[G.R. NO. 135362. December 13, 1999] ARTICLE VI. ARBITRATION.
All cases of dispute between CONTRACTOR and OWNERS representative shall be
HEIRS OF AUGUSTO L. SALAS, JR., petitioners, vs. LAPERAL REALTY
CORPORATION, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Order[1] of Branch 85 of
the Regional Trial Court of Lipa City[2] dismissing petitioners complaint[3] for
rescission of several sale transactions involving land owned by Augusto L. Salas, Jr.,
their predecessor-in-interest, on the ground that they failed to first resort to
arbitration.
Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas
spanning 1,484,354 square meters.
On May 15, 1987, he entered into an Owner-Contractor
Agreement[4] (hereinafter referred to as the Agreement) with respondent Laperal
Realty Corporation (hereinafter referred to as Laperal Realty) to render and provide
complete (horizontal) construction services on his land.
On September 23, 1988, Salas, Jr. executed a Special Power of Attorney in
favor of respondent Laperal Realty to exercise general control, supervision and
management of the sale of his land, for cash or on installment basis.
On June 10, 1989, Salas, Jr. left his home in the morning for a business trip to
Nueva Ecija. He never returned.
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 of her
husband, Salas, Jr., who had then been missing for more than seven (7) years. It was
granted on December 12, 1996.[5]
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 Abrajano and
Lava and Oscar Dacillo on June 27, 1991; and to respondents Eduardo Vacuna,
Florante de la Cruz and Jesus Vicente Capalan on June 4, 1996 (all of whom are
hereinafter referred to as respondent lot buyers).
On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the Regional Trial
Court of Lipa City a Complaint[6] for declaration of nullity of sale, reconveyance,
cancellation of contract, accounting and damages against herein respondents which
was docketed as Civil Case No. 98-0047.
On April 24, 1998, respondent Laperal Realty filed a Motion to Dismiss [7]on the
ground that petitioners failed to submit their grievance to arbitration as required
under Article VI of the Agreement which provides:
referred to the committee represented by:
a. One representative of the OWNER;
b. One representative of the CONTRACTOR;
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 Counterclaim and Crossclaim[9] 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 non-compliance with the foregoing arbitration clause.
Hence this petition.
Petitioners argue, thus:
The petitioners causes of action did not emanate from the Owner-Contractor
Agreement.
The petitioners causes of action for cancellation of contract and accounting are
covered by the exception under the Arbitration Law.
Failure to arbitrate is not a ground for dismissal.[10]
In a catena of cases[11] inspired by Justice Malcolms provocative dissent
in Vega v. San Carlos Milling Co.[12], this Court has recognized arbitration
agreements as valid, binding, enforceable and not contrary to public policy so much
so that when there obtains a written provision for arbitration which is not complied
with, the trial court should suspend the proceedings and order the parties to
proceed to arbitration in accordance with the terms of their
agreement[13] Arbitration is the wave of the future in dispute resolution. [14] To brush
aside a contractual agreement calling for arbitration in case of disagreement
between parties would be a step backward.[15]
Nonetheless, we grant the petition.
A submission to arbitration is a contract.[16] As such, the Agreement,
containing the stipulation on arbitration, binds the parties thereto, as well as their
assigns and heirs.[17] But only they. Petitioners, as heirs of Salas, Jr., and respondent
Laperal Realty are certainly bound by the Agreement. If respondent Laperal Realty,
had assigned its rights under the Agreement to a third party, making the former,
the assignor, and the latter, the assignee, such assignee would also be bound by the
arbitration provision since assignment involves such transfer of rights as to vest in
the assignee the power to enforce them to the same extent as the assignor could
have enforced them against the debtor[18] or in this case, against the heirs of the
original party to the Agreement. However, respondents Rockway Real Estate
Corporation, South Ridge Village, Inc., Maharami Development Corporation,
spouses Abrajano, spouses Lava, Oscar Dacillo, Eduardo Vacuna, Florante de la Cruz
and Jesus Vicente Capellan are not assignees of the rights of respondent Laperal
Realty under the Agreement to develop Salas, Jr.s land and sell the same. They are,
rather, buyers of the land that respondent Laperal Realty was given the authority to
develop and sell under the Agreement. As such, they are not assigns contemplated
in Art. 1311 of the New Civil Code which provides that contracts take effect only
between the parties, their assigns and heirs.
Petitioners claim that they suffered lesion of more than one-fourth (1/4) of
the value of Salas, Jr.s land when respondent Laperal Realty subdivided it and sold
portions thereof to respondent lot buyers. Thus, they instituted action[19]against
both respondent Laperal Realty and respondent lot buyers for rescission of the sale
transactions and reconveyance to them of the subdivided lots.They argue that
rescission, being their cause of action, falls under the exception clause in Sec. 2 of
Republic Act No. 876 which provides that such submission [to] or contract [of
arbitration] shall be valid, enforceable and irrevocable, save upon such grounds as
exist at law for the revocation of any contract.
The petitioners contention is without merit. For while rescission, as a general
rule, is an arbitrable issue,[20] they impleaded 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 hereby NULLIFIED
and SET ASIDE. Said court is hereby ordered to proceed with the hearing of Civil
Case No. 98-0047.
Costs against private respondents.
SO ORDERED.
BF CORPORATION, petitioner, vs. COURT OF APPEALS, SHANGRI-LA PROPERTIES,
COLAYCO, ALFREDO C. RAMOS, INC., RUFO B.
MAXIMO G. LICAUCO III and BENJAMIN C. RAMOS, respondents.
DECISION
ROMERO, J.:
The basic issue in this petition for review on certiorari is whether or not the
contract for the construction of the EDSA Plaza between petitioner BF Corporation
and respondent Shangri-la Properties, Inc. embodies an arbitration clause in case of
disagreement between the parties in the implementation of contractual provisions.
Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an
agreement whereby the latter engaged the former to construct the main structure
of the EDSA Plaza Project, a shopping mall complex in the City of Mandaluyong.
The construction work was in progress when SPI decided to expand the
project by engaging the services of petitioner again. Thus, the parties entered into
an agreement for the main contract works after which construction work began.
However, petitioner incurred delay in the construction work that SPI
considered as serious and substantial.[1] On the other hand, according to petitioner,
the construction works progressed in faithful compliance with the First Agreement
until a fire broke out on November 30, 1990 damaging Phase I of the
Project.[2] Hence, SPI proposed the re-negotiation of the agreement between them.
Consequently, on May 30, 1991, petitioner and SPI entered into a written
agreement denominated as Agreement for the Execution of 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 did
not provide for arbitration and therefore the court could not be deprived of
jurisdiction conferred by law by the mere allegation of the existence of an
arbitration clause in the agreement between the parties.
In reply to said opposition, SPI insisted that there was such an arbitration
clause in the existing contract between petitioner and SPI. It alleged that
suspension of proceedings would not necessarily deprive the court of its jurisdiction
over the case and that arbitration would expedite rather than delay the settlement
of the parties respective claims against each other.
In a rejoinder to SPIs reply, petitioner reiterated that there was no arbitration
clause in the contract between the parties. It averred that granting that such a
clause indeed formed part of the contract, suspension of the proceedings was no
longer proper. It added that defendants should be declared in default for failure to
file their answer within the reglementary period.
In its sur-rejoinder, SPI pointed out the significance of petitioners admission of
the due execution of the Articles of Agreement. Thus, on page D/6 thereof, the
signatures of Rufo B. Colayco, SPI president, and Bayani Fernando, president of
petitioner appear, while page D/7 shows that the agreement is a public document
duly notarized on November 15, 1991 by Notary Public Nilberto R. Briones as
document No. 345, page 70, book No. LXX, Series of 1991 of his notarial register. [5]
Thereafter, upon a finding that an arbitration clause indeed exists, the lower
court[6] denied the motion to suspend proceedings, thus:
It appears from the said document that in the letter-agreement dated
May 30, 1991 (Annex C, Complaint), plaintiff BF and defendant Shangri-La
Properties, Inc. agreed upon the terms and conditions of the Builders
Work for the EDSA Plaza Project (Phases I, II and Carpark), subject to the
execution by the parties of a formal trade contract. Defendants have
submitted a copy of the alleged trade contract, which is entitled `Contract
Documents For Builders Work Trade Contractor dated 01 May 1991, page
2 of which is entitled `Contents of Contract Documents with a list of the
documents therein contained, and Section A thereof consists of the
abovementioned Letter-Agreement dated May 30, 1991. Section C of the
said Contract Documents is entitled `Articles of Agreement and
Conditions of Contract which, per its Index, consists of Part A (Articles of
 Agreement) and B (Conditions of Contract). The said Articles of
Agreement appears to have been duly signed by President Rufo B.
Colayco of Shangri-La Properties, Inc. and President Bayani F. Fernando of
BF and their witnesses, and was thereafter acknowledged before Notary
Public Nilberto R. Briones of Makati, Metro Manila on November 15,
1991. The said Articles of Agreement also provides that the `Contract
Documents' therein listed `shall be deemed an integral part of this
Agreement, and one of the said documents is the `Conditions of Contract
which contains the Arbitration Clause relied upon by the defendants in
their Motion to Suspend Proceedings.
This Court notes, however, that the `Conditions of Contract referred to,
contains the following provisions:
`3. Contract Document.
Three copies of the Contract Documents referred to
in the Articles of Agreement shall be signed by the
parties to the contract and distributed to the Owner
and the Contractor for their safe keeping.
(underscoring supplied)
And it is significant to note further that the said `Conditions of Contract is
not duly signed by the parties on any page thereof --- although it bears
the initials of 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. (Underscoring supplied.)
The lower court then ruled that, assuming that the arbitration clause was valid
and binding, still, it was too late in the day for defendants to invoke arbitration. It
quoted the following provision of the arbitration clause:
Notice of the demand for arbitration of a dispute shall be filed in writing
with the other party to the contract and a copy filed with the Project
Manager. The demand for arbitration shall be made within a reasonable
time after the dispute has arisen and attempts to settle amicably have
failed; in no case, however, shall the demand he made be later than the
time of final payment except as otherwise expressly stipulated in the
contract.
Against the above backdrop, the lower court found that per the May 30, 1991
agreement, the project was to be completed by October 31, 1991. Thereafter, the
contractor would pay P80,000 for each day of delay counted from November 1,
1991 with liquified (sic) damages up to a maximum of 5% of the total contract price.
The lower court also found that after the project was completed in accordance
with the agreement that contained a provision on progress payment billing, SPI
took possession and started operations thereof by opening the same to the public
in November, 1991. SPI, having failed to pay for the works, petitioner billed SPI in
the total amount of P110,883,101.52, contained in a demand letter sent by it to SPI
on February 17, 1993. Instead of paying the amount demanded, SPI set up its own
claim of P220,000,000.00 and scheduled a conference on that claim for July 12,
1993. The conference took place but it proved futile.
Upon the above facts, the lower court concluded:
Considering the fact that under the supposed Arbitration Clause invoked
by defendants, it is required that `Notice of the demand for arbitration of
a dispute shall be filed in writing with the other party 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 since November, 1991 up to the filing of this case on
July 14, 1993, but also for the reason that defendants have failed to file
any written notice of any demand for arbitration during the said long
period of one year and eight months, this Court finds that it cannot stay
the proceedings in this case as required by Sec. 7 of Republic Act No. 876,
because defendants are in default in proceeding with such arbitration.
The lower court denied 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.
Instead of filing an answer to the complaint, SPI filed a petition
for certiorari under Rule 65 of the Rules of Court before the Court of Appeals. Said
appellate court granted the petition, annulled and set aside the orders and stayed
the proceedings in the lower court. In so ruling, the Court of Appeals held:
The reasons given by the respondent Court in denying petitioners motion
to suspend proceedings are untenable.
1. The notarized copy of the articles of agreement attached as Annex A to
petitioners reply dated August 26, 1993, has been submitted by them to the
respondent Court (Annex G, petition). It bears the signature of petitioner Rufo B.
Colayco, president of petitioner Shangri-La Properties, Inc., and of Bayani Fernando,
president of respondent Corporation (Annex G-1, petition). At page D/4 of said
articles of agreement it is expressly provided that the conditions of contract are
`deemed an integral part thereof (page 188, rollo). And it is at pages D/42 to D/44
of the conditions of contract that the provisions for arbitration are found (Annexes
G-3 to 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 any matter or being left by
this Contract to the discretion of the Project Manager or the withholding by the
Project Manager of any certificate to which the Contractor may claim to be entitled
or the measurement and valuation mentioned in clause 30 (5) (a) of these
Conditions or the rights and liabilities of the parties under clauses 25, 26, 32 or 33
of these Conditions), the Owner and the Contractor hereby agree to exert all efforts
to settle their differences or dispute amicably. Failing these efforts then such
dispute or difference shall be referred to Arbitration in accordance with the rules
and procedures of the Philippine Arbitration Law.
The fact that said conditions of contract containing the arbitration clause bear only
the initials of respondent Corporations representatives, Bayani Fernando and
Reynaldo de la Cruz, without that of the representative of petitioner Shangri-La
Properties, Inc. does not militate against its effectivity. Said petitioner having
categorically admitted that the document, Annex A to its reply dated August 26,
1993 (Annex G, petition), is the agreement between the parties, the initial or
signature of said petitioners representative to signify conformity to arbitration is no
longer necessary. The parties, therefore, should be allowed to submit their dispute
to arbitration in accordance with their agreement.
2. The respondent Court held that petitioners `are in default in proceeding with
such arbitration. It took note of `the fact that under the supposed Arbitration
Clause invoked by defendants, it is required that Notice of the demand for
arbitration of a dispute shall be filed in writing with the other party x x x in no case x
x x later than the time of final payment, 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 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, x x x.
Respondent Court has overlooked the fact that under the arbitration clause
Notice of the demand for arbitration dispute shall be filed in writing with the other
party to the contract and a copy filed with the Project Manager. The demand for
arbitration shall be made within a reasonable time after the dispute has arisen and
attempts to settle amicably had failed; in no case, however, shall the demand be
made later than the time of final payment except as otherwise expressly stipulated
in the contract (underscoring supplied)
quoted in its order (Annex A, petition). As the respondent Court there said, after
the final demand to pay the amount of P110,883,101.52, instead of paying,
petitioners set up its own claim against respondent Corporation in the amount
of P220,000,000.00 and set a conference thereon on July 12, 1993. Said conference
proved futile. The next day, July 14, 1993, respondent Corporation filed its
complaint against petitioners. On August 13, 1993, petitioners wrote to respondent
Corporation requesting arbitration. Under the circumstances, it cannot be said that
petitioners resort to arbitration was made beyond reasonable time. Neither can
they be considered in default of their obligation to respondent Corporation.
Hence, this petition before this Court. Petitioner assigns the following errors:
A.
THE COURT OF APPEALS ERRED IN ISSUING THE EXTRAORDINARY
WRIT OF CERTIORARI ALTHOUGH THE REMEDY OF APPEAL WAS
AVAILABLE TO RESPONDENTS.
B.
THE COURT OF APPEALS ERRED IN FINDING GRAVE ABUSE OF
DISCRETION IN THE FACTUAL FINDINGS OF THE TRIAL COURT THAT:
(i) THE PARTIES DID NOT ENTER INTO AN AGREEMENT TO
ARBITRATE.
(ii) ASSUMING THAT THE PARTIES DID ENTER INTO THE
AGREEMENT TO ARBITRATE, RESPONDENTS
ARE ALREADY IN DEFAULT IN INVOKING THE
AGREEMENT TO ARBITRATE.
On the first assigned error, petitioner contends that the Order of the lower
court denying the motion to suspend proceedings is a resolution of an incident on
the merits. As such, upon the continuation of the proceedings, the lower court
would appreciate the evidence adduced in their totality and thereafter render a
decision on the merits that may or may not sustain the existence of an arbitration
clause. A decision containing a finding that the contract has no arbitration clause
can then be elevated to a higher court in an ordinary appeal where an adequate
remedy could be obtained. Hence, to petitioner, the Court of Appeals should have
dismissed the petition for certiorari because the remedy of appeal would still be
available to private respondents at the proper time.[7]
The above contention is without merit.
The rule that the special civil action of certiorari may not be invoked as a
substitute for the remedy of appeal is succinctly reiterated in Ongsitco v. Court of
Appeals[8] as follows:
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]v. Court of Appeals, 327
Phil. 1, 41-42 (1996).9
This is not exactly so in the instant case. While this Court does not deny the
eventual jurisdiction of the lower court over the controversy, the issue posed
basically is whether the lower court prematurely assumed jurisdiction over it. If the
lower court indeed prematurely assumed jurisdiction over the case, then it
becomes an error of jurisdiction which is a proper subject of a petition
for certiorari before the Court of Appeals. And if the lower court does not have
jurisdiction over the controversy, then any decision or order it may render may be
annulled and set aside by the appellate court.
However, the question of jurisdiction, which is a question of law depends on
the determination of the existence of the arbitration clause, which is a question of
fact. In the instant case, the lower court found that there exists an arbitration
clause. However, it ruled that in contemplation of law, said arbitration clause does
not exist.
The issue, therefore, posed before the Court of Appeals in a petition for
certiorari is whether the Arbitration Clause does not in fact exist. On its face, the
question is one of fact which is not proper in a petition for certiorari.
The Court of Appeals found that an Arbitration Clause does in fact exist. In
resolving said question of fact, the Court of Appeals interpreted the construction of
the subject contract documents containing the Arbitration Clause in accordance
with Republic Act No. 876 (Arbitration Law) and existing jurisprudence which will be
extensively discussed hereunder. In effect, the issue posed before the Court of
Appeals was likewise a question of law. Being a question of law, the private
respondents rightfully invoked the special civil action of certiorari.
It is that mode of appeal taken by private respondents before the Court of
Appeals that is being questioned by the petitioners before this Court. But at the
heart of said issue is the question of whether there exists an Arbitration
Clause because if an Arbitration Clause does not exist, then private respondents
took the wrong mode of appeal before the Court of Appeals.
For this Court to be able to resolve the question of whether private
respondents took the proper mode of appeal, which, incidentally, is a question of
law, then it has to answer the core issue of whether there exists an Arbitration
Clause which, admittedly, is a question of fact.
Moreover, where a rigid application of the rule that certiorari cannot be a
substitute for appeal will result in a manifest failure or miscarriage of justice, the
provisions of the Rules of Court which are technical rules may be relaxed.[10] As we
shall show hereunder, had the Court of Appeals dismissed the petition 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.
In the same vein, this Court holds that the question of the existence of the
arbitration clause in the contract between petitioner and private respondents is a
legal issue that must be determined in this petition for review on certiorari.
Petitioner, while not denying that there exists an arbitration clause in the
contract in question, asserts that in contemplation of law there could not have been
one considering the following points. First, the trial court found that the conditions
of contract embodying the arbitration clause is not duly signed by the
parties. Second, private respondents misrepresented before the Court of Appeals
that they produced in the trial court a notarized duplicate original copy of the
construction agreement because what were submitted were mere photocopies
thereof. The contract(s) introduced in court by private respondents were therefore
of dubious authenticity because: (a) the Agreement for the Execution of Builders
Work for the EDSA Plaza Project does not contain an arbitration clause, (b) private
respondents surreptitiously attached as Annexes `G-3 to `G-5 to their petition
before the Court of Appeals but these documents are not parts of the Agreement of
the parties as there was no formal trade contract executed, (c) if the entire
compilation of documents is indeed a formal trade contract, then it should have
been duly notarized, (d) the certification from the Records Management and
Archives Office dated August 26, 1993 merely states that the notarial record of
Nilberto Briones x x x is available in the files of (said) office as Notarial Registry
Entry only, (e) the same certification attests that the document entered in the
notarial registry pertains to the Articles of Agreement only without any other
accompanying documents, and therefore, it is not a formal trade contract, and (f)
the compilation submitted by respondents are a mere hodge-podge of documents
and do not constitute a single intelligible agreement.
In other words, petitioner denies the existence of the arbitration clause
primarily on the ground that the representatives of the contracting corporations did
not sign the Conditions of Contract that contained the said clause. Its other
contentions, specifically that insinuating fraud as regards the alleged insertion of
the arbitration clause, are questions of fact that should have been threshed out
below.
This Court may as well proceed to determine whether the arbitration clause
does exist in the parties contract. Republic Act No. 876 provides for the formal
requisites of an arbitration agreement as follows:
Section 4. Form of arbitration agreement. A contract to arbitrate a controversy
thereafter arising between the parties, as well as a submission to arbitrate an
existing controversy, shall be in writing and subscribed by the party sought to be
charged, or by his lawful agent.
The making of a contract or submission for arbitration described in section two
hereof, providing for arbitration of any controversy, shall be deemed a consent of
the parties of the province or city where any of the parties resides, to enforce such
contract of submission. (Underscoring supplied.)
The formal requirements of an agreement to arbitrate are therefore the
following: (a) it must be in writing and (b) it must be subscribed by the parties or
their representatives. There is no denying that the parties entered into a written
contract that was submitted in evidence before the lower court. To subscribe
means to write underneath, as ones name; to sign at the end of a
document.[11] That word may sometimes be construed to mean to give consent to
or to attest.[12]
The Court finds that, upon a scrutiny of the records of this case, these
requisites were complied with in the contract in question. The Articles of
Agreement, which incorporates all the other contracts and agreements between
the parties, was signed by representatives of both parties and duly notarized. The
failure of the private respondents representative to initial the `Conditions of
Contract would therefor not affect compliance with the formal requirements for
arbitration agreements because that particular portion of the covenants between
the parties was included by reference in the Articles of Agreement.
Petitioners contention that there was no arbitration clause because the
contract incorporating said provision is part of a hodge-podge document, is
therefore untenable. A contract need not be contained in a single writing. It may be
collected from several different writings which do not conflict with each other and
which, when connected, show the parties, subject matter, terms and consideration,
as in contracts entered into by correspondence.[13] A contract may be encompassed
in several instruments even though every instrument is not signed by the parties,
since it is sufficient if the unsigned instruments are clearly identified or referred to
and made part of the signed instrument or instruments.Similarly, a written
agreement of which there are two copies, one signed by each of the parties, is
binding on both to the same extent as though there had been only one copy of the
agreement and both had signed it.[14]
The flaw in petitioners contentions therefore lies in its having segmented the
various components of the whole contract between the parties into several parts.
This notwithstanding, petitioner ironically admits the execution of the Articles of
Agreement. Notably, too, the lower court found that the said Articles of Agreement
also provides that the `Contract Documents therein listed `shall be deemed an
integral part of this Agreement, and one of the said documents is the `Conditions of
Contract which contains the Arbitration Clause. It is this Articles of Agreement that
was duly signed by Rufo B. Colayco, president of private respondent SPI, and Bayani
F. Fernando, president of petitioner corporation. The same agreement was duly
subscribed before notary public Nilberto R. Briones. In other words, the
subscription of the principal agreement effectively covered the other documents
incorporated by reference therein.
This Court likewise does not find that the Court of Appeals erred in ruling that
private respondents were not in default in invoking the provisions of the arbitration
clause which states that (t)he demand for arbitration shall be made within a
reasonable time after the dispute has arisen and attempts to settle amicably had
failed. Under the factual milieu, private respondent SPI should have paid its
liabilities 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 complaint before the lower court. Thus, while private
respondent SPIs request for arbitration on August 13, 1993 might appear an
afterthought as it was made after it had filed the motion to suspend proceedings, it
was because petitioner also appeared to act hastily in order to resolve the
controversy through the courts.
The arbitration clause provides for a reasonable time within which the parties
may avail of the relief under that clause. Reasonableness is a relative term and the
question of whether the time within which an act has to be done is reasonable
depends on attendant circumstances.[15] This Court finds that under the
circumstances obtaining in this case, a one-month period from the time the parties
held a conference on July 12, 1993 until private respondent SPI notified petitioner
that it was invoking the arbitration clause, is a reasonable time. Indeed, petitioner
may not be faulted for resorting to the court to claim what was due it under the
contract. However, we find its denial of the existence of the arbitration clause as an
attempt to cover up its misstep in hurriedly filing the complaint before the lower
court.
In this connection, it bears stressing that the lower court has not lost its
jurisdiction over the case. Section 7 of Republic Act No. 876 provides that
proceedings therein have only been stayed. After the special proceeding of
arbitration[16] has been pursued and completed, then the lower court may confirm
the award[17] made by the arbitrator.
It should be noted that in this jurisdiction, arbitration has been held valid and
constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876,
this Court has countenanced the settlement of disputes through
arbitration.[18] Republic Act No. 876 was adopted to supplement the New Civil
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.
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.
HI-PRECISION STEEL CENTER, INC., petitioner,
vs.
LIM KIM STEEL BUILDERS, INC., and CONSTRUCTION INDUSTRY ARBITRATION
COMMISSION, respondents.
FELICIANO, J.:
On 18 June 1993, a "Petition for Extension to File Petition for Review" 1 was filed
before the Court, petitioner Hi-Precision Steel Center, Inc. ("Hi-Precision") stating
that it intended to file a Petition for Review on Certiorari in respect of the 13
November 1992 Award 2 and 13 May 1993 Order 3 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 opposition 4 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 Resolution 5 granting the Motion with a warning that no further extension
would be given.
The Opposition, the subsequent Reply 6 of petitioner filed on 20 July 1993 and the
Petition for Review 7 dated 21 July 1993, were noted by the Court in its
Resolution 8 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 order 9 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 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-
Precision's 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 attorney's fees.
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. On 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:
WHEREFORE, premises considered, the Owner [petitioner Hi-
Precision] is ordered to pay the Contractor [private respondent
Steel Builders] the amount of P6,400,717.83 and all other claims
of the parties against each other are deemed compensated and
offset. No pronouncement as to costs.
The Parties are enjoined to abide by the award. 11
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 contractor 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 (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) petitioner's claims for the
additional costs allegedly incurred to complete the project; and (b) private
respondent's claim for profit it had failed to earn because of petitioner's take over
of the project.
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 non-existent; 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
(compensation morae). 18
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 still 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 of 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 65 — is
necessary under Executive Order No. 1008, as amended; this issue was, in any case,
not squarely raised by either party and has not been properly and adequately
litigated.
In its Petition, Hi-Precision purports to raise "legal issues," and in presenting these
issues, prefaced each with a creative formula:
(1) 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 . . .;
(2) The public respondent committee 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. . . .;
(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, estoppel against the contractor, the private
respondent herein, when it agreed on November 16, 1990 to
award termination of the contract and the owner's takeover of
the project . . .;
(4) 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 backfiling work",
the principal issue in arbitration being non-compliance with the
contract documents;
(5) 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 doctrine of estoppel does not apply with respect to
the required written formalities in the issuance of change order . .
.;
(6) 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 vs. 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.
Villaseca, 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 (Emphasis partly applied and partly in the original)
From the foregoing, petitioner Hi-Precision may be seen to be making two (2) basic
arguments:
(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
(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 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 inappealable except on
questions of law which shall be appealable to the Supreme Court.
Section 19 makes it crystal clear that questions of fact cannot be raised in
proceedings before the Supreme Court — which is not a trier of facts — in
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 Tribunal's 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 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 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 setting 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 re-litigate 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.
The first "legal issue" submitted by the Petition is the claimed misapplication by the
Arbitral Tribunal of the first and second paragraphs of Article 1911 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, Hi-Precision maintains that it may choose between
the fulfillment or rescission of the obligation 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 30-day
extension period with which to complete the project.
What petitioner Hi-Precision, in its above argument, disregards is that the
determination of whether Hi-Precision or Steel Builders was the "injured party" 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 the two (2) contending parties had first failed to comply with what is
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, 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 Hi-
Precision's 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 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 that parties" here involved is the "Technical
Specifications" forming part of the Contract Documents. Hi-Precision asserts 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-Precision's 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 owner's claims and
each item of the contractor's claims, Hi-Precision sets out its arguments, to all
appearances the same arguments it had raised before the Tribunal. As summarized
in the Arbitral Award, Contractor's Claims were as follows:
12.1. Unpaid Progress Billing 1,812,706.95
12.2. Change Order 1 0.00
12.3. -do- 2 10,014.00
12.4. -do- 3 320,000.00
12.5. -do- 4 112,300.70
12.6. -do- 5 398,398.00
12.7. -do- 6 353,050.38
12.8. -do- 7 503,836.53
12.9. -do- 8 216,138.75
 12.10. -do- 9 101,621.40 a) prior to take-over 392,781.45
12.11. -do- 10 7,200.00 b) after the take-over
12.12. -do- 11 0.00
12.13. -do- 12 7,800.00 Civil Works 1,158,513.88
12.14. -do- 13 49,250.00 Materials 4,213,318.72
12.15. -do- 14 167,952.00 Labor 2,155,774.79
12.16. -do- 15 445,600.00 Equipment Rental 1,448,208.90
12.17. -do- 16 92,457.30
12.18. -do- 17 1,500.00 ———————
12.19. 20,240.00
12.20. 63,518.00
P8,974,816.45
12.21. 0.00
12.22. 0.00
Total Amount Paid for Construction 23,650,183.00
12.23. 0.00
Less: Contract Price (21,000,000.00)
12.24. 0.00
12.25. 0.00
12.26. 730,201.57 IA Excess of amount paid
12.27. 1,130,722.70 over contract price 2,650,163.29
12.28. 0.00
12.29. 273,991.00 IB Other items due from Lim
12.30. 0.00 Kim Steel Builders

——————— a. Amount not yet deducted

from Downpayment due
12.31. 7,318,499.28 29 to non-completion of Project
(P24.1326%) 2,027,138.40
=============
b. Due to Huey Commercial
used for HSCI Project 51,110.40
Upon the other hand, the petitioner's claims we are asked to review and grant are
summarized as follows:
IC Additional construction expenses
1. Actual Damages
a. Increases in prices since Oct. 5,272,096.81
Advance Downpayment
[at] signing of Contract b. Cost of money of (a) 873,535.49
which is subject to 40%
deduction every progress ID Installation of machinery
billing (40% of Contract Price) P8,406,000.00
a. Foreign exchange loss 11,565,048.37
Progress Billings 5,582,585.55
b. Cost of money (a) 2,871,987.01
Advances made to Lim Kim
I[E] Raw Materials
a. Foreign exchange loss 4,155,982.18
b. Cost of money (a) 821,242.72
c. Additional import levy of 5% 886,513.33
d. Cost of money (c) 170,284.44
e. Cost of money on marginal
deposit on Letter of Credit 561,195.25
IF Cost of money on holding to CRC INTY 3,319,609.63
Total Actual Damages 35,295,927.32
2. Liquidated Damages 2,436,000.00
3. Attorney's Fees 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 claim submitted by Steel Builders to the Arbitral
Tribunal, 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.
HOME BANKERS SAVINGS & TRUST CO., petitioner, vs. THE HONORABLE COURT
OF APPEALS, PABLO N. AREVALO, FRANCISCO A. UY, SPOUSES LEANDRO A.
SORIANO, JR. and LILIAN SORIANO, ALFREDO LIM and FELISA CHI LIM/ALFREDO
LIM, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of
Court seeking to annul the Decision[1] of the Court of Appeals (CA) dated
November 28, 1996 in CA-G.R. SP No. 40892 and its Resolution dated February 19,
1997 denying petitioners motion for reconsideration.
Each of private respondents entered into separate contracts to sell with
TransAmerican Sales and Exposition (TransAmerican) through the latters
Owner/General Manager, Engr. Jesus Garcia, involving certain portions of land
covered by Transfer Certificate of Title (TCT) No. 19155, located at No. 45 Gen. Lim
Street, Heroes Hill, Quezon City, together with one unit three-storey townhouse to
be built on each portion, as follows:
Respondent Pablo N. Arevalo purchased the portion of land denominated as Unit
No. 5[2] for the amount of P750,000.00 on August 21, 1988 and had already fully
paid the purchase price on September 3, 1988;
Respondent Alfredo Lim purchased the portion of land denominated as Unit No.
1[3] for the amount of P800,000.00 on December 22, 1988 and fully paid the same
upon execution of the agreement on the same day;
Respondent Francisco A. Uy purchased the portion of land denominated as Unit No.
6[4] on October 29, 1988 in the amount of P800,000.00 payable in installments and
had allegedly made a total payment of P581,507.41. He ordered to stop the
payment of all [postdated] checks from September 1990 to November 1995 on the
ground of non-completion of his unit and had later learned of the foreclosure of the
property;
Respondent spouses Leandro A. Soriano, Jr. and Lilian Soriano purchased the
portion of land denominated as Unit No. 3[5] on February 15, 1990 in the amount
of P1,600,000.00 and had allegedly made a payment of P669,960.00. They had
stopped paying because of non-completion of the project and had later learned of
the foreclosure of the property;
Respondents Alfredo Lim and Santos Lim purchased the portion of land
denominated as Unit No. 7[6] for P700,000.00 on October 1988 and had been fully
paid as of March 18, 1989; Santos Lim subsequently sold and assigned his share of
the property to private respondent Felisa Chi Lim on May 12, 1989.
It is stipulated in their respective contracts that their individual townhouses will be
fully completed and constructed as per plans and specifications and the respective
titles thereto shall be delivered and transferred to private respondents free from all
liens and encumbrances upon their full payment of the purchase price. However,
despite repeated demands, Garcia/TransAmerican failed to comply with their
undertakings.
On May 30, 1989, Engr. Garcia and his wife Lorelie Garcia obtained from
petitioner Home Bankers Savings and Trust Company (formerly Home Savings Bank
and Trust Company) a loan in the amount of P4,000,000.00 and without the prior
approval of the Housing and Land Use Regulatory Board (HLURB), the spouses
mortgaged[7] eight lots covered by TCT Nos. 3349 to 3356 as collateral. Petitioner
registered its mortgage on these titles without any other encumbrance or lien
annotated therein. The proceeds of the loan were intended for the development of
the lots into an eight-unit townhouse project. However, five out of these eight titles
turned out to be private respondents townhouses subject of the contracts to sell
with Garcia/TransAmerican.
When the loan became due, Garcia failed to pay his obligation to petitioner.
Consequently, petitioner instituted an extrajudicial foreclosure[8] on the subject
lots and being the highest bidder in the public auction, a certificate of sale[9] in its
favor was issued by the sheriff on February 26, 1990. Subsequently, the sheriffs
certificate of sale was registered and annotated on the titles of the subject lots in
the Register of Deeds of Quezon City.
On November 8, 1990, private respondents filed a complaint with the Office of
Appeals, Adjudication and Legal Affairs (OAALA), HLURB, against
Garcia/TransAmerican as seller/developer of the property and petitioner, as
indispensable party, for non-delivery of titles and non-completion of the subdivision
project.[10] They prayed for the completion of the units, annulment of the
mortgage in favor of petitioner, release of the mortgage on the lots with fully paid
owners and delivery of their titles, and for petitioner to compute individual loan
values of amortizing respondents and to accept payments from them and damages.
Petitioner filed its Answer contending that private respondents have no cause
of action against it; that at the time of the loan application and execution of the
promissory note and real estate mortgage by Garcia, there were no known
individual buyers of the subject land nor annotation of any contracts, liens or
encumbrances of third persons on the titles of the subject lots; that the loan was
granted and released without notifying HLURB as it was not necessary.
 Private respondents filed their Reply and a motion for the judgment on the
pleadings. Petitioner did not file a rejoinder. Private respondents filed a
manifestation reiterating for a judgment on their pleadings and asked that the
reliefs prayed for be rendered as far as petitioner was concerned. Upon motion of
private respondents, the case against Garcia/TransAmerican was archived for
failure to serve summons on him/it despite efforts to locate his whereabouts or its
office. The case was then considered submitted for decision.
On August 16, 1991, OAALA rendered its Decision,[11] the dispositive portion
of which reads:
WHEREFORE, Judgment is hereby rendered as follows:
1. Declaring the mortgage executed by and between respondents Engr. Jesus
Garcia/TransAmerican Sales and Exposition and Home Bankers Savings and Trust
Company (formerly Home Savings Bank and Trust Company) to be unenforceable
as against all the complainants;
2. Ordering the Register of Deeds of Quezon City to cancel the annotations of the
mortgage indebtedness between respondents Engr. Jesus Garcia and Home
Bankers Savings and Trust Company (formerly Home Savings Bank and Trust
Company);
3. Ordering, likewise the Register of Deeds of Quezon City to cancel the
annotation of the Certificate of Sale in favor of the respondent Home Bankers
Savings and Trust Company on the following Transfer Certificates of Title to wit:
1) TCT No. 3350
2) TCT No. 3351
3) TCT No. 3352
4) TCT No. 3354
5) TCT No. 3356
4. Ordering respondent Home Bankers Savings and Trust Company (formerly Home
Savings Bank and Trust Company) to:
4.1. AS TO THE FIRST CAUSE OF ACTION
Deliver to Complainant Pablo N. Arevalo TCT No.
3352 free from all liens and encumbrances.
4.2. AS TO THE SECOND CAUSE OF ACTION
Deliver to Complainant Alfredo Lim TCT No. 3356
free from all liens and encumbrances.
4.3. AS TO THE THIRD CAUSE OF ACTION
To compute and/or determine the loan value of
complainant Francisco A. Uy who was not able to
complete or make full payment and to accept
payment and/or receive amortization from said
complainant Francisco A. Uy and upon full payment
to deliver TCT No. 3351 free from all liens and
encumbrances.
4.4. AS TO THE FOURTH CAUSE OF ACTION
To compute and/or determine the loan value of
Complainant Spouses Leandro A. Soriano, Jr. and
Lilian Soriano who were not able to complete or
make full payment and to accept and/or receive
amortization from said Complainants Soriano and
upon full payment to deliver TCT No. 3354 free
from all liens and encumbrances.
4.5. AS TO THE FIFTH CAUSE OF ACTION
Deliver to complainant Alfredo Lim and Felisa Chi
Lim TCT No. 3350 free from all liens and
encumbrances.
without prejudice to its right to require respondent Engr. Jesus
Garcia/TransAmerican to constitute new collaterals in lieu of the said titles
sufficient in value to cover the mortgage obligation.[12]
Petitioner filed an appeal with the Board of Commissioners of the HLURB
which dismissed the same in a decision dated June 15, 1992.[13] Petitioner then
elevated the case to the Office of the President which rendered a decision dated
June 30, 1995[14] dismissing the appeal and affirming the June 15, 1992 decision of
the HLURB. Petitioners motion for reconsideration was also denied in a Resolution
dated May 7, 1996.[15]
Petitioner filed a petition for review with the CA which, in the herein assailed
decision dated November 28, 1996, denied the petition and affirmed the decision of
the Office of the President. The CA applied the case of Union Bank of the Philippines
vs. HLURB, et al.,[16] where it was held that the act of a subdivision developer of
mortgaging the subdivision without the knowledge and consent of a unit buyer and
without the approval of the National Housing Authority (NHA, now HLURB) is
violative of Section 18 of P.D. No. 957 thus, falling under the exclusive jurisdiction of
HLURB.
The CA upheld the findings of the OAALA, HLURB that private respondents had
already entered into separate contracts to sell with TransAmerican as early as 1988
while it was only in 1989 that spouses Garcia applied for a loan with petitioner and
executed a mortgage contract over the subject lots; that the proceeds of the loan
were purposely intended for the development of a property which was the same
property subject of the contracts to sell; that despite the contracts to sell,
Garcia/TransAmerican did not apprise petitioner of the existence of these contracts
nor did petitioner exhaust any effort to inquire into their existence since petitioner
merely relied on the purported clean reconstituted titles in the name of Garcia; that
the mortgage of the subject lots without the consent of the buyers and the
authorization of the HLURB is a clear violation of P.D. No. 957; that the mortgage
contract is void and unenforceable against private respondents.
Petitioners motion for reconsideration was denied by the CA in its Resolution
dated February 19, 1997.[17]
Petitioner is now before us raising the following grounds in support of its
petition:
A. THE OFFICE OF THE PRESIDENT ERRED IN RULING THAT THE HLURB
HAS JURISDICTION TO NULLIFY OR DECLARE UNENFORCEABLE THE
REAL ESTATE MORTGAGE VALIDLY CONSTITUTED BY THE OWNER.
B. ASSUMING ARGUENDO THAT THE HLURB HAS JURISDICTION,
RESPONDENT COURT MANIFESTLY ERRED IN FINDING THE REAL
ESTATE MORTGAGE IN FAVOR OF HOME AS INVALID AND
UNENFORCEABLE AGAINST RESPONDENTS.
C. IN THE EVENT THAT THE DECISION OF THE RESPONDENT COURT
FINDING THE REAL ESTATE MORTGAGE IN FAVOR OF HOME AS
INVALID AND UNENFORCEABLE AGAINST RESPONDENTS IS UPHELD,
THE UNREGISTERED CONTRACTS TO SELL IN FAVOR OF RESPONDENTS
SHOULD ALSO BE HELD VALID ONLY AS TO THE PARTIES THERETO BUT
UNENFORCEABLE AGAINST PETITIONER.
Private respondents filed their Comment and petitioner filed its Reply thereto.
In a Resolution dated February 23, 2004, we gave due course to the petition
and required the parties to submit their respective memoranda which they
complied with.
The petition is devoid of merit.
Notably, the issues raised are mere rehash of the issues already passed upon
by the HLURB, the Office of the President and the CA which we uphold as we find
no reversible errors committed.
Petitioner claims that HLURB has no power to declare the mortgage contract
over real property executed between a real estate developer and petitioner, a
banking institution, void or unenforceable, as it is properly within the jurisdiction of
the Regional Trial Court. Petitioner asserts that being a mortgagee of the subject
lots and a purchaser in good faith, it is not a project owner, developer, or dealer
contemplated under P.D. No. 1344, the law which expanded the jurisdiction of the
NHA; and that since there is no seller-buyer relationship existing between it and
private respondents, HLURB has no jurisdiction to rule on the validity of the
mortgage and to annul foreclosure proceedings.
The argument is untenable.
The CA did not err in affirming the decision of the Office of the President that
HLURB has jurisdiction to declare invalid the mortgage contract executed between
Garcia/TransAmerican and petitioner over the subject lots insofar as private
respondents are concerned. It correctly relied on Union Bank of the Philippines vs.
HLURB, et al.[18] where we squarely ruled on the question of HLURBs jurisdiction to
hear and decide a condominium buyers complaint for: (a) annulment of a real
estate mortgage constituted by the project owner without the consent of the buyer
and without the prior written approval of the NHA; (b) annulment of the
foreclosure sale; and (c) annulment of the condominium certificate of title that was
issued to the highest bidder at the foreclosure sale, thus:
. . . The issue in HLURB Case No. REM-062689-4077 is the validity of the real estate
mortgage of Davids condominium unit that FRDC executed in favor of the Union
Bank and Far East Bank without prior approval of the National Housing Authority
and the legality of the title which the mortgage banks acquired as highest bidder
therefore in the extrajudicial foreclosure sale. The applicable provisions of P.D. No.
957, otherwise known as The Subdivision and Condominium Buyers Protective
Decree are quoted hereunder as follows:
Sec. 3. NATIONAL HOUSING AUTHORITY. The National Housing Authority shall have
exclusive jurisdiction to regulate the real estate trade and business in accordance
with the provisions of this Decree.
Section 18. Mortgages No mortgage on any unit or lot shall be made by the owner
or developer without prior written approval of the authority. Such approval shall
not be granted unless it is shown that the proceeds of the mortgage loan shall be
used for the development of the condominium or subdivision project and effective
measures have been provided to ensure such utilization. The loan value of each lot
or unit covered by the mortgage shall be determined and the buyer thereof if any
shall be notified before the release of the loan. The buyer may, at his option, pay his
installment for the lot or unit directly to the mortgagee who shall apply the
payments to the corresponding mortgage indebtedness secured by the particular
lot or unit being paid for, with a view to enabling said buyer to obtain title over the
lot or unit promptly after full payment thereof.
P.D. No. 1344 of April 2, 1978 expanded the jurisdiction of the National Housing
Authority to include the following:
Sec. 1. In the exercise of its function to regulate the real estate trade and business
and in addition to its powers provided for in Presidential Decree No. 957, the
National Housing Authority shall have exclusive jurisdiction to hear and decide
cases of the following nature:
A. Unsound real estate business practices;
B. Claims involving refund and any other claims filed by
subdivision lot or condominium unit buyer against
the project owner, developer, dealer, broker or
salesman; and
C. Cases involving specific performance of contractual and
statutory obligations filed by buyers of subdivision
lot or condominium unit against the owner,
developer, broker or salesman.
On February 7, 1981, Executive Order No. 648 transferred the regulatory and quasi-
judicial functions of the NHA to the Human Settlements Regulatory Commission.
Sec. 8. TRANSFER OF FUNCTIONS. The regulatory functions of the National Housing
Authority pursuant to Presidential Decree Nos. 957, 1216, 1344 and other related
laws are hereby transferred to the Commission, together with such applicable
personnel, appropriation, records, equipment and property necessary for the
enforcement and implementation of such functions. Among these regulatory
functions are:
1. Regulation of the real estate trade and business:
7. Approval of mortgage on any subdivision lot or
condominium unit made by the owner or
developer;
11. Hear and decide cases on unsound real estate
business practices; claims involving refund filed
against project owners, developers, dealers,
brokers, or salesmen; and cases of specific
performance.
Executive Order No. 90 dated December 17, 1986 changed the name of the Human
Settlements Regulatory Commission to Housing and Land Use Regulatory Board
(HLURB).
Clearly, FRDCs act of mortgaging the condominium project to Bancom and FEBTC,
without the knowledge and consent of David as buyer of a unit therein, and without
the approval of the NHA (now HLURB) as required by P.D. No. 957, was not only an
unsound real estate business practice but also highly prejudicial to the buyer. David,
who has a cause of action for annulment of the mortgage, the mortgage foreclosure
sale, and the condominium certificate of title that was issued to the UBP and FEBTC
as the highest bidders at the sale. The case falls within the exclusive jurisdiction of
the NHA (now HLURB) as provided in P.D. No. 957 of 1976 and P.D. No. 1344 of
1978.
We hold that the jurisdiction of the HLURB to regulate the real estate trade is broad
enough to include jurisdiction over complaints for specific performance of the sale,
or annulment of the mortgage, of a condominium unit, with damages.[19]
Petitioner avers that the Union Bank ruling is not applicable in its case, since it
had no knowledge of any buyer of the subject lots at the time the mortgage was
constituted; that there was no construction in the subject lots at the time petitioner
accepted the same as collateral; that the title to the subject property was still in the
process of being reconstituted and the loan was in fact meant for the development
of the subject lots into an eight-unit townhouse project.
We are not persuaded.
Contrary to petitioners claim that there were no buyers of the subject lots at
the time of the constitution of the mortgage, records show that private
respondents Arevalo, Uy, Alfredo Lim and Santos Lim had entered into contracts to
sell with Garcia/TransAmerican as early as 1988 for their respective lots. In fact,
they, except for Uy, had already fully paid their townhouse units in 1988 without
the certificates of title being delivered to them. Garcia mortgaged the subject lots
without their knowledge and consent.
While private respondents spouses Soriano bought the subject lots after the
constitution of the mortgage in favor of petitioner, the subject lots are, as early as
1988, subdivision lots which as defined under Section 2(e) of P.D. No. 957 to mean
any of the lots, whether residential, commercial, industrial, or recreational in a
subdivision project[20] are entitled to the protection of P.D. No. 957.
 Under Section 18 of P.D. No. 957, it is provided that no mortgage on any unit
or lot shall be made by the owner or developer without prior written approval of
the authority. Such approval shall not be granted unless it is shown that the
proceeds of the mortgage loan shall be used for the development of the
condominium or subdivision project and effective measures have been provided to
ensure such utilization. As in the Union Bank, the mortgage was constituted on the
subject lots in favor of petitioner without the prior written approval from the
HLURB, thus HLURB has jurisdiction to rule on the validity of the mortgage.
Notwithstanding that petitioner became the owner of the subject lots by being
the highest bidder in the extrajudicial foreclosure sale, it must be remembered that
it was first a mortgagee of the same. Since the lot was mortgaged in violation of
Section 18 of P.D. No. 957, HLURB has jurisdiction to declare the mortgage void
insofar as private respondents are concerned and to annul the foreclosure sale.
In Far East Bank and Trust Co. vs. Marquez,[21] we held that Section 18 of P.D. No.
957 is a prohibitory law, and acts committed contrary to it are void. We said:
In determining whether a law is mandatory, it is necessary to ascertain the
legislative intent, as stated by Sen. Arturo M. Tolentino, an authority on civil law:
There is no well-defined rule by which a mandatory or prohibitory law may, in all
circumstances, be distinguished from one which is directory, suppletory, or
permissive. In the determination of this question, the prime object is to ascertain
the legislative intention. Generally speaking, those provisions which are mere
matter of form, or which are not material, do not affect any substantial right, and
do not relate to the essence of the thing to be done, so that compliance is a matter
of convenience rather than substance, are considered to be directory. On the other
hand, statutory provisions which relate to matters of substance, affect substantial
rights and are the very essence of the thing required to be done, are regarded as
mandatory.
In Philippine National Bank vs. Office of the President, we had occasion to mull over
the intent of P.D. No. 957 thus:
. . . [T]he unmistakable intent of the law [is] to protect innocent lot buyers from
scheming subdivision developers. As between these small lot buyers and the
gigantic financial institutions which the developers deal with, it is obvious that the
law as an instrument of social justice must favor the weak. Indeed, the petitioner
Bank had at its disposal vast resources with which it could adequately protect its
loan activities, and therefore is presumed to have conducted the usual due
diligence checking and ascertaining (whether thru ocular inspection or other modes
of investigation) the actual status, condition, utilization and occupancy of the
property offered as collateral, . . . On the other hand, private respondents obviously
were powerless to discover attempt of the land developer to hypothecate the
property being sold to them. It was precisely in order to deal with this kind of
situation that P.D. No. 957 was enacted, its very essence and intendment being to
provide a protective mantle over helpless citizens who may fall prey to the
razzmatazz of what P.D. No. 957 termed unscrupulous subdivision and
condominium sellers.
Concededly, P.D. No. 957 aims to protect innocent lot buyers. Section 18 of the
decree directly addresses the problem of fraud committed against buyers when the
lot they have contracted to purchase, and which they have religiously paid for, is
mortgaged without their knowledge. The avowed purpose of P.D. No. 957 compels
the reading of Section 18 as prohibitory acts committed contrary to it are void. Such
construal ensures the attainment of the purpose of the law: to protect lot buyers,
so that they do not end up still homeless despite having fully paid for their home
lots with their hard-earned cash.[22]
Since the mortgage is void, HLURBs orders of the cancellation of the sheriffs
certificate of sale, release of the mortgaged lots and delivery of the corresponding
titles to respondents who had fully paid the purchase price of the units are but the
necessary consequences of the invalidity of the mortgage for the protection of
private respondents.
Anent the second issue, petitioner contends that since the titles on their face
were free from any claims, liens and encumbrances at the time of the mortgage, it
is not obliged under the law to go beyond the certificates of title registered under
the Torrens system and had every reason to rely on the correctness and validity of
those titles.
We are not convinced.
While the cases[23] cited by petitioner held that the mortgagee is not under
obligation to look beyond the certificate of title when on its face, it was free from
lien or encumbrances, the mortgagees therein were considered in good faith as
they were totally innocent and free from negligence or wrongdoing in the
transaction. In this case, petitioner knew that the loan it was extending to
Garcia/TransAmerican was for the purpose of the development of the eight-unit
townhouses. Petitioners insistence that prior to the approval of the loan, it
undertook a thorough check on the property and found the titles free from liens
and encumbrances would not suffice. It was incumbent upon petitioner to inquire
into the status of the lots which includes verification on whether Garcia had
secured the authority from the HLURB to mortgage the subject lots. Petitioner
failed to do so. We likewise find petitioner negligent in failing to even ascertain
from Garcia if there are buyers of the lots who turned out to be private
respondents. Petitioners want of knowledge due to its negligence takes the place of
registration, thus it is presumed to know the rights of respondents over the lot. The
conversion of the status of petitioner from mortgagee to buyer-owner will not
lessen the importance of such knowledge.[24] Neither will the conversion set aside
the consequence of its negligence as a mortgagee.[25]
Judicial notice can be taken of the uniform practice of banks to investigate,
examine and assess the real estate offered as security for the application of a loan.
We cannot overemphasize the fact that the Bank cannot barefacedly argue that
simply because the title or titles offered as security were clean of any
encumbrances or lien, that it was thereby relieved of taking any other step to verify
the over-reaching implications should the subdivision be auctioned on
foreclosure.[26] We find apropos to cite our ruling in Far East Bank and Trust Co. vs.
Marquez, thus:[27]
Petitioner argues that it is an innocent mortgagee whose lien must be respected
and protected, since the title offered as security was clean of any encumbrances or
lien. We do not agree.
. . . As a general rule, where there is nothing on the certificate of title to indicate
any cloud or vice in the ownership of the property, or any encumbrance thereon,
the purchaser is not required to explore further than what the Torrens Title upon its
face indicates in quest for any hidden defect or inchoate right that may
subsequently defeat his right thereto. This rule, however, admits of an exception as
where the purchaser or mortgagee has knowledge of a defect or lack of title in the
vendor, or that he was aware of sufficient facts to induce a reasonably prudent man
to inquire into the status of the property in litigation.
Petitioner bank should have considered that it was dealing with a [townhouse]
project that was already in progress. A reasonable person should have been aware
that, to finance the project, sources of funds could have been used other than the
loan, which was intended to serve the purpose only partially. Hence, there was
need to verify whether any part of the property was already the subject of any
other contract involving buyers or potential buyers. In granting the loan, petitioner
bank should not have been content merely with a clean title, considering the
presence of circumstances indicating the need for a thorough investigation of the
existence of buyers like respondent. Having been wanting in care and prudence, the
latter cannot be deemed to be an innocent mortgagee.
Petitioner cannot claim to be a mortgagee in good faith. Indeed it was negligent, as
found by the Office of the President and by the CA. Petitioner should not have
relied only on the representation of the mortgagor that the latter had secured all
requisite permits and licenses from the government agencies concerned. The
former should have required the submission of certified true copies of those
documents and verified their authenticity through its own independent effort.
Having been negligent in finding out what respondents rights were over the lot,
petitioner must be deemed to possess constructive knowledge of those rights.
As to the third issue, petitioner contends that private respondents were
negligent in failing to register their contracts to sell in accordance with Section 17 of
P.D. No. 957; that private respondents unregistered contracts to sell are binding
only on them and Garcia/TransAmerican but not on petitioner which had no actual
or constructive notice of the sale at the time the mortgage was constituted.
We disagree.
Section 17 of P.D. No. 957[28] provides that the seller shall register the
contracts to sell with the Register of Deeds of Quezon City. Thus, it is Garcias
responsibility as seller to register the contracts and petitioner should not blame
private respondents for not doing so. As we have said earlier, considering
petitioners negligence in ascertaining the existence or absence of authority from
HLURB for Garcia/TransAmerican to mortgage the subject lots, petitioner cannot
claim to be an innocent purchaser for value and in good faith. Petitioner is bound by
private respondents contracts to sell executed with Garcia/TransAmerican.
The last paragraph of Section 18 of P.D. No. 957 provides that respondents
who have not yet paid in full have the option to pay their installment for the lot
directly to the mortgagee (petitioner) who is required to apply such payments to
the corresponding mortgage indebtedness secured by the particular lot or unit
being paid for, with a view to enabling said buyer to obtain title over the lot or unit
promptly after full payment thereof. Thus, petitioner is obliged to accept the
payment of remaining unpaid amortizations, without prejudice to petitioner banks
seeking relief against the subdivision developer.[29]
Notably, although no issue was taken on the fact that the case against
Garcia/TransAmerican, the developer/seller and mortgagor of the subject lots, was
archived for failure to serve summons on him/it as his whereabouts or the office
could not be located, it must be stated that Garcia/TransAmerican is not an
indispensable party since a final determination on the validity of the mortgage over
the subject lots can be rendered against petitioner. Thus, the absence of
Garcia/TransAmerican did not hamper the OAALA from resolving the dispute
between private respondents and petitioner.
In China Bank vs. Oliver,[30] we held that the mortgagor, who allegedly
misrepresented herself to be Mercedes M. Oliver, the registered owner of TCT No.
S-50195, is not an indispensable party in a case filed by a person claiming to be the
true registered owner, for annulment of mortgage and cancellation of title against
the mortgagee, China Bank. We found therein that even without the mortgagor, the
true Mercedes Oliver can prove in her complaint that she is the real person referred
in the title and she is not the same person using the name who entered into a deed
of mortgage with the mortgagee, China Bank.
 In the present case, private respondents, in their complaint, alleged that the liability to private respondents for the non-completion of the projects; or to herein
mortgage was constituted without the prior written approval of the HLURB which is petitioner, as mortgagee.
in violation of Section 18 of P.D. No. 957. Petitioners admission that it granted and
The present case merely involves the liability of petitioner bank to private
released the loan without notifying the HLURB because of its belief that it was not
respondents as buyers of the lots and townhouse units.
necessary to do so, is fatal to petitioners defense. As a consequence thereof, the
mortgage constituted in favor of petitioner can be declared invalid as against WHEREFORE, the petition is DISMISSED for lack of merit.
private respondents even without the presence of Garcia/TransAmerican. It is
worthy to mention that the assailed decision was rendered merely against SO ORDERED.
petitioner and had not made any pronouncement as to Garcia/TransAmericans
LM POWER ENGINEERING CORPORATION, petitioner, vs. CAPITOL INDUSTRIAL
CONSTRUCTION GROUPS, INC., respondent.
PANGANIBAN, J.:
Alternative dispute resolution methods or ADRs -- like arbitration, mediation,
negotiation and conciliation -- are encouraged by the Supreme Court. By enabling
parties to resolve their disputes amicably, they provide solutions that are less time-
consuming, less tedious, less confrontational, and more productive of goodwill and
lasting relationships.[1]
Before us is a Petition for Review on Certiorari[2] under Rule 45 of the Rules of
Court, seeking to set aside the January 28, 2000 Decision of the Court of
Appeals[3] (CA) in CA-GR CV No. 54232. The dispositive portion of the Decision
reads as follows:
WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The parties
are ORDERED to present their dispute to arbitration in accordance with their Sub-
contract Agreement.The surety bond posted by [respondent] is [d]ischarged.
The Facts
On February 22, 1983, Petitioner LM Power Engineering Corporation and
Respondent Capitol Industrial Construction Groups Inc. entered into a Subcontract
Agreement involving electrical work at the Third Port of Zamboanga.[5]
On April 25, 1985, respondent took over some of the work contracted to
petitioner.[6] Allegedly, the latter had failed to finish it because of its inability to
procure materials.[7]
Upon completing its task under the Contract, petitioner billed respondent in the
amount of P6,711,813.90.[8] Contesting the accuracy of the amount of advances
and billable accomplishments listed by the former, the latter refused to
pay. Respondent also took refuge in the termination clause of the
Agreement.[9] That clause allowed it to set off the cost of the work that petitioner
had failed to undertake -- due to termination or take-over -- against the amount it
owed the latter.
Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati
(Branch 141) a Complaint[10] for the collection of the amount representing the
alleged balance due it under the Subcontract. Instead of submitting an Answer,
respondent filed a Motion to Dismiss,[11] alleging that the Complaint was
premature, because there was no prior recourse to arbitration.
In its Order[12] dated September 15, 1987, the RTC denied the Motion on the
ground that the dispute did not involve the interpretation or the implementation of
the Agreement and was, therefore, not covered by the arbitral clause.[13]
After trial on the merits, the RTC[14] ruled that the take-over of some work items
by respondent was not equivalent to a termination, but a mere modification, of the
Subcontract. The latter was ordered to give full payment for the work completed by
petitioner.
Ruling of the Court of Appeals
On appeal, the CA reversed the RTC and ordered the referral of the case to
arbitration. The appellate court held as arbitrable the issue of whether respondents
take-over of some work items had been intended to be a termination of the original
contract under Letter K of the Subcontract. It ruled likewise on two other issues:
whether petitioner was liable under the warranty clause of the Agreement, and
whether it should reimburse respondent for the work the latter had taken over.[15]
Hence, this Petition.[16]
The Issues
In its Memorandum, petitioner raises the following issues for the Courts
consideration:
A. Whether or not there exist[s] a controversy/dispute between petitioner and
respondent regarding the interpretation and implementation of the Sub-Contract
Agreement dated February 22, 1983 that requires prior recourse to voluntary
arbitration;
B. In the affirmative, whether or not the requirements provided in Article III [1] of
CIAC Arbitration Rules regarding request for arbitration ha[ve] been complied
with[.][17]
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the interpretation or the
implementation of the Agreement. Thus, without having to resort to prior
arbitration, it is entitled to collect the value of the services it rendered through an
ordinary action for the collection of a sum of money from respondent. On the other
hand, the latter contends that there is a need for prior arbitration as provided in the
Agreement. This is because there are some disparities between the parties positions
regarding the extent of the work done, the amount of advances and billable
accomplishments, and the set off of expenses incurred by respondent in its take-over
of petitioners work.
We side with respondent. Essentially, the dispute arose from the parties ncongruent
positions on whether certain provisions of their Agreement could be applied to the
facts.The instant case involves technical discrepancies that are better left to an
arbitral body that has expertise in those areas. In any event, the inclusion of an
arbitration clause in a contract does not ipso facto divest the courts of jurisdiction to
pass upon the findings of arbitral bodies, because the awards are still judicially
reviewable under certain conditions.[18]
In the case before us, the Subcontract has the following arbitral clause:
6. The Parties hereto agree that any dispute or conflict as regards to interpretation
and implementation of this Agreement which cannot be settled between
[respondent] and [petitioner] amicably shall be settled by means of arbitration x x
x.[19]
Clearly, the resolution of the dispute between the parties herein requires a referral
to the provisions of their Agreement. Within the scope of the arbitration clause are
discrepancies as to the amount of advances and billable accomplishments, the
application of the provision on termination, and the consequent set-off of expenses.
A review of the factual allegations of the parties reveals that they differ on the
following questions: (1) Did a take-over/termination occur? (2) May the expenses
incurred by respondent in the take-over be set off against the amounts it owed
petitioner? (3) How much were the advances and billable accomplishments?
The resolution of the foregoing issues lies in the interpretation of the provisions of
the Agreement. According to respondent, the take-over was caused by petitioners
delay in completing the work. Such delay was in violation of the provision in the
Agreement as to time schedule:
G. TIME SCHEDULE
[Petitioner] shall adhere strictly to the schedule related to the WORK and complete
the WORK within the period set forth in Annex C hereof. NO time extension shall be
granted by [respondent] to [petitioner] unless a corresponding time extension is
granted by [the Ministry of Public Works and Highways] to the CONSORTIUM.[20]
Because of the delay, respondent alleges that it took over some of the work
contracted to petitioner, pursuant to the following provision in the Agreement:
K. TERMINATION OF AGREEMENT
[Respondent] has the right to terminate and/or take over this Agreement for any of
the following causes:
6. If despite previous warnings by [respondent], [petitioner] does not execute the
WORK in accordance with this Agreement, or persistently or flagrantly neglects to
carry out [its] obligations under this Agreement.[21]
Supposedly, as a result of the take-over, respondent incurred expenses in excess of
the contracted price. It sought to set off those expenses against the amount claimed
by petitioner for the work the latter accomplished, pursuant to the following
provision:
If the total direct and indirect cost of completing the remaining part of the WORK
exceed the sum which would have been payable to [petitioner] had it completed the
WORK, the amount of such excess [may be] claimed by [respondent] from either of
the following:
1. Any amount due [petitioner] from [respondent] at the time of the termination of
this Agreement.[22]
The issue as to the correct amount of petitioners advances and billable
accomplishments involves an evaluation of the manner in which the parties
completed the work, the extent to which they did it, and the expenses each of them
incurred in connection therewith. Arbitrators also need to look into the computation
of foreign and local costs of materials, foreign and local advances, retention fees
and letters of credit, and taxes and duties as set forth in the Agreement. These data
can be gathered from a review of the Agreement, pertinent portions of which are
reproduced hereunder:
C. CONTRACT PRICE AND TERMS OF PAYMENT
All progress payments to be made by [respondent] to [petitioner] shall be subject to
a retention sum of ten percent (10%) of the value of the approved quantities. Any
claims by [respondent] on [petitioner] may be deducted by [respondent] from the
progress payments and/or retained amount. Any excess from the retained amount
after deducting [respondents] claims shall be released by [respondent] to
[petitioner] after the issuance of [the Ministry of Public Works and Highways] of the
Certificate of Completion and final acceptance of the WORK by [the Ministry of
Public Works and Highways].
D. IMPORTED MATERIALS AND EQUIPMENT
[Respondent shall open the letters of credit for the importation of equipment and
materials listed in Annex E hereof after the drawings, brochures, and other technical
data of each items in the list have been formally approved by [the Ministry of Public
Works and Highways]. However, petitioner will still be fully responsible for all
imported materials and equipment.
All expenses incurred by [respondent], both in foreign and local currencies in
connection with the opening of the letters of credit shall be deducted from the
Contract Prices.
N. OTHER CONDITIONS
2. All customs duties, import duties, contractors taxes, income taxes, and other
taxes that may be required by any government agencies in connection with this
Agreement shall be for the sole account of [petitioner].[23]
Being an inexpensive, speedy and amicable method of settling
disputes,[24] arbitration -- along with mediation, conciliation and negotiation -- is
encouraged by the Supreme Court. Aside from unclogging judicial dockets,
arbitration also hastens the resolution of disputes, especially of the commercial
kind.[25] It is thus regarded as the wave of the future in international civil and
commercial disputes.[26] Brushing aside a contractual agreement calling for
arbitration between the parties would be a step backward.[27]
Consistent with the above-mentioned policy of encouraging alternative dispute
resolution methods, courts should liberally construe arbitration clauses. Provided
such clause is susceptible of an interpretation that covers the asserted dispute, an
order to arbitrate should be granted.[28] Any doubt should be resolved in favor of
arbitration.[29]
Second Issue:
Prior Request for Arbitration
According to petitioner, assuming arguendo that the dispute is arbitrable, the failure
to file a formal request for arbitration with the Construction Industry Arbitration
Commission (CIAC) precluded the latter from acquiring jurisdiction over the
question. To bolster its position, petitioner even cites our ruling in Tesco Services
Incorporated v. Vera.[30] We are not persuaded.
Section 1 of Article II of the old Rules of Procedure Governing Construction
Arbitration indeed required the submission of a request for arbitration, as follows:
SECTION. 1. Submission to Arbitration -- Any party to a construction contract
wishing to have recourse to arbitration by the Construction Industry Arbitration
Commission (CIAC) shall submit its Request for Arbitration in sufficient copies to the
Secretariat of the CIAC; PROVIDED, that in the case of government construction
contracts, all administrative remedies available to the parties must have been
exhausted within 90 days from the time the dispute arose.
Tesco was promulgated by this Court, using the foregoing provision as reference.
On the other hand, Section 1 of Article III of the new Rules of Procedure Governing
Construction Arbitration has dispensed with this requirement and recourse to the
CIAC may now be availed of whenever a contract contains a clause for the
submission of a future 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 construction dispute shall be deemed an
agreement to submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution or arbitral body
in such contract or submission. When a contract contains a clause for the
submission of a future controversy to arbitration, it is not necessary for the parties
to enter into a submission agreement before the claimant may invoke the
jurisdiction of CIAC.
The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. 2-
91 and 3-93.[31]
The difference in the two provisions was clearly explained in China Chang Jiang
Energy Corporation (Philippines) v. Rosal Infrastructure Builders et al.[32] (an
extended unsigned Resolution) and reiterated in National Irrigation Administration
v. Court of Appeals,[33] from which we quote thus:
Under the present Rules of Procedure, for a particular construction contract to fall
within the jurisdiction of CIAC, it is merely required that the parties agree to submit
the same to voluntary arbitration Unlike in the original version of Section 1, as
applied in the Tesco case, the law as it now stands does not provide that the parties
should agree to submit disputes arising from their agreement specifically to the CIAC
for the latter to acquire jurisdiction over the same. Rather, it is plain and clear that
as long as the parties agree to submit to voluntary arbitration, regardless of what
forum they may choose, their agreement will fall within the jurisdiction of the CIAC,
such that, even if they specifically choose another forum, the parties will not be
precluded from electing to submit their dispute before the CIAC because this right
has been vested upon each party by law, i.e., E.O. No. 1008.[34]
Clearly, there is no more need to file a request with the CIAC in order to vest it with
jurisdiction to decide a construction dispute.
The arbitral clause in the Agreement is a commitment on the part of the parties to
submit to arbitration the disputes covered therein. Because that clause is binding,
they are expected to abide by it in good faith.[35] And because it covers the dispute
between the parties in the present case, either of them may compel the other to
arbitrate.[36]
Since petitioner has already filed a Complaint with the RTC without prior recourse to
arbitration, the proper procedure to enable the CIAC to decide on the dispute is to
request the stay or suspension of such action, as provided under RA 876 [the
Arbitration Law].[37]
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.
SO ORDERED.
 RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. MAGWIN
MARKETING CORPORATION, NELSON TIU, BENITO SY and ANDERSON
UY, respondents.
DECISION
BELLOSILLO, J.:
WE ARE PERTURBED that this case should drag this Court in the banal
attempts to decipher the hazy and confused intent of the trial court in proceeding
with what would have been a simple, straightforward and hardly arguable
collection case. Whether the dismissal without prejudice for failure to prosecute was
unconditionally reconsidered, reversed and set aside to reinstate the civil case and
have it ready for pre-trial are matters which should have been clarified and resolved
in the first instance by the court a quo.Unfortunately, this feckless imprecision of
the trial court became the soup stock of the parties and their lawyers to further
delay the case below when they could have otherwise put things in proper order
efficiently and effectively.
On 4 March 1999 petitioner Rizal Commercial Banking Corporation (RCBC)
filed a complaint for recovery of a sum of money with prayer for a writ of
preliminary attachment against respondents Magwin Marketing Corporation,
Nelson Tiu, Benito Sy and Anderson Uy.[1] On 26 April 1999, the trial court issued a
writ of attachment. [2] On 4 June 1999 the writ was returned partially satisfied since
only a parcel of land purportedly owned by defendant Benito Sy was attached. [3] In
the meantime, summons was served on each of the defendants, respondents
herein, who filed their respective answers, except for defendant Gabriel Cheng who
was dropped without prejudice as party-defendant as his whereabouts could not be
located.[4] On 21 September 1999 petitioner moved for an alias writ of attachment
which on 18 January 2000 the court a quo denied.[5]
Petitioner did not cause the case to be set for pre-trial.[6] For about six (6)
months thereafter, discussions between petitioner and respondents Magwin
Marketing Corporation, Nelson Tiu, Benito Sy and Anderson Uy, as parties in Civil
Case No. 99-518, were undertaken to restructure the indebtedness of respondent
Magwin Marketing Corporation.[7] On 9 May 2000 petitioner approved a debt
payment scheme for the corporation which on 15 May 2000 was communicated to
the latter by means of a letter dated 10 May 2000 for the conformity of its officers,
i.e., respondent Nelson Tiu as President/General Manager of Magwin Marketing
Corporation and respondent Benito Sy as Director thereof. [8] Only respondent
Nelson Tiu affixed his signature on the letter to signify his agreement to the terms
and conditions of the restructuring.[9]
On 20 July 2000 the RTC of Makati City, on its own initiative, issued
an Order dismissing without prejudice Civil Case No. 99-518 for failure of petitioner
as plaintiff therein to prosecute its action for an unreasonable length of time x x
x.[10] On 31 July 2000 petitioner moved for reconsideration of the Order by
informing the trial court of respondents unremitting desire to settle the case
amicably through a loan restructuring program.[11] On 22 August 2000 petitioner
notified the trial court of the acquiescence thereto of respondent Nelson Tiu as an
officer of Magwin Marketing Corporation and defendant in the civil case. [12]
On 8 September 2000 the court a quo issued an Order reconsidering the
dismissal without prejudice of Civil Case No. 99-518
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.
Plaintiff is directed to submit the compromise agreement within 15 days from
receipt hereof. Failure 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.[13]
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 -
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 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 trial court issued two (2) Orders, one of
which inserted the date 6 November 2000 in the undated Order rejecting
petitioners motion for pre-trial in the civil case, and the other denying due course
to the Notice of Appeal on the ground that the Orders dated 8 September 2000 and
6 November 2000 are interlocutory orders and therefore, no appeal may be taken x
x x.[18]
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 28 September 2001 the appellate court promulgated
its Decision dismissing the petition for lack of merit and affirming the
assailed Orders of the trial court[21] holding that -
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 re-filing 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 Order dated November 6, 2000, which in effect means that the Order dated July
20, 2000 was ultimately not set aside considering that a party need not pay docket
fees for the re-filing of a case if the original case has been revived and reinstated. [22]
On 2 April 2002 reconsideration of the Decision was denied; hence, this
petition.
In the instant case, petitioner maintains that the trial court cannot coerce the
parties in Civil Case No. 99-518 to execute a compromise agreement and penalize
their failure to do so by refusing to go forward with the pre-trial conference. To
hold otherwise, so petitioner avers, would violate Art. 2029 of the Civil Code which
provides that [t]he court shall endeavor to persuade the litigants in a civil case to
agree upon some fair compromise, and this Courts ruling in Goldloop Properties,
Inc. v. Court of Appeals[23] 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.
Finally, respondent Uy contests the relevance of Goldloop Properties, Inc. v.
Court of Appeals, and refers to its incongruence with the instant case, i.e., that the
complaint of petitioner was dismissed for failure to prosecute and not for its
reckless disregard to present an amicable settlement as was the situation
in Goldloop Properties, Inc., and that the dismissal was without prejudice, in
contrast with the dismissal with prejudice ordered in the cited 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 re-filed 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.
What judicial benefit do we derive from starting the civil case all over again,
especially where three (3) of the four (4) defendants, i.e., Magwin Marketing
Corporation, Nelson Tiu and Benito Sy, have not contested petitioners plea before
this Court and the courts a quo to advance to pre-trial conference? Indeed, to
continue hereafter with the resolution of petitioners complaint without the usual
procedure for the re-filing thereof, we will save the court a quo invaluable time and
other resources far outweighing the docket fees that petitioner would be forfeiting
should we rule otherwise.
Going over the specifics of this petition and the arguments of respondent
Anderson Uy, we rule that the Order of 8 September 2000 did not reserve
conditions on the reconsideration and reversal of the Order dismissing without
prejudice Civil Case No. 99-518. This is quite evident from its text which does not
use words to signal an intent to impose riders on the dispositive portion -
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.
Plaintiff is directed to submit the compromise agreement within 15 days from
receipt hereof. Failure 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.[27]
Contrary to respondent Uys asseverations, the impact of the second
paragraph upon the first is simply to illustrate what the trial court would do after
setting aside the dismissal without 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 Appeals[28] 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 negotiations the proceedings would continue from where they left
off. Goldloop Properties, Inc. further said that its order, or a specie of it, did not
constitute an agreement or even an expectation of the parties that should they fail
to settle their differences within the stipulated number of days their case would be
dismissed.
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 re-filed.
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.
Indubitably, it is speculative to reckon the effectivity of the Order of dismissal
without prejudice to the presentation of the compromise agreement. If we are to
admit that the efficacy of the invalidation of the Order of dismissal is dependent
upon this condition, then we must inquire: from what date do we count the fifteen
(15)-day reglementary period within which the alleged revival of the order of
dismissal began to run? Did it commence from the lapse of the fifteen (15) days
provided for in the Order of 8 September 2000?Or do we count it from the 6
November 2000 Order when the trial court denied the holding of a pre-trial
conference? Or must it be upon petitioners receipt of the 16 November
2000 Order denying due course to its Notice of Appeal? The court a quo could not
have instituted an Order that marked the proceedings before it with a shadow of
instability and chaos rather than a semblance of constancy and firmness.
 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]
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
concession.[34] Hence, if only to inspire confidence in the pursuit of a middle ground
between petitioner and respondents, we must not interpret the trial
courts Orders as dismissing the action on its own motion because the parties,
specifically petitioner, were anxious to litigate their case as exhibited in their
several manifestations and motions.
We reject respondent Uys contention that Goldloop Properties, Inc. v. Court of
Appeals is irrelevant to the case at bar on the dubious reasoning that the complaint
of petitioner was dismissed for failure to prosecute and not for the non-submission
of a compromise agreement which was the bone of contention in that case, and
that the dismissal imposed in the instant case was without prejudice, in contrast to
the dismissal with prejudice decreed in the cited case. To begin with, whether the
dismissal is with or without prejudice if grievously erroneous is detrimental to the
cause of the affected party; Goldloop Properties, Inc. does not tolerate a wrongful
dismissal just because it was without prejudice. More importantly, the facts
in Goldloop Properties, Inc. involve, as in the instant case, a dismissal for failure to
prosecute on the ground of the parties inability to come up with a compromise
agreement within fifteen (15) days from notice of the courts order therein. All told,
the parallelism between them is unmistakable.
Even if we are to accept on face value respondents understanding of Goldloop
Properties, Inc. as solely about the failure to submit a compromise agreement, it is
apparent that the present case confronts a similar problem. Perhaps initially the
issue was one of failure to prosecute, as can be observed from the Order dated 20
July 2000, although later reversed and set aside. But thereafter, in the Order of 6
November 2000, the trial court refused to proceed to pre-trial owing to the failure
of the plaintiff to submit a compromise agreement pursuant to the Order dated 8
September 2000. When the civil case was stalled on account of the trial courts
refusal to call the parties to a pre-trial conference, the reason or basis therefor was
the absence of a negotiated settlement - a 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 of
the several Orders of the trial court, i.e., as to whether the dismissal without
prejudice was revived upon petitioners helplessness to perfect an out-of-court
arrangement, with more reason must we employ the ruling in Goldloop Properties,
Inc. to resolve the parties differences of opinion.
We also find nothing in the record to support respondent Uys conclusion that
petitioner has been mercilessly delaying the prosecution of Civil Case No. 99-518 to
warrant its dismissal. 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 pre-trial; (b) if he neglects to
prosecute his action for an unreasonable length of time; or (c) if he does not comply
with the rules or any order of the court. None of these was obtaining in the civil
case.
While there was a lull of about six (6) months in the prosecution of Civil Case
No. 99-518, it must be remembered that respondents themselves contributed
largely to this delay. They repeatedly asked petitioner to consider re-structuring the
debt of respondent Magwin Marketing Corporation to which petitioner graciously
acceded. Petitioner approved a new debt payment scheme that was sought by
respondents, which it then communicated to 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 accommodate respondents incessant pleas to
negotiate. Although the dismissal of a case for failure to prosecute is a matter
addressed to the sound discretion of the court, that judgment however must not be
abused. The availability of this recourse must be determined according to the
procedural history of each case, the situation at the time of the dismissal, and the
diligence of plaintiff to proceed therein.[35] Stress must also be laid upon the official
directive that courts must endeavor to convince parties in a civil case to
consummate a fair settlement,[36] and to mitigate damages to be paid by the losing
party who has shown a sincere desire for such give-and-take.[37] All things
considered, we see no compelling circumstances to uphold the dismissal of
petitioners complaint regardless of its characterization as being without prejudice.
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 non-appearance 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 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.
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.[40]
 WHEREFORE, the Petition for Review is GRANTED. The Decision dated 28
September 2001 and Resolution dated 2 April 2002 of the Court of Appeals in CA-
G.R. SP No. 62102 are REVERSED and SET ASIDE.
The Orders dated 8 September 2000, 6 November 2000 and 16 November
2000 of the Regional Trial Court, Branch 135, of Makati City, docketed as Civil Case
No. 99-518, are also REVERSED and SET ASIDE insofar as these Orders are
interpreted to impose upon and collect anew from petitioner RIZAL COMMERCIAL
BANKING CORPORATION docket or legal fees for its complaint, or to dismiss without
prejudice Civil Case No. 99-518, or to preclude the trial court from calling the
parties therein to pre-trial conference, or from proceeding thereafter with dispatch
to resolve the civil case.
Civil Case No. 99-518 is deemed REINSTATED in, as it was never taken out
from, the dockets of the Regional Trial Court, Branch 135, of Makati City. The trial
court is ORDERED to exercise its jurisdiction over Civil Case No. 99-518, to
CONDUCT the pre-trial conference therein with dispatch, and to UNDERTAKE
thereafter such other proceedings as may be relevant, without petitioner being
charged anew docket or other legal fees in connection with its reinstatement. Costs
against respondents.
SO ORDERED.
 METRO CONSTRUCTION, INC., petitioner, vs. CHATHAM PROPERTIES,
INC., respondent.
DAVIDE, JR., C.J.:
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).
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 work of
the Chatham House; Engr. Alex Bautista, Area Manager of RKDCCI; Mr. Avelino M.
Mercado, CHATHAMs Project Manager; and Engr. Jose T. Infante.
[2]
In the meantime, the TOR was amended and finalized on 19 August 1998.
The facts, as admitted by the parties before the CIAC and incorporated in the
original TOR, are as follows:
1. On 21 April 1994, the parties formally entered into a xxx contract for
the construction of the Chatham House xxx for the contract price of
P50,000,000.00 inclusive of value-added tax, subject to adjustments
in accordance with Article 9 of the contract. Construction of the
project, however, commenced on 15 April 1994 upon the release by
CHATHAM of the downpayment.
2. On 12 July 1994, a Supplemental Contract was executed by and
between the parties whereby CHATHAM authorized MCI to procure
in behalf of the former materials, equipment, tools, fixtures,
refurbishing, furniture, and accessories necessary for the completion
of the project.
3. Under Section 1.04 of the Supplemental Contract, the total amount of
procurement and transportation cost[s] and expenses which may be
reimbursed by MCI from CHATHAM shall not exceed the amount of
P75,000,000.00.
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
xxx RKDCCI and approved by one of CHATHAMs Project Managers,
Romulo F. Sugay.
5. On 15 September 1995, CHATHAM through its Project Manager,
Romulo F. Sugay, agreed to give P20,000 per floor for five (5) floors,
or a total of P100,000.00 as bonus/incentive pay to MCIs construction
workers for the completion of each floor on schedule. CHATHAM
reimbursed MCI the amount of P60,000.00 corresponding to bonuses
advanced to its workers by the latter for the 14th, 16th, and 17th floors.
6. CHATHAMs payments to MCI totaled P104,875,792.37, representing
payments for portions of MCIs progress billings and xxx additional
charges.
The parties then stipulated on the following issues, again, as set forth in the
TOR:
1. Is MCI entitled to its claims for unpaid progress billings amounting to
P21,062,339.76?
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?
3. Is CHATHAM liable for Change Orders 7a, 7b, 10, 14, 15, 16, 17, 19 and
20?
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?
5. Is MCI entitled to an additional reimbursement of P40,000.00 for
bonuses granted to workers as an incentive for the early completion
of each floor?
6. Were the deductions in the amount of P1,393,458.84 made by
CHATHAM in MCIs progress billing reasonable?
7. Is MCIs claim of P1,646,502.00 for labor escalation valid?
 8. Is MCI entitled to payment of attendance fee? To what extent and how
much?
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?
10. Whether or not CHATHAM is entitled to claim x x actual damages? If
so, to what extent and how much?
11. Whether or not CHATHAM is entitled to x x x additional
counterclaims as follows:
11.1 Core testing expenses and penalty for concrete strength failure
P3,630,587.38
11.2. Expenses to rectify structural steel works for the foundation
P1,331,139.74.
11.3. Cost of additional materials (concrete & rebars) supplied by CPI
P5,761,457.91
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 case. In its decision of 19 October 1998,[4] the CIAC
made the following findings and conclusions:
It was established during the hearing that the contract was awarded to MCI through
negotiation as no bidding was conducted. xxx 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 P75,000,000.00. The latter is supposed to cover the
procurement of materials for the project. The Construction Contract provides for
monthly progress billings and payments based on actual accomplishments of the
various phases of work. The Supplemental Contract provides for reimbursement of
[the] total amount of procurement and transportation costs and expenses, upon
MCIs presentation of suppliers invoices/receipts.
However, from testimonies of witnesses from both parties, it was revealed that the
two distinct manner(s) of payment to MCI was set aside. The earlier attempt by
CHATHAM to prove that MCI was remiss in submitting suppliers invoices and/or
receipts in support of its billings against the Supplemental Contract was in fact later
on abandoned when CHATHAMs witness Mercado admitted that the matter of
adherence to the payment provision of the Supplemental Contract is a non-
issue. This was borne out by the fact that progress billings and payments under
both contracts were made on the basis of percentage of project completion.
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.
xxx
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 lump-sum agreement
under the contract, subject to adjustment only if there are any significant changes
in the contract plans.
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 xxx 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 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.
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 UnOcampo) as the reason.
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 sub-contracting 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.
When queried by the Tribunal if the said amount already took into account the
costs and expenses (Chatham) claims to have incurred for the account of MCI, Mr.
Mercado answered in the affirmative. When queried further how the amount was
arrived at, Mr. Mercado replied that it was the sum the Building Committee figured
it was willing to pay MCI simply to close the issue.
Mr. Mercado even added that while MCI is not actually entitled to this amount, it
was out of friendship that CHATHAM offered this sum to MCI as final settlement
under the contract.
It is with the above attendant circumstances that this Tribunal will be guided in the
resolution of issues brought before it for adjudication. From what this Tribunal finds
as peculiar circumstances surrounding the contracting and implementation of the
CHATHAM House Project, it arrived at the following fundamental conclusions:
1. That indeed special friendly relations were present between the
parties in this case, although decisions by either party on any
particular issue were made not purely on the basis of such special
relations. For example, this Tribunal believes that, contrary to the
allegation of (CHATHAMs) witnesses, the decision not to terminate
the contract was not due to the admitted special relations only, but
also due to the greater problems the project would be faced with by
terminating the MCI contract and mobilizing another contractor.
2. That while there was no official termination of the contract, the
manner by which CHATHAM had taken upon themselves the
procurement of materials, the fielding of labor, the control over MCIs
engineers, and the subcontracting of various phases of work on its
own, is considered by this Tribunal as implied termination of the
contract. The idea of allowing MCI to remain on the project in spite of
what CHATHAM 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. 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. 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 some generally
accepted procedures in the construction industry in dealing with
MCI. One example was not giving MCI the opportunity to rectify some
of what CHATHAM considered as construction deficiencies and
instead engaging the services of other parties to undertake the
corrective works and later on charging the costs thereof to MCI.
In addition to the above conclusions resulting from what this Tribunal considered
peculiar of circumstances surrounding the implementation of the project that were
revealed during the proceedings of this case, this Tribunal finds the necessity of
establishing a cut-off date with regard to the fiscal liability of one party towards the
other.
Mr. Avelino Mercado of CHATHAM presented a list of what he claims as its
Payments to MCI (Exhibit 7) summarized as follows:
a. Down payment (Paid in two equal trances) P20,000,000.00
b. Cash Advance for Mobilization 800,000.00
c. Payments of Progress Billings up to Billing No. 19 71,081,183.44
d. Other Payments (Mar 1994 to Apr 1996) 5,474,419.67
e. Advances on MCI Payrolls (April 1996 to March 1997) 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.
Applying this percentage of completion of 94.12% to the P125,000,000.00 contract
amount gives a total accomplishment equivalent to P117,650,000.00 as of 23 May
1996. Add to this amount the sum of P5,353,091.08 representing the total of
approved Change Orders as of 31 December 1995 gives a total MCI accomplishment
of P123,003,091.08, as CHATHAM saw it. Of this amount, CHATHAM admitted
having paid MCI the total sum of P104,752,358.42 only (Exhibit 7) up to March 15,
1997, leaving a balance of P18,250,732.66. It should be noted that of the total
payment of P104,752,358.42, the sum of P5,750,000.00 was paid after May 1996 so
that as of 23 May 1996, CHATHAMs total payment to MCI was P99,002,358.42.
Effectively, therefore, the amount due MCI as of 23 May 1996 amounted to
P24,005,732.66 computed as follows:
Total accomplishment as of 23 May 1996 at 94.12% P117,655,000.00
Add approved change orders 5,353,091.08
Total P123,008,091.08
Less payments up to 23 May 1996 99,002,358.42
Balance due MCI as of 23 May 1996 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 Tribunal therefore stands firm on
its conclusion that MCIs accomplishment is only up to the extent of 94.10%. [5]
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 deliver[ed] 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-I. This Tribunalnotes 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-I as it should be.
This Tribunal holds that Exh. 3-I 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:
1/4x1/3[(1/10xP125,000,000.00)1%]x294=P3,062,498.78.[6]
The CIAC then decreed:
Accordingly, as presented below, all the amounts due MCI are first listed and added
up and the total payment is deducted therefrom. The admitted total payment
figure as reflected in the Terms of Reference is the amount applied instead of the
total reflected in CHATHAMs Summary of Payments which incidentally reflected a
lesser amount. From the Balance Due MCI the Amounts CPI is Held Entitled To is
deducted and the Net Amount Due MCI is arrived at.
A. AMOUNTS HELD MCI IS ENTITLED TO:
A.1. From the original contract: 94.12% of P125,000,000.00 P117,650,000.00
A.2 Approved Change Orders 5,353,091.08
A.3 Pending Change Orders 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
Less: Total payments-Item II-6 of TOR 104,875,792.37
Balance Due MCI P 23,518,417.31
B. AMOUNTS HELD CPI IS ENTITLED TO:
B.1. Liquidated Damages P 3,062,498.78
B.2. Actual Damages 335,994.50
B.3. Penalties 1,778,285.44
B.4 Cash Payments in Behalf of MCI 2,214,715.68
Total Amount Due CPI P 7,391,494.40
C. NET AMOUNT DUE MCI (A minus B) P16,126,922.91
WHEREFORE, judgment is hereby rendered in favor of the Claimant [MCI] directing
Respondent [CHATHAM] to pay Claimant [MCI] the net sum of SIXTEEN MILLION
ONE HUNDRED TWENTY SIX THOUSAND NINE HUNDRED TWENTY TWO & 91/100
(16,126,922.91) PESOS.
SO ORDERED.[7]
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:
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.
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 the decision of the CIAC, the Court of
Appeals confirmed the jurisprudential principle that absent any showing of
arbitrariness, the CIACs findings as an administrative agency and quasi-judicial body
should not only be accorded great respect but also given the stamp of
finality. However, the Court of Appeals found exception in the CIACs disquisition of
Issue No. 9 on the matter of liquidated damages.
The Court of Appeals disagreed with the CIACs finding that there was an
implied takeover by CHATHAM of the project and that it was unnecessary for the
CIAC to rule on whether MCI completed and/or delivered the project within the
approved completion schedule of the project since CHATHAM failed to observe the
antecedent acts required for the termination of the contract, as set forth in the
Construction Agreement.
The Court of Appeals ascertained that the evidence overwhelmingly proved
that there was no takeover by CHATHAM and that MCI exercised complete control,
authority and responsibility over the construction. In support of this conclusion, the
appellate court pointed to the following evidentiary bases:[10]
1. Testimony of CHATHAMs Engr. Kapunan that the interim takeover for the works
on the basement was triggered by lack of manpower and delays as early as
February 1995, as evidenced by their assessment[11] and that the interim takeover
was only with respect to the direction or management of the field operations and
was limited only to works on the basement and intended to assist MCI to catch up
with the schedule of completion, since at that time the project was very much
delayed; thereafter, the MCI was back in full control of the project. [12]
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]
3. Testimony of Engr. Infante that MCI personnel were constantly present in the
project and the intervention (not takeover) by CHATHAM was justified to ensure
completion of the project on time.[14]
4. Documentary exhibits evincing the nature and extent of MCIs work during the
takeover period which belied its claims that it was not in control of the project
because of the takeover thus:
Exhibit 4 Letter dated 15 February 1995 of Engr. Kapunan of RKDCCI to John Lai of
MCI stating that the takeover of directions or management of the field operations is
interim, 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.
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 beresponsible for any errors or accidents that may
occur during this INTERIM period, indicating that Dr. Lai was very much aware of
the interim period.
Exhibit 4-C - Letter dated 18 February 1995 written by Engr. Ben C. Ruiz of RKDCCI
to Dr. Lai containing the reasons for the takeover.
Exhibit 8A Letter 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 8 Letter 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.
Exhibit 4-D Letter 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-I, 3-M, 3-N, 3-W-1, 3-X, 3-Y, and 3-Z among 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.
Exhibits 5, 5-A, 5-B, 5-C, 5-D, 5-E, 5-F, 5-O, C-7, and E-9 evidencing that MCI
continued to manage other works on the project even during the time of the
interim takeover of the basement works, as seen in the series of communications
between CHATHAM or RKDCCI and MCI within the period beginning February 1995
to 30 May 1995.
5. Respondents Request for Adjudication, Annex G, Records, Folder No. 6 - which
incorporated Change Order No. 12, among others, dated 28 August 1995,
recommended by the RKDCCI and accepted by Dr. Lai, and which request for an
extension of 25 days readily showed that even after 30 May 1995, after the close of
the supposed takeover period, MCI was still the contractor in complete control of
the project for it would not have otherwise accepted the said change order if it
(were) no longer the Contractor of the project due to the termination of the
Construction agreement as of said date on account of the alleged takeover.
6. Exhibits 3-J, 3-M, 3-Q, 3-R, 3-V, 3-W-1, 3-W-2, 5-F, 5-1, 6, 12-II, 12-JJ, 12-MM, and
12-NN tending to prove that RKDCCI monitored the work from start to finish and
had zealously pointed out to MCI the defects or improper execution of the
construction works, and gave MCI all the opportunity to rectify the construction
deficiencies and complete the works of the project.
The Court of Appeals concluded that the interim takeover was necessitated by
CHATHAMs insistence to meet its own turnover dates with the buyers of the
projects units. Thus, CHATHAM was constrained to hire subcontractors with
sufficient manpower and supervision and incur various expenses to facilitate the
completion of the project and/or assist MCI in making up for its delay.
The Court of Appeals then considered it imperative to determine whether MCI
failed to complete the project on time for which it may be held liable for liquidated
damages based on the delays in the overall schedule of completion pursuant to Art.
13.5 of the Construction Agreement, to wit:
13.5. Over-All Schedule For 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 concreting milestones shall be deducted from the penalty of Over-All
Schedule.[15]
The Court of Appeals disposed of the controversy in this wise:
As is extant from the records, the completion date of the Project under the
Construction Contract or under the revised construction schedule was never met by
reason of [MCIs] lack of manpower, necessary equipment, qualified engineers and
inefficient management of the construction works on the Project. Thus, under the
Contract (Exhibit 1), [MCI] had 780 days, or until 22 January 1996, from starting
date, or April 12, 1994, to finish the project. The completion date, however, was not
followed and was revised as early as December 17, 1994, extending the milestone
dates up to March 15, 1996 (Exhibits 3-G and 3-H). As of December 25, 1995, the
number of days delayed was already 294 days. Thus, on February 22, 1996, the
contract milestones were again revised, inclusive of 53 days extension, to May 23,
1996 (Exhibits 3-I and 3-O). The May 23, 1996 turnover milestone nor the July 22,
1996 turnover of the whole project were neither met (Exhibits 3-P, 3-R, 3-S and 3-T
but [CHATHAM] was again constrained to allow [MCI] to continue working on the
Project to complete the balance of the works (Exhibit M). And all throughout the
construction of the 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:
1/10[1%(P125,000,000.00)] per day x 193 days
=[1/10 (P1,250,000.00)] per day x 193 days
=P125,000.00 per day x 193 days
=P24,125,000.00
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered partially granting
[CHATHAMs] claim for liquidated damages. The Tribunals Decision dated 19
October 1998 is hereby AFFIRMED with the modification on [MCIs] liability for
liquidated damages in the amount of P24,125,000.00. Thus,
A. AMOUNTS [MCI] IS ENTITLED TO:
A.1. From the original contract: 94.12% of P125,000,000.00 P117,650,000.00
A.2 Approved Change Orders 5,353,091.08
A.3 Pending Change Orders 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
Less: Total payments-Item ll-6 of TOR 104,875,792.37
Balance Due Respondent P 23,518,417.31
B. AMOUNTS [CHATHAM] IS ENTITLED TO:
B.1. Liquidated Damages P 24,125,000.00
B.2. Actual Damages 335,994.50
B.3. Penalties 1,778,285.44
B.4 Cash Payments in Behalf of MCI 2,214,715.68
Total Amount Due CPI P 28,453,995.62
C. NET AMOUNT DUE [CHATHAM] (B minus A) P 4,935,578.31
Correspondingly, Respondent [MCI] is hereby directed to pay the Petitioner
[CHATHAM] the net sum of FOUR MILLION NINE HUNDRED THIRTY-FIVE THOUSAND
FIVE HUNDRED SEVENTY-EIGHT & 31/100 (P4,935,578.31) PESOS.[16]
MCI promptly filed on 25 October 1999 a motion for reconsideration. In its
Resolution of 4 February 2000, the Court of Appeals denied MCIs motion for
reconsideration for lack of merit, as well as CHATHAMs Motion to Lift Garnishment
and Levy Pending Appeal, filed on 13 October 1999, for being premature. [17]
Thus, MCI filed the instant petition for review to challenge the decision of the
Court of Appeals. MCI alleges that the Court of Appeals erred in reviewing and
reversing the CIACs factual findings, that there was an implied takeover by
CHATHAM of the project, and that MCI was not in delay in the overall schedule. In
so doing, the Court of Appeals contravened Section 19 of Executive Order (E.O.) No.
1008,[18] which limits the review of an Arbitral Award to only questions of law, thus:
Section 19. Finality of Awards The arbitral award shall be binding upon the
parties. It shall be final and inappealable (sic) except on questions of law which shall
be appealable to the Supreme Court.
MCI then asserts that as signatories to the contract, it and CHATHAM complied
with this legal provision when they included as part of their TOR the stipulation that
[t]he decision of the Arbitral Tribunal shall be final and non-appealable except on
questions of law. Accordingly, the binding character of this provision upon the
parties is conclusive and final.
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 should be entertained. Therefore, the only
effect of these rules on E.O. No. 1008 is the transfer of the appeal forum from the
Supreme Court to the Court of Appeals.
MCI further asserts that, even assuming that the CIACs findings of facts are
reviewable on appeal, the Court of Appeals gravely abused its discretion when it
accepted hook, line and sinker CHATHAMs contention that MCI was in delay, and
ignored competent, clear and substantial evidence that prove the contrary, and
that CHATHAM is not entitled to liquidated damages.
For its part, CHATHAM avers that the evolution on the rules governing appeals
from judgments, decisions, resolutions, orders or awards of the CIAC convincingly
discloses 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.
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.
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.
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, 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.
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.
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. Scope -- These 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. Cases not Covered. -- These 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. Who may appeal and where to appeal. -- The appeal of a party affected by a final
order, decision, or judgment of the Court of Tax Appeals or a quasi-judicial agency
shall be taken to the Court of Appeals within the period and in the manner herein
provided, whether the appeal involves questions of fact or of law or mixed
questions of fact and law. From final judgments or decisions of the Court of
Appeals, the aggrieved party may appeal by certiorari to the Supreme Court as
provided in Rule 45 of the Rules of Court.
Subsequently, on 23 February 1995, R.A. No. 7902 was enacted. It expanded
the jurisdiction of the Court of Appeals and amended for that purpose Section 9 of
B.P. Blg. 129, otherwise known as the Judiciary Reorganization Act of 1980. [20]
Section 9(3) thereof reads:
Section 9. Jurisdiction. -- The Court of Appeals shall exercise:
(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions,
orders or awards of Regional Trial Courts and quasi-judicial agencies,
instrumentalities, boards or commissions, including the Securities and Exchange
Commission, the Social Security Commission, the Employees Compensation
Commission and the Civil Service Commission, except those falling within the
appellate jurisdiction of the Supreme Court in accordance with the Constitution, the
Labor Code of the Philippines under Presidential Decree No. 442, as amended, the
provisions of this Act, and of subparagraph (1) of the third paragraph and
subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948.
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
Then this Court issued Administrative Circular No. 1-95,[21] 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 authorized to be taken 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
Telecommunication 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, and Construction Industry
Arbitration Commission.
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 Covered. This 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 provided, whether the
appeal involves question of fact, of law, or mixed questions of fact and law.
Through Circular No. 1-91, the Supreme Court intended to establish a uniform
procedure for the review of the final orders or decisions of the Court of Tax Appeals
and other quasi-judicial agencies provided that an appeal therefrom is then allowed
under existing statutes to either the Court of Appeals or the Supreme Court. The
Circular designated the Court of Appeals as the reviewing body to resolve questions
of fact or of law or mixed questions of fact and law.
It is clear that Circular No. 1-91 covers the CIAC. In the first place, it is a quasi-
judicial agency. A quasi-judicial agency or body has been defined as an organ of
government other than a court and other than a legislature, which affects the rights
of private parties through either adjudication or rule-making.[22] The very definition
of an administrative agency includes its being vested with quasi-judicial powers. 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.[23] 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.
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 quasi-judicial 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.
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 are likewise broadened to include appeals on questions of
facts and appeals involving mixed questions of fact and law.
The jurisdiction of the Court of Appeals over appeals from final orders or
decisions of the CIAC is further fortified by the amendments to B.P. Blg.129, as
introduced by R.A. No. 7902. With the amendments, the Court of Appeals is vested
with appellate jurisdiction over all final judgments, decisions, resolutions, orders or
awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities,
boards or commissions, except those within the appellate jurisdiction of the
Supreme Court in accordance with the Constitution, the Labor Code of the
Philippines under Presidential Decree No. 442, as amended, the provisions of this
Act, and of subparagraph (1) of the third paragraph and subparagraph (4) of the
fourth paragraph of Section 17 of the Judiciary Act of 1948.
While, again, the CIAC was not specifically named in said provision, its
inclusion therein is irrefutable. The CIAC was not expressly covered in the
exclusion. Further, it is a quasi-judicial agency or instrumentality. The decision
in Luzon Development Bank v. Luzon Development Bank Employees [24] 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
instrumentalities was purposely included in [Section 9 of B.P. Blg. 129 as amended
by R.A. No. 7902].
An instrumentality is anything used as a means or agency. Thus, the terms
governmental agency or instrumentality are synonymous in the sense that either of
them is a means by which a government acts, or by which a certain government act
or function is performed. The word instrumentality, with respect to a state,
contemplates an authority to which the state delegates governmental power for
the performance of a state function.
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.
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.
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.[25] This power is constitutionally enshrined to
enhance the independence of the Supreme Court.[26]
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 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 non-appealable 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 Appeals erred in rendering the questioned decision
of 30 September 1999.
Settled is the general rule that the findings of facts of the Court of Appeals are
binding on us. There are recognized exceptions to the rule, such as when the
findings are contrary to those of the trial court, [30] as in this case. Hence, we have to
take a closer reexamination of this case.
The CIAC is certain that the evidence overwhelmingly tended to prove that the
manner by which CHATHAM took charge in the procurement of materials, fielding
of labor, control of MCI engineers and the subcontracting of various phases of the
work, constituted an implied takeover of the project. The CIAC then concludes that
the cut-off date for delineating the fiscal liabilities of the parties is 23 May 1996
when CHATHAM evaluated MCIs work accomplishment at 94.12% and then
suspended all further progress payments to MCI. For these reasons, the CIAC found
it trifling to determine whether MCI was in delay based on the Overall
Schedule. However, the CIAC discovered that MCI was in delay for 294 days in the
concreting milestone and held the latter liable for liquidated damages in the
amount of P3,062,498.78.
The Court of Appeals made a contrary conclusion and declared that MCI was in
delay for 193 days based on the overall schedule of completion of the project and
should incur liquidated damages in the amount of P24,125,000.00.
It is undisputed that the CIAC and the Court of Appeals found MCI liable for
liquidated damages but on different premises. Based on the CIACs assessment,
MCIs responsibility was anchored on its delay in the concreting milestone, while the
Court of Appeals evaluation concentrated on MCIs delay in completing the project
based on the overall schedule of work. The variance in the evaluation spells a
staggering difference in the party who should ultimately be held liable and the net
amount involved.
A study of the final computation of the net amount due in both the final
disquisitions of the CIAC and the Court of Appeals shows 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.
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.
Exhibits 4, 4-A, 4-C, 8A, 8, 4-D, 3, 3-I, 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] 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 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.
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the assailed 30 September
1999 decision of the Court of Appeals in CA-G.R. SP No. 49429 is hereby PARTIALLY
MODIFIED by setting aside the order directing Metro Construction, Inc. to pay
Chatham Properties, Inc. the amount of P4,935,578.31. The arbitral award of the
Construction Industry Arbitration Commission in CIAC Case 10-98, promulgated on
19 October 1998, directing Chatham Properties, Inc. to pay Metro Construction, Inc.
the sum of SIXTEEN MILLION ONE HUNDRED TWENTY-SIX THOUSAND NINE
HUNDRED TWENTY-TWO & 91/100 (P16,126,922.91) PESOS, is accordingly
REINSTATED.
No pronouncement as to costs.
SO ORDERED.
PHILROCK, INC., petitioner, vs. CONSTRUCTION INDUSTRY ARBITRATION
COMMISSION and Spouses VICENTE and NELIA CID, respondents.
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 (CIAC) acquires
primary jurisdiction. It may resolve not only the merits of such controversies; when
appropriate, it may also award damages, interests, attorneys fees and expenses of
litigation.
The 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 Decision [1] and the February 24, 1998
Resolution of the Court of Appeals (CA) in the consolidated cases docketed as CA-
GR SP Nos. 39781 and 42443. The assailed Decision disposed as follows:
WHEREFORE, judgment is hereby rendered DENYING the petitions and,
accordingly, AFFIRMING in toto the CIACs decision. Costs against petitioner.[2]
The assailed Resolution ruled in this wise:
Considering that the matters raised and discussed in the motion for reconsideration
filed by appellants counsel are substantially the same arguments which the Court
had passed upon and resolved in the decision sought to be reconsidered, and there
being no new issue raised, the subject motion is hereby DENIED.[3]
The Facts
The undisputed facts of the consolidated cases are summarized by the CA as
follows:
"On September 14, 1992, the Cid spouses, herein private respondents, filed a
Complaint for damages against Philrock and seven of its officers and engineers with
the Regional Trial Court of Quezon City, Branch 82.
On December 7, 1993, the initial trial date, the trial court issued an Order dismissing
the case and referring the same to the CIAC because the Cid spouses and Philrock
had filed an Agreement to Arbitrate with the CIAC.
Thereafter, preliminary conferences were held among the parties and their
appointed arbitrators. At these conferences, disagreements arose as to whether
moral and exemplary damages and tort should be included as an issue along with
breach of contract, and whether the seven officers and engineers of Philrock who
are not parties to the Agreement to Arbitrate should be included in the arbitration
proceedings. 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
[P]etitioner Philrock requested to suspend the proceedings until the court clarified
its ruling in the Order dated June 13, 1995. Philrock argued that said Order was
based on a mistaken premise that 'the proceedings in the CIAC fell through because
of the refusal of [Petitioner] Philrock to include the issue of damages therein,'
whereas the true reason for the withdrawal of the case from the CIAC was due to
Philrock's opposition to the inclusion of its seven officers and engineers, who did
not give their consent to arbitration, as party defendants. On the other hand,
private respondent Nelia Cid manifested that she was willing to exclude the seven
officers and engineers of Philrock as parties to the case so as to facilitate or
expedite the proceedings. With such manifestation from the Cid spouses, the
Arbitral Tribunal denied Philrock's request for the suspension of the
proceedings. Philrock's counsel agreed to the continuation of the proceedings but
reserved the right to file a pleading elucidating the position he [had] raised
regarding the Court's Order dated June 13, 1995. The parties then proceeded to
finalize, approve and sign the Terms of Reference. Philrock's counsel and
representative, Atty. Pericles C. Consunji affixed his signature to said Terms of
Reference which stated that 'the parties agree that their differences be settled by
an Arbitral Tribunal x x x x' (p. 9, Terms of Reference, p. 200, Rollo).
On September 12, 1995, [P]etitioner Philrock filed its Motion to Dismiss, alleging
therein that the CIAC had lost jurisdiction to hear the arbitration case due to the
parties' withdrawal of their consent to arbitrate. The motion was denied by x x x
CIAC per Order dated September 22, 1995. On November 8, public respondent
ordered the parties to appear before it on November 28, 1995 for the continuation
of the arbitral proceedings, and on February 7, 1996, public respondent directed
[P]etitioner Philrock to set two hearing dates in the month of February to present
its evidence and to pay all fees assessed by it, otherwise x x x Philrock would be
deemed to have waived its right to present evidence.
Hence, petitioner instituted the petition for certiorari but while said petition was
pending, the CIAC rendered its Decision dated September 24, 1996, the dispositive
portion of which reads, as follows:
'WHEREFORE, judgment is hereby rendered in favor of the Claimant, directing
Respondent to pay Claimant as follows:
1. P23,276.25 representing the excess cash payment for materials
ordered by the Claimants, (No. 7 of admitted facts) plus interests
thereon at the rate of 6% per annum from September 26, 1995 to the
date payment is made.
2. P65,000.00 representing retrofitting costs.
3. P13,404.54 representing refund of the value of delivered but
unworkable concrete mix that was laid to waste.
4. P50,000.00 representing moral damages.
5. P50,000.00 representing nominal damages.
6. P50,000.00 representing attorney's fees and expenses of litigation.
7. P144,756.80 representing arbitration fees, minus such amount that
may already have been paid to CIAC by respondent.
Let a copy of this Decision be furnished the Honorable Salvador C. Ceguera,
presiding judge, Branch 82 of Regional Trial Court of Quezon City who referred this
case to the Construction Industry Arbitration Commission for arbitration and proper
disposition.' (pp. 44-45, Rollo, CA-G.R. SP No. 42443) "[4]
Before the CA, petitioner filed a Petition for Review, docketed as CA-GR SP No.
42443, contesting the jurisdiction of the CIAC and assailing the propriety of the
monetary awards in favor of respondent spouses. This Petition was consolidated by
the CA with CA-GR SP No. 39781, a Petition for Certiorari earlier elevated by
petitioner questioning the jurisdiction of the CIAC.
Ruling of the Court of Appeals
The CA upheld the jurisdiction of the CIAC[5] over the dispute between
petitioner and private respondent. Under Executive Order No. 1008, the CIAC
acquires jurisdiction when the parties agree to submit their dispute to voluntary
arbitration. Thus, in the present case, its jurisdiction continued despite its April 13,
1994 Order referring the case back to the Regional Trial Court (RTC) of Quezon City,
Branch 82, the court of origin. The CIACs action was based on the principle that
once acquired, jurisdiction remains until the full termination of the case unless a
law provides the contrary. No such full termination of the case was evident in the
said Order; nor did the CIAC or private respondents intend to put an end to the
case.
Besides, according to Section 3 of the Rules of Procedure Governing
Construction Arbitration, technical rules of law or procedure are not applicable in a
single arbitration or arbitral tribunal.Thus, the dismissal could not have divested the
CIAC of jurisdiction to ascertain the facts of the case, arrive at a judicious resolution
of the dispute and enforce its award or decision.
Since the issues concerning the monetary awards were questions of fact, the
CA held that those awards were inappropriate in a petition for certiorari. Such
questions are final and not appealable according to Section 19 of EO 1008, which
provides that arbitral awards shall be x x x final and [u]nappealable except on
questions of law which shall be appealable to the Supreme Court x x x.
Nevertheless, the CA reviewed the records and found that the awards were
supported by substantial evidence. In matters falling under the field of expertise of
quasi-judicial bodies, their findings of fact are accorded great respect when
supported by substantial evidence.
Hence, this Petition.[6]
Issues
The petitioner, in its Memorandum, raises the following issues:
A. Whether or not the CIAC could take jurisdiction over the case of Respondent Cid
spouses against Petitioner Philrock after the case had been dismissed by both the
RTC and the CIAC.
B. Whether or not Respondent Cid spouses have a cause of action against Petitioner
Philrock.
C. Whether or not the awarding of the amount of P23,276.75 for materials ordered
by Respondent Spouses Cid plus interest thereon at the rate of 6% from 26
September 1995 is proper.
D. Whether or not the awarding of the amount of P65,000.00 as retrofitting costs is
proper.
E. Whether or not the awarding of the amount of P1,340,454 for the value of the
delivered but the allegedly unworkable concrete which was wasted is proper.
F. Whether or not the awarding o[f] moral and nominal damages and attorney's
fees and expenses of litigation in favor of respondents is proper.
G. Whether or not Petitioner Philrock should be held liable for the payment of
arbitration fees.[7]
In sum, petitioner imputes reversible error to the CA (1) for upholding the
jurisdiction of the CIAC after the latter had dismissed the case and referred it to the
regular court, (2) for ruling that respondent spouses had a cause of action against
petitioner, and (3) for sustaining the award of damages.
This Courts Ruling
The Petition has no merit.
First Issue: Jurisdiction
Petitioner avers that the CIAC lost jurisdiction over the arbitration case after both
parties had withdrawn their consent to arbitrate. The June 13, 1995 RTC Order
remanding the case to the CIAC for arbitration was allegedly an invalid mode of
referring a case for arbitration.
We disagree. Section 4 of Executive Order 1008 expressly vests in the CIAC
original and exclusive jurisdiction over disputes arising from or connected with
construction contracts entered into by parties that have agreed to submit their
dispute to voluntary arbitration.[8]
It is undisputed that the parties submitted themselves to the jurisdiction of
the Commission by virtue of their Agreement to Arbitrate dated November 24,
1993. Signatories to the Agreement were Atty. Ismael J. Andres and Perry Y. Uy
(president of Philippine Rock Products, Inc.) for petitioner, and Nelia G. Cid and
Atty. Esteban A. Bautista for respondent spouses.[9]
Petitioner claims, on the other hand, that this Agreement was withdrawn by
respondents on April 8, 1994, because of the exclusion of the seven engineers of
petitioners in the arbitration case. This withdrawal became the basis for the April
13, 1994 CIAC Order dismissing the arbitration case and referring the dispute back
to the RTC. Consequently, the CIAC was divested of its jurisdiction to hear and
decide the case.
This contention is untenable. First, private respondents removed the obstacle
to the continuation of the arbitration, precisely by withdrawing their objection to
the exclusion of the seven engineers. Second, petitioner continued participating in
the arbitration even after the CIAC Order had been issued. It even concluded and
signed the Terms of Reference[10] on August 21, 1995, in which the parties
stipulated the circumstances leading to the dispute; summarized their respective
positions, issues, and claims; and identified the composition of the tribunal of
arbitrators. The document clearly confirms both parties intention and agreement to
submit the dispute to voluntary arbitration. In view of this fact, we fail to see how
the CIAC could have been divested of its jurisdiction.
Finally, as pointed out by the solicitor general, petitioner maneuvered to avoid
the RTCs final resolution of the dispute by arguing that the regular court also lost
jurisdiction after the arbitral tribunals April 13, 1994 Order referring the case back
to the RTC. In so doing, petitioner conceded and estopped itself from further
questioning the jurisdiction of the CIAC. The Court will not countenance the effort
of any party to subvert or defeat the objective of voluntary arbitration for its own
private motives. After submitting itself to arbitration proceedings and actively
participating therein, petitioner is estopped from assailing the jurisdiction of the
CIAC, merely because the latter rendered an adverse decision.[11]
Second Issue: Cause of Action
Petitioner contends that respondent spouses were negligent in not engaging
the services of an engineer or architect who should oversee their construction, in
violation of Section 308 of the National Building Code. It adds that even if the
concrete it delivered was defective, respondent spouses should bear the loss arising
from their illegal operation. In short, it alleges that they had no cause of action
against it.
We disagree. Cause of action is defined as an act or omission by which a party
violates the right of another.[12] A complaint is deemed to have stated a cause of
action provided it has indicated the following: (1) the legal right of the plaintiff, (2)
the correlative obligation of the defendant, and (3) the act or the omission of the
defendant in violation of the said legal right.[13] The cause of action against
petitioner was clearly established. Respondents were purchasers of ready-mix
concrete from petitioner. The concrete delivered by the latter turned out to be of
substandard quality. As a result, respondents sustained damages when the
structures they built using such cement developed cracks and
honeycombs. Consequently, the construction of their residence had to be stopped.
Further, the CIAC Decision clearly spelled out respondents cause of action
against petitioner, as follows:
Accordingly, this Tribunal finds that the mix was of the right proportions at the time
it left the plant. This, however, does not necessarily mean that all of the concrete
mix delivered had remained workable when it reached the jobsite. It should be
noted that there is no evidence to show that all the transit mixers arrived at the site
within the allowable time that would ensure the workability of the concrete mix
delivered.
On the other hand, there is sufficiently strong evidence to show that difficulties
were encountered in the pouring of concrete mix from certain transit mixers
necessitating the [addition] of water and physically pushing the mix, obviously
because the same [was] no longer workable. This Tribunal holds that the
unworkability of said concrete mix has been firmly established.
There is no dispute, however, to the fact that there are defects in some areas of the
poured structures. In this regard, this Tribunal holds that the only logical reason is
that the unworkable concrete was the one that was poured in the defective
sections.[14]
Third Issue: Monetary Awards
Petitioner assails the monetary awards given by the arbitral tribunal for
alleged lack of basis in fact and in law. The solicitor general counters that the basis
for petitioners assigned errors with regard to the monetary awards is purely factual
and beyond the review of this Court. Besides, Section 19, EO 1008, expressly
provides that monetary awards by the CIAC are final and unappealable.
We disagree with the solicitor general. As pointed out earlier, factual findings
of quasi-judicial bodies that have acquired expertise are generally accorded great
respect and even finality, if they are supported by substantial evidence. [15] The
Court, however, has consistently held that despite statutory provisions making the
decisions of certain administrative agencies final, it still takes cognizance of
petitions showing want of jurisdiction, grave abuse of discretion, violation of due
process, denial of substantial justice or erroneous interpretation of the
law.[16] Voluntary arbitrators, by the nature of their functions, act in a quasi-judicial
capacity, such that their decisions are within the scope of judicial review.[17]
Petitioner protests the award to respondent spouses of P23,276.25 as excess
payment with six percent interest beginning September 26, 1995. It alleges that this
item was neither raised as an issue by the parties during the arbitration case, nor
was its justification discussed in the CIAC Decision. It further contends that it could
not be held liable for interest, because it had earlier tendered a check in the same
amount to respondent spouses, who refused to receive it.
Petitioners contentions are completely untenable. Respondent Nelia G. Cid
had already raised the issue of overpayment even prior to the formal arbitration. In
paragraph 9 of the Terms of Reference, she stated:
9. Claimants were assured that the problem and her demands had been
the subject of several staff meetings and that Arteche was very much
aware of it, a memorandum having been submitted citing all the
demands of [c]laimants. This assurance was made on July 31, 1992
when Respondents Secillano, Martillano and Lomibao came to see
Claimant Nelia Cid and offered to refund P23,276.25, [t]he difference
between the billing by Philrocks Marketing Department in the
amount of P125,586.25 and the amount charged by Philrock's
Batching Plant Department in the amount of only P102,586.25, which
[c]laimant refused to accept by saying, Saka na lang.[18]
The same issue was discussed during the hearing before the arbitration
tribunal on December 19, 1995.[19] It was also mentioned in that tribunals Decision
dated September 24, 1996.[20]
The payment of interest is based on Article 2209 of the Civil Code, which
provides that if the obligation consists of the payment of a sum of money, and the
debtor incurs delay, the indemnity for damages shall be the payment of legal
interest which is six per cent per annum, in the absence of a stipulation of the rate.
Awards for Retrofitting Costs, Wasted Unworkable But Delivered Concrete, and
Arbitration Fees
Petitioner maintains that the defects in the concrete structure were due to
respondent spouses failure to secure the services of an engineer or architect to
supervise their project. Hence, it claims that the award for retrofitting cost was
without legal basis. It also denies liability for the wasted unworkable but delivered
concrete, for which the arbitral court awarded P13,404.54.Finally, it complains
against the award of litigation expenses, inasmuch as the case should not have
been instituted at all had respondents complied with the requirements of the
National Building Code.
We are unconvinced. Not only did respondents disprove the contention of
petitioner; they also showed that they sustained damages due to the defective
concrete it had delivered. These were items of actual damages they sustained due
to its breach of contract.
Moral and Nominal Damages, Attorneys Fees and Costs
Petitioner assails the award of moral damages, claiming no malice or bad faith
on its part.
We disagree. Respondents were deprived of the comfort and the safety of a
house and were exposed to the agony of witnessing the wastage and the decay of
the structure for more than seven years. In her Memorandum, Respondent Nelia G.
Cid describes her familys sufferings arising from the unreasonable delay in the
construction of their residence, as follows: The family lives separately for lack of
space to stay in. Mrs. Cid is staying in a small dingy bodega, while her son occupies
another makeshift room. Their only daughter stayed with her aunt from 1992 until
she got married in 1996. x x x.[21] The Court also notes that during the pendency of
the case, Respondent Vicente Cid died without seeing the completion of their
home.[22] Under the circumstances, the award of moral damages is proper.
Petitioner also contends that nominal damages should not have been granted,
because it did not breach its obligation to respondent spouses.
Nominal damages are recoverable only if no actual or substantial damages
resulted from the breach, or no damage was or can be shown.[23] Since actual
damages have been proven by private respondents for which they were amply
compensated, they are no longer entitled to nominal damages.
Petitioner protests the grant of attorneys fees, arguing that respondent
spouses did not engage the services of legal counsel. Also, it contends that
attorneys fees and litigation expenses are awarded only if the opposing party acted
in gross and evident bad faith in refusing to satisfy plaintiffs valid, just and
demandable claim.
We disagree. The award is not only for attorneys fees, but also for expenses of
litigation. Hence, it does not matter if respondents represented themselves in
court, because it is obvious that they incurred expenses in pursuing their action
before the CIAC, as well as the regular and the appellate courts. We find no reason
to disturb this award.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED;
however, the award of nominal damages is DELETED for lack of legal basis. Costs
against petitioner.
SO ORDERED.
Melo, (Chairman), Vitug, Gonzaga-Reyes, and Sandoval-Gutierrez, JJ., concur.
 SEA-LAND SERVICE, INC., petitioner, vs. COURT OF APPEALS, A.P.
MOLLER/MAERSK LINE and MAERSK-TABACALERA SHIPPING AGENCY (FILIPINAS),
INC., respondents.
YNARES-SANTIAGO, J.:
This petition for review on certiorari seeks to annul and set aside the decision of the
Court of Appeals dated September 29, 1995 in CA-G.R. SP No. 35777,[1] dismissing
the petition for certiorari filed by petitioner to annul the two (2) orders issued by
the Regional Trial Court of Quezon City, Branch 216, in Civil Case No. Q-92-12593.
The facts are as follows:
On April 29, 1991, petitioner Sea-Land Services, Inc. and private respondent A.P.
Moller/Maersk Line (hereinafter referred to as "AMML"), both carriers of cargo in
containerships as well as common carriers, entered into a contract entitled, "Co-
operation in the Pacific"[2] (hereinafter referred to as the "Agreement"), a vessel
sharing agreement whereby they mutually agreed to purchase, share and exchange
needed space for cargo in their 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 discharge 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.
Respondent AMML filed its Answer[4] 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 Complaint [5] 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
Complaint[6] 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 was likewise
denied by the lower court in its August 22, 1994 Order.
Undaunted, petitioner filed a petition for certiorari[7] 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 Fil-Estate Golf and Development, Inc. vs. Court of
Appeals,[9] this Court ruled that in the determination of whether or not the
complaint states a cause of action, the annexes attached to the complaint may be
considered, they being parts of the complaint.
Coming now to the main issue of arbitration, the pertinent clauses of the "Co-
operation in the Pacific" contract entered into by the parties provide:
16.2 For the purposes of this agreement the Containership
Operator shall be deemed to have issued to the Principal Carrier
for good consideration and for both loaded and empty containers
its non-negotiable memo bills of lading in the form attached
hereto as Appendix 6, consigned only to the Principal Carrier or its
agents, provisions of which shall govern the liability between the
Principal Carrier and the Containership Operator and that for the
purpose of determining the liability in accordance with either
Lines memo bill of lading, the number of packages or customary
freight units shown on the bill of lading issued by the Principal
Carrier to its shippers shall be controlling.
16.3 The Principal Carrier shall use all reasonable endeavours to
defend all in personam and in rem suits for loss of or damage to
cargo carried pursuant to bills of lading issued by it, or to settle
such suits for as low a figure as reasonably possible. The Principal
Carrier shall have the right to seek damages and/or an
indemnity from the Containership Operator by arbitration
pursuant to Clause 32 hereof. Notwithstanding the provisions of
the Lines memo bills of lading or any statutory rules incorporated
therein or applicable thereto, the Principal Carrier shall be
entitled to commence such arbitration at any time until one year
after its liability has been finally determined by agreement,
arbitration award or judgment, such award or judgment not
being the subject of appeal, provided that the Containership
Operator has been given notice of the said claim in writing by
the Principal Carrier within three months of the Principal Carrier
receiving notice in writing of the claim. Further the Principal
Carrier shall have the right to grant extensions of time for the
commencement of suit to any third party interested in the cargo
without prior reference to the Containership Operator provided
that notice of any extension so granted is given to the
Containership Operator within 30 days of any such extension
being granted.
xxxxxxxxx
32. ARBITRATION
32.1 If at any time a dispute or claim arises out of or in connection
with the Agreement the Lines shall endeavour to settle such
amicably, failing which it shall be referred to arbitration by a
single arbitrator in London, such arbitrator to be appointed by
agreement between the Lines within 14 days after service by one
Line upon the other of a notice specifying the nature of the
dispute or claim and requiring reference of such dispute or claim
to arbitration pursuant to this Article.
32.2 Failing agreement upon an arbitrator within such period of
14 days, the dispute shall be settled by three Arbitrators, each
party appointing one Arbitrator, the third being appointed by the
President of the London Maritime Arbitrators Association.
32.3 If either of the appointed Arbitrators refuses or is incapable
of acting, the party who appointed him shall appoint a new
Arbitrator in his place.
32.4 If one of the parties fails to appoint an Arbitrator either
originally or by way of substitution for two weeks after the other
party having appointed his Arbitrator has sent the party making
default notice by mail, fax or telex to make the appointment, the
party appointing the third Arbitrator shall, after application from
the party having appointed his Arbitrator, also appoint an
Arbitrator in behalf of the party making default.
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 Section 1 and 2 of the
Arbitration Act 1979.[10]
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 against it for loss of or damage to cargo
pursuant to bills of lading issued by it. Third, the Principal Carrier shall have the
right to seek damages and/or indemnity from the Containership Operator by
arbitration, pursuant to Clause 32 of the agreement. Fourth, the Principal Carrier
shall have the right to commence such arbitration any time until one year after its
liability has been finally determined by agreement, arbitration award or judgment,
provided that the Containership Operator was given notice in writing by the
Principal Carrier within three months of the Principal Carrier receiving notice in
writing of said claim.
Prescinding from the foregoing matters, we find that both the trial court and the
Court of Appeals erred in denying petitioners prayer for arbitration.
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 and/or an indemnity from the
Containership Operator by arbitration" and that it "shall be entitled to commence
such arbitration at any time until one year after its liability has been finally
determined by agreement, arbitration award or judgment".
For respondent Court of Appeals to say that the terms of the contract do not
require arbitration as a condition precedent to judicial action is erroneous. In the
light of the Agreement clauses aforequoted, it is clear that arbitration is the mode
provided by which respondent AMML as Principal Carrier can seek damages and/or
indemnity from petitioner, as Containership Operator. Stated differently,
respondent AMML is barred from taking judicial action against petitioner by the
clear terms of their Agreement.
As the Principal Carrier with which Florex directly dealt with, respondent AMML can
and should be held accountable by Florex in the event that it has a valid claim
against the former. Pursuant to Clause 16.3 of the Agreement, respondent AMML,
when faced with such a suit "shall use all reasonable endeavours to defend" itself or
"settle such suits for as low a figure as reasonably possible". In turn, respondent
AMML can seek damages and/or indemnity from petitioner as Containership
Operator for whatever final judgment may be adjudged against it under the
Complaint of Florex. The crucial point is that collection of said damages and/or
indemnity from petitioner should be by arbitration.
All told, when the text of a contract is explicit and leaves no doubt as to its
intention, the court may not read into it any other intention that would contradict
its plain import.[11]Arbitration being the mode of settlement between the parties
expressly provided for by their Agreement, the Third Party Complaint should have
been dismissed.
This Court has previously held that arbitration is one of the alternative methods 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.[12]
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is
GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 35777 is
REVERSED and SET ASIDE. The Regional Trial Court of Quezon City, Branch 77, is
ordered to DISMISS Respondent AMMLs Third Party Complaint in Civil Case No. Q-
92-12593. No pronouncement as to costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.
MAGELLAN CAPITAL MANAGEMENT CORPORATION and MAGELLAN CAPITAL
HOLDINGS CORPORATION, petitioners, vs. ROLANDO M. ZOSA and HON. JOSE P.
SOBERANO, JR., in his capacity as Presiding Judge of Branch 58 of the Regional
Trial Court Of Cebu, 7th Judicial Region, respondents.
DECISION
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 Zosa's
employment shall be co-terminous with the management agreement, or until
March 1996,[2] unless sooner terminated pursuant to the provisions of the
Employment Agreement.[3] The grounds for termination of employment are also
provided in the Employment Agreement.
On May 10, 1995, the majority of MCHCs Board of Directors decided not to re-
elect respondent Zosa as President and Chief Executive Officer of MCHC on account
of loss of trust and confidence[4] arising from alleged violation of the resolution
issued by MCHC's board of directors and of the non-competition clause of the
Employment Agreement.[5] Nevertheless, respondent Zosa was elected to a new
position as MCHC's Vice-Chairman/Chairman for New Ventures Development.[6]
On September 26, 1995, respondent Zosa communicated his resignation for
good reason from the position of Vice-Chairman under paragraph 7 of
the Employment Agreement on the ground that said position had less responsibility
and scope than President and Chief Executive Officer. He demanded that he be
given termination benefits as provided for in Section 8 (c) (i) (ii) and (iii) of
the Employment Agreement.[7]
In a letter dated October 20, 1995, MCHC communicated its non-acceptance
of respondent Zosa's resignation for good reason, but instead informed him that
the Employment Agreement is terminated for cause, effective November 19, 1995,
in accordance with Section 7 (a) (v) of the said agreement, on account of his breach
of Section 12 thereof. Respondent Zosa was further advised that he shall have no
further rights under the said Agreement or any claims against the Manager or the
Corporation except the right to receive within thirty (30) days from November 19,
1995, the amounts stated in Section 8 (a) (i) (ii) of the Agreement. [8]
Disagreeing with the position taken by petitioners, respondent Zosa invoked
the Arbitration Clause of the Employment Agreement, to wit:
23. Arbitration. In the event that any dispute, controversy or claim arises out of or
under any provisions of this Agreement, then the parties hereto agree to submit
such dispute, controversy or claim to arbitration as set forth in this Section and the
determination to be made in such arbitration shall be final and binding. Arbitration
shall be effected by a panel of three arbitrators. The Manager, Employee and
Corporation shall designate one (1) arbitrator who shall, in turn, nominate and elect
who among them shall be the chairman of the committee. Any such arbitration,
including the rendering of an arbitration award, shall take place in Metro
Manila. 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 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.
On November 10, 1995, respondent Zosa designated his brother, Atty. Francis
Zosa, as his representative in the arbitration panel[9] while MCHC designated Atty.
Inigo S. Fojas[10] and MCMC nominated Atty. Enrique I. Quiason[11] as their
respective representatives in the arbitration panel. However, instead of submitting
the dispute to arbitration, respondent Zosa, on April 17, 1996, filed an action for
damages against petitioners before the Regional Trial Court of Cebu [12] to enforce
his benefits under the Employment Agreement.
On July 3, 1996, petitioners filed a motion to dismiss[13] arguing that (1) the
trial court has no jurisdiction over the instant case since respondent Zosa's 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 has a cause of action against the
petitioners cognizable by the RTC, should be limited only to RTC-Pasig City.[14]
Meanwhile, respondent Zosa filed an amended complaint dated July 5, 1996.
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 counterclaim.
It is understood, that in the event the arbitration clause is valid and binding
between the parties, the parties shall submit their respective claim to the
Arbitration Committee in accordance with the said arbitration clause, in which
event, this case shall be deemed dismissed.[18]
On November 18, 1996, petitioners filed their Motion Ad Cautelam for the
Correction, Addition and Clarification of the Pre-trial Order dated November 15
1996,[19] which was denied by the court in an order dated November 28, 1996. [20]
Thereafter, petitioners MCMC and MCHC filed a Motion Ad Cautelam for the
parties to file their Memoranda to support their respective stand on the issue of the
validity of the arbitration clause contained in the Employment Agreement. In an
order dated December 13, 1996, the trial court denied the motion of petitioners
MCMC and MCHC.
On January 17, 1997, petitioners MCMC and MCHC filed a petition for
certiorari and prohibition under Rule 65 of the Rules of Court with the Court of
Appeals, questioning the trial court orders dated August 1, 1996, September 5,
1996, and December 13, 1996.[21]
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 resolved. The questioned orders are set aside insofar as
they contravene this Courts resolution of the issues raised as herein pronounced.
The petitioner is required to remit to this Court the sum of P81.80 for cost within
five (5) days from notice.
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:
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:
A. The arbitration clause in the employment agreement dated March
1994 between respondent Zosa and defendants MCHC and MCMC is
valid and binding upon the parties thereto.
B. In view of the fact that there are three parties to the employment
agreement, it is but proper that each party be represented in the
arbitration panel.
 C. The trial court grievously erred in its conclusion that petitioners MCMC
and MCHC represent the same interest.
D. Respondent Zosa is estopped from questioning the validity of the
arbitration clause, including the right of petitioner MCMC to
nominate its own arbitrator, which he himself has invoked.
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.
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
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.
IV. Contrary to respondent Zosas allegation, petitioners MCMC and MCHC are not
guilty of forum shopping.
V. Contrary to respondent Zosas allegation, the instant petition for review involves
only questions of law and not of fact.[24]
We rule against the petitioners.
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 Law, it is the regional trial
court which exercises jurisdiction over questions relating to arbitration. We thus
advert to the following discussions made by the Court of Appeals, speaking thru
Justice Minerva P. Gonzaga-Reyes,[25] in C.A.-G.R. S.P. No. 43059, viz:
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.
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:
ENTRY OF JUDGMENT
This is to certify that on September 8, 1997 a decision/resolution rendered in the
above-entitled case was filed in this Office, the dispositive part of which reads as
follows:
G.R. No. 129615 (Magellan Capital Management Corporation, et al. vs. Court of
Appeals, Rolando Zosa, et al.).- Considering the petitioners manifestation dated
August 11, 1997 and withdrawal of intention to file petition for review on certiorari,
the Court Resolved to DECLARE THIS CASE TERMINATED and DIRECT the Clerk of
Court to INFORM the parties that the judgment sought to be reviewed has become
final and executory, no appeal therefore having been timely perfected.
and that the same has, on September 17, 1997, become final and executory and is
hereby recorded in the Book of Entries of Judgments. [28]
Petitioners, therefore, are barred from challenging anew, through another remedial
measure and in any other forum, the authority of the regional trial court to resolve
the validity of the arbitration clause, lest they be truly guilty of forum-shopping
which the courts consistently consider as a contumacious practice that derails the
orderly administration of justice.
 Equally unavailing for the petitioners is the review by this Court, via the instant
petition, of the factual findings made by the trial court that the composition of the
panel of arbitrators 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.[29]
Even if procedural rules are disregarded, and a scrutiny of the merits of the
case is undertaken, this Court finds the trial courts observations on why the
composition of the panel of arbitrators should be voided, incisively correct so as to
merit our approval. Thus,
From the memoranda of both sides, the Court is of the view that the defendants
[petitioner] MCMC and MCHC represent the same interest. There is no quarrel that
both defendants are entirely two different corporations with personalities distinct
and separate from each other and that a corporation has a personality distinct and
separate from those persons composing the corporation as well as from that of any
other legal entity to which it may be related.
But as the defendants [herein petitioner] represent the same interest, it could
never be expected, in the arbitration proceedings, that they would not protect and
preserve their own interest, much less, would both or either favor the interest of
the plaintiff. The arbitration law, as all other laws, is intended for the good and
welfare of everybody. In fact, what is being challenged by the plaintiff herein is not
the law itself but the provision of the Employment Agreement based on the said
law, which is the arbitration clause but only as regards the composition of the panel
of arbitrators. The arbitration clause in question provides, thus:
In the event that any dispute, controversy or claim arise out of or under any
provisions of this Agreement, then the parties hereto agree to submit such dispute,
controversy or claim to arbitration as set forth in this Section and the determination
to be made in such arbitration shall be final and binding. Arbitration shall be
effected by a panel of three
arbitrators. The Manager, Employee,and Corporation shall designate one (1)
arbitrator who shall, in turn, nominate and elect as who among them shall be the
chairman of the committee. Any such arbitration, including the rendering of an
arbitration award, shall take place in Metro Manila. 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).
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 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 get 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 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].
x x x x x x x x x[30]
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. Well-settled is the rule that issues not raised below cannot be resolved on
review in higher courts.[31] Secondly, employment agreements such as the one at
bar are usually contracts of adhesion. Any ambiguity in its provisions is generally
resolved against the party who drafted the document. Thus, in the relatively recent
case of Phil. Federation of Credit Cooperatives, Inc. (PFCCI) and Fr. Benedicto
Jayoma vs. NLRC and Victoria Abril,[32] we had the occasion to stress that where a
contract of employment, being a contract of adhesion, is ambiguous, any ambiguity
therein should be construed strictly against the party who prepared it. And, finally,
respondent Zosa never 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.
SO ORDERED.
DEL MONTE CORPORATION-USA, PAUL E. DERBY, JR., DANIEL COLLINS and LUIS
HIDALGO, petitioners, vs. COURT OF APPEALS, JUDGE BIENVENIDO L. REYES in his
capacity as Presiding Judge, RTC-Br. 74, Malabon, Metro Manila, MONTEBUENO
MARKETING, INC., LIONG LIONG C. SY and SABROSA FOODS, INC., respondents.
DECISION
BELLOSILLO, J.:
This Petition for Review on certiorari assails the 17 July 1998 Decision[1] of the
Court of Appeals affirming the 11 November 1997 Order[2] of the Regional Trial
Court which denied petitioners Motion to Suspend Proceedings in Civil Case No.
2637-MN. It also questions the appellate courts Resolution[3] 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 ARBITRATION[4]
This Agreement shall be governed by the laws of the State of California and/or, if
applicable, the United States of America. All disputes arising out of or relating to this
Agreement or the parties relationship, including the termination thereof, shall be
resolved by arbitration in the City of San Francisco, State of California, under the
Rules of the American Arbitration Association. The arbitration panel shall consist of
three members, one of whom shall be selected by DMC-USA, one of whom shall be
selected by MMI, and third of whom shall be selected by the other two members
and shall have relevant experience in the industry x x x x
In October 1994 the appointment of private respondent MMI as the sole and
exclusive distributor of Del Monte products in the Philippines was published in
several newspapers in the country. Immediately after its appointment, private
respondent MMI appointed Sabrosa Foods, Inc. (SFI), with the approval of
petitioner DMC-USA, as MMIs marketing arm to concentrate on its marketing and
selling function as well as to manage its critical relationship with the trade.
On 3 October 1996 private respondents MMI, SFI and MMIs Managing
Director Liong Liong C. Sy (LILY SY) filed a Complaint[5] against petitioners DMC-USA,
Paul E. Derby, Jr.,[6]Daniel Collins[7] and Luis Hidalgo,[8] and Dewey Ltd.[9] before the
Regional Trial Court of Malabon, Metro Manila. Private respondents predicated
their complaint on the alleged violations by petitioners of Arts. 20, [10] 21[11] and
23[12] of the Civil Code. According to private respondents, DMC-USA products
continued to be brought into the country by parallel importers despite the
appointment of private respondent MMI as the sole and exclusive distributor of Del
Monte products thereby causing them great embarrassment and substantial
damage. They alleged that the products brought into the country by these
importers were aged, damaged, fake or counterfeit, so that in March 1995 they had
to cause, after prior consultation with Antonio Ongpin, Market Director for Special
Markets of Del Monte Philippines, Inc., the publication of a "warning to the trade"
paid advertisement in leading newspapers. Petitioners DMC-USA and Paul E. Derby,
Jr., apparently upset with the publication, instructed private respondent MMI to
stop coordinating with Antonio Ongpin and to communicate directly instead with
petitioner DMC-USA through Paul E. Derby, Jr.
Private respondents further averred that petitioners knowingly and
surreptitiously continued to deal with the former in bad faith by involving
disinterested third parties and by proposing solutions which were entirely out of
their control. Private respondents claimed that they had exhausted all possible
avenues for an amicable resolution and settlement of their grievances; that as a
result of the fraud, bad faith, malice and wanton attitude of petitioners, they should
be held responsible for all the actual expenses incurred by private respondents in
the delayed shipment of orders which resulted in the extra handling thereof, the
actual expenses and cost of money for the unused Letters of Credit (LCs) and the
substantial opportunity losses due to created out-of-stock situations and
unauthorized shipments of Del Monte-USA products to the Philippine Duty Free
Area and Economic Zone; that the bad faith, fraudulent acts and willful negligence
of petitioners, motivated by their determination to squeeze private respondents
out of the outstanding and ongoing Distributorship Agreement in favor of another
party, had placed private respondent LILY SY on tenterhooks since then; and, that
the shrewd and subtle manner with which petitioners concocted imaginary
violations by private respondent MMI of the Distributorship Agreement in order to
justify the untimely termination thereof was a subterfuge. For the foregoing,
private respondents claimed, among other reliefs, the payment of actual damages,
exemplary damages, attorneys fees and litigation expenses.
On 21 October 1996 petitioners filed a Motion to Suspend
Proceedings[13] invoking the arbitration clause in their Agreement with private
respondents.
In a Resolution[14] dated 23 December 1996 the trial court deferred
consideration of petitioners Motion to Suspend Proceedings as the grounds alleged
therein did not constitute the suspension of the proceedings considering that the
action was for damages with prayer for the issuance of Writ of Preliminary
Attachment and not on the Distributorship Agreement.
 On 15 January 1997 petitioners filed a Motion for Reconsideration to which
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/or deprive and
delay their rights to seek redress."[15]
On appeal, the Court of Appeals affirmed the decision of the trial court. It held
that the alleged damaging acts recited in the Complaint, constituting petitioners
causes of action, required the interpretation of Art. 21 of the Civil Code [16] and that
in determining whether petitioners had violated it "would require a full blown trial"
making arbitration "out of the question."[17] Petitioners Motion for
Reconsideration of the affirmation was denied. Hence, this Petition for Review.
The crux of the controversy boils down to whether the dispute between the
parties warrants an order compelling them to submit to arbitration.
Petitioners contend that the subject matter of private respondents causes of
action arises out of or relates to the Agreement between petitioners and private
respondents. Thus, considering that the arbitration clause of the Agreement
provides that all disputes arising out of or relating to the Agreement or the parties
relationship, including the termination thereof, shall be resolved by arbitration,
they insist on the suspension of the proceedings in Civil Case No. 2637-MN as
mandated by Sec. 7 of RA 876[18] -
Sec. 7. Stay of Civil Action. If any suit or proceeding be brought upon an issue arising
out of an agreement providing for arbitration thereof, the court in which such suit or
proceeding is pending, upon being satisfied that the issue involved in such suit or
proceeding is referable to arbitration, shall stay the action or proceeding until an
arbitration has been had in accordance with the terms of the
agreement. Provided, That the applicant for the stay is not in default in proceeding
with such arbitration.
Private respondents claim, on the other hand, that their causes of action are
rooted in Arts. 20, 21 and 23 of the Civil Code,[19] the determination of which
demands a full blown trial, as correctly held by the Court of Appeals. Moreover,
they claim that the issues before the trial court were not joined so that the
Honorable Judge was not given the opportunity to satisfy himself that the issue
involved in the case was referable to arbitration. They submit that, apparently,
petitioners filed a motion to suspend proceedings instead of sending a written
demand to private respondents to arbitrate because petitioners were not sure
whether the case could be a subject of arbitration. They maintain that had
petitioners done so and private respondents failed to answer the demand,
petitioners could have filed with the trial court their demand for arbitration that
would warrant a determination by the judge whether to refer the case to
arbitration. Accordingly, private respondents assert that arbitration is out of the
question.
Private respondents further contend that the arbitration clause centers more
on venue rather than on arbitration. They finally allege that petitioners filed their
motion for extension of time to file this petition on the same date[20] petitioner
DMC-USA filed a petition to compel private respondent MMI to arbitrate before the
United States District Court in Northern California, docketed as Case No. C-98-
4446. They insist that the filing of the petition to compel arbitration in the United
States made the petition filed before this Court an alternative remedy and, in a
way, an abandonment of the cause they are fighting for here in the Philippines, thus
warranting the dismissal of the present petition before this Court.
There is no doubt that arbitration is valid and constitutional in our
jurisdiction.[21] Even before the enactment of RA 876, this Court has countenanced
the settlement of disputes through arbitration. Unless the agreement is such as
absolutely to close the doors of the courts against the parties, which agreement
would be void, the courts will look with favor upon such amicable arrangement and
will only interfere with great reluctance to anticipate or nullify the action of the
arbitrator.[22] Moreover, as RA 876 expressly authorizes arbitration of domestic
disputes, foreign arbitration as a system of settling commercial disputes was
likewise recognized when the Philippines adhered to the United
Nations "Convention on the Recognition and the Enforcement of Foreign Arbitral
Awards of 1958" under the 10 May 1965 Resolution No. 71 of the Philippine Senate,
giving reciprocal recognition and allowing enforcement of international arbitration
agreements between parties of different nationalities within a contracting state. [23]
A careful examination of the instant case shows that the arbitration clause in
the Distributorship Agreement between petitioner DMC-USA and private
respondent MMI is valid and the dispute between the parties is
arbitrable. However, this Court must deny the petition.
The Agreement between petitioner DMC-USA and private respondent MMI is
a contract. The provision to submit to arbitration any dispute arising therefrom and
the relationship of the parties is part of that contract and is itself a contract. As a
rule, contracts are respected as the law between the contracting parties and
produce effect as between them, their assigns and heirs. [24]Clearly, only parties to
the Agreement, i.e., petitioners DMC-USA and its Managing Director for Export
Sales Paul E. Derby, Jr., and private respondents MMI and its Managing Director
LILY SY are bound by the Agreement and its arbitration clause as they are the only
signatories thereto. Petitioners Daniel Collins and Luis Hidalgo, and private
respondent SFI, not parties to the Agreement and cannot even be considered
assigns or heirs of the parties, are not bound by the Agreement and the arbitration
clause therein. Consequently, referral to arbitration in the State of California
pursuant to the arbitration clause and the suspension of the proceedings in Civil
Case No. 2637-MN pending the return of the arbitral award could be called
for[25] 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]
In Toyota, the Court ruled that "[t]he contention that the arbitration clause
has become dysfunctional because of the presence of third parties is untenable
ratiocinating that "[c]ontracts are respected as the law between the contracting
parties"[28] and that "[a]s such, the parties are thereby expected to abide with good
faith in their contractual commitments."[29] However, in Salas, Jr., only parties to
the Agreement, their assigns or heirs have the right to arbitrate or could be
compelled to arbitrate. The Court went further by declaring that in recognizing the
right of the contracting parties to arbitrate or to compel arbitration, the splitting of
the proceedings to arbitration as to some of the parties on one hand and trial for
the others on the other hand, or the suspension of trial pending arbitration
between some of the parties, should not be allowed as it would, in effect, result in
multiplicity of suits, duplicitous procedure and unnecessary delay. [30]
The object of arbitration is to allow the expeditious determination of a
dispute.[31] Clearly, the issue before us could not be speedily and efficiently resolved
in its entirety if we allow simultaneous arbitration proceedings and trial, or
suspension of trial pending arbitration. Accordingly, the interest of justice would
only be served if the trial court hears and adjudicates the case in a single and
complete proceeding.[32]
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals
affirming the Order of the Regional Trial Court of Malabon, Metro Manila, in Civil
Case No. 2637-MN, which denied petitioners Motion to Suspend Proceedings, is
AFFIRMED. The Regional Trial Court concerned is directed to proceed with the
hearing of Civil Case No. 2637-MN with dispatch. No costs.
SO ORDERED.