THIRD DIVISION

[G.R. No. 139273. November 28, 2000]

CALIFORNIA AND HAWAIIAN SUGAR COMPANY; PACIFIC GULF

MARINE, INC.; and C.F. SHARP & COMPANY, petitioners,
vs. PIONEER INSURANCE AND SURETY
CORPORATION, respondent.

DECISION
PANGANIBAN, J.:

Under the pre-1997 Rules of Court, a preliminary hearing on affirmative defenses

may be allowed when a motion to dismiss has not been filed or when, having been filed,
it has not been denied unconditionally. Hence, if its resolution has merely been deferred,
the grounds it invokes may still be raised as affirmative defenses, and a preliminary
hearing thereon allowed.

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
assailing the January 21, 1999 Decision of the Court of Appeals[1] (CA) in CA-GR SP No.
33723, as well as the July 6, 1999 CA Resolution[2] denying reconsideration. The
challenged Decision, which sustained the Orders[3]of the Regional Trial Court of Makati
City, disposed as follows:

WHEREFORE, [there being] no grave abuse of discretion on the part of public

respondent, the instant petition is hereby DISMISSED. (emphasis in the original)
[4]

The Facts

The facts, as summarized by the CA, are as follows:

On November 27, 1990, the vessel MV SUGAR ISLANDER arrived at the port
of Manila carrying a cargo of soybean meal in bulk consigned to several
consignees, one of which was the Metro Manila Feed Millers Association
(Metro for [b]revity). Discharging of cargo from vessel to barges commenced
on November 30, 1990. From the barges, the cargo was allegedly offloaded,
rebagged and reloaded on consignees delivery trucks. Respondent, however,
claims that when the cargo [was] weighed on a licensed truck scale a
shortage of 255.051 metric tons valued at P1,621,171.16 was discovered. The
above-mentioned shipment was insured with private respondent against all
risk in the amount of P19,976,404.00. Due to the alleged refusal of petitioners
to settle their respective liabilities, respondent, as insurer, paid the consignee
Metro Manila Feed Millers Association. On March 26, 1992, as alleged
subrogee of Metro, private respondent filed a complaint for damages against
herein petitioners. Within the reglementary period to file an Answer,
petitioners filed a Motion to Dismiss the complaint on the ground that
respondents claim is premature, the same being arbitrable. Private
respondent filed its Opposition thereto and petitioners filed their Reply to
Opposition.

On November 11, 1992, [the RTC] issued an Order deferring the hearing on
the Motion to Dismiss until the trial and directing petitioners to file their
Answer. Petitioners then moved to reconsider said Order which was, however,
denied by [the RTC] on the ground that the reason relied upon by herein
petitioners in its Motion to Dismiss and Motion for Reconsideration [was] a
matter of defense which they must prove with their evidence.

On August 20, 1993, petitioners filed their Answer with Counterclaim and
Crossclaim alleging therein that plaintiff, herein respondent, did not comply
with the arbitration clause of the charter party; hence, the complaint was
allegedly prematurely filed. The trial court set the case for pre-trial on
November 26, 1993.

On November 15 and 16, 1993, petitioners filed a Motion to Defer Pre-Trial

and Motion to Set for Preliminary Hearing the Affirmative Defense of Lack of
Cause of Action for Failure to comply with Arbitration Clause,
respectively. Private respondent did not file an Opposition to the said Motion
to Set for Preliminary Hearing. On December 28, 1993, [the RTC] issued an
Order denying the Motion to Set for Preliminary Hearing. On February 2, 1994
petitioners filed a Motion for Reconsideration of the Order dated December
28, 1993. On February 11, 1994, [the RTC] issued an Order denying
petitioners Motion for Reconsideration. Hence, the instant petition. [5]

Ruling of the Court of Appeals

 Affirming the trial court, the CA held that petitioners cannot rely on Section 5, Rule
16 of the pre-1997 Rules of Court,[7] because a Motion to Dismiss had previously been
[6]

filed. Further, it ruled that the arbitration clause provided in the charter party did not bind
respondent. It reasoned as follows:

Petitioners argue that [the RTC] committed grave abuse of discretion

amounting to lack or excess of jurisdiction in denying the preliminary hearing
of the affirmative defense of lack of cause of action for failure to comply with
the arbitration clause.

Petitioners, in so filing the Motion to Set for Preliminary Hearing the

Affirmative Defense of Lack of Cause of Action for Failure to Comply with
Arbitration Clause, premised their alleged right to a preliminary hearing on the
provision of Section 5, Rule 16 of the Old Rules of Court which provide[s]:

Sec. 5. Pleading grounds as affirmative defenses. Any of the grounds for

dismissal provided for in this rule, except improper venue, may be pleaded as
an affirmative defense and a preliminary hearing may be had thereon as if a
motion to dismiss had been filed.

Petitioners reliance on said provision is misplaced. The above-mentioned

provision contemplates a situation where no motion to dismiss is filed. If a
motion to dismiss has been filed, as in the case at bar, Section 5, Rule 16 of
the Old Rules of Court will not come into play. Furthermore, the same
provision gives the judge discretion whether to set for preliminary hearing the
grounds for affirmative defenses. Respondent judge deferred the hearing and
determination of the Motion to Dismiss until the trial since the ground relied
upon by petitioners therein did not appear to be indubitable. Petitioners then
filed their Answer as ordered by the Court again raising as an affirmative
defense lack of cause of action for failure to comply with [the] arbitration
clause, praying for the dismissal of the complaint against them, and filing
afterwards a Motion to Set for Preliminary Hearing the Affirmative Defense of
lack of Cause of Action. In effect, petitioners are asking the trial court to set
aside its Order denying the Motion to Dismiss and Order denying the Motion
for Reconsideration thereof.

Petitioners cannot do this.

The remedy of the aggrieved party in a denied motion to dismiss is to file an

answer and interpose as defense or defenses, the objection or objections
raised by him in said motion to dismiss, then proceed to trial and, in case of
adverse decision, to elevate the entire case by appeal in due
course. Petitioners could also resort to the extraordinary legal remedies of
certiorari, prohibition and mandamus to question the denial of the motion to
dismiss. As correctly ruled by the trial court in its Order dated June 30, 1993,
denying the Motion for Reconsideration of the Order dated November 11,
1992 (denying the Motion to Dismiss) the ground relied upon by petitioners is
a matter of defense which petitioners must prove with their evidence at the
trial.

Petitioners in asking the lower court to set the case for preliminary hearing
further argue that this would give the court and the parties a shorter time to
resolve the matter and the case without a full blown trial. However, petitioners
fail to realize that they themselves are delaying the determination and
resolution of the issues involved by resorting to an improper remedy.

On the issue raised by petitioners that private respondents claim is premature

for failure to comply with [the] arbitration clause, we hold that the right of the
respondent as subrogee, in filing the complaint against herein petitions is not
dependent upon the charter party relied upon by petitioners; nor does it grow
out of any privity contract or upon written assignment of claim. It accrues
simply upon payment of the insurance claim by respondent as insurer to the
insured. This was the pronouncement by the Supreme Court in the case of
Pan Malayan Insurance Corp. vs. Court of Appeals 184 SCRA 54, to wit:

Payment by the insurer to the insured operates as an equitable assignment to

the former of all the remedies which the latter may have against the third party
whose negligence or wrongful (sic) caused the loss. The right of subrogation
is not dependent upon, nor does it grow out of, any privity contract or upon
written assignment of claim. It accrues simply upon payment of the insurance
claim by the insurer. [8]

Hence, this recourse.[9]

The Issues

In their Memorandum, petitioners submit the following issues for our consideration:[10]

1. Whether or not insurer, as subrogee of the consignee, is bound by the

charter party which is incorporated and referred to in the bill of lading.
2. Whether or not the motion to dismiss should be granted on the ground that
a condition precedent has not been complied with, based on the arbitration
clause incorporated in the bill of lading.

3. Whether or not the Court of Appeals erred in holding that the trial court did
not commit grave abuse of discretion in denying petitioners motion for
preliminary hearing.

4. Whether or not the trial court can defer the resolution of a motion to dismiss
on the ground that the ground relied upon is indubitable.

5. Whether or not the petitioners have resorted to an improper remedy which

makes them responsible for delaying the case.

In the main, the two principal matters before us are: (1) the denial of petitioners Motion
for Preliminary Hearing and (2) the propriety of the CA ruling regarding the arbitration
clause.

The Courts Ruling

The Petition is meritorious.

First Issue: Preliminary Hearing of Affirmative Defense

At the outset, we must emphasize that the crux of the present controversy is the trial
courts Order denying petitioners Motion to Set for Preliminary Hearing the affirmative
defense of lack of cause of action. Not questioned here is the said courts Order holding
in abeyance the hearing of petitioners Motion to Dismiss.

Affirmative Defense May Be Raised

Still in effect when the case was before the trial court, Section 5, Rule 16 of the pre-
1997 Rules of Court, reads:

Sec. 5. Pleading grounds as affirmative defenses. - Any of the grounds for

dismissal provided for in this Rule, except improper venue, may be pleaded as
an affirmative defense, and a preliminary hearing may be had thereon as if a
motion to dismiss had been filed.
 Respondent argues that the above provision cannot be applied, because petitioners
have already filed a Motion to Dismiss.
We disagree. Respondent relies on the amendments introduced in the 1997 Rules
on Civil Procedure ("1997 Rules), but ignores equally relevant provisions thereof, as well
as the clear intendment of the pre-1997 Rules. True, Section 6, Rule 16 of the 1997
Rules,[11] specifically provides that a preliminary hearing on the affirmative defenses may
be allowed only when no motion to dismiss has been filed. Section 6, however, must be
viewed in the light of Section 3 of the same Rule,[12] which requires courts to resolve a
motion to dismiss and prohibits them from deferring its resolution on the ground of
indubitability. Clearly then, Section 6 disallows a preliminary hearing of affirmative
defenses once a motion to dismiss has been filed because such defense should have
already been resolved. In the present case, however, the trial court did not categorically
resolve petitioners Motion to Dismiss, but merely deferred resolution thereof. [13]
Indeed, the present Rules are consistent with Section 5, Rule 16 of the pre-1997
Rules of Court, because both presuppose that no motion to dismiss had been filed; or in
the case of the pre-1997 Rules, if one has been filed, it has not been unconditionally
denied.[14] Hence, the ground invoked may still be pleaded as an affirmative defense even
if the defendants Motion to Dismiss has been filed but not definitely resolved, or if it has
been deferred as it could be under the pre-1997 Rules.[15]

Denial of the Motion for a Preliminary Hearing Was a Grave Abuse of Discretion

The more crucial question that we must settle here is whether the trial court
committed grave abuse of discretion when it denied petitioners Motion for a Preliminary
Hearing on their affirmative defense of lack of cause of action. Undeniably, a preliminary
hearing is not mandatory, but subject to the discretion of the trial court.[16] In the light of the
circumstances in this case, though, we find that the lower court committed grave abuse
of discretion in refusing to grant the Motion.
We note that the trial court deferred the resolution of petitioners Motion to Dismiss
because of a single issue. It was apparently unsure whether the charter party that the bill
of lading referred to was indeed the Baltimore Berth Grain Charter Party submitted by
petitioners.
Considering that there was only one question, which may even be deemed to be the
very touchstone of the whole case, the trial court had no cogent reason to deny the Motion
for Preliminary Hearing. Indeed, it committed grave abuse of discretion when it denied a
preliminary hearing on a simple issue of fact that could have possibly settled the entire
case. Verily, where a preliminary hearing appears to suffice, there is no reason to go on
to trial. One reason why dockets of trial courts are clogged is the unreasonable refusal to
use a process or procedure, like a motion to dismiss, which is designed to abbreviate the
resolution of a case.

Second Issue: The Arbitration Clause

 The CA also erred when it held that the arbitration clause was not binding on
respondent. We reiterate that the crux of this case is whether the trial court committed
grave abuse of discretion in denying the aforecited Motion. There was neither need nor
reason to rule on the applicability of the arbitration clause.
Be that as it may, we find the CAs reasoning on this point faulty. Citing Pan Malayan
Insurance Corporation v. CA,[17] it ruled that the right of respondent insurance company as
subrogee was not based on the charter party or any other contract; rather, it accrued upon
the payment of the insurance claim by private respondent to the insured consignee. There
was nothing in Pan Malayan, however, that prohibited the applicability of the arbitration
clause to the subrogee. That case merely discussed, inter alia, the accrual of the right of
subrogation and the legal basis therefor.[18] This issue is completely different from that of
the consequences of such subrogation; that is, the rights that the insurer acquires from
the insured upon payment of the indemnity.
WHEREFORE, the Petition is GRANTED and the appealed Decision is
hereby REVERSED. The case is REMANDED to the trial court for preliminary hearing on
petitioners affirmative defense. No costs.
SO ORDERED.
Melo, (Chairman), Vitug, and Gonzaga-Reyes, JJ., concur.

Sixteenth Division composed of Associate Justices Ramon A. Barcelona (Division chairman), Demetrio
[1]

G. Demetria (ponente) and Martin S. Villarama Jr. (member). Justices Barcelona and Villarama concurred
with the ponencia.
[2]
Rollo, p. 37.
[3]
Written by Judge Pedro N. Laggui.
[4]
CA Decision, p. 4; rollo, p. 34; records, p. 100.
[5]
CA Decision, pp. 1-2; rollo, pp. 31-32; records, pp. 97-98.
[6]
Now Section 6, Rule 16 of the 1997 Rules of Civil Procedure.
[7]
The 1964 Rules of Court.
[8]
CA Decision, pp. 2-4; rollo, pp. 32-34; records, pp. 98-100.
The case was deemed submitted for resolution on May 2, 2000, upon receipt by this Court of respondents
[9]

Memorandum signed by Atty. Omar U. Obias of Astorga and Macamay Law Offices. Filed earlier was
petitioners Memorandum signed by Atty. Imelda A. Cerillo of Del Rosario & Del Rosario.
[10]
Petitioners Memorandum, pp. 4-5; rollo, pp. 110-111.
[11]
It provides:
Sec. 6 Pleading grounds as affirmative defenses. - If no motion to dismiss has been filed, any of the
grounds for dismissal provided for in this Rule may be pleaded as an affirmative defense in the answer and,
in the discretion of the court, a preliminary hearing may be had thereon as if a motion to dismiss had been
filed. (5a)
The dismissal of the complaint under this section shall be without prejudice to the prosecution in the same
or separate action of a counterclaim pleaded in the answer. (a)
[12]
Section 3, Rule 16 of the 1997 Rules, reads:
Sec. 3. Resolution of motion. - After the hearing, the court may dismiss the action or claim, deny the motion
or order the amendment of the pleading.
The court shall not defer the resolution of the motion for the reason that the ground relied upon is not
indubitable.
In every case, the resolution shall state clearly and distinctly the reasons therefor. (3a)
[13]
The Order dated November 11, 1992 states this as the sole reason for deferment:
4. The ground relied upon by the defendants for their motion to dismiss is not indubitable (Section 3, Rule
16, Rules of Court).
The subsequent Order dated June 30, 1993, denying the motion for reconsideration, states:
4. The MFR is without merit. Thus:
4.1. The defendant alleged in their MTD that the charter party referred to in the bill of lading as part thereof
by incorporation is the APPROVED BALTIMORE BERTH GRAIN CHARTER PARTY dated September 12,
1990.
4.3. The claim then of the defendants that the APPROVED BALTIMORE BERTH GRAIN CHARTER
PARTY dated September 12, 1990 is the charter party referred to in the bill [of] lading is a matter of defense
which they must prove with their evidence. (citations omitted.)
Cf. Regalado, Remedial Law Compendium, Vol. 1, pp. 163-165 (1993) and Moran, Comments on the
[14]

Rules of Court, Vol. 1, pp. 626-627 (1995).

See Regalado, Remedial Law Compendium, Vol. 1, p. 264 (1999). Cf Regalado, Remedial Law
[15]

Compendium, Vol. 1, pp. 163-164 (1993).

Municipality of Bian, Laguna v. CA, 219 SCRA 69, February 17, 1993. See also Regalado, supra (1993
[16]

ed.). Cf. Section 6, Rule 16 of the 1997 Revised Rules on Civil Procedure.
[17]
184 SCRA 54, April 3, 1990.
[18]
The relevant portion of the ponencia in Pan Malayan (supra at p. 58, per Corts, J.) states:
The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon
written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer. (citations
omitted)

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 212081 February 23, 2015

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

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

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 is the Decision2 dated March 26, 2014 of the Court of
Appeals (CA) in CA-G.R. SP No. 126458 which dismissed the petition for certiorari filed by petitioner
the Department of Environment and Natural Resources (petitioner).

The Facts

On July 26, 1993, petitioner, through the Land Management Bureau (LMB), entered into an
Agreement for Consultancy Services3 (Consultancy Agreement) with respondent United Planners
Consultants, Inc. (respondent) in connection with the LMB' s Land Resource Management Master
Plan Project (LRMMP).4 Under the Consultancy Agreement, petitioner committed to pay a total
contract price of ₱4,337,141.00, based on a predetermined percentage corresponding to the
particular stage of work accomplished.5

In December 1994, respondent completed the work required, which petitioner formally accepted on
December 27, 1994.6 However, petitioner was able to pay only 47% of the total contract price in the
amount of ₱2,038,456.30.7

On October 25, 1994, the Commission on Audit (COA) released the Technical Services Office
Report8 (TSO) finding the contract price of the Agreement to be 84.14% excessive.9 This
notwithstanding, petitioner, in a letter dated December 10, 1998, acknowledged its liability to
respondent in the amount of ₱2,239,479.60 and assured payment at the soonest possible time.10

For failure to pay its obligation under the Consultancy Agreement despite repeated demands,
respondent instituted a Complaint11 against petitioner before the Regional Trial Court of Quezon City,
Branch 222 (RTC), docketed as Case No. Q-07-60321.12

Upon motion of respondent, the case was subsequently referred to arbitration pursuant to the
arbitration clause of the Consultancy Agreement,13 which petitioner did not oppose.14 As a result, Atty.
Alfredo F. Tadiar, Architect Armando N. Alli, and Construction Industry Arbitration Commission
(CIAC) Accredited Arbitrator Engr. Ricardo B. San Juan were appointed as members of the Arbitral
Tribunal. The court-referred arbitration was then docketed as Arbitration Case No. A-001.15

During the preliminary conference, the parties agreed to adopt the CIAC Revised Rules Governing
Construction Arbitration16 (CIAC Rules) to govern the arbitration proceedings.17 They further agreed
to submit their respective draft decisions in lieu of memoranda of arguments on or before April 21,
2010, among others.18

On the due date for submission of the draft decisions, however, only respondent complied with the
given deadline,19while petitioner moved for the deferment of the deadline which it followed with
another motion for extension of time, asking that it be given until May 11, 2010 to submit its draft
decision.20

In an Order21 dated April 30, 2010, the Arbitral Tribunal denied petitioner’s motions and deemed its
non-submission as a waiver, but declared that it would still consider petitioner’s draft decision if
submitted before May 7, 2010, or the expected date of the final award’s promulgation.22 Petitioner
filed its draft decision23 only on May 7, 2010.
The Arbitral Tribunal rendered its Award24 dated May 7, 2010 (Arbitral Award) in favor of respondent,
directing petitioner to pay the latter the amount of (a) ₱2,285,089.89 representing the unpaid
progress billings, with interest at the rate of 12% per annum from the date of finality of the Arbitral
Award upon confirmation by the RTC until fully paid; (b) ₱2,033,034.59 as accrued interest thereon;
(c) ₱500,000.00 as exemplary damages; and (d) ₱150,000.00 as attorney’s fees.25 It also ordered
petitioner to reimburse respondent its proportionate share in the arbitration costs as agreed upon in
the amount of ₱182,119.44.26

Unconvinced, petitioner filed a motion for reconsideration,27 which the Arbitral Tribunal merely noted
without any action, claiming that it had already lost jurisdiction over the case after it had submitted to
the RTC its Report together with a copy of the Arbitral Award.28

Consequently, petitioner filed before the RTC a Motion for Reconsideration29 dated May 19, 2010
(May 19, 2010 Motion for Reconsideration)and a Manifestation and Motion30 dated June 1, 2010
(June 1, 2010 Manifestation and Motion), asserting that it was denied the opportunity to be heard
when the Arbitral Tribunal failed to consider its draft decision and merely noted its motion for
reconsideration.31 It also denied receiving a copy of the Arbitral Award by either electronic or
registered mail.32 For its part, respondent filed an opposition thereto and moved for the
confirmation33 of the Arbitral Award in accordance with the Special Rules of Court on Alternative
Dispute Resolution (Special ADR Rules).34

In an Order35 dated March 30, 2011, the RTC merely noted petitioner’s aforesaid motions, finding
that copies of the Arbitral Award appear to have been sent to the parties by the Arbitral Tribunal,
including the OSG, contrary to petitioner’s claim. Onthe other hand, the RTC confirmed the Arbitral
Award pursuant to Rule 11.2 (A)36 of the Special ADR Rules and ordered petitioner to pay
respondent the costs of confirming the award, as prayed for, in the total amount of ₱50,000.00. From
this order, petitioner did not file a motion for reconsideration.

Thus, on June 15, 2011, respondent moved for the issuance of a writ of execution, to which no
comment/opposition was filed by petitioner despite the RTC’s directive therefor. In an Order37 dated
September 12, 2011, the RTC granted respondent’s motion.38

Petitioner moved to quash39 the writ of execution, positing that respondent was not entitled to its
monetary claims. It also claimed that the issuance of said writ was premature since the RTC should
have first resolved its May 19, 2010 Motion for Reconsideration and June 1, 2010 Manifestation and
Motion, and not merely noted them, thereby violating its right to due process.40

The RTC Ruling

In an Order41 dated July 9, 2012, the RTC denied petitioner’s motion to quash.

It found no merit in petitioner’s contention that it was denied due process, ruling that its May 19,
2010 Motion for Reconsideration was a prohibited pleading under Section 17.2,42 Rule 17 of the
CIAC Rules. It explained that the available remedy to assail an arbitral award was to file a motion for
correction of final award pursuant to Section 17.143 of the CIAC Rules, and not a motion for
reconsideration of the said award itself.44 On the other hand, the RTC found petitioner’s June 1, 2010
Manifestation and Motion seeking the resolution of its May 19, 2010 Motion for Reconsideration to
be defective for petitioner’s failure to observe the three day notice rule.45 Having then failed to avail of
the remedies attendant to an order of confirmation, the Arbitral Award had become final and
executory.46
On July 12, 2012, petitioner received the RTC’s Order dated July 9, 2012 denying its motion to
quash.47

Dissatisfied, it filed on September 10, 2012a petition for certiorari48 before the CA, docketed as CA-
G.R. SP No. 126458, averring in the main that the RTC acted with grave abuse of discretion in
confirming and ordering the execution of the Arbitral Award.

The CA Ruling

In a Decision49 dated March 26, 2014, the CA dismissed the certiorari petition on two (2) grounds,
namely: (a) the petition essentially assailed the merits of the Arbitral Award which is prohibited under
Rule 19.750 of the Special ADR Rules;51 and (b) the petition was filed out of time, having been filed
way beyond 15 days from notice of the RTC’s July 9, 2012 Order, in violation of Rule 19.2852 in
relation to Rule 19.853 of said Rules which provide that a special civil action for certiorari must be filed
before the CA within 15 days from notice of the judgment, order, or resolution sought to be annulled
or set aside (or until July 27, 2012). Aggrieved, petitioner filed the instant petition.

The Issue Before the Court

The core issue for the Court’s resolution is whether or not the CA erred in applying the provisions of
the Special ADR Rules, resulting in the dismissal of petitioner’s special civil action for certiorari.

The Court’s Ruling

The petition lacks merit.

I.

Republic Act No. (RA) 9285,54 otherwise known as the Alternative Dispute Resolution Act of 2004,"
institutionalized the use of an Alternative Dispute Resolution System (ADR System)55 in the
Philippines. The Act, however, was without prejudice to the adoption by the Supreme Court of any
ADR system as a means of achieving speedy and efficient means of resolving cases pending before
all courts in the Philippines.56

Accordingly, A.M. No. 07-11-08-SC was created setting forth the Special Rules of Court on
Alternative Dispute Resolution (referred herein as Special ADR Rules) that shall govern the
procedure to be followed by the courts whenever judicial intervention is sought in ADR proceedings
in the specific cases where it is allowed.57

Rule 1.1 of the Special ADR Rules lists down the instances when the said rules shall apply, namely:
"(a) Relief on the issue of Existence, Validity, or Enforceability of the Arbitration Agreement; (b)
Referral to Alternative Dispute Resolution ("ADR"); (c) Interim Measures of Protection; (d)
Appointment of Arbitrator; (e) Challenge to Appointment of Arbitrator; (f) Termination of Mandate of
Arbitrator; (g) Assistance in Taking Evidence; (h) Confirmation, Correction or Vacation of Award in
Domestic Arbitration; (i) Recognition and Enforcement or Setting Aside of an Award in International
Commercial Arbitration; (j) Recognition and Enforcement of a Foreign Arbitral Award; (k)
Confidentiality/Protective Orders; and (l) Deposit and Enforcement of Mediated Settlement
Agreements."58

Notably, the Special ADR Rules do not automatically govern the arbitration proceedings itself. A
pivotal feature of arbitration as an alternative mode of dispute resolution is that it is a product of party
autonomy or the freedom of the parties to make their own arrangements to resolve their own
disputes.59 Thus, Rule 2.3 of the Special ADR Rules explicitly provides that "parties are free to agree
on the procedure to be followed in the conduct of arbitral proceedings. Failing such agreement, the
arbitral tribunal may conduct arbitration in the manner it considers appropriate."60

In the case at bar, the Consultancy Agreement contained an arbitration clause.61 Hence, respondent,
after it filed its complaint, moved for its referral to arbitration62 which was not objected to by
petitioner.63 By its referral to arbitration, the case fell within the coverage of the Special ADR Rules.
However, with respect to the arbitration proceedings itself, the parties had agreed to adopt the CIAC
Rules before the Arbitral Tribunal in accordance with Rule 2.3 of the Special ADR Rules.

On May 7, 2010, the Arbitral Tribunal rendered the Arbitral Award in favor of respondent. Under
Section 17.2, Rule 17 of the CIAC Rules, no motion for reconsideration or new trial may be sought,
but any of the parties may file a motion for correction64 of the final award, which shall interrupt the
running of the period for appeal,65 based on any of the following grounds, to wit: a. an evident
miscalculation of figures, a typographical or arithmetical error;

b. an evident mistake in the description of any party, person, date, amount, thing or property
referred to in the award;

c. where the arbitrators have awarded upon a matter not submitted to them, not affecting the
merits of the decision upon the matter submitted;

d. where the arbitrators have failed or omitted to resolve certain issue/s formulated by the
parties in the Terms of Reference (TOR) and submitted to them for resolution, and

e. where the award is imperfect in a matter of form not affecting the merits of the
controversy.

The motion shall be acted upon by the Arbitral Tribunal or the surviving/remaining members.66

Moreover, the parties may appeal the final award to the CA through a petition for review under
Rule43 of the Rules of Court.67

Records do not show that any of the foregoing remedies were availed of by petitioner. Instead, it
filed the May 19, 2010 Motion for Reconsideration of the Arbitral Award, which was a prohibited
pleading under the Section 17.2,68Rule 17 of the CIAC Rules, thus rendering the same final and
executory.

Accordingly, the case was remanded to the RTC for confirmation proceedings pursuant to Rule 11 of
the Special ADR Rules which requires confirmation by the court of the final arbitral award. This is
consistent with Section 40, Chapter 7 (A) of RA 9285 which similarly requires a judicial confirmation
of a domestic award to make the same enforceable:

SEC. 40. Confirmation of Award.– The confirmation of a domestic arbitral award shall be governed
by Section 2369of R.A. 876.70

A domestic arbitral award when confirmed shall be enforced in the same manner as final and
executory decisions of the regional trial court.
The confirmation of a domestic award shall be made by the regional trial court in accordance with
the Rules of Procedure to be promulgated by the Supreme Court.

A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided
under E.O. No. 1008. (Emphases supplied)

During the confirmation proceedings, petitioners did not oppose the RTC’s confirmation by filing a
petition to vacate the Arbitral Award under Rule 11.2 (D)71 of the Special ADR Rules. Neither did it
seek reconsideration of the confirmation order in accordance with Rule 19.1 (h) thereof. Instead,
petitioner filed only on September 10, 2012 a special civil action for certiorari before the CA
questioning the propriety of (a) the RTC Order dated September 12, 2011 granting respondent’s
motion for issuance of a writ of execution, and (b) Order dated July 9,2012 denying its motion to
quash. Under Rule 19.26 of the Special ADR Rules, "[w]hen the Regional Trial Court, in making a
ruling under the Special ADR Rules, has acted without or in excess of its jurisdiction, or with grave
abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal or any plain,
speedy, and adequate remedy in the ordinary course of law, a party may file a special civil action for
certiorari to annul or set aside a ruling of the Regional Trial Court." Thus, for failing to avail of the
foregoing remedies before resorting to certiorari, the CA correctly dismissed its petition.

II.

Note that the special civil action for certiorari described in Rule 19.26 above may be filed to annul or
set aside the following orders of the Regional Trial Court.

a. Holding that the arbitration agreement is in existent, invalid or unenforceable;

b. Reversing the arbitral tribunal’s preliminary determination upholding its jurisdiction;

c. Denying the request to refer the dispute to arbitration;

d. Granting or refusing an interim relief;

e. Denying a petition for the appointment of an arbitrator;

f. Confirming, vacating or correcting a domestic arbitral award;

g. Suspending the proceedings to set aside an international commercial arbitral award and
referring the case back to the arbitral tribunal;

h. Allowing a party to enforce an international commercial arbitral award pending appeal;

i. Adjourning or deferring a ruling on whether to set aside, recognize and or enforce an

international commercial arbitral award;

j. Allowing a party to enforce a foreign arbitral award pending appeal; and

k. Denying a petition for assistance in taking evidence. (Emphasis supplied)

Further, Rule 19.772 of the Special ADR Rules precludes a party to an arbitration from filing a petition
for certiorari questioning the merits of an arbitral award.
If so falling under the above-stated enumeration, Rule 19.28 of the Special ADR Rules provide that
said certiorari petition should be filed "with the [CA] within fifteen (15) days from notice of the
judgment, order or resolution sought to be annulled or set aside. No extension of time to file the
petition shall be allowed."

In this case, petitioner asserts that its petition is not covered by the Special ADR Rules (particularly,
Rule 19.28 on the 15-day reglementary period to file a petition for certiorari) but by Rule 65 of the
Rules of Court (particularly, Section 4 thereof on the 60-day reglementary period to file a petition for
certiorari), which it claimed to have suppletory application in arbitration proceedings since the
Special ADR Rules do not explicitly provide for a procedure on execution. The position is untenable.

Execution is fittingly called the fruit and end of suit and the life of the law. A judgment, if left
unexecuted, would be nothing but an empty victory for the prevailing party.73

While it appears that the Special ADR Rules remain silent on the procedure for the execution of a
confirmed arbitral award, it is the Court’s considered view that the Rules’ procedural mechanisms
cover not only aspects of confirmation but necessarily extend to a confirmed award’s execution in
light of the doctrine of necessary implication which states that every statutory grant of power, right or
privilege is deemed to include all incidental power, right or privilege. In Atienza v. Villarosa,74 the
doctrine was explained, thus:

No statute can be enacted that can provide all the details involved in its application. There is always
1âwphi1

an omission that may not meet a particular situation. What is thought, at the time of enactment, to be
an all embracing legislation may be inadequate to provide for the unfolding of events of the future.
So-called gaps in the law develop as the law is enforced. One of the rules of statutory construction
used to fill in the gap is the doctrine of necessary implication. The doctrine states that what is implied
in a statute is as much a part thereof as that which is expressed. Every statute is understood, by
implication, to contain all such provisions as may be necessary to effectuate its object and purpose,
or to make effective rights, powers, privileges or jurisdiction which it grants, including all such
collateral and subsidiary consequences as may be fairly and logically inferred from its terms. Ex
necessitate legis. And every statutory grant of power, right or privilege is deemed to include all
incidental power, right or privilege. This is so because the greater includes the lesser, expressed in
the maxim, in eo plus sit, simper inest et minus.75 (Emphases supplied)

As the Court sees it, execution is but a necessary incident to the Court’s confirmation of an arbitral
award. To construe it otherwise would result in an absurd situation whereby the confirming court
previously applying the Special ADR Rules in its confirmation of the arbitral award would later shift to
the regular Rules of Procedure come execution. Irrefragably, a court’s power to confirm a judgment
award under the Special ADR Rules should be deemed to include the power to order its execution
for such is but a collateral and subsidiary consequence that may be fairly and logically inferred from
the statutory grant to regional trial courts of the power to confirm domestic arbitral awards.

All the more is such interpretation warranted under the principle of ratio legis est anima which
provides that a statute must be read according to its spirit or intent,76 for what is within the spirit is
within the statute although it is not within its letter, and that which is within the letter but not within the
spirit is not within the statute.77 Accordingly, since the Special ADR Rules are intended to achieve
speedy and efficient resolution of disputes and curb a litigious culture,78every interpretation thereof
should be made consistent with these objectives.

Thus, with these principles in mind, the Court so concludes that the Special ADR Rules, as far as
practicable, should be made to apply not only to the proceedings on confirmation but also to the
confirmed award’s execution.
Further, let it be clarified that – contrary to petitioner’s stance – resort to the Rules of Court even in a
suppletory capacity is not allowed. Rule 22.1 of the Special ADR Rules explicitly provides that "[t]he
provisions of the Rules of Court that are applicable to the proceedings enumerated in Rule 1.1 of
these Special ADR Rules have either been included and incorporated in these Special ADR Rules or
specifically referred to herein."79 Besides, Rule 1.13 thereof provides that "[i]n situations where no
specific rule is provided under the Special ADR Rules, the court shall resolve such matter summarily
and be guided by the spirit and intent of the Special ADR Rules and the ADR Laws."

As above-mentioned, the petition for certiorari permitted under the Special ADR Rules must be filed
within a period of fifteen (15) days from notice of the judgment, order or resolution sought to be
annulled or set aside.80 Hence, since petitioner’s filing of its certiorari petition in CA-G.R. SP No.
126458 was made nearly two months after its receipt of the RTC’s Order dated July 9, 2012,or on
September 10, 2012,81 said petition was clearly dismissible.82

III.

Discounting the above-discussed procedural considerations, the Court still finds that the certiorari
petition had no merit.

Indeed, petitioner cannot be said to have been denied due process as the records undeniably show
that it was accorded ample opportunity to ventilate its position. There was clearly nothing out of line
when the Arbitral Tribunal denied petitioner’s motions for extension to file its submissions having
failed to show a valid reason to justify the same or in rendering the Arbitral Award sans petitioner’s
draft decision which was filed only on the day of the scheduled promulgation of final award on May
7, 2010.83 The touchstone of due process is basically the opportunity to be heard. Having been given
such opportunity, petitioner should only blame itself for its own procedural blunder.

On this score, the petition for certiorari in CA-G.R. SP No. 126458 was likewise properly dismissed.

IV.

Nevertheless, while the Court sanctions the dismissal by the CA of the petition for certiorari due to
procedural infirmities, there is a need to explicate the matter of execution of the confirmed Arbitral
Award against the petitioner, a government agency, in the light of Presidential Decree No. (PD)
144584 otherwise known as the "Government Auditing Code of the Philippines." Section 26 of PD
1445 expressly provides that execution of money judgment against the Government or any of its
subdivisions, agencies and instrumentalities is within the primary jurisdiction of the COA, to wit:

SEC. 26. General jurisdiction. The authority and powers of the Commission shall extend to and
comprehend all matters relating to auditing procedures, systems and controls, the keeping of the
general accounts of the Government, the preservation of vouchers pertaining thereto for a period of
ten years, the examination and inspection of the books, records, and papers relating to those
accounts; and the audit and settlement of the accounts of all persons respecting funds or property
received or held by them in an accountable capacity, as well as the examination, audit, and
settlement of all debts and claims of any sort due from or owing to the Government or any of its
subdivisions, agencies and instrumentalities. The said jurisdiction extends to all government-owned
or controlled corporations, including their subsidiaries, and other self-governing boards,
commissions, or agencies of the Government, and as herein prescribed, including non-governmental
entities subsidized by the government, those funded by donation through the government, those
required to pay levies or government share, and those for which the government has put up a
counterpart fund or those partly funded by the government. (Emphases supplied)
From the foregoing, the settlement of respondent’s money claim is still subject to the primary
jurisdiction of the COA despite finality of the confirmed arbitral award by the RTC pursuant to the
Special ADR Rules.85 Hence, the respondent has to first seek the approval of the COA of their
monetary claim. This appears to have been complied with by the latter when it filed a "Petition for
Enforcement and Payment of Final and Executory Arbitral Award"86before the COA. Accordingly, it is
now the COA which has the authority to rule on this latter petition. WHEREFORE, the petition is
DENIED. The Decision dated March 26, 2014 of the Court of Appeals in CA-G.R. SP No. 126458
which dismissed the petition for certiorari filed by petitioner the Department of Environment and
Natural Resources is hereby AFFIRMED.

SO ORDERED.

ESTELA M. PERLAS-BERNABE
Associate Justice

WE CONCUR:

MARIA LOURDES P.A. SERENO

Chief Justice
Chairperson

TERESITA J. LEONARDO-DE CASTRO LUCAS P. BERSAMIN

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the opinion
of the Court's Division.

MARIA LOURDES P.A. SERENO

Chief Justice

SECOND DIVISION

[G.R. No. 161957. February 28, 2005]

JORGE GONZALES and PANEL OF ARBITRATORS, petitioners, vs.

CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., and
AUSTRALASIAN PHILIPPINES MINING INC., respondents.
 DECISION
TINGA, J.:

Petitioner Jorge Gonzales, as claimowner of mineral deposits located within the

Addendum Area of Influence in Didipio, in the provinces of Quirino and Nueva Vizcaya,
entered into a co-production, joint venture and/or production-sharing letter-agreement
designated as the May 14, 1987 Letter of Intent with Geophilippines, Inc, and Inmex Ltd.
Under the agreement, petitioner, as claimowner, granted to Geophilippines, Inc. and
Inmex Ltd. collectively, the exclusive right to explore and survey the mining claims for a
period of thirty-six (36) months within which the latter could decide to take an operating
agreement on the mining claims and/or develop, operate, mine and otherwise exploit the
mining claims and market any and all minerals that may be derived therefrom.
On 28 February 1989, the parties to the May 14, 1987 Letter of Intent renegotiated
the same into the February 28, 1989 Agreement whereby the exploration of the mining
claims was extended for another period of three years.
On 9 March 1991, petitioner Gonzales, Arimco Mining Corporation, Geophilippines
Inc., Inmex Ltd., and Aumex Philippines, Inc. signed a document designated as
the Addendum to the May 14, 1987 Letter of Intent and February 28, 1989 Agreement
with Express Adhesion Thereto (hereafter, the Addendum Contract).[1] Under
the Addendum Contract, Arimco Mining Corporation would apply to the Government of
the Philippines for permission to mine the claims as the Governments contractor under
a Financial and Technical Assistance Agreement(FTAA). On 20 June 1994, Arimco
Mining Corporation obtained the FTAA[2] and carried out work under the FTAA.
Respondents executed the Operating and Financial Accommodation
Contract[3] (between Climax-Arimco Mining Corporation and Climax Mining Ltd., as first
parties, and Australasian Philippines Mining Inc., as second party) dated 23 December
1996 and Assignment, Accession Agreement[4] (between Climax-Arimco Mining
Corporation and Australasian Philippines Mining Inc.) dated 3 December 1996.
Respondent Climax Mining Corporation (Climax) and respondent Australasian
Philippines Mining Inc. (APMI) entered into a Memorandum of Agreement[5] dated 1 June
1991 whereby the former transferred its FTAA to the latter.
On 8 November 1999, petitioner Gonzales filed before the Panel of Arbitrators,
Region II, Mines and Geosciences Bureau of the Department of Environment and Natural
Resources, against respondents Climax-Arimco Mining Corporation (Climax-Arimco),
Climax, and APMI,[6] a Complaint[7] seeking the declaration of nullity or termination of
the Addendum Contract, the FTAA, the Operating and Financial Accommodation
Contract, the Assignment, Accession Agreement, and the Memorandum of
Agreement. Petitioner Gonzales prayed for an unspecified amount of actual and
exemplary damages plus attorneys fees and for the issuance of a temporary restraining
order and/or writ of preliminary injunction to restrain or enjoin respondents from further
implementing the questioned agreements. He sought said releifs on the grounds of
FRAUD, OPPRESSION and/or VIOLATION of Section 2, Article XII of the
CONSTITUTION perpetrated by these foreign RESPONDENTS, conspiring and
confederating with one another and with each other.[8]
 On 21 February 2001, the Panel of Arbitrators dismissed the Complaint for lack of
jurisdiction. Petitioner moved for reconsideration and this was granted on 18 October
2001, the Panel believing that the case involved a dispute involving rights to mining areas
and a dispute involving surface owners, occupants and claim owners/concessionaires.
According to the Panel, although the issue raised in the Complaint appeared to be purely
civil in nature and should be within the jurisdiction of the regular courts, a ruling on the
validity of the assailed contracts would result to the grant or denial of mining rights over
the properties; therefore, the question on the validity of the contract amounts to a mining
conflict or dispute. Hence, the Panel granted the Motion for Reconsideration with regard
to the issues of nullity, termination, withdrawal or damages, but with regard to the
constitutionality of the Addendum Agreement and FTAA, it held that it had no
jurisdiction.[9]
Respondents filed their motion for reconsideration but this was denied on 25 June
2002. The Panel of Arbitrators maintained that there was a mining dispute between the
parties since the subject matter of the Complaint arose from contracts between the
parties which involve the exploration and exploitation of minerals over the disputed
area.[10]
Respondents assailed the orders of the Panel of Arbitrators via a petition for certiorari
before the Court of Appeals.
On 30 July 2003, the Court of Appeals granted the petition, declaring that the Panel
of Arbitrators did not have jurisdiction over the complaint filed by petitioner. [11] The
jurisdiction of the Panel of Arbitrators, said the Court of Appeals, is limited only to the
resolution of mining disputes, defined as those which raise a question of fact or matter
requiring the technical knowledge and experience of mining authorities. It was found that
the complaint alleged fraud, oppression and violation of the Constitution, which called for
the interpretation and application of laws, and did not involve any mining dispute. The
Court of Appeals also observed that there were no averments relating to particular acts
constituting fraud and oppression. It added that since the Addendum Contract was
executed in 1991, the action to annul it should have been brought not later than 1995, as
the prescriptive period for an action for annulment is four years from the time of the
discovery of the fraud.[12] When petitioner filed his complaint before the Panel in 1999, his
action had already prescribed. Also, the Court of Appeals noted that fraud and duress
only make a contract voidable,[13] not inexistent, hence the contract remains valid until
annulled. The Court of Appeals was of the opinion that the petition should have been
settled through arbitration under Republic Act No. 876 (The Arbitration Law) as stated in
Clause 19.1 of the Addendum Contract. The Court of Appeals therefore declared as
invalid the orders dated 18 October 2001 and 25 June 2002 issued by the Panel of
Arbitrators. On 28 January 2004, the Court of Appeals denied petitioners motion for
reconsideration for lack of merit.[14]
Petitioner filed on 22 March 2004 this Petition for Review on Certiorari Under Rule
45 assailing the decision and resolution of the Court of Appeals. Petitioner raises the
following issues:
A.
 PROCEDURAL GROUND

THE HONORABLE COURT OF APPEALS SHOULD HAVE SUMMARILY

DISMISSED RESPONDENTS PETITION A QUO FOR FAILURE TO COMPLY
WITH PROCEDURAL REQUIREMENTS.

i.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE

RULES AND ESTABLISHED JURISPRUDENCE WHEN IT DID NOT DISMISS
THE PETITION A QUO DESPITE RESPONDENTS FAILURE TO COMPLY
WITH THE RULES ON DISCLOSURE IN THE VERIFICATION AND
CERTIFICATION PORTION OF THEIR PETITION A QUO.

ii.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE

RULES AND ESTABLISHED JURISPRUDENCE WHEN IT DID NOT DISMISS
THE PETITION A QUO FILED BY RESPONDENT CLIMAX DESPITE THE
LACK OF THE REQUISITE AUTHORITY TO FILE THE PETITION A QUO.

B.

SUBSTANTIVE GROUND

THE HONORABLE COURT OF APPEALS ERRED IN GRANTING THE

PETITION A QUO FILED BY RESPONDENTS AND IN DENYING MOTION
FOR RECONSIDERATION FILED BY PETITIONER FOR UTTER LACK OF
BASIS IN FACT AND IN LAW.

i.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE

RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT
PETITIONER CEDED HIS CLAIMS OVER THE MINERAL DEPOSITS
LOCATED WITHIN THE ADDENDUM AREA OF INFLUENCE.

ii.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE

RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT THE
PANEL OF ARBITRATORS IS BEREFT OF JURISDICTION OVER THE
SUBJECT MATTER OF CASE NO. 058.
 iii.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE

RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT THE
COMPLAINT FILED BY THE PETITIONER FAILED TO ALLEGE ULTIMATE
FACTS OR PARTICULARS OF FRAUD.

iv.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE

RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT
PETITIONER AND RESPONDENTS SHOULD SUBMIT TO ARBITRATION
UNDER R.A. 876.

v.

WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE

RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT THE
ACTION TO DECLARE THE NULLITY OF THE ADDENDUM CONTRACT,
FTAA, OFAC AND AAAA ON THE GROUND OF FRAUD HAS PRESCRIBED.

The issues for resolution in this petition for review are:

(a) Whether there was forum-shopping on the part of respondents for their failure to
disclose to this Court their filing of a Petition to Compel for Arbitration before the
Regional Trial Court of Makati City, Branch 148, which is currently pending.
(b) Whether counsel for respondent Climax had authority to file the petition for
certiorari before the Court of Appeals considering that the signor of the petition for
certioraris Verification and Certification of Non-forum Shopping was not authorized to
sign the same in behalf of respondent Climax.
(c) Whether the complaint filed by petitioner raises a mining dispute over which the
Panel of Arbitrators has jurisdiction, or a judicial question which should properly be
brought before the regular courts.
(d) Whether the dispute between the parties should be brought for arbitration under
Rep. Act No. 876.
Let us deal first with procedural matters.
Petitioner claims that respondents are guilty of forum-shopping for failing to disclose
before this Court that they had filed a Petition to Compel for Arbitration before the RTC of
Makati City. However, it cannot be determined from petitioners mere allegations in
the Petition that the Petition to Compel for Arbitration instituted by respondent Climax-
Arimco, involves related causes of action and the grant of the same or substantially the
same reliefs as those involved in the instant case. Petitioner did not attach copies of
the Petition to Compel for Arbitration or any order or resolution of the RTC of Makati City
related to that case.
Furthermore, it can be gleaned from the nature of the two actions that the issues in
the case before the RTC of Makati City and in the petition for certiorari before the Court
of Appeals are different. A petition for certiorari raises the issue of whether or not there
was grave abuse of discretion, while the Petition to Compel for Arbitration seeks the
implementation of the arbitration clause in the agreement between the parties.
Petitioner next alleges that there was no authority granted by respondent Climax to
the law firm of Sycip Salazar Hernandez & Gatmaitan to file the petition before the Court
of Appeals. There is allegedly no Secretarys Certificate from respondent Climax attached
to the petition. The Verification and Certification only contains a statement made by one
Marianne M. Manzanas that she is also the authorized representative of [respondent
Climax] without presenting further proof of such authority. Hence, it is argued that as to
respondent Climax, the petition filed before the Court of Appeals is an unauthorized act
and the assailed orders of the Panel of Arbitrators have become final.
Under Section 3, Rule 46 of the Rules of Court, a petitioner is required to submit,
together with the petition, a sworn certification of non-forum shopping, and failure to
comply with this requirement is sufficient ground for dismissal of the petition. The
requirement that petitioner should sign the certificate of non-forum shopping applies even
to corporations, the Rules of Court making no distinction between natural and juridical
persons. The signatory in the case of the corporation should be a duly authorized director
or officer of the corporation who has knowledge of the matter being certified. [15] If, as in
this case, the petitioner is a corporation, a board resolution authorizing a corporate officer
to execute the certification against forum-shopping is necessary. A certification not signed
by a duly authorized person renders the petition subject to dismissal. [16]
On this point, we have to agree with petitioner. There appears to be no subsequent
compliance with the requirement to attach a board resolution authorizing the signor
Marianne M. Manzanas to file the petition in behalf of respondent Climax. Respondent
also failed to refute this in its Comment.[17] However, this latter issue becomes irrelevant
in the light of our decision to deny this petition for review for lack of jurisdiction by the
Panel of Arbitrators over the complaint filed by petitioner, as will be discussed below.
We now come to the meat of the case which revolves mainly around the question of
jurisdiction by the Panel of Arbitrators: Does the Panel of Arbitrators have jurisdiction over
the complaint for declaration of nullity and/or termination of the subject contracts on the
ground of fraud, oppression and violation of the Constitution? This issue may be distilled
into the more basic question of whether the Complaint raises a mining dispute or a judicial
question.
A judicial question is a question that is proper for determination by the courts, as
opposed to a moot question or one properly decided by the executive or legislative
branch.[18] A judicial question is raised when the determination of the question involves
the exercise of a judicial function; that is, the question involves the determination of what
the law is and what the legal rights of the parties are with respect to the matter in
controversy.[19]
 On the other hand, a mining dispute is a dispute involving (a) rights to mining areas,
(b) mineral agreements, FTAAs, or permits, and (c) surface owners, occupants and
claimholders/concessionaires.[20] Under Republic Act No. 7942 (otherwise known as the
Philippine Mining Act of 1995), the Panel of Arbitrators has exclusive and original
jurisdiction to hear and decide these mining disputes.[21] The Court of Appeals, in its
questioned decision, correctly stated that the Panels jurisdiction is limited only to those
mining disputes which raise questions of fact or matters requiring the application of
technological knowledge and experience.[22]
In Pearson v. Intermediate Appellate Court,[23] this Court observed that the trend has
been to make the adjudication of mining cases a purely administrative
matter.[24] Decisions[25] of the Supreme Court on mining disputes have recognized a
distinction between (1) the primary powers granted by pertinent provisions of law to the
then Secretary of Agriculture and Natural Resources (and the bureau directors) of an
executive or administrative nature, such as granting of license, permits, lease and
contracts, or approving, rejecting, reinstating or canceling applications, or deciding
conflicting applications, and (2) controversies or disagreements of civil or contractual
nature between litigants which are questions of a judicial nature that may be adjudicated
only by the courts of justice. This distinction is carried on even in Rep. Act No. 7942.
The Complaint charged respondents with disregarding and ignoring the provisions of
the Addendum Contract, violating the purpose and spirit of the May 14, 1987 Letter of
Intent and February 28, 1989 Agreement, and acting in a fraudulent and oppressive
manner against petitioner and practicing fraud and deception against the
Government.[26] Petitioner alleged in his Complaint that under the original agreements
(the May 14, 1987 Letter of Intent and February 28, 1989 Agreement) respondent Climax-
Arimco had committed to complete the Bankable Feasibility Study by 28 February 1992,
but the same was not accomplished. Instead, respondent Climax-Arimco, through false
and insidious representations and machinations by alleging technical and financial
capacity, induced petitioner to enter into the Addendum Contract and the FTAA in order
to repeatedly extend the option period within which to conduct the feasibility study. In
essence, petitioner alleges that respondents, conspiring and confederating with one
another, misrepresented under the Addendum Contract and FTAA that respondent
Climax-Arimco possessed financial and technical capacity to put the project into
commercial production, when in truth it had no such qualification whatsoever to do so. By
so doing, respondents have allegedly caused damage not only to petitioner but also to
the Republic of the Philippines.[27]
It is apparent that the Panel of Arbitrators is bereft of jurisdiction over
the Complaint filed by petitioner. The basic issue in petitioners Complaint is the presence
of fraud or misrepresentation allegedly attendant to the execution of the Addendum
Contract and the other contracts emanating from it, such that the contracts are rendered
invalid and not binding upon the parties. It avers that petitioner was misled by respondents
into agreeing to the Addendum Contract. This constitutes fraud which vitiated petitioners
consent, and under Article 1390 of the Civil Code, is one of the grounds for the annulment
of a voidable contract. Voidable or annullable contracts, before they are set aside, are
existent, valid, and binding, and are effective and obligatory between the parties. [28] They
can be ratified.[29]
 Petitioner insists that the Complaint is actually one for the declaration of nullity of void
contracts. He argues that respondents, by their lack of financial and technical competence
to carry out the mining project, do not qualify to enter into a co-production, joint venture
or production sharing agreement with the Government, in circumvention of and in patent
violation of the spirit and purpose of the Constitution, particularly Section 2, Article XII
thereof. Petitioner relies on the Civil Code for support:[30]

Art. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;

....

(7) Those expressly prohibited or declared void by law.

....

Petitioner asserts that for circumventing and being in patent violation of the Constitution,
the Addendum Contract, the FTAA and the other contracts are void contracts. As such,
they do not produce any effect and cannot be ratified.
However, whether the case involves void or voidable contracts is still a judicial
question. It may, in some instances, involve questions of fact especially with regard to the
determination of the circumstances of the execution of the contracts. But the resolution
of the validity or voidness of the contracts remains a legal or judicial question as it requires
the exercise of judicial function. It requires the ascertainment of what laws are applicable
to the dispute, the interpretation and application of those laws, and the rendering of a
judgment based thereon. Clearly, the dispute is not a mining conflict. It is essentially
judicial. The complaint was not merely for the determination of rights under the mining
contracts since the very validity of those contracts is put in issue.
The Complaint is not about a dispute involving rights to mining areas, nor is it a
dispute involving claimholders or concessionaires. The main question raised was the
validity of the Addendum Contract, the FTAA and the subsequent contracts. The question
as to the rights of petitioner or respondents to the mining area pursuant to these contracts,
as well as the question of whether or not petitioner had ceded his mining claims in favor
of respondents by way of execution of the questioned contracts, is merely corollary to the
main issue, and may not be resolved without first determining the main issue.
The Complaint is also not what is contemplated by Rep. Act No. 7942 when it says
the dispute should involve FTAAs. The Complaint is not exclusively within the jurisdiction
of the Panel of Arbitrators just because, or for as long as, the dispute involves an FTAA.
The Complaint raised the issue of the constitutionality of the FTAA, which is definitely a
judicial question. The question of constitutionality is exclusively within the jurisdiction of
the courts to resolve as this would clearly involve the exercise of judicial power. The Panel
of Arbitrators does not have jurisdiction over such an issue since it does not involve the
application of technical knowledge and expertise relating to mining. This the Panel of
Arbitrators has even conceded in its Orders dated 18 October 2001 and 25 June 2002.
At this juncture, it is worthy of note that in a case, [31] which was resolved only on 1
December 2004, this Court upheld the validity of the FTAA entered into by the Republic
of the Philippines and WMC (Philippines), Inc. and constitutionality of Rep. Act No. 7942
and DENR Administrative Order 96-40.[32] In fact, the Court took the case on an original
petition, recognizing the exceptional character of the situation and the paramount public
interest involved, as well as the necessity for a ruling to put an end to the uncertainties
plaguing the mining industry and the affected communities as a result of doubts case
upon the constitutionality and validity of the Mining Act, the subject FTAA and future
FTAAs, and the need to avert a multiplicity of suits.[33]
Arbitration before the Panel of Arbitrators is proper only when there is a disagreement
between the parties as to some provisions of the contract between them, which needs
the interpretation and the application of that particular knowledge and expertise
possessed by members of that Panel. It is not proper when one of the parties repudiates
the existence or validity of such contract or agreement on the ground of fraud or
oppression as in this case. The validity of the contract cannot be subject of arbitration
proceedings. Allegations of fraud and duress in the execution of a contract are matters
within the jurisdiction of the ordinary courts of law. These questions are legal in nature
and require the application and interpretation of laws and jurisprudence which is
necessarily a judicial function.
Petitioner also disagrees with the Court of Appeals ruling that the case should be
brought for arbitration under Rep. Act 876, pursuant to the arbitration clause in
the Addendum Contractwhich states that [a]ll disputes arising out of or in connection with
the Contract, which cannot be settled amicably among the Parties, shall finally be settled
under R.A. 876. He points out that respondents Climax and APMI are not parties to
the Addendum Contract and are thus not bound by the arbitration clause in said contract.
We agree that the case should not be brought under the ambit of the Arbitration Law,
but for a different reason. The question of validity of the contract containing the agreement
to submit to arbitration will affect the applicability of the arbitration clause itself. A party
cannot rely on the contract and claim rights or obligations under it and at the same time
impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent
positions. As previously discussed, the complaint should have been filed before the
regular courts as it involved issues which are judicial in nature.
WHEREFORE, in view of the foregoing, the Petition for Review on Certiorari Under
Rule 45 is DENIED. The Orders dated 18 October 2001 and 25 June 2002 of the Panel
of Arbitrators are SET ASIDE. Costs against petitioner Jorge Gonzales.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
 SECOND DIVISION

G.R. No. 174938 October 1, 2014

GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners,

vs.
BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B.
COLAYCO, MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS, Respondents.

DECISION

LEONEN, J.:

Corporate representatives may be compelled to submit to arbitration proceedings pursuant to a

contract entered into by the corporation they represent if there are allegations of bad faith or malice
in their acts representing the corporation.

This is a Rule 45 petition, assailing the Court of Appeals' May 11, 2006 decision and October 5,
2006 resolution. The Court of Appeals affirmed the trial court's decision holding that petitioners, as
director, should submit themselves as parties tothe arbitration proceedings between BF Corporation
and Shangri-La Properties, Inc. (Shangri-La).

In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against Shangri-
Laand the members of its board of directors: Alfredo C. Ramos, Rufo B.Colayco, Antonio O. Olbes,
Gerardo Lanuza, Jr., Maximo G. Licauco III, and Benjamin C. Ramos.1

BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it entered into
agreements with Shangri-La wherein it undertook to construct for Shangri-La a mall and a multilevel
parking structure along EDSA.2

Shangri-La had been consistent in paying BF Corporation in accordance with its progress billing
statements.3However, by October 1991, Shangri-La started defaulting in payment.4

BF Corporation alleged that Shangri-La induced BF Corporation to continue with the construction of
the buildings using its own funds and credit despite Shangri-La’s default.5 According to BF
Corporation, ShangriLa misrepresented that it had funds to pay for its obligations with BF
Corporation, and the delay in payment was simply a matter of delayed processing of BF
Corporation’s progress billing statements.6

BF Corporation eventually completed the construction of the buildings.7 Shangri-La allegedly took
possession of the buildings while still owing BF Corporation an outstanding balance.8

BF Corporation alleged that despite repeated demands, Shangri-La refused to pay the balance owed
to it.9 It also alleged that the Shangri-La’s directors were in bad faith in directing Shangri-La’s affairs.
Therefore, they should be held jointly and severally liable with Shangri-La for its obligations as well
as for the damages that BF Corporation incurred as a result of Shangri-La’s default.10

On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco III, and
Benjamin C. Ramos filed a motion to suspend the proceedings in view of BF Corporation’s failure to
submit its dispute to arbitration, in accordance with the arbitration clauseprovided in its contract,
quoted in the motion as follows:11
35. Arbitration

(1) Provided always that in case any dispute or difference shall arise between the Owner or the
Project Manager on his behalf and the Contractor, either during the progress or after the completion
or abandonment of the Works as to the construction of this Contract or as to any matter or thing of
whatsoever nature arising there under or inconnection therewith (including any matter or thing left by
this Contract to the discretion of the Project Manager or the withholding by the Project Manager of
any certificate to which the Contractor may claim to be entitled or the measurement and valuation
mentioned in clause 30(5)(a) of these Conditions or the rights and liabilities of the parties under
clauses 25, 26, 32 or 33 of these Conditions), the owner and the Contractor hereby agree to exert all
efforts to settle their differences or dispute amicably. Failing these efforts then such dispute or
difference shall be referred to arbitration in accordance with the rules and procedures of the
Philippine Arbitration Law.

xxx xxx xxx

(6) The award of such Arbitrators shall be final and binding on the parties. The decision of the
Arbitrators shall be a condition precedent to any right of legal action that either party may have
against the other. . . .12 (Underscoring in the original)

On August 19, 1993, BF Corporation opposed the motion to suspend proceedings.13

In the November 18, 1993 order, the Regional Trial Court denied the motion to suspend
proceedings.14

On December 8, 1993, petitioners filed an answer to BF Corporation’s complaint, with compulsory

counter claim against BF Corporation and crossclaim against Shangri-La.15 They alleged that they
had resigned as members of Shangri-La’s board of directors as of July 15, 1991.16

After the Regional Trial Court denied on February 11, 1994 the motion for reconsideration of its
November 18, 1993 order, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco,Maximo G. Licauco III,
and Benjamin Ramos filed a petition for certiorari with the Court of Appeals.17

On April 28, 1995, the Court of Appeals granted the petition for certiorari and ordered the submission
of the dispute to arbitration.18

Aggrieved by the Court of Appeals’ decision, BF Corporation filed a petition for review on certiorari
with this court.19On March 27, 1998, this court affirmed the Court of Appeals’ decision, directing that
the dispute be submitted for arbitration.20

Another issue arose after BF Corporation had initiated arbitration proceedings. BF Corporation and
Shangri-La failed to agree as to the law that should govern the arbitration proceedings.21 On October
27, 1998, the trial court issued the order directing the parties to conduct the proceedings in
accordance with Republic Act No. 876.22

Shangri-La filed an omnibus motion and BF Corporation an urgent motion for clarification, both
seeking to clarify the term, "parties," and whether Shangri-La’s directors should be included in the
arbitration proceedings and served with separate demands for arbitration.23
Petitioners filed their comment on Shangri-La’s and BF Corporation’s motions, praying that they be
excluded from the arbitration proceedings for being non-parties to Shangri-La’s and BF
Corporation’s agreement.24

On July 28, 2003, the trial court issued the order directing service of demands for arbitration upon all
defendants in BF Corporation’s complaint.25 According to the trial court, Shangri-La’s directors were
interested parties who "must also be served with a demand for arbitration to give them the
opportunity to ventilate their side of the controversy, safeguard their interest and fend off their
respective positions."26 Petitioners’ motion for reconsideration ofthis order was denied by the trial
court on January 19, 2005.27

Petitioners filed a petition for certiorari with the Court of Appeals, alleging grave abuse of discretion
in the issuance of orders compelling them to submit to arbitration proceedings despite being third
parties to the contract between Shangri-La and BF Corporation.28

In its May 11, 2006 decision,29 the Court of Appeals dismissed petitioners’ petition for certiorari. The
Court of Appeals ruled that ShangriLa’s directors were necessary parties in the arbitration
proceedings.30 According to the Court of Appeals:

[They were] deemed not third-parties tothe contract as they [were] sued for their acts in
representation of the party to the contract pursuant to Art. 31 of the Corporation Code, and that as
directors of the defendant corporation, [they], in accordance with Art. 1217 of the Civil Code, stand to
be benefited or injured by the result of the arbitration proceedings, hence, being necessary parties,
they must be joined in order to have complete adjudication of the controversy. Consequently, if [they
were] excluded as parties in the arbitration proceedings and an arbitral award is rendered, holding
[Shangri-La] and its board of directors jointly and solidarily liable to private respondent BF
Corporation, a problem will arise, i.e., whether petitioners will be bound bysuch arbitral award, and
this will prevent complete determination of the issues and resolution of the controversy.31

The Court of Appeals further ruled that "excluding petitioners in the arbitration proceedings . . . would
be contrary to the policy against multiplicity of suits."32

The dispositive portion of the Court of Appeals’ decision reads:

WHEREFORE, the petition is DISMISSED. The assailed orders dated July 28, 2003 and January 19,
2005 of public respondent RTC, Branch 157, Pasig City, in Civil Case No. 63400, are AFFIRMED.33

The Court of Appeals denied petitioners’ motion for reconsideration in the October 5, 2006
resolution.34

On November 24, 2006, petitioners filed a petition for review of the May 11, 2006 Court of Appeals
decision and the October 5, 2006 Court of Appeals resolution.35

The issue in this case is whether petitioners should be made parties to the arbitration proceedings,
pursuant to the arbitration clause provided in the contract between BF Corporation and Shangri-La.

Petitioners argue that they cannot be held personally liable for corporate acts or obligations.36 The
corporation is a separate being, and nothing justifies BF Corporation’s allegation that they are
solidarily liable with Shangri-La.37Neither did they bind themselves personally nor did they undertake
to shoulder Shangri-La’s obligations should it fail in its obligations.38 BF Corporation also failed to
establish fraud or bad faith on their part.39
Petitioners also argue that they are third parties to the contract between BF Corporation and
Shangri-La.40Provisions including arbitration stipulations should bind only the parties.41 Based on our
arbitration laws, parties who are strangers to an agreement cannot be compelled to arbitrate.42

Petitioners point out thatour arbitration laws were enacted to promote the autonomy of parties in
resolving their disputes.43 Compelling them to submit to arbitration is against this purpose and may
be tantamount to stipulating for the parties.44

Separate comments on the petition werefiled by BF Corporation, and Maximo G. Licauco III, Alfredo
C.Ramos and Benjamin C. Ramos.45

Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C. Ramos agreed with petitioners that
Shangri-La’sdirectors, being non-parties to the contract, should not be made personally liable for
Shangri-La’s acts.46 Since the contract was executed only by BF Corporation and Shangri-La, only
they should be affected by the contract’s stipulation.47 BF Corporation also failed to specifically allege
the unlawful acts of the directors that should make them solidarily liable with Shangri-La for its
obligations.48

Meanwhile, in its comment, BF Corporation argued that the courts’ ruling that the parties should
undergo arbitration "clearly contemplated the inclusion of the directors of the corporation[.]"49 BF
Corporation also argued that while petitioners were not parties to the agreement, they were still
impleaded under Section 31 of the Corporation Code.50Section 31 makes directors solidarily liable for
fraud, gross negligence, and bad faith.51 Petitioners are not really third parties to the agreement
because they are being sued as Shangri-La’s representatives, under Section 31 of the Corporation
Code.52

BF Corporation further argued that because petitioners were impleaded for their solidary liability,
they are necessary parties to the arbitration proceedings.53 The full resolution of all disputes in the
arbitration proceedings should also be done in the interest of justice.54

In the manifestation dated September 6, 2007, petitioners informed the court that the Arbitral
Tribunal had already promulgated its decision on July 31, 2007.55 The Arbitral Tribunal denied BF
Corporation’s claims against them.56Petitioners stated that "[they] were included by the Arbitral
Tribunal in the proceedings conducted . . . notwithstanding [their] continuing objection thereto. . .
."57 They also stated that "[their] unwilling participation in the arbitration case was done ex abundante
ad cautela, as manifested therein on several occasions."58 Petitioners informed the court that they
already manifested with the trial court that "any action taken on [the Arbitral Tribunal’s decision]
should be without prejudice to the resolution of [this] case."59

Upon the court’s order, petitioners and Shangri-La filed their respective memoranda. Petitioners and
Maximo G. Licauco III, Alfredo C. Ramos, and Benjamin C. Ramos reiterated their arguments that
they should not be held liable for Shangri-La’s default and made parties to the arbitration
proceedings because only BF Corporation and Shangri-La were parties to the contract.

In its memorandum, Shangri-La argued that petitioners were impleaded for their solidary liability
under Section 31 of the Corporation Code. Shangri-La added that their exclusion from the arbitration
proceedings will result in multiplicity of suits, which "is not favored in this jurisdiction."60 It pointed out
that the case had already been mooted by the termination of the arbitration proceedings, which
petitioners actively participated in.61 Moreover, BF Corporation assailed only the correctness of the
Arbitral Tribunal’s award and not the part absolving Shangri-La’s directors from liability.62
BF Corporation filed a counter-manifestation with motion to dismiss63 in lieu of the required
memorandum.

In its counter-manifestation, BF Corporation pointed out that since "petitioners’ counterclaims were
already dismissed with finality, and the claims against them were likewise dismissed with finality,
they no longer have any interest orpersonality in the arbitration case. Thus, there is no longer any
need to resolve the present Petition, which mainly questions the inclusion of petitioners in the
arbitration proceedings."64 The court’s decision in this case will no longer have any effect on the
issue of petitioners’ inclusion in the arbitration proceedings.65

The petition must fail.

The Arbitral Tribunal’s decision, absolving petitioners from liability, and its binding effect on BF
Corporation, have rendered this case moot and academic.

The mootness of the case, however, had not precluded us from resolving issues so that principles
may be established for the guidance of the bench, bar, and the public. In De la Camara v. Hon.
Enage,66 this court disregarded the fact that petitioner in that case already escaped from prison and
ruled on the issue of excessive bails:

While under the circumstances a ruling on the merits of the petition for certiorari is notwarranted,
still, as set forth at the opening of this opinion, the fact that this case is moot and academic should
not preclude this Tribunal from setting forth in language clear and unmistakable, the obligation of
fidelity on the part of lower court judges to the unequivocal command of the Constitution that
excessive bail shall not be required.67

This principle was repeated in subsequent cases when this court deemed it proper to clarify
important matters for guidance.68

Thus, we rule that petitioners may be compelled to submit to the arbitration proceedings in
accordance with Shangri-Laand BF Corporation’s agreement, in order to determine if the distinction
between Shangri-La’s personality and their personalities should be disregarded.

This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the parties to avoid litigation
and settle disputes amicably and more expeditiously by themselves and through their choice of
arbitrators.

The policy in favor of arbitration has been affirmed in our Civil Code,69 which was approved as early
as 1949. It was later institutionalized by the approval of Republic Act No. 876,70 which expressly
authorized, made valid, enforceable, and irrevocable parties’ decision to submit their controversies,
including incidental issues, to arbitration. This court recognized this policy in Eastboard Navigation,
Ltd. v. Ysmael and Company, Inc.:71

As a corollary to the question regarding the existence of an arbitration agreement, defendant raises
the issue that, even if it be granted that it agreed to submit its dispute with plaintiff to arbitration, said
agreement is void and without effect for it amounts to removing said dispute from the jurisdiction of
the courts in which the parties are domiciled or where the dispute occurred. It is true that there are
authorities which hold that "a clause in a contract providing that all matters in dispute between the
parties shall be referred to arbitrators and to them alone, is contrary to public policy and cannot oust
the courts of jurisdiction" (Manila Electric Co. vs. Pasay Transportation Co., 57 Phil., 600, 603),
however, there are authorities which favor "the more intelligent view that arbitration, as an
inexpensive, speedy and amicable method of settling disputes, and as a means of avoiding litigation,
should receive every encouragement from the courts which may be extended without contravening
sound public policy or settled law" (3 Am. Jur., p. 835). Congress has officially adopted the modern
view when it reproduced in the new Civil Code the provisions of the old Code on Arbitration. And
only recently it approved Republic Act No. 876 expressly authorizing arbitration of future
disputes.72 (Emphasis supplied)

In view of our policy to adopt arbitration as a manner of settling disputes, arbitration clauses are
liberally construed to favor arbitration. Thus, in LM Power Engineering Corporation v. Capitol
Industrial Construction Groups, Inc.,73 this court said:

Being an inexpensive, speedy and amicable method of settling disputes, arbitration — along with
mediation, conciliation and negotiation — is encouraged by the Supreme Court. Aside from
unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially of the
commercial kind. It is thus regarded as the "wave of the future" in international civil and commercial
disputes. Brushing aside a contractual agreement calling for arbitration between the parties would be
a step backward.

Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods,
courts should liberally construe arbitration clauses. Provided such clause is susceptible of an
interpretation that covers the asserted dispute, an order to arbitrate should be granted. Any doubt
should be resolved in favor of arbitration.74(Emphasis supplied)

A more clear-cut statement of the state policy to encourage arbitration and to favor interpretations
that would render effective an arbitration clause was later expressed in Republic Act No. 9285:75

SEC. 2. Declaration of Policy.- It is hereby declared the policy of the State to actively promote party
autonomy in the resolution of disputes or the freedom of the party to make their own arrangements
to resolve their disputes. Towards this end, the State shall encourage and actively promote the use
of Alternative Dispute Resolution (ADR) as an important means to achieve speedy and impartial
justice and declog court dockets. As such, the State shall provide means for the use of ADR as an
efficient tool and an alternative procedure for the resolution of appropriate cases. Likewise, the State
shall enlist active private sector participation in the settlement of disputes through ADR. This Act
shall be without prejudice to the adoption by the Supreme Court of any ADR system, such as
mediation, conciliation, arbitration, or any combination thereof as a means of achieving speedy and
efficient means of resolving cases pending before all courts in the Philippines which shall be
governed by such rules as the Supreme Court may approve from time to time.

....

SEC. 25. Interpretation of the Act.- In interpreting the Act, the court shall have due regard to the
policy of the law in favor of arbitration.Where action is commenced by or against multiple parties,
one or more of whomare parties who are bound by the arbitration agreement although the civil action
may continue as to those who are not bound by such arbitration agreement. (Emphasis supplied)

Thus, if there is an interpretation that would render effective an arbitration clause for purposes
ofavoiding litigation and expediting resolution of the dispute, that interpretation shall be adopted.
Petitioners’ main argument arises from the separate personality given to juridical persons vis-à-vis
their directors, officers, stockholders, and agents. Since they did not sign the arbitration agreement
in any capacity, they cannot be forced to submit to the jurisdiction of the Arbitration Tribunal in
accordance with the arbitration agreement. Moreover, they had already resigned as directors of
Shangri-Laat the time of the alleged default.
Indeed, as petitioners point out, their personalities as directors of Shangri-La are separate and
distinct from Shangri-La.

A corporation is an artificial entity created by fiction of law.76 This means that while it is not a person,
naturally, the law gives it a distinct personality and treats it as such. A corporation, in the legal
sense, is an individual with a personality that is distinct and separate from other persons including its
stockholders, officers, directors, representatives,77 and other juridical entities. The law vests in
corporations rights,powers, and attributes as if they were natural persons with physical existence
and capabilities to act on their own.78 For instance, they have the power to sue and enter into
transactions or contracts. Section 36 of the Corporation Code enumerates some of a corporation’s
powers, thus:

Section 36. Corporate powers and capacity.– Every corporation incorporated under this Code has
the power and capacity:

1. To sue and be sued in its corporate name;

2. Of succession by its corporate name for the period of time stated in the articles of
incorporation and the certificate ofincorporation;

3. To adopt and use a corporate seal;

4. To amend its articles of incorporation in accordance with the provisions of this Code;

5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the
same in accordance with this Code;

6. In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury
stocks in accordance with the provisions of this Code; and to admit members to the
corporation if it be a non-stock corporation;

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of other
corporations, as the transaction of the lawful business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed by law and the Constitution;

8. To enter into merger or consolidation with other corporations as provided in this Code;

9. To make reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation,
domestic or foreign, shall give donations in aid of any political party or candidate or for
purposes of partisan political activity;

10. To establish pension, retirement, and other plans for the benefit of its directors, trustees,
officers and employees; and

11. To exercise such other powers asmay be essential or necessary to carry out its purpose
or purposes as stated in its articles of incorporation. (13a)
Because a corporation’s existence is only by fiction of law, it can only exercise its rights and powers
through itsdirectors, officers, or agents, who are all natural persons. A corporation cannot sue or
enter into contracts without them.

A consequence of a corporation’s separate personality is that consent by a corporation through its

representatives is not consent of the representative, personally. Its obligations, incurred through
official acts of its representatives, are its own. A stockholder, director, or representative does not
become a party to a contract just because a corporation executed a contract through that
stockholder, director or representative.

Hence, a corporation’s representatives are generally not bound by the terms of the contract
executed by the corporation. They are not personally liable for obligations and liabilities incurred on
or in behalf of the corporation.

Petitioners are also correct that arbitration promotes the parties’ autonomy in resolving their
disputes. This court recognized in Heirs of Augusto Salas, Jr. v. Laperal Realty Corporation79 that an
arbitration clause shall not apply to persons who were neither parties to the contract nor assignees
of previous parties, thus:

A submission to arbitration is a contract. As such, the Agreement, containing the stipulation on

arbitration, binds the parties thereto, as well as their assigns and heirs. But only they.80 (Citations
omitted)

Similarly, in Del Monte Corporation-USA v. Court of Appeals,81 this court ruled:

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 . . . are bound by the Agreement and its arbitration clause as they are the
only signatories thereto.82 (Citation omitted)

This court incorporated these rulings in Agan, Jr. v. Philippine International Air Terminals Co.,
Inc.83 and Stanfilco Employees v. DOLE Philippines, Inc., et al.84

As a general rule, therefore, a corporation’s representative who did not personally bind himself or
herself to an arbitration agreement cannot be forced to participate in arbitration proceedings made
pursuant to an agreement entered into by the corporation. He or she is generally not considered a
party to that agreement.

However, there are instances when the distinction between personalities of directors, officers,and
representatives, and of the corporation, are disregarded. We call this piercing the veil of corporate
fiction.

Piercing the corporate veil is warranted when "[the separate personality of a corporation] is used as
a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation,
the circumvention of statutes, or to confuse legitimate issues."85 It is also warranted in alter ego
cases "where a corporation is merely a farce since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs are so conducted as
to make it merely an instrumentality, agency, conduit or adjunct of another corporation."86
When corporate veil is pierced, the corporation and persons who are normally treated as distinct
from the corporation are treated as one person, such that when the corporation is adjudged liable,
these persons, too, become liable as if they were the corporation.

Among the persons who may be treatedas the corporation itself under certain circumstances are its
directors and officers. Section 31 of the Corporation Code provides the instances when directors,
trustees, or officers may become liable for corporate acts:

Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly
vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or
bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors or trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation, its stockholders or members and other
persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any
interest adverse to the corporation in respect of any matter which has been reposed inhim in
confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be
liable as a trustee for the corporation and must account for the profits which otherwise would have
accrued to the corporation. (n)

Based on the above provision, a director, trustee, or officer of a corporation may be made solidarily
liable with it for all damages suffered by the corporation, its stockholders or members, and other
persons in any of the following cases:

a) The director or trustee willfully and knowingly voted for or assented to a patently unlawful
corporate act;

b) The director or trustee was guilty of gross negligence or bad faith in directing corporate
affairs; and

c) The director or trustee acquired personal or pecuniary interest in conflict with his or her
duties as director or trustee.

Solidary liability with the corporation will also attach in the following instances:

a) "When a director or officer has consented to the issuance of watered stocks or who,
having knowledge thereof, did not forthwith file with the corporate secretary his written
objection thereto";87

b) "When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation";88 and

c) "When a director, trustee or officer is made, by specific provision of law, personally liable
for his corporate action."89

When there are allegations of bad faith or malice against corporate directors or representatives, it
becomes the duty of courts or tribunals to determine if these persons and the corporation should be
treated as one. Without a trial, courts and tribunals have no basis for determining whether the veil of
corporate fiction should be pierced. Courts or tribunals do not have such prior knowledge. Thus, the
courts or tribunals must first determine whether circumstances exist towarrant the courts or tribunals
to disregard the distinction between the corporation and the persons representing it. The
determination of these circumstances must be made by one tribunal or court in a proceeding
participated in by all parties involved, including current representatives of the corporation, and those
persons whose personalities are impliedly the sameas the corporation. This is because when the
court or tribunal finds that circumstances exist warranting the piercing of the corporate veil, the
corporate representatives are treated as the corporation itself and should be held liable for corporate
acts. The corporation’s distinct personality is disregarded, and the corporation is seen as a mere
aggregation of persons undertaking a business under the collective name of the corporation.

Hence, when the directors, as in this case, are impleaded in a case against a corporation, alleging
malice orbad faith on their part in directing the affairs of the corporation, complainants are effectively
alleging that the directors and the corporation are not acting as separate entities. They are alleging
that the acts or omissions by the corporation that violated their rights are also the directors’ acts or
omissions.90 They are alleging that contracts executed by the corporation are contracts executed by
the directors. Complainants effectively pray that the corporate veilbe pierced because the cause of
action between the corporation and the directors is the same.

In that case, complainants have no choice but to institute only one proceeding against the
parties. Under the Rules of Court, filing of multiple suits for a single cause of action is prohibited.
1âwphi1

Institution of more than one suit for the same cause of action constitutes splitting the cause of action,
which is a ground for the dismissal ofthe others. Thus, in Rule 2:

Section 3. One suit for a single cause of action. — A party may not institute more than one suit for a
single cause of action. (3a)

Section 4. Splitting a single cause of action;effect of. — If two or more suits are instituted on the
basis of the same cause of action, the filing of one or a judgment upon the merits in any one is
available as a ground for the dismissal of the others. (4a)

It is because the personalities of petitioners and the corporation may later be found to be indistinct
that we rule that petitioners may be compelled to submit to arbitration.

However, in ruling that petitioners may be compelled to submit to the arbitration proceedings, we are
not overturning Heirs of Augusto Salas wherein this court affirmed the basic arbitration principle that
only parties to an arbitration agreement may be compelled to submit to arbitration. In that case, this
court recognizedthat persons other than the main party may be compelled to submit to arbitration,
e.g., assignees and heirs. Assignees and heirs may be considered parties to an arbitration
agreement entered into by their assignor because the assignor’s rights and obligations are
transferred to them upon assignment. In other words, the assignor’s rights and obligations become
their own rights and obligations. In the same way, the corporation’s obligations are treated as the
representative’s obligations when the corporate veil is pierced. Moreover, in Heirs of Augusto Salas,
this court affirmed its policy against multiplicity of suits and unnecessary delay. This court said that
"to split the proceeding into arbitration for some parties and trial for other parties would "result in
multiplicity of suits, duplicitous procedure and unnecessary delay."91 This court also intimated that the
interest of justice would be best observed if it adjudicated rights in a single proceeding.92 While the
facts of that case prompted this court to direct the trial court to proceed to determine the issues of
thatcase, it did not prohibit courts from allowing the case to proceed to arbitration, when
circumstances warrant.

Hence, the issue of whether the corporation’s acts in violation of complainant’s rights, and the
incidental issue of whether piercing of the corporate veil is warranted, should be determined in a
single proceeding. Such finding would determine if the corporation is merely an aggregation of
persons whose liabilities must be treated as one with the corporation.

However, when the courts disregard the corporation’s distinct and separate personality from its
directors or officers, the courts do not say that the corporation, in all instances and for all purposes,
is the same as its directors, stockholders, officers, and agents. It does not result in an absolute
confusion of personalities of the corporation and the persons composing or representing it. Courts
merely discount the distinction and treat them as one, in relation to a specific act, in order to extend
the terms of the contract and the liabilities for all damages to erring corporate officials who
participated in the corporation’s illegal acts. This is done so that the legal fiction cannot be used to
perpetrate illegalities and injustices.

Thus, in cases alleging solidary liability with the corporation or praying for the piercing of the
corporate veil, parties who are normally treated as distinct individuals should be made to participate
in the arbitration proceedings in order to determine ifsuch distinction should indeed be disregarded
and, if so, to determine the extent of their liabilities.

In this case, the Arbitral Tribunal rendered a decision, finding that BF Corporation failed to prove the
existence of circumstances that render petitioners and the other directors solidarily liable. It ruled
that petitioners and Shangri-La’s other directors were not liable for the contractual obligations of
Shangri-La to BF Corporation. The Arbitral Tribunal’s decision was made with the participation of
petitioners, albeit with their continuing objection. In view of our discussion above, we rule that
petitioners are bound by such decision.

WHEREFORE, the petition is DENIED. The Court of Appeals' decision of May 11, 2006 and
resolution of October 5, 2006 are AFFIRMED.

SO ORDERED.

MARVIC M.V.F. LEONEN

Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.*

Associate Justice

ARTURO D. BRION
DIOSDADO M.PERALTA**
Associate Justice
Associate Justice
Chairperson

JOSE CATRAL MENDOZA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.
ARTURO D. BRION
Associate Justice
ActingChairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Acting Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.

ANTONIO T. CARPIO
Acting Chief Justice

Footnotes

SECOND DIVISION

[G.R. NO. 135362. December 13, 1999]

HEIRS OF AUGUSTO L. SALAS, JR., namely: TERESITA D. SALAS for

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

DECISION
DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Order[1] of Branch 85 of the

Regional Trial Court of Lipa City[2] dismissing petitioners complaint[3] for rescission of
several sale transactions involving land owned by Augusto L. Salas, Jr., their
predecessor-in-interest, on the ground that they failed to first resort to arbitration.
 Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas
spanning 1,484,354 square meters.
On May 15, 1987, he entered into an Owner-Contractor Agreement[4] (hereinafter
referred to as the Agreement) with respondent Laperal Realty Corporation (hereinafter
referred to as Laperal Realty) to render and provide complete (horizontal) construction
services on his land.
On September 23, 1988, Salas, Jr. executed a Special Power of Attorney in favor of
respondent Laperal Realty to exercise general control, supervision and management of
the sale of his land, for cash or on installment basis.
On June 10, 1989, Salas, Jr. left his home in the morning for a business trip to Nueva
Ecija. He never returned.
On August 6, 1996, Teresita Diaz Salas filed with the Regional Trial Court of
Makati City a verified petition for the declaration of presumptive death of her husband,
Salas, Jr., who had then been missing for more than seven (7) years. It was granted on
December 12, 1996.[5]
Meantime, respondent Laperal Realty subdivided the land of Salas, Jr. and sold
subdivided portions thereof to respondents Rockway Real Estate Corporation and South
Ridge Village, Inc. on February 22, 1990; to respondent spouses Abrajano and Lava
and Oscar Dacillo on June 27, 1991; and to respondents Eduardo Vacuna, Florante de
la Cruz and Jesus Vicente Capalan on June 4, 1996 (all of whom are hereinafter referred
to as respondent lot buyers).
On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the Regional Trial
Court of Lipa City a Complaint[6] for declaration of nullity of sale, reconveyance,
cancellation of contract, accounting and damages against herein respondents which was
docketed as Civil Case No. 98-0047.
On April 24, 1998, respondent Laperal Realty filed a Motion to Dismiss[7]on the
ground that petitioners failed to submit their grievance to arbitration as required under
Article VI of the Agreement which provides:

ARTICLE VI. ARBITRATION.

All cases of dispute between CONTRACTOR and OWNERS representative shall be

referred to the committee represented by:

a. One representative of the OWNER;

b. One representative of the CONTRACTOR;
c. One representative acceptable to both OWNER and CONTRACTOR.[8]
 On May 5, 1998, respondent spouses Abrajano and Lava and respondent Dacillo
filed a Joint Answer with Counterclaim and Crossclaim[9] praying for dismissal of
petitioners Complaint for the same reason.
On August 9, 1998, the trial court issued the herein assailed Order dismissing
petitioners Complaint for non-compliance with the foregoing arbitration clause.
Hence this petition.
Petitioners argue, thus:

The petitioners causes of action did not emanate from the Owner-Contractor
Agreement.

The petitioners causes of action for cancellation of contract and accounting are
covered by the exception under the Arbitration Law.

Failure to arbitrate is not a ground for dismissal.[10]

In a catena of cases[11] inspired by Justice Malcolms provocative dissent in Vega v.

San Carlos Milling Co.[12], this Court has recognized arbitration agreements as valid,
binding, enforceable and not contrary to public policy so much so that when there
obtains a written provision for arbitration which is not complied with, the trial court
should suspend the proceedings and order the parties to proceed to arbitration in
accordance with the terms of their agreement[13] Arbitration is the wave of the future in
dispute resolution.[14] To brush aside a contractual agreement calling for arbitration in
case of disagreement between parties would be a step backward.[15]
Nonetheless, we grant the petition.
A submission to arbitration is a contract.[16] As such, the Agreement, containing the
stipulation on arbitration, binds the parties thereto, as well as their assigns and
heirs.[17] But only they. Petitioners, as heirs of Salas, Jr., and respondent Laperal Realty
are certainly bound by the Agreement. If respondent Laperal Realty, had assigned its
rights under the Agreement to a third party, making the former, the assignor, and the
latter, the assignee, such assignee would also be bound by the arbitration provision since
assignment involves such transfer of rights as to vest in the assignee the power to
enforce them to the same extent as the assignor could have enforced them against the
debtor[18] or in this case, against the heirs of the original party to the
Agreement. However, respondents Rockway Real Estate Corporation, South Ridge
Village, Inc., Maharami Development Corporation, spouses Abrajano, spouses Lava,
Oscar Dacillo, Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capellan
are not assignees of the rights of respondent Laperal Realty under the Agreement to
develop Salas, Jr.s land and sell the same. They are, rather, buyers of the land that
respondent Laperal Realty was given the authority to develop and sell under the
Agreement. As such, they are not assigns contemplated in Art. 1311 of the New Civil
Code which provides that contracts take effect only between the parties, their assigns
and heirs.
Petitioners claim that they suffered lesion of more than one-fourth (1/4) of the value
of Salas, Jr.s land when respondent Laperal Realty subdivided it and sold portions
thereof to respondent lot buyers.Thus, they instituted action [19]against both respondent
Laperal Realty and respondent lot buyers for rescission of the sale transactions and
reconveyance to them of the subdivided lots. They argue that rescission, being their
cause of action, falls under the exception clause in Sec. 2 of Republic Act No. 876
which provides that such submission [to] or contract [of arbitration] shall be valid,
enforceable and irrevocable, save upon such grounds as exist at law for the
revocation of any contract.
The petitioners contention is without merit. For while rescission, as a general rule,
is an arbitrable issue,[20] they impleaded in the suit for rescission the respondent lot
buyers who are neither parties to the Agreement nor the latters assigns or
heirs. Consequently, the right to arbitrate as provided in Article VI of the Agreement
was never vested in respondent lot buyers.
Respondent Laperal Realty, as a contracting party to the Agreement, has the right
to compel petitioners to first arbitrate before seeking judicial relief. However, to split
the proceedings into arbitration for respondent Laperal Realty and trial for the
respondent lot buyers, or to hold trial in abeyance pending arbitration between
petitioners and respondent Laperal Realty, would in effect result in multiplicity of suits,
duplicitous procedure and unnecessary delay. On the other hand, it would be in the
interest of justice if the trial court hears the complaint against all herein respondents
and adjudicates petitioners rights as against theirs in a single and complete proceeding.
WHEREFORE, the instant petition is hereby GRANTED. The Order dated
August 19, 1998 of Branch 85 of the Regional Trial Court of Lipa City is hereby
NULLIFIED and SET ASIDE. Said court is hereby ordered to proceed with the hearing
of Civil Case No. 98-0047.
Costs against private respondents.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

SECOND DIVISION
 [G.R. No. 129916. March 26, 2001]

MAGELLAN CAPITAL MANAGEMENT CORPORATION and

MAGELLAN CAPITAL HOLDINGS CORPORATION, petitioners,
vs. ROLANDO M. ZOSA and HON. JOSE P. SOBERANO, JR., in his
capacity as Presiding Judge of Branch 58 of the Regional Trial Court Of
Cebu, 7th Judicial Region, respondents.

DECISION
BUENA, J.:

Under a management agreement entered into on March 18, 1994, Magellan Capital Holdings
Corporation [MCHC] appointed Magellan Capital Management Corporation [MCMC] as manager
for the operation of its business and affairs.[1] Pursuant thereto, on the same month, MCHC,
MCMC, and private respondent Rolando M. Zosa entered into an "Employment Agreement"
designating Zosa as President and Chief Executive Officer of MCHC.
Under the "Employment Agreement", the term of respondent Zosa's employment shall be co-
terminous with the management agreement, or until March 1996,[2] unless sooner terminated
pursuant to the provisions of the Employment Agreement.[3] The grounds for termination of
employment are also provided in the Employment Agreement.
On May 10, 1995, the majority of MCHCs Board of Directors decided not to re-elect
respondent Zosa as President and Chief Executive Officer of MCHC on account of loss of trust
and confidence[4]arising from alleged violation of the resolution issued by MCHC's board of
directors and of the non-competition clause of the Employment Agreement.[5] Nevertheless,
respondent Zosa was elected to a new position as MCHC's Vice-Chairman/Chairman for New
Ventures Development.[6]
On September 26, 1995, respondent Zosa communicated his resignation for good reason from
the position of Vice-Chairman under paragraph 7 of the Employment Agreement on the ground
that said position had less responsibility and scope than President and Chief Executive Officer. He
demanded that he be given termination benefits as provided for in Section 8 (c) (i) (ii) and (iii) of
the Employment Agreement.[7]
In a letter dated October 20, 1995, MCHC communicated its non-acceptance of respondent
Zosa's resignation for good reason, but instead informed him that the Employment Agreement is
terminated for cause, effective November 19, 1995, in accordance with Section 7 (a) (v) of the said
agreement, on account of his breach of Section 12 thereof. Respondent Zosa was further advised
that he shall have no further rights under the said Agreement or any claims against the Manager or
the Corporation except the right to receive within thirty (30) days from November 19, 1995, the
amounts stated in Section 8 (a) (i) (ii) of the Agreement.[8]
Disagreeing with the position taken by petitioners, respondent Zosa invoked the Arbitration
Clause of the Employment Agreement, to wit:
23. Arbitration. In the event that any dispute, controversy or claim arises out of or
under any provisions of this Agreement, then the parties hereto agree to submit such
dispute, controversy or claim to arbitration as set forth in this Section and the
determination to be made in such arbitration shall be final and binding. Arbitration
shall be effected by a panel of three arbitrators. The Manager, Employee and
Corporation shall designate one (1) arbitrator who shall, in turn, nominate and elect
who among them shall be the chairman of the committee. Any such arbitration,
including the rendering of an arbitration award, shall take place in Metro Manila. The
arbitrators shall interpret this Agreement in accordance with the substantive laws of
the Republic of the Philippines. The arbitrators shall have no power to add to, subtract
from or otherwise modify the terms of Agreement or to grant injunctive relief of any
nature. Any judgment upon the award of the arbitrators may be entered in any court
having jurisdiction thereof, with costs of the arbitration to be borne equally by the
parties, except that each party shall pay the fees and expenses of its own counsel in
the arbitration.

On November 10, 1995, respondent Zosa designated his brother, Atty. Francis Zosa, as his
representative in the arbitration panel[9] while MCHC designated Atty. Inigo S. Fojas[10] and
MCMC nominated Atty. Enrique I. Quiason[11] as their respective representatives in the arbitration
panel. However, instead of submitting the dispute to arbitration, respondent Zosa, on April 17,
1996, filed an action for damages against petitioners before the Regional Trial Court of Cebu[12] to
enforce his benefits under the Employment Agreement.
On July 3, 1996, petitioners filed a motion to dismiss[13] arguing that (1) the trial court has no
jurisdiction over the instant case since respondent Zosa's claims should be resolved through
arbitration pursuant to Section 23 of the Employment Agreement with petitioners; and (2) the
venue is improperly laid since respondent Zosa, like the petitioners, is a resident of Pasig City and
thus, the venue of this case, granting without admitting that the respondent has a cause of action
against the petitioners cognizable by the RTC, should be limited only to RTC-Pasig City.[14]
Meanwhile, respondent Zosa filed an amended complaint dated July 5, 1996.
On August 1, 1996, the RTC Branch 58 of Cebu City issued an Order denying petitioners
motion to dismiss upon the findings that (1) the validity and legality of the arbitration provision
can only be determined after trial on the merits; and (2) the amount of damages claimed, which is
over P100,000.00, falls within the jurisdiction of the RTC.[15] Petitioners filed a motion for
reconsideration which was denied by the RTC in an order dated September 5, 1996.[16]
In the interim, on August 22, 1996, in compliance with the earlier order of the court directing
petitioners to file responsive pleading to the amended complaint, petitioners filed their Answer Ad
Cautelamwith counterclaim reiterating their position that the dispute should be settled through
arbitration and the court had no jurisdiction over the nature of the action.[17]
On October 21, 1996, the trial court issued its pre-trial order declaring the pre-trial stage
terminated and setting the case for hearing. The order states:

ISSUES:
The Court will only resolve one issue in so far as this case is concerned, to wit:

Whether or not the Arbitration Clause contained in Sec.23 of the Employment

Agreement is void and of no effect: and, if it is void and of no effect, whether or not
the plaintiff is entitled to damages in accordance with his complaint and the
defendants in accordance with their counterclaim.

It is understood, that in the event the arbitration clause is valid and binding between
the parties, the parties shall submit their respective claim to the Arbitration Committee
in accordance with the said arbitration clause, in which event, this case shall be
deemed dismissed.[18]

On November 18, 1996, petitioners filed their Motion Ad Cautelam for the Correction,
Addition and Clarification of the Pre-trial Order dated November 15 1996,[19] which was denied by
the court in an order dated November 28, 1996.[20]
Thereafter, petitioners MCMC and MCHC filed a Motion Ad Cautelam for the parties to file
their Memoranda to support their respective stand on the issue of the validity of the arbitration
clause contained in the Employment Agreement. In an order dated December 13, 1996, the trial
court denied the motion of petitioners MCMC and MCHC.
On January 17, 1997, petitioners MCMC and MCHC filed a petition for certiorari and
prohibition under Rule 65 of the Rules of Court with the Court of Appeals, questioning the trial
court orders dated August 1, 1996, September 5, 1996, and December 13, 1996.[21]
On March 21, 1997, the Court of Appeals rendered a decision, giving due course to the
petition, the decretal portion of which reads:

WHEREFORE, the petition is GIVEN DUE COURSE. The respondent court is

directed to resolve the issue on the validity or effectivity of the arbitration clause in
the Employment Agreement, and to suspend further proceedings in the trial on the
merits until the said issue is resolved. The questioned orders are set aside insofar as
they contravene this Courts resolution of the issues raised as herein pronounced.

The petitioner is required to remit to this Court the sum of P81.80 for cost within five
(5) days from notice.

SO ORDERED.[22]

Petitioners filed a motion for partial reconsideration of the CA decision praying (1) for the
dismissal of the case in the trial court, on the ground of lack of jurisdiction, and (2) that the parties
be directed to submit their dispute to arbitration in accordance with the Employment
Agreement dated March 1994. The CA, in a resolution promulgated on June 20, 1997, denied the
motion for partial reconsideration for lack of merit.
 In compliance with the CA decision, the trial court, on July 18, 1997, rendered a decision
declaring the arbitration clause in the Employment Agreement partially void and of no effect. The
dispositive portion of the decision reads:

WHEREFORE, premises considered, judgment is hereby rendered partially declaring

the arbitration clause of the Employment Agreement void and of no effect, only
insofar as it concerns the composition of the panel of arbitrators, and directing the
parties to proceed to arbitration in accordance with the Employment Agreement under
the panel of three (3) arbitrators, one for the plaintiff, one for the defendants, and the
third to be chosen by both the plaintiff and defendants. The other terms, conditions
and stipulations in the arbitration clause remain in force and effect."[23]

In view of the trial courts decision, petitioners filed this petition for review on certiorari, under
Rule 45 of the Rules of Court, assigning the following errors for the Courts resolution:

I. The trial court gravely erred when it ruled that the arbitration clause under the
employment agreement is partially void and of no effect, considering that:

A. The arbitration clause in the employment agreement dated March 1994 between respondent
Zosa and defendants MCHC and MCMC is valid and binding upon the parties thereto.
B. In view of the fact that there are three parties to the employment agreement, it is but proper
that each party be represented in the arbitration panel.
C. The trial court grievously erred in its conclusion that petitioners MCMC and MCHC represent
the same interest.
D. Respondent Zosa is estopped from questioning the validity of the arbitration clause, including
the right of petitioner MCMC to nominate its own arbitrator, which he himself has invoked.

II. In any event, the trial court acted without jurisdiction in hearing the case below,
considering that it has no jurisdiction over the nature of the action or suit since
controversies in the election or appointment of officers or managers of a corporation,
such as the action brought by respondent Zosa, fall within the original and exclusive
jurisdiction of the Securities and Exchange Commission.

III. Contrary to respondent Zosas allegation, the issue of the trial courts jurisdiction
over the case below has not yet been resolved with finality considering that petitioners
have expressly reserved their right to raise said issue in the instant petition. Moreover,
the principle of the law of the case is not applicable in the instant case.

IV. Contrary to respondent Zosas allegation, petitioners MCMC and MCHC are not
guilty of forum shopping.

V. Contrary to respondent Zosas allegation, the instant petition for review involves
only questions of law and not of fact.[24]
 We rule against the petitioners.
It is error for the petitioners to claim that the case should fall under the jurisdiction of the
Securities and Exchange Commission [SEC, for brevity]. The controversy does not in anyway
involve the election/appointment of officers of petitioner MCHC, as claimed by petitioners in their
assignment of errors. Respondent Zosas amended complaint focuses heavily on the illegality of
the Employment Agreements Arbitration Clause initially invoked by him in seeking his termination
benefits under Section 8 of the employment contract. And under Republic Act No. 876, otherwise
known as the Arbitration Law, it is the regional trial court which exercises jurisdiction over
questions relating to arbitration. We thus advert to the following discussions made by the Court of
Appeals, speaking thru Justice Minerva P. Gonzaga-Reyes,[25] in C.A.-G.R. S.P. No. 43059, viz:

As regards the fourth assigned error, asserting that jurisdiction lies with the SEC,
which is raised for the first time in this petition, suffice it to state that the Amended
Complaint squarely put in issue the question whether the Arbitration Clause is valid
and effective between the parties. Although the controversy which spawned the action
concerns the validity of the termination of the service of a corporate officer, the issue
on the validity and effectivity of the arbitration clause is determinable by the regular
courts, and do not fall within the exclusive and original jurisdiction of the SEC.

The determination and validity of the agreement is not a matter intrinsically connected
with the regulation and internal affairs of corporations (see Pereyra vs. IAC, 181
SCRA 244; Sales vs. SEC, 169 SCRA 121); it is rather an ordinary case to be decided
in accordance with the general laws, and do not require any particular expertise or
training to interpret and apply (Viray vs. CA, 191 SCRA 308).[26]

Furthermore, the decision of the Court of Appeals in CA-G.R. SP No. 43059 affirming the
trial courts assumption of jurisdiction over the case has become the law of the case which now
binds the petitioners. The law of the case doctrine has been defined as a term applied to an
established rule that when an appellate court passes on a question and remands the cause to the
lower court for further proceedings, the question there settled becomes the law of the case upon
subsequent appeal.[27] To note, the CAs decision in CA-G.R. SP No. 43059 has already attained
finality as evidenced by a Resolution of this Court ordering entry of judgment of said case, to wit:

ENTRY OF JUDGMENT

This is to certify that on September 8, 1997 a decision/resolution rendered in the

above-entitled case was filed in this Office, the dispositive part of which reads as
follows:

G.R. No. 129615 (Magellan Capital Management Corporation, et al. vs. Court of
Appeals, Rolando Zosa, et al.).- Considering the petitioners manifestation dated
August 11, 1997 and withdrawal of intention to file petition for review on certiorari,
the Court Resolved to DECLARE THIS CASE TERMINATED and DIRECT the
Clerk of Court to INFORM the parties that the judgment sought to be reviewed has
become final and executory, no appeal therefore having been timely perfected.

and that the same has, on September 17, 1997, become final and executory and is
hereby recorded in the Book of Entries of Judgments. [28]

Petitioners, therefore, are barred from challenging anew, through another remedial measure and in
any other forum, the authority of the regional trial court to resolve the validity of the arbitration
clause, lest they be truly guilty of forum-shopping which the courts consistently consider as a
contumacious practice that derails the orderly administration of justice.
Equally unavailing for the petitioners is the review by this Court, via the instant petition, of
the factual findings made by the trial court that the composition of the panel of arbitrators would,
in all probability, work injustice to respondent Zosa. We have repeatedly stressed that the
jurisdiction of this Court in a petition for review on certiorari under Rule 45 of the Revised Rules
of Court is limited to reviewing only errors of law, not of fact, unless the factual findings
complained of are devoid of support by the evidence on record, or the assailed judgment is based
on misapprehension of facts.[29]
Even if procedural rules are disregarded, and a scrutiny of the merits of the case is undertaken,
this Court finds the trial courts observations on why the composition of the panel of arbitrators
should be voided, incisively correct so as to merit our approval. Thus,

From the memoranda of both sides, the Court is of the view that the defendants
[petitioner] MCMC and MCHC represent the same interest. There is no quarrel that
both defendants are entirely two different corporations with personalities distinct and
separate from each other and that a corporation has a personality distinct and separate
from those persons composing the corporation as well as from that of any other legal
entity to which it may be related.

But as the defendants [herein petitioner] represent the same interest, it could never be
expected, in the arbitration proceedings, that they would not protect and preserve their
own interest, much less, would both or either favor the interest of the plaintiff. The
arbitration law, as all other laws, is intended for the good and welfare of everybody. In
fact, what is being challenged by the plaintiff herein is not the law itself but the
provision of the Employment Agreement based on the said law, which is the
arbitration clause but only as regards the composition of the panel of arbitrators. The
arbitration clause in question provides, thus:

In the event that any dispute, controversy or claim arise out of or under any provisions
of this Agreement, then the parties hereto agree to submit such dispute, controversy or
claim to arbitration as set forth in this Section and the determination to be made in
such arbitration shall be final and binding. Arbitration shall be effected by a panel of
three arbitrators. The Manager, Employee, and Corporation shall designate one (1)
arbitrator who shall, in turn, nominate and elect as who among them shall be the
chairman of the committee. Any such arbitration, including the rendering of an
arbitration award, shall take place in Metro Manila. The arbitrators shall interpret this
Agreement in accordance with the substantive laws of the Republic of the
Philippines. The arbitrators shall have no power to add to, subtract from or otherwise
modify the terms of this Agreement or to grant injunctive relief of any nature. Any
judgment upon the award of the arbitrators may be entered in any court having
jurisdiction thereof, with costs of the arbitration to be borne equally by the parties,
except that each party shall pay the fees and expenses of its own counsel in the
arbitration. (Emphasis supplied).

From the foregoing arbitration clause, it appears that the two (2) defendants
[petitioners] (MCMC and MCHC) have one (1) arbitrator each to compose the panel
of three (3) arbitrators. As the defendant MCMC is the Manager of defendant MCHC,
its decision or vote in the arbitration proceeding would naturally and certainly be in
favor of its employer and the defendant MCHC would have to protect and preserve its
own interest; hence, the two (2) votes of both defendants (MCMC and MCHC) would
certainly be against the lone arbitrator for the plaintiff [herein defendant]. Hence,
apparently, plaintiff [defendant] would never get or receive justice and fairness in the
arbitration proceedings from the panel of arbitrators as provided in the aforequoted
arbitration clause. In fairness and justice to the plaintiff [defendant], the two
defendants (MCMC and MCHC)[herein petitioners] which represent the same interest
should be considered as one and should be entitled to only one arbitrator to represent
them in the arbitration proceedings. Accordingly, the arbitration clause, insofar as the
composition of the panel of arbitrators is concerned should be declared void and of no
effect, because the law says, Any clause giving one of the parties power to choose
more arbitrators than the other is void and of no effect (Article 2045, Civil Code).

The dispute or controversy between the defendants (MCMC and MCHC) [herein
petitioners] and the plaintiff [herein defendant] should be settled in the arbitration
proceeding in accordance with the Employment Agreement, but under the panel of
three (3) arbitrators, one (1) arbitrator to represent the plaintiff, one (1) arbitrator to
represent both defendants (MCMC and MCHC)[herein petitioners] and the third
arbitrator to be chosen by the plaintiff [defendant Zosa] and defendants [petitioners].

x x x x x x x x x[30]
In this connection, petitioners attempt to put respondent in estoppel in assailing the arbitration
clause must be struck down. For one, this issue of estoppel, as likewise noted by the Court of
Appeals, found its way for the first time only on appeal. Well-settled is the rule that issues not
raised below cannot be resolved on review in higher courts.[31] Secondly, employment agreements
such as the one at bar are usually contracts of adhesion. Any ambiguity in its provisions is generally
resolved against the party who drafted the document. Thus, in the relatively recent case of Phil.
Federation of Credit Cooperatives, Inc. (PFCCI) and Fr. Benedicto Jayoma vs. NLRC and
Victoria Abril,[32] we had the occasion to stress that where a contract of employment, being a
contract of adhesion, is ambiguous, any ambiguity therein should be construed strictly against the
party who prepared it. And, finally, respondent Zosa never submitted himself to arbitration
proceedings (as there was none yet) before bewailing the composition of the panel of
arbitrators. He in fact, lost no time in assailing the arbitration clause upon realizing the inequities
that may mar the arbitration proceedings if the existing line-up of arbitrators remained unchecked.
We need only to emphasize in closing that arbitration proceedings are designed to level the
playing field among the parties in pursuit of a mutually acceptable solution to their conflicting
claims. Any arrangement or scheme that would give undue advantage to a party in the negotiating
table is anathema to the very purpose of arbitration and should, therefore, be resisted.
WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of
the trial court dated July 18, 1997 is AFFIRMED.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, and De Leon, Jr., JJ., concur.
Quisumbing, J., on leave.

[1]
Section 1 of Amended and Restated Management Agreement, Annex, "B," Rollo p. 74.
[2]
par. 2 of the Pre-Trial Order dated October 21, 1996; Annex "BB," Rollo, p. 241.
[3]
Annex "C" of Petition, Rollo, pp.89-101; 217 - 229.
[4]
par. 5 of Petitioner's Memorandum, Rollo, p. 560.
[5]
par. 5.1 - 6.4, ibid., Rollo, pp. 560-562.
[6]
par. 4, ibid., Rollo, p. 559.
[7]
par. 6-7, Amended Complaint, Rollo, pp. 173-174; p. 562.
[8]
Annex "O" of Petition, Rollo, p. 130.
[9]
Annex "P" of Petition, Rollo, p. 131.
[10]
Annex "R" of Petition, Rollo, p. 133.
[11]
Annex "Q" of Petition, Rollo, p. 132.
[12]
Annex "BB," Rollo, p. 241.
[13]
Annex "S," Rollo, pp. 134- 145.
[14]
Annex "U," Rollo, p. 179.
[15]
Annex "X," Rollo, p. 185 - 186.
[16]
Annex AA, Rollo, p. 240.
[17]
Par. 9, Petitioners Memorandum, Rollo, p. 566.
[18]
Pre-trial Order, Annex BB, Rollo, pp. 241-243.
[19]
Annex CC, Rollo, pp. 248; 566-567.
[20]
Annex DD, Rollo, p. 252.
[21]
The issues submitted to the Court of Appeals are as follows:
I.
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION WHEN IT ISSUED THE QUESTIONED ORDERS DATED 1 AUGUST 1996 (ANNEX A), 05
SEPTEMBER 1996 (ANNEX B) AND 13 DECEMBER 1996 (ANNEX C) WHICH DEFERRED THE
RESOLUTION OF THE ISSUE REGARDING THE VALIDITY OF THE ARBITRATION CLAUSE IN THE
EMPLOYMENT AGREEMENT UNTIL AFTER TRIAL ON THE MERITS.
II.
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION WHEN IT FAILED TO RULE THAT THE ARBITRATION CLAUSE UNDER THE
EMPLOYMENT AGREEMENT IS VALID AND BINDING ON THE PARTIES THERETO.
III.
RESPONDENT COURT ACTED WITHOUT OR IN EXCESS OF JURISDICTION WHEN IT TOOK
COGNIZANCE OF RESPONDENT ZOSAS AMENDED COMPLAINT INSTEAD OF REFERRING THE SAME
IMMEDIATELY TO ARBITRATION PURSUANT TO THE EMPLOYMENT AGREEMENT BETWEEN
PETITIONERS AND RESPONDENT ZOSA.
IV.
IN ANY EVENT, RESPONDENT COURT ACTED AND IS CONTINUING TO ACT WITHOUT JURISDICTION
IN HEARING THE CASE BELOW, CONSIDERING THAT IT HAS NO JURISDICTION OVER THE NATURE
OF THE ACTION OR SUIT SINCE CONTROVERSIES IN THE ELECTION OR APPOINTMENT OF OFFICERS
OR MANAGERS OF A CORPORATION, SUCH AS THE ACTION BROUGHT BY RESPONDENT ZOSA, FALL
WITHIN THE ORIGINAL AND EXCLUSIVE JURISDICTION OF THE SECURITIES AND EXCHANGE
COMMISSION.
V.
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION WHEN IT REFUSED TO DISMISS THE ACTION BELOW FOR IMPROPER VENUE.
VI.
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION WHEN IT FAILED TO DISMISS THE AMENDED COMPLAINT FOR LACK OF THE
REQUISITE CERTIFICATION OF NON-FORUM SHOPPING.
Court of Appeals Decision, pp. 5-6; Rollo, pp. 316-317.
[22]
Ibid., pp. 329-330.
[23]
Annex A, RTC Decision, pp. 72-73.
[24]
Rollo, pp. 571-573.
[25]
Now Associate Justice of this Court.
[26]
Court of Appeals Decision, p. 16; Rollo, p. 321.
[27]
Loevillo C. Agustin vs. Court of Appeals and Filinvest Finance Corporation, 271 SCRA 457 [1997].
[28]
Rollo, p. 350.
[29]
Congregation of the Religious of the Virgin Mary vs. CA, 291 SCRA 385 [1998].
[30]
Rollo, pp. 71-72.
[31]
Casolita, Sr. vs. Court of Appeals, 275 SCRA 257 [1997]; Manalili vs. Court of Appeals, 280 SCRA 400 [1997].
[32]
G.R. No. 121071, December 11, 1998.

THIRD DIVISION

[G.R. No. 127004. March 11, 1999]

NATIONAL STEEL CORPORATION, petitioner, vs. THE REGIONAL

TRIAL COURT OF LANAO DEL NORTE, BRANCH 2, ILIGAN CITY
and E. WILLKOM ENTERPRISES, INC., respondents.

DECISION
PURISIMA, J.:

Before the Court is a Petition for Certiorari with Prayer for Preliminary Injunction &
Temporary Restraining Order under Rule 65 of the Revised Rules of Court assailing the decision
of the Regional Trial Court of Lanao del Norte, Branch 2, Iligan City, on the following
consolidated cases :
(a) Special Proceeding Case No. 2206 entitled National Steel Corporation vs E. Willkom
Enterprise Inc to Vacate Arbitrators Award; and;
(b) Civil Case No. 2198 entitled to E. Willkom Enterprises Inc. vs National Steel
Corporation for Sum of Money with application for Confirmation of Arbitrators Award.
The facts as found below are, as follows:

"xxx On Nov. 18, 1992, petitioner-defendant Edward Wilkom Enterprises Inc. (EWEI
for brevity) together with one Ramiro Construction and respondent-petitioner
National Steel Corporation (NSC for short) executed a contract whereby the former
jointly undertook the Contract for Site Development (Exhs. "3" & "D") for the latter's
Integrated Iron and Steel Mills Complex to be established at Iligan City.

Sometime in the year 1983, the services of Ramiro Construction was terminated and
on March 7, 1983, petitioner-defendant EWEI took over Ramiro's contractual
obligation. Due to this and to other causes deemed sufficient by EWEI, extensions of
time for the termination of the project, initially agreed to be finished on July 17, 1983,
were granted by NSC.
Differences later arose, Plaintiff-defendant EWEI filed Civil Case No. 1615 before the
Regional Trial Court of Lanao del Norte, Branch 06, (Exhs. "A" and "1") praying
essentially for the payments of P458,381.001 with interest from the time of delay; the
price adjustment as provided by PD 1594; and exemplary damages in the amount
of P50,000.00 and attorney's fees.

Defendant-petitioner NSC filed an answer with counterclaim to plaintiff's complaints

on May 18, 1990.

On August 21, 1990, the Honorable Court through Presiding Judge Valario M. Salazar
upon joint motion of both parties had issued an order (Exhs. "C" and "3") dismissing
the said complaint and counterclaim x x x in view of the desire of both parties to
implement Sec. 19 of the contract, providing for a resolution of any conflict by
arbitration x x x . ( underscoring supplied).

In accordance with the aforesaid order, and pursuant to Sec. 19 of the Contract for
Site Development (id) the herein parties constituted an Arbitration Board composed of
the following:

(a) Engr. Pafnucio M. Mejia as Chairman, who was nominated by the two
arbitrators earlier nominated by EWEI and NSC with an Oath of Office (Exh.
"E");

(b) Engr. Eutaquio 0. Lagapa, Jr., member, who was nominated by EWEI with
an oath office (Exh. "F")

(c) Engr. Gil A. Aberilia, a member who was nominated by NSC, with an
Oath of Office (Exh. "G").

After series of hearings, the Arbitrators rendered the decision (Exh. "H" & "4") which
is the subject matter of these present causes of action, both initiated separately by the
herein contending parties, substantial portion of which directs NSC to pay EWEI, as
follows:

(a) P458,381.00 representing EWEI's last billing No. 16 with interest thereon
at the rate of 1-1/4% per month from January 1, 1985 to actual date of
payment;

(b) P1,335,514.20 representing price escalation adjustment under PD No.

1594, with interest thereon at the rate of 1-1/4 % per month from January 1,
1985 to actual date of payment;
 (c) P50,000 as and for exemplary damages;

(d) P350,000 as and for attorney's fees.; and

(e) P35,000.00 as and for cost of arbitration."[1]

The Regional Trial Court of Lanao del Norte Branch 2, Iligan City through Judge Maximo B.
Ratunil, rendered judgment as follows:
(1) In Civil Case No. 11-2198, declaring the award of the Board of Arbitrators, dated April 21,
1992 to be duly AFFIRMED and CONFIRMED "en toto" ; that an entry of judgment be
entered therewith pursuant to Republic Act No. 876 (the Arbitration Law); and costs against
respondent National Steel Corporation.
(2) In Special Proceeding No. 11-2206, ordering the petition to vacate the aforesaid award be
DISMISSED.

SO ORDERED.[2] "

With the denial on October 18, 1996 of its Motion for Reconsideration, the National Steel
Corporation (NSC) has come to this court via the present petition.
After deliberating on the petition as well as the comment and reply thereon, the court gave
due course to the petition and considered the case ripe for decision.
The pivot of inquiry here is whether or not the lower court acted with grave abuse of
discretion in not vacating the arbitrator's award.
A stipulation to refer all future disputes or to submit an ongoing dispute to an arbitrator is
valid. Republic Act 876, otherwise known as the Arbitration Law, was enacted by Congress since
there was a growing need for a law regulating arbitration in general.
The parties in the present case, upon entering into a Contract for Site Development, mutually
agreed that any dispute arising from the said contract shall be submitted for arbitration. Explicit is
Paragraph 19 of subject contract, which reads:

"Paragraph 19. ARBITRATION. All disputes questions or differences which may

at any time arise between the parties hereto in connection with or relating to this
Agreement or the subject matter hereof, including questions of interpretation or
construction, shall be referred to an Arbitration Board composed of three (3)
arbitrators, one to be appointed by each party, and the third, to be appointed by the
two (2) arbitrators. The appointment of arbitrators and procedure for arbitration shall
be governed by the provisions of the Arbitration Law (Republic Act No. 876). The
Board shall apply Philippine Law in adjudicating the dispute. The decision of a
majority of the members of the Arbitration Board shall be valid, binding, final and
conclusive upon the parties, and from which there will be no appeal, subject to the
provisions on vacating, modifying, or correcting an award under the said Republic Act
No. 876.[3]
 Thereunder, if a dispute should arise from the contract, the Arbitration Board shall assume
jurisdiction and conduct hearings. After the Board comes up with a decision, the parties may
immediately implement the same by treating it as an amicable settlement. However, if one of the
parties refuses to comply or is dissatisfied with the decision, he may file a Petition to Vacate the
Arbitrator's decision before the trial court. On the other hand, the winning party may ask the trial
court's confirmation to have such decision enforced.
It should be stressed that voluntary arbitrators, by the nature of their functions, act in a quasi-
judicial capacity.[4] As a rule, findings of facts by quasi-judicial bodies, which have acquired
expertise because their jurisdiction is confined to specific matters, are accorded not only respect
but even finality if they are supported by substantial evidence,[5] even if not overwhelming or
preponderant.[6] As the petitioner has availed of Rule 65, the Court will not review the facts found
nor even of the law as interpreted or applied by the arbitrator unless the supposed errors of facts
or of law are so patent and gross and prejudicial as to amount to a grave abuse of discretion or
an excess de pouvoir on the part of the arbitrators.[7]
Thus, in a Petition to Vacate Arbitrator's Decision before the trial court, regularity in the
performance of official functions is presumed and the complaining party has the burden of proving
the existence of any of the grounds for vacating the award, as provided for by Sections 24 of the
Arbitration Law, to wit:

"Sec. 24 GROUNDS FOR VACATING THE AWARD - In any one of the

following cases, the court must make an order vacating the award upon the petition of
any party to the controversy when such party proves affirmatively that in the
arbitration proceedings:

(a) The award was procured by corruption, fraud or other undue means;

(b) That there was evident partiality or corruption in the arbitrators of any of them; or

(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing
upon sufficient cause shown, or in refusing to hear evidence pertinent and material to
the controversy; that one or more of the arbitrators was disqualified to act as such
under section nine hereof, and wilfully refrained from disclosing such disqualification
or of any other misbehavior by which the rights of any party have been materially
prejudiced; or

(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject matter submitted to them was not
made. xxx"

The grounds relied upon by the petitioner were the following (a) That there was evident
partiality in the assailed decision of the Arbitrators in favor of the respondent; and (b) That there
was mistaken appreciation of the facts and application of the law by the Arbitrators. These were
the very same grounds alleged by NSC before the trial court in their Petition to Vacate the
Arbitration Award and which petitioner is reiterating in this petition under scrutiny.
Petitioner's allegation that there was evident partiality is untenable. It is anemic of evidentiary
support.
In the case of Adamson vs. Court of Appeals, 232 SCRA 602, in upholding the decision of the
Board of Arbitrators, this Court ruled that the fact that a party was disadvantaged by the decision
of the Arbitration Committee does not prove evident partiality. Proofs other than mere inference
are needed to establish evident partiality. Here, petitioner merely averred evident partiality without
any proof to back it up. Petitioner was never deprived of the right to present evidence nor was
there any showing that the Board showed signs of any bias in favor of EWEI. As correctly found
by the trial court:

"Thirdly, this Court cannot find its way to support NSC's contention that there was
evident partiality in the assailed Award of the Arbitrator in favor of the respondent
because the conclusion of the Board, which the Court found to be well-founded, is
fully supported by substantial evidence, as follows:

"xxx The testimonies of witnesses from both parties were heard to clarify
facts and to threash (sic) out the dispute in the hearings. Upon motion by NSC
counsel, the hearing of testimony from witnesses was terminated on 22
January 1992. To end the testimonies in the hearing both litigant parties upon
query by Arbitrator-Chairman freely declared that there has been no partiality
in the manner the Arbitrators conducted the hearing, that there has been no
instance, where Arbitrators refused to postpone requested or to hear/accept
evidence pertinent and material to the dispute. xxx (underscoring supplied)

Parentethically, and in the light of the record above-mentioned, this Court hereby
holds that the Board of Arbitrators did not commit any 'evident partiality' imputed by
petitioner NSC. Above all, this Court must sustain the said decision for it is a well
settled rule that the actual findings of an administrative body should be affirmed if
there is substantial evidence to support them and the conclusions stated in the decision
are not clearly against the law and jurisprudence similar to the instant case.
Henceforth, every reasonable intendment will be indulged to give effect such
proceedings and in favor of the regulatory and integrity of the arbitrators act. (Corpus
Juris, Vol. 5, p. 20)"[8]

Indeed, the allegation of evident partiality is not well-taken because the petitioner failed to
substantiate the same.
Anent the issue of mistaken appreciation of facts and law of the case, the petitioner theorizes
that the awards made by the Board were unsubstantiated and the same were a plain misapplication
of the law and even contrary to jurisprudence. To have a clearer understanding of the petition, this
Court will try to discuss individually the awards made by the Board, and determine if there was
grave abuse of discretion on the part of the trial court when it adopted such awards in toto.

I. P458,381.00 representing EWEI's last billing No. 16 with interest thereon at the rate of 1 1/4% per month from January 1, 1985 to actual
date of payment;

Petitioner seeks to bar payment of the said amount to EWEI. Since the latter failed to complete
the works as agreed upon, NSC had the right to withhold such amount. The same will be used to
cover the cost differential paid to another contractor who finished the work allegedly left
uncompleted by EWEI. Said work cost NSC P1,225,000, and should be made chargeable to
EWEI's receivables on Final Billing No. 16 issued to NSC.
The query here therefore is whether there was failure on the part of EWEI to complete the
work agreed upon. This will determine whether Final Billing No. 16 can be made chargeable to
the cost differential paid by NSC to another contractor.
After a series of hearings, the Board of Arbitrators concluded that the work was completed by
EWEI. As correctly stated:

"To authenticate the extent of unfinished work, quantity, unit cost differential and
amount, NSC was required to submit copies of payment vouchers and/or job awards
extended to the other contractor engaged to complete the works. The best efforts by
NSC despite the multiplicity of accounting/auditing/engineering records required in a
corporate complex failed to produce documentary proofs from their Iligan or Makati
office despite repeated requests. NSC failed to substantiate such allusion of
completion by another contractor three unfinished items of works, actual quantities
accomplished and unit cost differential paid chargeable against EWEI.

xxx xxx xxx

The latest evaluation on record of the items of work completed by EWEI under the
contract is drawn from the NSC report (Exhibit "11-d") dated 12 November 1985
submitted with the EWEI Billing No. 16-Final in the course of processing claim on
items of work accomplished. There is no such report or mention of unfinished work of
90,000 MT of dumped riprap, 100,000 cu. m. of site grading and 300,000 cu. m. of
spreading common excavated materials in the EWEI contract alluded to by the NSC
as unfinished work otherwise EWEI Billing No. 16-Final would not have passed
processing for payment unless there is really no such unfinished work NSC evaluation
report with no adverse findings of unfinished work consider the contract as
completed.

To affirm the work items, quantity, unit cost differential and amount of unfinished
work left behind by EWEI, NSC in serving notice of contract termination to EWEI
should have instead specifically cited these obligations in detail for EWEI to
perform/comply within 30 days, such failure to perform/comply should have
constituted as an event in default that would have justified termination of contract of
NSC with EWEI. If at all, this unfinished work may be additional/extra work awarded
in 1984 to another contractor at prices higher than the unit price tendered by EWEI in
1982 and/or the discrepancy between actual quantities of work accomplished per
plans versus estimated quantities of work covered by separate contract as expansion of
the original project."

xxx xxx xxx

IN VIEW OF THE FOREGOING, THE SO-CALLED UNFINISHED WORKS IN

THE CONTRACT BY EWEI ALLUDED TO BY NSC IS NOT CONSIDERED AN
OBLIGATION TO PERFORM/COMPLY THUS ABSOLVING EWEI OF ANY
FAILURE TO PERFORM/COMPLY AND THEREFORE CANNOT BE AVAILED
OF AS A RIGHT OR REMEDY BY NSC TO RECOVER UNIT DIFFERENTIAL
COST FROM EWEI FOR THE SAME UNSUBSTANTIATED WORK DONE BY
ANOTHER CONTRACTOR." (ANNEX "C" ARBITRATION, page 86-88 of Rollo.)

Furthermore, under the contract sued upon, it is clear that should the Owner feel that the work
agreed upon was not completed by the contractor, it is incumbent upon the OWNER to send to
CONTRACTOR a letter within seven (7) days after completion of the inspection to specify the
objections thereto[9] NSC failed to comply with such requirement, and therefore it would be unfair
to refuse payment to EWEI, considering that the latter had faithfully submitted Final Billing No.16
believing that its work had been completed because NSC did not call its attention to any
objectionable aspect of their project.
But, what cannot be upheld is the Board's imposition of a 1-1/4% interest per month from
January 1, 1985 to actual date of payment. There is nothing in the said contract to justify or
authorize such an award. The trial court should have therefore disregarded the same and instead,
applied the legal rate of 6% per annum, from Jan. 1, 1985 until this decision becomes final and
executory. This is so because the legal rate of interest on monetary obligations not arising from
loans or forebearance of credits or goods is 6%[10] per annum in the absence of any stipulation to
the contrary.

(II) Price escalation with the interest rate of 1-1/4% per month from 1 January 1985 to actual date of payment.

Petitioner contends that EWEI is not entitled to price escalation absent any stipulation to that
effect in the contract under which, the contract price is fixed, citing Paragraph 2 thereof, which
stipulates:
2. CONTRACT PRICE -
xxx xxx
The applicable unit prices above fixed are based on the assumption that the disposal
areas for cleared, grubbed materials, debris, excess filling materials and other matters
that are to be disposed of or are within the boundary limits of the site, as designated in
Annex A hereof. In the event that disposal areas fixed and designated in Annex A are
diverted and transferred to such other areas as would be outside the limits of the site
as would require additional costs to the contractor, then Owner shall be liable for such
additional hauling costs of P1.45/km/m3." (Annex "A", Contract for Site
Development, page 55 of Rollo)

The phrase "prices above fixed" means that the contract price of the work shall be that agreed
upon by the parties at the time of the execution of the contract, which is the law between them
provided it is not contrary to law, morals, good customs, public order, or public policy. (Article
1306, New Civil Code). It cannot be inferred therefrom, however, that the parties are prohibited
from imposing future increases or price escalation. It is a cardinal rule in the interpretation of
contracts that "if the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control."[11]
But price escalation is expressly allowed under Presidential Decree 1594, which law allows
price escalation in all contracts involving government projects including contracts entered into by
government entities and instrumentalities and Government Owned or Controlled Corporations
(GOCCs). It is a basic rule in contracts that the law is deemed written into the contract between
the parties. And when there is no prohibitory clause on price escalation, the Court will allow
payment therefor. Thus, petitioner cannot rely on the case of Llama Development Corporation vs.
Court of Appeals and National Steel Corporation, GR 88093, Resolution, Third Division, 20
Sept 1989. It is not applicable here since in that case, the contract explicitly provided that
the contract price stipulated was fixed, inclusive of all costs and not subject to escalation,
(emphasis supplied). This, in effect, waived the provisions of PD 1594. The case under scrutiny is
different as the disputed contract does not contain a similar provision.
In a vain attempt to evade said law's application, they would like the Court to believe that it
is an acquired asset corporation and not a government owned or controlled corporation so that they
are not within the coverage of PD 1594. Whether NSC is an asset-acquired corporation or a
government owned or controlled corporation is of no moment. It is not determinative of the pivot
of inquiry. It bears emphasizing that during the hearings conducted by the Board of Arbitrators,
there was presented documentary evidence to show that NSC, despite its being allegedly an asset
acquired corporation, allowed price escalation to another contractor, Geo Transport and
Construction, Inc. (GTCI). As said in the decision of the Board of Arbitrators:

"On the other hand, there was documentary evidence presented that NSC granted Geo
Transport and Construction, Inc. (GTCI), the other favored contractor working side by
side with EWEI on the site development project during the same period the GTCE
was granted upon request and paid by NSC an actual sum of P6.9 million as price
adjustment compensation even without the benefit of escalation provision in the
contract but allowed in accordance with PD NO. 1594 enforceable among government
controlled or owned corporation. The statement is embodied in an affidavit (Exhibit
"111-h") submitted by affiant Jose M. Mesina, Asst. to the President and Legal
Counsel of GTCI, submitted to the Arbitrators upon solicitation of EWEI, copy to
NSC, on 3 October 1991. NSC did not assail the affidavit upon receipt of such
document as evidence until the hearing of 19 December 1991 when the affidavit was
branded by NSC counsel as incorrect and hearsay. Within 7 days reglamentary period
after receipt of affidavit in 3 October 1991, the NSC had the recourse to contest the
affidavit even preferably charge the affiant for slander if NSC could disprove the
statements as untrue."[12]

If Petitioner seeks to refute such evidence, it should have done so before the Board of
Arbitrators, during the hearings. To raise the issue now is futile.
However, the same line of reasoning with respect to the first award should be used in
disregarding the interest rate of 1-1/4%. The legal rate of 6% per annum should be similarly
applied to the price escalation to be computed from Jan. 1, 1985 until this decision becomes final
and executory.

(III) The award of P50,000 as exemplary damages and P350,000 as attorney's fees;

The exemplary damages and attorneys fees awarded by the Board of Arbitrators should be
deleted in light of the circumstances surrounding the case.
The requirements for an award of exemplary damages, are: (1) they may be imposed by way
of example in addition to compensatory damages, and only after the claimants right to them has
been established; (2) that they cannot be recovered as a matter of right, their determination
depending upon the amount of compensatory damages that may be awarded to the claimant; (3)
the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or malevolent
manner.[13]
EWEI cannot claim that NSC acted in bad faith or in a wanton manner when it refused
payment of the Final Billing No. 16. The belief that the work was never completed by EWEI and
that it (NSC) had the right to make it chargeable to the cost differential paid by the latter to another
contractor was neither wanton nor done in evident bad faith. The payment of legal rate of interest
will suffice to compensate EWEI of whatever prejudice it suffered by reason of the delay caused
by NSC.
As regards the award of attorney's fees, award for attorney's fees without justification is a
"conclusion without a premise, its basis being improperly left to speculation and
conjencture.[14] The "fixed counsel's fee" of P350,000 should be disallowed. The trial court acted
with grave abuse of discretion when it adopted the same in toto.
WHEREFORE, the awards made by the Board of Arbitrators which the trial court adopted
in its decision of July 31,1996, are modified, thus:
(1) The award of P474,780.23 for Billing No. 16-Final and P1,335,514.20 for price adjustment
shall be paid with legal interest of six (6 %) percent per annum, from January 1, 1985 until
this decision shall have become final and executory;
 (2) The award of P50,000 for exemplary damages and attorney's fees of P350,000 are deleted;
and
(3) The cost of arbitration of P35,000 to supplement arbitration agreement has to be paid.
No pronouncement as to costs.
SO ORDERED.
Romero (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.

[1]
Page 159-161 of Rollo, page 2-3 of the RTC decision.
[2]
Page 171 of Rollo, page 13 of the RTC decision.
[3]
Annex "A", Contract for Site Development; Rollo, p. 73-74.
[4]
Chung Fu Industries vs. Court of Appeals, 206 SCRA 545, page 556.
[5]
International Container Terminal Services vs. National Labor Relations Commission, 256 SCRA 124.
[6]
Ang Tibay vs. CIR Phil. 635.
[7]
Sime Darby Pilipinas Inc. vs. Magsalin, GR No. 90426, December 15, 1989, 180 SCRA 177.
[8]
Pages 169-170 of Rollo, page 11-12 of the decision.
[9]
Paragraph 14. LETTER OF ACCEPTANCE. Contractor shall advise Owner in writing when Contractor
considers it has fully completed the Works required hereunder. Within three (3) days from the receipt by O.D.R. of a
formal notice of completion from Contractor, Owner shall commence to inspect the Works. If the Works are in
accordance with the plans and specifications of this Contract, Owner will issue corresponding Letter of Acceptance
of the Works or a letter specifying objections thereto within (7) days after completion of the inspection.
Should Owner fail to (1) inspect the Work (ii) or having inspected the same, fails to issue the Letter of Acceptance or
a Letter of Acceptance or a letter specifying any objections to the Works delivered as would require any part(s) of the
Work to be re-corrected or re-done, then Owner shall be conclusively presumed to have issued such Letter of
Acceptance with all the legal effects as if the Letter of Acceptance has been issued. (Annex "A". Contract for Site
Development" page 71-72 of Rollo)
[10]
Meridian Assurance Corporation vs. Dayrit, 184 SCRA 20.
[11]
Abella vs. Court of Appeals, 257 SCRA 482.
[12]
Page 90 of Rollo, page 14 of Board of Arbitrator's decision. Annex "B", Arbitration Award,
[13]
Philippine National Bank vs. Court of Appeals, 256 SCRA 44.
[14]
Francel Realty Corp. vs. Court of Appeals, 252 SCRA 127.

THIRD DIVISION

[G.R. No. 121171. December 29, 1998]

ASSET PRIVATIZATION TRUST, petitioner, vs., COURT OF APPEALS,
JESUS S. CABARRUS, SR., JESUS S. CABARRUS, JR., JAIME T.
CABARRUS, JOSE MIGUEL CABARRUS, ALEJANDRO S. PASTOR,
JR., ANTONIO U. MIRANDA, and MIGUEL M. ANTONIO, as
Minority Stock Holders of Marinduque Mining and Industrial
Corporation, respondents.

DECISION
KAPUNAN, J.:

The petition for review on certiorari before us seeks us to reverse and set aside the decision
of the Court of Appeals which denied due course to the petition for certiorari filed by the Asset
Privatization Trust (APT) assailing the order of the Regional Trial Court (RTC) Branch 62, Makati
City. The Makati RTCs order upheld and confirmed the award made by the Arbitration Committee
in favor of Marinduque Mining and Industrial Corporation (MMIC) and against the Government,
represented by herein petitioner APT for damages in the amount of P2.5 BILLION (or
approximately P4.5 BILLION, including interest).
Ironically, the staggering amount of damages was imposed on the Government for exercising
its legitimate right of foreclosure as creditor against the debtor MMIC as a consequence of the
latters failure to pay its overdue and unpaid obligation of P22 billion to the Philippine National
Bank (PNB) and the Development Bank of the Philippines (DBP).

The antecedent facts of the case

The development, exploration and utilization of the mineral deposits in the Surigao Mineral
Reservation have been authorized by Republic Act No. 1828, as amended by Republic Acts No.
2077 and 4167, by virtue of which laws, a Memorandum of Agreement was drawn on July 3, 1968,
whereby the Republic of the Philippines thru the Surigao Mineral Reservation Board, granted
MMIC the exclusive right to explore, develop and exploit nickel, cobalt and other minerals in the
Surigao mineral reservation.[1] MMIC is a domestic corporation engaged in mining with
respondents Jesus S. Cabarrus, Sr. as President and among its original stockholders.
The Philippine Government undertook to support the financing of MMIC by purchase of
MMIC debenture and extension of guarantees. Further, the Philippine Government obtained a
firm, commitment from the DBP and/or other government financing institutions to subscribed in
MMIC and issue guarantee/s for foreign loans or deferred payment arrangements secured from the
US Eximbank, Asian Development Bank, Kobe Steel, of amount not exceeding US$100 Million.[2]
DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were
based on the unutilized portion of the Government commitment. Thereafter, the Government
extended accommodations to MMIC in various amounts.
On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust Agreement[3] whereby
MMIC, as mortgagor, agreed to constitute a mortgage in favor of PNB and DBP as mortgagees,
over all MMICs assets, subject of real estate and chattel mortgage executed by the mortgagor, and
additional assets described and identified, including assets of whatever kind, nature or description,
which the mortgagor may acquire whether in substitution of, in replenishment, or in addition
thereto.
Article IV of the Mortgage Trust Agreement provides for Events of Default, which expressly
includes the event that the MORTGAGOR shall fail to pay any amount secured by this Mortgage
Trust Agreement when due.[4]
Article V of the Mortgage Trust Agreement prescribes in detail, and in addition to the
enumerated events of defaults, circumstances by which the mortgagor may be declared in default,
the procedure therefor, waiver of period to foreclose, authority of Trustee before, during and after
foreclosure, including taking possession of the mortgaged properties.[5]
In various request for advances/remittances of loans of huge amounts, Deeds of Undertakings,
Promissory Notes, Loans Documents, Deeds of Real Estate Mortgages, MMIC invariably
committed to pay either on demand or under certain terms the loans and accommodations secured
from or guaranteed by both DBP and PNB.
By 1984, DBP and PNBs financial exposure both in loans and in equity in MMIC had reached
tremendous proportions, and MMIC was having a difficult time meeting its financial
obligations. MMIC had an outstanding loan with DBP in the amount of P13,792,607,565.92 as of
August 31, 1984 and in the amount of P8,789,028,249.38 as of July 15, 1984 or a total Government
exposure of Twenty Two Billion Six Hundred Sixty-Eight Million Five Hundred Thirty-Seven
Thousand Seven Hundred Seventy and 05/100 (P22,668,537,770.05), Philippine
Currency.[6] Thus, a financial restructuring plan (FRP) designed to reduce MMIC' interest expense
through debt conversion to equity was drafted by the Sycip Gorres Velayo accounting firm. [7] On
April 30, 1984, the FRP was approved by the Board of Directors of the MMIC.[8] However, the
proposed FRP had never been formally adopted, approved or ratified by either PNB or DBP.[9]
In August and September 1984, as the various loans and advances made by DBP and PNB to
MMIC had become overdue and since any restructuring program relative to the loans was no
longer feasible, and in compliance with the directive of Presidential Decree No. 385, DBP and
PNB as mortgagees of MMIC assets, decided to exercise their right to extrajudicially foreclose the
mortgages in accordance with the Mortgage Trust Agreement.[10]
The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly
formed corporations, namely, Nonoc Mining Corporation, Maricalum Mining and Industrial
Corporation, and Island Cement Corporation. In 1986, these assets were transferred to the Asset
Privatization Trust (APT).[11]
On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC,
filed a derivative suit against DBP and PNB before the RTC of Makati, Branch 62, for Annulment
of Foreclosures, Specific Performance and Damages.[12] The suit, docketed as Civil Case No. 9900,
prayed that the court: (1) annul the foreclosure, restore the foreclosed assets to MMIC, and require
the banks to account for their use and operation in the interim; (2) direct the banks to honor and
perform their commitments under the alleged FRP; and (3) pay moral and exemplary damages,
attorneys fees, litigation expenses and costs.
 In the course of the trial, private respondents and petitioner APT, as successor of the DBP and
PNBs interest in MMIC, mutually agreed to submit the case to arbitration by entering into a
Compromise and Arbitration Agreement, stipulating, inter alia:

NOW, THEREFORE, for and in consideration of the foregoing premises and the
mutual covenants contain herein, the parties agreed as follows:

1. Withdrawal and Compromise. The parties have agreed to withdraw their respective
claims from the Trial Court and to resolve their dispute through arbitration by praying
to the Trial Court to issue a Compromise Judgment based on this Compromise and
Arbitration Agreement.

In withdrawing their dispute form the court and in choosing to resolve it through
arbitration, the parties have agreed that:

(a) their respective money claims shall be reduced to purely money claims; and

(b) as successor and assignee of the PNB and DBP interest in MMIC and the MMIC
accounts, APT shall likewise succeed to the rights and obligations of PNB and DBP in
respect of the controversy subject of Civil Case No. 9900 to be transferred to
arbitration and any arbitral award/order against either PNB and/or DBP shall be the
responsibility of, be discharged by and be enforceable against APT, the partied having
agreed to drop PNB and DBP from the arbitration.

2. Submission. The parties hereby agree that (a) the controversy in Civil Case No. 9900 shall be
submitted instead to arbitration under RA 876 and (b) the reliefs prayed for in Civil Case No.
9900 shall, with the approval of the Trial Court of this Compromise and Arbitration Agreement,
be transferred and reduced to pure pecuniary/money claims with the parties waiving and
foregoing all other forms of reliefs which they prayed for or should have payed for in Civil Case
No. 9900.[13]

The Compromise and Arbitration Agreement limited the issues to the following:

5. Issues. The issues to be submitted for the Committees resolution shall be: (a) Whether
PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the
MMIC or its directors; (b) Whether or not the actions leading to, and including, the PNB-DBP
foreclosure of the MMIC assets were proper, valid and in good faith.[14]

This agreement was presented for approval to the trial court. On October 14, 1992, the Makati
RTC, Branch 62, issued an order, to wit:

WHEREFORE, this Court orders:

 1. Substituting PNB and DBP with the Asset Privatization Trust as party
defendant.

2. Approving the Compromise and Arbitration Agreement dated October 6,

1992, attached as Annex C of the Omnibus Motion.

3. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in
this case into pure money claims; and

4. The Complaint is hereby DISMISSED.[15]

The Arbitration Committee was composed of retired Supreme Court Justice Abraham
Sarmiento as Chairman, Atty. Jose C. Sison and former Court of Appeals Justice Magdangal Elma
as Members. On November 24, 1993, after conducting several hearings, the Arbitration Committee
rendered a majority decision in favor of MMIC, the pertinent portions of which read as follows:

Since, as this Committee finds, there is no foreclosure at all was not legally and
validly done, the Committee holds and so declares that the loans of PNB and DBP to
MMIC, for the payment and recovery of which the void foreclosure sales were
undertaken, continue to remain outstanding and unpaid. Defendant APT as the
successor-in-interest of PNB and DBP to the said loans is therefore entitled and
retains the right, to collect the same from MMIC pursuant to and based on the loan
documents signed by MMIC, subject to the legal and valid defenses that the latter may
duly and seasonably interpose. Such loans shall, however, be reduced by the amount
which APT may have realized from the sale of the seized assets of MMIC which by
agreement should no longer be returned even if the foreclosure were found to be null
and void.

The documentary evidence submitted and adopted by both parties (Exhibits 3, 3-B;
Exhibits 100; and also Exhibit ZZZ) as their exhibits would show that the total
outstanding obligation due to DBP and PNB as of the date of foreclosure
is P22,668,537,770.05, more or less.

Therefore, defendant APT can, and is still entitled to, collect the outstanding
obligations of MMIC to PNB and DBP amounting to P22,668.537,770.05, more or
less, with interest thereon as stipulated in the loan documents from the date of
foreclosure up to the time they are fully paid less the proportionate liability of DBP as
owner of 87% of the total capitalization of MMIC under the FRP. Simply put, DBP
shall share in the award of damages to, and in obligations of MMIC in proportion to
its 87% equity in the total capital stock of MMIC.

x x x.
As this Committee holds that the FRP is valid, DBPs equity in MMIC is raised to
87%. So pursuant to the above provision of the Compromise and Arbitration
Agreement, the 87% equity of DBP is hereby deducted from the actual damages
of P19,486,118,654.00 resulting in the net actual damages of P2,531,635,425.02 plus
interest.

DISPOSITION

WHEREFORE, premises considered, judgment is hereby rendered:

1. Ordering the defendant to pay to the Marinduque Mining and Industrial

Corporation, except the DBP, the sum of P2,531,635,425.02 with interest thereon at
the legal rate of six per cent (6%) per annumreckoned from August 3, 9, and 24,
1984, pari passu, as and for actual damages. Payment of these actual damages shall be
offset by APT from the outstanding and unpaid loans of the MMIC with DBP and
PNB, which have not been converted into equity. Should there be any balance due to
the MMIC after the offsetting, the same shall be satisfied from the funds representing
the purchase price of the sale of the shares of Island Cement Corporation in the
amount of P503,000,000.00 held under escrow pursuant to the Escrow Agreement
dated April 22, 1988 or to such subsequent escrow agreement that would supercede
[sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement;

2. Ordering the defendant to pay to the Marinduque Mining and Industrial

Corporation, except the DBP, the sum of P13,000,000.00 as and for moral and
exemplary damages. Payment of these moral and exemplary damages shall be offset
by APT from the outstanding and unpaid loans of MMIC with DBP and PNB, which
have not been converted into equity. Should there be any balance due to MMIC after
the offsetting, the same shall be satisfied from the funds representing the purchase
price of the sale of the shares of Island Cement Corporation in the of P503,000,000.00
held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9)
of the Compromise and Arbitration Agreement;

3. Ordering the defendant to pay to the plaintiff, Jesus Cabarrus, Sr., the sum
of P10,000,000.00, to be satisfied likewise from the funds held under escrow pursuant
to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow
agreement that would supercede it, pursuant to paragraph (9) of the Compromise and
Arbitration Agreement, as and for moral damages; and

4. Ordering the defendant to pay arbitration costs.

This Decision is FINAL and EXECUTORY.

IT IS SO ORDERED.[16]

Motions for reconsiderations were filed by both parties, but the same were denied.
On October 17, 1994, private respondents filed in the same Civil Case No. 9900 an
Application/Motion for Confirmation of Arbitration Award. Petitioner countered with an
Opposition and Motion to Vacate Judgment raising the following grounds:

1. The plaintiffs Application/Motion is improperly filed with this branch of the Court,
considering that the said motion is neither a part nor the continuation of the
proceedings in Civil Case No. 9900 which was dismissed upon motion of the
parties. In fact, the defendants in the said Civil Case No. 9900 were the Development
Bank of the Philippines and the Philippine National Bank (PNB);

2. Under Section 22 of Rep. Act 876, an arbitration under a contract or submission

shall be deemed a special proceedings and a party to the controversy which was
arbitrated may apply to the court having jurisdiction, (not necessarily with this
Honorable Court) for an order confirming the award;

3. The issues submitted for arbitration have been limited to two: (1) propriety of the
plaintiffs filing the derivative suit and (2) the regularity of the foreclosure
proceedings. The arbitration award sought to be confirmed herein far exceeded the
issues submitted and even granted moral damages to one of the herein plaintiffs;

4. Under Section 24 of Rep. Act 876, the Court must make an order vacating the
award where the arbitrators exceeded their powers, or so imperfectly executed them,
that a mutual final and definite award upon the subject matter submitted to them was
not made.[17]

Private respondents filed a REPLY AND OPPOSITION dated November 10, 1984, arguing
that a dismissal of Civil case No. 9900 was merely a qualified dismissal to pave the way for the
submission of the controversy to arbitration, and operated simply as a mere suspension of the
proceedings. They denied that the Arbitration Committee had exceeded its powers.
In an Order dated November 28, 1994, the trial court confirmed the award of the Arbitration
Committee. The dispositive portion of said order reads:

WHEREFORE, premises considered, and in the light of the parties [sic] Compromise
and Arbitration Agreement dated October 6, 1992, the Decision of the Arbitration
Committee promulgated on November 24, 1993, as affirmed in a Resolution dated
July 26, 1994, and finally settled and clarified in the Separate Opinion dated
September 2, 1994 of Committee Member Elma, and the pertinent provisions of RA
876,also known as the Arbitration Law, this Court GRANTS PLAINTIFFS
APPLICATION AND THUS CONFIRMS THE ARBITRATION AWARD, AND
JUDGMENT IS HEREBY RENDERED:

(a) Ordering the defendant APT to the Marinduque Mining and Industrial Corporation
(MMIC, except the DBP, the sum of P3,811,757,425.00, as and for actual damages,
which shall be partially satisfied from the funds held under escrow in the amount
of P503,000,000.00 pursuant to the Escrow Agreement dated April 22, 1988. The
Balance of the award, after the escrow funds are fully applied, shall be executed
against the APT;

(b) Ordering the defendant to pay to the MMIC, except the DBP, the sum
of P13,000,000.00 as and moral and exemplary damages;

(c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum of P10,000,000.00
as and for moral damages; and

(d) Ordering the defendant to pay the herein plaintiffs/applicants/movants the sum
of P1,705,410.22 as arbitration costs.

In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8 paragraph 2

of the Compromise and Arbitration Agreement, and the final edict of the Arbitration
Committees decision, and with this Courts Confirmation, the issuance of the
Arbitration Committees Award shall henceforth be final and executory.

SO ORDERED.[18]

On December 27, 1994, petitioner filed its motion for reconsideration of the Order dated
November 28, 1994. Private respondents, in turn, submitted their reply and opposition thereto.
On January 18, 1995, the trial court handed down its order denying APTs motion for
reconsideration for lack of merit and for having been filed out of time. The trial court declared that
considering that the defendant APT through counsel, officially and actually received a copy of the
Order of this Court dated November 28, 1994 on December 6, 1994, the Motion for
Reconsideration thereof filed by the defendant APT on December 27, 1994, or after the lapse of
21 days, was clearly filed beyond the 15-day reglementary period prescribed or provided for by
law for the filing of an appeal from final orders, resolutions, awards, judgments or decisions of
any court in all cases, and by necessary implication for the filling of a motion for reconsideration
thereof.
On February 7, 1995, petitioner received private respondents motion for Execution and
Appointment of Custodian of Proceeds of Execution dated February 6, 1995.
Petitioner thereafter filed with the Court of Appeals a special civil action for certiorari with
temporary restraining order and/or preliminary injunction dated February 13, 1996 to annul and
declare as void the Orders of the RTC-Makati dated November 28, 1994 and January 18, 1995 for
having been issued without or in excess of jurisdiction and/or with grave abuse of discretion.[19] As
ground therefor, petitioner alleged that:
I

THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION

MUCH LESS, HAS THE COURT AUTHORITY, TO CONFIRM THE ARBITRAL
AWARD CONSIDERING THAT THE ORIGINAL CASE, CIVIL CASE NO. 9900,
HAD PREVIOUSLY BEEN DISMISSED.
II

THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION

AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION, IN ISSUING THE
QUESTIONED ORDERS CONFIRMING THE ARBITRAL AWARD AND
DENYING THE MOTION FOR RECONSIDERATION OF ORDER OF AWARD.
III

THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION AND ACTED

WITHOUT OR IN EXCESS OF AND WITHOUT JURISDICTION IN RECKONING THE
COUNTING OF THE PERIOD TO FILE MOTION FOR RECONSIDERATION, NOT FROM
THE DATE OF SERVICE OF THE COURTS COPY CONFIRMING THE AWARD, BUT
FROM RECEIPT OF A XEROX COPY OF WHAT PRESUMABLY IS THE OPPOSING
COUNSELS COPY THEREOF.[20]

On July 12, 1995, the Court of Appeals, through its fifth Division denied due course and
dismissed the petition for certiorari.
Hence, the instant petition for review on certiorari imputing to the Court of Appeals the
following errors.

ASSIGNMENT OF ERRORS
I

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE MAKATI

REGIONAL TRIAL COURT, BRANCH 62 WHICH HAS PREVIOULSY
DISMISSED CIVIL CASE NO. 9900 HAD LOST JURISDICTION TO
CONFIRM THE ARBITRAL AWARD UNDER THE SAME CIVIL CASE
AND IN NOT RULING THAT THE APPLICATION FOR CONFIRMATION
SHOULD HAVE BEEN FILED AS A NEW CASE TO BE RAFFLED OFF
AMONG THE DIFFERENT BRANCHES OF THE RTC.
II
 THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT
PETITIONER WAS ESTOPPED FROM QUESTIONING THE ARBITRATION
AWARD, WHEN PETITIONER QUESTIONED THE JURISDICTION OF THE
RTC-MAKATI, BRANCH 62 AND AT THE SAME TIME MOVED TO
VACATE THE ARBITRAL AWARD.
III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE

RESPONDENT TRIAL COURT SHOULD HAVE EITHER
DISMISSED/DENIED PRIVATE RESPONDENTS MOTION/PETITION FOR
CONFIRMATION OF ARBITRATION AWARD AND/OR SHOULD HAVE
CONSIDERED THE MERITS OF THE MOTION TO VACATE ARBITRAL
AWARD.
IV

THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APTS

PETITION FOR CERTIORARI AS AN APPEAL TAKEN FROM THE ORDER
CONFIRMING THE AWARD
V

THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL ISSUE OF

WHEN TO RECKON THE COUNTING OF THE PERIOD TO FILE A MOTION FOR
RECONSIDERATION.[21]

The petition is impressed with merit.

I

The RTC of Makati, Branch 62, did not have jurisdiction to confirm the arbitral award

The use of the term dismissed is not a mere semantic imperfection. The dispositive portion of
the Order of the trial court dated October 14, 1992 stated in no uncertain terms:
4. The Complaint is hereby DISMISSED.[22]
The term dismiss has a precise definition in law. To dispose of an action suit, or motion without
trial on the issues involved. Conclude, discontinue, terminate, quash.[23]
Admittedly the correct procedure was for the parties to go back to the court where the case
was pending to have the award confirmed by said court. However, Branch 62 made
the fatal mistake of issuing a final order dismissing the case. While Branch 62 should have merely
suspended the case and not dismissed it,[24] neither of the parties questioned said dismissal. Thus,
both parties as well as said court are bound by such error.
 It is erroneous then to argue, as private respondents do, that petitioner APT was charged with
the knowledge that the case was merely stayed until arbitration finished, as again, the order of
Branch 62 in very clear terms stated that the complaint was dismissed. By its own action, Branch
62 had lost jurisdiction over the vase. It could not have validly reacquired jurisdiction over the said
case on mere motion of one of the parties. The Rules of Court is specific on how a new case may
be initiated and such is not done by mere motion in a particular branch of the RTC. Consequently,
as there was no pending action to speak of, the petition to confirm the arbitral award should have
been filed as a new case and raffled accordingly to one of the branches of the Regional Trial Court.
II

Petitioner was not estopped from questioning the jurisdiction of Branch 62 of the RTC of Makati.

The Court of Appeals ruled that APT was already estopped to question the jurisdiction of the
RTC to confirm the arbitral award because it sought affirmative relief in said court by asking that
the arbitral award be vacated.
The rule is that Where the court itself clearly has no jurisdiction over the subject matter or the
nature of the action, the invocation of this defense may de done at any time. It is neither for the
courts nor for the parties to violate or disregard that rule, let alone to confer that jurisdiction, this
matter being legislative in character.[25] As a rule the, neither waiver nor estoppel shall apply to
confer jurisdiction upon a court barring highly meritorious and exceptional circumstances.[26] One
such exception was enunciated in Tijam vs. Sibonghanoy,[27] where it was held that after voluntarily
submitting a cause and encountering an adverse decision on the merits, it is too late for the loser
to question the jurisdiction or power of the court."
Petitioners situation is different because from the outset, it has consistently held the position
that the RTC, Branch 62 had no jurisdiction to confirm the arbitral award; consequently, it cannot
be said that it was estopped from questioning the RTCs jurisdiction. Petitioners prayer for the
setting aside of the arbitral award was not inconsistent with its disavowal of the courts jurisdiction.
III

Appeal of petitioner to the Court of Appeals thru certiorari under Rule 65 was proper.

The Court of Appeals in dismissing APTs petition for certiorari upheld the trial courts denial
of APTs motion for reconsideration of the trial courts order confirming the arbitral award, on the
ground that said motion was filed beyond the 15-day reglementary period; consequently, the
petition for certiorari could not be resorted to as substitute to the lost right of appeal.
We do not agree.
Section 29 of Republic Act No. 876,[28] provides that:
 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.

The aforequoted provision, however, does not preclude a party aggrieved by the arbitral award
from resorting to the extraordinary remedy of certiorari under Rule 65 of the Rules of Court
where, as in this case, the Regional Trial Court to which the award was submitted for confirmation
has acted without jurisdiction, or with grave abuse of discretion and there is no appeal, nor any
plain, speedy remedy in the course of law.
Thus, Section 1 of Rule 65 provides:

SEC 1. Petition for Certiorari: - When any tribunal, board or officer exercising
judicial functions, has acted without or in excess of its or his jurisdiction, or with
grave abuse of discretion and there is no appeal, nor any plain, speedy, and adequate
remedy in the ordinary course of law, a person aggrieved thereby may file a verified
petition in the proper court alleging the facts with certainty and praying that judgment
be rendered annulling or modifying the proceedings, as the law requires, of such
tribunal, board or officer.

In the instant case, the respondent court erred in dismissing the special civil action
for certiorari, it being from the pleadings and the evidence that the trial court lacked jurisdiction
and/or committed grave abuse of discretion in taking cognizance of private respondent motion to
confirm the arbitral award and, worse, in confirming said award which is grossly and patently not
in accord with the arbitration agreement, as will be hereinafter demonstrated.
IV

The nature and limits of the Arbitrators powers.

As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as
to the law or as to the facts.[29] Courts are without power to amend or overrule merely because of
disagreement with matters of law or facts determined by the arbitrators.[30] They will not review
the findings of law and fact contained in an award, and will not undertake to substitute their
judgment for that of the arbitrators, since any other rule would make an award the commencement,
not the end, of litigation.[31] Errors of law and fact, or an erroneous decision of matters submitted
to the judgment of the arbitrators, are insufficient to invalidate an award fairly and honestly
made.[32] Judicial review of an arbitration is, thus, more limited than judicial review of a trial.[33]
Nonetheless, the arbitrators awards is not absolute and without exceptions. The arbitrators
cannot resolve issues beyond the scope of the submission agreement.[34] The parties to such an
agreement are bound by the arbitrators award only to the extent and in the manner prescribed by
the contract and only if the award is rendered in conformity thereto.[35] Thus, Sections 24 and 25
of the Arbitration Law provide grounds for vacating, rescinding or modifying an arbitration
award. Where the conditions described in Articles 2038,[36] 2039[37] and 2040[38] of the Civil Code
applicable to compromises and arbitration are attendant, the arbitration award may also be
annulled.
In Chung Fu Industries (Phils.) vs. Court of Appeals,[39] we held:

x x x. It is stated explicitly under Art. 2044 of the Civil Code that the finality of the
arbitrators awards is not absolute and without exceptions. Where the conditions
described in Articles 2038, 2039, and 2040 applicable to both compromises and
arbitration are obtaining, the arbitrators' award may be annulled or
rescinded. Additionally, under Sections 24 and 25, of the Arbitration Law, there are
grounds for vacating, modifying or rescinding an arbitrators award. Thus, if and when
the factual circumstances referred to in the above-cited provisions are present, judicial
review of the award is properly warranted.

Accordingly, Section 20 of R.A. 876 provides:

SEC. 20. Form and contents of award. The award must be made in writing and signed
and acknowledged by a majority of the arbitrators, if more than one; and by the sole
arbitrator, if there is only one. Each party shall be furnished with a copy of the
award. The arbitrators in their award may grant any remedy or relief which they deem
just and equitable and within the scope of the agreement of the parties, which shall
include, but not be limited to, the specific performance of a contract.

xxx

The arbitrators shall have the power to decide only those matters which have been
submitted to them. The terms of the award shall be confined to such
disputes. (Underscoring ours).

xxx.
Section 24 of the same law enumerating the grounds for vacating an award states:

SEC. 24. Grounds for vacating award. In any one of the following cases, the court
must make an order vacating the award upon the petition of any party to the
controversy when such party proves affirmatively that in the arbitration proceedings:

(a) The award was procured by corruption, fraud, or other undue means; or

(b) That there was evident partiality or corruption in arbitrators or any of them; or

(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing
upon sufficient cause shown, or in refusing to hear evidence pertinent and material to
the controversy; that one or more of the arbitrators was disqualified to act as such
under section nine hereof, and willfully refrained from disclosing such
disqualifications or any other misbehavior by which the rights of any party have been
materially prejudiced; or

(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject matter submitted to them was not
made. (Underscoring ours).

xxx.
Section 25 which enumerates the grounds for modifying the award provides:

SEC. 25. Grounds for modifying or correcting award In anyone of the following
cases, the court must make an order modifying or correcting the award, upon the
application of any party to the controversy which was arbitrated:

(a) Where there was an evident miscalculation of figures, or an evident mistake in the
description of any person, thing or property referred to in the award; or

(b) Where the arbitrators have awarded upon a matter not submitted to them, not
affecting the merits of the decision upon the matter submitted; or

(c) Where the award is imperfect in a matter of form not affecting the merits of the
controversy, and if it had been a commissioners report, the defect could have been
amended or disregarded by the court.

x x x.
Finally, it should be stressed that while a court is precluded from overturning an award for
errors in determination of factual issues, nevertheless, if an examination of the record reveals no
support whatever for the arbitrators determinations, their award must be vacated.[40] In the same
manner, an award must be vacated if it was made in manifest disregard of the law.[41]
Against the backdrop of the foregoing provisions and principles, we find that the arbitrators
came out with an award in excess of their powers and palpably devoid of factual and legal basis.
V

There was no financial structuring program; foreclosure of mortgage was fully justified.

The point need not be belabored that PNB and DBP had the legitimate right to foreclose of
the mortgages of MMIC whose obligations were past due. The foreclosure was not a wrongful act
of the banks and, therefore, could not be the basis of any award of damages. There was no financial
restructuring agreement to speak of that could have constituted an impediment to the exercise of
the banks right to foreclose.
 As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who wrote
a separate opinion:

1. The various loans and advances made by DBP and PNB to MMIC have become
overdue and remain unpaid. The fact that a FRP was drawn up is enough to establish
that MMIC has not been complying with the terms of the loan
agreement. Restructuring simply connotes that the obligations are past due that is why
it is restructurable;

2. When MMIC thru its board and the stockholders agreed and adopted the FRP, it
only means that MMIC had been informed or notified that its obligations were past
due and that foreclosure is forthcoming;

3. At that stage, MMIC also knew that PNB-DBP had the option of either approving
the FRP or proceeding with the foreclosure. Cabarrus, who filed this case supposedly
in behalf of MMIC should have insisted on the FRP. Yet Cabarrus himself opposed
the FRP;

4. So when PNB-DBP proceeded with the foreclosure, it was done without bad faith
but with honest and sincere belief that foreclosure was the only alternative; a decision
further explained by Dr. Placido Mapa who testified that foreclosure was, in the
judgment of PNB, the best move to save MMIC itself.

Q : Now in this portion of Exh. L which was marked as Exh. L-1, and we adopted as Exh. 37-A for the
respondent, may I know from you, Dr. Mapa what you meant by that the decision to foreclose was
neither precipitate nor arbitrary?
A : Well, it is not a whimsical decision but rather decision arrived at after weighty considerations of the
information that we have received, and listening to the prospects which reported to us that we had
assumed would be the premises of the financial rehabilitation plan was not materialized nor
expected to materialized.
Q : And this statement that it was premised upon the known fact that means, it was referring to the
decision to foreclose, was premised upon the known fact that the rehabilitation plan earlier
approved by the stockholders was no longer feasible, just what is meant by no longer feasible?
A : Because the revenue that they were counting on to make the rehabilitation plan possible, was not
anymore expected to be forthcoming because it will result in a short fall compared to the prices that
were actually taking place in the market.
Q : And I supposed that was you were referring to when you stated that the production targets and
assumed prices of MMICs products, among other projections, used in the financial reorganization
program that will make it viable were not met nor expected to be met?
A : Yes.
xxx
Which brings me to my last point in this separate opinion. Was PNB and DBP
absolutely unjustified in foreclosing the mortgages?

In this connection, it can readily be seen and it cannot quite be denied that MMIC
accounts in PNB-DBP were past due. The drawing up of the FRP is the best proof of
this. When MMIC adopted a restructuring program for its loan, it only meant that
these loans were already due and unpaid. If these loans were restructurable because
they were already due and unpaid, they are likewise forecloseable. The option is with
the PNB-DBP on what steps to take.

The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost the option to
foreclose. Neither does it mean that the FRP is legally binding and implementable. It must be
pointed that said FRP will, in effect, supersede the existing and past due loans of MMIC with
PNB-DBP. It will become the new loan agreement between the lenders and the borrowers. As in
all other contracts, there must therefore be a meeting of minds of the parties; the PNB and DBP
must have to validly adopt and ratify such FRP before they can be bound by it; before it can be
implemented. In this case, not an iota of proof has been presented by the PLAINTIFFS showing
that PNB and DBP ratified and adopted the FRP. PLAINTIFFS simply relied on a legal doctrine
of promissory estoppel to support its allegation in this regard.[42]

Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated by P.D. No.
385, which took effect on January 31, 1974. The decree requires government financial institutions
to foreclose collaterals for loans where the arrearages amount to 20% of the total outstanding
obligations. The pertinent provisions of said decree read as follows:

SEC. 1. It shall be mandatory for government financial institutions, after the lapse of
sixty (60) days from the issuance of this Decree to foreclose the collaterals and/or
securities for any loan, credit, accommodations, and/or guarantees granted by them
whenever the arrearages on such account, including accrued interest and other
charges, amount to at least twenty percent (20%) of the total outstanding obligations,
including interest and other charges, as appearing in the books of account and/or
related records of the financial institutions concerned. This shall be without prejudice
to the exercise by the government financial institutions of such rights and/or remedies
available to them under their respective contracts with their debtor, including the right
to foreclosure on loans, credits, accommodations and/or guarantees on which the
arrearages are less than twenty percent (20%).

SEC. 2. No restraining order, temporary or permanent injunction shall be issued by

the court against any government financial institution in any action taken by such
institution in compliance with the mandatory foreclosure provided in Section 1 hereof,
whether such restraining order, temporary or permanent injunction is sought by the
borrower(s) or any third party or parties, except after due hearing in which it is
established by the borrower and admitted by the government financial institution
concerned that twenty percent (20%) of the outstanding arrearages has been paid after
the filing of foreclosure proceedings. (Underscoring supplied.)

Private respondents thesis that the foreclosure proceedings were null and void because of lack
of publication in the newspaper is nothing more than a mere unsubstantiated allegation not borne
out by the evidence. In any case, a disputable presumption exists in favor of petitioner that official
duty has been regularly performed and ordinary course of business has been followed.[43]
VI

Not only was the foreclosure rightfully exercised by the PNB and DBP, but also, from the
facts of the case, the arbitrators in making the award went beyond the arbitration agreement.
In their complaint filed before the trial court, private respondent Cabarrus, et al. prayed for
judgment in their favor:

1. Declaring the foreclosure effected by the defendants DBP and PNB on the assets of
MMIC null and void and directing said defendants to restore the foreclosed assets to
the possession of MMIC, to render an accounting of their use and/or operation of said
assets and to indemnify MMIC for the loss occasioned by its dispossession or the
deterioration thereof;

2. Directing the defendants DBP and PNB to honor and perform their commitments
under the financial reorganization plan which was approved at the annual stockholders
meeting of MMIC on 30 April 1984;

3. Condemning the defendants DBP and PNB, jointly and severally to pay the
plaintiffs actual damages consisting of the loss of value of their investment amounting
to not less than P80,000,000.00, the damnum emerges and lucrum cessans in such
amount as may be establish during the trial, moral damages in such amount as this
Honorable Court may deem just and equitable in the premises, exemplary damages in
such amount as this Honorable Court may consider appropriate for the purpose of
setting an example for the public good, attorneys fees and litigation expenses in such
amounts as may be proven during the trial, and the costs legally taxable in this
litigation.

Further, Plaintiffs pray for such other reliefs as may be just and equitable in the
premises.[44]

Upon submission for arbitration, the Compromise and Arbitration Agreement of the parties
clearly and explicitly defined and limited the issues to the following:
(a) whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in
behalf of the MMIC or its directors;
 (b) whether or not the actions leading to, and including, the PNB-DBP foreclosure of the
MMIC assets were proper, valid and in good faith.[45]
Item No. 8 of the Agreement provides for the period by which the Committee was to render
its decision, as well as the nature thereof:
8. Decision. The committee shall issue a decision on the controversy not later than six (6) months
from the date of its constitution.

In the event the committee finds that PLAINTIFFS have the personality to file this
suit and extra-judicial foreclosure of the MMIC assets wrongful, it shall make an
award in favor of the PLAINTIFFS (excluding DBP), in an amount as may be
established or warranted by the evidence which shall be payable in Philippine Pesos at
the time of the award. Such award shall be paid by the APT or its successor-in-interest
within sixty (60) days from the date of the award in accordance with the provisions of
par. 9 hereunder. x x x. The PLAINTIFFS remedies under this Section shall be in
addition to other remedies that may be available to the PLAINTIFFS, all such
remedies being cumulative and not exclusive of each other.

On the other hand, in case the arbitration committee finds that PLAINTIFFS have no capacity to
sue and/or that the extra-judicial foreclosure is valid and legal, it shall also make an award in
favor of APT based on the counterclaims of DBP and PNB in an amount as may be established
or warranted by the evidence. This decision of the arbitration committee in favor of APT shall
likewise finally settle all issues regarding the foreclosure of the MMIC assets so that the funds
held in escrow mentioned in par. 9 hereunder will thus be released in full in favor of APT.[46]

The clear and explicit terms of the submission notwithstanding, the Arbitration Committee
clearly exceeded its powers or so imperfectly executed them: (a) in ruling on and declaring valid
the FRP; (b) in awarding damages to MMIC which was not a party to the derivative suit; and (c)
in awarding moral damages to Jesus S. Cabarrus, Sr.

The arbiters overstepped their powers by declaring as valid proposed Financial Restructuring Program.

The Arbitration Committee went beyond its mandate and thus acted in excess of its powers
when it ruled on the validity of, and gave effect to, the proposed FRP.
In submitting the case to arbitration, the parties had mutually agreed to limit the issue to the
validity of the foreclosure and to transform the reliefs prayed for therein into pure money claims.
There is absolutely no evidence that the DBP and PNB agreed, expressly or impliedly, to the
proposed FRP. It cannot be overemphasized that a FRP, as a contract, requires the consent of the
parties thereto.[47] The contract must bind both contracting parties.[48] Private respondents even by
their own admission recognized that the FRP had yet not been carried out and that the loans of
MMIC had not yet been converted into equity.[49]
 However, the arbitration Committee not only declared the FRP valid and effective, but also
converted the loans of MMIC into equity raising the equity of DBP to 87%.[50]
The Arbitration Committee ruled that there was a commitment to carry out the FRP [51] on the
ground of promissory estoppel.

Similarly, the principle of promissory estoppel applies in the present case considering
as we observed, the fact that the government (that is Alfredo Velayo) was the FRPs
proponent. Although the plaintiffs are agreed that the government executed no formal
agreement, the fact remains that the DBP itself which made representations that the
FRP constituted a way out for MMIC. The Committee believes that although the DBP
did not formally agree (assuming that the board and stockholders approvals were not
formal enough), it is bound nonetheless if only for its conspicuous representations.

Although the DBP sat in the board in a dual capacity-as holder of 36% of MMICs
equity (at that time) and as MMICs creditor-the DBP can not validly renege on its
commitments simply because at the same time, it held interest against the MMIC.

The fact, of course, is that as APT itself asserted, the FRP was being carried out
although apparently, it would supposedly fall short of its targets. Assuming that the
FRP would fail to meet its targets, the DBP-and so this Committee holds-can not, in
any event, brook any denial that it was bound to begin with, and the fact is that
adequate or not (the FRP), the government is still bound by virtue of its acts.

The FRP, of course, did not itself promise a resounding success, although it raised DBPs equity
in MMIC to 87%. It is not excuse, however, for the government to deny its commitments.[52]

Atty. Sison, however, did not agree and correctly observed that:

But the doctrine of promissory estoppel can hardly find application here. The nearest that there
can be said of any estoppel being present in this case is the fact that the board of MMIC was, at
the time the FRP was adopted, mostly composed of PNB and DBP representatives. But those
representatives, singly or collectively, are not themselves PNB or DBP. They are individuals
with personalities separate and distinct from the banks they represent. PNB and DBP have
different boards with different members who may have different decisions. It is unfair to impose
upon them the decision of the board of another company and thus pin them down on the
equitable principle of estoppel. Estoppel is a principle based on equity and it is certainly not
equitable to apply it in this particular situation. Otherwise the rights of entirely separate, distinct
and autonomous legal entities like PNB and DBP with thousands of stockholders will be
suppressed and rendered nugatory.[53]

As a rule, a corporation exercises its powers, including the power to enter into contracts,
through its board of directors. While a corporation may appoint agents to enter into a contract in
its behalf, the agent, should not exceed his authority.[54] In the case at bar, there was no showing
that the representatives of PNB and DBP in MMIC even had the requisite authority to enter into a
debt-for-equity swap. And if they had such authority, there was no showing that the banks, through
their board of directors, had ratified the FRP.
Further, how could the MMIC be entitled to a big amount of moral damages when its credit
reputation was not exactly something to be considered sound and wholesome. Under Article 2217
of the Civil Code, moral damages include besmirched reputation which a corporation may possibly
suffer. A corporation whose overdue and unpaid debts to the Government alone reached a
tremendous amount of P22 Billion Pesos cannot certainly have a solid business reputation to brag
about. As Atty. Sison in his separate opinion persuasively put it:

Besides, it is not yet a well settled jurisprudence that corporations are entitled to moral
damages. While the Supreme Court may have awarded moral damages to a corporation for
besmirched reputation in Mambulao vs. PNB 22 SCRA 359, such ruling cannot find application
in this case. It must be pointed out that when the supposed wrongful act of foreclosure was done,
MMICs credit reputation was no longer a desirable one. The company then was already suffering
from serious financial crisis which definitely projects an image not compatible with good and
wholesome reputation. So it could not be said that there was a reputation besmirches by the act
of foreclosure.[55]

The arbiters exceeded their authority in awarding damages to MMIC, which is not impleaded as a party to the derivative suit.

Civil Code No. 9900 filed before the RTC being a derivative suit, MMIC should have been
impleaded as a party. It was not joined as a party plaintiff or party defendant at any stage of the
proceedings. As it is, the award of damages to MMIC, which was not a party before the Arbitration
Committee, is a complete nullity.
Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while
the stockholder filing suit for the corporations behalf is only nominal party. The corporation should
be included as a party in the suit.

An individual stockholder is permitted to institute a derivative suit on behalf of the corporation

wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of
the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In
such actions, the suing stockholder is regarded as a nominal party, with the corporation as the
real party in interest. x x x.[56]

It is a condition sine qua non that the corporation be impleaded as a party because-

x x x. Not only is the corporation an indispensible party, but it is also the present rule that it must
be served with process. The reason given is that the judgment must be made binding upon the
corporation and in order that the corporation may get the benefit of the suit and may not bring a
subsequent suit against the same defendants for the same cause of action. In other words the
corporations must be joined as party because it is its cause of action that is being litigated and
because judgment must be a res ajudicata against it.[57]

The reasons given for not allowing direct individual suit are:
(1) x x x the universally recognized doctrine that a stockholder in a corporation has no
title legal or equitable to the corporate property; that both of these are in the
corporation itself for the benefit of the stockholders. In other words, to allow
shareholders to sue separately would conflict with the separate corporate entity
principle;

(2) x x x that the prior rights of the creditors may be prejudiced. Thus, our Supreme
Court held in the case of Evangelista v. Santos, that the stockholders may not directly
claim those damages for themselves for that would result in the appropriation by, and
the distribution among them of part of the corporate assets before the dissolution of
the corporation and the liquidation of its debts and liabilities, something which cannot
be legally done in view of section 16 of the Corporation Law xxx;

(3) the filing of such suits would conflict with the duty of the management to sue for
the protection of all concerned;

(4) it would produce wasteful multiplicity of suits; and

(5) it would involve confusion in a ascertaining the effect of partial recovery by an individual on
the damages recoverable by the corporation for the same act.[58]

If at all an award was due MMIC, which it was not, the same should have been
given sans deduction, regardless of whether or not the party liable had equity in the corporation,
in view of the doctrine that a corporation has a personality separate and distinct from its individual
stockholders or members. DBPs alleged equity, even if it were indeed 87%, did not give it
ownership over any corporate property, including the monetary award, its right over said corporate
property being a mere expectancy or inchoate right.[59]Notably, the stipulation even had the effect
of prejudicing the other creditors of MMIC.

The arbiters, likewise, exceeded their authority in awarding moral damages to Jesus Cabarrus, Sr.

It is perplexing how the Arbitration Committee can in one breath rule that the case before it is
a derivative suit, in which the aggrieved party or the real party in interest is supposedly the MMIC,
and at the same time award moral damages to an individual stockholder, to wit:

WHEREFORE, premises considered, judgment is hereby rendered:

xxx.

3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum
of P10,000,000.00, to be satisfied likewise from the funds held under escrow pursuant
to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow
agreement that would supersede it, pursuant to paragraph (9), Compromise and
Arbitration Agreement, as and for moral damages; x x x[60]

The majority decision of the Arbitration Committee sought to justify its award of moral
damages to Jesus S. Cabarrus, Sr. by pointing to the fact that among the assets seized by the
government were assets belonging to Industrial Enterprise Inc. (IEI), of which Cabarrus is the
majority stockholder. It then acknowledge that Cabarrus had already recovered said assets in the
RTC, but that he won no more than actual damages. While the Committee cannot possibly speak
for the RTC, there is no doubt that Jesus S. Cabarrus, Sr., suffered moral damages on account of
that specific foreclosure, damages the Committee believes and so holds, he Jesus S. Cabarrus, Sr.,
may be awarded in this proceeding.[61]
Cabarrus cause of action for the seizure of the assets belonging to IEI, of which he is the
majority stockholder, having been ventilated in a complaint he previously filed with the RTC, from
which he obtained actual damages, he was barred res judicata from filing a similar case in another
court, this time asking for moral damages which he failed to get from the earlier case.[62] Worse,
private respondents violated the rule against non-forum shopping.
It is a basic postulate that s corporation has a personality separate and distinct from its
stockholders.[63] The properties foreclosed belonged to MMIC, not to its stockholders. Hence, if
wrong was committed in the foreclosure, it was done against the corporation. Another reason is
that Jesus S. Cabarrus, Sr. cannot directly claim those damages for himself that would result in the
appropriation by, and the distribution to, him part of the corporations assets before the dissolution
of the corporation and the liquidation of its debts and liabilities. The Arbitration Committee,
therefore, passed upon matters not submitted to it. Moreover, said cause of action had already been
decided in a separate case. It is thus quite patent that the arbitration committee exceeded the
authority granted to it by the parties Compromise and Arbitration Agreement by awarding moral
damages to Jesus S. Cabarrus, Sr.
Atty. Sison, in his separate opinion, likewise expressed befuddlement to the award of moral
damages to Jesus S. Cabarrus, Sr.:

It is clear and it cannot be disputed therefore that based on these stipulated issues,
the parties themselves have agreed that the basic ingredient of the causes of action in
this case is the wrong committed on the corporation (MMIC) for the alleged illegal
foreclosure of its assets. By agreeing to this stipulation, PLAINTIFFS themselves
(Cabarrus, et al.) admit that the cause of action pertains only to the
corporation (MMIC) and that they are filing this for and in behalf of MMIC.

Perforce this has to be so because it is the basic rule in Corporation Law that the
shareholders have no title, legal or equitable to the property which is owned by the
corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon & Sons vs.
Register of Deeds, 6 SCRA 373, the rule has been reiterated that a stockholder is not
the co-owner of corporate property. Since the property or assets foreclosed belongs
[sic] to MMIC, the wrong committed, if any, is done against the corporation. There is
therefore no direct injury or direct violation of the rights of Cabarrus et al. There is no
way, legal or equitable, by which Cabarrus et al. could recover damages in their
personal capacities even assuming or just because the foreclosure is improper or
invalid. The Compromise and Arbitration Agreement itself and the elementary
principles of Corporation Law say so. Therefore, I am constrained to dissent from the
award of moral damages to Cabarrus.[64]

From the foregoing discussions, it is evident that, not only did the arbitration committee
exceed its powers or so imperfectly execute them, but also, its findings and conclusions are
palpably devoid of any factual basis and in manifest disregard of the law.
We do not find it necessary to remand this case to the RTC for appropriate action. The
pleadings and memoranda filed with this Court, as well as in the Court of Appeals, raised and
extensively discussed the issues on the merits. Such being the case, there is sufficient basis for us
to resolve the controversy between the parties anchored on the records and the pleadings before
us.[65]
WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as well as the
Orders of the Regional Trial Court of Makati, Branch 62, dated November 28, 1994 and January
19, 1995, is hereby REVERSED and SET ASIDE, and the decision of the Arbitration Committee
is hereby VACATED.
SO ORDERED
Romero (Chairman) J., Please see Dissenting Opinion.
Purisima, J., concur and also joined the separate concurring opinion of J. Pardo.
Pardo, J., see separate concurring opinion.

SECOND DIVISION

[G.R. No. 129916. March 26, 2001]

MAGELLAN CAPITAL MANAGEMENT CORPORATION and

MAGELLAN CAPITAL HOLDINGS CORPORATION, petitioners,
vs. ROLANDO M. ZOSA and HON. JOSE P. SOBERANO, JR., in his
capacity as Presiding Judge of Branch 58 of the Regional Trial Court Of
Cebu, 7th Judicial Region, respondents.

DECISION
BUENA, J.:

Under a management agreement entered into on March 18, 1994, Magellan Capital Holdings
Corporation [MCHC] appointed Magellan Capital Management Corporation [MCMC] as manager
for the operation of its business and affairs.[1] Pursuant thereto, on the same month, MCHC,
MCMC, and private respondent Rolando M. Zosa entered into an "Employment Agreement"
designating Zosa as President and Chief Executive Officer of MCHC.
Under the "Employment Agreement", the term of respondent Zosa's employment shall be co-
terminous with the management agreement, or until March 1996,[2] unless sooner terminated
pursuant to the provisions of the Employment Agreement.[3] The grounds for termination of
employment are also provided in the Employment Agreement.
On May 10, 1995, the majority of MCHCs Board of Directors decided not to re-elect
respondent Zosa as President and Chief Executive Officer of MCHC on account of loss of trust
and confidence[4]arising from alleged violation of the resolution issued by MCHC's board of
directors and of the non-competition clause of the Employment Agreement.[5] Nevertheless,
respondent Zosa was elected to a new position as MCHC's Vice-Chairman/Chairman for New
Ventures Development.[6]
On September 26, 1995, respondent Zosa communicated his resignation for good reason from
the position of Vice-Chairman under paragraph 7 of the Employment Agreement on the ground
that said position had less responsibility and scope than President and Chief Executive Officer. He
demanded that he be given termination benefits as provided for in Section 8 (c) (i) (ii) and (iii) of
the Employment Agreement.[7]
In a letter dated October 20, 1995, MCHC communicated its non-acceptance of respondent
Zosa's resignation for good reason, but instead informed him that the Employment Agreement is
terminated for cause, effective November 19, 1995, in accordance with Section 7 (a) (v) of the said
agreement, on account of his breach of Section 12 thereof. Respondent Zosa was further advised
that he shall have no further rights under the said Agreement or any claims against the Manager or
the Corporation except the right to receive within thirty (30) days from November 19, 1995, the
amounts stated in Section 8 (a) (i) (ii) of the Agreement.[8]
Disagreeing with the position taken by petitioners, respondent Zosa invoked the Arbitration
Clause of the Employment Agreement, to wit:

23. Arbitration. In the event that any dispute, controversy or claim arises out of or
under any provisions of this Agreement, then the parties hereto agree to submit such
dispute, controversy or claim to arbitration as set forth in this Section and the
determination to be made in such arbitration shall be final and binding. Arbitration
shall be effected by a panel of three arbitrators. The Manager, Employee and
Corporation shall designate one (1) arbitrator who shall, in turn, nominate and elect
who among them shall be the chairman of the committee. Any such arbitration,
including the rendering of an arbitration award, shall take place in Metro Manila. The
arbitrators shall interpret this Agreement in accordance with the substantive laws of
the Republic of the Philippines. The arbitrators shall have no power to add to, subtract
from or otherwise modify the terms of Agreement or to grant injunctive relief of any
nature. Any judgment upon the award of the arbitrators may be entered in any court
having jurisdiction thereof, with costs of the arbitration to be borne equally by the
parties, except that each party shall pay the fees and expenses of its own counsel in
the arbitration.

On November 10, 1995, respondent Zosa designated his brother, Atty. Francis Zosa, as his
representative in the arbitration panel[9] while MCHC designated Atty. Inigo S. Fojas[10] and
MCMC nominated Atty. Enrique I. Quiason[11] as their respective representatives in the arbitration
panel. However, instead of submitting the dispute to arbitration, respondent Zosa, on April 17,
1996, filed an action for damages against petitioners before the Regional Trial Court of Cebu[12] to
enforce his benefits under the Employment Agreement.
On July 3, 1996, petitioners filed a motion to dismiss[13] arguing that (1) the trial court has no
jurisdiction over the instant case since respondent Zosa's claims should be resolved through
arbitration pursuant to Section 23 of the Employment Agreement with petitioners; and (2) the
venue is improperly laid since respondent Zosa, like the petitioners, is a resident of Pasig City and
thus, the venue of this case, granting without admitting that the respondent has a cause of action
against the petitioners cognizable by the RTC, should be limited only to RTC-Pasig City.[14]
Meanwhile, respondent Zosa filed an amended complaint dated July 5, 1996.
On August 1, 1996, the RTC Branch 58 of Cebu City issued an Order denying petitioners
motion to dismiss upon the findings that (1) the validity and legality of the arbitration provision
can only be determined after trial on the merits; and (2) the amount of damages claimed, which is
over P100,000.00, falls within the jurisdiction of the RTC.[15] Petitioners filed a motion for
reconsideration which was denied by the RTC in an order dated September 5, 1996.[16]
In the interim, on August 22, 1996, in compliance with the earlier order of the court directing
petitioners to file responsive pleading to the amended complaint, petitioners filed their Answer Ad
Cautelamwith counterclaim reiterating their position that the dispute should be settled through
arbitration and the court had no jurisdiction over the nature of the action.[17]
On October 21, 1996, the trial court issued its pre-trial order declaring the pre-trial stage
terminated and setting the case for hearing. The order states:

ISSUES:

The Court will only resolve one issue in so far as this case is concerned, to wit:

Whether or not the Arbitration Clause contained in Sec.23 of the Employment

Agreement is void and of no effect: and, if it is void and of no effect, whether or not
the plaintiff is entitled to damages in accordance with his complaint and the
defendants in accordance with their counterclaim.

It is understood, that in the event the arbitration clause is valid and binding between
the parties, the parties shall submit their respective claim to the Arbitration Committee
in accordance with the said arbitration clause, in which event, this case shall be
deemed dismissed.[18]
 On November 18, 1996, petitioners filed their Motion Ad Cautelam for the Correction,
Addition and Clarification of the Pre-trial Order dated November 15 1996,[19] which was denied by
the court in an order dated November 28, 1996.[20]
Thereafter, petitioners MCMC and MCHC filed a Motion Ad Cautelam for the parties to file
their Memoranda to support their respective stand on the issue of the validity of the arbitration
clause contained in the Employment Agreement. In an order dated December 13, 1996, the trial
court denied the motion of petitioners MCMC and MCHC.
On January 17, 1997, petitioners MCMC and MCHC filed a petition for certiorari and
prohibition under Rule 65 of the Rules of Court with the Court of Appeals, questioning the trial
court orders dated August 1, 1996, September 5, 1996, and December 13, 1996.[21]
On March 21, 1997, the Court of Appeals rendered a decision, giving due course to the
petition, the decretal portion of which reads:

WHEREFORE, the petition is GIVEN DUE COURSE. The respondent court is

directed to resolve the issue on the validity or effectivity of the arbitration clause in
the Employment Agreement, and to suspend further proceedings in the trial on the
merits until the said issue is resolved. The questioned orders are set aside insofar as
they contravene this Courts resolution of the issues raised as herein pronounced.

The petitioner is required to remit to this Court the sum of P81.80 for cost within five
(5) days from notice.

SO ORDERED.[22]

Petitioners filed a motion for partial reconsideration of the CA decision praying (1) for the
dismissal of the case in the trial court, on the ground of lack of jurisdiction, and (2) that the parties
be directed to submit their dispute to arbitration in accordance with the Employment
Agreement dated March 1994. The CA, in a resolution promulgated on June 20, 1997, denied the
motion for partial reconsideration for lack of merit.
In compliance with the CA decision, the trial court, on July 18, 1997, rendered a decision
declaring the arbitration clause in the Employment Agreement partially void and of no effect. The
dispositive portion of the decision reads:

WHEREFORE, premises considered, judgment is hereby rendered partially declaring

the arbitration clause of the Employment Agreement void and of no effect, only
insofar as it concerns the composition of the panel of arbitrators, and directing the
parties to proceed to arbitration in accordance with the Employment Agreement under
the panel of three (3) arbitrators, one for the plaintiff, one for the defendants, and the
third to be chosen by both the plaintiff and defendants. The other terms, conditions
and stipulations in the arbitration clause remain in force and effect."[23]
 In view of the trial courts decision, petitioners filed this petition for review on certiorari, under
Rule 45 of the Rules of Court, assigning the following errors for the Courts resolution:

I. The trial court gravely erred when it ruled that the arbitration clause under the
employment agreement is partially void and of no effect, considering that:

A. The arbitration clause in the employment agreement dated March 1994 between respondent
Zosa and defendants MCHC and MCMC is valid and binding upon the parties thereto.
B. In view of the fact that there are three parties to the employment agreement, it is but proper
that each party be represented in the arbitration panel.
C. The trial court grievously erred in its conclusion that petitioners MCMC and MCHC represent
the same interest.
D. Respondent Zosa is estopped from questioning the validity of the arbitration clause, including
the right of petitioner MCMC to nominate its own arbitrator, which he himself has invoked.

II. In any event, the trial court acted without jurisdiction in hearing the case below,
considering that it has no jurisdiction over the nature of the action or suit since
controversies in the election or appointment of officers or managers of a corporation,
such as the action brought by respondent Zosa, fall within the original and exclusive
jurisdiction of the Securities and Exchange Commission.

III. Contrary to respondent Zosas allegation, the issue of the trial courts jurisdiction
over the case below has not yet been resolved with finality considering that petitioners
have expressly reserved their right to raise said issue in the instant petition. Moreover,
the principle of the law of the case is not applicable in the instant case.

IV. Contrary to respondent Zosas allegation, petitioners MCMC and MCHC are not
guilty of forum shopping.

V. Contrary to respondent Zosas allegation, the instant petition for review involves
only questions of law and not of fact.[24]

We rule against the petitioners.

It is error for the petitioners to claim that the case should fall under the jurisdiction of the
Securities and Exchange Commission [SEC, for brevity]. The controversy does not in anyway
involve the election/appointment of officers of petitioner MCHC, as claimed by petitioners in their
assignment of errors. Respondent Zosas amended complaint focuses heavily on the illegality of
the Employment Agreements Arbitration Clause initially invoked by him in seeking his termination
benefits under Section 8 of the employment contract. And under Republic Act No. 876, otherwise
known as the Arbitration Law, it is the regional trial court which exercises jurisdiction over
questions relating to arbitration. We thus advert to the following discussions made by the Court of
Appeals, speaking thru Justice Minerva P. Gonzaga-Reyes,[25] in C.A.-G.R. S.P. No. 43059, viz:
As regards the fourth assigned error, asserting that jurisdiction lies with the SEC,
which is raised for the first time in this petition, suffice it to state that the Amended
Complaint squarely put in issue the question whether the Arbitration Clause is valid
and effective between the parties. Although the controversy which spawned the action
concerns the validity of the termination of the service of a corporate officer, the issue
on the validity and effectivity of the arbitration clause is determinable by the regular
courts, and do not fall within the exclusive and original jurisdiction of the SEC.

The determination and validity of the agreement is not a matter intrinsically connected
with the regulation and internal affairs of corporations (see Pereyra vs. IAC, 181
SCRA 244; Sales vs. SEC, 169 SCRA 121); it is rather an ordinary case to be decided
in accordance with the general laws, and do not require any particular expertise or
training to interpret and apply (Viray vs. CA, 191 SCRA 308).[26]

Furthermore, the decision of the Court of Appeals in CA-G.R. SP No. 43059 affirming the
trial courts assumption of jurisdiction over the case has become the law of the case which now
binds the petitioners. The law of the case doctrine has been defined as a term applied to an
established rule that when an appellate court passes on a question and remands the cause to the
lower court for further proceedings, the question there settled becomes the law of the case upon
subsequent appeal.[27] To note, the CAs decision in CA-G.R. SP No. 43059 has already attained
finality as evidenced by a Resolution of this Court ordering entry of judgment of said case, to wit:

ENTRY OF JUDGMENT

This is to certify that on September 8, 1997 a decision/resolution rendered in the

above-entitled case was filed in this Office, the dispositive part of which reads as
follows:

G.R. No. 129615 (Magellan Capital Management Corporation, et al. vs. Court of
Appeals, Rolando Zosa, et al.).- Considering the petitioners manifestation dated
August 11, 1997 and withdrawal of intention to file petition for review on certiorari,
the Court Resolved to DECLARE THIS CASE TERMINATED and DIRECT the
Clerk of Court to INFORM the parties that the judgment sought to be reviewed has
become final and executory, no appeal therefore having been timely perfected.

and that the same has, on September 17, 1997, become final and executory and is
hereby recorded in the Book of Entries of Judgments. [28]

Petitioners, therefore, are barred from challenging anew, through another remedial measure and in
any other forum, the authority of the regional trial court to resolve the validity of the arbitration
clause, lest they be truly guilty of forum-shopping which the courts consistently consider as a
contumacious practice that derails the orderly administration of justice.
 Equally unavailing for the petitioners is the review by this Court, via the instant petition, of
the factual findings made by the trial court that the composition of the panel of arbitrators would,
in all probability, work injustice to respondent Zosa. We have repeatedly stressed that the
jurisdiction of this Court in a petition for review on certiorari under Rule 45 of the Revised Rules
of Court is limited to reviewing only errors of law, not of fact, unless the factual findings
complained of are devoid of support by the evidence on record, or the assailed judgment is based
on misapprehension of facts.[29]
Even if procedural rules are disregarded, and a scrutiny of the merits of the case is undertaken,
this Court finds the trial courts observations on why the composition of the panel of arbitrators
should be voided, incisively correct so as to merit our approval. Thus,

From the memoranda of both sides, the Court is of the view that the defendants
[petitioner] MCMC and MCHC represent the same interest. There is no quarrel that
both defendants are entirely two different corporations with personalities distinct and
separate from each other and that a corporation has a personality distinct and separate
from those persons composing the corporation as well as from that of any other legal
entity to which it may be related.

But as the defendants [herein petitioner] represent the same interest, it could never be
expected, in the arbitration proceedings, that they would not protect and preserve their
own interest, much less, would both or either favor the interest of the plaintiff. The
arbitration law, as all other laws, is intended for the good and welfare of everybody. In
fact, what is being challenged by the plaintiff herein is not the law itself but the
provision of the Employment Agreement based on the said law, which is the
arbitration clause but only as regards the composition of the panel of arbitrators. The
arbitration clause in question provides, thus:

In the event that any dispute, controversy or claim arise out of or under any provisions
of this Agreement, then the parties hereto agree to submit such dispute, controversy or
claim to arbitration as set forth in this Section and the determination to be made in
such arbitration shall be final and binding. Arbitration shall be effected by a panel of
three arbitrators. The Manager, Employee, and Corporation shall designate one (1)
arbitrator who shall, in turn, nominate and elect as who among them shall be the
chairman of the committee. Any such arbitration, including the rendering of an
arbitration award, shall take place in Metro Manila. The arbitrators shall interpret this
Agreement in accordance with the substantive laws of the Republic of the
Philippines. The arbitrators shall have no power to add to, subtract from or otherwise
modify the terms of this Agreement or to grant injunctive relief of any nature. Any
judgment upon the award of the arbitrators may be entered in any court having
jurisdiction thereof, with costs of the arbitration to be borne equally by the parties,
except that each party shall pay the fees and expenses of its own counsel in the
arbitration. (Emphasis supplied).
From the foregoing arbitration clause, it appears that the two (2) defendants
[petitioners] (MCMC and MCHC) have one (1) arbitrator each to compose the panel
of three (3) arbitrators. As the defendant MCMC is the Manager of defendant MCHC,
its decision or vote in the arbitration proceeding would naturally and certainly be in
favor of its employer and the defendant MCHC would have to protect and preserve its
own interest; hence, the two (2) votes of both defendants (MCMC and MCHC) would
certainly be against the lone arbitrator for the plaintiff [herein defendant]. Hence,
apparently, plaintiff [defendant] would never get or receive justice and fairness in the
arbitration proceedings from the panel of arbitrators as provided in the aforequoted
arbitration clause. In fairness and justice to the plaintiff [defendant], the two
defendants (MCMC and MCHC)[herein petitioners] which represent the same interest
should be considered as one and should be entitled to only one arbitrator to represent
them in the arbitration proceedings. Accordingly, the arbitration clause, insofar as the
composition of the panel of arbitrators is concerned should be declared void and of no
effect, because the law says, Any clause giving one of the parties power to choose
more arbitrators than the other is void and of no effect (Article 2045, Civil Code).

The dispute or controversy between the defendants (MCMC and MCHC) [herein
petitioners] and the plaintiff [herein defendant] should be settled in the arbitration
proceeding in accordance with the Employment Agreement, but under the panel of
three (3) arbitrators, one (1) arbitrator to represent the plaintiff, one (1) arbitrator to
represent both defendants (MCMC and MCHC)[herein petitioners] and the third
arbitrator to be chosen by the plaintiff [defendant Zosa] and defendants [petitioners].

x x x x x x x x x[30]
In this connection, petitioners attempt to put respondent in estoppel in assailing the arbitration
clause must be struck down. For one, this issue of estoppel, as likewise noted by the Court of
Appeals, found its way for the first time only on appeal. Well-settled is the rule that issues not
raised below cannot be resolved on review in higher courts.[31] Secondly, employment agreements
such as the one at bar are usually contracts of adhesion. Any ambiguity in its provisions is generally
resolved against the party who drafted the document. Thus, in the relatively recent case of Phil.
Federation of Credit Cooperatives, Inc. (PFCCI) and Fr. Benedicto Jayoma vs. NLRC and
Victoria Abril,[32] we had the occasion to stress that where a contract of employment, being a
contract of adhesion, is ambiguous, any ambiguity therein should be construed strictly against the
party who prepared it. And, finally, respondent Zosa never submitted himself to arbitration
proceedings (as there was none yet) before bewailing the composition of the panel of
arbitrators. He in fact, lost no time in assailing the arbitration clause upon realizing the inequities
that may mar the arbitration proceedings if the existing line-up of arbitrators remained unchecked.
We need only to emphasize in closing that arbitration proceedings are designed to level the
playing field among the parties in pursuit of a mutually acceptable solution to their conflicting
claims. Any arrangement or scheme that would give undue advantage to a party in the negotiating
table is anathema to the very purpose of arbitration and should, therefore, be resisted.
 WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of
the trial court dated July 18, 1997 is AFFIRMED.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, and De Leon, Jr., JJ., concur.
Quisumbing, J., on leave.

[1]
Section 1 of Amended and Restated Management Agreement, Annex, "B," Rollo p. 74.
[2]
par. 2 of the Pre-Trial Order dated October 21, 1996; Annex "BB," Rollo, p. 241.
[3]
Annex "C" of Petition, Rollo, pp.89-101; 217 - 229.
[4]
par. 5 of Petitioner's Memorandum, Rollo, p. 560.
[5]
par. 5.1 - 6.4, ibid., Rollo, pp. 560-562.
[6]
par. 4, ibid., Rollo, p. 559.
[7]
par. 6-7, Amended Complaint, Rollo, pp. 173-174; p. 562.
[8]
Annex "O" of Petition, Rollo, p. 130.
[9]
Annex "P" of Petition, Rollo, p. 131.
[10]
Annex "R" of Petition, Rollo, p. 133.
[11]
Annex "Q" of Petition, Rollo, p. 132.
[12]
Annex "BB," Rollo, p. 241.
[13]
Annex "S," Rollo, pp. 134- 145.
[14]
Annex "U," Rollo, p. 179.
[15]
Annex "X," Rollo, p. 185 - 186.
[16]
Annex AA, Rollo, p. 240.
[17]
Par. 9, Petitioners Memorandum, Rollo, p. 566.
[18]
Pre-trial Order, Annex BB, Rollo, pp. 241-243.
[19]
Annex CC, Rollo, pp. 248; 566-567.
[20]
Annex DD, Rollo, p. 252.
[21]
The issues submitted to the Court of Appeals are as follows:
I.
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION WHEN IT ISSUED THE QUESTIONED ORDERS DATED 1 AUGUST 1996 (ANNEX A), 05
SEPTEMBER 1996 (ANNEX B) AND 13 DECEMBER 1996 (ANNEX C) WHICH DEFERRED THE
RESOLUTION OF THE ISSUE REGARDING THE VALIDITY OF THE ARBITRATION CLAUSE IN THE
EMPLOYMENT AGREEMENT UNTIL AFTER TRIAL ON THE MERITS.
II.
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION WHEN IT FAILED TO RULE THAT THE ARBITRATION CLAUSE UNDER THE
EMPLOYMENT AGREEMENT IS VALID AND BINDING ON THE PARTIES THERETO.
III.
RESPONDENT COURT ACTED WITHOUT OR IN EXCESS OF JURISDICTION WHEN IT TOOK
COGNIZANCE OF RESPONDENT ZOSAS AMENDED COMPLAINT INSTEAD OF REFERRING THE SAME
IMMEDIATELY TO ARBITRATION PURSUANT TO THE EMPLOYMENT AGREEMENT BETWEEN
PETITIONERS AND RESPONDENT ZOSA.
IV.
IN ANY EVENT, RESPONDENT COURT ACTED AND IS CONTINUING TO ACT WITHOUT JURISDICTION
IN HEARING THE CASE BELOW, CONSIDERING THAT IT HAS NO JURISDICTION OVER THE NATURE
OF THE ACTION OR SUIT SINCE CONTROVERSIES IN THE ELECTION OR APPOINTMENT OF OFFICERS
OR MANAGERS OF A CORPORATION, SUCH AS THE ACTION BROUGHT BY RESPONDENT ZOSA, FALL
WITHIN THE ORIGINAL AND EXCLUSIVE JURISDICTION OF THE SECURITIES AND EXCHANGE
COMMISSION.
V.
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION WHEN IT REFUSED TO DISMISS THE ACTION BELOW FOR IMPROPER VENUE.
VI.
RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION WHEN IT FAILED TO DISMISS THE AMENDED COMPLAINT FOR LACK OF THE
REQUISITE CERTIFICATION OF NON-FORUM SHOPPING.
Court of Appeals Decision, pp. 5-6; Rollo, pp. 316-317.
[22]
Ibid., pp. 329-330.
[23]
Annex A, RTC Decision, pp. 72-73.
[24]
Rollo, pp. 571-573.
[25]
Now Associate Justice of this Court.
[26]
Court of Appeals Decision, p. 16; Rollo, p. 321.
[27]
Loevillo C. Agustin vs. Court of Appeals and Filinvest Finance Corporation, 271 SCRA 457 [1997].
[28]
Rollo, p. 350.
[29]
Congregation of the Religious of the Virgin Mary vs. CA, 291 SCRA 385 [1998].
[30]
Rollo, pp. 71-72.
[31]
Casolita, Sr. vs. Court of Appeals, 275 SCRA 257 [1997]; Manalili vs. Court of Appeals, 280 SCRA 400 [1997].
[32]
G.R. No. 121071, December 11, 1998.