G.R. No. 135362 December 13, 1999 HEIRS OF AUGUSTO L. SALAS, JR., namely: TERESITA D.

SALAS for herself and as legal guardian of the minor FABRICE CYRILL D. SALAS, MA. CRISTINA S. LESACA, and KARINA TERESA D. SALAS, petitioners, vs. LAPERAL REALTY CORPORATION, ROCKWAY REAL ESTATE CORPORATION, SOUTH RIDGE VILLAGE, INC., MAHARAMI DEVELOPMENT CORPORATION, Spouses THELMA D. ABRAJANO and GREGORIO ABRAJANO, OSCAR DACILLO, Spouses VIRGINIA D. LAVA and RODEL LAVA, EDUARDO A. VACUNA, FLORANTE DE LA CRUZ, JESUS VICENTE B. CAPELLAN, and the REGISTER OF DEEDS FOR LIPA CITY,respondents.

On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the Regional Trial Court of Lipa City a Complaint 6 for declaration of nullity of sale, reconveyance, cancellation of contract, accounting and damages against herein respondents which was docketed as Civil Case No. 98-0047. On April 24, 1998, respondent Laperal Realty filed a Motion to Dismiss 7 on the ground that petitioners failed to submit their grievance to arbitration as required under Article VI of the Agreement which provides: Art. VI. ARBITRATION. All cases of dispute between CONTRACTOR and OWNER'S representative shall be referred to the committee represented by: a. One representative of the OWNER; b. One representative of the CONTRACTOR; c. One representative acceptable to both OWNER and CONTRACTOR. 8 On May 5, 1998, respondent spouses Abrajano and Lava and respondent Dacillo filed a Joint Answer with Counterclaim and Crossclaim 9 praying for dismissal of petitioners' Complaint for the same reason. On August 9, 1998, the trial court issued the herein assailed Order dismissing petitioners' Complaint for non-compliance with the foregoing arbitration clause. Hence this petition. Petitioners argue, thus: The petitioners' causes of action did not emanate from the Owner-Contractor Agreement. The petitioners' causes of action for cancellation of contract and accounting are covered by the exception under the Arbitration Law. Failure to arbitrate is not a ground for dismissal. 10

DE LEON, JR., J.: Before us is a petition for review on certiorari of the Order 1 of Branch 85 of the Regional Trial Court of Lipa City 2dismissing petitioners' complaint 3 for rescission of several sale transactions involving land owned by Augusto L. Salas, Jr., their predecessor-in-interest, on the ground that they failed to first resort to arbitration. Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas spanning 1,484,354 square meters. On May 15, 1987, he entered into an Owner-Contractor Agreement 4 (hereinafter referred to as the Agreement) with respondent Laperal Realty Corporation (hereinafter referred to as Laperal Realty) to render and provide complete (horizontal) construction services on his land. On September 23, 1988, Salas, Jr. executed a Special Power of Attorney in favor of respondent Laperal Realty to exercise general control, supervision and management of the sale of his land, for cash or on installment basis. On June 10, 1989, Salas, Jr. left his home in the morning for a business trip to Nueva Ecija. He never returned. On August 6, 1996, Teresita Diaz Salas filed with the Regional Trial Court of Makati City a verified petition for the declaration of presumptive death of her husband, Salas, Jr., who had then been missing for more than seven (7) years. It was granted on December 12, 1996. 5 Meantime, respondent Laperal Realty subdivided the land of Salas, Jr. and sold subdivided portions thereof to respondents Rockway Real Estate Corporation and South Ridge Village, Inc. on February 22, 1990; to respondent spouses Abrajano and Lava and Oscar Dacillo on June 27, 1991; and to respondents Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capalan on June 4, 1996 (all of whom are hereinafter referred to as respondent lot buyers).

In a catena of cases 11 inspired by Justice Malcolm's provocative dissent in Vega v. San Carlos Milling Co. 12, this Court has recognized arbitration agreements as valid, binding, enforceable and not contrary to public policy so much so that when there obtains a written provision for arbitration which is not complied with, the trial court should suspend the proceedings and order the parties to proceed to arbitration in accordance with the terms of their agreement 13. Arbitration is the "wave of the future" in dispute resolution. 14 To brush aside a

contractual agreement calling for arbitration in case of disagreement between parties would be a step backward. 15 Nonetheless, we grant the petition. A submission to arbitration is a contract. 16 As such, the Agreement, containing the stipulation on arbitration, binds the parties thereto, as well as their assigns and heirs. 17 But only they. Petitioners, as heirs of Salas, Jr., and respondent Laperal Realty are certainly bound by the Agreement. If respondent Laperal Realty had assigned its rights under the Agreement to a third party, making the former, the assignor, and the latter, the assignee, such assignee would also be bound by the arbitration provision since assignment involves such transfer of rights as to vest in the assignee the power to enforce them to the same extent as the assignor could have enforced them against the debtor 18 or in this case, against the heirs of the original party to the Agreement. However, respondents Rockway Real Estate Corporation, South Ridge Village, Inc., Maharami Development Corporation, spouses Abrajano, spouses Lava, Oscar Dacillo, Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capellan are not assignees of the rights of respondent Laperal Realty under the Agreement to develop Salas, Jr.'s land and sell the same. They are, rather, buyers of the land that respondent Laperal Realty was given the authority to develop and sell under the Agreement. As such, they are not "assigns" contemplated in Art. 1311 of the New Civil Code which provides that "contracts take effect only between the parties, their assigns and heirs". Petitioners claim that they suffered lesion of more than one-fourth (1/4) of the value of Salas, Jr.'s land when respondent Laperal Realty subdivided it and sold portions thereof to respondent lot buyers. Thus, they instituted action 19 against both respondent Laperal Realty and respondent lot buyers for rescission of the sale transactions and reconveyance to them of the subdivided lots. They argue that rescission, being their cause of action, falls under the exception clause in Sec. 2 of Republic Act No. 876 which provides that "such submission [to] or contract [of arbitration] shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract". The petitioners' contention is without merit. For while rescission, as a general rule, is an arbitrable issue, 20 they impleaded in the suit for rescission the respondent lot buyers who are neither parties to the Agreement nor the latter's assigns or heirs. Consequently, the right to arbitrate as provided in Article VI of the Agreement was never vested in respondent lot buyers. Respondent Laperal Realty, as a contracting party to the Agreement, has the right to compel petitioners to first arbitrate before seeking judicial relief. However, to split the proceedings into arbitration for respondent Laperal Realty and trial for the respondent lot buyers, or to hold trial in abeyance pending arbitration between petitioners and respondent Laperal Realty, would in effect result in multiplicity of suits, duplicitous procedure and unnecessary delay. On the other hand, it would be in the interest of justice if the trial court hears the complaint against all herein respondents and adjudicates petitioners' rights as against theirs in a single and complete proceeding. WHEREFORE, the instant petition is hereby GRANTED. The Order dated August 19, 1998 of Branch 85 of the Regional Trial Court of Lipa City is hereby NULLIFIED and SET ASIDE. Said court is hereby ordered to proceed with the hearing of Civil Case No. 98-0047.

Costs against private respondents. SO ORDERED.

G.R. No. 120105 March 27, 1998 BF CORPORATION, petitioner, vs. COURT OF APPEALS, SHANGRI-LA PROPERTIES, INC., RUFO B. COLAYCO, ALFREDO C. RAMOS, MAXIMO G. LICAUCO III and BENJAMIN C. RAMOS, respondents.

submitted a copy of the conditions of the contract containing the arbitration clause that it failed to append to its motion to suspend proceedings. Petitioner opposed said motion claiming that there was no formal contract between the parties although they entered into an agreement defining their rights and obligations in undertaking the project. It emphasized that the agreement did not provide for arbitration and therefore the court could not be deprived of jurisdiction conferred by law by the mere allegation of the existence of an arbitration clause in the agreement between the parties. In reply to said opposition, SPI insisted that there was such an arbitration clause in the existing contract between petitioner and SPI. It alleged that suspension of proceedings would not necessarily deprive the court of its jurisdiction over the case and that arbitration would expedite rather than delay the settlement of the parties' respective claims against each other. In a rejoinder to SPI's reply, petitioner reiterated that there was no arbitration clause in the contract between the parties. It averred that granting that such a clause indeed formed part of the contract, suspension of the proceedings was no longer proper. It added that defendants should be declared in default for failure to file their answer within the reglementary period. In its sur-rejoinder, SPI pointed out the significance of petitioner's admission of the due execution of the "Articles of Agreement." Thus, on page D/6 thereof, the signatures of Rufo B. Colayco, SPI president, and Bayani Fernando, president of petitioner appear, while page D/7 shows that the agreement is a public document duly notarized on November 15, 1991 by Notary Public Nilberto R. Briones as document No. 345, page 70, book No. LXX, Series of 1991 of his notarial register. 5 Thereafter, upon a finding that an arbitration clause indeed exists, the lower court 6 denied the motion to suspend proceedings, thus: It appears from the said document that in the letter-agreement dated May 30, 1991 (Annex C, Complaint), plaintiff BF and defendant Shangri-La Properties, Inc. agreed upon the terms and conditions of the Builders Work for the EDSA Plaza Project (Phases I, II and Carpark), subject to the execution by the parties of a formal trade contract. Defendants have submitted a copy of the alleged trade contract, which is entitled "Contract Documents For Builder's Work Trade Contractor" dated 01 May 1991, page 2 of which is entitled "Contents of Contract Documents" with a list of the documents therein contained, and Section A thereof consists of the abovementioned Letter-Agreement dated May 30, 1991. Section C of the said Contract Documents is entitled "Articles of Agreement and Conditions of Contract" which, per its Index, consists of Part A (Articles of Agreement) and B (Conditions of Contract). The said Articles of Agreement appears to have been duly signed by President Rufo B. Colayco of Shangri-La Properties, Inc. and President Bayani F. Fernando of BF and their witnesses, and was thereafter acknowledged before Notary Public Nilberto R. Briones of Makati, Metro Manila on November 15, 1991. The said Articles of Agreement also provides that the "Contract Documents" therein listed "shall be deemed an integral part of this Agreement", and one of the said documents is the "Conditions of Contract" which contains the Arbitration Clause relied upon by the defendants in their Motion to Suspend Proceedings.

ROMERO, J.: The basic issue in this petition for review on certiorari is whether or not the contract for the construction of the EDSA Plaza between petitioner BF Corporation and respondent Shangri-la Properties, Inc. embodies an arbitration clause in case of disagreement between the parties in the implementation of contractual provisions. Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an agreement whereby the latter engaged the former to construct the main structure of the "EDSA Plaza Project," a shopping mall complex in the City of Mandaluyong. The construction work was in progress when SPI decided to expand the project by engaging the services of petitioner again. Thus, the parties entered into an agreement for the main contract works after which construction work began. However, petitioner incurred delay in the construction work that SPI considered as "serious and substantial." 1 On the other hand, according to petitioner, the construction works "progressed in faithful compliance with the First Agreement until a fire broke out on November 30, 1990 damaging Phase I" of the Project. 2 Hence, SPI proposed the re-negotiation of the agreement between them. Consequently, on May 30, 1991, petitioner and SPI entered into a written agreement denominated as "Agreement for the Execution of Builder's Work for the EDSA Plaza Project." Said agreement would cover the construction work on said project as of May 1, 1991 until its eventual completion. According to SPI, petitioner "failed to complete the construction works and abandoned the project." 3 This resulted in disagreements between the parties as regards their respective liabilities under the contract. On July 12, 1993, upon SPI's initiative, the parties' respective representatives met in conference but they failed to come to an agreement. 4 Barely two days later or on July 14, 1993, petitioner filed with the Regional Trial Court of Pasig a complaint for collection of the balance due under the construction agreement. Named defendants therein were SPI and members of its board of directors namely, Alfredo C. Ramos, Rufo B. Calayco, Antonio B. Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III and Benjamin C. Ramos. On August 3, 1993, SPI and its co-defendants filed a motion to suspend proceedings instead of filing an answer. The motion was anchored on defendants' allegation that the formal trade contract for the construction of the project provided for a clause requiring prior resort to arbitration before judicial intervention could be invoked in any dispute arising from the contract. The following day, SPI

This Court notes, however, that the 'Conditions of Contract' referred to, contains the following provisions: 3. Contract Document. Three copies of the Contract Documents referred to in the Articles of Agreement shall be signed by the parties to the contract and distributed to the Owner and the Contractor for their safe keeping." (emphasis supplied). And it is significant to note further that the said "Conditions of Contract" is not duly signed by the parties on any page thereof although it bears the initials of BF's representatives (Bayani F. Fernando and Reynaldo M. de la Cruz) without the initials thereon of any representative of Shangri-La Properties, Inc. Considering the insistence of the plaintiff that the said Conditions of Contract was not duly executed or signed by the parties, and the failure of the defendants to submit any signed copy of the said document, this Court entertains serious doubt whether or not the arbitration clause found in the said Conditions of Contract is binding upon the parties to the Articles of Agreement." (Emphasis supplied.) The lower court then ruled that, assuming that the arbitration clause was valid and binding, still, it was "too late in the day for defendants to invoke arbitration." It quoted the following provision of the arbitration clause: Notice of the demand for arbitration of a dispute shall be filed in writing with the other party to the contract and a copy filed with the Project Manager. The demand for arbitration shall be made within a reasonable time after the dispute has arisen and attempts to settle amicably have failed; in no case, however, shall the demand he made be later than the time of final payment except as otherwise expressly stipulated in the contract. Against the above backdrop, the lower court found that per the May 30, 1991 agreement, the project was to be completed by October 31, 1991. Thereafter, the contractor would pay P80,000 for each day of delay counted from November 1, 1991 with "liquified (sic) damages up to a maximum of 5% of the total contract price." The lower court also found that after the project was completed in accordance with the agreement that contained a provision on "progress payment billing," SPI "took possession and started operations thereof by opening the same to the public in November, 1991." SPI, having failed to pay for the works, petitioner billed SPI in the total amount of P110,883,101.52, contained in a demand letter sent by it to SPI on February 17, 1993. Instead of paying the amount demanded, SPI set up its own claim of P220,000,000.00 and scheduled a conference on that claim for July 12, 1993. The conference took place but it proved futile. Upon the above facts, the lower court concluded:

Considering the fact that under the supposed Arbitration Clause invoked by defendants, it is required that "Notice of the demand for arbitration of a dispute shall be filed in writing with the other party . . . . in no case . . . . later than the time of final payment . . . "which apparently, had elapsed, not only because defendants had taken possession of the finished works and the plaintiff's billings for the payment thereof had remained pending since November, 1991 up to the filing of this case on July 14, 1993, but also for the reason that defendants have failed to file any written notice of any demand for arbitration during the said long period of one year and eight months, this Court finds that it cannot stay the proceedings in this case as required by Sec. 7 of Republic Act No. 876, because defendants are in default in proceeding with such arbitration. The lower court denied SPI's motion for reconsideration for lack of merit and directed it and the other defendants to file their responsive pleading or answer within fifteen (15) days from notice. Instead of filing an answer to the complaint, SPI filed a petition for certiorari under Rule 65 of the Rules of Court before the Court of Appeals. Said appellate court granted the petition, annulled and set aside the orders and stayed the proceedings in the lower court. In so ruling, the Court of Appeals held: The reasons given by the respondent Court in denying petitioners' motion to suspend proceedings are untenable. 1. The notarized copy of the articles of agreement attached as Annex A to petitioners' reply dated August 26, 1993, has been submitted by them to the respondent Court (Annex G, petition). It bears the signature of petitioner Rufo B. Colayco, president of petitioner Shangri-La Properties, Inc., and of Bayani Fernando, president of respondent Corporation (Annex G-1, petition). At page D/4 of said articles of agreement it is expressly provided that the conditions of contract are "deemed an integral part" thereof (page 188, rollo). And it is at pages D/42 to D/44 of the conditions of contract that the provisions for arbitration are found (Annexes G-3 to G-5, petition, pp. 227-229). Clause No. 35 on arbitration specifically provides: Provided always that in case any dispute or difference shall arise between the Owner or the Project Manager on his behalf and the Contractor, either during the progress or after the completion or abandonment of the Works as to the construction of this Contract or as to any matter or thing of whatsoever nature arising thereunder or in connection therewith (including any matter or being left by this Contract to the discretion of the Project Manager or the withholding by the Project Manager of any certificate to which the Contractor may claim to be entitled or the measurement and valuation mentioned in clause 30 (5) (a) of these Conditions' or the rights and liabilities of the parties under clauses 25, 26, 32 or 33 of these Conditions), the Owner and the Contractor hereby agree to exert all efforts to settle their differences or dispute amicably. Failing these efforts then such dispute or difference

shall be referred to Arbitration in accordance with the rules and procedures of the Philippine Arbitration Law. The fact that said conditions of contract containing the arbitration clause bear only the initials of respondent Corporation's representatives, Bayani Fernando and Reynaldo de la Cruz, without that of the representative of petitioner Shangri-La Properties, Inc. does not militate against its effectivity. Said petitioner having categorically admitted that the document, Annex A to its reply dated August 26, 1993 (Annex G, petition), is the agreement between the parties, the initial or signature of said petitioner's representative to signify conformity to arbitration is no longer necessary. The parties, therefore, should be allowed to submit their dispute to arbitration in accordance with their agreement. 2. The respondent Court held that petitioners "are in default in proceeding with such arbitration." It took note of "the fact that under the supposed Arbitration Clause invoked by defendants, it is required that "Notice of the demand for arbitration of a dispute shall be filed in writing with the other party . . . in no case . . . later than the time of final payment," which apparently, had elapsed, not only because defendants had taken possession of the finished works and the plaintiff's billings for the payment thereof had remained pending since November, 1991 up to the filing of this case on July 14, 1993, but also for the reason that defendants have failed to file any written notice of any demand for arbitration during the said long period of one year and eight months, . . . ." Respondent Court has overlooked the fact that under the arbitration clause Notice of the demand for arbitration dispute shall be filed in writing with the other party to the contract and a copy filed with the Project Manager. The demand for arbitration shall be made within a reasonable time after the dispute has arisen and attempts to settle amicably had failed; in no case, however, shall the demand be made later than the time of final payment except as otherwise expressly stipulated in the contract (emphasis supplied) quoted in its order (Annex A, petition). As the respondent Court there said, after the final demand to pay the amount of P110,883,101.52, instead of paying, petitioners set up its own claim against respondent Corporation in the amount of P220,000,000.00 and set a conference thereon on July 12, 1993. Said conference proved futile. The next day, July 14, 1993, respondent Corporation filed its complaint against petitioners. On August 13, 1993, petitioners wrote to respondent Corporation requesting arbitration. Under the circumstances, it cannot be said that petitioners' resort to arbitration was made beyond reasonable time. Neither can they be considered in default of their obligation to respondent Corporation. Hence, this petition before this Court. Petitioner assigns the following errors:

A THE COURT OF APPEALS ERRED IN ISSUING THE EXTRAORDINARY WRIT OF CERTIORARIALTHOUGH THE REMEDY OF APPEAL WAS AVAILABLE TO RESPONDENTS. B THE COURT OF APPEALS ERRED IN FINDING GRAVE ABUSE OF DISCRETION IN THE FACTUAL FINDINGS OF THE TRIAL COURT THAT: (i) THE PARTIES DID NOT ENTER INTO AN AGREEMENT TO ARBITRATE. (ii) ASSUMING THAT THE PARTIES DID ENTER INTO THE AGREEMENT TO ARBITRATE, RESPONDENTS ARE ALREADY IN DEFAULT IN INVOKING THE AGREEMENT TO ARBITRATE. On the first assigned error, petitioner contends that the Order of the lower court denying the motion to suspend proceedings "is a resolution of an incident on the merits." As such, upon the continuation of the proceedings, the lower court would appreciate the evidence adduced in their totality and thereafter render a decision on the merits that may or may not sustain the existence of an arbitration clause. A decision containing a finding that the contract has no arbitration clause can then be elevated to a higher court "in an ordinary appeal" where an adequate remedy could be obtained. Hence, to petitioner, the Court of Appeals should have dismissed the petition for certioraribecause the remedy of appeal would still be available to private respondents at the proper time. 7 The above contention is without merit. The rule that the special civil action of certiorari may not be invoked as a substitute for the remedy of appeal is succinctly reiterated in Ongsitco v. Court of Appeals 8 as follows: . . . . Countless times in the past, this Court has held that "where appeal is the proper remedy,certiorari will not lie." The writs of certiorari and prohibition are remedies to correct lack or excess of jurisdiction or grave abuse of discretion equivalent to lack of jurisdiction committed by a lower court. "Where the proper remedy is appeal, the action for certiorari will not be entertained. . . . Certiorari is not a remedy for errors of judgment. Errors of judgment are correctible by appeal, errors of jurisdiction are reviewable by certiorari." Rule 65 is very clear. The extraordinary remedies of certiorari, prohibition and mandamus are available only when "there is no appeal or any plain, speedy and adequate remedy in the ordinary course of law . . . ." That is why they are referred to as "extraordinary." . . . .

The Court has likewise ruled that "certiorari will not be issued to cure errors in proceedings or correct erroneous conclusions of law or fact. As long as a court acts within its jurisdiction, any alleged errors committed in the exercise of its jurisdiction will amount to nothing more than errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari." 9 This is not exactly so in the instant case. While this Court does not deny the eventual jurisdiction of the lower court over the controversy, the issue posed basically is whether the lower court prematurely assumed jurisdiction over it. If the lower court indeed prematurely assumed jurisdiction over the case, then it becomes an error of jurisdiction which is a proper subject of a petition for certiorari before the Court of Appeals. And if the lower court does not have jurisdiction over the controversy, then any decision or order it may render may be annulled and set aside by the appellate court. However, the question of jurisdiction, which is a question of law depends on the determination of the existence of the arbitration clause, which is a question of fact. In the instant case, the lower court found that there exists an arbitration clause. However, it ruled that in contemplation of law, said arbitration clause does not exist. The issue, therefore, posed before the Court of Appeals in a petition for certiorari is whether the Arbitration Clause does not in fact exist. On its face, the the question is one of fact which is not proper in a petition for certiorari. The Court of Appeals found that an Arbitration Clause does in fact exist. In resolving said question of fact, the Court of Appeals interpreted the construction of the subject contract documents containing the Arbitration Clause in accordance with Republic Act No. 876 (Arbitration Law) and existing jurisprudence which will be extensively discussed hereunder. In effect, the issue posed before the Court of Appeals was likewise a question of law. Being a question of law, the private respondents rightfully invoked the special civil action of certiorari. It is that mode of appeal taken by private respondents before the Court of Appeals that is being questioned by the petitioners before this Court. But at the heart of said issue is the question of whether there exists an Arbitration Clause because if an Arbitration Clause does not exist, then private respondents took the wrong mode of appeal before the Court of Appeals. For this Court to be able to resolve the question of whether private respondents took the proper mode of appeal, which, incidentally, is a question of law, then it has to answer the core issue of whether there exists an Arbitration Clause which, admittedly, is a question of fact. Moreover, where a rigid application of the rule that certiorari cannot be a substitute for appeal will result in a manifest failure or miscarriage of justice, the provisions of the Rules of Court which are technical rules may be relaxed. 10 As we shall show hereunder, had the Court of Appeals dismissed the petition for certiorari, the issue of whether or not an arbitration clause exists in the contract would not have been resolved in accordance with evidence extant in the record of the case. Consequently, this would have resulted in a judicial rejection of a contractual provision agreed by the parties to the contract.

In the same vein, this Court holds that the question of the existence of the arbitration clause in the contract between petitioner and private respondents is a legal issue that must be determined in this petition for review on certiorari. Petitioner, while not denying that there exists an arbitration clause in the contract in question, asserts that in contemplation of law there could not have been one considering the following points. First, the trial court found that the "conditions of contract" embodying the arbitration clause is not duly signed by the parties. Second, private respondents misrepresented before the Court of Appeals that they produced in the trial court a notarized duplicate original copy of the construction agreement because what were submitted were mere photocopies thereof. The contract(s) introduced in court by private respondents were therefore "of dubious authenticity" because: (a) the Agreement for the Execution of Builder's Work for the EDSA Plaza Project does not contain an arbitration clause, (b) private respondents "surreptitiously attached as Annexes "G-3" to "G-5" to their petition before the Court of Appeals but these documents are not parts of the Agreement of the parties as "there was no formal trade contract executed," (c) if the entire compilation of documents "is indeed a formal trade contract," then it should have been duly notarized, (d) the certification from the Records Management and Archives Office dated August 26, 1993 merely states that "the notarial record of Nilberto Briones . . . is available in the files of (said) office as Notarial Registry Entry only," (e) the same certification attests that the document entered in the notarial registry pertains to the Articles of Agreement only without any other accompanying documents, and therefore, it is not a formal trade contract, and (f) the compilation submitted by respondents are a "mere hodge-podge of documents and do not constitute a single intelligible agreement." In other words, petitioner denies the existence of the arbitration clause primarily on the ground that the representatives of the contracting corporations did not sign the "Conditions of Contract" that contained the said clause. Its other contentions, specifically that insinuating fraud as regards the alleged insertion of the arbitration clause, are questions of fact that should have been threshed out below. This Court may as well proceed to determine whether the arbitration clause does exist in the parties' contract. Republic Act No. 876 provides for the formal requisites of an arbitration agreement as follows: Sec. 4. Form of arbitration agreement. A contract to arbitrate a controversy thereafter arising between the parties, as well as a submission to arbitrate an existing controversy, shall be in writing and subscribed by the party sought to be charged, or by his lawful agent. The making of a contract or submission for arbitration described in section two hereof, providing for arbitration of any controversy, shall be deemed a consent of the parties of the province or city where any of the parties resides, to enforce such contract of submission. (Emphasis supplied.). The formal requirements of an agreement to arbitrate are therefore the following: (a) it must be in writing and (b) it must be subscribed by the parties or their representatives. There is no denying that the parties entered into a written contract that was submitted in evidence before the lower court. To

"subscribe" means to write underneath, as one's name; to sign at the end of a document. 11 That word may sometimes be construed to mean to give consent to or to attest. 12 The Court finds that, upon a scrutiny of the records of this case, these requisites were complied with in the contract in question. The Articles of Agreement, which incorporates all the other contracts and agreements between the parties, was signed by representatives of both parties and duly notarized. The failure of the private respondent's representative to initial the "Conditions of Contract" would therefor not affect compliance with the formal requirements for arbitration agreements because that particular portion of the covenants between the parties was included by reference in the Articles of Agreement. Petitioner's contention that there was no arbitration clause because the contract incorporating said provision is part of a "hodge-podge" document, is therefore untenable. A contract need not be contained in a single writing. It may be collected from several different writings which do not conflict with each other and which, when connected, show the parties, subject matter, terms and consideration, as in contracts entered into by correspondence. 13 A contract may be encompassed in several instruments even though every instrument is not signed by the parties, since it is sufficient if the unsigned instruments are clearly identified or referred to and made part of the signed instrument or instruments. Similarly, a written agreement of which there are two copies, one signed by each of the parties, is binding on both to the same extent as though there had been only one copy of the agreement and both had signed it. 14 The flaw in petitioner's contentions therefore lies in its having segmented the various components of the whole contract between the parties into several parts. This notwithstanding, petitioner ironically admits the execution of the Articles of Agreement. Notably, too, the lower court found that the said Articles of Agreement "also provides that the 'Contract Documents' therein listed 'shall be deemed an integral part of this Agreement,' and one of the said documents is the 'Conditions of Contract' which contains the Arbitration Clause.'" It is this Articles of Agreement that was duly signed by Rufo B. Colayco, president of private respondent SPI, and Bayani F. Fernando, president of petitioner corporation. The same agreement was duly subscribed before notary public Nilberto R. Briones. In other words, the subscription of the principal agreement effectively covered the other documents incorporated by reference therein. This Court likewise does not find that the Court of Appeals erred in ruling that private respondents were not in default in invoking the provisions of the arbitration clause which states that "(t)he demand for arbitration shall be made within a reasonable time after the dispute has arisen and attempts to settle amicably had failed." Under the factual milieu, private respondent SPI should have paid its liabilities tinder the contract in accordance with its terms. However, misunderstandings appeared to have cropped up between the parties ostensibly brought about by either delay in the completion of the construction work or by force majeure or the fire that partially gutted the project. The almost two-year delay in paying its liabilities may not therefore be wholly ascribed to private respondent SPI. Besides, private respondent SPI's initiative in calling for a conference between the parties was a step towards the agreed resort to arbitration. However, petitioner posthaste filed the complaint before the lower court. Thus, while private respondent SPI's request for arbitration on August 13, 1993 might appear an afterthought as it was made after it had filed the motion to suspend

proceedings, it was because petitioner also appeared to act hastily in order to resolve the controversy through the courts. The arbitration clause provides for a "reasonable time" within which the parties may avail of the relief under that clause. "Reasonableness" is a relative term and the question of whether the time within which an act has to be done is reasonable depends on attendant circumstances. 15 This Court finds that under the circumstances obtaining in this case, a one-month period from the time the parties held a conference on July 12, 1993 until private respondent SPI notified petitioner that it was invoking the arbitration clause, is a reasonable time. Indeed, petitioner may not be faulted for resorting to the court to claim what was due it under the contract. However, we find its denial of the existence of the arbitration clause as an attempt to cover up its misstep in hurriedly filing the complaint before the lower court. In this connection, it bears stressing that the lower court has not lost its jurisdiction over the case. Section 7 of Republic Act No. 876 provides that proceedings therein have only been stayed. After the special proceeding of arbitration 16 has been pursued and completed, then the lower court may confirm the award 17 made by the arbitrator. It should be noted that in this jurisdiction, arbitration has been held valid and constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876, this Court has countenanced the settlement of disputes through arbitration. 18 Republic Act No. 876 was adopted to supplement the New Civil Code's provisions on arbitration. 19 Its potentials as one of the alternative dispute resolution methods that are now rightfully vaunted as "the wave of the future" in international relations, is recognized worldwide. To brush aside a contractual agreement calling for arbitration in case of disagreement between the parties would therefore be a step backward. WHEREFORE, the questioned Decision of the Court of Appeals is hereby AFFIRMED and the petition for certiorariDENIED. This Decision is immediately executory. Costs against petitioner. SO ORDERED.

G.R. No. L-27010

April 30, 1969

MARLENE DAUDEN-HERNAEZ, petitioner, vs. HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of Quezon City, HOLLYWOOD FAR EAST PRODUCTIONS, INC., and RAMON VALENZUELA, respondents. R. M. Coronado and Associates for petitioner. Francisco Lavides for respondent. REYES, J.B.L., Acting C.J.: Petition for a writ of certiorari to set aside certain orders of the Court of First Instance of Quezon City (Branch IV), in its Civil Case No. Q-10288, dismissing a complaint for breach of contract and damages, denying reconsideration, refusing to admit an amended complaint, and declaring the dismissal final and unappealable. The essential facts are the following: Petitioner Marlene Dauden-Hernaez, a motion picture actress, had filed a complaint against herein private respondents, Hollywood Far East Productions, Inc., and its President and General Manager, Ramon Valenzuela, to recover P14,700.00 representing a balance allegedly due said petitioner for her services as leading actress in two motion pictures produced by the company, and to recover damages. Upon motion of defendants, the respondent court (Judge Walfrido de los Angeles presiding) ordered the complaint dismissed, mainly because the "claim of plaintiff was not evidenced by any written document, either public or private", and the complaint "was defective on its face" for violating Articles 1356 and 1358 of the Civil, Code of the Philippines, as well as for containing defective allege, petitions. Plaintiff sought reconsideration of the dismissal and for admission of an amended complaint, attached to the motion. The court denied reconsideration and the leave to amend; whereupon, a second motion for reconsideration was filed. Nevertheless, the court also denied it for being pro forma, as its allegations "are, more or less, the same as the first motion", and for not being accompanied by an affidavit of merits, and further declared the dismissal final and unappealable. In view of the attitude of the Court of First Instance, plaintiff resorted to this Court. The answer sets up the defense that "the proposed amended complaint did not vary in any material respect from the original complaint except in minor details, and suffers from the same vital defect of the original complaint", which is the violation of Article 1356 of the Civil Code, in that the contract sued upon was not alleged to be in writing; that by Article 1358 the writing was absolute and indispensable, because the amount involved exceeds five hundred pesos; and that the second motion for reconsideration did not interrupt the period for appeal, because it was not served on three days' notice. We shall take up first the procedural question. It is a well established rule in our jurisprudence that when a court sustains a demurrer or motion to dismiss it is error for the court to dismiss the

complaint without giving the party plaintiff an opportunity to amend his complaint if he so chooses. 1 Insofar as the first order of dismissal (Annex D, Petition) did not provide that the same was without prejudice to amendment of the complaint, or reserve to the plaintiff the right to amend his complaint, the said order was erroneous; and this error was compounded when the motion to accept the amended complaint was denied in the subsequent order of 3 October 1966 (Annex F, Petition). Hence, the petitioner-plaintiff was within her rights in filing her so-called second motion for reconsideration, which was actually a first motion against the refusal to admit the amended complaint. It is contended that the second motion for reconsideration was merely pro forma and did not suspend the period to appeal from the first order of dismissal (Annex D) because (1) it merely reiterated the first motion for reconsideration and (2) it was filed without giving the counsel for defendant-appellee the 3 days' notice provided by the rules. This argument is not tenable, for the reason that the second motion for reconsideration was addressed to the court' refusal to allow an amendment to the original complaint, and this was a ground not invoked in the first motion for reconsideration. Thus, the second motion to reconsider was really not pro forma, as it was based on a different ground, even if in its first part it set forth in greater detail the arguments against the correctness of the first order to dismiss. And as to the lack of 3 days' notice, the record shows that appellees had filed their opposition (in detail) to the second motion to reconsider (Answer, Annex 4); so that even if it were true that respondents were not given the full 3 days' notice they were not deprived of any substantial right. Therefore, the claim that the first order of dismissal had become final and unappealable must be overruled. It is well to observe in this regard that since a motion to dismiss is not a responsive pleading, the plaintiff-petitioner was entitled as of right to amend the original dismissed complaint. In Paeste vs. Jaurigue 94 Phil. 179, 181, this Court ruled as follows: Appellants contend that the lower court erred in not admitting their amended complaint and in holding that their action had already prescribed. Appellants are right on both counts. Amendments to pleadings are favored and should be liberally allowed in the furtherance of justice. (Torres vs. Tomacruz, 49 Phil. 913). Moreover, under section 1 of Rule 17, Rules of Court, a party may amend his pleading once as a matter of course, that is, without leave of court, at any time before a responsive pleading is served. A motion to dismiss is not a "responsive pleading". (Moran on the Rules of Court, vol. 1, 1952, ed., p. 376). As plaintiffs amended their complaint before it was answered, the motion to admit the amendment should not have been denied. It is true that the amendment was presented after the original complaint had been ordered dismissed. But that order was not yet final for it was still under reconsideration. The foregoing observations leave this Court free to discuss the main issue in this petition. Did the court below abuse its discretion in ruling that a contract for personal services involving more than P500.00 was either invalid of unenforceable under the last paragraph of Article 1358 of the Civil Code of the Philippines?

We hold that there was abuse, since the ruling herein contested betrays a basic and lamentable misunderstanding of the role of the written form in contracts, as ordained in the present Civil Code. In the matter of formalities, the contractual system of our Civil Code still follows that of the Spanish Civil Code of 1889 and of the "Ordenamiento de Alcala" 2 of upholding the spirit and intent of the parties over formalities: hence, in general, contracts are valid and binding from their perfection regardless of form whether they be oral or written. This is plain from Articles 1315 and 1356 of the present Civil Code. Thus, the first cited provision prescribes: ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. (Emphasis supplied) Concordantly, the first part of Article 1356 of the Code Provides: ART. 1356. Contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.... (Emphasis supplied) These essential requisites last mentioned are normally (1) consent (2) proper subject matter, and (3) consideration or causa for the obligation assumed (Article 1318). 3 So that once the three elements exist, the contract is generally valid and obligatory, regardless of the form, oral or written, in which they are couched.lawphi1.nt To this general rule, the Code admits exceptions, set forth in the second portion of Article 1356: However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable.... It is thus seen that to the general rule that the form (oral or written) is irrelevant to the binding effect inter partes of a contract that possesses the three validating elements of consent, subject matter, and causa, Article 1356 of the Code establishes only two exceptions, to wit: (a) Contracts for which the law itself requires that they be in some particular form (writing) in order to make themvalid and enforceable (the so-called solemn contracts). Of these the typical example is the donation of immovable property that the law (Article 749) requires to be embodied in a public instrument in order "that the donation may be valid", i.e., existing or binding. Other instances are the donation of movables worth more than P5,000.00 which must be in writing, "otherwise the donation shall be void" (Article 748); contracts to pay interest on loans (mutuum) that must be "expressly stipulated in writing" (Article 1956); and the agreements contemplated by Article 1744, 1773, 1874 and 2134 of the present Civil Code.

(b) Contracts that the law requires to be proved by some writing (memorandum) of its terms, as in those covered by the old Statute of Frauds, now Article 1403(2) of the Civil Code. Their existence not being provable by mere oral testimony (unless wholly or partly executed), these contracts are exceptional in requiring a writing embodying the terms thereof for their enforceability by action in court. The contract sued upon by petitioner herein (compensation for services) does not come under either exception. It is true that it appears included in Article 1358, last clause, providing that "all other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one." But Article 1358 nowhere provides that the absence of written form in this case will make the agreement invalid or unenforceable. On the contrary, Article 1357 clearly indicates that contracts covered by Article 1358 are binding and enforceable by action or suit despite the absence of writing. ART. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action the contract. (Emphasis supplied) . It thus becomes inevitable to conclude that both the court a quo as well as the private respondents herein were grossly mistaken in holding that because petitioner Dauden's contract for services was not in writing the same could not be sued upon, or that her complaint should be dismissed for failure to state a cause of action because it did not plead any written agreement. The basic error in the court's decision lies in overlooking that in our contractual system it is not enough that the law should require that the contract be in writing, as it does in Article 1358. The law must further prescribe that without the writing the contract is not valid or not enforceable by action. WHEREFORE, the order dismissing the complaint is set aside, and the case is ordered remanded to the court of origin for further proceedings not at variance with this decision. Costs to be solidarity paid by private respondents Hollywood Far East Productions, Inc., and Ramon Valenzuela.

G.R. No. 78389 October 16, 1989 JOSE LUIS MARTIN C. GASCON, FAUSTINO "BONG" L. LAPIRA, and SPOUSES ALBERTO and KARLA LIM,petitioners, vs. The Hon. JOKER T. ARROYO, in his official capacity as Executive Secretary to the President, Hon. TEODORO C. BENIGNO, as Press Secretary, Hon. REINERIO REYES, as the Secretary of Transportation and Communication, Hon. JOSE ALCUAZ, as Chairman of the National Telecommunications Commission, Hon. CONRADO A. LIMCAOCO, JR., as the Officer-inCharge of the People's Television 4, ABS-CBN BROADCASTING CORPORATION, and MESSRS. VICENTE ABAD SANTOS, PASTOR DEL ROSARIO and CATALINO MACARAIG, JR., in their respective capacities as Chairman and Members of the "Arbitration Committee", respondents.

On 13 June 1986, the Lopez family made a written request to the PCGG for the return of TV Station Channel 2. On 18 June 1986, the PCGG approved the return of TV Station Channel 2 to the Lopez family. 2 The return was made on 18 October 1986. Thereafter, the Lopez family requested for the return of TV Station Channel 4. Acting upon the request, respondent Executive Secretary, by authority of the President, entered into with the ABSCBN Broadcasting Corporation, represented by its President, Eugenio Lopez, Jr., an "Agreement to Arbitrate", 3 pursuant to which an Arbitration Committee was created, composed of Atty. Catalino Macaraig, Jr., for the Republic of the Philippines, Atty. Pastor del Rosario, for ABS-CBN, and retired Justice Vicente Abad Santos, as Chairman. Thereupon, petitioners,as taxpayers, filed the instant petition. Before discussing the issues raised in the present petition, the Court will first resolve the question of whether or not the herein petitioners have the legal personality or standing to the the instant case. There have been several cases wherein the Court recognized the right of a taxpayer to file an action questioning the validity or constitutionality of a statute or law, on the theory that the expenditure of public funds by an officer of the government for the purpose of administering or implementing an unconstitutional or invalid law, constitutes a misapplication of such funds. 4 The present case, however, is not an action to question the constitutionality or validity of a statute or law. It is an action to annul and set aside the "Agreement to Arbitrate", which, as between the parties, is contractual in character. Petitioners have not shown that they have a legal interest in TV Station Channel 4 and that they will be adversely affected if and when the said television station is returned to the Lopez family. Petitioners, therefore, have no legal standing to file the present petition. In addition, the petition is devoid of merit.

PADILLA, J.: In this petition for certiorari and prohibition, with prayer for issuance of writ of preliminary injunction or temporary restraining order, petitioners seek to annul and set aside the "Agreement to Arbitrate" entered into by and between the Republic of the Philippines, represented by Executive Secretary Joker T. Arroyo, and ABS-CBN Broadcasting Corporation, represented by its President, Eugenio Lopez, Jr., dated 6 January 1987, to settle the claims of ABS-CBN for the return of radio and television stations (TV Station Channel 4), and to enjoin the Arbitration Committee created under the aforesaid agreement from adjudicating the claims of ABS-CBN. The record discloses the following facts: The Lopez family is the owner of two (2) television stations, namely: Channels 2 and 4 which they have operated through the ABS-CBN Broadcasting Corporation. When martial law was declared on 21 September 1972, TV Channel 4 was closed by the military; thereafter, its facilities were taken over by the Kanlaon Broadcasting System which operated it as a commercial TV station. In 1978, the said TV station and its facilities were taken over by the National Media Production Center (NMPC), which operated it as the Maharlika Broadcasting System TV 4 (MBS-4). After the February 1986 EDSA revolution, the Presidential Commission on Good Government (PCGG) sequestered the aforementioned TV Stations, and, thereafter, the Office of Media Affairs took over the operation of TV Channel 4. On 17 April 1986, the Lopez family, through counsel, ex-Senator Lorenzo Tanada, requested President Aquino to order the return to the Lopez family of TV Stations 2 and 4. 1

Under the Provisional Constitution of the Republic of the Philippines also known as the Freedom Constitution), which was in force and effect when the "Agreement to Arbitrate" was signed by the parties thereto on 6 January 1987, the President exercised both the legislative and executive powers of the Government. As Chief Executive, the President was (and even now) "assisted by a Cabinet" composed of Ministers (now Secretaries), who were appointed by and accountable to the President. 5 In other words, the Members of the cabinet, as heads of the various departments, are the assistants and agents of the Chief Executive, and, except in cases where the Chief Executive is required by the Constitution or the law to act in person, or where the exigencies of the situation demand that he act personally, the multifarious executive and administrative functions of the Chief Executive are performed by and through the executive departments, and the acts of the heads of such departments performed in the regular course of business, are, unless disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief Executive. 6 Respondent Executive Secretary had, therefore, the power and authority to enter into the "Agreement to Arbitrate" with the ABS- CBN Broadcasting Corporation, as he acted for and in behalf of the President when he signed it; hence, the aforesaid agreement is valid and binding upon the Republic of the Philippines, as a party thereto.

Moreover, the settlement of controversies is not vested in the courts of justice alone to the exclusion of other agencies or bodies. Whenever a controversy arises, either or both parties to the controversy may file the proper action in court. However, the parties may also resort to arbitration under RA 876 which is a much faster way of settling their controversy, compared to how long it would take if they were to go to court. In entering into the "Agreement to Arbitrate", the Executive branch of the government merely opted to avail itself of an alternative mode of settling the claim of the private respondent ABS-CBN Broadcasting Corporation for the return of TV Station Channel 4. Court held that where the government takes property from a private landowner for public use without going through the legal process of expropriation or negotiated sale, the aggrieved party may properly maintain a suit against the government without thereby violating the doctrine of governmental immunity from suit without its consent. That is, as it should be, for the doctrine of governmental immunity from suit cannot serve as an instrument for perpetrating an injustice to a citizen. 8 Finally, neither the "convening of Congress" nor the "recent declaration of the President that PTV-4 shall remain as the information arm of the government" can render "ineffective and unenforceable" the "Agreement to Arbitrate" because at the time of the signing of the said agreement, the President was exercising both the legislative and executive powers of the Government, and since the "Agreement to Arbitrate" is valid, it is "enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract." 9 WHEREFORE, the petition is DISMISSED. SO ORDERED.

[G.R. No. 136154. February 7, 2001]

DEL MONTE CORPORATION-USA, PAUL E. DERBY, JR., DANIEL COLLINS and LUIS HIDALGO, petitioners, vs. COURT OF APPEALS, JUDGE BIENVENIDO L. REYES in his capacity as Presiding Judge, RTC-Br. 74, Malabon, Metro Manila, MONTEBUENO MARKETING, INC., LIONG LIONG C. SY and SABROSA FOODS, INC., respondents. DECISION BELLOSILLO, J.: This Petition for Review on certiorari assails the 17 July 1998 Decision[1] of the Court of Appeals affirming the 11 November 1997 Order[2] of the Regional Trial Court which denied petitioners Motion to Suspend Proceedings in Civil Case No. 2637-MN. It also questions the appellate courts Resolution[3] of 30 October 1998 which denied petitioners Motion for Reconsideration. On 1 July 1994, in a Distributorship Agreement, petitioner Del Monte Corporation-USA (DMCUSA) appointed private respondent Montebueno Marketing, Inc. (MMI) as the sole and exclusive distributor of its Del Monte products in the Philippines for a period of five (5) years, renewable for two (2) consecutive five (5) year periods with the consent of the parties. The Agreement provided, among others, for an arbitration clause which states 12. GOVERNING LAW AND ARBITRATION[4] This Agreement shall be governed by the laws of the State of California and/or, if applicable, the United States of America. All disputes arising out of or relating to this Agreement or the parties relationship, including the termination thereof, shall be resolved by arbitration in the City of San Francisco, State of California, under the Rules of the American Arbitration Association. The arbitration panel shall consist of three members, one of whom shall be selected by DMC-USA, one of whom shall be selected by MMI, and third of whom shall be selected by the other two members and shall have relevant experience in the industry x x x x In October 1994 the appointment of private respondent MMI as the sole and exclusive distributor of Del Monte products in the Philippines was published in several newspapers in the country. Immediately after its appointment, private respondent MMI appointed Sabrosa Foods, Inc. (SFI), with the approval of petitioner DMC-USA, as MMIs marketing arm to concentrate on its marketing and selling function as well as to manage its critical relationship with the trade. On 3 October 1996 private respondents MMI, SFI and MMIs Managing Director Liong Liong C. Sy (LILY SY) filed a Complaint[5] against petitioners DMC-USA, Paul E. Derby, Jr.,[6] Daniel Collins[7] and Luis Hidalgo,[8] and Dewey Ltd.[9] before the Regional Trial Court of Malabon, Metro Manila. Private respondents predicated their complaint on the alleged violations by petitioners of

Arts. 20,[10] 21[11] and 23[12] of the Civil Code. According to private respondents, DMC-USA products continued to be brought into the country by parallel importers despite the appointment of private respondent MMI as the sole and exclusive distributor of Del Monte products thereby causing them great embarrassment and substantial damage. They alleged that the products brought into the country by these importers were aged, damaged, fake or counterfeit, so that in March 1995 they had to cause, after prior consultation with Antonio Ongpin, Market Director for Special Markets of Del Monte Philippines, Inc., the publication of a "warning to the trade" paid advertisement in leading newspapers. Petitioners DMC-USA and Paul E. Derby, Jr., apparently upset with the publication, instructed private respondent MMI to stop coordinating with Antonio Ongpin and to communicate directly instead with petitioner DMC-USA through Paul E. Derby, Jr. Private respondents further averred that petitioners knowingly and surreptitiously continued to deal with the former in bad faith by involving disinterested third parties and by proposing solutions which were entirely out of their control. Private respondents claimed that they had exhausted all possible avenues for an amicable resolution and settlement of their grievances; that as a result of the fraud, bad faith, malice and wanton attitude of petitioners, they should be held responsible for all the actual expenses incurred by private respondents in the delayed shipment of orders which resulted in the extra handling thereof, the actual expenses and cost of money for the unused Letters of Credit (LCs) and the substantial opportunity losses due to created out-of-stock situations and unauthorized shipments of Del Monte-USA products to the Philippine Duty Free Area and Economic Zone; that the bad faith, fraudulent acts and willful negligence of petitioners, motivated by their determination to squeeze private respondents out of the outstanding and ongoing Distributorship Agreement in favor of another party, had placed private respondent LILY SY on tenterhooks since then; and, that the shrewd and subtle manner with which petitioners concocted imaginary violations by private respondent MMI of the Distributorship Agreement in order to justify the untimely termination thereof was a subterfuge. For the foregoing, private respondents claimed, among other reliefs, the payment of actual damages, exemplary damages, attorneys fees and litigation expenses. On 21 October 1996 petitioners filed a Motion to Suspend Proceedings[13] invoking the arbitration clause in their Agreement with private respondents. In a Resolution[14] dated 23 December 1996 the trial court deferred consideration of petitioners Motion to Suspend Proceedings as the grounds alleged therein did not constitute the suspension of the proceedings considering that the action was for damages with prayer for the issuance of Writ of Preliminary Attachment and not on the Distributorship Agreement. On 15 January 1997 petitioners filed a Motion for Reconsideration to which private respondents filed their Comment/Opposition. On 31 January 1997 petitioners filed their Reply. Subsequently, private respondents filed an Urgent Motion for Leave to Admit Supplemental Pleading dated 2 April 1997. This Motion was admitted, over petitioners opposition, in an Order of the trial court dated 27 June 1997. As a result of the admission of the Supplemental Complaint, petitioners filed on 22 July 1997 a Manifestation adopting their Motion to Suspend Proceedings of 17 October 1996 and Motion for Reconsiderationof 14 January 1997. On 11 November 1997 the Motion to Suspend Proceedings was denied by the trial court on the ground that it "will not serve the ends of justice and to allow said suspension will only delay the determination of the issues, frustrate the quest of the parties for a judicious determination of their respective claims, and/or deprive and delay their rights to seek redress."[15]

On appeal, the Court of Appeals affirmed the decision of the trial court. It held that the alleged damaging acts recited in the Complaint, constituting petitioners causes of action, required the interpretation of Art. 21 of the Civil Code [16] and that in determining whether petitioners had violated it "would require a full blown trial" making arbitration "out of the question."[17] Petitioners Motion for Reconsideration of the affirmation was denied. Hence, this Petition for Review. The crux of the controversy boils down to whether the dispute between the parties warrants an order compelling them to submit to arbitration. Petitioners contend that the subject matter of private respondents causes of action arises out of or relates to the Agreement between petitioners and private respondents. Thus, considering that the arbitration clause of the Agreement provides that all disputes arising out of or relating to the Agreement or the parties relationship, including the termination thereof, shall be resolved by arbitration, they insist on the suspension of the proceedings in Civil Case No. 2637-MN as mandated by Sec. 7 of RA 876[18] Sec. 7. Stay of Civil Action. If any suit or proceeding be brought upon an issue arising out of an agreement providing for arbitration thereof, the court in which such suit or proceeding is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration, shall stay the action or proceeding until an arbitration has been had in accordance with the terms of the agreement. Provided, That the applicant for the stay is not in default in proceeding with such arbitration. Private respondents claim, on the other hand, that their causes of action are rooted in Arts. 20, 21 and 23 of the Civil Code,[19] the determination of which demands a full blown trial, as correctly held by the Court of Appeals. Moreover, they claim that the issues before the trial court were not joined so that the Honorable Judge was not given the opportunity to satisfy himself that the issue involved in the case was referable to arbitration. They submit that, apparently, petitioners filed a motion to suspend proceedings instead of sending a written demand to private respondents to arbitrate because petitioners were not sure whether the case could be a subject of arbitration. They maintain that had petitioners done so and private respondents failed to answer the demand, petitioners could have filed with the trial court their demand for arbitration that would warrant a determination by the judge whether to refer the case to arbitration. Accordingly, private respondents assert that arbitration is out of the question. Private respondents further contend that the arbitration clause centers more on venue rather than on arbitration. They finally allege that petitioners filed their motion for extension of time to file this petition on the same date[20] petitioner DMC-USA filed a petition to compel private respondent MMI to arbitrate before the United States District Court in Northern California, docketed as Case No. C-98-4446. They insist that the filing of the petition to compel arbitration in the United States made the petition filed before this Court an alternative remedy and, in a way, an abandonment of the cause they are fighting for here in the Philippines, thus warranting the dismissal of the present petition before this Court. There is no doubt that arbitration is valid and constitutional in our jurisdiction. [21] Even before the enactment of RA 876, this Court has countenanced the settlement of disputes through arbitration. Unless the agreement is such as absolutely to close the doors of the courts against the parties, which agreement would be void, the courts will look with favor upon such amicable arrangement and will only interfere with great reluctance to anticipate or nullify the action of the arbitrator.[22] Moreover, as RA 876 expressly authorizes arbitration of domestic disputes, foreign

arbitration as a system of settling commercial disputes was likewise recognized when the Philippines adhered to the United Nations "Convention on the Recognition and the Enforcement of Foreign Arbitral Awards of 1958" under the 10 May 1965 Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and allowing enforcement of international arbitration agreements between parties of different nationalities within a contracting state.[23] A careful examination of the instant case shows that the arbitration clause in the Distributorship Agreement between petitioner DMC-USA and private respondent MMI is valid and the dispute between the parties is arbitrable. However, this Court must deny the petition. The Agreement between petitioner DMC-USA and private respondent MMI is a contract. The provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is part of that contract and is itself a contract. As a rule, contracts are respected as the law between the contracting parties and produce effect as between them, their assigns and heirs.[24] Clearly, only parties to the Agreement, i.e., petitioners DMC-USA and its Managing Director for Export Sales Paul E. Derby, Jr., and private respondents MMI and its Managing Director LILY SY are bound by the Agreement and its arbitration clause as they are the only signatories thereto. Petitioners Daniel Collins and Luis Hidalgo, and private respondent SFI, not parties to the Agreement and cannot even be considered assigns or heirs of the parties, are not bound by the Agreement and the arbitration clause therein. Consequently, referral to arbitration in the State of California pursuant to the arbitration clause and the suspension of the proceedings in Civil Case No. 2637-MN pending the return of the arbitral award could be called for[25] but only as to petitioners DMC-USA and Paul E. Derby, Jr., and private respondents MMI and LILY SY, and not as to the other parties in this case, in accordance with the recent case of Heirs of Augusto L. Salas, Jr. v. Laperal Realty Corporation, [26] which superseded that of Toyota Motor Philippines Corp. v. Court of Appeals.[27] In Toyota, the Court ruled that "[t]he contention that the arbitration clause has become dysfunctional because of the presence of third parties is untenable ratiocinating that "[c]ontracts are respected as the law between the contracting parties"[28] and that "[a]s such, the parties are thereby expected to abide with good faith in their contractual commitments."[29] However, in Salas, Jr., only parties to the Agreement, their assigns or heirs have the right to arbitrate or could be compelled to arbitrate. The Court went further by declaring that in recognizing the right of the contracting parties to arbitrate or to compel arbitration, the splitting of the proceedings to arbitration as to some of the parties on one hand and trial for the others on the other hand, or the suspension of trial pending arbitration between some of the parties, should not be allowed as it would, in effect, result in multiplicity of suits, duplicitous procedure and unnecessary delay.[30] The object of arbitration is to allow the expeditious determination of a dispute.[31] Clearly, the issue before us could not be speedily and efficiently resolved in its entirety if we allow simultaneous arbitration proceedings and trial, or suspension of trial pending arbitration. Accordingly, the interest of justice would only be served if the trial court hears and adjudicates the case in a single and complete proceeding.[32] WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals affirming the Order of the Regional Trial Court of Malabon, Metro Manila, in Civil Case No. 2637-MN, which denied petitionersMotion to Suspend Proceedings, is AFFIRMED. The Regional Trial Court concerned is directed to proceed with the hearing of Civil Case No. 2637-MN with dispatch. No costs. SO ORDERED.

G.R. No. 102881 December 7, 1992 TOYOTA CASE (Civil Case No. 91-2504) TOYOTA MOTOR PHILIPPINES CORPORATION, petitioner, vs. THE COURT OF APPEALS, HON. FERNANDO V. GOROSPE, JR. and SUN VALLEY MANUFACTURING & DEVELOPMENT CORPORATION, respondents. On September 11, 1991, Toyota filed a case against APT and Sun Valley docketed as Civil Case No. 91-2504 with the Regional Trial Court of Makati, Branch 146 presided by Judge Salvador Tensuan. The complaint was for the reformation of the Deed of Sale executed between Toyota and APT. Toyota alleges that the instrument failed to reflect the true intention of the parties, as evidenced by the failure of the title to include the 723 square meters strip of land. Toyota alleges that the discrepancy came about because of the serious flaw in the classification/cataloguing of properties bidded out for sale by APT. Toyota was made to understand that included in its perimeter fence is the disputed strip of land. Thus, Toyota sought the resurvey of the property to correct this error in the title. Sun Valley was impleaded considering that it purchased the adjoining land whose title allegedly included the 723 square meters property. On September 11, 1991, upon Toyota's application, Judge Tensuan issued a temporary restraining order (TRO) enjoining Sun Valley and APT from any act of destruction and removal of Toyota's walls and structures. Sun Valley and APT were respectively served summons on the following day. On September 16, 1991, Sun Valley filed a motion to dismiss, on the ground that the Toyota complaint failed to state a cause of action against it (1) since it was not a party to the contract of the deed of sale between Toyota and APT, and (2) the complaint was in effect a collateral attack on its title. On September 27, 1991, Judge Tensuan initially denied Toyota's application for preliminary injunction on the finding that there was no evidence of any threatened destruction, removal or dispossession of Toyota's property. On October 10, 1991, Judge Tensuan denied Sun Valley's motion to dismiss. Both Toyota and Sun Valley filed their respective motions for reconsideration. Toyota moved to reconsider the denial of its injunctive application while Sun Valley moved to reconsider the denial of its motion to dismiss. On October 30, 1991, APT filed its answer with affirmative defenses alleging that the complaint must be dismissed on the ground that Toyota and APT should first have resorted to arbitration as provided in Toyota's deed of sale with APT. On December 4, 1991, Toyota filed a motion alleging that Sun Valley's long threatened destruction and removal of Toyota's walls and structures were actually being implemented to which Judge Tensuan issued another TRO enjoining acts of destruction and removal of the perimeter walls and structures on the contested area. Consequently, on December 17, 1991, Judge Tensuan reconsidered his earlier denial of Toyota's application for injunction and granted a writ of preliminary injunction enjoining Sun Valley from proceeding with its threatened destruction and removal of Toyota's walls and directed Sun Valley to restore the premises to the status quo ante.

GUTIERREZ, JR., J.: This case involves a boundary dispute between Toyota Motor Phil. Corporation (Toyota) and Sun Valley Manufacturing and Development Corporation (Sun Valley). Both Toyota and Sun Valley are the registered owners of two (2) adjoining parcels of land situated in La Huerta, Paraaque, Metro Manila which they purchased from the Asset Privatization Trust (APT). The properties in question formerly belonged to Delta Motors Corporation (DMC). They were foreclosed by the Philippine National Bank (PNB) and later transferred to the national government through the APT for disposition. APT then proceeded to classify the DMC properties according to the existing improvements, i.e., buildings, driveways, parking areas, perimeter fence, walls and gates and the land on which the improvements stood. The entire DMC property is called GC III-Delta Motors Corporation, divided into Delta I, Delta II, and Delta III. Further subdivisions for the separate catalogues were made for each division e.g. Delta I into Lots 1, 2 and 3. After this classification, APT parcelled out and catalogued the properties for bidding and sale. Part of the duly parcelled Delta I property (Lot 2) was sold to Toyota through public bidding on May 12, 1988 for the amount of P95,385,000.00. After its purchase, Toyota constructed a concrete hollow block (CHB) perimeter fence around its alleged property. On October 5, 1990, another part of the parcelled Delta I (Lot 1) covering an area of 55,236 square meters was purchased by Sun Valley from APT for the bid price of P124,349,767.00. Relying upon the title description of its property and the surveys it had commissioned, Sun Valley claimed that Toyota's perimeter fence overlaps Sun Valley's property along corners 11 to 15 by 322 square meters and corners 19 to 1 by 401 square meters for a total of 723 square meters. (Rollo, p. 841) Negotiations between the two (2) corporations for a possible settlement of the dispute bogged down. Court battles ensued, grounded on purely procedural issues. In pursuing the resolution of the dispute, both Toyota and Sun Valley opted to file separate actions. Much of the complications that arose and are now before us can be traced to the two separate cases pursued by both parties. There are other cases arising from the same dispute but which are not before us. Culled from the records, these are the antecedents of the two cases which transpired below.

On December 11, 1991, Judge Tensuan denied Sun Valley's motion for reconsideration of its motion to dismiss. Sun Valley elevated this denial to the Court of Appeals. The case was docketed as CAG.R. Sp. No. 26942 and raffled to the Eleventh (11th) Division. Judge Tensuan's jurisdiction to act considering the defense of prematurity of action for failure to arbitrate the validity of the TRO issued on December 4, 1991 and the order granting injunctive reliefs were challenged in a petition forcertiorari filed with the Court of Appeals and docketed as CA-G.R. No. 26813, assigned to the Second (2nd) Division.

(2) Second supplemental petition dated October 23, 1991 which sought the nullification of the orders granting Sun Valley's application for preliminary prohibitory and mandatory injunction and denying Toyota's motion to cross-examine Sun Valley's witnesses on the latter's injunction application. On November 27, 1991, respondent Court of Appeals' Tenth Division promulgated its questioned decision which is primarily the subject matter of the present petition before us. The respondent court denied due course to the Toyota petition on the finding that the amendment of Sun Valley's complaint was a valid one as Sun Valley's action was not for unlawful detainer but an accion publiciana. Furthermore, the supplemental petitions filed by Toyota assailing the prohibitory and mandatory injunctive writ were not ruled upon as they were expunged from the records because of Toyota's failure to attach a motion to admit these supplemental petitions. Consequently, Toyota filed the present petition for certiorari on December 9, 1991. Earlier, upon an ex-parte motion to clarify filed by Sun Valley on October 25, 1991, Judge Gorospe issued another order dated December 2, 1991 which followed Sun Valley to break open and demolish a portion of the Toyota perimeter walls, and eventually to secure possession of the disputed area. Toyota was constrained to come to this Court for relief. On December 11, 1991, we issued a TRO enjoining the implementation of Judge Gorospe's injunction and break-open orders dated October 1, 1991 and December 2, 1991 respectively as well as further proceedings in Civil Case No. 91-2550. Meanwhile, the Court of Appeals' Second Division issued a TRO ordering respondent Judge Tensuan and all other persons acting in his behalf to cease and desist from further proceeding with Civil Case No. 91-2504 and from enforcing the Order dated December 17, 1991 and the writ of preliminary mandatory injunction dated December 19, 1991. This prompted Toyota to file a motion to quash the TRO and file a supplemental petition with this Court impleading the Court of Appeals' Second Division. On January 13, 1992, we admitted the supplemental petition. On January 10, 1992, the Court of Appeals' Second Division issued the Resolution granting Sun Valley's application for preliminary injunction which enjoined Judge Tensuan in the Toyota case from implementing his injunction Order and from proceeding with the case before him (Civil Case No. 912504). Thus, Toyota filed its Second Supplemental Petition with this Court challenging the validity of the injunction writ issued by the Court of Appeals' Second Division. This Second Supplemental Petition was admitted on February 10, 1992. On February 10, 1992, we gave due course to Toyota's petition.

SUN VALLEY CASE (Civil Case No. 91-2550) On September 16, 1991, Sun Valley, on the other hand, filed a case for recovery of possession of the disputed 723 square meters boundary with the Regional Trial Court (RTC) Makati, Branch 61 presided by Judge Fernando Gorospe, Jr. On the same day, Judge Gorospe issued a TRO enjoining Toyota from committing further acts of dispossession against Sun Valley. On September 19, 1991, Toyota moved to lift the TRO and opposed Sun Valley's application for injunction. On September 23, 1991, Toyota filed a motion to dismiss on the ground that the RTC has no jurisdiction over the case since the complaint was a simple ejectment case cognizable by the Metropolitan Trial Court (MTC). The motion to dismiss was set for hearing on September 27, 1991. On September 27, 1991, Sun Valley filed an amended complaint to incorporate an allegation that Toyota's possession of the alleged disputed area began in September, 1988 when Toyota purchased the property. Ruling that the amendment was a matter of right, Judge Gorospe admitted the amended complaint. Toyota adopted its motion to dismiss the original complaint as its motion to dismiss the amended complaint. After the arguments to Toyota's motion to dismiss, the same was submitted for resolution. Sun Valley's application for prohibitory and mandatory injunction contained in its complaint was set for hearing on October 1, 1991. Protesting the admission of the amended complaint, Toyota went to the Court of Appeals, on certiorari on October 1, 1991. This petition was docketed as CA-G.R. No. 26152 raffled to the Tenth (10th) Division. Toyota was later prompted to file two supplemental petitions, before the Court of Appeals as a result of Judge Gorospe's alleged hasty issuance of four (4) Orders, all dated October 1, 1992. These are: (1) First supplemental petition dated October 4, 1991 which sought to nullify the Order denying Toyota's motion to dismiss the amended complaint.

Subsequently, through a manifestation dated April 29, 1992, Toyota informed the Court that on April 15, 1992, the Court of Appeals' 11th Division (Sun Valley case) rendered a decision dismissing the case before it for lack of merit. The Court of Appeals ruled that the Toyota complaint was not a collateral attack on Sun Valley's title and that misjoinder of parties is not a ground for dismissal. A subsequent motion for reconsideration was denied in a resolution dated August 10, 1992. In the instant petition Toyota raises the following issues, to wit: 1. The Court of Appeals' 10th Division gravely abused its discretion when it ignored or pretended to ignore Toyota's protests against Judge Gorospe's injunction orders. 2. Sun Valley is guilty of forum-shopping and Judge Gorospe of case-grabbing. Sun Valley, on the other hand raises the following: 1. Whether or not the petitioner availed of the proper mode of elevating the case to this Court. 2. Whether or not the Court of Appeals committed grave abuse of discretion in refusing to act upon petitioner's supplemental petitions for certiorari. 3. Whether or not the complaint filed in the court below is an accion publiciana which is within the jurisdiction of the RTC. 4. Whether or not Judge Salvador S. Tensuan had jurisdiction to take cognizance of Civil Case No. 2504 for reformation of instrument. 5. Whether or not respondent Judge Gorospe, Jr. committed grave abuse of discretion in granting private respondent's application for a writ of preliminary prohibitory/mandatory injunction. 6. Whether or not Judge Tensuan committed grave abuse of discretion in issuing the writ of mandatory injunction dated December 19, 1991. This case is far from settlement on the merits. Through legal maneuverings, the parties have succeeded in muddling up the vital issues of the case and getting the lower courts embroiled in numerous appeals over technicalities. As it is now, there are three appellate decisions/resolutions before us for review and conflicting orders issued by lower courts as a result of the separate cases filed by the parties. As in the case of Consolidated Bank and Trust Corp. v. Court of Appeal,s 193 SCRA 158 [1991], the Court is explicit in stating that: xxx xxx xxx Where there are conflicting but inextricably interconnected issues in one and the same complicated case, it is best that these be resolved in one integrated proceeding where an overall picture of the entirety of the case can be presented

and examined. Piecemeal determinations by several trial courts on segments of the basic issue and disconnected appeals to different Divisions of the Court of Appeals resulting in separate decisions each dealing with only part of the problem are discouraged. Needless multiplicity of suits is something which is frowned upon. xxx xxx xxx Amid the clutter of extraneous materials which have certainly bloated the records of this case, we find only two (2) issues vital to the disposition of the petition: first, is the matter of jurisdiction, who as between Judge Tensuan or Judge Gorospe has jurisdiction over the dispute; and second, who as between the parties has the rightful possession of the land. Anent the issue on jurisdiction, we examine the two actions filed by the parties. Toyota filed an action for reformation on September 11, 1991, before Judge Tensuan alleging that the true intentions of the parties were not expressed in the instrument (Art. 1359 Civil Code). The instrument sought to be reformed is the deed of sale executed by APT in favor of Toyota. Toyota alleges that there was a mistake in the designation of the real properties subject matter of the contract. Sun Valley was impleaded in order to obtain complete relief since it was the owner of the adjacent lot. Sun Valley, however, argues that the complaint for reformation states no cause of action against it since an action for reformation is basically one strictly between the parties to the contract itself. Third persons who are not parties to the contract cannot and should not be involved. Thus, Sun Valley contends that it should not have been impleaded as a defendant. The Court of Appeals' 11th Division, in its decision promulgated on April 15, 1992 where the denial of Sun Valley's motion to dismiss was sustained, correctly ruled that misjoinder of parties is not a ground for dismissal. American jurisprudence from where provisions on reformation of instruments were taken discloses that suits to reform written instruments are subject to the general rule in equity that all persons interested in the subject matter of the litigation, whether it is a legal or an equitable interest should be made parties, so that the court may settle all their rights at once and thus prevent the necessity of a multiplicity of suits (Bevis Construction Co. v. Grace [Fla App] 115 So 2d 84; Green v. Stone, 54 N.J.E. 387, 34 A 1099). As a general rule, therefore, all persons to be affected by the proposed reformation must be made parties (American Fidelity & Casualty Co. v. Elder, 189 Ga 229, 5 SE 2d 668; Kemp v. Funderburk, 224 NC 353, 30 SE 2d 155). In an action to reform a deed, all parties claiming an interest in the land or any part thereof purportedly conveyed by the instrument sought to be reformed, and whose interests will be affected by the reformation of the instrument are necessary parties to the action (Kemp v. Funderburk, 224 NC 353, 30 SE 2d 155). From the foregoing jurisprudence, it would appear that Toyota was correct in impleading Sun Valley as party defendant. However, these principles are not applicable under the particular circumstances of this case. Under the facts of the present case, Toyota's action for reformation is dismissible as against Sun Valley.

Attention must first be brought to the fact that the contract of sale executed between APT and Toyota provides an arbitration clause which states that: xxx xxx xxx 5. In case of disagreement or conflict arising out of this Contract, the parties hereby undertake to submit the matter for determination by a committee of experts, acting as arbitrators, the composition of which shall be as follows: a) One member to be appointed by the VENDOR; b) One member to be appointed by the VENDEE; c) One member, who shall be a lawyer, to be appointed by both of the aforesaid parties; The members of the Arbitration Committee shall be appointed not later than three (3) working days from receipt of a written notice from either or both parties. The Arbitration Committee shall convene not later than three (3) weeks after all its members have been appointed and proceed with the arbitration of the dispute within three (3) calendar months counted therefrom. By written mutual agreement by the parties hereto, such time limit for the arbitration may be extended for another calendar month. The decision of the Arbitration Committee by majority vote of at least two (2) members shall be final and binding upon both the VENDOR and the VENDEE; (Rollo, pp. 816-817) xxx xxx xxx The contention that the arbitration clause has become disfunctional because of the presence of third parties is untenable. Contracts are respected as the law between the contracting parties (Mercantile Ins. Co. Inc. v. Felipe Ysmael, Jr. & Co., Inc., 169 SCRA 66 [1989]). As such, the parties are thereby expected to abide with good faith in their contractual commitments (Quillan v. CA, 169 SCRA 279 [1989]). Toyota is therefore bound to respect the provisions of the contract it entered into with APT. Toyota filed an action for reformation of its contract with APT, the purpose of which is to look into the real intentions/agreement of the parties to the contract and to determine if there was really a mistake in the designation of the boundaries of the property as alleged by Toyota. Such questions can only be answered by the parties to the contract themselves. This is a controversy which clearly arose from the contract entered into by APT and Toyota. Inasmuch as this concerns more importantly the parties APT and Toyota themselves, the arbitration committee is therefore the proper and convenient forum to settle the matter as clearly provided in the deed of sale. Having been apprised of the presence of the arbitration clause in the motion to dismiss filed by APT, Judge Tensuan should have at least suspended the proceedings and directed the parties to settle

their dispute by arbitration (Bengson v. Chan, 78 SCRA 113 [1977], Sec. 7, RA 876). Judge Tensuan should have not taken cognizance of the case. But the more apparent reason which warrants the dismissal of the action as against Sun Valley is the fact that the complaint for reformation amounts to a collateral attack on Sun Valley's title, contrary to the finding of the Court of Appeals' 11th Division. It is disputed that Sun Valley has a Torrens title registered in its name by virtue of its purchase of the land from APT. Toyota contends that the 723 square meters strip of land which it understood to be included in its purchase from APT was erroneously included in Sun Valley's title. This is the reason why reformation was sought to correct the mistake. Well-settled is the rule that a certificate of title can not be altered, modified, or cancelled except in a direct proceeding in accordance with law (Section 48, P.D. No. 1529). In the case of Domingo v. Santos Ongsiako, Lim y Sia (55 Phil. 361 [1930]), the Court held that: . . . The fact should not be overlooked that we are here confronted with what is really a collateral attack upon a Torrens title. The circumstance that the action was directly brought to recover a parcel of land does not alter the truth that the proceeding involves a collateral attack upon a Torrens title, because as we have found, the land in controversy lies within the boundaries determined by that title. The Land Registration Law defines the methods under which a wrongful adjudication of title to land under the Torrens system may be corrected . . . While reformation may often be had to correct mistakes in defining the boundary of lands conveyed so as to identify the lands, it may not be used to pass other lands from those intended to be bought and sold, notwithstanding a mistake in pointing out the lines, since reformation under these circumstances would be inequitable and unjust. (McCay v. Jenkins, 244 Ala 650, 15 So 2d 409, 149 ALR 746) Assuming that Toyota is afforded the relief prayed for in the Tensuan court, the latter can not validly order the contested portion to be taken out from the Sun Valley's TCT and award it in favor of Toyota. An action for reformation is in personam, not in rem (Cohen v. Hellman Commercial Trust & Savings Bank, 133 Cal App 758, 24 P2d 960; Edwards v. New York Life Ins. Co. 173 Tenn 102, 114 SW 2d 808) even when real estate is involved (Agurs v. Holt, 232 La 1026, 95 So 2d 644; Vallee v. Vallee (La App) 180 So 2d 570). It is merely an equitable relief granted to the parties where through mistake or fraud, the instrument failed to express the real agreement or intention of the parties. While it is a recognized remedy afforded by courts of equity it may not be applied if it is contrary to well-settled principles or rules. It is a long standing principle that equity follows the law. It is applied in the abscence of and never against statutory law (Zabat v. Court of Appeals, 142 SCRA 587 [1986]). Courts are bound by rules of law and have no arbitrary discretion to disregard them. (See

Arsenal v. Intermediate Appellate Court, 143 SCRA 40 [1986].) Courts of equity must proceed with utmost caution especially when rights of third parties may intervene. Thus in the instant case, vis-avis well-settled principles or rules in land registration, the equitable relief of reformation may not come into play in order to transfer or appropriate a piece of land that one claims to own but which is titled in the name of a third party. On the other hand, Sun Valley filed an action for reconveyance against Toyota to recover possession of the strip of land encroached upon and occupied by the latter. What Sun Valley seeks in its complaint is the recovery of possession de jure and not merely possession de facto. Toyota moved to dismiss on the assumption that the complaint was one for unlawful detainer cognizable by the MTC. We do not find any reversible error in the decision of the Court of Appeals' 10th Division where it upheld Judge Gorospe's order denying Toyota's motion to dismiss. An amendment to a complaint before a responsive pleading is filed, is a matter of right (Rule 10, Sec. 2). Whether or not the complaint was amended, Sun Valley's complaint was one for accion publiciana cognizable by the RTC. Its right over the land is premised on the certificate of title registered in its name after it had purchased said land from APT. As the registered owner it had the right of possession of said land illegally occupied by another (Ybaez v. IAC, 194 SCRA 743 [1991]). The case of Banayos v. Susana Realty, Inc. (71 SCRA 557 [1976]) is quite instructive: xxx xxx xxx We deem it advisable, at this point, to reiterate the essential differences between three kinds of actions for the recovery of possession of real property, namely: (1) the summary action for forcible entry and unlawful detainer; (2) the accion publiciana; and (3) the accion de reivindicacion. The action for forcible entry may be brought where dispossession of real property had taken place by any of the means provided for in Section 1 of Rule 70 of the Revised Rules of Court, and in the case of unlawful detainer, where the possession is withheld after the expiration or termination of the right to hold possession, by virtue of any contract express or implied. These two actions must be filed within one (1) year after such unlawful deprivation or withholding of possession with the municipal or city court. These actions in their essence are mere quieting processes by virtue of which a party in possession of land may not be, by force, dispossessed of that land, the law restoring to him such possession in a summary manner, until the right of ownership can be tried in due course of law. They are, therefore, intended to provide an expeditious means of protecting actual possession or right to possession of property. The aforesaid Rule 70 does not, however, cover all of the cases of dispossession of lands. Thus, "whenever the owner is dispossessed by any other means than those mentioned he may maintain his action in the Court of First Instance, and it is not necessary for him to wait until the expiration of twelve months before commencing an action to be repossessed or declared to be owner of land." (Gumiran v. Gumiran, 21 Phil. 174, 179. Cf. Medina, et al. v. Valdellon, 63 SCRA 278) Courts of First Instance have jurisdiction over actions to recover possession of real property illegally detained, together with rents due and damages, even though one (1) year has not expired from the beginning of such

illegal detention, provided the question of ownership of such property is also involved. In other words, if the party illegal dispossessed desires to raise the question of illegal dispossession as well as that of the ownership over the property, he may commence such action in the Court of First Instance immediately or at any time after such illegal dispossession. If he decides to raise the question of illegal dispossession only, and the action is filed more than one (1) year after such deprivation or withholding of possession, then the Court of First Instance will have original jurisdiction over the case. (Bishop of Cebu v. Mangoron, 6 Phil. 286; Catholic Church v. Tarlac and Victoria, 9 Phil. 450; Ledesma v. Marcos, 9 Phil. 618; Medina, et al. v. Valdellon, supra) The former is an accion de reivindicacion which seeks the recovery of ownership as well as possession, while the latter refers to anaccion publiciana, which is the recovery of the right to possess and is a plenary action in an ordinary proceeding in the Court of First Instance. (Sec. 88, Rep. Act No. 296; Rule 70, Rules of Court; Manila Railroad Co. v. Attorney General, 20 Phil. 523; Lim Cay v. Del, 55 Phil. 692; Central Azucarera de Tarlac v. De Leon, 56 Phil. 169; Navarro v. Aguila, 66 Phil. 604; Luna v. Carandang, 26 SCRA 306; Medina, et al. v. Valdellon, supra; Pasaqui, et al. v. Villablanca, et al., supra). With the finding that Toyota's action for reformation is dismissable as it is in effect a collateral attack on Sun Valley's title, Sun Valley's action for recovery of possession filed before Judge Gorospe now stands to be the proper forum where the following dispute may be tried or heard. We now come to the issue as to which of the parties has a legal right over the property to warrant the issuance of the preliminary mandatory/prohibitory injunction. In actions involving realty, preliminary injunction will lie only after the plaintiff has fully established his title or right thereto by a proper action for the purpose. To authorize a temporary injunction, the complainant must make out at least a prima facie showing of a right to the final relief. Preliminary injunction will not issue to protect a right not in esse (Buayan Cattle Co. Inc. v. Quintillan, 128 SCRA 286-287 [1984]; Ortigas & Company, Limited Partnership v. Ruiz, 148 SCRA 326 [1987]). Two requisites are necessary if a preliminary injunction is to issue, namely, the existence of the right to be protected, and the facts against which the injunction is to be directed, are violative of said right. In particular, for a writ of preliminary injunction to issue, the existence of the right and the violation must appear in the allegations of the complaint and an injunction is proper also when the plaintiff appears to be entitled to the relief demanded in his complaint. Furthermore, the complaint for injunctive relief must be construed strictly against the pleader (Ortigas & Company, Limited Partnership v. Ruiz, supra). In the instant case the existence of a "clear positive right" especially calling for judicial protection has been shown by Sun Valley. Toyota's claim over the disputed property is anchored on the fact of its purchase of the property from APT, that from the circumstances of the purchase and the intention of the parties, the property including the disputed area was sold to it.

Sun Valley, on the other hand has TCT No. 49019 of the Registry of Deeds of Paraaque embracing the aforesaid property in its name, having been validly acquired also from APT by virtue of a Deed of Sale executed in its favor on December 5, 1990 (Rollo, pp. 823-825; 826-827). There are other circumstances in the case which militate against Toyota's claim for legal possession over the disputed area. The fact that Toyota has filed a suit for reformation seeking the inclusion of the 723 square meters strip of land is sufficient to deduce that it is not entitled to take over the piece of property it now attempts to appropriate for itself. As early as September, 1988 prior to the construction of the perimeter fence, Toyota was already aware of the discrepancies in the property's description in the title and the actual survey. The letter of its surveyor company, Summa Kumagai thus reveals: 09 September, 1988 TOYOTA MOTOR PHILIPPINES CORPORATION 10th Floor, Metrobank Plaza Sen. Gil J. Puyat Ave. Makati, Metro Manila ATTENTION: MR. FLORENCIO JURADO Finance Officer SUBJECT: PHASE I RENOVATION WORK PERIMETER FENCE GENTLEMEN: This is in connection with the construction of the Perimeter Fence for the Toyota Motor Plant Facilities which to this date we have not started yet due to the following reasons: 1. Lack of fencing permit which can only be applied to and issued by the Paraaque Building Official upon receipt of the transfer certificate to title and tax declaration. 2. Although the Building Official has verbally instructed us to proceed with the renovation work and construction of fence, we could not execute the fencing work due to discrepancies on the consolidation plan and the existing property monuments. These discrepancies was (sic) confirmed with the representatives of the Geodetic Engineer.

Kindly expedite the immediate confirmation with the Geodetic Engineer on the final descriptions of the property lines. We would appreciate your usual prompt attention regarding this matter. Very truly yours, CESAR D. ELE Project Manager (Emphasis supplied, Rollo, p. 811) Despite such notification, Toyota continued to build the perimeter fence. It is highly doubtful whether Toyota may be considered a builder in good faith to be entitled to protection under Article 448 of the Civil Code. The records also reveal that Toyota's own surveyor, the Certeza Surveying & Acrophoto Systems, Inc. confirmed in its reports dated April 1 and April 5, 1991 that Toyota's perimeter fence overlaps the boundaries of Sun Valley's lot (Rollo, pp. 833-383). Even communication exchanges between and among APT, Toyota & Sun Valley show that the parties are certainly aware that the ownership of the disputed property more properly pertains to Sun Valley. Among these are the following: May 28, 1991 MR. JOSE CH. ALVAREZ President Sun Valley Manufacturing & Development Corp. (SVMDC) Cor. Aurora Blvd. and Andrews Ave. Pasay City, Metro Manila Dear Mr. Alvarez: Thank you for honoring our invitation to a luncheon meeting held at noon time today at Sugi Restaurant. As per our understanding, we would like to propose as a package the settlement of differences between your property and ours as follows: 1. Boundary Issue between TMP Main Office & Factory and the recently acquired property of SVMDC. The boundary lines to our property lines bidded early 1988 were determined after making full payment in August 1988 jointly by representatives of TMP/Metrobank Messrs. Mitake, Pedrosa,

Alonzo and Jurado, APT Mr. Bince together with representatives of Geo-Resources who installed the monuments and prepared the technical description of the property. The construction of the fence utilized existing fence marked yellow on Exhibit 1 and made sure that the new fence to set boundaries were on top of the monuments set by Geo-Resources. The replacement of existing wire fence were affected by setting concrete walls on exactly the same position. This is the reason why we are surprised top be informed that our fence goes beyond the boundary lines set forth in the Technical Description on the Transfer Certificate of Title (TCT) to our property. This occurs even on fence already existing and should have been maintained in the TCT. Since we have manifested our intention when we set boundaries to our property, we propose the following in relation to the excess area occupied by TMP. 1. We offer to give way to an access road 5 m. wide more or less from point 15 to 16 of Lot 2 (14.65 m. in length) at the back of our Paint Storage Building (Exhibit 2). 2. We propose to pay for the balance of excess land inside TMP fence (contested areas) at a price mutually agreed upon. II. Question of ownership of certain permanent improvements (underground water reservoir and perimeter walls/fences) located at Lot 6 which we won by bidding from APT on October 5, 1990. We have made our position to APT that these permanent improvements are part of Lot 6 on "as is where is" bid basis (See explanatory map Exhibit 3). However, since you have relayed to us that the underground water reservoir is of no use to you, as part of the total package we are proposing to pay for the underground water reservoir, the applicable perimeter walls/fences and the water pump/pipings at a price mutually agreed upon. We hope that through this proposal we would settle our differences and look forward to a more cooperative relationship between good neighbors. We will appreciate your favorable consideration and immediate attention on the matter. Very truly yours,

MASAO MITAKE President July 4, 1991 TOYOTA MOTOR PHILIPPINES CORPORATION Rm. 15, South Superhighway Paraaque, Metro Manila ATTENTION: MR. MASAO MITAKE President Gentlemen: This refers to our several meetings regarding the property problems at "Lot 6" and your encroachment of SVMD LOT I. We wish to thank you for finally acknowledging the legitimacy of our demands on both properties. In order to start a good business relationship, we propose that the property problem at "LOT 6" which consists of the perimeter fence, water reservoir, water pump and systems be settled first, in the amount of P3,500,000.00 payable to CMANC. We also would like to request you to allow us to continue usage of the MERALCO posts and lines connecting to SVMD power station which passes thru your property and allow entry of MERALCO linemen from time to time. Upon acceptance of these requests, I will confer which our Japanese partners to consider the selling of the 723 sq. m. of land adjacent to your Assembly Plant which you continue to use even after said property has been legally transferred to us from last quarter of 1990. In view of your present good behavior, we are hoping that this first problem be settled not later than July 15, 1991, otherwise, we will consider the whole matter as unacceptable to you and we, therefore, proceed as earlier demanded to immediately demolish the CHB fence that prevents us from using our property. We hope for your immediate action to start the resolution of these unwanted problems. Very truly yours, JOSE CH. ALVAREZ President

(Rollo, p. 832; Emphasis supplied) Moreover, Sun Valley puts forth evidence that Toyota has altered the boundaries of its own property by moving the monuments erected thereon by APT's surveyor Geo-Resources and Consultancy, Inc. when Lot 2 was initially surveyed in August 1988: The Asset Privitalization Trust 10th Floor, BA-Lepanto Building 9847 Paseo de Roxas Building Metro Manila Attention: Mr. Felipe B. Bince, Jr. Associate Executive Trustee Dear Sirs: This has reference to our letter to your office dated April 8, 1991, a copy of which is attached, regarding the check survey of Delta I. After asking some of the field men who participated in the various surveys of Delta I from the consolidation to subdivision surveys, we found out that some more of the present corner points are not the same points shown to them during the surveys. We shall show this during a meeting with the representatives of the owners of Lots 1 and 2. We hope this will clarify the discrepancies. Very truly yours, NORBERTO S. VILA Exec. Vice Pres. & Gen. Manager (Emphasis supplied; Rollo, p. 839) There is therefore sufficient and convincing proof that Sun Valley has a clear legal right to possession in its favor to warrant the issuance of a writ of preliminary/mandatory injunction. Sun Valley's TCT gives it that right to possession. On the other hand, Toyota has not established its right over the said property except for the assertion that there was a mistake in an instrument which purportedly should have included the questioned strip of land. As between the two (2) parties, Sun Valley has a better right. Under the circumstances, therefore, and considering that the clear legal right of Toyota to possession of the disputed area has not been established sufficient to grant the prayed for relief, a writ of preliminary mandatory injunction may be issued pendente lite. (See Mara, Inc. v. Estrella, 65 SCRA 471 [1975]; De Gracia v. Santos, 79 Phil. 365 [1947]; Rodulfa v. Alfonso, 76 Phil. 225 [1946] and Torre v. Querubin, 101 Phil. 53 [1957])

In view of all the foregoing, the petition is hereby DISMISSED for failure to show reversible error, much less grave abuse of discretion, on the part of the respondent court.

[G.R. No. 155001. May 5, 2003]

DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA, MANUEL ANTONIO B. BOE, MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V. DOMALAON, CONRADO G. DIMAANO, LOLITA R. HIZON, REMEDIOS P. ADOLFO, BIENVENIDO C. HILARIO, MIASCOR WORKERS UNION - NATIONAL LABOR UNION (MWU-NLU), and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION (PALEA), petitioners, vs.PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS and SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and Communications, respondents, MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION SYSTEMS CORPORATION, MACROASIA-EUREST SERVICES, INC., MACROASIA-MENZIES AIRPORT SERVICES CORPORATION, MIASCOR CATERING SERVICES CORPORATION, MIASCOR AIRCRAFT MAINTENANCE CORPORATION, and MIASCOR LOGISTICS CORPORATION, petitioners-in-intervention,

CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA V. GAERLAN, LEONARDO DE LA ROSA, DINA C. DE LEON, VIRGIE CATAMIN RONALD SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON and SAMAHANG MANGGAGAWA SA PALIPARAN NG PILIPINAS (SMPP), petitioners, vs. PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and Communications, respondents. DECISION PUNO, J.: Petitioners and petitioners-in-intervention filed the instant petitions for prohibition under Rule 65 of the Revised Rules of Court seeking to prohibit the Manila International Airport Authority (MIAA) and the Department of Transportation and Communications (DOTC) and its Secretary from implementing the following agreements executed by the Philippine Government through the DOTC and the MIAA and the Philippine International Air Terminals Co., Inc. (PIATCO): (1) the Concession Agreement signed on July 12, 1997, (2) the Amended and Restated Concession Agreement dated November 26, 1999, (3) the First Supplement to the Amended and Restated Concession Agreement dated August 27, 1999, (4) the Second Supplement to the Amended and Restated Concession Agreement dated September 4, 2000, and (5) the Third Supplement to the Amended and Restated Concession Agreement dated June 22, 2001 (collectively, the PIATCO Contracts). The facts are as follows:

[G.R. No. 155547. May 5, 2003]

SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G. JARAULA, petitioners, vs. PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and Communications, and SECRETARY SIMEON A. DATUMANONG, in his capacity as Head of the Department of Public Works and Highways,respondents, JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON VILLARAMA, PROSPERO C. NOGRALES, PROSPERO A. PICHAY, JR., HARLIN CAST ABAYON, and BENASING O. MACARANBON, respondents-intervenors,

In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct a comprehensive study of the Ninoy Aquino International Airport (NAIA) and determine whether the present airport can cope with the traffic development up to the year 2010. The study consisted of two parts: first, traffic forecasts, capacity of existing facilities, NAIA future requirements, proposed master plans and development plans; and second, presentation of the preliminary design of the passenger terminal building. The ADP submitted a Draft Final Report to the DOTC in December 1989. Some time in 1993, six business leaders consisting of John Gokongwei, Andrew Gotianun, Henry Sy, Sr., Lucio Tan, George Ty and Alfonso Yuchengco met with then President Fidel V. Ramos to explore the possibility of investing in the construction and operation of a new international airport terminal. To signify their commitment to pursue the project, they formed the Asias Emerging Dragon Corp. (AEDC) which was registered with the Securities and Exchange Commission (SEC) on September 15, 1993. On October 5, 1994, AEDC submitted an unsolicited proposal to the Government through the DOTC/MIAA for the development of NAIA International Passenger Terminal III (NAIA IPT III) under a build-operate-and-transfer arrangement pursuant to RA 6957 as amended by RA 7718 (BOT Law).[1] On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the Prequalification Bids and Awards Committee (PBAC) for the implementation of the NAIA IPT III project. On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of AEDC to the National Economic and Development Authority (NEDA). A revised proposal, however, was

[G.R. No. 155661. May 5, 2003]

forwarded by the DOTC to NEDA on December 13, 1995. On January 5, 1996, the NEDA Investment Coordinating Council (NEDA ICC) Technical Board favorably endorsed the project to the ICC Cabinet Committee which approved the same, subject to certain conditions, on January 19, 1996. On February 13, 1996, the NEDA passed Board Resolution No. 2 which approved the NAIA IPT III project. On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily newspapers of an invitation for competitive or comparative proposals on AEDCs unsolicited proposal, in accordance with Sec. 4-A of RA 6957, as amended. The alternative bidders were required to submit three (3) sealed envelopes on or before 5:00 p.m. of September 20, 1996. The first envelope should contain the Prequalification Documents, the second envelope the Technical Proposal, and the third envelope the Financial Proposal of the proponent. On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of the Bid Documents and the submission of the comparative bid proposals. Interested firms were permitted to obtain the Request for Proposal Documents beginning June 28, 1996, upon submission of a written application and payment of a non-refundable fee of P50,000.00 (US$2,000). The Bid Documents issued by the PBAC provided among others that the proponent must have adequate capability to sustain the financing requirement for the detailed engineering, design, construction, operation, and maintenance phases of the project. The proponent would be evaluated based on its ability to provide a minimum amount of equity to the project, and its capacity to secure external financing for the project. On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a pre-bid conference on July 29, 1996. On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid Documents. The following amendments were made on the Bid Documents: a. Aside from the fixed Annual Guaranteed Payment, the proponent shall include in its financial proposal an additional percentage of gross revenue share of the Government, as follows: i. ii. iii. First 5 years Next 10 years Next 10 years 5.0% 7.5% 10.0%

ii. a letter testimonial from reputable banks attesting that the project proponent and/or the members of the consortium are banking with them, that the project proponent and/or the members are of good financial standing, and have adequate resources. d. The basis for the prequalification shall be the proponents compliance with the minimum technical and financial requirements provided in the Bid Documents and the IRR of the BOT Law. The minimum amount of equity shall be 30% of the Project Cost. e. Amendments to the draft Concession Agreement shall be issued from time to time. Said amendments shall only cover items that would not materially affect the preparation of the proponents proposal. On August 29, 1996, the Second Pre-Bid Conference was held where certain clarifications were made. Upon the request of prospective bidder Peoples Air Cargo & Warehousing Co., Inc (Paircargo), the PBAC warranted that based on Sec. 11.6, Rule 11 of the Implementing Rules and Regulations of the BOT Law, only the proposed Annual Guaranteed Payment submitted by the challengers would be revealed to AEDC, and that the challengers technical and financial proposals would remain confidential. The PBAC also clarified that the list of revenue sources contained in Annex 4.2a of the Bid Documents was merely indicative and that other revenue sources may be included by the proponent, subject to approval by DOTC/MIAA. Furthermore, the PBAC clarified that only those fees and charges denominated as Public Utility Fees would be subject to regulation, and those charges which would be actually deemed Public Utility Fees could still be revised, depending on the outcome of PBACs query on the matter with the Department of Justice. In September 1996, the PBAC issued Bid Bulletin No. 5, entitled Answers to the Queries of PAIRCARGO as Per Letter Dated September 3 and 10, 1996. Paircargos queries and the PBACs responses were as follows: 1. It is difficult for Paircargo and Associates to meet the required minimum equity requirement as prescribed in Section 8.3.4 of the Bid Documents considering that the capitalization of each member company is so structured to meet the requirements and needs of their current respective business undertaking/activities. In order to comply with this equity requirement, Paircargo is requesting PBAC to just allow each member of (sic) corporation of the Joint Venture to just execute an agreement that embodies a commitment to infuse the required capital in case the project is awarded to the Joint Venture instead of increasing each corporations current authorized capital stock just for prequalification purposes. In prequalification, the agency is interested in ones financial capability at the time of prequalification, not future or potential capability. A commitment to put up equity once awarded the project is not enough to establish that present financial capability. However, total financial capability of all member companies of the Consortium, to be established by submitting the respective companies audited financial statements, shall be acceptable. 2. At present, Paircargo is negotiating with banks and other institutions for the extension of a Performance Security to the joint venture in the event that the Concessions Agreement (sic) is

b. The amount of the fixed Annual Guaranteed Payment shall be subject of the price challenge. Proponent may offer an Annual Guaranteed Payment which need not be of equal amount, but payment of which shall start upon site possession. c. The project proponent must have adequate capability to sustain the financing requirement for the detailed engineering, design, construction, and/or operation and maintenance phases of the project as the case may be. For purposes of pre-qualification, this capability shall be measured in terms of: i. Proof of the availability of the project proponent and/or the consortium to provide the minimum amount of equity for the project; and

awarded to them. However, Paircargo is being required to submit a copy of the draft concession as one of the documentary requirements. Therefore, Paircargo is requesting that theyd (sic) be furnished copy of the approved negotiated agreement between the PBAC and the AEDC at the soonest possible time. A copy of the draft Concession Agreement is included in the Bid Documents. Any material changes would be made known to prospective challengers through bid bulletins. However, a final version will be issued before the award of contract. The PBAC also stated that it would require AEDC to sign Supplement C of the Bid Documents (Acceptance of Criteria and Waiver of Rights to Enjoin Project) and to submit the same with the required Bid Security. On September 20, 1996, the consortium composed of Peoples Air Cargo and Warehousing Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank) (collectively, Paircargo Consortium) submitted their competitive proposal to the PBAC. On September 23, 1996, the PBAC opened the first envelope containing the prequalification documents of the Paircargo Consortium. On the following day, September 24, 1996, the PBAC prequalified the Paircargo Consortium. On September 26, 1996, AEDC informed the PBAC in writing of its reservations as regards the Paircargo Consortium, which include: a. The lack of corporate approvals and financial capability of PAIRCARGO; b. The lack of corporate approvals and financial capability of PAGS; c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the amount that Security Bank could legally invest in the project; d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for prequalification purposes; and e. The appointment of Lufthansa as the facility operator, in view of the Philippine requirement in the operation of a public utility. The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the issues raised by the latter, and that based on the documents submitted by Paircargo and the established prequalification criteria, the PBAC had found that the challenger, Paircargo, had prequalified to undertake the project. The Secretary of the DOTC approved the finding of the PBAC. The PBAC then proceeded with the opening of the second envelope of the Paircargo Consortium which contained its Technical Proposal. On October 3, 1996, AEDC reiterated its objections, particularly with respect to Paircargos financial capability, in view of the restrictions imposed by Section 21-B of the General Banking Act and Sections 1380 and 1381 of the Manual Regulations for Banks and Other Financial Intermediaries. On October 7, 1996, AEDC again manifested its objections and requested that it be

furnished with excerpts of the PBAC meeting and the accompanying technical evaluation report where each of the issues they raised were addressed. On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the Paircargo Consortium containing their respective financial proposals. Both proponents offered to build the NAIA Passenger Terminal III for at least $350 million at no cost to the government and to pay the government: 5% share in gross revenues for the first five years of operation, 7.5% share in gross revenues for the next ten years of operation, and 10% share in gross revenues for the last ten years of operation, in accordance with the Bid Documents. However, in addition to the foregoing, AEDC offered to pay the government a total of P135 million as guaranteed payment for 27 years while Paircargo Consortium offered to pay the government a total of P17.75 billion for the same period. Thus, the PBAC formally informed AEDC that it had accepted the price proposal submitted by the Paircargo Consortium, and gave AEDC 30 working days or until November 28, 1996 within which to match the said bid, otherwise, the project would be awarded to Paircargo. As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary Amado Lagdameo, on December 11, 1996, issued a notice to Paircargo Consortium regarding AEDCs failure to match the proposal. On February 27, 1997, Paircargo Consortium incorporated into Philippine International Airport Terminals Co., Inc. (PIATCO). AEDC subsequently protested the alleged undue preference given to PIATCO and reiterated its objections as regards the prequalification of PIATCO. On April 11, 1997, the DOTC submitted the concession agreement for the second-pass approval of the NEDA-ICC. On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for Declaration of Nullity of the Proceedings, Mandamus and Injunction against the Secretary of the DOTC, the Chairman of the PBAC, the voting members of the PBAC and Pantaleon D. Alvarez, in his capacity as Chairman of the PBAC Technical Committee. On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the approval, on a no-objection basis, of the BOT agreement between the DOTC and PIATCO. As the ad referendum gathered only four (4) of the required six (6) signatures, the NEDA merely noted the agreement. On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO. On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO, through its President, Henry T. Go, signed the Concession Agreement for the BuildOperate-and-Transfer Arrangement of the Ninoy Aquino International Airport Passenger Terminal III (1997 Concession Agreement). The Government granted PIATCO the franchise to operate and maintain the said terminal during the concession period and to collect the fees, rentals and other charges in accordance with the rates or schedules stipulated in the 1997 Concession Agreement. The Agreement provided that the concession period shall be for twenty-five (25) years commencing from the in-service date, and may be renewed at the option of the Government for a period not exceeding twenty-five (25) years. At the end of the concession period, PIATCO shall transfer the development facility to MIAA.

On November 26, 1998, the Government and PIATCO signed an Amended and Restated Concession Agreement (ARCA). Among the provisions of the 1997 Concession Agreement that were amended by the ARCA were: Sec. 1.11 pertaining to the definition of certificate of completion; Sec. 2.05 pertaining to the Special Obligations of GRP; Sec. 3.02 (a) dealing with the exclusivity of the franchise given to the Concessionaire; Sec. 4.04 concerning the assignment by Concessionaire of its interest in the Development Facility; Sec. 5.08 (c) dealing with the proceeds of Concessionaires insurance; Sec. 5.10 with respect to the temporary take-over of operations by GRP; Sec. 5.16 pertaining to the taxes, duties and other imposts that may be levied on the Concessionaire; Sec. 6.03 as regards the periodic adjustment of public utility fees and charges; the entire Article VIII concerning the provisions on the termination of the contract; and Sec. 10.02 providing for the venue of the arbitration proceedings in case a dispute or controversy arises between the parties to the agreement. Subsequently, the Government and PIATCO signed three Supplements to the ARCA. The First Supplement was signed on August 27, 1999; the Second Supplement on September 4, 2000; and the Third Supplement on June 22, 2001 (collectively, Supplements). The First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining Revenues or Gross Revenues; Sec. 2.05 (d) of the ARCA referring to the obligation of MIAA to provide sufficient funds for the upkeep, maintenance, repair and/or replacement of all airport facilities and equipment which are owned or operated by MIAA; and further providing additional special obligations on the part of GRP aside from those already enumerated in Sec. 2.05 of the ARCA. The First Supplement also provided a stipulation as regards the construction of a surface road to connect NAIA Terminal II and Terminal III in lieu of the proposed access tunnel crossing Runway 13/31; the swapping of obligations between GRP and PIATCO regarding the improvement of Sales Road; and the changes in the timetable. It also amended Sec. 6.01 (c) of the ARCA pertaining to the Disposition of Terminal Fees; Sec. 6.02 of the ARCA by inserting an introductory paragraph; and Sec. 6.02 (a) (iii) of the ARCA referring to the Payments of Percentage Share in Gross Revenues. The Second Supplement to the ARCA contained provisions concerning the clearing, removal, demolition or disposal of subterranean structures uncovered or discovered at the site of the construction of the terminal by the Concessionaire. It defined the scope of works; it provided for the procedure for the demolition of the said structures and the consideration for the same which the GRP shall pay PIATCO; it provided for time extensions, incremental and consequential costs and losses consequent to the existence of such structures; and it provided for some additional obligations on the part of PIATCO as regards the said structures. Finally, the Third Supplement provided for the obligations of the Concessionaire as regards the construction of the surface road connecting Terminals II and III. Meanwhile, the MIAA which is charged with the maintenance and operation of the NAIA Terminals I and II, had existing concession contracts with various service providers to offer international airline airport services, such as in-flight catering, passenger handling, ramp and ground support, aircraft maintenance and provisions, cargo handling and warehousing, and other services, to several international airlines at the NAIA. Some of these service providers are the Miascor Group, DNATA-Wings Aviation Systems Corp., and the MacroAsia Group. Miascor, DNATA and MacroAsia, together with Philippine Airlines (PAL), are the dominant players in the industry with an aggregate market share of 70%.

On September 17, 2002, the workers of the international airline service providers, claiming that they stand to lose their employment upon the implementation of the questioned agreements, filed before this Court a petition for prohibition to enjoin the enforcement of said agreements.[2] On October 15, 2002, the service providers, joining the cause of the petitioning workers, filed a motion for intervention and a petition-in-intervention. On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez and Constantino Jaraula filed a similar petition with this Court.[3] On November 6, 2002, several employees of the MIAA likewise filed a petition assailing the legality of the various agreements.[4] On December 11, 2002. another group of Congressmen, Hon. Jacinto V. Paras, Rafael P. Nantes, Eduardo C. Zialcita, Willie B. Villarama, Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin Cast Abayon and Benasing O. Macaranbon, moved to intervene in the case as RespondentsIntervenors. They filed their Comment-In-Intervention defending the validity of the assailed agreements and praying for the dismissal of the petitions. During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on November 29, 2002, in her speech at the 2002 Golden Shell Export Awards at Malacaang Palace, stated that she will not honor (PIATCO) contracts which the Executive Branchs legal offices have concluded (as) null and void.[5] Respondent PIATCO filed its Comments to the present petitions on November 7 and 27, 2002. The Office of the Solicitor General and the Office of the Government Corporate Counsel filed their respective Comments in behalf of the public respondents. On December 10, 2002, the Court heard the case on oral argument. After the oral argument, the Court then resolved in open court to require the parties to file simultaneously their respective Memoranda in amplification of the issues heard in the oral arguments within 30 days and to explore the possibility of arbitration or mediation as provided in the challenged contracts. In their consolidated Memorandum, the Office of the Solicitor General and the Office of the Government Corporate Counsel prayed that the present petitions be given due course and that judgment be rendered declaring the 1997 Concession Agreement, the ARCA and the Supplements thereto void for being contrary to the Constitution, the BOT Law and its Implementing Rules and Regulations. On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003 PIATCO commenced arbitration proceedings before the International Chamber of Commerce, International Court of Arbitration (ICC) by filing a Request for Arbitration with the Secretariat of the ICC against the Government of the Republic of the Philippines acting through the DOTC and MIAA. In the present cases, the Court is again faced with the task of resolving complicated issues made difficult by their intersecting legal and economic implications. The Court is aware of the far reaching fall out effects of the ruling which it makes today. For more than a century and whenever the exigencies of the times demand it, this Court has never shirked from its solemn duty to dispense justice and resolve actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction.[6] To be sure, this Court will not begin to do otherwise today.

We shall first dispose of the procedural issues raised by respondent PIATCO which they allege will bar the resolution of the instant controversy. Petitioners Legal Standing to File the present Petitions a. G.R. Nos. 155001 and 155661 In G.R. No. 155001 individual petitioners are employees of various service providers [7] having separate concession contracts with MIAA and continuing service agreements with various international airlines to provide in-flight catering, passenger handling, ramp and ground support, aircraft maintenance and provisions, cargo handling and warehousing and other services. Also included as petitioners are labor unions MIASCOR Workers Union-National Labor Union and Philippine Airlines Employees Association. These petitioners filed the instant action for prohibition as taxpayers and as parties whose rights and interests stand to be violated by the implementation of the PIATCO Contracts. Petitioners-Intervenors in the same case are all corporations organized and existing under Philippine laws engaged in the business of providing in-flight catering, passenger handling, ramp and ground support, aircraft maintenance and provisions, cargo handling and warehousing and other services to several international airlines at the Ninoy Aquino International Airport. PetitionersIntervenors allege that as tax-paying international airline and airport-related service operators, each one of them stands to be irreparably injured by the implementation of the PIATCO Contracts. Each of the petitioners-intervenors have separate and subsisting concession agreements with MIAA and with various international airlines which they allege are being interfered with and violated by respondent PIATCO. In G.R. No. 155661, petitioners constitute employees of MIAA and Samahang Manggagawa sa Paliparan ng Pilipinas - a legitimate labor union and accredited as the sole and exclusive bargaining agent of all the employees in MIAA. Petitioners anchor their petition for prohibition on the nullity of the contracts entered into by the Government and PIATCO regarding the build-operate-and-transfer of the NAIA IPT III. They filed the petition as taxpayers and persons who have a legitimate interest to protect in the implementation of the PIATCO Contracts. Petitioners in both cases raise the argument that the PIATCO Contracts contain stipulations which directly contravene numerous provisions of the Constitution, specific provisions of the BOT Law and its Implementing Rules and Regulations, and public policy. Petitioners contend that the DOTC and the MIAA, by entering into said contracts, have committed grave abuse of discretion amounting to lack or excess of jurisdiction which can be remedied only by a writ of prohibition, there being no plain, speedy or adequate remedy in the ordinary course of law. In particular, petitioners assail the provisions in the 1997 Concession Agreement and the ARCA which grant PIATCO the exclusive right to operate a commercial international passenger terminal within the Island of Luzon, except those international airports already existing at the time of the execution of the agreement. The contracts further provide that upon the commencement of operations at the NAIA IPT III, the Government shall cause the closure of Ninoy Aquino International Airport Passenger Terminals I and II as international passenger terminals. With respect to existing concession agreements between MIAA and international airport service providers regarding certain services or operations, the 1997 Concession Agreement and the ARCA uniformly provide that such services or operations will not be carried over to the NAIA IPT III and PIATCO is under no obligation to permit such carry over except through a separate agreement duly entered into with PIATCO.[8]

With respect to the petitioning service providers and their employees, upon the commencement of operations of the NAIA IPT III, they allege that they will be effectively barred from providing international airline airport services at the NAIA Terminals I and II as all international airlines and passengers will be diverted to the NAIA IPT III. The petitioning service providers will thus be compelled to contract with PIATCO alone for such services, with no assurance that subsisting contracts with MIAA and other international airlines will be respected. Petitioning service providers stress that despite the very competitive market, the substantial capital investments required and the high rate of fees, they entered into their respective contracts with the MIAA with the understanding that the said contracts will be in force for the stipulated period, and thereafter, renewed so as to allow each of the petitioning service providers to recoup their investments and obtain a reasonable return thereon. Petitioning employees of various service providers at the NAIA Terminals I and II and of MIAA on the other hand allege that with the closure of the NAIA Terminals I and II as international passenger terminals under the PIATCO Contracts, they stand to lose employment. The question on legal standing is whether such parties have alleged such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination of difficult constitutional questions.[9] Accordingly, it has been held that the interest of a person assailing the constitutionality of a statute must be direct and personal. He must be able to show, not only that the law or any government act is invalid, but also that he sustained or is in imminent danger of sustaining some direct injury as a result of its enforcement, and not merely that he suffers thereby in some indefinite way. It must appear that the person complaining has been or is about to be denied some right or privilege to which he is lawfully entitled or that he is about to be subjected to some burdens or penalties by reason of the statute or act complained of.[10] We hold that petitioners have the requisite standing. In the above-mentioned cases, petitioners have a direct and substantial interest to protect by reason of the implementation of the PIATCO Contracts. They stand to lose their source of livelihood, a property right which is zealously protected by the Constitution. Moreover, subsisting concession agreements between MIAA and petitionersintervenors and service contracts between international airlines and petitioners-intervenors stand to be nullified or terminated by the operation of the NAIA IPT III under the PIATCO Contracts. The financial prejudice brought about by the PIATCO Contracts on petitioners and petitioners-intervenors in these cases are legitimate interests sufficient to confer on them the requisite standing to file the instant petitions. b. G.R. No. 155547 In G.R. No. 155547, petitioners filed the petition for prohibition as members of the House of Representatives, citizens and taxpayers. They allege that as members of the House of Representatives, they are especially interested in the PIATCO Contracts, because the contracts compel the Government and/or the House of Representatives to appropriate funds necessary to comply with the provisions therein.[11] They cite provisions of the PIATCO Contracts which require disbursement of unappropriated amounts in compliance with the contractual obligations of the Government. They allege that the Government obligations in the PIATCO Contracts which compel government expenditure without appropriation is a curtailment of their prerogatives as legislators, contrary to the mandate of the Constitution that [n]o money shall be paid out of the treasury except in pursuance of an appropriation made by law.[12]

Standing is a peculiar concept in constitutional law because in some cases, suits are not brought by parties who have been personally injured by the operation of a law or any other government act but by concerned citizens, taxpayers or voters who actually sue in the public interest. Although we are not unmindful of the cases of Imus Electric Co. v. Municipality of Imus[13]and Gonzales v. Raquiza[14] wherein this Court held that appropriation must be made only on amounts immediately demandable, public interest demands that we take a more liberal view in determining whether the petitioners suing as legislators, taxpayers and citizens have locus standi to file the instant petition. In Kilosbayan, Inc. v. Guingona,[15] this Court held [i]n line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and even association of planters, and non-profit civic organizations were allowed to initiate and prosecute actions before this Court to question the constitutionality or validity of laws, acts, decisions, rulings, or orders of various government agencies or instrumentalities.[16] Further, insofar as taxpayers' suits are concerned . . . (this Court) is not devoid of discretion as to whether or not it should be entertained. [17] As such . . . even if, strictly speaking, they [the petitioners] are not covered by the definition, it is still within the wide discretion of the Court to waive the requirement and so remove the impediment to its addressing and resolving the serious constitutional questions raised.[18] In view of the serious legal questions involved and their impact on public interest, we resolve to grant standing to the petitioners. Other Procedural Matters Respondent PIATCO further alleges that this Court is without jurisdiction to review the instant cases as factual issues are involved which this Court is ill-equipped to resolve. Moreover, PIATCO alleges that submission of this controversy to this Court at the first instance is a violation of the rule on hierarchy of courts. They contend that trial courts have concurrent jurisdiction with this Court with respect to a special civil action for prohibition and hence, following the rule on hierarchy of courts, resort must first be had before the trial courts. After a thorough study and careful evaluation of the issues involved, this Court is of the view that the crux of the instant controversy involves significant legal questions. The facts necessary to resolve these legal questions are well established and, hence, need not be determined by a trial court. The rule on hierarchy of courts will not also prevent this Court from assuming jurisdiction over the cases at bar. The said rule may be relaxed when the redress desired cannot be obtained in the appropriate courts or where exceptional and compelling circumstances justify availment of a remedy within and calling for the exercise of this Courts primary jurisdiction.[19] It is easy to discern that exceptional circumstances exist in the cases at bar that call for the relaxation of the rule. Both petitioners and respondents agree that these cases are oftranscendental importance as they involve the construction and operation of the countrys premier international airport. Moreover, the crucial issues submitted for resolution are of first impression and they entail the proper legal interpretation of key provisions of the Constitution, the BOT Law and its Implementing Rules and Regulations. Thus, considering the nature of the controversy before the Court, procedural bars may be lowered to give way for the speedy disposition of the instant cases. Legal Effect of the Commencement of Arbitration Proceedings by PIATCO

There is one more procedural obstacle which must be overcome. The Court is aware that arbitration proceedings pursuant to Section 10.02 of the ARCA have been filed at the instance of respondent PIATCO. Again, we hold that the arbitration step taken by PIATCO will not oust this Court of its jurisdiction over the cases at bar. In Del Monte Corporation-USA v. Court of Appeals,[20] even after finding that the arbitration clause in the Distributorship Agreement in question is valid and the dispute between the parties is arbitrable, this Court affirmed the trial courts decision denying petitioners Motion to Suspend Proceedings pursuant to the arbitration clause under the contract. In so ruling, this Court held that as contracts produce legal effect between the parties, their assigns and heirs, only the parties to the Distributorship Agreement are bound by its terms, including the arbitration clause stipulated therein. This Court ruled that arbitration proceedings could be called for but only with respect to the parties to the contract in question. Considering that there are parties to the case who are neither parties to the Distributorship Agreement nor heirs or assigns of the parties thereto, this Court, citing its previous ruling in Salas, Jr. v. Laperal Realty Corporation,[21] held that to tolerate the splitting of proceedings by allowing arbitration as to some of the parties on the one hand and trial for the others on the other hand would, in effect, result in multiplicity of suits, duplicitous procedure and unnecessary delay.[22] Thus, we ruled that the interest of justice would best be served if the trial court hears and adjudicates the case in a single and complete proceeding. It is established that petitioners in the present cases who have presented legitimate interests in the resolution of the controversy are not parties to the PIATCO Contracts. Accordingly, they cannot be bound by the arbitration clause provided for in the ARCA and hence, cannot be compelled to submit to arbitration proceedings. A speedy and decisive resolution of all the critical issues in the present controversy, including those raised by petitioners, cannot be made before an arbitral tribunal. The object of arbitration is precisely to allow an expeditious determination of a dispute. This objective would not be met if this Court were to allow the parties to settle the cases by arbitration as there are certain issues involving non-parties to the PIATCO Contracts which the arbitral tribunal will not be equipped to resolve. Now, to the merits of the instant controversy. I Is PIATCO a qualified bidder? Public respondents argue that the Paircargo Consortium, PIATCOs predecessor, was not a duly pre-qualified bidder on the unsolicited proposal submitted by AEDC as the Paircargo Consortium failed to meet the financial capability required under the BOT Law and the Bid Documents. They allege that in computing the ability of the Paircargo Consortium to meet the minimum equity requirements for the project, the entire net worth of Security Bank, a member of the consortium, should not be considered. PIATCO relies, on the other hand, on the strength of the Memorandum dated October 14, 1996 issued by the DOTC Undersecretary Primitivo C. Cal stating that the Paircargo Consortium is found to have a combined net worth of P3,900,000,000.00, sufficient to meet the equity requirements of the project. The said Memorandum was in response to a letter from Mr. Antonio Henson of AEDC to President Fidel V. Ramos questioning the financial capability of the Paircargo Consortium on the ground that it does not have the financial resources to put up the required minimum equity of P2,700,000,000.00. This contention is based on the restriction under R.A. No. 337, as amended

or the General Banking Act that a commercial bank cannot invest in any single enterprise in an amount more than 15% of its net worth. In the said Memorandum, Undersecretary Cal opined: The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that financial capability will be evaluated based on total financial capability of all the member companies of the [Paircargo] Consortium. In this connection, the Challenger was found to have a combined net worth of P3,926,421,242.00 that could support a project costing approximately P13 Billion. It is not a requirement that the net worth must be unrestricted. To impose that as a requirement now will be nothing less than unfair. The financial statement or the net worth is not the sole basis in establishing financial capability. As stated in Bid Bulletin No. 3, financial capability may also be established by testimonial letters issued by reputable banks. The Challenger has complied with this requirement. To recap, net worth reflected in the Financial Statement should not be taken as the amount of the money to be used to answer the required thirty percent (30%) equity of the challenger but rather to be used in establishing if there is enough basis to believe that the challenger can comply with the required 30% equity. In fact, proof of sufficient equity is required as one of the conditions for award of contract (Section 12.1 IRR of the BOT Law) but not for pre-qualification (Section 5.4 of the same document).[23] Under the BOT Law, in case of a build-operate-and-transfer arrangement, the contract shall be awarded to the bidder who, having satisfied the minimum financial, technical, organizational and legal standards required by the law, has submitted the lowest bid and most favorable terms of the project.[24] Further, the 1994 Implementing Rules and Regulations of the BOT Law provide: Section 5.4 Pre-qualification Requirements. . c. Financial Capability: The project proponent must have adequate capability to sustain the financing requirements for the detailed engineering design, construction and/or operation and maintenance phases of the project, as the case may be. For purposes of pre-qualification, this capability shall be measured in terms of (i) proof of the ability of the project proponent and/or the consortium to provide a minimum amount of equity to the project, and (ii) a letter testimonial from reputable banks attesting that the project proponent and/or members of the consortium are banking with them, that they are in good financial standing, and that they have adequate resources. The government agency/LGU concerned shall determine on a projectto-project basis and before pre-qualification, the minimum amount of equity needed. (emphasis supplied) Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16, 1996 amending the financial capability requirements for pre-qualification of the project proponent as follows:

6. Basis of Pre-qualification The basis for the pre-qualification shall be on the compliance of the proponent to the minimum technical and financial requirements provided in the Bid Documents and in the IRR of the BOT Law, R.A. No. 6957, as amended by R.A. 7718. The minimum amount of equity to which the proponents financial capability will be based shall be thirty percent (30%) of the project cost instead of the twenty percent (20%) specified in Section 3.6.4 of the Bid Documents. This is to correlate with the required debt-to-equity ratio of 70:30 in Section 2.01a of the draft concession agreement. The debt portion of the project financing should not exceed 70% of the actual project cost. Accordingly, based on the above provisions of law, the Paircargo Consortium or any challenger to the unsolicited proposal of AEDC has to show that it possesses the requisite financial capability to undertake the project in the minimum amount of 30% of the project cost through (i) proof of the ability to provide a minimum amount of equity to the project, and (ii) a letter testimonial from reputable banks attesting that the project proponent or members of the consortium are banking with them, that they are in good financial standing, and that they have adequate resources. As the minimum project cost was estimated to be US$350,000,000.00 or roughly P9,183,650,000.00,[25] the Paircargo Consortium had to show to the satisfaction of the PBAC that it had the ability to provide the minimum equity for the project in the amount of at least P2,755,095,000.00. Paircargos Audited Financial Statements as of 1993 and 1994 indicated that it had a net worth of P2,783,592.00 and P3,123,515.00 respectively.[26] PAGS Audited Financial Statements as of 1995 indicate that it has approximately P26,735,700.00 to invest as its equity for the project. [27] Security Banks Audited Financial Statements as of 1995 show that it has a net worth equivalent to its capital funds in the amount of P3,523,504,377.00.[28] We agree with public respondents that with respect to Security Bank, the entire amount of its net worth could not be invested in a single undertaking or enterprise, whether allied or non-allied in accordance with the provisions of R.A. No. 337, as amended or the General Banking Act: Sec. 21-B. The provisions in this or in any other Act to the contrary notwithstanding, the Monetary Board, whenever it shall deem appropriate and necessary to further national development objectives or support national priority projects, may authorize a commercial bank, a bank authorized to provide commercial banking services, as well as a government-owned and controlled bank, to operate under an expanded commercial banking authority and by virtue thereof exercise, in addition to powers authorized for commercial banks, the powers of an Investment House as provided in Presidential Decree No. 129, invest in the equity of a non-allied undertaking, or own a majority or all of the equity in a financial intermediary other than a commercial bank or a bank authorized to provide commercial banking services: Provided, That (a) the total investment in equities shall not exceed fifty percent (50%) of the net worth of the bank; (b) the equity investment in any one enterprise whether allied or non-allied shall not exceed fifteen percent (15%) of the net worth of the bank; (c) the equity investment of the bank, or of its wholly or majority-owned subsidiary, in a single non-allied undertaking shall not exceed thirty-five percent (35%) of the total equity in the enterprise nor shall it exceed thirty-five percent (35%) of the voting stock in that enterprise; and (d) the equity investment in other banks shall be

deducted from the investing bank's net worth for purposes of computing the prescribed ratio of net worth to risk assets. . Further, the 1993 Manual of Regulations for Banks provides: SECTION X383. Other Limitations and Restrictions. The following limitations and restrictions shall also apply regarding equity investments of banks. a. In any single enterprise. The equity investments of banks in any single enterprise shall not exceed at any time fifteen percent (15%) of the net worth of the investing bank as defined in Sec. X106 and Subsec. X121.5. Thus, the maximum amount that Security Bank could validly invest in the Paircargo Consortium is only P528,525,656.55, representing 15% of its entire net worth. The total net worth therefore of the Paircargo Consortium, after considering the maximum amounts that may be validly invested by each of its members is P558,384,871.55 or only 6.08% of the project cost,[29] an amount substantially less than the prescribed minimum equity investment required for the project in the amount of P2,755,095,000.00 or 30% of the project cost. The purpose of pre-qualification in any public bidding is to determine, at the earliest opportunity, the ability of the bidder to undertake the project. Thus, with respect to the bidders financial capacity at the pre-qualification stage, the law requires the government agency to examine and determine the ability of the bidder to fund the entire cost of the project by considering the maximum amounts that each bidder may invest in the project at the time of pre-qualification. The PBAC has determined that any prospective bidder for the construction, operation and maintenance of the NAIA IPT III project should prove that it has the ability to provide equity in the minimum amount of 30% of the project cost, in accordance with the 70:30 debt-to-equity ratio prescribed in the Bid Documents. Thus, in the case of Paircargo Consortium, the PBAC should determine the maximum amounts that each member of the consortium may commit for the construction, operation and maintenance of the NAIA IPT III project at the time of prequalification. With respect to Security Bank, the maximum amount which may be invested by it would only be 15% of its net worth in view of the restrictions imposed by the General Banking Act. Disregarding the investment ceilings provided by applicable law would not result in a proper evaluation of whether or not a bidder is pre-qualified to undertake the project as for all intents and purposes, such ceiling or legal restriction determines the true maximum amount which a bidder may invest in the project. Further, the determination of whether or not a bidder is pre-qualified to undertake the project requires an evaluation of the financial capacity of the said bidder at the time the bid is submitted based on the required documents presented by the bidder. The PBAC should not be allowed to speculate on the future financial ability of the bidder to undertake the project on the basis of documents submitted. This would open doors to abuse and defeat the very purpose of a public bidding. This is especially true in the case at bar which involves the investment of billions of pesos by the project proponent. The relevant government authority is duty-bound to ensure that the awardee of the contract possesses the minimum required financial capability to complete the project. To allow the PBAC to estimate the bidders future financial capability would not secure the viability

and integrity of the project. A restrictive and conservative application of the rules and procedures of public bidding is necessary not only to protect the impartiality and regularity of the proceedings but also to ensure the financial and technical reliability of the project. It has been held that: The basic rule in public bidding is that bids should be evaluated based on the required documents submitted before and not after the opening of bids. Otherwise, the foundation of a fair and competitive public bidding would be defeated. Strict observance of the rules, regulations, and guidelines of the bidding process is the only safeguard to a fair, honest and competitive public bidding.[30] Thus, if the maximum amount of equity that a bidder may invest in the project at the time the bids are submitted falls short of the minimum amounts required to be put up by the bidder, said bidder should be properly disqualified. Considering that at the pre-qualification stage, the maximum amounts which the Paircargo Consortium may invest in the project fell short of the minimum amounts prescribed by the PBAC, we hold that Paircargo Consortium was not a qualified bidder. Thus the award of the contract by the PBAC to the Paircargo Consortium, a disqualified bidder, is null and void. While it would be proper at this juncture to end the resolution of the instant controversy, as the legal effects of the disqualification of respondent PIATCOs predecessor would come into play and necessarily result in the nullity of all the subsequent contracts entered by it in pursuance of the project, the Court feels that it is necessary to discuss in full the pressing issues of the present controversy for a complete resolution thereof. II Is the 1997 Concession Agreement valid? Petitioners and public respondents contend that the 1997 Concession Agreement is invalid as it contains provisions that substantially depart from the draft Concession Agreement included in the Bid Documents. They maintain that a substantial departure from the draft Concession Agreement is a violation of public policy and renders the 1997 Concession Agreement null and void. PIATCO maintains, however, that the Concession Agreement attached to the Bid Documents is intended to be a draft, i.e., subject to change, alteration or modification, and that this intention was clear to all participants, including AEDC, and DOTC/MIAA. It argued further that said intention is expressed in Part C (6) of Bid Bulletin No. 3 issued by the PBAC which states: 6. Amendments to the Draft Concessions Agreement Amendments to the Draft Concessions Agreement shall be issued from time to time. Said amendments shall only cover items that would not materially affect the preparation of the proponents proposal. By its very nature, public bidding aims to protect the public interest by giving the public the best possible advantages through open competition. Thus: Competition must be legitimate, fair and honest. In the field of government contract law, competition requires, not only `bidding upon a common standard, a common basis, upon the same thing, the

same subject matter, the same undertaking,' but also that it be legitimate, fair and honest; and not designed to injure or defraud the government.[31] An essential element of a publicly bidded contract is that all bidders must be on equal footing. Not simply in terms of application of the procedural rules and regulations imposed by the relevant government agency, but more importantly, on the contract bidded upon. Each bidder must be able to bid on the same thing. The rationale is obvious. If the winning bidder is allowed to later include or modify certain provisions in the contract awarded such that the contract is altered in any material respect, then the essence of fair competition in the public bidding is destroyed. A public bidding would indeed be a farce if after the contract is awarded, the winning bidder may modify the contract and include provisions which are favorable to it that were not previously made available to the other bidders. Thus: It is inherent in public biddings that there shall be a fair competition among the bidders. The specifications in such biddings provide the common ground or basis for the bidders. The specifications should, accordingly, operate equally or indiscriminately upon all bidders.[32] The same rule was restated by Chief Justice Stuart of the Supreme Court of Minnesota: The law is well settled that where, as in this case, municipal authorities can only let a contract for public work to the lowest responsible bidder, the proposals and specifications therefore must be so framed as to permit free and full competition. Nor can they enter into a contract with the best bidder containing substantial provisions beneficial to him, not included or contemplated in the terms and specifications upon which the bids were invited.[33] In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its argument that the draft concession agreement is subject to amendment, the pertinent portion of which was quoted above, the PBAC also clarified that [s]aid amendments shall only cover items that would not materially affect the preparation of the proponents proposal. While we concede that a winning bidder is not precluded from modifying or amending certain provisions of the contract bidded upon, such changes must not constitute substantial or material amendments that would alter the basic parameters of the contract and would constitute a denial to the other bidders of the opportunity to bid on the same terms. Hence, the determination of whether or not a modification or amendment of a contract bidded out constitutes a substantial amendment rests on whether the contract, when taken as a whole, would contain substantially different terms and conditions that would have the effect of altering the technical and/or financial proposals previously submitted by other bidders. The alterations and modifications in the contract executed between the government and the winning bidder must be such as to render such executed contract to be an entirely different contract from the one that was bidded upon. In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc.,[34] this Court quoted with approval the ruling of the trial court that an amendment to a contract awarded through public bidding, when such subsequent amendment was made without a new public bidding, is null and void: The Court agrees with the contention of counsel for the plaintiffs that the due execution of a contract after public bidding is a limitation upon the right of the contracting parties to alter or amend it without

another public bidding, for otherwise what would a public bidding be good for if after the execution of a contract after public bidding, the contracting parties may alter or amend the contract, or even cancel it, at their will? Public biddings are held for the protection of the public, and to give the public the best possible advantages by means of open competition between the bidders. He who bids or offers the best terms is awarded the contract subject of the bid, and it is obvious that such protection and best possible advantages to the public will disappear if the parties to a contract executed after public bidding may alter or amend it without another previous public bidding.[35] Hence, the question that comes to fore is this: is the 1997 Concession Agreement the same agreement that was offered for public bidding, i.e., the draft Concession Agreement attached to the Bid Documents? A close comparison of the draft Concession Agreement attached to the Bid Documents and the 1997 Concession Agreement reveals that the documents differ in at least two material respects: a. Modification on the Public Utility Revenues and Non-Public Utility Revenues that may be collected by PIATCO The fees that may be imposed and collected by PIATCO under the draft Concession Agreement and the 1997 Concession Agreement may be classified into three distinct categories: (1) fees which are subject to periodic adjustment of once every two years in accordance with a prescribed parametric formula and adjustments are made effective only upon written approval by MIAA; (2) fees other than those included in the first category which maybe adjusted by PIATCO whenever it deems necessary without need for consent of DOTC/MIAA; and (3) new fees and charges that may be imposed by PIATCO which have not been previously imposed or collected at the Ninoy Aquino International Airport Passenger Terminal I, pursuant to Administrative Order No. 1, Series of 1993, as amended. The glaring distinctions between the draft Concession Agreement and the 1997 Concession Agreement lie in the types of fees included in each category and the extent of the supervision and regulation which MIAA is allowed to exercise in relation thereto. For fees under the first category, i.e., those which are subject to periodic adjustment in accordance with a prescribed parametric formula and effective only upon written approval by MIAA,the draft Concession Agreement includes the following:[36] (1) aircraft parking fees; (2) aircraft tacking fees; (3) groundhandling fees; (4) rentals and airline offices; (5) check-in counter rentals; and (6) porterage fees.

Under the 1997 Concession Agreement, fees which are subject to adjustment and effective upon MIAA approval are classified as Public Utility Revenues and include:[37] (1) aircraft parking fees; (2) aircraft tacking fees; (3) check-in counter fees; and (4) Terminal Fees. The implication of the reduced number of fees that are subject to MIAA approval is best appreciated in relation to fees included in the second category identified above. Under the 1997 Concession Agreement, fees which PIATCO may adjust whenever it deems necessary without need for consent of DOTC/MIAA are Non-Public Utility Revenues and is defined as all other income not classified as Public Utility Revenues derived from operations of the Terminal and the Terminal Complex.[38] Thus, under the 1997 Concession Agreement, groundhandling fees, rentals from airline offices and porterage fees are no longer subject to MIAA regulation. Further, under Section 6.03 of the draft Concession Agreement, MIAA reserves the right to regulate (1) lobby and vehicular parking fees and (2) other new fees and charges that may be imposed by PIATCO. Such regulation may be made by periodic adjustment and is effective only upon written approval of MIAA. The full text of said provision is quoted below: Section 6.03. Periodic Adjustment in Fees and Charges. Adjustments in the aircraft parking fees, aircraft tacking fees, groundhandling fees, rentals and airline offices, check-in-counter rentals and porterage fees shall be allowed only once every two years and in accordance with the Parametric Formula attached hereto as Annex F. Provided that adjustments shall be made effective only after the written express approval of the MIAA. Provided, further, that such approval of the MIAA, shall be contingent only on the conformity of the adjustments with the above said parametric formula. The first adjustment shall be made prior to the In-Service Date of the Terminal. The MIAA reserves the right to regulate under the foregoing terms and conditions the lobby and vehicular parking fees and other new fees and charges as contemplated in paragraph 2 of Section 6.01 if in its judgment the users of the airport shall be deprived of a free option for the services they cover.[39] On the other hand, the equivalent provision under the 1997 Concession Agreement reads: Section 6.03 Periodic Adjustment in Fees and Charges. . (c) Concessionaire shall at all times be judicious in fixing fees and charges constituting Non-Public Utility Revenues in order to ensure that End Users are not unreasonably deprived of services. While the vehicular parking fee, porterage fee and greeter/well wisher fee constitute Non-Public Utility Revenues of Concessionaire, GRP may intervene and require Concessionaire to explain and justify the fee it may set from time to time, if in the reasonable opinion of GRP the

said fees have become exorbitant resulting in the unreasonable deprivation of End Users of such services.[40] Thus, under the 1997 Concession Agreement, with respect to (1) vehicular parking fee, (2) porterage fee and (3) greeter/well wisher fee, all that MIAA can do is to require PIATCO toexplain and justify the fees set by PIATCO. In the draft Concession Agreement, vehicular parking fee is subject to MIAA regulation and approval under the second paragraph of Section 6.03 thereof while porterage fee is covered by the first paragraph of the same provision. There is an obvious relaxation of the extent of control and regulation by MIAA with respect to the particular fees that may be charged by PIATCO. Moreover, with respect to the third category of fees that may be imposed and collected by PIATCO, i.e., new fees and charges that may be imposed by PIATCO which have not been previously imposed or collected at the Ninoy Aquino International Airport Passenger Terminal I, under Section 6.03 of the draft Concession Agreement MIAA has reserved the right to regulate the same under the same conditions that MIAA may regulate fees under the first category, i.e., periodic adjustment of once every two years in accordance with a prescribed parametric formula and effective only upon written approval by MIAA. However, under the 1997 Concession Agreement, adjustment of fees under the third category is not subject to MIAA regulation. With respect to terminal fees that may be charged by PIATCO,[41] as shown earlier, this was included within the category of Public Utility Revenues under the 1997 Concession Agreement. This classification is significant because under the 1997 Concession Agreement, Public Utility Revenues are subject to an Interim Adjustment of fees upon the occurrence of certain extraordinary events specified in the agreement.[42] However, under the draft Concession Agreement, terminal fees are not included in the types of fees that may be subject to Interim Adjustment.[43] Finally, under the 1997 Concession Agreement, Public Utility Revenues, except terminal fees, are denominated in US Dollars[44] while payments to the Government are in Philippine Pesos. In the draft Concession Agreement, no such stipulation was included. By stipulating that Public Utility Revenues will be paid to PIATCO in US Dollars while payments by PIATCO to the Government are in Philippine currency under the 1997 Concession Agreement, PIATCO is able to enjoy the benefits of depreciations of the Philippine Peso, while being effectively insulated from the detrimental effects of exchange rate fluctuations. When taken as a whole, the changes under the 1997 Concession Agreement with respect to reduction in the types of fees that are subject to MIAA regulation and the relaxation of such regulation with respect to other fees are significant amendments that substantially distinguish the draft Concession Agreement from the 1997 Concession Agreement. The 1997 Concession Agreement, in this respect, clearly gives PIATCO more favorable terms than what was available to other bidders at the time the contract was bidded out. It is not very difficult to see that the changes in the 1997 Concession Agreement translate to direct and concrete financial advantages for PIATCO which were not available at the time the contract was offered for bidding. It cannot be denied that under the 1997 Concession Agreement only Public Utility Revenues are subject to MIAA regulation. Adjustments of all other fees imposed and collected by PIATCO are entirely within its control. Moreover, with respect to terminal fees, under the 1997 Concession Agreement, the same is further subject to Interim Adjustments not previously stipulated in the draft Concession Agreement. Finally, the change in the currency stipulated for Public Utility Revenues

under the 1997 Concession Agreement, except terminal fees, gives PIATCO an added benefit which was not available at the time of bidding. b. Assumption by the Government of the liabilities of PIATCO in the event of the latters default thereof Under the draft Concession Agreement, default by PIATCO of any of its obligations to creditors who have provided, loaned or advanced funds for the NAIA IPT III project does not result in the assumption by the Government of these liabilities. In fact, nowhere in the said contract does default of PIATCOs loans figure in the agreement. Such default does not directly result in any concomitant right or obligation in favor of the Government. However, the 1997 Concession Agreement provides: Section 4.04 . (b) In the event Concessionaire should default in the payment of an Attendant Liability, and the default has resulted in the acceleration of the payment due date of the Attendant Liability prior to its stated date of maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP in writing of such default. GRP shall, within one hundred eighty (180) Days from receipt of the joint written notice of the Unpaid Creditors and Concessionaire, either (i) take over the Development Facility and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to be substituted as concessionaire and operator of the Development Facility in accordance with the terms and conditions hereof, or designate a qualified operator acceptable to GRP to operate the Development Facility, likewise under the terms and conditions of this Agreement; Provided that if at the end of the 180-day period GRP shall not have served the Unpaid Creditors and Concessionaire written notice of its choice, GRP shall be deemed to have elected to take over the Development Facility with the concomitant assumption of Attendant Liabilities. (c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the latter shall form and organize a concession company qualified to take over the operation of the Development Facility. If the concession company should elect to designate an operator for the Development Facility, the concession company shall in good faith identify and designate a qualified operator acceptable to GRP within one hundred eighty (180) days from receipt of GRPs written notice. If the concession company, acting in good faith and with due diligence, is unable to designate a qualified operator within the aforesaid period, then GRP shall at the end of the 180-day period take over the Development Facility and assume Attendant Liabilities. The term Attendant Liabilities under the 1997 Concession Agreement is defined as: Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced funds actually used for the Project, including all interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and other related expenses, and further including amounts owed by Concessionaire to its suppliers, contractors and sub-contractors. Assignment.

Under the above quoted portions of Section 4.04 in relation to the definition of Attendant Liabilities, default by PIATCO of its loans used to finance the NAIA IPT III project triggers the occurrence of certain events that leads to the assumption by the Government of the liability for the loans. Only in one instance may the Government escape the assumption of PIATCOs liabilities, i.e., when the Government so elects and allows a qualified operator to take over as Concessionaire. However, this circumstance is dependent on the existence and availability of a qualified operator who is willing to take over the rights and obligations of PIATCO under the contract, a circumstance that is not entirely within the control of the Government. Without going into the validity of this provision at this juncture, suffice it to state that Section 4.04 of the 1997 Concession Agreement may be considered a form of security for the loans PIATCO has obtained to finance the project, an option that was not made available in the draft Concession Agreement. Section 4.04 is an important amendment to the 1997 Concession Agreement because it grants PIATCO a financial advantage or benefit which was not previously made available during the bidding process. This financial advantage is a significant modification that translates to better terms and conditions for PIATCO. PIATCO, however, argues that the parties to the bidding procedure acknowledge that the draft Concession Agreement is subject to amendment because the Bid Documents permit financing or borrowing. They claim that it was the lenders who proposed the amendments to the draft Concession Agreement which resulted in the 1997 Concession Agreement. We agree that it is not inconsistent with the rationale and purpose of the BOT Law to allow the project proponent or the winning bidder to obtain financing for the project, especially in this case which involves the construction, operation and maintenance of the NAIA IPT III. Expectedly, compliance by the project proponent of its undertakings therein would involve a substantial amount of investment. It is therefore inevitable for the awardee of the contract to seek alternate sources of funds to support the project. Be that as it may, this Court maintains that amendments to the contract bidded upon should always conform to the general policy on public bidding if such procedure is to be faithful to its real nature and purpose. By its very nature and characteristic, competitive public bidding aims to protect the public interest by giving the public the best possible advantages through open competition.[45] It has been held that the three principles in public bidding are (1) the offer to the public; (2) opportunity for competition; and (3) a basis for the exact comparison of bids. A regulation of the matter which excludes any of these factors destroys the distinctive character of the system and thwarts the purpose of its adoption.[46] These are the basic parameters which every awardee of a contract bidded out must conform to, requirements of financing and borrowing notwithstanding. Thus, upon a concrete showing that, as in this case, the contract signed by the government and the contract-awardee is an entirely different contract from the contract bidded, courts should not hesitate to strike down said contract in its entirety for violation of public policy on public bidding. A strict adherence on the principles, rules and regulations on public bidding must be sustained if only to preserve the integrity and the faith of the general public on the procedure. Public bidding is a standard practice for procuring government contracts for public service and for furnishing supplies and other materials. It aims to secure for the government the lowest possible price under the most favorable terms and conditions, to curtail favoritism in the award of government contracts and avoid suspicion of anomalies and it places all bidders in equal footing.[47] Any government action which permits any substantial variance between the conditions under which the bids are invited and the contract executed after the award thereof is a grave abuse of discretion amounting to lack or excess of jurisdiction which warrants proper judicial action.

In view of the above discussion, the fact that the foregoing substantial amendments were made on the 1997 Concession Agreement renders the same null and void for being contrary to public policy. These amendments convert the 1997 Concession Agreement to an entirely different agreement from the contract bidded out or the draft Concession Agreement. It is not difficult to see that the amendments on (1) the types of fees or charges that are subject to MIAA regulation or control and the extent thereof and (2) the assumption by the Government, under certain conditions, of the liabilities of PIATCO directly translates concrete financial advantages to PIATCO that were previously not available during the bidding process. These amendments cannot be taken as merely supplements to or implementing provisions of those already existing in the draft Concession Agreement. The amendments discussed above present new terms and conditions which provide financial benefit to PIATCO which may have altered the technical and financial parameters of other bidders had they known that such terms were available. III Direct Government Guarantee Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997 Concession Agreement provides: Section 4.04 Assignment . (b) In the event Concessionaire should default in the payment of an Attendant Liability, and the default resulted in the acceleration of the payment due date of the Attendant Liability prior to its stated date of maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP in writing of such default. GRP shall within one hundred eighty (180) days from receipt of the joint written notice of the Unpaid Creditors and Concessionaire, either (i) take over the Development Facility and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified to be substituted as concessionaire and operator of the Development facility in accordance with the terms and conditions hereof, or designate a qualified operator acceptable to GRP to operate the Development Facility, likewise under the terms and conditions of this Agreement; Provided, that if at the end of the 180-day period GRP shall not have served the Unpaid Creditors and Concessionaire written notice of its choice, GRP shall be deemed to have elected to take over the Development Facility with the concomitant assumption of Attendant Liabilities. (c) If GRP, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the latter shall form and organize a concession company qualified to takeover the operation of the Development Facility. If the concession company should elect to designate an operator for the Development Facility, the concession company shall in good faith identify and designate a qualified operator acceptable to GRP within one hundred eighty (180) days from receipt of GRPs written notice. If the concession company, acting in good faith and with due diligence, is unable to designate a qualified operator within the aforesaid period, then GRP shall at the end of the 180-day period take over the Development Facility and assume Attendant Liabilities. . Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced funds actually used for the Project, including all interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and other related expenses, and further including amounts owed by Concessionaire to its suppliers, contractors and sub-contractors.[48] It is clear from the above-quoted provisions that Government, in the event that PIATCO defaults in its loan obligations, is obligated to pay all amounts recorded and from time to time outstanding from the books of PIATCO which the latter owes to its creditors.[49] These amounts include all interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and other related expenses.[50] This obligation of the Government to pay PIATCOs creditors upon PIATCOs default would arise if the Government opts to take over NAIA IPT III. It should be noted, however, that even if the Government chooses the second option, which is to allow PIATCOs unpaid creditors operate NAIA IPT III, the Government is still at a risk of being liable to PIATCOs creditors should the latter be unable to designate a qualified operator within the prescribed period. [51] In effect, whatever option the Government chooses to take in the event of PIATCOs failure to fulfill its loan obligations, the Government is still at a risk of assuming PIATCOs outstanding loans. This is due to the fact that the Government would only be free from assuming PIATCOs debts if the unpaid creditors would be able to designate a qualified operator within the period provided for in the contract. Thus, the Governments assumption of liability is virtually out of its control. The Government under the circumstances provided for in the 1997 Concession Agreement is at the mercy of the existence, availability and willingness of a qualified operator. The above contractual provisions constitute a direct government guarantee which is prohibited by law. One of the main impetus for the enactment of the BOT Law is the lack of government funds to construct the infrastructure and development projects necessary for economic growth and development. This is why private sector resources are being tapped in order to finance these projects. The BOT law allows the private sector to participate, and is in fact encouraged to do so by way of incentives, such as minimizing the unstable flow of returns,[52] provided that the government would not have to unnecessarily expend scarcely available funds for the project itself. As such, direct guarantee, subsidy and equity by the government in these projects are strictly prohibited. [53] This is but logical for if the government would in the end still be at a risk of paying the debts incurred by the private entity in the BOT projects, then the purpose of the law is subverted. Section 2(n) of the BOT Law defines direct guarantee as follows: (n) Direct government guarantee An agreement whereby the government or any of its agencies or local government units assume responsibility for the repayment of debt directly incurred by the project proponentin implementing the project in case of a loan default. Clearly by providing that the Government assumes the attendant liabilities, which consists of PIATCOs unpaid debts, the 1997 Concession Agreement provided for a direct government guarantee for the debts incurred by PIATCO in the implementation of the NAIA IPT III project. It is of no moment that the relevant sections are subsumed under the title of assignment. The provisions providing for direct government guarantee which is prohibited by law is clear from the terms thereof. The fact that the ARCA superseded the 1997 Concession Agreement did not cure this fatal defect. Article IV, Section 4.04(c), in relation to Article I, Section 1.06, of the ARCA provides:

Section 4.04 Security . (c) GRP agrees with Concessionaire (PIATCO) that it shall negotiate in good faith and enter into direct agreement with the Senior Lenders, or with an agent of such Senior Lenders (which agreement shall be subject to the approval of the Bangko Sentral ng Pilipinas), in such form as may be reasonably acceptable to both GRP and Senior Lenders, with regard, inter alia, to the following parameters: . (iv) If the Concessionaire [PIATCO] is in default under a payment obligation owed to the Senior Lenders, and as a result thereof the Senior Lenders have become entitled to accelerate the Senior Loans, the Senior Lenders shall have the right to notify GRP of the same, and without prejudice to any other rights of the Senior Lenders or any Senior Lenders agent may have (including without limitation under security interests granted in favor of the Senior Lenders), to either in good faith identify and designate a nominee which is qualified under sub-clause (viii)(y) below to operate the Development Facility [NAIA Terminal 3] or transfer the Concessionaires [PIATCO] rights and obligations under this Agreement to a transferee which is qualified under sub-clause (viii) below; . (vi) if the Senior Lenders, acting in good faith and using reasonable efforts, are unable to designate a nominee or effect a transfer in terms and conditions satisfactory to the Senior Lenders within one hundred eighty (180) days after giving GRP notice as referred to respectively in (iv) or (v) above, then GRP and the Senior Lenders shall endeavor in good faith to enter into any other arrangement relating to the Development Facility [NAIA Terminal 3] (other than a turnover of the Development Facility [NAIA Terminal 3] to GRP) within the following one hundred eighty (180) days. If no agreement relating to the Development Facility [NAIA Terminal 3] is arrived at by GRP and the Senior Lenders within the said 180-day period, then at the end thereof the Development Facility [NAIA Terminal 3] shall be transferred by the Concessionaire [PIATCO] to GRP or its designee and GRP shall make a termination payment to Concessionaire [PIATCO] equal to the Appraised Value (as hereinafter defined) of the Development Facility [NAIA Terminal 3] or the sum of the Attendant Liabilities, if greater. Notwithstanding Section 8.01(c) hereof, this Agreement shall be deemed terminated upon the transfer of the Development Facility [NAIA Terminal 3] to GRP pursuant hereto; . Section 1.06. Attendant Liabilities

related expenses (including the fees, charges and expenses of any agents or trustees of such persons or entities), whether payable at maturity, by acceleration or otherwise, and further including amounts owed by Concessionaire [PIATCO] to its professional consultants and advisers, suppliers, contractors and sub-contractors.[54] It is clear from the foregoing contractual provisions that in the event that PIATCO fails to fulfill its loan obligations to its Senior Lenders, the Government is obligated to directly negotiate and enter into an agreement relating to NAIA IPT III with the Senior Lenders, should the latter fail to appoint a qualified nominee or transferee who will take the place of PIATCO. If the Senior Lenders and the Government are unable to enter into an agreement after the prescribed period, the Government must then pay PIATCO, upon transfer of NAIA IPT III to the Government, termination payment equal to the appraised value of the project or the value of the attendant liabilities whichever is greater. Attendant liabilities as defined in the ARCA includes all amounts owed or thereafter may be owed by PIATCO not only to the Senior Lenders with whom PIATCO has defaulted in its loan obligations but to all other persons who may have loaned, advanced funds or provided any other type of financial facilities to PIATCO for NAIA IPT III. The amount of PIATCOs debt that the Government would have to pay as a result of PIATCOs default in its loan obligations -- in case no qualified nominee or transferee is appointed by the Senior Lenders and no other agreement relating to NAIA IPT III has been reached between the Government and the Senior Lenders -- includes, but is not limited to, all principal, interest, associated fees, charges, reimbursements, and other related expenses . . . whether payable at maturity, by acceleration or otherwise.[55] It is clear from the foregoing that the ARCA provides for a direct guarantee by the government to pay PIATCOs loans not only to its Senior Lenders but all other entities who provided PIATCO funds or services upon PIATCOs default in its loan obligation with its Senior Lenders. The fact that the Governments obligation to pay PIATCOs lenders for the latters obligation would only arise after the Senior Lenders fail to appoint a qualified nominee or transferee does not detract from the fact that, should the conditions as stated in the contract occur, the ARCA still obligates the Government to pay any and all amounts owed by PIATCO to its lenders in connection with NAIA IPT III. Worse, the conditions that would make the Government liable for PIATCOs debts is triggered by PIATCOs own default of its loan obligations to its Senior Lenders to which loan contracts the Government was never a party to. The Government was not even given an option as to what course of action it should take in case PIATCO defaulted in the payment of its senior loans. The Government, upon PIATCOs default, would be merely notified by the Senior Lenders of the same and it is the Senior Lenders who are authorized to appoint a qualified nominee or transferee. Should the Senior Lenders fail to make such an appointment, the Government is then automatically obligated to directly deal and negotiate with the Senior Lenders regarding NAIA IPT III. The only way the Government would not be liable for PIATCOs debt is for a qualified nominee or transferee to be appointed in place of PIATCO to continue the construction, operation and maintenance of NAIA IPT III. This pre-condition, however, will not take the contract out of the ambit of a direct guarantee by the government as the existence, availability and willingness of a qualified nominee or transferee is totally out of the governments control. As such the Government is virtually at the mercy of PIATCO (that it would not default on its loan obligations to its Senior Lenders), the Senior Lenders (that they would appoint a qualified nominee or transferee or agree to some other arrangement with the Government) and the existence of a qualified nominee or transferee who is able and willing to take the place of PIATCO in NAIA IPT III. The proscription against government guarantee in any form is one of the policy considerations behind the BOT Law. Clearly, in the present case, the ARCA obligates the

Attendant Liabilities refer to all amounts in each case supported by verifiable evidence from time to time owed or which may become owing by Concessionaire [PIATCO] to Senior Lenders or any other persons or entities who have provided, loaned, or advanced funds or provided financial facilities to Concessionaire [PIATCO] for the Project [NAIA Terminal 3], including, without limitation, all principal, interest, associated fees, charges, reimbursements, and other

Government to pay for all loans, advances and obligations arising out of financial facilities extended to PIATCO for the implementation of the NAIA IPT III project should PIATCO default in its loan obligations to its Senior Lenders and the latter fails to appoint a qualified nominee or transferee. This in effect would make the Government liable for PIATCOs loans should the conditions as set forth in the ARCA arise. This is a form of direct government guarantee. The BOT Law and its implementing rules provide that in order for an unsolicited proposal for a BOT project may be accepted, the following conditions must first be met: (1) the project involves a new concept in technology and/or is not part of the list of priority projects, (2) no direct government guarantee, subsidy or equity is required, and (3) the government agency or local government unit has invited by publication other interested parties to a public bidding and conducted the same. [56] The failure to meet any of the above conditions will result in the denial of the proposal. It is further provided that the presence of direct government guarantee, subsidy or equity will necessarily disqualify a proposal from being treated and accepted as an unsolicited proposal. [57] The BOT Law clearly and strictly prohibits direct government guarantee, subsidy and equity in unsolicited proposals that the mere inclusion of a provision to that effect is fatal and is sufficient to deny the proposal. It stands to reason therefore that if a proposal can be denied by reason of the existence of direct government guarantee, then its inclusion in the contract executed after the said proposal has been accepted is likewise sufficient to invalidate the contract itself. A prohibited provision, the inclusion of which would result in the denial of a proposal cannot, and should not, be allowed to later on be inserted in the contract resulting from the said proposal. The basic rules of justice and fair play alone militate against such an occurrence and must not, therefore, be countenanced particularly in this instance where the government is exposed to the risk of shouldering hundreds of million of dollars in debt. This Court has long and consistently adhered to the legal maxim that those that cannot be done directly cannot be done indirectly.[58] To declare the PIATCO contracts valid despite the clear statutory prohibition against a direct government guarantee would not only make a mockery of what the BOT Law seeks to prevent -- which is to expose the government to the risk of incurring a monetary obligation resulting from a contract of loan between the project proponent and its lenders and to which the Government is not a party to -- but would also render the BOT Law useless for what it seeks to achieve - to make use of the resources of the private sector in the financing, operation and maintenance of infrastructure and development projects[59] which are necessary for national growth and development but which the government, unfortunately, could ill-afford to finance at this point in time. IV Temporary takeover of business affected with public interest Article XII, Section 17 of the 1987 Constitution provides: Section 17. In times of national emergency, when the public interest so requires, the State may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any privately owned public utility or business affected with public interest. The above provision pertains to the right of the State in times of national emergency, and in the exercise of its police power, to temporarily take over the operation of any business affected with public interest. In the 1986 Constitutional Commission, the term national emergency was defined to include threat from external aggression, calamities or national disasters, but not strikes unless it

is of such proportion that would paralyze government service.[60] The duration of the emergency itself is the determining factor as to how long the temporary takeover by the government would last. [61] The temporary takeover by the government extends only to the operation of the business and not to the ownership thereof. As such the government is not required to compensate the private entity-owner of the said business as there is no transfer of ownership, whether permanent or temporary. The private entity-owner affected by the temporary takeover cannot, likewise, claim just compensation for the use of the said business and its properties as the temporary takeover by the government is in exercise of its police power and not of its power of eminent domain. Article V, Section 5.10 (c) of the 1997 Concession Agreement provides: Section 5.10 Temporary Take-over of operations by GRP. . (c) In the event the development Facility or any part thereof and/or the operations of Concessionaire or any part thereof, become the subject matter of or be included in any notice, notification, or declaration concerning or relating to acquisition, seizure or appropriation by GRP in times of war or national emergency, GRP shall, by written notice to Concessionaire, immediately take over the operations of the Terminal and/or the Terminal Complex. During such take over by GRP, the Concession Period shall be suspended; provided, that upon termination of war, hostilities or national emergency, the operations shall be returned to Concessionaire, at which time, the Concession period shall commence to run again. Concessionaire shall be entitled to reasonable compensation for the duration of the temporary take over by GRP, which compensation shall take into account the reasonable cost for the use of the Terminal and/or Terminal Complex, (which is in the amount at least equal to the debt service requirements of Concessionaire, if the temporary take over should occur at the time when Concessionaire is still servicing debts owed to project lenders), any loss or damage to the Development Facility, and other consequential damages. If the parties cannot agree on the reasonable compensation of Concessionaire, or on the liability of GRP as aforesaid, the matter shall be resolved in accordance with Section 10.01 [Arbitration]. Any amount determined to be payable by GRP to Concessionaire shall be offset from the amount next payable by Concessionaire to GRP.[62] PIATCO cannot, by mere contractual stipulation, contravene the Constitutional provision on temporary government takeover and obligate the government to pay reasonable cost for the use of the Terminal and/or Terminal Complex.[63] Article XII, section 17 of the 1987 Constitution envisions a situation wherein the exigencies of the times necessitate the government to temporarily take over or direct the operation of any privately owned public utility or business affected with public interest. It is the welfare and interest of the public which is the paramount consideration in determining whether or not to temporarily take over a particular business. Clearly, the State in effecting the temporary takeover is exercising its police power. Police power is the most essential, insistent, and illimitable of powers. [64] Its exercise therefore must not be unreasonably hampered nor its exercise be a source of obligation by the government in the absence of damage due to arbitrariness of its exercise.[65] Thus, requiring the government to pay reasonable compensation for the reasonable use of the property pursuant to the operation of the business contravenes the Constitution. V Regulation of Monopolies

A monopoly is a privilege or peculiar advantage vested in one or more persons or companies, consisting in the exclusive right (or power) to carry on a particular business or trade, manufacture a particular article, or control the sale of a particular commodity.[66] The 1987 Constitution strictly regulates monopolies, whether private or public, and even provides for their prohibition if public interest so requires. Article XII, Section 19 of the 1987 Constitution states: Sec. 19. The state shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed. Clearly, monopolies are not per se prohibited by the Constitution but may be permitted to exist to aid the government in carrying on an enterprise or to aid in the performance of various services and functions in the interest of the public.[67] Nonetheless, a determination must first be made as to whether public interest requires a monopoly. As monopolies are subject to abuses that can inflict severe prejudice to the public, they are subject to a higher level of State regulation than an ordinary business undertaking. In the cases at bar, PIATCO, under the 1997 Concession Agreement and the ARCA, is granted the exclusive right to operate a commercial international passenger terminal within the Island of Luzon at the NAIA IPT III.[68] This is with the exception of already existing international airports in Luzon such as those located in the Subic Bay Freeport Special Economic Zone (SBFSEZ), Clark Special Economic Zone (CSEZ) and in Laoag City.[69] As such, upon commencement of PIATCOs operation of NAIA IPT III, Terminals 1 and 2 of NAIA would cease to function as international passenger terminals. This, however, does not prevent MIAA to use Terminals 1 and 2 as domestic passenger terminals or in any other manner as it may deem appropriate except those activities that would compete with NAIA IPT III in the latters operation as an international passenger terminal. [70] The right granted to PIATCO to exclusively operate NAIA IPT III would be for a period of twentyfive (25) years from the In-Service Date [71] and renewable for another twenty-five (25) years at the option of the government.[72] Both the 1997 Concession Agreement and the ARCA further provide that, in view of the exclusive right granted to PIATCO, the concession contracts of the service providers currently servicing Terminals 1 and 2 would no longer be renewed and those concession contracts whose expiration are subsequent to the In-Service Date would cease to be effective on the said date.[73] The operation of an international passenger airport terminal is no doubt an undertaking imbued with public interest. In entering into a BuildOperate-and-Transfer contract for the construction, operation and maintenance of NAIA IPT III, the government has determined that public interest would be served better if private sector resources were used in its construction and an exclusive right to operate be granted to the private entity undertaking the said project, in this case PIATCO. Nonetheless, the privilege given to PIATCO is subject to reasonable regulation and supervision by the Government through the MIAA, which is the government agency authorized to operate the NAIA complex, as well as DOTC, the department to which MIAA is attached.[74] This is in accord with the Constitutional mandate that a monopoly which is not prohibited must be regulated.[75] While it is the declared policy of the BOT Law to encourage private sector participation by providing a climate of minimum government regulations, [76] the same does not mean that Government must completely surrender its sovereign power to protect public interest in the operation of a public utility as a monopoly. The operation of said public utility can not be done in an arbitrary manner to the detriment of the public which it seeks to serve. The right granted to the public utility may be exclusive but the exercise of the right cannot run riot. Thus, while PIATCO may

be authorized to exclusively operate NAIA IPT III as an international passenger terminal, the Government, through the MIAA, has the right and the duty to ensure that it is done in accord with public interest. PIATCOs right to operate NAIA IPT III cannot also violate the rights of third parties. Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide: 3.01 Concession Period . (e) GRP confirms that certain concession agreements relative to certain services and operations currently being undertaken at the Ninoy Aquino International Airport passenger Terminal I have a validity period extending beyond the In-Service Date. GRP through DOTC/MIAA, confirms that these services and operations shall not be carried over to the Terminal and the Concessionaire is under no legal obligation to permit such carry-over except through a separate agreement duly entered into with Concessionaire. In the event Concessionaire becomes involved in any litigation initiated by any such concessionaire or operator, GRP undertakes and hereby holds Concessionaire free and harmless on full indemnity basis from and against any loss and/or any liability resulting from any such litigation, including the cost of litigation and the reasonable fees paid or payable to Concessionaires counsel of choice, all such amounts shall be fully deductible by way of an offset from any amount which the Concessionaire is bound to pay GRP under this Agreement. During the oral arguments on December 10, 2002, the counsel for the petitioners-inintervention for G.R. No. 155001 stated that there are two service providers whose contracts are still existing and whose validity extends beyond the In-Service Date. One contract remains valid until 2008 and the other until 2010.[77] We hold that while the service providers presently operating at NAIA Terminal 1 do not have an absolute right for the renewal or the extension of their respective contracts, those contracts whose duration extends beyond NAIA IPT IIIs In-Service-Date should not be unduly prejudiced. These contracts must be respected not just by the parties thereto but also by third parties. PIATCO cannot, by law and certainly not by contract, render a valid and binding contract nugatory. PIATCO, by the mere expedient of claiming an exclusive right to operate, cannot require the Government to break its contractual obligations to the service providers. In contrast to the arrastre and stevedoring service providers in the case of Anglo-Fil Trading Corporation v. Lazaro[78] whose contracts consist of temporary hold-over permits, the affected service providers in the cases at bar, have a valid and binding contract with the Government, through MIAA, whose period of effectivity, as well as the other terms and conditions thereof, cannot be violated. In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The provisions of the 1997 Concession Agreement and the ARCA did not strip government, thru the MIAA, of its right to supervise the operation of the whole NAIA complex, including NAIA IPT III. As the primary government agency tasked with the job,[79] it is MIAAs responsibility to ensure that whoever by contract is given the right to operate NAIA IPT III will do so within the bounds of the law and with due regard to the rights of third parties and above all, the interest of the public. VI CONCLUSION

In sum, this Court rules that in view of the absence of the requisite financial capacity of the Paircargo Consortium, predecessor of respondent PIATCO, the award by the PBAC of the contract for the construction, operation and maintenance of the NAIA IPT III is null and void. Further, considering that the 1997 Concession Agreement contains material and substantial amendments, which amendments had the effect of converting the 1997 Concession Agreement into an entirely different agreement from the contract bidded upon, the 1997 Concession Agreement is similarly null and void for being contrary to public policy. The provisions under Sections 4.04(b) and (c) in relation to Section 1.06 of the 1997 Concession Agreement and Section 4.04(c) in relation to Section 1.06 of the ARCA, which constitute a direct government guarantee expressly prohibited by, among others, the BOT Law and its Implementing Rules and Regulations are also null and void. The Supplements, being accessory contracts to the ARCA, are likewise null and void. WHEREFORE, the 1997 Concession Agreement, the Amended and Restated Concession Agreement and the Supplements thereto are set aside for being null and void. SO ORDERED.

G.R. No. L-47207 September 25, 1980 JOSE F. ESCANO, JESUS F. ESCANO, VICENTA F. ESCANO, PILAR ESCANO-BERNAD, SAMUEL F. ESCANO, ANA MA. N. ILANO, MARIA LOURDES E. NOEL, PILAR VICTORIA E. NOEL and GABRIEL NOEL, for himself and the minor heirs of his deceased wife LOURDES ESCANO, petitioners-appellants, vs. COURT OF APPEALS and REPUBLIC OF THE PHILIPPINES, respondents-appellees.

On November 29, 1972, the petitioners sued the Republic of the Philippines (CAA) in the Court of First Instance of Cebu for the reconveyance of the ten lots (Civil Case No. L-13078). After hearing, the trial court rendered a decision on October 30, 1974, ordering the CAA to reconvey to the petitioners the ten lots after payment of the repurchase price of P31,977. The trial court found that the lots were no longer needed for the airport and that since 1964 they were never used for any Airport facility. The petitioners (plaintiffs) appealed because the lower court did not award to them the reasonable compensation for the use and occupation of the lots from the time that they tendered the redemption price.

AQUINO, J.: The petitioners complain about the judgment of the Court of Appeals, engrafting conditions on their repurchase of ten lots, which were expropriated to form part of the Lahug Airport in Cebu City, as well as the failure of the Appellate Court to grant them compensation for the use of the lots by the Civil Aeronautics Administration (CAA) from the time that they tendered the redemption price (Escano vs. Republic of the Philippines, CA-G.R. No. 57188-R, March 17, 1977). In 1964, those ten lots with a total area of 10,639 square meters were sold for P31,977 by Mamerto Escano, Inc. to the Republic for use by the CAA. The sale was subject to the resolutory condition that when the CAA would no longer use the lots as part of the airport, then the title thereto would revert to the seller upon reimbursement of the price of P31,977 without interest. That condition was annotated on the title issued to the Republic of the Philippines. In 1966, by means of two deeds of assignment and other documents, the petitioners became the successors of Mamerto Escano, Inc. to the reversionary right or the right to repurchase the lots from the Republic of the Philippines. In the meantime, or on April 27, 1966, the Mactan Airport commenced its operation and the Philippine Airlines stopped using the Lahug Airport. Filipinas Airways and Air Manila ceased to use the Lahug Airport at the end of 1966 and thereafter used the Mactan Airport. (pp. 28-29, Record on Appeal p. 38, Rollo). On the premise that the above-mentioned resolutory condition had already been fulfilled, meaning that the ten lots were no longer being used as part of the Lahug Airport because of the operation of the Mactan Airport, the petitioners, through counsel, made on October 2, 1972 a written tender to the CAA of the repurchase price of P31,977 (Exh. G). The Director of Civil Aviation rejected the tender in his reply of October 4, 1972. He reasoned out that because the Lahug Airport was still being utilized for general aviation, the ten lots could not yet be released and returned to the reversionary owners (Exh. H). The Government appealed because it believed that the resolutory condition for the repurchase had not yet materialized. The Court of Appeals affirmed the trial court's judgment allowing the repurchase but it went farther. The Appellate Court ruled that the repurchase should be subject to the same five conditions which were imposed in 1961 on the resale made by the CAA to General Isagani Campo of his two lots which are in proximity to petitioners' ten lots. Those conditions were as follows (Exh. J-3): (a) That all taxes imposed on the property from the time the property is repossessed by the said spouses shall be paid by them. (b) That the repurchasers shall allow the CAA to continue the property repurchased for airfield purposes, until such time as the airport operations are finally transferred to Mactan Airport. (c) That the CAA shall not pay any rents or other charges for its continued use of the property. (d) That the repurchase price of the property in question shall be based on the price paid by the CAA for the acquisition. (e) That the property shall not be resold by the repurchasers until , the Lahug landing field is finally transferred to Mactan Airport. The petitioners appealed to this Court. The Government did not appeal. We hold that the Court of Appeals erred in imposing the said conditions on the reconveyance of the ten lots to the petitioners, a matter which was not raised in the pleadings. The propriety of imposing those conditions was not in issue in the trial court and in the Court of Appeals. It was an immaterial point in the case. It was not included in any assignment of errors in the Government's brief.

When the petitioners filed in the Court of Appeals their motion for reconsideration, the Solicitor General did not oppose their prayer that the imposition of the conditions be deleted from the decision. The Solicitor General confined his opposition to petitioners prayer that the CAA be adjudged liable to pay compensation for the use of the lots. The Court of Appeals ignored the rule that the questions to be raised on appeal are those raised in the court below and within the issues framed by the parties (Sec. 18, Rule 46, Rules of Court). It also disregarded the rule that "no error which does not affect the jurisdiction over the subject matter will be considered unless stated in the assignment of errors and properly argued in the brief, save as the court, at its option, may notice plain errors not specified, and also clerical errors" (Sec. 7, Rule 51, Rules of Court). It departed from the accepted and usual course of an appeal by adjudicating a point which was not raised by the parties. The 1964 contract of sale between the petitioners' predecessors-in-interest and the Government is the law between them. Had they intended that the conditions imposed in the resale of General Campo's lots in 1961 should likewise be imposed in the resale to the reversionary owners of the ten lots, they could have easily made a stipulation to that effect in the 1964 deed of sale. The fact that the contract of sale does not mention those conditions means that they were never within the contemplation of the parties. The Court of Appeals, in gratuitously imposing those conditions, made a new contract for them. In fact, the second condition "that the repurchases allow the CAA to continue using the property repurchased for airfield purposes, until such time as the airport operation is finally transferred to Mactan Airport" nullifies the reversion or resolutory condition and negatives the trial court's findings that the Lahug Aiport had ceased to be operational and that it had been replaced by the Mactan Airport. The other point is that the Court of Appeals denied petitioners' claim for reasonable compensation for the CAA's alleged use and occupancy of the lots from October 2, 1972 when the tender of the redemption price was made. The trial court disallowed that claim because (1) the compensation was not stipulated by the parties in the contract of sale; (2) the claim is inconsistent with petitioners' theory that the CAA never used their lots for aviation purposes; (3) the Government, as owner, should not be required to pay rentals for the lots registered in its name, and (4) the petitioners' predecessors-in-interest were able to use the price of P31,977. To those grounds, the Solicitor General adds that the CAA, as owner, should not answer for the compensation for the use of the lots before the issuance of a judicial declaration that the resolutory condition had been fulfilled.

We hold that, while petitioners' claim for compensation may be justified on the ground that the CAA should have reconveyed the ten lots upon the tender of the redemption price, nevertheless, it would seem to be inequitable to require the CAA to pay compensation when it had not derived any benefit from the lots. And, on the other hand, it is undeniable that during all the time that the reconveyance has not been effected the petitioners have been able to use the redemption price of P31,977 for their own purposes. If any damage had been suffered by the petitioners due to the delay in the reconveyance, that damage might beequivalent to damnum absque injuria which is damage without injury or damage or injury inflicted without injustice, or loss or damage without violation of a legal right, or a wrong done to a man for which the law provides no remedy (1 Bouvier's Law Dictionary, 3rd Ed., p. 754). The petitioners have been dealing with a governmental entity whose activities are presumably dictated by policy considerations and the public interest. WHEREFORE, the decision of the Court of Appeals is modified by deleting therefrom the five conditions for the reconveyance of the ten lots to the petitioners. The trial court's judgment is affirmed. No costs. SO ORDERED.

G.R. No. 90426 December 15, 1989 SIME DARBY PILIPINAS, INC., petitioners, vs. DEPUTY ADMINISTRATOR BUENAVENTURA C. MAGSALIN as Voluntary Arbitrator and the SIME DARBY EMPLOYEES ASSOCIATION, respondents. Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner. Cezar F. Maravilla, Jr. for private respondent.

bonus could not be granted. Petitioner there referred to the following performance indicators: a) number of tires produced; b) degree of wastage of production materials; and c) number of pounds of tires produced per man hour. On that same day, 14 August 1989, petitioner manifested before the Voluntary Arbitrator that it would file a Reply to the union's Position Paper submitted on 10 August 1989 not later than 18 August 1989. However, before petitioner could submit its Reply to the union's Position Paper, the Voluntary Arbitrator on 17 August 1989 issued an award which declared respondent union entitled to a performance bonus equivalent to 75% of the monthly basic pay of its members. In that award, the Voluntary Arbitrator held that a reading of the CBA provision on the performance bonus would show that said provision was mandatory hence the only issue to be resolved was the amount of performance bonus. The Voluntary Arbitrator further stated that petitioner company's financial statements as of 30 June 1988 revealed retained earnings in the amount of P 324,370,372.32. From the foregoing, the Voluntary Arbitrator concluded that petitioner company could well afford to give members of respondent union a substantial performance bonus. The Voluntary Arbitrator also stated that there was evidence to show that the company has given performance bonuses to its managerial and non-unionized employees as well as to monthly paid workers of the year 1988-1989. Petitioner filed a motion for reconsideration which motion was not entertained by the Voluntary Arbitrator upon the ground that under the ruling of this Court in Solidbank v. Bureau of Labor Relations, (G.R. No. 64926, promulgated 8 October 1984; unpublished) he, the Voluntary Arbitrator, had automatically lost jurisdiction over the arbitration case upon the issuance of the award. In this Petition for Certiorari, petitioner mainly argues that respondent Voluntary Arbitrator gravely abused his discretion in holding that the grant of performance bonus was mandatory and that the only issue before him was the amount of the bonus. It is contended that since a performance bonus is a "gift" based on the company's performance, the same is not justified when the company's performance has been poor. Petitioner claims that during the fiscal year of 1988-1989, the company performed poorly as shown by the decline in tire production for the said year as well as the increase of the rate of wastage of production materials, and also by the decrease in the number of tires produced per man hour. Petitioner also argues that even if a performance bonus were justified, the Voluntary Arbitrator gravely abused his discretion in giving an award of 75% of the monthly basic rate without any evidence of the basis used in arriving at such an award. It is insisted that under the relevant CBA provision, the company determines the amount of the bonus if the same be justified. Petitioner also alleged that respondent Arbitrator gravely erred when he based the award on the company's retained earnings the level of which represents earnings accumulated during prior years and not merely during the fiscal year 1988-1989. On 8 November 1989, the Court temporarily restrained the enforcement of the Voluntary Arbitrator's award to prevent the petition at bar becoming moot and academic. We are not persuaded by petitioner's arguments. One point needs to be stressed at the outset: the award of a Voluntary Arbitrator is final and executory after ten (10) calendar days from receipt of the award by the parties. 2 There was a time when the award of a Voluntary Arbitrator relating to money claims amounting to more than P 100,000.00 or forty percent (40%) of the paid-up capital of the employer (whichever was lower),

FELICIANO, J.: The Petition for certiorari before us assails the award of Voluntary Arbitrator Buenaventura Magsalin dated 17 August 1989 which directed petitioner Sime Darby Pilipinas, Inc. (Sime Darby) to pay the members of private respondent Sime Darby Employees Association (SDEA) a performance bonus equivalent to seventy-five percent (75%) of their monthly basic pay for the year 1988-1989. On 13 June 1989, petitioner Sime Darby and private respondent SDEA executed a Collective Bargaining Agreement (CBA) providing, among others, that: Article X, Section 1. A performance bonus shall be granted, the amount of which [is] to be determined by the Company depending on the return of [sic] capital investment as reflected in the annual financial statement. On 31 July 1989, the Sime Darby Salaried Employees Association- ALU (SDSEA-ALU) wrote petitioner demanding the implementation of a provision Identical to the above contained in their own CBA with petitioner. Subsequently, petitioner called both respondent SDEA and SDEA-ALU to a meeting wherein the former explained that it was unable to grant the performance bonus corresponding to the fiscal year 1988-1989 on the ground that the workers' performance during said period did not justify the award of such bonus. On 27 July 1989, private respondent SDEA filed with the National Conciliation and Mediation Board (NCMB) an urgent request for preventive conciliation between private respondent and petitioner. On 1 August 1989, the parties were called to a conciliation meeting and in such meeting, both parties agreed to submit their dispute to voluntary arbitration. Their agreement to arbitrate stated, among other things, that they were "submitting the issue of performance bonus to voluntary arbitration" and that "the decision/award of the voluntary arbitrator shall be respected and implemented by the parties as final and executory, in accordance with the law." 1 On 14 August 1989, petitioner filed its position paper which aimed to show that the performance of the members of respondent union during the year was below the production goals or targets set by Sime Darby for 1988-1989 and below previous years' levels for which reason the performance

could be appealed to the National Labor Relations Commission upon the grounds of (a) abuse of discretion; or (b) gross incompetence, presumably of the arbitrator. 3 This is no longer so today although, of course, certiorari will lie in appropriate cases. A petition for certiorari under Rule 65 of the Revised Rules of Court will lie only where a grave abuse of discretion or an act without or in excess of jurisdiction on the part of the Voluntary Arbitrator is clearly shown. It must be borne in mind that the writ of certiorari is an extraordinary remedy and that certiorari jurisdiction is not to be equated with appellate jurisdiction. In a special civil action ofcertiorari, the Court will not engage in a review of the facts found nor even of the law as interpreted or applied by the Arbitrator unless the supposed errors of fact or of law are so patent and gross and prejudicial as to amount to a grave abuse of discretion or an excess de pouvoir on the part of the Arbitrator. 4 The Labor Code and its Implementing Rules thus clearly reflect the important public policy of encouraging recourse to voluntary arbitration and of shortening the arbitration process by rendering the arbitral award nonappealable to the NLRC. The result is that a voluntary arbitral award may be modified and set aside only upon the same grounds on which a decision of the NLRC itself may be modified or set aside, by this Court. Examination of the pleadings in the instant Petition shows that two (2) principal issues are raised: The first is whether or not the Voluntary Arbitrator acted with grave abuse of discretion or without or in excess of jurisdiction in passing upon both the question of whether or not a performance bonus is to be granted by petitioner Sime Darby to the private respondents and the further question of the amount thereof. The second is whether or not the award by the Arbitrator of a performance bonus amounting to seventy five percent (75%) of the basic monthly salary of members of private respondent union itself constituted a grave abuse of discretion or an act without or in excess of jurisdiction. We consider these issues seriatim 1. In respect of the first issue, petitioner Sime Darby urges that the Arbitrator gravely abused his discretion in passing upon not only the question of whether or not a performance bonus is to be granted but also, in the affirmative case, the matter of the amount thereof. The position of petitioner, to the extent we can understand it, is that the Arbitrator was authorized to determine only the question of whether or not a performance bonus was to be granted, the second question being reserved for determination by the employer Sime Darby. We noted earlier that in their agreement to arbitrate, the parties submitted to the Voluntary Arbitrator "the issue of performance bonus." The language of the agreement to arbitrate may be seen to be quite cryptic. There is no indication at all that the parties to the arbitration agreement regarded "the issue of performance bonus" as a two-tiered issue, only one tier of which was being submitted to arbitration. Possibly, Sime Darby's counsel considered that issue as having dual aspects and intended in his own mind to submit only one of those aspects to the Arbitrator; if he did, however, he failed to reflect his thinking and intent in the arbitration agreement. It is thus essential to stress that the Voluntary Arbitrator had plenary jurisdiction and authority to interpret the agreement to arbitrate and to determine the scope of his own authority subject only, in a proper case, to thecertiorari jurisdiction of this Court. The Arbitrator, as already indicated, viewed his authority as embracing not merely the determination of the abstract question of whether or not a performance bonus was to be granted but also, in the affirmative case, the amount thereof. The Arbitrator said in his award:

At this juncture, it would not be amiss to emphasize to the parties that the matter of performance bonus necessarily includes not only the determination of the existence of the right of the union to this benefit but also the amount thereof. This conclusion arises from a perusal of the terms of the submission agreement entered into by Sime Darby Pilipinas, Inc. and Sime Darby Employees Association which limited the voluntary arbitration only with regard to submission of position papers of the parties, disposition and rendition of the award. Nary (sic) a trace of qualification as to the sole issue of performance bonus may be gleaned from a review of said agreement. With that as a timely reminder, this Arbitrator now proceeds to resolve the issues herein submitted for resolution. Without doubt, the Sime Darby Employees Association is entitled to performance bonus. This conclusion arises from an analysis of the imperative terms of the CBA provision on production bonus, hereinunder reproduced, to wit: A performance bonus shall be granted the amount of which to be determined by the Company depending on the return of capital investment as reflected in the annual financial statements. 5 (Emphasis supplied) Analysis of the relevant provisions of the CBA between the parties and examination of the record of the instant case lead us to the conclusion that the Arbitrator's reading of the scope of his own authority must be sustained. Article X, Section 1 of the CBA is, grammatically speaking, cast in mandatory terms: "A performance bonus shall be granted ..." The CBA provision goes on, however, immediately to say that the amount of the performance bonus "[is] to be determined by the Company." Thus, notwithstanding the literal or grammatical tenor of Article X, Section 1, as a practical matter, only the issue relating to the amount of the bonus to be declared appears important. Not much reflection is needed to show that the critical issue is the scope of authority of the company to determine the amount of any bonus to be granted. If the company's discretionary authority were to be regarded as unlimited and if the company may declare in any event a merely nominal bonus, the use of mandatory language in Article X, Section 1, would seem largely illusory and cosmetic in effect. Alternatively, even if one were to disregard the use of "shall" rather than "may" in Article X, Section 1, the question of whether or not a performance bonus is to be granted, still cannot realistically be dissociated from the intensely practical issue of the amount of the bonus to be granted. It is noteworthy that petitioner Sime Darby itself did not spend much time discussing as an abstract question whether or not the grant of a performance bonus is per se obligatory upon the company. Petitioner instead focused upon the production performance of the company's employees as bearing upon the appropriateness of any amount of bonus. Further, if petitioner Sime Darby's argument were to be taken seriously, one must conclude that the parties to the arbitration agreement intended to refer only a theoretical and practically meaningless issue to the Voluntary Arbitrator, a conclusion that we find thoroughly unacceptable. 2. We turn then to the issue of whether or not the Voluntary Arbitrator gravely abused his discretion or acted without or in excess of jurisdiction in awarding an amount equivalent to seventy-five percent (75%) of the basic monthly pay of members of respondent union. Petitioner Sime Darby contends that that award is

devoid of factual basis. We understand this contention to be that the Arbitrator did not apply the relevant CBA provision. Once more, we are not persuaded by petitioner's contention. Article X, Section 1 of the CBA does not in express terms identify whose performance is to appraised in determining an appropriate amount to be awarded as performance bonus. The Court considers that it is the performance of the company as a whole, and not merely the production or manufacturing performance of its employees, which is relevant in that determination. The CBA provision refers to the return on investment of the company (ROI). The return on the stockholders' investment, as we understand it, relates basically to the net profits shown by the company and therefore to many more factors than simply the extent to which production targets were achieved or the rise and fall of the manufacturing efficiency ratios. Among those factors would be the cost of production, the quality of the products, the cost of money, the debt-equity ratio, the cost of sales, the level of taxes due and payable, the gross revenues realized, and so forth. We note upon the other hand, that petitioner's counsel failed to discuss at all before the Voluntary Arbitrator the rate of return on stockholders' investment achieved by Sime Darby for the year 19881989; as earlier noted, counsel confined his argument and the evidence submitted by him to the number of tires produced, the decrease in the rate of wastage of manufacturing materials, and the productivity of the work force measured in terms of the number of tires produced per man hour. The Voluntary Arbitrator, upon the other hand, explicitly considered the net earnings of petitioner Sime Darby in 1988 (P 100,000,000.00) and in the first semester of 1989 (P 95,377,507.00) as well as the increase in the company's retained earnings from P 265,729,826.00 in 1988 to P 324, 370,372.00 as of 30 June 1989. Thus, the Arbitrator impliedly or indirectly took into account the return on stockholders' investment realized for the fiscal year 1988-1989. It should also be noted that the relevant CBA provision does not specify a minimum rate of return on investment (ROI) which must be realized before any particular amount of bonus may or should be declared by the company. The Voluntary Arbitrator also took into account, again in an indirect manner, the performance of Sime Darby's employees by referring in his award to "the total labor cost incurred by the Company": This Arbitrator, however, is well aware that any effort in this regard must be tempered and balanced as against the need to sustain the continued viability of Sime Darby Pilipinas, Inc. in accordance with the constitutional provision which recognizes the 'right of enterprise to reasonable returns on investment and to expansion and growth.' Furthermore, any award to be rendered must likewise take into account the total labor cost incurred by the Company. It should not merely be confined to those pertaining to the members of the Sime Darby Employees Association but necessarily include that which shall be paid and granted to all other employees of Sime Darby this year. 6 (Emphasis supplied) On balance, we believe and so hold that the award of the Voluntary Arbitrator of a bonus amounting to seventy-five percent (75%) of the basic monthly salary cannot be said to be merely arbitrary or capricious or to constitute an excess de pouvoir.

The remaining assertions of petitioner Sime Darby relating to denial of procedural due process by the Voluntary Arbitrator, consisting of failure to wait for petitioner's announced Reply (basically reiterative and amplificatory in nature) to the union's Position Paper and of alleged failure to consider evidence submitted by petitioner, do not require extended consideration; they are evidently bereft of merit. WHEREFORE, the Petition for Certiorari is DISMISSED for lack of merit. The Temporary Restraining Order issued on 8 November 1989 is hereby LIFTED. This Decision is immediately executory. Costs against petitioner. SO ORDERED.

G.R. No. L-13525

November 30, 1962

restrictions or to any conditions beyond thecontrol of the SELLER whether the nature herein stated or not. 14. Dispute: In case of disputes, Board of Arbitration may be formed in Japan. Decision by the board of Arbitration shall be final and binding on both BUYER AND SELLER. Upon perfection of the contract and after having been informed of the readiness to ship and that the Export License was to expire on March 18, 1957,Nankai opened a letter for credit (No. 38/80049) with the China BankingCorporation, issued by the Nippon Kangyo, Ltd., Tokyo, Japan, in the amountof $312,500.00 on January 30, 1957. On March 15, 1957, only four (4) daysbefore the expiration of the Far East licence, three (3) boats sent by Nankai arrived in the Philippines, one to load in Manila, the other two at Poro Point, San Fernando, La Union, and Tacloban, Leyte, respectively. On March 19, 1957, the expiration of the export license, only 1,058.6 metric tonsof scrap steel was loaded on the SS Mina (loading in Manila). The loading wasaccordingly stopped. The boat at Poro Point was also unloaded of the 200 metric tons, for the same reason. An agreement was reached wherby the Far East would seek an extension of the license. However, the untimely death of President Magsaysay and the taking over by President Garcia changed the picture, for the latter and/or his agents refused to extend the license. The two boats sailed to Japan without any cargo, the third (SS Mina) only 1,058.6 metric tons. On April 27, 1957, Nankai confirmed and acknowleged delivery of the 1,058.6 metric tons of steel scrap, but asked for damages amounting to $148,135.00 consisting of dead freight charges, damages, bank charges, phone and cable expenses (Exh. F). On May 4, 1957, Far East wrote the Everett Steamship Corporation, requesting the issuance of a complete set of the Bill of Lading for the shipment, in order that payment thereof be effected against the Letter of Credit. Under date of May 7, 1957, the Everett informed Far East that they were not in a position to comply because the Bill of Lading was issued and signed in Tokyo by the Master of the boat, upon request of the Charterer, defendant herein. As repeated requests, both against the shipping agent and the buyers (Nankai), for the issuance of the of Bill Lading were ignored, Far East filed on May 16, 1957, the present complaint for Specific Performance, damages, a writ of preliminiry mandatory injunction directed against Nankai and the shipping company, to issue and deliver to the plaintiff, a complete set of negotiable of Lading for the 1,058.6 metric tons of scrap and a writ of preliminary injunction against the China Banking Corporation and the Nankai to maintain the Letter Credit. The lower court issued on May 17, 1957 an ex parte writ of preliminary injunction, after Far East had posted a bond in the amount of P50,000.00. By Special Apperance, defendant Nankai filed a Motion to Dismiss the complaint and dissolve the preliminary mandatory injunction on the followinggrounds: lack of jurisdiction over the person of the defendant and the subject matter: and failure to state a cause of action against the said defendant. On June 8, 1957 plaintiff Far East opposed the Special Appearance and Motion to Dismiss. Before the Special Appearance, Motions to Dismiss and Dissolve Preliminary Mandatory Injunction could be ruled upon by the court a quo, plaintiff filed a Motion to file amended complaint, it appearing that Nankai had already taken the Bill of Lading for the shipment from the Master of the SS Mina and

FAR EAST INTERNATIONAL IMPORT and EXPORT CORPORATION, plaintiff-appellee, vs. NANKAI KOGYO CO. LTD., ET AL., defendants, NANKAI KOGYO CO., LTD., defendant-appellant. Protasio Canalita, Jesus Ocampo and Gonzalo D. David for plaintiff-appellee. Marcial Ranola and Fernandez and Benedicto for defendant-appellant. PAREDES, J.: On December 26, 1956, the Far East International Import & Export Corporation, Far East for short, organized under Philippine Laws, entered into a Contract of Sale of Steel Scrap with the Nankai Kogyo Co., Ltd., Nankai for short, a foreign corporation organized under Japanese Laws with address at Osaka, Japan. The buyer sign in Japan and the seller in Manila, Philippines. The pertinent provisions of the agreement are represented below 1. Quantity: Approximately 5,000 (five thousand) metric tons 10% more or less. xxx xxx xxx

10. Payments: BUYER shall establish an irrevocable without recourse Letter of Credit in the amount of U.S. $312,500.00 with China Banking Corp. in Manila, not later than 30 days upon receipt of SELLERS' confirmation about the availability of export permit, and shall be subject to the following terms and conditions: a. This Letter of Credit shall be drawable 90% of quantity been shipped uponpresentation of: xxx xxx xxx

b. the remaining balance of 10% of the shipment shall be adjusted between BUYER and SELLER immediately after the discharge is completed at the port of destination, and shall be drawable by the SELLER upon presentation of: xxx xxx xxx

13. Force Majeure: the execution of this agrrement is subject to any and allGovernment restrictions prohibiting or penalizing in whole or in part theexport of Iron & Steel Scrap from the Philippines, and the Seller shall not be responsible for delay in or failure of shipment or delivery or delays in transportation due to force majeure, strikes, dfferences with workmen, accidents, fires, flood, mobilizations, wars, foreign wars, riots, revolutions, regulations and

used the same to secure the delivery of the 1,058.6 metric tons of scrap. The most important amendments introduced are the allegation that defendant is doing business in the Philippines with office address at R-517 Luneta Hotel, Manila, represented by Mr. Issei Ishida and Mr. Tominaga, and the additional prayer to order the defendant Nankai to pay plaintiff the price of the scrapamounting to $68,809.00 or its equivalent in Philippine currency. The motions to dismiss the complaint and to dissolve the Writ of Preliminary Mandatory Injunction were denied, the Court holding that the grounds therefor "do not appear to be indubitable". On June 26, 1957, the defendant Nankai presented an opposition to the motion to admit amended complaint, stating that the same is belated and an unfair and unjust attempt to establish by allegation, a semblance of jurisdiction of the Court over the person of the defendant Nankai and the subject matter. Under date of June 29, 1957, the motion to file an amended complaint was denied. A motion for reconsideration of the order was presented on July 31, 1957, plaintiff alleging that the amended complaint contained facts which are necessary and indispensable for the complete resolution of the issues between the parties and that the amendment is a matter of right, since defendants have not yet filed a responsive pleading (Sec. 1, Rule 17, Rules of Court). An opposition was registered by defendant. Before resolution on the reconsideration could be issued, defendant filed its Answer to the original complaint containing the customary admissions and denials. As Special Defenses, it reiterated the grounds contained in the Motion to Dismiss Complaint and Dissolve the Writ of Preliminary Mandatory Injunction and the arguments invoked in the oppositions, replies, etc. On August 20, 1957, the Amended Complaint was ordered admitted and on September 30, 1957, Nankai presented its Answer, which is identical to the Answer to the original complaint. At the trial, plaintiff Far East, thru the testimony of its Secretary Pablo Ocampo, showed that the transaction in question was intended to be the beginning of business to be undertaken by Nankai, as in fact, the representatives of the company had made inquiries as to the operation of mines and mining rights in this jurisdiction; (Nankai) thru its representatives, Messrs. Ishida and Tominaga, established a temporary office at Room 517 Luneta Hotel and manifested their intention to put up one at the Madrigal building, which did not materialize, to the belated confirmation of the head office; that in spite of the repeated demands and actual receipt of the delivery of the 1,056.8 metric tons of scrap steel, Nankai and the steamship company failed and consistently refused to issue the Bill of Lading, which acts prevented plaintiff from collecting the price of the scrap from theChina Banking Corporation against the Letter of Credit. Defendant Everett Steamship Company and the China Banking Corporation also presented evidence, both oral and documentary. Defendant Nankai presented Francisco Santos, accountant of the Luneta Hotel, to prove that it has not established an office at Room 517 of said Hotel; Nabuo Yoshida, chief of the Import Section of defendant Nankai show that it has not established a branch office in the Philippines and that the buying of the scrap was the only transiction of the defendant had in the Philippines; Tan Tiong Tick, the financier of the exportation in behalf of appellee, and Tan Tia Cuan, the contact man, to prove that the real party in interest is not the plaintiff Far East but the Delta Enterprises, and that the plaintiffwas merely the holder of the Export License but had no scrap.

The lower court rendered judgment absolving, defendants Everett Steamship Company and China Banking Corporation from liability and denied the claim for damages, both actual and moral, of the parties; found that the question of jurisdiction over the person of defendant and the subject matter has become moot and . . . hereby renders judgment in favor of the plaintiff and against defendant Nankai Kogyo Co., Ltd., sentencing said defendant to pay plaintiff the amount of U.S. $67,710.50, or its equivalent in pesos, with interest thereon at the legal rate from the date of filing of plaintiff's complaint until fully paid, plus the sum of P1,000.00 as attorney's fees, and to pay the costs. Defendant assigned six (6) errors allegedly committed by the lower court, which may be consolidated into two propositions: to wit (1) Whether or not the trial court acquired jurisdiction over the subject matter and over the person of the defendant-appellant; and (2) the propriety of the award. Defendant contends that Philippine Courts have no jurisdiction to take cognizance of the case because the Nankai is not doing business in the islands; and that while it has entered into the transaction in question, same, however, does not constitute "doing business", so as to make it amenable to summons and subject it to the Court's jurisdiction. It bolstered this claim by a provision in the contract which provides that "In case of disputes, Board of Arbitration may be formed in Japan. Decision of the Board of Arbitration shall be final and binding on both BUYER and SELLER". The rule pertinent to the questions in issue provides SEC. 14. Service upon private foreign corporations. If the defendant is a foreign corporation, or a non-resident joint stock company or association, doing business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or on any officer or agent within the Philipines. (Rule 7). The above rule indicates three modes of effecting service of summons upon a private, foreign corporation, viz: (1) by serving upon the agent designated in accordance with law to accept service of summons; (2) if there is no resident agent, by service on the government cial designated by law to that effect; and (3) by serving on any officer or agent of said corporation with Philippines. The plaintiff complied with the third stated above, for it has been shown that Mr. Ishida, who personally signed the contract for the purchase of the scrap in question in behalf of the Nankai Kogyo, the Trade Manager of said Company, Mr. Tominaga the Chief of the Petroleum Section of the same company and Mr. Yoshida was the man-in-charge of the Import Section of the company's Tokyo Branch. All these three, including the first two who were served with Summons, were officers of the defendant company. It is true that the defendant entered a Special Appearance, wherein it contested the jurisdiction of the Philippines Courts to take cognizance of the case on grounds contained in the various pleadings

presented by it. The motion to dismiss on the ground of lack of jurisdiction had been overruled because it did not appear indubitable. Subsequently, however, the defendant filed its Answer and invoked defenses and grounds for dismissal of complaint other than lack of jurisdiction (See pars. 12 & 13 of Answer to Amended Complaint), which circumstance vested upon the Court jurisdiction to take cognizance of the case. Even though the defendant objects to the jurisdiction of the court, if at thesame time he alleges any non-jurisdictional ground for dismissing the action, the Court acquires jurisdiction over him. Even though he does not intend to confer jurisdiction upon the court, his appearance for some other purpose than to object to the jurisdiction subjects him to jurisdiction of the court.Even though he does not wish to submit to the jurisdiction of the court, he cannot ask the court to act upon any question except the question of jurisdiction, without conferring jurisdiction upon the court. Thus though a Special appearance to object to the jurisdiction is not a submission, if it is followed by a motion to dismiss or to quash the motion invokes the jurisdiction of Court to decide the issue raised by the motion; and a decision of that issue binds the defendant. Therefore if the decision of the motion is based upon a finding of facts necessary to jurisdiction, this finding binds the defendant and the court acquires jurisdiction to determine the merits of the case. . . . . Undoubtedly if after his objection to the jurisdiction is wrongly overruled, a defendant files a cross complaint demanding affirmative relief, he cannot thereafter claim that the court had no jurisdiction over him. (p. 352.) (I Conflict of Laws, Beale and authorities cited therein.) Not only did appellant allege non-jurisdictional grounds in its pleadings to have the complaint dismissed, but it also went into trial on the merits and presented evidence destined to resist appellee's claim. Verily, there could not be a better situation of acquired jurisdiction based on consent. Consequently, the provision of the contract wherein it was agreed that disputes should be submitted to a Board of Arbitration which may be formed in Japan (in the supposition that it can apply to the matter in dispute - payment of the scrap), seems to have been waived with appellant's voluntary submission. Apart from the fact that the clause employs the word "may". The appellant alleges that the lower court did not acquire jurisdiction, because it was not doing business in the Philippines and the requirement of summons had not been fulfilled. It is difficult to lay down any rule of universal application to determine when a foreign corporation is doing business. Each case must turn upon its own peculiar facts and upon the language of the statute applicable. But from the proven facts obtaining in this particular case, the appellant's defense of lack of jurisdiction appears unavailing. The case of Pacific Micronesian Line, Inc. v. Baens del Rosario, et al., G.R. No. L-7154, October 23, 1954, relied upon in the Motion to Dismiss and other pleadings presented by defendant-appellant, stand on a different footing. Therein, We made the following pronouncements: . . . . And the only act it did here was to secure the services of Luceno Pelingon to act as cook and chief steward in one of its vessels authorizing to that effect the Luzon Stevedoring Co., Inc., a domestic corporation, and the contract of employment was entered into on July

18, 1951. It further appears that petitioner has never sent its ships to the Philippines nor has it transported nor even solicited the transportation passengers and cargoes to and from the Philippines. In words, petitioner engaged the services of Pelingon not as part of the operation of its business but merely to employ him as member of the crew in one of its ships. That act apparently is an isolated one, incidental, or casual, and "not of a character to indicate a purpose to engage in business" within the meaning of the rule. (Emphasis ours.) In the instant case, the testimony of Atty. Pablo Ocampo that appellant was doing business in the Philippines corroborated by no less than Nabuo Yoshida, one of appellant's officers, that he was sent to the Philippines by his company to look into the operation of mines, thereby revealing the defendant's desire to continue engaging in business here, after receiving the shipment of the iron under consideration, making the Philippines a base thereof. The rule stated in the preceding section that the doing of a single act doesnot constitute business within the meaning of statutes prescribing the conditions to be complied with the foreign corporations must be qualified to this extent, that a single act may bring the corporation. In such a case, the single act of transaction is not merly incidental or casual, but is of such character as distinctly to indicate a purpose on the part of the foreign corporation to do other business in the state, and to make the state a basis of operations for the conduct of a part of corporation's ordinary business. (17 Fletchers Cyc. of Corporations, sec. 8470, pp. 572-573, and authorities cited therein.) (Emphasis ours.) It is finally noted that when defendant's motion to dismiss in the Micronesian case was denied, it immediately brought the matter to this Court on Prohibition seeking to restrain the Workmen's Compensation mission from exercising jurisdiction over the controversy. In the present case, the defendant, while entering a Special Appearance to contest the jurisdiction of the Court, pursued its defense further by filing its Answer and going into trial. There is no appeal on the lower court's findings that the failure of the appellee herein to make full shipment of the scrap was due, not to the fault of said appellee, but to the action and intervention of the Philippine Government, which was beyond the control of the plaintiff. This aspect of the case is particularly covered by paragraph 13 of the contract, heretofore reproduced.. WHEREFORE, the judgment appealed from is hereby affirmed, with costs against defendantappellant Nankai Kogyo.

G.R. No. 96283 February 25, 1992 CHUNG FU INDUSTRIES (PHILIPPINES) INC., its Directors and Officers namely: HUANG KUOCHANG, HUANG AN-CHUNG, JAMES J.R. CHEN, TRISTAN A. CATINDIG, VICENTE B. AMADOR, ROCK A.C. HUANG, JEM S.C. HUANG, MARIA TERESA SOLIVEN and VIRGILIO M. DEL ROSARIO, petitioners, vs. COURT OF APPEALS, HON. FRANCISCO X. VELEZ (Presiding Judge, Regional Trail Court of Makati [Branch 57]) and ROBLECOR PHILIPPINES, INC., respondents.

Restraining Order before respondent Regional Trial Court, pursuant to the arbitration clause in the construction agreement. Chung Fu moved to dismiss the petition and further prayed for the quashing of the restraining order. Subsequent negotiations between the parties eventually led to the formulation of an arbitration agreement which, among others, provides: 2. The parties mutually agree that the arbitration shall proceed in accordance with the following terms and conditions: xxx xxx xxx d. The parties mutually agree that they will abide by the decision of the arbitrator including any amount that may be awarded to either party as compensation, consequential damage and/or interest thereon; e. The parties mutually agree that the decision of the arbitrator shall be final and unappealable. Therefore, there shall be no further judicial recourse if either party disagrees with the whole or any part of the arbitrator's award. f. As an exception to sub-paragraph (e) above, the parties mutually agree that either party is entitled to seek judicial assistance for purposes of enforcing the arbitrator's award; xxx xxx xxx 4 (Emphasis supplied) Respondent Regional Trial Court approved the arbitration agreement thru its Order of May 30, 1990. Thereafter, Engr. Willardo Asuncion was appointed as the sole arbitrator. On June 30, 1990, Arbitrator Asuncion ordered petitioners to immediately pay respondent contractor, the sum of P16,108,801.00. He further declared the award as final and unappealable, pursuant to the Arbitration Agreement precluding judicial review of the award. Consequently, Roblecor moved for the confirmation of said award. On the other hand, Chung Fu moved to remand the case for further hearing and asked for a reconsideration of the judgment award claiming that Arbitrator Asuncion committed twelve (12) instances of grave error by disregarding the provisions of the parties' contract. Respondent lower court denied Chung Fu's Motion to Remand thus compelling it to seek reconsideration therefrom but to no avail. The trial court granted Roblecor's Motion for Confirmation of Award and accordingly, entered judgment in conformity therewith. Moreover, it granted the motion for the issuance of a writ of execution filed by respondent.

ROMERO, J.: This is a special civil action for certiorari seeking to annul the Resolutions of the Court of Appeals* dated October 22, 1990 and December 3, 1990 upholding the Orders of July 31, 1990 and August 23, 1990 of the Regional Trial Court of Makati, Branch 57, in Civil Case No. 90-1335. Respondent Court of Appeals affirmed the ruling of the trial court that herein petitioners, after submitting themselves for arbitration and agreeing to the terms and conditions thereof, providing that the arbitration award shall be final and unappealable, are precluded from seeking judicial review of subject arbitration award. It appears that on May 17, 1989, petitioner Chung Fu Industries (Philippines) (Chung Fu for brevity) and private respondent Roblecor Philippines, Inc. (Roblecor for short) forged a construction agreement 1 whereby respondent contractor committed to construct and finish on December 31, 1989, petitioner corporation's industrial/factory complex in Tanawan, Tanza, Cavite for and in consideration of P42,000,000.00. In the event of disputes arising from the performance of subject contract, it was stipulated therein that the issue(s) shall be submitted for resolution before a single arbitrator chosen by both parties. Apart from the aforesaid construction agreement, Chung Fu and Roblecor entered into two (2) other ancillary contracts, to wit: one dated June 23, 1989, for the construction of a dormitory and support facilities with a contract price of P3,875,285.00, to be completed on or before October 31, 1989; 2 and the other dated August 12, 1989, for the installation of electrical, water and hydrant systems at the plant site, commanding a price of P12.1 million and requiring completion thereof one month after civil works have been finished. 3 However, respondent Roblecor failed to complete the work despite the extension of time allowed it by Chung Fu. Subsequently, the latter had to take over the construction when it had become evident that Roblecor was not in a position to fulfill its obligation. Claiming an unsatisfied account of P10,500,000.00 and unpaid progress billings of P2,370,179.23, Roblecor on May 18, 1990, filed a petition for Compulsory Arbitration with prayer for Temporary

Chung Fu elevated the case via a petition for certiorari to respondent Court of Appeals. On October 22,1990 the assailed resolution was issued. The respondent appellate court concurred with the findings and conclusions of respondent trial court resolving that Chung Fu and its officers, as signatories to the Arbitration Agreement are bound to observe the stipulations thereof providing for the finality of the award and precluding any appeal therefrom. A motion for reconsideration of said resolution was filed by petitioner, but it was similarly denied by respondent Court of Appeals thru its questioned resolution of December 3, 1990. Hence, the instant petition anchored on the following grounds: First Respondents Court of Appeals and trial Judge gravely abused their discretion and/or exceeded their jurisdiction, as well as denied due process and substantial justice to petitioners, (a) by refusing to exercise their judicial authority and legal duty to review the arbitration award, and (b) by declaring that petitioners are estopped from questioning the arbitration award allegedly in view of the stipulations in the parties' arbitration agreement that "the decision of the arbitrator shall be final and unappealable" and that "there shall be no further judicial recourse if either party disagrees with the whole or any part of the arbitrator's award." Second Respondent Court of Appeals and trial Judge gravely abused their discretion and/or exceeded their jurisdiction, as well as denied due process and substantial justice to petitioner, by not vacating and annulling the award dated 30 June 1990 of the Arbitrator, on the ground that the Arbitrator grossly departed from the terms of the parties' contracts and misapplied the law, and thereby exceeded the authority and power delegated to him. (Rollo, p. 17) Allow us to take a leaf from history and briefly trace the evolution of arbitration as a mode of dispute settlement. Because conflict is inherent in human society, much effort has been expended by men and institutions in devising ways of resolving the same. With the progress of civilization, physical combat has been ruled out and instead, more specific means have been evolved, such as recourse to the good offices of a disinterested third party, whether this be a court or a private individual or individuals. Legal history discloses that "the early judges called upon to solve private conflicts were primarily the arbiters, persons not specially trained but in whose morality, probity and good sense the parties in conflict reposed full trust. Thus, in Republican Rome, arbiter and judge (judex) were synonymous. The magistrate or praetor, after noting down the conflicting claims of litigants, and clarifying the issues, referred them for decision to a private person designated by the parties, by common agreement, or selected by them from an apposite listing (the album judicium) or else by having the

arbiter chosen by lot. The judges proper, as specially trained state officials endowed with own power and jurisdiction, and taking cognizance of litigations from beginning to end, only appeared under the Empire, by the so-called cognitio extra ordinem." 5 Such means of referring a dispute to a third party has also long been an accepted alternative to litigation at common law. 6 Sparse though the law and jurisprudence may be on the subject of arbitration in the Philippines, it was nonetheless recognized in the Spanish Civil Code; specifically, the provisions on compromises made applicable to arbitrations under Articles 1820 and 1821. 7 Although said provisions were repealed by implication with the repeal of the Spanish Law of Civil Procedure, 8 these and additional ones were reinstated in the present Civil Code. 9 Arbitration found a fertile field in the resolution of labor-management disputes in the Philippines. Although early on, Commonwealth Act 103 (1936) provided for compulsory arbitration as the state policy to be administered by the Court of Industrial Relations, in time such a modality gave way to voluntary arbitration. While not completely supplanting compulsory arbitration which until today is practiced by government officials, the Industrial Peace Act which was passed in 1953 as Republic Act No. 875, favored the policy of free collective bargaining, in general, and resort to grievance procedure, in particular, as the preferred mode of settling disputes in industry. It was accepted and enunciated more explicitly in the Labor Code, which was passed on November 1, 1974 as Presidential Decree No. 442, with the amendments later introduced by Republic Act No. 6715 (1989). Whether utilized in business transactions or in employer-employee relations, arbitration was gaining wide acceptance. A consensual process, it was preferred to orders imposed by government upon the disputants. Moreover, court litigations tended to be time-consuming, costly, and inflexible due to their scrupulous observance of the due process of law doctrine and their strict adherence to rules of evidence. As early as the 1920's, this Court declared: In the Philippines fortunately, the attitude of the courts toward arbitration agreements is slowly crystallizing into definite and workable form. . . . The rule now is that unless the agreement is such as absolutely to close the doors of the courts against the parties, which agreement would be void, the courts will look with favor upon such amicable arrangements and will only with great reluctance interfere to anticipate or nullify the action of the arbitrator. 10 That there was a growing need for a law regulating arbitration in general was acknowledged when Republic Act No. 876 (1953), otherwise known as the Arbitration Law, was passed. "Said Act was obviously adopted to supplement not to supplant the New Civil Code on arbitration. It expressly declares that "the provisions of chapters one and two, Title XIV, Book IV of the Civil Code shall remain in force." 11

In recognition of the pressing need for an arbitral machinery for the early and expeditious settlement of disputes in the construction industry, a Construction Industry Arbitration Commission (CIAC) was created by Executive Order No. 1008, enacted on February 4, 1985. In practice nowadays, absent an agreement of the parties to resolve their disputes via a particular mode, it is the regular courts that remain the fora to resolve such matters. However, the parties may opt for recourse to third parties, exercising their basic freedom to "establish such stipulation, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy." 12 In such a case, resort to the arbitration process may be spelled out by them in a contract in anticipation of disputes that may arise between them. Or this may be stipulated in a submission agreement when they are actually confronted by a dispute. Whatever be the case, such recourse to an extrajudicial means of settlement is not intended to completely deprive the courts of jurisdiction. In fact, the early cases on arbitration carefully spelled out the prevailing doctrine at the time, thus: ". . . a clause in a contract providing that all matters in dispute between the parties shall be referred to arbitrators and to them alone is contrary to public policy and cannot oust the courts of Jurisdiction." 13 But certainly, the stipulation to refer all future disputes to an arbitrator or to submit an ongoing dispute to one is valid. Being part of a contract between the parties, it is binding and enforceable in court in case one of them neglects, fails or refuses to arbitrate. Going a step further, in the event that they declare their intention to refer their differences to arbitration first before taking court action, this constitutes a condition precedent, such that where a suit has been instituted prematurely, the court shall suspend the same and the parties shall be directed forthwith to proceed to arbitration. 14 A court action may likewise be proven where the arbitrator has not been selected by the parties. 15 Under present law, may the parties who agree to submit their disputes to arbitration further provide that the arbitrators' award shall be final, unappealable and executory? Article 2044 of the Civil Code recognizes the validity of such stipulation, thus: Any stipulation that the arbitrators' award or decision shall be final is valid, without prejudice to Articles 2038, 2039 and 2040. Similarly, the Construction Industry Arbitration Law provides that the arbitral award "shall be final and inappealable except on questions of law which shall be appealable to the Supreme Court." 16 Under the original Labor Code, voluntary arbitration awards or decisions were final, unappealable and executory. "However, voluntary arbitration awards or decisions on money claims, involving an amount exceeding One Hundred Thousand Pesos (P100,000.00) or forty-percent (40%) of the paidup capital of the respondent employer, whichever is lower, maybe appealed to the National Labor Relations Commission on any of the following grounds: (a) abuse of discretion; and (b) gross incompetence." 17 It is to be noted that the appeal in the instances cited were to be made to the National Labor Relations Commission and not to the courts.

With the subsequent deletion of the above-cited provision from the Labor Code, the voluntary arbitrator is now mandated to render an award or decision within twenty (20) calendar days from the date of submission of the dispute and such decision shall be final and executory after ten (10) calendar days from receipt of the copy of the award or decision by the parties. 18 Where the parties agree that the decision of the arbitrator shall be final and unappealable as in the instant case, the pivotal inquiry is whether subject arbitration award is indeed beyond the ambit of the court's power of judicial review. We rule in the negative. It is stated explicitly under Art. 2044 of the Civil Code that the finality of the arbitrators' award is not absolute and without exceptions. Where the conditions described in Articles 2038, 2039 and 2040 applicable to both compromises and arbitrations are obtaining, the arbitrators' award may be annulled or rescinded.19 Additionally, under Sections 24 and 25 of the Arbitration Law, there are grounds for vacating, modifying or rescinding an arbitrator's award. 20 Thus, if and when the factual circumstances referred to in the above-cited provisions are present, judicial review of the award is properly warranted. What if courts refuse or neglect to inquire into the factual milieu of an arbitrator's award to determine whether it is in accordance with law or within the scope of his authority? How may the power of judicial review be invoked? This is where the proper remedy is certiorari under Rule 65 of the Revised Rules of Court. It is to be borne in mind, however, that this action will lie only where a grave abuse of discretion or an act without or in excess of jurisdiction on the part of the voluntary arbitrator is clearly shown. For "the writ of certiorari is an extra-ordinary remedy and that certiorari jurisdiction is not to be equated with appellate jurisdiction. In a special civil action of certiorari, the Court will not engage in a review of the facts found nor even of the law as interpreted or applied by the arbitrator unless the supposed errors of fact or of law are so patent and gross and prejudicial as to amount to a grave abuse of discretion or an exces de pouvoir on the part of the arbitrator." 21 Even decisions of administrative agencies which are declared "final" by law are not exempt from judicial review when so warranted. Thus, in the case of Oceanic Bic Division (FFW), et al. v. Flerida Ruth P. Romero, et al., 22 this Court had occasion to rule that: . . . Inspite of statutory provisions making "final" the decisions of certain administrative agencies, we have taken cognizance of petitions questioning these decisions where want of jurisdiction, grave abuse of discretion, violation of due process, denial of substantial justice or erroneous interpretation of the law were brought to our attention . . .23 (Emphasis ours). It should be stressed, too, that voluntary arbitrators, by the nature of their functions, act in a quasijudicial capacity.24 It stands to reason, therefore, that their decisions should not be beyond the scope of the power of judicial review of this Court. In the case at bar, petitioners assailed the arbitral award on the following grounds, most of which allege error on the part of the arbitrator in granting compensation for various items which apparently are disputed by said petitioners:

1. The Honorable Arbitrator committed grave error in failing to apply the terms and conditions of the Construction Agreement, Dormitory Contract and Electrical Contract, and in using instead the "practices" in the construction industry; 2. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for loss of productivity due to adverse weather conditions; 3. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for loss due to delayed payment of progress billings; 4. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for loss of productivity due to the cement crisis; 5. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for losses allegedly sustained on account of the failed coup d'tat; 6. The Honorable Arbitrator committed grave error in granting to Roblecor the amount representing the alleged unpaid billings of Chung Fu; 7. The Honorable Arbitrator committed grave error in granting to Roblecor the amount representing the alleged extended overhead expenses; 8. The Honorable Arbitrator committed grave error in granting to Roblecor the amount representing expenses for change order for site development outside the area of responsibility of Roblecor; 9. The Honorable Arbitrator committed grave error in granting to Roblecor the cost of warehouse No. 2; 10. The Honorable Arbitrator committed grave error in granting to Roblecor extra compensation for airduct change in dimension; 11. The Honorable Arbitrator committed grave error in granting to Roblecor extra compensation for airduct plastering; and 12. The Honorable Arbitrator committed grave error in awarding to Roblecor attorney's fees. After closely studying the list of errors, as well as petitioners' discussion of the same in their Motion to Remand Case For Further Hearing and Reconsideration and Opposition to Motion for Confirmation of Award, we find that petitioners have amply made out a case where the voluntary arbitrator failed to apply the terms and provisions of the Construction Agreement which forms part of the law applicable as between the parties, thus committing a grave abuse of discretion. Furthermore, in granting unjustified extra compensation to respondent for several items, he exceeded his powers all of which would have constituted ground for vacating the award under Section 24 (d) of the Arbitration Law.

But the respondent trial court's refusal to look into the merits of the case, despite prima facie showing of the existence of grounds warranting judicial review, effectively deprived petitioners of their opportunity to prove or substantiate their allegations. In so doing, the trial court itself committed grave abuse of discretion. Likewise, the appellate court, in not giving due course to the petition, committed grave abuse of discretion. Respondent courts should not shirk from exercising their power to review, where under the applicable laws and jurisprudence, such power may be rightfully exercised; more so where the objections raised against an arbitration award may properly constitute grounds for annulling, vacating or modifying said award under the laws on arbitration. WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated October 22, 1990 and December 3, 1990 as well as the Orders of respondent Regional Trial Court dated July 31, 1990 and August 23, 1990, including the writ of execution issued pursuant thereto, are hereby SET ASIDE. Accordingly, this case is REMANDED to the court of origin for further hearing on this matter. All incidents arising therefrom are reverted to the status quo ante until such time as the trial court shall have passed upon the merits of this case. No costs. SO ORDERED.

[G.R. No. 115412. November 19, 1999] HOME BANKERS SAVINGS AND TRUST COMPANY, petitioner v. COURT OF APPEALS and FAR EAST BANK & TRUST COMPANY, Respondents. [G.R. No. 115412. November 19, 1999] HOME BANKERS SAVINGS AND TRUST COMPANY, petitioner v. COURT OF APPEALS and FAR EAST BANK & TRUST COMPANY, Respondents. DECISION BUENA , J.: This appeal by certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the decision[1 of the Court of Appeals[2 dated January 21, 1994 in CA-G.R. SP No. 29725, dismissing the petition for certiorari filed by petitioner to annul the two (2) orders issued by the Regional Trial Court of Makati[3 in Civil Case No. 92-145, the first, dated April 30, 1992, denying petitioner's motion to dismiss and the second, dated October 1, 1992 denying petitioner's motion for reconsideration thereof. The pertinent facts may be briefly stated as follows: Victor Tancuan, one of the defendants in Civil Case No. 92-145, 0issued Home Bankers Savings and Trust Company (HBSTC) check No. 193498 for P25,250,000.00 while Eugene Arriesgado issued Far East Bank and Trust Company (FEBTC) check Nos. 464264, 464272 and 464271 for P8,600,000.00, P8,500,000.00 andP8,100,000.00, respectively, the three checks amounting to P25,200,000.00. Tancuan and Arriesgado exchanged each other's checks and deposited them with their respective banks for collection. When FEBTC presented Tancuan's HBSTC check for clearing, HBSTC dishonored it for being "Drawn Against Insufficient Funds." On October 15, 1991, HBSTC sent Arriesgado's three (3) FEBTC checks through the Philippine Clearing House Corporation (PCHC) to FEBTC but was returned on October 18, 1991 as "Drawn Against Insufficient Funds." HBSTC received the notice of dishonor on October 21, 1991 but refused to accept the checks and on October 22, 1991, returned them to FEBTC through the PCHC for the reason "Beyond Reglementary Period," implying that HBSTC already treated the three (3) FEBTC checks as cleared and allowed the proceeds thereof to be withdrawn. [4 FEBTC demanded reimbursement for the returned checks and inquired from HBSTC whether it had permitted any withdrawal of funds against the unfunded checks and if so, on what date. HBSTC, however, refused to make any reimbursement and to provide FEBTC with the needed information. Thus, on December 12, 1991, FEBTC submitted the dispute for arbitration before the PCHC Arbitration Committee,[5 under the PCHC's Supplementary Rules on Regional Clearing to which FEBTC and HBSTC are bound as participants in the regional clearing operations administered by the PCHC.[6 On January 17, 1992, while the arbitration proceedings was still pending, FEBTC filed an action for sum of money and damages with preliminary attachment[7 against HBSTC, Robert Young, Victor

Tancuan and Eugene Arriesgado with the Regional Trial Court of Makati, Branch 133. A motion to dismiss was filed by HBSTC claiming that the complaint stated no cause of action and accordingly should be dismissed because it seeks to enforce an arbitral award which as yet does not exist. [8 The trial court issued an omnibus order dated April 30, 1992 denying the motion to dismiss and an order dated October 1, 1992 denying the motion for reconsideration. On December 16, 1992, HBSTC filed a petition for certiorari with the respondent Court of Appeals contending that the trial court acted with grave abuse of discretion amounting to lack of jurisdiction in denying the motion to dismiss filed by HBSTC. In a Decision[9 dated January 21, 1994, the respondent court dismissed the petition for lack of merit and held that "FEBTC can reiterate its cause of action before the courts which it had already raised in the arbitration case"[10 after finding that the complaint filed by FEBTC "seeks to collect a sum of money from HBT [HBSTC] and not to enforce or confirm an arbitral award."[11 The respondent court observed that "[i]n the Complaint, FEBTC applied for the issuance of a writ of preliminary attachment over HBT's [HBSTC] property"[12 and citing section 14 of Republic Act No. 876, otherwise known as the Arbitration Law, maintained that "[n]ecessarily, it has to reiterate its main cause of action for sum of money against HBT [HBSTC],"[13 and that "[t]his prayer for conservatory relief [writ of preliminary attachment] satisfies the requirement of a cause of action which FEBTC may pursue in the courts."[14 Furthermore, the respondent court ruled that based on section 7 of the Arbitration Law and the cases of National Union Fire Insurance Company of Pittsburg vs. Slolt-Nielsen Philippines, Inc.,[15 and Bengson vs. Chan,[16 "when there is a condition requiring prior submission to arbitration before the institution of a court action, the complaint is not to be dismissed but should be suspended for arbitration."[17 Finding no merit in HBSTC's contention that section 7 of the Arbitration Law "contemplates a situation in which a party to an arbitration agreement has filed a court action without first resorting to arbitration, while in the case at bar, FEBTC has initiated arbitration proceedings before filing a court action," the respondent court held that "if the absence of a prior arbitration may stay court action, so too and with more reason, should an arbitration already pending as obtains in this case stay the court action. A party to a pending arbitral proceeding may go to court to obtain conservatory reliefs in connection with his cause of action although the disposal of that action on the merits cannot as yet be obtained."[18 The respondent court discarded Puromines, Inc. vs. Court of Appeals,[19 stating that "perhaps Puromines may have been decided on a different factual basis."[20 In the instant petition,[21 petitioner contends that first, "no party litigant can file a non-existent complaint,"[22 arguing that "one cannot file a complaint in court over a subject that is undergoing arbitration."[23 Second, petitioner submits that "[s]ince arbitration is a special proceeding by a clear provision of law,[24 the civil suit filed below is, without a shadow of doubt, barred by litis pendencia and should be dismissed de plano insofar as HBSTC is concerned."[25 Third, petitioner insists that "[w]hen arbitration is agreed upon and suit is filed without arbitration having been held and terminated, the case that is filed should be dismissed,"[26 citing Associated Bank vs. Court of Appeals,[27 Puromines, Inc. vs. Court of Appeals,[28 and Ledesma vs. Court of Appeals. [29 Petitioner demurs that the Puromines ruling was deliberately not followed by the respondent court which claimed that: "xxx xxx.

It would really be much easier for Us to rule to dismiss the complainant as the petitioners here seeks to do, following Puromines. But with utmost deference to the Honorable Supreme Court, perhaps Puromines may have been decided on a different factual basis. xxx xxx."[30 Petitioner takes exception to FEBTC's contention that Puromines cannot modify or reverse the rulings in National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc., [31 and Bengson vs. Chan,[32 where this Court suspended the action filed pending arbitration, and argues that "[s]ound policy requires that the conclusion of whether a Supreme Court decision has or has not reversed or modified [a] previous doctrine, should be left to the Supreme Court itself; until then, the latest pronouncement should prevail."[33 Fourth, petitioner alleges that the writ of preliminary attachment issued by the trial court is void considering that the case filed before it "is a separate action which cannot exist,"[34and "there is even no need for the attachment as far as HBSTC is concerned because such automatic debit/credit procedure[35 may be regarded as a security for the transactions involved and, as jurisprudence confirms, one requirement in the issuance of an attachment [writ of preliminary attachment] is that the debtor has no sufficient security."[36 Petitioner asserts further that a writ of preliminary attachment is unwarranted because no ground exists for its issuance. According to petitioner, "the only allegations against it [HBSTC] are that it refused to refund the amounts of the checks of FEBTC and that it knew about the fraud perpetrated by the other defendants,"[37 which, at best, constitute only "incidental fraud" and not causal fraud which justifies the issuance of the writ of preliminary attachment. Private respondent FEBTC, on the other hand, contends that "the cause of action for collection [of a sum of money] can coexist in the civil suit and the arbitration [proceeding]"[38 citing section 7 of the Arbitration Law which provides for the stay of the civil action until an arbitration has been had in accordance with the terms of the agreement providing for arbitration. Private respondent further asserts that following section 4(3), article VIII[39of the 1987 Constitution, the subsequent case of Puromines does not overturn the ruling in the earlier cases of National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc.[40 and Bengsonvs. Chan,[41 hence, private respondents concludes that the prevailing doctrine is that the civil action must be stayed rather than dismissed pending arbitration. In this petition, the lone issue presented for the consideration of this Court is: WHETHER OR NOT PRIVATE RESPONDENT WHICH COMMENCED AN ARBITRATION PROCEEDING UNDER THE AUSPICES OF THE PHILIPPINE CLEARING HOUSE CORPORATION (PCHC) MAY SUBSEQUENTLY FILE A SEPARATE CASE IN COURT OVER THE SAME SUBJECT MATTER OF ARBITRATION DESPITE THE PENDENCY OF THAT ARBITRATION, SIMPLY TO OBTAIN THE PROVISIONAL REMEDY OF ATTACHMENT AGAINST THE BANK, THE ADVERSE PARTY IN THE ARBITRATION PROCEEDINGS."[42 We find no merit in the petition. Section 14 of Republic Act 876, otherwise known as the Arbitration Law, allows any party to the arbitration proceeding to petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in arbitration, thus:

Section 14. Subpoena and subpoena duces tecum. - Arbitrators shall have the power to require any person to attend a hearing as a witness. They shall have the power to subpoena witnesses and documents when the relevancy of the testimony and the materiality thereof has been demonstrated to the arbitrators. Arbitrators may also require the retirement of any witness during the testimony of any other witness. All of the arbitrators appointed in any controversy must attend all the hearings in that matter and hear all the allegations and proofs of the parties; but an award by the majority of them is valid unless the concurrence of all of them is expressly required in the submission or contract to arbitrate. The arbitrator or arbitrators shall have the power at any time, before rendering the award, without prejudice to the rights of any party to petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in arbitration. (emphasis supplied) Petitioner's exposition of the foregoing provision deserves scant consideration. Section 14 simply grants an arbitrator the power to issue subpoena and subpoena duces tecum at any time before rendering the award. The exercise of such power is without prejudice to the right of a party to file a petition in court to safeguard any matter which is the subject of the dispute in arbitration. In the case at bar, private respondent filed an action for a sum of money with prayer for a writ of preliminary attachment. Undoubtedly, such action involved the same subject matter as that in arbitration, i.e., the sum of P25,200,000.00 which was allegedly deprived from private respondent in what is known in banking as a "kiting scheme." However, the civil action was not a simple case of a money claim since private respondent has included a prayer for a writ of preliminary attachment, which is sanctioned by section 14 of the Arbitration Law. Petitioner cites the cases of Associated Bank vs. Court of Appeals,[43 Puromines, Inc. vs. Court of Appeals,[44 and Ledesma vs. Court of Appeals[45 in contending that "[w]hen arbitration is agreed upon and suit is filed without arbitration having been held and terminated, the case that is filed should be dismissed."[46 However, the said cases are not in point. In Associated Bank, we affirmed the dismissal of the third-party complaint filed by Associated Bank against Philippine Commercial International Bank, Far East Bank & Trust Company, Security Bank and Trust Company and Citytrust Banking Corporation for lack of jurisdiction, it being shown that the said parties were bound by the Clearing House Rules and Regulations on Arbitration of the Philippine Clearing House Corporation. InAssociated Bank, we declared that: "xxx xxx. 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."[47 (emphasis supplied) And thus we concluded: "Clearly therefore, petitioner Associated Bank, by its voluntary participation and its consent to the arbitration rules cannot go directly to the Regional Trial Court when it finds it convenient to do so. The jurisdiction of the PCHC under the rules and regulations is clear, undeniable and is particularly applicable to all the parties in the third party complaint under

their obligation to first seek redress of their disputes and grievances with the PCHC before going to the trial court."[48 (emphasis supplied) Simply put, participants in the regional clearing operations of the Philippine Clearing House Corporation cannot bypass the arbitration process laid out by the body and seek relief directly from the courts. In the case at bar, undeniably, private respondent has initiated arbitration proceedings as required by the PCHC rules and regulations, and pending arbitration has sought relief from the trial court for measures to safeguard and/or conserve the subject of the dispute under arbitration, as sanctioned by section 14 of the Arbitration Law, and otherwise not shown to be contrary to the PCHC rules and regulations. Likewise, in the case of Puromines, Inc. vs. Court of Appeals,[49 we have ruled that: "In any case, whether the liability of respondent should be based on the sales contract or that of the bill of lading, the parties are nevertheless obligated to respect the arbitration provisions on the sales contract and/or bill of lading. Petitioner being a signatory and party to the sales contract cannot escape from his obligation under the arbitration clause as stated therein." In Puromines, we found the arbitration clause stated in the sales contract to be valid and applicable, thus, we ruled that the parties, being signatories to the sales contract, are obligated to respect the arbitration provisions on the contract and cannot escape from such obligation by filing an action for breach of contract in court without resorting first to arbitration, as agreed upon by the parties. At this point, we emphasize that arbitration, as an alternative method of dispute resolution, is encouraged by this Court. Aside from unclogging judicial dockets, it also hastens solutions especially of commercial disputes.[50The Court looks with favor upon such amicable arrangement and will only interfere with great reluctance to anticipate or nullify the action of the arbitrator.[51 WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of the court a quo is AFFIRMED. SO ORDERED.