THIRD DIVISION FOR ACCOUNT OF CERTIFICATE NUMBER

Sulpicio Lines Inc.,

[ GR. No. 196072, September 20, 2017 ] 1st Floor, Reclamation Area,
155,534
STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LIMITED, PETITIONER, VS. SULPICIO P.O. Box No. 137
LINES, INC. RESPONDENT. Cebu City, Philippines.
NAME OF SHIP BUILT ENTERED CLASS PORT OF
[G.R. NO. 208603] GROSS REGISTRY
TONNAGE
SULPICIO LINES, INC. PETITIONER, VS. STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA)
LIMITED, REPONDENT.
"PRINCESS OF THE 1975 B.V. 6,150
OCEAN" Cebu City
DECISION
LEONEN, J.:
An insured member may be compelled to arbitration pursuant to the Rules of the Protection and
Indemnity Club, which were incorporated in the insurance policy by reference. Where there are multiple "PRINCESS OF THE 1983 B.V. 13,526
parties, the court must refer to arbitration the parties covered by the agreement while proceeding with UNIVERSE" Cebu City
the civil action against those who were not bound by the arbitration agreement.

G.R. No. 196072 is a Petition for Review[1] seeking to set aside the November 26, 2010 Decision[2] and
March 10, 2011 Resolution[3] of the Court of Appeals in CA-GR. SP No. 106103. "PRINCESS OF THE 1979 B.V. 3,768
CARIBBEAN" Cebu City

GR. No. 208603 is a Petition for Indirect Contempt[4] filed by Sulpicio Lines, Inc. (Sulpicio) against
Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship). It prays, among others, that
Steamship be (a) declared guilty of indirect contempt; (b) imposed a fine of P30,000.00; and (c) ordered "PRINCESS OF THE 1972 B.V. 9,627
to restitute to Sulpicio the amount of US$69,570.99 or its equivalent in Philippine currency plus interest, WORLD" Cebu City
computed from December 3, 2012 until fully restituted.[5]

Steamship was a Bermuda-based Protection and Indemnity Club, managed outside London, England.[6] It
insures its members-shipowners against "third party risks and liabilities" for claims arising from (a) death "PRINCESS OF THE 1984 X.X. 19,329
STARS" (Rebuilt Cebu City
or injury to passengers; (b) loss or damage to cargoes; and (c) loss or damage from collisions.[7]
1990)
Sulpicio insured its fleet of inter-island vessels with Steamship for Protection & Indemnity risks through ....
local insurance agents, Pioneer Insurance and Surety Corporation (Pioneer Insurance) or Seaboard-
Eastern Insurance Co., Inc. (Seaboard-Eastern).[8] One (1) of these vessels was the M/V Princess of the
NOTES
World, evidenced by a Certificate of Entry and Acceptance issued by Steamship, which provided:

CERTIFICATE OF ENTRY AND ACCEPTANCE 1. REFERENCE IS REQUESTED TO 2.
by the Club of your proposal for entering the ship(s) specified below, and of THE RULES AS TO THE
the tonnage set out against each, in: CIRCUMSTANCES OF ENTRY
BEING CANCELLED AND AS TO
Class 1 PROTECTION AND INDEMNITY THE CIRCUMSTANCES OF AN
of the Club from ALTERATION IN THE RULES OR
Noon 20th February 2005 to Noon 20th February 2006 BY(E)-LAWS.
THE RULES ARE PRINTED ANNUALLY IN BOOK FORM,
INCORPORATING ALL PREVIOUS ALTERATIONS AND A COPY IS
SENT TO EACH MEMBER. ALTERATIONS CAN BE MADE BY
ORDINARY RESOLUTION FOLLOWING A GENERAL MEETING
NOTIFIED TO ALL MEMBERS.[9]

or until sold, lost, withdrawn or the entry is terminated in accordance with the rules, to the extent
specified and in accordance with the Act, By(e)-Laws and the Rules from time to time in force and the
special terms specified overleaf.
Your name has been entered in the Register of Members of the Club as a Member.
On July 7, 2005, M/V Princess of the World was gutted by fire while on voyage from Iloilo to Zamboanga
City, resulting in total loss of its cargoes. The fire incident was found by the Department of Interior and
Local Government to be "accidental" in nature.[10]
Sulpicio claimed indemnity from Steamship under the Protection & Indemnity insurance policy.
Steamship denied the claim and subsequently rescinded the insurance coverage of Sulpicio's other
vessels on the ground that "Sulpicio was grossly negligent in conducting its business regarding safety,
maintaining the seaworthiness of its vessels as well as proper training of its crew."[11]
On June 28, 2007, Sulpicio filed a Complaint[12] with the Regional Trial Court of Makati City against
Steamship; one (1) of its directors, Gary Rynsard; and its local insurance agents Pioneer Insurance and
Seaboard-Eastern for specific performance and damages. This Complaint was docketed as Civil Case No.
07-577, was amended on August 10, 2007,[13] and further amended on September 11, 2007.[14]
Steamship filed its Motion to Dismiss and/or to Refer Case to Arbitration[15] pursuant to Republic Act No.
9285, or the Alternative Dispute Resolution Act of 2004 (ADR Law), and to Rule 47[16] of the 2005/2006
Club Rules, which supposedly provided for arbitration in London of disputes between Steamship and its
members.[17] The other defendants filed separate motions to dismiss.[18]
Branch 149, Regional Trial Court, Makati City denied the motions to dismiss. In its July 11, 2008
Order,[19] denying Steamship's motion and supplemental motion to dismiss and citing[20] European
Resources and Technologies, Inc. v. Ingenieuburo Birkhann + Nolte, Ingeniurgesellschaft Gmbh[21] the
Regional Trial Court held that "arbitration [did] not appear to be the most prudent action, . . .
considering that the other defendants . . . ha[d] already filed their [respective] [a]nswers."[22] Steamship
filed its Motion for Reconsideration,[23] but it was likewise denied in the Order[24] dated September 24,
2008.
Steamship assailed trial court orders before the Court of Appeals through a Rule 65 Petition, docketed as
CA-G.R. SP No. 106103.[25] The Court of Appeals dismissed the petition in its November 26, 2010
Decision.[26] It found no grave abuse of discretion on the part of the trial court in denying Steamship's
Motion to Dismiss and/or to Refer Case to Arbitration[27] or any convincing evidence to show that a valid
arbitration agreement existed between the parties.[28] Steamship's Motion for Reconsideration of this
Decision was likewise denied in the Resolution[29] dated March 10, 2011.
On April 29, 2011, Steamship filed before this Court this Petition for Review, docketed as G.R. No.
196072. In compliance with this Court's June 13, 2011 Resolution,[30] Sulpicio filed its Comment[31] on
August 31, 2011 and Steamship filed its Reply[32] on October 20, 2011.
On September 6, 2013, Sulpicio filed with this Court a Petition for Indirect Contempt[33] under Rule 71 of
the Rules of Court against Steamship. This Petition was docketed as GR. No. 208603.
Sulpicio alleges that sometime in September 2012, it settled its judgment liability of P4,121,600.00 in
Civil Case No. CEB-24783, entitled Verna Unabia v. Sulpicio Lines, Inc.[34] However, the actual amount
reimbursed by Steamship was not P4,121,600.00, equivalent to US$96,958.47, but only
US$27,387.48.[35] Steamship deducted US$69,570.99, which allegedly represented Sulpicio's share in the
arbitration costs for the arbitration in London of the dispute in Civil Case No. 07-577.[36]
Sulpicio accuses Steamship of indirect contempt for its "improper conduct tending directly, or indirectly,
to impede, obstruct, or degrade the administration of justice"[37] consisting of the following acts:
(a) Without Sulpicio's knowledge or consent, Steamship initiated and "concluded" during the pendency
of this case an alleged "arbitration proceeding" in London for the "Arbitrator" there to "resolve" the very
dispute involved in this case;
(b) Without Sulpicio's knowledge or consent, Steamship proclaimed itself the "victor" entitled to
arbitration costs from Sulpicio;
(c) Without Sulpicio's knowledge or consent, Steamship unceremoniously deducted from the refund due
to Sulpicio in the separate "Unabia Case" the huge amount of U.S.$69,570.99 despite the fact that: (a)
Said "Unabia Case" is unrelated to the instant case; (b) The propriety of a London arbitration is still to be
resolved in this case by this Honorable Court; (c) Steamship "enforced" by itself said "arbitration costs"
against Sulpicio without the courtesy of even informing this Honorable Court about it[; and]
(d) Without Sulpicio's knowledge or consent, and more importantly, without the prior approval of this
Honorable Court, Steamship initiated and "concluded" said London "arbitration" during the pendency of
this G.R. No. 196072 and before this Honorable Court could render its ruling or decision.[38] (Emphasis in
the original)
Steamship filed its Comment/Opposition[39] on January 30, 2014, to which Sulpicio filed its Reply[40] on
July 2, 2014.
In its Resolution[41] dated January 15, 2014, this Court resolved to consolidate G.R. Nos. 208603 and
196072.
The issues for this Court's resolution are:
First, whether or not the petition in G.R. No. 196072 is proper under the Rules of Court;
Second, whether or not there is a valid and binding arbitration agreement between Steamship Mutual
Underwriting (Bermuda) Limited and Sulpicio Lines, Inc.;
Third, whether or not the Court of Appeals gravely erred in affirming the Regional Trial Court Order
denying referral of Sulpicio Lines, Inc.'s complaint to arbitration in London in accordance with the
2005/2006 Club Rules; and
Finally, whether or not Steamship Mutual Underwriting (Bermuda) Limited is guilty of indirect contempt.
This Court addresses first the procedural issue raised by Sulpicio.
I.A
Sulpicio contends that Steamship's Petition for Review should be dismissed outright on procedural
grounds.[42]
First, this Petition, couched as a Rule 45 Petition, is actually a Rule 65 Petition because it contained
arguments dealing with "grave abuse of discretion" allegedly committed by the Court of Appeals.[43]
Second, the Petition's Verification and Certification Against Forum Shopping is defective because it was
signed and executed by Steamship's lawyer. Additionally, the Power of Attorney appended to the
Petition did not indicate its signatory's name and authority.[44]
Third, the issue of whether or not Sulpicio has been furnished with the Club's Rulebook, which contained
the arbitration clause, is factual and beyond the realm of a Rule 45 petition.[45]
In its Reply, Steamship avers that its counsel's law firm was duly authorized to sign its Verification and
Certification against Forum Shopping. Moreover, Sulpicio never assailed this law firm's authority to
represent Steamship before the Regional Trial Court, and therefore, is estopped to deny its authority
before this Court.[46] Together with its Reply, Steamship submitted a copy of the Secretary's
Certificate[47] to the July 24, 2007 Board of Directors' resolution authorizing Scott Davis (Davis) or his
Assistant Secretaries to sign a Power of Attorney on behalf of Steamship. It also appended a Secretary's
Certificate[48] to the Jvly 26, 2011 Board of Directors' resolution re appointing Davis and John Charles
Ross Collis[49] to their current positions as Secretary and Assistant Secretary, respectively.
Steamship further contends that the basic issues raised in the petition are questions of law that are
cognizable by this Court.[50] It adds that a reversal of some factual findings is warranted because the
Court of Appeals committed a grave abuse of discretion in concluding that Sulpicio was ignorant of the
2005/2006 Club Rules and its arbitration clause, when Steamship had presented ample evidence to
establish otherwise.[51] Steamship submits that this Court may exercise its power of review to reverse
errors committed by the lower courts including grave abuse of discretion of the Court of Appeals.[52]
This Court finds for Steamship.
The appeal from a final disposition of the Court of Appeals is a petition for review under Rule 45 and not
a special civil action under Rule 65.[53] Rule 45, Section 1 is clear that:
Section 1. Filing of petition with Supreme Court. A patty desiring to appeal by certiorari from a judgment
or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other
courts whenever authorized by law, may file with the Supreme Court a verified petition for review
on certiorari. The petition shall raise only questions of law which must be distinctly set forth.
A Rule 45 petition is the proper remedy to reverse a decision or resolution of the Court of Appeals even if
the error assigned is grave abuse of discretion in the findings of fact or of law. "The existence and
availability of the right of appeal prohibits the resort to certiorari because one of the requirements for
the latter remedy is that there should be no appeal."[54]
Allegations in the petition of grave abuse of discretion on the part of the Court of Appeals do not ipso
facto render the intended remedy that of certiorari under Rule 65 of the Rules of Court. In Microsoft
Corporation v. Best Deal Computer Center Corporation,[55] this Court discussed the distinction between a
Petition for Certiorari under Rule 65 and a Petition for Review on Certiorari under Rule 45:
Significantly, even assuming that the orders were erroneous, such error would merely be deemed as an
error of judgment that cannot be remedied by certiorari. As long as the respondent acted with
jurisdiction, any error committed by him or it in the exercise thereof will amount to nothing more than
an error of judgment which may be reviewed or corrected only by appeal. The distinction is clear: A
petition for certiorari seeks to correct errors of jurisdiction while a petition for review seeks to correct
errors of judgment committed by the court. Errors of judgment include errors of procedure or mistakes
in the court's findings. Where a court has jurisdiction over the person and subject matter, the decision
on all other questions arising in the case an exercise of that jurisdiction. Consequently, all errors
committed in the exercise of such jurisdiction are merely errors of judgment. Certiorari under Rule 65 is
a remedy designed for the correction of errors of jurisdiction and not errors of judgment.[56] (Citations
omitted)
In this case, what Steamship seeks to rectify may be construed as errors of judgment of the Court of
Appeals. These errors pertain to Steamship's allegations of the Court of Appeals' failure to rule that a
valid arbitration agreement existed between the parties and to refer the case to arbitration. It does not
impute any error with respect to the Court of Appeals' exercise of jurisdiction, As such, the Petition is
simply a continuation of the appellate process where a case is elevated from the trial court of origin, to
the Court of Appeals, and to this Court via Rule 45.
The basic issues raised in the Petition for Review are: (1) whether or not an arbitration agreement may
be validly incorporated by reference to a contract; and (2) how the trial court should proceed to trial
upon its finding "that only some and not all of the defendants are bound by an arbitration
agreement[.]"[57] These are questions of law properly cognizable in a Rule 45 petition.
In BCDA v. DMCI Project Developers, Inc..[58] citing Villamor v. Balmores[59]:
[T]here is a question of law "when there is doubt or controversy as to what the law is on a certain [set] of
facts." The test is "whether the appellate court can determine the issue raised without reviewing or
evaluating the evidence." Meanwhile, there is a question of fact when there is "doubt . . . as to the truth
or falsehood of facts." The question must involve the examination of probative value of the evidence
presented.[60]
Sulpicio denies being bound by the arbitration clause in the Club Rules since neither the Certificate of
Entry and Acceptance, which covers M/V Princess of the World, mentioned this arbitration agreement,
nor was it given a copy of the Club Rulebook.
In sustaining the denial of Steamship's Motion to Dismiss and/or to Refer Case to Arbitration, the Court
of Appeals ruled:
Unfortunately, the Court is not convinced that a valid and binding arbitration agreement exists between
the Steamship and Sulpicio. And even assuming that there is such an agreement, it does not comply with
Section 4 of the Arbitration Law which provides that "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."
As correctly pointed out by Sulpicio, there is no proof that it was served a copy of the Club Rules in
question and that it signed therein.[61] (Emphasis supplied)
A factual question on whether or not Sulpicio was given a copy of the Club Rulebook must be resolved
because it has a bearing on the legal issue of whether or not a binding arbitration agreement existed
between the parties. Factual review, nonetheless, may be justified: (1) when there is a grave abuse of
discretion in the appreciation of facts;[62] (2) when the judgment of the Court of Appeals is premised on a
misapprehension of facts;[63] and (3) when the Court of Appeals' findings of fact are premised on the
absence of evidence but such findings are contradicted by the evidence on record.[64]
Here, this Court finds grave abuse of discretion by the Court of Appeals in its appreciation of facts. As will
be discussed later, the evidence on record shows that Sulpicio was furnished a copy of the Club Rulebook
and was aware of its provisions. Other pieces of evidence were Sulpicio's letters[65] to Steamship and the
affidavits of Director and Head of Underwriting of the Club and In-Charge of Far East membership
including the Philippines, Jonathan Andrews;[66] Vice-President of Pioneer Insurance who was in charge
of Sulpicio's account, Roderick Gil Narvacan;[67] and Manager of Seaboard-Eastern's Marine Department
who was in charge of Sulpicio's account, Elmer Felipe.[68]
I.B
The Verification and Certification against Forum Shopping signed by Steamship's counsel substantially
complied with the requirements of the Rules of Court.
Under Rule 45 of the Rules of Court, a petition for review must be verified[69] and must contain a sworn
certification against forum shopping.[70]
"A pleading is verified by an affidavit that the affiant has read the pleading and that the allegations
therein are true and correct of his [or her] personal knowledge or based on authentic records."[71]
On the other hand, a certification against forum shopping is a petitioner's, statement "under oath that
he [or she] has not . . . commenced any other action involving the same issues in the Supreme Court, the
Court of Appeals or different divisions, or any other tribunal or agency[.][72] In this certification, the
petitioner must state the status of any other action or proceeding, if there is any, and undertakes to
report to the courts and other tribunal within five (5) days from learning of any similar action or
proceeding.[73]

Failure to comply with the foregoing mandates constitutes a sufficient ground for the denial of the
petition.[74]
In case the petitioner is a private corporation, the verification and certification may be signed, for and on
behalf of this corporation, by a specifically authorized person, including its retained counsel, who has
personal knowledge of the facts required to be established by the documents.[75] The reason is that:
A corporation, such as the petitioner, has no powers except those expressly conferred on it by the
Corporation Code and those that are implied by or are incidental to its existence. In turn, a corporation
exercises said powers through its board of directors and/or its duly authorized officers and agents.
Physical acts, like the signing of documents, can be performed only by natural persons duly authorized
for the purpose by corporate bylaws or by a specific act of the board of directors. "All acts within the
powers of a corporation may be performed by agents of its selection; and, except so far as limitations or
restrictions which may be imposed by special charter, by-law, or statutory provisions, the same general
principles of law which govern the relation of agency for a natural person govern the officer or agent of a
corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents
once appointed, or members acting in their stead, are subject to the same rules, liabilities and
incapacities as are agents of individuals and private persons."
....
For who else knows of the circumstances required in the Certificate but its own retained counsel. Its
regular officers, like its board chairman and president may not even know the details required therein.[76]
In this case, Steamship's Petition's Verification and Certification against forum shopping was signed by its
counsel. A Power of Attorney[77] dated August 1, 2007 was appended to the Petition, which purportedly
authorized "Atty. Charles Jay D. Dela Cruz or any of the partners of Del Rosario & Del Rosario . . . to sign
the verification or certification"[78] against forum shopping of petitions and appeals in appellate courts
necessary in representing and defending Steamship. It was notarized, apostilled in accordance with the
law of Bermuda and authenticated by the Philippine consulate in London, United Kingdom. However, a
closer look into the Power of Attorney reveals that the signatory of the document was not identified.
This was pointed out by Sulpicio in its Comment.[79]
Nonetheless, Steamship subsequent filed its Reply,[80] to which it attached two (2) Secretary's
Certificates[81] signed by Davis containing excerpts of the July 24, 2007 and July 26, 2011 board
resolutions showing Davis' authority to execute the Power of Attorney on its behalf, and Davis'
reappointment as Corporate Secretary, respectively. The signature in the Power of Attorney was similar
in form and appearance to Davis' signature in the Secretary's Certificates, which lends credence to
Steamship's submission that the Power of Attorney was executed and signed by Davis.[82]
The rule on verification of a pleading is a formal, not jurisdictional, requirement.[83] This Court has held
that:
Non compliance with the verification requirement does not necessarily render the pleading fatally
defective, and is substantially complied with when signed by one who has ample knowledge of the truth
of the allegations in the complaint or petition, and when matters alleged in the petition have been made
in good faith or are true and correct.[84] (Citation omitted)
On the other hand, a certification not signed by a duly authorized person renders the petition subject to
dismissal.[85] Moreover, the lack of or defect in the certification is not generally curable by its subsequent
submission or correction.[86] However, there are cases where this Court exercised leniency due to the
presence of special circumstances or compelling reasons, such as the prima facie merits of the
petition.[87] In some cases, the subsequent submission of proof of authority of the party signing the
certification on behalf of the corporation was considered as substantial compliance with the rules and
the petition was given due course.[88]
In Shipside Incorporated v. Court of Appeals,[89] this Court held:
Moreover, in Loyola, Roadway, and Uy, the Court excused non-compliance with the requirement as to
the certificate of non-forum shopping. With more, reason should we allow the instant petition since
petitioner herein did submit a certification on non-forum shopping, failing only to show proof that the
signatory was authorized to do so. That petitioner subsequently submitted a secretary's certificate
attesting that Balbin was authorized to file an action on behalf of petitioner likewise mitigates this
oversight.[90]
Likewise, this Court ho1ds that there is substantial compliance with the rules on verification and
certification against forum shopping. Steamship's subsequent submission of the Secretary's Certificates
showing Davis' authority to execute the Power of Attorney in favor of Del Rosario & Del Rosario cured
the defect in the verification and certification appended to the petition. Under the circumstances of this
case, Steamship's counsel would be in the best position to determine the truthfulness of the allegations
in the petition and certify on non-forum shopping considering that "it has handled the case for . . .
Steamship since its inception."[91] This Court also considers Steamship's allegations that the same Power
of Attorney was used in its Answer Ad Cautelam filed on August 12, 2008 before the Regional Trial Court
and in its Petition for Certiorari before the Court of Appeals on November 12, 2008. Significantly, Sulpicio
never questioned the authority of Del Rosario & Del Rosario to represent Steamship in the proceedings
before the lower courts.[92]
The rules on forum-shopping are "designed . . . to promote and facilitate the orderly administration of
justice." They are not to be interpreted with "absolute literalness" as to subvert the procedural rules'
ultimate objective of achieving substantial justice as expeditiously as possible.[93] These goals would not
be circumvented by this Court's recognition of the authorized counsel's signature in the verification and
certification of non-forum shopping.
This Court now proceeds to the substantive issues of whether or not there was a valid arbitration
agreement between the parties and whether or not referral to arbitration was imperative.
II
Steamship contends that the arbitration agreement set forth in its Club Rules, which in turn is
incorporated by reference in the Certificate of Entry and Acceptance of M/V Princess of the World,[94] is
valid and binding upon Sulpicio,[95] pursuant to this Court's ruling in BF Corporation v. Court of Appeals.[96]
Steamship further avers that the Court of Appeals' finding that there was no proof that Sulpicio was
given a copy of the Club Rules was incorrect and contradicted by the evidence on record.[97] Steamship
adds that by Sulpicio's own declarations in its letter-application[98] for membership of its vessels, Sulpicio
acknowledged that it had received a copy of the Club Rules and that its membership in Steamship is
subject to them. [99] It contends that Sulpicio was "provided with copies of the Club's Rule books on an
annual basis by Pioneer Insurance and Seaboard-Eastern who acted as brokers [for Sulpicio's]
entry."[100] Moreover, throughout Sulpicio's almost 20 years of membership,[101] it has been aware of, and
relied upon, the terms of the Club Rules, as revealed in its various correspondences through its brokers
with Steamship.[102] Thus, Sulpicio is estopped to deny that it was aware of, and agreed to be bound by,
the Club Rules and their provisions.[103]
Steamship argues that a referral of the case to arbitration is imperative pursuant to the mandates of
Republic Act No. 9285 or the ADR Law.[104] It adds that the trial court's reliance on the ruling in European
Resources and Technologies, Inc. v. Ingenieuburo Birkhann + Nolte, Ingeniurgesellschaft Gmbh[105] was
misplaced. That case was decided on the basis of Republic Act 876 or the Old Arbitration Law, which did
not provide for instances where some of the multiple impleaded parties were not covered by an
arbitration agreement.[106] It adds that now, Section 25 of the ADR Law specifically provides that "the
court shall refer to arbitration those parties who are bound by the arbitration agreement although the
civil action may continue as to those who are not bound by such arbitration agreement."[107] Even from a
procedural standpoint, Steamship contends that the claim against it may be separated from Pioneer
Insurance and Seaboard-Eastern as these local insurance companies were impleaded as solidary
obligors/debtors.[108]
Steamship further submits that "a Philippine court is an inconvenient forum to thresh out the issues
involved in Sulpicio's claim."[109] First, Sulpicio's claim is governed by the English Law, as expressly stated
in the 2005/2006 Club Rules.[110] Second, a Philippine court would be "an ineffective venue" to enforce
any judgment that may be obtained against Steamship, a foreign corporation.[111] Thus, on the basis of
the doctrine of forum non conveniens alone, Steamship contends that the claim against it should be
referred to arbitration in London.[112]
Finally, Steamship holds that "Sulpicio should participate in the London Arbitration as [it] is already
progressing . . . [i]nstead of wasting its time on prosecuting its claim before a Philippine court that is
devoid of jurisdiction[.][113]
Sulpicio counters that the Court of Appeals was correct in ruling that there was no arbitration agreement
between the parties.[114] The arbitration clause in the 2005/2006 Club Rules is not valid and binding for
failure to comply with Section 4 of the ADR Law, which requires that an arbitration agreement be in
writing and subscribed by the parties or their lawful agent.[115] Sulpicio adds that "[i]n White Gold Marine
Services, Inc. vs. Pioneer Insurance and Surety Corporation, . . . Steamship did not invoke arbitration but
filed suit before a Philippine court, which . . . proves that [the 2005/2006 Club Rules' arbitration clause] is
neither mandatory nor binding" upon the parties.[116]
Sulpicio further contends that the Certificate of Entry and Acceptance did not provide for arbitration as a
mode of dispute resolution, that the rules referred to was not particularly identified or described, and
that it never received a copy of the Club Rules.[117]
Assuming there was valid arbitration agreement between them, Sulpicio submits that the trial court
correctly relied on the ruling in European Resources in denying the referral of the case to
arbitration.[118] Arbitration in London would not be the "most prudent action" because the arbitral
decision will not be binding on Pioneer Insurance and Seaboard-Eastern and it would result in a "split
jurisdiction."[119] Sulpicio further contends that the exception laid down in European Resources still
applies because the ADR Law was already in effect when the case was decided by this Court.[120]
In its Reply, Steamship maintains that there is a valid arbitration clause between them and that Sulpicio
was well aware of its Club Rules. It adds that Sulpicio is merely feigning ignorance of the Club Rules to
escape the obligatory nature of the arbitration agreement. Steamship further reiterates that Section 25
of the ADR Law is plain and clear that when there are multiple parties in an action, the court must "refer
to arbitration those parties bound by the arbitration agreement and let the action remain as to those
who are not bound."[121] "Moreover, as the relationship between . . . Steamship and . . . Sulpicio are
governed by English Law[,] it may be more prudent to refer the disgute to arbitration in London under
the doctrine of forum non conveniens."[122]
Finally, Steamship avers that under Rule 47 of the 2005/2006 Club Rules, it has "the right to pursue legal
action against a [m]ember before any jurisdiction at its sole discretion."[123] Even if there is no such
provision, Steamship contends that it may waive its rights to compel arbitration in individual cases.[124] It
adds that the waiver of such right in White Gold has no effect to this case because Sulpicio is not a party
in that case.[125]
II.A
It is the State's policy to promote party autonomy in the mode of resolving disputes.[126] Under the
freedom of contract principle, parties to a contract may stipulate on a particular method of settling any
conflict between them.[127] Arbitration and other alternative dispute resolution methods like mediation,
negotiation, and conciliation are favored over court action. Republic Act No. 9285[128] expresses this
policy:
Section 2. Declaration of Policy. — It is hereby declared the policy of the State to actively promote party
autonomy in the resolution of disputes or the freedom of the parties to make their own arrangements to
resolve their disputes. Towards this end, the State shall encourage and actively promote the use of
Alternative Dispute Resolution (ADR) as an important means to achieve speedy and impartial justice and
declog court dockets. As such, the State shall provide means for the use of ADR as an efficient tool and
an alternative procedure for the resolution of appropriate cases. Likewise, the State shall enlist active
private sector participation in the settlement of disputes through ADR. This Act shall be without
prejudice to the adoption by the Supreme Court of any ADR system, such as mediation, conciliation,
arbitration, or any combination thereof as a means of achieving speedy and efficient means of resolving
cases pending before all courts in the Philippines which shall be governed by such rules as the Supreme
Court may approve from time to time. (Emphasis supplied)
Arbitration, as a mode of settling disputes, was already recognized in the Civil Code.[129] In 1953, Republic
Act No. 876 was passed, which reinforced domestic arbitration as a process of dispute resolution.
Foreign arbitration was likewise recognized through the Philippines' adherence to the United Nations
Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, otherwise known as
the New York Convention.[130] Republic Act No. 9285 sets the basic principles in the enforcement of
foreign arbitral awards in the Philippines.[131]
Consistent with State policy, "arbitration agreements are liberally construed in favor of proceeding to
arbitration."[132] Every reasonable interpretation is indulged to give effect to arbitration agreements.
Thus, courts must give effect to the arbitration clause as much as the terms of the agreement would
allow.[133] "Any doubt should be resolved in favor of arbitration."[134]
II.B
Sulpicio contends that there was no valid arbitration agreement between them, and if there were, it was
not aware of it.
This Court rules against Sulpicio's submission.
The contract between Sulpicio and Steamship is more than a contract of insurance between a marine
insurer and a shipowner. By entering its vessels in Steamship, Sulpicio not only obtains insurance
coverage for its vessels but also becomes a member of Steamship.
A protection and indemnity club, like Steamship, is an association composed of shipowners generally
formed for the specific purpose of providing insurance cover against third-party liabilities of its
members.[135] A protection and indemnity club is a mutual insurance association, described in White Gold
Marine Services, Inc. v. Pioneer Insurance and Surety Corp.[136] as follows:
[A] mutual insurance company is a cooperative enterprise where the members are both the insurer and
insured. In it, the members all contribute, by a system of premiums or assessments, to the creation of a
fund from which all losses and liabilities are paid, and where the profits are divided among themselves,
in proportion to their interest. Additionally, mutual insurance associations, or clubs, provide three types Cebu City
of coverage, namely, protection and indemnity, war risks, and defense costs.[137]
"PRINCESS OF THE 1972 B.V. 9,627
WORLD"
A shipowner wishing to enter its fleet of vessels to Steamship must fill in an application for entry form,
which states: Cebu City

PLEASE ENTER IN THE ASSOCIATION, SUBJECT TO THE RULES, RECEIPT OF WHICH WE ACKNOWLEDGE, "PRINCESS OF THE 1984 X.X. 19,329
THE UNDERMENTIONED VESSEL(S).[138] STARS" (Rebuilt
1990) Cebu City

The application form is signed by the shipowner or its authorized representative.

....
Steamship then issues a Certificate of Entry and Acceptance of the vessels, showing its acceptance of the
entry. The Certificate of Entry and Acceptance for M/V Princess of the World states: NOTES

CERTIFICATE OF ENTRY AND ACCEPTANCE 1. REFERENCE IS REQUESTED TO 2.
THE RULES AS TO THE
by the Club of your proposal for entering the ship(s) specified below, and of the tonnage set out against CIRCUMSTANCES OF ENTRY
each, in: BEING CANCELLED AND AS TO
THE CIRCUMSTANCES OF AN
Class 1 PROTECTION AND INDEMNITY ALTERATION IN THE RULES OR
of the Club from BY(E)-LAWS.
Noon 20th February 2005 to Noon 20th February 2006
THE RULES ARE PRINTED ANNUALLY IN BOOK FORM,
INCORPORATING ALL PREVIOUS ALTERATIONS AND A COPY IS
SENT TO EACH MEMBER. ALTERATIONS CAN BE MADE BY
ORDINARY RESOLUTION FOLLOWING A GENERAL MEETING
NOTIFIED TO ALL MEMBERS.[139]

Thus, a contract of insurance is perfected between the parties upon Steamship's issuance of the
or until sold, lost, withdrawn or the entry is terminated in accordance with the rules, to the extent Certificate of Entry and Acceptance.
specified and in accordance with the Act, By(e)-Laws and the Rules from time to time in force and the
special terms specified overleaf. [A] contract of insurance, like other contracts, must be assented to by both parties either in person or by
their agents. So long as an application for insurance has not been either accepted or rejected, it is merely
Your name has been entered in the Register of Members of the Club as a Member. an offer or proposal to make a contract. The contract, to be binding from the date of application, must
have been a completed contract, one that leaves nothing to be done, nothing to be completed, nothing
FOR ACCOUNT OF CERTIFICATE NUMBER to be passed upon, or determined, before it shall take effect. There can be no contract of insurance
Sulpicio Lines Inc., unless the minds of the parties have met in agreement.[140]
1st Floor, Reclamation Area,
155,534
P.O. Box No. 137
Cebu City, Philippines. Title VI, Section 49 of Presidential Decree No. 612[141] or the Insurance Code defines an insurance policy
as "the written instrument in which a contract of insurance is set forth." Section 50 of this Code provides
NAME OF SHIP BUILT ENTERED CLASS PORT OF
that the policy, which is required to be in printed form, "may contain blank spaces; and any word,
GROSS REGISTRY
phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of
TONNAGE
insurance shall be written on the blank spaces." Any rider, clause, warranty, or endorsement attached
and referred to in the policy by its descriptive title or name is considered part of this policy or contract of
"PRINCESS OF THE 1975 B.V. 6,150 insurance and binds the insured.
OCEAN" Cebu City
Section 51 of the Insurance Code prescribes the information that must be stated in the policy, namely:
the parties in the insurance contract, amount insured, premium, property or life insured, risks insured
against, and period of insurance. However, there is nothing in the law that prohibits the parties from
"PRINCESS OF THE 1983 B.V. 13,526 agreeing to other terms and conditions that would govern their relationship, in which case the general
UNIVERSE" Cebu City
rules of the Civil Code regulating contracts will apply.[142]

The Certificate of Entry and Acceptance plainly provides that the Class 1 protection and indemnity
"PRINCESS OF THE 1979 B.V. 3,768 coverage would be to the extent specified and in accordance with the Act, the By-Laws, and the Rules of
CARIBBEAN" the Club in force at the time of the coverage. The "Notes" in the bottom portion of the Certificate states
that these Rules "are printed annually in book form" and disseminated to all members. M/V Princess of
the World was insured from February 20, 2005 to February 20, 2006. Hence, the 2005/2006 Club Rules
apply.
Moreover, attached to the Certificate of Entry and Acceptance is a War Risk Extension clause and Bio-
Chem clause which refer to Rule 21 of the 2005/2006 Club Rules relating to war risk insurance.
WAR RISK EXTENSION
Cover excluded under Rule 21 is hereby reinstated subject to the terms set out in this Certificate of Entry
and any Endorsement thereto, and to the following conditions.
....
At any time or times before, or at the commencement of, or during the currency of any Policy Year of the
Club, the Directors may in their discretion determine that any ports, places, countries, zones or areas
(whether of land or sea) be excluded from the insurance provided by this [Protection and Indemnity] war
risks cover. Save as otherwise provided by the Directors, this [Protection and Indemnity] war risks cover
shall cease in respect of such ports, places, countries, zones or areas at midnight on the seventh day
following the issue to the Members of notice of such detem1ination in accordance with the terms of the
cover provided pursuant to Rule 21 of the Club's Rules
....
Notwithstanding any other term or condition of this insurance, the Directors may in their discretion
cancel this special cover giving 7 days' notice to the Members (such cancellation becoming effective on
the expiry of 7 days from midnight of the day on which notice of cancellation is issued by the Club and
the Directors may at any time after the issue of notice of such cancellation resolve to reinstate special
cover pursuant to the proviso to the terms of the cover issued pursuant to Rule 21 on such terms and
conditions and subject to such limit as the Directors in their discretion may determine.
When either a Demise, Time, Voyage, Space or Slot Charterer and/or the Owner of the Entered Ship are
separately insured for losses, liabilities, or the costs and expenses incidental thereto covered under Rule
21 of the Club and/or the equivalent Rule of any other Association which participates in the Pooling
Agreement and General Excess Loss Reinsurance Contract, the aggregate of claims in respect of such
losses, liabilities, or the costs and expenses incidental thereto covered under Rule 21 of the Club and/or
the equivalent Rule of such other Association(s), shall be limited to the amount set out in the Certificate
of Entry in respect of any one ship, any one incident or occurrence.[143]
Sulpicio's acceptance of the Certificate of Entry and Acceptance manifests its acquiescence to all its
provisions. There is no showing in the records or in Sulpicio's contentions that it objected to any of the
terms in this Certificate. Its acceptance, likewise, operated as an acceptance of the entire provisions of
the Club Rules.
When a contract is embodied in two (2) or more writings, the writings of the parties should be read and
interpreted together in such a way as to render their intention effective.[144]
With the exception of the War Risk Extension clause, the Bio-chem clause, and a succinct statement of
the limits of liability, warranties, exclusion, and deductibles, the Certificate of Entry and Acceptance does
not contain the details of the insurance coverage. A person would have to refer to the Club Rules to have
a complete understanding of the contract between the parties.
The Club Rules contain the terms and conditions of the relationship between the Steamship and its
members including the scope, nature, and extent of insurance coverage of its members' vessels. The
2005/2006 Club Rules[145] of Class 1, which cover protection and indemnity risks provide, insofar as
relevant:
3 Scope of Cover
i. The terms upon which a Member is entered in the Club are set out in the Rules and any Certificate
of Entry for that Member.
ii. The risks against which a Member is insured by entry in the Club are set out in Rule 25 and are
always subject to the conditions, exceptions, limitations and other terms set out in the remainder of
these Rules and any Certificate of Entry for that Member.
....
6 Entry
....
iv. The provisions of this Rule apply throughout the period of entry of the Ship in the Club . . .
....
8 Members
i. Every Owner who enters any ship in the Club shall (if not already a Member) be and become a
Member of the Club as from the date of the commencement of such entry. Each Member is bound
by the Act and By(e)-Laws of the Club and by these Rules.
....
iv. All contracts of insurance with the Club shall be deemed to be subject to and incorporate all the
provisions of these Rules except to the extent otherwise expressly agreed in writing with the
Managers.
v. Each Member or other person whose application for insurance or reinsurance is accepted shall be
deemed to have agreed both for itself and its successors and each of them that both it and they and
each and all of them will be subject to and bound by and will perform their obligations under the
Rules, Act and By(e)-Laws of the Club and any contract of insurance with the Club.
....
45 Amendments to Rules
The Rules of this Class may be altered or added to by Ordinary Resolution passed at a separate meeting
of the Members of this Class provided that no such alterations shall be effective unless and until the
same shall be sanctioned by the Directors.[146]
The 2005/2006 Club Rules also provide the nature of Steamship's Protection and Indemnity cover and
the terms on which it is provided. In particular, Rule 25(i) to (xxi) identify a member's liabilities, costs,
and expenses covered by the insurance, Rules 18 to 24 set out the general exclusions and limitations,
Rule 26 provides the requirements for classification and condition surveys, and Rule 28 addresses
general terms and conditions for recovery of claims. The 2005/2006 Club Rules also contain provisions
on double insurance (Rule 23), claims handling (Rules 30 and 31), cessation of membership (Rule 35),
cessation of insurance of individual vessels (Rule 36) deduction and set-off (Rule 40), and assignment and
subrogation (Rules 41 and 42).
The arbitration clause is found in Rule 47 of the 2005/2006 Club Rules:
47 dispute resolution, Adjudication
i. in the event of any difference or dispute whatsoever, between or affecting a Member and the Club
and concerning the insurance afforded by the Club under these rules or any amounts due from the
Club to the Member or the Member to the Club, such difference or dispute shall in the first instance
 be referred to adjudication by the Directors. That adjudication shall be on the basis of documents
and written submissions alone. Notwithstanding the terms of this Rule 47i, the Managers shall be
entitled to refer any difference or dispute to arbitration in accordance with sub-paragraph ii below
without prior adjudication by the Directors.
ii. If the Member does not accept the decision of the Directors, or if the Managers, in their absolute
discretion, so decide, the difference or dispute shall be referred to the arbitration of three
arbitrators, one to be appointed by each of the parties and the third by the two arbitrators so
chosen, in London. The submission to arbitration and all the proceedings therein shall be subject to
the provisions of the English Arbitration Act, 1996 and the schedules thereto or any statutory
modifications or re-enactment thereof.
iii. No Member shall be entitled to maintain any action, suit or other legal proceedings against the Club
upon any such difference or dispute unless and until the same has been submitted to the Directors
and they shall have given their decision thereon, or shall have made default for three months in so
doing; and, if such decision be not accepted by the Member or such default be made, unless and
until the difference or dispute shall have been referred to arbitration in the manner provided in this
Rule, and the Award shall have been published; and then only for such sum as the Award may direct
to be paid by the Club. And the sole obligation of the Club to the Member under these Rules or
otherwise howsoever in respect of any disputed claim made by the Member shall be to pay such
sum as may be directed by such an Award.
iv. In any event no request for adjudication by the Member shall be made to the Directors in respect of
any difference or dispute between, or matter affecting, the Member and the Club more than two
years from the date when that dispute, difference or matter arose unless, prior to the expiry of this
limitation period, the Managers have agreed in writing to extend the same.
v. Nothing in this Rule 47 including paragraph i, or in any other Rule or otherwise shall preclude the
Club from taking any legal action of whatsoever nature in any jurisdiction at its absolute discretion
in order to pursue or enforce any of its rights whatsoever and howsoever arising including but not
limited to: -
a. Recovering sums it considers to be due from the Member to the Club;
b. Obtaining security for such sums; and/or
c. Enforcement of its right of lien whether arising by law or under these rules.
vi. These rules and any contract of insurance between the Club and the Member shall be governed by
and construed in accordance with English law.[147] (Emphasis in the original)
Under Rule 47, any dispute concerning the insurance afforded by Steamship must first be brought by a
claiming member to the Directors for adjudication. If this member disagrees with the decision of the
Director, the dispute must be referred to arbitration in London. Despite the member's disagreement, the
Managers of Steamship may refer the dispute to arbitration without adjudication of the Directors. This
procedure must be complied with before the member can pursue legal proceedings against Steamship.
There is no ambiguity in the terms and clauses of the Certificate of Entry Acceptance. Contrary to the
ruling of the Court of Appeals, the Certificate clearly incorporates the entire Club Rules—not only those
provisions relating to cancellation and alteration of the policy.[148]
"[W]hen 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."[149]
The incorporation of the Club Rules in the insurance policy is without any qualification. This includes the
arbitration clause even if not particularly stipulated. A basic rule in construction is that the entire
contract, and each and all of its parts, must be read together and given effect, with all its clauses and
provisions harmomonized with one another.[150]
II.C
The Court of Appeals ruled that the arbitration agreement in the 2005/2006 Club Rules is not valid
because it was not signed by the parties.
In domestic arbitration, the formal requirements of an arbitration agreement are that it must "be in
writing and subscribed by the party sought to be charged, or by his lawful agent."[151] In international
commercial arbitration,[152] it is likewise required that the arbitration agreement must be in writing.
An arbitration agreement is in writing if it is contained (1) in a document signed by the parties, (2) in an
exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the
agreement, or (3) in an exchange of statements of claim and defense in which the existence of an
agreement is alleged by a party and not denied by another. The reference in a contract to a document
containing an arbitration clause constitutes an arbitration agreement provided that the contract is in
writing and the reference is such as to make that clause part of the contract.[153]
In BF Corp. v. Court of Appeals,[154] one (1) of the parties denied the existence of the arbitration cause on
the ground that it did not sign the Conditions of Contract that contained the clause. This Court held that
the arbitration clause was nonetheless binding because the Conditions of Contract were expressly made
an integral part of the principal contract between the parties. The formal requirements of the law were
deemed complied with because "the subscription of the principal agreement effectively covered the
other documents incorporated by reference [to them]."[155] In, arriving at this ruling, this Court explained:
A contract need not be contained in a single writing. It may be collected from several different writings
which do not conflict with each other and which, when connected, show the parties, subject matter,
terms and consideration, as in contracts entered into by correspondence. A contract may be
encompassed in several instruments even though every instrument is not signed by the parties, since it
is sufficient if the unsigned instruments are clearly identified or referred to and made part of the
signed instrument or instruments. Similarly, a written agreement of which there are two copies, one
signed by each of the parties, is binding on both to the same extent as though there had been only one
copy of the agreement and both had signed it.[156] (Emphasis supplied)
Thus, an arbitration agreement that was not embodied in the main agreement but set forth in another
document is binding upon the parties, where the document was incorporated by reference to the main
agreement. The arbitration agreement contained in the Club Rules, which in turn was referred to in the
Certificate of Entry and Acceptance, is binding upon Sulpicio even though there was no specific
stipulation on dispute resolution in this Certificate.
Furthermore, as stated earlier, Sulpicio became a member of Steamship by the very act of making a
contract of insurance with it. The Certificate of Entry and Acceptance issued by Steamship states that
"[its] name has been entered in the Register of Members of the Club as a Member."[157] Sulpicio admits
its membership and the entry of its vessels to Steamship.
Rule 8(v) of the 2005/2006 Club Rules provides that:
Each Member or other person whose application for insurance or reinsurance is accepted shall be
deemed to have agreed both for itself and its successors and each of them that both it and they and
each and all of them will be subject to and bound by and will perform their obligations under the Rules,
Act and By(e)-Laws of the Club and any contract of insurance with the Club.
Sulpicio's agreement to abide by Steamship's Club Rules, including its arbitration clause, can be
reasonably inferred from its submission of an application for entry of its vessels to Steamship "subject to
the Rules, receipt of which we acknowledge."[158]
The ruling of this Court in Associated Bank v. Court of Appeals[159] is applicable by analogy to this case.
In that case, plaintiffs sought to recover the amount of 16 checks that were honored by Associated Bank
despite the apparent alterations in the name of the payee. Associated Bank filed a Third-Party Complaint
against Philippine Commercial International Bank, Far East Bank & Trust Company, Security Bank and
Trust Company, and Citytrust Banking Corporation for reimbursement, contribution, and indemnity. This
Complaint was based on their being the collecting banks and by virtue of their bank guarantee for all
checks sent for clearing to the Philippine Clearing House Corporation (PCHC). The trial court dismissed
the Third-Party Complaint for lack of jurisdiction, citing Section 36 of the Clearing House Rules and
Regulations of the PCHC, which provides for arbitration. This Court, in affirming the dismissal, held:
Under the rules and regulations of the Philippine Clearing House Corporation (PCHC), the mere act of
participation of the parties concerned in its operations in effect amounts to a manifestation of agreement
by the parties to abide by its rules and regulations. As a consequence of such participation, a party
cannot invoke the jurisdiction of the courts over disputes and controversies which fall under the PCHC
Rules and Regulations without first going through the arbitration processes laid out by the body. Since
claims relating to the regularity of checks cleared by banking institutions are among those claims which
should first be submitted for resolution by the PCHC's Arbitration Committee, petitioner Associated
Bank, having voluntarily bound itself to abide by such rules and regulations, is estopped from seeking
relief from the Regional Trial Court on the coattails of a private claim and in the guise of a third party
complaint without first having obtained a decision adverse to its claim from the said body. lt cannot
bypass the arbitration process on the basis of its averment that its third party complaint is inextricably
linked to the original complaint in the Regional Trial Court.
....
Section 36.6 is even more emphatic:
36.6 The fact that a bank participates in the clearing operations of PCHC shall be deemed its written and
subscribed consent to the binding effect of this arbitration agreement as if it had done so in accordance
with Section 4 of the Republic Act No. 876 otherwise known as the Arbitration Law.
Thus, not only do the parties manifest by mere participation their consent to these rules, but such
participation is deemed (their) written and subscribed consent to the binding effect of arbitration
agreements under the PCHC rules. Moreover, a participant subject to the Clearing House Rules and
Regulations of the PCHC may go on appeal to any of the Regional Trial Courts in the National Capital
Region where the head office of any of the parties is located only after a decision or award has been
rendered by the arbitration committee or arbitrator on questions of law.[160] (Emphasis supplied, citation
omitted)
This Court held that mere participation by the banks in the clearing operations of the PCHC manifest
their consent to the PCHC Rules, including the binding effect of the arbitration agreements under these
Rules.
In this case, by its act of entering its fleet of vessels to Steamship and accepting without objection the
Certificate of Entry and Acceptance covering its vessels, Sulpicio manifests its consent to be bound by the
Club Rules. The contract between Sulpicio and Steamship gives rise to reciprocal rights and obligations.
Steamship undertakes to provide protection and indemnity cover to Sulpicio's fleet. On the other hand,
Sulpicio, as a member, agrees to observe Steamship's rules and regulations, including its provisions on
arbitration.
III.A
The Court of Appeals' finding that there was no proof that Sulpicio was given a copy of the 2005/2006
Club Rules is contradicted by the evidence on record.
In its Comment, Sulpicio contends that it "was never given or sent a copy" of the Rulebook as stated in
the affidavits of its Executive Vice President, Atty. Eusebio S. Go and its Safety and Quality Assurance
Manager, Engr. Ernelson P. Morales.[161] It also quoted a portion of the Affidavit of its Executive Vice
President and Chief Executive Officer, Carlos S. Go, who declared that "[Sulpicio] and Steamship have not
signed any arbitration agreement" and "[n]o such agreement exists."[162]
Sulpicio cannot feign ignorance of the arbitration clause since it was already charged with notice of the
Club Rules due to an appropriate reference to it in the Certificate of Entry and Acceptance. Assuming its
contentions were true that it was not furnished a copy of the 2005/2006 Club Rules, by the exercise of
ordinary diligence, it could have easily obtained a copy of them from Pioneer Insurance or Seaboard-
Eastern.
In any case, Sulpicio's bare denials cannot succeed in light of the preponderance of evidence submitted
by Steamship.
The Affidavit[163] dated August 29, 2007 of Jonathan Andrews, Director and Head of Underwriting of the
Eastern Syndicate of the Managers of Steamship and in charge of Steamship's Far East membership,
including the Philippines, stated:
4. The contract of insurance between the Club and a Member is contained in, and evidenced by:
a) The Rules of the Club for whichever Class or Classes the vessel is entered, for the time being in
force; and
b) A Certificate of Entry.
5.
....
5. The Club's policy year runs from noon on 20th February of each year until noon on 20th February of
the year following . . . The Rule book is published on an annual basis prior to the commencement of
the Policy year to which it applies. Although the Rules can be amended pursuant to Rule 45, the
dispute resolution provisions of the Rules have provided for arbitration in London since well before
the Plaintiff's entry in the Club.
....
10. In addition, it is quite clear that throughout their lengthy membership of the Club, the Plaintiffs
were aware of, and relied upon, the terms of the Club's Rules. Produced and shown to me, marked
"JHDA 4", is a copy of a letter[164] from the Plaintiffs, dated 4th June, 1993, seeking a refund of
premium for the "SURIGAO PRINCESS" on the grounds that the vessel was laid up. That letter's
enclosures consist of:
(a) The Club's printed form for returns of premium when a vessel is laid-up . . . signed by Mr. Carlos S.
Go on behalf of the Plaintiffs;
 (b) A photocopy of the relevant provision in the Club's Rules dealing with laid-up returns, Rule 29; and
(c) A Certificate from the Philippines Port Authority . . .
11.
The fact that Sulpicio's application for a laid up return attached a photocopy of the Club's Rule book
demonstrates both that this was physically in their possession and that they were familiar with its
contents.
11. Throughout the lengthy period of this entry, as might be anticipated, there was a considerable
volume of correspondence between the Plaintiffs and the Club via the former's brokers. Examples of
that correspondence are produced and shown to me, marked "JHDA 5". As the Court will note from
that correspondence, it contains numerous and frequent references to various of the Club's Rules,
e.g.:
 Rule 22, dealing with double insurance
 Rule 25 xix, dealing with towage
 Rule 23 i, dealing with classification
 Rule 23 v b and c, dealing with defect warranties
 Rule 23 iv, dealing with safety audits.
12. The fact that Plaintiffs possessed and were fully conversant with the Club's Rules is most clearly
demonstrated by the correspondence provided and shown to me, marked "JHDA 6". After the
grounding of the "PRINCESS OF THE PACIFIC", due to the concerns arising out of this casualty, the
Club initially reserved cover pending further investigation and required an independent audit of the
Plaintiffs Safety Management System. When this decision was conveyed to the Plaintiffs via their
brokers, Seaboard-Eastern, they replied:
As expected, Carlos Go was so upset and expressed disappointment when the undersigned spoke to him
about the report of Noble Denton and the club's decision to suspend any action on the claim especially
so since owners believe the findings of the surveyors to the club are inaccurate and after relating such
findings to the club rules owners find no basis for club's decision to suspend action on the claim.[165]
Roderick Gil Narvacan, Vice-President of the Hull Unit of Pioneer Insurance which handled Sulpicio's
account, also narrated in his Affidavit[166] dated September 4, 2007:
7. I know for a fact that Sulpicio received a copy of the Club's Rule Book and had full knowledge of the
Club's Rules during the length of time that it was a member of the Club.
8. [I]n all Entry Forms signed and submitted by Sulpicio to the Club throughout its years of membership
in the Club, Sulpicio always acknowledged that it received a copy of Club's Rule Book. A sample of
Sulpicio's duly signed Entry Form submitted to the Club on 6 February 1997 is hereto attached as Annex
"1."
9. The Company, through my department, also makes it a point to remind all the Club's Members
including Sulpicio to familiarize themselves with the Club's Rulebook as the rules therein provided are
applied to all Club related matters including claims procedures. A copy of Ms. May Valles' email[167] to
Sulpicio dated 27 August 2002 is hereto attached as Annex "2" and her letter[168] to Sulpicio dated 17
October 2002 is hereto attached as Annex "3." Ms. Valles was a former member of the Company's Hull
Department and in both written communications, she reminded Sulpicio through its Executive Vice-
President and CFO Mr. Carlos S. Go of certain Club Rules such as the prescriptive period to claim for lay-
up premium refund.
10. In reply to the 27 August 2002 email, Mr. Carlos S. Go, by a 28 August 2002 email[169] to Ms. Valles,
explained his understanding of the provision on the prescriptive period to claim for lay-up premium
refund under the Club's Rules, thereby clearly showing that Sulpicio was aware of the Club's Rules. A
copy of the 28 August 2002 email of Mr. Go is hereto attached as Annex "4."
11. To further prove Sulpicio's knowledge of Club's Rules, I hereto attach the following copies of letters
from Sulpicio addressed to the Company with attached letter by Sulpicio to the Club:
 Letter-request[170] for refund of lay-up premiums for the vessel M/V Surigao Princess dated 4 June
1993 as Annex "5";
 Letter-request[171] for refund of lay-up premiums for the vessel M/V Manila Princess dated 10 June
1998 as Annex '"6";
 Letter request[172] for refund of lay-up premiums for the vessel M/V Filipina Princess dated 21 June
1999 as Annex "7";
 Letter-request[173] for refund of lay-up premiums for the vessel M/V Manila Princess dated 17 May
2001 as Annex "8"; and
 Letter-request[174] for refund of lay-up premiums for the vessel M/V Nasipit Princess dated 16
August 2002 as Annex "9";
In each of the above letters, Sulpicio declared to both the Company and the Club that "(w)e shall
therefore be glad to receive a credit note for the return of premium under the Rules of the
Association."[175] (Emphasis in the original)
Finally, Elmer Felipe, Manager of Marine Department of Seaboard-Eastern in charge of Sulpicio's
account, also narrated:
11. As insurers for the Hull & Machinery of Sulpicio's Fleet, the Company, through my department,
assisted Sulpicio in regard to its [Protection and Indemnity] cover by sending copy of the Club's Rulebook
while it was an active Member of the Club.
12. By way of example, in the year 2002, the Company sent five (5) copies of the Club's Rulebook to Mr.
Carlos S. Go, Executive Vice-President and CEO of Sulpicio as evidenced by a transmittal letter dated 11
April 2002 duly signed by the Company's First Vice-President Joli Co-Wu. A copy of said transmittal
letter[176] dated 11 April 2002 is hereto attached as Annex "1."
13. The other transmittal letters proving distribution of the Club's Rulebook to Sulpicio in its other years
of membership with the Club were among those discarded by the Company when it moved . . . to a
smaller office . . .
14. [Sulpicio is presumed to] know the Club's Rules as it was provided with copies of the Rulebook on an
annual basis.
15. In fact, in a 8 May 2004 letter addressed to the Company, Sulpicio claimed for refund of lay-up
premiums from the Club in connection with the vessel M/V Princess of the World and in Sulpicio's letter
to the Club attached to the said 8 May 2004 letter, Sulpicio declared that "(w)e shall therefore be glad to
receive a credit note for the return of premium under the Rules of the Association." This was followed by
December 2004 letter for refund of lay-up returns for the vessel M/V Princess of the World where
Sulpicio also invoked the Club Rules. A copy of the 8 May 2004 letter[177] with attachment is hereto
attached as Annex "2" and a copy of the 8 December 2004 letter[178] is hereto attached as Annex "3."
....
18. More importantly, after the Club denied cover for the vessel M/V Princess of the World and prior to
the date when the termination of Sulpicio's entry in the Club took effect, our EVP, Mr. Jose G. Banzon, Jr.
sent an emai1[179] dated 30 November 2005 to Mr. Carlos Go reminding Sulpicio of the remedy of
voluntary arbitration under Rule 47 of the Club's Rulebook and attaching a copy of Rule 47. Copies of
these documents are attached as Annex "4."[180]
These foregoing affidavits and the attached supporting documents consistently declared that Sulpicio
was given copies of the Rulebook on an annual basis and had even invoked its provisions in making a
claim from Steamship. Sulpicio's previous letters to Steamship referring to provisions of the Club Rules
show its knowledge. Sulpicio was also reminded of the arbitration clause during the negotiations
preceding the institution of the present case.
"[A] party is not relieved of the duty to exercise the ordinary care and prudence that would be exacted in
relation to other contracts. The conformity of the insured to the terms of the policy is implied from [its]
failure to express any disagreement with what is provided for."[181] The agreement to submit all disputes
to arbitration is a long standing provision in the Club Rules. It was incumbent upon Sulpicio to familiarize
itself with the Club Rules, under the presumption that a person takes due care of its concerns. Being a
member of Steamship for 20 years,[182] it has been bound by its Rules and has been expected to abide by
them in good faith.
In Development Bank of the Philippines v. National Merchandising Corp.,[183] the parties, who were acute
businessmen of experience, were presumed to have assented to the assailed documents with full
knowledge:
The principal stockholders and officers of NAMERCO, particularly the Sycips who co-signed the
promissory notes in question, were, as the lower court found, businessmen of experience and
intelligence . . . We might say — paraphrasing Tin Tua Sia vs. Yu Biao Sontua, 56 Phil. 707 — that they
being of age and businessmen of experience, it must be presumed that they had acted with due care and
to have signed the documents in question with full knowledge of their import and the obligations they
were assuming thereby; that this presumption of law may not be overcome by the mere testimony of
the obligor or obligors; that, to permit a party, when, sued upon a contract, to admit that he signed it but
to deny that it expresses the agreement he had made, or to allow him to admit that he signed it solely on
the verbal assurance given by one party, however high his station may be, that he would not be held
liable thereon, would destroy the value of all contracts. Indeed, it would be disastrous to give more
weight and reliability to the self-serving testimony of a party bound by the contract than to the contents
thereof. Verba volant, scripta manent.[184]
Sulpicio is estopped from denying knowledge of the Rulebook by its own acts and representations, as
evidenced by its various letters to Steamship, showing its familiarity with the Rulebook and its
provisions.
"In estoppel, a person, who by his [or her] deed or conduct has induced another to act in a particular
manner, is barred from adopting an inconsistent position, attitude or course of conduct that thereby
causes loss or injury to another."[185] It further bars a party from denying or disproving a fact, which has
become settled by its acts.[186]
Hence, this Court finds a preponderance of evidence showing that Sulpicio was given a copy and had
knowledge of the 2005/2006 Club Rules. Moreover, the 2005/2006 Club Rules' provision on arbitration is
valid and binding upon Sulpicio.
III.B
The Regional Trial Court should suspend proceedings to give way to arbitration. Even if there are other
defendants who are not parties to the arbitration agreement, arbitration is still proper.
Republic Act No. 9285 was approved on April 2, 2004 and was the controlling law at the time the original
and amended complaints were filed.
Section 25 of Republic Act No. 9285 is explicit that:
[W]here action is commenced by or against multiple parties, one or more of whom are parties to an
arbitration agreement, the court shall refer to arbitration those parties who are bound by the arbitration
agreement although the civil action may continue as to those who are not bound by such arbitration
agreement.
Rule 4.7 of the Special Rules on Alternative Dispute Resolution[187] (2009 Special ADR Rules) further
expresses:
The court shall not decline to refer some or all of the parties to arbitration for any of the following
reasons:
a. Not all of the disputes subject of the civil action may be referred to arbitration;
b. Not all of the parties to the civil action are bound by the arbitration agreement and referral to
arbitration would result in multiplicity of suits;
c. The issues raised in the civil action could be speedily and efficiently resolved in its entirety by the
court rather than in arbitration;
d. Referral to arbitration does not appear to be the most prudent action; or
e. The stay of the action would prejudice the rights of the parties to the civil action who are not bound
by the arbitration agreement.
The present rule on multiple parties manifests due regard to the policy of the law in favor of arbitration.
In light of the express mandate of Republic Act No. 9285 and the subsequent 2009 Special ADR Rules,
this Court's ruling in European Resources and Technologies, Inc. v. Ingenieuburo Birkhann + Nolte,
Ingeniurgesellschaft Gmbh[188] is deemed abrogated.
Notably, the Regional Trial Court did not rule on whether or not a valid and existing arbitration
.agreement existed between the parties. It merely stated in its Order. citing European Resources, that:
["]Even if there is an arbitration clause, there are instances when referral to arbitration does not appear
to be the most prudent action. The object of arbitration is to allow the expeditious determination of a
dispute. Clearly, the issue before us could not be speedily and efficiently resolved in its entirety if we
allow simultaneous arbitration proceedings and trial, or suspension of trial pending arbitration."
Moreover, it is noted that defendants Seaboard-Eastern Insurance Co. Inc. and Pioneer Insurance and
Surety Corporation already filed their respective Answers to the second amended complaint.[189]
On this basis, the Regional Trial Court denied Steamship's Motion to Dismiss and/or to Refer Case to
Arbitration and directed it to file an answer.
This Court finds that the Regional Trial Court acted in excess of its jurisdiction.
Where a motion is filed in court for the referral of a dispute to arbitration, Section 24 of Republic Act No.
9285 ordains that the dispute shall be referred "to arbitration unless it finds that the arbitration
agreement is null and void, inoperative or incapable of being performed."
Thus, the Regional Trial Court went beyond its authority of determining only the issue of whether or not
there was a valid arbitration agreement between the parties when it denied Steamship's Motion to
Dismiss and/or to Refer Case to Arbitration solely on the ground that it would not be the most prudent
action under the circumstances of the case. The Regional Trial Court went against the express mandate
of Republic Act No. 9285. Consequently, the Court of Appeals erred in finding no grave abuse of
discretion on the part of the trial court in denying referral to arbitration.
IV
In G.R. No. 208603, Sulpicio contends that Steamship's acts were contumacious because they were
intended to defeat Civil Case No. 07-577 and oust the Regional Trial Court of its jurisdiction, without the
approval of this Court.
Sulpicio further contends that there was no valid off-setting of the amount of US$69,570.99 from the
refund payable to it in the Unabia case because the issue on the propriety of the referral to arbitration
had yet to be resolved by this Court.[190] It adds that the "arbitration – anti-suit injuction" cost was not a
debt of Sulpicio but a unilateral charge arising from an arbitration that it had not participated in, or was
enforceable in the Philippines.[191]
In its Comment/Opposition[192] to the Petition for Indirect Contempt, Steamship contends that it
"exercised its right to set-off in good faith"[193] and that the amount set-off represents costs of obtaining
the Anti-Suit Injunction awarded to it by the English Commercial Court and are not arbitration costs as
contended by Sulpicio.[194] It also holds that Sulpicio's prayer for restitution of the offset amount was
improper in a petition for indirect contempt.[195]
Steamship emphasizes that even before the denial of its Motion to Dismiss in Civil Case No. 07-577 on
July 11, 2008, it already commenced arbitration in London[196] on July 31, 2007.[197] It had also "obtained a
permanent Anti-Suit Injunction [with interim award for costs][198] from the English Commercial Court on
4th April 2008[.]"[199] The April 4, 2008 Order enjoined Sulpicio from proceeding with Civil Case No. 07-577
and to refer the dispute to arbitration in London.[200]
Steamship further avers that "Sulpicio was served a copy of an Order to file Claims Submissions in the
London arbitration and a copy of the Anti-Suit Injunction but it refused to participate in the London
Arbitration."[201] It also did not pay the costs of the Anti-Suit Injunction. Sulpicio refused "service of all
orders, notices, pleadings and documents related to the London arbitration and the Commercial Court
proceedings."[202]
Steamship adds that in 2012, Sulpicio filed a claim for reimbursement of US$96,958.47 representing
passenger liabilities arising from the capsizing of one (1) of Sulpicio's fleet in 1998.[203] Pursuant to Rule
32 of the Club Rules for the 1998 policy, which gave Steamship "the right to make deduction 'from any
claims . . . due to a Member' of 'any liabilities of such Member to the Club,'"[204] Steamship set-off the
costs awarded by the English Commercial Court from the amount reimbursed to Sulpicio. Sulpicio's
brokers and lawyers were informed of the set-off through an email dated December 3, 2012.[205]
Steamship contends that there was no legal impediment when it initiated arbitration proceedings in
London.[206] The action was taken in good faith to preserve its rights while defending its position that
Sulpicio's filing of Civil Case No. 07-577 constituted a breach of the Club Rules.[207] On the other hand,
Sulpicio's acts were far from desirable for it did not only fail to participate in the London arbitration
proceedings but also evaded service of all notices so that it could feign ignorance of the existence of
arbitration proceedings."[208]
This Court finds Sulpicio's arguments to be untenable.
Steamship's commencement of arbitration even before the Regional Trial Court had ruled on its motion
to dismiss and suspend proceedings does not constitute an "improper conduct" that "impede[s],
obstruct[s] or degrade[s] the administration of justice."[209]
In Heirs of Trinidad de Leon vda. de Roxas v. Court of Appeals,[210] this Court explained the concept of
contempt of court:
Contempt of court is a defiance of the authority, justice or dignity of the court; such conduct as tends to
bring the authority and administration of the law into disrespect or to interfere with or prejudice parties
litigant or their witnesses during litigation . . .
Contempt of court is defined as a disobedience to the Court by acting in opposition to its authority,
justice and dignity. It signifies not only a willful disregard or disobedience of the court's orders, but such
conduct as tends to bring the authority of the court and the administration of law into disrepute or in
some manner to impede the due administration of justice . . .
This Court has thus repeatedly declared that the power to punish for contempt is inherent in all courts
and is essential to the preservation of order in judicial proceedings and to the enforcement of
judgments, orders, and mandates of the court, and consequently, to the due administration of justice . .
.[211]
The court's contempt power should be exercised with restraint and for a preservative, and not a
vindictive, purpose. "Only in cases of clear and contumacious refusal to obey should the power be
exercised."[212]
In Lorenzo Shipping Corporation v. Distribution Management Association of the Philippines,[213] this Court
held that:
There is no question that in contempt the intent goes to the gravamen of the offense. Thus, the good
faith, or lack of it, of the alleged contemnor should be considered. Where the act complained of is
ambiguous or does not clearly show on its face that it is contempt, and is one which, if the party is acting
in good faith, is within his rights, the presence or absence of a contumacious intent is, in some instances,
held to be determinative of its character. A person should not be condemned for contempt where he
contends for what he believes to be right and in good faith institutes proceedings for the purpose,
however erroneous may be his conclusion as to his rights. To constitute contempt, the act must be done
willfully and for an illegitimate or improper purpose.[214] (Citations omitted)
In Lim Lua v. Lua,[215] the father's deferral in giving monthly support pendente lite granted by the trial
court was held not contumacious, considering that "he had not been remiss in actually providing for the
needs of his children." It was also taken into account that he "believed in good faith that the trial and
appellate courts, upon equitable grounds, would allow him to offset the substantial amounts he had
spent or paid directly to his children." This Court explained:
Contempt of court is defined as a disobedience to the court by acting in opposition to its authority,
justice, and dignity. It signifies not only a willful disregard or disobedience of the court's order, but such
conduct which tends to bring the authority of the court and the administration of law into disrepute or,
in some manner, to impede the due administration of justice. To constitute contempt, the act must be
done willfully and for an illegitimate or improper purpose. The good faith, or lack of it, of the alleged
contemnor should be considered.[216]
This Court finds no dear and contumacious conduct on the part of Steamship. It does not appear that
Steamship was motivated by bad faith in initiating the arbitration proceedings. Rather, its act of
commencing arbitration in London is but a bona fide attempt to preserve and enforce its rights under the
Club Rules.

There was no legal impediment at the time Steamship initiated London arbitration proceedings.
Steamship commenced arbitration on July 31, 2007 even before the Regional Trial Court denied its
Motion to Dismiss and/or Refer Case to Arbitration on July 11, 2008. There was no order from the
Regional Trial Court enjoining Steamship from initiating arbitration proceedings in London. Besides, the
2009 Special ADR Rules specifically provided that arbitration proceedings may be commenced or
continued and an award may be made, while the motion for the stay of civil action and for referral to
arbitration is pending resolution by the court.[217]

This Court notes that while the arbitration proceeding was commenced as early as July 31, 2007, it is only
six (6) years later that Sulpicio filed its Petition[218] to cite Steamship for indirect contempt. Sulpicio
cannot invoke lack of knowledge of the London arbitration proceedings due to several reasons. First, it
received and replied[219] to the notice of commencement of arbitration proceedings[220] dated July 31,
2007. Second, Steamship presented evidence showing Sulpicio's refusal to receive any notices, orders, or
communications related to the arbitration proceedings. Lastly, the pendency of the London arbitration
was made known to the Court of Appeals and this Court through Steamship's petitions. Sulpicio's belated
filing of its Petition, only after Steamship has deducted from the refund due it the alleged "arbitration
costs," indicates its lack of sincerity and good faith.

Finally, this Court finds Sulpicio's claim for damages to be improperly raised. It should be addressed in an
ordinary civil action. Its petition for indirect contempt is not the proper action to determine the validity
of the set-off and to make a factual determination relating to the propriety of ordering restitution.

WHEREFORE, the Petition for Review in G.R. No. 196072 is GRANTED. The Decision dated November 26,
2010 of the Court of Appeals in CA-G.R. SP No. 106103 and the Order dated July 11, 2008 of the Regional
Trial Court, Branch 149, Makati City in Civil Case No. 07-577 are SET ASIDE. The dispute between Sulpicio
Lines, Inc. and Steamship Mutual Underwriting (Bermuda) Limited is referred to arbitration in London in
accordance with Rule 47 of the 2005/2006 Club Rules.

The Petition for Indirect Contempt in G.R. No. 208603 is DISMISSED for lack of merit.

SO ORDERED

Velasco, Jr., (Chairperson), Bersamin, and Martires, JJ., concur.

Gesmundo, J., on official leave.
SECOND DIVISION Lorna Orbe, the President of Merit, was the former "boss" of Lito Alvarez, who was also associated with
Air21.
[ G.R. No. 216600, November 21, 2016 ]
Feeling aggrieved by those statements, Lina for himself and on behalf of Air21, filed a complaint for
FEDERAL EXPRESS CORPORATION AND RHICKE S. JENNINGS, PETITIONERS, VS. AIRFREIGHT 2100, INC.
grave slander against Jennings before the Office of the City Prosecutor in Taguig City.[8] Lina claimed that
AND ALBERTO D. LINA, RESPONDENTS.
the defamatory imputation of Jennings that Merit and Ace were Air21's proxies brought dishonor,
discredit and contempt to his name and that of Air21. Lina quoted certain portions of the written
DECISION
statements of Holmes and Ross and the Transcript of Stenographic Notes (TSN) of the April 25, 2013
MENDOZA, J.:
arbitration hearing reflecting Jennings' testimony to support his complaint.
Before the Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court filed by
Federal Express Corporation (FedEx) and Rhicke S. Jennings (Jennings), assailing the January 20, 2015
Consequently, FedEx and Jennings (petitioners) filed their Petition for Issuance of a
Decision[2] of the Court of Appeals (CA) in CA-G.R. SP No. 135835, which affirmed the May 7, 2014
Confidentiality/Protective Order with Application for Temporary Order of Protection and/or Preliminary
Order[3] of the Regional Trial Court, Branch 70, Pasig City (RTC), dismissing its petition for the issuance of
Injunction before the RTC alleging that all information and documents obtained in, or related to, the
a confidentiality/protective order.
arbitration proceedings were confidential.[9] FedEx asserted that the testimony of Jennings, a witness in
the arbitration proceedings, should not be divulged and used to bolster the complaint-affidavit for grave
FedEx is a foreign corporation doing business in the Philippines primarily engaged in international air
slander as this was inadmissible in evidence.
carriage, logistics and freight forwarding, while Jennings serves as its Managing Director for the
Philippines and Indonesia. Respondent Airfreight 2100 (Air21) is a domestic corporation likewise involved
On January 16, 2014, the RTC granted petitioners' application for the Temporary Order of Protection.
in the freight forwarding business, while Alberto Lina (Lina) is the Chairman of its Board of Directors.
Meanwhile, on February 3, 2014, the arbitral tribunal rendered an award in favor of FedEx.
The Antecedents
Subsequently, in the assailed Order, dated May 7, 2014, the RTC denied FedEx's petition for lack of merit,
FedEx, having lost its International Freight Forwarder's (IFF) license to engage in international freight
stating that the statements and arbitration documents were not confidential information. It went on to
forwarding in the Philippines, executed various Global Service Program (GSP) contracts with Air21, an
state that "[t]he statement and 'Arbitration Documents' which purportedly consists the crime of Grave
independent contractor, to primarily undertake its delivery and pick-up services within the country.[4]
Slander under Articles 353 and 358 of the Revised Penal Code are not in any way related to the subject
under Arbitration." The RTC further wrote that "a crime cannot be protected by the confidentiality rules
Under the GSP arrangement, the packages sent by FedEx customers from abroad would be picked up at
under ADR. The said rules should not be used as a shield in the commission of any crime." Thus, it
a Philippine airport and delivered by Air21 to its respective consignees. Conversely, packages from
disposed:
Philippine clients would be delivered by Air21 to the airport and turned over to FedEx for shipment to
WHEREFORE, in view of the foregoing, the Petition for Issuance of a Confidentiality/Protective Order is
consignees abroad. As stipulated in the GSP contracts, Air21 guaranteed that all shipments would be
hereby DENIED for lack of merit.
cleared through customs in accordance with Philippine law. In the implementation of these contracts,
however, several issues relating to money remittance, value-added taxes, dynamic fuel charge, trucking
The case is hereby DISMISSED.
costs, interests, and penalties ensued between the parties.
SO ORDERED.[10]
On May 11, 2011, in an effort to settle their commercial dispute, FedEx and Air21 agreed to submit
themselves to arbitration before the Philippine Dispute Resolution Center (PDRC). Thus, on June 24,
Dissatisfied, petitioners challenged the RTC order before the CA via a petition for review.
2011, FedEx filed its Notice of Arbitration. On October 3, 2011, the Arbitral Tribunal was constituted.
On January 20, 2015, the CA denied the petition. In its assailed decision, the CA explained that the
As part of the arbitration proceedings, Jennings, John Lumley Holmes (Holmes), the Managing Director of
declarations by Jennings were not confidential as they were not at all related to the subject of mediation
SPAC Legal of FedEx; and David John Ross (Ross), Senior Vice President of Operations, Middle East, India
as the arbitration proceedings revolved around the parties' claims for sum of money.[11] Thus, the CA
and Africa, executed their respective statements[5] as witnesses for FedEx. Ross and Holmes deposed
ruled that "statements made without any bearing on the subject proceedings are not confidential in
that Federal Express Pacific, Inc., a subsidiary of FedEx, used to have an IFF license to engage in the
nature." It must be emphasized that other declarations given therein, if relative to the subject of
business of freight forwarding in the Philippines. This license, however, was suspended pending a case in
mediation or arbitration, are certainly confidential.[12]
court filed by Merit International, Inc. (Merit) and Ace Logistics, Inc. (Ace), both freight forwarding
companies, which questioned the issuance of the IFF to FedEx. Absent the said license, FedEx executed
Hence, this present petition before the Court.
the GSP contracts with Air21 to be able to conduct its business in the Philippines. Ross and Holmes, in
GROUNDS IN SUPPORT OF THE PETITION
their individual statements, averred that Merit and Ace were either owned or controlled by Air21
employees or persons connected with the Lina Group of Companies, which included Air21.
A.
Jennings, in his cross-examination, was identified as the source of the information that Merit and Ace
THE COURT OF APPEALS FAILED TO APPLY, OR OTHERWISE MISAPPLIED, SECTIONS 3(H) AND 23 OF THE
were Air21's proxies and was asked if he had any written proof of such proxy relationship.[6] He answered
ADR ACT.
in the negative. In his re-direct examination, he was made to expound on the supposed proxy
relationship between Merit, Ace and Air21.[7] He responded that Merit and Ace were just very small
companies with meager resources, yet they were able to finance and file a case to oppose the grant of B.
IFF license to FedEx. Jennings also disclosed that one of the directors of Ace was a friend of Lina and that
THE COURT OF APPEALS FAILED TO APPLY RULE 10.5 OF THE SPECIAL ADR RULES.
C.
THE TEST APPLIED BY THE COURT OF APPEALS FOR DETERMINING CONFIDENTIALITY OF INFORMATION
IS NOT SANCTIONED BY AND IS INCONSISTENT WITH THE ADR ACT AND THE SPECIAL ADR RULES.
D.
THE ASSAILED DECISION RESULTS TO SUBSTANTIAL PREJUDICE TO PETITIONERS.
E.
THE ASSAILED DECISION DEFEATS PUBLIC POLICY ON CONFIDENTIALITY OF THE RECORDS OF AND
COMMUNICATIONS MADE IN THE COURSE OF ARBITRATION.[13]
FedEx argues that the Jennings' statements were part of the (a) records and evidence of Arbitration
(Section 23); (b) witness statements made therein (Section 3[h][3]); and (c) communication made in a
dispute resolution proceedings (Section 3 [h][1]).[14] They, thus, averred that Jennings' oral statements
made during the April 25, 2013 arbitration hearing and the TSN of the hearings, conducted on April 22
and 25, 2013, form part of the records of arbitration and must, therefore, be considered confidential
information.
For said reason, petitioners assert that Rule 10.5 of the Special Alternative Dispute Resolution (ADR)
Rules, allowing for the issuance of a confidentiality/protective order, was completely disregarded by the
CA when it denied the petition filed by FedEx as a result of Lina divulging what were supposed to be
confidential information from ADR proceedings.
Petitioners also claim that in ruling that Jennings' statements were not confidential information, by
applying the test of relevance that "statements made without any bearing on the subject proceedings
are not confidential in nature," the CAused a "test" that had no basis in law and whose application in its
petition amounted to judiciallegislation.[15]
Respondent Air21 and Lina (respondents), in their Comment,[16] essentially countered that:
While the Alternative Dispute Resolution Act of 2004 (the "ADR Law") confers communications made
during arbitration the privilege against disclosure, otherwise known as the confidentiality principle, to
assist the parties in having a speedy, efficient and impartial resolution of their disputes, said privilege
cannot be invoked to shield any party from criminal responsibility. The privilege is not absolute. The ADR
Law does not exist in a viacuum without regard to other existing jurisprudence and laws, particularly the
Revised Penal Code. Otherwise, we will permit a dangerous situation where arbitration proceedings will
be used by an unscrupulous disputant as a venue for the commission of crime, which cannot be punished
by the simple invocation of the privilege. Such an absurd interpretation of our laws cannot be deemed to
be the underlying will of our Congress in framing and enacting our law on arbitration. To be sure, a crime
cannot be protected or extinguished through a bare invocation of the confidentiality rule.[17]
The Court's Ruling
The crucial issue in this case is whether the testimony of Jennings given during the arbitration
proceedings falls within the ambit of confidential information and, therefore, covered by the mantle of a
confidentiality/protection order.
The Court finds the petition meritorious.
Section 3(h) of Republic Act (R.A.) No. 9285 or the Alternative Dispute Resolution of 2004 (ADR Act)
defines confidential information as follows:
"Confidential information" means any information, relative to the subject of mediation or arbitration,
expressly intended by the source not to be disclosed, or obtained under circumstances that would create
a reasonable expectation on behalf of the source that the information shall not be disclosed. It shall
include (1) communication, oral or written, made in a dispute resolution proceedings, including any
memoranda, notes or work product of the neutral party or non-party participant, as defined in this Act;
(2) an oral or written statement made or which occurs during mediation or for purposes of considering,
conducting, participating, initiating, continuing of reconvening mediation or retaining a mediator; and (3)
pleadings, motions manifestations, witness statements, reports filed or submitted in an arbitration or
for expert evaluation. [Emphases Supplied]
The said list is not exclusive and may include other information as long as they satisfy the requirements
of express confidentiality or implied confidentiality.[18]
Plainly, Rule 10.1 of A.M. No. 07-11-08-SC or the Special Rules of Court on Alternative Dispute Resolution
(Special ADR Rules) allows "[a] party, counsel or witness who disclosed or who was compelled to disclose
information relative to the subject of ADR under circumstances that would create a reasonable
expectation, on behalf of the source, that the information shall be kept confidential x x x the right to
prevent such information from being further disclosed without the express written consent of the source
or the party who made the disclosure." Thus, the rules on confidentiality and protective orders apply
when:
1. An ADR proceeding is pending;
2. A party, counsel or witness disclosed information or was otherwise compelled to disclose
information;
3. The disclosure was made under circumstances that would create a reasonable expectation, on
behalf of the source, that the information shall be kept confidential;
4. The source of the information or the party who made the disclosure has the right to prevent such
information from being disclosed;
5. The source of the information or the party who made the disclosure has not given his express
consent to any disclosure; and
6. The applicant would be materially prejudiced by an unauthorized disclosure of the information
obtained, or to be obtained, during the ADR proceeding.
Gauged by the said parameters, the written statements of witnesses Ross, Holmes and Jennings, as well
as the latter's oral testimony in the April 25, 2013 arbitration hearing, both fall under Section 3 (h) [1]
and [3] of the ADR Act which states that "communication, oral or written, made in a dispute resolution
proceedings, including any memoranda, notes or work product of the neutral party or non-party
participant, as defined in this Act; and (3) pleadings, motions, manifestations, witness statements,
reports filed or submitted in an arbitration or for expert valuation," constitutes confidential information.
Notably, both the parties and the Arbitral Tribunal had agreed to the Terms of Reference (TOR) that "the
arbitration proceedings should be kept strictly confidential as provided in Section 23 of the ADR Act and
Article 25-A[19] of the PDRCI Arbitration Rules (Arbitration Rules) and that they should all be bound by
such confidentiality requirements."
The provisions of the ADR Act and the Arbitration Rules repeatedly employ the word "shall" which, in
statutory construction, is one of mandatory character in common parlance and in ordinary
signification.[20] Thus, the general rule is that information disclosed by a party or witness in an ADR
proceeding is considered privileged and confidential.
In evaluating the merits of the petition, Rule 10.8 of the Special ADR Rules mandates that courts should
be guided by the principle that confidential information shall not be subject to discovery and shall be
inadmissible in any adversarial proceeding, to wit:
Rule 10.8. Court action. - If the court finds the petition or motion meritorious, it shall issue an order
enjoining a person or persons from divulging confidential information.

In resolving the petition or motion, the courts shall be guided by the following principles applicable to all
ADR proceedings: Confidential information shall not be subject to discovery and shall be inadmissible in
any adversarial proceeding, whether judicial or quasi judicial. However, evidence or information that is
otherwise admissible or subject to discovery does not become inadmissible or protected from discovery
solely by reason of its use therein.
Article 5.42 of the Implementing Rules and Regulations (IRR)[21] of the ADR Act likewise echoes that
arbitration proceedings, records, evidence and the arbitral award and other confidential information are
privileged and confidential and shall not be published except [i] with the consent of the parties; or [ii] for
the limited purpose of disclosing to the court relevant documents where resort to the court is allowed.
Given that the witness statements of Ross, Holmes and Jennings, and the latter's arbitration testimony,
fall within the ambit of confidential information, they must, as a general rule, remain confidential.
Although there is no unbridled shroud of confidentiality on information obtained or disclosed in an
arbitration proceeding, the presence of the above criteria must be apparent; otherwise, the general rule
should be applied. Here in this case, only a perceived imputation of a wrongdoing was alleged by the
respondents.
In denying the said application for confidentiality/protection order, the RTC and the CA did not consider
the declarations contained in the said witness statements and arbitration testimony to be related to the
subject of arbitration and, accordingly, ruled that they could not be covered by a confidentiality order.
The Court does not agree. Suffice it to say that the phrase "relative to the subject of mediation or
arbitration" need not be strictly confined to the discussion of the core issues in the arbitral dispute. By
definition, "relative" simply means "connected to," which means that parties in arbitration proceedings
are encouraged to discuss openly their grievances and explore the circumstances which might have any
connection in identifying the source of the conflict in the hope of finding a better alternative to resolve
the parties' dispute. An ADR proceeding is aimed at resolving the parties' conflict without court
intervention. It was not designed to be strictly technical or legally confined at all times. By mutual
agreement or consent of the parties to a controversy or dispute, they acquiesce to submit their
differences to arbitrators for an informal hearing and extra-judicial determination and resolution.
Usually, an ADR hearing is held in private and the decision of the persons selected to comprise the
tribunal will take the place of a court judgment. This avoids the formalities, delays and expenses of an
ordinary litigation. Arbitration, as envisioned by the ADR Act, must be taken in this perspective.
Verily, it is imperative that legislative intent or sp1nt be the controlling factor, the leading star and
guiding light in the application and interpretation of a statute.[22] If a statute needs construction, the
influence most dominant in that process is the intent or spirit of the act.[23] A thing which is within the
intent of the lawmaker is as much within the statute as if within the letter; and a thing which is within
the letter of the statute is not within the statute unless within the intent of the lawmakers.[24] In other
words, a statute must be read according to its spirit or intent and legislative intent is part and parcel of
the statute. It is the controlling factor in interpreting a statute. Any interpretation that contradicts the
legislative intent is unacceptable.
In the case at bench, the supposed questionable statements surfaced when FedEx's suspended IFF
license was discussed during the arbitration hearing. In fact, when Jennings was asked by Arbitrator
Panga to expound on how the opposition of Ace and Merit could be related to the ongoing arbitration,
Jennings replied that, to his mind, it was indicative of the leverage that Air21 had over FedEx as it was
able to withhold large sums of money and siphon their joint plans from being properly established.
Whether the information disclosed in the arbitration proceeding would be given weight by the tribunal
in the resolution of their dispute is a separate matter. Likewise, the relevance or materiality of the said
statements should be best left to the arbitrators' sound appreciation and judgment. Even granting that
the weight of the said statements was not fundamental to the issues in the arbitration process,
nevertheless, they were still connected to, and propounded by, a witness who relied upon the
confidentiality of the proceedings and expect that his responses be reflected.
Arbitration, being an ADR proceeding, was primarily designed to be a prompt, economical and amicable
forum for the resolution of disputes. It guarantees confidentiality in its processes to encourage parties to
ventilate their claims or disputes in a less formal, but spontaneous manner. It should be emphasized that
the law favors settlement of controversies out of court. Thus, a person who participates in an arbitration
proceeding is entitled to speak his or her piece without fear of being prejudiced should the process
become unsuccessful. Hence, any communication made towards that end should be regarded as
confidential and privileged.
To restate, the confidential nature of the arbitration proceeding is well-entrenched in Section 23 of the
ADR Act:
SEC. 23. Confidentiality of Arbitration Proceedings. - The arbitration proceedings, including the records,
evidence and the arbitral award, shall be considered confidential and shall not be published except (1)
with the consent of the parties, or (2) for the limited purpose of disclosing to the court of relevant
documents in cases where resort to the court is allowed herein. Provided, however, that the court in
which the action or the appeal is pending may issue a protective order to prevent or prohibit disclosure
of documents or information containing secret processes, developments, research and other information
where it is shown that the applicant shall be materially prejudiced by an authorized disclosure thereof.
If Lina had legal grounds to suspect that Jennings committed slanderous remarks even before the
arbitration proceeding commenced, then he must present evidence independent and apart from some
quoted portions of the arbitration documents.
It must be stressed that the very soul of an arbitration proceeding would be rendered useless if it would
be simply used as an avenue for evidence gathering or an entrapment mechanism to lure the other
unsuspecting party into conveying information that could be potentially used against him in another
forum or in court.
Ultimately, the RTC and the CA failed to consider the fact that an arbitration proceeding is essentially a
unique proceeding that is non-litigious in character where the parties are bound by a different set of
rules as clearly encapsulated under the Special ADR Rules. Inevitably, when Lina cited portions of the
said arbitration documents, he violated their covenant in the TOR to resolve their dispute through the
arbitration process and to honor the confidentiality of the said proceeding. To disregard this
commitment would impair the very essence of the ADR proceeding. By itself, this would have served as a
valid justification for the grant of the confidentiality/protection order in favor of FedEx and Jennings.
Thus, the claimed slanderous statements by Jennings during the arbitration hearing are deemed
confidential information and the veil of confidentiality over them must remain.
WHEREFORE, the petition is GRANTED. The January 20, 2015 Decision of the Court of Appeals (CA), in
CA-G.R. SP No. 135835, is REVERSED and SET ASIDE.
The Petition for the Issuance of a Confidentiality/Protective Order filed by Federal Express Corporation
and Rhicke S. Jennings is hereby GRANTED.
SO ORDERED.
THIRD DIVISION On December 16, 2009, Atty. Albano filed his withdrawal of appearance stating that Federal had
meanwhile engaged another counsel.6
March 8, 2017
Federal, represented by new counsel (Domingo, Dizon, Leonardo and Rodillas Law Office), moved to
dismiss the case on the ground that CIAC had no jurisdiction over the case inasmuch as the Contract of
G.R. No. 211504
Service between Federal and Power had been a mere draft that was never finalized or signed by the
parties. Federal contended that in the absence of the agreement for arbitration, the CIAC had no
FEDERAL BUILDERS, INC., Petitioner jurisdiction to hear and decide the case.7
vs
POWER FACTORS, INC., Respondent
On February 8, 2010, the CIAC issued an order setting the case for hearing, and directing that Federal's
motion to dismiss be resolved after the reception of evidence of the parties.8
DECISION
Federal did not thereafter participate in the proceedings until the CIAC rendered the Final Award dated
BERSAMIN, J.: May 12, 2010,9 disposing:

An agreement to submit to voluntary arbitration for purposes of vesting jurisdiction over a construction In summary: Respondent Federal Builders, Inc. is hereby ordered to pay claimant Power Factors, Inc. the
dispute in the Construction Industry Arbitration Commission (CIAC) need not be contained in the following sums:
construction contract, or be signed by the parties. It is enough that the agreement be in writing.

1. Unpaid balance on the original contract ₱4,276,614.75;

The Case
2. Unpaid balance on change order nos. 1, 2, 3, 4, 5, 6, 7, 8, & 9 3,006,970.32;
Federal Builders Inc. (Federal) appeals to reverse the decision promulgated on August 12,
2013,1 whereby the Court of Appeals (CA) affirmed the adverse decision rendered on May 12, 2010 by 3. Interest to May 13, 2010 1,686,149.94;
the Construction Industry Arbitration Commission (CIAC) with modification of the total amount 4. Attorney's Fees 250,000.00;
awarded.2
5. Cost of Arbitration 149,503.86;
Antecedents
₱9 ,369 ,238.87

Federal was the general contractor of the Bullion Mall under a construction agreement with Bullion
Investment and Development Corporation (BIDC). In 2004, Federal engaged respondent Power Factors
Inc. (Power) as its subcontractor for the electric works at the Bullion Mall and the Precinct Building for
₱l8,000,000.00.3
On February 19, 2008, Power sent a demand letter to Federal claiming the unpaid amount of
₱ll,444,658.97 for work done by Power for the Bullion Mall and the Precinct Building. Federal replied
that its outstanding balance under the original contract only amounted to ₱1,641,513.94, and that the
demand for payment for work done by Power after June 21, 2005 should be addressed directly to
BIDC.4 Nonetheless, Power made several demands on Federal to no avail.
On October 29, 2009, Power filed a request for arbitration in the CIAC invoking the arbitration clause of
the Contract of Service reading as follows:
15. ARBITRATION COMMITTEE - All disputes, controversies or differences, which may arise between the
parties herein, out of or in relation to or in connection with this Agreement, or for breach thereof shall
be settled by the Construction Industry Arbitration Commission (CIAC) which shall have original and
exclusive jurisdiction over the aforementioned disputes.5
The foregoing amount shall earn legal interest at the rate of 6% per annum from the date of this Final
Award until this award becomes final and executory, Claimant shall then be entitled to 12% per
annum until the entire amount is fully satisfied by Respondent.
Federal appealed the award to the CA insisting that the CIAC had no jurisdiction to hear and decide the
case; and that the amounts thereby awarded to Power lacked legal and factual bases.
On August 12, 2013, the CA affirmed the CIAC's decision with modification as to the amounts due to
Power,10 viz.:
WHEREFORE, the CIAC Final Award dated 12 May 20l0 in CIAC Case No. 31-2009 is hereby AFFIRMED
with MODIFICATION. As modified, FEDERAL BUILDERS, INC. is ordered to pay POWER FACTORS, INC. the
following:
1. Unpaid balance on the original contract ₱4,276,614.75;

2. Unpaid balance on change orders 2,864,113.32;

On November 20, 2009, Atty. Vivencio Albano, the counsel of Federal, submitted a letter to the CIAC
manifesting that Federal agreed to arbitration and sought an extension of 15 days to file its answer, 3. Attorney's Fees 250,000.00;
which request the CIAC granted.
 4. Cost of Arbitration 149,503.86;
The interest to be imposed on the net award (unpaid balance on the original contract and change order)
amounting to P.7, 140,728.07 awarded to POWER FACTORS INC. shall be six (6%) per annum, reckoned
from 4 July 2006 until this Decision becomes final and executory. Further, the total award due to POWER
FACTORS INC. shall be subjected to an interest of twelve percent (12%) per annum computed from the
time this judgment becomes final and executory, until full satisfaction.
SO ORDERED.11
Anent jurisdiction, the CA explained that the CIAC Revised Rules of Procedure stated that the agreement
to arbitrate need not be signed by the parties; that the consent to submit to voluntary arbitration was
not necessary in view of the arbitration clause contained in the Contract of Service; and that Federal's
contention that its former counsel's act of manifesting its consent to the arbitration stipulated in the
draft Contract of Service did not bind it was inconsequential on the issue of jurisdiction.12
Concerning the amounts awarded, the CA opined that the CIAC should not have allowed the increase
based on labor-cost escalation because of the absence of the agreement between the parties on such
escalation and because there was no authorization in writing allowing the adjustment or increase in the
cost of materials and labor.13
14
After the CA denied Federal's motion for reconsideration on February 19, 2004, Federal has come to
the Court on appeal.
Issue
The issues to be resolved are: (a) whether the CA erred in upholding CIAC's jurisdiction over the present
case; and (b) whether the CA erred in holding that Federal was liable to pay Power the amount of
₱7,140,728.07.
Ruling of the Court
The appeal is bereft of merit.
1.
The parties had an effective agreement to submit to voluntary arbitration; hence, the CIAC had
jurisdiction
The need to establish a proper arbitral machinery to settle disputes expeditiously was recognized by the
Government in order to promote and maintain the development of the country's construction industry.
With such recognition came the creation of the CIAC through Executive Order No. 1008 (E.O. No. 1008),
also known as The Construction Industry Arbitration Law. Section 4 of E.O. No. 1008 provides:
Sec. 4. Jurisdiction. - The CIAC shall have original and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by parties involved in construction in the Philippines, whether
the dispute arises before or after the completion of the contract, or after the abandonment or breach
thereof. These disputes may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration. x x x
Under the CIAC Revised Rules of Procedure Governing Construction Arbitration (CIAC Revised Rules), all
that is required for the CIAC to acquire jurisdiction is for the parties of any construction contract to agree
to submit their dispute to arbitration.15 Also, Section 2.3 of the CIAC Revised
Rules states that the agreement may be reflected in an arbitration clause in their contract or by
subsequently agreeing to submit their dispute to voluntary arbitration. The CIAC Revised Rules clarifies,
however, that the agreement of the parties to submit their dispute to arbitration need not be signed or
be formally agreed upon in the contract because it can also be in the form of other modes of
communication in writing, viz.:
RULE 4 - EFFECT OF AGREEMENT TO ARBITRATE
SECTION 4.1. 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.
4.1.1 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.
4.1.2 An arbitration agreement or a submission to arbitration shall be in writing, but it need not be
signed by the parties, as long as the intent is clear that the parties agree to submit a present or future
controversy arising from a construction contract to arbitration. It may be in the form of exchange of
letters sent by post or by telefax, telexes, telegrams, electronic mail or any other mode of
communication.
The liberal application of procedural rules as to the form by which the agreement is embodied is the
objective of the CIAC Revised Rules. Such liberality conforms to the letter and spirit of E.O. No. 1008 itself
which emphasizes that the modes of voluntary dispute resolution like arbitration are always preferred
because they settle disputes in a speedy and amicable manner. They likewise help in alleviating or
unclogging the judicial dockets. Verily, E.O. No. 1008 recognizes that the expeditious resolution of
construction disputes will promote a healthy partnership between the Government and the private
sector as well as aid in the continuous growth of the country considering that the construction industry
provides employment to a large segment of the national labor force aside from its being a leading
contributor to the gross national product.16
Worthy to note is that the jurisdiction of the CIAC is over the dispute, not over the contract between the
parties.17 Section 2.1, Rule 2 of the CIAC Revised Rules particularly specifies that the CIAC has original and
exclusive jurisdiction over construction disputes, whether such disputes arise from or are
merely connected with the construction contracts entered into by parties, and whether such disputes
arise before or after the completion of the contracts. Accordingly, the execution of the contracts and the
effect of the agreement to submit to arbitration are different matters, and the signing or non-signing of
one does not necessarily affect the other. In other words, the formalities of the contract have nothing to
do with the jurisdiction of the CIAC.
Federal contends that there was no mutual consent and no meeting of the minds between it and Power
as to the operation and binding effect of the arbitration clause because they had rejected the draft
service contract.
The contention of Federal deserves no consideration.
contract. The agreement could also be in a separate agreement, or any other form of written
communication, as long as their intent to submit their dispute to arbitration is clear. The fact that a
contract was signed by both parties has nothing to do with the jurisdiction of the CIAC, and this is the
explanation why the CIAC Revised Rules itself expressly provides that the written communication or
agreement need not be signed by the parties.

Under Article 1318 of the Civil Code, a valid contract should have the following essential elements,
namely: (a) consent of the contracting parties;
(b) object certain that is the subject matter of the contract; and (c) cause or consideration. Moreover, a
contract does not need to be in writing in order to be obligatory and effective unless the law specifically
requires so.
Pursuant to Article 135618 and Article 135719 of the Civil Code, contracts shall be obligatory in whatever
form they may have been entered into, provided that all the essential requisites for their validity are
present. Indeed, there was a contract between Federal and Power even if the Contract of Service was
unsigned. Such contract was obligatory and binding between them by virtue of all the essential elements
for a valid contract being present.
Although the agreement to submit to arbitration has been expressly required to be in writing and signed
by the parties therein by Section 422 of Republic Act No. 876 (Arbitration Law),23 the requirement is
conspicuously absent from the CIAC Revised Rules, which even expressly allows such agreement not to
be signed by the parties therein.24 Brushing aside the obvious contractual agreement in this case
warranting the submission to arbitration is surely a step backward.25 Consistent with the policy of
encouraging alternative dispute resolution methods, therefore, any doubt should be resolved in favor of
arbitration.26 In this connection, the CA correctly observed that the act of Atty. Albano in manifesting
that Federal had agreed to the form of arbitration was unnecessary and inconsequential considering the
recognition of the value of the Contract of Service despite its being an unsigned draft.
2.
Amounts as modified by the CA are correct

It clearly appears that the works promised to be done by Power were already executed albeit still
We find no reversible error regarding the amounts as modified by the CA. Power did not sufficiently
incomplete; that Federal paid Power ₱l ,000,000.00 representing the originally proposed downpayment,
establish that the change or increase of the cost of materials and labor was to be separately determined
and the latter accepted the payment; and that the subject of their dispute concerned only the amounts
and approved by both parties as provided under Article 1724 of the Civil Code. As such, Federal should
still due to Power. The records further show that Federal admitted having drafted the Contract of
not be held liable for the labor cost escalation.
Services containing the following clause on submission to arbitration, to wit:

WHEREFORE, the Court AFFIRMS the decision promulgated on August 12, 2013; and ORDERS the
15. ARBITRATION COMMITTEE -All disputes, controversies or differences, which may arise between the
petitioner to pay the costs of suit.
Parties herein, out of or in relation to or in connection with this Agreement, or for breach thereof shall
be settled by the Construction Industry Arbitration Commission (CIAC) which shall have original and
exclusive jurisdiction over the aforementioned disputes.20 SO ORDERED.

With the parties having no issues on the provisions or parts of the Contract of Service other than that
pertaining to the downpayment that Federal was supposed to pay, Federal could not validly insist on the
lack of a contract in order to defeat the jurisdiction of the CIAC. As earlier pointed out, the CIAC Revised
Rules specifically allows any written mode of communication to show the parties' intent or agreement to
submit to arbitration their present or future disputes arising from or connected with their contract.

The CIAC and the CA both found that the parties had disagreed on the amount of the
downpayment.1âwphi1 On its part, Power indicated after receiving and reviewing the draft of the
Contract of Service that it wanted 30% as the downpayment. Even so, Power did not modify anything
else in the draft, and returned the draft to Federal after signing it. It was Federal that did not sign the
draft because it was not amenable to the amount as modified by Power. It is notable that the arbitration
clause written in the draft of Federal was unchallenged by the parties until their dispute arose.

Moreover, Federal asserted the original contract to support its claim against Power. If Federal would
insist that the remaining amount due to Power was only ₱l,641,513.94 based on the original contract,21 it
was really inconsistent for Federal to rely on the draft when it is beneficial to its side, and to reject its
efficacy and existence just to relieve itself from the CIAC's unfavorable decision.

The agreement contemplated in the CIAC Revised Rules to vest jurisdiction of the CIAC over the parties'
dispute is not necessarily an arbitration clause to be contained only in a signed and finalized construction
Republic of the Philippines
Contract Transco-Approved of Original
SUPREME COURT
Duration Suspension and/or Contract
Manila
Extensions Duration

SECOND DIVISION 1) BTRP Schedule III 560 days 711 days 127%

2) BTRP Schedule I 270 days 406 days 170%

G.R. No. 184295 July 30, 2014
3) Makban Substation 365 days 452 days 124%
NATIONAL TRANSMISSION CORPORATION, Petitioner,
vs. 4) Bacolod Substation 360 days 289 days 80%
ALPHAOMEGA INTEGRATED CORPORATION, Respondent.
5) Bunawan Substation 330 days 130 days 39%
DECISION 6) Quiot Substation 300 days 131 days 44%

PERLAS-BERNABE, J.: 2119 days7

Assailed in this petition for review on certiorari1 are the Decision2 dated April 8, 2008 and the
AIC prayed for judgment declaring all six (6) contracts rescinded and ordering TRANSCO to pay, in
Resolution3 dated August 27, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 99454 affirming with
addition to what had already been paid under the contracts, moral damages, exemplary damages, and
modification the Final Award4 of the Construction Industry Arbitration Commission (CIAC) Arbitral
attorney’s fees at ₱100,000.00 each, and a total of ₱40,201,467.19 as actual and compensatory
Tribunal in favor of respondent Alphaomega Integrated Corporation (AIC) by increasing petitioner
damages.8
National· Transmission Corporation's (TRANSCO) liability from Pl 7,495,117.44 to Pl 8,896,673.31.

The Facts
AIC, a duly licensed transmission line contractor, participated in the public biddings conducted by
TRANSCO and was awarded six ( 6) government construction projects, namely: (a) Contract .for the
Construction & Erection of Batangas Transmission Reinforcement Project Schedule III (BTRP Schedule III
Project); (b) Contract for the Construction & Erection of Batangas Transmission Reinforcement Project
Schedule I (BTRP Schedule I Project); (c) Contract for the Construction,Erection & Installation of 230 KV
and 69 KV S/S Equipment and Various Facilities for Makban Substation under the Batangas Transmission
Reinforcement Project (Schedule II) (Makban Substation Project); (d) Contract for the Construction,
Erection & Installation of 138 & 69 KV S/S Equipment for Bacolod Substation under the Negros III-Panay
III Substation Projects (Schedule II) (Bacolod Substation Project); (e) Contract for the Construction,
Erection & Installation of 138 & 69 KV Substation Equipment for the New Bunawan Switching Station
Project (Bunawan Substation Project); and (f) Contract for the Construction, Erection & Installation of
138 and 69 KV Substation Equipment for Quiot Substation Project (Quiot Substation Project).5
In the course of the performance ofthe contracts, AIC encountered difficulties and incurred losses
allegedly due to TRANSCO’s breach of their contracts, prompting it to surrender the projects to TRANSCO
under protest. In accordance with an express stipulation in the contracts that disagreements shall be
settled by the parties through arbitration before the CIAC, AIC submitted a request for arbitration before
the CIAC on August 28, 2006, and, thereafter, filed an Amended Complaint against TRANSCO alleging
that the latter breached the contracts by its failure to: (a) furnish the required Detailed Engineering; (b)
arrange a well-established right-of-way to the project areas; (c) secure the necessary permits and
clearances from the concerned local government units (LGUs); (d) ensure a continuous supply of
construction materials; and (e) carry out AIC’s requests for power shut down. The aforementioned
transgressions resultedin protracted delays and contract suspensions for each project,6 as follows:
TRANSCO, for its part, contended that: (a) it had conducted Detailed Engineering prior to the conduct of
the bidding; and (b) it had obtained the necessary government permits and endorsements from the
affected LGUs. It asserted that AIC was guilty of frontloading– that is,collecting the bulk of the contract
price for work accomplished at the early stages of the project and then abandoning the later stagesof the
project which has a lower contract price9 –and that it disregarded the workable portions of the projects
not affected by the lack of supplies and drawings. TRANSCO further argued that AIC was estopped from
asking for standby fees to cover its overhead expenses during project suspensions considering that the
delays, such as the unresolved right-of-way issues and non-availability of materials, were factors already
covered by the time extensions and suspensions of work allowed under the contracts.10
On April 18, 2007, the CIAC Arbitral Tribunal rendered its Final Award11 in CIAC Case No. 21-2006
ordering the payment of actual and compensatory damages which AIC would not have suffered had it
not been for the project delays attributable to TRANSCO. It found ample evidence to support the claim
for the increase in subcontract cost in BTRP Schedule I, as well as such items of cost as house and yard
rentals, electric bills, water bills, and maintained personnel, but disallowed the claims for
communications bills, maintenance costs for idle equipment, finance charges, and materials cost
increases.12 According to the Arbitral Tribunal, even if AIC itself made the requests for contract time
extensions, this did not bar its claim for damages as a result of project delayssince a contrary ruling
would allow TRANSCO to profit from its own negligence and leave AIC to suffer serious material
prejudice as a direct consequence of that negligence leaving it without any remedy at law.13 The Arbitral
Tribunal upheld AIC’s right to rescind the contracts in accordancewith Resolution No. 018-2004 of the
Government Procurement Policy Board (GPPB), which explicitly gives the contractor the right to
terminate the contract if the works are completely stopped for a continuous period of at least 60
calendar days, through no fault of its own, due to the failure of the procuring entity to deliver within a
reasonable time, supplied materials, right-of-way, or other items that it is obligated to furnish under the
terms of the contract, among others.14 The dispositive portion of the Arbitral Tribunal’s Final Award
reads:

Contract Original Duration of Percentage (%)

WHEREFORE, Respondent, National Transmission Corporation [TRANSCO] is hereby ordered to pay
Claimant, Alphaomega Integrated Corporation, the following sums:
(a) For BTRP Schedule III - ₱6,423,496.67
(b) For BTRP Schedule I - 5,214,202.30
(c) For Makban Substation - 3,075,870.95
(d) For Bacolod Substation - 1,362,936.77
(e) For Bunawan Substation - 820,481.72
(f) For Quiot Substation - 598, 129.03
TOTAL ₱17,495,117.44
Each Party shall shoulder its own cost of arbitration.
The foregoing amount of ₱17,495,117.44 shall earn interest at the rate of six percent (6%) per annum
from the date of promulgation of this Final Award until it becomes final and executory. Thereafter, the
Final Award, including accrued interest, shall earn interest at the rate of 12% per annum until the entire
amount due is fully paid.15 (Emphasis supplied)
Unconvinced, TRANSCO instituted a petition for review16 with the CA.
Before filing its comment17 to the petition, AIC moved for the issuance of a writ of execution,18 not for
the amount of 17,495,117.44 awarded in the Final Award, but for the increased amount of
18,967,318.49.19 It sought correction of the discrepancies between the amount of the award appearing
in the dispositive portion20 and the body of the Final Award.21 The Arbitral Tribunal, however, denied
AIC’s motion, holding that while the CIAC Revised Rules of Procedure Governing Construction Arbitration
(CIAC Rules) would have allowed the correction of the Final Award for evident miscalculation of figures,
typographical or arithmetical errors, AIC failed to file its motionfor the purpose within the time limitation
of 15 days from its receipt of the Final Award.22
The CA Ruling
In the Decision23 dated April 8, 2008, the CAaffirmed the Arbitral Tribunal’s factual findings that
TRANSCOfailed to exercise due diligence in resolving the problems regarding the right-of-way and the
lack of materials before undertaking the bidding process and entering into the contracts with AIC.24 It
found no merit in TRANSCO’s allegation that AIC refused to perform the remaining workable portions of
the projects not affected by problems of right-of-way, shutdowns, supplies and drawings, firstly, because
the certificates ofaccomplishments issued by TRANSCO in the course of project implementation
signifying its satisfaction with AIC’s performance negate such claim and, secondly, because all the orders
issued by TRANSCO suspended the contracts not only in part but in their entirety, thus, permitting no
work activity at all during such periods.25
The CA upheld the Arbitral Tribunal’s Final Award as having been sufficiently established by evidence but
modified the total amount of the award after noting a supposed mathematical error in the computation.
Setting aside TRANSCO’s objections, it ruled that when a case is brought to a superior court on appeal
every aspect of the case is thrown open for review,26 hence, the subject error could be rectified. The CA
held that the correct amount of the award should be ₱18,896,673.31, and not ₱17,495,117.44 as stated
in the Arbitral Tribunal’s Final Award.27 Dissatisfied, TRANSCO moved for reconsideration28 but was,
however, denied by the CA in a Resolution29 dated August 27, 2008, hence, the instant petition.
The Issues Before the Court
The essential issues for the Court’s consideration are whether or not the CA erred (a) in affirming the
CIAC Arbitral Tribunal’s findings that AIC was entitled to its claims for damages as a result of project
delays, and (b) in increasing the total amount of compensation awarded in favor of AIC despite the
latter’s failure to raise the allegedly erroneous computation of the award before the CIAC in a timely
manner, that is, within fifteen (15) days from receipt of the Final Award as provided under Section 17.1
of the CIAC Rules.
The Court’s Ruling
TRANSCO seeks through this petition a recalibration of the evidencepresented before the CIAC
ArbitralTribunal, insisting that AIC is not entitled to any damages not only because it had previously
waived all claims for standby fees in case of project delays but had eventually failed to perform the
workable portions of the projects. This is evidently a factual question which cannot be the proper subject
of the present petition. Section 1, Rule 45 of the Rules of Court provides that a petition for review on
certiorariunder the said rule, as in this case, "shall raise only questions of law which must be distinctly
set forth." Thus, absent any of the existing exceptions impelling the contrary, the Court is, as a general
rule, precluded from delving on factual determinations, as what TRANSCO essentially seeks in this case.
Similar to the foregoing is the Court’s ruling in Hanjin Heavy Industries and Construction Co., Ltd. v.
Dynamic Planners and Construction Corp.,30 the pertinent portions ofwhich are hereunder quoted:
Dynamic maintains that the issues Hanjin raised in its petitions are factual in nature and are, therefore,
not proper subject of review under Section 1 of Rule 45, prescribing that a petition under the said rule,
like the one at bench, "shall raise only questions of law which must be distinctly set forth." Dynamic’s
contention is valid topoint as, indeed, the matters raised by Hanjin are factual, revolving as they do on
the entitlement of Dynamic to the awards granted and computed by the CIAC and the CA. Generally, this
would be a question of fact that this Court would not delve upon. Imperial v. Jauciansuggests as much.
There, the Court ruled that the computation of outstanding obligation is a question of fact:
Arguing that she had already fully paid the loan x x x, petitioner alleges that the two lower courts
misappreciated the facts when they ruled that she still had an outstanding balance of ₱208,430.
This issue involves a question of fact. Such question exists when a doubt or difference arises as to the
truth or the falsehood of alleged facts; and when there is need for a calibration of the evidence,
considering mainly the credibility of witnesses and the existence and the relevancy of specific
surrounding circumstances, their relation to each other and to the whole, and the probabilities of the
situation. (G.R. No. 149004, April 14, 2004, 427 SCRA 517, 523-524.)
The rule, however, precluding the Court from delving on the factual determinations of the CA, admits of
several exceptions. In Fuentes v. Court of Appeals, we held that the findings of facts of the CA, which are
generally deemed conclusive, may admit review by the Court in any of the following instances, among
others:
(1) when the factual findings of the [CA] and the trial court are contradictory;
 (2) when the findings are grounded entirely on speculation, surmises, or conjectures;
(3) when the inference made bythe [CA] from its findings of fact is manifestly mistaken,
absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the [CA], in making its findings, goes beyond the issues of the case, and such findings
are contrary to the admissions of both appellant and appellee;
(6) when the judgment of the [CA] is premised on a misapprehension of facts;
(7) when the [CA] fails to notice certain relevant facts which, if properly considered, will
justify a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the specific evidence on
which they are based; and
(10) when the findings of fact of the [CA] are premised on the absence of evidence but such
findings are contradicted by the evidence on record. (G.R. No. 109849, February 26, 1997, 268
SCRA 703, 709)
Significantly, jurisprudence teaches that mathematical computations as well as the propriety of the
arbitral awards are factual determinations. And just as significant is that the factual findings of the CIAC
and CA—in each separate appealed decisions—practically dovetail with each other. The perceptible
essential difference, at least insofar as the CIAC’s Final Award and the CA Decision in CA-G.R. SP No.
86641 are concerned, rests merely on mathematical computations or adjustments of baseline amounts
which the CIAC may have inadvertently utilized.31 (Emphases and underscoring supplied)
In any case, the Court finds no reason to disturb the factual findings of the CIAC Arbitral Tribunal on the
matter of AIC’s entitlement to damages which the CA affirmed as being well supported by evidence and
properly referred to in the record. It is well-settled that findings of fact of quasijudicial bodies, which
have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded
not only respect, but also finality, especially when affirmed by the CA.32 The CIAC possesses that required
expertise in the field of construction arbitration and the factual findings of its construction arbitrators
are final and conclusive, not reviewable by this Court on appeal.33
While the CA correctly affirmed infull the CIAC Arbitral Tribunal’s factual determinations, it improperly
modified the amount of the award in favor of AIC, which modification did not observe the proper
procedure for the correction of an evident miscalculation of figures, including typographical or
arithmetical errors, in the arbitral award. Section 17.1 of the CIAC Rules mandates the filing of a motion
for the foregoing purpose within fifteen (15) days from receipt thereof, viz.:
Section 17.1 Motion for correction of final award– Any of the parties may file a motion for correction of
the Final Award within fifteen (15) days from receipt thereof upon any of the following grounds:
a. An evident miscalculation of figures, a typographical or arithmetical error; (Emphasis supplied)
xxxx
Failure to file said motion would consequentlyrender the award final and executory under Section 18. 1
of the same rules, viz.:
Section 18.1 Execution of Award – A final arbitral award shall become executory upon the lapse of fifteen
(15) days from receipt thereof by the parties.1âwphi1
AIC admitted that it had ample time to file a motion for correction of the Final Award but claimed to
have purposely sat on its right to seek correction supposedly as a strategic move against TRANSCO34 and,
instead, filed with the CIAC Arbitral Tribunal on June 13, 2007 a "Motion for Issuance of Writ of
Execution for the Total Amount of 18,967,318.49 as Embodied in the Final Award."35 The Arbitral
Tribunal eventually denied AIC’s aforesaid motion for execution because, despite its merit, the Arbitral
Tribunal could not disregard the time-limitation under the CIAC Rules.36 Clearly, having failed to move for
the correction of the Final Award and, thereafter, having opted to file insteada motion for execution of
the arbitral tribunal’s unopposed and uncorrected Final Award, AIC cannot now question against the
correctness of the CIAC’s disposition. Notably, while there is jurisprudential authority stating that "[a]
clerical error in the judgment appealed from may be corrected by the appellate court,"37 the application
of that rule cannot be made in this case considering that the CIAC Rules provides for a specific
procedureto deal with particular errors involving "[a]n evident miscalculation of figures, a typographical
or arithmetical error." Indeed, the rule iswell entrenched: Specialis derogat generali. When two rules
apply to a particular case, thatwhich was specially designed for the said case must prevail over the
other.38
Furthermore, it must be emphasized that the petition for review before the CA was filed by
TRANSCO.39 AIC never elevated before the courts the matter concerning the discrepancy between the
amount of the award stated in the body of the Final Award and the total award shown in its dispositive
portion. The issue was touched upon bythe CA only after AIC raised the same through its Comment (With
Motion to Acknowledge Actual Amount of Award)40 to TRANSCO’s petition for review. The CA should not
have modified the amount of the award to favor AIC because it is well-settled that no relief can be
granted a party who does not appeal41 and that a party who did not appeal the decision may not obtain
any affirmative relief from the appellate court other than what he had obtained from the lower court, if
any, whose decision is brought up on appeal.42 The disposition, as stated in the fallo of the CIAC Arbitral
Tribunal's Final Award, should therefore stand.43
WHEREFORE, the petition is PARTLY GRANTED. The Decision dated April 8, 2008 of the Court of Appeals
in CA-G.R. SP No. 99454 is hereby AFFIRMED with MODIFICATION. The compensation awarded in favor
of Alphaomega Integrated Corporation in the amount of ₱17,495,117.44, as shown in the fallo of the
·construction Industry Arbitration Commission's Final Award dated April 18, 2007, stands.
SO ORDERED.
SECOND DIVISION
[ G.R. No. 192725, August 09, 2017 ]
CE CONSTRUCTION CORPORATION, PETITIONER, VS. ARANETA CENTER INC., RESPONDENT.
DECISION
LEONEN, J.:
A tribunal confronted not only with ambiguous contractual terms but also with the total absence of an
instrument which definitively articulates the contracting parties' agreement does not act in excess of
jurisdiction when it employs aids in interpretation, such as those articulated in Articles 1370 to 1379 of
the Civil Code. In so doing, a tribunal does not conjure its own contractual terms and force them upon
the parties.
In addressing an iniquitous predicament of a contractor that actually renders services but remains
inadequately compensated, arbitral tribunals of the Construction Industry Arbitration Commission (CIAC)
enjoy a wide latitude consistent with their technical expertise and the arbitral process' inherent
inclination to afford the most exhaustive means for dispute resolution. When their awards become the
subject of judicial review, courts must defer to the factual findings borne by arbitral tribunals' technical
expertise and irreplaceable experience of presiding over the arbitral process. Exceptions may be availing
but only in instances when the integrity of the arbitral tribunal itself has been put in jeopardy. These
grounds are more exceptional than those which are regularly sanctioned in Rule 45 petitions.
This resolves a Petition for Review on Certiorari[1] under Rule 45 of the 1997 Rules of Civil Procedure,
praying that the assailed April 28, 2008 Decision[2] and July 1, 2010 Amended Decision[3] of the Court of
Appeals in CA-G.R. SP No. 96834 be reversed and set aside. It likewise prays that the October 25, 2006
Decision[4] of the CIAC Arbitral Tribunal be reinstated.
The CIAC Arbitral Tribunal October 25, 2006 Decision awarded a total sum of P217,428,155.75 in favor of
petitioner CE Construction Corporation (CECON). This sum represented adjustments in unit costs plus
interest, variance in take-out costs, change orders, time extensions, attendance fees, contractor-supplied
equipment, and costs of arbitration. This amount was net of the countervailing awards in favor of
respondent Araneta Center, Inc. (ACI), for defective and incomplete works, permits, licenses and other
advances.[5]
The assailed Court of Appeals April 28, 2008 Decision modified the CIAC Arbitral Tribunal October 25,
2006 Decision by awarding a net amount of P82,758,358.80 in favor of CECON.[6] The Court of Appeals
July 1, 2010 Amended Decision adjusted this amount to P93,896,335.71.[7]
Petitioner CECON was a construction contractor, which, for more than 25 years, had been doing business
with respondent ACI, the developer of Araneta Center, Cubao, Quezon City.[8]
In June 2002, ACI sent invitations to different construction companies, including CECON, for them to bid
on a project identified as "Package #4 Structure/Mechanical, Electrical, and Plumbing/Finishes (excluding
Part A Substructure)," a part of its redevelopment plan for Araneta Center Complex.[9] The project would
eventually be the Gateway Mall. As described by ACI, "[t]he Project involved the design, coordination,
construction and completion of all architectural and structural portions of Part B of the Works[;] and the
construction of the architectural and structural portions of Part A of the Works known as Package 4 of
the Araneta Center Redevelopment Project."[10]
As part of its invitation to prospective contractors, ACI furnished bidders with Tender Documents,
consisting of:
Volume I: Tender Invitation, Project Description, Instructions to Tenderers, Form of Tender, Dayworks,
Preliminaries and General Requirements, and Conditions of Contract;
Volume II: Technical Specifications for the Architectural, Structural, Mechanical, Plumbing, Fire
Protection and Electrical Works; and
Addenda Nos. 1, 2, 3, and 4 relating to modifications to portions of the Tender Documents.[11]
The Tender Documents described the project's contract sum to be a "lump sum" or "lump sum fixed
price" and restricted cost adjustments, as follows:
6 TYPE OF CONTRACT
This is a Lump Sum Contract and the price is a fixed price not subject to measurement or
recalculation should the actual quantities of work and materials differ from any estimate available
at the time of contracting, except in regard to Cost-Bearing Changes which may be ordered by the
6.1
Owner which shall be valued under the terms of the Contract in accordance with the Schedule of
Rates, and with regard to the Value Engineering Proposals under Clause 27. The Contract Sum shall
not be adjusted for changes in the cost of labour, materials or other matters.[12]
TENDER AND CONTRACT
Fixed Price Contract
1. The Contract Sum payable to the Contactor is a Lump Sum Fixed Price and will not be subject
to adjustment, save only where expressly provided for within the Contract Documents and
the Form of Agreement.
2. The Contract Sum shall not be subject to any adjustment "in respect of rise and fall in the cost
of materials[,] labor, plant, equipment, exchange rates or any other matters affecting the cost
of execution of Contract, save only where expressly provided for within the Contract
Documents or the Form of Agreement.
3. The Contract Sum shall further not be subject to any change in subsequent legislation, which
causes additional or reduced costs to the Contractor.[13]
The bidders' proposals for the project were submitted on August 30, 2002. These were based on "design
and construct" bidding.[14]
CECON submitted its bid, indicating a tender amount of P1,449,089,174.00. This amount was inclusive of
"both the act of designing the building and executing its construction." Its bid and tender were based on
schematic drawings, i.e., conceptual designs and suppositions culled from ACI's Tender Documents.
CECON's proposal "specifically stated that its bid was valid for only ninety (90) days, or only until 29
November 2002." This tender proposed a total of 400 days, or until January 10, 2004, for the
implementation and completion of the project.[15]
CECON offered the lowest tender amount. However, ACI did not award the project to any bidder, even as
the validity of CECON's proposal lapsed on November 29, 2002. ACI only subsequently informed CECON
that the contract was being awarded to it. ACI elected to inform CECON verbally and not in writing.[16]
In a phone call on December 7, 2002, ACI instructed CECON to proceed with excavation works on the
project. ACI, however, was unable to deliver to CECON the entire project site. Only half, identified as the
Malvar-to-Roxas portion, was immediately available. The other half, identified as the Roxas to-Coliseum
portion, was delivered only about five (5) months later.[17]
As the details of the project had yet to be finalized, ACI and CECON pursued further negotiations. ACI and
CECON subsequently agreed to include in the project the construction of an office tower atop the
portion identified as Part A of the project. This escalated CECON's project cost to P1,582,810,525.00.[18]
After further negotiations, the project cost was again adjusted to P1,613,615,244.00. Still later, CECON
extended to ACI a P73,615,244.00 discount, thereby"reducing its offered project cost to
P1,540,000.00.[19]
Despite these developments, ACI still failed to formally award the project to CECON. The parties had yet
to execute a formal contract. This prompted CECON to write a letter to ACI, dated December 27,
2002,[20] emphasizing that the project cost quoted to ACI was "based upon the prices prevailing at
December 26, 2002" price levels.[21]
By January 2003 and with the project yet to be formally awarded, the prices of steel products had
increased by 5% and of cement by P5.00 per bag. On January 8, 2003, CECON again wrote ACI notifying it
of these increasing costs and specifically stating that further delays may affect the contract sum.[22]
Still without a formal award, CECON again wrote to ACI on January 21, 2003[23] indicating cost and time
adjustments to its original proposal. Specifically, it referred to an 11.52% increase for the cost of steel
products, totalling P24,921,418.00 for the project; a P5.00 increase per bag of cement, totalling
P3,698,540.00 for the project; and costs incurred because of changes to the project's structural framing,
totalling P26,011,460.00. The contract sum, therefore, needed to be increased to P1,594,631,418.00.
CECON also specifically stated that its tender relating to these adjusted prices were valid only until
January 31, 2003, as further price changes may be forthcoming. CECON emphasized that its steel
supplier had actually already advised it of a forthcoming 10% increase in steel prices by the first week of
February 2003. CECON further impressed upon ACI the need to adjust the 400 days allotted for the
completion of the project.[24]
On February 4, 2003, ACI delivered to CECON the initial tranche of its down payment for the project. By
then, prices of steel had been noted to have increased by 24% from December 2002 prices. This increase
was validated by ACI.[25]
Subsequently, ACI informed CECON that it was taking upon itself the design component of the project,
removing from CECON's scope of work the task of coming up with designs.[26]
On June 2, 2003, ACI finally wrote a letter[27] to CECON indicating its acceptance of CECON's August 30,
2002 tender for an adjusted contract sum of P1,540,000.00 only:
Araneta Center, Inc. (ACI) hereby accepts the C-E Construction Corporation (CEC) tender dated August
30, 2002, submitted to ACI in the adjusted sum of One Billion Five Hundred Forty Million Pesos Only
(P1,540,000,000.00), which sum includes all additionally quoted and accepted items within this
acceptance letter and attachments, Appendix A, consisting of one (1) page, and Appendix B, consisting of
seven (7) pages plus attachments, which sum of One Billion Five Hundred Forty Million Pesos Only
(P1,540,000,000.00) is inclusive of any Government Customs Duty and Taxes including Value Added Tax
(VAT) and Expanded Value Added Tax (EVAD, and which sum is hereinafter referred to as the Contract
Sum.[28]
Item 4, Appendix B of this acceptance letter explicitly recognized that "all design except support to
excavation sites, is now by ACI."[29] It thereby confirmed that the parties were not bound by a design-
and-construct agreement, as initially contemplated in ACI's June 2002 invitation, but by a construct-only
agreement. The letter stated that "[CECON] acknowledge[s] that a binding contract is now
existing."[30] However, consistent with ACI's admitted changes, it also expressed ACI's corresponding
undertaking: "This notwithstanding, formal contract documents embodying these positions will shortly
be prepared and forwarded to you for execution."[31]
Despite ACI's undertaking, no formal contract documents were delivered to CECON or otherwise
executed between ACI and CECON.[32]
As it assumed the design aspect of the project, ACI issued to CECON the construction drawings for the
project. Unlike schematics, these drawings specified "the kind of work to be done and the kind of
material to be used."[33] CECON laments, however, that "ACI issued the construction drawings in piece-
meal fashion at times of its own choosing."[34] From the commencement of CECON's engagement until its
turnover of the project to ACI, ACI issued some 1,675 construction drawings. CECON emphasized that
many of these drawings were partial and frequently pertained to revisions of prior items of work.[35] Of
these drawings, more than 600 were issued by ACI well after the intended completion date of January
10, 2004: Drawing No. 1040 was issued on January 12, 2004, and the latest, Drawing No. 1675, was
issued on November 26, 2004.[36]
Apart from shifting its arrangement with CECON from design-and-construct to construct only, ACI
introduced other changes to its arrangements with CECON. CECON underscored two (2) of the most
notable of these changes which impelled it to seek legal relief.
First, on January 30, 2003, ACI issued Change Order No. 11,[37] which shifted the portion identified as Part
B of the project from reinforced concrete framing to structural steel framing. Deleting the cost for
reinforced concrete framing meant removing P380,560,300.00 from the contract sum. Nevertheless,
replacing reinforced concrete framing with structural steel framing "entailed substitute cost of
Php217,585,000, an additional Php44,281,100 for the additional steel frames due to revisions, and
another Php1,950,000 for the additional pylon."[38]
Second, instead of leaving it to CECON, ACI opted to purchase on its own certain pieces of equipment-
elevators, escalators, chillers, generator sets, indoor substations, cooling towers, pumps, and tanks-
which were to be installed in the project. This entailed "take-out costs"; that is, the value of these pieces
of equipment needed to be removed from the total amount due to CECON. ACI considered a sum
totalling P251,443,749.00 to have been removed from the contract sum due to CECON. This amount of
P251,443,749.00 was broken down, as follows:
(a) For elevators/escalators, PhP106,000,000;
(b) For Chillers, PhP41,152,900;
(c) For Generator Sets, PhP53,040,000;
(d) For Indoor Substation, PhP23,024,150;
(e) For Cooling Towers, PhP5,472,809; and
(f) For Pumps and Tanks, PhP22,753,890.[39]
CECON avers that in removing the sum of P251,443,749.00, ACI "simply deleted the amount in the cost
breakdown corresponding to each of the items taken out in the contract documents."[40] ACI thereby
disregarded that the corresponding stipulated costs pertained not only to the acquisition cost of these
pieces of equipment but also to so-called "builder's works" and other costs relating to their preparation
for and installation in the project. Finding it unjust to be performing auxiliary services practically for free,
CECON proposed a reduction in the take-out costs claimed by ACI. It instead claimed P26,892,019.00 by
way of compensation for the work that it rendered.[41]
With many changes to the project and ACI's delays in delivering drawings and specifications, CECON
increasingly found itself unable to complete the project on January 10, 2004. It noted that it had to file a
total of 15 Requests for Time Extension from June 10, 2003 to December 15, 2003, all of which ACI failed
to timely act on.[42]
Exasperated, CECON served notice upon ACI that it would avail of arbitration. On January 29, 2004, it
filed with the CIAC its Request for Adjudication.[43] It prayed that a total sum of P183,910,176.92
representing adjusted project costs be awarded in its favor.[44]
On March 31, 2004, CECON and ACI filed before the CIAC a Joint Manifestation[45] indicating that some
issues between them had already been settled. Proceedings before the CIAC were then suspended to
enable CECON and ACI to arrive at an amicable settlement.[46] On October 14, 2004, ACI filed a motion
before the CIAC noting that it has validated P85,000,000.00 of the total amount claimed by CECON. It
prayed for more time to arrive at a settlement.[47]
In the meantime, CECON completed the project and turned over Gateway Mall to ACI.[48] It had its
blessing on November 26, 2004.[49]
As negotiations seemed futile, on December 29, 2004, CECON filed with the CIAC a Motion to Proceed
with arbitration proceedings. ACI filed an Opposition.[50]
After its Opposition was denied, ACI filed its Answer dated January 26, 2005.[51] It attributed liability for
delays to CECON and sought to recover counterclaims totalling P180,752 297.84. This amount covered
liquidated damages for CECON's supposed delays, the cost of defective works which had to be rectified,
the cost of procuring permits and licenses, and ACI's other advances.[52]
On February 8, 2005, ACI filed a Manifestation and Motion seeking the CIAC's clearance for the parties to
enter into mediation. Mediation was then instituted with Atty. Sedfrey Ordonez acting as mediator.[53]
After mediation failed, an arbitral tribunal was constituted through a March 16, 2005 Order of the CIAC.
It was to be composed of Dr. Ernesto S. De Castro, who acted as Chairperson with Engr. Reynaldo T. Viray
and Atty. James S. Villafranca as members.[54]
ACI filed a Motion for Reconsideration of the CIAC March 16, 2005 Order. This was denied in the Order
dated March 30, 2005.[55]
In the Order dated April 1, 2005, the CIAC Arbitral Tribunal set the preliminary conference on April 13,
2005.[56]
At the preliminary conference, CECON indicated that, the total sum it was entitled to recover from ACI
needed to be adjusted to P324,113,410.08. The CIAC Arbitral Tribunal, thus, directed CECON to file an
Amended Request for Adjudication/Amended Complaint.[57]
Following the filing of CECON's Amended Request for Adjudication/Amended Complaint and the ensuing
responsive pleadings, another preliminary conference was set on May 13, 2005. The initial hearing of the
case was then set on June 10, 2005.[58]
At the initial hearing, the CIAC Arbitral Tribunal resolved to exclude the amount of P20,483,505.12 from
CECON's claims as these pertained to unpaid accomplishments that did not relate to the issue of cost
adjustments attributed to ACI, as originally pleaded by CECON.[59]
Following the conduct of hearings, the submission of the parties' memoranda and offers of exhibits, the
CIAC Arbitral Tribunal rendered its Decision on October 25, 2006. It awarded a total of P229,223,318.69
to CECON, inclusive of the costs of arbitration. It completely denied ACI's claims for liquidated damages,
but awarded to ACI a total of P11,795,162.93 on account of defective and rectification works, as well as
permits, licenses, and other advances.[60] Thus, the net amount due to CECON was determined to be
P217,428,155.75.
The CIAC Arbitral Tribunal noted that while ACI's initial invitation to bidders was for a lump-sum design-
and-construct arrangement, the way that events actually unfolded clearly indicated a shift to an
arrangement where the designs were contingent upon ACI itself. Considering that the premise for
CECON's August 30, 2002 lump-sum offer of P1,540,000.00 was no longer availing, CECON was no longer
bound by its representations in respect of that lump-sum amount. It may then claim cost adjustments
totalling P16,429,630.74, as well as values accruing to the various change orders issued by ACI, totalling
P159,827,046.94.[61]
The CIAC Arbitral Tribunal found ACI liable for the delays. This entitled CECON to extended overhead
costs and the ensuing extension cost of its Contractor's All Risk Insurance. For these costs, the CIAC
Arbitral Tribunal awarded CECON the total amount of P16,289,623.08. As it was ACI that was liable for
the delays, the CIAC Arbitral Tribunal ruled that ACI was not entitled to liquidated damages.[62]
The CIAC Arbitral Tribunal ruled that CECON was entitled to a differential in take out costs representing
builder's works and related costs with respect to the equipment purchased by ACI. This differential cost
was in the amount of P15,332,091.47.[63] The CIAC Arbitral Tribunal further noted that while ACI initially
opted to purchase by itself pumps, tanks, and cooling towers and removed these from CECON's scope of
work, it subsequently elected to still obtain these through CECON. Considering that the corresponding
amount deducted as take-out costs did not encompass the overhead costs and profits under day work,
which should have accrued to CECON because of these equipment, the CIAC Arbitral Tribunal ruled that
CECON was entitled to 18% day work rate or a total of P21,267,908.00.[64]
The CIAC Arbitral Tribunal also found that, apart from adjusted costs incurred on account of ACI's own
activities, it also became necessary for CECON, as main contractor, to continue extending auxiliary
services to the project's subcontractors because of the delays. Thus, the CIAC Arbitral Tribunal awarded
CECON attendance fees-the main contractor's mark-up for auxiliary services extended to subcontractors
- totalling P14,335,674.88. This amount was lower than the original amount prayed for by CECON (i.e.,
P19,544,667.81)[65] as the CIAC Arbitral Tribunal ruled that CECON may not claim attendance fees
pertaining to subcontractors which directly dealt with ACI.[66]
Considering that CECON's predicament was borne by ACI's fault, the CIAC Arbitral Tribunal saw it fit to
award to CECON the costs of arbitration totalling P1,083,802.58.[67]
While mainly ruling in CECON's favor, the CIAC Arbitral Tribunal found CECON liable for discolored and
mismatched tiles. It noted that CECON had engaged the services of a subcontractor for the installation of
tiles, for which it claimed attendance fees. Thus, it awarded P7,980,000.00 to ACI.[68] In addition, it found
CECON liable to ACI for amounts paid in advance for permits and licenses for the additional office tower,
electrical consumption, and garbage collection. Thus, it awarded another P3,815,162.93 to ACI.[69]
The dispositive portion of the CIAC Arbitral Tribunal Decision read:
WHEREFORE, Respondent is hereby ordered to pay the Claimant the amount of PESOS TWO HUNDRED
SEVENTEEN MILLION, FOUR HUNDRED TWENTY-EIGHT THOUSAND, ONE HUNDRED FIFTY[-]FIVE PESOS
AND SEVENTY[-]FIVE CENTAVOS (Php217,428,155.75) within thirty (30) days upon promulgation of the
award. Interest 6% per annum shall be imposed on the award for any balance remaining from the
promulgation of the award up to the time the award becomes final and executory. Thereafter, interest of
12% per annum shall be imposed on any balance of the award until fully paid.
SO ORDERED.[70]
On December 4, 2006, ACI filed before the Court of Appeals a Petition for Review[71] under Rule 43 of the
1997 Rules of Civil Procedure.
In the meantime, on December 28, 2006, the CIAC Arbitral Tribunal issued an Order[72] acknowledging
arithmetical errors in its October 25, 2006 Decision, Thus, it modified its October 25, 2006 Decision,
indicating that the net amount due to CECON was P231,357,136.72, rather than P217,428,155.75.[73]
In its assailed April28, 2008 Decision,[74] the Court of Appeals reduced the award in favor of CECON to
P114,324,605.00 and increased the award to ACI to P31,566,246.20.[75]
The Court of Appeals held as inviolable the lump-sum fixed price arrangement between ACI and CECON. 1 Cost Adjustment 10,266,628.00
It faulted the CIAC Arbitral Tribunal for acting in excess of jurisdiction as it supposedly took it upon itself 2 Take Out Cost of Equipment 3,811,289.70
to unilaterally modify the arrangement between ACI and CECON.[76] 3 Change Orders 99,119,200.09
a. Approved Change Orders 1,132,946.17
Thus, the Court of Appeals deleted the CIAC Arbitral Tribunal's award representing cost adjustments. b. [Schematic Drawings] to [Construction
80,108,761.60
However, the Court of Appeals also noted that in ACI's and CECON's March 30, 2004 Joint Ma11ifestation Drawings]
before CIAC, ACI conceded that P10,266,628.00 worth of cost adjustments was due to CECON and c. Miscellaneous Change Orders 12,672,488.30
undertook to pay CECON that amount. The Court of Appeals, hence, maintained a P10,266,628.00 award d. Change Order No. 11 5,205,004.02
of cost adjustment in favor of CECON.[77] [4] Equipment Supplied by Owner 1,127,486.50
Total 114,324,605.00 (sic)
On the cost increases borne by Change Order No. 11-the shift from reinforced concrete to structural b. AWARD TO ARANETA
steel framing-and by transitions from schematic diagrams to construction drawings, the Court of Appeals
dismissed the CIAC Arbitral Tribunals award to CECON as arising from "pity" and unwarranted by the NO. ISSUE Pesos (PHP)
lump-sum, fixed-price arrangement.[78] [5] Liquidated Damages 15,400,000.00
[6] Defective and Incomplete Works 3,000,000.00
The Court of Appeals held ACI liable to CECON for the sum of P12,672,488.36 for miscellaneous change Bookmarking Granite Tiles 6,980,000.00
orders, which it construed to be "separate contracts that have been entered into at the time [ACI] [7] Permits, Licenses and Other Advances 6,186,246.23
required them."[79] It likewise held ACI liable for P1,132,946.17 representing the balance of 12 other Total 31,566,246.20 (sic)
partially paid change orders.[80] In addition, CECON is directed to submit all required. close-out documents within thirty (30) days from
receipt of this Decision.
The Court of Appeals noted that CECON was not entitled to time extensions because the arrangement
between ACI and CECON had never been altered. Consequently, it was not entitled to acceleration co ts, The parties shall bear their own costs of arbitration and litigation.
additional overhead, ru1d reimbursement for extending the Contractor's All Risk
Insurance.[81] Conversely, the Court of Appeals held CECON liable for delays thereby entitling ACI to SO ORDERED.[89]
liquidated damages corresponding to 10% of the supposed contract sum of P1,540,000,000.00, or Acting on CECON's Motion for Reconsideration, the Court of Appeals issued its Amended Decision on July
P15,400,000.00.[82] 1, 2010.[90] This Amended Decision increased the award for miscellaneous change orders to
P27,601,469.32; reinstated awards for undervalued works in supplying and installing G.I. sheets worth
Also on account of the supposed lump-sum arrangement, the Court of Appeals held that CECON was not P1,209,782.50[91] and for the drilling of holes and application of epoxy worth P4,543,456.00;[92] and
entitled to attendance fees on contract amounts increased by change order works.[83] It also stated that deleted the award for takeout costs.[93]
the rate for attendance fees, overhead, and profit for subcontractors' works remained subject to the
original contract documents based on ACI's original invitation to bidders and had never been altered.[84] The dispositive portion of the assailed Court of Appeals July 1, 2010 Amended Decision read:

Regarding attendance fees, the Court of Appeals proffered that the work attributed to subcontractors WHEREFORE, Our Decision dated 28 April 2008 is hereby modified as follows:
was merely work done by CECON itself, thereby negating the need for attendance fees.[85]
I - AWARD:
Concerning take-out costs, the Court of Appeals stated that CECON was in no position to propose its own
take-out costs as the tender documents issued along with ACI's invitation to bidders stated that take-out a. AWARD TO CE CONSTRUCTION, INC.
costs must be based exclusively on the rates provided in the Contract Cost Breakdown. Nevertheless, as
ACI had previously undertaken to pay the variance in takeout costs amounting to P3,811,289.70, the NO. ISSUE PESOS (PhP)
Court of Appeals concluded that an award for take-out costs in that amount was proper.[86] 1 Additional costs spent on rebars. 10,266,628.00
Increase in the costs of cement and formworks falling under cost-
2 5,205,004.02
On the CIAC Arbitral Tribunal's award for overhead costs and profits under day work, the Court of bearing change.
Appeals held that it was improper to grant this award based on stipulations on day works pertaining Representing undervaluation of respondent's works in the supply
3 1,209,782.50
"only to 'materials' and not to equipment."[87] and installation of G.I. sheets.
4 Representing Miscellaneous Change Orders. 27,601,469.32
Finally, the Court of Appeals held that CECON was not entitled to costs of litigation considering that "no 5 Drilling of Holes 4,543,450.00
premium is to be placed on the right to litigate"[88] and since ACI could not be faulted for delays. 6 [Schematic Drawings] to [Construction Drawings] 80,108,761.60
[7] Installation of equipment supplied by owner. 1,127,486.50
The dispositive portion of the assailed Court of Appeals April 28, 2008 Decision read: TOTAL 130,062,581.94
b. AWARD TO ARANETA CENTER, INC.
WHEREFORE, based on all the foregoing, the Decision of the Arbitral Tribunal is modified as follows:
1 Liquidated Damage (sic) 20,000,000.00
a. AWARD TO CECON 2 Defective and Incomplete Works 3,000,000.00
3 Bookmarking Granite Tiles 6,980,000.00
NO. ISSUE Pesos (PHP) 4 Permits, Licenses and other Advances 6,186,246.23
 TOTAL 36,166,246.23
II - COMPUTATION:
AWARD TO CE CONSTRUCTION, INC. 130,062,581.94
LESS
AWARD TO ARANETA CENTER, INC. 36,166,246.23
BALANCE PAYABLE BY ARANETA TO CECON 93,896,335.71
SO ORDERED.[94]
Aggrieved at the Court of Appeals' ruling, CECON tiled the present Petition insisting on the propriety of
the CIAC Arbitral Tribunal's conclusions and findings.[95] It prays that the assailed Court of Appeals
decisions be reversed and that the CIAC Arbitral Tribunal October 25, 2006 Decision, as modified by its
December 28, 2006 Order, be reinstated.[96]
ACI counters that the Court of Appeals July 1, 2010 Amended Decision must be upheld.[97]
ACI insists on the inviolability of its supposed agreement with CECON, as embodied in the contract
documents delivered to contractors alongside the original offer to bid. It cites specific provisions of these
documents such as valuation rules and required notices for extensions and changes, reckoning of losses
and expenses, the ensuing liquidated damages for defects, cost-bearing changes and provisional
sums,[98] which define parameters for permissible changes and for reckoning corresponding costs and
liabilities. However, it did not attach any of these documents to its Comment or Memorandum. It also
cites statutory provisions-Articles 1715[99] and 1724[100] of the Civil Code-on CECON's liabilities and the
primacy of stipulated contract prices.[101]
By the inviolability their agreement, ACI insists on the supposed immutability of the stipulated contract
sum and on the impropriety of the CIAC Arbitral Tribunal in writing its own terms for ACI and CECON to
follow.[102] It faults the CIAC Arbitral Tribunal for erroneously reckoning the sums due to CECON,
particularly in relying on factual considerations that run afoul of contractual stipulations and on bases
such as industry practices and standards, which supposedly should not have even been considered as the
parties have already adduced their respective evidence.[103] It insists upon CECON's fault for delays and
defects, making it liable for liquidated damages.[104]
Though nominally modifying the CIAC Arbitral Tribunal October 25, 2006 Decision, the Court of Appeals
actually reversed it on the pivotal matter of the characterization of the contract between CECON and
ACI. Upon its characterization of the contract as one for a lump-sum fixed price, the Court of Appeals
deleted much of the CIAC Arbitral Tribunal's monetary awards to CECON and awarded liquidated
damages to ACI.
On initial impression, what demands resolution is the issue of whether or not the Court of Appeals erred
in characterizing the contractual arrangement between petitioner CE Construction Corporation and
respondent Araneta Center, Inc. as immutably one for a lump-sum fixed price.
However, this is not merely a matter of applying and deriving conclusions from cut and dried contractual
provisions. More accurately, what is on issue is whether or not the Court of Appeals correctly held that
the CIAC Arbitral Tribunal acted beyond its jurisdiction in holding that the price of P1,540,000,000.00 did
not bind the parties as an immutable lump-sum. Subsumed in this issue is the matter of whether or not
the Court of Appeals correctly ruled that CECON was rightfully entitled to time extensions and that
intervening circumstances had made ACI liable for cost adjustments, increases borne by change orders,
additional overhead costs, extended contractor's all risk insurance coverage, increased attendance fees
vis-a-vis subcontractors, and arbitration costs which it awarded to CECON.
This Court limits itself to the legal question of the CIAC Arbitral Tribunal's competence. Unless any of the
exceptional circumstances that warrant revisiting the factual matter of the accuracy of the particulars of
every item awarded to the parties is availing, this Court shall not embark on its own audit of the amounts
owing to each.
I
This Court begins by demarcating the jurisdictional and technical competence of the CIAC and of its
arbitral tribunals.
I.A
The Construction Industry Arbitration Commission was a creation of Executive Order No. 1008, otherwise
known as the Construction Industry Arbitration Law.[105] At inception, it was under the administrative
supervision of the Philippine Domestic Construction Board[106] which, in turn, was an implementing
agency of the Construction Industry Authority of the Philippines (CIAP).[107] The CIAP is presently attached
to the Department of Trade and Industry.[108]
The CIAC was created with the specific purpose of an "early and expeditious settlement of
disputes"[109] cognizant of the exceptional role of construction to "the furtherance of national
development goals."[110]
Section 4 of the Construction Industry Arbitration Law spells out the jurisdiction of the CIAC:
Section 4. Jurisdiction. - The CIAC shall have original and exclusive jurisdiction over disputes arising from,
or connected with, contracts entered into by parties involved in construction in the Philippines, whether
the dispute arises before or after the completion of the contract, or after the abandonment or breach
thereof. These disputes may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship; violation of the terms of agreement; interpretation and/or application of contractual time
and delays; maintenance and defects; payment, default of employer or contractor and changes in
contract cost.
Excluded from the coverage of this law are disputes arising from employer-employee relationships which
shall continue to be covered by the Labor Code of the Philippines.
Though created by the act of a Chief Executive who then exercised legislative powers concurrently with
the Batasang Pambansa, the creation, continuing existence, and competence of the CIAC have since
been validated by acts of Congress,
Republic Act No. 9184 or the Government Procurement Reform Act, enacted on January 10, 2003,
explicitly recognized and confirmed the competence of the CIAC:
Section 59. Arbitration. - Any and all disputes arising from the implementation of a contract covered by
this Act shall be submitted to arbitration in the Philippines according to the provisions of Republic Act
No. 876, otherwise known as the "Arbitration Law": Provided, however, That, disputes that are within the
competence of the Construction Industry Arbitration Commission to resolve shall be referred thereto. The
process of arbitration shall be incorporated as a provision in the contract that will be executed pursuant
to the provisions of this Act: Provided, That by mutual agreement, the patties may agree in writing to
resort to alternative modes of dispute resolution. (Emphasis supplied)
Arbitration of construction disputes through the CIAC was formally incorporated into the general
statutory framework on alternative dispute resolution through Republic Act No. 9285, the Alternative
Dispute Resolution Act of 2004 (ADR Law). Chapter 6, Section 34 of ADR Law made specific reference to
the Construction Industry Arbitration Law, while Section 35 confirmed the CIAC's jurisdiction:
CHAPTER 6
ARBITRATION OF CONSTRUCTION DISPUTES
Section 34. Arbitration of Construction Disputes: Governing Law. - The arbitration of construction
disputes shall be governed by Executive Order No. 1008, otherwise known as the Construction Industry
Arbitration Law.
Section 35. Coverage of the Law. - Construction disputes which fall within the original and exclusive
jurisdiction of the Construction Industry Arbitration Commission (the "Commission") shall include those
between or among parties to, or who are otherwise bound by, an arbitration agreement, directly or by
reference whether such parties are project owner, contractor, subcontractor, fabricator, project
manager, design professional, consultant, quantity surveyor, bondsman or issuer of an insurance policy
in a construction project.
The Commission shall continue to exercise original and exclusive jurisdiction over construction disputes
although the arbitration is "commercial" pursuant to Section 21 of this Act.
I.B
The CIAC does not only serve the interest of speedy dispute resolution, it also
facilitates authoritative dispute resolution. Its authority proceeds not only from juridical legitimacy but
equally from technical expertise. The creation of a special adjudicatory body for construction disputes
presupposes distinctive and nuanced competence on matters that are conceded to be outside the innate
expertise of regular courts and adjudicatory bodies concerned with other specialized fields. The CIAC has
the state's confidence concerning the entire technical expanse of construction, defined in jurisprudence
as "referring to all on-site works on buildings or altering structures, from land clearance through
completion including excavation, erection and assembly and installation of components and
equipment."[111]
Jurisprudence has characterized the CIAC as a quasi-judicial, administrative agency equipped with
technical proficiency that enables it to efficiently and promptly resolve conflicts;
[The CIAC] 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. 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. The CIAC's 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.[112]
The most recent jurisprudence maintains that the CIAC is a quasi-judicial body. This Court's November
23, 2016 Decision in Fruehauf Electronics v. Technology Electronics Assembly and Management
Pacific[113] distinguished construction arbitration, as well as voluntary arbitration pursuant to Article
219(14) of the Labor Code,[114] from commercial arbitration. It ruled that commercial arbitral tribunals
are not quasi-judicial agencies, as they are purely ad hoc bodies operating through contractual consent
and as they intend to serve private, proprietary interests.[115] In contrast, voluntary arbitration under the
Labor Code and construction arbitration operate through the statutorily vested jurisdiction of
government instrumentalities that exist independently of the will of contracting parties and to which
these parties submit. They proceed from the public interest imbuing their respective spheres:
Voluntary Arbitrators resolve labor disputes and grievances arising from the interpretation of Collective
Bargaining Agreements. These disputes were specifically excluded from the coverage of both the
Arbitration Law and the ADR Law.
Unlike purely commercial relationships, the relationship between capital and labor are heavily impressed
with public interest. Because of this. Voluntary Arbitrators authorized to resolve labor disputes have
been clothed with quasi-judicial authority.
On the other hand, commercial relationships covered by our commercial arbitratjon laws are purely
private and contractual in nature. Unlike labor relationships, they do not possess the same compelling
state interest that would justify state interference into the autonomy of contracts. Hence, commercial
arbitration is a purely private system of adjudication facilitated by private citizens instead of government
instrumentalities wielding quasi-judicial powers.
Moreover, judicial or quasi-judicial jurisdiction cannot be conferred upon a tribunal by the parties alone.
The Labor Code itself confers subject-matter jurisdiction to Voluntary Arbitrators.
Notably, the other arbitration body listed in Rule 43 the Construction Industry Arbitration Commission
(CIAC) - is also a government agency attached to the Department of Trade and Industry. Its jurisdiction is
likewise conferred by statute. By contrast, the subject matter urisdiction of commercial arbitrators is
stipulated by the parties.[116] (Emphasis supplied, citations omitted)
Consistent with the primacy of technical mastery, Section 14 of the Construction Industry Arbitration
Law on the qualification of arbitrators provides:
Section 14. Arbitrators. - A sole arbitrator or three arbitrators may settle a dispute.
....
Arbitrators shall be men of distinction in whom the business sector and the government can have
confidence. They shall not be permanently employed with the CIAC. Instead, thy shall render services
only when called to arbitrate. For each dispute they settle, they shall be given fees.
Section 8.1 of the Revised Rules of Procedure Governing Construction Arbitration establishes that the
foremost qualification of arbitrators shall be technical proficiency. It explicitly enables not only lawyers
but also "engineers, architects, construction managers, engineering consultants, and businessmen
familiar with the construction industry" to serve as arbitrators:
Section 8.1 General Qualification of Arbitrators. - The Arbitrators shall be men of distinction in whom the
business sector and the government can have confidence. They shall be technically qualified to resolve
any construction dispute expeditiously and equitably. The Arbitrators shall come from different
professions. They may include engineers, architects, construction managers, engineering consultants,
and businessmen familiar with the construction industry and lawyers who are experienced in
construction disputes. (Emphasis supplied)
Of the 87 CIAC accredited arbitrators as of January 2017, only 33 are lawyers. The majority are experts
from construction-related professions or engaged in related fields.[117]
Apart from arbitrators, technical experts aid the CIAC in dispute resolution. Section 15 of the
Construction Industry Arbitration Law provides:
Section 15. Appointment of Experts. - The services of technical or legal experts may be utilized in the
settlement of disputes if requested by any of the parties or by the Arbitral Tribunal. If the request for an
expert is done by either or by both of the parties, it is necessary that the appointment of the expert be
confirmed by the Arbitral Tribunal.
Whenever the parties request for the services of an expert, they shall equally shoulder the expert's fees
and expenses, half of which shall be deposited with the Secretariat before the expert renders service.
When only one party makes the request, it shall deposit the whole amount required.
II
Consistent with CIAC's technical expertise is the primacy and deference accorded to its decisions. There
is only a very narrow room for assailing its rulings.
Section 19 of the Construction Industry Arbitration Law establishes that CIAC arbitral awards may not be
assailed, except on pure questions of law:
Section 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.
Rule 43 of the 1997 Rules of Civil Procedure standardizes appeals from quasi-judicial agencies.[118] Rule
43, Section 1 explicitly lists CIAC as among the quasi judicial agencies covered by Rule 43.[119] Section 3
indicates that appeals through Petitions for Review under Rule 43 are to "be taken to the Court of
Appeals ... whether the affoeal involves questions of fact, of law, or mixed questions of fact and law."[120]
This is not to say that factual findings of CIAC arbitral tribunals may now be assailed before the Court of
Appeals. Section 3's statement "whether the appeal involves questions of fact, of law, or mixed
questions of fact and law" merely recognizes variances in the disparate modes of appeal that Rule 43
standardizes: there were those that enabled questions of fact; there were those that enabled questions
of law, and there were those that enabled mixed questions fact and law. Rule 43 emphasizes that though
there may have been variances, all appeals under its scope are to be brought before the Court of
Appeals. However, in keeping with the Construction Industry Arbitration Law, any appeal from CIAC
arbitral tribunals must remain limited to questions of law.
Hi-Precision Steel Center, Inc. v. Lim Kim Steel Builders, Inc.[121] explained the wisdom underlying the
limitation of appeals to pure questions of law:
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 generaland 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 unappealable.
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. [The Construction Industry Arbitration Law]
created an arbitration facility to which the construction industry in the Philippines can have recourse.
The [Construction Industry Arbitration Law] was enacted to encourage the early and expeditious
settlement of disputes in the construction industry, a public policy the implementation of which is
necessa and important for the realization of national development goals.[122]
Consistent with this restrictive approach, this Court is duty-bound to be extremely watchful and to
ensure that an appeal does not become an ingenious means for und rmining the integrity of arbitration
or for conveniently setting aside the conclusions arbitral processes make. An appeal is not an artifice for
the parties to undermine the process they voluntarily elected to engage in. To prevent this Court from
being a party to such perversion, this Court's primordial inclination must be to uphold the factual
finqings of arbitral tribunals:
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 tbr 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. Prototypical examples would be factual conclusions of the Tribunal
which resulted in deprivation of one or the other party of a fair opportunity to present its position before
the Arbitral Tribunal, and an award obtained through fraud or the corruption of arbitrators. Any other,
more relaxed, rule would result in setting at naught the basic objective of a voluntary arbitration and
would reduce arbitration to a largely inutile institution.[123] (Emphasis supplied, citations omitted)
Thus, even as exceptions to the highly restrictive nature of appeals may be contemplated, these
exceptions are only on the nanowest of grounds. Factual findings of CIAC arbitral tribunals may be
revisited not merely because arbitral tribunals may have erred, not even on the already exceptional
grounds traditionally available in Rule 45 Petitions.[124] Rather, factual findings may be reviewed only in
cases where the CIAC arbitral tribunals conducted their affairs in a haphazard, immodest manner that
the most basic integrity of the arbitral process was imperiled. In Spouses David v. Construction Industry
and Arbitration Commission:[125]
We reiterate the rule that factual findings of construction arbitrators are final and conclusive and not
reviewable by this Court on appeal, except when the petitioner proves affirmatively that: (1) the award
was procured by corruption, fraud or other undue means; (2) there was evident partiality or corruption
of the arbitrators or of any of them; (3) the arbitrators were guilty of misconduct in refusing to postpone
the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the
controversy; (4) one or more of the arbitrators were disqualified to act as such under section nine of
Republic Act No. 876 and willfully refrained from disclosing such disqualifications or of any other
misbehavior by which the rights of any party have been materially prejudiced; or (5) the arbitrators
exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon
the subject matter submitted to them was not made.[126] (Citation omitted)
Guided by the primacy of CIAC's technical competence, in exercising this Court's limited power of judicial
review, this Court proceeds to rule on whether or not the Court of Appeals erred in its assailed decisions.
III
Properly discerning the issues in this case reveals that what is involved is not a mere matter of
contractual interpretation but a question of the CIAC Arbitral Tribunal's exercise of its powers.
III.A
F.F. Cruz v. HR Construction[127] distinguished questions of law, properly cognizable in appeals from CIAC
arbitral awards, from questions of fact:
A question of law arises when there is doubt as to what the law is on a certain state of facts, while there
is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to
be one of law, the same must not involve an examination of the probative value of the evidence
presented by the litigants or any of them. The resolution of tbe issue must rest solely on what the law
provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence
presented, the question posed is one of fact.[128]
It further explained that an inquiry into the true intention of the contracting parties is a legal, rather than
a factual, issue:
On the surface, the instant petition appears to merely raise factual questions as it mainly puts in issue
the appropriate amount that is due to HRCC. However, a more thorough analysis of the issues raised by
FFCCl would show that it actually asserts questions of law.
FFCCI primarily seeks from this Court a determination of whether [the] amount claimed by HRCC in its
progress billing may be enforced against it in the absence of a joint measurement of the former's
completed works. Otherwise stated, the main question advanced by FFCCI is this: in the absence of the
joint measurement agreed upon in the Subcontract Agreement, how will the completed works of HRCC
be verified and the amolfnt due thereon be computed?
The determination of the foregoing question entails an interpretation of the terms of the Subcontract
Agreement vis-a-vis the respective rights of the parties herein. On this point, it should be stressed
that where an interpretation of the true agreement between the parties is involved in an appeal, the
appeal is in effect an inquiry of the law between the parties, its interpretation necessarily involves a
question of law.
Moreover, we are not called upon to examine the probative value of the evidence presented before the
CIAC. Rather, what is actually sought from this Court is an interpretation of the terms of the Subcontract
Agreement as it relates to the dispute between the parties.[129] (Emphasis supplied)
Though similarly concerned with "an interpretation of the true agreement between the parties,"[130] this
case is not entirely congruent with F.F. Cruz.
In F.F. Cruz, the parties' agreement had been clearly set out in writing. There was a definitive instrument
which needed only to be consulted to ascertain the parties' intent:
In resolving the dispute as to the proper valuation of the works accomplished by HRCC, the primordial
consideration should be the terms of the Subcontract Agreement. It is basic that if the tem1s of a
contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning
of its stipulations shall control.[131]
Thus, this Court concluded:
Pursuant to the terms of payment agreed upon by the parties, FFCCI obliged itself to pay the monthly
progress billings of HRCC within 30 days from receipt of the same. Additionally, the monthly progress
billings of HRCC should indicate the extent of the works completed by it, the same beinff essential to the
valuation of the amount that FFCCI would pay to HRCC.[132]
III.B
In this case, there is no established contract that simply required interpretation and application.
The assailed Court of Appeals April 28, 2008 Decision implies that all that had to be done to resolve the
present controversy was to apply the supposedly clear and unmistakable terms of the contract between
ACI and CECON. It even echoes the words of F.F. Cruz:
It is a legal principle of long standing that when the language of the contract is explicit, leaving no doubt
as to the intention of the parties, the courts may not read into it any other intention that would
contradict its plain import. The clear terms of the contract should never be the subject matter of
interpretation. Neither abstract justice nor the rule of liberal interpretation justifies the creation of a
contract for the parties which they did not make themselves or the imposition upon one party to a
contract or obligation not assumed simply or merely to avoid seeming hardships. Their true meaning
must be enforced, as it is to be presumed that the contracting parties know their scope and effects.
....
The Contract Documents expressly characterize the construction contract between [ACI] and CECON as
"lump-sum" and "fixed price" in nature. As a consequence, the Contract Documents expressly prohibit
any adjustment of the contract sum due to any changes or fluctuations in the cost of labor, materials or
other matters.[133] (Citations omitted)
Upon its characterization of the contract as one for the lump-sum, fixed price of P1,540,000,000.00, the
Court of Appeals faulted the CIAC Arbitral Tribunal for acting in excess of jurisdiction as it supposedly
countermanded the parties' agreement, or worse, conjured its own tenns for the parties' compliance.[134]
It was the Court of Appeals, not the CIAC Arbitral Tribunal, that committed serious error.
To rule that the CIAC Arbitral Tribunal modified the parties' agreement because it was indisputably one
for a lump-sum, fixed price of P1,540,000,000.00 is begging the question. The Court of Appeals used a
conclusion as a premise to support itself. It erroneously jumped to a conclusion only to plead this
conclusion in support of points that should have made up its anterior framework, points that would have
been the ones to lead to a conclusion. It then used this abortive conclusion to injudiciously dispose of the
case.
The Court of Appeals took the parties' contractual relation as a revealed and preordained starting point.
Then, it dismissed every prior or subsequent detail that contradicted this assumption. It thereby
conveniently terminated the discussion before it even began.
III.C
There was never a meeting of minds on the price of P1,540,000,000.00. Thus, that stipulation could not
have been the basis of any obligation.
The only thing that ACI has in its favor is its initial delivery of tender documents to prospective bidders.
Everything that transpired after this delivery militates against ACI's position.
Before proceeding to a consideration of the circumstances that negate a meeting of minds, this Court
emphasizes that ACI would have this Court sustain claims premised on supposed inviolable documents.
Yet, it did not annex copies of these documents either to its Comment or to its Memorandwn.
ACI leaves this Court compelled to rely purely on their packaged presentation and in a bind, unable to
verify even the accuracy of the syntax of its citations. This Court cannot approve of this predicament. To
cursorily acquiesce to ACI's overtures without due diligence and substantiation is being overly solicitous,
even manifestly partisan.
ACI and its counsel must have fully known the importance of equipping this Court with a reliable means
of confirmation, especially in a case so steeped in the sway of circumstances. ACI's omission can only
work against its cause.
By delivering tender documents to bidders, ACI made an offer. By these documents, it specitled its terms
and defined the parameters within which bidders could operate. These tender documents, therefore,
guided the bidders in formulating their own offers to ACI, or, even more fundamentally, helped them
make up their minds if they were even willing to consider undertaking the proposed project. In
responding and submitting their bids, contractors, including CECON, did not peremptorily become
subservient to ACI's terms. Rather, they made their own representations as to their own willingness and
ability. They adduced their own counter offers, although these were already tailored to work within ACI's
parameters.
These exchanges were in keeping with Article 1326 of the Civil Code:
Article 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is
not bound to accept the highest or lowest bidder, unless the contrary appears.
The mere occurrence of these exchanges of offers fails to satisfy the Civil Code's requirement of absolute
and unqualified acceptance:
Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed to have been entered into in the place where the
offer was made. (Emphasis supplied)
Subsequent events do not only show that there was no meeting of minds on CECON's initial offered
contract sum of P1,449,089,174.00 as stated in its August 30, 2002 bid. They also show that there was
never any meeting of minds on the contract sum at all.
In accordance with Article 1321 of the Civil Code,[135] an offeror may fix the time of acceptance. Thus,
CECON's August 30, 2002 offer of P1,449,089,174.00 "specifically stated that its bid was valid for only
ninety (90) days, or only until 29 November 2002."[136] November 29, 2002 lapsed and ACI failed to
manifest its acceptance of CECON's offered contract sum.
It was only sometime after November 29, 2002 that ACI verbally informed CECON that the contract was
being awarded to it. Through a telephone call on December 7, 2002, ACI informed CECON that it may
commence excavation works. However, there is no indication that an agreement was reached on the
contract sum in any of these conversations. ACI, CECON, the CIAC Arbitral Tribunal, and the Court of
Appeals all concede that negotiations persisted.
Still without settling on a contract sum, even the object of the contract was subjected to multiple
modifications. Absent a concurrence of consent and object, no contract was perfected.[137]
An office tower atop Part A was included in CECON's scope of works and the contract sum increased to
P1,582,810,525.00. Price fluctuations were conceded after this and the project cost was again adjusted
to P1,613,615,244.00. Thereafter, CECON agreed to extend a discount and reduced its offered project
cost to P1,540,000,000.00.[138]
After all these, ACI demurred on the tenns of its own tender documents and changed the project from
one encompassing both design and construction to one that was limited to construction.
Though not pertaining to the object of the contract itself but only to one (1) of its many facets, ACI also
removed from CECON's scope of works the acquisition of elevators, escalators, chillers, generator sets,
indoor substations, cooling towers, pumps, and tanks. However, much later, ACI reneged on its own and
opted to still obtain pumps, tanks, and cooling towers through CECON.
It is ACI's contention that the offered project cost of P1,540,000,000.00 is what binds the parties because
its June 2, 2003 letter indicated acceptance of this offered amount.
This is plain error.
CECON was never remiss in impressing upon ACI that the P1,540,000,000.00 offer was not perpetually
availing. WithoutACI's timely acceptance, on December 27, 2002, CECON wrote to ACI emphasizing that
the quoted sum of P1,540,000,000.00 was "based [only] upon the prices prevailing at December 26,
2002" levels.[139] On January 8, 2003, CECON notified ACI of further increases in costs and specifically
stated that "[f]urther delay in the acceptance of the revised offer and release of the down payment may
affect the revised lump sum amount."[140] Finally, on January 21, 2003, CECON wrote again to
ACI,[141] stating that the contract sum had to be increased to P1,594,631,418.00. CECON also specifically
stated, consistent with Article 1321 of the Civil Code, that its tender of this adjusted price was valid only
until January 31, 2003, as further price changes may be forthcoming. CECON also impressed upon ACI
that the 400 days allotted for the completion of the project had to be adjusted.[142]
When ACI indicated acceptance, CECON's P1,540,000,000.00 offer had been superseded. Even CECON's
subsequent offer of P1,594,631,418.00 had, by then, lapsed by more than four (4) months. Apparently
totally misinformed, ACI's acceptance letter did not even realize or remotely reference CECON's most
recent P1,594,631,418.00 stipulation but insisted on the passe offer of P1,540,000,000.00 from the past
year.
ACI's supposed acceptance was not an effective, unqualified acceptance, as contemplated by Article
1319 of the Civil Code. At most, it was a counter-offer to revert to P1,540,000,000.00.
ACI's June 2, 2003 letter stated an undertaking: "This notwithstanding, formal contract documents
embodying these positions will shortly be prepared and forwarded to you for execution."[143] Through
this letter, ACI not only undertook to deliver documents, it also admitted that the final, definitive terms
between the parties had yet to be articulated in writing.
ACI's delivery CECON's review, and both parties' final act of formalizing their respective consent and
affixing their respective signatures would have established a clear point in which the contract between
ACI and CECON has been perfected. These points, i.e. ACI's delivery, CECON's review, and parties'
formalization, too, would have validated the Court of Appeals' assertion that all that remained to be
done was to apply unequivocal contractual provisions.
ACI would fail on its own undertaking.
III.D
Without properly executed contract documents, what would have been a straightforward exercise, akin
to the experience in F.F. Cruz, became a drawn-out fact-finding affair. The situation that ACI engendered
made it necessary for the CIAC Arbitral Tribunal to unravel the terms binding ACI to CECON from sources
other than definitive documents.
It is these actions of the CIAC Arbitral Tribunal that raise an issue, purely as a matter of law, now the
subject of this Court's review; that is, faced with the lacunae confronting it, whether or not the CIAC
Arbitral Tribunal acted within its jurisdiction.
IV
The CIAC Arbitral Tribunal did not act in excess of its jurisdiction. Contrary to the Court of Appeals' and
ACI's assertions, it did not draw up its own tenns and force these terms upon ACI and CECON.
IV.A
The CIAC Arbitral Tribunal was not confronted with a barefaced controversy for which a fom1ulaic
resolution sufficed. More pressingly, it was confronted with a state of affairs where CECON rendered
services to ACI, with neither definitive governing instrwnents nor a confirmed, fixed remuneration for its
services. Thus, did the CIAC Arbitral Tribunal go about the task of asce1taining the sum properly due to
CECON.
This task was well within its jurisdiction. This determination entailed the full range of subjects expressly
stipulated by Section 4 of the Construction Industry Arbitration Law to be within the CIAC's subject
matter jurisdiction.
Section 4. Jurisdiction. - ....
The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship; violation of the terms of agreement; interpretation and/or application of contractual time
and delays; maintenance and defects; payment, default of employer or contractor and changes in
contract cost.
CECON raised the principal issue of the payment due to it on account, not only of fluctuating project
costs but more so because of ACI's inability to timely act on many contingencies, despite proper notice
and communication from and by CECON. Theretbre, at the heart of the controversy was the
"interpretation and/or application of contractual time and delays." ACI's counter-arguments, too,
directly appealed to CIAC's subject matter jurisdiction. ACI countered by asserting that sanctioning
CECON's claims was tantamount to violating the tem1s of their agreement. It further claimed liability on
CECON's part for "maintenance and defects," and for "violation of specifications for materials and
workmanship."
ACI and CECON voluntarily submitted themselves to the CIAC Arbitral Tribunal's jurisdiction. The
contending parties' own volition is at the inception of every construction arbitration
proceeding.[144] Common sense dictates that by the parties' voluntary submission, they acknowledge that
an arbitral tribunal constituted under the CIAC has full competence to rule on the dispute presented to
it. They concede this not only with respect to the literal issues recited in their terms of reference, as ACI
suggests,[145] but also with respect to their necessary incidents. Accordingly, in delineating the authority
of arbitrators, the CIAC Rules of Procedure speak not only of the literally recited issues but also of
"related matters":
SECTION 21.3 Extent of power of arbitrator - The Arbitral Tribunal shall decide only such issues and
related matters as are submitted to them for adjudication. They have no power to add, to subtract from,
modify, or amend any of the terms of the contract or any supplementary agreement thereto, or any rule,
regulation or policy promulgated by the CIAC.
To otherwise be puritanical about cognizable issues would be to cripple CIAC arbitral tribunals. It would
potentially be to condone the parties' efforts at tying the hands of tribunals through circuitous, trivial
recitals that fail to address the complete extent of their claims and which are ultimately ineffectual in
dispensing an exhaustive and dependable resolution. Construction arbitration is not a game of guile
which may be left to ingenious textual or technical acrobatics, but an endeavor to ascertain the tluth and
to dispense justice "by every and all reasonable means without regard to technicalities of law or
proc.edure."[146]
IV.B
Two (2) guiding principles steered the CIAC Arbitral Tribunal in going about its task. First was the basic
matter of fairness. Second was effective dispute resolution or the overarching principle of arbitration as
a mechanism relieved of the encumbrances of litigation. In Section 1.1 of the CIAC Rules of Procedure:
SECTION 1.1 Statement of policy and objectives - It is the policy and objective of these Rules to provide
a fair and expeditious resolution of construction disputes as an altemative to judicial proceedings, which
may restore the disrupted harmonious and friendly relationships between or among the parties.
(Emphasis supplied)
CECON's predicament demanded compensation. The precise extent may yet to have been settled; yet, as
the exigencies that prompted CECON to request for arbitration unraveled, it became clear that it was not
for the CIAC Arbitral Tribunal to turn a blind eye to CECON's just entitlement to compensation.
Jurisprudence has settled that even in cases where parties enter into contracts which do not strictly
confmm to standard formalities or to the typifying provisions of nominate contracts, when one renders
services to another, the latter must compensate the fonner for the reasonable value of the services
rendered. This amount shall be fixed by a court. This is a matter so basic, this Court has once
characterized it as one that "springs from the fountain of good conscience":
As early as 1903, in Perez v. Pomar, this Court mled that where one has rendered services to another,
and these services are accepted by the latter, in the absence of proof that the service was rendered
gratuitously, it is but just that he should pay a reasonable remuneration therefore because "it is a well
known principle of law, that no one should be permitted to enrich himself to the damage of another."
Similary in 1914, this Court declared that in this jurisdiction, even in the absence of statute, ". . . under
the general principle that one person may not enrich himself at the expense of another, a judgment
creditor would not be permitted to retain the purchase price of land sold as the property of the
judgment debtor after it has been made to appear that the judgment debtor had no title to the land and
that the purchaser had failed to secure title thereto . . ." The foregoing equitable principle which springs
from the fountain of good conscience are applicable to the case at bar.[147]
Consistent with the Construction Industry Arbitration Law's declared policy,[148] the CIAC Arbitral Tribunal
was specifically charged with "ascertain[ing] the facts in each case by every and all reasonable
means."[149] In discharging its task, it was permitted to even transcend technical rules on admissibility of
evidence.[150]
IV.C
The reality of a vacuum where there were no definite contractual terms, coupled with the demands of a
"fair and expeditious resolution" of a dispute centered on contractual interpretation, called into
operation Article 1371 of the Civil Code:
Article 1371. In order to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered. (Emphasis supplled)
Article 1379 of the Civil Code invokes principles from the Revised Rules on Evidence. By invoking these
principles, Article 1379 makes them properly applicable in every instance of contractual interpretation,
even those where the need for interpretation arises outside of court proceedings:
Article 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be
observed in the construction of contracts.
As with Article 1371, therefore, the following principles from the Revised Rules on Evidence equally
governed the CIAC Arbitral Tribunal's affairs:
4. Interpretation of Documents
Section 12. Interpretation according to intention; general and particular provisions. - In the construction
of an instrument, the intention of the parties is to be pursued; and when a general and a particular
provision are inconsistent, the latter is paramount to the former. So a particular intent will control a
general one that is inconsistent with it.
Section 13. Interpretation according to circumstances. - For the proper construction of an
instrument, the circumstances under which it was made, including the situation of the subject thereof
and of the parties to it, may be shown, so that the judge may be placed in the position of those whose
language he is to interpret.
Within its competence and in keeping with basic principles on contractual interpretation, the CIAC
Arbitral Tribunal ascertained the trqe and just terms governing ACI and CECON. Thus, the CIAC Arbitral
Tribunal did not conjure its own contractual creature out of nothing. In keeping with this, the CIAC
Arbitral Tribtmal found it proper to sustain CECON's position. There having been no meeting of minds on
the contract sum, the amount due to CECON became susceptible to reasonable adjustment, subject to
proof of legitimate costs that CECON can adduce.
V
Unravelling the CIAC Arbitral Tribunal's competence and establishing how it acted consistent with law
resolves the principal legal issue before us. From this threshold, the inquiry transitions to the matter of
whether or not the conclusions made by the CIAC Arbitral Tribunal were warranted.
They were. Far from being capricious, the CIAC Arbitral Tribunal's conclusions find solid basis in law and
evidence.

V.A
The tender documents may have characterized the contract sum as fixed and lump-sum, but the
premises for this arrangement have undoubtedly been repudiated by intervening circumstances.
When CECON made its offer of P1,540,000,000.00, it proceeded from several premises. First, ACI would
timely respond to the representations made in its bid. Second, CECON could act on the basis of prices
prevailing then. Third, the subject matter of the contract was the entire expanse of design and
construction covering all elements disclosed in the tender documents, nothing more and nothing less.
Fourth, the basic specifications for designing and building the Gateway Mall, as stated in the tender
documents, would remain consistent. Lastly, ACI would timely deliver on its concomitant obligations.
Contrary to CECON's reasonable expectations, ACI failed to timely act either on CECON's bid or on those
of its competitors. Negotiations persisted for the better part of two (2) calendar years, during which the
quoted contract sum had to be revised at least five (5) times. The object of the contract and CECON's
scope of work widely varied. There were radical changes like the addition of an entire office tower to the
project and the change in the project's structural framing. There was also the undoing of CECON's
freedom to design, thereby rendering it entirely dependent on configurations that ACI was to unilaterally
resolve, It turned out that ACI took its time in delivering construction drawings to CECON, with almost
38% of construction drawings being delivered after the intended completion date. There were many
other less expansive changes to the project, such as ACI's fickleness on which equipment it would
acquire by itself. ACI even failed to immediately deliver the project site to CECON so that CECON may
commence excavation, the most basic task in setting up a structure's foundation. ACI also failed to
produce definite instruments articulating its agreement with CECON, the final contract documents.
With the withering of the premises upon which a lump-sum, fixed price arrangement would have been
founded, such an arrangement must have certainly been negated:
[T]he contract is fixed and lump sum when it was tendered and contracted as a design and constmct
package. The contract scope and character significantly changed when the design was taken over by the
Respondent. At the time of the negotiation and agreement of the amount of Php1.54 billion, there were
no final plans for the change to structural steel, and all the [mechanical, electrical and plumbing]
drawings were all schematics.
[I]t is apparent to the Tribunal that the quantity and materials at the time of the P1.54B agreement are
significantly different from the original plans to the finally implemented plans. The price increases in the
steel products and cement were established to have already increased by 11.52% and by P5.00 per bag
respectively by January 21, 2003. The Tribunal finds agreement with the Claimant that it is fairer to
award the price increase.
....
It should also be mentioned that Respondent had changed the scope and character of the agreement.
First, there were major changes in the plans and specifications. Originally, the contract was for design
and construct. The design was deleted from the scope of the Claimant. It was changed to a straight
construction contract. As a straight construction contract, there were no final plans to speak of at the
time of the instructions to change. Then there was a verbal change to structural steel frame. No plans
were available upon this instruction to change. Next, the [mechanical, electrical and plumbing] plans
were all schematics. It is therefore expected that changes of plans are forthcoming, and that changes in
costs would follow ...
....
It has been established that the original tender, request for proposal and award is for a design and
construct contract. The contract documents are therefore associated for said system of construction.
When Respondent decided to change and take over the design, such as the change from concrete to
structural steel framing, "take-out" equipment from the contract and modify the [mechanical, electrical
and plumbing w]orks, the original scope of work had been drastically changed. To tie down the Claimant
to the tmit prices for the proposal for a different scope of work would be grossly unfair. This Tribunal will
hold that unit price adjustment could be allowed but only for change orders that were not in the original
scope of work, such as the change order from concrete to structural framing, the [mechanical, electrical
and plumbing w]orks, [schematic drawings to construction drawings] and the Miscellaneous Change
Order Works.[151]
V.B
Contrary to ACI's oft-repeated argument,[152] the CIAC Arbitral Tribunal correctly found that ACI had
gained no solace in statutory provisions on the immutability of prices stipulated between a contractor
and a landowner. Article 1724 of the Civil Code reads:
Article 1724. The contractor who undertakes to build a structure or any other work for a stipulated price,
in conformity with plans and specifications agreed upon with the land-owner, can neither withdraw from
the contract nor demand an increase in the price on account of the higher cost of labor or materials,
save when there has been a change in the plans and specifications, provided:
(1) Such change has been authorized by the proprietor in writing; and
(2) The additional price to be paid to the contractor has been determined in writing by both parties.
Article 1724 demands two (2) requisites in order that a price may become immutable: first, there must
be an actual, stipulated price; and second, plans and specifications must have definitely been agreed
upon.
Neither requisite avails in this case. Yet again, ACI is begging the question. It is precisely the crux of the
controversy that no price has been set. Article 1724 does not work to entrench a disputed price and
make it sacrosanct. Moreover, it was ACI which thn1st itself upon a situation where no plans and
specifications were immediately agreed upon and from which no deviation could be made. It was ACI,
not CECON, which made, revised, and deviated from designs and specifications.
V.C
The CIAC Arbitral Tribunal also merely held ACI to account for its voluntarily admitted adjustments. The
CIAC Rules of Procedure pennit deviations from technical rules on evidence, including those on
admissions. Still, common sense dictates that the principle that "[t]he act, declaration or omission of a
party as to a relevant fact may be given in evidence against him"[153] must equally hold true in
administrative or quasi-judicial proceedings as they do in court actions. Certainly, each must be held to
account for his or her own voluntary declarations. It would have been plainly absurd to disregard ACI's
reneging on its own admissions:
Respondent has agreed to the price increase in structural steel and after some negotiation paid the
agreed amount. Respondent also agreed to the price increase in the reinforcing bars and instructed the
Claimant to bill it accordingly. To the Tribunal, such action is an acknowledgment of the price increase.
Respondent can make the case that said agreement is conditional, i.e., the Complaint must be
withdrawn. To the Tribunal, the conditionality falls both ways. The Claimant has as much interest to
agree to a negotiated price increase so that it can collect payments for the claims. The conditionalities do
not change the basis for the quantity and the amotmt. The process of the negotiation has arrived at the
price difference and quantities. The Tribunal finds the process in arriving at the Joint Manifestation, a fair
determination of the unit price increase. This holding will render the discussions on Exhibit JJJJ, and the
demand of the burden of proof of the Respondent superfluous.[154]
This absurdity is so patent that the Court of Appeals was still compelled to uphold awards premised on
ACI's admissions, even as it reversed the CIAC Arbitral Tribunal decision on the primordial issue of the
characterization of the contractual arrangement between CECON and ACI:
As stated, the contract between [ACI] and CECON has not been amended or revised. The Arbitral
Tribunal had no power to amend the contract to provide that there be allowed price and/or cost
adjustment removing the express stipulation that the Project is for a lump sum or fixed price
consideration. Accordingly, this Court removes the award for additional costs spent by CECON on cement
and formworks due to price increases or removing the award for these items in the total amount of
PhP5,598,338.20. Since CECON is not entitled to its claim for price increase, it is likewise not entitled to
the award of the interest rate of 6% per annum.
With regard however to the additional costs for the rebars due to price increases. this Court finds that
CECON is entitled to the amount of PhP10,266,628.00 representing the additional costs spent by CECON
for rebars due to price increases, notwithstanding the Arbitral Tribunal's excess of jurisdiction in
amending the contract between the parties because [ACI] and CECON had in fact agreed that CECON was
entitled to such an amount and that [ACI] would pay the same. This agreement was made in the parties'
Joint Manifestation of Compliance dated March 30, 2004 which they filed with th Arbitral Tribunal ("Joint
Manifestation").[155]
No extraordinary technical or legal proficiency is required to see that it would be the height of absurdity
and injustice to insist on the payment of an amount the consideration of which has been reduced to a
distant memory. ACI's invocation of Article 1724 is useless as the premises for its application are absent.
ACI's position is an invitation for this Court to lend its imprimatur to unjust enrichment enabled by the
gradual wilting of what should have been a reliable contractual relation. Basic decency impels this Court
to not give in to ACI's advances and instead sustain the CIAC Arbitral Tribunal's conclusion that the
amount due to CECON has become susceptible to reasonable adjustment.
VI
The Arbitral Tribunal's award must be reinstated.
VI.A
With the undoing of the foundation for the Court of Appeal's fallacious, circular reasoning, its monetary
awards must also necessarily give way to the reinstatement of the CIAC Arbitral Tribunal's awards.
The inevitable changes borne by ACI's own trifling actions justify, as a consequence, compensation for
cost adjustments and the ensuing change orders, additional overhead costs for the period of extension,
extended coverage for contractor's all-risk insurance, and attendance fees for auxiliary services to
subcontractors whose functions were also necessarily prolonged. ACI's frivolity on the acquisition of
elevators, escalators, chillers, generator sets, indoor substations, cooling towers, pumps, and tanlcs also
vindicates compensation for the works that remained under CECON's account. ACI's authorship of the
causes of delay supports time extensions favoring CECON and, conversely, discredits liquidated damages
benefitting ACI.
This Court upholds the Arbitral Tribunal's awards on each of the items due to CECON, as well as on its
findings relating to CECON's countervailing liabilities.
In fulfilling its task, the CIAC Arbitral Tribunal was equipped with its technical competence, adhered to
the rigors demanded by the CIAC Rules of Procedure, and was endowed with the experience of
exclusively presiding over 19 months of arbitral proceedings, examining object and documentary
evidence, and probing witnesses.
VI.B
Within the CIAC Arbitral Tribunal's technical competence was its reference to prevailing industry
practices, a much-bewailed point by ACI.[156] This reference was made not only desirable but even
necessary by the absence of definitive governing instruments. Moreover, this reference was made
feasible by the CIAC Arbitral Tribunars inherent expertise in the construction industry.
This reference was not only borne by practical contingencies and buttressed by recognized proficiency, it
was also sanctioned by the statutory framework of contractual interpretation within which the CIAC
Arbitral Tribunal operated. Thus, the following principles governed the interpretation of the change
orders, requests, and other communications, which had effectively been surrogates of a single definite
instrument executed by the parties.
From the Civil Code:
Article 1375. Words which may have different significations shall be understood in that which is most in
keeping with the nature and object of the contract.
Article 1376. The usage or custom of the place shall be borne in mind in the interpretation of the
ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established.
From the Revised Rules on Evidence, the following have been made applicable even outside regular
litigation by Article 1379 of the Civil Code:
Section 14. Peculiar signification of terms. - The terms of a writing are presumed to have been used in
their primary and general acceptation, but evidence is admissible to show that they have a local,
technical, or otherwise peculiar signification, and were so used and understood in the particular instance,
in which case the agreement must be construed accordingly.
....
Section 19. Interpretation according to usage. - An instrument may be construed according to usage, in
order to determine its true character.[157] (Emphasis supplied)
Equally availing is the following principle. This is especially tlue of the remuneration due to CECON,
considering that stipulations for remuneration are devised for the benefit of the person rendering the
service:
Section 17. Of two constn.1ctions, which preferred. - When the terms of an agreement have been
intended in a different sense by the different parties to it, that sense is to prevail against either party in
which he supposed the other understood it, and when different constructions of a provision are
otherwise equally proper, that is to be taken which is the most favorable to the party in whose favor the
provision was made.[158]
VI.C
In appraising the CIAC Arbitral Tribunal's awards, it is not the province of the present Rule 45 Petition to
supplant this Court's wisdom for the inherent technical competence of and the insights drawn by the
CIAC Arbitral Tribunal throughout the protracted proceedings before it. The CIAC Arbitral Tribunal
perused each of the parties' voluminous pieces of evidence.[159] Its members personally heard, observed,
tested, and propounded questions to each of the witnesses. Having been constituted solely and precisely
for the purpose of resolving the dispute between ACI and CECON for 19 months, the CIAC Arbitral
Tribunal devoted itself to no other task than resolving that controversy. This Court has the benefit
neither of the CIAC Arbitral Tribunal's technical competence nor of its irreplaceable experience of
hearing the case, scrutinizing every piece of evidence, and probing the witnesses.
True, the inhibition that impels this Court admits of exceptions enabling it to embark on its own factual
inquiry. Yet, none of these exceptions, which are all anchored on considerations of the CIAC Arbitral
Tribunal's integrity and not merely on mistake, doubt, or conflict, is availing.
This Court finds no basis for casting aspersions on the integrity of the CIAC Arbitral TribunaL There does
not appear to have been an undisclosed disqualification for any of its three (3) members or proof of any
prejudicial misdemeanor. There is nothing to sustain an allegation that the parties' voluntarily selected
arbitrators were conupt, fraudulent, manifestly partial, or otherwise abusive. From all indications, it
appears that the CIAC Arbitral Tribunal extended every possible opportunity for each of the parties to
not only plead their case but also to arrive at a mutually beneficial settlement. This Court has ruled,
precisely, that the arbitrators acted in keeping with their lawful competencies. This enabled them to
come up with an otherwise definite and reliable award on the controversy before it.
Inventive, hair-splitting recitals of the supposed imperfections in the CIAC Arbitral Tribunal's execution of
its tasks will not compel this Court to supplant itself as a fact-finding, technical expert.
ACI's refutations on each of the specific items claimed by CECON and its counterclaims of sums call for
the point by point appraisal of work, progress, defects and rectifications, and delays and their causes.
They are, in truth, invitations for this Court to engage in its own audit of works and corresponding
financial consequences. In the alternative, its refutations insist on the application of rates, schedules,
and other stipulations in the same tender documents, copies of which ACI never adduced and the
efficacy of which this Court has previously discussed to be, at best, doubtful.
This Court now rectifies the error made by the Court of Appeals. By this rectification, this Court does not
open the doors to an inordinate and overzealous display of this Court's authority as a final arbiter.
Without a showing of any of the exceptional circumstances justifying factual review, it is neither this
Court's business nor in this Court's competence to pontificate on technical matters. These include things
such as fluctuations in prices of materials from 2002 to 2004, the architectural and engineering
consequences - with their ensuing financial effects - of shifting from reinforced concrete to structural
steel, the feasibility of rectification works for defective installations and fixtures, the viability of a given
schedule of rates as against another, the audit of changes for every schematic drawing as revised by
construction drawings, the proper mechanism for examining discolored and mismatched tiles, the
minutiae of installing G.I. sheets and sealing cracks with epoxy sealants, or even unpaid sums for garbage
collection.
The CIAC Arbitral Tribunal acted in keeping with the law, its competence, and the adduced evidence;
thus, this Court upholds and reinstates the CIAC Arbitral Tribunal's monetary awards.
VII
It does not escape this Court's attention that this controversy has dragged on for more than 13 years
since CECON initially sought to avail of arbitration.
The CIAC Arbitral Tribunal noted that ACI consumed a total of 840 days filing several motions and
manifestations, including at least eight (8) posturings at pursuing settlement.[160] It added, however, that
ACI repeatedly failed to respond to CECON's claims during meetings thereby constraining CECON to file
motions to proceed after repeatedly being dangled hope of an early resolution.[161] It appeared that ACI
was more interested in buying time than in effecting a consummate voluntary settlement.
The CIAC Arbitral Tribunal October 25, 2006 Decision should have long brought this matter to an end.
This Court does not fault ACI for availing of remedies. Yet, this Court also notes that even in proceedings
outside of the CIAC Arbitral Tribunal, ACI seems to not have been sufficiently conscientious of time.
In this Court alone, ACI sought extensions to file its Comment no less than five (5) times.[162] It sought
several other extensions in the filing of its Memorandum.[163]
It also does not escape this Court's attention that while ACI's arguments have perennially pleaded the
supposed primacy and itnmutability of stipulations originally articulated in the tender documents, it
never bothered to annex any of these documents either to its Comment or to its Memorandum. Without
these and other supporting materials, this Court is left in the uneasy predicament of merely relying on
ACI's self-stated assertions and without means of verifying even the syntax of its citations.
While presumptions of good faith may be indulged, the repercussions of ACI's vacillation cannot be
denied.
Even if this Court were to ignore the delays borne by ACI's procedural posturing, this Court is compelled
to hearken to ACI's original faults. These are, after all, what begot these proceedings. These are the same
original faults which so exasperated CECON; it was left with no recourse but to seek the intervention of
CIAC.
These faults began as soon as bidders responded to ACI's invitation. In CECON's case, its communicated
time for the validity of its offer lapsed without confinnation from ACI. ACI only verbally responded and
only after CECON's communicated timeframe. It told CECON to commence excavation works but failed to
completely deliver the project site until five (5) months later. It engaged in protracted negotiations,
never confirming acceptance until the tenth month, after bidders had submitted their offers. By then,
ACI's supposed acceptance could not even identify CECON's most recent quoted price. It undertook to
process and deliver formal documents, yet this controversy already reached this Court and not a single
page of those documents has seen the light of day. It has repeatedly added and taken from CECONs
scope of works but vigorously opposed adjustments that should have at least been given reasonable
consideration, only to admit and partially stipulate on thern. In taking upon itself the task of designing, it
took its time in delivering as many as 1,675 construction drawings to CECON, more than 600 of which
were not delivered until well after the project's intended completion date.
This Court commenced its discussion by underscoring that arbitration primarily serves the need of
expeditious dispute resolution. This interest takes on an even greater urgency in the context of
construction projects and the national interest so intimately tied with them. ACI's actions have so
bogged down its contractor. Nearing 13 years after the Gateway Mall's completion, its contractor has yet
to be fully and properly compensated. Not only have ACI's actions begotten this dispute, they have
hyper-extended arbitration proceedings and dragged courts into the controversy. The delays have
virtually bastardized the hopes at expeditious and effective dispute resolution which are supposedly the
hallmarks of arbitration proceedings.
For these, in addition to sustaining each of the awards due to CECON arising from the facets of the
project, this Court also sustains the CIAC Arbitral Tribunal's award to CECON of arbitration costs. Further,
this Court imposes upon respondent Araneta Corporation, Inc. the burden of bearing the costs of what
have mutated into a full-fledged litigation before this Court and the Court of Appeals.
WHEREFORE, the Petition is GRANTED. The assailed April 28, 2008 Decision and July 1, 2010 Amended
Decision of the Court of Appeals in CA-G.R. SP No. 96834 are REVERSED and SET ASIDE. The Construction
Industry Arbitration Commission Arbitral Tribunal October 25, 2006 Decision in CIAC Case No. 01-2004
is REINSTATED.
Legal interest at the rate of six percent (6%) per annum is imposed on the award from the finality of this
Decision until its full satisfaction.
Costs against respondent.
SO ORDERED.
THIRD DIVISION
Marikina jobsite and the Form-Eze warehouse in Cainta, Rizal.

G.R. No. 192948, December 07, 2016

Work Specifications The amount of hardware to be furnished is sufficient to provide 7,000

B.F. CORPORATION AND HONORIO PINEDA, Petitioners, v. FORM-EZE SYSTEMS, INC., Respondent. contact square meters of formwork.

DECISION Contract Price Total contract amount for the equipment: 126,000 contact square meters
(equipment to be used) x P225.00/contact square meter (cost per use of the
hardware for forming the elevated beam and slab)= P28,350,000.00.
PEREZ, J.:

Terms of Payment 1. 15% down payment or P4,252,500.00 paid to Form-Eze on or

This petition for review assails the 15 January 2010 Decision1 and 13 July 2010 Resolution2 of the Court of before pick up of equipment;
Appeals in CA-G.R. SP No. 102007 which affirmed the Final Award rendered by the Construction Industry 2. When concrete is placed on the slab forms, the equipment rental
Arbitration Commission (CIAC) Arbitral Tribunal on 7 December 2007. per contact square meter is due and payable to Form-Eze and
shall be paid on the first day of the following month;
FACTUAL ANTECEDENTS 3. All equipment purchased by BFC as requested by Form-Eze shall
be prorated and deducted equally in the first 4-month duration of
the equipment lease; and
Petitioner B.F. Corporation (BFC) is a corporation engaged in general engineering and civil works
4. Monthly progress payments for the equipment lease shall be
construction. Petitioner Honorio H. Pineda (Pineda) is the President of BFC. Respondent Form-Eze
made timely.
Systems Inc. (Form-Eze) is a corporation engaged in highway and street construction.

On 29 August 2006, SM Prime Holdings, Inc. awarded the contract for general construction of the SM
CONTRACT NO. 2: Contract for Stripping and Moving Form-Eze Systems Inc. Equipment from Location
City-Marikina mall (the Project) to BFC whereby the latter undertook to supply materials, labor, tools,
to Location on SM Marikina Mall Project dated 20 December 2006 5
equipment and supervision for the complete construction of the Project.3 In turn, BFC engaged Form-Eze
for the lease of formwork system and related equipment for and needed by the Project. Accordingly, five
(5) contracts and two (2) letter-agreements were executed by the BFC, represented by its President Obligations of Form-Eze 1. Furnish forklift for the movement of the deck forms and related
Pineda, and Form-Eze, represented by its President, James W. Franklin. These contracts and their salient hardware of the forming system from location to location;
provisions are provided in the following table: 2. Strip all formwork from under the poured concrete slab and beam
deck. Move all equipment to the next location where it will be
reset by BFC; and
3. Assist BFC in setting the deck forms to the proper grade and
CONTRACT NO. 1: Contract for the Lease of the Equipment for the Beam and Slab Hardware for the
locations provided that BFC has laid out the grid lines as needed
Formwork on SM Marikina Mall Project dated 20 December 20064
for placing the scaffoldings under the deck forms and provided
the scaffoldings is readily available for placement under the deck
Obligations of Form-Eze 1. Furnish all hardware required in the formwork system for the forms.
poured in place beam and slab concrete decks excluding the
scaffoldings and accessories required to support the system; and
2. Provide consumable beam ties and steel accessories needed to
maintain the rigidity and alignment of the plywood formed Obligations of BFC 1. Furnish additional hoisting; and
surfaces. 2. Provide all labor requested by Form-Eze and deducted from the
contract at P60.00 per carpenter man-hour.

Obligations of BFC 1. Furnish all scaffoldings as required to support the system at no

,cost to Form-Eze; Contract Price Total contract amount for moving equipment: 126,000 x P50.00/contact
2. Furnish all plywood and lumber as required in the formwork square meter (cost for stripping and movement of the equipment, excluding
operation as no cost to Form-Eze; cost of resetting to grade, cleaning plywood surfaces and applying release
3. Purchase materials for the formwork as requested by Form-Eze. agent) P6,300,000.00.
The direct cost of materials shall be deducted from the contract
and the balance paid to Form-Eze; and Terms of Payment 1. 15% down payment or P945,000.00 paid to Form-Eze on or before
4. Responsible for the freight of the equipment to and fro the pick up of equipment; and
2. Monthly progress billing will coincide with the contact square

CONTRACT NO. 3: Contract for Column Formwork on the SM Marikina Mall Project dated 20 December
20066
Obligations of Form-Eze
Obligations of BFC
Terms of Payment
CONTRACT NO. 4: Contract for the Lease of the Heavy Duty Galvanized Scaffold Frames and Related
Accessories on SM Marikina Mall Project dated 29 January 20077
Obligations of BFC
meters formed with the Form-Eze equipment.
1. Furnish sufficient number of built up column forms as required to
complete 6 poured in place full height concrete columns per day
provided the installation of the rebar and the placement of the
concrete can maintain that schedule of performance;
2. Provide supervision for the column formwork operation;
3. Responsible for bracing the columns to maintain them plumb
when poured;
4. Correct any defects in the poured column due to failure in the
formwork. (Not responsible for air entrapment or aggregate
separation caused by improper placement or improper vibration
of the concrete; and
5. Furnish chamfer and form release agent
1. Furnish all hoisting and moving of the columns;
2. Responsible for installation of the rebar and placement of the
concrete;
3. Furnish labor as required by Form-Eze for forming columns and
will deduct fro Form-Eze P60.00 per man-hour for each carpenters
for the column framework; and
4. Responsible for all column grid lay-out and establishing elevations
on the columns
1. Total Contract Amount: 9,100 contact square meters of formwork
x P355.00/contact square meter= P3,230,500.00;
2. Downpayment of P484,575.00 (15%) on or before pick up of
equipment;
3. BFC agrees to purchase all materials for the formwork as required
by Form-Eze and the direct cost of those materials will be
deducted from this contract and the balance paid to Form-Eze;
and
4. When columns are poured and stripped, P355.00 per contact
square meter is due and payable at that time. Progress payments
will be made for the work completed in a particular month and
paid on the first day of the following month. Any materials or
equipment purchased by BFC at the request of Form-Eze shall be
deducted from this contract and prorated equally over a 4-month
period.
1. Manufacture heavy duty galvanized scaffoldings and certain
accessories for Form-Eze. The scaffoldings and accessories will be
manufactured exactly as per the drawings and samples given to
BFC by Form-Eze, provided the equipment produced is of
excellent quality and to the exact specification specified by Form-
Eze;
2. The agreement is for 1,500 pieces of heavy duty galvanized 6-ft
frames and related accessories (3,000 pcs of 14-inch adjustable u-
heads and 3,000 pcs heavy duty base plates); and
3. BFC will deduct P6,352,500.00 from Form-Eze equipment leased
contract (all equipment must be in good condition and turned
over to Form-Eze at the end of project). Form-Eze will own the
equipment.
Obligations of Form-Eze 1. Form-Eze will credit BFC with P4,235.00 per frame and related
accessories; and
2. Form-Eze will accept all frames in good condition up to a
maximum of 1,500 frames and related accessories.
Agreement is contingent upon parties entering into an exclusive licensing agreement with BFC for the
manufacture of Form-Eze equipment.
CONTRACT NO. 5: Contract for the Purchase and Lease of the Heavy Duty Galvanized X-Bracing on SM
Marikina Mall Project dated 29 January 20078
Obligations of BFC Manufacture heavy duty galvanized x-bracing.
Obligations of Form-Eze Credit BFC with P400.00 per x-brace. If the x-bracing is not manufactured
exactly as specified by Form-Eze, credit is P300.00 per x-brace.
Agreement is contingent upon parties entering into an exclusive licensing agreement for the
manufacturing of Form-Eze equipment.
MEMORANDUM OF AGREEMENT dated 5 January 20079
BFC will manufacture Form-Eze equipment and will sell exclusively to Form-Eze.
LETTER-AGREEMENT dated 5 January 200710
Changes to Contract No.4
1. The 18-inch adjustable u-head will be changed to a 14-inch adjustable u-head.
2. The threading of the heavy duty screw will be accomplished in segments and then machined.
3. Form-Eze will send to the jobsite all 18-inch and 24-inch adjustable u-heads available in its
current stock in order to start forming the project while BFC is fabricating the 14-innch
adjustable u-heads. When the 3.000 pieces 14-inch u-heads are completed and are on the
jobsite, Form-Eze will take back the 18-inch and 24-inch adjustable u-heads that were
temporarily in use at the jobsite.
4. The creditable amount for the purchase of the 6-foot heavy duty galvanized scaffolding and
related accessories is changed to P4,235.00 per 6-foot heavy duty galvanized frames,
 adjustable u-heads and heavy duty base plate. Arrears on Contract No.1 P26,310,476.29 P11,489,523.71
- 3,515,003.59
22,795,472.70

Arrears on Contract No. 2 4,771,723.63 1,528,276. 37

On 30 March 2007, Form-Eze filed a Request for Arbitration11 before the CIAC. In its Complaint, Form-Eze
-675,788.97
alleged that BFC has an unpaid obligation amounting to P9,189,024.58; that BFC wanted to re-negotiate
4,095,934.66
the equipment leases; and that it was not complying with the contractual and supplemental agreements
in effect. Form-Eze prayed for the following relief:
Arrears on Contract No.3 2,099,825.00 1,130,675.00

1. [For BFC] to pay the current monthly equipment rentals; Arrears on Letter dated 1/5/07 740,600.00 483,000.00
2. Provisions made to guarantee the earned monthly equipment leased amounts are paid
timely;
P29,731,832.36 P14,631,475.08
3. To legislate provisions to ensure the lease contracts are not breached during the construction
of the SM Marikina Mall;
4. Provisions made to guarantee the performance of [BFC] for the manufacturing of the shoring Attorney's Fees 300,000.00____
equipment purchased by Form-Eze from BFC;
5. Provisions made to guarantee the return of all Form-Eze equipment when the concrete TOTAL SUM IN DISPUTE P44,663,307.44
structure is completed and all lost and damaged equipment has been paid for by [BFC]; and
6. All cost related to Arbitration.12

In its Amended Answer with Counterclaim, BFC sought for reformation of Contract #1 to incorporate a
provision that BFC shall deduct from said billing the cost of labor supplied by it for the fabrication and
assembly of the forming system and for the stripping, cleaning, resetting thereof at the rate of P60.00 BFC's COUNTERCLAIM
per man-hour. BFC also demanded the refund of P5,773,440.00 as expenses for the manufacture of
additional hardware to complete the 7,000 square meters of formwork required in Contract #1. BFC Cost of labor, helmet & expenses for x-bracing for the assembly of the P 812,791.09
explained that Form-Eze had only furnished 4,682.4 square meters of formwork.13 form
system under Contract #1
The CIAC appointed a 3-member Arbitral Tribunal (CIAC Arbitral Tribunal), composed of Atty. Custodio O.
Parlade, Atty. Alfredo F. Tadiar and Engineer Romeo C. David, to adjudicate Form-Eze's claims. Cost of stripping, petroleum, oil, & helmet under Contract #2 1,391,086.02

Attorney's Fees 300,000.00

Under the Terms of Reference, the parties made the following admissions:
Total Counterclaims P2,503,877.11
1. The existence of five contracts, a memorandum of agreement and a supplemental contract.
2. BFC renegotiated Contract #1 but it did not result in a separate written contract. TOTAL SUM IN DISPUTE P46,867,184.55
3. Under Contract #1, BFC is willing and ready to pay Form-Eze the amount of P3,515,003.59,
which amount shall be deducted from the amount of the latter's claim.
4. Under Contract BFC is willing and ready to pay Form-Eze the amount of P675,788.97, which The total arbitration fees amounted to P616,393.73.
amount shall be deducted from the amount of the latter's claim.
5. BFC admits that it has the obligation to return to Form-Eze equipment furnished them under
Contracts #1, 2, and 3, and all heavy duty galvanized scaffold frames and related accessories, CIAC Arbitral Tribunal was tasked to resolve the following issues, to wit:
heavy duty galvanized x-bracing and adjustable U-heads and base plates fabricated and
manufactured by BFC under Contracts #4, 5 and letters dated 5 January 2007.14 1. Is Claimant entitled to its total claim of P34,284,996.41 representing the alleged arrear on
equipment rental under Contract #1?
The claims15 of the parties are summarized, as follow:
2. Is Claimant entitled to its claim of P5,624,211.03 representing the alleged arrears under
Contract #2?
FORM-EZE'S CLAIMS As of 7/19/2007 From 7/20/2007 to end of
contract based on agreed 3. Is Claimant entitled to its claim of P3,230,500.00 representing the alleged arrears under
minimum contact sq.m. of Contract #3?
126,000
 4. Is Claimant entitled to its claim of P1,374,408.00 representing the rental fees under Letter
TOTAL P20,650,000.00
dated 5 January 2007?

5. Is Claimant entitled to its claim for the reformation of the subject Contracts to include the
following:cralawlawlibrary
b) On Contract No. 2 P 6,300,000.00
a. Contract #1 - Provisions to guarantee the earned monthly equipment leased
Less: Payments already made 990,000.00
amounts are paid timely;
b. Contract #1 - Provision to ensure that the lease contracts are not breached during
the construction of the SM Marikina Mall; Less: Cost of labor 60,000.00
c. Contracts #4 and 5 - Provision to guarantee the performance of [BFC] for the
manufacturing of the shoring equipment purchased by Form-Eze from BF Corp.; ____________
d. Contracts#1, 2, 3, 4 and 5 -Provision for [BFC] to pay for the lost and damaged
equipment furnished them by the [Form-Eze]; and TOTAL P 5,250,000.00
e. Contract #1 - Provision in the Contract to include the P75 per contact sq.m. for
labor guarantee.

6. Is [BFC] #1 entitled to the reformation of Contract #1 to include a provision that [BFC] #1 shall c) On Contract No.3 P 2,153,166.67
deduct from [Form-Eze's] billing the cost of labor, helmet and expenses for x-bracing supplied
by it for the assembly of the form system amounting to P812,791.09 , to deduct from the Less: cost of labor 96,915.00
billing under Contract #2 the cost of labor for the stripping thereof, the costs of petroleum, oil
and lubricant and helmet of the said laborers up to the end of the contract in the sum of ____________
P1,391,086.02 and from the billing under Contract #3, the cost of labor for the installation
and forming of the built up column forms from June 19, 2007 up to the end of the project in
P2,056,751.67
the sum of P273,240.00?16]

7. Is it proper to include Mr. Honorio Pineda as Respondent No. 2?

On Letter Agreement of January 5, 2008 to December 8, 2007
8. Does the Arbitral Tribunal have the jurisdiction to award claims that accrued after the filing of
the Request for Arbitration or does the Claimant have a cause of action for claims that
P560,000.00
accrued during the same period?

9. Who between the parties is entitled to attorney's fees?

IN SUM THE FOLLOWING AWARDS ARE MADE:
10. Who between the parties should bear the arbitration costs?17

FINAL AWARD BY CIAC

Contract No. 1 P 20,650,000.00
On 7 December 2007, the CIAC Arbitral Tribunal rendered a Final Award in favor of Form-Eze. The
dispositive portion reads: Contract No. 2 5,250,000.00

WHEREFORE, award is hereby made in favor of Claimant and against [BFC], ordering the latter to pay the Contract No. 3 2,056,751.67
former the following amounts:
Letter Agreement of January 5, 2007 560,000.00

a) On Contracts No. 1 P28,350,000.00 ____________

Less: Payments already made 7,700,000.00 GRAND TOTAL P28,517,251.67

_____________
The Tribunal further awards in favor of [Form-Eze] and against [BFC] and [Pineda] who are ordered,
jointly and severally to pay [Form Eze] P300,00.00 as attorney's fees, and to indemnify [Form-Eze's] cost
of arbitration paid to CIAC.
The Tribunal likewise disposes of the remaining issues as follows:
a) The claims under Issues No. 5 and 6 for reformation of Contracts No 1, 2, 3, 4 and 5 are denied for
lack of merit.
b) The inclusion of Mr. Honorio Pineda in the Complaint as additional respondent is proper.
c) The Tribunal has jurisdiction over the claims of [Form-Eze] and finds that the Complaint states a
cause of action as to claims that accrued after the filing of the Complaint.
d) All other claims and counterclaims submitted pursuant to the definition of issues in the Terms of
Reference, not otherwise disposed of or resolved above, are dismissed for lack of merit. All claims
and counterclaims peripherally discussed in these proceedings which are outside the scope of the
definition of issues in the Terms of Reference are likewise outside the scope of this Final Award.
e) The net award in favor of [Form-Eze] amounting to P28,517,251.67 shall earn interest at the rate of
6% per annum fro the date of this Final Award, and 12% from the date the Final Award becomes
final and executory until the same is fully paid.18
BFC filed a Motion for Correction of the Final Award. Form-Eze asserted that the calculations made on
the total quantity of deckforms supplied to be used under Contract No. 1 is erroneous because the
quantity of the accessories that were delivered together with the loose truss chords and assembled
trusses that were backloaded were ignored in the computation. BFC explained that the hardware
supplied must be assembled first into deckforms since what is actually rented under Contract No. 1 are
the deckforms, and not the hardware, thus:
Evidently, in the computation thereof, the total quantity of the accessories that were delivered together
with the said loose truss chords and assembled trusses, both of which are shown in the same delivery
receipts, and the total length of the loose truss chords and assembled trusses that were backloaded,
were not considered and totally ignored.
Needless to state, these accessories, such as joist and beam hanger, just like the chords and the trusses,
are component and indispensable parts of a deckform without which it can not be completely assembled
to be used for the purpose intended. In the case of a deckform 44 ft. in length, it will need, for it to be
completely assembled, 34 pieces of joists and 68 pieces of beam hangers, as shown in the herewith
attached Annex "A" hereof.
Therefore, to form 87 completely assembled deckforms of 44 ft. in length out of/from the delivered
chords and trusses, it will require 2,958 pieces of joist and 5,916 pieces of beam hangers.
However, as show in Exhibits "C-9(5)", "C-9(11)", "C-9(15)", "C-9(18)", "C-9(21)", "C-9(25)", "C-9(27)", "C-
9(30)", and "C-9(31)", only 2,512 pieces of joists and in Exhibits "C-9(8)", "C-9(15)", "C-9(16)", "C- 9(18)",
"C-9(21)", "C-9(27)", "C-9(32)", "C-9(34)", "C-9(35)", "C-9(37)", "C-9(38)", "C-9(41)", "C-9(35)", "C-9(38)",
"C-9(40)", and "C-9(41)", only 3,626 pieces of beam hangers, the very documents on which this
Commission/Tribunal anchored its finding now sought to be corrected, were actually delivered by the
Claimant.
Accordingly, 87 deckforms of 44 ft. in length can not be completely assembled from the delivered chords
and trusses because the quantity of the delivered accessories is insufficient for the purpose. To be
precise, only 53 deckforms of 44ft. in length can be completely assembled out of the total length of the
chords and trusses with the use of 1,802 pieces of joists and 3,604 pieces of beam hangers (with an
excess of 22 pieces of beam hangers, 710 pieces of joist and 2,720 ft of chords and trusses) which are
sufficient to provide only 4,441.73 contact sq.m. of formworks.
To therefore conclude that 87 deckforms of 44 ft. in length can be completely assembled with the use
of/out of 2,512 pieces of joists and 3,626 pieces of beam hangers, is an evident miscalculation.
xxxx
In as much as only 3,626 pieces of beam hangers were actually delivered, which, when used with the
delivered quantity of joists and length of the delivered chords and trusses in completely assembling 53
deckforms of 44 ft. in length, is sufficient to provide only 4,441.73 contact sq.m. of formworks, the
minimum rental amount stipulated under Contract No. l should correspondingly be reduced to only
Php17,989,006.50, less payment of Php 7,700,000.00=Php 10,829,006.50 as the net amout of rent due
the Claimant thereunder, as shown in the herewith attached Annex "B" hereof.
On the same ground, the minimum contact amount stipulated under Contract No. 2 should also be
proportionately reduced to Php 3,997,557.00, less payment of Php 990,000.00 + cost of labor of
Php60,000.00 = Php 2,947,557.00 as the net amount due the Claimant thereunder.19
The CIAC Arbitral Tribunal denied the motion prompting BFC to file a petition for review before the Court
of Appeals.
While the case was pending before the Court of Appeals, Form-Eze filed a Motion with Leave to Direct
BFC to return pieces of equipment on 14 July 2009.
On 15 January 2010, the Court of Appeals dismissed the petition for lack of merit. The Court of Appeals
heavily relied on factual findings of the CIAC Arbitral Tribunal.
THE PETITION
BFC filed a motion for reconsideration but it was denied by the Court of Appeals in a Resolution dated 13
July 2010. Hence, the present petition. BFC, in its Memorandum, raised the following issues for our
resolution:
I.
Whether or not the Court of Appeals committed a reversible error in affirming the CIAC's ruling that BFC
is liable to pay rent to the [Form Eze] under Contract Nos. 1, 2, and 3 even for portions where the latter's
supplied formwork system were not used.
II. evidence presented to show that these items were purchased at Php96,000.00 and there is on evidence
to show the prevailing rate of rent for the same items.
Whether or not the Court of Appeals committed a reversible error in affirming the CIAC's conclusion that
[Form-Eze] was able to supply BFC with such quantity of deckforms sufficient to provide the stipulated VII.
7,000 contact square meter of formworks as to entitle said [Form-Eze] to the stipulated minimum
contract rental price of Php28,350,000.00 under Contract No. 1 and consequently to Php6,300,000.00
Whether or not the Court of Appeals committed a reversible error in affirming the CIAC in ruling that
under Contract No. 2, when, based on the quantity of the delivered accessories, which are component
Respondent Pineda can be held as co-respondent (in the arbitration case) when he is not a party to the
pm1s of deck form system, but which the CIAC totally ignored, [Form-Eze] can only provide 4,441.73
contracts and agreements involved in this case, as well as the arbitration agreement, and he did not
contact square meters of formworks that will entitle it to only Php17,989,006.05 and Php3,997,557.00,
voluntarily submit himself to arbitration in this case.
respectively thereunder.

VIII.
III.

Whether or not the Court of Appeals committed a reversible error when it ruled that the attorney's fees
Whether or not the Court of Appeals committed reversible error in affirming the CIAC's ruling that
and cost of arbitration shall be for the account of Petitioners, considering that [Form-Eze] failed to
[Form-Eze] is entitled to twoOthirds of the stipulated minimum contract amount of Php3,230,500.00 or
supply the minimum required equipment under the contracts and when the root cause of the dispute is
Php2,153,666.67 under Contract No. 3, considering that CIAC did not state the factual and legal basis of
the imprecision of the language and the incompleteness of the contracts and agreements, which were
said ruling and despite its contrary factual finding that [Form-Eze] failed to supply the minimum required
prepared by the Respondents.20
columnforms.

BFC prays for a modification of the Final Award to read:

IV.

Whether or not the Court of Appeals committed a reversible error in affirming the CIAC's ruling against a. On Contract No. 1 Php17,989,006.50
the reformation of Contract No. 1 to include a provision that BFC shall furnish the labor needed by
[Form-Eze] in assembling the deckforms and that it shall deduct therefrom the agreed cost of labor at
Php60.00 per man hour, since it has been the true intention and real agreement of the parties thereto.
Less:
V.
Payments already made Php 7,700,000.00
Whether or not the Court of Appeals committed a reversible error in affirming the CIAC when it did not
deduct the following costs incurred by BFC from the minimum contract amounts due: Payment made on Billing No. 1 487,828.05

Cost of labor in assembling Deckforms, 812,791.90 9,000,619.95

(1) under Contract No. 1 for the cost of labor in assembling the deckforms, the cost of helmets of said expenses for xBracings and cost of helmet
laborers, and the expenses for x-bracing supplied by BFC for the assembly of said forms in the total
amount ofPhp812,791.09; SUBTOTAL Php 8,988,386.55

(2) under Contract No. 2 for the cost of labor in the stripping of said deckforms, the cost of petroleum,
oil and lubricant and helmet up to the end of the contract in the sum total of Php1,391,086.02;
and b. On Contract No. 2 Php 3,997,557.50

(3) under Contract No. 3 for the cost of labor in installing and forming the built up columnforms from
25 June 2007 up to the end of the contract in the sum total of Php273,240.00, when BFC is legally
entitled thereto. Less:

Payments already made Php 990,000.00

VI.
Costs of labor in stripping And moving of the 1,304,036.82 Php 2,294,036.82
Whether or not the Court of Appeals committed a reversible error in affirming the CIAC in ordering BFC same Deckforms, petroleum, oil And
to pay rental fees under letter dated 5 January 2007, covering the period from 25 June 2007 to 17 lubricant and helmet
December 2007 in the sum total of Php560,000.00 at Php96,000.00 a month, when the acquisition cost
of the pieces of u-heads and plates referred to therein is allegedly only Php96,000.00, and there is
 functions, act in a quasi-judicial capacity, such that their decisions are within the scope of judicial
SUBTOTAL Php 1,702,520.68
review."23

Factual findings of construction arbitrators may be reviewed by the Court in cases where: 1) the award
was procured by corruption, fraud or other undue means; (2) there was evident partiality or corruption
c. On Contract No. 3 Php 538,417.87
of the arbitrators or any of them; (3) the arbitrators were guilty of misconduct in refusing to hear
evidence pertinent and material to the controversy; (4) one or more of the arbitrators were disqualified
to act as such under Section nine of Republic Act (R.A.) No. 876 and willfully refrained from disclosing
such disqualifications or of any other misbehavior by which the rights of any party have been materially
Less: prejudiced; (5) the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual,
final and definite award upon the subject matter submitted to them was not made; (6) when there is a
Cost of labor in the installation and removal 96,915.00 very clear showing of grave abuse of discretion resulting in lack or loss of jurisdiction as when a party
of the Columnforms was deprived of a fair opportunity to present its position before the Arbitral Tribunal or when an award
is obtained through fraud or the corruption of arbitrators; (7) when the findings of the Court of Appeals
SUBTOTAL Php 441,502.87 are contrary to those of the CIAC, and (8) when a party is deprived of administrative due process.24

While this rule, which limits the scope of the review of CIAC findings, applies only to the Supreme Court,
the Court of Appeals nonetheless is not precluded from reviewing findings of facts, it being a reviewer of
d. On Letter Agreement dated 5 January 2007 Php 70,000.00 facts. By conveniently adopting the CIAC's decision as its own and refusing to delve into its factual
findings, the Court of Appeals had effectively turned a blind eye to the evidentiary facts which should
e. The award of attorney's fees be deleted; and have been the basis for an equitable and just award.

f. The award for cost of arbitration fees be While factual findings are not within the purview of a petition for review before this Court, we take
deleted.21 exception in this case on the ground of the appellate court's refusal to delve into the findings of facts of
the CIAC Arbitral Tribunal.

THE COURT'S RULING

Under Contract No. 1, Form-Eze
was not able to supply BFC with
The Final Award of CIAC is subject deckforms sufficient to provide
to review by the Court of Appeals. 7,000 contact square meter of
formworks.
BFC first asserts that the Court of Appeals has the power and the duty to review the factual findings
made by CIAC and that the Court of Appeals should not be bound by the factual findings of the The CIAC Arbitral Tribunal conducted its own study and came up with the following findings:
construction arbitrators.
The receipted hardware deliveries made by [Form-Eze] show that the total length of loose truss chords
The case of Asian Construction and Dev't. Corp. v. Sumimoto Corporation22 summarized the development delivered was 11,912 lineal feet and the length of the truss chords from the assembled trusses delivered
of the principle that the final award of CIAC may be still be subject to judicial review, thus: was 2,052 lineal feet or a total available length of trusses of 13,964 lineal feet. By an iterative process of
selection and elimination, 175 units of 44' long trusses could be assembled, equivalent to 87 deckforms
To begin, Executive Order No. (EO) 1008, which vests upon the CIAC original and exclusive jurisdiction of 44 feet in length. The assembled 87- 44' deckforms can provide 7,268.58 square meters of contact
over disputes arising from, or connected with, contracts entered into by parties involved in construction area, broken down as follows:
in the Philippines, plainly states that the arbitral award "shall be final and inappealable except on
questions of law which shall be appealable to the Court." Later, however, the Court, in Revised
Administrative Circular (RAC) No. 1-95, modified this rule, directing that the appeals from the arbitral Contact Area (%)
award of the CIAC be first brought to the CA on "questions of fact, law or mixed questions of fact and
law." This amendment was eventually transposed into the present CIAC Revised Rules which direct that
"a petition for review from a final award may be taken by any of the parties within fifteen (15) days from
receipt thereof in accordance with the provisions of Rule 43 of the Rules of Court." Notably, the current Interior & Near Column Slabs = 4,156.89 sq.m. (57.19%)
provision is in harmony with the Court's pronouncement that ''despite statutory provisions making the
decisions of certain administrative agencies 'final,' the Court still takes cognizance of petitions showing Grid Beams (B-1) = 740.37 sq.m. (10.19%)
want of jurisdiction, grave abuse of discretion, violation of due process, denial of substantial justice or
erroneous interpretation of the law" and that, in particular, "voluntary arbitrators, by the nature of their
Interior Beams (B-2) = 1,663.20 sq.m. (22.88%)

Grid Girders (G-2) = 708.12 sq.m. (9.74%)
Total = 7,268.58 sq.m. (100%)
The resulting contact area of 7,628.58 sq.m. is 3.84% over the 7,000 sq.m. requirement of the contract.
But the former figure includes the contact area of girders which according to [petitioners] should not be
included. As shown in ANNEX "A", sheets 5 & 6 of 6, the contact area contributed by the girders is only
708.12 sq.m., and if this is deducted from the computed total contact area, the remaining available
contact area would be 6,560.46 sq.m. or 93.72%. The fact, however, is that the non inclusion of the
contact area provided by the girders would be a violation of the letter-contract dated 8 February 2007,
paragraph 9 of which provides that: "[Form-Eze] offered to install beam hangers and ledger angles in
order to support the moment beam from from column to column and thereby save BFC considerable
labor and eliminate the use of BFC's light duty scaffolding underneath and beam. By doing that it will also
speed up the forming operation and save BFC labor. The only light duty scaffolding that BFC will be
installing is that under the girder which supports tremendous loading during the stressing of the beams
prior to it being stressed. By forming the girder in this manner, [Form-Eze] is not involved in the tripping
or resetting of the girder formwork. However, [Form-Eze] is has purchased and furnished considerable
forming hardware and consumables (tie rods, pvc sleeves, pvc cones, whaler clips and brackets and wing-
nuts) which are being used on girders and the beams. [Form-Eze] will give the ownership of this
equipment to BFC and BFC will buy all additional consumables and hardware (as needed) directly from
Comer. In return, [Form-Eze] will include the contact square meters of formwork in the girders in its
billing for both the equipment lease and for the moving contract." This letter-contract, Exhibit C-12,
binds [BFC] to pay Claimant for the girder formworks contact area for both Contract No. 1 and Contract
No. 2.
Petitioners argued that the formwork of the girder (or large beam) is independent of the deck form
system and so should not be counted in favor of [Form-Eze]. The Tribunal does not agree. How could the
girder formwork be considered independent from the deckform system when both sides of the girder
formworks are held stiff together by "tie rods, pvc sleeves (to make the tie rods reusable), pvc cones,
whaler clips and brackets and wing-nuts" supplied by the [Form-Eze] and pressed between deckforms
preparatory to concrete pouring? The girder cannot be considered structurally independent of the deck
slabs because it is the requirement of design and the National Building Code and its reference code the
American Concrete Institute Code (ACI Code) that the girders are to be poured monolithically with the
slabs and beams up to L/3 or 1/3 of the floor span (the point of infection and location of the construction
joint where the bending moment is the least or zero), as is clearly shown on the floor concrete pouring
schedule plans.
Conclusion of Tribunal
In view of the above, it is the finding of the Arbitral Tribunal that [Form-Eze] had been able to furnish the
amount of hardware that was sufficient to provide 7,000 contact square meters of formwork, all in
accordance to Contract No. 1. Thus, the remaining question to resolve is the area of the project covered
by the formwork equipment in contact square meters.25
BFC accuses the CIAC of coming up with its own biased computation of the contact area of the hardware
supplied by Form-Eze under Contract No. 1. According to BFC, Form-Eze had furnished only 53
completely assembled deckforms of 44 ft. in length which correspond to only 4,441.73 contact square
meters of formworks, while CIAC found that Form-Eze had delivered truss chords equivalent to 87
deckforms which can provide 7,268.58 contact square meters. BFC maintains that Contract No. 1 is clear
that the object is the supply of the complete deckform system and not unassembled hardware such as
loose truss chords. BFC adds that Form-Eze judicially admitted that it is only claiming equipment rentals
for the areas that its equipment are being used. BFC reiterates that based on the provisions of Contract
No. 1 on the contemporaneous and subsequent acts of the parties, as well as application of principles of
contract interpretation, the inclusion of loose truss chords in the computation of the quantity of
hardware supplied by Form-Eze is an erroneous interpretation by CIAC. BFC also claims that the CIAC
wrongfully included the contact area of girders in the computation of the sufficiency of equipment
supplied by Form-Eze. BFC contends that the girders are not part of the deckforms contemplated in
Contract No. 1. BFC offers to compensate Form-Eze to the extent that its supplied deckforms were used
under the principle of quantum meruit. BFC submits that 4,441.73 contact square meters or 63.45% of
the 7,000 minimum contact area required under Contract No. 1 is a reasonable computation.
We reverse the finding of the CIAC on this point as it is contrary to the evidence on record.
We agree with BFC that the CIAC should not have included the unassembled truss chords in theoretically
forming deckforms. We subscribe to BFC's submission that the object of Contract No. 1 is the deckforms
and not just the hardware that make up the formwork. Contract No. 1, in itself, is clear that "F-E has
agreed to furnish all hardware required in the formwork system for the poured in place beam and slab
concrete decks x x x." In fact, the equipment rental is only due and payable to Form-Eze when the
concrete is placed on the slab forms, which provision is based on the premise that the hardware had
already been assembled into deckforms ready for concrete pouring. Moreover, the Proposed SM
Marikina Mall Project Elevated Beam and Slab Formwork dated 7 December 2006, which document has
been admitted by the parties in the Term of Reference, provides that Form-Eze will furnish sufficient
deckforms to produce 1/2 floor each month on the project.
BFC had also explained to our satisfaction that loose truss chords alone could not be assembled into
deckforms, to wit:
To try to assemble truss chords alone into a deckform is like taking three two-foot round pegs, trying to
stand them upright, then balancing twelve-inch round wooden slab on top, and expect it to be a stool
capable of supporting a person. Joist, beam hangers and other component parts fix the truss chords into
place for the structural integrity of a deckform. In the case of a deckform 44 ft. in length, it will need, for
it to be completely assembled, 34 pieces of joists and 68 pieces of beam hangers as illustrated in the
Petitioner's Motion for Correction of Final Award.
Thus, assembling 87 deeckforms of 44 ft. in length would require 2,958 pieces of joist and 5,916 pieces of
beam hangers to assemble such 87 44-foot deckforms. However, as show in the same documents that
CIAC anchored its theoretical findings, only 2,512 pieces of joists and only 3,626 pieces of beam hangers
were actually delivered by [Form- Eze].26
BFC's computation of the total contact area covered by the deckforms furnished by Form-Eze is backed
by delivery receipts of the joists and beam hangers while CIAC's computation is more theoretical than it
is actual.
The inclusion of the additional contact area of the grid girders in the calculation of the total contact area
of the equipment supplied by Form-Eze under Contract No. 1, however, should be upheld. Paragraph 9
of the Letter dated 8 February 2007, which was also admitted by the parties, clearly provides:
[Form-Eze] offered to install beam hangers and ledger angles in order to support the moment beam fro
column to column and thereby save BFC considerable labor and eliminate the use of BFC's light duty
scaffolding underneath that beam. By doing that it will also speed up the forming operation and save BFC
labor. The only light duty scaffolding that BFC will be installing is under the girder which supports
tremendous loading during the stressing for the beams prior to it being stressed. By forming the girder in
this manner F-E is not involved in the stripping or resetting of the girder formwork. However, [Form-Eze] xxxx
has purchased and furnished considerable forming hardware and consumables (tie rods, pvc sleeves, pvc
cones, whaler clips and brackets and wing-nuts) which are being used on the girders and the beams.
Reformation is a remedy in equity, whereby a written instrument is made or construed so as to express
[Form-Eze] will give ownership to this equipment toi BFC and BFC will buy all additional consumables and
or conform to the real intention of the parties, where some error or mistake has been committed. In
hardware (as needed) directly from Comer. In return [Form-Eze] will include the contact square meters
granting reformation, the remedy in equity is not making a new contract for the parties, but establishing
of formwork in the girders in its billing for both the equipment lease and for the moving contract.27
and perpetuating the real contract between the parties which, under the technical rules of law, could not
be enforced but for such reformation.29
BFC cannot claim that this provision does not refer to Contract No. 1. Said provision mentions beam
hangers and ledger angles which are used to support the beams forming the deckform and to eliminate
In order that an action for reformation of instrument may prosper, the following requisites must concur:
the use of light duty scaffolding on the part of BFC which it had initially obligated to provide under
(1) there must have been a meeting of the minds of the parties to the contract; (2) the instrument does
Contract No. 1. More pertinently, the inclusion of the contact square meters of formwork in the girders
not express the true intention of the parties; and (3) the failure of the instrument to express the true
is a mere application of one of the provisions in Contract No. 1, i.e., "BFC agrees to purchase materials
intention of the parties is due to mistake, fraud, inequitable conduct or accident.30
for the formwork as requested by F-E and the direct cost of those materials will be deducted from this
contract and the balance paid to [Form-Eze]." Form-Eze is giving ownership of the forming hardware and
consumables which are used on the girders and beams to BFC. Instead of deducting the cost of these In the instant case, the question to be resolved is whether the contract expressed their true intention;
materials from the contract, Form-Eze will instead include the contact square meters of formwork in the and, if not, whether it was due to mistake, fraud, inequitable conduct or accident. While intentions
girder in its billing for the lease of the deckforms. involve a state of mind which may sometimes be difficult to decipher, subsequent and contemporaneous
acts of the parties as well as the evidentiary facts as proved and admitted can be reflective of one's
intention.31
As agreed upon by the parties, the 708.12 sq. m. contact area covered by the grid girders should be
included in the billing. Taking into account this contact area corresponding the grid girders and the
4,441.73 contact square meter assembled deckforms, the total contact area is only 5,149.85, which still BFC relies on the Form-Eze Proposed SM Marikina Mall Project Elevated Beam and Slab Formwork dated
falls short of the 7,000 contact area requirement. 7 December 200632 to support its contention that Contract No. 1 should have a provision on the cost of
labor. Indeed, in the aforementioned proposal, BFC has agreed "to furnish the labor required for
fabrication and assembly of the forming equipment" and that "BFC will deduct from the total contract
To award the full contract price to Form-Eze in Contract No. 1 is tantamount to unjust enrichment. There
amount 50.00 per man-hour each carpenter or laborer supplied to Form-Eze." Notably, Contracts No. 2
is unjust enrichment under Article 22 of the Civil Code when (1) a person is unjustly benefited, and (2)
and 3 contain labor-guarantee provisions considering that BFC has committed to provide the necessary
such benefit is derived at the expense of or with damages to another. The principle of unjust enrichment
labor for both contracts.
essentially contemplates payment when there is no duty to pay, and the person who receives the
payment has no right to receive it.28 By requiring BFC to pay the full contract price when it only supplied
deckforms which covered only 5,149.85 contact square meters of formworks, the CIAC Arbitral Tribunal As initially agreed upon, BFC hired workers for the assembly of the deckforms since Form-Eze only
is essentially unjustly giving unwarranted benefit to Form-Eze by allowing it to earn more than it legally undertook to supervise the installation of the deckforms. This was evident during the cross-examination
and contractually deserved. It is also worth mentioning that Form-Eze had in fact only been claiming for of Mr. Romano Clemente (Mr. Clemente) who admitted that no workers of Form Eze were employed for
the contact area where its equipment was used. the installation of the deckforms, thus:

Therefore, using the computation of BFC, the amount of contact square meters that the delivered ATTY. D. MORGA, JR. (COUNSEL-RESPONDENT):
hardware and deckforms can handle is:
Since it is the obligation of the Claimant to assemble the hardware into deckform, how many workers
were employed for the purpose.
126,000 sq. m. x Y = 92,696.40 contact sq. m
MR. R.V. CLEMENTE (CLAIMANT):
7,000 sq. m. 5,149.85 sq. m.
deckforms delivered
We are only supplier sir. We supervise the guys in the jobsite for tern to install all these deckforms.

Contract No. 1 be reformed to include ATTY. D. MORGA, JR. (COUNSEL-RESPONDENT):

a labor guarantee provision.
Ano?
An action for reform a contract is grounded on Article 1359 of the New Civil Code which provides:
MR. R.V. CLEMENTE (CLAIMANT):
ARTICLE 1359. When, there having been a meeting of the minds of the parties to a contract, their true
intention is not expressed in the instrument purporting to embody the agreement, by reason of mistake,
To install the guys in the jobsite like for example your laborers carpenters to install this deckforms. We
fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument
just only supply one supervisor in the jobsite for him to supervise the installation of this form.
to the end that such true intention may be expressed.
ATTY. D. MORGA, JR. (COUNSEL-RESPONDENT):
agreement as contain (sic) in the February 8, 2007 signed letter.34

You mean BF Corporation has the expertise to assemble this.

This admission by Form-Eze bolsters the conclusion that the parties intended to include a labor-
MR. R.V. CLEMENTE (CLAIMANT): guarantee provision in Contract No. 1. Both Contracts No. 2 and 3 set the labor rate at P60.00 per
carpenter man-hour. BFC fixed the cost of labor at P453,294.50.
No, we will supervise your guys for them to assemble this.
Considering that both parties admitted that there should be a labor guarantee clause in Contract No. 1, it
can be reasonably inferred that the failure to include said provision was due to mistake. A reformation is
ATTY. D. MORGA, JR. (COUNSEL-RESPONDENT):
in order to include a cost of labor provision in Contract No. 1.

Do you know if BF has the expertise to assemble this?

Expenses for x-bracing gand the
cost of labor should be deducted
MR. R.V. CLEMENTE (CLAIMANT): under Contracts No. 2 and 3.

That is why we were there in your jobsite. If they don't have really the expertise we are the one who Except for the expenses for x-bracing used in deck assemblies which had been admitted by Form-Eze
supervise them to install the deckforms. Supervise them to install the deckforms President James Franklin, BFC is not entitled to be reimbursed for the cost of helmets, petroleum, and oil
lubricants in the absence of any stipulations in the contracts. The cost of labor, on the other hand, should
ATTY. D. MORGA, JR. (COUNSEL-RESPONDENT): be deducted pursuant to the labor-guarantee provisions in Contracts No. 2 and 3.

You mean no former workers of the Claimant were employed for the purpose. The cost for x-bracing amounts to P358,250.00 as evidenced by the receipt issued by Comer.35

MR. R.V. CLEMENTE (CLAIMANT): The costs of labor are as follow:

No.33 Contract No. 1 = P453,294.50

Contract No. 2 = P1,373,634.60
Contract No. 3 = P273,240.00
Obviously, BFC would want to be compensated for the labor it provided to Form-Eze as shown in
Contracts No. 2 and 3.
Obligation of BFC under Contract No. 1:

As a matter of fact, Mr. James Franklin, the President of Form-Eze conceded that Contract No. 1 should
be modified to include a labor-guarantee provision, to wit: 92,696.40 contact square meters x P225.00 = P20,856,690.00

Q: Mr. Witness, respondent [BFC], in their counterlcaims, would like this Commission to reform
Contract No. 1 to include a provision that it should deduct from your billing the cost of labor,
Less: Amount paid 7,700,000.00
helmet and expense for x-bracing supplied by it for the assembly of the form system, what can you
say?
Payment for billing for Pour 1 487,828.05

Cost of labor 453,294.50

A: [BFC] is allowed to deduct the cost of the x-bracing purchase from Comer that was used in the
FORM-EZE deck assemblies. [BFC] is allowed to deduct the cost of the assembly labor for the deck
forms which is included in the Labor Guarantee. These deductions have been reflected in all our Cost of X-bracing 358,250.00
billings where the P75.00 Labor Guarantee has been applied. The cost of helmet is not included
and should not be included. Contract No. 1 is only a lease contract but it was modified to include a ___________
Labor Guarantee. For the [BFC] to deduct from our billing the cost of labor, etc. which allegedly
they supplied for the use of our said equipment for the assembly thereof is included in the Labor P11,857,317.45
Guarantee. They should be allowed to do so in conformance with the Labor Guarantee but
definitely the cost of helmet and their other claims of deductions would not have any basis at all
since these have not been agreed upon both in the original contract and in the subsequent
The Memorandum of Agreement
dated 5 January 2007 is an exclusive
licensing agreement.
BFC avers that CIAC erred when it stated the BFC was given the exclusive license to manufacture Form-
Eze's equipment consisting of scaffoldings and accessories and they became part of that provided by
Form Eze to BFC.
At the outset, we agree that the subsequent Memorandum of Agreement executed by the parties on 5
January 2007 is an exclusive licensing agreement. It was signed by both parties wherein BFC has agreed
to sell the scaffolding frames and accessories it manufactured to Form-Eze at the end of the project. This
Agreement was incorporated in Contract No. 4 wherein BFC will be allowed to deduct P6,352,500.00
from the equipment lease contract, which is presumably Contract No. 1. At this point, Contract No. 4 is
deemed to have novated the obligation of BFC with respect to furnishing all scaffoldings. Contract No. 1
states that BFC shall furnish the scaffoldings at no cost to Form-Eze. On the other hand, Contract No. 4
requires BFC to sell the scaffoldings to Form-Eze at the end of the project and deduct the cost of the
same from the contract price of Contract No. 1. This setup cannot in any way be interpreted as part of
the deckform supplied by Form-Eze. As pointed out by BFC, the scaffoldings and accessories were the
responsibility of BFC under Contract No. 1. Thus, the manufactured hardware under Contract No. 4 could
not have added to the deckform system because they are not the equipment of Form-Eze had obligated
itself to supply under Contract No. 1.
Obligation of BFC under Contract
No.2
BFC maintains that since Form-Eze failed to meet the minimum conditions under Contract No. 1 where
the minimum 126,000 contact square meters were not reached, then the forklifts under Contract No. 2
were also not used for a minimum of 126,000 contact square meters.
We agree. BFC is liable only to pay the amount proportionate to 92,696.40 contact square meters at
P50.00 per contact square meter, the rental rate for the forklifts. Thus:
92,696.40 contact square meters x P50.00 = P 4,634,820.00
Less: Payments made 990,000.00
Cost of Labor 1,286,377.50
___________
SUBTOTAL P2,358,442.50
Obligation of BFC under Contract
No. 3.
The CIAC had correctly noted the ambiguity in Contract No. 3, particularly the "sufficient number of
column forms as required to complete six (6) poured in place columns per day." For BFC, the sufficient
number of column forms is 12 sets a day while Form-Eze considered its supply of six (6) full height built
up column forms as sufficient. The CIAC found that Form-Eze failed to comply with the requirements
under Contract No. 3, hence it merely awarded Form-Eze 2/3 of the minimum contract amount at
P2,153,666.67.
We find that the CIAC's award lacked bases. It gave credence to the methodology used by Form-Eze and
noted that the latter had supplied six (6) full height built-up columforms, albeit insufficient. We hold the
contrary. The methodology used by BFC, which involves "columnforms with window openings and that
from its installation, alignment, bracing, inspection, approval of alignment, verticality and rigidity of the
erected columnforms, pouring, drying and removal of the forms, it will require twelve (12) column forms
a day, should have been considered. The CIAC itself had already ruled that the ambiguity in Contract No.
3 should not favor Form-Eze, the party who prepared the contract. Thus, it is only logical that the
methodology employed by BFC should be credited.
Using 12 column forms as the minimum requisite and Form-Eze having supplied only four (4) usable
column forms, it can be established that the delivered column forms can only be used for 1/3 portion of
the 9,100 contact square meters or 3,033.33 contact square meters. It was further proven by BFC that
about 50% of the column form requirements of the project were already completed with the use of their
own equipment. Thus, it is but equitable that the 3,033.33 contact square meters be further reduced by
50% or 1,516.67 contact square meters. BFC is then liable to pay P441,502.87 broken down as follows:
1,516.67 X P355.00 = P 538,417.85
Less: Cost of Labor 96,915.00
___________
SUBTOTAL: P 441,502.87
BFC is obliged to pay rental
for u-heads under Letter-Agreement
dated 5 January 2007.
Under the letter dated 8 February 2007, "BFC has completed fabrication on a sufficient quantity of u-
heads with screw assemblies and heavy duty bases so that BFC can immediately start returning the 24
inch and 18 inch u-head assemblies (561 pcs) and heavy duty bases (483 pcs) which were on temporary
loan to BFC by [Form-Eze] until BFC could manufacture their own equipment. The temporary loan was
expected to be approximately [two] (2) weeks and the equipment was picked-up January 9th, 2007 and
still in used today."36 It is understood that upon expiration of the two-week temporary loan and upon
failure by BFC to return the equipment, it is then liable to pay for rent. We find that the monthly rental
amount of P96,600.00 was substantiated by Form-Eze. 483 pieces of 24 inch and 18 inch galvanized
adjustable heads and 483 pieces of galvanized heavy duty plates were indeed delivered to BFC as
evidenced by the delivery receipts.37 According to Mr. Clemente, Form-Eze's Sales Engineer, the rental
amount for adjustable u-heads are fixed at P160.00 per unit, while the galvanized heavy duty plates are
at P40.00 per unit.38 By agreeing to the terms of the 8 February 2007 Letter, BFC is deemed to have
acquiesced to the rental fee in case it failed to return the u-heads and plates on time. Therefore, we
affirm the CIAC's ruling that BFC is liable to pay rental of the equipment in the amount of P96,000.00 per
month until the equipment leased is fully returned to Form-Eze.
BFC President should not be included and 50% of the Cost of Arbitration.
as party to this case?
SO ORDERED.
Section 4 of Executive Order No. 1008 vests jurisdiction on CIAC over disputes 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. Moreover, the party involved must agree to submit to voluntary arbitration. In other words,
anyone who is not a party to the contract in his personal capacity is not subject to the jurisdiction of the
CIAC. In this case, Pineda signed the challenged contracts in his capacity as President of BFC. There is no
indication that he voluntarily submitted himself as a party to the arbitration case. In fact, he has been
consistently contesting his inclusion as a respondent in the CIAC proceedings. CIAC however considered
Pineda as a joint tortfeasor, thus justifying his joinder as a co-defendant.

We do not consider the imputed acts of Pineda as an indicia of bad faith to classify him as a joint
tortfeasor. First, it was proven that Form-Eze is not entitled to all its monetary claims under the contract.
Second, we have also subscribed to BFC's position that Contract No. 1 should have included a labor
guarantee provision and that it was by mistake that said clause was excluded. Third, BFC's alleged refusal
to return the u-head assemblies and heavy duty bases was meted with a heavy penalty in the form of a
huge rental fee. BFC had, as a matter of fact, admitted to owing Form-Eze rental payment. Fourth, the
claim of threat against Form-Eze's President is unsubstantiated and uncorroborated.

Attorney's Fees and Costs of Arbitration.

The controversy essentially boils down to the interpretation and factual application of the existing
contracts. Neither party was able to prove bad faith in their dealing with each other. Under Article 2208
of the Civil Code, attorney's fees may, among others, be recovered where defendant acted in gross and
evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim. We observe
that in filing the complaint against BFC, Form-Eze was merely seeking payment for its service under the
contract. BFC had admitted to its obligation. The problem lies only on the amount to be paid. This is not
tantamount to bad faith.

Finally, both parties should equally share the costs of arbitration since their prayers were only partially
granted.39

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated 15 January 2010 and Resolution
dated 13 July 2010 are MODIFIED. Petitioner B.F. Corporation is ordered to pay respondent Form-Eze
Systems Inc. the following amounts:

Under Contract No. 1: P11 ,857,317.45

Under Contract No. 2: 2,358,442.50

Under Contract No. 3: 441,502.87

Under Letter-Agreement dated 7 January 2007: 560,000.00

_____________

GRAND TOTAL: P15,217,262.82