THIRD DIVISION

UNIWIDE SALES REALTY AND

RESOURCES CORPORATION,
Petitioner,

G.R. No. 126619

Present:
QUISUMBING, J.,
Chairperson,
CARPIO,
CARPIO MORALES
TINGA, and
VELASCO, JR., JJ.

- versus TITAN-IKEDA CONSTRUCTION

AND DEVELOPMENT CORPORATION,
Respondent.

Promulgated:
December 20, 2006

x ------------------------------------------------------------------------------------x
DECISION
TINGA, J.:

This Petition for Review on Certiorari under Rule 45 seeks the partial
reversal of the 21 February 1996 Decision[1] of the Court of Appeals Fifteenth
Division

in

CA-G.R.

SP

No.

37957

which

modified

the 17

April

1995 Decision[2] of the Construction Industry Arbitration Commission (CIAC).

The case originated from an action for a sum of money filed by TitanIkeda Construction and Development Corporation (Titan) against Uniwide
Sales Realty and Resources Corporation (Uniwide) with the Regional Trial
Court (RTC), Branch 119,[3]Pasay City arising from Uniwides non-payment of
certain claims billed by Titan after completion of three projects covered by
agreements they entered into with each other. Upon Uniwides motion to

dismiss/suspend proceedings and Titans open court manifestation agreeing

to the suspension, Civil Case No. 98-0814 was suspended for it to undergo
arbitration.[4] Titans complaint was thus re-filed with the CIAC.[5] Before the
CIAC, Uniwide filed an answer which was later amended and re-amended,
denying the material allegations of the complaint, with counterclaims for
refund of overpayments, actual and exemplary damages, and attorneys
fees. The agreements between Titan and Uniwide are briefly described
below.

PROJECT 1.[6]
The first agreement (Project 1) was a written Construction Contract
entered into by Titan and Uniwide sometime in May 1991 whereby Titan
undertook

to

construct

and Administration Building in

Uniwides
Libis, Quezon

Warehouse
City for

Club
a

fee

of P120,936,591.50, payable in monthly progress billings to be certified to by

Uniwides 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 eventually finished on 15 February 1992[8] and turned over to
Uniwide.
PROJECT 2.
Sometime in July 1992, Titan and Uniwide entered into the second
agreement (Project 2) whereby the former agreed to construct an additional
floor and to renovate the latters warehouse located at the EDSA Central
Market Area in Mandaluyong City. There was no written contract executed
between the parties for this project. Construction was allegedly to be on the

basis of drawings and specifications provided by Uniwides structural

engineers. The parties proceeded on the basis of a cost estimate
ofP21,301,075.77 inclusive of Titans 20% mark-up. Titan conceded in its
complaint to having received P15,000,000.00 of this amount. This project
was completed in the latter part of October 1992 and turned over to Uniwide.
PROJECT 3.[9]
The parties executed the third agreement (Project 3) in May 1992. In a
written Construction Contract, Titan undertook to construct the Uniwide
Sales

Department

Store

Building

in Kalookan City for

the

price

of P118,000,000.00 payable in progress billings to be certified to by

Uniwides representative.[10] It was stipulated that the project shall be
completed not later than 28 February 1993. The project was completed and
turned over to Uniwide in June 1993.
Uniwide asserted in its petition that: (a) it overpaid Titan for
unauthorized additional works in Project 1 and Project 3; (b) it is not liable to
pay the Value-Added Tax (VAT) for Project 1; (c) it is entitled to liquidated
damages for the delay incurred in constructing Project 1 and Project 3; and
(d) it should not have been found liable for deficiencies in the defectively
constructed Project 2.
An Arbitral Tribunal consisting of a chairman and two members was
created in accordance with the CIAC Rules of Procedure Governing
Construction Arbitration. It conducted a preliminary conference with the
parties and thereafter issued a Terms of Reference (TOR) which was signed
by the parties. The tribunal also conducted an ocular inspection, hearings,
and received the evidence of the parties consisting of affidavits which were
subject to cross-examination. On 17 April 1995, after the parties submitted
their respective memoranda, the Arbitral Tribunal promulgated a Decision,
[11]

the decretal portion of which is as follows:

WHEREFORE, judgment is hereby rendered as follows:

On Project 1 Libis:
[Uniwide] is absolved of any liability for the claims
made by [Titan] on this Project.
Project 2 Edsa Central:
[Uniwide] is absolved of any liability for VAT payment
on this project, the same being for the account of the [Titan].
On the other hand, [Titan] is absolved of any liability on the
counterclaim for defective construction of this project.
[Uniwide] is held liable for the unpaid balance in the
amount of P6,301,075.77 which is ordered to be paid to the
[Titan] with 12% interest per annum commencing from 19
December 1992 until the date of payment.
On Project 3 Kalookan:
[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% interest per annum commencing from 08
September 1993 until the date of payment.
[Uniwide] is held liable to pay in full the VAT on this
project, in such amount as may be computed by the Bureau of
Internal Revenue to be paid directly thereto. The BIR is hereby
notified
that
[Uniwide] Sales
Realty
and
Resources
Corporation has assumed responsibility and is held liable for
VAT payment on this project. This accordingly exempts
Claimant
Titan-Ikeda
Construction
and
Development
Corporation from this obligation.
Let a copy of this Decision be furnished the Honorable
Aurora P. Navarette Recina, Presiding Judge, Branch
119, Pasay City, in Civil Case No. 94-0814 entitled Titan-Ikeda
Construction Development Corporation, Plaintiff versus
Uniwide Sales Realty and Resources Corporation, Defendant,
pending before said court for information and proper action.
SO ORDERED.[12]

Uniwide filed a motion for reconsideration of the 17 April 1995 decision

which was denied by the CIAC in its Resolution dated6 July 1995. Uniwide
accordingly filed a petition for review with the Court of Appeals, [13] which
rendered the assailed decision on21 February 1996. Uniwides motion for
reconsideration was likewise denied by the Court of Appeals in its assailed
Resolution[14]dated 30 September 1996.
Hence, Uniwide comes to this Court via a petition for review under Rule
45. 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
mistake to Titan for additional works done on Project 1; (2) Whether Uniwide
is liable for the payment of the Value-Added Tax (VAT) on Project 1; (3)
Whether Uniwide is entitled to liquidated damages for Projects 1 and 3; and
(4) Whether Uniwide is liable for deficiencies in Project 2.
As a rule, findings of fact of administrative agencies and quasi-judicial
bodies, which have acquired expertise because their jurisdiction is confined
to specific matters, are generally accorded not only respect, but also finality,
especially when affirmed by the Court of Appeals.[16] In particular, factual
findings of construction arbitrators are final and conclusive and not
reviewable by this Court on appeal.[17] This rule, however admits of certain
exceptions.
In David v. Construction Industry and Arbitration Commission, [18] we
ruled that, as exceptions, factual findings of construction arbitrators may be
reviewed by this Court when the petitioner proves affirmatively that: (1) the
award was procured by corruption, fraud or other undue means; (2) there
was evident partiality or corruption of the arbitrators or of any of them; (3)
the arbitrators were guilty of misconduct in refusing to hear evidence
pertinent and material to the controversy; (4) one or more of the arbitrators

were disqualified to act as such under Section nine of Republic Act No. 876
and willfully refrained from disclosing such disqualifications or of any other
misbehavior by which the rights of any party have been materially
prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly
executed them, that a mutual, final and definite award upon the
subject matter submitted to them was not made.[19]
Other recognized exceptions are as follows: (1) when there is a very
clear showing of grave abuse of discretion [20] resulting in lack or loss of
jurisdiction as when a party was deprived of a fair opportunity to present its
position before the Arbitral Tribunal or when an award is obtained through
fraud or the corruption of arbitrators, [21] (2) when the findings of the Court of
Appeals are contrary to those of the CIAC,[22] and (3) when a party is
deprived of administrative due process.[23]
Thus, in Hi-Precision Steel Center, Inc. v. Lim Kim Builders, Inc.,[24] we
refused to review the findings of fact of the CIAC for the reason that
petitioner was requiring the Court to go over each individual claim and
counterclaim submitted by the parties in the CIAC. A review of the CIACs
findings of fact would have had the effect of setting at naught the basic
objective of a voluntary arbitration and would reduce arbitration to a largely
inutile institution. Further, petitioner therein failed to show any 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 employed or the
results reached by the Arbitral Tribunal, in disposing of 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 Appeals because its
findings on the issue of whether petitioner therein was in delay were
contrary to the findings of the CIAC. Finally, in Megaworld Globus Asia, Inc. v.
DSM Construction and Development Corporation, [26] we declined to depart
from the findings of the Arbitral Tribunal considering that the computations,

as well as the propriety of the awards, are unquestionably factual issues that
have been discussed by the Arbitral Tribunal and affirmed by the Court of
Appeals.
In the present case, only the first issue presented for resolution of this
Court is a question of law while the rest are factual in nature. However, we
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.
We now proceed to discuss the issues in seriatim.
Payment by Mistake for Project 1
The first issue refers to the P5,823,481.75 paid by Uniwide for
additional works done on Project 1. Uniwide asserts that Titan was not
entitled to be paid this amount because the additional works were without
any written authorization.
It should be noted that the contracts do not contain stipulations on
additional works, Uniwides liability for additional works, and prior
approval as a requirement before Titan could perform additional works.
Nonetheless, Uniwide cites Article (Art. ) 1724 of the New Civil Code as
basis for its claim that it is not liable to pay for additional works it did not
authorize or agree upon in writing. The provision states:
Art. 1724. The contractor who undertakes to build a
structure or any other work for a stipulated price, in conformity
with plans and specifications agreed upon with the landowner,
can neither withdraw from the contract nor demand an
increase in the price on account of the higher cost of labor or
materials, save when there has been a change in the plans
and specifications, provided:

(1)
Such change has been authorized by the
proprietor in writing; and
(2)
The additional price to be paid to the
contractor has been determined in writing by both
parties.
The Court of Appeals did take note of this provision, but deemed it
inapplicable to the case at bar because Uniwide had already paid, albeit with
unwritten reservations, for the additional works. The provision would have
been operative had Uniwide refused to pay for the costs of the additional
works. Instead, the Court of Appeals applied Art. 1423 [27] of the New Civil
Code and characterized Uniwides payment of the said amount as a
voluntary fulfillment of a natural obligation. The situation was 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 debtor, Uniwide could no
longer demand the refund of the amount already paid.
Uniwide counters that Art. 1724 makes no distinction as to whether
payment for the additional works had already been made. It claims that it
had

made

the

payments,

subject

to

reservations,

upon

the

false

representation of Titan-Ikeda that the additional works were authorized 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
application, instead, of the principle of solutio indebiti under Arts. 2154[28]and
2156[29] of the Civil Code.
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
constructions made of ship vessels,[30] or that it can validly deny the claim for
payment of professional fees to the architect. [31] The present situation though
presents a thornier problem. Clearly, Art. 1724 denies, as a matter of right,

payment to the contractor for additional works which were not authorized in
writing by the proprietor, and the additional price of which was not
determined in writing by the parties.
Yet the distinction pointed out by the Court of Appeals is material. The
issue is no longer centered on the right of the contractor to demand payment
for additional works undertaken because payment, whether mistaken or not,
was already made by Uniwide. Thus, it would not anymore be incumbent on
Titan to establish that it had the right to demand or receive such payment.
But, even if the Court accepts Art. 1724 as applicable in this case, such
recognition does not ipso facto accord Uniwide the right to be reimbursed for
payments already made, since Art. 1724 does not effect such right of
reimbursement. It has to be understood that Art. 1724 does not preclude the
payment to the contractor who performs additional works without any prior
written authorization or agreement as to the price for such works if the
owner decides anyway to make such payment. What the provision does
preclude is the right of the contractor to insist upon payment for
unauthorized additional works.
Accordingly, Uniwide, as the owner who did pay the contractor for such
additional works even if they had not been authorized in writing, has to
establish its own right to reimbursement not under Art. 1724, but under a
different provision of law. Uniwides burden of establishing its legal right to
reimbursement becomes even more crucial in the light of the general
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.
Uniwide undertakes such a task before this Court, citing the provisions
on solutio indebiti under Arts. 2154 and 2156 of the Civil Code. However, it is

not enough to prove that the payments made by Uniwide to Titan were not
due because there was no prior authorization or agreement with respect to
additional works. There is a further requirement that the payment by the
debtor was made either through mistake or under a cloud of doubt. In short,
for the provisions on solutio indebiti to apply, there has to be evidence
establishing the frame of mind of the payor at the time the payment was
made.[32]
The CIAC refused to acknowledge that the additional works on Project
1 were indeed unauthorized by Uniwide. Neither did the Court of Appeals
arrive at a contrary determination. There would thus be some difficulty for
this Court to agree with this most basic premise submitted by Uniwide that it
did not authorize the additional works on Project 1 undertaken by Titan. Still,
Uniwide does cite testimonial evidence from the record alluding to a
concession by employees of Titan that these additional works on Project 1
were either authorized or documented.[33]
Yet even conceding that the additional works on Project 1 were not
authorized or committed into writing, the undisputed fact remains that
Uniwide paid for these additional works. Thus, to claim a refund of payments
made under the principle of solutioindebiti, Uniwide must be able to establish
that these payments were made through mistake. Again, this is a factual
matter that would have acquired a mantle of invulnerability had it been
determined by both the CIAC and the Court of Appeals. However, both bodies
failed to arrive at such a conclusion. Moreover, Uniwide is unable to direct
our attention to any pertinent part of the record that would indeed establish
that the payments were made by reason of mistake.
We note that Uniwide alleged in its petition that the CIAC award in
favor of 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

authorization was presented. Unfortunately, this issue was not included in its
memorandum as one of the issues submitted for the resolution of the Court.
Liability for the Value-Added Tax (VAT)
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 matter. Uniwide claims that the VAT was already included in the contract
price for Project 1. Citing Secs. 99 and 102 of the National Internal Revenue
Code, Uniwide asserts that VAT, being an indirect tax, may be shifted to the
buyer by including it in the cash or selling price and it is entirely up to the
buyer
to
agree
or
not
to
agree
to
absorb
the
VAT.
[34]
Thus,Uniwide concludes, if there is no provision in the contract as to who
should pay the VAT, it is presumed that it would be the seller.[35]
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
Uniwide is the party responsible for the payment of the VAT. [36] Thus,
when Uniwide paid the amount of P2,400,000.00 as billed by Titan for VAT, it
assumed that it was the VAT for Project 3. However, the CIAC and the Court
of Appeals found that the same was for Project 1.
We agree with the conclusions of both the CIAC and the Court of
Appeals that the amount of P2,400,000.00 was paid by Uniwide as VAT for
Project 1. This conclusion was drawn from an Order of Payment [37] dated 7
October 1992 wherein Titan billed Uniwide the amount of P2,400,000.00 as
Value Added Tax based on P60,000,000.00 Contract, computed on the
basis of 4% ofP60,000,000.00. Said document which was approved by the
President of Uniwide expressly indicated that the project involved was the
UNIWIDE SALES WAREHOUSE CLUB & ADMIN BLDG. located at 90 E.
RODRIGUEZ JR. AVE., LIBIS, Q.C. The reduced base for the computation of
the tax, according to the Court of Appeals, was an indication that the parties
agreed to pass the VAT for Project 1 to Uniwide but based on a lower
contract price. Indeed, the CIAC found as follows:

Without any documentary evidence than Exhibit H to

show the extent of tax liability assumed by [Uniwide], the
Tribunal holds that the parties is [sic] obliged to pay only a
share of the VAT payment up to P60,000,000.00 out of the
total contract price of P120,936,591.50. As explained by
Jimmy Gow, VAT is paid on labor only for construction
contracts since VAT had already been paid on the
materials purchased. Since labor costs is [sic]
proportionately placed at 60%-40% of the contract
price, simplified accounting computes VAT at 4% of the
contract price. Whatever is the balance for VAT that remains
to be paid on Project 1 Libis shall remain the obligation of
[Titan]. (Emphasis supplied.)[38]
Liquidated Damages
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
determination in future proceedings where the issue has been made clear.
In rejecting Uniwides claim for liquidated damages, the CIAC held that
there is no legal basis for passing upon and resolving Uniwides claim for the
following reasons: (1) no claim for liquidated damages arising from the
alleged delay was ever made by Uniwide at any time before the
commencement of Titans complaint; (2) the claim for liquidated damages
was not included in the counterclaims stated in Uniwides answer to Titans
complaint; (3) the claim was not formulated as an issue to be resolved by the
CIAC in the TOR;[39] and (4) no attempt was made to modify the TOR to
accommodate the same as an issue to be resolved.
Uniwide insists that the CIAC should have applied Section 5, Rule 10 of
the Rules of Court.[40] On this matter, the Court of Appeals held that the CIAC
is an arbitration body, which is not necessarily bound by the Rules of Court.
Also, the Court of Appeals found that the issue has never been made
concrete enough to make Titan and the CIAC aware that it will be an
issue. In fact, Uniwide only introduced and quantified its claim for liquidated
damages in its Memorandum submitted to the CIAC at the end of the
arbitration proceeding. The Court of Appeals also noted that the only

evidence on record to prove delay in the construction of Project 1 is the

testimony of Titans engineer regarding the date of completion of the project
while the only evidence of delay in the construction of Project 3 is the
affidavit of Uniwides President.
According to Uniwide, the ruling of the Court of Appeals on the issue of
liquidated damages goes against the established judicial policy that a court
should always strive to settle in one proceeding the entire controversy
leaving no root or branch to bear the seeds of future litigations. [41] Uniwide
claims that the required evidence for an affirmative ruling on its claim is
already on the record. It cites the pertinent provisions of the written
contracts which contained deadlines for liquidated damages. Uniwide also
noted that the evidence show that Project 1 was completed either on 15
February 1992, as found by the CIAC, or 12 March 1992, as shown by Titans
own evidence, while Project 3, according to Uniwides President, was
completed in June 1993. Furthermore, Uniwide asserts, the CIAC should have
applied procedural rules such as Section 5, Rule 10 with more liberality
because it was an administrative tribunal free from the rigid technicalities of
regular courts.[42]
On this point, the CIAC held:
The Rule of Procedure Governing Construction
Arbitration promulgated by the CIAC contains no provision on
the application of the Rules of Court to arbitration
proceedings, even in a suppletory capacity. Hypothetically
admitting that there is such a provision, suppletory application
is made only if it would not contravene a specific provision in
the arbitration rules and the spirit thereof. The Tribunal holds
that such importation of the Rules of Court provision on
amendment to conform to evidence 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 with the active participation of the parties and their
counsel themselves. The TOR is further required to be signed
by all the parties, their respective counsel and all the
members of the Arbitral Tribunal. Unless the issues thus
carefully formulated in the Terms of Reference were expressly
showed [sic] to be amended, issues outside thereof may not
be resolved. As already noted in the Decision, no attempt was

ever made by the [Uniwide] to modify the TOR in order to

accommodate the issues related to its belated counterclaim
on this issue. (Emphasis supplied.)

Arbitration has been defined as an arrangement for taking and

abiding by the judgment of selected persons in some disputed matter,
instead of carrying it to established tribunals of justice, and is intended to
avoid the formalities, the delay, the expense and vexation of ordinary
litigation.[43] Voluntary arbitration, on the other hand, involves the reference
of a dispute to an impartial body, the members of which are chosen by the
parties themselves, which parties freely consent in advance to abide by the
arbitral award issued after proceedings where both parties 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 avoid the
formalities, delay, expense and aggravation which commonly accompany
ordinary litigation, especially litigation which goes through the entire
hierarchy of courts.[44] As an arbitration body, the CIAC can only resolve
issues brought before it by the parties through the TOR which functions
similarly as a pre-trial brief. Thus, if Uniwides claim for liquidated damages
was not raised as an issue in the TOR or in any modified or 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 policy and objective is to
provide a fair and expeditious settlement of construction disputes through a
non-judicial process which ensures harmonious and friendly relations
between or among the parties.[45]
Further, a party may not be deprived of due process of law by an
amendment of the complaint as provided in Section 5, Rule 10 of the Rules
of Court. In this case, as noted by the Court of Appeals, Uniwide only
introduced and quantified its claim for liquidated damages in its
memorandum submitted to the CIAC at the end of the arbitration
proceeding. Verily, Titan was not given a chance to present evidence to
counter Uniwides claim for liquidated damages.
Uniwide alludes to an alleged judicial admission made by Engr. Luzon
Tablante wherein he stated that Project 1 was completed on 10 March

1992. It now claims that by virtue of Engr. Tablantes statement, Titan had
admitted that it was in delay. We disagree. The testimony of Engr. Tablante
was offered only to prove that Project 1 was indeed completed. It was not
offered to prove the fact of delay. It must be remembered that the purpose
for which evidence is offered must be specified because such evidence may
be admissible for several purposes under the doctrine of multiple
admissibility, or may be admissible for one purpose and not for another,
otherwise the adverse party cannot interpose the proper objection. Evidence
submitted for one purpose may not be considered for any other purpose.
[46]
Furthermore, even assuming, for the sake of argument, that said
testimony on the date of completion of Project 1 is admitted, the
establishment of the mere fact of delay is not sufficient for the imposition of
liquidated damages. It must further be shown that delay was attributable to
the contractor if not otherwise justifiable. Contrarily, Uniwides belated claim
constitutes an admission that the delay was justified and implies a waiver of
its right to such damages.
Project 2: as-built plans, overpricing, defective construction
To determine whether or not Uniwide is liable for the unpaid balance
of P6,301,075.77 for Project 2, we need to resolve four sub-issues, namely:
(1) whether or not it was necessary for Titan to submit as-built plans
before it can be paid by Uniwide; (2) whether or not there was overpricing of
the project; (3) whether or not the P15,000,000.00 paid by Uniwide to Titan
for Project 2 constitutes full payment; and (4) whether or not Titan can be
held liable for defective construction of Project 2.
The CIAC, as affirmed by the Court of Appeals, held Uniwide liable for
deficiency relating to Project 2 in the amount ofP6,301,075.77. It is
nonetheless alleged by Uniwide that Titan failed to submit any as-built
plans for Project 2, such plans allegedly serving as a condition precedent for
payment. Uniwide further claims that Titan had substantially overcharged
Uniwide for Project 2, there being uncontradicted expert testimony that the

total cost of Project 2 did not exceed P7,812,123.60. Furthermore, Uniwide

alleged that the works performed were structurally defective, as evidenced
by the structural damage on four columns as observed on ocular inspection
by the CIAC and confirmed by Titans project manager.
On the necessity of submitting as-built plans, this Court rules that
the submission of such plans is not a pre-requisite for Titan to be paid by
Uniwide. The argument that said plans are required by Section 308 of
Presidential Decree No. 1098 (National Building Code) and by Section 2.11 of
its Implementing Rules before payment can be made is untenable. The
purpose of the law is to safeguard life, health, property, and public welfare,
consistent with the principles of sound environmental management and
control. The submission of these plans is necessary only in furtherance of
the laws purpose by setting minimum standards and requirements to control
the location, site, design, quality of materials, construction, use, occupancy,
and maintenance of buildings constructed and not as a requirement for
payment to the contractor.[47] The testimony of Engr. Tablante to the effect
that the as-built plans are required before payment can be claimed by
Titan is a mere legal conclusion which is not binding on this Court.
Uniwide claims that, according to one of its consultants, the true price
for Project 2 is only P7,812,123.60. The CIAC and the Court of Appeals,
however, found the testimony of this consultant suspect and ruled that the
total contract price for Project 2 isP21,301,075.77. The CIAC held:
The Cost Estimate for Architectural and Site
Development Works for the EDSA Central, Dau Branch
Project (Exhibit 2-A for [Uniwide] and made as a common
exhibit by [Titan] who had it marked at [sic] its own Exhibit
U), which was admittedly prepared by Fermindoza and
Associates, [Uniwide]s own architects, shows that the amount
of P17,750,896.48 was arrived at. Together with the agreed
upon mark-up of 20% on said amount, the total project
cost was P21,301,075.77.

The Tribunal holds that the foregoing document is

binding upon the [Uniwide], it being the mode agreed upon by
which its liability for the project cost was to be determined.
[48]
(Emphasis supplied.)

Indeed, Uniwide is bound by the amount indicated in the above

document. Claims of connivance or fraudulent conspiracy between Titan and
Uniwides representatives which, it is alleged, grossly exaggerated the price
may properly be dismissed. As held by the CIAC:
The Tribunal holds that [Uniwide] has not introduced
any evidence to sustain its charge of fraudulent
conspiracy. As a matter of fact, [Uniwide]s own principal
witness, Jimmy Gow, admitted on cross-examination that
he does not have any direct evidence to prove his
charge of connivance or complicity between the [Titan]
and his own representatives. He only made that conclusion
by the process of his own logical reasoning arising from his
consultation with other contractors who gave him a much
lower estimate for the construction of the Dau Project. There
is thus no reason to invalidate the binding character
of Exhibit 2-A which, it is significant to point out, is
[Uniwide]s own evidence.[49] (Emphasis supplied.)

Accordingly, deducting the P15,000,000.00 already paid by Uniwide

from the total contract price of P21,301,075.77, the unpaid balance due for
Project 2 is P6,301,075.77. This is the same amount reflected in the Order of
Payment prepared by Uniwides representative, Le Consultech, Inc. and
signed by no less than four top officers and architects of Le Consultech, Inc.
endorsing for payment by Uniwide to Titan the amount of P6,301,075.77.[50]
Uniwide asserts that Titan should not have been allowed to recover on
Project 2 because the said project was defective and would require repairs in
the amount of P800,000.00. It claims that the CIAC and the Court of Appeals

should have applied Nakpil and Sons v. Court of Appeals[51] and Art. 1723 of
the New Civil Code holding a contractor responsible for damages if the
edifice constructed falls within fifteen years from completion on account of
defects in the construction or the use of materials of inferior quality
furnished by him or due to any violation of the terms of the contract.
On this matter, the CIAC conducted an ocular inspection of the
premises on 30 January 1995. What transpired in the said ocular inspection is
described thus:
On 30 January 1995, an ocular inspection was conducted
by the Arbitral Tribunal as requested by [Uniwide].
Photographs were taken of the alleged construction defects,
an actual ripping off of the plaster of a certain column to
expose the alleged structural defect that is claimed to have
resulted
in
its
being
heavily
damaged
was
done, clarificatory questions were asked and manifestations
on observations were made by the parties and their respective
counsels. The entire proceedings were recorded on tape and
subsequently transcribed. The photographs and transcript of
the ocular inspection form part of the records and considered
as evidence.[52]
And, according to these evidence, the CIAC concluded as follows:
It
is
likewise
the
holding
of
this
Tribunal
that [Uniwide]s counterclaim of defective construction
has not been sufficiently proven. The credibility of
Engr. Cruz, [Uniwide]s principal witness on this issue,
has been severely impaired. During the ocular inspection
of the premises, he gave such assurance of the soundness of
his opinion as an expert that a certain column was heavily
damaged judging from the external cracks that was readily
apparent x x x
x x xx
On insistence of the Tribunal, the plaster was chipped
off and revealed a structurally sound column x x x

Further, it turns out that what was being passed off

as a defective construction by [Titan], was in fact an
old
column,
as
admitted
by
Mr.
Gow
himself
[53]
xxxx
(Emphasis supplied.)

Uniwide had

the

burden

of

proving

that

there

was

defective

construction in Project 2 but it failed to discharge this burden. Even the

credibility of its 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 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 inDavid 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 Arbitral Tribunal, save only where a clear showing
is made that, in reaching its factual conclusions, the
Arbitral Tribunal committed an error so egregious and
hurtful to one party as to constitute a grave abuse of
discretion
resulting
in
lack
or
loss
of
jurisdiction. Prototypical
examples
would
be
factual
conclusions of the Tribunal which resulted in deprivation of
one or the other party of a fair opportunity to present its
position before the Arbitral Tribunal, and an award obtained
through fraud or the corruption of arbitrators. Any other,
more relaxed rule would result in setting at naught the
basic objective of a voluntary arbitration and would
reduce arbitration to a largely inutile institution.
(Emphasis supplied.)

WHEREFORE, premises considered, the petition is DENIED and the

Decision of the Court of Appeals dated 21 February 1996 in CA-G.R. SP No.
37957 is hereby AFFIRMED.
SO ORDERED.
DANTE O. TINGA
Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

ANTONIO T. CARPIO
Associate Justice

CONCHITA CARPIO MORALES

Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been reached
in consultation before the case was assigned to the writer of the op4inion of
the Courts Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson, Third Division

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the
above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Rollo, pp. 10-33, 54-77 and 155-178. The dispositive portion of the

[1]

said decision states:

WHEREFORE, the judgment of the CIAC herein appealed
from is hereby MODIFIED in the following respects:
a)
The ruling holding petitioner liable directly to the
BIR for the VAT on Project 3 and exempting respondent
from the said obligation is hereby DELETED, and in lieu
thereof, judgment is hereby rendered that the Value-Added
Tax for Project 3, as determined by the BIR may be passed
on to the petitioner, subject to such defenses as it may
raise with regard to its computation;
b)
The denial of petitioners claims for liquidated
damages
is
hereby made
without
prejudice;
c)
The interest of 12% per annum attached to the
unpaid balances for Projects 2 and 3 is hereby REDUCED to
6% per annum.
In all other aspects, the said judgment is hereby
AFFIRMED.
SO ORDERED.

BENGUET CORPORATION,
Petitioner,

G.R. No. 163101

Present:

- versus -

QUISUMBING, J., Chairperson,

CARPIO,
CARPIO MORALES,
TINGA, and
DEPARTMENT OF ENVIRONMENT VELASCO, JR., JJ.
AND NATURAL RESOURCES
-MINES ADJUDICATION BOARD
and J.G. REALTY AND MINING
Promulgated:
CORPORATION,
Respondents.
February 13, 2008
x-----------------------------------------------------------------------------------------x

DECISION
VELASCO, JR., J.:
The instant petition under Rule 65 of the Rules of Court seeks the
annulment of the December 2, 2002 Decision [1] and March 17, 2004
Resolution[2] of the Department of Environment and Natural ResourcesMining Adjudication Board (DENR-MAB) in MAB Case No. 0124-01 (Mines
Administrative
Case
No.
R-M-2000-01)
entitled Benguet
Corporation (Benguet) v. J.G. Realty and Mining Corporation (J.G. Realty). The
December 2, 2002 Decision upheld the March 19, 2001 Decision [3] of the MAB
Panel of Arbitrators (POA) which canceled the Royalty Agreement with Option
to Purchase (RAWOP) dated June 1, 1987 [4] between Benguet and J.G. Realty,
and excluded Benguet from the joint Mineral Production Sharing Agreement
(MPSA) application over four mining claims. The March 17, 2004 Resolution
denied Benguets Motion for Reconsideration.
The Facts
On June 1, 1987, Benguet and J.G. Realty entered into a RAWOP,
wherein J.G. Realty was acknowledged as the owner of four mining claims
respectively named as Bonito-I, Bonito-II, Bonito-III, and Bonito-IV, with a
total area of 288.8656 hectares, situated in Barangay Luklukam, Sitio
Bagong Bayan, Municipality of Jose Panganiban, Camarines Norte. The
parties also executed a Supplemental Agreement [5] dated June 1, 1987. The
mining claims were covered by MPSA Application No. APSA-V-0009 jointly
filed by J.G. Realty as claimowner and Benguet as operator.
In the RAWOP, Benguet obligated itself to perfect the rights to the
mining claims and/or otherwise acquire the mining rights to the mineral
claims. Within 24 months from the execution of the RAWOP, Benguet should
also cause the examination of the mining claims for the purpose of
determining whether or not they are worth developing with reasonable
probability of profitable production. Benguet undertook also to furnish J.G.
Realty with a report on the examination, within a reasonable time after the
completion of the examination. Moreover, also within the examination

period, Benguet shall conduct all necessary exploration in accordance with a

prepared exploration program. If it chooses to do so and before the
expiration of the examination period, Benguet may undertake to develop the
mining claims upon written notice to J.G. Realty. Benguet must then place
the mining claims into commercial productive stage within 24 months from
the written notice.[6] It is also provided in the RAWOP that if the mining
claims were placed in commercial production by Benguet, J.G. Realty should
be entitled to a royalty of five percent (5%) of net realizable value, and to
royalty for any production done by Benguet whether during the examination
or development periods.
Thus, on August 9, 1989, the Executive Vice-President of Benguet,
Antonio N. Tachuling, issued a letter informing J.G. Realty of its intention to
develop the mining claims. However, on February 9, 1999, J.G. Realty,
through its President, Johnny L. Tan, then sent a letter to the President of
Benguet informing the latter that it was terminating the RAWOP on the
following grounds:
a.
The fact that your company has failed to perform the
obligations set forth in the RAWOP, i.e., to undertake
development works within 2 years from the execution of the
Agreement;
b.
Violation of the Contract by allowing high graders to
operate on our claim.
c.
No stipulation was provided with respect to the term
limit of the RAWOP.
d.
Non-payment of the royalties thereon as provided in
the RAWOP.[7]

In response, Benguets Manager for Legal Services, Reynaldo P.

Mendoza, wrote J.G. Realty a letter dated March 8, 1999, [8]therein alleging
that Benguet complied with its obligations under the RAWOP by investing
PhP 42.4 million to rehabilitate the mines, and that the commercial operation
was hampered by the non-issuance of a Mines Temporary Permit by the
Mines and Geosciences Bureau (MGB) which must be considered as force

majeure, entitling Benguet to an extension of time to prosecute such permit.

Benguet further claimed that the high graders mentioned by J.G. Realty were
already operating prior to Benguets taking over of the premises, and that
J.G. Realty had the obligation of ejecting such small scale miners. Benguet
also alleged that the nature of the mining business made it difficult to specify
a time limit for the RAWOP. Benguet then argued that the royalties due to
J.G. Realty were in fact in its office and ready to be picked up at any time. It
appeared that, previously, the practice by J.G. Realty was to pick-up checks
from Benguet representing such royalties. However, starting August 1994,
J.G. Realty allegedly refused to collect such checks from Benguet. Thus,
Benguet posited that there was no valid ground for the termination of the
RAWOP. It also reminded J.G. Realty that it should submit the disagreement
to arbitration rather than unilaterally terminating the RAWOP.
On June 7, 2000, J.G. Realty filed a Petition for Declaration of
Nullity/Cancellation of the RAWOP[9] with the Legaspi City POA, Region V,
docketed as DENR Case No. 2000-01 and entitled J.G. Realty v. Benguet.
On March 19, 2001, the POA issued a Decision, [10] dwelling upon the
issues of (1) whether the arbitrators had jurisdiction over the case; and (2)
whether Benguet violated the RAWOP justifying the unilateral cancellation of
the RAWOP by J.G. Realty. The dispositive portion stated:
WHEREFORE, premises considered, the June 01, 1987
[RAWOP] and its Supplemental Agreement is hereby declared
cancelled and without effect. BENGUET is hereby excluded from
the joint MPSA Application over the mineral claims denominated
as BONITO-I, BONITO-II, BONITO-III and BONITO-IV.
SO ORDERED.

Therefrom, Benguet filed a Notice of Appeal[11] with the MAB on April

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

The Issues
1.
There was serious and palpable error when the
Honorable Board failed to rule that the contractual obligation of
the parties to arbitrate under the Royalty Agreement is
mandatory.
2.
The Honorable Board exceeded its jurisdiction when it
sustained the cancellation of the Royalty Agreement for alleged
breach of contract despite the absence of evidence.
3.
The Questioned Decision of the Honorable Board in
cancelling the RAWOP prejudice[d] the substantial rights of
Benguet under the contract to the unjust enrichment of JG
Realty.[12]

Restated, the issues are: (1) Should the controversy have first been
submitted to arbitration before the POA took cognizance of the case?; (2)
Was the cancellation of the RAWOP supported by evidence?; and (3) Did the
cancellation of the RAWOP amount to unjust enrichment of J.G. Realty at the
expense of Benguet?
The Courts Ruling
Before we dwell on the substantive issues, we find that the instant
petition can be denied outright as Benguet resorted to an improper remedy.
The last paragraph of Section 79 of Republic Act No. (RA) 7942 or the
Philippine Mining Act of 1995 states, A petition for review by certiorari and
question of law may be filed by the aggrieved party with the Supreme Court
within thirty (30) days from receipt of the order or decision of the [MAB].
However, this Court has already invalidated such provision in Carpio v.
Sulu Resources Development Corp.,[13] ruling that a decision of the MAB must
first be appealed to the Court of Appeals (CA) under Rule 43 of the Rules of
Court, before recourse to this Court may be had. We held, thus:

To summarize, there are sufficient legal footings

authorizing a review of the MAB Decision under Rule 43 of the
Rules of Court. First,Section 30 of Article VI of the 1987
Constitution, mandates that [n]o law shall be passed increasing
the appellate jurisdiction of the Supreme Court as provided in
this Constitution without its advice and consent. On the other
hand, Section 79 of RA No. 7942 provides that decisions of the
MAB may be reviewed by this Court on a petition for review by
certiorari. This provision is obviously an expansion of the
Courts appellate jurisdiction, an expansion to which this Court
has not consented. Indiscriminate enactment of legislation
enlarging the appellate jurisdiction of this Court would
unnecessarily burden it.
Second, when the Supreme Court, in the exercise of its
rule-making power, transfers to the CA pending cases involving a
review of a quasi-judicial bodys decisions, such transfer relates
only to procedure; hence, it does not impair the substantive and
vested rights of the parties. The aggrieved partys right to appeal
is preserved; what is changed is only the procedure by which the
appeal is to be made or decided. The parties still have a remedy
and a competent tribunal to grant this remedy.
Third, the Revised Rules of Civil Procedure included Rule
43 to provide a uniform rule on appeals from quasi-judicial
agencies. Under the rule, appeals from their judgments and final
orders are now required to be brought to the CA on a verified
petition for review. A quasi-judicial agency or body has been
defined as an organ of government, other than a court or
legislature, which affects the rights of private parties through
either adjudication or rule-making. MAB falls under this
definition; hence, it is no different from the other quasi-judicial
bodies enumerated under Rule 43. Besides, the introductory
words in Section 1 of Circular No. 1-91among these agencies
areindicate that the enumeration is not exclusive or
conclusive and acknowledge the existence of other quasi-judicial
agencies which, though not expressly listed, should be deemed
included therein.
Fourth, the Court realizes that under Batas Pambansa (BP)
Blg. 129 as amended by RA No. 7902, factual controversies are
usually involved in decisions of quasi-judicial bodies; and the CA,
which is likewise tasked to resolve questions of fact, has more
elbow room to resolve them. By including questions of fact
among the issues that may be raised in an appeal from quasijudicial agencies to the CA, Section 3 of Revised Administrative

Circular No. 1-95 and Section 3 of Rule 43 explicitly expanded

the list of such issues.
According to Section 3 of Rule 43, [a]n appeal under this
Rule may be taken to the Court of Appeals within the period and
in the manner herein provided whether the appeal involves
questions of fact, of law, or mixed questions of fact and law.
Hence, appeals from quasi-judicial agencies even only on
questions of law may be brought to the CA.
Fifth, the judicial policy of observing the hierarchy of courts
dictates that direct resort from administrative agencies to this
Court will not be entertained, unless the redress desired cannot
be obtained from the appropriate lower tribunals, or unless
exceptional and compelling circumstances justify availment of a
remedy falling within and calling for the exercise of our primary
jurisdiction.[14]

The above principle was reiterated in Asaphil Construction and

Development
Corporation
v.
Tuason,
Jr.
(Asaphil).[15]However,
the Carpio ruling was not applied to Asaphil as the petition in the latter case
was filed in 1999 or three years before the promulgation of Carpio in
2002. Here, the petition was filed on April 28, 2004 when the Carpio decision
was already applicable, thus Benguet should have filed the appeal with the
CA.
Petitioner having failed to properly appeal to the CA under Rule 43, the
decision of the MAB has become final and executory. On this ground alone,
the instant petition must be denied.
Even if we entertain the petition although Benguet skirted the appeal
to the CA via Rule 43, still, the December 2, 2002 Decision and March 17,
2004 Resolution of the DENR-MAB in MAB Case No. 0124-01 should be
maintained.
First Issue: The case should have first been brought to
voluntary arbitration before the POA
Secs. 11.01 and 11.02 of the RAWOP pertinently provide:

11.01 Arbitration
Any disputes, differences or disagreements between
BENGUET and the OWNER with reference to anything whatsoever
pertaining to this Agreement that cannot be amicably settled by
them shall not be cause of any action of any kind whatsoever in
any court or administrative agency but shall, upon notice of one
party to the other, be referred to a Board of Arbitrators
consisting of three (3) members, one to be selected by
BENGUET, another to be selected by the OWNER and the third to
be selected by the aforementioned two arbitrators so appointed.
xxxx
11.02 Court Action
No action shall be instituted in court as to any matter in
dispute as hereinabove stated, except to enforce the decision of
the majority of the Arbitrators.[16]

Thus, Benguet argues that the POA should have first referred the case
to voluntary arbitration before taking cognizance of the case, citing Sec. 2 of
RA 876 on persons and matters subject to arbitration.
On the other hand, in denying such argument, the POA ruled that:
While the parties may establish such stipulations clauses,
terms and conditions as they may deem convenient, the same
must not be contrary to law and public policy. At a glance, there
is nothing wrong with the terms and conditions of the
agreement. But to state that an aggrieved party cannot initiate
an action without going to arbitration would be tying ones hand
even if there is a law which allows him to do so.[17]

The MAB, meanwhile, denied Benguets contention on the ground of

estoppel, stating:
Besides, by its own act, Benguet is already estopped in
questioning the jurisdiction of the Panel of Arbitrators to hear
and decide the case. As pointed out in the appealed Decision,
Benguet initiated and filed an Adverse Claim docketed as MAC-R-

M-2000-02 over the same mining claims without undergoing

contractual arbitration. In this particular case (MAC-R-M-2000-02)
now subject of the appeal, Benguet is likewise in estoppel from
questioning the competence of the Panel of Arbitrators to hear
and decide in the summary proceedings J.G. Realtys petition,
when Benguet itself did not merely move for the dismissal of the
case but also filed an Answer with counterclaim seeking
affirmative reliefs from the Panel of Arbitrators.[18]

Moreover, the MAB ruled that the contractual provision on arbitration

merely provides for an additional forum or venue and does not divest the
POA of the jurisdiction to hear the case.[19]
In its July 20, 2004 Comment,[20] J.G. Realty reiterated the above
rulings of the POA and MAB. It argued that RA 7942 or the Philippine Mining
Act of 1995 is a special law which should prevail over the stipulations of the
parties and over a general law, such as RA 876. It also argued that the POA
cannot be considered as a court under the contemplation of RA 876 and
that jurisprudence saying that there must be prior resort to arbitration before
filing a case with the courts is inapplicable to the instant case as the POA is
itself already engaged in arbitration.
On this issue, we rule for Benguet.
Sec. 2 of RA 876 elucidates the scope of arbitration:
Section 2. Persons and matters subject to arbitration.
Two or more persons or parties may submit to the
arbitration of one or more arbitrators any controversy
existing between them at the time of the submission and
which may be the subject of an action, or the parties to
any contract may in such contract agree to settle by
arbitration a controversy thereafter arising between
them. Such submission or contract shall be valid,
enforceable and irrevocable, save upon such grounds as
exist at law for the revocation of any contract.
Such submission or contract may include question[s]
arising out of valuations, appraisals or other controversies which
may be collateral, incidental, precedent or subsequent to any
issue between the parties. (Emphasis supplied.)

In RA 9285 or the Alternative Dispute Resolution Act of 2004, the

Congress reiterated the efficacy of arbitration as an alternative mode of
dispute resolution by stating in Sec. 32 thereof that domestic arbitration
shall still be governed by RA 876. Clearly, a contractual stipulation that
requires prior resort to voluntary arbitration before the parties can go
directly to court is not illegal and is in fact promoted by the State. Thus,
petitioner correctly cites several cases whereby arbitration clauses have
been upheld by this Court.[21]
Moreover, the contention that RA 7942 prevails over RA 876
presupposes a conflict between the two laws. Such is not the case here. To
reiterate, availment of voluntary arbitration before resort is made to the
courts or quasi-judicial agencies of the government is a valid contractual
stipulation that must be adhered to by the parties. As stated in Secs. 6 and 7
of RA 876:
Section 6. Hearing by court.A party aggrieved by the
failure, neglect or refusal of another to perform under an
agreement in writing providing for arbitration may
petition the court for an order directing that such
arbitration proceed in the manner provided for in such
agreement. Five 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 shall hear the parties,
and upon being satisfied that the making of the
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 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 be that no agreement in writing
providing for arbitration was made, or that there is no
default in the proceeding thereunder, the proceeding
shall be dismissed. If the finding be that a written
provision for arbitration was made and there is a default
in proceeding thereunder, an order shall be made
summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof.
xxxx

Section 7. Stay of civil action.If any suit or proceeding be

brought upon an issue arising out of an agreement providing for
the arbitration thereof, the court in which such suit or proceeding
is pending, upon being satisfied that the issue involved in such
suit or proceeding is referable to arbitration, shall stay the action
or proceeding until an arbitration has been had in accordance
with the terms of the agreement: Provided, That the applicant,
for the stay is not in default in proceeding with such arbitration.
(Emphasis supplied.)

In other words, in the event a case that should properly be the subject
of voluntary arbitration is erroneously filed with the courts or quasi-judicial
agencies, on motion of the defendant, the court or quasi-judicial agency shall
determine whether such contractual provision for arbitration is sufficient and
effective. If in affirmative, the court or quasi-judicial agency shall then order
the enforcement of said provision. Besides, in BF Corporation v. Court of
Appeals, we already ruled:
In this connection, it bears stressing that the lower court
has not lost its jurisdiction over the case. Section 7 of Republic
Act No. 876 provides that proceedings therein have only been
stayed. After the special proceeding of arbitration has been
pursued and completed, then the lower court may confirm the
award made by the arbitrator.[22]

J.G. Realtys contention, that prior resort to arbitration is unavailing in

the instant case because the POAs mandate is to arbitrate disputes
involving mineral agreements, is misplaced. A distinction must be made
between voluntary and compulsory arbitration. In Ludo and Luym
Corporation v. Saordino, the Court had the occasion to distinguish between
the two types of arbitrations:
Comparatively, in Reformist Union of R.B. Liner, Inc. vs. NLRC,
compulsory arbitration has been defined both as the process of
settlement of labor disputes by a government agency which
has the authority to investigate and to make an
award which is binding on all the parties, and as a mode of
arbitration where the parties are compelled to accept the
resolution of their dispute through arbitration by a third party.
While a voluntary arbitrator is not part of the governmental
unit or labor departments personnel, said arbitrator renders

arbitration services provided for under labor laws. [23] (Emphasis

supplied.)

There is a clear distinction between compulsory and voluntary

arbitration. The arbitration provided by the POA is compulsory, while the
nature of the arbitration provision in the RAWOP is voluntary, not involving
any government agency. Thus, J.G. Realtys argument on this matter must
fail.
As to J.G. Realtys contention that the provisions of RA 876 cannot
apply to the instant case which involves an administrative agency, it must be
pointed out that Section 11.01 of the RAWOP states that:
[Any controversy with regard to the contract] shall not be
cause of any action of any kind whatsoever in any court
or administrative agency but shall, upon notice of one party to
the other, be referred to a Board of Arbitrators consisting of
three (3) members, one to be selected by BENGUET, another to
be selected by the OWNER and the third to be selected by the
aforementioned
two
arbiters
so
appointed. [24] (Emphasis
supplied.)
There can be no quibbling that POA is a quasi-judicial body which
forms part of the DENR, an administrative agency. Hence, the provision on
mandatory resort to arbitration, freely entered into by the parties, must be
held binding against them.[25]
In sum, on the issue of whether POA should have referred the case to
voluntary arbitration, we find that, indeed, POA has no jurisdiction over the
dispute which is governed by RA 876, the arbitration law.
However, we find that Benguet is already estopped from questioning
the POAs jurisdiction. As it were, when J.G. Realty filed DENR Case No.
2000-01, Benguet filed its answer and participated in the proceedings before
the POA, Region V. Secondly, when the adverse March 19, 2001 POA
Decision was rendered, it filed an appeal with the MAB in Mines
Administrative Case No. R-M-2000-01 and again participated in the MAB

proceedings. When the adverse December 2, 2002 MAB Decision was

promulgated, it filed a motion for reconsideration with the MAB. When the
adverse March 17, 2004 MAB Resolution was issued, Benguet filed a petition
with this Court pursuant to Sec. 79 of RA 7942 impliedly recognizing MABs
jurisdiction. In this factual milieu, the Court rules that the jurisdiction of POA
and that of MAB can no longer be questioned by Benguet at this late hour.
What Benguet should have done was to immediately challenge the POAs
jurisdiction by a special civil action for certiorari when POA ruled that it has
jurisdiction over the dispute. To redo the proceedings fully participated in by
the parties after the lapse of seven years from date of institution of the
original action with the POA would be anathema to the speedy and efficient
administration of justice.
Second Issue: The cancellation of the RAWOP
was supported by evidence
The cancellation of the RAWOP by the POA was based on two grounds:
(1) Benguets failure to pay J.G. Realtys royalties for the mining claims; and
(2) Benguets failure to seriously pursue MPSA Application No. APSA-V-0009
over the mining claims.
As to the royalties, Benguet claims that the checks representing
payments for the royalties of J.G. Realty were available for pick-up in its
office and it is the latter which refused to claim them. Benguet then thus
concludes that it did not violate the RAWOP for nonpayment of royalties.
Further, Benguet reasons that J.G. Realty has the burden of proving that the
former did not pay such royalties following the principle that the
complainants must prove their affirmative allegations.
With regard to the failure to pursue the MPSA application, Benguet
claims that the lengthy time of approval of the application is due to the
failure of the MGB to approve it. In other words, Benguet argues that the
approval of the application is solely in the hands of the MGB.
Benguets arguments are bereft of merit.

Sec. 14.05 of the RAWOP provides:

14.05 Bank Account
OWNER shall maintain a bank account at ___________ or
any other bank from time to time selected by OWNER with notice
in writing to BENGUET where BENGUET shall deposit to the
OWNERs credit any and all advances and payments which may
become due the OWNER under this Agreement as well as the
purchase price herein agreed upon in the event that BENGUET
shall exercise the option to purchase provided for in the
Agreement. Any and all deposits so made by BENGUET
shall be a full and complete acquittance and release
to [sic] BENGUET from any further liability to the OWNER
of the amounts represented by such deposits. (Emphasis
supplied.)

Evidently, the RAWOP itself provides for the mode of royalty payment
by Benguet. The fact that there was the previous practice whereby J.G.
Realty picked-up the checks from Benguet is unavailing. The mode of
payment is embodied in a contract between the parties. As such, the
contract must be considered as the law between the parties and binding on
both.[26] Thus, after J.G. Realty informed Benguet of the bank account where
deposits of its royalties may be made, Benguet had the obligation to deposit
the checks. J.G. Realty had no obligation to furnish Benguet with a Board
Resolution considering that the RAWOP itself provided for such payment
scheme.
Notably, Benguets claim that J.G. Realty must prove nonpayment of its
royalties is both illogical and unsupported by law and jurisprudence.
The allegation of nonpayment is not a positive allegation as claimed by
Benguet. Rather, such is a negative allegation that does not require proof
and in fact transfers the burden of proof to Benguet. Thus, this Court ruled
in Jimenez v. National Labor Relations Commission:
As a general rule, one who pleads payment has the burden
of proving it. Even where the plaintiff must allege non-payment,
the general rule is that the burden rests on the defendant to

prove payment, rather than on the plaintiff to prove nonpayment. The debtor has the burden of showing with legal
certainty that the obligation has been discharged by
payment.[27] (Emphasis supplied.)

In the instant case, the obligation of Benguet to pay royalties to J.G.

Realty has been admitted and supported by the provisions of the RAWOP.
Thus, the burden to prove such obligation rests on Benguet.
It should also be borne in mind that MPSA Application No. APSA-V-0009
has been pending with the MGB for a considerable length of time. Benguet,
in the RAWOP, obligated itself to perfect the rights to the mining claims
and/or otherwise acquire the mining rights to the mineral claims but failed to
present any evidence showing that it exerted efforts to speed up and have
the application approved. In fact, Benguet never even alleged that it
continuously followed-up the application with the MGB and that it was in
constant communication with the government agency for the expeditious
resolution of the application. Such allegations would show that, indeed,
Benguet was remiss in prosecuting the MPSA application and clearly failed to
comply with its obligation in the RAWOP.
Third Issue: There is no unjust enrichment in the instant case
Based on the foregoing discussion, the cancellation of the RAWOP was
based on valid grounds and is, therefore, justified. The necessary implication
of the cancellation is the cessation of Benguets right to prosecute MPSA
Application No. APSA-V-0009 and to further develop such mining claims.
In Car Cool Philippines, Inc. v. Ushio Realty and Development
Corporation, we defined unjust enrichment, as follows:
We have held that [t]here is unjust enrichment when a
person unjustly retains a benefit to the loss of another, or when
a person retains money or property of another against the
fundamental principles of justice, equity and good conscience.
Article 22 of the Civil Code provides that [e]very person who
through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense

of the latter without just or legal ground, shall return the same to
him. The principle of unjust enrichment under Article 22
requires two conditions: (1) that a person is benefited without a
valid basis or justification, and (2) that such benefit is derived at
anothers expense or damage.
There is no unjust enrichment when the person who
will benefit has a valid claim to such benefit. [28] (Emphasis
supplied.)

Clearly, there is no unjust enrichment in the instant case as the

cancellation of the RAWOP, which left Benguet without any legal right to
participate in further developing the mining claims, was brought about by its
violation of the RAWOP. Hence, Benguet has no one to blame but itself for its
predicament.
WHEREFORE, we DISMISS the petition, and AFFIRM the December
2, 2002 Decision and March 17, 2004 Resolution of the DENR-MAB in MAB
Case No. 0124-01 upholding the cancellation of the June 1, 1987 RAWOP. No
costs.
SO ORDERED.

KOREA TECHNOLOGIES CO.,

LTD.,
Petitioner,

G.R. No. 143581

Present:

- versus -

QUISUMBING, J., Chairperson,

CARPIO,
CARPIO MORALES,
HON. ALBERTO A. LERMA, in
TINGA, and
his capacity as Presiding Judge of
VELASCO, JR., JJ.
Branch 256 of Regional Trial
Court of Muntinlupa City, and
PACIFIC GENERAL STEEL
Promulgated:
MANUFACTURING
CORPORATION,

Respondents.
January 7, 2008
x-----------------------------------------------------------------------------------------x
DECISION

VELASCO, JR., J.:

In our jurisdiction, the policy is to favor alternative methods of
resolving disputes, particularly in civil and commercial disputes. Arbitration
along with mediation, conciliation, and negotiation, being inexpensive,
speedy and less hostile methods have long been favored by this Court. The
petition before us puts at issue an arbitration clause in a contract mutually
agreed upon by the parties stipulating that they would submit themselves to
arbitration in a foreign country. Regrettably, instead of hastening the
resolution of their dispute, the parties wittingly or unwittingly prolonged the
controversy.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean
corporation which is engaged in the supply and installation of Liquefied
Petroleum Gas (LPG) Cylinder manufacturing plants, while private
respondent Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic
corporation.
On March 5, 1997, PGSMC and KOGIES executed a Contract [1] whereby
KOGIES would set up an LPG Cylinder Manufacturing Plant in
Carmona, Cavite. The contract was executed in the Philippines. On April 7,
1997, the parties executed, inKorea, an Amendment for Contract No. KLP970301 dated March 5, 1997[2] amending the terms of payment. The
contract and its amendment stipulated that KOGIES will ship the machinery
and facilities necessary for manufacturing LPG cylinders for which PGSMC
would pay USD 1,224,000. KOGIES would install and initiate the operation of
the plant for which PGSMC bound itself to pay USD 306,000 upon the plants
production of the 11-kg. LPG cylinder samples. Thus, the total contract price
amounted to USD 1,530,000.

On October 14, 1997, PGSMC entered into a Contract of Lease [3] with
Worth Properties, Inc. (Worth) for use of Worths 5,079-square meter
property with a 4,032-square meter warehouse building to house the LPG
manufacturing plant. The monthly rental was PhP 322,560 commencing
on January 1, 1998 with a 10% annual increment clause. Subsequently, the
machineries, equipment, and facilities for the manufacture of LPG cylinders
were shipped, delivered, and installed in the Carmona plant. PGSMC paid
KOGIES USD 1,224,000.
However, gleaned from the Certificate [4] executed by the parties on
January 22, 1998, after the installation of the plant, the initial operation could
not be conducted as PGSMC encountered financial difficulties affecting the
supply of materials, thus forcing the parties to agree that KOGIES would be
deemed to have completely complied with the terms and conditions of the
March 5, 1997 contract.
For the remaining balance of USD306,000 for the installation and initial
operation of the plant, PGSMC issued two postdated checks: (1) BPI Check
No. 0316412 dated January 30, 1998 for PhP 4,500,000; and (2) BPI Check
No. 0316413 dated March 30, 1998 for PhP 4,500,000.[5]
When KOGIES deposited the checks, these were dishonored for the
reason PAYMENT STOPPED. Thus, on May 8, 1998, KOGIES sent a demand
letter[6] to PGSMC threatening criminal action for violation of Batas Pambansa
Blg. 22 in case of nonpayment. On the same date, the wife of PGSMCs
President faxed a letter dated May 7, 1998 to KOGIES President who was
then staying at a Makati City hotel. She complained that not only did KOGIES
deliver a different brand of hydraulic press from that agreed upon but it had
not delivered several equipment parts already paid for.
On May 14, 1998, PGSMC replied that the two checks it issued KOGIES
were fully funded but the payments were stopped for reasons previously
made known to KOGIES.[7]
On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling
their Contract dated March 5, 1997 on the ground that KOGIES had altered

the quantity and lowered the quality of the machineries and equipment it
delivered to PGSMC, and that PGSMC would dismantle and transfer the
machineries, equipment, and facilities installed in the Carmona plant. Five
days later, PGSMC filed before the Office of the Public Prosecutor an
Affidavit-Complaint for Estafa docketed as I.S. No. 98-03813 against Mr. Dae
Hyun Kang, President of KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the latter that
PGSMC could not unilaterally rescind their contract nor dismantle and
transfer the machineries and equipment on mere imagined violations by
KOGIES. It also insisted that their disputes should be settled by arbitration
as agreed upon in Article 15, the arbitration clause of their contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents
of its June 1, 1998 letter threatening that the machineries, equipment, and
facilities installed in the plant would be dismantled and transferred on July 4,
1998. Thus, on July 1, 1998, KOGIES instituted an Application for Arbitration
before
the
Korean
Commercial
Arbitration
Board
(KCAB)
in Seoul, Koreapursuant to Art. 15 of the Contract as amended.
On July 3, 1998, KOGIES filed a Complaint for Specific Performance,
docketed as Civil Case No. 98-117 [8] against PGSMC before the Muntinlupa
City Regional Trial Court (RTC). The RTC granted a temporary restraining
order (TRO) on July 4, 1998, which was subsequently extended until July 22,
1998. In its complaint, KOGIES alleged that PGSMC had initially admitted
that the checks that were stopped were not funded but later on claimed that
it stopped payment of the checks for the reason that their value was not
received as the former allegedly breached their contract by altering the
quantity and lowering the quality of the machinery and equipment installed
in the plant and failed to make the plant operational 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
Contract, as amended, by unilaterally rescinding the contract without
resorting to arbitration. KOGIES also asked that PGSMC be restrained from
dismantling and transferring the machinery and equipment installed in the
plant which the latter threatened to do on July 4, 1998.

On July 9, 1998, PGSMC filed an opposition to the TRO arguing that

KOGIES was not entitled to the TRO since Art. 15, the arbitration clause, was
null and void for being against public policy as it ousts the local courts of
jurisdiction over the instant controversy.
On July 17, 1998, PGSMC filed its Answer with Compulsory
Counterclaim[9] asserting that it had the full right to dismantle and transfer
the machineries and equipment because it had paid for them in full as
stipulated in the contract; that KOGIES was not entitled to the PhP 9,000,000
covered by the checks for failing to completely install and make the plant
operational; and that KOGIES was liable for damages amounting to PhP
4,500,000 for altering the quantity and lowering the quality of the
machineries and equipment. Moreover, PGSMC averred that it has already
paid PhP 2,257,920 in rent (covering January to July 1998) to Worth and it
was not willing to further shoulder the cost of renting the premises of the
plant considering that the LPG cylinder manufacturing plant never became
operational.
After the parties submitted their Memoranda, on July 23, 1998, the RTC
issued an Order denying the application for a writ of preliminary injunction,
reasoning that PGSMC had paid KOGIES USD 1,224,000, the value of the
machineries and equipment as shown in the contract such that KOGIES no
longer had proprietary rights over them. And finally, the RTC held that Art.
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 between the
parties. KOGIES prayer for an injunctive writ was denied. [10] The dispositive
portion of the Order stated:

WHEREFORE, in view of the foregoing consideration, this

Court believes and so holds that no cogent reason exists for this
Court to grant the writ of preliminary injunction to restrain and
refrain defendant from dismantling the machineries and facilities
at the lot and building of Worth Properties, Incorporated at
Carmona, Cavite and transfer the same to another site: and
therefore denies plaintiffs application for a writ of preliminary
injunction.

On July 29, 1998, KOGIES filed its Reply to Answer and Answer to
Counterclaim.[11] KOGIES denied it had altered the quantity and lowered the
quality of the machinery, equipment, and facilities it delivered to the
plant. It claimed that it had performed all the undertakings under the
contract and had already produced certified samples of LPG cylinders. It
averred that whatever was unfinished was PGSMCs fault since it failed to
procure raw materials due to lack of funds. KOGIES, relying on Chung Fu
Industries (Phils.), Inc. v. Court of Appeals,[12] insisted that the arbitration
clause was without question valid.
After KOGIES filed a Supplemental Memorandum with Motion to
Dismiss[13] answering PGSMCs memorandum of July 22, 1998 and seeking
dismissal of PGSMCs counterclaims, KOGIES, on August 4, 1998, filed its
Motion for Reconsideration[14] of the July 23, 1998 Order denying its
application for an injunctive writ claiming that the contract was not merely
for machinery and facilities worth USD 1,224,000 but was for the sale of an
LPG manufacturing plant consisting of supply of all the machinery and
facilities and transfer of technology for a total contract price of USD
1,530,000 such that the dismantling and transfer of the machinery and
facilities would result in the dismantling and transfer of the very plant itself
to the great prejudice of KOGIES as the still unpaid owner/seller of the
plant. Moreover, KOGIES points out that the arbitration clause under Art. 15
of the Contract as amended was a valid arbitration stipulation under Art.
2044 of the Civil Code and as held by this Court in Chung Fu Industries
(Phils.), Inc.[15]
In the meantime, PGSMC filed a Motion for Inspection of Things [16] to
determine whether there was indeed alteration of the quantity and lowering
of quality of the machineries and equipment, and whether these were
properly installed. KOGIES opposed the motion positing that the queries and
issues raised in the motion for inspection fell under the coverage of the
arbitration clause in their contract.

On September 21, 1998, the trial court issued an Order (1) granting
PGSMCs motion for inspection; (2) denying KOGIES motion for
reconsideration of the July 23, 1998 RTC Order; and (3) denying KOGIES
motion to dismiss PGSMCs compulsory counterclaims as these
counterclaims fell within the requisites of compulsory counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for
Reconsideration[17] of the September 21, 1998 RTC Order granting inspection
of the plant and denying dismissal of PGSMCs compulsory counterclaims.
Ten days after, on October 12, 1998, without waiting for the resolution
of its October 2, 1998 urgent motion for reconsideration, KOGIES filed before
the Court of Appeals (CA) a petition for certiorari [18] docketed as CA-G.R. SP
No. 49249, seeking annulment of the July 23, 1998 and September 21, 1998
RTC Orders and praying for the issuance of writs of prohibition, mandamus,
and preliminary injunction to enjoin the RTC and PGSMC from inspecting,
dismantling, and transferring the machineries and equipment in the
Carmona plant, and to direct the RTC to enforce the specific agreement on
arbitration to resolve the dispute.
In the meantime, on October 19, 1998, the RTC denied KOGIES urgent
motion for reconsideration and directed the Branch Sheriff to proceed with
the inspection of the machineries and equipment in the plant on October 28,
1998.[19]
Thereafter, KOGIES filed a Supplement to the Petition [20] in CA-G.R. SP
No. 49249 informing the CA about the October 19, 1998 RTC Order. It also
reiterated its prayer for the issuance of the writs of prohibition, mandamus
and preliminary injunction which was not acted upon by the CA. KOGIES
asserted that the Branch Sheriff did not have the technical expertise to
ascertain whether or not the machineries and equipment conformed to the
specifications in the contract and were properly installed.
On November 11, 1998, the Branch Sheriff filed his Sheriffs
Report[21] finding that the enumerated machineries and equipment were not
fully and properly installed.

The Court of Appeals affirmed the trial court and declared

the arbitration clause against public policy

On May 30, 2000, the CA rendered the assailed Decision [22] affirming
the RTC Orders and dismissing the petition for certiorari filed by
KOGIES. The CA found that the RTC did not gravely abuse its discretion in
issuing the assailed July 23, 1998 andSeptember 21, 1998 Orders. Moreover,
the CA 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
contrary to the finding of the RTC that PGSMC fully paid the price of USD
1,224,000, which was for all the machineries and equipment. According to
the CA, this determination by the RTC was a factual finding beyond the ambit
of a petition for certiorari.
On the issue of the validity of the arbitration clause, the CA agreed
with the lower court that an arbitration clause which provided for a final
determination of the legal rights of the parties to the contract by arbitration
was against public policy.
On the issue of nonpayment of docket fees and non-attachment of a
certificate of non-forum shopping by PGSMC, the CA held that the
counterclaims of PGSMC were compulsory ones and payment of docket fees
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
shopping was also not required.
Furthermore, the CA held that the petition for certiorari had been filed
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 CA, the RTC
must be given the opportunity to correct any alleged error it has committed,
and that since the assailed orders were interlocutory, these cannot be the
subject of a petition for certiorari.

Hence, we have this Petition for Review on Certiorari under Rule 45.
The Issues
Petitioner posits that the appellate court committed the following
errors:
a.
PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE
MACHINERY AND FACILITIES AS A QUESTION OF FACT BEYOND
THE AMBIT OF A PETITION FOR CERTIORARI INTENDED ONLY
FOR CORRECTION OF ERRORS OF JURISDICTION OR GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OF (SIC) EXCESS
OF JURISDICTION, AND CONCLUDING THAT THE TRIAL COURTS
FINDING ON THE SAME QUESTION WAS IMPROPERLY RAISED IN
THE PETITION BELOW;
b.
DECLARING AS NULL AND VOID THE ARBITRATION
CLAUSE IN ARTICLE 15 OF THE CONTRACT BETWEEN THE
PARTIES FOR BEING CONTRARY TO PUBLIC POLICY AND FOR
OUSTING THE COURTS OF JURISDICTION;
c.
DECREEING
PRIVATE
RESPONDENTS
COUNTERCLAIMS TO BE ALL COMPULSORY NOT NECESSITATING
PAYMENT OF DOCKET FEES AND CERTIFICATION OF NON-FORUM
SHOPPING;
d.
RULING
THAT
THE
PETITION
WAS
FILED
PREMATURELY WITHOUT WAITING FOR THE RESOLUTION OF THE
MOTION FOR RECONSIDERATION OF THE ORDER DATED
SEPTEMBER 21, 1998 OR WITHOUT GIVING THE TRIAL COURT AN
OPPORTUNITY TO CORRECT ITSELF;
e.
PROCLAIMING THE TWO ORDERS DATED JULY 23
AND SEPTEMBER 21, 1998 NOT TO BE PROPER SUBJECTS OF
CERTIORARI AND PROHIBITION FOR BEING INTERLOCUTORY IN
NATURE;
f.
NOT GRANTING THE RELIEFS AND REMEDIES
PRAYED FOR IN HE (SIC) PETITION AND, INSTEAD, DISMISSING
THE SAME FOR ALLEGEDLY WITHOUT MERIT.[23]

The Courts Ruling

The petition is partly meritorious.

Before we delve into the substantive issues, we shall first tackle the
procedural issues.
The rules on the payment of docket fees for counterclaims
and cross claims were amended effective August 16, 2004
KOGIES strongly argues that when PGSMC filed the counterclaims, it
should have paid docket fees and filed a certificate of non-forum shopping,
and that its failure to do so was a fatal defect.
We disagree with KOGIES.
As aptly ruled by the CA, the counterclaims of PGSMC were
incorporated in its Answer with Compulsory Counterclaim datedJuly 17,
1998 in accordance with Section 8 of Rule 11, 1997 Revised Rules of Civil
Procedure, the rule that was effective at the time the Answer with
Counterclaim was filed. Sec. 8 on existing counterclaim or crossclaim states, A compulsory counterclaim or a cross-claim that a defending
party has at the time he files his answer shall be contained therein.

On July 17, 1998, at the time PGSMC filed its Answer incorporating its
counterclaims against KOGIES, it was not liable to pay filing fees for said
counterclaims being compulsory in nature. We stress, however, that
effective August 16, 2004 under Sec. 7, Rule 141, as amended by A.M. No.
04-2-04-SC, docket fees are now required to be paid in compulsory
counterclaim or cross-claims.
As to the failure to submit a certificate of forum shopping, PGSMCs
Answer is not an initiatory pleading which requires a certification against
forum shopping under Sec. 5[24] of Rule 7, 1997 Revised Rules of Civil
Procedure. It is a responsive pleading, hence, the courts a quo did not
commit reversible error in denying KOGIES motion to dismiss PGSMCs
compulsory counterclaims.

Interlocutory orders proper subject of certiorari

Citing Gamboa v. Cruz,[25] the CA also pronounced that certiorari and
Prohibition are neither the remedies to question the propriety of an
interlocutory order of the trial court. [26] The CA erred on its reliance
on Gamboa. Gamboa involved the denial of a motion to acquit in a criminal
case which was not assailable in an action for certiorari since the denial of a
motion to quash required the accused to plead and to continue with the trial,
and whatever objections the accused had in his motion to quash can then be
used as part of his defense and subsequently can be raised as errors on his
appeal if the judgment of the trial court is adverse to him. The general rule
is that interlocutory orders cannot be challenged by an appeal. [27] Thus,
in Yamaoka v. Pescarich Manufacturing Corporation, we held:
The proper remedy in such cases is an ordinary appeal
from an adverse judgment on the merits, incorporating in said
appeal
the
grounds
for
assailing
the
interlocutory
orders. Allowing appeals from interlocutory orders would result
in the sorry spectacle of a case being subject of a
counterproductive ping-pong to and from the appellate court as
often as a trial court is perceived to have made an error in any of
its
interlocutory
rulings. However,
where
the assailed
interlocutory order was issued with grave abuse of discretion or
patently erroneous and the remedy of appeal would not afford
adequate and expeditious relief, the Court allows certiorari as a
mode of redress.[28]

Also, appeals from interlocutory orders would open the floodgates to

endless occasions for dilatory motions. Thus, where the interlocutory order
was issued without or in excess of jurisdiction or with grave abuse of
discretion, the remedy is certiorari.[29]
The alleged grave abuse of discretion of the respondent court
equivalent to lack of jurisdiction in the issuance of the two assailed orders
coupled with the fact that there is no plain, speedy, and adequate remedy in
the ordinary course of law amply provides the basis for allowing the resort to
a petition for certiorari under Rule 65.

Prematurity of the petition before the CA

Neither do we think that KOGIES was guilty of forum shopping in filing
the petition for certiorari. Note that KOGIES motion for reconsideration of
the July 23, 1998 RTC Order which denied the issuance of the injunctive writ
had already been denied. Thus, KOGIES only remedy was to assail the
RTCs interlocutory order via a petition for certiorari under Rule 65.
While the October 2, 1998 motion for reconsideration of KOGIES of the
September 21, 1998 RTC Order relating to the inspection of things, and the
allowance of the compulsory counterclaims has not yet been resolved, the
circumstances in this case would allow an exception to the rule that before
certiorari may be availed of, the petitioner must have filed a motion for
reconsideration and said motion should have been first resolved by the court
a quo. The reason behind the rule is to enable the lower court, in the first
instance, to pass upon and correct its mistakes without the intervention of
the higher court.[30]
The September 21, 1998 RTC Order directing the branch sheriff to
inspect the plant, equipment, and facilities when he is not competent and
knowledgeable on said matters is evidently flawed and devoid of any legal
support. Moreover, there is an urgent necessity to resolve the issue on the
dismantling of the facilities and any further delay would prejudice the
interests of KOGIES. Indeed, there is real and imminent threat of irreparable
destruction or substantial damage to KOGIES equipment and
machineries. We find the resort to certiorari based on the gravely abusive
orders of the trial court sans the ruling on the October 2, 1998 motion for
reconsideration to be proper.
The Core Issue: Article 15 of the Contract
We now go to the core issue of the validity of Art. 15 of the Contract,
the arbitration clause. It provides:
Article 15. Arbitration.All disputes, controversies, or
differences which may arise between the parties, out of or in

relation to or in connection with this Contract or for the breach

thereof, shall finally be settled by arbitration in Seoul, Korea in
accordance with the Commercial Arbitration Rules of the Korean
Commercial Arbitration Board. The award rendered by the
arbitration(s) shall be final and binding upon both parties
concerned. (Emphasis supplied.)

Petitioner claims the RTC and the CA erred in ruling that the arbitration
clause is null and void.
Petitioner is correct.
Established in this jurisdiction is the rule that the law of the place
where the contract is made governs. Lex loci contractus. The contract in this
case was perfected here in the Philippines. Therefore, our laws ought to
govern. Nonetheless, Art. 2044 of the Civil Code sanctions the validity of
mutually agreed arbitral clause or the finality and binding effect of an arbitral
award. Art. 2044 provides, Any stipulation that the arbitrators award
or decision shall be final, is valid, without prejudice to Articles 2038,
2039 and 2040. (Emphasis supplied.)
Arts. 2038,[31] 2039,[32] and 2040[33] abovecited refer to instances where
a compromise or an arbitral award, as applied to Art. 2044 pursuant to Art.
2043,[34] may be voided, rescinded, or annulled, but these would not
denigrate the finality of the arbitral award.
The arbitration clause was mutually and voluntarily agreed upon by the
parties. It has not been shown to be contrary to any law, or against morals,
good customs, public order, or public policy. There has been no showing
that the parties have not dealt with each other on equal footing. We find no
reason why the arbitration clause should not be respected and complied with
by both parties. In Gonzales v. Climax Mining Ltd.,[35] we held that
submission to arbitration is a contract and that a clause in a contract
providing that all matters in dispute between the parties shall be referred to
arbitration is a contract.[36] Again in Del Monte Corporation-USA v. Court of
Appeals, we likewise ruled that [t]he provision to submit to arbitration any

dispute arising therefrom and the relationship of the parties is part of that
contract and is itself a contract.[37]
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration must be
done in Seoul, Korea in accordance with the Commercial Arbitration Rules of
the KCAB, and that the arbitral award is final and binding, is not contrary to
public policy. This Court has sanctioned the validity of arbitration clauses in
a catena of cases. In the 1957 case of Eastboard Navigation Ltd. v. Juan
Ysmael and Co., Inc.,[38] this Court had occasion to rule that an arbitration
clause to resolve differences and breaches of mutually agreed contractual
terms is valid. In BF Corporation v. Court of Appeals, we held that [i]n this
jurisdiction, arbitration has been held valid and constitutional. Even before
the approval on June 19, 1953 of Republic Act No. 876, this Court has
countenanced the settlement of disputes through arbitration. Republic Act
No. 876 was adopted to supplement the New Civil Codes provisions on
arbitration.[39] And in LM Power Engineering Corporation v. Capitol Industrial
Construction Groups, Inc., we declared that:
Being an inexpensive, speedy and amicable method of
settling disputes, arbitrationalong with mediation, conciliation
and negotiationis encouraged by the Supreme Court. Aside
from unclogging judicial dockets, arbitration also hastens the
resolution of disputes, especially of the commercial kind. It is
thus regarded as the wave of the future in international civil
and commercial disputes. Brushing aside a contractual
agreement calling for arbitration between the parties would be a
step backward.
Consistent with the above-mentioned policy of encouraging
alternative dispute resolution methods, courts should liberally
construe arbitration clauses. Provided such clause is susceptible
of an interpretation that covers the asserted dispute, an order to
arbitrate should be granted. Any doubt should be resolved in
favor of arbitration.[40]

Having said that the instant arbitration clause is not against public
policy, we come to the question on what governs an arbitration clause

specifying that in case of any dispute arising from the contract, an arbitral
panel will be constituted in a foreign country and the arbitration rules of the
foreign country would govern and its award shall be final and binding.
RA 9285 incorporated the UNCITRAL Model law
to which we are a signatory

For domestic arbitration proceedings, we have particular agencies to

arbitrate disputes arising from contractual relations. In case a foreign
arbitral body is chosen by the parties, the arbitration rules of our domestic
arbitration bodies would not be applied. As signatory to the Arbitration Rules
of the UNCITRAL Model Law on International Commercial Arbitration [41] of
the United Nations Commission on International Trade Law (UNCITRAL) in the
New York Convention on June 21, 1985, the Philippines committed itself to be
bound by the Model Law. We have even incorporated the Model Law in
Republic Act No. (RA) 9285, otherwise known as the Alternative Dispute
Resolution Act of 2004 entitled An Act to Institutionalize the Use of an
Alternative Dispute Resolution System in the Philippines and to Establish the
Office
for
Alternative
Dispute
Resolution,
and
for
Other
Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of Chapter 4 of the
Model Law are the pertinent provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION
SEC. 19. Adoption of the Model Law on International
Commercial Arbitration.International commercial arbitration
shall be governed by the Model Law on International Commercial
Arbitration (the Model Law) adopted by the United Nations
Commission on International Trade Law on June 21, 1985 (United
Nations Document A/40/17) and recommended for enactment by
the General Assembly in Resolution No. 40/72 approved on
December 11, 1985, copy of which is hereto attached as
Appendix A.
SEC. 20. Interpretation of Model Law.In interpreting the
Model Law, regard shall be had to its international origin and to
the need for uniformity in its interpretation and resort may be
made to the travaux preparatories and the report of the
Secretary General of the United Nations Commission on

International Trade Law dated March 25, 1985 entitled,

International Commercial Arbitration: Analytical Commentary on
Draft Trade identified by reference number A/CN. 9/264.

While RA 9285 was passed only in 2004, it nonetheless applies in the

instant case since it is a procedural law which has a retroactive
effect. Likewise, KOGIES filed its application for arbitration before the KCAB
on July 1, 1998 and it is still pending because no arbitral award has yet been
rendered. Thus, RA 9285 is applicable to the instant case. Well-settled is
the rule that procedural laws are construed to be applicable to actions
pending and undetermined at the time of their passage, and are deemed
retroactive in that sense and to that extent. As a general rule,
the retroactive application of procedural laws does not violate any personal
rights because no vested right has yet attached nor arisen from them.[42]
Among the pertinent features of RA 9285 applying and incorporating
the UNCITRAL Model Law are the following:
(1)

The RTC must refer to arbitration in proper cases

Under Sec. 24, the RTC does not have jurisdiction over disputes that
are properly the subject of arbitration pursuant to an arbitration clause, and
mandates the referral to arbitration in such cases, thus:
SEC. 24. Referral to Arbitration.A court before which an
action is brought in a matter which is the subject matter of an
arbitration agreement shall, if at least one party so requests not
later than the pre-trial conference, or upon the request of both
parties thereafter, refer the parties to arbitration unless it finds
that the arbitration agreement is null and void, inoperative or
incapable of being performed.

(2)

Foreign arbitral awards must be confirmed by the RTC

Foreign arbitral awards while mutually stipulated by the parties in the

arbitration clause to be final and binding are not immediately enforceable or
cannot be implemented immediately. Sec. 35[43] of the UNCITRAL Model Law
stipulates the requirement for the arbitral award to be recognized by a
competent court for enforcement, which court under Sec. 36 of the
UNCITRAL Model Law may refuse recognition or enforcement on the grounds
provided for. RA 9285 incorporated these provisos to Secs. 42, 43, and 44
relative to Secs. 47 and 48, thus:
SEC. 42. Application of the New York Convention.The
New York Convention shall govern the recognition and
enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards
shall be filed with the Regional Trial Court in accordance with
the rules of procedure to be promulgated by the Supreme Court.
Said procedural rules shall provide that the party relying on the
award or applying for its enforcement shall file with the court the
original or authenticated copy of the award and the arbitration
agreement. If the award or agreement is not made in any of the
official languages, the party shall supply a duly certified
translation thereof into any of such languages.
The applicant shall establish that the country in which
foreign arbitration award was made in party to the New York
Convention.
xxxx
SEC. 43. Recognition and Enforcement of Foreign Arbitral
Awards Not Covered by the New York Convention.The
recognition and enforcement of foreign arbitral awards not
covered by the New York Convention shall be done in accordance
with procedural rules to be promulgated by the Supreme
Court. The Court may, on grounds of comity and reciprocity,
recognize and enforce a non-convention award as a convention
award.
SEC. 44. Foreign Arbitral Award Not Foreign Judgment.
A foreign arbitral award when confirmed by a court of a foreign
country, shall be recognized and enforced as a foreign arbitral
award and not as a judgment of a foreign court.

A foreign arbitral award, when confirmed by the Regional

Trial Court, shall be enforced in the same manner as final and
executory decisions of courts of law of the Philippines
xxxx
SEC.
47. Venue
and
Jurisdiction.Proceedings
for
recognition and enforcement of an arbitration agreement or for
vacations, setting aside, correction or modification of an arbitral
award, and any application with a court for arbitration assistance
and supervision shall be deemed as special proceedings and
shall be filed with the Regional Trial Court (i) where arbitration
proceedings are conducted; (ii) where the asset to be attached
or levied upon, or the act to be enjoined is located; (iii) where
any of the parties to the dispute resides or has his place of
business; or (iv) in the National Judicial Capital Region, at the
option of the applicant.
SEC. 48. Notice of Proceeding to Parties.In a special
proceeding for recognition and enforcement of an arbitral award,
the Court shall send notice to the parties at their address of
record in the arbitration, or if any part cannot be served notice at
such address, at such partys last known address. The notice
shall be sent al least fifteen (15) days before the date set for the
initial hearing of the application.

It is now clear that foreign arbitral awards when confirmed by the RTC
are deemed not as a judgment of a foreign court but as a foreign arbitral
award, and when confirmed, are enforced as final and executory decisions of
our courts of law.
Thus, it can be gleaned that the concept of a final and binding arbitral
award is similar to judgments or awards given by some of our quasi-judicial
bodies, like the National Labor Relations Commission and Mines Adjudication
Board, whose final judgments are stipulated to be final and binding, but not
immediately executory in the sense that they may still be judicially reviewed,
upon the instance of any party. Therefore, the final foreign arbitral awards
are similarly situated in that they need first to be confirmed by the RTC.
(3)

The RTC has jurisdiction to review foreign arbitral awards

Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the

RTC with specific authority and jurisdiction to set aside, reject, or vacate a
foreign arbitral award on grounds provided under Art. 34(2) of the UNCITRAL
Model Law. Secs. 42 and 45 provide:
SEC. 42. Application of the New York Convention.The
New York Convention shall govern the recognition and
enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards
shall be filed with the Regional Trial Court in accordance with
the rules of procedure to be promulgated by the Supreme Court.
Said procedural rules shall provide that the party relying on the
award or applying for its enforcement shall file with the court the
original or authenticated copy of the award and the arbitration
agreement. If the award or agreement is not made in any of the
official languages, the party shall supply a duly certified
translation thereof into any of such languages.
The applicant shall establish that the country in which
foreign arbitration award was made is party to the New York
Convention.
If the application for rejection or suspension of
enforcement of an award has been made, the Regional Trial
Court may, if it considers it proper, vacate its decision and may
also, on the application of the party claiming recognition or
enforcement of the award, order the party to provide appropriate
security.
xxxx
SEC. 45. Rejection of a Foreign Arbitral Award.A party to
a foreign arbitration proceeding may oppose an application for
recognition and enforcement of the arbitral award in accordance
with the procedures and rules to be promulgated by the Supreme
Court only on those grounds enumerated under Article V of the
New York Convention. Any other ground raised shall be
disregarded by the Regional Trial Court.

Thus, while the RTC does not have jurisdiction over disputes governed
by arbitration mutually agreed upon by the parties, still the foreign arbitral

award is subject to judicial review by the RTC which can set aside, reject, or
vacate it. In this sense, what this Court held in Chung Fu Industries (Phils.),
Inc. relied upon by KOGIES is applicable insofar as the foreign arbitral
awards, while final and binding, do not oust courts of jurisdiction since these
arbitral awards are not absolute and without exceptions as they are still
judicially reviewable. Chapter 7 of RA 9285 has made it clear that all arbitral
awards, whether domestic or foreign, are subject to judicial review on
specific grounds provided for.
(4)
Grounds for judicial review different in domestic and foreign
arbitral awards
The differences between a final arbitral award from an international or
foreign arbitral tribunal and an award given by a local arbitral tribunal are
the specific grounds or conditions that vest jurisdiction over our courts to
review the awards.
For foreign or international arbitral awards which must first be
confirmed by the RTC, the grounds for setting aside, rejecting or vacating the
award by the RTC are provided under Art. 34(2) of the UNCITRAL Model Law.
For final domestic arbitral awards, which also need confirmation by the
RTC pursuant to Sec. 23 of RA 876 [44] and shall be recognized as final and
executory decisions of the RTC, [45] they may only be assailed before the RTC
and vacated on the grounds provided under Sec. 25 of RA 876.[46]
(5)

RTC decision of assailed foreign arbitral award appealable

Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy

of an aggrieved party in cases where the RTC sets aside, rejects, vacates,
modifies, or corrects an arbitral award, thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards.A
decision of the Regional Trial Court confirming, vacating, setting
aside, modifying or correcting an arbitral award may be appealed
to the Court of Appeals in accordance with the rules and
procedure to be promulgated by the Supreme Court.

The losing party who appeals from the judgment of the

court confirming an arbitral award shall be required by the
appellate court to post a counterbond executed in favor of the
prevailing party equal to the amount of the award in accordance
with the rules to be promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed
before this Court through a petition for review under Rule 45 of the Rules of
Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA 9285, PGSMC must submit
to the foreign arbitration as it bound itself through the subject
contract. While it may have misgivings on the foreign arbitration done
in Korea by the KCAB, it has available remedies under RA 9285. Its interests
are duly protected by the law which requires that the arbitral award that may
be rendered by KCAB must be confirmed here by the RTC before it can be
enforced.
With our disquisition above, petitioner is correct in its contention that
an arbitration clause, stipulating that the arbitral award is final and binding,
does not oust our courts of jurisdiction as the international arbitral award,
the award of which is not absolute and without exceptions, is still judicially
reviewable under certain conditions provided for by the UNCITRAL Model Law
on ICA as applied and incorporated in RA 9285.
Finally, it must be noted that there is nothing in the subject Contract
which provides that the parties may dispense with the arbitration clause.
Unilateral rescission improper and illegal
Having ruled that the arbitration clause of the subject contract is valid
and binding on the parties, and not contrary to public policy; consequently,
being bound to the contract of arbitration, a party may not unilaterally
rescind or terminate the contract for whatever cause without first resorting
to arbitration.

What this Court held in University of the Philippines v. De Los

Angeles[47] and reiterated in succeeding cases,[48] that the act of treating a
contract as rescinded on account of infractions by the other contracting
party is valid albeit provisional as it can be judicially assailed, is not
applicable to the instant case on account of a valid stipulation on
arbitration. Where an arbitration clause in a contract is availing, neither of
the parties can unilaterally treat the contract as rescinded since whatever
infractions or breaches by a party or differences arising from the contract
must be brought first and resolved by arbitration, and not through an
extrajudicial rescission or judicial action.
The issues arising from the contract between PGSMC and KOGIES on
whether the equipment and machineries delivered and installed were
properly installed and operational in the plant in Carmona, Cavite; the
ownership of equipment and payment of the contract price; and whether
there was substantial compliance by KOGIES in the production of the
samples, given the alleged fact that PGSMC could not supply the raw
materials required to produce the sample LPG cylinders, are matters proper
for arbitration. Indeed, we note that on July 1, 1998, KOGIES instituted an
Application for Arbitration before the KCAB in Seoul, Korea pursuant to Art.
15 of the Contract as amended. Thus, it is incumbent upon PGSMC to abide
by its commitment to arbitrate.
Corollarily, the trial court gravely abused its discretion in granting
PGSMCs Motion for Inspection of Things on September 21, 1998, as the
subject matter of the motion is under the primary jurisdiction of the mutually
agreed arbitral body, the KCAB inKorea.
In addition, whatever findings and conclusions made by the RTC
Branch Sheriff from the inspection made on October 28, 1998, as ordered by
the trial court on October 19, 1998, is of no worth as said Sheriff is not
technically competent to ascertain the actual status of the equipment and
machineries as installed in the plant.
For these reasons, the September 21, 1998 and October 19, 1998 RTC
Orders pertaining to the grant of the inspection of the equipment and
machineries have to be recalled and nullified.

Issue on ownership of plant proper for arbitration

Petitioner assails the CA ruling that the issue petitioner raised on
whether the total contract price of USD 1,530,000 was for the whole plant
and its installation is beyond the ambit of a Petition for Certiorari.
Petitioners position is untenable.
It is settled that questions of fact cannot be raised in an original action
for certiorari.[49] Whether or not there was full payment for the machineries
and equipment and installation is indeed a factual issue prohibited by Rule
65.
However, what appears to constitute a grave abuse of discretion is the
order of the RTC in resolving the issue on the ownership of the plant when it
is the arbitral body (KCAB) and not the RTC which has jurisdiction and
authority over the said issue. The RTCs determination of such factual issue
constitutes grave abuse of discretion and must be reversed and set aside.

RTC has interim jurisdiction to protect the rights of the parties

Anent the July 23, 1998 Order denying the issuance of the injunctive
writ paving the way for PGSMC to dismantle and transfer the equipment and
machineries, we find it to be in order considering the factual milieu of the
instant case.
Firstly, while the issue of the proper installation of the equipment and
machineries might well be under the primary jurisdiction of the arbitral body
to decide, yet the RTC under Sec. 28 of RA 9285 has jurisdiction to hear and
grant interim measures to protect vested rights of the parties. Sec. 28
pertinently provides:

SEC. 28. Grant of interim Measure of Protection.(a) It is

not incompatible with an arbitration agreement for a
party to request, before constitution of the tribunal, from
a Court to grant such measure. After constitution of the
arbitral tribunal and during arbitral proceedings, a request for an
interim measure of protection, or modification thereof, may be
made with the arbitral or to the extent that the arbitral
tribunal has no power to act or is unable to act
effectivity, the request may be made with the Court. The
arbitral tribunal is deemed constituted when the sole arbitrator
or the third arbitrator, who has been nominated, has accepted
the nomination and written communication of said nomination
and acceptance has been received by the party making the
request.
(b) The following rules on interim or provisional relief shall
be observed:
Any party may request that provisional relief be granted
against the adverse party.
Such relief may be granted:
(i)
(ii)
obligation;
(iii)
(iv)

to prevent irreparable loss or injury;

to provide security for the performance of any
to produce or preserve any evidence; or
to compel any other appropriate act or omission.

(c) The order granting provisional relief may be

conditioned upon the provision of security or any act or omission
specified in the order.
(d) Interim or provisional relief is requested by written
application transmitted by reasonable means to the Court or
arbitral tribunal as the case may be and the party against whom
the relief is sought, describing in appropriate detail the precise
relief, the party against whom the relief is requested, the
grounds for the relief, and the evidence supporting the request.
(e) The order shall be binding upon the parties.
(f) Either party may apply with the Court for assistance in
implementing or enforcing an interim measure ordered by an
arbitral tribunal.

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

Art. 17(2) of the UNCITRAL Model Law on ICA defines an interim

measure of protection as:
Article 17. Power of arbitral tribunal to order interim measures
xxx

xxx

xxx

(2) An interim measure is any temporary measure, whether in

the form of an award or in another form, by which, at any time
prior to the issuance of the award by which the dispute is finally
decided, the arbitral tribunal orders a party to:
(a) Maintain or restore the status quo pending determination of
the dispute;
(b) Take action that would prevent, or refrain from taking action
that is likely to cause, current or imminent harm or prejudice to
the arbitral process itself;
(c) Provide a means of preserving assets out of which a
subsequent award may be satisfied; or
(d) Preserve evidence that may be relevant and material to the
resolution of the dispute.

Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and
jurisdiction to issue interim measures:
Article 17 J. Court-ordered interim measures
A court shall have the same power of issuing an interim
measure in relation to arbitration proceedings, irrespective of
whether their place is in the territory of this State, as it has in
relation to proceedings in courts. The court shall exercise such
power in accordance with its own procedures in consideration of
the specific features of international arbitration.

In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro

Corporation, we were explicit that even the pendency of an arbitral
proceeding does not foreclose resort to the courts for provisional reliefs. We
explicated this way:
As a fundamental point, the pendency of arbitral proceedings
does not foreclose resort to the courts for provisional reliefs. The
Rules of the ICC, which governs the parties arbitral dispute,
allows the application of a party to a judicial authority for interim
or conservatory measures. Likewise, Section 14 of Republic Act
(R.A.) No. 876 (The Arbitration Law) recognizes the rights of any
party to petition the court to take measures to safeguard and/or
conserve any matter which is the subject of the dispute in
arbitration. In addition, R.A. 9285, otherwise known as the
Alternative Dispute Resolution Act of 2004, allows the filing of
provisional or interim measures with the regular courts whenever
the arbitral tribunal has no power to act or to act effectively.[50]

It is thus beyond cavil that the RTC has authority and jurisdiction to
grant interim measures of protection.
Secondly, considering that the equipment and machineries are in the
possession of PGSMC, it has the right to protect and preserve the equipment
and machineries in the best way it can. Considering that the LPG plant was
non-operational, PGSMC has the right to dismantle and transfer the
equipment and machineries either for their protection and preservation or for
the better way to make good use of them which is ineluctably within the
management discretion of PGSMC.
Thirdly, and of greater import is the reason that maintaining the
equipment and machineries in Worths property is not to the best interest of
PGSMC due to the prohibitive rent while the LPG plant as set-up is not
operational. PGSMC was losing PhP322,560 as monthly rentals or PhP3.87M
for 1998 alone without considering the 10% annual rent increment in
maintaining the plant.

Fourthly, and corollarily, while the KCAB can rule on motions or

petitions relating to the preservation or transfer of the equipment and
machineries as an interim measure, yet on hindsight, the July 23, 1998 Order
of the RTC allowing the transfer of the equipment and machineries given the
non-recognition by the lower courts of the arbitral clause, has accorded an
interim measure of protection to PGSMC which would otherwise been
irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already been
paid a substantial amount based on the contract. Moreover,KOGIES is amply
protected by the arbitral action it has instituted before the KCAB, the award
of which can be enforced in our jurisdiction through the RTC. Besides, by our
decision, PGSMC is compelled to submit to arbitration pursuant to the valid
arbitration clause of its contract with KOGIES.
PGSMC to preserve the subject equipment and machineries
Finally, while PGSMC may have been granted the right to dismantle
and transfer the subject equipment and machineries, it does not have the
right to convey or dispose of the same considering the pending arbitral
proceedings to settle the differences of the parties. PGSMC therefore must
preserve and maintain the subject equipment and machineries with the
diligence of a good father of a family [51] until final resolution of the arbitral
proceedings and enforcement of the award, if any.

WHEREFORE, this petition is PARTLY GRANTED, in that:

(1)
The May 30, 2000 CA Decision in CA-G.R. SP No. 49249
is REVERSED and SET ASIDE;
(2)
The September 21, 1998 and October 19, 1998 RTC Orders in
Civil Case No. 98-117 are REVERSED 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, andORDERED to preserve
and maintain them until the finality of whatever arbitral award is given in the
arbitration proceedings.
No pronouncement as to costs.
SO ORDERED.

ORMOC
SUGARCANE G.R. No. 156660
PLANTERS ASSOCIATION, INC.
(OSPA),OCCIDENTAL
LEYTE
FARMERS
MULTI-PURPOSE
COOPERATIVE,
INC.
(OLFAMCA), UNIFARM MULTIPURPOSE COOPERATIVE, INC.
(UNIFARM) and ORMOC NORTH
DISTRICT IRRIGATION MULTI- Present:
PURPOSE COOPERATIVE, INC.
(ONDIMCO),
Petitioners,

PUNO, C.J., Chairperson,

CARPIO,

-versus-

CORONA,
LEONARDO-DE CASTRO, and

THE
COURT
OF
APPEALS BERSAMIN, JJ.
(Special
Former
Sixth
Division),
HIDECO
SUGAR
MILLING CO., INC., and ORMOC
SUGAR MILLING CO., INC.,

Respondents.

Promulgated:

August 24, 2009

x----------------------------------------------------------------------------------------x

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a special civil action for certiorari assailing the
Decision[1] dated December 7, 2001 and the Resolution dated October 30,
2002 of the Court of Appeals (CA) in CA-G.R. SP No. 56166 which set aside
the Joint Orders[2] dated August 26, 1999 and October 29, 1999 issued by the
Regional Trial Court (RTC) of Ormoc City, Branch 12 upholding petitioners
legal personality to demand arbitration from respondents and directing
respondents to nominate two arbitrators to represent them in the Board of
Arbitrators.

Petitioners are associations organized by and whose members are

individual sugar planters (Planters). The membership of each association
follows: 264 Planters were members of OSPA; 533 Planters belong to
OLFAMCA; 617 Planters joined UNIFARM; 760 Planters enlisted with
ONDIMCO; and the rest belong to BAP-MPC which did not join the lawsuit.

Respondents Hideco Sugar Milling Co., Inc. (Hideco) and Ormoc Sugar
Milling Co, Inc. (OSCO) are sugar centrals engaged in grinding and milling
sugarcane delivered to them by numerous individual sugar planters, who
may or may not be members of an association such as petitioners.

Petitioners assert that the relationship between respondents and the

individual sugar planters is governed by milling contracts. To buttress this
claim, petitioners presented representative samples of the milling contracts.
[3]

Notably, Article VII of the milling contracts provides that 34% of the
sugar and molasses produced from milling the Planters sugarcane shall
belong to the centrals (respondents) as compensation, 65% thereof shall go
to the Planter and the remaining 1% shall go the association to which the
Planter concerned belongs, as aid to the said association. The 1% aid shall
be used by the association for any purpose that it may deem fit for its
members, laborers and their dependents. If the Planter was not a member of
any association, then the said 1% shall revert to the centrals. Article XIV,
paragraph B[4] states that the centrals may not, during the life of the milling
contract, sign or execute any contract or agreement that will provide better
or more benefits to a Planter, without the written consent of the existing and
recognized associations except to Planters whose plantations are situated in
areas beyond thirty (30) kilometers from the mill. Article XX provides that all
differences and controversies which may arise between the parties
concerning the agreement shall be submitted for discussion to a Board of

Arbitration, consisting of five (5) memberstwo (2) of which shall be

appointed by the centrals, two (2) by the Planter and the fifth to be
appointed by the four appointed by the parties.

On June 4, 1999, petitioners, without impleading any of their individual

members, filed twin petitions with the RTC forArbitration under R.A.
876, Recovery of Equal Additional Benefits, Attorneys Fees and
Damages, against HIDECO and OSCO, docketed as Civil Case Nos. 3696-O
and 3697-O, respectively.

Petitioners claimed that respondents violated the Milling Contract when

they gave to independent planters who do not belong to any association the
1% share, instead of reverting said share to the centrals. Petitioners
contended that respondents unduly accorded the independent Planters 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
contracts. They also demanded that respondents be penalized by increasing
their member Planters 65% share provided in the milling contract by 1%, to
66%.

Respondents filed a motion to dismiss on ground of lack of cause of

action because petitioners had no milling contract with respondents.
According to respondents, only some eighty (80) Planters who were
members of OSPA, one of the petitioners, executed milling contracts.
Respondents and these 80 Planters were the signatories of the milling
contracts. Thus, it was the individual Planters, and not petitioners, who had
legal standing to invoke the arbitration clause in the milling contracts.
Petitioners, not being privy to the milling contracts, had no legal standing
whatsoever to demand or sue for arbitration.

On August 26, 1999, the RTC issued a Joint Order [5] denying the motion
to dismiss, declaring the existence of a milling contract between the parties,
and directing respondents to nominate two arbitrators to the Board of
Arbitrators, to wit:

When these cases were called for hearing today, counsels

for the petitioners and respondents argued their respective
stand. The Court is convinced that there is an existing milling
contract between the petitioners and respondents and these
planters are represented by the officers of the associations. The
petitioners have the right to sue in behalf of the planters.

This Court, acting on the petitions, directs the

respondents to nominate two arbitrators to represent
HIDECO/HISUMCO and OSCO in the Board of Arbitrators within
fifteen (15) days from receipt of this Order. xxx

However, if the respondents fail to nominate their two

arbitrators, upon proper motion by the petitioners, then the
Court will be compelled to use its discretion to appoint the two
(2) arbitrators, as embodied in the Milling Contract and R.A. 876.
xxx

Their subsequent motion for reconsideration having been denied by

the RTC in its Joint Order [6] dated October 29, 1999, respondents elevated
the case to the CA through a Petition for Certiorari with Prayer for the
Issuance of Temporary Restraining Order and/or Writ of Preliminary
Injunction.

On December 7, 2001, the CA rendered its challenged Decision, setting

aside the assailed Orders of the RTC. The CA held that petitioners neither

had an existing contract with respondents nor were they privy to the milling
contracts between respondents and the individual Planters. In the main, the
CA concluded that petitioners had no legal personality to bring the action
against respondents or to demand for arbitration.

Petitioners filed a motion for reconsideration, but it too was denied by

the CA in its Resolution[7] dated October 30, 2002. Thus, the instant petition.

At the outset, it must be noted that petitioners filed the instant petition
for certiorari under Rule 65 of the Rules of Court, to challenge the judgment
of the CA. Section 1 of Rule 65 states:

Section 1. Petition for Certiorari. When any tribunal, board or

officer exercising judicial or quasi-judicial functions has acted
without or in excess of its jurisdiction, or with grave abuse of
discretion amounting to lack or excess of its or his jurisdiction
and there is no appeal, or any plain, speedy and adequate
remedy in the course of law, a person aggrieved thereby may
file a verified petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered annulling or
modifying the proceedings of such tribunal, board or officer, and
granting such incidental relief as law and justice require. xxx xxx
xxx (emphasis ours)

The instant recourse is improper because the resolution of the CA

was a 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
proscribes resort to certiorari because one of the requirements for availment
of the latter is precisely that there should be no appeal. It is 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 jurisdiction; the
requirement that there is no appeal, nor any plain, speedy and adequate

remedy in the ordinary course of law must likewise be satisfied. [8] The
proper mode of recourse for petitioners was to file a petition for review of the
CAs decision under Rule 45.

Petitioners principally argue that the CA committed a grave error in

setting aside the challenged Joint Orders of the RTC which allegedly unduly
curtailed the right of petitioners to represent their planters-members and
enforce the milling contracts with respondents. Petitioners assert the said
which orders were issued in accordance with Article XX of the Milling
Contract and the applicable provisions of Republic Act (R.A.) No. 876.

Where the issue or question involved affects the wisdom or legal

soundness of the decision not the jurisdiction of the court to render said
decision the same is beyond the province of a special civil action for
certiorari. Erroneous findings and conclusions do not render the appellate
court vulnerable to the corrective writ of certiorari. For where the court has
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
certiorari.[9]

Moreover, even if this Court overlooks the procedural lapse committed

by petitioners and decides this matter on the merits, the present petition will
still not prosper.

Stripped to the core, the pivotal issue here is whether or not

petitioners sugar planters associations are clothed with legal
personality to file a suit against, or demand arbitration from, respondents in
their own name without impleading the individual Planters.

On this point, we agree with the findings of the CA.

Section 2 of R.A. No. 876 (the Arbitration Law)[10] pertinently provides:

Sec. 2. Persons and matters subject to arbitration. Two

or more persons or parties may submit to the arbitration
of one or more arbitrators any controversy existing
between them at the time of the submission and which
may be the subject of an action, or the parties to any
contract may in such contract agree to settle by
arbitration a controversy thereafter arising between
them. Such submission or contract shall be valid, enforceable
and irrevocable, save upon such grounds as exist at law for the
revocation of any contract. xxx (Emphasis ours)

The foregoing provision speaks of two modes of arbitration: (a) an

agreement to submit to arbitration some future dispute, usually stipulated
upon in a civil contract between the parties, and known as an agreement to
submit to arbitration, and (b) an agreement submitting an existing matter of
difference to arbitrators, termed the submission agreement. Article XX of
the milling contract is an agreement to submit to arbitration because it was
made in anticipation of a dispute that might arise between the parties after
the contracts execution.

Except where a compulsory arbitration is provided by statute, the first

step toward the settlement of a difference by arbitration is the entry by the
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
liabilities of the parties are controlled by the law of contracts.[11] In an
agreement for arbitration, the ordinary elements of a valid contract must
appear, including an agreement to arbitrate some specific thing, and an
agreement to abide by the award, either in express language or by
implication.

The requirements that an arbitration agreement must be written and

subscribed by the parties thereto were enunciated by the Court in B.F.
Corporation v. CA.[12]

During the proceedings before the CA, it was established that there
were more than two thousand (2,000) Planters in the district at the time the
case was commenced at the RTC in 1999. The CA further found that of those
2,000 Planters, only about eighty (80) Planters, who were all members of
petitioner OSPA, in fact individually executed milling contracts with
respondents. No milling contracts signed by members of the other
petitioners were presented before the CA.

By their own allegation, petitioners are associations duly existing and

organized under Philippine law, i.e. they have juridical personalities separate
and distinct from that of their member Planters. It is likewise undisputed
that the eighty (80) milling contracts that were presented were signed only
by the member Planter concerned and one of the Centrals as parties. In
other words, none of the petitioners were parties or signatories to the milling
contracts. This circumstance is fatal to petitioners' cause since they anchor
their right to demand arbitration from the respondent sugar centrals upon
the arbitration clause found in the milling contracts. There is no legal basis
for petitioners' purported right to demand arbitration when they are not
parties to the milling contracts, especially when the language of the
arbitration clause expressly grants the right to demand arbitration only to
the parties to the contract.

Simply put, petitioners do not have any agreement to arbitrate with

respondents. Only eighty (80) Planters who were all members of OSPA were
shown to have such an agreement to arbitrate, included as a stipulation in
their individual milling contracts. The other petitioners failed to prove that
any of their members had milling contracts with respondents, much less,

that respondents had an agreement to arbitrate with the petitioner

associations themselves.

Even assuming that all the petitioners were able to present milling
contracts in favor of their members, it is undeniable that under the
arbitration clause in these contracts it is the parties thereto who have the
right to submit a controversy or dispute to arbitration.

Section 4 of R.A. 876 provides:

Section 4. Form of Arbitration Agreement A contract to

arbitrate a controversy thereafter arising between the parties, as
well as a submission to arbitrate an existing controversy, shall be
in writing and subscribed by the party sought to be charged, or
by his lawful agent.

The making of a contract or submission for arbitration

described in section two hereof, providing for arbitration of any
controversy, shall be deemed a 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 contract of
submission.

The formal requirements of an agreement to arbitrate are therefore

the following: (a) it must be in writing and (b) it must be subscribed by the
parties or their representatives. To subscribe means to write underneath, as
ones name; to sign at the end of a document. That word may sometimes be
construed to mean to give consent to or to attest.[13]

Petitioners would argue that they could sue respondents,

notwithstanding the fact that they were not signatories in the milling
contracts because they are the recognized representatives of the Planters.

This claim has no leg to stand on since petitioners did not sign the
milling contracts at all, whether as a party or as a representative of their
member Planters. The individual Planter and the appropriate central were
the only signatories to the contracts and there is no provision in the milling
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
contracts.

Moreover, even assuming that petitioners are indeed representatives

of the member Planters who have milling contracts with the respondents and
assuming further that petitioners signed the milling contracts
as representatives of their members, petitioners could not initiate arbitration
proceedings in their own name as they had done in the present case. As
mere agents, they should have brought the suit in the name of the principals
that they purportedly represent. Even if Section 4 of 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 arbitration.

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:

Sec. 2. Parties in interest. A real party in interest is the

party who stands to be benefited or injured by the judgment in
the suit, or the party entitled to the avails of the suit. Unless
otherwise authorized by law or these Rules, every action must be
prosecuted or defended in the name of the real party in interest.

We held in Oco v. Limbaring[14] that:

As applied to the present case, this provision has two
requirements: 1) to 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. Necessarily, the purposes
of this provision are 1) to prevent the prosecution of actions by
persons without any right, title or interest in the case; 2) to
require that the actual party entitled to legal relief be the one to
prosecute the action; 3) to avoid a multiplicity of suits; and 4) to
discourage litigation and keep it within certain bounds, pursuant
to sound public policy.
Interest within the meaning of the Rules means
material interest or an interest in issue to be affected by
the decree or judgment of the case, as distinguished from
mere curiosity about the question involved. One having no
material interest to protect cannot invoke the jurisdiction of the
court as the plaintiff in an action. When the plaintiff is not
the real party in interest, the case is dismissible on the
ground of lack of cause of action.
xxx xxx xxx
The parties to a contract are the real parties in
interest in an action upon it, as consistently held by the
Court. Only the contracting parties are bound by the
stipulations in the contract; they are the ones who would
benefit from and could violate it. Thus, one who is not a
party to a contract, and for whose benefit it was not expressly
made, cannot maintain an action on it. One cannot do
so, even if the contract performed by the contracting
parties
would
incidentally
inure
to
ones
benefit. (emphasis ours)

In Uy v. Court of Appeals,[15] this Court held that the agents of the

parties to 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:

[Petitioners] are mere agents of the owners of the land subject

of the sale. As agents, they only render some service or do
something in representation or on behalf of their principals. The
rendering of such service did not make them parties to
the contracts of sale executed in behalf of the latter. Since a
contract may be violated only by the parties thereto as against
each other, the real parties-in-interest, either as plaintiff
or defendant, in an action upon that contract must,
generally, either be parties to said contract. (emphasis and
words in brackets ours)

The main cause of action of petitioners in their request for arbitration

with the RTC is the alleged violation of the clause in the milling contracts
involving the proportionate sharing in the proceeds of the harvest.
Petitioners essentially demand that respondents increase the share of the
member Planters to 66% to equalize their situation with those of the nonmember Planters. Verily, from petitioners' own allegations, the party who
would be injured or benefited by a decision in the arbitration proceedings will
be the member Planters involved and not petitioners. In sum, petitioners
are not the real parties in interest in the present case.

Assuming petitioners had properly brought the case in the name of

their members who had existing milling contracts with respondents,
petitioners must still prove that they were indeed authorized by the said
members to institute an action for and on the members' behalf. In the same
manner that an officer of the corporation cannot bring action in behalf of a
corporation unless it is clothed with a board resolution authorizing an officer
to do so, an authorization from the individual member planter is a sine qua
nonfor the association or any of its officers to bring an action 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 not necessarily

mean that petitioners have the authority to represent their members in legal
proceedings, including the present arbitration proceedings.

As we see it, petitioners had no intention to litigate the case in a

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
allowed to be prosecuted by a representative, the beneficiary shall be
included in the title of the case and shall be deemed to be the real party in
interest. As repeatedly pointed out earlier, the individual Planters were not
even impleaded as parties to this case. In addition, petitioners need a
power-of-attorney to represent the Planters whether in the lawsuit or to
demand arbitration.[16] None was ever presented here.

Lastly, petitioners theorize that they could demand and sue for
arbitration independently of the Planters because the milling contract is a
contract pour autrui under Article 1311 of the Civil Code.

ART. 1311. Contracts take effect only between the parties,

their assigns 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 provision of law. The heir is
not liable beyond the value of the property he received from the
decedent.

If a contract should contain some stipulation in favor of a

third person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a person is
not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person.

To summarize, the requisites of a stipulation pour autrui or a

stipulation in favor of a third person are the following: (1) there must be a
stipulation in favor of a third person, (2) the stipulation must be a part, not
the whole, of the contract, (3) the contracting parties must have clearly and
deliberately conferred a favor upon a third person, not a mere incidental
benefit or interest, (4) the third person must have communicated his
acceptance to the obligor before its revocation, and (5) neither of the
contracting parties bears the legal representation or authorization of the
third party.[17] These requisites are not present in this case.

Article VI of the Milling Contract is the solitary provision that mentions

some benefit in favor of the association of which the planter is a member
and we quote:

VI
SHARE IN THE SUGAR
Thirty four per centrum (34%) of the sugar ad molasses
resulting from the milling of the PLANTERs sugarcane, as
computed from the weight and analysis of the sugarcane
delivered by the PLANTER, shall belong to the CENTRAL; sixty
five per centum (65%) thereof to the PLANTER, and one 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 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.

CARGILL PHILIPPINES, INC.,

G.R. No. 175404

Petitioner,
Present:

CARPIO, J., Chairperson,

- versus -

NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

SAN
FERNANDO
TRADING, INC.,

REGALA

Promulgated:

Respondent.

January 31, 2011

x--------------------------------------------------x

DECISION

PERALTA, J.:

Before us is a petition for review on certiorari seeking to reverse and

set
aside
the
Decision[1] dated July
31,
2006 and
the
[2]
Resolution dated November 13, 2006 of the Court of Appeals (CA) in CA
G.R. SP No. 50304.

The factual antecedents are as follows:

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

On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend

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

ARBITRATION

Any dispute which the Buyer and Seller may not be able to
settle by mutual agreement shall be settled by arbitration in the
City of New Yorkbefore the American Arbitration Association. The
Arbitration Award shall be final and binding on both parties.[5]

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

Respondent filed an Opposition, wherein it argued that the RTC has

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

In its Reply, petitioner maintained that the cited decisions were

already inapplicable, having been rendered prior to the effectivity of the New
Civil Code in 1950 and the Arbitration Law in 1953.
In its Rejoinder, respondent argued that the arbitration clause relied
upon by petitioner is invalid and unenforceable, considering that the
requirements imposed by the provisions of the Arbitration Law had not been
complied with.

By way of Sur-Rejoinder, petitioner contended that respondent had

even clarified that the issue boiled down to whether the arbitration clause
contained in the contract subject of the complaint is valid and enforceable;
that the arbitration clause did not violate any of the cited provisions of the
Arbitration Law.

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

Premises
considered,
defendant's
Motion
To
Dismiss/Suspend Proceedings and To Refer Controversy To
Voluntary Arbitration is hereby DENIED. Defendant is directed to
file its answer within ten (10) days from receipt of a copy of this
order.[9]

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

binding on both parties. The RTC said that to apply Section 7 of the
Arbitration Law to such an agreement would result in disregarding the other
sections of the same law and rendered them useless and mere surplusages.

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

Petitioner filed a petition for certiorari with the CA raising the sole
issue that the RTC acted in excess of jurisdiction or with grave abuse of
discretion in refusing to dismiss or at least suspend the proceedings a quo,
despite the fact that the party's agreement to arbitrate had not been
complied with.

Respondent filed its Comment and Reply. The parties were then
required to file their respective Memoranda.

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

In denying the petition, the CA found that stipulation providing for

arbitration in contractual obligation is both valid and constitutional; that
arbitration as an alternative mode of dispute resolution has long been
accepted in our jurisdiction and expressly provided for in the Civil Code; that
R.A. No. 876 (the Arbitration Law) also expressly authorized the arbitration
of domestic disputes. The CA found error in the RTC's holding that Section 7
of R.A. No. 876 was inapplicable to arbitration clause simply because the
clause failed to comply with the requirements prescribed by the law. The CA
found that there was nothing in the Civil Code, or R.A. No. 876, that require
that arbitration proceedings must be conducted only in the Philippines and
the arbitrators should be Philippine residents. It also found that the RTC

ruling effectively invalidated not only the disputed arbitration clause, but all
other agreements which provide for foreign arbitration. The CA did not find
illegal or against public policy the arbitration clause so as to render it null
and void or ineffectual.

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

Petitioner's motion for reconsideration was denied in a Resolution

dated November 13, 2006.

Hence, this petition.

Petitioner alleges that the CA committed an error of law in ruling that

arbitration cannot proceed despite the fact that: (a) it had ruled, in its
assailed decision, that the arbitration clause is valid, enforceable and binding
on the parties; (b) the case of Gonzales v. Climax Mining Ltd.[11] is
inapplicable here; (c) parties are generally allowed, under the Rules of Court,
to adopt several defenses, alternatively or hypothetically, even if such

defenses are inconsistent with each other; and (d) the complaint filed by
respondent with the trial court is premature.

Petitioner alleges that the CA adopted inconsistent positions when it

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

Petitioner contends that as the defendant in the RTC, it presented two

alternative defenses, i.e., the parties had not entered into any agreement
upon which respondent as plaintiff can sue upon; and, assuming that such
agreement existed, there was an arbitration clause that should be enforced,
thus, the dispute must first be submitted to arbitration before an action can
be instituted in court. Petitioner argues that under Section 1(j) of Rule 16 of
the Rules of Court, included as a ground to dismiss a complaint is when a
condition precedent for filing the complaint has not been complied with; and
that submission to arbitration when such has been agreed upon is one such
condition precedent. Petitioner submits that the proceedings in the RTC
must be dismissed, or at least suspended, and the parties be ordered to
proceed with arbitration.
On March 12, 2007, petitioner filed a Manifestation [12] saying that the
CA's rationale in declining to order arbitration based on the

2005 Gonzales ruling had been modified upon a motion for reconsideration
decided in 2007; that the CA decision lost its legal basis, because it had been
ruled that the arbitration agreement can be implemented notwithstanding
that one of the parties thereto repudiated the contract which contained such
agreement based on the doctrine of separability.

In its Comment, respondent argues that certiorari under Rule 65 is not

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

Respondent contends that Section 8 of the Rules of Court, which

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

In its Reply, petitioner insists that respondent filed an action for

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

We first address the procedural issue raised by respondent that

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

Section 29.
x x x An appeal may be taken from an order made in a
proceeding under this Act, or from a judgment entered upon an
award through certiorariproceedings, but such appeals shall be
limited to question of law. x x x.

To support its argument, respondent cites the case of Gonzales v.

Climax Mining Ltd.[13] (Gonzales case), wherein we ruled the impropriety of a

petition for certiorari under Rule 65 as a mode of appeal from an RTC Order
directing the parties to arbitration.

We find the cited case not in point.

In the Gonzales case, Climax-Arimco filed before the RTC of

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

We found that Gonzales petition for certiorari raises a question of

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

reviewable by a timely appeal and not assailable by a special civil action

of certiorari.[14]

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

In La Naval Drug Corporation v. Court of Appeals,[15] it was held that

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

In issuing the Order which denied petitioner's Motion to

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

We now proceed to the substantive issue of whether the CA erred in

finding that this case cannot be brought under the arbitration law for the
purpose of suspending the proceedings in the RTC.

We find merit in the petition.

Arbitration, as an alternative mode of settling disputes, has long been

recognized and accepted in our jurisdiction. [16] R.A. No. 876[17] authorizes
arbitration of domestic disputes. Foreign arbitration, as a system of settling
commercial disputes of an international character, is likewise recognized.
[18]
The enactment of R.A. No. 9285 on April 2, 2004 further institutionalized
the use of alternative dispute resolution systems, including arbitration, in the
settlement of disputes.[19]

A contract is required for arbitration to take place and to be binding.

[20]
Submission to arbitration is a contract [21] and a clause in a contract
providing that all matters in dispute between the parties shall be referred to
arbitration is a contract.[22] The provision to submit to arbitration any
dispute arising therefrom and the relationship of the parties is part of the
contract and is itself a contract.[23]
In this case, the contract sued upon by respondent provides for an
arbitration clause, to wit:

ARBITRATION

Any dispute which the Buyer and Seller may not be able to settle
by mutual agreement shall be settled by arbitration in the City of

New York before the American Arbitration Association, The

Arbitration Award shall be final and binding on both parties.

The CA ruled that arbitration cannot be ordered in this case, since

petitioner alleged that the contract between the parties did not exist or was
invalid and arbitration is not proper when one of the parties repudiates the
existence or validity of the contract. Thus, said the CA:

Notwithstanding our ruling on the validity and enforceability of

the assailed arbitration clause providing for foreign arbitration, it
is our considered opinion that the case at bench still cannot be
brought under the Arbitration Law for the purpose of suspending
the proceedings before the trial court. We note that in its Motion
to Dismiss/Suspend Proceedings, etc, petitioner Cargill alleged, as
one of the grounds thereof, that the alleged contract between the
parties do not legally exist or is invalid. As posited by petitioner, it
is their contention that the said contract, bearing the arbitration
clause, was never consummated by the parties. That being the
case, it is but proper that such issue be first resolved by the court
through an appropriate trial. The issue involves a question of fact
that the trial court should first resolve.

Arbitration is not proper when one of the parties

repudiates the existence or validity of the contract. Apropos is
Gonzales v. Climax Mining Ltd., 452 SCRA 607, (G.R.No.161957),
where the Supreme Court held that:

The question of validity of the

contract containing the agreement to submit to
arbitration will affect the applicability of the
arbitration clause itself. A party cannot rely on
the contract and claim rights or obligations
under it and at the same time impugn its

existence or validity. Indeed, litigants are

enjoined from taking inconsistent positions....

Consequently, the petitioner herein cannot claim that the

contract was never consummated and, at the same time,
invokes the arbitration clause provided for under the contract
which it alleges to be non-existent or invalid. Petitioner claims
that private respondent's complaint lacks a cause of action due
to the absence of any valid contract between the parties.
Apparently, the arbitration clause is being invoked merely as a
fallback position. The petitioner must first adduce evidence in
support of its claim that there is no valid contract between them
and should the court a quo find the claim to be meritorious, the
parties may then be spared the rigors and expenses that
arbitration in a foreign land would surely entail.[24]

However, the Gonzales case,[25] which the CA relied upon for not
ordering arbitration, had been modified upon a motion for reconsideration in
this wise:

x x x The adjudication of the petition in G.R. No. 167994

effectively modifies part of the Decision dated 28
February 2005 in G.R. No. 161957. Hence, we now hold
that the validity of the contract containing the agreement
to submit to arbitration does not affect the applicability of
the arbitration clause itself. A contrary ruling would
suggest that a party's mere repudiation of the main
contract is sufficient to avoid arbitration. That is exactly
the situation that the separability doctrine, as well as
jurisprudence applying it, seeks to avoid. We add that when
it was declared in G.R. No. 161957 that the case should not be
brought for arbitration, it should be clarified that the case referred
to is the case actually filed by Gonzales before the DENR Panel of
Arbitrators, which was for the nullification of the main contract on

the ground of fraud, as it had already been determined that the

case should have been brought before the regular courts
involving as it did judicial issues.[26]

In so ruling that the validity of the contract containing the arbitration

agreement does not affect the applicability of the arbitration clause itself, we
then applied the doctrine of separability, thus:

The doctrine of separability, or severability as other writers

call it, enunciates that an arbitration agreement is independent of
the main contract. The arbitration agreement is to be treated as a
separate agreement and the arbitration agreement does not
automatically terminate when the contract of which it is a part
comes
to
an
end.
The separability of the arbitration agreement is especially
significant to the determination of whether the invalidity of the
main contract also nullifies the arbitration clause. Indeed, the
doctrine denotes that the invalidity of the main contract, also
referred to as the "container" contract, does not affect the validity
of the arbitration agreement. Irrespective of the fact that the
main contract is invalid, the arbitration clause/agreement still
remains valid and enforceable.[27]

Respondent argues that the separability doctrine is not applicable in

petitioner's case, since in the Gonzales case, Climax-Arimco sought to
enforce the arbitration clause of its contract with Gonzales and the former's
move was premised on the existence of a valid contract; while Gonzales, who
resisted the move of Climax-Arimco for arbitration, did not deny the
existence of the contract but merely assailed the validity thereof on the
ground of fraud and oppression. Respondent claims that in the case before
Us, petitioner who is the party insistent on arbitration also claimed in their
Motion to Dismiss/Suspend Proceedings that the contract sought by
respondent to be rescinded did not exist or was not consummated; thus,

there is no room for the application of the separability doctrine, since there is
no container or main contract or an arbitration clause to speak of.

We are not persuaded.

Applying the Gonzales ruling, an arbitration agreement which forms

part of the main contract shall not be regarded as invalid or non-existent just
because the main contract is invalid or did not come into existence, since the
arbitration agreement shall be treated as a separate agreement independent
of the main contract. To reiterate. a contrary ruling would suggest that a
party's mere repudiation of the main contract is sufficient to avoid arbitration
and that is exactly the situation that the separability doctrine sought to
avoid. Thus, we find that even the party who has repudiated the main
contract is not prevented from enforcing its arbitration clause.

Moreover, it is worthy to note that respondent filed a complaint for

rescission of contract and damages with the RTC. In so doing, respondent
alleged that a contract exists between respondent and petitioner. It is that
contract which provides for an arbitration clause which states that any
dispute which the Buyer and Seller may not be able to settle by mutual
agreement shall be settled before the City of New York by the American
Arbitration Association. The arbitration agreement clearly expressed the
parties' intention that any dispute between them as buyer and seller should
be referred to arbitration. It is for the arbitrator and not the courts to decide
whether a contract between the parties exists or is valid.

Respondent contends that assuming that the existence of the contract

and the arbitration clause is conceded, the CA's decision declining referral of
the parties' dispute to arbitration is still correct. It claims that its complaint
in the RTC presents the issue of whether under the facts alleged, it is entitled
to rescind the contract with damages; and that issue constitutes a judicial

question or one that requires the exercise of judicial function and cannot be
the subject of an arbitration proceeding. Respondent cites our ruling
inGonzales, wherein we held that a panel of arbitrator is bereft of jurisdiction
over the complaint for declaration of nullity/or termination of the subject
contracts on the grounds of fraud and oppression attendant to the execution
of the addendum contract and the other contracts emanating from it, and
that the complaint should have been filed with the regular courts as it
involved issues which are judicial in nature.

Such argument is misplaced and

the Gonzales case to support its argument.

respondent

cannot

rely

on

In Gonzales, petitioner Gonzales filed a complaint before the Panel of

Arbitrators, Region II, Mines and Geosciences Bureau, of the Department of
Environment and Natural Resources (DENR) against respondents ClimaxMining Ltd, Climax-Arimco and Australasian Philippines Mining Inc, seeking
the declaration of nullity or termination of the addendum contract and the
other contracts emanating from it on the grounds of fraud and oppression.
The Panel dismissed the complaint for lack of jurisdiction. However, the
Panel, upon petitioner's motion for reconsideration, ruled that it had
jurisdiction over the dispute maintaining that it was a mining dispute, since
the subject complaint arose from a contract between the parties which
involved the exploration and exploitation of minerals over the disputed area.
Respondents assailed the order of the Panel of Arbitrators via a petition
for certiorari before the CA. The CA granted the petition and declared that
the Panel of Arbitrators did not have jurisdiction over the complaint, since its
jurisdiction was limited to the resolution of mining disputes, such as those
which raised a question of fact or matter requiring the technical knowledge
and experience of mining authorities and not when the complaint alleged
fraud and oppression which called for the interpretation and application of
laws. The CA further ruled that the petition should have been settled
through arbitration under R.A. No. 876 the Arbitration Law as provided
under the addendum contract.

On a review on certiorari, we affirmed the CAs finding that the Panel of

Arbitrators who, under R.A. No. 7942 of the Philippine Mining Act of 1995,
has exclusive and original jurisdiction to hear and decide mining disputes,
such as mining areas, mineral agreements, FTAAs or permits and surface
owners, occupants and claimholders/concessionaires, is bereft of jurisdiction
over the complaint for declaration of nullity of the addendum contract; thus,
the Panels' jurisdiction is limited only to those mining disputes which raised
question of facts or matters requiring the technical knowledge and
experience of mining authorities. We then said:

In Pearson v. Intermediate Appellate Court, this Court

observed that the trend has been to make the adjudication of
mining cases a purely administrative matter. Decisions of the
Supreme Court on mining disputes have recognized a distinction
between (1) the primary powers granted by pertinent provisions
of law to the then Secretary of Agriculture and Natural Resources
(and the bureau directors) of an executive or administrative
nature, such as granting of license, permits, lease and contracts,
or approving, rejecting, reinstating or canceling applications, or
deciding conflicting applications, and (2) controversies or
disagreements of civil or contractual nature between litigants
which are questions of a judicial nature that may be adjudicated
only by the courts of justice. This distinction is carried on even in
Rep. Act No. 7942.[28]

We found that since the complaint filed before the DENR Panel of
Arbitrators charged respondents with disregarding and ignoring the
addendum contract, and acting in a fraudulent and oppressive manner
against petitioner, the complaint filed before the Panel was not a dispute
involving rights to mining areas, or was it a dispute involving claimholders or
concessionaires, but essentially judicial issues. We then said that the Panel
of Arbitrators did not have jurisdiction over such issue, since it does not

involve the application of technical knowledge and expertise relating to

mining. It is in this context that we said that:

Arbitration before the Panel of Arbitrators is proper only

when there is a disagreement between the parties as to some
provisions of the contract between them, which needs the
interpretation and the application of that particular knowledge
and expertise possessed by members of that Panel. It is not
proper when one of the parties repudiates the existence or
validity of such contract or agreement on the ground of fraud or
oppression as in this case. The validity of the contract cannot be
subject of arbitration proceedings. Allegations of fraud and
duress in the execution of a contract are matters within the
jurisdiction of the ordinary courts of law. These questions are
legal in nature and require the application and interpretation of
laws and jurisprudence which is necessarily a judicial function. [29]

In fact, We even clarified in our resolution on Gonzales motion for

reconsideration that when we declared that the case should not be brought
for arbitration, it should be clarified that the case referred to is the case
actually filed by Gonzales before the DENR Panel of Arbitrators, which was
for the nullification of the main contract on the ground of fraud, as it had
already been determined that the case should have been brought before the
regular courts involving as it did judicial issues. We made such clarification
in our resolution of the motion for reconsideration after ruling that the
parties in that case can proceed to arbitration under the Arbitration Law, as
provided under the Arbitration Clause in their Addendum Contract.

WHEREFORE, the petition is GRANTED. The Decision dated July 31,

2006 and the Resolution dated November 13, 2006of the Court of Appeals in
CA-G.R. SP No. 50304 are REVERSED and SET ASIDE. The parties are

hereby ORDERED toSUBMIT themselves to the arbitration of their dispute,

pursuant to their July 11, 1996 agreement.

SO ORDERED.

JORGE GONZALES and

PANEL OF ARBITRATORS,
Petitioners,

versus

CLIMAX MINING LTD.,

CLIMAX-ARIMCO MINING CORP.,
and AUSTRALASIAN PHILIPPINES
MINING INC.,
Respondents.

G.R. No. 161957

Present:
PUNO, C. J.,
Chairperson,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
NAZARIO, JJ.
Promulgated:
January 22, 2007

x--------------------------------------------------------------------------------- x
JORGE GONZALES,
Petitioner,
-

G.R. No. 167994

versus

HON. OSCAR B. PIMENTEL, in his

capacity as PRESIDING JUDGE of BR. 148
of the REGIONAL TRIAL COURT of
MAKATI CITY, and CLIMAX-ARIMCO
MINING CORPORATION,
Respondents.
x-------------------------- --------------------------------------------------- x

R E S O L U T I ON
TINGA, J.:
This is a consolidation of two petitions rooted in the same disputed
Addendum Contract entered into by the parties. In G.R. No. 161957, the
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
Arbitrators had no jurisdiction over the complaint for the annulment of the
Addendum Contract on grounds of fraud and violation of the Constitution and
that the action should have been brought before the regular courts as it
involved judicial issues. Both parties filed separate motions for
reconsideration. Gonzales avers in his Motion for Reconsideration [2] that the
Court erred in holding that the DENR Panel of Arbitrators was bereft of
jurisdiction, reiterating its argument that the case involves a mining dispute
that properly falls within the ambit of the Panels authority. 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 Arbitrators and the
timeliness of its filing.
Respondents Climax Mining Ltd., et al., (respondents) filed their Motion
for Partial Reconsideration and/or Clarification [3]seeking reconsideration of
that 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
Law.[4] Respondents, citing American jurisprudence[5] and the UNCITRAL
Model Law,[6] argue that the arbitration clause in the Addendum Contract
should be treated as an agreement independent of the other terms of the
contract, and that a claimed rescission of the main contract does not avoid
the duty to arbitrate. Respondents add that Gonzaless argument relating 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 the
motion to compel arbitration. Pending judgment in such separate action, the
Addendum Contract remains valid and binding and so does the arbitration
clause therein. Respondents add that the holding in the Decision that the
case should not be brought under the ambit of the Arbitration Law appears
to be premised on Gonzaless having impugn[ed] the existence or validity

of the addendum contract. If so, it supposedly conveys the idea that

Gonzaless unilateral repudiation of the contract or mere allegation of its
invalidity is all it takes to avoid arbitration. Hence, respondents submit that
the courts holding that the case should not be brought under the ambit of
the Arbitration Law be understood or clarified as operative only where the
challenge to the arbitration agreement has been sustained by final
judgment.
Both parties were required to file their respective comments to the
other partys motion for reconsideration/clarification. [7] Respondents filed
their Comment on 17 August 2005,[8] while Gonzales filed his only on 25 July
2006.[9]
On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6 May
2005, or while the motions for reconsideration in G.R. No. 161957 [10] were
pending, wherein Gonzales challenged the orders of the Regional Trial Court
(RTC) requiring him to proceed with the arbitration proceedings as sought by
Climax-Arimco Mining Corporation (Climax-Arimco).
On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were
consolidated upon the recommendation of the Assistant Division Clerk of
Court since the cases are rooted in the same Addendum Contract.
We first tackle the more recent case which is G.R. No. 167994. It
stemmed from the petition to compel arbitration filed by respondent ClimaxArimco before the RTC of Makati City on 31 March 2000 while the complaint
for the nullification of the Addendum Contract was pending before the DENR
Panel of Arbitrators. On 23 March 2000, Climax-Arimco had sent Gonzales a
Demand for Arbitration pursuant to Clause 19.1[11] of the Addendum Contract
and also in accordance with Sec. 5 of R.A. No. 876. The petition for
arbitration was subsequently filed and Climax-Arimco sought an order to
compel the parties to arbitrate pursuant to the said arbitration clause. The
case, docketed as Civil Case No. 00-444, was initially raffled to Br. 132 of the
RTC of Makati City, with Judge Herminio I. Benito as Presiding
Judge. Respondent Climax-Arimco filed on 5 April 2000 a motion to set the
application to compel arbitration for hearing.

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
Counterclaim,[12] questioning the validity of the Addendum Contract
containing the arbitration clause. Gonzales alleged that the Addendum
Contract containing the arbitration clause is void in view of Climax-Arimcos
acts of fraud, oppression and violation of the Constitution. Thus, the
arbitration clause, Clause 19.1, contained in the Addendum Contract is also
null and void ab initio and legally inexistent.
On 18 May 2000, the RTC issued an order declaring Gonzaless motion
to dismiss moot and academic in view of the filing of his Answer with
Counterclaim.[13]
On 31 May 2000, Gonzales asked the RTC to set the case for pre-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,
on 7 July 2000, the RTC granted Gonzaless motion for reconsideration of
the 16 June 2000 Order and set the case for pre-trial on 10 August 2000, it
being of the view that Gonzales had raised in his answer the issue of the
making of the arbitration agreement.[16]
Climax-Arimco then filed a motion to resolve its pending motion to
compel arbitration. The RTC denied the same in its 24 July 2000 order.
On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge Herminio
I. Benito for not possessing the cold neutrality of an impartial
judge.[17] On 5 August 2000, Judge Benito issued an Order granting the
Motion to Inhibit and ordered the re-raffling of the petition for arbitration.
[18]
The case was raffled to the sala of public respondent Judge Oscar B.
Pimentel of Branch 148.
On 23 August 2000, Climax-Arimco filed a motion for reconsideration
of the 24 July 2000 Order.[19] Climax-Arimco argued that R.A. No. 876 does

not authorize a pre-trial or trial for a motion to compel arbitration but directs
the court to hear the motion summarily and resolve it within ten days from
hearing. Judge Pimentel granted the motion and directed the parties to
arbitration. On13 February 2001, Judge Pimentel issued the first assailed
order requiring Gonzales to proceed with arbitration proceedings and
appointing retired CA Justice Jorge Coquia as sole arbitrator. [20]
Gonzales moved for reconsideration on 20 March 2001 but this was
denied in the Order dated 7 March 2005.[21]
Gonzales thus filed the Rule 65 petition assailing the Orders dated 13
February 2001 and 7 March 2005 of Judge Pimentel. Gonzales contends that
public respondent Judge Pimentel acted with grave abuse of discretion in
immediately ordering the parties to proceed with arbitration despite the
proper, valid, and timely raised argument in his Answer with Counterclaim
that the Addendum Contract, containing the arbitration clause, is null and
void. Gonzales has also sought a temporary restraining order to prevent the
enforcement of the assailed orders directing the parties to arbitrate, and to
direct Judge Pimentel to hold a pre-trial conference and the necessary
hearings on the determination of the nullity of the Addendum Contract.
In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876:
SEC. 6. Hearing by court.A party aggrieved by the
failure, neglect or refusal of another to perform under an
agreement in writing providing for arbitration may petition the
court for an order directing that such arbitration proceed in the
manner provided for in such agreement. Five 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 shall hear the parties, and upon being satisfied that the
making of the 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 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 be that no agreement in writing providing for
arbitration was made, or that there is no default in the
proceeding thereunder, the proceeding shall be dismissed. If

the finding be that a written provision for arbitration was made

and there is a default in proceeding thereunder, an order shall
be made summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof.
The court shall decide all motions, petitions or
applications filed under the provisions of this Act, within ten
(10) days after such motions, petitions, or applications have
been heard by it.

Gonzales also cites Sec. 24 of R.A. No. 9285 or the Alternative Dispute
Resolution Act of 2004:
SEC. 24. Referral to Arbitration.A court before which an
action is brought in a matter which is the subject matter of an
arbitration agreement shall, if at least one party so requests not
later than the pre-trial conference, or upon the request of both
parties thereafter, refer the parties to arbitration unless it finds
that the arbitration agreement is null and void, inoperative or
incapable of being performed.

According to Gonzales, the above-quoted provisions of law outline the

procedure to be followed in petitions to compel arbitration, which the RTC
did not follow. Thus, referral of the parties to arbitration by Judge Pimentel
despite the timely and properly raised issue of nullity of the Addendum
Contract was misplaced and without legal basis. Both R.A. No. 876 and R.A.
No. 9285 mandate that any issue as to the nullity, inoperativeness, or
incapability of performance of the arbitration clause/agreement raised by
one of the parties to the alleged arbitration agreement must be determined
by the court prior to referring them to arbitration. They require that the trial
court first determine or resolve the issue of nullity, and there is no other
venue for this determination other than a pre-trial and hearing on the issue
by the trial court which has jurisdiction over the case. Gonzales adds that
the assailed 13 February 2001 Order also violated his right to procedural due
process when the trial court erroneously ruled on the existence of the
arbitration agreement despite the absence of a hearing for the presentation
of evidence on the nullity of the Addendum Contract.

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:
SEC. 29. Appeals.An appeal may be taken from an
order made in a proceeding under this Act, or from a judgment
entered upon an award through certiorari proceedings, but such
appeals shall be limited to questions of law. The proceedings
upon such an appeal, including the judgment thereon shall be
governed by the Rules of Court in so far as they are applicable.

Climax-Arimco mentions that the special civil action for certiorari

employed by Gonzales is available only where there is no appeal or any
plain, 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 provides for an appeal from such orders, which, under the Rules of
Court, 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
time. Gonzales has not denied that the relevant 15-day period for an appeal
had elapsed long before he filed this petition for certiorari. He cannot use
the special civil action of certiorari as a remedy for a lost appeal.
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
jurisdiction, i.e., a jurisdiction solely to determine (a) whether or not the
parties have a written contract to arbitrate, and (b) if the defendant has
failed to comply with that contract. Respondent cites La Naval Drug
Corporation v. Court of Appeals,[22] which holds that in a proceeding to
compel arbitration, [t]he arbitration law explicitly confines the courts
authority only to pass upon the issue of whether there is or there is no
agreement in writing providing for arbitration, and [i]n the affirmative, the
statute ordains that the court shall issue an order summarily directing the
parties to proceed with the arbitration in accordance with the terms
thereof.[23] Climax-Arimco argues that R.A. No. 876 gives no room for any
other issue to be dealt with in such a proceeding, and that the court
presented with an application to compel arbitration may order arbitration or

dismiss the same, depending solely on its finding as to those two limited
issues. If either of these matters is disputed, the court is required to conduct
a summary hearing on it. Gonzaless proposition contradicts both the trial
courts limited jurisdiction and the summary nature of the proceeding itself.
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 clause in the Contract. The arbitration agreement is separate and
severable from the contract evidencing the parties commercial or economic
transaction, it stresses. Hence, the alleged defect or failure of the main
contract is not a ground to deny enforcement of the parties arbitration
agreement. Even the party who has repudiated the main contract is not
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
particular paragraph 1 of Sec. 2 thereof, considers the arbitration stipulation
an independent contract in its own right whose enforcement may be
prevented only on grounds which legally make the arbitration agreement
itself revocable, thus:
SEC. 2. Persons and matters subject to arbitration.Two
or more persons or parties may submit to the arbitration of one
or more arbitrators any controversy existing, between them at
the time of the submission and which may be the subject of an
action, or the parties to any contract may in such contract
agree to settle by arbitration a controversy thereafter arising
between them. Such submission or contract shall be valid,
enforceable and irrevocable, save upon such grounds as exist
at law for the revocation of any contract.
xxxx

The grounds Gonzales invokes for the revocation of the Addendum

Contractfraud and oppression in the execution thereofare also not
grounds for the revocation of the arbitration clause in the Contract, ClimaxArimco notes. Such grounds may only be raised by way of defense in the
arbitration itself and cannot be used to frustrate or delay the conduct of

arbitration proceedings. Instead, these should be raised in a separate action

for rescission, it continues.
Climax-Arimco emphasizes that the summary proceeding to compel
arbitration under Sec. 6 of R.A. No. 876 should not be confused with the
procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of R.A. No. 876 refers to an
application to compel arbitration where the courts authority is limited to
resolving the issue of whether there is or there is no agreement in writing
providing for arbitration, while Sec. 24 of R.A. No. 9285 refers to an ordinary
action which covers a matter that appears to be arbitrable or subject to
arbitration under the arbitration agreement. In the latter case, 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 finds that the
arbitration agreement is null and void, inoperative or incapable of being
performed. Arbitration may even be ordered in the same suit brought upon
a matter covered by an arbitration agreement even without waiting for the
outcome of the issue of the validity of the arbitration agreement. Art. 8 of
the UNCITRAL Model Law[24] states that where a court before which an action
is brought in a matter which is subject of an arbitration agreement refers the
parties to arbitration, the arbitral proceedings may proceed even while the
action is pending.
Thus, the main issue raised in the Petition for Certiorari is whether it
was proper for the RTC, in the proceeding to compel arbitration under R.A.
No. 876, to order the parties to arbitrate even though the defendant therein
has raised the twin issues of validity and nullity of the Addendum Contract
and, consequently, of the arbitration clause therein as well. The resolution of
both Climax-Arimcos Motion for Partial Reconsideration and/or Clarification
in G.R. No. 161957 and Gonzaless Petition for Certiorari in G.R. No. 167994
essentially turns on whether the question of validity of the Addendum
Contract bears upon the applicability or enforceability of the arbitration
clause contained therein. The two pending matters shall thus be jointly
resolved.
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 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
use of an erroneous mode of appeal is cause for dismissal of the petition for
certiorari and it has been repeatedly stressed that a petition for certiorari is
not a substitute for a lost appeal. As its nature, a petition for certiorari lies
only where there is no appeal, and no plain, speedy and adequate remedy
in the ordinary course of law.[25] The Arbitration Law specifically provides for
an appeal by certiorari, i.e., a petition for review 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 of the permissive term may in
Sec. 29, R.A. No. 876 in the filing of appeals does not prohibit nor discount
the filing of a petition for certiorari under Rule 65. [27] Proper interpretation of
the aforesaid provision of law shows that the term may refers only to the
filing of an appeal, not to the mode of review to be employed. Indeed, the
use of may merely reiterates the principle that the right to appeal is not
part of due process of law but is a mere statutory privilege to be exercised
only in the manner and in accordance with law.
Neither can BF Corporation v. Court of Appeals [28] cited by Gonzales
support his theory. Gonzales argues that said case recognized and allowed a
petition for certiorari under Rule 65 appealing the order of the Regional Trial
Court disregarding the arbitration agreement as an acceptable
remedy.[29] The BF Corporation case had its origins in a complaint for
collection of sum of money filed by therein petitioner BF Corporation against
Shangri-la Properties, Inc. (SPI). SPI moved to suspend the proceedings
alleging that the construction agreement or the Articles of Agreement
between the parties contained a clause requiring prior resort to arbitration
before judicial intervention. The trial court found that an arbitration clause
was incorporated in the Conditions of Contract appended to and deemed an
integral part of the Articles of Agreement. Still, the trial court denied the
motion to suspend proceedings upon a finding that the Conditions of
Contract were not duly executed and signed by the parties. 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. The trial court
denied SPI's motion for reconsideration and ordered it to file its responsive
pleading. Instead of filing an answer, SPI filed a petition for certiorari under

Rule 65, which the Court of Appeals, favorably acted upon. In a petition for
review before this Court, BF Corporation alleged, among others, that the
Court of Appeals should have dismissed the petition for certiorari since the
order of the trial court denying the motion to suspend proceedings is a
resolution of an incident on the merits and upon the continuation of the
proceedings, the trial court would eventually render a decision on the merits,
which decision could then be elevated to a higher court in an ordinary
appeal.[30]
The Court did not uphold BF Corporations argument. The issue raised
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
whether the trial court had prematurely assumed jurisdiction over the
controversy. The question of jurisdiction in turn depended on the question of
existence of the arbitration clause which is one of fact. While on its face 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 question
obliged the Court of Appeals as it did to interpret the contract documents in
accordance with R.A. No. 876 and existing jurisprudence, the question is
likewise a question of law which may be properly taken cognizance of in a
petition for certiorari under Rule 65, so the Court held.[31]
The situation in B.F. Corporation is not availing in the present
petition. The disquisition in B.F. Corporation led to the conclusion that in
order that the 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 proceeding. In the present case, Gonzaless petition raises a
question of law, but not a question of jurisdiction. Judge Pimentel acted in
accordance with the procedure prescribed in R.A. No. 876 when he ordered
Gonzales to proceed with arbitration and appointed a sole arbitrator after
making the determination that there was indeed an arbitration
agreement. It has been held that as long as a court acts within its
jurisdiction and does not gravely abuse its discretion in the exercise thereof,
any supposed error committed by it will amount to nothing more than an
error of judgment reviewable by a timely appeal and not assailable by a
special civil action of certiorari.[32] Even if we overlook the employment of

the wrong remedy in the broader interests of justice, the petition would
nevertheless be dismissed for failure of Gonzalez to show grave abuse of
discretion.
Arbitration, as an alternative mode of settling disputes, has long been
recognized and accepted in our jurisdiction. The Civil Code is explicit on the
matter.[33] R.A. No. 876 also expressly authorizes arbitration of domestic
disputes. Foreign arbitration, as a system of settling commercial disputes of
an international character, was likewise recognized when the Philippines
adhered to the United Nations "Convention on the Recognition and the
Enforcement of Foreign Arbitral Awards of 1958," under the 10 May 1965
Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and
allowing enforcement of international arbitration agreements between
parties of different nationalities within a contracting state.[34] The enactment
of R.A. No. 9285 on 2 April 2004further institutionalized the use of alternative
dispute resolution systems, including arbitration, in the settlement of
disputes.
Disputes do not go to arbitration unless and until the parties have
agreed to abide by the arbitrators decision. Necessarily, a contract is
required for arbitration to take place and to be binding. R.A. No. 876
recognizes the contractual nature of the arbitration agreement, thus:
SEC. 2. Persons and matters subject to arbitration.Two
or more persons or parties may submit to the arbitration of
one or more arbitrators any controversy existing,
between them at the time of the submission and which may
be the subject of an action, or the parties to any contract may
in such contract agree to settle by arbitration a controversy
thereafter arising between them. Such submission or
contract shall be valid, enforceable and irrevocable,
save upon such grounds as exist at law for the
revocation of any contract.
Such submission or contract may include question
arising out of valuations, appraisals or other controversies
which may be collateral, incidental, precedent or subsequent to
any issue between the parties.

A controversy cannot be arbitrated where one of the

parties to the controversy is an infant, or a person judicially
declared to be incompetent, unless the appropriate court
having jurisdiction approve a petition for permission to submit
such controversy to arbitration made by the general guardian or
guardian ad
litem of
the
infant
or
of
the
incompetent. [Emphasis added.]

Thus, we held in Manila Electric Co. v. Pasay Transportation Co. [35] that
a submission to arbitration is a contract. A clause in a contract providing that
all matters in dispute between the parties shall be referred to arbitration is a
contract,[36] and in Del Monte Corporation-USA v. Court of Appeals[37] that
[t]he provision to submit to arbitration any dispute arising therefrom and
the relationship of the parties is part of that contract and is itself a
contract. As a rule, contracts are respected as the law between the
contracting parties and produce effect as between them, their assigns and
heirs.[38]
The special proceeding under Sec. 6 of R.A. No. 876 recognizes the
contractual nature of arbitration clauses or agreements. It provides:
SEC. 6. Hearing by court.A party aggrieved by the
failure, neglect or refusal of another to perform under
an agreement in writing providing for arbitration may
petition the court for an order directing that such arbitration
proceed in the manner provided for in such agreement. Five
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 shall hear the parties, and upon being
satisfied that the making of the 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 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 be that
no agreement in writing providing for arbitrationwas
made, or that there is no default in the proceeding thereunder,
the proceeding shall be dismissed. If the finding be that
a written provision for arbitration was made and there is a
default in proceeding thereunder, an order shall be made

summarily directing the parties to proceed with the arbitration

in accordance with the terms thereof.
The court shall decide all motions, petitions or
applications filed under the provisions of this Act, within ten
days after such motions, petitions, or applications have been
heard by it. [Emphasis added.]

This special proceeding is the procedural mechanism for the

enforcement 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 expounded upon in La Naval Drug Corporation v. Court of
Appeals.[39] There it was held that R.A. No. 876 explicitly confines the court's
authority only to the determination of whether or not there is an agreement
in writing providing for arbitration. In the affirmative, the statute ordains
that the court shall issue an order "summarily directing the parties to
proceed with the arbitration in accordance with the terms thereof." If the
court, upon the other hand, finds that no such agreement exists, "the
proceeding shall be dismissed."[40] The cited case also stressed that the
proceedings are summary in nature.[41] The same thrust was made in the
earlier case of Mindanao Portland Cement Corp. v. McDonough Construction
Co. of Florida[42] which held, thus:
Since there obtains herein a written provision for
arbitration as well as failure on respondent's part to comply
therewith, the court a quorightly ordered the parties to proceed
to arbitration in accordance with the terms of their agreement
(Sec. 6, Republic Act 876). Respondent's arguments touching
upon the merits of the dispute are improperly raised herein.
They should be addressed to the arbitrators. This proceeding is
merely a summary remedy to enforce the agreement to
arbitrate. The duty of the court in this case is not to resolve the
merits of the parties' claims but only to determine if they should
proceed to arbitration or not. x x x x[43]

Implicit in the summary nature of the judicial proceedings is the

separable or independent character of the arbitration clause or

agreement. This was highlighted in the cases of Manila Electric Co.

v. Pasay Trans. Co.[44] and Del Monte Corporation-USA v. Court of Appeals.[45]
The doctrine of separability, or severability as other writers call
it, enunciates that an arbitration agreement is independent of the main
contract. The arbitration agreement is to be treated as a separate
agreement and the arbitration agreement does not automatically terminate
when the contract of which it is part comes to an end.[46]

The separability of the arbitration agreement is especially significant to

the determination of whether the invalidity of the main contract also nullifies
the arbitration clause. Indeed, the doctrine denotes that the invalidity of the
main contract, also referred to as the container contract, does not affect
the validity of the arbitration agreement. Irrespective of the fact that the
main contract is invalid, the arbitration clause/agreement still remains valid
and enforceable.[47]
The separability of the arbitration clause is confirmed in Art. 16(1) of
the UNCITRAL Model Law and Art. 21(2) of the UNCITRAL Arbitration Rules.[48]
The separability doctrine was dwelt upon at length in the U.S. case
of Prima Paint Corp. v. Flood & Conklin Manufacturing Co. [49] In that case,
Prima Paint and Flood and Conklin (F & C) entered into a consulting
agreement whereby F & C undertook to act as consultant to Prima Paint for
six years, sold to Prima Paint a list of its customers and promised not to sell
paint to these customers during the same period. The consulting agreement
contained an arbitration clause. Prima Paint did not make payments as
provided in the consulting agreement, contending that F & C had
fraudulently misrepresented that it was solvent and able for perform its
contract when in fact it was not and had even intended to file for bankruptcy
after executing the consultancy agreement. Thus, F & C served 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
misrepresentation and asked for the issuance of an order enjoining F & C
from proceeding with arbitration. F & C moved to stay the suit pending

arbitration. The trial court granted F & Cs motion, and the U.S. Supreme
Court affirmed.
The U.S. Supreme Court did not address Prima Paints argument that it
had been fraudulently induced by F & C to sign the consulting agreement
and held that no court should address this argument. Relying on Sec. 4 of
the Federal Arbitration Actwhich provides that if a party [claims to be]
aggrieved by the alleged failure x x x of another to arbitrate x x x, [t]he court
shall hear the parties, and upon being satisfied that the making of the
agreement for arbitration or the failure to comply therewith is not in issue,
the
court
shall
make
an
order
directing
the
parties
to proceed to arbitration
x x x. If the making of the arbitration
agreement or the failure, neglect, or refusal to perform the same be in issue,
the court shall proceed summarily to the trial thereofthe U.S. High Court
held that the court should not order the parties to arbitrate if the making of
the arbitration agreement is in issue. The parties should be ordered to
arbitration if, and only if, they have contracted to submit to
arbitration. Prima Paint was not entitled to trial on the question of whether
an arbitration agreement was made because its allegations of fraudulent
inducement were not directed to the arbitration clause itself, but only to the
consulting agreement which contained the arbitration agreement. [50] Prima
Paint held that arbitration clauses are separable from the contracts in
which they are embedded, and that where no claim is made that fraud was
directed to the arbitration clause itself, a broad arbitration clause will be held
to encompass arbitration of the claim that the contract itself was induced by
fraud.[51]
There is reason, therefore, to rule against Gonzales when he alleges
that Judge Pimentel acted with grave abuse of discretion in ordering the
parties to proceed with arbitration. Gonzaless argument that the Addendum
Contract is null and void and, therefore the arbitration clause therein is void
as well, is not tenable. First, the proceeding in a petition for arbitration
under R.A. No. 876 is limited only to the resolution of the question of whether
the arbitration agreement exists. Second, the separability of the arbitration
clause from the Addendum Contract means that validity or invalidity of the

Addendum Contract will not affect the enforceability of the agreement to

arbitrate. Thus, Gonzaless petition for certiorari should be dismissed.
This brings us back to G.R. No. 161957. The adjudication of the
petition in G.R. No. 167994 effectively modifies part of the Decision dated 28
February 2005 in G.R. No. 161957. Hence, we now hold that the validity of
the contract containing the agreement to submit to arbitration does not
affect the applicability of the arbitration clause itself. A contrary ruling would
suggest that a partys mere repudiation of the main contract is sufficient to
avoid arbitration. That is exactly the situation that the separability doctrine,
as well as jurisprudence applying it, seeks to avoid. We add that when it was
declared in G.R. No. 161957 that the case should not be brought for
arbitration, it should be clarified that the case referred to is the case actually
filed by Gonzales before the DENR Panel of Arbitrators, which was for the
nullification of the main contract on the ground of fraud, as it had already
been determined that the case should have been brought before the regular
courts involving as it did judicial issues.
The Motion for Reconsideration of Gonzales in G.R. No. 161957 should
also be denied. In the motion, Gonzales raises the same question of
jurisdiction, more particularly that the complaint for nullification of the
Addendum Contract pertained to the DENR Panel of Arbitrators, not the
regular courts. He insists that the subject of his complaint is a mining
dispute since it involves a dispute concerning rights to mining areas, the
Financial and Technical Assistance Agreement (FTAA) between the parties,
and it also involves claimowners. He adds that the Court failed to rule on
other issues he raised, such as whether he had ceded his claims over the
mineral deposits located within the Addendum Area of Influence; whether
the complaint filed before the DENR Panel of Arbitrators alleged ultimate
facts of fraud; and whether the action to declare the nullity of the Addendum
Contract on the ground of fraud has prescribed.

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

G.R. No. 169332

Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA and
LEONARDO-DE CASTRO, JJ.

WORLD INTERACTIVE
NETWORK SYSTEMS (WINS)
JAPAN CO., LTD.,
Respondent.

Promulgated:
February 11, 2008

x-------------------------------------------------x
DECISION
CORONA, J.:

This petition for review on certiorari under Rule 45 of the Rules of

Court seeks to set aside the February 16, 2005 decision [1]and August 16,
2005 resolution[2] of the Court of Appeals (CA) in CA-G.R. SP No. 81940.
On September 27, 1999, petitioner ABS-CBN Broadcasting Corporation
entered into a licensing agreement with respondent World Interactive
Network Systems (WINS) Japan Co., Ltd., a foreign corporation licensed under
the laws of Japan. Under the agreement, respondent was granted the
exclusive license to distribute and sublicense the distribution of the
television service known as The Filipino Channel (TFC) in Japan. By virtue
thereof, petitioner undertook to transmit the TFC programming signals to
respondent which the latter received through its decoders and distributed to
its subscribers.
A dispute arose between the parties when petitioner accused
respondent of inserting nine episodes of WINS WEEKLY, a weekly 35-minute
community news program for Filipinos in Japan, into the TFC programming
from March to May 2002.[3]Petitioner claimed that these were unauthorized
insertions constituting a material breach of their agreement. Consequently,

on May 9, 2002,[4] petitioner notified respondent of its intention to terminate

the agreement effective June 10, 2002.
Thereafter, respondent filed an arbitration suit pursuant to the
arbitration clause of its agreement with petitioner. It contended that the
airing of WINS WEEKLY was made with petitioner's prior approval. It also
alleged that petitioner only threatened to terminate their agreement
because it wanted to renegotiate the terms thereof to allow it to demand
higher fees. Respondent also prayed for damages for petitioner's alleged
grant of an exclusive distribution license to another entity, NHK (Japan
Broadcasting Corporation).[5]
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]:
1.

Was the broadcast of WINS WEEKLY by the claimant duly

authorized by the respondent [herein petitioner]?

2.

Did such broadcast constitute a material breach of the

agreement that is a ground for termination of the
agreement in accordance with Section 13 (a) thereof?

3.

If so, was the breach seasonably cured under the same

contractual provision of Section 13 (a)?

4.

Which party is entitled to the payment of damages they

claim and to the other reliefs prayed for?

xxx

xxx

xxx

The arbitrator found in favor of respondent. [7] He held that petitioner

gave its approval to respondent for the airing of WINS WEEKLY as shown by a

series of written exchanges between the parties. He also ruled that, had
there really been a material breach of the agreement, petitioner should have
terminated the same instead of sending a mere notice to terminate said
agreement. The arbitrator found that petitioner threatened to terminate the
agreement due to its desire to compel respondent to re-negotiate the terms
thereof for higher fees. He further stated that even if respondent committed
a breach of the agreement, the same was seasonably cured. He then allowed
respondent to recover temperate damages, attorney's fees and one-half of
the amount it paid as arbitrator's fee.
Petitioner filed in the CA a petition for review under Rule 43 of the
Rules of Court or, in the alternative, a petition for certiorari under Rule 65 of
the same Rules, with application for temporary restraining order and writ of
preliminary injunction. It was docketed as CA-G.R. SP No. 81940. It alleged
serious errors of fact and law and/or grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of the arbitrator.
Respondent, on the other hand, filed a petition for confirmation of
arbitral award before the Regional Trial Court (RTC) of Quezon City, Branch
93, docketed as Civil Case No. Q-04-51822.
Consequently, petitioner filed a supplemental petition in the CA
seeking to enjoin the RTC of Quezon City from further proceeding with the
hearing of respondent's petition for confirmation of arbitral award. After the
petition was admitted by the appellate court, the RTC of Quezon City issued
an order holding in abeyance any further action on respondent's petition as
the assailed decision of the arbitrator had already become the subject of an

appeal in the CA. Respondent filed a motion for reconsideration but no

resolution has been issued by the lower court to date.[8]
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 provided that the arbitrator's decision shall be final and
unappealable and that no motion for reconsideration shall be filed, then the
petition for 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
exercise jurisdiction over an arbitral award is an appeal from the trial 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 Court is
proper in arbitration cases only if the courts refuse or neglect to inquire into
the facts of an arbitrator's award. The dispositive portion of the CA decision
read:
WHEREFORE, the instant petition is hereby DISMISSED for
lack of jurisdiction. The application for a writ of injunction and
temporary 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 Confirmation of Arbitral Award.
SO ORDERED.

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

this petition.
Petitioner contends that the CA, in effect, ruled that: (a) it should have
first filed a petition to vacate the award in the RTC and only in case of 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 arbitral
award does not have the option of directly filing a petition for review under
Rule 43 or a petition for certiorari under Rule 65 with the CA 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 enumerated
under Section 24 (petition to vacate an arbitral award) of RA 876 (the
Arbitration Law). Petitioner alleged serious error on the part of the CA.
The issue before us is whether or not an aggrieved party in a voluntary
arbitration dispute may avail of, directly in the CA, a petition for review
under Rule 43 or a petition for certiorari under Rule 65 of the Rules of Court,
instead of filing a petition to vacate the award in the RTC when the grounds
invoked to overturn the arbitrators decision are other than those for a
petition to vacate an arbitral award enumerated under RA 876.
RA 876 itself mandates that it is the Court of First Instance, now the
RTC, which has jurisdiction over questions relating to arbitration, [9] such as a
petition to vacate an arbitral award.
Section 24 of RA 876 provides for the specific grounds for a petition to
vacate an award made by an arbitrator:
Sec. 24. Grounds for vacating award. - In any one of the
following cases, the court must make an order vacating
the award upon the petition of any party to the controversy
when such party proves affirmatively that in the arbitration
proceedings:
(a) The award was procured by corruption, fraud, or other
undue means; or
(b) That there was evident partiality or corruption in the
arbitrators or any of them; or

(c) That the arbitrators were guilty of misconduct in

refusing to postpone the hearing upon sufficient cause shown, or
in refusing to hear evidence pertinent and material to the
controversy; that one or more of the arbitrators was disqualified
to act as such under section nine hereof, and willfully refrained
from disclosing such disqualifications or of any other misbehavior
by which the rights of any party have been materially prejudiced;
or
(d) That the arbitrators exceeded their powers, or so
imperfectly executed them, that a mutual, final and definite
award upon the subject matter submitted to them was not
made.

Based on the foregoing provisions, the law itself clearly provides that
the RTC must issue an order vacating an arbitral award only in any one of
the . . . cases enumerated therein. Under the legal maxim in statutory
construction expressio unius est exclusio alterius, the explicit mention of 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 law and grave
abuse of discretion (proper grounds for a petition for review under Rule 43
and a petition for certiorari under Rule 65, respectively) as grounds for
maintaining a petition to vacate an arbitral award in the RTC, it necessarily
follows that a party may not avail of the latter remedy on the grounds of
errors of fact and/or law or grave abuse of discretion to overturn an arbitral
award.
Adamson v. Court of Appeals[10] gave ample warning that a petition to
vacate filed in the RTC which is not based on the grounds enumerated in
Section 24 of RA 876 should be dismissed. In that case, the trial court
vacated the arbitral award seemingly based on grounds included in Section

24 of RA 876 but a closer reading thereof revealed otherwise. On appeal, the

CA reversed the decision of the trial court and affirmed the arbitral award. In
affirming the CA, we held:
The Court of Appeals, in reversing the trial court's decision
held that the nullification of the decision of the Arbitration
Committee was not based on the grounds provided by the
Arbitration Law and that xxx private respondents (petitioners
herein) have failed to substantiate with any evidence their claim
of partiality. Significantly, even as respondent judge ruled against
the arbitrator's award, he could not find fault with their
impartiality and integrity. Evidently, the nullification of the
award rendered at the case at bar was not made on the
basis of any of the grounds provided by law.
xxx

xxx

xxx

It is clear, therefore, that the award was vacated

not because of evident partiality of the arbitrators but
because the latter interpreted the contract in a way which was
not favorable to herein petitioners and because it considered that
herein private respondents, by submitting the controversy to
arbitration, was seeking to renege on its obligations under the
contract.
xxx

xxx

xxx

It is clear then that the Court of Appeals reversed the

trial court not because the latter reviewed the arbitration award
involved herein, butbecause the respondent appellate court
found that the trial court had no legal basis for vacating
the award. (Emphasis supplied).

In cases not falling under any of the aforementioned grounds to vacate

an award, the Court has already made several pronouncements that a
petition for review under Rule 43 or a petition for certiorari under Rule 65
may be availed of in the CA. Which one would depend on the grounds relied
upon by petitioner.

In Luzon Development Bank v. Association of Luzon Development Bank

Employees,[11] the Court held that a voluntary arbitrator is properly classified
as a quasi-judicial instrumentality and is, thus, within the ambit of Section
9 (3) of the Judiciary Reorganization Act, as amended. Under this section, the
Court of Appeals shall exercise:
xxx

xxx

xxx

(3) Exclusive appellate jurisdiction over all final judgments,

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

As such, decisions handed down by voluntary arbitrators fall within the

exclusive appellate jurisdiction of the CA. This decision was taken into
consideration in approving Section 1 of Rule 43 of the Rules of Court.
[12]

Thus:
SECTION 1. Scope. - This Rule shall apply to appeals from
judgments or final orders of the Court of Tax Appeals and from
awards, judgments, final orders or resolutions of or authorized by
any quasi-judicial agency in the exercise of its quasi-judicial
functions. Among these agencies are the Civil Service
Commission, Central Board of Assessment Appeals, Securities
and Exchange Commission, Office of the President, Land
Registration Authority, Social Security Commission, Civil
Aeronautics Board, Bureau of Patents, Trademarks and
Technology Transfer, National Electrification Administration,
Energy
Regulatory
Board,
National
Telecommunications
Commission, Department of Agrarian Reform under Republic Act

Number 6657, Government Service Insurance System,

Employees Compensation Commission, Agricultural Inventions
Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction Industry
Arbitration Commission, and voluntary arbitrators authorized
by law. (Emphasis supplied)

This rule was cited in Sevilla Trading Company v. Semana,[13] Manila

Midtown Hotel v. Borromeo,[14] and Nippon Paint Employees Union-Olalia v.
Court of Appeals.[15] These cases held that the proper remedy from the
adverse decision of a voluntary arbitrator, if errors of fact and/or law are
raised, is a petition for review under Rule 43 of the Rules of Court. Thus,
petitioner's contention that it may avail of a petition for review under Rule
43 under the circumstances of this case is correct.
As to petitioner's arguments that a petition for certiorari under Rule 65
may also be resorted to, we hold the same to be in accordance with the
Constitution and jurisprudence.
Section 1 of Article VIII of the 1987 Constitution provides that:
SECTION 1. The judicial power shall be vested in one
Supreme Court and in such lower courts as may be established
by law.
Judicial power includes the duty of the courts of
justice to settle actual controversies involving rights which are
legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on
the part of any branch or instrumentality of the
Government. (Emphasis supplied)

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 of the Government, such as a voluntary arbitrator, has

gravely

abused its

discretion

in

the exercise of

its

functions

and

prerogatives. Any agreement stipulating that the decision of the arbitrator

shall be final and unappealable and that no further judicial recourse if
either party disagrees with the whole or any part of the arbitrator's award
may be 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
voluntary arbitrator's award where there is a showing of grave abuse of
authority or discretion and such is properly raised in a petition for
certiorari[17] and there is no appeal, nor any plain, speedy remedy in the
course of law.[18]
Significantly, Insular Savings Bank v. Far East Bank and Trust
Company[19] definitively outlined several judicial remedies an aggrieved party
to an arbitral award may undertake:
(1)
(2)
(3)

a petition in the proper RTC to issue an order to

vacate the award on the grounds provided for in Section 24
of RA 876;
a petition for review in the CA under Rule 43 of the
Rules of Court on questions of fact, of law, or mixed
questions of fact and law; and
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 abuse of discretion
amounting to lack or excess of jurisdiction.

Nevertheless, although petitioners position on the judicial remedies

available to it was correct, we sustain the dismissal of its petition by the CA.

The remedy petitioner availed of, entitled alternative petition for review
under Rule 43 or petition for certiorari under Rule 65, was wrong.
Time and again, we have ruled that the remedies of appeal and
certiorari are mutually exclusive and not alternative or successive. [20]
Proper issues that may be raised in a petition for review under Rule 43
pertain to errors of fact, law or mixed questions of fact and law. [21] While a
petition for certiorari under Rule 65 should only limit itself to errors of
jurisdiction, that is, grave abuse of discretion amounting to a lack or excess
of jurisdiction.[22] Moreover, it cannot be availed of where appeal is the
proper remedy or as a substitute for a lapsed appeal.[23]
In the case at bar, the questions raised by petitioner in its alternative
petition before the CA were the following:
A. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR
AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT THE
BROADCAST OF WINS WEEKLY WAS DULY AUTHORIZED BY
ABS-CBN.
B. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR
AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT THE
UNAUTHORIZED BROADCAST DID NOT CONSTITUTE MATERIAL
BREACH OF THE AGREEMENT.
C. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR
AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT
WINS SEASONABLY CURED THE BREACH.
D. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR
AND/OR GRAVELY ABUSED HIS DISCRETION IN RULING THAT
TEMPERATE DAMAGES IN THE 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

UNCONSCIONABLE AMOUNT OF P850,000.00.

AMOUNT

AND

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
[24]

under

which

rule

the

petition should fall.

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. [25] Thus, 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.
SP No. 81940 directing the Regional Trial Court of Quezon City, Branch 93 to
proceed with the trial of the petition for confirmation of arbitral award
is AFFIRMED.
Costs against petitioner.
SO ORDERED.
TRANSFIELD PHILIPPINES, INC.,
Petitioner,

G.R. No. 146717

Present:

- versus -

LUZON HYDRO CORPORATION,

AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED and
SECURITY BANK CORPORATION,
Respondents.

PUNO, J.,
Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.

Promulgated:
May 19, 2006

x---------------------------------------------------------------------------------x
RESOLUTION
TINGA, J.:
The adjudication of this case proved to be a two-stage process as its
constituent parts involve two segregate but equally important issues. The
first stage relating to the merits of the case, specifically the question of the
propriety of calling on the securities during the pendency of the arbitral
proceedings, was resolved in favor of Luzon Hydro Corporation (LHC) with
the Courts Decision[1] of 22 November 2004. The second stage involving the

issue of forum-shopping on which the Court required the parties to submit

their respective memoranda[2] is disposed of in this Resolution.
The disposal of the forum-shopping charge is crucial to the parties to
this case on account of its profound effect on the final outcome of the
international arbitral proceedings which they have chosen as their principal
dispute resolution mechanism.[3]
LHC claims that Transfield Philippines, Inc. (TPI) is guilty of forumshopping when it filed the following suits:
1.
Civil Case No. 04-332 filed on 19 March 2004,
pending before the Regional Trial Court (RTC) of Makati, Branch
56 for confirmation, recognition and enforcement of the Third
Partial Award in case 11264 TE/MW, ICC International Court of
Arbitration, entitled Transfield Philippines, Inc. v. Luzon Hydro
Corporation.[4]
2.
ICC Case No. 11264/TE/MW, Transfield Philippines,
Inc. v. Luzon Hydro Corporation filed before the International
Court of Arbitration, International Chamber of Commerce (ICC) a
request for arbitration dated 3 November 2000 pursuant to the
Turnkey Contract between LHC and TPI;
3.
G.R. No. 146717, Transfield Philippines, Inc. v. Luzon
Hydro Corporation, Australia and New Zealand Banking Group
Limited and Security Bank Corp. filed on 5 February 2001, which
was an appeal by certiorari with prayer for TRO/preliminary
prohibitory and mandatory injunction, of the Court of Appeals
Decision dated 31 January 2001 in CA-G.R. SP No. 61901.
a.

CA-G.R. SP No. 61901 was a petition for review of the

Decision in Civil Case No. 00-1312, wherein TPI claimed
thatLHCs call on the securities was premature considering
that the issue of default has not yet been resolved with
finality; the petition was however denied by the Court of
Appeals;

b. Civil Case No. 00-1312 was a complaint for injunction with

prayer for temporary restraining order and/or writ of
preliminary injunction dated 5 November 2000, which
sought to restrain LHC from calling on the securities and

respondent banks from transferring or paying of the

securities; the complaint was denied by the RTC.

On the other hand, TPI claims that it is LHC which is guilty of forumshopping when it raised the issue of forum-shopping not only in this case,
but also in Civil Case No. 04-332, and even asked for the dismissal of the
other case based on this ground. Moreover, TPI argues that LHC
is relitigating in Civil Case No. 04-332 the very same causes of action in ICC
Case No. 11264/TE/MW, and even manifesting therein that it will present
evidence earlier presented before the arbitral tribunal.[5]
Meanwhile, ANZ Bank and Security Bank moved to be excused from
filing a memorandum. They claim that with the finality of the Courts
Decision dated 22 November 2004, any resolution by the Court on the issue
of forum-shopping will not materially affect their role as the banking entities
involved are concerned.[6] The Court granted their respective motions.

On 1 August 2005, TPI moved to set the case for oral argument,
positing that the resolution of the Court on the issue of forum-shopping may
have significant implications on the interpretation of the Alternative Dispute
Resolution Act of 2004, as well as the viability of international commercial
arbitration as an alternative mode of dispute resolution in the country.
[7]
Said motion was opposed by LHC in its opposition filed on 2 September
2005, with LHC arguing that the respective memoranda of the parties are
sufficient for the Court to resolve the issue of forum-shopping. [8] On 28
October 2005, TPI filed its Manifestation and Reiterative Motion [9] to set the
case for oral argument, where it manifested that the International Chamber
of Commerce (ICC) arbitral tribunal had issued its Final Award ordering LHC
to pay TPI US$24,533,730.00 (including the US$17,977,815.00 proceeds of
the two standby letters of credit). TPI also submitted a copy thereof with a
Supplemental Petition[10] to the Regional Trial Court (RTC), seeking
recognition and enforcement of the said award.[11]

The essence of forum-shopping is the filing of multiple suits involving

the same parties for the same cause of action, either simultaneously or
successively, for the purpose of obtaining a favorable judgment. [12] Forumshopping has likewise been defined as the act of a party against whom an
adverse judgment has been rendered in one forum, seeking and possibly
getting a favorable opinion in another forum, other than by appeal or the
special civil action of certiorari, or the institution of two or more actions or
proceedings grounded on the same cause on the supposition that one or the
other court would make a favorable disposition.[13]
Thus, for forum-shopping to exist, there must be (a) identity of
parties, or at least such parties as represent the same interests in both
actions; (b) identity of rights asserted and relief prayed for, the relief being
founded on the same facts; and (c) the identity of the two preceding
particulars is such that any judgment rendered in the other action will,
regardless of which party is successful, amount to res judicata in the action
under consideration.[14]
There is no identity of causes of action between and among the
arbitration case, the instant petition, and Civil Case No. 04-332.

The arbitration case, ICC Case No. 11264 TE/MW, is an arbitral

proceeding commenced pursuant to the Turnkey Contract between TPI and
LHC, to determine the primary issue of whether the delays in the
construction of the project were excused delays, which would consequently
render valid TPIs claims for extension of time to finish the project. Together
with the primary issue to be settled in the arbitration case is the equally
important question of monetary awards to the aggrieved party.
On the other hand, Civil Case No. 00-1312, the precursor of the instant
petition, was filed to enjoin LHC from calling on the securities and
respondent banks from transferring or paying the securities in case LHC calls
on them. However, in view of the fact that LHC collected the proceeds, TPI,
in its appeal and petition for review asked that the same be returned and

placed in escrow pending the resolution of the disputes before the ICC
arbitral tribunal.[15]
While the ICC case thus calls for a thorough review of the facts which
led to the delay in the construction of the project, as well as the attendant
responsibilities of the parties therein, in contrast, the present petition puts in
issue the propriety of drawing on the letters of credit during the pendency of
the arbitral case, and of course, absent a final determination by the ICC
Arbitral tribunal. Moreover, as pointed out by TPI, it did not pray for the
return of the proceeds of the letters of credit. What it asked instead is that
the said moneys be placed in escrow until the final resolution of the arbitral
case. Meanwhile, in Civil Case No. 04-332, TPI no longer seeks the issuance
of a provisional relief, but rather the issuance of a writ of execution to
enforce the Third Partial Award.

Neither is there an identity of parties between and among the three (3)
cases. The ICC case only involves TPI and LHC logically since they are the
parties to the Turnkey Contract. In comparison, the instant petition includes
Security Bank and ANZ Bank, the banks sought to be enjoined from releasing
the funds of the letters of credit. The Court agrees with TPI that it would be
ineffectual to ask the ICC to issue writs of preliminary injunction against
Security Bank and ANZ Bank since these banks are not parties to the
arbitration case, and that the ICC Arbitral tribunal would not even be able to
compel LHC to obey any writ of preliminary injunction issued from its end.
[16]
Civil Case No. 04-322, on the other hand, logically involves TPI and LHC
only, they being the parties to the arbitration agreement whose partial award
is sought to be enforced.
As a fundamental point, the pendency of arbitral proceedings does not
foreclose resort to the courts for provisional reliefs. The Rules of the ICC,
which governs the parties arbitral dispute, allows the application of a party
to a judicial authority for interim or conservatory measures. [17] Likewise,
Section 14 of Republic Act (R.A.) No. 876 (The Arbitration Law)[18] recognizes
the rights of any party to petition the court to take measures to safeguard
and/or conserve any matter which is the subject of the dispute in arbitration.

In addition, R.A. 9285, otherwise known as the Alternative Dispute

Resolution Act of 2004, allows the filing of provisional or interim measures
with the regular courts whenever the arbitral tribunal has no power to act or
to act effectively.[19]
TPIs verified petition in Civil Case No. 04-332, filed on 19 March 2004,
was captioned as one For: Confirmation, Recognition and Enforcement of
Foreign Arbitral Award in Case 11264 TE/MW, ICC International Court of
Arbitration, TransfieldPhilippines, Inc. v. Luzon Hydro Corporation (Place of
arbitration: Singapore).[20] In the said petition, TPI prayed:
1.
That the THIRD PARTIAL AWARD dated February 18,
2004 in Case No. 11264/TE/MW made by the ICC International
Court of Arbitration, the signed original copy of which is hereto
attached as Annex H hereof, be confirmed, recognized and
enforced in accordance with law.
2.
That the corresponding writ of execution to enforce
Question 31 of the said Third Partial Award, be issued, also in
accordance with law.
3.
That TPI be granted such other relief as may be
deemed just and equitable, and allowed, in accordance with law.
[21]

The pertinent portion of the Third Partial Award [22] relied upon by TPI
were the answers to Questions 10 to 26, to wit:
Question 30

Did TPI [LHC] wrongfully draw upon the

security?
Yes

Question 31

Is TPI entitled to have returned to it any

sum wrongfully taken by LHC for liquidated
damages?
Yes

Question 32

Is TPI entitled to any acceleration costs?

TPI is entitled to the reasonable costs TPI
incurred after Typhoon Zeb as a result

of LHCs 5 February 1999Notice to Correct.

[23]

According to LHC, the filing of the above case constitutes forumshopping since it is the same claim for the return of US$17.9 Million which
TPI made before the ICC Arbitral Tribunal and before this Court. LHC adds
that while Civil Case No. 04-332 is styled as an action for money, the Third
Partial Award used as basis of the suit does not authorize TPI to seek a writ
of execution for the sums drawn on the letters of credit. Said award does not
even contain an order for the payment of money, but instead has reserved
the quantification of the amounts for a subsequent determination, LHC
argues. In fact, even the Fifth Partial Award,[24] dated 30 March 2005, does
not contain such orders. LHC insists that the declarations or the partial
awards issued by the ICC Arbitral Tribunal do not constitute orders for the
payment of money and are not intended to be enforceable as such, but
merely constitute amounts which will be included in the Final Award and will
be taken into account in determining the actual amount payable to the
prevailing party.[25]
R.A. No. 9825 provides that international commercial arbitrations shall
be governed shall be governed by the Model Law on International
Commercial Arbitration (Model Law) adopted by the United Nations
Commission on International Trade Law (UNCITRAL). [26] The UNCITRAL Model
Law provides:
ARTICLE 35. Recognition and enforcement
(1) An arbitral award, irrespective of the country in which it
was made, shall be recognized as binding and, upon application
in writing to the competent court, shall be enforced subject to
the provisions of this article and of article 36.
(2) The party relying on an
enforcement shall supply the duly
or a duly certified copy thereof,
agreement referred to in article

award or applying for its

authenticated original award
and the original arbitration
7 or a duly certified copy

thereof. If the award or agreement is not made in an official

language of this State, the party shall supply a duly certified
translation thereof into such language.

Moreover, the New York Convention,[27] to which the Philippines is a

signatory, governs the recognition and enforcement of foreign arbitral
awards. The applicability of the New York Convention in the Philippines was
confirmed in Section 42 of R.A. 9285. Said law also provides that the
application for the recognition and enforcement of such awards shall be filed
with the proper RTC. While TPIs resort to the RTC for recognition and
enforcement of the Third Partial Award is sanctioned by both the New York
Convention and R.A. 9285, its application for enforcement, however, was
premature, to say the least. True, the ICC Arbitral Tribunal had indeed ruled
that LHC wrongfully drew upon the securities, yet there is no order for the
payment or return of the proceeds of the said securities. In fact, Paragraph
2142, which is the final paragraph of the Third Partial Award, reads:
2142. All other issues, including any issues as to quantum
and costs, are reserved to a future award.[28]

Meanwhile, the tribunal issued its Fifth Partial Award[29] on 30 March

2005. It contains, among others, a declaration that while LHC wrongfully
drew on the securities, the drawing was made in good faith, under the
mistaken assumption that the contractor, TPI, was in default. Thus, the
tribunal ruled that while the amount drawn must be returned, TPI is not
entitled to any damages or interests due to LHCs drawing on the securities.
[30]
In the Fifth Partial Award, the tribunal ordered:
6.
6.1
166.

Order
General
This Fifth Partial Award deals with many issues of
quantum. However, it does not resolve them all. The
outstanding quantum issues will be determined in a
future award. It will contain a reconciliation of the
amounts awarded to each party and a determination of the

net amount payable to Claimant or Respondent, as the

case may be.
167.

In view of this the Tribunal will make no orders for

payment in this Fifth Partial Award. The Tribunal will make
a number of declarations concerning the quantum issues it
has resolved in this Award together with the outstanding
liability issues. The declarations do not constitute
orders for the payment of money and are not
intended to be enforceable as such. They merely
constitute amounts which will be included in the
Final Award and will be taken into account in
determining the actual amount payable.[31] (Emphasis
Supplied.)

Further, in the Declarations part of the award, the tribunal held:

6.2
168.

Declarations
The Tribunal makes the following declarations:
xxx

3.
LHC is liable to repay TPI the face value of the
securities drawn down by it, namely, $17,977,815. It is not liable
for any further damages claimed by TPI in respect of the
drawdown of the securities.
x x x.[32]

Finally, on 9 August 2005, the ICC Arbitral tribunal issued its Final
Award, in essence awarding US$24,533,730.00, which included TPIs claim
of U$17,977,815.00 for the return of the securities from LHC.[33]

The fact that the ICC Arbitral tribunal included the proceeds of the
securities shows that it intended to make a final determination/award as to
the said issue only in the Final Award and not in the previous partial
awards. This supports LHCsposition that when the Third Partial Award was
released and Civil Case No. 04-332 was filed, TPI was not yet authorized to
seek the issuance of a writ of execution since the quantification of the

amounts due to TPI had not yet been settled by the ICC Arbitral
tribunal. Notwithstanding the fact that the amount of proceeds drawn on the
securities was not disputed the application for the enforcement of the Third
Partial Award was precipitately filed. To repeat, the declarations made in the
Third Partial Award do not constitute orders for the payment of money.
Anent the claim of TPI that it was LHC which committed forumshopping, suffice it to say that its bare allegations are not sufficient to
sustain the charge.
WHEREFORE, the Court RESOLVES to DISMISS the charges of forumshopping filed by both parties against each other.
No pronouncement as to costs.
SO ORDERED.