Académique Documents
Professionnel Documents
Culture Documents
*
HEIRS OF AUGUSTO L. SALAS, JR., namely: TERESITA D. SALAS for
herself and as legal guardian of the minor FABRICE CYRILL D.
SALAS, MA. CRISTINA S. LESACA, and KARINA TERESA D. SALAS,
petitioners, vs. LAPERAL REALTY CORPORATION, ROCKWAY REAL
ESTATE CORPORATION, SOUTH RIDGE VILLAGE, INC., MAHARAMI
DEVELOPMENT CORPORATION, Spouses THELMA D
. ABRAJANO and GREGORIO ABRAJANO, OSCAR DACILLO, Spouses
VIRGINIA D. LAVA and RODEL LAVA, EDUARDO A. VACUNA,
FLORANTE DE LA CRUZ, JESUS VICENTE B. CAPELLAN, and the
REGISTER OF DEEDS FOR LIPA CITY, respondents.
Remedial Law; Arbitration; Court has recognized arbitration agreements
as valid, binding, enforceable and not contrary to public policy.In a
catena of cases inspired by Justice Malcolms provoca________________
*
SECOND DIVISION.
611
611
Luis A. Ilagan, Jr. for Rockway Real Estate Corp. and South Ridge
Village, Inc.
Jesus Vicente B. Capellan for private respondents.
Horacio M. Pascual & Vicente P. Acsay for Marahami and de la Cruz.
Santiago, Cruz & Sarte Law Offices for Laperal Realty Corp.
1
of her husband, Salas, Jr., who had then been missing for more than seven
(7) years. It was granted on December 12, 1996.5
612
612
Meantime, respondent Laperal Realty subdivided the land of Salas, Jr. and
sold subdivided portions thereof to respondents Rockway Real Estate
Corporation and South Ridge Village, Inc. on February 22, 1990; to
respondent spouses
________________
Rollo, p. 32.
613
On August 6, 1996, Teresita Diaz Salas filed with the Regional Trial Court
of Makati City a verified petition for the declaration of presumptive death
2
_________________
6
614
All cases of dispute between CONTRACTOR and OWNERS representative
shall be referred to the committee represented by:
1. a. One representative of the OWNER;
2. b. One representative of the CONTRACTOR;
3. c. One representative acceptable to both OWNER and
CONTRACTOR.8
On May 5, 1998, respondent spouses Abrajano and Lava and respondent
Dacillo filed a Joint Answer with Counter-claim and Crossclaim9 praying for
dismissal of petitioners Complaint for the same reason.
On August 9, 1998, the trial court issued the herein assailed Order
dismissing petitioners Complaint for noncompliance with the foregoing
arbitration clause.
Hence this petition.
Petitioners argue, thus:
The petitioners causes of action did not emanate from the OwnerContractor Agreement.
614
11
13
14
B.F. Corporation v. Court of Appeals, et al., 288 SCRA 267, 286 (1998).
15
Ibid.
16
615
615
________________
4
18
hereby NULLIFIED and SET ASIDE. Said court is hereby ordered to proceed
with the hearing of Civil Case No. 98-0047.
19
SO ORDERED.
Santiago v. Gonzalez, 79 SCRA 494, 500 (1977).
Bellosillo (Chairman), Mendoza, Quisumbing and Buena, JJ., concur.
616
Petition granted, Order nullified and set aside.
616
pleaded in the suit for rescission the respondent lot buyers who are
neither parties to the Agreement nor the latters assigns or heirs.
Consequently, the right to arbitrate as provided in Article VI of the
Agreement was never vested in respondent lot buyers.
Respondent Laperal Realty, as a contracting party to the Agreement, has
the right to compel petitioners to first arbitrate before seeking judicial
relief. However, to split the proceedings into arbitration for respondent
Laperal Realty and trial for the respondent lot buyers, or to hold trial in
abeyance pending arbitration between petitioners and respondent Laperal
Realty, would in effect result in multiplicity of suits, duplicitous procedure
and unnecessary delay. On the other hand, it would be in the interest of
justice if the trial court hears the complaint against all herein respondents
and adjudicates petitioners rights as against theirs in a single and
complete proceeding.
WHEREFORE, the instant petition is hereby GRANTED. The Order dated
August 19, 1998 of Branch 85 of the Regional Trial Court of Lipa City is
5
Same; Same; Same; If a lower court prematurely assumes jurisdiction over a case, then it
becomes an error of jurisdiction which is a proper subject of a petition for certiorari.This
is not exactly so in the instant case. While this Court does not deny the eventual jurisdiction
of the lower court over the controversy, the issue posed basi_______________
*
THIRD DIVISION.
268
268
Actions; Pleadings and Practice; Certiorari; The special civil action of certiorari may not be
invoked as a substitute for the remedy of appeal.The rule that the special civil action of
certiorari may not be invoked as a substitute for the remedy of appeal is succinctly reiterated
in Ongsitco v. Court of Appeals as follows: x x x. Countless times in the past, this Court has
held that where appeal is the proper remedy, certiorari will not lie. The writs of certiorari
and prohibition are remedies to correct lack or excess of jurisdiction or grave abuse of
discretion equivalent to lack of jurisdiction committed by a lower court. Where the proper
remedy is appeal, the action for certiorari will not be entertained. x x x. Certiorari is not a
remedy for errors of judgment. Errors of judgment are correctible by appeal, errors of
jurisdiction are reviewable by certiorari. Rule 65 is very clear. The extraordinary remedies of
certiorari, prohibition and mandamus are available only when there is no appeal or any
plain, speedy and adequate remedy in the ordinary course of law x x x. That is why they are
referred to as extraordinary. x x x.
Same; Same; Same; Certiorari will not be issued to cure errors in proceedings or correct
erroneous conclusions of law or fact.The Court has likewise ruled that certiorari will not
be issued to cure errors in proceedings or correct erroneous conclusions of law or fact. As
long as a court acts within its jurisdiction, any alleged errors committed in the exercise of its
jurisdiction will amount to nothing more than errors of judgment which are reviewable by
timely appeal and not by a special civil action of certiorari.
application of the rule that certiorari cannot be a substitute for appeal will result in a manifest
failure or miscarriage of justice, the provisions of the Rules of Court which are technical
rules may be relaxed. As we shall show hereunder, had the Court of Appeals dismissed the
petition for certiorari, the issue of whether or not an arbitration clause exists in the contract
would not have been resolved in accordance with evidence extant in the record of the case.
Consequently, this would have resulted in a judicial rejection of a contractual provision
agreed by the parties to the contract.
Contracts; Arbitration; Words and Phrases; Formal Requirements of an Agreement to
Arbitrate; To subscribe means to write underneath, as ones name; to sign at the end of a
document.The formal requirements of an agreement to arbitrate are therefore the
following: (a) it must be in writing and (b) it must be subscribed by the parties or their
representatives. There is no denying that the parties entered into a written contract that was
submitted in evidence before the lower court. To subscribe means to write under269
VOL. 288, MARCH 27, 1998
269
with the formal requirements for arbitration agreements because that particular portion of the
covenants between the parties was included by reference in the Articles of Agreement.
Same; Same; A contract may be encompassed in several instruments even though every
instrument is not signed by the parties, since it is sufficient if the unsigned instruments are
clearly identified or referred to and made part of the signed instrument or instruments.
Petitioners contention that there was no arbitration clause because the contract incorporating
said provision is part of a hodgepodge document, is therefore untenable. A contract need
not be contained in a single writing. It may be collected from several different writings which
do not conflict with each other and which, when connected, show the parties, subject matter,
terms and consideration, as in contracts entered into by correspondence. A contract may be
encompassed in several instruments even though every instrument is not signed by the
parties, since it is sufficient if the unsigned instruments are clearly identified or referred to
and made part of the signed instrument or instruments. Similarly, a written agreement of
which there are two copies, one signed by each of the parties, is binding on both to the same
extent as though there had been only one copy of the agreement and both had signed it.
Same; Same; The subscription of the principal agreement effectively covers the other
documents incorporated by reference therein.The flaw in petitioners contentions therefore
lies in its having segmented the various components of the whole contract between the
parties into several parts. This notwithstanding, petitioner ironi270
270
and Bayani F. Fernando, president of petitioner corporation. The same agreement was duly
subscribed before notary public Nilberto R. Briones. In other words, the subscription of the
principal agreement effectively covered the other documents incorporated by reference
therein.
Same; Same; Words and Phrases; Reasonableness is a relative term and the question of
whether the time within which an act has to be done is reasonable depends on attendant
circumstances.The arbitration clause provides for a reasonable time within which the
parties may avail of the relief under that clause. Reasonableness is a relative term and the
question of whether the time within which an act has to be done is reasonable depends on
attendant circumstances. This Court finds that under the circumstances obtaining in this case,
a one-month period from the time the parties held a conference on July 12, 1993 until private
respondent SPI notified petitioner that it was invoking the arbitration clause, is a reasonable
time. Indeed, petitioner may not be faulted for resorting to the court to claim what was due it
under the contract. However, we find its denial of the existence of the arbitration clause as an
attempt to cover up its misstep in hurriedly filing the complaint before the lower court.
Same; Republic Act 876; The potentials of arbitration as one of the alternative dispute
resolution methods that are now rightfully vaunted as the wave of the future in
international relations, is recognized worldwide.It should be noted that in this jurisdiction,
arbitration has been held valid and constitutional. Even before the approval on June 19, 1953
of Republic Act No. 876, this Court has countenanced the settlement of disputes through
arbitration. Republic Act No. 876 was adopted to supplement the New Civil Codes
provisions on arbitration. Its potentials as one of the alternative dispute resolution methods
that are now rightfully vaunted as the wave of the future in international relations, is
recognized worldwide. To brush aside a contractual agreement calling for arbitration
271
VOL. 288, MARCH 27, 1998
271
Rollo, p. 75.
272
8
_______________
272
Ibid., p. 9.
Ibid., p. 76.
Ibid.
I of the Project. Hence, SPI proposed the re-negotiation of the agreement between them.
Consequently, on May 30, 1991, petitioner and SPI entered into a written agreement
denominated as Agreement for the Execution of Builders Work for the EDSA Plaza
Project. Said agreement would cover the construction work on said project as of May 1,
1991 until its eventual completion.
According to SPI, petitioner failed to complete the construction works and abandoned the
project.3 This resulted in disagreements between the parties as regards their respective
liabilities under the contract. On July 12, 1993, upon SPIs initiative, the parties respective
representatives met in conference but they failed to come to an agreement.4
Barely two days later or on July 14, 1993, petitioner filed with the Regional Trial Court of
Pasig a complaint for collection of the balance due under the construction agreement. Named
defendants therein were SPI and members of its board of directors namely, Alfredo C.
Ramos, Rufo B. Colayco, Antonio B. Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III
and Benjamin C. Ramos.
On August 3, 1993, SPI and its co-defendants filed a motion to suspend proceedings instead
of filing an answer. The motion was anchored on defendants allegation that the formal trade
contract for the construction of the project provided for a clause requiring prior resort to
arbitration before judicial intervention could be invoked in any dispute arising from the
contract. The following day, SPI submitted a copy of the conditions of the contract
containing the arbitration clause that it failed to append to its motion to suspend proceedings.
Petitioner opposed said motion claiming that there was no formal contract between the
parties although they entered into an agreement defining their rights and obligations in
undertaking the project. It emphasized that the agreement
273
VOL. 288, MARCH 27, 1998
273
Notary Public Nilberto R. Briones as document No. 345, page 70, book No. LXX, Series of
1991 of his notarial register.5
Thereafter, upon a finding that an arbitration clause indeed exists, the lower court6 denied the
motion to suspend proceedings, thus:
It appears from the said document that in the letter-agreement dated May 30, 1991 (Annex
C, Complaint), plaintiff BF and defendant Shangri-La Properties, Inc. agreed upon the terms
and conditions of the Builders Work for the EDSA Plaza Project (Phases
Nilberto R. Briones of Makati, Metro Manila on November 15, 1991. The said Articles of
Agreement also provides that the Contract Documents therein listed shall be deemed an
integral part of this Agreement, and one of the said documents is the Conditions of
Contract which contains the Arbitration Clause relied upon by the defendants in their
Motion to Suspend Proceedings.
This Court notes, however, that the Conditions of Contract referred to, contains the
following provisions:
3. Contract Document.
_______________
5
Annexes G-1 and G-2 of Reply to Opposition to Motion to Suspend Proceedings; Rollo in
CA-G.R. SP No. 33412, pp. 190-191.
6
274
274
Three copies of the Contract Documents referred to in the Articles of Agreement shall be
signed by the parties to the contract and distributed to the Owner and the Contractor for their
safe keeping. (Italics supplied)
And it is significant to note further that the said Conditions of Contract is not duly signed
by the parties on any page thereofalthough it bears the initials of BFs representatives
(Bayani F. Fernando and Reynaldo M. de la Cruz) without the initials thereon of any
representative of Shangri-La Properties, Inc.
Considering the insistence of the plaintiff that the said Conditions of Contract was not duly
executed or signed by the parties, and the failure of the defendants to submit any signed copy
of the said document, this Court entertains serious doubt whether or not the arbitration clause
found in the said Conditions of Contract is binding upon the parties to the Articles of
Agreement.
275
VOL. 288, MARCH 27, 1998
275
10
The lower court then ruled that, assuming that the arbitration clause was valid and binding,
still, it was too late in the day for defendants to invoke arbitration. It quoted the following
provision of the arbitration clause:
Notice of the demand for arbitration of a dispute shall be filed in writing with the other
party to the contract and a copy filed with the Project Manager. The demand for arbitration
shall be made within a reasonable time after the dispute has arisen and attempts to settle
amicably have failed; in no case, however, shall the demand he made be later than the time of
final payment except as otherwise expressly stipulated in the contract.
since November, 1991 up to the filing of this case on July 14, 1993, but also for the reason
that defendants have failed to file any written notice of any demand for arbitration during the
said long period of one year and eight months, this Court finds that it cannot stay the
proceedings in this case as required by Sec. 7 of Republic Act No. 876, because defendants
are in default in proceeding with such arbitration.
Against the above backdrop, the lower court found that per the May 30, 1991 agreement, the
project was to be completed by October 31, 1991. Thereafter, the contractor would pay
P80,000 for each day of delay counted from November 1, 1991 with liquified (sic) damages
up to a maximum of 5% of the total contract price.
The lower court denied SPIs motion for reconsideration for lack of merit and directed it and
the other defendants to file their responsive pleading or answer within fifteen (15) days from
notice.
The lower court also found that after the project was completed in accordance with the
agreement that contained a provision on progress payment billing, SPI took possession
and started operations thereof by opening the same to the public in November, 1991. SPI,
having failed to pay for the works, petitioner billed SPI in the total amount of
P110,883,101.52, contained in a demand letter sent by it to SPI on February 17, 1993. Instead
of paying the amount demanded, SPI set up its own claim of P220,000,000.00 and scheduled
a conference on that claim for July 12, 1993. The conference took place but it proved futile.
Upon the above facts, the lower court concluded:
Considering the fact that under the supposed Arbitration Clause invoked by defendants, it is
required that Notice of the demand for arbitration of a dispute shall be filed in writing with
the other party x x x x in no case x x x x later than the time of final payment x x x x which
apparently, had elapsed, not only because defendants had taken possession of the finished
works and the plaintiffs billings for the payment thereof had remained pending
276
276
Instead of filing an answer to the complaint, SPI filed a petition for certiorari under Rule 65
of the Rules of Court before the Court of Appeals. Said appellate court granted the petition,
annulled and set aside the orders and stayed the proceedings in the lower court. In so ruling,
the Court of Appeals held:
The reasons given by the respondent Court in denying petitioners motion to suspend
proceedings are untenable.
1. The notarized copy of the articles of agreement attached as Annex A to petitioners reply
dated August 26, 1993, has been submitted by them to the respondent Court (Annex G,
petition). It bears the signature of petitioner Rufo B. Colayco, president of petitioner ShangriLa Properties, Inc., and of Bayani Fernando, president of respondent Corporation (Annex G1, petition). At page D/4 of said articles of agreement it is expressly provided that the
conditions of contract are deemed an integral part thereof (page 188, rollo). And it is at
pages D/42 to D/44 of the conditions of contract that the provisions for arbitration are found
(Annexes G-3 to G-5, petition, pp. 227-229). Clause No. 35 on arbitration specifically
provides:
Provided always that in case any dispute or difference shall arise between the Owner or the
Project Manager on his behalf and the Contractor, either during the progress or after the
completion or abandonment of the Works as to the construction of this Contract or as to any
matter or thing of whatsoever nature arising thereunder or in connection therewith (including
11
any matter or being left by this Contract to the discretion of the Project Manager or the
withholding by the Pro-
that defendants have failed to file any written notice of any demand for arbitration during the
said period of one year and eight months, x x x.
277
Respondent Court has overlooked the fact that under the arbitration clause
VOL. 288, MARCH 27, 1998
277
Notice of the demand for arbitration dispute shall be filed in writing with the other party to
the contract and a copy filed with the Project Manager. The demand for arbitration shall be
made within a reasonable time after the dispute has arisen and attempts to settle amicably
had failed; in no case, however, shall the demand be made later than the time of final
278
278
12
B.
THE COURT OF APPEALS ERRED IN FINDING GRAVE ABUSE OF DISCRETION IN
THE FACTUAL FINDINGS OF THE TRIAL COURT THAT:
1. (i) THE PARTIES DID NOT ENTER INTO AN AGREEMENT TO ARBITRATE.
2. (ii) ASSUMING THAT THE PARTIES DID ENTER INTO THE AGREEMENT TO
ARBITRATE, RESPONDENTS ARE ALREADY IN DEFAULT IN INVOKING
THE AGREEMENT TO ARBITRATE.
On the first assigned error, petitioner contends that the Order of the lower court denying the
motion to suspend proceedings is a resolution of an incident on the merits. As such, upon
the continuation of the proceedings, the lower court would appreciate the evidence adduced
in their totality
279
x x x. Countless times in the past, this Court has held that where appeal is the proper
remedy, certiorari will not lie. The writs of certiorari and prohibition are remedies to correct
lack or excess of jurisdiction or grave abuse of discretion equivalent to lack of jurisdiction
committed by a lower court. Where the proper remedy is appeal, the action for certiorari will
not be entertained. x x x. Certiorari is not a remedy for errors of judgment. Errors of
judgment are correctible by appeal, errors of jurisdiction are reviewable by certiorari.
Rule 65 is very clear. The extraordinary remedies of certiorari, prohibition and mandamus are
available only when there is no appeal or any plain, speedy and adequate remedy in the
ordinary course of law x x x. That is why they are referred to as extraordinary. x x x.
The Court has likewise ruled that certiorari will not be issued to cure errors in proceedings
or correct erroneous conclusions of law or fact. As long as a court acts within its jurisdiction,
any alleged errors committed in the exercise of its jurisdiction will amount to nothing more
than errors of judgment which are reviewable by timely appeal and not by a special civil
action of certiorari.9
_______________
279
280
280
13
281
10
282
282
The making of a contract or submission for arbitration described in section two hereof,
providing for arbitration of any controversy, shall be deemed a consent of the parties of the
province or city where any of the parties resides, to enforce such contract of submission.
(Italics supplied.)
The formal requirements of an agreement to arbitrate are therefore the following: (a) it must
be in writing and (b) it
283
VOL. 288, MARCH 27, 1998
283
parties, since it is sufficient if the unsigned instruments are clearly identified or referred to
and made part of the signed instrument or instruments. Similarly, a written agreement of
which there are two copies, one signed by each of the parties, is binding on both to the same
extent as though
_______________
11
12
13
17 C.J.S. 727-728.
This Court likewise does not find that the Court of Appeals erred in rul ing that private
respondents were not in default in invoking the provisions of the arbitration clause which
states that (t)he demand for arbitration shall be made within a reasonable time after the
dispute has arisen and attempts to settle amicably had failed. Under the factual milieu,
private respondent SPI should have paid its liabilities under the contract in accordance with
its terms. However, misunderstandings appeared to have cropped up between the parties
ostensibly brought about by either delay in the completion of the construction work or by
force majeure or the fire that partially gutted the project. The almost two-year delay in paying
its liabilities may not therefore be wholly ascribed to private respondent SPI.
Besides, private respondent SPIs initiative in calling for a conference between the parties
was a step towards the agreed resort to arbitration. However, petitioner posthaste filed the
_______________
284
14
284
285
VOL. 288, MARCH 27, 1998
285
respondent SPI notified petitioner that it was invoking the arbitration clause, is a reasonable
time. Indeed, petitioner may not be faulted for resorting to the court to claim what was due it
under the contract. However, we find its denial of the existence of the arbitration clause as an
attempt to cover up its misstep in hurriedly filing the complaint before the lower court.
adopted to supplement the New Civil Codes provisions on arbitration.19 Its potentials as one
of the alternative dispute resolution methods that are now rightfully vaunted as the wave of
the future in international relations, is recognized worldwide. To brush aside a contractual
agreement calling for arbitration in case of disagreement between the parties would therefore
be a step backward.
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 arbitration16 has been pursued and completed, then the
lower court may confirm the award17 made by the arbitrator.
WHEREFORE, the questioned Decision of the Court of Appeals is hereby AFFIRMED and
the petition for certiorari DENIED. This Decision is immediately executory. Costs against
petitioner.
_______________
SO ORDERED.
15
16
17
Sec. 23 of Rep. Act No. 876 provides: Confirmation of award.At any time within one
month after the award is made, any party to the controversy which was arbitrated may apply
to the court having jurisdiction, as provided in section twenty-eight, for an order confirming
the award; and thereupon the court must grant such order unless the award is vacated,
modified or corrected, as prescribed herein. Notice of such motion shall be served upon the
adverse party or his attorney as prescribed by law for the service of such notice upon an
attorney in action in the same court.
Notes.In a petition for review of an arbitration award, the Arbitral Tribunal should be
impleaded. (Hi-Precision Steel Center, Inc. v. Lim Kim Steel Builders, Inc., 228 SCRA 397
[1993])
286
o0o
Under the Arbitration Law, the award or decision of the voluntary arbitrator is equated with
that of the Regional Trial Courts. (Luzon Development Bank vs. Association of Luzon
Development Bank Employees, 249 SCRA 162 [1995])
_______________
286
18
Puromines, Inc. v. Court of Appeals, G.R. No. 91228, March 22, 1993, 220 SCRA 281,
289-290.
19
Chung Fu Industries (Phils.), Inc. v. Court of Appeals, G.R. No. 96283, February 25, 1992,
206 SCRA 545, 551.
It should be noted that in this jurisdiction, arbitration has been held valid and constitutional.
Even before the approval on June 19, 1953 of Republic Act No. 876, this Court has
countenanced the settlement of disputes through arbitration.18 Republic Act No. 876 was
17
questions of fact cannot be raised in proceedings before the Supreme Courtwhich is not a
trier of factsin respect of an arbitral award rendered under the aegis of the CIAC.
Consideration of the animating purpose of voluntary arbitration in general, and arbitration
under the aegis of the CIAC in particular, requires us to apply rigorously the above principle
embodied in Section 19 that the Arbitral Tribunals findings of fact shall be final and
inappealable.
Same; Same; Concept of voluntary arbitration; Voluntary arbitration in the construction
industry.Voluntary arbitration 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 litiG.R. No. 110434. December 13, 1993.*
HI-PRECISION STEEL CENTER, INC., petitioner, vs. LIM KIM STEEL
BUILDERS, INC., and CONSTRUCTION INDUSTRY ARBITRATION
COMMISSION, respondents.
Actions; Parties; In a petition for review of an arbitration award, the Arbitral Tribunal
should be impleaded.A preliminary point needs to be made. We note that the Arbitral
Tribunal has not been impleaded as a respondent in the Petition at bar. The CIAC has indeed
been impleaded; however, the Arbitral Award was not rendered by the CIAC, but rather by
the Arbitral Tribunal. Moreover, under Section 20 of Executive Order No. 1008, dated 4
February 1985, as amended, it is the Arbitral Tribunal, or the single Arbitrator, with the
concurrence of the CIAC, which issues the writ of execution requiring any sheriff or other
proper officer to execute the award. We consider that the Arbitral Tribunal which rendered
the Award sought to be reviewed and set aside, should be impleaded even though the defense
of its Award would presumably have to be carried by the prevailing party.
Actions; Voluntary Arbitration; Review by the Supreme Court; Questions of fact cannot be
raised in proceedings before the Supreme Court.Section 19 makes it crystal clear that
_____________
*
THIRD DIVISION.
398
398
gation which goes through the entire hierarchy of courts. 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.
Same; Same; Same; Same; Supreme Court will review issues of facts previously presented
before the Arbitral Tribunal only where there is a very clear showing that, in reaching its
18
Review1 was filed before the Court, petitioner Hi-Precision Steel Center, Inc. (HiPrecision) stating that it intended to file a Petition for Review on Certiorari in respect of the
13 November 1992 Award2 and 13 May 1993 Order3 of public respondent Construction
Industry Arbitration Commission (CIAC) in Arbitration Case No. 13-90. The Petition
(really a Motion) prayed for an extension of thirty (30) days or until 21 July 1993 within
which to file a Petition for Review.
An Opposition4 to the Motion was filed by private respondent Lim Kim Steel Builders, Inc.
(Steel Builders) on 5 July 1993. On the same day, however, the Court issued a Resolution5
granting the Motion with a warning that no further extension would be given.
The Opposition, the subsequent Reply6 of petitioner filed on 20 July 1993 and the Petition for
Review7 dated 21 July 1993, were noted by the Court in its Resolution8 of 28 July 1993. The
Court also required private respondent Steel Builders to file a Comment on the Petition for
Review and Steel Builders complied.
The Petition prays for issuance of a temporary restraining order9 to stay the execution of the
assailed Order and Award in favor of Steel Builders, which application the Court merely
noted, as it did subsequent Urgent Motions for a temporary restraining order.10
Petitioner Hi-Precision entered into a contract with private respondent Steel Builders under
which the latter as Contractor was to complete a P21 Million construction project owned by
the former within a period of 153 days, i.e. from 8 May 1990 to 8
RESOLUTION
FELICIANO, J.:
______________
On 18 June 1993, a Petition for Extension to File Petition for
1
399
VOL. 228, DECEMBER 13, 1993
399
Hi-Precision Steel Center, Inc. vs. Lim Kim Steel Builders, Inc.
19
Id., p. 23-a.
Id., p. 181-a.
The CIAC formed an Arbitral Tribunal with three (3) members, two (2) being appointed upon
nomination of Hi-Precision and Steel Builders, respectively; the third member (the
Chairman) was appointed by the CIAC as a common nominee of the two (2) parties. Only the
Chairman was a lawyer. After the arbitration proceeding, the Arbitral Tribunal rendered a
unanimous Award dated 13 November 1992, the dispositive portion of which reads as
follows:
10
Urgent Motions for the Issuance of a Temporary Restraining Order dated 5 August 1993;
25 August 1993; 20 September 1993; 21 October 1993.
400
400
October 1990. The project completion date was first moved to 4 November 1990. On that
date, however, only 75.8674% of the project was actually completed. Petitioner attributed
this non-completion to Steel Builders which allegedly had frequently incurred delays during
the original contract period and the extension period. Upon the other hand, Steel Builders
insisted that the delays in the project were either excusable or due to Hi-Precisions own fault
and issuance of change orders. The project was taken over on 7 November 1990, and
eventually completed on February 1991, by Hi-Precision.
Steel Builders filed a Request for Adjudication with public respondent CIAC. In its
Complaint filed with the CIAC, Steel Builders sought payment of its unpaid progress
buildings, alleged unearned profits and other receivables. Hi-Precision, upon the other hand,
in its Answer and Amended Answer, claimed actual and liquidated damages, reimbursement
of alleged additional costs it had incurred in order to complete the project and attorneys fees.
Upon motions for reconsideration filed, respectively, by Hi-Precision and Steel Builders, the
Arbitral Tribunal issued an Order dated 13 May 1993 which reduced the net amount due to
contrac_____________
11
401
VOL. 228, DECEMBER 13, 1993
401
Hi-Precision Steel Center, Inc. vs. Lim Kim Steel Builders, Inc.
tor Steel Builders to P6,115,285.83.12
In its Award, the Arbitral Tribunal stated that it was guided by Articles 1169, 1192 and 2215
of the Civil Code. With such guidance, the arbitrators concluded that (a) both parties were at
fault, though the Tribunal could not point out which of the parties was the first infractor; and
20
(b) the breaches by one party affected the discharge of the reciprocal obligations of the other
party. With mutual fault as a principal premise, the Arbitral Tribunal denied (a) petitioners
claims for the additional costs allegedly incurred to complete the project; and (b) private
respondents claim for profit it had failed to earn because of petitioners take over of the
project.
18
The Tribunal then proceeded to resolve the remaining specific claims of the parties. In
disposing of these multiple, detailed claims, the Arbitral Tribunal, in respect of one or more
of the respective claims of the parties: (a) averaged out the conflicting amounts and
percentages claimed by the parties;13 (b) found neither basis nor justification for a particular
claim;14 (c) found the evidence submitted in support of particular claims either weak or nonexistent;15 (d) took account of the admissions of liability in respect of particular claims;16 (e)
relied on its own expertise in resolving particular claims;17 and (f) applied a principle of
equity in requiring each party to bear its own loss resulting or arising from mutual fault or
delay (compensatio morae).18
402
_____________
12
Id., p. 23.
13
Claims concerning Contractors Claim No. 1; Owners Claim No. 1; Unpaid Progressive
Billing; Change Order No. 6; Change Order No. 8.
14
15
Claims concerning Change Order No. 2; Change Order No. 3; Change Order No. 4;
Change Order No. 5; Change Order No. 11; Change Order No. 16.
16
17
Claims concerning Change Order No. 9; Change Order No. 10; Change Order No. 17.
Claims concerning Change Order No. 7; Change Order No. 12; Change Order No. 13;
Change Order No. 14.
Claims concerning Contractors Claim No. 19; Contractors Claim No. 20; Contractors
Claim No. 21; Contractors Claim No. 22; Contractors Claim No. 23; Contractors Claim
No. 24; Contractors
402
SUPREME COURT REPORTS ANNOTATED
Hi-Precision Steel Center, Inc. vs. Lim Kim Steel Builders, Inc.
Petitioner Hi-Precision now asks this Court to set aside the Award, contending basically that
it was the contractor Steel Builders who had defaulted on its contractual undertakings and so
could not be the injured party and should not be allowed to recover any losses it may have
incurred in the project. Petitioner Hi-Precision insists it is entitled to damages, and claims
that the Arbitral Tribunal committed grave abuse of discretion when it allowed certain claims
by Steel Builders and offset them against claims of Hi-Precision.
A preliminary point needs to be made. We note that the Arbitral Tribunal has not been
impleaded as a respondent in the Petition at bar. The CIAC has indeed been impleaded;
however, the Arbitral Award was not rendered by the CIAC, but rather by the Arbitral
Tribunal. Moreover, under Section 20 of Executive Order No. 1008, dated 4 February 1985,
as amended, it is the Arbitral Tribunal, or the single Arbitrator, with the concurrence of the
CIAC, which issues the writ of execution requiring any sheriff or other proper officer to
execute the award. We consider that the Arbitral Tribunal which rendered the Award sought
to be reviewed and set aside, should be impleaded even though the defense of its Award
would presumably have to be carried by the prevailing party.
Petitioner Hi-Precision apparently seeks review both under Rule 45 and Rule 65 of the Rules
of Court.19 We do not find it necessary to rule which of the two: a petition for review under
Rule 45 or a petition for certiorari under Rule 65is necessary under Executive Order No.
1008, as amended; this issue was, in any case, not squarely raised by either party and has not
been
21
______________
Claim No. 25; Contractors Claim No. 27; Contractors Claim No. 28; Contractors Claim
No. 29; Contractors Claim No. 30; Owners Claim No. 3.
19
The Petition said, inter alia: [t]he prevalence of grave abuse of discretion in the May 13,
1993 Order on appeal in this Petition under Rule 45 is made more manifest in the November
13, 1992 Arbitral Award, the principal resolution subject of the motion for reconsideration
denied by the May 13, 1993 Order, and thus, it becomes procedurally appropriate and
necessary, in the interest of truth and justice, to respectfully pray the Honorable Court to
likewise review on certiorari under Rule 65, the November 13, 1992 award. (Italics
supplied)
The public respondent committed serious error in law, if not grave abuse of discretion,
when it failed to rule in favor of the owner, now petitioner herein, all the awards it claimed
on arbitration, and when it nonetheless persisted in its awards of damages in favor of the
respondent. x x x;
(3)
The public respondent committed serious error in law, if not grave abuse of discretion, for
its abject failure to apply the doctrine of waiver, or estoppel against the contractor, the private
respondent herein, when it agreed on November 16, 1990 to award termination of the
contract and the owners takeover of the project x x x;
(4)
403
VOL. 228, DECEMBER 13, 1993
403
Hi-Precision Steel Center, Inc. vs. Lim Kim Steel Builders, Inc.
properly and adequately litigated.
The public respondent committed serious error in law, if not grave abuse of discretion,
when it did not enforce the law between the parties, the technical specification[s] which is
one of the contract documents, particularly to par. (a), sub-part 3.01, part 3, Sec. 2b, which
expressly requires that major site work activities like stripping, removal and stockpiling of
top soil shall be done prior to the start of regular excavation or backfilling work, the
principal issue in arbitration being non-compliance with the contract documents;
In its Petition, Hi-Precision purports to raise legal issues, and in presenting these issues,
prefaced each with a creative formula:
(5)
(1)
The public respondent committed serious error in law, if not grave abuse of discretion,
when it found, in the May 13, 1993 Order, the petitioner guilty of estoppel although it is
claimed that the legal
The public respondent [should be the Arbitral Tribunal] committed serious error in law, if
not grave abuse of discretion, when it failed to strictly apply Article 1191, New Civil Code,
against the contractor x x x;
(2)
404
404
doctrine of estoppel does not apply with respect to the required written formalities in the
issuance of a change order x x x;
(6)
20
The exceptional circumstances in Remalante vs. Tibe, 158 SCRA 138, where the Honorable
Supreme Court may review findings of facts, are present in the instant case, namely: (a) when
the inference made is manifestly absurd, mistaken or impossible (Luna vs. Linatoc, 74 Phil.
15); (2) when there is grave abuse of discretion in the appreciation of facts (Buyco v. People,
95 Phil. 253); (3) when the judgment is premised on a misapprehension of facts (De la Cruz
v. Sosing, 94 Phil. 26, and Castillo vs. CA, 124 SCRA 808); (4) when the findings of fact are
conflicting (Casica v. Villoseca, 101 Phil. 1205); (5) when the findings are contrary to the
admissions of the parties (Evangelista v. Alto Surety, 103 Phil. 401), and therefore, the
findings of facts of the public respondent in the instant case may be reviewed by the
Honorable Supreme Court.20 (Italics partly supplied and partly in the original)
From the foregoing, petitioner Hi-Precision may be seen to be making two (2) basic
arguments:
1. (a) Petitioner asks this Court to correct legal errors committed by the
Arbitral Tribunal, which at the same time constitute grave abuse of
discretion amounting to lack of jurisdiction on the part of the Arbitral
Tribunal; and
2. (b) Should the supposed errors petitioner asks us to correct be
characterized as errors of fact, such factual errors should nonetheless be
reviewed because there was grave abuse of discretion in the
appreciation of facts and because there was misapprehension of facts on
the part of the Arbitral Tribunal.
Executive Order No. 1008, as amended, provides, in its Section 19, as follows:
Sec. 19. Finality of Awards.The arbitral award shall be binding upon the parties. It shall
be final and unappealable except on questions of law which shall be appealable to the
Supreme Court.
405
VOL. 228, DECEMBER 13, 1993
405
Hi-Precision Steel Center, Inc. vs. Lim Kim Steel Builders, Inc.
raised in proceedings before the Supreme Courtwhich is not a trier of factsin respect of
an arbitral award rendered under the aegis of the CIAC. Consideration of the animating
purpose of voluntary arbitration in general, and arbitration under the aegis of the CIAC in
particular, requires us to apply rigorously the above principle embodied in Section 19 that the
Arbitral Tribunals findings of fact shall be final and inappealable.
Voluntary arbitration 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. 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.21
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
23
will not review the factual findings of an arbitral tribunal upon the artful allegation that such
body had misapprehended the 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 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 very clear showing is made that, in
Arbitration Commission, et al., G.R. No. 101444, February 10, 1992 (unsigned resolution);
and Sime Darby Pilipinas, Inc. v. Magsalin, 180 SCRA 177 (1989).
______________
Sec. 24. Grounds for vacating award.In any one of the following cases, the court must
make an order vacating award upon the petition of any party to the controversy when such
party proved affirmatively that in the arbitration proceedings:
21
See first three (3) Whereas clauses and Section 2 of Executive Order No. 1008, as
amended.
23
It is a noteworthy that Section 24 of R.A. No. 876 known as An Act to Authorize the
Making of Arbitration and Submission Agreements, to Provide for the Appointment of
Arbitrators and the Procedure for Arbitration in Civil Controversies, and for Other Purposes
(approved on 29 June 1953) sets out the following grounds for vacating an arbitral award:
1. (a) The award was procured by corruption, fraud or other undue means; or
406
406
2. (b) That there was evident partiality or corruption in the arbitrators or any
of them; or
Hi-Precision Steel Center, Inc. vs. Lim Kim Steel Builders, Inc.
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.22 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.23 Any other, more relaxed, rule would result in set______________
xxx
xxx
x x x
22
407
VOL. 228, DECEMBER 13, 1993
407
Hi-Precision Steel Center, Inc. vs. Lim Kim Steel Builders, Inc.
24
ting at naught the basic objective of a voluntary arbitration and would reduce arbitration to a
largely inutile institution.
Examination of the Petition at bar reveals that it is essentially an attempt to re-assert and relitigate before this Court the detailed or itemized factual claims made before the Arbitral
Tribunal under a general averment that the Arbitral Tribunal had misapprehended the facts
submitted to it. In the present Petition, too, Hi-Precision claims that the Arbitral Tribunal had
committed grave abuse of discretion amounting to lack of jurisdiction in reaching its factual
and legal conclusions.
in accordance with Article 1191, and is entitled to damages in either case. Thus, Hi-Precision
continues, when the contractor Steel Builders defaulted on the 153rd day of the original
contract period, Hi-Precision opted for specific performance and gave Steel Builders a 30day extension period with which to complete the project.
_____________
24
408
408
The first legal issue submitted by the Petition is the claimed misapplication by the Arbitral
Tribunal of the first and second paragraphs of Article 1191 of the Civil Code.24 Article 1191
reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.
This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
Hi-Precision contends energetically that it is the injured party and that Steel Builders was the
obligor who did not comply with what was incumbent upon it, such that Steel Builders was
the party in default and the entity guilty of negligence and delay. As the injured party, HiPrecision maintains that it may choose between the fulfillment or rescission of the obligation
What petitioner Hi-Precision, in its above argument, disregards is that the determination of
whether Hi-Precision or Steel Builders was the injured part is not to be resolved by an
application of Article 1191. That determination is eminently a question of fact, for it requires
ascertainment and identification of which of the two (2) contending parties had first failed to
comply with what was incumbent upon it. In other words, the supposed misapplication of
Article 1191, while ostensibly a legal issue, is ultimately a question of fact, i.e., the
determination of the existence or non-existence of a fact or set of facts in respect of which
Article 1191 may be properly applied. Thus, to ask this Court to correct a claimed
misapplication or non-application of Article 1191 is to compel this Court to determine which
of the two (2) contending parties was the injured party or the first infractor. As noted
earlier, the Arbitral Tribunal after the prolonged arbitration proceeding, was unable to make
that factual determination and instead concluded that both parties had committed breaches of
their respective obligations. We will not review, and much less reverse, that basic factual
finding of the Arbitral Tribunal.
A second legal issue sought to be raised by petitioner Hi-Precision relates to the supposed
failure of the Arbitral Tribunal to apply the doctrines of estoppel and waiver as against Steel
Builders.25 The Arbitral Tribunal, after declaring that the parties were mutually at fault,
25
proceeded to enumerate the faults of each of the parties. One of the faults attributed to
petitioner Hi-Precision is that it had failed to give the contractor Steel Builders the required
15-day notice for termination of the contract.26 This was clearly a finding of fact on the part
of the Tribunal, supported by the circumstance that per the record, petitioner had offered no
proof that it had complied with such 15-day notice required under Article 28.01 of the
General Conditions of Contract forming part of the Contract Documents. Petitioner HiPrecisions argument is that a written Agreement dated 16 November 1990 with Steel
Builders concerning the take over of the project by Hi-Precision, constituted waiver on the
part of the
that the Arbitral Tribunal did not uphold the law between the parties, but instead
substituted the same with its [own] absurd inference and opinion on mud. Here again,
petitioner is merely disguising a factual question as a legal issue, since petitioner is in
reality asking this Court to review the physical operations relating, e.g., to site preparation
carried out by the contractor Steel Builders and to determine whether such operations were in
accordance with the Technical Specifications of the project. The Arbitral Tribunal resolved
Hi-Precisions claim by finding that Steel Builders had complied substantially with the
Technical Specifications. This Court will not pretend that it has the technical and engineering
capability to review the resolution of that factual issue by the Arbitral Tribunal.
_____________
Finally, the Petition asks this Court to review serious errors in the findings of fact of the
[Arbitral Tribunal].28 In this section of its Petition, Hi-Precision asks us to examine each
item of its own claims which the Arbitral Tribunal had rejected in its Award, and each claim
of the contractor Steel Builders which the Tribunal had granted. In respect of each item of the
owners claims and each item of the contractors claims, Hi-Precision sets out its arguments,
to all appearances the same arguments it had
25
26
409
VOL. 228, DECEMBER 13, 1993
409
______________
27
28
Hi-Precision Steel Center, Inc. vs. Lim Kim Steel Builders, Inc.
latter of its right to a 15-day notice of contract termination. Whether or not that Agreement
dated 16 November 1990 (a document not submitted to this Court) is properly characterized
as constituting waiver on the part of Steel Builders, may be conceded to be prima facie a
question of law; but, if it is, and assuming arguendo that the Arbitral Tribunal had erred in
resolving it, that error clearly did not constitute a grave abuse of discretion resulting in lack
or loss of jurisdiction on the part of the Tribunal.
A third legal issue posed by Hi-Precision relates to the supposed failure on the part of the
Arbitral Tribunal to uphold the supremacy of the law between the parties and enforce it
against private respondent [Steel Builders].27 The law between the parties here involved is
the Technical Specifications forming part of the Contract Documents. Hi-Precision asserts
410
410
raised before the Tribunal. As summarized in the Arbitral Award, Contractors Claims were
as follows:
12.1.
1,812,706.95
26
12.2.
Change Order
0.00
12.19.
20,240.00
12.3.
-do-
10,014.00
12.20.
63,518.00
12.4.
-do-
320,000.00
12.21.
0.00
12.5.
-do-
112,300.70
12.22.
0.00
12.6.
-do-
398,398.00
12.23.
0.00
12.7.
-do-
353,050.38
12.24.
0.00
12.8.
-do-
503,836.53
12.25.
0.00
12.9.
-do-
216,138.75
12.26.
730,201.57
12.10.
-do-
101,621.40
12.27.
1,130,722.70
12.11.
-do-
10
7,200.00
12.28.
0.00
12.12.
-do-
11
0.00
12.29.
273,991.00
12.13.
-do-
12
7,800.00
12.30.
0.00
12.14.
-do-
13
49,250.00
12.31.
7,318,499.2829
12.15.
-do-
14
167,952.00
12.16.
-do-
15
445,600.00
12.17.
-do-
16
92,457.30
12.18.
-do-
17
1,500.00
Upon the other hand, the petitioners claims we are asked to review and grant are
summarized as follows:
______________
27
29
b)
411
VOL. 228, DECEMBER 13, 1993
411
Hi-Precision Steel Center, Inc. vs. Lim Kim Steel Builders, Inc.
1. Actual Damages
Civil Works
1,158,513.88
Materials
4,213,318.72
Labor
2,155,774.79
Equipment Rental
1,448,208.90
P8,974,816.45
Advance Downpayment
[at] signing of Contract
IB
Progress Billings
5,582,585.55
2,650,163.29
(21,000,000.00)
P8,406,000.00
23,650,183.00
prior to take-over
392,781.45
to non-completion of Project
(P24,1326%)
28
2,027,138.40
b.
IC
51,110.40
a.
b.
5,272,096.81
873,535.49
a.
b.
821,242.72
c.
886,513.33
d.
170,284.44
e.
4,155,982.18
561,195.25
3,319,609.63
ID Installation of machinery
a.
b.
35,295,927.32
2.
Liquidated Damages
2,436,000.00
3.
Attorneys Fees
2,871,987.01
412
412
500,000.00
P38,231,927.3230
We consider that in asking this Court to go over each individual claim submitted by it and
each individual countering ciaim submitted by Steel Builders to the Arbitral Tribunal,
29
petitioner Hi-Precision is asking this Court to pass upon claims which are either clearly and
directly factual in nature or require previous determination of factual issues. This upon the
one hand. Upon the other hand, the Court considers that petitioner Hi-Precision has failed to
show any serious errors 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 disposing of the detailed claims of the respective parties.
WHEREFORE, for all the foregoing, the Petition is hereby DISMISSED for lack of merit.
Costs against petitioner.
SO ORDERED.
Bidin, Romero, Melo and Vitug, JJ., concur.
Petition dismissed.
Notes.An appellate court, in reviewing a judgment on appeal, will dispose of a question
according to the law prevailing at
_________________
30
413
VOL. 228, DECEMBER 14, 1993
413
o0o
_________________
*
dismissing the petition for certiorari filed by petitioner to annul the two (2) orders issued by
the Regional Trial Court of Makati3 in Civil Case No. 92-145, the first, dated April 30, 1992,
denying petitioners motion to dismiss and the second, dated October 1, 1992 denying
petitioners motion for reconsideration thereof.
SECOND DIVISION.
559
_______________
VOL. 318, NOVEMBER 19, 1999
559
Penned by Justice Cezar D. Francisco and concurred in by Justices Manuel C. Herrera and
Cancio C. Garcia.
2
for measures to safeguard and/or conserve the subject of the dispute under arbitration, as
sanctioned by section 14 of the Arbitration Law, and otherwise not shown to be contrary to
the PCHC rules and regulations.
Same; Same; Arbitration, as an alternative method of dispute resolution, is encouraged.At
this point, we emphasize that arbitration, as an alternative method of dispute resolution, is
encouraged by this Court. Aside from unclogging judicial dockets, it also hastens solutions
especially of commercial disputes. The Court looks with favor upon such amicable
arrangement and will only interfere with great reluctance to anticipate or nullify the action of
the arbitrator.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.
Sycip, Salazar, Hernandez & Gatmaitan for private respondent.
BUENA, J.:
This appeal by certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the
decision1 of the Court of Appeals2 dated January 21, 1994 in CA-G.R. SP No. 29725,
Branch 133. Presided by Judge Buenaventura J. Guerrero, now Associate Justice of the
Court of Appeals.
560
560
through the PCHC for the reason Beyond Reglementary Period, implying that HBSTC
already treated the three (3) FEBTC checks as cleared and allowed the proceeds thereof to be
withdrawn.4 FEBTC demanded reimbursement for the returned checks and inquired from
HBSTC whether it had permitted any withdrawal of funds against the unfunded checks and if
so, on what date. HBSTC, however, refused to make any reimbursement and to provide
FEBTC with the needed information.
exist.8 The trial court issued an omnibus order dated April 30, 1992 denying the motion to
dismiss and an order dated October 1, 1992 denying the motion for reconsideration.
Thus, on December 12, 1991, FEBTC submitted the dispute for arbitration before the PCHC
Arbitration Committee,5 under the PCHCs Supplementary Rules on Regional Clearing to
which FEBTC and HBSTC are bound as participants in the regional clearing operations
administered by the PCHC.6
In a Decision9 dated January 21, 1994, the respondent court dismissed the petition for lack of
merit and held that FEBTC can reiterate its cause of action before the courts which it had
already raised in the arbitration case10 after finding that the complaint filed by FEBTC . . .
seeks to collect a sum of money from HBT [HBSTC] and not to enforce or confirm an
arbitral award.11 The respondent court observed that [i]n the Complaint, FEBTC applied for
the issuance of a writ of preliminary attachment over HBTs [HBSTC] property12 and citing
section 14 of Republic Act No. 876, otherwise known as the Arbitration Law, maintained that
[n]ecessarily, it has to reiterate its main cause of action for sum of money against HBT
[HBSTC],13 and that [t]his prayer for conservatory relief [writ of preliminary attachment]
satisfies the re-
On January 17, 1992, while the arbitration proceeding was still pending, FEBTC filed an
action for sum of money and
_______________
4
Rollo, p. 128.
On December 16, 1992, HBSTC filed a petition for certiorari with the respondent Court of
Appeals contending that the trial court acted with grave abuse of discretion amounting to lack
of jurisdiction in denying the motion to dismiss filed by HBSTC.
_______________
6
Rollo, p. 131.
Ibid., at p. 127.
Ibid., at p. 129.
561
VOL. 318, NOVEMBER 19, 1999
561
10
Ibid., at p. 135.
11
Ibid., at p. 131.
12
Ibid., at p. 136.
13
Ibid.
562
32
562
In the instant petition,21 petitioner contends that first, no party litigant can file a non-existent
complaint,22 arguing that . . . one cannot file a complaint in court over a subject that is
undergoing arbitration.23 Second, petitioner submits
14
Ibid., at p. 138.
15
16
Rollo, p. 139.
18
Ibid., at p. 140.
19
20
Rollo, p. 141.
21
22
Rollo, p. 314.
23
Ibid., at p. 315.
14
Furthermore, the respondent court ruled that based on section 7 of the Arbitration Law and
the cases of National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc.,15 and Bengson vs. Chan,16 . . . when there is a condition requiring prior
submission to arbitration before the institution of a court action, the complaint is not to be
dismissed but should be suspended for arbitration.17 Finding no merit in HBSTCs
contention that section 7 of the Arbitration Law . . . contemplates a situation in which a
party to an arbitration agreement has filed a court action without first resorting to arbitration,
while in the case at bar, FEBTC has initiated arbitration proceedings before filing a court
action, the respondent court held that . . . if the absence of a prior arbitration may stay court
action, so too and with more reason, should an arbitration already pending as obtains in this
case stay the court action. A party to a pending arbitral proceeding may go to court to obtain
conservatory reliefs in connection with his cause of action although the disposal of that
action on the merits cannot as yet be obtained.18 The respondent court discarded Puromines,
Inc. vs. Court of Appeals,19 stating that . . . perhaps Puromines may have been decided on a
different factual basis.20
_______________
17
563
VOL. 318, NOVEMBER 19, 1999
563
x x x.
33
It would really be much easier for Us to rule to dismiss the complainant as the petitioner here
seeks to do, following Puromines. But with utmost deference to the Honorable Supreme
Court, perhaps Puromines may have been decided on a different factual basis.
xxx
x x x.30
564
564
Petitioner takes exception to FEBTCs contention that Puromines cannot modify or reverse
the rulings in National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen
Philippines, Inc.,31 and Bengson vs. Chan,32 where this Court sus
pended the action filed pending arbitration, and argues that [s]ound policy requires that the
conclusion of whether [a] Supreme Court decision has or has not reversed or modified [a]
previous doctrine, should be left to the Supreme Court itself; until then, the latest
pronouncement should prevail.33
_______________
24
25
Rollo, p. 318.
26
Ibid.
27
28
29
Private respondent FEBTC, on the other hand, contends that . . . the cause of action for
collection [of a sum of money] can coexist in the civil suit and the arbitration [proceeding]38
citing section 7 of the Arbitration Law which provides for the stay of the civil action until an
arbitration has been had in accordance with the terms of the agreement providing for
arbitration. Private respondent further asserts that following section 4(3), article VIII39 of the
1987 Constitution, the subsequent case of Puromines does not overturn the ruling in the
earlier cases of National Union Fire Insurance Company of
30
Rollo, p. 141.
_______________
31
34
32
35
33
Rollo, p. 320.
Ibid., at p. 323.
Under the arbitration system of the PCHC, an award results in a mere automatic
debit/credit procedure.
34
36
37
Ibid.
38
Ibid., p. 278.
39
We find no merit in the petition. Section 14 of Republic Act 876, otherwise known as the
Arbitration Law, allows any party to the arbitration proceeding to petition the court to take
measures to safeguard and/or conserve any matter which is the subject of the dispute in
arbitration, thus:
x x x
x x x; Provided, that no doctrine or principle of law laid down by the court in a
decision rendered en banc or in division may be modified or reversed except by the court
sitting en banc.
565
VOL. 318, NOVEMBER 19, 1999
565
Section 14. Subpoena and subpoena duces tecum.Arbitrators shall have the power to
require any person to attend a hearing as a witness. They shall have the power to subpoena
witnesses and documents when the relevancy of the testimony and the materiality thereof has
been demonstrated to the arbitrators. Arbitrators may also require the retirement of any
witness during the testimony of any other witness. All of the arbitrators appointed in any
controversy must attend all the hearings in that matter and hear all the allegations and proofs
of the parties; but an award by the majority of them is valid unless the concurrence of all of
them is expressly required in the submission or contract to arbitrate. The arbitrator or
arbitrators shall have the power at any time, before rendering the award, without prejudice
to the rights of any party to petition the
_______________
40
41
42
41
Pittsburg vs. Stolt-Nielsen Philippines, Inc., and Bengson vs. Chan, hence, private
respondent concludes that the prevailing doctrine is that the civil action must be stayed rather
than dismissed pending arbitration.
566
In this petition, the lone issue presented for the consideration of this Court is:
WHETHER OR NOT PRIVATE RESPONDENT WHICH COMMENCED AN
ARBITRATION PROCEEDING UNDER THE AUSPICES OF THE PHILIPPINE
CLEARING HOUSE CORPORATION (PCHC) MAY SUBSEQUENTLY FILE A
SEPARATE CASE IN COURT OVER THE SAME SUBJECT MATTER OF
ARBITRATION DESPITE THE PENDENCY OF THAT ARBITRATION, SIMPLY TO
OBTAIN THE PROVISIONAL REMEDY OF ATTACHMENT AGAINST THE BANK,
THE ADVERSE PARTY IN THE ARBITRATION PROCEEDINGS.42
566
44
45
211 SCRA 753 (1992). This case involves the application of the Katarungang
Pambarangay Law (P.D. 1508).
46
Rollo, p. 318.
_______________
567
VOL. 318, NOVEMBER 19, 1999
567
47
Associated Bank vs. Court of Appeals, 233 SCRA 137, 142-143 (1994).
48
Ibid., at p. 145.
36
568
568
49
50
Allied Banking Corporation vs. Court of Appeals, 294 SCRA 803, 812 (1998).
51
Puromines, Inc. vs. Court of Appeals, 220 SCRA 281, 290 (1993).
569
VOL. 318, NOVEMBER 19, 1999
Likewise, in the case of Puromines, Inc. vs. Court of Appeals,49 we have ruled that:
In any case, whether the liability of respondent should be based on the sales contract or that
of the bill of lading, the parties are nevertheless obligated to respect the arbitration provisions
on the sales contract and/or bill of lading. Petitioner being a signatory and party to the sales
contract cannot escape from his obligation under the arbitration clause as stated therein.
569
In Puromines, we found the arbitration clause stated in the sales contract to be valid and
applicable, thus, we ruled that the parties, being signatories to the sales contract, are
obligated to respect the arbitration provisions on the contract and cannot escape from such
obligation by filing an action for breach of contract in court without resorting first to
arbitration, as agreed upon by the parties.
At this point, we emphasize that arbitration, as an alternative method of dispute resolution, is
encouraged by this Court. Aside from unclogging judicial dockets, it also hastens solutions
especially of commercial disputes.50 The Court looks with favor upon such amicable
arrangement and will only interfere with great reluctance to anticipate or nullify the action of
the arbitrator.51
Note.A third-party complaint of one bank against another involving a check cleared
through the PCHC is unavailing, unless the third-party claimant has first exhausted the
arbitral authority of the PCHC Arbitration Committee and obtained a decision from said body
adverse to its claim. (Allied Banking Corporation vs. Court of Appeals, 294 SCRA 803
[1998])
o0o
WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of
the court aquo is AFFIRMED.
SO ORDERED.
Bellosillo (Chairman), Mendoza, Quisumbing and De Leon, Jr., JJ., concur.
_______________
37
Same; Same; Same; Construction Industry Arbitration Commission (CIAC); Recourse to the
CIAC may now be availed of whenever a contract contains a clause for the submission of a
future controversy to arbitration.On the other hand, Section 1 of Article III of the new
Rules of Pro_______________
*
THIRD DIVISION.
563
VOL. 399, MARCH 26, 2003
563
contains a clause for the submission of a future controversy to arbitration, it is not necessary
for the parties to enter into a submission agreement before the claimant may invoke the
jurisdiction of CIAC. The foregoing amendments in the Rules were formalized by CIAC
Resolution Nos. 2-91 and 3-93.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
E.G. Ferry Law Offices for petitioner.
Catindig, Tiongco & Nibungco for private respondent.
PANGANIBAN, J.:
Alternative dispute resolution methods or ADRslike arbitration, mediation, negotiation and
conciliationare encouraged by the Supreme Court. By enabling parties to resolve their
disputes amicably, they provide solutions that are less time-consuming, less tedious, less
confrontational, and more productive of goodwill and lasting relationships.1
The Case
Before us is a Petition for Review on Certiorari2 under Rule 45 of the Rules of Court, seeking
to set aside the January 28, 2000 Decision of the Court of Appeals3 (CA) in CA-GR CV No.
54232. The dispositive portion of the Decision reads as follows:
_______________
1
564
564
The Facts
On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent
Capitol Industrial Construction Groups, Inc. entered into a Subcontract Agreement
involving electrical work at the Third Port of Zamboanga.5
On April 25, 1985, respondent took over some of the work contracted to petitioner.6
Allegedly, the latter had failed to finish it because of its inability to procure materials.7
Upon completing its task under the Contract, petitioner billed respondent in the amount of
P6,711,813.90.8 Contesting the accuracy of the amount of advances and billable
accomplishments listed by the former, the latter refused to pay. Respondent also took refuge
in the termination clause of the Agreement.9 That clause allowed it to set off the cost of the
work that petitioner had failed to undertakedue to termination or take-overagainst the
amount it owed the latter.
Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati
(Branch 141) a Complaint10 for the collection of the amount representing the alleged balance
due it under the Subcontract. Instead of submitting an Answer, respondent filed a Motion to
Dismiss,11 alleging that the Complaint was premature, because there was no prior recourse to
arbitration.
In its Order12 dated September 15, 1987, the RTC denied the Motion on the ground that the
dispute did not involve the interpre39
_______________
4
See Pay Item Nos. 7.01 to 7.26 of the Bill of Quantities; Records, pp. 16-25.
See Letters dated March 15, 1985 and April 25, 1985, pp. 63-64.
On appeal, the CA reversed the RTC and ordered the referral of the case to arbitration. The
appellate court held as arbitrable the issue of whether respondents take-over of some work
items had been intended to be a termination of the original contract under Letter K of the
Subcontract. It ruled likewise on two other issues: whether petitioner was liable under the
warranty clause of the Agreement, and whether it should reimburse respondent for the work
the latter had taken over.15
Hence, this Petition.16
The Issues
In its Memorandum, petitioner raises the following issues for the Courts consideration:
10
11
12
565
VOL. 399, MARCH 26, 2003
565
After trial on the merits, the RTC ruled that the take-over of some work items by respondent
was not equivalent to a termination, but a mere modification, of the Subcontract. The latter
was ordered to give full payment for the work completed by petitioner.
13
Records, p. 41.
14
15
16
This case was deemed submitted for decision on October 25, 2001, upon this Courts
receipt of respondents Memorandum signed by Atty. Henry S. Rojas. Petitioners
Memorandum, filed on October 10, 2001, was signed by Atty. Eleazar G. Ferry.
566
40
566
6. The Parties hereto agree that any dispute or conflict as regards to interpretation and
implementation of this Agreement which cannot be
_______________
17
18
567
First Issue:
Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the interpretation or the implementation
of the Agreement. Thus, without having to resort to prior arbitration, it is entitled to collect
the value of the services it rendered through an ordinary action for the collection of a sum of
money from respondent. On the other hand, the latter contends that there is a need for prior
arbitration as provided in the Agreement. This is because there are some disparities between
the parties positions regarding the extent of the work done, the amount of advances and
billable accomplishments, and the set off of expenses incurred by respondent in its take-over
of petitioners work.
We side with respondent. Essentially, the dispute arose from the parties incongruent
positions on whether certain provisions of their Agreement could be applied to the facts. The
instant case involves technical discrepancies that are better left to an arbitral body that has
expertise in those areas. In any event, the inclusion of an arbitration clause in a contract does
not ipso facto divest the courts of jurisdiction to pass upon the findings of arbitral bodies,
because the awards are still judicially reviewable under certain conditions.18
In the case before us, the Subcontract has the following arbitral clause:
567
G. TIME SCHEDULE
[Petitioner] shall adhere strictly to the schedule related to the WORK and complete the
WORK within the period set forth in Annex C hereof. NO time extension shall be granted by
[respondent] to [petitioner] unless a corresponding time extension is granted by [the Ministry
of Public Works and Highways] to the CONSORTIUM.20
Because of the delay, respondent alleges that it took over some of the work contracted to
petitioner, pursuant to the following provision in the Agreement:
K. TERMINATION OF AGREEMENT
[Respondent] has the right to terminate and/or take over this Agreement for any of the
following causes:
xxx
xxx
xxx
6. If despite previous warnings by [respondent], [petitioner] does not execute the WORK in
accordance with this Agreement, or
The issue as to the correct amount of petitioners advances and billable accomplishments
involves an evaluation of the manner in which the parties completed the work, the extent to
which they did it, and the expenses each of them incurred in connection therewith.
Arbitrators also need to look into the computation of foreign and local costs of materials,
foreign and local advances, retention fees and letters of credit, and taxes and duties as set
forth in the Agreement. These data can be gathered from a review of the Agreement, pertinent
portions of which are reproduced hereunder:
C. CONTRACT PRICE AND TERMS OF PAYMENT
_______________
xxx
19
20
xxx
xxx
568
568
xxx
xxx
42
_______________
21
22
569
VOL. 399, MARCH 26, 2003
569
24
Del Monte Corporation-USA v. Court of Appeals, 351 SCRA 373, February 7, 2001;
Eastboard Navigation, Ltd. v. Juan Ysmael and Co., Inc., 102 Phil. 1, September 10, 1957.
25
All expenses incurred by [respondent], both in foreign and local currencies in connection
with the opening of the letters of credit shall be deducted from the Contract Prices.
Home Bankers Savings and Trust Company v. Court of Appeals, 318 SCRA 558, November
19, 1999.
26
xxx
xxx
xxx
N. OTHER CONDITIONS
xxx
xxx
xxx
Heirs of Augusta L. Salas, Jr. v. Laperal Realty Corporation, 320 SCRA 610, December
13, 1999; BF Corporation v. Court of Appeals, 288 SCRA 267, March 27,1998.
27
Ibid.
570
570
43
interpretation that covers the asserted dispute, an order to arbitrate should be granted.28 Any
doubt should be resolved in favor of arbitration.29
28
Second Issue:
Prior Request for Arbitration
29
According to petitioner, assuming arguendo that the dispute is arbitrable, the failure to file a
formal request for arbitration with the Construction Industry Arbitration Commission (CIAC)
precluded the latter from acquiring jurisdiction over the question. To bolster its position,
petitioner even cites our ruling in Tesco Services Incorporated v. Vera.30 We are not
persuaded.
Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration
indeed required the submission of a request for arbitration, as follows:
Seaboard Coastline Railroad Co. v. National Rail Passenger Corporation, 554 F2d 657
(US Court of Appeals, 5th Circuit), June 22, 1977.
Moses H. Cone Hospital v. Mercury Construction Co., 460 US 1, February 23, 1983; Metro
Industrial Painting Corp. v. Terminal Construction Co., 287 F2d 382 (US Court of Appeals,
2nd Circuit), February 16, 1961.
30
571
VOL. 399, MARCH 26, 2003
571
Tesco was promulgated by this Court, using the foregoing provision as reference.
The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. 2-91 and
3-93.31
On the other hand, Section 1 of Article III of the new Rules of Procedure Governing
Construction Arbitration has dispensed with this requirement and recourse to the CIAC may
now be availed of whenever a contract contains a clause for the submission of a future
controversy to arbitration, in this wise:
SECTION 1. Submission to CIAC Jurisdiction.An arbitration clause in a construction
contract or a submission to arbitration of a con_______________
The difference in the two provisions was clearly explained in China Chang Jiang Energy
Corporation (Philippines) v. Rosal Infrastructure Builders, et al.32 (an extended unsigned
Resolution) and reiterated in National Irrigation Administration v. Court of Appeals,33 from
which we quote thus:
Under the present Rules of Procedure, for a particular construction contract to fall within the
jurisdiction of CIAC, it is merely required that the parties agree to submit the same to
voluntary arbitration Unlike in the original version of Section 1, as applied in the Tesco case,
the law as it now stands does not provide that the parties should agree to submit disputes
44
arising from their agreement specifically to the CIAC for the latter to acquire jurisdiction
over the same. Rather, it is plain and clear that as long as the parties agree to submit to
voluntary arbitration, regardless of what forum they may choose, their agreement will fall
within the jurisdiction of the CIAC, such that, even if they specifically choose another forum,
the parties will not be precluded from electing to submit their dispute before the CIAC
because this right has been vested upon each party by law, i.e., E.O. No. 1008.34
Since petitioner has already filed a Complaint with the RTC without prior recourse to
arbitration, the proper procedure to enable the CIAC to decide on the dispute is to request the
stay or suspension of such action, as provided under RA 876 [the Arbitration Law].37
Clearly, there is no more need to file a request with the CIAC in order to vest it with
jurisdiction to decide a construction dispute.
SO ORDERED.
The arbitral clause in the Agreement is a commitment on the part of the parties to submit to
arbitration the disputes covered therein. Because that clause is binding, they are expected to
abide
_______________
31
These were promulgated by the CIAC on June 21, 1991 and August 25, 1993, respectively.
32
33
34
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.
572
_______________
572
Toyota Motor Philippines Corporation v. Court of Appeals, 216 SCRA 236, December 7,
1992.
36
See 6 of RA 876.
45
37
SEC. 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.
Actions; Dismissals of Cases; Refiling of Cases; Docket Fees; Plead-ings and Practice; The
procedure for dismissed cases where re-filed is the same as though it was initially lodged,
i.e., the filing of answer, reply, answer to counter-claim, including other foot-dragging
maneuvers, except for the rigmarole of raffling cases which is dispensed with since the refiled complaint is automatically assigned to the branch to which the original case pertained
a complaint that is re-filed leads to the re-enactment of past proceedings with the
concomitant full attention of the same trial court exercising an immaculate slew of
jurisdiction and control over the case that was previously dismissed.On the task at hand,
we see no reason why RTC-Br. 135 of Makati City should stop short of hearing the civil case
on the merits. There is no substantial policy worth pursuing by requiring petitioner to pay
again the docket fees when it has already discharged this obligation simultaneously with the
filing of the complaint for collection of a sum of money. The procedure for dismissed cases
when re-filed is the same as though it was initially lodged, i.e., the filing of answer, reply,
_______________
*
SECOND DIVISION.
593
VOL. 402, MAY 5, 2003
593
answer to counter-claim, including other foot-dragging maneuvers, except for the rigmarole
of raffling cases which is dispensed with since the re-filed complaint is automatically
assigned to the branch to which the original case pertained. A complaint that is re-filed leads
to the re-enactment of past proceedings with the concomitant full attention of the same trial
court exercising an immaculate slew of jurisdiction and control over the case that was
previously dismissed, which in the context of the instant case is a waste of judicial time,
capital and energy.
46
Same; Same; Same; Same; Once the dismissal attains the attribute of finality, the trial court
cannot impose legal fees anew because a final and executory dismissal although without
prejudice divests the trial court of jurisdiction over the civil case.The addition of the
second sentence in the second paragraph does not change the absolute nullification of the
dismissal without prejudice decreed in the first paragraph. The sentence [f]ailure on the part
of plaintiff to submit the said agreement shall cause the imposition of payment of the
required docket fees for re-filing of this case is not a directive to pay docket fees but only a
statement of the event that may result in its imposition. The reason for this is that the trial
court could not have possibly made such payment obligatory in the same civil case, i.e., Civil
Case No. 99-518, since docket fees are defrayed only after the dismissal becomes final and
executory and when the civil case is refiled. It must be emphasized however that once the
dismissal attains the attribute of finality, the trial court cannot impose legal fees anew
because a final and executory dismissal although without prejudice divests the trial court of
jurisdiction over the civil case as well as any residual power to order anything relative to the
dismissed case; it would have to wait until the complaint is docketed once again.On the other
hand, if we are to concede that the trial court retains jurisdiction over Civil Case No. 99-518
for it to issue the assailed Orders, a continuation of the hearing thereon would not trigger a
disbursement for docket fees on the part of petitioner as this would obviously imply the
setting aside of the order of dismissal and the reinstatement of the complaint.
Same; Same; Words and Phrases; A final order issued by a court has been defined as one
which disposes of the subject matter in its entirety or terminates a particular proceeding or
action, leaving nothing else to be done but to enforce by execution what has been determined
by the court, while an interlocutory order is one which does not dispose of a case
completely but leaves something more to be decided upon.The same is true with the Order
of 16 November 2000 denying due course to petitioners Notice of Appeal. There would have
been no basis for such exercise of discretion because the jurisdiction of the court a quo over
the civil case would have been discharged and terminated by the presumed dismissal thereof.
Moreover, we note the ground for denying due course to the appeal: the Orders dated 8
September 2000 and 6 November 2000 are in594
594
Same; Same; A complaint may be dismissed due to plaintiffs fault: (a) if he fails to appear
during a scheduled trial, especially on the date for the presentation of his evidence in chief,
or when so required at the pretrial; (b) if he neglects to prosecute his action for an
unreasonable length of
official directive that courts must endeavor to convince parties in a civil case to consummate
a fair settlement,and to mitigate damages to be paid by the losing party who has shown a
sincere desire for such give-and-take. All things considered, we see no compelling
circumstances to uphold the dismissal of petitioners complaint regardless of its
characterization as being without prejudice.
595
VOL. 402, MAY 5, 2003
595
Same; Same; A court may dismiss a case on the ground of non prosequitur but the real test of
the judicious exercise of such power is whether under the circumstances plaintiff is
chargeable with want of fitting assiduousness in not acting on his complaint with reasonable
promptitude.In fine, petitioner cannot be said to have lost interest in fighting the civil case
to the end. A court may dismiss a case on the ground of non prosequitur but the real test of
the judicious exercise of such power is whether under the circumstances plaintiff is
chargeable with want of fitting assiduousness in not acting on his complaint with reasonable
promptitude. Unless a partys conduct is so indifferent, irresponsible, contumacious or
slothful as to provide substantial grounds for dismissal, i.e., equivalent to default or nonappearance in the case, the courts should consider lesser sanctions which would still amount
to achieving the desired end. In the absence of a
596
596
on the conforme of the loan restructure documents, and the common concern of the courts a
quo was dispatch in the proceedings, the holding of a pre-trial conference was the best-suited
solution to the problem as this stage in a civil action is where issues are simplified and the
dispute quickly and genuinely reconciled. By means of pre-trial, the trial court is fully
empowered to sway the litigants to agree upon some fair compromise.
Same; Same; Dismissing the civil case and compelling the plaintiff to re-file its complaint is
a dangerous, costly and circuitous route that may end up aggravating, not resolving, the
disagreementinconsiderate dismissals, even if without prejudice, do not constitute a
panacea nor a solution to the congestion of court dockets.Dismissing the civil case and
compelling petitioner to re-file its complaint is a dangerous, costly and circuitous route that
may end up aggravating, not resolving, the disagreement. This case management strategy is
frighteningly deceptive because it does so at the expense of petitioner whose cause of action,
perhaps, may have already been admitted by its adverse parties as shown by three (3) of four
(4) defendants not willing to contest petitioners allegations, and more critically, since this
approach promotes the useless and thankless duplication of hard work already undertaken by
the trial court. As we have aptly observed, [i]nconsiderate dismissals, even if without
prejudice, do not constitute a panacea nor a solution to the congestion of court dockets. While
they lend a deceptive aura of efficiency to records of individual judges, they merely postpone
the ultimate reckoning between the parties. In the absence of clear lack of merit or intention
to delay, justice is better served by a brief continuance, trial on the merits, and final
disposition of the cases before the court.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Siguion Reyna, Montecillo and Ongsiako for petitioner.
597
597
1
Docketed as Civil Case No. 99-518, Rizal Commercial Banking Corporation v. Magwin
Marketing Corporation, et al., which was raffled to RTC-Br. 135, Makati City; Rollo, p. 4.
Rizal Commercial Banking Corporation vs. Magwin Marketing Corporation
CA Record, p. 234.
49
Id., at p. 237.
Id., at p. 7.
Id., at p. 237.
Acting on plaintiffs Motion for Reconsideration of the Order dated 20 July 2000
dismissing this case for failure to prosecute, it appearing that there was already conformity to
the restructuring of defendants indebtedness with plaintiff by defendant Nelson Tiu,
President of defendant corporation per Manifestation and Motion filed by plaintiff on 22
August 2000, there being probability of settlement among the parties, as prayed for, the
Order dated 20 July 2000 is hereby set aside.
598
_______________
598
Id., at p. 234.
Rollo, p. 7.
10
Ibid.
11
CA Record, p. 242.
12
Rollo, p. 7.
599
VOL. 402, MAY 5, 2003
599
On 27 July 2000 petitioner filed in Civil Case No. 99-518 a Manifestation and Motion to Set
Case for Pre-Trial Conference alleging that [t]o date, only defendant Nelson Tiu had affixed
his signature on the May 10, 2000 letter which informed the defendants that plaintiff [herein
petitioner] already approved defendant Magwin Marketing Corporations request for
restructuring of its loan obligations to plaintiff but subject to the terms and conditions
specified in said letter.14 This motion was followed on 5 October 2000 by petitioners
Supplemental Motion to Plaintiffs Manifestation and Motion to Set Case for Pre-Trial
Conference affirming that petitioner could not submit a compromise agreement because
only defendant Nelson Tiu had affixed his signature on the May 10, 2000 letter x x x.15
Respondent Anderson Uy opposed the foregoing submissions of petitioner while respondents
Magwin Marketing Corporation, Nelson Tiu and Benito Sy neither contested nor supported
them.16
The trial court, in an undated Order (although a date was later inserted in the Order), denied
petitioners motion to calendar Civil Case No. 99-518 for pre-trial stating that
600
600
Acting on plaintiffs [herein petitioner] Manifestation and Motion to Set Case for Pre-Trial
Conference, the Opposition filed by defendant Uy and the subsequent Supplemental
Motion filed by plaintiff; defendant Uys Opposition, and plaintiffs Reply; for failure
of the plaintiff to submit a compromise agreement pursuant to the Order dated 8 September
2000 plaintiffs motion to set case for pre-trial conference is hereby denied.17
On 7 December 2000 petitioner elevated the Orders dated 8 September 2000, 6 November
2000 and 16 November 2000 of the trial court to the Court of Appeals in a petition for
certiorari under Rule 65 of the Rules of Civil Procedure.19 In the main, petitioner argued that
the court a quo had no authority to compel the parties in Civil Case No. 99-518 to enter into
an amicable settlement nor to deny the holding of a pre-trial conference on the ground that no
compromise agreement was turned over to the court a quo.20
On 15 November 2000 petitioner filed its Notice of Appeal from the 8 September 2000 Order
of the trial court as well as its undated Order in Civil Case No. 99-518. On 16 November
2000 the
On 28 September 2001 the appellate court promulgated its Decision dismissing the petition
for lack of merit and affirming the assailed Orders of the trial court21 holding that
_______________
13
14
Rollo, p. 8.
15
Ibid.
16
Id., at p. 9.
17
x x x although the language of the September 8, 2000 Order may not be clear, yet, a careful
reading of the same would clearly show that the setting aside of the Order dated July 20,
2000 which dismissed petitioners complaint x x x for failure to prosecute its action for an
unreasonable length of time is dependent on the following conditions, to wit: a) The
submission of the compromise agreement by petitioner within fifteen (15) days from notice;
and b) Failure of petitioner to submit the said compromise agreement shall cause the
imposition of the payment of the required docket fees for the refiling of the case; so much so
that the non-compliance by petitioner of condition no. 1 would make condition no. 2
effective, especially that petitioners manifestation and motion to set case for pre-trial
conference and supplemental motion x x x [were] denied by the respondent judge in his
51
Order dated November 6, 2000, which in effect means that the Order dated July 20, 2000 was
ultimately not set aside considering that a
ruling in Goldloop Properties, Inc. v. Court of Appeals23 where it was held that the trial court
cannot dismiss a complaint for failure of the parties to submit a compromise agreement.
_______________
On the other hand, respondent Anderson Uy filed his comment after several extensions
asserting that there are no special and important reasons for undertaking this review. He also
alleges that petitioners attack is limited to the Order dated 8 September 2000 as to whether it
is conditional as the Court of Appeals so found and the applicability to this case of the ruling
in Goldloop Properties, Inc. v. Court of Appeals. Respondent Uy claims that the Order
reconsidering the dismissal of Civil Case No. 99-518 without prejudice is on its face
contingent upon the submission of the compromise agreement which in the first place was
the principal reason of petitioner to justify the withdrawal of the Order declaring his failure
to prosecute the civil case. He further contends that the trial court did not force the parties in
the civil case to execute a compromise agreement, the truth being that it dismissed the
complaint therein for petitioners dereliction.
18
19
21
601
Id., at p. 34.
23
602
602
case. For their part, respondents Magwin Marketing Corporation, Nelson Tiu and Benito Sy
waived their right to file a comment on the instant petition and submitted the same for
resolution of this Court.24
The petition of Rizal Commercial Banking Corporation is meritorious. It directs our attention
to questions of substance decided by the courts a quo plainly in a way not in accord with
applicable precedents as well as the accepted and usual course of judicial proceedings; it
offers special and important reasons that demand the exercise of our power of supervision
and review. Furthermore, petitioners objections to the proceedings below encompass not
only the Order of 8 September 2000 but include the cognate Orders of the trial court of 6 and
16 November 2000. This is evident from the prayer of the instant petition which seeks to
reverse and set aside the Decision of the appellate court and to direct the trial court to
proceed with the pre-trial conference in Civil Case No. 99-518. Evidently, the substantive
issue involved herein is whether the proceedings in the civil case should progress, a question
which at bottom embroils all the Orders affirmed by the Court of Appeals.
On the task at hand, we see no reason why RTC-Br. 135 of Makati City should stop short of
hearing the civil case on the merits. There is no substantial policy worth pursuing by
requiring petitioner to pay again the docket fees when it has already discharged this
obligation simultaneously with the filing of the complaint for collection of a sum of money.
The procedure for dismissed cases when re-filed is the same as though it was initially lodged,
i.e., the filing of answer, reply, answer to counter-claim, including other foot-dragging
maneuvers, except for the rigmarole of raffling cases which is dispensed with since the refiled complaint is automatically assigned to the branch to which the original case pertained.25
A complaint that is re-filed leads to the re-enactment of past proceedings with the
concomitant full attention of the same trial court exercising an immaculate slew of
jurisdiction and control over the case that was previously dismissed,26 which in the context of
the instant case is a waste of judicial time, capital and energy.
_______________
24
25
26
Baares II v. Balising, G.R. No. 132624, 13 March 2000, 328 SCRA 36.
603
VOL. 402, MAY 5, 2003
603
prejudice: submission of the compromise agreement for the consideration of the trial court.
Nothing in the second paragraph do we read that the reconsideration is subject to two (2)
qualifications. Certainly far from it, for in Goldloop Properties, Inc. v. Court of Appeals28 a
similar directive, i.e., [t]he parties are given a period of fifteen (15) days from today within
which to submit a Compromise Agreement, was held to mean that should the parties fail in
their
_______________
27
28
604
604
It must be emphasized however that once the dismissal attains the attribute of finality, the
trial court cannot impose legal fees anew because a final and executory dismissal although
without prejudice divests the trial court of jurisdiction over the civil case as well as any
residual power to order anything relative to the dismissed case; it would have to wait until the
complaint is docketed once again.29 On the other hand, if we are to concede that the trial
court retains jurisdiction over Civil Case No. 99-518 for it to issue the assailed Orders, a
continuation of the hearing thereon would not trigger a disbursement for docket fees on the
part of petitioner as this would obviously imply the setting aside of the order of dismissal and
the reinstatement of the complaint.
_______________
29
Ortigas & Company Limited Partnership v. Velasco, G.R. No. 109645, 25 July 1994, 234
SCRA 455; Aquizap v. Basilio, No. L-21293, 29 December 1967, 21 SCRA 1434.
605
VOL. 402, MAY 5, 2003
605
The subsequent actions of the trial court also belie an intention to revive the Order of
dismissal without prejudice in the event that petitioner fails to submit a compromise
agreement. The Orders of 6 and 16 November 2000 plainly manifest that it was retaining
jurisdiction over the civil case, a fact which would not have been possible had the dismissal
without prejudice been resuscitated. Surely, the court a quo could not have denied on 6
November 2000 petitioners motion to calendar Civil Case No. 99-518 for pre-trial if the
dismissal had been restored to life in the meantime. By then the dismissal without prejudice
would have already become final and executory so as to effectively remove the civil case
from the docket of the trial court.
The same is true with the Order of 16 November 2000 denying due course to petitioners
Notice of Appeal. There would have been no basis for such exercise of discretion because the
jurisdiction of the court a quo over the civil case would have been discharged and terminated
by the presumed dismissal thereof. Moreover, we note the ground for denying due course to
the appeal: the Orders dated 8 September 2000 and 6 November 2000 are interlocutory
orders and therefore, no appeal may be taken from x x x.30 This declaration strongly
suggests that something more was to be accomplished in the civil case, thus negating the
claim that the Order of dismissal without prejudice was resurrected upon the parties failure
to yield a compromise agreement. A final order issued by a court has been defined as one
which disposes of the subject matter in its entirety or terminates a particular proceeding or
action, leaving nothing else to be done but to enforce by execution what has been determined
by the court, while an interlocutory order is one which does not dispose of a case
completely but leaves something more to be decided upon.31
_______________
30
31
Besides the semantic and consequential improbabilities of respondent Uys argument, our
ruling in Goldloop Properties, Inc., is decisive of the instant case. In Goldloop Properties,
Inc., we reversed the action of the trial court in dismissing the complaint for failure of the
plaintiff to prosecute its case, which was in turn based on its inability to forge a compromise
with the other parties within fifteen (15) days from notice of the order to do so and held
Since there is nothing in the Rules that imposes the sanction of dismissal for failing to submit
a compromise agreement, then it is obvious that the dismissal of the complaint on the basis
thereof amounts no less to a gross procedural infirmity assailable by certiorari. For such
submission could at most be directory and could not result in throwing out the case for failure
to effect a compromise. While a compromise is encouraged, very strongly in fact, failure to
consummate one does not warrant any procedural sanction, much less an authority to jettison
a civil complaint worth P4,000,000.00 x x x Plainly, submission of a compromise agreement
is never mandatory, nor is it required by any rule.32
As also explained therein, the proper course of action that should have been taken by the
court a quo, upon manifestation of the parties of their willingness to discuss a settlement, was
to suspend the proceedings and allow them reasonable time to come to terms (a) If
willingness to discuss a possible compromise is expressed by one or both parties; or (b) If it
appears that one of the parties, before the commencement of the action or proceeding, offered
to discuss a possible compromise but the other party refused the offer, pursuant to Art. 2030
of the Civil Code. If despite efforts exerted by the trial court and the parties the negotiations
still fail, only then should the action continue as if no suspension had taken place.33
Ostensibly, while the rules allow the trial court to suspend its proceedings consistent with the
policy to encourage the use of alternative mechanisms of dispute resolution, in the instant
case, the trial court only gave the parties fifteen (15) days to conclude a deal. This was, to say
the least, a passive and paltry attempt of the court a quo in its task of persuading litigants to
agree upon a reasonable
606
606
33
Ibid.
courts refusal to call the parties to a pre-trial conference, the reason or basis therefor was the
absence of a negotiated settlementa circumstance that takes the case at bar within the plain
ambit of Goldloop Properties, Inc. In any event, given that the instant case merely revolves
around the search for a reasonable interpretation
607
VOL. 402, MAY 5, 2003
607
_______________
34
Civil Code, art. 2029; see SC Adm. Order No. 21-01; see also A.M. No. 99-6-01-SC.
608
608
respondent Corporation through a letter for the conformity of the latters officers, i.e.,
respondent Nelson Tiu as President/General Manager and respondent Benito Sy as Director
thereof. Regrettably, only respondent Nelson Tiu affixed his signature on the letter to signify
his concurrence with the terms and conditions of the arrangement. The momentary lag in the
civil case was aggravated when respondent Benito Sy for unknown and unexplained reasons
paid no heed to the adjustments in the indebtedness although curiously he has not opposed
before this Court or the courts a quo petitioners desire to go ahead with the pre-trial
conference.
Admittedly, delay took place in this case but it was not an interruption that should have
entailed the dismissal of the complaint even if such was designated as without prejudice. To
constitute a sufficient ground for dismissal, the inattention of plaintiff to pursue his cause
must not only be prolonged but also be unnecessary and dilatory resulting in the trifling of
judicial processes. In the instant case, the adjournment was not only fleeting as it lasted less
than six (6) months but was also done in good faith to accommo-
In fine, petitioner cannot be said to have lost interest in fighting the civil case to the end. A
court may dismiss a case on the ground of non prosequitur but the real test of the judicious
exercise of such power is whether under the circumstances plaintiff is chargeable with want
of fitting assiduousness in not acting on his complaint with reasonable promptitude. Unless a
partys conduct is so indifferent, irresponsible, contumacious or slothful as to provide
substantial grounds for dismissal, i.e., equivalent to default or nonappearance in the case, the
courts should consider lesser sanctions which would still amount to achieving the desired
end.38 In the absence of a pattern or scheme to delay the disposition of the case or of a
wanton failure to observe the mandatory requirement of the rules on the part of the plaintiff,
as in the case at bar, courts should decide to dispense rather than wield their authority to
dismiss.39
Clearly, another creative remedy was available to the court a quo to attain a speedy
disposition of Civil Case No. 99-518 without sacrificing the course of justice. Since the
failure of petitioner to submit a compromise agreement was the refusal of just one of herein
respondents, i.e., Benito Sy, to sign his name on the con-
609
_______________
VOL. 402, MAY 5, 2003
609
35
Calalang v. Court of Appeals, G.R. No. 103185, 22 January 1993, 217 SCRA 462.
36
37
38
Bank of the Philippine Islands v. Court of Appeals, G.R. No. 117385, 11 February 1999,
303 SCRA 19.
39
Ibid.
610
610
57
40
611
VOL. 402, MAY 5, 2003
611
_______________
58
FIRST DIVISION.
698
698
The ever increasing variety of powers and functions given to administrative agencies
recognizes the need for the active intervention of administrative agencies in matters calling
for technical knowledge and speed in countless controversies which cannot possibly be
handled by regular courts. The CIACs primary function is that of a quasi-judicial agency,
which is to adjudicate claims and/or determine rights in accordance with procedures set forth
in E.O. No. 1008.
Same; Same; Same; Same; The language of Section 1 of Circular No. 1-91 emphasizes the
obvious inclusion of the CIAC even if it is not named in the enumeration of quasi-judicial
agencies.In the second place, the language of Section 1 of Circular No. 1-91 emphasizes
the obvious inclusion of the CIAC even if it is not named in the enumeration of quasi-judicial
agencies. The introductory words [a]mong these agencies are preceding the enumeration of
specific quasi-judicial agencies only highlight the fact that the list is not exclusive or
conclusive. Further, the overture stresses and acknowledges the existence of other quasijudicial agencies not included in the enumeration but should be deemed included. In addition,
the CIAC is obviously excluded in the catalogue of cases not covered by the Circular and
mentioned in Section 2 thereof for the reason that at the time the Circular took effect, E.O.
No. 1008 allows appeals to the Supreme Court on questions of law.
Same; Same; Same; Same; Under Circular No. 1-91, appeals from the arbitral awards of the
CIAC may be brought to the Court of Appeals, and not to the Supreme Court alone, and the
grounds for appeal are likewise broadened to include appeals on questions of facts and
appeals involving mixed questions of fact and law.In sum, under Circular No. 1-91, appeals
from the arbitral awards of the CIAC may be brought to the Court of Appeals, and not to the
Supreme Court alone. The grounds for the appeal
699
VOL. 365, SEPTEMBER 24, 2001
699
59
are likewise broadened to include appeals on questions of facts and appeals involving mixed
questions of fact and law.
700
Same; Same; Same; Same; Any remaining doubt on the procedural mutation of the
provisions on appeal in E.O. No. 1008, vis--vis Circular No. 1-91 and R.A. No. 7902, was
completely removed with the issuance by the Supreme Court of Revised Administrative
Circular No. 1-95 and the 1997 Rules of Civil Procedureboth categorically include the
CIAC in the enumeration of quasi-judicial agencies comprehended therein.Any remaining
doubt on the procedural mutation of the provisions on appeal in E.O. No. 1008, vis--vis
Circular No. 1-91 and R.A. No. 7902, was completely removed with the issuance by the
Supreme Court of Revised Administrative Circular No. 1-95 and the 1997 Rules of Civil
Procedure. Both categorically include the CIAC in the enumeration of quasi-judicial agencies
comprehended therein. Section 3 of the former and Section 3, Rule 43 of the latter, explicitly
expand the issues that may be raised in an appeal from quasi-judicial agencies or
instrumentalities to the Court of Appeals within the period and in the manner therein
provided. Indisputably, the review of the CIAC award may involve either questions of fact,
of law, or of fact and law.
700
Same; Same; Same; While the right to appeal is statutory, the mode or manner by which this
right may be exercised is a question of procedure which may be altered and modified
provided that vested rights are not impaired.There is no controversy on the principle that
the right to appeal is statutory. However, the mode or manner by which this right may be
exercised is a question of procedure which may be altered and modified provided that vested
rights are not impaired. The Supreme Court is bestowed by the Constitution with the power
and prerogative, inter alia, to promulgate rules concerning pleadings, practice and procedure
in all courts, as well as to review rules of procedure of special courts and quasi-judicial
bodies, which, however, shall remain in force until disapproved by the Supreme Court. This
power is constitutionally enshrined to enhance the independence of the Supreme Court.
Same; Same; Same; No litigant has a vested right in a particular remedy, which may be
changed by substitution without impairing vested rightshe can have none in rules of
procedure which relate to remedy.The right to appeal from judgments, awards, or final
orders of the CIAC is granted in E.O. No. 1008. The procedure for the exercise or application
of this right was initially outlined in E.O. No. 1008. While RA. No. 7902 circulars
subsequently issued by the Supreme Court and its ammendments to the 1997 Rules on
Procedure effectively modified the manner by which
work of the Chatham House; Engr. Alex Bautista, Area Manager of RKDCCI; Mr. Avelino
M. Mercado, CHATHAMS Project Manager; and Engr. Jose T. Infante.
701
_______________
VOL. 365, SEPTEMBER 24, 2001
701
Id., 108-110; Annex C-1. All references to the owner and claimant or contractor were
charged to CHATMAM and MCI, respectively.
702
The core issue in this case is whether under existing law and rules the Court of Appeals can
also review findings of facts of the Construction Industry Arbitration Commission (CIAC).
702
Respondent Chatham Properties, Inc. (CHATHAM) and petitioner Metro Construction, Inc.
(MCI) entered into a contract for the construction of a multi-storey building known as the
Chatham House located at the corner of Herrera and Valero Streets, Salcedo Village, Makati
City, Metro Manila. In. April 1998, MCI sought to collect from CHATHAM a sum of money
for unpaid progress billings and other charges and instituted a request for adjudication of its
claims with the CIAC. The case was docketed as CIAC Case No. 10-98. The arbitral tribunal
was composed of Joven B. Joaquin as Chairman, and Beda G. Fajardo and Loreto C. Aquino
as members.
The preliminary conference before the CIAC started in June 1998 and was concluded a
month after with the signing of the Terms of Reference (TOR) of the Case.1 The hearings
immediately started with the presentation of MCIs witnesses, namely: Ms. Ma. Suzette S.
Nucum, Chief Accountant; Ms. Isabela Redito, Office Engineer; Mr. John Romulo, Field
Manager; and Dr. John Y. Lai, President. CHATHAMS witnesses were: Engr. Ruperto
Kapunan III, Managing Director of RK Development and Construction Co., Inc. (RKDCCI),
which was the Construction Manager firm hired by CHATHAM to oversee the construction
and expenses which may be reimbursed by MCI from CHATHAM shall not exceed
the amount of P75,000,000.00.
3. 4. In the course of the construction, Change Orders No. 1, 4, 8A, 11, 12 and 13 were
implemented, payment of which were recommended by x x x RKDCCI and approved
by one of CHATHAMS Project Managers, Romulo F. Sugay.
5. 9. Did MCI fail to complete and/or deliver the project within the approved completion
period? If so, is MCI liable for liquidated damages and how much?
The parties then stipulated on the following issues, again, as set forth in the TOR:
2. 2. Were the approved Change Orders 1, 4, 8a, 11, 12 and 13 fully paid by
CHATHAM? If not, is MCI entitled to its claim for the unpaid balance?
1. 11.1. Core testing expenses and penalty for concrete strength failure P3,630,587.38
3. 3. Is CHATHAM liable for Change Orders 7a, 7b, 10, 14, 15, 16, 17, 19 and 20?
2. 11.2. Expenses to rectify structural steel works for the foundation P1,331,139.74.
4. 4. Were the CHB works from the 8th to the 31st floors part of the original contract or
in the nature of extra/additional works? Is CHATHAM liable for the same? If so, how
much?
3. 11.3. Cost of additional materials (concrete & rebars) supplied by CPI P5,761,457.91.
703
VOL. 365, SEPTEMBER 24, 2001
703
1. 12. Are the parties entitled to their respective claims for attorneys fees and cost of
litigation? If so, how much?3
In the resolution of these issues, the CIAC discovered significant data, which were not
evident or explicit in the documents and records but otherwise revealed or elicited during the
hearings, which the CIAC deemed material and relevant to the complete adjudication of the
62
case. In its decision of 19 October 1998,4 the CIAC made the following findings and
conclusions:
progress billings and payments under both contracts were made on the basis of percentage of
project completion.
It was established during the hearing that the contract was awarded to MCI through
negotiation as no bidding was conducted, x x x It was also revealed that two agreements were
entered into, one is labeled Construction Contract for the total fixed amount of
P50,000,000.00 and the other a Supplemental Contract for an amount not to exceed
575,000,000.00. The
Both documentary and testimonial evidence prove that, effectively, the construction contract
and supplemental contract is but one agreement for a lump sum contract amount of
P125,000,000.00.
_______________
There was also the admitted fact that the contract was negotiated and awarded in the absence
of a complete construction plan. In any case, in support of the total contract amount of P125
MILLION, is a Cost Breakdown (Exh. 17-L), where the estimated quantities of owner
furnished materials (OFM) are indicated. It is however, understood that these quantities are
estimates, based on (an) incomplete set of construction plans. It is likewise understood that
except for the OFM, all the other costs in the Cost Breakdown form the basis for the lumpsum agreement under the contract, subject to adjustment only if there are any significant
changes in the contract plans.
Rollo, 103-107.
704
704
xxx
RKDCCI in its letter to MCI dated 15 Feb. 1995 (Exh. 4), informed MCI that it was
confirming the agreement allegedly accepted by Dr. Lai that the Building Committee will
take over the management of the construction operations (of the project) albeit under certain
conditions. Specifically, the take over was for an interim period and will extend only after
concreting of up to basement level 5 or up to 30 May 1995 Whichever is later. The letter also
stated that the Building Committee x x x Will be responsible for management and direction
including management of MCI engineers at the site, sequencing of work, additional labor,
additional equipment and management of the yard and staging area. The letter, however,
emphasized that the intent is not a take over of the contract or
705
VOL. 365, SEPTEMBER 24, 2001
705
take over of the entire work and in fact, it was mentioned that MCI will still be responsible
for earth anchoring and steel fabrication work.
706
CHATHAM claims that the interim take-over was necessitated by MCIs delay in the
progress of its work, due allegedly to MCIs lack of manpower and equipment. During the
hearings of this case, this claim of MCIs lack of manpower, necessary equipment, qualified
engineers and inefficient construction management was testified to by both Mr. Mercado [of
CHATHAM] and Engr. Kapunan of RKDCCI. CHATHAMS witnesses, however, testified
that in spite of these alleged deficiencies, MCI was nevertheless allowed to continue to take
full control of the operations. When asked why termination of the contract was not resorted
to if truly, MCI was not performing its contracted obligations, witnesses Mercado and
Kapunan cited special relations between the owner of MCI (Dr. John Lai) and the president
of CHATHAM (Mr. Lamberto Un Ocampo) as the reason.
706
On the other hand, Dr. Lai contends that, as explained in his letter to CHATHAM dated 17
February 1995, (Exh. 4-A) MCIs work was on schedule. During the hearings, Dr. Lai also
insisted that beginning 15 February 1995, MCI was relieved of full control of the
construction operations, that it was relegated to (be) a mere supplier of labor, materials and
equipment, and that the alleged interim takeover actually extended through the completion of
the project. Dr. Lai cited CHATHAMS purchases of materials, fielding labor force and subcontracting works allegedly for the project without his knowledge and consent as proof that
CHATHAM had taken full control of the project.
To the above allegation of MCI that CHATHAM went ahead and procured materials, hired
labor and entered into sub-contract agreements with the intention of eventually charging the
costs thereof to MCI, witness Mercado countered, that CHATHAM has the right to do this
under the provisions of Article 27 of the contract, dealing with Recision, Cancellation,
Termination of Contract.
By way of responding to the various counterclaims of CHATHAM, MCI referred to a letter
of [the former] addressed to MCI dated 18 January 1997 (Exhibit E-1) the first paragraph of
which reads as follows:
After evaluating all the documents issued and received from both Chatham Properties Inc.
and Metro Construction, Inc., the Building Committee of Chatham Properties, Inc. evaluated
them. The Building Committee finds the total receivable of Metro Construction is in the
amount of EIGHT MILLION PESOS (P8,000,000.00) only.
claims (to be) MCIs shortcomings, and MCIs agreement to stay on the project under
conditions set by CHATHAM, is believed a matter of mutual benefit to both parties.
3. 3. That CHATHAMS invoking its rights under the provisions of Article 27 of the
construction contract is believed out of place, as it failed to observe the required
antecedent acts before it can exercise its prerogative under the said contract provision.
4. 4. That there is no reason to believe, either party was in any way guilty of bad faith in
acting as it did on certain relevant matters. However, this Tribunal is of the belief that
due perhaps to the eagerness on the part particularly of CHATHAMS representatives
to take such steps it considered necessary to insure completion of the project within
the period desired by CHATHAM, it deviated from
707
VOL. 365, SEPTEMBER 24, 2001
707
P20,000,000.00
800,000.00
71,081,183.44
5,474,419.67
8,196,755.51
Total
P104,752,358.42
The records of this case show that the last progress payment to MCI was in January 1996
representing payment of Progress Billing No. 19 for the period ending 31 December 1995.
The percentage of completion claimed then by MCI was 80.02%, the amount evaluated and
eventually paid to MCI was the equivalent of 77.15% work accomplishment. No further
progress payments were made thereafter, other than for advances to cover MCI payrolls from
April 1996 to March 1997 in the amount of P8,196,755.51 and for various advances and
payments of approved change orders in the amount of P5,474,419.67.
In the meantime, up to Billing No. 23 for the period ending 30 April 1996, MCI billed
CHATHAM a total accomplishment of 95.29%. This billing was however, evaluated by
CHATHAM, and in its letter to MCI dated 27 May 1996 (Exhibit E) it confirmed that MCIs
remaining balance of work stands at P7,374,201.15 as of 23 May 1996. This amount,
percentage-wise, equals roughly 5.88% of the contract amount as testified to by Engr. Jose
Infante. (Exhibit 22-B). Therefore, what was computed as MCIs work accomplishment as of
23 May 1996 was 94.12% and it is this evaluation which this Tribunal believes MCI is
entitled to as of said date.
65
P117,655,000.00
P24,005,732.66
Of the above balance of P24,005,732.66 as of 23 May 1996, the only payments made by
CHATHAM to MCI is the sum of P5,750,000.00 from June 1996 onwards, allegedly to cover
MCI payrolls. It is of course noted that CHATHAMS suspension of further payments to
MCI was because it had been undertaking on its own, the further procurement of materials
and sub-contracting of various phases of works on the project.
In consideration of the above facts, this Tribunals conclusion that there was in fact an
implied take over of the project is further confirmed. Furthermore, this Tribunal additionally
concludes that the cut-off date for purposes of delineating the financial obligations of the
parties between them should be 23 May 1996, the date when CHATHAM evaluated MCIs
accomplishment at 94.10% but nevertheless suspended all further progress payments to MCI.
MCI presented further documentary evidence (Exhibit E-6) the subject of which is
PUNCHLISTING-CIVIL STRUCTURAL. In this particular document which bears the
signatures of representatives of both MCI and RKDCCI, MCI tried to prove that as of 30
August 1996 it had actually attained 99.16% work accomplishment. While it may be true that
as of that date the project had reached 99.16% completion, there is no incontrovertible
evidence showing that MCI was responsible for such accomplishment. This was in fact
actually testified to by Engr. Alex Bautista of RKDCCI, when he said that it was an
evaluation of the projects completion stage, not necessarily MCIs work accomplishment.
This Tri709
5,353,091.08
VOL. 365, SEPTEMBER 24, 2001
Total
709
P123,008,091.08
Metro Construction, Inc. vs. Chatham Properties, Inc.
99,002,358.42
66
bunal therefore stands firm on its conclusion that MCIs accomplishment is only up to the
extent of 94.10%5
710
With those findings, the CIAC disposed of the specific money claims by either granting or
reducing them. On Issue No. 9, i.e., whether CHATHAM failed to complete and/or deliver
the project within the approved completion period and, if so, whether CHATHAM is liable
for liquidated damages and how much, the CIAC ruled in this wise:
This Tribunal holds that the provision of the contract insofar as the Overall Schedule is
concerned cannot justifiably be applied in the instant case in view of the implied take-over of
the Chatham House project by CHATHAM. Accordingly, this Tribunal finds no necessity to
resolve whether or not MCI complete[d] and/or delivere[d] the project within the approved
completion period. In fact, Mr. Mercado testified that it was CHATHAM who ultimately
completed the project, with assistance of the construction managers.
In any case, this Tribunal finds merit in RKDCCIs claim that MCI was in delay in the
concreting milestone and that [it] is liable for liquidated damages therefor. This,
notwithstanding MCIs invoking that Chatham is estopped from claiming liquidated damages
after it failed to deduct the alleged liquidated damages from MCIs progress billings. This
Tribunal holds that such failure to deduct, which CHATHAM claims it did in order not to
hamper progress of work in the project, is an option which [it] may or may not exercise.
However, this Tribunal finds that CHATHAMS Exh. 11-A where the liquidated damages on
delays in concreting milestone was applied is not consistent with [its] own Exhibit 3-1. This
Tribunal notes that in Exh. 11-A, CHATHAM included a projected delay of 85 days for the
Helipad Concreting works, while no such projected delay was included in Exh. 3-1 as it
should be.
This Tribunal holds that Exh. 3-1 showing a delay of 294 days in concreting milestones
should rightfully be used in computing liquidated damages. Accordingly, this Tribunal holds
that MCI is liable for liquidated damages in the amount of P3,062,498.78 as follows:
1/4 x 1/3 [(1/10 x P125,000,000.00) 1%] 1 x 294 = P3,062,498.78.6
710
A.1.
94.12% of P125,000,000.00
P117,650,000.00
A.2
5,353,091.08
A.3
1,648,560.46
A.4
CHB Works
1,248,654.71
_______________
5
Rollo, 280-285.
67
A.5
Workers Bonus
-0-
B.4.
2,214,715.68
A.6
Disputed Deductions
909,484.70
P7,391,494.40
A.7
Labor Escalation
1,076,256.00
C.
P16,126,922.91
A.8
Attendance Fee
508,162.73
Total
P128,394,209.68
104,875,792.37
P23,518,417.31
Impugning the decision of the CIAC, CHATHAM instituted a petition for review with the
Court of Appeals, which was docketed as CA-G.R. SP No. 49429. In its petition, CHATHAM
alleged that:
_______________
B.
B.1.
Liquidated Damages
P3,062,498.78
B.2.
Actual Damages
335,994.50
B.3.
Penalties
1,778,285.44
Id. 324-325.
711
VOL. 365, SEPTEMBER 24, 2001
711
The Arbitral Tribunal grossly erred in failing to indicate specific reference to the evidence
presented or to the transcript of stenographic notes in arriving at its questioned Decision, in
violation of the cardinal rule under Section 1, Rule 36 of the Revised Rules of Civil
Procedure that a judgment must state clearly and definitely the facts and the law on which it
is based.
MCIs Petition for Review with the Court of Appeals, 8-9; OR, 15-16.
Per Rivera, J., with Abad Santos, Jr. and Salas, B., JJ., concurring.
712
The Tribunals conclusions are grounded entirely on speculations, surmises and conjectures.
The Arbitral Tribunal grossly erred in failing to consider the evidence presented by
CHATHAM and the testimony of its witnesses.
The Arbitral Tribunal gravely abused its discretion in considering arbitrarily that there was an
implied takeover contrary to the facts and evidence submitted.
The Arbitral Tribunal committed grave error and gross misapprehension of facts in holding
that CHATHAM is not entitled to liquidated damages despite failure of MCI to meet the
over-all schedule of completion.
The Arbitral Tribunal manifestly erred in holding that MCI is entitled to its claim for unpaid
progress billings.
The Arbitral Tribunal committed gross and reversible error in equating the percentage of
MCIs work accomplishment with the entire work in place, despite evidence to the contrary.
The Arbitral Tribunal gravely erred in making 23 May 1996 as the cut-off date for purposes
of delineating the financial obligations of the parties.
The Arbitral Tribunal erred in denying CHATHAM its claim for actual damages pursuant to
Article 27.8 of the Construction Contract. The facts set forth in CHATHAMS Answer with
Compulsory Counterclaim as well as its documentary and testamentary evidence were not
overturned or controverted by any contrary evidence.8
In its decision of 30 September 1999,9 the Court of Appeals simplified the assigned errors
into one core issue, namely, the propriety of the CIACs factual findings and conclusions.
In upholding
712
_______________
69
completion, since at that time the project was very much delayed; thereafter, the MCI
was back in full control of the project.12
i.e. while the takeover is effective immediately it will extend only after concreting Level B-1
or approximately until 30 May 1995 which ever is later.
2. 2. Testimony of Engr. Bautista that the takeover was only partial and temporary and
limited to the management portion on the basement only and that MCI was always in
control of the project.13
Exhibit 4-A Letter dated 17 February 1995 written by Dr. Lai of MCI to Engr. Kapunan in
response to the latters 15 February 1995 letter stating that [A]lso we were assured that we
will not be responsible for any errors or accidents that may occur during this INTERIM
period, indicating that Dr. Lai was very much aware of the interim period.
_______________
10
11
12
13
Exhibit 4-CLetter dated 15 February 1995 written by Engr. Ben C. Ruiz of RKDCCI to
Dr. Lai containing the reasons for the takeover.
Exhibit 8ALetter dated 5 September 1995 written by Dr. E.G. Tabujara to Dr. Lai/Romy
Laron (Project Manager of MCI) requesting for an engineer of MCI to accompany the
inspector of RKDCCI to witness batching procedures. By so doing, Dr. E.G. Tabujara
acknowledged that Dr. Lai was in control of the project.
Exhibit 8Letter dated 4 September 1995 by Engr. Romulo R. Sugay to Dr. Lai offering
an incentive to the workers of MCI to exert (their) best effort for topping off by the end of
December; another clear indication that Dr. Lai was in control of the project.
713
VOL. 365, SEPTEMBER 24, 2001
713
Exhibit 4-DLetter dated 4 January 1996 indicating that Mr. H.T. Go offered Dr Lai an
incentive of P1,800,000 on the condition that MCI meets the new schedule/milestones.
MCIs acceptance of the incentive offer likewise shows that MCI was in control of the
Project.
Exhibits 3, 3-J, 3-M, 3-N, 3-W-1, 3-X, 3-Y, and 3-Zamong others
containing reminders to MCI of its duties and shortcomings, likewise attest to the fact that
MCI was in control (of) and responsible for the Project, although markedly deficient.
_______________
14
714
714
the delays in the overall schedule of completion pursuant to Art. 13.5 of the Construction
Agreement, to wit:
13.5. Over-All ScheduleFor not meeting the final completion date of the PROJECT, the
OWNER will deduct from the Contract Sum or amounts due the CONTRACTOR, the
amount equivalent to 1/10 of 1% of the Contract Sum for every calendar day of delay,
provided, however, that the maximum penalty should not exceed 25% of the fee payable to
the CONTRACTOR as stipulated in the Bill of Quantities. Penalties from
715
VOL. 365, SEPTEMBER 24, 2001
715
Project, [CHATHAM] had to assist [MCI] along the way to expedite the execution and
completion of the Project (Exhibits 3-K and 3-V).
From the foregoing disquisitions, it is clear that [MCI] is liable for liquidated damages, as per
Article 13.5 of the Construction Contract, for its failure to complete the project within the
period stipulated in the Construction Contract and even despite an extension of 53 days from
the original schedule or of the overall schedule of completion. [MCI] should therefore pay
[CHATHAM] the amount of liquidated damages equivalent to P24,125,000.00 for 193 days
of delay in the overall schedule of completion counted from overall completion date on July
22, 1996 up to the date of completion on February 15, 1997, as stated in the Certificate of
Occupancy, computed as follows, to wit:
1998 is hereby AFFIRMED with the modification on [MCIs] liability for liquidated damages
in the amount of P24,125,000.00. Thus,
A.
A.1.
94.12% of P125,000,000.00
P117,650,000.00
A.2
5,353,091.08
A.3
1,648,560.46
A.4
CHB Works
1,248,654.71
A.5
Workers Bonus
-0-
A.6
Disputed Deductions
909,484.70
A.7
Labor Escalation
1,076,256.00
A.8
Attendance Fee
508,162.73
Total
P128,394,209.68
_______________
15
OR, 487-488.
716
716
72
MCI promptly filed on 25 October 1999 a motion for reconsideration. In its Resolution of 4
February 2000, the Court of Appeals
_______________
B.
C.
104,875,792.37
P 23,518,417.31
Rollo, 91-92.
717
VOL. 365, SEPTEMBER 24, 2001
B.1.
Liquidated Damages
P24,125,000.00
B.2.
Actual Damages
335,994.50
B.3.
Penalties
1,778,285.44
B.4.
2,214,715.68
P28,453,995.62
16
4,935,578.31
717
MCI also contends that while it may be argued that recent (1) issuances by the Supreme
Court, specifically, Circular No. 1-91, which eventually became Revised Administrative
Circular No. 1-95; (2) legislation, in particular, Republic Act No. 7902, which amended
Batas Pambansa Blg. 129; and (3) amendments to the Rules on Civil Procedure, modifying
E.O. No. 1008 in the sense that questions of facts, of law, or mixed questions of facts and
law may be the subject of an appeal of the CIACs decision to the Court of Appeals, it is still
E.O. No. 1008 which remains to be the fundamental and substantive law that endows parties
to an arbitral controversy the right to appeal. Hence, the provisions on appeal of E.O. No.
1008 should be controlling, i.e., only questions of law
_______________
17
For its part, CHATHAM avers that the evolution on the rules governing appeals from
judgments, decisions, resolutions, orders or awards of the CIAC convincingly disclose that
E.O. No. 1008 has already been superseded. With the power of the Supreme Court to
promulgate rules concerning the protection and enforcement of constitutional rights,
pleadings, practice, and procedure in all courts, its issuances and amendments to the Rules on
Civil Procedure, not to mention R.A. No. 7902, as enacted by Congress, effectively modified
E.O. No. 1008. Accordingly, the judgments, awards, decisions, resolutions, orders or awards
of the CIAC are now appealable to the Court of Appeals on questions of facts, mixed
questions of facts and law, and questions of law, and no longer with the Supreme Court on
exclusively questions of law. Further, the TOR cannot limit the expanded jurisdiction of the
Court of Appeals based on the latest rules. Thus, the Court of Appeals did not err in
reviewing the factual findings of the CIAC.
Id., 94-99.
18
Finally, CHATHAM asseverates that the Court of Appeals did not commit grave abuse of
discretion in reversing the CIACs ascertainment on the implied take-over and liquidated
damages.
718
718
CHATHAM also contends that, even if the Court of Appeals can only review questions of
law, said court did not err in rendering the questioned decision as the conclusions therein,
drawn as they were from factual determinations, can be considered questions of law.
This Court shall now resolve the primary issue raised in this case.
E.O. No. 1008 vests upon the CIAC original and exclusive jurisdiction over disputes arising
from, or connected with, contracts entered into by parties involved in construction in the
Philippines,
719
VOL. 365, SEPTEMBER 24, 2001
719
74
whether the dispute arises before or after the completion of the contract, or after the
abandonment or breach thereof.19 By express provision of Section 19 thereof, the arbitral
award of the CIAC is final and unappealable, except on questions of law, which are
appealable to the Supreme Court.
19
The parties, however, disagree on whether the subsequent Supreme Court issuances on
appellate procedure and R.A. No. 7902 removed from the Supreme Court its appellate
jurisdiction in Section 19 of E.O. No. 1008 and vested the same in the Court of Appeals, and
whether appeals from CIAC awards are no longer confined to questions of law.
720
On 27 February 1991, this Court issued Circular No. 1-91, which prescribes the Rules
Governing Appeals to the Court of Appeals from Final Orders or Decisions of the Court of
Tax Appeals and Quasi-Judicial Agencies. Pertinent portions thereof read as follows:
1. 1. ScopeThese rules shall apply to appeals from final orders or decisions of the
Court of Tax Appeals. They shall also apply to appeals from final orders or decisions
of any quasi-judicial agency from which an appeal is now allowed by statute to the
Court of Appeals or the Supreme Court. Among these agencies are the Securities and
Exchange Commission, Land Registration Authority, Social Security Commission,
Civil Aeronautics Board, Bureau of Patents, Trademarks and Technology Transfer,
National Electrification Administration, Energy Regulatory Board, National
Telecommunications Commission, Secretary of Agrarian Reform and Special
Agrarian Courts under R.A. No. 6657, Government Service Insurance System,
Employees Compensation Commission, Agricultural Inventions Board, Insurance
Commission and Philippine Atomic Energy Commission.
2. 2. Cases not CoveredThese rules shall not apply to decisions and interlocutory
orders of the National Labor Relations Commission or the Secretary of Labor and
Employment under the Labor Code of the Philippines, the Central Board of
Assessment Appeals, and other quasi-judicial agencies from which no appeal to the
courts is prescribed or allowed by statute.
3. 3. Who may appeal and where to appealThe appeal of a party affected by a final
order, decision, or judgment of the Court of Tax Appeals
_______________
See National Irrigation Administration v. Court of Appeals, 318 SCRA 255, 266 [1999].
720
SUPREME COURT REPORTS ANNOTATED
The Court of Appeals shall have the power to try cases and conduct hearings, receive
evidence and perform any and all acts necessary to resolve factual issues raised in cases
falling within its original and appellate jurisdiction, including the power to grant and conduct
new trials or further proceedings, x x x
21
Then this Court issued Administrative Circular No. 1-95, which revised Circular No. 1-91.
Relevant portions of the former reads as follows:
1. Scope.These rules shall apply to appeals from judgments or final orders of the Court of
Tax Appeals and from awards, judgments, final orders or resolutions of any quasi-judicial
agency from which an appeal is
_______________
20
21
721
VOL. 365, SEPTEMBER 24, 2001
721
Section 2. Cases Not Covered.These rules shall not apply to judgments or final orders
issued under the Labor Code of the Philippines, Central Board of Assessment Appeals, and
by other quasi-judicial agencies from which no appeal to the court is prescribed or allowed.
Section 3. Where to Appeal.An appeal under these rules 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.
Thereafter, this Court promulgated the 1997 Rules on Civil Procedure. Sections 1, 2 and 3 of
Rule 43 thereof provides:
Section 1. Scope.This Rule shall apply to appeals from judgments or final orders of the
Court of Tax Appeals and from awards, judgments, final orders or resolutions of or
authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions. Among
these agencies are the Civil Service Commission, Central Board of Assessment Appeals,
Securities and Exchange Commission, Office of the President, Land Registration Authority,
Social Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks and
Technology Transfer, National Electrification Administration, Energy Regulatory Board,
National Telecommunications Commission, Department of Agrarian Reform under Republic
Act No. 6657, Government Service Insurance System, Employees Compensation
Commission, Agricultural Inventions Board, Insurance Commission, Philippine Atomic
Energy Commission, Board of Investments, Construction Industry Arbitration Commission,
and voluntary arbitrators authorized by law.
Section 2. Cases Not CoveredThis Rule shall not apply to judgments or final orders issued
under the Labor Code of the Philippines.
Section 3. Where to Appeal.An appeal under this Rule may be taken to the Court of
Appeals within the period and in the manner herein
722
722
76
23
See The Presidential Anti-Dollar Salting Task Force v. Court of Appeals, 171 SCRA 348
[1989].
See Tropical Homes v. National Housing Authority, 152 SCRA 540 [1987]; See also
Antipolo Realty Corp. v. NHA, 153 SCRA 399 [1987]; Solid Homes, Inc. v. Payawal, 177
SCRA 572 [1989].
723
VOL. 365, SEPTEMBER 24, 2001
723
Development Bank Employees24 sheds light on the matter, thus: Assuming arguendo that the
voluntary arbitrator or the panel of voluntary arbitrators may not strictly be considered as a
quasi-judicial agency, board or commission, still both he and the panel are comprehended
within the concept of a quasi-judicial instrumentality. It may even be stated that it was to
meet the very situation presented by the quasi-judicial functions of the voluntary arbitrators
here, as well as the subsequent arbitrator/arbitral tribunal operating under the Construction
Industry Arbitration Commission, that the broader term instrumentali-
therein provided. Indisputably, the review of the CIAC award may involve either questions of
fact, of law, or of fact and law.
In view of all the foregoing, we reject MCIs submission that Circular No. 1-91, B.P. Blg.
129, as amended by R.A. 7902, Revised Administrative Circular 1-95, and Rule 43 of the
1997 Rules of Civil Procedure failed to efficaciously modify the provision on appeals in E.O.
No. 1008. We further discard MCIs claim that these amendments have the effect of merely
changing the forum for appeal from the Supreme Court to the Court of Appeals.
_______________
24
724
724
There is no controversy on the principle that the right to appeal is statutory. However, the
mode or manner by which this right may be exercised is a question of procedure which may
be altered and modified provided that vested rights are not impaired. The Supreme Court is
bestowed by the Constitution with the power and prerogative, inter alia, to promulgate rules
concerning pleadings, practice and procedure in all courts, as well as to review rules of
procedure of special courts and quasi-judicial bodies, which, however, shall remain in force
until disapproved by the Supreme
725
725
ties was purposely included in [Section 9 of B.P. Blg. 129 as amended by R.A. No. 7902].
Metro Construction, Inc. vs. Chatham Properties, Inc.
Any remaining doubt on the procedural mutation of the provisions on appeal in E.O. No.
1008, vis--vis Circular No. 1-91 and R.A. No. 7902, was completely removed with the
issuance by the Supreme Court of Revised Administrative Circular No. 1-95 and the 1997
Rules of Civil Procedure. Both categorically include the CIAC in the enumeration of quasijudicial agencies comprehended therein. Section 3 of the former and Section 3, Rule 43 of
the latter, explicitly expand the issues that may be raised in an appeal from quasi-judicial
agencies or instrumentalities to the Court of Appeals within the period and in the manner
The right to appeal from judgments, awards, or final orders of the CIAC is granted in E.O.
No. 1008. The procedure for the exercise or application of this right was initially outlined in
E.O. No. 1008. While R.A. No. 7902 and circulars subsequently issued by the Supreme
Court and its amendments to the 1997 Rules on Procedure effectively modified the manner
by which the right to appeal ought to be exercised, nothing in these changes impaired vested
rights. The new rules do not take away the right to appeal allowed in E.O. No. 1008. They
only prescribe a new procedure to enforce the right.27 No litigant has a vested right in a
78
particular remedy, which may be changed by substitution without impairing vested rights;
hence, he can have none in rules of procedure which relate to remedy.28
The foregoing discussion renders academic MCIs assertion on the binding effect of its
stipulation with CHATHAM in the TOR that the decision of the CIAC shall be final and nonappealable except on questions of law. The agreement merely adopted Section 19 of E.O. No.
1008, which, as shown above, had been modified.
The TOR, any contract or agreement of the parties cannot amend, modify, limit, restrict or
circumscribe legal remedies or the jurisdiction of courts. Rules of procedure are matters of
public order and interest and unless the rules themselves so allow, they cannot be altered,
changed or regulated by agreements between or stipulations of the parties for their singular
convenience.29
Having resolved the existence of the authority of the Court of Appeals to review the
decisions, awards, or final orders of the CIAC, the Court shall now determine whether the
Court of Ap_______________
25
26
See Echegaray v. Secretary of Justice, 301 SCRA 96 [1999]; See also GSIS v. Court of
Appeals, 222 SCRA 685 [1993].
27
28
Ibid.
29
726
726
30
Litonjua v. Court of Appeals, 286 SCRA 136 [1998]; Rosario v. Court of Appeals, 310
SCRA 464 [1999]; Republic v. Court of Appeals, 314 SCRA 230 [1999].
relied upon by the Court of Appeals when considered by themselves and singly, seemingly
and initially evince MCIs control over the project. However, they eventually lose evidentiary
puissance to support the Court of Appeals conclusion when reckoned against the totality of
the evidence that
727
_______________
VOL. 365, SEPTEMBER 24, 2001
727
31
32
Id.
728
that all the other figures therein are constant, save for the amount of liquidated damages for
which MCI should be accountable. If this Court concurs with the CIACs conclusions, MCIs
responsibility for liquidated damages is, as already stated, P3,062,498.78. Setting this off
against CHATHAMS overall fiscal accountability would bring the latters total liability to
MCI to P16,126,922.91. If the Court of Appeals is correct, MCI would be held liable for a
much higher P24,125,000 liquidated damages. Setting this off against CHATHAMS
monetary responsibilities, MCI would still have to pay CHATHAM P4,935,578.31.
728
After painstakingly combing through the voluminous records, we affirm the findings of the
CIAC. The evidence taken as a whole or in their totality reveals that there was an implied
takeover by CHATHAM on the completion of the project. The evidence that appears to
accentuate the Court of Appeals decision ironically bolstered the CIACs conclusion. The
testimonies of Engr. Kapunan, Engr. Bautista, Dr. Lai, and the letter of Engr. Ruiz,31
acknowledging the temporary takeover by CHATHAM of the project, underscore the
palpable fact that there was indeed a takeover. We confer particular credit to Dr. Lais
testimony that as of 15 February 1995, MCI was relieved of full control of the construction
operations, that it was relegated to a mere supplier of labor, materials and equipment, and
that the alleged interim takeover actually extended through the completion of the project.
Even CHATHAM admits the takeover but sugarcoated the same with words like interim
and charging the costs to MCI. With these glaring admissions, we can even consider that
the takeover was not implied but blatant.
CHATHAM took charge of the completion of the project, particularly, the fact that
CHATHAM suspended all progress billing payments to MCI. The continued presence and
participation of MCI in the project was, as found by the CIAC, a matter of mutual benefit to
and convenience of the parties.
Exhibits 4, 4-A, 4-C, 8A, 8, 4-D, 3, 3-1, 3-M, 3-N, 3-W-1, 3-X,
3-Y, 3-Z, 5, 5-A, 5-B, 5-C, 5-D, 5-E, 5-F, 5-O, C-7, E-9, etc.,32
No pronouncement as to costs.
80
SO ORDERED.
Puno, Kapunan, Pardo and Ynares-Santiago, JJ., concur.
Judgment partially modified, award of CIAC reinstated.
Notes.Executive Order No. 1008, otherwise known as the Construction Industry
Arbitration Law vests upon the Construction Industry Arbitration Commission (CIAC)
original and exclusive jurisdiction over disputes arising from, or connected with contracts
entered into by parties involved in construction in the Philippines, whether the dispute arises
before or after the completion of the contract, or after the abandonment or breach thereof.
(National Irrigation Administration vs. Court of Appeals 318 SCRA 255 [1999])
Voluntary arbitrators, by the nature of their functions, act in quasi-judicial capacity, such that
their decisions are within the scope of judicial review. (Philrock, Inc. vs. Construction
Industry Arbitration Commission, 359 SCRA 632 [2001])
o0o
by parties that have agreed to submit their dispute to voluntary arbitration.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.
Same; Same; Same; Same; The Supreme Court will not countenance the effort of any party to
subvert or defeat the objective of voluntary arbitration for its own private motives.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.
Same; Same; Same; Words and Phrases; Cause of Action Defined.Cause of action is
defined as an act or omission by which a party violates the right of another. A complaint is
deemed to have stated a cause of action provided it has indicated the following: (1) the legal
right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or the
omission of the defendant in violation of the said legal right. The
_______________
*
THIRD DIVISION.
633
VOL. 359, JUNE 26, 2001
633
81
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. The Court also notes that
634
Same; Same; Same; Judicial Review; Voluntary arbitrators, by the nature of their functions,
act in quasi-judicial capacity, such that their decisions are within the scope of judicial
review.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. 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. 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.
Interests; 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.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 percent per annum, in the absence
of a stipulation of the rate.
Damages; Where a person and his family 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 brought about by the unreasonable delay in the
construction of their residence due to the delivery of substandard ready-mix concrete by the
supplier, they are entitled to an award of moral damages.Respondents were deprived of the
comfort and the safety of a house and were exposed to the agony of witnessing the wastage
634
during the pendency of the case, Respondent Vicente Cid died without seeing the completion
of their home. Under the circumstances, the award of moral damages is proper.
Same; Nominal damages are recoverable only if no actual or substantial damages resulted
from the breach, or no damage was or can be shown.Nominal damages are recoverable
only if no actual or substantial damages resulted from the breach, or no damage was or can
be shown. Since actual damages have been proven by private respondents for which they
were amply compensated, they are no longer entitled to nominal damages.
Attorneys Fees; Where the award is not only for attorneys fees but also for expenses of
litigation, it does not matter if the litigant represented himself in court, because it is obvious
that he incurred expenses in pursuing his action.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.
82
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:
PANGANIBAN, J.:
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 (CIAG) 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.
635
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.
_______________
635
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 CA-G.R. 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
Penned by Justice Ramon A. Barcelona with the concurrence of Justices Jesus M. Elbinias,
Division chairman; and Maximiano C. Asuncion, member. By the time the assailed
Resolution was promulgated, Justice Asuncion had died and had thus been replaced by
Justice Jorge S. Imperial.
2
Rollo, p. 44.
636
636
Thereafter, preliminary conferences were held among the parties and their appointed
arbitrators. At these conferences, disagreements arose as to whether moral and exemplary
83
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. 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.
SO ORDERED.
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.
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 [Petitioner
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 Philrocks 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
Philrocks request for the suspension of the proceedings. Philrocks counsel agreed to the
continuation of the proceedings but reserved the right to file a pleading elucidating the
position he [had] raised regarding the Courts Order dated June 13, 1995. The parties then
proceeded to finalize, approve and sign the Terms of Reference. Philrocks 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).
637
VOL. 359, JUNE 26, 2001
637
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. 4445, Rollo, CA-G,R.SPNo.42443)4
Before the CA, petitioner filed a Petition for Review, docketed as CA-G.R. SP No. 42443,
contesting the jurisdiction of the CIAC and
_______________
4
638
638
assailing the propriety of the monetary awards in favor of respondent spouses. This Petition
was consolidated by the CA with CA-G.R. SP No. 39781, a Petition for Certiorari earlier
elevated by petitioner questioning the jurisdiction of the CIAC.
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 the field of expertise of
quasi-judicial bodies, their findings of fact are accorded great respect when supported by
substantial evidence.
_______________
5
The Arbitral Tribunal was composed of Joven B. Joaquin, chairman; Atty. Alfredo F. Tadiar
and Engr. Loreto C. Aquino, members.
639
VOL. 359, JUNE 26, 2001
639
Whether or not the awarding o[f] moral and nominal damages and attorneys fees and
expenses of litigation in favor of respondents is proper.
Hence, this petition.
Issues
_______________
6
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.
This case was deemed submitted for decision upon this Courts receipt on October 21, 1999,
of the Memorandum filed and personally signed by Respondent Nelia Cid; Vicente, her
husband, had died in the meantime. The Memorandum for petitioner was signed by Atty.
Pericles C. Consunji of Ponce Enrile Reyes & Manalastas, while the Memorandum for Public
Respondent was signed by Assistant Solicitor Carlos N. Ortega and Solicitor Geraldine C.
Fiel-Macaraig.
B.
640
Whether or not Respondent Cid spouses have a cause of action against Petitioner Philrock.
640
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.
G.
D.
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.
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.
Whether or not Petitioner Philrock should be held liable for the payment of arbitration fees.7
F.
86
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
_______________
7
SECTION 4. Jurisdiction.The CIAC shall have original and exclusive jurisdiction over
disputes arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines, whether the dispute arises before or after the completion of
the contract, or after the abandonment or breach thereof. These disputes may involve
government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute
must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for
materials and workmanship; violation of the terms of agreement; interpretation and/or
application of contractual provi
Agreement were Attys. 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.
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641
VOL. 359, JUNE 26, 2001
641
sions; amount of damages and penalties; commencement time and delays; maintenance and
defects; payment; default of employer or contractor and changes in contract cost.
Excluded from the coverage of this law are disputes arising from employer-employee
relationships which shall continue to be covered by the Labor Code of the Philippines. (EO
1008)
87
10
_______________
11
See Spouses Benitez v. Court of Appeals, 266 SCRA 242, January 16, 1997.
12
642
642
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
Camara v. Court of Appeals, 310 SCRA 608, 618, July 20, 1999; Delos Reyes v. Court of
Appeals, 285 SCRA 81, 85, January 27, 1998; heberman Realty Corporation v. Typingco, 293
SCRA 316, 327, July 29, 1998.
13
Baluyot v. Court of Appeals, 311 SCRA 29, 45, July 22, 1999; Vergara v. Court of Appeals,
319 SCRA 323, 327, November 26, 1999; Leber-man v. Typinco, ibid., p. 328.
643
VOL. 359, JUNE 26, 2001
643
longer workable. This Tribunal holds that the unworkability of said concrete mix has been
firmly established.
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
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
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.
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 quasijudicial bodies that have acquired expertise are generally accorded great respect and even
finality, if they
_______________
14
CIAC Decision dated September 24, 1996; CA rollo for G.R. SP No. 42443, p. 42.
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 Philrocks Batching
Plant Department in the amount
_______________
15
644
644
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:
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
Villaflor v. Court of Appeals, 280 SCRA 297, 330, October 9, 1997; Philippine Merchant
Marine School, Inc. v. Court of Appeals, 244 SCRA 770, 785, June 2, 1995; COCOFED v.
Trajano, 241 SCRA 262, 268, February 15, 1995.
16
Villaflor v. CA, ibid.; De Ysasi III v. National Labor Relations Commission, 231 SCRA
173, 185, March 11, 1994.
17
Chung Fu Industries (Phils.), Inc. v. Court of Appeals, 206 SCRA 545, 556, February 25,
1992.
89
645
VOL. 359, JUNE 26, 2001
645
18
19
20
646
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
646
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 percent 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.
_______________
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.
90
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.
Notes.To hold public officers personally liable for moral and exemplary damages and for
attorneys fees for acts done in the performance of official functions, the plaintiff must prove
that these officers exhibited acts characterized by evident bad faith, malice or gross
negligence. But even if their acts have not been so tainted, public officers may still be held
liable for nominal damages if they had violated the plaintiffs constitutional rights.
(Cojuangco vs. Court of Appeals, 309 SCRA 602 (19993)
_______________
21
Rollo, p. 198.
22
In cases where no interest had been stipulated by the parties, no accrued conventional interest
could further earn interest upon judicial demand. (David vs. Court of Appeals, 316 SCRA
710 [1999])
23
Go v. Intermediate Appellate Court, 197 SCRA 22, 28-29, May 13, 1991; Ventanilla v.
Centeno, 1 SCRA 215, 220, January 28, 1961; RobesFrancisco Realty v. Court of First
Instance, 86 SCRA 59, 65-66, October 30 1978.
o0o
647
VOL. 359, JUNE 26, 2001
647
FIRST DIVISION.
91
136
136
of dispute resolution that is now rightfully vaunted as the wave of the future in
international relations, and is recognized worldwide. To brush aside a contractual agreement
calling for arbitration in case of disagreement between the parties would therefore be a step
backward.
137
137
respective containerships. Under the Agreement, they could be, depending on the occasion,
either a principal carrier (with a negotiable bill of lading or other contract of carriage with
respect to cargo) or a containership operator (owner, operator or charterer of containership on
which the cargo is carried).
During the lifetime of the said Agreement, or on 18 May 1991, Florex International, Inc.
(hereinafter referred to as Florex) delivered to private respondent AMML cargo of various
foodstuffs, with Oakland, California as port of dis-
Respondent AMML filed its Answer4 alleging that even on the assumption that Florex was
entitled to reimbursement, it was petitioner who should be liable. Accordingly, respondent
AMML filed a Third Party Complaint5 against petitioner on November 10, 1992, averring
that whatever damages sustained by Florex were caused by petitioner, which actually
received and transported Florexs cargo on its vessels and unloaded them.
On January 1, 1993, petitioner filed a Motion to Dismiss the Third Party Complaint6 on the
ground of failure to state a cause of action and lack of jurisdiction, the amount of damages
not having been specified therein. Petitioner also prayed either for dismissal or suspension of
the Third Party Complaint on the ground that there exists an arbitration agreement between it
and respondent AMML. On September 27, 1993, the lower court issued an Order denying
petitioners Motion to Dismiss. Petitioners Motion for Reconsideration
________________
________________
138
138
139
charge and San Francisco as place of delivery. The corresponding Bill of Lading No. MAEU
MNL110263 was issued to Florex by respondent AMML. Pursuant to the Agreement,
respondent AMML loaded the subject cargo on MS Sealand Pacer, a vessel owned by
petitioner. Under this arrangement, therefore, respondent AMML was the principal carrier
while petitioner was the containership operator.
The consignee refused to pay for the cargo, alleging that delivery thereof was delayed. Thus,
on June 26, 1992, Florex filed a complaint against respondent Maersk-Tabacalera Shipping
Agency (Filipinas), Inc. for reimbursement of the value of the cargo and other charges.3
According to Florex, the cargo was received by the consignee only on June 28, 1991, since it
was discharged in Long Beach, California, instead of in Oakland, California on June 5, 1991
as stipulated.
139
93
Undaunted, petitioner filed a petition for certiorari7 with the Court of Appeals on November
23, 1994. Meanwhile, petitioner also filed its Answer to the Third Party Complaint in the trial
court.
On September 29, 1995, respondent Court of Appeals rendered the assailed Decision
dismissing the petition for certiorari. With the denial of its Motion for Reconsideration,
petitioner filed the instant petition for review, raising the following issues
I.
THE COURT OF APPEALS DISREGARDED AN AGREEMENT TO ARBITRATE IN
VIOLATION OF STATUTE AND SUPREME COURT DECISIONS HOLDING THAT
ARBITRATION IS A CONDITION PRECEDENT TO SUIT WHERE SUCH AN
AGREEMENT TO ARBITRATE EXISTS.
II.
THE COURT OF APPEALS HAS RULED IN A MANNER NOT IN ACCORD WITH
JURISPRUDENCE WHEN IT REFUSED TO HAVE THE THIRD-PARTY COMPLAINT
DISMISSED FOR FAILURE TO STATE A CAUSE OF ACTION AND FOR RULING
THAT THE FAILURE TO STATE A CAUSE OF ACTION MAY BE REMEDIED BY
REFERENCE TO ITS ATTACHMENTS.8
Resolving first the issue of failure to state a cause of action, respondent Court of Appeals did
not err in reading the Complaint of Florex and respondent AMMLs Answer together with the
Third Party Complaint to determine whether a cause of action is properly alleged. In FitEstate Golf and Development, Inc. vs. Court of Appeals,9 this Court ruled that in the
________________
7
140
140
94
Operator provided that notice of any extension so granted is given to the Containership
Operator within 30 days of any such extension being granted.
xxx
xxx
32.5 Any such arbitration shall be in accordance with the Arbitration Act 1950 as amended by
the Arbitration Act 1979 or any other subsequent legislation and the arbitrators award shall
be final and binding upon Lines. To the extent permitted by the Arbitration Act 1979 the
Lines hereto exclude pursuant to S 3(1) of that Act the jurisdiction of the English High Court
of Justice to entertain any appeal or application under Sections 1 and 2 of the Arbitration Act
1979.10
xxx
141
VOL. 327, MARCH 2, 2000
141
From the foregoing, the following matters are clear: First, disputes between the Principal
Carrier and the Containership Operator arising from contracts of carriage shall be governed
by the provisions of the bills of lading issued to the Principal Carrier by the Containership
Operator. Second, the Principal Carrier shall use its best efforts to defend or settle all suits
_______________
10
142
142
To begin with, allowing respondent AMMLs Third Party Claim against petitioner to proceed
would be in violation of Clause 16.2 of the Agreement. As summarized, the clause provides
that whatever dispute there may be between the Principal Carrier and the Containership
Operator arising from contracts of carriage shall be governed by the provisions of the bills of
lading deemed issued to the Principal Carrier by the Containership Operator. On the other
hand, to sustain the Third Party Complaint would be to allow private respondent to hold
petitioner liable under the provisions of the bill of lading issued by the Principal Carrier to
Florex, under which the latter is suing in its Complaint, not under the bill of lading petitioner,
as containership operator, issued to respondent AMML, as Principal Carrier, contrary to what
is contemplated in Clause 16.2.
The Court of Appeals ruled that the terms of the Agreement explicitly required that the
principal carriers claim against the containership operator first be finally determined by,
among others, a court judgment, before the right to arbitration accrues. However, the Court
of Appeals failed to consider that, precisely, arbitration is the mode by which the liability of
the Containership Operator may be finally determined. This is clear from the mandate of
Clause 16.3 that (T)he Principal Carrier shall have the right to seek damages
143
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VOL. 327, MARCH 2, 2000
143
11
Cruz vs. Court of Appeals, G.R. No. 126713, 293 SCRA 239 [1998].
144
144
fully vaunted as the wave of the future in international relations, and is recognized
worldwide. To brush aside a contractual agreement calling for arbitration in case of
disagreement between the parties would therefore be a step backward.12
96
o0o
________________
12
BF Corporation vs. Court of Appeals, G.R. No. 120105, 288 SCRA 267, 286 [1998].
Arbitration; Courts; Jurisdiction; Under Republic Act No. 876, otherwise known as the
Arbitration Law, it is the regional trial court which exercises jurisdiction over questions
relating to arbitration.It is error for the petitioners to claim that the case should fall under
the jurisdiction of the Securities and Exchange Commission [SEC, for brevity]. The
controversy does not in anyway involve the election/appointment of officers of petitioner
MCHC, as claimed by petitioners in their assignment of errors. Respondent Zosas amended
complaint focuses heavily on the illegality of the Employment Agreements Arbitration
Clause initially invoked by him in seeking his termination benefits under Section 8 of the
employment contract. And under Republic Act No. 876, otherwise known as the Arbitration
97
Law, it is the regional trial court which exercises jurisdiction over questions relating to
arbitration.
Actions; Judgments; Law of the Case Doctrine; Words and Phrases; The law of the
case doctrine has been defined as a term applied to an established rule that when an
appellate court passes on a question and remands the cause to the lower court for further
proceedings, the question there settled becomes the law of the case upon subsequent
appeal.The decision of the Court of Appeals in CA-G.R. SP No. 43059 affirming the
_______________
*
would, in all probability, work injustice to respondent Zosa. We have repeatedly stressed that
the jurisdiction of this Court in a petition for review on certiorari under Rule 45 of the
Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless the
factual findings complained of are devoid of support by the evidence on record, or the
assailed judgment is based on misapprehension of facts.
Same; Same; Pleadings and Practice; Issues not raised below cannot be resolved on review
in higher courts.In this connection, petitioners attempt to put respondent in estoppel in
assailing the arbitration clause must be struck down. For one, this issue of estoppel, as
likewise noted by the Court of Appeals, found its way for the first time only on appeal. Wellsettled is the rule that issues not raised below cannot be resolved on review in higher courts.
SECOND DIVISION.
158
158
159
among the parties in pursuit of a mutually acceptable solution to their conflicting claims. Any
arrangement or scheme that would give undue advantage to a party in the negotiating table is
anathema to the very purpose of arbitration and should, therefore, be resisted.
160
PETITION for review on certiorari of a decision of the Regional Trial Court of Cebu City,
Br. 58.
The facts are stated in the opinion of the Court.
Marifel G. Gaerlan and Carpio, Villaraza & Cruz for petitioners.
Francis M. Zosa for respondents.
BUENA, J.:
Under a management agreement entered into on March 18, 1994, Magellan Capital Holdings
Corporation [MCHC] appointed Magellan Capital Management Corporation [MCMC] as
manager for the operation of its business and affairs.1 Pursuant thereto, on the same month,
MCHC, MCMC, and private respondent Rolando M. Zosa entered into an Employment
Agreement designating Zosa as President and Chief Executive Officer of MCHC.
Under the Employment Agreement, the term of respondent Zosas employment shall be coterminous with the management agreement, or until March 1996,2 unless sooner terminated
pursuant to the provisions of the Employment Agreement,3 The grounds
_______________
1
par. 2 of the Pre-Trial Order dated October 21, 1996, Annex BB, Rollo, p. 241.
160
on April 17, 1996, filed an action for damages against petitioners before the Regional Trial
Court of Cebu12 to enforce his benefits under the Employment Agreement.
On July 3, 1996, petitioners filed a motion to dismiss13 arguing that (1) the trial court has no
jurisdiction over the instant case since respondent Zosas claims should be resolved through
arbitration pursuant to Section 23 of the Employment Agreement with petitioners; and (2) the
venue is improperly laid since respondent Zosa, like the petitioners, is a resident of Pasig
City and thus, the venue of this case, granting without admitting that the respondent
161
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VOL. 355, MARCH 26, 2001
161
10
11
12
13
162
162
100
On August 1, 1996, the RTC Branch 58 of Cebu City issued an Order denying petitioners
motion to dismiss upon the findings that (1) the validity and legality of the arbitration
provision can only be determined after trial on the merits; and (2) the amount of damages
claimed, which is over P100,000.00, falls within the jurisdiction of the RTC.15 Petitioners
filed a motion for reconsideration which was denied by the RTC in an order dated September
5, 1996.16
In the interim, on August 22, 1996, in compliance with the earlier order of the court directing
petitioners to file responsive pleading to the amended complaint, petitioners filed their
Answer Ad Cautelam with counterclaim reiterating their position that the dispute should be
settled through arbitration and the court had no jurisdiction over the nature of the action.17
On October 21, 1996, the trial court issued its pre-trial order declaring the pre-trial stage
terminated and setting the case for hearing. The order states:
ISSUES:
The Court will only resolve one issue in so far as this case is concerned, to wit:
Whether or not the Arbitration Clause contained in Sec. 23 of the Employment Agreement is
void and of no effect: and, if it is void and of no effect, whether or not the plaintiff is entitled
to damages in accordance with his complaint and the defendants in accordance with their
counter-claim.
It is understood, that in the event the arbitration clause is valid and binding between the
parties, the parties shall submit their respective
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163
VOL. 355, MARCH 26, 2001
163
14
19
15
20
16
21
17
I.
101
II.
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF JURISDICTION WHEN IT FAILED TO RULE THAT THE
ARBITRATION CLAUSE UNDER THE EMPLOYMENT AGREEMENT IS VALID AND
BINDING ON THE PARTIES THERETO.
164
164
On March 21, 1997, the Court of Appeals rendered a decision, giving due course to the
petition, the decretal portion of which reads:
WHEREFORE, the petition is GIVEN DUE COURSE. The respondent court is directed to
resolve the issue on the validity or effectivity of the arbitration clause in the Employment
Agreement, and to suspend further proceedings in the trial on the merits until the said issue is
re_______________
III.
165
102
22
23
solved. The questioned orders are set aside insofar as they contravene this Courts resolution
of the issues raised as herein pronounced.
166
The petitioner is required to remit to this Court the sum of P81.80 for cost within five (5)
days from notice.
166
SO ORDERED.22
Petitioners filed a motion for partial reconsideration of the CA decision praying (1) for the
dismissal of the case in the trial court, on the ground of lack of jurisdiction, and (2) that the
parties be directed to submit their dispute to arbitration in accordance with the Employment
Agreement dated March 1994. The CA, in a resolution promulgated on June 20, 1997, denied
the motion for partial reconsideration for lack of merit.
In compliance with the CA decision, the trial court, on July 18, 1997, rendered a decision
declaring the arbitration clause in the Employment Agreement partially void and of no
effect. The dispositive portion of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered partially declaring the
arbitration clause of the Employment Agreement void and of no effect, only insofar as it
concerns the composition of the panel of arbitrators, and directing the parties to proceed to
arbitration in accordance with the Employment Agreement under the panel of three (3)
arbitrators, one for the plaintiff, one for the defendants, and the third to be chosen by both the
plaintiff and defendants. The other terms, conditions and stipulations in the arbitration clause
remain in force and effect.23
In view of the trial courts decision, petitioners filed this petition for review on certiorari,
under Rule 45 of the Rules of Court, assigning the following errors for the Courts resolution:
1. II. In any event, the trial court acted without jurisdiction in hearing the case below,
considering that it has no jurisdiction over the nature of the action or suit since
controversies in the election or appointment of officers or managers of a corporation,
such as the action brought by respondent Zosa, fall within the original and exclusive
jurisdiction of the Securities and Exchange Commission.
1. I. The trial court gravely erred when it ruled that the arbitration clause under the
employment agreement is partially void and of no effect, considering that:
2. III, Contrary to respondent Zosas allegation, the issue of the trial courts jurisdiction
over the case below has not yet been resolved with finality considering that
_______________
103
petitioners have expressly reserved their right to raise said issue in the instant petition.
Moreover, the principle of the law of the case is not applicable in the instant case.
3. IV. Contrary to respondent Zosas allegation, petitioners MCMC and MCHC are not
guilty of forum shopping.
4. V. Contrary to respondent Zosas allegation, the instant petition for review involves
only questions of law and not of fact.24
The determination and validity of the agreement is not a matter intrinsically connected with
the regulation and internal affairs of corporations (see Pereyra vs. IAC, 181 SCRA 244; Sales
vs. SEC, 169 SCRA 121); it is rather an ordinary case to be decided in accordance with the
general laws, and do not require any particular expertise or training to interpret and apply
(Viray vs. CA, 191 SCRA 308).26
Furthermore, the decision of the Court of Appeals in CA-G-R. SP No. 43059 affirming the
trial courts assumption of jurisdiction over the case has become the law of the case which
now binds the petitioners. The law of the case doctrine has been defined as a term applied
to an established rule that when an appellate court passes on a question and remands the
cause to the lower court for further proceedings, the question there settled becomes the law of
the case upon subsequent appeal.27 To note, the CAs decision in CA-G.R. SP No. 43059 has
already attained finality as evidenced by a Resolution of this Court ordering entry of
judgment of said case, to wit:
_______________
24
As regards the fourth assigned error, asserting that jurisdiction lies with the SEC, which is
raised for the first time in this petition, suffice it to state that the Amended Complaint
squarely put in issue the question whether the Arbitration Clause is valid and effective
between the parties. Although the controversy which spawned the action concerns the
validity of the termination of the service of a corporate officer, the issue on the validity and
effectivity of the arbitration clause is determinable by the regular courts, and do not fall
within the exclusive and original jurisdiction of the SEC.
167
_______________
VOL. 355, MARCH 26, 2001
167
25
26
27
Loevillo C. Agustin vs. Court of Appeals and Filinvest Finance Corporation, 271 SCRA
457 [1997].
168
168
28
Rollo, p. 350.
29
Congregation of the Religious of the Virgin Mary vs. CA, 291 SCRA 385 [1998].
169
VOL. 355, MARCH 26, 2001
169
The arbitrators shall interpret this Agreement in accordance with the substantive laws of the
Republic of the Philippines. The arbitrators shall have no power to add to, subtract from or
otherwise modify the terms of this Agreement or to grant injunctive relief of any nature. Any
judgment upon the award of the arbitrators may be entered in any court having jurisdiction
thereof, with costs of the arbitration to be borne equally by the parties, except that each party
shall pay the fees and expenses of its own counsel in the arbitration. (Emphasis supplied)
in accordance with the Employment Agreement, but under the panel of three (3) arbitrators,
one (1) arbitrator to represent the plaintiff, one (1) arbitrator to represent both defendants
(MCMC and MCHC) [herein petitioners] and the third arbitrator to be chosen by the plaintiff
[defendant Zosa] and defendants [petitioners].
From the foregoing arbitration clause, it appears that the two (2) defendants [petitioners]
(MCMC and MCHC) have one (1) arbitrator each to compose the panel of three (3)
arbitrators. As the defendant MCMC is the Manager of defendant MCHC, its decision or vote
in the arbitration
170
170
x x x
xxx
x x x30
_______________
30
31
proceeding would naturally and certainly be in favor of its employer and the defendant
MCHC would have to protect and preserve its own interest; hence, the two (2) votes of both
defendants (MCMC and MCHC) would certainly be against the lone arbitrator for the
plaintiff [herein defendant]. Hence, apparently, plaintiff [defendant] would never gpt or
receive justice and fairness in the arbitration proceedings from the panel of arbitrators as
provided in the aforequoted arbitration clause. In fairness and justice to the plaintiff
[defendant], the two defendants (MCMC and MCHC) [herein petitioners] which represent
the same interest should be considered as one and should be entitled to only one arbitrator to
represent them in the arbitration proceedings. Accordingly, the arbitration clause, insofar as
the composition of the panel of arbitrators is concerned should be declared void and of no
effect, because the law says, Any clause giving one of the parties power to choose more
arbitrators than the other is void and of no effect (Article 2045, Civil Code).
The dispute or controversy between the defendants (MCMC and MCHC) [herein
petitioners] and the plaintiff [herein defendant] should be settled in the arbitration proceeding
Casolita, Sr. vs. Court of Appeals, 275 SCRA 257 [1997]; Manalili vs. Court of Appeals,
280 SCRA 400 [1997].
32
171
VOL. 355, MARCH 26, 2001
171
respondent Zosa submitted himself to arbitration proceedings (as there was none yet) before
bewailing the composition of the panel of arbitrators. He in fact, lost no time in assailing the
arbitration clause upon realizing the inequities that may mar the arbitration proceedings if
the existing line-up of arbitrators remained unchecked.
We need only to emphasize in closing that arbitration proceedings are designed to level the
playing field among the parties in pursuit of a mutually acceptable solution to their
conflicting claims. Any arrangement or scheme that would give undue advantage to a party in
the negotiating table is anathema to the very purpose of arbitration and should, therefore, be
resisted.
WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of
the trial court dated July 18, 1997 is AFFIRMED.
172
SO ORDERED.
Bellosillo (Chairman), Mendoza and De Leon, Jr., JJ., concur.
Quisumbing, J., On leave.
Petition dismissed, judgment affirmed,
Notes.Interpretation by the arbitrators which was a faithful application of the provisions of
the Agreement did not have the effect of creating a new contract. (Adamson vs. Court of
Appeals, 232 SCRA 602 [1994])
A voluntary arbitrator commits grave abuse of discretion in finding that an employee did not
commit gross negligence in the performance of her duty where the evidence shows
otherwise. (Citibank, N.A. vs. Gatchalian, 240 SCRA 212 [1995])
Absent an express stipulation in the CBA, the phrase all disputes should be construed as
limited to the areas of conflict traditionally within the jurisdiction of Voluntary Arbitrators,
i.e., dis putes relating to contract-interpretation, contract-implementation,
172
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.There is no doubt that arbitration is valid and
constitutional in our jurisdiction. Even before the enactment of RA 876, this Court has
countenanced the settlement of disputes through arbitration. Unless the agreement is such as
absolutely
_______________
*
SECOND DIVISION.
374
374
contracting parties and produce effect as between them, their assigns and heirs. Clearly, only
parties to the Agreement, i.e., petitioners DMC-USA and its Managing Director for Export
Sales Paul E. Derby, 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 for but only
as to petitioners DMC-USA and Paul E. Derby, Jr., and private respondents MMI and LILY
SY, and not as to the other parties in this case, in accordance with the recent case of Heirs of
Augusto L. Salas, Jr. v. Laperal Realty Corporation, which superseded that of Toyota Motor
Philippines Corp. v. Court of Appeals.
Same; Same; Same; Same; Where the issue before the Court could not be speedily and
efficiently resolved in its entirety if simultaneous arbitration proceedings and trial, or
suspension of trial pending arbitration, is allowed, the trial court should hear and adjudicate
the case in a single and complete proceeding.The object of arbitration is to allow the
expeditious determination of a dispute. Clearly, the issue before us could not be speedily and
efficiently resolved in its entirety if we allow simultaneous arbitration proceedings and trial,
or suspension of trial pending arbitra375
VOL. 351, FEBRUARY 7, 2001
375
Rollo, p. 68.
376
376
BELLOSILLO, J.:
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 courts 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
________________
1
Penned by Judge Bienvenido L. Reyes (now Associate Justice of the Court of Appeals),
RTC-Br. 74, Malabon, Metro Manila.
See Note 1.
MMI to stop coordinating with Antonio Ongpin and to communicate directly instead with
petitioner DMC-USA through Paul E. Derby, Jr.
10
Art. 20. Every person who, contrary to law, willfully and negligently causes damage to
another, shall indemnify the latter for the same.
11
Art. 21. Any person who willfully causes loss or damage to another in a manner that is
contrary to morals, good custom or public policy shall compensate the latter for damages.
12
Art. 23. Even when an act or event causing damage to anothers property was not due to the
fault or negligence of the defendant, the latter shall be liable to indemnity, if through the act
or event, he was benefited.
377
VOL. 351, FEBRUARY 7, 2001
377
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, attorneys fees and
litigation expenses.
378
378
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 private
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 lor 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
_______________
13
14
Penned by Presiding Judge Amanda Valera Cabigao, RTC-Br. 73, Malabon, Metro Manila.
15
See Note 2.
16
379
379
________________
17
See Note 1.
18
19
380
380
20
18 November 1998.
21
Chapter 2, Title XIV, Book IV, New Civil Code of the Philippines.
22
Puromines, Inc. v. Court of Appeals, G.R. No. 91228, 22 March 1993, 220 SCRA 281.
381
VOL. 351, FEBRUARY 7, 2001
381
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 DMC-USA and Paul E. Derby, Jr., and private
respondents MMI and LILY SY, and not as to the other parties in this case, in accordance
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
________________
23
National Union Fire Insurance Company of Pittsburg v. StoltNielsen Philippines, Inc., G.R.
No. 87958, 26 April 1990, 184 SCRA 682.
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 parties28 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
24
25
26
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.
27
________________
28
Citing Mercantile Ins. Co. v. Felipe Ysmael, Jr. & Co., Inc., G.R. No. 43862, 13 January
1989, 169 SCRA 66.
382
382
29
Citing Quillian v. Court of Appeals, G.R. No. 55457, 20 January 1989, 169 SCRA 279.
30
Ibid.
31
383
VOL. 351, FEBRUARY 7, 2001
383
CHAVEZ v. CA
Section 14 of Republic Act 876, otherwise known as the Arbitration Law, allows any party to
the arbitration proceeding to petition the court to take measures to safeguard and/or conserve
any matter which is the subject of the dispute in arbitration. (Home Bankers Savings and
Trust Company vs. Court of Appeals, 318 SCRA 558 [1999])
o0o
114
PERALTA,J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court,
praying that the Decision1 of the Court of Appeals (CA) dated December 19, 2003, holding
that the Construction Industry Arbitration Commission (CIAC) had no jurisdiction over the
dispute between herein parties, and the CA Resolution2 dated May 24, 2004, denying herein
petitioners motion for reconsideration, be reversed and set aside.
The undisputed facts, as accurately narrated in the CA Decision, are as follows.
On July 20, 1995, petitioner Ray Burton Development Corporation [herein respondent]
(RBDC for brevity) and private respondent William Golangco Construction Corporation
[herein petitioner] (WGCC) entered into a Contract for the construction of the Elizabeth
Place (Office/Residential Condominium).
On March 18, 2002, private respondent WGCC filed a complaint with a request for
arbitration with the Construction Industry Arbitration Commission (hereinafter referred to as
CIAC). In its complaint, private respondent prayed that CIAC render judgment ordering
petitioner to pay private respondent the amount of, to wit:
1.P24,703,132.44 for the unpaid balance on the contract price;
2.P10,602,670.25 for the unpaid balance on the labor cost adjustment;
3.P9,264,503.70 for the unpaid balance of additive works;
4.P2,865,615.10 for extended overhead expenses;
5.P1,395,364.01 for materials cost adjustment and trade contractors utilities
expenses;
6.P4,835,933.95 for interest charges on unpaid overdue billings on labor cost
adjustment and change orders.
or for a total of Fifty Three Million Six Hundred Sixty-Seven Thousand Two Hundred
Nineteen and 45/xx (P53,667,219.45) and interest charges based on the prevailing bank rates
on the foregoing amount from March 1, 2002 and until such time as the same shall be fully
paid.
On April 12, 2002, petitioner RBDC filed a Motion to Dismiss the aforesaid complaint on the
ground of lack of jurisdiction. It is petitioners contention that the CIAC acquires jurisdiction
over disputes arising from or connected with construction contracts only when the parties to
the contract agree to submit the same to voluntary arbitration. In the contract between
petitioner and private respondent, petitioner claimed that only disputes by reason of
differences in interpretation of the contract documents shall be deemed subject to arbitration.
Private respondent filed a Comment and Opposition to the aforesaid Motion dated April 15,
2002. Private respondent averred that the claims set forth in the complaint require contract
interpretation and are thus cognizable by the CIAC pursuant to the arbitration clause in the
construction contract between the parties. Moreover, even assuming that the claims do not
involve differing contract interpretation, they are still cognizable by the CIAC as the
arbitration clause mandates their direct filing therewith.
116
On May 6, 2002, the CIAC rendered an Order the pertinent portion of which reads as
follows:
The Commission has taken note of the foregoing arguments of the parties. After due
deliberations, the Commission resolved to DENY Respondent's motion on the
following grounds:
[1] Clause 17.2 of Art. XVII of the Contract Agreement explicitly provides that
any dispute arising under the construction contract shall be submitted to the
Construction Arbitration Authority created by the Government. Even without this
provision, the bare agreement to submit a construction dispute to arbitration vests in
the Commission original and exclusive jurisdiction by virtue of Sec. 4 of Executive
Order No. 1008, whether or not a dispute involves a collection of sum of money or
contract interpretation as long as the same arises from, or in connection with,
contracts entered into by the parties involved. The Supreme Court jurisprudence on
Tesco vs. Vera case referred to by respondent is no longer controlling as the same was
based on the old provision of Article III, Sec. 1 of the CIAC Rules which has long
been amended.
The issue raised by Respondent in its Motion to Dismiss is similar to the issue set
forth in CA-G.R. Sp. No. 67367,[2] Continental Cement Corporation vs. CIAC and
EEI Corporation, where the appellate court upheld the ruling of the CIAC thereon
that since the parties agreed to submit to arbitration any dispute, the same does not
exclude disputes relating to claims for payment in as much as the said dispute
originates from execution of the works. As such, the subject dispute falls within the
original and exclusive jurisdiction of the CIAC.
WHEREFORE, in view of the foregoing, Respondents Motion to Dismiss is
DENIED for lack of merit. Respondent is given anew an inextendible period of ten
(10) days from receipt hereof within which to file its Answer and nominees for the
Arbitral Tribunal. If Respondent shall fail to comply within the prescribed period, the
Commission shall proceed with arbitration in accordance with its Rules. x x x
Thereafter, petitioner filed a Motion to Suspend Proceedings praying that the CIAC order a
suspension of the proceedings in Case No. 13-2002 until the resolution of the negotiations
between the parties, and consequently, that the period to file an Answer be held in abeyance.
SO ORDERED. x x x
On June 3, 2002, petitioner RBDC filed [with the Court of Appeals (CA)] a petition for
Certiorari and Prohibition with prayer for the issuance of a temporary restraining order and a
writ of preliminary injunction. Petitioner contended that CIAC acted without or in excess of
its jurisdiction when it issued the questioned order despite the clear showing that there is lack
of jurisdiction on the issue submitted by private respondent for arbitration.3
On December 19, 2003, the CA rendered the assailed Decision granting the petition for
certiorari, ruling that the CIAC had no jurisdiction over the subject matter of the case
because the parties agreed that only disputes regarding differences in interpretation of the
contract documents shall be submitted for arbitration, while the allegations in the complaint
make out a case for collection of sum of money. Petitioner moved for reconsideration of said
ruling, but the same was denied in a Resolution dated May 24, 2004.
Hence, this petition where it is alleged that:
I.
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN
FAILING TO DISMISS PRIVATE RESPONDENT RBDC'S PETITION IN CA-G.R. SP
117
xxxx
IV.
THE COURT OF APPEALS ERRED GRAVELY IN NOT RULING THAT RBDC IS
ESTOPPED FROM DISPUTING THE JURISDICTION OF THE CIAC.
II.
xxxx
THE COURT OF APPEALS ERRED GRAVELY IN NOT RULING THAT THE CIAC HAS
JURISDICTION OVER WGCCS CLAIMS, WHICH ARE IN THE NATURE OF
ARBITRABLE DISPUTES
V.
FINALLY, THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
IN REFUSING TO PAY HEED TO THE DECLARATION IN EXECUTIVE ORDER NO.
1008 THAT THE POLICY OF THE STATE IS IN FAVOR OF ARBITRATION OF
CONSTRUCTION DISPUTES, WHICH POLICY HAS BEEN REINFORCED FURTHER
BY THE RECENT PASSAGE OF THE ALTERNATIVE DISPUTE RESOLUTION ACT
OF 2004 (R.A. NO. 9285).4
_______________
3 Rollo, pp. 88-91.
80
The aforementioned issues boil down to (1) whether the CA acted with grave abuse of
discretion in failing to dismiss the petition for certiorari filed by herein respondent, in view
of the latters failure to file a motion for reconsideration of the assailed CIAC Order and for
failure to attach to the petition the relevant pleadings in CIAC Case No. 13-2002; and (2)
whether the CA gravely erred in not upholding the jurisdiction of the CIAC over the subject
complaint.
Petitioner is correct that it was grave error for the CA to have given due course to
respondent's petition for certiorari despite its failure to attach copies of relevant pleadings in
CIAC Case No. 13-2002. In Tagle v. Equitable PCI Bank,5 the party filing the petition for
certiorari before the CA failed to attach the Motion to Stop Writ of Possession and the Order
denying the same. On the ground of non-compliance with the rules, the CA dismissed said
petition for certiorari. When the case was elevated to this Court via a petition for certiorari,
the same was likewise dismissed. In said case, the Court emphasized the importance of
complying with the formal requirements for filing a petition for certiorari and held as
follows:
118
x x x Sec. 1, Rule 65, in relation to Sec. 3, Rule 46, of the Revised Rules of Court. Sec. 1
of Rule 65 reads:
1.SECTIONPetition for certiorari.When any tribunal, board or officer
exercising judicial or quasi-judicial functions has acted without or in excess of its or
his jurisdiction, or with grave abuse of discretion amounting to lack or excess of [its
or his] jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy
in the ordinary course of law, a person aggrieved thereby may file a verified petition
in the proper court, alleging the facts with certainty and praying that judgment be
rendered annulling or modifying the proceedings of such tribunal, board or officer,
and granting such incidental relief as law and justice may require.
The petition shall be accompanied by a certified true copy of the judgment, order or
resolution subject thereof, copies of all pleadings and documents relevant and
pertinent thereto, and a sworn certification of non-forum shopping as provided in the
third paragraph of Section 3, Rule 46. (Emphasis supplied.)
And Sec. 3 of Rule 46 provides:
SEC. 3.Contents and filing of petition; effect of non-compliance with requirements.
The petition shall contain the full names and actual addresses of all the petitioners
and respondents, a concise statement of the matters involved, the factual background
of the case, and the grounds relied upon for the relief prayed for.
In actions filed under Rule 65, the petition shall further indicate the material dates
showing when notice of the judgment or final order or resolution subject thereof was
received, when a motion for new trial or reconsideration, if any, was filed and when
notice of the denial thereof was received.
It shall be filed in seven (7) clearly legible copies together with proof of service
thereof on the respondent with the original copy intended for the court indicated as
such by the petitioner and shall be accompanied by a clearly legible duplicate
original or certified true copy of the judgment, order, resolution, or ruling subject
thereof, such material portions of the record as are referred to therein, and other
documents relevant or pertinent thereto. The certification shall be accomplished by
the proper clerk of court or by his duly-authorized representative, or by the proper
officer of the court, tribunal, agency or office involved or by his duly authorized
over disputes arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines and all that is needed for the CIAC to acquire jurisdiction is
for the parties to agree to submit the same to voluntary arbitration. Nevertheless, respondent
insists that the only disputes it agreed to submit to voluntary arbitration are those arising
from interpretation of contract documents. It argued that the claims alleged in petitioners
complaint are not disputes arising from interpretation of contract documents; hence, the
CIAC cannot assume jurisdiction over the case.
Respondents contention is tenuous.
The contract between herein parties contained an arbitration clause which reads as follows:
17.1.1. Any dispute arising in the course of the execution of this Contract by reason of
differences in interpretation of the Contract Documents which the OWNER and the
CONTRACTOR are unable to resolve between themselves, shall be submitted by either party
for resolution or decision, x x x to a Board of Arbitrators composed of three (3) members, to
be chosen as follows:
One (1) member each shall be chosen by the OWNER and the CONTRACTOR. The
said two (2) members, in turn, shall select a third member acceptable to both of them.
The decision of the Board of Arbitrators shall be rendered within fifteen (15) days
from the first meeting of the Board. The decision of the Board of Arbitrators when
reached through the affirmative vote of at least two (2) of its members shall be final
and binding upon the OWNER and the CONTRACTOR.
17.1 Matters not otherwise provided for in this Contract or by special agreement of the
parties shall be governed by the provisions of the Construction Arbitration Law of the
Philippines. As a last resort, any dispute which is not resolved by the Board of Arbitrators
shall be submitted to the Construction Arbitration Authority created by the government.9
In gist, the foregoing provisions mean that herein parties agreed to submit disputes arising by
reason of differences in interpretation of the contract to a Board of Arbitrators the
composition of which is mutually agreed upon by the parties, and, as a last resort, any other
dispute which had not been resolved by the Board of Arbitrators shall be submitted to the
Construction Arbitration Authority created by the government, which is no other than the
CIAC. Moreover, other matters not dealt with by provisions of the contract or by special
arising from, or connected with, contracts entered into by the parties involved in construction
in the Philippines.12
Under Section 1, Article III of the CIAC Rules, an arbitration clause in a construction
contract shall be deemed as an agreement to submit an existing or future controversy to
CIAC jurisdiction, notwithstanding the reference to a different arbitration institution or
arbitral body in such contract x x x. Elementary is the rule that when laws or rules are clear,
it is incumbent on the court to apply them. When the law (or rule) is unambiguous and
unequivocal, application, not interpretation thereof, is imperative.
Thus, there is no question that in this case, the CIAC properly took cognizance of petitioners
complaint as it had jurisdiction over the same.
IN VIEW OF THE FOREGOING, the Petition is GRANTED. The Decision of the Court of
Appeals, dated December 19, 2003, and its Resolution dated May 24, 2004 in
Hence, the bare fact that the parties herein incorporated an arbitration clause in the EPCC is
sufficient to vest the CIAC with jurisdiction over any construction controversy or claim
between the parties. The arbitration clause in the construction contract ipso facto vested the
CIAC with jurisdiction. This rule applies, regardless of whether the parties specifically
choose another forum or make reference to another arbitral body. Since the jurisdiction of
CIAC is conferred by law, it cannot be subjected to any condition; nor can it be waived or
diminished by the stipulation, act or omission of the parties, as long as the parties agreed to
submit their construction contract dispute to arbitration, or if there is an arbitration clause in
the construction contract. The parties will not be precluded from electing to submit their
dispute to CIAC, because this right has been vested in each party by law.
xxxx
It bears to emphasize that the mere existence of an arbitration clause in the construction
contract is considered by law as an agreement by the parties to submit existing or
future controversies between them to CIAC jurisdiction, without any qualification or
condition precedent. To affirm a condition precedent in the construction contract, which
would effectively suspend the jurisdiction of the CIAC until compliance therewith, would be
in conflict with the recognized intention of the law and rules to automatically vest CIAC
with jurisdiction over a dispute should the construction contract contain an arbitration clause.
Moreover, the CIAC was created in recognition of the contribution of the construction
industry to national development goals. Realizing that delays in the resolution of construction
industry disputes would also hold up the development of the country, Executive Order No.
1008 expressly mandates the CIAC to expeditiously settle construction industry disputes
and, for this purpose, vests in the CIAC original and exclusive jurisdiction over disputes
strictly adhere to the hierarchy of courts on highly meritorious grounds. Most recently, we
relaxed the rule on court hierarchy in the case of Roque, Jr. v. Commission on Elections, 599
SCRA 69 (2009), wherein we held: The policy on the hierarchy of courts, which
petitioners indeed failed to observe, is not an iron-clad rule. For indeed the Court has full
discretionary power to take cognizance and assume jurisdiction of special civil actions for
certiorari and mandamus filed directly with it for exceptionally compelling reasons or if
warranted by the nature of the issues clearly and specifically raised in the petition.
Same; Same; Same; The Court may suspend or even disregard rules when the demands of
justice so require.In sum, BCA failed to successfully rebut the presumption that the official
acts (of Mr. Custodio and Mr. Zuniga) were done in good faith and in the regular
performance of official duty. Even assuming the verifications of the petition suffered from
some defect, we have time and again ruled that [t]he ends of justice are better served when
cases are determined on the meritsafter all parties are given full opportunity to ventilate
their causes and defensesrather than on technicality or
_______________
* FIRST DIVISION.
645
VOL. 629, SEPTEMBER 1, 2010
645
court, aside from the Supreme Court, may enjoin a national government project unless the
matter is one of extreme urgency involving a constitutional issue such that unless the act
complained of is enjoined, grave injustice or irreparable injury would arise.
Same; Same; Same; Definition of National Government Projects.(a) National
government projects shall refer to all current and future national government infrastructure,
engineering works and service contracts, including projects undertaken by governmentowned and -controlled corporations, all projects covered by Republic Act No. 6975, as
amended by Republic Act No. 7718, otherwise known as the Build-Operate-and-Transfer
Law, and other related and necessary activities, such as site acquisition, supply and/or
installation of equipment and materials, implementation, construction, completion, operation,
maintenance, improvement, repair and rehabilitation, regardless of the source of funding.
Same; Same; Same; Private Sector Infrastructure or Development Projects; Meaning of.
Under Section 2(a) of the BOT Law as amended by Republic Act No. 7718, private sector
infrastructure or development projects are those normally financed and operated by
the public sector but which will now be wholly or partly implemented by the private
sector, including but not limited to, power plants, highways, ports, airports, canals, dams,
hydropower projects, water supply, irrigation, telecommunications, railroads and railways,
transport systems, land reclamation projects, industrial estates or townships, housing,
government buildings, tourism projects, markets, slaughterhouses, warehouses, solid waste
management, information technology networks and database infrastructure, education
and health facilities, sewerage, drainage, dredging, and other infrastructure and development
projects as may be authorized by the appropriate agency.646
646
some procedural imperfections. In other words, the Court may suspend or even disregard
rules when the demands of justice so require.
Same; Same; Same; Same; Definition of Infrastructure Projects under the Government
Procurement Reform Act.Republic Act No. 9184, also known as the Government
Procurement Reform Act, defines infrastructure projects in Section 5(k) thereof in this
manner: (k) Infrastructure Projectsinclude the construction, improvement, rehabilitation,
122
647
project. This, petitioners failed to do for they saw fit not to present any evidence on the
details of the e-Passport Project before the trial court and this Court. There is nothing on
record to indicate that the e-Passport Project has a civil works component or is necessarily
related to an infrastructure project.
Same; Same; Same; The trial court had jurisdiction to issue a writ of preliminary injunction
against the e-Passport Project.Republic Act No. 9285 is a general law applicable to all
matters and controversies to be resolved through alternative dispute resolution methods. This
law allows a Regional Trial Court to grant interim or provisional relief, including preliminary
injunction, to parties in an arbitration case prior to the constitution of the arbitral tribunal.
This general statute, however, must give way to a special law governing national government
projects, Republic Act No. 8975 which prohibits courts, except the Supreme Court, from
issuing TROs and writs of preliminary injunction in cases involving national government
projects. However, as discussed above, the prohibition in Republic Act No. 8975 is
inoperative in this case, since petitioners failed to prove that the e-Passport Project is national
government project as defined therein. Thus, the trial court had jurisdiction to issue a writ of
preliminary injunction against the e-Passport Project.
Same; Same; To be entitled to injunctive relief the party seeking such relief must be able to
show grave, irreparable injury that is not capable of compensation.Time and again, this
Court has held that to be entitled to injunctive relief the party seeking such relief must be
able to show grave, irreparable injury that is not capable of compensation.
Same; Same; 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.We reiterated this point in Transfield Philippines, Inc. v. Luzon Hydro
Corporation, 443 SCRA 307 (2004), where we likewise opined: 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. 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. Moreover, an
123
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.
Same; Damages; When an injury considered irreparable.An injury is considered
irreparable if it is of such constant and frequent recurrence that no fair and reasonable
redress can be had therefore in a court of law, or where there is no standard by which their
amount can be measured with reasonable accuracy, that is, it is not susceptible of
mathematical computation. It is considered irreparable injury when it cannot be
adequately compensated in damages due to the nature of the injury itself or the nature
of the right or property injured or when there exists no certain pecuniary standard for
the measurement of damages.
SPECIAL CIVIL ACTION in the Supreme Court. Certiorari and Prohibition.
The facts are stated in the opinion of the Court.
The Solicitor General for petitioner.
Castillo, Laman, Tan, Pantaleon & San Jose for respondent BCA.
SEDALAW collaborating counsel for respondent BCA.
LEONARDO-DE CASTRO,J.:
Before the Court is a Petition for Certiorari and prohibition under Rule 65 of the Rules of
Court with a prayer for the issuance of a temporary restraining order and/or a writ of
preliminary injunction filed by petitioners Department of Foreign Affairs (DFA) and Bangko
Sentral ng Pilipinas (BSP). Petitioners pray that the Court declare as null and void the Order1
dated February 14, 2007 of respondent Judge Franco
_______________
1 Rollo, pp. 84-92.
649
649
In compliance with the Notice of Award dated September 29, 2000 and Section 11.3, Rule 11
of the IRR of the BOT Law, BCA incorporated a project company, the Philippine Passport
Corporation (PPC) to undertake and implement the MRP/V Project.
On February 8, 2001, a Build-Operate-Transfer Agreement (BOT Agreement) between the
DFA and PPC was signed by DFA Acting Secretary Lauro L. Baja, Jr. and PPC President
Bonifacio Sumbilla. Under the BOT Agreement, the MRP/V Project was defined as follows:
Section1.02MRP/V Projectrefers to all the activities and services undertaken in the
fulfillment of the Machine Readable Passport and Visa Project as defined in the Request for
Proposals (RFP), a copy of which is hereto attached as Annex A, including but not limited
to project financing, systems development, installation and maintenance in the Philippines
and Foreign Service Posts (FSPs), training of DFA personnel, provision of all project
consumables (related to the production of passports and visas, such as printer supplies, etc.),
scanning of application and citizenship documents, creation of data bases, issuance of
machine readable passports and visas, and site preparation in the Central Facility and
Regional Consular Offices (RCOs) nationwide.8
On April 5, 2002, former DFA Secretary Teofisto T. Guingona and Bonifacio Sumbilla, this
time as BCA President, signed an Amended BOT Agreement9 in order to reflect the change
in the designation of the parties and to harmonize
Section 11.3 with Section 11.810 of the IRR of the BOT Law. The Amended BOT Agreement
was entered into by the DFA and BCA with the conformity of PPC.
The two BOT Agreements (the original version signed on February 8, 2001 and the amended
version signed April 5, 2002) contain substantially the same provisions except for seven
additional paragraphs in the whereas clauses and two new provisionsSection 9.05 on
Performance and Warranty Securities and Section 20.15 on Miscellaneous Provisions. The
two additional provisions are quoted below:
Section9.05. The PPC has posted in favor of the DFA the performance security required
for Phase 1 of the MRP/V Project and shall be deemed, for all intents and purposes, to be full
compliance by BCA with the provisions of this Article 9.
xxxx
Section20.15. It is clearly and expressly understood that BCA may assign, cede and
transfer all of its rights and obligations under this Amended BOT Agreement to PPC, as fully
as if PPC is the original signatory to this Amended BOT Agreement, provided however that
BCA shall nonetheless be jointly and severally liable with PPC for the performance of all the
obligations and liabilities under this Amended BOT Agreement.11
Also modified in the Amended BOT Agreement was the Project Completion date of the
MRP/V Project which set the completion of the implementation phase of the project within
18 to 23 months from the date of effectivity of the Amended BOT Agreement as opposed to
the previous period found in the original BOT Agreement which set the completion within 18
to 23 months from receipt of the NTP (Notice to Proceed) in accordance with the Project
Master Plan.
On April 12, 2002, an Assignment Agreement12 was executed by BCA and PPC, whereby
BCA assigned and ceded its rights, title, interest and benefits arising from the Amended BOT
Agreement to PPC.
As set out in Article 8 of the original and the Amended BOT Agreement, the MRP/V Project
was divided into six phases:
Phase1.Project Planning PhaseThe Project Proponent [BCA] shall prepare detailed
plans and specifications in accordance with Annex A of this [Amended] BOT Agreement
within three (3) months from issuance of the NTP (Notice to Proceed) [from the date of
effectivity of this Amended BOT Agreement]. This phase shall be considered complete upon
the review, acceptance and approval by the DFA of these plans and the resulting Master Plan,
including the Master Schedule, the business process specifications, the acceptance criteria,
among other plans.
xxxx
The DFA must approve all detailed plans as a condition precedent to the issuance of the CA
[Certificate of Acceptance] for Phase 1.
Phase2.Implementation of the MRP/V Project at the Central FacilityWithin six (6)
months from issuance of the CA for Phase 1, the PROJECT PROPONENT [BCA] shall
complete the implementation of the MRP/V Project in the DFA Central Facility, and establish
125
the network design between the DFA Central Facility, the ten (10) RCOs [Regional Consular
Offices] and the eighty (80) FSPs [Foreign Service Posts].
shall bear all costs related to this transfer.13 (Words in brackets appear in the Amended
BOT Agreement)
xxxx
To place matters in the proper perspective, it should be pointed out that both the DFA and
BCA impute breach of the Amended BOT Agreement against each other.
According to the DFA, delays in the completion of the phases permeated the MRP/V Project
due to the submission of deficient documents as well as intervening issues regarding
BCA/PPCs supposed financial incapacity to fully implement the project.
On the other hand, BCA contends that the DFA failed to perform its reciprocal obligation to
issue to BCA a Certificate of Acceptance of Phase 1 within 14 working days of operation
purportedly required by Section 14.04 of the Amended BOT Agreement. BCA bewailed that
it took almost three years for the DFA to issue the said Certificate allegedly because every
appointee to the position of DFA Secretary wanted to review the award of the project to
BCA. BCA further alleged that it was the DFAs refusal to approve the location of the DFA
Central Facility which prevented BCA from proceeding with Phase 2 of the MRP/V Project.
Later, the DFA sought the opinion of the Department of Finance (DOF) and the Department
of Justice (DOJ) regarding the appropriate legal actions in connection with BCAs alleged
delays in the completion of the MRP/V Project. In a Letter dated February 21, 2005,14 the
DOJ opined that the DFA should issue a final demand upon BCA to make good on its
obligations, specifically on the warranties and responsibilities regarding the necessary
capitalization and the required financing to carry out the MRP/V Project. The DOJ used as
basis for said recommendation, the Letter dated April 19, 200415 of DOF Secretary Juanita
Amatong to then DFA Secretary Delia Albert stating, among others, that BCA may not be
able to infuse more capital into PPC to use for the completion of the MRP/V Project.
Thus, on February 22, 2005, DFA sent a letter to BCA, through its project company PPC,
invoking BCAs financial warranty under Section 5.02(A) of the Amended BOT
Agreement.17 The DFA required BCA to submit (a) proof of adequate capitalization (i.e., full
or substantial payment of stock subscriptions); (b) a bank guarantee indicating the
availability of a credit facility of P700 million; and (c) audited financial statements for the
years 2001 to 2004.
In reply to DFAs letter, BCA, through PPC, informed the former of its position that its
financial capacity was already passed upon during the prequalification process and that the
126
Amended BOT Agreement did not call for any additional financial requirements for the
implementation of the MRP/V Project. Nonetheless, BCA submitted its financial statements
for the years 2001 and 2002 and requested for additional time within which to comply with
the other financial requirements which the DFA insisted on.
Agreement dated 5 April 2005 (sic)23 effective 09 December 2005. Further, and as a
consequence of this termination, the Department formally DEMAND (sic) that you pay
within ten (10) days from receipt hereof, liquidated damages equivalent to the corresponding
performance security bond that you had posted for the MRP/V Project.
According to the DFA, BCAs financial warranty is a continuing warranty which requires that
it shall have the necessary capitalization to finance the MRP/V Project in its entirety and not
on a per phase basis as BCA contends. Only upon sufficient proof of its financial capability
to complete and implement the whole project will the DFAs obligation to choose and
approve the location of its Central Facility arise. The DFA asserted that its approval of a
Central Facility site was not ministerial and upon its review, BCAs proposed site for the
Central Facility was purportedly unacceptable in terms of security and facilities. Moreover,
the DFA allegedly received conflicting official letters and notices from BCA and PPC
regarding the true ownership and control of PPC. The DFA implied that the disputes among
the shareholders of PPC and between PPC and BCA appeared to be part of the reason for the
hampered implementation of the MRP/V Project.
BCA, in turn, submitted various letters and documents to prove its financial capability to
complete the MRP/V Project. However, the DFA claimed these documents were
unsatisfactory or of dubious authenticity. Then on August 1, 2005, BCA terminated its
Assignment Agreement with PPC and notified the DFA that it would directly implement the
MRP/V Project. BCA further claims that the termination of the Assignment Agreement was
upon the instance, or with the conformity, of the DFA, a claim which the DFA disputed.
On December 9, 2005, the DFA sent a Notice of Termination to BCA and PPC due to their
alleged failure to submit proof of financial capability to complete the entire MRP/V Project
in accordance with the financial warranty under Section 5.02(A) of the Amended BOT
Agreement. The Notice states:
After a careful evaluation and consideration of the matter, including the reasons cited in
your letters dated March 3, May 3, and June 20, 2005, and upon the recommendation of the
Office of the Solicitor General (OSG), the Department is of the view that your continuing
default in complying with the requisite bank guarantee and/or credit facility, despite repeated
notice and demand, is legally unjustified.
In light of the foregoing considerations and upon the instruction of the Secretary of Foreign
Affairs, the Department hereby formally TERMINATE (sic) the Subject Amended BOT
On December 14, 2005, BCA sent a letter24 to the DFA demanding that it immediately
reconsider and revoke its previous notice of termination, otherwise, BCA would be
compelled to declare the DFA in default pursuant to the Amended BOT Agreement. When the
DFA failed to respond to said letter, BCA issued its own Notice of Default dated December
22, 200525 against the DFA, stating that if the default is not remedied within 90 days, BCA
will be constrained to terminate the MRP/V Project and hold the DFA liable for damages.
BCAs request for mutual discussion under Section 19.01 of the Amended BOT Agreement26
was purportedly ignored by the DFA and left the dispute unresolved through amicable means
within 90 days. Consequently, BCA filed its Request for Arbitration dated April 7,
200627 with the Philippine Dispute Resolution Center, Inc. (PDRCI), pursuant to
Section 19.02 of the Amended BOT Agreement which provides:
Section19.01Dispute SettlementAny dispute or controversy of any kind whatsoever
between the DFA and the BCA (such dispute or controversy being referred to herein as a
Dispute) which may arise out of or in connection with this Agreement, in the first instance
shall be settled within ninety (90) days through amicable means, such as, but not limited to,
mutual discussion.
Section19.02Failure to Settle AmicablyIf the Dispute cannot be settled amicably
within ninety (90) days by mutual discussion as contemplated under Section 19.01 herein, the
Dispute shall be settled with finality by an arbitrage tribunal operating under International
Law, hereinafter referred to as the Tribunal, under the UNCITRAL Arbitration Rules
contained in Resolution 31/98 adopted by the United Nations General Assembly on
December 15, 1976, and entitled Arbitration Rules on the United Nations Commission on
the International Trade Law. The DFA and the BCA undertake to abide by and implement
the arbitration award. The place of arbitration shall be Pasay City, Philippines, or such other
place as may mutually be agreed upon by both parties. The arbitration proceeding shall be
conducted in the English language.
127
of the dispute should be had before an ad hoc arbitration body, and not before the PDRCI
which has as its accredited arbitrators, two of BCAs counsels of record. Likewise, the DFA
insisted that PPC, allegedly an indispensable party in the instant case, should also participate
in the arbitration.
BCAs Request for Arbitration filed with the PDRCI sought the following reliefs:
In DOJ Opinion No. 35 (2006) dated May 31, 2006,33 the DOJ concurred with the steps
taken by the DFA, stating that there was basis in law and in fact for the termination of the
MRP/V Project. Moreover, the DOJ recommended the immediate implementation of the
project (presumably by a different contractor) at the soonest possible time.
1. A judgment nullifying and setting aside the Notice of Termination dated December 9,
2005 of Respondent [DFA], including its demand to Claimant [BCA] to pay liquidated
damages equivalent to the corresponding performance security bond posted by Claimant
[BCA];
2. A judgment (a) confirming the Notice of Default dated December 22, 2005 issued by
Claimant [BCA] to Respondent [DFA]; and (b) ordering Respondent [DFA] to perform its
obligation under the Amended BOT Agreement dated April 5, 2002 by approving the site of
the Central Facility at the Star Mall Complex on Shaw Boulevard, Mandaluyong City, within
five days from receipt of the Arbitral Award; and
A judgment3. ordering respondent [DFA] to pay damages to Claimant [BCA], reasonably
estimated at P50,000,000.00 as of this date, representing lost business opportunities;
financing fees, costs and commissions; travel expenses; legal fees and expenses; and costs of
arbitration, including the fees of the arbitrator/s.29
PDRCI, through a letter dated April 26, 2006,30 invited the DFA to submit its Answer to the
Request for Arbitration within 30 days from receipt of said letter and also requested both the
DFA and BCA to nominate their chosen arbitrator within the same period of time.
Initially, the DFA, through a letter dated May 22, 2006,31 requested for an extension of time
to file its answer, without prejudice to jurisdictional and other defenses and objections
available to it under the law. Subsequently, however, in a letter dated May 29, 2006, the
DFA declined the request for arbitration before the PDRCI. While it expressed its willingness
to resort to arbitration, the DFA pointed out that under Section 19.02 of the Amended BOT
Agreement, there is no mention of a specific body or institution that was previously
authorized by the parties to settle their dispute. The DFA further claimed that the arbitration
The DFA then sought the opinion of the DOJ on the Notice of Termination dated December
9, 2005 that it sent to BCA with regard to the MRP/V Project.
Thereafter, the DFA and the BSP entered into a Memorandum of Agreement for the latter to
provide the former passports compliant with international standards. The BSP then solicited
bids for the supply, delivery, installation and commissioning of a system for the production of
Electronic Passport Booklets or e-Passports.34
For BCA, the BSPs invitation to bid for the supply and purchase of e-Passports (the ePassport Project) would only further delay the arbitration it requested from the DFA.
Moreover, this new e-Passport Project by the BSP and the DFA would render BCAs
remedies moot inasmuch as the e-Passport Project would then be replacing the MRP/V
Project which BCA was carrying out for the DFA.
Thus, BCA filed a Petition for Interim Relief under Section 28 of the Alternative Dispute
Resolution Act of 2004 (R.A. No. 9285),36 with the Regional Trial Court (RTC) of Pasig
City, Branch 71, presided over by respondent Judge Falcon. In that RTC petition, BCA
prayed for the following:
WHEREFORE, BCA respectfully prays that this Honorable Court, before the constitution of
the arbitral tribunal in PDRCI Case No. 30-2006/BGF, grant petitioner interim relief in the
following manner:
(a) upon filing of this Petition, immediately issue an order temporarily restraining
Respondents [DFA and BSP], their agents, representatives, awardees, suppliers and assigns
(i) from awarding a new contract to implement the Project, or any similar electronic passport
or visa project; or (ii) if such contract has been awarded, from implementing such Project or
128
similar projects until further orders from this Honorable Court; after notice(b) and
hearing, issue a writ of preliminary injunction ordering Respondents [DFA and BSP], their
agents, representatives, awardees, suppliers and assigns to desist (i) from awarding a new
contract to implement the Project or any similar electronic passport or visa project; or (ii) if
such contract has been awarded, from implementing such Project or similar projects, and to
maintain the status quo ante pending the resolution on the merits of BCAs Request for
Arbitration; and render judgment affirming the(c) interim relief granted to BCA until the
dispute between the parties shall have been resolved with finality.
BCA also prays for such other relief, just and equitable under the premises.37
BCA alleged, in support for its application for a Temporary Restraining Order (TRO), that
unless the DFA and the BSP were immediately restrained, they would proceed to undertake
the project together with a third party to defeat the reliefs BCA sought in its Request for
Arbitration, thus causing BCA to suffer grave and irreparable injury from the loss of
substantial investments in connection with the implementation of the MRP/V Project.
Thereafter, the DFA filed an Opposition (to the Application for Temporary Restraining Order
and/or ) dated January 18, 2007,38 alleging that BCA has no cause of action against it as the
contract between them is for machine readable passports and visas which is not the same as
the contract it has with the BSP for the supply of electronic passports. The DFA also pointed
out that the Filipino people and the governments international standing would suffer great
damage if a TRO would be issued to stop the e-Passport Project. The DFA mainly anchored
its opposition on Republic Act No. 8975, which prohibits trial courts from issuing a TRO,
preliminary injunction or mandatory injunction against the bidding or awarding of a contract
or project of the national government.
On January 23, 2007, after summarily hearing the parties oral arguments on BCAs
application for the issuance of a TRO, the trial court ordered the issuance of a TRO
restraining the DFA and the BSP, their agents, representatives, awardees, suppliers and
assigns from awarding a new contract to implement the Project or any similar electronic
passport or visa project, or if such contract has been awarded, from implementing such or
similar projects.39 The trial court also set for hearing BCAs application for preliminary
injunction.
Consequently, the DFA filed a Motion for Reconsideration40 of the January 23, 2007 Order.
The BSP, in turn, also sought to lift the TRO and to dismiss the petition. In its Urgent
Omnibus Motion dated February 1, 2007,41 the BSP asserted that BCA is not entitled to an
injunction, as it does not have a clear right which ought to be protected, and that the trial
court has no jurisdiction to enjoin the implementation of the e-Passport Project which, the
BSP alleged, is a national government project under Republic Act No. 8975.
In the hearings set for BCAs application for preliminary injunction, BCA presented as
witnesses, Mr. Bonifacio Sumbilla, its President, Mr. Celestino Mercader, Jr. from the
Independent Verification and Validation Contractor commissioned by the DFA under the
Amended BOT Agreement, and DFA Assistant Secretary Domingo Lucenario, Jr. as adverse
party witness.
The DFA and the BSP did not present any witness during the hearings for BCAs application
for preliminary injunction. According to the DFA and the BSP, the trial court did not have
any jurisdiction over the case considering that BCA did not pay the correct docket fees and
that only the Supreme Court could issue a TRO on the bidding for a national government
project like the e-Passport Project pursuant to the provisions of Republic Act No. 8975.
Under Section 3 of Republic Act No. 8975, the RTC could only issue a TRO against a
national government project if it involves a matter of extreme urgency involving a
constitutional issue, such that unless a TRO is issued, grave injustice and irreparable injury
will arise.
Thereafter, BCA filed an Omnibus Comment [on Opposition and Supplemental Opposition
(To the Application for Temporary Restraining Order and/or Writ of Preliminary Injunction)]
and Opposition [to Motion for Reconsideration (To the Temporary Restraining Order dated
January 23, 2007)] and Urgent Omnibus Motion [(i) To Lift Temporary Restraining Order;
and (ii) To Dismiss the Petition] dated January 31, 2007.42 The DFA and the BSP filed their
separate Replies (to BCAs Omnibus Comment) dated February 9, 200743 and February 13,
2007,44 respectively.
On February 14, 2007, the trial court issued an Order granting BCAs application for
preliminary injunction, to wit:
WHEREFORE, in view of the above, the court resolves that it has jurisdiction over the
instant petition and to issue the provisional remedy prayed for, and therefore, hereby
GRANTS petitioners [BCAs] application for preliminary injunction. Accordingly, upon
posting a bond in the amount of Ten Million Pesos (P10,000,000.00), let a writ of preliminary
injunction issue ordering respondents [DFA and BSP], their agents, representatives,
129
awardees, suppliers and assigns to desist (i) from awarding a new contract to implement the
project or any similar electronic passport or visa project or (ii) if such contract has been
awarded from implementing such project or similar projects.
The motion to dismiss is denied for lack of merit. The motions for reconsideration and to lift
temporary restraining Order are now moot and academic by reason of the expiration of the
TRO.
On February 16, 2007, BCA filed an Amended Petition,46 wherein paragraphs 3.3(b) and
4.3 were modified to add language to the effect that unless petitioners were enjoined from
awarding the e-Passport Project, BCA would be deprived of its constitutionally-protected
right to perform its contractual obligations under the original and amended BOT Agreements
without due process of law. Subsequently, on February 26, 2007, the DFA and the BSP
received the Writ of Preliminary Injunction dated February 23, 2007.
Hence, on March 2, 2007, the DFA and the BSP filed the instant Petition for Certiorari and
prohibition under Rule 65 of the Rules of Court with a prayer for the issuance of a temporary
restraining order and/or a writ of preliminary injunction, imputing grave abuse of discretion
on the trial court when it granted interim relief to BCA and issued the assailed Order dated
February 14, 2007 and the writ of preliminary injunction dated February 23, 2007.
The DFA and the BSP later filed an Urgent Motion for Issuance of a Temporary Restraining
Order and/or Writ of Preliminary Injunction dated March 5, 2007.48
respondents from implementing the assailed Order dated 14 February 2007 and the Writ of
Preliminary Injunction dated 23 February 2007, issued by respondent Judge Franco T. Falcon
in Civil Case No. 71079 entitled BCA International Corporation vs. Department of Foreign
Affairs and Bangko Sentral ng Pilipinas, and from conducting further proceedings in said
case until further orders from this Court.
BCA filed on April 2, 2007 its Comment with Urgent Motion to Lift TRO,50 to which the
DFA and the BSP filed their Reply dated August 14, 2007.51
In a Resolution dated June 4, 2007,52 the Court denied BCAs motion to lift TRO. BCA filed
another Urgent Omnibus Motion dated August 17, 2007, for the reconsideration of the
Resolution dated June 4, 2007, praying that the TRO issued on March 12, 2007 be lifted and
that the petition be denied.
In a Resolution dated September 10, 2007,53 the Court denied BCAs Urgent Omnibus
Motion and gave due course to the instant petition. The parties were directed to file their
respective memoranda within 30 days from notice of the Courts September 10, 2007
Resolution.
Petitioners DFA and BSP submit the following issues for our consideration:
Issues
I
On March 12, 2007, the Court required BCA to file its comment on the said petition within
ten days from notice and granted the Office of the Solicitor Generals urgent motion for
issuance of a TRO and/or writ of preliminary injunction,49 thus:
After deliberating on the petition for certiorari and prohibition with temporary restraining
order and/or writ of preliminary injunction assailing the Order dated 14 February 2007 of the
Regional Trial Court, Branch 71, Pasig City, in Civil Case No. 71079, the Court, without
necessarily giving due course thereto, resolves to require respondents to COMMENT thereon
(not to file a motion to dismiss) within ten (10) days from notice.
The Court further resolves to GRANT the Office of the Solicitor Generals urgent motion for
issuance of a temporary restraining order and/or writ of preliminary injunction dated 05
March 2007 and ISSUE a TEMPORARY RESTRAINING ORDER, as prayed for, enjoining
671
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This prohibition shall apply in all cases, disputes or controversies instituted by a private
party, including but not limited to cases filed by bidders or those claiming to have rights
through such bidders involving such contract/project. This prohibition shall not apply when
the matter is of extreme urgency involving a constitutional issue, such that unless a
temporary restraining order is issued, grave injustice and irreparable injury will arise. The
applicant shall file a bond, in an amount to be fixed by the court, which bond shall accrue in
favor of the government if the court should finally decide that the applicant was not entitled
to the relief sought.
If after due hearing the court finds that the award of the contract is null and void, the court
may, if appropriate under the circumstances, award the contract to the qualified and winning
bidder or order a rebidding of the same, without prejudice to any liability that the guilty party
may incur under existing laws.
From the foregoing, it is indubitable that no court, aside from the Supreme Court, may enjoin
a national government project unless the matter is one of extreme urgency involving a
constitutional issue such that unless the act complained of is enjoined, grave injustice or
irreparable injury would arise. What then are the national government projects over which
the lower courts are without jurisdiction to issue the injunctive relief as mandated by
Republic Act No. 8975?
Section 2(a) of Republic Act No. 8975 provides:
2.SectionDefinition of Terms.
132
(a) National government projects shall refer to all current and future national
government infrastructure, engineering works and service contracts, including projects
undertaken by government-owned and -controlled corporations, all projects covered by
Republic Act No. 6975, as amended by Republic Act No. 7718, otherwise known as the
Build-Operate-and-Transfer Law, and other related and necessary activities, such as site
acquisition, supply and/or installation of equipment and materials, implementation,
construction, completion, operation, maintenance, improvement, repair and rehabilitation,
regardless of the source of funding.
As petitioners themselves pointed out, there are three types of national government projects
enumerated in Section 2(a), to wit:
(a)current and future national government infrastructure projects,
engineering works and service contracts, including projects undertaken by
government-owned and controlled corporations;
(b)all projects covered by R.A. No. 6975, as amended by R.A. No. 7718, or the
Build-Operate-and-Transfer (BOT) Law; and
(c)other related and necessary activities, such as site acquisition, supply and/or
installation of equipment and materials, implementation, construction, completion,
operation, maintenance, improvement repair and rehabilitation, regardless of the
source of funding.
Under Section 2(a) of the BOT Law as amended by Republic Act No. 7718,61 private sector
infrastructure or development projects are those normally financed and operated by
the public sector but which will now be wholly or partly implemented by the private
sector, including but not limited to, power plants, highways, ports, airports, canals, dams,
hydropower projects, water supply, irrigation, telecommunications, railroads and railways,
transport systems, land reclamation projects, industrial estates or townships, housing,
government buildings, tourism projects, markets, slaughterhouses, warehouses, solid waste
management, information technology networks and database infrastructure, education
and health facilities, sewerage, drainage, dredging, and other infrastructure and development
projects as may be authorized by the appropriate agency.
In contrast, Republic Act No. 9184,62 also known as the Government Procurement Reform
Act, defines infrastructure projects in Section 5(k) thereof in this manner:
lawyer to say Well, you know, since it does not cover this particular activity, ergo, the
Regional Trial Court may issue TRO.
The national government projects covered under the BOT are enumerated under Sec. 2 of
RA 6957, as amended, otherwise known as the BOT Law. Notably, it includes information
technology networks and database infrastructure.
_______________
63 Transcript of Senate Deliberations on Senate Bill 2038 (August 2 and 9, 2000), DFA and
BSP Petition; Rollo, pp. 53-54.
Respondent BSPs request for bid, for the supply, delivery, installation and commissioning of
a system for the production of Electronic Passport Booklets appears to be beyond the scope
of the term civil works. Respondents did not present evidence to prove otherwise.65
(Emphases ours.)
676
676
_______________
64 The definition of infrastructure under Republic Act No. 9184 is found in Section 5(k),
not Section 5(c).
65 Rollo, pp. 88-89.
677
VOL. 629, SEPTEMBER 1, 2010
677
Although the Court finds that the trial court had jurisdiction to issue the writ of preliminary
injunction, we cannot uphold the theory of BCA and the trial court that the definition of the
term infrastructure project in Republic Act No. 9184 should be applied to the BOT Law.
Section 5 of Republic Act No. 9184 prefaces the definition of the terms therein, including the
term infrastructure project, with the following phrase: For purposes of this Act, the
following terms or words and phrases shall mean or be understood as follows x x x.
This Court has stated that the definition of a term in a statute is not conclusive as to the
meaning of the same term as used elsewhere.66 This is evident when the legislative
definition is expressly made for the purposes of the statute containing such definition.67
There is no legal or rational basis to apply the definition of the term infrastructure project
in one statute to another statute enacted years before and which already defined the types of
projects it covers. Rather, a reading of the two stat_______________
66 Endencia v. David, 93 Phil. 696, 701 (1953); Misamis Lumber Co., Inc. v. Collector of
Internal Revenue, 102 Phil. 116, 122 (1957); Calderon v. Carale, G.R. No. 91636, April 23,
1992, 208 SCRA 254, 263.
67 City of Manila v. Manila Remnant Co., Inc., 100 Phil. 796, 800 (1957).
678
678
In the BOT Law as amended by Republic Act No. 7718, the national infrastructure and
development projects covered by said law are enumerated in Section 2(a) as follows:
2.SEC.Definition of Terms.The following terms used in this Act shall have the
meanings stated below:
(a)Private sector infrastructure or development projectsThe general description
of infrastructure or development projects normally financed and operated by the
public sector but which will now be wholly or partly implemented by the private
sector, including but not limited to, power plants, highways, ports, airports, canals,
dams, hydropower projects, water supply, irrigation, telecommunications, railroads
and railways, transport systems, land reclamation projects, industrial estates of
townships, housing, government buildings, tourism projects, markets,
slaughterhouses, warehouses, solid waste management, information technology
networks and database infrastructure, education and health facilities, sewerage,
drainage, dredging, and other infrastructure and development projects as may be
authorized by the appropriate agency pursuant to this Act. Such projects shall be
undertaken through contractual arrangements as defined hereunder and such other
variations as may be approved by the President of the Philippines.
For the construction stage of these infrastructure projects, the project proponent may
obtain financing from foreign and/or domestic sources and/or engage the services of a
foreign and/or Filipino contractor: Provided, That, in case an infrastructure or a
development facilitys operation requires a public utility franchise, the facility
operator must be a Filipino or if a corporation, it must be duly registered with the
Securities and Exchange Commission and owned up to at least sixty percent (60%) by
Filipinos: Provided, further, That in the case of foreign contractors, Filipino labor
shall be employed or hired in the different phases of construction where Filipino skills
are
679
VOL. 629, SEPTEMBER 1, 2010
679
135
680
680
A similar provision appears in the Revised IRR of the BOT Law as amended, to wit:
Department of Foreign Affair vs. Falcon
SECTION1.3DEFINITION OF TERMS
For purposes of these Implementing Rules and Regulations, the terms and phrases hereunder
shall be understood as follows:
xxxx
v.Private Sector Infrastructure or Development ProjectsThe general
description of infrastructure or Development Projects normally financed, and operated
by the public sector but which will now be wholly or partly financed, constructed and
operated by the private sector, including but not limited to, power plants, highways,
ports, airports, canals, dams, hydropower projects, water supply, irrigation,
telecommunications, railroad and railways, transport systems, land reclamation
projects, industrial estates or townships, housing, government buildings, tourism
projects, public markets, slaughterhouses, warehouses, solid waste management,
information technology networks and database infrastructure, education and health
facilities, sewerage, drainage, dredging, and other infrastructure and development
projects as may otherwise be authorized by the appropriate Agency/LGU pursuant to
the Act or these Revised IRR. Such projects shall be undertaken through Contractual
Arrangements as defined herein, including such other variations as may be approved
by the President of the Philippines.
xxxx
following types of projects which are normally financed and operated by the public sector
which will now be wholly or partly financed, constructed and operated by the private sector,
including other infrastructure and development projects as may be authorized by the
appropriate agencies, may be proposed under the provisions of the Act and these Revised
IRR, provided however that such projects have a cost recovery component which covers at
least 50% of the Project Cost, or as determined by the Approving Body:
xxxx
h.Information technology (IT) and data base infrastructure, including
modernization of IT, geo-spatial resource mapping and cadastral survey for resource
accounting and planning. (Underscoring supplied.)
Undeniably, under the BOT Law, wherein the projects are to be privately funded, the entire
information technology project, including the civil works component and the technological
aspect thereof, is considered an infrastructure or development project and treated similarly as
traditional infrastructure projects. All the rules applicable to traditional infrastructure
projects are also applicable to information technology projects. In fact, the MRP/V Project
awarded to BCA under the BOT Law appears to include both civil works (i.e., site
preparation of the Central Facility, regional DFA offices and foreign service posts) and noncivil works aspects (i.e., development, installation and maintenance in the Philippines and
foreign service posts of a computerized passport and visa issuance system, including creation
136
In Section 13.1, the IRR specifies who may be observers during the bidding process for the
different types of procurement activities.
In contrast, under Republic Act No. 9184 or the Government Procurement Reform Act,
which contemplates projects to be funded by public funds, the term infrastructure project
was limited to only the civil works component of information technology projects. The
non-civil works component of information technology projects would be treated as an
acquisition of goods or consulting services as the case may be.681
Section 21 sets out different guidelines for the contents of the invitation to bid and the
periods for advertising and posting the invitation to bid for each type of procurement activity.
681
Section 23 enumerates the proponents eligibility requirements for the procurement of goods
and infrastructure projects while the eligibility requirements for consulting services are
specified in Section 24.
Section 25 lays down different documentation requirements for bids for each type of
procurement activity.
Section 32 sets out the guidelines for bids evaluation for the procurement of goods and
infrastructure projects while Section 33 contains the guidelines for bids evaluation for
consulting services.
Section 42 states that the contract implementation guidelines for the procurement of goods,
infrastructure projects and consulting services are set out in separate annexes (Annexes D,
E and F of the IRR).
682
682
137
The idea that the definitions of terms found in the Government Procurement Reform Act
were not meant to be applied to projects under the BOT Law is further reinforced by the
following provision in the IRR of the Government Procurement Reform Act:
The foregoing provision in the IRR can be taken as an administrative interpretation that the
provisions of Republic Act No. 9184 are inapplicable to a BOT project except only insofar as
such portions of the BOT project that are financed by the government.
Taking into account the different treatment of information technology projects under the
BOT Law and the Government Procurement Reform Act, petitioners contention the trial
court had no jurisdiction to issue a writ of preliminary injunction in the instant case would
have been correct if the e-Passport Project was a project under the BOT Law as they
represented to the trial court.
This Implementing Rules and Regulations (IRR) Part A, hereinafter called IRR-A, is
promulgated pursuant to Section 75 of Republic Act No. 9184 (R.A. 9184), otherwise known
as the Government Procurement Reform Act (GPRA), for the purpose of prescribing the
necessary rules and regulations for the modernization, standardization, and regulation of the
procurement activities of the government. This IRR-A shall cover all fully domesticallyfunded procurement activities from procurement planning up to contract implementation
and termination, except for the following:
a) Acquisition of real property which shall be governed by Republic Act No. 8974 (R.A.
8974), entitled An Act to Facilitate the Acquisition of Right-of-Way Site or Location for
National Government Infrastructure Projects and for Other Purposes, and other applicable
laws; and
b)Private sector infrastructure or development projects and other procurement
covered by Republic Act No. 7718 (R.A. 7718), entitled An Act Authorizing the
Financing, Construction, Operation and Maintenance of Infrastructure Projects by the
Private Sector, and for Other Purposes, as amended: Provided, however, That for the
portions financed by the Government, the provisions of this IRR-A shall apply.
However, petitioners presented no proof that the e-Passport Project was a BOT project. On
the contrary, evidence adduced by both sides tended to show that the e-Passport Project was a
procurement contract under Republic Act No. 9184.
The BSPs on-line request for expression of interest and to bid for the e-Passport Project69
from the BSP website and the newspaper clipping70 of the same request expressly stated
that [t]he two stage bidding procedure under Section 30.4 of the Implementing Rules and
Regulation (sic) Part-A of Republic Act No. 9184 relative to the bidding and award of the
contract shall apply. During the testimony of DFA Assistant Secretary Domingo Lucenario,
Jr. before the trial court, he admitted that the e-Passport Project is a BSP procurement project
and that it is the BSP that will pay the suppliers.71 In petitioners Manifestation dated July
29, 200872 and the Erratum73 thereto, petitioners informed the Court that a con_______________
The IRR-B for foreign-funded procurement activities shall be the subject of a subsequent
issuance. (Emphases supplied.)
69 Rollo pp. 273-275 and 787-789; Annex AA of the Petition and Annex 30 of BCAs
Comment.
683
683
74 Id., at p. 2357.
684
685
685
stipulated in the bidding documents for purposes of drawing up the final revised technical
specifications/requirements of the contract. Once the final revised technical specifications are
completed and duly approved by the concerned BAC, copies of the same shall be issued to
all the bidders identified in the first stage who shall then be required to submit their revised
technical tenders, including their price proposals in two (2) separate sealed envelopes in
accordance with this IRR-A, at a specified deadline, after which time no more bids shall be
received. The concerned BAC shall then proceed in accordance with the procedure
prescribed in this IRR-A. (Emphasis supplied.)
686
686
is protected from lower court issued injunctions under Republic Act No. 8975, which, to
reiterate, has for its purpose the expeditious and efficient implementation and completion of
government infrastructure projects.
We note that under Section 28, Republic Act No. 9285 or the Alternative Dispute Resolution
Act of 2004,76 the grant of an interim measure of protection by the proper court before the
constitution of an arbitral tribunal is allowed:
28.Sec.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
an interim measure of protection and for the 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 tribunal or to the extent
that the arbitral tribunal has no power to act or is unable to act effectively, 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.
687
the party against whom the relief is requested, the grounds for the relief, and the
evidence supporting the request.
failed to prove that the e-Passport Project is national government project as defined therein.
Thus, the trial court had jurisdiction to issue a writ of preliminary injunction against the ePassport Project.
689
690
issuances. On the matter of its assignment of its rights to PPC, BCA counters that it had
already terminated (purportedly at DFAs request) the assignment agreement in favor of PPC
and that even assuming the termination was not valid, the Amended BOT Agreement
expressly stated that BCA shall remain solidarily liable with its assignee, PPC.
Most of these factual allegations and counter-allegations already touch upon the merits of the
main controversy between the DFA and BCA, i.e., the validity and propriety of the
termination of the Amended BOT Agreement (the MRP/V Project) between the DFA and
BCA. The Court deems it best to refrain from ruling on these matters since they should be
litigated in the appropriate arbitration or court proceedings between or among the concerned
parties.
One preliminary point, however, that must be settled here is whether BCA retains a right to
seek relief against the DFA under the Amended BOT Agreement in view of BCAs previous
assignment of its rights to PPC. Without preempting any factual finding that the appropriate
court or arbitral tribunal on the matter of the validity of the assignment agreement with PPC
or its termination, we agree with BCA that it remained a party to the Amended BOT
Agreement, notwithstanding the execution of the assignment agreement in favor of PPC, for
it was stipulated in the Amended BOT Agreement that BCA would be solidarily liable with
its assignee. For convenient reference, we reproduce the relevant provision of the Amended
BOT Agreement here:
Section20.15. It is clearly and expressly understood that BCA may assign, cede and
transfer all of its rights and obligations under this Amended BOT Agreement to PPC
[Philippine Passport Corporation], as fully as if PPC is the original signatory to this Amended
BOT Agreement, provided however that BCA shall nonetheless be jointly and severally
liable with PPC for the performance of all the obligations and liabilities under this
Amended BOT Agreement. (Emphasis supplied.)
690
691
on the MRP/V Facility shall be valid for the duration of the effectivity of this
Amended BOT Agreement; or,
VOL. 629, SEPTEMBER 1, 2010
B.Allow the BCAs unpaid creditors who hold a lien on the MRP/V Facility to
designate a substitute BCA for the MRP/V Project, provided the designated
substitute BCA is qualified under existing laws and acceptable to the DFA. This
substitute BCA shall hereinafter be referred to as the Substitute BCA. The Substi-
691
692
cost of the insurance coverage shall be included in the terms and conditions of the bidding
referred to above.
In the event that the government defaults on certain major obligations in the contract and
such failure is not remediable or if remediable shall remain unremedied for an unreasonable
length of time, the project proponent/contractor may, by prior notice to the concerned
national government agency or local government unit specifying the turn-over date,
terminate the contract. The project proponent/contractor shall be reasonably compensated
by the Government for equivalent or proportionate contract cost as defined in the
contract. (Emphases supplied.)
In addition, the Amended BOT Agreement, which is the law between and among the parties
to it, pertinently provides:
Section17.01DefaultIn case a party commits an act constituting an event of
default, the non-defaulting party may terminate this Amended BOT Agreement by
serving a written notice to the defaulting party specifying the grounds for termination and
giving the defaulting party a period of ninety (90) days within which to rectify the default. If
the default is not remedied within this period to the satisfaction of the non-defaulting party,
then the latter will serve upon the former a written notice of termination indicating the
effective date of termination.
692
A.Allow the BCAs unpaid creditors who hold a lien on the MRP/V Facility to
foreclose on the MRP/V Facility. The right of the BCAs unpaid creditors to foreclose
A.Be obligated to take over the MRP/V Facility on an as is, where is basis, and
shall forthwith assume attendant liabilities thereof; and
143
B.Pay liquidated damages to the BCA equivalent to the following amounts, which
may be charged to the insurance proceeds referred to in Article 12:
(1)In the event of termination prior to completion of the implementation
of the MRP/V Project, damages shall be paid equivalent to the value of
completed implementation, minus the aggregate amount of the attendant
liabilities assumed by the DFA, plus ten percent (10%) thereof. The
amount of such compensation shall be determined as of the date of the notice
of termination and shall become due and demandable ninety (90) days after
the date of this notice of termina-
The validity of the DFAs termination of the Amended BOT Agreement and the determination
of the party or parties in default are issues properly threshed out in arbitration proceedings as
provided for by the agreement itself. However, even if we hypothetically accept BCAs
contention that the DFA terminated the Amended BOT Agreement without any default or
wrongdoing on BCAs part, it is not indubitable that BCA is entitled to injunctive relief.
The BOT Law expressly allows the government to terminate a BOT agreement, even without
fault on the part of the project proponent, subject to the payment of the actual expenses
incurred by the proponent plus a reasonable rate of return.
Under the BOT Law and the Amended BOT Agreement, in the event of default on the part of
the government (in this
693
694
VOL. 629, SEPTEMBER 1, 2010
693
694
reason before the main case can be regularly heard. The essential conditions for granting such
temporary injunctive relief are that the complaint alleges facts which appear to be sufficient
to constitute a proper basis for injunction and that on the entire showing from the contending
parties, the injunction is reasonably necessary to protect the legal rights of the plaintiff
pending the litigation. Two requisites are necessary if a preliminary injunction is to issue,
namely, the existence of a right to be protected and the facts against which the injunction is to
be directed are violative of said right. In particular, for a writ of preliminary injunction to
issue, the existence of the right and the violation must appear in the allegation of the
complaint and a preliminary injunction is proper only when the plaintiff (private
respondent herein) appears to be entitled to the relief demanded in his complaint.
(Emphases supplied.)
We reiterated this point in Transfield Philippines, Inc. v. Luzon Hydro Corporation,78 where
we likewise opined:
_______________
77 379 Phil. 743, 749-750; 322 SCRA 686, 691 (2000).
78 G.R. No. 146717, November 22, 2004, 443 SCRA 307, 336; citing Philippine National
Bank v. Ritratto Group, Inc., 414 Phil. 494, 507; 362 SCRA 216, 228 (2001).
serious damage. 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. (Emphasis supplied.)
As the Court explained previously in Philippine Airlines, Inc. v. National Labor Relations
Commission:79
An injury is considered irreparable if it is of such constant and frequent recurrence that
no fair and reasonable redress can be had therefor in a court of law, or where there is no
standard by which their amount can be measured with reasonable accuracy, that is, it is
not susceptible of mathematical computation. It is considered irreparable injury when it
cannot be adequately compensated in damages due to the nature of the injury itself or
the nature of the right or property injured or when there exists no certain pecuniary
standard for the measurement of damages. (Emphases supplied.)
It is still contentious whether this is a case of termination by the DFA alone or both the DFA
and BCA. The DFA contends that BCA, by sending its own Notice of Default, likewise
terminated or abandoned the Amended BOT Agreement. Still, whether this is a termination
by the DFA alone without fault on the part of BCA or a termination due to default on the part
of either party, the BOT Law and the Amended BOT Agreement lay down the measure of
compensation to be paid under the appropriate circumstances.
Significantly, in BCAs Request for Arbitration with the PDRCI, it prayed for, among others,
a judgment ordering
695
VOL. 629, SEPTEMBER 1, 2010
695
_______________
79 351 Phil. 172, 186; 287 SCRA 672, 685 (1998).
696
696
public goods and services in order to preserve the private proprietary rights of the project
proponent. On the other hand, should it turn out that the project proponent was not at fault,
the BOT Law itself presupposes that the project proponent can be adequately compensated
for the termination of the contract. Although BCA did not specifically pray for the trial court
to enjoin the termination of the Amended BOT Agreement and thus, there is no direct
violation of Republic Act No. 8795, a grant of injunctive relief as prayed for by BCA will
indirectly contravene the same statute.
Verily, there is valid reason for the law to deny preliminary injunctive relief to those who
seek to contest the governments termination of a national government contract. The only
circumstance under which a court may grant injunctive relief is the existence of a matter of
extreme urgency involving a constitutional issue, such that unless a TRO or injunctive writ is
issued, grave injustice and irreparable injury will result.
Now, BCA likewise claims that unless it is granted injunctive relief, it would suffer grave and
irreparable injury since the bidding out and award of the e-Passport Project would be
tantamount to a violation of its right against deprivation of property without due process of
law under Article III, Section 1 of the Constitution. We are unconvinced.
Article III, Section 1 of the Constitution provides [n]o person shall be deprived of life,
liberty, or property without due process of law, nor shall any person be denied the equal
protection of the laws. Ordinarily, this constitutional provision has been applied to the
exercise by the State of its sovereign powers such as, its legislative power,81 police power,82
or its power of eminent domain.83
In the instant case, the State action being assailed is the DFAs termination of the Amended
BOT Agreement with BCA. Although the said agreement involves a public service that the
DFA is mandated to provide and, therefore, is imbued with public interest, the relationship of
DFA to BCA is primarily contractual and their dispute involves the adjudication of
contractual rights. The propriety of the DFAs acts, in relation to the termination of the
Amended BOT Agreement, should be gauged against the provisions of the contract itself and
the applicable statutes to such contract. These contractual and statutory provisions outline
what constitutes due process in the present case. In all, BCA failed to demonstrate that there
is a constitutional issue involved in this case, much less a constitutional issue of extreme
urgency.
146
As for the DFAs purported failure to appropriate sufficient amounts in its budget to pay for
liquidated damages to BCA, this argument does not support BCAs position that it will suffer
grave and irreparable injury if it is denied injunctive relief. The DFAs liability to BCA for
damages is contingent on BCA proving that it is entitled to such damages in the proper
proceedings. The DFA has no obligation to set aside funds to pay for liquidated damages, or
any other kind of damages, to BCA until there is a final and executory judgment in favor of
BCA. It is illogical and impractical for the DFA to set aside a significant portion of its budget
for an event that may never happen when such idle funds should be spent on providing
necessary services to the populace. For if it turns out at the end of the arbitration proceedings
that it is BCA alone that is in default, it would be the one liable for liquidated damages to the
DFA under the terms of the Amended BOT Agreement.
With respect to BCAs allegation that the e-Passport Project is grossly disadvantageous to the
Filipino people since it is the government that will be spending for the project unlike the
MRP/V Project which would have been privately funded, the same is immaterial to the issue
at hand. If it is true that the award of the e-Passport Project is inimical to the public good or
tainted with some anomaly, it is indeed a cause for grave concern but it is a matter that must
be investigated and litigated in the proper forum. It has no bearing on the issue of whether
BCA would suffer grave and irreparable injury such that it is entitled to injunctive relief from
the courts.
In all, we agree with petitioners DFA and BSP that the trial courts issuance of a writ of
preliminary injunction, despite the lack of sufficient legal justification for the same, is
tantamount to grave abuse of discretion.
To be very clear, the present decision touches only on the twin issues of (a) the
jurisdiction of the trial court to issue a writ of preliminary injunction as an interim
relief under the factual milieu of this case; and (b) the entitlement of BCA to injunctive
relief. The merits of the DFA and BCAs dispute regarding the termination of the
Amended BOT Agreement must be threshed out in the proper arbitration proceedings.
The civil case pending before the trial court is purely for the grant of interim relief since
the main case is to be the subject of arbitration proceedings.
during the pendency of this case, PDRCI Case No. 30-2006/BGF was dismissed by the
PDRCI for lack of jurisdiction, in view of the lack of agreement between the parties to
arbitrate before the PDRCI.84 In Philippine National Bank v. Ritratto Group, Inc.,85 we
held:
A writ of preliminary injunction is an ancillary or preventive remedy that may only be
resorted to by a litigant to protect or preserve his rights or interests and for no other purpose
during the pendency of the principal action. The dismissal of the principal action thus
results in the denial of the prayer for the issuance of the writ. x x x. (Emphasis
supplied.)
In view of intervening circumstances, BCA can no longer be granted injunctive relief and the
civil case before the trial court should be accordingly dismissed. However, this is without
prejudice to the parties litigating the main controversy in arbitration proceedings, in
accordance with the provisions of the Amended BOT Agreement, which should proceed with
dispatch.
It does not escape the attention of the Court that the delay in the submission of this
controversy to arbitration was caused by the ambiguity in Section 19.02 of the Amended
BOT Agreement regarding the proper body to which a dispute between the parties may be
submitted and the failure of the parties to agree on such an arbitral tribunal. However, this
Court cannot allow this impasse to continue indefinitely. The parties involved must sit down
together in good faith and finally come to an understanding regarding the constitution of an
arbitral tribunal mutually acceptable to them.
WHEREFORE, the instant petition is hereby GRANTED. The assailed Order dated February
14, 2007 of the Regional Trial Court of Pasig in Civil Case No. 71079 and the Writ of
Preliminary Injunction dated February 23, 2007 are REVERSED and SET ASIDE.
Furthermore, Civil Case No. 71079 is hereby DISMISSED.
No pronouncement as to costs.
SO ORDERED.
BCAs petition for interim relief before the trial court is essentially a petition for a
provisional remedy (i.e., preliminary injunction) ancillary to its Request for Arbitration in
PDRCI Case No. 30-2006/BGF. BCA specifically prayed that the trial court grant it interim
relief pending the constitution of the arbitral tribunal in the said PDRCI case. Unfortunately,
Corona (C.J., Chairperson), Velasco, Jr., Del Castillo and Perez, JJ., concur.
Petition granted, Order of Regional Trial Court of Pasig City reversed and set aside.
147
Note.The doctrine of hierarchy of courts is one of the structural aspects intended for the
orderly administration of justice. (Freedom from Debt Coalition vs. Metropolitan Waterworks
and Sewerage System (MWSS), 539 SCRA 621 [2007])
o0o
322
interest at 6% per annum to be computed from the date of the filing of the complaint until
finality of this Decision and 12% per annum thereafter until full payment. Respondent PEA
is further ordered to pay petitioner Uy 10% of the total award as attorneys fees.323
SO ORDERED.1
and
MOTION
I
x x x THE HONORABLE COURT ERRED IN THE COMPUTATION OF THE DAMAGES
DUE THE PETITIONER FOR THE STANDBY EQUIPMENT COST.
FOR
II
x x x PETITIONER SHOULD BE REIMBURSED FOR COSTS INCURRED FOR
ADDITIONAL HAULING DISTANCE OF TOPSOIL ALSO BECAUSE THE EVIDENCE
ON RECORD CONFIRMS THE EXISTENCE OF RESPONDENT PEAS WRITTEN
CONSENT, AND THE FACT THAT IT IS INDESPENSABLE TO COMPLETING THE
PROJECT. WITHOUT SUCH ASSURANCE OF REIMBURSEMENT, PETITIONER
WOULD NOT HAVE TAKEN SUCH PRUDENT ACTION.
RESOLUTION
NACHURA,J.:
Before us are (i) the Motion for Partial Reconsideration filed by petitioner Elpidio S. Uy
(Uy), doing business under the name and style of Edison Development & Construction
(EDC), and (ii) the Motion for Reconsideration filed by respondent Public Estates Authority
(PEA) of our June 8, 2009 Decision, the fallo of which reads:
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed Joint Decision and
Joint Resolution of the Court of Appeals in CA-G.R. SP Nos. 59308 and 59849 are
AFFIRMED with MODIFICATIONS. Respondent Public Estates Authority is ordered to
pay Elpidio S. Uy, doing business under the name and style Edison Development and
Construction, P55,680,492.38 for equipment rentals on standby; P2,275,721.00 for the cost
of idle manpower; and P6,050,165.05 for the construction of the nursery shade net area; plus
III
x x x PETITIONER SHOULD BE ALLOWED TO RECOVER THE COSTS HE
INCURRED FOR THE MOBILIZATION OF WATER TRUCKS ALSO BECAUSE
RESPONDENT BREACHED ITS OBLIGATIONS UNDER THE CONTRACT.
IV
WITH REGARD TO THE COURT OF APPEALS ILLEGAL INJUNCTION
PREVENTING PETITIONER FROM RECOVERING HIS CLAIMS AGAINST
RESPONDENT PEA IN CIAC CASE NO. 03-2001, THIS SHOULD HAVE BEEN LIFTED
SINCE IT INVOLVES CLAIMS SEPARATE AND DISTINCT FROM THE CASE A
QUO.2
_______________
149
PEA, on the other hand, assails the Decision on the following grounds:
I.
THE FACTUAL FINDINGS AND CONCLUSIONS OF THE CONSTRUCTION
INDUSTRY ARBITRATION COMMISSION (CIAC) INSOFAR AS THE ARBITRAL
AWARD TO PETITIONER IS CONCERNED, WHICH THE COURT OF APPEALS AND
THE FIRST DIVISION OF THIS HONORABLE COURT AFFIRMED, HAS LONG
BECOME FINAL AND EXECUTORY.
II.
THE CIAC ARBITRAL AWARD HAD ALREADY BEEN IMPLEMENTED UNDER
WRIT OF EXECUTION DATED 19 SEPTEMBER 2000, WRIT OF EXECUTION DATED
31 AUGUST 2001 AND SUPPLEMENTAL WRIT OF EXECUTION DATED 10 APRIL
2002.3
We will deal first with Uys motion.
Uy objects to the factor rate used in the computation of the award for standby equipment
costs. He points out that the actual number of equipment deployed and which remained on
standby, occasioned by the delay in delivery of work areas, has not been considered in the
computation. The Association of Carriers and Equipment Lessors (ACEL) rate or the factor
rate used was only the total average rate, without regard to the actual number of equipment
deployed. He, therefore, insists that an increase in the award is in order.
We find Uys argument on this point meritorious; and this Court is swayed to modify the
formula used in the computation of the award.
The Certification,4 dated December 6, 1996, shows that EDC mobilized the following
equipment for the Heritage Park Project, viz.:
Description
Road Grader
Pay Loader
Dump Trucks
Number
2
2
10
2
2
3
0
4
2
2
1
1
2
2
3
1
4
These equipment remained in the project site on the days that EDC was waiting for the
turnover of additional work areas.5 Thus, we agree with Uy that the actual number of
equipment mobilized should be included in computing the award for standby equipment cost.
The award must, therefore, be modified using the following formula:
Actual period of delay (18.2 months) x average rate per ACEL x number of equipment
However, we cannot simply accept in full Uys claim that he is entitled to P71,009,557.95 as
standby equipment cost. The records show that not all of the equipment were operational;
several were under repair. Accordingly, we find it necessary to remand the records of the case
to the Construction Industry Arbitration Commission (CIAC), which decided the case in the
first instance, for the proper computation of the award of standby equipment cost based on
the foregoing formula.
On the claim for costs for additional hauling distance of topsoil and for mobilization of water
truck, we maintain our ruling that a written approval of PEAs general manager was
indispensable before the claim for additional cost can be granted. In this case, the additional
costs were incurred without the written approval of PEA. The denial of Uys claims was,
therefore, appropriate.
150
We cannot sustain this claim that is premised mainly on the principle of unjust enrichment.
We stress that the principle of unjust enrichment cannot be validly invoked by a party who,
through his own act or omission, took the risk of being denied payment for additional costs
by not giving the other party prior notice of such costs and/or by not securing their written
consent thereto, as required by law and their contract.7
were not granted by the CIAC in its questioned decision, the merits of which were not
submitted to us for determination in the instant petition.8
Similarly, we find no cogent reason to lift the injunction issued in CIAC Case No. 03-2001.
We are not persuaded by Uys argument that the claims under CIAC Case No. 03-2001 are
different from his claims in CIAC Case No. 02-2000. As we explained in our Decision, there
is only one cause of action running through Uys undertakingsthe violation of his alleged
right under the Landscaping and Construction Agreement. Therefore, the landscaping
agreement is indispensable in the prosecution of his claims in both CIAC Cases No. 02-2000
and No. 03-2001. We reiterate that a party, either by varying the form or action or by bringing
forward in a second case additional parties or arguments, cannot escape the effects of res
judicata when the facts remain the same, at least where such new parties or matter could
have been impleaded or pleaded in the prior action.
In fine, except for the claim for standby equipment costs, this Court finds no cogent reason to
depart from our June 8, 2009 Decision.
Indubitably, this Courts Decision in G.R. Nos. 147933-34 will not bar the grant of additional
award to Uy.
_______________
8 Public Estates Authority v. Uy, 423 Phil. 407, 419; 372 SCRA 180, 192 (2001).
328
328
151
Motion for Partial reconsideration partly granted, Motion for Reconsideration denied with
finality.
Note.Resulting trust is presumed to have been contemplated by the parties, the intention as
to which is to be found in the nature of their transactions but not expressed in the deed itself;
A constructive trust is created, not by any word evincing a direct intention to create a trust,
but by operation of law in order to satisfy the demands of justice and to prevent unjust
enrichment. (Bejoc vs. Cabreros, 464 SCRA 78 [2005])
o0o
October 20, 2010.G.R. No. 172525.*
SHINRYO
(PHILIPPINES)
INCORPORATED,** respondent
COMPANY,
INC.,
petitioner,
vs.
RRN
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. Other recognized exceptions are as
follows: (1) when there is a very clear showing of grave abuse of discretion 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, (2) when the findings of the Court of Appeals are contrary to those
of the CIAC, and (3) when a party is deprived of administrative due process.
Equity; Unjust Enrichment; Unjust enrichment claims do not lie simply because one party
benefits from the efforts or obligations of others, but instead it must be shown that a party
was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully.
Petitioners reliance on the principle of unjust enrichment is likewise misplaced. The ruling
of the Court in University of the Philippines v. Philab Industries, Inc., 439 SCRA 467 (2004),
is highly instructive, thus: Unjust enrichment claims do not lie simply because one party
benefits from the efforts or obligations of others, but instead it must be shown that a party
was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully.
Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally
prove that another party knowingly received something of value to which he was not entitled
and that the state of affairs are such that it would be unjust for the person to keep the benefit.
Unjust enrichment is a term used to depict result or effect of failure to make remuneration of
or for property or benefits received under circumstances that give rise to legal or equitable
obligation to account for them; to be entitled to remuneration, one must confer benefit by
mistake, fraud, coercion, or request. Unjust enrichment is not itself a theory of reconvey.
Rather, it is a prerequisite for the enforcement of the doctrine of restitution.
Arbitration; Mathematical computations, the propriety of arbitral awards, claims for other
costs and abandonment are factual questions.Again, these issues are purely factual
and cannot be properly addressed in this petition for review on certiorari. In Hanjin Heavy
Industries and Construction Co., Ltd. v. Dynamic Planners and Construction Corp., 553
SCRA 541 (2008), it was emphasized that mathematical computations, the propriety of
arbitral awards, claims for other costs and abandonment are factual questions. Since the
discussions of the CIAC and the CA in their respective Decisions show that its factual
findings are supported by substantial evidence, there is no reason why this Court should not
accord finality to said findings. Verily, to accede to petitioners request for a recalibration of
its evidence, which had been thoroughly studied by both the CIAC and the CA would result
in negating the objective of Executive Order No. 1008, which created an arbitration body to
ensure the prompt and efficient settlement of disputes in the construction industry.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Parlade, Hildawa, Parlade & Eco Law Offices for petitioner.
V.Y. Salazar & Associates for respondent.
PERALTA,J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court,
praying that the Decision1 of the Court of Appeals (CA) dated February 22, 2006, affirming
the Decision of the Construction Industry Arbitration Commission (CIAC), and the CA
Resolution2 dated April 26, 2006, denying herein petitioners motion for reconsideration, be
reversed and set aside.
The facts, as accurately narrated in the CA Decision, are as follows.
Petitioner Shinryo (Philippines) Company, Inc. (hereinafter petitioner) is a domestic
corporation organized under Philippine laws. Private respondent RRN Incorporated
(hereinafter respondent) is likewise a domestic corporation organized under Philippine laws.
Respondent filed a claim for arbitration against petitioner before CIAC for recovery of
unpaid account which consists of unpaid portions of the sub-contract, variations and unused
materials in the total sum of P5,275,184.17 and legal interest in the amount of P442,014.73.
Petitioner filed a counterclaim for overpayment in the amount of P2,512,997.96.
The parties admitted several facts before the CIAC. It was shown that petitioner and
respondent executed an Agreement and Conditions of Sub-contract (hereafter Agreement
signed on June 11, 1996 and June 14, 1996, respectively. Respondent signified its willingness
to accept and perform for petitioner in any of its projects, a part or the whole of the works
more particularly described in Conditions of Sub-Contract and other Sub-contract
documents.
153
Respondent was not able to finish the entire works with petitioner due to financial
difficulties. Petitioner paid respondent a total amount of P26,547,624.76. On June 25, 2005
[should read 2003], respondent, through its former counsel sent a letter to petitioner
demanding for the payment of its unpaid balance amounting to P5,275,184.17. Petitioner
claimed material back charges in the amount of P4,063,633.43. On September 26, 2003,
respondent only acknowledged P2,371,895.33 as material back charges. Thereafter, on
October 16, 2003, respondent sent another letter to petitioner for them to meet and settle their
dispute.
On January 8, 2004, respondent sent another letter to petitioner regarding the cost of
equipment rental and the use of scaffolding. Thereafter, on August 12, 2004, petitioner sent a
letter to respondent denying any unpaid account and the failure in their negotiations for
amicable settlement.
On September 3, 2004, respondent, through its new counsel, advised petitioner of their
intention to submit the matter to arbitration. Thereafter, their dispute was submitted to
arbitration. During the preliminary conference, the parties agreed in their Terms of Reference
to resolve eight issues, to wit:
How much is the value of the remaining works left undone by the Claimant in
the project?4.
Is the Claimants claim for inventory of excess materials valid? If so, how
much is the value thereof?5.
Petitioner accepts the ruling of the CIAC only in Issue No. 1 and Sub-Issue No. 1.1 and in
Issue No. 2 in so far as the amount of P440,000.00 awarded as back charges for the use of
scaffoldings. x x x3
On February 22, 2006, the CA promulgated the assailed Decision affirming the decision of
the CIAC. The CA upheld the CIAC ruling that petitioner failed to adduce sufficient proof
that the parties had an agreement regarding charges for respondents use of the manlift. As to
the other charges for materials, the CA held that the evidence on record amply supports the
CIAC findings. Petitioner moved for reconsideration of said ruling, but the same was denied
per Resolution dated April 26, 2006.
Hence, this petition where it is alleged that:
I. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE
ERROR WHEN IT DENIED PETITIONERS CLAIM FOR MANLIFT EQUIPMENT
RENTAL IN THE AMOUNT OF P511,000.00 DESPITE EVIDENCE ON RECORD THAT
RESPONDENT RRN ACTUALLY USED AND BENEFITED FROM THE MANLIFT
EQUIPMENT.
II. IN RENDERING THE QUESTIONED DECISION AND QUESTIONED
RESOLUTION, THE HONORABLE COURT OF APPEALS HAS DECIDED A
QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND/OR WITH THE
APPLICABLE DECISIONS OF THE HONORABLE SUPREME COURT.
III. THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN
AFFIRMING THE CIAC AWARD FOR THE VALUE OF INVENTORIED MATERIALS
CONSIDERING THAT:
A. RESPONDENT RRN ADMITTED THE VALIDITY OF THE DEDUCTIONS ON
ACCOUNT OF MATERIAL SUPPLY, WHICH INCLUDED THE
INVENTORIED MATERIALS.
B. RESPONDENT RRN HAS NO BASIS TO CLAIM BECAUSE ENGR.
BONIFACIO ADMITTED THAT RESPONDENT RRN FAILED TO ESTABLISH
WHETHER THE MATERIALS CAME FROM RESPONDENT RRN OR FROM
PETITIONER AND THAT IT WAS PETITIONER THAT ACTUALLY INSTALLED
It is settled that findings of fact of 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. In
particular, factual findings of construction arbitrators are final and conclusive and not
reviewable by this Court on appeal.
This rule, however, admits of certain exceptions. In Uniwide Sales Realty and Resources
Corporation v. Titan-Ikeda Construction and Development Corporation, we said:
In David v. Construction Industry and Arbitration Commission, 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 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.
Other recognized exceptions are as follows: (1) when there is a very clear showing of
grave abuse of discretion 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, (2) when the
findings of the Court of Appeals are contrary to those of the CIAC, and (3) when a
party is deprived of administrative due process.
A perusal of the records would reveal that none of the aforementioned circumstances, which
would justify exemption of this case from the general rule, are present here. Such being the
case, the Court, not being a trier of facts, is not duty-bound to examine, appraise and analyze
anew the evidence presented before the arbitration body.
Petitioners reliance on the principle of unjust enrichment is likewise misplaced. The ruling
of the Court in University of the Philippines v. Philab Industries, Inc.8 is highly instructive,
thus:
Unjust enrichment claims do not lie simply because one party benefits from the efforts or
obligations of others, but instead it must be shown that a party was unjustly enriched in the
sense that the term unjustly could mean illegally or unlawfully.
Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally
prove that another party knowingly received something of value to which he was not entitled
and that the state of affairs are such that it would be unjust for the person to keep the benefit.
Unjust enrichment is a term used to depict result or effect of failure to make remuneration of
or for property or benefits received under circumstances that give rise to legal or equitable
obligation to account for them; to be entitled to remuneration, one must confer benefit by
mistake, fraud, coercion, or request. Unjust enrichment is not itself a theory of reconvey.
Rather, it is a prerequisite for the enforcement of the doctrine of restitution.
Article 22 of the New Civil Code reads:
Every 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.
In order that accion in rem verso may prosper, the essential elements must be present: (1) that
the defendant has been enriched, (2) that the plaintiff has suffered a loss, (3) that the
enrichment of the defendant is without just or legal ground, and (4) that the plaintiff has no
other action based on contract, quasi-contract, crime or quasi-delict.
An accion in rem verso is considered merely an auxiliary action, available only when there is
no other remedy on contract, quasi-contract, crime, and quasi-delict. If there is an obtainable
action under any other institution of positive law, that action must be resorted to, and the
principle of accion in rem verso will not lie.9
As found by both the CIAC and affirmed by the CA, petitioner failed to prove that
respondents free use of the manlift was without legal ground based on the provisions of their
contract. Thus, the third requisite, i.e., that the enrichment of respondent is without just or
legal ground, is missing. In addition, petitioners claim is based on contract, hence, the fourth
requisitethat the plaintiff has no other action based on contract, quasi-contract, crime or
quasi-delictis also absent. Clearly, the principle of unjust enrichment is not applicable in
this case.
156
The other issues raised by petitioner all boil down to whether the CIAC or the CA erred in
rejecting its claims for costs of some materials.
Carpio
(Chairperson),
Castro**** and Mendoza, JJ., concur.
Again, these issues are purely factual and cannot be properly addressed in this petition for
review on certiorari. In Hanjin Heavy Industries and Construction Co., Ltd. v. Dynamic
Planners and Construction Corp.,10 it was emphasized that mathematical computations, the
propriety of arbitral awards, claims for other costs and abandonment are factual
questions. Since the discussions of the CIAC and the CA in their respective Decisions show
that its factual findings are supported by substantial evidence, there is no reason why this
Court should not accord finality to said findings. Verily, to accede to petitioners request
for a recalibration of its evidence, which had been thoroughly studied by both the CIAC
and the CA would result in negating the objective of Executive Order No. 1008, which
created an arbitration body to ensure the prompt and efficient settlement of disputes in
the construction industry. Thus, the Court held in Uniwide Sales Realty and Resources
Corporation v. Titan-Ikeda Construction and Development Corporation,11 that:
x x x 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 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.
As discussed above, there is nothing in the records that point to any grave abuse of discretion
committed by the CIAC.
The awards for interests and arbitration costs are, likewise, correct as they are in keeping
with prevailing jurisprudence.13
IN VIEW OF THE FOREGOING, the Petition is DENIED. The Decision of the Court of
Appeals dated February 22, 2006 and its Resolution dated April 26, 2006 are AFFIRMED.
SO ORDERED.
Velasco,
Jr.,***
Leonardo-De
Notes.The judgment creditors having received what is due them, should not seek nor be
granted anything more, not even by a final and executory judgment, for to do so would be to
sanction unjust enrichment. (Buan vs. Court of Appeals, 235 SCRA 424 [1994])
The quasi-contract of solutio indebiti is based on the ancient principle that no one shall
enrich himself unjustly at the expense of another. (Genova vs. De Castro, 407 SCRA 165
[2003])
o0o
beyond the 95% required under CIAP Document No. 102 and is considered a substantial
completion of the Project. We thus agree with CIACs application of Article 1234 of the Civil
Code, which provides that [i]f the obligation had been substantially performed in good faith,
the obligor may recover as though there had been a strict and complete fulfillment, less
damages suffered by the obligee.
Same; Same; There being substantial completion of the project, Aguilar is not entitled to
liquidated damages.There being a substantial completion of the Project, Aguilar is not
entitled to liquidated damages but only to actual damages of P30,076.72, representing the
unaccomplished works in the Second Contract as found by the CIAC, which is the difference
between the contract price of P1,632,436.29 and the accomplishment of P1,602,359.97.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
_______________
* SECOND DIVISION.
Before the Court is a petition for review assailing the 24 January 2007 Decision1 and the 20
April 2007 Resolution2 of the Court of Appeals in CA-G.R. SP No. 93021.
The Antecedent Facts
From the decisions of the Court of Appeals and the Construction Industry Arbitration
Commission (CIAC), we gathered the following facts:
On 18 August 2004, Teresa C. Aguilar (Aguilar) entered into an Owner-General Contractor
Agreement (First Contract) with Transcept Construction and Management Professionals, Inc.
(Transcept) for the construction of a two-storey split level vacation house (the Project)
located at Phase 3, Block 3, Lot 7, Canyon Woods, Laurel, Batangas. Under the First
Contract, the Project would cost P3,486,878.64 and was to be completed within 2103
working days from the date of the First Contract or on 7 June 2005. Aguilar paid a
downpayment of P1 million on 27 August 2004.
On 30 November 2004, Transcept submitted its First Billing to Aguilar for work
accomplishments from start to 15 November 2004, in accordance with the Progressive
Billing payment scheme. Aguilar paid P566,356.
575
VOL. 637, DECEMBER 8, 2010
575
On 1 February 2005, Aguilar received the Second Billing amounting to P334,488 for the
period of 16 November 2004 to 15 December 2004. Transcept informed Aguilar that nonpayment would force them to halt all works on the Project. Aguilar questioned the Second
Billing as unusual for being 45 days ahead of actual accomplishment. Aguilar did not pay and
on 2 February 2005, Transcept stopped working on the Project.
Thereafter, Aguilar hired ASTEC, a duly accredited testing laboratory, to test Transcepts
quality of work. The test showed substandard works done by Transcept. In a letter dated 7
March 2005, Transcept outlined its program to reinforce or redo the substandard works
discovered by ASTEC. On 28 March 2005, ASTEC, through Engr. Jaime E. Rioflorido (Engr.
Rioflorido), sent Aguilar an Evaluation of Contractors Performance which showed that aside
from the substandard workmanship and use of substandard materials, Transcept was
unreasonably and fraudulently billing Aguilar. Of the downpayment amounting to
P1,632,436.29, Engr. Riofloridos reasonable assessment of Transcepts accomplishment
amounted only to P527,875.94. Engr. Rioflorido recommended the partial demolition of
Transcepts work.
158
On 30 May 2005, Transcept and Aguilar entered into a Construction Contract (Second
Contract) to extend the date of completion from 7 June 2005 to 29 July 2005 and to use up
the P1.6 million downpayment paid by Aguilar. Aguilar hired the services of Engr. Edgardo
Anonuevo (Engr. Anonuevo) to ensure that the works would comply with the plans in the
Second Contract.
Transcept failed to finish the Project on 29 July 2005, alleging that the delay was due to
additional works ordered by Aguilar. Transcept also asked for payment of the additional
amount of P290,824.96. Aguilar countered that the Second Contract did not provide for
additional works.
On 2 September 2005, Aguilar sent a demand letter to Transcept asking for payment of
P581,844.54 for refund and damages. Transcept ignored the demand letter. On 6 September
2005, Aguilar filed a complaint against Transcept before CIAC.
The Decision of the CIAC
CIAC assessed the work accomplished with the corresponding costs, as against the
downpayment of P1,632,436.29 which was the contract price in the Second Contract. On 16
January 2006, the CIAC promulgated its Decision.4
For Labor and Materials of the Scope of Work, the CIAC credited the accomplishment to be
P1,110,440.13 representing Aguilars estimate which was reassessed by the CIAC after the
ocular inspection conducted by the parties. For indirect costs for General Requirements of the
Scope of Work, the CIACs computation was P275,355.50. The CIAC noted that Aguilar did
not submit any evidence on indirect costs and her counsel did not cross-examine Transcepts
witnesses on the matter. For the Septic Tank, which the CIAC found to be part of the Second
Contract, the CIAC assessed the accomplishment to amount to P7,300. The CIAC added 5%
Contingencies and 10% Contractors Profit which are the minimum factors in making
estimates practiced in the construction industry. The CIAC thus estimated that the total
accomplishment amounted to P1,602,359.97 which was P30,076.72 below the contract price
of P1,632,436.29. The tabulated amount shows:
Direct Costs for Labor and Materials
Indirect Costs for General Requirements
Septic Tank
P1,110,440.13
275,355.50
_____7,300.00
P1,110,440.13
P1,393,095.63
69,654.78
___139,309.56
P1,602,359.97
The CIAC ruled that the accomplishment of P1,602,359.97 was 98.16% of P1,632,436.29,
which was way above 95% and should therefore be considered as substantial completion of
the Project. As such, the CIAC ruled that liquidated damages could not be awarded to
Aguilar. The CIAC, however, ruled that Aguilar was entitled to P75,000 as Consultancy
Expenses.
The CIAC also found that Aguilar demanded extra works which entailed additional working
days. The CIAC computed that the additional works performed over and above the Second
Contract amounted to P189,909.91.
The dispositive portion of the CIACs decision reads:
In view of all the foregoing, it is hereby ordered that:
1. Respondent [Transcept] shall pay Claimant [Aguilar] the amount of P30,076.72,
representing the unaccomplished works in the contract, plus 6% interests from the date of the
promulgation of this case, until fully paid.
Respondent shall pay2. Claimant the amount of P75,000.00, representing the cost of
Consultancy Services, plus 6% interests from the date of the promulgation of this case, until
fully paid.
Claimant3. shall pay Respondent the amount of P189,909.91, representing the cost of work
performed over & above the scope of work in the contract.
4. The cost for liquidated damages and cost representing interests of construction bond,
prayed for the Claimant, are denied for being without merit.
Attorneys fees prayed for by both parties are denied for being without merit.5.
159
From the above computation, the Court of Appeals ruled that Transcept only accomplished
87.81% of the contract price thus entitling Aguilar to liquidated damages equivalent to 10%
of P1,632,436.29 or P163,243.63.
SO ORDERED.5
The Court of Appeals further ruled that Transcept was not entitled to payment for additional
works because they were in fact only rectifications of the works poorly done by Transcept.
Finally, the Court of Appeals ruled that Aguilar was able to prove that she paid P135,000 for
consultancy services.
The Court of Appeals agreed with the CIAC that Aguilar did not allege in her complaint the
amount corresponding to the indirect costs for General Requirements. However, the Court of
Appeals made a recomputation of the indirect costs for General Requirements based on
P1,632,436.29 and made the following findings:
WHEREFORE, the foregoing considered, the instant petition is hereby GRANTED and the
assailed decision REVERSED AND SET ASIDE. Accordingly, a new one is entered ordering
respondent to pay petitioner the following:
1) P198,916.02 for unaccomplished works in the second contract, plus 6% interest from
the date of the filing of the case, until fully paid;
_______________
5 Id., at p. 123.
2) P135,000.00, representing the cost of consultancy services, plus 6% interest from the
filing of the case, until fully paid; and
579
579
The award of P189,909.91 in favor of Aguilar for additional works is hereby deleted.
No costs.
SO ORDERED.6
Transcept filed a motion for reconsideration. In its 20 April 2007 Resolution, the Court of
Appeals denied the motion.
Hence, the petition before this Court.
The Issues
The issues in this case are the following:
160
1. Whether the Court of Appeals erred in holding that Aguilar is entitled to P198,916.02
instead of P30,076.72 for unaccomplished works;
Whether the Court of Appeals erred in awarding Aguilar liquidated damages;2.
3. Whether the Court of Appeals erred in deleting the CIACs award of P189,909.91 to
Transcept representing additional works done under the Second Contract; and
P1,110,440.13
275,355.50
_____7,300.00
P1,393,095.63
69,654.78
___139,309.56
P1,602,359.97
Whether the Court of Appeals erred in awarding Aguilar the amount of P135,000 for
consultancy services.4.
The Ruling of this Court
Liquidated Damages
The Court of Appeals ruled that CIAC erred in adopting Transcepts computation of
unaccomplished works. The Court of Appeals agreed with Aguilar that the CIACs
computation was based on what Transcept submitted which was based on the original
contract price of P3,486,878.64 instead of the contract price of P1,632,436.29 under the
Second Contract.
However, the Court of Appeals failed to consider the CIACs as well as its own finding that
Aguilar did not present any evidence on indirect costs for General Requirements. In addition,
Aguilars counsel did not cross-examine Transcepts witnesses. In short, Aguilar did not
dispute but merely accepted Transcepts computation on indirect expenses. Aguilar did not
interpose any objection to the computation until after the CIAC ruled that Transcept
substantially complied with the Project. We also note Transcepts explanation, as well as the
CIACs finding, that General Requirements refer to mobilization, overhead, insurance,
hoarding and protection, temporary facilities, equipment, materials testing, line set out, asbuilt drawings, and clean out. They had been used up at the start of the Project. Hence, costs
for General Requirements are not dependent on the amount of the contract because they were
incurred at the beginning of the Project. We should therefore revert to the computation made
by the CIAC, as follows:
The Court of Appeals correctly awarded Aguilar the cost of consultancy services amounting
to P135,000. While Engr. Rioflorido was not presented as a witness, it was established that
Aguilar hired ASTEC, a duly accredited testing laboratory, to test Transcepts quality of
work, and that Engr. Rioflorido represented ASTEC. As found by the Court of Appeals,
Aguilar paid Engr. Rioflorido the amount of P65,000 for the services, which should be added
to the P75,000 consultancy services awarded to Aguilar.10
WHEREFORE, we AFFIRM the 24 January 2007 Decision and the 20 April 2007 Resolution
of the Court of Appeals in CA-G.R. SP No. 93021, with the MODIFICATION that the award
of P198,916.02 for unaccomplished works is reduced to P30,076.72, and the award of
P163,243.63 for liquidated damages is deleted.
SO ORDERED.
The CIAC found that Aguilar demanded additional works from Transcept. The CIAC found
that the additional works include the balcony, lifting of roof beams, and extra fast walls
which are not covered by the Second Contract. However, we agree with the Court of Appeals
that the works done were just for correction of the substandard works done under the First
Contract. During the ocular inspection, Aguilar pointed out that the lifting of the roof beam
was done because the construction was three meters short of that specified in the First
Contact.9 Hence, while the roofing system is excluded from the Second Contract, it could not
be said that the lifting of the roof beam is an additional work on the part of Transcept.
The Court notes that the Second Contract was entered into by the parties precisely to correct
the substandard works discovered by ASTEC. Hence, Aguilar should not be made to pay for
works done to correct these substandard works.
Consultancy Services
The enactment of R.A. No. 9285 on April 2, 2004 further institutionalized the use of
alternative dispute resolution systems, including arbitration, in the settlement of disputes.
Same; Same; Contracts; Submission to arbitration is a contract and a clause in a contract
providing that all matters in dispute between the parties shall be referred to arbitration is a
contract.A contract is required for arbitration to take place and to be binding. Submission
to arbitration is a contract and a clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a contract. The provision to submit to
arbitration any dispute arising therefrom and the relationship of the parties is part of the
contract and is itself a contract.
Same; Same; Same; An arbitration agreement which forms part of the main contract shall
not be regarded as invalid or non-existent just because the main contract is invalid or did not
come into existence, since the arbitration agreement shall be treated as a separate agreement
independent of the main contract.Applying the Gonzales ruling, an arbitration agreement
which forms part of the main contract shall not be regarded as invalid or non-existent just
because the main contract is invalid or did not come into existence, since the arbitration
agreement shall be treated as a separate agreement independent of the main contract. To
reiterate a contrary ruling would suggest that a partys mere repudiation of the main contract
is sufficient to avoid arbitration and that is exactly the situation that the separability doctrine
sought to avoid. Thus, we find that even the party who has repudiated the main contract is not
prevented from enforcing its arbitration clause.
On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend Proceedings and To Refer
Controversy to Voluntary Arbitration,4 wherein it argued that the alleged contract between
the parties, dated July 11, 1996, was never consummated because respondent never returned
the proposed agreement bearing its written acceptance or conformity nor did respondent open
the Irrevocable Letter of Credit at sight. Petitioner contended that the controversy between
the parties was whether or not the alleged contract between the parties was legally in
existence and the RTC was not the proper forum to ventilate such issue. It claimed that the
contract contained an arbitration clause, to wit:
ARBITRATION
Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall
be settled by arbitration in the City of New York before the American Arbitration
Association. The Arbitration Award shall be final and binding on both parties.5
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
PERALTA,J.:
Before us is a petition for review on certiorari seeking to reverse and set aside the Decision1
dated July 31, 2006 and the Resolution2 dated November 13, 2006 of the Court of Appeals
(CA) in CA-G.R. SP No. 50304.
that respondent must first comply with the arbitration clause before resorting to court, thus,
the RTC must either dismiss the case or suspend the proceedings and direct the parties to
proceed with arbitration, pursuant to Sections 66 and 77 of Republic Act (R.A.) No. 876, or
the Arbitration Law.
163
Respondent filed an Opposition, wherein it argued that the RTC has jurisdiction over the
action for rescission of contract and could not be changed by the subject arbitration clause. It
cited cases wherein arbitration clauses, such as the subject clause in the contract, had been
struck down as void for being contrary to public policy since it provided that the arbitration
award shall be final and binding on both parties, thus, ousting the courts of jurisdiction.
In its Reply, petitioner maintained that the cited decisions were already inapplicable, having
been rendered prior to the effectivity of the New Civil Code in 1950 and the Arbitration Law
in 1953.
In its Rejoinder, respondent argued that the arbitration clause relied upon by petitioner is
invalid and unenforceable, considering that the requirements imposed by the provisions of
the Arbitration Law had not been complied with.
By way of Sur-Rejoinder, petitioner contended that respondent had even clarified that the
issue boiled down to whether the arbitration clause contained in the contract subject of the
complaint is valid and enforceable; that the arbitration clause did not violate any of the cited
provisions of the Arbitration Law.
and binding on both parties. The RTC said that to apply Section 7 of the Arbitration Law to
such an agreement would result in disregarding the other sections of the same law and
rendered them useless and mere surplusages.
Petitioner filed its Motion for Reconsideration, which the RTC denied in an Order10 dated
November 25, 1998.
Petitioner filed a petition for certiorari with the CA raising the sole issue that the RTC acted
in excess of jurisdiction or with grave abuse of discretion in refusing to dismiss or at least
suspend the proceedings a quo, despite the fact that the partys agreement to arbitrate had not
been complied with.
Respondent filed its Comment and Reply. The parties were then required to file their
respective Memoranda.
On July 31, 2006, the CA rendered its assailed Decision denying the petition and affirming
the RTC Orders.
On September 17, 1998, the RTC rendered an Order,8 the dispositive portion of which reads:
Premises considered, defendants Motion To Dismiss/Suspend Proceedings and To Refer
Controversy To Voluntary Arbitration is hereby DENIED. Defendant is directed to file its
answer within ten (10) days from receipt of a copy of this order.9
In denying the motion, the RTC found that there was no clear basis for petitioners plea to
dismiss the case, pursuant to Section 7 of the Arbitration Law. The RTC said that the
provision directed the court concerned only to stay the action or proceeding brought upon an
issue arising out of an agreement providing for the arbitration thereof, but did not impose the
sanction of dismissal. However, the RTC did not find the suspension of the proceedings
warranted, since the Arbitration Law contemplates an arbitration proceeding that must be
conducted in the Philippines under the jurisdiction and control of the RTC; and before an
arbitrator who resides in the country; and that the arbitral award is subject to court approval,
disapproval and modification, and that there must be an appeal from the judgment of the
RTC. The RTC found that the arbitration clause in question contravened these procedures,
i.e., the arbitration clause contemplated an arbitration proceeding in New York before a nonresident arbitrator (American Arbitration Association); that the arbitral award shall be final
In denying the petition, the CA found that stipulation providing for arbitration in contractual
obligation is both valid and constitutional; that arbitration as an alternative mode of dispute
resolution has long been accepted in our jurisdiction and expressly provided for in the Civil
Code; that R.A. No. 876 (the Arbitration Law) also expressly authorized the arbitration of
domestic disputes. The CA found error in the RTCs holding that Section 7 of R.A. No. 876
was inapplicable to arbitration clause simply because the clause failed to comply with the
requirements prescribed by the law. The CA found that there was nothing in the Civil Code,
or R.A. No. 876, that require that arbitration proceedings must be conducted only in the
Philippines and the arbitrators should be Philippine residents. It also found that the RTC
ruling effectively invalidated not only the disputed arbitration clause, but all other
agreements which provide for foreign arbitration. The CA did not find illegal or against
public policy the arbitration clause so as to render it null and void or ineffectual.
164
Notwithstanding such findings, the CA still held that the case cannot be brought under the
Arbitration Law for the purpose of suspending the proceedings before the RTC, since in its
Motion to Dismiss/Suspend proceedings, petitioner alleged, as one of the grounds thereof,
that the subject contract between the parties did not exist or it was invalid; that the said
contract bearing the arbitration clause was never consummated by the parties, thus, it was
proper that such issue be first resolved by the court through an appropriate trial; that the issue
involved a question of fact that the RTC should first resolve. Arbitration is not proper when
one of the parties repudiated the existence or validity of the contract.
Petitioners motion for reconsideration was denied in a Resolution dated November 13, 2006.
Hence, this petition.
Petitioner alleges that the CA committed an error of law in ruling that arbitration cannot
proceed despite the fact that: (a) it had ruled, in its assailed decision, that the arbitration
clause is valid, enforceable and binding on the parties; (b) the case of Gonzales v. Climax
Mining Ltd.11 is inapplicable here; (c) parties are generally allowed, under the Rules of
Court, to adopt several defenses, alternatively or hypothetically, even if such defenses are
inconsistent with each other; and (d) the complaint filed by respondent with the trial court is
premature.
Petitioner alleges that the CA adopted inconsistent positions when it found the arbitration
clause between the parties as valid and enforceable and yet in the same breath decreed that
the arbitration cannot proceed because petitioner assailed the existence of the entire
agreement containing the arbitration clause. Petitioner claims the inapplicability of the cited
Gonzales case decided in 2005, because in the present case, it was respondent who had filed
the complaint for rescission and damages with the RTC, which based its cause of action
against petitioner on the alleged agreement dated July 11, 2006 between the parties; and that
the same agreement contained the arbitration clause sought to be enforced by petitioner in
this case. Thus, whether petitioner assails the genuineness and due execution of the
agreement, the fact remains that the agreement sued upon provides for an arbitration clause;
that respondent cannot use the provisions favorable to him and completely disregard those
that are unfavorable, such as the arbitration clause.
Petitioner contends that as the defendant in the RTC, it presented two alternative defenses,
i.e., the parties had not entered into any agreement upon which respondent as plaintiff can
sue upon; and, assuming that such agreement existed, there was an arbitration clause that
should be enforced, thus, the dispute must first be submitted to arbitration before an action
can be instituted in court. Petitioner argues that under Section 1(j) of Rule 16 of the Rules of
Court, included as a ground to dismiss a complaint is when a condition precedent for filing
the complaint has not been complied with; and that submission to arbitration when such has
been agreed upon is one such condition precedent. Petitioner submits that the proceedings in
the RTC must be dismissed, or at least suspended, and the parties be ordered to proceed with
arbitration.
On March 12, 2007, petitioner filed a Manifestation12 saying that the CAs rationale in
declining to order arbitration based on the 2005 Gonzales ruling had been modified upon a
motion for reconsideration decided in 2007; that the CA decision lost its legal basis, because
it had been ruled that the arbitration agreement can be implemented notwithstanding that one
of the parties thereto repudiated the contract which contained such agreement based on the
doctrine of separability.
In its Comment, respondent argues that certiorari under Rule 65 is not the remedy against an
order denying a Motion to Dismiss/Suspend Proceedings and To Refer Controversy to
Voluntary Arbitration. It claims that the Arbitration Law which petitioner invoked as basis for
its Motion prescribed, under its Section 29, a remedy, i.e., appeal by a petition for review on
certiorari under Rule 45. Respondent contends that the Gonzales case, which was decided in
2007, is inapplicable in this case, especially as to the doctrine of separability enunciated
therein. Respondent argues that even if the existence of the contract and the arbitration clause
is conceded, the decisions of the RTC and the CA declining referral of the dispute between
the parties to arbitration would still be correct. This is so because respondents complaint
filed in Civil Case No. 98-1376 presents the principal issue of whether under the facts alleged
in the complaint, respondent is entitled to rescind its contract with petitioner and for the latter
to pay damages; that such issue constitutes a judicial question or one that requires the
exercise of judicial function and cannot be the subject of arbitration.
Respondent contends that Section 8 of the Rules of Court, which allowed a defendant to
adopt in the same action several defenses, alternatively or hypothetically, even if such
defenses are inconsistent with each other refers to allegations in the pleadings, such as
complaint, counterclaim, cross-claim, third-party complaint, answer, but not to a motion to
dismiss. Finally, respondent claims that petitioners argument is premised on the existence of
a contract with respondent containing a provision for arbitration. However, its reliance on the
contract, which it repudiates, is inappropriate.
165
In its Reply, petitioner insists that respondent filed an action for rescission and damages on
the basis of the contract, thus, respondent admitted the existence of all the provisions
contained thereunder, including the arbitration clause; that if respondent relies on said
contract for its cause of action against petitioner, it must also consider itself bound by the rest
of the terms and conditions contained thereunder notwithstanding that respondent may find
some provisions to be adverse to its position; that respondents citation of the Gonzales case,
decided in 2005, to show that the validity of the contract cannot be the subject of the
arbitration proceeding and that it is the RTC which has the jurisdiction to resolve the
situation between the parties herein, is not correct since in the resolution of the Gonzales
motion for reconsideration in 2007, it had been ruled that an arbitration agreement is
effective notwithstanding the fact that one of the parties thereto repudiated the main contract
which contained it.
We first address the procedural issue raised by respondent that petitioners petition for
certiorari under Rule 65 filed in the CA against an RTC Order denying a Motion to
Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary Arbitration was a
wrong remedy invoking Section 29 of R.A. No. 876, which provides:
x x x An appeal may be taken from an order made in a proceeding under this Act, or from a
judgment entered upon an award through certiorari proceedings, but such appeals shall be
limited to question of law. x x x.
To support its argument, respondent cites the case of Gonzales v. Climax Mining Ltd.13
(Gonzales case), wherein we ruled the impropriety of a petition for certiorari under Rule 65
as a mode of appeal from an RTC Order directing the parties to arbitration.
We find the cited case not in point.
In the Gonzales case, Climax-Arimco filed before the RTC of Makati a petition to compel
arbitration under R.A. No. 876, pursuant to the arbitration clause found in the Addendum
Contract it entered with Gonzales. Judge Oscar Pimentel of the RTC of Makati then directed
the parties to arbitration proceedings. Gonzales filed a petition for certiorari with Us
contending that 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
was null and void. Climax-Arimco assailed the mode of review availed of by Gonzales,
citing Section 29 of R.A. No. 876 contending that certiorari under Rule 65 can be availed of
only if there was no appeal or any adequate remedy in the ordinary course of law; that R.A.
No. 876 provides for an appeal from such order. We then ruled that Gonzales petition for
certiorari should be dismissed as it was filed in lieu of an appeal by certiorari which was the
prescribed remedy under R.A. No. 876 and the petition was filed far beyond the reglementary
period.
We found that Gonzales petition for certiorari raises a question of law, but not a question of
jurisdiction; that 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 had 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.14
In this case, petitioner raises before the CA the issue that the respondent Judge acted in
excess of jurisdiction or with grave abuse of discretion in refusing to dismiss, or at least
suspend, the proceedings a quo, despite the fact that the partys agreement to arbitrate had
not been complied with. Notably, the RTC found the existence of the arbitration clause, since
it said in its decision that hardly disputed is the fact that the arbitration clause in question
contravenes several provisions of the Arbitration Law x x x and to apply Section 7 of the
Arbitration Law to such an agreement would result in the disregard of the afore-cited sections
of the Arbitration Law and render them useless and mere surplusages. However,
notwithstanding the finding that an arbitration agreement existed, the RTC denied petitioners
motion and directed petitioner to file an answer.
In La Naval Drug Corporation v. Court of Appeals,15 it was held that R.A. No. 876
explicitly confines the courts authority only to the determination of whether or not there is
an agreement in writing providing for arbitration. In the affirmative, the statute ordains that
the court shall issue an order summarily 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 proceedings shall be dismissed.
In issuing the Order which denied petitioners Motion to Dismiss/Suspend Proceedings and
to Refer Controversy to Voluntary Arbitration, the RTC went beyond its authority of
determining only the issue of whether or not there is an agreement in writing providing for
arbitration by directing petitioner to file an answer, instead of ordering the parties to proceed
166
to arbitration. In so doing, it acted in excess of its jurisdiction and since there is no plain,
speedy, and adequate remedy in the ordinary course of law, petitioners resort to a petition for
certiorari is the proper remedy.
We now proceed to the substantive issue of whether the CA erred in finding that this case
cannot be brought under the arbitration law for the purpose of suspending the proceedings in
the RTC.
still cannot be brought under the Arbitration Law for the purpose of suspending the
proceedings before the trial court. We note that in its Motion to Dismiss/Suspend
Proceedings, etc, petitioner Cargill alleged, as one of the grounds thereof, that the alleged
contract between the parties do not legally exist or is invalid. As posited by petitioner, it is
their contention that the said contract, bearing the arbitration clause, was never consummated
by the parties. That being the case, it is but proper that such issue be first resolved by the
court through an appropriate trial. The issue involves a question of fact that the trial court
should first resolve.
Arbitration is not proper when one of the parties repudiates the existence or validity of the
contract. Apropos is Gonzales v. Climax Mining Ltd., 452 SCRA 607, (G.R. No. 161957),
where the Supreme Court held that:
The question of validity of the contract containing the agreement to submit to
arbitration will affect the applicability of the arbitration clause itself. A party
cannot rely on the contract and claim rights or obligations under it and at the
same time impugn its existence or validity. Indeed, litigants are enjoined from
taking inconsistent positions....
Consequently, the petitioner herein cannot claim that the contract was never consummated
and, at the same time, invokes the arbitration clause provided for under the contract which it
alleges to be non-existent or invalid. Petitioner claims that private respondents complaint
lacks a cause of action due to the absence of any valid contract between the parties.
Apparently, the arbitration clause is being invoked merely as a fallback position. The
petitioner must first adduce evidence in support of its claim that there is no valid contract
between them and should the court a quo find the claim to be meritorious, the parties may
then be spared the rigors and expenses that arbitration in a foreign land would surely
entail.24
However, the Gonzales case,25 which the CA relied upon for not ordering arbitration, had
been modified upon a motion for reconsideration in this wise:
x x x The adjudication of the petition in G.R. No. 167994 effectively modifies part of
the Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the
validity of the contract containing the agreement to submit to arbitration does not
affect the applicability of the arbitration clause itself. A contrary ruling would suggest
that a partys mere repudiation of the main contract is sufficient to avoid arbitration.
167
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.26
In so ruling that the validity of the contract containing the arbitration agreement does not
affect the applicability of the arbitration clause itself, we then applied the doctrine of
separability, thus:
The doctrine of separability, or severability as other writers call it, enunciates that an
arbitration agreement is independent of the main contract. The arbitration agreement is to be
treated as a separate agreement and the arbitration agreement does not automatically
terminate when the contract of which it is a part comes to an end.
The separability of the arbitration agreement is especially significant to the determination of
whether the invalidity of the main contract also nullifies the arbitration clause. Indeed, the
doctrine denotes that the invalidity of the main contract, also referred to as the container
contract, does not affect the validity of the arbitration agreement. Irrespective of the fact that
the main contract is invalid, the arbitration clause/agreement still remains valid and
enforceable.27
Respondent argues that the separability doctrine is not applicable in petitioners case, since in
the Gonzales case, Climax-Arimco sought to enforce the arbitration clause of its contract
with Gonzales and the formers move was premised on the existence of a valid contract;
while Gonzales, who resisted the move of Climax-Arimco for arbitration, did not deny the
existence of the contract but merely assailed the validity thereof on the ground of fraud and
oppression. Respondent claims that in the case before Us, petitioner who is the party insistent
on arbitration also claimed in their Motion to Dismiss/Suspend Proceedings that the contract
sought by respondent to be rescinded did not exist or was not consummated; thus, there is no
room for the application of the separability doctrine, since there is no container or main
contract or an arbitration clause to speak of.
We are not persuaded.
Applying the Gonzales ruling, an arbitration agreement which forms part of the main contract
shall not be regarded as invalid or non-existent just because the main contract is invalid or
did not come into existence, since the arbitration agreement shall be treated as a separate
agreement independent of the main contract. To reiterate a contrary ruling would suggest that
a partys mere repudiation of the main contract is sufficient to avoid arbitration and that is
exactly the situation that the separability doctrine sought to avoid. Thus, we find that even the
party who has repudiated the main contract is not prevented from enforcing its arbitration
clause.
Moreover, it is worthy to note that respondent filed a complaint for rescission of contract and
damages with the RTC. In so doing, respondent alleged that a contract exists between
respondent and petitioner. It is that contract which provides for an arbitration clause which
states that any dispute which the Buyer and Seller may not be able to settle by mutual
agreement shall be settled before the City of New York by the American Arbitration
Association. The arbitration agreement clearly expressed the parties intention that any
dispute between them as buyer and seller should be referred to arbitration. It is for the
arbitrator and not the courts to decide whether a contract between the parties exists or is
valid.
Respondent contends that assuming that the existence of the contract and the arbitration
clause is conceded, the CAs 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.
In Gonzales, petitioner Gonzales filed a complaint before the Panel of Arbitrators, Region II,
Mines and Geosciences Bureau, of the Department of Environment and Natural Resources
(DENR) against respondents Climax-Mining Ltd, Climax-Arimco and Australasian
168
Philippines Mining Inc, seeking the declaration of nullity or termination of the addendum
contract and the other contracts emanating from it on the grounds of fraud and oppression.
The Panel dismissed the complaint for lack of jurisdiction. However, the Panel, upon
petitioners motion for reconsideration, ruled that it had jurisdiction over the dispute
maintaining that it was a mining dispute, since the subject complaint arose from a contract
between the parties which involved the exploration and exploitation of minerals over the
disputed area. Respondents assailed the order of the Panel of Arbitrators via a petition for
certiorari before the CA. The CA granted the petition and declared that the Panel of
Arbitrators did not have jurisdiction over the complaint, since its jurisdiction was limited to
the resolution of mining disputes, such as those which raised a question of fact or matter
requiring the technical knowledge and experience of mining authorities and not when the
complaint alleged fraud and oppression which called for the interpretation and application of
laws. The CA further ruled that the petition should have been settled through arbitration
under R.A. No. 876the Arbitration Lawas provided under the addendum contract.
On a review on certiorari, we affirmed the CAs finding that the Panel of Arbitrators who,
under R.A. No. 7942 of the Philippine Mining Act of 1995, has exclusive and original
jurisdiction to hear and decide mining disputes, such as mining areas, mineral agreements,
FTAAs or permits and surface owners, occupants and claimholders/concessionaires, is bereft
of jurisdiction over the complaint for declaration of nullity of the addendum contract; thus,
the Panels jurisdiction is limited only to those mining disputes which raised question of facts
or matters requiring the technical knowledge and experience of mining authorities. We then
said:
In Pearson v. Intermediate Appellate Court, this Court observed that the trend has been to
make the adjudication of mining cases a purely administrative matter. Decisions of the
Supreme Court on mining disputes have recognized a distinction between (1) the primary
powers granted by pertinent provisions of law to the then Secretary of Agriculture and
Natural Resources (and the bureau directors) of an executive or administrative nature, such as
granting of license, permits, lease and contracts, or approving, rejecting, reinstating or
canceling applications, or deciding conflicting applications, and (2) controversies or
disagreements of civil or contractual nature between litigants which are questions of a
judicial nature that may be adjudicated only by the courts of justice. This distinction is
carried on even in Rep. Act No. 7942.28
We found that since the complaint filed before the DENR Panel of Arbitrators charged
respondents with disregarding and ignoring the addendum contract, and acting in a fraudulent
and oppressive manner against petitioner, the complaint filed before the Panel was not a
dispute involving rights to mining areas, or was it a dispute involving claimholders or
concessionaires, but essentially judicial issues. We then said that the Panel of Arbitrators did
not have jurisdiction over such issue, since it does not involve the application of technical
knowledge and expertise relating to mining. It is in this context that we said that:
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.29
In fact, We even clarified in our resolution on Gonzales motion for reconsideration that
when we declared 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. We made such clarification in our resolution of the motion
for reconsideration after ruling that the parties in that case can proceed to arbitration under
the Arbitration Law, as provided under the Arbitration Clause in their Addendum Contract.
WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2006 and the
Resolution dated November 13, 2006 of the Court of Appeals in CA-G.R. SP No. 50304 are
REVERSED and SET ASIDE. The parties are hereby ORDERED to SUBMIT themselves to
the arbitration of their dispute, pursuant to their July 11, 1996 agreement.
SO ORDERED.
Carpio (Chairperson), Nachura, Abad and Mendoza, JJ., concur.
Petition granted, judgment and resolution reversed and set aside.
169
Note.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. (Korea Technologies Co., Ltd. vs. Lerma, 542 SCRA 1 [2008])
o0o
construction disputes, appointing another arbitral body, or making that bodys decision final
and binding.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Angara, Abello, Concepcion, Regala & Cruz for Licomcen, Inc.
Nelson A. Clemente for Foundation Specialist, Inc.
BRION,J.:
The Facts
The petitioner, LICOMCEN is a domestic corporation engaged in the business of operating
shopping malls in the country.
In March 1997, the City Government of Legaspi awarded to LICOMCEN, after a public
bidding, a lease contract over a lot located in the central business district of the city. Under
the contract, LICOMCEN was obliged to finance the construction of a commercial
complex/mall to be known as the Citimall. It was also granted the right to operate and
manage Citimall for 50 years, and was, thereafter, required to turn over the ownership and
operation to the City Government.
For the Citimall project, LICOMCEN hired E.S. de Castro and Associates (ESCA) to act as
its engineering consultant. Since the Citimall was envisioned to be a high-rise structure,
LICOMCEN contracted respondent Foundation Specialists, Inc. (FSI) to do initial
construction works, specifically, the construction and installation of bored piles foundation.
LICOMCEN and FSI signed the Construction Agreement,3 and the accompanying Bid
Documents4 and General Conditions of Contract5 (GCC) on September 1, 1997.
Immediately thereafter, FSI purchased the materials needed for the Citimall6 project and
began working in order to meet the 90-day deadline set by LICOMCEN.
On December 16, 1997, LICOMCEN sent word to FSI that it was considering major design
revisions and the suspension of work on the Citimall project. FSI replied on December 18,
1997, expressing concern over the revisions and the suspension, as it had fully mobilized its
171
manpower and equipment, and had ordered the delivery of steel bars. FSI also asked for the
payment of accomplished work amounting to P3,627,818.00.7 A series of correspondence
between LICOMCEN and FSI then followed.
jurisdiction, contending that FSIs claims were matters not subject to arbitration under GC-61
of the GCC, but one that should have been filed before the regular courts of Legaspi City
pursuant to GC-05.20
ESCA wrote FSI on January 6, 1998, stating that the revised design necessitated a change in
the bored piles requirement and a substantial reduction in the number of piles. Thus, ESCA
proposed to FSI that only 50% of the steel bars be delivered to the jobsite and the rest be
shipped back to Manila. Notwithstanding this instruction, all the ordered steel bars arrived in
Legaspi City on January 14, 1998.
During the preliminary conference of January 28, 2003, LICOMCEN reiterated its objections
to the CIACs jurisdiction, which the arbitrators simply noted. Both FSI and LICOMCEN
then proceeded to draft the Terms of Reference.21
ESCA replied to FSIs demands for payment on March 24, 1998, objecting to some of
the claims.15 It denied the claim for the cost of the steel bars that were delivered, since the
delivery was done in complete disregard of its instructions. It further disclaimed liability for
the other FSI claims based on the suspension, as its cause was not due to LICOMCENs fault.
FSI rejected ESCAs evaluation of its claims in its April 15, 1998 letter.16
On March 14, 2001, FSI sent a final demand letter to LICOMCEN for payment of
P29,232,672.83.17 Since LICOMCEN took no positive action on FSIs demand for
payment,18 FSI filed a petition for arbitration with the Construction Industry Arbitration
Commission (CIAC) on October 2, 2002, docketed as CIAC Case No. 37-2002.19 In the
arbitration petition, FSI demanded payment of the following amounts:
Unpaid accomplished work billings........ P 1,264,404.12a.
Material costs at site .............................
15,143,638.51b.
3,058,984.34c.
9,023,575.29d.
300,000.00e.
LICOMCEN was also required to bear the costs of arbitration in the total amount of
P474,407.95.
LICOMCEN appealed the CIACs decision before the Court of Appeals (CA). On November
23, 2004, the CA upheld the CIACs decision, modifying only the amounts awarded by (a)
reducing LICOMCENs liability for material costs at site to P5,694,939.87, and (b) deleting
its liability for equipment and labor standby costs and unrealized gross profit; all the other
awards were affirmed.24 Both parties moved for the reconsideration of the CAs Decision;
LICOMCENs motion was denied in the CAs February 4, 2005 Resolution, while FSIs
motion was denied in the CAs September 13, 2005 Resolution. Hence, the parties filed their
own petition for review on certiorari before the Court.25
172
LICOMCENs Arguments
GC-05. JURISDICTION
LICOMCEM principally raises the question of the CIACs jurisdiction, insisting that FSIs
claims are non-arbitrable. In support of its position, LICOMCEN cites GC-61 of the
GCC:GC-61. DISPUTES AND ARBITRATION
Any question between the contracting parties that may arise out of or in connection
with the Contract, or breach thereof, shall be litigated in the courts of Legaspi City except
where otherwise specifically stated or except when such question is submitted for settlement
thru arbitration as provided herein.28
Should any dispute of any kind arise between the LICOMCEN INCORPORATED and the
Contractor [referring to FSI] or the Engineer [referring to ESCA] and the Contractor in
connection with, or arising out of the execution of the Works, such dispute shall first be
referred to and settled by the LICOMCEN, INCORPORATED who shall within a period of
thirty (30) days after being formally requested by either party to resolve the dispute, issue a
written decision to the Engineer and Contractor.
Such decision shall be final and binding upon the parties and the Contractor shall proceed
with the execution of the Works with due diligence notwithstanding any Contractors
objection to the decision of the Engineer. If within a period of thirty (30) days from receipt of
the LICOMCEN, INCORPORATEDs decision on the dispute, either party does not
officially give notice to contest such decision through arbitration, the said decision shall
remain final and binding. However, should any party, within thirty (30) days from receipt of
the LICOMCEN, INCORPORATEDs decision, contest said decision, the dispute shall be
submitted for arbitration under the Construction Industry Arbitration Law, Executive Order
1008. The arbitrators appointed under said rules and regulations shall have full power to open
up, revise and review any decision, opinion, direction, certificate or valuation of the
LICOMCEN, INCORPORATED. Neither party shall be limited to the evidence or arguments
put before the LICOMCEN, INCORPORATED for the purpose of obtaining his said
decision. No decision given by the LICOMCEN, INCORPORATED shall disqualify him
from being called as a witness and giving evidence in the arbitration. It is understood that the
obligations of the LICOMCEN, INCORPORATED, the Engineer and the Contractor shall
not be altered by reason of the arbitration being conducted during the progress of the
Works.26
LICOMCEN posits that only disputes in connection with or arising out of the execution of
the Works are subject to arbitration. LICOMCEN construes the phrase execution of the
Works as referring to the physical construction activities, since Works under the GCC
specifically refer to the structures and facilities required to be constructed and completed
for the Citimall project.27 It considers FSIs claims as mere contractual monetary claims
that should be litigated before the courts of Legaspi City, as provided in GC-05 of the GCC:
LICOMCEN also contends that FSI failed to comply with the condition precedent for
arbitration laid down in GC-61 of the GCC. An arbitrable dispute under GC-61 must first be
referred to and settled by LICOMCEN, which has 30 days to resolve it. If within a period of
30 days from receipt of LICOMCENs decision on the dispute, either party does not officially
give notice to contest such decision through arbitration, the said decision shall remain final
and binding. However, should any party, within 30 days from receipt of LICOMCENs
decision, contest said decision, the dispute shall be submitted for arbitration under the
Construction Industry Arbitration Law.
LICOMCEN considers its March 24, 1998 letter as its final decision on FSIs claims, but
declares that FSIs reply letter of April 15, 1998 is not the notice to contest required by
GC-61 that authorizes resort to arbitration before the CIAC. It posits that nothing in FSIs
April 15, 1998 letter states that FSI will avail of arbitration as a mode to settle its dispute
with LICOMCEN. While FSIs final demand letter of March 14, 2001 mentioned its
intention to refer the matter to arbitration, LICOMCEN declares that the letter was made
three years after its March 24, 1998 letter, hence, long after the 30-day period provided in
GC-61. Indeed, FSI filed the petition for arbitration with the CIAC only on October 2,
2002.29 Considering FSIs delays in asserting its claims, LICOMCEN also contends that
FSIs action is barred by laches.
With respect to the monetary claims of FSI, LICOMCEM alleges that the CA erred in
upholding its liability for material costs at site for the reinforcing steel bars in the amount of
P5,694,939.87, computed as follows:3
2nd
initial
rebar
requirements
purchased
Asa Steel Works, Inc. .......................................... P 799,506.83
Reinforcing
steel
bars
purchased
from
dustrial
Sales
(total
net
weight
of
grams) 50% of net amount due ......................... 5,395,433.04
from
ARCA
744,197.66
PagInkilo173
by
LICOMCEN
5,694,939.87
Ramon
TO
Quin-
LICOMCEN also disagrees with the CA ruling that declared it solely liable to pay the costs
of arbitration. The ruling was apparently based on the finding that LICOMCENs failure or
refusal to meet its obligations, legal, financial, and moral, caused FSI to bring the dispute to
arbitration.34 LICOMCEN asserts that it was FSIs decision to proceed with the delivery of
the steel bars that actually caused the dispute; it insists that it is not the party at fault which
should bear the arbitration costs.35
FSI
Citing GC-42(2) of the GCC, LICOMCEN says it shall be liable to pay FSI [t]he cost of
materials or goods reasonably ordered for the Permanent or Temporary Works which
have been delivered to the Contractor but not yet used, and which delivery has been
certified by the Engineer.31 None of these requisites were allegedly complied with. It
contends that FSI failed to establish that the steel bars delivered in Legaspi City, on January
14, 1998, were for the Citimall project. In fact, the steel bars were delivered not at the site of
the Citimall project, but at FSIs batching plant called Tuanzon compound, a few hundred
meters from the site. Even if delivery to Tuanzon was allowed, the delivery was done in
violation of ESCAs instruction to ship only 50% of the materials. Advised as early as
December 1997 to suspend the works, FSI proceeded with the delivery of the steel bars in
January 1998. LICOMCEN declared that it should not be made to pay for costs that FSI
willingly incurred for itself.32
Assuming that LICOMCEN is liable for the costs of the steel bars, it argues that its liability
should be minimized by the fact that FSI incurred no actual damage from the purchase and
delivery of the steel bars. During the suspension of the works, FSI sold 125,000 kg of steel
bars for P500,000.00 to a third person (a certain Ramon Quinquileria). LICOMCEN alleges
that FSI sold the steel bars for a ridiculously low price of P 4.00/kilo, when the prevailing
rate was P20.00/kilo. The sale could have garnered a higher price that would offset
LICOMCENs liability. LICOMCEN also wants FSI to account for and deliver to it the
remaining 744 metric tons of steel bars not sold. Otherwise, FSI would be unjustly enriched
at LICOMCENs expense, receiving payment for materials not delivered to LICOMCEN.33
FSIs Arguments
FSI takes exception to the CA ruling that modified the amount for material costs at site, and
deleted the awards for equipment and labor standby costs and unrealized profits.
Proof of damage to FSI is not required for LICOMCEN to be liable for the material costs of
the steel bars. Under GC-42, it is enough that the materials were delivered to the contractor,
although not used. FSI said that the 744 metric tons of steel bars were ordered and paid for
by it for the Citimall project as early as November 1997. If LICOMCEN contends that these
were procured for other projects FSI also had in Legaspi City, it should have presented proof
of this claim, but it failed to do so.36
ESCAs January 6, 1998 letter simply suggested that only 50% of the steel bars be shipped to
Legaspi City; it was not a clear and specific directive. Even if it was, the steel bars were
ordered and paid for long before the notice to suspend was given; by then, it was too late to
stop the delivery. FSI also claims that since it believed in good faith that the Citimall project
was simply suspended, it expected work to resume soon after and decided to proceed with the
shipment.37
Contrary to LICOMCENs arguments, GC-42 of the GCC does not require delivery of the
materials at the site of the Citimall project; it only requires delivery to the contractor, which
is FSI. Moreover, the Tuanzon compound, where the steel bars were actually delivered, is
very close to the Citimall project site. FSI contends that it is a normal construction practice
for contractors to set up a staging site, to prepare the materials and equipment to be used,
rather than stock them in the crowded job/project site. FSI also asserts that it was useless to
have the delivery certified by ESCA because by then the Citimall project had been
suspended. It would be unfair to demand FSI to perform an act that ESCA and LICOMCEN
themselves had prevented from happening.38
174
The CA deleted the awards for equipment and labor standby costs on the ground that FSIs
documentary evidence was inadequate. FSI finds the ruling erroneous, since LICOMCEN
never questioned the list of employees and equipments employed and rented by FSI for the
duration of the suspension.39
FSI also alleges that LICOMCEN maliciously and unlawfully suspended the Citimall project.
While LICOMCEN cited several other cases in its petition for review on certiorari as
grounds for suspending the works, its letters/notices of suspension only referred to one case,
OMB-ADM-1-97-0622, an administrative case before the Ombudsman that was dismissed as
early as October 12, 1998. LICOMCEN never notified FSI of the dismissal of this case. More
importantly, no restraining order or injunction was issued in any of these cases to justify the
suspension of the Citimall project.40 FSI posits that LICOMCENs true intent was to
terminate its contract with it, but, to avoid paying damages for breach of contract, simply
declared it as indefinitely suspended. That LICOMCEN conducted another public bidding
for the new designs is a telling indication of LICOMCENs intent to ease out FSI.41 Thus,
FSI states that LICOMCENs bad faith in indefinitely suspending the Citimall project entitles
it to claim unrealized profit. The restriction under GC-41 that [t]he contractor shall have no
claim for anticipated profits on the work thus terminated,42 will not apply because the
stipulation refers to a contract lawfully and properly terminated. FSI seeks to recover
unrealized profits under Articles 1170 and 2201 of the Civil Code.
may involve government or private contracts. For the Board to acquire jurisdiction, the
parties to a dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for
materials and workmanship; violation of the terms of agreement; interpretation and/or
application of contractual time and delays; maintenance and defects; payment, default of
employer or contractor and changes in contract cost. Excluded from the coverage of this law
are disputes arising from employer-employee relationships which shall continue to be
covered by the Labor Code of the Philippines.
The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and the
law. It cannot be fixed by the will of the parties to a dispute; the parties can neither expand
nor diminish a tribunals jurisdiction by stipulation or agreement. The text of Section 4 of
E.O. 1008 is broad enough to cover any dispute arising from, or connected with construction
contracts, whether these involve mere contractual money claims or execution of the works.
Considering the intent behind the law and the broad language adopted, LICOMCEN erred in
insisting on its restrictive interpretation of GC-61. The CIACs jurisdiction cannot be limited
by the parties stipulation that only disputes in connection with or arising out of the physical
construction activities (execution of the works) are arbitrable before it.
In fact, all that is required for the CIAC to acquire jurisdiction is for the parties to a
construction contract to agree to submit their dispute to arbitration. Section 1, Article III
of the 1988 CIAC Rules of Procedure (as amended by CIAC Resolution Nos. 2-91 and 3-93)
states:
The CIAC was created through Executive Order No. 1008 (E.O. 1008), in recognition of the
need to establish an arbitral machinery that would expeditiously settle construction industry
disputes. The prompt resolution of problems arising from or connected with the construction
industry was considered of necessary and vital for the fulfillment of national development
goals, as the construction industry provides employment to a large segment of the national
labor force and is a leading contributor to the gross national product.43 Section 4 of E.O.
1008 states:
175
If the CIACs jurisdiction can neither be enlarged nor diminished by the parties, it also
cannot be subjected to a condition precedent. GC-61 requires a party disagreeing with
LICOMCENs decision to officially give notice to contest such decision through
arbitration within 30 days from receipt of the decision. However, FSIs April 15, 1998 letter
is not the notice contemplated by GC-61; it never mentioned FSIs plan to submit the dispute
to arbitration and instead requested LICOMCEN to reevaluate its claims. Notwithstanding
FSIs failure to make a proper and timely notice, LICOMCENs decision (embodied in its
March 24, 1998 letter) cannot become final and binding so as to preclude resort to the
CIAC arbitration. To reiterate, all that is required for the CIAC to acquire jurisdiction is for
the parties to agree to submit their dispute to voluntary arbitration:
First, consistent with the intent of the law, an arbitration clause pursuant to E.O. 1008 should
be interpreted at its widest signification. Under GC-61, the voluntary arbitration clause
covers any dispute of any kind, not only arising of out the execution of the works but also in
connection therewith. The payments, demand and disputed issues in this casenamely, work
billings, material costs, equipment and labor standby costs, unrealized profitsall arose
because of the construction activities and/or are connected or related to these activities. In
other words, they are there because of the construction activities. Attorneys fees and
interests payment, on the other hand, are costs directly incidental to the dispute. Hence, the
scope of the arbitration clause, as worded, covers all the disputed items.
Second and more importantly, in insisting that contractual money claims can be resolved
only through court action, LICOMCEN deliberately ignores one of the exceptions to the
general rule stated in GC-05:
The CIAC is given the original and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by parties involved in construction in the
Philippines.49 This jurisdiction cannot be altered by stipulations restricting the nature of
construction disputes, appointing another arbitral body, or making that bodys decision final
and binding.
GC-05. JURISDICTION
Any question between the contracting parties that may arise out of or in connection with the
Contract, or breach thereof, shall be litigated in the courts of Legaspi City except where
otherwise specifically stated or except when such question is submitted for settlement
thru arbitration as provided herein.
The second exception clause authorizes the submission to arbitration of any dispute between
LICOMCEM and FSI, even if the dispute does not directly involve the execution of physical
construction works. This was precisely the avenue taken by FSI when it filed its petition for
arbitration with the CIAC.
The jurisdiction of the CIAC to resolve the dispute between LICOMCEN and FSI is,
therefore, affirmed.
The validity of the indefinite
suspension of the works on the
Citimall project
Before the Court rules on each of FSIs contractual monetary claims, we deem it important to
discuss the validity of LICOMCENs indefinite suspension of the works on the Citimall
project. We quote below two contractual stipulations relevant to this issue:
GC-38. SUSPENSION OF WORKS
176
The Engineer [ESCA] through the LICOMCEN, INCORPORATED shall have the
authority to suspend the Works wholly or partly by written order for such period as
may be deemed necessary, due to unfavorable weather or other conditions considered
unfavorable for the prosecution of the Works, or for failure on the part of the Contractor to
correct work conditions which are unsafe for workers or the general public, or failure or
refusal to carry out valid orders, or due to change of plans to suit field conditions as found
necessary during construction, or to other factors or causes which, in the opinion of the
Engineer, is necessary in the interest of the Works and to the LICOMCEN,
INCORPORATED. The Contractor [FSI] shall immediately comply with such order to
suspend the work wholly or partly directed.
In case of total suspension or suspension of activities along the critical path of the approved
PERT/CPM network and the cause of which is not due to any fault of the Contractor, the
elapsed time between the effective order for suspending work and the order to resume
work shall be allowed the Contractor by adjusting the time allowed for his execution of
the Contract Works.
The Engineer through LICOMCEN, INCORPORATED shall issue the order lifting the
suspension of work when conditions to resume work shall have become favorable or the
reasons for the suspension have been duly corrected.50
GC-41 LICOMCEN, INCORPORATEDs RIGHT TO SUSPEND WORK OR TERMINATE
THE CONTRACT
xxxx
For Convenience of LICOMCEN, INCORPORATED2.
If any time before completion of work under the Contract it shall be found by the
LICOMCEN, INCORPORATED that reasons beyond the control of the parties render
it impossible or against the interest of the LICOMCEN, INCORPORATED to complete
the work, the LICOMCEN, INCORPORATED at any time, by written notice to the
Contractor, may discontinue the work and terminate the Contract in whole or in part.
Upon the issuance of such notice of termination, the Contractor shall discontinue to work in
such manner, sequence and at such time as the LICOMCEN, INCORPORATED/Engineer
may direct, continuing and doing after said notice only such work and only until such time or
times as the LICOMCEN, INCORPORATED/Engineer may direct.51
Under these stipulations, we consider LICOMCENs initial suspension of the works valid.
GC-38 authorizes the suspension of the works for factors or causes which ESCA deems
necessary in the interests of the works and LICOMCEN. The factors or causes of suspension
may pertain to a change or revision of works, as cited in the December 16, 1997 and January
6, 1998 letters of ESCA, or to the pendency of a case before the Ombudsman (OMB-ADM1-97-0622), as cited in LICOMCENs January 15, 1998 letter and ESCAs January 19, 1998
and February 17, 1998 letters. It was not necessary for ESCA/LICOMCEN to wait for a
restraining or injunctive order to be issued in any of the cases filed against LICOMCEN
before it can suspend the works. The language of GC-38 gives ESCA/LICOMCEN sufficient
discretion to determine whether the existence of a particular situation or condition
necessitates the suspension of the works and serves the interests of LICOMCEN.
Although we consider the initial suspension of the works as valid, we find that
LICOMCEN wrongfully prolonged the suspension of the works (or indefinite
suspension as LICOMCEN calls it). GC-38 requires ESCA/LICOMCEN to issue an order
lifting the suspension of work when conditions to resume work shall have become favorable
or the reasons for the suspension have been duly corrected. The Ombudsman case (OMBADM-1-97-0622), which ESCA and LICOMCEN cited in their letters to FSI as a ground for
the suspension, was dismissed as early as October 12, 1998, but neither ESCA nor
LICOMCEN informed FSI of this development. The pendency of the other cases52 may
justify the continued suspension of the works, but LICOMCEN never bothered to inform FSI
of the existence of these cases until the arbitration proceedings commenced. By May 28,
2002, the City Government of Legaspi sent LICOMCEN a notice instructing it to proceed
with the Citimall project;53 again, LICOMCEN failed to relay this information to FSI.
Instead, LICOMCEN conducted a rebidding of the Citimall project based on the new
design.54 LICOMCENs claim that the rebidding was conducted merely to get cost estimates
for the new design goes against the established practice in the construction industry. We find
the CIACs discussion on this matter relevant:
But what is more appalling and disgusting is the allegation x x x that the x x x invitation to
bid was issued x x x solely to gather cost estimates on the redesigned [Citimall project] x x x.
This Arbitral Tribunal finds said act of asking for bids, without any intention of awarding
the project to the lowest and qualified bidder, if true, to be extremely irresponsible and
highly unprofessional. It might even be branded as fraudulent x x x [since] the invited
bidders [were required] to pay P2,000.00 each for a set of the new plans, which amount was
non-refundable. The presence of x x x deceit makes the whole story repugnant and
unacceptable.55
177
LICOMCENs omissions and the imprudent rebidding of the Citimall project are
telling indications of LICOMCENs intent to ease out FSI and terminate their contract.
As with GC-31, GC-42(2) grants LICOMCEN ample discretion to determine what reasons
render it against its interest to complete the workin this case, the pendency of the other
cases and the revised designs for the Citimall project. Given this authority, the Court fails to
the see the logic why LICOMCEN had to resort to an indefinite suspension
For LICOMCEN to be liable for the cost of materials or goods, item two of GC-42 requires
that
of the works, instead of outrightly terminating the contract in exercise of its rights under GC42(2).
Both the CIAC and the CA agreed that these requisites were met by FSI to make
LICOMCEN liable for the cost of the steel bars ordered for the Citimall project; the two
tribunals differed only to the extent of LICOMCENs liability because the CA opined that it
should be limited only to 50% of the cost of the steel bars. A review of the records compels
us to uphold the CAs finding.
We now proceed to discuss the effects of these findings with regard to FSIs monetary claims
against LICOMCEN.
The claim for material costs at site
the materials or goods were reasonably ordered for the Permanent or Temporary
Works;a.the materials or goods were delivered to the Contractor but not yet used;
andb.the delivery was certified by the Engineer.c.
Prior to the delivery of the steel bars, ESCA informed FSI of the suspension of the works;
ESCAs January 6, 1998 letter reads:
As per our information to you on December 16, 1997, a major revision in the design of
the Legaspi Citimall necessitated a change in the bored piles requirement of the project. The
change involved a substantial reduction in the number and length of piles.
If the Contract is terminated as aforesaid, the Contractor will be paid for all items of work
executed, satisfactorily completed and accepted by the LICOMCEN, INCORPORATED up
to the date of termination, at the rates and prices provided for in the Contract and in addition:
We expected that you would have suspended the deliveries of the steel bars until the
new design has been approved.
1. The cost of partially accomplished items of additional or extra work agreed upon
by the LICOMCEN, INCORPORATED and the Contractor.
According to you[,] the steel bars had already been paid and loaded and out of Manila
on said date.
In order to avoid double handling, storage, security problems, we suggest that only 50%
of the total requirement of steel bars be delivered at jobsite. The balance should be
returned to Manila where storage and security is better.
In order for us to consider additional cost due to the shipping of the excess steel bars, we
need to know the actual dates of purchase, payments and loading of the steel bars. Obviously,
we cannot consider the additional cost if you have had the chance to delay the shipping of the
steel bars.57
For any payment due the Contractor under the above conditions, the LICOMCEN,
INCORPORATED, however, shall deduct any outstanding balance due from the Contractor
for advances in respect to mobilization and materials, and any other sum the LICOMCEN,
INCORPORATED is entitled to be credited.56
From the above, it appears that FSI was informed of the necessity of suspending the works as
early as December 16, 1997. Pursuant to GC-38 of the GCC, FSI was expected to
178
immediately comply with the order to suspend the work.58 Though ESCAs December 16,
1997 notice may not have been categorical in ordering the suspension of the works, FSIs
reply letter of December 18, 1997 indicated that it actually complied with the notice to
suspend, as it said, We hope for the early resolution of the new foundation plan and the
resumption of work.59 Despite the suspension, FSI claimed that it could not stop the
delivery of the steel bars (nor found the need to do so) because (a) the steel bars were ordered
as early as November 1997 and were already loaded in Manila and expected to arrive in
Legaspi City by December 23, 1997, and (b) it expected immediate resumption of work to
meet the 90-day deadline.60
Records, however, disclose that these claims are not entirely accurate. The memorandum of
agreement and sale covering the steel bars specifically stated that these would be withdrawn
from the Cagayan de Oro depot, not Manila;61 indeed, the bill of lading stated that the steel
bars were loaded in Cagayan de Oro on January 11, 1998, and arrived in Legaspi City within
three days, on January 14, 1998.62 The loading and delivery of the steel bar thus happened
after FSI received ESCAs December 16, 1997 and January 6, 1998 lettersdays after the
instruction to suspend the works. Also, the same stipulation that authorizes LICOMCEN to
suspend the works allows the extension of the period to complete the works. The relevant
portion of GC-38 states:
In case of total suspension x x x and the cause of which is not due to any fault of the
Contractor [FSI], the elapsed time between the effective order for suspending work and
the order to resume work shall be allowed the Contractor by adjusting the time
allowed for his execution of the Contract Works.63
The CIAC relied solely on the list of 37 pieces of equipment respondent allegedly rented
and maintained at the construction site during the suspension of the project with the prorated
rentals incurred x x x. To the mind of this Court, these lists are not sufficient to establish
the fact that indeed [FSI] incurred the said expenses. Reliance on said lists is purely
speculative x x x the list of equipments is a mere index or catalog of the equipments,
which may be utilized at the construction site. It is not the best evidence to prove that
said equipment were in fact rented and maintained at the construction site during the
suspension of the work. x x x [FSI] should have presented the lease contracts or any
similar documents such as receipts of payments x x x. Likewise, the list of employees
does not in anyway prove that those employees in the list were indeed at the construction
site or were required to be on call should their services be needed and were being paid their
salaries during the suspension of the project. Thus, in the absence of sufficient evidence,
We deny the claim for equipment and labor standby costs.65
The claim for unrealized profit
FSI contends that it is not barred from recovering unrealized profit under GC-41(2), which
states:
GC-41. LICOMCEN, INCORPORATEDs
TERMINATE THE CONTRACT
RIGHT
TO
SUSPEND
WORK
OR
xxxx
For Convenience of the LICOMCEN, INCORPORATED2.
The above stipulation, coupled with the short period it took to ship the steel bars from
Cagayan de Oro to Legaspi City, thus negates both FSIs argument and the CIACs ruling64
that there was no necessity to stop the shipment so as to meet the 90-day deadline. These
circumstances prove that FSI acted imprudently in proceeding with the delivery, contrary to
LICOMCENs instructions. The CA was correct in holding LICOMCEN liable for only 50%
of the costs of the steel bars delivered.
The claim for equipment and
labor standby costs
x x x. The Contractor [FSI] shall not claim damages for such discontinuance or
termination of the Contract, but the Contractor shall receive compensation for reasonable
expenses incurred in good faith for the performance of the Contract and for reasonable
expenses associated with termination of the Contract. The LICOMCEN, INCORPORATED
will determine the reasonableness of such expenses. The Contractor [FSI] shall have no
claim for anticipated profits on the work thus terminated, nor any other claim, except
for the work actually performed at the time of complete discontinuance, including any
variations authorized by the LICOMCEN, INCORPORATED/Engineer to be done.
The Court upholds the CAs ruling deleting the award for equipment and labor standby costs.
We quote in agreement pertinent portions of the CA decision:
The prohibition, FSI posits, applies only where the contract was properly and lawfully
terminated, which was not the case at bar. FSI also took pains in differentiating its claim for
179
unrealized profit from the prohibited claim for anticipated profits; supposedly, unrealized
profit is one that is built-in in the contract price, while anticipated profit is not. We fail to
see the distinction, considering that the contract itself neither defined nor differentiated the
two terms. [A] contract must be interpreted from the language of the contract itself,
according to its plain and ordinary meaning.66 If the terms of a contract are clear and leave
no doubt upon the intention of the contracting parties, the literal meaning of the stipulations
shall control.67
Nonetheless, on account of our earlier discussion of LICOMCENs failure to observe the
proper procedure in terminating the contract by declaring that it was merely indefinitely
suspended, we deem that FSI is entitled to the payment of nominal damages. Nominal
damages may be awarded to a plaintiff whose right has been violated or invaded by the
defendant, for the purpose of vindicating or recognizing that right, and not for indemnifying
the plaintiff for any loss suffered by him.68 Its award is, thus, not for the purpose of
indemnification for a loss but for the recognition and vindication of a right. A violation of the
plaintiffs right, even if only technical, is sufficient to support an award of nominal
damages.69 FSI is entitled to recover the amount of P100,000.00 as nominal damages.
The liability for costs of arbitration
Under the parties Terms of Reference, executed before the CIAC, the costs of arbitration
shall be equally divided between them, subject to the CIACs determination of which of the
parties shall eventually shoulder the amount.70 The CIAC eventually ruled that since
LICOMCEN was the party at fault, it should bear the costs. As the CA did, we agree with this
finding. Ultimately, it was LICOMCENs imprudent declaration of indefinitely suspending
the works that caused the dispute between it and FSI. LICOMCEN should bear the costs of
arbitration.
WHEREFORE, premises considered, the petition for review on certiorari of LICOMCEN,
INCORPORATED, docketed as G.R. No. 167022, and the petition for review on certiorari of
FOUNDATION SPECIALISTS, INC., docketed as G.R. No. 169678, are DENIED. The
November 23, 2004 Decision of the Court of Appeals in CA-G.R. SP No. 78218 is
MODIFIED to include the award of nominal damages in favor of FOUNDATION
SPECIALISTS, INC. Thus, LICOMCEN, INCORPORATED is ordered to pay
FOUNDATION SPECIALISTS, INC. the following amounts:
applying to all types of corporations, while the New Central Bank Act regulates specifically
banks and other financial institutions, including the dissolution and liquidation thereof. As
between a general and special law, the latter shall prevailgeneralia specialibus non
derogant. (Emphasis supplied) Further, in the recent case of Hacienda Luisita, Incorporated
v. Presidential Agrarian Reform Council, 653 SCRA 154 (2011), this Court held: Without
doubt, the Corporation Code is the general law providing for the formation, organization and
regulation of private corporations. On the other hand, RA 6657 is the special law on agrarian
reform. As between a general and special law, the latter shall prevailgeneralia specialibus
non derogant. Following the same principle, the Alternative Dispute Resolution Act of 2004
shall apply in this case as the Act, as its titleAn 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 Purposeswould suggest, is a law especially
enacted to actively promote party autonomy in the resolution of disputes or the freedom of
the party to make their own arrangements to resolve their disputes. It specifically provides
exclusive grounds available to the party opposing an application for recognition and
enforcement of the arbitral award.
Same; Alternative Dispute Resolution; Alternative Dispute Resolution Act of 2004; Conflict
of Laws; The Alternative Dispute Resolution Act of 2004 complies with international
obligations under the New York Convention and the Model Law.Inasmuch as the
Alternative Dispute Resolution Act of 2004, a municipal law, applies in the instant petition,
we do not see the need to discuss compliance with international obligations under the New
York Convention and the Model Law. After all, both already form part of the law. In
particular, the Alternative Dispute Resolution Act of 2004 incorporated the New York
Convention 42.in the Act by specifically providing: SEC.Application of the New York
Convention.The New York Convention shall govern the recognition and enforcement of
arbitral awards covered by the said Convention. xxx SEC. 45. Rejection of a Foreign
Arbitral Award.A party to a foreign arbitration proceeding may oppose an application for
recognition and enforcement of the arbitral award in accordance with the procedural rules to
be promulgated by the Supreme Court only on those grounds enumerated under Article V of
the New York Convention. Any other ground raised shall be disregarded by the regional trial
court. It also expressly adopted the Model Law, to wit: Sec. 19. Adoption of the Model Law
on International Commercial Arbitration. International commercial arbitration shall be
governed by the Model Law on International Commercial Arbitration (the Model Law)
adopted by the United Nations Commission on International Trade Law on June 21, 1985
xxx.
13.5. Capacity to sue is not included. Oppositely, in the Rule on local arbitral awards or
arbitrations in instances where the place of arbitration is in the Philippines, it is specifically
required that a petition to determine any question concerning the existence, validity and
enforceability of such arbitration agreement available to the parties before the
commencement of arbitration and/or a petition for judicial relief from the ruling of the
arbitral tribunal on a preliminary question upholding or declining its jurisdiction after
arbitration has already commenced should state [t]he facts showing that the persons named
as petitioner or respondent have legal capacity to sue or be sued.
Same; Same; Same; When a party enters into a contract containing a foreign arbitration
clause and in fact submits itself to arbitration, it becomes bound by the contract, by the
arbitration and by the result of arbitration, conceding thereby the capacity of the other party
to enter into the contract, participate in the arbitration and cause the implementation of the
result.Indeed, it is in the best interest of justice that in the enforcement of a foreign arbitral
award, we deny availment by the losing party of the rule that bars foreign corporations not
licensed to do business in the Philippines from maintaining a suit in our courts. When a party
enters into a contract containing a foreign arbitration clause and, as in this case, in fact
submits itself to arbitration, it becomes bound by the contract, by the arbitration and by the
result of arbitration, conceding thereby the capacity of the other party to enter into the
contract, participate in the arbitration and cause the implementation of the result. Although
not on all fours with the instant case, also worthy to consider is the wisdom of then Associate
Justice Flerida Ruth P. Romero in her Dissenting Opinion in Asset Privatization Trust v.
Court of Appeals, 300 SCRA 579 (1998), to wit: xxx Arbitration, as an alternative mode of
settlement, is gaining adherents in legal and judicial circles here and abroad. If its tested
mechanism can simply be ignored by an aggrieved party, one who, it must be stressed,
voluntarily and actively participated in the arbitration proceedings from the very beginning, it
will destroy the very essence of mutuality inherent in consensual contracts.
Same; Same; Same; On the matter of capacity to sue, a foreign arbitral award should be
respected not because it is favored over domestic laws and procedures, but because Republic
Act No. 9285 has certainly erased any conflict of law question.Clearly, on the matter of
capacity to sue, a foreign arbitral award should be respected not because it is favored over
domestic laws and procedures, but because Republic Act No. 9285 has certainly erased any
conflict of law question. Finally, even assuming, only for the sake of argument, that the court
a quo correctly observed that the Model Law, not the New York Convention, governs the
subject arbitral award, petitioner may still seek recognition and enforcement of the award in
Philippine court, since the Model Law prescribes substantially identical exclusive grounds for
decide the legal issues outright. Moreover, the novelty and the paramount importance of the
issue herein raised should be seriously considered. Surely, there is a need to take cognizance
of the case not only to guide the bench and the bar, but if only to strengthen arbitration as a
means of dispute resolution, and uphold the policy of the State embodied in the Alternative
Dispute Resolution Act of 2004.
PETITION for review on certiorari of a resolution of the Regional Trial Court of Makati City,
Br. 61.
The facts are stated in the opinion of the Court.
Bengzon, Negre, Untalan for petitioner.
The Law Firm of Villanueva, Nueva & Associates for respondent.
PEREZ,J.:
Can a foreign corporation not licensed to do business in the Philippines, but which collects
royalties from entities in the Philippines, sue here to enforce a foreign arbitral award?
On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the licensor), copatentee of U.S. Patent No. 5,484,619, Philippine Letters Patent No. 31138, and Indonesian
Patent No. ID0003911 (collectively referred to as the Yamaoka Patent),6 and five (5)
Philippine tuna processors, namely, Angel Seafood Corporation, East Asia Fish Co., Inc.,
Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc., and respondent Kingford
(collectively referred to as the sponsors/licensees)7 entered into a Memorandum of
Agreement (MOA), pertinent provisions of which read:
1.Background and objectives. The Licensor, co-owner of U.S.Patent No.
5,484,619, Philippine Patent No. 31138, and Indonesian Patent No. ID0003911 xxx
wishes to form an alliance with Sponsors for purposes of enforcing his three
aforementioned patents, granting licenses under those patents, and collecting
royalties.
The Sponsors wish to be licensed under the aforementioned patents in order to
practice the processes claimed in those patents in the United States, the Philippines,
and Indonesia, enforce those patents and collect royalties in conjunction with
Licensor.
xxx
In this Petition for Review on Certiorari under Rule 45, petitioner Tuna Processing, Inc.
(TPI), a foreign corporation not licensed to do business in the Philippines, prays that the
Resolution dated 21 November 2008 of the Regional Trial Court (RTC) of Makati City be
declared void and the case be remanded to the RTC for further proceedings. In the assailed
Resolution, the RTC dismissed petitioners Petition for Confirmation, Recognition, and
Enforcement of Foreign Arbitral Award against respondent Philippine Kingford, Inc.
(Kingford), a corporation duly organized and existing under the laws of the Philippines, on
the ground that petitioner lacked legal capacity to sue.
The Antecedents
At Branch 150, respondent Kingford filed a Motion to Dismiss.16 After the court denied the
motion for lack of merit,17 respondent sought for the inhibition of Judge Alameda and
moved for the reconsideration of the order denying the motion.18 Judge Alameda inhibited
himself notwithstanding [t]he unfounded allegations and unsubstantiated assertions in the
motion.19 Judge Cedrick O. Ruiz of Branch 61, to which the case was re-raffled, in turn,
granted respondents Motion for Reconsideration and dismissed the petition on the ground
that the petitioner lacked legal capacity to sue in the Philippines.
Petitioner TPI now seeks to nullify, in this instant Petition for Review on Certiorari under
Rule 45, the order of the trial court dismissing its Petition for Confirmation, Recognition,
and Enforcement of Foreign Arbitral Award.
Issue
The core issue in this case is whether or not the court a quo was correct in so dismissing the
petition on the ground of petitioners lack of legal capacity to sue.
Our Ruling
The petition is impressed with merit.
The Corporation Code of the Philippines expressly provides:
133.Sec.Doing business without a license.No foreign corporation transacting
business in the Philippines without a license, or its successors or assigns, shall be permitted
to maintain or intervene in any action, suit or proceeding in any court or administrative
agency of the Philippines; but such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action recognized under
Philippine laws.
It is pursuant to the aforequoted provision that the court a quo dismissed the petition. Thus:
xxx
To enforce the award, petitioner TPI filed on 10 October 2007 a Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award before the RTC of Makati City. The
petition was raffled to Branch 150 presided by Judge Elmo M. Alameda.
There is no doubt, therefore, in the mind of this Court that TPI has been doing business in the
Philippines, but sans a license to do so issued by the concerned government agency of the
Republic of the Philippines, when it collected royalties from five (5) Philippine tuna
processors[,] namely[,] Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina
Tuna Resources, Santa Cruz Seafoods, Inc. and respondent Philippine Kingford, Inc. This
being the real situation, TPI cannot be permitted to maintain or intervene in any action, suit
or proceedings in any court or administrative agency of the Philippines. A priori, the
Petition, etc. extant of the plaintiff TPI should be dismissed for it does not have the legal
personality to sue in the Philippines.21
The petitioner counters, however, that it is entitled to seek for the recognition and
enforcement of the subject foreign arbitral award in accordance with Republic Act No. 9285
(Alternative Dispute Resolution Act of 2004),22 the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards drafted during the United Nations Conference on
International Commercial Arbitration in 1958 (New York Convention), and the UNCITRAL
Model Law on International Commercial Arbitration (Model Law),23 as none of these
specifically requires that the party seeking for the enforcement should have legal capacity to
sue. It anchors its argument on the following:
In the present case, enforcement has been effectively refused on a ground not found in the
[Alternative Dispute Resolution Act of 2004], New York Convention, or Model Law. It is for
this reason that TPI has brought this matter before this most Honorable Court, as it [i]s
imperative to clarify whether the Philippines international obligations and State policy to
strengthen arbitration as a means of dispute resolution may be defeated by misplaced
technical considerations not found in the relevant laws.24
Simply put, how do we reconcile the provisions of the Corporation Code of the Philippines
on one hand, and the Alternative Dispute Resolution Act of 2004, the New York Convention
and the Model Law on the other?
In several cases, this Court had the occasion to discuss the nature and applicability of the
Corporation Code of the Philippines, a general law, viz-a-viz other special laws. Thus, in
Koruga v. Arcenas, Jr.,25 this Court rejected the application of the Corporation Code and
applied the New Central Bank Act. It ratiocinated:
Korugas invocation of the provisions of the Corporation Code is misplaced. In an earlier
case with similar antecedents, we ruled that:
The(c) award deals with a difference not contemplated by or not falling within the terms of
the submission to arbitration, or it contains decisions on matters beyond the scope of the
submission to arbitration, provided that, if the decisions on matters submitted to arbitration
can be separated from those not so submitted, that part of the award which contains decisions
on matters submitted to arbitration may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in
accordance with the agreement of the parties, or, failing such agreement, was not in
accordance with the law of the country where the arbitration took place; or
The(e) award has not yet become binding on the parties, or has been set aside or suspended
by a competent authority of the country in which, or under the law of which, that award was
made.
2. Recognition and enforcement of an arbitral award may also be refused if the competent
authority in the country where recognition and enforcement is sought finds that:
The subject matter of the difference is not capable of settlement by arbitration under the law
of that country; or(a)
The recognition or enforcement of the award would be contrary to the public policy of that
country.(b)
Clearly, not one of these exclusive grounds touched on the capacity to sue of the party
seeking the recognition and enforcement of the award.
Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution,31
which was promulgated by the Supreme Court, likewise support this position.
Rule 13.1 of the Special Rules provides that [a]ny party to a foreign arbitration may petition
the court to recognize and enforce a foreign arbitral award. The contents of such petition are
enumerated in Rule 13.5.32 Capacity to sue is not included. Oppositely, in the Rule on local
arbitral awards or arbitrations in instances where the place of arbitration is in the
Philippines,33 it is specifically required that a petition to determine any question
concerning the existence, validity and enforceability of such arbitration agreement34
available to the parties before the commencement of arbitration and/or a petition for judicial
relief from the ruling of the arbitral tribunal on a preliminary question upholding or declining
186
its jurisdiction35 after arbitration has already commenced should state [t]he facts showing
that the persons named as petitioner or respondent have legal capacity to sue or be sued.36
Indeed, it is in the best interest of justice that in the enforecement of a foreign arbitral award,
we deny availment by the losing party of the rule that bars foreign corporations not licensed
to do business in the Philippines from maintaining a suit in our courts. When a party enters
into a contract containing a foreign arbitration clause and, as in this case, in fact submits
itself to arbitration, it becomes bound by the contract, by the arbitration and by the result of
arbitration, conceding thereby the capacity of the other party to enter into the contract,
participate in the arbitration and cause the implementation of the result. Although not on all
fours with the instant case, also worthy to consider is the wisdom of then Associate Justice
Flerida Ruth P. Romero in her Dissenting Opinion in Asset Privatization Trust v. Court of
Appeals,37 to wit:
xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and
judicial circles here and abroad. If its tested mechanism can simply be ignored by an
aggrieved party, one who, it must be stressed, voluntarily and actively participated in the
arbitration proceedings from the very beginning, it will destroy the very essence of mutuality
inherent in consensual contracts.38
Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected not
because it is favored over domestic laws and procedures, but because Republic Act No. 9285
has certainly erased any conflict of law question.
Finally, even assuming, only for the sake of argument, that the court a quo correctly observed
that the Model Law, not the New York Convention, governs the subject arbitral award,39
petitioner may still seek recognition and enforcement of the award in Philippine court, since
the Model Law prescribes substantially identical exclusive grounds for refusing recognition
or enforcement.40
Premises considered, petitioner TPI, although not licensed to do business in the Philippines,
may seek recognition and
(a) at the request of the party against whom it is invoked, if that party furnishes to the
competent court where recognition or enforcement is sought proof that:
(i) a party to the arbitration agreement referred to in article 7 was under some
incapacity; or the said agreement is not valid under the law to which the parties have
subjected it or, failing any indication thereon, under the law of the country where the
award was made; or
(ii) the party against whom the award is invoked was not given proper notice of the
appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to
present his case; or
(iii) the award deals with a dispute not contemplated by or not falling within the
terms of the submission to arbitration, or it contains decisions on matters beyond the
scope of the submission to arbitration, provided that, if the decisions on matters
submitted to arbitration can be separated from those not so submitted, that part of the
award which contains decisions on matters submitted to arbitration may be recognized
and enforced; or
(iv) the composition of the arbitral tribunal or the arbitral procedure was not in
accordance with the agreement of the parties or, failing such agreement, was not in
accordance with the law of the country where the arbitration took place; or
(v) the award has not yet become binding on the parties or has been set aside or
suspended by a court of the country in which, or under the law of which, that award
was made; or
if the court finds that:(b)
the subject-matter of the dispute is not capable of settlement by arbitration under the
law of this State; or(i)
the recognition or enforcement of the award would be contrary to the public policy of
this State.(ii)
xxx(2) enforcement of the foreign arbitral award in accordance with the provisions of the
Alternative Dispute Resolution Act of 2004.
II
187
Fourth. As regards the issue on the validity and enforceability of the foreign arbitral
award, we leave its determination to the court a quo where its recognition and enforcement is
being sought.
Fifth. Respondent claims that petitioner failed to furnish the court of origin a copy of the
motion for time to file petition for review on certiorari before the petition was filed with this
Court.47 We, however, find petitioners reply in order. Thus:
Second. Respondent cannot fault petitioner for not filing a motion for reconsideration of
the assailed Resolution dated 21 November 2008 dismissing the case. We have, time and
again, ruled that the prior filing of a motion for reconsideration is not required in certiorari
under Rule 45.41
Admittedly, reference to Branch 67 in petitioner TPIs Motion for Time to File a Petition
for Review on26. Certiorari under Rule 45 is a typographical error. As correctly pointed
out by respondent Kingford, the order sought to be assailed originated from Regional Trial
Court, Makati City, Branch 61.
Third. While we agree that petitioner failed to observe the principle of hierarchy of courts,
which, under ordinary circumstances, warrants the outright dismissal of the case,42 we opt to
relax the rules following the pronouncement in Chua v. Ang,43 to wit:
27. xxx Upon confirmation with the Regional Trial Court, Makati City, Branch 61, a copy
of petitioner TPIs motion was received by the Metropolitan Trial Court, Makati City, Branch
67. On 8 January 2009, the motion was forwarded to the Regional Trial Court, Makati City,
Branch 61.48
[I]t must be remembered that [the principle of hierarchy of courts] generally applies to
cases involving conflicting factual allegations. Cases which depend on disputed facts for
decision cannot be brought immediately before us as we are not triers of facts.44 A strict
application of this rule may be excused when the reason behind the rule is not present in a
case, as in the present case, where the issues are not factual but purely legal. In these types of
questions, this Court has the ultimate say so that we merely abbreviate the review process if
we, because of the unique circumstances of a case, choose to hear and decide the legal issues
outright.45
Moreover, the novelty and the paramount importance of the issue herein raised should be
seriously considered.46 Surely, there is a need to take cognizance of the case not only to
guide the bench and the bar, but if only to strengthen arbitration as a means of dispute
resolution, and uphold the policy of the State embodied in the Alternative Dispute Resolution
Act of 2004, to wit:
2.Sec.Declaration of Policy.It is hereby declared the policy of the State to actively
promote party autonomy in the resolution of disputes or the freedom of the party to make
their own arrangements to resolve their disputes. Towards this end, the State shall encourage
and actively promote the use of Alternative Dispute Resolution (ADR) as an important means
to achieve speedy and impartial justice and declog court dockets. xxx
All considered, petitioner TPI, although a foreign corporation not licensed to do business in
the Philippines, is not, for that reason alone, precluded from filing the Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before a Philippine
court.
WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial Court, Branch
61, Makati City in Special Proceedings No. M-6533 is hereby REVERSED and SET ASIDE.
The case is REMANDED to Branch 61 for further proceedings.
SO ORDERED.
Carpio (Chairperson), Brion, Sereno and Reyes, JJ., concur.
Resolution reversed and set aside, case remanded to Branch 61 for further proceedings.
Notes.Supreme Court adheres to the rule that in the absence of evidence to the contrary,
foreign laws on a particular subject are presumed to be the same as those of the Philippines,
and following the most intelligent assumption we can gather, GTZ is akin to a governmental
owned or controlled corporation without original charter which, by virtue of the Corporation
188
Industry Arbitration Law, is broad enough to cover any dispute arising from, or connected
with construction contracts, whether these involve mere contractual money claims or
execution of the works.
This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails the
Decision4 dated June 7, 2007 and the Resolution5 dated September 7, 2007 of the Court of
Appeals (CA) in CA-G.R. SP No. 96815.
Factual Antecedents
On March 7, 2000, respondent-spouses Roberto and Aida Amurao entered into a
Construction Contract Agreement (CCA)6 with Aegean Construction and Development
Corporation (Aegean) for the construction of a six-storey commercial building in Tomas
Morato corner E. Rodriguez Avenue, Quezon City.7 To guarantee its full and faithful
compliance with the terms and conditions of the CCA, Aegean posted performance bonds
secured by petitioner The Manila Insurance Company, Inc.8 (petitioner) and Intra Strata
Assurance Corporation (Intra Strata).9
On November 15, 2001, due to the failure of Aegean to complete the project, respondent
spouses filed with the Regional Trial Court (RTC) of Quezon City, Branch 217, a
Complaint,10 docketed as Civil Case No. Q-01-45573, against petitioner and Intra Strata to
collect on the performance bonds they issued in the amounts of P2,760,000.00 and
P4,440,000.00, respectively.11
Intra Strata, for its part, filed an Answer12 and later, a Motion to Admit Third Party
Complaint,13 with attached Third Party Complaint14 against Aegean, Ronald D. Nicdao, and
Arnel A. Mariano.
Petitioner, on the other hand, filed a Motion to Dismiss15 on the grounds that the Complaint
states no cause of action16 and that the filing of the Complaint is premature due to the failure
of respondent-spouses to implead the principal contractor, Aegean.17 The RTC, however,
denied the motion in an Order18 dated May 8, 2002. Thus, petitioner filed an Answer with
Counterclaim and Cross-claim,19 followed by a Third Party Complaint20 against Aegean
and spouses Ronald and Susana Nicdao.
During the pre-trial, petitioner and Intra Strata discovered that the CCA entered into by
respondent-spouses and Aegean contained an arbitration clause.21 Hence, they filed separate
Motions to Dismiss22 on the grounds of lack of cause of action and lack of jurisdiction.
Issues
Hence, this petition raising the following issues:
A.
THE HONORABLE [CA] ERRED WHEN IT HELD THAT IT IS ONLY WHEN THERE
ARE DIFFERENCES IN THE INTERPRETATION OF ARTICLE I OF THE
CONSTRUCTION AGREEMENT THAT THE PARTIES MAY RESORT TO
ARBITRATION BY THE CIAC.
Aggrieved, petitioner elevated the case to the CA by way of special civil action for
certiorari.25
Ruling of the Court of Appeals
On June 7, 2007, the CA rendered a Decision26 dismissing the petition. The CA ruled that
the presence of an arbitration clause in the CCA does not merit a dismissal of the case
because under the CCA, it is only when there are differences in the interpretation of Article I
of the construction agreement that the parties can resort to arbitration.27 The CA also found
no grave abuse of discretion on the part of the RTC when it disregarded the fact that the CCA
was not yet signed at the time petitioner issued the performance bond on February 29,
2000.28 The CA explained that the performance bond was intended to be coterminous with
the construction of the building.29 It pointed out that if the delivery of the original contract
is contemporaneous with the delivery of the suretys obligation, each contract becomes
completed at the same time, and the consideration which supports the principal contract
likewise supports the subsidiary one.30 The CA likewise said that, although the contract of
surety is only an accessory to the principal contract, the suretys liability is direct, primary
and absolute.31 Thus:
WHEREFORE, we resolve to DISMISS the petition as we find that no grave abuse of
discretion attended the issuance of the order of the public respondent denying the petitioners
motion to dismiss.
IT IS SO ORDERED.32
Petitioner moved for reconsideration but the CA denied the same in a Resolution33 dated
September 7, 2007.
B.
THE HONORABLE [CA] ERRED IN TREATING [PETITIONER] AS A SOLIDARY
DEBTOR INSTEAD OF A SOLIDARY GUARANTOR.
C.
THE HONORABLE [CA] OVERLOOKED AND FAILED TO CONSIDER THE FACT
THAT THERE WAS NO ACTUAL AND EXISTING CONSTRUCTION AGREEMENT AT
THE TIME THE MANILA INSURANCE BOND NO. G (13) 2082 WAS ISSUED ON
FEBRUARY 29, 2000.34
Petitioners Arguments
Petitioner contends that the CA erred in ruling that the parties may resort to arbitration only
when there is difference in the interpretation of the contract documents stated in Article I of
the CCA.35 Petitioner insists that under Section 4 of E.O. No. 1008, it is the CIAC that has
original and exclusive jurisdiction over construction disputes, such as the instant case.36
Petitioner likewise imputes error on the part of the CA in treating petitioner as a solidary
debtor instead of a solidary guarantor.37 Petitioner argues that while a surety is bound
solidarily with the obligor, this does not make the surety a solidary co-debtor.38 A surety or
guarantor is liable only if the debtor is himself liable.39 In this case, since respondentspouses and Aegean agreed to submit any dispute for arbitration before the CIAC, it is
imperative that the dispute between respondent-spouses and Aegean must first be referred to
191
arbitration in order to establish the liability of Aegean.40 In other words, unless the liability
of Aegean is determined, the filing of the instant case is premature.41
Finally, petitioner puts in issue the fact that the performance bond was issued prior to the
execution of the CCA.42 Petitioner claims that since there was no existing contract at the
time the performance bond was executed, respondent-spouses have no cause of action against
petitioner.43 Thus, the complaint should be dismissed.44
In this case, respondent-spouses (obligee) filed with the RTC a Complaint against petitioner
(surety) to collect on the performance bond it issued. Petitioner, however, seeks the dismissal
of the Complaint on the grounds of lack of cause of action and lack of jurisdiction.
The respondent-spouses have cause
of action against the petitioner; the
performance bond is coterminous
with the CCA
Petitioner claims that respondent-spouses have no cause of action against it because at the
time it issued the performance bond, the CCA was not yet signed by respondent-spouses and
Aegean.
We do not agree.
A careful reading of the Performance Bond reveals that the bond is coterminous with the
final acceptance of the project.53 Thus, the fact that it was issued prior to the execution of
the CCA does not affect its validity or effectivity.
Our Ruling
The petition has merit.
But while there is a cause of action against petitioner, the complaint must still be dismissed
for lack of jurisdiction.
application of contractual time and delays, maintenance and defects, payment, default of
employer or contractor, and changes in contract cost.
Excluded from the coverage of the law are disputes arising from employer-employee
relationships which shall continue to be covered by the Labor Code of the Philippines.
Based on the foregoing, in order for the CIAC to acquire jurisdiction two requisites must
concur: first, the dispute must be somehow connected to a construction contract; and
second, the parties must have agreed to submit the dispute to arbitration proceedings.54
and obligations of the parties under their contract all involve interpretation of the provisions
of the contract.58 Following our reasoning in that case, we find that the issue of whether
respondent-spouses are entitled to collect on the performance bond issued by petitioner is a
dispute arising in the course of the execution and performance of [the CCA] by reason of
difference in the interpretation of the contract documents.
The fact that petitioner is not a party to the CCA cannot remove the dispute from the
jurisdiction of the CIAC because he issue of whether respondent-spouses are entitled to
collect on the performance bond, as we have said, is a dispute arising from or connected to
the CCA.
In fact, in Prudential Guarantee and Assurance, Inc. v. Anscor Land, Inc.,59 we rejected the
argument that the jurisdiction of CIAC is limited to the construction industry, and thus,
cannot extend to surety contracts. In that case, we declared that [a]lthough not the
construction contract itself, the perfomance bond is deemed as an associate of the main
construction contract that it cannot be separated or severed from its principal. The
Perfomance Bond is significantly and substantially connected to the construction contract
that there can be no doubt it is the CIAC, under Section 4 of E.O. No. 1008, which has
jurisdiction over any dispute arising from or connected with it.60
In view of the foregoing, we agree with the petitioner that jmisdiction over the instant case
lies with the CIAC, and not with the RTC. Thus, the Complaint filed by respondent-spouses
with the RTC must be dismissed.
WHEREFORE, the petition is hereby GRANTED. The Decision dated June 7, 2007 and the
Resolution dated September 7, 2007 of the Court of Appeals in CA-G.R. SP No. 96815 are
hereby ANNULLED and SET ASIDE. The Presiding Judge of the Regional Trial Court of
Quezon City, Branch 217 is DIRECTED to dismiss Civil Case No. Q-01-45573 for lack of
jurisdiction.
SO ORDERED.
Carpio (Chairperson), Leonardo-De Castro,** Perez and Leonen,*** JJ.
June 26, 2013.G.R. No. 199650.*
193
former. It is the nonfulfillment of an obligation with respect to time. Article 1169 of the Civil
Code provides: ART. 1169. Those obliged to deliver or to do something incur in delay from
the time the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation. x x x x It is a general rule that one who contracts to complete certain work within
a certain time is liable for the damage for not completing it within such time, unless the delay
is excused or waived.
Same; Same; Same; Requisites in Order for the Debtor to Incur in Default.In this
jurisdiction, the following requisites must be present in order that the debtor may be in
default: (1) that the obligation be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the performance judicially or
extrajudicially.
Same; Contracts; Interpretation of Contracts; Article 1374 of the Civil Code requires that
the various stipulations of a contract shall be interpreted together, attributing to the doubtful
ones that sense which may result from all of them taken jointly.We cannot sustain the
appellate courts interpretation as it is inconsistent with the terms of the Construction
Agreement. Article 1374 of the Civil Code requires that the various stipulations of a contract
shall be interpreted together, attributing to the doubtful ones that sense which may result
from all of them taken jointly. Here, the work schedule approved by petitioner was intended,
not only to serve as its basis for the payment of monthly progress billings, but also for
evaluation of the progress of work by the contractor. Article 13.01 (g) (iii) of the
Construction Agreement provides that the contractor shall be deemed in default if, among
others, it had delayed without justifiable cause the completion of the project by more than
thirty (30) calendar days based on official work schedule duly approved by the OWNER.
Same; Damages; Liquidated Damages; A stipulation for liquidated damages is attached to
an obligation in order to ensure performance and has a double function: (1) to provide for
liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of
greater responsibility in the event of breach.A stipulation for liquidated damages is
attached to an obligation in order to ensure performance and has a double function: (1) to
provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by
the threat of greater responsibility in the event of breach. The amount agreed upon answers
for damages suffered by the owner due to delays in the completion of the project. As a
precondition to such award, however, there must be proof of the fact of delay in the
performance of the obligation.
194
equivalent to 20% down payment (P8.4 million). The appellate court correctly rejected this
theory of respondent when it ruled that the Performance Bond guaranteed the full and faithful
compliance of Mabunays obligations under the Construction Agreement, and that nowhere
in law or jurisprudence does it state that the obligation or undertaking by a surety may be
apportioned. x x x While the above condition or specific guarantee is unclear, the rest of the
recitals in the bond unequivocally declare that it secures the full and faithful performance of
Mabunays obligations under the Construction Agreement with petitioner. By its nature, a
performance bond guarantees that the contractor will perform the contract, and usually
provides that if the contractor defaults and fails to complete the contract, the surety can itself
complete the contract or pay damages up to the limit of the bond. Moreover, the rule is that if
the language of the bond is ambiguous or uncertain, it will be construed most strongly against
a compensated surety and in favor of the obligees or beneficiaries under the bond, in this case
petitioner as the Project Owner, for whose benefit it was ostensibly executed.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Nisce, Mamuric, Guinto, Rivera & Alcantara Law Offices for petitioner.
Buag & Lotilla Law Offices for respondent.
VILLARAMA, JR.,J.:
Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, as amended, assailing the Decision1 dated January 27, 2011 and
Resolution2 dated December 8, 2011 of the Court of Appeals (CA) in CA-G.R. SP No.
112808.
The Facts
respective technical groups, SSB assisted by Arch. Elwin Olavario and JPLUS
assisted by Engrs. Joey Rojas and Shiela Botardo, concluded and agreed that as of 14
November 2008, the project is only Thirty One point Thirty Nine Percent
(31.39%) complete.
2) Furthermore, the value of construction materials allocated for the completion of
the project and currently on site has been determined and agreed to be ONE
MILLION FORTY NINE THOUSAND THREE HUNDRED SIXTY FOUR PESOS
AND FORTY FIVE CENTAVOS (P1,049,364.45).
3) The additional accomplishment of SSB, reflected in its reconciled and
consolidated 8th and 9th billings, is Three point Eighty Five Percent (3.85%) with a
gross value of P1,563,553.34 amount creditable to SSB after deducting the
withholding tax is P1,538,424.84.
4) The unrecouped amount of the down payment is P2,379,441.53 after deducting
the cost of materials on site and the net billable amount reflected in the reconciled and
consolidated 8th and 9th billings. The uncompleted portion of the project is 68.61%
with an estimated value per construction agreement signed is P27,880,419.52.9
(Emphasis supplied.)
On November 19, 2008, petitioner terminated the contract and sent demand letters to
Mabunay and respondent surety. As its demands went unheeded, petitioner filed a Request
for Arbitration10 before the Construction Industry Arbitration Commission (CIAC).
Petitioner prayed that Mabunay and respondent be ordered to pay the sums of P8,980,575.89
as liquidated damages and P2,379,441.53 corresponding to the unrecouped down payment or
overpayment petitioner made to Mabunay.11
In his Answer,12 Mabunay claimed that the delay was caused by retrofitting and other
revision works ordered by Joo Han Lee. He asserted that he actually had until April 30, 2009
to finish the project since the 365 days period of completion started only on May 2, 2008
after clearing the retrofitted old structure. Hence, the termination of the contract by petitioner
was premature and the filing of the complaint against him was baseless, malicious and in bad
faith.
Respondent, on the other hand, filed a motion to dismiss on the ground that petitioner has no
cause of action and the complaint states no cause of action against it. The CIAC denied the
motion to dismiss. Respondents motion for reconsideration was likewise denied.13
In its Answer Ex Abundante Ad Cautelam With Compulsory Counterclaims and Crossclaims,14 respondent argued that the performance bond merely guaranteed the 20% down
payment and not the entire obligation of Mabunay under the Construction Agreement. Since
the value of the projects accomplishment already exceeded the said amount, respondents
obligation under the performance bond had been fully extinguished. As to the claim for
alleged overpayment to Mabunay, respondent contended that it should not be credited against
the 20% down payment which was already exhausted and such application by petitioner is
tantamount to reviving an obligation that had been legally extinguished by payment.
Respondent also set up a cross-claim against Mabunay who executed in its favor an
Indemnity Agreement whereby Mabunay undertook to indemnify respondent for whatever
amounts it may be adjudged liable to pay petitioner under the surety bond.
Both petitioner and respondent submitted their respective documentary and testimonial
evidence. Mabunay failed to appear in the scheduled hearings and to present his evidence
despite due notice to his counsel of record. The CIAC thus declared that Mabunay is deemed
to have waived his right to present evidence.15
On February 2, 2010, the CIAC rendered its Decision16 and made the following award:
Accordingly, in view of our foregoing discussions and dispositions, the Tribunal
hereby adjudges, orders and directs:
Respondents Mabunay and Utassco to jointly and severally1. pay claimant the
following:
a)P4,469,969.90, as liquidated damages, plus legal interest thereon at
the rate of 6% per annum computed from the date of this decision up to
the time this decision becomes final, and 12% per annum computed
from the date this decision becomes final until fully paid, and
b)P2,379,441.53 as unrecouped down payment plus interest thereon
at the rate of 6% per annum computed from the date of this decision up
196
to the time this decision becomes final, and 12% per annum computed
from the date this decision becomes final until fully paid[.]
It being understood that respondent Utasscos liability shall in no case exceed P8.4
million.
because the Construction Agreement provided only for delay in the completion of the project
and not delay on a monthly basis using the work schedule approved by petitioner as the
reference point. Hence, petitioners termination of the contract was premature since the delay
in this case was merely speculative; the obligation was not yet demandable.
The dispositive portion of the CA Decision reads:
Our Ruling
On the procedural issues raised, we find no merit in petitioners contention that with the
institutionalization of alternative dispute resolution under Republic Act (R.A.) No. 9285,22
otherwise known as the Alternative Dispute Resolution Act of 2004, the CA was divested of
jurisdiction to review the decisions or awards of the CIAC. Petitioner erroneously relied on
the provision in said law allowing any party to a domestic arbitration to file in the Regional
Trial Court (RTC) a petition either to confirm, correct or vacate a domestic arbitral award.
Petitioner misread the provisions of A.M. No. 07-11-08-SC (Special ADR Rules)
promulgated by this Court and which took effect on October 30, 2009. Since R.A. No. 9285
explicitly excluded CIAC awards from domestic arbitration awards that need to be confirmed
to be executory, said awards are therefore not covered by Rule 11 of the Special ADR
Rules,24 as they continue to be governed by EO No. 1008, as amended and the rules of
procedure of the CIAC. The CIAC Revised Rules of Procedure Governing Construction
Arbitration25 provide for the manner and mode of appeal from CIAC decisions or awards in
Section 18 thereof, which reads:
We hold that R.A. No. 9285 did not confer on regional trial courts jurisdiction to review
awards or decisions of the CIAC in construction disputes. On the contrary, Section 40 thereof
expressly declares that confirmation by the RTC is not required, thus:
18.2SECTION Petition for review.A petition for review from a final award may
be taken by any of the parties within fifteen (15) days from receipt thereof in
accordance with the provisions of Rule 43 of the Rules of Court.
As to the alleged error committed by the CA in deciding the case upon an issue not raised or
litigated before the CIAC, this assertion has no basis. Whether or not Mabunay had incurred
delay in the performance of his obligations under the Construction Agreement was the very
first issue stipulated in the Terms of Reference26 (TOR), which is distinct from the issue of
the extent of respondents liability under the Performance Bond.
A domestic arbitral award when confirmed shall be enforced in the same manner as
final and executory decisions of the Regional Trial Court.
The confirmation of a domestic award shall be made by the regional trial court in
accordance with the Rules of Procedure to be promulgated by the Supreme Court.
A CIAC arbitral award need not be confirmed by the regional trial court to be
executory as provided under E.O. No. 1008. (Emphasis supplied.)
Executive Order (EO) No. 1008 vests upon the CIAC original and exclusive jurisdiction over
disputes arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines, whether the dispute arises before or after the completion of
the contract, or after the abandonment or breach thereof. By express provision of Section 19
thereof, the arbitral award of the CIAC is final and unappealable, except on questions of law,
which are appealable to the Supreme Court. With the amendments introduced by R.A. No.
7902 and promulgation of the 1997 Rules of Civil Procedure, as amended, the CIAC was
included in the enumeration of quasi-judicial agencies whose decisions or awards may be
appealed to the CA in a petition for review under Rule 43. Such review of the CIAC award
may involve either questions of fact, of law, or of fact and law.23
Indeed, resolution of the issue of delay was crucial upon which depends petitioners right to
the liquidated damages pursuant to the Construction Agreement. Contrary to the CIACs
findings, the CA opined that delay should be reckoned only after the lapse of the one-year
contract period, and consequently Mabunays liability for liquidated damages arises only
upon the happening of such condition.
We reverse the CA.
Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by
reason of a cause imputable to the former. It is the nonfulfillment of an obligation with
respect to time.27
Article 1169 of the Civil Code provides:
ART. Those obliged to deliver or to do something incur in delay from1169. the
time the obligee judicially or extrajudicially demands from them the fulfillment of
their obligation.
198
xxxx
In this jurisdiction, the following requisites must be present in order that the debtor may be in
default: (1) that the obligation be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the performance judicially or
extrajudicially.30
_______________
26 Rollo, pp. 202-210.
27 IV Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines, 101 (1987 ed.).
In holding that Mabunay has not at all incurred delay, the CA pointed out that the obligation
to perform or complete the project was not yet demandable as of November 19, 2008
_______________
148
28 17 Am Jur 2d 387, p. 832.
148
29 Rollo, p. 93.
30 Santos Ventura Hocorma Foundation, Inc. v. Santos, 484 Phil. 447, 457; 441 SCRA 472,
481 (2004), citing IV Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil
Code of the Philippines, 102 (1987 ed.). See also Philippine Export and Foreign Loan
Guarantee Corporation v. V.P. Eusebio Construction, Inc., G.R. No. 140047, July 13, 2004,
434 SCRA 202, 218-219.
149
VOL. 700, JUNE 26, 2013
149
1. The CONTRACTOR shall complete the works called for under this Agreement
within ONE (1) YEAR or 365 Days reckoned from the 1st calendar day after signing
of the Notice of Award and Notice to Proceed and receipt of down payment.
2. In this regard the CONTRACTOR shall submit a detailed work schedule for
approval by OWNER within Seven (7) days after signing of this Agreement and full
payment of 20% of the agreed contract price. Said detailed work schedule shall follow
the general schedule of activities and shall serve as basis for the evaluation of the
progress of work by CONTRACTOR.29
when petitioner terminated the contract, because the agreed completion date was still more
than one month away (December 24, 2008). Since the parties contemplated delay in the
completion of the entire project, the CA concluded that the failure of the contractor to catch
up with schedule of work activities did not constitute delay giving rise to the contractors
liability for damages.
199
We cannot sustain the appellate courts interpretation as it is inconsistent with the terms of
the Construction Agreement. Article 1374 of the Civil Code requires that the various
stipulations of a contract shall be interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly. Here, the work schedule approved by
petitioner was intended, not only to serve as its basis for the payment of monthly progress
billings, but also for evaluation of the progress of work by the contractor. Article 13.01 (g)
(iii) of the Construction Agreement provides that the contractor shall be deemed in default if,
among others, it had delayed without justifiable cause the completion of the project by more
than thirty (30) calendar days based on official work schedule duly approved by the
OWNER.31
Records showed that as early as April 2008, or within four months after Mabunay
commenced work activities, the project was already behind schedule for reasons not
attributable to petitioner. In the succeeding months, Mabunay was still unable to catch up
with his accomplishment even as petitioner constantly advised him of the delays, as can be
gleaned from the following notices of delay sent by petitioners engineer and construction
manager, Engr. Sheila N. Botardo:
April 30, 2008
Seven
Boracay
Malay, Aklan
Shades
of
Blue
Island
_______________
31 Rollo, p. 94.
150
xxxx
Dear Mr. Mabunay,
We have noticed continuous absence of all the Engineers that you have assigned onsite to administer and supervise your contracted work. For the past two (2) weeks[,]
your company does not have a Technical Representative
We are expecting deliveries of Owner Supplied Materials very soon, therefore, this
stockroom is badly needed. We will highly appreciate if this matter will be given your
immediate attention.
_______________
Thank you.
32 Id., at p. 104.
x x x x 34
151
November 6, 2008
xxxx
VOL. 700, JUNE 26, 2013
151
manning the jobsite considering the critical activities that are in progress and the
delays in schedule that you have already incurred. In this regard, we would highly
recommend the immediate replacement of your Project Engineer within the week.
34 Id., at p. 107.
152
152
November 5, 2008
J Plus Asia Development Corporation vs. Utility Assurance Corporation
xxxx
Dear Mr. Mabunay,
This is in reference to your discussion during the meeting with Mr. Joohan Lee last
October 30, 2008 regarding the construction of the Field Office and Stock Room for
Materials intended for Villa Beatriz use only. We understand that you have committed
to complete it November 5, 2008 but as of this date there is no improvement or any
ongoing construction activity on the said field office and stockroom.
We would like to call your attention regarding the decrease in your manpower
assigned on site. We have observed that for the past three (3) weeks instead of
increasing your manpower to catch up with the delay it was reduced to only 8 workers
today from an average of 35 workers in the previous months.
Please note that based on your submitted revised schedule you are already delayed by
approximately 57% and this will worsen should you not address this matter properly.
201
We are looking forward for [sic] your cooperation and continuous commitment in
delivering this project as per contract agreement.
of extension granted by the OWNER, plus One (1) Week grace period, without
any justifiable reason, the CONTRACTOR hereby agrees
x x x x 35
Subsequently, a joint inspection and evaluation was conducted with the assistance of the
architects and engineers of petitioner and Mabunay and it was found that as of November 14,
2008, the project was only 31.39% complete and that the uncompleted portion was 68.61%
with an estimated value per Construction Agreement as P27,880,419.52. Instead of doubling
his efforts as the scheduled completion date approached, Mabunay did nothing to remedy the
delays and even reduced the deployment of workers at the project site. Neither did Mabunay,
at anytime, ask for an extension to complete the project. Thus, on November 19, 2008,
petitioner advised Mabunay of its decision to terminate the contract on account of the
tremendous delay the latter incurred. This was followed by the claim against the Performance
Bond upon the respondent on December 18, 2008.
b. The CONTRACTOR, even after paying for the liquidated damages due to
unexecuted works and/or delays shall not relieve it of the obligation to
complete and finish the construction.
Any sum which maybe payable to the OWNER for such loss may be deducted from
the amounts retained under Article 9 or retained by the OWNER when the works
called for under this Agreement have been finished and completed.
Petitioners claim against the Performance Bond included the liquidated damages provided in
the Construction Agreement, as follows:
_______________
12.02 To give full force and effect to the foregoing, the CONTRACTOR hereby,
without necessity of any further act and deed, authorizes the OWNER to deduct any
amount that may be due under Item (a) above, from any and all money or amounts
due or which will become due to the CONTRACTOR by virtue of this Agreement
and/or to collect such amounts from the Performance Bond filed by the
CONTRACTOR in this Agreement.36 (Emphasis supplied.)
35 Id., at p. 108.
153
VOL. 700, JUNE 26, 2013
153
_______________
12 LIQUIDATED DAMAGES:ARTICLE
Time is of the essence in this Agreement. Should the CONTRACTOR12.01 fail to
complete the PROJECT within the period stipulated herein or within the period
154
39 Id., citing Empire East Land Holdings, Inc. v. Capitol Industrial Construction Groups,
Inc., G.R. No. 168074, September 26, 2008, 566 SCRA 473, 489.
155
Liability for liquidated damages is governed by Articles 2226 to 2228 of the Civil Code,
which provide:
155
Liquidated damages are those agreed upon by the parties to a contract, to be paid in
case of breach thereof.2226.ART.
J Plus Asia Development Corporation vs. Utility Assurance Corporation
ART. Liquidated damages, whether intended as an indemnity or a2227. penalty,
shall be equitably reduced if they are iniquitous or unconscionable.
ART. When the breach of the contract committed by the defendant is not2228. the
one contemplated by the parties in agreeing upon the liquidated damages, the law
shall determine the measure of damages, and not the stipulation.
A stipulation for liquidated damages is attached to an obligation in order to ensure
performance and has a double function: (1) to provide for liquidated damages, and (2) to
strengthen the coercive force of the obligation by the threat of greater responsibility in the
event of breach.37 The amount agreed upon answers for damages suffered by the owner due
to delays in the completion of the project.38 As a precondition to such award, however, there
must be proof of the fact of delay in the performance of the obligation.39
Concededly, Article 12.01 of the Construction Agreement mentioned only the failure of the
contractor to complete the
_______________
37 Atlantic Erectors, Inc. v. Court of Appeals, G.R. No. 170732, October 11, 2012, 684
SCRA 55, 65, citing Philippine Charter Insurance Corporation v. Petroleum Distributors &
Service Corporation, G.R. No. 180898, April 18, 2012, 670 SCRA 166, 177 and Filinvest
Land, Inc. v. Court of Appeals, G.R. No. 138980, September 20, 2005, 470 SCRA 260, 269.
38 Id., citing H.L. Carlos Construction, Inc. v. Marina Properties Corporation, 466 Phil.
182, 205; 421 SCRA 428, 445 (2004).
project within the stipulated period or the extension granted by the owner. However, this will
not defeat petitioners claim for damages nor respondents liability under the Performance
Bond. Mabunay was clearly in default considering the dismal percentage of his
accomplishment (32.38%) of the work he contracted on account of delays in executing the
scheduled work activities and repeated failure to provide sufficient manpower to expedite
construction works. The events of default and remedies of the Owner are set forth in Article
13, which reads:
13 DEFAULT OF CONTRACTOR:ARTICLE
Any of the following shall constitute an Event of Default on the [part] of the
CONTRACTOR.13.01
xxxx
g.In case the CONTRACTOR has done any of the
following:
(i.)has abandoned the Project
(ii.) without reasonable cause, has failed to commence the construction or
has suspended the progress of the Project for twenty-eight days
203
(iii.) without justifiable cause, has delayed the completion of the Project by
more than thirty (30) calendar days based on official work schedule duly
approved by the OWNER
(iv.) despite previous written warning by the OWNER, is not executing the
construction works in accordance with the Agreement or is persistently or
flagrantly neglecting to carry out its obligations under the Agreement.
As already demonstrated, the contractors default in this case pertains to his failure to
substantially perform the work on account of tremendous delays in executing the scheduled
work activities. Where a party to a building construction contract fails to comply with the
duty imposed by the terms of the contract, a breach results for which an action may be
maintained to recover the damages sustained thereby, and of course, a breach occurs where
the contractor inexcusably fails to perform substantially in accordance with the terms of the
contract.41
_______________
40 Rollo, pp. 94-95.
41 13 Am Jur 2d 72, p. 73.
157
VOL. 700, JUNE 26, 2013
157
the coercive force of obligation and to provide, in effect, for what could be the liquidated
damages resulting from such a breach. The obligor would then be bound to pay the stipulated
indemnity without the necessity of proof on the existence and on the measure of damages
caused by the breach. It is well-settled that so long as such stipulation does not contravene
law, morals, or public order, it is strictly binding upon the obligor.42
Respondent, however, insists that it is not liable for the breach committed by Mabunay
because by the terms of the surety bond it issued, its liability is limited to the performance by
said contractor to the extent equivalent to 20% of the down payment. It stresses that with the
32.38% completion of the project by Mabunay, its liability was extinguished because the
value of such accomplishment already exceeded the sum equivalent to 20% down payment
(P8.4 million).
Whereas, said contract required said Principal to give a good and sufficient bond in
the above-stated sum to secure the full and faithful performance on his part of
said contract.
It is a special provision of this undertaking that the liability of the surety under this
bond shall in no case exceed the sum of P8,400,000.00 Philippine Currency.
The appellate court correctly rejected this theory of respondent when it ruled that the
Performance Bond guaranteed the full and faithful compliance of Mabunays obligations
under
Now, Therefore, if the Principal shall well and truly perform and fulfill all the
undertakings, covenants, terms, conditions and agreements stipulated in said contract,
then this obligation shall be null and void; otherwise to remain in full force and
effect.43 (Emphasis supplied.)
_______________
42 Suatengco v. Reyes, G.R. No. 162729, December 17, 2008, 574 SCRA 187, 194, citing
Ligutan v. Court of Appeals, G.R. No. 138677, February 12, 2002, 376 SCRA 560, 567-568.
158
158
While the above condition or specific guarantee is unclear, the rest of the recitals in the bond
unequivocally declare that it secures the full and faithful performance of Mabunays
obligations under the Construction Agreement with petitioner. By its nature, a performance
bond guarantees that the contractor will perform the contract, and usually provides that if the
contractor defaults and fails to complete the contract, the surety can itself complete the
contract or pay damages up to the limit of the bond.44 Moreover, the rule is that if
_______________
43 Rollo, p. 100.
44 17 Am Jur 2d 1, p. 192.
159
159
205
_______________
45 17 Am Jur 2d 3, p. 193.
J Plus Asia Development Corporation vs. Utility Assurance Corporation
the language of the bond is ambiguous or uncertain, it will be construed most strongly against
a compensated surety and in favor of the obligees or beneficiaries under the bond, in this case
petitioner as the Project Owner, for whose benefit it was ostensibly executed.45
The imposition of interest on the claims of petitioner is likewise in order. As we held in
Commonwealth Insurance Corporation v. Court of Appeals46
Petitioner argues that it should not be made to pay interest because its issuance of the
surety bonds was made on the condition that its liability shall in no case exceed the
amount of the said bonds.
We are not persuaded. Petitioners argument is misplaced.
Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and Union
Gurantee Co. and reiterated in Plaridel Surety & Insurance Co., Inc. vs. P.L. Galang
Machinery Co., Inc., and more recently, in Republic vs. Court of Appeals and R & B
Surety and Insurance Company, Inc., we have sustained the principle that if a surety
upon demand fails to pay, he can be held liable for interest, even if in thus
paying, its liability becomes more than the principal obligation. The increased
liability is not because of the contract but because of the default and the necessity
of judicial collection.
Petitioners liability under the suretyship contract is different from its liability under
the law. There is no question that as a surety, petitioner should not be made to pay
more than its assumed obligation under the surety bonds. However, it is clear from the
above-cited jurisprudence that petitioners liability for the payment of interest is not
by reason of the suretyship agreement itself but because of the delay in the payment
of its obligation un-
160
thereon at the rate of 12% per annum computed from the date he is notified of such
payment made by respondent Utassco to claimant until fully paid, and to pay Utassco
P100,000.00 as attorneys fees.
SO ORDERED.
SO ORDERED.
Petition granted, judgment and resolution reversed and set aside. Award made by
Construction Industry Arbitration Commission reinstated with modifications.
With the above modifications, the Writ of Execution dated November 24, 2010 issued by the
CIAC Arbitral Tribunal in CIAC Case No. 03-2009 is hereby REINSTATED and
UPHELD.
Sereno (CJ., Chairperson), Leonardo-De Castro, Bersamin and Reyes, JJ., concur.
Notes.In Leyte v. Cusi, 152 SCRA 496 (1987), the Supreme Court has admonished against
precipitate orders of default because such orders have the effect of denying a litigant the
chance to be heard. (Mortel vs. Kerr, 685 SCRA 1 [2012])
No pronouncement as to costs.
A party declared in default may at any time after notice thereof and before judgment file a
motion under oath to set aside the order of default upon proper showing that his failure to
answer was due to fraud, accident, mistake or excusable negligence and that he has a
meritorious defense. (Magtoto vs. Court of Appeals, 686 SCRA 88 [2012])
_______________
47 Id., at pp. 112-113; p. 372.
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