Arbit-Part II |1

Republic Act No. 9285 April 2, 2004 prejudice to the rights of the parties to choose nonaccredited individuals to
act as mediator, conciliator, arbitrator, or neutral evaluator of their
AN ACT TO INSTITUTIONALIZE THE USE OF AN ALTERNATIVE dispute.
DISPUTE RESOLUTION SYSTEM IN THE PHILIPPINES AND TO
ESTABLISH THE OFFICE FOR ALTERNATIVE DISPUTE RESOLUTION, Whenever reffered to in this Act, the term "ADR practitioners" shall refer to
AND FOR OTHER PURPOSES individuals acting as mediator, conciliator, arbitrator or neutral evaluator;

Be it enacted by the Senate and House of Representatives of the (c) "Authenticate" means to sign, execute or adopt a symbol, or encrypt a
Philippines in Congress assembled: record in whole or in part, intended to identity the authenticating party and
to adopt, accept or establish the authenticity of a record or term;
CHAPTER 1 - GENERAL PROVISIONS
(d) "Arbitration" means a voluntary dispute resolution process in which one
SECTION 1. Title. - This act shall be known as the "Alternative Dispute or more arbitrators, appointed in accordance with the agreement of the
Resolution Act of 2004." parties, or rules promulgated pursuant to this Act, resolve a dispute by
rendering an award;
SEC. 2. Declaration of Policy. - it is hereby declared the policy of the
State to actively promote party autonomy in the resolution of disputes or (e) "Arbitrator" means the person appointed to render an award, alone or
the freedom of the party to make their own arrangements to resolve their with others, in a dispute that is the subject of an arbitration agreement;
disputes. Towards this end, the State shall encourage and actively promote
the use of Alternative Dispute Resolution (ADR) as an important means to (f) "Award" means any partial or final decision by an arbitrator in resolving
achieve speedy and impartial justice and declog court dockets. As such, the the issue in a controversy;
State shall provide means for the use of ADR as an efficient tool and an
alternative procedure for the resolution of appropriate cases. Likewise, the (g) "Commercial Arbitration" An arbitration is "commercial if it covers
State shall enlist active private sector participation in the settlement of matter arising from all relationships of a commercial nature, whether
disputes through ADR. This Act shall be without prejudice to the adoption contractual or not;
by the Supreme Court of any ADR system, such as mediation, conciliation,
(h) "Confidential information" means any information, relative to the
arbitration, or any combination thereof as a means of achieving speedy and
subject of mediation or arbitration, expressly intended by the source not to
efficient means of resolving cases pending before all courts in the
be disclosed, or obtained under circumstances that would create a
Philippines which shall be governed by such rules as the Supreme Court
reasonable expectation on behalf of the source that the information shall
may approve from time to time.
not be disclosed. It shall include (1) communication, oral or written, made
SEC. 3. Definition of Terms. - For purposes of this Act, the term: in a dispute resolution proceedings, including any memoranda, notes or
work product of the neutral party or non-party participant, as defined in
(a) "Alternative Dispute Resolution System" means any process or this Act; (2) an oral or written statement made or which occurs during
procedure used to resolve a dispute or controversy, other than by mediation or for purposes of considering, conducting, participating,
adjudication of a presiding judge of a court or an officer of a government initiating, continuing of reconvening mediation or retaining a mediator; and
agency, as defined in this Act, in which a neutral third party participates to (3) pleadings, motions manifestations, witness statements, reports filed or
assist in the resolution of issues, which includes arbitration, mediation, submitted in an arbitration or for expert evaluation;
conciliation, early neutral evaluation, mini-trial, or any combination
thereof; (i) "Convention Award" means a foreign arbitral award made in a
Convention State;
(b) "ADR Provider" means institutions or persons accredited as mediator,
conciliator, arbitrator, neutral evaluator, or any person exercising similar (j) "Convention State" means a State that is a member of the New York
functions in any Alternative Dispute Resolution system. This is without Convention;
 Arbit-Part II |2

(k) "Court" as referred to in Article 6 of the Model Law shall mean a makers with or without the presence of a neutral third person after which
Regional Trial Court; the parties seek a negotiated settlement;

(l) "Court-Annexed Mediation" means any mediation process conducted (v) "Model Law" means the Model Law on International Commercial
under the auspices of the court, after such court has acquired jurisdiction Arbitration adopted by the United Nations Commission on International
of the dispute; Trade Law on 21 June 1985;

(m) "Court-Referred Mediation" means mediation ordered by a court to be (w) "New York Convention" means the United Nations Convention on the
conducted in accordance with the Agreement of the Parties when as action Recognition and Enforcement of Foreign Arbitral Awards approved in 1958
is prematurely commenced in violation of such agreement; and ratified by the Philippine Senate under Senate Resolution No. 71;

(n) "Early Neutral Evaluation" means an ADR process wherein parties and (x) "Non-Convention Award" means a foreign arbitral award made in a
their lawyers are brought together early in a pre-trial phase to present State which is not a Convention State;
summaries of their cases and receive a nonbinding assessment by an
experienced, neutral person, with expertise in the subject in the substance (y) "Non-Convention State" means a State that is not a member of the
of the dispute; New York Convention.

(o) "Government Agency" means any government entity, office or officer, (z) "Non-Party Participant" means a person, other than a party or
other than a court, that is vested by law with quasi-judicial power to mediator, who participates in a mediation proceeding as a witness,
resolve or adjudicate dispute involving the government, its agencies and resource person or expert;
instrumentalities, or private persons;
(aa) "Proceeding" means a judicial, administrative, or other adjudicative
(p) "International Party" shall mean an entity whose place of business is process, including related pre-hearing motions, conferences and discovery;
outside the Philippines. It shall not include a domestic subsidiary of such
(bb) "Record" means an information written on a tangible medium or
international party or a coventurer in a joint venture with a party which has
stored in an electronic or other similar medium, retrievable form; and
its place of business in the Philippines.
(cc) "Roster" means a list of persons qualified to provide ADR services as
The term foreigner arbitrator shall mean a person who is not a national of
neutrals or to serve as arbitrators.
the Philippines.
SEC. 4. Electronic Signatures in Global and E-Commerce Act. - The
(q) "Mediation" means a voluntary process in which a mediator, selected by
provisions of the Electronic Signatures in Global and E-Commerce Act, and
the disputing parties, facilitates communication and negotiation, and assist
its implementing Rules and Regulations shall apply to proceeding
the parties in reaching a voluntary agreement regarding a dispute.
contemplated in this Act.
(r) "Mediator" means a person who conducts mediation;
SEC. 5. Liability of ADR Provider and Practitioner. - The ADR
(s) "Mediation Party" means a person who participates in a mediation and providers and practitioners shall have the same civil liability for the Acts
whose consent is necessary to resolve the dispute; done in the performance of then duties as that of public officers as
provided in Section 38 (1), Chapter 9, Book of the Administrative Code of
(t) "Mediation-Arbitration" or Med-Arb is a step dispute resolution process 1987.
involving both mediation and arbitration;
SEC. 6. Exception to the Application of this Act. - The provisions of
(u) "Mini-Trial" means a structured dispute resolution method in which the this Act shall not apply to resolution or settlement of the following: (a)
merits of a case are argued before a panel comprising senior decision labor disputes covered by Presidential Decree No. 442, otherwise known as
 Arbit-Part II |3

the Labor Code of the Philippines, as amended and its Implementing Rules any other person who obtains or possesses confidential information by
and Regulations; (b) the civil status of persons; (c) the validity of a reason of his/her profession.
marriage; (d) any ground for legal separation; (e) the jurisdiction of
courts; (f) future legitime; (g) criminal liability; and (h) those which by law (e) The protections of this Act shall continue to apply even of a mediator is
cannot be compromised. found to have failed to act impartially.

CHAPTER 2 - MEDIATION (f) a mediator may not be called to testify to provide information gathered
in mediation. A mediator who is wrongfully subpoenaed shall be
SEC. 7. Scope. - The provisions of this Chapter shall cover voluntary reimbursed the full cost of his attorney's fees and related expenses.
mediation, whether ad hoc or institutional, other than court-annexed. The
term "mediation' shall include conciliation. SEC. 10. Waiver of Confidentiality. - A privilege arising from the
confidentiality of information may be waived in a record, or orally during a
SEC. 8. Application and Interpretation. - In applying construing the proceeding by the mediator and the mediation parties.
provisions of this Chapter, consideration must be given to the need to
promote candor or parties and mediators through confidentiality of the A privilege arising from the confidentiality of information may likewise be
mediation process, the policy of fostering prompt, economical, and waived by a nonparty participant if the information is provided by such
amicable resolution of disputes in accordance with the principles of nonparty participant.
integrity of determination by the parties, and the policy that the decision-
A person who discloses confidential information shall be precluded from
making authority in the mediation process rests with the parties.
asserting the privilege under Section 9 of this Chapter to bar disclosure of
SEC. 9. Confidentiality of Information. - Information obtained through the rest of the information necessary to a complete understanding of the
mediation proceedings shall be subject to the following principles and previously disclosed information. If a person suffers loss or damages in a
guidelines: judicial proceeding against the person who made the disclosure.

(a) Information obtained through mediation shall be privileged and A person who discloses or makes a representation about a mediation is
confidential. preclude from asserting the privilege under Section 9, to the extent that
the communication prejudices another person in the proceeding and it is
(b) A party, a mediator, or a nonparty participant may refuse to disclose necessary for the person prejudiced to respond to the representation of
and may prevent any other person from disclosing a mediation disclosure.
communication.
SEC. 11. Exceptions to Privilege. -
(c) Confidential Information shall not be subject to discovery and shall be
inadmissible if any adversarial proceeding, whether judicial or quasi- (a) There is no privilege against disclosure under Section 9 if mediation
judicial, However, evidence or information that is otherwise admissible or communication is:
subject to discovery does not become inadmissible or protected from
(1) in an agreement evidenced by a record authenticated by all parties to
discovery solely by reason of its use in a mediation.
the agreement;
(d) In such an adversarial proceeding, the following persons involved or
(2) available to the public or that is made during a session of a mediation
previously involved in a mediation may not be compelled to disclose
which is open, or is required by law to be open, to the public;
confidential information obtained during mediation: (1) the parties to the
dispute; (2) the mediator or mediators; (3) the counsel for the parties; (4)
(3) a threat or statement of a plan to inflict bodily injury or commit a crime
the nonparty participants; (5) any persons hired or engaged in connection
of violence;
with the mediation as secretary, stenographer, clerk or assistant; and (6)
 Arbit-Part II |4

(4) internationally used to plan a crime, attempt to commit, or commit a authority that make a ruling on a dispute that is the subject of a mediation,
crime, or conceal an ongoing crime or criminal activity; except:

(5) sought or offered to prove or disprove abuse, neglect, abandonment, or (a) Where the mediation occurred or has terminated, or where a
exploitation in a proceeding in which a public agency is protecting the settlement was reached.
interest of an individual protected by law; but this exception does not apply
where a child protection matter is referred to mediation by a court or a (b) As permitted to be disclosed under Section 13 of this Chapter.
public agency participates in the child protection mediation;
SEC. 13. Mediator's Disclosure and Conflict of Interest. - The
(6) sought or offered to prove or disprove a claim or complaint of mediation shall be guided by the following operative principles:
professional misconduct or malpractice filed against mediator in a
(a) Before accepting a mediation, an individual who is requested to serve
proceeding; or
as a mediator shall:
(7) sought or offered to prove or disprove a claim of complaint of
(1) make an inquiry that is reasonable under the circumstances to
professional misconduct of malpractice filed against a party, nonparty
determinate whether there are any known facts that a reasonable
participant, or representative of a party based on conduct occurring during
individual would consider likely to affect the impartiality of the mediator,
a mediation.
including a financial or personal interest in the outcome of the mediation
(b) There is no privilege under Section 9 if a court or administrative and any existing or past relationship with a party or foreseeable participant
agency, finds, after a hearing in camera, that the party seeking discovery in the mediation; and
of the proponent of the evidence has shown that the evidence is not
(2) disclosure to the mediation parties any such fact known or learned as
otherwise available, that there is a need for the evidence that substantially
soon as is practical before accepting a mediation.
outweighs the interest in protecting confidentiality, and the mediation
communication is sought or offered in:
(b) If a mediation learns any fact described in paragraph (a) (1) of this
section after accepting a mediation, the mediator shall disclose it as soon
(1) a court proceeding involving a crime or felony; or
as practicable.
(2) a proceeding to prove a claim or defense that under the law is sufficient
At the request of a mediation party, an individual who is requested to serve
to reform or avoid a liability on a contract arising out of the mediation.
as mediator shall disclose his/her qualifications to mediate a dispute.
(c) A mediator may not be compelled to provide evidence of a mediation
This Act does not require that a mediator shall have special qualifications
communication or testify in such proceeding.
by background or profession unless the special qualifications of a mediator
(d) If a mediation communication is not privileged under an exception in are required in the mediation agreement or by the mediation parties.
subsection (a) or (b), only the portion of the communication necessary for
SEC. 14. Participation in Mediation. - Except as otherwise provided in
the application of the exception for nondisclosure may be admitted. The
this Act, a party may designate a lawyer or any other person to provide
admission of particular evidence for the limited purpose of an exception
assistance in the mediation. A lawyer of this right shall be made in writing
does not render that evidence, or any other mediation communication,
by the party waiving it. A waiver of participation or legal representation
admissible for any other purpose.
may be rescinded at any time.
SEC. 12. Prohibited Mediator Reports. - A mediator may not make a
SEC. 15. Place of Mediation. - The parties are free to agree on the place
report, assessment, evaluation, recommendation, finding, or other
of mediation. Failing such agreement, the place of mediation shall be any
communication regarding a mediation to a court or agency or other
place convenient and appropriate to all parties.
 Arbit-Part II |5

SEC. 16. Effect of Agreement to Submit Dispute to Mediation Under SEC. 18. Referral of Dispute to other ADR Forms. - The parties may
Institutional Rules. - An agreement to submit a dispute to mediation by agree to refer one or more or all issues arising in a dispute or during its
any institution shall include an agreement to be bound by the internal pendency to other forms of ADR such as but not limited to (a) the
mediation and administrative policies of such institution. Further, an evaluation of a third person or (b) a mini-trial, (c) mediation-arbitration, or
agreement to submit a dispute to mediation under international mediation a combination thereof.
rule shall be deemed to include an agreement to have such rules govern
the mediation of the dispute and for the mediator, the parties, their For purposes of this Act, the use of other ADR forms shall be governed by
respective counsel, and nonparty participants to abide by such rules. Chapter 2 of this Act except where it is combined with arbitration in which
case it shall likewise be governed by Chapter 5 of this Act.
In case of conflict between the institutional mediation rules and the
provisions of this Act, the latter shall prevail. CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION

SEC. 17. Enforcement of Mediated Settlement Agreement. - The SEC. 19. Adoption of the Model Law on International Commercial
mediation shall be guided by the following operative principles: Arbitration. - International commercial arbitration shall be governed by
the Model Law on International Commercial Arbitration (the "Model Law")
(a) A settlement agreement following successful mediation shall be adopted by the United Nations Commission on International Trade Law on
prepared by the parties with the assistance of their respective counsel, if June 21, 1985 (United Nations Document A/40/17) and recommended
any, and by the mediator. approved on December 11, 1985, copy of which is hereto attached as
Appendix "A".
The parties and their respective counsels shall endeavor to make the terms
and condition thereof complete and make adequate provisions for the SEC. 20. Interpretation of Model Law. - In interpreting the Model Law,
contingency of breach to avoid conflicting interpretations of the agreement. regard shall be had to its international origin and to the need for uniformity
in its interpretation and resort may be made to the travaux
(b) The parties and their respective counsels, if any, shall sign the preparatories and the report of the Secretary General of the United Nations
settlement agreement. The mediator shall certify that he/she explained the Commission on International Trade Law dated March 25, 1985 entitled,
contents of the settlement agreement to the parties in a language known "International Commercial Arbitration: Analytical Commentary on Draft
to them. Trade identified by reference number A/CN. 9/264."

(c) If the parties so desire, they may deposit such settlement agreement SEC. 21. Commercial Arbitration. - An arbitration is "commercial" if it
with the appropriate Clerk of a Regional Trial Court of the place where one covers matters arising from all relationships of a commercial nature,
of the parties resides. Where there is a need to enforce the settlement whether contractual or not. Relationships of a transactions: any trade
agreement, a petition may be filed by any of the parties with the same transaction for the supply or exchange of goods or services; distribution
court, in which case, the court shall proceed summarily to hear the agreements; construction of works; commercial representation or agency;
petition, in accordance with such rules of procedure as may be factoring; leasing, consulting; engineering; licensing; investment;
promulgated by the Supreme Court. financing; banking; insurance; joint venture and other forms of industrial
or business cooperation; carriage of goods or passengers by air, sea, rail or
(d) The parties may agree in the settlement agreement that the mediator
road.
shall become a sole arbitrator for the dispute and shall treat the settlement
agreement as an arbitral award which shall be subject to enforcement SEC. 22. Legal Representation in International Arbitration. - In
under Republic Act No. 876, otherwise known as the Arbitration Law, international arbitration conducted in the Philippines, a party may be
notwithstanding the provisions of Executive Order No. 1008 for mediated presented by any person of his choice. Provided, that such representative,
dispute outside of the CIAC. unless admitted to the practice of law in the Philippines, shall not be
authorized to appear as counsel in any Philippine court, or any other quasi-
CHAPTER 3 - OTHER ADR FORMS
 Arbit-Part II |6

judicial body whether or not such appearance is in relation to the unless the latter shall fail or refuse to act within thirty (30) days from
arbitration in which he appears. receipt of the request in which case the applicant may renew the
application with the Court.
SEC. 23. Confidential of Arbitration Proceedings. - The arbitration
proceedings, including the records, evidence and the arbitral award, shall SEC. 28. Grant of Interim Measure of Protection. -
be considered confidential and shall not be published except (1) with the
consent of the parties, or (2) for the limited purpose of disclosing to the (a) It is not incompatible with an arbitration agreement for a party to
court of relevant documents in cases where resort to the court is allowed request, before constitution of the tribunal, from a Court an interim
herein. Provided, however, that the court in which the action or the appeal measure of protection and for the Court to grant such measure. After
is pending may issue a protective order to prevent or prohibit disclosure of constitution of the arbitral tribunal and during arbitral proceedings, a
documents or information containing secret processes, developments, request for an interim measure of protection or modification thereof, may
research and other information where it is shown that the applicant shall be made with the arbitral tribunal or to the extent that the arbitral tribunal
be materially prejudiced by an authorized disclosure thereof. has no power to act or is unable to act effectively, the request may be
made with the Court. The arbitral tribunal is deemed constituted when the
SEC. 24. Referral to Arbitration. - A court before which an action is sole arbitrator or the third arbitrator who has been nominated, has
brought in a matter which is the subject matter of an arbitration agreement accepted the nomination and written communication of said nomination
shall, if at least one party so requests not later that the pre-trial and acceptance has been received by the party making request.
conference, or upon the request of both parties thereafter, refer the parties
to arbitration unless it finds that the arbitration agreement is null and void, (b) The following rules on interim or provisional relief shall be observed:
inoperative or incapable of being performed.
(1) Any party may request that provision relief be granted against the
SEC. 25. Interpretation of the Act. - In interpreting the Act, the court adverse party:
shall have due regard to the policy of the law in favor of arbitration. Where
(2) Such relief may be granted:
action is commenced by or against multiple parties, one or more of whom
are parties who are bound by the arbitration agreement although the civil
(i) to prevent irreparable loss or injury:
action may continue as to those who are not bound by such arbitration
agreement. (ii) to provide security for the performance of any obligation;

SEC. 26. Meaning of "Appointing Authority.". - "Appointing Authority" (iii) to produce or preserve any evidence; or
as used in the Model Law shall mean the person or institution named in the
arbitration agreement as the appointing authority; or the regular (iv) to compel any other appropriate act or omission.
arbitration arbitration institution under whose rules the arbitration is
agreed to be conducted. Where the parties have agreed to submit their (3) The order granting provisional relief may be conditioned upon the
dispute to institutional arbitration rules, and unless they have agreed to a provision of security or any act or omission specified in the order.
different procedure, they shall be deemed to have agreed to procedure
(4) Interim or provisional relief is requested by written application
under such arbitration rules for the selection and appointment of
transmitted by reasonable means to the Court or arbitral tribunal as the
arbitrators. In ad hoc arbitration, the default appointment of an arbitrator
case may be and the party against whom the relief is sought, describing in
shall be made by the National President of the Integrated Bar of the
appropriate detail the precise relief, the party against whom the relief is
Philippines (IBP) or his duly authorized representative.
requested, the grounds for the relief, and evidence supporting the request.
SEC. 27. What Functions May be Performed by Appointing
(5) The order shall be binding upon the parties.
Authority. - The functions referred to in Articles 11(3), 11(4), 13(3) and
14(1) of the Model Law shall be performed by the Appointing Authority,
 Arbit-Part II |7

(6) Either party may apply with the Court for assistance in Implementing by the parties or determined in accordance with paragraph 1 of this
or enforcing an interim measure ordered by an arbitral tribunal. section.

(7) A party who does not comply with the order shall be liable for all CHAPTER 5 - DOMESTIC ARBITRATION
damages resulting from noncompliance, including all expenses, and
reasonable attorney's fees, paid in obtaining the order's judicial SEC. 32. Law Governing Domestic Arbitration. - Domestic arbitration
enforcement. shall continue to be governed by Republic Act No. 876, otherwise known as
"The Arbitration Law" as amended by this Chapter. The term "domestic
SEC. 29. Further Authority for Arbitrator to Grant Interim Measure arbitration" as used herein shall mean an arbitration that is not
of Protection. - Unless otherwise agreed by the parties, the arbitral international as defined in Article (3) of the Model Law.
tribunal may, at the request of a party, order any party to take such
interim measures of protection as the arbitral tribunal may consider SEC. 33. Applicability to Domestic Arbitration. - Article 8, 10, 11, 12,
necessary in respect of the subject matter of the dispute following the rules 13, 14, 18 and 19 and 29 to 32 of the Model Law and Section 22 to 31 of
in Section 28, paragraph 2. Such interim measures may include but shall the preceding Chapter 4 shall apply to domestic arbitration.
not be limited to preliminary injuction directed against a party,
CHAPTER 6 - ARBITRATION OF CONSTRUCTION DISPUTES
appointment of receivers or detention, preservation, inspection of property
that is the subject of the dispute in arbitration. Either party may apply with
SEC. 34. Arbitration of Construction Disputes: Governing Law. - The
the Court for assistance in implementing or enforcing an interim measures
arbitration of construction disputes shall be governed by Executive Order
ordered by an arbitral tribunal.
No. 1008, otherwise known as the Constitution Industry Arbitration Law.
SEC. 30. Place of Arbitration. - The parties are free to agree on the
SEC. 35. Coverage of the Law. - Construction disputes which fall within
place of arbitration. Failing such agreement, the place of arbitration shall
the original and exclusive jurisdiction of the Construction Industry
be in Metro Manila, unless the arbitral tribunal, having regard to the
Arbitration Commission (the "Commission") shall include those between or
circumstances of the case, including the convenience of the parties shall
among parties to, or who are otherwise bound by, an arbitration
decide on a different place of arbitration.
agreement, directly or by reference whether such parties are project
owner, contractor, subcontractor, quantity surveyor, bondsman or issuer of
The arbitral tribunal may, unless otherwise agreed by the parties, meet at
an insurance policy in a construction project.
any place it considers appropriate for consultation among its members, for
hearing witnesses, experts, or the parties, or for inspection of goods, other
The Commission shall continue to exercise original and exclusive
property or documents.
jurisdiction over construction disputes although the arbitration is
"commercial" pursuant to Section 21 of this Act.
SEC. 31. Language of the Arbitration. - The parties are free to agree on
the language or languages to be used in the arbitral proceedings. Failing
SEC. 36. Authority to Act as Mediator or Arbitrator. - By written
such agreement, the language to be used shall be English in international
agreement of the parties to a dispute, an arbitrator may act as mediator
arbitration, and English or Filipino for domestic arbitration, unless the
and a mediator may act as arbitrator. The parties may also agree in writing
arbitral tribunal shall determine a different or another language or
that, following a successful mediation, the mediator shall issue the
languages to be used in the proceedings. This agreement or determination,
settlement agreement in the form of an arbitral award.
unless otherwise specified therein, shall apply to any written statement by
a party, any hearing and any award, decision or other communication by SEC. 37. Appointment of Foreign Arbitrator. - The Construction
the arbitral tribunal. Industry Arbitration Commission (CIAC) shall promulgate rules to allow for
the appointment of a foreign arbitrator or coarbitrator or chairman of a
The arbitral tribunal may order that any documentary evidence shall be
tribunal a person who has not been previously accredited by CIAC:
accompanied by a translation into the language or languages agreed upon
Provided, That:
 Arbit-Part II |8

(a) the dispute is a construction dispute in which one party is an SEC. 41. Vacation Award. - A party to a domestic arbitration may
international party question the arbitral award with the appropriate regional trial court in
accordance with the rules of procedure to be promulgated by the Supreme
(b) the person to be appointed agreed to abide by the arbitration rules and Court only on those grounds enumerated in Section 25 of Republic Act No.
policies of CIAC; 876. Any other ground raised against a domestic arbitral award shall be
disregarded by the regional trial court.
(c) he/she is either coarbitrator upon the nomination of the international
party; or he/she is the common choice of the two CIAC-accredited B. FOREIGN ARBITRAL AWARDS
arbitrators first appointed one of whom was nominated by the international
party; and SEC. 42. Application of the New York Convention. - The New York
Convention shall govern the recognition and enforcement of arbitral awards
(d) the foreign arbitrator shall be of different nationality from the covered by the said Convention.
international party.
The recognition and enforcement of such arbitral awards shall be filled with
SEC. 38. Applicability to Construction Arbitration. - The provisions of regional trial court in accordance with the rules of procedure to be
Sections 17 (d) of Chapter 2, and Section 28 and 29 of this Act shall apply promulgated by the Supreme Court. Said procedural rules shall provide
to arbitration of construction disputes covered by this Chapter. that the party relying on the award or applying for its enforcement shall file
with the court the original or authenticated copy of the award and the
SEC. 39. Court to Dismiss Case Involving a Construction Dispute. - A
arbitration agreement. If the award or agreement is not made in any of the
regional trial court which a construction dispute is filed shall, upon
official languages, the party shall supply a duly certified translation thereof
becoming aware, not later than the pretrial conference, that the parties
into any of such languages.
had entered into an arbitration to be conducted by the CIAC, unless both
parties, assisted by their respective counsel, shall submit to the regional The applicant shall establish that the country in which foreign arbitration
trial court a written agreement exclusive for the Court, rather than the award was made is a party to the New York Convention.
CIAC, to resolve the dispute.
If the application for rejection or suspension of enforcement of an award
CHAPTER 7 - JUDICIAL REVIEW OF ARBITRAL AWARDS has been made, the regional trial court may, if it considers it proper,
vacate its decision and may also, on the application of the party claiming
A. DOMESTIC AWARDS
recognition or enforcement of the award, order the party to provide
appropriate security.
SEC. 40. Confirmation of Award. - The confirmation of a domestic
arbitral award shall be governed by Section 23 of R.A. 876.
SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards
Not Covered by the New York Convention. - The recognition and
A domestic arbitral award when confirmed shall be enforced in the same
enforcement of foreign arbitral awards not covered by the New York
manner as final and executory decisions of the Regional Trial Court.
Convention shall be done in accordance with procedural rules to be
The confirmation of a domestic award shall be made by the regional trial promulgated by the Supreme Court. The Court may, grounds of comity and
court in accordance with the Rules of Procedure to be promulgated by the reciprocity, recognize and enforce a nonconvention award as a convention
Supreme Court. award.

A CIAC arbitral award need not be confirmed by the regional trial court to SEC. 44. Foreign Arbitral Award Not Foreign Judgment. - A foreign
be executory as provided under E.O. No. 1008. arbitral award when confirmed by a court of a foreign country, shall be
recognized and enforced as a foreign arbitral award and not a judgment of
a foreign court.
 Arbit-Part II |9

A foreign arbitral award, when confirmed by the regional trial court, shall CHAPTER 8 - MISCELLANEOUS PROVISIONS
be enforced as a foreign arbitral award and not as a judgment of a foreign
court. SEC. 49. Office for Alternative Dispute Resolution. - There is hereby
established the Office for Alternative Dispute Resolution as an attached
A foreign arbitral award, when confirmed by the regional trial court, shall agency to the Department of Justice (DOJ) which shall have a Secretariat
be enforced in the same manner as final and executory decisions of courts to be headed by an executive director. The executive director shall be
of law of the Philippines. appointed by the President of the Philippines.

SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign The objective of the office are:
arbitration proceeding may oppose an application for recognition and
enforcement of the arbitral award in accordance with the procedural rules (a) to promote, develop and expand the use of ADR in the private and
to be promulgated by the Supreme Court only on those grounds public sectors; and
enumerated under Article V of the New York Convention. Any other ground
To assist the government to monitor, study and evaluate the use by the
raised shall be disregarded by the regional trial court.
public and the private sector of ADR, and recommend to Congress needful
SEC. 46. Appeal from Court Decisions on Arbitral Awards. - A statutory changes to develop. Strengthen and improve ADR practices in
decision of the regional trial court confirming, vacating, setting aside, accordance with world standards.
modifying or correcting an arbitral award may be appealed to the Court of
SEC. 50. Powers and Functions of the Office for Alternative Dispute
Appeals in accordance with the rules of procedure to be promulgated by
Resolution. - The Office for Alternative Dispute Resolution shall have the
the Supreme Court.
following powers and functions:
The losing party who appeals from the judgment of the court confirming an
(a) To formulate standards for the training of the ADR practitioners and
arbitral award shall required by the appealant court to post counterbond
service providers;
executed in favor of the prevailing party equal to the amount of the award
in accordance with the rules to be promulgated by the Supreme Court.
(b) To certify that such ADR practitioners and ADR service providers have
undergone the professional training provided by the office;
SEC. 47. Venue and Jurisdiction. - Proceedings for recognition and
enforcement of an arbitration agreement or for vacation, setting aside,
(c) To coordinate the development, implementation, monitoring, and
correction or modification of an arbitral award, and any application with a
evaluation of government ADR programs;
court for arbitration assistance and supervision shall be deemed as special
proceedings and shall be filled with the regional trial court (i) where (d) To charge fees for their services; and
arbitration proceedings are conducted; (ii) where the asset to be attached
or levied upon, or the act to be enjoined is located; (iii) where any of the (e) To perform such acts as may be necessary to carry into effect the
parties to the dispute resides or has his place of business; or (iv) in the provisions of this Act.
National Judicial Capital Region, at the option of the applicant.
SEC. 51. Appropriations. - The amount necessary to carry out the
SEC. 48. Notice of Proceeding to Parties. - In a special proceeding for provisions of this Act shall be included in the General Appropriations Act of
recognition and enforcement of an arbitral award, the Court shall send the year following its enactment into law and thereafter.
notice to the parties at their address of record in the arbitration, or if any
party cannot be served notice at such address, at such party's last known SEC. 52. Implementing Rules and Regulations (IRR). - Within one (1)
address. The notice shall be sent at least fifteen (15) days before the date month after the approval of this Act, the secretary of justice shall convene
set for the initial hearing of the application. a committee that shall formulate the appropriate rules and regulations
 Arbit-Part II |10

necessary for the implementation of this Act. The committee, composed of

representatives from:

(a) the Department of Justice;

(b) the Department of Trade and Industry;

(c) the Department of the Interior and Local Government;

(d) the president of the Integrated Bar of the Philippines;

(e) A representative from the arbitration profession; and

(f) A representative from the mediation profession; and

(g) A representative from the ADR organizations

shall within three (3) months after convening, submit the IRR to the Joint
Congressional Oversight Committee for review and approval. The Oversight
Committee shall be composed of the chairman of the Senate Committee on
Justice and Human Rights, chairman of the House Committee on Justice,
and one (1) member each from the majority and minority of both Houses.

The Joint Oversight Committee shall become functus officio upon approval
of the IRR.

SEC. 53. Applicability of the Katarungan Pambarangay. - This Act

shall not be interpreted to repeal, amend or modify the jurisdiction of the
Katarungan Pambarangay under Republic Act No. 7160, otherwise known
as the Local Government Code of 1991.

SEC. 54. Repealing Clause. - All laws, decrees, executive orders, rules
and regulations which are inconsistent with the provisions of this Act are
hereby repealed, amended or modified accordingly.

SEC. 55. Separability Clause. - If for any reason or reasons, any portion
or provision of this Act shall be held unconstitutional or invalid, all other
parts or provisions not affected shall thereby continue to remain in full
force and effect.

SEC. 56. Effectivity. - This act shall take effect fifteen days (15) after its
publication in at least two (2) national newspapers of general circulation.
 Arbit-Part II |11

SUBMISSION TO ARBITRATION representative.7 The parties stipulated that the building shall be completed
not later than 30 November 1991. As found by the CIAC, the building was
1. G.R. No. 126619 December 20, 2006 eventually finished on 15 February 19928 and turned over to Uniwide.

UNIWIDE SALES REALTY AND RESOURCES PROJECT 2.

CORPORATION, petitioner,
vs. Sometime in July 1992, Titan and Uniwide entered into the second
TITAN-IKEDA CONSTRUCTION AND DEVELOPMENT agreement (Project 2) whereby the former agreed to construct an
CORPORATION, respondent. additional floor and to renovate the latter's warehouse located at the EDSA
Central Market Area in Mandaluyong City. There was no written contract
DECISION executed between the parties for this project. Construction was allegedly to
be on the basis of drawings and specifications provided by Uniwide's
TINGA, J.: structural engineers. The parties proceeded on the basis of a cost estimate
of P21,301,075.77 inclusive of Titan's 20% mark-up. Titan conceded in its
This Petition for Review on Certiorari under Rule 45 seeks the partial complaint to having received P15,000,000.00 of this amount. This project
reversal of the 21 February 1996 Decision1 of the Court of Appeals was completed in the latter part of October 1992 and turned over to
Fifteenth Division in CA-G.R. SP No. 37957 which modified the 17 April Uniwide.
1995 Decision2 of the Construction Industry Arbitration Commission
(CIAC). PROJECT 3.9

The case originated from an action for a sum of money filed by Titan-Ikeda The parties executed the third agreement (Project 3) in May 1992. In a
Construction and Development Corporation (Titan) against Uniwide Sales written "Construction Contract," Titan undertook to construct the Uniwide
Realty and Resources Corporation (Uniwide) with the Regional Trial Court Sales Department Store Building in Kalookan City for the price
(RTC), Branch 119,3 Pasay City arising from Uniwide's non-payment of of P118,000,000.00 payable in progress billings to be certified to by
certain claims billed by Titan after completion of three projects covered by Uniwide's representative.10 It was stipulated that the project shall be
agreements they entered into with each other. Upon Uniwide's motion to completed not later than 28 February 1993. The project was completed
dismiss/suspend proceedings and Titan's open court manifestation agreeing and turned over to Uniwide in June 1993.
to the suspension, Civil Case No. 98-0814 was suspended for it to undergo
arbitration.4 Titan's complaint was thus re-filed with the CIAC.5 Before the Uniwide asserted in its petition that: (a) it overpaid Titan for unauthorized
CIAC, Uniwide filed an answer which was later amended and re-amended, additional works in Project 1 and Project 3; (b) it is not liable to pay the
denying the material allegations of the complaint, with counterclaims for Value-Added Tax (VAT) for Project 1; (c) it is entitled to liquidated
refund of overpayments, actual and exemplary damages, and attorney's damages for the delay incurred in constructing Project 1 and Project 3; and
fees. The agreements between Titan and Uniwide are briefly described (d) it should not have been found liable for deficiencies in the defectively
below. constructed Project 2.

PROJECT 1.6 An Arbitral Tribunal consisting of a chairman and two members was
created in accordance with the CIAC Rules of Procedure Governing
The first agreement (Project 1) was a written "Construction Contract" Construction Arbitration. It conducted a preliminary conference with the
entered into by Titan and Uniwide sometime in May 1991 whereby Titan parties and thereafter issued a Terms of Reference (TOR) which was signed
undertook to construct Uniwide's Warehouse Club and Administration by the parties. The tribunal also conducted an ocular inspection, hearings,
Building in Libis, Quezon City for a fee of P120,936,591.50, payable in and received the evidence of the parties consisting of affidavits which were
monthly progress billings to be certified to by Uniwide's subject to cross-examination. On 17 April 1995, after the parties submitted
 Arbit-Part II |12

their respective memoranda, the Arbitral Tribunal promulgated a SO ORDERED."12

Decision,11 the decretal portion of which is as follows:
Uniwide filed a motion for reconsideration of the 17 April 1995 decision
"WHEREFORE, judgment is hereby rendered as follows: which was denied by the CIAC in its Resolution dated 6 July 1995. Uniwide
accordingly filed a petition for review with the Court of Appeals, 13 which
On Project 1 Libis: rendered the assailed decision on 21 February 1996. Uniwide's motion for
reconsideration was likewise denied by the Court of Appeals in its assailed
[Uniwide] is absolved of any liability for the claims made by [Titan] on this Resolution14 dated 30 September 1996.
Project.
Hence, Uniwide comes to this Court via a petition for review under Rule 45.
Project 2 Edsa Central: The issues submitted for resolution of this Court are as follows: 15 (1)
Whether Uniwide is entitled to a return of the amount it allegedly paid by
[Uniwide] is absolved of any liability for VAT payment on this project, the mistake to Titan for additional works done on Project 1; (2) Whether
same being for the account of the [Titan]. On the other hand, [Titan] is Uniwide is liable for the payment of the Value-Added Tax (VAT) on Project
absolved of any liability on the counterclaim for defective construction of 1; (3) Whether Uniwide is entitled to liquidated damages for Projects 1 and
this project. 3; and (4) Whether Uniwide is liable for deficiencies in Project 2.

[Uniwide] is held liable for the unpaid balance in the amount As a rule, findings of fact of administrative agencies and quasi-judicial
of P6,301,075.77 which is ordered to be paid to the [Titan] with 12% bodies, which have acquired expertise because their jurisdiction is confined
interest per annum commencing from 19 December 1992 until the date of to specific matters, are generally accorded not only respect, but also
payment. finality, especially when affirmed by the Court of Appeals. 16 In particular,
factual findings of construction arbitrators are final and conclusive and not
On Project 3 Kalookan: reviewable by this Court on appeal.17 This rule, however admits of certain
exceptions.
[Uniwide] is held liable for the unpaid balance in the amount
of P5,158,364.63 which is ordered to be paid to the [Titan] with 12% In David v. Construction Industry and Arbitration Commission,18 we ruled
interest per annum commencing from 08 September 1993 until the date of that, as exceptions, factual findings of construction arbitrators may be
payment. reviewed by this Court when the petitioner proves affirmatively that: (1)
the award was procured by corruption, fraud or other undue means; (2)
[Uniwide] is held liable to pay in full the VAT on this project, in such there was evident partiality or corruption of the arbitrators or of any of
amount as may be computed by the Bureau of Internal Revenue to be paid them; (3) the arbitrators were guilty of misconduct in refusing to hear
directly thereto. The BIR is hereby notified that [Uniwide] Sales Realty and evidence pertinent and material to the controversy; (4) one or more of the
Resources Corporation has assumed responsibility and is held liable for VAT arbitrators were disqualified to act as such under Section nine of Republic
payment on this project. This accordingly exempts Claimant Titan-Ikeda Act No. 876 and willfully refrained from disclosing such disqualifications or
Construction and Development Corporation from this obligation. of any other misbehavior by which the rights of any party have been
materially prejudiced; or (5) the arbitrators exceeded their powers, or so
Let a copy of this Decision be furnished the Honorable Aurora P. Navarette imperfectly executed them, that a mutual, final and definite award upon
Recina, Presiding Judge, Branch 119, Pasay City, in Civil Case No. 94-0814 the subject matter submitted to them was not made.19
entitled Titan-Ikeda Construction Development Corporation, Plaintiff
versus Uniwide Sales Realty and Resources Corporation, Defendant, Other recognized exceptions are as follows: (1) when there is a very clear
pending before said court for information and proper action. showing of grave abuse of discretion20resulting in lack or loss of jurisdiction
as when a party was deprived of a fair opportunity to present its position
 Arbit-Part II |13

before the Arbitral Tribunal or when an award is obtained through fraud or Nonetheless, Uniwide cites Article (Art. ) 1724 of the New Civil Code as
the corruption of arbitrators,21 (2) when the findings of the Court of basis for its claim that it is not liable to pay for "additional works" it did not
Appeals are contrary to those of the CIAC,22 and (3) when a party is authorize or agree upon in writing. The provision states:
deprived of administrative due process.23
Art. 1724. The contractor who undertakes to build a structure or any other
Thus, in Hi-Precision Steel Center, Inc. v. Lim Kim Builders, Inc.,24 we work for a stipulated price, in conformity with plans and specifications
refused to review the findings of fact of the CIAC for the reason that agreed upon with the landowner, can neither withdraw from the contract
petitioner was requiring the Court to go over each individual claim and nor demand an increase in the price on account of the higher cost of labor
counterclaim submitted by the parties in the CIAC. A review of the CIAC's or materials, save when there has been a change in the plans and
findings of fact would have had the effect of "setting at naught the basic specifications, provided:
objective of a voluntary arbitration and would reduce arbitration to a
largely inutile institution." Further, petitioner therein failed to show any (1) Such change has been authorized by the proprietor in writing; and
serious error of law amounting to grave abuse of discretion resulting in lack
of jurisdiction on the part of the Arbitral Tribunal, in either the methods (2) The additional price to be paid to the contractor has been determined in
employed or the results reached by the Arbitral Tribunal, in disposing of writing by both parties.
the detailed claims of the respective parties. In Metro Construction, Inc. v.
Chatham Properties, Inc.,25 we reviewed the findings of fact of the Court of The Court of Appeals did take note of this provision, but deemed it
Appeals because its findings on the issue of whether petitioner therein was inapplicable to the case at bar because Uniwide had already paid, albeit
in delay were contrary to the findings of the CIAC. Finally, in Megaworld with unwritten reservations, for the "additional works." The provision would
Globus Asia, Inc. v. DSM Construction and Development Corporation,26 we have been operative had Uniwide refused to pay for the costs of the
declined to depart from the findings of the Arbitral Tribunal considering "additional works." Instead, the Court of Appeals applied Art. 1423 27 of the
that the computations, as well as the propriety of the awards, are New Civil Code and characterized Uniwide's payment of the said amount as
unquestionably factual issues that have been discussed by the Arbitral a voluntary fulfillment of a natural obligation. The situation was
Tribunal and affirmed by the Court of Appeals. characterized as being akin to Uniwide being a debtor who paid a debt
even while it knew that it was not legally compelled to do so. As such
In the present case, only the first issue presented for resolution of this debtor, Uniwide could no longer demand the refund of the amount already
Court is a question of law while the rest are factual in nature. However, we paid.
do not hesitate to inquire into these factual issues for the reason that the
CIAC and the Court of Appeals, in some matters, differed in their findings. Uniwide counters that Art. 1724 makes no distinction as to whether
payment for the "additional works" had already been made. It claims that
We now proceed to discuss the issues in seriatim. it had made the payments, subject to reservations, upon the false
representation of Titan-Ikeda that the "additional works" were authorized
Payment by Mistake for Project 1 in writing. Uniwide characterizes the payment as a "mistake," and not a
"voluntary" fulfillment under Art. 1423 of the Civil Code. Hence, it urges
The first issue refers to the P5,823,481.75 paid by Uniwide for additional the application, instead, of the principle of solutio indebiti under Arts.
works done on Project 1. Uniwide asserts that Titan was not entitled to be 215428 and 215629 of the Civil Code.
paid this amount because the additional works were without any written
authorization. To be certain, this Court has not been wont to give an expansive
construction of Art. 1724, denying, for example, claims that it applies to
It should be noted that the contracts do not contain stipulations on constructions made of ship vessels,30 or that it can validly deny the claim
"additional works," Uniwide's liability for "additional works," and prior for payment of professional fees to the architect. 31 The present situation
approval as a requirement before Titan could perform "additional works." though presents a thornier problem. Clearly, Art. 1724 denies, as a matter
 Arbit-Part II |14

of right, payment to the contractor for additional works which were not this Court to agree with this most basic premise submitted by Uniwide that
authorized in writing by the proprietor, and the additional price of which it did not authorize the additional works on Project 1 undertaken by Titan.
was not determined in writing by the parties. Still, Uniwide does cite testimonial evidence from the record alluding to a
concession by employees of Titan that these additional works on Project 1
Yet the distinction pointed out by the Court of Appeals is material. The were either authorized or documented.33
issue is no longer centered on the right of the contractor to demand
payment for additional works undertaken because payment, whether Yet even conceding that the additional works on Project 1 were not
mistaken or not, was already made by Uniwide. Thus, it would not authorized or committed into writing, the undisputed fact remains that
anymore be incumbent on Titan to establish that it had the right to Uniwide paid for these additional works. Thus, to claim a refund of
demand or receive such payment. payments made under the principle of solutio indebiti, Uniwide must be
able to establish that these payments were made through mistake. Again,
But, even if the Court accepts Art. 1724 as applicable in this case, such this is a factual matter that would have acquired a mantle of invulnerability
recognition does not ipso facto accord Uniwide the right to be reimbursed had it been determined by both the CIAC and the Court of Appeals.
for payments already made, since Art. 1724 does not effect such right of However, both bodies failed to arrive at such a conclusion. Moreover,
reimbursement. It has to be understood that Art. 1724 does not preclude Uniwide is unable to direct our attention to any pertinent part of the record
the payment to the contractor who performs additional works without any that would indeed establish that the payments were made by reason of
prior written authorization or agreement as to the price for such works if mistake.
the owner decides anyway to make such payment. What the provision does
preclude is the right of the contractor to insist upon payment for We note that Uniwide alleged in its petition that the CIAC award in favor of
unauthorized additional works. Titan in the amount P5,158,364.63 as the unpaid balance in Project 3
included claims for additional works of P1,087,214.18 for which no written
Accordingly, Uniwide, as the owner who did pay the contractor for such authorization was presented. Unfortunately, this issue was not included in
additional works even if they had not been authorized in writing, has to its memorandum as one of the issues submitted for the resolution of the
establish its own right to reimbursement not under Art. 1724, but under a Court.
different provision of law. Uniwide's burden of establishing its legal right to
reimbursement becomes even more crucial in the light of the general Liability for the Value-Added Tax (VAT)
presumption contained in Section 3(f), Rule 131 of the Rules of Court that
"money paid by one to another was due to the latter." The second issue takes us into an inquiry on who, under the law, is liable
for the payment of the VAT, in the absence of a written stipulation on the
Uniwide undertakes such a task before this Court, citing the provisions matter. Uniwide claims that the VAT was already included in the contract
on solutio indebiti under Arts. 2154 and 2156 of the Civil Code. However, it price for Project 1. Citing Secs. 99 and 102 of the National Internal
is not enough to prove that the payments made by Uniwide to Titan were Revenue Code, Uniwide asserts that VAT, being an indirect tax, may be
"not due" because there was no prior authorization or agreement with shifted to the buyer by including it in the cash or selling price and it is
respect to additional works. There is a further requirement that the entirely up to the buyer to agree or not to agree to absorb the VAT. 34 Thus,
payment by the debtor was made either through mistake or under a cloud Uniwide concludes, if there is no provision in the contract as to who should
of doubt. In short, for the provisions on solutio indebiti to apply, there has pay the VAT, it is presumed that it would be the seller.35
to be evidence establishing the frame of mind of the payor at the time the
payment was made.32 The contract for Project 1 is silent on which party should shoulder the VAT
while the contract for Project 3 contained a provision to the effect that
The CIAC refused to acknowledge that the additional works on Project 1 Uniwide is the party responsible for the payment of the VAT. 36 Thus, when
were indeed unauthorized by Uniwide. Neither did the Court of Appeals Uniwide paid the amount of P2,400,000.00 as billed by Titan for VAT, it
arrive at a contrary determination. There would thus be some difficulty for
 Arbit-Part II |15

assumed that it was the VAT for Project 3. However, the CIAC and the the CIAC in the TOR;39 and (4) no attempt was made to modify the TOR to
Court of Appeals found that the same was for Project 1. accommodate the same as an issue to be resolved.

We agree with the conclusions of both the CIAC and the Court of Appeals Uniwide insists that the CIAC should have applied Section 5, Rule 10 of the
that the amount of P2,400,000.00 was paid by Uniwide as VAT for Project Rules of Court.40 On this matter, the Court of Appeals held that the CIAC is
1. This conclusion was drawn from an Order of Payment 37 dated 7 October an arbitration body, which is not necessarily bound by the Rules of Court.
1992 wherein Titan billed Uniwide the amount of P2,400,000.00 as "Value Also, the Court of Appeals found that the issue has never been made
Added Tax based on P60,000,000.00 Contract," computed on the basis of concrete enough to make Titan and the CIAC aware that it will be an issue.
4% of P60,000,000.00. Said document which was approved by the In fact, Uniwide only introduced and quantified its claim for liquidated
President of Uniwide expressly indicated that the project involved was the damages in its Memorandum submitted to the CIAC at the end of the
"UNIWIDE SALES WAREHOUSE CLUB & ADMIN BLDG." located at "90 E. arbitration proceeding. The Court of Appeals also noted that the only
RODRIGUEZ JR. AVE., LIBIS, Q.C." The reduced base for the computation evidence on record to prove delay in the construction of Project 1 is the
of the tax, according to the Court of Appeals, was an indication that the testimony of Titan's engineer regarding the date of completion of the
parties agreed to pass the VAT for Project 1 to Uniwide but based on a project while the only evidence of delay in the construction of Project 3 is
lower contract price. Indeed, the CIAC found as follows: the affidavit of Uniwide's President.

Without any documentary evidence than Exhibit "H" to show the extent of According to Uniwide, the ruling of the Court of Appeals on the issue of
tax liability assumed by [Uniwide], the Tribunal holds that the parties is liquidated damages goes against the established judicial policy that a court
[sic] obliged to pay only a share of the VAT payment up to P60,000,000.00 should always strive to settle in one proceeding the entire controversy
out of the total contract price of P120,936,591.50. As explained by leaving no root or branch to bear the seeds of future litigations. 41 Uniwide
Jimmy Gow, VAT is paid on labor only for construction contracts claims that the required evidence for an affirmative ruling on its claim is
since VAT had already been paid on the materials purchased. Since already on the record. It cites the pertinent provisions of the written
labor costs is [sic] proportionately placed at 60%-40% of the contracts which contained deadlines for liquidated damages. Uniwide also
contract price, simplified accounting computes VAT at 4% of the noted that the evidence show that Project 1 was completed either on 15
contract price. Whatever is the balance for VAT that remains to be paid February 1992, as found by the CIAC, or 12 March 1992, as shown by
on Project 1 Libis shall remain the obligation of [Titan]. (Emphasis Titan's own evidence, while Project 3, according to Uniwide's President,
supplied.)38 was completed in June 1993. Furthermore, Uniwide asserts, the CIAC
should have applied procedural rules such as Section 5, Rule 10 with more
Liquidated Damages liberality because it was an administrative tribunal free from the rigid
technicalities of regular courts.42
On the third issue of liquidated damages, the CIAC rejected such claim
while the Court of Appeals held that the matter should be left for On this point, the CIAC held:
determination in future proceedings where the issue has been made clear.
The Rule of Procedure Governing Construction Arbitration promulgated by
In rejecting Uniwide's claim for liquidated damages, the CIAC held that the CIAC contains no provision on the application of the Rules of Court to
there is no legal basis for passing upon and resolving Uniwide's claim for arbitration proceedings, even in a suppletory capacity. Hypothetically
the following reasons: (1) no claim for liquidated damages arising from the admitting that there is such a provision, suppletory application is made
alleged delay was ever made by Uniwide at any time before the only if it would not contravene a specific provision in the arbitration rules
commencement of Titan's complaint; (2) the claim for liquidated damages and the spirit thereof. The Tribunal holds that such importation of the
was not included in the counterclaims stated in Uniwide's answer to Titan's Rules of Court provision on amendment to conform to evidence
complaint; (3) the claim was not formulated as an issue to be resolved by would contravene the spirit, if not the letter of the CIAC rules. This
is for the reason that the formulation of the Terms of Reference is done
 Arbit-Part II |16

with the active participation of the parties and their counsel themselves. admitted that it was in delay. We disagree. The testimony of Engr.
The TOR is further required to be signed by all the parties, their respective Tablante was offered only to prove that Project 1 was indeed completed. It
counsel and all the members of the Arbitral Tribunal. Unless the issues thus was not offered to prove the fact of delay. It must be remembered that the
carefully formulated in the Terms of Reference were expressly showed [sic] purpose for which evidence is offered must be specified because such
to be amended, issues outside thereof may not be resolved. As already evidence may be admissible for several purposes under the doctrine of
noted in the Decision, "no attempt was ever made by the [Uniwide] to multiple admissibility, or may be admissible for one purpose and not for
modify the TOR in order to accommodate the issues related to its belated another, otherwise the adverse party cannot interpose the proper
counterclaim" on this issue. (Emphasis supplied.) objection. Evidence submitted for one purpose may not be considered for
any other purpose.46Furthermore, even assuming, for the sake of
Arbitration has been defined as "an arrangement for taking and abiding by argument, that said testimony on the date of completion of Project 1 is
the judgment of selected persons in some disputed matter, instead of admitted, the establishment of the mere fact of delay is not sufficient for
carrying it to established tribunals of justice, and is intended to avoid the the imposition of liquidated damages. It must further be shown that delay
formalities, the delay, the expense and vexation of ordinary was attributable to the contractor if not otherwise justifiable. Contrarily,
litigation."43 Voluntary arbitration, on the other hand, involves the Uniwide's belated claim constitutes an admission that the delay was
reference of a dispute to an impartial body, the members of which are justified and implies a waiver of its right to such damages.
chosen by the parties themselves, which parties freely consent in advance
to abide by the arbitral award issued after proceedings where both parties Project 2: "as-built" plans, overpricing, defective construction
had the opportunity to be heard. The basic objective is to provide a speedy
and inexpensive method of settling disputes by allowing the parties to To determine whether or not Uniwide is liable for the unpaid balance
avoid the formalities, delay, expense and aggravation which commonly of P6,301,075.77 for Project 2, we need to resolve four sub-issues,
accompany ordinary litigation, especially litigation which goes through the namely: (1) whether or not it was necessary for Titan to submit "as-built"
entire hierarchy of courts.44 As an arbitration body, the CIAC can only plans before it can be paid by Uniwide; (2) whether or not there was
resolve issues brought before it by the parties through the TOR which overpricing of the project; (3) whether or not the P15,000,000.00 paid by
functions similarly as a pre-trial brief. Thus, if Uniwide's claim for liquidated Uniwide to Titan for Project 2 constitutes full payment; and (4) whether or
damages was not raised as an issue in the TOR or in any modified or not Titan can be held liable for defective construction of Project 2.
amended version of it, the CIAC cannot make a ruling on it. The Rules of
Court cannot be used to contravene the spirit of the CIAC rules, whose The CIAC, as affirmed by the Court of Appeals, held Uniwide liable for
policy and objective is to "provide a fair and expeditious settlement of deficiency relating to Project 2 in the amount of P6,301,075.77. It is
construction disputes through a non-judicial process which ensures nonetheless alleged by Uniwide that Titan failed to submit any "as-built"
harmonious and friendly relations between or among the parties."45 plans for Project 2, such plans allegedly serving as a condition precedent
for payment. Uniwide further claims that Titan had substantially
Further, a party may not be deprived of due process of law by an overcharged Uniwide for Project 2, there being uncontradicted expert
amendment of the complaint as provided in Section 5, Rule 10 of the Rules testimony that the total cost of Project 2 did not exceed P7,812,123.60.
of Court. In this case, as noted by the Court of Appeals, Uniwide only Furthermore, Uniwide alleged that the works performed were structurally
introduced and quantified its claim for liquidated damages in its defective, as evidenced by the structural damage on four columns as
memorandum submitted to the CIAC at the end of the arbitration observed on ocular inspection by the CIAC and confirmed by Titan's project
proceeding. Verily, Titan was not given a chance to present evidence to manager.
counter Uniwide's claim for liquidated damages.
On the necessity of submitting "as-built" plans, this Court rules that the
Uniwide alludes to an alleged judicial admission made by Engr. Luzon submission of such plans is not a pre-requisite for Titan to be paid by
Tablante wherein he stated that Project 1 was completed on 10 March Uniwide. The argument that said plans are required by Section 308 of
1992. It now claims that by virtue of Engr. Tablante's statement, Titan had Presidential Decree No. 1098 (National Building Code) and by Section 2.11
 Arbit-Part II |17

of its Implementing Rules before payment can be made is untenable. The invalidate the binding character of Exhibit "2-A" which, it is significant to
purpose of the law is "to safeguard life, health, property, and public point out, is [Uniwide]'s own evidence.49 (Emphasis supplied.)
welfare, consistent with the principles of sound environmental
management and control." The submission of these plans is necessary only Accordingly, deducting the P15,000,000.00 already paid by Uniwide from
in furtherance of the law's purpose by setting minimum standards and the total contract price of P21,301,075.77, the unpaid balance due for
requirements to control the "location, site, design, quality of materials, Project 2 is P6,301,075.77. This is the same amount reflected in the Order
construction, use, occupancy, and maintenance" of buildings constructed of Payment prepared by Uniwide's representative, Le Consultech, Inc. and
and not as a requirement for payment to the contractor.47 The testimony of signed by no less than four top officers and architects of Le Consultech,
Engr. Tablante to the effect that the "as-built" plans are required before Inc. endorsing for payment by Uniwide to Titan the amount
payment can be claimed by Titan is a mere legal conclusion which is not of P6,301,075.77.50
binding on this Court.
Uniwide asserts that Titan should not have been allowed to recover on
Uniwide claims that, according to one of its consultants, the true price for Project 2 because the said project was defective and would require repairs
Project 2 is only P7,812,123.60. The CIAC and the Court of Appeals, in the amount of P800,000.00. It claims that the CIAC and the Court of
however, found the testimony of this consultant suspect and ruled that the Appeals should have applied Nakpil and Sons v. Court of Appeals51 and Art.
total contract price for Project 2 is P21,301,075.77. The CIAC held: 1723 of the New Civil Code holding a contractor responsible for damages if
the edifice constructed falls within fifteen years from completion on account
The Cost Estimate for Architectural and Site Development Works for the of defects in the construction or the use of materials of inferior quality
EDSA Central, Dau Branch Project (Exhibit "2-A" for [Uniwide] and made as furnished by him or due to any violation of the terms of the contract.
a common exhibit by [Titan] who had it marked at [sic] its own Exhibit
"U"), which was admittedly prepared by Fermindoza and Associates, On this matter, the CIAC conducted an ocular inspection of the premises on
[Uniwide]'s own architects, shows that the amount of P17,750,896.48 was 30 January 1995. What transpired in the said ocular inspection is described
arrived at. Together with the agreed upon mark-up of 20% on said thus:
amount, the total project cost was P21,301,075.77.
On 30 January 1995, an ocular inspection was conducted by the Arbitral
The Tribunal holds that the foregoing document is binding upon the Tribunal as requested by [Uniwide]. Photographs were taken of the alleged
[Uniwide], it being the mode agreed upon by which its liability for the construction defects, an actual ripping off of the plaster of a certain column
project cost was to be determined.48 (Emphasis supplied.) to expose the alleged structural defect that is claimed to have resulted in
its being "heavily damaged" was done, clarificatory questions were asked
Indeed, Uniwide is bound by the amount indicated in the above document. and manifestations on observations were made by the parties and their
Claims of connivance or fraudulent conspiracy between Titan and Uniwide's respective counsels. The entire proceedings were recorded on tape and
representatives which, it is alleged, grossly exaggerated the price may subsequently transcribed. The photographs and transcript of the ocular
properly be dismissed. As held by the CIAC: inspection form part of the records and considered as evidence.52

The Tribunal holds that [Uniwide] has not introduced any evidence to And, according to these evidence, the CIAC concluded as follows:
sustain its charge of fraudulent conspiracy. As a matter of fact, [Uniwide]'s
own principal witness, Jimmy Gow, admitted on cross-examination that he It is likewise the holding of this Tribunal that [Uniwide]'s counterclaim of
does not have any direct evidence to prove his charge of connivance or defective construction has not been sufficiently proven. The credibility of
complicity between the [Titan] and his own representatives. He only made Engr. Cruz, [Uniwide]'s principal witness on this issue, has been severely
that conclusion by the process of his own "logical reasoning" arising from impaired. During the ocular inspection of the premises, he gave such
his consultation with other contractors who gave him a much lower assurance of the soundness of his opinion as an expert that a certain
estimate for the construction of the Dau Project. There is thus no reason to
 Arbit-Part II |18

column was heavily damaged judging from the external cracks that was Arbitral Tribunal, save only where a clear showing is made that, in reaching
readily apparent x x x its factual conclusions, the Arbitral Tribunal committed an error so
egregious and hurtful to one party as to constitute a grave abuse of
xxxx discretion resulting in lack or loss of jurisdiction. Prototypical examples
would be factual conclusions of the Tribunal which resulted in deprivation
On insistence of the Tribunal, the plaster was chipped off and revealed a of one or the other party of a fair opportunity to present its position before
structurally sound column x x x the Arbitral Tribunal, and an award obtained through fraud or the
corruption of arbitrators. Any other, more relaxed rule would result in
Further, it turns out that what was being passed off as a defective setting at naught the basic objective of a voluntary arbitration and would
construction by [Titan], was in fact an old column, as admitted by Mr. Gow reduce arbitration to a largely inutile institution. (Emphasis supplied.)
himself x x x x53 (Emphasis supplied.)
WHEREFORE, premises considered, the petition is DENIED and the Decision
Uniwide had the burden of proving that there was defective construction in of the Court of Appeals dated 21 February 1996 in CA-G.R. SP No. 37957 is
Project 2 but it failed to discharge this burden. Even the credibility of its hereby AFFIRMED.
own witness was severely impaired. Further, it was found that the concrete
slab placed by Titan was not attached to the old columns where cracks SO ORDERED.
were discovered. The CIAC held that the post-tensioning of the new
concrete slab could not have caused any of the defects manifested by the
old columns. We are bound by this finding of fact by the CIAC.

It is worthy to stress our ruling in Hi-Precision Steel Center, Inc. v. Lim Kim
Steel Builders, Inc.54 which was reiterated in David v. Construction
Industry and Arbitration Commission,55 that:

x x x Executive Order No. 1008 created an arbitration facility to which the

construction industry in the Philippines can have recourse. The Executive
Order was enacted to encourage the early and expeditious
settlement of disputes in the construction industry, a public policy
the implementation of which is necessary and important for the
realization of national development goals.

Aware of the objective of voluntary arbitration in the labor field, in the

construction industry, and in any other area for that matter, the Court will
not assist one or the other or even both parties in any effort to subvert or
defeat that objective for their private purposes. The Court will not review
the factual findings of an arbitral tribunal upon the artful allegation that
such body had "misapprehended facts" and will not pass upon issues which
are, at bottom, issues of fact, no matter how cleverly disguised they might
be as "legal questions." The parties here had recourse to arbitration and
chose the arbitrators themselves; they must have had confidence in such
arbitrators. The Court will not, therefore, permit the parties to relitigate
before it the issues of facts previously presented and argued before the
 Arbit-Part II |19

2. G.R. No. 175404 January 31, 2011 controversy between the parties was whether or not the alleged contract
between the parties was legally in existence and the RTC was not the
CARGILL PHILIPPINES, INC., Petitioner, proper forum to ventilate such issue. It claimed that the contract contained
vs. an arbitration clause, to wit:
SAN FERNANDO REGALA TRADING, INC., Respondent.
ARBITRATION
DECISION
Any dispute which the Buyer and Seller may not be able to settle by mutual
PERALTA, J.: agreement shall be settled by arbitration in the City of New York before the
American Arbitration Association. The Arbitration Award shall be final and
Before us is a petition for review on certiorari seeking to reverse and set binding on both parties.5
aside the Decision1 dated July 31, 2006 and the Resolution2 dated
November 13, 2006 of the Court of Appeals (CA) in CA G.R. SP No. 50304. that respondent must first comply with the arbitration clause before
resorting to court, thus, the RTC must either dismiss the case or suspend
The factual antecedents are as follows: the proceedings and direct the parties to proceed with arbitration, pursuant
to Sections 66 and 77 of Republic Act (R.A.) No. 876, or the Arbitration
On June 18, 1998, respondent San Fernando Regala Trading, Inc. filed with Law.
the Regional Trial Court (RTC) of Makati City a Complaint for Rescission of
Contract with Damages3 against petitioner Cargill Philippines, Inc. In its Respondent filed an Opposition, wherein it argued that the RTC has
Complaint, respondent alleged that it was engaged in buying and selling of jurisdiction over the action for rescission of contract and could not be
molasses and petitioner was one of its various sources from whom it changed by the subject arbitration clause. It cited cases wherein arbitration
purchased molasses. Respondent alleged that it entered into a contract clauses, such as the subject clause in the contract, had been struck down
dated July 11, 1996 with petitioner, wherein it was agreed upon that as void for being contrary to public policy since it provided that the
respondent would purchase from petitioner 12,000 metric tons of Thailand arbitration award shall be final and binding on both parties, thus, ousting
origin cane blackstrap molasses at the price of US$192 per metric ton; that the courts of jurisdiction.
the delivery of the molasses was to be made in January/February 1997 and
payment was to be made by means of an Irrevocable Letter of Credit In its Reply, petitioner maintained that the cited decisions were already
payable at sight, to be opened by September 15, 1996; that sometime inapplicable, having been rendered prior to the effectivity of the New Civil
prior to September 15, 1996, the parties agreed that instead of Code in 1950 and the Arbitration Law in 1953.
January/February 1997, the delivery would be made in April/May 1997 and
that payment would be by an Irrevocable Letter of Credit payable at sight, In its Rejoinder, respondent argued that the arbitration clause relied upon
to be opened upon petitioner's advice. Petitioner, as seller, failed to comply by petitioner is invalid and unenforceable, considering that the
with its obligations under the contract, despite demands from respondent, requirements imposed by the provisions of the Arbitration Law had not
thus, the latter prayed for rescission of the contract and payment of been complied with.
damages.
By way of Sur-Rejoinder, petitioner contended that respondent had even
On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend Proceedings clarified that the issue boiled down to whether the arbitration clause
and To Refer Controversy to Voluntary Arbitration,4 wherein it argued that contained in the contract subject of the complaint is valid and enforceable;
the alleged contract between the parties, dated July 11, 1996, was never that the arbitration clause did not violate any of the cited provisions of the
consummated because respondent never returned the proposed agreement Arbitration Law.
bearing its written acceptance or conformity nor did respondent open the
Irrevocable Letter of Credit at sight. Petitioner contended that the
 Arbit-Part II |20

On September 17, 1998, the RTC rendered an Order,8 the dispositive In denying the petition, the CA found that stipulation providing for
portion of which reads: arbitration in contractual obligation is both valid and constitutional; that
arbitration as an alternative mode of dispute resolution has long been
Premises considered, defendant's "Motion To Dismiss/Suspend Proceedings accepted in our jurisdiction and expressly provided for in the Civil Code;
and To Refer Controversy To Voluntary Arbitration" is hereby DENIED. that R.A. No. 876 (the Arbitration Law) also expressly authorized the
Defendant is directed to file its answer within ten (10) days from receipt of arbitration of domestic disputes. The CA found error in the RTC's holding
a copy of this order.9 that Section 7 of R.A. No. 876 was inapplicable to arbitration clause simply
because the clause failed to comply with the requirements prescribed by
In denying the motion, the RTC found that there was no clear basis for the law. The CA found that there was nothing in the Civil Code, or R.A. No.
petitioner's plea to dismiss the case, pursuant to Section 7 of the 876, that require that arbitration proceedings must be conducted only in
Arbitration Law. The RTC said that the provision directed the court the Philippines and the arbitrators should be Philippine residents. It also
concerned only to stay the action or proceeding brought upon an issue found that the RTC ruling effectively invalidated not only the disputed
arising out of an agreement providing for the arbitration thereof, but did arbitration clause, but all other agreements which provide for foreign
not impose the sanction of dismissal. However, the RTC did not find the arbitration. The CA did not find illegal or against public policy the
suspension of the proceedings warranted, since the Arbitration Law arbitration clause so as to render it null and void or ineffectual.
contemplates an arbitration proceeding that must be conducted in the
Philippines under the jurisdiction and control of the RTC; and before an Notwithstanding such findings, the CA still held that the case cannot be
arbitrator who resides in the country; and that the arbitral award is subject brought under the Arbitration Law for the purpose of suspending the
to court approval, disapproval and modification, and that there must be an proceedings before the RTC, since in its Motion to Dismiss/Suspend
appeal from the judgment of the RTC. The RTC found that the arbitration proceedings, petitioner alleged, as one of the grounds thereof, that the
clause in question contravened these procedures, i.e., the arbitration subject contract between the parties did not exist or it was invalid; that the
clause contemplated an arbitration proceeding in New York before a non- said contract bearing the arbitration clause was never consummated by the
resident arbitrator (American Arbitration Association); that the arbitral parties, thus, it was proper that such issue be first resolved by the court
award shall be final and binding on both parties. The RTC said that to apply through an appropriate trial; that the issue involved a question of fact that
Section 7 of the Arbitration Law to such an agreement would result in the RTC should first resolve. Arbitration is not proper when one of the
disregarding the other sections of the same law and rendered them useless parties repudiated the existence or validity of the contract.
and mere surplusages.
Petitioner's motion for reconsideration was denied in a Resolution dated
Petitioner filed its Motion for Reconsideration, which the RTC denied in an November 13, 2006.
Order10 dated November 25, 1998.
Hence, this petition.
Petitioner filed a petition for certiorari with the CA raising the sole issue
that the RTC acted in excess of jurisdiction or with grave abuse of Petitioner alleges that the CA committed an error of law in ruling that
discretion in refusing to dismiss or at least suspend the proceedings a quo, arbitration cannot proceed despite the fact that: (a) it had ruled, in its
despite the fact that the party's agreement to arbitrate had not been assailed decision, that the arbitration clause is valid, enforceable and
complied with. binding on the parties; (b) the case of Gonzales v. Climax Mining Ltd.11 is
inapplicable here; (c) parties are generally allowed, under the Rules of
Respondent filed its Comment and Reply. The parties were then required to Court, to adopt several defenses, alternatively or hypothetically, even if
file their respective Memoranda. such

On July 31, 2006, the CA rendered its assailed Decision denying the defenses are inconsistent with each other; and (d) the complaint filed by
petition and affirming the RTC Orders. respondent with the trial court is premature.
 Arbit-Part II |21

Petitioner alleges that the CA adopted inconsistent positions when it found on certiorari under Rule 45. Respondent contends that the Gonzales case,
the arbitration clause between the parties as valid and enforceable and yet which was decided in 2007, is inapplicable in this case, especially as to the
in the same breath decreed that the arbitration cannot proceed because doctrine of separability enunciated therein. Respondent argues that even if
petitioner assailed the existence of the entire agreement containing the the existence of the contract and the arbitration clause is conceded, the
arbitration clause. Petitioner claims the inapplicability of the decisions of the RTC and the CA declining referral of the dispute between
cited Gonzales case decided in 2005, because in the present case, it was the parties to arbitration would still be correct. This is so because
respondent who had filed the complaint for rescission and damages with respondent's complaint filed in Civil Case No. 98-1376 presents the
the RTC, which based its cause of action against petitioner on the alleged principal issue of whether under the facts alleged in the complaint,
agreement dated July 11, 2006 between the parties; and that the same respondent is entitled to rescind its contract with petitioner and for the
agreement contained the arbitration clause sought to be enforced by latter to pay damages; that such issue constitutes a judicial question or
petitioner in this case. Thus, whether petitioner assails the genuineness one that requires the exercise of judicial function and cannot be the subject
and due execution of the agreement, the fact remains that the agreement of arbitration.
sued upon provides for an arbitration clause; that respondent cannot use
the provisions favorable to him and completely disregard those that are Respondent contends that Section 8 of the Rules of Court, which allowed a
unfavorable, such as the arbitration clause. defendant to adopt in the same action several defenses, alternatively or
hypothetically, even if such defenses are inconsistent with each other
Petitioner contends that as the defendant in the RTC, it presented two refers to allegations in the pleadings, such as complaint, counterclaim,
alternative defenses, i.e., the parties had not entered into any agreement cross-claim, third-party complaint, answer, but not to a motion to dismiss.
upon which respondent as plaintiff can sue upon; and, assuming that such Finally, respondent claims that petitioner's argument is premised on the
agreement existed, there was an arbitration clause that should be existence of a contract with respondent containing a provision for
enforced, thus, the dispute must first be submitted to arbitration before an arbitration. However, its reliance on the contract, which it repudiates, is
action can be instituted in court. Petitioner argues that under Section 1(j) inappropriate.
of Rule 16 of the Rules of Court, included as a ground to dismiss a
complaint is when a condition precedent for filing the complaint has not In its Reply, petitioner insists that respondent filed an action for rescission
been complied with; and that submission to arbitration when such has and damages on the basis of the contract, thus, respondent admitted the
been agreed upon is one such condition precedent. Petitioner submits that existence of all the provisions contained thereunder, including the
the proceedings in the RTC must be dismissed, or at least suspended, and arbitration clause; that if respondent relies on said contract for its cause of
the parties be ordered to proceed with arbitration. action against petitioner, it must also consider itself bound by the rest of
the terms and conditions contained thereunder notwithstanding that
On March 12, 2007, petitioner filed a Manifestation12 saying that the CA's respondent may find some provisions to be adverse to its position; that
rationale in declining to order arbitration based on the respondents citation of the Gonzales case, decided in 2005, to show that
2005 Gonzales ruling had been modified upon a motion for reconsideration the validity of the contract cannot be the subject of the arbitration
decided in 2007; that the CA decision lost its legal basis, because it had proceeding and that it is the RTC which has the jurisdiction to resolve the
been ruled that the arbitration agreement can be implemented situation between the parties herein, is not correct since in the resolution
notwithstanding that one of the parties thereto repudiated the contract of the Gonzales' motion for reconsideration in 2007, it had been ruled that
which contained such agreement based on the doctrine of separability. an arbitration agreement is effective notwithstanding the fact that one of
the parties thereto repudiated the main contract which contained it.
In its Comment, respondent argues that certiorari under Rule 65 is not the
remedy against an order denying a Motion to Dismiss/Suspend Proceedings We first address the procedural issue raised by respondent that petitioners
and To Refer Controversy to Voluntary Arbitration. It claims that the petition for certiorari under Rule 65 filed in the CA against an RTC Order
Arbitration Law which petitioner invoked as basis for its Motion prescribed, denying a Motion to Dismiss/Suspend Proceedings and to Refer
under its Section 29, a remedy, i.e., appeal by a petition for review
 Arbit-Part II |22

Controversy to Voluntary Arbitration was a wrong remedy invoking Section by it will amount to nothing more than an error of judgment reviewable by
29 of R.A. No. 876, which provides: a timely appeal and not assailable by a special civil action of certiorari.14

Section 29. In this case, petitioner raises before the CA the issue that the respondent
Judge acted in excess of jurisdiction or with grave abuse of discretion in
x x x An appeal may be taken from an order made in a proceeding under refusing to dismiss, or at least suspend, the proceedings a quo, despite the
this Act, or from a judgment entered upon an award fact that the partys agreement to arbitrate had not been complied with.
through certiorari proceedings, but such appeals shall be limited to Notably, the RTC found the existence of the arbitration clause, since it said
question of law. x x x. in its decision that "hardly disputed is the fact that the arbitration clause in
question contravenes several provisions of the Arbitration Law x x x and to
To support its argument, respondent cites the case of Gonzales v. Climax apply Section 7 of the Arbitration Law to such an agreement would result in
Mining Ltd.13 (Gonzales case), wherein we ruled the impropriety of a the disregard of the afore-cited sections of the Arbitration Law and render
petition for certiorari under Rule 65 as a mode of appeal from an RTC them useless and mere surplusages." However, notwithstanding the finding
Order directing the parties to arbitration. that an arbitration agreement existed, the RTC denied petitioner's motion
and directed petitioner to file an answer.
We find the cited case not in point.
In La Naval Drug Corporation v. Court of Appeals,15 it was held that R.A.
In the Gonzales case, Climax-Arimco filed before the RTC of Makati a No. 876 explicitly confines the courts authority only to the determination
petition to compel arbitration under R.A. No. 876, pursuant to the of whether or not there is an agreement in writing providing for arbitration.
arbitration clause found in the Addendum Contract it entered with In the affirmative, the statute ordains that the court shall issue an order
Gonzales. Judge Oscar Pimentel of the RTC of Makati then directed the summarily directing the parties to proceed with the arbitration in
parties to arbitration proceedings. Gonzales filed a petition accordance with the terms thereof. If the court, upon the other hand, finds
for certiorari with Us contending that Judge Pimentel acted with grave that no such agreement exists, the proceedings shall be dismissed.
abuse of discretion in immediately ordering the parties to proceed with
arbitration despite the proper, valid and timely raised argument in his In issuing the Order which denied petitioner's Motion to Dismiss/Suspend
Answer with counterclaim that the Addendum Contract containing the Proceedings and to Refer Controversy to Voluntary Arbitration, the RTC
arbitration clause was null and void. Climax-Arimco assailed the mode of went beyond its authority of determining only the issue of whether or not
review availed of by Gonzales, citing Section 29 of R.A. No. 876 contending there is an agreement in writing providing for arbitration by directing
that certiorariunder Rule 65 can be availed of only if there was no appeal petitioner to file an answer, instead of ordering the parties to proceed to
or any adequate remedy in the ordinary course of law; that R.A. No. 876 arbitration. In so doing, it acted in excess of its jurisdiction and since there
provides for an appeal from such order. We then ruled that Gonzales' is no plain, speedy, and adequate remedy in the ordinary course of law,
petition for certiorari should be dismissed as it was filed in lieu of an appeal petitioners resort to a petition for certiorari is the proper remedy.
by certiorari which was the prescribed remedy under R.A. No. 876 and the
petition was filed far beyond the reglementary period. We now proceed to the substantive issue of whether the CA erred in finding
that this case cannot be brought under the arbitration law for the purpose
We found that Gonzales petition for certiorari raises a question of law, but of suspending the proceedings in the RTC.
not a question of jurisdiction; that Judge Pimentel acted in accordance with
the procedure prescribed in R.A. No. 876 when he ordered Gonzales to We find merit in the petition.
proceed with arbitration and appointed a sole arbitrator after making the
determination that there was indeed an arbitration agreement. It had been Arbitration, as an alternative mode of settling disputes, has long been
held that as long as a court acts within its jurisdiction and does not gravely recognized and accepted in our jurisdiction.16R.A. No. 87617 authorizes
abuse its discretion in the exercise thereof, any supposed error committed arbitration of domestic disputes. Foreign arbitration, as a system of settling
 Arbit-Part II |23

commercial disputes of an international character, is likewise Arbitration is not proper when one of the parties repudiates the existence
recognized.18 The enactment of R.A. No. 9285 on April 2, 2004 further or validity of the contract. Apropos is Gonzales v. Climax Mining Ltd., 452
institutionalized the use of alternative dispute resolution systems, including SCRA 607, (G.R.No.161957), where the Supreme Court held that:
arbitration, in the settlement of disputes.19
The question of validity of the contract containing the agreement to
A contract is required for arbitration to take place and to be submit to arbitration will affect the applicability of the arbitration
binding.20 Submission to arbitration is a contract 21 and a clause in a clause itself. A party cannot rely on the contract and claim rights or
contract providing that all matters in dispute between the parties shall be obligations under it and at the same time impugn its existence or
referred to arbitration is a contract.22 The provision to submit to arbitration validity. Indeed, litigants are enjoined from taking inconsistent
any dispute arising therefrom and the relationship of the parties is part of positions....
the contract and is itself a contract.23
Consequently, the petitioner herein cannot claim that the contract was
In this case, the contract sued upon by respondent provides for an never consummated and, at the same time, invokes the arbitration clause
arbitration clause, to wit: provided for under the contract which it alleges to be non-existent or
invalid. Petitioner claims that private respondent's complaint lacks a cause
ARBITRATION of action due to the absence of any valid contract between the parties.
Apparently, the arbitration clause is being invoked merely as a fallback
Any dispute which the Buyer and Seller may not be able to settle by mutual position. The petitioner must first adduce evidence in support of its claim
agreement shall be settled by arbitration in the City of New York before the that there is no valid contract between them and should the court a quo
American Arbitration Association, The Arbitration Award shall be final and find the claim to be meritorious, the parties may then be spared the rigors
binding on both parties. and expenses that arbitration in a foreign land would surely entail.24

The CA ruled that arbitration cannot be ordered in this case, since However, the Gonzales case,25 which the CA relied upon for not ordering
petitioner alleged that the contract between the parties did not exist or was arbitration, had been modified upon a motion for reconsideration in this
invalid and arbitration is not proper when one of the parties repudiates the wise:
existence or validity of the contract. Thus, said the CA:
x x x The adjudication of the petition in G.R. No. 167994 effectively
Notwithstanding our ruling on the validity and enforceability of the assailed modifies part of the Decision dated 28 February 2005 in G.R. No.
arbitration clause providing for foreign arbitration, it is our considered 161957. Hence, we now hold that the validity of the contract
opinion that the case at bench still cannot be brought under the Arbitration containing the agreement to submit to arbitration does not affect
Law for the purpose of suspending the proceedings before the trial court. the applicability of the arbitration clause itself. A contrary ruling
We note that in its Motion to Dismiss/Suspend Proceedings, etc, petitioner would suggest that a party's mere repudiation of the main contract
Cargill alleged, as one of the grounds thereof, that the alleged contract is sufficient to avoid arbitration. That is exactly the situation that
between the parties do not legally exist or is invalid. As posited by the separability doctrine, as well as jurisprudence applying it,
petitioner, it is their contention that the said contract, bearing the seeks to avoid. We add that when it was declared in G.R. No. 161957
arbitration clause, was never consummated by the parties. That being the that the case should not be brought for arbitration, it should be clarified
case, it is but proper that such issue be first resolved by the court through that the case referred to is the case actually filed by Gonzales before the
an appropriate trial. The issue involves a question of fact that the trial DENR Panel of Arbitrators, which was for the nullification of the main
court should first resolve. contract on the ground of fraud, as it had already been determined that the
case should have been brought before the regular courts involving as it did
judicial issues.26
 Arbit-Part II |24

In so ruling that the validity of the contract containing the arbitration repudiated the main contract is not prevented from enforcing its arbitration
agreement does not affect the applicability of the arbitration clause itself, clause.
we then applied the doctrine of separability, thus:
Moreover, it is worthy to note that respondent filed a complaint for
The doctrine of separability, or severability as other writers call it, rescission of contract and damages with the RTC. In so doing, respondent
enunciates that an arbitration agreement is independent of the main alleged that a contract exists between respondent and petitioner. It is that
contract. The arbitration agreement is to be treated as a separate contract which provides for an arbitration clause which states that "any
agreement and the arbitration agreement does not automatically terminate dispute which the Buyer and Seller may not be able to settle by mutual
when the contract of which it is a part comes to an end. agreement shall be settled before the City of New York by the American
Arbitration Association. The arbitration agreement clearly expressed the
The separability of the arbitration agreement is especially significant to the parties' intention that any dispute between them as buyer and seller should
determination of whether the invalidity of the main contract also nullifies be referred to arbitration. It is for the arbitrator and not the courts to
the arbitration clause. Indeed, the doctrine denotes that the invalidity of decide whether a contract between the parties exists or is valid.
the main contract, also referred to as the "container" contract, does not
affect the validity of the arbitration agreement. Irrespective of the fact thatRespondent contends that assuming that the existence of the contract and
the main contract is invalid, the arbitration clause/agreement still remains the arbitration clause is conceded, the CA's decision declining referral of
valid and enforceable.27 the parties' dispute to arbitration is still correct. It claims that its complaint
in the RTC presents the issue of whether under the facts alleged, it is
Respondent argues that the separability doctrine is not applicable in entitled to rescind the contract with damages; and that issue constitutes a
petitioner's case, since in the Gonzales case, Climax-Arimco sought to judicial question or one that requires the exercise of judicial function and
enforce the arbitration clause of its contract with Gonzales and the former's cannot be the subject of an arbitration proceeding. Respondent cites our
move was premised on the existence of a valid contract; while Gonzales, ruling in Gonzales, wherein we held that a panel of arbitrator is bereft of
who resisted the move of Climax-Arimco for arbitration, did not deny the jurisdiction over the complaint for declaration of nullity/or termination of
existence of the contract but merely assailed the validity thereof on the the subject contracts on the grounds of fraud and oppression attendant to
ground of fraud and oppression. Respondent claims that in the case before the execution of the addendum contract and the other contracts emanating
Us, petitioner who is the party insistent on arbitration also claimed in their from it, and that the complaint should have been filed with the regular
Motion to Dismiss/Suspend Proceedings that the contract sought by courts as it involved issues which are judicial in nature.
respondent to be rescinded did not exist or was not consummated; thus,
there is no room for the application of the separability doctrine, since there Such argument is misplaced and respondent cannot rely on
is no container or main contract or an arbitration clause to speak of. the Gonzales case to support its argument.

We are not persuaded. In Gonzales, petitioner Gonzales filed a complaint before the Panel of
Arbitrators, Region II, Mines and Geosciences Bureau, of the Department
Applying the Gonzales ruling, an arbitration agreement which forms part of of Environment and Natural Resources (DENR) against respondents
the main contract shall not be regarded as invalid or non-existent just Climax- Mining Ltd, Climax-Arimco and Australasian Philippines Mining Inc,
because the main contract is invalid or did not come into existence, since seeking the declaration of nullity or termination of the addendum contract
the arbitration agreement shall be treated as a separate agreement and the other contracts emanating from it on the grounds of fraud and
independent of the main contract. To reiterate. a contrary ruling would oppression. The Panel dismissed the complaint for lack of jurisdiction.
suggest that a party's mere repudiation of the main contract is sufficient to However, the Panel, upon petitioner's motion for reconsideration, ruled
avoid arbitration and that is exactly the situation that the separability that it had jurisdiction over the dispute maintaining that it was a mining
doctrine sought to avoid. Thus, we find that even the party who has dispute, since the subject complaint arose from a contract between the
parties which involved the exploration and exploitation of minerals over the
 Arbit-Part II |25

disputed area.1wphi1 Respondents assailed the order of the Panel of not involve the application of technical knowledge and expertise relating to
Arbitrators via a petition for certiorari before the CA. The CA granted the mining. It is in this context that we said that:
petition and declared that the Panel of Arbitrators did not have jurisdiction
over the complaint, since its jurisdiction was limited to the resolution of Arbitration before the Panel of Arbitrators is proper only when there is a
mining disputes, such as those which raised a question of fact or matter disagreement between the parties as to some provisions of the contract
requiring the technical knowledge and experience of mining authorities and between them, which needs the interpretation and the application of that
not when the complaint alleged fraud and oppression which called for the particular knowledge and expertise possessed by members of that Panel. It
interpretation and application of laws. The CA further ruled that the petition is not proper when one of the parties repudiates the existence or validity of
should have been settled through arbitration under R.A. No. 876 the such contract or agreement on the ground of fraud or oppression as in this
Arbitration Law as provided under the addendum contract. case. The validity of the contract cannot be subject of arbitration
proceedings. Allegations of fraud and duress in the execution of a contract
On a review on certiorari, we affirmed the CAs finding that the Panel of are matters within the jurisdiction of the ordinary courts of law. These
Arbitrators who, under R.A. No. 7942 of the Philippine Mining Act of 1995, questions are legal in nature and require the application and interpretation
has exclusive and original jurisdiction to hear and decide mining disputes, of laws and jurisprudence which is necessarily a judicial function.29
such as mining areas, mineral agreements, FTAAs or permits and surface
owners, occupants and claimholders/concessionaires, is bereft of In fact, We even clarified in our resolution on Gonzales motion for
jurisdiction over the complaint for declaration of nullity of the addendum reconsideration that "when we declared that the case should not be
contract; thus, the Panels' jurisdiction is limited only to those mining brought for arbitration, it should be clarified that the case referred to is the
disputes which raised question of facts or matters requiring the technical case actually filed by Gonzales before the DENR Panel of Arbitrators, which
knowledge and experience of mining authorities. We then said: 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
In Pearson v. Intermediate Appellate Court, this Court observed that the before the regular courts involving as it did judicial issues." We made such
trend has been to make the adjudication of mining cases a purely clarification in our resolution of the motion for reconsideration after ruling
administrative matter. Decisions of the Supreme Court on mining disputes that the parties in that case can proceed to arbitration under the
have recognized a distinction between (1) the primary powers granted by Arbitration Law, as provided under the Arbitration Clause in their
pertinent provisions of law to the then Secretary of Agriculture and Natural Addendum Contract.
Resources (and the bureau directors) of an executive or administrative
nature, such as granting of license, permits, lease and contracts, or WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2006
approving, rejecting, reinstating or canceling applications, or deciding and the Resolution dated November 13, 2006 of the Court of Appeals in
conflicting applications, and (2) controversies or disagreements of civil or CA-G.R. SP No. 50304 are REVERSED and SET ASIDE. The parties are
contractual nature between litigants which are questions of a judicial hereby ORDERED to SUBMIT themselves to the arbitration of their
nature that may be adjudicated only by the courts of justice. This dispute, pursuant to their July 11, 1996 agreement.
distinction is carried on even in Rep. Act No. 7942.28
SO ORDERED.
We found that since the complaint filed before the DENR Panel of
Arbitrators charged respondents with disregarding and ignoring the
addendum contract, and acting in a fraudulent and oppressive manner
against petitioner, the complaint filed before the Panel was not a dispute
involving rights to mining areas, or was it a dispute involving claimholders
or concessionaires, but essentially judicial issues. We then said that the
Panel of Arbitrators did not have jurisdiction over such issue, since it does
 Arbit-Part II |26

FORM OF ARBITRATION AGREEMENT claim, petitioners presented representative samples of the milling
contracts.3
3. G.R. No. 156660 August 24, 2009
Notably, Article VII of the milling contracts provides that 34% of the sugar
ORMOC SUGARCANE PLANTERS' ASSOCIATION, INC. and molasses produced from milling the Planters sugarcane shall belong to
(OSPA),OCCIDENTAL LEYTE FARMERS MULTI-PURPOSE the centrals (respondents) as compensation, 65% thereof shall go to the
COOPERATIVE, INC. (OLFAMCA), UNIFARM MULTI-PURPOSE Planter and the remaining 1% shall go the association to which the Planter
COOPERATIVE, INC. (UNIFARM) and ORMOC NORTH DISTRICT concerned belongs, as aid to the said association. The 1% aid shall be used
IRRIGATION MULTI-PURPOSE COOPERATIVE, INC. by the association for any purpose that it may deem fit for its members,
(ONDIMCO), Petitioners, laborers and their dependents. If the Planter was not a member of any
vs. association, then the said 1% shall revert to the centrals. Article XIV,
THE COURT OF APPEALS (Special Former Sixth Division), HIDECO paragraph B4 states that the centrals may not, during the life of the milling
SUGAR MILLING CO., INC., and ORMOC SUGAR MILLING CO., contract, sign or execute any contract or agreement that will provide better
INC., Respondents. or more benefits to a Planter, without the written consent of the existing
and recognized associations except to Planters whose plantations are
DECISION situated in areas beyond thirty (30) kilometers from the mill. Article XX
provides that all differences and controversies which may arise between
LEONARDO-DE CASTRO, J.: the parties concerning the agreement shall be submitted for discussion to a
Board of Arbitration, consisting of five (5) memberstwo (2) of which shall
Before the Court is a special civil action for certiorari assailing the be appointed by the centrals, two (2) by the Planter and the fifth to be
Decision1 dated December 7, 2001 and the Resolution dated October 30, appointed by the four appointed by the parties.
2002 of the Court of Appeals (CA) in CA-G.R. SP No. 56166 which set aside
the Joint Orders2 dated August 26, 1999 and October 29, 1999 issued by On June 4, 1999, petitioners, without impleading any of their individual
the Regional Trial Court (RTC) of Ormoc City, Branch 12 upholding members, filed twin petitions with the RTC for Arbitration under R.A. 876,
petitioners legal personality to demand arbitration from respondents and Recovery of Equal Additional Benefits, Attorneys Fees and Damages,
directing respondents to nominate two arbitrators to represent them in the against HIDECO and OSCO, docketed as Civil Case Nos. 3696-O and 3697-
Board of Arbitrators. O, respectively.

Petitioners are associations organized by and whose members are Petitioners claimed that respondents violated the Milling Contract when
individual sugar planters (Planters). The membership of each association they gave to independent planters who do not belong to any association
follows: 264 Planters were members of OSPA; 533 Planters belong to the 1% share, instead of reverting said share to the centrals. Petitioners
OLFAMCA; 617 Planters joined UNIFARM; 760 Planters enlisted with contended that respondents unduly accorded the independent Planters
ONDIMCO; and the rest belong to BAP-MPC which did not join the lawsuit. more benefits and thus prayed that an order be issued directing the parties
to commence with arbitration in accordance with the terms of the milling
Respondents Hideco Sugar Milling Co., Inc. (Hideco) and Ormoc Sugar contracts. They also demanded that respondents be penalized by
Milling Co, Inc. (OSCO) are sugar centrals engaged in grinding and milling increasing their member Planters 65% share provided in the milling
sugarcane delivered to them by numerous individual sugar planters, who contract by 1%, to 66%.
may or may not be members of an association such as petitioners.
Respondents filed a motion to dismiss on ground of lack of cause of action
Petitioners assert that the relationship between respondents and the because petitioners had no milling contract with respondents. According to
individual sugar planters is governed by milling contracts. To buttress this respondents, only some eighty (80) Planters who were members of OSPA,
one of the petitioners, executed milling contracts. Respondents and these
 Arbit-Part II |27

80 Planters were the signatories of the milling contracts. Thus, it was the At the outset, it must be noted that petitioners filed the instant petition for
individual Planters, and not petitioners, who had legal standing to invoke certiorari under Rule 65 of the Rules of Court, to challenge the judgment of
the arbitration clause in the milling contracts. Petitioners, not being privy the CA. Section 1 of Rule 65 states:
to the milling contracts, had no legal standing whatsoever to demand or
sue for arbitration. Section 1. Petition for Certiorari. When any tribunal, board or officer
exercising judicial or quasi-judicial functions has acted without or in excess
On August 26, 1999, the RTC issued a Joint Order 5 denying the motion to of its jurisdiction, or with grave abuse of discretion amounting to lack or
dismiss, declaring the existence of a milling contract between the parties, excess of its or his jurisdiction and there is no appeal, or any plain, speedy
and directing respondents to nominate two arbitrators to the Board of and adequate remedy in the course of law, a person aggrieved thereby
Arbitrators, to wit: may file a verified petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered annulling or modifying
When these cases were called for hearing today, counsels for the the proceedings of such tribunal, board or officer, and granting such
petitioners and respondents argued their respective stand. The Court is incidental relief as law and justice require. xxx xxx xxx (emphasis ours)
convinced that there is an existing milling contract between the petitioners
and respondents and these planters are represented by the officers of the The instant recourse is improper because the resolution of the CA was a
associations. The petitioners have the right to sue in behalf of the planters. final order from which the remedy of appeal was available under Rule 45 in
relation to Rule 56. The existence and availability of the right of appeal
This Court, acting on the petitions, directs the respondents to nominate proscribes resort to certiorari because one of the requirements for
two arbitrators to represent HIDECO/HISUMCO and OSCO in the Board of availment of the latter is precisely that there should be no appeal. It is
Arbitrators within fifteen (15) days from receipt of this Order. xxx elementary that for certiorari to prosper, it is not enough that the trial
court committed grave abuse of discretion amounting to lack or excess of
However, if the respondents fail to nominate their two arbitrators, upon jurisdiction; the requirement that there is no appeal, nor any plain, speedy
proper motion by the petitioners, then the Court will be compelled to use and adequate remedy in the ordinary course of law must likewise be
its discretion to appoint the two (2) arbitrators, as embodied in the Milling satisfied.8 The proper mode of recourse for petitioners was to file a petition
Contract and R.A. 876. for review of the CAs decision under Rule 45.

xxx Petitioners principally argue that the CA committed a grave error in setting
aside the challenged Joint Orders of the RTC which allegedly unduly
Their subsequent motion for reconsideration having been denied by the curtailed the right of petitioners to represent their planters-members and
RTC in its Joint Order6 dated October 29, 1999, respondents elevated the enforce the milling contracts with respondents. Petitioners assert the said
case to the CA through a Petition for Certiorari with Prayer for the Issuance which orders were issued in accordance with Article XX of the Milling
of Temporary Restraining Order and/or Writ of Preliminary Injunction. Contract and the applicable provisions of Republic Act (R.A.) No. 876.

On December 7, 2001, the CA rendered its challenged Decision, setting Where the issue or question involved affects the wisdom or legal soundness
aside the assailed Orders of the RTC. The CA held that petitioners neither of the decision not the jurisdiction of the court to render said decision
had an existing contract with respondents nor were they privy to the the same is beyond the province of a special civil action for certiorari.
milling contracts between respondents and the individual Planters. In the Erroneous findings and conclusions do not render the appellate court
main, the CA concluded that petitioners had no legal personality to bring vulnerable to the corrective writ of certiorari. For where the court has
the action against respondents or to demand for arbitration. jurisdiction over the case, even if its findings are not correct, they would,
at most constitute errors of law and not abuse of discretion correctable by
Petitioners filed a motion for reconsideration, but it too was denied by the certiorari.9
CA in its Resolution7 dated October 30, 2002. Thus, the instant petition.
 Arbit-Part II |28

Moreover, even if this Court overlooks the procedural lapse committed by The requirements that an arbitration agreement must be written and
petitioners and decides this matter on the merits, the present petition will subscribed by the parties thereto were enunciated by the Court in B.F.
still not prosper. Corporation v. CA.12

Stripped to the core, the pivotal issue here is whether or not petitioners During the proceedings before the CA, it was established that there were
sugar planters associations are clothed with legal personality to file a more than two thousand (2,000) Planters in the district at the time the
suit against, or demand arbitration from, respondents in their own name case was commenced at the RTC in 1999. The CA further found that of
without impleading the individual Planters. those 2,000 Planters, only about eighty (80) Planters, who were all
members of petitioner OSPA, in fact individually executed milling contracts
On this point, we agree with the findings of the CA. with respondents. No milling contracts signed by members of the other
petitioners were presented before the CA.
Section 2 of R.A. No. 876 (the Arbitration Law)10 pertinently provides:
By their own allegation, petitioners are associations duly existing and
Sec. 2. Persons and matters subject to arbitration. Two or more persons organized under Philippine law, i.e. they have juridical personalities
or parties may submit to the arbitration of one or more arbitrators any separate and distinct from that of their member Planters. It is likewise
controversy existing between them at the time of the submission and undisputed that the eighty (80) milling contracts that were presented were
which may be the subject of an action, or the parties to any contract may signed only by the member Planter concerned and one of the Centrals as
in such contract agree to settle by arbitration a controversy thereafter parties. In other words, none of the petitioners were parties or signatories
arising between them. Such submission or contract shall be valid, to the milling contracts. This circumstance is fatal to petitioners' cause
enforceable and irrevocable, save upon such grounds as exist at law for the since they anchor their right to demand arbitration from the respondent
revocation of any contract. xxx (Emphasis ours) sugar centrals upon the arbitration clause found in the milling contracts.
There is no legal basis for petitioners' purported right to demand
The foregoing provision speaks of two modes of arbitration: (a) an arbitration when they are not parties to the milling contracts, especially
agreement to submit to arbitration some future dispute, usually stipulated when the language of the arbitration clause expressly grants the right to
upon in a civil contract between the parties, and known as an agreement to demand arbitration only to the parties to the contract.
submit to arbitration, and (b) an agreement submitting an existing matter
of difference to arbitrators, termed the submission agreement. Article XX of Simply put, petitioners do not have any agreement to arbitrate with
the milling contract is an agreement to submit to arbitration because it was respondents. Only eighty (80) Planters who were all members of OSPA
made in anticipation of a dispute that might arise between the parties after were shown to have such an agreement to arbitrate, included as a
the contracts execution. stipulation in their individual milling contracts. The other petitioners failed
to prove that any of their members had milling contracts with respondents,
Except where a compulsory arbitration is provided by statute, the first step much less, that respondents had an agreement to arbitrate with the
toward the settlement of a difference by arbitration is the entry by the petitioner associations themselves.
parties into a valid agreement to arbitrate. An agreement to arbitrate is a
contract, the relation of the parties is contractual, and the rights and Even assuming that all the petitioners were able to present milling
liabilities of the parties are controlled by the law of contracts. 11 In an contracts in favor of their members, it is undeniable that under the
agreement for arbitration, the ordinary elements of a valid contract must arbitration clause in these contracts it is the parties thereto who have the
appear, including an agreement to arbitrate some specific thing, and an right to submit a controversy or dispute to arbitration.
agreement to abide by the award, either in express language or by
implication. Section 4 of R.A. 876 provides:
 Arbit-Part II |29

Section 4. Form of Arbitration Agreement A contract to arbitrate a Sec. 2. Parties in interest. A real party in interest is the party who stands
controversy thereafter arising between the parties, as well as a submission to be benefited or injured by the judgment in the suit, or the party entitled
to arbitrate an existing controversy, shall be in writing and subscribed by to the avails of the suit. Unless otherwise authorized by law or these Rules,
the party sought to be charged, or by his lawful agent. every action must be prosecuted or defended in the name of the real party
in interest.
The making of a contract or submission for arbitration described in section
two hereof, providing for arbitration of any controversy, shall be deemed a We held in Oco v. Limbaring14 that:
consent of the parties to the jurisdiction of the Court of First Instance of
the province or city where any of the parties resides, to enforce such As applied to the present case, this provision has two requirements: 1) to
contract of submission. institute an action, the plaintiff must be the real party in interest; and 2)
the action must be prosecuted in the name of the real party in interest.
The formal requirements of an agreement to arbitrate are therefore the Necessarily, the purposes of this provision are 1) to prevent the
following: (a) it must be in writing and (b) it must be subscribed by the prosecution of actions by persons without any right, title or interest in the
parties or their representatives. To subscribe means to write underneath, case; 2) to require that the actual party entitled to legal relief be the one
as ones name; to sign at the end of a document. That word may to prosecute the action; 3) to avoid a multiplicity of suits; and 4) to
sometimes be construed to mean to give consent to or to attest.13 discourage litigation and keep it within certain bounds, pursuant to sound
public policy.
Petitioners would argue that they could sue respondents, notwithstanding
the fact that they were not signatories in the milling contracts because Interest within the meaning of the Rules means material interest or
they are the recognized representatives of the Planters. an interest in issue to be affected by the decree or judgment of the
case, as distinguished from mere curiosity about the question involved.
This claim has no leg to stand on since petitioners did not sign the milling One having no material interest to protect cannot invoke the jurisdiction of
contracts at all, whether as a party or as a representative of their member the court as the plaintiff in an action. When the plaintiff is not the real
Planters. The individual Planter and the appropriate central were the only party in interest, the case is dismissible on the ground of lack of
signatories to the contracts and there is no provision in the milling cause of action.
contracts that the individual Planter is authorizing the association to
represent him/her in a legal action in case of a dispute over the milling xxx xxx xxx
contracts.
The parties to a contract are the real parties in interest in an action
Moreover, even assuming that petitioners are indeed representatives of the upon it, as consistently held by the Court. Only the contracting parties
member Planters who have milling contracts with the respondents and are bound by the stipulations in the contract; they are the ones who
assuming further that petitioners signed the milling contracts would benefit from and could violate it. Thus, one who is not a party
as representativesof their members, petitioners could not initiate to a contract, and for whose benefit it was not expressly made, cannot
arbitration proceedings in their own name as they had done in the maintain an action on it. One cannot do so, even if the contract
present case. As mere agents, they should have brought the suit in the performed by the contracting parties would incidentally inure to
name of the principals that they purportedly represent. Even if Section 4 of ones benefit. (emphasis ours)
R.A. No. 876 allows the agreement to arbitrate to be signed by a
representative, the principal is still the one who has the right to demand In Uy v. Court of Appeals,15 this Court held that the agents of the parties to
arbitration. a contract do not have the right to bring an action even if they rendered
some service on behalf of their principals. To quote from that decision:
Indeed, Rule 3, Section 2 of the Rules of Court requires suits to be brought
in the name of the real party in interest, to wit:
 Arbit-Part II |30

[Petitioners] are mere agents of the owners of the land subject of the power-of-attorney to represent the Planters whether in the lawsuit or to
sale. As agents, they only render some service or do something in demand arbitration.16 None was ever presented here.
representation or on behalf of their principals. The rendering of such
service did not make them parties to the contracts of sale executed in Lastly, petitioners theorize that they could demand and sue for arbitration
behalf of the latter. Since a contract may be violated only by the parties independently of the Planters because the milling contract is a contract
thereto as against each other, the real parties-in-interest, either as pour autrui under Article 1311 of the Civil Code.
plaintiff or defendant, in an action upon that contract must,
generally, either be parties to said contract. (emphasis and words in ART. 1311. Contracts take effect only between the parties, their assigns
brackets ours) and heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
The main cause of action of petitioners in their request for arbitration with provision of law. The heir is not liable beyond the value of the property he
the RTC is the alleged violation of the clause in the milling contracts received from the decedent.
involving the proportionate sharing in the proceeds of the harvest.
Petitioners essentially demand that respondents increase the share of the If a contract should contain some stipulation in favor of a third person, he
member Planters to 66% to equalize their situation with those of the non- may demand its fulfillment provided he communicated his acceptance to
member Planters. Verily, from petitioners' own allegations, the party who the obligor before its revocation. A mere incidental benefit or interest of a
would be injured or benefited by a decision in the arbitration proceedings person is not sufficient. The contracting parties must have clearly and
will be the member Planters involved and not petitioners. In sum, deliberately conferred a favor upon a third person.
petitioners are not the real parties in interest in the present case.
To summarize, the requisites of a stipulation pour autrui or a stipulation in
Assuming petitioners had properly brought the case in the name of their favor of a third person are the following: (1) there must be a stipulation in
members who had existing milling contracts with respondents, petitioners favor of a third person, (2) the stipulation must be a part, not the whole, of
must still prove that they were indeed authorized by the said members to the contract, (3) the contracting parties must have clearly and deliberately
institute an action for and on the members' behalf. In the same manner conferred a favor upon a third person, not a mere incidental benefit or
that an officer of the corporation cannot bring action in behalf of a interest, (4) the third person must have communicated his acceptance to
corporation unless it is clothed with a board resolution authorizing an the obligor before its revocation, and (5) neither of the contracting parties
officer to do so, an authorization from the individual member planter is a bears the legal representation or authorization of the third party. 17 These
sine qua non for the association or any of its officers to bring an action requisites are not present in this case.
before the court of law. The mere fact that petitioners were organized for
the purpose of advancing the interests and welfare of their members does Article VI of the Milling Contract is the solitary provision that mentions
not necessarily mean that petitioners have the authority to represent their some benefit in favor of the association of which the planter is a member
members in legal proceedings, including the present arbitration and we quote:
proceedings.
VI
As we see it, petitioners had no intention to litigate the case in a SHARE IN THE SUGAR
representative capacity, as they contend. All the pleadings from the RTC to
this Court belie this claim. Under Section 3 of Rule 3, where the action is Thirty four per centrum (34%) of the sugar ad molasses resulting from the
allowed to be prosecuted by a representative, the beneficiary shall be milling of the PLANTERs sugarcane, as computed from the weight and
included in the title of the case and shall be deemed to be the real party in analysis of the sugarcane delivered by the PLANTER, shall belong to the
interest. As repeatedly pointed out earlier, the individual Planters were not CENTRAL; sixty five per centum (65%) thereof to the PLANTER, and one
even impleaded as parties to this case. In addition, petitioners need a per centum (1%) as aid to the association of the PLANTER; provided that,
if the PLANTER is not a member of any association recognized by the
 Arbit-Part II |31

CENTRAL, said one per centum (1%) shall revert to the CENTRAL. The 1%
aid shall be used by the association for any purpose that it may deem fit
for its members, laborers and their dependents, or for its other socio-
economic projects.

The foregoing provision cannot, by any stretch of the imagination, be

considered as a stiputation pour autrui or for the benefit of the petitioners.
The primary rationale for the said stipulation is to ensure a just share in
the proceeds of the harvest to the Planters. In other words, it is a
stipulation meant to benefit the Planters. Even the 1% share to be given to
the association as aid does not redound to the benefit of the association
but is intended to be used for its member Planters. Not only that, it is
explicit that said share reverts back to respondent sugar centrals if the
contracting Planter is not affiliated with any recognized association.

To be considered a pour autrui provision, an incidental benefit or interest,

which another person gains, is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a third person. 18 Even
the clause stating that respondents must secure the consent of the
association if respondents grant better benefits to a Planter has for its
rationale the protection of the member Planter. The only interest of the
association therein is that its member Planter will not be put at a
disadvantage vis a vis other Planters. Thus, the associations interest in
these milling contracts is only incidental to their avowed purpose of
advancing the welfare and rights of their member Planters.

In all, the Court finds no grave abuse of discretion nor reversible error
committed by the CA in setting aside the Joint Orders issued by the RTC.

WHEREFORE, petition is hereby DISMISSED.

Costs against petitioners.

SO ORDERED.
 Arbit-Part II |32

4. G.R. No. 136154 February 7, 2001 with the approval of petitioner DMC-USA, as MMI's marketing arm to
concentrate on its marketing and selling function as well as to manage its
DEL MONTE CORPORATION-USA, PAUL E. DERBY, JR., DANIEL critical relationship with the trade.
COLLINS and LUIS HIDALGO, petitioners,
vs. On 3 October 1996 private respondents MMI, SFI and MMI's Managing
COURT OF APPEALS, JUDGE BIENVENIDO L. REYES in his capacity as Director Liong Liong C. Sy (LILY SY) filed a Complaint 5 against petitioners
Presiding Judge, RTC-Br. 74, Malabon, Metro Manila, MONTEBUENO DMC-USA, Paul E. Derby, Jr.,6 Daniel Collins7 and Luis Hidalgo,8 and Dewey
MARKETING, INC., LIONG LIONG C. SY and SABROSA FOODS, Ltd.9before the Regional Trial Court of Malabon, Metro Manila. Private
INC., respondents. respondents predicated their complaint on the alleged violations by
petitioners of Arts. 20,10 2111 and 2312 of the Civil Code. According to
BELLOSILLO, J.: private respondents, DMC-USA products continued to be brought into the
country by parallel importers despite the appointment of private
This Petition for Review on certiorari assails the 17 July 1998 Decision1 of respondent MMI as the sole and exclusive distributor of Del Monte products
the Court of Appeals affirming the 11 November 1997 Order 2 of the thereby causing them great embarrassment and substantial damage. They
Regional Trial Court which denied petitioners' Motion to Suspend alleged that the products brought into the country by these importers were
Proceedings in Civil Case No. 2637-MN. It also questions the appellate aged, damaged, fake or counterfeit, so that in March 1995 they had to
court's Resolution3 of 30 October 1998 which denied petitioners' Motion for cause, after prior consultation with Antonio Ongpin, Market Director for
Reconsideration. Special Markets of Del Monte Philippines, Inc., the publication of a "warning
to the trade" paid advertisement in leading newspapers. Petitioners DMC-
On 1 July 1994, in a Distributorship Agreement, petitioner Del Monte USA and Paul E. Derby, Jr., apparently upset with the publication,
Corporation-USA (DMC-USA) appointed private respondent Montebueno instructed private respondent MMI to stop coordinating with Antonio
Marketing, Inc. (MMI) as the sole and exclusive distributor of its Del Monte Ongpin and to communicate directly instead with petitioner DMC-USA
products in the Philippines for a period of five (5) years, renewable for two through Paul E. Derby, Jr.
(2) consecutive five (5) year periods with the consent of the parties. The
agreement provided, among others, for an arbitration clause which states Private respondents further averred that petitioners knowingly and
surreptitiously continued to deal with the former in bad faith by involving
12. GOVERNING LAW AND ARBITRATION4 disinterested third parties and by proposing solutions which were entirely
out of their control. Private respondents claimed that they had exhausted
This Agreement shall be governed by the laws of the State of California all possible avenues for an amicable resolution and settlement of their
and/or, if applicable, the United States of America. All disputes arising out grievances; that as a result of the fraud, bad faith, malice and wanton
of or relating to this Agreement or the parties' relationship, including the attitude of petitioners, they should be held responsible for all the actual
termination thereof, shall be resolved by arbitration in the City of San expenses incurred by private respondents in the delayed shipment of
Francisco, State of California, under the Rules of the American Arbitration orders which resulted in the extra handling thereof, the actual expenses
Association. The arbitration panel shall consist of three members, one of and cost of money for the unused Letters of Credit (LCs) and the
whom shall be selected by DMC-USA, one of whom shall be selected by substantial opportunity losses due to created out-of-stock situations and
MMI, and third of whom shall be selected by the other two members and unauthorized shipments of Del Monte-USA products to the Philippine Duty
shall have relevant experience in the industry x x x x Free Area and Economic zone; that the bad faith, fraudulent acts and willful
negligence of petitioners, motivated by their determination to squeeze
In October 1994 the appointment of private respondent MMI as the sole private respondents out of the outstanding and ongoing Distributorship
and exclusive distributor of Del Monte products in the Philippines was Agreement in favor of another party, had placed private respondent LILY
published in several newspapers in the country. Immediately after its SY on tenterhooks since then; and, that the shrewd and subtle manner
appointment, private respondent MMI appointed Sabrosa Foods, Inc. (SFI), with which petitioners concocted imaginary violations by private
 Arbit-Part II |33

respondent MMI of the Distributorship Agreement in order to justify the The crux of the controversy boils down to whether the dispute between the
untimely termination thereof was a subterfuge. For the foregoing, private parties warrants an order compelling them to submit to arbitration.
respondents claimed, among other reliefs, the payment of actual damages,
exemplary damages, attorney's fees and litigation expenses. Petitioners contend that the subject matter of private respondents' causes
of action arises out of or relates to the Agreement between petitioners and
On 21 October 1996 petitioners filed a Motion to Suspend private respondents. Thus, considering that the arbitration clause of the
Proceedings13 invoking the arbitration clause in their Agreement with Agreement provides that all disputes arising out of or relating to the
private respondents.1wphi1.nt Agreement or the parties' relationship, including the termination thereof,
shall be resolved by arbitration, they insist on the suspension of the
In a Resolution14 dated 23 December 1996 the trial court deferred proceedings in Civil Case No. 2637-MN as mandated by Sec. 7 of RA
consideration of petitioners' Motion to Suspend Proceedings as the grounds 87618
alleged therein did not constitute the suspension of the proceedings
considering that the action was for damages with prayer for the issuance Sec. 7. Stay of Civil Action. If any suit or proceeding be brought upon an
of Writ of Preliminary Attachment and not on the Distributorship issue arising out of an agreement providing for arbitration thereof, the
Agreement. court in which such suit or proceeding is pending, upon being satisfied that
the issue involved in such suit or proceeding is referable to arbitration,
On 15 January 1997 petitioners filed a Motion for Reconsideration to which shall stay the action or proceeding until an arbitration has been had in
respondents filed their Comment/Opposition. On 31 January 1997 accordance with the terms of the agreement. Provided, That the applicant
petitioners filed their Reply. Subsequently, private respondents filed for the stay is not in default in proceeding with such arbitration.
an Urgent Motion for Leave to Admit Supplemental Pleading dated 2 April
1997. This Motion was admitted, over petitioners' opposition, in an Order Private respondents claim, on the other hand, that their causes of action
of the trial court dated 27 June 1997. are rooted in Arts. 20, 21 and 23 of the Civil Code,19 the determination of
which demands a full blown trial, as correctly held by the Court of Appeals.
As a result of the admission of the Supplemental Complaint, petitioners Moreover, they claim that the issues before the trial court were not joined
filed on 22 July 1997 a Manifestationadopting their Motion to Suspend so that the Honorable Judge was not given the opportunity to satisfy
Proceedings of 17 October 1996 and Motion for Reconsideration of 14 himself that the issue involved in the case was referable to arbitration.
January 1997. They submit that, apparently, petitioners filed a motion to suspend
proceedings instead of sending a written demand to private respondents to
On 11 November 1997 the Motion to Suspend Proceedings was denied by arbitrate because petitioners were not sure whether the case could be a
the trial court on the ground that it "will not serve the ends of justice and subject of arbitration. They maintain that had petitioners done so and
to allow said suspension will only delay the determination of the issues, private respondents failed to answer the demand, petitioners could have
frustrate the quest of the parties for a judicious determination of their filed with the trial court their demand for arbitration that would warrant a
respective claims, and/or deprive and delay their rights to seek redress."15 determination by the judge whether to refer the case to arbitration.
Accordingly, private respondents assert that arbitration is out of the
On appeal, the Court of appeals affirmed the decision of the trial court. It question.
held that the alleged damaging acts recited in the Complaint, constituting
petitioners' causes of action, required the interpretation of Art. 21 of the Private respondents further contend that the arbitration clause centers
Civil Code16and that in determining whether petitioners had violated it more on venue rather than on arbitration. They finally allege that
"would require a full blown trial" making arbitration "out of the petitioners filed their motion for extension of time to file this petition on the
question."17 Petitioners' Motion for Reconsideration of the affirmation was same date20petitioner DMC-USA filed a petition to compel private
denied. Hence, this Petition for Review. respondent MMI to arbitrate before the United States District Court in
Northern California, docketed as Case No. C-98-4446. They insist that the
 Arbit-Part II |34

filing of the petition to compel arbitration in the United States made the Derby, Jr., and private respondents MMI and LILY SY, and not as to the
petition filed before this Court an alternative remedy and, in a way, an other parties in this case. This is consistent with the recent case of Heirs of
abandonment of the cause they are fighting for her in the Philippines, thus Augusto L. Salas, Jr. v. Laperal Realty Corporation,26 which superseded
warranting the dismissal of the present petition before this Court. that of Toyota Motor Philippines Corp. v. Court of Appeals.27

There is no doubt that arbitration is valid and constitutional in our In Toyota, the Court ruled that "[t]he contention that the arbitration clause
jurisdiction.21 Even before the enactment of RA 876, this Court has has become dysfunctional because of the presence of third parties is
countenanced the settlement of disputes through arbitration. Unless the untenable" ratiocinating that "[c]ontracts are respected as the law between
agreement is such as absolutely to close the doors of the courts against the the contracting parties"28 and that "[a]s such, the parties are thereby
parties, which agreement would be void, the courts will look with favor expected to abide with good faith in their contractual
upon such amicable arrangement and will only interfere with great commitments."29 However, in Salas, Jr., only parties to the Agreement,
reluctance to anticipate or nullify the action of the arbitrator. 22 Moreover, their assigns or heirs have the right to arbitrate or could be compelled to
as RA 876 expressly authorizes arbitration of domestic disputes, foreign arbitrate. The Court went further by declaring that in recognizing the right
arbitration as a system of settling commercial disputes was likewise of the contracting parties to arbitrate or to compel arbitration, the splitting
recognized when the Philippines adhered to the United Nations "Convention of the proceedings to arbitration as to some of the parties on one hand and
on the Recognition and the Enforcement of Foreign Arbitral Awards of trial for the others on the other hand, or the suspension of trial pending
1958" under the 10 May 1965 Resolution No. 71 of the Philippine Senate, arbitration between some of the parties, should not be allowed as it would,
giving reciprocal recognition and allowing enforcement of international in effect, result in multiplicity of suits, duplicitous procedure and
arbitration agreements between parties of different nationalities within a unnecessary delay.30
contracting state.23
The object of arbitration is to allow the expeditious determination of a
A careful examination of the instant case shows that the arbitration clause dispute.31 Clearly, the issue before us could not be speedily and efficiently
in the Distributorship Agreement between petitioner DMC-USA and private resolved in its entirety if we allow simultaneous arbitration proceedings and
respondent MMI is valid and the dispute between the parties is arbitrable. trial, or suspension of trial pending arbitration. Accordingly, the interest of
However, this Court must deny the petition. justice would only be served if the trial court hears and adjudicates the
case in a single and complete proceeding.32
The Agreement between petitioner DMC-USA and private respondent MMI
is a contract. The provision to submit to arbitration any dispute arising WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals
therefrom and the relationship of the parties is part of that contract and is affirming the Order of the Regional Trial Court of Malabon, Metro Manila, in
itself a contract. As a rule, contracts are respected as the law between the Civil Case No. 2637-MN, which denied petitioners' Motion to Suspend
contracting parties and produce effect as between them, their assigns and Proceedings, is AFFIRMED. The Regional Trial Court concerned is directed
heirs.24 Clearly, only parties to the Agreement, i.e., petitioners DMC-USA to proceed with the hearing of Civil Case No. 2637-MN with dispatch. No
and its Managing Director for Export Sales Paul E. Derby, Jr., and private costs.
respondents MMI and its Managing Director LILY SY are bound by the
Agreement and its arbitration clause as they are the only signatories SO ORDERED.
thereto. Petitioners Daniel Collins and Luis Hidalgo, and private respondent
SFI, not parties to the Agreement and cannot even be considered assigns
or heirs of the parties, are not bound by the Agreement and the arbitration
clause therein. Consequently, referral to arbitration in the State of
California pursuant to the arbitration clause and the suspension of the
proceedings in Civil Case No. 2637-MN pending the return of the arbitral
award could be called for25 but only as to petitioners DMC-USA and Paul E.
 Arbit-Part II |35

5. G.R. No. 120105 March 27, 1998 Barely two days later or on July 14, 1993, petitioner filed with the Regional
Trial Court of Pasig a complaint for collection of the balance due under the
BF CORPORATION, petitioner, construction agreement. Named defendants therein were SPI and members
vs. of its board of directors namely, Alfredo C. Ramos, Rufo B. Calayco,
COURT OF APPEALS, SHANGRI-LA PROPERTIES, INC., RUFO B. Antonio B. Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III and
COLAYCO, ALFREDO C. RAMOS, MAXIMO G. LICAUCO III and Benjamin C. Ramos.
BENJAMIN C. RAMOS, respondents.
On August 3, 1993, SPI and its co-defendants filed a motion to suspend
ROMERO, J.: proceedings instead of filing an answer. The motion was anchored on
defendants' allegation that the formal trade contract for the construction of
The basic issue in this petition for review on certiorari is whether or not the the project provided for a clause requiring prior resort to arbitration before
contract for the construction of the EDSA Plaza between petitioner BF judicial intervention could be invoked in any dispute arising from the
Corporation and respondent Shangri-la Properties, Inc. embodies an contract. The following day, SPI submitted a copy of the conditions of the
arbitration clause in case of disagreement between the parties in the contract containing the arbitration clause that it failed to append to its
implementation of contractual provisions. motion to suspend proceedings.

Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an Petitioner opposed said motion claiming that there was no formal contract
agreement whereby the latter engaged the former to construct the main between the parties although they entered into an agreement defining their
structure of the "EDSA Plaza Project," a shopping mall complex in the City rights and obligations in undertaking the project. It emphasized that the
of Mandaluyong. The construction work was in progress when SPI decided agreement did not provide for arbitration and therefore the court could not
to expand the project by engaging the services of petitioner again. Thus, be deprived of jurisdiction conferred by law by the mere allegation of the
the parties entered into an agreement for the main contract works after existence of an arbitration clause in the agreement between the parties.
which construction work began.
In reply to said opposition, SPI insisted that there was such an arbitration
However, petitioner incurred delay in the construction work that SPI clause in the existing contract between petitioner and SPI. It alleged that
considered as "serious and substantial."1 On the other hand, according to suspension of proceedings would not necessarily deprive the court of its
petitioner, the construction works "progressed in faithful compliance with jurisdiction over the case and that arbitration would expedite rather than
the First Agreement until a fire broke out on November 30, 1990 damaging delay the settlement of the parties' respective claims against each other.
Phase I" of the Project.2 Hence, SPI proposed the re-negotiation of the
agreement between them. In a rejoinder to SPI's reply, petitioner reiterated that there was no
arbitration clause in the contract between the parties. It averred that
Consequently, on May 30, 1991, petitioner and SPI entered into a written granting that such a clause indeed formed part of the contract, suspension
agreement denominated as "Agreement for the Execution of Builder's Work of the proceedings was no longer proper. It added that defendants should
for the EDSA Plaza Project." Said agreement would cover the construction be declared in default for failure to file their answer within the
work on said project as of May 1, 1991 until its eventual completion. reglementary period.

According to SPI, petitioner "failed to complete the construction works and In its sur-rejoinder, SPI pointed out the significance of petitioner's
abandoned the project."3 This resulted in disagreements between the admission of the due execution of the "Articles of Agreement." Thus, on
parties as regards their respective liabilities under the contract. On July 12, page D/6 thereof, the signatures of Rufo B. Colayco, SPI president, and
1993, upon SPI's initiative, the parties' respective representatives met in Bayani Fernando, president of petitioner appear, while page D/7 shows
conference but they failed to come to an agreement.4 that the agreement is a public document duly notarized on November 15,
 Arbit-Part II |36

1991 by Notary Public Nilberto R. Briones as document No. 345, page 70, Cruz) without the initials thereon of any representative of Shangri-La
book No. LXX, Series of 1991 of his notarial register.5 Properties, Inc.

Thereafter, upon a finding that an arbitration clause indeed exists, the Considering the insistence of the plaintiff that the said Conditions of
lower court6 denied the motion to suspend proceedings, thus: Contract was not duly executed or signed by the parties, and the failure of
the defendants to submit any signed copy of the said document, this Court
It appears from the said document that in the letter-agreement dated May entertains serious doubt whether or not the arbitration clause found in the
30, 1991 (Annex C, Complaint), plaintiff BF and defendant Shangri-La said Conditions of Contract is binding upon the parties to the Articles of
Properties, Inc. agreed upon the terms and conditions of the Builders Work Agreement." (Emphasis supplied.)
for the EDSA Plaza Project (Phases I, II and Carpark), subject to the
execution by the parties of a formal trade contract. Defendants have The lower court then ruled that, assuming that the arbitration clause was
submitted a copy of the alleged trade contract, which is entitled "Contract valid and binding, still, it was "too late in the day for defendants to invoke
Documents For Builder's Work Trade Contractor" dated 01 May 1991, page arbitration." It quoted the following provision of the arbitration clause:
2 of which is entitled "Contents of Contract Documents" with a list of the
documents therein contained, and Section A thereof consists of the Notice of the demand for arbitration of a dispute shall be filed in writing
abovementioned Letter-Agreement dated May 30, 1991. Section C of the with the other party to the contract and a copy filed with the Project
said Contract Documents is entitled "Articles of Agreement and Conditions Manager. The demand for arbitration shall be made within a reasonable
of Contract" which, per its Index, consists of Part A (Articles of Agreement) time after the dispute has arisen and attempts to settle amicably have
and B (Conditions of Contract). The said Articles of Agreement appears to failed; in no case, however, shall the demand he made be later than the
have been duly signed by President Rufo B. Colayco of Shangri-La time of final payment except as otherwise expressly stipulated in the
Properties, Inc. and President Bayani F. Fernando of BF and their contract.
witnesses, and was thereafter acknowledged before Notary Public Nilberto
R. Briones of Makati, Metro Manila on November 15, 1991. The said Articles Against the above backdrop, the lower court found that per the May 30,
of Agreement also provides that the "Contract Documents" therein listed 1991 agreement, the project was to be completed by October 31, 1991.
"shall be deemed an integral part of this Agreement", and one of the said Thereafter, the contractor would pay P80,000 for each day of delay
documents is the "Conditions of Contract" which contains the Arbitration counted from November 1, 1991 with "liquified (sic) damages up to a
Clause relied upon by the defendants in their Motion to Suspend maximum of 5% of the total contract price."
Proceedings.
The lower court also found that after the project was completed in
This Court notes, however, that the 'Conditions of Contract' referred to, accordance with the agreement that contained a provision on "progress
contains the following provisions: payment billing," SPI "took possession and started operations thereof by
opening the same to the public in November, 1991." SPI, having failed to
3. Contract Document. pay for the works, petitioner billed SPI in the total amount of
P110,883,101.52, contained in a demand letter sent by it to SPI on
Three copies of the Contract Documents referred to in the Articles of February 17, 1993. Instead of paying the amount demanded, SPI set up its
Agreement shall be signed by the parties to the contract and distributed to own claim of P220,000,000.00 and scheduled a conference on that claim
the Owner and the Contractor for their safe keeping." (emphasis supplied). for July 12, 1993. The conference took place but it proved futile.

And it is significant to note further that the said "Conditions of Contract" is Upon the above facts, the lower court concluded:
not duly signed by the parties on any page thereof although it bears the
initials of BF's representatives (Bayani F. Fernando and Reynaldo M. de la Considering the fact that under the supposed Arbitration Clause invoked by
defendants, it is required that "Notice of the demand for arbitration of a
 Arbit-Part II |37

dispute shall be filed in writing with the other party . . . . in no case . . . . Manager or the withholding by the Project Manager of any certificate to
later than the time of final payment . . . "which apparently, had elapsed, which the Contractor may claim to be entitled or the measurement and
not only because defendants had taken possession of the finished works valuation mentioned in clause 30 (5) (a) of these Conditions' or the rights
and the plaintiff's billings for the payment thereof had remained pending and liabilities of the parties under clauses 25, 26, 32 or 33 of these
since November, 1991 up to the filing of this case on July 14, 1993, but Conditions), the Owner and the Contractor hereby agree to exert all efforts
also for the reason that defendants have failed to file any written notice of to settle their differences or dispute amicably. Failing these efforts then
any demand for arbitration during the said long period of one year and such dispute or difference shall be referred to Arbitration in accordance
eight months, this Court finds that it cannot stay the proceedings in this with the rules and procedures of the Philippine Arbitration Law.
case as required by Sec. 7 of Republic Act No. 876, because defendants are
in default in proceeding with such arbitration. The fact that said conditions of contract containing the arbitration clause
bear only the initials of respondent Corporation's representatives, Bayani
The lower court denied SPI's motion for reconsideration for lack of merit Fernando and Reynaldo de la Cruz, without that of the representative of
and directed it and the other defendants to file their responsive pleading or petitioner Shangri-La Properties, Inc. does not militate against its
answer within fifteen (15) days from notice. effectivity. Said petitioner having categorically admitted that the document,
Annex A to its reply dated August 26, 1993 (Annex G, petition), is the
Instead of filing an answer to the complaint, SPI filed a petition agreement between the parties, the initial or signature of said petitioner's
for certiorari under Rule 65 of the Rules of Court before the Court of representative to signify conformity to arbitration is no longer necessary.
Appeals. Said appellate court granted the petition, annulled and set aside The parties, therefore, should be allowed to submit their dispute to
the orders and stayed the proceedings in the lower court. In so ruling, the arbitration in accordance with their agreement.
Court of Appeals held:
2. The respondent Court held that petitioners "are in default in proceeding
The reasons given by the respondent Court in denying petitioners' motion with such arbitration." It took note of "the fact that under the supposed
to suspend proceedings are untenable. Arbitration Clause invoked by defendants, it is required that "Notice of the
demand for arbitration of a dispute shall be filed in writing with the other
1. The notarized copy of the articles of agreement attached as Annex A to party . . . in no case . . . later than the time of final payment," which
petitioners' reply dated August 26, 1993, has been submitted by them to apparently, had elapsed, not only because defendants had taken
the respondent Court (Annex G, petition). It bears the signature of possession of the finished works and the plaintiff's billings for the payment
petitioner Rufo B. Colayco, president of petitioner Shangri-La Properties, thereof had remained pending since November, 1991 up to the filing of this
Inc., and of Bayani Fernando, president of respondent Corporation (Annex case on July 14, 1993, but also for the reason that defendants have failed
G-1, petition). At page D/4 of said articles of agreement it is expressly to file any written notice of any demand for arbitration during the said long
provided that the conditions of contract are "deemed an integral part" period of one year and eight months, . . . ."
thereof (page 188, rollo). And it is at pages D/42 to D/44 of the conditions
of contract that the provisions for arbitration are found (Annexes G-3 to G- Respondent Court has overlooked the fact that under the arbitration
5, petition, pp. 227-229). Clause No. 35 on arbitration specifically clause
provides:
Notice of the demand for arbitration dispute shall be filed in writing with
Provided always that in case any dispute or difference shall arise between the other party to the contract and a copy filed with the Project
the Owner or the Project Manager on his behalf and the Contractor, either Manager. The demand for arbitration shall be made within a reasonable
during the progress or after the completion or abandonment of the Works time after the dispute has arisen and attempts to settle amicably had
as to the construction of this Contract or as to any matter or thing of failed; in no case, however, shall the demand be made later than the time
whatsoever nature arising thereunder or in connection therewith (including of final payment except as otherwise expressly stipulated in the contract
any matter or being left by this Contract to the discretion of the Project (emphasis supplied)
 Arbit-Part II |38

quoted in its order (Annex A, petition). As the respondent Court there said, The above contention is without merit.
after the final demand to pay the amount of P110,883,101.52, instead of
paying, petitioners set up its own claim against respondent Corporation in The rule that the special civil action of certiorari may not be invoked as a
the amount of P220,000,000.00 and set a conference thereon on July 12, substitute for the remedy of appeal is succinctly reiterated in Ongsitco
1993. Said conference proved futile. The next day, July 14, 1993, v. Court of Appeals8 as follows:
respondent Corporation filed its complaint against petitioners. On August
13, 1993, petitioners wrote to respondent Corporation requesting . . . . Countless times in the past, this Court has held that "where appeal is
arbitration. Under the circumstances, it cannot be said that petitioners' the proper remedy, certiorariwill not lie." The writs of certiorari and
resort to arbitration was made beyond reasonable time. Neither can they prohibition are remedies to correct lack or excess of jurisdiction or grave
be considered in default of their obligation to respondent Corporation. abuse of discretion equivalent to lack of jurisdiction committed by a lower
court. "Where the proper remedy is appeal, the action for certiorari will not
Hence, this petition before this Court. Petitioner assigns the following be entertained. . . . Certiorari is not a remedy for errors of judgment.
errors: Errors of judgment are correctible by appeal, errors of jurisdiction are
reviewable by certiorari."
A
Rule 65 is very clear. The extraordinary remedies of certiorari, prohibition
THE COURT OF APPEALS ERRED IN ISSUING THE EXTRAORDINARY WRIT and mandamus are available only when "there is no appeal or any plain,
OF CERTIORARIALTHOUGH THE REMEDY OF APPEAL WAS AVAILABLE TO speedy and adequate remedy in the ordinary course of law . . . ." That is
RESPONDENTS. why they are referred to as "extraordinary." . . . .

B The Court has likewise ruled that "certiorari will not be issued to cure
errors in proceedings or correct erroneous conclusions of law or fact. As
THE COURT OF APPEALS ERRED IN FINDING GRAVE ABUSE OF long as a court acts within its jurisdiction, any alleged errors committed in
DISCRETION IN THE FACTUAL FINDINGS OF THE TRIAL COURT THAT: the exercise of its jurisdiction will amount to nothing more than errors of
judgment which are reviewable by timely appeal and not by a special civil
(i) THE PARTIES DID NOT ENTER INTO AN AGREEMENT TO ARBITRATE. action of certiorari."9

(ii) ASSUMING THAT THE PARTIES DID ENTER INTO THE AGREEMENT TO This is not exactly so in the instant case. While this Court does not deny
ARBITRATE, RESPONDENTS ARE ALREADY IN DEFAULT IN INVOKING THE the eventual jurisdiction of the lower court over the controversy, the issue
AGREEMENT TO ARBITRATE. posed basically is whether the lower court prematurely assumed
jurisdiction over it. If the lower court indeed prematurely assumed
On the first assigned error, petitioner contends that the Order of the lower jurisdiction over the case, then it becomes an error of jurisdiction which is
court denying the motion to suspend proceedings "is a resolution of an a proper subject of a petition for certiorari before the Court of Appeals. And
incident on the merits." As such, upon the continuation of the proceedings, if the lower court does not have jurisdiction over the controversy, then any
the lower court would appreciate the evidence adduced in their totality and decision or order it may render may be annulled and set aside by the
thereafter render a decision on the merits that may or may not sustain the appellate court.
existence of an arbitration clause. A decision containing a finding that the
contract has no arbitration clause can then be elevated to a higher court However, the question of jurisdiction, which is a question of law depends
"in an ordinary appeal" where an adequate remedy could be obtained. on the determination of the existence of the arbitration clause, which is a
Hence, to petitioner, the Court of Appeals should have dismissed the question of fact. In the instant case, the lower court found that there exists
petition for certioraribecause the remedy of appeal would still be available an arbitration clause. However, it ruled that in contemplation of law, said
to private respondents at the proper time.7 arbitration clause does not exist.
 Arbit-Part II |39

The issue, therefore, posed before the Court of Appeals in a petition have been one considering the following points. First, the trial court found
for certiorari is whether the Arbitration Clause does not in fact exist. On its that the "conditions of contract" embodying the arbitration clause is not
face, the the question is one of fact which is not proper in a petition duly signed by the parties. Second, private respondents misrepresented
for certiorari. before the Court of Appeals that they produced in the trial court a
notarized duplicate original copy of the construction agreement because
The Court of Appeals found that an Arbitration Clause does in fact exist. In what were submitted were mere photocopies thereof. The contract(s)
resolving said question of fact, the Court of Appeals interpreted the introduced in court by private respondents were therefore "of dubious
construction of the subject contract documents containing the Arbitration authenticity" because: (a) the Agreement for the Execution of Builder's
Clause in accordance with Republic Act No. 876 (Arbitration Law) and Work for the EDSA Plaza Project does not contain an arbitration clause, (b)
existing jurisprudence which will be extensively discussed hereunder. In private respondents "surreptitiously attached as Annexes "G-3" to "G-5" to
effect, the issue posed before the Court of Appeals was likewise a question their petition before the Court of Appeals but these documents are not
of law. Being a question of law, the private respondents rightfully invoked parts of the Agreement of the parties as "there was no formal trade
the special civil action of certiorari. contract executed," (c) if the entire compilation of documents "is indeed a
formal trade contract," then it should have been duly notarized, (d) the
It is that mode of appeal taken by private respondents before the Court of certification from the Records Management and Archives Office dated
Appeals that is being questioned by the petitioners before this Court. But at August 26, 1993 merely states that "the notarial record of Nilberto Briones
the heart of said issue is the question of whether there exists an Arbitration . . . is available in the files of (said) office as Notarial Registry Entry only,"
Clause because if an Arbitration Clause does not exist, then private (e) the same certification attests that the document entered in the notarial
respondents took the wrong mode of appeal before the Court of Appeals. registry pertains to the Articles of Agreement only without any other
accompanying documents, and therefore, it is not a formal trade contract,
For this Court to be able to resolve the question of whether private and (f) the compilation submitted by respondents are a "mere hodge-
respondents took the proper mode of appeal, which, incidentally, is a podge of documents and do not constitute a single intelligible agreement."
question of law, then it has to answer the core issue of whether there
exists an Arbitration Clause which, admittedly, is a question of fact. In other words, petitioner denies the existence of the arbitration clause
primarily on the ground that the representatives of the contracting
Moreover, where a rigid application of the rule that certiorari cannot be a corporations did not sign the "Conditions of Contract" that contained the
substitute for appeal will result in a manifest failure or miscarriage of said clause. Its other contentions, specifically that insinuating fraud as
justice, the provisions of the Rules of Court which are technical rules may regards the alleged insertion of the arbitration clause, are questions of fact
be relaxed. 10 As we shall show hereunder, had the Court of Appeals that should have been threshed out below.
dismissed the petition for certiorari, the issue of whether or not an
arbitration clause exists in the contract would not have been resolved in This Court may as well proceed to determine whether the arbitration clause
accordance with evidence extant in the record of the case. Consequently, does exist in the parties' contract. Republic Act No. 876 provides for the
this would have resulted in a judicial rejection of a contractual provision formal requisites of an arbitration agreement as follows:
agreed by the parties to the contract.
Sec. 4. Form of arbitration agreement. A contract to arbitrate a
In the same vein, this Court holds that the question of the existence of the controversy thereafter arising between the parties, as well as a submission
arbitration clause in the contract between petitioner and private to arbitrate an existing controversy, shall be in writing and subscribed by
respondents is a legal issue that must be determined in this petition for the party sought to be charged, or by his lawful agent.
review on certiorari.
The making of a contract or submission for arbitration described in section
Petitioner, while not denying that there exists an arbitration clause in the two hereof, providing for arbitration of any controversy, shall be deemed a
contract in question, asserts that in contemplation of law there could not
 Arbit-Part II |40

consent of the parties of the province or city where any of the parties which contains the Arbitration Clause.'" It is this Articles of Agreement that
resides, to enforce such contract of submission. (Emphasis supplied.). was duly signed by Rufo B. Colayco, president of private respondent SPI,
and Bayani F. Fernando, president of petitioner corporation. The same
The formal requirements of an agreement to arbitrate are therefore the agreement was duly subscribed before notary public Nilberto R. Briones. In
following: (a) it must be in writing and (b) it must be subscribed by the other words, the subscription of the principal agreement effectively covered
parties or their representatives. There is no denying that the parties the other documents incorporated by reference therein.
entered into a written contract that was submitted in evidence before the
lower court. To "subscribe" means to write underneath, as one's name; to This Court likewise does not find that the Court of Appeals erred in ruling
sign at the end of a document. 11 That word may sometimes be construed that private respondents were not in default in invoking the provisions of
to mean to give consent to or to attest.12 the arbitration clause which states that "(t)he demand for arbitration shall
be made within a reasonable time after the dispute has arisen and
The Court finds that, upon a scrutiny of the records of this case, these attempts to settle amicably had failed." Under the factual milieu, private
requisites were complied with in the contract in question. The Articles of respondent SPI should have paid its liabilities tinder the contract in
Agreement, which incorporates all the other contracts and agreements accordance with its terms. However, misunderstandings appeared to have
between the parties, was signed by representatives of both parties and cropped up between the parties ostensibly brought about by either delay in
duly notarized. The failure of the private respondent's representative to the completion of the construction work or by force majeure or the fire that
initial the "Conditions of Contract" would therefor not affect compliance partially gutted the project. The almost two-year delay in paying its
with the formal requirements for arbitration agreements because that liabilities may not therefore be wholly ascribed to private respondent SPI.
particular portion of the covenants between the parties was included by
reference in the Articles of Agreement. Besides, private respondent SPI's initiative in calling for a conference
between the parties was a step towards the agreed resort to arbitration.
Petitioner's contention that there was no arbitration clause because the However, petitioner posthaste filed the complaint before the lower court.
contract incorporating said provision is part of a "hodge-podge" document, Thus, while private respondent SPI's request for arbitration on August 13,
is therefore untenable. A contract need not be contained in a single writing. 1993 might appear an afterthought as it was made after it had filed the
It may be collected from several different writings which do not conflict motion to suspend proceedings, it was because petitioner also appeared to
with each other and which, when connected, show the parties, subject act hastily in order to resolve the controversy through the courts.
matter, terms and consideration, as in contracts entered into by
correspondence. 13 A contract may be encompassed in several instruments The arbitration clause provides for a "reasonable time" within which the
even though every instrument is not signed by the parties, since it is parties may avail of the relief under that clause. "Reasonableness" is a
sufficient if the unsigned instruments are clearly identified or referred to relative term and the question of whether the time within which an act has
and made part of the signed instrument or instruments. Similarly, a written to be done is reasonable depends on attendant circumstances. 15 This
agreement of which there are two copies, one signed by each of the Court finds that under the circumstances obtaining in this case, a one-
parties, is binding on both to the same extent as though there had been month period from the time the parties held a conference on July 12, 1993
only one copy of the agreement and both had signed it. 14 until private respondent SPI notified petitioner that it was invoking the
arbitration clause, is a reasonable time. Indeed, petitioner may not be
The flaw in petitioner's contentions therefore lies in its having segmented faulted for resorting to the court to claim what was due it under the
the various components of the whole contract between the parties into contract. However, we find its denial of the existence of the arbitration
several parts. This notwithstanding, petitioner ironically admits the clause as an attempt to cover up its misstep in hurriedly filing the
execution of the Articles of Agreement. Notably, too, the lower court found complaint before the lower court.
that the said Articles of Agreement "also provides that the 'Contract
Documents' therein listed 'shall be deemed an integral part of this In this connection, it bears stressing that the lower court has not lost its
Agreement,' and one of the said documents is the 'Conditions of Contract' jurisdiction over the case. Section 7 of Republic Act No. 876 provides that
 Arbit-Part II |41

proceedings therein have only been stayed. After the special proceeding of
arbitration 16 has been pursued and completed, then the lower court may
confirm the award 17made by the arbitrator.

It should be noted that in this jurisdiction, arbitration has been held valid
and constitutional. Even before the approval on June 19, 1953 of Republic
Act No. 876, this Court has countenanced the settlement of disputes
through arbitration. 18 Republic Act No. 876 was adopted to supplement the
New Civil Code's provisions on arbitration. 19 Its potentials as one of the
alternative dispute resolution methods that are now rightfully vaunted as
"the wave of the future" in international relations, is recognized worldwide.
To brush aside a contractual agreement calling for arbitration in case of
disagreement between the parties would therefore be a step backward.

WHEREFORE, the questioned Decision of the Court of Appeals is hereby

AFFIRMED and the petition for certiorari DENIED. This Decision is
immediately executory. Costs against petitioner.

SO ORDERED.
 Arbit-Part II |42

6. G.R. No. 182248 December 18, 2008 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,
EQUITABLE PCI BANKING CORPORATION,1 GEORGE L. GO, PATRICK in an escrow account. The escrowed amount, the SPA stated, should be
D. GO, GENEVIEVE W.J. GO, FERDINAND MARTIN G. ROMUALDEZ, released to petitioners on an agreed-upon release date and the balance of
OSCAR P. LOPEZ-DEE, RENE J. BUENAVENTURA, GLORIA L. TAN- the purchase price shall be delivered to the share buyers upon the
CLIMACO, ROGELIO S. CHUA, FEDERICO C. PASCUAL, LEOPOLDO S. fulfillment of certain conditions agreed upon, in the form of a managers
VEROY, WILFRIDO V. VERGARA, EDILBERTO V. JAVIER, ANTHONY check.
F. CONWAY, ROMULAD U. DY TANG, WALTER C. WESSMER, and
ANTONIO N. COTOCO, petitioners, The other relevant provisions of the SPA are:
vs.
RCBC CAPITAL CORPORATION, respondent. Section 5. Sellers Representations and Warranties

DECISION The SELLERS jointly and severally represent and warrant to the BUYER
that:
VELASCO, JR., J.:
xxxx
The Case
The Financial Condition of Bankard
This Petition for Review on Certiorari under Rule 45 seeks the reversal of
the January 8, 20082 and March 17, 20083 Orders of the Regional Trial g. The audited financial statements of Bankard for the three (3) fiscal years
Court (RTC), Branch 148 in Makati City in SP Proc. Case No. 6046, ended December 31, 1997, 1998 and 1999, and the unaudited financial
entitled In the Matter of ICC Arbitration Ref. No. 13290/MS/JB/JEM statements for the first quarter ended 31 March 2000, are fair and
Between RCBC Capital Corporation, (Claimant), and Equitable PCI Banking accurate, and complete in all material respects, and have been prepared in
Corporation, Inc. et al., (Respondents). The assailed January 8, 2008 Order accordance with generally accepted accounting principles consistently
confirmed the Partial Award dated September 27, 2007 4 rendered by the followed throughout the period indicated and:
International Chamber of Commerce-International Court of Arbitration
(ICC-ICA) in Case No. 13290/MS/JB/JEM, entitled RCBC Capital i) the balance sheet of Bankard as of 31 December 1999, as prepared and
Corporation (Philippines) v. Equitable PCI Bank, Inc. & Others certified by SGV & Co. ("SGV"), and the unaudited balance sheet for the
(Philippines). The March 17, 2008 Order denied petitioners motion for first quarter ended 31 March 2000, present a fair and accurate statement
reconsideration of the January 8, 2008 Order. as of those dates, of Bankards financial condition and of all its assets and
liabilities, and is complete in all material respects; and
The Facts
ii) the statements of Bankards profit and loss accounts for the fiscal years
On May 24, 2000, petitioners Equitable PCI Bank, Inc. (EPCIB) and the 1996 to 1999, as prepared and certified by SGV, and the unaudited profit
individual shareholders of Bankard, Inc., as sellers, and respondent RCBC and loss accounts for the first quarter ended 31 March 2000, fairly and
Capital Corporation (RCBC), as buyer, executed a Share Purchase accurately present the results of the operations of Bankard for the periods
Agreement5(SPA) for the purchase of petitioners interests in Bankard, indicated, and are complete in all material respects.
representing 226,460,000 shares, for the price of PhP 1,786,769,400. To
expedite the purchase, RCBC agreed to dispense with the conduct of a due h. Except as disclosed in the Disclosures, and except to the extent set forth
diligence audit on the financial status of Bankard. or reserved in the audited financial statements of Bankard as of 31
December 1999 and its unaudited financial statements as of 31 March
2000, Bankard, as of such dates and up to 31 May 2000, had and shall
 Arbit-Part II |43

have no liabilities, omissions or mistakes in its records which will have Thereafter, the parties executed an Amendment to Share Purchase
material adverse effect on the net worth or financial condition of Bankard Agreement (ASPA) dated September 19, 2000.7Its paragraph 2(e) provided
to the extent of more than One Hundred Million Pesos (P100,000,000.00) that:
in the aggregate. In the event such material adverse effect on the net
worth or financial condition of Bankard exceeds One Hundred Million Pesos 2. Notwithstanding any provisions to the contrary in the Share Purchase
(P100,000,000.00), the Purchase Price shall be reduced in accordance with Agreement and/or any agreement, instrument or document entered into or
the following formula: executed by the Parties in relation thereto (the "Related Agreements"), the
Parties hereby agree that:
Reduction in Purchase Price = X multiplied by 226,460,000
xxxx
where
e) Notwithstanding the provisions of Sec. 7 of the Share Purchase
Amount by which negative adjustment Agreement to the contrary, the remedy for a breach of the SELLERS
exceeds P100 Million representation and warranty in Section 5(h) of the Share Purchase
X= -------------------------------------------- (1.925) Agreement shall be available if the demand therefor is presented to
338,000,000 the SELLERS in writing together with schedules and data to substantiate
such demand, on or before 31 December 2000. (Emphasis added.)
xxxx
Sometime in September 2000, RCBC had Bankards accounts audited,
Section 7. Remedies for Breach of Warranties creating for the purpose an audit team led by a certain Rubio, the Vice-
President for Finance of RCBC at the time. Rubios conclusion was that the
a. If any of the representations and warranties of any or all of the SELLERS warranty, as contained in Section 5(h) of the SPA (simply Sec. 5[h]
or the BUYER (the "Defaulting Party") contained in Sections 5 and 6 shall hereinafter), was correct.
be found to be untrue when made and/or as of the Closing Date, the other
party, i.e., the BUYER if the Defaulting Party is any or all of the SELLERS On December 28, 2000, RCBC paid the balance of the contract price. The
and the SELLERS if the Defaulting Party is the BUYER (hereinafter referred corresponding deeds of sale for the shares in question were executed in
to as the "Non-Defaulting Party") shall have the right to require the January 2001.
Defaulting Party, at the latters expense, to cure such breach, and/or seek
damages, by providing notice or presenting a claim to the Defaulting Party, Thereafter, in a letter of May 5, 2003, RCBC informed petitioners of its
reasonably specifying therein the particulars of the breach. The foregoing having overpaid the purchase price of the subject shares, claiming that
remedies shall be available to the Non-Defaulting Party only if the demand there was an overstatement of valuation of accounts amounting to PhP 478
million, resulting in the overpayment of over PhP 616 million. Thus, RCBC
therefor is presented in writing to the Defaulting Party within three (3)
claimed that petitioners violated their warranty, as sellers, embodied in
years from the Closing Date except that the remedy for a breach of the
SELLERS representation and warrant in Section 5 (h) shall be available Sec. 5(g) of the SPA (Sec. 5[g] hereinafter).
only if the demand therefor is presented to the Defaulting Party in writing
Following unsuccessful attempts at settlement, RCBC, in accordance with
together with schedules and to substantiate such demand, within six (6)
Sec. 10 of the SPA, filed a Request for Arbitration dated May 12,
months from the Closing Date.6
20048 with the ICC-ICA. In the request, RCBC charged Bankard with
deviating from, contravening and not following generally accepted
On June 2, 2000, RCBC deposited the stipulated downpayment amount in
accounting principles and practices in maintaining their books. Due to
an escrow account after which it was given full management and
operational control of Bankard. June 2, 2000 is also considered by the these improper accounting practices, RCBC alleged that both the audited
parties as the Closing Date referred to in the SPA. and unaudited financial statements of Bankard prior to the stock purchase
 Arbit-Part II |44

were far from fair and accurate and, hence, violated the representations i) the assets, revenue and net worth of Bankard were overstated by reason
and warranties of petitioners in the SPA. Per RCBC, its overpayment of its policy on and recognition of Late Payment Fees;
amounted to PhP 556 million. It thus prayed for the rescission of the SPA,
restitution of the purchase price, payment of actual damages in the ii) reported receivables were higher than their realizable values by reason
amount of PhP 573,132,110, legal interest on the purchase price until of the bucketing method, thus overstating Bankards assets; and
actual restitution, moral damages, and litigation and attorneys fees. As
alternative to rescission and restitution, RCBC prayed for damages in the iii) the relevant Bankard statements were inadequate and misleading in
amount of at least PhP 809,796,092 plus legal interest. that their disclosures caused readers to be misinformed about Bankards
accounting policies on revenue and receivables.
To the Request for Arbitration, petitioners filed an Answer dated July 28,
2004,9 denying RCBCs inculpatory averments and setting up the following (d) Subject to proof of loss the Claimant is entitled to damages for the
affirmative allegations: the period for filing of the asserted claim had foregoing breaches.
already lapsed by force of Sec. 7 of the SPA; RCBC is not entitled to
rescission having had ample opportunity and reasonable time to file a claim (e) The Claimant is not entitled to rescission of the SPA.
against petitioners; RCBC is not entitled to its alternative prayer of
damages, being guilty of laches and failing to set out the details of the (f) All other issues, including any issue relating to costs, will be dealt with
breach as required under Sec. 7. in a further or final award.

Arbitration in the ICC-ICA proceeded after the formation of the arbitration 15.2 A further Procedural Order will be necessary subsequent to the
tribunal consisting of retired Justice Santiago M. Kapunan, nominated by delivery of this Partial Award to deal with the determination of quantum
petitioners; Neil Kaplan, RCBCs nominee; and Sir Ian Barker, appointed by and in particular, whether there should be an Expert appointed by the
the ICC-ICA. Tribunal under Article 20(4) of the ICC Rules to assist the Tribunal in this
regard.
After drawn out proceedings with each party alleging deviation and non-
compliance by the other with arbitration rules, the tribunal, with Justice 15.3 This Award is delivered by a majority of the Tribunal (Sir Ian Barker
Kapunan dissenting, rendered a Partial Award dated September 27, and Mr. Kaplan). Justice Kapunan is unable to agree with the majoritys
2007,10 the dispositive portion of which states: conclusion on the claim of estoppel brought by the respondents.

15 AWARD AND DIRECTIONS On the matter of prescription, the tribunal held that RCBCs claim is not
time-barred, the claim properly falling under the contemplation of Sec.
15.1 The Tribunal makes the following declarations by way of Partial 5(g) and not Sec. 5(h). As such, the tribunal concluded, RCBCs claim was
Award: filed within the three (3)-year period under Sec. 5(g) and that the six (6)-
month period under Sec. 5(h) did not apply.
(a) The Claimants claim is not time-barred under the provisions of this
SPA. The tribunal also exonerated RCBC from laches, the latter having sought
relief within the three (3)-year period prescribed in the SPA. On the matter
(b) The Claimant is not estopped by its conduct or the equitable doctrine of of estoppel suggested in petitioners answer, the tribunal stated in par.
laches from pursuing its claim. 10.27 of the Partial Award the following:

(c) As detailed in the Partial Award, the Claimant has established the 10.27 Clearly, there has to be both an admission or representation by (in
following breaches by the Respondents of clause 5(g) of the SPA: this case) the Claimant [RCBC], plus reliance upon it by (in this case) the
Respondents [herein petitioners]. The Tribunal cannot find as proved any
 Arbit-Part II |45

admission/representation that the Claimant was abandoning a 5(g) claim, Bucketed Method and income recognition from AR/Principal, AR/Interest
any reliance by the Respondents on an admission, and any detriment to and AR/LPFs were disclosed in the Information Memorandum. Thus, these
the Respondents such as would entitle them to have the Claimant deprived alleged improper accounting practices were known to the Claimant even
of the benefit of clause 5(g). These aspects of the claim for estoppels are prior to the execution of the SPA.
rejected.11
Thus, when Claimant paid the balance of the purchase price, it did so with
Notably, the tribunal considered the rescission of the SPA and ASPA as full knowledge of these accounting practices of Bankard that it now assails.
impracticable and "totally out of the question."12 By paying the balance of the purchase price without taking exception or
objecting to the accounting practices disclosed through Mr. Rubio s review
In his Dissenting Opinion13 which he submitted to and which was received and the Information Memorandum, Claimant is deemed to have accepted
on September 24, 2007 by the ICC-ICA, Justice Kapunan stated the such practices as correctly reporting the 1999 net worth. x x x
observation that RCBCs claim is time-barred, falling as such claim did
under Sec. 5(h), which prescribes a comparatively shorter prescriptive xxxx
period, not 5(g) as held by the majority of the tribunal, to wit:
As last point, I note that my colleagues invoke a principle that for estoppels
Claimant admits that the Claim is for recovery of P431 million on account to apply there must be positive indication that the right to sue was waived.
of alleged "overvaluation of the net worth of Bankard," allegedly for I am of the view that there is no such principle under Philippine law. What
"improper accounting practices" resulting in "its book value per share as of is applicable is the holding in Knecht and in Coca- Cola that prior
31 December 1999 [being] overstated." Claimants witness, Dean Echanis knowledge of an unfavorable fact is binding on the party who has such
asserts that "the inadequate provisioning for Bankards doubtful accounts knowledge; "when the purchaser proceeds to make investigations by
result[ed] in an overstatement of its December 31, 1999 total assets and himself, and the vendor does nothing to prevent such investigation from
net worth of by [sic] least P418.2 million." being as complete as the former might wish, the purchaser cannot later
allege that the vendor made false representations to him" (Cf. Songco v.
In addition, Claimants demand letter addressed to the Respondents Sellner, 37 Phil 254 citations omitted).
alleged that "we overpaid for the Shares to the extent of the impact of the
said overstatement on the Book Value per share". Applied to this case, the Claimant cannot seek relief on the basis that when
it paid the purchase price in December 2000, it was unaware that the
These circumstances establish beyond dispute that the Claim is based on accounting practices that went into the reporting of the 1999 net worth as
the alleged overstatement of the 1999 net worth of Bankard, which the amounting to P1,387,275,847 were not in conformity with GAAP [generally
parties relied on in setting the purchase price of the shares. Moreover, it is accepted accounting principles]. (Emphasis added.)
clear that there was an overstatement because of "improper accounting
practices" which led Claimant to overpay for the shares. 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
Ultimately, the Claim is one for recovery of overpayment in the purchase Partial Award. On November 9, 2007, petitioners again filed a Motion to
price of the shares. x x x Suspend and Inhibit Barker and Kaplan.

As to the issue of estoppel, Justice Kapunan stated: On January 8, 2008, the RTC issued the first assailed order confirming the
Partial Award and denying the adverted separate motions to vacate and to
Moreover, Mr. Rubios findings merely corroborated the disclosures made in suspend and inhibit. From this order, petitioners sought reconsideration,
the Information Memorandum that Claimant received from the but their motion was denied by the RTC in the equally assailed second
Respondents prior to the execution of the SPA. In this connection, I note order of March 17, 2008.
that Bankards policy on provisioning and setting of allowances using the
 Arbit-Part II |46

From the assailed orders, petitioners came directly to this Court through the proper mode of appeal from a decision of the RTC confirming, vacating,
this petition for review. setting aside, modifying, or correcting an arbitral award.

The Issues Rule 45 is not the remedy available to petitioners as the proper mode of
appeal assailing the decision of the RTC confirming as arbitral award is an
This petition seeks the review, reversal and setting aside of the orders appeal before the CA pursuant to Sec. 46 of Republic Act No. (RA) 9285,
Annexes A and B and, in lieu of them, it seeks judgment vacating the otherwise known as the Alternative Dispute Resolution Act of 2004, or
arbitrators liability award, Annex C, on these grounds: completely, An Act to Institutionalize the Use of an Alternative Dispute
Resolution System in the Philippines and to Establish the Office for
(a) The trial court acted contrary to law and judicial authority in refusing to Alternative Dispute Resolution, and for other Purposes, promulgated on
vacate the arbitral award, notwithstanding it was rendered in plain April 2, 2004 and became effective on April 28, 2004 after its publication
disregard of the parties contract and applicable Philippine law, under which on April 13, 2004.
the claim in arbitration was indubitably time-barred.
In Korea Technologies Co., Ltd v. Lerma, we explained, inter alia, that the
(b) The trial court acted contrary to law and judicial authority in refusing to RTC decision of an assailed arbitral award is appealable to the CA and may
vacate and in confirming the arbitral award, notwithstanding that the further be appealed to this Court, thus:
arbitrators had plainly and admittedly failed to accord petitioners due
process by denying them a hearing on the basic factual matter upon which Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of
their liability is predicated. an aggrieved party in cases where the RTC sets aside, rejects, vacates,
modifies, or corrects an arbitral award, thus:
(c) The trial court committed grave error in confirming the arbitrators
award, which held petitioners-sellers liable for an alleged improper SEC. 46. Appeal from Court Decision or Arbitral Awards.A decision of the
recording of accounts, allegedly affecting the value of the shares they sold, Regional Trial Court confirming, vacating, setting aside, modifying or
notwithstanding that the respondent-buyer knew before contracting that correcting an arbitral award may be appealed to the Court of Appeals in
the accounts were kept in the manner complained of, and in fact ratified accordance with the rules and procedure to be promulgated by the
and adopted the questioned accounting practice and policies.14 Supreme Court.

The Courts Ruling The losing party who appeals from the judgment of the court confirming an
arbitral award shall be required by the appellate court to post a
The petition must be denied. counterbond executed in favor of the prevailing party equal to the amount
of the award in accordance with the rules to be promulgated by the
On Procedural Misstep of Direct Appeal to This Court Supreme Court.

As earlier recited, the ICC-ICAs Partial Award dated September 27, 2007 Thereafter, the CA decision may further be appealed or reviewed before
was confirmed by the RTC in its first assailed order of January 8, 2008. this Court through a petition for review under Rule 45 of the Rules of
Thereafter, the RTC, by order of March 17, 2008, denied petitioners Court.15
motion for reconsideration. Therefrom, petitioners came directly to this
Court on a petition for review under Rule 45 of the Rules of Court. It is clear from the factual antecedents that RA 9285 applies to the instant
case. This law was already effective at the time the arbitral proceedings
This is a procedural miscue for petitioners who erroneously bypassed the were commenced by RCBC through a request for arbitration filed before
Court of Appeals (CA) in pursuit of its appeal. While this procedural gaffe the ICC-ICA on May 12, 2004. Besides, the assailed confirmation order of
has not been raised by RCBC, still we would be remiss in not pointing out the RTC was issued on March 17, 2008. Thus, petitioners clearly took the
 Arbit-Part II |47

wrong mode of appeal and the instant petition can be outright rejected and Finally, it should be stressed that while a court is precluded from
dismissed. overturning an award for errors in determination of factual issues,
nevertheless, if an examination of the record reveals no support whatever
Even if we entertain the petition, the outcome will be the same. for the arbitrators determinations, their award must be vacated. In the
same manner, an award must be vacated if it was made in "manifest
The Court Will Not Overturn an Arbitral Award disregard of the law."17 (Emphasis supplied.)
Unless It Was Made in Manifest Disregard of the Law
Following Asset Privatization Trust, errors in law and fact would not
In Asset Privatization Trust v. Court of Appeals,16 the Court passed on generally justify the reversal of an arbitral award. A party asking for the
similar issues as the ones tendered in the instant petition. In that case, the vacation of an arbitral award must show that any of the grounds for
arbitration committee issued an arbitral award which the trial court, upon vacating, rescinding, or modifying an award are present or that the arbitral
due proceedings, confirmed despite the opposition of the losing party. award was made in manifest disregard of the law. Otherwise, the Court is
Motions for reconsideration by the losing party were denied. An appeal duty-bound to uphold an arbitral award.
interposed by the losing party to the CA was denied due course. On appeal
to this Court, we established the parameters by which an arbitral award The instant petition dwells on the alleged manifest disregard of the law by
may be set aside, to wit: the ICC-ICA.

As a rule, the award of an arbitrator cannot be set aside for mere The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
errors of judgment either as to the law or as to the facts. Courts Jaros18 expounded on the phrase "manifest disregard of the law" in the
are without power to amend or overrule merely because of following wise:
disagreement with matters of law or facts determined by the
arbitrators. They will not review the findings of law and fact This court has emphasized that manifest disregard of the law is a very
contained in an award, and will not undertake to substitute their narrow standard of review. Anaconda Co. v. District Lodge No. 27, 693
judgment for that of the arbitrators, since any other rule would F.2d 35 (6th Cir.1982). A mere error in interpretation or application of the
make an award the commencement, not the end, of litigation. law is insufficient. Anaconda, 693 F.2d at 37-38. Rather, the decision must
Errors of law and fact, or an erroneous decision of matters fly in the face of clearly established legal precedent. When faced with
submitted to the judgment of the arbitrators, are insufficient to questions of law, an arbitration panel does not act in manifest disregard of
invalidate an award fairly and honestly made. Judicial review of an the law unless (1) the applicable legal principle is clearly defined and not
arbitration is, thus, more limited than judicial review of a trial. subject to reasonable debate; and (2) the arbitrators refused to heed that
legal principle.
Nonetheless, the arbitrators awards is not absolute and without
exceptions. The arbitrators cannot resolve issues beyond the scope of the Thus, to justify the vacation of an arbitral award on account of "manifest
submission agreement. The parties to such an agreement are bound by the disregard of the law," the arbiters findings must clearly and unequivocally
arbitrators award only to the extent and in the manner prescribed by the violate an established legal precedent. Anything less would not suffice.
contract and only if the award is rendered in conformity thereto. Thus,
Sections 24 and 25 of the Arbitration Law provide grounds for vacating, In the present case, petitioners, in a bid to establish that the arbitral award
rescinding or modifying an arbitration award. Where the conditions was issued in manifest disregard of the law, allege that the Partial Award
described in Articles 2038, 2039 and 2040 of the Civil Code applicable to violated the principles of prescription, due process, and estoppel. A review
compromises and arbitration are attendant, the arbitration award may also of petitioners arguments would, however, show that their arguments are
be annulled. bereft of merit. Thus, the Partial Award dated September 27, 2007 cannot
be vacated.
xxxx
 Arbit-Part II |48

RCBCs Claim Is Not Time-Barred December 1999 and its unaudited financial statements for the first quarter
ended 31 March 2000, Bankard, as of such dates and up to 31 May
Petitioners argue that RCBCs claim under Sec. 5(g) is based on 2000, had and shall have no liabilities, omissions or mistakes in its
overvaluation of Bankards revenues, assets, and net worth, hence, for records which will have a material adverse effect on the net worth
price reduction falling under Sec. 5(h), in which case it was belatedly filed, or financial condition of Bankard to the extent of more than One
for RCBC presented the claim to petitioners on May 5, 2003, when the Hundred Million Pesos (P 100,000,000.00) in the aggregate. In the
period for presenting it under Sec. 5(h) expired on December 31, 2000. As event such material adverse effect on the net worth or financial condition
a counterpoint, RCBC asserts that its claim clearly comes under Sec. 5(g) of Bankard exceeds One Hundred Million Pesos (P 100,000,000.00), the
in relation to Sec. 7 which thus gave it three (3) years from the closing Purchase Price shall be reduced in accordance with the following formula:
date of June 2, 2000, or until June 1, 2003, within which to make its claim.
RCBC contends having acted within the required period, having presented x x x x
its claim-demand on May 5, 2003.
Section 7. Remedies for Breach of Warranties
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 If any of the representations and warranties of any or all of the SELLERS or
the financial condition of Bankard and the remedies available to RCBC in the BUYER (the "Defaulting Party") contained in Sections 5 and 6 shall be
case of breach of warranty: found to be untrue when made and/or as of the Closing Date, the other
party, i.e., the BUYER if the Defaulting is any of the SELLERS and the
g. The audited financial statements of Bankard for the three (3) SELLERS if the Defaulting Party is the BUYER (hereinafter referred to as the
fiscal years ended December 31, 1997, 1998 and 1999, and the "Non-Defaulting Party") shall have the right to require the Defaulting
unaudited financial statements for the first quarter ended 31 March Party, at the latters expense, to cure such breach, and/or seek
2000, are fair and accurate, and complete in all material respects, damages, by providing notice or presenting a claim to the
and have been prepared in accordance with generally accepted Defaulting Party, reasonably specifying therein the particulars of the
accounting principles consistently followed throughout the period breach. The foregoing remedies shall be available to the Non-Defaulting
indicated and: Party only if the demand therefor is presented in writing to the
Defaulting Party within three (3) years from the Closing Date,
i) the balance sheet of Bankard as of 31 December 1999, as prepared except that the remedy for a breach of the SELLERS representation
and certified by SGV & Co. ("SGV"), and the unaudited balance sheet for and warranty in Section 5 (h) shall be available only if the demand
the first quarter ended 31 March 2000, present a fair and accurate therefor is presented to the Defaulting Party in writing together with
statement as of those dates, of Bankards financial condition and of schedules and data to substantiate such demand, within six (6) months
all its assets and liabilities, and is complete in all material respects; from the Closing Date. (Emphasis supplied.)
and
Before we address the issue put forward by petitioners, there is a necessity
ii) the statements of Bankards profit and loss accounts for the fiscal to determine the nature and application of the reliefs provided under Sec.
years 1996 to 1999, as prepared and certified by SGV, and the 5(g) and Sec. 5(h) in conjunction with Sec. 7, thus:
unaudited profit and loss accounts for the first quarter ended 31
March 2000, fairly and accurately present the results of the (1) The relief under Sec. 5(h) is specifically for price reduction as said
operations of Bankard for the periods indicated, and are complete in section explicitly states that the "Purchase Price shall be reduced in
all material respects. accordance with the following formula x x x." In addition, Sec. 7 gives the
aggrieved party the right to ask damages based on the stipulation that the
h. Except as disclosed in the Disclosures, and except to the extent set forth non-defaulting party "shall have the right to require the Defaulting Party,
or reserved in the audited financial statements of Bankard as of 31 at the latters expense, to cure such breach and/or seek damages."
 Arbit-Part II |49

On the other hand, the remedy under Sec. 5(g) in conjunction with Sec. 7 2. An action to cure the breach like specific performance and/or damages
can include specific performance, damages, and other reliefs excluding under Sec. 5(g) based on Bankards breach of warranty involving its AFS
price reduction. for the three (3) fiscal years ending 31 December 1997, 1998, and 1999
and the UFS for the first quarter ending 31 March 2000 provided that the
(2) Sec. 5(g) warranty covers the audited financial statements (AFS) for written demand shall be presented within three (3) years from closing
the three (3) years ending December 31, 1997 to 1999 and the unaudited date.
financial statements (UFS) for the first quarter ending March 31, 2000. On
the other hand, the Sec. 5(h) warranty refers only to the AFS for the year Has RCBC the option to choose between Sec. 5(g) or Sec. 5(h)?
ending December 31, 1999 and the UFS up to May 31, 2000. It is undenied
that Sec. 5(h) refers to price reduction as it covers "only the most up-to- The answer is yes. Sec. 5 and Sec. 7 are clear that it is discretionary on
date audited and unaudited financial statements upon which the price must the aggrieved parties to avail themselves of any remedy mentioned above.
have been based."19 They may choose one and dispense with the other. Of course, the relief for
price reduction under Sec. 5(h) will have to conform to the prerequisites
(3) Under Sec. 5(h), the responsibility of petitioners for its warranty and time frame of six (6) months; otherwise, it is waived.
shall exclude the disclosures and reservations made in AFS of Bankard as
of December 31, 1999 and its UFS up to May 31, 2000. No such exclusions Preliminarily, petitioners basic posture that RCBCs claim is for the
were made under Sec. 5(g) with respect to the warranty of petitioners in recovery of overpayment is specious. The records show that in its Request
the AFS and UFS of Bankard. for Arbitration dated May 12, 2004, RCBC prayed for the rescission of the
SPA, restitution of the whole purchase price, and damages not for
(4) Sec. 5(h) gives relief only if there is material adverse effect in the net reduction of price or for the return of any overpayment. Even in its May 5,
worth in excess of PhP 100 million and it provides a formula for price 2000 letter,21 RCBC did not ask for the recovery of any overpayment or
reduction.20 On the other hand, Sec. 5(g) can be the basis for remedies like reduction of price, merely stating in it that the accounts of Bankard, as
specific performance, damages, and other reliefs, except price reduction, reflected in its AFS for 1999, were overstated which, necessarily, resulted
even if the overvaluation is less or above PhP 100 million and there is no in an overpayment situation. RCBC was emphatic and unequivocal that
formula for computation of damages. petitioners violated their warranty covered by Sec. 5(g) of the SPA.

(5) Under Sec. 7, the aggrieved party shall present its written demand to It is thus evident that RCBC did not avail itself of the option under Sec.
the defaulting party within three (3) years from closing date. Under Sec. 5(h), i.e., for price reduction or the return of any overpayment arising from
5(h), the written demand shall be presented within six (6) months from the overvaluation of Bankards financial condition. Clearly, RCBC invoked
closing date. In accordance with par. 2(c) of the ASPA, the deadline to file Sec. 5(g) to claim damages from petitioners which is one of the alternative
the demand under Sec. 5(h) was extended to December 31, 2000. reliefs granted under Sec. 7 in addition to rescission and restitution of
purchase price.
From the above determination, it becomes clear that the aggrieved party is
entitled to two (2) separate alternative remedies under Secs. 5 and 7 of Petitioners do not deny that RCBC formally filed its claim under Sec. 5(g)
the SPA, thus: which is anchored on the material overstatement or overvaluation of
Bankards revenues, assets, and net worth and, hence, the overstatement
1. A claim for price reduction under Sec. 5(h) and/or damages based on of the purchase price. They, however, assert that such claim for
the breach of warranty by Bankard on the absence of liabilities, omissions overpayment is actually a claim under Sec. 5(h) of the SPA for price
and mistakes on the financial statements as of 31 December 1999 and the reduction which it forfeited after December 31, 2000.
UFS as of 31 May 2000, provided that the material adverse effect on the
net worth exceeds PhP 100M and the written demand is presented within We cannot sustain petitioners position.
six (6) months from closing date (extended to 31 December 2000); and
 Arbit-Part II |50

It cannot be disputed that an overstatement or overvaluation of Bankards second relief under Sec. 5(g). Article 1370 of the Civil Code is explicit that
financial condition as of closing date translates into a misrepresentation not "if terms of a contract are clear and leave no doubt upon the intention of
only of the accuracy and truthfulness of the financial statements under the contracting parties the literal meaning of its stipulations shall control."
Sec. 5(g), but also as to Bankards actual net worth mentioned in Sec. Since the terms of a contract have the force of law between the
5(h). Overvaluation presupposes mistakes in the entries in the financial parties,22 then the parties must respect and strictly conform to it. Lastly, it
statements and amounts to a breach of petitioners representations and is a long held cardinal rule that when the terms of an agreement are
warranties under Sec. 5. Consequently, such error in the financial reduced to writing, it is deemed to contain all the terms agreed upon and
statements would impact on the figure representing the net worth of no evidence of such terms can be admitted other than the contents of the
Bankard as of closing date. An overvaluation means that the financial agreement itself.23 Since the SPA is unambiguous, and petitioners failed to
condition of Bankard as of closing date, i.e., June 2, 2000, is overstated, a adduce evidence to the contrary, then they are legally bound to comply
situation that will definitely result in a breach of EPCIBs representations with it.
and warranties.
Petitioners agreed ultimately to the stipulation that:
A scrutiny of Sec. 5(g) and Sec. 5(h) in relation to Sec. 7 of the SPA would
indicate the following remedies available to RCBC should it be discovered, Each of the representations and warranties of the SELLERS is deemed to be
as of closing date, that there is overvaluation which will constitute breach a separate representation and warranty, and the BUYER has placed
of the warranty clause under either Sec. 5(g) or (h), to wit: complete reliance thereon in agreeing to the Purchase Price and in entering
into this Agreement. The representations and warranties of the SELLERS
(1) An overvaluation of Bankards actual financial condition as of closing shall be correct as of the date of this Agreement and as of the Closing Date
date taints the veracity and accuracy of the AFS for 1997, 1998, and 1999 with the same force and effect as though such representations and
and the UFS for the first quarter of 2000 and is an actionable breach of warranties had been made as of the Closing Date.24 (Emphasis supplied.)
petitioners warranties under Sec. 5(g).
The Court sustains the finding in the Partial Award that Sec. 5(g) of the
(2) An overvaluation of Bankards financial condition as of May 31, 2000, SPA is a free standing warranty and not constricted by Sec. 5(h) of the said
encompassing the warranted financial condition as of December 31, 1999 agreement.
through the AFS for 1999 and as of March 31, 2000 through the UFS for
the first quarter of 2000, is a breach of petitioners representations and Upon the foregoing premises and in the light of the undisputed facts on
warranties under Sec. 5(h). record, RCBCs claim for rescission of the SPA and damages due to
overvaluation of Bankards accounts was properly for a breach of the
Thus, RCBC has two distinct alternative remedies in case of an warranty under Sec. 5(g) and was not time-barred. To repeat, RCBC
overvaluation of Bankards financial condition. It may invoke Sec. 5(h) presented its written claim on May 5, 2003, or a little less than a month
when the conditions of the threshold aggregate overvaluation and the claim before closing date, well within the three (3)-year prescriptive period
made within the six-month time-bar are present. In the alternative, it may provided under Sec. 7 for the exercise of the right provided under Sec.
invoke Sec. 5(g) when it finds that a claim for "curing the breach" and/or 5(g).
damages will be more advantageous to its interests provided it is filed
within three (3) years from closing date. Since it has two remedies, RCBC Petitioners bemoan the fact that "the arbitrators liability award (a)
may opt to exercise either one. Of course, the exercise of either one will disregarded the 6-month contractual limitation for RCBCs overprice claim,
preclude the other. and [b] substituted in its place the 3-year limitation under the contract for
other claims,"25adopting in that regard the interpretation of the SPA made
Moreover, the language employed in Sec. 5(g) and Sec. 5(h) is clear and by arbitral tribunal member, retired Justice Kapunan, in his Dissenting
bereft of any ambiguity. The SPAs stipulations reveal that the non-use or Opinion, in which he asserted:
waiver of Sec. 5(h) does not preclude RCBC from availing itself of the
 Arbit-Part II |51

Ultimately, the Claim is one for recovery of overpayment in the purchase Such view is incorrect.
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 While it is true that Sec. 5(h), as couched, is a warranty on the accuracy of
the Bankards net worth while Sec. 5(g), as also couched, is a warranty on
xxxx the veracity, accuracy, and completeness of the AFS in all material
respects as prepared in accordance with generally accepted accounting
True, without Section 5(h), the Claim for price recovery would fall under principles consistently followed throughout the period audited, yet both
Section 5(g). The recovery of the pecuniary loss of the Claimant in the warranties boil down to the same thing and stem from the same accounts
form of the excess price paid would be in the nature of a claim for actual as summarized in the AFS. Since the net worth is the balance of
damages by way of compensation. In that situation, all the accounts in the Bankards assets less its liabilities, it necessarily includes all the
1999 financial statements would be the subject of the warranty in Section accounts under the AFS. In short, there are no accounts in the AFS
5(g). that do not bear on the net worth of Bankard. Moreover, as earlier
elucidated, any overvaluation of Bankards net worth is necessarily a
However, since the parties explicitly included Section 5(h) in their SPA, misrepresentation of the veracity, accuracy, and completeness of the AFS
which assures the Claimant that there were no "omissions or mistakes in and also a breach of the warranty under Sec. 5(g). Thus, the subject of the
the records" that would misstate the 1999 net worth account, I am left warranty in Sec. 5(h) is also covered by the warranty in Sec. 5(g), and
with no other conclusion but that the accuracy of the net worth Sec. 5(h) cannot exclude such breach from the ambit of Sec. 5(g). There is
was the subject of the warranty in Section 5(h), while the accuracy no need to rely on Sec. 12, Rule 130 of the Rules of Court for both Sec.
or correctness of the other accounts that did not bear on, or affect 5(g) and Sec. 5(h) as alternative remedies are of equal footing and one
Bankards net worth, were guaranteed by Section 5(g). need not categorize one section as a general provision and the other a
particular provision.
xxxx
More importantly, a scrutiny of the four corners of the SPA does not
This manner of reconciling the two provisions is consistent with the explicitly reveal any stipulation nor even impliedly that the parties intended
principle in Rule 130, Section 12 of the Rules of Court that "when a general to limit the scope of the warranty in Sec. 5(g) or gave priority to Sec. 5(h)
and a particular provision are inconsistent, the latter is paramount to the over Sec. 5(g).
former [so] a particular intent will control a general one that is
inconsistent with it." This is also consistent with existing doctrines on The arbitral tribunal did not find any legal basis in the SPA that Sec. 5(h)
statutory construction, the application of which is illustrated in the case of "somehow cuts down" the scope of Sec. 5(g), thus:
Commissioner of Customs vs. Court of Tax Appeals, GR No. L-41861, dated
March 23, 1987 x x x. 9.10 In the opinion of the Tribunal, there is nothing in the wording
used in the SPA to give priority to one warranty over the other.
xxxx There is nothing in the wording used to indicate that the parties
intended to limit the scope of the warranty in 5(g). If it be contended
The Claim is for recovery of the excess price by way of actual that, on a true construction of the two warranties, 5(h) somehow cuts
damages.27 x x x (Emphasis supplied.) down the scope of 5(g), the Tribunal can find no justification for such
conclusion on the wording used. Furthermore, the Tribunal is of the
Justice Kapunan noted that without Sec. 5(h), RCBCs claim would fall view that very clear words would be needed to cut down the scope of the
under Sec. 5(g), impliedly admitting that both provisions could very well 5(g) warranty.28
cover RCBCs claim, except that Sec. 5(h) excludes the situation
contemplated in it from the general terms of Sec. 5(g). The Court upholds the conclusion of the tribunal and rules that the claim of
RCBC under Sec. 5(g) is not time-barred.
 Arbit-Part II |52

Petitioners Were Not Denied Due Process Were petitioners afforded the opportunity to refute the summaries and
pieces of evidence submitted by RCBC which became the bases of the
Petitioners impute on RCBC the act of creating summaries of the accounts experts opinion?
of Bankard which "in turn were used by its experts to conclude that
Bankard improperly recorded its receivables and committed material The answer is in the affirmative.
deviations from GAAP requirements."29 Later, petitioners would assert that
"the arbitrators partial award admitted and used the Summaries as We recall the events that culminated in the issuance of the challenged
evidence, and held on the basis of the information contained in them that Partial Award, thus:
petitioners were in breach of their warranty in GAAP compliance."
On May 17, 2004, the ICC-ICA received the Request for Arbitration dated
To petitioners, the ICC-ICAs use of such summaries but without presenting May 12, 2004 from RCBC seeking rescission of the SPA and restitution of
the source documents violates their right to due process. Pressing the all the amounts paid by RCBC to petitioners, with actual and moral
point, petitioners had moved, but to no avail, for the exclusion of the said damages, interest, and costs of suit.
summaries. Petitioners allege that they had reserved the right to cross-
examine the witnesses of RCBC who testified on the summaries, pending On August 8, 2004, petitioners filed an Answer to the Request for
the resolution of their motion to exclude. But, according to them, they Arbitration dated July 28, 2004, setting up a counterclaim for USD 300,000
were effectively denied the right to cross-examine RCBCs witnesses when for actual and exemplary damages.
the ICC-ICA admitted the summaries of RCBC as evidence.
RCBC filed its Reply33 dated August 31, 2004 to petitioners Answer to the
Petitioners position is bereft of merit. Request for Arbitration.

Anent the use but non-presentation of the source documents as the On October 4, 2004, the parties entered into the Terms of Reference. 34 At
jumping board for a claim of denial of due process, petitioners the same time, the chairperson of the arbitral tribunal issued a provisional
cite Compania Maritima v. Allied Free Workers Union.30 It may be stated, timetable35 for the arbitration.
however, that such case is not on all fours with the instant case and,
therefore, cannot be applied here considering that it does not involve an On October 25, 2004, as previously agreed upon in the meeting on October
administrative body exercising quasi-judicial function but rather the regular 4, 2004, petitioners filed a Motion to Dismiss 36 while RCBC filed a
court. "Claimants Position Paper (Re: [Petitioners] Assertion that RCBC CAPITAL
CORPORATIONs Present Claim Is Time Barred)."37
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 Then, the tribunal issued Procedural Order No. 1 dated January 12,
previous notice but the absolute absence thereof and the lack of 2005,38 denying the motion to dismiss and setting the initial hearing of the
opportunity to be heard."31 case on April 11, 2005.

We also explained in Lastimoso v. Asayo that "[d]ue process in an In a letter dated February 9, 2005,39 petitioners requested that the tribunal
administrative context does not require trial type proceedings similar to direct RCBC to produce certain documents. At the same time, petitioners
those in courts of justice. Where an opportunity to be heard either through sought the postponement of the hearing on April 11, 2005 to March 21,
oral arguments or through pleadings is accorded, there is no denial of 2005, in light of their own request.
procedural due process."32
On February 11, 2005, petitioners received RCBCs brief of evidence and
supporting documentation in accordance with the provisional
 Arbit-Part II |53

timetable.40 In the brief of evidence, RCBC provided summaries of the At the same time, another Bankard representative, Felix L. Sincoegue,
accounts of Bankard, which petitioners now question. accompanied two auditors/representatives of petitioners to examine the
journal vouchers and supporting documents of Bankard consisting of
Later, in a letter dated February 14, 2005,41 petitioners complained to the several boxes. The auditors randomly sifted through the boxes which they
tribunal with regard to their lack of access to RCBCs external auditor. had earlier requested to be inspected.
Petitioners sought an audit by an accounting firm of the records of Bankard
with respect to the claims of RCBC. By virtue of such requests, petitioners In addition, petitioners were furnished with an electronic copy of the details
also sought a rescheduling of the provisional timetable, despite their earlier of all cardholders, including relevant data for aging of receivables for the
assurance to the tribunal that if they received the documents that they years 2000 to 2003, as well as data containing details of written-off
requested on February 9, 2005 on or before February 21, 2005, they would accounts from 1999 to March 2000 contained in compact discs.45
abide by the provisional timetable.
On March 4, 2005, petitioners sent a letter46 to the tribunal requesting for
Thereafter, the tribunal issued Procedural Order No. 2 dated February 18, a postponement of the April 11, 2005 hearing of the case. Petitioners claim
2005,42 in which it allowed the discovery and inspection of the documents that they could not confirm the summaries prepared by RCBC, considering
requested by petitioners that were also scheduled on February 18, 2005. that RCBC allegedly did not cooperate in providing data that would
The request for an audit of Bankards accounts was denied without facilitate their verification. Petitioners specifically mentioned the following
prejudice to the conduct of such audit during the course of the hearings. data: (1) list of names of cardholders whose accounts are sources of data
Consequently, the tribunal amended the provisional timetable, extending gathered or calculated in the summaries; (2) references to the basic
the deadline for petitioners to file their brief of evidence and documents to cardholder documents from which such data were collected; and (3) access
March 21, 2005. The date of the initial hearing, however, remained on April to the underlying cardholder documents at a time and under conditions
11, 2005. mutually convenient to the parties. As regards the compact discs of
information provided to petitioners, it is claimed that such information
On February 18, 2005, petitioners were furnished the documents that they could not be accessed as the software necessary for the handling of the
requested RCBC.43 The parties also agreed to meet again on February 23, data could not be made immediately available to them.
2005 to provide petitioners with a "walk-through" of Bankards Statistical
Analysis System and to provide petitioners with a soft copy of all of In Procedural Order No. 3 dated March 11 2005,47 the initial hearing was
Bankards cardholders.44 moved to June 13 to 16, 2005, considering that petitioners failed to pay
the advance on costs of the tribunal.
During the February 23, 2005 meeting, EPCIBs counsels/representatives
were accompanied to the Bankards Credit-MIS Group. There, Bankards On March 23, 2005, RCBC paid the balance of the advance on costs.48
representative, Amor Lazaro, described and explained to petitioners
representatives the steps involved in procuring and translating raw data on On April 22, 2005, petitioners sent the tribunal a letter,49 requesting for the
customer transactions. Lazaro explained that Bankard captures cardholder postponement of the hearing scheduled on June 13 to 16, 2005 on the
information and transactions through encoding or electronic data capture. ground that they could not submit their witness statements due to the
Thereafter, such data are transmitted to its main credit card administration volume of data that they acquired from RCBC.
system. Such raw data are then sent to Bankards Information Technology
Group. Using a proprietary software called SAS, the raw data is then In a letter dated April 25, 2005,50 petitioners demanded from RCBC that
converted into SAS files which may be viewed, handled, and converted into they be allowed to examine the journal vouchers earlier made available to
Excel files for reporting purposes. During the walk-through, petitioners them during the February 23, 2005 meeting. This demand was answered
representatives asked questions which were answered in detail by Lazaro. by RCBC in a letter dated April 26, 2005,51 stating that such demand was
being denied by virtue of Procedural Order No. 2, in which it was ruled that
 Arbit-Part II |54

further requests for discovery would not be made except with leave of the RCBC merely maintained the systems that they inherited when it bought
chairperson of the tribunal. Bankard from petitioners. RCBC added that the documents that EPCIB
originally transmitted to it when RCBC bought Bankard were all being made
In Procedural Order No. 4,52 the tribunal granted petitioners request for available to petitioners; thus, any missing supporting documents from
the postponement of the hearing on June 13, 2005 and rescheduled it to these files were never transmitted to them in the first place.
November 21, 2005 in light of the pending motions filed by EPCIB with the
RTC in Makati City. Later, petitioners sent to the tribunal a letter dated February 10,
2006,59 asking that it direct RCBC to provide petitioners with the
On July 29, 2005, the parties held a meeting wherein it was agreed that supporting documents that RCBC mentioned in its letter dated January 31,
petitioners would be provided with hard and soft copies of the inventory of 2006. Petitioners wrote that should RCBC fail to present such documents,
the journal vouchers earlier presented to its representatives, while making RCBCs summaries should be excluded from the records.
the journal vouchers available to petitioners for two weeks for examination
and photocopying.53 In a letter dated March 10, 2006,60 petitioners requested that they be
given an additional period of at least 47 days within which to submit their
On September 2, 2005, petitioners applied for the postponement of the evidence-in-chief with the corresponding request for the cancellation of the
November 21, 2005 hearing due to the following: (1) petitioners had hearing on April 24, 2006. Petitioners submit that should such request be
earlier filed a motion dated August 11, 2005 with the RTC, in which the denied, RCBCs summaries should be excluded from the records.
issue of whether the non-Filipino members of the tribunal were illegally
practicing law in the Philippines by hearing their case, which was still On April 6, 2006, petitioners filed their arbitration briefs and witness
pending; and (2) the gathering and processing of the data and documents statements. By way of reply, on April 17, 2006, RCBC submitted Volumes
made available by RCBC would require 26 weeks.54 Such application was IV and V of its exhibits and Volume II of its evidence-in-chief.61
denied by the tribunal in Procedural Order No. 5 dated September 16,
2005.55 On April 18, 2006, petitioners requested the tribunal that they be allowed
to file rejoinder briefs, or otherwise exclude RCBCs reply brief and witness
On October 21, 2005, the tribunal issued Procedural Order No. statements.62 In this request, petitioners also requested that the hearing
6,56 postponing the November 21, 2005 hearing by virtue of an order set for April 24, 2006 be moved. These requests were denied.
issued by the RTC in Makati City directing the tribunal to reset the hearing
for April 21 and 24, 2006. Consequently, on April 24 to 27, 2006, the arbitral tribunal conducted
hearings on the case.63
Thereafter, in a letter dated January 18, 2006,57 petitioners wrote the
tribunal requesting that RCBC be directed to: (1) provide petitioners with On December 4, 2006, petitioners submitted rejoinder affidavits, raising
information identifying the journal vouchers and other supporting new issues for the first time, to which RCBC submitted Volume III of its
documents that RCBC used to arrive at the figures set out in the evidence-in-chief by way of a reply.
summaries and other relevant information necessary to enable them to
reconstruct and/or otherwise understand the figures or amounts in each On January 16, 2007, both parties simultaneously submitted their
summary; and (2) submit to petitioners the requested pieces of memoranda. On January 26, 2007, both parties simultaneously filed their
information as soon as these are or have become available, or in any case reply to the others memorandum.64
not later than five days.
Thus, on September 27, 2007, the Partial Award was rendered by the
In response to such letter, RCBC addressed a letter dated January 31, Tribunal.
200658 to the tribunal claiming that the pieces of information that
petitioners requested are already known to petitioners considering that
 Arbit-Part II |55

Later, petitioners moved to vacate the said award before the RTC. Such party who shall have received notice thereof fails to appear, in which event
motion was denied by the trial court in the first assailed order dated such inspection shall be made in the absence of such party. (Emphasis
January 8, 2008. Petitioners then moved for a reconsideration of such supplied.)
order, but their motion was also denied in the second assailed order dated
March 17, 2008. The well-settled rule is that administrative agencies exercising quasi-
judicial powers shall not be fettered by the rigid technicalities of procedure,
The foregoing events unequivocally demonstrate ample opportunity for albeit they are, at all times required, to adhere to the basic concepts of fair
petitioners to verify and examine RCBCs summaries, accounting records, play. The Court wrote in CMP Federal Security Agency, Inc. v. NLRC:
and reports. The pleadings reveal that RCBC granted petitioners requests
for production of documents and accounting records. More so, they had While administrative tribunals exercising quasi-judicial powers, like the
more than three (3) years to prepare for their defense after RCBCs NLRC and Labor Arbiters, are free from the rigidity of certain procedural
submission of its brief of evidence. Finally, it must be emphasized that requirements, they are nonetheless bound by law and practice to observe
petitioners had the opportunity to appeal the Partial Award to the RTC, the fundamental and essential requirements of due process. The standard
which they in fact did. Later, petitioners even moved for the of due process that must be met in administrative tribunals allows a certain
reconsideration of the denial of their appeal. Having been able to appeal degree of latitude as long as fairness is not ignored. Hence, it is not legally
and move for a reconsideration of the assailed rulings, petitioners cannot objectionable, for being violative of due process, for the Labor Arbiter to
claim a denial of due process.65 resolve a case based solely on the position papers, affidavits or
documentary evidence submitted by the parties. The affidavits of witnesses
Petitioners right to due process was not breached. in such case may take the place of their direct testimony.66

As regards petitioners claim that its right to due process was violated Of the same tenor is our holding in Quiambao v. Court of Appeals:
when they were allegedly denied the right to cross-examine RCBCs
witnesses, their claim is also bereft of merit. In resolving administrative cases, conduct of full-blown trial is not
indispensable to dispense justice to the parties. The requirement of notice
Sec. 15 of RA 876 or the Arbitration Law provides that: and hearing does not connote full adversarial proceedings. Submission of
position papers may be sufficient for as long as the parties thereto are
Section 15. Hearing by arbitrators. Arbitrators may, at the given the opportunity to be heard. In administrative proceedings, the
commencement of the hearing, ask both parties for brief statements of the essence of due process is simply an opportunity to be heard, or an
issues in controversy and/or an agreed statement of facts. Thereafter the opportunity to explain ones side or opportunity to seek a
parties may offer such evidence as they desire, and shall produce such reconsideration of the action or ruling complained of. This
additional evidence as the arbitrators shall require or deem necessary to an constitutional mandate is deemed satisfied if a person is granted
understanding and determination of the dispute. The arbitrators shall be an opportunity to seek reconsideration of an action or a ruling. It
the sole judge of the relevancy and materiality of the evidence does not require trial-type proceedings similar to those in the courts of
offered or produced, and shall not be bound to conform to the justice. Where opportunity to be heard either through oral arguments or
Rules of Court pertaining to evidence. Arbitrators shall receive as through pleadings is accorded, there is no denial of procedural due
exhibits in evidence any document which the parties may wish to process.67 (Emphasis supplied.)
submit and the exhibits shall be properly identified at the time of
submission. All exhibits shall remain in the custody of the Clerk of Court Citing Vertudes v. Buenaflor, petitioners also cry denial of due process
during the course of the arbitration and shall be returned to the parties at when they were allegedly denied the right to cross-examine the witnesses
the time the award is made. The arbitrators may make an ocular inspection presented by RCBC. It is true that in Vertudes, we stated: "The right of a
of any matter or premises which are in dispute, but such inspection shall party to confront and cross-examine opposing witnesses in a judicial
be made only in the presence of all parties to the arbitration, unless any litigation, be it criminal or civil in nature, or in proceedings before
 Arbit-Part II |56

administrative tribunals with quasi-judicial powers, is a fundamental right all objections and defenses to the making of such determination may be
which is part of due process."68 raised and considered. One adequate hearing is all that due process
requires. What is required for "hearing" may differ as the functions of the
It is, however, equally true that: administrative bodies differ.

[T]he right is a personal one which may be waived expressly or impliedly The right to cross-examine is not an indispensable aspect of due
by conduct amounting to a renunciation of the right of cross- process.71 x x x (Emphasis supplied.)
examination. Thus, where a party has had the opportunity to cross-
examine a witness but failed to avail himself of it, he necessarily Clearly, the right to cross-examine a witness, although a fundamental right
forfeits the right to cross-examineand the testimony given on direct of a party, may be waived. Petitioners themselves admit having had the
examination of the witness will be received or allowed to remain in the opportunity to cross-examine RCBCs witnesses during the hearings before
record.69 (Emphasis supplied.) the tribunal, but declined to do so by reserving such right at a later time.
Having had the opportunity to cross-examine RCBCs witnesses, petitioners
We also held in one case: were not denied their right to due process.

However, the right has always been understood as requiring not RCBC Is Not Estopped from Questioning
necessarily an actual cross-examination but merely an opportunity the Financial Condition of Bankard
to exercise the right to cross-examine if desired. What is
proscribed by statutory norm and jurisprudential precept is the On estoppel, petitioners contend that RCBC already knew the recording of
absence of the opportunity to cross-examine. The right is a personal the Bankard accounts before it paid the balance of the purchase price and
one and may be waived expressly or impliedly. There is an implied waiver could no longer challenge the financial statements of Bankard. RCBC, they
when the party was given the opportunity to confront and cross-examine claim, had full control of the operations of Bankard since June 2, 2000 and
an opposing witness but failed to take advantage of it for reasons RCBCs audit team reviewed the accounts in September 2000. Thus, RCBC
attributable to himself alone. If by his actuations, the accused lost his is now precluded from denying the fairness and accuracy of said accounts
opportunity to cross-examine wholly or in part the witnesses against him, since it did not seek price reduction under Sec. 5(h). Lastly, they
his right to cross-examine is impliedly waived.70 (Emphasis supplied.) asseverate that RCBC continued with Bankards accounting policies and
practices and found them to conform to the generally accepted accounting
And later in Velez v. De Vera, the Court En Banc expounded on the above principles, contrary to RCBCs allegations.
rulings, adding that in administrative proceedings, cross-examination is not
indispensable, thus: It also bears stating that in his dissent, retired Justice Kapunan, an arbitral
tribunal member, argued that Bankards accounting practices were
Due process of law in administrative cases is not identical with "judicial disclosed in the information memorandum provided to RCBC; hence, RCBC
process" for a trial in court is not always essential to due process. While a was supposed to know such accounting practices and to have accepted
day in court is a matter of right in judicial proceedings, it is otherwise in their propriety even before the execution of the SPA. He then argued that
administrative proceedings since they rest upon different principles. The when it paid the purchase price on December 29, 2000, RCBC could no
due process clause guarantees no particular form of procedure and its longer claim that the accounting practices that went into the reporting of
requirements are not technical. Thus, in certain proceedings of the 1999 AFS of Bankard were not in accord with generally accepted
administrative character, the right to a notice or hearing [is] not essential accounting principles. He pointed out that RCBC was bound by the audit
to due process of law. The constitutional requirement of due process is met conducted by a certain Rubio prior to the full payment of the purchase
by a fair hearing before a regularly established administrative agency or price of Bankard. Anchored on these statements by Justice Kapunan,
tribunal. It is not essential that hearings be had before the making of a petitioners conclude that RCBC is estopped from claiming that the former
determination if thereafter, there is available trial and tribunal before which violated their warranties under the SPA.
 Arbit-Part II |57

Petitioners contention is not meritorious. of equitable estoppel. It is this element that is lacking here. 73 (Emphasis
supplied.)
Art. 1431 of the Civil Code, on the subject of estoppel, provides: "Through
estoppel an admission or representation is rendered conclusive upon the The elements of estoppel pertaining to the party estopped are:
person making it, and cannot be denied or disproved as against the person
relying thereon." (1) conduct which amounts to a false representation or concealment of
material facts, or, at least, which calculated to convey the impression that
The doctrine of estoppel is based upon the grounds of public policy, fair the facts are otherwise than, and inconsistent with, those which the party
dealing, good faith, and justice; and its purpose is to forbid one to speak subsequently attempts to assert; (2) intention, or at least expectation, that
against ones own acts, representations, or commitments to the injury of such conduct shall be acted upon by the other party; and (3) knowledge,
one to whom they were directed and who reasonably relied on them.72 actual or constructive, of the actual facts.74

We explained the principle of estoppel in Philippine Savings Bank v. In the case at bar, the first element of estoppel in relation to the party
Chowking Food Corporation: sought to be estopped is not present. Petitioners claim that RCBC
misrepresented itself when RCBC made it appear that they considered
x x x The equitable doctrine of estoppel was explained by this Court petitioners to have sufficiently complied with its warranties under Sec. 5(g)
in Caltex (Philippines), Inc. v. Court of Appeals: and 5(h), in relation to Sec. 7 of the SPA. Petitioners position is that
"RCBC was aware of the manner in which the Bankard accounts were
Under the doctrine of estoppel, an admission or representation is rendered recorded, well before it consummated the SPA by taking delivery of the
conclusive upon the person making it, and cannot be denied or disproved shares and paying the outstanding 80% balance of the contract price."75
as against the person relying thereon. A party may not go back on his own
acts and representations to the prejudice of the other party who relied Petitioners, therefore, theorize that in this case, the first element of
upon them. In the law of evidence, whenever a party has, by his own estoppel in relation to the party sought to be estopped is that RCBC made
declaration, act, or omission, intentionally and deliberately led another to a false representation that it considered Bankards accounts to be in order
believe a particular thing true, to act upon such belief, he cannot, in any and, thus, RCBC abandoned any claim under Sec. 5(g) and 5(h) by its
litigation arising out of such declaration, act, or omission, be permitted to inaction.
falsify it.
Such contention is incorrect.
The principle received further elaboration in Maneclang v. Baun:
It must be emphasized that it was only after a second audit that RCBC
In estoppel by pais, as related to the party sought to be estopped, it is presented its claim to petitioners for violation of Sec. 5(g), within the three
necessary that there be a concurrence of the following requisites: (a) (3)-year period prescribed. In other words, RCBC, prior to such second
conduct amounting to false representation or concealment of material facts audit, did not have full and thorough knowledge of the correctness of
or at least calculated to convey the impression that the facts are otherwise Bankards accounts, in relation to Sec. 5(g). RCBC, therefore, could not
than, and inconsistent with, those which the party subsequently attempts have misrepresented itself considering that it was still in the process of
to assert; (b) intent, or at least expectation that this conduct shall be acted verifying the warranties covered under Sec. 5(g). Considering that there
upon, or at least influenced by the other party; and (c) knowledge, actual must be a concurrence of the elements of estoppel for it to arise, on this
or constructive of the actual facts. ground alone such claim is already negated. As will be shown, however, all
the other elements of estoppel are likewise absent in the case at bar.
Estoppel may vary somewhat in definition, but all authorities agree that a
party invoking the doctrine must have been misled to ones As to the second element, in order to establish estoppel, RCBC must have
prejudice. That is the final and, in reality, most important of the elements intended that petitioners would act upon its actions. This element is also
 Arbit-Part II |58

missing. RCBC by its actions did not mislead petitioners into believing that The Arbitral Tribunal explained in detail why estoppel is not present in the
it waived any claim for violation of a warranty. The periods under Sec. 5(g) case at bar, thus:
and 5(h) were still available to RCBC.
10.18 The audit exercise conducted by Mr. Legaspi and Mr. Rubio was
The element that petitioners relied on the acts and conduct of RCBC is clearly not one comprehensive enough to have discovered the problems
absent. The Court finds that there was no reliance on the part of later unearthed by Dr. Laya and Dean Ledesma. x x x
petitioners on the acts of RCBC that would lead them to believe that the
RCBC will forego the filing of a claim under Sec. 5(g). The allegation that 10.19 Although the powers of the TC [Transition Committee] may have
RCBC knew that the Bankard accounts did not comply with generally been widely expressed in the view of Mr. Rogelio Chua, then in charge of
accepted accounting principles before payment and, hence, it cannot Bankard x x x the TC conducted meetings only to get updated on the
question the financial statements of Bankard is meritless. Precisely, the status and progress of Bankards operations. Commercially, one would
SPA explicitly provides that claims for violation of the warranties under expect that an unpaid vendor expecting to receive 80% of a large purchase
Sec. 5(g) can still be filed within three (3) years from the closing date. price would not be receptive to a purchaser making vast policy changes in
Petitioners contention that RCBC had full control of Bankard operations the operation of the business until the purchaser has paid up its money. It
after payment of the price and that an audit undertaken by the Rubio team is more likely that, until the settlement date, there was a practice of
did not find anything wrong with the accounts could not have plausibly maintaining the status quo at Bankard.
misled petitioners into believing that RCBC will waive its right to file a claim
under Sec. 5(g). After all, the period to file a claim under Sec. 5(g) is three 10.20 But neither the Claimant nor the TC did anything, in the Tribunals
(3) years under Sec. 7, much longer than the six (6)-month period under view, which would have given the Respondents the impression that they
Sec. 5(h). Petitioners are fully aware that the warranties under Sec. 5(g) were being relieved over the next three years of susceptibility to a claim
(1997 up to March 2000) are of a wider scope than that of Sec. 5(h) (AFS under clause 5(g). Maybe the TC could have been more proactive in
of 1999 and UFS up to May 31, 2000), necessitating a longer audit period commissioning further or more in-depth audits but it was not. It did not
than the six (6)-month period under Sec. 5(h). have to be. It is commercially unlikely that it have been done so, with the
necessary degree of attention to detail, within the relatively short time
The third element of estoppel in relation to the party sought to be estopped between the appointment of the TC and the ultimate settlement date of the
is also absent considering that, as stated, RCBC was still in the process of purchase a period of some three months. An interim arrangement was
verifying the correctness of Bankards accounts prior to presenting its claim obviously sensible to enable the Claimant and its staff to become familiar
of overvaluation to petitioners. RCBC, therefore, had no sufficient with the practices and procedures of Bankard.
knowledge of the correctness of Bankards accounts.
10.21 The core consideration weighing with the Tribunal in assessing these
On another issue, RCBC could not have immediately changed the Bankard claims for estoppel is that the SPA allowed two types of claim; one within
accounting practices until it had conducted a more extensive and thorough six months under 5(h) and one within three years under 5(g). The Tribunal
audit of Bankards voluminous records and transactions to uncover any has already held the present claim is not barred by clause 5(h). It must
irregularities. That would be the only logical explanation why Bankards therefore have been within the reasonable contemplation of the parties
alleged irregular practices were maintained for more than two (2) years that a 5(g) claim could surface within the three-year period and that it
from closing date. The fact that RCBC continued with the audit of Bankards could be somewhat differently assessed than the claim under 5(h). The
AFS and records after the termination of the Rubio audit can only send the Tribunal cannot find estoppel by conduct either from the formation of the
clear message to petitioners that RCBC is still entertaining the possibility of TC or from the limited auditing exercise done by Mr. Rubio and Mr.
filing a claim under Sec. 5(g). It cannot then be said that petitioners Legaspi. The onus proving estoppel is on the Respondents and it has not
reliance on RCBCs acts after full payment of the price could have misled been discharged.
them into believing that no more claim will be presented by RCBC.
 Arbit-Part II |59

10.22 If the parties had wished the avenues of relief for misrepresentation them to have the Claimant deprived of the benefit of clause 5(g). These
afforded to the Claimant to have been restricted to a claim under Clause aspects of the claim of estoppel are rejected.
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 it cannot do so in respect xxxx
of a claim based on Clause 5(g). Clause 5(g) imposed a positive obligation
on the Respondents from which they cannot be excused, simply by reason 10.42 The Tribunal is not the appropriate forum for deciding whether there
of either the formation and conduct of the TC or of the limited audit. have been any regulatory or ethical infractions by Bankard and/or the
Claimant in setting the buy-back price. It has no bearing on whether the
10.23 The three-year limitation period obviously contemplated that it could Claimant must be considered as having waived its right to claim against
take some time to ascertain whether there had been a breach of the GAAP the Respondents.
standards, etc. Such was the case. A six-month limitation period under
Clause 5(h), in contrast, presaged a somewhat less stringent enquiry of the 10.43 In the Tribunals view, neither any infraction by Bankard in failing to
kind carried out by Mr. Rubio and Mr. Legaspi. advise the Central Bank of the experts findings, nor a failure to put a tag
on the accounts nor to have said something to the shareholders in the buy-
10.24 Clause 2(3) of the Amendment to the SPA strengthens the back exercise operates as a "technical knock-out" of Claimants claim.
conclusion that the parties were concerned only with a 5(h) claim during
the TCs reign. The focus of the audit however intense it was 10.44 The Tribunal notes that the conciliation process mandated by the
conducted by Mr. Rubio and Mr. Legaspi, was on establishing possible SPA took most of 2003 and this may explain a part of the delay in
liability under that section and thus as a possible reduction in the price to commencing arbitral proceedings.
be paid on settlement.
10.45 Whatever the status of Mr. Rubios and Mr. Legaspis enquiries in
10.25 The fact that the purchase price was paid over in full without any late 2000, the Claimant was quite entitled to commission subsequent
deduction in terms of clause 5(h) is not a bar to the Claimant bringing a reports from Dr. Laya and Dr. Echanis and, on the basis of those reports,
claim under 5(g) within the three-year period. The fact that payment was make a timeous claim under clause 5(g) of the SPA.
made can be, as the Tribunal has held, a barrier to a claim for rescission
and restitution ad inegrum. A claim for estoppel needs a finding of 10.46 In the Tribunals view, therefore, there is no merit in Respondents
representation by words of conduct or a shared presumption that a right various submissions that the Claimant is debarred from prosecuting its
would not be relied upon. The party relying on estoppel has to show claims on the grounds of estoppel. There is just no proof of the necessary
reliance to its detriment or that, otherwise, it would be unconscionable to representation to the Respondent, nor any detriment to the Respondent
resile from the provision. proved. The grounds of delay and laches are not substantiated.

10.26 Article 1431 of the Civil Code states: In summary, the tribunal properly ruled that petitioners failed to prove that
the formation of the Transition Committee and the conduct of the audit by
"Through estoppel an admission or representation is rendered conclusive Rubio and Legaspi were admissions or representations by RCBC that it
upon the person making it, and cannot be denied or disproved as against would not pursue a claim under Sec. 5(g) and that petitioners relied on
the person relying thereon." such representation to their detriment. We agree with the findings of the
tribunal that estoppel is not present in the situation at bar.
10.27 Clearly, there has to both an admission or representation by (in this
case) the Claimant, plus reliance upon it by (in this case) the Respondents. Additionally, petitioners claim that in Knecht v. Court of
The Tribunal cannot find as proved any admission/representation that the Appeals76 and Coca-Cola Bottlers Philippines, Inc. v. Court of Appeals
Claimant was abandoning a 5(g) claim, any reliance by Respondents on an (Coca-Cola),77 this Court ruled that the absence of the element of reliance
admission, and any detriment to the Respondents such as would entitle by a party on the representation of another does not negate the principle
 Arbit-Part II |60

of estoppel. Those cases are, however, not on all fours with and cannot be WHEREFORE, the instant petition is hereby DENIED. The assailed
applied to this case. January 8, 2008 and March 17, 2008 Orders of the RTC, Branch 148 in
Makati City are hereby AFFIRMED.
In Knecht, the buyer had the opportunity of knowing the conditions of the
land he was buying early on in the transaction, but proceeded with the sale SO ORDERED.
anyway. According to the Court, the buyer was estopped from claiming
that the vendor made a false representation as to the condition of the land.
This is not true in the instant case. RCBC did not conduct a due diligence
audit in relation to Sec.5(g) prior to the sale due 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 under Sec. 5(h) for a possible reduction of
the purchase price prior to the payment of its balance on December 31,
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 land relative to its intended use prior to the signing of
the contract. Its subsequent assertion that the land was not suited for the
purpose it was leased was, therefore, cast aside for being unmeritorious.
Such circumstance does not obtain in the instant case. There was no prior
due diligence audit conducted by RCBC, it having relied, as earlier stated,
on the warranties of petitioners with regard to the financial condition of
Bankard under Sec. 5(g). As such, Sec. 5(g) guaranteed RCBC that it could
file a claim for damages for any mistakes in the AFS and UFS of Bankard.
Clearly, Coca-Cola also cannot be applied to the 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 are well-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 was selected by petitioners, while another was
respondents choice. The respective interests of the parties, therefore, are
very much safeguarded in the arbitration proceedings. Any suggestion,
therefore, on the partiality of the arbitration tribunal has to be dismissed.
 Arbit-Part II |61

7. part of the Decision holding that the case should not be brought for
arbitration under Republic Act (R.A.) No. 876, also known as the Arbitration
8. G.R. No. 161957 January 22, 2007 Law.4 Respondents, citing American jurisprudence5 and the UNCITRAL
Model Law,6 argue that the arbitration clause in the Addendum Contract
JORGE GONZALES and PANEL OF ARBITRATORS, Petitioners, should be treated as an agreement independent of the other terms of the
vs. contract, and that a claimed rescission of the main contract does not avoid
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., and the duty to arbitrate. Respondents add that Gonzaless argument relating
AUSTRALASIAN PHILIPPINES MINING INC.,Respondents. to the alleged invalidity of the Addendum Contract still has to be proven
and adjudicated on in a proper proceeding; that is, an action separate from
x--------------------------------------------------------------------------------- the motion to compel arbitration. Pending judgment in such separate
x action, the Addendum Contract remains valid and binding and so does the
arbitration clause therein. Respondents add that the holding in the Decision
G.R. No. 167994 January 22, 2007 that "the case should not be brought under the ambit of the Arbitration
Law" appears to be premised on Gonzaless having "impugn[ed] the
JORGE GONZALES, Petitioner, existence or validity" of the addendum contract. If so, it supposedly
vs. conveys the idea that Gonzaless unilateral repudiation of the contract or
HON. OSCAR B. PIMENTEL, in his capacity as PRESIDING JUDGE of mere allegation of its invalidity is all it takes to avoid arbitration. Hence,
BR. 148 of the REGIONAL TRIAL COURT of MAKATI CITY, and respondents submit that the courts holding that "the case should not be
CLIMAX-ARIMCO MINING CORPORATION, Respondents. brought under the ambit of the Arbitration Law" be understood or clarified
as operative only where the challenge to the arbitration agreement has
RESOLUTION been sustained by final judgment.

TINGA, J.: Both parties were required to file their respective comments to the other
partys motion for reconsideration/clarification.7 Respondents filed their
This is a consolidation of two petitions rooted in the same disputed Comment on 17 August 2005,8 while Gonzales filed his only on 25 July
Addendum Contract entered into by the parties. In G.R. No. 161957, the 2006.9
Court in its Decision of 28 February 2005 1 denied the Rule 45 petition of
petitioner Jorge Gonzales (Gonzales). It held that the DENR Panel of On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6 May
Arbitrators had no jurisdiction over the complaint for the annulment of the 2005, or while the motions for reconsideration in G.R. No. 161957 10 were
Addendum Contract on grounds of fraud and violation of the Constitution pending, wherein Gonzales challenged the orders of the Regional Trial
and that the action should have been brought before the regular courts as Court (RTC) requiring him to proceed with the arbitration proceedings as
it involved judicial issues. Both parties filed separate motions for sought by Climax-Arimco Mining Corporation (Climax-Arimco).
reconsideration. Gonzales avers in his Motion for Reconsideration2 that the
Court erred in holding that the DENR Panel of Arbitrators was bereft of On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were
jurisdiction, reiterating its argument that the case involves a mining consolidated upon the recommendation of the Assistant Division Clerk of
dispute that properly falls within the ambit of the Panels authority. Court since the cases are rooted in the same Addendum Contract.
Gonzales adds that the Court failed to rule on other issues he raised
relating to the sufficiency of his complaint before the DENR Panel of We first tackle the more recent case which is G.R. No. 167994. It stemmed
Arbitrators and the timeliness of its filing. from the petition to compel arbitration filed by respondent Climax-Arimco
before the RTC of Makati City on 31 March 2000 while the complaint for the
Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for nullification of the Addendum Contract was pending before the DENR Panel
Partial Reconsideration and/or Clarification3 seeking reconsideration of that of Arbitrators. On 23 March 2000, Climax-Arimco had sent Gonzales a
 Arbit-Part II |62

Demand for Arbitration pursuant to Clause 19.1 11 of the Addendum authorize a pre-trial or trial for a motion to compel arbitration but directs
Contract and also in accordance with Sec. 5 of R.A. No. 876. The petition the court to hear the motion summarily and resolve it within ten days from
for arbitration was subsequently filed and Climax-Arimco sought an order hearing. Judge Pimentel granted the motion and directed the parties to
to compel the parties to arbitrate pursuant to the said arbitration clause. arbitration. On 13 February 2001, Judge Pimentel issued the first assailed
The case, docketed as Civil Case No. 00-444, was initially raffled to Br. 132 order requiring Gonzales to proceed with arbitration proceedings and
of the RTC of Makati City, with Judge Herminio I. Benito as Presiding appointing retired CA Justice Jorge Coquia as sole arbitrator.20
Judge. Respondent Climax-Arimco filed on 5 April 2000 a motion to set the
application to compel arbitration for hearing. Gonzales moved for reconsideration on 20 March 2001 but this was denied
in the Order dated 7 March 2005.21
On 14 April 2000, Gonzales filed a motion to dismiss which he however
failed to set for hearing. On 15 May 2000, he filed an Answer with Gonzales thus filed the Rule 65 petition assailing the Orders dated 13
Counterclaim,12 questioning the validity of the Addendum Contract February 2001 and 7 March 2005 of Judge Pimentel. Gonzales contends
containing the arbitration clause. Gonzales alleged that the Addendum that public respondent Judge Pimentel acted with grave abuse of discretion
Contract containing the arbitration clause is void in view of Climax-Arimcos in immediately ordering the parties to proceed with arbitration despite the
acts of fraud, oppression and violation of the Constitution. Thus, the proper, valid, and timely raised argument in his Answer with Counterclaim
arbitration clause, Clause 19.1, contained in the Addendum Contract is also that the Addendum Contract, containing the arbitration clause, is null and
null and void ab initio and legally inexistent.1awphi1.net void. Gonzales has also sought a temporary restraining order to prevent
the enforcement of the assailed orders directing the parties to arbitrate,
On 18 May 2000, the RTC issued an order declaring Gonzaless motion to and to direct Judge Pimentel to hold a pre-trial conference and the
dismiss moot and academic in view of the filing of his Answer with necessary hearings on the determination of the nullity of the Addendum
Counterclaim.13 Contract.

On 31 May 2000, Gonzales asked the RTC to set the case for pre- In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876:
trial.14 This the RTC denied on 16 June 2000, holding that the petition for
arbitration is a special proceeding that is summary in nature.15 However, Sec. 6. Hearing by court.A party aggrieved by the failure, neglect or
on 7 July 2000, the RTC granted Gonzaless motion for reconsideration of refusal of another to perform under an agreement in writing providing for
the 16 June 2000 Order and set the case for pre-trial on 10 August 2000, it arbitration may petition the court for an order directing that such
being of the view that Gonzales had raised in his answer the issue of the arbitration proceed in the manner provided for in such agreement. Five
making of the arbitration agreement.16 days notice in writing of the hearing of such application shall be served
either personally or by registered mail upon the party in default. The court
Climax-Arimco then filed a motion to resolve its pending motion to compel shall hear the parties, and upon being satisfied that the making of the
arbitration. The RTC denied the same in its 24 July 2000 order. agreement or such failure to comply therewith is not in issue, shall make
an order directing the parties to proceed to arbitration in accordance with
On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge Herminio I. the terms of the agreement. If the making of the agreement or default be
Benito for "not possessing the cold neutrality of an impartial judge." 17 On 5 in issue the court shall proceed to summarily hear such issue. If the finding
August 2000, Judge Benito issued an Order granting the Motion to Inhibit be that no agreement in writing providing for arbitration was made, or that
and ordered the re-raffling of the petition for arbitration.18 The case was there is no default in the proceeding thereunder, the proceeding shall be
raffled to the sala of public respondent Judge Oscar B. Pimentel of Branch dismissed. If the finding be that a written provision for arbitration was
148. made and there is a default in proceeding thereunder, an order shall be
made summarily directing the parties to proceed with the arbitration in
On 23 August 2000, Climax-Arimco filed a motion for reconsideration of the accordance with the terms thereof.
24 July 2000 Order.19 Climax-Arimco argued that R.A. No. 876 does not
 Arbit-Part II |63

The court shall decide all motions, petitions or applications filed under the Climax-Arimco mentions that the special civil action for certiorari employed
provisions of this Act, within ten (10) days after such motions, petitions, or by Gonzales is available only where there is no appeal or any plain,
applications have been heard by it. speedy, and adequate remedy in the ordinary course of law against the
challenged orders or acts. Climax-Arimco then points out that R.A. No. 876
Gonzales also cites Sec. 24 of R.A. No. 9285 or the "Alternative Dispute provides for an appeal from such orders, which, under the Rules of Court,
Resolution Act of 2004:" must be filed within 15 days from notice of the final order or resolution
appealed from or of the denial of the motion for reconsideration filed in due
Sec. 24. Referral to Arbitration.A court before which an action is brought time. Gonzales has not denied that the relevant 15-day period for an
in a matter which is the subject matter of an arbitration agreement shall, if appeal had elapsed long before he filed this petition for certiorari. He
at least one party so requests not later than the pre-trial conference, or cannot use the special civil action of certiorari as a remedy for a lost
upon the request of both parties thereafter, refer the parties to arbitration appeal.
unless it finds that the arbitration agreement is null and void, inoperative
or incapable of being performed. Climax-Arimco adds that an application to compel arbitration under Sec. 6
of R.A. No. 876 confers on the trial court only a limited and special
According to Gonzales, the above-quoted provisions of law outline the jurisdiction, i.e., a jurisdiction solely to determine (a) whether or not the
procedure to be followed in petitions to compel arbitration, which the RTC parties have a written contract to arbitrate, and (b) if the defendant has
did not follow. Thus, referral of the parties to arbitration by Judge Pimentel failed to comply with that contract. Respondent cites La Naval Drug
despite the timely and properly raised issue of nullity of the Addendum Corporation v. Court of Appeals,22 which holds that in a proceeding to
Contract was misplaced and without legal basis. Both R.A. No. 876 and compel arbitration, "[t]he arbitration law explicitly confines the courts
R.A. No. 9285 mandate that any issue as to the nullity, inoperativeness, or authority only to pass upon the issue of whether there is or there is no
incapability of performance of the arbitration clause/agreement raised by agreement in writing providing for arbitration," and "[i]n the affirmative,
one of the parties to the alleged arbitration agreement must be determined the statute ordains that the court shall issue an order summarily directing
by the court prior to referring them to arbitration. They require that the the parties to proceed with the arbitration in accordance with the terms
trial court first determine or resolve the issue of nullity, and there is no thereof."23Climax-Arimco argues that R.A. No. 876 gives no room for any
other venue for this determination other than a pre-trial and hearing on the other issue to be dealt with in such a proceeding, and that the court
issue by the trial court which has jurisdiction over the case. Gonzales adds presented with an application to compel arbitration may order arbitration
that the assailed 13 February 2001 Order also violated his right to or dismiss the same, depending solely on its finding as to those two limited
procedural due process when the trial court erroneously ruled on the issues. If either of these matters is disputed, the court is required to
existence of the arbitration agreement despite the absence of a hearing for conduct a summary hearing on it. Gonzaless proposition contradicts both
the presentation of evidence on the nullity of the Addendum Contract. the trial courts limited jurisdiction and the summary nature of the
proceeding itself.
Respondent Climax-Arimco, on the other hand, assails the mode of review
availed of by Gonzales. Climax-Arimco cites Sec. 29 of R.A. No. 876: Climax-Arimco further notes that Gonzaless attack on or repudiation of the
Addendum Contract also is not a ground to deny effect to the arbitration
Sec. 29. Appeals.An appeal may be taken from an order made in a clause in the Contract. The arbitration agreement is separate and severable
proceeding under this Act, or from a judgment entered upon an award from the contract evidencing the parties commercial or economic
through certiorari proceedings, but such appeals shall be limited to transaction, it stresses. Hence, the alleged defect or failure of the main
questions of law. The proceedings upon such an appeal, including the contract is not a ground to deny enforcement of the parties arbitration
judgment thereon shall be governed by the Rules of Court in so far as they agreement. Even the party who has repudiated the main contract is not
are applicable. prevented from enforcing its arbitration provision. R.A. No. 876 itself treats
the arbitration clause or agreement as a contract separate from the
commercial, economic or other transaction to be arbitrated. The statute, in
 Arbit-Part II |64

particular paragraph 1 of Sec. 2 thereof, considers the arbitration Thus, the main issue raised in the Petition for Certiorari is whether it was
stipulation an independent contract in its own right whose enforcement proper for the RTC, in the proceeding to compel arbitration under R.A. No.
may be prevented only on grounds which legally make the arbitration 876, to order the parties to arbitrate even though the defendant therein
agreement itself revocable, thus: has raised the twin issues of validity and nullity of the Addendum Contract
and, consequently, of the arbitration clause therein as well. The resolution
Sec. 2. Persons and matters subject to arbitration.Two or more persons of both Climax-Arimcos Motion for Partial Reconsideration and/or
or parties may submit to the arbitration of one or more arbitrators any Clarification in G.R. No. 161957 and Gonzaless Petition for Certiorari in
controversy existing, between them at the time of the submission and G.R. No. 167994 essentially turns on whether the question of validity of the
which may be the subject of an action, or the parties to any contract may Addendum Contract bears upon the applicability or enforceability of the
in such contract agree to settle by arbitration a controversy thereafter arbitration clause contained therein. The two pending matters shall thus be
arising between them. Such submission or contract shall be valid, jointly resolved.
enforceable and irrevocable, save upon such grounds as exist at law for the
revocation of any contract. We address the Rule 65 petition in G.R. No. 167994 first from the remedial
law perspective. It deserves to be dismissed on procedural grounds, as it
xxxx was filed in lieu of appeal which is the prescribed remedy and at that far
beyond the reglementary period. It is elementary in remedial law that the
The grounds Gonzales invokes for the revocation of the Addendum use of an erroneous mode of appeal is cause for dismissal of the petition
Contractfraud and oppression in the execution thereofare also not for certiorari and it has been repeatedly stressed that a petition for
grounds for the revocation of the arbitration clause in the Contract, Climax- certiorari is not a substitute for a lost appeal. As its nature, a petition for
Arimco notes. Such grounds may only be raised by way of defense in the certiorari lies only where there is "no appeal," and "no plain, speedy and
arbitration itself and cannot be used to frustrate or delay the conduct of adequate remedy in the ordinary course of law."25 The Arbitration Law
arbitration proceedings. Instead, these should be raised in a separate specifically provides for an appeal by certiorari, i.e., a petition for review
action for rescission, it continues. under certiorari under Rule 45 of the Rules of Court that raises pure
questions of law.26 There is no merit to Gonzaless argument that the use
Climax-Arimco emphasizes that the summary proceeding to compel of the permissive term "may" in Sec. 29, R.A. No. 876 in the filing of
arbitration under Sec. 6 of R.A. No. 876 should not be confused with the appeals does not prohibit nor discount the filing of a petition for certiorari
procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of R.A. No. 876 refers to an under Rule 65.27 Proper interpretation of the aforesaid provision of law
application to compel arbitration where the courts authority is limited to shows that the term "may" refers only to the filing of an appeal, not to the
resolving the issue of whether there is or there is no agreement in writing mode of review to be employed. Indeed, the use of "may" merely
providing for arbitration, while Sec. 24 of R.A. No. 9285 refers to an reiterates the principle that the right to appeal is not part of due process of
ordinary action which covers a matter that appears to be arbitrable or law but is a mere statutory privilege to be exercised only in the manner
subject to arbitration under the arbitration agreement. In the latter case, and in accordance with law.
the statute is clear that the court, instead of trying the case, may, on
request of either or both parties, refer the parties to arbitration, unless it Neither can BF Corporation v. Court of Appeals28 cited by Gonzales support
finds that the arbitration agreement is null and void, inoperative or his theory. Gonzales argues that said case recognized and allowed a
incapable of being performed. Arbitration may even be ordered in the same petition for certiorari under Rule 65 "appealing the order of the Regional
suit brought upon a matter covered by an arbitration agreement even Trial Court disregarding the arbitration agreement as an acceptable
without waiting for the outcome of the issue of the validity of the remedy."29 The BF Corporation case had its origins in a complaint for
arbitration agreement. Art. 8 of the UNCITRAL Model Law24 states that collection of sum of money filed by therein petitioner BF Corporation
where a court before which an action is brought in a matter which is against Shangri-la Properties, Inc. (SPI). SPI moved to suspend the
subject of an arbitration agreement refers the parties to arbitration, the proceedings alleging that the construction agreement or the Articles of
arbitral proceedings may proceed even while the action is pending. Agreement between the parties contained a clause requiring prior resort to
 Arbit-Part II |65

arbitration before judicial intervention. The trial court found that an by it will amount to nothing more than an error of judgment reviewable by
arbitration clause was incorporated in the Conditions of Contract appended a timely appeal and not assailable by a special civil action of
to and deemed an integral part of the Articles of Agreement. Still, the trial certiorari.32 Even if we overlook the employment of the wrong remedy in
court denied the motion to suspend proceedings upon a finding that the the broader interests of justice, the petition would nevertheless be
Conditions of Contract were not duly executed and signed by the parties. dismissed for failure of Gonzalez to show grave abuse of discretion.
The trial court also found that SPI had failed to file any written notice of
demand for arbitration within the period specified in the arbitration clause. Arbitration, as an alternative mode of settling disputes, has long been
The trial court denied SPI's motion for reconsideration and ordered it to file recognized and accepted in our jurisdiction. The Civil Code is explicit on the
its responsive pleading. Instead of filing an answer, SPI filed a petition for matter.33 R.A. No. 876 also expressly authorizes arbitration of domestic
certiorari under Rule 65, which the Court of Appeals, favorably acted upon. disputes. Foreign arbitration, as a system of settling commercial disputes
In a petition for review before this Court, BF Corporation alleged, among of an international character, was likewise recognized when the Philippines
others, that the Court of Appeals should have dismissed the petition for adhered to the United Nations "Convention on the Recognition and the
certiorari since the order of the trial court denying the motion to suspend Enforcement of Foreign Arbitral Awards of 1958," under the 10 May 1965
proceedings "is a resolution of an incident on the merits" and upon the Resolution No. 71 of the Philippine Senate, giving reciprocal recognition
continuation of the proceedings, the trial court would eventually render a and allowing enforcement of international arbitration agreements between
decision on the merits, which decision could then be elevated to a higher parties of different nationalities within a contracting state. 34 The enactment
court "in an ordinary appeal."30 of R.A. No. 9285 on 2 April 2004 further institutionalized the use of
alternative dispute resolution systems, including arbitration, in the
The Court did not uphold BF Corporations argument. The issue raised settlement of disputes.
before the Court was whether SPI had taken the proper mode of appeal
before the Court of Appeals. The question before the Court of Appeals was Disputes do not go to arbitration unless and until the parties have agreed
whether the trial court had prematurely assumed jurisdiction over the to abide by the arbitrators decision. Necessarily, a contract is required for
controversy. The question of jurisdiction in turn depended on the question arbitration to take place and to be binding. R.A. No. 876 recognizes the
of existence of the arbitration clause which is one of fact. While on its face contractual nature of the arbitration agreement, thus:
the question of existence of the arbitration clause is a question of fact that
is not proper in a petition for certiorari, yet since the determination of the Sec. 2. Persons and matters subject to arbitration.Two or more persons
question obliged the Court of Appeals as it did to interpret the contract or parties may submit to the arbitration of one or more arbitrators any
documents in accordance with R.A. No. 876 and existing jurisprudence, the controversy existing, between them at the time of the submission and
question is likewise a question of law which may be properly taken which may be the subject of an action, or the parties to any contract may
cognizance of in a petition for certiorari under Rule 65, so the Court held.31 in such contract agree to settle by arbitration a controversy thereafter
arising between them. Such submission or contract shall be valid,
The situation in B.F. Corporation is not availing in the present petition. The enforceable and irrevocable, save upon such grounds as exist at law for the
disquisition in B.F. Corporation led to the conclusion that in order that the revocation of any contract.
question of jurisdiction may be resolved, the appellate court had to deal
first with a question of law which could be addressed in a certiorari Such submission or contract may include question arising out of valuations,
proceeding. In the present case, Gonzaless petition raises a question of appraisals or other controversies which may be collateral, incidental,
law, but not a question of jurisdiction. Judge Pimentel acted in accordance precedent or subsequent to any issue between the parties.
with the procedure prescribed in R.A. No. 876 when he ordered Gonzales to
proceed with arbitration and appointed a sole arbitrator after making the A controversy cannot be arbitrated where one of the parties to the
determination that there was indeed an arbitration agreement. It has been controversy is an infant, or a person judicially declared to be incompetent,
held that as long as a court acts within its jurisdiction and does not gravely unless the appropriate court having jurisdiction approve a petition for
abuse its discretion in the exercise thereof, any supposed error committed permission to submit such controversy to arbitration made by the general
 Arbit-Part II |66

guardian or guardian ad litem of the infant or of the incompetent. it was held that R.A. No. 876 explicitly confines the court's authority only
[Emphasis added.] to the determination of whether or not there is an agreement in writing
providing for arbitration. In the affirmative, the statute ordains that the
Thus, we held in Manila Electric Co. v. Pasay Transportation Co. 35 that a court shall issue an order "summarily directing the parties to proceed with
submission to arbitration is a contract. A clause in a contract providing that the arbitration in accordance with the terms thereof." If the court, upon the
all matters in dispute between the parties shall be referred to arbitration is other hand, finds that no such agreement exists, "the proceeding shall be
a contract,36 and in Del Monte Corporation-USA v. Court of Appeals37 that dismissed."40 The cited case also stressed that the proceedings are
"[t]he provision to submit to arbitration any dispute arising therefrom and summary in nature.41 The same thrust was made in the earlier case of
the relationship of the parties is part of that contract and is itself a Mindanao Portland Cement Corp. v. McDonough Construction Co. of
contract. As a rule, contracts are respected as the law between the Florida42 which held, thus:
contracting parties and produce effect as between them, their assigns and
heirs."38 Since there obtains herein a written provision for arbitration as well as
failure on respondent's part to comply therewith, the court a quo rightly
The special proceeding under Sec. 6 of R.A. No. 876 recognizes the ordered the parties to proceed to arbitration in accordance with the terms
contractual nature of arbitration clauses or agreements. It provides: of their agreement (Sec. 6, Republic Act 876). Respondent's arguments
touching upon the merits of the dispute are improperly raised herein. They
Sec. 6. Hearing by court.A party aggrieved by the failure, neglect or should be addressed to the arbitrators. This proceeding is merely a
refusal of another to perform under an agreement in writing providing for summary remedy to enforce the agreement to arbitrate. The duty of the
arbitration may petition the court for an order directing that such court in this case is not to resolve the merits of the parties' claims but only
arbitration proceed in the manner provided for in such agreement. Five to determine if they should proceed to arbitration or not. x x x x43
days notice in writing of the hearing of such application shall be served
either personally or by registered mail upon the party in default. The court Implicit in the summary nature of the judicial proceedings is the separable
shall hear the parties, and upon being satisfied that the making of the or independent character of the arbitration clause or agreement. This was
agreement or such failure to comply therewith is not in issue, shall make highlighted in the cases of Manila Electric Co. v. Pasay Trans. Co.44 and Del
an order directing the parties to proceed to arbitration in accordance with Monte Corporation-USA v. Court of Appeals.45
the terms of the agreement. If the making of the agreement or default be
in issue the court shall proceed to summarily hear such issue. If the finding The doctrine of separability, or severability as other writers call it,
be that no agreement in writing providing for arbitration was made, or that enunciates that an arbitration agreement is independent of the main
there is no default in the proceeding thereunder, the proceeding shall be contract. The arbitration agreement is to be treated as a separate
dismissed. If the finding be that a written provision for arbitration was agreement and the arbitration agreement does not automatically terminate
made and there is a default in proceeding thereunder, an order shall be when the contract of which it is part comes to an end.46
made summarily directing the parties to proceed with the arbitration in
accordance with the terms thereof. The separability of the arbitration agreement is especially significant to the
determination of whether the invalidity of the main contract also nullifies
The court shall decide all motions, petitions or applications filed under the the arbitration clause. Indeed, the doctrine denotes that the invalidity of
provisions of this Act, within ten days after such motions, petitions, or the main contract, also referred to as the "container" contract,
applications have been heard by it. [Emphasis added.] does not affect the validity of the arbitration agreement. Irrespective of
the fact that the main contract is invalid, the arbitration clause/agreement
This special proceeding is the procedural mechanism for the enforcement still remains valid and enforceable.47
of the contract to arbitrate. The jurisdiction of the courts in relation to Sec.
6 of R.A. No. 876 as well as the nature of the proceedings therein was The separability of the arbitration clause is confirmed in Art. 16(1) of the
expounded upon in La Naval Drug Corporation v. Court of Appeals.39 There UNCITRAL Model Law and Art. 21(2) of the UNCITRAL Arbitration Rules.48
 Arbit-Part II |67

The separability doctrine was dwelt upon at length in the U.S. case of There is reason, therefore, to rule against Gonzales when he alleges that
Prima Paint Corp. v. Flood & Conklin Manufacturing Co.49 In that case, Judge Pimentel acted with grave abuse of discretion in ordering the parties
Prima Paint and Flood and Conklin (F & C) entered into a consulting to proceed with arbitration. Gonzaless argument that the Addendum
agreement whereby F & C undertook to act as consultant to Prima Paint for Contract is null and void and, therefore the arbitration clause therein is
six years, sold to Prima Paint a list of its customers and promised not to void as well, is not tenable. First, the proceeding in a petition for
sell paint to these customers during the same period. The consulting arbitration under R.A. No. 876 is limited only to the resolution of the
agreement contained an arbitration clause. Prima Paint did not make question of whether the arbitration agreement exists. Second, the
payments as provided in the consulting agreement, contending that F & C separability of the arbitration clause from the Addendum Contract means
had fraudulently misrepresented that it was solvent and able for perform that validity or invalidity of the Addendum Contract will not affect the
its contract when in fact it was not and had even intended to file for enforceability of the agreement to arbitrate. Thus, Gonzaless petition for
bankruptcy after executing the consultancy agreement. Thus, F & C served certiorari should be dismissed.
Prima Paint with a notice of intention to arbitrate. Prima Paint sued in court
for rescission of the consulting agreement on the ground of fraudulent This brings us back to G.R. No. 161957. The adjudication of the petition in
misrepresentation and asked for the issuance of an order enjoining F & C G.R. No. 167994 effectively modifies part of the Decision dated 28
from proceeding with arbitration. F & C moved to stay the suit pending February 2005 in G.R. No. 161957. Hence, we now hold that the validity of
arbitration. The trial court granted F & Cs motion, and the U.S. Supreme the contract containing the agreement to submit to arbitration does not
Court affirmed. affect the applicability of the arbitration clause itself. A contrary ruling
would suggest that a partys mere repudiation of the main contract is
The U.S. Supreme Court did not address Prima Paints argument that it had sufficient to avoid arbitration. That is exactly the situation that the
been fraudulently induced by F & C to sign the consulting agreement and separability doctrine, as well as jurisprudence applying it, seeks to avoid.
held that no court should address this argument. Relying on Sec. 4 of the We add that when it was declared in G.R. No. 161957 that the case should
Federal Arbitration Actwhich provides that "if a party [claims to be] not be brought for arbitration, it should be clarified that the case referred
aggrieved by the alleged failure x x x of another to arbitrate x x x, [t]he to is the case actually filed by Gonzales before the DENR Panel of
court shall hear the parties, and upon being satisfied that the making of Arbitrators, which was for the nullification of the main contract on the
the agreement for arbitration or the failure to comply therewith is not in ground of fraud, as it had already been determined that the case should
issue, the court shall make an order directing the parties to proceed to have been brought before the regular courts involving as it did judicial
arbitration x x x. If the making of the arbitration agreement or the failure, issues.
neglect, or refusal to perform the same be in issue, the court shall proceed
summarily to the trial thereof"the U.S. High Court held that the court The Motion for Reconsideration of Gonzales in G.R. No. 161957 should also
should not order the parties to arbitrate if the making of the arbitration be denied. In the motion, Gonzales raises the same question of jurisdiction,
agreement is in issue. The parties should be ordered to arbitration if, and more particularly that the complaint for nullification of the Addendum
only if, they have contracted to submit to arbitration. Prima Paint was not Contract pertained to the DENR Panel of Arbitrators, not the regular courts.
entitled to trial on the question of whether an arbitration agreement was He insists that the subject of his complaint is a mining dispute since it
made because its allegations of fraudulent inducement were not directed to involves a dispute concerning rights to mining areas, the Financial and
the arbitration clause itself, but only to the consulting agreement which Technical Assistance Agreement (FTAA) between the parties, and it also
contained the arbitration agreement.50 Prima Paint held that "arbitration involves claimowners. He adds that the Court failed to rule on other issues
clauses are separable from the contracts in which they are embedded, and he raised, such as whether he had ceded his claims over the mineral
that where no claim is made that fraud was directed to the arbitration deposits located within the Addendum Area of Influence; whether the
clause itself, a broad arbitration clause will be held to encompass complaint filed before the DENR Panel of Arbitrators alleged ultimate facts
arbitration of the claim that the contract itself was induced by fraud."51 of fraud; and whether the action to declare the nullity of the Addendum
Contract on the ground of fraud has prescribed.1avvphi1.net
 Arbit-Part II |68

These are the same issues that Gonzales raised in his Rule 45 petition in allegations of fraud and misrepresentation, but these are, at best,
G.R. No. 161957 which were resolved against him in the Decision of 28 evidentiary matters that should not be included in the pleading.
February 2005. Gonzales does not raise any new argument that would
sway the Court even a bit to alter its holding that the complaint filed before As to the issue of prescription, Gonzaless claims of fraud and
the DENR Panel of Arbitrators involves judicial issues which should properly misrepresentation attending the execution of the Addendum Contract are
be resolved by the regular courts. He alleged fraud or misrepresentation in grounds for the annulment of a voidable contract under the Civil
the execution of the Addendum Contract which is a ground for the Code.55 Under Art. 1391 of the Code, an action for annulment shall be
annulment of a voidable contract. Clearly, such allegations entail legal brought within four years, in the case of fraud, beginning from the time of
questions which are within the jurisdiction of the courts. the discovery of the same. However, the time of the discovery of the
alleged fraud is not clear from the allegations of Gonzaless complaint. That
The question of whether Gonzales had ceded his claims over the mineral being the situation coupled with the fact that this Court is not a trier of
deposits in the Addendum Area of Influence is a factual question which is facts, any ruling on the issue of prescription would be uncalled for or even
not proper for determination before this Court. At all events, moreover, the unnecessary.
question is irrelevant to the issue of jurisdiction of the DENR Panel of
Arbitrators. It should be pointed out that the DENR Panel of Arbitrators WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is DISMISSED.
made a factual finding in its Order dated 18 October 2001, which it Such dismissal effectively renders superfluous formal action on the Motion
reiterated in its Order dated 25 June 2002, that Gonzales had, "through the for Partial Reconsideration and/or Clarification filed by Climax Mining Ltd.,
various agreements, assigned his interest over the mineral claims all in et al. in G.R. No. 161957.
favor of [Climax-Arimco]" as well as that without the complainant
[Gonzales] assigning his interest over the mineral claims in favor of The Motion for Reconsideration filed by Jorge Gonzales in G.R. No. 161957
[Climax-Arimco], there would be no FTAA to speak of."52 This finding was is DENIED WITH FINALITY.
affirmed by the Court of Appeals in its Decision dated 30 July 2003
resolving the petition for certiorari filed by Climax-Arimco in regard to the SO ORDERED.
18 October 2001 Order of the DENR Panel.53

The Court of Appeals likewise found that Gonzaless complaint alleged

fraud but did not provide any particulars to substantiate it. The complaint
repeatedly mentioned fraud, oppression, violation of the Constitution and
similar conclusions but nowhere did it give any ultimate facts or particulars
relative to the allegations.54

Sec. 5, Rule 8 of the Rules of Court specifically provides that in all

averments of fraud, the circumstances constituting fraud must be stated
with particularity. This is to enable the opposing party to controvert the
particular facts allegedly constituting the same. Perusal of the complaint
indeed shows that it failed to state with particularity the ultimate facts and
circumstances constituting the alleged fraud. It does not state what
particulars about Climax-Arimcos financial or technical capability were
misrepresented, or how the misrepresentation was done. Incorporated in
the body of the complaint are verbatim reproductions of the contracts,
correspondence and government issuances that reportedly explain the
 Arbit-Part II |69

9. G.R. No. 169332 February 11, 2008 The parties appointed Professor Alfredo F. Tadiar to act as sole arbitrator.
They stipulated on the following issues in their terms of reference (TOR)6:
ABS-CBN BROADCASTING CORPORATION, petitioner,
vs. 1. Was the broadcast of WINS WEEKLY by the claimant duly authorized by
WORLD INTERACTIVE NETWORK SYSTEMS (WINS) JAPAN CO., the respondent [herein petitioner]?
LTD., respondent.
2. Did such broadcast constitute a material breach of the agreement that is
DECISION a ground for termination of the agreement in accordance with Section 13
(a) thereof?
CORONA, J.:
3. If so, was the breach seasonably cured under the same contractual
This petition for review on certiorari under Rule 45 of the Rules of Court provision of Section 13 (a)?
seeks to set aside the February 16, 2005 decision1 and August 16, 2005
resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 81940. 4. Which party is entitled to the payment of damages they claim and to the
other reliefs prayed for?
On September 27, 1999, petitioner ABS-CBN Broadcasting Corporation
entered into a licensing agreement with respondent World Interactive xxx xxx xxx
Network Systems (WINS) Japan Co., Ltd., a foreign corporation licensed
under the laws of Japan. Under the agreement, respondent was granted The arbitrator found in favor of respondent.7 He held that petitioner gave
the exclusive license to distribute and sublicense the distribution of the its approval to respondent for the airing of WINS WEEKLY as shown by a
television service known as "The Filipino Channel" (TFC) in Japan. By virtue series of written exchanges between the parties. He also ruled that, had
thereof, petitioner undertook to transmit the TFC programming signals to there really been a material breach of the agreement, petitioner should
respondent which the latter received through its decoders and distributed have terminated the same instead of sending a mere notice to terminate
to its subscribers. said agreement. The arbitrator found that petitioner threatened to
terminate the agreement due to its desire to compel respondent to re-
A dispute arose between the parties when petitioner accused respondent of negotiate the terms thereof for higher fees. He further stated that even if
inserting nine episodes of WINS WEEKLY, a weekly 35-minute community respondent committed a breach of the agreement, the same was
news program for Filipinos in Japan, into the TFC programming from March seasonably cured. He then allowed respondent to recover temperate
to May 2002.3 Petitioner claimed that these were "unauthorized insertions" damages, attorney's fees and one-half of the amount it paid as arbitrator's
constituting a material breach of their agreement. Consequently, on May 9, fee.
2002,4 petitioner notified respondent of its intention to terminate the
agreement effective June 10, 2002. Petitioner filed in the CA a petition for review under Rule 43 of the Rules of
Court or, in the alternative, a petition for certiorari under Rule 65 of the
Thereafter, respondent filed an arbitration suit pursuant to the arbitration same Rules, with application for temporary restraining order and writ of
clause of its agreement with petitioner. It contended that the airing of preliminary injunction. It was docketed as CA-G.R. SP No. 81940. It
WINS WEEKLY was made with petitioner's prior approval. It also alleged alleged serious errors of fact and law and/or grave abuse of discretion
that petitioner only threatened to terminate their agreement because it amounting to lack or excess of jurisdiction on the part of the arbitrator.
wanted to renegotiate the terms thereof to allow it to demand higher fees.
Respondent also prayed for damages for petitioner's alleged grant of an Respondent, on the other hand, filed a petition for confirmation of arbitral
exclusive distribution license to another entity, NHK (Japan Broadcasting award before the Regional Trial Court (RTC) of Quezon City, Branch 93,
Corporation).5 docketed as Civil Case No. Q-04-51822.
 Arbit-Part II |70

Consequently, petitioner filed a supplemental petition in the CA seeking to 876 (the Arbitration Law). Petitioner alleged serious error on the part of
enjoin the RTC of Quezon City from further proceeding with the hearing of the CA.
respondent's petition for confirmation of arbitral award. After the petition
was admitted by the appellate court, the RTC of Quezon City issued an The issue before us is whether or not an aggrieved party in a voluntary
order holding in abeyance any further action on respondent's petition as arbitration dispute may avail of, directly in the CA, a petition for review
the assailed decision of the arbitrator had already become the subject of an under Rule 43 or a petition for certiorari under Rule 65 of the Rules of
appeal in the CA. Respondent filed a motion for reconsideration but no Court, instead of filing a petition to vacate the award in the RTC when the
resolution has been issued by the lower court to date.8 grounds invoked to overturn the arbitrators decision are other than those
for a petition to vacate an arbitral award enumerated under RA 876.
On February 16, 2005, the CA rendered the assailed decision dismissing
ABS-CBNs petition for lack of jurisdiction. It stated that as the TOR itself RA 876 itself mandates that it is the Court of First Instance, now the RTC,
provided that the arbitrator's decision shall be final and unappealable and which has jurisdiction over questions relating to arbitration, 9 such as a
that no motion for reconsideration shall be filed, then the petition for petition to vacate an arbitral award.
review must fail. It ruled that it is the RTC which has jurisdiction over
questions relating to arbitration. It held that the only instance it can Section 24 of RA 876 provides for the specific grounds for a petition to
exercise jurisdiction over an arbitral award is an appeal from the trial vacate an award made by an arbitrator:
court's decision confirming, vacating or modifying the arbitral award. It
further stated that a petition for certiorari under Rule 65 of the Rules of Sec. 24. Grounds for vacating award. - In any one of the following
Court is proper in arbitration cases only if the courts refuse or neglect to cases, the court must make an order vacating the award upon the
inquire into the facts of an arbitrator's award. The dispositive portion of the petition of any party to the controversy when such party proves
CA decision read: affirmatively that in the arbitration proceedings:

WHEREFORE, the instant petition is hereby DISMISSED for lack of (a) The award was procured by corruption, fraud, or other undue means;
jurisdiction. The application for a writ of injunction and temporary or
restraining order is likewise DENIED. The Regional Trial Court of Quezon
City Branch 93 is directed to proceed with the trial for the Petition for (b) That there was evident partiality or corruption in the arbitrators or any
Confirmation of Arbitral Award. of them; or

SO ORDERED. (c) That the arbitrators were guilty of misconduct in refusing to postpone
the hearing upon sufficient cause shown, or in refusing to hear evidence
Petitioner moved for reconsideration. The same was denied. Hence, this pertinent and material to the controversy; that one or more of the
petition. arbitrators was disqualified to act as such under section nine hereof, and
willfully refrained from disclosing such disqualifications or of any other
Petitioner contends that the CA, in effect, ruled that: (a) it should have misbehavior by which the rights of any party have been materially
first filed a petition to vacate the award in the RTC and only in case of prejudiced; or
denial could it elevate the matter to the CA via a petition for review under
Rule 43 and (b) the assailed decision implied that an aggrieved party to an (d) That the arbitrators exceeded their powers, or so imperfectly executed
arbitral award does not have the option of directly filing a petition for them, that a mutual, final and definite award upon the subject matter
review under Rule 43 or a petition for certiorari under Rule 65 with the CA submitted to them was not made.
even if the issues raised pertain to errors of fact and law or grave abuse of
discretion, as the case may be, and not dependent upon such grounds as Based on the foregoing provisions, the law itself clearly provides that the
enumerated under Section 24 (petition to vacate an arbitral award) of RA RTC must issue an order vacating an arbitral award only "in any one of the
 Arbit-Part II |71

. . . cases" enumerated therein. Under the legal maxim in statutory but because the respondent appellate court found that the trial
construction expressio unius est exclusio alterius, the explicit mention of court had no legal basis for vacating the award. (Emphasis supplied).
one thing in a statute means the elimination of others not specifically
mentioned. As RA 876 did not expressly provide for errors of fact and/or In cases not falling under any of the aforementioned grounds to vacate an
law and grave abuse of discretion (proper grounds for a petition for review award, the Court has already made several pronouncements that a petition
under Rule 43 and a petition for certiorari under Rule 65, respectively) as for review under Rule 43 or a petition for certiorari under Rule 65 may be
grounds for maintaining a petition to vacate an arbitral award in the RTC, it availed of in the CA. Which one would depend on the grounds relied upon
necessarily follows that a party may not avail of the latter remedy on the by petitioner.
grounds of errors of fact and/or law or grave abuse of discretion to
overturn an arbitral award. In Luzon Development Bank v. Association of Luzon Development Bank
Employees,11 the Court held that a voluntary arbitrator is properly
Adamson v. Court of Appeals10 gave ample warning that a petition to classified as a "quasi-judicial instrumentality" and is, thus, within the ambit
vacate filed in the RTC which is not based on the grounds enumerated in of Section 9 (3) of the Judiciary Reorganization Act, as amended. Under
Section 24 of RA 876 should be dismissed. In that case, the trial court this section, the Court of Appeals shall exercise:
vacated the arbitral award seemingly based on grounds included in Section
24 of RA 876 but a closer reading thereof revealed otherwise. On appeal, xxx xxx xxx
the CA reversed the decision of the trial court and affirmed the arbitral
award. In affirming the CA, we held: (3) Exclusive appellate jurisdiction over all final judgments, decisions,
resolutions, orders or awards of Regional Trial Courts and quasi-judicial
The Court of Appeals, in reversing the trial court's decision held that the agencies, instrumentalities, boards or commissions, including the
nullification of the decision of the Arbitration Committee was not based on Securities and Exchange Commission, the Employees Compensation
the grounds provided by the Arbitration Law and that xxx private Commission and the Civil Service Commission, except those falling within
respondents (petitioners herein) have failed to substantiate with any the appellate jurisdiction of the Supreme Court in accordance with the
evidence their claim of partiality. Significantly, even as respondent judge Constitution, the Labor Code of the Philippines under Presidential Decree
ruled against the arbitrator's award, he could not find fault with their No. 442, as amended, the provisions of this Act and of subparagraph (1) of
impartiality and integrity. Evidently, the nullification of the award the third paragraph and subparagraph (4) of the fourth paragraph of
rendered at the case at bar was not made on the basis of any of the Section 17 of the Judiciary Act of 1948. (Emphasis supplied)
grounds provided by law.
As such, decisions handed down by voluntary arbitrators fall within the
xxx xxx xxx exclusive appellate jurisdiction of the CA. This decision was taken into
consideration in approving Section 1 of Rule 43 of the Rules of
It is clear, therefore, that the award was vacated not because of Court.12 Thus:
evident partiality of the arbitrators but because the latter interpreted
the contract in a way which was not favorable to herein petitioners and SECTION 1. Scope. - This Rule shall apply to appeals from judgments or
because it considered that herein private respondents, by submitting the final orders of the Court of Tax Appeals and from awards, judgments, final
controversy to arbitration, was seeking to renege on its obligations under orders or resolutions of or authorized by any quasi-judicial agency in the
the contract. exercise of its quasi-judicial functions. Among these agencies are the Civil
Service Commission, Central Board of Assessment Appeals, Securities and
xxx xxx xxx Exchange Commission, Office of the President, Land Registration Authority,
Social Security Commission, Civil Aeronautics Board, Bureau of Patents,
It is clear then that the Court of Appeals reversed the trial court not Trademarks and Technology Transfer, National Electrification
because the latter reviewed the arbitration award involved herein, Administration, Energy Regulatory Board, National Telecommunications
 Arbit-Part II |72

Commission, Department of Agrarian Reform under Republic Act Number certiorari17 and there is no appeal, nor any plain, speedy remedy in the
6657, Government Service Insurance System, Employees Compensation course of law.18
Commission, Agricultural Inventions Board, Insurance Commission,
Philippine Atomic Energy Commission, Board of Investments, Construction Significantly, Insular Savings Bank v. Far East Bank and Trust
Industry Arbitration Commission, and voluntary arbitrators authorized Company19 definitively outlined several judicial remedies an aggrieved
by law. (Emphasis supplied) party to an arbitral award may undertake:

This rule was cited in Sevilla Trading Company v. Semana,13 Manila (1) a petition in the proper RTC to issue an order to vacate the award on
Midtown Hotel v. Borromeo,14 and Nippon Paint Employees Union-Olalia v. the grounds provided for in Section 24 of RA 876;
Court of Appeals.15 These cases held that the proper remedy from the
adverse decision of a voluntary arbitrator, if errors of fact and/or law are (2) a petition for review in the CA under Rule 43 of the Rules of Court on
raised, is a petition for review under Rule 43 of the Rules of Court. Thus, questions of fact, of law, or mixed questions of fact and law; and
petitioner's contention that it may avail of a petition for review under Rule
43 under the circumstances of this case is correct. (3) a petition for certiorari under Rule 65 of the Rules of Court should the
arbitrator have acted without or in excess of his jurisdiction or with grave
As to petitioner's arguments that a petition for certiorari under Rule 65 abuse of discretion amounting to lack or excess of jurisdiction.
may also be resorted to, we hold the same to be in accordance with the
Constitution and jurisprudence. Nevertheless, although petitioners position on the judicial remedies
available to it was correct, we sustain the dismissal of its petition by the
Section 1 of Article VIII of the 1987 Constitution provides that: CA. The remedy petitioner availed of, entitled "alternative petition for
review under Rule 43 or petition for certiorari under Rule 65," was wrong.
SECTION 1. The judicial power shall be vested in one Supreme Court and
in such lower courts as may be established by law. Time and again, we have ruled that the remedies of appeal and certiorari
are mutually exclusive and not alternative or successive.20
Judicial power includes the duty of the courts of justice to settle
actual controversies involving rights which are legally demandable and Proper issues that may be raised in a petition for review under Rule 43
enforceable, and to determine whether or not there has been a grave pertain to errors of fact, law or mixed questions of fact and law. 21 While a
abuse of discretion amounting to lack or excess of jurisdiction on petition for certiorari under Rule 65 should only limit itself to errors of
the part of any branch or instrumentality of the jurisdiction, that is, grave abuse of discretion amounting to a lack or
Government. (Emphasis supplied) excess of jurisdiction.22 Moreover, it cannot be availed of where appeal is
the proper remedy or as a substitute for a lapsed appeal.23
As may be gleaned from the above stated provision, it is well within the
power and jurisdiction of the Court to inquire whether any instrumentality In the case at bar, the questions raised by petitioner in its alternative
of the Government, such as a voluntary arbitrator, has gravely abused its petition before the CA were the following:
discretion in the exercise of its functions and prerogatives. Any agreement
stipulating that "the decision of the arbitrator shall be final and A. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY
unappealable" and "that no further judicial recourse if either party ABUSED HIS DISCRETION IN RULING THAT THE BROADCAST OF "WINS
disagrees with the whole or any part of the arbitrator's award may be WEEKLY" WAS DULY AUTHORIZED BY ABS-CBN.
availed of" cannot be held to preclude in proper cases the power of judicial
review which is inherent in courts.16 We will not hesitate to review a B. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY
voluntary arbitrator's award where there is a showing of grave abuse of ABUSED HIS DISCRETION IN RULING THAT THE UNAUTHORIZED
authority or discretion and such is properly raised in a petition for
 Arbit-Part II |73

BROADCAST DID NOT CONSTITUTE MATERIAL BREACH OF THE SP No. 81940 directing the Regional Trial Court of Quezon City, Branch 93
AGREEMENT. to proceed with the trial of the petition for confirmation of arbitral award
is AFFIRMED.
C. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR
GRAVELY ABUSED HIS DISCRETION IN RULING THAT WINS SEASONABLY Costs against petitioner.
CURED THE BREACH.
SO ORDERED.
D. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR
GRAVELY ABUSED HIS DISCRETION IN RULING THAT TEMPERATE
DAMAGES IN THE AMOUNT OF P1,166,955.00 MAY BE AWARDED TO WINS.

E. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY

ABUSED HIS DISCRETION IN AWARDING ATTORNEY'S FEES IN THE
UNREASONABLE AMOUNT AND UNCONSCIONABLE AMOUNT
OF P850,000.00.

F. THE ERROR COMMITTED BY THE SOLE ARBITRATOR IS NOT A SIMPLE

ERROR OF JUDGMENT OR ABUSE OF DISCRETION. IT IS GRAVE ABUSE OF
DISCRETION TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION.

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

It must be emphasized that every lawyer should be familiar with the

distinctions between the two remedies for it is not the duty of the courts to
determine under which rule the petition should fall.24 Petitioner's ploy was
fatal to its cause. An appeal taken either to this Court or the CA by the
wrong or inappropriate mode shall be dismissed.25Thus,
the alternative petition filed in the CA, being an inappropriate mode of
appeal, should have been dismissed outright by the CA.

WHEREFORE, the petition is hereby DENIED. The February 16, 2005

decision and August 16, 2005 resolution of the Court of Appeals in CA-G.R.
 Arbit-Part II |74

10. On October 14, 1997, PGSMC entered into a Contract of Lease 3 with Worth
Properties, Inc. (Worth) for use of Worths 5,079-square meter property
11. G.R. No. 143581 January 7, 2008 with a 4,032-square meter warehouse building to house the LPG
manufacturing plant. The monthly rental was PhP 322,560 commencing on
KOREA TECHNOLOGIES CO., LTD., petitioner, January 1, 1998 with a 10% annual increment clause. Subsequently, the
vs. machineries, equipment, and facilities for the manufacture of LPG cylinders
HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of were shipped, delivered, and installed in the Carmona plant. PGSMC paid
Branch 256 of Regional Trial Court of Muntinlupa City, and PACIFIC KOGIES USD 1,224,000.
GENERAL STEEL MANUFACTURING CORPORATION, respondents.
However, gleaned from the Certificate4 executed by the parties on January
DECISION 22, 1998, after the installation of the plant, the initial operation could not
be conducted as PGSMC encountered financial difficulties affecting the
VELASCO, JR., J.: supply of materials, thus forcing the parties to agree that KOGIES would be
deemed to have completely complied with the terms and conditions of the
In our jurisdiction, the policy is to favor alternative methods of resolving March 5, 1997 contract.
disputes, particularly in civil and commercial disputes. Arbitration along
with mediation, conciliation, and negotiation, being inexpensive, speedy For the remaining balance of USD306,000 for the installation and initial
and less hostile methods have long been favored by this Court. The petition operation of the plant, PGSMC issued two postdated checks: (1) BPI Check
before us puts at issue an arbitration clause in a contract mutually agreed No. 0316412 dated January 30, 1998 for PhP 4,500,000; and (2) BPI
upon by the parties stipulating that they would submit themselves to Check No. 0316413 dated March 30, 1998 for PhP 4,500,000.5
arbitration in a foreign country. Regrettably, instead of hastening the
resolution of their dispute, the parties wittingly or unwittingly prolonged When KOGIES deposited the checks, these were dishonored for the reason
the controversy. "PAYMENT STOPPED." Thus, on May 8, 1998, KOGIES sent a demand
letter6 to PGSMC threatening criminal action for violation of Batas
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation Pambansa Blg.22 in case of nonpayment. On the same date, the wife of
which is engaged in the supply and installation of Liquefied Petroleum Gas PGSMCs President faxed a letter dated May 7, 1998 to KOGIES President
(LPG) Cylinder manufacturing plants, while private respondent Pacific who was then staying at a Makati City hotel. She complained that not only
General Steel Manufacturing Corp. (PGSMC) is a domestic corporation. did KOGIES deliver a different brand of hydraulic press from that agreed
upon but it had not delivered several equipment parts already paid for.
On March 5, 1997, PGSMC and KOGIES executed a Contract 1 whereby
KOGIES would set up an LPG Cylinder Manufacturing Plant in Carmona, On May 14, 1998, PGSMC replied that the two checks it issued KOGIES
Cavite. The contract was executed in the Philippines. On April 7, 1997, the were fully funded but the payments were stopped for reasons previously
parties executed, in Korea, an Amendment for Contract No. KLP-970301 made known to KOGIES.7
dated March 5, 19972 amending the terms of payment. The contract and
its amendment stipulated that KOGIES will ship the machinery and facilities On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their
necessary for manufacturing LPG cylinders for which PGSMC would pay Contract dated March 5, 1997 on the ground that KOGIES had altered the
USD 1,224,000. KOGIES would install and initiate the operation of the quantity and lowered the quality of the machineries and equipment it
plant for which PGSMC bound itself to pay USD 306,000 upon the plants delivered to PGSMC, and that PGSMC would dismantle and transfer the
production of the 11-kg. LPG cylinder samples. Thus, the total contract machineries, equipment, and facilities installed in the Carmona plant. Five
price amounted to USD 1,530,000. days later, PGSMC filed before the Office of the Public Prosecutor an
Affidavit-Complaint for Estafa docketed as I.S. No. 98-03813 against Mr.
Dae Hyun Kang, President of KOGIES.
 Arbit-Part II |75

On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC machineries and equipment. Moreover, PGSMC averred that it has already
could not unilaterally rescind their contract nor dismantle and transfer the paid PhP 2,257,920 in rent (covering January to July 1998) to Worth and it
machineries and equipment on mere imagined violations by KOGIES. It was not willing to further shoulder the cost of renting the premises of the
also insisted that their disputes should be settled by arbitration as agreed plant considering that the LPG cylinder manufacturing plant never became
upon in Article 15, the arbitration clause of their contract. operational.

On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of After the parties submitted their Memoranda, on July 23, 1998, the RTC
its June 1, 1998 letter threatening that the machineries, equipment, and issued an Order denying the application for a writ of preliminary injunction,
facilities installed in the plant would be dismantled and transferred on July reasoning that PGSMC had paid KOGIES USD 1,224,000, the value of the
4, 1998. Thus, on July 1, 1998, KOGIES instituted an Application for machineries and equipment as shown in the contract such that KOGIES no
Arbitration before the Korean Commercial Arbitration Board (KCAB) in longer had proprietary rights over them. And finally, the RTC held that Art.
Seoul, Korea pursuant to Art. 15 of the Contract as amended. 15 of the Contract as amended was invalid as it tended to oust the trial
court or any other court jurisdiction over any dispute that may arise
On July 3, 1998, KOGIES filed a Complaint for Specific Performance, between the parties. KOGIES prayer for an injunctive writ was
docketed as Civil Case No. 98-1178 against PGSMC before the Muntinlupa denied.10 The dispositive portion of the Order stated:
City Regional Trial Court (RTC). The RTC granted a temporary restraining
order (TRO) on July 4, 1998, which was subsequently extended until July WHEREFORE, in view of the foregoing consideration, this Court believes
22, 1998. In its complaint, KOGIES alleged that PGSMC had initially and so holds that no cogent reason exists for this Court to grant the writ of
admitted that the checks that were stopped were not funded but later on preliminary injunction to restrain and refrain defendant from dismantling
claimed that it stopped payment of the checks for the reason that "their the machineries and facilities at the lot and building of Worth Properties,
value was not received" as the former allegedly breached their contract by Incorporated at Carmona, Cavite and transfer the same to another site:
"altering the quantity and lowering the quality of the machinery and and therefore denies plaintiffs application for a writ of preliminary
equipment" installed in the plant and failed to make the plant operational injunction.
although it earlier certified to the contrary as shown in a January 22, 1998
Certificate. Likewise, KOGIES averred that PGSMC violated Art. 15 of their On July 29, 1998, KOGIES filed its Reply to Answer and Answer to
Contract, as amended, by unilaterally rescinding the contract without Counterclaim.11 KOGIES denied it had altered the quantity and lowered the
resorting to arbitration. KOGIES also asked that PGSMC be restrained from quality of the machinery, equipment, and facilities it delivered to the plant.
dismantling and transferring the machinery and equipment installed in the It claimed that it had performed all the undertakings under the contract
plant which the latter threatened to do on July 4, 1998. and had already produced certified samples of LPG cylinders. It averred
that whatever was unfinished was PGSMCs fault since it failed to procure
On July 9, 1998, PGSMC filed an opposition to the TRO arguing that raw materials due to lack of funds. KOGIES, relying on Chung Fu Industries
KOGIES was not entitled to the TRO since Art. 15, the arbitration clause, (Phils.), Inc. v. Court of Appeals,12 insisted that the arbitration clause was
was null and void for being against public policy as it ousts the local courts without question valid.
of jurisdiction over the instant controversy.
After KOGIES filed a Supplemental Memorandum with Motion to
On July 17, 1998, PGSMC filed its Answer with Compulsory Dismiss13 answering PGSMCs memorandum of July 22, 1998 and seeking
Counterclaim9 asserting that it had the full right to dismantle and transfer dismissal of PGSMCs counterclaims, KOGIES, on August 4, 1998, filed its
the machineries and equipment because it had paid for them in full as Motion for Reconsideration14 of the July 23, 1998 Order denying its
stipulated in the contract; that KOGIES was not entitled to the PhP application for an injunctive writ claiming that the contract was not merely
9,000,000 covered by the checks for failing to completely install and make for machinery and facilities worth USD 1,224,000 but was for the sale of an
the plant operational; and that KOGIES was liable for damages amounting "LPG manufacturing plant" consisting of "supply of all the machinery and
to PhP 4,500,000 for altering the quantity and lowering the quality of the facilities" and "transfer of technology" for a total contract price of USD
 Arbit-Part II |76

1,530,000 such that the dismantling and transfer of the machinery and Thereafter, KOGIES filed a Supplement to the Petition20 in CA-G.R. SP No.
facilities would result in the dismantling and transfer of the very plant itself 49249 informing the CA about the October 19, 1998 RTC Order. It also
to the great prejudice of KOGIES as the still unpaid owner/seller of the reiterated its prayer for the issuance of the writs of prohibition, mandamus
plant. Moreover, KOGIES points out that the arbitration clause under Art. and preliminary injunction which was not acted upon by the CA. KOGIES
15 of the Contract as amended was a valid arbitration stipulation under asserted that the Branch Sheriff did not have the technical expertise to
Art. 2044 of the Civil Code and as held by this Court in Chung Fu Industries ascertain whether or not the machineries and equipment conformed to the
(Phils.), Inc.15 specifications in the contract and were properly installed.

In the meantime, PGSMC filed a Motion for Inspection of Things 16 to On November 11, 1998, the Branch Sheriff filed his Sheriffs
determine whether there was indeed alteration of the quantity and Report21 finding that the enumerated machineries and equipment were not
lowering of quality of the machineries and equipment, and whether these fully and properly installed.
were properly installed. KOGIES opposed the motion positing that the
queries and issues raised in the motion for inspection fell under the The Court of Appeals affirmed the trial court and declared
coverage of the arbitration clause in their contract. the arbitration clause against public policy

On September 21, 1998, the trial court issued an Order (1) granting On May 30, 2000, the CA rendered the assailed Decision22 affirming the
PGSMCs motion for inspection; (2) denying KOGIES motion for RTC Orders and dismissing the petition for certiorari filed by KOGIES. The
reconsideration of the July 23, 1998 RTC Order; and (3) denying KOGIES CA found that the RTC did not gravely abuse its discretion in issuing the
motion to dismiss PGSMCs compulsory counterclaims as these assailed July 23, 1998 and September 21, 1998 Orders. Moreover, the CA
counterclaims fell within the requisites of compulsory counterclaims. reasoned that KOGIES contention that the total contract price for USD
1,530,000 was for the whole plant and had not been fully paid was
On October 2, 1998, KOGIES filed an Urgent Motion for contrary to the finding of the RTC that PGSMC fully paid the price of USD
Reconsideration of the September 21, 1998 RTC Order granting
17 1,224,000, which was for all the machineries and equipment. According to
inspection of the plant and denying dismissal of PGSMCs compulsory the CA, this determination by the RTC was a factual finding beyond the
counterclaims. ambit of a petition for certiorari.

Ten days after, on October 12, 1998, without waiting for the resolution of On the issue of the validity of the arbitration clause, the CA agreed with
its October 2, 1998 urgent motion for reconsideration, KOGIES filed before the lower court that an arbitration clause which provided for a final
the Court of Appeals (CA) a petition for certiorari 18 docketed as CA-G.R. SP determination of the legal rights of the parties to the contract by
No. 49249, seeking annulment of the July 23, 1998 and September 21, arbitration was against public policy.
1998 RTC Orders and praying for the issuance of writs of prohibition,
mandamus, and preliminary injunction to enjoin the RTC and PGSMC from On the issue of nonpayment of docket fees and non-attachment of a
inspecting, dismantling, and transferring the machineries and equipment in certificate of non-forum shopping by PGSMC, the CA held that the
the Carmona plant, and to direct the RTC to enforce the specific agreement counterclaims of PGSMC were compulsory ones and payment of docket fees
on arbitration to resolve the dispute. was not required since the Answer with counterclaim was not an initiatory
pleading. For the same reason, the CA said a certificate of non-forum
In the meantime, on October 19, 1998, the RTC denied KOGIES urgent shopping was also not required.
motion for reconsideration and directed the Branch Sheriff to proceed with
the inspection of the machineries and equipment in the plant on October Furthermore, the CA held that the petition for certiorari had been filed
28, 1998.19 prematurely since KOGIES did not wait for the resolution of its urgent
motion for reconsideration of the September 21, 1998 RTC Order which
was the plain, speedy, and adequate remedy available. According to the
 Arbit-Part II |77

CA, the RTC must be given the opportunity to correct any alleged error it Before we delve into the substantive issues, we shall first tackle the
has committed, and that since the assailed orders were interlocutory, these procedural issues.
cannot be the subject of a petition for certiorari.
The rules on the payment of docket fees for counterclaims
Hence, we have this Petition for Review on Certiorari under Rule 45. and cross claims were amended effective August 16, 2004

The Issues KOGIES strongly argues that when PGSMC filed the counterclaims, it
should have paid docket fees and filed a certificate of non-forum shopping,
Petitioner posits that the appellate court committed the following errors: and that its failure to do so was a fatal defect.

a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY We disagree with KOGIES.
AND FACILITIES AS "A QUESTION OF FACT" "BEYOND THE AMBIT OF A
PETITION FOR CERTIORARI" INTENDED ONLY FOR CORRECTION OF As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in
ERRORS OF JURISDICTION OR GRAVE ABUSE OF DISCRETION its Answer with Compulsory Counterclaim dated July 17, 1998 in
AMOUNTING TO LACK OF (SIC) EXCESS OF JURISDICTION, AND accordance with Section 8 of Rule 11, 1997 Revised Rules of Civil
CONCLUDING THAT THE TRIAL COURTS FINDING ON THE SAME Procedure, the rule that was effective at the time the Answer with
QUESTION WAS IMPROPERLY RAISED IN THE PETITION BELOW; Counterclaim was filed. Sec. 8 on existing counterclaim or cross-claim
states, "A compulsory counterclaim or a cross-claim that a defending party
b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE has at the time he files his answer shall be contained therein."
15 OF THE CONTRACT BETWEEN THE PARTIES FOR BEING "CONTRARY TO
PUBLIC POLICY" AND FOR OUSTING THE COURTS OF JURISDICTION; On July 17, 1998, at the time PGSMC filed its Answer incorporating its
counterclaims against KOGIES, it was not liable to pay filing fees for said
c. DECREEING PRIVATE RESPONDENTS COUNTERCLAIMS TO BE ALL counterclaims being compulsory in nature. We stress, however, that
COMPULSORY NOT NECESSITATING PAYMENT OF DOCKET FEES AND effective August 16, 2004 under Sec. 7, Rule 141, as amended by A.M. No.
CERTIFICATION OF NON-FORUM SHOPPING; 04-2-04-SC, docket fees are now required to be paid in compulsory
counterclaim or cross-claims.
d. RULING THAT THE PETITION WAS FILED PREMATURELY WITHOUT
WAITING FOR THE RESOLUTION OF THE MOTION FOR RECONSIDERATION As to the failure to submit a certificate of forum shopping, PGSMCs Answer
OF THE ORDER DATED SEPTEMBER 21, 1998 OR WITHOUT GIVING THE is not an initiatory pleading which requires a certification against forum
TRIAL COURT AN OPPORTUNITY TO CORRECT ITSELF; shopping under Sec. 524 of Rule 7, 1997 Revised Rules of Civil Procedure.
It is a responsive pleading, hence, the courts a quo did not commit
e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND SEPTEMBER 21, reversible error in denying KOGIES motion to dismiss PGSMCs compulsory
1998 NOT TO BE PROPER SUBJECTS OF CERTIORARI AND PROHIBITION counterclaims.
FOR BEING "INTERLOCUTORY IN NATURE;"
Interlocutory orders proper subject of certiorari
f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN HE (SIC)
PETITION AND, INSTEAD, DISMISSING THE SAME FOR ALLEGEDLY Citing Gamboa v. Cruz,25 the CA also pronounced that "certiorari and
"WITHOUT MERIT."23 Prohibition are neither the remedies to question the propriety of an
interlocutory order of the trial court."26 The CA erred on its reliance
The Courts Ruling on Gamboa. Gamboa involved the denial of a motion to acquit in a criminal
case which was not assailable in an action for certiorari since the denial of
The petition is partly meritorious. a motion to quash required the accused to plead and to continue with the
 Arbit-Part II |78

trial, and whatever objections the accused had in his motion to quash can reconsideration and said motion should have been first resolved by the
then be used as part of his defense and subsequently can be raised as court a quo. The reason behind the rule is "to enable the lower court, in the
errors on his appeal if the judgment of the trial court is adverse to him. first instance, to pass upon and correct its mistakes without the
The general rule is that interlocutory orders cannot be challenged by an intervention of the higher court."30
appeal.27 Thus, in Yamaoka v. Pescarich Manufacturing Corporation, we
held: The September 21, 1998 RTC Order directing the branch sheriff to inspect
the plant, equipment, and facilities when he is not competent and
The proper remedy in such cases is an ordinary appeal from an adverse knowledgeable on said matters is evidently flawed and devoid of any legal
judgment on the merits, incorporating in said appeal the grounds for support. Moreover, there is an urgent necessity to resolve the issue on the
assailing the interlocutory orders. Allowing appeals from interlocutory dismantling of the facilities and any further delay would prejudice the
orders would result in the sorry spectacle of a case being subject of a interests of KOGIES. Indeed, there is real and imminent threat of
counterproductive ping-pong to and from the appellate court as often as a irreparable destruction or substantial damage to KOGIES equipment and
trial court is perceived to have made an error in any of its interlocutory machineries. We find the resort to certiorari based on the gravely abusive
rulings. However, where the assailed interlocutory order was issued with orders of the trial court sans the ruling on the October 2, 1998 motion for
grave abuse of discretion or patently erroneous and the remedy of appeal reconsideration to be proper.
would not afford adequate and expeditious relief, the Court allows certiorari
as a mode of redress.28 The Core Issue: Article 15 of the Contract

Also, appeals from interlocutory orders would open the floodgates to We now go to the core issue of the validity of Art. 15 of the Contract, the
endless occasions for dilatory motions. Thus, where the interlocutory order arbitration clause. It provides:
was issued without or in excess of jurisdiction or with grave abuse of
discretion, the remedy is certiorari.29 Article 15. Arbitration.All disputes, controversies, or differences which
may arise between the parties, out of or in relation to or in connection with
The alleged grave abuse of discretion of the respondent court equivalent to this Contract or for the breach thereof, shall finally be settled by arbitration
lack of jurisdiction in the issuance of the two assailed orders coupled with in Seoul, Korea in accordance with the Commercial Arbitration Rules of the
the fact that there is no plain, speedy, and adequate remedy in the Korean Commercial Arbitration Board. The award rendered by the
ordinary course of law amply provides the basis for allowing the resort to a arbitration(s) shall be final and binding upon both parties
petition for certiorari under Rule 65. concerned. (Emphasis supplied.)

Prematurity of the petition before the CA Petitioner claims the RTC and the CA erred in ruling that the arbitration
clause is null and void.
Neither do we think that KOGIES was guilty of forum shopping in filing the
petition for certiorari. Note that KOGIES motion for reconsideration of the Petitioner is correct.
July 23, 1998 RTC Order which denied the issuance of the injunctive writ
had already been denied. Thus, KOGIES only remedy was to assail the Established in this jurisdiction is the rule that the law of the place where
RTCs interlocutory order via a petition for certiorari under Rule 65. the contract is made governs. Lex loci contractus. The contract in this case
was perfected here in the Philippines. Therefore, our laws ought to govern.
While the October 2, 1998 motion for reconsideration of KOGIES of the Nonetheless, Art. 2044 of the Civil Code sanctions the validity of mutually
September 21, 1998 RTC Order relating to the inspection of things, and the agreed arbitral clause or the finality and binding effect of an arbitral award.
allowance of the compulsory counterclaims has not yet been resolved, the Art. 2044 provides, "Any stipulation that the arbitrators award or
circumstances in this case would allow an exception to the rule that before decision shall be final, is valid, without prejudice to Articles 2038, 2039
certiorari may be availed of, the petitioner must have filed a motion for and 2040." (Emphasis supplied.)
 Arbit-Part II |79

Arts. 2038,31 2039,32 and 204033 abovecited refer to instances where a agreement calling for arbitration between the parties would be a step
compromise or an arbitral award, as applied to Art. 2044 pursuant to Art. backward.
2043,34 may be voided, rescinded, or annulled, but these would not
denigrate the finality of the arbitral award. Consistent with the above-mentioned policy of encouraging alternative
dispute resolution methods, courts should liberally construe arbitration
The arbitration clause was mutually and voluntarily agreed upon by the clauses. Provided such clause is susceptible of an interpretation that covers
parties. It has not been shown to be contrary to any law, or against the asserted dispute, an order to arbitrate should be granted. Any doubt
morals, good customs, public order, or public policy. There has been no should be resolved in favor of arbitration.40
showing that the parties have not dealt with each other on equal footing.
We find no reason why the arbitration clause should not be respected and Having said that the instant arbitration clause is not against public policy,
complied with by both parties. In Gonzales v. Climax Mining Ltd.,35 we held we come to the question on what governs an arbitration clause specifying
that submission to arbitration is a contract and that a clause in a contract that in case of any dispute arising from the contract, an arbitral panel will
providing that all matters in dispute between the parties shall be referred be constituted in a foreign country and the arbitration rules of the foreign
to arbitration is a contract.36 Again in Del Monte Corporation-USA v. Court country would govern and its award shall be final and binding.
of Appeals, we likewise ruled that "[t]he provision to submit to arbitration
any dispute arising therefrom and the relationship of the parties is part of RA 9285 incorporated the UNCITRAL Model law
that contract and is itself a contract."37 to which we are a signatory

Arbitration clause not contrary to public policy For domestic arbitration proceedings, we have particular agencies to
arbitrate disputes arising from contractual relations. In case a foreign
The arbitration clause which stipulates that the arbitration must be done in arbitral body is chosen by the parties, the arbitration rules of our domestic
Seoul, Korea in accordance with the Commercial Arbitration Rules of the arbitration bodies would not be applied. As signatory to the Arbitration
KCAB, and that the arbitral award is final and binding, is not contrary to Rules of the UNCITRAL Model Law on International Commercial
public policy. This Court has sanctioned the validity of arbitration clauses in Arbitration41 of the United Nations Commission on International Trade Law
a catena of cases. In the 1957 case of Eastboard Navigation Ltd. v. Juan (UNCITRAL) in the New York Convention on June 21, 1985, the Philippines
Ysmael and Co., Inc.,38 this Court had occasion to rule that an arbitration committed itself to be bound by the Model Law. We have even incorporated
clause to resolve differences and breaches of mutually agreed contractual the Model Law in Republic Act No. (RA) 9285, otherwise known as the
terms is valid. In BF Corporation v. Court of Appeals, we held that "[i]n this Alternative Dispute Resolution Act of 2004 entitled An Act to
jurisdiction, arbitration has been held valid and constitutional. Even before Institutionalize the Use of an Alternative Dispute Resolution System in the
the approval on June 19, 1953 of Republic Act No. 876, this Court has Philippines and to Establish the Office for Alternative Dispute Resolution,
countenanced the settlement of disputes through arbitration. Republic Act and for Other Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of
No. 876 was adopted to supplement the New Civil Codes provisions on Chapter 4 of the Model Law are the pertinent provisions:
arbitration."39 And in LM Power Engineering Corporation v. Capitol
Industrial Construction Groups, Inc., we declared that: CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION

Being an inexpensive, speedy and amicable method of settling SEC. 19. Adoption of the Model Law on International Commercial
disputes, arbitrationalong with mediation, conciliation and negotiation Arbitration.International commercial arbitration shall be governed by the
is encouraged by the Supreme Court. Aside from unclogging judicial Model Law on International Commercial Arbitration (the "Model Law")
dockets, arbitration also hastens the resolution of disputes, especially of adopted by the United Nations Commission on International Trade Law on
the commercial kind. It is thus regarded as the "wave of the future" in June 21, 1985 (United Nations Document A/40/17) and recommended for
international civil and commercial disputes. Brushing aside a contractual enactment by the General Assembly in Resolution No. 40/72 approved on
December 11, 1985, copy of which is hereto attached as Appendix "A".
 Arbit-Part II |80

SEC. 20. Interpretation of Model Law.In interpreting the Model Law, UNCITRAL Model Law may refuse recognition or enforcement on the
regard shall be had to its international origin and to the need for uniformity grounds provided for. RA 9285 incorporated these provisos to Secs. 42, 43,
in its interpretation and resort may be made to the travaux and 44 relative to Secs. 47 and 48, thus:
preparatoriesand the report of the Secretary General of the United Nations
Commission on International Trade Law dated March 25, 1985 entitled, SEC. 42. Application of the New York Convention.The New York
"International Commercial Arbitration: Analytical Commentary on Draft Convention shall govern the recognition and enforcement of arbitral awards
Trade identified by reference number A/CN. 9/264." covered by said Convention.

While RA 9285 was passed only in 2004, it nonetheless applies in the The recognition and enforcement of such arbitral awards shall be filed with
instant case since it is a procedural law which has a retroactive effect. the Regional Trial Court in accordance with the rules of procedure to be
Likewise, KOGIES filed its application for arbitration before the KCAB on promulgated by the Supreme Court. Said procedural rules shall provide
July 1, 1998 and it is still pending because no arbitral award has yet been that the party relying on the award or applying for its enforcement shall file
rendered. Thus, RA 9285 is applicable to the instant case. Well-settled is with the court the original or authenticated copy of the award and the
the rule that procedural laws are construed to be applicable to actions arbitration agreement. If the award or agreement is not made in any of the
pending and undetermined at the time of their passage, and are deemed official languages, the party shall supply a duly certified translation thereof
retroactive in that sense and to that extent. As a general rule, the into any of such languages.
retroactive application of procedural laws does not violate any personal
rights because no vested right has yet attached nor arisen from them.42 The applicant shall establish that the country in which foreign arbitration
award was made in party to the New York Convention.
Among the pertinent features of RA 9285 applying and incorporating the
UNCITRAL Model Law are the following: xxxx

(1) The RTC must refer to arbitration in proper cases SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not
Covered by the New York Convention.The recognition and enforcement
Under Sec. 24, the RTC does not have jurisdiction over disputes that are of foreign arbitral awards not covered by the New York Convention shall be
properly the subject of arbitration pursuant to an arbitration clause, and done in accordance with procedural rules to be promulgated by the
mandates the referral to arbitration in such cases, thus: Supreme Court. The Court may, on grounds of comity and reciprocity,
recognize and enforce a non-convention award as a convention award.
SEC. 24. Referral to Arbitration.A court before which an action is brought
in a matter which is the subject matter of an arbitration agreement shall, if SEC. 44. Foreign Arbitral Award Not Foreign Judgment.A foreign arbitral
at least one party so requests not later than the pre-trial conference, or award when confirmed by a court of a foreign country, shall be recognized
upon the request of both parties thereafter, refer the parties to arbitration and enforced as a foreign arbitral award and not as a judgment of a foreign
unless it finds that the arbitration agreement is null and void, inoperative court.
or incapable of being performed.
A foreign arbitral award, when confirmed by the Regional Trial Court, shall
(2) Foreign arbitral awards must be confirmed by the RTC be enforced in the same manner as final and executory decisions of courts
of law of the Philippines
Foreign arbitral awards while mutually stipulated by the parties in the
arbitration clause to be final and binding are not immediately enforceable xxxx
or cannot be implemented immediately. Sec. 3543 of the UNCITRAL Model
Law stipulates the requirement for the arbitral award to be recognized by a SEC. 47. Venue and Jurisdiction.Proceedings for recognition and
competent court for enforcement, which court under Sec. 36 of the enforcement of an arbitration agreement or for vacations, setting aside,
 Arbit-Part II |81

correction or modification of an arbitral award, and any application with a promulgated by the Supreme Court. Said procedural rules shall provide
court for arbitration assistance and supervision shall be deemed as special that the party relying on the award or applying for its enforcement shall file
proceedings and shall be filed with the Regional Trial Court (i) where with the court the original or authenticated copy of the award and the
arbitration proceedings are conducted; (ii) where the asset to be attached arbitration agreement. If the award or agreement is not made in any of the
or levied upon, or the act to be enjoined is located; (iii) where any of the official languages, the party shall supply a duly certified translation thereof
parties to the dispute resides or has his place of business; or (iv) in the into any of such languages.
National Judicial Capital Region, at the option of the applicant.
The applicant shall establish that the country in which foreign arbitration
SEC. 48. Notice of Proceeding to Parties.In a special proceeding for award was made is party to the New York Convention.
recognition and enforcement of an arbitral award, the Court shall send
notice to the parties at their address of record in the arbitration, or if any If the application for rejection or suspension of enforcement of an award
part cannot be served notice at such address, at such partys last known has been made, the Regional Trial Court may, if it considers it proper,
address. The notice shall be sent al least fifteen (15) days before the date vacate its decision and may also, on the application of the party claiming
set for the initial hearing of the application. recognition or enforcement of the award, order the party to provide
appropriate security.
It is now clear that foreign arbitral awards when confirmed by the RTC are
deemed not as a judgment of a foreign court but as a foreign arbitral xxxx
award, and when confirmed, are enforced as final and executory decisions
of our courts of law. SEC. 45. Rejection of a Foreign Arbitral Award.A party to a foreign
arbitration proceeding may oppose an application for recognition and
Thus, it can be gleaned that the concept of a final and binding arbitral enforcement of the arbitral award in accordance with the procedures and
award is similar to judgments or awards given by some of our quasi- rules to be promulgated by the Supreme Court only on those grounds
judicial bodies, like the National Labor Relations Commission and Mines enumerated under Article V of the New York Convention. Any other ground
Adjudication Board, whose final judgments are stipulated to be final and raised shall be disregarded by the Regional Trial Court.
binding, but not immediately executory in the sense that they may still be
judicially reviewed, upon the instance of any party. Therefore, the final Thus, while the RTC does not have jurisdiction over disputes governed by
foreign arbitral awards are similarly situated in that they need first to be arbitration mutually agreed upon by the parties, still the foreign arbitral
confirmed by the RTC. award is subject to judicial review by the RTC which can set aside, reject,
or vacate it. In this sense, what this Court held in Chung Fu Industries
(3) The RTC has jurisdiction to review foreign arbitral awards (Phils.), Inc. relied upon by KOGIES is applicable insofar as the foreign
arbitral awards, while final and binding, do not oust courts of jurisdiction
Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC since these arbitral awards are not absolute and without exceptions as they
with specific authority and jurisdiction to set aside, reject, or vacate a are still judicially reviewable. Chapter 7 of RA 9285 has made it clear that
foreign arbitral award on grounds provided under Art. 34(2) of the all arbitral awards, whether domestic or foreign, are subject to judicial
UNCITRAL Model Law. Secs. 42 and 45 provide: review on specific grounds provided for.

SEC. 42. Application of the New York Convention.The New York (4) Grounds for judicial review different in domestic and foreign
Convention shall govern the recognition and enforcement of arbitral awards arbitral awards
covered by said Convention.
The differences between a final arbitral award from an international or
The recognition and enforcement of such arbitral awards shall be filed with foreign arbitral tribunal and an award given by a local arbitral tribunal are
the Regional Trial Court in accordance with the rules of procedure to be
 Arbit-Part II |82

the specific grounds or conditions that vest jurisdiction over our courts to rendered by KCAB must be confirmed here by the RTC before it can be
review the awards. enforced.

For foreign or international arbitral awards which must first be confirmed With our disquisition above, petitioner is correct in its contention that an
by the RTC, the grounds for setting aside, rejecting or vacating the award arbitration clause, stipulating that the arbitral award is final and binding,
by the RTC are provided under Art. 34(2) of the UNCITRAL Model Law. does not oust our courts of jurisdiction as the international arbitral award,
the award of which is not absolute and without exceptions, is still judicially
For final domestic arbitral awards, which also need confirmation by the RTC reviewable under certain conditions provided for by the UNCITRAL Model
pursuant to Sec. 23 of RA 87644 and shall be recognized as final and Law on ICA as applied and incorporated in RA 9285.
executory decisions of the RTC,45 they may only be assailed before the RTC
and vacated on the grounds provided under Sec. 25 of RA 876.46 Finally, it must be noted that there is nothing in the subject Contract which
provides that the parties may dispense with the arbitration clause.
(5) RTC decision of assailed foreign arbitral award appealable
Unilateral rescission improper and illegal
Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of
an aggrieved party in cases where the RTC sets aside, rejects, vacates, Having ruled that the arbitration clause of the subject contract is valid and
modifies, or corrects an arbitral award, thus: binding on the parties, and not contrary to public policy; consequently,
being bound to the contract of arbitration, a party may not unilaterally
SEC. 46. Appeal from Court Decision or Arbitral Awards.A decision of the rescind or terminate the contract for whatever cause without first resorting
Regional Trial Court confirming, vacating, setting aside, modifying or to arbitration.
correcting an arbitral award may be appealed to the Court of Appeals in
accordance with the rules and procedure to be promulgated by the What this Court held in University of the Philippines v. De Los
Supreme Court. Angeles47 and reiterated in succeeding cases,48 that the act of treating a
contract as rescinded on account of infractions by the other contracting
The losing party who appeals from the judgment of the court confirming an party is valid albeit provisional as it can be judicially assailed, is not
arbitral award shall be required by the appellate court to post a applicable to the instant case on account of a valid stipulation on
counterbond executed in favor of the prevailing party equal to the amount arbitration. Where an arbitration clause in a contract is availing, neither of
of the award in accordance with the rules to be promulgated by the the parties can unilaterally treat the contract as rescinded since whatever
Supreme Court. infractions or breaches by a party or differences arising from the contract
must be brought first and resolved by arbitration, and not through an
Thereafter, the CA decision may further be appealed or reviewed before extrajudicial rescission or judicial action.
this Court through a petition for review under Rule 45 of the Rules of
Court. The issues arising from the contract between PGSMC and KOGIES on
whether the equipment and machineries delivered and installed were
PGSMC has remedies to protect its interests properly installed and operational in the plant in Carmona, Cavite; the
ownership of equipment and payment of the contract price; and whether
Thus, based on the foregoing features of RA 9285, PGSMC must submit to there was substantial compliance by KOGIES in the production of the
the foreign arbitration as it bound itself through the subject contract. While samples, given the alleged fact that PGSMC could not supply the raw
it may have misgivings on the foreign arbitration done in Korea by the materials required to produce the sample LPG cylinders, are matters proper
KCAB, it has available remedies under RA 9285. Its interests are duly for arbitration. Indeed, we note that on July 1, 1998, KOGIES instituted an
protected by the law which requires that the arbitral award that may be Application for Arbitration before the KCAB in Seoul, Korea pursuant to Art.
 Arbit-Part II |83

15 of the Contract as amended. Thus, it is incumbent upon PGSMC to abide Firstly, while the issue of the proper installation of the equipment and
by its commitment to arbitrate. machineries might well be under the primary jurisdiction of the arbitral
body to decide, yet the RTC under Sec. 28 of RA 9285 has jurisdiction to
Corollarily, the trial court gravely abused its discretion in granting PGSMCs hear and grant interim measures to protect vested rights of the parties.
Motion for Inspection of Things on September 21, 1998, as the subject Sec. 28 pertinently provides:
matter of the motion is under the primary jurisdiction of the mutually
agreed arbitral body, the KCAB in Korea. SEC. 28. Grant of interim Measure of Protection.(a) It is not
incompatible with an arbitration agreement for a party to request,
In addition, whatever findings and conclusions made by the RTC Branch before constitution of the tribunal, from a Court to grant such
Sheriff from the inspection made on October 28, 1998, as ordered by the measure. After constitution of the arbitral tribunal and during arbitral
trial court on October 19, 1998, is of no worth as said Sheriff is not proceedings, a request for an interim measure of protection, or
technically competent to ascertain the actual status of the equipment and modification thereof, may be made with the arbitral or to the extent that
machineries as installed in the plant. the arbitral tribunal has no power to act or is unable to act
effectivity, the request may be made with the Court. The arbitral
For these reasons, the September 21, 1998 and October 19, 1998 RTC tribunal is deemed constituted when the sole arbitrator or the third
Orders pertaining to the grant of the inspection of the equipment and arbitrator, who has been nominated, has accepted the nomination and
machineries have to be recalled and nullified. written communication of said nomination and acceptance has been
received by the party making the request.
Issue on ownership of plant proper for arbitration
(b) The following rules on interim or provisional relief shall be observed:
Petitioner assails the CA ruling that the issue petitioner raised on whether
the total contract price of USD 1,530,000 was for the whole plant and its Any party may request that provisional relief be granted against the
installation is beyond the ambit of a Petition for Certiorari. adverse party.

Petitioners position is untenable. Such relief may be granted:

It is settled that questions of fact cannot be raised in an original action for (i) to prevent irreparable loss or injury;
certiorari.49 Whether or not there was full payment for the machineries and
equipment and installation is indeed a factual issue prohibited by Rule 65. (ii) to provide security for the performance of any obligation;

However, what appears to constitute a grave abuse of discretion is the (iii) to produce or preserve any evidence; or
order of the RTC in resolving the issue on the ownership of the plant when
it is the arbitral body (KCAB) and not the RTC which has jurisdiction and (iv) to compel any other appropriate act or omission.
authority over the said issue. The RTCs determination of such factual issue
constitutes grave abuse of discretion and must be reversed and set aside. (c) The order granting provisional relief may be conditioned upon the
provision of security or any act or omission specified in the order.
RTC has interim jurisdiction to protect the rights of the parties
(d) Interim or provisional relief is requested by written application
Anent the July 23, 1998 Order denying the issuance of the injunctive writ transmitted by reasonable means to the Court or arbitral tribunal as the
paving the way for PGSMC to dismantle and transfer the equipment and case may be and the party against whom the relief is sought, describing in
machineries, we find it to be in order considering the factual milieu of the appropriate detail the precise relief, the party against whom the relief is
instant case.
 Arbit-Part II |84

requested, the grounds for the relief, and the evidence supporting the A court shall have the same power of issuing an interim measure in relation
request. to arbitration proceedings, irrespective of whether their place is in the
territory of this State, as it has in relation to proceedings in courts. The
(e) The order shall be binding upon the parties. court shall exercise such power in accordance with its own procedures in
consideration of the specific features of international arbitration.
(f) Either party may apply with the Court for assistance in implementing or
enforcing an interim measure ordered by an arbitral tribunal. In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro
Corporation, we were explicit that even "the pendency of an arbitral
(g) A party who does not comply with the order shall be liable for all proceeding does not foreclose resort to the courts for provisional reliefs."
damages resulting from noncompliance, including all expenses, and We explicated this way:
reasonable attorney's fees, paid in obtaining the orders judicial
enforcement. (Emphasis ours.) As a fundamental point, the pendency of arbitral proceedings does not
foreclose resort to the courts for provisional reliefs. The Rules of the ICC,
Art. 17(2) of the UNCITRAL Model Law on ICA defines an "interim which governs the parties arbitral dispute, allows the application of a party
measure" of protection as: to a judicial authority for interim or conservatory measures. Likewise,
Section 14 of Republic Act (R.A.) No. 876 (The Arbitration Law) recognizes
Article 17. Power of arbitral tribunal to order interim measures the rights of any party to petition the court to take measures to safeguard
and/or conserve any matter which is the subject of the dispute in
xxx xxx xxx arbitration. In addition, R.A. 9285, otherwise known as the "Alternative
Dispute Resolution Act of 2004," allows the filing of provisional or interim
(2) An interim measure is any temporary measure, whether in the form measures with the regular courts whenever the arbitral tribunal has no
of an award or in another form, by which, at any time prior to the issuance power to act or to act effectively.50
of the award by which the dispute is finally decided, the arbitral tribunal
orders a party to: It is thus beyond cavil that the RTC has authority and jurisdiction to grant
interim measures of protection.
(a) Maintain or restore the status quo pending determination of the
dispute; Secondly, considering that the equipment and machineries are in the
possession of PGSMC, it has the right to protect and preserve the
(b) Take action that would prevent, or refrain from taking action that is equipment and machineries in the best way it can. Considering that the
likely to cause, current or imminent harm or prejudice to the arbitral LPG plant was non-operational, PGSMC has the right to dismantle and
process itself; transfer the equipment and machineries either for their protection and
preservation or for the better way to make good use of them which is
(c) Provide a means of preserving assets out of which a subsequent award ineluctably within the management discretion of PGSMC.
may be satisfied; or
Thirdly, and of greater import is the reason that maintaining the equipment
(d) Preserve evidence that may be relevant and material to the resolution and machineries in Worths property is not to the best interest of PGSMC
of the dispute. due to the prohibitive rent while the LPG plant as set-up is not operational.
PGSMC was losing PhP322,560 as monthly rentals or PhP3.87M for 1998
Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and alone without considering the 10% annual rent increment in maintaining
jurisdiction to issue interim measures: the plant.

Article 17 J. Court-ordered interim measures

 Arbit-Part II |85

Fourthly, and corollarily, while the KCAB can rule on motions or petitions No pronouncement as to costs.
relating to the preservation or transfer of the equipment and machineries
as an interim measure, yet on hindsight, the July 23, 1998 Order of the SO ORDERED.
RTC allowing the transfer of the equipment and machineries given the non-
recognition by the lower courts of the arbitral clause, has accorded an
interim measure of protection to PGSMC which would otherwise been
irreparably damaged.

Fifth, KOGIES is not unjustly prejudiced as it has already been

paid a substantial amount based on the contract. Moreover, KOGIES is
amply protected by the arbitral action it has instituted before the KCAB,
the award of which can be enforced in our jurisdiction through the RTC.
Besides, by our decision, PGSMC is compelled to submit to arbitration
pursuant to the valid arbitration clause of its contract with KOGIES.

PGSMC to preserve the subject equipment and machineries

Finally, while PGSMC may have been granted the right to dismantle and
transfer the subject equipment and machineries, it does not have the right
to convey or dispose of the same considering the pending arbitral
proceedings to settle the differences of the parties. PGSMC therefore must
preserve and maintain the subject equipment and machineries with the
diligence of a good father of a family51 until final resolution of the arbitral
proceedings and enforcement of the award, if any.

WHEREFORE, this petition is PARTLY GRANTED, in that:

(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249

is REVERSED and SET ASIDE;

(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil
Case No. 98-117 are REVERSED 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 not done so, and ORDERED to preserve and
maintain them until the finality of whatever arbitral award is given in the
arbitration proceedings.
 Arbit-Part II |86

12. G.R. No. 185572 February 7, 2012 not exceeding USD 400,000,000 in favor of the DOF, payable in 20 years,
with a 5-year grace period, and at the rate of 3% per annum.5
CHINA NATIONAL MACHINERY & EQUIPMENT CORP.
(GROUP), Petitioner, On 1 October 2003, the Chinese Ambassador to the Philippines, Wang
vs. Chungui (Amb. Wang), wrote a letter to DOF Secretary Jose Isidro
HON. CESAR D. SANTAMARIA, in his official capacity as Presiding Camacho (Sec. Camacho) informing him of CNMEGs designation as the
Judge of Branch 145, Regional Trial Court of Makati City, HERMINIO Prime Contractor for the Northrail Project.6
HARRY L. ROQUE, JR., JOEL R. BUTUYAN, ROGER R. RAYEL, ROMEL
R. BAGARES, CHRISTOPHER FRANCISCO C. BOLASTIG, LEAGUE OF On 30 December 2003, Northrail and CNMEG executed a Contract
URBAN POOR FOR ACTION (LUPA), KILUSAN NG MARALITA SA Agreement for the construction of Section I, Phase I of the North Luzon
MEYCAUAYAN (KMM-LUPA CHAPTER), DANILO M. CALDERON, Railway System from Caloocan to Malolos on a turnkey basis (the Contract
VICENTE C. ALBAN, MERLYN M. VAAL, LOLITA S. QUINONES, Agreement).7 The contract price for the Northrail Project was pegged at
RICARDO D. LANOZO, JR., CONCHITA G. GOZO, MA. TERESA D. USD 421,050,000.8
ZEPEDA, JOSEFINA A. LANOZO, and SERGIO C. LEGASPI, JR.,
KALIPUNAN NG DAMAYANG MAHIHIRAP (KADAMAY), EDY On 26 February 2004, the Philippine government and EXIM Bank entered
CLERIGO, RAMMIL DINGAL, NELSON B. TERRADO, CARMEN into a counterpart financial agreement Buyer Credit Loan Agreement No.
DEUNIDA, and EDUARDO LEGSON, Respondents. BLA 04055 (the Loan Agreement).9 In the Loan Agreement, EXIM Bank
agreed to extend Preferential Buyers Credit in the amount of USD
DECISION 400,000,000 in favor of the Philippine government in order to finance the
construction of Phase I of the Northrail Project.10
SERENO, J.:
On 13 February 2006, respondents filed a Complaint for Annulment of
This is a Petition for Review on Certiorari with Prayer for the Issuance of a Contract and Injunction with Urgent Motion for Summary Hearing to
Temporary Restraining Order (TRO) and/or Preliminary Injunction assailing Determine the Existence of Facts and Circumstances Justifying the
the 30 September 2008 Decision and 5 December 2008 Resolution of the Issuance of Writs of Preliminary Prohibitory and Mandatory Injunction
Court of Appeals (CA) in CAG.R. SP No. 103351.1 and/or TRO against CNMEG, the Office of the Executive Secretary, the DOF,
the Department of Budget and Management, the National Economic
On 14 September 2002, petitioner China National Machinery & Equipment Development Authority and Northrail.11 The case was docketed as Civil
Corp. (Group) (CNMEG), represented by its chairperson, Ren Hongbin, Case No. 06-203 before the Regional Trial Court, National Capital Judicial
entered into a Memorandum of Understanding with the North Luzon Region, Makati City, Branch 145 (RTC Br. 145). In the Complaint,
Railways Corporation (Northrail), represented by its president, Jose L. respondents alleged that the Contract Agreement and the Loan Agreement
Cortes, Jr. for the conduct of a feasibility study on a possible railway line were void for being contrary to (a) the Constitution; (b) Republic Act No.
from Manila to San Fernando, La Union (the Northrail Project).2 9184 (R.A. No. 9184), otherwise known as the Government Procurement
Reform Act; (c) Presidential Decree No. 1445, otherwise known as the
On 30 August 2003, the Export Import Bank of China (EXIM Bank) and the Government Auditing Code; and (d) Executive Order No. 292, otherwise
Department of Finance of the Philippines (DOF) entered into a known as the Administrative Code.12
Memorandum of Understanding (Aug 30 MOU), wherein China agreed to
extend Preferential Buyers Credit to the Philippine government to finance RTC Br. 145 issued an Order dated 17 March 2006 setting the case for
the Northrail Project.3 The Chinese government designated EXIM Bank as hearing on the issuance of injunctive reliefs.13 On 29 March 2006, CNMEG
the lender, while the Philippine government named the DOF as the filed an Urgent Motion for Reconsideration of this Order.14 Before RTC Br.
borrower.4 Under the Aug 30 MOU, EXIM Bank agreed to extend an amount 145 could rule thereon, CNMEG filed a Motion to Dismiss dated 12 April
2006, arguing that the trial court did not have jurisdiction over (a) its
 Arbit-Part II |87

person, as it was an agent of the Chinese government, making it immune TRO and, later on, a writ of preliminary injunction to restrain public
from suit, and (b) the subject matter, as the Northrail Project was a respondent from proceeding with the disposition of Civil Case No. 06-203.
product of an executive agreement.15
The crux of this case boils down to two main issues, namely:
On 15 May 2007, RTC Br. 145 issued an Omnibus Order denying CNMEGs
Motion to Dismiss and setting the case for summary hearing to determine 1. Whether CNMEG is entitled to immunity, precluding it from being sued
whether the injunctive reliefs prayed for should be issued.16 CNMEG then before a local court.
filed a Motion for Reconsideration,17 which was denied by the trial court in
an Order dated 10 March 2008.18 Thus, CNMEG filed before the CA a 2. Whether the Contract Agreement is an executive agreement, such that it
Petition for Certiorari with Prayer for the Issuance of TRO and/or Writ of cannot be questioned by or before a local court.
Preliminary Injunction dated 4 April 2008.19
First issue: Whether CNMEG is entitled to immunity
In the assailed Decision dated 30 September 2008, the appellate court
dismissed the Petition for Certiorari.20Subsequently, CNMEG filed a Motion This Court explained the doctrine of sovereign immunity in Holy See v.
for Reconsideration,21 which was denied by the CA in a Resolution dated 5 Rosario,24 to wit:
December 2008.22 Thus, CNMEG filed the instant Petition for Review on
Certiorari dated 21 January 2009, raising the following issues: 23 There are two conflicting concepts of sovereign immunity, each widely held
and firmly established. According to the classical or absolute theory, a
Whether or not petitioner CNMEG is an agent of the sovereign Peoples sovereign cannot, without its consent, be made a respondent in the
Republic of China. courts of another sovereign. According to the newer or restrictive
theory, the immunity of the sovereign is recognized only with
Whether or not the Northrail contracts are products of an executive regard to public acts or acts jure imperii of a state, but not with
agreement between two sovereign states. regard to private acts or acts jure gestionis. (Emphasis supplied;
citations omitted.)
Whether or not the certification from the Department of Foreign Affairs is
necessary under the foregoing circumstances. xxx xxx xxx

Whether or not the act being undertaken by petitioner CNMEG is an act The restrictive theory came about because of the entry of sovereign states
jure imperii. into purely commercial activities remotely connected with the discharge of
governmental functions. This is particularly true with respect to the
Whether or not the Court of Appeals failed to avoid a procedural limbo in Communist states which took control of nationalized business activities and
the lower court. international trading.

Whether or not the Northrail Project is subject to competitive public In JUSMAG v. National Labor Relations Commission,25 this Court affirmed
bidding. the Philippines adherence to the restrictive theory as follows:

Whether or not the Court of Appeals ignored the ruling of this Honorable The doctrine of state immunity from suit has undergone further
Court in the Neri case. metamorphosis. The view evolved that the existence of a contract does
not, per se, mean that sovereign states may, at all times, be sued in local
CNMEG prays for the dismissal of Civil Case No. 06-203 before RTC Br. 145 courts. The complexity of relationships between sovereign states, brought
for lack of jurisdiction. It likewise requests this Court for the issuance of a about by their increasing commercial activities, mothered a
more restrictive application of the doctrine.
 Arbit-Part II |88

xxx xxx xxx NOW, THEREFORE, the parties agree to sign this Contract for the
Implementation of the Project.
As it stands now, the application of the doctrine of immunity from suit has
been restricted to sovereign or governmental activities (jure imperii). The The above-cited portion of the Contract Agreement, however, does not on
mantle of state immunity cannot be extended to commercial, private and its own reveal whether the construction of the Luzon railways was meant to
proprietary acts (jure gestionis).26 (Emphasis supplied.) be a proprietary endeavor. In order to fully understand the intention
behind and the purpose of the entire undertaking, the Contract Agreement
Since the Philippines adheres to the restrictive theory, it is crucial to must not be read in isolation. Instead, it must be construed in conjunction
ascertain the legal nature of the act involved whether the entity claiming with three other documents executed in relation to the Northrail Project,
immunity performs governmental, as opposed to proprietary, functions. As namely: (a) the Memorandum of Understanding dated 14 September 2002
held in United States of America v. Ruiz 27 between Northrail and CNMEG;30 (b) the letter of Amb. Wang dated 1
October 2003 addressed to Sec. Camacho;31 and (c) the Loan Agreement.32
The restrictive application of State immunity is proper only when the
proceedings arise out of commercial transactions of the foreign sovereign, 1. Memorandum of Understanding dated 14 September 2002
its commercial activities or economic affairs. Stated differently, a State
may be said to have descended to the level of an individual and can thus The Memorandum of Understanding dated 14 September 2002 shows that
be deemed to have tacitly given its consent to be sued only when it enters CNMEG sought the construction of the Luzon Railways as a proprietary
into business contracts. It does not apply where the contract relates to the venture. The relevant parts thereof read:
exercise of its sovereign functions.28
WHEREAS, CNMEG has the financial capability, professional competence
A. CNMEG is engaged in a proprietary activity. and technical expertise to assess the state of the [Main Line North (MLN)]
and recommend implementation plans as well as undertake its
A threshold question that must be answered is whether CNMEG performs rehabilitation and/or modernization;
governmental or proprietary functions. A thorough examination of the basic
facts of the case would show that CNMEG is engaged in a proprietary WHEREAS, CNMEG has expressed interest in the rehabilitation and/or
activity. modernization of the MLN from Metro Manila to San Fernando, La Union
passing through the provinces of Bulacan, Pampanga, Tarlac, Pangasinan
The parties executed the Contract Agreement for the purpose of and La Union (the Project);
constructing the Luzon Railways, viz:29
WHEREAS, the NORTHRAIL CORP. welcomes CNMEGs proposal to
WHEREAS the Employer (Northrail) desired to construct the railways form undertake a Feasibility Study (the "Study") at no cost to NORTHRAIL
Caloocan to Malolos, section I, Phase I of Philippine North Luzon Railways CORP.;
Project (hereinafter referred to as THE PROJECT);
WHEREAS, the NORTHRAIL CORP. also welcomes CNMEGs interest in
AND WHEREAS the Contractor has offered to provide the Project on undertaking the Project with Suppliers Credit and intends to employ
Turnkey basis, including design, manufacturing, supply, construction, CNMEG as the Contractor for the Project subject to compliance with
commissioning, and training of the Employers personnel; Philippine and Chinese laws, rules and regulations for the selection of a
contractor;
AND WHEREAS the Loan Agreement of the Preferential Buyers Credit
between Export-Import Bank of China and Department of Finance of WHEREAS, the NORTHRAIL CORP. considers CNMEGs proposal
Republic of the Philippines; advantageous to the Government of the Republic of the Philippines and has
therefore agreed to assist CNMEG in the conduct of the aforesaid Study;
 Arbit-Part II |89

xxx xxx xxx Corporation in the approvals (sic) process required by the Republic of the
Philippines.34 (Emphasis supplied.)
II. APPROVAL PROCESS
Thus, the desire of CNMEG to secure the Northrail Project was in the
2.1 As soon as possible after completion and presentation of the Study in ordinary or regular course of its business as a global construction company.
accordance with Paragraphs 1.3 and 1.4 above and in compliance with The implementation of the Northrail Project was intended to generate profit
necessary governmental laws, rules, regulations and procedures required for CNMEG, with the Contract Agreement placing a contract price of USD
from both parties, the parties shall commence the preparation and 421,050,000 for the venture.35 The use of the term "state corporation" to
negotiation of the terms and conditions of the Contract (the "Contract") to refer to CNMEG was only descriptive of its nature as a government-owned
be entered into between them on the implementation of the Project. The and/or -controlled corporation, and its assignment as the Primary
parties shall use their best endeavors to formulate and finalize a Contract Contractor did not imply that it was acting on behalf of China in the
with a view to signing the Contract within one hundred twenty (120) days performance of the latters sovereign functions. To imply otherwise would
from CNMEGs presentation of the Study.33 (Emphasis supplied) result in an absurd situation, in which all Chinese corporations owned by
the state would be automatically considered as performing governmental
Clearly, it was CNMEG that initiated the undertaking, and not the Chinese activities, even if they are clearly engaged in commercial or proprietary
government. The Feasibility Study was conducted not because of any pursuits.
diplomatic gratuity from or exercise of sovereign functions by the Chinese
government, but was plainly a business strategy employed by CNMEG with 3. The Loan Agreement
a view to securing this commercial enterprise.
CNMEG claims immunity on the ground that the Aug 30 MOU on the
2. Letter dated 1 October 2003 financing of the Northrail Project was signed by the Philippine and Chinese
governments, and its assignment as the Primary Contractor meant that it
That CNMEG, and not the Chinese government, initiated the Northrail was bound to perform a governmental function on behalf of China.
Project was confirmed by Amb. Wang in his letter dated 1 October 2003, However, the Loan Agreement, which originated from the same Aug 30
thus: MOU, belies this reasoning, viz:

1. CNMEG has the proven competence and capability to undertake the Article 11. xxx (j) Commercial Activity The execution and delivery of this
Project as evidenced by the ranking of 42 given by the ENR among 225 Agreement by the Borrower constitute, and the Borrowers performance of
global construction companies. and compliance with its obligations under this Agreement will
constitute, private and commercial acts done and performed for
2. CNMEG already signed an MOU with the North Luzon Railways commercial purposes under the laws of the Republic of the
Corporation last September 14, 2000 during the visit of Chairman Li Peng. Philippines and neither the Borrower nor any of its assets is
Such being the case, they have already established an initial working entitled to any immunity or privilege (sovereign or otherwise) from
relationship with your North Luzon Railways Corporation. This would suit, execution or any other legal process with respect to its
categorize CNMEG as the state corporation within the Peoples Republic of obligations under this Agreement, as the case may be, in any
China which initiated our Governments involvement in the Project. jurisdiction. Notwithstanding the foregoing, the Borrower does not waive
any immunity with respect of its assets which are (i) used by a diplomatic
3. Among the various state corporations of the Peoples Republic of China, or consular mission of the Borrower and (ii) assets of a military character
only CNMEG has the advantage of being fully familiar with the current and under control of a military authority or defense agency and (iii) located
requirements of the Northrail Project having already accomplished a in the Philippines and dedicated to public or governmental use (as
Feasibility Study which was used as inputs by the North Luzon Railways distinguished from patrimonial assets or assets dedicated to commercial
use). (Emphasis supplied.)
 Arbit-Part II |90

(k) Proceedings to Enforce Agreement In any proceeding in the Republic of Northrail and CNMEG. Although the Contract Agreement is silent on the
the Philippines to enforce this Agreement, the choice of the laws of the classification of the legal nature of the transaction, the foregoing provisions
Peoples Republic of China as the governing law hereof will be recognized of the Loan Agreement, which is an inextricable part of the entire
and such law will be applied. The waiver of immunity by the Borrower, the undertaking, nonetheless reveal the intention of the parties to the Northrail
irrevocable submissions of the Borrower to the non-exclusive jurisdiction of Project to classify the whole venture as commercial or proprietary in
the courts of the Peoples Republic of China and the appointment of the character.
Borrowers Chinese Process Agent is legal, valid, binding and enforceable
and any judgment obtained in the Peoples Republic of China will be if Thus, piecing together the content and tenor of the Contract Agreement,
introduced, evidence for enforcement in any proceedings against the the Memorandum of Understanding dated 14 September 2002, Amb.
Borrower and its assets in the Republic of the Philippines provided that (a) Wangs letter dated 1 October 2003, and the Loan Agreement would reveal
the court rendering judgment had jurisdiction over the subject matter of the desire of CNMEG to construct the Luzon Railways in pursuit of a purely
the action in accordance with its jurisdictional rules, (b) the Republic had commercial activity performed in the ordinary course of its business.
notice of the proceedings, (c) the judgment of the court was not obtained
through collusion or fraud, and (d) such judgment was not based on a clear B. CNMEG failed to adduce evidence that it is immune from suit under
mistake of fact or law.36 Chinese law.

Further, the Loan Agreement likewise contains this express waiver of Even assuming arguendo that CNMEG performs governmental functions,
immunity: such claim does not automatically vest it with immunity. This view finds
support in Malong v. Philippine National Railways, in which this Court held
15.5 Waiver of Immunity The Borrower irrevocably and unconditionally that "(i)mmunity from suit is determined by the character of the objects for
waives, any immunity to which it or its property may at any time be or which the entity was organized."39
become entitled, whether characterized as sovereign immunity or
otherwise, from any suit, judgment, service of process upon it or any In this regard, this Courts ruling in Deutsche Gesellschaft Fr Technische
agent, execution on judgment, set-off, attachment prior to judgment, Zusammenarbeit (GTZ) v. CA40 must be examined. In Deutsche
attachment in aid of execution to which it or its assets may be entitled in Gesellschaft, Germany and the Philippines entered into a Technical
any legal action or proceedings with respect to this Agreement or any of Cooperation Agreement, pursuant to which both signed an arrangement
the transactions contemplated hereby or hereunder. Notwithstanding the promoting the Social Health InsuranceNetworking and Empowerment
foregoing, the Borrower does not waive any immunity in respect of its (SHINE) project. The two governments named their respective
assets which are (i) used by a diplomatic or consular mission of the implementing organizations: the Department of Health (DOH) and the
Borrower, (ii) assets of a military character and under control of a military Philippine Health Insurance Corporation (PHIC) for the Philippines, and GTZ
authority or defense agency and (iii) located in the Philippines and for the implementation of Germanys contributions. In ruling that GTZ was
dedicated to a public or governmental use (as distinguished from not immune from suit, this Court held:
patrimonial assets or assets dedicated to commercial use).37
The arguments raised by GTZ and the [Office of the Solicitor General
Thus, despite petitioners claim that the EXIM Bank extended financial (OSG)] are rooted in several indisputable facts. The SHINE project was
assistance to Northrail because the bank was mandated by the Chinese implemented pursuant to the bilateral agreements between the Philippine
government, and not because of any motivation to do business in the and German governments. GTZ was tasked, under the 1991 agreement,
Philippines,38 it is clear from the foregoing provisions that the Northrail with the implementation of the contributions of the German government.
Project was a purely commercial transaction. The activities performed by GTZ pertaining to the SHINE project are
governmental in nature, related as they are to the promotion of health
Admittedly, the Loan Agreement was entered into between EXIM Bank and insurance in the Philippines. The fact that GTZ entered into employment
the Philippine government, while the Contract Agreement was between contracts with the private respondents did not disqualify it from invoking
 Arbit-Part II |91

immunity from suit, as held in cases such as Holy See v. Rosario, Jr., which State immunity from suit may be waived by general or special law. The
set forth what remains valid doctrine: special law can take the form of the original charter of the incorporated
government agency. Jurisprudence is replete with examples of
Certainly, the mere entering into a contract by a foreign state with a incorporated government agencies which were ruled not entitled to invoke
private party cannot be the ultimate test. Such an act can only be the start immunity from suit, owing to provisions in their charters manifesting their
of the inquiry. The logical question is whether the foreign state is engaged consent to be sued.
in the activity in the regular course of business. If the foreign state is not
engaged regularly in a business or trade, the particular act or transaction x x x xxx xxx
must then be tested by its nature. If the act is in pursuit of a sovereign
activity, or an incident thereof, then it is an act jure imperii, especially It is useful to note that on the part of the Philippine government, it had
when it is not undertaken for gain or profit. designated two entities, the Department of Health and the Philippine Health
Insurance Corporation (PHIC), as the implementing agencies in behalf of
Beyond dispute is the tenability of the comment points (sic) raised by GTZ the Philippines. The PHIC was established under Republic Act No. 7875,
and the OSG that GTZ was not performing proprietary functions Section 16 (g) of which grants the corporation the power "to sue and be
notwithstanding its entry into the particular employment contracts. Yet sued in court." Applying the previously cited jurisprudence, PHIC would not
there is an equally fundamental premise which GTZ and the OSG fail to enjoy immunity from suit even in the performance of its functions
address, namely: Is GTZ, by conception, able to enjoy the Federal connected with SHINE, however, (sic) governmental in nature as (sic) they
Republics immunity from suit? may be.

The principle of state immunity from suit, whether a local state or a foreign Is GTZ an incorporated agency of the German government? There is
state, is reflected in Section 9, Article XVI of the Constitution, which states some mystery surrounding that question. Neither GTZ nor the OSG
that "the State may not be sued without its consent." Who or what consists go beyond the claim that petitioner is "the implementing agency of
of "the State"? For one, the doctrine is available to foreign States insofar the Government of the Federal Republic of Germany." On the other
as they are sought to be sued in the courts of the local State, necessary as hand, private respondents asserted before the Labor Arbiter that GTZ was
it is to avoid "unduly vexing the peace of nations." "a private corporation engaged in the implementation of development
projects." The Labor Arbiter accepted that claim in his Order denying the
If the instant suit had been brought directly against the Federal Republic of Motion to Dismiss, though he was silent on that point in his Decision.
Germany, there would be no doubt that it is a suit brought against a State, Nevertheless, private respondents argue in their Comment that the finding
and the only necessary inquiry is whether said State had consented to be that GTZ was a private corporation "was never controverted, and is
sued. However, the present suit was brought against GTZ. It is necessary therefore deemed admitted." In its Reply, GTZ controverts that finding,
for us to understand what precisely are the parameters of the legal saying that it is a matter of public knowledge that the status of petitioner
personality of GTZ. GTZ is that of the "implementing agency," and not that of a private
corporation.
Counsel for GTZ characterizes GTZ as "the implementing agency of
the Government of the Federal Republic of Germany," a depiction In truth, private respondents were unable to adduce any evidence to
similarly adopted by the OSG. Assuming that the characterization is substantiate their claim that GTZ was a "private corporation," and the
correct, it does not automatically invest GTZ with the ability to Labor Arbiter acted rashly in accepting such claim without explanation.
invoke State immunity from suit. The distinction lies in whether the But neither has GTZ supplied any evidence defining its legal nature
agency is incorporated or unincorporated. beyond that of the bare descriptive "implementing agency." There
is no doubt that the 1991 Agreement designated GTZ as the
xxx xxx xxx "implementing agency" in behalf of the German government. Yet
the catch is that such term has no precise definition that is
 Arbit-Part II |92

responsive to our concerns. Inherently, an agent acts in behalf of a ascertaining whether GTZ was immune from suit. Although CNMEG claims
principal, and the GTZ can be said to act in behalf of the German to be a government-owned corporation, it failed to adduce evidence that it
state. But that is as far as "implementing agency" could take us. has not consented to be sued under Chinese law. Thus, following this
The term by itself does not supply whether GTZ is incorporated or Courts ruling in Deutsche Gesellschaft, in the absence of evidence to the
unincorporated, whether it is owned by the German state or by contrary, CNMEG is to be presumed to be a government-owned and -
private interests, whether it has juridical personality independent controlled corporation without an original charter. As a result, it has the
of the German government or none at all. capacity to sue and be sued under Section 36 of the Corporation Code.

xxx xxx xxx C. CNMEG failed to present a certification from the Department of Foreign
Affairs.
Again, we are uncertain of the corresponding legal implications
under German law surrounding "a private company owned by the In Holy See,42 this Court reiterated the oft-cited doctrine that the
Federal Republic of Germany." Yet taking the description on face determination by the Executive that an entity is entitled to sovereign or
value, the apparent equivalent under Philippine law is that of a diplomatic immunity is a political question conclusive upon the courts, to
corporation organized under the Corporation Code but owned by wit:
the Philippine government, or a government-owned or controlled
corporation without original charter. And it bears notice that In Public International Law, when a state or international agency wishes to
Section 36 of the Corporate Code states that "[e]very corporation plead sovereign or diplomatic immunity in a foreign court, it requests the
incorporated under this Code has the power and capacity x x x to Foreign Office of the state where it is sued to convey to the court that said
sue and be sued in its corporate name." defendant is entitled to immunity.

It is entirely possible that under German law, an entity such as GTZ or xxx xxx xxx
particularly GTZ itself has not been vested or has been specifically deprived
the power and capacity to sue and/or be sued. Yet in the proceedings In the Philippines, the practice is for the foreign government or the
below and before this Court, GTZ has failed to establish that under international organization to first secure an executive endorsement of its
German law, it has not consented to be sued despite it being owned claim of sovereign or diplomatic immunity. But how the Philippine Foreign
by the Federal Republic of Germany. We adhere to the rule that in Office conveys its endorsement to the courts varies. In International
the absence of evidence to the contrary, foreign laws on a Catholic Migration Commission v. Calleja, 190 SCRA 130 (1990), the
particular subject are presumed to be the same as those of the Secretary of Foreign Affairs just sent a letter directly to the Secretary of
Philippines, and following the most intelligent assumption we can Labor and Employment, informing the latter that the respondent-employer
gather, GTZ is akin to a governmental owned or controlled could not be sued because it enjoyed diplomatic immunity. In World Health
corporation without original charter which, by virtue of the Organization v. Aquino, 48 SCRA 242 (1972), the Secretary of Foreign
Corporation Code, has expressly consented to be sued. At the very Affairs sent the trial court a telegram to that effect. In Baer v. Tizon, 57
least, like the Labor Arbiter and the Court of Appeals, this Court has no SCRA 1 (1974), the U.S. Embassy asked the Secretary of Foreign Affairs to
basis in fact to conclude or presume that GTZ enjoys immunity from request the Solicitor General to make, in behalf of the Commander of the
suit.41 (Emphasis supplied.) United States Naval Base at Olongapo City, Zambales, a "suggestion" to
respondent Judge. The Solicitor General embodied the "suggestion" in a
Applying the foregoing ruling to the case at bar, it is readily apparent that Manifestation and Memorandum as amicus curiae.
CNMEG cannot claim immunity from suit, even if it contends that it
performs governmental functions. Its designation as the Primary In the case at bench, the Department of Foreign Affairs, through the Office
Contractor does not automatically grant it immunity, just as the term of Legal Affairs moved with this Court to be allowed to intervene on the
"implementing agency" has no precise definition for purposes of
 Arbit-Part II |93

side of petitioner. The Court allowed the said Department to file its evidentiary presumption that the foreign party is indeed immune which the
memorandum in support of petitioners claim of sovereign immunity. opposing party will have to overcome with its own factual evidence. We do
not see why GTZ could not have secured such certification or endorsement
In some cases, the defense of sovereign immunity was submitted directly from the DFA for purposes of this case. Certainly, it would have been
to the local courts by the respondents through their private counsels highly prudential for GTZ to obtain the same after the Labor Arbiter had
(Raquiza v. Bradford, 75 Phil. 50 [1945]; Miquiabas v. Philippine-Ryukyus denied the motion to dismiss. Still, even at this juncture, we do not see
Command, 80 Phil. 262 [1948]; United States of America v. Guinto, 182 any evidence that the DFA, the office of the executive branch in charge of
SCRA 644 [1990] and companion cases). In cases where the foreign states our diplomatic relations, has indeed endorsed GTZs claim of immunity. It
bypass the Foreign Office, the courts can inquire into the facts and make may be possible that GTZ tried, but failed to secure such certification, due
their own determination as to the nature of the acts and transactions to the same concerns that we have discussed herein.
involved.43 (Emphasis supplied.)
Would the fact that the Solicitor General has endorsed GTZs claim of
The question now is whether any agency of the Executive Branch can make States immunity from suit before this Court sufficiently substitute for the
a determination of immunity from suit, which may be considered as DFA certification? Note that the rule in public international law quoted in
conclusive upon the courts. This Court, in Department of Foreign Affairs Holy See referred to endorsement by the Foreign Office of the State where
(DFA) v. National Labor Relations Commission (NLRC),44 emphasized the the suit is filed, such foreign office in the Philippines being the Department
DFAs competence and authority to provide such necessary determination, of Foreign Affairs. Nowhere in the Comment of the OSG is it manifested
to wit: that the DFA has endorsed GTZs claim, or that the OSG had solicited the
DFAs views on the issue. The arguments raised by the OSG are virtually
The DFAs function includes, among its other mandates, the determination the same as the arguments raised by GTZ without any indication of any
of persons and institutions covered by diplomatic immunities, a special and distinct perspective maintained by the Philippine government
determination which, when challenge, (sic) entitles it to seek relief from on the issue. The Comment filed by the OSG does not inspire the same
the court so as not to seriously impair the conduct of the country's foreign degree of confidence as a certification from the DFA would have
relations. The DFA must be allowed to plead its case whenever necessary elicited.46 (Emphasis supplied.)
or advisable to enable it to help keep the credibility of the Philippine
government before the international community. When international In the case at bar, CNMEG offers the Certification executed by the
agreements are concluded, the parties thereto are deemed to have likewise Economic and Commercial Office of the Embassy of the Peoples Republic of
accepted the responsibility of seeing to it that their agreements are duly China, stating that the Northrail Project is in pursuit of a sovereign
regarded. In our country, this task falls principally of (sic) the DFA as being activity.47Surely, this is not the kind of certification that can establish
the highest executive department with the competence and authority to so CNMEGs entitlement to immunity from suit, as Holy See unequivocally
act in this aspect of the international arena.45 (Emphasis supplied.) refers to the determination of the "Foreign Office of the state where it is
sued."
Further, the fact that this authority is exclusive to the DFA was also
emphasized in this Courts ruling in Deutsche Gesellschaft: Further, CNMEG also claims that its immunity from suit has the executive
endorsement of both the OSG and the Office of the Government Corporate
It is to be recalled that the Labor Arbiter, in both of his rulings, noted that Counsel (OGCC), which must be respected by the courts. However, as
it was imperative for petitioners to secure from the Department of Foreign expressly enunciated in Deutsche Gesellschaft, this determination by the
Affairs "a certification of respondents diplomatic status and entitlement to OSG, or by the OGCC for that matter, does not inspire the same degree of
diplomatic privileges including immunity from suits." The requirement confidence as a DFA certification. Even with a DFA certification, however, it
might not necessarily be imperative. However, had GTZ obtained such must be remembered that this Court is not precluded from making an
certification from the DFA, it would have provided factual basis for its claim inquiry into the intrinsic correctness of such certification.
of immunity that would, at the very least, establish a disputable
 Arbit-Part II |94

D. An agreement to submit any dispute to arbitration may be construed as where any of those individuals resides; or (e) in the National Capital
an implicit waiver of immunity from suit. Judicial Region.

In the United States, the Foreign Sovereign Immunities Act of 1976 From all the foregoing, it is clear that CNMEG has agreed that it will not be
provides for a waiver by implication of state immunity. In the said law, the afforded immunity from suit. Thus, the courts have the competence and
agreement to submit disputes to arbitration in a foreign country is jurisdiction to ascertain the validity of the Contract Agreement.
construed as an implicit waiver of immunity from suit. Although there is no
similar law in the Philippines, there is reason to apply the legal reasoning Second issue: Whether the Contract Agreement is an executive
behind the waiver in this case. agreement

The Conditions of Contract,48 which is an integral part of the Contract Article 2(1) of the Vienna Convention on the Law of Treaties (Vienna
Agreement,49 states: Convention) defines a treaty as follows:

33. SETTLEMENT OF DISPUTES AND ARBITRATION [A]n international agreement concluded between States in written form
and governed by international law, whether embodied in a single
33.1. Amicable Settlement instrument or in two or more related instruments and whatever its
particular designation.
Both parties shall attempt to amicably settle all disputes or controversies
arising from this Contract before the commencement of arbitration. In Bayan Muna v. Romulo, this Court held that an executive agreement is
similar to a treaty, except that the former (a) does not require legislative
33.2. Arbitration concurrence; (b) is usually less formal; and (c) deals with a narrower
range of subject matters.50
All disputes or controversies arising from this Contract which cannot be
settled between the Employer and the Contractor shall be submitted to Despite these differences, to be considered an executive agreement, the
arbitration in accordance with the UNCITRAL Arbitration Rules at present in following three requisites provided under the Vienna Convention must
force and as may be amended by the rest of this Clause. The appointing nevertheless concur: (a) the agreement must be between states; (b) it
authority shall be Hong Kong International Arbitration Center. The place of must be written; and (c) it must governed by international law. The first
arbitration shall be in Hong Kong at Hong Kong International Arbitration and the third requisites do not obtain in the case at bar.
Center (HKIAC).
A. CNMEG is neither a government nor a government agency.
Under the above provisions, if any dispute arises between Northrail and
CNMEG, both parties are bound to submit the matter to the HKIAC for The Contract Agreement was not concluded between the Philippines and
arbitration. In case the HKIAC makes an arbitral award in favor of China, but between Northrail and CNMEG.51 By the terms of the Contract
Northrail, its enforcement in the Philippines would be subject to the Special Agreement, Northrail is a government-owned or -controlled corporation,
Rules on Alternative Dispute Resolution (Special Rules). Rule 13 thereof while CNMEG is a corporation duly organized and created under the laws of
provides for the Recognition and Enforcement of a Foreign Arbitral Award. the Peoples Republic of China.52 Thus, both Northrail and CNMEG entered
Under Rules 13.2 and 13.3 of the Special Rules, the party to arbitration into the Contract Agreement as entities with personalities distinct and
wishing to have an arbitral award recognized and enforced in the separate from the Philippine and Chinese governments, respectively.
Philippines must petition the proper regional trial court (a) where the
assets to be attached or levied upon is located; (b) where the acts to be Neither can it be said that CNMEG acted as agent of the Chinese
enjoined are being performed; (c) in the principal place of business in the government. As previously discussed, the fact that Amb. Wang, in his letter
Philippines of any of the parties; (d) if any of the parties is an individual, dated 1 October 2003,53 described CNMEG as a "state corporation" and
 Arbit-Part II |95

declared its designation as the Primary Contractor in the Northrail Project

did not mean it was to perform sovereign functions on behalf of China.
That label was only descriptive of its nature as a state-owned corporation,
and did not preclude it from engaging in purely commercial or proprietary
ventures.

B. The Contract Agreement is to be governed by Philippine law.

Article 2 of the Conditions of Contract,54 which under Article 1.1 of the

Contract Agreement is an integral part of the latter, states:

APPLICABLE LAW AND GOVERNING LANGUAGE

The contract shall in all respects be read and construed in accordance with
the laws of the Philippines.

The contract shall be written in English language. All correspondence and

other documents pertaining to the Contract which are exchanged by the
parties shall be written in English language.

Since the Contract Agreement explicitly provides that Philippine law shall
be applicable, the parties have effectively conceded that their rights and
obligations thereunder are not governed by international law.

It is therefore clear from the foregoing reasons that the Contract

Agreement does not partake of the nature of an executive agreement. It is
merely an ordinary commercial contract that can be questioned before the
local courts.

WHEREFORE, the instant Petition is DENIED. Petitioner China National

Machinery & Equipment Corp. (Group) is not entitled to immunity from
suit, and the Contract Agreement is not an executive agreement. CNMEGs
prayer for the issuance of a TRO and/or Writ of Preliminary Injunction is
DENIED for being moot and academic. This case is REMANDED to the
Regional Trial Court of Makati, Branch 145, for further proceedings as
regards the validity of the contracts subject of Civil Case No. 06-203.

No pronouncement on costs of suit.

SO ORDERED.