mt selling price to Ajinomoto P2,750acquisition
cost = P2,200 profit per mt
P2,200 per mt x 5,000 mt = P11,000,000.00
In failing to make any delivery under Contract 5047, Cargill
should pay San Fernando the profit that it lost because of
such breach. Cargill of course points out that San Fernando
never wrote a demand letter respecting its failure to make
any delivery under that contract. But demand was not
necessary since Cargills obligation under the contract
specified the date and place of delivery, i.e., "OctoberNovember-December 1996," at the Ajinomoto wharf in
Pasig.12
Three. The Court concurs with the CAs deletion of the
RTCs award of moral damages to San Fernando.1wphi1
As a rule, moral damages are not awarded to a corporation
unless it enjoyed good reputation that the offender debased
and besmirched by his actuations.13 San Fernando failed to
prove by sufficient evidence that it fell within this exception.
Besides, moral damages are, as a rule, also not recoverable
in culpa contractual except when bad faith had been
proved.14
San Fernando failed to show that Cargill was motivated by
bad faith or ill will when it failed to deliver the molasses as
agreed.
The Court rules that the CA correctly deleted the award of
exemplary damages to San Fernando. In breach of contract,
the court may only award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.15 The evidence has not
sufficiently established that Cargills failure to deliver the
molasses on time was attended by such wickedness.
Lastly, the CA correctly deleted the award of attorneys fees
and cost of litigation to San Fernando. Attorneys fees and
expenses of litigation under Article 2208 of the Civil Code
are proper only when exemplary damages are awarded.
Here, the Court has ruled that San Fernando is not entitled
to an award of exemplary damages. Both parties actually
committed shortcomings in complying with their contractual
obligations. San Fernando failed in Contract 5026 to accept
Cargills delivery of 1,174 mt of molasses; Cargill only
complied partially with its undertakings under Contract
5026and altogether breached its obligations under Contract
5047. For these, they must bear their own expenses of
litigation.
WHEREFORE, the Court PARTIALLY GRANTS the petitions
and MODIFIES the Court of Appeals Decision on January
19, 2007 in CA-G.R.CV 81993 as follows:

1. San Fernando Regala Trading, Inc. is ORDERED to pay


Cargill Philippines, Inc. (a) P892,732.50 representing the
demurrage that the latter incurred and (b) P2,451,405.59
representing its unrealized profit on the rejected delivery of
1,174 mt of molasses, both under Contract 5026, for a total
of P3,344,138.09, with interest at 6% per annum computed
from the date of the filing of the complaint until the same is
fully paid; and
2. Cargill Philippines, Inc. is ORDERED to pay San
Fernando Regala Trading, Inc. the latters unrealized profits
of P2,531,250.00 for the breach of Contract 5026 and
P11,000,000.00 for the breach of Contract 5047, for a total
of P 13,531,250.00, with interest at 6% per annum computed
from the date of the tiling of the answer with counterclaim
until the same is fully paid.
The Court of Appeals' deletion of the awards of moral and
exemplary damages, attorney's fees, and costs of litigation
stands.
SO ORDERED.
G.R. No. 161957
January 22, 2007
JORGE GONZALES and PANEL OF ARBITRATORS,
Petitioners,
vs.
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP.,
and AUSTRALASIAN PHILIPPINES MINING INC.,
Respondents.
x-------------------------------------------------------------------------------- x
G.R. No. 167994
January 22, 2007
JORGE GONZALES, Petitioner,
vs.
HON. OSCAR B. PIMENTEL, in his capacity as
PRESIDING JUDGE of BR. 148 of the REGIONAL TRIAL
COURT of MAKATI CITY, and CLIMAX-ARIMCO MINING
CORPORATION, Respondents.
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.

Addendum Contract is also null and void ab initio and legally


inexistent.1awphi1.net

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 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 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 (ClimaxArimco).
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, ClimaxArimco 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

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 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.

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.44 and 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.

MARTIN G. ROMUALDEZ, OSCAR P. LOPEZ-DEE, RENE


J. BUENAVENTURA, GLORIA L. TAN-CLIMACO,
ROGELIO S. CHUA, FEDERICO C. PASCUAL,
LEOPOLDO S. VEROY, WILFRIDO V. VERGARA,
EDILBERTO V. JAVIER, ANTHONY F. CONWAY,
ROMULAD U. DY TANG, WALTER C. WESSMER, and
ANTONIO N. COTOCO, petitioners,
vs.
RCBC CAPITAL CORPORATION, respondent.
The Case
This Petition for Review on Certiorari under Rule 45 seeks
the reversal of the January 8, 20082 and March 17, 20083
Orders of the Regional Trial Court (RTC), Branch 148 in
Makati City in SP Proc. Case No. 6046, entitled In the Matter
of ICC Arbitration Ref. No. 13290/MS/JB/JEM Between
RCBC Capital Corporation, (Claimant), and Equitable PCI
Banking Corporation, Inc. et al., (Respondents). The
assailed January 8, 2008 Order confirmed the Partial Award
dated September 27, 20074 rendered by the International
Chamber of Commerce-International Court of Arbitration
(ICC-ICA) in Case No. 13290/MS/JB/JEM, entitled RCBC
Capital Corporation (Philippines) v. Equitable PCI Bank, Inc.
& Others (Philippines). The March 17, 2008 Order denied
petitioners motion for reconsideration of the January 8, 2008
Order.
The Facts
On May 24, 2000, petitioners Equitable PCI Bank, Inc.
(EPCIB) and the individual shareholders of Bankard, Inc., as
sellers, and respondent RCBC Capital Corporation (RCBC),
as buyer, executed a Share Purchase Agreement5 (SPA) for
the purchase of petitioners interests in Bankard,
representing 226,460,000 shares, for the price of PhP
1,786,769,400. To expedite the purchase, RCBC agreed to
dispense with the conduct of a due diligence audit on the
financial status of Bankard.
Under the SPA, RCBC undertakes, on the date of contract
execution, to deposit, as downpayment, 20% of the
purchase price, or PhP 357,353,880, in an escrow account.
The escrowed amount, the SPA stated, should be released
to petitioners on an agreed-upon release date and the
balance of the purchase price shall be delivered to the share
buyers upon the fulfillment of certain conditions agreed
upon, in the form of a managers check.
The other relevant provisions of the SPA are:

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.

The SELLERS jointly and severally


represent and warrant to the BUYER
that:
xxxx

SO ORDERED.
G.R. No. 182248

Section 5. Sellers Representations and


Warranties

December 18, 2008

EQUITABLE PCI BANKING CORPORATION,1 GEORGE L.


GO, PATRICK D. GO, GENEVIEVE W.J. GO, FERDINAND

The Financial Condition of Bankard


g. The audited financial statements of Bankard for the three
(3) fiscal years ended December 31, 1997, 1998 and 1999,

and the unaudited financial statements for the first quarter


ended 31 March 2000, are fair and accurate, and complete
in all material respects, and have been prepared in
accordance with generally accepted accounting principles
consistently followed throughout the period indicated and:
i) the balance sheet of Bankard as of 31 December 1999, as
prepared and certified by SGV & Co. ("SGV"), and the
unaudited balance sheet for the first quarter ended 31 March
2000, present a fair and accurate statement as of those
dates, of Bankards financial condition and of all its assets
and liabilities, and is complete in all material respects; and
ii) the statements of Bankards profit and loss accounts for
the fiscal years 1996 to 1999, as prepared and certified by
SGV, and the unaudited profit and loss accounts for the first
quarter ended 31 March 2000, fairly and accurately present
the results of the operations of Bankard for the periods
indicated, and are complete in all material respects.
h. Except as disclosed in the Disclosures, and except to the
extent set forth or reserved in the audited financial
statements of Bankard as of 31 December 1999 and its
unaudited financial statements as of 31 March 2000,
Bankard, as of such dates and up to 31 May 2000, had and
shall have no liabilities, omissions or mistakes in its records
which will have material adverse effect on the net worth or
financial condition of Bankard to the extent of more than One
Hundred Million Pesos (P100,000,000.00) in the aggregate.
In the event such material adverse effect on the net worth or
financial condition of Bankard exceeds One Hundred Million
Pesos (P100,000,000.00), the Purchase Price shall be
reduced in accordance with the following formula:
Reduction in Purchase Price = X multiplied by 226,460,000

presented to the Defaulting Party in writing together with


schedules and to substantiate such demand, within six (6)
months from the Closing Date.6
On June 2, 2000, RCBC deposited the stipulated
downpayment amount in an escrow account after which it
was given full management and operational control of
Bankard. June 2, 2000 is also considered by the parties as
the Closing Date referred to in the SPA.
Thereafter, the parties executed an Amendment to Share
Purchase Agreement (ASPA) dated September 19, 2000.7
Its paragraph 2(e) provided that:
2. Notwithstanding any provisions to the contrary in the
Share Purchase Agreement and/or any agreement,
instrument or document entered into or executed by the
Parties in relation thereto (the "Related Agreements"), the
Parties hereby agree that:
xxxx
e) Notwithstanding the provisions of Sec. 7 of the Share
Purchase Agreement to the contrary, the remedy for a
breach of the SELLERS representation and warranty in
Section 5(h) of the Share Purchase Agreement shall be
available if the demand therefor is presented to the
SELLERS in writing together with schedules and data to
substantiate such demand, on or before 31 December 2000.
(Emphasis added.)
Sometime in September 2000, RCBC had Bankards
accounts audited, creating for the purpose an audit team led
by a certain Rubio, the Vice-President for Finance of RCBC
at the time.

where
Amount by which negative adjustment
exceeds P100 Million
X=
-------------------------------------------(1.925)
338,000,000

xxxx
Section 7. Remedies for Breach of Warranties
a. If any of the representations and warranties of any or all of
the SELLERS or the BUYER (the "Defaulting Party")
contained in Sections 5 and 6 shall be found to be untrue
when made and/or as of the Closing Date, the other party,
i.e., the BUYER if the Defaulting Party is any or all of the
SELLERS and the SELLERS if the Defaulting Party is the
BUYER (hereinafter referred to as the "Non-Defaulting
Party") shall have the right to require the Defaulting Party, at
the latters expense, to cure such breach, and/or seek
damages, by providing notice or presenting a claim to the
Defaulting Party, reasonably specifying therein the
particulars of the breach. The foregoing remedies shall be
available to the Non-Defaulting Party only if the demand
therefor is presented in writing to the Defaulting Party within
three (3) years from the Closing Date except that the remedy
for a breach of the SELLERS representation and warrant in
Section 5 (h) shall be available only if the demand therefor is

Rubios conclusion was that the warranty, as contained in


Section 5(h) of the SPA (simply Sec. 5[h] hereinafter), was
correct.
On December 28, 2000, RCBC paid the balance of the
contract price. The corresponding deeds of sale for the
shares in question were executed in January 2001.
Thereafter, in a letter of May 5, 2003, RCBC informed
petitioners of its having overpaid the purchase price of the
subject shares, claiming that there was an overstatement of
valuation of accounts amounting to PhP 478 million,
resulting in the overpayment of over PhP 616 million. Thus,
RCBC claimed that petitioners violated their warranty, as
sellers, embodied in Sec. 5(g) of the SPA (Sec. 5[g]
hereinafter).
Following unsuccessful attempts at settlement, RCBC, in
accordance with Sec. 10 of the SPA, filed a Request for
Arbitration dated May 12, 20048 with the ICC-ICA. In the
request, RCBC charged Bankard with deviating from,
contravening and not following generally accepted
accounting principles and practices in maintaining their
books. Due to these improper accounting practices, RCBC
alleged that both the audited and unaudited financial
statements of Bankard prior to the stock purchase were far
from fair and accurate and, hence, violated the
representations and warranties of petitioners in the SPA. Per
RCBC, its overpayment amounted to PhP 556 million. It thus

prayed for the rescission of the SPA, restitution of the


purchase price, payment of actual damages in the amount of
PhP 573,132,110, legal interest on the purchase price until
actual restitution, moral damages, and litigation and
attorneys fees. As alternative to rescission and restitution,
RCBC prayed for damages in the amount of at least PhP
809,796,092 plus legal interest.
To the Request for Arbitration, petitioners filed an Answer
dated July 28, 2004,9 denying RCBCs inculpatory
averments and setting up the following affirmative
allegations: the period for filing of the asserted claim had
already lapsed by force of Sec. 7 of the SPA; RCBC is not
entitled to rescission having had ample opportunity and
reasonable time to file a claim against petitioners; RCBC is
not entitled to its alternative prayer of damages, being guilty
of laches and failing to set out the details of the breach as
required under Sec. 7.
Arbitration in the ICC-ICA proceeded after the formation of
the arbitration tribunal consisting of retired Justice Santiago
M. Kapunan, nominated by petitioners; Neil Kaplan, RCBCs
nominee; and Sir Ian Barker, appointed by the ICC-ICA.
After drawn out proceedings with each party alleging
deviation and non-compliance by the other with arbitration
rules, the tribunal, with Justice Kapunan dissenting,
rendered a Partial Award dated September 27, 2007,10 the
dispositive portion of which states:
15 AWARD AND DIRECTIONS
15.1 The Tribunal makes the following declarations by way
of Partial Award:
(a) The Claimants claim is not time-barred under the
provisions of this SPA.
(b) The Claimant is not estopped by its conduct or the
equitable doctrine of laches from pursuing its claim.
(c) As detailed in the Partial Award, the Claimant has
established the following breaches by the Respondents of
clause 5(g) of the SPA:
i) the assets, revenue and net worth of Bankard were
overstated by reason of its policy on and recognition of Late
Payment Fees;
ii) reported receivables were higher than their realizable
values by reason of the bucketing method, thus overstating
Bankards assets; and
iii) the relevant Bankard statements were inadequate and
misleading in that their disclosures caused readers to be
misinformed about Bankards accounting policies on revenue
and receivables.
(d) Subject to proof of loss the Claimant is entitled to
damages for the foregoing breaches.
(e) The Claimant is not entitled to rescission of the SPA.

(f) All other issues, including any issue relating to costs, will
be dealt with in a further or final award.
15.2 A further Procedural Order will be necessary
subsequent to the delivery of this Partial Award to deal with
the determination of quantum and in particular, whether
there should be an Expert appointed by the Tribunal under
Article 20(4) of the ICC Rules to assist the Tribunal in this
regard.
15.3 This Award is delivered by a majority of the Tribunal
(Sir Ian Barker and Mr. Kaplan). Justice Kapunan is unable
to agree with the majoritys conclusion on the claim of
estoppel brought by the respondents.
On the matter of prescription, the tribunal held that RCBCs
claim is not time-barred, the claim properly falling under the
contemplation of Sec. 5(g) and not Sec. 5(h). As such, the
tribunal concluded, RCBCs claim was filed within the three
(3)-year period under Sec. 5(g) and that the six (6)-month
period under Sec. 5(h) did not apply.
The tribunal also exonerated RCBC from laches, the latter
having sought relief within the three (3)-year period
prescribed in the SPA. On the matter of estoppel suggested
in petitioners answer, the tribunal stated in par. 10.27 of the
Partial Award the following:
10.27 Clearly, there has to be both an admission or
representation by (in this case) the Claimant [RCBC], plus
reliance upon it by (in this case) the Respondents [herein
petitioners]. The Tribunal cannot find as proved any
admission/representation that the Claimant was abandoning
a 5(g) claim, any reliance by the Respondents on an
admission, and any detriment to the Respondents such as
would entitle them to have the Claimant deprived of the
benefit of clause 5(g). These aspects of the claim for
estoppels are rejected.11
Notably, the tribunal considered the rescission of the SPA
and ASPA as impracticable and "totally out of the
question."12
In his Dissenting Opinion13 which he submitted to and which
was received on September 24, 2007 by the ICC-ICA,
Justice Kapunan stated the observation that RCBCs claim is
time-barred, falling as such claim did under Sec. 5(h), which
prescribes a comparatively shorter prescriptive period, not
5(g) as held by the majority of the tribunal, to wit:
Claimant admits that the Claim is for recovery of P431
million on account of alleged "overvaluation of the net worth
of Bankard," allegedly for "improper accounting practices"
resulting in "its book value per share as of 31 December
1999 [being] overstated." Claimants witness, Dean Echanis
asserts that "the inadequate provisioning for Bankards
doubtful accounts result[ed] in an overstatement of its
December 31, 1999 total assets and net worth of by [sic]
least P418.2 million."
In addition, Claimants demand letter addressed to the
Respondents alleged that "we overpaid for the Shares to the
extent of the impact of the said overstatement on the Book
Value per share".

These circumstances establish beyond dispute that the


Claim is based on the alleged overstatement of the 1999 net
worth of Bankard, which the parties relied on in setting the
purchase price of the shares. Moreover, it is clear that there
was an overstatement because of "improper accounting
practices" which led Claimant to overpay for the shares.

motion was denied by the RTC in the equally assailed


second order of March 17, 2008.
From the assailed orders, petitioners came directly to this
Court through this petition for review.
The Issues

Ultimately, the Claim is one for recovery of overpayment in


the purchase price of the shares. x x x
As to the issue of estoppel, Justice Kapunan stated:
Moreover, Mr. Rubios findings merely corroborated the
disclosures made in the Information Memorandum that
Claimant received from the Respondents prior to the
execution of the SPA. In this connection, I note that
Bankards policy on provisioning and setting of allowances
using the Bucketed Method and income recognition from
AR/Principal, AR/Interest and AR/LPFs were disclosed in the
Information Memorandum. Thus, these alleged improper
accounting practices were known to the Claimant even prior
to the execution of the SPA.
Thus, when Claimant paid the balance of the purchase price,
it did so with full knowledge of these accounting practices of
Bankard that it now assails. By paying the balance of the
purchase price without taking exception or objecting to the
accounting practices disclosed through Mr. Rubio s review
and the Information Memorandum, Claimant is deemed to
have accepted such practices as correctly reporting the 1999
net worth. x x x
xxxx
As last point, I note that my colleagues invoke a principle
that for estoppels to apply there must be positive indication
that the right to sue was waived. I am of the view that there
is no such principle under Philippine law. What is applicable
is the holding in Knecht and in Coca- Cola that prior
knowledge of an unfavorable fact is binding on the party who
has such knowledge; "when the purchaser proceeds to make
investigations by himself, and the vendor does nothing to
prevent such investigation from being as complete as the
former might wish, the purchaser cannot later allege that the
vendor made false representations to him" (Cf. Songco v.
Sellner, 37 Phil 254 citations omitted).
Applied to this case, the Claimant cannot seek relief on the
basis that when it paid the purchase price in December
2000, it was unaware that the accounting practices that went
into the reporting of the 1999 net worth as amounting to
P1,387,275,847 were not in conformity with GAAP [generally
accepted accounting principles]. (Emphasis added.)
On October 26, 2007, RCBC filed with the RTC a Motion to
Confirm Partial Award. On the same day, petitioners
countered with a Motion to Vacate the Partial Award. On
November 9, 2007, petitioners again filed a Motion to
Suspend and Inhibit Barker and Kaplan.
On January 8, 2008, the RTC issued the first assailed order
confirming the Partial Award and denying the adverted
separate motions to vacate and to suspend and inhibit. From
this order, petitioners sought reconsideration, but their

This petition seeks the review, reversal and setting aside of


the orders Annexes A and B and, in lieu of them, it seeks
judgment vacating the arbitrators liability award, Annex C,
on these grounds:
(a) The trial court acted contrary to law and judicial authority
in refusing to vacate the arbitral award, notwithstanding it
was rendered in plain disregard of the parties contract and
applicable Philippine law, under which the claim in arbitration
was indubitably time-barred.
(b) The trial court acted contrary to law and judicial authority
in refusing to vacate and in confirming the arbitral award,
notwithstanding that the arbitrators had plainly and
admittedly failed to accord petitioners due process by
denying them a hearing on the basic factual matter upon
which their liability is predicated.
(c) The trial court committed grave error in confirming the
arbitrators award, which held petitioners-sellers liable for an
alleged improper recording of accounts, allegedly affecting
the value of the shares they sold, notwithstanding that the
respondent-buyer knew before contracting that the accounts
were kept in the manner complained of, and in fact ratified
and adopted the questioned accounting practice and
policies.14
The Courts Ruling
The petition must be denied.
On Procedural Misstep of Direct Appeal to This Court
As earlier recited, the ICC-ICAs Partial Award dated
September 27, 2007 was confirmed by the RTC in its first
assailed order of January 8, 2008. Thereafter, the RTC, by
order of March 17, 2008, denied petitioners motion for
reconsideration. Therefrom, petitioners came directly to this
Court on a petition for review under Rule 45 of the Rules of
Court.
This is a procedural miscue for petitioners who erroneously
bypassed the Court of Appeals (CA) in pursuit of its appeal.
While this procedural gaffe has not been raised by RCBC,
still we would be remiss in not pointing out the proper mode
of appeal from a decision of the RTC confirming, vacating,
setting aside, modifying, or correcting an arbitral award.
Rule 45 is not the remedy available to petitioners as the
proper mode of appeal assailing the decision of the RTC
confirming as arbitral award is an appeal before the CA
pursuant to Sec. 46 of Republic Act No. (RA) 9285,
otherwise known as the Alternative Dispute Resolution Act of
2004, or completely, An Act to Institutionalize the Use of an
Alternative Dispute Resolution System in the Philippines and
to Establish the Office for Alternative Dispute Resolution,

and for other Purposes, promulgated on April 2, 2004 and


became effective on April 28, 2004 after its publication on
April 13, 2004.
In Korea Technologies Co., Ltd v. Lerma, we explained, inter
alia, that the RTC decision of an assailed arbitral award is
appealable to the CA and may further be appealed to this
Court, thus:
Sec. 46 of RA 9285 provides for an appeal before the CA as
the remedy of an aggrieved party in cases where the RTC
sets aside, rejects, vacates, modifies, or corrects an arbitral
award, thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards.A
decision of the Regional Trial Court confirming, vacating,
setting aside, modifying or correcting an arbitral award may
be appealed to the Court of Appeals in accordance with
the rules and procedure to be promulgated by the Supreme
Court.

the arbitrators, since any other rule would make an


award the commencement, not the end, of litigation.
Errors of law and fact, or an erroneous decision of
matters submitted to the judgment of the arbitrators, are
insufficient to invalidate an award fairly and honestly
made. Judicial review of an arbitration is, thus, more
limited than judicial review of a trial.
Nonetheless, the arbitrators awards is not absolute and
without exceptions. The arbitrators cannot resolve issues
beyond the scope of the submission agreement. The parties
to such an agreement are bound by the arbitrators award
only to the extent and in the manner prescribed by the
contract and only if the award is rendered in conformity
thereto. Thus, Sections 24 and 25 of the Arbitration Law
provide grounds for vacating, rescinding or modifying an
arbitration award. Where the conditions described in Articles
2038, 2039 and 2040 of the Civil Code applicable to
compromises and arbitration are attendant, the arbitration
award may also be annulled.
xxxx

The losing party who appeals from the judgment of the court
confirming an arbitral award shall be required by the
appellate court to post a counterbond executed in favor of
the prevailing party equal to the amount of the award in
accordance with the rules to be promulgated by the
Supreme Court.
Thereafter, the CA decision may further be appealed or
reviewed before this Court through a petition for review
under Rule 45 of the Rules of Court.15
It is clear from the factual antecedents that RA 9285 applies
to the instant case. This law was already effective at the time
the arbitral proceedings were commenced by RCBC through
a request for arbitration filed before the ICC-ICA on May 12,
2004. Besides, the assailed confirmation order of the RTC
was issued on March 17, 2008. Thus, petitioners clearly took
the wrong mode of appeal and the instant petition can be
outright rejected and dismissed.
Even if we entertain the petition, the outcome will be the
same.
The Court Will Not Overturn an Arbitral Award
Unless It Was Made in Manifest Disregard of the Law
16

In Asset Privatization Trust v. Court of Appeals, the Court


passed on similar issues as the ones tendered in the instant
petition. In that case, the arbitration committee issued an
arbitral award which the trial court, upon due proceedings,
confirmed despite the opposition of the losing party. Motions
for reconsideration by the losing party were denied. An
appeal interposed by the losing party to the CA was denied
due course. On appeal to this Court, we established the
parameters by which an arbitral award may be set aside, to
wit:
As a rule, the award of an arbitrator cannot be set aside
for mere errors of judgment either as to the law or as to
the facts. Courts are without power to amend or overrule
merely because of disagreement with matters of law or
facts determined by the arbitrators. They will not review
the findings of law and fact contained in an award, and
will not undertake to substitute their judgment for that of

Finally, it should be stressed that while a court is precluded


from overturning an award for errors in determination of
factual issues, nevertheless, if an examination of the record
reveals no support whatever for the arbitrators
determinations, their award must be vacated. In the same
manner, an award must be vacated if it was made in
"manifest disregard of the law."17 (Emphasis supplied.)
Following Asset Privatization Trust, errors in law and fact
would not generally justify the reversal of an arbitral award.
A party asking for the vacation of an arbitral award must
show that any of the grounds for vacating, rescinding, or
modifying an award are present or that the arbitral award
was made in manifest disregard of the law. Otherwise, the
Court is duty-bound to uphold an arbitral award.
The instant petition dwells on the alleged manifest disregard
of the law by the ICC-ICA.
The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Jaros18 expounded on the phrase "manifest disregard of the
law" in the following wise:
This court has emphasized that manifest disregard of the law
is a very narrow standard of review. Anaconda Co. v. District
Lodge No. 27, 693 F.2d 35 (6th Cir.1982). A mere error in
interpretation or application of the law is insufficient.
Anaconda, 693 F.2d at 37-38. Rather, the decision must fly
in the face of clearly established legal precedent. When
faced with questions of law, an arbitration panel does not act
in manifest disregard of the law unless (1) the applicable
legal principle is clearly defined and not subject to
reasonable debate; and (2) the arbitrators refused to heed
that legal principle.
Thus, to justify the vacation of an arbitral award on account
of "manifest disregard of the law," the arbiters findings must
clearly and unequivocally violate an established legal
precedent. Anything less would not suffice.
In the present case, petitioners, in a bid to establish that the
arbitral award was issued in manifest disregard of the law,

allege that the Partial Award violated the principles of


prescription, due process, and estoppel. A review of
petitioners arguments would, however, show that their
arguments are bereft of merit. Thus, the Partial Award dated
September 27, 2007 cannot be vacated.
RCBCs Claim Is Not Time-Barred
Petitioners argue that RCBCs claim under Sec. 5(g) is
based on overvaluation of Bankards revenues, assets, and
net worth, hence, for price reduction falling under Sec. 5(h),
in which case it was belatedly filed, for RCBC presented the
claim to petitioners on May 5, 2003, when the period for
presenting it under Sec. 5(h) expired on December 31, 2000.
As a counterpoint, RCBC asserts that its claim clearly comes
under Sec. 5(g) in relation to Sec. 7 which thus gave it three
(3) years from the closing date of June 2, 2000, or until June
1, 2003, within which to make its claim. RCBC contends
having acted within the required period, having presented its
claim-demand on May 5, 2003.
To make clear the issue at hand, we highlight the pertinent
portions of Secs. 5(g), 5(h), and 7 bearing on what
petitioners warranted relative to the financial condition of
Bankard and the remedies available to RCBC in case of
breach of warranty:
g. The audited financial statements of Bankard for the
three (3) fiscal years ended December 31, 1997, 1998
and 1999, and the unaudited financial statements for the
first quarter ended 31 March 2000, are fair and accurate,
and complete in all material respects, and have been
prepared in accordance with generally accepted
accounting principles consistently followed throughout the
period indicated and:
i) the balance sheet of Bankard as of 31 December 1999,
as prepared and certified by SGV & Co. ("SGV"), and the
unaudited balance sheet for the first quarter ended 31 March
2000, present a fair and accurate statement as of those
dates, of Bankards financial condition and of all its
assets and liabilities, and is complete in all material
respects; and
ii) the statements of Bankards profit and loss accounts
for the fiscal years 1996 to 1999, as prepared and certified
by SGV, and the unaudited profit and loss accounts for
the first quarter ended 31 March 2000, fairly and
accurately present the results of the operations of
Bankard for the periods indicated, and are complete in all
material respects.
h. Except as disclosed in the Disclosures, and except to the
extent set forth or reserved in the audited financial
statements of Bankard as of 31 December 1999 and its
unaudited financial statements for the first quarter ended 31
March 2000, Bankard, as of such dates and up to 31 May
2000, had and shall have no liabilities, omissions or
mistakes in its records which will have a material
adverse effect on the net worth or financial condition of
Bankard to the extent of more than One Hundred Million
Pesos (P 100,000,000.00) in the aggregate. In the event
such material adverse effect on the net worth or financial
condition of Bankard exceeds One Hundred Million Pesos (P
100,000,000.00), the Purchase Price shall be reduced in
accordance with the following formula:

xxxx
Section 7. Remedies for Breach of Warranties
If any of the representations and warranties of any or all of
the SELLERS or the BUYER (the "Defaulting Party")
contained in Sections 5 and 6 shall be found to be untrue
when made and/or as of the Closing Date, the other party,
i.e., the BUYER if the Defaulting is any of the SELLERS and
the SELLERS if the Defaulting Party is the BUYER
(hereinafter referred to as the "Non-Defaulting Party") shall
have the right to require the Defaulting Party, at the
latters expense, to cure such breach, and/or seek
damages, by providing notice or presenting a claim to
the Defaulting Party, reasonably specifying therein the
particulars of the breach. The foregoing remedies shall be
available to the Non-Defaulting Party only if the demand
therefor is presented in writing to the Defaulting Party
within three (3) years from the Closing Date, except that
the remedy for a breach of the SELLERS representation
and warranty in Section 5 (h) shall be available only if
the demand therefor is presented to the Defaulting Party
in writing together with schedules and data to substantiate
such demand, within six (6) months from the Closing
Date. (Emphasis supplied.)
Before we address the issue put forward by petitioners, there
is a necessity to determine the nature and application of the
reliefs provided under Sec. 5(g) and Sec. 5(h) in conjunction
with Sec. 7, thus:
(1) The relief under Sec. 5(h) is specifically for price
reduction as said section explicitly states that the "Purchase
Price shall be reduced in accordance with the following
formula x x x." In addition, Sec. 7 gives the aggrieved party
the right to ask damages based on the stipulation that the
non-defaulting party "shall have the right to require the
Defaulting Party, at the latters expense, to cure such breach
and/or seek damages."
On the other hand, the remedy under Sec. 5(g) in
conjunction with Sec. 7 can include specific performance,
damages, and other reliefs excluding price reduction.
(2) Sec. 5(g) warranty covers the audited financial
statements (AFS) for the three (3) years ending December
31, 1997 to 1999 and the unaudited financial statements
(UFS) for the first quarter ending March 31, 2000. On the
other hand, the Sec. 5(h) warranty refers only to the AFS for
the year ending December 31, 1999 and the UFS up to May
31, 2000. It is undenied that Sec. 5(h) refers to price
reduction as it covers "only the most up-to-date audited and
unaudited financial statements upon which the price must
have been based."19
(3) Under Sec. 5(h), the responsibility of petitioners for its
warranty shall exclude the disclosures and reservations
made in AFS of Bankard as of December 31, 1999 and its
UFS up to May 31, 2000. No such exclusions were made
under Sec. 5(g) with respect to the warranty of petitioners in
the AFS and UFS of Bankard.
(4) Sec. 5(h) gives relief only if there is material adverse
effect in the net worth in excess of PhP 100 million and it
provides a formula for price reduction.20 On the other hand,
Sec. 5(g) can be the basis for remedies like specific

performance, damages, and other reliefs, except price


reduction, even if the overvaluation is less or above PhP 100
million and there is no formula for computation of damages.
(5) Under Sec. 7, the aggrieved party shall present its written
demand to the defaulting party within three (3) years from
closing date. Under Sec. 5(h), the written demand shall be
presented within six (6) months from closing date. In
accordance with par. 2(c) of the ASPA, the deadline to file
the demand under Sec. 5(h) was extended to December 31,
2000.
From the above determination, it becomes clear that the
aggrieved party is entitled to two (2) separate alternative
remedies under Secs. 5 and 7 of the SPA, thus:
1. A claim for price reduction under Sec. 5(h) and/or
damages based on the breach of warranty by Bankard on
the absence of liabilities, omissions and mistakes on the
financial statements as of 31 December 1999 and the UFS
as of 31 May 2000, provided that the material adverse effect
on the net worth exceeds PhP 100M and the written demand
is presented within six (6) months from closing date
(extended to 31 December 2000); and
2. An action to cure the breach like specific performance
and/or damages under Sec. 5(g) based on Bankards breach
of warranty involving its AFS for the three (3) fiscal years
ending 31 December 1997, 1998, and 1999 and the UFS for
the first quarter ending 31 March 2000 provided that the
written demand shall be presented within three (3) years
from closing date.
Has RCBC the option to choose between Sec. 5(g) or Sec.
5(h)?
The answer is yes. Sec. 5 and Sec. 7 are clear that it is
discretionary on the aggrieved parties to avail themselves of
any remedy mentioned above. They may choose one and
dispense with the other. Of course, the relief for price
reduction under Sec. 5(h) will have to conform to the
prerequisites and time frame of six (6) months; otherwise, it
is waived.
Preliminarily, petitioners basic posture that RCBCs claim is
for the recovery of overpayment is specious. The records
show that in its Request for Arbitration dated May 12, 2004,
RCBC prayed for the rescission of the SPA, restitution of the
whole purchase price, and damages not for reduction of
price or for the return of any overpayment. Even in its May 5,
2000 letter,21 RCBC did not ask for the recovery of any
overpayment or reduction of price, merely stating in it that
the accounts of Bankard, as reflected in its AFS for 1999,
were overstated which, necessarily, resulted in an
overpayment situation. RCBC was emphatic and
unequivocal that petitioners violated their warranty covered
by Sec. 5(g) of the SPA.
It is thus evident that RCBC did not avail itself of the option
under Sec. 5(h), i.e., for price reduction or the return of any
overpayment arising from the overvaluation of Bankards
financial condition. Clearly, RCBC invoked Sec. 5(g) to claim
damages from petitioners which is one of the alternative
reliefs granted under Sec. 7 in addition to rescission and
restitution of purchase price.

Petitioners do not deny that RCBC formally filed its claim


under Sec. 5(g) which is anchored on the material
overstatement or overvaluation of Bankards revenues,
assets, and net worth and, hence, the overstatement of the
purchase price. They, however, assert that such claim for
overpayment is actually a claim under Sec. 5(h) of the SPA
for price reduction which it forfeited after December 31,
2000.
We cannot sustain petitioners position.
It cannot be disputed that an overstatement or overvaluation
of Bankards financial condition as of closing date translates
into a misrepresentation not only of the accuracy and
truthfulness of the financial statements under Sec. 5(g), but
also as to Bankards actual net worth mentioned in Sec. 5(h).
Overvaluation presupposes mistakes in the entries in the
financial statements and amounts to a breach of petitioners
representations and warranties under Sec. 5. Consequently,
such error in the financial statements would impact on the
figure representing the net worth of Bankard as of closing
date. An overvaluation means that the financial condition of
Bankard as of closing date, i.e., June 2, 2000, is overstated,
a situation that will definitely result in a breach of EPCIBs
representations and warranties.
A scrutiny of Sec. 5(g) and Sec. 5(h) in relation to Sec. 7 of
the SPA would indicate the following remedies available to
RCBC should it be discovered, as of closing date, that there
is overvaluation which will constitute breach of the warranty
clause under either Sec. 5(g) or (h), to wit:
(1) An overvaluation of Bankards actual financial condition
as of closing date taints the veracity and accuracy of the
AFS for 1997, 1998, and 1999 and the UFS for the first
quarter of 2000 and is an actionable breach of petitioners
warranties under Sec. 5(g).
(2) An overvaluation of Bankards financial condition as of
May 31, 2000, encompassing the warranted financial
condition as of December 31, 1999 through the AFS for
1999 and as of March 31, 2000 through the UFS for the first
quarter of 2000, is a breach of petitioners representations
and warranties under Sec. 5(h).
Thus, RCBC has two distinct alternative remedies in case of
an overvaluation of Bankards financial condition. It may
invoke Sec. 5(h) when the conditions of the threshold
aggregate overvaluation and the claim made within the sixmonth time-bar are present. In the alternative, it may invoke
Sec. 5(g) when it finds that a claim for "curing the breach"
and/or damages will be more advantageous to its interests
provided it is filed within three (3) years from closing date.
Since it has two remedies, RCBC may opt to exercise either
one. Of course, the exercise of either one will preclude the
other.
Moreover, the language employed in Sec. 5(g) and Sec. 5(h)
is clear and bereft of any ambiguity. The SPAs stipulations
reveal that the non-use or waiver of Sec. 5(h) does not
preclude RCBC from availing itself of the second relief under
Sec. 5(g). Article 1370 of the Civil Code is explicit that "if
terms of a contract are clear and leave no doubt upon the
intention of the contracting parties the literal meaning of its
stipulations shall control." Since the terms of a contract have
the force of law between the parties,22 then the parties must

respect and strictly conform to it. Lastly, it is a long held


cardinal rule that when the terms of an agreement are
reduced to writing, it is deemed to contain all the terms
agreed upon and no evidence of such terms can be admitted
other than the contents of the agreement itself.23 Since the
SPA is unambiguous, and petitioners failed to adduce
evidence to the contrary, then they are legally bound to
comply with it.
Petitioners agreed ultimately to the stipulation that:
Each of the representations and warranties of the SELLERS
is deemed to be a separate representation and warranty,
and the BUYER has placed complete reliance thereon in
agreeing to the Purchase Price and in entering into this
Agreement. The representations and warranties of the
SELLERS shall be correct as of the date of this Agreement
and as of the Closing Date with the same force and effect as
though such representations and warranties had been made
as of the Closing Date.24 (Emphasis supplied.)
The Court sustains the finding in the Partial Award that Sec.
5(g) of the SPA is a free standing warranty and not
constricted by Sec. 5(h) of the said agreement.
Upon the foregoing premises and in the light of the
undisputed facts on record, RCBCs claim for rescission of
the SPA and damages due to overvaluation of Bankards
accounts was properly for a breach of the warranty under
Sec. 5(g) and was not time-barred. To repeat, RCBC
presented its written claim on May 5, 2003, or a little less
than a month before closing date, well within the three (3)year prescriptive period provided under Sec. 7 for the
exercise of the right provided under Sec. 5(g).
Petitioners bemoan the fact that "the arbitrators liability
award (a) disregarded the 6-month contractual limitation for
RCBCs overprice claim, and [b] substituted in its place the
3-year limitation under the contract for other claims,"25
adopting in that regard the interpretation of the SPA made by
arbitral tribunal member, retired Justice Kapunan, in his
Dissenting Opinion, in which he asserted:
Ultimately, the Claim is one for recovery of overpayment in
the purchase price of the shares. And it is in this context,
that I respectfully submit that Section 5(h) and not Section
5(g), applies to the present controversy.26
xxxx
True, without Section 5(h), the Claim for price recovery
would fall under Section 5(g). The recovery of the pecuniary
loss of the Claimant in the form of the excess price paid
would be in the nature of a claim for actual damages by way
of compensation. In that situation, all the accounts in the
1999 financial statements would be the subject of the
warranty in Section 5(g).
However, since the parties explicitly included Section 5(h) in
their SPA, which assures the Claimant that there were no
"omissions or mistakes in the records" that would misstate
the 1999 net worth account, I am left with no other
conclusion but that the accuracy of the net worth was
the subject of the warranty in Section 5(h), while the
accuracy or correctness of the other accounts that did

not bear on, or affect Bankards net worth, were


guaranteed by Section 5(g).
xxxx
This manner of reconciling the two provisions is consistent
with the principle in Rule 130, Section 12 of the Rules of
Court that "when a general and a particular provision are
inconsistent, the latter is paramount to the former [so] a
particular intent will control a general one that is inconsistent
with it." This is also consistent with existing doctrines on
statutory construction, the application of which is illustrated
in the case of Commissioner of Customs vs. Court of Tax
Appeals, GR No. L-41861, dated March 23, 1987 x x x.
xxxx
The Claim is for recovery of the excess price by way of
actual damages.27 x x x (Emphasis supplied.)
Justice Kapunan noted that without Sec. 5(h), RCBCs claim
would fall under Sec. 5(g), impliedly admitting that both
provisions could very well cover RCBCs claim, except that
Sec. 5(h) excludes the situation contemplated in it from the
general terms of Sec. 5(g).
Such view is incorrect.
While it is true that Sec. 5(h), as couched, is a warranty on
the accuracy of the Bankards net worth while Sec. 5(g), as
also couched, is a warranty on the veracity, accuracy, and
completeness of the AFS in all material respects as
prepared in accordance with generally accepted accounting
principles consistently followed throughout the period
audited, yet both warranties boil down to the same thing and
stem from the same accounts as summarized in the AFS.
Since the net worth is the balance of Bankards assets
less its liabilities, it necessarily includes all the
accounts under the AFS. In short, there are no accounts
in the AFS that do not bear on the net worth of Bankard.
Moreover, as earlier elucidated, any overvaluation of
Bankards net worth is necessarily a misrepresentation of the
veracity, accuracy, and completeness of the AFS and also a
breach of the warranty under Sec. 5(g). Thus, the subject of
the warranty in Sec. 5(h) is also covered by the warranty in
Sec. 5(g), and Sec. 5(h) cannot exclude such breach from
the ambit of Sec. 5(g). There is no need to rely on Sec. 12,
Rule 130 of the Rules of Court for both Sec. 5(g) and Sec.
5(h) as alternative remedies are of equal footing and one
need not categorize one section as a general provision and
the other a particular provision.
More importantly, a scrutiny of the four corners of the SPA
does not explicitly reveal any stipulation nor even impliedly
that the parties intended to limit the scope of the warranty in
Sec. 5(g) or gave priority to Sec. 5(h) over Sec. 5(g).
The arbitral tribunal did not find any legal basis in the SPA
that Sec. 5(h) "somehow cuts down" the scope of Sec. 5(g),
thus:
9.10 In the opinion of the Tribunal, there is nothing in the
wording used in the SPA to give priority to one warranty
over the other. There is nothing in the wording used to
indicate that the parties intended to limit the scope of

the warranty in 5(g). If it be contended that, on a true


construction of the two warranties, 5(h) somehow cuts down
the scope of 5(g), the Tribunal can find no justification for
such conclusion on the wording used. Furthermore, the
Tribunal is of the view that very clear words would be
needed to cut down the scope of the 5(g) warranty.28
The Court upholds the conclusion of the tribunal and rules
that the claim of RCBC under Sec. 5(g) is not time-barred.
Petitioners Were Not Denied Due Process
Petitioners impute on RCBC the act of creating summaries
of the accounts of Bankard which "in turn were used by its
experts to conclude that Bankard improperly recorded its
receivables and committed material deviations from GAAP
requirements."29 Later, petitioners would assert that "the
arbitrators partial award admitted and used the Summaries
as evidence, and held on the basis of the information
contained in them that petitioners were in breach of their
warranty in GAAP compliance."
To petitioners, the ICC-ICAs use of such summaries but
without presenting the source documents violates their right
to due process. Pressing the point, petitioners had moved,
but to no avail, for the exclusion of the said summaries.
Petitioners allege that they had reserved the right to crossexamine the witnesses of RCBC who testified on the
summaries, pending the resolution of their motion to
exclude. But, according to them, they were effectively denied
the right to cross-examine RCBCs witnesses when the ICCICA admitted the summaries of RCBC as evidence.
Petitioners position is bereft of merit.
Anent the use but non-presentation of the source documents
as the jumping board for a claim of denial of due process,
petitioners cite Compania Maritima v. Allied Free Workers
Union.30 It may be stated, however, that such case is not on
all fours with the instant case and, therefore, cannot be
applied here considering that it does not involve an
administrative body exercising quasi-judicial function but
rather the regular court.
In a catena of cases, we have ruled that "[t]he essence of
due process is the opportunity to be heard. What the law
prohibits is not the absence of previous notice but the
absolute absence thereof and the lack of opportunity to be
heard."31
We also explained in Lastimoso v. Asayo that "[d]ue process
in an administrative context does not require trial type
proceedings similar to those in courts of justice. Where an
opportunity to be heard either through oral arguments or
through pleadings is accorded, there is no denial of
procedural due process."32
Were petitioners afforded the opportunity to refute the
summaries and pieces of evidence submitted by RCBC
which became the bases of the experts opinion?
The answer is in the affirmative.

We recall the events that culminated in the issuance of the


challenged Partial Award, thus:
On May 17, 2004, the ICC-ICA received the Request for
Arbitration dated May 12, 2004 from RCBC seeking
rescission of the SPA and restitution of all the amounts paid
by RCBC to petitioners, with actual and moral damages,
interest, and costs of suit.
On August 8, 2004, petitioners filed an Answer to the
Request for Arbitration dated July 28, 2004, setting up a
counterclaim for USD 300,000 for actual and exemplary
damages.
RCBC filed its Reply33 dated August 31, 2004 to petitioners
Answer to the Request for Arbitration.
On October 4, 2004, the parties entered into the Terms of
Reference.34 At the same time, the chairperson of the arbitral
tribunal issued a provisional timetable35 for the arbitration.
On October 25, 2004, as previously agreed upon in the
meeting on October 4, 2004, petitioners filed a Motion to
Dismiss36 while RCBC filed a "Claimants Position Paper
(Re: [Petitioners] Assertion that RCBC CAPITAL
CORPORATIONs Present Claim Is Time Barred)."37
Then, the tribunal issued Procedural Order No. 1 dated
January 12, 2005,38 denying the motion to dismiss and
setting the initial hearing of the case on April 11, 2005.
In a letter dated February 9, 2005,39 petitioners requested
that the tribunal direct RCBC to produce certain documents.
At the same time, petitioners sought the postponement of
the hearing on April 11, 2005 to March 21, 2005, in light of
their own request.
On February 11, 2005, petitioners received RCBCs brief of
evidence and supporting documentation in accordance with
the provisional timetable.40 In the brief of evidence, RCBC
provided summaries of the accounts of Bankard, which
petitioners now question.
Later, in a letter dated February 14, 2005,41 petitioners
complained to the tribunal with regard to their lack of access
to RCBCs external auditor. Petitioners sought an audit by an
accounting firm of the records of Bankard with respect to the
claims of RCBC. By virtue of such requests, petitioners also
sought a rescheduling of the provisional timetable, despite
their earlier assurance to the tribunal that if they received the
documents that they requested on February 9, 2005 on or
before February 21, 2005, they would abide by the
provisional timetable.
Thereafter, the tribunal issued Procedural Order No. 2 dated
February 18, 2005,42 in which it allowed the discovery and
inspection of the documents requested by petitioners that
were also scheduled on February 18, 2005. The request for
an audit of Bankards accounts was denied without prejudice
to the conduct of such audit during the course of the
hearings. Consequently, the tribunal amended the
provisional timetable, extending the deadline for petitioners
to file their brief of evidence and documents to March 21,
2005. The date of the initial hearing, however, remained on
April 11, 2005.

On February 18, 2005, petitioners were furnished the


documents that they requested RCBC.43 The parties also
agreed to meet again on February 23, 2005 to provide
petitioners with a "walk-through" of Bankards Statistical
Analysis System and to provide petitioners with a soft copy
of all of Bankards cardholders.44
During the February 23, 2005 meeting, EPCIBs
counsels/representatives were accompanied to the
Bankards Credit-MIS Group. There, Bankards
representative, Amor Lazaro, described and explained to
petitioners representatives the steps involved in procuring
and translating raw data on customer transactions. Lazaro
explained that Bankard captures cardholder information and
transactions through encoding or electronic data capture.
Thereafter, such data are transmitted to its main credit card
administration system. Such raw data are then sent to
Bankards Information Technology Group. Using a
proprietary software called SAS, the raw data is then
converted into SAS files which may be viewed, handled, and
converted into Excel files for reporting purposes. During the
walk-through, petitioners representatives asked questions
which were answered in detail by Lazaro.
At the same time, another Bankard representative, Felix L.
Sincoegue, accompanied two auditors/representatives of
petitioners to examine the journal vouchers and supporting
documents of Bankard consisting of several boxes. The
auditors randomly sifted through the boxes which they had
earlier requested to be inspected.
In addition, petitioners were furnished with an electronic
copy of the details of all cardholders, including relevant data
for aging of receivables for the years 2000 to 2003, as well
as data containing details of written-off accounts from 1999
to March 2000 contained in compact discs.45
On March 4, 2005, petitioners sent a letter46 to the tribunal
requesting for a postponement of the April 11, 2005 hearing
of the case. Petitioners claim that they could not confirm the
summaries prepared by RCBC, considering that RCBC
allegedly did not cooperate in providing data that would
facilitate their verification. Petitioners specifically mentioned
the following data: (1) list of names of cardholders whose
accounts are sources of data gathered or calculated in the
summaries; (2) references to the basic cardholder
documents from which such data were collected; and (3)
access to the underlying cardholder documents at a time
and under conditions mutually convenient to the parties. As
regards the compact discs of information provided to
petitioners, it is claimed that such information could not be
accessed as the software necessary for the handling of the
data could not be made immediately available to them.
In Procedural Order No. 3 dated March 11 2005,47 the initial
hearing was moved to June 13 to 16, 2005, considering that
petitioners failed to pay the advance on costs of the tribunal.
On March 23, 2005, RCBC paid the balance of the advance
on costs.48
On April 22, 2005, petitioners sent the tribunal a letter,49
requesting for the postponement of the hearing scheduled
on June 13 to 16, 2005 on the ground that they could not
submit their witness statements due to the volume of data
that they acquired from RCBC.

In a letter dated April 25, 2005,50 petitioners demanded from


RCBC that they be allowed to examine the journal vouchers
earlier made available to them during the February 23, 2005
meeting. This demand was answered by RCBC in a letter
dated April 26, 2005,51 stating that such demand was being
denied by virtue of Procedural Order No. 2, in which it was
ruled that further requests for discovery would not be made
except with leave of the chairperson of the tribunal.
In Procedural Order No. 4,52 the tribunal granted petitioners
request for the postponement of the hearing on June 13,
2005 and rescheduled it to November 21, 2005 in light of the
pending motions filed by EPCIB with the RTC in Makati City.
On July 29, 2005, the parties held a meeting wherein it was
agreed that petitioners would be provided with hard and soft
copies of the inventory of the journal vouchers earlier
presented to its representatives, while making the journal
vouchers available to petitioners for two weeks for
examination and photocopying.53
On September 2, 2005, petitioners applied for the
postponement of the November 21, 2005 hearing due to the
following: (1) petitioners had earlier filed a motion dated
August 11, 2005 with the RTC, in which the issue of whether
the non-Filipino members of the tribunal were illegally
practicing law in the Philippines by hearing their case, which
was still pending; and (2) the gathering and processing of
the data and documents made available by RCBC would
require 26 weeks.54 Such application was denied by the
tribunal in Procedural Order No. 5 dated September 16,
2005.55
On October 21, 2005, the tribunal issued Procedural Order
No. 6,56 postponing the November 21, 2005 hearing by virtue
of an order issued by the RTC in Makati City directing the
tribunal to reset the hearing for April 21 and 24, 2006.
Thereafter, in a letter dated January 18, 2006,57 petitioners
wrote the tribunal requesting that RCBC be directed to: (1)
provide petitioners with information identifying the journal
vouchers and other supporting documents that RCBC used
to arrive at the figures set out in the summaries and other
relevant information necessary to enable them to reconstruct
and/or otherwise understand the figures or amounts in each
summary; and (2) submit to petitioners the requested pieces
of information as soon as these are or have become
available, or in any case not later than five days.
In response to such letter, RCBC addressed a letter dated
January 31, 200658 to the tribunal claiming that the pieces of
information that petitioners requested are already known to
petitioners considering that RCBC merely maintained the
systems that they inherited when it bought Bankard from
petitioners. RCBC added that the documents that EPCIB
originally transmitted to it when RCBC bought Bankard were
all being made available to petitioners; thus, any missing
supporting documents from these files were never
transmitted to them in the first place.
Later, petitioners sent to the tribunal a letter dated February
10, 2006,59 asking that it direct RCBC to provide petitioners
with the supporting documents that RCBC mentioned in its
letter dated January 31, 2006. Petitioners wrote that should
RCBC fail to present such documents, RCBCs summaries
should be excluded from the records.

In a letter dated March 10, 2006,60 petitioners requested that


they be given an additional period of at least 47 days within
which to submit their evidence-in-chief with the
corresponding request for the cancellation of the hearing on
April 24, 2006. Petitioners submit that should such request
be denied, RCBCs summaries should be excluded from the
records.
On April 6, 2006, petitioners filed their arbitration briefs and
witness statements. By way of reply, on April 17, 2006,
RCBC submitted Volumes IV and V of its exhibits and
Volume II of its evidence-in-chief.61
On April 18, 2006, petitioners requested the tribunal that
they be allowed to file rejoinder briefs, or otherwise exclude
RCBCs reply brief and witness statements.62 In this request,
petitioners also requested that the hearing set for April 24,
2006 be moved. These requests were denied.
Consequently, on April 24 to 27, 2006, the arbitral tribunal
conducted hearings on the case.63
On December 4, 2006, petitioners submitted rejoinder
affidavits, raising new issues for the first time, to which
RCBC submitted Volume III of its evidence-in-chief by way of
a reply.
On January 16, 2007, both parties simultaneously submitted
their memoranda. On January 26, 2007, both parties
simultaneously filed their reply to the others memorandum.64
Thus, on September 27, 2007, the Partial Award was
rendered by the Tribunal.
Later, petitioners moved to vacate the said award before the
RTC. Such motion was denied by the trial court in the first
assailed order dated January 8, 2008. Petitioners then
moved for a reconsideration of such order, but their motion
was also denied in the second assailed order dated March
17, 2008.
The foregoing events unequivocally demonstrate ample
opportunity for petitioners to verify and examine RCBCs
summaries, accounting records, and reports. The pleadings
reveal that RCBC granted petitioners requests for
production of documents and accounting records. More so,
they had more than three (3) years to prepare for their
defense after RCBCs submission of its brief of evidence.
Finally, it must be emphasized that petitioners had the
opportunity to appeal the Partial Award to the RTC, which
they in fact did. Later, petitioners even moved for the
reconsideration of the denial of their appeal. Having been
able to appeal and move for a reconsideration of the
assailed rulings, petitioners cannot claim a denial of due
process.65
Petitioners right to due process was not breached.
As regards petitioners claim that its right to due process was
violated when they were allegedly denied the right to crossexamine RCBCs witnesses, their claim is also bereft of
merit.
Sec. 15 of RA 876 or the Arbitration Law provides that:

Section 15. Hearing by arbitrators. Arbitrators may, at the


commencement of the hearing, ask both parties for brief
statements of the issues in controversy and/or an agreed
statement of facts. Thereafter the parties may offer such
evidence as they desire, and shall produce such additional
evidence as the arbitrators shall require or deem necessary
to an understanding and determination of the dispute. The
arbitrators shall be the sole judge of the relevancy and
materiality of the evidence offered or produced, and
shall not be bound to conform to the Rules of Court
pertaining to evidence. Arbitrators shall receive as
exhibits in evidence any document which the parties
may wish to submit and the exhibits shall be properly
identified at the time of submission. All exhibits shall
remain in the custody of the Clerk of Court during the course
of the arbitration and shall be returned to the parties at the
time the award is made. The arbitrators may make an ocular
inspection of any matter or premises which are in dispute,
but such inspection shall be made only in the presence of all
parties to the arbitration, unless any party who shall have
received notice thereof fails to appear, in which event such
inspection shall be made in the absence of such party.
(Emphasis supplied.)
The well-settled rule is that administrative agencies
exercising quasi-judicial powers shall not be fettered by the
rigid technicalities of procedure, albeit they are, at all times
required, to adhere to the basic concepts of fair play. The
Court wrote in CMP Federal Security Agency, Inc. v. NLRC:
While administrative tribunals exercising quasi-judicial
powers, like the NLRC and Labor Arbiters, are free from the
rigidity of certain procedural requirements, they are
nonetheless bound by law and practice to observe the
fundamental and essential requirements of due process. The
standard of due process that must be met in administrative
tribunals allows a certain degree of latitude as long as
fairness is not ignored. Hence, it is not legally objectionable,
for being violative of due process, for the Labor Arbiter to
resolve a case based solely on the position papers, affidavits
or documentary evidence submitted by the parties. The
affidavits of witnesses in such case may take the place of
their direct testimony.66
Of the same tenor is our holding in Quiambao v. Court of
Appeals:
In resolving administrative cases, conduct of full-blown trial
is not indispensable to dispense justice to the parties. The
requirement of notice and hearing does not connote full
adversarial proceedings. Submission of position papers may
be sufficient for as long as the parties thereto are given the
opportunity to be heard. In administrative proceedings,
the essence of due process is simply an opportunity to
be heard, or an opportunity to explain ones side or
opportunity to seek a reconsideration of the action or
ruling complained of. This constitutional mandate is
deemed satisfied if a person is granted an opportunity
to seek reconsideration of an action or a ruling. It does
not require trial-type proceedings similar to those in the
courts of justice. Where opportunity to be heard either
through oral arguments or through pleadings is accorded,
there is no denial of procedural due process.67 (Emphasis
supplied.)
Citing Vertudes v. Buenaflor, petitioners also cry denial of
due process when they were allegedly denied the right to

cross-examine the witnesses presented by RCBC. It is true


that in Vertudes, we stated: "The right of a party to confront
and cross-examine opposing witnesses in a judicial litigation,
be it criminal or civil in nature, or in proceedings before
administrative tribunals with quasi-judicial powers, is a
fundamental right which is part of due process."68

tribunal, but declined to do so by reserving such right at a


later time. Having had the opportunity to cross-examine
RCBCs witnesses, petitioners were not denied their right to
due process.
RCBC Is Not Estopped from Questioning
the Financial Condition of Bankard

It is, however, equally true that:


[T]he right is a personal one which may be waived expressly
or impliedly by conduct amounting to a renunciation of the
right of cross-examination. Thus, where a party has had
the opportunity to cross-examine a witness but failed to
avail himself of it, he necessarily forfeits the right to
cross-examine and the testimony given on direct
examination of the witness will be received or allowed to
remain in the record.69 (Emphasis supplied.)
We also held in one case:
However, the right has always been understood as
requiring not necessarily an actual cross-examination
but merely an opportunity to exercise the right to crossexamine if desired. What is proscribed by statutory
norm and jurisprudential precept is the absence of the
opportunity to cross-examine. The right is a personal one
and may be waived expressly or impliedly. There is an
implied waiver when the party was given the opportunity to
confront and cross-examine an opposing witness but failed
to take advantage of it for reasons attributable to himself
alone. If by his actuations, the accused lost his opportunity to
cross-examine wholly or in part the witnesses against him,
his right to cross-examine is impliedly waived.70 (Emphasis
supplied.)
And later in Velez v. De Vera, the Court En Banc expounded
on the above rulings, adding that in administrative
proceedings, cross-examination is not indispensable, thus:

On estoppel, petitioners contend that RCBC already knew


the recording of the Bankard accounts before it paid the
balance of the purchase price and could no longer challenge
the financial statements of Bankard. RCBC, they claim, had
full control of the operations of Bankard since June 2, 2000
and RCBCs audit team reviewed the accounts in September
2000. Thus, RCBC is now precluded from denying the
fairness and accuracy of said accounts since it did not seek
price reduction under Sec. 5(h). Lastly, they asseverate that
RCBC continued with Bankards accounting policies and
practices and found them to conform to the generally
accepted accounting principles, contrary to RCBCs
allegations.
It also bears stating that in his dissent, retired Justice
Kapunan, an arbitral tribunal member, argued that Bankards
accounting practices were disclosed in the information
memorandum provided to RCBC; hence, RCBC was
supposed to know such accounting practices and to have
accepted their propriety even before the execution of the
SPA. He then argued that when it paid the purchase price on
December 29, 2000, RCBC could no longer claim that the
accounting practices that went into the reporting of the 1999
AFS of Bankard were not in accord with generally accepted
accounting principles. He pointed out that RCBC was bound
by the audit conducted by a certain Rubio prior to the full
payment of the purchase price of Bankard. Anchored on
these statements by Justice Kapunan, petitioners conclude
that RCBC is estopped from claiming that the former violated
their warranties under the SPA.
Petitioners contention is not meritorious.

Due process of law in administrative cases is not identical


with "judicial process" for a trial in court is not always
essential to due process. While a day in court is a matter of
right in judicial proceedings, it is otherwise in administrative
proceedings since they rest upon different principles. The
due process clause guarantees no particular form of
procedure and its requirements are not technical. Thus, in
certain proceedings of administrative character, the right to a
notice or hearing [is] not essential to due process of law. The
constitutional requirement of due process is met by a fair
hearing before a regularly established administrative agency
or tribunal. It is not essential that hearings be had before the
making of a determination if thereafter, there is available trial
and tribunal before which all objections and defenses to the
making of such determination may be raised and
considered. One adequate hearing is all that due process
requires. What is required for "hearing" may differ as the
functions of the administrative bodies differ.
The right to cross-examine is not an
indispensable aspect of due process.71 x x x
(Emphasis supplied.)
Clearly, the right to cross-examine a witness, although a
fundamental right of a party, may be waived. Petitioners
themselves admit having had the opportunity to crossexamine RCBCs witnesses during the hearings before the

Art. 1431 of the Civil Code, on the subject of estoppel,


provides: "Through estoppel an admission or representation
is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying
thereon."
The doctrine of estoppel is based upon the grounds of public
policy, fair dealing, good faith, and justice; and its purpose is
to forbid one to speak against ones own acts,
representations, or commitments to the injury of one to
whom they were directed and who reasonably relied on
them.72
We explained the principle of estoppel in Philippine Savings
Bank v. Chowking Food Corporation:
x x x The equitable doctrine of estoppel was explained by
this Court in Caltex (Philippines), Inc. v. Court of Appeals:
Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the
person relying thereon. A party may not go back on his own
acts and representations to the prejudice of the other party

who relied upon them. In the law of evidence, whenever a


party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe a
particular thing true, to act upon such belief, he cannot, in
any litigation arising out of such declaration, act, or omission,
be permitted to falsify it.

process of verifying the warranties covered under Sec. 5(g).


Considering that there must be a concurrence of the
elements of estoppel for it to arise, on this ground alone
such claim is already negated. As will be shown, however,
all the other elements of estoppel are likewise absent in the
case at bar.

The principle received further elaboration in Maneclang v.


Baun:

As to the second element, in order to establish estoppel,


RCBC must have intended that petitioners would act upon its
actions. This element is also missing. RCBC by its actions
did not mislead petitioners into believing that it waived any
claim for violation of a warranty. The periods under Sec. 5(g)
and 5(h) were still available to RCBC.

In estoppel by pais, as related to the party sought to be


estopped, it is necessary that there be a concurrence of the
following requisites: (a) conduct amounting to false
representation or concealment of material facts or at least
calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party
subsequently attempts to assert; (b) intent, or at least
expectation that this conduct shall be acted upon, or at least
influenced by the other party; and (c) knowledge, actual or
constructive of the actual facts.
Estoppel may vary somewhat in definition, but all authorities
agree that a party invoking the doctrine must have been
misled to ones prejudice. That is the final and, in reality,
most important of the elements of equitable estoppel. It is
this element that is lacking here.73 (Emphasis supplied.)
The elements of estoppel pertaining to the party estopped
are:
(1) conduct which amounts to a false representation or
concealment of material facts, or, at least, which calculated
to convey the impression that the facts are otherwise than,
and inconsistent with, those which the party subsequently
attempts to assert; (2) intention, or at least expectation, that
such conduct shall be acted upon by the other party; and (3)
knowledge, actual or constructive, of the actual facts.74
In the case at bar, the first element of estoppel in relation to
the party sought to be estopped is not present. Petitioners
claim that RCBC misrepresented itself when RCBC made it
appear that they considered petitioners to have sufficiently
complied with its warranties under Sec. 5(g) and 5(h), in
relation to Sec. 7 of the SPA. Petitioners position is that
"RCBC was aware of the manner in which the Bankard
accounts were recorded, well before it consummated the
SPA by taking delivery of the shares and paying the
outstanding 80% balance of the contract price."75
Petitioners, therefore, theorize that in this case, the first
element of estoppel in relation to the party sought to be
estopped is that RCBC made a false representation that it
considered Bankards accounts to be in order and, thus,
RCBC abandoned any claim under Sec. 5(g) and 5(h) by its
inaction.
Such contention is incorrect.
It must be emphasized that it was only after a second audit
that RCBC presented its claim to petitioners for violation of
Sec. 5(g), within the three (3)-year period prescribed. In
other words, RCBC, prior to such second audit, did not have
full and thorough knowledge of the correctness of Bankards
accounts, in relation to Sec. 5(g). RCBC, therefore, could not
have misrepresented itself considering that it was still in the

The element that petitioners relied on the acts and conduct


of RCBC is absent. The Court finds that there was no
reliance on the part of petitioners on the acts of RCBC that
would lead them to believe that the RCBC will forego the
filing of a claim under Sec. 5(g). The allegation that RCBC
knew that the Bankard accounts did not comply with
generally accepted accounting principles before payment
and, hence, it cannot question the financial statements of
Bankard is meritless. Precisely, the SPA explicitly provides
that claims for violation of the warranties under Sec. 5(g) can
still be filed within three (3) years from the closing date.
Petitioners contention that RCBC had full control of Bankard
operations after payment of the price and that an audit
undertaken by the Rubio team did not find anything wrong
with the accounts could not have plausibly misled petitioners
into believing that RCBC will waive its right to file a claim
under Sec. 5(g). After all, the period to file a claim under
Sec. 5(g) is three (3) years under Sec. 7, much longer than
the six (6)-month period under Sec. 5(h). Petitioners are fully
aware that the warranties under Sec. 5(g) (1997 up to March
2000) are of a wider scope than that of Sec. 5(h) (AFS of
1999 and UFS up to May 31, 2000), necessitating a longer
audit period than the six (6)-month period under Sec. 5(h).
The third element of estoppel in relation to the party sought
to be estopped is also absent considering that, as stated,
RCBC was still in the process of verifying the correctness of
Bankards accounts prior to presenting its claim of
overvaluation to petitioners. RCBC, therefore, had no
sufficient knowledge of the correctness of Bankards
accounts.
On another issue, RCBC could not have immediately
changed the Bankard accounting practices until it had
conducted a more extensive and thorough audit of Bankards
voluminous records and transactions to uncover any
irregularities. That would be the only logical explanation why
Bankards alleged irregular practices were maintained for
more than two (2) years from closing date. The fact that
RCBC continued with the audit of Bankards AFS and
records after the termination of the Rubio audit can only
send the clear message to petitioners that RCBC is still
entertaining the possibility of filing a claim under Sec. 5(g). It
cannot then be said that petitioners reliance on RCBCs acts
after full payment of the price could have misled them into
believing that no more claim will be presented by RCBC.
The Arbitral Tribunal explained in detail why estoppel is not
present in the case at bar, thus:
10.18 The audit exercise conducted by Mr. Legaspi and Mr.
Rubio was clearly not one comprehensive enough to have

discovered the problems later unearthed by Dr. Laya and


Dean Ledesma. x x x

section and thus as a possible reduction in the price to be


paid on settlement.

10.19 Although the powers of the TC [Transition Committee]


may have been widely expressed in the view of Mr. Rogelio
Chua, then in charge of Bankard x x x the TC conducted
meetings only to get updated on the status and progress of
Bankards operations. Commercially, one would expect that
an unpaid vendor expecting to receive 80% of a large
purchase price would not be receptive to a purchaser
making vast policy changes in the operation of the business
until the purchaser has paid up its money. It is more likely
that, until the settlement date, there was a practice of
maintaining the status quo at Bankard.

10.25 The fact that the purchase price was paid over in full
without any deduction in terms of clause 5(h) is not a bar to
the Claimant bringing a claim under 5(g) within the threeyear period. The fact that payment was made can be, as the
Tribunal has held, a barrier to a claim for rescission and
restitution ad inegrum. A claim for estoppel needs a finding
of representation by words of conduct or a shared
presumption that a right would not be relied upon. The party
relying on estoppel has to show reliance to its detriment or
that, otherwise, it would be unconscionable to resile from the
provision.

10.20 But neither the Claimant nor the TC did anything, in


the Tribunals view, which would have given the
Respondents the impression that they were being relieved
over the next three years of susceptibility to a claim under
clause 5(g). Maybe the TC could have been more proactive
in commissioning further or more in-depth audits but it was
not. It did not have to be. It is commercially unlikely that it
have been done so, with the necessary degree of attention
to detail, within the relatively short time between the
appointment of the TC and the ultimate settlement date of
the purchase a period of some three months. An interim
arrangement was obviously sensible to enable the Claimant
and its staff to become familiar with the practices and
procedures of Bankard.

10.26 Article 1431 of the Civil Code states:

10.21 The core consideration weighing with the Tribunal in


assessing these claims for estoppel is that the SPA allowed
two types of claim; one within six months under 5(h) and one
within three years under 5(g). The Tribunal has already held
the present claim is not barred by clause 5(h). It must
therefore have been within the reasonable contemplation of
the parties that a 5(g) claim could surface within the threeyear period and that it could be somewhat differently
assessed than the claim under 5(h). The Tribunal cannot find
estoppel by conduct either from the formation of the TC or
from the limited auditing exercise done by Mr. Rubio and Mr.
Legaspi. The onus proving estoppel is on the Respondents
and it has not been discharged.
10.22 If the parties had wished the avenues of relief for
misrepresentation afforded to the Claimant to have been
restricted to a claim under Clause 5(h), then they could have
said so. The special audit may have provided an answer to
any claim based on clause 5(h) but it cannot do so in respect
of a claim based on Clause 5(g). Clause 5(g) imposed a
positive obligation on the Respondents from which they
cannot be excused, simply by reason of either the formation
and conduct of the TC or of the limited audit.

"Through estoppel an admission or representation is


rendered conclusive upon the person making it, and cannot
be denied or disproved as against the person relying
thereon."
10.27 Clearly, there has to both an admission or
representation by (in this case) the Claimant, plus reliance
upon it by (in this case) the Respondents. The Tribunal
cannot find as proved any admission/representation that the
Claimant was abandoning a 5(g) claim, any reliance by
Respondents on an admission, and any detriment to the
Respondents such as would entitle them to have the
Claimant deprived of the benefit of clause 5(g). These
aspects of the claim of estoppel are rejected.
xxxx
10.42 The Tribunal is not the appropriate forum for deciding
whether there have been any regulatory or ethical infractions
by Bankard and/or the Claimant in setting the buy-back
price. It has no bearing on whether the Claimant must be
considered as having waived its right to claim against the
Respondents.
10.43 In the Tribunals view, neither any infraction by
Bankard in failing to advise the Central Bank of the experts
findings, nor a failure to put a tag on the accounts nor to
have said something to the shareholders in the buy-back
exercise operates as a "technical knock-out" of Claimants
claim.
10.44 The Tribunal notes that the conciliation process
mandated by the SPA took most of 2003 and this may
explain a part of the delay in commencing arbitral
proceedings.

10.23 The three-year limitation period obviously


contemplated that it could take some time to ascertain
whether there had been a breach of the GAAP standards,
etc. Such was the case. A six-month limitation period under
Clause 5(h), in contrast, presaged a somewhat less stringent
enquiry of the kind carried out by Mr. Rubio and Mr. Legaspi.

10.45 Whatever the status of Mr. Rubios and Mr. Legaspis


enquiries in late 2000, the Claimant was quite entitled to
commission subsequent reports from Dr. Laya and Dr.
Echanis and, on the basis of those reports, make a timeous
claim under clause 5(g) of the SPA.

10.24 Clause 2(3) of the Amendment to the SPA strengthens


the conclusion that the parties were concerned only with a
5(h) claim during the TCs reign. The focus of the audit
however intense it was conducted by Mr. Rubio and Mr.
Legaspi, was on establishing possible liability under that

10.46 In the Tribunals view, therefore, there is no merit in


Respondents various submissions that the Claimant is
debarred from prosecuting its claims on the grounds of
estoppel. There is just no proof of the necessary
representation to the Respondent, nor any detriment to the

Respondent proved. The grounds of delay and laches are


not substantiated.
In summary, the tribunal properly ruled that petitioners failed
to prove that the formation of the Transition Committee and
the conduct of the audit by Rubio and Legaspi were
admissions or representations by RCBC that it would not
pursue a claim under Sec. 5(g) and that petitioners relied on
such representation to their detriment. We agree with the
findings of the tribunal that estoppel is not present in the
situation at bar.
Additionally, petitioners claim that in Knecht v. Court of
Appeals76 and Coca-Cola Bottlers Philippines, Inc. v. Court
of Appeals (Coca-Cola),77 this Court ruled that the absence
of the element of reliance by a party on the representation of
another does not negate the principle of estoppel. Those
cases are, however, not on all fours with and cannot be
applied to this case.
In Knecht, the buyer had the opportunity of knowing the
conditions of the land he was buying early on in the
transaction, but proceeded with the sale anyway. According
to the Court, the buyer was estopped from claiming that the
vendor made a false representation as to the condition of the
land. This is not true in the instant case. RCBC did not
conduct a due diligence audit in relation to Sec.5(g) prior to
the sale due to petitioners express representations and
warranties. The examination conducted by RCBC, through
Rubio, after the execution of the SPA on June 2, 2000, was
confined to finding any breach under Sec. 5(h) for a possible
reduction of the purchase price prior to the payment of its
balance on December 31, 2000. Further, the parties clearly
agreed under Sec. 7 of the SPA to a three (3)-year period
from closing date within which to present a claim for
damages for violation of the warranties under the SPA.
Hence, Knecht is not a precedent to the case at bar.
So is Coca-Cola. As lessee, Coca-Cola Bottlers was well
aware of the nature and situation of the land relative to its
intended use prior to the signing of the contract. Its
subsequent assertion that the land was not suited for the
purpose it was leased was, therefore, cast aside for being
unmeritorious. Such circumstance does not obtain in the
instant case. There was no prior due diligence audit
conducted by RCBC, it having relied, as earlier stated, on
the warranties of petitioners with regard to the financial
condition of Bankard under Sec. 5(g). As such, Sec. 5(g)
guaranteed RCBC that it could file a claim for damages for
any mistakes in the AFS and UFS of Bankard. Clearly,
Coca-Cola also cannot be applied to the instant case.
It becomes evident from all of the foregoing findings that the
ICC-ICA is not guilty of any manifest disregard of the law on
estoppel. As shown above, the findings of the ICC-ICA in the
Partial Award are well-supported in law and grounded on
facts. The Partial Award must be upheld.
We close this disposition with the observation that a member
of the three-person arbitration panel was selected by
petitioners, while another was respondents choice. The
respective interests of the parties, therefore, are very much
safeguarded in the arbitration proceedings. Any suggestion,
therefore, on the partiality of the arbitration tribunal has to be
dismissed.

WHEREFORE, the instant petition is hereby DENIED. The


assailed January 8, 2008 and March 17, 2008 Orders of the
RTC, Branch 148 in Makati City are hereby AFFIRMED.
SO ORDERED.
G.R. No. 146717

November 22, 2004

TRANSFIELD PHILIPPINES, INC., petitioner,


vs.
LUZON HYDRO CORPORATION, AUSTRALIA and NEW
ZEALAND BANKING GROUP LIMITED and SECURITY
BANK CORPORATION, respondents.
Subject of this case is the letter of credit which has evolved
as the ubiquitous and most important device in international
trade. A creation of commerce and businessmen, the letter
of credit is also unique in the number of parties involved and
its supranational character.
Petitioner has appealed from the Decision1 of the Court of
Appeals in CA-G.R. SP No. 61901 entitled "Transfield
Philippines, Inc. v. Hon. Oscar Pimentel, et al.," promulgated
on 31 January 2001.2
On 26 March 1997, petitioner and respondent Luzon Hydro
Corporation (hereinafter, LHC) entered into a Turnkey
Contract3 whereby petitioner, as Turnkey Contractor,
undertook to construct, on a turnkey basis, a seventy (70)Megawatt hydro-electric power station at the Bakun River in
the provinces of Benguet and Ilocos Sur (hereinafter, the
Project). Petitioner was given the sole responsibility for the
design, construction, commissioning, testing and completion
of the Project.4
The Turnkey Contract provides that: (1) the target
completion date of the Project shall be on 1 June 2000, or
such later date as may be agreed upon between petitioner
and respondent LHC or otherwise determined in accordance
with the Turnkey Contract; and (2) petitioner is entitled to
claim extensions of time (EOT) for reasons enumerated in
the Turnkey Contract, among which are variations, force
majeure, and delays caused by LHC itself.5 Further, in case
of dispute, the parties are bound to settle their differences
through mediation, conciliation and such other means
enumerated under Clause 20.3 of the Turnkey Contract.6
To secure performance of petitioner's obligation on or before
the target completion date, or such time for completion as
may be determined by the parties' agreement, petitioner
opened in favor of LHC two (2) standby letters of credit both
dated 20 March 2000 (hereinafter referred to as "the
Securities"), to wit: Standby Letter of Credit No.
E001126/8400 with the local branch of respondent Australia
and New Zealand Banking Group Limited (ANZ Bank)7 and
Standby Letter of Credit No. IBDIDSB-00/4 with respondent
Security Bank Corporation (SBC)8 each in the amount of
US$8,988,907.00.9
In the course of the construction of the project, petitioner
sought various EOT to complete the Project. The extensions
were requested allegedly due to several factors which
prevented the completion of the Project on target date, such
as force majeure occasioned by typhoon Zeb, barricades
and demonstrations. LHC denied the requests, however.

This gave rise to a series of legal actions between the


parties which culminated in the instant petition.
The first of the actions was a Request for Arbitration which
LHC filed before the Construction Industry Arbitration
Commission (CIAC) on 1 June 1999.10 This was followed by
another Request for Arbitration, this time filed by petitioner
before the International Chamber of Commerce (ICC)11 on 3
November 2000. In both arbitration proceedings, the
common issues presented were: [1) whether typhoon Zeb
and any of its associated events constituted force majeure to
justify the extension of time sought by petitioner; and [2)
whether LHC had the right to terminate the Turnkey Contract
for failure of petitioner to complete the Project on target date.
Meanwhile, foreseeing that LHC would call on the Securities
pursuant to the pertinent provisions of the Turnkey
Contract,12 petitionerin two separate letters13 both dated
10 August 2000advised respondent banks of the
arbitration proceedings already pending before the CIAC and
ICC in connection with its alleged default in the performance
of its obligations. Asserting that LHC had no right to call on
the Securities until the resolution of disputes before the
arbitral tribunals, petitioner warned respondent banks that
any transfer, release, or disposition of the Securities in favor
of LHC or any person claiming under LHC would constrain it
to hold respondent banks liable for liquidated damages.
As petitioner had anticipated, on 27 June 2000, LHC sent
notice to petitioner that pursuant to Clause 8.214 of the
Turnkey Contract, it failed to comply with its obligation to
complete the Project. Despite the letters of petitioner,
however, both banks informed petitioner that they would pay
on the Securities if and when LHC calls on them.15
LHC asserted that additional extension of time would not be
warranted; accordingly it declared petitioner in default/delay
in the performance of its obligations under the Turnkey
Contract and demanded from petitioner the payment of
US$75,000.00 for each day of delay beginning 28 June 2000
until actual completion of the Project pursuant to Clause
8.7.1 of the Turnkey Contract. At the same time, LHC served
notice that it would call on the securities for the payment of
liquidated damages for the delay.16
On 5 November 2000, petitioner as plaintiff filed a Complaint
for Injunction, with prayer for temporary restraining order and
writ of preliminary injunction, against herein respondents as
defendants before the Regional Trial Court (RTC) of
Makati.17 Petitioner sought to restrain respondent LHC from
calling on the Securities and respondent banks from
transferring, paying on, or in any manner disposing of the
Securities or any renewals or substitutes thereof. The RTC
issued a seventy-two (72)-hour temporary restraining order
on the same day. The case was docketed as Civil Case No.
00-1312 and raffled to Branch 148 of the RTC of Makati.
After appropriate proceedings, the trial court issued an Order
on 9 November 2000, extending the temporary restraining
order for a period of seventeen (17) days or until 26
November 2000.18
The RTC, in its Order19 dated 24 November 2000, denied
petitioner's application for a writ of preliminary injunction. It
ruled that petitioner had no legal right and suffered no
irreparable injury to justify the issuance of the writ.

Employing the principle of "independent contract" in letters of


credit, the trial court ruled that LHC should be allowed to
draw on the Securities for liquidated damages. It debunked
petitioner's contention that the principle of "independent
contract" could be invoked only by respondent banks since
according to it respondent LHC is the ultimate beneficiary of
the Securities. The trial court further ruled that the banks
were mere custodians of the funds and as such they were
obligated to transfer the same to the beneficiary for as long
as the latter could submit the required certification of its
claims.
Dissatisfied with the trial court's denial of its application for a
writ of preliminary injunction, petitioner elevated the case to
the Court of Appeals via a Petition for Certiorari under Rule
65, with prayer for the issuance of a temporary restraining
order and writ of preliminary injunction.20 Petitioner submitted
to the appellate court that LHC's call on the Securities was
premature considering that the issue of its default had not
yet been resolved with finality by the CIAC and/or the ICC. It
asserted that until the fact of delay could be established,
LHC had no right to draw on the Securities for liquidated
damages.
Refuting petitioner's contentions, LHC claimed that petitioner
had no right to restrain its call on and use of the Securities
as payment for liquidated damages. It averred that the
Securities are independent of the main contract between
them as shown on the face of the two Standby Letters of
Credit which both provide that the banks have no
responsibility to investigate the authenticity or accuracy of
the certificates or the declarant's capacity or entitlement to
so certify.
In its Resolution dated 28 November 2000, the Court of
Appeals issued a temporary restraining order, enjoining LHC
from calling on the Securities or any renewals or substitutes
thereof and ordering respondent banks to cease and desist
from transferring, paying or in any manner disposing of the
Securities.
However, the appellate court failed to act on the application
for preliminary injunction until the temporary restraining order
expired on 27 January 2001. Immediately thereafter,
representatives of LHC trooped to ANZ Bank and withdrew
the total amount of US$4,950,000.00, thereby reducing the
balance in ANZ Bank to US$1,852,814.00.
On 2 February 2001, the appellate court dismissed the
petition for certiorari. The appellate court expressed
conformity with the trial court's decision that LHC could call
on the Securities pursuant to the first principle in credit law
that the credit itself is independent of the underlying
transaction and that as long as the beneficiary complied with
the credit, it was of no moment that he had not complied with
the underlying contract. Further, the appellate court held that
even assuming that the trial court's denial of petitioner's
application for a writ of preliminary injunction was erroneous,
it constituted only an error of judgment which is not
correctible by certiorari, unlike error of jurisdiction.
Undaunted, petitioner filed the instant Petition for Review
raising the following issues for resolution:
WHETHER THE "INDEPENDENCE PRINCIPLE" ON
LETTERS OF CREDIT MAY BE INVOKED BY A

BENEFICIARY THEREOF WHERE THE BENEFICIARY'S


CALL THEREON IS WRONGFUL OR FRAUDULENT.
WHETHER LHC HAS THE RIGHT TO CALL AND DRAW
ON THE SECURITIES BEFORE THE RESOLUTION OF
PETITIONER'S AND LHC'S DISPUTES BY THE
APPROPRIATE TRIBUNAL.
WHETHER ANZ BANK AND SECURITY BANK ARE
JUSTIFIED IN RELEASING THE AMOUNTS DUE UNDER
THE SECURITIES DESPITE BEING NOTIFIED THAT
LHC'S CALL THEREON IS WRONGFUL.
WHETHER OR NOT PETITIONER WILL SUFFER GRAVE
AND IRREPARABLE DAMAGE IN THE EVENT THAT:
A. LHC IS ALLOWED TO CALL AND DRAW ON, AND ANZ
BANK AND SECURITY BANK ARE ALLOWED TO
RELEASE, THE REMAINING BALANCE OF THE
SECURITIES PRIOR TO THE RESOLUTION OF THE
DISPUTES BETWEEN PETITIONER AND LHC.
B. LHC DOES NOT RETURN THE AMOUNTS IT HAD
WRONGFULLY DRAWN FROM THE SECURITIES.21
Petitioner contends that the courts below improperly relied
on the "independence principle" on letters of credit when this
case falls squarely within the "fraud exception rule."
Respondent LHC deliberately misrepresented the supposed
existence of delay despite its knowledge that the issue was
still pending arbitration, petitioner continues.
Petitioner asserts that LHC should be ordered to return the
proceeds of the Securities pursuant to the principle against
unjust enrichment and that, under the premises, injunction
was the appropriate remedy obtainable from the competent
local courts.
On 25 August 2003, petitioner filed a Supplement to the
Petition22 and Supplemental Memorandum,23 alleging that in
the course of the proceedings in the ICC Arbitration, a
number of documentary and testimonial evidence came out
through the use of different modes of discovery available in
the ICC Arbitration. It contends that after the filing of the
petition facts and admissions were discovered which
demonstrate that LHC knowingly misrepresented that
petitioner had incurred delays notwithstanding its
knowledge and admission that delays were excused under
the Turnkey Contractto be able to draw against the
Securities. Reiterating that fraud constitutes an exception to
the independence principle, petitioner urges that this
warrants a ruling from this Court that the call on the
Securities was wrongful, as well as contrary to law and basic
principles of equity. It avers that it would suffer grave
irreparable damage if LHC would be allowed to use the
proceeds of the Securities and not ordered to return the
amounts it had wrongfully drawn thereon.
In its Manifestation dated 8 September 2003,24 LHC
contends that the supplemental pleadings filed by petitioner
present erroneous and misleading information which would
change petitioner's theory on appeal.
In yet another Manifestation dated 12 April 2004,25 petitioner
alleges that on 18 February 2004, the ICC handed down its

Third Partial Award, declaring that LHC wrongfully drew


upon the Securities and that petitioner was entitled to the
return of the sums wrongfully taken by LHC for liquidated
damages.
LHC filed a Counter-Manifestation dated 29 June 2004,26
stating that petitioner's Manifestation dated 12 April 2004
enlarges the scope of its Petition for Review of the 31
January 2001 Decision of the Court of Appeals. LHC notes
that the Petition for Review essentially dealt only with the
issue of whether injunction could issue to restrain the
beneficiary of an irrevocable letter of credit from drawing
thereon. It adds that petitioner has filed two other
proceedings, to wit: (1) ICC Case No. 11264/TE/MW,
entitled "Transfield Philippines Inc. v. Luzon Hydro
Corporation," in which the parties made claims and
counterclaims arising from petitioner's
performance/misperformance of its obligations as contractor
for LHC; and (2) Civil Case No. 04-332, entitled "Transfield
Philippines, Inc. v. Luzon Hydro Corporation" before Branch
56 of the RTC of Makati, which is an action to enforce and
obtain execution of the ICC's partial award mentioned in
petitioner's Manifestation of 12 April 2004.
In its Comment to petitioner's Motion for Leave to File
Addendum to Petitioner's Memorandum, LHC stresses that
the question of whether the funds it drew on the subject
letters of credit should be returned is outside the issue in this
appeal. At any rate, LHC adds that the action to enforce the
ICC's partial award is now fully within the Makati RTC's
jurisdiction in Civil Case No. 04-332. LHC asserts that
petitioner is engaged in forum-shopping by keeping this
appeal and at the same time seeking the suit for
enforcement of the arbitral award before the Makati court.
Respondent SBC in its Memorandum, dated 10 March
200327 contends that the Court of Appeals correctly
dismissed the petition for certiorari. Invoking the
independence principle, SBC argues that it was under no
obligation to look into the validity or accuracy of the
certification submitted by respondent LHC or into the latter's
capacity or entitlement to so certify. It adds that the act
sought to be enjoined by petitioner was already fait accompli
and the present petition would no longer serve any remedial
purpose.
In a similar fashion, respondent ANZ Bank in its
Memorandum dated 13 March 200328 posits that its actions
could not be regarded as unjustified in view of the prevailing
independence principle under which it had no obligation to
ascertain the truth of LHC's allegations that petitioner
defaulted in its obligations. Moreover, it points out that since
the Standby Letter of Credit No. E001126/8400 had been
fully drawn, petitioner's prayer for preliminary injunction had
been rendered moot and academic.
At the core of the present controversy is the applicability of
the "independence principle" and "fraud exception rule" in
letters of credit. Thus, a discussion of the nature and use of
letters of credit, also referred to simply as "credits," would
provide a better perspective of the case.
The letter of credit evolved as a mercantile specialty, and the
only way to understand all its facets is to recognize that it is
an entity unto itself. The relationship between the beneficiary
and the issuer of a letter of credit is not strictly contractual,
because both privity and a meeting of the minds are lacking,

yet strict compliance with its terms is an enforceable right.


Nor is it a third-party beneficiary contract, because the issuer
must honor drafts drawn against a letter regardless of
problems subsequently arising in the underlying contract.
Since the bank's customer cannot draw on the letter, it does
not function as an assignment by the customer to the
beneficiary. Nor, if properly used, is it a contract of
suretyship or guarantee, because it entails a primary liability
following a default. Finally, it is not in itself a negotiable
instrument, because it is not payable to order or bearer and
is generally conditional, yet the draft presented under it is
often negotiable.29
In commercial transactions, a letter of credit is a financial
device developed by merchants as a convenient and
relatively safe mode of dealing with sales of goods to satisfy
the seemingly irreconcilable interests of a seller, who refuses
to part with his goods before he is paid, and a buyer, who
wants to have control of the goods before paying.30 The use
of credits in commercial transactions serves to reduce the
risk of nonpayment of the purchase price under the contract
for the sale of goods. However, credits are also used in nonsale settings where they serve to reduce the risk of
nonperformance. Generally, credits in the non-sale settings
have come to be known as standby credits.31
There are three significant differences between commercial
and standby credits. First, commercial credits involve the
payment of money under a contract of sale. Such credits
become payable upon the presentation by the sellerbeneficiary of documents that show he has taken affirmative
steps to comply with the sales agreement. In the standby
type, the credit is payable upon certification of a party's
nonperformance of the agreement. The documents that
accompany the beneficiary's draft tend to show that the
applicant has not performed. The beneficiary of a
commercial credit must demonstrate by documents that he
has performed his contract. The beneficiary of the standby
credit must certify that his obligor has not performed the
contract.32
By definition, a letter of credit is a written instrument whereby
the writer requests or authorizes the addressee to pay
money or deliver goods to a third person and assumes
responsibility for payment of debt therefor to the
addressee.33 A letter of credit, however, changes its nature
as different transactions occur and if carried through to
completion ends up as a binding contract between the
issuing and honoring banks without any regard or relation to
the underlying contract or disputes between the parties
thereto.34
Since letters of credit have gained general acceptability in
international trade transactions, the ICC has published from
time to time updates on the Uniform Customs and Practice
(UCP) for Documentary Credits to standardize practices in
the letter of credit area. The vast majority of letters of credit
incorporate the UCP.35 First published in 1933, the UCP for
Documentary Credits has undergone several revisions, the
latest of which was in 1993.36
In Bank of the Philippine Islands v. De Reny Fabric
Industries, Inc.,37 this Court ruled that the observance of the
UCP is justified by Article 2 of the Code of Commerce which
provides that in the absence of any particular provision in the
Code of Commerce, commercial transactions shall be
governed by usages and customs generally observed. More

recently, in Bank of America, NT & SA v. Court of Appeals,38


this Court ruled that there being no specific provisions which
govern the legal complexities arising from transactions
involving letters of credit, not only between or among banks
themselves but also between banks and the seller or the
buyer, as the case may be, the applicability of the UCP is
undeniable.
Article 3 of the UCP provides that credits, by their nature, are
separate transactions from the sales or other contract(s) on
which they may be based and banks are in no way
concerned with or bound by such contract(s), even if any
reference whatsoever to such contract(s) is included in the
credit. Consequently, the undertaking of a bank to pay,
accept and pay draft(s) or negotiate and/or fulfill any other
obligation under the credit is not subject to claims or
defenses by the applicant resulting from his relationships
with the issuing bank or the beneficiary. A beneficiary can in
no case avail himself of the contractual relationships existing
between the banks or between the applicant and the issuing
bank.
Thus, the engagement of the issuing bank is to pay the seller
or beneficiary of the credit once the draft and the required
documents are presented to it. The so-called "independence
principle" assures the seller or the beneficiary of prompt
payment independent of any breach of the main contract and
precludes the issuing bank from determining whether the
main contract is actually accomplished or not. Under this
principle, banks assume no liability or responsibility for the
form, sufficiency, accuracy, genuineness, falsification or
legal effect of any documents, or for the general and/or
particular conditions stipulated in the documents or
superimposed thereon, nor do they assume any liability or
responsibility for the description, quantity, weight, quality,
condition, packing, delivery, value or existence of the goods
represented by any documents, or for the good faith or acts
and/or omissions, solvency, performance or standing of the
consignor, the carriers, or the insurers of the goods, or any
other person whomsoever.39
The independent nature of the letter of credit may be: (a)
independence in toto where the credit is independent from
the justification aspect and is a separate obligation from the
underlying agreement like for instance a typical standby; or
(b) independence may be only as to the justification aspect
like in a commercial letter of credit or repayment standby,
which is identical with the same obligations under the
underlying agreement. In both cases the payment may be
enjoined if in the light of the purpose of the credit the
payment of the credit would constitute fraudulent abuse of
the credit.40
Can the beneficiary invoke the independence principle?
Petitioner insists that the independence principle does not
apply to the instant case and assuming it is so, it is a
defense available only to respondent banks. LHC, on the
other hand, contends that it would be contrary to common
sense to deny the benefit of an independent contract to the
very party for whom the benefit is intended. As beneficiary of
the letter of credit, LHC asserts it is entitled to invoke the
principle.
As discussed above, in a letter of credit transaction, such as
in this case, where the credit is stipulated as irrevocable,
there is a definite undertaking by the issuing bank to pay the

beneficiary provided that the stipulated documents are


presented and the conditions of the credit are complied
with.41 Precisely, the independence principle liberates the
issuing bank from the duty of ascertaining compliance by the
parties in the main contract. As the principle's nomenclature
clearly suggests, the obligation under the letter of credit is
independent of the related and originating contract. In brief,
the letter of credit is separate and distinct from the
underlying transaction.
Given the nature of letters of credit, petitioner's argument
that it is only the issuing bank that may invoke the
independence principle on letters of creditdoes not
impress this Court. To say that the independence principle
may only be invoked by the issuing banks would render
nugatory the purpose for which the letters of credit are used
in commercial transactions. As it is, the independence
doctrine works to the benefit of both the issuing bank and the
beneficiary.
Letters of credit are employed by the parties desiring to enter
into commercial transactions, not for the benefit of the
issuing bank but mainly for the benefit of the parties to the
original transactions. With the letter of credit from the issuing
bank, the party who applied for and obtained it may
confidently present the letter of credit to the beneficiary as a
security to convince the beneficiary to enter into the
business transaction. On the other hand, the other party to
the business transaction, i.e., the beneficiary of the letter of
credit, can be rest assured of being empowered to call on
the letter of credit as a security in case the commercial
transaction does not push through, or the applicant fails to
perform his part of the transaction. It is for this reason that
the party who is entitled to the proceeds of the letter of credit
is appropriately called "beneficiary."
Petitioner's argument that any dispute must first be resolved
by the parties, whether through negotiations or arbitration,
before the beneficiary is entitled to call on the letter of credit
in essence would convert the letter of credit into a mere
guarantee. Jurisprudence has laid down a clear distinction
between a letter of credit and a guarantee in that the
settlement of a dispute between the parties is not a prerequisite for the release of funds under a letter of credit. In
other words, the argument is incompatible with the very
nature of the letter of credit. If a letter of credit is drawable
only after settlement of the dispute on the contract entered
into by the applicant and the beneficiary, there would be no
practical and beneficial use for letters of credit in commercial
transactions.
Professor John F. Dolan, the noted authority on letters of
credit, sheds more light on the issue:
The standby credit is an attractive commercial device for
many of the same reasons that commercial credits are
attractive. Essentially, these credits are inexpensive and
efficient. Often they replace surety contracts, which tend to
generate higher costs than credits do and are usually
triggered by a factual determination rather than by the
examination of documents.
Because parties and courts should not confuse the different
functions of the surety contract on the one hand and the
standby credit on the other, the distinction between surety
contracts and credits merits some reflection. The two
commercial devices share a common purpose. Both ensure

against the obligor's nonperformance. They function,


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

Furthermore, LHC has a right rooted in the Contract to call


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

It is worthy of note that the propriety of LHC's call on the


Securities is largely intertwined with the fact of default which
is the self-same issue pending resolution before the arbitral
tribunals. To be able to declare the call on the Securities
wrongful or fraudulent, it is imperative to resolve, among
others, whether petitioner was in fact guilty of delay in the
performance of its obligation. Unfortunately for petitioner,
this Court is not called upon to rule upon the issue of
defaultsuch issue having been submitted by the parties to
the jurisdiction of the arbitral tribunals pursuant to the terms
embodied in their agreement.47
Would injunction then be the proper remedy to restrain the
alleged wrongful draws on the Securities?
Most writers agree that fraud is an exception to the
independence principle. Professor Dolan opines that the
untruthfulness of a certificate accompanying a demand for
payment under a standby credit may qualify as fraud
sufficient to support an injunction against payment.48 The
remedy for fraudulent abuse is an injunction. However,
injunction should not be granted unless: (a) there is clear
proof of fraud; (b) the fraud constitutes fraudulent abuse of
the independent purpose of the letter of credit and not only
fraud under the main agreement; and (c) irreparable injury
might follow if injunction is not granted or the recovery of
damages would be seriously damaged.49
In its complaint for injunction before the trial court, petitioner
alleged that it is entitled to a total extension of two hundred
fifty-three (253) days which would move the target
completion date. It argued that if its claims for extension
would be found meritorious by the ICC, then LHC would not
be entitled to any liquidated damages.50
Generally, injunction is a preservative remedy for the
protection of one's substantive right or interest; it is not a
cause of action in itself but merely a provisional remedy, an
adjunct to a main suit. The issuance of the writ of preliminary
injunction as an ancillary or preventive remedy to secure the
rights of a party in a pending case is entirely within the
discretion of the court taking cognizance of the case, the
only limitation being that this discretion should be exercised
based upon the grounds and in the manner provided by
law.51
Before a writ of preliminary injunction may be issued, there
must be a clear showing by the complaint that there exists a
right to be protected and that the acts against which the writ
is to be directed are violative of the said right.52 It must be
shown that the invasion of the right sought to be protected is
material and substantial, that the right of complainant is clear
and unmistakable and that there is an urgent and paramount
necessity for the writ to prevent serious damage.53 Moreover,
an injunctive remedy may only be resorted to when there is a
pressing necessity to avoid injurious consequences which
cannot be remedied under any standard compensation.54
In the instant case, petitioner failed to show that it has a
clear and unmistakable right to restrain LHC's call on the
Securities which would justify the issuance of preliminary
injunction. By petitioner's own admission, the right of LHC to
call on the Securities was contractually rooted and subject to
the express stipulations in the Turnkey Contract.55 Indeed,
the Turnkey Contract is plain and unequivocal in that it
conferred upon LHC the right to draw upon the Securities in

case of default, as provided in Clause 4.2.5, in relation to


Clause 8.7.2, thus:
4.2.5 The Employer shall give the Contractor seven days'
notice of calling upon any of the Securities, stating the
nature of the default for which the claim on any of the
Securities is to be made, provided that no notice will be
required if the Employer calls upon any of the Securities for
the payment of Liquidated Damages for Delay or for failure
by the Contractor to renew or extend the Securities within 14
days of their expiration in accordance with Clause 4.2.2.56
8.7.2 The Employer may, without prejudice to any other
method of recovery, deduct the amount of such damages
from any monies due, or to become due, to the Contractor
and/or by drawing on the Security.57
The pendency of the arbitration proceedings would not per
se make LHC's draws on the Securities wrongful or
fraudulent for there was nothing in the Contract which would
indicate that the parties intended that all disputes regarding
delay should first be settled through arbitration before LHC
would be allowed to call upon the Securities. It is therefore
premature and absurd to conclude that the draws on the
Securities were outright fraudulent given the fact that the
ICC and CIAC have not ruled with finality on the existence of
default.
Nowhere in its complaint before the trial court or in its
pleadings filed before the appellate court, did petitioner
invoke the fraud exception rule as a ground to justify the
issuance of an injunction.58 What petitioner did assert before
the courts below was the fact that LHC's draws on the
Securities would be premature and without basis in view of
the pending disputes between them. Petitioner should not be
allowed in this instance to bring into play the fraud exception
rule to sustain its claim for the issuance of an injunctive
relief. Matters, theories or arguments not brought out in the
proceedings below will ordinarily not be considered by a
reviewing court as they cannot be raised for the first time on
appeal.59 The lower courts could thus not be faulted for not
applying the fraud exception rule not only because the
existence of fraud was fundamentally interwoven with the
issue of default still pending before the arbitral tribunals, but
more so, because petitioner never raised it as an issue in its
pleadings filed in the courts below. At any rate, petitioner
utterly failed to show that it had a clear and unmistakable
right to prevent LHC's call upon the Securities.
Of course, prudence should have impelled LHC to await
resolution of the pending issues before the arbitral tribunals
prior to taking action to enforce the Securities. But, as earlier
stated, the Turnkey Contract did not require LHC to do so
and, therefore, it was merely enforcing its rights in
accordance with the tenor thereof. Obligations arising from
contracts have the force of law between the contracting
parties and should be complied with in good faith.60 More
importantly, pursuant to the principle of autonomy of
contracts embodied in Article 1306 of the Civil Code,61
petitioner could have incorporated in its Contract with LHC, a
proviso that only the final determination by the arbitral
tribunals that default had occurred would justify the
enforcement of the Securities. However, the fact is petitioner
did not do so; hence, it would have to live with its inaction.
With respect to the issue of whether the respondent banks
were justified in releasing the amounts due under the

Securities, this Court reiterates that pursuant to the


independence principle the banks were under no obligation
to determine the veracity of LHC's certification that default
has occurred. Neither were they bound by petitioner's
declaration that LHC's call thereon was wrongful. To repeat,
respondent banks' undertaking was simply to pay once the
required documents are presented by the beneficiary.
At any rate, should petitioner finally prove in the pending
arbitration proceedings that LHC's draws upon the Securities
were wrongful due to the non-existence of the fact of default,
its right to seek indemnification for damages it suffered
would not normally be foreclosed pursuant to general
principles of law.
Moreover, in a Manifestation,62 dated 30 March 2001, LHC
informed this Court that the subject letters of credit had been
fully drawn. This fact alone would have been sufficient
reason to dismiss the instant petition.
Settled is the rule that injunction would not lie where the acts
sought to be enjoined have already become fait accompli or
an accomplished or consummated act.63 In Ticzon v. Video
Post Manila, Inc.64 this Court ruled that where the period
within which the former employees were prohibited from
engaging in or working for an enterprise that competed with
their former employerthe very purpose of the preliminary
injunction has expired, any declaration upholding the
propriety of the writ would be entirely useless as there would
be no actual case or controversy between the parties insofar
as the preliminary injunction is concerned.
In the instant case, the consummation of the act sought to
be restrained had rendered the instant petition mootfor
any declaration by this Court as to propriety or impropriety of
the non-issuance of injunctive relief could have no practical
effect on the existing controversy.65 The other issues raised
by petitioner particularly with respect to its right to recover
the amounts wrongfully drawn on the Securities, according
to it, could properly be threshed out in a separate
proceeding.
One final point. LHC has charged petitioner of forumshopping. It raised the charge on two occasions. First, in its
Counter-Manifestation dated 29 June 200466 LHC alleges
that petitioner presented before this Court the same claim for
money which it has filed in two other proceedings, to wit: ICC
Case No. 11264/TE/MW and Civil Case No. 04-332 before
the RTC of Makati. LHC argues that petitioner's acts
constitutes forum-shopping which should be punished by the
dismissal of the claim in both forums. Second, in its
Comment to Petitioner's Motion for Leave to File Addendum
to Petitioner's Memorandum dated 8 October 2004, LHC
alleges that by maintaining the present appeal and at the
same time pursuing Civil Case No. 04-332wherein
petitioner pressed for judgment on the issue of whether the
funds LHC drew on the Securities should be returned
petitioner resorted to forum-shopping. In both instances,
however, petitioner has apparently opted not to respond to
the charge.
Forum-shopping is a very serious charge. It exists when a
party repetitively avails of several judicial remedies in
different courts, simultaneously or successively, all
substantially founded on the same transactions and the
same essential facts and circumstances, and all raising
substantially the same issues either pending in, or already

resolved adversely, by some other court.67 It may also


consist in the act of a party against whom an adverse
judgment has been rendered in one forum, of seeking
another and possibly favorable opinion in another forum
other than by appeal or special civil action of certiorari, or the
institution of two or more actions or proceedings grounded
on the same cause on the supposition that one or the other
court might look with favor upon the other party.68 To
determine whether a party violated the rule against forumshopping, the test applied is whether the elements of litis
pendentia are present or whether a final judgment in one
case will amount to res judicata in another.69 Forumshopping constitutes improper conduct and may be punished
with summary dismissal of the multiple petitions and direct
contempt of court.70

with Option to Purchase (RAWOP) dated June 1, 19874[4]


between Benguet and J.G. Realty, and excluded Benguet
from the joint Mineral Production Sharing Agreement
(MPSA) application over four mining claims. The March 17,
2004

WHEREFORE, the instant petition is DENIED, with costs


against petitioner.

denied

Benguets

Motion

for

Reconsideration.

The Facts

On June 1, 1987, Benguet and J.G. Realty


entered

Considering the seriousness of the charge of forumshopping and the severity of the sanctions for its violation,
the Court will refrain from making any definitive ruling on this
issue until after petitioner has been given ample opportunity
to respond to the charge.

Resolution

into

acknowledged

a
as

RAWOP,
the

wherein

owner

of

J.G.

Realty

was

four mining claims

respectively named as Bonito-I, Bonito-II, Bonito-III, and


Bonito-IV, with a total area of 288.8656 hectares, situated in
Barangay Luklukam, Sitio Bagong Bayan, Municipality of
Jose Panganiban, Camarines Norte. The parties also
executed a Supplemental Agreement5[5] dated June 1,
1987. The mining claims were covered by MPSA Application

Petitioner is hereby required to answer the charge of forumshopping within fifteen (15) days from notice.

No. APSA-V-0009 jointly filed by J.G. Realty as claimowner


and Benguet as operator.

SO ORDERED.
In the RAWOP, Benguet obligated itself to perfect
GR No. 163101, February 13, 2008
Benguet Corporation v. DENR,

the rights to the mining claims and/or otherwise acquire the


mining rights to the mineral claims. Within 24 months from

The instant petition under Rule 65 of the Rules of

the execution of the RAWOP, Benguet should also cause

Court seeks the annulment of the December 2, 2002

the examination of the mining claims for the purpose of

Decision1[1] and March 17, 2004 Resolution2[2] of the

determining whether or not they are worth developing with

Department of Environment and Natural Resources-Mining

reasonable probability of profitable production.

Adjudication Board (DENR-MAB) in MAB Case No. 0124-01

undertook also to furnish J.G. Realty with a report on the

(Mines Administrative Case No. R-M-2000-01) entitled

examination, within a reasonable time after the completion of

Benguet Corporation (Benguet) v. J.G. Realty and Mining

the examination. Moreover, also within the examination

Corporation (J.G. Realty). The December 2, 2002 Decision

period, Benguet shall conduct all necessary exploration in

upheld the March 19, 2001 Decision3[3] of the MAB Panel of

accordance with a prepared exploration program. If it

Arbitrators (POA) which canceled the Royalty Agreement

chooses to do so and before the expiration of the

Benguet

examination period, Benguet may undertake to develop the


mining claims upon written notice to J.G. Realty. Benguet
must then place the mining claims into commercial
productive stage within 24 months from the written

notice.6[6] It is also provided in the RAWOP that if the

permit. Benguet further claimed that the high graders

mining claims were placed in commercial production by

mentioned by J.G. Realty were already operating prior to

Benguet, J.G. Realty should be entitled to a royalty of five

Benguets taking over of the premises, and that J.G. Realty

percent (5%) of net realizable value, and to royalty for any

had the obligation of ejecting such small scale miners.

production done by Benguet whether during the examination

Benguet also alleged that the nature of the mining business

or development periods.

made it difficult to specify a time limit for the RAWOP.


Benguet then argued that the royalties due to J.G. Realty

Thus, on August 9, 1989, the Executive Vice-

were in fact in its office and ready to be picked up at any

President of Benguet, Antonio N. Tachuling, issued a letter

time. It appeared that, previously, the practice by J.G. Realty

informing J.G. Realty of its intention to develop the mining

was to pick-up checks from Benguet representing such

claims. However, on February 9, 1999, J.G. Realty, through

royalties. However, starting August 1994, J.G. Realty

its President, Johnny L. Tan, then sent a letter to the

allegedly refused to collect such checks from Benguet. Thus,

President of Benguet informing the latter that it was

Benguet posited that there was no valid ground for the

terminating the RAWOP on the following grounds:

termination of the RAWOP. It also reminded J.G. Realty that


it should submit the disagreement to arbitration rather than
unilaterally terminating the RAWOP.

a.
The fact that your company has failed to
perform the obligations set forth in the RAWOP,
i.e., to undertake development works within 2
years from the execution of the Agreement;

On June 7, 2000, J.G. Realty filed a Petition for


Declaration of Nullity/Cancellation of the RAWOP9[9] with

b.
Violation of the Contract by allowing high
graders to operate on our claim.

the Legaspi City POA, Region V, docketed as DENR Case


No. 2000-01 and entitled J.G. Realty v. Benguet.

c.
No stipulation was provided with respect to
the term limit of the RAWOP.

On

d.
Non-payment of the royalties thereon as
provided in the RAWOP.7[7]

March

19,

2001,

the

POA

issued

Decision,10[10] dwelling upon the issues of (1) whether the


arbitrators had jurisdiction over the case; and (2) whether

In

response,

Benguets

Manager

for

Legal

Services, Reynaldo P. Mendoza, wrote J.G. Realty a letter


dated March 8, 1999,8[8] therein alleging that Benguet

Benguet violated the RAWOP justifying the unilateral


cancellation of the RAWOP by J.G. Realty. The dispositive
portion stated:

complied with its obligations under the RAWOP by investing


PhP 42.4 million to rehabilitate the mines, and that the
commercial operation was hampered by the non-issuance of
a Mines Temporary Permit by the Mines and Geosciences
Bureau (MGB) which must be considered as force majeure,
entitling Benguet to an extension of time to prosecute such

WHEREFORE,
premises
considered, the June 01, 1987
[RAWOP]
and
its
Supplemental
Agreement is hereby declared cancelled
and without effect. BENGUET is hereby
excluded from the joint MPSA
Application over the mineral claims
denominated as BONITO-I, BONITOII, BONITO-III and BONITO-IV.
SO ORDERED.

Therefrom, Benguet filed a Notice of Appeal11[11]

However, this Court has already invalidated such

with the MAB on April 23, 2001, docketed as Mines

provision in Carpio v. Sulu Resources Development

Administrative Case No. R-M-2000-01. Thereafter, the MAB

Corp.,13[13] ruling that a decision of the MAB must first be

issued the assailed December 2, 2002 Decision. Benguet

appealed to the Court of Appeals (CA) under Rule 43 of the

then filed a Motion for Reconsideration of the assailed

Rules of Court, before recourse to this Court may be had.

Decision which was denied in the March 17, 2004 Resolution

We held, thus:

of the MAB. Hence, Benguet filed the instant petition.

The Issues
1.
There was serious and palpable error when
the Honorable Board failed to rule that the
contractual obligation of the parties to arbitrate
under the Royalty Agreement is mandatory.
2.
The Honorable Board exceeded its
jurisdiction when it sustained the cancellation of
the Royalty Agreement for alleged breach of
contract despite the absence of evidence.
3.
The Questioned Decision of the Honorable
Board in cancelling the RAWOP prejudice[d] the
substantial rights of Benguet under the contract to
the unjust enrichment of JG Realty.12[12]
Restated, the issues are: (1) Should the
controversy have first been submitted to arbitration
before the POA took cognizance of the case?; (2)
Was the cancellation of the RAWOP supported by
evidence?; and (3) Did the cancellation of the
RAWOP amount to unjust enrichment of J.G.
Realty at the expense of Benguet?
The Courts Ruling
Before we dwell on the substantive issues, we find
that the instant petition can be denied outright as Benguet
resorted to an improper remedy.

The last paragraph of Section 79 of Republic Act


No. (RA) 7942 or the Philippine Mining Act of 1995 states,
A petition for review by certiorari and question of law may
be filed by the aggrieved party with the Supreme Court
within thirty (30) days from receipt of the order or decision of
the [MAB].

To summarize, there are sufficient legal footings


authorizing a review of the MAB Decision under
Rule 43 of the Rules of Court. First, Section 30 of
Article VI of the 1987 Constitution, mandates that
[n]o law shall be passed increasing the appellate
jurisdiction of the Supreme Court as provided in
this Constitution without its advice and consent.
On the other hand, Section 79 of RA No. 7942
provides that decisions of the MAB may be
reviewed by this Court on a petition for review by
certiorari. This provision is obviously an
expansion of the Courts appellate jurisdiction, an
expansion to which this Court has not consented.
Indiscriminate enactment of legislation enlarging
the appellate jurisdiction of this Court would
unnecessarily burden it.
Second, when the Supreme Court, in the exercise
of its rule-making power, transfers to the CA
pending cases involving a review of a quasijudicial bodys decisions, such transfer relates only
to procedure; hence, it does not impair the
substantive and vested rights of the parties. The
aggrieved partys right to appeal is preserved;
what is changed is only the procedure by which
the appeal is to be made or decided. The parties
still have a remedy and a competent tribunal to
grant this remedy.
Third, the Revised Rules of Civil Procedure
included Rule 43 to provide a uniform rule on
appeals from quasi-judicial agencies. Under the
rule, appeals from their judgments and final orders
are now required to be brought to the CA on a
verified petition for review. A quasi-judicial agency
or body has been defined as an organ of
government, other than a court or legislature,
which affects the rights of private parties through
either adjudication or rule-making. MAB falls under
this definition; hence, it is no different from the
other quasi-judicial bodies enumerated under Rule
43. Besides, the introductory words in Section 1 of
Circular No. 1-91among these agencies are
indicate that the enumeration is not exclusive or
conclusive and acknowledge the existence of
other quasi-judicial agencies which, though not
expressly listed, should be deemed included
therein.
Fourth, the Court realizes that under Batas
Pambansa (BP) Blg. 129 as amended by RA No.

7902, factual controversies are usually involved in


decisions of quasi-judicial bodies; and the CA,
which is likewise tasked to resolve questions of
fact, has more elbow room to resolve them. By
including questions of fact among the issues that
may be raised in an appeal from quasi-judicial
agencies to the CA, Section 3 of Revised
Administrative Circular No. 1-95 and Section 3 of
Rule 43 explicitly expanded the list of such issues.
According to Section 3 of Rule 43, [a]n appeal
under this Rule may be taken to the Court of
Appeals within the period and in the manner
herein provided whether the appeal involves
questions of fact, of law, or mixed questions of fact
and law. Hence, appeals from quasi-judicial
agencies even only on questions of law may be
brought to the CA.
Fifth, the judicial policy of observing the hierarchy
of courts dictates that direct resort from
administrative agencies to this Court will not be
entertained, unless the redress desired cannot be
obtained from the appropriate lower tribunals, or
unless exceptional and compelling circumstances
justify availment of a remedy falling within and
calling for the exercise of our primary
jurisdiction.14[14]

The above principle was reiterated in Asaphil


Construction and Development Corporation v. Tuason, Jr.
(Asaphil).15[15] However, the Carpio ruling was not applied
to Asaphil as the petition in the latter case was filed in 1999
or three years before the promulgation of Carpio in 2002.
Here, the petition was filed on April 28, 2004 when the

First Issue: The case should have first been brought to


voluntary arbitration before the POA
Secs. 11.01 and 11.02 of the RAWOP pertinently provide:

11.01 Arbitration
Any disputes, differences or disagreements
between BENGUET and the OWNER with
reference to anything whatsoever pertaining to this
Agreement that cannot be amicably settled by
them shall not be cause of any action of any kind
whatsoever in any court or administrative agency
but shall, upon notice of one party to the other, be
referred to a Board of Arbitrators consisting of
three (3) members, one to be selected by
BENGUET, another to be selected by the OWNER
and the third to be selected by the aforementioned
two arbitrators so appointed.
xxxx
11.02

Court Action

No action shall be instituted in court as to any


matter in dispute as hereinabove stated, except to
enforce the decision of the majority of the
Arbitrators.16[16]
Thus, Benguet argues that the POA should have
first referred the case to voluntary arbitration
before taking cognizance of the case, citing Sec. 2
of RA 876 on persons and matters subject to
arbitration.
On the other hand, in denying such argument, the
POA ruled that:

Carpio decision was already applicable, thus Benguet should


have filed the appeal with the CA.

Petitioner having failed to properly appeal to the


CA under Rule 43, the decision of the MAB has become final
and executory. On this ground alone, the instant petition
must be denied.

While the parties may establish such stipulations


clauses, terms and conditions as they may deem
convenient, the same must not be contrary to law
and public policy. At a glance, there is nothing
wrong with the terms and conditions of the
agreement. But to state that an aggrieved party
cannot initiate an action without going to
arbitration would be tying ones hand even if there
is a law which allows him to do so.17[17]

Even if we entertain the petition although Benguet skirted the


appeal to the CA via Rule 43, still, the December 2, 2002
Decision and March 17, 2004 Resolution of the DENR-MAB
in MAB Case No. 0124-01 should be maintained.

The MAB, meanwhile, denied Benguets contention on the


ground of estoppel, stating:

Besides, by its own act, Benguet is already


estopped in questioning the jurisdiction of the
Panel of Arbitrators to hear and decide the case.
As pointed out in the appealed Decision, Benguet
initiated and filed an Adverse Claim docketed as
MAC-R-M-2000-02 over the same mining claims
without undergoing contractual arbitration. In this
particular case (MAC-R-M-2000-02) now subject
of the appeal, Benguet is likewise in estoppel from
questioning the competence of the Panel of
Arbitrators to hear and decide in the summary
proceedings J.G. Realtys petition, when Benguet
itself did not merely move for the dismissal of the
case but also filed an Answer with counterclaim
seeking affirmative reliefs from the Panel of
Arbitrators.18[18]

Section 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[s] arising out of valuations, appraisals or
other controversies which may be collateral,
incidental, precedent or subsequent to any issue
between the parties. (Emphasis supplied.)

Moreover, the MAB ruled that the contractual


provision on arbitration merely provides for an additional
forum or venue and does not divest the POA of the
jurisdiction to hear the case.19[19]

In RA 9285 or the Alternative Dispute Resolution


Act of 2004, the Congress reiterated the efficacy of
arbitration as an alternative mode of dispute resolution by
stating in Sec. 32 thereof that domestic arbitration shall still

In its July 20, 2004 Comment,20[20] J.G. Realty


reiterated the above rulings of the POA and MAB. It argued
that RA 7942 or the Philippine Mining Act of 1995 is a
special law which should prevail over the stipulations of the
parties and over a general law, such as RA 876. It also
argued that the POA cannot be considered as a court

be governed by RA 876. Clearly, a contractual stipulation


that requires prior resort to voluntary arbitration before the
parties can go directly to court is not illegal and is in fact
promoted by the State. Thus, petitioner correctly cites
several cases whereby arbitration clauses have been upheld
by this Court.21[21]

under the contemplation of RA 876 and that jurisprudence


saying that there must be prior resort to arbitration before
filing a case with the courts is inapplicable to the instant case
as the POA is itself already engaged in arbitration.

Moreover, the contention that RA 7942 prevails


over RA 876 presupposes a conflict between the two laws.
Such is not the case here.

To reiterate, availment of

voluntary arbitration before resort is made to the courts or


On this issue, we rule for Benguet.

quasi-judicial agencies of the government is a valid


contractual stipulation that must be adhered to by the

Sec. 2 of RA 876 elucidates the scope of

parties. As stated in Secs. 6 and 7 of RA 876:

arbitration:
Section 6. Hearing by court.A party aggrieved
by the failure, neglect or refusal of another to
perform under an agreement in writing
providing for arbitration may petition the court
for an order directing that such arbitration
proceed in the manner provided for in such
agreement. Five days notice in writing of the
hearing of such application shall be served either
personally or by registered mail upon the party in
default. The court shall hear the parties, and
upon being satisfied that the making of the
agreement or such failure to comply therewith
is not in issue, shall make an order directing
the parties to proceed to arbitration in

accordance with the terms of the agreement. If


the making of the agreement or default be in
issue the court shall proceed to summarily
hear such issue. If the finding be that no
agreement in writing providing for arbitration
was made, or that there is no default in the
proceeding thereunder, the proceeding shall
be dismissed. If the finding be that a written
provision for arbitration was made and there is
a default in proceeding thereunder, an order
shall be made summarily directing the parties
to proceed with the arbitration in accordance
with the terms thereof.

Comparatively, in Reformist Union of R.B. Liner,


Inc. vs. NLRC, compulsory arbitration has been
defined both as the process of settlement of labor
disputes by a government agency which has
the authority to investigate and to make an
award which is binding on all the parties, and as a
mode of arbitration where the parties are
compelled to accept the resolution of their dispute
through arbitration by a third party. While a
voluntary arbitrator is not part of the
governmental unit or labor departments
personnel, said arbitrator renders arbitration
services provided for under labor laws.23[23]
(Emphasis supplied.)

xxxx
Section 7. Stay of civil action.If any suit or
proceeding be brought upon an issue arising out
of an agreement providing for the arbitration
thereof, the court in which such suit or proceeding
is pending, upon being satisfied that the issue
involved in such suit or proceeding is referable to
arbitration, shall stay the action or proceeding until
an arbitration has been had in accordance with the
terms of the agreement: Provided, That the
applicant, for the stay is not in default in
proceeding with such arbitration. (Emphasis
supplied.)
In other words, in the event a case that should
properly be the subject of voluntary arbitration is erroneously

There is a clear distinction between compulsory


and voluntary arbitration. The arbitration provided by the
POA is compulsory, while the nature of the arbitration
provision in the RAWOP is voluntary, not involving any
government agency. Thus, J.G. Realtys argument on this
matter must fail.
As to J.G. Realtys contention that the provisions
of RA 876 cannot apply to the instant case which involves an
administrative agency, it must be pointed out that Section
11.01 of the RAWOP states that:

filed with the courts or quasi-judicial agencies, on motion of


the defendant, the court or quasi-judicial agency shall
determine whether such contractual provision for arbitration
is sufficient and effective. If in affirmative, the court or quasijudicial agency shall then order the enforcement of said
provision. Besides, in BF Corporation v. Court of Appeals,
we already ruled:

In this connection, it bears stressing that the lower


court has not lost its jurisdiction over the case.
Section 7 of Republic Act No. 876 provides that
proceedings therein have only been stayed. After
the special proceeding of arbitration has been
pursued and completed, then the lower court may
confirm the award made by the arbitrator.22[22]
J.G. Realtys contention, that prior resort to
arbitration is unavailing in the instant case
because the POAs mandate is to arbitrate
disputes involving mineral agreements, is
misplaced. A distinction must be made between
voluntary and compulsory arbitration. In Ludo and
Luym Corporation v. Saordino, the Court had the
occasion to distinguish between the two types of
arbitrations:

[Any controversy with regard to the contract] shall


not be cause of any action of any kind whatsoever
in any court or administrative agency but shall,
upon notice of one party to the other, be referred
to a Board of Arbitrators consisting of three (3)
members, one to be selected by BENGUET,
another to be selected by the OWNER and the
third to be selected by the aforementioned two
arbiters so appointed.24[24] (Emphasis supplied.)
There can be no quibbling that POA is a quasijudicial

body

which

forms

part

of

the

DENR,

an

administrative agency. Hence, the provision on mandatory


resort to arbitration, freely entered into by the parties, must
be held binding against them.25[25]

In sum, on the issue of whether POA should have


referred the case to voluntary arbitration, we find that,

the principle that the complainants must prove their


affirmative allegations.

indeed, POA has no jurisdiction over the dispute which is


governed by RA 876, the arbitration law.

With regard to the failure to pursue the MPSA


application, Benguet claims that the lengthy time of approval

However,

we find that Benguet

is

estopped from questioning the POAs jurisdiction.

already

of the application is due to the failure of the MGB to approve

As it

it. In other words, Benguet argues that the approval of the

were, when J.G. Realty filed DENR Case No. 2000-01,

application is solely in the hands of the MGB.

Benguet filed its answer and participated in the proceedings


before the POA, Region V.

Secondly, when the adverse

Benguets arguments are bereft of merit.

March 19, 2001 POA Decision was rendered, it filed an


appeal with the MAB in Mines Administrative Case No. R-M-

Sec. 14.05 of the RAWOP provides:

2000-01 and again participated in the MAB proceedings.


When the adverse December 2, 2002 MAB Decision was
promulgated, it filed a motion for reconsideration with the
MAB. When the adverse March 17, 2004 MAB Resolution
was issued, Benguet filed a petition with this Court pursuant
to Sec. 79 of RA 7942 impliedly recognizing MABs
jurisdiction. In this factual milieu, the Court rules that the
jurisdiction of POA and that of MAB can no longer be
questioned by Benguet at this late hour. What Benguet
should have done was to immediately challenge the POAs
jurisdiction by a special civil action for certiorari when POA
ruled that it has jurisdiction over the dispute. To redo the
proceedings fully participated in by the parties after the lapse
of seven years from date of institution of the original action
with the POA would be anathema to the speedy and efficient
administration of justice.

14.05 Bank Account


OWNER shall maintain a bank account at
___________ or any other bank from time to time
selected by OWNER with notice in writing to
BENGUET where BENGUET shall deposit to the
OWNERs credit any and all advances and
payments which may become due the OWNER
under this Agreement as well as the purchase
price herein agreed upon in the event that
BENGUET shall exercise the option to purchase
provided for in the Agreement. Any and all
deposits so made by BENGUET shall be a full
and complete acquittance and release to [sic]
BENGUET from any further liability to the
OWNER of the amounts represented by such
deposits. (Emphasis supplied.)
Evidently, the RAWOP itself provides for the mode
of royalty payment by Benguet. The fact that there was the
previous practice whereby J.G. Realty picked-up the checks
from Benguet is unavailing. The mode of payment is

Second Issue: The cancellation of the RAWOP was


supported by evidence

embodied in a contract between the parties. As such, the


contract must be considered as the law between the parties

The cancellation of the RAWOP by the POA was

and binding on both.26[26] Thus, after J.G. Realty informed

based on two grounds: (1) Benguets failure to pay J.G.

Benguet of the bank account where deposits of its royalties

Realtys royalties for the mining claims; and (2) Benguets

may be made, Benguet had the obligation to deposit the

failure to seriously pursue MPSA Application No. APSA-V-

checks. J.G. Realty had no obligation to furnish Benguet with

0009 over the mining claims.

a Board Resolution considering that the RAWOP itself


provided for such payment scheme.
Notably, Benguets claim that J.G. Realty must

As to the royalties, Benguet claims that the checks


representing payments for the royalties of J.G. Realty were
available for pick-up in its office and it is the latter which
refused to claim them. Benguet then thus concludes that it
did not violate the RAWOP for nonpayment of royalties.
Further, Benguet reasons that J.G. Realty has the burden of
proving that the former did not pay such royalties following

prove nonpayment of its royalties is both illogical and


unsupported by law and jurisprudence.

The allegation of nonpayment is not a positive


allegation as claimed by Benguet. Rather, such is a negative

MPSA Application No. APSA-V-0009 and to further develop


such mining claims.

allegation that does not require proof and in fact transfers


the burden of proof to Benguet. Thus, this Court ruled in
Jimenez v. National Labor Relations Commission:

In Car Cool Philippines, Inc. v. Ushio Realty and


Development Corporation, we defined unjust enrichment, as
follows:

As a general rule, one who


pleads payment has the burden of
proving it. Even where the plaintiff must
allege non-payment, the general rule is
that the burden rests on the defendant
to prove payment, rather than on the
plaintiff to prove non-payment. The
debtor has the burden of showing
with legal certainty that the obligation
has
been
discharged
by
payment.27[27] (Emphasis supplied.)

In the instant case, the obligation of Benguet to


pay royalties to J.G. Realty has been admitted and
supported by the provisions of the RAWOP. Thus, the
burden to prove such obligation rests on Benguet.

We have held that [t]here is unjust enrichment


when a person unjustly retains a benefit to the
loss of another, or when a person retains money
or property of another against the fundamental
principles of justice, equity and good conscience.
Article 22 of the Civil Code provides that [e]very
person who through an act of performance by
another, or any other means, acquires or comes
into possession of something at the expense of
the latter without just or legal ground, shall return
the same to him. The principle of unjust
enrichment under Article 22 requires two
conditions: (1) that a person is benefited without a
valid basis or justification, and (2) that such benefit
is derived at anothers expense or damage.
There is no unjust enrichment when the
person who will benefit has a valid claim to
such benefit.28[28] (Emphasis supplied.)

It should also be borne in mind that MPSA

Clearly, there is no unjust enrichment in the instant

Application No. APSA-V-0009 has been pending with the

case as the cancellation of the RAWOP, which left Benguet

MGB for a considerable length of time. Benguet, in the

without any legal right to participate in further developing the

RAWOP, obligated itself to perfect the rights to the mining

mining claims, was brought about by its violation of the

claims and/or otherwise acquire the mining rights to the

RAWOP. Hence, Benguet has no one to blame but itself for

mineral claims but failed to present any evidence showing

its predicament.

that it exerted efforts to speed up and have the application


approved. In fact, Benguet never even alleged that it

WHEREFORE, we DISMISS the petition, and

continuously followed-up the application with the MGB and

AFFIRM the December 2, 2002 Decision and March 17,

that it was in constant communication with the government

2004 Resolution of the DENR-MAB in MAB Case No. 0124-

agency for the expeditious resolution of the application. Such

01 upholding the cancellation of the June 1, 1987 RAWOP.

allegations would show that, indeed, Benguet was remiss in

No costs.

prosecuting the MPSA application and clearly failed to


comply with its obligation in the RAWOP.

SO ORDERED.

Third Issue: There is no unjust enrichment in the instant


case
Based

on

the

foregoing

discussion,

the

cancellation of the RAWOP was based on valid grounds and


is, therefore, justified. The necessary implication of the
cancellation is the cessation of Benguets right to prosecute

G.R. No. 198075

September 4, 2013

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


Petitioner,
vs.
MAKATI ROTARY CLUB FOUNDATION, INC.,
Respondent.

This case is an appeal1 from the Decision2 dated 19 August


2011 of the Court of Appeals in C.A.-G.R. SP No. 116865.
The facts:
The Donation
Fedders Koppel, Incorporated (FKI), a manufacturer of airconditioning products, was the registered owner of a parcel
of land located at Km. 16, South Superhighway, Paraaque
City (subject land).3 Within the subject land are buildings and
other improvements dedicated to the business of FKI.4
In 1975, FKI5 bequeathed the subject land (exclusive of the
improvements thereon) in favor of herein respondent Makati
Rotary Club Foundation, Incorporated by way of a
conditional donation.6 The respondent accepted the donation
with all of its conditions.7 On 26 May1975, FKI and the
respondent executed a Deed of Donation8 evidencing their
consensus.
The Lease and the Amended Deed of Donation
One of the conditions of the donation required the
respondent to lease the subject land back to FKI under
terms specified in their Deed of Donation.9 With the
respondents acceptance of the donation, a lease agreement
between FKI and the respondent was, therefore, effectively
incorporated in the Deed of Donation.
Pertinent terms of such lease agreement, as provided in the
Deed of Donation , were as follows:
1. The period of the lease is for twenty-five (25) years,10 or
until the 25th of May 2000;
2. The amount of rent to be paid by FKI for the first twentyfive (25) years is P40,126.00 per annum .11
The Deed of Donation also stipulated that the lease over the
subject property is renewable for another period of twentyfive (25) years " upon mutual agreement" of FKI and the
respondent.12 In which case, the amount of rent shall be
determined in accordance with item 2(g) of the Deed of
Donation, viz:
g. The rental for the second 25 years shall be the subject of
mutual agreement and in case of disagreement the matter
shall be referred to a Board of three Arbitrators appointed
and with powers in accordance with the Arbitration Law of
the Philippines, Republic Act 878, whose function shall be to
decide the current fair market value of the land excluding the
improvements, provided, that, any increase in the fair market
value of the land shall not exceed twenty five percent (25%)
of the original value of the land donated as stated in
paragraph 2(c) of this Deed. The rental for the second 25
years shall not exceed three percent (3%) of the fair market
value of the land excluding the improvements as determined
by the Board of Arbitrators.13
In October 1976, FKI and the respondent executed an
Amended Deed of Donation14 that reiterated the provisions
of the Deed of Donation , including those relating to the
lease of the subject land.

Verily, by virtue of the lease agreement contained in the


Deed of Donation and Amended Deed of Donation , FKI was
able to continue in its possession and use of the subject
land.
2000 Lease Contract
Two (2) days before the lease incorporated in the Deed of
Donation and Amended Deed of Donation was set to expire,
or on 23 May 2000, FKI and respondent executed another
contract of lease ( 2000 Lease Contract )15 covering the
subject land. In this 2000 Lease Contract, FKI and
respondent agreed on a new five-year lease to take effect on
the 26th of May 2000, with annual rents ranging from
P4,000,000 for the first year up to P4,900,000 for the fifth
year.16 The 2000 Lease Contract also contained an
arbitration clause enforceable in the event the parties come
to disagreement about the" interpretation, application and
execution" of the lease, viz :
19. Governing Law The provisions of this 2000 Lease
Contract shall be governed, interpreted and construed in all
aspects in accordance with the laws of the Republic of the
Philippines.
Any disagreement as to the interpretation, application or
execution of this 2000 Lease Contract shall be submitted to
a board of three (3) arbitrators constituted in accordance
with the arbitration law of the Philippines. The decision of the
majority of the arbitrators shall be binding upon FKI and
respondent.17 (Emphasis supplied)
2005 Lease Contract
After the 2000 Lease Contract expired, FKI and respondent
agreed to renew their lease for another five (5) years. This
new lease (2005 Lease Contract )18 required FKI to pay a
fixed annual rent of P4,200,000.19 In addition to paying the
fixed rent, however, the 2005 Lease Contract also obligated
FKI to make a yearly " donation " of money to the
respondent.20 Such donations ranged from P3,000,000 for
the first year up to P3,900,000for the fifth year.21 Notably, the
2005 Lease Contract contained an arbitration clause similar
to that in the 2000 Lease Contract, to wit:
19. Governing Law The provisions of this 2005 Lease
Contract shall be governed, interpreted and construed in all
aspects in accordance with the laws of the Republic of the
Philippines.
Any disagreement as to the interpretation, application or
execution of this 2005 Lease Contract shall be submitted to
a board of three (3) arbitrators constituted in accordance
with the arbitration law of the Philippines. The decision of the
majority of the arbitrators shall be binding upon FKI and
respondent.22 (Emphasis supplied)
The Assignment and Petitioners Refusal to Pay
From 2005 to 2008, FKI faithfully paid the rentals and "
donations "due it per the 2005 Lease Contract.23 But in June
of 2008, FKI sold all its rights and properties relative to its
business in favor of herein petitioner Koppel, Incorporated.24
On 29 August 2008, FKI and petitioner executed an
Assignment and Assumption of Lease and Donation25

wherein FKI, with the conformity of the respondent, formally


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

severely disproportionate," "unconscionable" and "in clear


violation to the nominal rentals mandated by the Amended
Deed of Donation." In lieu of the amount demanded by the
respondent, which purportedly totaled to P8,394,000.00,
exclusive of interests, petitioner offered to pay only
P80,502.79,35 in accordance with the rental provisions of the
Deed of Donation and Amended Deed of Donation.36
Respondent refused this offer.37
On 25 September 2009, respondent sent another letter
(Second Demand Letter)38 to petitioner, reiterating its
demand for the payment of the obligations already due
under the 2005 Lease Contract. The Second Demand Letter
also contained a demand for petitioner to " immediately
vacate the leased premises " should it fail to pay such
obligations within seven (7) days from its receipt of the
letter.39 The respondent warned of taking " legal steps " in
the event that petitioner failed to comply with any of the said
demands.40 Petitioner received the Second Demand Letter
on 26September 2009.41
Petitioner refused to comply with the demands of the
respondent. Instead, on 30 September 2009, petitioner filed
with the Regional Trial Court (RTC) of Paraaque City a
complaint42 for the rescission or cancellation of the Deed of
Donation and Amended Deed of Donation against the
respondent. This case is currently pending before Branch
257 of the RTC, docketed as Civil Case No. CV 09-0346.
The Ejectment Suit
On 5 October 2009, respondent filed an unlawful detainer
case43 against the petitioner before the Metropolitan Trial
Court (MeTC) of Paraaque City. The ejectment case was
raffled to Branch 77 and was docketed as Civil Case No.
2009-307.
On 4 November 2009, petitioner filed an Answer with
Compulsory Counterclaim.44 In it, petitioner reiterated its
objection over the rental stipulations of the 2005 Lease
Contract for being violative of the material conditions of the
Deed of Donation and Amended Deed of Donation.45 In
addition to the foregoing, however, petitioner also interposed
the following defenses:
1. The MeTC was not able to validly acquire jurisdiction over
the instant unlawful detainer case in view of the insufficiency
of respondents demand.46 The First Demand Letter did not
contain an actual demand to vacate the premises and,
therefore, the refusal to comply there with does not give rise
to an action for unlawful detainer.47

The Demand Letters


On 1 June 2009, respondent sent a letter (First Demand
Letter)31 to petitioner notifying the latter of its default " per
Section 12 of the 2005 Lease Contract " and demanding for
the settlement of the rent and " donation " due for the year
2009. Respondent, in the same letter, further intimated of
canceling the 2005 Lease Contract should petitioner fail to
settle the said obligations.32 Petitioner received the First
Demand Letter on2 June 2009.33
On 22 September 2009, petitioner sent a reply34 to
respondent expressing its disagreement over the rental
stipulations of the 2005 Lease Contract calling them "

2. Assuming that the MeTC was able to acquire jurisdiction,


it may not exercise the same until the disagreement between
the parties is first referred to arbitration pursuant to the
arbitration clause of the 2005 Lease Contract.48
3. Assuming further that the MeTC has jurisdiction that it can
exercise, ejectment still would not lie as the 2005 Lease
Contract is void abinitio.49 The stipulation in the 2005 Lease
Contract requiring petitioner to give yearly " donations " to
respondent is a simulation, for they are, in fact, parts of the
rent. 50 Such grants were only denominated as " donations "
in the contract so that the respondentanon-stock and nonprofit corporationcould evade payment of the taxes
otherwise due thereon.51

In due course, petitioner and respondent both submitted


their position papers, together with their other documentary
evidence.52 Remarkably, however, respondent failed to
submit the Second Demand Letter as part of its documentary
evidence.
Rulings of the MeTC, RTC and Court of Appeals
On 27 April 2010, the MeTC rendered judgment53 in favor of
the petitioner. While the MeTC refused to dismiss the action
on the ground that the dispute is subject to arbitration, it
nonetheless sided with the petitioner with respect to the
issues regarding the insufficiency of the respondents
demand and the nullity of the 2005 Lease Contract.54 The
MeTC thus disposed:
WHEREFORE, judgment is hereby rendered dismissing the
case x x x, without pronouncement as to costs.
SO ORDERED.55
The respondent appealed to the Regional Trial Court (RTC).
This appeal was assigned to Branch 274 of the RTC of
Paraaque City and was docketed as Civil Case No. 100255.

unlawful detainer action.58 The First Demand Letter, in


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

On 29 October 2010, the RTC reversed56 the MeTC and


ordered the eviction of the petitioner from the subject land:

On 19 August 2011, the Court of Appeals affirmed66 the


decision of the RTC:

WHEREFORE, all the foregoing duly considered, the


appealed Decision of the Metropolitan Trial Court, Branch
77, Paraaque City, is hereby reversed, judgment is thus
rendered in favor of the plaintiff-appellant and against the
defendant-appellee, and ordering the latter

WHEREFORE , the petition is DENIED . The assailed


Decision of the Regional Trial Court of Paraaque City,
Branch 274, in Civil Case No. 10-0255 is AFFIRMED.

(1) to vacate the lease[d] premises made subject of the case


and to restore the possession thereof to the plaintiffappellant;
(2) to pay to the plaintiff-appellant the amount of Nine Million
Three Hundred Sixty Two Thousand Four Hundred Thirty Six
Pesos (P9,362,436.00), penalties and net of 5% withholding
tax, for the lease period from May 25, 2009 to May 25, 2010
and such monthly rental as will accrue during the pendency
of this case;

SO ORDERED.67
Hence, this appeal.
On 5 September 2011, this Court granted petitioners prayer
for the issuance of a Temporary Restraining Order68 staying
the immediate implementation of the decisions adverse to it.
OUR RULING

(3) to pay attorneys fees in the sum of P100,000.00 plus


appearance fee of P3,000.00;

Independently of the merits of the case, the MeTC, RTC and


Court of Appeals all erred in overlooking the significance of
the arbitration clause incorporated in the 2005 Lease
Contract . As the Court sees it, that is a fatal mistake.

(4) and costs of suit.

For this reason, We grant the petition.

As to the existing improvements belonging to the defendantappellee, as these were built in good faith, the provisions of
Art. 1678of the Civil Code shall apply.

Present Dispute is Arbitrable Under the


Arbitration Clause of the 2005 Lease
Agreement Contract

SO ORDERED.57

Going back to the records of this case, it is discernable that


the dispute between the petitioner and respondent emanates
from the rental stipulations of the 2005 Lease Contract. The
respondent insists upon the enforce ability and validity of
such stipulations, whereas, petitioner, in substance,
repudiates them. It is from petitioners apparent breach of
the 2005 Lease Contract that respondent filed the instant
unlawful detainer action.

The ruling of the RTC is premised on the following


ratiocinations:
1. The respondent had adequately complied with the
requirement of demand as a jurisdictional precursor to an

One cannot escape the conclusion that, under the foregoing


premises, the dispute between the petitioner and respondent
arose from the application or execution of the 2005 Lease
Contract . Undoubtedly, such kinds of dispute are covered
by the arbitration clause of the 2005 Lease Contract to wit:
19. Governing Law The provisions of this 2005 Lease
Contract shall be governed, interpreted and construed in all
aspects in accordance with the laws of the Republic of the
Philippines.
Any disagreement as to the interpretation, application or
execution of this 2005 Lease Contract shall be submitted to
a board of three (3) arbitrators constituted in accordance
with the arbitration law of the Philippines. The decision of the
majority of the arbitrators shall be binding upon FKI and
respondent.69 (Emphasis supplied)
The arbitration clause of the 2005 Lease Contract stipulates
that "any disagreement" as to the " interpretation, application
or execution " of the 2005 Lease Contract ought to be
submitted to arbitration.70 To the mind of this Court, such
stipulation is clear and is comprehensive enough so as to
include virtually any kind of conflict or dispute that may arise
from the 2005 Lease Contract including the one that
presently besets petitioner and respondent.
The application of the arbitration clause of the 2005 Lease
Contract in this case carries with it certain legal effects.
However, before discussing what these legal effects are, We
shall first deal with the challenges posed against the
application of such arbitration clause.
Challenges Against the Application of the
Arbitration Clause of the 2005 Lease
Contract
Curiously, despite the lucidity of the arbitration clause of the
2005 Lease Contract, the petitioner, as well as the MeTC,
RTC and the Court of Appeals, vouched for the nonapplication of the same in the instant case. A plethora of
arguments was hurled in favor of bypassing arbitration. We
now address them.
At different points in the proceedings of this case, the
following arguments were offered against the application of
the arbitration clause of the 2005 Lease Contract:
1. The disagreement between the petitioner and respondent
is non-arbitrable as it will inevitably touch upon the issue of
the validity of the 2005 Lease Contract.71 It was submitted
that one of the reasons offered by the petitioner in justifying
its failure to pay under the 2005 Lease Contract was the
nullity of such contract for being contrary to law and public
policy.72 The Supreme Court, in Gonzales v. Climax Mining,
Ltd.,73 held that " the validity of contract cannot be subject of
arbitration proceedings " as such questions are " legal in
nature and require the application and interpretation of laws
and jurisprudence which is necessarily a judicial function ." 74
2. The petitioner cannot validly invoke the arbitration clause
of the 2005 Lease Contract while, at the same time, impugn
such contracts validity.75

3. Even assuming that it can invoke the arbitration clause


whilst denying the validity of the 2005 Lease Contract ,
petitioner still did not file a formal application before the
MeTC so as to render such arbitration clause operational. 76
Section 24 of Republic Act No. 9285 requires the party
seeking arbitration to first file a " request " or an application
therefor with the court not later than the preliminary
conference.77
4. Petitioner and respondent already underwent Judicial
Dispute Resolution (JDR) proceedings before the RTC. 78
Hence, a further referral of the dispute to arbitration would
only be circuitous.79 Moreover, an ejectment case, in view of
its summary nature, already fulfills the prime purpose of
arbitration, i.e. , to provide parties in conflict with an
expedient method for the resolution of their dispute.80
Arbitration then would no longer be necessary in this case. 81
None of the arguments have any merit.
First. As highlighted in the previous discussion, the
disagreement between the petitioner and respondent falls
within the all-encompassing terms of the arbitration clause of
the 2005 Lease Contract. While it may be conceded that in
the arbitration of such disagreement, the validity of the 2005
Lease Contract, or at least, of such contracts rental
stipulations would have to be determined, the same would
not render such disagreement non-arbitrable. The quotation
from Gonzales that was used to justify the contrary position
was taken out of context. A rereading of Gonzales would fix
its relevance to this case.
In Gonzales, a complaint for arbitration was filed before the
Panel of Arbitrators of the Mines and Geosciences Bureau
(PA-MGB) seeking the nullification of a Financial Technical
Assistance Agreement and other mining related agreements
entered into by private parties.82
Grounds invoked for the nullification of such agreements
include fraud and unconstitutionality.83 The pivotal issue that
confronted the Court then was whether the PA-MGB has
jurisdiction over that particular arbitration complaint. Stated
otherwise, the question was whether the complaint for
arbitration raises arbitrable issues that the PA-MGB can take
cognizance of.
Gonzales decided the issue in the negative. In holding that
the PA-MGB was devoid of any jurisdiction to take
cognizance of the complaint for arbitration, this Court pointed
out to the provisions of R.A. No. 7942, or the Mining Act of
1995, which granted the PA-MGB with exclusive original
jurisdiction only over mining disputes, i.e., disputes involving
" rights to mining areas," "mineral agreements or permits,"
and " surface owners, occupants, claim holders or
concessionaires" requiring the technical knowledge and
experience of mining authorities in order to be resolved.84
Accordingly, since the complaint for arbitration in Gonzales
did not raise mining disputes as contemplated under R.A.
No. 7942 but only issues relating to the validity of certain
mining related agreements, this Court held that such
complaint could not be arbitrated before the PA-MGB.85 It is
in this context that we made the pronouncement now in
discussion:
Arbitration before the Panel of Arbitrators is proper only
when there is a disagreement between the parties as to

some provisions of the contract between them, which needs


the interpretation and the application of that particular
knowledge and expertise possessed by members of that
Panel. It is not proper when one of the parties repudiates the
existence or validity of such contract or agreement on the
ground of fraud or oppression as in this case. The validity of
the contract cannot be subject of arbitration proceedings.
Allegations of fraud and duress in the execution of a contract
are matters within the jurisdiction of the ordinary courts of
law. These questions are legal in nature and require the
application and interpretation of laws and jurisprudence
which is necessarily a judicial function.86 (Emphasis
supplied)

Once again instructive is Cargill, wherein this Court held


that, as a further consequence of the doctrine of separability,
even the very party who repudiates the main contract may
invoke its arbitration clause.94
Third . The operation of the arbitration clause in this case is
not at all defeated by the failure of the petitioner to file a
formal "request" or application therefor with the MeTC. We
find that the filing of a "request" pursuant to Section 24 of
R.A. No. 9285 is not the sole means by which an arbitration
clause may be validly invoked in a pending suit.
Section 24 of R.A. No. 9285 reads:

The Court in Gonzales did not simply base its rejection of the
complaint for arbitration on the ground that the issue raised
therein, i.e. , the validity of contracts, is per se nonarbitrable. The real consideration behind the ruling was the
limitation that was placed by R.A. No. 7942 upon the
jurisdiction of the PA-MGB as an arbitral body . Gonzales
rejected the complaint for arbitration because the issue
raised therein is not a mining dispute per R.A. No. 7942 and
it is for this reason, and only for this reason, that such issue
is rendered non-arbitrable before the PA-MGB. As stated
beforehand, R.A. No. 7942 clearly limited the jurisdiction of
the PA-MGB only to mining disputes.87
Much more instructive for our purposes, on the other hand,
is the recent case of Cargill Philippines, Inc. v. San
Fernando Regal Trading, Inc.88 In Cargill , this Court
answered the question of whether issues involving the
rescission of a contract are arbitrable. The respondent in
Cargill argued against arbitrability, also citing therein
Gonzales . After dissecting Gonzales , this Court ruled in
favor of arbitrability.89 Thus, We held:
Respondent contends that assuming that the existence of
the contract and the arbitration clause is conceded, the CA's
decision declining referral of the parties' dispute to arbitration
is still correct. It claims that its complaint in the RTC presents
the issue of whether under the facts alleged, it is entitled to
rescind the contract with damages; and that issue
constitutes a judicial question or one that requires the
exercise of judicial function and cannot be the subject of an
arbitration proceeding. Respondent cites our ruling in
Gonzales, wherein we held that a panel of arbitrator is bereft
of jurisdiction over the complaint for declaration of nullity/or
termination of the subject contracts on the grounds of fraud
and oppression attendant to the execution of the addendum
contract and the other contracts emanating from it, and that
the complaint should have been filed with the regular courts
as it involved issues which are judicial in nature.
Such argument is misplaced and respondent cannot rely on
the Gonzales case to support its argument.90 (Emphasis
ours)
Second. Petitioner may still invoke the arbitration clause of
the 2005 Lease Contract notwithstanding the fact that it
assails the validity of such contract. This is due to the
doctrine of separability.91
Under the doctrine of separability, an arbitration agreement
is considered as independent of the main contract.92 Being a
separate contract in itself, the arbitration agreement may
thus be invoked regardless of the possible nullity or invalidity
of the main contract.93

SEC. 24. Referral to Arbitration . - A court before which an


action is brought in a matter which is the subject matter of an
arbitration agreement shall, if at least one party so requests
not later that the pre-trial conference, or upon the request of
both parties thereafter, refer the parties to arbitration unless
it finds that the arbitration agreement is null and void,
inoperative or incapable of being performed. [Emphasis
ours; italics original]
The " request " referred to in the above provision is, in turn,
implemented by Rules 4.1 to 4.3 of A.M. No. 07-11-08-SC or
the Special Rules of Court on Alternative Dispute Resolution
(Special ADR Rules):
RULE 4: REFERRAL TO ADR
Rule 4.1. Who makes the request. - A party to a pending
action filed in violation of the arbitration agreement, whether
contained in an arbitration clause or in a submission
agreement, may request the court to refer the parties to
arbitration in accordance with such agreement.
Rule 4.2. When to make request. - (A) Where the arbitration
agreement exists before the action is filed . - The request for
referral shall be made not later than the pre-trial conference.
After the pre-trial conference, the court will only act upon the
request for referral if it is made with the agreement of all
parties to the case.
(B) Submission agreement . - If there is no existing
arbitration agreement at the time the case is filed but the
parties subsequently enter into an arbitration agreement,
they may request the court to refer their dispute to arbitration
at any time during the proceedings.
Rule 4.3. Contents of request. - The request for referral shall
be in the form of a motion, which shall state that the dispute
is covered by an arbitration agreement.
A part from other submissions, the movant shall attach to his
motion an authentic copy of the arbitration agreement.
The request shall contain a notice of hearing addressed to
all parties specifying the date and time when it would be
heard. The party making the request shall serve it upon the
respondent to give him the opportunity to file a comment or
opposition as provided in the immediately succeeding Rule
before the hearing. [Emphasis ours; italics original]

Attention must be paid, however, to the salient wordings of


Rule 4.1.It reads: "a party to a pending action filed in
violation of the arbitration agreement x x x may request the
court to refer the parties to arbitration in accordance with
such agreement."
In using the word " may " to qualify the act of filing a "
request " under Section 24 of R.A. No. 9285, the Special
ADR Rules clearly did not intend to limit the invocation of an
arbitration agreement in a pending suit solely via such
"request." After all, non-compliance with an arbitration
agreement is a valid defense to any offending suit and, as
such, may even be raised in an answer as provided in our
ordinary rules of procedure.95
In this case, it is conceded that petitioner was not able to file
a separate " request " of arbitration before the MeTC.
However, it is equally conceded that the petitioner, as early
as in its Answer with Counterclaim ,had already apprised the
MeTC of the existence of the arbitration clause in the 2005
Lease Contract96 and, more significantly, of its desire to have
the same enforced in this case.97 This act of petitioner is
enough valid invocation of his right to arbitrate. Fourth . The
fact that the petitioner and respondent already under went
through JDR proceedings before the RTC, will not make the
subsequent conduct of arbitration between the parties
unnecessary or circuitous. The JDR system is substantially
different from arbitration proceedings.
The JDR framework is based on the processes of mediation,
conciliation or early neutral evaluation which entails the
submission of a dispute before a " JDR judge " who shall
merely " facilitate settlement " between the parties in conflict
or make a " non-binding evaluation or assessment of the
chances of each partys case."98 Thus in JDR, the JDR judge
lacks the authority to render a resolution of the dispute that
is binding upon the parties in conflict. In arbitration, on the
other hand, the dispute is submitted to an arbitrator/s a
neutral third person or a group of thereof who shall have
the authority to render a resolution binding upon the
parties.99
Clearly, the mere submission of a dispute to JDR
proceedings would not necessarily render the subsequent
conduct of arbitration a mere surplusage. The failure of the
parties in conflict to reach an amicable settlement before the
JDR may, in fact, be supplemented by their resort to
arbitration where a binding resolution to the dispute could
finally be achieved. This situation precisely finds application
to the case at bench.
Neither would the summary nature of ejectment cases be a
valid reason to disregard the enforcement of the arbitration
clause of the 2005 Lease Contract . Notwithstanding the
summary nature of ejectment cases, arbitration still remains
relevant as it aims not only to afford the parties an
expeditious method of resolving their dispute.
A pivotal feature of arbitration as an alternative mode of
dispute resolution is that it is, first and foremost, a product of
party autonomy or the freedom of the parties to " make their
own arrangements to resolve their own disputes."100
Arbitration agreements manifest not only the desire of the
parties in conflict for an expeditious resolution of their
dispute. They also represent, if not more so, the parties
mutual aspiration to achieve such resolution outside of
judicial auspices, in a more informal and less antagonistic

environment under the terms of their choosing. Needless to


state, this critical feature can never be satisfied in an
ejectment case no matter how summary it may be.
Having hurdled all the challenges against the application of
the arbitration clause of the 2005 Lease Agreement in this
case, We shall now proceed with the discussion of its legal
effects.
Legal Effect of the Application of the
Arbitration Clause
Since there really are no legal impediments to the
application of the arbitration clause of the 2005 Contract of
Lease in this case, We find that the instant unlawful detainer
action was instituted in violation of such clause. The Law,
therefore, should have governed the fate of the parties and
this suit:
R.A. No. 876 Section 7. Stay of civil action. - If any suit or
proceeding be brought upon an issue arising out of an
agreement providing for the arbitration thereof, the court in
which such suit or proceeding is pending, upon being
satisfied that the issue involved in such suit or proceeding is
referable to arbitration, shall stay the action or proceeding
until an arbitration has been had in accordance with the
terms of the agreement: Provided, That the applicant for the
stay is not in default in proceeding with such
arbitration.[Emphasis supplied]
R.A. No. 9285
Section 24. Referral to Arbitration. - A court before which an
action is brought in a matter which is the subject matter of an
arbitration agreement shall, if at least one party so requests
not later that the pre-trial conference, or upon the request of
both parties thereafter, refer the parties to arbitration unless
it finds that the arbitration agreement is null and void, in
operative or incapable of being performed. [Emphasis
supplied]
It is clear that under the law, the instant unlawful detainer
action should have been stayed;101 the petitioner and the
respondent should have been referred to arbitration pursuant
to the arbitration clause of the 2005 Lease Contract . The
MeTC, however, did not do so in violation of the lawwhich
violation was, in turn, affirmed by the RTC and Court of
Appeals on appeal.
The violation by the MeTC of the clear directives under R.A.
Nos.876 and 9285 renders invalid all proceedings it
undertook in the ejectment case after the filing by petitioner
of its Answer with Counterclaim the point when the
petitioner and the respondent should have been referred to
arbitration. This case must, therefore, be remanded to the
MeTC and be suspended at said point. Inevitably, the
decisions of the MeTC, RTC and the Court of Appeals must
all be vacated and set aside.
The petitioner and the respondent must then be referred to
arbitration pursuant to the arbitration clause of the 2005
Lease Contract.
This Court is not unaware of the apparent harshness of the
Decision that it is about to make. Nonetheless, this Court

must make the same if only to stress the point that, in our
jurisdiction, bona fide arbitration agreements are recognized
as valid;102 and that laws,103 rules and regulations104 do exist
protecting and ensuring their enforcement as a matter of
state policy. Gone should be the days when courts treat
otherwise valid arbitration agreements with disdain and
hostility, if not outright " jealousy,"105 and then get away with
it. Courts should instead learn to treat alternative means of
dispute resolution as effective partners in the administration
of justice and, in the case of arbitration agreements, to afford
them judicial restraint.106 Today, this Court only performs its
part in upholding a once disregarded state policy.
Civil Case No. CV 09-0346
This Court notes that, on 30 September 2009, petitioner filed
with the RTC of Paraaque City, a complaint107 for the
rescission or cancellation of the Deed of Donation and
Amended Deed of Donation against the respondent. The
case is currently pending before Branch 257 of the RTC,
docketed as Civil Case No. CV 09-0346.
This Court recognizes the great possibility that issues raised
in Civil Case No. CV 09-0346 may involve matters that are
rightfully arbitrable per the arbitration clause of the 2005
Lease Contract. However, since the records of Civil Case
No. CV 09-0346 are not before this Court, We can never
know with true certainty and only speculate. In this light, let a
copy of this Decision be also served to Branch 257of the
RTC of Paraaque for its consideration and, possible,
application to Civil Case No. CV 09-0346.
WHEREFORE, premises considered, the petition is hereby
GRANTED . Accordingly, We hereby render a Decision:
1. SETTING ASIDE all the proceedings undertaken by the
Metropolitan Trial Court, Branch 77, of Paraaque City in
relation to Civil Case No. 2009-307 after the filing by
petitioner of its Answer with Counterclaim ;
2. REMANDING the instant case to the MeTC,
SUSPENDED at the point after the filing by petitioner of its
Answer with Counterclaim;
3. SETTING ASIDE the following:
a. Decision dated 19 August 2011 of the Court of Appeals in
C.A.-G.R. SP No. 116865,
b. Decision dated 29 October 2010 of the Regional Trial
Court, Branch 274, of Paraaque City in Civil Case No. 100255,
c. Decision dated 27 April 2010 of the Metropolitan Trial
Court, Branch 77, of Paraaque City in Civil Case No. 2009307; and
4. REFERRING the petitioner and the respondent to
arbitration pursuant to the arbitration clause of the 2005
Lease Contract, repeatedly included in the 2000 Lease
Contract and in the 1976 Amended Deed of Donation.

Let a copy of this Decision be served to Branch 257 of the


RTC of Paraaque for its consideration and, possible,
application to Civil Case No. CV 09-0346.
No costs.
SO ORDERED.
G.R. No. 196171

January 15, 2014

RCBC CAPITAL CORPORATION, Petitioner,


vs.
BANCO DE ORO UNIBANK, INC. (now BDO UNIBANK,
INC.), Respondent.
x-----------------------x
G.R. No. 199238
BANCO DE ORO UNIBANK, INC., Petitioner,
vs.
COURT OF APPEALS and RCBC CAPITAL
CORPORATION, Respondents.
x-----------------------x
G.R. No. 200213
BANCO DE ORO UNIBANK, INC., Petitioner,
vs.
RCBC CAPITAL CORPORATION and THE ARBITRAL
TRIBUNAL IN ICC ARBITRATION REF. NO.
13290/MS/JEM AND/OR RICHARD IAN BARKER, NEIL
KAPLAN AND SANTIAGO KAPUNAN, in their official
capacity as Members of THE ARBITRATION TRIBUNAL,
Respondents.
Before the Court are: (1) the Joint Motion and Manifestation
dated October 1, 2013 filed in G.R. Nos. 196171 & 199238
by RCBC Capital Corporation ("RCBC Capital"), BDO
Unibank, Inc. ("BDO"), and George L. Go, in his personal
capacity and as attorney-in-fact of the individual
stockholders as listed in the Share Purchase Agreement
dated May 27, 2000 ("Go/Shareholders"), thru their
respective counsels; and (2) the Joint Motion and
Manifestation dated October 1, 2013 filed in G.R. No.
200213 by BDO and RCBC Capital thru their respective
counsel.
All three petitions emanated from arbitration proceedings
commenced by RCBC Capital pursuant to the arbitration
clause under its Share Purchase Agreement (SPA) with
EPCIB involving the latters shares in Bankard, Inc. In the
course of arbitration conducted by the Tribunal constituted
and administered by the International Chamber of
Commerce-International Commercial Arbitration (ICC-ICA),
EPCIB was merged with BDO which assumed all its
liabilities and obligations.
G.R. No. 196171 is a petition for review under Rule 45
seeking to reverse the Court of Appeals (CA) Decision dated
December 23, 2010 in CA-G.R. SP No. 113525 which
reversed and set aside the June 24, 2009 Order of the
Regional Trial Court (RTC) of Makati City, Branch 148 in SP
Proc. Case No. M-6046. The RTC confirmed the Second
Partial Award issued by the Arbitration Tribunal ordering
BDO to pay RCBC Capital proportionate share in the
advance costs and dismissing BDOs counterclaims.

G.R. No. 199238 is a petition for certiorari under Rule 65


assailing the September 13, 2011 Resolution in CA-G.R. SP
No. 120888 which denied BDOs application for the issuance
of a stay order and/or temporary restraining order
(TRO)/preliminary injunction against the RTC of Makati City,
Branch 148 in Sp. Proc. Case No. M-6046. Acting upon
RCBC Capitals urgent motion, the RTC issued on August
22, 2011 a writ of execution for the implementation of the
courts order confirming the Final Award rendered by the
Arbitration Tribunal on June 16, 2010.
On the other hand, G.R. No. 200213, filed on February 6,
2012, is a petition for review under Rule 45 praying for the
reversal of the CAs Decision dated February 24, 2011 and
Resolution dated January 13, 2012 in CA-G.R. SP No.
113402. The CA denied BDOs petition for certiorari and
prohibition with application for issuance of a TRO and/or writ
of preliminary injunction against the RTC of Makati City,
Branch 148 in Sp. Proc. Case No. M-6046. By Order dated
June 24, 2009, the RTC denied BDOs motion for access of
the computerized accounting system of Bankard, Inc. after
Chairman Richard Ian Barker had denied BDOs request that
it be given access to the said source of facts or data used in
preparing the accounting summaries submitted in evidence
before the Arbitration Tribunal.
G.R. Nos. 196171 & 199238 were consolidated and a
Decision was rendered by this Court on December 10, 2012,
the dispositive portion of which states:
WHEREFORE, premises considered, the petition in G.R. No.
199238 is DENIED. The Resolution dated September 13,
2011 of the Court of Appeals in CA-G.R. SP No. 120888 is
AFFIRMED.
The petition in G.R. No. 196171 is DENIED. The Decision
dated December 23, 2010 of the Court of Appeals in CAG.R. SP No. 113525 is hereby AFFIRMED.
SO ORDERED.1

7. In view of the foregoing compromise between the Parties,


BDO, RCBC Capital and Go/Shareholders, with the
assistance of their respective counsels, have decided to
jointly move for the termination and dismissal of the abovecaptioned cases with prejudice.
PRAYER
WHEREFORE, RCBC CAPITAL CORPORATION, BDO
UNIBANK, INC. and GEORGE L. GO, IN HIS PERSONAL
CAPACITY AND AS ATTORNEY-IN-FACT OF THE
INDIVIDUAL STOCKHOLDERS AS LISTED IN THE SHARE
PURCHASE AGREEMENT DATED 27 MAY 2000
respectfully pray that this Honorable Court order the
termination and dismissal of the above-captioned cases, with
prejudice. RCBC Capital BDO and Go/Shareholders
respectfully pray for such other relief as may be deemed just
or equitable under the premises.2
BDO and RCBC Capital likewise submit and pray in their
Joint Motion and Manifestation in G.R. No. 200213 that
3. After negotiations, the Parties have mutually agreed that it
is in their best interest and general benefit to settle their
differences with respect to their respective causes of action,
claims or counterclaims in the above-captioned case, with a
view to a renewal of their business relations.
4. Thus, the Parties have reached a complete, absolute and
final settlement of their claims, demands, counterclaims and
causes of action arising, directly or indirectly, from the facts
and circumstances giving rise to, surrounding or arising from
the present Petition, and have agreed to jointly terminate
and dismiss the present Petition in accordance with their
agreement.
5. In view of the foregoing compromise between the Parties,
BDO and RCBC Capital, with the assistance of their
respective counsels, have decided to jointly move for the
termination and dismissal of the above-captioned case with
prejudice.1wphi1

Both RCBC Capital and BDO filed motions for partial


reconsideration of the above decision.
Meanwhile, in G.R. No. 200213, RCBC Capital filed its
Comment, to which a Reply was filed by BDO. By Resolution
dated July 22, 2013, both parties were directed to submit
their respective memoranda within 30 days from notice.
In their Joint Motion and Manifestation filed in G.R. Nos.
196171 & 199238, the parties submit and pray that
5. After negotiations, the Parties have mutually agreed that it
is in their best interest and general benefit to settle their
differences with respect to their respective causes of action,
claims or counterclaims in the RCBC Capital Petition and the
BDO Petition, with a view to a renewal of their business
relations.
6. Thus, the parties have reached a complete, absolute and
final settlement of their claims, demands, counterclaims and
causes of action arising, directly or indirectly, from the facts
and circumstances giving rise to, surrounding or arising from
both Petitions, and have agreed to jointly terminate and
dismiss the same in accordance with their agreement.

PRAYER
WHEREFORE, BDO UNIBANK, INC. and RCBC CAPITAL
CORPORATION respectfully pray that this Honorable Court
order the termination and dismissal of the above-captioned
case, with prejudice.
BDO and RCBC Capital respectfully pray for such other
relief as may be deemed just or equitable under the
premises.3
Under this Court s Resolution dated November 27, 2013,
G.R. No. 200213 is ordered consolidated with G.R. Nos.
196171 199238.
IN VIEW OF THE FOREGOING and as prayed for, G.R.
Nos. 196171, 199238 and 200213 are hereby ordered
DISMISSED with prejudice and are deemed CLOSED and
TERMINATED.
SO ORDERED.