1

Republic of the Philippines found by the CIAC, the building was eventually finished on 15 SUPREME COURT February 19928 and turned over to Uniwide. Manila PROJECT 2. THIRD DIVISION Sometime in July 1992, Titan and Uniwide entered into the second agreement (Project 2) whereby the former agreed to construct an G.R. No. 126619 December 20, 2006 UNIWIDE SALES REALTY AND RESOURCES CORPORATION, additional floor and to renovate the latter's warehouse located at the EDSA Central Market Area in Mandaluyong City. There was no written petitioner, contract executed between the parties for this project. Construction vs. TITAN-IKEDA CONSTRUCTION AND DEVELOPMENT was allegedly to be on the basis of drawings and specifications provided by Uniwide's structural engineers. The parties proceeded on CORPORATION, respondent. the basis of a cost estimate of P21,301,075.77 inclusive of Titan's 20% mark-up. Titan conceded in its complaint to having received DECISION P15,000,000.00 of this amount. This project was completed in the latter part of October 1992 and turned over to Uniwide. TINGA, J.: 9 This Petition for Review on Certiorari under Rule 45 seeks the partial PROJECT 3. 1 reversal of the 21 February 1996 Decision of the Court of Appeals The parties executed the third agreement (Project 3) in May 1992. In Fifteenth Division in CA-G.R. SP No. 37957 which modified the 17 a written "Construction Contract," Titan undertook to construct the April 1995 Decision2 of the Construction Industry Arbitration Uniwide Sales Department Store Building in Kalookan City for the price of P118,000,000.00 payable in progress billings to be certified to Commission (CIAC). 10 The case originated from an action for a sum of money filed by Titan- by Uniwide's representative. It was stipulated that the project shall Ikeda Construction and Development Corporation (Titan) against be completed not later than 28 February 1993. The project was Uniwide Sales Realty and Resources Corporation (Uniwide) with the completed and turned over to Uniwide in June 1993. Regional Trial Court (RTC), Branch 119,3 Pasay City arising from Uniwide asserted in its petition that: (a) it overpaid Titan for Uniwide's non-payment of certain claims billed by Titan after unauthorized additional works in Project 1 and Project 3; (b) it is not completion of three projects covered by agreements they entered into liable to pay the Value-Added Tax (VAT) for Project 1; (c) it is entitled with each other. Upon Uniwide's motion to dismiss/suspend to liquidated damages for the delay incurred in constructing Project 1 proceedings and Titan's open court manifestation agreeing to the and Project 3; and (d) it should not have been found liable for suspension, Civil Case No. 98-0814 was suspended for it to undergo deficiencies in the defectively constructed Project 2. arbitration.4 Titan's complaint was thus re-filed with the CIAC.5 Before An Arbitral Tribunal consisting of a chairman and two members was the CIAC, Uniwide filed an answer which was later amended and re- created in accordance with the CIAC Rules of Procedure Governing amended, denying the material allegations of the complaint, with Construction Arbitration. It conducted a preliminary conference with counterclaims for refund of overpayments, actual and exemplary the parties and thereafter issued a Terms of Reference (TOR) which damages, and attorney's fees. The agreements between Titan and was signed by the parties. The tribunal also conducted an ocular inspection, hearings, and received the evidence of the parties Uniwide are briefly described below. consisting of affidavits which were subject to cross-examination. On PROJECT 1.6 The first agreement (Project 1) was a written "Construction Contract" 17 April 1995, after the parties submitted their respective 11 the entered into by Titan and Uniwide sometime in May 1991 whereby memoranda, the Arbitral Tribunal promulgated a Decision, Titan undertook to construct Uniwide's Warehouse Club and decretal portion of which is as follows: "WHEREFORE, judgment is hereby rendered as follows: Administration Building in Libis, Quezon City for a fee of P120,936,591.50, payable in monthly progress billings to be certified On Project 1 Libis: [Uniwide] is absolved of any liability for the claims made by to by Uniwide's representative.7 The parties stipulated that the [Titan] on this Project. building shall be completed not later than 30 November 1991. As Project 2 Edsa Central:

[Uniwide] is absolved of any liability for VAT payment on this project, the same being for the account of the [Titan]. On the other hand, [Titan] is absolved of any liability on the counterclaim for defective construction of this project. [Uniwide] is held liable for the unpaid balance in the amount of P6,301,075.77 which is ordered to be paid to the [Titan] with 12% interest per annum commencing from 19 December 1992 until the date of payment. On Project 3 Kalookan: [Uniwide] is held liable for the unpaid balance in the amount of P5,158,364.63 which is ordered to be paid to the [Titan] with 12% interest per annum commencing from 08 September 1993 until the date of payment. [Uniwide] is held liable to pay in full the VAT on this project, in such amount as may be computed by the Bureau of Internal Revenue to be paid directly thereto. The BIR is hereby notified that [Uniwide] Sales Realty and Resources Corporation has assumed responsibility and is held liable for VAT payment on this project. This accordingly exempts Claimant Titan-Ikeda Construction and Development Corporation from this obligation. Let a copy of this Decision be furnished the Honorable Aurora P. Navarette Recina, Presiding Judge, Branch 119, Pasay City, in Civil Case No. 94-0814 entitled Titan-Ikeda Construction Development Corporation, Plaintiff versus Uniwide Sales Realty and Resources Corporation, Defendant, pending before said court for information and proper action. SO ORDERED."12 Uniwide filed a motion for reconsideration of the 17 April 1995 decision which was denied by the CIAC in its Resolution dated 6 July 1995. Uniwide accordingly filed a petition for review with the Court of Appeals,13 which rendered the assailed decision on 21 February 1996. Uniwide's motion for reconsideration was likewise denied by the Court of Appeals in its assailed Resolution14 dated 30 September 1996. Hence, Uniwide comes to this Court via a petition for review under Rule 45. The issues submitted for resolution of this Court are as follows:15 (1) Whether Uniwide is entitled to a return of the amount it allegedly paid by mistake to Titan for additional works done on Project 1; (2) Whether Uniwide is liable for the payment of the Value-Added Tax (VAT) on Project 1; (3) Whether Uniwide is entitled to liquidated damages for Projects 1 and 3; and (4) Whether Uniwide is liable for deficiencies in Project 2.

As a rule, findings of fact of administrative agencies and quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only respect, but also finality, especially when affirmed by the Court of Appeals. 16 In particular, factual findings of construction arbitrators are final and conclusive and not reviewable by this Court on appeal.17 This rule, however admits of certain exceptions. In David v. Construction Industry and Arbitration Commission, 18 we ruled that, as exceptions, factual findings of construction arbitrators may be reviewed by this Court when the petitioner proves affirmatively that: (1) the award was procured by corruption, fraud or other undue means; (2) there was evident partiality or corruption of the arbitrators or of any of them; (3) the arbitrators were guilty of misconduct in refusing to hear evidence pertinent and material to the controversy; (4) one or more of the arbitrators were disqualified to act as such under Section nine of Republic Act No. 876 and willfully refrained from disclosing such disqualifications or of any other misbehavior by which the rights of any party have been materially prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject matter submitted to them was not made.19 Other recognized exceptions are as follows: (1) when there is a very clear showing of grave abuse of discretion20 resulting in lack or loss of jurisdiction as when a party was deprived of a fair opportunity to present its position before the Arbitral Tribunal or when an award is obtained through fraud or the corruption of arbitrators, 21 (2) when the findings of the Court of Appeals are contrary to those of the CIAC, 22 and (3) when a party is deprived of administrative due process. 23 Thus, in Hi-Precision Steel Center, Inc. v. Lim Kim Builders, Inc.,24 we refused to review the findings of fact of the CIAC for the reason that petitioner was requiring the Court to go over each individual claim and counterclaim submitted by the parties in the CIAC. A review of the CIAC's findings of fact would have had the effect of "setting at naught the basic objective of a voluntary arbitration and would reduce arbitration to a largely inutile institution." Further, petitioner therein failed to show any serious error of law amounting to grave abuse of discretion resulting in lack of jurisdiction on the part of the Arbitral Tribunal, in either the methods employed or the results reached by the Arbitral Tribunal, in disposing of the detailed claims of the respective parties. In Metro Construction, Inc. v. Chatham Properties, Inc.,25 we reviewed the findings of fact of the Court of Appeals because its findings on the issue of whether petitioner therein was in delay were contrary to the findings of the CIAC. Finally, in Megaworld

Globus Asia, Inc. v. DSM Construction and Development Corporation,26 we declined to depart from the findings of the Arbitral Tribunal considering that the computations, as well as the propriety of the awards, are unquestionably factual issues that have been discussed by the Arbitral Tribunal and affirmed by the Court of Appeals. In the present case, only the first issue presented for resolution of this Court is a question of law while the rest are factual in nature. However, we do not hesitate to inquire into these factual issues for the reason that the CIAC and the Court of Appeals, in some matters, differed in their findings. We now proceed to discuss the issues in seriatim. Payment by Mistake for Project 1 The first issue refers to the P5,823,481.75 paid by Uniwide for additional works done on Project 1. Uniwide asserts that Titan was not entitled to be paid this amount because the additional works were without any written authorization. It should be noted that the contracts do not contain stipulations on "additional works," Uniwide's liability for "additional works," and prior approval as a requirement before Titan could perform "additional works." Nonetheless, Uniwide cites Article (Art. ) 1724 of the New Civil Code as basis for its claim that it is not liable to pay for "additional works" it did not authorize or agree upon in writing. The provision states: Art. 1724. The contractor who undertakes to build a structure or any other work for a stipulated price, in conformity with plans and specifications agreed upon with the landowner, can neither withdraw from the contract nor demand an increase in the price on account of the higher cost of labor or materials, save when there has been a change in the plans and specifications, provided: (1) Such change has been authorized by the proprietor in writing; and (2) The additional price to be paid to the contractor has been determined in writing by both parties. The Court of Appeals did take note of this provision, but deemed it inapplicable to the case at bar because Uniwide had already paid, albeit with unwritten reservations, for the "additional works." The provision would have been operative had Uniwide refused to pay for the costs of the "additional works." Instead, the Court of Appeals applied Art. 142327 of the New Civil Code and characterized Uniwide's payment of the said amount as a voluntary fulfillment of a natural obligation. The situation was characterized as being akin to Uniwide

being a debtor who paid a debt even while it knew that it was not legally compelled to do so. As such debtor, Uniwide could no longer demand the refund of the amount already paid. Uniwide counters that Art. 1724 makes no distinction as to whether payment for the "additional works" had already been made. It claims that it had made the payments, subject to reservations, upon the false representation of Titan-Ikeda that the "additional works" were authorized in writing. Uniwide characterizes the payment as a "mistake," and not a "voluntary" fulfillment under Art. 1423 of the Civil Code. Hence, it urges the application, instead, of the principle of solutio indebiti under Arts. 215428 and 215629 of the Civil Code. To be certain, this Court has not been wont to give an expansive construction of Art. 1724, denying, for example, claims that it applies to constructions made of ship vessels,30 or that it can validly deny the claim for payment of professional fees to the architect.31 The present situation though presents a thornier problem. Clearly, Art. 1724 denies, as a matter of right, payment to the contractor for additional works which were not authorized in writing by the proprietor, and the additional price of which was not determined in writing by the parties. Yet the distinction pointed out by the Court of Appeals is material. The issue is no longer centered on the right of the contractor to demand payment for additional works undertaken because payment, whether mistaken or not, was already made by Uniwide. Thus, it would not anymore be incumbent on Titan to establish that it had the right to demand or receive such payment. But, even if the Court accepts Art. 1724 as applicable in this case, such recognition does not ipso facto accord Uniwide the right to be reimbursed for payments already made, since Art. 1724 does not effect such right of reimbursement. It has to be understood that Art. 1724 does not preclude the payment to the contractor who performs additional works without any prior written authorization or agreement as to the price for such works if the owner decides anyway to make such payment. What the provision does preclude is the right of the contractor to insist upon payment for unauthorized additional works. Accordingly, Uniwide, as the owner who did pay the contractor for such additional works even if they had not been authorized in writing, has to establish its own right to reimbursement not under Art. 1724, but under a different provision of law. Uniwide's burden of establishing its legal right to reimbursement becomes even more crucial in the light of the general presumption contained in Section 3(f), Rule 131 of the Rules of Court that "money paid by one to another was due to the latter."

Uniwide undertakes such a task before this Court, citing the provisions on solutio indebiti under Arts. 2154 and 2156 of the Civil Code. However, it is not enough to prove that the payments made by Uniwide to Titan were "not due" because there was no prior authorization or agreement with respect to additional works. There is a further requirement that the payment by the debtor was made either through mistake or under a cloud of doubt. In short, for the provisions on solutio indebiti to apply, there has to be evidence establishing the frame of mind of the payor at the time the payment was made.32 The CIAC refused to acknowledge that the additional works on Project 1 were indeed unauthorized by Uniwide. Neither did the Court of Appeals arrive at a contrary determination. There would thus be some difficulty for this Court to agree with this most basic premise submitted by Uniwide that it did not authorize the additional works on Project 1 undertaken by Titan. Still, Uniwide does cite testimonial evidence from the record alluding to a concession by employees of Titan that these additional works on Project 1 were either authorized or documented.33 Yet even conceding that the additional works on Project 1 were not authorized or committed into writing, the undisputed fact remains that Uniwide paid for these additional works. Thus, to claim a refund of payments made under the principle of solutio indebiti, Uniwide must be able to establish that these payments were made through mistake. Again, this is a factual matter that would have acquired a mantle of invulnerability had it been determined by both the CIAC and the Court of Appeals. However, both bodies failed to arrive at such a conclusion. Moreover, Uniwide is unable to direct our attention to any pertinent part of the record that would indeed establish that the payments were made by reason of mistake. We note that Uniwide alleged in its petition that the CIAC award in favor of Titan in the amount P5,158,364.63 as the unpaid balance in Project 3 included claims for additional works of P1,087,214.18 for which no written authorization was presented. Unfortunately, this issue was not included in its memorandum as one of the issues submitted for the resolution of the Court. Liability for the Value-Added Tax (VAT) The second issue takes us into an inquiry on who, under the law, is liable for the payment of the VAT, in the absence of a written stipulation on the matter. Uniwide claims that the VAT was already included in the contract price for Project 1. Citing Secs. 99 and 102 of the National Internal Revenue Code, Uniwide asserts that VAT, being an indirect tax, may be shifted to the buyer by including it in the cash

or selling price and it is entirely up to the buyer to agree or not to agree to absorb the VAT.34 Thus, Uniwide concludes, if there is no provision in the contract as to who should pay the VAT, it is presumed that it would be the seller.35 The contract for Project 1 is silent on which party should shoulder the VAT while the contract for Project 3 contained a provision to the effect that Uniwide is the party responsible for the payment of the VAT.36 Thus, when Uniwide paid the amount of P2,400,000.00 as billed by Titan for VAT, it assumed that it was the VAT for Project 3. However, the CIAC and the Court of Appeals found that the same was for Project 1. We agree with the conclusions of both the CIAC and the Court of Appeals that the amount of P2,400,000.00 was paid by Uniwide as VAT for Project 1. This conclusion was drawn from an Order of Payment37 dated 7 October 1992 wherein Titan billed Uniwide the amount of P2,400,000.00 as "Value Added Tax based on P60,000,000.00 Contract," computed on the basis of 4% of P60,000,000.00. Said document which was approved by the President of Uniwide expressly indicated that the project involved was the "UNIWIDE SALES WAREHOUSE CLUB & ADMIN BLDG." located at "90 E. RODRIGUEZ JR. AVE., LIBIS, Q.C." The reduced base for the computation of the tax, according to the Court of Appeals, was an indication that the parties agreed to pass the VAT for Project 1 to Uniwide but based on a lower contract price. Indeed, the CIAC found as follows: Without any documentary evidence than Exhibit "H" to show the extent of tax liability assumed by [Uniwide], the Tribunal holds that the parties is [sic] obliged to pay only a share of the VAT payment up to P60,000,000.00 out of the total contract price of P120,936,591.50. As explained by Jimmy Gow, VAT is paid on labor only for construction contracts since VAT had already been paid on the materials purchased. Since labor costs is [sic] proportionately placed at 60%-40% of the contract price, simplified accounting computes VAT at 4% of the contract price. Whatever is the balance for VAT that remains to be paid on Project 1 Libis shall remain the obligation of [Titan]. (Emphasis supplied.)38 Liquidated Damages On the third issue of liquidated damages, the CIAC rejected such claim while the Court of Appeals held that the matter should be left for determination in future proceedings where the issue has been made clear.

In rejecting Uniwide's claim for liquidated damages, the CIAC held that there is no legal basis for passing upon and resolving Uniwide's claim for the following reasons: (1) no claim for liquidated damages arising from the alleged delay was ever made by Uniwide at any time before the commencement of Titan's complaint; (2) the claim for liquidated damages was not included in the counterclaims stated in Uniwide's answer to Titan's complaint; (3) the claim was not formulated as an issue to be resolved by the CIAC in the TOR; 39 and (4) no attempt was made to modify the TOR to accommodate the same as an issue to be resolved. Uniwide insists that the CIAC should have applied Section 5, Rule 10 of the Rules of Court.40 On this matter, the Court of Appeals held that the CIAC is an arbitration body, which is not necessarily bound by the Rules of Court. Also, the Court of Appeals found that the issue has never been made concrete enough to make Titan and the CIAC aware that it will be an issue. In fact, Uniwide only introduced and quantified its claim for liquidated damages in its Memorandum submitted to the CIAC at the end of the arbitration proceeding. The Court of Appeals also noted that the only evidence on record to prove delay in the construction of Project 1 is the testimony of Titan's engineer regarding the date of completion of the project while the only evidence of delay in the construction of Project 3 is the affidavit of Uniwide's President. According to Uniwide, the ruling of the Court of Appeals on the issue of liquidated damages goes against the established judicial policy that a court should always strive to settle in one proceeding the entire controversy leaving no root or branch to bear the seeds of future litigations.41 Uniwide claims that the required evidence for an affirmative ruling on its claim is already on the record. It cites the pertinent provisions of the written contracts which contained deadlines for liquidated damages. Uniwide also noted that the evidence show that Project 1 was completed either on 15 February 1992, as found by the CIAC, or 12 March 1992, as shown by Titan's own evidence, while Project 3, according to Uniwide's President, was completed in June 1993. Furthermore, Uniwide asserts, the CIAC should have applied procedural rules such as Section 5, Rule 10 with more liberality because it was an administrative tribunal free from the rigid technicalities of regular courts.42 On this point, the CIAC held: The Rule of Procedure Governing Construction Arbitration promulgated by the CIAC contains no provision on the application of the Rules of Court to arbitration proceedings, even in a suppletory capacity. Hypothetically admitting that there is such a provision, suppletory application is made only if

it would not contravene a specific provision in the arbitration rules and the spirit thereof. The Tribunal holds that such importation of the Rules of Court provision on amendment to conform to evidence would contravene the spirit, if not the letter of the CIAC rules. This is for the reason that the formulation of the Terms of Reference is done with the active participation of the parties and their counsel themselves. The TOR is further required to be signed by all the parties, their respective counsel and all the members of the Arbitral Tribunal. Unless the issues thus carefully formulated in the Terms of Reference were expressly showed [sic] to be amended, issues outside thereof may not be resolved. As already noted in the Decision, "no attempt was ever made by the [Uniwide] to modify the TOR in order to accommodate the issues related to its belated counterclaim" on this issue. (Emphasis supplied.) Arbitration has been defined as "an arrangement for taking and abiding by the judgment of selected persons in some disputed matter, instead of carrying it to established tribunals of justice, and is intended to avoid the formalities, the delay, the expense and vexation of ordinary litigation."43 Voluntary arbitration, on the other hand, involves the reference of a dispute to an impartial body, the members of which are chosen by the parties themselves, which parties freely consent in advance to abide by the arbitral award issued after proceedings where both parties had the opportunity to be heard. The basic objective is to provide a speedy and inexpensive method of settling disputes by allowing the parties to avoid the formalities, delay, expense and aggravation which commonly accompany ordinary litigation, especially litigation which goes through the entire hierarchy of courts.44 As an arbitration body, the CIAC can only resolve issues brought before it by the parties through the TOR which functions similarly as a pre-trial brief. Thus, if Uniwide's claim for liquidated damages was not raised as an issue in the TOR or in any modified or amended version of it, the CIAC cannot make a ruling on it. The Rules of Court cannot be used to contravene the spirit of the CIAC rules, whose policy and objective is to "provide a fair and expeditious settlement of construction disputes through a non-judicial process which ensures harmonious and friendly relations between or among the parties."45 Further, a party may not be deprived of due process of law by an amendment of the complaint as provided in Section 5, Rule 10 of the Rules of Court. In this case, as noted by the Court of Appeals, Uniwide only introduced and quantified its claim for liquidated damages in its

memorandum submitted to the CIAC at the end of the arbitration proceeding. Verily, Titan was not given a chance to present evidence to counter Uniwide's claim for liquidated damages. Uniwide alludes to an alleged judicial admission made by Engr. Luzon Tablante wherein he stated that Project 1 was completed on 10 March 1992. It now claims that by virtue of Engr. Tablante's statement, Titan had admitted that it was in delay. We disagree. The testimony of Engr. Tablante was offered only to prove that Project 1 was indeed completed. It was not offered to prove the fact of delay. It must be remembered that the purpose for which evidence is offered must be specified because such evidence may be admissible for several purposes under the doctrine of multiple admissibility, or may be admissible for one purpose and not for another, otherwise the adverse party cannot interpose the proper objection. Evidence submitted for one purpose may not be considered for any other purpose. 46 Furthermore, even assuming, for the sake of argument, that said testimony on the date of completion of Project 1 is admitted, the establishment of the mere fact of delay is not sufficient for the imposition of liquidated damages. It must further be shown that delay was attributable to the contractor if not otherwise justifiable. Contrarily, Uniwide's belated claim constitutes an admission that the delay was justified and implies a waiver of its right to such damages. Project 2: "as-built" plans, overpricing, defective construction To determine whether or not Uniwide is liable for the unpaid balance of P6,301,075.77 for Project 2, we need to resolve four sub-issues, namely: (1) whether or not it was necessary for Titan to submit "asbuilt" plans before it can be paid by Uniwide; (2) whether or not there was overpricing of the project; (3) whether or not the P15,000,000.00 paid by Uniwide to Titan for Project 2 constitutes full payment; and (4) whether or not Titan can be held liable for defective construction of Project 2. The CIAC, as affirmed by the Court of Appeals, held Uniwide liable for deficiency relating to Project 2 in the amount of P6,301,075.77. It is nonetheless alleged by Uniwide that Titan failed to submit any "asbuilt" plans for Project 2, such plans allegedly serving as a condition precedent for payment. Uniwide further claims that Titan had substantially overcharged Uniwide for Project 2, there being uncontradicted expert testimony that the total cost of Project 2 did not exceed P7,812,123.60. Furthermore, Uniwide alleged that the works performed were structurally defective, as evidenced by the structural damage on four columns as observed on ocular inspection by the CIAC and confirmed by Titan's project manager.

On the necessity of submitting "as-built" plans, this Court rules that the submission of such plans is not a pre-requisite for Titan to be paid by Uniwide. The argument that said plans are required by Section 308 of Presidential Decree No. 1098 (National Building Code) and by Section 2.11 of its Implementing Rules before payment can be made is untenable. The purpose of the law is "to safeguard life, health, property, and public welfare, consistent with the principles of sound environmental management and control." The submission of these plans is necessary only in furtherance of the law's purpose by setting minimum standards and requirements to control the "location, site, design, quality of materials, construction, use, occupancy, and maintenance" of buildings constructed and not as a requirement for payment to the contractor.47 The testimony of Engr. Tablante to the effect that the "as-built" plans are required before payment can be claimed by Titan is a mere legal conclusion which is not binding on this Court. Uniwide claims that, according to one of its consultants, the true price for Project 2 is only P7,812,123.60. The CIAC and the Court of Appeals, however, found the testimony of this consultant suspect and ruled that the total contract price for Project 2 is P21,301,075.77. The CIAC held: The Cost Estimate for Architectural and Site Development Works for the EDSA Central, Dau Branch Project (Exhibit "2-A" for [Uniwide] and made as a common exhibit by [Titan] who had it marked at [sic] its own Exhibit "U"), which was admittedly prepared by Fermindoza and Associates, [Uniwide]'s own architects, shows that the amount of P17,750,896.48 was arrived at. Together with the agreed upon mark-up of 20% on said amount, the total project cost was P21,301,075.77. The Tribunal holds that the foregoing document is binding upon the [Uniwide], it being the mode agreed upon by which its liability for the project cost was to be determined. 48 (Emphasis supplied.) Indeed, Uniwide is bound by the amount indicated in the above document. Claims of connivance or fraudulent conspiracy between Titan and Uniwide's representatives which, it is alleged, grossly exaggerated the price may properly be dismissed. As held by the CIAC: The Tribunal holds that [Uniwide] has not introduced any evidence to sustain its charge of fraudulent conspiracy. As a matter of fact, [Uniwide]'s own principal witness, Jimmy Gow, admitted on cross-examination that he does not have any

direct evidence to prove his charge of connivance or complicity between the [Titan] and his own representatives. He only made that conclusion by the process of his own "logical reasoning" arising from his consultation with other contractors who gave him a much lower estimate for the construction of the Dau Project. There is thus no reason to invalidate the binding character of Exhibit "2-A" which, it is significant to point out, is [Uniwide]'s own evidence.49 (Emphasis supplied.) Accordingly, deducting the P15,000,000.00 already paid by Uniwide from the total contract price of P21,301,075.77, the unpaid balance due for Project 2 is P6,301,075.77. This is the same amount reflected in the Order of Payment prepared by Uniwide's representative, Le Consultech, Inc. and signed by no less than four top officers and architects of Le Consultech, Inc. endorsing for payment by Uniwide to Titan the amount of P6,301,075.77.50 Uniwide asserts that Titan should not have been allowed to recover on Project 2 because the said project was defective and would require repairs in the amount of P800,000.00. It claims that the CIAC and the Court of Appeals should have applied Nakpil and Sons v. Court of Appeals51 and Art. 1723 of the New Civil Code holding a contractor responsible for damages if the edifice constructed falls within fifteen years from completion on account of defects in the construction or the use of materials of inferior quality furnished by him or due to any violation of the terms of the contract. On this matter, the CIAC conducted an ocular inspection of the premises on 30 January 1995. What transpired in the said ocular inspection is described thus: On 30 January 1995, an ocular inspection was conducted by the Arbitral Tribunal as requested by [Uniwide]. Photographs were taken of the alleged construction defects, an actual ripping off of the plaster of a certain column to expose the alleged structural defect that is claimed to have resulted in its being "heavily damaged" was done, clarificatory questions were asked and manifestations on observations were made by the parties and their respective counsels. The entire proceedings were recorded on tape and subsequently transcribed. The photographs and transcript of the ocular inspection form part of the records and considered as evidence.52 And, according to these evidence, the CIAC concluded as follows: It is likewise the holding of this Tribunal that [Uniwide]'s counterclaim of defective construction has not been sufficiently proven. The credibility of Engr. Cruz, [Uniwide]'s principal

witness on this issue, has been severely impaired. During the ocular inspection of the premises, he gave such assurance of the soundness of his opinion as an expert that a certain column was heavily damaged judging from the external cracks that was readily apparent x x x xxxx On insistence of the Tribunal, the plaster was chipped off and revealed a structurally sound column x x x Further, it turns out that what was being passed off as a defective construction by [Titan], was in fact an old column, as admitted by Mr. Gow himself x x x x53 (Emphasis supplied.) Uniwide had the burden of proving that there was defective construction in Project 2 but it failed to discharge this burden. Even the credibility of its own witness was severely impaired. Further, it was found that the concrete slab placed by Titan was not attached to the old columns where cracks were discovered. The CIAC held that the post-tensioning of the new concrete slab could not have caused any of the defects manifested by the old columns. We are bound by this finding of fact by the CIAC. It is worthy to stress our ruling in Hi-Precision Steel Center, Inc. v. Lim Kim Steel Builders, Inc.54 which was reiterated in David v. Construction Industry and Arbitration Commission,55 that: x x x Executive Order No. 1008 created an arbitration facility to which the construction industry in the Philippines can have recourse. The Executive Order was enacted to encourage the early and expeditious settlement of disputes in the construction industry, a public policy the implementation of which is necessary and important for the realization of national development goals. Aware of the objective of voluntary arbitration in the labor field, in the construction industry, and in any other area for that matter, the Court will not assist one or the other or even both parties in any effort to subvert or defeat that objective for their private purposes. The Court will not review the factual findings of an arbitral tribunal upon the artful allegation that such body had "misapprehended facts" and will not pass upon issues which are, at bottom, issues of fact, no matter how cleverly disguised they might be as "legal questions." The parties here had recourse to arbitration and chose the arbitrators themselves; they must have had confidence in such arbitrators. The Court will not, therefore, permit the parties to relitigate before it the issues of facts previously presented and argued before the Arbitral Tribunal, save only where a clear

showing is made that, in reaching its factual conclusions, the Arbitral Tribunal committed an error so egregious and hurtful to one party as to constitute a grave abuse of discretion resulting in lack or loss of jurisdiction. Prototypical examples would be factual conclusions of the Tribunal which resulted in deprivation of one or the other party of a fair opportunity to present its position before the Arbitral Tribunal, and an award obtained through fraud or the corruption of arbitrators. Any other, more relaxed rule would result in setting at naught the basic objective of a voluntary arbitration and would reduce arbitration to a largely inutile institution. (Emphasis supplied.) WHEREFORE, premises considered, the petition is DENIED and the Decision of the Court of Appeals dated 21 February 1996 in CA-G.R. SP No. 37957 is hereby AFFIRMED. SO ORDERED. Quisumbing, J., Chairperson, Carpio, Carpio Morales, And Velasco, Jr., JJ., concur. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION BENGUET CORPORATION, Petitioner, G.R. No. 163101 Present: Chairperson, - versus QUISUMBING, CARPIO, CARPIO MORALES, TINGA, and VELASCO, JR., JJ. J.,

DECISION VELASCO, JR., J.: The instant petition under Rule 65 of the Rules of Court seeks the annulment of the December 2, 2002 Decision1[1] and March 17, 2004 Resolution2[2] of the Department of Environment and Natural Resources-Mining Adjudication Board (DENR-MAB) in MAB Case No. 0124-01 (Mines Administrative Case No. R-M-2000-01) entitled Benguet Corporation (Benguet) v. J.G. Realty and Mining Corporation (J.G. Realty). The December 2, 2002 Decision upheld the March 19, 2001 Decision3[3] of the MAB Panel of Arbitrators (POA) which canceled the Royalty Agreement with Option to Purchase (RAWOP) dated June 1, 19874[4] between Benguet and J.G. Realty, and excluded Benguet from the joint Mineral Production Sharing Agreement (MPSA) application over four mining claims. The March 17, 2004 Resolution denied Benguets Motion for Reconsideration. The Facts On June 1, 1987, Benguet and J.G. Realty entered into a RAWOP, wherein J.G. Realty was acknowledged as the owner of four mining claims respectively named as Bonito-I, Bonito-II, Bonito-III, and Bonito-IV, with a total area of 288.8656 hectares, situated in Barangay Luklukam, Sitio Bagong Bayan, Municipality of Jose

DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES -MINES ADJUDICATION BOARD and J.G. REALTY AND MINING Promulgated: CORPORATION, Respondents. February 13, 2008 x----------------------------------------------------------------------------------------x

Panganiban, Supplemental were covered J.G. Realty as

Camarines Norte. The parties also executed a Agreement5[5] dated June 1, 1987. The mining claims by MPSA Application No. APSA-V-0009 jointly filed by claimowner and Benguet as operator.

a. The fact that your company has failed to perform the obligations set forth in the RAWOP, i.e., to undertake development works within 2 years from the execution of the Agreement; b. Violation of the Contract by allowing high graders to operate on our claim. c. No stipulation was provided with respect to the term limit of the RAWOP. d. Non-payment of the royalties thereon as provided in the RAWOP.7[7]

In the RAWOP, Benguet obligated itself to perfect the rights to the mining claims and/or otherwise acquire the mining rights to the mineral claims. Within 24 months from the execution of the RAWOP, Benguet should also cause the examination of the mining claims for the purpose of determining whether or not they are worth developing with reasonable probability of profitable production. Benguet undertook also to furnish J.G. Realty with a report on the examination, within a reasonable time after the completion of the examination. Moreover, also within the examination period, Benguet shall conduct all necessary exploration in accordance with a prepared exploration program. If it chooses to do so and before the expiration of the examination period, Benguet may undertake to develop the mining claims upon written notice to J.G. Realty. Benguet must then place the mining claims into commercial productive stage within 24 months from the written notice.6[6] It is also provided in the RAWOP that if the mining claims were placed in commercial production by Benguet, J.G. Realty should be entitled to a royalty of five percent (5%) of net realizable value, and to royalty for any production done by Benguet whether during the examination or development periods. Thus, on August 9, 1989, the Executive Vice-President of Benguet, Antonio N. Tachuling, issued a letter informing J.G. Realty of its intention to develop the mining claims. However, on February 9, 1999, J.G. Realty, through its President, Johnny L. Tan, then sent a letter to the President of Benguet informing the latter that it was terminating the RAWOP on the following grounds:

In response, Benguets Manager for Legal Services, Reynaldo P. Mendoza, wrote J.G. Realty a letter dated March 8, 1999,8[8] therein alleging that Benguet complied with its obligations under the RAWOP by investing PhP 42.4 million to rehabilitate the mines, and that the commercial operation was hampered by the non-issuance of a Mines Temporary Permit by the Mines and Geosciences Bureau (MGB) which must be considered as force majeure, entitling Benguet to an extension of time to prosecute such permit. Benguet further claimed that the high graders mentioned by J.G. Realty were already operating prior to Benguets taking over of the premises, and that J.G. Realty had the obligation of ejecting such small scale miners. Benguet also alleged that the nature of the mining business made it difficult to specify a time limit for the RAWOP. Benguet then argued that the royalties due to J.G. Realty were in fact in its office and ready to be picked up at any time. It appeared that, previously, the practice by J.G. Realty was to pick-up checks from Benguet representing such royalties. However, starting August 1994, J.G. Realty allegedly refused to collect such checks from Benguet. Thus, Benguet posited

10

that there was no valid ground for the termination of the RAWOP. It assailed Decision which was denied in the March 17, 2004 Resolution also reminded J.G. Realty that it should submit the disagreement to of the MAB. Hence, Benguet filed the instant petition. arbitration rather than unilaterally terminating the RAWOP. The Issues On June 7, 2000, J.G. Realty filed a Petition for Declaration of Nullity/Cancellation of the RAWOP9[9] with the Legaspi City POA, Region V, docketed as DENR Case No. 2000-01 and entitled J.G. 1. There was serious and palpable error when Realty v. Benguet. the Honorable Board failed to rule that the contractual obligation of the parties to arbitrate under the Royalty On March 19, 2001, the POA issued a Decision,10[10] dwelling Agreement is mandatory. upon the issues of (1) whether the arbitrators had jurisdiction over the case; and (2) whether Benguet violated the RAWOP justifying the 2. The Honorable Board exceeded its unilateral cancellation of the RAWOP by J.G. Realty. The dispositive jurisdiction when it sustained the cancellation of the portion stated: Royalty Agreement for alleged breach of contract despite the absence of evidence. WHEREFORE, premises considered, the June 01, 1987 [RAWOP] and its Supplemental Agreement is 3. The Questioned Decision of the Honorable hereby declared cancelled and without effect. BENGUET Board in cancelling the RAWOP prejudice[d] the is hereby excluded from the joint MPSA Application over substantial rights of Benguet under the contract to the the mineral claims denominated as BONITO-I, unjust enrichment of JG Realty.12[12] BONITO-II, BONITO-III and BONITO-IV. Restated, the issues are: (1) Should the controversy have first been submitted to arbitration before the POA took cognizance of the case?; (2) Was the cancellation of the RAWOP supported by Therefrom, Benguet filed a Notice of Appeal11[11] with the evidence?; and (3) Did the cancellation of the RAWOP amount to MAB on April 23, 2001, docketed as Mines Administrative Case No. R- unjust enrichment of J.G. Realty at the expense of Benguet? M-2000-01. Thereafter, the MAB issued the assailed December 2, 2002 Decision. Benguet then filed a Motion for Reconsideration of the The Courts Ruling Before we dwell on the substantive issues, we find that the instant petition can be denied outright as Benguet resorted to an improper remedy. The last paragraph of Section 79 of Republic Act No. (RA) 7942 or the Philippine Mining Act of 1995 states, A petition for review by certiorari and question of law may be filed by the aggrieved party with SO ORDERED.

11

the Supreme Court within thirty (30) days from receipt of the order or decision of the [MAB]. However, this Court has already invalidated such provision in Carpio v. Sulu Resources Development Corp.,13[13] ruling that a decision of the MAB must first be appealed to the Court of Appeals (CA) under Rule 43 of the Rules of Court, before recourse to this Court may be had. We held, thus: To summarize, there are sufficient legal footings authorizing a review of the MAB Decision under Rule 43 of the Rules of Court. First, Section 30 of Article VI of the 1987 Constitution, mandates that [n]o law shall be passed increasing the appellate jurisdiction of the Supreme Court as provided in this Constitution without its advice and consent. On the other hand, Section 79 of RA No. 7942 provides that decisions of the MAB may be reviewed by this Court on a petition for review by certiorari. This provision is obviously an expansion of the Courts appellate jurisdiction, an expansion to which this Court has not consented. Indiscriminate enactment of legislation enlarging the appellate jurisdiction of this Court would unnecessarily burden it. Second, when the Supreme Court, in the exercise of its rule-making power, transfers to the CA pending cases involving a review of a quasi-judicial bodys decisions, such transfer relates only to procedure; hence, it does not impair the substantive and vested rights of the parties. The aggrieved partys right to appeal is preserved; what is changed is only the procedure by which the appeal is to be made or decided. The parties still have a remedy and a competent tribunal to grant this remedy. Third, the Revised Rules of Civil Procedure included Rule 43 to provide a uniform rule on appeals from quasi-judicial agencies. Under the rule, appeals

from their judgments and final orders are now required to be brought to the CA on a verified petition for review. A quasi-judicial agency or body has been defined as an organ of government, other than a court or legislature, which affects the rights of private parties through either adjudication or rule-making. MAB falls under this definition; hence, it is no different from the other quasi-judicial bodies enumerated under Rule 43. Besides, the introductory words in Section 1 of Circular No. 1-91among these agencies areindicate that the enumeration is not exclusive or conclusive and acknowledge the existence of other quasi-judicial agencies which, though not expressly listed, should be deemed included therein. Fourth, the Court realizes that under Batas Pambansa (BP) Blg. 129 as amended by RA No. 7902, factual controversies are usually involved in decisions of quasi-judicial bodies; and the CA, which is likewise tasked to resolve questions of fact, has more elbow room to resolve them. By including questions of fact among the issues that may be raised in an appeal from quasi-judicial agencies to the CA, Section 3 of Revised Administrative Circular No. 1-95 and Section 3 of Rule 43 explicitly expanded the list of such issues. According to Section 3 of Rule 43, [a]n appeal under this Rule may be taken to the Court of Appeals within the period and in the manner herein provided whether the appeal involves questions of fact, of law, or mixed questions of fact and law. Hence, appeals from quasi-judicial agencies even only on questions of law may be brought to the CA. Fifth, the judicial policy of observing the hierarchy of courts dictates that direct resort from administrative agencies to this Court will not be entertained, unless the redress desired cannot be obtained from the appropriate lower tribunals, or unless exceptional and compelling circumstances justify availment of a remedy falling within and calling for the

12

exercise of our primary jurisdiction.14[14]

The above principle was reiterated in Asaphil Construction and Development Corporation v. Tuason, Jr. (Asaphil).15[15] However, the Carpio ruling was not applied to Asaphil as the petition in the latter case was filed in 1999 or three years before the promulgation of Carpio in 2002. Here, the petition was filed on April 28, 2004 when the Carpio decision was already applicable, thus Benguet should have filed the appeal with the CA. Petitioner having failed to properly appeal to the CA under Rule 43, the decision of the MAB has become final and executory. On this ground alone, the instant petition must be denied.

party to the other, be referred to a Board of Arbitrators consisting of three (3) members, one to be selected by BENGUET, another to be selected by the OWNER and the third to be selected by the aforementioned two arbitrators so appointed. xxxx 11.02 Court Action

No action shall be instituted in court as to any matter in dispute as hereinabove stated, except to enforce the decision of the majority of the Arbitrators.16[16]

Even if we entertain the petition although Benguet skirted the appeal to the CA via Rule 43, still, the December 2, 2002 Decision and Thus, Benguet argues that the POA should have first referred March 17, 2004 Resolution of the DENR-MAB in MAB Case No. 0124- the case to voluntary arbitration before taking cognizance of the case, 01 should be maintained. citing Sec. 2 of RA 876 on persons and matters subject to arbitration. First Issue: The case should have first been brought to voluntary arbitration before the POA Secs. 11.01 and 11.02 of the RAWOP pertinently provide: 11.01 Arbitration Any disputes, differences or disagreements between BENGUET and the OWNER with reference to anything whatsoever pertaining to this Agreement that cannot be amicably settled by them shall not be cause of any action of any kind whatsoever in any court or administrative agency but shall, upon notice of one that: On the other hand, in denying such argument, the POA ruled While the parties may establish such stipulations clauses, terms and conditions as they may deem convenient, the same must not be contrary to law and public policy. At a glance, there is nothing wrong with the terms and conditions of the agreement. But to state that an aggrieved party cannot initiate an action without going to arbitration would be tying ones hand even if there is a law which allows him to do so.17[17]

13

The MAB, meanwhile, denied Benguets contention on the there must be prior resort to arbitration before filing a case with the ground of estoppel, stating: courts is inapplicable to the instant case as the POA is itself already engaged in arbitration. Besides, by its own act, Benguet is already On this issue, we rule for Benguet. estopped in questioning the jurisdiction of the Panel of Arbitrators to hear and decide the case. As pointed out Sec. 2 of RA 876 elucidates the scope of arbitration: in the appealed Decision, Benguet initiated and filed an Adverse Claim docketed as MAC-R-M-2000-02 over the Section 2. Persons and matters subject to same mining claims without undergoing contractual arbitration.Two or more persons or parties may arbitration. In this particular case (MAC-R-M-2000-02) submit to the arbitration of one or more now subject of the appeal, Benguet is likewise in arbitrators any controversy existing between estoppel from questioning the competence of the Panel them at the time of the submission and which of Arbitrators to hear and decide in the summary may be the subject of an action, or the parties to proceedings J.G. Realtys petition, when Benguet itself any contract may in such contract agree to settle did not merely move for the dismissal of the case but by arbitration a controversy thereafter arising also filed an Answer with counterclaim seeking between them. Such submission or contract shall affirmative reliefs from the Panel of Arbitrators.18[18] be valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract. Moreover, the MAB ruled that the contractual provision on arbitration merely provides for an additional forum or venue and does Such submission or contract may include not divest the POA of the jurisdiction to hear the case.19[19] question[s] arising out of valuations, appraisals or other controversies which may be collateral, incidental, In its July 20, 2004 Comment,20[20] J.G. Realty reiterated the precedent or subsequent to any issue between the parties. (Emphasis supplied.) above rulings of the POA and MAB. It argued that RA 7942 or the Philippine Mining Act of 1995 is a special law which should prevail over the stipulations of the parties and over a general law, such as RA 876. It also argued that the POA cannot be considered as a court In RA 9285 or the Alternative Dispute Resolution Act of 2004, under the contemplation of RA 876 and that jurisprudence saying that the Congress reiterated the efficacy of arbitration as an alternative mode of dispute resolution by stating in Sec. 32 thereof that domestic arbitration shall still be governed by RA 876. Clearly, a contractual stipulation that requires prior resort to voluntary arbitration before the parties can go directly to court is not illegal and is in fact promoted by the State. Thus, petitioner correctly cites several cases whereby arbitration clauses have been upheld by this Court.21[21]

14

Moreover, the contention that RA 7942 prevails over RA 876 presupposes a conflict between the two laws. Such is not the case here. To reiterate, availment of voluntary arbitration before resort is made to the courts or quasi-judicial agencies of the government is a valid contractual stipulation that must be adhered to by the parties. As stated in Secs. 6 and 7 of RA 876: Section 6. Hearing by court.A party aggrieved by the failure, neglect or refusal of another to perform under an agreement in writing providing for arbitration may petition the court for an order directing that such arbitration proceed in the manner provided for in such agreement. Five days notice in writing of the hearing of such application shall be served either personally or by registered mail upon the party in default. The court shall hear the parties, and upon being satisfied that the making of the agreement or such failure to comply therewith is not in issue, shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. If the making of the agreement or default be in issue the court shall proceed to summarily hear such issue. If the finding be that no agreement in writing providing for arbitration was made, or that there is no default in the proceeding thereunder, the proceeding shall be dismissed. If the finding be that a written provision for arbitration was made and there is a default in proceeding thereunder, an order shall be made summarily directing the parties to proceed with the arbitration in accordance with the terms thereof. xxxx Section 7. Stay of civil action.If any suit or proceeding be brought upon an issue arising out of an agreement providing for the arbitration thereof, the court in which such suit or proceeding is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration, shall stay the action or proceeding until an arbitration has been had in

accordance with the terms of the agreement: Provided, That the applicant, for the stay is not in default in proceeding with such arbitration. (Emphasis supplied.)

In other words, in the event a case that should properly be the subject of voluntary arbitration is erroneously filed with the courts or quasi-judicial agencies, on motion of the defendant, the court or quasi-judicial agency shall determine whether such contractual provision for arbitration is sufficient and effective. If in affirmative, the court or quasi-judicial agency shall then order the enforcement of said provision. Besides, in BF Corporation v. Court of Appeals, we already ruled: 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 has been pursued and completed, then the lower court may confirm the award made by the arbitrator.22[22]

J.G. Realtys contention, that prior resort to arbitration is unavailing in the instant case because the POAs mandate is to arbitrate disputes involving mineral agreements, is misplaced. A distinction must be made between voluntary and compulsory arbitration. In Ludo and Luym Corporation v. Saordino, the Court had the occasion to distinguish between the two types of arbitrations: Comparatively, in Reformist Union of R.B. Liner, Inc. vs. NLRC, compulsory arbitration has been defined both as the process of settlement of labor disputes by a government agency which has the authority to investigate and to make an award which is binding on all the parties, and as a mode of arbitration where the parties are compelled to accept the resolution of their dispute through arbitration by a third party. While

15

a voluntary arbitrator is not part of the governmental unit or labor departments personnel, said arbitrator renders arbitration services provided for under labor laws.23[23] (Emphasis supplied.)

In sum, on the issue of whether POA should have referred the case to voluntary arbitration, we find that, indeed, POA has no jurisdiction over the dispute which is governed by RA 876, the arbitration law.

However, we find that Benguet is already estopped from questioning the POAs jurisdiction. As it were, when J.G. Realty filed DENR Case No. 2000-01, Benguet filed its answer and participated in the proceedings before the POA, Region V. Secondly, when the adverse March 19, 2001 POA Decision was rendered, it filed an appeal with the MAB in Mines Administrative Case No. R-M-2000-01 and again participated in the MAB proceedings. When the adverse As to J.G. Realtys contention that the provisions of RA 876 December 2, 2002 MAB Decision was promulgated, it filed a motion cannot apply to the instant case which involves an administrative for reconsideration with the MAB. When the adverse March 17, 2004 agency, it must be pointed out that Section 11.01 of the RAWOP MAB Resolution was issued, Benguet filed a petition with this Court pursuant to Sec. 79 of RA 7942 impliedly recognizing MABs states that: jurisdiction. In this factual milieu, the Court rules that the jurisdiction of POA and that of MAB can no longer be questioned by Benguet at [Any controversy with regard to the contract] this late hour. What Benguet should have done was to immediately shall not be cause of any action of any kind whatsoever challenge the POAs jurisdiction by a special civil action for certiorari in any court or administrative agency but shall, upon when POA ruled that it has jurisdiction over the dispute. To redo the notice of one party to the other, be referred to a Board proceedings fully participated in by the parties after the lapse of of Arbitrators consisting of three (3) members, one to seven years from date of institution of the original action with the POA be selected by BENGUET, another to be selected by the would be anathema to the speedy and efficient administration of OWNER and the third to be selected by the justice. aforementioned two arbiters so appointed.24[24] (Emphasis supplied.) Second Issue: The cancellation of the RAWOP There can be no quibbling that POA is a quasi-judicial body was supported by evidence which forms part of the DENR, an administrative agency. Hence, the The cancellation of the RAWOP by the POA was based on two provision on mandatory resort to arbitration, freely entered into by grounds: (1) Benguets failure to pay J.G. Realtys royalties for the the parties, must be held binding against them.25[25] mining claims; and (2) Benguets failure to seriously pursue MPSA Application No. APSA-V-0009 over the mining claims. There is a clear distinction between compulsory and voluntary arbitration. The arbitration provided by the POA is compulsory, while the nature of the arbitration provision in the RAWOP is voluntary, not involving any government agency. Thus, J.G. Realtys argument on this matter must fail. As to the royalties, Benguet claims that the checks representing payments for the royalties of J.G. Realty were available for pick-up in its office and it is the latter which refused to claim them. Benguet then thus concludes that it did not violate the RAWOP

16

for nonpayment of royalties. Further, Benguet reasons that J.G. Realty has the burden of proving that the former did not pay such royalties following the principle that the complainants must prove their affirmative allegations.

Benguet of the bank account where deposits of its royalties may be made, Benguet had the obligation to deposit the checks. J.G. Realty had no obligation to furnish Benguet with a Board Resolution considering that the RAWOP itself provided for such payment scheme.

With regard to the failure to pursue the MPSA application, Notably, Benguets claim that J.G. Realty must prove Benguet claims that the lengthy time of approval of the application is nonpayment of its royalties is both illogical and unsupported by law due to the failure of the MGB to approve it. In other words, Benguet and jurisprudence. argues that the approval of the application is solely in the hands of the MGB. The allegation of nonpayment is not a positive allegation as claimed by Benguet. Rather, such is a negative allegation that does Benguets arguments are bereft of merit. not require proof and in fact transfers the burden of proof to Benguet. Thus, this Court ruled in Jimenez v. National Labor Relations Commission: Sec. 14.05 of the RAWOP provides: 14.05 Bank Account OWNER shall maintain a bank account at ___________ or any other bank from time to time selected by OWNER with notice in writing to BENGUET where BENGUET shall deposit to the OWNERs credit any and all advances and payments which may become due the OWNER under this Agreement as well as the purchase price herein agreed upon in the event that BENGUET shall exercise the option to purchase provided for in the Agreement. Any and all deposits so made by BENGUET shall be a full and complete acquittance and release to [sic] BENGUET from any further liability to the OWNER of the amounts represented by such deposits. (Emphasis supplied.) As a general rule, one who pleads payment has the burden of proving it. Even where the plaintiff must allege non-payment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove non-payment. The debtor has the burden of showing with legal certainty that the obligation has been discharged by payment.27[27] (Emphasis supplied.)

In the instant case, the obligation of Benguet to pay royalties to J.G. Realty has been admitted and supported by the provisions of the RAWOP. Thus, the burden to prove such obligation rests on Benguet. It should also be borne in mind that MPSA Application No. APSA-V-0009 has been pending with the MGB for a considerable length of time. Benguet, in the RAWOP, obligated itself to perfect the rights to the mining claims and/or otherwise acquire the mining rights to the mineral claims but failed to present any evidence showing that it exerted efforts to speed up and have the application approved. In fact, Benguet never even alleged that it continuously followed-up the

Evidently, the RAWOP itself provides for the mode of royalty payment by Benguet. The fact that there was the previous practice whereby J.G. Realty picked-up the checks from Benguet is unavailing. The mode of payment is embodied in a contract between the parties. As such, the contract must be considered as the law between the parties and binding on both.26[26] Thus, after J.G. Realty informed

17

application with the MGB and that it was in constant communication with the government agency for the expeditious resolution of the application. Such allegations would show that, indeed, Benguet was remiss in prosecuting the MPSA application and clearly failed to comply with its obligation in the RAWOP. Third Issue: There is no unjust enrichment in the instant case

Clearly, there is no unjust enrichment in the instant case as the cancellation of the RAWOP, which left Benguet without any legal right to participate in further developing the mining claims, was brought about by its violation of the RAWOP. Hence, Benguet has no one to blame but itself for its predicament.

WHEREFORE, we DISMISS the petition, and AFFIRM the December 2, 2002 Decision and March 17, 2004 Resolution of the Based on the foregoing discussion, the cancellation of the DENR-MAB in MAB Case No. 0124-01 upholding the cancellation of the RAWOP was based on valid grounds and is, therefore, justified. The June 1, 1987 RAWOP. No costs. necessary implication of the cancellation is the cessation of Benguets SO ORDERED. right to prosecute MPSA Application No. APSA-V-0009 and to further develop such mining claims. Republic of the Philippines In Car Cool Philippines, Inc. v. Ushio Realty and Development SUPREME COURT Corporation, we defined unjust enrichment, as follows: Manila We have held that [t]here is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience. Article 22 of the Civil Code provides that [e]very person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. The principle of unjust enrichment under Article 22 requires two conditions: (1) that a person is benefited without a valid basis or justification, and (2) that such benefit is derived at anothers expense or damage. There is no unjust enrichment when the person who will benefit has a valid claim to such benefit.28[28] (Emphasis supplied.)

SECOND DIVISION

KOREA TECHNOLOGIES CO., LTD., Petitioner,

G.R. No. 143581

Present: Chairperson, - versus QUISUMBING, J.,

HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256 of Regional Trial Court of Muntinlupa City, and PACIFIC GENERAL STEEL MANUFACTURING CORPORATION, Respondents.

CARPIO, CARPIO MORALES, TINGA, and VELASCO, JR., JJ.

Promulgated:

January

7,

2008

x----------------------------------------------------------------------------------------x

18

DECISION

VELASCO, JR., J.:

In our jurisdiction, the policy is to favor alternative methods of resolving disputes, particularly in civil and commercial disputes. Arbitration along with mediation, conciliation, and negotiation, being inexpensive, speedy and less hostile methods have long been favored by this Court. The petition before us puts at issue an arbitration However, gleaned from the Certificate32[4] executed by the clause in a contract mutually agreed upon by the parties stipulating that they would submit themselves to arbitration in a foreign country. parties on January 22, 1998, after the installation of the plant, the Regrettably, instead of hastening the resolution of their dispute, the initial operation could not be conducted as PGSMC encountered financial difficulties affecting the supply of materials, thus forcing the parties wittingly or unwittingly prolonged the controversy. parties to agree that KOGIES would be deemed to have completely Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean complied with the terms and conditions of the March 5, 1997 contract. corporation which is engaged in the supply and installation of For the remaining balance of USD306,000 for the installation Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants, while private respondent Pacific General Steel Manufacturing Corp. (PGSMC) and initial operation of the plant, PGSMC issued two postdated checks: (1) BPI Check No. 0316412 dated January 30, 1998 for PhP is a domestic corporation. 4,500,000; and (2) BPI Check No. 0316413 dated March 30, 1998 for On March 5, 1997, PGSMC and KOGIES executed a PhP 4,500,000.33[5] Contract29[1] whereby KOGIES would set up an LPG Cylinder When KOGIES deposited the checks, these were dishonored for Manufacturing Plant in Carmona, Cavite. The contract was executed the reason PAYMENT STOPPED. Thus, on May 8, 1998, KOGIES in the Philippines. On April 7, 1997, the parties executed, in Korea, sent a demand letter34[6] to PGSMC threatening criminal action for an Amendment for Contract No. KLP-970301 dated March 5, 199730[2] amending the terms of payment. The contract and its amendment stipulated that KOGIES will ship the machinery and facilities necessary for manufacturing LPG cylinders for which PGSMC would pay USD 1,224,000. KOGIES would install and initiate the operation of the plant for which PGSMC bound itself to pay USD 306,000 upon the plants production of the 11 -kg. LPG cylinder samples. Thus, the total contract price amounted to USD 1,530,000.

On October 14, 1997, PGSMC entered into a Contract of Lease31[3] with Worth Properties, Inc. (Worth) for use of Worths 5,079-square meter property with a 4,032-square meter warehouse building to house the LPG manufacturing plant. The monthly rental was PhP 322,560 commencing on January 1, 1998 with a 10% annual increment clause. Subsequently, the machineries, equipment, and facilities for the manufacture of LPG cylinders were shipped, delivered, and installed in the Carmona plant. PGSMC paid KOGIES USD 1,224,000.

19

violation of Batas Pambansa Blg. 22 in case of nonpayment. On the same date, the wife of PGSMCs President faxed a letter dated M ay 7, On July 3, 1998, KOGIES filed a Complaint for Specific 1998 to KOGIES President who was then staying at a Makati City Performance, docketed as Civil Case No. 98-11736[8] against PGSMC hotel. She complained that not only did KOGIES deliver a different before the Muntinlupa City Regional Trial Court (R brand of hydraulic press from that agreed upon but it had not \;.p[TC). The RTC granted a temporary restraining order delivered several equipment parts already paid for. (TRO) on July 4, 1998, which was subsequently extended until July 22, 1998. In its complaint, KOGIES alleged that PGSMC had initially On May 14, 1998, PGSMC replied that the two checks it issued admitted that the checks that were stopped were not funded but later KOGIES were fully funded but the payments were stopped for reasons on claimed that it stopped payment of the checks for the reason that previously made known to KOGIES.35[7] their value was not received as the former allegedly breached their contract by altering the quantity and lowering the quality of the On June 1, 1998, PGSMC informed KOGIES that PGSMC was machinery and equipment installed in the plant and failed to make canceling their Contract dated March 5, 1997 on the ground that the plant operational although it earlier certified to the contrary as KOGIES had altered the quantity and lowered the quality of the shown in a January 22, 1998 Certificate. Likewise, KOGIES averred machineries and equipment it delivered to PGSMC, and that PGSMC that PGSMC violated Art. 15 of their Contract, as amended, by would dismantle and transfer the machineries, equipment, and unilaterally rescinding the contract without resorting to arbitration. facilities installed in the Carmona plant. Five days later, PGSMC filed KOGIES also asked that PGSMC be restrained from dismantling and before the Office of the Public Prosecutor an Affidavit-Complaint for transferring the machinery and equipment installed in the plant which Estafa docketed as I.S. No. 98-03813 against Mr. Dae Hyun Kang, the latter threatened to do on July 4, 1998. President of KOGIES. On July 9, 1998, PGSMC filed an opposition to the TRO arguing On June 15, 1998, KOGIES wrote PGSMC informing the latter that KOGIES was not entitled to the TRO since Art. 15, the arbitration that PGSMC could not unilaterally rescind their contract nor dismantle clause, was null and void for being against public policy as it ousts the and transfer the machineries and equipment on mere imagined local courts of jurisdiction over the instant controversy. violations by KOGIES. It also insisted that their disputes should be settled by arbitration as agreed upon in Article 15, the arbitration On July 17, 1998, PGSMC filed its Answer with Compulsory clause of their contract. Counterclaim37[9] asserting that it had the full right to dismantle and transfer the machineries and equipment because it had paid for them On June 23, 1998, PGSMC again wrote KOGIES reiterating the in full as stipulated in the contract; that KOGIES was not entitled to contents of its June 1, 1998 letter threatening that the machineries, the PhP 9,000,000 covered by the checks for failing to completely equipment, and facilities installed in the plant would be dismantled install and make the plant operational; and that KOGIES was liable for and transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES damages amounting to PhP 4,500,000 for altering the quantity and instituted an Application for Arbitration before the Korean Commercial lowering the quality of the machineries and equipment. Moreover, Arbitration Board (KCAB) in Seoul, Korea pursuant to Art. 15 of the Contract as amended.

20

PGSMC averred that it has already paid PhP 2,257,920 in rent (covering January to July 1998) to Worth and it was not willing to further shoulder the cost of renting the premises of the plant considering that the LPG cylinder manufacturing plant never became operational.

facilities it delivered to the plant. It claimed that it had performed all the undertakings under the contract and had already produced certified samples of LPG cylinders. It averred that whatever was unfinished was PGSMCs fault since it failed to procure raw materials due to lack of funds. KOGIES, relying on Chung Fu Industries (Phils.), Inc. v. Court of Appeals,40[12] insisted that the arbitration clause After the parties submitted their Memoranda, on July 23, 1998, was without question valid. the RTC issued an Order denying the application for a writ of preliminary injunction, reasoning that PGSMC had paid KOGIES USD After KOGIES filed a Supplemental Memorandum with Motion 1,224,000, the value of the machineries and equipment as shown in to Dismiss41[13] answering PGSMCs memorandum of July 22, 1998 the contract such that KOGIES no longer had proprietary rights over and seeking dismissal of PGSMCs counterclaims, KOGIES, on August them. And finally, the RTC held that Art. 15 of the Contract as 4, 1998, filed its Motion for Reconsideration42[14] of the July 23, amended was invalid as it tended to oust the trial court or any other 1998 Order denying its application for an injunctive writ claiming that court jurisdiction over any dispute that may arise between the parties. the contract was not merely for machinery and facilities worth USD KOGIES prayer for an injunctive writ was denied.38[10] The 1,224,000 but was for the sale of an LPG manufacturing plant dispositive portion of the Order stated: consisting of supply of all the machinery and facilities and transfer of technology for a total contract price of USD 1,530,000 such that the dismantling and transfer of the machinery and facilities would result in the dismantling and transfer of the very plant itself to the WHEREFORE, in view of the foregoing great prejudice of KOGIES as the still unpaid owner/seller of the consideration, this Court believes and so holds that no plant. Moreover, KOGIES points out that the arbitration clause under cogent reason exists for this Court to grant the writ of Art. 15 of the Contract as amended was a valid arbitration stipulation preliminary injunction to restrain and refrain defendant under Art. 2044 of the Civil Code and as held by this Court in Chung from dismantling the machineries and facilities at the Fu Industries (Phils.), Inc.43[15] lot and building of Worth Properties, Incorporated at Carmona, Cavite and transfer the same to another site: and therefore denies plaintiffs application for a writ of preliminary injunction.

On July 29, 1998, KOGIES filed its Reply to Answer and Answer to Counterclaim.39[11] KOGIES denied it had altered the quantity and lowered the quality of the machinery, equipment, and

21

In the meantime, PGSMC filed a Motion for Inspection of Things44[16] to determine whether there was indeed alteration of the In the meantime, on October 19, 1998, the RTC denied quantity and lowering of quality of the machineries and equipment, KOGIES urgent motion for reconsideration and directed the Branch and whether these were properly installed. KOGIES opposed the Sheriff to proceed with the inspection of the machineries and motion positing that the queries and issues raised in the motion for equipment in the plant on October 28, 1998.47[19] inspection fell under the coverage of the arbitration clause in their contract. Thereafter, KOGIES filed a Supplement to the Petition48[20] in CA-G.R. SP No. 49249 informing the CA about the October 19, 1998 On September 21, 1998, the trial court issued an Order (1) RTC Order. It also reiterated its prayer for the issuance of the writs of granting PGSMCs motion for inspection; (2) denying KOGIES motion prohibition, mandamus and preliminary injunction which was not for reconsideration of the July 23, 1998 RTC Order; and (3) denying acted upon by the CA. KOGIES asserted that the Branch Sheriff did KOGIES motion to dismiss PGSMCs compulsory counterclaims as not have the technical expertise to ascertain whether or not the these counterclaims fell within the requisites of compulsory machineries and equipment conformed to the specifications in the counterclaims. contract and were properly installed. On October 2, 1998, KOGIES filed an Urgent Motion for On November 11, 1998, the Branch Sheriff filed his Sheriffs Reconsideration45[17] of the September 21, 1998 RTC Order granting Report49[21] finding that the enumerated machineries and equipment inspection of the plant and denying dismissal of PGSMCs compulsory were not fully and properly installed. counterclaims. The Court of Appeals affirmed the trial court and declared Ten days after, on October 12, 1998, without waiting for the the arbitration clause against public policy resolution of its October 2, 1998 urgent motion for reconsideration, KOGIES filed before the Court of Appeals (CA) a petition for certiorari46[18] docketed as CA-G.R. SP No. 49249, seeking On May 30, 2000, the CA rendered the assailed Decision50[22] annulment of the July 23, 1998 and September 21, 1998 RTC Orders affirming the RTC Orders and dismissing the petition for certiorari filed and praying for the issuance of writs of prohibition, mandamus, and preliminary injunction to enjoin the RTC and PGSMC from inspecting, dismantling, and transferring the machineries and equipment in the Carmona plant, and to direct the RTC to enforce the specific agreement on arbitration to resolve the dispute.

22

by KOGIES. The CA found that the RTC did not gravely abuse its discretion in issuing the assailed July 23, 1998 and September 21, 1998 Orders. Moreover, the CA reasoned that KOGIES contention that the total contract price for USD 1,530,000 was for the whole plant and had not been fully paid was contrary to the finding of the RTC that PGSMC fully paid the price of USD 1,224,000, which was for all the machineries and equipment. According to the CA, this determination by the RTC was a factual finding beyond the ambit of a petition for certiorari. On the issue of the validity of the arbitration clause, the CA agreed with the lower court that an arbitration clause which provided for a final determination of the legal rights of the parties to the contract by arbitration was against public policy. On the issue of nonpayment of docket fees and nonattachment of a certificate of non-forum shopping by PGSMC, the CA held that the counterclaims of PGSMC were compulsory ones and payment of docket fees was not required since the Answer with counterclaim was not an initiatory pleading. For the same reason, the CA said a certificate of non-forum shopping was also not required. Furthermore, the CA held that the petition for certiorari had been filed prematurely since KOGIES did not wait for the resolution of its urgent motion for reconsideration of the September 21, 1998 RTC Order which was the plain, speedy, and adequate remedy available. According to the CA, the RTC must be given the opportunity to correct any alleged error it has committed, and that since the assailed orders were interlocutory, these cannot be the subject of a petition for certiorari. Hence, we have this Petition for Review on Certiorari under Rule 45. The Issues Petitioner posits that the appellate court committed the following errors: a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY AND FACILITIES AS A QUESTION OF FACT BEYOND THE AMBIT OF A PETITION FOR CERTIORARI INTENDED ONLY FOR CORRECTION OF ERRORS OF JURISDICTION OR GRAVE

ABUSE OF DISCRETION AMOUNTING TO LACK OF (SIC) EXCESS OF JURISDICTION, AND CONCLUDING THAT THE TRIAL COURTS FINDING ON THE SAME QUESTION WAS IMPROPERLY RAISED IN THE PETITION BELOW; b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE 15 OF THE CONTRACT BETWEEN THE PARTIES FOR BEING CONTRARY TO PUBLIC POLICY AND FOR OUSTING THE COURTS OF JURISDICTION; c. DECREEING PRIVATE RESPONDENTS COUNTERCLAIMS TO BE ALL COMPULSORY NOT NECESSITATING PAYMENT OF DOCKET FEES AND CERTIFICATION OF NON-FORUM SHOPPING; d. RULING THAT THE PETITION WAS FILED PREMATURELY WITHOUT WAITING FOR THE RESOLUTION OF THE MOTION FOR RECONSIDERATION OF THE ORDER DATED SEPTEMBER 21, 1998 OR WITHOUT GIVING THE TRIAL COURT AN OPPORTUNITY TO CORRECT ITSELF; e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND SEPTEMBER 21, 1998 NOT TO BE PROPER SUBJECTS OF CERTIORARI AND PROHIBITION FOR BEING INTERLOCUTORY IN NATURE; f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN HE (SIC) PETITION AND, INSTEAD, DISMISSING THE SAME FOR ALLEGEDLY WITHOUT MERIT.51[23]

The Courts Ruling The petition is partly meritorious.

23

Interlocutory orders proper subject of certiorari Before we delve into the substantive issues, we shall first tackle the procedural issues. The rules on the payment of docket fees for counterclaims and cross claims were amended effective August 16, 2004 KOGIES strongly argues that when PGSMC filed the counterclaims, it should have paid docket fees and filed a certificate of non-forum shopping, and that its failure to do so was a fatal defect. We disagree with KOGIES. As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in its Answer with Compulsory Counterclaim dated July 17, 1998 in accordance with Section 8 of Rule 11, 1997 Revised Rules of Civil Procedure, the rule that was effective at the time the Answer with Counterclaim was filed. Sec. 8 on existing counterclaim or crossclaim states, A compulsory counterclaim or a cross-claim that a defending party has at the time he files his answer shall be contained therein. Citing Gamboa v. Cruz,53[25] the CA also pronounced that certiorari and Prohibition are neither the remedies to question the propriety of an interlocutory order of the trial court. 54[26] The CA erred on its reliance on Gamboa. Gamboa involved the denial of a motion to acquit in a criminal case which was not assailable in an action for certiorari since the denial of a motion to quash required the accused to plead and to continue with the trial, and whatever objections the accused had in his motion to quash can then be used as part of his defense and subsequently can be raised as errors on his appeal if the judgment of the trial court is adverse to him. The general rule is that interlocutory orders cannot be challenged by an appeal.55[27] Thus, in Yamaoka v. Pescarich Manufacturing Corporation, we held: The proper remedy in such cases is an ordinary appeal from an adverse judgment on the merits, incorporating in said appeal the grounds for assailing the interlocutory orders. Allowing appeals from interlocutory orders would result in the sorry spectacle of a case being subject of a counterproductive pingpong to and from the appellate court as often as a trial court is perceived to have made an error in any of its interlocutory rulings. However, where the assailed interlocutory order was issued with grave abuse of discretion or patently erroneous and the remedy of appeal would not afford adequate and expeditious

On July 17, 1998, at the time PGSMC filed its Answer incorporating its counterclaims against KOGIES, it was not liable to pay filing fees for said counterclaims being compulsory in nature. We stress, however, that effective August 16, 2004 under Sec. 7, Rule 141, as amended by A.M. No. 04-2-04-SC, docket fees are now required to be paid in compulsory counterclaim or cross-claims. As to the failure to submit a certificate of forum shopping, PGSMCs Answer is not an initiatory pleading which requires a certification against forum shopping under Sec. 552[24] of Rule 7, 1997 Revised Rules of Civil Procedure. It is a responsive pleading, hence, the courts a quo did not commit reversible error in denying KOGIES motion to dismiss PGSMCs compulsory counterclaims.

24

relief, the Court redress.56[28]

allows

certiorari

as

mode

of

court, in the first instance, to pass upon and correct its mistakes without the intervention of the higher court.58[30] The September 21, 1998 RTC Order directing the branch sheriff to inspect the plant, equipment, and facilities when he is not competent and knowledgeable on said matters is evidently flawed and devoid of any legal support. Moreover, there is an urgent necessity to resolve the issue on the dismantling of the facilities and any further delay would prejudice the interests of KOGIES. Indeed, there is real and imminent threat of irreparable destruction or substantial damage to KOGIES equipment and machineries. We find the resort to certiorari based on the gravely abusive orders of the trial court sans the ruling on the October 2, 1998 motion for reconsideration to be proper. The Core Issue: Article 15 of the Contract

Also, appeals from interlocutory orders would open the floodgates to endless occasions for dilatory motions. Thus, where the interlocutory order was issued without or in excess of jurisdiction or with grave abuse of discretion, the remedy is certiorari.57[29] The alleged grave abuse of discretion of the respondent court equivalent to lack of jurisdiction in the issuance of the two assailed orders coupled with the fact that there is no plain, speedy, and adequate remedy in the ordinary course of law amply provides the basis for allowing the resort to a petition for certiorari under Rule 65. Prematurity of the petition before the CA

We now go to the core issue of the validity of Art. 15 of the Neither do we think that KOGIES was guilty of forum shopping in filing the petition for certiorari. Note that KOGIES motion for Contract, the arbitration clause. It provides: reconsideration of the July 23, 1998 RTC Order which denied the Article 15. Arbitration.All disputes, issuance of the injunctive writ had already been denied. Thus, controversies, or differences which may arise between KOGIES only remedy was to assail the RTCs interlocutory order via a the parties, out of or in relation to or in connection with petition for certiorari under Rule 65. this Contract or for the breach thereof, shall finally be settled by arbitration in Seoul, Korea in accordance with While the October 2, 1998 motion for reconsideration of the Commercial Arbitration Rules of the Korean KOGIES of the September 21, 1998 RTC Order relating to the Commercial Arbitration Board. The award rendered inspection of things, and the allowance of the compulsory by the arbitration(s) shall be final and binding counterclaims has not yet been resolved, the circumstances in this upon both parties concerned. (Emphasis supplied.) case would allow an exception to the rule that before certiorari may be availed of, the petitioner must have filed a motion for reconsideration and said motion should have been first resolved by the court a quo. The reason behind the rule is to enable the lower Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null and void. Petitioner is correct.

25

Established in this jurisdiction is the rule that the law of the place where the contract is made governs. Lex loci contractus. The contract in this case was perfected here in the Philippines. Therefore, our laws ought to govern. Nonetheless, Art. 2044 of the Civil Code sanctions the validity of mutually agreed arbitral clause or the finality and binding effect of an arbitral award. Art. 2044 provides, Any stipulation that the arbitrators award or decision shall be final, is valid, without prejudice to Articles 2038, 2039 and 2040. (Emphasis supplied.) Arts. 2038,59[31] 2039,60[32] and 204061[33] abovecited refer to instances where a compromise or an arbitral award, as applied to Art. 2044 pursuant to Art. 2043,62[34] may be voided, rescinded, or annulled, but these would not denigrate the finality of the arbitral award. The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not been shown to be contrary to any law, or against morals, good customs, public order, or public policy. There has been no showing that the parties have not dealt with each other on equal footing. We find no reason why the arbitration clause should not be respected and complied with by both parties. In Gonzales v. Climax Mining Ltd.,63[35] we held that submission to arbitration is a

contract and that a clause in a contract providing that all matters in dispute between the parties shall be referred to arbitration is a contract.64[36] Again in Del Monte Corporation-USA v. Court of Appeals, we likewise ruled that [t]he 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. 65[37] Arbitration clause not contrary to public policy The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea in accordance with the Commercial Arbitration Rules of the KCAB, and that the arbitral award is final and binding, is not contrary to public policy. This Court has sanctioned the validity of arbitration clauses in a catena of cases. In the 1957 case of Eastboard Navigation Ltd. v. Juan Ysmael and Co., Inc.,66[38] this Court had occasion to rule that an arbitration clause to resolve differences and breaches of mutually agreed contractual terms is valid. In BF Corporation v. Court of Appeals, we held that [i]n this jurisdiction, arbitration has been held valid and constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876, this Court has countenanced the settlement of disputes through arbitration. Republic Act No. 876 was adopted to supplement the New Civil Codes provisions on arbitration.67[39] And in LM Power

26

Engineering Corporation v. Capitol Industrial Construction Groups, rules of our domestic arbitration bodies would not be applied. As Inc., we declared that: signatory to the Arbitration Rules of the UNCITRAL Model Law on International Commercial Arbitration69[41] of the United Nations Commission on International Trade Law (UNCITRAL) in the New York Being an inexpensive, speedy and amicable Convention on June 21, 1985, the Philippines committed itself to be method of settling disputes, arbitrationalong with bound by the Model Law. We have even incorporated the Model Law mediation, conciliation and negotiationis encouraged in Republic Act No. (RA) 9285, otherwise known as the Alternative by the Supreme Court. Aside from unclogging judicial Dispute Resolution Act of 2004 entitled An Act to Institutionalize the dockets, arbitration also hastens the resolution of Use of an Alternative Dispute Resolution System in the Philippines and disputes, especially of the commercial kind. It is thus to Establish the Office for Alternative Dispute Resolution, and for regarded as the wave of the future in international Other Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of civil and commercial disputes. Brushing aside a Chapter 4 of the Model Law are the pertinent provisions: contractual agreement calling for arbitration between the parties would be a step backward. CHAPTER 4 INTERNATIONAL COMMERCIAL ARBITRATION Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods, courts should liberally construe arbitration clauses. SEC. 19. Adoption of the Model Law on Provided such clause is susceptible of an interpretation International Commercial Arbitration .International that covers the asserted dispute, an order to arbitrate commercial arbitration shall be governed by the Model should be granted. Any doubt should be resolved in Law on International Commercial Arbitration (the favor of arbitration.68[40] Model Law) adopted by the United Nations Commission on International Trade Law on June 21, 1985 (United Nations Document A/40/17) and recommended for enactment by the General Assembly Having said that the instant arbitration clause is not against in Resolution No. 40/72 approved on December 11, public policy, we come to the question on what governs an arbitration 1985, copy of which is hereto attached as Appendix A. clause specifying that in case of any dispute arising from the contract, an arbitral panel will be constituted in a foreign country and the SEC. 20. Interpretation of Model Law.In arbitration rules of the foreign country would govern and its award shall be final and binding. interpreting the Model Law, regard shall be had to its international origin and to the need for uniformity in its interpretation and resort may be made to the travaux RA 9285 incorporated the UNCITRAL Model law preparatories and the report of the Secretary General of to which we are a signatory the United Nations Commission on International Trade Law dated March 25, 1985 entitled, International Commercial Arbitration: Analytical Commentary on For domestic arbitration proceedings, we have particular Draft Trade identified by reference number A/CN. agencies to arbitrate disputes arising from contractual relations. In 9/264. case a foreign arbitral body is chosen by the parties, the arbitration

27

(2)

Foreign arbitral awards must be confirmed by the RTC

While RA 9285 was passed only in 2004, it nonetheless applies in the instant case since it is a procedural law which has a retroactive effect. Likewise, KOGIES filed its application for arbitration before the KCAB on July 1, 1998 and it is still pending because no arbitral award has yet been rendered. Thus, RA 9285 is applicable to the instant case. Well-settled is the rule that procedural laws are construed to be applicable to actions pending and undetermined at the time of their passage, and are deemed retroactive in that sense and to that extent. As a general rule, the retroactive application of procedural laws does not violate any personal rights because no vested right has yet attached nor arisen from them.70[42] Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL Model Law are the following: (1) The RTC must refer to arbitration in proper cases

Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause to be final and binding are not immediately enforceable or cannot be implemented immediately. Sec. 3571[43] of the UNCITRAL Model Law stipulates the requirement for the arbitral award to be recognized by a competent court for enforcement, which court under Sec. 36 of the UNCITRAL Model Law may refuse recognition or enforcement on the grounds provided for. RA 9285 incorporated these provisos to Secs. 42, 43, and 44 relative to Secs. 47 and 48, thus: SEC. 42. Application of the New York Convention.The New York Convention shall govern the recognition and enforcement of arbitral awards covered by said Convention. The recognition and enforcement of such arbitral awards shall be filed with the Regional Trial Court in accordance with the rules of procedure to be promulgated by the Supreme Court. Said procedural rules shall provide that the party relying on the award or applying for its enforcement shall file with the court the original or authenticated copy of the award and the arbitration agreement. If the award or agreement is not made in any of the official languages, the party shall supply a duly certified translation thereof into any of such languages. The applicant shall establish that the country in which foreign arbitration award was made in party to the New York Convention. xxxx SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not Covered by the New York

Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the subject of arbitration pursuant to an arbitration clause, and mandates the referral to arbitration in such cases, thus: SEC. 24. Referral to Arbitration.A court before which an action is brought in a matter which is the subject matter of an arbitration agreement shall, if at least one party so requests not later than the pretrial conference, or upon the request of both parties thereafter, refer the parties to arbitration unless it finds that the arbitration agreement is null and void, inoperative or incapable of being performed.

28

Convention.The recognition and enforcement of foreign arbitral awards not covered by the New York Convention shall be done in accordance with procedural rules to be promulgated by the Supreme Court. The Court may, on grounds of comity and reciprocity, recognize and enforce a non-convention award as a convention award. SEC. 44. Foreign Arbitral Award Not Foreign Judgment.A foreign arbitral award when confirmed by a court of a foreign country, shall be recognized and enforced as a foreign arbitral award and not as a judgment of a foreign court. A foreign arbitral award, when confirmed by the Regional Trial Court, shall be enforced in the same manner as final and executory decisions of courts of law of the Philippines xxxx SEC. 47. Venue and Jurisdiction.Proceedings for recognition and enforcement of an arbitration agreement or for vacations, setting aside, correction or modification of an arbitral award, and any application with a court for arbitration assistance and supervision shall be deemed as special proceedings and shall be filed with the Regional Trial Court (i) where arbitration proceedings are conducted; (ii) where the asset to be attached or levied upon, or the act to be enjoined is located; (iii) where any of the parties to the dispute resides or has his place of business; or (iv) in the National Judicial Capital Region, at the option of the applicant. SEC. 48. Notice of Proceeding to Parties.In a special proceeding for recognition and enforcement of an arbitral award, the Court shall send notice to the parties at their address of record in the arbitration, or if any part cannot be served notice at such address, at such partys last known address. The notice shall be sent al least fifteen (15) days before the date set for the initial hearing of the application.

It is now clear that foreign arbitral awards when confirmed by the RTC are deemed not as a judgment of a foreign court but as a foreign arbitral award, and when confirmed, are enforced as final and executory decisions of our courts of law. Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to judgments or awards given by some of our quasi-judicial bodies, like the National Labor Relations Commission and Mines Adjudication Board, whose final judgments are stipulated to be final and binding, but not immediately executory in the sense that they may still be judicially reviewed, upon the instance of any party. Therefore, the final foreign arbitral awards are similarly situated in that they need first to be confirmed by the RTC. (3) The RTC has jurisdiction to review foreign arbitral awards Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with specific authority and jurisdiction to set aside, reject, or vacate a foreign arbitral award on grounds provided under Art. 34(2) of the UNCITRAL Model Law. Secs. 42 and 45 provide: SEC. 42. Application of the New York Convention.The New York Convention shall govern the recognition and enforcement of arbitral awards covered by said Convention. The recognition and enforcement of such arbitral awards shall be filed with the Regional Trial Court in accordance with the rules of procedure to be promulgated by the Supreme Court. Said procedural rules shall provide that the party relying on the award or applying for its enforcement shall file with the court the original or authenticated copy of the award and the arbitration agreement. If the award or agreement is not made in any of the official languages, the party shall supply a duly certified translation thereof into any of such languages. The applicant shall establish that the country in which foreign arbitration award was made is party to

29

the New York Convention. If the application for rejection or suspension of enforcement of an award has been made, the Regional Trial Court may, if it considers it proper, vacate its decision and may also, on the application of the party claiming recognition or enforcement of the award, order the party to provide appropriate security. xxxx SEC. 45. Rejection of a Foreign Arbitral Award. A party to a foreign arbitration proceeding may oppose an application for recognition and enforcement of the arbitral award in accordance with the procedures and rules to be promulgated by the Supreme Court only on those grounds enumerated under Article V of the New York Convention. Any other ground raised shall be disregarded by the Regional Trial Court.

vacating the award by the RTC are provided under Art. 34(2) of the UNCITRAL Model Law. For final domestic arbitral awards, which also need confirmation by the RTC pursuant to Sec. 23 of RA 87672[44] and shall be recognized as final and executory decisions of the RTC,73[45] they may only be assailed before the RTC and vacated on the grounds provided under Sec. 25 of RA 876.74[46] (5) RTC decision appealable of assailed foreign arbitral award

Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved party in cases where the RTC sets aside, rejects, vacates, modifies, or corrects an arbitral award, thus:

Thus, while the RTC does not have jurisdiction over disputes governed by arbitration mutually agreed upon by the parties, still the foreign arbitral award is subject to judicial review by the RTC which can set aside, reject, or vacate it. In this sense, what this Court held in Chung Fu Industries (Phils.), Inc. relied upon by KOGIES is applicable insofar as the foreign arbitral awards, while final and binding, do not oust courts of jurisdiction since these arbitral awards are not absolute and without exceptions as they are still judicially reviewable. Chapter 7 of RA 9285 has made it clear that all arbitral awards, whether domestic or foreign, are subject to judicial review on specific grounds provided for. (4) Grounds for judicial review different in domestic and foreign arbitral awards The differences between a final arbitral award from an international or foreign arbitral tribunal and an award given by a local arbitral tribunal are the specific grounds or conditions that vest jurisdiction over our courts to review the awards. For foreign or international arbitral awards which must first be confirmed by the RTC, the grounds for setting aside, rejecting or

SEC. 46. Appeal from Court Decision or Arbitral Awards.A decision of the Regional Trial Court confirming, vacating, setting aside, modifying or correcting an arbitral award may be appealed to the Court of Appeals in accordance with the rules and procedure to be promulgated by the Supreme Court. The losing party who appeals from the judgment of the court confirming an arbitral award shall be required by the appellate court to post a counterbond executed in favor of the prevailing party equal to the

30

of treating a contract as rescinded on account of infractions by the other contracting party is valid albeit provisional as it can be judicially assailed, is not applicable to the instant case on account of a valid Thereafter, the CA decision may further be appealed or stipulation on arbitration. Where an arbitration clause in a contract is reviewed before this Court through a petition for review under Rule 45 availing, neither of the parties can unilaterally treat the contract as rescinded since whatever infractions or breaches by a party or of the Rules of Court. differences arising from the contract must be brought first and PGSMC has remedies to protect its interests resolved by arbitration, and not through an extrajudicial rescission or Thus, based on the foregoing features of RA 9285, PGSMC judicial action. must submit to the foreign arbitration as it bound itself through the The issues arising from the contract between PGSMC and subject contract. While it may have misgivings on the foreign arbitration done in Korea by the KCAB, it has available remedies KOGIES on whether the equipment and machineries delivered and under RA 9285. Its interests are duly protected by the law which installed were properly installed and operational in the plant in requires that the arbitral award that may be rendered by KCAB must Carmona, Cavite; the ownership of equipment and payment of the contract price; and whether there was substantial compliance by be confirmed here by the RTC before it can be enforced. KOGIES in the production of the samples, given the alleged fact that With our disquisition above, petitioner is correct in its PGSMC could not supply the raw materials required to produce the contention that an arbitration clause, stipulating that the arbitral sample LPG cylinders, are matters proper for arbitration. Indeed, we award is final and binding, does not oust our courts of jurisdiction as note that on July 1, 1998, KOGIES instituted an Application for the international arbitral award, the award of which is not absolute Arbitration before the KCAB in Seoul, Korea pursuant to Art. 15 of the and without exceptions, is still judicially reviewable under certain Contract as amended. Thus, it is incumbent upon PGSMC to abide by conditions provided for by the UNCITRAL Model Law on ICA as applied its commitment to arbitrate. and incorporated in RA 9285. Corollarily, the trial court gravely abused its discretion in Finally, it must be noted that there is nothing in the subject granting PGSMCs Motion for Inspection of Things on September 21, Contract which provides that the parties may dispense with the 1998, as the subject matter of the motion is under the primary jurisdiction of the mutually agreed arbitral body, the KCAB in Korea. arbitration clause. In addition, whatever findings and conclusions made by the RTC Branch Sheriff from the inspection made on October 28, 1998, as Unilateral rescission improper and illegal ordered by the trial court on October 19, 1998, is of no worth as said Having ruled that the arbitration clause of the subject contract Sheriff is not technically competent to ascertain the actual status of is valid and binding on the parties, and not contrary to public policy; the equipment and machineries as installed in the plant. consequently, being bound to the contract of arbitration, a party may For these reasons, the September 21, 1998 and October 19, not unilaterally rescind or terminate the contract for whatever cause 1998 RTC Orders pertaining to the grant of the inspection of the without first resorting to arbitration. What this Court held in University of the Philippines v. De Los equipment and machineries have to be recalled and nullified. Angeles75[47] and reiterated in succeeding cases,76[48] that the act

amount of the award in accordance with the rules to be promulgated by the Supreme Court.

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Issue on ownership of plant proper for arbitration Petitioner assails the CA ruling that the issue petitioner raised on whether the total contract price of USD 1,530,000 was for the whole plant and its installation is beyond the ambit of a Petition for Certiorari. Petitioners position is untenable. It is settled that questions of fact cannot be raised in an original action for certiorari.77[49] Whether or not there was full payment for the machineries and equipment and installation is indeed a factual issue prohibited by Rule 65. However, what appears to constitute a grave abuse of discretion is the order of the RTC in resolving the issue on the ownership of the plant when it is the arbitral body (KCAB) and not the RTC which has jurisdiction and authority over the said issue. The RTCs determination of such factual issue constitutes grave abuse of discretion and must be reversed and set aside.

Protection.(a) It is not incompatible with an arbitration agreement for a party to request, before constitution of the tribunal, from a Court to grant such measure. After constitution of the arbitral tribunal and during arbitral proceedings, a request for an interim measure of protection, or modification thereof, may be made with the arbitral or to the extent that the arbitral tribunal has no power to act or is unable to act effectivity, the request may be made with the Court. The arbitral tribunal is deemed constituted when the sole arbitrator or the third arbitrator, who has been nominated, has accepted the nomination and written communication of said nomination and acceptance has been received by the party making the request. (b) The following rules on interim or provisional relief shall be observed: Any party may request that provisional relief be granted against the adverse party. Such relief may be granted:

RTC has interim jurisdiction to protect the rights of the parties Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving the way for PGSMC to dismantle and transfer the equipment and machineries, we find it to be in order considering the factual milieu of the instant case. Firstly, while the issue of the proper installation of the equipment and machineries might well be under the primary jurisdiction of the arbitral body to decide, yet the RTC under Sec. 28 of RA 9285 has jurisdiction to hear and grant interim measures to protect vested rights of the parties. Sec. 28 pertinently provides: SEC. 28. Grant of interim Measure of

(i) to prevent irreparable loss or injury; (ii) to provide security for the performance of any obligation; (iii) to produce or preserve any evidence; or (iv) to compel any other appropriate act or omission. (c) The order granting provisional relief may be conditioned upon the provision of security or any act or omission specified in the order. (d) Interim or provisional relief is requested by written application transmitted by reasonable means to the Court or arbitral tribunal as the case may be and the party against whom the relief is sought, describing in appropriate detail the precise relief, the party against whom the relief is requested, the grounds for the relief, and the evidence supporting the request.

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(e) parties.

The order shall be binding upon the

Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction to issue interim measures: Article 17 J. Court-ordered interim measures A court shall have the same power of issuing an interim measure in relation to arbitration proceedings, irrespective of whether their place is in the territory of this State, as it has in relation to proceedings in courts. The court shall exercise such power in accordance with its own procedures in consideration of the specific features of international arbitration.

(f) Either party may apply with the Court for assistance in implementing or enforcing an interim measure ordered by an arbitral tribunal. (g) A party who does not comply with the order shall be liable for all damages resulting from noncompliance, including all expenses, and reasonable attorney's fees, paid in obtaining the orders judicial enforcement. (Emphasis ours.)

Art. 17(2) of the UNCITRAL Model Law on ICA defines an In the recent 2006 case of Transfield Philippines, Inc. v. Luzon interim measure of protection as: Hydro Corporation, we were explicit that even the pendency of an arbitral proceeding does not foreclose resort to the courts for provisional reliefs. We explicated this way: Article 17. Power of arbitral tribunal to order interim measures As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to the courts for xxx xxx xxx provisional reliefs. The Rules of the ICC, which governs the parties arbitral dispute, allows the application of a (2) An interim measure is any temporary measure, party to a judicial authority for interim or conservatory whether in the form of an award or in another form, by measures. Likewise, Section 14 of Republic Act (R.A.) which, at any time prior to the issuance of the award by No. 876 (The Arbitration Law) recognizes the rights of which the dispute is finally decided, the arbitral tribunal any party to petition the court to take measures to orders a party to: safeguard and/or conserve any matter which is the subject of the dispute in arbitration. In addition, R.A. (a) Maintain or restore the status quo pending 9285, otherwise known as the Alternative Dispute determination of the dispute; Resolution Act of 2004, allows the filing of provisional or interim measures with the regular courts whenever (b) Take action that would prevent, or refrain from the arbitral tribunal has no power to act or to act taking action that is likely to cause, current or imminent effectively.78[50] harm or prejudice to the arbitral process itself; (c) Provide a means of preserving assets out of which a subsequent award may be satisfied; or (d) Preserve evidence that may be relevant and material to the resolution of the dispute.

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It is thus beyond cavil that the RTC has authority and family79[51] until final resolution of the arbitral proceedings and jurisdiction to grant interim measures of protection. enforcement of the award, if any. Secondly, considering that the equipment and machineries are in the possession of PGSMC, it has the right to protect and preserve the equipment and machineries in the best way it can. Considering WHEREFORE, this petition is PARTLY GRANTED, in that: that the LPG plant was non-operational, PGSMC has the right to dismantle and transfer the equipment and machineries either for their (1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 protection and preservation or for the better way to make good use of is REVERSED and SET ASIDE; them which is ineluctably within the management discretion of PGSMC. (2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-117 are REVERSED and SET ASIDE; Thirdly, and of greater import is the reason that maintaining the equipment and machineries in Worths property is not to the best (3) The parties are hereby ORDERED to submit themselves interest of PGSMC due to the prohibitive rent while the LPG plant as to the arbitration of their dispute and differences arising from the set-up is not operational. PGSMC was losing PhP322,560 as monthly subject Contract before the KCAB; and rentals or PhP3.87M for 1998 alone without considering the 10% annual rent increment in maintaining the plant. (4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and machineries, if it had not done so, and ORDERED Fourthly, and corollarily, while the KCAB can rule on motions to preserve and maintain them until the finality of whatever arbitral or petitions relating to the preservation or transfer of the equipment award is given in the arbitration proceedings. and machineries as an interim measure, yet on hindsight, the July 23, 1998 Order of the RTC allowing the transfer of the equipment and No pronouncement as to costs. machineries given the non-recognition by the lower courts of the arbitral clause, has accorded an interim measure of protection to SO ORDERED. PGSMC which would otherwise been irreparably damaged. Fifth, KOGIES is not unjustly prejudiced as it has already been FIRST DIVISION paid a substantial amount based on the contract. Moreover, KOGIES is amply protected by the arbitral action it has instituted before the KCAB, the award of which can be enforced in our jurisdiction through the RTC. Besides, by our decision, PGSMC is compelled to submit to arbitration pursuant to the valid arbitration clause of its contract with KOGIES. PGSMC to preserve the subject equipment and machineries Finally, while PGSMC may have been granted the right to dismantle and transfer the subject equipment and machineries, it does not have the right to convey or dispose of the same considering the pending arbitral proceedings to settle the differences of the parties. PGSMC therefore must preserve and maintain the subject equipment and machineries with the diligence of a good father of a

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ORMOC SUGARCANE PLANTERS ASSOCIATION, INC. (OSPA),OCCIDENTAL LEYTE FARMERS MULTI-PURPOSE COOPERATIVE, INC. (OLFAMCA), UNIFARM MULTI-PURPOSE COOPERATIVE, INC. (UNIFARM) and ORMOC NORTH DISTRICT IRRIGATION MULTI-PURPOSE COOPERATIVE, INC. (ONDIMCO), Petitioners, -versusTHE COURT OF APPEALS (Special Former Sixth Division), HIDECO SUGAR MILLING CO., INC., and ORMOC SUGAR MILLING CO., INC., Respondents.

G.R. No. 156660

Present: PUNO, C.J., Chairperson, CARPIO, CORONA, LEONARDO-DE CASTRO, and BERSAMIN, JJ.

56166 which set aside the Joint Orders81[2] dated August 26, 1999 and October 29, 1999 issued by the Regional Trial Court (RTC) of Ormoc City, Branch 12 upholding petitioners legal personality to demand arbitration from respondents and directing respondents to nominate two arbitrators to represent them in the Board of Arbitrators. Petitioners are associations organized by and whose members are individual sugar planters (Planters). The membership of each association follows: 264 Planters were members of OSPA; 533 Planters belong to OLFAMCA; 617 Planters joined UNIFARM; 760 Planters enlisted with ONDIMCO; and the rest belong to BAP-MPC which did not join the lawsuit. Respondents Hideco Sugar Milling Co., Inc. (Hideco) and Ormoc Sugar Milling Co, Inc. (OSCO) are sugar centrals engaged in grinding and milling sugarcane delivered to them by numerous individual sugar planters, who may or may not be members of an association such as petitioners. Petitioners assert that the relationship between respondents and the individual sugar planters is governed by milling contracts. To buttress this claim, petitioners presented representative samples of the milling contracts.82[3]

Promulgated: August 24, 2009

Notably, Article VII of the milling contracts provides that 34% of the sugar and molasses produced from milling the Planters sugarcane shall belong to the centrals (respondents) as x----------------------------------------------------------------------------------------x compensation, 65% thereof shall go to the Planter and the remaining 1% shall go the association to which the Planter concerned belongs, DECISION as aid to the said association. The 1% aid shall be used by the association for any purpose that it may deem fit for its members, LEONARDO-DE CASTRO, J.: laborers and their dependents. If the Planter was not a member of Before the Court is a special civil action for certiorari assailing the Decision80[1] dated December 7, 2001 and the Resolution dated October 30, 2002 of the Court of Appeals (CA) in CA-G.R. SP No.

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any association, then the said 1% shall revert to the centrals. Article XIV, paragraph B83[4] states that the centrals may not, during the life of the milling contract, sign or execute any contract or agreement that will provide better or more benefits to a Planter, without the written consent of the existing and recognized associations except to Planters whose plantations are situated in areas beyond thirty (30) kilometers from the mill. Article XX provides that all differences and controversies which may arise between the parties concerning the agreement shall be submitted for discussion to a Board of Arbitration, consisting of five (5) memberstwo (2) of which shall be appointed by the centrals, two (2) by the Planter and the fifth to be appointed by the four appointed by the parties. On June 4, 1999, petitioners, without impleading any of their individual members, filed twin petitions with the RTC for Arbitration under R.A. 876, Recovery of Equal Additional Benefits, Attorneys Fees and Damages, against HIDECO and OSCO, docketed as Civil Case Nos. 3696-O and 3697-O, respectively. Petitioners claimed that respondents violated the Milling Contract when they gave to independent planters who do not belong to any association the 1% share, instead of reverting said share to the centrals. Petitioners contended that respondents unduly accorded the independent Planters more benefits and thus prayed that an order be issued directing the parties to commence with arbitration in accordance with the terms of the milling contracts. They also demanded that respondents be penalized by increasing their member Planters 65% share provided in the milling contract by 1%, to 66%.

to the milling contracts, had no legal standing whatsoever to demand or sue for arbitration. On August 26, 1999, the RTC issued a Joint Order84[5] denying the motion to dismiss, declaring the existence of a milling contract between the parties, and directing respondents to nominate two arbitrators to the Board of Arbitrators, to wit: When these cases were called for hearing today, counsels for the petitioners and respondents argued their respective stand. The Court is convinced that there is an existing milling contract between the petitioners and respondents and these planters are represented by the officers of the associations. The petitioners have the right to sue in behalf of the planters. This Court, acting on the petitions, directs the respondents to nominate two arbitrators to represent HIDECO/HISUMCO and OSCO in the Board of Arbitrators within fifteen (15) days from receipt of this Order. xxx However, if the respondents fail to nominate their two arbitrators, upon proper motion by the petitioners, then the Court will be compelled to use its discretion to appoint the two (2) arbitrators, as embodied in the Milling Contract and R.A. 876. xxx

Respondents filed a motion to dismiss on ground of lack of cause of action because petitioners had no milling contract with Their subsequent motion for reconsideration having been respondents. According to respondents, only some eighty (80) denied by the RTC in its Joint Order85[6] dated October 29, 1999, Planters who were members of OSPA, one of the petitioners, executed respondents elevated the case to the CA through a Petition for milling contracts. Respondents and these 80 Planters were the signatories of the milling contracts. Thus, it was the individual Planters, and not petitioners, who had legal standing to invoke the arbitration clause in the milling contracts. Petitioners, not being privy

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Certiorari with Prayer for the Issuance of Temporary Restraining requirements for availment of the latter is precisely that there should Order and/or Writ of Preliminary Injunction. be no appeal. It is elementary that for certiorari to prosper, it is not enough that the trial court committed grave abuse of discretion On December 7, 2001, the CA rendered its challenged amounting to lack or excess of jurisdiction; the requirement that Decision, setting aside the assailed Orders of the RTC. The CA held there is no appeal, nor any plain, speedy and adequate remedy in the that petitioners neither had an existing contract with respondents nor ordinary course of law must likewise be satisfied.87[8] The proper were they privy to the milling contracts between respondents and the mode of recourse for petitioners was to file a petition for review of the individual Planters. In the main, the CA concluded that petitioners CAs decision under Rule 45. had no legal personality to bring the action against respondents or to demand for arbitration. Petitioners principally argue that the CA committed a grave error in setting aside the challenged Joint Orders of the RTC which Petitioners filed a motion for reconsideration, but it too was allegedly unduly curtailed the right of petitioners to represent their denied by the CA in its Resolution86[7] dated October 30, 2002. planters-members and enforce the milling contracts with respondents. Petitioners assert the said which orders were issued in accordance Thus, the instant petition. with Article XX of the Milling Contract and the applicable provisions of At the outset, it must be noted that petitioners filed the instant Republic Act (R.A.) No. 876. petition for certiorari under Rule 65 of the Rules of Court, to challenge Where the issue or question involved affects the wisdom or the judgment of the CA. Section 1 of Rule 65 states: legal soundness of the decision not the jurisdiction of the court to render said decision the same is beyond the province of a special Section 1. Petition for Certiorari. When any tribunal, civil action for certiorari. Erroneous findings and conclusions do not board or officer exercising judicial or quasi-judicial render the appellate court vulnerable to the corrective writ of functions has acted without or in excess of its certiorari. For where the court has jurisdiction over the case, even if jurisdiction, or with grave abuse of discretion its findings are not correct, they would, at most constitute errors of amounting to lack or excess of its or his jurisdiction and law and not abuse of discretion correctable by certiorari.88[9] there is no appeal, or any plain, speedy and adequate remedy in the course of law, a person Moreover, even if this Court overlooks the procedural lapse aggrieved thereby may file a verified petition in the committed by petitioners and decides this matter on the merits, the proper court, alleging the facts with certainty and present petition will still not prosper. praying that judgment be rendered annulling or modifying the proceedings of such tribunal, board or officer, and granting such incidental relief as law and Stripped to the core, the pivotal issue here is whether or not justice require. xxx xxx xxx (emphasis ours) petitioners sugar planters associations are clothed with legal personality to file a suit against, or demand arbitration from, The instant recourse is improper because the resolution of the CA was a final order from which the remedy of appeal was available under Rule 45 in relation to Rule 56. The existence and availability of the right of appeal proscribes resort to certiorari because one of the

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respondents in their own name without impleading the individual by the law of contracts.90[11] In an agreement for arbitration, the Planters. ordinary elements of a valid contract must appear, including an agreement to arbitrate some specific thing, and an agreement to abide by the award, either in express language or by implication. On this point, we agree with the findings of the CA. The requirements that an arbitration agreement must be Section 2 of R.A. No. 876 (the Arbitration Law)89[10] written and subscribed by the parties thereto were enunciated by the pertinently provides: Court in B.F. Corporation v. CA.91[12] Sec. 2. Persons and matters subject to During the proceedings before the CA, it was established that arbitration. Two or more persons or parties may there were more than two thousand (2,000) Planters in the district at submit to the arbitration of one or more the time the case was commenced at the RTC in 1999. The CA arbitrators any controversy existing between further found that of those 2,000 Planters, only about eighty (80) them at the time of the submission and which may Planters, who were all members of petitioner OSPA, in fact individually be the subject of an action, or the parties to any executed milling contracts with respondents. No milling contracts contract may in such contract agree to settle by signed by members of the other petitioners were presented before the arbitration a controversy thereafter arising CA. between them. Such submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any By their own allegation, petitioners are associations duly contract. xxx (Emphasis ours) existing and organized under Philippine law, i.e. they have juridical personalities separate and distinct from that of their member Planters. The foregoing provision speaks of two modes of arbitration: (a) It is likewise undisputed that the eighty (80) milling contracts that an agreement to submit to arbitration some future dispute, usually were presented were signed only by the member Planter concerned stipulated upon in a civil contract between the parties, and known as and one of the Centrals as parties. In other words, none of the an agreement to submit to arbitration, and (b) an agreement petitioners were parties or signatories to the milling contracts. This submitting an existing matter of difference to arbitrators, termed the circumstance is fatal to petitioners' cause since they anchor their right submission agreement. Article XX of the milling contract is an to demand arbitration from the respondent sugar centrals upon the agreement to submit to arbitration because it was made in arbitration clause found in the milling contracts. There is no legal anticipation of a dispute that might arise between the parties after the basis for petitioners' purported right to demand arbitration when they are not parties to the milling contracts, especially when the language contracts execution. of the arbitration clause expressly grants the right to demand Except where a compulsory arbitration is provided by statute, arbitration only to the parties to the contract. the first step toward the settlement of a difference by arbitration is the entry by the parties into a valid agreement to arbitrate. An agreement to arbitrate is a contract, the relation of the parties is contractual, and the rights and liabilities of the parties are controlled

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Simply put, petitioners do not have any agreement to arbitrate with respondents. Only eighty (80) Planters who were all members of OSPA were shown to have such an agreement to arbitrate, included as a stipulation in their individual milling contracts. The other petitioners failed to prove that any of their members had milling contracts with respondents, much less, that respondents had an agreement to arbitrate with the petitioner associations themselves.

Petitioners would argue that they could sue respondents, notwithstanding the fact that they were not signatories in the milling contracts because they are the recognized representatives of the Planters.

This claim has no leg to stand on since petitioners did not sign the milling contracts at all, whether as a party or as a representative of their member Planters. The individual Planter and the appropriate Even assuming that all the petitioners were able to present central were the only signatories to the contracts and there is no milling contracts in favor of their members, it is undeniable that under provision in the milling contracts that the individual Planter is the arbitration clause in these contracts it is the parties thereto who authorizing the association to represent him/her in a legal action in have the right to submit a controversy or dispute to arbitration. case of a dispute over the milling contracts. Section 4 of R.A. 876 provides: Section 4. Form of Arbitration Agreement A contract to arbitrate a controversy thereafter arising between the parties, as well as a submission to arbitrate an existing controversy, shall be in writing and subscribed by the party sought to be charged, or by his lawful agent. The making of a contract or submission for arbitration described in section two hereof, providing for arbitration of any controversy, shall be deemed a consent of the parties to the jurisdiction of the Court of First Instance of the province or city where any of the parties resides, to enforce such contract of submission. 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. To subscribe means to write underneath, as ones name; to sign at the end of a document. That word may sometimes be construed to mean to give consent to or to attest.92[13] Moreover, even assuming that petitioners are indeed representatives of the member Planters who have milling contracts with the respondents and assuming further that petitioners signed the milling contracts as representatives of their members, petitioners could not initiate arbitration proceedings in their own name as they had done in the present case. As mere agents, they should have brought the suit in the name of the principals that they purportedly represent. Even if Section 4 of R.A. No. 876 allows the agreement to arbitrate to be signed by a representative, the principal is still the one who has the right to demand arbitration. Indeed, Rule 3, Section 2 of the Rules of Court requires suits to be brought in the name of the real party in interest, to wit: Sec. 2. Parties in interest. A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be prosecuted or defended in the name of the real party in interest. We held in Oco v. Limbaring93[14] that: As applied to the present case, this provision has two requirements: 1) to institute an action, the plaintiff

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Assuming petitioners had properly brought the case in the name of their members who had existing milling contracts with respondents, petitioners must still prove that they were indeed authorized by the said members to institute an action for and on the members' behalf. In the same manner that an officer of the corporation cannot bring action in behalf of a corporation unless it is clothed with a board resolution authorizing an officer to do so, an authorization from the individual member planter is a sine qua non for the association or any of its officers to bring an action before the In Uy v. Court of Appeals,94[15] this Court held that the court of law. The mere fact that petitioners were organized for the agents of the parties to a contract do not have the right to bring an purpose of advancing the interests and welfare of their members does action even if they rendered some service on behalf of their principals. not necessarily mean that petitioners have the authority to represent their members in legal proceedings, including the present arbitration To quote from that decision: proceedings. As we see it, petitioners had no intention to litigate the case in a representative capacity, as they contend. All the pleadings from the RTC to this Court belie this claim. Under Section 3 of Rule 3, where the action is allowed to be prosecuted by a representative, the beneficiary shall be included in the title of the case and shall be

must be the real party in interest; and 2) the action must be prosecuted in the name of the real party in interest. Necessarily, the purposes of this provision are 1) to prevent the prosecution of actions by persons without any right, title or interest in the case; 2) to require that the actual party entitled to legal relief be the one to prosecute the action; 3) to avoid a multiplicity of suits; and 4) to discourage litigation and keep it within certain bounds, pursuant to sound public policy. Interest within the meaning of the Rules means material interest or an interest in issue to be affected by the decree or judgment of the case, as distinguished from mere curiosity about the question involved. One having no material interest to protect cannot invoke the jurisdiction of the court as the plaintiff in an action. When the plaintiff is not the real party in interest, the case is dismissible on the ground of lack of cause of action. xxx xxx xxx The parties to a contract are the real parties in interest in an action upon it, as consistently held by the Court. Only the contracting parties are bound by the stipulations in the contract; they are the ones who would benefit from and could violate it. Thus, one who is not a party to a contract, and for whose benefit it was not expressly made, cannot maintain an action on it. One cannot do so, even if the contract performed by the contracting parties would incidentally inure to ones benefit. (emphasis ours)

[Petitioners] are mere agents of the owners of the land subject of the sale. As agents, they only render some service or do something in representation or on behalf of their principals. The rendering of such service did not make them parties to the contracts of sale executed in behalf of the latter. Since a contract may be violated only by the parties thereto as against each other, the real parties-in-interest, either as plaintiff or defendant, in an action upon that contract must, generally, either be parties to said contract. (emphasis and words in brackets ours) The main cause of action of petitioners in their request for arbitration with the RTC is the alleged violation of the clause in the milling contracts involving the proportionate sharing in the proceeds of the harvest. Petitioners essentially demand that respondents increase the share of the member Planters to 66% to equalize their situation with those of the non-member Planters. Verily, from petitioners' own allegations, the party who would be injured or benefited by a decision in the arbitration proceedings will be the member Planters involved and not petitioners. In sum, petitioners are not the real parties in interest in the present case.

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deemed to be the real party in interest. As repeatedly pointed out earlier, the individual Planters were not even impleaded as parties to Article VI of the Milling Contract is the solitary provision that this case. In addition, petitioners need a power-of-attorney to mentions some benefit in favor of the association of which the planter represent the Planters whether in the lawsuit or to demand is a member and we quote: arbitration.95[16] None was ever presented here. VI Lastly, petitioners theorize that they could demand and sue for SHARE IN THE SUGAR arbitration independently of the Planters because the milling contract Thirty four per centrum (34%) of the sugar ad is a contract pour autrui under Article 1311 of the Civil Code. molasses resulting from the milling of the PLANTERs sugarcane, as computed from the weight and analysis ART. 1311. Contracts take effect only between of the sugarcane delivered by the PLANTER, shall the parties, their assigns and heirs, except in case belong to the CENTRAL; sixty five per centum (65%) where the rights and obligations arising from the thereof to the PLANTER, and one per centum (1%) as contract are not transmissible by their nature, or by aid to the association of the PLANTER; provided that, if stipulation or by provision of law. The heir is not liable the PLANTER is not a member of any association beyond the value of the property he received from the recognized by the CENTRAL, said one per centum (1%) decedent. shall revert to the CENTRAL. The 1% aid shall be used by the association for any purpose that it may deem fit for its members, laborers and their dependents, or for If a contract should contain some stipulation in its other socio-economic projects. favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit The foregoing provision cannot, by any stretch of the or interest of a person is not sufficient. The contracting imagination, be considered as a stiputation pour autrui or for the parties must have clearly and deliberately conferred a benefit of the petitioners. The primary rationale for the said favor upon a third person. stipulation is to ensure a just share in the proceeds of the harvest to the Planters. In other words, it is a stipulation meant to benefit the To summarize, the requisites of a stipulation pour autrui or a Planters. Even the 1% share to be given to the association as aid stipulation in favor of a third person are the following: (1) there must does not redound to the benefit of the association but is intended to be a stipulation in favor of a third person, (2) the stipulation must be be used for its member Planters. Not only that, it is explicit that said a part, not the whole, of the contract, (3) the contracting parties must share reverts back to respondent sugar centrals if the contracting have clearly and deliberately conferred a favor upon a third person, Planter is not affiliated with any recognized association. not a mere incidental benefit or interest, (4) the third person must have communicated his acceptance to the obligor before its To be considered a pour autrui provision, an incidental benefit revocation, and (5) neither of the contracting parties bears the legal or interest, which another person gains, is not sufficient. The representation or authorization of the third party.96[17] These contracting parties must have clearly and deliberately conferred a requisites are not present in this case. favor upon a third person.97[18] Even the clause stating that

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respondents must secure the consent of the association if respondents grant better benefits to a Planter has for its rationale the protection of the member Planter. The only interest of the association therein is DECISION that its member Planter will not be put at a disadvantage vis a vis other Planters. Thus, the associations interest in these milling contracts is only incidental to their avowed purpose of advancing the PERALTA, J.: welfare and rights of their member Planters. Before us is a petition for review on certiorari seeking to In all, the Court finds no grave abuse of discretion nor reverse and set aside the Decision98[1] dated July 31, 2006 and the reversible error committed by the CA in setting aside the Joint Orders Resolution99[2] dated November 13, 2006 of the Court of Appeals issued by the RTC. (CA) in CA G.R. SP No. 50304. WHEREFORE, petition is hereby DISMISSED. Costs against petitioners. SO ORDERED. Republic of the Philippines Supreme Court Manila On June 18, 1998, respondent San Fernando Regala Trading, Inc. filed with the Regional Trial Court (RTC) of Makati City a Complaint for Rescission of Contract with Damages100[3] against petitioner Cargill Philippines, Inc. In its Complaint, respondent alleged that it was engaged in buying and selling of molasses and petitioner was one of its various sources from whom it purchased molasses. Respondent alleged that it entered into a contract dated July 11, 1996 with petitioner, wherein it was agreed upon that respondent would purchase from petitioner 12,000 metric tons of Thailand origin cane blackstrap molasses at the price of US$192 per metric ton; that the delivery of the molasses was to be made in January/February 1997 and payment was to be made by means of an Irrevocable Letter of Credit payable at sight, to be opened by September 15, 1996; that sometime prior to September 15, 1996, The factual antecedents are as follows:

SECOND DIVISION

CARGILL PHILIPPINES, INC., Petitioner,

G.R. No. 175404 Present:

- versus -

CARPIO, J., Chairperson, NACHURA, PERALTA, ABAD, and MENDOZA, JJ. REGALA TRADING, Promulgated: January 31, 2011

SAN FERNANDO INC.,

Respondent.

x-------------------------------------------------x

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the parties agreed that instead of January/February 1997, the delivery would be made in April/May 1997 and that payment would be by an Irrevocable Letter of Credit payable at sight, to be opened upon petitioner's advice. Petitioner, as seller, failed to comply with its obligations under the contract, despite demands from respondent, thus, the latter prayed for rescission of the contract and payment of damages. On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend Proceedings and To Refer Controversy to Voluntary Arbitration,101[4] wherein it argued that the alleged contract between the parties, dated July 11, 1996, was never consummated because respondent never returned the proposed agreement bearing its written acceptance or conformity nor did respondent open the Irrevocable Letter of Credit at sight. Petitioner contended that the controversy between the parties was whether or not the alleged contract between the parties was legally in existence and the RTC was not the proper forum to ventilate such issue. It claimed that the contract contained an arbitration clause, to wit:

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ARBITRATION Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be settled by arbitration in the City of New York before the American Arbitration Association. The Arbitration Award shall be final and binding on both parties.102[5]

the requirements imposed by the provisions of the Arbitration Law had not been complied with. By way of Sur-Rejoinder, petitioner contended that respondent had even clarified that the issue boiled down to whether the arbitration clause contained in the contract subject of the complaint is valid and enforceable; that the arbitration clause did not violate any of the cited provisions of the Arbitration Law.

On September 17, 1998, the RTC rendered an Order,105[8] that respondent must first comply with the arbitration clause before resorting to court, thus, the RTC must either dismiss the case or the dispositive portion of which reads: suspend the proceedings and direct the parties to proceed with arbitration, pursuant to Sections 6103[6] and 7104[7] of Republic Act (R.A.) No. 876, or the Arbitration Law. Premises considered, defendant's Motion To Dismiss/Suspend Proceedings and To Refer Controversy Respondent filed an Opposition, wherein it argued that the RTC To Voluntary Arbitration is hereby DENIED. Defendant is has jurisdiction over the action for rescission of contract and could not directed to file its answer within ten (10) days from receipt of a copy of this order.106[9] be changed by the subject arbitration clause. It cited cases wherein arbitration clauses, such as the subject clause in the contract, had been struck down as void for being contrary to public policy since it provided that the arbitration award shall be final and binding on both In denying the motion, the RTC found that there was no clear parties, thus, ousting the courts of jurisdiction. basis for petitioner's plea to dismiss the case, pursuant to Section 7 of the Arbitration Law. The RTC said that the provision directed the In its Reply, petitioner maintained that the cited decisions were court concerned only to stay the action or proceeding brought upon already inapplicable, having been rendered prior to the effectivity of an issue arising out of an agreement providing for the arbitration the New Civil Code in 1950 and the Arbitration Law in 1953. thereof, but did not impose the sanction of dismissal. However, the In its Rejoinder, respondent argued that the arbitration clause RTC did not find the suspension of the proceedings warranted, since relied upon by petitioner is invalid and unenforceable, considering that the Arbitration Law contemplates an arbitration proceeding that must be conducted in the Philippines under the jurisdiction and control of the RTC; and before an arbitrator who resides in the country; and that the arbitral award is subject to court approval, disapproval and modification, and that there must be an appeal from the judgment of the RTC. The RTC found that the arbitration clause in question

44

contravened these procedures, i.e., the arbitration clause contemplated an arbitration proceeding in New York before a nonresident arbitrator (American Arbitration Association); that the arbitral award shall be final and binding on both parties. The RTC said that to apply Section 7 of the Arbitration Law to such an agreement would result in disregarding the other sections of the same law and rendered them useless and mere surplusages. Petitioner filed its Motion for Reconsideration, which the RTC denied in an Order107[10] dated November 25, 1998. Petitioner filed a petition for certiorari with the CA raising the sole issue that the RTC acted in excess of jurisdiction or with grave abuse of discretion in refusing to dismiss or at least suspend the proceedings a quo, despite the fact that the party's agreement to arbitrate had not been complied with. Respondent filed its Comment and Reply. The parties were then required to file their respective Memoranda.

The CA did not find illegal or against public policy the arbitration clause so as to render it null and void or ineffectual. Notwithstanding such findings, the CA still held that the case cannot be brought under the Arbitration Law for the purpose of suspending the proceedings before the RTC, since in its Motion to Dismiss/Suspend proceedings, petitioner alleged, as one of the grounds thereof, that the subject contract between the parties did not exist or it was invalid; that the said contract bearing the arbitration clause was never consummated by the parties, thus, it was proper that such issue be first resolved by the court through an appropriate trial; that the issue involved a question of fact that the RTC should first resolve. Arbitration is not proper when one of the parties repudiated the existence or validity of the contract. Petitioner's motion for reconsideration Resolution dated November 13, 2006. Hence, this petition. was denied in a

On July 31, 2006, the CA rendered its assailed Decision Petitioner alleges that the CA committed an error of law in denying the petition and affirming the RTC Orders. ruling that arbitration cannot proceed despite the fact that: (a) it had ruled, in its assailed decision, that the arbitration clause is valid, In denying the petition, the CA found that stipulation providing enforceable and binding on the parties; (b) the case of Gonzales v. for arbitration in contractual obligation is both valid and Climax Mining Ltd.108[11] is inapplicable here; (c) parties are constitutional; that arbitration as an alternative mode of dispute generally allowed, under the Rules of Court, to adopt several resolution has long been accepted in our jurisdiction and expressly defenses, alternatively or hypothetically, even if such provided for in the Civil Code; that R.A. No. 876 (the Arbitration Law) also expressly authorized the arbitration of domestic disputes. The CA found error in the RTC's holding that Section 7 of R.A. No. 876 was inapplicable to arbitration clause simply because the clause failed to comply with the requirements prescribed by the law. The CA found that there was nothing in the Civil Code, or R.A. No. 876, that require that arbitration proceedings must be conducted only in the Philippines and the arbitrators should be Philippine residents. It also found that the RTC ruling effectively invalidated not only the disputed arbitration clause, but all other agreements which provide for foreign arbitration.

45

defenses are inconsistent with each other; and (d) the complaint filed basis, because it had been ruled that the arbitration agreement can by respondent with the trial court is premature. be implemented notwithstanding that one of the parties thereto repudiated the contract which contained such agreement based on the Petitioner alleges that the CA adopted inconsistent positions doctrine of separability. when it found the arbitration clause between the parties as valid and enforceable and yet in the same breath decreed that the arbitration In its Comment, respondent argues that certiorari under Rule cannot proceed because petitioner assailed the existence of the entire 65 is not the remedy against an order denying a Motion to agreement containing the arbitration clause. Petitioner claims the Dismiss/Suspend Proceedings and To Refer Controversy to Voluntary inapplicability of the cited Gonzales case decided in 2005, because in Arbitration. It claims that the Arbitration Law which petitioner the present case, it was respondent who had filed the complaint for invoked as basis for its Motion prescribed, under its Section 29, a rescission and damages with the RTC, which based its cause of action remedy, i.e., appeal by a petition for review on certiorari under Rule against petitioner on the alleged agreement dated July 11, 2006 45. Respondent contends that the Gonzales case, which was decided between the parties; and that the same agreement contained the in 2007, is inapplicable in this case, especially as to the doctrine of arbitration clause sought to be enforced by petitioner in this case. separability enunciated therein. Respondent argues that even if the Thus, whether petitioner assails the genuineness and due execution of existence of the contract and the arbitration clause is conceded, the the agreement, the fact remains that the agreement sued upon decisions of the RTC and the CA declining referral of the dispute provides for an arbitration clause; that respondent cannot use the between the parties to arbitration would still be correct. This is so provisions favorable to him and completely disregard those that are because respondent's complaint filed in Civil Case No. 98-1376 unfavorable, such as the arbitration clause. presents the principal issue of whether under the facts alleged in the complaint, respondent is entitled to rescind its contract with petitioner Petitioner contends that as the defendant in the RTC, it and for the latter to pay damages; that such issue constitutes a presented two alternative defenses, i.e., the parties had not entered judicial question or one that requires the exercise of judicial function into any agreement upon which respondent as plaintiff can sue upon; and cannot be the subject of arbitration. and, assuming that such agreement existed, there was an arbitration clause that should be enforced, thus, the dispute must first be Respondent contends that Section 8 of the Rules of Court, submitted to arbitration before an action can be instituted in court. which allowed a defendant to adopt in the same action several Petitioner argues that under Section 1(j) of Rule 16 of the Rules of defenses, alternatively or hypothetically, even if such defenses are Court, included as a ground to dismiss a complaint is when a inconsistent with each other refers to allegations in the pleadings, condition precedent for filing the complaint has not been complied such as complaint, counterclaim, cross-claim, third-party complaint, with; and that submission to arbitration when such has been agreed answer, but not to a motion to dismiss. Finally, respondent claims upon is one such condition precedent. Petitioner submits that the that petitioner's argument is premised on the existence of a contract proceedings in the RTC must be dismissed, or at least suspended, and with respondent containing a provision for arbitration. However, its the parties be ordered to proceed with arbitration. reliance on the contract, which it repudiates, is inappropriate. On March 12, 2007, petitioner filed a Manifestation109[12] saying that the CA's rationale in declining to order arbitration based In its Reply, petitioner insists that respondent filed an action on the 2005 Gonzales ruling had been modified upon a motion for for rescission and damages on the basis of the contract, thus, reconsideration decided in 2007; that the CA decision lost its legal respondent admitted the existence of all the provisions contained thereunder, including the arbitration clause; that if respondent relies on said contract for its cause of action against petitioner, it must also consider itself bound by the rest of the terms and conditions contained thereunder notwithstanding that respondent may find some provisions to be adverse to its position; that respondents citation of the Gonzales case, decided in 2005, to show that the

46

validity of the contract cannot be the subject of the arbitration proceeding and that it is the RTC which has the jurisdiction to resolve the situation between the parties herein, is not correct since in the resolution of the Gonzales' motion for reconsideration in 2007, it had been ruled that an arbitration agreement is effective notwithstanding the fact that one of the parties thereto repudiated the main contract which contained it. We first address the procedural issue raised by respondent that petitioners petition for certiorari under Rule 65 filed in the CA against an RTC Order denying a Motion to Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary Arbitration was a wrong remedy invoking Section 29 of R.A. No. 876, which provides: Section 29. x x x An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered upon an award through certiorari proceedings, but such appeals shall be limited to question of law. x x x.

with grave abuse of discretion in immediately ordering the parties to proceed with arbitration despite the proper, valid and timely raised argument in his Answer with counterclaim that the Addendum Contract containing the arbitration clause was null and void. ClimaxArimco assailed the mode of review availed of by Gonzales, citing Section 29 of R.A. No. 876 contending that certiorari under Rule 65 can be availed of only if there was no appeal or any adequate remedy in the ordinary course of law; that R.A. No. 876 provides for an appeal from such order. We then ruled that Gonzales' petition for certiorari should be dismissed as it was filed in lieu of an appeal by certiorari which was the prescribed remedy under R.A. No. 876 and the petition was filed far beyond the reglementary period. We found that Gonzales petition for certiorari raises a question of law, but not a question of jurisdiction; that Judge Pimentel acted in accordance with the procedure prescribed in R.A. No. 876 when he ordered Gonzales to proceed with arbitration and appointed a sole arbitrator after making the determination that there was indeed an arbitration agreement. It had been held that as long as a court acts within its jurisdiction and does not gravely abuse its discretion in the exercise thereof, any supposed error committed by it will amount to nothing more than an error of judgment reviewable by a timely appeal and not assailable by a special civil action of certiorari.111[14]

In this case, petitioner raises before the CA the issue To support its argument, respondent cites the case of Gonzales that the respondent Judge acted in excess of jurisdiction or with grave v. Climax Mining Ltd.110[13] (Gonzales case), wherein we ruled the abuse of discretion in refusing to dismiss, or at least suspend, the impropriety of a petition for certiorari under Rule 65 as a mode of proceedings a quo, despite the fact that the partys agreem ent to appeal from an RTC Order directing the parties to arbitration. arbitrate had not been complied with. Notably, the RTC found the existence of the arbitration clause, since it said in its decision that We find the cited case not in point. hardly disputed is the fact that the arbitration clause in question In the Gonzales case, Climax-Arimco filed before the contravenes several provisions of the Arbitration Law x x x and to RTC of Makati a petition to compel arbitration under R.A. No. 876, apply Section 7 of the Arbitration Law to such an agreement would pursuant to the arbitration clause found in the Addendum Contract it result in the disregard of the afore-cited sections of the Arbitration entered with Gonzales. Judge Oscar Pimentel of the RTC of Makati Law and render them useless and mere surplusages. However, then directed the parties to arbitration proceedings. Gonzales filed a notwithstanding the finding that an arbitration agreement existed, the petition for certiorari with Us contending that Judge Pimentel acted

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RTC denied petitioner's motion and directed petitioner to file an arbitration, as a system of settling commercial disputes of an answer. international character, is likewise recognized.115[18] The enactment of R.A. No. 9285 on April 2, 2004 further institutionalized In La Naval Drug Corporation v. Court of Appeals,112[15] it the use of alternative dispute resolution systems, including was held that R.A. No. 876 explicitly confines the courts authority arbitration, in the settlement of disputes.116[19] only to the determination of whether or not there is an agreement in writing providing for arbitration. In the affirmative, the statute A contract is required for arbitration to take place and to be ordains that the court shall issue an order summarily directing the binding.117[20] Submission to arbitration is a contract 118[21] and parties to proceed with the arbitration in accordance with the terms a clause in a contract providing that all matters in dispute between thereof. If the court, upon the other hand, finds that no such the parties shall be referred to arbitration is a contract.119[22] The agreement exists, the proceedings shall be dismissed. provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is part of the contract and is itself a In issuing the Order which denied petitioner's Motion to contract.120[23] Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary Arbitration, the RTC went beyond its authority of determining only the issue of whether or not there is an agreement in writing providing for arbitration by directing petitioner to file an answer, instead of ordering the parties to proceed to arbitration. In so doing, it acted in excess of its jurisdiction and since there is no plain, speedy, and adequate remedy in the ordinary course o f law, petitioners resort to a petition for certiorari is the proper remedy. We now proceed to the substantive issue of whether the CA erred in finding that this case cannot be brought under the arbitration law for the purpose of suspending the proceedings in the RTC. We find merit in the petition. Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in our jurisdiction.113[16] R.A. No. 876114[17] authorizes arbitration of domestic disputes. Foreign

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In this case, the contract sued upon by respondent provides for an arbitration clause, to wit:

ARBITRATION Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be settled by arbitration in the City of New York before the American Arbitration Association, The Arbitration Award shall be final and binding on both parties. The CA ruled that arbitration cannot be ordered in this case, since petitioner alleged that the contract between the parties did not exist or was invalid and arbitration is not proper when one of the parties repudiates the existence or validity of the contract. Thus, said the CA: Notwithstanding our ruling on the validity and enforceability of the assailed arbitration clause providing for foreign arbitration, it is our considered opinion that the case at bench still cannot be brought under the Arbitration Law for the purpose of suspending the proceedings before the trial court. We note that in its Motion to Dismiss/Suspend Proceedings, etc, petitioner Cargill alleged, as one of the grounds thereof, that the alleged contract between the parties do not legally exist or is invalid. As posited by petitioner, it is their contention that the said contract, bearing the arbitration clause, was never consummated by the parties. That being the case, it is but proper that such issue be first resolved by the court through an appropriate trial. The issue involves a question of fact that the trial court should first resolve. Arbitration is not proper when one of the parties repudiates the existence or validity of the contract. Apropos is Gonzales v. Climax Mining Ltd., 452 SCRA 607, (G.R.No.161957), where the Supreme Court held that: The question of validity of the contract containing the agreement to

submit to arbitration will affect the applicability of the arbitration clause itself. A party cannot rely on the contract and claim rights or obligations under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent positions.... Consequently, the petitioner herein cannot claim that the contract was never consummated and, at the same time, invokes the arbitration clause provided for under the contract which it alleges to be non-existent or invalid. Petitioner claims that private respondent's complaint lacks a cause of action due to the absence of any valid contract between the parties. Apparently, the arbitration clause is being invoked merely as a fallback position. The petitioner must first adduce evidence in support of its claim that there is no valid contract between them and should the court a quo find the claim to be meritorious, the parties may then be spared the rigors and expenses that arbitration in a foreign land would surely entail.121[24]

However, the Gonzales case,122[25] which the CA relied upon for not ordering arbitration, had been modified upon a motion for reconsideration in this wise: x x x The adjudication of the petition in G.R. No. 167994 effectively modifies part of the Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the validity of the contract

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Respondent argues that the separability doctrine is not applicable in petitioner's case, since in the Gonzales case, ClimaxArimco sought to enforce the arbitration clause of its contract with Gonzales and the former's move was premised on the existence of a valid contract; while Gonzales, who resisted the move of ClimaxArimco for arbitration, did not deny the existence of the contract but merely assailed the validity thereof on the ground of fraud and oppression. Respondent claims that in the case before Us, petitioner who is the party insistent on arbitration also claimed in their Motion to Dismiss/Suspend Proceedings that the contract sought by respondent to be rescinded did not exist or was not consummated; thus, there is no room for the application of the separability doctrine, since there is In so ruling that the validity of the contract containing the no container or main contract or an arbitration clause to speak of. arbitration agreement does not affect the applicability of the arbitration clause itself, we then applied the doctrine of separability, We are not persuaded. thus: Applying the Gonzales ruling, an arbitration agreement which The doctrine of separability, or severability as forms part of the main contract shall not be regarded as invalid or other writers call it, enunciates that an arbitration non-existent just because the main contract is invalid or did not come agreement is independent of the main contract. The into existence, since the arbitration agreement shall be treated as a arbitration agreement is to be treated as a separate separate agreement independent of the main contract. To reiterate. a agreement and the arbitration agreement does not contrary ruling would suggest that a party's mere repudiation of the automatically terminate when the contract of which it is main contract is sufficient to avoid arbitration and that is exactly the a part comes to an end. situation that the separability doctrine sought to avoid. Thus, we find that even the party who has repudiated the main contract is not The separability of the arbitration agreement is prevented from enforcing its arbitration clause. especially significant to the determination of whether the invalidity of the main contract also nullifies the Moreover, it is worthy to note that respondent filed a arbitration clause. Indeed, the doctrine denotes that the complaint for rescission of contract and damages with the RTC. In so invalidity of the main contract, also referred to as the doing, respondent alleged that a contract exists between respondent "container" contract, does not affect the validity of the and petitioner. It is that contract which provides for an arbitration arbitration agreement. Irrespective of the fact that the clause which states that any dispute which the Buyer and Seller may

containing the agreement to submit to arbitration does not affect the applicability of the arbitration clause itself. A contrary ruling would suggest that a party's mere repudiation of the main contract is sufficient to avoid arbitration. That is exactly the situation that the separability doctrine, as well as jurisprudence applying it, seeks to avoid. We add that when it was declared in G.R. No. 161957 that the case should not be brought for arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators, which was for the nullification of the main contract on the ground of fraud, as it had already been determined that the case should have been brought before the regular courts involving as it did judicial issues.123[26]

main contract is invalid, the arbitration clause/agreement still remains valid and enforceable.124[27]

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not be able to settle by mutual agreement shall be settled before the City of New York by the American Arbitration Association. The arbitration agreement clearly expressed the parties' intention that any dispute between them as buyer and seller should be referred to arbitration. It is for the arbitrator and not the courts to decide whether a contract between the parties exists or is valid. Respondent contends that assuming that the existence of the contract and the arbitration clause is conceded, the CA's decision declining referral of the parties' dispute to arbitration is still correct. It claims that its complaint in the RTC presents the issue of whether under the facts alleged, it is entitled to rescind the contract with damages; and that issue constitutes a judicial question or one that requires the exercise of judicial function and cannot be the subject of an arbitration proceeding. Respondent cites our ruling in Gonzales, wherein we held that a panel of arbitrator is bereft of jurisdiction over the complaint for declaration of nullity/or termination of the subject contracts on the grounds of fraud and oppression attendant to the execution of the addendum contract and the other contracts emanating from it, and that the complaint should have been filed with the regular courts as it involved issues which are judicial in nature. Such argument is misplaced and respondent cannot rely on the Gonzales case to support its argument.

mining authorities and not when the complaint alleged fraud and oppression which called for the interpretation and application of laws. The CA further ruled that the petition should have been settled through arbitration under R.A. No. 876 the Arbitration Law as provided under the addendum contract. On a review on certiorari, we affirmed the CAs finding that the Panel of Arbitrators who, under R.A. No. 7942 of the Philippine Mining Act of 1995, has exclusive and original jurisdiction to hear and decide mining disputes, such as mining areas, mineral agreements, FTAAs or permits and surface owners, occupants and claimholders/concessionaires, is bereft of jurisdiction over the complaint for declaration of nullity of the addendum contract; thus, the Panels' jurisdiction is limited only to those mining disputes which raised question of facts or matters requiring the technical knowledge and experience of mining authorities. We then said: In Pearson v. Intermediate Appellate Court, this Court observed that the trend has been to make the adjudication of mining cases a purely administrative matter. Decisions of the Supreme Court on mining disputes have recognized a distinction between (1) the primary powers granted by pertinent provisions of law to the then Secretary of Agriculture and Natural Resources (and the bureau directors) of an executive or administrative nature, such as granting of license, permits, lease and contracts, or approving, rejecting, reinstating or canceling applications, or deciding conflicting applications, and (2) controversies or disagreements of civil or contractual nature between litigants which are questions of a judicial nature that may be adjudicated only by the courts of justice. This distinction is carried on even in Rep. Act No. 7942.125[28]

In Gonzales, petitioner Gonzales filed a complaint before the Panel of Arbitrators, Region II, Mines and Geosciences Bureau, of the Department of Environment and Natural Resources (DENR) against respondents Climax- Mining Ltd, Climax-Arimco and Australasian Philippines Mining Inc, seeking the declaration of nullity or termination of the addendum contract and the other contracts emanating from it on the grounds of fraud and oppression. The Panel dismissed the complaint for lack of jurisdiction. However, the Panel, upon petitioner's motion for reconsideration, ruled that it had jurisdiction over the dispute maintaining that it was a mining dispute, since the subject complaint arose from a contract between the parties which We found that since the complaint filed before the DENR Panel involved the exploration and exploitation of minerals over the of Arbitrators charged respondents with disregarding and ignoring the disputed area. Respondents assailed the order of the Panel of Arbitrators via a petition for certiorari before the CA. The CA granted the petition and declared that the Panel of Arbitrators did not have jurisdiction over the complaint, since its jurisdiction was limited to the resolution of mining disputes, such as those which raised a question of fact or matter requiring the technical knowledge and experience of

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addendum contract, and acting in a fraudulent and oppressive manner against petitioner, the complaint filed before the Panel was not a dispute involving rights to mining areas, or was it a dispute involving claimholders or concessionaires, but essentially judicial issues. We then said that the Panel of Arbitrators did not have jurisdiction over such issue, since it does not involve the application of technical knowledge and expertise relating to mining. It is in this context that we said that: Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the parties as to some provisions of the contract between them, which needs the interpretation and the application of that particular knowledge and expertise possessed by members of that Panel. It is not proper when one of the parties repudiates the existence or validity of such contract or agreement on the ground of fraud or oppression as in this case. The validity of the contract cannot be subject of arbitration proceedings. Allegations of fraud and duress in the execution of a contract are matters within the jurisdiction of the ordinary courts of law. These questions are legal in nature and require the application and interpretation of laws and jurisprudence which is necessarily a judicial function.126[29] In fact, We even clarified in our resolution on Gonzales motion for reconsideration that when we declared that the case should not be brought for arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators, which was for the nullification of the main contract on the ground of fraud, as it had already been determined that the case should have been brought before the regular courts involving as it did judicial issues. We made such clarification in our resolution of the motion for reconsideration after ruling that the parties in that case can proceed to arbitration under the Arbitration Law, as provided under the Arbitration Clause in their Addendum Contract.

WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2006 and the Resolution dated November 13, 2006 of the Court of Appeals in CA-G.R. SP No. 50304 are REVERSED and SET ASIDE. The parties are hereby ORDERED to SUBMIT themselves to the arbitration of their dispute, pursuant to their July 11, 1996 agreement. SO ORDERED.

SECOND DIVISION [G.R. No. 161957. February 28, 2005] JORGE GONZALES and PANEL OF ARBITRATORS, petitioners, vs. CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., and AUSTRALASIAN PHILIPPINES MINING INC., respondents. DECISION TINGA, J.: Petitioner Jorge Gonzales, as claimowner of mineral deposits located within the Addendum Area of Influence in Didipio, in the provinces of Quirino and Nueva Vizcaya, entered into a co-production, joint venture and/or production-sharing letter-agreement designated as the May 14, 1987 Letter of Intent with Geophilippines, Inc, and Inmex Ltd. Under the agreement, petitioner, as claimowner, granted to Geophilippines, Inc. and Inmex Ltd. collectively, the exclusive right to explore and survey the mining claims for a period of thirty-six (36) months within which the latter could decide to take an operating agreement on the mining claims and/or develop, operate, mine and otherwise exploit the mining claims and market any and all minerals that may be derived therefrom. On 28 February 1989, the parties to the May 14, 1987 Letter of Intent renegotiated the same into the February 28, 1989 Agreement whereby the exploration of the mining claims was extended for another period of three years. On 9 March 1991, petitioner Gonzales, Arimco Mining Corporation, Geophilippines Inc., Inmex Ltd., and Aumex Philippines, Inc. signed a document designated as the Addendum to the May 14, 1987 Letter of Intent and February 28, 1989 Agreement with Express Adhesion Thereto (hereafter, the Addendum Contract).[1] Under the Addendum Contract, Arimco Mining Corporation would apply to the Government of the Philippines for permission to mine the claims as the Governments contractor under a Financial and Technical Assistance

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Agreement (FTAA). On 20 June 1994, Arimco Mining Corporation obtained the FTAA[2] and carried out work under the FTAA. Respondents executed the Operating and Financial Accommodation Contract[3] (between Climax-Arimco Mining Corporation and Climax Mining Ltd., as first parties, and Australasian Philippines Mining Inc., as second party) dated 23 December 1996 and Assignment, Accession Agreement[4] (between Climax-Arimco Mining Corporation and Australasian Philippines Mining Inc.) dated 3 December 1996. Respondent Climax Mining Corporation (Climax) and respondent Australasian Philippines Mining Inc. (APMI) entered into a Memorandum of Agreement[5] dated 1 June 1991 whereby the former transferred its FTAA to the latter. On 8 November 1999, petitioner Gonzales filed before the Panel of Arbitrators, Region II, Mines and Geosciences Bureau of the Department of Environment and Natural Resources, against respondents Climax-Arimco Mining Corporation (Climax-Arimco), Climax, and APMI,[6] a Complaint[7] seeking the declaration of nullity or termination of the Addendum Contract, the FTAA, the Operating and Financial Accommodation Contract, the Assignment, Accession Agreement, and the Memorandum of Agreement. Petitioner Gonzales prayed for an unspecified amount of actual and exemplary damages plus attorneys fees and for the issuance of a temporary restraining order and/or writ of preliminary injunction to restrain or enjoin respondents from further implementing the questioned agreements. He sought said releifs on the grounds of FRAUD, OPPRESSION and/or VIOLATION of Section 2, Article XII of the CONSTITUTION perpetrated by these foreign RESPONDENTS, conspiring and confederating with one another and with each other.[8] On 21 February 2001, the Panel of Arbitrators dismissed the Complaint for lack of jurisdiction. Petitioner moved for reconsideration and this was granted on 18 October 2001, the Panel believing that the case involved a dispute involving rights to mining areas and a dispute involving surface owners, occupants and claim owners/concessionaires. According to the Panel, although the issue raised in the Complaint appeared to be purely civil in nature and should be within the jurisdiction of the regular courts, a ruling on the validity of the assailed contracts would result to the grant or denial of mining rights over the properties; therefore, the question on the validity of the contract amounts to a mining conflict or dispute. Hence, the Panel granted the Motion for Reconsideration with regard to the issues of nullity, termination, withdrawal or

damages, but with regard to the constitutionality of the Addendum Agreement and FTAA, it held that it had no jurisdiction.[9] Respondents filed their motion for reconsideration but this was denied on 25 June 2002. The Panel of Arbitrators maintained that there was a mining dispute between the parties since the subject matter of the Complaint arose from contracts between the parties which involve the exploration and exploitation of minerals over the disputed area.[10] Respondents assailed the orders of the Panel of Arbitrators via a petition for certiorari before the Court of Appeals. On 30 July 2003, the Court of Appeals granted the petition, declaring that the Panel of Arbitrators did not have jurisdiction over the complaint filed by petitioner.[11] The jurisdiction of the Panel of Arbitrators, said the Court of Appeals, is limited only to the resolution of mining disputes, defined as those which raise a question of fact or matter requiring the technical knowledge and experience of mining authorities. It was found that the complaint alleged fraud, oppression and violation of the Constitution, which called for the interpretation and application of laws, and did not involve any mining dispute. The Court of Appeals also observed that there were no averments relating to particular acts constituting fraud and oppression. It added that since the Addendum Contract was executed in 1991, the action to annul it should have been brought not later than 1995, as the prescriptive period for an action for annulment is four years from the time of the discovery of the fraud.[12] When petitioner filed his complaint before the Panel in 1999, his action had already prescribed. Also, the Court of Appeals noted that fraud and duress only make a contract voidable,[13] not inexistent, hence the contract remains valid until annulled. The Court of Appeals was of the opinion that the petition should have been settled through arbitration under Republic Act No. 876 (The Arbitration Law) as stated in Clause 19.1 of the Addendum Contract. The Court of Appeals therefore declared as invalid the orders dated 18 October 2001 and 25 June 2002 issued by the Panel of Arbitrators. On 28 January 2004, the Court of Appeals denied petitioners motion for reconsideration for lack of merit.[14] Petitioner filed on 22 March 2004 this Petition for Review on Certiorari Under Rule 45 assailing the decision and resolution of the Court of Appeals. Petitioner raises the following issues: A. PROCEDURAL GROUND THE HONORABLE COURT OF APPEALS SHOULD HAVE SUMMARILY DISMISSED RESPONDENTS PETITION A QUO FOR FAILURE TO COMPLY WITH PROCEDURAL REQUIREMENTS. i.

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WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED JURISPRUDENCE WHEN IT DID NOT DISMISS THE PETITION A QUO DESPITE RESPONDENTS FAILURE TO COMPLY WITH THE RULES ON DISCLOSUR E IN THE VERIFICATION AND CERTIFICATION PORTION OF THEIR PETITION A QUO. ii. WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED JURISPRUDENCE WHEN IT DID NOT DISMISS THE PETITION A QUO FILED BY RESPONDENT CLIMAX DESPITE THE LACK OF THE REQUISITE AUTHORITY TO FILE THE PETITION A QUO. B. SUBSTANTIVE GROUND THE HONORABLE COURT OF APPEALS ERRED IN GRANTING THE PETITION A QUO FILED BY RESPONDENTS AND IN DENYING MOTION FOR RECONSIDERATION FILED BY PETITIONER FOR UTTER LACK OF BASIS IN FACT AND IN LAW. i. WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT PETITIONER CEDED HIS CLAIMS OVER THE MINERAL DEPOSITS LOCATED WITHIN THE ADDENDUM AREA OF INFLUENCE. ii. WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT THE PANEL OF ARBITRATORS IS BEREFT OF JURISDICTION OVER THE SUBJECT MATTER OF CASE NO. 058. iii. WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT THE COMPLAINT FILED BY THE PETITIONER FAILED TO ALLEGE ULTIMATE FACTS OR PARTICULARS OF FRAUD. iv. WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT PETITIONER AND RESPONDENTS SHOULD SUBMIT TO ARBITRATION UNDER R.A. 876. v. WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT THE ACTION TO DECLARE THE NULLITY OF THE ADDENDUM CONTRACT, FTAA, OFAC AND AAAA ON THE GROUND OF FRAUD HAS PRESCRIBED.

The issues for resolution in this petition for review are: (a) Whether there was forum-shopping on the part of respondents for their failure to disclose to this Court their filing of a Petition to Compel for Arbitration before the Regional Trial Court of Makati City, Branch 148, which is currently pending. (b) Whether counsel for respondent Climax had authority to file the petition for certiorari before the Court of Appeals considering that the signor of the petition for certioraris Verification and Certification of Non-forum Shopping was not authorized to sign the same in behalf of respondent Climax. (c) Whether the complaint filed by petitioner raises a mining dispute over which the Panel of Arbitrators has jurisdiction, or a judicial question which should properly be brought before the regular courts. (d) Whether the dispute between the parties should be brought for arbitration under Rep. Act No. 876. Let us deal first with procedural matters. Petitioner claims that respondents are guilty of forum-shopping for failing to disclose before this Court that they had filed a Petition to Compel for Arbitration before the RTC of Makati City. However, it cannot be determined from petitioners mere allegations in the Petition that the Petition to Compel for Arbitration instituted by respondent Climax-Arimco, involves related causes of action and the grant of the same or substantially the same reliefs as those involved in the instant case. Petitioner did not attach copies of the Petition to Compel for Arbitration or any order or resolution of the RTC of Makati City related to that case. Furthermore, it can be gleaned from the nature of the two actions that the issues in the case before the RTC of Makati City and in the petition for certiorari before the Court of Appeals are different. A petition for certiorari raises the issue of whether or not there was grave abuse of discretion, while the Petition to Compel for Arbitration seeks the implementation of the arbitration clause in the agreement between the parties. Petitioner next alleges that there was no authority granted by respondent Climax to the law firm of Sycip Salazar Hernandez & Gatmaitan to file the petition before the Court of Appeals. There is allegedly no Secretarys Certificate from respondent Climax attached to the petition. The Verification and Certification only contains a statement made by one Marianne M. Manzanas that she is also the authorized representative of [respondent Climax] without presenting further proof of such authority. Hence, it is argued that as to respondent Climax, the petition filed before the Court of Appeals is an

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unauthorized act and the assailed orders of the Panel of Arbitrators have become final. Under Section 3, Rule 46 of the Rules of Court, a petitioner is required to submit, together with the petition, a sworn certification of nonforum shopping, and failure to comply with this requirement is sufficient ground for dismissal of the petition. The requirement that petitioner should sign the certificate of non-forum shopping applies even to corporations, the Rules of Court making no distinction between natural and juridical persons. The signatory in the case of the corporation should be a duly authorized director or officer of the corporation who has knowledge of the matter being certified. [15] If, as in this case, the petitioner is a corporation, a board resolution authorizing a corporate officer to execute the certification against forum-shopping is necessary. A certification not signed by a duly authorized person renders the petition subject to dismissal.[16] On this point, we have to agree with petitioner. There appears to be no subsequent compliance with the requirement to attach a board resolution authorizing the signor Marianne M. Manzanas to file the petition in behalf of respondent Climax. Respondent also failed to refute this in its Comment.[17] However, this latter issue becomes irrelevant in the light of our decision to deny this petition for review for lack of jurisdiction by the Panel of Arbitrators over the complaint filed by petitioner, as will be discussed below. We now come to the meat of the case which revolves mainly around the question of jurisdiction by the Panel of Arbitrators: Does the Panel of Arbitrators have jurisdiction over the complaint for declaration of nullity and/or termination of the subject contracts on the ground of fraud, oppression and violation of the Constitution? This issue may be distilled into the more basic question of whether the Complaint raises a mining dispute or a judicial question. A judicial question is a question that is proper for determination by the courts, as opposed to a moot question or one properly decided by the executive or legislative branch.[18] A judicial question is raised when the determination of the question involves the exercise of a judicial function; that is, the question involves the determination of what the law is and what the legal rights of the parties are with respect to the matter in controversy.[19] On the other hand, a mining dispute is a dispute involving (a) rights to mining areas, (b) mineral agreements, FTAAs, or permits, and (c) surface owners, occupants and claimholders/concessionaires.[20] Under Republic Act No. 7942 (otherwise known as the Philippine Mining Act of 1995), the Panel of Arbitrators has exclusive and

original jurisdiction to hear and decide these mining disputes.[21] The Court of Appeals, in its questioned decision, correctly stated that the Panels jurisdiction is limited only to those mining disputes which raise questions of fact or matters requiring the application of technological knowledge and experience.[22] In Pearson v. Intermediate Appellate Court,[23] this Court observed that the trend has been to make the adjudication of mining cases a purely administrative matter.[24] Decisions[25] of the Supreme Court on mining disputes have recognized a distinction between (1) the primary powers granted by pertinent provisions of law to the then Secretary of Agriculture and Natural Resources (and the bureau directors) of an executive or administrative nature, such as granting of license, permits, lease and contracts, or approving, rejecting, reinstating or canceling applications, or deciding conflicting applications, and (2) controversies or disagreements of civil or contractual nature between litigants which are questions of a judicial nature that may be adjudicated only by the courts of justice. This distinction is carried on even in Rep. Act No. 7942. The Complaint charged respondents with disregarding and ignoring the provisions of the Addendum Contract, violating the purpose and spirit of the May 14, 1987 Letter of Intent and February 28, 1989 Agreement, and acting in a fraudulent and oppressive manner against petitioner and practicing fraud and deception against the Government.[26] Petitioner alleged in his Complaint that under the original agreements (the May 14, 1987 Letter of Intent and February 28, 1989 Agreement) respondent Climax-Arimco had committed to complete the Bankable Feasibility Study by 28 February 1992, but the same was not accomplished. Instead, respondent Climax-Arimco, through false and insidious representations and machinations by alleging technical and financial capacity, induced petitioner to enter into the Addendum Contract and the FTAA in order to repeatedly extend the option period within which to conduct the feasibility study. In essence, petitioner alleges that respondents, conspiring and confederating with one another, misrepresented under the Addendum Contract and FTAA that respondent Climax-Arimco possessed financial and technical capacity to put the project into commercial production, when in truth it had no such qualification whatsoever to do so. By so doing, respondents have allegedly caused damage not only to petitioner but also to the Republic of the Philippines.[27] It is apparent that the Panel of Arbitrators is bereft of jurisdiction over the Complaint filed by petitioner. The basic issue in petitioners Complaint is the presence of fraud or misrepresentation allegedly attendant to the execution of the Addendum Contract and the other

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contracts emanating from it, such that the contracts are rendered invalid and not binding upon the parties. It avers that petitioner was misled by respondents into agreeing to the Addendum Contract. This constitutes fraud which vitiated petitioners consent, and under Article 1390 of the Civil Code, is one of the grounds for the annulment of a voidable contract. Voidable or annullable contracts, before they are set aside, are existent, valid, and binding, and are effective and obligatory between the parties.[28] They can be ratified.[29] Petitioner insists that the Complaint is actually one for the declaration of nullity of void contracts. He argues that respondents, by their lack of financial and technical competence to carry out the mining project, do not qualify to enter into a co-production, joint venture or production sharing agreement with the Government, in circumvention of and in patent violation of the spirit and purpose of the Constitution, particularly Section 2, Article XII thereof. Petitioner relies on the Civil Code for support:[30] Art. 1409. The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; .... (7) Those expressly prohibited or declared void by law. .... Petitioner asserts that for circumventing and being in patent violation of the Constitution, the Addendum Contract, the FTAA and the other contracts are void contracts. As such, they do not produce any effect and cannot be ratified. However, whether the case involves void or voidable contracts is still a judicial question. It may, in some instances, involve questions of fact especially with regard to the determination of the circumstances of the execution of the contracts. But the resolution of the validity or voidness of the contracts remains a legal or judicial question as it requires the exercise of judicial function. It requires the ascertainment of what laws are applicable to the dispute, the interpretation and application of those laws, and the rendering of a judgment based thereon. Clearly, the dispute is not a mining conflict. It is essentially judicial. The complaint was not merely for the determination of rights under the mining contracts since the very validity of those contracts is put in issue. The Complaint is not about a dispute involving rights to mining areas, nor is it a dispute involving claimholders or concessionaires. The main question raised was the validity of the Addendum Contract, the FTAA and the subsequent contracts. The question as to the rights of

petitioner or respondents to the mining area pursuant to these contracts, as well as the question of whether or not petitioner had ceded his mining claims in favor of respondents by way of execution of the questioned contracts, is merely corollary to the main issue, and may not be resolved without first determining the main issue. The Complaint is also not what is contemplated by Rep. Act No. 7942 when it says the dispute should involve FTAAs. The Complaint is not exclusively within the jurisdiction of the Panel of Arbitrators just because, or for as long as, the dispute involves an FTAA. The Complaint raised the issue of the constitutionality of the FTAA, which is definitely a judicial question. The question of constitutionality is exclusively within the jurisdiction of the courts to resolve as this would clearly involve the exercise of judicial power. The Panel of Arbitrators does not have jurisdiction over such an issue since it does not involve the application of technical knowledge and expertise relating to mining. This the Panel of Arbitrators has even conceded in its Orders dated 18 October 2001 and 25 June 2002. At this juncture, it is worthy of note that in a case,[31] which was resolved only on 1 December 2004, this Court upheld the validity of the FTAA entered into by the Republic of the Philippines and WMC (Philippines), Inc. and constitutionality of Rep. Act No. 7942 and DENR Administrative Order 96-40.[32] In fact, the Court took the case on an original petition, recognizing the exceptional character of the situation and the paramount public interest involved, as well as the necessity for a ruling to put an end to the uncertainties plaguing the mining industry and the affected communities as a result of doubts case upon the constitutionality and validity of the Mining Act, the subject FTAA and future FTAAs, and the need to avert a multiplicity of suits.[33] Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the parties as to some provisions of the contract between them, which needs the interpretation and the application of that particular knowledge and expertise possessed by members of that Panel. It is not proper when one of the parties repudiates the existence or validity of such contract or agreement on the ground of fraud or oppression as in this case. The validity of the contract cannot be subject of arbitration proceedings. Allegations of fraud and duress in the execution of a contract are matters within the jurisdiction of the ordinary courts of law. These questions are legal in nature and require the application and interpretation of laws and jurisprudence which is necessarily a judicial function. Petitioner also disagrees with the Court of Appeals ruling that the case should be brought for arbitration under Rep. Act 876, pursuant to the arbitration clause in the Addendum Contract which states that

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[a]ll disputes arising out of or in connection with the Contract, which cannot be settled amicably among the Parties, shall finally be settled under R.A. 876. He points out that respondents Climax and APMI are not parties to the Addendum Contract and are thus not bound by the arbitration clause in said contract. We agree that the case should not be brought under the ambit of the Arbitration Law, but for a different reason. The question of validity of the contract containing the agreement to submit to arbitration will affect the applicability of the arbitration clause itself. A party cannot rely on the contract and claim rights or obligations under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent positions. As previously discussed, the complaint should have been filed before the regular courts as it involved issues which are judicial in nature. WHEREFORE, in view of the foregoing, the Petition for Review on Certiorari Under Rule 45 is DENIED. The Orders dated 18 October 2001 and 25 June 2002 of the Panel of Arbitrators are SET ASIDE. Costs against petitioner Jorge Gonzales. SO ORDERED. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 169332 February 11, 2008 ABS-CBN BROADCASTING CORPORATION, petitioner, vs. WORLD INTERACTIVE NETWORK SYSTEMS (WINS) JAPAN CO., LTD., respondent. DECISION CORONA, J.: This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside the February 16, 2005 decision1 and August 16, 2005 resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 81940. On September 27, 1999, petitioner ABS-CBN Broadcasting Corporation entered into a licensing agreement with respondent World Interactive Network Systems (WINS) Japan Co., Ltd., a foreign corporation licensed under the laws of Japan. Under the agreement, respondent was granted the exclusive license to distribute and sublicense the distribution of the television service known as "The Filipino Channel" (TFC) in Japan. By virtue thereof, petitioner undertook to transmit the TFC programming signals to respondent

which the latter received through its decoders and distributed to its subscribers. A dispute arose between the parties when petitioner accused respondent of inserting nine episodes of WINS WEEKLY, a weekly 35minute community news program for Filipinos in Japan, into the TFC programming from March to May 2002.3 Petitioner claimed that these were "unauthorized insertions" constituting a material breach of their agreement. Consequently, on May 9, 2002,4 petitioner notified respondent of its intention to terminate the agreement effective June 10, 2002. Thereafter, respondent filed an arbitration suit pursuant to the arbitration clause of its agreement with petitioner. It contended that the airing of WINS WEEKLY was made with petitioner's prior approval. It also alleged that petitioner only threatened to terminate their agreement because it wanted to renegotiate the terms thereof to allow it to demand higher fees. Respondent also prayed for damages for petitioner's alleged grant of an exclusive distribution license to another entity, NHK (Japan Broadcasting Corporation).5 The parties appointed Professor Alfredo F. Tadiar to act as sole arbitrator. They stipulated on the following issues in their terms of reference (TOR)6: 1. Was the broadcast of WINS WEEKLY by the claimant duly authorized by the respondent [herein petitioner]? 2. Did such broadcast constitute a material breach of the agreement that is a ground for termination of the agreement in accordance with Section 13 (a) thereof? 3. If so, was the breach seasonably cured under the same contractual provision of Section 13 (a)? 4. Which party is entitled to the payment of damages they claim and to the other reliefs prayed for? xxx xxx xxx The arbitrator found in favor of respondent.7 He held that petitioner gave its approval to respondent for the airing of WINS WEEKLY as shown by a series of written exchanges between the parties. He also ruled that, had there really been a material breach of the agreement, petitioner should have terminated the same instead of sending a mere notice to terminate said agreement. The arbitrator found that petitioner threatened to terminate the agreement due to its desire to compel respondent to re-negotiate the terms thereof for higher fees. He further stated that even if respondent committed a breach of the agreement, the same was seasonably cured. He then allowed respondent to recover temperate damages, attorney's fees and onehalf of the amount it paid as arbitrator's fee.

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Petitioner filed in the CA a petition for review under Rule 43 of the Rules of Court or, in the alternative, a petition for certiorari under Rule 65 of the same Rules, with application for temporary restraining order and writ of preliminary injunction. It was docketed as CA-G.R. SP No. 81940. It alleged serious errors of fact and law and/or grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the arbitrator. Respondent, on the other hand, filed a petition for confirmation of arbitral award before the Regional Trial Court (RTC) of Quezon City, Branch 93, docketed as Civil Case No. Q-04-51822. Consequently, petitioner filed a supplemental petition in the CA seeking to enjoin the RTC of Quezon City from further proceeding with the hearing of respondent's petition for confirmation of arbitral award. After the petition was admitted by the appellate court, the RTC of Quezon City issued an order holding in abeyance any further action on respondent's petition as the assailed decision of the arbitrator had already become the subject of an appeal in the CA. Respondent filed a motion for reconsideration but no resolution has been issued by the lower court to date.8 On February 16, 2005, the CA rendered the assailed decision dismissing ABS-CBNs petition for lack of jurisdiction. It stated that as the TOR itself provided that the arbitrator's decision shall be final and unappealable and that no motion for reconsideration shall be filed, then the petition for review must fail. It ruled that it is the RTC which has jurisdiction over questions relating to arbitration. It held that the only instance it can exercise jurisdiction over an arbitral award is an appeal from the trial court's decision confirming, vacating or modifying the arbitral award. It further stated that a petition for certiorari under Rule 65 of the Rules of Court is proper in arbitration cases only if the courts refuse or neglect to inquire into the facts of an arbitrator's award. The dispositive portion of the CA decision read: WHEREFORE, the instant petition is hereby DISMISSED for lack of jurisdiction. The application for a writ of injunction and temporary restraining order is likewise DENIED. The Regional Trial Court of Quezon City Branch 93 is directed to proceed with the trial for the Petition for Confirmation of Arbitral Award. SO ORDERED. Petitioner moved for reconsideration. The same was denied. Hence, this petition. Petitioner contends that the CA, in effect, ruled that: (a) it should have first filed a petition to vacate the award in the RTC and only in case of denial could it elevate the matter to the CA via a petition for

review under Rule 43 and (b) the assailed decision implied that an aggrieved party to an arbitral award does not have the option of directly filing a petition for review under Rule 43 or a petition for certiorari under Rule 65 with the CA even if the issues raised pertain to errors of fact and law or grave abuse of discretion, as the case may be, and not dependent upon such grounds as enumerated under Section 24 (petition to vacate an arbitral award) of RA 876 (the Arbitration Law). Petitioner alleged serious error on the part of the CA. The issue before us is whether or not an aggrieved party in a voluntary arbitration dispute may avail of, directly in the CA, a petition for review under Rule 43 or a petition for certiorari under Rule 65 of the Rules of Court, instead of filing a petition to vacate the award in the RTC when the grounds invoked to overturn the arbitrators decision are other than those for a petition to vacate an arbitral award enumerated under RA 876. RA 876 itself mandates that it is the Court of First Instance, now the RTC, which has jurisdiction over questions relating to arbitration,9 such as a petition to vacate an arbitral award. Section 24 of RA 876 provides for the specific grounds for a petition to vacate an award made by an arbitrator: Sec. 24. Grounds for vacating award. - In any one of the following cases, the court must make an order vacating the award upon the petition of any party to the controversy when such party proves affirmatively that in the arbitration proceedings: (a) The award was procured by corruption, fraud, or other undue means; or (b) That there was evident partiality or corruption in the arbitrators or any of them; or (c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; that one or more of the arbitrators was disqualified to act as such under section nine hereof, and willfully refrained from disclosing such disqualifications or of any other misbehavior by which the rights of any party have been materially prejudiced; or (d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject matter submitted to them was not made.

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Based on the foregoing provisions, the law itself clearly provides that the RTC must issue an order vacating an arbitral award only "in any one of the . . . cases" enumerated therein. Under the legal maxim in statutory construction expressio unius est exclusio alterius, the explicit mention of one thing in a statute means the elimination of others not specifically mentioned. As RA 876 did not expressly provide for errors of fact and/or law and grave abuse of discretion (proper grounds for a petition for review under Rule 43 and a petition for certiorari under Rule 65, respectively) as grounds for maintaining a petition to vacate an arbitral award in the RTC, it necessarily follows that a party may not avail of the latter remedy on the grounds of errors of fact and/or law or grave abuse of discretion to overturn an arbitral award. Adamson v. Court of Appeals10 gave ample warning that a petition to vacate filed in the RTC which is not based on the grounds enumerated in Section 24 of RA 876 should be dismissed. In that case, the trial court vacated the arbitral award seemingly based on grounds included in Section 24 of RA 876 but a closer reading thereof revealed otherwise. On appeal, the CA reversed the decision of the trial court and affirmed the arbitral award. In affirming the CA, we held: The Court of Appeals, in reversing the trial court's decision held that the nullification of the decision of the Arbitration Committee was not based on the grounds provided by the Arbitration Law and that xxx private respondents (petitioners herein) have failed to substantiate with any evidence their claim of partiality. Significantly, even as respondent judge ruled against the arbitrator's award, he could not find fault with their impartiality and integrity. Evidently, the nullification of the award rendered at the case at bar was not made on the basis of any of the grounds provided by law. xxx xxx xxx It is clear, therefore, that the award was vacated not because of evident partiality of the arbitrators but because the latter interpreted the contract in a way which was not favorable to herein petitioners and because it considered that herein private respondents, by submitting the controversy to arbitration, was seeking to renege on its obligations under the contract. xxx xxx xxx It is clear then that the Court of Appeals reversed the trial court not because the latter reviewed the arbitration award involved herein, but because the respondent appellate

court found that the trial court had no legal basis for vacating the award. (Emphasis supplied). In cases not falling under any of the aforementioned grounds to vacate an award, the Court has already made several pronouncements that a petition for review under Rule 43 or a petition for certiorari under Rule 65 may be availed of in the CA. Which one would depend on the grounds relied upon by petitioner. In Luzon Development Bank v. Association of Luzon Development Bank Employees,11 the Court held that a voluntary arbitrator is properly classified as a "quasi-judicial instrumentality" and is, thus, within the ambit of Section 9 (3) of the Judiciary Reorganization Act, as amended. Under this section, the Court of Appeals shall exercise: xxx xxx xxx (3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or commissions, including the Securities and Exchange Commission, the Employees Compensation Commission and the Civil Service Commission, except those falling within the appellate jurisdiction of the Supreme Court in accordance with the Constitution, the Labor Code of the Philippines under Presidential Decree No. 442, as amended, the provisions of this Act and of subparagraph (1) of the third paragraph and subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948. (Emphasis supplied) As such, decisions handed down by voluntary arbitrators fall within the exclusive appellate jurisdiction of the CA. This decision was taken into consideration in approving Section 1 of Rule 43 of the Rules of Court.12 Thus: SECTION 1. Scope. - This Rule shall apply to appeals from judgments or final orders of the Court of Tax Appeals and from awards, judgments, final orders or resolutions of or authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions. Among these agencies are the Civil Service Commission, Central Board of Assessment Appeals, Securities and Exchange Commission, Office of the President, Land Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks and Technology Transfer, National Electrification Administration, Energy Regulatory Board, National Telecommunications Commission, Department of Agrarian Reform under Republic Act Number 6657, Government Service Insurance System, Employees Compensation Commission, Agricultural Inventions

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Board, Insurance Commission, Philippine Atomic Energy Commission, Board of Investments, Construction Industry Arbitration Commission, and voluntary arbitrators authorized by law. (Emphasis supplied) This rule was cited in Sevilla Trading Company v. Semana,13 Manila Midtown Hotel v. Borromeo,14 and Nippon Paint Employees UnionOlalia v. Court of Appeals.15 These cases held that the proper remedy from the adverse decision of a voluntary arbitrator, if errors of fact and/or law are raised, is a petition for review under Rule 43 of the Rules of Court. Thus, petitioner's contention that it may avail of a petition for review under Rule 43 under the circumstances of this case is correct. As to petitioner's arguments that a petition for certiorari under Rule 65 may also be resorted to, we hold the same to be in accordance with the Constitution and jurisprudence. Section 1 of Article VIII of the 1987 Constitution provides that: SECTION 1. The judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law. Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. (Emphasis supplied) As may be gleaned from the above stated provision, it is well within the power and jurisdiction of the Court to inquire whether any instrumentality of the Government, such as a voluntary arbitrator, has gravely abused its discretion in the exercise of its functions and prerogatives. Any agreement stipulating that "the decision of the arbitrator shall be final and unappealable" and "that no further judicial recourse if either party disagrees with the whole or any part of the arbitrator's award may be availed of" cannot be held to preclude in proper cases the power of judicial review which is inherent in courts.16 We will not hesitate to review a voluntary arbitrator's award where there is a showing of grave abuse of authority or discretion and such is properly raised in a petition for certiorari 17 and there is no appeal, nor any plain, speedy remedy in the course of law.18 Significantly, Insular Savings Bank v. Far East Bank and Trust Company19 definitively outlined several judicial remedies an aggrieved party to an arbitral award may undertake: (1) a petition in the proper RTC to issue an order to vacate the award on the grounds provided for in Section 24 of RA 876;

(2) a petition for review in the CA under Rule 43 of the Rules of Court on questions of fact, of law, or mixed questions of fact and law; and (3) a petition for certiorari under Rule 65 of the Rules of Court should the arbitrator have acted without or in excess of his jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction. Nevertheless, although petitioners position on the judicial remedies available to it was correct, we sustain the dismissal of its petition by the CA. The remedy petitioner availed of, entitled "alternative petition for review under Rule 43 or petition for certiorari under Rule 65 ," was wrong. Time and again, we have ruled that the remedies of appeal and certiorari are mutually exclusive and not alternative or successive.20 Proper issues that may be raised in a petition for review under Rule 43 pertain to errors of fact, law or mixed questions of fact and law. 21 While a petition for certiorari under Rule 65 should only limit itself to errors of jurisdiction, that is, grave abuse of discretion amounting to a lack or excess of jurisdiction.22 Moreover, it cannot be availed of where appeal is the proper remedy or as a substitute for a lapsed appeal.23 In the case at bar, the questions raised by petitioner in its alternative petition before the CA were the following: A. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT THE BROADCAST OF "WINS WEEKLY" WAS DULY AUTHORIZED BY ABS-CBN. B. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT THE UNAUTHORIZED BROADCAST DID NOT CONSTITUTE MATERIAL BREACH OF THE AGREEMENT. C. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT WINS SEASONABLY CURED THE BREACH. D. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT TEMPERATE DAMAGES IN THE AMOUNT OF P1,166,955.00 MAY BE AWARDED TO WINS. E. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN AWARDING ATTORNEY'S FEES IN THE UNREASONABLE AMOUNT AND UNCONSCIONABLE AMOUNT OF P850,000.00.

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F. THE ERROR COMMITTED BY THE SOLE ARBITRATOR IS NOT A SIMPLE ERROR OF JUDGMENT OR ABUSE OF DISCRETION. IT IS GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION. A careful reading of the assigned errors reveals that the real issues calling for the CA's resolution were less the alleged grave abuse of discretion exercised by the arbitrator and more about the arbitrators appreciation of the issues and evidence presented by the parties. Therefore, the issues clearly fall under the classification of errors of fact and law questions which may be passed upon by the CA via a petition for review under Rule 43. Petitioner cleverly crafted its assignment of errors in such a way as to straddle both judicial remedies, that is, by alleging serious errors of fact and law (in which case a petition for review under Rule 43 would be proper) and grave abuse of discretion (because of which a petition for certiorari under Rule 65 would be permissible). It must be emphasized that every lawyer should be familiar with the distinctions between the two remedies for it is not the duty of the courts to determine under which rule the petition should fall. 24 Petitioner's ploy was fatal to its cause. An appeal taken either to this Court or the CA by the wrong or inappropriate mode shall be dismissed.25 Thus, the alternative petition filed in the CA, being an inappropriate mode of appeal, should have been dismissed outright by the CA. WHEREFORE, the petition is hereby DENIED. The February 16, 2005 decision and August 16, 2005 resolution of the Court of Appeals in CA-G.R. SP No. 81940 directing the Regional Trial Court of Quezon City, Branch 93 to proceed with the trial of the petition for confirmation of arbitral award is AFFIRMED. Costs against petitioner. SO ORDERED.

SECOND DIVISION [G.R. No. 146717. November 22, 2004] TRANSFIELD PHILIPPINES, INC., petitioner, vs. LUZON HYDRO CORPORATION, AUSTRALIA and NEW ZEALAND BANKING GROUP LIMITED and SECURITY BANK CORPORATION, respondents. DECISION TINGA, J.: Subject of this case is the letter of credit which has evolved as the ubiquitous and most important device in international trade. A creation of commerce and businessmen, the letter of credit is also

unique in the number of parties involved and its supranational character. Petitioner has appealed from the Decision[1] of the Court of Appeals in CA-G.R. SP No. 61901 entitled Transfield Philippines, Inc. v. Hon. Oscar Pimentel, et al., promulgated on 31 January 2001.[2] On 26 March 1997, petitioner and respondent Luzon Hydro Corporation (hereinafter, LHC) entered into a Turnkey Contract[3] whereby petitioner, as Turnkey Contractor, undertook to construct, on a turnkey basis, a seventy (70)-Megawatt hydro-electric power station at the Bakun River in the provinces of Benguet and Ilocos Sur (hereinafter, the Project). Petitioner was given the sole responsibility for the design, construction, commissioning, testing and completion of the Project.[4] The Turnkey Contract provides that: (1) the target completion date of the Project shall be on 1 June 2000, or such later date as may be agreed upon between petitioner and respondent LHC or otherwise determined in accordance with the Turnkey Contract; and (2) petitioner is entitled to claim extensions of time (EOT) for reasons enumerated in the Turnkey Contract, among which are variations, force majeure, and delays caused by LHC itself.[5] Further, in case of dispute, the parties are bound to settle their differences through mediation, conciliation and such other means enumerated under Clause 20.3 of the Turnkey Contract.[6] To secure performance of petitioners obligation on or before the target completion date, or such time for completion as may be determined by the parties agreement, petiti oner opened in favor of LHC two (2) standby letters of credit both dated 20 March 2000 (hereinafter referred to as the Securities), to wit: Standby Letter of Credit No. E001126/8400 with the local branch of respondent Australia and New Zealand Banking Group Limited (ANZ Bank)[7] and Standby Letter of Credit No. IBDIDSB-00/4 with respondent Security Bank Corporation (SBC)[8] each in the amount of US$8,988,907.00.[9] In the course of the construction of the project, petitioner sought various EOT to complete the Project. The extensions were requested allegedly due to several factors which prevented the completion of the Project on target date, such as force majeure occasioned by typhoon Zeb, barricades and demonstrations. LHC denied the requests, however. This gave rise to a series of legal actions between the parties which culminated in the instant petition. The first of the actions was a Request for Arbitration which LHC filed before the Construction Industry Arbitration Commission (CIAC) on 1 June 1999.[10] This was followed by another Request for Arbitration,

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this time filed by petitioner before the International Chamber of Commerce (ICC)[11] on 3 November 2000. In both arbitration proceedings, the common issues presented were: [1) whether typhoon Zeb and any of its associated events constituted force majeure to justify the extension of time sought by petitioner; and [2) whether LHC had the right to terminate the Turnkey Contract for failure of petitioner to complete the Project on target date. Meanwhile, foreseeing that LHC would call on the Securities pursuant to the pertinent provisions of the Turnkey Contract,[12] petitionerin two separate letters[13] both dated 10 August 2000advised respondent banks of the arbitration proceedings already pending before the CIAC and ICC in connection with its alleged default in the performance of its obligations. Asserting that LHC had no right to call on the Securities until the resolution of disputes before the arbitral tribunals, petitioner warned respondent banks that any transfer, release, or disposition of the Securities in favor of LHC or any person claiming under LHC would constrain it to hold respondent banks liable for liquidated damages. As petitioner had anticipated, on 27 June 2000, LHC sent notice to petitioner that pursuant to Clause 8.2[14] of the Turnkey Contract, it failed to comply with its obligation to complete the Project. Despite the letters of petitioner, however, both banks informed petitioner that they would pay on the Securities if and when LHC calls on them.[15] LHC asserted that additional extension of time would not be warranted; accordingly it declared petitioner in default/delay in the performance of its obligations under the Turnkey Contract and demanded from petitioner the payment of US$75,000.00 for each day of delay beginning 28 June 2000 until actual completion of the Project pursuant to Clause 8.7.1 of the Turnkey Contract. At the same time, LHC served notice that it would call on the securities for the payment of liquidated damages for the delay.[16] On 5 November 2000, petitioner as plaintiff filed a Complaint for Injunction, with prayer for temporary restraining order and writ of preliminary injunction, against herein respondents as defendants before the Regional Trial Court (RTC) of Makati.[17] Petitioner sought to restrain respondent LHC from calling on the Securities and respondent banks from transferring, paying on, or in any manner disposing of the Securities or any renewals or substitutes thereof. The RTC issued a seventy-two (72)-hour temporary restraining order on the same day. The case was docketed as Civil Case No. 00-1312 and raffled to Branch 148 of the RTC of Makati.

After appropriate proceedings, the trial court issued an Order on 9 November 2000, extending the temporary restraining order for a period of seventeen (17) days or until 26 November 2000.[18] The RTC, in its Order[19] dated 24 November 2000, denied petitioners application for a writ of preliminary injunction. It ruled that petitioner had no legal right and suffered no irreparable injury to justify the issuance of the writ. Employing the principle of independent contract in letters of credit, the trial court ruled that LHC should be allowed to draw on the Securities for liquidated damages. It debunked petitioners contention that the principle of independent contract could be invoked only by respondent banks since according to it respondent LHC is the ultimate beneficiary of the Securities. The trial court further ruled that the banks were mere custodians of the funds and as such they were obligated to transfer the same to the beneficiary for as long as the latter could submit the required certification of its claims. Dissatisfied with the trial courts denial of its application for a writ of preliminary injunction, petitioner elevated the case to the Court of Appeals via a Petition for Certiorari under Rule 65, with prayer for the issuance of a temporary restraining order and writ of preliminary injunction.[20] Petitioner submitted to the appellate court that LHCs call on the Securities was premature considering that the issue of its default had not yet been resolved with finality by the CIAC and/or the ICC. It asserted that until the fact of delay could be established, LHC had no right to draw on the Securities for liquidated damages. Refuting petitioners contentions, LHC claimed that petitioner had no right to restrain its call on and use of the Securities as payment for liquidated damages. It averred that the Securities are independent of the main contract between them as shown on the face of the two Standby Letters of Credit which both provide that the banks have no responsibility to investigate the authenticity or accuracy of the certificates or the declarants capacity or entitlement to so certify. In its Resolution dated 28 November 2000, the Court of Appeals issued a temporary restraining order, enjoining LHC from calling on the Securities or any renewals or substitutes thereof and ordering respondent banks to cease and desist from transferring, paying or in any manner disposing of the Securities. However, the appellate court failed to act on the application for preliminary injunction until the temporary restraining order expired on 27 January 2001. Immediately thereafter, representatives of LHC trooped to ANZ Bank and withdrew the total amount of US$4,950,000.00, thereby reducing the balance in ANZ Bank to US$1,852,814.00.

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On 2 February 2001, the appellate court dismissed the petition for certiorari. The appellate court expressed conformity with the trial courts decision that LHC could call on the Securities pursuant to the first principle in credit law that the credit itself is independent of the underlying transaction and that as long as the beneficiary complied with the credit, it was of no moment that he had not complied with the underlying contract. Further, the appellate court held that even assuming that the trial courts denial of petitioners application for a writ of preliminary injunction was erroneous, it constituted only an error of judgment which is not correctible by certiorari, unlike error of jurisdiction. Undaunted, petitioner filed the instant Petition for Review raising the following issues for resolution: WHETHER THE INDEPENDENCE PRINCIPLE ON LETTERS OF CREDIT MAY BE INVOKED BY A BENEFICIARY THEREOF WHERE THE BENEFICIARYS CALL THEREON IS WRONGFUL OR FRAUDULENT. WHETHER LHC HAS THE RIGHT TO CALL AND DRAW ON THE SECURITIES BEFORE THE RESOLUTION OF PETITIONERS AND LHCS DISPUTES BY THE APPROPRIATE TRIBUNAL. WHETHER ANZ BANK AND SECURITY BANK ARE JUSTIFIED IN RELEASING THE AMOUNTS DUE UNDER THE SECURITIES DESPITE BEING NOTIFIED THAT LHCS CALL THEREON IS WRONGFUL. WHETHER OR NOT PETITIONER WILL SUFFER GRAVE AND IRREPARABLE DAMAGE IN THE EVENT THAT: A. LHC IS ALLOWED TO CALL AND DRAW ON, AND ANZ BANK AND SECURITY BANK ARE ALLOWED TO RELEASE, THE REMAINING BALANCE OF THE SECURITIES PRIOR TO THE RESOLUTION OF THE DISPUTES BETWEEN PETITIONER AND LHC. B. LHC DOES NOT RETURN THE AMOUNTS IT HAD WRONGFULLY DRAWN FROM THE SECURITIES.[21] Petitioner contends that the courts below improperly relied on the independence principle on letters of credit when this case falls squarely within the fraud exception rule. Respondent LHC deliberately misrepresented the supposed existence of delay despite its knowledge that the issue was still pending arbitration, petitioner continues. Petitioner asserts that LHC should be ordered to return the proceeds of the Securities pursuant to the principle against unjust enrichment and that, under the premises, injunction was the appropriate remedy obtainable from the competent local courts. On 25 August 2003, petitioner filed a Supplement to the Petition[22] and Supplemental Memorandum,[23] alleging that in the course of

the proceedings in the ICC Arbitration, a number of documentary and testimonial evidence came out through the use of different modes of discovery available in the ICC Arbitration. It contends that after the filing of the petition facts and admissions were discovered which demonstrate that LHC knowingly misrepresented that petitioner had incurred delays notwithstanding its knowledge and admission that delays were excused under the Turnkey Contractto be able to draw against the Securities. Reiterating that fraud constitutes an exception to the independence principle, petitioner urges that this warrants a ruling from this Court that the call on the Securities was wrongful, as well as contrary to law and basic principles of equity. It avers that it would suffer grave irreparable damage if LHC would be allowed to use the proceeds of the Securities and not ordered to return the amounts it had wrongfully drawn thereon. In its Manifestation dated 8 September 2003,[24] LHC contends that the supplemental pleadings filed by petitioner present erroneous and misleading information which would change petitioners theory on appeal. In yet another Manifestation dated 12 April 2004,[25] petitioner alleges that on 18 February 2004, the ICC handed down its Third Partial Award, declaring that LHC wrongfully drew upon the Securities and that petitioner was entitled to the return of the sums wrongfully taken by LHC for liquidated damages. LHC filed a Counter-Manifestation dated 29 June 2004,[26] stating that petitioners Manifestation dated 12 April 2004 enlarges the scope of its Petition for Review of the 31 January 2001 Decision of the Court of Appeals. LHC notes that the Petition for Review essentially dealt only with the issue of whether injunction could issue to restrain the beneficiary of an irrevocable letter of credit from drawing thereon. It adds that petitioner has filed two other proceedings, to wit: (1) ICC Case No. 11264/TE/MW, entitled Transfield Philippines Inc. v. Luzon Hydro Corporation, in which the parties made claims and counterclaims arising from petitioners performance/misperformance of its obligations as contractor for LHC; and (2) Civil Case No. 04-332, entitled Transfield Philippines, Inc. v. Luzon Hydro Corporation before Branch 56 of the RTC of Makati, which is an action to enforce and obtain execution of the ICCs partial award mentioned in petitioners Manifestation of 12 April 2004. In its Comment to petitioners Motion for Leave to File Addendum to Petitioners Memorandum, LHC stresses that the question of whether the funds it drew on the subject letters of credit should be returned is outside the issue in this appeal. At any rate, LHC adds that the action to enforce the ICCs partial award is now fully within the Makati RTCs

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jurisdiction in Civil Case No. 04-332. LHC asserts that petitioner is engaged in forum-shopping by keeping this appeal and at the same time seeking the suit for enforcement of the arbitral award before the Makati court. Respondent SBC in its Memorandum, dated 10 March 2003[27] contends that the Court of Appeals correctly dismissed the petition for certiorari. Invoking the independence principle, SBC argues that it was under no obligation to look into the validity or accuracy of the certification submitted by respondent LHC or into the latters capacity or entitlement to so certify. It adds that the act sought to be enjoined by petitioner was already fait accompli and the present petition would no longer serve any remedial purpose. In a similar fashion, respondent ANZ Bank in its Memorandum dated 13 March 2003[28] posits that its actions could not be regarded as unjustified in view of the prevailing independence principle under which it had no obligation to ascertain the truth of LHCs allegations that petitioner defaulted in its obligations. Moreover, it points out that since the Standby Letter of Credit No. E001126/8400 had been fully drawn, petitioners prayer for preliminary injunction had been rendered moot and academic. At the core of the present controversy is the applicability of the independence principle and fraud exception rule in letters of credit. Thus, a discussion of the nature and use of letters of credit, also referred to simply as credits, would provide a better perspective of the case. The letter of credit evolved as a mercantile specialty, and the only way to understand all its facets is to recognize that it is an entity unto itself. The relationship between the beneficiary and the issuer of a letter of credit is not strictly contractual, because both privity and a meeting of the minds are lacking, yet strict compliance with its terms is an enforceable right. Nor is it a third-party beneficiary contract, because the issuer must honor drafts drawn against a letter regardless of problems subsequently arising in the underlying contract. Since the banks customer cannot draw on the letter, it does not function as an assignment by the customer to the beneficiary. Nor, if properly used, is it a contract of suretyship or guarantee, because it entails a primary liability following a default. Finally, it is not in itself a negotiable instrument, because it is not payable to order or bearer and is generally conditional, yet the draft presented under it is often negotiable.[29] In commercial transactions, a letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable

interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying.[30] The use of credits in commercial transactions serves to reduce the risk of nonpayment of the purchase price under the contract for the sale of goods. However, credits are also used in nonsale settings where they serve to reduce the risk of nonperformance. Generally, credits in the non-sale settings have come to be known as standby credits.[31] There are three significant differences between commercial and standby credits. First, commercial credits involve the payment of money under a contract of sale. Such credits become payable upon the presentation by the seller-beneficiary of documents that show he has taken affirmative steps to comply with the sales agreement. In the standby type, the credit is payable upon certification of a party's nonperformance of the agreement. The documents that accompany the beneficiary's draft tend to show that the applicant has not performed. The beneficiary of a commercial credit must demonstrate by documents that he has performed his contract. The beneficiary of the standby credit must certify that his obligor has not performed the contract.[32] By definition, a letter of credit is a written instrument whereby the writer requests or authorizes the addressee to pay money or deliver goods to a third person and assumes responsibility for payment of debt therefor to the addressee.[33] A letter of credit, however, changes its nature as different transactions occur and if carried through to completion ends up as a binding contract between the issuing and honoring banks without any regard or relation to the underlying contract or disputes between the parties thereto.[34] Since letters of credit have gained general acceptability in international trade transactions, the ICC has published from time to time updates on the Uniform Customs and Practice (UCP) for Documentary Credits to standardize practices in the letter of credit area. The vast majority of letters of credit incorporate the UCP.[35] First published in 1933, the UCP for Documentary Credits has undergone several revisions, the latest of which was in 1993.[36] In Bank of the Philippine Islands v. De Reny Fabric Industries, Inc.,[37] this Court ruled that the observance of the UCP is justified by Article 2 of the Code of Commerce which provides that in the absence of any particular provision in the Code of Commerce, commercial transactions shall be governed by usages and customs generally observed. More recently, in Bank of America, NT & SA v. Court of Appeals,[38] this Court ruled that there being no specific provisions which govern the legal complexities arising from

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transactions involving letters of credit, not only between or among banks themselves but also between banks and the seller or the buyer, as the case may be, the applicability of the UCP is undeniable. Article 3 of the UCP provides that credits, by their nature, are separate transactions from the sales or other contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the credit. Consequently, the undertaking of a bank to pay, accept and pay draft(s) or negotiate and/or fulfill any other obligation under the credit is not subject to claims or defenses by the applicant resulting from his relationships with the issuing bank or the beneficiary. A beneficiary can in no case avail himself of the contractual relationships existing between the banks or between the applicant and the issuing bank. Thus, the engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the required documents are presented to it. The so-called independence principle assures the seller or the beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not. Under this principle, banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and/or particular conditions stipulated in the documents or superimposed thereon, nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented by any documents, or for the good faith or acts and/or omissions, solvency, performance or standing of the consignor, the carriers, or the insurers of the goods, or any other person whomsoever.[39] The independent nature of the letter of credit may be: (a) independence in toto where the credit is independent from the justification aspect and is a separate obligation from the underlying agreement like for instance a typical standby; or (b) independence may be only as to the justification aspect like in a commercial letter of credit or repayment standby, which is identical with the same obligations under the underlying agreement. In both cases the payment may be enjoined if in the light of the purpose of the credit the payment of the credit would constitute fraudulent abuse of the credit.[40] Can the beneficiary invoke the independence principle? Petitioner insists that the independence principle does not apply to the instant case and assuming it is so, it is a defense available only to

respondent banks. LHC, on the other hand, contends that it would be contrary to common sense to deny the benefit of an independent contract to the very party for whom the benefit is intended. As beneficiary of the letter of credit, LHC asserts it is entitled to invoke the principle. As discussed above, in a letter of credit transaction, such as in this case, where the credit is stipulated as irrevocable, there is a definite undertaking by the issuing bank to pay the beneficiary provided that the stipulated documents are presented and the conditions of the credit are complied with.[41] Precisely, the independence principle liberates the issuing bank from the duty of ascertaining compliance by the parties in the main contract. As the principles nomenclature clearly suggests, the obligation under the letter of credit is independent of the related and originating contract. In brief, the letter of credit is separate and distinct from the underlying transaction. Given the nature of letters of credit, petitioners argumentthat it is only the issuing bank that may invoke the independence principle on letters of creditdoes not impress this Court. To say that the independence principle may only be invoked by the issuing banks would render nugatory the purpose for which the letters of credit are used in commercial transactions. As it is, the independence doctrine works to the benefit of both the issuing bank and the beneficiary. Letters of credit are employed by the parties desiring to enter into commercial transactions, not for the benefit of the issuing bank but mainly for the benefit of the parties to the original transactions. With the letter of credit from the issuing bank, the party who applied for and obtained it may confidently present the letter of credit to the beneficiary as a security to convince the beneficiary to enter into the business transaction. On the other hand, the other party to the business transaction, i.e., the beneficiary of the letter of credit, can be rest assured of being empowered to call on the letter of credit as a security in case the commercial transaction does not push through, or the applicant fails to perform his part of the transaction. It is for this reason that the party who is entitled to the proceeds of the letter of credit is appropriately called beneficiary. Petitioners argument that any dispute must first be resolved by the parties, whether through negotiations or arbitration, before the beneficiary is entitled to call on the letter of credit in essence would convert the letter of credit into a mere guarantee. Jurisprudence has laid down a clear distinction between a letter of credit and a guarantee in that the settlement of a dispute between the parties is not a pre-requisite for the release of funds under a letter of credit. In

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other words, the argument is incompatible with the very nature of the letter of credit. If a letter of credit is drawable only after settlement of the dispute on the contract entered into by the applicant and the beneficiary, there would be no practical and beneficial use for letters of credit in commercial transactions. Professor John F. Dolan, the noted authority on letters of credit, sheds more light on the issue: The standby credit is an attractive commercial device for many of the same reasons that commercial credits are attractive. Essentially, these credits are inexpensive and efficient. Often they replace surety contracts, which tend to generate higher costs than credits do and are usually triggered by a factual determination rather than by the examination of documents. Because parties and courts should not confuse the different functions of the surety contract on the one hand and the standby credit on the other, the distinction between surety contracts and credits merits some reflection. The two commercial devices share a common purpose. Both ensure against the obligors nonperformance. They function, however, in distinctly different ways. Traditionally, upon the obligors default, the surety undertakes to complete the obligors performance, usually by hiring someone to complete that performance. Surety contracts, then, often involve costs of determining whether the obligor defaulted (a matter over which the surety and the beneficiary often litigate) plus the cost of performance. The benefit of the surety contract to the beneficiary is obvious. He knows that the surety, often an insurance company, is a strong financial institution that will perform if the obligor does not. The beneficiary also should understand that such performance must await the sometimes lengthy and costly determination that the obligor has defaulted. In addition, the suretys performance takes time. The standby credit has different expectations. He reasonably expects that he will receive cash in the event of nonperformance, that he will receive it promptly, and that he will receive it before any litigation with the obligor (the applicant) over the nature of the applicants performance takes place. The standby credit has this opposite effect of the surety contract: it reverses the financial burden of parties during litigation. In the surety contract setting, there is no duty to indemnify the beneficiary until the beneficiary establishes the fact of the obligors performance. The beneficiary may have to establish that fact in litigation. During the litigation, the surety holds the money and the beneficiary bears most of the cost of delay in performance.

In the standby credit case, however, the beneficiary avoids that litigation burden and receives his money promptly upon presentation of the required documents. It may be that the applicant has, in fact, performed and that the beneficiarys presentation of those documents is not rightful. In that case, the applicant may sue the beneficiary in tort, in contract, or in breach of warranty; but, during the litigation to determine whether the applicant has in fact breached the obligation to perform, the beneficiary, not the applicant, holds the money. Parties that use a standby credit and courts construing such a credit should understand this allocation of burdens. There is a tendency in some quarters to overlook this distinction between surety contracts and standby credits and to reallocate burdens by permitting the obligor or the issuer to litigate the performance question before payment to the beneficiary.[42] While it is the bank which is bound to honor the credit, it is the beneficiary who has the right to ask the bank to honor the credit by allowing him to draw thereon. The situation itself emasculates petitioners posture that LHC cannot invoke the independence principle and highlights its puerility, more so in this case where the banks concerned were impleaded as parties by petitioner itself. Respondent banks had squarely raised the independence principle to justify their releases of the amounts due under the Securities. Owing to the nature and purpose of the standby letters of credit, this Court rules that the respondent banks were left with little or no alternative but to honor the credit and both of them in fact submitted that it was ministerial for them to honor the call for payment.[43] Furthermore, LHC has a right rooted in the Contract to call on the Securities. The relevant provisions of the Contract read, thus: 4.2.1. In order to secure the performance of its obligations under this Contract, the Contractor at its cost shall on the Commencement Date provide security to the Employer in the form of two irrevocable and confirmed standby letters of credit (the Securities), each in the amount of US$8,988,907, issued and confirmed by banks or financial institutions acceptable to the Employer. Each of the Securities must be in form and substance acceptable to the Employer and may be provided on an annually renewable basis.[44] 8.7.1 If the Contractor fails to comply with Clause 8.2, the Contractor shall pay to the Employer by way of liquidated damages (Liquidated Damages for Delay) the amount of US$75,000 for each and every day or part of a day that shall elapse between the Target Completion Date and the Completion Date, provided that Liquidated Damages for Delay payable by the Contractor shall in the aggregate not exceed 20% of the Contract Price. The Contractor shall pay Liquidated

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Damages for Delay for each day of the delay on the following day without need of demand from the Employer. 8.7.2 The Employer may, without prejudice to any other method of recovery, deduct the amount of such damages from any monies due, or to become due to the Contractor and/or by drawing on the Security.[45] A contract once perfected, binds the parties 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.[46] A careful perusal of the Turnkey Contract reveals the intention of the parties to make the Securities answerable for the liquidated damages occasioned by any delay on the part of petitioner. The call upon the Securities, while not an exclusive remedy on the part of LHC, is certainly an alternative recourse available to it upon the happening of the contingency for which the Securities have been proffered. Thus, even without the use of the independence principle, the Turnkey Contract itself bestows upon LHC the right to call on the Securities in the event of default. Next, petitioner invokes the fraud exception principle. It avers that LHCs call on the Securities is wrongful because it fraudulently misrepresented to ANZ Bank and SBC that there is already a breach in the Turnkey Contract knowing fully well that this is yet to be determined by the arbitral tribunals. It asserts that the fraud exception exists when the beneficiary, for the purpose of drawing on the credit, fraudulently presents to the confirming bank, documents that contain, expressly or by implication, material representations of fact that to his knowledge are untrue. In such a situation, petitioner insists, injunction is recognized as a remedy available to it. Citing Dolans treatise on letters of credit, petitioner argues that the independence principle is not without limits and it is important to fashion those limits in light of the principles purpose, which is to serve the commercial function of the credit. If it does not serve those functions, application of the principle is not warranted, and the commonlaw principles of contract should apply. It is worthy of note that the propriety of LHCs call on the Securities is largely intertwined with the fact of default which is the self-same issue pending resolution before the arbitral tribunals. To be able to declare the call on the Securities wrongful or fraudulent, it is imperative to resolve, among others, whether petitioner was in fact guilty of delay in the performance of its obligation. Unfortunately for petitioner, this Court is not called upon to rule upon the issue of defaultsuch issue having been submitted by the parties to the

jurisdiction of the arbitral tribunals pursuant to the terms embodied in their agreement.[47] Would injunction then be the proper remedy to restrain the alleged wrongful draws on the Securities? Most writers agree that fraud is an exception to the independence principle. Professor Dolan opines that the untruthfulness of a certificate accompanying a demand for payment under a standby credit may qualify as fraud sufficient to support an injunction against payment.[48] The remedy for fraudulent abuse is an injunction. However, injunction should not be granted unless: (a) there is clear proof of fraud; (b) the fraud constitutes fraudulent abuse of the independent purpose of the letter of credit and not only fraud under the main agreement; and (c) irreparable injury might follow if injunction is not granted or the recovery of damages would be seriously damaged.[49] In its complaint for injunction before the trial court, petitioner alleged that it is entitled to a total extension of two hundred fifty-three (253) days which would move the target completion date. It argued that if its claims for extension would be found meritorious by the ICC, then LHC would not be entitled to any liquidated damages.[50] Generally, injunction is a preservative remedy for the protection of ones substantive right or interest; it is not a cause of action in itself but merely a provisional remedy, an adjunct to a main suit. The issuance of the writ of preliminary injunction as an ancillary or preventive remedy to secure the rights of a party in a pending case is entirely within the discretion of the court taking cognizance of the case, the only limitation being that this discretion should be exercised based upon the grounds and in the manner provided by law.[51] Before a writ of preliminary injunction may be issued, there must be a clear showing by the complaint that there exists a right to be protected and that the acts against which the writ is to be directed are violative of the said right.[52] It must be shown that the invasion of the right sought to be protected is material and substantial, that the right of complainant is clear and unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious damage.[53] Moreover, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard compensation.[54] In the instant case, petitioner failed to show that it has a clear and unmistakable right to restrain LHCs call on the Securities which would justify the issuance of preliminary injunction. By petitioners own admission, the right of LHC to call on the Securities was contractually rooted and subject to the express stipulations in the Turnkey

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Contract.[55] Indeed, the Turnkey Contract is plain and unequivocal in that it conferred upon LHC the right to draw upon the Securities in case of default, as provided in Clause 4.2.5, in relation to Clause 8.7.2, thus: 4.2.5 The Employer shall give the Contractor seven days notice of calling upon any of the Securities, stating the nature of the default for which the claim on any of the Securities is to be made, provided that no notice will be required if the Employer calls upon any of the Securities for the payment of Liquidated Damages for Delay or for failure by the Contractor to renew or extend the Securities within 14 days of their expiration in accordance with Clause 4.2.2.[56] 8.7.2 The Employer may, without prejudice to any other method of recovery, deduct the amount of such damages from any monies due, or to become due, to the Contractor and/or by drawing on the Security.[57] The pendency of the arbitration proceedings would not per se make LHCs draws on the Securities wrongful or fraudulent for there was nothing in the Contract which would indicate that the parties intended that all disputes regarding delay should first be settled through arbitration before LHC would be allowed to call upon the Securities. It is therefore premature and absurd to conclude that the draws on the Securities were outright fraudulent given the fact that the ICC and CIAC have not ruled with finality on the existence of default. Nowhere in its complaint before the trial court or in its pleadings filed before the appellate court, did petitioner invoke the fraud exception rule as a ground to justify the issuance of an injunction.[58] What petitioner did assert before the courts below was the fact that LHCs draws on the Securities would be premature and without basis in view of the pending disputes between them. Petitioner should not be allowed in this instance to bring into play the fraud exception rule to sustain its claim for the issuance of an injunctive relief. Matters, theories or arguments not brought out in the proceedings below will ordinarily not be considered by a reviewing court as they cannot be raised for the first time on appeal.[59] The lower courts could thus not be faulted for not applying the fraud exception rule not only because the existence of fraud was fundamentally interwoven with the issue of default still pending before the arbitral tribunals, but more so, because petitioner never raised it as an issue in its pleadings filed in the courts below. At any rate, petitioner utterly failed to show that it had a clear and unmistakable right to prevent LHCs call upon the Securities. Of course, prudence should have impelled LHC to await resolution of the pending issues before the arbitral tribunals prior to taking action

to enforce the Securities. But, as earlier stated, the Turnkey Contract did not require LHC to do so and, therefore, it was merely enforcing its rights in accordance with the tenor thereof. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.[60] More importantly, pursuant to the principle of autonomy of contracts embodied in Article 1306 of the Civil Code,[61] petitioner could have incorporated in its Contract with LHC, a proviso that only the final determination by the arbitral tribunals that default had occurred would justify the enforcement of the Securities. However, the fact is petitioner did not do so; hence, it would have to live with its inaction. With respect to the issue of whether the respondent banks were justified in releasing the amounts due under the Securities, this Court reiterates that pursuant to the independence principle the banks were under no obligation to determine the veracity of LHCs certification that default has occurred. Neither were they bound by petitioners declaration that LHCs call thereon was wrongful. To repeat, respondent banks undertaking was simply to pay once the required documents are presented by the beneficiary. At any rate, should petitioner finally prove in the pending arbitration proceedings that LHCs draws upon the Securities were wrongful due to the non-existence of the fact of default, its right to seek indemnification for damages it suffered would not normally be foreclosed pursuant to general principles of law. Moreover, in a Manifestation,[62] dated 30 March 2001, LHC informed this Court that the subject letters of credit had been fully drawn. This fact alone would have been sufficient reason to dismiss the instant petition. Settled is the rule that injunction would not lie where the acts sought to be enjoined have already become fait accompli or an accomplished or consummated act.[63] In Ticzon v. Video Post Manila, Inc.[64] this Court ruled that where the period within which the former employees were prohibited from engaging in or working for an enterprise that competed with their former employerthe very purpose of the preliminary injunction has expired, any declaration upholding the propriety of the writ would be entirely useless as there would be no actual case or controversy between the parties insofar as the preliminary injunction is concerned. In the instant case, the consummation of the act sought to be restrained had rendered the instant petition moot for any declaration by this Court as to propriety or impropriety of the non-issuance of injunctive relief could have no practical effect on the existing controversy.[65] The other issues raised by petitioner particularly

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with respect to its right to recover the amounts wrongfully drawn on Petitioner is hereby required to answer the charge of forum-shopping the Securities, according to it, could properly be threshed out in a within fifteen (15) days from notice. separate proceeding. SO ORDERED. One final point. LHC has charged petitioner of forum-shopping. It raised the charge on two occasions. First, in its Counter-Manifestation dated 29 June 2004[66] LHC alleges that petitioner presented before this Court the same claim for money which it has filed in two other proceedings, to wit: ICC Case No. 11264/TE/MW and Civil Case No. 04-332 before the RTC of Makati. LHC argues that petitioners acts constitutes forum-shopping which should be punished by the dismissal of the claim in both forums. Second, in its Comment to Petitioners Motion for Leave to File Addendum to Petitioners Memorandum dated 8 October 2004, LHC alleges that by maintaining the present appeal and at the same time pursuing Civil Case No. 04-332wherein petitioner pressed for judgment on the issue of whether the funds LHC drew on the Securities should be returned petitioner resorted to forum-shopping. In both instances, however, petitioner has apparently opted not to respond to the charge. Forum-shopping is a very serious charge. It exists when a party repetitively avails of several judicial remedies in different courts, simultaneously or successively, all substantially founded on the same transactions and the same essential facts and circumstances, and all raising substantially the same issues either pending in, or already resolved adversely, by some other court.[67] It may also consist in the act of a party against whom an adverse judgment has been rendered in one forum, of seeking another and possibly favorable opinion in another forum other than by appeal or special civil action of certiorari, or the institution of two or more actions or proceedings grounded on the same cause on the supposition that one or the other court might look with favor upon the other party.[68] To determine whether a party violated the rule against forum-shopping, the test applied is whether the elements of litis pendentia are present or whether a final judgment in one case will amount to res judicata in another.[69] Forum-shopping constitutes improper conduct and may be punished with summary dismissal of the multiple petitions and direct contempt of court.[70] Considering the seriousness of the charge of forum-shopping and the severity of the sanctions for its violation, the Court will refrain from making any definitive ruling on this issue until after petitioner has been given ample opportunity to respond to the charge. WHEREFORE, the instant petition is DENIED, with costs against petitioner.