ABS-CBN V. WORLD INTERACTIVE NETWORK SYSTEMS (G.R. NO.

169332)

Facts:
Petitioner ABS-CBN Broadcasting Corporation entered into a licensing agreement with respondent
World Interactive Network Systems (WINS) Japan Co., Ltd., a foreign corporation licensed under the
laws of Japan, in that the former granted respondent the exclusive license to distribute and
sublicense the distribution of the television service known as “The Filipino Channel” (TFC) in Japan.
By virtue thereof, petitioner undertook to transmit the TFC programming signals to respondent which
the latter received through its decoders and distributed to its subscribers. A dispute arose between
the parties when petitioner accused respondent of inserting nine episodes of WINS WEEKLY, a
weekly 35-minute community news program for Filipinos in Japan, into the TFC programming.
Petitioner claimed that these were “unauthorized insertions” constituting a material breach of their
agreement. Consequently, petitioner notified respondent of its intention to terminate the agreement.
Thereafter, respondent filed an arbitration suit pursuant to the arbitration clause of its agreement
with petitioner. The parties appointed Professor Alfredo F. Tadiar to act as sole arbitrator who then
rendered a decision in favor of respondent holding that petitioner gave its approval for the airing of
WINS WEEKLY as shown by a series of written exchanges between the parties and that petitioner
threatened to terminate the agreement due to its desire to compel respondent to re-negotiate the
terms thereof for higher fees. He then allowed respondent to recover temperate damages, attorney’s
fees and one-half of the amount it paid as arbitrator’s fee. Petitioner filed in the CA a petition for
review under Rule 43 of the Rules of Court or, in the alternative, a petition for certiorari under Rule
65 of the same Rules, with application for temporary restraining order and writ of preliminary
injunction. Respondent, on the other hand, filed a petition for confirmation of arbitral award. The CA
rendered the assailed decision dismissing ABS-CBN’s petition for lack of jurisdiction. Petitioner moved
for reconsideration but the same was denied.
Issue:
The issue before us is whether or not an aggrieved party in a voluntary arbitration dispute may avail
of, directly in the CA, a petition for review under Rule 43 or a petition for certiorari under Rule 65 of
the Rules of Court, instead of filing a petition to vacate the award in the RTC when the grounds
invoked to overturn the arbitrator’s decision are other than those for a petition to vacate an arbitral
award enumerated under RA 876.
Ruling:
RA 876 itself mandates that it is the Court of First Instance, now the RTC, which has jurisdiction over
questions relating to arbitration, such as a petition to vacate an arbitral award. As RA 876 did not
expressly provide for errors of fact and/or law and grave abuse of discretion (proper grounds for a
petition for review under Rule 43 and a petition for certiorari under Rule 65, respectively) as grounds
for maintaining a petition to vacate an arbitral award in the RTC, it necessarily follows that a party
may not avail of the latter remedy on the grounds of errors of fact and/or law or grave abuse of
discretion to overturn an arbitral award. Adamson v. Court of Appeals gave ample warning that a
petition to vacate filed in the RTC which is not based on the grounds enumerated in Section 24 of RA
876 should be dismissed.
In cases not falling under any of the aforementioned grounds to vacate an award, the Court has
already made several pronouncements that a petition for review under Rule 43 or a petition for
certiorari under Rule 65 may be availed of in the CA. Which one would depend on the grounds relied
upon by petitioner.
Nevertheless, although petitioner’s position on the judicial remedies available to it was correct, we
sustain the dismissal of its petition by the CA. The remedy petitioner availed of, entitled “alternative
petition for review under Rule 43 or petition for certiorari under Rule 65,” was wrong. Time and
again, we have ruled that the remedies of appeal and certiorari are mutually exclusive and not
alternative or successive.
A careful reading of the assigned errors reveals that the real issues calling for the CA’s resolution
were less the alleged grave abuse of discretion exercised by the arbitrator and more about the
arbitrator’s appreciation of the issues and evidence presented by the parties. Therefore, the issues
clearly fall under the classification of errors of fact and law — questions which may be passed upon
by the CA via a petition for review under Rule 43. Petitioner cleverly crafted its assignment of errors
in such a way as to straddle both judicial remedies, that is, by alleging serious errors of fact and law
(in which case a petition for review under Rule 43 would be proper) and grave abuse of discretion
(because of which a petition for certiorari under Rule 65 would be permissible).
Wherefore, the petition is hereby denied. The decision and resolution of the CA directing the RTC to
proceed with the trial of the petition for confirmation of arbitral award is affirmed.

Agan v PIATCO G.R. No. 155001. May 5, 2003

Facts: In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct a
comprehensive study of the Ninoy Aquino International Airport (NAIA) and determine whether the
present airport can cope with the traffic development up to the year 2010.

On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of Asia's Emerging
Dragon Corp. (unsolicited proposal dated Oct. 5, 1994) to the National Economic and Development
Authority (NEDA). A revised proposal, however, was forwarded by the DOTC to NEDA on December
13, 1995. On January 5, 1996, the NEDA Investment Coordinating Council (NEDA ICC) — Technical
Board favorably endorsed the project to the ICC — Cabinet Committee which approved the same,
subject to certain conditions, on January 19, 1996. On February 13, 1996, the NEDA passed Board
Resolution No. 2 which approved the NAIA IPT III Project.

On August 29, 1996, the Second Pre-Bid Conference was held where certain clarifications were
made. Upon the request of prospective bidder People's Air Cargo & Warehousing Co., Inc (Paircargo),
the PBAC warranted that based on Sec. 11.6, Rule 11 of the Implementing Rules and Regulations of
the BOT Law, only the proposed Annual Guaranteed Payment submitted by the challengers would be
revealed to AEDC, and that the challengers' technical and financial proposals would remain
confidential. The PBAC also clarified that the list of revenue sources contained in Annex 4.2a of the
Bid Documents was merely indicative and that other revenue sources may be included by the
proponent, subject to approval by DOTC/MIAA. Furthermore, the PBAC clarified that only those fees
and charges denominated as Public Utility Fees would be subject to regulation, and those charges
which would be actually deemed Public Utility Fees could still be revised, depending on the outcome
of PBAC's query on the matter with the Department of Justice.

On September 26, 1996, AEDC informed the PBAC in writing of its reservations as regards the
Paircargo Consortium, which include:
a. The lack of corporate approvals and financial capability of PAIRCARGO;
 b. The lack of corporate approvals and financial capability of PAGS;
c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the amount
that Security Bank could legally invest in the project;
d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for
prequalification purposes; and
e. The appointment of Lufthansa as the facility operator, in view of the Philippine requirement
in the operation of a public utility.

The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the issues
raised by the latter, and that based on the documents submitted by Paircargo and the established
prequalification criteria, the PBAC had found that the challenger, Paircargo, had prequalified to
undertake the project. The Secretary of the DOTC approved the finding of the PBAC.

On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the Paircargo
Consortium containing their respective financial proposals. Both proponents offered to build the NAIA
Passenger Terminal III for at least $350 million at no cost to the government and to pay the
government: 5% share in gross revenues for the first five years of operation, 7.5% share in gross
revenues for the next ten years of operation, and 10% share in gross revenues for the last ten years
of operation, in accordance with the Bid Documents.

As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary Amado
Lagdameo, on December 11, 1996, issued a notice to Paircargo Consortium regarding AEDC's failure
to match the proposal. AEDC subsequently protested the alleged undue preference given to PIATCO
and reiterated its objections as regards the prequalification of PIATCO.

On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO,
through its President, Henry T. Go, signed the "Concession Agreement for the Build-Operate-and-
Transfer Arrangement of the Ninoy Aquino International Airport Passenger Terminal III" (1997
Concession Agreement). The Government granted PIATCO the franchise to operate and maintain the
said terminal during the concession period and to collect the fees, rentals and other charges in
accordance with the rates or schedules stipulated in the 1997 Concession Agreement. The Agreement
provided that the concession period shall be for twenty-five (25) years commencing from the in-
service date, and may be renewed at the option of the Government for a period not exceeding
twenty-five (25) years. At the end of the concession period, PIATCO shall transfer the development
facility to MIAA.

During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on
November 29, 2002, in her speech at the 2002 Golden Shell Export Awards at Malacañang Palace,
stated that she will not "honor (PIATCO) contracts which the Executive Branch's legal offices have
concluded (as) null and void."

Held:
Should the dispute be referred to arbitration prior to judicial recourse?
Respondent Piatco claims that Section 10.02 of the Amended and Restated Concession
Agreement (ARCA) provides for arbitration under the auspices of the International Chamber of
Commerce to settle any dispute or controversy or claim arising in connection with the Concession
Agreement, its amendments and supplements. The government disagrees; however, insisting that
there can be no arbitration based on Section 10.02 of the ARCA, since all the Piatco contracts are
void ab initio.

BF Corp v CA, Shangri-La Properties Inc (SPI)| Romero G.R. No. 120105,

FACTS •
BF Corp and SPI entered into an agreement to where BF was to construct the main structure of
EDSA Plaza Project (Shangri-La Mall). This was contained in the ARTICLES OF AGREEMENT. • BF
incurred delay in the completion of the project, which SPI considered to be serious and substantial
while BF holds that it was in faithful compliance with their FIRST AGREEMENT. Later, Phase I of the
project was gutted by fire (in Nov 1990) which further exacerbated their situation. SPI proposed a re-
negotiation. • May 30 1991: BF and SPI entered into an Agreement (Agreement for the Execution of
Builder’s Work for Edsa Plaza Project). This agreement covers the construction until it’s eventual
completion, set on October 31, 1991. • SPI said there was failure to complete the project, which
sparked disagreement between the parties • November 1991: BF billed SPI and demanded payment.
Instead of paying, SPI counterclaimed P220M for the delay in the construction (pursuant to penalty
clause of the agreement: Php80K for every day of delay from Nov. 1 1991 up to 5% of the contract
price) • July 12, 1993: SPI initiated a conference but they failed to agree. • July 14, 1993: BF filed a
complaint to collection of the balance due (110, 883, 101.52). • August 3, 1993: SPI filed motion to
suspend proceedings (instead of filing an answer) claiming that their agreement contained an
arbitration clause—(that there should be prior resort to arbitration before resorting to judicial
proceedings). BF opposed this motion claiming: o there was no formal contract to arbitrate because
the CONDITIONS OF THE CONTRACT which contained the arbitration clause did not comply with the
formal requisites of an arbitration contract pursuant to Sec 4 of RA876 (this instrument did not bear
the signature of representative of SPI and Bayani Fernando, Pres. of BF Corp only initialed it), hence
there is no arbitration clause to speak of. • TC: denied the motion to suspend proceedings. It also
said that assuming there was an arbitration clause, demand to arbitrate was not reasonably made
because SPI failed to file a written demand to arbitrate for 1 year and 8 mos already (counted from
the time BF billed them to pay until the filing of collection complaint) • SPI filed a petition for
certiorari under R65 to the CA. • CA: granted the petition and set aside the orders of the TC, hence
this Petition for Review on Certiorari ISSUES & ARGUMENTS
• Whether the ARBITRATION CLAUSE EXISTS?
• Does the CA have the jurisdiction to determine this issue even if on it’s face , the
existence of an arbitration clause is a factual matter? HOLDING & RATIO DECIDENDI
ARBITRATION CLAUSE EXISTS.
The CA have jurisdiction. Although on its face, the existence of an arbitration clause is a factual
matter, in this case, the existence of the arbitration clause depends upon the interpretation of Sec 4
of RA 876 (Formal Requisite of an Arbitration Clause) which is a question of law. It became the
proper subject of a petition for certiorari because the CA had to determine (by settling the question
of law) whether the TC prematurely assumed jurisdiction over the case. • (ARBITRATION PART) The
Court finds that, upon a scrutiny of the records of this case, these requisites were complied with in
the contract in question. The Articles of Agreement, which incorporates all the other contracts and
agreements between the parties, was signed by representatives of both parties and duly notarized.
The failure of the private respondent's representative to initial the "Conditions of Contract" would
therefore not affect compliance with the formal requirements for arbitration agreements because that
particular portion of the covenants between the parties was included by reference in the Articles of
Agreement. • Petitioner's contention that there was no arbitration clause because the contract
incorporating said provision is part of a "hodge-podge" document, is therefore untenable. A contract
need not be contained in a single writing. It may be collected from several different writings which do
not conflict with each other and which, when connected, show the parties, subject matter, terms and
consideration, as in contracts entered into by correspondence. A contract may be encompassed in
several instruments even though every instrument is not signed by the parties, since it is sufficient if
the unsigned instruments are clearly identified or referred to and made part of the signed instrument
or instruments. Similarly, a written agreement of which there are two copies, one signed by each of
the parties, is binding on both to the same extent as though there had been only one copy of the
agreement and both had signed it. • Court also ruled that reasonable time is relative. In this case,
the 1-mo period from the time they held a conference (July 12, 1993) that SPI invoked the arbitration
clause is within a reasonable time. • Court highlighted: that arbitration is “the wave of the future”
and that this is recognized worldwide. To brush aside the contractual agreement between the parties
calling for arbitration in case of disagreement between the parties would therefore be a step
backward. • (REMEDIAL PART) Where a rigid application of the rule that certiorari cannot be a
substitute for appeal will result in a manifest failure or miscarriage of justice, the provisions of the
Rules of Court which are technical rules may be relaxed. As we shall show hereunder, had the CA
dismissed the petition for certiorari, the issue of whether or not an arbitration clause exists in the
contract would not have been resolved in accordance with evidence extant in the record of the case.
Consequently, this would have resulted in a judicial rejection of a contractual provision agreed by the
parties to the contract. In the same vein, this Court holds that the question of the existence of the
arbitration clause in the contract between petitioner and private respondents is a legal issue that
must be determined in this petition for review on certiorari. WHEREFORE, premises considered, the
instant petition is DENIED. The Decisions of the CA is AFFIRMED.

G.R. No. 120105 March 27, 1998

BF CORPORATION vs. COURT OF APPEALS, SHANGRI-LA PROPERTIES, INC., RUFO B.
COLAYCO, ALFREDO C. RAMOS, MAXIMO G. LICAUCO III and BENJAMIN C. RAMOS

RULING:
The court sustained the Court of Appeals decision against petitioner, BF Corporation. The court
upheld the propriety of the filing of the special civil action of certiorari by respondent, reasoning that
what was in question was the alleged premature assumption of jurisdiction by the trial court. In
settling the issue, another had to be first determined: the existence of an ‘arbitration clause’.
As opposed to petitioner’s contention that there was no valid ‘Arbitration Clause’ in the contract with
respondent because said contract only contained initials of the former’s representatives and none of
the latter’s, the court held that failure of the respondents to affix their initial in the “Conditions of
Contract” containing the arbitration clause did not affect the compliance with the formal requirements
(RA 876, Sec4) for arbitration agreements. The Court held that the subject portion of the covenant
between the parties was included by reference in the Articles of Agreement.
The Court also noted the attempt of respondent in pursuing arbitration through the July 12-
conference and that the lapse of time from said conference to the day the respondent’s invoked the
‘arbitration clause’ was ‘reasonable’.
The Court therefore denied the petition for certiorari by BF Corporation.

SEA-LAND SERVICE, INC., vs.

COURT OF APPEALS, A.P. MOLLER/MAERSK LINE and MAERSK-TABACALERA SHIPPING
AGENCY (FILIPINAS), INC.

[G.R. No. 126212. March 2, 2000]

FACTS AND RULING:

Florex was suing in its complaint under the provisions of the bill of lading issued to it by the principal
carrier (AMML) and not the bill of lading issued by petitioner as containership operator. Florex,
therefore had a proper cause of action against AMML.

The Co-operation in the Pacific contract entered into by the parties provide, nevertheless, that the
principal carrier, in case of suits, can seek damages and/or indemnity from petitioner as
Containership Operator for whatever final judgment may be adjudged against it under the Complaint
of Florex(clause 16.3 of the Agreement).

However, the court held that it is only through arbitration that the liability of the containership
operator may be determined pursuant to the provision in the Agreement. The third party complaint
by AMML thus cannot proceed without first going through arbitration.

It was right for the Court to grant the petition and dismiss the third party complaint by AMML.

SEA-LAND SERVICE, INC., vs.

COURT OF APPEALS, A.P. MOLLER/MAERSK LINE and MAERSK-TABACALERA SHIPPING
AGENCY (FILIPINAS), INC.

[G.R. No. 126212. March 2, 2000]

FACTS AND RULING:

Florex was suing in its complaint under the provisions of the bill of lading issued to it by the principal
carrier (AMML) and not the bill of lading issued by petitioner as containership operator. Florex,
therefore had a proper cause of action against AMML.
The Co-operation in the Pacific contract entered into by the parties provide, nevertheless, that the
principal carrier, in case of suits, can seek damages and/or indemnity from petitioner as
Containership Operator for whatever final judgment may be adjudged against it under the Complaint
of Florex(clause 16.3 of the Agreement).

However, the court held that it is only through arbitration that the liability of the containership
operator may be determined pursuant to the provision in the Agreement. The third party complaint
by AMML thus cannot proceed without first going through arbitration.

It was right for the Court to grant the petition and dismiss the third party complaint by AMML.

DEL MONTE CORP. USA vs. CA GR No. 136154 | Feb 7, 2001 | Petition for Review on
Certiorari | Bellosillo Petitioners: Del Monte Corp. USA, Paul Derby Jr., Daniel Collins &
Luis Hidalgo Respondents: CA, Malabon RTC Branch 74 Judge Bienvenido Reyes,
Montebueno Marketing, Inc., Liong Liong C. Sy and Sabrosa Fodds, Inc.

Facts:

1 July 1994 - in a Distributorship Agreement, Del Monte Corporation-USA (DMC-USA) appointed

Montebueno Marketing, Inc. (MMI) as the sole and exclusive distributor of its Del Monte products in
the Philippines for a period of five (5) years, renewable for two (2) consecutive five (5) year periods
with the consent of the parties.

Said agreement provided for an arbitration clause, which states:

This Agreement shall be governed by the laws of the State of California and/or, if applicable, the
United States of America.

All disputes arising out of or relating to this Agreement or the parties’ relationship, including the
termination thereof, shall be resolved by arbitration in the City of San Francisco, State of California,
under the Rules of the American Arbitration Association. The arbitration panel shall consist of three
members, one of whom shall be selected by DMC-USA, one of whom shall be selected by MMI, and
third of whom shall be selected by the other two members and shall have relevant experience in the
industry

October 1994 - appointment of MMI as the sole and exclusive distributor of Del Monte products in
the Philippines was published in several newspapers in the country.

Immediately after its appointment, MMI appointed Sabrosa Foods, Inc. (SFI), with the approval of
DMC-

USA, as MMI’s marketing arm to concentrate on its marketing and selling function as well as to
manage its critical relationship with the trade.
 3 October 1996 - MMI, SFI and MMI’s Managing Director Liong Liong C. Sy (LILY SY) filed a
Complaint against DMC-USA, Managing Director of Del Monte Corporation’s Export Sales Department
Paul E. Derby, Jr., Regional Director of Del Monte Corporation’s Export Sales Department Daniel
Collins, Head of Credit Services Department of Del Monte Corporation Luis Hidalgo and Dewey Ltd.
before Malabon RTC.

MMI et al. predicated their complaint on the alleged violations by Del Monte et al. of Articles 201,
212 and 233 of the Civil Code. According to them, DMC-USA products continued to be brought into
the country by parallel importers despite the appointment of MMI as the sole and exclusive distributor
of Del Monte products thereby causing them great embarrassment and substantial damage. They
alleged that the products brought into the country by these importers were aged, damaged, fake or
counterfeit, so that in March 1995 they had to cause, after prior consultation with Antonio Ongpin,
Market Director for Special Markets of Del Monte Philippines, Inc., the publication of a "warning to
the trade" paid advertisement in leading newspapers. DMC-USA and Paul E. Derby, Jr., apparently
upset with the publication, instructed private respondent MMI to stop coordinating with Antonio
Ongpin and to communicate directly instead with DMC-USA through Paul E. Derby, Jr.

MMI et al. further averred that:

1.DMC-USA et al. knowingly and surreptitiously continued to deal with the former in bad faith by
involving disinterested third parties and by proposing solutions which were entirely out of their
control

2. they had exhausted all possible avenues for an amicable resolution and settlement of their
grievances

3.as a result of the fraud, bad faith, malice and wanton attitude of DMC-USA et al., they should be
held responsible for all the actual expenses incurred by MMI et al. in the delayed shipment of orders
which resulted in the extra handling thereof, the actual expenses and cost of money for the unused
Letters of Credit (LCs) and the substantial opportunity losses due to created out-of-stock situations
and unauthorized shipments of Del Monte-USA products to the Philippine Duty Free Area and
Economic Zone

4.the bad faith, fraudulent acts and willful negligence of DMC-USA et al., motivated by their
determination to squeeze MMI et al. out of the outstanding and on-going Distributorship Agreement
in favor of another party, had placed Lily Sy on tenterhooks since then

5. the shrewd and subtle manner with which DMC-USA et al. concocted imaginary violations by MMI
of the Distributorship Agreement in order to justify the untimely termination thereof was a subterfuge

– DMC-USA et al. filed a Motion to Suspend Proceedings, invoking the arbitration clause.

RTC: deferred consideration of DMC-USA et al.’s Motion to Suspend Proceedings as the grounds
alleged therein did not constitute the suspension of the proceedings considering that the action was
for damages with prayer for the issuance of

Writ of Preliminary Attachment and not on the Distributorship Agreement

 DMC-USA et al. filed a MR to which MMI et al. filed their comment/opposition.

DMC-USA et al. filed a reply. They later on filed a Motion to Admit Supplemental Pleading.

1. Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall
indemnify the latter for the same.

2. Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage.

3. Art. 23. Even when an act or event causing damage to another's property was not due to the fault
or negligence of the defendant, the latter shall be liable for indemnity if through the act or event he
was benefited.

Said motion was admitted.

As a result of the admission of the Supplemental Complaint , DMC-USA et al. filed on 22 July 1997 a
Manifestation adopting their Motion to Suspend Proceedings of 17 October 1996 and Motion for
Reconsideration of 14 January 1997.

11 November 1997 – the Motion to Suspend Proceedings was denied by the trial court on the
ground that it will not serve the ends of justice and to allow said suspension will only delay the
determination of the issues, frustrate the quest of the parties for a judicious determination of their
respective claims, and/or deprive and delay their rights to seek redress

On appeal, the CA affirmed the RTC decision.

Hence, this petition.

Issue:

WON the dispute between the parties warrants an order compelling them to submit to arbitration

NO

Ratio:

There is no doubt that arbitration is valid and constitutional in our jurisdiction.

Even before the enactment of RA 876, this Court has countenanced the settlement of disputes
through arbitration. Unless the agreement is such as absolutely to close the doors of the courts
against the parties, which agreement would be void, the courts will look with favor upon such
amicable arrangement and will only interfere with great reluctance to anticipate or nullify the action
of the arbitrator. Moreover, as RA 876 expressly authorizes arbitration of domestic disputes, foreign
arbitration as a system of settling commercial disputes was likewise recognized when the Philippines
adhered to the United Nations

"Convention on the Recognition and the Enforcement of Foreign Arbitral Awards of 1958" under the
10 May 1965 Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and allowing
enforcement of international arbitration agreements between parties of different nationalities within a
contracting state.

A careful examination of the instant case shows that the arbitration clause in the Distributorship
Agreement between DMC-USA and MMI is valid and the dispute between the parties is arbitrable.
However, this Court must deny the petition.

The Agreement between DMC-USA and MMI is a contract

. The provision to submit to arbitration any dispute arising therefrom and the relationship of the
parties is part of that contract and is itself a contract

. As a rule, contracts are respected as the law between the contracting parties and produce effect as
between them, their assigns and heirs.

Clearly, only parties to the Agreement,i.e., DMC-USA and its Managing Director for Export Sales
Paul E. Derby, Jr., and MMI and its Managing Director LILY SY are bound by the Agreement and its
arbitration clause as they are the only signatories thereto.

O Daniel Collins and Luis Hidalgo, and SFI, not parties to the Agreement and cannot even be
considered assigns or heirs of the parties, are not bound by the Agreement and the arbitration clause
therein.

Consequently, referral to arbitration in the State of California pursuant to the arbitration clause and
the suspension of the proceedings in Civil Case No. 2637-MN pending the return of the arbitral award
could be called for but only as to DMC-USA and Paul E. Derby, Jr., and MMI and LILY SY, and not as
to the other parties in this case, in accordance with the recent case of Heirs of Augusto L. Salas, Jr.
v. Laperal Realty Corporation, which superseded that of Toyota Motor Philippines Corp. v. Court of
Appeals

O In Toyota, the Court ruled that "[t]he contention that the arbitration clause has become
dysfunctional because of the presence of third parties is untenable ratiocinating that "[c]ontracts are
respected as the law between the contracting parties" and that "[a]s such, the parties are thereby
expected to abide with good faith in their contractual commitments."

O However, in Salas, Jr., only parties to the Agreement, their assigns or heirs have the right to
arbitrate or could be compelled to arbitrate. The Court went further by declaring that in recognizing
the right of the contracting parties to arbitrate or to compel arbitration, the splitting of the
proceedings to arbitration as to some of the parties on one hand and trial for the others on the other
hand, or the suspension of trial pending arbitration between some of the parties, should not be
allowed as it would, in effect, result in multiplicity of suits, duplicitous procedure and unnecessary
delay.

The object of arbitration is to allow the expeditious determination of a dispute. Clearly, the issue
before us could not be speedily and efficiently resolved in its entirety if we allow simultaneous
arbitration proceedings and trial, or suspension of trial pending arbitration. Accordingly, the interest
of justice would only be served if the trial court hears and adjudicates the case in a single and
complete proceeding.

Koppel, Inc. Vs. Makati Rotary Club Foundation, Inc.

G.R. No. 198075
September 4, 2013
Perez, J.:

FACTS:

Fedders Koppel. Incorporated (FKI), an air-conditioning manufacturer, owned a parcel of land located
in Paranaque City which housed buildings and improvements dedicated to the business of FKI.

In 1975 – FKI left the land to Makati Rotary Club Foundation (MRCF) by way of a conditional
donation; MRCF accepted all the conditions.

On May 26, 1975, FKI and MRCF executed a deed of donation evidencing their consensus.

Conditions of the donation:

Respondent would lease the land back to FKI under the terms of donation

- Period of lease is for 25 years or until May 25, 2000; renewable for another 25 years upon
mutual agreement
- Rent paid by FKI for the 1st 25 years is P 40, 126 per annum.
- Rental for the 2nd 25 years shall be the subject of mutual agreement; if cannot agree , then
it be submitted to a panel of 3 arbitrators in accordance to arbitration law in the
Philippines.
- Fair market value should not exceed beyond 25% of the original value
- Rental for the 2nd 25 years shall not exceed 3% of the fair market value of the land

In October 1976, FKI and MRCF executed an amended deed of donation that reiterated the
provisions of the deed of donation.

By virtue of the lease agreement as stipulated in the deed of donation and the amended one, FKI
continued to possess and use the land.

2000 Lease Contract

2 days prior to the expiration of the deed of donation and the amended one, FKI and MRCF executed
another contract of lease.

Parties agreed with conditions of this contract

- A new 5 year contract

 - Annual rents ranging from P 4 million (1st year) to P 4.9 million (5th year)
- Contained arbitration clause in case of disagreement about the interpretation,
application and execution of the lease.
- Board of 3 arbitrators in accordance of the arbitration laws of the Philippines.
- Governed by laws of the Philippines

2005 Lease Contract

Created after expiration of the 2000 lease contract

- Fixed rent of P 4.2 million annually for 5 years

- FKI must make an annual donation of money to MRCF P3million (1 st Year to P 3.9 million
(5th year)
- Contained arbitration clause in case of disagreement about the interpretation, application
and execution of the lease.
- Board of 3 arbitrators in accordance of the arbitration laws of the Philippines.
- Governed by laws of the Philippines

The Assignment and Koppel’s Refusal to Pay

- FKI faithfully complied and paid rentals and the donations for 3 years in the 2005 lease
contract, but in June 2008 FKI sold its rights and properties to Koppel, Inc. (Koppel).
- FKI and MRCF executed an assignment and assumption of lease and donation where FKI
formally assigned all of it interest and obligations in favor of Koppel.
- The following year Koppel refused to pay rent and donation under the 2005 lease contract
because it violated the material conditions of the donation of the land in the deed of
donation and amended deed of donation; clearly the rents in 2000 & 2005 lease contract
were exhorbitant
o The two 25 years were the only material conditions of the donation of the subject
land
o While the lease for the 2nd 25 years was not fixed in the deed of donation and the
amended one, both deeds nevertheless prescribed rules and limitations which
should be complied with- what is referred here is the 3% maximum increase of
rental based on the fair market value of the land

Demand Letters

- June 1, 2009 MRCF sent the 1st demand letter notifying petitioner of its default and the
demand for its settlement (8.394 million), failure to comply would mean the termination of
the 2005 contract; the letter was received on the next day.
- Sept 22, 2009 Koppel sent a reply expressing disagreement over the rental stipulations
since they were excessive and against the mandated deed of donation and the amended
one; they offered to pay onlyP80,502.79
- September 25, 2009 MRCF sent the 2nd demand letter which reiterated the demand to pay
obligations, added that the failure to do so within 7 days, Koppel is demanded to vacate
the premises less MRCF take legal steps.
 - September 30, 2009, Koppel refused to comply with the demand and instead filed a case
before the RTC of Paranaque a complaint for the rescission or cancellation of the
deed of donation and amended deed of donation against the respondent.

The Ejectment Suit

- October 5, 2009, MRCF filed an unlawful detainer case against Koppel before the
MeTC of Paranaque.
- November 4, 2009, Koppel filed an answer with compulsory counterclaim and
reiterated its objection to the stipulations in the 2005 contract for being violative of
material conditions of the deed of donation and amended deed of donation
 Used the defense that MeTC had no jurisdiction because the 1st demand letter
had no demand to vacate the premises and therefore refusal to comply does not
give rise to an action for unlawful detainer
 Even if the MeTC was able to acquire jurisdiction, it may not exercise
the same until the disagreement between the parties is 1st referred to
arbitration
 Furthermore, there can be no ejectment since the 2005 lease contract is void.
The donations as part of rentals were simulated as donations contemplated to
evade taxes for being a non-stock and non-profit corporation.

Rulings of MeTC, RTC, and CA

MeTC

- Ruled in favour of Koppel

- Refused to dismiss the action on the ground that dispute was still subject to arbitration
- Found merit on the issues by Koppel – insufficiency in demand, and the nullity of the 2005 lease
contract

RTC – MRCF appealed to this court

-Reversed the decisions of the MeTC and ordered the eviction of Koppel from the land, pay
P9,362,436, penalties and net of 5% withholding tax, atty’s fees and costs of suit-

Ratio:

 Respondent has complied with the requirement of demand, in essence the 1 st demand also
deemed that they had to vacate since failure to comply would mean the termination of the
2005 lease contract which meant they had to lease; either way the 2 nd demand letter has
complied with the requirement of demand.
 Petitioner cannot invoke the arbitration clause and at the same time question the validity of
the contract.
 2005 lease contract must be sustained since there was no evidence submitted to prove its
invalidity.
CA - Koppel appealed here –

- Affirmed the decision of the RTC.

SC – Appeal by Koppel

- Sept. 25, 2011 SC issued a TRO staying the immediate implementation of the decision of the CA.

ISSUE:

Whether the 2005 Lease Contract is arbitrable?

RESOLUTION:

Yes, all of the arguments are bereft of merit for they have erred in overlooking the significance of the
arbitration clause incorporated in the 2005 lease contract.

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.”

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.

FIRST. While the validity of the contract may still be in question, the 2005 lease agreement would
not be rendered non-arbitrable.

The quotation from Gonzales vs. Climax Mining, Ltd. that was used to justify the contrary position
was taken out of context. SC held 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."

The question was whether the complaint for arbitration raises arbitrable issues that the Panel of
Arbitrators of the Mines and Geosciences Bureau (PA-MGB) can take cognizance of under the Mining
Act of 1995 (R.A. No. 7942). This Court pointed out to the provisions of 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. 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 PA-MGB. 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 and jurisprudence which is necessarily a judicial function.

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. Under the doctrine of separability, an arbitration
agreement is considered as independent of the main contract. Being a separate contract in itself, the
arbitration agreement may thus be invoked regardless of the possible nullity or invalidity of the main
contract.

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. SC finds that the filing of a
request pursuant to section 24 of RA NO. 9285 is not the sole means by which an arbitration clause
may be validly invoked in a pending suit.

Section 24 of RA 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.

The request referred to in the above provisions is, in turn, implemented by Rules 4.1 to 4.3 A.M. No.
07-11-08-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.

Apart 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.

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 xxx 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 RA No. 9285, the
special ADR Rules clearly did not intend to limit the invocation of an arbitration agreement in a
pending suit 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.

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 and, more significantly, of its desire to have the same enforced in this case. This act
of petitioner is enough valid invocation of his right to arbitrate.

FOURTH. The fact that the Petitioner and Respondent already underwent through Judicial Dispute
Resolution (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 party’s case.”
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.

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.

FIFTH. 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.” 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.

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:

RA 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.

RA No. 9285

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.

It is clear that under the law, the instant unlawful detainer action should have been stayed: 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 law - which
violation was, in turn, affirmed by the RTC and Court of Appeals on appeal.

The violation by the MeTC of the clear directives under RA No. 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.

Korea Technologies Co. Ltd vs Lerma

GR No. 143581 January 7, 2008

Facts:

Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is engaged in
the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants, while
private respondent Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic corporation. On
March 5, 1997, PGSMC and KOGIES executed a Contract whereby KOGIES would set up an LPG
Cylinder Manufacturing Plant in Carmona, Cavite. The contract was executed in the Philippines. On
April 7, 1997, the parties executed, in Korea, an Amendment for Contract No. KLP-970301 dated
March 5, 1997 amending the terms of payment. The contract and its amendment stipulated that
KOGIES will ship the machinery and facilities necessary for manufacturing LPG cylinders for which
PGSMC would pay USD 1,224,000. KOGIES would install and initiate the operation of the plant for
which PGSMC bound itself to pay USD 306,000 upon the plants production of the 11-kg. LPG cylinder
samples. Thus, the total contract price amounted to USD 1,530,000. On October 14, 1997, PGSMC
entered into a Contract of Lease with Worth Properties, Inc. (Worth) for use of Worths 5,079-square
meter property with a 4,032-square meter warehouse building to house the LPG manufacturing plant.
The monthly rental was PhP 322,560 commencing on January 1, 1998 with a 10% annual increment
clause. Subsequently, the machineries, equipment, and facilities for the manufacture of LPG cylinders
were shipped, delivered, and installed in the Carmona plant. PGSMC paid KOGIES USD 1,224,000.
However, gleaned from the Certificate executed by the parties on January 22, 1998, after the
installation of the plant, the initial operation could not be conducted as PGSMC encountered financial
difficulties affecting the supply of materials, thus forcing the parties to agree that KOGIES would be
deemed to have completely complied with the terms and conditions of the March 5, 1997 contract.
For the remaining balance of USD306,000 for the installation and initial operation of the plant,
PGSMC issued two postdated checks: (1) BPI Check No. 0316412 dated January 30, 1998 for PhP
4,500,000; and (2) BPI Check No. 0316413 dated March 30, 1998 for PhP 4,500,000. When KOGIES
deposited the checks, these were dishonored for the reason PAYMENT STOPPED. Thus, on May 8,
1998, KOGIES sent a demand letter to PGSMC threatening criminal action for violation of Batas
Pambansa Blg. 22 in case of nonpayment. On the same date, the wife of PGSMCs President faxed a
letter dated May 7, 1998 to KOGIES President who was then staying at a Makati City hotel. She
complained that not only did KOGIES deliver a different brand of hydraulic press from that agreed
upon but it had not delivered several equipment parts already paid for.

Issue: Whether or not the arbitration clause in the contract of the parties should govern.

Held: Yes. 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.

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., 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. 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.

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.

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.

G.R. No. 179537 -- Philippine Economic Zone Authority, Petitioner, versus Edison (Bataan)
Cogeneration Corporation, Respondent.
Petitioner Philippine Economic Zone Authority (PEZA)[1] and respondent Edison (Bataan) Cogeneration
Corporation (Edison) entered into a 10-year power supply and purchase agreement (agreement) that
was to take effect on October 25, 1997. Edison undertook to construct, operate, and maintain a
power plant that would supply electricity to establishments operating at the PEZA zone in Bataan.

On October 22, 2004 Edison filed a complaint for specific performance against PEZA before
the Regional Trial Court of Pasay City in Civil Case 04-0736-CFM.[2] The complaint alleged in
substance that a dispute arose between Edison and PEZA rooted on their agreement that Edison was
to supply power to PEZA at a rate that was in some way pegged to what National Power Corporation
(NPC) charged its Luzon utility customers.

Edison further alleged that, because the NPC began in 1999 to yield to popular demand for lower
rates than what it costs to generate power, it was compelled to sell the power it produced to PEZA at
artificially low rates. Still Edison managed to make a profit because of NPCs fuel support
scheme.When its side contract with NPC ended, however, Edison claimed that PEZA unjustifiably
rejected its request for tariff rate increases to which it was entitled under their agreement.

Edison also claimed that PEZA granted tariff rate relief to a power supplier in Cebu but would not
consider extending such relief to Edison, entitling the latter to terminate their agreement and recover
a pre-termination fee of over P708 million. Because PEZA refused Edisons demand for an end to their
agreement and for PEZA to pay pre-termination fee arising from its violation of the
agreement, Edisonclaimed a right to resort to arbitration as their agreement provided. But PEZA,
according to Edison, declined its demands, entitling it to come to court conformably with the terms of
their agreement and seek an order for the constitution of a committee of arbitrators to hear their
disputes.

In its answer to the complaint,[3] while PEZA admitted that Edison has claims against it for alleged
refusal to grant tariff rate adjustments that it had given other power suppliers and that PEZA had
refused to pay the pre-termination fee Edison asked, PEZA claimed that the supposed disputes were
not proper for arbitration since the pre-termination fee in the agreement was gravely onerous,
unconscionable, greatly disadvantageous to the government, against public policy, and therefore,
invalid and unenforceable.
PEZA further claimed a) that Edisons termination of the agreement was whimsical and baseless, in
itself a breach of the agreement; b) that during the negotiations for the requested power rate
increase, Edison declined to submit relevant data that PEZA needed to act on the request; c) that, in
utter bad faith, Edison cut off power supply to PEZA on August 13, 2004; d) that Edisons motive was
to maneuver PEZA into paying its demand for unconscionable and illegal pre-termination fee rather
than to get its tariff rate adjusted; and e) that this ill motive was evidenced by the fact that Edison
had been negotiating to sell its power engines to NPC even before it asked PEZA for tariff rate
adjustment.

Edison filed a reply and a motion to render judgment on the pleadings, contending that since PEZA
did not challenge the fact that there are disputes between the parties, Edison is entitled to a
resolution of such disputes by a three-member arbitration committee to be constituted by the
RTC. Acting on this motion and on the belief that PEZAs answer did not tender a genuine issue, on
April 5, 2005 the RTC issued an order constituting an Arbitration Committee with Chief Justice Andres
Narvasa as chairman and retired Supreme Court Justices Hugo Gutierrez and Jose Y. Feria, as
members with power to arbitrate the disputes between Edison and PEZA. The RTC denied PEZAs
motion for reconsideration of the order.

On appeal to the Court of Appeals, the latter court affirmed the RTCs order under a decision dated
April 10, 2007, prompting PEZA to come to this Court on petition for review by certiorari.

I fully agree with the ponencia of Justice Conchita Carpio Morales in holding that PEZAs answer to
the complaint acknowledged the existence of the remedy of arbitration concerning any dispute that
might arise between them involving their agreement, in this case, PEZAs alleged refusal to
grant Edison tariff rate adjustments as their agreement provided. PEZAs own answer alleged that it
did not yet deny the requested tariff rate adjustments and that the delay in its action on such request
had been brought about by Edisons refusal to submit the documents and data required of it. Whether
or not PEZA did deny such request itself actually presents a dispute between the parties. Arbitration
of the disputes between them respecting alleged violations of the agreement is, therefore, inevitable.

I would like to add, however, that in voting to grant the petition, it is clear to me that the Court does
not resolve today the issue that PEZA raises: whether or not the pre-termination clause of its
agreement with Edison is gravely onerous, unconscionable, greatly disadvantageous to the
government, against public policy, and therefore, invalid and unenforceable. In fact, if the Arbitration
Committee should uphold its defense that it had not arbitrarily denied Edisons claim for tariff rate
adjustment, the issue concerning the invalidity of the pre-termination clause of their agreement may
not even come to pass.

Arbitration; doctrine of separability. Petitioner argues that it tendered an issue in its Answer as it
disputed the legality of the pre-termination fee clause of the PSPA. Even assuming arguendo that the
clause is illegal, it would not affect the agreement between petitioner and respondent to resolve their
dispute by arbitration.
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. Philippine Economic Zone Authority
vs. Edison (Bataan) CoGeneration Corporation, G.R. No. 179537, October 23, 2009

PHILIPPINE ELECTRIC CORPORATION v. COURT OF APPEALS

G.R. No. 168612, December 10, 2014
FACTS:
Philippine Electric Corporation (PHILEC) is a domestic corporation engaged in the manufacture and
repairs of high voltage transformers. Among PWU members were selected for promotion, therefore
ordering them to undergo training, eventually shall receive allowance until the training is completed.
PWU
is a legitimate labor organization and the exclusive bargaining representative of PHILEC’s rank-and-
file employees. PHILEC and its rank-and-file employees were governed by collective bargaining
agreement providing for the steps in increasing the employee’s basic salary in case of promotion.
PWU members claimed that schedule of training allowance did not conform to Article X of their CBA.
PWU and PHILEC decided to settle their grievance to voluntary arbitration. PHILEC contends that
they applied Modified
“SGV” pay grades to avoid salary distortion. However, Voluntary Arbitrator held that PHILEC violated
its
CBA with PWU, therefore ordering the PHILEC to pay the PWU members allowance based on their
CBA.
PHILEC filed a petition for certiorari on Court of Appeals (CA), alleging that Voluntary Arbitrator
gravely abused its discretion in rendering his decision, but the CA affirmed the decision of Voluntary
Arbitrator.
PHILEC filed its petition before the SC for review on certiorari insisting that they did not violate their
CBA with PWU.
ISSUE:
Whether or not Voluntary Arbitrator gravely abuse its discretion in directing PHILEC to pay the
training allowance based on CBA with PWU.
RULING: No, the Voluntary Arbitrator did not gravely abuse its discretion. The Voluntary Arbitrator
correctly awarded training allowances based on the amounts and formula of the CBA. A Collective
Bargaining
Agreement is “a contract executed upon the request of either the employer or the exclusive
bargaining representative of the employees incorporating the agreement reached after the
negotiations with respect
to wages, hours of work and all other terms and conditions of employment, including proposals for
adjusting any grievances or questions arising under such agreement.” A collective bargaining
agreement
being a contract, its provisions “constitute the law between the parties” and must be complied with in
good faith. Therefore, the allowance of the members of the PWU must be computed based on Article
X of their CBA. Moreover, PHILEC allegedly applied the “Modified SGV” pay grade scale to prevent
any salary distortion within PHILEC’s enterprise. This, however, does not justify PHILEC’s non-
compliance with the collective bargaining agreement. This pay grade scale is not provided in the
collective bargaining agreement. It could have invoked Article 252 of the Labor Code, to incorporate
the “Modified SGV” pay grade scale in its collective bargaining agreement with PWU. But it did not.
Therefore PHILEC cannot insist on the “Modified SGV” pay grade scale’s application.

G.R. No. 168612 December 10, 2014

PHILIPPINE ELECTRIC CORPORATION (PHILEC), Petitioner,

vs.
COURT OF APPEALS, NATIONAL CONCILIATION AND MEDIATION BOARD (NCMB),
Department of Labor and Employment, RAMON T. JIMENEZ, in his capacity as Voluntary
Arbitrator, PHILEC WORKERS' UNION (PWU), ELEODORO V. LIPIO, and EMERLITO C.
IGNACIO, Respondents.

An appeal to reverse or modify a Voluntary Arbitrator's award or decision must be filed before the
Court of Appeals within 10 calendar days from receipt of the award or decision.

This is a petition1 for review on certiorari of the Court of Appeals’ decision2 dated May 25, 2004,
dismissing the Philippine Electric Corporation’s petition for certiorari for lack of merit. Philippine
Electric Corporation (PHILEC) is a domestic corporation "engaged in the manufacture and repairs of
high voltage transformers."3 Among its rank-and-file employees were Eleodoro V. Lipio (Lipio) and
Emerlito C. Ignacio, Sr. (Ignacio, Sr.), former members of the PHILEC Workers’ Union (PWU). 4 PWU
is a legitimate labor organization and the exclusive bargaining representative of PHILEC’s rank-and-
file employees.5

From June 1, 1989 to May 31, 1997, PHILEC and its rank-and-file employees were governed by
collective bargaining agreements providing for the following step increases in an employee’s basic
salary in case of promotion:6

Rank-and-File (PWU)
Pay
Grade June 1, 1989 to June 1, 1992 to June 1, 1994 to
May 31, 1992 May 31, 1994 May 31, 1997
 I – II 50 60 65
II – III 60 70 78
III – IV 70 80 95
IV – V 80 110 120
V- VI 100 140 150
VI – VII 120 170 195
VII – VIII 170 230 255
VIII – IX 220 290 340
IX – X 260 350 455

On August 18, 1997 and with the previous collective bargaining agreements already expired, PHILEC
selected Lipio for promotion from Machinist under Pay Grade VIII7 to Foreman I under Pay Grade
B.8 PHILEC served Lipio a memorandum,9 instructing him to undergo training for the position of
Foreman I beginning on August 25, 1997. PHILEC undertook to pay Lipio training allowance as
provided in the memorandum:

This will confirm your selection and that you will undergo training for the position of Foreman I (PG
B) of the Tank Finishing Section, Distribution Transformer Manufacturing and Repair effective August
25, 1997.

You will be trained as a Foreman I,and shall receive the following training allowance until you have
completed the training/observation period which shall not exceed four (4) months.

First Month - - - - - 350.00

Second month - - - - - 815.00
Third month - - - - - 815.00
Fourth month - - - - - 815.00

Please be guided accordingly.10

Ignacio, Sr., then DT-Assembler with Pay Grade VII,11 was likewise selected for training for the
position of Foreman I.12 On August 21, 1997, PHILEC served Ignacio, Sr. a
memorandum,13 instructing him to undergo training with the following schedule of allowance:

This will confirm your selection and that you will undergo training for the position of Foreman I (PG
B) of the Assembly Section, Distribution Transformer Manufacturing and Repair effective

August 25, 1997.

You will be trained as a Foreman I,and shall receive the following training allowance until you have
completed the training/observation period which shall not exceed four (4) months.
 First Month - - - - - 255.00
Second month - - - - - 605.00
Third month - - - - - 1,070.00
Fourth month - - - - - 1,070.00

Please be guided accordingly.14

On September 17, 1997, PHILEC and PWU entered into a new collective bargaining agreement,
effective retroactively on June 1, 1997 and expiring on May 31, 1999.15 Under Article X, Section 4 of
the June 1, 1997 collective bargaining agreement, a rank-and-file employee promoted shall be
entitled to the following step increases in his or her basic salary:16

Section 4. STEP INCREASES. [Philippine Electric Corporation] shall adopt the following step increases
on the basic salary in case of promotion effective June 1, 1997. Such increases shall be based on the
scale below or upon the minimum of the new pay grade to which the employee is promoted,
whichever is higher:

Pay Grade Step Increase

I - II ₱80.00
II - III ₱105.00
III - IV ₱136.00
IV - V ₱175.00
V - VI ₱224.00
VI - VII ₱285.00
VII - VIII ₱361.00
VIII - IX ₱456.00
IX - X ₱575.00
To be promoted, a rank-and-file employee shall undergo training or observation and shall receive
training allowance as provided in Article IX, Section 1(f) of the June 1, 1997 collective bargaining
agreement:17

Section 1. JOB POSTING AND BIDDING:

....

(f) Allowance for employees under Training or Observation shall be on a graduated basis as follows:

For the first month of training, the allowance should be equivalent to one step increase of the next
higher grade. Every month thereafter the corresponding increase shall be equivalent to the next
higher grade until the allowance for the grade applied for is attained.

As an example, if a Grade I employee qualifies for a Grade III position, he will receive the training
allowance for Grade I to Grade II for the first month. On the second month, he will receive the
training allowance for Grade I to Grade II plus the allowance for Grade II to Grade III. He will then
continue to receive this amount until he finishes his training or observation period.18
Claiming that the schedule of training allowance stated in the memoranda served on Lipio and
Ignacio,Sr. did not conform to Article X, Section 4 of the June 1, 1997 collective bargaining
agreement, PWU submitted the grievance to the grievance machinery.19

PWU and PHILEC failed to amicably settle their grievance. Thus, on December 21, 1998, the parties
filed a submission agreement20 with the National Conciliation and Mediation Board, submitting the
following issues to voluntary arbitration:

WHETHER OR NOT PHILEC VIOLATED SECTION 4 (Step Increases) ARTICLE X (Wage and Position
Standardization) OF THE EXISTING COLLECTIVE BARGAINING AGREEMENT (CBA) IN
IMPLEMENTING THE STEP INCREASES RELATIVE TO THE PROMOTION OF INDIVIDUAL
COMPLAINANTS.

II

WHETHER OR NOT PHILEC’s MANNER OF IMPLEMENTING THE STEP INCREASES IN CONNECTION

WITH THE PROMOTION OF INDIVIDUAL COMPLAINANTS IN RELATION TO THE PROVISIONS OF
SECTION 4, ARTICLE X OF THE CBA CONSTITUTES UNFAIR LABOR PRACTICE.21

In their submission agreement, PWU and PHILEC designated Hon. Ramon T. Jimenez as Voluntary
Arbitrator (Voluntary Arbitrator Jimenez).22

Voluntary Arbitrator Jimenez, in the order23 dated January 4, 1999, directed the parties to file their
respective position papers.

In its position paper,24 PWU maintained that PHILEC failed to follow the schedule of step increases
under Article X, Section 4 of the June 1, 1997 collective bargaining agreement. Machinist I, Lipio’s
position before he underwent training for Foreman I, fell under Pay Grade VIII, while Foreman I fell
under Pay Grade X. Following the schedule under Article X, Section 4 of the June 1, 1997 collective
bargaining agreement and the formula under Article IX, Section 1(f), Lipio should be paid training
allowance equal to the step increase for pay grade bracket VIII-IX for the first month of training. For
the succeeding months, Lipio should be paid an allowance equal to the step increase for pay grade
bracket VIII-IX plus the step increase for pay grade bracket IX-X, thus:25

First Month - - - - - ₱456.00

Second month - - - - - ₱1,031.00
Third month - - - - - ₱1,031.00
Fourth month - - - - - ₱1,031.00.

With respect to Ignacio, Sr., he was holding the position of DTAs sembler under Pay Grade VII when
hewas selected to train for the position of Foreman I under Pay Grade X. Thus, for his first month of
training, Ignacio, Sr. should be paid training allowance equal to the step increase under pay grade
bracket VII-VIII. For the second month, he should be paid an allowance equal to the step increase
under pay grade bracket VIIVIII plus the step increase under pay grade bracket VIII-IX. For the third
and fourth months, Ignacio, Sr. should receive an allowance equal to the amount he received for the
second month plus the amount equal to the step increase under pay grade bracket IX-X, thus:26

First Month - - - - - ₱361.00

Second month - - - - - ₱817.00
Third month - - - - - ₱1,392.00
Fourth month - - - - - ₱1,392.00.

For PHILEC’s failure to apply the schedule of step increases under Article X of the June 1, 1997
collective bargaining agreement, PWU argued that PHILEC committed an unfair labor practice under
Article 24827 of the Labor Code.28

In its position paper,29 PHILEC emphasized that it promoted Lipio and Ignacio, Sr. while it was still
negotiating a new collective bargaining agreement with PWU. Since PHILEC and PWU had not yet
negotiated a new collective bargaining agreement when PHILEC selected Lipio and Ignacio, Sr. for
training, PHILEC applied the "Modified SGV" pay grade scale in computing Lipio’s and Ignacio, Sr.’s
training allowance.30

This "Modified SGV" pay grade scale, which PHILEC and PWU allegedly agreed to implement
beginning on May 9, 1997, covered both rank-and-file and supervisory employees.31 According to
PHILEC, its past collective bargaining agreements withthe rank-and-file and supervisory unions
resulted in an overlap of union membership in Pay Grade IX of the rank-and-file employees and Pay
Grade A of the supervisory employees.32 Worse, past collective bargaining agreements resulted in
rank-and-file employees under Pay Grades IX and X enjoying higher step increases than supervisory
employees under Pay Grades A and B:33

Pay Grade
Pay Grade Scale
Scale under the
Step Increase under the Step Increase
Rank-and-File
Supervisory CBA
CBA
VIII-IX ₱340.00 A ₱290.00
IX-X ₱455.00 A-B ₱350.00

To preserve the hierarchical wage structure within PHILEC’s enterprise, PHILEC and PWU allegedly
agreed to implement the uniform pay grade scale under the "Modified SGV" pay grade system,
thus:34

Pay Grade
Step Increase
Rank-and-File Supervisory
I – II ₱65.00
II-III ₱78.00
III-IV ₱95.00
 IV-V ₱120.00
V-VI ₱150.00
VI-VII ₱195.00
VII-VIII ₱255.00
VIII-IX A ₱350.00
IX-X A-B ₱465.00
X-XI B-C ₱570.00
XI-XII C-D ₱710.00
D-E ₱870.00
E-F ₱1,055.00

Pay grade bracket I–IX covered rank-and-file employees, while pay grade bracket A–F covered
supervisory employees.35

Under the "Modified SGV" pay grade scale, the position of Foreman I fell under Pay Grade B. PHILEC
then computed Lipio’s and Ignacio, Sr.’s training allowance accordingly.36

PHILEC disputed PWU’s claim of unfair labor practice. According to PHILEC, it did not violate its
collective bargaining agreement with PWU when it implemented the "Modified SGV" scale. Even
assuming that it violated the collective bargaining agreement, PHILEC argued that its violation was
not "gross" or a "flagrant and/or malicious refusal to comply with the economic provisions of [the
collective bargaining agreement]."37 PHILEC, therefore, was not guilty of unfair labor practice.38

Voluntary Arbitrator Jimenez held in the decision39 dated August 13, 1999, that PHILEC violated its
collective bargaining agreement with PWU.40 According to Voluntary Arbitrator Jimenez, the June 1,
1997 collective bargaining agreement governed when PHILEC selected Lipio and Ignacio, Sr. for
promotion on August 18 and 21, 1997.41 The provisions of the collective bargaining agreement being
the law between the parties, PHILEC should have computed Lipio’s and Ignacio, Sr.’s training
allowance based on Article X, Section 4 of the June 1, 1997 collective bargaining agreement.42

As to PHILEC’s claim that applying Article X, Section 4 would result in salary distortion within
PHILEC’s enterprise, Voluntary Arbitrator Jimenez ruled that this was "a concern that PHILEC could
have anticipated and could have taken corrective action"43 before signing the collective bargaining
agreement.

Voluntary Arbitrator Jimenez dismissed PWU’s claim of unfair labor practice. 44 According to him,
PHILEC’s acts "cannot be considered a gross violation of the [collective bargaining agreement] nor . .
. [a] flagrant and/or malicious refusal to comply withthe economic provisions of the [agreement]."45

Thus, Voluntary Arbitrator Jimenez ordered PHILEC to pay Lipio and Ignacio, Sr. training allowance
based on Article X, Section 4 and Article IX, Section 1 of the June 1, 1997 collective bargaining
agreement.46
PHILEC received a copy of Voluntary Arbitrator Jimenez’s decision on August 16, 1999. 47 On August
26, 1999, PHILEC filed a motion for partial reconsideration48 of Voluntary Arbitrator Jimenez’s
decision.

In the resolution49 dated July 7, 2000, Voluntary Arbitrator Jimenez denied PHILEC’s motion for
partial reconsideration for lack of merit. PHILEC received a copy of the July 7, 2000 resolution on
August 11, 2000.50

On August 29, 2000, PHILEC filed a petition51 for certiorari before the Court of Appeals, alleging that
Voluntary Arbitrator Jimenez gravely abused his discretion in rendering his decision. 52 PHILEC
maintained that it did not violate the June 1, 1997 collective bargaining agreement. 53 It applied the
"Modified SGV" pay grade rates toavoid salary distortion within its enterprise.54

In addition, PHILEC argued that Article X, Section 4 of the collective bargaining agreement did not
apply to Lipio and Ignacio, Sr. Considering that Lipio and Ignacio, Sr. were promoted to a supervisory
position, their training allowance should be computed based on the provisions of PHILEC’s collective
bargaining agreement with ASSET, the exclusive bargaining representative of PHILEC’s supervisory
employees.55

The Court of Appeals affirmed Voluntary Arbitrator Jimenez’s decision.56 It agreed that PHILEC was
bound to apply Article X, Section 4 of its June 1, 1997 collective bargaining agreement with PWU in
computing Lipio’s and Ignacio, Sr.’s training allowance.57 In its decision, the Court of Appeals denied
due course and dismissed PHILEC’s petition for certiorari for lack of merit.58

PHILEC filed a motion for reconsideration, which the Court of Appeals denied in the resolution59 dated
June 23, 2005.

On August 3, 2005, PHILEC filed its petition for review on certiorari before this court, 60 insisting that
it did not violate its collective bargaining agreement with PWU.61 PHILEC maintains that Lipio and
Ignacio, Sr. were promoted to a position covered by the pay grade scale for supervisory
employees.62 Consequently, the provisions of PHILEC’s collective bargaining agreement with its
supervisory employees should apply, not its collective bargaining agreement with PWU.63 To insist on
applying the pay grade scale in Article X, Section 4, PHILEC argues, would result in a salary distortion
within PHILEC.64

In the resolution65 dated September 21, 2005,this court ordered PWU to comment on PHILEC’s
petition for review on certiorari.

In its comment,66 PWU argues that Voluntary Arbitrator Jimenez did not gravely abuse his discretion
in rendering his decision. He correctly applied the provisions of the PWU collective bargaining
agreement, the law between PHILEC and its rank-and-file employees, in computing Lipio’s and
Ignacio, Sr.’s training allowance.67

On September 27, 2006, PHILEC filed its reply,68 reiterating its arguments in its petition for review on
certiorari.

The issue for our resolution is whether Voluntary Arbitrator Jimenez gravely abused his discretion in
directing PHILEC to pay Lipio’s and Ignacio, Sr.’s training allowance based on Article X, Section 4 of
the June 1, 1997 rank-and-file collective bargaining agreement.
This petition should be denied.

The Voluntary Arbitrator’s decision

dated August 13, 1999 is already final and
executory

We note that PHILEC filed before the Court of Appeals a petition for certiorari under Rule 65 of the
Rules ofCourt against Voluntary Arbitrator Jimenez’s decision.69

This was not the proper remedy.

Instead, the proper remedy to reverse or modify a Voluntary Arbitrator’s or a panel of Voluntary
Arbitrators’ decision or award is to appeal the award or decision before the Court of Appeals. Rule 43,
Sections 1 and 3 of the Rules of Court provide:

Section 1. Scope.

This Rule shall apply to appeals from judgments or final orders of the Court of Tax Appeals and from
awards, judgments, final orders or resolutions of orauthorized by any quasi-judicial agency in the
exercise of its quasi-judicial functions. Among these agencies are the Civil Service Commission,
Central Board of Assessment Appeals, Securities and Exchange Commission, Office of the President,
Land Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of Patents,
Trademarks and Technology Transfer, National Electrification Administration, Energy Regulatory
Board, National Telecommunications Commission, Department of Agrarian Reform under Republic Act
No. 6657, Government Service Insurance System, Employees Compensation Commission, Agricultural
Inventions Board, Insurance Commission, Philippine Atomic Energy Commission, Board of
Investments, Construction Industry Arbitration Commission, and voluntary arbitrators authorized by
law.

....

Sec. 3. Where to appeal.

An appeal under this Rule may be taken to the Court of Appeals within the period and in the manner
herein provided, whether the appeal involves questions of fact, of law, or mixed questions of fact and
law. (Emphasis supplied)

A Voluntary Arbitrator or a panel of Voluntary Arbitrators has the exclusive original jurisdiction over
grievances arising from the interpretation or implementation of collective bargaining agreements.
Should the parties agree, a Voluntary Arbitrator or a panel of Voluntary Arbitrators shall also resolve
the parties’ other labor disputes, including unfair labor practices and bargaining deadlocks. Articles
261 and 262 of the Labor Code provide:

ART. 261. JURISDICTION OF VOLUNTARY ARBITRATORS OR PANEL OF VOLUNTARY ARBITRATORS.

The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have original and exclusive jurisdiction
to hear and decide all unresolved grievances arising from the interpretation or implementation of the
Collective Bargaining Agreement and those arising from the interpretation or enforcement of
company personnel policies referred to in the immediately preceding article. Accordingly, violations of
a Collective Bargaining Agreement, except those which are gross in character, shall no longer be
treated as unfair labor practice and shall be resolved as grievances under the Collective Bargaining
Agreement. For purposes of this article, gross violations of Collective Bargaining Agreement shall
mean flagrant and/or malicious refusal to comply with the economic provisions of such agreement.

The Commission, its Regional Offices and the Regional Directors of the Department of Labor and
Employment shall not entertain disputes, grievances, or matters under the exclusive and original
jurisdiction of the Voluntary Arbitrator orpanel of Voluntary Arbitrators and shall immediately dispose
and refer the same to the Grievance Machinery or Voluntary Arbitration provided in the Collective
Bargaining Agreement.

ART. 262. JURISDICTION OVER OTHER LABOR DISPUTES.

The Voluntary Arbitrator or panel of Voluntary Arbitrators, upon agreement of the parties, shall also
hear and decide all other labor disputes including unfair labor practices and bargaining deadlocks.

In Luzon Development Bank v. Association of Luzon Development Bank Employees, 70 this court ruled
that the proper remedy against the award or decision of the Voluntary Arbitratoris an appeal before
the Court of Appeals. This court first characterized the office ofa Voluntary Arbitrator or a panel of
Voluntary Arbitrators as a quasi-judicial agency, citing Volkschel Labor Union, et al. v. NLRC71 and
Oceanic Bic Division (FFW) v. Romero:72

In Volkschel Labor Union, et al. v. NLRC, et al.,on the settled premise that the judgments of courts
and awards of quasi-judicial agencies must become final at some definite time, this Court ruled that
the awards of voluntary arbitrators determine the rights of parties; hence, their decisions have the
same legal effect as judgments of a court. In Oceanic Bic Division (FFW), et al. v. Romero, et al., this
Court ruled that "a voluntary arbitrator by the nature of her functions acts in a quasi-judicial
capacity." Under these rulings, it follows that the voluntary arbitrator, whether acting solely or in a
panel, enjoys in law the status of a quasijudicial agency but independent of, and apart from, the
NLRC since his decisions are not appealable to the latter.73 (Citations omitted)

This court then stated that the office of a Voluntary Arbitrator or a panel of Voluntary Arbitrators,
even assuming that the office is not strictly a quasi-judicial agency, may be considered an
instrumentality, thus:

Assuming arguendo that the voluntaryarbitrator or the panel of voluntary arbitrators may not strictly
be considered as a quasi-judicial agency, board or commission, still both he and the panel are
comprehended within the concept of a "quasi-judicial instrumentality." It may even be stated that it
was to meet the very situation presented by the quasi-judicial functions of the voluntary arbitrators
here, as well as the subsequent arbitrator/arbitral tribunal operating under the Construction Industry
Arbitration Commission, that the broader term "instrumentalities" was purposely included in the
above-quoted provision.

An "instrumentality" is anything used as a means or agency. Thus, the terms governmental "agency"
or "instrumentality" are synonymous in the sense that either of them is a means by which a
government acts, or by which a certain government act or function is performed. The word
"instrumentality," with respect to a state, contemplates an authority to which the state delegates
governmental power for the performance of a state function. An individual person, like an
administrator or executor, is a judicial instrumentality in the settling of an estate, in the same manner
that a sub-agent appointed by a bankruptcy court is an instrumentality of the court, and a trustee in
bankruptcy of a defunct corporation is an instrumentality of the state.

The voluntary arbitrator no less performs a state function pursuant to a governmental power
delegated to him under the provisions therefor in the Labor Code and he falls, therefore, within the
contemplation of the term "instrumentality" in the aforequoted Sec. 9 of B.P. 129.74 (Citations
omitted)

Since the office of a Voluntary Arbitrator or a panel of Voluntary Arbitrators is considered a quasi-
judicial agency, this court concluded that a decision or award rendered by a Voluntary Arbitrator is
appealable before the Court of Appeals. Under Section 9 of the Judiciary Reorganization Act of 1980,
the Court of Appeals has the exclusive original jurisdiction over decisions or awards of quasi-judicial
agencies and instrumentalities:

Section 9. Jurisdiction. The Court of Appeals shall exercise:

....

3. Exclusive appellate jurisdiction over all final judgements, resolutions, orders or awardsof Regional
Trial Courts and quasijudicial agencies, instrumentalities, boards or commission, including the
Securities and Exchange Commission, the Social Security Commission, the Employees Compensation
Commission and the Civil Service Commission, except those falling within the appellate jurisdiction of
the Supreme Court in accordance with the Constitution, the Labor Code of the Philippines under
Presidential Decree No. 442, as amended, the provisions of this Act, and of subparagraph (1) of the
third paragraph and subparagraph 4 of the fourth paragraph of Section 17 of the Judiciary Act of
1948. (Emphasis supplied)

Luzon Development Bankwas decided in 1995 but remains "good law."75 In the 2002 case of
Alcantara, Jr. v. Court of Appeals,76 this court rejected petitioner Santiago Alcantara, Jr.’s argument
that the Rules of Court, specifically Rule 43, Section 2, superseded the Luzon Development Bank
ruling:

Petitioner argues, however, that Luzon Development Bank is no longer good law because of Section
2, Rule 43 of the Rules of Court, a new provision introduced by the 1997 revision. The provision
reads:

SEC. 2. Cases not covered. -This Rule shall not apply to judgments or final orders issued under the
Labor Code of the Philippines.

The provisions may be new to the Rules of Court but it is far from being a new law. Section 2, Rule
42 of the 1997 Rules of Civil Procedure, as presently worded, is nothing more but a reiteration of the
exception to the exclusive appellate jurisdiction of the Court of Appeals, as provided for in Section 9,
Batas Pambansa Blg. 129,7 as amended by Republic Act No. 7902:8

(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards of
Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or commissions, including
the Securities and Exchange Commission, the Employees’ Compensation Commission and the Civil
Service Commission, except those falling within the appellate jurisdiction of the Supreme Court in
accordance with the Constitution, the Labor Code of the Philippines under Presidential Decree No.
442, as amended, the provisions of this Act and of subparagraph (1) of the third paragraph and
subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948.

The Court took into account this exception in Luzon Development Bank but, nevertheless, held that
the decisions of voluntary arbitrators issued pursuant to the Labor Codedo not come within its ambit:

x x x. The fact that [the voluntary arbitrator’s] functions and powers are provided for in the Labor
Code does not place him within the exceptions to said Sec. 9 since he is a quasi-judicial
instrumentality as contemplated therein. It will be noted that, although the Employees’ Compensation
Commission is also provided for in the Labor Code, Circular No. 1-91, which is the forerunner of the
present Revised Administrative Circular No. 1-95, laid down the procedure for the appealability of its
decisions to the Court of Appeals under the foregoing rationalization, and this was later adopted by
Republic Act No. 7902 in amending Sec. 9 of B.P. 129.

A fortiori, the decision or award of the voluntary arbitrator or panel of arbitrators should likewise be
appealable to the Court of Appeals, in line with the procedure outlined in Revised Administrative
Circular No. 1-95, just like those of the quasi-judicial agencies, boards and commissions enumerated
therein.77 (Emphases in the original)

This court has since reiterated the Luzon Development Bankruling in its decisions.78

Article 262-A of the Labor Code provides that the award or decision of the Voluntary Arbitrator "shall
befinal and executory after ten (10) calendar days from receipt of the copy of the award or decision
by the parties":

Art. 262-A. PROCEDURES. The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have the
power to hold hearings, receive evidences and take whatever action isnecessary to resolve the issue
or issues subject of the dispute, including efforts to effect a voluntary settlement between parties.

All parties to the dispute shall beentitled to attend the arbitration proceedings. The attendance of any
third party or the exclusion of any witness from the proceedings shall be determined by the Voluntary
Arbitrator or panel of Voluntary Arbitrators. Hearing may be adjourned for cause or upon agreement
by the parties.

Unless the parties agree otherwise, it shall be mandatory for the Voluntary Arbitrator or panel of
Voluntary Arbitrators to render an award or decision within twenty (20) calendar days from the date
of submission of the dispute to voluntary arbitration.

The award or decision of the Voluntary Arbitrator or panel of Voluntary Arbitrators shall contain the
facts and the law on which it is based. It shall be final and executory after ten (10) calendar days
from receipt of the copy of the award or decision by the parties.

Upon motion of any interested party, the Voluntary Arbitrator or panel of Voluntary Arbitrators or the
Labor Arbiter in the region where the movant resides, in case of the absence or incapacity of the
Voluntary Arbitrator or panel of Voluntary Arbitrators, for any reason, may issue a writ of execution
requiring either the sheriff of the Commission or regular courts or any public official whomthe parties
may designate in the submission agreement to execute the final decision, order or award. (Emphasis
supplied)
Thus, in Coca-Cola Bottlers Philippines, Inc. Sales Force UnionPTGWO-BALAIS v. Coca Cola-Bottlers
Philippines, Inc.,79 this court declared that the decision of the Voluntary Arbitrator had become final
and executory because it was appealed beyond the 10-day reglementary period under Article 262-A
of the Labor Code.

It is true that Rule 43, Section 4 of the Rules of Court provides for a 15-day reglementary period for
filing an appeal:

Section 4. Period of appeal. — The appeal shall be taken within fifteen (15) days from notice of the
award, judgment, final order or resolution, or from the date of its last publication, if publication is
required by law for its effectivity, or of the denial of petitioner's motion for new trial or
reconsideration duly filed in accordance with the governing law of the court or agency a quo. Only
one (1) motion for reconsideration shall be allowed. Upon proper motion and the payment of the full
amount of the docket fee before the expiration of the reglementary period, the Court of Appeals may
grant an additional period of fifteen (15) days only within which to file the petition for review. No
further extension shall be granted except for the most compelling reason and in no case to exceed
fifteen (15) days. (Emphasis supplied)

The 15-day reglementary period has been upheld by this court in a long line of cases. 80 In AMA
Computer College-Santiago City, Inc. v. Nacino,81 Nippon Paint Employees Union-OLALIA v. Court of
Appeals,82 Manila Midtown Hotel v. Borromeo,83 and Sevilla Trading Company v. Semana,84 this court
denied petitioners’ petitions for review on certiorari since petitioners failed to appeal the Voluntary
Arbitrator’s decision within the 15-day reglementary period under Rule43. In these cases, the Court
of Appeals had no jurisdiction to entertain the appeal assailing the Voluntary Arbitrator’s decision.

Despite Rule 43 providing for a 15-day period to appeal, we rule that the Voluntary Arbitrator’s
decision mustbe appealed before the Court of Appeals within 10 calendar days from receipt of the
decision as provided in the Labor Code.

Appeal is a "statutory privilege,"85 which may be exercised "only in the manner and in accordance
withthe provisions of the law."86 "Perfection of an appeal within the reglementary period is not only
mandatory but also jurisdictional so that failure to doso rendered the decision final and executory,
and deprives the appellate court of jurisdiction to alter the final judgment much less to entertain the
appeal."87

We ruled that Article 262-A of the Labor Code allows the appeal of decisions rendered by Voluntary
Arbitrators.88Statute provides that the Voluntary Arbitrator’s decision "shall befinal and executory
after ten (10) calendar days from receipt of the copy of the award or decision by the parties." Being
provided in the statute,this 10-day period must be complied with; otherwise, no appellate court
willhave jurisdiction over the appeal. This absurd situation occurs whenthe decision is appealed on
the 11th to 15th day from receipt as allowed under the Rules, but which decision, under the law, has
already become final and executory.

Furthermore, under Article VIII, Section 5(5) of the Constitution, this court "shall not diminish,
increase, or modify substantive rights" in promulgating rules of procedure in courts. 89 The 10-day
period to appeal under the Labor Code being a substantive right, this period cannot be

diminished, increased, or modified through the Rules of Court.90

In Shioji v. Harvey,91 this court held that the "rules of court, promulgated by authority of law, have
the force and effect of law, if not in conflict with positive law." 92 Rules of Court are "subordinate to
the statute."93 In case of conflict between the law and the Rules of Court, "the statute will prevail."94

The rule, therefore, is that a Voluntary Arbitrator’s award or decision shall be appealed before the
Court of Appeals within 10 days from receipt of the award or decision. Should the aggrieved party
choose to file a motion for reconsideration with the Voluntary Arbitrator,95 the motion must be filed
within the same 10-day period since a motion for reconsideration is filed "within the period for taking
an appeal."96

A petition for certiorari is a special civil action "adopted to correct errors of jurisdiction committed by
the lower court or quasi-judicial agency, or when there is grave abuse of discretion on the part of
such court or agency amounting to lack or excess of jurisdiction."97 An extraordinary remedy,98 a
petition for certiorari may be filed only if appeal is not available.99 If appeal is available, an appeal
must be taken even if the ground relied upon is grave abuse of discretion.100

As an exception to the rule, this court has allowed petitions for certiorari to be filed in lieu of an
appeal "(a) when the public welfare and the advancement of public policy dictate; (b) when the
broader interests of justice so require; (c) when the writs issued are null; and (d) when the
questioned order amounts to an oppressive exercise of judicial authority."101

In Unicraft Industries International Corporation, et al. v. The Hon. Court of Appeals, 102 petitioners
filed a petition for certiorari against the Voluntary Arbitrator’s decision. Finding that the Voluntary
Arbitrator rendered an award without giving petitioners an opportunity to present evidence, this court
allowed petitioners’ petition for certiorari despite being the wrong remedy. The Voluntary Arbitrator’s
award, thiscourt said, was null and void for violation of petitioners’ right to due process. This court
decided the case on the merits.

In Leyte IV Electric Cooperative, Inc. v. LEYECO IV Employees Union-ALU,103 petitioner likewise filed
a petition for certiorari against the Voluntary Arbitrator’s decision, alleging that the decision lacked
basis in fact and in law. Ruling that the petition for certiorari was filed within the reglementary period
for filing an appeal, this court allowed petitioner’s petition for certiorari in "the broader interests of
justice."104

In Mora v. Avesco Marketing Corporation,105 this court held that petitioner Noel E. Mora erred in filing
a petition for certiorari against the Voluntary Arbitrator’s decision. Nevertheless, this court decided
the case on the merits "in the interest of substantial justice to arrive at the proper conclusion that is
conformable to the evidentiary facts."106

None of the circumstances similar to Unicraft, Leyte IV Electric Cooperative, and Moraare present in
this case. PHILEC received Voluntary Arbitrator Jimenez’s resolution denying its motion for partial
reconsideration on August 11, 2000.107 PHILEC filed its petition for certiorari before the Court
ofAppeals on August 29, 2000,108 which was 18 days after its receipt of Voluntary Arbitrator Jimenez’s
resolution. The petition for certiorari was filed beyond the 10-day reglementary period for filing an
appeal. We cannot consider PHILEC’s petition for certiorari as an appeal.

There being no appeal seasonably filed in this case, Voluntary Arbitrator Jimenez’s decision became
final and executory after 10 calendar days from PHILEC’s receipt of the resolution denying its motion
for partial reconsideration.109 Voluntary Arbitrator Jimenez’s decision is already "beyond the purview
of this Court to act upon."110

II

PHILEC must pay training allowance

based on the step increases provided in
the June 1, 1997 collective bargaining
agreement

The insurmountable procedural issue notwithstanding, the case will also fail on its merits. Voluntary
Arbitrator Jimenez correctly awarded both Lipio and Ignacio, Sr. training allowances based on the
amounts and formula provided in the June 1, 1997 collective bargaining agreement.

A collective bargaining agreement is "a contract executed upon the request of either the employer or
the exclusive bargaining representative of the employees incorporating the agreement reached after
negotiations with respect to wages, hours of work and all other terms and conditions of employment,
including proposals for adjusting any grievances or questions arising under such agreement."111 A
collective bargaining agreement being a contract, its provisions "constitute the law between the
parties"112 and must be complied with in good faith.113

PHILEC, as employer, and PWU, as the exclusive bargaining representative of PHILEC’s rank-and-file
employees, entered into a collective bargaining agreement, which the parties agreed to make
effective from June 1, 1997 to May 31, 1999. Being the law between the parties, the June 1, 1997
collective bargaining agreement must govern PHILEC and its rank-and-file employees within the
agreed period.

Lipio and Ignacio, Sr. were rank-and-file employees when PHILEC selected them for training for the
position of Foreman I beginning August 25, 1997. Lipio and Ignacio, Sr. were selected for training
during the effectivity of the June 1, 1997 rank-and-file collective bargaining agreement. Therefore,
Lipio’s and Ignacio, Sr.’s training allowance must be computed based on Article X, Section 4 and
ArticleIX, Section 1(f) of the June 1, 1997 collective bargaining agreement.

Contrary to PHILEC’s claim, Lipio and Ignacio, Sr. were not transferred out of the bargaining unit
when they were selected for training. Lipio and Ignacio, Sr. remained rank-and-file employees while
they trained for the position of Foreman I. Under Article IX, Section 1(e) of the June 1, 1997
collective bargaining agreement,114 a trainee who is "unable to demonstrate his ability to perform the
work . . . shall be reverted to his previous assignment. . . ."115According to the same provision, the
trainee "shall hold that job on a trial or observation basis and . . . subject to prior approval of the
authorized management official, be appointed to the position in a regular capacity."116

Thus, training is a condition precedent for promotion. Selection for training does not mean automatic
transfer out of the bargaining unit of rankand-file employees.

Moreover, the June 1, 1997 collective bargaining agreement states that the training allowance of a
rank-and-file employee "whose application for a posted job is accepted shall [be computed] in
accordance with Section (f) of [Article IX]."117 Since Lipio and Ignacio, Sr. were rank-and-file
employees when they applied for training for the position of Foreman I, Lipio’s and Ignacio, Sr.’s
training allowance must be computed based on Article IX, Section 1(f) of the June 1, 1997 rank-and-
file collective bargaining agreement.
PHILEC allegedly applied the "Modified SGV" pay grade scale to prevent any salary distortion within
PHILEC’s enterprise. This, however, does not justify PHILEC’s non-compliance with the June 1, 1997
collective bargaining agreement. This pay grade scale is not provided in the collective bargaining
agreement. In Samahang Manggagawa sa Top Form Manufacturing United Workers of the Philippines
(SMTFM-UWP) v. NLRC,118 this court ruled that "only provisions embodied in the [collective
bargaining agreement] should be so interpreted and complied with. Where a proposal raised by a
contracting party does not find print in the [collective bargaining agreement], it is not part thereof
and the proponent has no claim whatsoever to its implementation."119

Had PHILEC wanted the "Modified SGV" pay grade scale applied within its enterprise, "it could have
requested or demanded that [the ‘Modified SGV’ scale] be incorporated in the [collective bargaining
agreement]."120 PHILEC had "the means under the law to compel [PWU] to incorporate this specific
economic proposal in the [collective bargaining agreement]."121 It "could have invoked Article 252 of
the Labor Code"122 to incorporate the "Modified SGV" pay grade scale in its collective bargaining
agreement with PWU. But it did not. Since this "Modified SGV" pay grade scale does not appear in
PHILEC’s collective bargaining agreement with PWU, PHILEC cannot insist on the "Modified SGV" pay
grade scale’s application. We reiterate Voluntary Arbitrator Jimenez’s decision dated August 13, 1999
where he said that:

. . . since the signing of the current CBA took place on September 27, 1997, PHILEC, by oversight,
may have overlooked the possibility of a wage distortion occurring among ASSET-occupied positions.
It is surmised that this matter could have been negotiated and settled with PWU before the actual
signing of the CBA on September 27. Instead, PHILEC, again, allowed the provisions of Art. X, Sec. 4
of the CBA to remain the way it is and is now suffering the consequences of its laches.123 (Emphasis
in the original)

We note that PHILEC did not dispute PWU’s contention that it selected several rank-and-file
employees for training and paid them training allowance based on the schedule provided in the
collective bargaining agreement effective at the time of the trainees’ selection. 124 PHILEC cannot
choose when and to whom to apply the provisions of its collective bargaining agreement. The
provisions of a collective bargaining agreement must be applied uniformly and complied with in good
faith.

Given the foregoing, Lipio’s and Ignacio, Sr.’s training allowance should be computed based on Article
X, Section 4 in relation to Article IX, Section 1(f) of the June 1, 1997 rank-and-file collective
bargaining agreement. Lipio, who held the position of Machinist before selection for training as
Foreman I, should receive training allowance based on the following schedule:

First Month - - - - - ₱456.00

Second month - - - - - ₱1,031.00
Third month - - - - - ₱1,031.00
Fourth month - - - - - ₱1,031.00

Ignacio, Sr., who held the position of DT-Assembler before selection for training as Foreman I, should
receive training allowance based on the following schedule:
 First Month - - - - - ₱361.00
Second month - - - - - ₱817.00
Third month - - - - - ₱1,392.00
Fourth month - - - - - ₱1,392.00

Considering that Voluntary Arbitrator Jimenez’s decision awarded sums of money, Lipio and Ignacio,
Sr. are entitled to legal interest on their training allowances. Voluntary Arbitrator Jimenez’s decision
having become final and executory on August 22, 2000, PHILEC is liable for legal interest equal to
12% per annum from finality of the decision until full payment as this court ruled in Eastern Shipping
Lines, Inc. v. Court of Appeals:125

When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest. . . shall be 12% per annum from such finality until its satisfaction, this interim period
being deemed to be by then as equivalent to a forbearance of credit.126

The 6% legal interest under CircularNo. 799, Series of 2013, of the Bangko Sentral ng Pilipinas
Monetary Board shall not apply, Voluntary Arbitrator Jimenez’s decision having become final and
executory prior to the effectivity of the circular on July 1, 2013. 1avvphi1 In Nacar v. Gallery
Frames,127 we held that:

. . . with regard to those judgments that have become final and executory prior to July 1, 2013, said
judgments shall not be disturbed and shall continue to be implemented applying the rate of interest
fixed therein.128

WHEREFORE, the petition for review on certiorari is DENIED. The Court of Appeals' decision dated
May 25, 2004 is AFFIRMED.

Petitioner Philippine Electric Corporation is ORDERED to PAY respondent Eleodoro V. Lipio a total of
₱3,549.00 for a four (4)-month training for the position of Foreman I with legal interest of 12% per
annum from August 22, 2000 until the amount's full satisfaction.

For respondent Emerlito C. Ignacio, Sr., Philippine Electric Corporation is ORDERED to PAY a total of
₱3,962.00 for a four (4)-month training for the position of Foreman I with legal interest of 12% per
annum from August 22, 2000 until the amount's full satisfaction.

G.R. No. 185582 : February 29, 2012

TUNA PROCESSING, INC., Petitioner, v. PHILIPPINE KINGFORD, INC., Respondent.

FACTS:

Philippine Kingford, Inc. (Kingford) is a corporation duly organized and existing under the laws of the
Philippines while Tuna Processing, Inc. (TPI) is a foreign corporation not licensed to do business in
the Philippines. Due to circumstances not mentioned in the case, Kingford withdrew from petitioner
TPI and correspondingly, reneged on their obligations. Petitioner submitted the dispute for arbitration
before the International Centre for Dispute Resolution in the State of California, United States and
won the case against respondent. To enforce the award, petitioner TPI filed a Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before the RTC of Makati City.
The RTC dismissed the petition on the ground that the petitioner lacked legal capacity to sue in the
Philippines.

ISSUE: 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?

HELD: RTCs decision is reversed.

POLITICAL LAW: special vs. general law

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 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. It specifically
provides exclusive grounds available to the party opposing an application for recognition and
enforcement of the arbitral award. The Corporation Code is the general law providing for the
formation, organization and regulation of private corporations. As between a general and special law,
the latter shall prevail generalia specialibus non derogant.

The Special Rules of Court on Alternative Dispute Resolution provides that any party to a foreign
arbitration may petition the court to recognize and enforce a foreign arbitral award.Indeed, it is in the
best interest of justice that in the enforcement of a foreign arbitral award, the losing party can not
avail 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.

GRANTED.

G.R. No. 175404

Before us is a petition for review on certiorari seeking to reverse and set aside the
Decision[1] dated July 31, 2006 and the Resolution[2] dated November 13, 2006 of the Court of
Appeals (CA) in CA G.R. SP No. 50304.

The factual antecedents are as follows:

On June 18, 1998, respondent San Fernando Regala Trading, Inc. filed with the Regional Trial Court
(RTC) of Makati City a Complaint for Rescission of Contract with Damages[3] against petitioner Cargill
Philippines, Inc. In its Complaint, respondent alleged that it was engaged in buying and selling of
molasses and petitioner was one of its various sources from whom it purchased molasses.
Respondent alleged that it entered into a contract dated July 11, 1996 with petitioner, wherein it was
agreed upon that respondent would purchase from petitioner 12,000 metric tons of Thailand origin
cane blackstrap molasses at the price of US$192 per metric ton; that the delivery of the molasses
was to be made in January/February 1997 and payment was to be made by means of an Irrevocable
Letter of Credit payable at sight, to be opened by September 15, 1996; that sometime prior to
September 15, 1996, the parties agreed that instead of January/February 1997, the delivery would
be made in April/May 1997 and that payment would be by an Irrevocable Letter of Credit payable at
sight, to be opened upon petitioner's advice. Petitioner, as seller, failed to comply with its obligations
under the contract, despite demands from respondent, thus, the latter prayed for rescission of the
contract and payment of damages.

On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend Proceedings and To Refer Controversy
to Voluntary Arbitration,[4] wherein it argued that the alleged contract between the parties, dated July
11, 1996, was never consummated because respondent never returned the proposed agreement
bearing its written acceptance or conformity nor did respondent open the Irrevocable Letter of Credit
at sight. Petitioner contended that the controversy between the parties was whether or not the
alleged contract between the parties was legally in existence and the RTC was not the proper forum
to ventilate such issue. It claimed that the contract contained an arbitration clause, to wit:

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.[5]

that respondent must first comply with the arbitration clause before resorting to court, thus, the RTC
must either dismiss the case or suspend the proceedings and direct the parties to proceed with
arbitration, pursuant to Sections 6[6] and 7[7] of Republic Act (R.A.) No. 876, or the Arbitration Law.

Respondent filed an Opposition, wherein it argued that the RTC has jurisdiction over the action for
rescission of contract and could not be changed by the subject arbitration clause. It cited cases
wherein arbitration clauses, such as the subject clause in the contract, had been struck down as void
for being contrary to public policy since it provided that the arbitration award shall be final and
binding on both parties, thus, ousting the courts of jurisdiction.

In its Reply, petitioner maintained that the cited decisions were already inapplicable, having been
rendered prior to the effectivity of the New Civil Code in 1950 and the Arbitration Law in 1953.

In its Rejoinder, respondent argued that the arbitration clause relied upon by petitioner is invalid and
unenforceable, considering that the requirements imposed by the provisions of the Arbitration Law
had not been complied with.

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

On September 17, 1998, the RTC rendered an Order,[8] the dispositive portion of which reads:

Premises considered, defendant's Motion To Dismiss/Suspend Proceedings and To Refer

Controversy To Voluntary Arbitration is hereby DENIED. Defendant is directed to file its
answer within ten (10) days from receipt of a copy of this order.[9]

In denying the motion, the RTC found that there was no clear basis for petitioner's plea to dismiss
the case, pursuant to Section 7 of the Arbitration Law. The RTC said that the provision directed the
court concerned only to stay the action or proceeding brought upon an issue arising out of an
agreement providing for the arbitration thereof, but did not impose the sanction of
dismissal. However, the RTC did not find the suspension of the proceedings warranted, since the
Arbitration Law contemplates an arbitration proceeding that must be conducted in the Philippines
under the jurisdiction and control of the RTC; and before an arbitrator who resides in the country;
and that the arbitral award is subject to court approval, disapproval and modification, and that there
must be an appeal from the judgment of the RTC. The RTC found that the arbitration clause in
question contravened these procedures, i.e., the arbitration clause contemplated an arbitration
proceeding in New York before a non-resident arbitrator (American Arbitration Association); that the
arbitral award shall be final and binding on both parties. The RTC said that to apply Section 7 of the
Arbitration Law to such an agreement would result in disregarding the other sections of the same law
and rendered them useless and mere surplusages.

Petitioner filed its Motion for Reconsideration, which the RTC denied in an Order [10] dated November
25, 1998.

Petitioner filed a petition for certiorari with the CA raising the sole issue that the RTC acted in excess
of jurisdiction or with grave abuse of discretion in refusing to dismiss or at least suspend the
proceedings a quo, despite the fact that the party's agreement to arbitrate had not been complied
with.
Respondent filed its Comment and Reply. The parties were then required to file their respective
Memoranda.

On July 31, 2006, the CA rendered its assailed Decision denying the petition and affirming the RTC
Orders.

In denying the petition, the CA found that stipulation providing for arbitration in contractual
obligation is both valid and constitutional; that arbitration as an alternative mode of dispute
resolution has long been accepted in our jurisdiction and expressly provided for in the Civil Code; that
R.A. No. 876 (the Arbitration Law) also expressly authorized the arbitration of domestic disputes. The
CA found error in the RTC's holding that Section 7 of R.A. No. 876 was inapplicable to arbitration
clause simply because the clause failed to comply with the requirements prescribed by the law. The
CA found that there was nothing in the Civil Code, or R.A. No. 876, that require that arbitration
proceedings must be conducted only in the Philippines and the arbitrators should be Philippine
residents. It also found that the RTC ruling effectively invalidated not only the disputed arbitration
clause, but all other agreements which provide for foreign arbitration. The CA did not find illegal or
against public policy the arbitration clause so as to render it null and void or ineffectual.

Notwithstanding such findings, the CA still held that the case cannot be brought under the Arbitration
Law for the purpose of suspending the proceedings before the RTC, since in its Motion to
Dismiss/Suspend proceedings, petitioner alleged, as one of the grounds thereof, that the
subjectcontract between the parties did not exist or it was invalid; that the said contract bearing the
arbitration clause was never consummated by the parties, thus, it was proper that such issue be first
resolved by the court through an appropriate trial; that the issue involved a question of fact that the
RTC should first resolve. Arbitration is not proper when one of the parties repudiated the existence or
validity of the contract.

Petitioner's motion for reconsideration was denied in a Resolution dated November 13, 2006.

Hence, this petition.

Petitioner alleges that the CA committed an error of law in ruling that arbitration cannot
proceed despite the fact that: (a) it had ruled, in its assailed decision, that the arbitration clause is
valid, enforceable and binding on the parties; (b) the case of Gonzales v. Climax Mining Ltd.[11] is
inapplicable here; (c) parties are generally allowed, under the Rules of Court, to adopt several
defenses, alternatively or hypothetically, even if such defenses are inconsistent with each other; and
(d) the complaint filed by respondent with the trial court is premature.

Petitioner alleges that the CA adopted inconsistent positions when it found the arbitration clause
between the parties as valid and enforceable and yet in the same breath decreed that the arbitration
cannot proceed because petitioner assailed the existence of the entire agreement containing the
arbitration clause. Petitioner claims the inapplicability of the cited Gonzales case decided in 2005,
because in the present case, it was respondent who had filed the complaint for rescission and
damages with the RTC, which based its cause of action against petitioner on the alleged agreement
dated July 11, 2006 between the parties; and that the same agreement contained the arbitration
clause sought to be enforced by petitioner in this case. Thus, whether petitioner assails the
genuineness and due execution of the agreement, the fact remains that the agreement sued upon
provides for an arbitration clause; that respondent cannot use the provisions favorable to him and
completely disregard those that are unfavorable, such as the arbitration clause.

Petitioner contends that as the defendant in the RTC, it presented two alternative defenses, i.e., the
parties had not entered into any agreement upon which respondent as plaintiff can sue upon; and,
assuming that such agreement existed, there was an arbitration clause that should be enforced, thus,
the dispute must first be submitted to arbitration before an action can be instituted in
court. Petitioner argues that under Section 1(j) of Rule 16 of the Rules of Court, included as a ground
to dismiss a complaint is when a condition precedent for filing the complaint has not been complied
with; and that submission to arbitration when such has been agreed upon is one such condition
precedent. Petitioner submits that the proceedings in the RTC must be dismissed, or at least
suspended, and the parties be ordered to proceed with arbitration.

On March 12, 2007, petitioner filed a Manifestation[12] saying that the CA's rationale in declining to
order arbitration based on the 2005 Gonzales ruling had been modified upon a motion for
reconsideration decided in 2007; that the CA decision lost its legal basis, because it had been ruled
that the arbitration agreement can be implemented notwithstanding that one of the parties thereto
repudiated the contract which contained such agreement based on the doctrine of separability.

In its Comment, respondent argues that certiorari under Rule 65 is not the remedy against an
order denying a Motion to Dismiss/Suspend Proceedings and To Refer Controversy to Voluntary
Arbitration. It claims that the Arbitration Law which petitioner invoked as basis for its Motion
prescribed, under its Section 29, a remedy, i.e., appeal by a petition for review on certiorari under
Rule 45. Respondent contends that the Gonzales case, which was decided in 2007, is inapplicable in
this case, especially as to the doctrine of separability enunciated therein. Respondent argues that
even if the existence of the contract and the arbitration clause is conceded, the decisions of the RTC
and the CA declining referral of the dispute between the parties to arbitration would still be correct.
This is so because respondent's complaint filed in Civil Case No. 98-1376 presents the principal issue
of whether under the facts alleged in the complaint, respondent is entitled to rescind its contract with
petitioner and for the latter to pay damages; that such issue constitutes a judicial question or one
that requires the exercise of judicial function and cannot be the subject of arbitration.

Respondent contends that Section 8 of the Rules of Court, which allowed a defendant to adopt in the
same action several defenses, alternatively or hypothetically, even if such defenses are inconsistent
with each other refers to allegations in the pleadings, such as complaint, counterclaim, cross-claim,
third-party complaint, answer, but not to a motion to dismiss. Finally, respondent claims that
petitioner's argument is premised on the existence of a contract with respondent containing a
provision for arbitration. However, its reliance on the contract, which it repudiates, is inappropriate.

In its Reply, petitioner insists that respondent filed an action for rescission and damages on the basis
of the contract, thus, respondent admitted the existence of all the provisions contained thereunder,
including the arbitration clause; that if respondent relies on said contract for its cause of action
against petitioner, it must also consider itself bound by the rest of the terms and conditions contained
thereunder notwithstanding that respondent may find some provisions to be adverse to its position;
that respondents citation of the Gonzales case, decided in 2005, to show that the validity of the
contract cannot be the subject of the arbitration proceeding and that it is the RTC which has the
jurisdiction to resolve the situation between the parties herein, is not correct since in the resolution of
the Gonzales' motion for reconsideration in 2007, it had been ruled that an arbitration agreement is
effective notwithstanding the fact that one of the parties thereto repudiated the main contract which
contained it.

We first address the procedural issue raised by respondent that petitioners petition
for certiorari under Rule 65 filed in the CA against an RTC Order denying a Motion to
Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary Arbitration was a wrong remedy
invoking Section 29 of R.A. No. 876, which provides:

Section 29.

x x x An appeal may be taken from an order made in a proceeding under this Act, or
from a judgment entered upon an award through certiorari proceedings, but such
appeals shall be limited to question of law. x x x.

To support its argument, respondent cites the case of Gonzales v. Climax Mining Ltd.[13] (Gonzales
case), wherein we ruled the impropriety of a petition for certiorari under Rule 65 as a mode of appeal
from an RTC Order directing the parties to arbitration.

We find the cited case not in point.

In the Gonzales case, Climax-Arimco filed before the RTC of Makati a petition to compel arbitration
under R.A. No. 876, pursuant to the arbitration clause found in the Addendum Contract it entered
with Gonzales. Judge Oscar Pimentel of the RTC of Makati then directed the parties to arbitration
proceedings. Gonzales filed a petition for certiorari with Us contending that Judge Pimentel acted
with grave abuse of discretion in immediately ordering the parties to proceed with arbitration despite
the proper, valid and timely raised argument in his Answer with counterclaim that the Addendum
Contract containing the arbitration clause was null and void. Climax-Arimco assailed the mode of
review availed of by Gonzales, citing Section 29 of R.A. No. 876 contending that certiorari under Rule
65 can be availed of only if there was no appeal or any adequate remedy in the ordinary course of
law; that R.A. No. 876 provides for an appeal from such order. We then ruled that Gonzales' petition
for certiorari should be dismissed as it was filed in lieu of an appeal by certiorari which was the
prescribed remedy under R.A. No. 876 and the petition was filed far beyond the reglementary period.

We found that Gonzales petition for certiorari raises a question of law, but not a question of
jurisdiction; that Judge Pimentel acted in accordance with the procedure prescribed in R.A. No. 876
when he ordered Gonzales to proceed with arbitration and appointed a sole arbitrator after making
the determination that there was indeed an arbitration agreement. It had been held that as long as a
court acts within its jurisdiction and does not gravely abuse its discretion in the exercise thereof, any
supposed error committed by it will amount to nothing more than an error of judgment reviewable by
a timely appeal and not assailable by a special civil action of certiorari.[14]

In this case, petitioner raises before the CA the issue that the respondent Judge acted in excess of
jurisdiction or with grave abuse of discretion in refusing to dismiss, or at least suspend, the
proceedings a quo, despite the fact that the partys agreement to arbitrate had not been complied
with.Notably, the RTC found the existence of the arbitration clause, since it said in its decision that
hardly disputed is the fact that the arbitration clause in question contravenes several provisions of
the Arbitration Law x x x and to apply Section 7 of the Arbitration Law to such an agreement would
result in the disregard of the afore-cited sections of the Arbitration Law and render them useless and
mere surplusages. However, notwithstanding the finding that an arbitration agreement existed, the
RTC denied petitioner's motion and directed petitioner to file an answer.

In La Naval Drug Corporation v. Court of Appeals,[15] it was held that R.A. No. 876 explicitly
confines the courts authority only to the determination of whether or not there is an agreement in
writing providing for arbitration. In the affirmative, the statute ordains that the court shall issue an
order summarily directing the parties to proceed with the arbitration in accordance with the terms
thereof. If the court, upon the other hand, finds that no such agreement exists, the proceedings shall
be dismissed.

In issuing the Order which denied petitioner's Motion to Dismiss/Suspend Proceedings and to
Refer Controversy to Voluntary Arbitration, the RTC went beyond its authority of determining only the
issue of whether or not there is an agreement in writing providing for arbitration by directing
petitioner to file an answer, instead of ordering the parties to proceed to arbitration. In so doing, it
acted in excess of its jurisdiction and since there is no plain, speedy, and adequate remedy in the
ordinary course of law, petitioners resort to a petition for certiorari is the proper remedy.

We now proceed to the substantive issue of whether the CA erred in finding that this case
cannot be brought under the arbitration law for the purpose of suspending the proceedings in the
RTC.

We find merit in the petition.

Arbitration, as an alternative mode of settling disputes, has long been recognized and
accepted in our jurisdiction.[16] R.A. No. 876[17] 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 [21] and 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 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.

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. 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
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.

SO ORDERED.