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Arbit-Part II |1

REPUBLIC ACT NO. 876 to arbitrate an existing controversy shall be in writing and subscribed by
the party sought to be charged, or by his lawful agent.
AN ACT TO AUTHORIZE THE MAKING OF ARBITRATION AND
SUBMISSION AGREEMENTS, TO PROVIDE FOR THE APPOINTMENT The making of a contract or submission for arbitration described in section
OF ARBITRATORS AND THE PROCEDURE FOR ARBITRATION IN two hereof, providing for arbitration of any controversy, shall be deemed a
CIVIL CONTROVERSIES, AND FOR OTHER PURPOSES consent of the parties to the jurisdiction of the Court of First Instance of
the province or city where any of the parties resides, to enforce such
Section 1. Short Title. - This Act shall be known as "The Arbitration Law." contract or submission.

Section 2. Persons and matters subject to arbitration. - Two or more Section 5. Preliminary procedure. - An arbitration shall be instituted by:
persons or parties may submit to the arbitration of one or more arbitrators
any controversy existing between them at the time of the submission and (a) In the case of a contract to arbitrate future controversies by the service
which may be the subject of an action, or the parties to any contract may by either party upon the other of a demand for arbitration in accordance
in such contract agree to settle by arbitration a controversy thereafter with the contract. Such demand shall be set forth the nature of the
arising between them. Such submission or contract shall be valid, controversy, the amount involved, if any, and the relief sought, together
enforceable and irrevocable, save upon such grounds as exist at law for the with a true copy of the contract providing for arbitration. The demand shall
revocation of any contract. be served upon any party either in person or by registered mail. In the
event that the contract between the parties provides for the appointment
Such submission or contract may include question arising out of valuations, of a single arbitrator, the demand shall be set forth a specific time within
appraisals or other controversies which may be collateral, incidental, which the parties shall agree upon such arbitrator. If the contract between
precedent or subsequent to any issue between the parties. the parties provides for the appointment of three arbitrators, one to be
selected by each party, the demand shall name the arbitrator appointed by
A controversy cannot be arbitrated where one of the parties to the the party making the demand; and shall require that the party upon whom
controversy is an infant, or a person judicially declared to be incompetent, the demand is made shall within fifteen days after receipt thereof advise in
unless the appropriate court having jurisdiction approve a petition for writing the party making such demand of the name of the person
permission to submit such controversy to arbitration made by the general appointed by the second party; such notice shall require that the two
guardian or guardian ad litem of the infant or of the incompetent. arbitrators so appointed must agree upon the third arbitrator within ten
days from the date of such notice.
But where a person capable of entering into a submission or contract has
knowingly entered into the same with a person incapable of so doing, the (b) In the event that one party defaults in answering the demand, the
objection on the ground of incapacity can be taken only in behalf of the aggrieved party may file with the Clerk of the Court of First Instance
person so incapacitated. having jurisdiction over the parties, a copy of the demand for arbitration
under the contract to arbitrate, with a notice that the original demand was
Section 3. Controversies or cases not subject to the provisions of this sent by registered mail or delivered in person to the party against whom
Act. - This Act shall not apply to controversies and to cases which are the claim is asserted. Such demand shall set forth the nature of the
subject to the jurisdiction of the Court of Industrial Relations or which have controversy, the amount involved, if any, and the relief sought, and shall
been submitted to it as provided by Commonwealth Act Numbered One be accompanied by a true copy of the contract providing for arbitration.
hundred and three, as amended.
(c) In the case of the submission of an existing controversy by the filing
Section 4. Form of arbitration agreement. - A contract to arbitrate a with the Clerk of the Court of First Instance having jurisdiction, of the
controversy thereafter arising between the parties, as well as a submission submission agreement, setting forth the nature of the controversy, and the
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amount involved, if any. Such submission may be filed by any party and The Court of First Instance shall appoint an arbitrator or arbitrators, as the
shall be duly executed by both parties. case may be, in the following instances:

(d) In the event that one party neglects, fails or refuses to arbitrate under (a) If the parties to the contract or submission are unable to agree upon a
a submission agreement, the aggrieved party shall follow the procedure single arbitrator; or
prescribed in subparagraphs (a) and (b) of this section.
(b) If an arbitrator appointed by the parties is unwilling or unable to serve,
Section 6. Hearing by court. - A party aggrieved by the failure, neglect or and his successor has not been appointed in the manner in which he was
refusal of another to perform under an agreement in writing providing for appointed; or
arbitration may petition the court for an order directing that such
arbitration proceed in the manner provided for in such agreement. Five (c) If either party to the contract fails or refuses to name his arbitrator
days notice in writing of the hearing of such application shall be served within fifteen days after receipt of the demand for arbitration; or
either personally or by registered mail upon the party in default. The court
shall hear the parties, and upon being satisfied that the making of the (d) If the arbitrators appointed by each party to the contract, or appointed
agreement or such failure to comply therewith is not in issue, shall make by one party to the contract and by the proper Court, shall fail to agree
an order directing the parties to proceed to arbitration in accordance with upon or to select the third arbitrator.
the terms of the agreement. If the making of the agreement or default be
in issue the court shall proceed to summarily hear such issue. If the finding (e) The court shall, in its discretion appoint one or three arbitrators,
be that no agreement in writing providing for arbitration was made, or that according to the importance of the controversy involved in any of the
there is no default in the proceeding thereunder, the proceeding shall be preceding cases in which the agreement is silent as to the number of
dismissed. If the finding be that a written provision for arbitration was arbitrators.
made and there is a default in proceeding thereunder, an order shall be
made summarily directing the parties to proceed with the arbitration in (f) Arbitrators appointed under this section shall either accept or decline
accordance with the terms thereof. their appointments within seven days of the receipt of their appointments.
In case of declination or the failure of an arbitrator or arbitrators to duly
The court shall decide all motions, petitions or applications filed under the accept their appointments the parties or the court, as the case may be,
provisions of this Act, within ten days after such motions, petitions, or shall proceed to appoint a substitute or substitutes for the arbitrator or
applications have been heard by it. arbitrators who decline or failed to accept his or their appointments.

Section 7. Stay of civil action. - If any suit or proceeding be brought upon Section 9. Appointment of additional arbitrators. - Where a submission or
an issue arising out of an agreement providing for the arbitration thereof, contract provides that two or more arbitrators therein designated or to be
the court in which such suit or proceeding is pending, upon being satisfied thereafter appointed by the parties, may select or appoint a person as an
that the issue involved in such suit or proceeding is referable to arbitration, additional arbitrator, the selection or appointment must be in writing. Such
shall stay the action or proceeding until an arbitration has been had in additional arbitrator must sit with the original arbitrators upon the hearing.
accordance with the terms of the agreement: Provided, That the applicant,
for the stay is not in default in proceeding with such arbitration. Section 10. Qualifications of arbitrators. - Any person appointed to serve
as an arbitrator must be of legal age, in full-enjoyment of his civil rights
Section 8. Appointment of arbitrators. - If, in the contract for arbitration and know how to read and write. No person appointed to served as an
or in the submission described in section two, provision is made for a arbitrator shall be related by blood or marriage within the sixth degree to
method of naming or appointing an arbitrator or arbitrators, such method either party to the controversy. No person shall serve as an arbitrator in
shall be followed; but if no method be provided therein the Court of First any proceeding if he has or has had financial, fiduciary or other interest in
Instance shall designate an arbitrator or arbitrators. the controversy or cause to be decided or in the result of the proceeding,
Arbit-Part II |3

or has any personal bias, which might prejudice the right of any party to a adjournment shall extend the hearing beyond the day fixed in the
fair and impartial award. submission or contract for rendering the award, unless the time so fixed is
extended by the written agreement of the parties to the submission or
No party shall select as an arbitrator any person to act as his champion or contract or their attorneys, or unless the parties have continued with the
to advocate his cause. arbitration without objection to such adjournment.

If, after appointment but before or during hearing, a person appointed to The hearing may proceed in the absence of any party who, after due
serve as an arbitrator shall discover any circumstances likely to create a notice, fails to be present at such hearing or fails to obtain an adjournment
presumption of bias, or which he believes might disqualify him as an thereof. An award shall not be made solely on the default of a party. The
impartial arbitrator, the arbitrator shall immediately disclose such arbitrators shall require the other party to submit such evidence as they
information to the parties. Thereafter the parties may agree in writing: may require for making an award.

(a) to waive the presumptive disqualifying circumstances; or No one other than a party to said arbitration, or a person in the regular
employ of such party duly authorized in writing by said party, or a
(b) to declare the office of such arbitrator vacant. Any such vacancy shall practicing attorney-at-law, shall be permitted by the arbitrators to
be filled in the same manner as the original appointment was made. represent before him or them any party to the arbitration. Any party
desiring to be represented by counsel shall notify the other party or parties
Section 11. Challenge of arbitrators. - The arbitrators may be challenged of such intention at least five days prior to the hearing.
only for the reasons mentioned in the preceding section which may have
arisen after the arbitration agreement or were unknown at the time of The arbitrators shall arrange for the taking of a stenographic record of the
arbitration. testimony when such a record is requested by one or more parties, and
when payment of the cost thereof is assumed by such party or parties.
The challenge shall be made before them.
Persons having a direct interest in the controversy which is the subject of
If they do not yield to the challenge, the challenging party may renew the arbitration shall have the right to attend any hearing; but the attendance
challenge before the Court of First Instance of the province or city in which of any other person shall be at the discretion of the arbitrators.
the challenged arbitrator, or, any of them, if there be more than one,
resides. While the challenging incident is discussed before the court, the Section 13. Oath of arbitrators. - Before hearing any testimony,
hearing or arbitration shall be suspended, and it shall be continued arbitrators must be sworn, by any officer authorized by law to administer
immediately after the court has delivered an order on the challenging an oath, faithfully and fairly to hear and examine the matters in
incident. controversy and to make a just award according to the best of their ability
and understanding. Arbitrators shall have the power to administer the
Section 12. Procedure by arbitrators. - Subject to the terms of the oaths to all witnesses requiring them to tell the whole truth and nothing
submission or contract, if any are specified therein, are arbitrators selected but the truth in any testimony which they may give in any arbitration
as prescribed herein must, within five days after appointment if the parties hearing. This oath shall be required of every witness before any of his
to the controversy reside within the same city or province, or within fifteen testimony is heard.
days after appointment if the parties reside in different provinces, set a
time and place for the hearing of the matters submitted to them, and must Section 14. Subpoena and subpoena duces tecum. - Arbitrators shall have
cause notice thereof to be given to each of the parties. The hearing can be the power to require any person to attend a hearing as a witness. They
postponed or adjourned by the arbitrators only by agreement of the shall have the power to subpoena witnesses and documents when the
parties; otherwise, adjournment may be ordered by the arbitrators upon relevancy of the testimony and the materiality thereof has been
their own motion only at the hearing and for good and sufficient cause. No demonstrated to the arbitrators. Arbitrators may also require the
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retirement of any witness during the testimony of any other witness. All of good cause, shown at any time before the award is rendered. When
the arbitrators appointed in any controversy must attend all the hearings in hearings are thus reopened the effective date for the closing of the
that matter and hear all the allegations and proofs of the parties; but an hearings shall be the date of the closing of the reopened hearing.
award by the majority of them is valid unless the concurrence of all of
them is expressly required in the submission or contract to arbitrate. The Section 18. Proceeding in lieu of hearing. - The parties to a submission or
arbitrator or arbitrators shall have the power at any time, before rendering contract to arbitrate may, by written agreement, submit their dispute to
the award, without prejudice to the rights of any party to petition the court arbitration by other than oral hearing. The parties may submit an agreed
to take measures to safeguard and/or conserve any matter which is the statement of facts. They may also submit their respective contentions to
subject of the dispute in arbitration. the duly appointed arbitrators in writing; this shall include a statement of
facts, together with all documentary proof. Parties may also submit a
Section 15. Hearing by arbitrators. - Arbitrators may, at the written argument. Each party shall provide all other parties to the dispute
commencement of the hearing, ask both parties for brief statements of the with a copy of all statements and documents submitted to the arbitrators.
issues in controversy and/or an agreed statement of facts. Thereafter the Each party shall have an opportunity to reply in writing to any other party's
parties may offer such evidence as they desire, and shall produce such statements and proofs; but if such party fails to do so within seven days
additional evidence as the arbitrators shall require or deem necessary to an after receipt of such statements and proofs, he shall be deemed to have
understanding and determination of the dispute. The arbitrators shall be waived his right to reply. Upon the delivery to the arbitrators of all
the sole judge of the relevancy and materiality of the evidence offered or statements and documents, together with any reply statements, the
produced, and shall not be bound to conform to the Rules of Court arbitrators shall declare the proceedings in lieu of hearing closed.
pertaining to evidence. Arbitrators shall receive as exhibits in evidence any
document which the parties may wish to submit and the exhibits shall be Section 19. Time for rendering award. - Unless the parties shall have
properly identified at the time of submission. All exhibits shall remain in stipulated by written agreement the time within which the arbitrators must
the custody of the Clerk of Court during the course of the arbitration and render their award, the written award of the arbitrators shall be rendered
shall be returned to the parties at the time the award is made. The within thirty days after the closing of the hearings or if the oral hearings
arbitrators may make an ocular inspection of any matter or premises which shall have been waived, within thirty days after the arbitrators shall have
are in dispute, but such inspection shall be made only in the presence of all declared such proceedings in lieu of hearing closed. This period may be
parties to the arbitration, unless any party who shall have received notice extended by mutual consent of the parties.alf-itc
thereof fails to appear, in which event such inspection shall be made in the
absence of such party. Section 20. Form and contents of award. - The award must be made in
writing and signed and acknowledged by a majority of the arbitrators, if
Section 16. Briefs. - At the close of the hearings, the arbitrators shall more than one; and by the sole arbitrator, if there is only one. Each party
specifically inquire of all parties whether they have any further proof or shall be furnished with a copy of the award. The arbitrators in their award
witnesses to present; upon the receipt of a negative reply from all parties, may grant any remedy or relief which they deem just and equitable and
the arbitrators shall declare the hearing closed unless the parties have within the scope of the agreement of the parties, which shall include, but
signified an intention to file briefs. Then the hearing shall be closed by the not be limited to, the specific performance of a contract.
arbitrations after the receipt of briefs and/or reply briefs. Definite time limit
for the filing of such briefs must be fixed by the arbitrators at the close of In the event that the parties to an arbitration have, during the course of
the hearing. Briefs may filed by the parties within fifteen days after the such arbitration, settled their dispute, they may request of the arbitrators
close of the oral hearings; the reply briefs, if any, shall be filed within five that such settlement be embodied in an award which shall be signed by the
days following such fifteen-day period. arbitrators. No arbitrator shall act as a mediator in any proceeding in which
he is acting as arbitrator; and all negotiations towards settlement of the
Section 17. Reopening of hearing. - The hearing may be reopened by the dispute must take place without the presence of the arbitrators.
arbitrators on their own motion or upon the request of any party, upon
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The arbitrators shall have the power to decide only those matters which (c) That the arbitrators were guilty of misconduct in refusing to postpone
have been submitted to them. The terms of the award shall be confined to the hearing upon sufficient cause shown, or in refusing to hear evidence
such disputes. pertinent and material to the controversy; that one or more of the
arbitrators was disqualified to act as such under section nine hereof, and
The arbitrators shall have the power to assess in their award the expenses wilfully refrained from disclosing such disqualifications or of any other
of any party against another party, when such assessment shall be deemed misbehavior by which the rights of any party have been materially
necessary. prejudiced; or

Section 21. Fees of arbitration. - The fees of the arbitrators shall be fifty (d) That the arbitrators exceeded their powers, or so imperfectly executed
pesos per day unless the parties agree otherwise in writing prior to the them, that a mutual, final and definite award upon the subject matter
arbitration. submitted to them was not made.

Section 22. Arbitration deemed a special proceeding. - Arbitration under a Where an award is vacated, the court, in its discretion, may direct a new
contract or submission shall be deemed a special proceeding, of which the hearing either before the same arbitrators or before a new arbitrator or
court specified in the contract or submission, or if none be specified, the arbitrators to be chosen in the manner provided in the submission or
Court of First Instance for the province or city in which one of the parties contract for the selection of the original arbitrator or arbitrators, and any
resides or is doing business, or in which the arbitration was held, shall provision limiting the time in which the arbitrators may make a decision
have jurisdiction. Any application to the court, or a judge thereof, shall be deemed applicable to the new arbitration and to commence from
hereunder shall be made in manner provided for the making and hearing of the date of the court's order.
motions, except as otherwise herein expressly provided.
Where the court vacates an award, costs, not exceeding fifty pesos and
Section 23. Confirmation of award. - At any time within one month after disbursements may be awarded to the prevailing party and the payment
the award is made, any party to the controversy which was arbitrated may thereof may be enforced in like manner as the payment of costs upon the
apply to the court having jurisdiction, as provided in section twenty-eight, motion in an action.
for an order confirming the award; and thereupon the court must grant
such order unless the award is vacated, modified or corrected, as Section 25. Grounds for modifying or correcting award. - In any one of
prescribed herein. Notice of such motion must be served upon the adverse the following cases, the court must make an order modifying or correcting
party or his attorney as prescribed by law for the service of such notice the award, upon the application of any party to the controversy which was
upon an attorney in action in the same court. arbitrated:

Section 24. Grounds for vacating award. - In any one of the following (a) Where there was an evident miscalculation of figures, or an evident
cases, the court must make an order vacating the award upon the petition mistake in the description of any person, thing or property referred to in
of any party to the controversy when such party proves affirmatively that the award; or
in the arbitration proceedings:
(b) Where the arbitrators have awarded upon a matter not submitted to
(a) The award was procured by corruption, fraud, or other undue means; them, not affecting the merits of the decision upon the matter submitted;
or or

(b) That there was evident partiality or corruption in the arbitrators or any (c) Where the award is imperfect in a matter of form not affecting the
of them; or merits of the controversy, and if it had been a commissioner's report, the
defect could have been amended or disregarded by the court.
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The order may modify and correct the award so as to effect the intent judgment thereon shall be governed by the Rules of Court in so far as they
thereof and promote justice between the parties. are applicable.

Section 26. Motion to vacate, modify or correct award: when made. - Section 30. Death of party. - Where a party dies after making a
Notice of a motion to vacate, modify or correct the award must be served submission or a contract to arbitrate as prescribed in this Act, the
upon the adverse party or his counsel within thirty days after award is filed proceedings may be begun or continued upon the application of, or notice
or delivered, as prescribed by law for the service upon an attorney in an to, his executor or administrator, or temporary administrator of his estate.
action. In any such case, the court may issue an order extending the time within
which notice of a motion to confirm, vacate, modify or correct an award
Section 27. Judgment. - Upon the granting of an order confirming, must be served. Upon confirming an award, where a party has died since it
modifying or correcting an award, judgment may be entered in conformity was filed or delivered, the court must enter judgment in the name of the
therewith in the court wherein said application was filed. Costs of the original party; and the proceedings thereupon are the same as where a
application and the proceedings subsequent thereto may be awarded by party dies after a verdict.
the court in its discretion. If awarded, the amount thereof must be included
in the judgment. Section 31. Repealing clause. - The provisions of chapters one and two,
Title XIV, of the Civil Code shall remain in force. All other laws and parts of
Section 28. Papers to accompany motion to confirm, modify, correct, or laws inconsistent with this Act are hereby repealed. If any provision of this
vacate award. - The party moving for an order confirming, modifying, Act shall be held invalid the remainder that shall not be affected thereby.
correcting, or vacating an award, shall at the time that such motion is filed
with the court for the entry of judgment thereon also file the following Section 32. Effectivity. - This Act shall take effect six months after its
papers with the Clerk of Court; approval.

(a) The submission, or contract to arbitrate; the appointment of the Approved: June 19, 1953
arbitrator or arbitrators; and each written extension of the time, if any,
within which to make the award.

(b) A verified of the award.

(c) Each notice, affidavit, or other paper used upon the application to
confirm, modify, correct or vacate such award, and a copy of each of the
court upon such application.

The judgment shall be docketed as if it were rendered in an action.

The judgment so entered shall have the same force and effect in all
respects, as, and be subject to all the provisions relating to, a judgment in
an action; and it may be enforced as if it had been rendered in the court in
which it is entered.

Section 29. Appeals. - An appeal may be taken from an order made in a


proceeding under this Act, or from a judgment entered upon an award
through certiorari proceedings, but such appeals shall be limited to
questions of law. The proceedings upon such an appeal, including the
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7. G.R. No. 129916 March 26, 2001 informed him that the Employment Agreement is terminated for cause,
effective November 19, 1995, in accordance with Section 7 (a) (v) of the
MAGELLAN CAPITAL MANAGEMENT CORPORATION and MAGELLAN said agreement, on account of his breach of Section 12 thereof.
CAPITAL HOLDINGS CORPORATION, petitioners, Respondent Zosa was further advised that he shall have no further rights
vs. under the said Agreement or any claims against the Manager or the
ROLANDO M. ZOSA and HON. JOSE P. SOBERANO, JR., in his Corporation except the right to receive within thirty (30) days from
capacity as Presiding Judge of Branch 58 of the Regional Trial Court November 19, 1995, the amounts stated in Section 8 (a) (i) (ii) of the
of Cebu, 7th Judicial Region, respondents. Agreement.8

BUENA, J.: Disagreeing with the position taken by petitioners, respondent Zosa
invoked the Arbitration Clause of the Employment Agreement, to wit:
Under a management agreement entered into on March 18, 1994, Magellan
Capital Holdings Corporation [MCHC] appointed Magellan Capital "23. Arbitration. In the event that any dispute, controversy or claim arises
Management Corporation [MCMC] as manager for the operation of its out of or under any provisions of this Agreement, then the parties hereto
business and affairs.1 Pursuant thereto, on the same month, MCHC, MCMC, agree to submit such dispute, controversy or claim to arbitration as set
and private respondent Rolando M. Zosa entered into an "Employment forth in this Section and the determination to be made in such arbitration
Agreement" designating Zosa as President and Chief Executive Officer of shall be final and binding. Arbitration shall be effected by a panel of three
MCHC. arbitrators. The Manager, Employee and Corporation shall designate one
(1) arbitrator who shall, in turn, nominate and elect who among them shall
Under the "Employment Agreement", the term of respondent Zosa's be the chairman of the committee. Any such arbitration, including the
employment shall be co-terminous with the management agreement, or rendering of an arbitration award, shall take place in Metro Manila. The
until March 1996,2 unless sooner terminated pursuant to the provisions of arbitrators shall interpret this Agreement in accordance with the
the Employment Agreement.3 The grounds for termination of employment substantive laws of the Republic of the Philippines. The arbitrators shall
are also provided in the Employment Agreement. 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
On May 10, 1995, the majority of MCHC's Board of Directors decided not to the award of the arbitrators may be entered in any court having jurisdiction
re-elect respondent Zosa as President and Chief Executive Officer of MCHC thereof, with costs of the arbitration to be borne equally by the parties,
on account of loss of trust and confidence4 arising from alleged violation of except that each party shall pay the fees and expenses of its own counsel
the resolution issued by MCHC's board of directors and of the non- in the arbitration."
competition clause of the Employment Agreement.5Nevertheless,
respondent Zosa was elected to a new position as MCHC's Vice- On November 10, 1995, respondent Zosa designated his brother, Atty.
Chairman/Chairman for New Ventures Development.6 Francis Zosa, as his representative in the arbitration panel 9 while MCHC
designated Atty. Inigo S. Fojas10 and MCMC nominated Atty. Enrique I.
On September 26, 1995, respondent Zosa communicated his resignation Quiason11as their respective representatives in the arbitration panel.
for good reason from the position of Vice-Chairman under paragraph 7 of However, instead of submitting the dispute to arbitration, respondent Zosa,
the Employment Agreement on the ground that said position had less on April 17, 1996, filed an action for damages against petitioners before
responsibility and scope than President and Chief Executive Officer. He the Regional Trial Court of Cebu12 to enforce his benefits under
demanded that he be given termination benefits as provided for in Section the Employment Agreement.
8 (c) (i) (ii) and (iii) of the Employment Agreement.7
On July 3, 1996, petitioners filed a motion to dismiss13 arguing that (1) the
In a letter dated October 20, 1995, MCHC communicated its non- trial court has no jurisdiction over the instant case since respondent Zosa's
acceptance of respondent Zosa's resignation for good reason, but instead claims should be resolved through arbitration pursuant to Section 23 of the
Arbit-Part II |8

Employment Agreement with petitioners; and (2) the venue is improperly On November 18, 1996, petitioners filed their Motion Ad Cautelam for the
laid since respondent Zosa, like the petitioners, is a resident of Pasig City Correction, Addition and Clarification of the Pre-trial Order dated November
and thus, the venue of this case, granting without admitting that the 15, 1996,19 which was denied by the court in an order dated November 28,
respondent has a cause of action against the petitioners cognizable by the 1996.20
RTC, should be limited only to RTC-Pasig City.14
Thereafter, petitioners MCMC and MCHC filed a Motion Ad Cautelam for the
Meanwhile, respondent Zosa filed an amended complaint dated July 5, parties to file their Memoranda to support their respective stand on the
1996. issue of the validity of the "arbitration clause" contained in the Employment
Agreement. In an order dated December 13, 1996, the trial court denied
On August 1, 1996, the RTC Branch 58 of Cebu City issued an Order the motion of petitioners MCMC and MCHC.
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 January 17, 1997, petitioners MCMC and MCHC filed a petition for
on the merits; and (2) the amount of damages claimed, which is over certiorari and prohibition under Rule 65 of the Rules of Court with the Court
P100,000.00, falls within the jurisdiction of the RTC.15Petitioners filed a of Appeals, questioning the trial court orders dated August 1, 1996,
motion for reconsideration which was denied by the RTC in an order September 5, 1996, and December 13, 1996.21
dated September 5, 1996.16
On March 21, 1997, the Court of Appeals rendered a decision, giving due
In the interim, on August 22, 1996, in compliance with the earlier order of course to the petition, the decretal portion of which reads:
the court directing petitioners to file responsive pleading to the amended
complaint, petitioners filed their Answer Ad Cautelam with counterclaim "WHEREFORE, the petition is GIVEN DUE COURSE. The respondent court is
reiterating their position that the dispute should be settled through directed to resolve the issue on the validity or effectivity of the arbitration
arbitration and the court had no jurisdiction over the nature of the action.17 clause in the Employment Agreement, and to suspend further proceedings
in the trial on the merits until the said issue is resolved. The questioned
On October 21, 1996, the trial court issued its pre-trial order declaring the orders are set aside insofar as they contravene this Court's resolution of
pre-trial stage terminated and setting the case for hearing. The order the issues raised as herein pronounced.
states:
"The petitioner is required to remit to this Court the sum of P81.80 for cost
"ISSUES: within five (5) days from notice.

"The Court will only resolve one issue in so far as this case is concerned, to "SO ORDERED."22
wit:
Petitioners filed a motions for partial reconsideration of the CA decision
"Whether or not the Arbitration Clause contained in Sec. 23 of the praying (1) for the dismissal of the case in the trial court, on the ground of
Employment Agreement is void and of no effect: and, if it is void and of no lack of jurisdiction, and (2) that the parties be directed to submit their
effect, whether or not the plaintiff is entitled to damages in accordance dispute to arbitration in accordance with the Employment Agreement dated
with his complaint and the defendants in accordance with their March 1994. The CA, in a resolution promulgated on June 20, 1997, denied
counterclaim. the motion for partial reconsideration for lack of merit.

"It is understood, that in the event the arbitration clause is valid and In compliance with the CA decision, the trial court, on July 18, 1997,
binding between the parties, the parties shall submit their respective claim rendered a decision declaring the "arbitration clause" in the Employment
to the Arbitration Committee in accordance with the said arbitration clause, Agreement partially void and of no effect. The dispositive portion of the
in which event, this case shall be deemed dismissed."18 decision reads:
Arbit-Part II |9

"WHEREFORE, premises considered, judgment is hereby rendered partially said issue in the instant petition. Moreover, the principle of the law of the
declaring the arbitration clause of the Employment Agreement void and of case is not applicable in the instant case.
no effect, only insofar as it concerns the composition of the panel of
arbitrators, and directing the parties to proceed to arbitration in "IV. Contrary to respondent Zosa's allegation, petitioners MCMC and MCHC
accordance with the Employment Agreement under the panel of three (3) are not guilty of forum shopping.
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 "V. Contrary to respondent Zosa's allegation, the instant petition for review
and stipulations in the arbitration clause remain in force and effect."23 involves only questions of law and not of fact."24

In view of the trial court's decision, petitioners filed this petition for review We rule against the petitioners.
on certiorari, under Rule 45 of the Rules of Court, assigning the following
errors for the Court's resolution: 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].
"I. The trial court gravely erred when it ruled that the arbitration clause The controversy does not in anyway involve the election/appointment of
under the employment agreement is partially void and of no effect, officers of petitioner MCHC, as claimed by petitioners in their assignment of
considering that: errors. Respondent Zosa's amended complaint focuses heavily on the
illegality of the Employment Agreement's "Arbitration Clause" initially
"A. The arbitration clause in the employment agreement dated March 1994 invoked by him in seeking his termination benefits under Section 8 of the
between respondent Zosa and defendants MCHC and MCMC is valid and employment contract. And under Republic Act No. 876, otherwise known as
binding upon the parties thereto. the "Arbitration Law," it is the regional trial court which exercises
jurisdiction over questions relating to arbitration. We thus advert to the
"B. In view of the fact that there are three parties to the employment following discussions made by the Court of Appeals, speaking thru Justice
agreement, it is but proper that each party be represented in the Minerva P. Gonzaga-Reyes,25 in C.A.-G.R. S.P. No. 43059, viz.
arbitration panel.
"As regards the fourth assigned error, asserting that jurisdiction lies with
"C. The trial court grievously erred in its conclusion that petitioners MCMC the SEC, which is raised for the first time in this petition, suffice it to state
and MCHC represent the same interest. that the Amended Complaint squarely put in issue the question whether
the Arbitration Clause is valid and effective between the parties. Although
"D. Respondent Zosa is estopped from questioning the validity of the the controversy which spawned the action concerns the validity of the
arbitration clause, including the right of petitioner MCMC to nominate its termination of the service of a corporate officer, the issue on the validity
own arbitrator, which he himself has invoked. and effectivity of the arbitration clause is determinable by the regular
courts, and do not fall within the exclusive and original jurisdiction of the
"II. In any event, the trial court acted without jurisdiction in hearing the SEC.
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 "The determination and validity of the agreement is not a matter
or managers of a corporation, such as the action brought by respondent intrinsically connected with the regulation and internal affairs of
Zosa, fall within the original and exclusive jurisdiction of the Securities and corporations (see Pereyra vs. IAC, 181 SCRA 244; Sales vs. SEC, 169
Exchange Commission. 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
"III. Contrary to respondent Zosa's allegation, the issue of the trial court's interpret and apply (Viray vs. CA, 191 SCRA 308)."26
jurisdiction over the case below has not yet been resolved with finality
considering that petitioners have expressly reserved their right to raise
Arbit-Part II |10

Furthermore, the decision of the Court of Appeals in CA-G.R. SP No. 43059 the evidence on record, or the assailed judgment is based on
affirming the trial court's assumption of jurisdiction over the case has misapprehension of facts.29
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 Even if procedural rules are disregarded, and a scrutiny of the merits of the
rule that when an appellate court passes on a question and remands the case is undertaken, this Court finds the trial court's observations on why
cause to the lower court for further proceedings, the question there settled the composition of the panel of arbitrators should be voided, incisively
becomes the law of the case upon subsequent appeal."27 To note, the CA's correct so as to merit our approval. Thus,
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 "From the memoranda of both sides, the Court is of the view that the
wit: defendants [petitioner] MCMC and MCHC represent the same interest.
There is no quarrel that both defendants are entirely two different
"ENTRY OF JUDGMENT corporations with personalities distinct and separate from each other and
that a corporation has a personality distinct and separate from those
This is to certify that on September 8, 1997 a decision/resolution rendered persons composing the corporation as well as from that of any other legal
in the above-entitled case was filed in this Office, the dispositive part of entity to which it may be related.
which reads as follows:
"But as the defendants [herein petitioner] represent the same interest, it
'G.R. No. 129615. (Magellan Capital Management Corporation, et al. vs. could never be expected, in the arbitration proceedings, that they would
Court of Appeals, Rolando Zosa, et al.). Considering the petitioner's not protect and preserve their own interest, much less, would both or
manifestation dated August 11, 1997 and withdrawal of intention to file either favor the interest of the plaintiff. The arbitration law, as all other
petition for review on certiorari, the Court Resolved to DECLARE THIS CASE laws, is intended for the good and welfare of everybody. In fact, what is
TERMINATED and DIRECT the Clerk of Court to INFORM the parties that being challenged by the plaintiff herein is not the law itself but the
the judgment sought to be reviewed has become final and executory, no provision of the Employment Agreement based on the said law, which is
appeal therefore having been timely perfected.' the arbitration clause but only as regards the composition of the panel of
arbitrators. The arbitration clause in question provides, thus:
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 '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
Petitioners, therefore, are barred from challenging anew, through another such dispute, controversy or claim to arbitration as set forth in this Section
remedial measure and in any other forum, the authority of the regional and the determination to be made in such arbitration shall be final and
trial court to resolve the validity of the arbitration clause, lest they be truly binding. Arbitration shall be effected by a panel of three arbitrators.
guilty of forum-shopping which the courts consistently consider as a The Manager, Employee, and Corporationshall designate one (1) arbitrator
contumacious practice that derails the orderly administration of justice. 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
Equally unavailing for the petitioners is the review by this Court, via the an arbitration award, shall take place in Metro Manila. The arbitrators shall
instant petition, of the factual findings made by the trial court that the interpret this Agreement in accordance with the substantive laws of the
composition of the panel of arbitrators would, in all probability, work Republic of the Philippines. The arbitrators shall have no power to add to,
injustice to respondent Zosa. We have repeatedly stressed that the subtract from or otherwise modify the terms of this Agreement or to grant
jurisdiction of this Court in a petition for review on certiorari under Rule 45 injunctive relief of any nature. Any judgment upon the award of the
of the Revised Rules of Court is limited to reviewing only errors of law, not arbitrators may be entered in any court having jurisdiction thereof, with
of fact, unless the factual findings complained of are devoid of support by costs of the arbitration to be borne equally by the parties, except that each
Arbit-Part II |11

party shall pay the fees and expenses of its own counsel in the arbitration.' vs. NLRC and Victoria Abril,32
we had the occasion to stress that "where a
(Emphasis supplied). contract of employment, being a contract of adhesion, is ambiguous, any
ambiguity therein should be construed strictly against the party who
"From the foregoing arbitration clause, it appears that the two (2) prepared it." And, finally, respondent Zosa never submitted himself to
defendants [petitioners] (MCMC and MCHC) have one (1) arbitrator each to arbitration proceedings (as there was none yet) before bewailing the
compose the panel of three (3) arbitrators. As the defendant MCMC is the composition of the panel of arbitrators. He in fact, lost no time in assailing
Manager of defendant MCHC, its decision or vote in the arbitration the "arbitration clause" upon realizing the inequities that may mar the
proceeding would naturally and certainly be in favor of its employer and arbitration proceedings if the existing line-up of arbitrators remained
the defendant MCHC would have to protect and preserve its own interest; unchecked.
hence, the two (2) votes of both defendants (MCMC and MCHC) would
certainly be against the lone arbitrator for the plaintiff [herein defendant]. We need only to emphasize in closing that arbitration proceedings are
Hence, apparently, plaintiff [defendant] would never get or receive justice designed to level the playing field among the parties in pursuit of a
and fairness in the arbitration proceedings from the panel of arbitrators as mutually acceptable solution to their conflicting claims. Any arrangement or
provided in the aforequoted arbitration clause. In fairness and justice to scheme that would give undue advantage to a party in the negotiating
the plaintiff [defendant], the two defendants (MCMC and MCHC) [herein table is anathema to the very purpose of arbitration and should, therefore,
petitioners] which represent the same interest should be considered as one be resisted.
and should be entitled to only one arbitrator to represent them in the
arbitration proceedings. Accordingly, the arbitration clause, insofar as the WHEREFORE, premises considered, the petition is hereby DISMISSED and
composition of the panel of arbitrators is concerned should be declared the decision of the trial court dated July 18, 1997 is AFFIRMED.
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 SO ORDERED.
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].

"xxx xxx xxx"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
Arbit-Part II |12

8. G.R. No. 161957 February 28, 2005 party) dated 23 December 1996 and Assignment, Accession
Agreement4 (between Climax-Arimco Mining Corporation and Australasian
JORGE GONZALES and PANEL OF ARBITRATORS, petitioners, Philippines Mining Inc.) dated 3 December 1996. Respondent Climax
vs. Mining Corporation (Climax) and respondent Australasian Philippines Mining
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., and Inc. (APMI) entered into a Memorandum of Agreement5 dated 1 June 1991
AUSTRALASIAN PHILIPPINES MINING INC.,respondents. whereby the former transferred its FTAA to the latter.

DECISION On 8 November 1999, petitioner Gonzales filed before the Panel of


Arbitrators, Region II, Mines and Geosciences Bureau of the Department of
TINGA, J.: Environment and Natural Resources, against respondents Climax-Arimco
Mining Corporation (Climax-Arimco), Climax, and
Petitioner Jorge Gonzales, as claimowner of mineral deposits located within APMI, a Complaint seeking the declaration of nullity or termination of
6 7

the Addendum Area of Influence in Didipio, in the provinces of Quirino and the Addendum Contract, the FTAA, the Operating and Financial
Nueva Vizcaya, entered into a co-production, joint venture and/or Accommodation Contract, the Assignment, Accession Agreement, and
production-sharing letter-agreement designated as the May 14, 1987 the Memorandum of Agreement. Petitioner Gonzales prayed for an
Letter of Intent with Geophilippines, Inc, and Inmex Ltd. Under the unspecified amount of actual and exemplary damages plus attorney’s fees
agreement, petitioner, as claimowner, granted to Geophilippines, Inc. and and for the issuance of a temporary restraining order and/or writ of
Inmex Ltd. collectively, the exclusive right to explore and survey the preliminary injunction to restrain or enjoin respondents from further
mining claims for a period of thirty-six (36) months within which the latter implementing the questioned agreements. He sought said releifs on the
could decide to take an operating agreement on the mining claims and/or grounds of "FRAUD, OPPRESSION and/or VIOLATION of Section 2, Article
develop, operate, mine and otherwise exploit the mining claims and market XII of the CONSTITUTION perpetrated by these foreign RESPONDENTS,
any and all minerals that may be derived therefrom. conspiring and confederating with one another and with each other…."8

On 28 February 1989, the parties to the May 14, 1987 Letter of On 21 February 2001, the Panel of Arbitrators dismissed the Complaint for
Intent renegotiated the same into the February 28, 1989 lack of jurisdiction. Petitioner moved for reconsideration and this was
Agreement whereby the exploration of the mining claims was extended for granted on 18 October 2001, the Panel believing that the case involved a
another period of three years. dispute involving rights to mining areas and a dispute involving surface
owners, occupants and claim owners/concessionaires. According to the
On 9 March 1991, petitioner Gonzales, Arimco Mining Corporation, Panel, although the issue raised in the Complaint appeared to be purely
Geophilippines Inc., Inmex Ltd., and Aumex Philippines, Inc. signed a civil in nature and should be within the jurisdiction of the regular courts, a
document designated as the Addendum to the May 14, 1987 Letter of ruling on the validity of the assailed contracts would result to the grant or
Intent and February 28, 1989 Agreement with Express Adhesion denial of mining rights over the properties; therefore, the question on the
Thereto (hereafter, the Addendum Contract).1 Under the Addendum validity of the contract amounts to a mining conflict or dispute. Hence, the
Contract, Arimco Mining Corporation would apply to the Government of the Panel granted the Motion for Reconsideration with regard to the issues of
Philippines for permission to mine the claims as the Government’s nullity, termination, withdrawal or damages, but with regard to the
contractor under a Financial and Technical Assistance Agreement (FTAA). constitutionality of the Addendum Agreement and FTAA, it held that it had
On 20 June 1994, Arimco Mining Corporation obtained the FTAA 2 and no jurisdiction.9
carried out work under the FTAA.
Respondents filed their motion for reconsideration but this was denied on
Respondents executed the Operating and Financial Accommodation 25 June 2002. The Panel of Arbitrators maintained that there was a mining
Contract3 (between Climax-Arimco Mining Corporation and Climax Mining dispute between the parties since the subject matter of
Ltd., as first parties, and Australasian Philippines Mining Inc., as second
Arbit-Part II |13

the Complaint arose from contracts between the parties which involve the WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE
exploration and exploitation of minerals over the disputed area.10 RULES AND ESTABLISHED JURISPRUDENCE WHEN IT DID NOT DISMISS
THE PETITION A QUODESPITE RESPONDENTS’ FAILURE TO COMPLY WITH
Respondents assailed the orders of the Panel of Arbitrators via a petition THE RULES ON DISCLOSURE IN THE "VERIFICATION AND CERTIFICATION"
for certiorari before the Court of Appeals.1ªvvphi1.nét PORTION OF THEIR PETITION A QUO.

On 30 July 2003, the Court of Appeals granted the petition, declaring that II.
the Panel of Arbitrators did not have jurisdiction over the complaint filed by
petitioner.11 The jurisdiction of the Panel of Arbitrators, said the Court of WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE
Appeals, is limited only to the resolution of mining disputes, defined as RULES AND ESTABLISHED JURISPRUDENCE WHEN IT DID NOT DISMISS
those which raise a question of fact or matter requiring the technical THE PETITION A QUO FILED BY RESPONDENT CLIMAX DESPITE THE LACK
knowledge and experience of mining authorities. It was found that the OF THE REQUISITE AUTHORITY TO FILE THE PETITION A QUO.
complaint alleged fraud, oppression and violation of the Constitution, which
called for the interpretation and application of laws, and did not involve any B. SUBSTANTIVE GROUND
mining dispute. The Court of Appeals also observed that there were no
averments relating to particular acts constituting fraud and oppression. It THE HONORABLE COURT OF APPEALS ERRED IN GRANTING THE PETITION
added that since the Addendum Contract was executed in 1991, the action A QUO FILED BY RESPONDENTS AND IN DENYING MOTION FOR
to annul it should have been brought not later than 1995, as the RECONSIDERATION FILED BY PETITIONER FOR UTTER LACK OF BASIS IN
prescriptive period for an action for annulment is four years from the time FACT AND IN LAW.
of the discovery of the fraud.12 When petitioner filed his complaint before
the Panel in 1999, his action had already prescribed. Also, the Court of I.
Appeals noted that fraud and duress only make a contract voidable, 13 not
inexistent, hence the contract remains valid until annulled. The Court of WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE
Appeals was of the opinion that the petition should have been settled RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT
through arbitration under Republic Act No. 876 (The Arbitration Law) as PETITIONER CEDED HIS CLAIMS OVER THE MINERAL DEPOSITS LOCATED
stated in Clause 19.1 of the Addendum Contract. The Court of Appeals WITHIN THE ADDENDUM AREA OF INFLUENCE.
therefore declared as invalid the orders dated 18 October 2001 and 25
June 2002 issued by the Panel of Arbitrators. On 28 January 2004, the II.
Court of Appeals denied petitioner’s motion for reconsideration for lack of
merit.14 WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE
RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT THE
Petitioner filed on 22 March 2004 this Petition for Review on Certiorari PANEL OF ARBITRATORS IS BEREFT OF JURISDICTION OVER THE SUBJECT
Under Rule 45 assailing the decision and resolution of the Court of Appeals. MATTER OF CASE NO. 058.
Petitioner raises the following issues:
III.
A. PROCEDURAL GROUND
WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE
THE HONORABLE COURT OF APPEALS SHOULD HAVE SUMMARILY RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT THE
DISMISSED RESPONDENTS’ PETITION A QUO FOR FAILURE TO COMPLY COMPLAINT FILED BY THE PETITIONER FAILED TO ALLEGE ULTIMATE
WITH PROCEDURAL REQUIREMENTS. FACTS OR PARTICULARS OF FRAUD.

I. IV.
Arbit-Part II |14

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE Furthermore, it can be gleaned from the nature of the two actions that the
RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT issues in the case before the RTC of Makati City and in the petition for
PETITIONER AND RESPONDENTS SHOULD SUBMIT TO ARBITRATION certiorari before the Court of Appeals are different. A petition for certiorari
UNDER R.A. 876. raises the issue of whether or not there was grave abuse of discretion,
while the Petition to Compel for Arbitration seeks the implementation of the
V. arbitration clause in the agreement between the parties.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE Petitioner next alleges that there was no authority granted by respondent
RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT THE Climax to the law firm of Sycip Salazar Hernandez & Gatmaitan to file the
ACTION TO DECLARE THE NULLITY OF THE ADDENDUM CONTRACT, FTAA, petition before the Court of Appeals. There is allegedly no Secretary’s
OFAC AND AAAA ON THE GROUND OF FRAUD HAS PRESCRIBED. Certificate from respondent Climax attached to the petition. The
Verification and Certification only contains a statement made by one
The issues for resolution in this petition for review are: Marianne M. Manzanas that she is "also the authorized representative of
[respondent Climax]" without presenting further proof of such authority.
(a) Whether there was forum-shopping on the part of respondents for their Hence, it is argued that as to respondent Climax, the petition filed before
failure to disclose to this Court their filing of a Petition to Compel for the Court of Appeals is an unauthorized act and the assailed orders of the
Arbitration before the Regional Trial Court of Makati City, Branch 148, Panel of Arbitrators have become final.
which is currently pending.
Under Section 3, Rule 46 of the Rules of Court, a petitioner is required to
(b) Whether counsel for respondent Climax had authority to file the petition submit, together with the petition, a sworn certification of non-forum
for certiorari before the Court of Appeals considering that the signor of the shopping, and failure to comply with this requirement is sufficient ground
petition for certiorari’s Verification and Certification of Non-forum Shopping for dismissal of the petition. The requirement that petitioner should sign
was not authorized to sign the same in behalf of respondent Climax. the certificate of non-forum shopping applies even to corporations, the
Rules of Court making no distinction between natural and juridical persons.
(c) Whether the complaint filed by petitioner raises a mining dispute over The signatory in the case of the corporation should be "a duly authorized
which the Panel of Arbitrators has jurisdiction, or a judicial question which director or officer of the corporation" who has knowledge of the matter
should properly be brought before the regular courts. being certified.15 If, as in this case, the petitioner is a corporation, a board
resolution authorizing a corporate officer to execute the certification
(d) Whether the dispute between the parties should be brought for against forum-shopping is necessary. A certification not signed by a duly
arbitration under Rep. Act No. 876. authorized person renders the petition subject to dismissal.16

Let us deal first with procedural matters. On this point, we have to agree with petitioner.l^vvphi1.net There appears
to be no subsequent compliance with the requirement to attach a board
Petitioner claims that respondents are guilty of forum-shopping for failing resolution authorizing the signor Marianne M. Manzanas to file the petition
to disclose before this Court that they had filed a Petition to Compel for in behalf of respondent Climax. Respondent also failed to refute this in
Arbitration before the RTC of Makati City. However, it cannot be its Comment.17 However, this latter issue becomes irrelevant in the light of
determined from petitioner’s mere allegations in the Petition that our decision to deny this petition for review for lack of jurisdiction by the
the Petition to Compel for Arbitration instituted by respondent Climax- Panel of Arbitrators over the complaint filed by petitioner, as will be
Arimco, involves related causes of action and the grant of the same or discussed below.
substantially the same reliefs as those involved in the instant case.
Petitioner did not attach copies of the Petition to Compel for Arbitration or We now come to the meat of the case which revolves mainly around the
any order or resolution of the RTC of Makati City related to that case. question of jurisdiction by the Panel of Arbitrators: Does the Panel of
Arbit-Part II |15

Arbitrators have jurisdiction over the complaint for declaration of nullity in his Complaint that under the original agreements (the May 14, 1987
and/or termination of the subject contracts on the ground of fraud, Letter of Intent and February 28, 1989 Agreement) respondent Climax-
oppression and violation of the Constitution? This issue may be distilled Arimco had committed to complete the Bankable Feasibility Study by 28
into the more basic question of whether the Complaint raises a mining February 1992, but the same was not accomplished. Instead, respondent
dispute or a judicial question. Climax-Arimco, through false and insidious representations and
machinations by alleging technical and financial capacity, induced
A judicial question is a question that is proper for determination by the petitioner to enter into the Addendum Contract and the FTAA in order to
courts, as opposed to a moot question or one properly decided by the repeatedly extend the option period within which to conduct the feasibility
executive or legislative branch.18 A judicial question is raised when the study. In essence, petitioner alleges that respondents, conspiring and
determination of the question involves the exercise of a judicial function; confederating with one another, misrepresented under the Addendum
that is, the question involves the determination of what the law is and what Contract and FTAA that respondent Climax-Arimco possessed financial and
the legal rights of the parties are with respect to the matter in technical capacity to put the project into commercial production, when in
controversy.19 1a\^/phi1.net truth it had no such qualification whatsoever to do so. By so doing,
respondents have allegedly caused damage not only to petitioner but also
On the other hand, a mining dispute is a dispute involving (a) rights to to the Republic of the Philippines.27
mining areas, (b) mineral agreements, FTAAs, or permits, and (c) surface
owners, occupants and claimholders/concessionaires.20 Under Republic Act It is apparent that the Panel of Arbitrators is bereft of jurisdiction over
No. 7942 (otherwise known as the Philippine Mining Act of 1995), the Panel the Complaint filed by petitioner. The basic issue in
of Arbitrators has exclusive and original jurisdiction to hear and decide petitioner’s Complaint is the presence of fraud or misrepresentation
these mining disputes.21 The Court of Appeals, in its questioned decision, allegedly attendant to the execution of the Addendum Contract and the
correctly stated that the Panel’s jurisdiction is limited only to those mining other contracts emanating from it, such that the contracts are rendered
disputes which raise questions of fact or matters requiring the application invalid and not binding upon the parties. It avers that petitioner was misled
of technological knowledge and experience.22 by respondents into agreeing to the Addendum Contract. This constitutes
fraud which vitiated petitioner’s consent, and under Article 1390 of the Civil
In Pearson v. Intermediate Appellate Court,23 this Court observed that the Code, is one of the grounds for the annulment of a voidable contract.
trend has been to make the adjudication of mining cases a purely Voidable or annullable contracts, before they are set aside, are existent,
administrative matter.24 Decisions25 of the Supreme Court on mining valid, and binding, and are effective and obligatory between the
disputes have recognized a distinction between (1) the primary powers parties.28 They can be ratified.29
granted by pertinent provisions of law to the then Secretary of Agriculture
and Natural Resources (and the bureau directors) of an executive or Petitioner insists that the Complaint is actually one for the declaration of
administrative nature, such as granting of license, permits, lease and nullity of void contracts. He argues that respondents, by their lack of
contracts, or approving, rejecting, reinstating or canceling applications, or financial and technical competence to carry out the mining project, do not
deciding conflicting applications, and (2) controversies or disagreements of qualify to enter into a co-production, joint venture or production sharing
civil or contractual nature between litigants which are questions of a agreement with the Government, in circumvention of and in patent
judicial nature that may be adjudicated only by the courts of justice. This violation of the spirit and purpose of the Constitution, particularly Section
distinction is carried on even in Rep. Act No. 7942. 2, Article XII thereof. Petitioner relies on the Civil Code for support: 30

The Complaint charged respondents with disregarding and ignoring the Art. 1409. The following contracts are inexistent and void from the
provisions of the Addendum Contract, violating the purpose and spirit of beginning:
the May 14, 1987 Letter of Intent and February 28, 1989 Agreement, and
acting in a fraudulent and oppressive manner against petitioner and (1) Those whose cause, object or purpose is contrary to law, morals, good
practicing fraud and deception against the Government.26 Petitioner alleged customs, public order or public policy;
Arbit-Part II |16

.... expertise relating to mining. This the Panel of Arbitrators has even
conceded in its Orders dated 18 October 2001 and 25 June 2002. At this
(7) Those expressly prohibited or declared void by law. juncture, it is worthy of note that in a case,31 which was resolved only on 1
December 2004, this Court upheld the validity of the FTAA entered into by
.... the Republic of the Philippines and WMC (Philippines), Inc. and
constitutionality of Rep. Act No. 7942 and DENR Administrative Order 96-
Petitioner asserts that for circumventing and being in patent violation of 40.32 In fact, the Court took the case on an original petition, recognizing
the Constitution, the Addendum Contract, the FTAA and the other contracts "the exceptional character of the situation and the paramount public
are void contracts. As such, they do not produce any effect and cannot be interest involved, as well as the necessity for a ruling to put an end to the
ratified. uncertainties plaguing the mining industry and the affected communities as
a result of doubts case upon the constitutionality and validity of the Mining
However, whether the case involves void or voidable contracts is still a Act, the subject FTAA and future FTAAs, and the need to avert a
judicial question. It may, in some instances, involve questions of fact multiplicity of suits."33
especially with regard to the determination of the circumstances of the
execution of the contracts. But the resolution of the validity or voidness of Arbitration before the Panel of Arbitrators is proper only when there is a
the contracts remains a legal or judicial question as it requires the exercise disagreement between the parties as to some provisions of the contract
of judicial function. It requires the ascertainment of what laws are between them, which needs the interpretation and the application of that
applicable to the dispute, the interpretation and application of those laws, particular knowledge and expertise possessed by members of that Panel. It
and the rendering of a judgment based thereon. Clearly, the dispute is not is not proper when one of the parties repudiates the existence or validity of
a mining conflict. It is essentially judicial. The complaint was not merely for such contract or agreement on the ground of fraud or oppression as in this
the determination of rights under the mining contracts since the very case. The validity of the contract cannot be subject of arbitration
validity of those contracts is put in issue. proceedings. Allegations of fraud and duress in the execution of a contract
are matters within the jurisdiction of the ordinary courts of law. These
The Complaint is not about a dispute involving rights to mining areas, nor questions are legal in nature and require the application and interpretation
is it a dispute involving claimholders or concessionaires. The main question of laws and jurisprudence which is necessarily a judicial function.
raised was the validity of the Addendum Contract, the FTAA and the
subsequent contracts. The question as to the rights of petitioner or Petitioner also disagrees with the Court of Appeals’ ruling that the case
respondents to the mining area pursuant to these contracts, as well as the should be brought for arbitration under Rep. Act 876, pursuant to the
question of whether or not petitioner had ceded his mining claims in favor arbitration clause in the Addendum Contract which states that "[a]ll
of respondents by way of execution of the questioned contracts, is merely disputes arising out of or in connection with the Contract, which cannot be
corollary to the main issue, and may not be resolved without first settled amicably among the Parties, shall finally be settled under R.A. 876."
determining the main issue. He points out that respondents Climax and APMI are not parties to
the Addendum Contract and are thus not bound by the arbitration clause in
The Complaint is also not what is contemplated by Rep. Act No. 7942 when said contract.
it says the dispute should involve FTAAs. The Complaint is not exclusively
within the jurisdiction of the Panel of Arbitrators just because, or for as We agree that the case should not be brought under the ambit of the
long as, the dispute involves an FTAA. The Complaint raised the issue of Arbitration Law, but for a different reason. The question of validity of the
the constitutionality of the FTAA, which is definitely a judicial question. The contract containing the agreement to submit to arbitration will affect the
question of constitutionality is exclusively within the jurisdiction of the applicability of the arbitration clause itself. A party cannot rely on the
courts to resolve as this would clearly involve the exercise of judicial contract and claim rights or obligations under it and at the same time
power. The Panel of Arbitrators does not have jurisdiction over such an impugn its existence or validity. Indeed, litigants are enjoined from taking
issue since it does not involve the application of technical knowledge and inconsistent positions. As previously discussed, the complaint should have
Arbit-Part II |17

been filed before the regular courts as it involved issues which are judicial
in nature.

WHEREFORE, in view of the foregoing, the Petition for Review on


Certiorari Under Rule 45 is DENIED. The Orders dated 18 October 2001 and
25 June 2002 of the Panel of Arbitrators are SET ASIDE. Costs against
petitioner Jorge Gonzales.

SO ORDERED.
Arbit-Part II |18

10. G.R. No. 141833 March 26, 2003 petitioner had failed to undertake -- due to termination or take-over --
against the amount it owed the latter.
LM POWER ENGINEERING CORPORATION, petitioner,
vs. Because of the dispute, petitioner filed with the Regional Trial Court (RTC)
CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent. of Makati (Branch 141) a Complaint10 for the collection of the amount
representing the alleged balance due it under the Subcontract. Instead of
PANGANIBAN, J.: submitting an Answer, respondent filed a Motion to Dismiss,11 alleging that
the Complaint was premature, because there was no prior recourse to
Alternative dispute resolution methods or ADRs -- like arbitration, arbitration.
mediation, negotiation and conciliation -- are encouraged by the Supreme
Court. By enabling parties to resolve their disputes amicably, they provide In its Order12 dated September 15, 1987, the RTC denied the Motion on the
solutions that are less time-consuming, less tedious, less confrontational, ground that the dispute did not involve the interpretation or the
and more productive of goodwill and lasting relationships.1 implementation of the Agreement and was, therefore, not covered by the
arbitral clause.13
The Case
After trial on the merits, the RTC14 ruled that the take-over of some work
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules items by respondent was not equivalent to a termination, but a mere
2

of Court, seeking to set aside the January 28, 2000 Decision of the Court of modification, of the Subcontract. The latter was ordered to give full
Appeals3 (CA) in CA-GR CV No. 54232. The dispositive portion of the payment for the work completed by petitioner.
Decision reads as follows:
Ruling of the Court of Appeals
"WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE.
The parties are ORDERED to present their dispute to arbitration in On appeal, the CA reversed the RTC and ordered the referral of the case to
accordance with their Sub-contract Agreement. The surety bond posted by arbitration. The appellate court held as arbitrable the issue of whether
[respondent] is [d]ischarged."4 respondent’s take-over of some work items had been intended to be a
termination of the original contract under Letter "K" of the Subcontract. It
The Facts ruled likewise on two other issues: whether petitioner was liable under the
warranty clause of the Agreement, and whether it should reimburse
On February 22, 1983, Petitioner LM Power Engineering Corporation and respondent for the work the latter had taken over.15
Respondent Capitol Industrial Construction Groups Inc. entered into a
"Subcontract Agreement" involving electrical work at the Third Port of Hence, this Petition.16
Zamboanga.5
The Issues
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 In its Memorandum, petitioner raises the following issues for the Court’s
to procure materials.7 consideration:

Upon completing its task under the Contract, petitioner billed respondent in "A
the amount of P6,711,813.90.8Contesting the accuracy of the amount of
advances and billable accomplishments listed by the former, the latter Whether or not there exist[s] a controversy/dispute between petitioner and
refused to pay. Respondent also took refuge in the termination clause of respondent regarding the interpretation and implementation of the Sub-
the Agreement.9 That clause allowed it to set off the cost of the work that Contract Agreement dated February 22, 1983 that requires prior recourse
to voluntary arbitration;
Arbit-Part II |19

"B billable accomplishments, the application of the provision on termination,


and the consequent set-off of expenses.
In the affirmative, whether or not the requirements provided in Article
III 1 of CIAC Arbitration Rules regarding request for arbitration ha[ve] been A review of the factual allegations of the parties reveals that they differ on
complied with[.]"17 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
The Court’s Ruling amounts it owed petitioner? (3) How much were the advances and billable
accomplishments?
The Petition is unmeritorious.
The resolution of the foregoing issues lies in the interpretation of the
First Issue: provisions of the Agreement. According to respondent, the take-over was
Whether Dispute Is Arbitrable caused by petitioner’s delay in completing the work. Such delay was in
violation of the provision in the Agreement as to time schedule:
Petitioner claims that there is no conflict regarding the interpretation or the
implementation of the Agreement. Thus, without having to resort to prior "G. TIME SCHEDULE
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 "[Petitioner] shall adhere strictly to the schedule related to the WORK and
respondent. On the other hand, the latter contends that there is a need for complete the WORK within the period set forth in Annex C hereof. NO time
prior arbitration as provided in the Agreement. This is because there are extension shall be granted by [respondent] to [petitioner] unless a
some disparities between the parties’ positions regarding the extent of the corresponding time extension is granted by [the Ministry of Public Works
work done, the amount of advances and billable accomplishments, and the and Highways] to the CONSORTIUM."20
set off of expenses incurred by respondent in its take-over of petitioner’s
work. Because of the delay, respondent alleges that it took over some of the
work contracted to petitioner, pursuant to the following provision in the
We side with respondent. Essentially, the dispute arose from the parties’ Agreement:
ncongruent positions on whether certain provisions of their Agreement
could be applied to the facts. The instant case involves technical "K. TERMINATION OF AGREEMENT
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 "[Respondent] has the right to terminate and/or take over this Agreement
contract does not ipso facto divest the courts of jurisdiction to pass upon for any of the following causes:
the findings of arbitral bodies, because the awards are still judicially
reviewable under certain conditions.18 xxx xxx xxx

In the case before us, the Subcontract has the following arbitral clause: ‘6. If despite previous warnings by [respondent], [petitioner] does not
execute the WORK in accordance with this Agreement, or persistently or
"6. The Parties hereto agree that any dispute or conflict as regards to flagrantly neglects to carry out [its] obligations under this Agreement."21
interpretation and implementation of this Agreement which cannot be
settled between [respondent] and [petitioner] amicably shall be settled by Supposedly, as a result of the "take-over," respondent incurred expenses
means of arbitration x x x."19 in excess of the contracted price. It sought to set off those expenses
against the amount claimed by petitioner for the work the latter
Clearly, the resolution of the dispute between the parties herein requires a accomplished, pursuant to the following provision:
referral to the provisions of their Agreement. Within the scope of the
arbitration clause are discrepancies as to the amount of advances and
Arbit-Part II |20

"If the total direct and indirect cost of completing the remaining part of the "All expenses incurred by [respondent], both in foreign and local currencies
WORK exceed the sum which would have been payable to [petitioner] had in connection with the opening of the letters of credit shall be deducted
it completed the WORK, the amount of such excess [may be] claimed by from the Contract Prices.
[respondent] from either of the following:
xxx xxx xxx
‘1. Any amount due [petitioner] from [respondent] at the time of the
termination of this Agreement."22 "N. OTHER CONDITIONS

The issue as to the correct amount of petitioner’s advances and billable xxx xxx xxx
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 "2. All customs duties, import duties, contractor’s taxes, income taxes, and
of them incurred in connection therewith. Arbitrators also need to look into other taxes that may be required by any government agencies in
the computation of foreign and local costs of materials, foreign and local connection with this Agreement shall be for the sole account of
advances, retention fees and letters of credit, and taxes and duties as set [petitioner]."23
forth in the Agreement. These data can be gathered from a review of the
Agreement, pertinent portions of which are reproduced hereunder: Being an inexpensive, speedy and amicable method of settling
disputes,24 arbitration -- along with mediation, conciliation and negotiation
"C. CONTRACT PRICE AND TERMS OF PAYMENT -- is encouraged by the Supreme Court. Aside from unclogging judicial
dockets, arbitration also hastens the resolution of disputes, especially of
xxx xxx xxx 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
"All progress payments to be made by [respondent] to [petitioner] shall be agreement calling for arbitration between the parties would be a step
subject to a retention sum of ten percent (10%) of the value of the backward.27
approved quantities. Any claims by [respondent] on [petitioner] may be
deducted by [respondent] from the progress payments and/or retained Consistent with the above-mentioned policy of encouraging alternative
amount. Any excess from the retained amount after deducting dispute resolution methods, courts should liberally construe arbitration
[respondent’s] claims shall be released by [respondent] to [petitioner] clauses. Provided such clause is susceptible of an interpretation that covers
after the issuance of [the Ministry of Public Works and Highways] of the the asserted dispute, an order to arbitrate should be granted. 28 Any doubt
Certificate of Completion and final acceptance of the WORK by [the Ministry should be resolved in favor of arbitration.29
of Public Works and Highways].
Second Issue:
xxx xxx xxx Prior Request for Arbitration

"D. IMPORTED MATERIALS AND EQUIPMENT According to petitioner, assuming arguendo that the dispute is arbitrable,
the failure to file a formal request for arbitration with the Construction
"[Respondent shall open the letters of credit for the importation of Industry Arbitration Commission (CIAC) precluded the latter from acquiring
equipment and materials listed in Annex E hereof after the drawings, jurisdiction over the question. To bolster its position, petitioner even cites
brochures, and other technical data of each items in the list have been our ruling in Tesco Services Incorporated v. Vera.30 We are not persuaded.
formally approved by [the Ministry of Public Works and Highways].
However, petitioner will still be fully responsible for all imported materials Section 1 of Article II of the old Rules of Procedure Governing Construction
and equipment. Arbitration indeed required the submission of a request for arbitration, as
follows:
Arbit-Part II |21

"SECTION. 1. Submission to Arbitration -- Any party to a construction as the parties agree to submit to voluntary arbitration, regardless of what
contract wishing to have recourse to arbitration by the Construction forum they may choose, their agreement will fall within the jurisdiction of
Industry Arbitration Commission (CIAC) shall submit its Request for the CIAC, such that, even if they specifically choose another forum, the
Arbitration in sufficient copies to the Secretariat of the CIAC; PROVIDED, parties will not be precluded from electing to submit their dispute before
that in the case of government construction contracts, all administrative the CIAC because this right has been vested upon each party by law, i.e.,
remedies available to the parties must have been exhausted within 90 days E.O. No. 1008."34
from the time the dispute arose."
Clearly, there is no more need to file a request with the CIAC in order to
Tesco was promulgated by this Court, using the foregoing provision as vest it with jurisdiction to decide a construction dispute.
reference.
The arbitral clause in the Agreement is a commitment on the part of the
On the other hand, Section 1 of Article III of the new Rules of Procedure parties to submit to arbitration the disputes covered therein. Because that
Governing Construction Arbitration has dispensed with this requirement clause is binding, they are expected to abide by it in good faith. 35 And
and recourse to the CIAC may now be availed of whenever a contract because it covers the dispute between the parties in the present case,
"contains a clause for the submission of a future controversy to either of them may compel the other to arbitrate.36
arbitration," in this wise:
Since petitioner has already filed a Complaint with the RTC without prior
"SECTION 1. Submission to CIAC Jurisdiction — An arbitration clause in a recourse to arbitration, the proper procedure to enable the CIAC to decide
construction contract or a submission to arbitration of a construction on the dispute is to request the stay or suspension of such action, as
dispute shall be deemed an agreement to submit an existing or future provided under RA 876 [the Arbitration Law].37
controversy to CIAC jurisdiction, notwithstanding the reference to a
different arbitration institution or arbitral body in such contract or WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.
submission. When a contract contains a clause for the submission of a Costs against petitioner.
future controversy to arbitration, it is not necessary for the parties to enter
into a submission agreement before the claimant may invoke the SO ORDERED.
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