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1.

INTERNATIONAL COMMERCIAL ARBITRATION is the process of resolving business disputes


between or among transnational parties through the use of one or more arbitrators rather than
through the courts. It requires the agreement of the parties, which is usually given via arbitration.
2. THE SEPARABILITY OF AN ARBITRATION CLAUSE FROM THE UNDERLYING CONTRATE
Arbitration is an alternative dispute resolution method based on the consent of the parties, which is
often preferred to domestic judicial systems for the settlement of disputes arising from international
commercial relationships. A dispute may be brought to arbitration where the parties have voluntarily
entered into an arbitration agreement.
Although the arbitration clause is a part of the underlying contract, they are essentially independent
from each other. This is referred to as the separability, severability or autonomy of the
arbitration clause. This article will focus on this notion, known as the separability of the arbitration
clause.
The arbitration agreement is accepted as a distinct agreement, separate from the underlying
agreement a concept defined as the separability principle. This principle prevents the validity of
one agreement from being affected by the other one; it effectively establishes the full autonomy of
an arbitration agreement and the integrity of the arbitral process.
3. According to Section 6 of R.A. No. 9285, it shall not apply in the resolution or settlement of the
following:
a. Labor disputes covered by Presidential Decree No. 442 (The Labor Code of the Philippines, as
amended, and its Implementing Rules and Regulations);
b. The civil status of persons;
c. The validity of marriage;
d. Any ground for legal separation;
e. The jurisdiction of courts;
f. Future legitime;
g. Criminal liability;
h. Those which by law cannot be compromised; and
i. Disputes referred to court-annexed mediation.
4. What laws govern the ADR practice in the Philippines?
R.A. No. 9285 AN ACT TO INSTITUTIONALIZE THE USE OF AN ALTERNATIVE
DISPUTE RESOLUTION SYSTM IN THE PHILIPPINES AND TO ESTABLISH THE OFFICE

FOR ALTERNATIVE DISPUTE RESOLUTION, AND FOR OTHER PURPOSES


E.O. No. 1008 CREATING AN ARBITRATION MACHINERY IN THE CONSTRUCTION

INDUSTRY OF THE PHILIPPINES


R.A. No. 876 AN ACT TO AUTHORIZE THE MAKING OF ARBITRATION AND
SUBMISSION AGREEMENTS, TO PROVIDE FOR THE APPOINTMENT OF
ARBITRATORS AND THE PROCEDURE FOR ARBITRATION IN CIVIL CONTROVERSIES,

AND FOR OTHER PURPOSES


UNCITRAL Law the Model Law is designed to assist States in reforming and modernizing
their laws on arbitral procedure to take into account the particular features and needs of
international commercial arbitration. It covers all stages of the arbitral process from the
arbitration agreement, the composition and jurisdiction of the arbitral tribunal and the extent
of court intervention through to the recognition and enforcement of arbitral award. It reflects
worldwide consensus on key aspects of international arbitration practice having been
accepted by States of all regions and the different legal or economic systems of systems of
the world.

5. What is party autonomy?


Party autonomy is the freedom of parties to draw the course towards the resolution of their own
conflicts. This may include the following:
Selection and appointment of a mediator, arbitrator, conciliator or an early neutral evaluator;
Agreement on the place of the proceedings where the ADR shall take place. If the parties

6.

fail to reach an agreement as to the venue, the place of the ADR shall be any place
convenient and appropriate to the parties;
Agreement on the applicable rules to apply; and
Agreement on the language to be used in the proceedings.

What is the protection given to the parties in the ADR process?


In mediation proceedings, the information obtained shall be privileged and confidential.
In arbitration proceedings, the records, evidence and the arbitral awards are confidential and shall
not be published except with the consent of the parties or for limited purpose of disclosing to the
court relevant documents in cases where resort to the court is allowed.

7. Republic Act No. 9285

April 2, 2004

AN ACT TO INSTITUTIONALIZE THE USE OF AN ALTERNATIVE DISPUTE RESOLUTION


SYSTEM IN THE PHILIPPINES AND TO ESTABLISH THE OFFICE FOR ALTERNATIVE DISPUTE
RESOLUTION, AND FOR OTHER PURPOSES
SECTION 1. Title. - This act shall be known as the "Alternative Dispute Resolution Act of 2004."
SEC. 2. Declaration of Policy. - it is hereby declared the policy of the State to actively promote party
autonomy in the resolution of disputes or the freedom of the party to make their own arrangements
to resolve their disputes. Towards this end, the State shall encourage and actively promote the use
of Alternative Dispute Resolution (ADR) as an important means to achieve speedy and impartial
justice and declog court dockets. As such, the State shall provide means for the use of ADR as an
efficient tool and an alternative procedure for the resolution of appropriate cases. Likewise, the State
shall enlist active private sector participation in the settlement of disputes through ADR. This Act
shall be without prejudice to the adoption by the Supreme Court of any ADR system, such as
mediation, conciliation, arbitration, or any combination thereof as a means of achieving speedy and
efficient means of resolving cases pending before all courts in the Philippines which shall be
governed by such rules as the Supreme Court may approve from time to time.
8. DO Circular 98
9. 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.
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 Decision1 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.
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 BENEFICIARY'S CALL THEREON IS WRONGFUL OR
FRAUDULENT.

WHETHER LHC HAS THE RIGHT TO CALL AND DRAW ON THE SECURITIES BEFORE THE
RESOLUTION OF PETITIONER'S AND LHC'S 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 LHC'S 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

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 bank's 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 non-sale settings where they serve to reduce the risk of nonperformance. Generally, credits in the nonsale 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 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 principle's 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, petitioner's 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."
Petitioner's 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 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 obligor's nonperformance. They function, however, in distinctly different ways.
Traditionally, upon the obligor's default, the surety undertakes to complete the obligor's 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 surety's 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 applicant's 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 obligor's 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 beneficiary's 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 petitioner's 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 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 LHC's 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 Dolan's 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 principle's 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 LHC's 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 one's 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 LHC's call
on the Securities which would justify the issuance of preliminary injunction. By petitioner's own admission,
the right of LHC to call on the Securities was contractually rooted and subject to the express stipulations in
the Turnkey 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 LHC's 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 LHC's 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 LHC's 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 LHC's certification that default has occurred. Neither were they bound
by petitioner's declaration that LHC's 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 LHC's 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
mootfor 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
with respect to its right to recover the amounts wrongfully drawn on the Securities, according to it, could
properly be threshed out in a separate proceeding.
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 200466 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 petitioner's acts constitutes forumshopping which should be punished by the dismissal of the claim in both forums. Second, in its Comment to
Petitioner's Motion for Leave to File Addendum to Petitioner's Memorandum dated 8 October 2004, LHC
alleges that by maintaining the present appeal and at the same time pursuing Civil Case No. 04-332
wherein petitioner pressed for judgment on the issue of whether the funds LHC drew on the Securities

should be returnedpetitioner 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.

10. G.R. No. 185582

February 29, 2012

TUNA PROCESSING, INC., Petitioner,


vs.
PHILIPPINE KINGFORD, INC., Respondent.
DECISION
PEREZ, J.:
Can a foreign corporation not licensed to do business in the Philippines, but which collects royalties from
entities in the Philippines, sue here to enforce a foreign arbitral award?
In this Petition for Review on Certiorari under Rule 45,1 petitioner Tuna Processing, Inc. (TPI), a foreign
corporation not licensed to do business in the Philippines, prays that the Resolution2 dated 21 November
2008 of the Regional Trial Court (RTC) of Makati City be declared void and the case be remanded to the
RTC for further proceedings. In the assailed Resolution, the RTC dismissed petitioners Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral Award3 against respondent Philippine
Kingford, Inc. (Kingford), a corporation duly organized and existing under the laws of the Philippines,4 on the
ground that petitioner lacked legal capacity to sue.
The core issue in this case is whether or not the court a quo was correct in so dismissing the petition on the
ground of petitioners lack of legal capacity to sue.

The petition is impressed with merit.


The Corporation Code of the Philippines expressly provides:
Sec. 133. Doing business without a license. - No foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit

or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any valid cause of action
recognized under Philippine laws.
It is pursuant to the aforequoted provision that the court a quo dismissed the petition. Thus:
Herein plaintiff TPIs "Petition, etc." acknowledges that it "is a foreign corporation established in the State of
California" and "was given the exclusive right to license or sublicense the Yamaoka Patent" and "was
assigned the exclusive right to enforce the said patent and collect corresponding royalties" in the Philippines.
TPI likewise admits that it does not have a license to do business in the Philippines.
There is no doubt, therefore, in the mind of this Court that TPI has been doing business in the Philippines,
but sans a license to do so issued by the concerned government agency of the Republic of the Philippines,
when it collected royalties from "five (5) Philippine tuna processors[,] namely[,] Angel Seafood Corporation,
East Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc. and respondent
Philippine Kingford, Inc." This being the real situation, TPI cannot be permitted to maintain or intervene in
any action, suit or proceedings in any court or administrative agency of the Philippines." A priori, the
"Petition, etc." extant of the plaintiff TPI should be dismissed for it does not have the legal personality to sue
in the Philippines.21
The petitioner counters, however, that it is entitled to seek for the recognition and enforcement of the subject
foreign arbitral award in accordance with Republic Act No. 9285 (Alternative Dispute Resolution Act of
2004),22the Convention on the Recognition and Enforcement of Foreign Arbitral Awards drafted during the
United Nations Conference on International Commercial Arbitration in 1958 (New York Convention), and the
UNCITRAL Model Law on International Commercial Arbitration (Model Law),23 as none of these specifically
requires that the party seeking for the enforcement should have legal capacity to sue. It anchors its
argument on the following:
In the present case, enforcement has been effectively refused on a ground not found in the [Alternative
Dispute Resolution Act of 2004], New York Convention, or Model Law. It is for this reason that TPI has
brought this matter before this most Honorable Court, as it [i]s imperative to clarify whether the Philippines
international obligations and State policy to strengthen arbitration as a means of dispute resolution may be
defeated by misplaced technical considerations not found in the relevant laws.24
Simply put, how do we reconcile the provisions of the Corporation Code of the Philippines on one hand, and
theAlternative Dispute Resolution Act of 2004, the New York Convention and the Model Law on the other?
In several cases, this Court had the occasion to discuss the nature and applicability of the Corporation Code
of the Philippines, a general law, viz-a-viz other special laws. Thus, in Koruga v. Arcenas, Jr.,25 this Court
rejected the application of the Corporation Code and applied the New Central Bank Act. It ratiocinated:
Korugas invocation of the provisions of the Corporation Code is misplaced. In an earlier case with similar
antecedents, we ruled that:
"The Corporation Code, however, is a general law applying to all types of corporations, while the New
Central Bank Act regulates specifically banks and other financial institutions, including the dissolution and
liquidation thereof. As between a general and special law, the latter shall prevail generalia specialibus non
derogant." (Emphasis supplied)26
Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential Agrarian Reform Council,27 this
Court held:
Without doubt, the Corporation Code is the general law providing for the formation, organization and
regulation of private corporations. On the other hand, RA 6657 is the special law on agrarian reform. As
between a general and special law, the latter shall prevailgeneralia specialibus non derogant.28
Following the same principle, the Alternative Dispute Resolution Act of 2004 shall apply in this case as
the Act, as its title - An Act to Institutionalize the Use of an Alternative Dispute Resolution System in the

10

Philippines and to Establish the Office for Alternative Dispute Resolution, and for Other Purposes - would
suggest, is a law especially enacted "to actively promote party autonomy in the resolution of disputes or the
freedom of the party to make their own arrangements to resolve their disputes."29 It specifically provides
exclusive grounds available to the party opposing an application for recognition and enforcement of the
arbitral award.30
Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal law, applies in the instant petition,
we do not see the need to discuss compliance with international obligations under the New York
Convention and theModel Law. After all, both already form part of the law.
In particular, the Alternative Dispute Resolution Act of 2004 incorporated the New York Convention in the Act
by specifically providing:
SEC. 42. Application of the New York Convention. - The New York Convention shall govern the recognition
and enforcement of arbitral awards covered by the said Convention.
xxx
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 procedural 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.
It also expressly adopted the Model Law, to wit:
Sec. 19. Adoption of the Model Law on International Commercial Arbitration. International commercial
arbitration shall be governed by the Model Law on International Commercial Arbitration (the "Model Law")
adopted by the United Nations Commission on International Trade Law on June 21, 1985 xxx."
Now, does a foreign corporation not licensed to do business in the Philippines have legal capacity to sue
under the provisions of the Alternative Dispute Resolution Act of 2004? We answer in the affirmative.
Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in an application
for recognition and enforcement of the arbitral award may raise only those grounds that were enumerated
under Article V of the New York Convention, to wit:
Article V
1. Recognition and enforcement of the award may be refused, at the request of the party against
whom it is invoked, only if that party furnishes to the competent authority where the recognition and
enforcement is sought, proof that:
(a) The parties to the agreement referred to in article II were, under the law applicable to
them, under some incapacity, or the said agreement is not valid under the law to which the
parties have subjected it or, failing any indication thereon, under the law of the country
where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of the
appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to
present his case; or
(c) The award deals with a difference not contemplated by or not falling within the terms of
the submission to arbitration, or it contains decisions on matters beyond the scope of the
submission to arbitration, provided that, if the decisions on matters submitted to arbitration
can be separated from those not so submitted, that part of the award which contains
decisions on matters submitted to arbitration may be recognized and enforced; or

11

(d) The composition of the arbitral authority or the arbitral procedure was not in accordance
with the agreement of the parties, or, failing such agreement, was not in accordance with the
law of the country where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set aside or
suspended by a competent authority of the country in which, or under the law of which, that
award was made.
2. Recognition and enforcement of an arbitral award may also be refused if the competent authority
in the country where recognition and enforcement is sought finds that:
(a) The subject matter of the difference is not capable of settlement by arbitration under the
law of that country; or
(b) The recognition or enforcement of the award would be contrary to the public policy of
that country.
Clearly, not one of these exclusive grounds touched on the capacity to sue of the party seeking the
recognition and enforcement of the award.
Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution,31 which was
promulgated by the Supreme Court, likewise support this position.
Rule 13.1 of the Special Rules provides that "[a]ny party to a foreign arbitration may petition the court to
recognize and enforce a foreign arbitral award." The contents of such petition are enumerated in Rule
13.5.32 Capacity to sue is not included. Oppositely, in the Rule on local arbitral awards or arbitrations in
instances where "the place of arbitration is in the Philippines,"33 it is specifically required that a petition "to
determine any question concerning the existence, validity and enforceability of such arbitration
agreement"34 available to the parties before the commencement of arbitration and/or a petition for "judicial
relief from the ruling of the arbitral tribunal on a preliminary question upholding or declining its
jurisdiction"35 after arbitration has already commenced should state "[t]he facts showing that the persons
named as petitioner or respondent have legal capacity to sue or be sued."36
Indeed, it is in the best interest of justice that in the enforecement of a foreign arbitral award, we deny
availment by the losing party of the rule that bars foreign corporations not licensed to do business in the
Philippines from maintaining a suit in our courts. When a party enters into a contract containing a foreign
arbitration clause and, as in this case, in fact submits itself to arbitration, it becomes bound by the contract,
by the arbitration and by the result of arbitration, conceding thereby the capacity of the other party to enter
into the contract, participate in the arbitration and cause the implementation of the result. Although not on all
fours with the instant case, also worthy to consider is the
wisdom of then Associate Justice Flerida Ruth P. Romero in her Dissenting Opinion in Asset Privatization
Trust v. Court of Appeals,37 to wit:
xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and judicial circles here
and abroad. If its tested mechanism can simply be ignored by an aggrieved party, one who, it must be
stressed, voluntarily and actively participated in the arbitration proceedings from the very beginning, it will
destroy the very essence of mutuality inherent in consensual contracts.38
Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected not because it is
favored over domestic laws and procedures, but because Republic Act No. 9285 has certainly erased any
conflict of law question.
Finally, even assuming, only for the sake of argument, that the court a quo correctly observed that the Model
Law, not the New York Convention, governs the subject arbitral award,39 petitioner may still seek recognition
and enforcement of the award in Philippine court, since the Model Law prescribes substantially identical
exclusive grounds for refusing recognition or enforcement.40

12

Premises considered, petitioner TPI, although not licensed to do business in the Philippines, may seek
recognition and enforcement of the foreign arbitral award in accordance with the provisions of the Alternative
Dispute Resolution Act of 2004.
II
The remaining arguments of respondent Kingford are likewise unmeritorious.
First. There is no need to consider respondents contention that petitioner TPI improperly raised a question
of fact when it posited that its act of entering into a MOA should not be considered "doing business" in the
Philippines for the purpose of determining capacity to sue. We reiterate that the foreign corporations
capacity to sue in the Philippines is not material insofar as the recognition and enforcement of a foreign
arbitral award is concerned.
Second. Respondent cannot fault petitioner for not filing a motion for reconsideration of the assailed
Resolution dated 21 November 2008 dismissing the case. We have, time and again, ruled that the prior filing
of a motion for reconsideration is not required in certiorari under Rule 45.41
Third. While we agree that petitioner failed to observe the principle of hierarchy of courts, which, under
ordinary circumstances, warrants the outright dismissal of the case,42 we opt to relax the rules following the
pronouncement in Chua v. Ang,43 to wit:
[I]t must be remembered that [the principle of hierarchy of courts] generally applies to cases involving
conflicting factual allegations. Cases which depend on disputed facts for decision cannot be brought
immediately before us as we are not triers of facts.44 A strict application of this rule may be excused when
the reason behind the rule is not present in a case, as in the present case, where the issues are not factual
but purely legal.1wphi1 In these types of questions, this Court has the ultimate say so that we merely
abbreviate the review process if we, because of the unique circumstances of a case, choose to hear and
decide the legal issues outright.45
Moreover, the novelty and the paramount importance of the issue herein raised should be seriously
considered.46Surely, there is a need to take cognizance of the case not only to guide the bench and the bar,
but if only to strengthen arbitration as a means of dispute resolution, and uphold the policy of the State
embodied in theAlternative Dispute Resolution Act of 2004, to wit:
Sec. 2. Declaration of Policy. - It is hereby declared the policy of the State to actively promote party
autonomy in the resolution of disputes or the freedom of the party to make their own arrangements to
resolve their disputes. Towards this end, the State shall encourage and actively promote the use of
Alternative Dispute Resolution (ADR) as an important means to achieve speedy and impartial justice and
declog court dockets. xxx
Fourth. As regards the issue on the validity and enforceability of the foreign arbitral award, we leave its
determination to the court a quo where its recognition and enforcement is being sought.
Fifth. Respondent claims that petitioner failed to furnish the court of origin a copy of the motion for time to file
petition for review on certiorari before the petition was filed with this Court.47 We, however, find petitioners
reply in order. Thus:
26. Admittedly, reference to "Branch 67" in petitioner TPIs "Motion for Time to File a Petition for Review on
Certiorari under Rule 45" is a typographical error. As correctly pointed out by respondent Kingford, the order
sought to be assailed originated from Regional Trial Court, Makati City, Branch 61.
27. xxx Upon confirmation with the Regional Trial Court, Makati City, Branch 61, a copy of petitioner TPIs
motion was received by the Metropolitan Trial Court, Makati City, Branch 67. On 8 January 2009, the motion
was forwarded to the Regional Trial Court, Makati City, Branch 61.48

13

All considered, petitioner TPI, although a foreign corporation not licensed to do business in the Philippines,
is not, for that reason alone, precluded from filing the Petition for Confirmation, Recognition, and
Enforcement of Foreign Arbitral Award before a Philippine court.
WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial Court, Branch 61, Makati City
in Special Proceedings No. M-6533 is hereby REVERSED and SET ASIDE. The case is REMANDED to
Branch 61 for further proceedings.
G.R. No. 143581

January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner,


vs.
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.
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 clause in a contract mutually agreed upon by the parties stipulating that they would submit
themselves to arbitration in a foreign country. Regrettably, instead of hastening the resolution of their
dispute, the parties wittingly or unwittingly prolonged the controversy.
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."23

14

The petition is partly meritorious.


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 cross-claim states, "A compulsory counterclaim or a cross-claim that a defending party has
at the time he files his answer shall be contained therein."
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. 5 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.
Interlocutory orders proper subject of certiorari
Citing Gamboa v. Cruz,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." 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. 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 ping-pong 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 relief, the Court allows certiorari as a mode of redress. 28
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.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

15

Neither do we think that KOGIES was guilty of forum shopping in filing the petition for certiorari. Note that
KOGIES motion for reconsideration of the July 23, 1998 RTC Order which denied the issuance of the
injunctive writ had already been denied. Thus, KOGIES only remedy was to assail the RTCs interlocutory
order via a petition for certiorari under Rule 65.
While the October 2, 1998 motion for reconsideration of KOGIES of the September 21, 1998 RTC Order
relating to the inspection of things, and the allowance of the compulsory counterclaims has not yet been
resolved, the circumstances in this 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 court, in the first instance, to
pass upon and correct its mistakes without the intervention of the higher court." 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
We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration clause. It provides:
Article 15. Arbitration.All disputes, controversies, or differences which may arise between the
parties, out of or in relation to or in connection with this Contract or for the breach thereof, shall
finally be settled by arbitration in Seoul, Korea in accordance with the Commercial Arbitration Rules
of the Korean Commercial Arbitration Board. The award rendered by the arbitration(s) shall
be final and binding upon both parties concerned. (Emphasis supplied.)
Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null and void.
Petitioner is correct.
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. 2038,31 2039,32 and 204033 abovecited refer to instances where a compromise or an arbitral award, as
applied to Art. 2044 pursuant to Art. 2043,34 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.,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. 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." 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

16

to public policy. This Court has sanctioned the validity of arbitration clauses in a catena of cases. In the 1957
case ofEastboard Navigation Ltd. v. Juan Ysmael and Co., Inc.,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." 39 And in LM Power Engineering Corporation v.
Capitol Industrial Construction Groups, Inc., we declared that:
Being an inexpensive, speedy and amicable method of settling disputes, arbitrationalong with
mediation, conciliation and negotiationis encouraged by the Supreme Court. Aside from
unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially of the
commercial kind. It is thus regarded as the "wave of the future" in international civil and commercial
disputes. Brushing aside a contractual agreement calling for arbitration between the parties would
be a step backward.
Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods,
courts should liberally construe arbitration clauses. Provided such clause is susceptible of an
interpretation that covers the asserted dispute, an order to arbitrate should be granted. Any doubt
should be resolved in favor of arbitration.40
Having said that the instant arbitration clause is not against public policy, we come to the question on what
governs an arbitration clause specifying that in case of any dispute arising from the contract, an arbitral
panel will be constituted in a foreign country and the arbitration rules of the foreign country would govern and
its award shall be final and binding.
RA 9285 incorporated the UNCITRAL Model law
to which we are a signatory
For domestic arbitration proceedings, we have particular agencies to arbitrate disputes arising from
contractual relations. In case a foreign arbitral body is chosen by the parties, the arbitration rules of our
domestic arbitration bodies would not be applied. As signatory to the Arbitration Rules of the UNCITRAL
Model Law on International Commercial Arbitration41 of the United Nations Commission on International
Trade Law (UNCITRAL) in the New York Convention on June 21, 1985, the Philippines committed itself to be
bound by the Model Law. We have even incorporated the Model Law in Republic Act No. (RA) 9285,
otherwise known as the Alternative Dispute Resolution Act of 2004 entitled An Act to Institutionalize the Use
of an Alternative Dispute Resolution System in the Philippines and to Establish the Office for Alternative
Dispute Resolution, and for Other Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of Chapter 4 of
the Model Law are the pertinent provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION
SEC. 19. Adoption of the Model Law on International Commercial Arbitration.International
commercial arbitration shall be governed by the Model Law on International Commercial Arbitration
(the "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 in Resolution No. 40/72 approved on December 11, 1985, copy of which is hereto
attached as Appendix "A".
SEC. 20. Interpretation of Model Law.In 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 preparatories and the report of the Secretary General of the United Nations Commission
on International Trade Law dated March 25, 1985 entitled, "International Commercial Arbitration:
Analytical Commentary on Draft Trade identified by reference number A/CN. 9/264."
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

17

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. 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
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
pre-trial 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.
(2) Foreign arbitral awards must be confirmed by the RTC
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. 35 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
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 nonconvention 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

18

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
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.
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,

19

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 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
87644 and shall be recognized as final and executory decisions of the RTC, 45 they may only be assailed
before the RTC and vacated on the grounds provided under Sec. 25 of RA 876. 46
(5) RTC decision of assailed foreign arbitral award appealable
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:
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 amount of the award in accordance with the rules to be promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed before this Court through a petition for
review under Rule 45 of the Rules of Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign arbitration as it bound
itself through the subject contract. While it may have misgivings on the foreign arbitration done in Korea by
the KCAB, it has available remedies under RA 9285. Its interests are duly protected by the law which
requires that the arbitral award that may be rendered by KCAB must be confirmed here by the RTC before it
can be enforced.
With our disquisition above, petitioner is correct in its contention that an arbitration clause, stipulating that
the arbitral award is final and binding, does not oust our courts of jurisdiction as the international arbitral
award, the award of which is not absolute and without exceptions, is still judicially reviewable under certain
conditions provided for by the UNCITRAL Model Law on ICA as applied and incorporated in RA 9285.
Finally, it must be noted that there is nothing in the subject Contract which provides that the parties may
dispense with the arbitration clause.
Unilateral rescission improper and illegal

20

Having ruled that the arbitration clause of the subject contract is valid and binding on the parties, and not
contrary to public policy; consequently, being bound to the contract of arbitration, a party may not unilaterally
rescind or terminate the contract for whatever cause without first resorting to arbitration.
What this Court held in University of the Philippines v. De Los Angeles47 and reiterated in succeeding
cases,48that the act 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 stipulation on arbitration. Where an arbitration clause in a contract is availing, neither of the parties
can unilaterally treat the contract as rescinded since whatever infractions or breaches by a party or
differences arising from the contract must be brought first and resolved by arbitration, and not through an
extrajudicial rescission or judicial action.
The issues arising from the contract between PGSMC and KOGIES on whether the equipment and
machineries delivered and installed were properly installed and operational in the plant in Carmona, Cavite;
the ownership of equipment and payment of the contract price; and whether there was substantial
compliance by KOGIES in the production of the samples, given the alleged fact that PGSMC could not
supply the raw materials required to produce the sample LPG cylinders, are matters proper for arbitration.
Indeed, we note that on July 1, 1998, KOGIES instituted an Application for Arbitration before the KCAB in
Seoul, Korea pursuant to Art. 15 of the Contract as amended. Thus, it is incumbent upon PGSMC to abide
by its commitment to arbitrate.
Corollarily, the trial court gravely abused its discretion in granting PGSMCs Motion for Inspection of Things
on September 21, 1998, as the subject matter of the motion is under the primary jurisdiction of the mutually
agreed arbitral body, the KCAB in Korea.
In addition, whatever findings and conclusions made by the RTC Branch Sheriff from the inspection made on
October 28, 1998, as ordered by the trial court on October 19, 1998, is of no worth as said Sheriff is not
technically competent to ascertain the actual status of the equipment and machineries as installed in the
plant.
For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders pertaining to the grant of the
inspection of the equipment and machineries have to be recalled and nullified.
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. 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.
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.

21

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 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:
(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.
(e) The order shall be binding upon the parties.
(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 "interim measure" of protection as:
Article 17. Power of arbitral tribunal to order interim measures
xxx xxx xxx
(2) An interim measure is any temporary measure, whether in the form of an award or in another
form, by which, at any time prior to the issuance of the award by which the dispute is finally decided,
the arbitral tribunal orders a party to:
(a) Maintain or restore the status quo pending determination of the dispute;

22

(b) Take action that would prevent, or refrain from taking action that is likely to cause, current or
imminent 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.
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.
In the recent 2006 case of Transfield Philippines, Inc. v. Luzon 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:
As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to the courts
for provisional reliefs. The Rules of the ICC, which governs the parties arbitral dispute, allows the
application of a party to a judicial authority for interim or conservatory measures. Likewise, Section
14 of Republic Act (R.A.) No. 876 (The Arbitration Law) recognizes the rights of any party to petition
the court to take measures to safeguard and/or conserve any matter which is the subject of the
dispute in arbitration. In addition, R.A. 9285, otherwise known as the "Alternative Dispute Resolution
Act of 2004," allows the filing of provisional or interim measures with the regular courts whenever
the arbitral tribunal has no power to act or to act effectively.50
It is thus beyond cavil that the RTC has authority and jurisdiction to grant interim measures of protection.
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 that the LPG
plant was non-operational, PGSMC has the right to dismantle and transfer the equipment and machineries
either for their protection and preservation or for the better way to make good use of them which is
ineluctably within the management discretion of PGSMC.
Thirdly, and of greater import is the reason that maintaining the equipment and machineries in Worths
property is not to the best interest of PGSMC due to the prohibitive rent while the LPG plant as set-up is not
operational. PGSMC was losing PhP322,560 as monthly rentals or PhP3.87M for 1998 alone without
considering the 10% annual rent increment in maintaining the plant.
Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating to the preservation or
transfer of the equipment and machineries as an interim measure, yet on hindsight, the July 23, 1998 Order
of the RTC allowing the transfer of the equipment and machineries given the non-recognition by the lower
courts of the arbitral clause, has accorded an interim measure of protection to PGSMC which would
otherwise been irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already been 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

23

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 family 51 until final resolution of
the arbitral proceedings and enforcement of the award, if any.
WHEREFORE, this petition is PARTLY GRANTED, in that:
(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET ASIDE;
(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-117
are REVERSED andSET ASIDE;
(3) The parties are hereby ORDERED to submit themselves to the arbitration of their dispute and differences
arising from the subject Contract before the KCAB; and
(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and machineries, if it had not
done so, and ORDERED to preserve and maintain them until the finality of whatever arbitral award is given
in the arbitration proceedings.
11. G.R. No. 196171

January 15, 2014

RCBC CAPITAL CORPORATION, Petitioner,


vs.
BANCO DE ORO UNIBANK, INC. (now BDO UNIBANK, INC.), Respondent.
RESOLUTION
VILLARAMA, JR., J.:
Before the Court are: (1) the Joint Motion and Manifestation dated October 1, 2013 filed in G.R. Nos. 196171
& 199238 by RCBC Capital Corporation ("RCBC Capital"), BDO Unibank, Inc. ("BDO"), and George L. Go,
in his personal capacity and as attorney-in-fact of the individual stockholders as listed in the Share Purchase
Agreement dated May 27, 2000 ("Go/Shareholders"), thru their respective counsels; and (2) the Joint Motion
and Manifestation dated October 1, 2013 filed in G.R. No. 200213 by BDO and RCBC Capital thru their
respective counsel.
All three petitions emanated from arbitration proceedings commenced by RCBC Capital pursuant to the
arbitration clause under its Share Purchase Agreement (SPA) with EPCIB involving the latters shares in
Bankard, Inc. In the course of arbitration conducted by the Tribunal constituted and administered by the
International Chamber of Commerce-International Commercial Arbitration (ICC-ICA), EPCIB was merged
with BDO which assumed all its liabilities and obligations.
G.R. No. 196171 is a petition for review under Rule 45 seeking to reverse the Court of Appeals (CA)
Decision dated December 23, 2010 in CA-G.R. SP No. 113525 which reversed and set aside the June 24,
2009 Order of the Regional Trial Court (RTC) of Makati City, Branch 148 in SP Proc. Case No. M-6046. The
RTC confirmed the Second Partial Award issued by the Arbitration Tribunal ordering BDO to pay RCBC
Capital proportionate share in the advance costs and dismissing BDOs counterclaims.
G.R. No. 199238 is a petition for certiorari under Rule 65 assailing the September 13, 2011 Resolution in
CA-G.R. SP No. 120888 which denied BDOs application for the issuance of a stay order and/or temporary
restraining order (TRO)/preliminary injunction against the RTC of Makati City, Branch 148 in Sp. Proc. Case
No. M-6046. Acting upon RCBC Capitals urgent motion, the RTC issued on August 22, 2011 a writ of
execution for the implementation of the courts order confirming the Final Award rendered by the Arbitration
Tribunal on June 16, 2010.

24

On the other hand, G.R. No. 200213, filed on February 6, 2012, is a petition for review under Rule 45
praying for the reversal of the CAs Decision dated February 24, 2011 and Resolution dated January 13,
2012 in CA-G.R. SP No. 113402. The CA denied BDOs petition for certiorari and prohibition with application
for issuance of a TRO and/or writ of preliminary injunction against the RTC of Makati City, Branch 148 in Sp.
Proc. Case No. M-6046. By Order dated June 24, 2009, the RTC denied BDOs motion for access of the
computerized accounting system of Bankard, Inc. after Chairman Richard Ian Barker had denied BDOs
request that it be given access to the said source of facts or data used in preparing the accounting
summaries submitted in evidence before the Arbitration Tribunal.
G.R. Nos. 196171 & 199238 were consolidated and a Decision was rendered by this Court on December 10,
2012, the dispositive portion of which states:
WHEREFORE, premises considered, the petition in G.R. No. 199238 is DENIED. The Resolution dated
September 13, 2011 of the Court of Appeals in CA-G.R. SP No. 120888 is AFFIRMED.
The petition in G.R. No. 196171 is DENIED. The Decision dated December 23, 2010 of the Court of Appeals
in CA-G.R. SP No. 113525 is hereby AFFIRMED.
SO ORDERED.1
Both RCBC Capital and BDO filed motions for partial reconsideration of the above decision.
Meanwhile, in G.R. No. 200213, RCBC Capital filed its Comment, to which a Reply was filed by BDO. By
Resolution dated July 22, 2013, both parties were directed to submit their respective memoranda within 30
days from notice.
In their Joint Motion and Manifestation filed in G.R. Nos. 196171 & 199238, the parties submit and pray that

5. After negotiations, the Parties have mutually agreed that it is in their best interest and general
benefit to settle their differences with respect to their respective causes of action, claims or
counterclaims in the RCBC Capital Petition and the BDO Petition, with a view to a renewal of their
business relations.
6. Thus, the parties have reached a complete, absolute and final settlement of their claims,
demands, counterclaims and causes of action arising, directly or indirectly, from the facts and
circumstances giving rise to, surrounding or arising from both Petitions, and have agreed to jointly
terminate and dismiss the same in accordance with their agreement.
7. In view of the foregoing compromise between the Parties, BDO, RCBC Capital and
Go/Shareholders, with the assistance of their respective counsels, have decided to jointly move for
the termination and dismissal of the above-captioned cases with prejudice.
PRAYER
WHEREFORE, RCBC CAPITAL CORPORATION, BDO UNIBANK, INC. and GEORGE L. GO, IN HIS
PERSONAL CAPACITY AND AS ATTORNEY-IN-FACT OF THE INDIVIDUAL STOCKHOLDERS AS LISTED
IN THE SHARE PURCHASE AGREEMENT DATED 27 MAY 2000 respectfully pray that this Honorable
Court order the termination and dismissal of the above-captioned cases, with prejudice. RCBC Capital BDO
and Go/Shareholders respectfully pray for such other relief as may be deemed just or equitable under the
premises.2
BDO and RCBC Capital likewise submit and pray in their Joint Motion and Manifestation in G.R. No. 200213
that

25

3. After negotiations, the Parties have mutually agreed that it is in their best interest and general
benefit to settle their differences with respect to their respective causes of action, claims or
counterclaims in the above-captioned case, with a view to a renewal of their business relations.
4. Thus, the Parties have reached a complete, absolute and final settlement of their claims,
demands, counterclaims and causes of action arising, directly or indirectly, from the facts and
circumstances giving rise to, surrounding or arising from the present Petition, and have agreed to
jointly terminate and dismiss the present Petition in accordance with their agreement.
5. In view of the foregoing compromise between the Parties, BDO and RCBC Capital, with the
assistance of their respective counsels, have decided to jointly move for the termination and
dismissal of the above-captioned case with prejudice.1wphi1
PRAYER
WHEREFORE, BDO UNIBANK, INC. and RCBC CAPITAL CORPORATION respectfully pray that this
Honorable Court order the termination and dismissal of the above-captioned case, with prejudice.
BDO and RCBC Capital respectfully pray for such other relief as may be deemed just or equitable under the
premises.3
Under this Court s Resolution dated November 27, 2013, G.R. No. 200213 is ordered consolidated with G.R.
Nos. 196171 199238.
IN VIEW OF THE FOREGOING and as prayed for, G.R. Nos. 196171, 199238 and 200213 are hereby
ordered DISMISSED with prejudice and are deemed CLOSED and TERMINATED.
SO ORDERED.
MARTIN S. VILLARAMA, JR.
12. G.R. No. 189563

April 7, 2014

GILAT SATELLITE NETWORKS, LTD., Petitioner,


vs.
UNITED COCONUT PLANTERS BANK GENERAL INSURANCE CO., INC., Respondent.
DECISION
SERENO, CJ:
This is an appeal via a Petition for Review on Certiorari1 filed 6 November 2009 assailing the Decision2 and
Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 89263, which reversed the Decision 4 of the
Regional Trial Court (RTC), Branch 141, Makati City in Civil Case No. 02-461, ordering respondent to pay
petitioner a sum of money. ISSUES
From the foregoing, we reduce the issues to the following:
1. Whether or not the CA erred in dismissing the case and ordering petitioner and One Virtual to
arbitrate; and
2. Whether or not petitioner is entitled to legal interest due to the delay in the fulfilment by
respondent of its obligation under the Suretyship Agreement.
THE COURTS RULING

26

The existence of a suretyship agreement does not give the surety the right to intervene in the principal
contract, nor can an arbitration clause between the buyer and the seller be invoked by a non-party such as
the surety.
Petitioner alleges that arbitration laws mandate that no court can compel arbitration, unless a party entitled
to it applies for this relief.23 This referral, however, can only be demanded by one who is a party to the
arbitration agreement.24 Considering that neither petitioner nor One Virtual has asked for a referral, there is
no basis for the CAs order to arbitrate.
Moreover, Articles 1216 and 2047 of the Civil Code25 clearly provide that the creditor may proceed against
the surety without having first sued the principal debtor.26 Even the Surety Agreement itself states that
respondent becomes liable upon "mere failure of the Principal to make such prompt payment." 27 Thus,
petitioner should not be ordered to make a separate claim against One Virtual (via arbitration) before
proceeding against respondent.28
On the other hand, respondent maintains that a surety contract is merely an accessory contract, which
cannot exist without a valid obligation.29 Thus, the surety may avail itself of all the defenses available to the
principal debtor and inherent in the debt30 that is, the right to invoke the arbitration clause in the Purchase
Agreement.
We agree with petitioner.
In suretyship, the oft-repeated rule is that a suretys liability is joint and solidary with that of the principal
debtor. This undertaking makes a surety agreement an ancillary contract, as it presupposes the existence of
a principal contract.31 Nevertheless, although the contract of a surety is in essence secondary only to a valid
principal obligation, its liability to the creditor or "promise" of the principal is said to be direct, primary and
absolute; in other words, a surety is directly and equally bound with the principal. 32 He becomes liable for the
debt and duty of the principal obligor, even without possessing a direct or personal interest in the obligations
constituted by the latter.33Thus, a surety is not entitled to a separate notice of default or to the benefit of
excussion.34 It may in fact be sued separately or together with the principal debtor.35
After a thorough examination of the pieces of evidence presented by both parties, 36 the RTC found that
petitioner had delivered all the goods to One Virtual and installed them. Despite these compliances, One
Virtual still failed to pay its obligation,37 triggering respondents liability to petitioner as the formers
surety.1wphi1 In other words, the failure of One Virtual, as the principal debtor, to fulfill its monetary
obligation to petitioner gave the latter an immediate right to pursue respondent as the surety.
Consequently, we cannot sustain respondents claim that the Purchase Agreement, being the principal
contract to which the Suretyship Agreement is accessory, must take precedence over arbitration as the
preferred mode of settling disputes.
First, we have held in Stronghold Insurance Co. Inc. v. Tokyu Construction Co. Ltd., 38 that "[the] acceptance
[of a surety agreement], however, does not change in any material way the creditors relationship with the
principal debtor nor does it make the surety an active party to the principal creditor-debtor relationship. In
other words, the acceptance does not give the surety the right to intervene in the principal contract. The
suretys role arises only upon the debtors default, at which time, it can be directly held liable by the creditor
for payment as a solidary obligor." Hence, the surety remains a stranger to the Purchase Agreement. We
agree with petitioner that respondent cannot invoke in its favor the arbitration clause in the Purchase
Agreement, because it is not a party to that contract. 39 An arbitration agreement being contractual in
nature,40 it is binding only on the parties thereto, as well as their assigns and heirs. 41
Second, Section 24 of Republic Act No. 928542 is clear in stating that a referral to arbitration may only take
place "if at least one party so requests not later than the pre-trial conference, or upon the request of both
parties thereafter." Respondent has not presented even an iota of evidence to show that either petitioner or
One Virtual submitted its contesting claim for arbitration.
Third, sureties do not insure the solvency of the debtor, but rather the debt itself. 43 They are contracted
precisely to mitigate risks of non-performance on the part of the obligor. This responsibility necessarily

27

places a surety on the same level as that of the principal debtor.44 The effect is that the creditor is given the
right to directly proceed against either principal debtor or surety. This is the reason why excussion cannot be
invoked.45 To require the creditor to proceed to arbitration would render the very essence of suretyship
nugatory and diminish its value in commerce. At any rate, as we have held in Palmares v. Court of
Appeals,46 "if the surety is dissatisfied with the degree of activity displayed by the creditor in the pursuit of his
principal, he may pay the debt himself and become subrogated to all the rights and remedies of the creditor."
Interest, as a form of indemnity, may be awarded to a creditor for the delay incurred by a debtor in the
payment of the latters obligation, provided that the delay is inexcusable.
Anent the issue of interests, petitioner alleges that it deserves to be paid legal interest of 12% per annum
from the time of its first demand on respondent on 5 June 2000 or at most, from the second demand on 24
January 2001 because of the latters delay in discharging its monetary obligation. 47 Citing Article 1169 of the
Civil Code, petitioner insists that the delay started to run from the time it demanded the fulfilment of
respondents obligation under the suretyship contract. Significantly, respondent does not contest this point,
but instead argues that it is only liable for legal interest of 6% per annum from the date of petitioners last
demand on 24 January 2001.
In rejecting petitioners position, the RTC stated that interests may only accrue when the delay or the refusal
of a party to pay is without any justifiable cause. 48 In this case, respondents failure to heed the demand was
due to the advice of One Virtual that petitioner allegedly breached its undertakings as stated in the Purchase
Agreement.49 The CA, however, made no pronouncement on this matter.
We sustain petitioner.
Article 2209 of the Civil Code is clear: "[i]f an obligation consists in the payment of a sum of money, and the
debtor incurs a delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the legal interest."
Delay arises from the time the obligee judicially or extrajudicially demands from the obligor the performance
of the obligation, and the latter fails to comply.50 Delay, as used in Article 1169, is synonymous with default or
mora, which means delay in the fulfilment of obligations. 51 It is the nonfulfillment of an obligation with respect
to time.52 In order for the debtor (in this case, the surety) to be in default, it is necessary that the following
requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the performance judicially or extrajudicially.53
Having held that a surety upon demand fails to pay, it can be held liable for interest, even if in thus paying,
its liability becomes more than the principal obligation. 54 The increased liability is not because of the
contract, but because of the default and the necessity of judicial collection. 55
However, for delay to merit interest, it must be inexcusable in nature. In Guanio v. Makati-Shangri-la
Hotel,56 citing RCPI v. Verchez,57 we held thus:
In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance
justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory force of contracts, will
not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking
or a contravention of the tenor thereof. A breach upon the contract confers upon the injured party a valid
cause for recovering that which may have been lost or suffered. The remedy serves to preserve the interests
of the promissee that may include his "expectation interest," which is his interest in having the benefit of his
bargain by being put in as good a position as he would have been in had the contract been performed, or his
"reliance interest," which is his interest in being reimbursed for loss caused by reliance on the contract by
being put in as good a position as he would have been in had the contract not been made; or his "restitution
interest," which is his interest in having restored to him any benefit that he has conferred on the other party.
Indeed, agreements can accomplish little, either for their makers or for society, unless they are made the
basis for action. The effect of every infraction is to create a new duty, that is, to make RECOMPENSE to the
one who has been injured by the failure of another to observe his contractual obligation unless he can show
extenuating circumstances, like proof of his exercise of due diligence x x x or of the attendance of fortuitous
event, to excuse him from his ensuing liability. (Emphasis ours)

28

We agree with petitioner that records are bereft of proof to show that respondents delay was indeed justified
by the circumstances that is, One Virtuals advice regarding petitioners alleged breach of obligations. The
lower courts Decision itself belied this contention when it said that "plaintiff is not disputing that it did not
complete commissioning work on one of the two systems because One Virtual at that time is already in
default and has not paid GILAT."58 Assuming arguendo that the commissioning work was not completed,
respondent has no one to blame but its principal, One Virtual; if only it had paid its obligation on time,
petitioner would not have been forced to stop operations. Moreover, the deposition of Mr. Erez Antebi, vice
president of Gilat, repeatedly stated that petitioner had delivered all equipment, including the licensed
software; and that the equipment had been installed and in fact, gone into operation. 59 Notwithstanding these
compliances, respondent still failed to pay.
As to the issue of when interest must accrue, our Civil Code is explicit in stating that it accrues from the time
judicial or extrajudicial demand is made on the surety. This ruling is in accordance with the provisions of
Article 1169 of the Civil Code and of the settled rule that where there has been an extra-judicial demand
before an action for performance was filed, interest on the amount due begins to run, not from the date of
the filing of the complaint, but from the date of that extra-judicial demand. 60 Considering that respondent
failed to pay its obligation on 30 May 2000 in accordance with the Purchase Agreement, and that the
extrajudicial demand of petitioner was sent on 5 June 2000, 61 we agree with the latter that interest must start
to run from the time petitioner sent its first demand letter (5 June 2000), because the obligation was already
due and demandable at that time.
With regard to the interest rate to be imposed, we take cue from Nacar v. Gallery Frames, 62 which modified
the guidelines established in Eastern Shipping Lines v. CA 63 in relation to Bangko Sentral-Monetary Board
Circular No. 799 (Series of 2013), to wit:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.1wphi1 In
the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
xxxx
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.
Applying the above-discussed concepts and in the absence of an agreement as to interests, we are hereby
compelled to award petitioner legal interest at the rate of 6% per annum from 5 June 2000, its first date of
extra judicial demand, until the satisfaction of the debt in accordance with the revised guidelines enunciated
in Nacar.
WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED. The assailed Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 89263 are REVERSED. The Decision of the Regional
Trial Court, Branch 141, Makati City is REINSTATED, with MODIFICATION insofar as the award of legal
interest is concerned. Respondent is hereby ordered to pay legal interest at the rate of 6% per annum from 5
June 2000 until the satisfaction of its obligation under the Suretyship Contract and Purchase Agreement.

13. G.R. No. 212081

February 23, 2015

DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES (DENR), Petitioner,


vs.
UNITED PLANNERS CONSULTANTS , INC. (UPCI), Respondent.
DECISION

29

PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari 1 is the Decision2 dated March 26, 2014 of the Court of
Appeals (CA) in CA-G.R. SP No. 126458 which dismissed the petition for certiorari filed by petitioner the
Department of Environment and Natural Resources (petitioner).
The Issue Before the Court
The core issue for the Courts resolution is whether or not the CA erred in applying the provisions of the
Special ADR Rules, resulting in the dismissal of petitioners special civil action for certiorari.
The Courts Ruling
The petition lacks merit.
I.
Republic Act No. (RA) 9285,54 otherwise known as the Alternative Dispute Resolution Act of 2004,"
institutionalized the use of an Alternative Dispute Resolution System (ADR System) 55 in the Philippines. The
Act, however, was without prejudice to the adoption by the Supreme Court of any ADR system as a means
of achieving speedy and efficient means of resolving cases pending before all courts in the Philippines. 56
Accordingly, A.M. No. 07-11-08-SC was created setting forth the Special Rules of Court on Alternative
Dispute Resolution (referred herein as Special ADR Rules) that shall govern the procedure to be followed by
the courts whenever judicial intervention is sought in ADR proceedings in the specific cases where it is
allowed.57
Rule 1.1 of the Special ADR Rules lists down the instances when the said rules shall apply, namely: "(a)
Relief on the issue of Existence, Validity, or Enforceability of the Arbitration Agreement; (b) Referral to
Alternative Dispute Resolution ("ADR"); (c) Interim Measures of Protection; (d) Appointment of Arbitrator; (e)
Challenge to Appointment of Arbitrator; (f) Termination of Mandate of Arbitrator; (g) Assistance in Taking
Evidence; (h) Confirmation, Correction or Vacation of Award in Domestic Arbitration; (i) Recognition and
Enforcement or Setting Aside of an Award in International Commercial Arbitration; (j) Recognition and
Enforcement of a Foreign Arbitral Award; (k) Confidentiality/Protective Orders; and (l) Deposit and
Enforcement of Mediated Settlement Agreements."58
Notably, the Special ADR Rules do not automatically govern the arbitration proceedings itself. A pivotal
feature of arbitration as an alternative mode of dispute resolution is that it is a product of party autonomy or
the freedom of the parties to make their own arrangements to resolve their own disputes. 59 Thus, Rule 2.3 of
the Special ADR Rules explicitly provides that "parties are free to agree on the procedure to be followed in
the conduct of arbitral proceedings. Failing such agreement, the arbitral tribunal may conduct arbitration in
the manner it considers appropriate."60
In the case at bar, the Consultancy Agreement contained an arbitration clause. 61 Hence, respondent, after it
filed its complaint, moved for its referral to arbitration 62 which was not objected to by petitioner.63 By its
referral to arbitration, the case fell within the coverage of the Special ADR Rules. However, with respect to
the arbitration proceedings itself, the parties had agreed to adopt the CIAC Rules before the Arbitral Tribunal
in accordance with Rule 2.3 of the Special ADR Rules.
On May 7, 2010, the Arbitral Tribunal rendered the Arbitral Award in favor of respondent. Under Section 17.2,
Rule 17 of the CIAC Rules, no motion for reconsideration or new trial may be sought, but any of the parties
may file a motion for correction64 of the final award, which shall interrupt the running of the period for
appeal,65 based on any of the following grounds, to wit: a. an evident miscalculation of figures, a
typographical or arithmetical error;
b. an evident mistake in the description of any party, person, date, amount, thing or property referred
to in the award;

30

c. where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits
of the decision upon the matter submitted;
d. where the arbitrators have failed or omitted to resolve certain issue/s formulated by the parties in
the Terms of Reference (TOR) and submitted to them for resolution, and
e. where the award is imperfect in a matter of form not affecting the merits of the controversy.
The motion shall be acted upon by the Arbitral Tribunal or the surviving/remaining members. 66
Moreover, the parties may appeal the final award to the CA through a petition for review under Rule43 of the
Rules of Court.67
Records do not show that any of the foregoing remedies were availed of by petitioner. Instead, it filed the
May 19, 2010 Motion for Reconsideration of the Arbitral Award, which was a prohibited pleading under the
Section 17.2,68Rule 17 of the CIAC Rules, thus rendering the same final and executory.
Accordingly, the case was remanded to the RTC for confirmation proceedings pursuant to Rule 11 of the
Special ADR Rules which requires confirmation by the court of the final arbitral award. This is consistent with
Section 40, Chapter 7 (A) of RA 9285 which similarly requires a judicial confirmation of a domestic award to
make the same enforceable:
SEC. 40. Confirmation of Award. The confirmation of a domestic arbitral award shall be governed by
Section 2369 of R.A. 876.70
A domestic arbitral award when confirmed shall be enforced in the same manner as final and executory
decisions of the regional trial court.
The confirmation of a domestic award shall be made by the regional trial court in accordance with the Rules
of Procedure to be promulgated by the Supreme Court.
A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided under
E.O. No. 1008. (Emphases supplied)
During the confirmation proceedings, petitioners did not oppose the RTCs confirmation by filing a petition to
vacate the Arbitral Award under Rule 11.2 (D)71 of the Special ADR Rules. Neither did it seek reconsideration
of the confirmation order in accordance with Rule 19.1 (h) thereof. Instead, petitioner filed only on
September 10, 2012 a special civil action for certiorari before the CA questioning the propriety of (a) the RTC
Order dated September 12, 2011 granting respondents motion for issuance of a writ of execution, and (b)
Order dated July 9,2012 denying its motion to quash. Under Rule 19.26 of the Special ADR Rules, "[w]hen
the Regional Trial Court, in making a ruling under the Special ADR Rules, has acted without or in excess of
its jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no
appeal or any plain, speedy, and adequate remedy in the ordinary course of law, a party may file a special
civil action for certiorari to annul or set aside a ruling of the Regional Trial Court." Thus, for failing to avail of
the foregoing remedies before resorting to certiorari, the CA correctly dismissed its petition.
II.
Note that the special civil action for certiorari described in Rule 19.26 above may be filed to annul or set
aside the following orders of the Regional Trial Court.
a. Holding that the arbitration agreement is in existent, invalid or unenforceable;
b. Reversing the arbitral tribunals preliminary determination upholding its jurisdiction;
c. Denying the request to refer the dispute to arbitration;

31

d. Granting or refusing an interim relief;


e. Denying a petition for the appointment of an arbitrator;
f. Confirming, vacating or correcting a domestic arbitral award;
g. Suspending the proceedings to set aside an international commercial arbitral award and referring
the case back to the arbitral tribunal;
h. Allowing a party to enforce an international commercial arbitral award pending appeal;
i. Adjourning or deferring a ruling on whether to set aside, recognize and or enforce an international
commercial arbitral award;
j. Allowing a party to enforce a foreign arbitral award pending appeal; and
k. Denying a petition for assistance in taking evidence. (Emphasis supplied)
Further, Rule 19.772 of the Special ADR Rules precludes a party to an arbitration from filing a petition for
certiorari questioning the merits of an arbitral award.
If so falling under the above-stated enumeration, Rule 19.28 of the Special ADR Rules provide that said
certiorari petition should be filed "with the [CA] within fifteen (15) days from notice of the judgment, order or
resolution sought to be annulled or set aside. No extension of time to file the petition shall be allowed."
In this case, petitioner asserts that its petition is not covered by the Special ADR Rules (particularly, Rule
19.28 on the 15-day reglementary period to file a petition for certiorari) but by Rule 65 of the Rules of Court
(particularly, Section 4 thereof on the 60-day reglementary period to file a petition for certiorari), which it
claimed to have suppletory application in arbitration proceedings since the Special ADR Rules do not
explicitly provide for a procedure on execution. The position is untenable.
Execution is fittingly called the fruit and end of suit and the life of the law. A judgment, if left unexecuted,
would be nothing but an empty victory for the prevailing party.73
While it appears that the Special ADR Rules remain silent on the procedure for the execution of a confirmed
arbitral award, it is the Courts considered view that the Rules procedural mechanisms cover not only
aspects of confirmation but necessarily extend to a confirmed awards execution in light of the doctrine of
necessary implication which states that every statutory grant of power, right or privilege is deemed to include
all incidental power, right or privilege. In Atienza v. Villarosa, 74 the doctrine was explained, thus:
No statute can be enacted that can provide all the details involved in its application.1wphi1 There is always
an omission that may not meet a particular situation. What is thought, at the time of enactment, to be an all
embracing legislation may be inadequate to provide for the unfolding of events of the future. So-called gaps
in the law develop as the law is enforced. One of the rules of statutory construction used to fill in the gap is
the doctrine of necessary implication. The doctrine states that what is implied in a statute is as much a part
thereof as that which is expressed. Every statute is understood, by implication, to contain all such provisions
as may be necessary to effectuate its object and purpose, or to make effective rights, powers, privileges or
jurisdiction which it grants, including all such collateral and subsidiary consequences as may be fairly and
logically inferred from its terms. Ex necessitate legis. And every statutory grant of power, right or privilege is
deemed to include all incidental power, right or privilege. This is so because the greater includes the lesser,
expressed in the maxim, in eo plus sit, simper inest et minus. 75 (Emphases supplied)
As the Court sees it, execution is but a necessary incident to the Courts confirmation of an arbitral award. To
construe it otherwise would result in an absurd situation whereby the confirming court previously applying
the Special ADR Rules in its confirmation of the arbitral award would later shift to the regular Rules of
Procedure come execution. Irrefragably, a courts power to confirm a judgment award under the Special
ADR Rules should be deemed to include the power to order its execution for such is but a collateral and

32

subsidiary consequence that may be fairly and logically inferred from the statutory grant to regional trial
courts of the power to confirm domestic arbitral awards.
All the more is such interpretation warranted under the principle of ratio legis est anima which provides that a
statute must be read according to its spirit or intent, 76 for what is within the spirit is within the statute although
it is not within its letter, and that which is within the letter but not within the spirit is not within the
statute.77 Accordingly, since the Special ADR Rules are intended to achieve speedy and efficient resolution
of disputes and curb a litigious culture,78 every interpretation thereof should be made consistent with these
objectives.
Thus, with these principles in mind, the Court so concludes that the Special ADR Rules, as far as
practicable, should be made to apply not only to the proceedings on confirmation but also to the confirmed
awards execution.
Further, let it be clarified that contrary to petitioners stance resort to the Rules of Court even in a
suppletory capacity is not allowed. Rule 22.1 of the Special ADR Rules explicitly provides that "[t]he
provisions of the Rules of Court that are applicable to the proceedings enumerated in Rule 1.1 of these
Special ADR Rules have either been included and incorporated in these Special ADR Rules or specifically
referred to herein."79 Besides, Rule 1.13 thereof provides that "[i]n situations where no specific rule is
provided under the Special ADR Rules, the court shall resolve such matter summarily and be guided by the
spirit and intent of the Special ADR Rules and the ADR Laws."
As above-mentioned, the petition for certiorari permitted under the Special ADR Rules must be filed within a
period of fifteen (15) days from notice of the judgment, order or resolution sought to be annulled or set
aside.80Hence, since petitioners filing of its certiorari petition in CA-G.R. SP No. 126458 was made nearly
two months after its receipt of the RTCs Order dated July 9, 2012,or on September 10, 2012, 81 said petition
was clearly dismissible.82
III.
Discounting the above-discussed procedural considerations, the Court still finds that the certiorari petition
had no merit.
Indeed, petitioner cannot be said to have been denied due process as the records undeniably show that it
was accorded ample opportunity to ventilate its position. There was clearly nothing out of line when the
Arbitral Tribunal denied petitioners motions for extension to file its submissions having failed to show a valid
reason to justify the same or in rendering the Arbitral Award sans petitioners draft decision which was filed
only on the day of the scheduled promulgation of final award on May 7, 2010. 83 The touchstone of due
process is basically the opportunity to be heard. Having been given such opportunity, petitioner should only
blame itself for its own procedural blunder.
On this score, the petition for certiorari in CA-G.R. SP No. 126458 was likewise properly dismissed.
IV.
Nevertheless, while the Court sanctions the dismissal by the CA of the petition for certiorari due to
procedural infirmities, there is a need to explicate the matter of execution of the confirmed Arbitral Award
against the petitioner, a government agency, in the light of Presidential Decree No. (PD) 1445 84 otherwise
known as the "Government Auditing Code of the Philippines." Section 26 of PD 1445 expressly provides that
execution of money judgment against the Government or any of its subdivisions, agencies and
instrumentalities is within the primary jurisdiction of the COA, to wit:
SEC. 26. General jurisdiction. The authority and powers of the Commission shall extend to and comprehend
all matters relating to auditing procedures, systems and controls, the keeping of the general accounts of the
Government, the preservation of vouchers pertaining thereto for a period of ten years, the examination and
inspection of the books, records, and papers relating to those accounts; and the audit and settlement of the
accounts of all persons respecting funds or property received or held by them in an accountable capacity, as
well as the examination, audit, and settlement of all debts and claims of any sort due from or owing to the

33

Government or any of its subdivisions, agencies and instrumentalities. The said jurisdiction extends to all
government-owned or controlled corporations, including their subsidiaries, and other self-governing boards,
commissions, or agencies of the Government, and as herein prescribed, including non-governmental entities
subsidized by the government, those funded by donation through the government, those required to pay
levies or government share, and those for which the government has put up a counterpart fund or those
partly funded by the government. (Emphases supplied)
From the foregoing, the settlement of respondents money claim is still subject to the primary jurisdiction of
the COA despite finality of the confirmed arbitral award by the RTC pursuant to the Special ADR
Rules.85 Hence, the respondent has to first seek the approval of the COA of their monetary claim. This
appears to have been complied with by the latter when it filed a "Petition for Enforcement and Payment of
Final and Executory Arbitral Award"86 before the COA. Accordingly, it is now the COA which has the authority
to rule on this latter petition. WHEREFORE, the petition is DENIED. The Decision dated March 26, 2014 of
the Court of Appeals in CA-G.R. SP No. 126458 which dismissed the petition for certiorari filed by petitioner
the Department of Environment and Natural Resources is hereby AFFIRMED.

14. G.R. No. 198075

September 4, 2013

KOPPEL, INC. (formerly known as KPL AIRCON, INC.), Petitioner,


vs.
MAKATI ROTARY CLUB FOUNDATION, INC., Respondent.
DECISION
PEREZ, J.:
This case is an appeal1 from the Decision2 dated 19 August 2011 of the Court of Appeals in C.A.-G.R. SP
No. 116865.
On 5 September 2011, this Court granted petitioners prayer for the issuance of a Temporary Restraining
Order68staying the immediate implementation of the decisions adverse to it.
OUR RULING
Independently of the merits of the case, the MeTC, RTC and Court of Appeals all erred in overlooking the
significance of the arbitration clause incorporated in the 2005 Lease Contract . As the Court sees it, that is a
fatal mistake.
For this reason, We grant the petition.
Present Dispute is Arbitrable Under the
Arbitration Clause of the 2005 Lease
Agreement Contract
Going back to the records of this case, it is discernable that the dispute between the petitioner and
respondent emanates from the rental stipulations of the 2005 Lease Contract. The respondent insists upon
the enforce ability and validity of such stipulations, whereas, petitioner, in substance, repudiates them. It is
from petitioners apparent breach of the 2005 Lease Contract that respondent filed the instant unlawful
detainer action.
One cannot escape the conclusion that, under the foregoing premises, the dispute between the petitioner
and respondent arose from the application or execution of the 2005 Lease Contract . Undoubtedly, such
kinds of dispute are covered by the arbitration clause of the 2005 Lease Contract to wit:

34

19. Governing Law The provisions of this 2005 Lease Contract shall be governed, interpreted and
construed in all aspects in accordance with the laws of the Republic of the Philippines.
Any disagreement as to the interpretation, application or execution of this 2005 Lease Contract shall be
submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of the
Philippines. The decision of the majority of the arbitrators shall be binding upon FKI and
respondent.69 (Emphasis supplied)
The arbitration clause of the 2005 Lease Contract stipulates that "any disagreement" as to the "
interpretation, application or execution " of the 2005 Lease Contract ought to be submitted to arbitration. 70 To
the mind of this Court, such stipulation is clear and is comprehensive enough so as to include virtually any
kind of conflict or dispute that may arise from the 2005 Lease Contract including the one that presently
besets petitioner and respondent.
The application of the arbitration clause of the 2005 Lease Contract in this case carries with it certain legal
effects. However, before discussing what these legal effects are, We shall first deal with the challenges
posed against the application of such arbitration clause.
Challenges Against the Application of the
Arbitration Clause of the 2005 Lease
Contract
Curiously, despite the lucidity of the arbitration clause of the 2005 Lease Contract, the petitioner, as well as
the MeTC, RTC and the Court of Appeals, vouched for the non-application of the same in the instant case. A
plethora of arguments was hurled in favor of bypassing arbitration. We now address them.
At different points in the proceedings of this case, the following arguments were offered against the
application of the arbitration clause of the 2005 Lease Contract:
1. The disagreement between the petitioner and respondent is non-arbitrable as it will inevitably
touch upon the issue of the validity of the 2005 Lease Contract. 71 It was submitted that one of the
reasons offered by the petitioner in justifying its failure to pay under the 2005 Lease Contract was
the nullity of such contract for being contrary to law and public policy.72 The Supreme Court, in
Gonzales v. Climax Mining, Ltd.,73held that " the validity of contract cannot be subject of arbitration
proceedings " as such questions are " legal in nature and require the application and interpretation
of laws and jurisprudence which is necessarily a judicial function ." 74
2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contract while, at the
same time, impugn such contracts validity.75
3. Even assuming that it can invoke the arbitration clause whilst denying the validity of the 2005
Lease Contract , petitioner still did not file a formal application before the MeTC so as to render such
arbitration clause operational.76 Section 24 of Republic Act No. 9285 requires the party seeking
arbitration to first file a " request " or an application therefor with the court not later than the
preliminary conference.77
4. Petitioner and respondent already underwent Judicial Dispute Resolution (JDR) proceedings
before the RTC.78 Hence, a further referral of the dispute to arbitration would only be
circuitous.79 Moreover, an ejectment case, in view of its summary nature, already fulfills the prime
purpose of arbitration, i.e. , to provide parties in conflict with an expedient method for the resolution
of their dispute.80 Arbitration then would no longer be necessary in this case. 81
None of the arguments have any merit.
First. As highlighted in the previous discussion, the disagreement between the petitioner and respondent
falls within the all-encompassing terms of the arbitration clause of the 2005 Lease Contract. While it may be
conceded that in the arbitration of such disagreement, the validity of the 2005 Lease Contract, or at least, of
such contracts rental stipulations would have to be determined, the same would not render such

35

disagreement non-arbitrable. The quotation from Gonzales that was used to justify the contrary position was
taken out of context. A rereading of Gonzales would fix its relevance to this case.
In Gonzales, a complaint for arbitration was filed before the Panel of Arbitrators of the Mines and
Geosciences Bureau (PA-MGB) seeking the nullification of a Financial Technical Assistance Agreement and
other mining related agreements entered into by private parties. 82
Grounds invoked for the nullification of such agreements include fraud and unconstitutionality.83 The pivotal
issue that confronted the Court then was whether the PA-MGB has jurisdiction over that particular arbitration
complaint. Stated otherwise, the question was whether the complaint for arbitration raises arbitrable issues
that the PA-MGB can take cognizance of.
Gonzales decided the issue in the negative. In holding that the PA-MGB was devoid of any jurisdiction to
take cognizance of the complaint for arbitration, this Court pointed out to the provisions of R.A. No. 7942, or
the Mining Act of 1995, which granted the PA-MGB with exclusive original jurisdiction only over mining
disputes, i.e., disputes involving " rights to mining areas," "mineral agreements or permits," and " surface
owners, occupants, claim holders or concessionaires" requiring the technical knowledge and experience of
mining authorities in order to be resolved.84 Accordingly, since the complaint for arbitration in Gonzales did
not raise mining disputes as contemplated under R.A. No. 7942 but only issues relating to the validity of
certain mining related agreements, this Court held that such complaint could not be arbitrated before the PAMGB.85 It is in this context that we made the pronouncement now in discussion:
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. 86 (Emphasis supplied)
The Court in Gonzales did not simply base its rejection of the complaint for arbitration on the ground that the
issue raised therein, i.e. , the validity of contracts, is per se non-arbitrable. The real consideration behind the
ruling was the limitation that was placed by R.A. No. 7942 upon the jurisdiction of the PA-MGB as an arbitral
body . Gonzales rejected the complaint for arbitration because the issue raised therein is not a mining
dispute per R.A. No. 7942 and it is for this reason, and only for this reason, that such issue is rendered nonarbitrable before the PA-MGB. As stated beforehand, R.A. No. 7942 clearly limited the jurisdiction of the PAMGB only to mining disputes.87
Much more instructive for our purposes, on the other hand, is the recent case of Cargill Philippines, Inc. v.
San Fernando Regal Trading, Inc.88 In Cargill , this Court answered the question of whether issues involving
the rescission of a contract are arbitrable. The respondent in Cargill argued against arbitrability, also citing
therein Gonzales . After dissecting Gonzales , this Court ruled in favor of arbitrability.89 Thus, We held:
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.90(Emphasis ours)

36

Second. Petitioner may still invoke the arbitration clause of the 2005 Lease Contract notwithstanding the fact
that it assails the validity of such contract. This is due to the doctrine of separability.91
Under the doctrine of separability, an arbitration agreement is considered as independent of the main
contract.92Being a separate contract in itself, the arbitration agreement may thus be invoked regardless of
the possible nullity or invalidity of the main contract. 93
Once again instructive is Cargill, wherein this Court held that, as a further consequence of the doctrine of
separability, even the very party who repudiates the main contract may invoke its arbitration clause. 94
Third . The operation of the arbitration clause in this case is not at all defeated by the failure of the petitioner
to file a formal "request" or application therefor with the MeTC. We find that the filing of a "request" pursuant
to Section 24 of R.A. No. 9285 is not the sole means by which an arbitration clause may be validly invoked
in a pending suit.
Section 24 of R.A. No. 9285 reads:
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 that the pre-trial
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. [Emphasis ours;
italics original]
The " request " referred to in the above provision is, in turn, implemented by Rules 4.1 to 4.3 of A.M. No. 0711-08-SC or the Special Rules of Court on Alternative Dispute Resolution (Special ADR Rules):
RULE 4: REFERRAL TO ADR
Rule 4.1. Who makes the request. - A party to a pending action filed in violation of the arbitration agreement,
whether contained in an arbitration clause or in a submission agreement, may request the court to refer the
parties to arbitration in accordance with such agreement.
Rule 4.2. When to make request. - (A) Where the arbitration agreement exists before the action is filed . The request for referral shall be made not later than the pre-trial conference. After the pre-trial conference,
the court will only act upon the request for referral if it is made with the agreement of all parties to the case.
(B) Submission agreement . - If there is no existing arbitration agreement at the time the case is filed but the
parties subsequently enter into an arbitration agreement, they may request the court to refer their dispute to
arbitration at any time during the proceedings.
Rule 4.3. Contents of request. - The request for referral shall be in the form of a motion, which shall state
that the dispute is covered by an arbitration agreement.
A part from other submissions, the movant shall attach to his motion an authentic copy of the arbitration
agreement.
The request shall contain a notice of hearing addressed to all parties specifying the date and time when it
would be heard. The party making the request shall serve it upon the respondent to give him the opportunity
to file a comment or opposition as provided in the immediately succeeding Rule before the hearing.
[Emphasis ours; italics original]
Attention must be paid, however, to the salient wordings of Rule 4.1.It reads: "a party to a pending action
filed in violation of the arbitration agreement x x x may request the court to refer the parties to arbitration in
accordance with such agreement."
In using the word " may " to qualify the act of filing a " request " under Section 24 of R.A. No. 9285, the
Special ADR Rules clearly did not intend to limit the invocation of an arbitration agreement in a pending suit

37

solely via such "request." After all, non-compliance with an arbitration agreement is a valid defense to any
offending suit and, as such, may even be raised in an answer as provided in our ordinary rules of
procedure.95
In this case, it is conceded that petitioner was not able to file a separate " request " of arbitration before the
MeTC. However, it is equally conceded that the petitioner, as early as in its Answer with Counterclaim ,had
already apprised the MeTC of the existence of the arbitration clause in the 2005 Lease Contract 96 and, more
significantly, of its desire to have the same enforced in this case. 97 This act of petitioner is enough valid
invocation of his right to arbitrate. Fourth . The fact that the petitioner and respondent already under went
through JDR proceedings before the RTC, will not make the subsequent conduct of arbitration between the
parties unnecessary or circuitous. The JDR system is substantially different from arbitration proceedings.
The JDR framework is based on the processes of mediation, conciliation or early neutral evaluation which
entails the submission of a dispute before a " JDR judge " who shall merely " facilitate settlement " between
the parties in conflict or make a " non-binding evaluation or assessment of the chances of each partys
case."98 Thus in JDR, the JDR judge lacks the authority to render a resolution of the dispute that is binding
upon the parties in conflict. In arbitration, on the other hand, the dispute is submitted to an arbitrator/s a
neutral third person or a group of thereof who shall have the authority to render a resolution binding upon
the parties.99
Clearly, the mere submission of a dispute to JDR proceedings would not necessarily render the subsequent
conduct of arbitration a mere surplusage. The failure of the parties in conflict to reach an amicable
settlement before the JDR may, in fact, be supplemented by their resort to arbitration where a binding
resolution to the dispute could finally be achieved. This situation precisely finds application to the case at
bench.
Neither would the summary nature of ejectment cases be a valid reason to disregard the enforcement of the
arbitration clause of the 2005 Lease Contract . Notwithstanding the summary nature of ejectment cases,
arbitration still remains relevant as it aims not only to afford the parties an expeditious method of resolving
their dispute.
A pivotal feature of arbitration as an alternative mode of dispute resolution is that it is, first and foremost, a
product of party autonomy or the freedom of the parties to " make their own arrangements to resolve their
own disputes."100 Arbitration agreements manifest not only the desire of the parties in conflict for an
expeditious resolution of their dispute. They also represent, if not more so, the parties mutual aspiration to
achieve such resolution outside of judicial auspices, in a more informal and less antagonistic environment
under the terms of their choosing. Needless to state, this critical feature can never be satisfied in an
ejectment case no matter how summary it may be.
Having hurdled all the challenges against the application of the arbitration clause of the 2005 Lease
Agreement in this case, We shall now proceed with the discussion of its legal effects.
Legal Effect of the Application of the
Arbitration Clause
Since there really are no legal impediments to the application of the arbitration clause of the 2005 Contract
of Lease in this case, We find that the instant unlawful detainer action was instituted in violation of such
clause. The Law, therefore, should have governed the fate of the parties and this suit:
R.A. No. 876 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]
R.A. No. 9285

38

Section 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 that the pre-trial
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, in operative or incapable of being performed. [Emphasis supplied]
It is clear that under the law, the instant unlawful detainer action should have been stayed; 101 the petitioner
and the respondent should have been referred to arbitration pursuant to the arbitration clause of the 2005
Lease Contract . The MeTC, however, did not do so in violation of the lawwhich violation was, in turn,
affirmed by the RTC and Court of Appeals on appeal.
The violation by the MeTC of the clear directives under R.A. Nos.876 and 9285 renders invalid all
proceedings it undertook in the ejectment case after the filing by petitioner of its Answer with Counterclaim
the point when the petitioner and the respondent should have been referred to arbitration. This case must,
therefore, be remanded to the MeTC and be suspended at said point. Inevitably, the decisions of the MeTC,
RTC and the Court of Appeals must all be vacated and set aside.
The petitioner and the respondent must then be referred to arbitration pursuant to the arbitration clause of
the 2005 Lease Contract.
This Court is not unaware of the apparent harshness of the Decision that it is about to make. Nonetheless,
this Court must make the same if only to stress the point that, in our jurisdiction, bona fide arbitration
agreements are recognized as valid;102 and that laws,103 rules and regulations104 do exist protecting and
ensuring their enforcement as a matter of state policy. Gone should be the days when courts treat otherwise
valid arbitration agreements with disdain and hostility, if not outright " jealousy," 105 and then get away with it.
Courts should instead learn to treat alternative means of dispute resolution as effective partners in the
administration of justice and, in the case of arbitration agreements, to afford them judicial restraint. 106 Today,
this Court only performs its part in upholding a once disregarded state policy.
Civil Case No. CV 09-0346
This Court notes that, on 30 September 2009, petitioner filed with the RTC of Paraaque City, a
complaint107 for the rescission or cancellation of the Deed of Donation and Amended Deed of Donation
against the respondent. The case is currently pending before Branch 257 of the RTC, docketed as Civil
Case No. CV 09-0346.
This Court recognizes the great possibility that issues raised in Civil Case No. CV 09-0346 may involve
matters that are rightfully arbitrable per the arbitration clause of the 2005 Lease Contract. However, since
the records of Civil Case No. CV 09-0346 are not before this Court, We can never know with true certainty
and only speculate. In this light, let a copy of this Decision be also served to Branch 257of the RTC of
Paraaque for its consideration and, possible, application to Civil Case No. CV 09-0346.
WHEREFORE, premises considered, the petition is hereby GRANTED . Accordingly, We hereby render a
Decision:
1. SETTING ASIDE all the proceedings undertaken by the Metropolitan Trial Court, Branch 77, of
Paraaque City in relation to Civil Case No. 2009-307 after the filing by petitioner of its Answer with
Counterclaim ;
2. REMANDING the instant case to the MeTC, SUSPENDED at the point after the filing by petitioner
of its Answer with Counterclaim;
3. SETTING ASIDE the following:
a. Decision dated 19 August 2011 of the Court of Appeals in C.A.-G.R. SP No. 116865,
b. Decision dated 29 October 2010 of the Regional Trial Court, Branch 274, of Paraaque
City in Civil Case No. 10-0255,

39

c. Decision dated 27 April 2010 of the Metropolitan Trial Court, Branch 77, of Paraaque
City in Civil Case No. 2009-307; and
4. REFERRING the petitioner and the respondent to arbitration pursuant to the arbitration clause of
the 2005 Lease Contract, repeatedly included in the 2000 Lease Contract and in the 1976 Amended
Deed of Donation.
15. COURT-ANNEXED MEDIATION means any mediation process conducted under the auspices of the
court, after such court has acquired jurisdiction of the dispute;
16. As a mediator and conciliator, the judge facilitates the settlement discussions between parties and
tries to reconcile their differences. As a neutral evaluator, the judge assesses the relative strengths
and weaknesses of each partys case and makes a non-binding and impartial evaluation of the
chances of each partys success in the case. On the basis of his neutral evaluation, the judge
persuades the parties to reconsider their prior reluctance to settle their case amicably. The entire
process comprises JUDICIAL DISPUTE RESOLUTION.
17. G.R. No. 175404
January 31, 2011
CARGILL PHILIPPINES, INC., Petitioner,
vs.
SAN FERNANDO REGALA TRADING, INC., Respondent.
Before us is a petition for review on certiorari seeking to reverse and set aside the Decision1 dated
July 31, 2006 and the Resolution2 dated November 13, 2006 of the Court of Appeals (CA) in CA
G.R. SP No. 50304.
We find merit in the petition.
Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in our
jurisdiction.16 R.A. No. 87617 authorizes arbitration of domestic disputes. Foreign arbitration, as a system of
settling commercial disputes of an international character, is likewise recognized. 18 The enactment of R.A.
No. 9285 on April 2, 2004 further institutionalized the use of alternative dispute resolution systems, including
arbitration, in the settlement of disputes.19
A contract is required for arbitration to take place and to be binding. 20 Submission to arbitration is a
contract 21and a clause in a contract providing that all matters in dispute between the parties shall be
referred to arbitration is a contract.22 The provision to submit to arbitration any dispute arising therefrom and
the relationship of the parties is part of the contract and is itself a contract. 23
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

40

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. 24
However, the Gonzales case,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
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.26
In so ruling that the validity of the contract containing the arbitration agreement does not affect the
applicability of the arbitration clause itself, we then applied the doctrine of separability, thus:
The doctrine of separability, or severability as other writers call it, enunciates that an arbitration agreement is
independent of the main contract. The arbitration agreement is to be treated as a separate agreement and
the arbitration agreement does not automatically terminate when the contract of which it is a part comes to
an end.
The separability of the arbitration agreement is especially significant to the determination of whether the
invalidity of the main contract also nullifies the arbitration clause. Indeed, the doctrine denotes that the
invalidity of the main contract, also referred to as the "container" contract, does not affect the validity of the
arbitration agreement. Irrespective of the fact that the main contract is invalid, the arbitration
clause/agreement still remains valid and enforceable.27
Respondent argues that the separability doctrine is not applicable in petitioner's case, since in
the Gonzales case, Climax-Arimco 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 Climax-Arimco 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 no container or main contract or an arbitration
clause to speak of.

41

We are not persuaded.


Applying the Gonzales ruling, an arbitration agreement which forms part of the main contract shall not be
regarded as invalid or non-existent just because the main contract is invalid or did not come into existence,
since the arbitration agreement shall be treated as a separate agreement independent of the main contract.
To reiterate. a contrary ruling would suggest that a party's mere repudiation of the main contract is sufficient
to avoid arbitration and that is exactly the situation that the separability doctrine sought to avoid. Thus, we
find that even the party who has repudiated the main contract is not prevented from enforcing its arbitration
clause.
Moreover, it is worthy to note that respondent filed a complaint for rescission of contract and damages with
the RTC. In so doing, respondent alleged that a contract exists between respondent and petitioner. It is that
contract which provides for an arbitration clause which states that "any dispute which the Buyer and Seller
may 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.
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 involved the exploration and exploitation of minerals over the disputed
area.1wphi1 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 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

42

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. 28
We found that since the complaint filed before the DENR Panel of Arbitrators charged respondents with
disregarding and ignoring the 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. 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.
18. G.R. No. 167022

April 4, 2011

LICOMCEN INCORPORATED, Petitioner,


vs.
FOUNDATION SPECIALISTS, INC., Respondent.
THE COURTS RULING
The jurisdiction of the CIAC
The CIAC was created through Executive Order No. 1008 (E.O. 1008), in recognition of the need to
establish an arbitral machinery that would expeditiously settle construction industry disputes. The prompt
resolution of problems arising from or connected with the construction industry was considered of necessary
and vital for the fulfillment of national development goals, as the construction industry provides employment
to a large segment of the national labor force and is a leading contributor to the gross national
product.43 Section 4 of E.O. 1008 states:
Sec. 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by parties involved in construction in the Philippines, whether the
dispute arises before or after the completion of the contract, or after the abandonment or breach thereof.
These disputes may involve government or private contracts. For the Board to acquire jurisdiction, the
parties to a dispute must agree to submit the same to voluntary arbitration.

43

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship; violation of the terms of agreement; interpretation and/or application of contractual time and
delays; maintenance and defects; payment, default of employer or contractor and changes in contract cost.
Excluded from the coverage of this law are disputes arising from employer-employee relationships which
shall continue to be covered by the Labor Code of the Philippines.
The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and the law.44 It cannot
be fixed by the will of the parties to a dispute; 45 the parties can neither expand nor diminish a tribunals
jurisdiction by stipulation or agreement. The text of Section 4 of E.O. 1008 is broad enough to cover any
dispute arising from, or connected with construction contracts, whether these involve mere contractual
money claims or execution of the works.46 Considering the intent behind the law and the broad language
adopted, LICOMCEN erred in insisting on its restrictive interpretation of GC-61. The CIACs jurisdiction
cannot be limited by the parties stipulation that only disputes in connection with or arising out of the physical
construction activities (execution of the works) are arbitrable before it.
In fact, all that is required for the CIAC to acquire jurisdiction is for the parties to a construction contract to
agree to submit their dispute to arbitration. Section 1, Article III of the 1988 CIAC Rules of Procedure (as
amended by CIAC Resolution Nos. 2-91 and 3-93) states:
Section 1. Submission to CIAC Jurisdiction. An arbitration clause in a construction contract or a
submission to arbitration of a construction dispute shall be deemed an agreement to submit an existing or
future controversy to CIAC jurisdiction, notwithstanding the reference to a different arbitration institution or
arbitral body in such contract or submission. When a contract contains a clause for the submission of a
future controversy to arbitration, it is not necessary for the parties to enter into a submission agreement
before the claimant may invoke the jurisdiction of CIAC.
An arbitration agreement or a submission to arbitration shall be in writing, but it need not be signed by the
parties, as long as the intent is clear that the parties agree to submit a present or future controversy arising
from a construction contract to arbitration.
In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila Tollways Corporation, 47 the Court declared
that "the bare fact that the parties x x x incorporated an arbitration clause in [their contract] is sufficient to
vest the CIAC with jurisdiction over any construction controversy or claim between the parties. The
arbitration clause in the construction contract ipso facto vested the CIAC with jurisdiction."
Under GC-61 and GC-05 of the GCC, read singly and in relation with one another, the Court sees no intent
to limit resort to arbitration only to disputes relating to the physical construction activities.
First, consistent with the intent of the law, an arbitration clause pursuant to E.O. 1008 should be interpreted
at its widest signification. Under GC-61, the voluntary arbitration clause covers any dispute of any kind, not
only arising of out the execution of the works but also in connection therewith. The payments, demand and
disputed issues in this case namely, work billings, material costs, equipment and labor standby costs,
unrealized profits all arose because of the construction activities and/or are connected or related to these
activities. In other words, they are there because of the construction activities. Attorneys fees and interests
payment, on the other hand, are costs directly incidental to the dispute. Hence, the scope of the arbitration
clause, as worded, covers all the disputed items.
Second and more importantly, in insisting that contractual money claims can be resolved only through court
action, LICOMCEN deliberately ignores one of the exceptions to the general rule stated in GC-05:
GC-05. JURISDICTION
Any question between the contracting parties that may arise out of or in connection with the Contract, or
breach thereof, shall be litigated in the courts of Legaspi City except where otherwise specifically stated
or except when such question is submitted for settlement thru arbitration as provided herein.

44

The second exception clause authorizes the submission to arbitration of any dispute between LICOMCEM
and FSI, even if the dispute does not directly involve the execution of physical construction works. This was
precisely the avenue taken by FSI when it filed its petition for arbitration with the CIAC.
If the CIACs jurisdiction can neither be enlarged nor diminished by the parties, it also cannot be subjected to
a condition precedent. GC-61 requires a party disagreeing with LICOMCENs decision to "officially give
notice to contest such decision through arbitration" within 30 days from receipt of the decision. However,
FSIs April 15, 1998 letter is not the notice contemplated by GC-61; it never mentioned FSIs plan to submit
the dispute to arbitration and instead requested LICOMCEN to reevaluate its claims. Notwithstanding FSIs
failure to make a proper and timely notice, LICOMCENs decision (embodied in its March 24, 1998 letter)
cannot become "final and binding" so as to preclude resort to the CIAC arbitration. To reiterate, all that is
required for the CIAC to acquire jurisdiction is for the parties to agree to submit their dispute to voluntary
arbitration:
[T]he mere existence of an arbitration clause in the construction contract is considered by law as an
agreement by the parties to submit existing or future controversies between them to CIAC jurisdiction,
without any qualification or condition precedent. To affirm a condition precedent in the construction contract,
which would effectively suspend the jurisdiction of the CIAC until compliance therewith, would be in conflict
with the recognized intention of the law and rules to automatically vest CIAC with jurisdiction over a dispute
should the construction contract contain an arbitration clause. 48
The CIAC is given the original and exclusive jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in the Philippines. 49 This jurisdiction cannot be
altered by stipulations restricting the nature of construction disputes, appointing another arbitral body, or
making that bodys decision final and binding.
The jurisdiction of the CIAC to resolve the dispute between LICOMCEN and FSI is, therefore, affirmed.
The validity of the indefinite
suspension of the works on the
Citimall project
Before the Court rules on each of FSIs contractual monetary claims, we deem it important to discuss the
validity of LICOMCENs indefinite suspension of the works on the Citimall project. We quote below two
contractual stipulations relevant to this issue:
GC-38. SUSPENSION OF WORKS
The Engineer [ESCA] through the LICOMCEN, INCORPORATED shall have the authority to suspend the
Works wholly or partly by written order for such period as may be deemed necessary, due to unfavorable
weather or other conditions considered unfavorable for the prosecution of the Works, or for failure on the
part of the Contractor to correct work conditions which are unsafe for workers or the general public, or failure
or refusal to carry out valid orders, or due to change of plans to suit field conditions as found necessary
during construction, or to other factors or causes which, in the opinion of the Engineer, is necessary in the
interest of the Works and to the LICOMCEN, INCORPORATED. The Contractor [FSI] shall immediately
comply with such order to suspend the work wholly or partly directed.
In case of total suspension or suspension of activities along the critical path of the approved PERT/CPM
network and the cause of which is not due to any fault of the Contractor, the elapsed time between the
effective order for suspending work and the order to resume work shall be allowed the Contractor by
adjusting the time allowed for his execution of the Contract Works.
The Engineer through LICOMCEN, INCORPORATED shall issue the order lifting the suspension of work
when conditions to resume work shall have become favorable or the reasons for the suspension have been
duly corrected.50
GC-41 LICOMCEN, INCORPORATED's RIGHT TO SUSPEND WORK OR TERMINATE THE CONTRACT

45

xxxx
2. For Convenience of LICOMCEN, INCORPORATED
If any time before completion of work under the Contract it shall be found by the LICOMCEN,
INCORPORATED that reasons beyond the control of the parties render it impossible or against the interest
of the LICOMCEN, INCORPORATED to complete the work, the LICOMCEN, INCORPORATED at any time,
by written notice to the Contractor, may discontinue the work and terminate the Contract in whole or in part.
Upon the issuance of such notice of termination, the Contractor shall discontinue to work in such manner,
sequence and at such time as the LICOMCEN, INCORPORATED/Engineer may direct, continuing and doing
after said notice only such work and only until such time or times as the LICOMCEN,
INCORPORATED/Engineer may direct.51
Under these stipulations, we consider LICOMCENs initial suspension of the works valid. GC-38 authorizes
the suspension of the works for factors or causes which ESCA deems necessary in the interests of the
works and LICOMCEN. The factors or causes of suspension may pertain to a change or revision of works,
as cited in the December 16, 1997 and January 6, 1998 letters of ESCA, or to the pendency of a case before
the Ombudsman (OMB-ADM-1-97-0622), as cited in LICOMCENs January 15, 1998 letter and ESCAs
January 19, 1998 and February 17, 1998 letters. It was not necessary for ESCA/LICOMCEN to wait for a
restraining or injunctive order to be issued in any of the cases filed against LICOMCEN before it can
suspend the works. The language of GC-38 gives ESCA/LICOMCEN sufficient discretion to determine
whether the existence of a particular situation or condition necessitates the suspension of the works and
serves the interests of LICOMCEN.1avvphi1
Although we consider the initial suspension of the works as valid, we find that LICOMCEN wrongfully
prolonged the suspension of the works (or "indefinite suspension" as LICOMCEN calls it). GC-38 requires
ESCA/LICOMCEN to "issue an order lifting the suspension of work when conditions to resume work shall
have become favorable or the reasons for the suspension have been duly corrected." The Ombudsman
case (OMB-ADM-1-97-0622), which ESCA and LICOMCEN cited in their letters to FSI as a ground for the
suspension, was dismissed as early as October 12, 1998, but neither ESCA nor LICOMCEN informed FSI of
this development. The pendency of the other cases52 may justify the continued suspension of the works, but
LICOMCEN never bothered to inform FSI of the existence of these cases until the arbitration proceedings
commenced. By May 28, 2002, the City Government of Legaspi sent LICOMCEN a notice instructing it to
proceed with the Citimall project;53 again, LICOMCEN failed to relay this information to FSI. Instead,
LICOMCEN conducted a rebidding of the Citimall project based on the new design. 54 LICOMCENs claim
that the rebidding was conducted merely to get cost estimates for the new design goes against the
established practice in the construction industry. We find the CIACs discussion on this matter relevant:
But what is more appalling and disgusting is the allegation x x x that the x x x invitation to bid was issued x x
x solely to gather cost estimates on the redesigned [Citimall project] x x x. This Arbitral Tribunal finds said act
of asking for bids, without any intention of awarding the project to the lowest and qualified bidder, if true, to
be extremely irresponsible and highly unprofessional. It might even be branded as fraudulent x x x [since]
the invited bidders [were required] to pay P2,000.00 each for a set of the new plans, which amount was nonrefundable. The presence of x x x deceit makes the whole story repugnant and unacceptable. 55
LICOMCENs omissions and the imprudent rebidding of the Citimall project are telling indications of
LICOMCENs intent to ease out FSI and terminate their contract. As with GC-31, GC-42(2) grants
LICOMCEN ample discretion to determine what reasons render it against its interest to complete the work
in this case, the pendency of the other cases and the revised designs for the Citimall project. Given this
authority, the Court fails to the see the logic why LICOMCEN had to resort to an "indefinite suspension" of
the works, instead of outrightly terminating the contract in exercise of its rights under GC-42(2).
We now proceed to discuss the effects of these findings with regard to FSIs monetary claims against
LICOMCEN.
The claim for material costs at site
GC-42 of the GCC states:

46

GC-42 PAYMENT FOR TERMINATED CONTRACT


If the Contract is terminated as aforesaid, the Contractor will be paid for all items of work executed,
satisfactorily completed and accepted by the LICOMCEN, INCORPORATED up to the date of termination, at
the rates and prices provided for in the Contract and in addition:
1. The cost of partially accomplished items of additional or extra work agreed upon by the
LICOMCEN, INCORPORATED and the Contractor.
2. The cost of materials or goods reasonably ordered for the Permanent or Temporary Works which
have been delivered to the Contractor but not yet used and which delivery has been certified by the
Engineer.
3. The reasonable cost of demobilization
For any payment due the Contractor under the above conditions, the LICOMCEN, INCORPORATED,
however, shall deduct any outstanding balance due from the Contractor for advances in respect to
mobilization and materials, and any other sum the LICOMCEN, INCORPORATED is entitled to be credited. 56
For LICOMCEN to be liable for the cost of materials or goods, item two of GC-42 requires that
a. the materials or goods were reasonably ordered for the Permanent or Temporary Works;
b. the materials or goods were delivered to the Contractor but not yet used; and
c. the delivery was certified by the Engineer.
Both the CIAC and the CA agreed that these requisites were met by FSI to make LICOMCEN liable for the
cost of the steel bars ordered for the Citimall project; the two tribunals differed only to the extent of
LICOMCENs liability because the CA opined that it should be limited only to 50% of the cost of the steel
bars. A review of the records compels us to uphold the CAs finding.
Prior to the delivery of the steel bars, ESCA informed FSI of the suspension of the works; ESCAs January 6,
1998 letter reads:
As per our information to you on December 16, 1997, a major revision in the design of the Legaspi Citimall
necessitated a change in the bored piles requirement of the project. The change involved a substantial
reduction in the number and length of piles.
We expected that you would have suspended the deliveries of the steel bars until the new design has been
approved.
According to you[,] the steel bars had already been paid and loaded and out of Manila on said date.
In order to avoid double handling, storage, security problems, we suggest that only 50% of the total
requirement of steel bars be delivered at jobsite. The balance should be returned to Manila where storage
and security is better.
In order for us to consider additional cost due to the shipping of the excess steel bars, we need to know the
actual dates of purchase, payments and loading of the steel bars. Obviously, we cannot consider the
additional cost if you have had the chance to delay the shipping of the steel bars. 57
From the above, it appears that FSI was informed of the necessity of suspending the works as early as
December 16, 1997. Pursuant to GC-38 of the GCC, FSI was expected to immediately comply with the order
to suspend the work.58 Though ESCAs December 16, 1997 notice may not have been categorical in
ordering the suspension of the works, FSIs reply letter of December 18, 1997 indicated that it actually
complied with the notice to suspend, as it said, "We hope for the early resolution of the new foundation plan

47

and the resumption of work."59 Despite the suspension, FSI claimed that it could not stop the delivery of the
steel bars (nor found the need to do so) because (a) the steel bars were ordered as early as November 1997
and were already loaded in Manila and expected to arrive in Legaspi City by December 23, 1997, and (b) it
expected immediate resumption of work to meet the 90-day deadline. 60
Records, however, disclose that these claims are not entirely accurate. The memorandum of agreement and
sale covering the steel bars specifically stated that these would be withdrawn from the Cagayan de Oro
depot, not Manila61; indeed, the bill of lading stated that the steel bars were loaded in Cagayan de Oro on
January 11, 1998, and arrived in Legaspi City within three days, on January 14, 1998. 62 The loading and
delivery of the steel bar thus happened after FSI received ESCAs December 16, 1997 and January 6, 1998
letters days after the instruction to suspend the works. Also, the same stipulation that authorizes
LICOMCEN to suspend the works allows the extension of the period to complete the works. The relevant
portion of
GC-38 states:
In case of total suspension x x x and the cause of which is not due to any fault of the Contractor [FSI], the
elapsed time between the effective order for suspending work and the order to resume work shall be allowed
the Contractor by adjusting the time allowed for his execution of the Contract Works. 63
The above stipulation, coupled with the short period it took to ship the steel bars from Cagayan de Oro to
Legaspi City, thus negates both FSIs
argument and the CIACs ruling64 that there was no necessity to stop the shipment so as to meet the 90-day
deadline. These circumstances prove that FSI acted imprudently in proceeding with the delivery, contrary to
LICOMCENs instructions. The CA was correct in holding LICOMCEN liable for only 50% of the costs of the
steel bars delivered.
The claim for equipment and labor standby costs
The Court upholds the CAs ruling deleting the award for equipment and labor standby costs. We quote in
agreement pertinent portions of the CA decision:
The CIAC relied solely on the list of 37 pieces of equipment respondent allegedly rented and maintained at
the construction site during the suspension of the project with the prorated rentals incurred x x x. To the mind
of this Court, these lists are not sufficient to establish the fact that indeed [FSI] incurred the said expenses.
Reliance on said lists is purely speculative x x x the list of equipments is a mere index or catalog of the
equipments, which may be utilized at the construction site. It is not the best evidence to prove that said
equipment were in fact rented and maintained at the construction site during the suspension of the work. x x
x [FSI] should have presented the lease contracts or any similar documents such as receipts of payments x
x x. Likewise, the list of employees does not in anyway prove that those employees in the list were indeed at
the construction site or were required to be on call should their services be needed and were being paid their
salaries during the suspension of the project. Thus, in the absence of sufficient evidence, We deny the claim
for equipment and labor standby costs.65
The claim for unrealized profit
FSI contends that it is not barred from recovering unrealized profit under GC-41(2), which states:
GC-41. LICOMCEN, INCORPORATEDs RIGHT TO SUSPEND WORK OR TERMINATE THE CONTRACT
xxxx
2. For Convenience of the LICOMCEN, INCORPORATED
x x x. The Contractor [FSI] shall not claim damages for such discontinuance or termination of the Contract,
but the Contractor shall receive compensation for reasonable expenses incurred in good faith for the
performance of the Contract and for reasonable expenses associated with termination of the Contract. The

48

LICOMCEN, INCORPORATED will determine the reasonableness of such expenses. The Contractor [FSI]
shall have no claim for anticipated profits on the work thus terminated, nor any other claim, except for the
work actually performed at the time of complete discontinuance, including any variations authorized by the
LICOMCEN, INCORPORATED/Engineer to be done.
The prohibition, FSI posits, applies only where the contract was properly and lawfully terminated, which was
not the case at bar. FSI also took pains in differentiating its claim for "unrealized profit" from the prohibited
claim for "anticipated profits"; supposedly, unrealized profit is "one that is built-in in the contract price, while
anticipated profit is not." We fail to see the distinction, considering that the contract itself neither defined nor
differentiated the two terms. [A] contract must be interpreted from the language of the contract itself,
according to its plain and ordinary meaning."66 If the terms of a contract are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning of the stipulations shall control. 67
Nonetheless, on account of our earlier discussion of LICOMCENs failure to observe the proper procedure in
terminating the contract by declaring that it was merely indefinitely suspended, we deem that FSI is entitled
to the payment of nominal damages. Nominal damages may be awarded to a plaintiff whose right has been
violated or invaded by the defendant, for the purpose of vindicating or recognizing that right, and not for
indemnifying the plaintiff for any loss suffered by him. 68 Its award is, thus, not for the purpose of
indemnification for a loss but for the recognition and vindication of a right. A violation of the plaintiffs right,
even if only technical, is sufficient to support an award of nominal damages. 69 FSI is entitled to recover the
amount of P100,000.00 as nominal damages.
The liability for costs of arbitration
Under the parties Terms of Reference, executed before the CIAC, the costs of arbitration shall be equally
divided between them, subject to the CIACs determination of which of the parties shall eventually shoulder
the amount.70The CIAC eventually ruled that since LICOMCEN was the party at fault, it should bear the
costs. As the CA did, we agree with this finding. Ultimately, it was LICOMCENs imprudent declaration of
indefinitely suspending the works that caused the dispute between it and FSI. LICOMCEN should bear the
costs of arbitration.
WHEREFORE, premises considered, the petition for review on certiorari of LICOMCEN INCORPORATED,
docketed as G.R. No. 167022, and the petition for review on certiorari of FOUNDATION SPECIALISTS,
INC., docketed as G.R. No. 169678, are DENIED. The November 23, 2004 Decision of the Court of Appeals
in CA-G.R. SP No. 78218 is MODIFIED to include the award of nominal damages in favor of FOUNDATION
SPECIALISTS, INC. Thus, LICOMCEN INCORPORATED is ordered to pay FOUNDATION SPECIALISTS,
INC. the following amounts:
a. P1,264,404.12 for unpaid balance on FOUNDATION SPECIALISTS, INC. billings;
b. P5,694,939.87 for material costs at site; and
c. P100,000.00 for nominal damages.
LICOMCEN INCORPORATED is also ordered to pay the costs of arbitration. No costs.
19. G.R. Nos. 159561-62

October 3, 2012

R.V. SANTOS COMPANY, INC., Petitioner,


vs.
BELLE CORPORATION, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:

49

For disposition of the Court is a Petition for Review on Certiorari, assailing the Court of Appeals'
Decision1 dated March 7, 2003 and Resolution2 dated August 20, 2003 in the consolidated cases docketed
as CA-G.R. SP Nos. 60217 and 60224. In its Decision dated March 7, 2003, the Court of Appeals affirmed
the July 28, 2000 Decision3in CIAC Case No. 45-99 of the Construction Industry Arbitration Commission
(CIAC), which, among others, (a) ordered RV Santos Company, Inc. (RVSCI) to refund the amount of
P4,940,108.58 to Belle Corporation (Belle), and (b) denied Belles claim for liquidated damages and RVSCIs
counterclaims for unpaid billings and attorneys fees. In the assailed August 20, 2003 Resolution, the Court
of Appeals denied the parties respective motions for reconsideration of its March 7, 2003 Decision.

RVSCI elevated the matter to this Court and questioned the Court of Appeals March 7, 2003 Decision and
August 20, 2003 Resolution through the present petition for review on certiorari under Rule 45. The grounds
relied upon by RVSCI were:
I. THE APPELLATE COURT GRAVELY ERRED IN RULING THAT THE SURVEYORS
ELECTRICAL WORK AUDIT WAS COMPETENT AND MUST BE GIVEN WEIGHT.
II. THE APPELLATE COURT GRAVELY ERRED IN RULING THAT BELLE MAY WITHDRAW ITS
APPROVAL OF THE PROGRESS BILLING PURSUANT TO ARTICLES VI(2)(C) AND XIII(4) OF
THE CONTRACT.
III. THE APPELLATE COURT GRAVELY ERRED IN RULING THAT RVSCI IS NOT ENTITLED TO
AN AWARD FOR DAMAGES.27
Anent the first ground, RVSCI argued that R.A. Mojicas electrical work audit that was unilaterally
commissioned by Belle was not binding on the former since (a) it was not authorized by the Contract and
was done without the consent or participation of RVSCI; (b) assuming that the Contract allowed Belle to
commission such audit, it was incomplete as it failed to cover the entire work performed by RVSCI as shown
by its Progress Billing and Bill of Quantities, allegedly approved by Belle; and (c) the audit was tainted by
obvious partiality since R.A. Mojica was a regular contractor of Belle and a competitor of RVSCI.
With respect to the second ground, it is RVSCIs contention that Article VI, Section 6.2(c) of the Construction
Contract merely differentiate acceptance by Belle of RVSCIs work accomplishment from time to time from
Belles final acceptance of work upon completion of the entire project. Also RVSCI claims that Article XIII,
Section 13.4 only allows Belle to determine the true value of the works in cases of termination of the
Contract upon occurrence of any of the events of default enumerated under Article XIII, Section 13.1 and
said provision has no application in instances of justified suspension of works due to Belles breach of the
Contract. In any event, it is RVSCIs view that neither Article VI, Section 6.2(c) nor Article XIII, Section 13.4
allows Belle to withdraw its previous approval of RVSCIs Progress Billing, contrary to the rulings of both the
CIAC and the Court of Appeals. Assuming without conceding that Article XIII, Section 13.4 of the Contract
applies in this instance, RVSCI believes that the final determination of the value of the works should be
made by (a) both parties or (b) an independent third party mutually commissioned by them.
As for the last ground, RVSCI asserts that the CIAC and the Court of Appeals erred in denying RVSCIs
claim for damages in view of Belles breach of the Contract by its unjustified refusal or failure to pay the
Progress Billing.
On the other hand, Belle claims that the Petition should be dismissed for raising questions of fact, which are
improper in a petition under Rule 45 of the Rules of Court, without showing that this case fell under the
recognized exceptions under jurisprudence. On the merits of the Petition, Belle argued that it had the right to
determine the true value of work done and nothing in the Contract limited that right. According to Belle, the
CIAC and the Court of Appeals properly relied on Article VI, Section 6.2(c) and Article XIII, 13.4 of the
Contract and on industry practice in upholding Belles right for a re-evaluation of RVSCIs actual work
accomplishment. Thus, the CIAC and the appellate court allegedly were correct in giving weight to the
electrical audit report made by R.A. Mojica. Belle further propounds that the lower tribunals correctly did not
grant RVSCI any award for damages considering that RVSCI did not prove such damages as it had, in fact,
been overpaid. As for RVSCIs claim for the value of materials and equipment purportedly left at the site, the

50

same was not included in the Terms of Reference and RVSCI was not allowed by the CIAC to present
evidence on the same. Thus, this matter cannot be raised for the first time on appeal.
After a thorough review of the issues raised by the parties, the Court finds no merit in the Petition.
On the procedural issue:
It must be stressed that in petitions for review under Rule 45 only questions of law may be raised, unless the
petitioner shows that the case falls under the recognized exceptions. In Makati Sports Club, Inc. v.
Cheng,28 we explained, thus:
At the outset, we note that this recourse is a petition for review on certiorari under Rule 45 of the Rules of
Court. Under Section 1 of the Rule, such a petition shall raise only questions of law which must be distinctly
alleged in the appropriate pleading. In a case involving a question of law, the resolution of the issue must
rest solely on what the law provides for a given set of facts drawn from the evidence presented. Stated
differently, there should be nothing in dispute as to the state of facts; the issue to be resolved is merely the
correctness of the conclusion drawn from the said facts. Once it is clear that the issue invites a review of the
probative value of the evidence presented, the question posed is one of fact. If the query requires a
reevaluation of the credibility of witnesses, or the existence or relevance of surrounding circumstances and
their relation to each other, then the issue is necessarily factual. 29 (Emphases supplied, citation omitted.)
In cases decided by the CIAC, the above rule finds even more stringent application. As we previously
observed in one case:
Executive Order No. 1008, as amended, provides, in its Section 19, as follows:
"Sec. 19. Finality of Awards. The arbitral award shall be binding upon the parties. It shall be final and
inappealable except on questions of law which shall be appealable to the Supreme Court."
Section 19 makes it crystal clear that questions of fact cannot be raised in proceedings before the Supreme
Court - which is not a trier of facts - in respect of an arbitral award rendered under the aegis of the CIAC.
Consideration of the animating purpose of voluntary arbitration in general, and arbitration under the aegis of
the CIAC in particular, requires us to apply rigorously the above principle embodied in Section 19 that the
Arbitral Tribunals findings of fact shall be final and unappealable.
xxxx
Aware of the objective of voluntary arbitration in the labor field, in the construction industry, and in any other
area for that matter, the Court will not assist one or the other or even both parties in any effort to subvert or
defeat that objective for their private purposes. The Court will not review the factual findings of an arbitral
tribunal upon the artful allegation that such body had "misapprehended the facts" and will not pass upon
issues which are, at bottom, issues of fact, no matter how cleverly disguised they might be as "legal
questions." The parties here had recourse to arbitration and chose the arbitrators themselves; they must
have had confidence in such arbitrators. The Court will not, therefore, permit the parties to relitigate before it
the issues of facts previously presented and argued before the Arbitral Tribunal, save only where a very
clear showing is made that, in reaching its factual conclusions, the Arbitral Tribunal committed an error so
egregious and hurtful to one party as to constitute a grave abuse of discretion resulting in lack or loss of
jurisdiction. 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.30 (Emphasis supplied, citations omitted.)
In another case, we have also held that:
It is settled that findings of fact of quasi-judicial bodies, which have acquired expertise because their
jurisdiction is confined to specific matters, are generally accorded not only respect, but also finality,

51

especially when affirmed by the Court of Appeals. In particular, factual findings of construction arbitrators are
final and conclusive and not reviewable by this Court on appeal.
This rule, however, admits of certain exceptions. In Uniwide Sales Realty and Resources Corporation v.
Titan-Ikeda Construction and Development Corporation, we said:
In David v. Construction Industry and Arbitration Commission, 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 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.
Other recognized exceptions are as follows: (1) when there is a very clear showing of grave abuse of
discretion 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, (2) when the findings of the Court of Appeals are contrary to those of the CIAC, and (3) when a
party is deprived of administrative due process.31 (Citations omitted.)
In the case at bar, petitioner indeed raises factual matters in the present controversy which this Court may
not look into under a petition for review on certiorari. We likewise find that this case is not among the
exceptions to this settled rule. Nevertheless, even if we were to excuse this procedural infirmity of the
petition, we are still not inclined to reverse the lower tribunals findings on the merits of the case.
On the substantive matters:
Whether the third party audit report
commissioned by Belle is admissible and
may be given weight
To recapitulate, petitioner assailed R.A. Mojicas audit report on the following grounds: (a) that there was no
provision in the Construction Contract allowing Belle to unilaterally conduct an audit of petitioners work; (b)
assuming the Contract allows such an audit, it nonetheless failed to include all the work done by petitioner;
and (c) it was tainted by bias and partiality since R.A. Mojica was a regular, long time contractor of Belle.
On this issue, we uphold the CIAC and the Court of Appeals in their allowance of the third party audit report
done by R.A. Mojica.
First, while there was no provision in the Construction Contract expressly authorizing Belle to secure the
services of a third party auditor to determine the value of the work accomplished by petitioner RVSCI, there
is likewise no provision prohibiting the same. Certainly, RVSCI failed to point to any contractual stipulation
preventing RVSCI to seek expert opinion regarding the value of RVSCIs accomplishment or the accuracy of
the Progress Billing, whether prior or subsequent to the approval of such billing.
Second, the mere fact that the audit was unilateral, or was not participated in by petitioner, did not render the
same objectionable. There is nothing in the Construction Contract which obligates Belle to inform RVSCI or
to secure the latters participation should the former decide to commission an audit of the work
accomplished. On the contrary, in case of termination due to default of the contractor, Article XIII, Section
13.4 of the Construction Contract explicitly allows Belle to unilaterally evaluate the value of the work and the
only condition is that it be done in good faith. Even assuming arguendo we accept RVSCIs contentions that
it justifiably suspended work and that Article XIII, Section 13.4 merely covers instances of default and not
situations of justified suspension of works, we see no reason why the procedure for cessation of work due to
default cannot be applied to other instances of cessation of work, particularly in the absence of a contractual
provision governing termination or suspension of works in situations not involving a default.

52

Verily, the fact that the parties agreed to a unilateral valuation of the work by the owner in the event of a
termination of the contract due to default signifies that the parties, including RVSCI, did not find anything
abhorrent in a one-sided valuation at the time of the execution of the contract. If RVSCI believed that this
was unfair or that its participation should be required in a review or audit of its work, then it should not have
acquiesced to such a provision in the first place and instead insisted on a stipulation prohibiting a unilateral
audit of its work.
Third, bias on the part of a witness cannot be presumed. It is a basic rule that good faith is always presumed
and bad faith must be proved.32 In a previous case, we have held that the witness employment relationship
with, or financial dependence on, the party presenting his testimony would not be sufficient reason to
discredit said witness and label his testimony as biased and unworthy of credence. 33 Analogously, that Belle
and R.A. Mojica had a long standing business relationship does not necessarily mean that the latters report
was tainted with irregularity, especially in the absence of evidence that the audit report was indeed
inaccurate or erroneous. It must be emphasized as well that RVSCI had ample opportunity to cross-examine
Engr. Mojica with respect to the particulars of his companys audit report.
To be sure, RVSCI is not precluded from proffering evidence to rebut the findings of R.A. Mojica. However,
RVSCI did not present or point to documents, invoices, and receipts to show that the amounts and quantities
in the audit report were not correct, nor did RVSCI convincingly substantiate its assertion that it had
completed work in other areas of the project that was not included in said report. RVSCI merely relied on its
own Progress Billing as supposedly signed by Belles representatives. However, it is that Progress Billing
which was later questioned by Belle on the suspicion that the same was bloated and inaccurate. Thus, Belle
had a third party conduct an audit of RVSCIs actual work accomplishment. As the CIAC noted, there was
nothing to prevent RVSCI to secure the services of its own expert witness to contest the findings of R.A.
Mojica and buttress the accuracy of its Progress Billing with supporting documents other than such billing
but RVSCI did not.
Hence, we find no error on the part of the CIAC and the Court of Appeals in relying on the third party audit
report and giving it due weight in the resolution of the present case.
Whether Belles approval of the Progress
Billing is final and binding and may no
longer be withdrawn
After careful consideration of the contentions of the parties, we agree with the CIACs finding, as affirmed by
the Court of Appeals, that the owners approval of progress billing is merely provisional. This much can be
gleaned from Article VI, Section 6.2(c) of the Construction Contract which states that "[t]he acceptance of
work from time to time for the purpose of making progress payment shall not be considered as final
acceptance of the work under the Contract." There can be no other interpretation of the said provision but
that progress billings are but preliminary estimates of the value of the periodic accomplishments of the
contractor. Otherwise, there would be no need to include Article VI, Section 6.2(c) in the Contract since final
acceptance of the contractors work would come as a matter of course if progress billings were, as RVSCI
contends, final and binding upon the owner. On the contrary, progress billings and final acceptance of the
work were clearly still subject to review by the owner.
Moreover, we see no reason to disturb the CIAC ruling that the foregoing contractual provision is consistent
with industry practice, as can be deduced from Articles 22.02, 22.04 and 22.09 of CIAP Document 102 which
pertinently state:
22.02 REQUESTS FOR PAYMENT: The Contractor may submit periodically but not more than once each
month a Request for Payment for work done. The Contractor shall furnish the Owner all reasonable facilities
required for obtaining the necessary information relative to the progress and execution of the Work. x x x.
xxxx
22.04 CONDITIONS RELATIVE TO PAYMENTS: The Owner shall estimate the value of work accomplished
by the Contractor using as basis the schedule stipulated in the Breakdown of Work and Corresponding
Value. Such estimate of the Owner of the amount of work performed shall be taken as the basis for the

53

compensation to be received by the Contractor. While such preliminary estimates of amount and quantity
shall not be required to be made by strict measurement or with exactness, they must be made as close as
possible to the actual percentage of work accomplishment.
xxxx
22.09 ACCEPTANCE AND FINAL PAYMENT: Whenever the Contractor notifies the Owner that the Work
under the Contract has been completely performed by the Contractor, the Owner shall proceed to verify the
work, shall make the final estimates, certify to the completion of the work, and accept the same.
From the above-quoted provisions, it is readily apparent that, whether in the case of progress billings or of
turn-over of completed work, the owner has the right to verify the contractors actual work accomplishment
prior to payment.
In all, we approve the CIACs pronouncement that "[t]he owner is, therefore, not estopped from questioning a
prior evaluation of the percentage of accomplishment of the contractor and to downgrade such
accomplishment after re-evaluation. It is the right of every owner to re-evaluate or re-measure the work of its
contractor during the progress of the work."34
Whether Belle should be made liable to RVSCI for damages
Anent the third issue, it is apropos to state here that the rationale underlying the owners right to seek an
evaluation of the contractors work is the right to pay only the true value of the work as may be reasonably
determined under the circumstances.
This is consistent with the law against unjust enrichment under Article 22 of the Civil Code which states that
"every 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." Expounding on this provision in a recent case, we have held that "the principle of unjust enrichment
essentially contemplates payment when there is no duty to pay, and the person who receives the payment
has no right to receive it."35
In the case at bar, we uphold the CIACs factual finding that the value of the total work accomplished by
RVSCI on the main project was P4,868,443.59 while the cost of the additional work amounted to
P1,768,000.00 plus P22,442.27, for a total of P6,658,885.86. On the other hand, Belle had made payments
in the total amount of P11,598,994.44.36 It is thus undeniable that RVSCI had received payments from Belle
in excess of the value of its work accomplishment. In light of this overpayment, it seems specious for RVSCI
to claim that it has suffered damages from Belles refusal to pay its Progress Billing, which had been proven
to be excessive and inaccurate. Bearing in mind the law and jurisprudence on unjust enrichment, we hold
that RVSCI is indeed liable to return what it had received beyond the actual value of the work it had done for
Belle.1wphi1
On a related note, this Court cannot grant RVSCIs claim for the value of materials and equipment allegedly
left at the site. As observed by the CIAC, this particular claim was not included in the Terms of Reference
and, hence, could not be litigated upon or proved during the CIAC proceedings.
In conclusion, the CIAC rightly dismissed RVSCI's counterclaims for lack of merit.
WHEREFORE, the instant petition for review is DENIED. The Decision dated March 7, 2003 and the
Resolution dated August 20, 2003 of the Court 'of Appeals in CA-G.R. SP Nos. 60224 and 60217 are
AFFIRMED.
20. G.R. No. 172525

October 20, 2010

SHINRYO (PHILIPPINES) COMPANY, INC., Petitioner,


vs.
RRN INCORPORATED,* Respondent.

54

DECISION
PERALTA, J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that the
Decision1of the Court of Appeals (CA) dated February 22, 2006, affirming the Decision of the Construction
Industry Arbitration Commission (CIAC), and the CA Resolution 2 dated April 26, 2006, denying herein
petitioner's motion for reconsideration, be reversed and set aside.
Hence, this petition where it is alleged that:
I. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR WHEN IT
DENIED PETITIONER'S CLAIM FOR MANLIFT EQUIPMENT RENTAL IN THE AMOUNT OFP511,000.00
DESPITE EVIDENCE ON RECORD THAT RESPONDENT RRN ACTUALLY USED AND BENEFITED
FROM THE MANLIFT EQUIPMENT.
II. IN RENDERING THE QUESTIONED DECISION AND QUESTIONED RESOLUTION, THE HONORABLE
COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW
AND/OR WITH THE APPLICABLE DECISIONS OF THE HONORABLE SUPREME COURT.
III. THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN AFFIRMING THE CIAC
AWARD FOR THE VALUE OF INVENTORIED MATERIALS CONSIDERING THAT:
A. RESPONDENT RRN ADMITTED THE VALIDITY OF THE DEDUCTIONS ON ACCOUNT OF
MATERIAL SUPPLY, WHICH INCLUDED THE INVENTORIED MATERIALS.
B. RESPONDENT RRN HAS NO BASIS TO CLAIM BECAUSE ENGR. BONIFACIO ADMITTED
THAT RESPONDENT RRN FAILED TO ESTABLISH WHETHER THE MATERIALS CAME FROM
RESPONDENT RRN OR FROM PETITIONER AND THAT IT WAS PETITIONER THAT ACTUALLY
INSTALLED THE SAID MATERIALS AS PART OF REMAINING WORKS THAT PETITIONER TOOK
OVER FROM RESPONDENT RRN.
C. THE CLAIM FOR THE VALUE OF INVENTORIED MATERIALS IS A DOUBLE CLAIM OR
DOUBLE ENTRY BECAUSE IN THE COMPUTATION OF THE FINAL ACCOUNT, RESPONDENT
RRN WAS CREDITED THE FULL CONTRACT PRICE AND THE COST OF VARIATIONS, WHICH
INCLUDED THE INVENTORIED MATERIALS.
IV. IN RENDERING THE QUESTIONED DECISION AND QUESTIONED RESOLUTION, THE COURT OF
APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN THAT IT COMPLETELY DISREGARDED THE
PROVISION OF THE SUBCONTRACT, WHICH ALLOWED PAYMENT OF ACTUAL COST INCURRED BY
PETITIONER IN COMPLETING THE REMAINING WORKS THAT PRIVATE RESPONDENT ADMITTEDLY
FAILED TO COMPLETE.
V. THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR WHEN IT COMPLETELY
DISREGARDED THE EVIDENCE ON ACTUAL COST INCURRED BY PETITIONER IN COMPLETING THE
REMAINING WORKS.
VI. THE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR WHEN IT AFFIRMED THE
CIAC AWARD FOR INTERESTS AND ARBITRATION COSTS IN FAVOR OF RESPONDENT RRN. 4
The petition is bereft of merit.
Despite petitioner's attempts to make it appear that it is advancing questions of law, it is quite clear that what
petitioner seeks is for this Court to recalibrate the evidence it has presented before the CIAC. It insists that
its evidence sufficiently proves that it is entitled to payment for respondent's use of its manlift equipment,
and even absent proof of the supposed agreement on the charges petitioner may impose on respondent for
the use of said equipment, respondent should be made to pay based on the principle of unjust enrichment.

55

Petitioner also questions the amounts awarded by the CIAC for inventoried materials, and costs incurred by
petitioner for completing the work left unfinished by respondent.
As reiterated by the Court in IBEX International, Inc. v. Government Service Insurance System,5 to wit:
It is settled that findings of fact of 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. In particular, factual findings of construction
arbitrators are final and conclusive and not reviewable by this Court on appeal.
This rule, however, admits of certain exceptions. In Uniwide Sales Realty and Resources Corporation v.
Titan-Ikeda Construction and Development Corporation, we said:
In David v. Construction Industry and Arbitration Commission, 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 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.1avvp++i1
Other recognized exceptions are as follows: (1) when there is a very clear showing of grave abuse of
discretion 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, (2) when the findings of the Court of Appeals are contrary to those of the CIAC, and (3) when a
party is deprived of administrative due process.6
A perusal of the records would reveal that none of the aforementioned circumstances, which would justify
exemption of this case from the general rule, are present here. Such being the case, the Court, not being a
trier of facts, is not duty-bound to examine, appraise and analyze anew the evidence presented before the
arbitration body.7
Petitioner's reliance on the principle of unjust enrichment is likewise misplaced. The ruling of the Court
inUniversity of the Philippines v. Philab Industries, Inc.8 is highly instructive, thus:
Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations of
others, but instead it must be shown that a party was unjustly enriched in the sense that the term unjustly
could mean illegally or unlawfully.
Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that another
party knowingly received something of value to which he was not entitled and that the state of affairs are
such that it would be unjust for the person to keep the benefit. Unjust enrichment is a term used to depict
result or effect of failure to make remuneration of or for property or benefits received under circumstances
that give rise to legal or equitable obligation to account for them; to be entitled to remuneration, one must
confer benefit by mistake, fraud, coercion, or request. Unjust enrichment is not itself a theory of reconvey.
Rather, it is a prerequisite for the enforcement of the doctrine of restitution.
Article 22 of the New Civil Code reads:
Every 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.
In order that accion in rem verso may prosper, the essential elements must be present: (1) that the
defendant has been enriched, (2) that the plaintiff has suffered a loss, (3) that the enrichment of the

56

defendant is without just or legal ground, and (4) that the plaintiff has no other action based on contract,
quasi-contract, crime or quasi-delict.
An accion in rem verso is considered merely an auxiliary action, available only when there is no other
remedy on contract, quasi-contract, crime, and quasi-delict. If there is an obtainable action under any other
institution of positive law, that action must be resorted to, and the principle of accion in rem verso will not lie.9
As found by both the CIAC and affirmed by the CA, petitioner failed to prove that respondent's free use of
the manlift was without legal ground based on the provisions of their contract. Thus, the third requisite, i.e.,
that the enrichment of respondent is without just or legal ground, is missing. In addition, petitioner's claim is
based on contract, hence, the fourth requisite that the plaintiff has no other action based on contract,
quasi-contract, crime or quasi-delict is also absent. Clearly, the principle of unjust enrichment is not
applicable in this case.
The other issues raised by petitioner all boil down to whether the CIAC or the CA erred in rejecting its claims
for costs of some materials.
Again, these issues are purely factual and cannot be properly addressed in this petition for review
on certiorari. InHanjin Heavy Industries and Construction Co., Ltd. v. Dynamic Planners and Construction
Corp.,10 it was emphasized that mathematical computations, the propriety of arbitral awards, claims for
"other costs" and "abandonment" are factual questions. Since the discussions of the CIAC and the CA in
their respective Decisions show that its factual findings are supported by substantial evidence, there is no
reason why this Court should not accord finality to said findings. Verily, to accede to petitioner's request for a
recalibration of its evidence, which had been thoroughly studied by both the CIAC and the CA would result in
negating the objective of Executive Order No. 1008, which created an arbitration body to ensure the prompt
and efficient settlement of disputes in the construction industry. Thus, the Court held in Uniwide Sales Realty
and Resources Corporation v. Titan-Ikeda Construction and Development Corporation, 11 that:
x x x 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. 12
As discussed above, there is nothing in the records that point to any grave abuse of discretion committed by
the CIAC.
The awards for interests and arbitration costs are, likewise, correct as they are in keeping with prevailing
jurisprudence.13
IN VIEW OF THE FOREGOING, the Petition is DENIED. The Decision of the Court of Appeals dated
February 22, 2006 and its Resolution dated April 26, 2006 are AFFIRMED.
21. G.R. No. 179628

January 16, 2013

THE MANILA INSURANCE COMPANY, INC., Petitioner,


vs.
SPOUSES ROBERTO and AIDA AMURAO, Respondents.
DECISION
DEL CASTILLO, J.:

57

The jurisdiction of the Construction Industry Arbitration Commission (CIAC) is conferred by law. Section 4 1 of
Executive Order (E.O.) No. I 008, otherwise known as the Construction Industry Arbitration Law, "is broad
enough to cover any dispute arising from, or connected with construction contracts, whether these involve
mere contractual money claims or execution of the works." 2
This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails the Decision 4 dated June
7, 2007 and the Resolution5 dated September 7, 2007 of the Court of Appeals (CA) in CA-G.R. SP No.
96815.
Issues
Hence, this petition raising the following issues:
A.
THE HONORABLE CA ERRED WHEN IT HELD THAT IT IS ONLY WHEN THERE ARE DIFFERENCES IN
THE INTERPRETATION OF ARTICLE I OF THE CONSTRUCTION AGREEMENT THAT THE PARTIES
MAY RESORT TO ARBITRATION BY THE CIAC.
B.
THE HONORABLE CA ERRED IN TREATING PETITIONER AS A SOLIDARY DEBTOR INSTEAD OF A
SOLIDARY GUARANTOR.
C.
THE HONORABLE [CA] OVERLOOKED AND FAILED TO CONSIDER THE FACT THAT THERE WAS NO
ACTUAL AND EXISTING CONSTRUCTION AGREEMENT AT THE TIME THE MANILA INSURANCE BOND
NO. G (13) 2082 WAS ISSUED ON FEBRUARY 29, 2000.34
Petitioners Arguments
Petitioner contends that the CA erred in ruling that the parties may resort to arbitration only when there is
difference in the interpretation of the contract documents stated in Article I of the CCA. 35 Petitioner insists
that under Section 4 of E.O. No. 1008, it is the CIAC that has original and exclusive jurisdiction over
construction disputes, such as the instant case.36
Petitioner likewise imputes error on the part of the CA in treating petitioner as a solidary debtor instead of a
solidary guarantor.37 Petitioner argues that while a surety is bound solidarily with the obligor, this does not
make the surety a solidary co-debtor.38 A surety or guarantor is liable only if the debtor is himself liable. 39 In
this case, since respondent-spouses and Aegean agreed to submit any dispute for arbitration before the
CIAC, it is imperative that the dispute between respondent-spouses and Aegean must first be referred to
arbitration in order to establish the liability of Aegean. 40 In other words, unless the liability of Aegean is
determined, the filing of the instant case is premature. 41
Finally, petitioner puts in issue the fact that the performance bond was issued prior to the execution of the
CCA.42Petitioner claims that since there was no existing contract at the time the performance bond was
executed, respondent-spouses have no cause of action against petitioner.43 Thus, the complaint should be
dismissed.44
Respondent spouses Arguments
Respondent-spouses, on the other hand, maintain that the CIAC has no jurisdiction over the case because
there is no ambiguity in the provisions of the CCA.45 Besides, petitioner is not a party to the CCA.46 Hence, it
cannot invoke Article XVII of the CCA, which provides for arbitration proceedings. 47 Respondent-spouses
also insist that petitioner as a surety is directly and equally bound with the principal. 48 The fact that the

58

performance bond was issued prior to the execution of the CCA also does not affect the latters validity
because the performance bond is coterminous with the construction of the building. 49
Our Ruling
The petition has merit.
Nature of the liability of the surety
A contract of suretyship is defined as "an agreement whereby a party, called the surety, guarantees the
performance by another party, called the principal or obligor, of an obligation or undertaking in favor of a third
party, called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued by any
company by virtue of and under the provisions of Act No. 536, as amended by Act No. 2206." 50 We have
consistently held that a suretys liability is joint and several, limited to the amount of the bond, and
determined strictly by the terms of contract of suretyship in relation to the principal contract between the
obligor and the obligee.51 It bears stressing, however, that although the contract of suretyship is secondary to
the principal contract, the suretys liability to the obligee is nevertheless direct, primary, and absolute. 52
In this case, respondent-spouses (obligee) filed with the RTC a Complaint against petitioner (surety) to
collect on the performance bond it issued. Petitioner, however, seeks the dismissal of the Complaint on the
grounds of lack of cause of action and lack of jurisdiction.
The respondent-spouses have cause of action against the petitioner; the performance bond is coterminous
with the CCA
Petitioner claims that respondent-spouses have no cause of action against it because at the time it issued
the performance bond, the CCA was not yet signed by respondent-spouses and Aegean.
We do not agree.
A careful reading of the Performance Bond reveals that the "bond is coterminous with the final acceptance of
the project."53 Thus, the fact that it was issued prior to the execution of the CCA does not affect its validity or
effectivity.
But while there is a cause of action against petitioner, the complaint must still be dismissed for lack of
jurisdiction.
The CIAC has jurisdiction over the case
Section 4 of E.O. No. 1008 provides that:
SEC. 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by parties involved in construction in the Philippines, whether the
dispute arises before or after the completion of the contract, or after the abandonment or breach thereof.
These disputes may involve government or private contracts. For the Board to acquire jurisdiction, the
parties to a dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship, violation of the terms of agreement, interpretation and/or application of contractual time and
delays, maintenance and defects, payment, default of employer or contractor, and changes in contract cost.
Excluded from the coverage of the law are disputes arising from employer-employee relationships which
shall continue to be covered by the Labor Code of the Philippines.
Based on the foregoing, in order for the CIAC to acquire jurisdiction two requisites must concur: "first, the
dispute must be somehow connected to a construction contract; and second, the parties must have agreed
to submit the dispute to arbitration proceedings." 54

59

In this case, both requisites are present.


The parties agreed to submit to arbitration proceedings "any dispute arising in the course of the execution
and performance of the CCA by reason of difference in interpretation of the Contract Documents x x x which
the parties are unable to resolve amicably between themselves." 55 Article XVII of the CCA reads:
ARTICLE XVII ARBITRATION
17.1 Any dispute arising in the course of the execution and performance of this Agreement by reason of
difference in interpretation of the Contract Documents set forth in Article I which the OWNER and the
CONTRACTOR are unable to resolve amicably between themselves shall be submitted by either party to a
board of arbitrators composed of Three (3) members chosen as follows: One (1) member shall be chosen by
the CONTRACTOR AND One (1) member shall be chosen by the OWNER. The said Two (2) members, in
turn, shall select a third member acceptable to both of them. The decision of the Board of Arbitrators shall be
rendered within Ten (10) days from the first meeting of the board, which decision when reached through the
affirmative vote of at least Two (2) members of the board shall be final and binding upon the OWNER and
CONTRACTOR.1wphi1
17.2 Matters not otherwise provided for in this Contract or by Special Agreement of the parties shall be
governed by the provisions of the Arbitration Law, Executive Order No. 1008. 56
In William Golangco Construction Corporation v. Ray Burton Development Corporation, 57 we declared that
monetary claims under a construction contract are disputes arising from "differences in interpretation of the
contract" because "the matter of ascertaining the duties and obligations of the parties under their contract all
involve interpretation of the provisions of the contract." 58 Following our reasoning in that case, we find that
the issue of whether respondent-spouses are entitled to collect on the performance bond issued by
petitioner is a "dispute arising in the course of the execution and performance of the CCA by reason of
difference in the interpretation of the contract documents."
The fact that petitioner is not a party to the CCA cannot remove the dispute from the jurisdiction of the CIAC
because the issue of whether respondent-spouses are entitled to collect on the performance bond, as we
have said, is a dispute arising from or connected to the CCA.
In fact, in Prudential Guarantee and Assurance, Inc. v. Anscor Land, Inc., 59 we rejected the argument that the
jurisdiction of CIAC is limited to the construction industry, and thus, cannot extend to surety contracts. In that
case, we declared that "although not the construction contract itself, the performance bond is deemed as an
associate of the main construction contract that it cannot be separated or severed from its principal. The
Performance Bond is significantly and substantially connected to the construction contract that there can be
no doubt it is the CIAC, under Section 4 of E.O. No. 1008, which has jurisdiction over any dispute arising
from or connected with it."60
In view of the foregoing, we agree with the petitioner that juriisdiction over the instant case lies with the
CIAC, and not with the RTC. Thus, the Complaint filed by respondent-spouses with the RTC must be
dismissed.
WHEREFORE, the petition is hereby GRANTED. The Decision dated June 7, 2007 and the Resolution
dated September 7, 2007 of the Court of Appeals in CA-G.R. SP No. 96815 are hereby ANNULLED and
SET ASIDE. The Presiding Judge of the Regional Trial Court of Quezon City, Branch 217 1s DIRECTED to
dismiss Civil Case No. Q-01-45573 for lack of jurisdiction.

22.

60