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G.R. No. 143581 January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner,vs.HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256 of Regional TrialCourt of Muntinlupa City, and PACIFIC GENERAL STEEL MANUFACTURING

CORPORATION, respondents.

D E C I S I O N

VELASCO, JR., J . :

In our jurisdiction, the policy is to favor alternative methods of resolving disputes, particularly in civil andcommercial disputes. Arbitration along with mediation, conciliation, and negotiation, being inexpensive,speedy and less hostile methods have long been favored by this Court. The petition before us puts atissue an arbitration clause in a contract mutually agreed upon by the parties stipulating that they wouldsubmit themselves to arbitration in a foreign country. Regrettably, instead of hastening the resolution oftheir dispute, the parties wittingly or unwittingly prolonged the controversy.

Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is engaged in the supplyand installation of Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants, while privaterespondent Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic corporation.

On March 5, 1997, PGSMC and KOGIES executed a Contrac t1 whereby KOGIES would set up an LPGCylinder Manufacturing Plant in Carmona, Cavite. The contract was executed in the Philippines. On April7, 1997, the parties executed, in Korea, an Amendment for Contract No. KLP-970301 dated March 5,199 72 amending the terms of payment. The contract and its amendment stipulated that KOGIES will shipthe machinery and facilities necessary for manufacturing LPG cylinders for which PGSMC would payUSD 1,224,000. KOGIES would install and initiate the operation of the plant for which PGSMC bounditself to pay USD 306,000 upon the plant’s production of the 11-kg. LPG cylinder samples. Thus, the totalcontract price amounted to USD 1,530,000.

On October 14, 1997, PGSMC entered into a Contract of Lease 3 with Worth Properties, Inc. (Worth) foruse of Worth’s 5,079 -square meter property with a 4,032-square meter warehouse building to house theLPG manufacturing plant. The monthly rental was PhP 322,560 commencing on January 1, 1998 with a10% annual increment clause. Subsequently, the machineries, equipment, and facilities for themanufacture of LPG cylinders were shipped, delivered, and installed in the Carmona plant. PGSMC paidKOGIES USD 1,224,000.

However, gleaned from the Certificate 4 executed by the parties on January 22, 1998, after the installationof the plant, the initial operation could not be conducted as PGSMC encountered financial difficultiesaffecting the supply of materials, thus forcing the parties to agree that KOGIES would be deemed to havecompletely complied with the terms and conditions of the March 5, 1997 contract.

For the remaining balance of USD306,000 for the installation and initial operation of the plant, PGSMCissued two postdated checks: (1) BPI Check No. 0316412 dated January 30, 1998 for PhP 4,500,000;and (2) BPI Check No. 0316413 dated March 30, 1998 for PhP 4,500,000 .5

When KOGIES deposited the checks, these were dishonored for the reason "PAYMENT STOPPED."Thus, on May 8, 1998, KOGIES sent a demand lette r 6 to PGSMC threatening criminal action for violationof Batas Pambansa Blg. 22 in case of nonpayment. On the same date, the wife of PGSMC’s Presidentfaxed a letter dated May 7, 1998 to KOGIES’ President who was then staying at a Makati City hotel. Shecomplained that not only did KOGIES deliver a different brand of hydraulic press from that agreed uponbut it had not delivered several equipment parts already paid for.

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On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully funded but thepayments were stopped for reasons previously made known to KOGIES .7

On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their Contract dated March 5,1997 on the ground that KOGIES had altered the quantity and lowered the quality of the machineries andequipment it delivered to PGSMC, and that PGSMC would dismantle and transfer the machineries,

equipment, and facilities installed in the Carmona plant. Five days later, PGSMC filed before the Office ofthe Public Prosecutor an Affidavit-Complaint for Estafa docketed as I.S. No. 98-03813 against Mr. DaeHyun Kang, President of KOGIES.

On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not unilaterally rescindtheir contract nor dismantle and transfer the machineries and equipment on mere imagined violations byKOGIES. It also insisted that their disputes should be settled by arbitration as agreed upon in Article 15,the arbitration clause of their contract.

On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1, 1998 letterthreatening that the machineries, equipment, and facilities installed in the plant would be dismantled andtransferred on July 4, 1998. Thus, on July 1, 1998, KOGIES instituted an Application for Arbitration beforethe Korean Commercial Arbitration Board (KCAB) in Seoul, Korea pursuant to Art. 15 of the Contract as

amended.

On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as Civil Case No. 98-117 8 against PGSMC before the Muntinlupa City Regional Trial Court (RTC). The RTC granted atemporary restraining order (TRO) on July 4, 1998, which was subsequently extended until July 22, 1998.In its complaint, KOGIES alleged that PGSMC had initially admitted that the checks that were stoppedwere not funded but later on claimed that it stopped payment of the checks for the reason that "their valuewas not received" as the former allegedly breached their contract by "altering the quantity and loweringthe quality of the machinery and equipment" installed in the plant and failed to make the plant operationalalthough it earlier certified to the contrary as shown in a January 22, 1998 Certificate. Likewise, KOGIESaverred that PGSMC violated Art. 15 of their Contract, as amended, by unilaterally rescinding the contractwithout resorting to arbitration. KOGIES also asked that PGSMC be restrained from dismantling andtransferring the machinery and equipment installed in the plant which the latter threatened to do on July 4,

1998.

On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled to theTRO since Art. 15, the arbitration clause, was null and void for being against public policy as it ousts thelocal courts of jurisdiction over the instant controversy.

On July 17, 1998, PGSMC filed its Answer with Compulsory Counterclaim 9 asserting that it had the fullright to dismantle and transfer the machineries and equipment because it had paid for them in full asstipulated in the contract; that KOGIES was not entitled to the PhP 9,000,000 covered by the checks forfailing to completely install and make the plant operational; and that KOGIES was liable for damagesamounting to PhP 4,500,000 for altering the quantity and lowering the quality of the machineries andequipment. Moreover, PGSMC averred that it has already paid PhP 2,257,920 in rent (covering Januaryto July 1998) to Worth and it was not willing to further shoulder the cost of renting the premises of the

plant considering that the LPG cylinder manufacturing plant never became operational.

After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an Order denying theapplication for a writ of preliminary injunction, reasoning that PGSMC had paid KOGIES USD 1,224,000,the value of the machineries and equipment as shown in the contract such that KOGIES no longer hadproprietary rights over them. And finally, the RTC held that Art. 15 of the Contract as amended wasinvalid as it tended to oust the trial court or any other court jurisdiction over any dispute that may arisebetween the parties. KOGIES’ prayer for an injunctive writ was denied .10 The dispositive portion of theOrder stated:















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WHEREFORE, in view of the foregoing consideration, this Court believes and so holds thatno cogent reason exists for this Court to grant the writ of preliminary injunction to restrainand refrain defendant from dismantling the machineries and facilities at the lot and building ofWorth Properties, Incorporated at Carmona, Cavite and transfer the same to another site:and therefore denies plaintiff’s application for a writ of preliminary injunction.

On July 29, 1998, KOGIES filed its Reply to Answer and Answer to Counterclaim .11

KOGIES denied ithad altered the quantity and lowered the quality of the machinery, equipment, and facilities it delivered tothe plant. It claimed that it had performed all the undertakings under the contract and had alreadyproduced certified samples of LPG cylinders. It averred that whatever was unfinished was PGSMC’s faultsince it failed to procure raw materials due to lack of funds. KOGIES, relying on Chung Fu Industries(Phils.), Inc. v. Court of Appeals ,12 insisted that the arbitration clause was without question valid.

After KOGIES filed a Supplemental Memorandum with Motion to Dismiss 13 answering PGSMC’smemorandum of July 22, 1998 and seeking dismissal of PGSMC’s counterclaims, KOGIES, on August 4,1998, filed its Motion for Reconsideratio n14 of the July 23, 1998 Order denying its application for aninjunctive writ claiming that the contract was not merely for machinery and facilities worth USD 1,224,000but was for the sale of an "LPG manufacturing plant" consisting of "supply of all the machinery andfacilities" and "transfer of technology" for a total contract price of USD 1,530,000 such that the dismantling

and transfer of the machinery and facilities would result in the dismantling and transfer of the very plantitself to the great prejudice of KOGIES as the still unpaid owner/seller of the plant. Moreover, KOGIESpoints out that the arbitration clause under Art. 15 of the Contract as amended was a valid arbitrationstipulation under Art. 2044 of the Civil Code and as held by this Court in Chung Fu Industries (Phils.),Inc .15

In the meantime, PGSMC filed a Motion for Inspection of Thing s 16 to determine whether there was indeedalteration of the quantity and lowering of quality of the machineries and equipment, and whether thesewere properly installed. KOGIES opposed the motion positing that the queries and issues raised in themotion for inspection fell under the coverage of the arbitration clause in their contract.

On September 21, 1998, the trial court issued an Order (1) granting PGSMC’s motion for inspection; (2)denying KOGIES’ motion for reconsideration of the July 23, 1998 RTC Order; and (3) denying KOGIES’motion to dismiss PGSMC’s compulsory counterclaims as t hese counterclaims fell within the requisites ofcompulsory counterclaims.

On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration 17 of the September 21, 1998RTC Order granting inspection of the plant and denying dismissal of PGSMC’s compulsory counterclaims.

Ten days after, on October 12, 1998, without waiting for the resolution of its October 2, 1998 urgentmotion for reconsideration, KOGIES filed before the Court of Appeals (CA) a petition forcertiorar i18 docketed as CA-G.R. SP No. 49249, seeking annulment of the July 23, 1998 and September21, 1998 RTC Orders and praying for the issuance of writs of prohibition, mandamus, and preliminaryinjunction to enjoin the RTC and PGSMC from inspecting, dismantling, and transferring the machineriesand equipment in the Carmona plant, and to direct the RTC to enforce the specific agreement onarbitration to resolve the dispute.

In the meantime, on October 19, 1998, the RTC denied KOGIES’ urgent motion for reconsideration anddirected the Branch Sheriff to proceed with the inspection of the machineries and equipment in the planton October 28, 1998 .19

Thereafter, KOGIES filed a Supplement to the Petition 20 in CA-G.R. SP No. 49249 informing the CA aboutthe October 19, 1998 RTC Order. It also reiterated its prayer for the issuance of the writs of prohibition,mandamus and preliminary injunction which was not acted upon by the CA. KOGIES asserted that the






































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Branch Sheriff did not have the technical expertise to ascertain whether or not the machineries andequipment conformed to the specifications in the contract and were properly installed.

On November 11, 1998, the Branch Sher iff filed his Sheriff’s Repor t21 finding that the enumeratedmachineries and equipment were not fully and properly installed.

The Court of Appeals affirmed the trial court and declaredthe arbitration clause against public policy

On May 30, 2000, the CA rendered the assailed Decision 22 affirming the RTC Orders and dismissing thepetition for certiorari filed by KOGIES. The CA found that the RTC did not gravely abuse its discretion inissuing the assailed July 23, 1998 and September 21, 1998 Orders. Moreover, the CA reasoned thatKOGIES’ contention that the total contrac t price for USD 1,530,000 was for the whole plant and had notbeen fully paid was contrary to the finding of the RTC that PGSMC fully paid the price of USD 1,224,000,which was for all the machineries and equipment. According to the CA, this determination by the RTCwas a factual finding beyond the ambit of a petition for certiorari.

On the issue of the validity of the arbitration clause, the CA agreed with the lower court that an arbitrationclause which provided for a final determination of the legal rights of the parties to the contract byarbitration was against public policy.

On the issue of nonpayment of docket fees and non-attachment of a certificate of non-forum shopping byPGSMC, the CA held that the counterclaims of PGSMC were compulsory ones and payment of docketfees was not required since the Answer with counterclaim was not an initiatory pleading. For the samereason, the CA said a certificate of non-forum shopping was also not required.

Furthermore, the CA held that the petition for certiorari had been filed prematurely since KOGIES did notwait for the resolution of its urgent motion for reconsideration of the September 21, 1998 RTC Orderwhich was the plain, speedy, and adequate remedy available. According to the CA, the RTC must begiven the opportunity to correct any alleged error it has committed, and that since the assailed orderswere interlocutory, these cannot be the subject of a petition for certiorari.

Hence, we have this Petition for Review on Certiorari under Rule 45.

The Issues

Petitioner posits that the appellate court committed the following errors:

a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY ANDFACILITIES AS "A QUESTION OF FACT" "BEYOND THE AMBIT OF A PETITION FORCERTIORARI" INTENDED ONLY FOR CORRECTION OF ERRORS OF JURISDICTIONOR GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF (SIC) EXCESS OFJURISDICTION, AND CONCLUDING THAT THE TRIAL COURT’S FINDING ON THESAME QUESTION WAS IMPROPERLY RAISED IN THE PETITION BELOW;

b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE 15 OFTHE CONTRACT BETWEEN THE PARTIES FOR BEING "CONTRARY TO PUBLICPOLICY" AND FOR OUSTING THE COURTS OF JURISDICTION;

c. DECREEING PRIVATE RESPONDENT’S COUNTERCLAIMS TO BE ALLCOMPULSORY NOT NECESSITATING PAYMENT OF DOCKET FEES ANDCERTIFICATION OF NON-FORUM SHOPPING;








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The proper remedy in such cases is an ordinary appeal from an adverse judgment on the merits , incorporating in said appeal the grounds for assailing theinterlocutory orders. Allowing appeals from interlocutory orders would result in the ‘sorryspectacle’ of a case being subject of a counterproductive ping-pong to and from theappellate court as often as a trial court is perceived to have made an error in any of itsinterlocutory rulings. However, where the assailed interlocutory order was issued with grave

abuse of discretion or patently erroneous and the remedy of appeal would not affordadequate and expeditious relief, the Court allows certiorari as a mode of redress .28

Also, appeals from interlocutory orders would open the floodgates to endless occasions for dilatorymotions. Thus, where the interlocutory order was issued without or in excess of jurisdiction or with graveabuse of discretion, the remedy is certiorari .29

The alleged grave abuse of discretion of the respondent court equivalent to lack of jurisdiction in theissuance of the two assailed orders coupled with the fact that there is no plain, speedy, and adequateremedy in the ordinary course of law amply provides the basis for allowing the resort to a petition forcertiorari under Rule 65.

Prematurity of the petition before the CA

Neither do we think that KOGIES was guilty of forum shopping in filing the petition for certiorari. Note thatKOGIES’ motion for reconsideration of the July 23, 1998 RTC Order which denied the issuance of theinjunctive writ had already been denied. Thus, KOGIES’ only remedy was to assail the RTC’sinterlocutory order via a petition for certiorari under Rule 65.

While the October 2, 1998 motion for reconsideration of KOGIES of the September 21, 1998 RTC Orderrelating to the inspection of things, and the allowance of the compulsory counterclaims has not yet beenresolved, the circumstances in this case would allow an exception to the rule that before certiorari may beavailed of, the petitioner must have filed a motion for reconsideration and said motion should have beenfirst resolved by the court a quo. The reason behind the rule is "to enable the lower court, in the firstinstance, to pass upon and correct its mistakes without the intervention of the higher court. "30

The September 21, 1998 RTC Order directing the branch sheriff to inspect the plant, equipment, andfacilities when he is not competent and knowledgeable on said matters is evidently flawed and devoid ofany legal support. Moreover, there is an urgent necessity to resolve the issue on the dismantling of thefacilities and any further delay would prejudice the interests of KOGIES. Indeed, there is real andimminent threat of irreparable destruction or substantial damage to KOGIES’ equipment and machineries.We find the resort to certiorari based on the gravely abusive orders of the trial court sans the ruling on theOctober 2, 1998 motion for reconsideration to be proper.

The Core Issue: Article 15 of the Contract

We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration clause. It provides:

Article 15. Arbitration .— All disputes, controversies, or differences which may arise betweenthe parties, out of or in relation to or in connection with this Contract or for the breachthereof, shall finally be settled by arbitration in Seoul, Korea in accordance with theCommercial Arbitration Rules of the Korean Commercial Arbitration Board. The awardrendered by the arbitration(s) shall be final and binding upon both parties concerned .(Emphasis supplied.)

Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null and void.













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Petitioner is correct.

Established in this jurisdiction is the rule that the law of the place where the contract is madegoverns. Lex loci contractus . The contract in this case was perfected here in the Philippines. Therefore,our laws ought to govern. Nonetheless, Art. 2044 of the Civil Code sanctions the validity of mutuallyagreed arbitral clause or the finality and binding effect of an arbitral award. Art. 2044 provides, " Any

stipulati on that the arbitrators’ award or decision shall be final, is valid , without prejudice to Articles2038, 2039 and 2040." (Emphasis supplied.)

Arts. 2038 ,31 2039 ,32 and 204 033 abovecited refer to instances where a compromise or an arbitral award,as applied to Art. 2044 pursuant to Art. 2043 ,34 may be voided, rescinded, or annulled, but these wouldnot denigrate the finality of the arbitral award.

The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not been shown tobe contrary to any law, or against morals, good customs, public order, or public policy. There has been noshowing that the parties have not dealt with each other on equal footing. We find no reason why thearbitration clause should not be respected and complied with by both parties. In Gonzales v. ClimaxMining Ltd .,35 we held that submission to arbitration is a contract and that a clause in a contract providingthat all matters in dispute between the parties shall be referred to arbitration is a contract .36 Again in Del

Monte Corporation-USA v. Court of Appeals , we likewise ruled that "[t]he provision to submit to arbitrationany dispute arising therefrom and the relationship of the parties is part of that contract and is itself acontract. "37

Arbitration clause not contrary to public policy

The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea in accordancewith the Commercial Arbitration Rules of the KCAB, and that the arbitral award is final and binding, is notcontrary to public policy. This Court has sanctioned the validity of arbitration clauses in a catena of cases.In the 1957 case of Eastboard Navigation Ltd. v. Juan Ysmael and Co., Inc. ,38 this Court had occasion torule that an arbitration clause to resolve differences and breaches of mutually agreed contractual terms isvalid. In BF Corporation v. Court of Appeals , we held that "[i]n this jurisdiction, arbitration has been heldvalid and constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876, this Courthas countenanced the settlement of disputes through arbitration. Republic Act No. 876 was adopted tosupplement the New Civil Code’s provisions on arbitration. "39 And in LM Power Engineering Corporationv. Capitol Industrial Construction Groups, Inc ., we declared that:

Being an inexpensive, speedy and amicable method of settling disputes, arbitration –– alongwith mediation, conciliation and negotiation –– is encouraged by the Supreme Court. Asidefrom 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" ininternational civil and commercial disputes. Brushing aside a contractual agreement callingfor 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 issusceptible of an interpretation that covers the asserted dispute, an order to arbitrate shouldbe granted. Any doubt should be resolved in favor of arbitration .40

Having said that the instant arbitration clause is not against public policy, we come to the question onwhat governs an arbitration clause specifying that in case of any dispute arising from the contract, anarbitral panel will be constituted in a foreign country and the arbitration rules of the foreign country wouldgovern and its award shall be final and binding.








































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RA 9285 incorporated the UNCITRAL Model lawto which we are a signatory

For domestic arbitration proceedings, we have particular agencies to arbitrate disputes arising fromcontractual relations. In case a foreign arbitral body is chosen by the parties, the arbitration rules of ourdomestic arbitration bodies would not be applied. As signatory to the Arbitration Rules of the UNCITRAL

Model Law on International Commercial Arbitration41

of the United Nations Commission on InternationalTrade Law (UNCITRAL) in the New York Convention on June 21, 1985, the Philippines committed itself tobe bound by the Model Law. We have even incorporated the Model Law in Republic Act No. (RA) 9285,otherwise known as the Alternative Dispute Resolution Act of 2004 entitled An Act to Institutionalize theUse of an Alternative Dispute Resolution System in the Philippines and to Establish the Office for

Alternative Dispute Resolution, and for Other Purposes , promulgated on April 2, 2004. Secs. 19 and 20 ofChapter 4 of the Model Law are the pertinent provisions:

CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION

SEC. 19. Adoption of the Model Law on International Commercial Arbitration . –– Internationalcommercial arbitration shall be governed by the Model Law on International Commercial

Arbitration (the "Model Law") adopted by the United Nations Commission on InternationalTrade Law on June 21, 1985 (United Nations Document A/40/17) and recommended forenactment by the General Assembly in Resolution No. 40/72 approved on December 11,1985, copy of which is hereto attached as Appendix "A".

SEC. 20. Interpretation of Model Law . –– In interpreting the Model Law, regard shall be had toits international origin and to the need for uniformity in its interpretation and resort may bemade to the travaux preparatories and the report of the Secretary General of the UnitedNations Commission on International Trade Law dated March 25, 1985 entitled,"International Commercial Arbitration: Analytical Commentary on Draft Trade identified byreference number A/CN. 9/264."

While RA 9285 was passed only in 2004, it nonetheless applies in the instant case since it is a procedural

law which has a retroactive effect. Likewise, KOGIES filed its application for arbitration before the KCABon July 1, 1998 and it is still pending because no arbitral award has yet been rendered. Thus, RA 9285 isapplicable to the instant case. Well-settled is the rule that procedural laws are construed to be applicableto actions pending and undetermined at the time of their passage, and are deemed retroactive in thatsense and to that extent. As a general rule, the retroactive application of procedural laws does not violateany personal rights because no vested right has yet attached nor arisen from them .42

Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL Model Law are thefollowing:

(1) The RTC must refer to arbitration in proper cases

Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the subject ofarbitration pursuant to an arbitration clause, and mandates the referral to arbitration in such cases, thus:

SEC. 24. Referral to Arbitration . –– A court before which an action is brought in a matter whichis the subject matter of an arbitration agreement shall, if at least one party so requests notlater than the pre-trial conference, or upon the request of both parties thereafter, refer theparties to arbitration unless it finds that the arbitration agreement is null and void, inoperativeor incapable of being performed.

(2) Foreign arbitral awards must be confirmed by the RTC








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Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause to be final andbinding are not immediately enforceable or cannot be implemented immediately. Sec. 35 43 of theUNCITRAL Model Law stipulates the requirement for the arbitral award to be recognized by a competentcourt for enforcement, which court under Sec. 36 of the UNCITRAL Model Law may refuse recognition orenforcement on the grounds provided for. RA 9285 incorporated these provisos to Secs. 42, 43, and 44relative to Secs. 47 and 48, thus:

SEC. 42. Application of the New York Convention . –– The New York Convention shall governthe recognition and enforcement of arbitral awards covered by said Convention.

The recognition and enforcement of such arbitral awards shall be filed with the RegionalTrial Court in accordance with the rules of procedure to be promulgated by the SupremeCourt. Said procedural rules shall provide that the party relying on the award or applying forits enforcement shall file with the court the original or authenticated copy of the award andthe arbitration agreement. If the award or agreement is not made in any of the officiallanguages, the party shall supply a duly certified translation thereof into any of suchlanguages.

The applicant shall establish that the country in which foreign arbitration award was made inparty to the New York Convention.

x x x x

SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not Covered by the NewYork Convention . –– The recognition and enforcement of foreign arbitral awards not coveredby the New York Convention shall be done in accordance with procedural rules to bepromulgated by the Supreme Court. The Court may, on grounds of comity and reciprocity,recognize and enforce a non-convention award as a convention award.

SEC. 44. Foreign Arbitral Award Not Foreign Judgment . –– A foreign arbitral award whenconfirmed by a court of a foreign country, shall be recognized and enforced as a foreignarbitral award and not as a judgment of a foreign court.

A foreign arbitral award, when confirmed by the Regional Trial Court, shall be enforced in thesame manner as final and executory decisions of courts of law of the Philippines

x x x x

SEC. 47. Venue and Jurisdiction . –– Proceedings for recognition and enforcement of anarbitration agreement or for vacations, setting aside, correction or modification of an arbitralaward, and any application with a court for arbitration assistance and supervision shall bedeemed as special proceedings and shall be filed with the Regional Trial Court (i) wherearbitration proceedings are conducted; (ii) where the asset to be attached or levied upon, orthe act to be enjoined is located; (iii) where any of the parties to the dispute resides or hashis place of business; or (iv) in the National Judicial Capital Region, at the option of theapplicant.

SEC. 48. Notice of Proceeding to Parties . –– In a special proceeding for recognition andenforcement of an arbitral award, the Court shall send notice to the parties at their address ofrecord in the arbitration, or if any part cannot be served notice at such address, at suchparty’s last known address. The notice shall be sent al least fifteen (15) days before the dateset for the initial hearing of the application.




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It is now clear that foreign arbitral awards when confirmed by the RTC are deemed not as a judgment of aforeign court but as a foreign arbitral award, and when confirmed, are enforced as final and executorydecisions of our courts of law.

Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to judgments orawards given by some of our quasi-judicial bodies, like the National Labor Relations Commission and

Mines Adjudication Board, whose final judgments are stipulated to be final and binding, but notimmediately executory in the sense that they may still be judicially reviewed, upon the instance of anyparty. Therefore, the final foreign arbitral awards are similarly situated in that they need first to beconfirmed by the RTC.

(3) The RTC has jurisdiction to review foreign arbitral awards

Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with specific authority and jurisdiction to set aside, reject, or vacate a foreign arbitral award on grounds provided under Art. 34(2) ofthe UNCITRAL Model Law. Secs. 42 and 45 provide:

SEC. 42. Application of the New York Convention . –– The New York Convention shall governthe recognition and enforcement of arbitral awards covered by said Convention.

The recognition and enforcement of such arbitral awards shall be filed with the RegionalTrial Court in accordance with the rules of procedure to be promulgated by the SupremeCourt. Said procedural rules shall provide that the party relying on the award or applying forits enforcement shall file with the court the original or authenticated copy of the award andthe arbitration agreement. If the award or agreement is not made in any of the officiallanguages, the party shall supply a duly certified translation thereof into any of suchlanguages.

The applicant shall establish that the country in which foreign arbitration award was made isparty to the New York Convention.

If the application for rejection or suspension of enforcement of an award has been made, theRegional Trial Court may, if it considers it proper, vacate its decision and may also, on theapplication of the party claiming recognition or enforcement of the award, order the party toprovide appropriate security.

x x x x

SEC. 45. Rejection of a Foreign Arbitral Award . –– A party to a foreign arbitration proceedingmay oppose an application for recognition and enforcement of the arbitral award inaccordance with the procedures and rules to be promulgated by the Supreme Court only onthose grounds enumerated under Article V of the New York Convention. Any other groundraised shall be disregarded by the Regional Trial Court.

Thus, while the RTC does not have jurisdiction over disputes governed by arbitration mutually agreedupon by the parties, still the foreign arbitral award is subject to judicial review by the RTC which can setaside, reject, or vacate it. In this sense, what this Court held in Chung Fu Industries (Phils.), Inc . reliedupon by KOGIES is applicable insofar as the foreign arbitral awards, while final and binding, do not oustcourts of jurisdiction since these arbitral awards are not absolute and without exceptions as they are still

judicially reviewable. Chapter 7 of RA 9285 has made it clear that all arbitral awards, whether domestic orforeign, are subject to judicial review on specific grounds provided for.

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(4) Grounds for judicial review different in domestic and foreign arbitral awards

The differences between a final arbitral award from an international or foreign arbitral tribunal and anaward given by a local arbitral tribunal are the specific grounds or conditions that vest jurisdiction over ourcourts to review the awards.

For foreign or international arbitral awards which must first be confirmed by the RTC, the grounds forsetting aside, rejecting or vacating the award by the RTC are provided under Art. 34(2) of the UNCITRALModel Law.

For final domestic arbitral awards, which also need confirmation by the RTC pursuant to Sec. 23 of RA876 44 and shall be recognized as final and executory decisions of the RTC ,45 they may only be assailedbefore the RTC and vacated on the grounds provided under Sec. 25 of RA 876 .46

(5) RTC decision of assailed foreign arbitral award appealable

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

SEC. 46. Appeal from Court Decision or Arbitral Awards .— A decision of the Regional TrialCourt confirming, vacating, setting aside, modifying or correcting an arbitral award may beappealed to the Court of Appeals in accordance with the rules and procedure to bepromulgated by the Supreme Court.

The losing party who appeals from the judgment of the court confirming an arbitral awardshall be required by the appellate court to post a counterbond executed in favor of theprevailing party equal to the amount of the award in accordance with the rules to bepromulgated by the Supreme Court.

Thereafter, the CA decision may further be appealed or reviewed before this Court through a petition forreview under Rule 45 of the Rules of Court.

PGSMC has remedies to protect its interests

Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign arbitration as itbound itself through the subject contract. While it may have misgivings on the foreign arbitration done inKorea by the KCAB, it has available remedies under RA 9285. Its interests are duly protected by the lawwhich requires that the arbitral award that may be rendered by KCAB must be confirmed here by the RTCbefore it can be enforced.

With our disquisition above, petitioner is correct in its contention that an arbitration clause, stipulating thatthe arbitral award is final and binding, does not oust our courts of jurisdiction as the international arbitralaward, the award of which is not absolute and without exceptions, is still judicially reviewable undercertain conditions provided for by the UNCITRAL Model Law on ICA as applied and incorporated in RA9285.

Finally, it must be noted that there is nothing in the subject Contract which provides that the parties maydispense with the arbitration clause.

Unilateral rescission improper and illegal












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Having ruled that the arbitration clause of the subject contract is valid and binding on the parties, and notcontrary to public policy; consequently, being bound to the contract of arbitration, a party may notunilaterally rescind or terminate the contract for whatever cause without first resorting to arbitration.

What this Court held in University of the Philippines v. De Los Angeles 47 and reiterated in succeedingcases ,48 that the act of treating a contract as rescinded on account of infractions by the other contracting

party is valid albeit provisional as it can be judicially assailed, is not applicable to the instant case onaccount of a valid stipulation on arbitration. Where an arbitration clause in a contract is availing, neither ofthe parties can unilaterally treat the contract as rescinded since whatever infractions or breaches by aparty or differences arising from the contract must be brought first and resolved by arbitration, and notthrough an extrajudicial rescission or judicial action.

The issues arising from the contract between PGSMC and KOGIES on whether the equipment andmachineries delivered and installed were properly installed and operational in the plant in Carmona,Cavite; the ownership of equipment and payment of the contract price; and whether there was substantialcompliance by KOGIES in the production of the samples, given the alleged fact that PGSMC could notsupply the raw materials required to produce the sample LPG cylinders, are matters proper for arbitration.Indeed, we note that on July 1, 1998, KOGIES instituted an Application for Arbitration before the KCAB inSeoul, Korea pursuant to Art. 15 of the Contract as amended. Thus, it is incumbent upon PGSMC to

abide by its commitment to arbitrate.

Corollarily, the trial court gravely abused its discretion in granting PGSMC’s Motion for Inspection ofThings on September 21, 1998, as the subject matter of the motion is under the primary jurisdiction of themutually agreed arbitral body, the KCAB in Korea.

In addition, whatever findings and conclusions made by the RTC Branch Sheriff from the inspection madeon October 28, 1998, as ordered by the trial court on October 19, 1998, is of no worth as said Sheriff isnot technically competent to ascertain the actual status of the equipment and machineries as installed inthe plant.

For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders pertaining to the grant ofthe inspection of the equipment and machineries have to be recalled and nullified.

Issue on ownership of plant proper for arbitration

Petitioner assails the CA ruling that the issue petitioner raised on whether the total contract price of USD1,530,000 was for the whole plant and its installation is beyond the ambit of a Petition for Certiorari.

Petitioner’s position is untenable.

It is settled that questions of fact cannot be raised in an original action for certiorari .49 Whether or notthere was full payment for the machineries and equipment and installation is indeed a factual issueprohibited by Rule 65.

However, what appears to constitute a grave abuse of discretion is the order of the RTC in resolving theissue on the ownership of the plant when it is the arbitral body (KCAB) and not the RTC which has jurisdiction and authority over the sa id issue. The RTC’s determination of such factual issue constitutesgrave abuse of discretion and must be reversed and set aside.

RTC has interim jurisdiction to protect the rights of the parties












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Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving the way for PGSMC todismantle and transfer the equipment and machineries, we find it to be in order considering the factualmilieu of the instant case.

Firstly, while the issue of the proper installation of the equipment and machineries might well be under theprimary jurisdiction of the arbitral body to decide, yet the RTC under Sec. 28 of RA 9285 has jurisdiction

to hear and grant interim measures to protect vested rights of the parties. Sec. 28 pertinently provides:

SEC. 28. Grant of interim Measure of Protection .—(a) It is not incompatible with anarbitration agreement for a party to request, before constitution of the tribunal, from aCourt to grant such measure . After constitution of the arbitral tribunal and during arbitralproceedings, a request for an interim measure of protection, or modification thereof, may bemade with the arbitral or to the extent that the arbitral tribunal has no power to act or isunable to act effectivity, the request may be made with the Court . The arbitral tribunal isdeemed constituted when the sole arbitrator or the third arbitrator, who has been nominated,has accepted the nomination and written communication of said nomination and acceptancehas been received by the party making the request.

(b) The following rules on interim or provisional relief shall be observed:

Any party may request that provisional relief be granted against the adverse party.

Such relief may be granted:

(i) to prevent irreparable loss or injury ;

(ii) to provide security for the performance of any obligation;

(iii) to produce or preserve any evidence; or

(iv) to compel any other appropriate act or omission.

(c) The order granting provisional relief may be conditioned upon the provision of security orany act or omission specified in the order.

(d) Interim or provisional relief is requested by written application transmitted by reasonablemeans to the Court or arbitral tribunal as the case may be and the party against whom therelief is sought, describing in appropriate detail the precise relief, the party against whom therelief is requested, the grounds for the relief, and the evidence supporting the request.

(e) The order shall be binding upon the parties .

(f) Either party may apply with the Court for assistance in implementing or enforcing aninterim measure ordered by an arbitral tribunal.

(g) A party who does not comply with the order shall be liable for all damages resulting fromnoncompliance, including all expenses, and reasonable attorney's fees, paid in obtaining theorder’s judicial enforcement. (Emphasis ours.)

Art. 17(2) of the UNCITRAL Model Law on ICA defines an "interim measure" of protection as:

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Article 17. Power of arbitral tribunal to order interim measures

xxx xxx xxx

(2) An interim measure is any temporary measure, whether in the form of an award or inanother form, by which, at any time prior to the issuance of the award by which the dispute isfinally decided, the arbitral tribunal orders a party to:

(a) Maintain or restore the status quo pending determination of the dispute;

(b) Take action that would prevent, or refrain from taking action that is likely to cause, currentor imminent harm or prejudice to the arbitral process itself;

(c) Provide a means of preserving assets out of which a subsequent award may be satisfied;or

(d) Preserve evidence that may be relevant and material to the resolution of the dispute.

Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction to issue interimmeasures:

Article 17 J. Court-ordered interim measures

A court shall have the same power of issuing an interim measure in relation to arbitrationproceedings, irrespective of whether their place is in the territory of this State, as it has inrelation to proceedings in courts. The court shall exercise such power in accordance with itsown procedures in consideration of the specific features of international arbitration.

In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro Corporation , we were explicit thateven "the pendency of an arbitral proceeding does not foreclose resort to the courts for provisional

reliefs." We explicated this way:

As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to thecourts for provisional reliefs. The Rules of the ICC, which governs the parties’ arbitraldispute, allows the application of a party to a judicial authority for interim or conservatorymeasures. Likewise, Section 14 of Republic Act (R.A.) No. 876 (The Arbitration Law)recognizes the rights of any party to petition the court to take measures to safeguard and/orconserve any matter which is the subject of the dispute in arbitration. In addition, R.A. 9285,otherwise known as the "Alternative Dispute Resolution Act of 2004," allows the filing ofprovisional or interim measures with the regular courts whenever the arbitral tribunal has nopower to act or to act effectively .50

It is thus beyond cavil that the RTC has authority and jurisdiction to grant interim measures of protection.

Secondly, considering that the equipment and machineries are in the possession of PGSMC, it has theright to protect and preserve the equipment and machineries in the best way it can. Considering that theLPG plant was non-operational, PGSMC has the right to dismantle and transfer the equipment andmachineries either for their protection and preservation or for the better way to make good use of themwhich is ineluctably within the management discretion of PGSMC.

Thirdly, and of greater import is the reason that maintaining the equipment and machineries in Worth’sproperty is not to the best interest of PGSMC due to the prohibitive rent while the LPG plant as set-up is





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not operational. PGSMC was losing PhP322,560 as monthly rentals or PhP3.87M for 1998 alone withoutconsidering the 10% annual rent increment in maintaining the plant.

Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating to the preservation ortransfer of the equipment and machineries as an interim measure, yet on hindsight, the July 23, 1998Order of the RTC allowing the transfer of the equipment and machineries given the non-recognition by the

lower courts of the arbitral clause, has accorded an interim measure of protection to PGSMC which wouldotherwise been irreparably damaged.

Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial amount based on thecontract. Moreover ,KOGIES is amply protected by the arbitral action it has instituted before the KCAB,the award of which can be enforced in our jurisdiction through the RTC. Besides, by our decision,PGSMC is compelled to submit to arbitration pursuant to the valid arbitration clause of its contract withKOGIES.

PGSMC to preserve the subject equipment and machineries

Finally, while PGSMC may have been granted the right to dismantle and transfer the subject equipmentand machineries, it does not have the right to convey or dispose of the same considering the pendingarbitral proceedings to settle the differences of the parties. PGSMC therefore must preserve and maintainthe subject equipment and machineries with the diligence of a good father of a famil y51 until finalresolution of the arbitral proceedings and enforcement of the award, if any.

WHEREFORE , this petition is PARTLY GRANTED , in that:

(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET ASIDE ;

(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-117are REVERSED and SET ASIDE ;

(3) The parties are hereby ORDERED to submit themselves to the arbitration of their dispute and

differences arising from the subject Contract before the KCAB; and

(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and machineries, if it had notdone so, and ORDERED to preserve and maintain them until the finality of whatever arbitral award isgiven in the arbitration proceedings.

No pronouncement as to costs.

SO ORDERED .

Quisumbing,Chairperson Carpio, Carpio-Morales, Tinga, JJ., concur.

G.R. No. 169332 February 11, 2008

ABS-CBN BROADCASTING CORPORATION, petitioner,vs.WORLD INTERACTIVE NETWORK SYSTEMS (WINS) JAPAN CO., LTD., respondent.

D E C I S I O N

CORONA, J . :





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This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside the February16, 2005 decision 1and August 16, 2005 resolutio n2 of the Court of Appeals (CA) in CA-G.R. SP No.81940.

On September 27, 1999, petitioner ABS-CBN Broadcasting Corporation entered into a licensingagreement with respondent World Interactive Network Systems (WINS) Japan Co., Ltd., a foreign

corporation licensed under the laws of Japan. Under the agreement, respondent was granted theexclusive license to distribute and sublicense the distribution of the television service known as "TheFilipino Channel" (TFC) in Japan. By virtue thereof, petitioner undertook to transmit the TFC programmingsignals to respondent which the latter received through its decoders and distributed to its subscribers.

A dispute arose between the parties when petitioner accused respondent of inserting nine episodes ofWINS WEEKLY, a weekly 35-minute community news program for Filipinos in Japan, into the TFCprogramming from March to May 2002 .3Petitioner claimed that these were "unauthorized insertions"constituting a material breach of their agreement. Consequently, on May 9, 2002 ,4 petitioner notifiedrespondent of its intention to terminate the agreement effective June 10, 2002.

Thereafter, respondent filed an arbitration suit pursuant to the arbitration clause of its agreement withpetitioner. It contended that the airing of WINS WEEKLY was made with petitioner's prior approval. It also

alleged that petitioner only threatened to terminate their agreement because it wanted to renegotiate theterms thereof to allow it to demand higher fees. Respondent also prayed for damages for petitioner'salleged grant of an exclusive distribution license to another entity, NHK (Japan BroadcastingCorporation) .5

The parties appointed Professor Alfredo F. Tadiar to act as sole arbitrator. They stipulated on thefollowing issues in their terms of reference (TOR )6:

1. Was the broadcast of WINS WEEKLY by the claimant duly authorized by the respondent[herein petitioner]?

2. Did such broadcast constitute a material breach of the agreement that is a ground fortermination of the agreement in accordance with Section 13 (a) thereof?

3. If so, was the breach seasonably cured under the same contractual provision of Section13 (a)?

4. Which party is entitled to the payment of damages they claim and to the other reliefsprayed for?

xxx xxx xxx

The arbitrator found in favor of respondent .7 He held that petitioner gave its approval to respondent for theairing of WINS WEEKLY as shown by a series of written exchanges between the parties. He also ruledthat, had there really been a material breach of the agreement, petitioner should have terminated thesame instead of sending a mere notice to terminate said agreement. The arbitrator found that petitionerthreatened to terminate the agreement due to its desire to compel respondent to re-negotiate the termsthereof for higher fees. He further stated that even if respondent committed a breach of the agreement,the same was seasonably cured. He then allowed respondent to recover temperate damages, attorney'sfees and one-half of the amount it paid as arbitrator's fee.

Petitioner filed in the CA a petition for review under Rule 43 of the Rules of Court or, in the alternative, apetition for certiorari under Rule 65 of the same Rules, with application for temporary restraining orderand writ of preliminary injunction. It was docketed as CA-G.R. SP No. 81940. It alleged serious errors of

http://www.lawphil.net/judjuris/juri2008/feb2008/gr_169332_2008.html#fnt1

























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fact and law and/or grave abuse of discretion amounting to lack or excess of jurisdiction on the part of thearbitrator.

Respondent, on the other hand, filed a petition for confirmation of arbitral award before the Regional TrialCourt (RTC) of Quezon City, Branch 93, docketed as Civil Case No. Q-04-51822.

Consequently, petitioner filed a supplemental petition in the CA seeking to enjoin the RTC of Quezon Cityfrom further proceeding with the hearing of respondent's petition for confirmation of arbitral award. Afterthe petition was admitted by the appellate court, the RTC of Quezon City issued an order holding inabeyance any further action on respondent's petition as the assailed decision of the arbitrator had alreadybecome the subject of an appeal in the CA. Respondent filed a motion for reconsideration but noresolution has been issued by the lower court to date .8

On February 16, 2005, the CA rendered the assailed decision dismissing ABS- CBN’s petition for lack of jurisdiction. It stated that as the TOR itself provided that the arbitrator's decision shall be final andunappealable and that no motion for reconsideration shall be filed, then the petition for review must fail. Itruled that it is the RTC which has jurisdiction over questions relating to arbitration. It held that the onlyinstance it can exercise jurisdiction over an arbitral award is an appeal from the trial court's decisionconfirming, vacating or modifying the arbitral award. It further stated that a petition for certiorari under

Rule 65 of the Rules of Court is proper in arbitration cases only if the courts refuse or neglect to inquireinto the facts of an arbitrator's award. The dispositive portion of the CA decision read:

WHEREFORE, the instant petition is hereby DISMISSED for lack of jurisdiction. Theapplication for a writ of injunction and temporary restraining order is likewise DENIED . TheRegional Trial Court of Quezon City Branch 93 is directed to proceed with the trial for thePetition for Confirmation of Arbitral Award.

SO ORDERED.

Petitioner moved for reconsideration. The same was denied. Hence, this petition.

Petitioner contends that the CA, in effect, ruled that: (a) it should have first filed a petition to vacate theaward in the RTC and only in case of denial could it elevate the matter to the CA via a petition for reviewunder Rule 43 and (b) the assailed decision implied that an aggrieved party to an arbitral award does nothave the option of directly filing a petition for review under Rule 43 or a petition for certiorari under Rule65 with the CA even if the issues raised pertain to errors of fact and law or grave abuse of discretion, asthe case may be, and not dependent upon such grounds as enumerated under Section 24 (petition tovacate an arbitral award) of RA 876 (the Arbitration Law). Petitioner alleged serious error on the part ofthe CA.

The issue before us is whether or not an aggrieved party in a voluntary arbitration dispute may avail of,directly in the CA, a petition for review under Rule 43 or a petition for certiorari under Rule 65 of the Rulesof Court, instead of filing a petition to vacate the award in the RTC when the grounds invoked to overturnthe arbitrator’s decision are other than those for a petition to vacate an arbitral award enumerated under

RA 876.

RA 876 itself mandates that it is the Court of First Instance, now the RTC, which has jurisdiction overquestions relating to arbitration ,9 such as a petition to vacate an arbitral award.

Section 24 of RA 876 provides for the specific grounds for a petition to vacate an award made by anarbitrator:








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court found that the trial court had no legal basis for vacating the award. (Emphasissupplied).

In cases not falling under any of the aforementioned grounds to vacate an award, the Court has alreadymade several pronouncements that a petition for review under Rule 43 or a petition for certiorari underRule 65 may be availed of in the CA. Which one would depend on the grounds relied upon by petitioner.

In Luzon Development Bank v. Association of Luzon Development Bank Employees ,11 the Court held thata voluntary arbitrator is properly classified as a "quasi-judicial instrumentality" and is, thus, within theambit of Section 9 (3) of the Judiciary Reorganization Act, as amended. Under this section, the Court of

Appeals shall exercise:

xxx xxx xxx

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

As such, decisions handed down by voluntary arbitrators fall within the exclusive appellate jurisdiction ofthe CA. This decision was taken into consideration in approving Section 1 of Rule 43 of the Rules ofCourt .12 Thus:

SECTION 1. Scope . - This Rule shall apply to appeals from judgments or final orders of theCourt of Tax Appeals and from awards, judgments, final orders or resolutions of orauthorized by any quasi-judicial agency in the exercise of its quasi-judicial functions. Amongthese agencies are the Civil Service Commission, Central Board of Assessment Appeals,

Securities and Exchange Commission, Office of the President, Land Registration Authority,Social Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks andTechnology Transfer, National Electrification Administration, Energy Regulatory Board,National Telecommunications Commission, Department of Agrarian Reform under Republic

Act Number 6657, Government Service Insurance System, Employees CompensationCommission, Agricultural Inventions Board, Insurance Commission, Philippine AtomicEnergy Commission, Board of Investments, Construction Industry Arbitration Commission,and voluntary arbitrators authorized by law. (Emphasis supplied)

This rule was cited in Sevilla Trading Company v. Semana ,13 Manila Midtown Hotel v.Borromeo ,14 and Nippon Paint Employees Union-Olalia v. Court of Appeals .15 These cases held that theproper remedy from the adverse decision of a voluntary arbitrator, if errors of fact and/or law are raised, isa petition for review under Rule 43 of the Rules of Court. Thus, petitioner's contention that it may avail ofa petition for review under Rule 43 under the circumstances of this case is correct.

As to petitioner's arguments that a petition for certiorari under Rule 65 may also be resorted to, we holdthe same to be in accordance with the Constitution and jurisprudence.

Section 1 of Article VIII of the 1987 Constitution provides that:




















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SECTION 1. The judicial power shall be vested in one Supreme Court and in such lowercourts as may be established by law.

Judicial power includes the duty of the courts of justice to settle actual controversiesinvolving rights which are legally demandable and enforceable, and to determine whetheror not there has been a grave abuse of discretion amounting to lack or excess of

jurisdiction on the part of any branch or instrumentality of the Government. (Emphasissupplied)

As may be gleaned from the above stated provision, it is well within the power and jurisdiction of theCourt to inquire whether any instrumentality of the Government, such as a voluntary arbitrator, hasgravely abused its discretion in the exercise of its functions and prerogatives. Any agreement stipulatingthat "the decision of the arbitrator shall be final and unappealable" and "that no further judicial recourse ifeither party disagrees with the whole or any part of the arbitrator's award may be availed of" cannot beheld to preclude in proper cases the power of judicial review which is inherent in courts .16 We will nothesitate to review a voluntary arbitrator's award where there is a showing of grave abuse of authority ordiscretion and such is properly raised in a petition for certiorar i17 and there is no appeal, nor any plain,speedy remedy in the course of law .18

Significantly, Insular Savings Bank v. Far East Bank and Trust Compan y 19 definitively outlined several judicial remedies an aggrieved party to an arbitral award may undertake:

(1) a petition in the proper RTC to issue an order to vacate the award on the groundsprovided for in Section 24 of RA 876;

(2) a petition for review in the CA under Rule 43 of the Rules of Court on questions of fact, oflaw, or mixed questions of fact and law; and

(3) a petition for certiorari under Rule 65 of the Rules of Court should the arbitrator haveacted without or in excess of his jurisdiction or with grave abuse of discretion amounting tolack or excess of jurisdiction.

Nevertheless, although petitioner’s positi on on the judicial remedies available to it was correct, we sustainthe dismissal of its petition by the CA. The remedy petitioner availed of, entitled " alternative petition forreview under Rule 43 or petition for certiorari under Rule 65 ," was wrong.

Time and again, we have ruled that the remedies of appeal and certiorari are mutually exclusive and notalternative or successive .20

Proper issues that may be raised in a petition for review under Rule 43 pertain to errors of fact, law ormixed questions of fact and law .21 While a petition for certiorari under Rule 65 should only limit itself toerrors of jurisdiction, that is, grave abuse of discretion amounting to a lack or excess of

jurisdiction .22 Moreover, it cannot be availed of where appeal is the proper remedy or as a substitute for alapsed appeal .23

In the case at bar, the questions raised by petitioner in its alternative petition before the CA were thefollowing:

A. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT THE BROADCAST OF "WINS WEEKLY"WAS DULY AUTHORIZED BY ABS-CBN.
































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B. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT THE UNAUTHORIZED BROADCAST DIDNOT CONSTITUTE MATERIAL BREACH OF THE AGREEMENT.

C. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT WINS SEASONABLY CURED THE

BREACH.

D. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT TEMPERATE DAMAGES IN THE AMOUNTOF P1,166,955.00 MAY BE AWARDED TO WINS.

E. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY ABUSED HIS DISCRETION IN AWARDING ATTORNEY'S FEES IN THE UNREASONABLE AMOUNT AND UNCONSCIONABLE AMOUNT OFP850,000.00.

F. THE ERROR COMMITTED BY THE SOLE ARBITRATOR IS NOT A SIMPLE ERROR OFJUDGMENT OR ABUSE OF DISCRETION. IT IS GRAVE ABUSE OF DISCRETION

TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION.

A careful reading of the assigned errors reveals that the real issues calling for the CA's resolution wereless the alleged grave abuse of discretion exercised by the arbitrator and more about the arbitrator’sappreciation of the issues and evidence presented by the parties. Therefore, the issues clearly fall underthe classification of errors of fact and law — questions which may be passed upon by the CA via apetition for review under Rule 43. Petitioner cleverly crafted its assignment of errors in such a way as tostraddle both judicial remedies, that is, by alleging serious errors of fact and law (in which case a petitionfor review under Rule 43 would be proper) and grave abuse of discretion (because of which a petition forcertiorari under Rule 65 would be permissible).

It must be emphasized that every lawyer should be familiar with the distinctions between the tworemedies for it is not the duty of the courts to determine under which rule the petition should

fall.24

Petitioner's ploy was fatal to its cause. An appeal taken either to this Court or the CA by the wrongor inappropriate mode shall be dismissed .25 Thus, the alternative petition filed in the CA, being aninappropriate mode of appeal, should have been dismissed outright by the CA.

WHEREFORE , the petition is hereby DENIED . The February 16, 2005 decision and August 16, 2005resolution of the Court of Appeals in CA-G.R. SP No. 81940 directing the Regional Trial Court of QuezonCity, Branch 93 to proceed with the trial of the petition for confirmation of arbitral award is AFFIRMED .

Costs against petitioner.

SO ORDERED.

G.R. No. 106879 May 27, 1994

DR. LUCAS G. ADAMSON and ADAMSON MANAGEMENT CORPORATION, petitioners,vs.HON. COURT OF APPEALS and APAC HOLDINGS LIMITED, respondents.

Benjamin J. Yap for petitioners.

Bautista, Picazo, Buyco, Tan & Fider for private respondent.









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ROMERO, J .:

Before us is a petition for review on certiorari of a decision of the Court of Appeals, the dispositiveportion of which is quoted hereunder:

WHEREFORE, judgment is hereby rendered setting aside respondent judge'squestioned order dated 23 August 1991 and confirming the subject arbitration award.Costs against private respondents.

SO ORDERED.

The antecedents of this case are as follows:

On June 15, 1990, the parties, Adamson Management Corporation and Lucas Adamson on the onehand, and APAC Holdings Limited on the other, entered into a contract whereby the former sold99.97% of outstanding common shares of stocks of Adamson and Adamson, Inc. to the latter forP24,384,600.00 plus the Net Asset Value (NAV) of Adamson and Adamson, Inc. as of June 19,1990. But the parties failed to agree on a reasonable Net Asset Value. This prompted them to submitthe case for arbitration in accordance with Republic Act No. 876, otherwise known as the ArbitrationLaw.

On May 15, 1991, the Arbitration Committee rendered a decision finding the Net Asset Value of theCompany to be P167,118.00 which was computed on the basis of a pro-forma balance sheetsubmitted by SGV and which was the difference between the total assets of the Companyamounting to P65,554,258.00 (the sum of the balance sheet asset amounting to P65,413,978.00and the increase in Cuevo appraisal amounting to P140,280.00) and total liabilities amounting toP65,387,140.00 (the difference between current liabilities and long term debt amounting toP68,356,132.00 and Tax Savings for 1987 amounting to P2,968,992).

In so holding that NAV equals P167,118.00, the Arbitration Committee disregarded petitioners'argument that there was a fixed NAV amounting to P5,146,000.00 as of February 28, 1990 to whichshould be added the value of intangible assets (P19,116,000.00), the increment of tangible assetsexcluding land (P17,003,976.00), the 1987 tax savings (P2,968,992.00), and estimated net incomefrom February 28, 1990 to June 19, 1990 (P1,500,000.00, later increased to P3,949,772.00).

According to the Committee, however, the amount of P5,146,000.00 which was claimed as initialNAV by petitioners, was merely an estimate of the Company's NAV as of February 28, 1990 whichwas still subject to financial developments until June 19, 1990, the cut-off date. The basis for thisruling was Clause 3(B) of the Agreement which fixed the said amount; Clause 1(A) which definedNAV and provided that it should be computed in accordance with Clause 7(A); Clause 7(A) whichdirected the auditors to prepare in accordance with good accounting principles a balance sheet as ofcut-off date which would include the goodwill and intangible assets (P19,116,000.00), the value oftangible assets excluding the land as per Cuervo appraisal, the adjustment agreed upon by theparties, and the cost of redeeming preferred shares; and Clause 5(E). Furthermore, the Committeeheld that the parties used the figures in the pro-forma balance sheet to arrive at the said amount ofP5,146,000.00; that the same had already included the value of the intangible assets and of theCuervo appraisal of the tangible assets so that the latter items could not be added again to whatVendor claimed to be the initial NAV; and that apart from being an estimate, the amount ofP5,146,000.00 was tentative as it was still subject to the adjustments to be made thereto to reflectsubsequent financial events up to the cut-off date.

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In the computation of the NAV, the Committee deemed it proper to appreciate in favor of petitionersthe 1987 tax savings because as of the date of the proceedings, no assessment was ever made bythe BIR and the three-year prescriptive period had already expired. However, it did not consider theestimated net income for the period beginning February 28, 1990 to June 19, 1990 as part of theNAV because it found that as of June 1990, the books of the company carried a net loss ofP4,678,627.00 which increased to P8,547,868.00 after the proposed adjustments were included in

the computation of the NAV. The Committee pointed out that although petitioners herein contestedthe adjustments, they were, however, not able to prove that these were not valid, except with respectto the tax savings.

Aside from deciding the amount of NAV, the Committee also held that any ambiguity in the contractshould not necessarily be interpreted against herein private respondents because the partiesthemselves had stipulated that the draft of the agreement was submitted to petitioners for approvaland that the latter even proposed changes which were eventually incorporated in the final form of the

Agreement.

Thereafter, APAC Holdings Ltd. filed a petition for confirmation of the arbitration award before theRegional Trial Court of Makati. Herein petitioners opposed the petition and prayed for thenullification, modification and/or correction of the same, alleging that the arbitrators committedevident partiality and grave abuse of discretion as shown by the following errors:

a. In creating an entirely new contract for the parties that contradicts the essence oftheir agreement and results in the absurd situation where a seller incurs enormousexpense to sell his property;

b. In treating the provisions in the Agreement independently of one another andthereby nullifying the simple, clear and express stipulations therein;

c. In interpreting the Agreement although it is couched in plain, simple and clearlanguage, contrary to the well established principle that if the terms of a contract areclear, the literal meaning of its stipulations shall control;

d. In accepting SGV's proposed adjustments, contrary to the parties' stipulation thatthe final adjustment items shall pertain to a specific period and subject to theiragreement; and in giving full reliance on SGV report despite SGV's disclosure of itslack of independence because it acted solely to assist petitioner and its report wasintended solely for petitioner's information;

e. In not applying the "suppressed evidence" rule against petitioner inspite of itsrefusal to present the Company's income statement or any other similar report for theadjustment period; and in disregarding respondent's estimate of the net income forthe period as "Adjustment" using SGV's figures and ratios;

f. In not awarding damages and attorney's fee to respondents despite petitioner's badfaith in violating the contract. 1

The Regional Trial Court rendered a decision vacating the arbitration award. The dispositive portionof the decision reads as follows:

WHEREFORE, the Decision/Arbitration Award in question is hereby VACATED, and APAC (herein petitioner) is hereby ordered to pay ADAMSON (herein respondents)the final NAV of Forty-seven Million One Hundred Twenty-One Thousand Four

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Hundred Sixty-Eight Pesos (P47,121,468.00), Philippine Currency, in accordancewith the pertinent stipulations expressed in the Agreement as discussed above, plustwelve (12) percent interest on the above amount which ADAMSON should haveearned had the balance of the final NAV been paid to the Escrow Agent after offseton August 2, 1990.

ADAMSON's claim for moral and exemplary damages and attorney's fees are (sic)dismissed for lack of sufficient merit.

SO ORDERED. 2

On appeal, the above decision was reversed and a petition for review was filed in this Court.Petitioners allege that the Court of Appeals erred and acted in excess of jurisdiction or with graveabuse of discretion in holding that: (a) the trial judge reversed the arbitration award solely on thebasis of the pleadings submitted by the parties; (b) petitioners failed to substantiate with proofs theirimputation of partiality to the members of the arbitration committee; (c) the nullification by the trialcourt of the award was not based on any of the grounds provided by law; (d) to allow the trial judgeto substitute his own findings in lieu of the arbitrators' would defeat the object of arbitration which is

to avoid litigation; and (e) if there really was a ground for vacating the award, it was improper for trial judge to reverse the decision because it contravened Section 25 of R.A. No. 876.

Did the Court of Appeals err in affirming the arbitration award and in reversing the decision of thetrial court?

The Court of Appeals, in reversing the trial court's decision held that the nullification of the decisionof the Arbitration Committee was not based on the grounds provided by the Arbitration Law and that". . . private respondents [petitioners herein] have failed to substantiate with any evidence their claimof partiality. Significantly, even as respondent judge ruled against the arbitrators' award, he could notfind fault with their impartiality and integrity. Evidently, the nullification of the award rendered at thecase at bar was made not on the basis of any of the grounds provided by law." 3

Assailing the above conclusion, petitioners argue that ". . . evident partiality is a state of mind thatneed not be proved by direct evidence but may be inferred from the circumstances of the case(citations omitted). It is related to intention which is a mental process, an internal state of mind thatmust be judged by the person's conduct and acts which are the best index of his intention (citationsomitted)." 4 They pointed out that from the following circumstances may be inferred the arbitrators'evident partiality:

1. the material difference between the results of the arbitrators' computation of theNAV and that of petitioners;

2. the alleged piecemeal interpretation by the arbitrators of the Agreement whichwent beyond the clear provisions of the contract and negated the obvious intention ofthe parties;

3. reliance by the arbitrators on the financial statements and reports submitted bySGV which, according to petitioners, acted solely for the interests of privaterespondents; and

4. the finding of the trial court that "the arbitration committee has advanced no valid justification to warrant a departure from the well-settled rule in contract interpretation

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Petitioners likewise pointed out that the computation of the arbitrators leads to the absurd result ofpetitioners incurring great expense just to sell its properties. In arguing that the NAV could not beless than P5,146,000, petitioners quote Clause (B) of the Agreement as follows:

CLAUSE 3(B)

The consideration for the purchase of the Sale Shares by the Purchaser shall beequivalent to the Net Asset Value of the Company, . . . which the parties HAVEFIXED at P5,146,000.00 prior to Adjustments . . .

However, such quotation is incomplete and, therefore, misleading. The full text of the aboveprovision as quoted by the arbitration committee reads as follows:

(B) The consideration for the purchase of the Sale Shares by the purchaser shall beequivalent to the Net Asset Value of the Company, without the Property, which theparties have fixed at P5,146,000 prior to Adjustments plus P24,384,600. Theconsideration for the sale of the Sale Shares by the Vendor, is the acquisition of theproperty by the Vendor, through Aloha, from the Company at historical cost plus all

Taxes due on said transfer of Property, and the release of all collaterals of theVendor securing the RSBS Credit Facility. However, in the implementation of this Agreement, the parties shall designate the amounts specifiedin Clause 5 as thepurchaser prices in the pro-forma deeds of sale and other documents required toeffect the transfers contemplated in this Agreement.

Thus, petitioner cannot claim that the consideration for private respondent's acquisition of theoutstanding common shares of stock was grossly inadequate. If the NAV as computed was small,the result was not due to error in the computations made by the arbitrators but due to the extent ofthe liabilities being borne by petitioners. During the arbitration proceedings, the committee found thatpetitioner has been suffering losses since 1983, a fact which was not denied by petitioner. Wecannot sustain the argument of petitioners that the amount of P5,146,000.00 was an initial NAV as ofFebruary 28, 1990 to which should still be added the value of tangible assets (excluding the land)and of intangible assets. If indeed the P5,146,000.00 was the initial NAV as of February 28, 1990,then as of said date, the total assets and liabilities of the company have already been set off againsteach other. NET ASSET VALUE is arrived at only after deducting TOTAL LIABILITIES from TOTAL

ASSETS. "TOTAL ASSETS" includes those that are tangible and intangible. If the amount of thetangible and intangible assets would still be added to the "initial NAV," this would constitute doublecounting. Unless the company acquired new assets from February 28, 1990 up to June 19, 1990, novalue corresponding to tangible and intangible assets may be added to the NAV.

We also note that the computation by petitioners of the NAV did not reflect the liabilities of thecompany. The term "net asset value" indicates the amount of assets exceeding the liabilities asdifferentiated from total assets which include the liabilities. If petitioners were not satisfied, theycould have presented their own financial statements to rebut SGV's report but this, they did not do.

Lastly, in assailing the decision of the Court of Appeals, petitioners would have this Court believethat the respondent court held that the decision of the arbitrators was not subject to review by thecourts. This was not the position taken by the respondent court.

The Court of Appeals, in its decision stated, thus:

It is settled that arbitration awards are subject to judicial review. In the recent caseof Chung Fu Industries (Philippines), Inc., et. al. v. Court of Appeals, Hon Francisco

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X. Velez, et. al ., G. R. No. 96283, February 25, 1992, the Supreme Courtcategorically ruled that:

It is stated expressly under Art. 2044 of the Civil Code that the finalityof the arbitrators' award is not absolute and without exceptions.Where the conditions described in Articles 2038, 2039 and 2040

applicable to both compromises and arbitrations are obtaining, thearbitrators' award may be annulled or rescinded. Additionally, underSections 24 and 25 of the Arbitration Law, there are grounds forvacating, modifying or rescinding an arbitrators' award. Thus, if andwhen the factual circumstances referred to in the above-citedprovisions are present, judicial review of the award is properlywarranted.

Clearly, though recourse to the courts may be availed of by parties aggrieved bydecisions or awards rendered by arbitrator/s, the extent of such is neither absolutenor all encompassing. . . . 7

It is clear then that the Court of Appeals reversed the trial court not because the latter reviewed thearbitration award involved herein, but because the respondent appellate court found that the trialcourt had no legal basis for vacating the award.

WHEREFORE, in view of the foregoing, this petition is hereby DISMISSED and the decision of theCourt of Appeals AFFIRMED.

SO ORDERED.

Feliciano, Bidin, Melo and Vitug, JJ., concur.

G.R. No. 169095 December 8, 2008

HEUNGHWA INDUSTRY CO., LTD., petitioner,vs.DJ BUILDERS CORPORATION, respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J . :

Before this Court is a Petition for Review on Certiorar i 1 under Rule 45 of the Rules of Court, seeking to

set aside the August 20, 2004 Decision2

and August 1, 2005 Resolution3

of the Court of Appeals (CA) inCA-G.R. SP Nos. 70001 and 71621.

The facts of the case, as aptly presented by the CA, are as follows:

Heunghwa Industry Co., Ltd. (petitioner) is a Korean corporation doing business in the Philippines, whileDJ Builders Corporation (respondent) is a corporation duly organized under the laws of the Philippines.Petitioner was able to secure a contract with the Department of Public Works and Highways (DPWH) toconstruct the Roxas-Langogan Road in Palawan.

http://www.lawphil.net/judjuris/juri2008/dec2008/gr_169095_2008.html#fnt1










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Petitioner entered into a subcontract agreement with respondent to do earthwork, sub base course andbox culvert of said project in the amount of Php113, 228, 918.00. The agreement contained an arbitrationclause. The agreed price was not fully paid; hence, on January 19, 2000, respondent filed before theRegional Trial Court (RTC) of Puerto Princesa, Branch 51, a Complaint for "Breach of Contract, Collectionof Sum of Money with Application for Preliminary Injunction, Preliminary Attachment, and Prayer forTemporary Restraining Order and Damages" docketed as Civil Case No. 3421 .4

Petitioner's Amended Answe r 5 averred that it was not obliged to pay respondent because the lattercaused the stoppage of work. Petitioner further claimed that it failed to collect from the DPWH due torespondent's poor equipment performance. The Amended Answer also contained a counterclaim forPhp24,293,878.60.

On September 27, 2000, parties through their respective counsels, filed a "Joint Motion to Submit SpecificIssues To The Construction Industry Arbitration Commission "6 (CIAC), to wit:

5. Parties would submit only specific issues to the CIAC for arbitration, leaving other claimsto this Honorable Court for further hearing and adjudication. Specifically, the issues to besubmitted to the CIAC are as follows:

a. Manpower and equipment standby time;

b. Unrecouped mobilization expenses;

c. Retention;

d. Discrepancy of billings; and

e. Price escalation for fuel and oil usage .7

On the same day, the RTC issued an Orde r 8 granting the motion.

On October 9, 2000, petitioner, through its counsel, filed an "Urgent Manifestation "9 praying that additionalmatters be referred to CIAC for arbitration, to wit:

1. Additional mobilization costs incurred by [petitioner] for work abandoned by [respondent];

2. Propriety of liquidated damages in favor of [petitioner] for delay incurred by [respondent];

3. Propriety of downtime costs on a daily basis during the period of the existence of theprevious temporary restraining order against [petitioner] .10

On October 24, 2000, respondent filed with CIAC a Request for Adjudication 11 accompanied by aComplaint. Petitioner, in turn filed a "Reply/ Manifestation" informing the CIAC that it was abandoning thesubmission to CIAC and pursuing the case before the RTC. In respondent's Comment on petitioner'sManifestation, it prayed for CIAC to declare petitioner in default.

CIAC then issued an Orde r 12 dated November 27, 2000 ordering respondent to move for the dismissal ofCivil Case No. 3421 pending before the RTC of Palawan and directing petitioner to file anew its answer.The said Order also denied respondent's motion to declare petitioner in default.

Respondent filed a Motion for Partial Reconsideration of the November 27, 2000 Order while petitionermoved to suspend the proceeding before the CIAC until the RTC had dismissed Civil Case No. 3421.




































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On January 8, 2000, CIAC issued an Orde r 13 setting aside its Order of November 27, 2000 by directingthe dismissal of Civil Case No. 3421 only insofar as the five issues referred to it were concerned. It alsodirected respondent to file a request for adjudication. In compliance, respondent filed anew a "RevisedComplaint "14 which increased the amount of the claim from Php23,391,654.22 to Php65,393,773.42.

On February 22 2001, petitioner, through its new counsel, filed with the RTC a motion to withdraw the

Order dated September 27, 2000 which referred the case to the CIAC, claiming it never authorized thereferral. Respondent opposed the motion 15 contending that petitioner was already estopped from askingfor the recall of the Order.

Petitioner filed in the CIAC its opposition to the second motion to declare it in default, with a motion todismiss informing the CIAC that it was abandoning the submission of the case to it and asserting that theRTC had original and exclusive jurisdiction over Civil Case No. 3421, including the five issues referred tothe CIAC.

On March 5, 2001, the CIAC denied petitioner's motion to dismiss on the ground that the November 27,2000 Order had already been superseded by its Order of January 8, 2001 .16

On March 13, 2001, the CIAC issued an Order setting the preliminary conference on April 10, 2001 .17

On March 23, 2001 petitioner filed with the CIAC a motion for reconsideration of the March 5, 2001 Order.

For clarity, the succeeding proceedings before the RTC and CIAC are presented in graph form inchronological order.

RTC CIAC April 5, 2001 - Petitioner filed aMotion to Suspend proceedingsbecause of the Motion to Recall itfiled with the RTC.

April 6, 2001 - CIAC grantedpetitioner's motion and suspendedthe hearings dated April 10 and 17,2001.

May 16, 2001 - the RTC issued aResolution 18granting petitioner'sMotion to Recall .19 June 1, 2001- Respondent movedfor a reconsideration of the May 16,2001 Resolution and prayed for thedismissal of the case withoutprejudice to the filing of a complaintwith the CIAC .20

June 11, 2001- Petitioner opposedrespondent's motion forreconsideration and also prayed forthe dismissal of the case but withprejudice .21 July 6, 2001 - The RTC deniedrespondent's motion forreconsideration but stated thatrespondent may file a formal motion


































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to dismiss if it so desired .22 July 16, 2001- Respondent filedwith the RTC a Motion toDismis s 23 Civil Case No. 3421praying for the dismissal of thecomplaint without prejudice to thefiling of the proper complaint withthe CIAC.

On the same day, the RTCgranted the motion withoutprejudice to petitioner'scounterclaim .24

August 1, 2001- Petitioner movedfor a reconsideration of the July 16,2001 Order claiming it was denieddue process .25

August 7, 2001 - Respondent filed

with the CIAC a motion for theresumption of the proceedingsclaiming that the dismissal of CivilCase No. 3421 became final on

August 3, 2001. August 15, 2001 - Petitioner filed acounter-manifestation 26 asserting thatthe RTC Order dated July 16, 2001was not yet final. Petitioner reiteratedthe prayer to dismiss the case.

August 27, 2001 - CIAC issued anOrder maintaining the suspension butdid not rule on petitioner's Motion toDismiss.January 22, 2002 - CIAC issued anOrder setting the case for PreliminaryConference on February 7, 2002.February 1, 2002 - Petitioner filed aMotion for Reconsideration of theJanuary 22, 2002 Order which alsoincluded a prayer to resolve theMotion for Reconsideration of theJuly 16, 2001 Order.February 5, 2002 - CIAC deniedpetitioner's Motion forReconsideration.February 7, 2002 - CIAC conducted apreliminary conference .27

March 13, 2002 - the RTC issueda Resolution 28 declaring the July16, 2001 Order which dismissedthe case "without force andeffect" and set the case forhearing on May 30, 2002.



























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March 15, 2002 - Petitioner filed aManifestation before the CIAC thatthe CIAC had no authority to hear thecase.March 18, 2002 - CIAC issued anOrder setting the hearing on April 2,2002.March 21, 2002 - Petitioner filed aManifestation/Motion that the RTChad recalled the July 16, 2001 Orderand had asserted jurisdiction over theentire case and praying for thedismissal of the pending case .29 March 22, 2002 - CIAC issued anOrde r 30denying the Motion toDismiss filed by petitioner andholding that the CIAC had

jurisdiction over the case .

March 25, 2002- Respondentmoved for a reconsideratio n31 of theMarch 13, 2002 Order recalling theJuly 16, 2001 Order whichpetitioner opposed.

March 26, 2002 - CIAC orderedrespondent to file a reply topetitioner's March 21, 2002Manifestation.

June 17, 2002 - RTC deniedrespondent's Motion forReconsideration .

The parties, without waiting for the reply required by the CIAC ,32 filed two separate petitions for certiorari :petitioner, on April 5, 2002, docketed as CA-G.R. SP No. 70001; and respondent, on July 5, 2002,docketed as CA-G.R. SP No. 71621 with the CA.

In CA-G.R. SP No. 70001, petitioner assailed the denial by the CIAC of its motion to dismiss and soughtto enjoin the CIAC from proceeding with the case.

In CA-G.R. SP No. 71621, respondent questioned the March 13, 2002 Order of the RTC which reinstatedCivil Case No. 3421 as well as the Order dated June 17, 2002 which denied respondent's motion forreconsideration. Respondent also sought to restrain the RTC from further proceeding with the civil case.

In other words, petitioner is questioning the jurisdiction of the CIAC; while respondent is questioning the jurisdiction of the RTC over the case.

Both cases were consolidated by the CA.

The CA ruled against petitioner on procedural and substantive grounds.

On matters of procedure, the CA took note of the fact that petitioner did not file a motion forreconsideration of the March 22, 2002 Order of the CIAC and held that it is in violation of the well-settledrule that a motion for reconsideration should be filed to allow the respondent tribunal to correct its errorbefore a petition can be entertained .33 Moreover, the CA ruled that it is well-settled that a denial of amotion to dismiss, being an interlocutory order, is not the proper subject for a petition for certiorari .34
























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Moreover, the CA ruled against petitioner's main argument that the arbitration clause found in thesubcontract agreement between the parties did not refer to CIAC as the arbitral body. The CA held thatthe CIAC had jurisdiction over the controversy because the construction agreement contained a provisionto submit any dispute for arbitration, and there was a joint motion to submit certain issues to the CIAC forarbitration .35

Anent petitioner's argument that its previous lawyer was not authorized to submit the case for arbitration,the CA held that what is required for a dispute to fall under the jurisdiction of the CIAC is for the parties toagree to submit to voluntary arbitration. Since the parties agreed to submit to voluntary arbitration in theconstruction contract, the authorization insisted upon by petitioner was a mere superfluity .36

The CA further cited National Irrigation Administration v. Court of Appeals 37 (NIA), where this Court ruledthat active participation in the arbitration proceedings serves to estop a party from denying that it had infact agreed to submit the dispute for arbitration.

Lastly, the CA found no merit in petitioner's prayer to remand the case to the CIAC.

Petitioner's Motion for Reconsideration was denied by the CA. Hence, herein petition raising the followingassignment of errors:

A.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR WHEN IT RULED THAT THEPETITION SUFFERED FROM PROCEDURAL INFIRMITIES WHEN PETITIONERHEUNGHWA, IN VIEW OF THE QUESTIONS OF LAW INVOLVED IN THE CASE,IMMEDIATELY INVOKED ITS AID BY WAY OF PETITION FOR CERTIORARI WITHOUTFIRST FILING A MOTION FOR RECONSIDERATION OF THE CIAC'S ORDER DATED 22MARCH 2002. THE COURT OF APPEALS FURTHER ERRED IN RULING THAT ADENIAL OF A MOTION TO DISMISS (IN REFERENCE TO THE ORDER DATED 22MARCH 2002), BEING AN INTERLOCUTORY ORDER, IS NOT THE PROPER SUBJECTOF A PETITION FOR CERTIORARI.

B.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN CONFIRMING THEJURISDICTION OF THE CIAC OVER THE CASE. ITS RELIANCE ON THE NATIONALIRRIGATION AUTHORITY VS. COURT OF APPEALS ("NIA VS. CA") WAS MISPLACEDAS THE FACTS OF THE INSTANT CASE ARE SERIOUSLY AND SUBSTANTIALLYDIFFERENT FROM THOSE OF NIA VS. CA.

C.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN DISREGARDING

PETITIONER'S REQUEST TO AT LEAST REMAND THE CASE TO THE CIAC FORFURTHER RECEPTION OF EVIDENCE IN THE INTEREST OF JUSTICE AND EQUITY ASPETITIONER COULD NOT HAVE AVAILED OF ITS OPPORTUNITY TO PRESENT ITSSIDE ON ACCOUNT OF ITS JURISDICTIONAL OBJECTION .38

The petition is devoid of merit.

The first assignment of error raises two issues: first, whether or not the non-filing of a motion forreconsideration was fatal to the petition for certiorari filed before the CA; and second, whether or not a
















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the Prime Contract with Respect to claims between the Owner and the Contractor, exceptthat a decision by the Owner or Consultant shall not be a condition precedent to arbitration. Ifthe Prime Contract does not provide for arbitration or fails to specify the manner andprocedure for arbitration, it shall be conducted in accordance with the law of the Philippinescurrently in effect unless the Parties mutually agree otherwise .53 (Emphasis supplied)

However, petitioner insists that the General Conditions which form part of the Prime Contract provide for aspecific venue for arbitration, to wit:

5.19.3. Any dispute shall be settled under the Rules of Conciliation and Arbitration of theInternational Chamber of Commerce by one or more arbitrators appointed under suchRules .54

The claim of petitioner is not plausible.

In National Irrigation Administration v. Court of Appeal s 55 this Court recognized the new procedure in thearbitration of disputes before the CIAC, in this wise:

It is undisputed that the contracts between HYDRO and NIA contained an arbitration clausewherein they agreed to submit to arbitration any dispute between them that may arise beforeor after the termination of the agreement. Consequently, the claim of HYDRO having arisenfrom the contract is arbitrable. NIA's reliance with the ruling on the case of Tesco ServicesIncorporated v. Vera , is misplaced.

The 1988 CIAC Rules of Procedure which were applied by this Court in Tesco case hadbeen duly amended by CIAC Resolutions No. 2-91 and 3-93, Section 1 of Article III of whichreads as follows:

Submission to CIAC Jurisdiction - An arbitration clause in a construction contract or asubmission to arbitration of a construction dispute shall be deemed an agreement tosubmit an existing or future controversy to CIAC jurisdiction, notwithstanding thereference to a different arbitration institution or arbitral body in such contract orsubmission . When a contract contains a clause for the submission of a future controversy toarbitration, it is not necessary for the parties to enter into a submission agreement before theclaimant may invoke the jurisdiction of CIAC.

Under the present Rules of Procedure, for a particular construction contract to fall within the jurisdiction of CIAC, it is merely required that the parties agree to submit the same tovoluntary arbitration. Unlike in the original version of Section 1, as applied in the Tesco case,the law as it now stands does not provide that the parties should agree to submit disputesarising from their agreement specifically to the CIAC for the latter to acquire jurisdiction overthe same. Rather, it is plain and clear that as long as the parties agree to submit tovoluntary arbitration, regardless of what forum they may choose, their agreement will

fall within the jurisdiction of the CIAC, such that, even if they specifically chooseanother forum, the parties will not be precluded from electing to submit their disputebefore the CIAC because this right has been vested upon each party by law, i.e. , E.O.No. 1008 .56 (Emphasis and underscoring supplied)

Based on the foregoing, there are two acts which may vest the CIAC with jurisdiction over a constructiondispute. One is the presence of an arbitration clause in a construction contract, and the other is theagreement by the parties to submit the dispute to the CIAC.
















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The first act is applicable to the case at bar. The bare fact that the parties incorporated an arbitrationclause in their contract is sufficient to vest the CIAC with jurisdiction over any construction controversy orclaim between the parties. The rule is explicit that the CIAC has jurisdiction notwithstanding any referencemade to another arbitral body.

It is well-settled that jurisdiction is conferred by law and cannot be waived by agreement or acts of the

parties. Thus, the contention of petitioner that it never authorized its lawyer to submit the case forarbitration must likewise fail. Petitioner argues that notwithstanding the presence of an arbitration clause,there must be a subsequent consent by the parties to submit the case for arbitration. To stress, the CIACwas already vested with jurisdiction the moment both parties agreed to incorporate an arbitration clausein the sub-contract agreement. Thus, a subsequent consent by the parties would be superfluous andunnecessary.

It must be noted however that the reliance of the CIAC in it's assailed Order on Philroc k 57is inaccurate.In Philrock , the Court ruled that the CIAC had jurisdiction over the case because of the agreement of theparties to refer the case to arbitration. In the case at bar, the agreement to refer specific issues to theCIAC is disputed by petitioner on the ground that such agreement was entered into by its counsel whowas not authorized to do so. In addition, in Philrock , the petitioner therein had actively participated in thearbitration proceedings, while in the case at bar there where only two instances wherein petitioner

participated, to wit: 1) the referral of five specific issues to the CIAC; and 2) the subsequent manifestationthat additional matters be referred to the CIAC.

The foregoing notwithstanding, CIAC has jurisdiction over the construction dispute because of the merepresence of the arbitration clause in the subcontract agreement.

Thus, the CIAC did not commit any patent grave abuse of discretion, nor did it act without jurisdictionwhen it issued the assailed Order denying petitioner's motion to dismiss. Accordingly, there is nocompelling reason for this Court to deviate from the rule that a denial of a motion to dismiss, absent ashowing of lack of jurisdiction or grave abuse of discretion amounting to lack of or excess jurisdiction,being an interlocutory order, is not the proper subject of a petition for certiorari .

Anent the second assigned error, the Court notes that the reliance of the CA on NIA is inaccurate.

In NIA,58

this Court observed:

Moreover, it is undeniable that NIA agreed to submit the dispute for arbitration to the CIAC.NIA through its counsel actively participated in the arbitration proceedings by filing an answerwith counterclaim, as well as its compliance wherein it nominated arbitrators to the proposedpanel, participating in the deliberations on, and the formulation of the Terms of Reference ofthe arbitration proceeding, and examining the documents submitted by HYDRO after NIAasked for originals of the said documents. "59

In the case at bar, the only participation that can be attributed to petitioner is the joint referral of specificissues to the CIAC and the manifestation praying that additional matters be referred to the CIAC. Bothacts, however, have been disputed by petitioner because said acts were performed by their lawyer whowas not authorized to submit the case for arbitration. And even if these were duly authorized, this wouldstill not change the correct finding of the CA that the CIAC had jurisdiction over the dispute because, ashas been earlier stressed, the arbitration clause in the subcontract agreement ipso facto vested the CIACwith jurisdiction.

In passing, even the RTC in its Resolution recognized the authority of the CIAC to hear the case, to wit:

Courts cannot and will not resolve a controversy involving a question which is within the jurisdiction of an administrative tribunal, especially where the question demands the exercise













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of sound administrative discretion requiring the special knowledge, experience and servicesof the administrative tribunal to determine technical and intricate matters of fact. Andundoubtedly in this case, the CIAC it cannot be denied, is that administrativetribunal .60(Emphasis supplied)

It puzzles this Court why petitioner would insist that the RTC should hear the case when the CIAC has the

required skill and expertise in addressing construction disputes. Records will bear out the fact thatpetitioner refused to and did not participate in the CIAC proceedings. In its defense, petitioner cited jurisprudence to the effect that active participation before a quasi-judicial body would be tantamount to aninvocation of the latter bodies' jurisdiction and a willingness to abide by the resolution of thecase .61 Pursuant to such doctrine, petitioner argued that had it participated in the CIAC proceedings, itwould have been barred from impugning the jurisdiction of the CIAC.

Petitioner cannot presume that it would have been estopped from questioning the jurisdiction of the CIAChad it participated in the proceedings. In fact, estoppel is a matter for the court to consider. The doctrineof laches or of stale demands is based upon grounds of public policy which requires, for the peace ofsociety, the discouragement of stale claims and, unlike the statute of limitations, is not a mere question oftime but is principally a question of the inequity or unfairness of permitting a right or claim to be enforcedor asserted .62 The Court always looks into the attendant circumstances of the case so as not to subvert

public policy .63

Given that petitioner questioned the jurisdiction of the CIAC from the beginning, it was notremiss in enforcing its right. Hence, petitioner's claim that it would have been estopped is premature.

The Court finds the last assigned error to be without merit.

It is well to note that in its petition for certiorar i 64 filed with the CA on April 9, 2002, petitioner prayed forthe issuance of a temporary restraining order and a writ of preliminary injunction to enjoin the CIAC fromhearing the case. On September 27, 2002, the CIAC promulgated its decision awardingPhp31,119,465.81 to respondent. It is unfortunate for petitioner that the CA did not timely act on itspetition. Records show that the temporary restraining orde r 65 was issued only on October 15, 2002 and awrit of preliminary injunction 66 was granted on December 11, 2002, long after the CIAC had concluded itsproceedings. The only effect of the writ was to enjoin temporarily the enforcement of the award of theCIAC.

The Court notes that had the CA performed its duty promptly, then this present petition could have beenavoided as the CIAC rules allow for the reopening of hearings, to wit:

SECTION 13.14 Reopening of hearing - The hearing may be reopened by the ArbitralTribunal on their own motion or upon the request of any party, upon good causeshown, at any time before the award is rendered . When hearings are thus reopened, theeffective date for the closing of the hearing shall be the date of closing of the reopenedhearing. (Emphasis supplied)

But because of the belated action of the CA, the CIAC had to proceed with the hearing notwithstandingthe non-participation of petitioner.

Under the CIAC rules, even without the participation of petitioner in the proceedings, the CIAC was stillrequired to proceed with the hearing of the construction dispute. Section 4.2 of the CIAC rules provides:

SECTION 4.2 Failure or refusal to arbitrate - Where the jurisdiction of CIAC is properlyinvoked by the filing of a Request for Arbitration in accordance with these Rules, thefailure despite due notice which amounts to a refusal of the Respondent to arbitrate,shall not stay the proceedings notwithstanding the absence or lack of participation ofthe Respondent. In such case, CIAC shall appoint the arbitrator/s in accordance with these




























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Rules. Arbitration proceedings shall continue, and the award shall be made after receivingthe evidence of the Claimant. (Emphasis and underscoring supplied)

This Court finds that the CIAC simply followed its rules when it proceeded with the hearing of the disputenotwithstanding that petitioner refused to participate therein.

To reiterate, the proceedings before the CIAC were valid, for the same had been conducted within itsauthority and jurisdiction and in accordance with the rules of procedure provided by Section 4.2 of theCIAC Rules.

The ruling of the Supreme Court in Lastimoso v. Asay o67 is instructive:

x x x x

In addition, it is also understandable why respondent immediately resorted to the remedyof certiorari instead of pursuing his motion for reconsideration of the PNP Chief's decision asan appeal before the National Appellate Board (NAB). It was quite easy to get confused asto which body had jurisdiction over his case. The complaint filed against respondent

could fall under both Sections 41 and 42 of Republic Act (R.A.) No. 6975 or theDepartment of Interior and Local Government Act of 1990 . Section 41 states thatcitizens' complaints should be brought before the People's Law Enforcement Board (PLEB),while Section 42 states that it is the PNP Chief who has authority to immediately remove ordismiss a PNP member who is guilty of conduct unbecoming of a police officer.

It was only in Quiambao v. Cour t of Ap peals , promulgated in 2005 or after respondenthad already filed the petition for cer t iorar i with the trial court, when the Court resolvedthe issue of which body has jurisdiction over cases that fall under both Sections 41and 42 of R.A. No. 6975 . x x x

With the foregoing peculiar circumstances in this case, respondent should not be deprived ofthe opportunity to fully ventilate his arguments against the factual findings of the PNP Chief.x x x

x x x x

Thus, the opportunity to pursue an appeal before the NAB should be deemed available torespondent in the higher interest of substantial justice .68 (Emphasis supplied)

In Lastimoso, this Court allowed respondent to appeal his case before the proper agency because of theconfusion as to which agency had jurisdiction over the case. In the case at bar, law and supporting

jurisprudence are clear and leave no room for interpretation that the CIAC has jurisdiction over thepresent controversy.

The proceedings cannot then be voided merely because of the non-participation of petitioner. Section 4.2of the CIAC Rules is clear and it leaves no room for interpretation. Therefore, petitioner's prayer that thecase be remanded to CIAC in order that it may be given an opportunity to present evidence is untenable.Petitioner had its chance and lost it, more importantly so, by its own choice. This Court will not afford arelief that is apparently inconsistent with the law.

WHEREFORE , the petition is denied for lack of merit. The August 20, 2004 Decision and August 1, 2005Resolution of the Court of Appeals in CA-G.R. SP Nos. 70001 and 71621 are AFFIRMED .









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Double costs against petitioner.

SO ORDERED .

MA. ALICIA AUSTRIA-MARTINEZ Associate Justice

G.R. No. 163101 February 13, 2008

BENGUET CORPORATION, petitioner,vs.DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES -MINES ADJUDICATION BOARDand J.G. REALTY AND MINING CORPORATION, respondents.

D E C I S I O N

VELASCO, JR., J .:

The instant petition under Rule 65 of the Rules of Court seeks the annulment of the December 2, 2002Decision 1 and March 17, 2004 Resolution 2 of the Department of Environment and Natural Resources-Mining Adjudication Board (DENR-MAB) in MAB Case No. 0124-01 (Mines Administrative Case No. R-M-2000-01) entitled Benguet Corporation (Benguet) v. J.G. Realty and Mining Corporation (J.G.Realty). The December 2, 2002 Decision upheld the March 19, 2001 Decision 3of the MAB Panel of

Arbitrators (POA) which canceled the Royalty Agreement with Option to Purchase (RAWOP) dated June1, 1987 4 between Benguet and J.G. Realty, and excluded Benguet from the joint Mineral ProductionSharing Agreement (MPSA) application over four mining claims. The March 17, 2004 Resolution deniedBenguet’s Motion for Reconsideration.

The Facts

On June 1, 1987, Benguet and J.G. Realty entered into a RAWOP, wherein J.G. Realty wasacknowledged as the owner of four mining claims respectively named as Bonito-I, Bonito-II, Bonito-III,and Bonito-IV, with a total area of 288.8656 hectares, situated in Barangay Luklukam, Sitio BagongBayan, Municipality of Jose Panganiban, Camarines Norte. The parties also executed a Supplemental

Agreemen t5 dated June 1, 1987. The mining claims were covered by MPSA Application No. APSA-V-0009 jointly filed by J.G. Realty as claimowner and Benguet as operator.

In the RAWOP, Benguet obligated itself to perfect the rights to the mining claims and/or otherwise acquirethe mining rights to the mineral claims. Within 24 months from the execution of the RAWOP, Benguetshould also cause the examination of the mining claims for the purpose of determining whether or notthey are worth developing with reasonable probability of profitable production. Benguet undertook also tofurnish J.G. Realty with a report on the examination, within a reasonable time after the completion of theexamination. Moreover, also within the examination period, Benguet shall conduct all necessaryexploration in accordance with a prepared exploration program. If it chooses to do so and before the

expiration of the examination period, Benguet may undertake to develop the mining claims upon writtennotice to J.G. Realty. Benguet must then place the mining claims into commercial productive stage within24 months from the written notice .6 It is also provided in the RAWOP that if the mining claims were placedin commercial production by Benguet, J.G. Realty should be entitled to a royalty of five percent (5%) ofnet realizable value, and to royalty for any production done by Benguet whether during the examination ordevelopment periods.

Thus, on August 9, 1989, the Executive Vice-President of Benguet, Antonio N. Tachuling, issued a letterinforming J.G. Realty of its intention to develop the mining claims. However, on February 9, 1999, J.G.





















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Realty, through its President, Johnny L. Tan, then sent a letter to the President of Benguet informing thelatter that it was terminating the RAWOP on the following grounds:

a. The fact that your company has failed to perform the obligations set forth in the RAWOP,i.e., to undertake development works within 2 years from the execution of the Agreement;

b. Violation of the Contract by allowing high graders to operate on our claim.

c. No stipulation was provided with respect to the term limit of the RAWOP.

d. Non-payment of the royalties thereon as provided in the RAWOP .7

In response, Benguet’s Manager for Legal Services, Reynaldo P. Mendoza, wrote J.G. Realty a letterdated March 8, 1999 ,8 therein alleging that Benguet complied with its obligations under the RAWOP byinvesting PhP 42.4 million to rehabilitate the mines, and that the commercial operation was hampered bythe non-issuance of a Mines Temporary Permit by the Mines and Geosciences Bureau (MGB) which mustbe considered as force majeure , entitling Benguet to an extension of time to prosecute such permit.Benguet further claimed that the high graders mentioned by J.G. Realty were already operating prior to

Benguet’s taking over of the premises, and that J.G. Realty had the obligation of ejecting such small scaleminers. Benguet also alleged that the nature of the mining business made it difficult to specify a time limitfor the RAWOP. Benguet then argued that the royalties due to J.G. Realty were in fact in its office andready to be picked up at any time. It appeared that, previously, the practice by J.G. Realty was to pick-upchecks from Benguet representing such royalties. However, starting August 1994, J.G. Realty allegedlyrefused to collect such checks from Benguet. Thus, Benguet posited that there was no valid ground forthe termination of the RAWOP. It also reminded J.G. Realty that it should submit the disagreement toarbitration rather than unilaterally terminating the RAWOP.

On June 7, 2000, J.G. Realty filed a Petition for Declaration of Nullity/Cancellation of the RAWOP 9 withthe Legaspi City POA, Region V, docketed as DENR Case No. 2000-01 and entitled J.G. Realty v.Benguet.

On March 19, 2001, the POA issued a Decision ,10

dwelling upon the issues of (1) whether the arbitratorshad jurisdiction over the case; and (2) whether Benguet violated the RAWOP justifying the unilateralcancellation of the RAWOP by J.G. Realty. The dispositive portion stated:

WHEREFORE, premises considered, the June 01, 1987 [RAWOP] and its Supplemental Agreement is hereby declared cancelled and without effect. BENGUET is hereby excludedfrom the joint MPSA Application over the mineral claims denominated as "BONITO-I","BONITO-II", "BONITO-III" and "BONITO-IV".

SO ORDERED.

Therefrom, Benguet filed a Notice of Appea l11 with the MAB on April 23, 2001, docketed as Mines Administrative Case No. R-M-2000-01. Thereafter, the MAB issued the assailed December 2, 2002Decision. Benguet then filed a Motion for Reconsideration of the assailed Decision which was denied inthe March 17, 2004 Resolution of the MAB. Hence, Benguet filed the instant petition.

The Issues

1. There was serious and palpable error when the Honorable Board failed to rule that thecontractual obligation of the parties to arbitrate under the Royalty Agreement is mandatory.




















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Fourth, the Court realizes that under Batas Pambansa (BP) Blg. 129 as amended by RA No.7902, factual controversies are usually involved in decisions of quasi-judicial bodies; and theCA, which is likewise tasked to resolve questions of fact, has more elbow room to resolvethem. By including questions of fact among the issues that may be raised in an appeal fromquasi-judicial agencies to the CA, Section 3 of Revised Administrative Circular No. 1-95 andSection 3 of Rule 43 explicitly expanded the list of such issues.

According to Section 3 of Rule 43, "[a]n appeal under this Rule may be taken to the Court of Appeals within the period and in the manner herein provided whether the appeal involvesquestions of fact, of law, or mixed questions of fact and law." Hence, appeals from quasi-

judicial agencies even only on questions of law may be brought to the CA.

Fifth , the judicial policy of observing the hierarchy of courts dictates that direct resort fromadministrative agencies to this Court will not be entertained, unless the redress desiredcannot be obtained from the appropriate lower tribunals, or unless exceptional andcompelling circumstances justify availment of a remedy falling within and calling for theexercise of our primary jurisdiction .14

The above principle was reiterated in Asaphil Construction and Development Corporation v. Tuason, Jr.(Asaphil) .15However, the Carpio ruling was not applied to Asaphil as the petition in the latter case wasfiled in 1999 or three years before the promulgation of Carpio in 2002. Here, the petition was filed on April28, 2004 when the Carpio decision was already applicable, thus Benguet should have filed the appealwith the CA.

Petitioner having failed to properly appeal to the CA under Rule 43, the decision of the MAB has becomefinal and executory. On this ground alone, the instant petition must be denied.

Even if we entertain the petition although Benguet skirted the appeal to the CA via Rule 43, still, theDecember 2, 2002 Decision and March 17, 2004 Resolution of the DENR-MAB in MAB Case No. 0124-01 should be maintained.

First Issue: The case should have first been brought tovoluntary arbitration before the POA

Secs. 11.01 and 11.02 of the RAWOP pertinently provide:

11.01 Arbitration

Any disputes, differences or disagreements between BENGUET and the OWNER withreference to anything whatsoever pertaining to this Agreement that cannot be amicablysettled by them shall not be cause of any action of any kind whatsoever in any court oradministrative agency but shall, upon notice of one party to the other, be referred to a Boardof Arbitrators consisting of three (3) members, one to be selected by BENGUET, another to

be selected by the OWNER and the third to be selected by the aforementioned twoarbitrators so appointed.

x x x x

11.02 Court Action

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












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Thus, Benguet argues that the POA should have first referred the case to voluntary arbitration beforetaking cognizance of the case, citing Sec. 2 of RA 876 on persons and matters subject to arbitration.

On the other hand, in denying such argument, the POA ruled that:

While the parties may establish such stipulations clauses, terms and conditions as they may deem

convenient, the same must not be contrary to law and public policy. At a glance, there is nothing wrongwith the terms and conditions of the agreement. But to state that an aggrieved party cannot initiate anaction without going to arbitration would be tying one’s hand even if there is a law which allows him to doso .17

The MAB, meanwhile, denie d Benguet’s contention on the ground of estoppel, stating:

Besides, by its own act, Benguet is already estopped in questioning the jurisdiction of thePanel of Arbitrators to hear and decide the case. As pointed out in the appealed Decision,Benguet initiated and filed an Adverse Claim docketed as MAC-R-M-2000-02 over the samemining claims without undergoing contractual arbitration. In this particular case (MAC-R-M-2000-02) now subject of the appeal, Benguet is likewise in estoppel from questioning thecompetence of the Panel of Arbitrators to hear and decide in the summary proceedings J.G.Realty’s petition, when Benguet itself did not merely move for the dismissal of the case butalso filed an Answer with counterclaim seeking affirmative reliefs from the Panel of

Arbitrators .18

Moreover, the MAB ruled that the contractual provision on arbitration merely provides for an additionalforum or venue and does not divest the POA of the jurisdiction to hear the case .19

In its July 20, 2004 Comment ,20 J.G. Realty reiterated the above rulings of the POA and MAB. It arguedthat RA 7942 or the "Philippine Mining Act of 1995" is a special law which should prevail over thestipulations of the parties and over a general law, such as RA 876. It also argued that the POA cannot beconsidered as a "court" under the contemplation of RA 876 and that jurisprudence saying that there mustbe prior resort to arbitration before filing a case with the courts is inapplicable to the instant case as the

POA is itself already engaged in arbitration.

On this issue, we rule for Benguet.

Sec. 2 of RA 876 elucidates the scope of arbitration:

Section 2. Persons and matters subject to arbitration. –– Two or more persons or partiesmay submit to the arbitration of one or more arbitrators any controversy existingbetween them at the time of the submission and which may be the subject of anaction, or the parties to any contract may in such contract agree to settle byarbitration a controversy thereafter arising between them. Such submission orcontract shall be valid, enforceable and irrevocable, save upon such grounds as existat law for the revocation of any contract.

Such submission or contract may include question[s] arising out of valuations, appraisals orother controversies which may be collateral, incidental, precedent or subsequent to anyissue between the parties. (Emphasis supplied.)

In RA 9285 or the "Alternative Dispute Resolution Act of 2004," the Congress reiterated the efficacy ofarbitration as an alternative mode of dispute resolution by stating in Sec. 32 thereof that domesticarbitration shall still be governed by RA 876. Clearly, a contractual stipulation that requires prior resort to

















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voluntary arbitration before the parties can go directly to court is not illegal and is in fact promoted by theState. Thus, petitioner correctly cites several cases whereby arbitration clauses have been upheld by thisCourt .21

Moreover, the contention that RA 7942 prevails over RA 876 presupposes a conflict between the twolaws. Such is not the case here. To reiterate, availment of voluntary arbitration before resort is made to

the courts or quasi-judicial agencies of the government is a valid contractual stipulation that must beadhered to by the parties. As stated in Secs. 6 and 7 of RA 876:

Section 6. Hearing by court. –– A party aggrieved by the failure, neglect or refusal ofanother to perform under an agreement in writing providing for arbitration maypetition the court for an order directing that such arbitration proceed in the mannerprovided for in such agreement. Five days notice in writing of the hearing of suchapplication shall be served either personally or by registered mail upon the party indefault. The court shall hear the parties, and upon being satisfied that the making ofthe agreement or such failure to comply therewith is not in issue, shall make an orderdirecting the parties to proceed to arbitration in accordance with the terms of theagreement. If the making of the agreement or default be in issue the court shallproceed to summarily hear such issue. If the finding be that no agreement in writingproviding for arbitration was made, or that there is no default in the proceedingthereunder, the proceeding shall be dismissed. If the finding be that a writtenprovision for arbitration was made and there is a default in proceeding thereunder, anorder shall be made summarily directing the parties to proceed with the arbitration inaccordance with the terms thereof.

x x x x

Section 7. Stay of civil action. –– If any suit or proceeding be brought upon an issue arisingout of an agreement providing for the arbitration thereof, the court in which such suit orproceeding is pending, upon being satisfied that the issue involved in such suit or proceedingis referable to arbitration, shall stay the action or proceeding until an arbitration has been had

in accordance with the terms of the agreement: Provided, That the applicant, for the stay isnot in default in proceeding with such arbitration. (Emphasis supplied.)

In other words, in the event a case that should properly be the subject of voluntary arbitration iserroneously filed with the courts or quasi-judicial agencies, on motion of the defendant, the court or quasi-

judicial agency shall determine whether such contractual provision for arbitration is sufficient andeffective. If in affirmative, the court or quasi-judicial agency shall then order the enforcement of saidprovision. Besides, in BF Corporation v. Court of Appeals , we already ruled:

In this connection, it bears stressing that the lower court has not lost its jurisdiction over thecase. Section 7 of Republic Act No. 876 provides that proceedings therein have only beenstayed. After the special proceeding of arbitration has been pursued and completed, then thelower court may confirm the award made by the arbitrator .22

J.G. Realty’s contention, that prior resort to arbitration is unavailing in the instant case because the POA’smandate is to arbitrate disputes involving mineral agreements, is misplaced. A distinction must be madebetween voluntary and compulsory arbitration. In Ludo and Luym Corporation v. Saordino , the Court hadthe occasion to distinguish between the two types of arbitrations:

Comparatively, in Reformist Union of R.B. Liner, Inc. vs. NLRC , compulsory arbitration hasbeen defined both as "the process of settlement of labor disputes by a government agencywhich has the authority to investigate and to make an award which is binding on all the









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parties, and as a mode of arbitration where the parties are compelled to accept the resolutionof their dispute through arbitration by a third party." While a voluntary arbitrator is not part ofthe governmental unit or labor department’s personnel, said arbitrator renders arbitrationservices provided for under labor laws .23 (Emphasis supplied.)

There is a clear distinction between compulsory and voluntary arbitration. The arbitration provided by the

POA is compulsory, while the nature of the arbitration provision in the RAWOP is voluntary, not involvingany government agency. Thus, J.G. Realty’s argument on this matter must fail.

As to J.G. Realty’s contention that the provisions of RA 876 cannot apply to the instant case whichinvolves an administrative agency, it must be pointed out that Section 11.01 of the RAWOP states that:

[Any controversy with regard to the contract] shall not be cause of any action of any kindwhatsoever in any court or administrative agency but shall, upon notice of one party to theother, be referred to a Board of Arbitrators consisting of three (3) members, one to beselected by BENGUET, another to be selected by the OWNER and the third to be selectedby the aforementioned two arbiters so appointed .24 (Emphasis supplied.)

There can be no quibbling that POA is a quasi-judicial body which forms part of the DENR, anadministrative agency. Hence, the provision on mandatory resort to arbitration, freely entered into by theparties, must be held binding against them .25

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

However, we find that Benguet is already estopped from questioning the POA’s jurisdiction. As it were,when J.G. Realty filed DENR Case No. 2000-01, Benguet filed its answer and participated in theproceedings before the POA, Region V. Secondly, when the adverse March 19, 2001 POA Decision wasrendered, it filed an appeal with the MAB in Mines Administrative Case No. R-M-2000-01 and againparticipated in the MAB proceedings. When the adverse December 2, 2002 MAB Decision waspromulgated, it filed a motion for reconsideration with the MAB. When the adverse March 17, 2004 MAB

Resolution was issued, Benguet filed a petition with this Court pursuant to Sec. 79 of RA 7942 impliedlyrecognizing MAB’s jurisdiction. In this factual milieu, the Court rules that the jurisdiction of POA and thatof MAB can no longer be questioned by Benguet at this late hour. What Benguet should have done wasto immediately cha llenge the POA’s jurisdiction by a special civil action for certiorari when POA ruled thatit has jurisdiction over the dispute. To redo the proceedings fully participated in by the parties after thelapse of seven years from date of institution of the original action with the POA would be anathema to thespeedy and efficient administration of justice.

Second Issue: The cancellation of the RAWOPwas supported by evidence

The cancellation of the RAWOP by the POA was based on two grounds: (1) Benguet’s failur e to pay J.G.Realty’s royalties for the mining claims; and (2) Benguet’s failure to seriously pursue MPSA Application

No. APSA-V-0009 over the mining claims.

As to the royalties, Benguet claims that the checks representing payments for the royalties of J.G. Realtywere available for pick-up in its office and it is the latter which refused to claim them. Benguet then thusconcludes that it did not violate the RAWOP for nonpayment of royalties. Further, Benguet reasons thatJ.G. Realty has the burden of proving that the former did not pay such royalties following the principle thatthe complainants must prove their affirmative allegations.













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when it received a Notice to Proceed from Hanjin, Dynamic had already spent a tidy sum for mobilizationpurposes.

In a clear breach of the subcontract agreement which obligated Hanjin to give Dynamic an advance/downpayment within 20 days from contract execution ,10 Hanjin paid Dynamic the stipulated down payment in10 installments spread over a six-mo nth period. Payments for Dynamic’s progress billings likewise came

late and also effected in installments, when the subcontract called for progress billing payment withinseven working days from the payment by the client (DOTC) to the contractor (Hanjin) .11

It may be stated at this stage that shortly after the subcontract signing, Dynamic secured a US dollardenominated loan from GRB Capital, Inc. (GRB) of California. As security for the loan, Dynamic agreed toassign its receivables from the Project to GRB, but Hanjin opposed the security arrangement on theground that the assignment might interfere with Dynamic’s performance.

Prior to the start of the construction works, Dynamic engaged the services of Gregorio E. Origenes, astructural engineer with 38-years experience behind him, to check on the designs of the Project. Afterexamining the plans and specifications for the Project, Origenes found that "[t]he depth of the girder wasundersigned [sic] considering the length of the beam and considering further that no post tensioningcables were provided; and [t]he framing system of the beams and girders was poorly designed. "12

Dynamic called Hanjin’s attention to such design deficiency. But upon the prodding of Hanjin which reliedon a contrary assessment of the Davao Airport Consultants (DAC), Dynamic nonetheless proceeded withthe construction as designed. The flawed design would later, however, manifest themselves by cracksappearing in the beams to the second floor slab in the Passenger Terminal Building. Initially, Hanjinconsidered such defects as construction in nature attributable to Dynamic, not design defects. However,the Association of Structural Engineers of the Philippines, Task Force Davao International Airport, uponinvestigation, discovered no evidence of deviation from the design plans and specifications, and statedthe opinion that there is a failure of structural design for some of the beams and girders of PassengerTerminal Buildings 1 and 2 .13

To address the adverted design defect, Dynamic recommended post-tensioning. However, Hanjin balkedat this recommendation. Eventually, Hanjin and the DAC approved the use of carbon fiber as post-tensioning material of the structures to be used by a new subcontractor, the Composite TechnologyCorporation .14

On December 31, 2000, the parties executed a modificatory Supplementary Agreemen t15 in a bid toensure the timely completion of the Project, with Hanjin assisting Dynamic in the scheduled works. Underthis supplementary contract, Hanjin would, among other things, take over the responsibility for canvassingof quotations, procurement, and delivery of materials and installation works. Dynamic would still providefor temporary facilities, such as scaffoldings, formwork materials, and the like .16

As of April 2002, 89% of the Project had been finished. Hanjin would, however, inform Dynamic that noprogress billing payment would be forthcoming after April 2002. As of that time, a total of 20 progressbillings were submitted to Hanjin in the total amount of PhP 582,103,359.35 , 10% of which, or over PhP58.2 million, was retained by Hanjin .17 By December 2002, when project works had reached a 94%completion level, Hanjin took over the Project for the reason of alleged abandonment .18 Dynamic wasthus impelled to demand payment from Hanjin for work done on the Project, which then went unheeded.

Such was the state of things when Dynamic submitted its claim against Hanjin for arbitration to the CIAC.In its Answer, Hanjin made counterclaims, such as costs of takeover, contractual negative balance, anddamages.

At the CIAC, the parties entered into a Terms of Reference whereby the issues they raised wereembodied, viz :

http://www.lawphil.net/judjuris/juri2008/apr2008/gr_169408_2008.html#fnt10




































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1. Is Claimant [Dynamic] entitled to the release of its retention amounting to P58,210,336.00when DOTC released to the Respondent [Hanjin] the retained amount of P89,492,594.56?

2. Is Claimant entitled to its claim for payment of escalation cost and/or price adjustmentamounting to P60,000,000.00?

3. Is Claimant entitled to its claim for payment of a foreign currency adjustment in the amountof P160,688,069.00?

4. Is Claimant entitled to its claim for payment of its work accomplishments valued atP27,790,675.00?

5. Whether or not Claimant is entitled to claim payment at 40% mark-up of the followingvariation orders: (1) Variation Order amounting to P219,171,878.00 x 40% =P87,668,722.00; (2) Variation Order amounting to P60,923,533.00 x 40% = P24,369,413.20?

6. Is Claimant entitled to its claim for payment for the installation of three systems of arrivalcarousel in the amount of P34,297,691.91?

7. x x x x

8. Is Claimant entitled to its claim for payment for interest computed at the rate of 12% perannum in the amount of P51,288,786.36?

9. Was respondent guilty of bad faith and deceit in its dealings with the Claimant when (a) itreleased the down payment in installments; x x x (c) it delayed payment of progress billings;(d) it refused to release to the Claimant 35% of the foreign currency portion of its contractwith DOTC; x x x (f) it overpriced the materials it purchased for the Claimant under theSupplementary Agreement between the parties, and claimed reimbursement for materials forwhich it failed to produce supporting receipts and also claimed reimbursement for

transporting materials from abroad using unreasonable and unacceptable method oftransporting materials?

10. Were there deductions from the work accomplishments of Claimant, which wereunauthorized and undue? Did the Claimant abandon the works? If it did, is the Claimantliable to Respondent for additional expenses it incurred in completing the work in theaggregate amount of P107,459,925.51?

11. Is Claimant liable for the claim x x x, for the cost of the supplies, materials andequipment, inclusive of taxes and customs duties, supplied by the Respondent x x x for theperformance of the Subcontracted Works? If so, how much of this claim is Respondententitled to x x x ?

12. Was the Claimant (i) mismanaged, (ii) lacking in capacity to perform the SubcontractedWorks, (iii) lacking in technical Know-how x x x (iv) lacking in expert engineers and qualifiedmanpower x x x (v) financially incapable of accomplishing the Subcontracted Works x x x ?

13. Did Claimant discover the deficiency in the structural design of the buildings to beconstructed by it, namely: (i) the Passenger Terminal Building, (ii) the ATC-AdministrationBuilding, and (iii) the Central Plant Building? If so, did it call the attention of the Respondentto this deficiency? Did the Respondent instruct the Claimant to proceed with the construction

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of the shop drawings and the construction of the buildings? Did cracks occur in the concretebeams of the buildings causing the DOTC through its consultant to provide procedures forcorrection of the defects and determine their cause? x x x Who between Claimant andRespondent is liable for the cost of retrofitting the cracked slabs and beams?

14. Is the Claimant liable for the claims of Respondent, described generally as "Contractual

Negative Balance" x x x ?

15. Is Claimant liable to Respondent for delay x x x ?

16. Is the Claimant liable to the Respondent for x x x moral damages x x x and attorney’sfees x x x ?

17. Is Claimant entitled to its claim for payment of attorney’s fees in the amount ofP25,554,857.55 ? 19

The following is a summary of the parties’ claims and counterclaims submitted before the CIAC:

[DYNAMIC’S CLAIMS:]

Retention Money P 58,210,336.00Escalation Cost/Price

Adjustment60,000,000.00

Foreign Currency Adjustment 160,688,069.00Work Accomplishments 27,790,675.00Variation Orders 153,119,284.73Interest for Late Payments 51,288,786.36

Attorney’s Fees 25,554,857.55

P 536,652,008.64

[HANJIN’S COUNTERCLAIMS:]

Contractual Negative Balance P 121,273,314.00Increase Manpower 81,486,997.00Equipment 635,500.00Electrical Consumption 419,939.16Miscellaneous Materials 481,734.81Liquidated Damages 12,600,000.00

Expenses for Preparation ofFinal Drawing 11,705,354.12Miscellaneous Expenses ofClaimant’s Subcontractors 130,500.00Moral Damages 1,000,000.00Exemplary Damages 1,000,000.00

Attorney’s Fees 2,000,000.00P 232,733,339.51 20








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Foreign Currency Adjustment 131,338,674.80Price Escalation 48,171,585.32Variation Orders 156,786,932.62

Adjusted Subcontract

Price

PhP

1,051,165,321.74x x x xShare in Profit in VOs 61,400,096.07Materials Over-Purchased 54,847,789.94Total PhP 1,167,413,207.75Less: Total DeductionsProgress Billings Nos. 1-20net of retention money 523,893,023.35Net Cost to Complete 368,578,828.92

Repayment, Unrecouped Advance Payment 16,398,419.74 908,870,252.01Net Award================

PhP258,542,935.74

The net award in favor of petitioner Dynamic x x x shall be [PhP 258,542,935.74] plusattorney’s fees of [PhP 500,000]. Respondent Hanjin x x x is hereby ordered to pay petitionercorporation the amount of [PhP 259,042,935.74]; plus interest at 12% per annum from thepromulgation of the assailed Final Award on September 7, 2004, until paid. The cost ofarbitration, however, should be equally borne by the parties in accordance with Article 24 ofthe Subcontract Agreement.

SO ORDERED .24

Upon motion for reconsideration filed by both parties, the CA recomputed and came up with a higher netaward as set forth in its Resolution of August 31, 2005 in CA-G.R. SP No. 86641, disposing as follows:

Due to the complexity of the computations involved, We deem it wise to RESTATE OurDecision. The net award shall be recomputed as follows:

Original Subcontract Price PhP 714,868,129.00Foreign Currency Adjustment 131,338,674.80Price Escalation 53,744,697.39Variation Orders (VOs) 141,535,238.92

__________________ Adjusted Subcontract Price PhP 1,041,486,740.11Share in Profit in VOs 9,295,667.94Materials Over-Purchased 54,847,789.94

__________________Total PhP 1,105,630,197.99





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Less, Total DeductionsProgress BillingsNos. 1-20net of retentionmoney 523,893,023.35

Unadjusted Net CosttoComplete 470,183,498.41Plus: Mech. Works(EFQ) 7,776,735.77Less: Amount to be reimbursedto [Dynamic] (3,338,736.57)Disallowed items (93,983,040.38)

Additional disallowed (8,381,856.00)Overcharging ofMaterials

for VOs (104,208,856.26) Amended Cost toComplete 271,386,481.54Repayment, Un-recouped

Advance Payment 16,398,419.74 811,677,924.63Net Award PhP 293,952,273.36

The net award in favor of petitioner [Dynamic] shall be [PhP 293,952,273.36] plus attorney’sfees of [PhP 500,000]. Respondent [Hanjin] is hereby ordered to pay petitioner x x x theamount of [PhP 293,952,273.36] plus interest at 12% per annum from the promulgation ofthe assailed Final Award on September 7, 2004, until paid. Hanjin is likewise ordered torelease to [Dynamic] the retention money in the amount of PhP 58,210,336.00, plus interestat 12% per annum from the time the Request for Arbitration was filed with the CIAC onFebruary 20, 2004, until fully paid. The cost of arbitration, however, should be equally borneby the parties in accordance with Article 24 of the Subcontract Agreement.

SO ORDERED .25

From the CA Decision in CA-G.R. SP No. 86633, Hanjin has come to this Court on a Petition for Reviewon Certiorari, the same docketed as G.R. No. 170144. And from the more adverse CA Resolution in CA-G.R. SP No. 86641, Hanjin also filed a similar petition, docketed as G.R. No. 169408.

In a Resolution dated February 28, 2007 ,26 this Court consolidated the above cases.

The Issues

Hanjin raises identical issues in both of its petitions, to wit:

I

WHETHER A REVIEW OF THE INSTANT CASE BY WAY OF THE INSTANT PETITIONFOR REVIEW IS WARRANTED









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II

WHETHER THE [CA] ERRONEOUSLY READ INTO THE SUBCONTRACT AGREEMENTEXTRANEOUS AND CONTRACTUALLY INEXISTENT TERMS AND CONDITIONS TOLAMELY JUSTIFY ITS AWARD TO RESPONDENT DYNAMIC OF PAYMENT IN FOREIGNCURRENCY

III

WHETHER THE [CA’S] AWARD OF PRICE ESCALATION IN FAVOR OF RESPONDENTDYNAMIC IS WITH LEGAL BASIS

IV

WHETHER THE [CA’S] IMPOSITION OF CERTAIN ITEMS, PERCENTAGES AND AMOUNTS IN RESPONDENT DYNAMIC’S CLAIM TO VARIATION ORDERS IS WITHLEGAL BASIS

V

WHETHER THE [CA] WAS LEGALLY JUSTIFIED IN ITS COMPUTATION WITH REGARDTO THE ITEMS ON COSTS TO COMPLETE IN FAVOR OF PETITIONER HANJIN

VI

WHETHER THE [CA] COMMITTED REVERSIBLE ERROR WHEN IT DISREGARDED THEEVIDENCE ESTABLISHED ON RECORD BY REWARDING RESPONDENT DYNAMICPAYMENT OF RETENTION MONEY DESPITE ITS ABANDONMENT OF THESUBCONTRACTED WORKS

VII

WHETHER PETITIONER HANJIN IS LEGALLY ENTITLED TO REIMBURSEMENT OF THECOST OF ATTORNEY’S FEES, MORAL AND EXEMPLARY DAMAGES

VIII

WHETHER THERE WAS LEGAL BASIS FOR THE [CA’S] RULING THAT RESPONDENTDYNAMIC IS ENTITLED TO INTEREST PAYMENT 27

The Ruling of the Court

The Propriety of the Petitions for Review

Dynamic maintains that the issues Hanjin raised in its petitions are factual in nature and are, therefore,not proper subject of review under Section 1 of Rule 45, prescribing that a petition under the said rule, likethe one at bench, "shall raise only questions of law which must be distinctly set forth."

Dynamic’s contention is valid to point as, indeed, the matters raised by Hanjin are factual, revolving asthey do on the entitlement of Dynamic to the awards granted and computed by the CIAC and the CA.Generally, this would be a question of fact that this Court would not delve upon. Imperial v.




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Jaucian suggests as much. There, the Court ruled that the computation of outstanding obligation is aquestion of fact:

Arguing that she had already fully paid the loan x x x, petitioner alleges that the two lowercourts misappreciated the facts when they ruled that she still had an outstanding balance ofP208,430.

This issue involves a question of fact . Such question exists when a doubt or differencearises as to the truth or the falsehood of alleged facts; and when there is need for acalibration of the evidence, considering mainly the credibility of witnesses and the existenceand the relevancy of specific surrounding circumstances, their relation to each other and tothe whole, and the probabilities of the situation .28 (Emphasis supplied.)

The rule, however, precluding the Court from delving on the factual determinations of the CA, admits ofseveral exceptions. In Fuentes v. Court of Appeals , we held that the findings of facts of the CA, which aregenerally deemed conclusive, may admit review by the Court in any of the following instances, amongothers:

(1) when the factual findings of the [CA] and the trial court are contradictory;

(2) when the findings are grounded entirely on speculation, surmises, or conjectures;

(3) when the inference made by the [CA] from its findings of fact is manifestly mistaken,absurd, or impossible;

(4) when there is grave abuse of discretion in the appreciation of facts;

(5) when the [CA], in making its findings, goes beyond the issues of the case, and suchfindings are contrary to the admissions of both appellant and appellee;

(6) when the judgment of the [CA] is premised on a misapprehension of facts;

(7) when the [CA] fails to notice certain relevant facts which, if properly considered, will justifya different conclusion;

(8) when the findings of fact are themselves conflicting;

(9) when the findings of fact are conclusions without citation of the specific evidence onwhich they are based; and

(10) when the findings of fact of the [CA] are premised on the absence of evidence but suchfindings are contradicted by the evidence on record .29

Significantly, jurisprudence teaches that mathematical computations as well as the propriety of the arbitralawards are factual determinations .30 And just as significant is that the factual findings of the CIAC andCA—in each separate appealed decisions —practically dovetail with each other. The perceptible essentialdifference, at least insofar as the CIAC’s Final Award and the CA Decision in CA -G.R. SP No. 86641 areconcerned, rests merely on mathematical computations or adjustments of baseline amounts which theCIAC may have inadvertently utilized.













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At any rate, th e challenge hurled by Hanjin against the merits of the CA’s findings, particularly thoseembodied in its Decision in CA-G.R. SP No. 86641, must fail, such findings being fully supported by, ordeducible from, the evidence on record.

Issue of Payment in Foreign Currency

Hanjin argues that there is no provision in the subcontract agreement, as supplemented, for the partialpayment of the contract price in foreign currency.

Hanjin is wrong, a peso-dollar payment mix being effectively contemplated in the subcontract. Inconstruing a contract, the provisions thereof should not be read in isolation, but in relation to each otherand in their entirety so as to render them effective, having in mind the intention of the parties and thepurpose to be achieved .31 Thus, Article 1374 of the Civil Code provides that "the various stipulations of acontract shall be interpreted together attributing to the doubtful ones that sense which result from all ofthem taken jointly."

In other words, the stipulations in a contract and other contract documents should be interpreted togetherwith the end in view of giving effect to all .32 The CA, as did the CIAC, found the Hanjin-DynamicSubcontract Agreement as including and incorporating the provisions of other agreements entered into byand between the parties respecting the Project. They appropriately cited Art. 1 of the Subcontract

Agreement, stating:

ARTICLE 1. SUBCONTRACT DOCUMENTS

1.1) The following documents shall be deemed to form and be read and beconstrued as an integral part of the Subcontract Agreement in the same order ofprecedence as below:

a) Subcontract Agreement No. DAV-2-Sub-A-OO 1

b) Special Conditions as the Annex 1

c) General Conditions of the Main Contract

d) Technical Specifications of the Main Contract

e) Tender Drawings

f) Priced Bill of Quantities as the Annex 2.

1.2) The Subcontractor is deemed to have examined and fully understood the aforesaidSubcontract Agreement Documents .33 (Emphasis supplied.)

It is abundantly clear from the emphasized portions of the aforequoted provision that the DOTC-HanjinMain Contract forms as "an integral part of the Subcontract Agreement." It is settled that if the terms of acontract leave no doubt as to the parties’ intention, the litera l meaning of its stipulations shouldcontrol .34 The categorical finding of the CA, affirmatory of that of the CIAC, was that "the Subcontract is aback-to-back contract with Hanjin’s contract with DOTC." Under the Main Contract, DOTC undertook topay Hanjin 35% of the contract price in US dollars. Be that as it may, and on the postulate that the MainContract is an integral part of the Subcontract Agreement, it behooves Hanjin to extend to Dynamic thesame benefits otherwise accruing to Hanjin under the Main Contract. Apart from dollar payment, otherbenefits contemplated include the payment of price adjustment or escalation. An application of the "back-

















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to-back" arrangement between Hanjin and Dynamic to the contrary would be tantamount to a constructionagainst the terms of the Subcontract Agreement.

Before the CIAC, Hanjin argued that Dynamic’s entitlement to a share in the foreign currency portion ofthe contract price is conditioned on the completion of the Project by April 2002 .35 The CIAC, however,correctly made short shrift of this argument, tagging the condition to be an impossible one and noting that

Hanjin’s very act of releasing advance payments to Dynamic in trickles, rather than in one full payment,as agreed upon, and delaying payments for approved progress billings ensured that Dynamic would notmeet the April 2002 deadline. The CA, it bears to stress, echoed these CIAC findings, and stated theobservation that Hanjin’s actions not only delayed the Project, but also rendered its completion on thedate imposed by Hanjin impossible. Hanjin, therefore, cannot plausibly fault and penalize Dynamic for notmeeting the imposed deadline, the latter having in its favor Art. 1186 of the Civil Code, which says that"[t]he condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment."

Given th e above perspective, the condition imposed for Dynamic’s entitlement to a share in Hanjin’sforeign currency receipts is, for the nonce, deemed fulfilled. Accordingly, there is no legal obstacle to theaward of a foreign currency adjustment to Dynamic. Fur thermore, Hanjin’s admission before the CIACthat Dynamic is entitled to a foreign currency portion of the subcontract price veritably placed Hanjin inestoppel from claiming otherwise. Under the doctrine of estoppel, an admission or representation is

rendered conclusive upon the person making it, and cannot be denied or disproved as against the personrelying thereon .36

Issue of Computation of Foreign Currency Adjustment

As to the amount of foreign currency adjustment due Dynamic, the CIAC arrived at the figure PhP131,338,674.80. The CA agreed with the CIAC’s computation and the ratiocination therefor. Wereproduce with approval what the CIAC wrote:

Dynamic’s Su bcontract Price of P714,868,129.00 is 76% of what Hanjin will derive fromDOTC for the Subcontract Works. 35% of this amount represents the foreign currencyportion of the Subcontract Price. This amounts to P250,203,845.00. At the exchange rate ofHanjin which is P34.10: US$1, this amount of P250,203,845.00 is equivalent toUS$7,337,356.15. Converted again into its value in pesos at the time when the Subcontractwas performed which ranged from P50.00 to P54.00 to US$1, or an average rate of P52.00:US$1, its peso equivalent is P381,542,519.80. This is the rate used by Hanjin in chargingDynamic for the peso value of the importation of foreign materials. The difference betweenP381,542,519.80 and P250,203,845.00 is P131,338,674.80. We award to Dynamic as itsshare of the foreign currency portion of the Subcontract Price the amount ofP131,338,674.80 which shall be added to the Subcontract Price .37

Issue of Applicable Exchange Rate

Hanjin questions the PhP 52: USD 1 exchange rate adopted by the CA and by the CIAC earlier, assertingthat what is applicable is the PhP 34.10: USD 1 exchange rate, the same being stipulated in the DOTC-

Hanjin Main Contract.

Hanjin’s assert ion may be accorded some cogency but for the fact that, as the CA and the CIAC found,Hanjin charged Dynamic for all the costs related to the importation of raw materials to be used in theProject at the average exchange rate of PhP 52.00: USD 1. And as the CA aptly observed, the"Subcontract called for the importation of a substantial amount of equipment and materials for theproject." We need not belabor the iniquitousness of the lopsided formula foisted by Hanjin and the undueenrichment resulting therefrom.













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Issue of Computation of Variation Order

Hanjin also challenges the CA’s computation of Dynamic’s share in the profit in the Variation Orders(VOs). The CA, in its July 6, 2005 Decision in CA- G.R. SP No. 86641, found the amount of Dynamic’sshare in the VOs to be PhP 61,400,096.07, up from the PhP 9,295,667.94 awarded by the CIAC. Onreconsideration, the CA returned to the original CIAC figure. Instead, in its August 31, 2005 Resolution,

the appellate court deducted the whole amount of PhP 104,208,856.26 from Hanjin’s Net Cost toComplete Claim. This amount represented the cost of materials with the overcharge component passedby Hanjin to Dynamic. The CA arrived at the figure of PhP 104,208,856.26 after a painstaking, itemizedcomparison of the items and amounts common in the Tables of Variance submitted by the parties in thetwo tables.

We see no reason to disturb the CA’s findings which appear to be supported by the evi dence on record.The computation of awards is, to stress, purely factual which the Court, not being a trier of facts, need notevaluate and analyze all over again.

On another point, Hanjin argues that the original contract price on the items subject to VOs should beadded to the DOTC-approved amount for the same items. And from this sum total should be deducted theamount representing what the CA considered as overcharging Hanjin passed onto Dynamic. According to

Hanjin, the amount it was charging Dynamic represents the actual cost of work done on the items subjectto VOs. Hanjin’s posture would necessarily diminish the amount allegedly overcharged by Hanjin toDynamic.

The Court is not convinced. At the outset, we find Hanjin’s presentation of a partial lis t41 in itsMemorandum of the items each party is charging the other quite disturbing. As the petitioner in this case,Hanjin is charged with the burden of establishing the grave error allegedly committed by the CA in itscomputation of the overcharged amount. Its failure to provide a complete and clear computation of what itconsiders as the correct one militates against the supposed merit of its argument.

Han jin’s own annexes to its Petition indicate the deleted items from the original subcontract price of PhP924,670,819, as follows:

Original SubcontractPrice

PhP924,670,819.00

Deleted after re-measurement

PhP118,338,206.31

Deleted due change ofspecifications subject toVOs 91,464,481.64 209,802,687.95

PhP714,868,129.0 542

Also pertinent is a list of VO s 43 approved by the DOTC with an aggregate amount of PhP37,326,381.54 ,44 corresponding to the same items previously deleted, as shown above, amounting to PhP91,464,481.64.

Hanjin presently asks the Court to add the original subcontract price of the items subject to VOs, that is,PhP 91,464,481.64, to the DOTC- approved amount for the corresponding VOs in the amount of PhP37,326,381.54, the sum of which to be deducted from the amount of PhP 141,535,238.9 2 45 which Hanjinis charging Dynamic to arrive at the amount of the overcharge.





















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Hanjin knows fully well that the amount of PhP 91,464,481.64 covers items deleted from the contractprice by reason of the VOs. Such deleted items lowered the original aggregate subcontract price fromPhP 924,670,819 to PhP 714,868,129. The amount of PhP 91,464,481.64, representing items alreadydeleted by reason of VOs, has been superseded by the succeeding changes in specifications which theDOTC approved in the amount of PhP 37,326,381.54. Hence, only the amount approved by the DOTCfor the items actually installed should be the subject of computation . The amounts representingitems already deleted should necessarily be excluded from the computation.

From the foregoing consideration, it is unreasonable for Hanjin to charge Dynamic the amount of PhP141,535,238.92 for the items subject to VOs when DOTC actually approved only PhP 37,326,381.54 forthe same items. And lest it be overlooked, Dynamic was credited only the amount approved by DOTC atPhP 37,326,381.54 of the subject VOs. To charge Dynamic more than the approved amount for the VOswould result in an overcharging on the part of Hanjin.

Issue on Computation of Hanjin’s Net Cost to Complete

As regards the issue of disallowed deductions from Hanjin’s Net Cost to Complete, the CA, in itsunderlying decision in CA-G.R. SP No. 86641, included the amount of PhP 8,558,652.78 and PhP1,257,417.30, being not properly receipted, as additional disallowed deductions to the CIAC’s figure of

PhP 84,166,970.4746

or a total disallowable deduction of PhP 93,983,040.38 .47

We agree and thus affirmthe CA’s holding that when expenses or offered deductions are not properly documented, suchdeductions should not be allowed, such deductions being in the nature of actual damages. To berecoverable, actual damages must be pleaded and adequately proven in court. An award thereof cannotbe predicated on flimsy, remote, speculative, and insubstantial proof .48 Again, we see no reason todeviate from the CA’s findings on the matter of how much Hanjin expended to complete the Project.

To be sure, the Court cannot close its eyes to the consistent findings of the appellate court, affirmatory ofthat of the CIAC, that Hanjin padded expenses chargeable against Dynamic. Consider the following aptobservations of the CIAC on the computation of deductions Hanjin charged Dynamic under "Net Cost toComplete":

The Dynamic Summary is divided into two parts: The first part covered all purchases,payments to subcontractors and all expenses deducted from Dynamic’s progress billingsnos. 1 to 20. We reviewed the Dynamic Summary to ascertain the expenses that arequestioned. We assume that those not questioned are admitted to be proper expenses andare deductible from the [adjusted subcontract price]. We agree with Dynamic that we shoulddisallow certain items for the following reasons:

1. The expense is outside the scope of work of Dynamic;

2. The expense relates to an item that is subject to a prior deduction; in other words,in the cases of double deduction.

3. The expense is undocumented.

We came across a substantial number of imported items where there was a materialvariance between the value of an imported item as reflected in a Customs declaration andthe value reflected in private documents. The value reflected in the Bureau of Customsdeclaration is less, in some cases, substantially less than that reflected in other documents.We chose to rely on the value in the Bureau of Customs declaration. First, because it is apublic document. Second, because if the case is one in which Hanjin undervalued theimported goods, which is a criminal act, we will not allow it to profit from its own wrong .49
















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Issue of Dynamic’s Abandonment of Work

Hanjin claims as being entitled to other costs which it incurred when Dynamic later abandoned thesubcontracted works in December 2002. Both the issues of "other costs" and "abandonment" are factualmatters settled in the proceedings below. The CIAC findings argue against the notion of abandonment onthe part of Dynamic. Wrote the CIAC:

Even if it were true, as argued by Hanjin, that there were other aspects of the work that could have beenaggressively pursued by Dynamic, it could have given the guarantee requested by Dynamic that it will bepaid even if DOTC does not in turn pay Hanjin for the same work. Moreover, the admission by Hanjin thatafter the April 2002 progress billings, it did not pay Dynamic for work it had accomplished, in our view,provides sufficient legal justification for not continuing with the work. Article 1169 [of the] Civil Code,invoked by Dynamic provides:

ART. 1169. In reciprocal obligations, neither party incurs in delay if the other does notcomply or is not ready to comply in a proper manner with what is incumbent upon him. Fromthe moment one of the parties fulfills the obligation, delay by the other begins .

Under the Subcontract, Dynamic agreed to perform the Subcontract Works in considerationfor which Hanjin agreed to pay Dynamic the stipulated Subcontract Price in accordance withthe terms and conditions of the Subcontract. The payment for performing the SubcontractWorks consisted of an advance payment exclusively to cover the costs of mobilization andmonthly progress payments within seven (7) days after DOTC pays Hanjin. [Hanjin has notargued] tha t DOTC was remiss in the payment of Hanjin’s progress billings. Clearly,therefore, there was failure on the part of Hanjin to comply with its obligation to payDynamic. Thus, we hold that x x x Dynamic did not abandon the Works . As will beshown later, Dynamic was squeezed out of the Subcontract and was rendered by Hanjinincapable of performing its obligations therein. Under Article 1186 of the Civil Code, " Thecondition shall be deemed fulfilled when the obligor voluntarily prevents itsfulfillment ."50 (Emphasis supplied.)

In its Resolution dated August 31, 2005, the CA sustained the CIAC’s finding on non -abandonment, asfollows:

[T]he CIAC found that [Dynamic] did not abandon the subcontract works, but that it wassqueezed out of the Subcontract and was rendered by Hanjin incapable of performing theobligations therein. It found certain circumstances to justify the suspension of work by[Dynamic], to wit: that [Dynamic] was forced to de-mobilize because it was not being paid forwork undertaken; that the issue of retrofitting had not been resolved; and that the manner ofretrofitting still had to be decided upon. Despite the same, [Dynamic] continued with the worknot affecting the retrofitting work, but Hanjin terminated the Subcontract. The CIAC thus heldthat Hanjin, the obligor, in voluntarily preventing the fulfillment by [Dynamic], the obligee, ofits obligation, the condition was deemed fulfilled .51

It cannot be overemphasized that conclusions arrived at on factual issues by the CIAC, when affirmed bythe CA, are accorded great respect and even finality, if supported by substantial evidence .52 In the instantcase, both the CIAC and the CA found more than ample evidence to support Dynamic’s disclaimer ofhaving abandoned the Project.

The Court concurs with the parallel findings of the CIAC and the CA on the issue of abandonment.Indeed, Hanjin, by its unjustifiable and unfair actions, veritably forced Dynamic out of the Project at a timewhen the subcontract works were already 94% complete. In net effect, Hanjin accepted the benefitsarising from the subcontract agreement without as much as asking Dynamic to finish its part of the













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bargain. Under Art. 1235 of the Civil Code, the obligation is deemed fully complied with when an obligeeaccepts the performance thereof knowing its incompleteness or irregularity, and without expressing anyprotest or objection. An obligee is deemed to have waived strict compliance by an obligor with anobligation when the following elements are present: (1) an intentional acceptance of the defective orincomplete performance; (2) with actual knowledge of the incompleteness or defect; and (3) undercircumstances that would indicate an intention to consider the performance as complete and renounceany claim arising from the defect .53

These elements obtain in the instant case. At the time it "booted out" Dynamic from the Project, Hanjinknew that the subcontract works were not yet complete. In fact, there were unresolved matters involvingstructural design deficiencies and the methods to be used in the retrofitting of the cracked slabs andbeams in the Passenger Terminal Building. Hanjin served notice that it will not pay the progress billingsfor works done after April 2000. In December 2002, it refused entry to Dynamic’s workers at the projectsite. Hanjin took all these actions without demanding that Dynamic finish its contractual undertaking. Byoperation of law, Hanjin is thus deemed to have waived its right to claim any payment for expenses itincurred in completing the unfinished six percent of the work. No reversible error can thus be attributed tothe CA in refusing to allow additional completion costs to Hanjin.

Issue of Dynamic’s Entitlement to Retention Money

Hanjin, as stated at the outset, refused to release Dynamic’s retention money on the ground ofabandonment and non-completion of the Project. Arts. 6.2, 7, and 8.3 of the Subcontract Agreement,relating to the matter on retention money, respectively read, as follows:

6.2) Monthly progress billing calculated on the basis of actual works measured and sixtypercent (60%) of the material costs of the delivered goods according to the Bill of quantities,x x x shall be paid with deductions of advance payment stipulated in Article 6.1 and tenpercent (10%) of billing amount as the retention money stipulated in Article 7.1 for the periodcovered. Monthly progress billing[s] shall be paid by the Contractor and to the Subcontractorwithin seven (7) working days after the Client pays the Contractor.

x x x x

ARTICLE 7. RETENTION

7.1) The retention money, ten percent (10%) of every progress billing with cumulativeamount not exceeding ten percent (10%) of the Subcontract Price shall be deductedtherefrom in order to secure the remedy of defects.

7.2) Fifty percent (50%) of the retention money shall be released to the Subcontractorimmediately after the Contractor issues the "Taking Over Certificate" to the Subcontractorand against presentation of Warranty Bond x x x valid for the duration of the Defects LiabilityPeriod specified in Article 8.

The other fifty percent (50%) retention shall be released pro rata, if no defects have beenfound, after the Client releases retention money to the Contractor, after the Subcontractorissues a Clearance Certificate to the Contractor attesting that the Contractor is free from allliens and encumbrances in relation to the Subcontract Works and after the Subcontractorsubmits an acceptable Warranty Bond to the Contractor which is valid until the defectsliability period of the Main Contract plus 2 months.

x x x x





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8.3) Defects Liability Period shall be three hundred sixty-five (365) days from the date ofissuance of the Taking Over Certificate. Within this period, the Subcontractor shall repair andmake good all defects in the Subcontract Works at his own cost x x x. The Subcontractorshall assume full and sole responsibility for the removal, repair and replacement of anydefective or non- conforming works .54 x x x

The retention money, as described above, is intended to ensure defect and deficiency-free work asevidenced by the contractor’s issuance of a Take Over Certificate. Hanjin, as contractor, never issued thiskey document to Dynamic. Instead, it discharged Dynamic from the 94%-done Project rendering theissuance of such certificate a virtual impossibility. On June 1, 2003, the DOTC issued a Take OverCertificate to Hanjin and released the latter’s retention money under the Main Contract. But even earlier,the DOTC released Hanjin’s retention money covering the period February 2000 to December 2001, adevelopment which wou ld have obligated Hanjin to release the corresponding Dynamic’s retention moneyfor the same period. But instead of paying, Hanjin held onto Dynamic’s retention money. Worse still,Hanjin willfully and in apparent bad faith took over the unfinished work of Dynamic. To us, and to CIACand the CA earlier, Hanjin in effect waived any and all of its rights to hold Dynamic liable for any defects,deficiencies, or unfinished work. Consequently, there is no legal basis for Hanjin to further withholdpayment of Dyn amic’s retention money.

Issue of Entitlement to Moral and Exemplary Damages

Hanjin’s ascription of bad faith and gross negligence on the part of Dynamic, as basis for its claim ofattorney’s fees against the latter, has nothing to commend itself for concurrence. In fact, both the CIACand CA are one in saying that it was Hanjin which acted in bad faith in its contractual relation withDynamic. The CIAC, in awarding attorney’s fees to Dynamic, categorically stated:

On the basis of the evidence before us, we do not find any basis to hold Dynamic liable toHanjin for x x x damages and attorney’s fees. On the other hand, on the basis of our findingthat Hanjin acted in bad faith and had persistently acted in a manner that we interpret asattempts to squeeze out Dynamic from the Subcontract, and for attempting to pass on toDynamic a part of the cost of retrofitting when, it is clear from the evidence, it was free fromfault, and all the difficulties encountered by Dynamic in trying to enforce its rights under theSubcontract, we should find Hanjin liable to pay Dynamic exemplary damages but we cannotaward exemplary damages as they are not part of the claim of Dynamic. x x x We, however,award attorney’s fees of P500,000.00 .55

Issue of Entitlement to Attorney’s Fees

The Subcontract Agreement, as supplemented, is silent as to payment of attorney’s fees. The applicablelaw, Art. 2208 of the Civil Code, must thus govern any award thereof. It reads:

ART. 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, otherthan judicial costs, cannot be recovered except:

x x x x

2) When the defendant’s acts or omission has compelled the plaintiff to lit igate with thirdpersons or to incur expenses to protect its interest;

x x x x









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5) Where the defendant acted in gross and evident bad faith in refusing to satisfy theplaintiffs plainly valid, just and demandable claim;

x x x x

11) In any case where the court deems it just and equitable that attorney’s fees andexpenses of litigation should be recovered.

An award of attorney’s fees being the exception ,56 some compelling legal reason must obtain to bring thecase within the exception and justify such award. In the case at bench, there is a categorical finding bythe CIAC and CA that Hanjin’s refusal to satisfy Dynamic’s just claims amounted to gross and evident badfaith. This to us presents the justifying ingredient for the award of attorney’s fees. Accordingly, we affirmthe award of attorney’s fees in CA -G.R. SP No. 86641 to Dynamic in the amount of PhP 500,000.

Issue of Computation of Interest

The Court of Appeals Erred in Its Award of Interest Payment

In its appealed Resolution of August 31, 2005, the CA decreed that:

[Hanjin] x x x is hereby ordered to pay [Dynamic] the amount of [PhP 293,952,273.36]; plusinterest at 12% per annum from the promulgation of the assailed Final Award on September7, 2004, until paid. Hanjin is likewise ordered to release to [Dynamic] the retention money inthe amount of PhP 58,210,336.00, plus interest at 12% per annum from the time the Requestfor Arbitration was filed with the CIAC on February 20, 2004, until fully paid .57 x x x

In the landmark case of Eastern Shipping Lines v. Court of Appeals , the Court summarized the rules oninterest award, as follows:

II. With regard particularly to an award of interest in the concept of actual and compensatorydamages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i .e ., aloan or forbearance of money, the interest due should be that which may have beenstipulated in writing. Furthermore, the interest due shall itself earn legal interest from the timeit is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% perannum to be computed from default, i .e ., from judicial or extrajudicial demand under andsubject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, aninterest on the amount of damages awarded may be imposed at the discretion of the court atthe rate of 6% per annum . No interest, however, shall be adjudged on unliquidated claims ordamages except when or until the demand can be established with reasonablecertainty. Accordingly, where the demand is established with reasonable certainty, theinterest shall begin to run from the time the claim is made judicially or extrajudicially (Art.1169, Civil Code) but when such certainty cannot be so reasonably established at the timethe demand is made, the interest shall begin to run only from the date the judgment of thecourt is made (at which time the quantification of damages may be deemed to have beenreasonably ascertained). The actual base for the computation of legal interest shall, in anycase, be on the amount finally adjudged.









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The Case

This Petition for Review on Certiorari under Rule 45 seeks the reversal of the January 8, 2008 2 andMarch 17, 2008 3Orders of the Regional Trial Court (RTC), Branch 148 in Makati City in SP Proc. CaseNo. 6046, entitled In the Matter of ICC Arbitration Ref. No. 13290/MS/JB/JEM Between RCBC CapitalCorporation, (Claimant), and Equitable PCI Banking Corporation, Inc. et al., (Respondents). The assailed

January 8, 2008 Order confirmed the Partial Award dated September 27, 2007 4

rendered by theInternational Chamber of Commerce-International Court of Arbitration (ICC-ICA) in Case No.13290/MS/JB/JEM, entitled RCBC Capital Corporation (Philippines) v. Equitable PCI Bank, Inc. & Others(Philippines). The March 17, 2008 Order denied petitioners’ motion for reconsideration of the January 8,2008 Order.

The Facts

On May 24, 2000, petitioners Equitable PCI Bank, Inc. (EPCIB) and the individual shareholders ofBankard, Inc., as sellers, and respondent RCBC Capital Corporation (RCBC), as buyer, executed a SharePurchase Agreemen t 5 (SPA) for the purchase of petitioners’ interests in Bankard, representing226,460,000 shares, for the price of PhP 1,786,769,400. To expedite the purchase, RCBC agreed todispense with the conduct of a due diligence audit on the financial status of Bankard.

Under the SPA, RCBC undertakes, on the date of contract execution, to deposit, as downpayment, 20%of the purchase price, or PhP 357,353,880, in an escrow account. The escrowed amount, the SPA stated,should be released to petitioners on an agreed-upon release date and the balance of the purchase priceshall be delivered to the share buyers upon the fulfillment of certain conditions agreed upon, in the form ofa manager’s check.

The other relevant provisions of the SPA are:

Section 5. Sellers’ Representations and Warranties

The SELLERS jointly and severally represent and warrant to the BUYER that:

x x x x

The Financial Condition of Bankard

g. The audited financial statements of Bankard for the three (3) fiscal years ended December31, 1997, 1998 and 1999, and the unaudited financial statements for the first quarter ended31 March 2000, are fair and accurate, and complete in all material respects, and have beenprepared in accordance with generally accepted accounting principles consistently followedthroughout the period indicated and:

i) the balance sheet of Bankard as of 31 December 1999, as prepared and certified

by SGV & Co. ("SGV"), and the unaudited balance sheet for the first quarter ended31 March 2000, present a fair and accurate statement as of those dates, ofBankard’s financial condition and of all its assets and liabilities, and is complete in allmaterial respects; and

ii) the statements of Bankard’s profit and loss accounts for the fiscal years 1996 to1999, as prepared and certified by SGV, and the unaudited profit and loss accountsfor the first quarter ended 31 March 2000, fairly and accurately present the results of













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the operations of Bankard for the periods indicated, and are complete in all materialrespects.

h. Except as disclosed in the Disclosures, and except to the extent set forth or reserved inthe audited financial statements of Bankard as of 31 December 1999 and its unauditedfinancial statements as of 31 March 2000, Bankard, as of such dates and up to 31 May 2000,

had and shall have no liabilities, omissions or mistakes in its records which will have materialadverse effect on the net worth or financial condition of Bankard to the extent of more thanOne Hundred Million Pesos (P100,000,000.00) in the aggregate. In the event such materialadverse effect on the net worth or financial condition of Bankard exceeds One HundredMillion Pesos (P100,000,000.00), the Purchase Price shall be reduced in accordance withthe following formula:

Reduction in Purchase Price = X multiplied by 226,460,000

where

X =

Amount by which negative

adjustment exceeds P100 Million--------------------------------------------338,000,000

(1.925)

x x x x

Section 7. Remedies for Breach of Warranties

a. If any of the representations and warranties of any or all of the SELLERS or the BUYER(the "Defaulting Party") contained in Sections 5 and 6 shall be found to be untrue when madeand/or as of the Closing Date, the other party, i.e., the BUYER if the Defaulting Party is anyor all of the SELLERS and the SELLERS if the Defaulting Party is the BUYER (hereinafter

referred to as the "Non-Defaulting Party") shall have the right to require the Defaulting Party,at the latter’s expense, to cure such breach, and/or seek damages, by providing notice orpresenting a claim to the Defaulting Party, reasonably specifying therein the particulars of thebreach. The foregoing remedies shall be available to the Non-Defaulting Party only if thedemand therefor is presented in writing to the Defaulting Party within three (3) years from theClosing Date exc ept that the remedy for a breach of the SELLERS’ representation andwarrant in Section 5 (h) shall be available only if the demand therefor is presented to theDefaulting Party in writing together with schedules and to substantiate such demand, withinsix (6) months from the Closing Date .6

On June 2, 2000, RCBC deposited the stipulated downpayment amount in an escrow account after whichit was given full management and operational control of Bankard. June 2, 2000 is also considered by theparties as the Closing Date referred to in the SPA.

Thereafter, the parties executed an Amendment to Share Purchase Agreement (ASPA) dated September19, 2000 .7 Its paragraph 2(e) provided that:

2. Notwithstanding any provisions to the contrary in the Share Purchase Agreement and/orany agreement, instrument or document entered into or executed by the Parties in relationthereto (the "Related Agreements"), the Parties hereby agree that:









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(b) The Claimant is not estopped by its conduct or the equitable doctrine of laches frompursuing its claim.

(c) As detailed in the Partial Award, the Claimant has established the following breaches bythe Respondents of clause 5(g) of the SPA:

i) the assets, revenue and net worth of Bankard were overstated by reason of itspolicy on and recognition of Late Payment Fees;

ii) reported receivables were higher than their realizable values by reason of the‘bucketing’ method, thus overstating Bankard’s assets; and

iii) the relevant Bankard statements were inadequate and misleading in that theirdisclosures caused readers to be misinformed about Ba nkard’s accounting policieson revenue and receivables.

(d) Subject to proof of loss the Claimant is entitled to damages for the foregoing breaches.

(e) The Claimant is not entitled to rescission of the SPA.

(f) All other issues, including any issue relating to costs, will be dealt with in a further or finalaward.

15.2 A further Procedural Order will be necessary subsequent to the delivery of this Partial Award to deal with the determination of quantum and in particular, whether there should bean Expert appointed by the Tribunal under Article 20(4) of the ICC Rules to assist theTribunal in this regard.

15.3 This Award is delivered by a majority of the Tribunal (Sir Ian Barker and Mr. Kaplan).Justice Kapunan is unable to agree with the majority’s conclusi on on the claim of estoppel

brought by the respondents.

On the matter of prescription, the tribunal held that RCBC’s claim is not time -barred, the claim properlyfalling under the contemplation of Sec. 5(g) and not Sec. 5(h). As such, the tribunal concluded, RCBC’sclaim was filed within the three (3)-year period under Sec. 5(g) and that the six (6)-month period underSec. 5(h) did not apply.

The tribunal also exonerated RCBC from laches, the latter having sought relief within the three (3)-yearper iod prescribed in the SPA. On the matter of estoppel suggested in petitioners’ answer, the tribunalstated in par. 10.27 of the Partial Award the following:

10.27 Clearly, there has to be both an admission or representation by (in this case) theClaimant [RCBC], plus reliance upon it by (in this case) the Respondents [herein petitioners].The Tribunal cannot find as proved any admission/representation that the Claimant wasabandoning a 5(g) claim, any reliance by the Respondents on an admission, and anydetriment to the Respondents such as would entitle them to have the Claimant deprived ofthe benefit of clause 5(g). These aspects of the claim for estoppels are rejected .11

Notably, the tribunal considered the rescission of the SPA and ASPA as impracticable and "totally out ofthe question. "12









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In his Dissenting Opinion 13 which he submitted to and which was received on September 24, 2007 by theICC-ICA, Justice Kapunan stated the observation that RCBC’s claim is time -barred, falling as such claimdid under Sec. 5(h), which prescribes a comparatively shorter prescriptive period, not 5(g) as held by themajority of the tribunal, to wit:

Claimant admits that the Claim is for recovery of P431 million on account of alleged

"overvaluation of the net worth of Bankard," allegedly for "improper accounting practices"resulting in "its book value per share as of 31 December 1999 [being] overstated." Claimant’switness, Dean Echanis asserts that "the inadequate provisioning for Bankard’s doub tfulaccounts result[ed] in an overstatement of its December 31, 1999 total assets and net worthof by [sic] least P418.2 million."

In addition, Claimant’s demand letter addressed to the Respondents alleged that "weoverpaid for the Shares to the extent of the impact of the said overstatement on the BookValue per share".

These circumstances establish beyond dispute that the Claim is based on the allegedoverstatement of the 1999 net worth of Bankard, which the parties relied on in setting thepurchase price of the shares. Moreover, it is clear that there was an overstatement becauseof "improper accounting practices" which led Claimant to overpay for the shares.

Ultimately, the Claim is one for recovery of overpayment in the purchase price of the shares.x x x

As to the issue of estoppel, Justice Kapunan stated:

Moreover, Mr. Rubio’s findings merely corroborated the disclosures made in the InformationMemorandum that Claimant received from the Respondents prior to the execution of theSPA. In this connection , I note that Bankard’s policy on provisioning and setting ofallowances using the Bucketed Method and income recognition from AR/Principal,

AR/Interest and AR/LPFs were disclosed in the Information Memorandum. Thus, thesealleged improper accounting practices were known to the Claimant even prior to theexecution of the SPA.

Thus, when Claimant paid the balance of the purchase price, it did so with full knowledge ofthese accounting practices of Bankard that it now assails. By paying the balance of thepurchase price without taking exception or objecting to the accounting practices disclosedthrough Mr. Rubio’ s review and the Information Memorandum, Claimant is deemed to haveaccepted such practices as correctly reporting the 1999 net worth. x x x

x x x x

As last point, I note that my colleagues invoke a principle that for estoppels to apply theremust be positive indication that the right to sue was waived. I am of the view that there is nosuch principle under Philippine law. What is applicable is the holding in Knecht and inCoca- Cola that prior knowledge of an unfavorable fact is binding on the party who has suchknowledge; "when the purchaser proceeds to make investigations by himself, and the vendordoes nothing to prevent such investigation from being as complete as the former might wish,the purchaser cannot later allege that the vendor made false representations to him" (Cf.Songco v. Sellner, 37 Phil 254 citations omitted).




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Applied to this case, the Claimant cannot seek relief on the basis that when it paid thepurchase price in December 2000, it was unaware that the accounting practices that wentinto the reporting of the 1999 net worth as amounting to P1,387,275,847 were not inconformity with GAAP [generally accepted accounting principles]. (Emphasis added.)

On October 26, 2007, RCBC filed with the RTC a Motion to Confirm Partial Award. On the same day,

petitioners countered with a Motion to Vacate the Partial Award. On November 9, 2007, petitioners againfiled a Motion to Suspend and Inhibit Barker and Kaplan.

On January 8, 2008, the RTC issued the first assailed order confirming the Partial Award and denying theadverted separate motions to vacate and to suspend and inhibit. From this order, petitioners soughtreconsideration, but their motion was denied by the RTC in the equally assailed second order of March17, 2008.

From the assailed orders, petitioners came directly to this Court through this petition for review.

The Issues

This petition seeks the review, reversal and setting aside of the orders Annexes A and Band, in lieu of them, it seeks judgment vacating the arbitrators’ liability award, Annex C, onthese grounds:

(a) The trial court acted contrary to law and judicial authority in refusing to vacate the arbitralaward, notwithstanding it was rendered in plain disregard of the parties’ contract andapplicable Philippine law, under which the claim in arbitration was indubitably time-barred.

(b) The trial court acted contrary to law and judicial authority in refusing to vacate and inconfirming the arbitral award, notwithstanding that the arbitrators had plainly and admittedlyfailed to accord petitioners’ due process by denying them a hearing on the basic factualmatter upon which their liability is predicated.

(c) The trial court committe d grave error in confirming the arbitrators’ award, which heldpetitioners-sellers liable for an alleged improper recording of accounts, allegedly affecting thevalue of the shares they sold, notwithstanding that the respondent-buyer knew beforecontracting that the accounts were kept in the manner complained of, and in fact ratified andadopted the questioned accounting practice and policies .14

The Court’s Rulin g

The petition must be denied.

On Procedural Misstep of Direct Appeal to This Court

As earlier recited, the ICC- ICA’s Partial Award dated September 27, 2007 was confirmed by the RTC inits first assailed order of January 8, 2008. Thereafter, the RTC, by order of March 17, 2008, deniedpetitioners’ motion for reconsideration. Therefrom, petitioners came directly to this Court on a petition forreview under Rule 45 of the Rules of Court.

This is a procedural miscue for petitioners who erroneously bypassed the Court of Appeals (CA) in pursuitof its appeal. While this procedural gaffe has not been raised by RCBC, still we would be remiss in notpointing out the proper mode of appeal from a decision of the RTC confirming, vacating, setting aside,modifying, or correcting an arbitral award.





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Rule 45 is not the remedy available to petitioners as the proper mode of appeal assailing the decision ofthe RTC confirming as arbitral award is an appeal before the CA pursuant to Sec. 46 of Republic Act No.(RA) 9285, otherwise known as the Alternative Dispute Resolution Act of 2004 , or completely, An Act toInstitutionalize the Use of an Alternative Dispute Resolution System in the Philippines and to Establish theOffice for Alternative Dispute Resolution, and for other Purposes , promulgated on April 2, 2004 andbecame effective on April 28, 2004 after its publication on April 13, 2004.

In Korea Technologies Co., Ltd v. Lerma , we explained, inter alia , that the RTC decision of an assailedarbitral award is appealable to the CA and may further be appealed to this Court, thus:

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

SEC. 46. Appeal from Court Decision or Arbitral Awards. – A decision of the Regional TrialCourt confirming, vacating, setting aside, modifying or correcting an arbitral award maybe appealed to the Court of Appeals in accordance with the rules and procedure to bepromulgated by the Supreme Court.

The losing party who appeals from the judgment of the court confirming an arbitral awardshall be required by the appellate court to post a counterbond executed in favor of theprevailing party equal to the amount of the award in accordance with the rules to bepromulgated by the Supreme Court.

Thereafter, the CA decision may further be appealed or reviewed before this Court through apetition for review under Rule 45 of the Rules of Court .15

It is clear from the factual antecedents that RA 9285 applies to the instant case. This law was alreadyeffective at the time the arbitral proceedings were commenced by RCBC through a request for arbitrationfiled before the ICC-ICA on May 12, 2004. Besides, the assailed confirmation order of the RTC wasissued on March 17, 2008. Thus, petitioners clearly took the wrong mode of appeal and the instant

petition can be outright rejected and dismissed.

Even if we entertain the petition, the outcome will be the same.

The Court Will Not Overturn an Arbitral Award Unless It Was Made in Manifest Disregard of the Law

In Asset Privatization Trust v. Court of Appeals ,16 the Court passed on similar issues as the onestendered in the instant petition. In that case, the arbitration committee issued an arbitral award which thetrial court, upon due proceedings, confirmed despite the opposition of the losing party. Motions forreconsideration by the losing party were denied. An appeal interposed by the losing party to the CA wasdenied due course. On appeal to this Court, we established the parameters by which an arbitral awardmay be set aside, to wit:

As a rule, the award of an arbitrator cannot be set aside for mere errors of judgmenteither as to the law or as to the facts. Courts are without power to amend or overrulemerely because of disagreement with matters of law or facts determined by thearbitrators. 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, sinceany other rule would make an award the commencement, not the end, of litigation.Errors of law and fact, or an erroneous decision of matters submitted to the judgment









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of the arbitrators, are insufficient to invalidate an award fairly and honestly made.Judicial review of an arbitration is, thus, more limited than judicial review of a trial.

Nonetheless, the arbitrators’ awards is not absolute and without exceptions. The arbitratorscannot resolve issues beyond the scope of the submission agreement. The parties to suchan 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. Thus,Sections 24 and 25 of the Arbitration Law provide grounds for vacating, rescinding ormodifying an arbitration award. Where the conditions described in Articles 2038, 2039 and2040 of the Civil Code applicable to compromises and arbitration are attendant, thearbitration award may also be annulled.

x x x x

Finally, it should be stressed that while a court is precluded from overturning an award forerrors in determination of factual issues, nevertheless, if an examination of the recordreveals no support whatever for the arbitrators’ determinations, their award must be vacated.In the same manner, an award must be vacated if it was made in "manifest disregard of

the law ."17

(Emphasis supplied.)Following Asset Privatization Trust , errors in law and fact would not generally justify the reversal of anarbitral award. A party asking for the vacation of an arbitral award must show that any of the grounds forvacating, rescinding, or modifying an award are present or that the arbitral award was made in manifestdisregard of the law. Otherwise, the Court is duty-bound to uphold an arbitral award.

The instant petition dwells on the alleged manifest disregard of the law by the ICC-ICA.

The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaro s 18 expounded on the phrase "manifestdisregard of the law" in the following wise:

This court has emphasized that manifest disregard of the law is a very narrow standard ofreview. Anaconda Co. v. District Lodge No. 27 , 693 F.2d 35 (6 th Cir.1982). A mere error ininterpretation or application of the law is insufficient. Anaconda , 693 F.2d at 37-38. Rather,the decision must fly in the face of clearly established legal precedent. When faced withquestions of law, an arbitration panel does not act in manifest disregard of the law unless (1)the applicable legal principle is clearly defined and not subject to reasonable debate; and (2)the arbitrators refused to heed that legal principle.

Thus, to justify the vacation of an arbitral award on account of "manifest disregard of the law," the arbiter’sfindings must clearly and unequivocally violate an established legal precedent. Anything less would notsuffice.

In the present case, petitioners, in a bid to establish that the arbitral award was issued in manifest

disregard of the law, allege that the Partial Award violated the principles of prescription, due process, andestoppel. A review of petitioners’ arguments would, however, show that their arguments are bereft ofmerit. Thus, the Partial Award dated September 27, 2007 cannot be vacated.

RCBC’s Claim Is Not Time -Barred

Petitioners argue that RCBC’s claim under Sec. 5(g) is based on overvaluation of Bankard’s revenues, assets, and net worth, hence, for price reduction falling under Sec. 5(h), in which case it was belatedlyfiled, for RCBC presented the claim to petitioners on May 5, 2003, when the period for presenting it under









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Sec. 5(h) expired on December 31, 2000. As a counterpoint, RCBC asserts that its claim clearly comesunder Sec. 5(g) in relation to Sec. 7 which thus gave it three (3) years from the closing date of June 2,2000, or until June 1, 2003, within which to make its claim. RCBC contends having acted within therequired period, having presented its claim-demand on May 5, 2003.

To make clear the issue at hand, we highlight the pertinent portions of Secs. 5(g), 5(h), and 7 bearing on

what petitioners warranted relative to the financial condition of Bankard and the remedies available toRCBC in case of breach of warranty:

g. The audited financial statements of Bankard for the three (3) fiscal years endedDecember 31, 1997, 1998 and 1999, and the unaudited financial statements for the firstquarter ended 31 March 2000, are fair and accurate, and complete in all materialrespects , and have been prepared in accordance with generally accepted accountingprinciples consistently followed throughout the period indicated and:

i) the balance sheet of Bankard as of 31 December 1999 , as prepared andcertified by SGV & Co. ("SGV"), and the unaudited balance sheet for the first quarterended 31 March 2000, present a fair and accurate statement as of those dates,of Bankard’s financial condition and of all its assets and li abilities, and iscomplete in all material respects ; and

ii) the statements of Bankard’s profit and loss accounts for the fiscal years1996 to 1999 , as prepared and certified by SGV, and the unaudited profit and lossaccounts for the first quarter ended 31 March 2000, fairly and accuratelypresent the results of the operations of Bankard for the periods indicated,and are complete in all material respects .

h. Except as disclosed in the Disclosures, and except to the extent set forth or reserved inthe audited financial statements of Bankard as of 31 December 1999 and its unauditedfinancial statements for the first quarter ended 31 March 2000, Bankard, as of such datesand up to 31 May 2000, had and shall have no liabilities, omissions or mistakes in its

records which will have a material adverse effect on the net worth or financialcondition of Bankard to the extent of more than One Hundred Million Pesos (P100,000,000.00) in the aggregate . In the event such material adverse effect on the networth or financial condition of Bankard exceeds One Hundred Million Pesos (P100,000,000.00), the Purchase Price shall be reduced in accordance with the followingformula:

x x x x

Section 7. Remedies for Breach of Warranties

If any of the representations and warranties of any or all of the SELLERS or the BUYER (the

"Defaulting Party") contained in Sections 5 and 6 shall be found to be untrue when madeand/or as of the Closing Date, the other party, i.e., the BUYER if the Defaulting is any of theSELLERS and the SELLERS if the Defaulting Party is the BUYER (hereinafter referred to asthe "Non-Defaulting Party") shall have the right to require the Defaulting Party, at thelatter’s expense, to cure such breach, and/or seek damages, by providing notice orpresenting a claim to the Defaulting Party , reasonably specifying therein the particulars ofthe breach. The foregoing remedies shall be available to the Non-Defaulting Party only if thedemand therefor is presented in writing to the Defaulting Party within three (3) yearsfr om the Closing Date, except that the remedy for a breach of the SELLERS’

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representation and warranty in Section 5 (h) shall be available only if the demandtherefor is presented to the Defaulting Party in writing together with schedules and data tosubstantiate such demand, within six (6) months from the Closing Date . (Emphasissupplied.)

Before we address the issue put forward by petitioners, there is a necessity to determine the nature and

application of the reliefs provided under Sec. 5(g) and Sec. 5(h) in conjunction with Sec. 7, thus:

(1) The relief under Sec. 5(h) is specifically for price reduction as said section explicitly states that the"Purchase Price shall be reduced in accordance with the following formula x x x." In addition, Sec. 7 givesthe aggrieved party the right to ask damages based on the stipulation that the non-defaulting party "shallhave the right to require the Defaulting Party, at the latter’s expense, to cure such breach and/ or seekdamages ."

On the other hand, the remedy under Sec. 5(g) in conjunction with Sec. 7 can include specificperformance, damages, and other reliefs excluding price reduction .

(2) Sec. 5(g) warranty covers the audited financial statements (AFS) for the three (3) years endingDecember 31, 1997 to 1999 and the unaudited financial statements (UFS) for the first quarter endingMarch 31, 2000. On the other hand, the Sec. 5(h) warranty refers only to the AFS for the year endingDecember 31, 1999 and the UFS up to May 31, 2000. It is undenied that Sec. 5(h) refers to pricereduction as it covers "only the most up-to-date audited and unaudited financial statements upon whichthe price must have been based. "19

(3) Under Sec. 5(h), the responsibility of petitioners for its warranty shall exclude the disclosures andreservations made in AFS of Bankard as of December 31, 1999 and its UFS up to May 31, 2000. No suchexclusions were made under Sec. 5(g) with respect to the warranty of petitioners in the AFS and UFS ofBankard.

(4) Sec. 5(h) gives relief only if there is material adverse effect in the net worth in excess of PhP 100million and it provides a formula for price reduction .20 On the other hand, Sec. 5(g) can be the basis forremedies like specific performance, damages, and other reliefs, except price reduction, even if theovervaluation is less or above PhP 100 million and there is no formula for computation of damages.

(5) Under Sec. 7, the aggrieved party shall present its written demand to the defaulting party within three(3) years from closing date. Under Sec. 5(h), the written demand shall be presented within six (6) monthsfrom closing date. In accordance with par. 2(c) of the ASPA, the deadline to file the demand under Sec.5(h) was extended to December 31, 2000.

From the above determination, it becomes clear that the aggrieved party is entitled to two (2) separatealternative remedies under Secs. 5 and 7 of the SPA, thus:

1. A claim for price reduction under Sec. 5(h) and/or damages based on the breach ofwarranty by Bankard on the absence of liabilities, omissions and mistakes on the financial

statements as of 31 December 1999 and the UFS as of 31 May 2000, provided that thematerial adverse effect on the net worth exceeds PhP 100M and the written demand ispresented within six (6) months from closing date (extended to 31 December 2000); and

2. An action to cure the breach like specific performance and/or damages under Sec. 5(g)based on Bankard’s breach of warranty involving its AFS for the three (3) fiscal years ending31 December 1997, 1998, and 1999 and the UFS for the first quarter ending 31 March 2000provided that the written demand shall be presented within three (3) years from closing date.









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Has RCBC the option to choose between Sec. 5(g) or Sec. 5(h)?

The answer is yes. Sec. 5 and Sec. 7 are clear that it is discretionary on the aggrieved parties to availthemselves of any remedy mentioned above. They may choose one and dispense with the other. Ofcourse, the relief for price reduction under Sec. 5(h) will have to conform to the prerequisites and timeframe of six (6) months; otherwise, it is waived.

Prelim inarily, petitioners’ basic posture that RCBC’s claim is for the recovery of overpayment is specious.The records show that in its Request for Arbitration dated May 12, 2004, RCBC prayed for the rescissionof the SPA, restitution of the whole purchase price, and damages not for reduction of price or for thereturn of any overpayment. Even in its May 5, 2000 letter ,21 RCBC did not ask for the recovery of anyoverpayment or reduction of price, merely stating in it that the accounts of Bankard, as reflected in its

AFS for 1999, were overstated which, necessarily, resulted in an overpayment situation. RCBC wasemphatic and unequivocal that petitioners violated their warranty covered by Sec. 5(g) of the SPA.

It is thus evident that RCBC did not avail itself of the option under Sec. 5(h), i.e., for price reduction or thereturn of any overpayment arising from the overvaluation of Bankard’s financial condition. Clearly, R CBCinvoked Sec. 5(g) to claim damages from petitioners which is one of the alternative reliefs granted underSec. 7 in addition to rescission and restitution of purchase price.

Petitioners do not deny that RCBC formally filed its claim under Sec. 5(g) which is anchored on thematerial overstatement or overvaluation of Bankard’s revenues, assets, and net worth and, hence, theoverstatement of the purchase price. They, however, assert that such claim for overpayment is actually aclaim under Sec. 5(h) of the SPA for price reduction which it forfeited after December 31, 2000.

We cannot sustain petitioners’ position.

It cannot be disputed that an overstatement or overvaluation of Bankard’s financial condition as of closingdate translates into a misrepresentation not only of the accuracy and truthfulness of the financialstatements under Sec. 5(g), but also as to Bankard’s actual net worth mentioned in Sec. 5(h).Overvaluation presupposes mistakes in the entries in the financial statements and amounts to a breach ofpetitioners’ representations and warranties under Sec. 5. Consequently, such error in the financialstatements would impact on the figure representing the net worth of Bankard as of closing date. Anovervaluation means that the financial condition of Bankard as of closing date, i.e., June 2, 2000, isoverstated, a situation that will definitely result in a breach of EPCIB’s representations and warranties.

A scrutiny of Sec. 5(g) and Sec. 5(h) in relation to Sec. 7 of the SPA would indicate the followin gremedies available to RCBC should it be discovered, as of closing date, that there is overvaluation whichwill constitute breach of the warranty clause under either Sec. 5(g) or (h), to wit:

(1) An overvaluation of Bankard’s actual financial condition as of closing date taints the veracity andaccuracy of the AFS for 1997, 1998, and 1999 and the UFS for the first quarter of 2000 and is anactionable breach of petitioners’ warranties under Sec. 5(g).

(2) An overvaluation of Bankard’s financial condition as of May 31, 2000, encompassing the warrantedfinancial condition as of December 31, 1999 through the AFS for 1999 and as of March 31, 2000 throughthe UFS for the first quarter of 2000, is a breach of petitioners’ representations and warranties under Sec.5(h).

Thus, RCBC has two distinct alternative remedies in case of an overvaluation of Bankard’s financialcondition. It may invoke Sec. 5(h) when the conditions of the threshold aggregate overvaluation and theclaim made within the six-month time-bar are present. In the alternative, it may invoke Sec. 5(g) when itfinds that a claim for "curing the breach" and/or damages will be more advantageous to its interests





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provided it is filed within three (3) years from closing date. Since it has two remedies, RCBC may opt toexercise either one. Of course, the exercise of either one will preclude the other.

Moreover, the language employed in Sec. 5(g) and Sec. 5(h) is clear and bereft of any ambiguity. TheSPA’s stipulations reveal that the non -use or waiver of Sec. 5(h) does not preclude RCBC from availingitself of the second relief under Sec. 5(g). Article 1370 of the Civil Code is explicit that "if terms of a

contract are clear and leave no doubt upon the intention of the contracting parties the literal meaning ofits stipulations shall control." Since the terms of a contract have the force of law between theparties ,22 then the parties must respect and strictly conform to it. Lastly, it is a long held cardinal rule thatwhen the terms of an agreement are reduced to writing, it is deemed to contain all the terms agreed uponand no evidence of such terms can be admitted other than the contents of the agreement itself .23 Sincethe SPA is unambiguous, and petitioners failed to adduce evidence to the contrary, then they are legallybound to comply with it.

Petitioners agreed ultimately to the stipulation that:

Each of the representations and warranties of the SELLERS is deemed to be a separaterepresentation and warranty , and the BUYER has placed complete reliance thereon inagreeing to the Purchase Price and in entering into this Agreement. The representations andwarranties of the SELLERS shall be correct as of the date of this Agreement and as of theClosing Date with the same force and effect as though such representations and warrantieshad been made as of the Closing Date .24 (Emphasis supplied.)

The Court sustains the finding in the Partial Award that Sec. 5(g) of the SPA is a free standing warrantyand not constricted by Sec. 5(h) of the said agreement.

Upon the foregoing premises and in the light of the undisputed facts on record, RCBC’s claim forrescission of the SPA and damages due to overvaluation of Bankard’s accounts was properly for abreach of the warranty under Sec. 5(g) and was not time-barred. To repeat, RCBC presented its writtenclaim on May 5, 2003, or a little less than a month before closing date, well within the three (3)-yearprescriptive period provided under Sec. 7 for the exercise of the right provided under Sec. 5(g).

Petitioners bemoan the fact that "the arbitrators’ liability award (a) disregarded the 6 -month contractuallimitation for RCBC’s ‘overprice’ claim, and [b] substituted in its place the 3 -year limitation under thecontract for other claims, "25adopting in that regard the interpretation of the SPA made by arbitral tribunalmember, retired Justice Kapunan, in his Dissenting Opinion, in which he asserted:

Ultimately, the Claim is one for recovery of overpayment in the purchase price of the shares. And it is in this context, that I respectfully submit that Section 5(h) and not Section 5(g),applies to the present controversy .26

x x x x

True, without Section 5(h), the Claim for price recovery would fall under Section 5(g). Therecovery of the pecuniary loss of the Claimant in the form of the excess price paid would bein the nature of a claim for actual damages by way of compensation. In that situation, all theaccounts in the 1999 financial statements would be the subject of the warranty in Section5(g).

However, since the parties explicitly included Section 5(h) in their SPA, which assures theClaimant that there were no "omissions or mistakes in the records" that would misstate the1999 net worth account, I am left with no other conclusion but that the accuracy of thenet worth was the subject of the warranty in Section 5(h), while the accuracy or




















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correctness of the other accou nts that did not bear on, or affect Bankard’s net worth,were guaranteed by Section 5(g).

x x x x

This manner of reconciling the two provisions is consistent with the principle in Rule 130,Section 12 of the Rules of Court that "when a general and a particular provision areinconsistent, the latter is paramount to the former… [so] a particular intent will control ageneral one that is inconsistent with it." This is also consistent with existing doctrines onstatutory construction, the application of which is illustrated in the case of Commissioner ofCustoms vs. Court of Tax Appeals, GR No. L-41861, dated March 23, 1987 x x x.

x x x x

The Claim is for recovery of the excess price by way of actual damages .27 x x x(Emphasis supplied.)

Justice Kapunan noted that without Sec. 5(h), RCBC’s claim would fall under Sec. 5(g), impliedly

admitting that both p rovisions could very well cover RCBC’s claim, except that Sec. 5(h) excludes thesituation contemplated in it from the general terms of Sec. 5(g).

Such view is incorrect.

While it is true that Sec. 5(h), as couched, is a warranty on the accuracy of the Ban kard’s net worth whileSec. 5(g), as also couched, is a warranty on the veracity, accuracy, and completeness of the AFS in allmaterial respects as prepared in accordance with generally accepted accounting principles consistentlyfollowed throughout the period audited, yet both warranties boil down to the same thing and stem fromthe same accounts as summarized in the AFS. Since the net worth is the balance of Bankard’s assetsless its liabilities, it necessarily includes all the accounts under the AFS . In short, there are noaccounts in the AFS that do not bear on the net worth of Bankard . Moreover, as earlier elucidated,any overvaluation of Bankard’s net worth is necessarily a misrepresentation of the veracity, accuracy, andcompleteness of the AFS and also a breach of the warranty under Sec. 5(g). Thus, the subject of thewarranty in Sec. 5(h) is also covered by the warranty in Sec. 5(g), and Sec. 5(h) cannot exclude suchbreach from the ambit of Sec. 5(g). There is no need to rely on Sec. 12, Rule 130 of the Rules of Court forboth Sec. 5(g) and Sec. 5(h) as alternative remedies are of equal footing and one need not categorizeone section as a general provision and the other a particular provision.

More importantly, a scrutiny of the four corners of the SPA does not explicitly reveal any stipulation noreven impliedly that the parties intended to limit the scope of the warranty in Sec. 5(g) or gave priority toSec. 5(h) over Sec. 5(g).

The arbitral tribunal did not find any legal basis in the SPA that Sec. 5(h) "somehow cuts down" the scopeof Sec. 5(g), thus:

9.10 In the opinion of the Tribunal, there is nothing in the wording used in the SPA togive priority to one warranty over the other. There is nothing in the wording used toindicate that the parties intended to limit the scope of the warranty in 5(g) . If it becontended that, on a true construction of the two warranties, 5(h) somehow cuts down thescope of 5(g), the Tribunal can find no justification for such conclusion on the wordingused . Furthermore, the Tribunal is of the view that very clear words would be needed to cutdown the scope of the 5(g) warranty .28









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The Court upholds the conclusion of the tribunal and rules that the claim of RCBC under Sec. 5(g) is nottime-barred.

Petitioners Were Not Denied Due Process

Petitioners impute on RCBC the act of creating summaries of the accounts of Bankard which "in turn were

used by its experts to conclude that Bankard improperly recorded its receivables and committed materialdeviations from GAAP requirements. "29 Later, petitioners would assert that "the arbitrators’ partial awardadmitted and used the Summaries as evidence, and held on the basis of the ‘information’ contained inthem that petitioners were in breach of their warranty in GAAP compliance."

To petitioners, the ICC- ICA’s use of such summaries but without p resenting the source documentsviolates their right to due process. Pressing the point, petitioners had moved, but to no avail, for theexclusion of the said summaries. Petitioners allege that they had reserved the right to cross-examine thewitnesses of RCBC who testified on the summaries, pending the resolution of their motion to exclude.But, according to them, they were effectively denied the right to cross- examine RCBC’s witnesses whenthe ICC-ICA admitted the summaries of RCBC as evidence.

Petitioners ’ position is bereft of merit.

Anent the use but non-presentation of the source documents as the jumping board for a claim of denial ofdue process, petitioners cite Compania Maritima v. Allied Free Worker’s Union .30 It may be stated,however, that such case is not on all fours with the instant case and, therefore, cannot be applied hereconsidering that it does not involve an administrative body exercising quasi-judicial function but rather theregular court.

In a catena of cases, we have ruled that "[t]he essence of due process is the opportunity to be heard.What the law prohibits is not the absence of previous notice but the absolute absence thereof and thelack of opportunity to be heard. "31

We also explained in Lastimoso v. Asayo that "[d]ue process in an administrative context does not requiretrial type proceedings similar to those in courts of justice. Where an opportunity to be heard either throughoral arguments or through pleadings is accorded, there is no denial of procedural due process. "32

Were petitioners afforded the opportunity to refute the summaries and pieces of evidence submitted byRCBC which became the bases of the experts’ opinion?

The answer is in the affirmative.

We recall the events that culminated in the issuance of the challenged Partial Award, thus:

On May 17, 2004, the ICC-ICA received the Request for Arbitration dated May 12, 2004 from RCBCseeking rescission of the SPA and restitution of all the amounts paid by RCBC to petitioners, with actualand moral damages, interest, and costs of suit.

On August 8, 2004, petitioners filed an Answer to the Request for Arbitration dated July 28, 2004, settingup a counterclaim for USD 300,000 for actual and exemplary damages.

RCBC filed its Repl y33 dated August 31, 2004 to petitioners’ Answer to the Request for Arbitration.

On October 4, 2004, the parties entered into the Terms of Reference .34 At the same time, the chairpersonof the arbitral tribunal issued a provisional timetable 35 for the arbitration.




























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On March 4, 2005, petitioners sent a lette r 46 to the tribunal requesting for a postponement of the April 11,2005 hearing of the case. Petitioners claim that they could not confirm the summaries prepared by RCBC,considering that RCBC allegedly did not cooperate in providing data that would facilitate their verification.Petitioners specifically mentioned the following data: (1) list of names of cardholders whose accounts aresources of data gathered or calculated in the summaries; (2) references to the basic cardholderdocuments from which such data were collected; and (3) access to the underlying cardholder documentsat a time and under conditions mutually convenient to the parties. As regards the compact discs ofinformation provided to petitioners, it is claimed that such information could not be accessed as thesoftware necessary for the handling of the data could not be made immediately available to them.

In Procedural Order No. 3 dated March 11 2005 ,47 the initial hearing was moved to June 13 to 16, 2005,considering that petitioners failed to pay the advance on costs of the tribunal.

On March 23, 2005, RCBC paid the balance of the advance on costs .48

On April 22, 2005, petitioners sent the tribunal a letter ,49 requesting for the postponement of the hearingscheduled on June 13 to 16, 2005 on the ground that they could not submit their witness’ statement s dueto the volume of data that they acquired from RCBC.

In a letter dated April 25, 2005 ,50 petitioners demanded from RCBC that they be allowed to examine the journal vouchers earlier made available to them during the February 23, 2005 meeting. This demand wasanswered by RCBC in a letter dated April 26, 2005 ,51 stating that such demand was being denied byvirtue of Procedural Order No. 2, in which it was ruled that further requests for discovery would not bemade except with leave of the chairperson of the tribunal.

In Procedural Order No. 4 ,52 the tribunal granted petitioners’ request for the postponement of the hearingon June 13, 2005 and rescheduled it to November 21, 2005 in light of the pending motions filed by EPCIBwith the RTC in Makati City.

On July 29, 2005, the parties held a meeting wherein it was agreed that petitioners would be providedwith hard and soft copies of the inventory of the journal vouchers earlier presented to its representatives,while making the journal vouchers available to petitioners for two weeks for examination andphotocopying .53

On September 2, 2005, petitioners applied for the postponement of the November 21, 2005 hearing dueto the following: (1) petitioners had earlier filed a motion dated August 11, 2005 with the RTC, in whichthe issue of whether the non-Filipino members of the tribunal were illegally practicing law in thePhilippines by hearing their case, which was still pending; and (2) the gathering and processing of thedata and documents made available by RCBC would require 26 weeks .54 Such application was denied bythe tribunal in Procedural Order No. 5 dated September 16, 2005 .55

On October 21, 2005, the tribunal issued Procedural Order No. 6 ,56 postponing the November 21, 2005hearing by virtue of an order issued by the RTC in Makati City directing the tribunal to reset the hearingfor April 21 and 24, 2006.

Thereafter, in a letter dated January 18, 2006 ,57 petitioners wrote the tribunal requesting that RCBC bedirected to: (1) provide petitioners with information identifying the journal vouchers and other supportingdocuments that RCBC used to arrive at the figures set out in the summaries and other relevantinformation necessary to enable them to reconstruct and/or otherwise understand the figures or amountsin each summary; and (2) submit to petitioners the requested pieces of information as soon as these areor have become available, or in any case not later than five days.

In response to such letter, RCBC addressed a letter dated January 31, 2006 58 to the tribunal claiming thatthe pieces of information that petitioners requested are already known to petitioners considering that




















































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RCBC merely maintained the systems that they inherited when it bought Bankard from petitioners. RCBCadded that the documents that EPCIB originally transmitted to it when RCBC bought Bankard were allbeing made available to petitioners; thus, any missing supporting documents from these files were nevertransmitted to them in the first place.

Later, petitioners sent to the tribunal a letter dated February 10, 2006 ,59 asking that it direct RCBC to

provide petitioners with the supporting documents that RCBC mentioned in its letter dated January 31,2006. Petitioners wrote that should RCBC fail to present such documents, RCBC’s summaries should beexcluded from the records.

In a letter dated March 10, 2006 ,60 petitioners requested that they be given an additional period of at least47 days within which to submit their evidence-in-chief with the corresponding request for the cancellationof the hearing on April 24, 2006. Petitioners submit that should such request be denied, RCBC’ssummaries should be excluded from the records.

On April 6, 2006, petitioners filed their arbitration briefs and witness statements. By way of reply, on April17, 2006, RCBC submitted Volumes IV and V of its exhibits and Volume II of its evidence-in-chief .61

On April 18, 2006, petitioners requested the tribunal that they be allowed to file rejoinder briefs, orotherwise exclude RCBC’s reply brief and witness statements .62 In this request, petitioners also requestedthat the hearing set for April 24, 2006 be moved. These requests were denied.

Consequently, on April 24 to 27, 2006, the arbitral tribunal conducted hearings on the case .63

On December 4, 2006, petitioners submitted rejoinder affidavits, raising new issues for the first time, towhich RCBC submitted Volume III of its evidence-in-chief by way of a reply.

On January 16, 2007, both parties simultaneously submitted their memoranda. On January 26, 2007,both parties simultaneously filed their reply to the other’s memorandum .64

Thus, on September 27, 2007, the Partial Award was rendered by the Tribunal.

Later, petitioners moved to vacate the said award before the RTC. Such motion was denied by the trialcourt in the first assailed order dated January 8, 2008. Petitioners then moved for a reconsideration ofsuch order, but their motion was also denied in the second assailed order dated March 17, 2008.

The foregoing events unequivocally demonstrate ample opportunity for petitioners to verify and examineRCBC’s summaries, accounting records, and reports. The pleadings reveal that RCBC grantedpetitioners’ requests for production of documents and accounting records. More so, they had more thanthree (3) years to prepare for their defense after RCBC’s submission of its brief of evidence. Finally, itmust be emphasized that petitioners had the opportunity to appeal the Partial Award to the RTC, whichthey in fact did. Later, petitioners even moved for the reconsideration of the denial of their appeal. Havingbeen able to appeal and move for a reconsideration of the assailed rulings, petitioners cannot claim adenial of due process .65

Petitioners’ right to due process was not breached.

As regards petitioners’ claim that its right to due process was violated when they were allegedly deniedthe right to cross- examine RCBC’s witnesses, their claim is also bereft of merit.

Sec. 15 of RA 876 or the Arbitration Law provides that:





























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Section 15. Hearing by arbitrators . – Arbitrators may, at the commencement of the hearing,ask both parties for brief statements of the issues in controversy and/or an agreed statementof facts. Thereafter the parties may offer such evidence as they desire, and shall producesuch additional evidence as the arbitrators shall require or deem necessary to anunderstanding and determination of the dispute. The arbitrators shall be the sole judge ofthe relevancy and materiality of the evidence offered or produced, and shall not be

bound to conform to the Rules of Court pertaining to evidence. Arbitrators shallreceive as exhibits in evidence any document which the parties may wish to submitand the exhibits shall be properly identified at the time of submission . All exhibits shallremain in the custody of the Clerk of Court during the course of the arbitration and shall bereturned to the parties at the time the award is made. The arbitrators may make an ocularinspection of any matter or premises which are in dispute, but such inspection shall be madeonly in the presence of all parties to the arbitration, unless any party who shall have receivednotice thereof fails to appear, in which event such inspection shall be made in the absence ofsuch party. (Emphasis supplied.)

The well-settled rule is that administrative agencies exercising quasi-judicial powers shall not be fetteredby the rigid technicalities of procedure, albeit they are, at all times required, to adhere to the basicconcepts of fair play. The Court wrote in CMP Federal Security Agency, Inc. v. NLRC :

While administrative tribunals exercising quasi-judicial powers, like the NLRC and Labor Arbiters, are free from the rigidity of certain procedural requirements, they are nonethelessbound by law and practice to observe the fundamental and essential requirements of dueprocess. The standard of due process that must be met in administrative tribunals allows acertain degree of latitude as long as fairness is not ignored. Hence, it is not legallyobjectionable, for being violative of due process, for the Labor Arbiter to resolve a casebased solely on the position papers, affidavits or documentary evidence submitted by theparties. The affidavits of witnesses in such case may take the place of their directtestimony .66

Of the same tenor is our holding in Quiambao v. Court of Appeals :

In resolving administrative cases, conduct of full-blown trial is not indispensable to dispense justice to the parties. The requirement of notice and hearing does not connote full adversarialproceedings. Submission of position papers may be sufficient for as long as the partiesthereto are given the opportunity to be heard. In administrative proceedings, the essenceof due process is simply an opportunity to be heard, or an opportunity to explainone’s side or opportunity to seek a reconsideration of the action or ruling complainedof. This constitutional mandate is deemed satisfied if a person is granted anopportunity to seek reconsideration of an action or a ruling . It does not require trial-typeproceedings similar to those in the courts of justice. Where opportunity to be heard eitherthrough oral arguments or through pleadings is accorded, there is no denial of proceduraldue process .67 (Emphasis supplied.)

Citing Vertudes v. Buenaflor , petitioners also cry denial of due process when they were allegedly deniedthe right to cross-examine the witnesses presented by RCBC. It is true that in Vertudes , we stated: "Theright of a party to confront and cross-examine opposing witnesses in a judicial litigation, be it criminal orcivil in nature, or in proceedings before administrative tribunals with quasi-judicial powers, is afundamental right which is part of due process. "68

It is, however, equally true that:













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It also bears stating that in his dissent, retired Justice Kapunan, an arbitral tribunal member, argued thatBankard’s accounting practices were disclosed in the information memorandum provided to RCBC;hence, RCBC was supposed to know such accounting practices and to have accepted their proprietyeven before the execution of the SPA. He then argued that when it paid the purchase price on December29, 2000, RCBC could no longer claim that the accounting practices that went into the reporting of the1999 AFS of Bankard were not in accord with generally accepted accounting principles. He pointed outthat RCBC was bound by the audit conducted by a certain Rubio prior to the full payment of the purchaseprice of Bankard. Anchored on these statements by Justice Kapunan, petitioners conclude that RCBC isestopped from claiming that the former violated their warranties under the SPA.

Petitioners’ contention is not meritorious.

Art. 1431 of the Civil Code, on the subject of estoppel, provides: "Through estoppel an admission orrepresentation is rendered conclusive upon the person making it, and cannot be denied or disproved asagainst the person relying thereon."

The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith, and justice;and its purpose is to forbid one to speak against one’s own acts, representations, or commitments to theinjury of one to whom they were directed and who reasonably relied on them .72

We explained the principle of estoppel in Philippine Savings Bank v. Chowking Food Corporation :

x x x The equitable doctrine of estoppel was explained by this Court in Caltex (Philippines),Inc. v. Court of Appeals :

Under the doctrine of estoppel, an admission or representation is renderedconclusive upon the person making it, and cannot be denied or disproved as againstthe person relying thereon. A party may not go back on his own acts andrepresentations to the prejudice of the other party who relied upon them. In the law ofevidence, whenever a party has, by his own declaration, act, or omission,intentionally and deliberately led another to believe a particular thing true, to act upon

such belief, he cannot, in any litigation arising out of such declaration, act, oromission, be permitted to falsify it.

The principle received further elaboration in Maneclang v. Baun :

In estoppel by pais , as related to the party sought to be estopped, it is necessary thatthere be a concurrence of the following requisites: (a) conduct amounting to falserepresentation or concealment of material facts or at least calculated to convey theimpression that the facts are otherwise than, and inconsistent with, those which theparty subsequently attempts to assert; (b) intent, or at least expectation that thisconduct shall be acted upon, or at least influenced by the other party; and (c)knowledge, actual or constructive of the actual facts.

Estoppel may vary somewhat in definition, but all authorities agree that a party invoking thedoc trine must have been misled to one’s prejudice . That is the final and, in reality, mostimportant of the elements of equitable estoppel. It is this element that is lackinghere .73 (Emphasis supplied.)

The elements of estoppel pertaining to the party estopped are:









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(1) conduct which amounts to a false representation or concealment of material facts, or, atleast, which calculated to convey the impression that the facts are otherwise than, andinconsistent with, those which the party subsequently attempts to assert; (2) intention, or atleast expectation, that such conduct shall be acted upon by the other party; and (3)knowledge, actual or constructive, of the actual facts .74

In the case at bar, the first element of estoppel in relation to the party sought to be estopped is notpresent. Petitioners claim that RCBC misrepresented itself when RCBC made it appear that theyconsidered petitioners to have sufficiently complied with its warranties under Sec. 5(g) and 5(h), inrelation to Sec. 7 of the SPA. Petitioners’ position is that "RCBC was aware of the manner in which theBankard accounts were recorded, well before it consummated the SPA by taking delivery of the sharesand paying the outstanding 80% balance of the contract price. "75

Petitioners, therefore, theorize that in this case, the first element of estoppel in relation to the party soughtto be estopped is that RCBC made a false representation that it considered Bankard’s accounts to be inorder and, thus, RCBC abandoned any claim under Sec. 5(g) and 5(h) by its inaction.

Such contention is incorrect.

It must be emphasized that it was only after a second audit that RCBC presented its claim to petitionersfor violation of Sec. 5(g), within the three (3)-year period prescribed. In other words, RCBC, prior to suchsecond audit, did not have full and thorough knowledge of the correctness of Bankard’s accounts, inrelation to Sec. 5(g). RCBC, therefore, could not have misrepresented itself considering that it was still inthe process of verifying the warranties covered under Sec. 5(g). Considering that there must be aconcurrence of the elements of estoppel for it to arise, on this ground alone such claim is alreadynegated. As will be shown, however, all the other elements of estoppel are likewise absent in the case atbar.

As to the second element, in order to establish estoppel, RCBC must have intended that petitioners wouldact upon its actions. This element is also missing. RCBC by its actions did not mislead petitioners intobelieving that it waived any claim for violation of a warranty. The periods under Sec. 5(g) and 5(h) werestill available to RCBC.

The element that petitioners relied on the acts and conduct of RCBC is absent. The Court finds that therewas no reliance on the part of petitioners on the acts of RCBC that would lead them to believe that theRCBC will forego the filing of a claim under Sec. 5(g). The allegation that RCBC knew that the Bankardaccounts did not comply with generally accepted accounting principles before payment and, hence, itcannot question the financial statements of Bankard is meritless. Precisely, the SPA explicitly providesthat claims for violation of the warranties under Sec. 5(g) can still be filed within three (3) years from theclosing d ate. Petitioners’ contention that RCBC had full control of Bankard operations after payment ofthe price and that an audit undertaken by the Rubio team did not find anything wrong with the accountscould not have plausibly misled petitioners into believing that RCBC will waive its right to file a claimunder Sec. 5(g). After all, the period to file a claim under Sec. 5(g) is three (3) years under Sec. 7, muchlonger than the six (6)-month period under Sec. 5(h). Petitioners are fully aware that the warranties underSec. 5(g) (1997 up to March 2000) are of a wider scope than that of Sec. 5(h) (AFS of 1999 and UFS upto May 31, 2000), necessitating a longer audit period than the six (6)-month period under Sec. 5(h).

The third element of estoppel in relation to the party sought to be estopped is also absent consideringthat, as stated, RCBC was still in the process of verifying the correctness of Bankard’s accounts prior topresenting its claim of overvaluation to petitioners. RCBC, therefore, had no sufficient knowledge of thecorrectness of Bankard’s accounts.

On another issue, RCBC could not have immediately changed the Bankard accounting practices until ithad conducted a more extensive and thorough audit of Bankard’s voluminous records and transactions to









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uncover any irregularities. That would be the only logical explanation why Bankard’s alleged irregularpractices were maintained for more than two (2) years from closing date. The fact that RCBC continuedwith the audit of Bankard’s AFS and records after the termination of the Rubio audit can only send theclear message to petitioners that RCBC is still entertaining the possibility of filing a claim under Sec. 5(g).It cannot then be said that petitioners’ reliance on RCBC’s acts after full payment of the pri ce could havemisled them into believing that no more claim will be presented by RCBC.

The Arbitral Tribunal explained in detail why estoppel is not present in the case at bar, thus:

10.18 The audit exercise conducted by Mr. Legaspi and Mr. Rubio was clearly not onecomprehensive enough to have discovered the problems later unearthed by Dr. Laya andDean Ledesma. x x x

10.19 Although the powers of the TC [Transition Committee] may have been widelyexpressed in the view of Mr. Rogelio Chua, then in charge of Bankard x x x the TCconducted meetings only to get updated on the status and progress of Bankard’s operations.Commercially, one would expect that an unpaid vendor expecting to receive 80% of a largepurchase price would not be receptive to a purchaser making vast policy changes in theoperation of the business until the purchaser has paid up its money. It is more likely that,until the settlement date, there was a practice of maintaining the status quo at Bankard.

10.20 But neither the Claimant nor the TC did anything, in the Tribunal’s view, which wouldhave given the Respondents the impression that they were being relieved over the next threeyears of susceptibility to a claim under clause 5(g). Maybe the TC could have been moreproactive in commissioning further or more in-depth audits but it was not. It did not have tobe. It is commercially unlikely that it have been done so, with the necessary degree ofattention to detail, within the relatively short time between the appointment of the TC and theultimate settlement date of the purchase – a period of some three months. An interimarrangement was obviously sensible to enable the Claimant and its staff to become familiarwith the practices and procedures of Bankard.

10.21 The core consideration weighing with the Tribunal in assessing these claims forestoppel is that the SPA allowed two types of claim; one within six months under 5(h) andone within three years under 5(g). The Tribunal has already held the present claim is notbarred by clause 5(h). It must therefore have been within the reasonable contemplation ofthe parties that a 5(g) claim could surface within the three-year period and that it could besomewhat differently assessed than the claim under 5(h). The Tribunal cannot find estoppelby conduct either from the formation of the TC or from the limited auditing exercise done byMr. Rubio and Mr. Legaspi. The onus proving estoppel is on the Respondents and it has notbeen discharged.

10.22 If the parties had wished the avenues of relief for misrepresentation afforded to theClaimant to have been restricted to a claim under Clause 5(h), then they could have said so.The ‘special audit’ may have provided an answer to any claim based on clause 5(h) but itcannot do so in respect of a claim based on Clause 5(g). Clause 5(g) imposed a positiveobligation on the Respondents from which they cannot be excused, simply by reason ofeither the formation and conduct of the TC or of the limited audit.

10.23 The three-year limitation period obviously contemplated that it could take some time toascertain whether there had been a breach of the GAAP standards, etc. Such was the case.

A six-month limitation period under Clause 5(h), in contrast, presaged a somewhat lessstringent enquiry of the kind carried out by Mr. Rubio and Mr. Legaspi.

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10.24 Clause 2(3) of the Amendment to the SPA strengthens the conclusion that the partieswere concerned only with a 5(h) claim during the TC’s reign. The focus of the ‘audit’ – however intense it was – conducted by Mr. Rubio and Mr. Legaspi, was on establishingpossible liability under that section and thus as a possible reduction in the price to be paid onsettlement.

10.25 The fact that the purchase price was paid over in full without any deduction in terms ofclause 5(h) is not a bar to the Claimant bringing a claim under 5(g) within the three-yearperiod. The fact that payment was made can be, as the Tribunal has held, a barrier to aclaim for rescission and restitution ad inegrum . A claim for estoppel needs a finding ofrepresentation by words of conduct or a shared presumption that a right would not be reliedupon. The party relying on estoppel has to show reliance to its detriment or that, otherwise, itwould be unconscionable to resile from the provision.

10.26 Article 1431 of the Civil Code states:

"Through estoppel an admission or representation is rendered conclusive upon the personmaking it, and cannot be denied or disproved as against the person relying thereon."

10.27 Clearly, there has to both an admission or representation by (in this case) theClaimant, plus reliance upon it by (in this case) the Respondents. The Tribunal cannot findas proved any admission/representation that the Claimant was abandoning a 5(g) claim, anyreliance by Respondents on an admission, and any detriment to the Respondents such aswould entitle them to have the Claimant deprived of the benefit of clause 5(g). These aspectsof the claim of estoppel are rejected.

x x x x

10.42 The Tribunal is not the appropriate forum for deciding whether there have been anyregulatory or ethical infractions by Bankard and/or the Claimant in setting the ‘buy -back’price. It has no bearing on whether the Claimant must be considered as having waived itsright to claim against the Respondents.

10.43 In the T ribunal’s view, neither any infraction by Bankard in failing to advise the CentralBank of the experts’ findings, nor a failure to put a tag on the accounts nor to have saidsomething to the shareholders in the buy-back exercise operates as a "technical knock-out"of Claimant’s claim.

10.44 The Tribunal notes that the conciliation process mandated by the SPA took most of2003 and this may explain a part of the delay in commencing arbitral proceedings.

10.45 Whatever the status of Mr. Rubio’s and Mr. Legaspi’s enquiries in late 2000, theClaimant was quite entitled to commission subsequent reports from Dr. Laya and Dr.Echanis and, on the basis of those reports, make a timeous claim under clause 5(g) of theSPA.

10.46 In the Tribunal’s view, therefore, there is no merit in Respondents’ varioussubmissions that the Claimant is debarred from prosecuting its claims on the grounds ofestoppel. There is just no proof of the necessary representation to the Respondent, nor anydetriment to the Respondent proved. The grounds of delay and laches are not substantiated.

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In summary, the tribunal properly ruled that petitioners failed to prove that the formation of the TransitionCommittee and the conduct of the audit by Rubio and Legaspi were admissions or representations byRCBC that it would not pursue a claim under Sec. 5(g) and that petitioners relied on such representationto their detriment. We agree with the findings of the tribunal that estoppel is not present in the situation atbar.

Additionally, petitioners claim that in Knecht v. Court of Appeal s76

and Coca-Cola Bottlers Philippines, Inc.v. Court of Appeals (Coca-Cola) ,77 this Court ruled that the absence of the element of reliance by a partyon the representation of another does not negate the principle of estoppel. Those cases are, however, noton all fours with and cannot be applied to this case.

In Knecht, the buyer had the opportunity of knowing the conditions of the land he was buying early on inthe transaction, but proceeded with the sale anyway. According to the Court, the buyer was estoppedfrom claiming that the vendor made a false representation as to the condition of the land. This is not truein the instant case. RCBC did not conduct a due diligence audit in relation to Sec.5(g) prior to the saledue to petitioners ’ express representations and warranties. The examination conducted by RCBC,through Rubio, after the execution of the SPA on June 2, 2000, was confined to finding any breach underSec. 5(h) for a possible reduction of the purchase price prior to the payment of its balance on December31, 2000. Further, the parties clearly agreed under Sec. 7 of the SPA to a three (3)-year period from

closing date within which to present a claim for damages for violation of the warranties under the SPA.Hence, Knecht is not a precedent to the case at bar.

So is Coca-Cola . As lessee, Coca-Cola Bottlers was well aware of the nature and situation of the landrelative to its intended use prior to the signing of the contract. Its subsequent assertion that the land wasnot suited for the purpose it was leased was, therefore, cast aside for being unmeritorious. Suchcircumstance does not obtain in the instant case. There was no prior due diligence audit conducted byRCBC, it having relied, as earlier stated, on the warranties of petitioners with regard to the financialcondition of Bankard under Sec. 5(g). As such, Sec. 5(g) guaranteed RCBC that it could file a claim fordamages for any mistakes in the AFS and UFS of Bankard. Clearly, Coca-Cola also cannot be applied tothe instant case.

It becomes evident from all of the foregoing findings that the ICC-ICA is not guilty of any manifest

disregard of the law on estoppel. As shown above, the findings of the ICC-ICA in the Partial Award arewell-supported in law and grounded on facts. The Partial Award must be upheld.

We close this disposition with the observation that a member of the three-person arbitration panel wasselected by petitioners, while another was respondent’s choice. The respective interests of the parties,therefore, are very much safeguarded in the arbitration proceedings. Any suggestion, therefore, on thepartiality of the arbitration tribunal has to be dismissed.

WHEREFORE , the instant petition is hereby DENIED . The assailed January 8, 2008 and March 17, 2008Orders of the RTC, Branch 148 in Makati City are hereby AFFIRMED .

SO ORDERED .

G.R. No. 142525 February 13, 2009

FEDERAL BUILDERS, INC., Petitioner,vs.DAIICHI PROPERTIES AND DEVELOPMENT, INC., Respondent.

D E C I S I O N









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CHICO-NAZARIO, J .:

This Petition for Review on Certiorari under Rule 65 of the Rules of Court assails the Decision 1 of theCourt of Appeals dated 9 November 1999 in CA-G.R. SP No. 54122 which set aside the Orders of the

Arbitral Tribunal of the Construction Industry Arbitration Commission denying the Motion to Commissionan Independent Quantity Surveyor of Daiichi Properties and Development, Inc. (Daiichi), and the Court of

Appeals’ Reso lution2

dated 23 February 2000 denying the motion for reconsideration of the said decision.

Daiichi invited bidders for the general construction of its high-rise building project named Orient Plaza.One of those who submitted its proposal was Federal Builders, Inc. (Federal). Federal emerged as thewinning bidder for the construction project.

On 29 December 1995, Daiichi and Federal executed a Construction Agreement which, among otherthings, stipulated that the cement and steel bars to be used in the construction of Orient Plaza would beprovided by Daiichi while the labor and other materials would be supplied by Federal, viz:

1. 834,273 bags of cement, as the guaranteed maximum quantity of cement to be suppliedby Daiichi;

2. 9,262,334.45 kilograms of steel bars, as the guaranteed maximum quantity of steel bars,also to be supplied by Daiichi; and

3. P212,000,000.00 as the fixed price of [Federal’s] labor and other materials .3

The Construction Agreement likewise granted Daiichi the right to revise the construction plans for theproject, thus:

2.10 All variations or departures from the bid plans, this ContractAgreement and other related contract and bid documents to the issued

construction plans and other future revisions shall be considered aschange order.

x x x x

8.01. The CONTRACTOR is obliged to undertake any additional work or extra work or omission orreduction of work which the OWNER may require.

x x x x

8.04. The OWNER may … at any time during the progress of the work by written instructions, cause

alterations in the original plans and specifications to be made by way of addition, deletion, or otherwisedeviating therefrom; and said work shall be executed by the CONTRACTOR under the direction of theConstruction Manager in the same manner as if the same had been part of the original plans andspecifications .4

In the course of the construction, Daiichi made some changes by reducing the concrete strength from8,000 to 6,000 pounds per square inch, which reduction resulted in a decrease in the required quantitiesof cement, steel bars, other materials and a diminution of the labor costs. Pursuant to this, Daiichi issuedrevised construction plans. Daiichi and Federal also agreed to reduce the contract price of the project and















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to submit a separate evaluation of the deductive costs arising from the revisions of the construction plans.While the parties agreed that due to the reduction in the concrete strength, a corresponding decrease inthe required quantities of cement, steel bars, other materials and labor must follow, they cannot agree onthe method in arriving at the deductive cost. Daiichi presented its own estimate of the deductive cost bygetting the difference between the quantities/peso value of steel bars, cement, labor and materialsrequired under the original plan with the quantities/peso value of the same items required under therevised plan; thus:

Change inQuantity =

Quantity of Materialsrequired UnderRevised Plan.

– Quantity of Materials

Required UnderOriginal Plan

Using the foregoing methodology, Daiichi computed the deductive cost at P64,602,110.59.

For its part, Federal insisted on a different formula to obtain the deductive cost by comparing thequantities/peso value of steel bars, cement, labor and materials required under the constructionagreement (or guaranteed maximum) with the quantity of materials required under the revised plan, towit:

Change inQuantity =

Guaranteed Maximumor Fixed Quantity ofMaterials under the

Construction Agreement.

– Quantity of Materials

required under RevisedPlan.

By employing the foregoing formula, Federal reached the amount of P31,326,810.15 as the deductivecosts.

On account of this differing computations in determining the deductive costs, Daiichi engaged theservices of an independent quantity surveyor, Davis Langdo and Seah Philippines, Inc. (DLS), to conducta survey of the deductive costs. DLS came out with its own estimate of the deductive cost in the amountof P68,441,415.58, which is closer to that submitted by Daiichi.

Daiichi also made some deductions from the amount it paid to Federal using the former’s manner ofcomputation.

Feeling aggrieved, Federal filed a petition for arbitration with the Construction Industry ArbitrationCommission (CIAC) on 9 November 1998. The parties agreed that their dispute be settled by the ArbitralTribunal. 1awphi1.zw+

The basic issue submitted to the Arbitral Tribunal appears to be the determination of the correct approachin order to obtain the deductive costs brought about by the revisions in the project.

In the course of the hearing, Daiichi filed on 2 June 1999 a Motion to Commission an IndependentQuantity Surveyor in order to determine the actual quantities of materials required to complete the projectunder the original or old plan and the revised plan .5 Daiichi was of the opinion that the only way toascertain the deductive costs was to compare the materials required under the old and the new plans.Federal opposed the said motion on the grounds that Daiichi already submitted estimates from anindependent quantity surveyor, and that there was no need to make an estimate of the old plans since thesame were never implemented. Federal insisted that the estimate of the old plan was irrelevant since thequantity of materials required for the project was reflected in the construction agreement.





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On 29 June 1999, the Arbitral Trib unal issued an Order denying Daiichi’s Motion to Commission anIndependent Quantity Surveyor, reasoning that the commissioning of an independent surveyor was notabsolutely necessary, and that the engagement of such surveyor would only be useful if both partiesagreed on such engagement.

Daiichi filed a motion for reconsideration, which was also denied by the Arbitral Tribunal in an Order dated

13 July 1999.

Unfazed, Daiichi questioned the orders of the Arbitral Tribunal before the Court of Appeals.

In a Decision dated 9 November 1999, the Court of Appeals set aside the orders of the Arbitral Tribunaland ordered the latter to commission an independent quantity surveyor to determine the actual quantitiesof materials required under the original plan and the revised plans therefor as requested by Daiichi. Thedecretal portion of the Decision reads:

WHEREFORE, the instant petition is hereby GRANTED and the assailed orders dated June 29, 1999 andJuly 13, 1999 of the respondent Arbitral Tribunal are hereby NULLIFIED and SET ASIDE. Accordingly,the respondent Arbitral Tribunal is hereby ordered, subject to the prescription of Section 5, Chapter XV ofthe Rules of Procedure Governing Construction Arbitration, to commission an independent quantitysurveyor to determine the actual quantities of materials required to complete the "Orient Square" projectunder the original/bid plan and the revised plans therefor .6

Federal filed a motion for reconsideration which was denied by the Court of Appeals in a Resolution dated23 February 2000.

Hence, this petition.

It bears stressing that this case must be dismissed outright since Federal chose the wrong remedy inbringing this case before this Court. Petitioner should have filed a petition for review under Rule 45 of the1997 Rules of Civil Procedure instead of a Special Civil Action for Certiorari under Rule 65. The properremedy of a party aggrieved by a decision of the Court of Appeals is a petition for review under Rule 45,which is not identical to a Petition for Certiorari under Rule 65. Under Rule 45, decisions, final orders orresolutions of the Court of Appeals in any case, i.e., regardless of the nature of the action or proceedingsinvolved, may be appealed to this Court by filing a petition for review, which would be but a continuationof the appellate process over the original case. On the other hand, a special civil action under Rule 65 isan independent action based on the specific grounds therein provided and, as a general rule, cannot beavailed of as a substitute for the lost remedy of an ordinary appeal, including that to be taken under Rule45. Accordingly, when a party adopts an improper remedy, as in this case, such petition may bedismissed outright.

At any rate, even if we were to ignore the procedural defects, the instant petition must still be dismissedas the Court of Appeals did not commit any grave abuse of discretion amounting to want or excess of

jurisdiction in reversing the orders of the Arbitral Tribunal.

In certiorari proceedings under Rule 65 of the Rules of Court, the inquiry is limited essentially to whetheror not the public respondent acted without or in excess of its jurisdiction or with grave abuse ofdiscretion .7

A court, tribunal, board or officer acts without jurisdiction if it/he does not have the legal power todetermine the case .8There is excess of jurisdiction where, being clothed with the power to determine thecase, the tribunal, board or officer oversteps its/his authority as determined by law. And there is graveabuse of discretion where the court, tribunal, board or officer acts in a capricious, whimsical, arbitrary ordespotic manner in the exercise of its/his judgment as to be said to be equivalent to lack of jurisdiction .9
















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The Court of Appeals is far from being abusive in rendering its questioned decision.

The Court of Appeals annulled and set aside the Arbitral Tribunal’s orders on the gr ound that said orderscompletely failed to give Daiichi the vital piece of information necessary for the judicious resolution of thecase thereby ignoring the letter, spirit, policy and objective of the Rules of Procedure GoverningConstruction Arbitration which require, among other things, that arbitrators must employ all reasonable

means to ascertain facts in each case. To the mind of the Court of Appeals, the Arbitral Tribunal mustexert all its best efforts to thresh out the matters relevant to the case and to apprise itself of the evidencethat contending parties may present to support their respective theories. According to the appellate court,since it is Daiichi’s claim that the deductive cost can only be established by finding out the quantities ofmaterials required to complete the project under the original plan and the revised plan, the ArbitralTribunal should have allowed the commissioning of an independent expert who would give an objectiveinformation for the tribunal to reach a sensible, if not well-informed, resolution of the controversy.

We agree with the Court of Appeals.

As mentioned earlier, the crux of the controversy lies in the formula to arrive at the deductive cost. Daiichipostulates that the deductive cost is ascertained by getting the difference between the quantities/pesovalue of steel bars, cement, labor and materials required under the original plan with the quantities/peso

value of the same items required under the revised plan. Two reference points must be determined first,i.e., the old quantity and the new quantity which are to be matched. To determine the old quantity(quantity of materials required under the old plan) and the new quantity (quantity of materials requiredunder the revised plan), it is necessary that a quantitative survey must first be conducted on these twoitems. Without such survey, Daiichi asserts, the deductive cost can never be determined.

Federal, for its part, has a different formula to obtain the deductive cost by comparing the quantitiesrequired under the construction agreement and those required under the revised plan.

Obviously Daiichi and Federal disagree on one item in the formula. Daiichi insists that the old quantitymust be factored in, while Federal contends that in place of the old quantity, the quantity required underthe construction agreement should instead be brought in. Although in Federal’s formula, the quantityrequired under the construction agreement is already established, as evidenced by the constructionagreement contract, what r emains unknown, however, are the items in Daiichi’s formula which are thequantities under the revised plan and the old plan. By not allowing Daiichi to commission an independentsurvey on these unknown items, the tribunal effectively prevents respondent from presenting evidence forits cause. Furthermore, this case undeniably involves highly technical matters within the special trainingand expertise of those engaged in the construction industry. Persons specialized in this field, and are fair-minded, are invaluable sources of needed information that can shed light on the confusing andcontradicting claims asserted by the parties. The Court cites with approval the disquisition of the Court of

Appeals in this regard:

A determination of the quantities of materials required to complete the project under the original bid plansand the revised plans is doubtless necessary for the judicious resolution of the underlying disputebetween the parties. Given the tedious and technical process involved in this undertaking, theparticipation of an impartial third person who will provide the Arbitral Tribunal with the necessary detailed

information is, contrary to what the assailed orders imply, virtually a must. Thus, its refusal to considerwhat [Daiichi] aptly describes as "vital" and "unimpeachable" piece of information constitutes an utterdisregard of the spirit, if not the letter, of the Rules of Procedure Governing Construction Arbitration,

Article 1, Section 3 of which exhorts arbitrators to "use every and all reasonable means to ascertain factsin each case speedily and objectively and without regard to technicalities of law or procedure."

Just like any dispenser of justice, the [Arbitral Tribunal] is bound to seek the truth or what approximates it.It cannot engage in and rely on speculation, conjecture and guesswork, which, needless to state, cannotbe an acceptable norm for an intelligent judgment. [Daiichi’s] motion to commission an independent

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evidence, or, to borrow from the Arbitral Tribunal, as procedural device, is for the Tribunal to decide at thefirst instance .13 (Emphasis supplied.)

Moreover, the tenor of the dispositive portion of the Court of Appeals’ Decision does not order the ArbitralTribunal to adopt the formula of Daiichi in resolving the focal issue of the case. The appellate court simplydirected the tribunal to commission an independent surveyor. Indeed, it is the dispositive part of the

judgment that actually settles and declares the rights and obligations of the parties, finally, definitively,authoritatively, notwithstanding the existence of inconsistent statements in the body that may tend toconfuse .14 It is the dispositive part that controls, for purposes of execution .15Hence, there is no doubt thatthe Court of Appeals decided the case within the ambit of its authority.

In fine, this Court defers to the findings of the Court of Appeals, there being no cogent reason to veeraway from such.

WHEREFORE, the Decision of the Court of Appeals dated 9 November 1999 nullifying the ArbitralTribunal’s Orders dated 29 June 1999 and 13 July 1999, and ordering the said tribunal to commission anindependent quantity surveyor, is hereby AFFIRMED. Upon finality of this Decision, the Arbitral Tribunal ishereby directed to issue, with all deliberate dispatch, an Order commissioning an independent surveyor todetermine the actual quantities of materials required to complete the "Orient Plaza" project under the

original plan and the revised plan, and to resolve the main case.

SO ORDERED.

MINITA V. CHICO-NAZARIO Associate Justice

2009

G.R. No. 180640 April 24, 2009

HUTAMA-RSEA JOINT OPERATIONS, INC., Petitioner,vs.CITRA METRO MANILA TOLLWAYS CORPORATION, Respondent.

D E C I S I O N

CHICO-NAZARIO, J .:

Before Us is a Petitio n1 for Review on Certiorari under Rule 45 of the Rules of Court seeking to set aside

the Decisio n2

dated 23 May 2007 and Resolution3

dated 16 November 2007 of the Court of Appeals inCA-G.R. SP No. 92504.

The facts, culled from the records, are as follows:

Petitioner HUTAMA-RSEA Joint Operations Incorporation and respondent Citra Metro Manila TollwaysCorporation are corporations organized and existing under Philippine laws. Petitioner is a sub-contractorengaged in engineering and construction works. Respondent, on the other hand, is the general contractorand operator of the South Metro Manila Skyway Project (Skyway Project).






















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On 25 September 1996, petitioner and respondent entered into an Engineering Procurement ConstructionContract (EPCC) whereby petitioner would undertake the construction of Stage 1 of the Skyway Project,which stretched from the junction of Buendia Avenue, Makati City, up to Bicutan Interchange, Taguig City.

As consideration for petitioner’s undertaking, respond ent obliged itself under the EPCC to pay the formera total amount of US$369,510,304.00 .4

During the construction of the Skyway Project, petitioner wrote respondent on several occasionsrequesting payment of the former’s interim billings, pursuant to the provisions of the EPCC. Respondentonly partially paid the said interim billings, thus, prompting petitioner to demand that respondent pay theoutstanding balance thereon, but respondent still failed to do so .5

The Skyway Project was opened on 15 December 1999 for public use, and toll fees were accordinglycollected. After informing respondent that the construction of the Skyway Project was already complete,petitioner reiterated its demand that respondent pay the outstanding balance on the interim billings, aswell as the "Early Completion Bonus" agreed upon in the EPCC. Respondent refused to comply withpetitioner’s demands .6

On 24 May 2004, petitioner, through counsel, sent a letter to respondent demanding payment of thefollowing: (1) the outstanding balance on the interim billings; (2) the amount of petitioner’s final billing; (3)

early completion bonus; and (4) interest charges on the delayed payment. Thereafter, petitioner andrespondent, through their respective officers and representatives, held several meetings to discuss thepossibility of amicably settling the dispute. Despite several meetings and continuous negotiations, lastingfor a period of almost one year, petitioner and respondent failed to reach an amicable settlement .7

Petitioner finally filed with the Construction Industry Arbitration Commission (CIAC) a Request for Arbitration, seeking to enforce its money claims against respondent .8 Petitioner’s Request was docketedas CIAC Case No. 17-2005.

In its Answer ad cautelam with Motion to Dismiss, respondent averred that the CIAC had no jurisdictionover CIAC Case No. 17-2005. Respondent argued that the filing by petitioner of said case was prematurebecause a condition precedent, i.e., prior referral by the parties of their dispute to the Dispute

Adjudication Board (DAB), required by Clause 20.4 of the EPCC, had not been satisfied or complied with.Respondent asked the CIAC to dismiss petitioner’s Request for Arbitration in CIAC Case No. 17 -2005and to direct the parties to comply first with Clause 20.4 of the EPCC .9

After submission by the parties of the necessary pleadings on the matter of jurisdiction, the CIAC issuedon 30 August 2005, an Order in CIAC Case No. 17-2005, favoring petitioner. The CIAC ruled that it had

jurisdiction over CIAC Case No. 17-2005, and that the determination of whether petitioner had compliedwith Clause 20.4 of the EPCC was a factual issue that may be resolved during the trial. It then orderedrespondent to file an Answer to petitioner’s Request for Arbitration .10

After respondent and petitioner f iled an Answer and a Reply, respectively, in CIAC Case No. 17-2005, theCIAC conducted a preliminary conference, wherein petitioner and respondent signed the "Terms ofReference" outlining the issues to be resolved, viz:

(1) Is prior resort to the DAB a precondition to submission of the dispute to arbitrationconsidering that the DAB was not constituted?;

(2) Is [herein petitioner] entitled to the balance of the principal amount of the contract? If so,how much?;

(3) Is [petitioner] entitled to the early compensation bonus net of VAT due thereon? If so,how much?;





























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(4) Was there delay in the completion of the project? If so, is [herein respondent] entitled toits counterclaim for liquidated damages?;

(5) Is [petitioner] entitled to payment of interest on the amounts of its claims for unpaidbillings and early completion bonus? If so, at what rate and for what period?;

(6) Which of the parties is entitled to reimbursement of the arbitration costs incurred? 11

Respondent, however, subsequently filed an Urgent Motion requesting that CIAC refrain from proceedingwith the trial proper of CIAC Case No. 17-2005 until it had resolved the issue of whether prior resort bythe parties to DAB was a condition precedent to the submission of the dispute to CIAC .12 Respondent’sUrgent Motion was denied by the CIAC in its Order dated 6 December 2005 .13

Respondent filed a Motion for Reconsideration of the CIAC Order dated 6 December 2005 .14 The CIACissued, on 12 Decemb er 2005, an Order denying respondent’s Motion for Reconsideration .15 It held thatprior resort by the parties to DAB was not a condition precedent for it to assume jurisdiction over CIACCase No. 17-2005. Aggrieved, respondent assailed the CIAC Order dated 12 December 2005 by filing aspecial civil action for certiorari and prohibition with the Court of Appeals ,16 docketed as CA-G.R. SP No.92504.

On 23 May 2007, the Court of Appeals rendered its Decision in CA-G.R. SP No. 92504, annulling the 12December 2005 Order of the CIAC, and enjoining the said Commission from proceeding with CIAC CaseNo. 17-2005 until the dispute between petitioner and respondent had been referred to and decided by theDAB, to be constituted by the parties pursuant to Clause 20.4 of the EPCC. The appellate court, thus,found that the CIAC exceeded its jurisdiction in taking cognizance of petitioner’s Request for Arbitration inCIAC Case No. 17- 2005 despite the latter’s failure to initially refer its dispute with respondent to the DAB,as directed by Clause 20.4 of the EPCC.

The dispositive portion of the 23 May 2007 Decision of the Court of Appeals reads:

WHEREFORE, the instant petition is GRANTED and the order of the Arbitration Tribunal of the

Construction Industry Arbitration Commission dated December 12, 2005 is hereby ANNULED and SET ASIDE and, instead, [CIAC, members of the Arbitral Tribunal ,17 and herein petitioner], their agents oranybody acting in their behalf, are enjoined from further proceeding with CIAC Case No. 17-2005,promulgating a decision therein, executing the same if one has already been promulgated or otherwiseenforcing said order of December 12, 2005 until the dispute has been referred to and decided by theDispute Adjudication Board to be constituted by the parties in accordance with Sub-Clause 20.4 of theEngineering Procurement Construction Contract dated September 25, 1996.

Petitioner filed a Motion for Reconsideration of the afore-mentioned Decision but this was denied by theCourt of Appeals in a Resolution dated 16 November 2007.

Hence, petitioner filed the instant Petition for Review before us raising the sole issue of whether CIAC has jurisdiction over CIAC Case No. 17-2005.

Section 4 of Executive Order No. 1008 18 defines the jurisdiction of CIAC, thus:

SECTION 4. Jurisdiction. - The CIAC shall have original and exclusive jurisdiction over disputes arisingfrom, or connected with, contracts entered into by parties involved in construction in the Philippines,whether the disputes arises before or after the completion of the contract, or after the abandonment orbreach thereof. These disputes may involve government or private contracts. For the Board to acquire

jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.
































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The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials andworkmanship; violation of the terms of agreement; interpretation and/or application of contractualprovisions; amount of damages and penalties; commencement time and delays; maintenance anddefects; payment default of employer or contractor and changes in contract cost.

Excluded from the coverage of this law are disputes arising from employer-employee relationships which

shall continue to be covered by the Labor Code of the Philippines. (Emphasis ours.)

Further, Section 1, Article III of the CIAC Rules of Procedure Governing Construction Arbitration 19 (CIACRules), provides:

SECTION 1. Submission to CIAC Jurisdiction. – An arbitration clause in a construction contract or asubmission to arbitration of a construction dispute shall be deemed an agreement to submit an existing orfuture controversy to CIAC jurisdiction, notwithstanding the reference to a different arbitration institution orarbitral body in such contract or submission. When a contract contains a clause for the submission of afuture controversy to arbitration, it is not necessary for the parties to enter into a submission agreementbefore the claimant may invoke the jurisdiction of CIAC.

An arbitration agreement or a submission to arbitration shall be in writing, but it need not be signed by theparties, as long as the intent is clear that the parties agree to submit a present or future controversyarising from a construction contract to arbitration.

It may be in the form of exchange of letters sent by post or by telefax, telexes, telegrams or any othermodes of communication. (Emphasis ours.)

Based on the foregoing provisions, the CIAC shall have jurisdiction over a dispute involving a constructioncontract if said contract contains an arbitration clause (nothwithstanding any reference by the samecontract to another arbitration institution or arbitral body); or, even in the absence of such a clause in theconstruction contract, the parties still agree to submit their dispute to arbitration.

It is undisputed that in the case at bar, the EPCC contains an arbitration clause in which the petitionerand respondent explicitly agree to submit to arbitration any dispute between them arising from orconnected with the EPCC, under the following terms and conditions 20 :

CLAIMS, DISPUTES and ARBITRATION

x x x x

20.3 Unless the member or members of the Dispute Adjudication Board have been previously mutuallyagreed upon by the parties and named in the Contract, the parties shall, within 28 days of the EffectiveDate, jointly ensure the appointment of a Dispute Adjudication Board. Such Dispute Adjudication Boardshall comprise suitably qualified persons as members, the number of members being either one or three,as stated in the Appendix to Tender. If the Dispute Adjudication Board is to comprise three members,each party shall nominate one member for the approval of the other party, and the parties shall mutually

agree upon and appoint the third member (who shall act as chairman).

The terms of appointment of the Dispute Adjudication Board shall:

(a) incorporate the model terms published by the Fédération Internationale des Ingénieurs-Conseils (FIDIC),

(b) require each member of the Dispute Adjudication Board to be, and to remain throughoutthe appointment, independent of the parties,







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(c) require the Dispute Adjudication Board to act impartially and in accordance with theContract, and

(d) include undertakings by the parties (to each other and to the Dispute Adjudication Board)that the members of the Dispute Adjudication Board shall in no circumstances be liable forbreach of duty or of contract arising out of their appointment; the parties shall indemnify the

members against such claims.

The terms of the remuneration of the Dispute Adjudication Board, including the remuneration of eachmember and of any specialist from whom the Dispute Adjudication Board may require to seek advice,shall be mutually agreed upon by the Employer, the Contractor and each member of the Dispute

Adjudication Board when agreeing such terms of appointment. In the event of disagreement, theremuneration of each member shall include reimbursement for reasonable expenses, a daily fee inaccordance with the daily fee established from time to time for arbitrators under the administrative andfinancial regulations of the International Centre for Settlement of Investment Disputes, and a retainer feeper calendar month equivalent to three times such daily fee.

The Employer and the Contractor shall each pay one- half of the Dispute Adjudication Board’sremuneration in accordance with its terms of remuneration. If, at any time, either party shall fail to pay itsdue proportion of such remuneration, the other party shall be entitled to make payment on his behalf andrecover if from the party in default.

The Dispute Adjudication Board’s appointment may be terminated only by mutual agreement of theEmployer and the Contractor. The Dispute Adjudication Board’s appointment shall expire when thedischarge referred to in Sub-Clause 13.12 shall have become effective, or at such other time as theparties may mutually agree.

It, at any time, the parties so agree, they may appoint a suitably qualified person to replace (or to beavailable to replace) any or all members of the Dispute Adjudication Board. The appointment will comeinto effect if a member of the Dispute Adjudication Board declines to act or is unable to act as a result ofdeath, disability, resignation or termination of appointment. If a member so declines or is unable to act,and no such replacement is available to act, the member shall be replaced in the same manner as suchmember was to have been nominated.

If any of the following conditions apply, namely:

(a) the parties fail to agree upon the appointment of the sole member of a one-personDispute Adjudication Board within 28 days of the Effective Date,

(b) either party fails to nominate an acceptable member, for the Dispute Adjudication Boardof three members, within 28 days of the Effective Date,

(c) the parties fail to agree upon the appointment of the third member (to act as chairman)within 28 days of the Effective Date, or

(d) the parties fail to agree upon the appointment of a replacement member of the Dispute Adjudication Board within 28 days of the date on which a member of the Dispute Adjudication Board declines to act or is unable to act as a result of death, disability,resignation or termination of appointment,

then the person or administration named in the Appendix to the Tender shall, after due consultation withthe parties, nominate such member of the Dispute Adjudication Board, and such nomination shall be finaland conclusive.

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20.4 If a dispute arises between the Employer and the Contractor in connection with, or arising out of, theContract or the execution of the Works, including any dispute as to any opinion, instruction,determination, certification or valuation of th e Employer’s Representative, the dispute shall initially bereferred in writing to the Dispute Adjudication Board for its decision, with a copy to the other party. Suchreference shall state that it is made under this Sub-Clause. The parties shall promptly make available tothe Dispute Adjudication Board all such information, access to the Site, and appropriate facilities, as theDispute Adjudication Board may require for the purposes of rendering its decision. No later than the fifty-sixth day after the day on which it received such reference, the Dispute Adjudication Board, acting as apanel of expert(s) and not as arbitrator(s), shall give notice of its decision to the parties. Such notice shallinclude reasons and shall state that it is given under this Sub-Clause. 1awphi1.zw+

Unless the Contract has already been repudiated or terminated, the Contractor shall, in every case,continue to proceed with the Works with all due diligence, and the Contractor and the Employer shall giveeffect forthwith to every decision of the Dispute Adjudication Board, unless and until the same shall berevised, as hereinafter provided, in an amicable settlement or an arbitral award.

If either party is dissatisfied with the Dispute Adjudication Board’s decision, then either part y, on or beforethe twenty-eighth day after the day on which it received notice of such decision, may notify the other partyof its dissatisfaction. If the Dispute Adjudication Board fails to give notice of its decision on or before the

fifty-sixth day after the day on which it received the reference, then either party, on or before the twenty-eighth day after the day on which the said period of fifty-six days has expired, may notify the other partyof its dissatisfaction. In either event, such notice of dissatisfaction shall state that it is given under thisSub-Clause, such notice shall set out the matters in dispute and the reason(s) for dissatisfaction and,subject to Sub-Clauses 20.7 and 20.8, no arbitration in respect of such dispute may be commencedunless such notice is given.

If the Dispute Adjudication Board has given notice of its decision as to a matter in dispute to the Employerand the Contractor and no notice of dissatisfaction has been given by either party on or before the twenty-eighth day a fter the day on which the parties received the Dispute Adjudication Board’s decision, then theDispute Adjudication Board’s decision shall become final and binding upon the Employer and theContractor.

20.5 Where notice of dissatisfaction has been given under Sub-Clause 20.4, the parties shall attempt tosettle such dispute amicably before the commencement of arbitration. Provided that unless the partiesagree otherwise, arbitration may be commenced on or after the fifty-sixth day after the day on whichnotice of dissatisfaction was given, even if no attempt at amicable settlement has been made.

20.6 Any dispute in respect of which:

(a) the decision, if any, of the Dispute Adjudication Board has not become final and bindingpursuant to Sub-Clause 20.4, and

(b) amicable settlement has not been reached, shall be finally decided by internationalarbitration. The arbitration rules under which the arbitration is conducted, the institution tonominate the arbitrator(s) or to administer the arbitration rules (unless named therein), thenumber of arbitrators, and the language and place of such arbitration shall be as set out inthe Appendix to Tender. The arbitrator(s) shall have full power to open up, review and reviseany decision of the Dispute Adjudication Board.

Neither party shall be limited, in the proceedings before such arbitrator(s), to the evidence or argumentspreviously put before the Dispute Adjudication Board to obtain its decision.

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Arbitration may be commenced prior to or after completion of the Works. The obligations of the partiesand the Dispute Adjudication Board shall not be altered by reason of the arbitration being conductedduring the progress of the Works.

20.7 Where neither party has given notice of dissatisfaction within the period stated in Sub-Clause 20.4and the Dispute Adjudication Board’s related decision, if any, has become final and binding, either party

may, if the other party fails to comply with such decision, and without prejudice to any other rights it mayhave, refer the failure itself to arbitration under Sub-Clause 20.6. The provisions of Sub-Clauses 20.4 and20.5 shall not apply to any such reference.

20.8 When the appointment of the Dispute Adjudication Board and of any replacement has expired, anysuch dispute referred to in Sub-Clause 20.4 shall be finally settled by arbitration pursuant to Sub-Clause20.6. The provisions of Sub-Clauses 20.4 and 20.5 shall not apply to any such reference. (Emphasisours.)

Despite the presence of the afore-quoted arbitration clause in the EPCC, it is respondent’s position,upheld by the Court of Appeals, that the CIAC still cannot assume jurisdiction over CIAC Case No. 17-2005 (petitioner’s Request for Arbitration) because petitioner has not yet referred its dispute withrespondent to the DAB, as directed by Clause 20.4 of the EPCC. Prior resort of the dispute to DAB is a

condition precedent and an indispensable requirement for the CIAC to acquire jurisdiction over CIACCase No. 17-2005 .21

It is true that Clause 20.4 of the EPCC states that a dispute between petitioner and respondent asregards the EPCC shall be initially referred to the DAB for decision, and only when the parties aredissatisfied with the decision of the DAB should arbitration commence. This does not mean, however, thatthe CIAC is barred from assuming jurisdiction over the dispute if such clause was not complied with.

Under Section 1, Article III of the CIAC Rules, an arbitration clause in a construction contract shall bedeemed as an agreement to submit an existing or future controversy to CIAC jurisdiction,"notwithstanding the reference to a different arbitration institution or arbitral body in such contract x x x."Elementary is the rule that when laws or rules are clear, it is incumbent on the court to apply them. Whenthe law (or rule) is unambiguous and unequivocal, application, not interpretation thereof, is imperative .22

Hence, the bare fact that the parties herein incorporated an arbitration clause in the EPCC is sufficient tovest the CIAC with jurisdiction over any construction controversy or claim between the parties .23 Thearbitration clause in the construction contract ipso facto vested the CIAC with jurisdiction .24 This ruleapplies, regardless of whether the parties specifically choose another forum or make reference to anotherarbitral body .25 Since the jurisdiction of CIAC is conferred by law, it cannot be subjected to any condition;nor can it be waived or diminished by the stipulation, act or omission of the parties, as long as the partiesagreed to submit their construction contract dispute to arbitration, or if there is an arbitration clause in theconstruction contract .26 The parties will not be precluded from electing to submit their dispute to CIAC,because this right has been vested in each party by law .27

In China Chang Jiang Energy Corporation (Philippines) v. Rosal Infrastructure Builders ,28 we elucidatedthus:

What the law merely requires for a particular construction contract to fall within the jurisdiction of CIAC isfor the parties to agree to submit the same to voluntary arbitration. Unlike in the original version of Section1, as applied in the Tesco case, the law does not mention that the parties should agree to submit disputesarising from their agreement specifically to the CIAC for the latter to acquire jurisdiction over suchdisputes. Rather, it is plain and clear that as long as the parties agree to submit to voluntary arbitration,regardless of what forum they may choose, their agreement will fall within the jurisdiction of the CIAC,such that, even if they specially choose another forum, the parties will not be precluded from electing to

































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submit their dispute before the CIAC because this right has been vested upon each party by law, i.e.,E.O. No. 1008.

x x x x

Now that Section 1, Article III [CIAC Rules of Procedure Governing Construction Arbitration], as

amended, is submitted to test in the present petition, we rule to uphold its validity with full certainty.However, this should not be understood to mean that the parties may no longer stipulate to submit theirdisputes to a different forum or arbitral body. Parties may continue to stipulate as regards their preferredforum in case of voluntary arbitration, but in so doing, they may not divest the CIAC of jurisdiction asprovided by law. Under the elementary principle on the law on contracts that laws obtaining in a

jurisdiction form part of all agreements, when the law provides that the Board acquires jurisdiction whenthe parties to the contract agree to submit the same to voluntary arbitration, the law in effect,automatically gives the parties an alternative forum before whom they may submit their disputes. Thatalternative forum is the CIAC. This, to the mind of the Court, is the real spirit of E.O. No. 1008, asimplemented by Section 1, Article III of the CIAC Rules. (Emphases ours.)

Likewise, in National Irrigation Administration v. Court of Appeals ,29 we pronounced that:

Under the present Rules of Procedure [CIAC Rules of Procedure Governing Construction Arbitration], fora particular construction contract to fall within the jurisdiction of CIAC, it is merely required that the partiesagree to submit the same to voluntary arbitration. Unlike in the original version of Section 1, as applied inthe Tesco case, the law as it now stands does not provide that the parties should agree to submitdisputes arising from their agreement specifically to the CIAC for the latter to acquire jurisdiction over thesame. Rather, it is plain and clear that as long as the parties agree to submit to voluntary arbitration,regardless of what forum they may choose, their agreement will fall within the jurisdiction of the CIAC,such that, even if they specifically choose another forum, the parties will not be precluded from electing tosubmit their dispute before the CIAC because this right has been vested upon each party by law, i.e.,E.O. No. 1008.

We note that this is not a case wherein the arbitration clause in the construction contract named anotherforum, not the CIAC, which shall have jurisdiction over the dispute between the parties; rather, the saidclause requires prior referral of the dispute to the DAB. Nonetheless, we still hold that this conditionprecedent, or more appropriately, non-compliance therewith, should not deprive CIAC of its jurisdictionover the dispute between the parties.

It bears to emphasize that the mere existence of an arbitration clause in the construction contract isconsidered by law as an agreement by the parties to submit existing or future controversies betweenthem to CIAC jurisdiction, without any qualification or condition precedent. To affirm a condition precedentin the construction contract, which would effectively suspend the jurisdiction of the CIAC until compliancetherewith, would be in conflict with the recognized intention of the law and rules to automatically vestCIAC with jurisdiction over a dispute should the construction contract contain an arbitration clause.

Moreover, the CIAC was created in recognition of the contribution of the construction industry to nationaldevelopment goals. Realizing that delays in the resolution of construction industry disputes would alsohold up the development of the country, Executive Order No. 1008 expressly mandates the CIAC toexpeditiously settle construction industry disputes and, for this purpose, vests in the CIAC original andexclusive jurisdiction over disputes arising from, or connected with, contracts entered into by the partiesinvolved in construction in the Philippines .30

The dispute between petitioner and respondent has been lingering for almost five years now. Despitenumerous meetings and negotiations between the parties, which took place prior to petitioner’s filing withthe CIAC of its Request for Arbitration, no amicable settlement was reached. A ruling requiring the partiesto still appoint a DAB, to which they should first refer their dispute before the same could be submitted to









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the CIAC, would merely be circuitous and dilatory at this point. It would entail unnecessary delays andexpenses on both parties, which Executive Order No. 1008 precisely seeks to prevent. It would, indeed,defeat the purpose for which the CIAC was created.

WHEREFORE, the Petition is hereby GRANTED. The Decision, dated 23 May 2007, and Resolution,dated 16 November 2007, of the Court of Appeals in CA-G.R. SP No. 92504 are hereby REVERSED and

SET ASIDE. The instant case is hereby REMANDED for further proceedings to the CIAC which isDIRECTED to resolve the same with dispatch.

SO ORDERED.

MINITA V. CHICO-NAZARIO Associate Justice

WE CONCUR:

G.R. No. 176709 May 8, 2009

FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner,vs.HON. EDWIN D. SORONGON and VALENTIN FONG, Respondents.

D E C I S I O N

TINGA, J .:

Petitioner Fort Bonifacio Development Corporation (petitioner), a corporation registered under Philippinelaws, is engaged in the business of real estate development. Respondent, Valentin Fong (respondent)doing business under the name VF Industrial Sales is the assignee of L & M Maxco SpecialistConstruction’s (Maxco) retention money from the Bonifacio Ridge Condominium Phase 1 (BRCP 1).

In this Petition for Review ,1 petitioner assails the Decisio n2 of the Court of Appeals dated November 30,2006 which ruled that it is the regional trial court and not the Construction Industry ArbitrationCommission (CIAC) that has jurisdiction over respondent’s claim.

The facts are as follows:

On July 2000, Petitioner entered into a trade contract with Maxco wherein Maxco would undertake thestructural and partial architectural package of the BRCP 1. Later petitioner accused Maxco of delay incompletion of its work and on August 24, 2004 sent the latter a notice of termination. Petitioner alsoinstructed Maxco to perform remedial measures prior to the contract expiration pursuant to Clause 23.1 ofthe contract.

Subsequently, Maxco was sued by its creditors including respondent for debts unrelated to BRCP 1. Inorder to settle the collection suit, on February 28, 2005, Maxco assigned its receivables representing itsretention money from the BRCP 1 in the amount of one million five hundred seventy seven thousand onehundred fifteen pesos and ninety centavos (P1,577,115.90). On April 18, 2005, respondent wrote topetitioner, informing the latter of Maxco’s assignment in his favor and asking the latter to confirm thevalidity of Maxco’s receivables .3 Petitioner replied, informing the respondent that Maxco did havereceivables, however these were not due and demandable until January of next year, moreover theamount had to be ascertained and liquidated.

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A subsequent exchange of correspondence failed to settle the matter. Specifically, on January 31,2006 ,4 petitioner through counsel, wrote to respondent informing the latter that there is no more amountdue to Maxco from petitioner after the rectification of defect as well as the satisfaction of notices ofgarnishment dated July 30, 200 45 and January 26, 2006 .6 On February 13, 2006, respondent filed acomplaint for a sum of money against petitioner and Maxco in the Regional Trial Court of MandaluyongCity.7 Respondent claimed that there were sufficient residual amounts to pay the receivables of Maxco atthe time he served notice of the assignment. The subsequent notices of garnishment should notadversely affect the receivables assigned to him. The retention money was over due in January 2006 anddespite demand, petitioner did not pay the amount subject of the deed of assignment. Petitioner however,paid out the retention money to other garnishing creditors of Maxco to the detriment of respondent.

On March 16, 2006, instead of filing an Answer, petitioner filed a Motion to Dismiss on the ground of lackof jurisdiction over the subject matter .8 Petitioner argued that since respondent merely stepped into theshoes of Maxco as its assignee, it was the CIAC and not the regular courts that had jurisdiction over thedispute as provided in the Trade Contract. Judge Edwin Sorongon issued an Order dated June 27, 2006denying the motion to dismiss .9 Petitioner moved for reconsideration but this was denied in an Orderdated August 15, 2006.

On October 16, 2006, petitioner filed a petition for certiorari and prohibition with the Court of Appeals. On

November 30, 2006, the Court of Appeals denied the petition for lack of merit. The dispositive portionreads:

WHEREFORE, premises considered, the present petition is hereby DENIED DUE COURSE andaccordingly DISMISSED for lack of merit. The assailed Orders dated June 27, 2006 and August 15, 2006of respondent Judge in Civil Case No. MC-06-2928 are hereby AFFIRMED.

With costs against the petitioner.

SO ORDERED .10

The appellate court held that it was the trial court and not the Construction Industry ArbitrationCommission (CIAC) that had jurisdiction over the claims of Valentin Fong. The claim could not beconstrued as related to the construction industry as it is for enforcement of Maxco’s deed of assignmentover its retention money.

Petitioner moved for reconsideration on December 22, 2006 but this was denied by the appellate court ina resolution dated February 29, 2006.

Hence, the present petition for review on certiorari. Petitioners sets forth four (4) errors committed by theappellate court namely: (1) the origina l and exclusive jurisdiction over respondent’s complaint is vestedwith the CIAC; (2) Respondent’s complaint failed to state a cause of action; (3) the claim of respondenthas already been extinguished; and (4) the conditions precedent for the complaint have not beencomplied with.

The petition lacks merit.

In reference to the first error, Section 4 of Executive Order No. 1008, Series of 1985 (E.O. No. 1008) setsforth the jurisdiction of CIAC. To wit:

SECTION 4. Jurisdiction .—The CIAC shall have original and exclusive jurisdiction over disputes arisingfrom, or connected with, contracts entered into by parties involved in construction in the Philippines,whether the dispute arises before or after the completion of the contract, or after the abandonment or





























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breach thereof. These disputes may involve government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials andworkmanship; violation of the terms of agreement; interpretation and/or application of contractualprovisions; maintenance and defects; payment default of employer or contractor and changes in contract

cost.

Excluded from the coverage of this law are disputes arising from employer-employee relationships whichshall continue to be covered by the Labor Code of the Philippines.

Jurisdiction is defined as the authority to try, hear and decide a case .11 Moreover, that jurisdiction of thecourt over the subject matter is determined by the allegations of the complaint without regard to whetheror not the plaintiff is entitled to recover upon all or some of the claims asserted therein is a wellentrenched principle .12 In this regard, the jurisdiction of the court does not depend upon the defensespleaded in the answer or in the motion to dismiss, lest the question of jurisdiction would almost entirelydepend upon the defendant .13

An examination of the allegations in Fong’s complaint reveals that his cause of action springs not from aviolation of the provisions of the Trade Contract, but from the assignment of Maxco’s retention money tohim and failure of petitioner to turn ove r the retention money. The allegations in Fong’s Complaint areclear and simple: (1) That Maxco had an outstanding obligation to respondent; (2) Maxco assigned toFong its retention from petitioner in payment of the said obligation,; (3) Petitioner as early as April 18,2005 was notified of the assignment; (4) Despite due notice of such assignment, petitioner still refused todeliver the amount assigned to respondent, giving preference, instead, to the 2 other creditors of Maxco;(5) At the time petitioner was notified of the assignment, there were only one other notice of garnishmentand there were sufficient residual amounts to satisfy Fong’s claim; and (6) uncertain over which onebetween Maxco and petitioner he may resort to for payment, respondent named them both as defendantsin Civil Case No. 06-0200-CFM.

While it is true that respondent, as the assignee of the receivables of Maxco from petitioner under theTrade Contract, merely stepped into the shoes of Maxco. However, the right of Maxco to the retentionmoney from petitioner under the trade contract is not even in dispute in Civil Case No. 06-0200-CFM.Respondent raises as an issue before the RTC is the petitioner’s alleged unjustified preference to theclaims of the other creditors of Maxco over the retention money. 1awphi1

Although the jurisdiction of the CIAC is not limited to the instances enumerated in Section 4 of E. O. No.1008, Fong’s claim is not even construction -related at all. This court has held that: " Construction isdefined as referring to all on-site works on buildings or altering structures, from land clearance throughcompletion including excavation, erection and assembly and installation of components andequipment. "14 Thus, petitioner’s insistence on the application of the arbitration clause of the TradeContract to Fong is clearly anchored on an erroneous premise that the latter is seeking to enforce a rightunder the trade contract. This premise cannot stand since the right to the retention money of Maxcounder the Trade Contract is not being impugned herein. It bears mentioning that petitioner readilyconceded the existence of the retention money. Fong’s demand that the portion of retenti on money

should have been paid to him before the other creditors of Maxco clearly, does not require the CIAC’sexpertise and technical knowledge of construction.

The adjudication of Civil Case necessarily involves the application of pertinent statutes and jurisprudenceto matters of assignment and preference of credits. As this Court held in Fort Bonifacio DevelopmentCorporation v. Domingo ,15 this task more suited for a trial court to carry out after a full-blown trial, than anarbitration body specifically devoted to construction contracts.





















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The second error raised also has not merit. Failure to state a cause of action refers to the insufficiency ofallegation in the pleading. In resolving a motion to dismiss based on the failure to state a cause of actiononly the facts alleged in the complaint must be considered. The test is whether the court can render avalid judgment on the complaint based on the facts alleged and the prayer asked for.

In this case the complaint alleges that:

x x x at the time he served notice of assignment to defendant FBDC there was only one notice ofgarnishment that the latter had received and there were still sufficient residual amounts to pay thatassigned by defendant Maxco to the plaintiff. Subsequent notices of garnishment received by defendantFBDC could not adversely affect the amounts already assigned to the plaintiff as they are already hisproperty, no longer that of defendant Maxco .16

From this statement alone, it is clear that a cause of action is present in the complaint filed a quo .Respondent has specifically alleged that the undue preference given to other creditors of Maxco over theretention money by petitioner was to the prejudice of his rights.

Petitioner next asserts that the appellate court erred in not ruling that the claim of respondent wasextinguished by payment to the other garnishing creditors of Maxco. The assignment of this as an error ismisleading as this is precisely one of the issues that need to be resolved in a full blown trial and one ofthe reasons that respondent impleaded Maxco and petitioner in the alternative.

The final error raised by petitioner that the other judgment creditors 17 as well as the trial court that issuedthe writ of garnishment and CIAC should have been impleaded as defendants in the case as they wereindispensable parties is likewise weak. Section 7, Rule 3 of the Revised Rules of Court provides for thecompulsory joinder of indispensable parties without whom no final determination can be had of an action.

An indispensable party is defined as one who has such an interest in the controversy or subject matterthat a final adjudication cannot be made, in his absence, without injuring or affecting that interest .18 Theother judgment creditors are entitled to the fruits of the final judgments rendered in their favor. Their rightsare distinct from the rights acquired by the respondent over the portion of the retention money assigned tothe latter by Maxco. Their interests are in no way affected by any judgment to be rendered in this case. 1avvphi1

WHEREFORE , premises considered, the instant Petition is DENIED . The Decision dated November 30,2006 and the Resolution dated February 19, 2007 of the Court of Appeals in CA-G.R. SP No. 96532 arehereby AFFIRMED .

SO ORDERED .

G.R. No. 169514 March 30, 2007

CONFEDERATION OF SUGAR PRODUCERS ASSOCIATION, INC., (CONFED), NATIONALFEDERATION OF SUGARCANE PLANTERS, INC. (NFSP), UNITED SUGAR PRODUCERSFEDERATION OF THE PHILS., INC. (UNIFED), PANAY FEDERATION OF SUGAR-CANE FARMERS,INC. (PANAYFED), FIRST FARMERS HOLDING CORPORATION, NATIONAL CONGRESS OF

UNIONS IN THE SUGAR INDUSTRY OF THE PHILIPPINES (NACUSIP), LEAGUE OFMUNICIPALITIES OF THE PHILIPPINES – NEGROS OCCIDENTAL CHAPTER. Petitioners,vs.DEPARTMENT OF AGRARIAN REFORM (DAR), (Now also known as DEPARTMENT OF LANDREFORM), LAND BANK OF THE PHILIPPINES (LBP), LAND REGISTRATION AUTHORITY(LRA). Respondents.

D E C I S I O N












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CALLEJO, SR., J .:

Before the Court is a petition for prohibition and mandamus under Rule 65 of the Rules of Court withprayer for the issuance of a writ of preliminary injunction or temporary restraining order filed by the

___________

* No part.

Confederation of Sugar Producers Association, Inc., et al. It seeks, inter alia, to enjoin the Department of Agrarian Reform, the Land Bank of the Philippines, and the Land Registration Authority from "subjectingthe sugarcane farms of Petitioner Planters to eminent domain or compulsory acquisition without filing thenecessary expropriation proceedings pursuant to the provisions of Rule 67 of the Rules of Court and/orwithout the application or conformity of a majority of the regular farmworkers on said farms."

The Parties

The petition is filed by the following: (1) the Confederation of Sugar Producers Association, Inc.(CONFED), a national federation of sugar planters’ associations and cooperatives from Luzon, Visayasand Mindanao, which is purportedly joined by its individual member organizations ;1 (2) the NationalFederation of Sugarcane Planters, Inc. (NFSP), a duly organized federation of sugar planters’associations and cooperatives from Luzon, Visayas and Mindanao, which is also purportedly joined by itsindividual member organizations ;2 (3) the United Sugar Producers Federation of the Phil., Inc. (UNIFED),likewise a national federation of sugar planters’ associations and cooperatives from Luzon, Visayas andMindanao, and is purportedly joined by its individual member organizations ;3 (4) the Panay Federation ofSugarcane Farmers, Inc. (PANAYFED), a federation of sugarcane planters’ organizations andcooperatives from Panay Island, also purportedly joined by its individual member organizations ;4 (5) theFirst Farmers Holding Co., a domestic corporation principally engaged in operating a sugar mill for themilling and manufacture or processing of sugarcane into sugar and the distribution of sugar and its by-products; (6) the National Congress of Unions in the Sugar Industry of the Philippines (NACUSIP), a labororganization; and (7) the League of Municipalities of the Philippines, Negros Occidental Chapter.

For the purpose of the present petition, CONFED, NFSP, UNIFED and PANAYFED are represented bytheir Chairman or President, namely, Bernardo C. Trebol, Enrique D. Rojas, Manuel R. Lamata andFrancis P. Trenas, respectively.

On the other hand, named as respondents are the Department of Agrarian Reform (DAR), the Land Bankof the Philippines (LBP) and the Land Registration Authority (LRA).

The Petitioners’ Case

Petitioners CONFED, NFSP, UNIFED and PANAYFED claim that their members own or administerprivate agricultural lands devoted to sugarcane. They and their predecessors-in-interest have beenplanting sugarcane on their lands allegedly since time immemorial. While their petition is denominated as

one for prohibition and mandamus, the petitioners likewise seek to nullify paragraphs (d), (e) and (f) ofSection 16 5 of Republic Act No. (RA) 6657, otherwise known as the Comprehensive Agrarian ReformLaw. In other words, their arguments, which will be discussed shortly, are anchored on the propositionthat these provisions are unconstitutional.

They allege the following grounds in support of their petition:

A. RESPONDENT DAR ACTED WITHOUT OR IN EXCESS OF JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION BY THE COMMISSION OF THE FOLLOWING ACTS:

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1. By Exercising the Power of Eminent Domain to Deprive Thousands of Landowners,including the Member-Planters of Petitioner-Federations of their Private Agricultural Lands,without Filing the Necessary Expropriation Proceedings pursuant to Rule 67 of the Rules ofCourt in Gross Violation of the Bill of Rights of the Constitution and in Lawless Usurpation ofthe Exclusive Power of the Supreme Court to Promulgate Rules of Procedure as vested bythe Constitution. Paragraphs (d), (e) and (f) Section 16 of R.A. 6657 are Unconstitutional.

2. In Usurping the Powers and Functions of the Presidential Agrarian Reform Council orPARC by Promulgating and Issuing Ultra Vires Rules and Procedures Governing the

Acquisition and Distribution of Agricultural Lands in Gross Violation of the Provisions of E.O.229 and R.A. 6657 or the CARL.

3. In Unlawfully Delegating to the MAROs the Authority to Issue Notices of Coverage and Acquisition to Landowners of Private Agricultural Lands in their Respective Cities andMunicipalities in violation of R.A. 6657.

4. In Subjecting the Sugar Lands of the Planters to CARP Coverage and Acquisition, WithoutFirst Ascertaining: No. 1. Whether there are Regular Farmworkers on said lands and No. 2.

Whether the Regular Farmworkers, if any, are Interested to Own, Directly or Collectively theLands they Till.

5. In Choosing and Designating Non-Tillers, Non-Regular Farmworkers and Outsiders of thesugar lands as Beneficiaries and later, Forcibly Installing Them in said lands.

6. By Disturbing and Outlawing the Farming System of LABOR ADMINISTRATION obtainingin the Sugar Lands Knowing As it Does that Under R.A. 6657 and By the Very Definition of

Agrarian Reform in said Act, Labor Administration is Recognized as an Alternative Mode of Agrarian Reform.

7. In Assuming Jurisdiction, through DARAB, over Cases and Controversies which, by virtueof the provisions of B.P. 129 or the Judiciary Reorganization Act, in relation to P.D. 946should fall under the original jurisdiction of the Regional Trial Courts.

B. THE LAND BANK OF THE PHILIPPINES ACTED WITHOUT OR IN EXCESS OF JURISDICTION ORWITH GRAVE ABUSE OF DISCRETION.

By Making or Causing Payment, Through a Deposit or Opening a Trust Account with a Bank designatedby DAR for the Alleged Compensation for the Land, without Waiting For the Final Determination of SuchCompensation By the Court.

C. THE LAND REGISTRATION AUTHORITY OR LRA ACTED WITHOUT OR IN EXCESS OFJURISDICTION OR WITH GRAVE ABUSE OF DISCRETION.

By Authorizing the Registers of Deeds under its Jurisdiction to Cancel, upon being directed by DAR, theCertificates of Title of the Registered Owners without the Notice to or Consent of the latter or an Orderfrom the Court in Gross Violation of the Property Rights of the Latter and the provisions of the LandRegistration Laws .6

It is the principal contention of the petitioners that, in the exercise by the State of the power of eminentdomain, which in the case of RA 6657 is the acquisition of private lands for distribution to farmer-beneficiaries, expropriation proceedings, as prescribed in Rule 67 of the Rules of Court, must be strictlycomplied with. The petitioners rely on the case of Visayas Refining Company v. Camus and





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Paredes 7 decided by the Court in 1919. In the said case, the Government of the Philippine Islands,through the Governor-General, instructed the Attorney-General to initiate condemnation proceedings forthe purpose of expropriating a tract of land containing an area of 1,100,463 square meters to be used formilitary and aviation purposes. In compliance therewith, the Attorney-General filed a complaint with theCourt of First Instance (CFI) and among the defendants impleaded was Visayan Refining Co. whichowned a portion of the property intended to be expropriated. The CFI provisionally fixed the total value ofthe subject property at P600,000 and upon payment thereof as deposit, the CFI authorized that theGovernment be placed in possession thereof.

Visayan Refining Co. questioned the validity of the proceedings on the ground that there was no lawenacted by the Philippine Legislature authorizing the exercise of the power of eminent domain to acquireland for military or aviation purposes. The Court, speaking through Justice Street, upheld the right of theGovernor-General to authorize the condemnation of the subject property for military and aviationpurposes. It pointed to Sections 241 up to 25 38 of the Code of Civil Procedure as the applicableprovisions for the conduct of expropriation proceedings. It likewise pointed to Sections 2 and 3 9 of Act No.2826 as authorizing immediate possession when the Government is the plaintiff. Further, Article 349 ofthe Old Civil Code was also cited as it stated that:

ART. 349. No one may be deprived of his property unless it be by competent authority for some purpose

of proven public utility and after payment of the proper compensation.

Unless this requisite has been complied with, it shall be the duty of the court to protect the owner of suchproperty in its possession or to restore its possession to him, as the case may be.

The Court stated that "[t]aken together the laws mentioned supply a very complete scheme of judicialexpropriation, deducing the authority from its ultimate source in sovereignty, providing in detail for themanner of its exercise, and making the right of the expropriator finally dependent upon the payment of theamount awarded by the court. "10

The petitioners also quote the following disquisition in Visayan Refining Co. on expropriation vis-à-vis dueprocess of law:

Nevertheless it should be noted that the whole problem of expropriation is resolvable in its ultimateanalysis into a constitutional question of due process of law. The specific provisions that justcompensation shall be made is merely in the nature of a superadded requirement to be taken intoaccount by the Legislature in prescribing the method of expropriation. Even were there no organic orconstitutional provision in force requiring compensation to be p aid, the seizure of one’s property withoutpayment, even though intended for a public use, would undoubtedly be held to be a taking without dueprocess of law and a denial of the equal protection of the laws.

This point is not merely an academic one, as might superficially seem. On the contrary it has a practicalbearing on the problem before us, which may be expressed by saying that, if the Legislature hasprescribed a method of expropriation which provides for the payment of just compensation, and suchmethod is so conceived and adapted as to fulfill the constitutional requisite of due process of law, anyproceeding conducted in conformity with that method must be valid .11

Citing Visayan Refining Co. as well as other case s 12 and statutes ,13 the petitioners thus contend that alandowner cannot be deprived of his property until expropriation proceedings are instituted in court. Theyinsist that the expropriation proceedings to be followed are those prescribed under Rule 67 of the RevisedRules of Court. In other words, for a valid exercise of the power of eminent domain, the Government mustinstitute the necessary expropriation proceedings in the competent court in accordance with theprovisions of the Rules of Court.

In this connection, they cite Section 1 of Rule 67, which they stress is entitled EXPROPRIATION, thus:



























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SEC. 1. The complaint. - The right of eminent domain shall be exercised by the filing of a verifiedcomplaint which shall state with certainty the right and purpose of expropriation, describe the real orpersonal property sought to be expropriated, and join as defendants all persons owning or claiming toown, or occupying, any part thereof or interest therein, showing, so far as practicable, the separateinterest of each defendant. If the title to any property sought to be expropriated appears to be in theRepublic of the Philippines, although occupied by private individuals, or if the title is otherwise obscure ordoubtful so that the plaintiff cannot with accuracy or certainty specify who are the real owners, avermentto that effect shall be made in the complaint.

The DAR, however, according to the petitioners, particularly through the process of compulsoryacquisition, has managed to operate outside of the Constitution and the Rules of Court. They alleged thatthe compulsory acquisition process adopted by the DAR is absolutely without any constitutional or lawfulbasis whatsoever. It is allegedly "utterly repugnant to the principle of eminent domain" or "expropriation"and an "unmitigated and lawless usurpation of the constitutional power of the Supreme Court topromulgate rules of procedure." As such, the process of compulsory acquisition is allegedly null and void.

The petitioners add that Section 22, Article XVII (Transitory Provisions) of the Constitution states that "[a]tthe earliest possible time, the Government shall expropriate idle or abandoned lands as may be definedby law, for distribution to the beneficiaries of the agrarian reform program." The use of the word

"expropriate" in this provision allegedly underscores the necessity of expropriation proceedings pursuantto Rule 67 of the Rules of Court in the acquisition of private agricultural lands.

It is the petitioners’ view that the following provisions of RA 3844 ,14 as amended, remain effective:

SEC. 51. Powers and Functions. – It shall be the responsibility of the Department:

(1) to initiate and prosecute expropriation proceedings for the acquisition of private agricultural lands asdefined in Section one hundred sixty-six of Chapter XI of this Code for the purpose of subdivision intoeconomic family-size farm units and resale of said farm units to bona fide tenants, occupants andqualified farmers; Provided, That the powers herein granted shall apply only to private agricultural landssubject to the terms and conditions and order of priority hereinbelow specified.

x x x

SEC. 53. Compulsory Purchase of Agricultural Lands. – The Authority shall, upon petition in writing of atleast one-third of the lessees and subject to the provisions of Chapter VII of this Code, institute andprosecute expropriation proceedings for the acquisition of private agricultural lands and home lotsenumerated under Section fifty-one. In the event a landowner agrees to sell his property under the termsspecified in this Chapter and the National Land Reform Council finds it suitable and necessary to acquiresuch property, a joint motion embodying the agreement, including the valuation of the property, shall besubmitted by the Land Authority and the landowner to the court for approval; Provided, That in such case,any person qualified to be a beneficiary of such expropriation or purchase may object to the valuation asexcessive, in which case the Court shall determine the just compensation in accordance with Section fifty-six of this Code.

According to the petitioners, the foregoing provisions have not been repealed by RA 6657; hence, inconsonance therewith, the acquisition of private agricultural lands for purposes of agrarian reform canonly be exercised by the Government through expropriation proceedings under Rule 67 of the Rules ofCourt. On the other hand, the process of compulsory acquisition adopted by the DAR, as embodied in itsadministrative orders, is allegedly violative of the landowners’ rights enshrined in the Constitution.

The petitioners specifically refer to Section 16 of RA 6657, which reads:





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SEC. 16. Procedure for Acquisition of Private Lands. – For purposes of acquisition of private lands, thefollowing procedures shall be followed:

(a) After having identified the land, the landowners and the beneficiaries, the DAR shall sendits notice to acquire the land to the owners thereof, by personal delivery or registered mail,and post the same in a conspicuous place in the municipal building and barangay hall of the

place where the property is located. Said notice shall contain the offer of the DAR to pay acorresponding value in accordance with the valuation set forth in Sections 17, 18 and otherpertinent provisions hereof.

(b) Within thirty (30) days from the date of receipt of written notice by personal delivery orregistered mail, the landowners, his administrator or representative shall inform the DAR ofhis acceptance or rejection of the former.

(c) If the landowner accepts the offer of the DAR, the LBP shall pay the landowner thepurchase price of the land within thirty (30) days after he executes and delivers a deed oftransfer in favor of the Government and surrenders the Certificate of Title and othermuniments of title.

(d) In case of rejection or failure to reply, the DAR shall conduct summary administrativeproceedings to determine the compensation for the land by requiring the landowner, the LBPand other interested parties to submit evidence as to the just compensation for the land,within fifteen (15) days from the receipt of notice. After the expiration of the above period, thematter is deemed submitted for decision. The DAR shall decide the case within thirty (30)days after it is submitted for decision.

(e) Upon receipt by the landowner of the corresponding payment or in case of rejection or noresponse from the landowner, upon the deposit with an accessible bank designated by theDAR of the compensation in cash or in LBP bonds in accordance with this Act, the DAR shalltake immediate possession of the land and shall request the proper Register of Deeds toissue a Transfer Certificate of Title (TCT) in the name of the Republic of the Philippines. TheDAR shall thereafter proceed with the redistribution of the land to the qualified beneficiaries.

(f) Any party who disagrees with the decision may bring the matter to the court of proper jurisdiction for final determination of just compensation.

They clarify that while they concede the validity of paragraphs (a), (b) and (c), they vigorously assail thevalidity of paragraphs (d), (e) and (f) of the above-quoted provision. Under the assailed paragraphs, alandowner is allegedly deprived of his right to question or challenge the legality or necessity of the takingof his land by the DAR. The "public purpose and necessity" of the taking is already assumed without thepredicate of a prior hearing where the landowner is given an opportunity to be heard. He is allegedly onlyallowed in paragraph (d) to question or reject the compensation offered by the DAR. This procedureallegedly violates the rights of the landowners under Sections 1 and 9 of Article III (Bill of Rights) of theConstitution, to wit:

SEC. 1. No person shall be deprived of life, liberty, or property without due process of law, nor shall anyperson be denied the equal protection of the laws.

x x x

SEC. 9. Private property shall not be taken for public use without just compensation.

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Paragraph (e) is assailed by the petitioners as it authorizes the DAR, by allegedly merely causing thedeposit with the Land Bank of the compensation, to immediately take possession of the property and todirect the Register of Deeds to cancel the certificate of title of the landowner without notice to and consentof the latter. The petitioners contend that, in contrast, under the Civil Code, if the creditor or obligeerefuses to accept the tender of payment, it is the duty of the debtor or obligor to make consignation of thething or amount due. Under the Civil Code, there is no effective payment without valid tender of paymentand consignation in court .15 The petitioners theorize that, in the same manner, the DAR cannot beallowed to take possession of the property of a landowner, by mere deposit of the compensation that ithas summarily fixed under paragraph (e), without having to go to court.

Paragraph (f) is characterized by the petitioners as meaningless and useless to the landowner. Itallegedly compels him to file a case, and in the process incur costs therefor, for the final determination of

just compensation when, in the meantime, he has already been deprived of possession of his propertyand his certificate of title cancelled. The petitioners cite EPZA v. Dula y16 where the Court ruled that:

We, therefore, hold that P.D. 1533 which eliminates the court’s discretion to appoint commissionerspursuant to Rule 67 of the Rules of Court, is unconstitutional and void. To hold otherwise would be toundermine the very purpose why this Court exists in the first place .17

Relying on the above pronouncement, the petitioners submit that paragraphs (d), (e) and (f) of Section 16of RA 6657, as they similarly eliminate the appointment by the court of commissioners to appraise thevaluation of the land, are unconstitutional, null and void.

The petitioners next assail the Court’s Decision in Association of Small Landowners in the Philippines,Inc. v. Secretary of Agrarian Reform 18 which affirmed the constitutionality of RA 6657. They describe theDecision as a "riddle wrapped in an enigma." They refer to pronouncements made therein that areallegedly inconsistent with its conclusion, i.e., affirming the validity of RA 6657, including paragraphs (d),(e) and (f) of Section 16. For example, while the Decision, citing EPZA, pronounced that "[t]o be sure, thedetermination of just compensation is a function addressed to the courts of justice and may not beusurped by any other branch or official of the government "19 and that "the determination made by the DARis only preliminary unless accepted by all parties concerned, "20 these pronouncements are allegedlyirreconcilable with paragraphs (d) and (e) which allow the DAR, through summary administrative

proceeding, "to take immediate possession of the land" and cause "the cancellation of the certificate oftitle of the landowner."

Further, the petitioners maintain that paragraphs (d) and (e) contemplate a transfer of possession andownership even before full payment of compensation. They thus wonder how these paragraphs wereallowed to survive and remain despite the avowals of the Court in the Decision that "[t]he recognized rule,indeed, is that title to the property expropriated shall pass from the owner to the expropriator only uponfull payment of the just compensation "21 and its dispositive portion that "2. Title to all expropriatedproperties shall be transferred to the State only upon full payment of compensation to their respectiveowners. "22

The petitioners opine that even as the Decision affirmed the validity of RA 6657, the pronouncementsmade in the body, quoted earlier, actually support their argument that paragraphs (d), (e) and (f) of

Section 16 are invalid as they dispense with the expropriation proceedings under Rule 67 of the Rules ofCourt in the acquisition of private agricultural lands. The petitioners assert that the only procedure for theexercise by the State of eminent domain in the implementation of agrarian reform is through expropriationunder Rule 67 of the Rules of Court.

The DAR is also being accused by the petitioners of usurping the powers and functions of the Presidential Agrarian Reform Council (PARC) ,23 which is allegedly the body charged under RA 6657 with the task ofpromulgating the rules for the schedule of acquisition and redistribution of agricultural lands .24 No law has








































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(a) Agrarian Reform means the redistribution of lands, regardless of crops or fruits produced, to farmerand regular farmworkers who are landless, irrespective of tenurial arrangement, to include the totality offactors and support services designed to lift the economic status of the beneficiaries and all otherarrangements alternative to the physical redistribution of lands, such as production or profit-sharing, laboradministration, and the distribution of shares of stock, which will allow beneficiaries to receive a just shareof the fruits of the lands they work.

Another indication that Land Administration is continued to be recognized in the operation of farms,according to the petitioners, is the fact that after RA 6657, Congress amended the minimum wage lawseveral times to provide for the increase of the minimum wage not only for non-agricultural workers butalso for agricultural laborers. Also, in 1991, Congress enacted RA 698 227 which, according to thepetitioners, granted wage and other benefits to workers in the sugar industry. The said law allegedlyrecognized that the work in the sugar industry is seasonal. Implicit in these policies of minimum wageincreases and amelioration of benefits for sugar farmworkers is allegedly the recognition of the system ofLand Administration as a legitimate mode of agrarian reform.

Despite this recognition, the DAR has allegedly outlawed Land Administration as it is bent on acquiringand distributing thousands of hectares of private agricultural lands. In so doing, the DAR is allegedly notbothering to find out whether the alternative mode of agrarian reform, i.e., Land Administration, is already

in place and whether the regular farmworkers entitled to own the land want to exercise their right.

The petitioners explain that there are certain crops, and sugar is one of them, that are more economicallyand efficiently produced by organized, mechanized and plantation-type agriculture than by small,"parcelized" and owner-cultivated farms. This is allegedly especially true in the sugar producing regions inthe Visayas where planting and harvesting of sugarcane have to be synchronized with the milling seasonof the sugar mill in a particular district. The peculiar nature of the sugar industry is allegedly the reasonwhy RA 3844, RA 6982 and other laws have recognized Labor Administration as an alternative mode ofagrarian reform.

The petitioners stress that the mandate of the Constitution is not only to give the landless farmers andregular farmworkers the right to own the land they till but also the right to receive a just share of the fruitsof the land. If these farmers then choose not to exercise their right to own the land they till, then it

allegedly behooves the DAR to see to it that the other laws, such as the minimum wage law and RA6982, are implemented to afford the farmworkers a "just share of the fruits of the land." Instead, the DAR,by its stance of singularly implementing RA 6657, is allegedly violating the rights of the sugar farmworkersguaranteed by other applicable laws .28 Specifically, the DAR is ousting regular farmworkers and installingoutsiders to take over the lands.

The DAR is further allegedly committing grave abuse of discretion by assuming jurisdiction, through theDepartment of Agrarian Reform Adjudication Board (DARAB), over cases and controversies which, byvirtue of Batas Pambansa Blg. (BP) 129, known as "The Judiciary Reorganization Act," are properlycognizable by the Regional Trial Courts (RTCs). The petitioners note that prior to BP 129, "casesinvolving expropriation of all kinds of land in furtherance of the agrarian reform program" and"expropriation proceedings for public purpose of all kinds of tenanted agricultural lands x x x "29 wereexclusively within the jurisdiction of the Court of Agrarian Relations (CAR). With the enactment of BP 129,

the CAR was abolished and cases under its jurisdiction were transferred to the exclusive and original jurisdiction of RTCs. The petitioners advance the view that RA 6657 did not repeal BP 129 such that theRTCs are not divested of their exclusive and original jurisdiction over cases formerly under the jurisdictionof the CAR. This is so, according to the petitioners, because the jurisdiction of the CAR involved theexercise of judicial power that could not be properly transferred to an administrative body like the DAR.The latter’s jurisdiction is allegedly limited only to matters involving the administrative impleme ntation ofagrarian reform laws, e.g., disputes and controversies "relating to tenurial arrangements."

With respect to the Land Bank, the petitioners allege that in the light of the Court’s pronouncement in Association of Small Landowners that "the determination made by the DAR is only preliminary unless













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explanation, however, revealed that ALL HE WANTED WAS WHAT ALREADY OBTAINS INEXPROPRIATION LAWS WHICH REQUIRES A COURT DEPOSIT PRIOR TO ENTRY INTO THECONDEMNED PROPERTY. BUT REGALADO WAS SATISFIED WHEN THIS MEANING WAS

ACCEPTED BY THE COMMISSION and he did not insist on an explicit constitutional provision .32

By insisting that title should remain with the landowners until the issue of just compensation is finally

adjudicated by the courts, the petitioners allegedly simply want to interminably delay the acquisition oflands covered by RA 6657.

Debunkin g the petitioners’ argument that it may have been "unwise" and "impractical" for Congress toinclude sugar lands within the coverage of RA 6657 as certain crops, including sugar, are more efficientlyand more economically produced by organized, mechanized, plantation-type agriculture than by small,"parcelized," owner-cultivated farms, the Land Bank opines that the wisdom, morality or practicability ofacquiring sugar lands for agrarian reform is beyond the ambit of judicial review. The remedy to addressthis issue, according to the Land Bank, is legislative not judicial. Absent any amendment to RA 6657 withrespect to its coverage, there can be no basis to prohibit the DAR and the Land Bank from acquiring allagricultural lands, sugar lands included, for purposes of agrarian reform.

The Land Bank thus denies committing any grave abuse of discretion in "making or causing the payment

of the initial amount of valuation regarding private lands acquired pursuant to RA 6657 notwithstandingthe lack of finality of the decision adjudging the amount of just compensation of subject properties. "33

Through the Office of the Solicitor General, the DAR urges the Court to dismiss the petition outright onthe ground that it is premature. It avers that when issues of constitutionality are raised, as in this case, theCourt can exercise its power of judicial review only if the following requisites are present: (1) an actualand appropriate case exists; (2) a personal and substantial interest of the party raising the constitutionalquestion; (3) the exercise of judicial review is pleaded at the earliest possible opportunity; and (4) theconstitutional question is the lis mota of the case .34

In the present case, the DAR contends that the first requisite, i.e., the existence of an actual orappropriate case, is not attendant. There is allegedly no showing that the petitioners’ sugar lands havebeen subjected to compulsory acquisition by the DAR. Even the petition itself is allegedly devoid of suchallegation. Accordingly, there is no actual case or controversy to speak of and the instant petition is, atbest, premature.

In this connection, the DAR informs the Court that the concerns of the petitioners are appropriately withinthe domain of the Task Force Sugarlandia, created pursuant to Memorandum Order No. 199 datedDecember 5, 2005 issued by President Gloria Macapagal-Arroyo, which reads:

Section 2. Powers and Functions. Task Force Sugarlandia shall exercise the following powers andfunctions:

a. Conduct and complete a study identifying and addressing specific problems in theimplementation of the Comprehensive Agrarian Reform Program as provided under Republic

Act 6657 directly affecting the development of the sugar industry and conduct consultationsin areas to be identified by the Task Force;

b. Submit recommendations to the President on the formulation of policies, plans, programsand projects relative to the development of the sugar industry and implementation of theethanol program;

c. Recommend modifications/amendments to existing laws, rules, regulations andprocedures to remove impediments in the immediate, effective and efficient implementation













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of the programs and activities relative to the Comprehensive Agrarian Reform Programunder Republic Act 6657;

d. Enlist the assistance of any branch, department, bureau, office, agency or instrumentalityof the Government, including government-owned and controlled corporations, to carry outthe provisions of this Memorandum Order;

e. Perform such other functions as may be directed by the President.

Anent the alleged unconstitutionality of paragraphs (d), (e) and (f) of Section 16 of RA 6657, the DARinvokes Association of Small Landowners which affirmed the constitutionality of the said law.

For its part, the Land Registration Authority observes that it was impleaded as a nominal party;nonetheless, it adopts the Comment of the DAR as its own.

The Court’s Rulings

The petition lacks merit.

The validity of Section 16, including paragraphs (d), (e) and (f) thereof, of RA 6657 has already beenaffirmed in Association of Small Landowners

In Association of Small Landowners, the Court categorically passed upon and upheld the validity ofSection 16 of RA 6657, including paragraphs (d), (e) and (f), which sets forth the manner of acquisition ofprivate agricultural lands and ascertainment of just compensation, in this wise:

Where the State itself is the expropriator, it is not necessary for it to make a deposit upon its takingpossession of the condemned property, as "the compensation is a public charge, the good faith of thepublic is pledged for its payment, and all the resources of taxation may be employed in raising theamount." Nevertheless, Section 16(e) of the CARP Law provides that:

Upon receipt by the landowner of the corresponding payment, or in case of rejection or no response fromthe landowner, upon the deposit with an accessible bank designated by the DAR of the compensation incash or in LBP bonds in accordance with this Act, the DAR shall take immediate possession of the landand shall request the proper Register of Deeds to issue a Transfer Certificate of Title (TCT) in the nameof the Republic of the Philippines. The DAR shall thereafter proceed with the redistribution of the land tothe qualified beneficiaries.

Objection is raised, however, to the manner of fixing the just compensation, which it is claimed isentrusted to the administrative authorities in violation of judicial prerogatives. Specific reference is madeto Section 16(d), which provides that in case of the rejection or disregard by the owner of the offer of thegovernment to buy his land -

x x x the DAR shall conduct summary administrative proceedings to determine the compensation for theland by requiring the landowner, the LBP and other interested parties to submit evidence as to the justcompensation for the land, within fifteen (15) days from the receipt of the notice. After the expiration of theabove period, the matter is deemed submitted for decision. The DAR shall decide the case within thirty(30) days after it is submitted for decision.

To be sure, the determination of just compensation is a function addressed to the courts of justice andmay not be usurped by any other branch or official of the government. EPZA v. Dulay resolved achallenge to several decrees promulgated by President Marcos providing that the just compensation forproperty under expropriation should be either the assessment of the property by the government or the

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On the matter of when transfer of possession and ownership of the land to the Government is reckoned, Association of Small Landowners instructs:

The CARP Law, for its part, conditions the transfer of possession and ownership of the land to thegovernment on receipt by the landowner of the corresponding payment or the deposit by the DAR of thecompensation in cash or LBP bonds with an accessible bank. Until then, title also remains with the

landowner. No outright change of ownership is contemplated either .36

The foregoing disquisition is binding and applicable to the present case following the salutary doctrine ofstare decisis et non quieta movere which means "to adhere to precedents, and not to unsettle thingswhich are established. "37 Under the doctrine, when the Supreme Court has once laid down a principle oflaw as applicable to a certain state of facts, it will adhere to that principle, and apply it to all future cases,where facts are substantially the same; regardless of whether the parties and property are thesame .38 The doctrine of stare decisis is based upon the legal principle or rule involved and not upon the

judgment which results therefrom. In this particular sense stare decisis differs from res judicata which isbased upon the judgment .39

The doctrine of stare decisis is one of policy grounded on the necessity for securing certainty and stabilityof judicial decisions, thus:

Time and again, the Court has held that it is a very desirable and necessary judicial practice that when acourt has laid down a principle of law as applicable to a certain state of facts, it will adhere to thatprinciple and apply it to all future cases in which the facts are substantially the same. Stare decisis et nonquieta movere. Stand by the decisions and disturb not what is settled. Stare decisis simply means that forthe sake of certainty, a conclusion reached in one case should be applied to those that follow if the factsare substantially the same, even though the parties may be different. It proceeds from the first principle of

justice that, absent any powerful countervailing considerations, like cases ought to be decided alike.Thus, where the same questions relating to the same event have been put forward by the parties similarlysituated as in a previous case litigated and decided by a competent court, the rule of stare decisis is a barto any attempt to relitigate the same .40

A careful reading of the petition shows that while it purports to be one for prohibition and mandamus, itpractically seeks a reconsideration, albeit partial, of the Decision in Association of Small Landowners. It isnoted that in G.R. 79310, one of the consolidated cases therein, the petitioners were landowners andsugar planters in Victorias, Negros Occidental and Planters’ Committee, Inc., an organization composedof 1,400 planter-members. Also allowed to intervene as petitioner therein was the National Federation ofSugarcane Planters, presumably the same organization as one of the petitioners in this case, which thenclaimed to represent its members of at least 20,000 individual sugar planters all over the country. TheDecision in Association of Small Landowners is thus final and conclusive on these parties not only on theground of stare decisis, but res judicata as well.

In any case, despite its lengthy discussion, the petition has failed to present any cogent argument for theCourt to re-examine Association of Small Landowners. As correctly observed by the Solicitor General, thepetition does not allege that the farm lands of any of the petitioners have actually been subjected tocompulsory acquisition or, at the least, that the DAR, following Section 16 of RA 6657, has actually given

any of the petitioners notice that it is acquiring their respective properties for the purpose of agrarianreform. In other words, the allegations of the petition have failed to present an actual case or controversy,or that it is rip e for adjudication, which would warrant the Court’s re -examination of its rulings in

Association of Small Landowners, including those pertaining to the validity of Section 16, includingparagraphs (d), (e) and (f), of RA 6657.

DAR’s compulsory acquisition procedure is based on Section 16 of RA 6657. It does not, in any way,preclude judicial determination of just compensation





















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Contrary to the petitioners’ submission that the compulsory acquisition procedure adopted by the DAR iswithout legal basis, it is actually based on Section 16 of RA 6657. Under the said law, there are twomodes of acquisition of private agricultural lands: compulsory and voluntary. The procedure forcompulsory acquisition is that prescribed under Section 16 of RA 6657.

In Roxas & Co., Inc. v. Court of Appeals ,41 the Court painstakingly outlined the procedure for compulsory

acquisition, including the administrative orders issued by the DAR in relation thereto, in this manner:

In the compulsory acquisition of private lands, the landholding, the landowners and the farmerbeneficiaries must first be identified. After identification, the DAR shall send a Notice of Acquisition to thelandowner, by personal delivery or registered mail, and post it in a conspicuous place in the municipalbuilding and barangay hall of the place where the property is located. Within thirty days from receipt of theNotice of Acquisition, the landowner, his administrator or representative shall inform the DAR of hisacceptance or rejection of the offer. If the landowner accepts, he executes and delivers a deed of transferin favor of the government and surrenders the certificate of title. Within thirty days from the execution ofthe deed of transfer, the Land Bank of the Philippines (LBP) pays the owner the purchase price. If thelandowner rejects the DAR’s offer or fails to make a reply, the DAR conducts summary administrativeproceedings to determine just compensation for the land. The landowner, the LBP representative andother interested parties may submit evidence on just compensation within fifteen days from notice. Within

thirty days from submission, the DAR shall decide the case and inform the owner of its decision and theamount of just compensation. Upon receipt by the owner of the corresponding payment, or, in case ofrejection or lack of response from the latter, the DAR shall deposit the compensation in cash or in LBPbonds with an accessible bank. The DAR shall immediately take possession of the land and cause theissuance of a transfer certificate of title in the name of the Republic of the Philippines. The land shall thenbe redistributed to the farmer beneficiaries. Any party may question the decision of the DAR in the regularcourts for final determination of just compensation.

The DAR has made compulsory acquisition the priority mode of land acquisition to hasten theimplementation of the Comprehensive Agrarian Reform Program (CARP). Under Section 16 of the CARL,the first step in compulsory acquisition is the identification of the land, the landowners and thebeneficiaries. However, the law is silent on how the identification process must be made. To fill in thisgap, the DAR issued on July 26, 1989 Administrative Order No. 12, Series of 1989, which set the

operating procedure in the identification of such lands. The procedure is as follows:

"II. OPERATING PROCEDURE

A. The Municipal Agrarian Reform Officer, with the assistance of the pertinent Barangay Agrarian ReformCommittee (BARC), shall:

1. Update the master list of all agricultural lands covered under the CARP in his area ofresponsibility. The master list shall include such information as required under the attachedCARP Master List Form which shall include the name of the landowner, landholding area,TCT/OCT number, and tax declaration number.

2. Prepare a Compulsory Acquisition Case Folder (CACF) for each title (OCT/TCT) orlandholding covered under Phase I and II of the CARP except those for which thelandowners have already filed applications to avail of other modes of land acquisition. A casefolder shall contain the following duly accomplished forms:

a) CARP CA Form 1 —MARO Investigation Report

b) CARP CA Form 2-- Summary Investigation Report of Findings and Evaluation





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DAR A. O. No. 12, Series of 1989, from whence the Notice of Coverage first sprung, was amended in1990 by DAR A.O. No. 9, Series of 1990 and in 1993 by DAR A.O. No. 1, Series of 1993. The Notice ofCoverage and letter of invitation to the conference meeting were expanded and amplified in saidamendments.

DAR A. O. No. 9, Series of 1990 entitled "Revised Rules Governing the Acquisition of Agricultural Lands

Subject of Voluntary Offer to Sell and Compulsory Acquisition Pursuant to R. A. 6657," requires that:

"B. MARO

1. Receives the duly accomplished CARP Form Nos. 1 & 1.1 including supportingdocuments.

2. Gathers basic ownership documents listed under 1.a or 1.b above and preparescorresponding VOCF/ CACF by landowner/ landholding.

3. Notifies/ invites the landowner and representatives of the LBP, DENR, BARC andprospective beneficiaries of the schedule of ocular inspection of the property at least one

week in advance.4. MARO/ LAND BANK FIELD OFFICE/ BARC

a) Identify the land and landowner, and determine the suitability for agriculture andproductivity of the land and jointly prepare Field Investigation Report (CARP FormNo. 2), including the Land Use Map of the property.

b) Interview applicants and assist them in the preparation of the Application ForPotential CARP Beneficiary (CARP Form No. 3).

c) Screen prospective farmer-beneficiaries and for those found qualified, cause the

signing of the respective Application to Purchase and Farmer’s Undertaking (CARPForm No. 4).

d) Complete the Field Investigation Report based on the result of the ocularinspection/ investigation of the property and documents submitted. See to it that FieldInvestigation Report is duly accomplished and signed by all concerned.

5. MARO

a) Assists the DENR Survey Party in the conduct of a boundary/ subdivision surveydelineating areas covered by OLT, retention, subject of VOS, CA (by phases, ifpossible), infrastructures, etc., whichever is applicable.

b) Sends Notice of Coverage (CARP Form No. 5) to landowner concerned or his dulyauthorized representative inviting him for a conference.

c) Sends Invitation Letter (CARP Form No. 6) for a conference/ public hearing toprospective farmer-beneficiaries, landowner, representatives of BARC, LBP, DENR,DA, NGO’s, farmers’ organizations and other interested parties to discuss thefollowing matters:

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LO CARP by personaldelivery with proof of service,or by registered mail withreturn card, informing himthat his property is now underCARP coverage and for LO toselect his retention area, if hedesires to avail of his right ofretention; and at the sametime invites him to join thefield investigation to beconducted on his propertywhich should be scheduled atleast two weeks in advance ofsaid notice.

A copy of said Notice shall beposted for at least one weekon bulletin board of the

municipal and barangay hallswhere the property is located.LGU office concerned notifiesDAR about compliance withposting requirement thrureturn indorsement on CARPForm No. 17. Notifyprospective ARBs of theschedule of the field 6DARMO Sends notice to theLBP, BARC, Form No.3CARP DENR representativesand prospective ARBs of theschedule of the fieldinvestigation to be conductedon the subject property.

CARP Form No.17

7 DARMOLBPDENRLocalOffice

With the participation of LO,BARC, and DENRprospective ARBs, conductsthe investigation on subjectOffice property to identify thelandholding, determines itssuitability and product- vity;and jointly prepares the FieldInvestigation Report (FIR)and Land Use Map. However,the field investigation shallproceed even if the LO, therepresentatives of the DENRand prospective ARBs are notavailable provided, they weregiven due notice of the timeand date of the investigationto be conducted. Similarly, if

CARP BARC No.4 Land Use Map

representativesof the LBPForm

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the LBP representative is notavailable or court or could notcome on the scheduled date,the field investigation shallalso be conducted, afterwhich the duly accomplishedPart I of CARP Form No. 4shall be forwarded to the LBPrepresentative for validation.If he agrees to the ocularinspection report of DAR, hesigns the FIR (Part I) andaccomplishes Part II thereof.

In the event that there is a difference or variance between thefindings of the DAR and the LBP as to the propriety of coveringthe land under CARP, whether in whole or in part, on the issue ofsuitability to agriculture, degree of development or slope, and onissues affecting idle lands, the conflict shall be resolved by a

composite team of DAR, LBP, DENR and DA which shall jointlyconduct further investigation thereon. The team shall submit itsreport of findings which shall be binding to both DAR and LBP,pursuant to Joint Memorandum Circular of the DAR, LBP, DENRand DA dated 27 January 1992. 8 DARMO Screens prospective

ARBS and CARP BARC causes the signing of Application Form ofPurchase and Farmers' under- No. 5 taking (APFU).

9 DARMO Furnishes a copy of the dulyaccomplished FIR to thelandowner by personaldelivery with proof of serviceor registered mail with return

card and posts a copy thereoffor at least one week on thebulletin board of the municipaland barangay halls where theproperty is located.

CARP Form No.4

LGU office concerned notifiesnotifies DAR about postingrequirement thru returnendorsement on CARP FormNo. 17.

CARP Form No.17

B. Land Survey

10 DARMOand/orLocalOffice

Conducts perimeter orsegregation survey coveredby OLT , "uncarpable areassuch as 18% slope andabove, unproductive/unsuit-able to agriculture, retention,infrastructure. In case ofsegregation or subdivisionsurvey, the plan shall be

PerimeterorSurvey Plan

DENRdelineatingareasSegregation

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approved by DENR-LMS.

C. Review and Completion of Documents.

11 DARMO Forwards VOCF/CACFtoDARPO.

CARP Form No 6

x x x."

DAR A. O. No. 1, Series of 1993, modified the identification process and increased the number ofgovernment agencies involved in the identification and delineation of the land subject to acquisition. Thistime, the Notice of Coverage is sent to the landowner before the conduct of the field investigation and thesending must comply with specific requirements. Representatives of the DAR Municipal Office (DARMO)must send the Notice of Coverage to the landowner by "personal delivery with proof of service, or byregistered mail with return card," informing him that his property is under CARP coverage and that if hedesires to avail of his right of retention, he may choose which area he shall retain. The Notice ofCoverage shall also invite the landowner to attend the field investigation to be scheduled at least twoweeks from notice. The field investigation is for the purpose of identifying the landholding and determiningits suitability for agriculture and its productivity. A copy of the Notice of Coverage shall be posted for atleast one week on the bulletin board of the municipal and barangay halls where the property is located.The date of the field investigation shall also be sent by the DAR Municipal Office to representatives of theLBP, BARC, DENR and prospective farmer beneficiaries. The field investigation shall be conducted onthe date set with the participation of the landowner and the various representatives. If the landowner andother representatives are absent, the field investigation shall proceed, provided they were duly notifiedthereof. Should there be a variance between the findings of the DAR and the LBP as to whether the landbe placed under agrarian reform, the land’s suitability to agriculture, the degree or development of theslope, etc., the conflict shall be resolved by a composite team of the DAR, LBP, DENR and DA whichshall jointly conduct further investigation. The t eam’s findings shall be binding on both DAR and LBP.

After the field investigation, the DAR Municipal Office shall prepare the Field Investigation Report andLand Use Map, a copy of which shall be furnished the landowner "by personal delivery with proof ofservice or registered mail with return card." Another copy of the Report and Map shall likewise be postedfor at least one week in the municipal or barangay halls where the property is located.

Clearly then, the notice requirements under the CARL are not confined to the Notice of Acquisition setforth in Section 16 of the law. They also include the Notice of Coverage first laid down in DAR A. O. No.12, Series of 1989 and subsequently amended in DAR A. O. No. 9, Series of 1990 and DAR A. O. No. 1,Series of 1993. This Notice of Coverage does not merely notify the landowner that his property shall beplaced under CARP and that he is entitled to exercise his retention right; it also notifies him, pursuant toDAR A. O. No. 9, Series of 1990, that a public hearing shall be conducted where he and representativesof the concerned sectors of society may attend to discuss the results of the field investigation, the landvaluation and other pertinent matters. Under DAR A. O. No. 1, Series of 1993, the Notice of Coveragealso informs the landowner that a field investigation of his landholding shall be conducted where he andthe other representatives may be present .42

The procedure prescribed in Section 16 of RA 6657 is a summary administrative proceeding. As outlinedin Roxas, the said procedure, taken together with the pertinent administrative issuances of the DAR,ensures compliance with the due process requirements of the law. More importantly, this summaryadministrative proceeding does not preclude judicial

determination of just compensation. In fact, paragraph (e) of Section 16 of RA 6657 is categorical on thispoint as it provides that "[a]ny party who disagrees with the decision may bring the matter to the court ofproper jurisdiction for final determination of just compensation."

In Land Bank of the Philippines v. Court of Appeals ,43 the Court underscored that the jurisdiction of theRTCs, sitting as Special Agrarian Courts, over petitions for the determination of just compensation is









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original and exclusive as provided in Section 57 44 of RA 6657. As such, direct resort to the RTC, sitting asa Special Agrarian Court, is valid:

x x x It is clear from Sec. 57 that the RTC, sitting as a Special Agrarian Court, has "original and exclusive jurisdiction over all petitions for the determination of just compensation to landowners." This "original andexclusive" jurisdiction of the RTC would be undermined if the DAR would vest in administrative officials

original jurisdiction in review of administrative decisions. Thus, although the new rules speak of directlyappealing the decision of adjudicators to the RTCs sitting as Special Agrarian Courts, it is clear from Sec.57 that the original and exclusive jurisdiction to determine such cases is in the RTCs. Any effort totransfer such jurisdiction of the RTCs into an appellate jurisdiction would be contrary to Sec. 57 andtherefore would be void. Thus, direct resort to the SAC by private respondent is valid .45

In relation thereto, the Court in its Administrative Circular No. 29-2002 dated July 1, 2002, delineated the jurisdiction of the DAR and the Special Agrarian Courts with the view of avoidance of conflict of jurisdiction under RA 6657, thus:

In view of the increasing number of complaints on matters of jurisdiction over agrarian disputes, theconcerned trial court judges are reminded of the need for a careful and judicious application of Republic

Act No. 6657, otherwise known as the Comprehensive Agrarian Reform Law of 1988, in order to avoid

conflict of jurisdiction with the Department of Agrarian Reform (DAR) or the Department of Environmentand Natural Resources (DENR). Conflict in jurisdiction must be avoided to prevent delay in the resolutionof agrarian problems. In appropriate cases before it the court concerned must not tolerate any delay.

For this purpose, pertinent provisions of R.A. No. 6657 delineating jurisdiction over agrarian disputes arehereby reproduced:

Section 50. Quasi-Judicial Powers of the DAR. – The DAR is hereby vested with primary jurisdiction todetermine and adjudicate agrarian reform matters and shall have exclusive original jurisdiction over allmatters involving the implementing of agrarian reform, except those falling under the exclusive jurisdictionof the Department of Agriculture (DA) and the Department of Environment and Natural Resources(DENR).

Section 55. No Restraining Order or Preliminary Injunction. – No court in the Philippines shall have jurisdiction to issue any restraining order or writ of preliminary injunction against PARC or any of its dulyauthorized or designated agencies in any case, dispute or application, implementation, enforcement, orinterpretation of this Act and other pertinent laws on agrarian reform.

Section 56. Special Agrarian Courts. -- The Supreme Court shall designate at least one (1) branch of theRegional Trial Court (RTC) within each province to act as a Special Agrarian Court.

The Supreme Court may designate more branches to constitute such additional Special Agrarian Courtsas may be necessary to cope with the number of agrarian cases in each province. In the designation, theSupreme Court shall give preference to the Regional Trial Courts which have been assigned to handleagrarian cases or whose presiding judges were former judges of the defunct Court of Agrarian Relations.

The Regional Trial Court (RTC) judges assigned to said courts shall exercise said special jurisdiction inaddition to the regular jurisdiction of their respective courts.

The Special Agrarian Courts shall have the powers and prerogatives inherent in or belonging to theRegional Trial Courts.

Section 57. Special Jurisdiction. – The special Agrarian Courts shall have original and exclusive jurisdiction over all petitions for the determination of just compensation to land owners, and the








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prosecution of all criminal offenses under this Act. The Rules of Court shall apply to all proceedingsbefore the Special Agrarian Courts, unless modified by this Act.

The Special Agrarian Courts shall decide all appropriate cases under their special jurisdiction within thirty(30) days from submission of the case for decision.

Further, the trial court judges concerned are directed to take note of the decisions of the Supreme Courtof 3 December 1990 in Vda. De Tangub vs. Court of Appeals [191 SCRA 885), and of 13 September1991 in Quismundo vs. Court of Appeals (201 SCRA 609).

Strict compliance is hereby enjoined. The Office of the Court Administrator is directed to implement this Administrative Circular, which shall take effect upon its issuance.

Rule 67 of the Rules of Court is not entirely disregarded in the implementation of RA 6657

The petitioners’ main objection to paragraphs (d), (e) and (f) of Section 16 of RA 6657 is that they areallegedly in complete disregard of the expropriation proceedings prescribed under Rule 67 of the Rules ofCourt. The petitioners’ argument does not persuade. As declared by the Court in Association of Small Landowners, we are not dealing here with the traditional exercise of the power of eminent domain, but arevolutionary kind of expropriation:

x x x However, we do not deal here with the traditional exercise of the power of eminent domain. This isnot an ordinary expropriation where only a specific property of relatively limited area is sought to be takenby the State from its owner for a specific and perhaps local purpose. What we deal with here is arevolutionary kind of expropriation.

The expropriation before us affects all private agricultural lands whenever found and of whatever kind aslong as they are in excess of the maximum retention limits allowed their owners. This kind of expropriationis intended for the benefit not only of a particular community or of a small segment of the population but ofthe entire Filipino nation, from all levels of our society, from the impoverished farmer to the land-gluttedowner. Its purpose does not cover only the whole territory of this country but goes beyond in time to theforeseeable future, which it hopes to secure and edify with the vision and the sacrifice of the presentgeneration of Filipinos. Generations yet to come are as involved in this program as we are today,although hopefully only as beneficiaries of a richer and more fulfilling life we will guarantee to themtomorrow through our thoughtfulness today. And, finally, let it not be forgotten that it is no less than theConstitution itself that has ordained this revolution in the farms, calling for "a just distribution" among thefarmers of lands that have heretofore been the prison of their dreams and deliverance .46

Despite the revolutionary or non-traditional character of RA 6657, however, the chief limitations on theexercise of the power of eminent domain, namely: (1) public use; and (2) payment of just compensation,are embodied therein as well as in the Constitution.

With respect to "public use," the Court in Association of Small Landowners declared that the requirementof public use had already been settled by the Constitution itself as it "calls for agrarian reform, which is

the reason why private agricultural lands are to be taken from their owners, subject to the prescribedmaximum retention limits. The purposes specified in P.D. No. 27 ,47 Proc. No. 13 148 and RA No. 6657 areonly an elaboration of the constitutional injunction that the State adopt the necessary measures ‘toencourage and undertake the just distribution of all agricultural lands to enable farmers who are landlessto own directly or collectively the lands they till.’ That public use, as pronounced by the fundamental lawitself, must be binding on us. "49

On the other hand, judicial determination of just compensation is expressly prescribed in Section 57 of RA6657, quoted above, as it vests on the Special Agrarian Courts original and exclusive jurisdiction over allpetitions for the determination of just compensation to landowners. It bears stressing that the

















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determination of just compensation during the compulsory acquisition proceedings of Section 16 of RA6657 is preliminary only.

Section 57 of RA 6657 authorizes not only direct resort to the Special Agrarian Courts in cases involvingpetitions for the determination of just compensation, it likewise mandates that the "Rules of Court shallapply to all proceedings before the Special Agrarian Courts, unless modified by this Act." Hence, contrary

to the contention of the petitioners, the Rules of Court, including Rule 67 thereof, is not completelydisregarded in the implementation of RA 6657 since the Special Agrarian Courts, in resolving petitions forthe determination of just compensation, are enjoined to apply the pertinent provisions of the Rules ofCourt. Moreover, Section 58 of RA 6657, like Rule 67 of the Rules of Court, provides for the appointmentof commissioners by the Special Agrarian Courts:

SEC. 58. Appointment of Commissioners. – The Special Agrarian Courts, upon their own initiative or atthe instance of any of the parties, may appoint one or more commissioners to examine, investigate andascertain facts relevant to the dispute, including the valuation of properties, and to file a written reportthereof to the court.

The petitioners’ contention that RA 6657 contradicts the dictum in EPZA by eliminating the appointmentby the court of commissioners to appraise the valuation of the land is, therefore, erroneous.

The inclusion of sugar lands in the coverage of RA 6657 delves into the wisdom of an act ofCongress, beyond the ambit of judicial review

The scope of lands subjected to agrarian reform under RA 6657 has been characterized asoverwhelming, even broader in scope than that of PD 27. While the latter (PD 27) applies to all privateagricultural lands primarily devoted to rice and corn with tenant farmers under a system of sharecrop orlease tenancy, RA 6657 generally covers all public and private agricultural lands regardless of tenurialarrangement and commodity produced .50

The petitioners insist that the system of Land Administration should be maintained to govern the relationsbetween the sugar planters and the farmworkers because sugar is one of the crops that is more suitablyand efficiently produced by plantation-type agriculture rather than by small and owner-cultivated farms. In

Association of Small Landowners, however, the matter of the inclusion of sugar farms in the coverage ofRA 6657 had already been settled. The sugar planters therein argued that there was no tenancy problemin the sugar areas that could justify the application of RA 6657 and that they should not have beenlumped in the same legislation as the others because they (sugar planters) belong to a particular classwith particular interests of their own.

Rejecting this particular argument, the Court held that the sugar planters failed to show that they belongto a different class and are entitled to a different treatment. It thus upheld the classification made by RA6657, insofar as it included the sugar farms, as conforming to the following requirements: (1) it must bebased on substantial distinctions; (2) it must be germane to the purposes of the law; (3) it must not belimited to existing conditions only; (4) it must apply equally to all the members of the class .51

Indeed, it is not within the power of the Court to pass upon or look into the wisdom of the inclusion byCongress of the sugar lands in the coverage of RA 6657. It is basic in our form of government that the

judiciary cannot inquire into the wisdom or expediency of the acts of the executive or the legislativedepartment, for each department is supreme and independent of the others, and each is devoid ofauthority not only to encroach upon the powers or field of action assigned to any of the otherdepartments, but also to inquire into or pass upon the advisability or wisdom of the acts performed,measures taken or decisions made by the other departments .52

The other issues raised by the petitioners require factual determination which the Court cannot properly undertake in the present case













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The petitioners allege that the DAR, without consulting the regular farmworkers on whether or not theywant to exercise their right to own the land they till, "indiscriminately sends notices of coverage andacquisition to practically all the planters and leaves the matter of identifying and convincing theprospective beneficiaries later. "53 It is also alleged that "in ACTUAL PRACTICE in the sugar lands ofplanter members of petitioners- federations, DAR, in collusion with some NGOs and other ‘instant’ farmerorganizations, designated as ‘beneficiaries’, non -tillers, non-regular farmers, and outsiders of the land andother unqualified groups to eject and replace the regular farmworkers and later on installed these‘beneficiaries’ on the sugar lands, with the assistance of the AFP or the PNP. "54

The petitioners also made the statement that "what is actually happening in the country today, particularlyin the sugar-producing regions, is that Certificates of Title of the landowners are being canceled by LRAmerely upon the directive or request by DAR, without asking the landowner to surrender his owner’sduplicate of title or even notifying him that, whether he likes it or not, the Register of Deeds will cancel hiscertificate of title and issue a new certificate in the name of the Republic of the Philippines. "55

These allegations of the petitioners, however, remain as such – mere allegations, unsupported by anyevidence to prove their veracity or truthfulness. Moreover, they require de novo appreciation of factualquestions. No trial court has had the opportunity to ascertain the validity of these factual claims, theappreciation of which is beyond the function of this Court since it is not a trier of facts .56

WHEREFORE, premises considered, the petition is DISMISSED for lack of merit.

SO ORDERED.

ROMEO J. CALLEJO, SR. Associate Justice

G.R. No. 181969 October 2, 2009

ROMAGO, INC., Petitioner,vs.

SIEMENS BUILDING TECHNOLOGIES, INC.,*

Respondent.

D E C I S I O N

NACHURA, J .:

Romago, Inc. (ROMAGO) appeals by certiorari the October 19, 2007 Decisio n1 of the Court of Appeals(CA) in CA-G.R. SP No. 99128 and the February 26, 2008 Resolution 2 denying its reconsideration.

On June 11, 1999, petitioner ROMAGO entered into a Consortium Agreemen t3 with respondent SiemensBuilding Technologies, Inc. (SBTI). Under the agreement, ROMAGO undertook to jointly bid with SBTI forthe Mechanical and Electrical Requirements of the Insular Life Corporate Center (the project) to beconstructed at the Corporate City in Alabang. SBTI would provide and supply the equipment requirementsand components of the project, while ROMAGO would supply and perform all the technical servicerequirements of the project.

However, Insular Life Assurance Company, Ltd. (Insular Life), the project owner, was not keen on dealingwith a consortium of companies. Ultimately, only ROMAGO bidded and was awarded the Sub-contract forthe Building Services-Electrical Package of the project.













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On December 3, 1999, ROMAGO entered into an Equipment Supply Sub-Contract Agreement(ESSA )4 with SBTI. For the contract price of P100,000,000.00, SBTI undertook to deliver the neededelectrical equipment for the project.

SBTI made deliveries, but ROMAGO failed to pay in full. As of March 2001, ROMAGO’s unpaid billingsamounted toP6,807,400.92. SBTI demanded payment, but the demand just fell on deaf ears, prompting

SBTI to withhold further deliveries of equipment to the jobsite. Consequently, ROMAGO took over all thecontractual activities of SBTI.

Later, however, SBTI resumed its deliveries under the ESSA. As of July 25, 2001, it had already delivered99.81% of all the necessary equipment. ROMAGO, however, refused to pay for the deliveries which, bythen, already amounted toP16,937,612.68, unless SBTI compensates ROMAGO for the total expenses itallegedly incurred in taking over SBTI’s contractual obligations. Demands to pay were made but were notheeded.

Hence, on June 4, 2003, SBTI filed a Request for Arbitration 5 with the Philippine Dispute ResolutionCenter, Inc. (PDRCI), docketed as PDRCI Case No. 20-2003/SSP.

On July 16, 2003, ROMAGO, through its Vice-President for Operations, Ramon Lorenzo R. Arel, Sr.,signed the Agreement to Submit Dispute to Arbitration .6

In its Answe r 7 filed on May 4, 2004, ROMAGO admitted that the agreed contract pricewas P67,734,457.27, but averred that it made substantial payments. It further alleged that it had claimsagainst SBTI, which should be deducted from the former’s liability. Specifically, ROMAGO claimed thecost of installation of transformer and temporary generator sets amounting to P184,208.15and P5,040,408.44, respectively. It added that it paid damages amounting to P3,627,226.37 to InsularLife and to some of its tenants when the generator sets supplied by SBTI malfunctioned on May 1, 2001.ROMAGO further claimed payments for the miscellaneous items amounting to P106,694.49, and forliquidated damages ofP 3,493,223.72 for SBTI’s delay in the delivery of the equipment. According toROMAGO, these items and the P 300,000.00 cost of arbitration must be deducted from SBTI’s claim, thus,leaving a balance of only P2,127,471.97.

The parties then signed the Terms of Reference (TOR )8 and, later, the Amended Terms ofReference .9 Signatories to the TOR and Amended TOR were SBTI’s counsel, Atty. Carla E. Santamaria -Seña of Siguion Reyna Montecillo & Ongsiako; ROMAGO’s counsel, Atty. Melvin L. Villa of Villa Judan &

Associates; and Ramon Lorenzo R. Arel, Sr., ROMAGO’s author ized representative.

After due proceedings, Arbitrator Beda Fajardo rendered a Decision on February 1, 2005 ,10 disposingthat:

Premises considered, this Arbitrator hereby resolves the various issues in this case as follows:

ISSUE NO. 1

[SBTI] is entitled to its claim for P16,937,612.68 against [ROMAGO] plus legal interest computedfrom the time that it made its extrajudicial demand on October 21, 2002 up to its filing of the Requestfor Arbitration.

ISSUE NO. 2

[SBTI] is entitled to recover attorney’s fees from [ROMAGO] in the amount of P500,000.00.

ISSUE NO. 3




























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[SBTI] is entitled to recover its arbitration costs from [ROMAGO] in the sum of P916,300.04.

ISSUE NO. 4

[SBTI] is not liable to [ROMAGO’s] counterclaim of P11,241,058.33.

WHEREFORE, judgment is hereby rendered in favor of Siemens Building [Technologies, Inc.] andagainst Romago, Inc., ordering the latter to pay the former the sum of SIXTEEN MILLION NINEHUNDRED THIRTY SEVEN THOUSAND SIX HUNDRED TWELVE PESOS AND SIXTY EIGHTCENTAVOS (P16,937,612.68), plus legal interest computed from the time that extrajudicial demand wasmade on October 21, 2002 up to the filing of the Request for Arbitration.

Romago, Inc. is also ordered to pay Siemens Building Technologies, [Inc.] the amount of FIVEHUNDRED THOUSAND PESOS (P500,000.00) for attorn ey’s fees and NINE HUNDRED SIXTEENTHOUSAND THREE HUNDRED AND 04/100 (P916,300.04) for the costs of arbitration.

SO ORDERED .11

SBTI, through counsel, was served a copy of the Arbitrator’s decision via personal service on February 3,2005. ROMAGO’s counsel, Atty. Villa, was also served copies of the decision through private courier 2GOon February 3, 2005 ,12 received on the same day; and through registered mail on February 7,2005 ,13 received on February 28, 2005.

Meanwhile, on February 16, 2005, SBTI filed a petition for confirmation of the Arbitrator’s decision 14 withthe Regional Trial Court (RTC) of Makati City, docketed as Special Proclamation No. M-6039.

On March 15, 2005, the RTC issued an Orde r 15 directing ROMAGO to file its answer to the petition withinfifteen (15) days from receipt of the Order.

On March 30, 2005, ROMAGO, through its collaborating counsel, Atty. Jose A.V. Evangelista, filed ananswer ,16 praying for the denial of th e petition and for the setting aside of the Arbitrator’s decision.ROMAGO argued that the Arbitrator displayed partiality in hearing the arbitration case and in renderingthe decision. It pointed out that the Arbitrator considered SBTI’s claims as gospel t ruth and granted thesame in toto, but denied ROMAGO’s counterclaims despite the preponderance of evidence in support ofits claim. ROMAGO, thus, contended that SBTI could not ask for the confirmation and execution of the

Arbitrator’s decision.

After due proceedings, the RTC issued an Order, dated September 5, 2005, declaring the case submittedfor decision. Subsequently, on October 10, 2005, Atty. Hernani Barrios entered his appearance asROMAGO’s new counsel ,17 after Atty. Evangelista withdrew his appearance .18

On June 22, 2006, the RTC issued an Orde r 19 granting SBTI’s petition, viz.:

After a careful consideration of the parties’ respective evidence, the Court resolves to GRANT thePetition.

The instant proceeding is simply a petition for the confirmation of the arbitral award rendered by thePDRCI and for the issuance of a writ for its execution, pursuant to section 23 of R.A. No. 876. Thus, theonly relevant issues to be resolved are: (1) whether there has been an Arbitral Award rendered by PDRCIin favor of the petitioner; and (2) whether such award has attained finality in the absence of any motion tovacate the same.




































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There is no dispute with respect to the first issue as the existence of the Decision is admitted by theparties. The only point of contention now is the issue of whether or not the same Decision has attainedfinality and hence may now be confirmed for purposes of execution. It is clear to the Court that theanswer to this core issue should be in the affirmative. [SBTI] has for its legal anchor Section 26 of the

Arbitration Law, which states that, "a motion to vacate, modify or correct the award or decision must bemade within 30 days after the award is filed or delivered."

[ROMAGO] does not dispute that it did not file any Motion to Vacate the Award made by the PDRCI Arbitrator. It insists however that it met the requirements for the timely filing of such Motion when italleged the grounds for vacation in its Answer to the herein petition. This is faulty reasoning. As correctlyargued by [SBTI], there is a difference between the act of setting forth an affirmative defense and filing aMotion to Vacate within the context of the law on Arbitration. The Arbitration Law requires the losing partyto seek vacation of the award by filing a Motion for this purpose within a period of thirty (30) days fromservice of the Decision. For as a matter of consequence, failure to do so will amount to an unqualifiedacquiescence to the findings of the Arbitrator, and if he does not, then the award must be confirmed inaccordance with section 23 of the law. The Arbitration Law provides that, where an award is vacated, theCourt, in its discretion, may direct a new hearing either before the same arbitrator(s) or before a newarbitrator(s) to be chosen in the manner provided in the submission of the contract for the selection of theoriginal arbitrator(s) and any provision limiting the time in which the arbitrator(s) may make a decisionshall be deemed applicable to the new arbitration and to commence from the date of the court’s order.(Sec. 24 par. (d), R.A. 876). 1avvphi1

"It is possible therefore, that when the prevailing party file[d] a petition to confirm a domestic arbitralaward, the losing party responds with a counterclaim to have the award vacated. There is a time limit,however, to actions to vacate domestic arbitral awards. The party dissatisfied with the award mustinstitute a suit to vacate the award within one (1) month from the time it is served upon him. If he fails toinstitute the suit to vacate the award within this period, the award becomes final and executory" x x x.

ROMAGO avers that it actually received its copy of the arbitral Decision on February 28, 2005. But areview of the records would show that it was furnished with a copy of the Arbitral Decision twice. One, bycourier on February 3, 2005, received on February 4, 2005 by certain Amie Arciaga, as evidenced by thecourier’s internet tracking services; and the second, by registered mail on February 28, 2005 und er

registry receipt no. 5653, issued by the Ayala post office. Thirty (30) days from February 4, 2005, is March6, 2005. Hence, the filing of an Answer with Affirmative and special defenses to the Petition now pendingbefore this Court on March 30, 2005 is way beyond that period prescribed by law hence rendering thesubject arbitral Decision final and executory .20

The RTC disposed, thus:

WHEREFORE, PREMISES CONSIDERED, the Court resolves to CONFIRM the February 1, 2005Decision of the Philippine Dispute Resolution Center Inc. (PDRCI) docketed as PDRCI Case No. 20-2003/SSP. As the said Decision has already attained finality, and as prayed for, let a Writ of Execution beissued to enforce the same. Costs against [ROMAGO].

SO ORDERED .21

ROMAGO and Atty. Barrios were served copies of the RTC Order on July 3, 2006 .22 Despite receipt of theOrder, ROMAGO did not interpose an appeal.

On August 22, 2006, Atty. Barrios withdrew his appearance as counsel for ROMAGO. The Law Office ofMutia Trinidad Venadas & Verzosa thereafter entered its appearance as ROMAGO’s new counsel, andfiled a Petition for Relief from Judgment .23 ROMAGO claimed that Atty. Barrios failed to interpose anappeal from the June 22, 2006 Order of the RTC, because he was then at his ancestral house inCabanatuan City taking a three-week rest after being diagnosed with severe hypertension. Atty. Barrios

















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WHEREFORE, premises considered, the assailed orders dated June 22, 2006, December 12, 2006 andMarch 20, 2007, respectively, of the RTC, Branch 143, Makati City in Special Proceedings No. M-6039,and the decision dated February 1, 2005 in PDRCI Case No. 20-2003/SSP are hereby AFFIRMED.

SO ORDERED .31

ROMAGO’s motion for reconsideration suffered the same fate, as the CA denied the same in itsResolution 32 dated February 26, 2008.

ROMAGO is now before us faulting the CA for dismissing its petition for certiorari. It also prayed for aTRO to enjoin the execution of the Arbitrator’s decision. In its April 2, 2009 Resolution, this Court grantedROMAGO’s prayer, and issued a TRO enjoining the execution of the Arbitrator’s decision.

In the main, ROMAGO seeks the nullification of all the proceedings before the PDRCI, RTC and CA, andthe setting aside of all the decisions and orders rendered against it on grounds of lack of jurisdiction,grave abuse of discretion and reversible error. Specifically, ROMAGO asserts that SBTI’s claim arosefrom a construction contract. As such, it is a construction dispute that falls within the jurisdiction of theCIAC. It, thus, insists on a new trial before the CIAC.

The petition is devoid of merit.

Executive Order No. 1008 defines the jurisdiction of CIAC, viz.:

SEC. 4. Jurisdiction. — The CIAC shall have original and exclusive jurisdiction over disputes arising from,or connected with, contracts entered into by parties involved in construction in the Philippines, whetherthe dispute arises before or after the completion of the contract, or after the abandonment or breachthereof. These disputes may involve government or private contracts. For the Board to acquire


The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials andworkmanship; violation of the terms of agreement; interpretation and/or application of contractual

provisions; amount of damages and penalties; commencement time and delays; maintenance anddefects; payment default of employer or contractor and changes in contract cost.

Excluded from the coverage of this law are disputes arising from employer-employee relationships whichshall continue to be covered by the Labor Code of the Philippines.

In Fort Bonifacio Development Corporation v. Manuel M. Domingo ,33 the word construction is defined asreferring to all on-site works on buildings or altering structures, from land clearance through completion,including excavation, erection, and assembly and installation of components and equipment.

SBTI’s scope of work under the ESSA 34 was:

1.01 x x x to furnish all equipment in accordance with the equipment and delivery schedule x x x, tocommence and complete the delivery of all equipment in accordance with the Equipment Supply Sub-contract and to delivery (sic) the equipment ready for installation (except for equipment to be supplied byothers (sic) parties as specifically excluded herefrom by agreement of the parties hereto) x x x.

1.02 [to] supply and deliver the equipment in accordance with the Bill of Quantities and Cost Schedule(Attachment Nos. 1 &2) and equipment delivery schedule (Attachment -3) to the jobsite/designated areasincluding unloading of equipment from the delivery truck.















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1.03 [to] furnish all the necessary shopdrawings (sic) and installation drawings, productbrochures/catalogs, spare parts as stipulated on (sic) the Original Bill of Quantitiesconcerning NEES supply equipment.

1.04 [to] have a (sic) responsible representatives for the start up energization including testing andcommissioning of NEES supply equipment.

By no stretch of the imagination can the ESSA be characterized as a construction contract. Crystal clearfrom the provisions of the ESSA is that SBTI’s role was merely to supply the needed equipment for theInsular Life Corporate Center project. The ESSA is, therefore, a mere supply contract that does not fallwithin the original and exclusive jurisdiction of CIAC.

We also note that the Consortium Agreemen t35 between ROMAGO and SBTI contained an arbitrationclause, wherein the parties agreed to submit any dispute between them for arbitration under thePhilippine Chamber of Commerce and Industry (PCCI) ,36 such as the PDRCI. It is well settled that thearbitral clause in the agreement is a commitment by the parties to submit to arbitration the disputescovered therein. Because that clause is binding, they are expected to abide by it in good faith .37 The CA,therefore, correctly rejected ROMAGO’s assertion that the PDRCI had no jurisdiction over the suit in thefirst instance.

Furthermore, the issue of jurisdiction was rendered moot by ROMAGO's active participation in theproceedings before the PDRCI and the RTC.

Records show that ROMAGO’s Vice -President for Operations, Ramon Lorenzo R. Arel, Sr., signed an Agreement to Submit Dispute to Arbitration before the PDRCI .38 ROMAGO also concluded and signed theTOR and the Amended TOR confirming its intention and agreement to submit the dispute to PDRCI. Itactively participated in the discussion on the merits of the case, even going to the extent of seekingaffirmative relief.

We are not unmindful of the settled doctrine that the issue of jurisdiction may be raised by any of theparties or may be reckoned by the court at any stage of the proceedings, even on appeal, and is not lostby waiver or by estoppel.

However, this case falls within the exception. To repeat, ROMAGO actively participated in theproceedings before the PDRCI; even after an adverse judgment had been rendered by the Arbitrator, itdid not assail the PDRCI’s jurisdiction over the dispute. In fact, during the proceedings for theconfirmation of the Arbitrator’s award, ROMAGO’s opposition zeroed in on the alleged bias and partialityof the Arbitrator in rendering the decision. Even in its petition for relief from judgment filed with the RTC,the PDRCI’s alleged lack of jurisdiction was never raised as an issue. It was only in its petition forcertiorari with the CA, and after a writ of execution had been issued, that ROMAGO raised the issue oflack of jurisdiction.

In Tijam, et al. v. Sibonghanoy, et al .39 we held:

[A] party cannot invoke the jurisdiction of a court to secure affirmative relief against his opponent and,after obtaining or failing to obtain such relief, repudiate or question that same jurisdiction (Dean vs. Dean,136 Or. 694, 86 A.L.R. 79). x x x the question whether the court had jurisdiction either of the subject-matter of the action or of the parties was not important in such cases because the party is barred fromsuch conduct not because the judgment or order of the Court is valid and conclusive as an adjudication,but for the reason that such a practice cannot be tolerated – obviously for reasons of public policy.

Furthermore, it has also been held that after voluntarily submitting a cause and encountering an adversedecision on the merits, it is too late for the loser to question the jurisdiction or power of the court x x x[a]nd in Littleton vs. Burgess, 16 Wyo. 58, the Court said that it is not right for a party who has affirmed





















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and invoked the jurisdiction of a court in a particular matter to secure an affirmative relief, to afterwardsdeny that same jurisdiction to escape a penalty.

We had emphasized in Figueroa v. People 40 and recently in Apolonia Banayad Frianela v. ServillanoBanayad, Jr .41 that estoppel by laches supervenes in exceptional cases similar to the factual milieu inTijam v. Sibonghanoy. It is, therefore, too late in the day for ROMAGO to repudiate the jurisdiction of

PDRCI over the dispute, and consequently, of the RTC to confirm the decision.

Finally, ROMAGO conceded and estopped itself from further questioning the jurisdiction of the PDRCIand the RTC when it filed a petition for relief from judgment. A petition for relief under Rule 38 of theRules of Court is only available against a final and executory judgment. If ROMAGO indeed believed thatthe PDRCI had no jurisdiction over the suit in the first instance, then all the proceedings therein, includingthe decision, are null and void. Hence, it would not have filed a petition for relief from judgment. In sodoing, ROMAGO recognized that the PDRCI had jurisdiction over the dispute.

Certainly, the Arbitrator’s decision, which was confirmed by the RTC, had attained finality when ROMAGOfailed to interpose an appeal to the CA. Hence, the decision may now be executed.

In a last ditch effort, ROMAGO attempted to avoid this final and executory judgment by filing a petition forrelief from judgment with the RTC.

Unfortunately for ROMAGO, a petition for relief from judgment, being an equitable remedy, is allowedonly in exceptional cases, as when there is no other available or adequate remedy. Under Rule 38 42 ofthe 1997 Rules of Civil Procedure, it may be availed of only after a judgment, final order or otherproceedings were taken against petitioner in any court through fraud, accident, mistake, or excusablenegligence .43

Thus, a party is not entitled to relief under Rule 38, Section 2, of the Rules of Court if he was notprevented from filing his notice of appeal by fraud, accident, mistake, or excusable negligence. Such reliefwill not be granted to a party who seeks to be relieved from the effects of the judgment, when the loss ofthe remedy at law was due to his own negligence or to a mistaken mode of procedure for that matter;otherwise, the petition for relief will be tantamount to reviving the right of appeal, which has already beenlost either due to inexcusable negligence or due to a mistake of procedure by counsel .44

ROMAGO ascribes its failure to appeal to the negligence of its previous counsel, Atty. Barrios. It claimsthat the receipt of the June 22, 2006 Order was not brought to Atty. Barrios’ attention, because the latterwas then at his ancestral house taking a three-week rest after being diagnosed with severe hypertension.

According to ROMAGO, this is a clear case of excusable negligence on the part of its counsel, warrantinga relief from judgment.

We are not convinced.

Records show that ROMAGO was also served a copy of the Order dated June 22, 2006 on July 3,2006 .45 Yet, it did not bother to contact its counsel to inquire on the status of the case or the possibility of,

or the need to, appeal. Clearly, ROMAGO’s failure to appeal was not only due to its counsel’s negligence,but also due to its own negligence.

Besides, we are not convinced by ROMAGO’s claim that its counsel was suffering from high bloodpressure at that time.

The affidavi t46 attached to ROMAGO’s petition for reli ef from judgment left blank the names of the doctorand the hospital that Atty. Barrios consulted. Thus:



























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1. On 29 June 2006, I was at my ancestral home in Cabanatuan City. As my pulsating headaches, blurredor impaired vision, nausea and vomiting had become too unbearable, I consulted Dr. _____________,the physician in charge in ________________ Hospital, Cabanatuan City .47

The omission of these important details casts serious doubts on the credibility of the excuse proffered byROMAGO and its counsel, and strengthens our belief that the said allegation was a mere afterthought to

cover up its and its own counsel’s collective negligence.

It is settled that clients are bound by the mistakes, negligence and omission of their counsel. 48 While,exceptionally, the client may be excused from the failure of counsel ,49 the circumstances obtaining in thepresent case do not persuade this Court to take exception.

Public interest demands an end to every litigation and a belated effort to reopen a case that has alreadyattained finality will serve no purpose other than to delay the administration of justice. To reverse the CADecision denying petitioner's petition for relief from judgment would put a premium on the negligence ofpetitioner's former counsel and encourage endless litigation. If the negligence of counsel is generallyadmitted as a justification for opening cases, there would never be an end to a suit so long as a newcounsel can be employed who could allege and show that prior counsel had not been sufficiently diligent,experienced or learned .50 We, therefore, write finis to this litigation

WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals inCA-G.R. SP No. 99128 are AFFIRMED. The temporary restraining order issued by this Court on April 2,2008 is LIFTED.

Costs against petitioner.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA Associate Justice

WE CONCUR:

G.R. No. 179537 October 23, 2009

PHILIPPINE ECONOMIC ZONE AUTHORITY, Petitioner,vs.EDISON (BATAAN) COGENERATION CORPORATION, Respondent.

D E C I S I O N

CARPIO MORALES, J .:

Petitioner Philippine Economic Zone Authority (PEZA) and Edison (Bataan) Cogeneration Corporation(respondent) entered into a Power Supply and Purchase Agreement (PSPA or agreement) for a 10-yearperiod effective October 25, 1997 whereby respondent undertook to construct, operate, and maintain apower plant which would sell, supply and deliver electricity to PEZA for resale to business locators in theBataan Economic Processing Zone.

In the course of the discharge of its obligation, respondent requested from PEZA a tariff increase with amechanism for adjustment of the cost of fuel and lubricating oil, which request it reiterated on March 5,2004.

















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PEZA did not respond to both requests, however, drawing respondent to write PEZA on May 3, 2004.Citing a tariff increase which PEZA granted to the East Asia Utilities Corporation (EAUC), another supplierof electricity in the Mactan Economic Zone, respondent informed PEZA of a violation of its obligationunder Clause 4.9 of the PSPA not to give preferential treatment to other power suppliers.

After the lapse of 90 days, respondent terminated the PSPA, invoking its right thereunder, and

demanded P708,691,543.00 as pre- termination fee. PEZA disputed respondent’s right to terminate theagreement and refused to pay the pre-termination fee, prompting respondent to request PEZA to submitthe dispute to arbitration pursuant to the arbitration clause of the PSPA.

Petitioner refused to submit to arbitration, however, prompting respondent to file a Complain t1 againstPEZA for specific performance before the Regional Trial Court (RTC) of Pasay, alleging that, inter alia:

x x x x

4. Under Clauses 14.1 and 14.2 of the Agreement, the dispute shall be resolved through arbitrationbefore an Arbitration Committee composed of one representative of each party and a third member whoshall be mutually acceptable to the parties: x x x

x x x

5. Conformably with the Agreement, plaintiff notified defendant in a letter dated September 6, 2004requesting that the parties submit their dispute to arbitration. In a letter dated September 8, 2004, whichdefendant received on the same date, defendant unjustifiably refused to comply with the request forarbitration, in violation of its undertaking under the Agreement. Defendant likewise refused to nominate itsrepresentative to the Arbitration Committee as required by the Agreement.

6. Under Section 8 of Republic Act No. 876 (1953), otherwise known as the Arbitration Law, (a) if eitherparty to the contract fails or refuses to name his arbitrator within 15 days after receipt of the demand forarbitration; or (b) if the arbitrators appointed by each party to the contract, or appointed by one party tothe contract and by the proper court, shall fail to agree upon or to select the third arbitrator, then thisHonorable Court shall appoint the arbitrator or arbitrators .2 (Emphasis and underscoring supplied)

Respondent accordingly prayed for judgment

x x x (a) designating (i) an arbitrator to represent defendant; and (ii) the third arbitrator who shall act asChairman of the Arbitration Committee; and (b) referring the attached Request for Arbitration to the

Arbitration Committee to commence the arbitration .3

and for other just and equitable reliefs.

In its Answer ,4 PEZA (hereafter petitioner):

1. ADMIT[TED] the allegations in paragraphs 1, 2, 3, 4, and 6 of the complaint, with thequalification that the alleged dispute subject of the plaintiff’s Request for Arbitration datedOctober 20, 2004 is not an arbitrable issue, considering that the provision on pre-termination fee in the Power Sales and Purchase Agreement (PSPA), isgravely onerous,unconscionable, greatly disadvantageous to the government, against public policy andtherefore invalid and unenforceable.

2. ADMIT[TED] the allegation in paragraph 5 of the complaint with the qualification that therefusal of the defendant to arbitrate is justified considering that the provision on the pre-termination fee subject of the plaintiff’s Request for Arbitration is invalid and

















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unenforceable . Moreover, the pre-termination of the PSPA is whimsical, has no valid basisand in violation of the provisions thereof, constituting breach of contract on the part of theplaintiff .5 (Emphasis and underscoring supplied)

X x x x

Respondent thereafter filed a Reply and Motion to Render Judgment on the Pleadings ,6 contending thatsince petitioner

x x x does not challenge the fact that (a) there is a dispute between the parties; (b) the dispute must beresolved through arbitration before a three-member arbitration committee; and (c) defendant refused tosubmit the dispute to arbitration by naming its representative in the arbitration committee,

judgment may be rendered directing the appointment of the two other members to complete thecomposition of the arbitration committee that will resolve the dispute of the parties .7

1avvphi1

By Order of April 5, 2005, Branch 118 of the Pasay City RTC granted respondent’s Motion to RenderJudgment on the Pleadings, disposing as follows:

WHEREFORE, all the foregoing considered, this Court hereby renders judgment in favor of the plaintiffand against the defendant. Pursuant to Section 8 of RA 876, also known as the Arbitration Law, andPower Sales and Purchase Agreement, this Court hereby appoints, subject to their agreement asarbitrators, retired Supreme Court Chief Justice Andres Narvasa, as chairman of the committee, andretir ed Supreme Court Justices Hugo Gutierrez, and Justice Jose Y. Feria, as defendant’s and plaintiff’srepresentative, respectively, to the arbitration committee. Accordingly, let the Request for Arbitration beimmediately referred to the Arbitration Committee so that it can commence with the arbitration.

SO ORDERED .8 (Underscoring supplied)

On appeal ,9 the Court of Appeals, by Decision of April 10, 2007, affirmed the RTC Order .10 Its Motion forReconsideration 11 having been denied ,12 petitioner filed the present Petition for Review on

Certiorari ,13

faulting the appellate court

I

. . . WHEN IT DISMISSED PETITIONER’S APPEAL AND AFFIRMED THE 05 APRIL 2004 ORDEROF THE TRIAL COURT WHICH RENDERED JUDGMENT ON THE PLEADINGS, DESPITE THEFACT THAT PETITIONER’S ANSWER TENDERED AN ISSUE .

II

. . . WHEN IT AFFIRMED THE ORDER OF THE TRIAL COURT WHICH REFERREDRESPONDENT’S REQUEST FOR ARBITRATION DESPITE THE FACT THAT THE ISSUE

PRESENTED BY THE RESPONDENT IS NOT AN ARBITRABLE ISSUE .14

(Underscoring supplied)

The petition fails.

The dispute raised by respondent calls for a proceeding under Section 6 of Republic Act No. 876, "An Actto Authorize the Making of Arbitration and Submission Agreements, to Provide for the Appointment of

Arbitrators and the Procedure for Arbitration in Civil Controversies, and for Other Purposes" which reads:








































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SECTION 6. Hearing by court. — A party aggrieved by the failure, neglect or refusal of another to performunder anagreement in writing providing for arbitration may petition the court for an order directing thatsuch arbitration proceed in the manner provided for in such agreement. Five days notice in writing of thehearing of such application shall be served either personally or by registered mail upon the party indefault. The court shall hear the parties, and upon being satisfied that the making of the agreement orsuch failure to comply therewith is not in issue, shall make an order directing the parties to proceed toarbitration in accordance with the terms of the agreement. If the making of the agreement or default be inissue the court shall proceed to summarily hear such issue. If the finding be that no agreement in writingproviding for arbitration was made, or that there is no default in the proceeding thereunder, theproceeding shall be dismissed. If the finding be that a written provision for arbitration was made and thereis a default in proceeding thereunder, an order shall be made summarily directing the parties to proceedwith the arbitration in accordance with the terms thereof.

x x x x (Underscoring supplied)

R.A. No. 876 "explicitly confines the court’s authority only to the determination of whether or not there isan agreement in writing providing for arbitration. "15 Given petitioner’s admission of the material allegationsof r espondent’s complaint including the existence of a written agreement to resolve disputes througharbitration, the assailed appellate court’s affirmance of the trial court’s grant of respondent’s Motion for

Judgment on the Pleadings is in order.

Petitioner argues that it tendered an issue in its Answer as it disputed the legality of the pre-terminationfee clause of the PSPA. Even assuming arguendo that the clause is illegal, it would not affect theagreement between petitioner and respondent to resolve their dispute by arbitration.

The doctrine of separability, or severability as other writers call it, enunciates that an arbitrationagreement is independent of the main contract. The arbitration agreement is to be treated as a separateagreement and the arbitration agreement does not automatically terminate when the contract of which it isa part comes to an end.

The separability of the arbitration agreement is especially significant to the determination of whether theinvalidity of the main contract also nullifies the arbitration clause. Indeed, the doctrine denotes that theinvalidity of the main contract, also referred to as the "container" contract, does not affect the validity ofthe arbitration agreement. Irrespective of the fact that the main contract is invalid, the arbitrationclause/agreement still remains valid and enforceable .16 (Emphasis in the original; underscoring supplied)

Petitioner nevertheless contends that the legality of the pre-termination fee clause is not arbitrable, citingGonzales v. Climax Mining Ltd. 17 which declared that the therein complaint should be brought before theregular courts, and not before an arbitral tribunal, as it involved a judicial issue. Held the Court:

We agree that the case should not be brought under the ambit of the Arbitration Law xxx. The question ofvalidity of the contract containing the agreement to submit to arbitration will affect the applicability of thearbitration clause itself. A party cannot rely on the contract and claim rights or obligations under it and atthe same time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistentpositions. As previously discussed, the complaint should have been filed before the regular courts as itinvolved issues which are judicial in nature .18

The ruling in Gonzales was, on motion for reconsideration filed by the parties, modified, however, in thiswise:

x x x The adjudication of the petition in G.R. No. 167994 effectively modifies part of the Decision dated 28February 2005 in G.R. No. 161957. Hence, we now hold that the validity of the contract containing theagreement to submit to arbitration does not affect the applicability of the arbitration clause itself. Acontrary ruling would suggest that a party’s mere repudiation of the main contract is sufficient to avoid

















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arbitration. That is exactly the situation that the separability doctrine, as well as jurisprudence applying it,seeks to avoid. We add that when it was declared in G.R. No. 161957 that the case should not be broughtfor arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales beforethe DENR Panel of Arbitrators, which was for the nullification of the main contract on the ground of fraud,as it had already been determined that the case should have been brought before the regular courtsinvolving as it did judicial issues .19 (Emphasis and underscoring supplied)

It bears noting that respondent does not seek to nullify the main contract. It merely submits these issuesfor resolution by the arbitration committee, viz:

a. Whether or not the interest of Claimant in the project or its economic return in itsinvestment was materially reduced as a result of any laws or regulations of the PhilippineGovernment or any agency or body under its control;

b. Whether or not the parties failed to reach an agreement on the amendments to the Agreement within 90 days from notice to respondent on May 3, 2004 of the materialreduction in claimant’s economic return under the Agreement;

c. Whether or not as a result of (a) and (b) above, Claimant is entitled to terminate the Agreement;

d. Whether or not Respondent accorded preferential treatment to EAUC in violation of the Agreement;

e. Whether or not as a result of (d) above, Claimant is entitled to terminate the Agreement;

f. Whether or not Claimant is entitled to a termination fee equivalent to P708,691,543.00; and

g. Who between Claimant and Respondent shall bear the cost and expenses of thearbitration, including arbitrator’s fees, administrative expenses and legal fees .20

In fine, the issues raised by respondent are subject to arbitration in accordance with the arbitration clausein the parties’ agreement.

WHEREFORE, the petition is DENIED.

SO ORDERED.

CONCHITA CARPIO MORALES Associate Justice

WE CONCUR:

G.R. No. 175048 February 10, 2009

EXCELLENT QUALITY APPAREL, INC., Petitioner,vs.WIN MULTI RICH BUILDERS, INC., represented by its President, WILSON G. CHUA, Respondent.

D E C I S I O N









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TINGA, J .:

Before us is a Rule 45 petition 1 seeking the reversal of the Decision 2 and Resolution 3 of the Court of Appeals in CA-G.R. SP No. 84640. The Court of Appeals had annulled two order s 4 of the Regional TrialCourt (RTC), Branch 32, of Manila in Civil Case No. 04-108940. This case involves a claim for a sum ofmoney which arose from a construction dispute.

On 26 March 1996, petitioner Excellent Quality Apparel, Inc. (petitioner) then represented by Max L.F.Ying, Vice-President for Productions, and Alfiero R. Orden, Treasurer, entered into a contrac t5 with Multi-Rich Builders (Multi-Rich) represented by Wilson G. Chua (Chua), its President and General Manager, forthe construction of a garment factory within the Cavite Philippine Economic Zone Authority (CPEZ) .6 Theduration of the project was for a maximum period of five (5) months or 150 consecutive calendar days.Included in the contract is an arbitration clause which is as follows:

Article XIX : ARBITRATION CLAUSE

Should there be any dispute, controversy or difference between the parties arising out of this Contractthat may not be resolved by them to their mutual satisfaction, the matter shall be submitted to an

Arbitration Committee of three (3) members; one (1) chosen by the OWNER; one (1) chosen by theCONTRACTOR; and the Chairman thereof to be chosen by two (2) members. The decision of the

Arbitration Committee shall be final and binding on both the parties hereto. The Arbitration shall begoverned by the Arbitration Law (R.A. [No.] 876). The cost of arbitration shall be borned [sic] jointly byboth CONTRACTOR and OWNER on 50-50 basis .7

The construction of the factory building was completed on 27 November 1996.

Respondent Win Multi-Rich Builders, Inc. (Win) was incorporated with the Securities and ExchangeCommission (SEC) on 20 February 1997 8 with Chua as its President and General Manager. On 26January 2004, Win filed a complaint for a sum of mone y9 against petitioner and Mr. Ying amountingto P8,634,448.20. It also prayed for the issuance of a writ of attachment claiming that Mr. Ying was aboutto abscond and that petitioner was about to close. Win obtained a surety bond 10 issued by Visayan Surety& Insurance Corporation. On 10 February 2004, the RTC issued the Writ of Attachmen t11 against theproperties of petitioner.

On 16 February 2004, Sheriff Salvador D. Dacumos of the RTC of Manila, Branch 32, went to the office ofpetitioner in CPEZ to serve the Writ of Attachment, Summon s 12 and the Complaint. Petitioner issuedEquitable PCIBank (PEZA Branch) Check No. 160149, dated 16 February 2004, in the amountof P8,634,448.20, to prevent the Sheriff from taking possession of its properties .13 The check was madepayable to the Office of the Clerk of Court of the RTC of Manila as a guarantee for whatever liability theremay be against petitioner.

Petitioner filed an Omnibus Motion 14 claiming that it was neither about to close. It also denied owinganything to Win, as it had already paid all its obligations to it. Lastly, it questioned the jurisdiction of thetrial court from taking cognizance of the case. Petitioner pointed to the presence of the Arbitration Clauseand it asserted that the case should be referred to the Construction Industry Arbitration Commission(CIAC) pursuant to Executive Order (E.O.) No. 1008.

In the hearing held on 10 February 2004, the counsel of Win moved that its name in the case be changedfrom "Win Multi-Rich Builders, Inc." to "Multi-Rich Builders, Inc." It was only then that petitioner apparentlybecame aware of the variance in the name of the plaintiff. In the Repl y15 filed by petitioner, it moved todismiss the case since Win was not the contractor and neither a party to the contract, thus it cannotinstitute the case. Petitioner obtained a Certificate of Non-Registration of Corporation/Partnershi p16 fromthe SEC which certified that the latter did not have any records of a "Multi-Rich Builders, Inc." Moreover,Win in its Rejoinde r 17 did not































































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oppose the allegations in the Reply. Win admitted that it was only incorporated on 20 February 1997while the construction contract was executed on 26 March 1996. Likewise, it admitted that at the time ofexecution of the contract, Multi-Rich was a registered sole proprietorship and was issued a businesspermi t18 by the Office of the Mayor of Manila.

In an Orde r 19 dated 12 April 2004, the RTC denied the motion and stated that the issues can be answered

in a full-blown trial. Upon its denial, petitioner filed its Answer and prayed for the dismissal of thecase .20 Win filed a Motion 21 to deposit the garnished amount to the court to protect its legal rights. In aManifestation ,22 petitioner vehemently opposed the deposit of the garnished amount. The RTC issued anOrde r 23 dated 20 April 2004, which granted the motion to deposit the garnished amount. On the samedate, Win filed a motion 24 to release the garnished amount to it. Petitioner filed its opposition 25 to themotion claiming that the release of the money does not have legal and factual basis.

On 18 June 2004, petitioner filed a petition for review on certiorar i26 under Rule 65 before the Court of Appeals, which questioned the jurisdiction of the RTC and challenged the orders issued by the lowercourt with a prayer for the issuance of a temporary retraining order and a writ of preliminary injunction.Subsequently, petitioner filed a Supplemental Manifestation and Motio n27 and alleged that the moneydeposited with the RTC was turned over to Win. Win admitted that the garnished amount had alreadybeen released to it. On 14 March 2006, the Court of Appeals rendered its Decisio n 28 annulling the 12 April

and 20 April 2004 orders of the RTC.1avvphi1

It also ruled that the RTC had jurisdiction over the case since it is asuit for collection of sum of money. Petitioner filed a Motion for Reconsideration 29 which wassubsequently denied in a resolution .30

Hence this petition.

Petitioner raised the following issues to wit: (1) does Win have a legal personality to institute the presentcase; (2) does the RTC have jurisdiction over the case notwithstanding the presence of the arbitrationclause; and (3) was the issuance of the writ of attachment and the subsequent garnishment proper.

A suit may only be instituted by the real party in interest. Section 2, Rule 3 of the Rules of Court defines"parties in interest" in this manner:

A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or theparty entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every actionmust be prosecuted or defended in the name of the real party in interest.

Is Win a real party in interest? We answer in the negative.

Win admitted that the contract was executed between Multi-Rich and petitioner. It further admitted thatMulti-Rich was a sole proprietorship with a business permit issued by the Office of the Mayor of Manila. Asole proprietorship is the oldest, simplest, and most prevalent form of business enterprise .31 It is anunorganized business owned by one person. The sole proprietor is personally liable for all the debts andobligations of the business .32 In the case of Mangila v. Court of Appeals ,33 we held that:

x x x In fact, there is no law authorizing sole proprietorships to file a suit in court.

A sole proprietorship does not possess a juridical personality separate and distinct from the personality ofthe owner of the enterprise. The law merely recognizes the existence of a sole proprietorship as a form ofbusiness organization conducted for profit by a single individual and requires its proprietor or owner tosecure licenses and permits, register its business name, and pay taxes to the national government. Thelaw does not vest a separate legal personality on the sole proprietorship or empower it to file or defend anaction in court.





























































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may not divest the CIAC of jurisdiction as provided by law .39 Arbitration is an alternative method of disputeresolution which is highly encouraged .40 The arbitration clause is a commitment on the part of the partiesto submit to arbitration the disputes covered since that clause is binding, and they are expected to

abide by it in good faith .41 Clearly, the RTC s hould not have taken cognizance of the collection suit.The presence of the arbitration clause vested jurisdiction to the CIAC over all construction disputes

between Petitioner and Multi-Rich. The RTC does not have jurisdiction .42

Based on the foregoing, there is no need to discuss the propriety of the issuance of the writ ofattachment. However, we cannot allow Win to retain the garnished amount which was turned over by theRTC. The RTC did not have jurisdiction to issue the questioned writ of attachment and to order therelease of the garnished funds.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals is hereby MODIFIED.Civil Case No. 04-108940 is DISMISSED. Win Multi-Rich Builders, Inc. is ORDERED to return thegarnished amount of EIGHT MILLION SIX HUNDRED THIRTY-FOUR THOUSAND FOUR HUNDRED

FORTY-EIGHT PESOS AND FORTY CENTAVOS (P8,634,448.40),

which was turned over by the Regional Trial Court, to petitioner with legal interest of 12 percent (12%) perannum upon finality of this Decision until payment.

SO ORDERED.

G.R. Nos. 158820-21 June 5, 2009

STRONGHOLD INSURANCE COMPANY, INCORPORATED, Petitioner,vs.TOKYU CONSTRUCTION COMPANY, LTD., Respondent.

D E C I S I O N

NACHURA, J .:

Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of Court is the Court of Appeals (CA) Decision 1dated January 21, 2003 and its Resolution 2 dated June 25, 2003.

The factual and procedural antecedents follow:

Respondent Tokyu Construction Company, Ltd., a member of a consortium of four (4) companies, wasawarded by the Manila International Airport Authority a contract for the construction of the Ninoy AquinoInternational Airport (NAIA) Terminal 2 (also referred to as "the project"). On July 2, 1996, respondententered into a Subcontract Agreemen t3 with G.A. Gabriel Enterprises, owned and managed by Remedios

P. Gabriel (Gabriel), for the construction of the project’s Storm Drainage System (SDS)for P33,007,752.00 and Sewage Treatment Plant (STP) for P23,500,000.00, or a total contract priceofP56,507,752.00. The parties agreed that the construction of the SDS and STP would be completed on

August 10, 1997 and May 31, 1997, respectively .4

In accordance with the terms of the agreement, respondent paid Gabriel 15% of the contract price, asadvance payment, for which the latter obtained from petitioner Stronghold Insurance Company, Inc.Surety Bond s 5 dated February 26, 1996 6and April 15, 1996 ,7 to guarantee its repayment to respondent.Gabriel also obtained from petitioner Performance Bonds 8to guarantee to respondent due and timelyperformance of the work .9 Both bonds were valid for a period of one year from date of issue.












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In utter defiance of the parties’ agreements, Gabriel defaulted in the performance of her obligations. OnFebruary 10, 1997, in a lette r 10 sent to Gabriel, respondent manifested its intention to terminate thesubcontract agreement. Respondent also demanded that petitioner comply with its undertaking under itsbonds.

On February 26, 1997, both parties (respondent and Gabriel) agreed to revise the scope of work,

reducing the contract price for the SDS phase from P33,007,752.00 to P1,175,175.0011

and the STPfrom P23,500,000.00 to P11,095,930.50 ,12f ixing the completion time on May 31, 1997.

Gabriel thereafter obtained from Tico Insurance Company, Inc. (Tico) Surety 13 and Performance 14 Bondsto guarantee the repayment of the advance payment given by respondent to Gabriel and the completionof the work for the SDS, respectively.

Still, Gabriel failed to accomplish the works within the agreed completion period. Eventually, on April 26,1997, Gabriel abandoned the project. On August 8, 1997, respondent served a lette r 15 upon Gabrielterminating their agreement since the latter had only completed 63.48% of the SDS project, valuedat P744,965.00; and 46.60% of the STP, valued atP5,171,032.48. Respondent thereafter demanded fromGabriel the return of the balance of the advance payment. Respondent, likewise, demanded the paymentof the additional amount that it incurred in completing the project .16 Finally, respondent made formal

demands against petitioner and Tico to make good their obligations under their respective performanceand surety bonds. However, all of them failed to heed respondent’s demand. Hence, respondent filed acomplain t17 against petitioner, Tico, and Gabriel, before the Construction Industry Arbitration Commission(CIAC).

In the complaint, respondent prayed that Gabriel, Tico, and petitioner be held jointly and severally liablefor the payment of the additional costs it incurred in completing the project covered by the subcontractagreement; for liquidated damages; for the excess downpayment paid to Gabriel; for exemplarydamages; and for attorney’s fees .18

Gabriel denied liability and argued that the delay in the completion of the project was caused byrespondent. She also contended that the original subcontract agreement was novated by the revisedscope of work and completion schedule. To counter respondent’s monetary demands, she claimed that itwas, in fact, respondent who had an unpaid balance.

For its part, Tico averred that it actually treated respondent’s demand as a claim on the performance andsurety bonds it issued; but it could not make payment since the claim was still subject to determination,findings, and recommendation of its assigned independent adjuster .19

On the other hand, petitioner interposed the following special and affirmative defenses: 1) the surety andperformance bonds had expired; 2) the premium on the bonds had not been paid by Gabriel; 3) thecontract for which the bonds were issued was set aside/novated; 4) the requisite notices were not madewhich thus barred respondent’s claims against it; and 5) the damages claimed were not arbitrable .20

On February 5, 1999, the parties signed the Terms of Reference 21 (TOR) wherein their admission of facts,their respective positions and claims, the issues to be determined, and the amount of arbitration feeswere summarized and set forth.

On August 24, 1999, the CIAC rendered a decision ,22 the dispositive portion of which reads:

WHEREFORE, award is hereby made as follows:

















































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1. On Tokyu’s claims for cost overrun and cost of materials, equipment, manpowercontributed prior to alleged takeover, Gabriel is found liable to pay Tokyu the amountof P1,588,527.00.

2. On Tokyu’s claim of liquidated damages, Gabriel is found liable to pay Tokyu the amountof P662,666.44.

3. On Tokyu’s claim against Tico, we find Tico to be jointly and severally liable with Gabrielon its Performance Bond for the payment of the amounts stated in numbers [1] and [2] abovebut its liability to Tokyu shall not exceed the amount of P238,401.39 on its performancebond. The claim against Tico on its Surety Bond is hereby dismissed.

4. With regard to the claim for the return of the unrecouped down payment, we find thatGabriel is liable to pay Tokyu the amount [of] P7,588,613.18.

5. With regard to Tokyu’s claim against Stronghold on its Surety Bonds, we find Strongholdliable jointly and severally with Gabriel for the payment of the unrecouped down payment butonly up to the amount of P6,701,063.60. The claim against Stronghold on its Performance

Bonds is hereby dismissed.

6. The counterclaim of Gabriel against Tokyu is not contested. Tokyu is held liable to payGabriel on her counterclaim of P1,007,515.78.

7. The net amount due Gabriel for its unpaid progress billing is P1,190,108.41. Tokyu is heldliable to pay this amount to Gabriel.

The amount adjudged in favor of Tokyu against Gabriel is P9,642,182.43 The amount adjudged in favorof Gabriel against Tokyu is P2,197,624.19. Offsetting these two amounts, there is a net award in favor ofTokyu of P7,642,182.43. Payment of this amount or any portion thereof shall inure to the benefit of andreduce pro tanto the liability of the respondents sureties. (Art. 1217, Civil Code)

All other claims or counterclaims not included in the foregoing disposition are hereby denied. The costs ofarbitration shall be shared by the parties pro rata on the basis of their claims and counterclaims asreflected in the TOR.

SO ORDERED .23

The CIAC refused to resolve the issue of novation since respondent had already terminated theagreement by sending a letter to Gabriel. It further held that petitioner’s liabilities under the surety andperformance bonds were not affected by the revision of the scope of work, contract price, and completiontime.

Petitioner and respondent separately appealed the CIAC decision to the CA via a petition for review

under Rule 43 of the Rules of Court. The appeals were docketed as CA-G.R. SP Nos. 54920 (petitioner)and 55167 (respondent) which were later consolidated. On January 21, 2003, the CA rendered adecision 24 modifying the awards made by the Arbitral Tribunal, thus:

WHEREFORE, the appealed decision/award of the Arbitral Tribunal is hereby MODIFIED in that:

1. On TOKYU’s claim for liquidated damages, GABRIEL is found liable to pay TOKYU theamount of P1,699,843.95.








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2. STRONGHOLD and TICO are ordered to pay TOKYU from their respective performancebonds, jointly and severally with GABRIEL the cost of overrun and liquidated damages in theamount of P1,588,570.00 andP1,699,843.95 or the total amount of P3,288,370.95 butTICO’s liability for liquidated damages shall be limited only to those accruing from the SDSphase of the Project and only in the amount of P70,992.77.

3. STRONGHOLD is further ordered to pay TOKYU from its surety bonds, jointly andseverally with GABRIEL, the total unrecouped downpayments in the amountof P7,588,613.18.

4. The aggregate amount adjudged in favor of TOKYU against GABRIEL is P10,876,984.13while the total amount adjudged in favor of Gabriel is P2,197,624.19. Offsetting these two (2)amounts against each other, there is a net award in favor of TOKYU in the amountof P8,679,359.94. Payment of this net amount or any portion thereof by GABRIEL shall in(sic) inure to the benefit and reduce pro tanto the liability of the sureties STRONGHOLD andTICO.

In all other respects, the same appealed decision/award is AFFIRMED.


SO ORDERED .25

Hence, the instant petition, anchored on the following grounds:

5.1. THE COURT OF APPEALS ERRED IN HOLDING STRONGHOLD LIABLE ON ITSBONDS AFTER THE BONDS HAVE BEEN INVALIDATED, LAPSED AND EXPIRED.

5.2. THE COURT OF APPEALS ERRED IN HOLDING STRONGHOLD LIABLE ON ITSBONDS WHICH WERE ISSUED WITHOUT THE EXISTENCE OF ANY PRINCIPAL

CONTRACT.5.3. THE COURT OF APPEALS ERRED IN HOLDING STRONGHOLD LIABLE ON ITSBONDS AND CONFUSED THE LEGAL EFFECTS, IMPORT AND SIGNIFICANCEBETWEEN A GUARANTY (UNDER THE CIVIL CODE) AND SURETY UNDER THEINSURANCE CODE.

5.4. THE COURT OF APPEALS ERRED IN HOLDING STRONGHOLD LIABLE ON ITSBONDS WHERE THE PRINCIPAL CONTRACT UNDER WHICH THE BONDS WEREISSUED HAD BEEN NOVATED .26

Apart from the errors specifically assigned in its petition and memorandum, petitioner asks this Court toaddress the issue of whether the CIAC had jurisdiction to take cognizance of insurance claims. Petitionerinsists that respondent’s claim against it is not related to the construction dispute, hence, it should havebeen lodged with the regular courts.

The argument is misplaced.

Section 4 of Executive Order (E.O.) No. 1008, or the Construction Industry Arbitration Law, provides:

SEC. 4. Jurisdiction. – The CIAC shall have original and exclusive jurisdiction over disputes arising from,or connected with, contracts entered into by parties involved in construction in the Philippines, whether









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the dispute arises before or after the completion of the contract, or after the abandonment or breachthereof. These disputes may involve government or private contracts. For the Board to acquire


The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials andworkmanship, violation of the terms of agreement, interpretation and/or application of contractual time

and delays, maintenance and defects, payment, default of employer or contractor, and changes incontract cost.

Excluded from the coverage of the law are disputes arising from employer-employee relationships whichshall continue to be covered by the Labor Code of the Philippines.

Clearly, E.O. 1008 expressly vests in the CIAC original and exclusive jurisdiction over disputes arisingfrom or connected with construction contracts entered into by parties that have agreed to submit theirdispute to voluntary arbitration .27

In this case, the CIAC validly acquired jurisdiction over the dispute. Petitioner submitted itself to the jurisdiction of the Arbitral Tribunal when it signed the TOR .28 The TOR states:

II. STIPULATION/ADMISSION OF FACTS

x x x x

11. The Construction Industry Arbitration Commission has jurisdiction over the instant case by virtue ofSection 12.10 (Arbitration Clause) of the Subcontract Agreement .29

After recognizing the CIAC’s jurisdiction, petitioner cannot be permitted to now question that sameauthority it earlier accepted, only because it failed to obtain a favorable decision. This is especially true inthe instant case since petitioner is challenging the tribunal’s jurisdiction for the first time before this Court.

With the issue of jurisdiction resolved, we proceed to the merits of the case.

It is well to note that Gabriel did not appeal the CIAC decision and Tico’s petition before this Court hasbeen denied with finality .30 Hence, the CIAC and CA decisions have become final and executory as toGabriel and Tico, and in that respect, they shall not be disturbed by this Court.

Thus, the sole issue that confronts us is whether or not petitioner is liable under its bonds. To resolve thesame, we need to inquire into the following corollary issues:

1) whether the bonds (surety and performance) are null and void having been securedwithout a valid and existing principal contract;

2) whether the bonds were invalidated by the modification of the subcontract agreement

without notice to the surety; and3) whether the bonds for which petitioner was being made liable already expired.

Initially, petitioner argued that the surety and performance bonds (which were accessory contracts) wereof no force and effect since they were issued ahead of the execution of the principal contract. To supportthis contention, it now adds that the bonds were actually secured through misrepresentation, as petitionerwas made to believe that the principal contract was already in existence when the bonds were issued, butit was, in fact, yet to be executed .31





















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We are not persuaded.

In the first place, as correctly observed by respondent, the claim of misrepresentation was never raisedby petitioner as a defense in its Answer. Settled is the rule that points of law, theories, issues, andarguments not adequately brought to the attention of the trial court need not be, and ordinarily will not be,considered by a reviewing court. They cannot be raised for the first time on appeal. To allow this would be

offensive to the basic rules of fair play, justice, and due process .32

Besides, even if we look into the merit of such contention, the CA is correct in holding that there was noevidentiary support of petitioner’s claim of misrepresentation .33 This being a factual issue, we respect thefinding made in the assailed decision. We have repeatedly held that we are not a trier of facts. Wegenerally rely upon, and are bound by, the conclusions on factual matters made by the lower courts,which are better equipped and have better opportunity to assess the evidence first-hand, including thetestimony of the witnesses .34

Petitioner also contends that the principal contract (original subcontract agreement) was novated by therevised scope of work and contract schedule, without notice to the surety, thereby rendering the bondsinvalid and ineffective. Finally, it avers that no liability could attach because the subject bonds expired andwere replaced by the Tico bonds.

Again, we do not agree.

Petitioner’s liability was not affected by the revision of the contract price, scope of work , and contractschedule. Neither was it extinguished because of the issuance of new bonds procured from Tico.

As early as February 10, 1997, respondent already sent a lette r 35 to Gabriel informing the latter of thedelay incurred in the performance of the work, and of the former’s intention to terminate the subcontractagreement to prevent further losses. Apparently, Gabriel had already been in default even prior to theaforesaid letter; and demands had been previously made but to no avail. By reason of said default,Gabriel’s liability had arisen; as a consequence, so also did the liability of petitioner as a surety arise.

A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performanceby another party, called the principal or obligor, of an obligation or undertaking in favor of another party,called the obligee .36 By its very nature, under the laws regulating suretyship, the liability of the surety is

joint and several but is limited to the amount of the bond, and its terms are determined strictly by theterms of the contract of suretyship in relation to the principal contract between the obligor and theobligee .37

By the language of the bonds issued by petitioner, it guaranteed the full and faithful compliance byGabriel of its obligations in the construction of the SDS and STP specifically set forth in the subcontractagreement, and the repayment of the 15% advance payment given by respondent. These guaranteesmade by petitioner gave re spondent the right to proceed against the former following Gabriel’s non -compliance with her obligation.

Confusion, however, transpired when Gabriel and respondent agreed, on February 26, 1997, to reducethe scope of work and, consequently, the contract price. Petitioner viewed such revision as novation ofthe original subcontract agreement; and since no notice was given to it as a surety, it resulted in theextinguishment of its obligation.

We wish to stress herein the nature of suretyship, which actually involves two types of relationship --- theunderlying principal relationship between the creditor (respondent) and the debtor (Gabriel), and theaccessory surety relationship between the principal (Gabriel) and the surety (petitioner).The creditoraccepts the surety’s solidary undertaking to pay if the debtor does not pay. Such acceptance, however,does not change in any material way the creditor’s relationship with the principal debtor nor does it make

























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Considering that the performance bonds issued by petitioner were valid only for a period of one year, itsliabilities should further be limited to the period prior to the expiration date of said bonds. As toPerformance Bond No. 43601 for the SDS project, the same was valid only for one year from February26, 1996; while Performance Bond No. 13608 was valid only for one year from April 15, 1996. Logically,petitioner can be held solidarily liable with Gabriel only for the cost overrun and liquidated damagesaccruing during the above periods. The assailed CA decision is, therefore, modified in this respect.

WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals datedJanuary 21, 2003 and its Resolution dated June 25, 2003 are AFFIRMED with the MODIFICATION thatpetitioner Stronghold Insurance, Company, Inc. is jointly and severally liable with Remedios P. Gabrielonly for the cost overrun and liquidated damages accruing during the effectivity of its bonds.

All other aspects of the assailed decision STAND.

SO ORDERED.


G.R. No. 171763 June 5, 2009

MARIA LUISA PARK ASSOCIATION, INC., Petitioner,vs.SAMANTHA MARIE T. ALMENDRAS and PIA ANGELA T. ALMENDRAS, Respondents.

D E C I S I O N

QUISUMBING, J .:

This petition for review on certiorari assails the Decision 1 dated August 31, 2005 and theResolution 2 dated February 13, 2006 of the Court of Appeals in CA-G.R. SP No. 81069.

The facts, culled from the records, are as follows:

On February 6, 2002, respondents Samantha Marie T. Almendras and Pia Angela T. Almendraspurchased from MRO Development Corporation a residential lot located in Maria Luisa Estate Park,Banilad, Cebu City. After some time, respondents filed with petitioner Maria Luisa Park Association,Incorporated (MLPAI) an application to construct a residential house, which was approved in February 10,2002. Thus, respondents commenced the construction of their house.

Upon ocular inspection of the house, MLPAI found out that respondents violated the prohibition againstmulti-dwelling 3s tated in MLPAI’s Deed of Restriction. Consequently, on April 28, 2003, MLPAI sent aletter to the respondents, demanding that they rectify the structure; otherwise, it will be constrained toforfeit respondents’ construction bond and impose stiffer penalties.

In a Lette r 4 dated April 29, 2003, respondents, as represented by their father Ruben D. Almendras deniedhaving violated MLPAI’s Deed of Restriction.

On May 5, 200 3, MLPAI, in its reply, pointed out respondents’ specific violations of the subdivision rules,to wit: (a) installation of a second water meter and tapping the subdivision’s main water pipeline, and (b)construction of "two separate entrances that are mutually exclusive of each other." It likewise reiterated itswarning that failure to comply with its demand will result in its exercise of more stringent measures.














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In view of these, respondents filed with the Regional Trial Court of Cebu City, Branch 7, a Complain t5 onJune 2, 2003 for Injunction, Declaratory Relief, Annulment of Provisions of Articles and By-Laws withPrayer for Issuance of a Temporary Restraining Order (TRO)/Preliminary Injunction.

MLPAI moved for the dismissal of the complaint on the ground of lack of jurisdiction and failure to complywith the arbitration clause 6 provided for in MLPAI’s by -laws.

In an Orde r 7 dated July 31, 2003, the trial court dismissed the complaint for lack of jurisdiction, holdingthat it was the Housing and Land Use Regulatory Board (HLURB) that has original and exclusive

jurisdiction over the case. Respondents moved for reconsideration but their motion was denied.

Aggrieved, the respondents questioned the dismissal of their complaint in a petition for certiorari andprohibition before the Court of Appeals.

The Court of Appeals granted the petition in its Decision dated August 31, 2005, the dispositive portion ofwhich reads:

WHEREFORE, in view of all the foregoing, the petition is GRANTED and the assailed orders of therespondent trial court are declared NULL AND VOID , and SET ASIDE . Respondent RTC is herebyordered to take jurisdiction of Civil Case No. CEB-29002.

SO ORDERED .8

MLPAI filed a motion for reconsideration but it was denied by the Court of Appeals in its Resolution datedFebruary 13, 2006.

Hence, this petition raising the following issues:

I.

WHETHER THE HONORABLE COURT OF APPEALS HAS DISREGARDED LAWS AND WELL-SETTLED JURISPRUDENCE IN HOLDING THAT JURISDICTION OVER [THE] DISPUTEBETWEEN HOMEOWNERS AND HOMEOWNERS’ ASSOCIATION LIES WITH THE REGULARCOURTS AND NOT WITH HLURB.

II.

WHETHER THERE IS NO OTHER RELIEF AND REMEDY AVAILABLE TO PETITIONER TO AVERT THE CONDUCT OF A VOID [PROCEEDING] THAN THE PRESENT RECOURSE .9

Simply stated, the issue is whether the appellate court erred in ruling that it was the trial court and not theHLURB that has jurisdiction over the case.

Petitioner MLPAI contends that the HLURB 10 has exclusive jurisdiction over the present controversy, itbeing a dispute between a subdivision lot owner and a subdivision association, where the latter aimed tocompel respondents to comply with the MLPAI’s Dee d of Restriction, specifically the provision prohibitingmulti-dwelling.

Respondents, on the other hand, counter that the case they filed against MLPAI is one for declaratoryrelief and annulment of the provisions of the by-laws; hence, it is outside the competence of the HLURBto resolve. They likewise stated that MLPAI’s rules and regulations are discriminatory and violative of their























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basic rights as members of the association. They also argued that MLPAI’s acts are illegal, immoral andagainst public poli cy and that they did not commit any violation of the MLPAI’s Deed of Restriction.

We agree with the trial court that the instant controversy falls squarely within the exclusive and original jurisdiction of the Home Insurance and Guaranty Corporation (HIGC) ,11 now HLURB.

Originally, administrative supervision over homeowners’ associations was vested by law with theSecurities and Exchange Commission (SEC). However, pursuant to Executive Order No. 535 ,12 the HIGCassumed the regulatory and adjudicative functions of the SEC over homeowners’ associations. Section 2of E.O. No. 535 provides:

2. In addition to the powers and functions vested under the Home Financing Act, the Corporation, shallhave among others, the following additional powers:

(a) . . . and exercise all the powers, authorities and responsibilities that are vested on theSecurities and Exchange Commission with respect to homeowners associations, theprovision of Act 1459, as amended by P.D. 902-A, to the contrary notwithstanding;

(b) To regulate and supervise the activities and operations of all houseowners associationsregistered in accordance therewith;

x x x x

Moreover, by virtue of this amendatory law, the HIGC also assumed the SEC’s original and exclusive jurisdiction under Section 5 of Presidential Decree No. 902-A to hear and decide cases involving:

b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders,members, or associates; between any and/or all of them and the corporation, partnership orassociation of which they are stockholders, members or associates , respectively; and between suchcorporation, partnership or association and the state insofar as it concerns their individual franchise orright to exist as such entity ;13 (Emphasis supplied.)

x x x x

Consequently, in Sta. Clara Homeowners’ Association v. Gasto n 14 and Metro Properties, Inc. v.Magallanes Village Association, Inc. ,15 the Court recognized HIGC’s "Revised Rules of Procedure in theHearing of Home Owner’s Disputes," pertinent portions of which are repr oduced below:

RULE IIDisputes Triable by HIGC/Nature of Proceedings

Section 1. Types of Disputes – The HIGC or any person, officer, body, board or committee dulydesignated or created by it shall have jurisdiction to hear and decide cases involving the following:

x x x x

(b) Controversies arising out of intra-corporate relations between and among members of theassociation, between any or all of them and the association of which they are members , andbetween such association and the state/general public or other entity in so far as it concerns its rightto exist as a corporate entity .16 (Emphasis supplied.)

x x x x

























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Later on, the above-mentioned powers and responsibilities, which had been vested in the HIGC withrespect to homeowners’ associations, were transferred to the HLURB pursuant to Republic Act No.8763 ,17 entitled "Home Guaranty Corporation Act of 2000."

In the present case, there is no question that respondents are members of MLPAI as they have evenadmitted it .18Therefore, as correctly ruled by the trial court, the case involves a controversy between the

homeowners’ association and some of its members. Thus, the exclusive and original jurisdiction lies withthe HLURB.

Indeed, in Sta. Clara Homeowners’ Association v. Gaston , we held:

. . . the HIGC exercises limited jurisdiction over homeowners' disputes . The law confines itsauthority to controversies that arise from any of the following intra-corporate relations : (1)between and among members of the association; (2) between any and/or all of them and theassociation of which they are members ; and (3) between the association and the state insofar as thecontroversy concerns its right to exist as a corporate entity .19 (Emphasis supplied.)

The extent to which the HLURB has been vested with quasi-judicial authority must also be determined byreferring to Section 3 of P.D. No. 957 ,20 which provides:

SEC. 3. National Housing Authority . – The National Housing Authority shall have exclusive jurisdiction toregulate the real estate trade and business in accordance with the provisions of this Decree. (Emphasissupplied.)

The provisions of P.D. No. 957 were intended to encompass all questions regarding subdivisions andcondominiums. The intention was aimed at providing for an appropriate government agency, the HLURB,to which all parties aggrieved in the implementation of provisions and the enforcement of contractualrights with respect to said category of real estate may take recourse. The business of developingsubdivisions and corporations being imbued with public interest and welfare, any question arising fromthe exercise of that prerogative should be brought to the HLURB which has the technical know-how onthe matter .22

It is apparent that although the complaint was denominated as one for declaratory relief/annulment ofcontracts, the allegations therein reveal otherwise. It should be stressed that respondents neither askedfor the interpretation of the questioned by-laws nor did they allege that the same is doubtful or ambiguousand require judicial construction. In fact, what respondents really seek to accomplish is to have aparticular provision of the MLPAI’s by -laws nullified and thereafter absolve them from any violations of thesame .23 In Kawasaki Port Service Corporation v. Amores ,24 the rule was stated:

. . . where a declaratory judgment as to a disputed fact would be determinative of issues rather than aconstruction of definite stated rights, status and other relations, commonly expressed in writteninstrument, the case is not one for declaratory judgment .25

Contrary to the observation of the Court of Appeals, jurisdiction cannot be made to depend on the

exclusive characterization of the case by one of the parties .26

While respondents are questioning thevalidity or legality of the MLPAI’s articles of incorporation and its by -laws, they did not, however, raise anylegal ground to support its nullification. The legality of the by-laws in its entirety was never an issue in theinstant controversy but merely the provision prohibiting multi-dwelling which respondents assert they didnot violate .27 So to speak, there is no justiciable controversy here that would warrant declaratory relief, oreven an annulment of contracts.

We reiterate that in jurisdictional issues, what determines the nature of an action for the purpose ofascertaining whether a court has jurisdiction over a case are the allegations in the complaint and thenature of the relief sought .28












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Moreover, under the doctrine of primary administrative jurisdiction, courts cannot or will not determine acontroversy where the issues for resolution demand the exercise of sound administrative discretionrequiring the special knowledge, experience, and services of the administrative tribunal to determinetechnical and intricate matters of fact .29

In the instant case, the HLURB has the expertise to resolve the basic technical issue of whether the

house built by the respondents violated the Deed of Restriction, specifically the prohibition against multi-dwelling. 1avvphi1

As observed in C.T. Torres Enterprises, Inc. v. Hibionada :30

The argument that only courts of justice can adjudicate claims resoluble under the provisions of the CivilCode is out of step with the fast-changing times. There are hundreds of administrative bodies nowperforming this function by virtue of a valid authorization from the legislature. This quasi-judicial function,as it is called, is exercised by them as an incident of the principal power entrusted to them of regulatingcertain activities falling under their particular expertise.

In the Solid Homes case for example the Court affirmed the competence of the Housing and Land UseRegulatory Board to award damages although this is an essentially judicial power exercisable ordinarilyonly by the courts of justice. This departure from the traditional allocation of governmental powers is

justified by expediency, or the need of the government to respond swiftly and competently to the pressingproblems of the modern world .31

We also note that the parties failed to abide by the arbitration agreement in the MLPAI by-laws. Article XIIof the MLPAI by-laws entered into by the parties provide:

Mode of Dispute Resolution

Mode of Dispute Resolution. Should any member of the Association have any grievance, dispute or claimagainst the Association or any of the officers and governors thereof in connection with their functionand/or position in the Association, the parties shall endeavor to settle the same amicably. In the eventthat efforts at amicable settlement fail, such dispute, difference or disagreement shall be brought by themember to an arbitration panel composed of three (3) arbitrators for final settlement, to the exclusion ofall other fora. Such arbitration may be initiated by giving notice to the other party, such notice designatingone (1) independent arbitrator. Within thirty (30) from the receipt of said notice, the other party shalldesignate a second independent arbitrator by written notice to the first party. Both arbitrators shall withinfifteen (15) days thereafter select a third independent arbitrator, who shall be the chairman of the

Arbitration Tribunal. In the event that the two (2) arbitrators respectively nominated by the parties fail toselect the third independent arbitrator within the fifteen-day period, the third arbitrator shall be jointlyselected by the parties. In the event that the other party does not nominate an arbitrator, the ArbitrationTribunal shall be composed of one (1) arbitrator nominated by the party initiating the proceedings. The

Arbitration Tribunal shall render its decision within forty-five (45) days from the selection of the thirdarbitrator, which decision shall be valid and binding between the parties unless repudiated within five (5)days from receipt thereof on grounds that the same was procured through fraud or violence, or that thereare patent or gross errors in facts made basis of the decision. The award of the Tribunal shall be enforcedby a court of competent jurisdiction. Venue of action covered by this Article shall be in the courts of justiceof Cebu City only.

Under the said provision of the by-laws, any dispute or claim against the Association or any of its officersand governors shall first be settled amicably . If amicable settlement fails, such dispute shall be brought bythe member to an arbitration panel for final settlement. The arbitral award shall be valid and bindingbetween the parties unless repudiated on grounds that the same was procured through fraud or violence,or that there are patent or gross errors in the tribunal’s findings of facts upon which the decision wasbased.













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The terms of Article XII of the MLPAI by-laws clearly express the intention of the parties to bring first tothe arbitration process all disputes between them before a party can file the appropriate action. Theagreement to submit all disputes to arbitration is a contract. As such, the arbitration agreement binds theparties thereto, as well as their assigns and heirs .32Respondents, being members of MLPAI, are bound byits by-laws, and are expected to abide by it in good faith .33

In the instant case, we observed that while both parties exchanged correspondence pertaining to thealleged violation of the Deed of Restriction, they, however, made no earnest effort to resolve theirdifferences in accordance with the arbitration clause provided for in their by-laws. Mere exchange ofcorrespondence will not suffice much less satisfy the requirement of arbitration. Arbitration being themode of settlement between the parties expressly provided for in their by-laws, the same should berespected. Unless an arbitration agreement is such as absolutely to close the doors of the courts againstthe parties, the courts should look with favor upon such amicable arrangements .34

Arbitration is one of the alternative methods of dispute resolution that is now rightfully vaunted as "thewave of the future" in international relations, and is recognized worldwide. To brush aside a contractualagreement calling for arbitration in case of disagreement between the parties would therefore be a stepbackward .35

WHEREFORE , the instant petition is GRANTED . The Decision dated August 31, 2005 and Resolutiondated February 13, 2006 of the Court of Appeals in CA-G.R. SP No. 81069 are SET ASIDE . The Orderdated July 31, 2003 of the Regional Trial Court of Cebu City, Branch 7, is hereby REINSTATED .

SO ORDERED.

LEONARDO A. QUISUMBING Associate Justice

WE CONCUR:

G.R. Nos. 147925-26 June 8, 2009

ELPIDIO S. UY, doing business under the name and style EDISON DEVELOPMENT &CONSTRUCTION, Petitioner,vs.PUBLIC ESTATES AUTHORITY and the HONORABLE COURT OF APPEALS, Respondents.

D E C I S I O N

NACHURA, J .:

Petitioner Elpidio S. Uy (Uy) appeals by certiorari the Joint Decision 1 dated September 25, 2000 and theJoint Resolutio n2dated April 25, 2001 of the Court of Appeals (CA) in the consolidated cases CA-G.R. SPNos. 59308 and 59849.

Respondent Public Estates Authority (PEA) was designated as project manager by the Bases ConversionDevelopment Authority (BCDA), primarily tasked to develop its 105-hectare demilitarized lot in FortBonifacio, Taguig City into a first-class memorial park to be known as Heritage Park. PEA then engagedthe services of Makati Development Corporation (MDC) to undertake the horizontal works on the project;and Uy, doing business under the name and style Edison Development and Construction (EDC), to dothe landscaping.






















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For a contract price of Three Hundred Fifty-Five Million Eighty Thousand One Hundred Forty-One and15/100 Pesos (P355,080,141.15), PEA and EDC signed the Landscaping and Construction

Agreemen t3 on November 20, 1996. EDC undertook to complete the landscaping works in four hundredfifty (450) days commencing on the date of receipt of the notice to proceed.

EDC received the notice to proceed on December 3, 1996 ;4 and three (3) days after, or on December 6,

1996 ,5

it commenced the mobilization of the equipment and manpower needed for the project. PEA,however, could not deliver any work area to EDC because the horizontal works of MDC were stillongoing. EDC commenced the landscaping works only on January 7, 1997 when PEA finally made aninitial delivery of a work area.

PEA continuously incurred delay in the turnover of work areas. Resultantly, the contract period of 450days was extended to 693 days. PEA also failed to turn over the entire 105-hectare work area due to thepresence of squatters. Thus, on March 15, 1999, the PEA Project Management Office (PEA-PMO) issuedChange Order No. 2-LC ,6 excluding from the contract the 45-square-meter portion of the park occupiedby squatters.

In view of the delay in the delivery of work area, EDC claimed additional cost from the PEA-PMOamounting toP181,338,056.30. Specifically, Uy alleged that he incurred additional rental costs for the

equipment, which were kept on standby, and labor costs for the idle manpower. He added that the delayby PEA caused the topsoil at the original supplier to be depleted; thus, he was compelled to obtain thetopsoil from a farther source, thereby incurring extra costs. He also claims that he had to mobilize watertrucks for the plants and trees which had already been delivered to the site. Furthermore, it becamenecessary to construct a nursery shade to protect and preserve the young plants and trees prior to actualtransplanting to the landscaped area. The PEA- PMO evaluated the EDC’s claim and arrived at a lesseramount ofP146,484,910 .7 The evaluation of PEA-PMO was then referred to the Heritage Park ExecutiveCommittee (ExCom) for approval.

On November 12, 1999, the Performance Audit Committee (PAC) reviewed the progress report submittedby the works engineer and noted that the EDC’s landscaping works were behind schedule by twentypercent (20%). The PAC considered this delay unreasonable and intolerable, and immediatelyrecommended to BCDA the termination of the landscaping contract .8 The BCDA adopted PAC’s

recommendation and demanded from PEA the termination of the contract with EDC. In compliance, PEAterminated the agreement on November 29, 1999.

PEA fully paid all the progress billings up to August 26, 1999, but it did not heed EDC’s additional claims.Consequently, Uy filed a Complain t9 with the Construction Industry Arbitration Commission (CIAC),docketed as CIAC Case No. 02-2000.

On May 16, 2000, the CIAC rendered a Decision ,10 the dispositive portion of which reads:

WHEREFORE , Judgment is hereby rendered in favor of the [Petitioner] Contractor ELPIDIO S.UY and Award is hereby made on its monetary claims as follows:

Respondent PUBLIC ESTATES AUTHORITY is directed to pay the [petitioner] the following amounts:

P19,604,132.06 --- for the cost of idle time of equipment.

2,275,721.00 --- for the cost of idled manpower.

6,050,165.05 --- for the construction of the nursery shade net area.

605,016.50 --- for attorney’s fees.

































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Interest on the amount of P6,050,165.05 as cost for the construction of the nursery shade net area shallbe paid at the rate of 6% per annum from the date the Complaint was filed on 12 January 2000. Intereston the total amount of P21,879,853.06 for the cost of idled manpower and equipment shall be paid at thesame rate of 6% per annum from the date this Decision is promulgated. After finality of this Decision,interest at the rate of 12% per annum shall be paid on the total of these 3 awards amountingto P27,930,018.11 until full payment of the awarded amount shall have been made, "this interim periodbeing deemed to be at that time already a forbearance of credit" (Eastern Shipping Lines, Inc. v. Court of

Appeals, et al., 243 SCRA 78 [1994]; Keng Hua Paper Products Co., Inc. v. Court of Appeals, 286 SCRA257 [1998]; Crismina Garments, Inc. v. Court of Appeals, G.R. No. 128721, March 9, 1999).

SO ORDERED .11

Uy received the CIAC decision on June 7, 2000. On June 16, 2000, Uy filed a motion for correction ofcomputation ,12f ollowed by an amended motion for correction of computation ,13 on July 21, 2000. TheCIAC, however, failed to resolve Uy’s motion and amended motion within the 30 -day period as providedin its rules, and Uy considered it as denial of the motion.

Hence, on July 24, 2000, Uy filed a petition for review 14 with the CA, docketed as CA-G.R. SP No. 59849.Uy’s petition was consolidated with CA-G.R. SP No. 59308, the earlier petition filed by PEA, assailing the

same CIAC decision.

On August 1, 2000, the CIAC issued an Orde r 15 denying Uy’s motio n for correction of computation.

On September 25, 2000, the CA rendered the now assailed Joint Decision dismissing both petitions onboth technical and substantive grounds. PEA’s petition was dismissed because the verification thereofwas defective. Uy’s p etition, on the other hand, was dismissed upon a finding that it was belatedly filed.Further, the CA found no sufficient basis to warrant the reversal of the CIAC ruling, which it held is basedon clear provisions of the contract, the evidence on record and relevant law and jurisprudence.

The CA disposed thus:

WHEREFORE, premises considered, the petitions in CA-G.R. SP No. 59308, entitled " Public Esta tesAuthor i ty v. E lp id io S . Uy, do ing bus iness u nde r the name and s ty le o f Edison [D]eve lopm ent &Cons t ruc t ion ," and CA-G.R. SP No. 59849, " Elp id io S . Uy, do ing bu s iness unde r the name and s ty leof Edison [D]eve lopment & Cons t ruc t ion v . Publ ic Es tate s Author i ty ," are both hereby DENIED DUECOURSE and accordingly DISMISSED, for lack of merit.

Consequently, the Award/Decision issued by the Construction Industry Arbitration Commission on May16, 2000 in CIAC Case No. 02-2000, entitled " Elp id io S . Uy, do ing bu s iness unde r the name and s ty leof Edison [D]eve lopment & Cons t ruc t ion v . Publ ic Es tate s Author i ty ," is hereby AFFIRMED in toto.


SO ORDERED .16

PEA and Uy filed motions for reconsideration. Subsequently, PEA filed with the CA an Urgent Motion forIssuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction ,17 seeking to enjoin theCIAC from proceeding with CIAC Case No. 03-2001, which Uy had subsequently filed. PEA alleged thatthe case involved claims arising from the same Landscaping and Construction Agreement, subject of thecases pending with the CA.

On April 25, 2001, the CA issued the assailed Joint Resolution, thus:




























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WHEREFORE, the present Motion/s for Reconsideration in CA-G.R. SP No. 59308 and CA-G.R. SP No.59849 are hereby both DENIED, for lack of merit.

Accordingly, let an injunction issue permanently enjoining the Construction Industry ArbitrationCommission from proceeding with CIAC CASE NO. 03-2001, entitled ELPIDIO S. UY, doing bus inessund er the name and s tyle of EDISON DEVELOPMENT &

CONSTRUCTION v. PUBL IC ESTATES AUTHORITY and/or HONORABL E CARLOS P. DOBLE .

SO ORDERED .18

PEA and Uy then came to us with their respective petitions for review assailing the CA ruling. PEA’spetition was docketed as G.R. Nos. 147933-34, while that of Uy was docketed as G.R. Nos. 147925-26.The petitions, however, were not consolidated.

On December 12, 2001, this Court resolved G.R. Nos. 147933-34 in this wise:

WHEREFORE, in view of the foregoing, the petition for review is DENIED. The Motion to Consolidate thispetition with G.R. No. 147925-26 is also DENIED.

SO ORDERED .19

Thus, what remains for us to resolve is Uy’s petition, raising the following issues:

I

WHETHER OR NOT RESPONDENT COURT OF APPEALS HAS DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS IN DISMISSING PETITIONERUY’S PETITION IN CA -G.R. SP NO. 59849 ON THE ALLEGED GROUND OF NON-COMPLIANCEWITH THE REGLEMENTARY PERIOD IN FILING AN APPEAL

II

WHETHER OR NOT THE RESPONDENT COURT OF APPEALS, IN AFFIRMING THE DECISIONOF THE CIAC ARBITRAL TRIBUNAL INSOFAR AS IT DENIED CERTAIN CLAIMS OFPETITIONER UY, HAS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORDANCE WITHLAW AND THE APPLICABLE DECISIONS OF THE HONORABLE COURT

III

WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED WITHOUT OR INEXCESS OF ITS JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION AMOUNTING TOLACK OR EXCESS OF JURISDICTION WHEN IT ENJOINED THE PROCEEDINGS IN CIAC CASENO. 03-2001 IN ITS JOINT RESOLUTION DATED 25 APRIL 2000, WHICH CASE IS TOTALLYDIFFERENT FROM THE CASE A QUO 20

We will deal first with the procedural issue.

Appeals from judgment of the CIAC shall be taken to the CA by filing a petition for review within fifteen(15) days from the receipt of the notice of award, judgment, final order or resolution, or from the date of itslast publication if publication is required by law for its effectivity, or of the denial of petitioner’s motion fornew trial or reconsideration duly filed in accordance with the governing law of the court or agency a quo .21
















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Admittedly, Uy received the CIAC decision on June 7, 2000; that instead of filing a verified petition forreview with the CA, Uy filed a motion for correction of computation on June 16, 2000, pursuant to Section9, Article XV of the Rules of Procedure Governing Construction Arbitration:

Section 9. Motion for Reconsideration. – As a matter of policy, no motion for reconsideration shall beallowed. Any of the parties may, however, file a motion for correction within fifteen (15) days from receipt

of the award upon any of the following grounds:

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 propertyreferred to in the award.

The filing of the motion for correction shall interrupt the running of the period for appeal.

With the filing of the motion for correction, the running of the period to appeal was effectively interrupted.

CIAC was supposed to resolve the motion for correction of computation within 30 days from the time the

comment or opposition thereto was submitted. In Uy’s case, no resolution was issued despite the lapse ofthe 30-day period, and Uy considered it as a denial of his motion. Accordingly, he elevated his case to theCA on July 24, 2000. But not long thereafter, or on August 1, 2000, the CIAC issued an Orde r 22 denyingthe motion for correction of computation.

Obviously, when Uy filed his petition for review with the CA, the period to appeal had not yet lapsed; itwas interrupted by the pendency of his motion for computation. There is no basis, therefore, to concludethat the petition was belatedly filed.

The foregoing notwithstanding, inasmuch as the CA resolved the petition on the merits, we now confrontthe substantive issue – the propriety of the CA’s affirmance of the CIAC decision.

Uy cries foul on the award granted by CIAC, and affirmed by the CA. He posits that PEA already admittedits liability, pegged at P146,484,910.10, in its memorandum dated January 6, 2000. Thus, he faults theCA for awarding a lesser amount.

We meticulously reviewed the records before us and failed to discern any admission of liability on the partof PEA.

The PEA-PMO evaluation dated January 6, 2000 ,23 where PEA allegedly admitted its liability, reads in full:

M E M O R A N D U M

For : Mr. Jaime R. MillanProject ManagerHeritage Park Project

Subject: EDC’s Various Claim Landscape Development Works

Revision shall be made on our evaluation dated 28 December 1999 concerning various claims ofcontractor EDC-Landscape Development Works (Package IV), particularly on the claim on ProjectEquipment on Standby (item a of the earlier evaluation).









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Reference to item 4 of the Terms and Conditions of 1998 ACEL Rate Equipment Guidebook, theCMO inadvertently did not consider are the wages and salaries of standby operator/drivercorresponding to the equipment standby being claimed.

Thus, the corresponding gross amount to be incorporated shall be P4,925,600.00 computed basedon the total man-months of each standby equipment being claimed.

A tabulation of the claims is shown hereinbelow:

Nature of Claim EDC Claim Works

EngineerEvaluation

PMOEvaluation

a. ProjectEquipmenton Standby

P95,740,834.30 67,422,840.40 81,851,396.08

EquipmentOperator/Driver

4,925,600.00

b. Manpower onStandby

28,165,022.00 2,275,721.00 2,275,721.00

c. Topsoil Add’lHaulingDistance

37,780,200.00 37,780,200.00 37,780,200.00

d. Water TruckOperating Cost

19,652,000.00 15,467,800.00 19,652,000.00

Total P181,338,056.30 122,946,561.40 146,484,917.[08]

Further, it is being specified that the PMO maintains the earlier notes of the CMO in its memo of 18October 1999 and that legal interpretations on each item of claims is likewise enjoined.

Attached are pertinent documents for your review and reference

(Sgd.)ROGELIO H. IGNACIO

PMO-B Asst.

(Sgd.)FLORO C. URCIAProject Manager

By no stretch of the imagination can we consider this memorandum an admission of liability on the part ofPEA. First, nowhere in the memorandum does it say that PEA is admitting its liability. The evaluationcontained in the above memorandum is merely a verification of the accuracy of EDC’s claims. As a matterof fact, the evaluation is still subject for review by the project manager, whose decision on the matterrequires the approval of the Heritage Park ExCom. Second, Messrs. Ignacio and Urcia had no legalauthority to make admissions on behalf of PEA. Thus, even assuming that the evaluation contained in the

memorandum was in the nature of an admission, the same cannot bind PEA. Third, Uy filed his complaintwith the CIAC be cause PEA did not act on EDC’s various claims. This supports our conclusion that PEAnever admitted, but on the contrary denied, whatever additional liabilities were claimed by Uy under thelandscaping contract.

Neither do we find any admission of liability on the part of PEA during the proceedings before the CIAC.What was admitted by PEA was that PMO evaluated the claim at the lesser amount of P146,484,910(Exh. "S") .24 The admission of the evaluation made by PEA cannot translate to an admission of liability.There is simply no basis for Uy to claim that PEA had admitted its liability.





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Uy is entitled to the cost of idle time for equipment by reason of the delay incurred in the delivery of workareas.

The period of owner-caused delay was 546 days or 18.2 months. The rate given by the Association ofCarriers and Equipment Lessors (ACEL), Inc., and which was also used as basis by CIAC in granting thecosts for equipment on standby, was P1,982,271.60 per month of delay. Considering that PEA was in

delay for 564 days or 18.2 months, Uy is entitled to an additional award of P36,076,360.32. Accordingly,he is entitled to an aggregate amount of P55,680,492.38 for the equipment rentals on standby.

As to the awards of P2,275,721.00, for the cost of idle manpower, and P6,050,165.05, for theconstruction of the nursery shade net area, we find no reason to disturb the same, as Uy never raised thisissue in his petition.

Next, we resolve Uy’s claims for costs for additional hauling distance of topsoil and for mobilization ofwater truck.

The approved hauling cost of topsoil was only P12.00/kilometer or P120.00 for the 10 kms originalsource. Uy, however, claims that due to the delay in delivery of work areas, the original source becamedepleted; hence, he was constrained to haul topsoil from another source located at a much fartherdistance of 40 kms. Uy insists that the exhaustion of topsoil at the original source was solely attributableto the delay in the turnover of the project site. Thus, he claims from PEA the increased cost of topsoilamounting to P37,780,200.00.

Article 1724 of the Civil Code provides:

ART. 1724. The contractor who undertakes to build a structure or any other work for a stipulated price, inconformity with plans and specifications agreed upon with the land-owner, can neither withdraw from thecontract nor demand an increase in the price on account of the higher cost of labor or materials, savewhen there has been a change in the plans and specifications, provided:

(1) Such change has been authorized by the proprietor in writing; and

(2) The additional price to be paid to the contractor has been determined in writing by bothparties.

By this article, a written authorization from the owner is required before the contractor can validly recoverhis claim. The evident purpose of the provision is to avoid litigation for added costs incurred by reason ofadditions or changes in the original plan. Undoubtedly, it was adopted to serve as a safeguard or asubstantive condition precedent to recovery .28

This provision is echoed in the Landscaping Contract, viz.:

ARTICLE IXCHANGE OF WORK

x x x x

9.3. Under no circumstances shall PEA be held liable for the payment of change of work undertakenwithout the written approval of the PEA General Manager x x x.

ARTICLE XEXTRA WORK





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x x x x

10.3. Under no circumstances shall PEA be held liable for the payment of extra work undertaken withoutthe written approval of the PEA General Manager to perform the said work .29

Admitte dly, EDC did not secure the required written approval of PEA’s general manager before obtaining

the topsoil from a farther source. As pointed out by the CIAC:

There is no change order authorizing payment for the increased cost upon which this claim is based.There is, therefore, no legal right based upon contract (the landscaping agreement or a change order)that would impose such a liability upon [PEA]. In a lump sum contract, as that entered into by the parties,the matter of how the contractor had made [a] computation to arrive at [a] bid that he submits iscompletely irrelevant. The contract amount of delivered topsoil is P780.00 per truckload of 5.5 cubicmeters sourced from a distance of [10] km. or 100 [meters]. There is nothing in Exhibit "L" or in thelandscaping contract (Exhibit "A") that would indicate an agreement of [PEA] to pay for the increase inhauling cost if the source of topsoil exceeds 10 kilometers. Corollarily, there is also nothing therein toshow that [PEA] would also be entitled to decrease said costs by paying less if the distance would havebeen less than 10 kilometers. Had there been such a counterpart provision, there might have been morearguable claim for [Uy]. Unfortunately, no such provision exists .30

In Powton Conglomerate, Inc. v. Agcolicol ,31 we emphasized:

The written consent of the owner to the increased costs sought by the respondent is not a mere formalrequisite, but a vital precondition to the validity of a subsequent contract authorizing a higher or additionalcontract price. Moreover, the safeguards enshrined in the provisions of Article 1724 are not only intendedto obviate future misunderstandings but also to give the parties a chance to decide whether to bind one’sself to or withdraw from a contract.

By proceeding to obtain topsoil up to a 40-kilometer radius without written approval from the PEA generalmanager, Uy cannot claim the additional cost he incurred.

Uy further claims P19,625,000.00 for cost of mobilization of water trucks. He asserts that PEA completelyfailed to provide the generator sets necessary to undertake the watering and/or irrigation works for thelandscaping and construction activities .32

Uy, however, admitted that MDC had already installed a deep well in the project site, and EDC used it inits landscaping and construction activities .33 Under the contract, the operational costs of the deep welland its appurtenant accessories, including the generator sets, shall be borne by EDC:

The CONTRACTOR shall shoulder all cost of electricity, maintenance, repairs, replacement of parts,when needed, and all costs of operation of the deepwell/s, and its appurtenant accessories, i.e. generatorsets, etc. (which are already existing at the project site, constructed by another Contractor) while suchdeepwell/s are being used by CONTRACTOR herein for its landscaping and construction activities. These[deepwells] shall be turned over to PEA by CONTRACTOR in good operating/usable condition as when it

was first used by CONTRACTOR .34

Thus, Uy cannot claim additional cost for providing generator sets.

Uy also attempts to justify his claim for cost of mobilization of water trucks by alleging that the water fromthe deep well provided by MDC and PEA was grossly insufficient to undertake the watering works for theproject; hence, he was constrained to mobilize water trucks to save the plants from dying.

























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Indisputably, Uy mobilized water trucks for the landscaping projects and, certainly, incurred additionalcosts. But like his claim for additional cost of topsoil, such additional expenses were incurred without priorwritten approval of PEA’s general manager. Thus, he cannot claim payment for such cost from PEA.

As aptly said by the CIAC:

Since [Uy] had presumably intended all along to charge [PEA] for the water truck operating costs,considering the very substantial amount of his claim, the prudence that he presumably has, as anexperienced general contractor of the highest triple A category, should have dictated that he negotiatewith the [PEA] for a change order or an extra work order before continuing to spend the huge amountsthat he claims to have spent. [Uy] did just that in relation to his much smaller claim for the construction ofthe nursery shade x x x. He, however, made no effort to negotiate with the PEA for a similar change orderor extra work order to safeguard his even bigger additional costs to operate the water trucks. Noexplanation was offered for such a mystifying differential treatment. He cannot, therefore, pass on withoutany contractual basis, such additional costs to the [PEA].

Neither can we hold PEA liable based on solutio indebiti, the legal maxim that no one should enrich itselfat the expense of another. As we explained in Powton Conglomerate, Inc. v. Agcolicol ,35

the principle of unjust enrichment cannot be validly invoked by the respondent who, through his own actor omission, took the risk of being denied payment for additional costs by not giving the petitioners priornotice of such costs and/or by not securing their written consent thereto, as required by law and theircontract. 1avvphi1

Uy cannot, therefore, claim from PEA the costs of the additional hauling distance of topsoil, and of themobilization of water trucks.

Uy also as sails the grant of attorney’s fees equivalent to 10% of the total amount due. Citing paragraph24.4 of the Landscaping and Construction Agreement, Uy asserts entitlement to attorney’s fees of twentypercent (20%) of the total amount claimed. He ascribes error to the CIAC and the CA for reducing thestipulated attorney’s fees from 20% to 10% of the total amount due.

Paragraph 24.4 of the agreement provides:

Should the PEA be constrained to resort to judicial or quasi-judicial relief to enforce or safeguard its rightsand interests under this Agreement, the CONTRACTOR if found by the court or [the] quasi-judicial body,as the case [may be], to have been at fault, shall be liable to PEA for attorney’s fees in an amountequivalent to twenty percent (20%) of the total [amount] claimed in the complaint, exclusive of [any]damages and costs of suit .36

Clearly, the cited provision cannot support Uy’s insistence. Paragraph 24.4 on stipulated attorney’s fees isapplicable only in complaints filed by PEA against the contractor. The provision is silent on the amount ofattorney’s fees that can be recovered from PEA.

Besides, even assuming that Paragraph 24.4 is applicable, the amount of attorney’s fees may be reducedif found to be iniquitous or unconscionable. Thus:

Articles 1229 and 2227 of the Civil Code empower the courts to reduce the penalty if it is iniquitous orunconscionable. The determination of whether the penalty is iniquitous or unconscionable is addressed tothe sound discretion of the court and depends on several factors such as the type, extent, and purpose ofthe penalty, the nature of the obligation, the mode of breach and its consequences .37













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As we held in Villanueva v. Court of Appeals :40

A party, by varying the form or action or by bringing forward in a second case additional parties orarguments, cannot escape the effects of the principle of res judicata when the facts remain the same atleast where such new parties or matter could have been impleaded or pleaded in the prior action.

WHEREFORE, the petition is PARTIALLY GRANTED. The assailed Joint Decision and Joint Resolutionof the Court of Appeals in CA-G.R. SP Nos. 59308 and 59849 are AFFIRMED with MODIFICATIONS.Respondent Public Estates Authority is ordered to pay Elpidio S. Uy, doing business under the name andstyle Edison Development and Construction,P55,680,492.38 for equipment rentals onstandby; P2,275,721.00 for the cost of idle manpower; and P6,050,165.05 for the construction of thenursery shade net area; plus interest at 6% per annum to be computed from the date of the filing of thecomplaint until finality of this Decision and 12% per annum thereafter until full payment. Respondent PEAis further ordered to pay petitioner Uy 10% of the total award as attorney’s fe es.

SO ORDERED.


G.R. Nos. 180880-81 September 25, 2009

KEPPEL CEBU SHIPYARD, INC., Petitioner,vs.PIONEER INSURANCE AND SURETY CORPORATION, Respondent.

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

G.R. Nos. 180896-97

PIONEER INSURANCE AND SURETY CORPORATION, Petitioner,vs.KEPPEL CEBU SHIPYARD, INC., Respondent.

D E C I S I O N

NACHURA, J .:

Before us are the consolidated petitions filed by the parties —Pioneer Insurance and SuretyCorporation 1 (Pioneer) and Keppel Cebu Shipyard, Inc .2 (KCSI)—to review on certiorari theDecision 3 dated December 17, 2004 and the Amended Decisio n4 dated December 20, 2007 of the Courtof Appeals (CA) in CA-G.R. SP Nos. 74018 and 73934.

On January 26, 2000, KCSI and WG&A Jebsens Shipmanagement, Inc. (WG&A) executed a Shiprepair Agreemen t5wherein KCSI would renovate and reconstruct WG&A’s M/V "Superferry 3" using its drydocking facilities pursuant to its restrictive safety and security rules and regulations. Prior to the executionof the Shiprepair Agreement, "Superferry 3" was already insured by WG&A with Pioneer forUS$8,472,581.78. The Shiprepair Agreement reads —

SHIPREPAIR AGREEMENT 6

Company: WG & A JEBSENS SHIPMANAGEMENT INC.




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Address: Harbour Center II, Railroad & Chicago Sts.Port Area, City of Manila

We, WG & A JEBSENS SHIPMGMT. Owner/Operator of M/V "SUPERFERRY 3" and KEPPELCEBU SHIPYARD, INC. (KCSI) enter into an agreement that the Drydocking and Repair of theabove- named vessel ordered by the Owner’s Authorized Representative shall be carried out underthe Keppel Cebu Shipyard Standard Conditions of Contract for Shiprepair, guidelines andregulations on safety and security issued by Keppel Cebu Shipyard. In addition, the following aremutually agreed upon by the parties:

1. The Owner shall inform its insurer of Clause 20 7 and 22 (a )8 (refer at the backhereof) and shall include Keppel Cebu Shipyard as a co-assured in its insurancepolicy.

2. The Owner shall waive its right to claim for any loss of profit or loss of use ordamages consequential on such loss of use resulting from the delay in the redeliveryof the above vessel.

3. Owner’s sub -contractors or workers are not permitted to work in the yard withoutthe written approval of the Vice President – Operations.

4. In consideration of Keppel Cebu Shipyard allowing Owner to carry out own repairsonboard the vessel, the Owner shall indemnify and hold Keppel Cebu Shipyardharmless from any or all claims, damages, or liabilities arising from death or bodilyinjur ies to Owner’s workers, or damages to the vessel or other property howevercaused.

5. On arrival, the Owner Representative, Captain, Chief Officer and Chief Engineerwill be invited to attend a conference with our Production, Safety and Securitypersonnel whereby they will be briefed on, and given copies of Shipyard safety

regulations.

6. An adequate number of officers and crew must remain on board at all times toensure the safety of the vessel and compliance of safety regulations by crew andowner employed workmen.

7. The ship’s officers/crew or owner appointed security personnel shall maintainwatch against pilferage and acts of sabotage.

8. The yard must be informed and instructed to provide the necessary securityarrangement coverage should there be inadequate or no crew on board to providethe expressed safety and security enforcement.

9. The Owner shall be liable to Keppel Cebu Shipyard for any death and/or bodilyinjuries for the [K]eppel Cebu Shipyard’s employees and/or contract workers; theftand/or damages to Keppel Cebu Shipyard’s properties and other liabilities which arecaused by the workers of the Owner.

10. The invoice shall be based on quotation reference 99-KCSI-211 dated December20, 1999 tariff dated March 15, 1998.








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WILLIAM, GOTHONG & ABOITIZ, INC.&/OR ABOITIZ SHIPPING CORP.By:

(Signed) ______________________________________

Witnesses:

(Signed) ______________________________________

(Signed) ______________________________________

Armed with the subrogation receipt, Pioneer tried to collect from KCSI, but the latter denied anyresponsibility for the loss of the subject vessel. As KCSI continuously refused to pay despite repeateddemands, Pioneer, on August 7, 2000, filed a Request for Arbitration before the Construction Industry

Arbitration Commission (CIAC) docketed as CIAC Case No. 21-2000, seeking the following reliefs:

1. To pay to the claimant Pioneer Insurance and Surety Corporation the sum ofU.S.$8,472,581.78 or its equivalent amount in Philippine Currency, plus interest thereoncomputed from the date of the "Loss and Subrogation Receipt" on 16 June 2000 or from thedate of filing of [the] "Request for Arbitration," as may be found proper;

2. To pay to claimant WG&A, INC. and/or Aboitiz Shipping Corporation and WG&A JebsensShipmanagement, Inc. the sum of P500,000,000.00 plus interest thereon from the date offiling [of the] "Request for Arbitration" or date of the arbitral award, as may be found proper;

3. To pay to the claimants herein the sum of P 3,000,000.00 for and as attorney’s fees; plusother damages as may be established during the proceedings, including arbitration fees and

other litigation expenses, and the costs of suit.

It is likewise further prayed that Clauses 1 and 2 on the unsigned page 1 of the "Shiprepair Agreement"(Annex "A") as well as the hardly legible Clauses 20 and 22 (a) and other similar clauses printed in veryfine print on the unsigned dorsal page thereof, be all declared illegal and void ab initio and without anylegal effect whatsoever .10

KCSI and WG&A reached an amicable settlement, leading the latter to file a Notice of Withdrawal ofClaim on April 17, 2001 with the CIAC. The CIAC granted the withdrawal on October 22, 2001, therebydismissing the claim of WG&A against KCSI. Hence, the arbitration proceeded with Pioneer as theremaining claimant.

In the course of the proceedings, Pioneer and KCSI stipulated, among others, that: (1) on January 26,2000, M/V "Superferry 3" arrived at KCSI in Lapu-Lapu City, Cebu, for dry docking and repairs; (2) on thesame date, WG&A signed a ship repair agreement with KCSI; and (3) a fire broke out on board M/V"Superferry 3" on Febr uary 8, 2000, while still dry docked in KCSI’s shipyard .11

As regards the disputed facts, below are the respective positions of the parties, viz.:

Pioneer’s The ory of the Case:









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First, Pioneer (as Claimant) is the real party in interest in this case and that Pioneer has been subrogatedto the claim of its assured. The Claimant claims that it has the preponderance of evidence over that of theRespondent. Claimant cited documentary references on the Statutory Source of the Principle ofSubrogation. Claimant then proceeded to explain that the Right of Subrogation:

Is by Operation of Law

exists in Property Insuranceis not Dependent Upon Privity of Contract.

Claimant then argued that Payment Operates as Equitable Assignment of Rights to Insurer and that theRight of Subrogation Entitles Insurer to Recover from the Liable Party.

Second, Respondent Keppel had custody of and control over the M/V "Superferry 3" while said vesselwas in Respondent Keppel’s premises. In its Draft Decision, Claimant stated:

A. The evidence presented during the hearings indubitably proves that respondent not onlytook custody but assumed responsibility and control over M/V Superferry 3 in carrying outthe dry-docking and repair of the vessel.

B. The presence on board the M/V Superferry 3 of its officers and crew does not relieve therespondent of its responsibility for said vessel.

C. Respondent Keppel assumed responsibility over M/V Superferry 3 when it brought thevessel inside its graving dock and applied its own safety rules to the dry-docking and repairsof the vessel.

D. The practice of allowing a shipowner and its sub-contractors to perform maintenanceworks while the vessel was within respondent’s premises does not detract from the fact thatcontrol and custody over M/V Superferry 3 was transferred to the yard.

From the preceding statements, Claimant claims that Keppel is clearly liable for the loss of M/VSuperferry 3.

Third, the Vesse l’s Safety Manual cannot be relied upon as proof of the Master’s continuing control overthe vessel.

Fourth, the Respondent Yard is liable under the Doctrine of Res Ipsa Loquitur. According to Claimant, theYard is liable under the ruling laid down by the Supreme Court in the "Manila City" case. Claimant assertsthat said ruling is applicable hereto as The Law of the Case.

Fifth, the liability of Respondent does not arise merely from the application of the Doctrine of Res IpsaLoquitur, but from its negligence in this case.

Sixth, the Respondent Yard was the employer responsible for the negligent acts of the welder. Accordingto Claimant;

In contemplation of law, Sevillejo was not a loaned servant/employee. The yard, being his employer, issolely and exclusively liable for his negligent acts. Claimant proceeded to enumerate its reasons:

A. The "Control Test" – The yard exercised control over Sevillejo. The power of control is notdiminished by the failure to exercise control.

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B. There was no independent work contract between Joniga and Sevillejo – Joniga was notthe employer of Sevillejo, as Sevillejo remained an employee of the yard at the time the lossoccurred.

C. The mere fact that Dr. Joniga requested Sevillejo to perform some of the Owner’s hotworks under the 26 January 2000 work order did not make Dr. Joniga the employer of

Sevillejo.

Claimant proffers that Dr. Joniga was not a Contractor of the Hot Work Done on Deck A. Claimant arguedthat:

A. The yard, not Dr. Joniga, gave the welders their marching orders, and

B. Dr. Joniga’s authority to request the execution of owner’s hot works in the passengerareas was expressly recognized by the Yard Project Superintendent Orcullo.

Seventh, the shipowner had no legal duty to apply for a hotworks permit since it was not required by theyard, and the owner’s hotworks were conducted by welders who remained employees of the yard.

Claimant contends that the need, if any, for an owner’s application for a hot work permit was canceled outby the yard’s actual knowledge of Sevillejo’s whereabouts and the fact that he was in deck A doingowner’s hotworks.

Eight[h], in supplying welders and equipment as per The Work Order Dated 26 January 2000, the Yarddid so at its own risk, and acted as a Less Than Prudent Ship Repairer. 1avvphi1

The Claimant then disputed the statements of Manuel Amagsila by claiming that Amagsila was adisgruntled employee. Nevertheless, Claimant claims that Amagsila affirmed that the five yard weldersnever became employees of the owner so as to obligate the latter to be responsible for their conduct andperformance.

Claimant enumerated further badges of yard negligence.

According to Claimant:

A. Yard’s water supply was inadequate.

B. Yard Fire Fighting Efforts and Equipment Were Inadequate.

C. Yard Safety Practices and Procedures Were Unsafe or Inadequate.

D. Yard Safety Assistants and Firewatch-Men were Overworked.

Finally, Claimant disputed the theories propounded by the Respondent (The Yard). Claimant presentedits case against:

(i) Non-removal of the life jackets theory.

(ii) Hole-in-the[-]floor theory.

(iii) Need for a plan theory.

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(iv) The unauthorized hot works theory.

(v) The Marina report theory.

The Claimant called the attention of the Tribunal (CIAC) on the non-appearance of the welder involved inthe cause of the fire, Mr. Severino Sevillejo. Claimant claims that this is suppression of evidence byRespondent.

KCSI’s Theory of the Case

1. The Claimant has no standing to file the Request for Arbitration and the Tribunal has no jurisdiction over the case:

(a) There is no valid arbitration agreement between the Yard and the Vessel Owner.On January 26, 2000, when the ship repair agreement (which includes the arbitrationagreement) was signed by WG&A Jebsens on behalf of the Vessel, the same wasstill owned by Aboitiz Shipping. Consequently, when another firm, WG&A, authorizedWG&A Jebsens to manage the MV Superferry 3, it had no authority to do so. There

is, as a result, no binding arbitration agreement between the Vessel Owner and theYard to which the Claimant can claim to be subrogated and which can support CIAC jurisdiction.

(b) The Claimant is not a real party in interest and has no standing because it has notbeen subrogated to the Vessel Owner. For the reason stated above, the insurancepolicies on which the Claimant bases its right of subrogation were not validlyobtained. In any event, the Claimant has not been subrogated to any rights which theVessel may have against the Yard because:

i. The Claimant has not proved payment of the proceeds of the policies toany specific party. As a consequence, it has also not proved payment to theVessel Owner.

ii. The Claimant had no legally demandable obligation to pay under thepolicies and did so only voluntarily. Under the policies, the Claimant and theVessel agreed that there is no Constructive Total Loss "unless the expenseof recovering and repairing the vessel would exceed the Agreed Value"ofP360 million assigned by the parties to the Vessel, a threshold which theactual repair cost for the Vessel did not reach. Since the Claimant opted topay contrary to the provisions of the policies, its payment was voluntary, andthere was no resulting subrogation to the Vessel.

iii. There was also no subrogation under Article 1236 of the Civil Code. First,if the Claimant asserts a right of payment only by virtue of Article 1236, thenthere is no legal subrogation under Article 2207 and it does not succeed tothe Vessel’s rights under the Ship [R]epair Agreement and the arbitrationagreement. It does not have a right to demand arbitration and will have only apurely civil law claim for reimbursement to the extent that its paymentbenefited the Yard which should be filed in court. Second, since the Yard isnot liable for the fire and the resulting damage to the Vessel, then it derivedno benefit from the Claimant’s payment to the Vessel Owner. Third, in anyevent, the Claimant has not proved payment of the proceeds to the VesselOwner.

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2. The Ship [R]epair Agreement was not imposed upon the Vessel. The Vessel knowinglyand voluntarily accepted that agreement. Moreover, there are no signing or other formaldefects that can invalidate the agreement.

3. The proximate cause of the fire and damage to the Vessel was not any negligencecommitted by Angelino Sevillejo in cutting the bulkhead door or any other shortcoming by the

Yard. On the contrary, the proximate cause of the fire was Dr. Joniga’s and the Vessel’sdeliberate decision to have Angelino Sevillejo undertake cutting work in inherently dangerousconditions created by them.

(a) The Claimant’s material witnesses lied on the record and the Claimant presentedno credible proof of any negligence by Angelino Sevillejo.

(b) Uncontroverted evidence proved that Dr. Joniga neglected or decided not toobtain a hot work permit for the bulkhead cutting and also neglected or refused tohave the ceiling and the flammable lifejackets removed from underneath the areawhere he instructed Angelino Sevillejo to cut the bulkhead door. These decisions oroversights guaranteed that the cutting would be done in extremely hazardous

conditions and were the proximate cause of the fire and the resulting damage to theVessel.

(c) The Yard’s expert witness, Dr. Eric Mullen gave the only credible account of thecause and the mechanics of ignition of the fire. He established that: i) the fire startedwhen the cutting of the bulkhead door resulted in sparks or hot molten slag which fellthrough pre-existing holes on the deck floor and came into contact with and ignitedthe flammable lifejackets stored in the ceiling void directly below; and ii) the bottomlevel of the bulkhead door was immaterial, because the sparks and slag could havecome from the cutting of any of the sides of the door. Consequently, the cutting itselfof the bulkhead door under the hazardous conditions created by Dr. Joniga, ratherthan the positioning of the door’s bottom edge, was the proximate cause of the fire.

(d) The Manila City case is irrelevant to this dispute and in any case, does notestablish governing precedent to the effect that when a ship is damaged in dry dock,the shipyard is presumed at fault. Apart from the differences in the factual setting ofthe two cases, the Manila City pronouncements regarding the res ipsa loquiturdoctrine are obiter dicta without value as binding precedent. Furthermore, even if theprinciple were applied to create a presumption of negligence by the Yard, however,that presumption is conclusively rebutted by the evidence on record.

(e) The Vessel’s deliberate acts and its negligence create d the inherently hazardousconditions in which the cutting work that could otherwise be done safely ended upcausing a fire and the damage to the Vessel. The fire was a direct and logicalconsequence of the Vessel’s decisions to: (1) take Angelino Sevillej o away from his

welding work at the Promenade Deck restaurant and instead to require him to dounauthorized cutting work in Deck A; and (2) to have him do that without satisfyingthe requirements for and obtaining a hot work permit in violation of the Yard ’s SafetyRules and without removing the flammable ceiling and life jackets below, contrary tothe requirements not only of the Yard’s Safety Rules but also of the demands ofstandard safe practice and the Vessel’s own explicit safety and hot work policies .

(f) The vessel has not presented any proof to show that the Yard was remiss in itsfire fighting preparations or in the actual conduct of fighting the 8 February 2000 fire.

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The Yard had the necessary equipment and trained personnel and employed allthose resources immediately and fully to putting out the 8 February 2000 fire.

4. Even assuming that Angelino Sevillejo cut the bulkhead door close to the deck floor, andthat this circumstance rather than the extremely hazardous conditions created by Dr. Jonigaand the Vessel for that activity caused the fire, the Yard may still not be held liable for the

resulting damage.

(a) The Yard’s only contractual obligation to the Vessel in respect of the 26 January2000 Work Order was to supply welders for the Promenade Deck restaurant whowould then perform welding work "per owner[‘s] instruction." Consequently, once ithad provided those welders, including Angelino Sevillejo, its obligation to the Vesselwas fully discharged and no claim for contractual breach, or for damages on accountthereof, may be raised against the Yard.

(b) The Yard is also not liable to the Vessel/Claimant on the basis of quasi-delict.

i. The Vessel exercised supervision and control over Angelino Sevillejo when

he was doing work at the Promenade Deck restaurant and especially whenhe was instructed by Dr. Joniga to cut the bulkhead door. Consequently, theVessel was the party with actual control over his tasks and is deemed histrue and effective employer for purposes of establishing Article 2180employer liability.

ii. Even assuming that the Yard was Angelino Sevillejo’s employer, the Yardmay nevertheless not be held liable under Article 2180 because AngelinoSevillejo was acting beyond the scope of his tasks assigned by the Yard(which was only to do welding for the Promenade Deck restaurant) when hecut the bulkhead door pursuant to instructions given by the Vessel.

iii. The Yard is nonetheless not liable under Article 2180 because it exerciseddue diligence in the selection and supervision of Angelino Sevillejo.

5. Assuming that the Yard is liable, it cannot be compelled to pay the full amount of P360million paid by the Claimant.

(a) Under the law, the Yard may not be held liable to the Claimant, as subrogee, foran amount greater than that which the Vessel could have recovered, even if theClaimant may have paid a higher amount under its policies. In turn, the right of theVessel to recover is limited to actual damage to the MV Superferry 3, at the time ofthe fire.

(b) Under the Ship [R]epair Agreement, the liability of the Yard is limited to P50million – a stipulation which, under the law and decisions of the Supreme Court, isvalid, binding and enforceable.

(c) The Vessel breached its obligation under Clause 22 (a) of the Yard’s StandardTerms to name the Yard as co-assured under the policies – a breach which makesthe Vessel liable for damages. This liability should in turn be set-off against theClaimant’s claim for damages.

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The Respondent listed what it believes the Claimant wanted to impress upon the Tribunal. Respondentenumerated and disputed these as follows:

1. Claimant’s counsel contends that the cutting of the bulkhead door was covered by the 26January 2000 Work Order.

2. Claimant’s counsel contends that Dr. Joniga told Gerry Orcullo about his intention to have Angelino Sevillejo do cutting work at the Deck A bulkhead on the morning of 8 February2000.

3. Claimant’s counsel contends that under Article 1727 of the Civil Code, "The contractor isresponsible for the work done by persons employed by him."

4. Claimant’s counsel contends that "[t]he second reason why there was no job spec or joborder for this cutting work, [is] the cutting work was known to the yard and coordinated withMr. Gerry Orcullo, the yard project superintendent."

5. Claimant’s counsel also contends, to make the Vessel’s unauthorized hot works activities

seem less likely, that they could easily be detected because Mr. Avelino Aves, the YardSafety Superintendent, admitted that "No hot works could really be hidden from the Yard,your Honors, because the welding cables and the gas hoses emanating from the dock willgive these hotworks away apart from the assertion and the fact that there were also safetyassistants supposedly going around the vessel."

Respondent disputed the above by presenting its own argument in its Final Memorandum .12

On October 28, 2002, the CIAC rendered its Decisio n13 declaring both WG&A and KCSI guilty ofnegligence, with the following findings and conclusions —

The Tribunal agrees that the contractual obligation of the Yard is to provide the welders and equipment tothe promenade deck. [The] Tribunal agrees that the cutting of the bulkhead door was not a contractualobligation of the Yard. However, by requiring, according to its own regulations, that only Yard welders areto undertake hotworks, it follows that there are certain qualifications of Yard welders that would berequisite of yard welders against those of the vessel welders. To the Tribunal, this means that yardwelders are aware of the Yard safety rules and regulations on hotworks such as applying for a hotworkpermit, discussing the work in a production meeting, and complying with the conditions of the hotworkpermit prior to implementation. By the requirement that all hotworks are to be done by the Yard, theTribunal finds that Sevillejo remains a yard employee. The act of Sevillejo is however mitigated in that hewas not even a foreman, and that the instructions to him was (sic) by an authorized person. The Tribunalnotes that the hotworks permit require[s] a request by at least a foreman. The fact that no foreman wasincluded in the five welders issued to the Vessel was never raised in this dispute. As discussed earlier bythe Tribunal, with the fact that what was ask (sic) of Sevillejo was outside the work order, the Vessel isconsidered equally negligent. This Tribunal finds the concurrent negligence of the Yard through Sevillejoand the Vessel through Dr. Joniga as both contributory to the cause of the fire that damaged the vessel .14

Holding that the liability for damages was limited to P50,000,000.00, the CIAC ordered KCSI to payPioneer the amount ofP25,000,000.00, with interest at 6% per annum from the time of the filing of thecase up to the time the decision is promulgated, and 12% interest per annum added to the award, or anybalance thereof, after it becomes final and executory. The CIAC further ordered that the arbitration costsbe imposed on both parties on a pro rata basis .15

Pioneer appealed to the CA and its petition was docketed as CA-G.R. SP No. 74018. KCSI likewise filedits own appeal and the same was docketed as CA-G.R. SP No. 73934. The cases were consolidated.

















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On December 17, 2004, the Former Fifteenth Division of the CA rendered its Decision, disposing asfollows:

WHEREFORE, premises considered, the Petition of Pioneer (CA-G.R. SP No. 74018) is DISMISSEDwhile the Petition of the Yard (CA- G.R. SP No. 73934) is GRANTED, dismissing petitioner’s claims in itsentirety. No costs.

The Yard and The WG&A are hereby ordered to pay the arbitration costs pro-rata.

SO ORDERED .16

Aggrieved, Pioneer sought reconsideration of the December 17, 2004 Decision, insisting that it sufferedfrom serious errors in the appreciation of the evidence and from gross misapplication of the law and

jurisprudence on negligence. KCSI, for its part, filed a motion for partial reconsideration of the sameDecision.

On December 20, 2007, an Amended Decision was promulgated by the Special Division of Five – FormerFifteenth Division of the CA – in light of the dissent of Associate Justice Lucas P. Bersamin ,17 joined by

Associate Justice Japar B. Dimaampao. The fallo of the Amended Decision reads —

WHEREFORE, premises considered, the Court hereby decrees that:

1. Pioneer’s Motion for Reconsideration is PARTIALLY GRANTED, ordering The Yard to payPioneer P25 Million, without legal interest, within 15 days from the finality of this AmendedDecision, subject to the following modifications:

1.1 – Pioneer’s Petition (CA -G.R. SP No. 74018) is PARTIALLY GRANTED as theYard is hereby ordered to pay Pioneer P25 Million without legal interest;

2. The Yard is hereby declared as equally negligent, thus, the total GRANTING of its Petition(CA-G.R. SP No. 73934) is now reduced to PARTIALLY GRANTED, in so far as it is orderedto pay Pioneer P25 Million, without legal interest, within 15 days from the finality of this

Amended Decision; and

3. The rest of the disposition in the original Decision remains the same.

SO ORDERED .18

Hence, these petitions. Pioneer bases its petition on the following grounds:

I

THE COURT OF APPEALS ERRED IN BASING ITS ORIGINAL DECISION ON NON-FACTSLEADING IT TO MAKE FALSE LEGAL CONCLUSIONS; NON-FACTS REMAIN TO INVALIDATETHE AMENDED DECISION. THIS ALSO VIOLATES SECTION 14, ARTICLE VIII OF THECONSTITUTION.

II

THE COURT OF APPEALS ERRED IN LIMITING THE LEGAL LIABILITY OF THE YARD TO THESUM OFP50,000,000.00, IN THAT:













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A. STARE DECISIS RENDERS INAPPLICABLE ANY INVOCATION OF LIMITEDLIABILITY BY THE YARD.

B. THE LIMITATION CLAUSE IS CONTRARY TO PUBLIC POLICY.

C. THE VESSEL OWNER DID NOT AGREE THAT THE YARD’S LIABILITY FORLOSS OR DAMAGE TO THE VESSEL ARISING FROM YARD’S NEGLIGENCE ISLIMITED TO THE SUM OFP50,000,000.00 ONLY.

D. IT IS INIQUITOUS TO ALLOW THE YARD TO LIMIT LIABILITY, IN THAT:

(i) THE YARD HAD CUSTODY AND CONTROL OVER THE VESSEL (M/V"SUPERFERRY 3") ON 08 FEBRUARY 2000 WHEN IT WAS GUTTED BYFIRE;

(ii) THE DAMAGING FIRE INCIDENT HAPPENED IN THE COURSE OFTHE REPAIRS EXCLUSIVELY PERFORMED BY YARD WORKERS.

III

THE COURT OF APPEALS ERRED IN ITS RULING THAT WG&A WAS CONCURRENTLYNEGLIGENT, CONSIDERING THAT:

A. DR. JONIGA, THE VESSEL’S PASSAGE TEAM LEADER, DID NOT SUPERVISEOR CONTROL THE REPAIRS.

B. IT WAS THE YARD THROUGH ITS PROJECT SUPERINTENDENTGERMINIANO ORCULLO THAT SUPERVISED AND CONTROLLED THE REPAIRWORKS.

C. SINCE ONLY YARD WELDERS COULD PERFORM HOT WORKS IT FOLLOWSTHAT THEY ALONE COULD BE GUILTY OF NEGLIGENCE IN DOING THE SAME.

D. THE YARD AUTHORIZED THE HOT WORK OF YARD WELDER ANGELINOSEVILLEJO.

E. THE NEGLIGENCE OF ANGELINO SEVILLEJO WAS THE PROXIMATE CAUSEOF THE LOSS.

F. WG&A WAS NOT GUILTY OF NEGLIGENCE, BE IT DIRECT ORCONTRIBUTORY TO THE LOSS.

IV

THE COURT OF APPEALS CORRECTLY RULED THAT WG&A SUFFERED A CONSTRUCTIVETOTAL LOSS OF ITS VESSEL BUT ERRED BY NOT HOLDING THAT THE YARD WAS LIABLEFOR THE VALUE OF THE FULL CONSTRUCTIVE TOTAL LOSS.

V

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THE COURT OF APPEALS ERRED IN NOT HOLDING THE YARD LIABLE FOR INTEREST.

VI

THE COURT OF APPEALS ERRED IN NOT HOLDING THE YARD SOLELY LIABLE FOR ARBITRATION COSTS .19

On the other hand, KCSI cites the following grounds for the allowance of its petition, to wit:

1. ABSENCE OF YARD RESPONSIBILITY

IT WAS GRIEVOUS ERROR FOR THE COURT OF APPEALS TO ADOPT, WITHOUTEXPLANATION, THE CIAC ’S RULING THAT THE YARD WAS EQUALLY NEGLIGENT BECAUSEOF ITS FAILURE TO REQUIRE A HOT WORKS PERMIT FOR THE CUTTING WORK DONE BY

ANGELINO SEVILLEJO, AFTER THE COURT OF APPEALS ITSELF HAD SHOWN THAT RULINGTO BE COMPLETELY WRONG AND BASELESS.

2. NO CONSTRUCTIVE TOTAL LOSS

IT WAS EQUALLY GRIEVOUS ERROR FOR THE COURT OF APPEALS TO RULE, WITHOUTEXPLANATION, THAT THE VESSEL WAS A CONSTRUCTIVE TOTAL LOSS AFTER HAVINGITSELF EXPLAINED WHY THE VESSEL COULD NOT BE A CONSTRUCTIVE TOTAL LOSS.

3. FAILURE OR REFUSAL TO ADDRESS

KEPPEL’S MOTION FOR RECONSIDERATION

FINALLY, IT WAS ALSO GRIEVOUS ERROR FOR THE COURT OF APPEALS TO HAVEEFFECTIVELY DENIED, WITHOUT ADDRESSING IT AND ALSO WITHOUT EXPLANATION,KEPPEL’S PARTIAL MOTION FOR RECONSIDERATION OF THE ORIGINAL DE CISION WHICHSHOWED: 1) WHY PIONEER WAS NOT SUBROGATED TO THE RIGHTS OF THE VESSELOWNER AND SO HAD NO STANDING TO SUE THE YARD; 2) WHY KEPPEL MAY NOT BEREQUIRED TO REIMBURSE PIONEER’S PAYMENTS TO THE VESSEL OWNER IN VIEW OFTHE CO-INSURANCE CLAUSE IN THE SHIPREPAIR AGREEMENT; AND 3) WHY PIONEER

ALONE SHOULD BEAR THE COSTS OF ARBITRATION.

4. FAILURE TO CREDIT FOR SALVAGE RECOVERY

EVEN IF THE COURT OF APPEAL’S RULINGS ON ALL OF THE FOREGOING ISSUES WERECORRECT AND THE YARD MAY PROPERLY BE HELD EQUALLY LIABLE FOR THE DAMAGETO THE VESSEL AND REQUIRED TO PAY HALF OF THE DAMAGES AWARDED (P25 MILLION),THE COURT OF APPEALS STILL ERRED IN NOT DEDUCTING THE SALVAGE VALUE OF THE

VESSEL RECOVERED AND RECEIVED BY THE INSURER, PIONEER, TO REDUCE ANYLIABILITY ON THE PART OF THE YARD TOP9.874 MILLION .20

To our minds, these errors assigned by both Pioneer and KCSI may be summed up in the following coreissues:

A. To whom may negligence over the fire that broke out on board M/V "Superferry 3" beimputed?









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B. Is subrogation proper? If proper, to what extent can subrogation be made?

C. Should interest be imposed on the award of damages? If so, how much?

D. Who should bear the cost of the arbitration?

To resolve these issues, it is imperative that we digress from the general rule that in petitions for reviewunder Rule 45 of the Rules of Court, only questions of law shall be entertained. Considering the disparatefindings of fact of the CIAC and the CA which led them to different conclusions, we are constrained torevisit the factual circumstances surrounding this controversy .21

The Co urt’s Ruling

A. The issue of negligence

Undeniably, the immediate cause of the fire was the hot work done by Angelino Sevillejo (Sevillejo)on the accommodation area of the vessel, specifically on Deck A. As established before the CIAC –

The fire broke out shortly after 10:25 and an alarm was raised (Exh. 1-Ms. Aini Ling ,22 p. 20). Angelino Sevillejo tried to put out the fire by pouring the contents of a five-liter drinking watercontainer on it and as he did so, smoke came up from under Deck A. He got another container ofwater which he also poured whence the smoke was coming. In the meantime, other workers in theimmediate vicinity tried to fight the fire by using fire extinguishers and buckets of water. But becausethe fire was inside the ceiling void, it was extremely difficult to contain or extinguish; and it spreadrapidly because it was not possible to direct water jets or the fire extinguishers into the space at thesource. Fighting the fire was extremely difficult because the life jackets and the constructionmaterials of the Deck B ceiling were combustible and permitted the fire to spread within the ceilingvoid. From there, the fire dropped into the Deck B accommodation areas at various locations, wherethere were combustible materials. Respondent points to cans of paint and thinner, in addition to theplywood partitions and foam mattresses on deck B (Exh. 1-Mullen ,23 pp. 7-8, 18; Exh. 2-Mullen, pp.11-12) .24

Pioneer contends that KCSI should be held liable because Sevillejo was its employee who, at thetime the fire broke out, was doing his assigned task, and that KCSI was solely responsible for all thehot works done on board the vessel. KCSI claims otherwise, stating that the hot work done wasbeyond the scope of Sev illejo’s assigned tasks, the same not having been authorized under theWork Orde r 25 dated January 26, 2000 or under the Shiprepair Agreement. KCSI further posits thatWG&A was itself negligent, through its crew, particularly Dr. Raymundo Joniga (Dr. Joniga), forfailing to remove the life jackets from the ceiling void, causing the immediate spread of the fire to theother areas of the ship.

We rule in favor of Pioneer.

First. The Shiprepair Agreement is clear that WG&A, as owner of M/V "Superferry 3," entered into acontract for the dry docking and repair of the vessel under KCSI’s Standa rd Conditions of Contractfor Shiprepair, and its guidelines and regulations on safety and security. Thus, the CA erred when itsaid that WG&A would renovate and reconstruct its own vessel merely using the dry dockingfacilities of KCSI.

Second. Pursuant t o KCSI’s rules and regulations on safety and security, only employees of KCSImay undertake hot works on the vessel while it was in the graving dock in Lapu-Lapu City, Cebu.This is supported by Clause 3 of the Shiprepair Agreement requiring the prior written approval of





















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KCSI’s Vice President for Operations before WG&A could effect any work performed by its ownworkers or subcontractors. In the exercise of this authority, KCSI’s Vice -President for Operations, inthe letter dated January 2, 1997, banned any hot works from being done except by KCSI’s workers,viz.:

The Yard will restrict all hot works in the engine room, accommodation cabin, and fuel oil tanks to be

carried out only by shipyard workers x x x .26

WG&A recognized and complied with this restrictive directive such that, during the arrival conferenceon January 26, 2000, Dr. Joniga, the vessel’s passage team leader in charge of its hotel department,speci fically requested KCSI to finish the hot works started by the vessel’s contractors on thepassenger accommodation decks .27 This was corroborated by the statemen ts of the vessel’s hotelmanager Marcelo Rabe 28 and the vessel’s quality control officer Joselito Esteban .29 KCSI knew of theunfinished hot works in the passenger accommodation areas. Its safety supervisor EstebanCabalhug confirmed that KCSI was aware "that the owners of this vessel (M/V ‘Superferry 3’) hadundertaken their own (hot) works prior to arrival alongside (sic) on 26th January," and that no hotwork permits could thereafter be issued to WG&A’s own workers because "this was not allowed forthe Superferry 3. "30 This shows that Dr. Joniga had authority only to request the performance of hotworks by KCSI’s welders as needed in the repair of the vessel while on dry dock.

Third. KCSI welders covered by the Work Order performed hot works on various areas of the M/V"Superferry 3," aside from its promenade deck. This was a recognition of Dr. Joniga’s authority torequest the conduct of hot works even on the passenger accommodation decks, subject to theprovision of the January 26, 2000 Work Order that KCSI would supply welders for the promenadedeck of the ship.

At the CIAC proceedings, it was adequately shown that between February 4 and 6, 2000, thewelders of KCSI: (a) did the welding works on the ceiling hangers in the lobby of Deck A; (b) did thewelding and cutting works on the deck beam to access aircon ducts; and (c) did the cutting andwelding works on the protection bars at the tourist dining salon of Deck B ,31 at a rateof P150.00/welder/hour .32 In fact, Orcullo, Project Superintendent of KCSI, admitted that "as early asFebru ary 3, 2000 (five days before the fire) [the Yard] had acknowledged Dr. Joniga’s authority toorder such works or additional jobs. "33

It is evident, therefore, that although the January 26, 2000 Work Order was a special order for thesupply of KCSI welders to the promenade deck, it was not restricted to the promenade deck only.The Work Order was only a special arrangement between KCSI and WG&A that meant additionalcost to the latter.

Fourth. At the time of the fire, Sevillejo was an employee of KCSI and was subject to the latter’sdirect control and supervision.

Indeed, KCSI was the employer of Sevillejo —paying his salaries; retaining the power and the right to

discharge or substitute him with another welder; providing him and the other welders with itsequipment; giving him and the other welders marching orders to work on the vessel; and monitoringand keeping track of his and the other welders’ activities on bo ard, in view of the delicate nature oftheir work .34 Thus, as such employee, aware of KCSI’s Safety Regulations on Vessels Afloat/Dry,which specifically provides that "(n)o hotwork (welding/cutting works) shall be done on board [the]vessel without [a] Safety Permit from KCSI Safety Section, "35 it was incumbent upon Sevillejo toobtain the required hot work safety permit before starting the work he did, including that done onDeck A where the fire started.








































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care required. Extraordinary risk demands extraordinary care. Similarly, the more imminent thedanger, the higher degree of care warranted .39 In this aspect,

KCSI failed to exercise the necessary degree of caution and foresight called for by thecircumstances.

We cannot subscribe to KCSI’s position that WG&A, through Dr. Joniga, was negligent.

On the one hand, as discussed above, Dr. Joniga had authority to request the performance of hotworks in the other areas of the vessel. These hot works were deemed included in the January 26,2000 Work Order and the Shiprepair Agreement. In the exercise of this authority, Dr. Joniga askedSevillejo to do the cutting of the bulkhead door near the staircase of Deck A. KCSI was aware ofwhat Sevillejo was doing, but failed to supervise him with the degree of care warranted by theattendant circumstances.

Neither can Dr. Joniga be faulted for not removing the life jackets from the ceiling void for tworeasons – (1) the life jackets were not even contributory to the occurrence of the fire; and (2) it wasnot incumbent upon him to remove the same. It was shown during the hearings before the CIAC that

the removal of the life jackets would not have made much of a difference. The fire would still haveoccurred due to the presence of other combustible materials in the area. This was the uniformconclusion of both WG&A’ s 40 and KCSI’s 41f ire experts. It was also proven during the CIACproceedings that KCSI did not see the life jackets as being in the way of the hot works, thus, makingtheir removal from storage unnecessary .42

These circumstances, taken collectively, yield the inevitable conclusion that Sevillejo was negligentin the performance of his assigned task. His negligence was the proximate cause of the fire on boardM/V "Superferry 3." As he was then definitely engaged in the performance of his assigned tasks asan employee of KCSI, his negligence gave rise to the vicarious liability of his employe r 43 under

Article 2180 of the Civil Code, which provides —

Art. 2180. The obligation imposed by article 2176 is demandable not only for one’s own act oromission, but also for those of persons for whom one is responsible.

x x x x

Employers shall be liable for the damages caused by their employees and household helpers actingwithin the scope of their assigned tasks, even though the former are not engaged in any business orindustry.

x x x x

The responsibility treated of in this article shall cease when the persons herein mentioned prove thatthey observed all the diligence of a good father of a family to prevent damage.

KCSI failed to prove that it exercised the necessary diligence incumbent upon it to rebut the legalpresumption of its negligence in supervising Sevillejo .44 Consequently, it is responsible for thedamages caused by the negligent act of its employee, and its liability is primary and solidary. All thatis needed is proof that the employee has, by his negligence, caused damage to another in order tomake the employer responsible for the tortuous act of the former .45 From the foregoing disquisition,there is ample proof of the employee’s negligence.




























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B. The right of subrogation

Pioneer asseverates that there existed a total constructive loss so that it had to pay WG&A the fullamount of the insurance coverage and, by operation of law, it was entitled to be subrogated to therights of WG&A to claim the amount of the loss. It further argues that the limitation of liability clausefound in the Shiprepair Agreement is null and void for being iniquitous and against public policy.

KCSI counters that a total constructive loss was not adequately proven by Pioneer, and that there isno proof of payment of the insurance proceeds. KCSI insists on the validity of the limited-liabilityclause up toP50,000,000.00, because WG&A acceded to the provision when it executed theShiprepair Agreement. KCSI also claims that the salvage value of the vessel should be deductedfrom whatever amount it will be made to pay to Pioneer.

We find in favor of Pioneer, subject to the claim of KCSI as to the salvage value of M/V "Superferry3."

In marine insurance, a constructive total loss occurs under any of the conditions set forth in Section139 of the Insurance Code, which provides —

Sec. 139. A person insured by a contract of marine insurance may abandon the thing insured, or anyparticular portion hereof separately valued by the policy, or otherwise separately insured, andrecover for a total loss thereof, when the cause of the loss is a peril insured against:

(a) If more than three-fourths thereof in value is actually lost, or would have to beexpended to recover it from the peril;

(b) If it is injured to such an extent as to reduce its value more than three-fourths; x xx.

It appears, however, that in the execution of the insurance policies over M/V "Superferry 3," WG&A

and Pioneer incorporated by reference the American Institute Hull Clauses 2/6/77, the Total LossProvision of which reads —

Total Loss

In ascertaining whether the Vessel is a constructive Total Loss the Agreed Value shall be taken asthe repaired value and nothing in respect of the damaged or break-up value of the Vessel or wreckshall be taken into account.

There shall be no recovery for a constructive Total Loss hereunder unless the expense of recoveringand repairing the Vessel would exceed the Agreed Value in policies on Hull and Machinery. Inmaking this determination, only expenses incurred or to be incurred by reason of a single accident or

a sequence of damages arising from the same accident shall be taken into account, but expensesincurred prior to tender of abandonment shall not be considered if such are to be claimed separatelyunder the Sue and Labor clause. x x x.

In the course of the arbitration proceedings, Pioneer adduced in evidence the estimates made bythree (3) disinterested and qualified shipyards for the cost of the repair of the vessel, specifically:(a) P296,256,717.00, based on the Philippine currency equivalent of the quotation dated April 17,2000 turned in by Tsuneishi Heavy Industries (Cebu) Inc.; (b) P309,780,384.15, based on thePhilippine currency equivalent of the quotation of Sembawang Shipyard Pte. Ltd., Singapore; and

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simply because the person who signed the Receipt appeared to be an employee of Aboitiz ShippingCorporation .47 The Loss and Subrogation Receipt issued by WG&A to Pioneer is the best evidenceof payment of the insurance proceeds to the former, and no controverting evidence was presentedby KCSI to rebut the presumed authority of the signatory to receive such payment.

On the matter of subrogation, Article 2207 of the Civil Code provides —

Art. 2207. If the plaintiff’s property has been insured and he has received indemnity fro m theinsurance company for the injury or loss arising out of the wrong or breach of contract complainedof, the insurance company shall be subrogated to the rights of the insured against the wrongdoer orthe person who has violated the contract. If the amount paid by the insurance company does notfully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from theperson causing the loss or injury.

Subrogation is the substitution of one person by another with reference to a lawful claim or right, sothat he who is substituted succeeds to the rights of the other in relation to a debt or claim, includingits remedies or securities. The principle covers a situation wherein an insurer has paid a loss underan insurance policy is entitled to all the rights and remedies belonging to the insured against a third

party with respect to any loss covered by the policy. It contemplates full substitution such that itplaces the party subrogated in the shoes of the creditor, and he may use all means that the creditorcould employ to enforce payment .48

We have held that payment by the insurer to the insured operates as an equitable assignment to theinsurer of all the remedies that the insured may have against the third party whose negligence orwrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow outof, any privity of contract. It accrues simply upon payment by the insurance company of theinsurance claim. The doctrine of subrogation has its roots in equity. It is designed to promote and toaccomplish justice; and is the mode that equity adopts to compel the ultimate payment of a debt byone who, in justice, equity, and good conscience, ought to pay .49

We cannot accept KCSI’s insistence on upholding the validity Clause 20, which provides that thelimit of its liability is only up to P50,000,000.00; nor of Clause 22(a), that KCSI stands as a co-assured in the insurance policies, as found in the Shiprepair Agreement.

Clauses 20 and 22(a) of the Shiprepair Agreement are without factual and legal foundation. They areunfair and inequitable under the premises. It was established during arbitration that WG&A did notvoluntarily and expressly agree to these provisions. Engr. Elvin F. Bello, WG&A’s fleet manager,testified that he did not sign the fine-print portion of the Shiprepair Agreement where Clauses 20 and22(a) were found, because he did not want WG&A to be bound by them. However, considering thatit was only KCSI that had shipyard facilities large enough to accommodate the dry docking andrepair of big vessels owned by WG&A, such as M/V "Superferry 3," in Cebu, he had to sign the frontportion of the Shiprepair Agreement; otherwise, the vessel would not be accepted for dry docking .50

Indeed, the assailed clauses amount to a contract of adhesion imposed on WG&A on a "take-it-or-leave-it" basis. A contract of adhesion is so-called because its terms are prepared by only one party,while the other party merely affixes his signature signifying his adhesion thereto. Although notinvalid, per se, a contract of adhesion is void when the weaker party is imposed upon in dealing withthe dominant bargaining party, and its option is reduced to the alternative of "taking it or leaving it,"completely depriving such party of the opportunity to bargain on equal footing .51

Clause 20 is also a void and ineffectual waiver of the right of WG&A to be compensated for the fullinsured value of the vessel or, at the very least, for its actual market value. There was clearly no





















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intention on the part of WG&A to relinquish such right. It is an elementary rule that a waiver must bepositively proved, since a waiver by implication is not normally countenanced. The norm is that awaiver must not only be voluntary, but must have been made knowingly, intelligently, and withsufficient awareness of the relevant circumstances and likely consequences. There must bepersuasive evidence to show an actual intention to relinquish the right .52 This has not beendemonstrated in this case.

Likewise, Clause 20 is a stipulation that may be considered contrary to public policy. To allow KCSIto limit its liability to only P50,000,000.00, notwithstanding the fact that there was a constructive totalloss in the amount of P360,000,000.00, would sanction the exercise of a degree of diligence short ofwhat is ordinarily required. It would not be difficult for a negligent party to escape liability by thesimple expedient of paying an amount very much lower than the actual damage or loss sustained bythe other .53

Along the same vein, Clause 22(a) cannot be upheld. The intention of the parties to make each othera co-assured under an insurance policy is to be gleaned principally from the insurance contract orpolicy itself and not from any other contract or agreement, because the insurance policydenominates the assured and the beneficiaries of the insurance contract. Undeniably, the hull andmachinery insurance procured by WG&A from Pioneer named only the former as the assured. Therewas no manifest intention on the part of WG&A to constitute KCSI as a co-assured under thepolicies. To have deemed KCSI as a co-assured under the policies would have had the effect ofnullifying any claim of WG&A from Pioneer for any loss or damage caused by the negligence ofKCSI. No ship owner would agree to make a ship repairer a co-assured under such insurance policy.Otherwise, any claim for loss or damage under the policy would be rendered nugatory. WG&A couldnot have intended such a result .54

Nevertheless, we concur with the position of KCSI that the salvage value of the damaged M/V"Superferry 3" should be taken into account in the grant of any award. It was proven before the CIACthat the machinery and the hull of the vessel were separately sold for P25,290,000.00 (orUS$468,333.33) and US$363,289.50, respectively. WG&A’s claim for the upkeep of the wreck untilthe same were sold amounts to P8,521,737.75 (or US$157,809.96), to be deducted from theproceeds of the sale of the machinery and the hull, for a net recovery of US$673,812.87, orequivalent to P30,252,648.09, at P44.8977/$1, the prevailing exchange rate when the Request for

Arbitration was filed. Not considering this salvage value in the award would amount to unjustenrichment on the part of Pioneer.

C. On the imposition of interest

Pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals ,55 the award in favor ofPioneer in the amount of P350,146,786.89 should earn interest at 6% per annum from the filing ofthe case until the award becomes final and executory. Thereafter, the rate of interest shall be 12%per annum from the date the award becomes final and executory until its full satisfaction.

D. On the payment for the cost of arbitration

It is only fitting that both parties should share in the burden of the cost of arbitration, on a pro ratabasis. We find that Pioneer had a valid reason to institute a suit against KCSI, as it believed that itwas entitled to claim reimbursement of the amount it paid to WG&A. However, we disagree withPioneer that only KCSI should shoulder the arbitration costs. KCSI cannot be faulted for defendingitself for perceived wrongful acts and conditions. Otherwise, we would be putting a price on the rightto litigate on the part of Pioneer.

















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WHEREFORE, the Petition of Pioneer Insurance and Surety Corporation in G.R. No. 180896-97 and thePetition of Keppel Cebu Shipyard, Inc. in G.R. No. 180880-81 are PARTIALLY GRANTED and the

Amended Decision dated December 20, 2007 of the Court of Appeals is MODIFIED. Accordingly, KCSI isordered to pay Pioneer the amount of P360,000,000.00 less P30,252,648.09, equivalent to the salvagevalue recovered by Pioneer from M/V "Superferry 3," or the net total amount of P329,747,351.91, with sixpercent (6%) interest per annum reckoned from the time the Request for Arbitration was filed until thisDecision becomes final and executory, plus twelve percent (12%) interest per annum on the said amountor any balance thereof from the finality of the Decision until the same will have been fully paid. Thearbitration costs shall be borne by both parties on a pro rata basis. Costs against KCSI.

SO ORDERED.


WE CONCUR:

G.R. No. 162095 October 12, 2009

IBEX INTERNATIONAL, INC., Petitioner,vs.GOVERNMENT SERVICE INSURANCE SYSTEM and COURT OF APPEALS, Respondents.

D E C I S I O N

CARPIO, J .:

The Case

This is a petition for review 1 of the 30 October 2003 Decisio n2 and 6 February 2004 Resolution 3 of theCourt of Appeals in CA-G.R. SP No. 68606. In its 30 October 2003 Decision, the Court of Appealsdismissed petitioner IBEX International, Inc.’s (IBEX) petition for lack of merit and affirmed the 3 January2002 Decision 4 of the Construction Industry Arbitration Commission (CIAC). In its 6 February 2004Resolution, the Court of Appeals denied IBEX’s motion for reconsideration.

The Facts

Sometime in 1984, respondent Government Service Insurance System (GSIS), through its projectmanager, Design Coordinates, Inc. (Design Coordinates), requested IBEX to submit a proposal for thegraphic signage requirements of the then on-going construction of the GSIS Headquarters Building (GSISBuilding). In their Contract Agreemen t5 dated 23 February 1984, IBEX undertook to supply and install theinterior and exterior graphic signage requirements of the GSIS Building for P11,500,000. IBEX and GSISalso agreed on 26 May 1986 as the delivery date.

In a lette r 6 dated 24 March 1986, Design Coordinates, in accordance with the instructions of BenignoZialcita III, GSIS Officer-in-Charge, informed IBEX that, effective 1 April 1986, all operations in theconstruction of the GSIS Building would be suspended until further notice.

In two letters dated 25 January 1988 7 and 5 August 1988 ,8 IBEX informed GSIS of its interest in resumingthe work on the signage project.

In a lette r 9 dated 3 April 1991, GSIS advised IBEX that the GSIS Board of Trustees created an ExecutiveCommittee to resolve all pending contracts relative to the GSIS Building. The letter also mentioned that,

































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on 2 October 1984, GSIS had released the downpayment of P1,725,000, or 15% of the contract priceof P11,500,000, to IBEX under Check No. 319185.

In a lette r 10 dated 19 April 1991, IBEX reiterated that it was still interested and willing to finish the contract.IBEX also clarified that only 10% of the total contract price, not 15%, was released as downpayment.

Sometime in March 1994, GSIS informed IBEX that it intended to hold a bidding for the Parking andDirectional Signs and Graphic Signage of the GSIS Building. In a lette r 11 dated 24 March 1994, IBEXreminded GSIS that their contract had neither been rescinded nor abrogated and that the said biddingwould encroach on certain provisions of their contract. IBEX insisted that there was no need for it to pre-qualify since its contract with GSIS was still valid and existing.

In a lette r 12 dated 10 June 1994, GSIS explained that it had to take-over the c ontract because of IBEX’sfailure to meet the deadline for the submission of the requirements for all contractors with suspendedcontracts.

On 28 December 1999, IBEX filed a complaint with the CIAC .13 IBEX alleged that the unilateral take-overof GSIS of their contract constituted a breach of its contractual obligation. IBEX prayed that GSIS beordered to pay actual damages ofP13,941,664.38 plus one percent interest per month starting March1987 and attorney’s fees of 25% of the actual damages awarded.

On 18 January 2000, GSIS filed its answer with compulsory counterclaim for actual and liquidateddamages including attorney’s fees.

On 28 February 2000, a preliminary conference was held and the Terms of Reference 14 (TOR) limited theissues to be resolved by the CIAC to the following:

1. Was the project completed?

1.1 If so, when?

1.2 If so, was there a delay in accepting delivery of the completed Project?

1.3 If not, what percentage of accomplishment was reached by the Claimant on 1 April 1986 when the operations were suspended?

1.4 If not, was there delay in the completion of the project in accordance with thecontract?

1.5 If there was delay, is Respondent entitled to liquidated damages under thecontract?

2. How much was Claimant paid by way of down-payment?

3. Was the Contract Agreement between the Claimant and the Respondent dated 23February 1984 validly rescinded or abrogated?

4. Is Claimant entitled to its claim for actual damages plus 1% interest per month? 15

In its 3 January 2002 Decision, the CIAC dismissed IBEX’s complaint for being barred by laches andextinctive prescription.























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IBEX appealed to the Court of Appeals. In its 30 October 2003 Decision, the Court of Appeals dismissedthe petition for lack of merit and affirmed the CIAC’s 3 January 2002 Decision.

IBEX filed a motion for reconsideration. In its 6 February 2004 Resolution, the Court of Appeals deniedthe motion.

Hence, this petition.

The Ruling of the CIAC

According to the CIAC, IBEX’s c ause of action accrued on 24 March 1986, when GSIS sent IBEX theletter informing them of the suspension of the contract. Since IBEX filed the complaint only on 28

December 1999, or 13 years and 9 months after the cause of action accrued, the CIAC ruled that thecomplaint was now barred by prescription. The CIAC added that, even assuming that IBEX’s letters dated

25 January 1988 and 5 August 1988 interrupted the prescriptive period, laches had set in because ofIBEX’s unexplained inaction to sue GSIS after GSIS took over the project in 1994. Accordingly, the CIAC

denied IBEX’s claim for actual damages.

However, the CIAC still discussed the issues raised in the TOR. First, the CIAC ruled that the project wasnot completed because IBEX, through its President Percival F. Cruz, admitted that the project "had beenpartly executed" and expressed "interest in resuming the work." According to the CIAC, this inferred anincomplete work. The CIAC noted that IBEX gave three contradictory claims of accomplishment rangingfrom 30% to 100%. The CIAC also found that IBEX failed to submit monthly progress billings in violationof the contract. The CIAC denied GSIS’s claim for liquidated damages as there was no factual or legalbasis to support GSIS’s claim.

Second, the CIAC declared that GSIS paid IBEX P1,725,000, or 15% of the contract price, as stated inthe contract. The CIAC said IBEX failed to present any proof that GSIS gave only 10% of the contractprice as downpayment.

Lastly, the CIAC declared that GSIS terminated the contract because of the findings of the Commissionon Audit of graft and corruption committed through the negotiated contracts that President Ferdinand E.Marcos had authorized GSIS President/General Manager Roman Cruz, Jr. to enter into in lieu of thenormal bidded contracts.

The Ruling of the Court of Appeals

While the Court of Appeals agreed with the CIAC that IBEX’s cause of action accrued when GSISindefinitely suspended the contract without legal justification, the Court of Appeals ruled that prescriptionhad not set in because the running of the prescriptive period was interrupted by IBEX’s 24 March 1994

letter reminding GSIS of the existence of a valid contract. The Court of Appeals said that this can beconsidered as an extrajudicial demand under Article 115 516 of the Civil Code sufficient to toll the running

of the prescriptive period. Accordingly, the Court of Appeals also declared that laches had not set in.

The Court of Appeals affirmed the CIAC’s findings that IBEX never completed the project and that IBEXreceived 15% of the contract price as downpayment. The Court of Appeals also ruled that IBEX was notentitled to actual damages because (1) GSIS to ok over the signage contract because of IBEX’s failure tosubmit the necessary requirements for contractors with suspended contracts; (2) the project was notcompleted; (3) IBEX failed to liquidate the downpayment; and (4) not a single signage manufactured byIBEX was actually used and installed in the GSIS Building. The Court of Appeals also said that the CIACdid not commit any reversible error when it took the inconsistencies in the percentage of workaccomplishment against IBEX. According to the Court of Appeals, the percentage of completion at thetime of the suspension of the project was very much material to IBEX’s cause of action considering thatthe complaint was for actual damages and interest.





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The Issues

IBEX raises the following issues:

I.

Whether or not [sic] the Court of Appeals committed a grave error and abuse of discretion when itfailed to consider certain relevant facts which, if properly considered, will justify a differentconclusion;

* In not finding that the takeover of the contract packaged VII.E was unjustified and constitute [sic]breach of contract.

II.

Whether or not [sic] the Court of Appeals committed a grave error and abuse of discretion when itfinds [sic] that there was no completed project, since the petitioner was never able to convincinglydemonstrate that the project was in fact accomplished.

III.

Whether or not [sic] the Court of Appeals committed a grave error and abuse of discretion when itmade its findings, beyond the issues of the case, and which findings are contrary to what were putforward as issues by the parties’ terms of reference (tor) .17

GSIS opposes IBEX’s petition on the ground that it raised questions of fact.

The Ruling of the Court

The petition has no merit.

At the outset, we note that IBEX is raising factual issues. A petition for review under Rule 45 of the 1997Rules of Court should cover only questions of law .18 A question of law exists when the doubt or differencecenters on what the law is on a certain state of facts. 19 A question of fact exists if the doubt centers on thetruth or falsity of the alleged facts .20 We note that matters pertaining to the takeover, completion anddelivery of the project are factual issues which had been exhaustively discussed and ruled upon by theCIAC.

It is settled that findings of fact of quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only respect, but also finality,especially when affirmed by the Court of Appeals .21 In particular, factual findings of constructionarbitrators are final and conclusive and not reviewable by this Court on appeal .22

This rule, however, admits of certain exceptions. In Uniwide Sales Realty and Resources Corporation v.Titan-Ikeda Construction and Development Corporation ,23 we said:

In David v. Construction Industry and Arbitration Commission , we ruled that, as exceptions, factualfindings of construction arbitrators may be reviewed by this Court when the petitioner proves affirmativelythat: (1) the award was procured by corruption, fraud or other undue means; (2) there was evidentpartiality or corruption of the arbitrators or any of them; (3) the arbitrators were guilty of misconduct inrefusing to hear evidence pertinent and material to the controversy; (4) one or more of the arbitratorswere disqualified to act as such under Section nine of Republic Act No. 876 and willfully refrained from




























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disclosing such disqualifications or of any other misbehavior by which the rights of any party have beenmaterially prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly executed them, that amutual, final and definite award upon the subject matter submitted to them was not made.

Other recognized exceptions are as follows: (1) when there is a very clear showing of grave abuse ofdiscretion resulting in lack or loss of jurisdiction as when a party was deprived of a fair opportunity to

present its position before the Arbitral Tribunal or when an award is obtained through fraud or thecorruption of arbitrators, (2) when the findings of the Court of Appeals are contrary to those of the CIAC,and (3) when a party is deprived of administrative due process .24

In this case, IBEX failed to show that any of these exceptions apply.

Moreover, the Court of Appeals upheld the factual findings of the CIAC. In its 30 October 2003 Decision,the Court of Appeals stated:

A careful scrutiny of the records and the assailed decision of the CIAC indubitably shows that thepetitioner never completed the project. Thus, we concur with the following findings of the CIAC, viz:

"Claimant’s President Percival F. Cruz himself stated in his letter dated 24 March 1994 protesting theintended re-bidding to be conducted by the respondent since his signage contract was not only in forcebut "had been partly executed," plainly shows that the contract had indeed not been completed. Further,in his own words, Claimant’s Cruz stated that it had "accomplished about 70% of the graphic signage"(Answer to Q.#9, Affidavit). His letter of 05 August 1988 (Exhibit "E") expressing "interest in resumingwork" infers an incomplete work. There is, therefore, no question that the project was not completed. 1avvphi1

The Tribunal takes note that the foregoing percentage claimed by the Claimant’s Cruz dire ctly contradictsthe allegations made in paragraph 15 of the Complaint that "By the time EDSA Revolution brokeout...IBEX had already completed 100% of the project." It must also be noted that the Complaint wasverified on 15 December 1999 by Mr. Cruz himself who expressly stated that he had "read the pleadingand that the allegations therein are true and correct of my knowledge and belief."

Earlier, on 05 February 1999, Counsel for Claimant, Atty. Gerald C. Jacob, had written a final demandletter to the Respondent wherein he stated that "the contract was already 30% completed when GSISsuddenly gave an order for immediate stoppage and unjustifiable contract cancellation. "25

We find no reason to reverse the factual findings of the CIAC as affirmed by the Court of Appeals. TheCIAC is the duly constituted quasi-judicial agency accorded with jurisdiction to resolve disputes arisingfrom construction contracts in the Philippines. This Court must confer finality to its factual findings as theyare supported by evidence .26

WHEREFORE , we DENY the petition. We AFFIRM the 30 October 2003 Decision and 6 February 2004Resolution of the Court of Appeals in CA-G.R. SP No. 68606.

SO ORDERED.

ANTONIO T. CARPIO Associate Justice

G.R. No. 183335 December 23, 2009

JUANITO TABIGUE, ALEX BIBAT, JECHRIS DASALLA, ANTONIO TANGON, ROLANDO PEDRIGAL,DANTE MAUL, ALFREDO IDUL, EDGAR RAMOS, RODERICK JAVIER, NOEL PONAYO, ROMELORAPA, REY JONE, ALMA PATAY, JERIC BANDIGAN, DANILO JAYME, ELENITA S. BELLEZA,













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JOSEPHINE COTANDA, RENE DEL MUNDO, PONCIANO ROBUCA, and MARLONMADICLUM, Petitioners,vs.INTERNATIONAL COPRA EXPORT CORPORATION (INTERCO), Respondent.

D E C I S I O N

CARPIO MORALES, J .:

Petitioner Juanito Tabigue and his 19 co-petitioners, all employees of respondent International CopraExport Corp-oration (INTERCO), filed a Notice of Preventive Mediation with the Department of Labor andEmployment – National Conciliation and Mediation Board (NCMB), Regional Branch No. XI, Davao Cityagainst respondent, for violation of Collective Bargaining Agreement (CBA) and failure to sit on thegrievance conference/meeting .1

As the parties failed to reach a settlement before the NCMB, petitioners requested to elevate the case tovoluntary arbitration. The NCMB thus set a date for the parties to agree on a Voluntary Arbitrator.

Before the parties could finally meet, respondent presented before the NCMB a lette r 2 of Genaro Tan(Tan), president of the INTERCO Employees/Laborers’ Union (the union) of which petitioners aremembers, addressed to respondent’s plant manager Engr. Paterno C. Tangente (Tangente), stating thatpetitioners "are not duly authorized by [the] board or the officers to represent the union, [hence] . . . allactions, representations or agreements made by these people with the management will not be honoredor recognized by the union." Respondent thus moved to dismiss petitioners’ complaint for lack of

jurisdiction .3

Petitioners soon sent union president Tan and respondent’s plant manager Tangente a Notice to Arbitrate, citing the "Revised Guidelines" in the Conduct of Voluntary Arbitration Procedure vis a visSection 3, Article XII of the CBA, furnishing the NCMB with a cop y4 thereof, which notice respondentopposed .5

The parties having failed to arrive at a settlement ,6 NCMB Director Teodorico O. Yosores wrote petitioner Alex Bibat and respondent’s plant manager Tangente of the lack of willingness of both parties to submit tovoluntary arbitration, which willingness is a pre-requisite to submit the case thereto; and that under theCBA forged by the parties, the union is an indispensable party to a voluntary arbitration but that since Taninformed respondent that the union had not authorized petitioners to represent it, it would be absurd tobring the case to voluntary arbitration.

The NCMB Director thus concluded that "the demand of [petitioners] to submit the issues . . . to voluntaryarbitration CAN NOT BE GRANTED." He thus advised petitioners to avail of the compulsory arbitrationprocess to enforce their rights .7

On petitioners’ Motion for Reconsideration ,8 the NCMB Director, by letter o f April 11, 2007 to petitioners’counsel, stated that the NCMB "has no rule-making power to decide on issues [as it] only facilitates

settlement among the parties to . . . labor disputes."

Petitioners thus assailed the NCMB Director’s decision via Petition for Review before the Court of Appeal s 9 which dismissed it by Resolutio n10 of October 24, 2007 in this wise:

x x x x

Considering that NCMB is not a quasi-judicial agency exercising quasi-judicial functions but merely aconciliatory body for the purpose of facilitating settlement of disputes between parties, its decisions or that









































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of its authorized officer cannot be appealed either through a petition for review under Rule 43 or underRule 65 of the Revised Rules of Court.

Further perusal of the petition reveals the following infirmities:

1. Payment of the docket fees and other legal fees is short by One Thousand Pesos (Php1,000.00);

2. Copy of the assailed "Decision" of the Regional Director of the National Conciliation andMediation Board has not been properly certified as the name and designation of thecertifying officer thereto are not indicated; and

3. Not all of the petitioners named in the petition signed the verification and non-forumshopping .11 (emphasis and underscoring supplied)

Their Motion for Reconsideratio n12 having been denied ,13 petitioners filed the present Petition for Reviewon Certiorari ,14r aising the following arguments:

THIS PARTICULAR CASE XXX FALLS SQUARELY WITHIN THE PURVIEW OF SECTION 6,RULE IV, IN RELATION TO PARAGRAPH 3, SUB-PARAGRAPH 3.2, SECTION 4, RULE IV, ALLOF THE REVISED PROCEDURAL GUIDELINES IN THE CONDUCT OF VOLUNTARY

ARBITRATION PROCEEDINGS .15

THE NCMB, WHEN EXERCISING ADJUDICATIVE POWERS, ACTS AS A QUASI-JUDICIAL AGENCY.16

FINAL JUDGMENTS, DECISIONS, RESOLUTIONS, ORDERS, OR AWARDS OF REGIONALTRIAL COURTS AND QUASI-JUDICIAL BOARDS, LIKE THE NCMB, COMMISSIONS, AGENCIES,INSTRUMENTALITIES, ARE APPEALABLE BY PETITION FOR REVIEW TO THE COURT OF

APPEALS .17(emphasis in the original)

LABOR CASES, AS A GENERAL RULE, ARE NEVER RESOLVED ON THE BASIS OFTECHNICALITYESPECIALLY SO WHEN SUBSTANTIAL RIGHTS OF EMPLOYEES ARE

AFFECTED .18 (emphasis and underscoring supplied)

The petition fails.

Section 7 of Rule 43 of the Rules of Court provides that

[t]he failure of the petitioner to comply with any of the foregoing requirements regarding the payment ofthe docket and other lawful fees, the deposit for costs, proof of service of the petition, and the contents ofand the documents which should accompany the petition shall be sufficient ground for the dismissalthereof. (underscoring and emphasis supplied)

Petitioners claim that they had completed the payment of the appellate docket fee and other legal feeswhen they filed their motion for reconsideration before the Court of Appeals .19 While the Court has, in theinterest of justice, given due course to appeals despite the belated payment of those fees ,20 petitionershave not proffered any reason to call for a relaxation of the above-quoted rule. On this score alone, thedismissal by the appellate court of petitioners’ petition is in order.

But even if the above- quoted rule were relaxed, the appellate court’s dismissal would just the same besustained. Under Section 9 (3) of the Judiciary Reorganization Act of 1980 ,21 the Court of Appeals













































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exercises exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awardsof Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or commissions.

Rule 43 of the Rules of Court under which petitioners filed their petition before the Court of Appeal s 22 applies to awards, judgments, final orders or resolutions of or authorized by any quasi-judicialagency in the exercise of its quasi-judicial functions .23

A[n agency] is said to be exercising judicial function where [it] has the power to determine what the law isand what the legal rights of the parties are, and then undertakes to determine these questions andadjudicate upon the rights of the parties. Quasi-judicial function is a term which applies to the action,discretion, etc. of public administrative officers or bodies, who are required to investigate facts orascertain the existence of facts, hold hearings, and draw conclusions from them as a basis for theirofficial action and to exercise discretion of a judicial nature .24 (underscoring supplied)

Given NCMB’s following functions, as enumerated in Section 22 of Executive Order No. 126 (theReorganization Act of the Ministry of Labor and Employment), viz:

(a) Formulate policies, programs, standards, procedures, manuals of operation andguidelines pertaining to effective mediation and conciliation of labor disputes;

(b) Perform preventive mediation and conciliation functions;

(c) Coordinate and maintain linkages with other sectors or institutions, and other governmentauthorities concerned with matters relative to the prevention and settlement of labordisputes;

(d) Formulate policies, plans, programs, standards, procedures, manuals of operation andguidelines pertaining to the promotion of cooperative and non-adversarial schemes,grievance handling, voluntary arbitration and other voluntary modes of dispute settlement;

(e) Administer the voluntary arbitration program; maintain/update a list of voluntaryarbitrations; compile arbitration awards and decisions;

(f) Provide counseling and preventive mediation assistance particularly in the administrationof collective agreements;

(g) Monitor and exercise technical supervision over the Board programs being implementedin the regional offices; and

(h) Perform such other functions as may be provided by law or assigned by the Minister,

it can not be considered a quasi-judicial agency.

Respecting petitioners’ thesi s that unsettled grievances should be referred to voluntary arbitration ascalled for in the CBA, the same does not lie. The pertinent portion of the CBA reads:

In case of any dispute arising from the interpretation or implementation of this Agreement or any matteraffecting the relations of Labor and Management, the UNION and the COMPANY agree to exhaust allpossibilities of conciliation through the grievance machinery. The committee shall resolve all problemssubmitted to it within fifteen (15) days after the problems ha[ve] been discussed by the members. If thedispute or grievance cannot be settled by the Committee, or if the committee failed to act on the matterwithin the period of fifteen (15) days herein stipulated, the UNION and the COMPANY agree to submit the













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issue to Voluntary Arbitration. Selection of the arbitrator shall be made within seven (7) days from thedate of notification by the aggrieved party. The Arbitrator shall be selected by lottery from four (4)qualified individuals nominated by in equal numbers by both parties taken from the list of Arbitratorsprepared by the National Conciliation and Mediation Board (NCMB). If the Company and the Unionrepresentatives within ten (10) days fail to agree on the Arbitrator, the NCMB shall name the Arbitrator.The decision of the Arbitrator shall be final and binding upon the parties. However, the Arbitrator shall nothave the authority to change any provisions of the Agreement. The cost of arbitration shall be borneequally by the parties .25 (capitalization in the original, underscoring supplied) 1avvphi1

Petitioners have not, however, been duly authorized to represent the union. Apropos is this Court’spronouncement in Atlas Farms, Inc. v. National Labor Relations Commission ,26 viz:

x x x Pursuant to Article 260 of the Labor Code, the parties to a CBA shall name or designate theirrespective representatives to the grievance machinery and if the grievance is unsettled in that level, itshall automatically be referred to the voluntary arbitrators designated in advance by parties to a CBA.Consequently only disputes involving the union and the company shall be referred to the grievancemachinery or voluntary arbitrators .27 (emphasis and underscoring supplied)

Clutching at straws, petitioners invoke the first paragraph of Article 255 of the Labor Code which states:











