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G.R. No.

L-27343 February 28, 1979


MANUEL G. SINGSONG, JOSE BELZUNCE,
AGUSTIN E. TONSAY, JOSE L. ESPINOS, BACOLOD
SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN,
INC., plaintiffs-appellees,
vs.
ISABELA SAWMILL, MARGARITA G. SALDAJENO
and her husband CECILIO SALDAJENO LEON
GARIBAY, TIMOTEO TUBUNGBANUA, and THE
PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL,
defendants, MARGARITA G. SALDAJENO and her
husband CECILIO SALDAJENO, defendantsappellants.
FERNANDEZ, J.:
This is an appeal to the Court of Appeals from the
judgment of the Court of First Instance of Negros
Occidental in Civil Cage No. 5343, entitled "Manuel G.
Singson, et all vs. Isabela Sawmill, et al.,", the
dispositive portion of which reads:
IN VIEW OF THE FOREGOING
CONSIDERATIONS, it is hereby held. (1) that the
contract, Appendix "F", of the Partial Stipulation of
Facts, Exh. "A", has not created a chattel mortgage
lien on the machineries and other chattels
mentioned therein, all of which are property of the
defendant partnership "Isabela Sawmill", (2) that the
plaintiffs, as creditors of the defendant partnership,
have a preferred right over the assets of the said
partnership and over the proceeds of their sale at
public auction, superior to the right of the defendant
Margarita G. Saldajeno, as creditor of the partners
Leon Garibay and Timoteo Tubungbanua; (3) that
the defendant Isabela Sawmill' is indebted to the
plaintiff Oppen, Esteban, Inc. in the amount of
P1,288.89, with legal interest thereon from the filing
of the complaint on June 5, 1959; (4) that the same
defendant is indebted to the plaintiff Manuel G.
Singsong in the total amount of P5,723.50, with
interest thereon at the rate of 1 % per month from
May 6, 1959, (the date of the statements of account,
Exhs. "L" and "M"), and 25% of the total
indebtedness at the time of payment, for attorneys'
fees, both interest and attorneys fees being
stipulated in Exhs. "I" to "17", inclusive; (5) that the
same defendant is indebted to the plaintiff Agustin E.
Tonsay in the amount of P933.73, with legal interest
thereon from the filing of the complaint on June 5,
1959; (6) that the same defendant is indebted to the
plaintiff Jose L. Espinos in the amount of P1,579.44,
with legal interest thereon from the filing of the
complaint on June 5, 1959; (7) that the same
defendant is indebted to the plaintiff Bacolod
Southern Lumber Yard in the amount of Pl,048.78,
with legal interest thereon from the filing of the
complaint on June 5, 1959; (8) that the same
defendant is indebted to the plaintiff Jose Belzunce
in the amount of P2,052.10, with legal interest
thereon from the filing of the complaint on June 5.
1959; (9) that the defendant Margarita G. Saldajeno,
having purchased at public auction the assets of the
defendant partnership over which the plaintiffs have
a preferred right, and having sold said assets for P

45,000.00, is bound to pay to each of the plaintiffs


the respective amounts for which the defendant
partnership is held indebted to, them, as above
indicated and she is hereby ordered to pay the said
amounts, plus attorneys fees equivalent to 25% of
the judgment in favor of the plaintiff Manuel G.
Singson, as stipulated in Exhs. "I" "to I-17", inclusive,
and 20% of the respective judgments in favor of the
other plaintiffs, pursuant to. Art. 2208, pars. (5) and
(11), of the Civil Code of the Philippines; (10) The
defendants Leon Garibay and Timoteo Tibungbanua
are hereby ordered to pay to the plaintiffs the
respective amounts adjudged in their favor in the
event that said plaintiffs cannot recover them from
the defendant Margarita G. Saldajeno and the surety
on the bond that she has filed for the lifting of the
injunction ordered by this court upon the
commencement of this case.
The cross-claim cf the defendant
Margarita G. Saldajeno against the
defendants Leon Garibay arid Timoteo
Tubungbanua is hereby discussed
Margarita G. Saldajeno shall pay the
costs.
1
SO ORDERED.
In a resolution promulgated on February 3, 1967, the
Court of Appeals certified the records of this case to the
Supreme Court "considering that the resolution of this
appeal involves purely questions or question of law over
2
which this Court has no jurisdiction ...
On June 5. 1959, Manuel G. Singsong, Jose Belzunce,
Agustin E. Tonsay, Jose L. Espinos, Bacolod Southern
Lumber Yard, and Oppen, Esteban, Inc. filed in the
Court of first Instance of Negros Occidental, Branch I,
against "Isabela Sawmill", Margarita G. Saldajeno and
her husband Cecilio Saldajeno, Leon Garibay, Timoteo
Tubungbanua and the Provincial Sheriff of Negros
Occidental a complaint the prayer of which reads:
WHEREFORE, the plaintiffs respectfully pray:
(1) That a writ of preliminary injunction be
issued restraining the defendant Provincial
Sheriff of Negros Occidental from proceeding
with the sales at public auction that he
advertised in two notices issued by him on
May 18, 1959 in connection with Civil Case
No. 5223 of this Honorable Court, until further
orders of this Court; and to make said
injunction permanent after hearing on the
merits:
(2) That after hearing, the defendant partnership
be ordered; to pay to the plaintiff Manuel G.
Singson the sum of P3,723.50 plus 1% monthly
interest thereon and 25% attorney's fees, and
costs; to pay to the plaintiff JoseBelzunce the
sum of P2,052.10, plus 6% annual interest
thereon and 25% for attorney's fees, and
costs;to pay to the plaintiff Agustin E. Tonsay
the sum of P993.73 plus 6% annual interest
thereon and 25% attorney's fees, and costs; to
pay to the plaintiff Bacolod Southern Lumber
Yard the sum of P1,048.78, plus 6% annual
interest thereon and 25% attorney's fees, and

costs; and to pay to the plaintiff Oppen, Esteban,


Inc. the sum of P1,350.89, plus 6% annual
interest thereon and 25% attorney's fees and
costs:
(3) That the so-called Chattel Mortgage
executed by the defendant Leon Garibay and
Timoteo Tubungbanua in favor of the defendant
Margarita G. Saldajeno on May 26, 1958 be
declared null and void being in fraud of creditors
of the defendant partnership and without
valuable consideration insofar as the said
defendant is concerned:
(4) That the Honorable Court order the sale of
public auction of the assets of the defendnat
partnership in case the latter fails to pay the
judgment that the plaintiffs may recover in the
action, with instructions that the proceeds of the
sale b e applied in payment of said judgment
before any part of saod proceeds is paid to the
defendant Margarita G. Saldajeno;
(5) That the defendant Leon Garibay, Timoteo
Tubungbanua, and Margarita G. Saldajeno be
declared jointly liable to the plaintifs for whatever
deficiency may remain unpaid after the proceeds
of the sale of the assets of the defendnt
partnership are supplied in payment of the
judgment that said plaintiffs may recover in this
action;
(6) The plaintiffs further pray for all other
remedies to which the Honorable Court will find
them entitled to, with costs to the defendants.
3
Bacolod City, June 4, 1959.
The action was docketed as Civil Case No. 5343 of said
court.
In their amended answer, the defendants Margarita G.
Saldajeno and her husband, Cecilio Saldajeno, alleged
the following special and affirmative defenses:
xxx xxx xxx
2. That the defendant Isabela Sawmill
has been dissolved by virtue of an
action entitled "In the matter of:
Dissolution of Isabela Sawmill as
partnership, etc. Margarita G. Saldajeno
et al. vs. Isabela Sawmill, et al., Civil
Case No. 4787, Court of First Instance
of Negros Occidental;
3. That as a result of the said dissolution
and the decision of the Court of First
Instance of Negros Occidental in the
aforesaid case, the other defendants
herein Messrs. Leon Garibay and
Timoteo Tubungbanua became the
successors-in-interest to the said
defunct partnership and have bound
themselves to answere for any and all
obligations of the defunct partnership to
its creditors and third persons;
4. That to secure the performance of the
obligations of the other defendants Leon
Garibay and Timoteo Tubungbanua to
the answering defendant herein, the
former have constituted a chattel

mortgage over the properties mentioned


in the annexes to that instrument
entitled "Assignment of Rights with
Chattel Mortgage" entered into on May
26, 1968 and duly registered in the
Register of Deeds of Negros Occidental
on the same date:
5. That all the plaintiffs herein, with the
exceptionof the plaintiff Oppen,
Esteban, Inc. are creditors of Messrs.
Leon Garibay and Timoteo
Tubungbanua and not of the defunct
Isabela Sawmill and as such they have
no cause of action against answering
defendant herein and the defendant
Isabela Sawmill;
6. That all the plaintiffs herein, except
for the plaintiff Oppen, Esteban, Inc.
granted cash advances, gasoline, crude
oil, motor oil, grease, rice and nipa to
the defendants Leon Garibay and
Timoteo Tubungbanua with the
knowledge and notice that the Isabela
Sawmill as a former partnership of
defendants Margarita G. Isabela
Sawmill as a former partnership of
defendants Margarita G. Saldajeno,
Leon Garibay and Timoteo
Tubungbanua, has already been
dissolved;
7. That this Honorable Court has no
jurisdictionover the claims of the
plaintiffs Oppen, Esteban, Inc., Agustin
R. Tonsay, Jose L. Espinos, and the
Bacolod Southern Lumber Yard, it
appearing that the amounts sought to be
recovered by them in this action is less
than P2,000.00 each, exclusive of
interests;
8. That in so far as the claims of these
alleged creditors plaintiffs are
concerned, there is a misjoinder of
parties because this is not a class suit,
and therefore this Honorable Court
cannot take jurisdictionof the claims for
payment;
9. That the claims of plaintiffs-creditors,
except Oppen, Esteban, Inc. go beyond
the limit mentioned inthe statute of
frauds, Art. 1403 of the Civil Code, and
are therefor unenforceable, even
assuming that there were such credits
and claims;
10. That this Honorable Court has no
jurisdiction in this case for it is well
settled in law and in jurisprudence that a
court of first instance has no power or
jurisdiction to annul judgments or
decrees of a coordinate court because
other function devolves upon the proper
appellate court; (Lacuna, et al. vs.
Ofilada, et al., G.R. No. L-13548,

September 30, 1959; Cabigao vs. del


Rosario, 44 Phil. 182; PNB vs.
Javellana, 49 O.G. No. 1, p.124), as it
appears from the complaint in this case
to annul the decision of this same court,
but of another branch (Branch II, Judge
4
Querubin presiding).
Said defendants interposed a cross-claim against the
defendsants Leon Garibay and Timoteo Tubungbanua
praying "that in the event that judgment be rendered
ordering defendant cross claimant to pay to the plaintiffs
the amount claimed in the latter's complaint, that the
cross claimant whatever amount is paid by the latter to
5
the plaintiff in accordance to the said judgment. ...
After trial, judgment was rendered in favor of the
plaintiffs and against the defendants.
The defendants, Margarita G. Saldajeno and her
husband Cecilio Saldajeno, appealed to the Court of
Appeals assigning the following errors:
I
THE COURT A QUO ERRED IN
ASSUMING JURISDICTION OVER
THE CASE.
II
THE COURT A QUO ERRED IN
HOLDING THAT THE ISSUE WITH
REFERENCE TO THE WITHDRAWAL
OF DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO FROM
THE PARTNERSHIP "SABELA
SAWMILL" WAS WHETHER OR NOT
SUCH WITHDRAWAL CAUSED THE
"COMPLETE DISAPPEARANCE" OR
"EXTINCTION" OF SAID
PARTNERSHIP.
III
THE COURT A QUO ERRED IN OT
HOLDING THAT THE WITHDRAWAL
OF DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO AS A
PARTNER THEREIN DISSOLVED THE
PARTNERSHIP "ISABELA SAWMILL"
(FORMED ON JAN. 30, 1951 AMONG
LEON GARIBAY, TIMOTEO
TUBUNGBANUA AND SAID
MARGARITA G. SALDAJENO).
IV
THE COURT A QUO ERRED IN
ISSUING THE WRIT OF PRELIMINARY
INJUNCTION.
V
THE COURT A QUO ERRED IN
HOLDING THAT THE CHATTEL
MORTGAGE DATED MAY 26, 1958,
WHICH CONSTITUTED THE
JUDGMENT IN CIVIL CASE NO. 4797
AND WHICH WAS FORECLOSED IN
CIVIL CASE NO. 5223 (BOTH OF THE
COURT OF FIRST INSTANCE OF
NEGROS OCCIDENTAL) WAS NULL
AND VOID.
VI

THE COURT A QUO ERRED IN


HOLDING THAT THE CHATTLES
ACQUIRED BY DEFENDANTAPPELLANT MARGARITA G.
SALDAJENO IN THE FORECLOSURE
SALE IN CIVIL CASE NO. 5223
CONSTITUTED 'ALL THE ASSETS OF
THE DEFENDNAT PARTNERSHIP.
VII
THE COURT A QUO ERRED IN
HOLDING THAT DEFENDANTAPPELLANT MARGARITA G.
SALDAJENO BECAME PRIMARILY
LIABLE TO THE PLAINTFFSAPPELLEES FOR HAVING ACQUIRED
THE MORTGAGED CHATTLES IN THE
FORECLOSURE SALE CONDUCTED
IN CONNECTION WITH CIVIL CASE
NO. 5223.
VIII
THE COURT A QUO ERRED IN
HOLDING DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO LIABLE
FOR THE OBLIGATIONS OF MESSRS.
LEON GARIBAY AND TIMOTEO
TUBUNGBANUA, INCURRED BY THE
LATTER AS PARTNERS IN THE NEW
'ISABELA SAWMILL', AFTER THE
DISSOLUTION OF THE OLD
PARTNERSHIP IN WHICH SAID
MARGARITA G. SALDAJENO WAS A
PARTNER.
IX
THE COURT A QUO ERRED IN
HOLDING DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO LIABLE
TO THE PLAINTIFFS-APPELLEES
FOR ATTORNEY'S FEES.
X
THE COURT A QUO ERRED IN NOT
DISMISSING THE COMPLAINT OF
THE PLAINTIFFS-APPELLEES.
XI
THE COURT A QUO ERRED IN
DISMISSING THE CROSS-CLAIM OF
DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO
AGAINST CROSS-DEFENDANTS
LEON GARIBAY AND TIMOTEO
6
TUBUNGBANUA.
The facts, as found by the trial court, are:
At the commencement of the hearing of
the case on the merits the plaintiffs and
the defendant Cecilio and Margarita g.
Saldajeno submittee a Partial Stipulation
of Facts that was marked as Exh. "A".
Said stipulation reads as folows:
1. That on January 30, 1951 the
defendants Leon Garibay,
Margarita G. Saldejeno, and
Timoteo Tubungbanua entered
into a Contract of Partnership

under the firm name "Isabela


Sawmill", a copy of which is
hereto attached Appendix "A".
2. That on February 3, 1956 the
plaintiff Oppen, Esteban, Inc. sold
a Motor Truck and two Tractors to
the partnership Isabela Sawmill
for the sum of P20,500.00. In
order to pay the said purcahse
price, the said partnership agreed
to make arrangements with the
International Harvester Company
at Bacolod City so that the latter
would sell farm machinery to
Oppen, Esteban, Inc. with the
understanding that the price was
to be paid by the partnership. A
copy of the corresponding
contract of sle is attached hereto
as Appendix "B".
3. That through the method of
payment stipulated in the contract
marked as Appendix "B" herein,
the International Harvester
Company has been paid a total of
P19,211.11, leaving an unpaid
balance of P1,288.89 as shown in
the statements hereto attached as
Appendices "C", "C-1", and "C-2".
4. That on April 25, 1958 Civil
Case No. 4797 was filed by the
spouses Cecilio Saldajeno and
Margarita G. Saldajeno against
the Isabela Sawmill, Leon
Garibay, and Timoteo
Tubungbanua, a copy of which
Complaint is attached as
Appendix 'D'.
5. That on April 27, 1958 the
defendants LeonGaribay, Timoteo
Tubungbanua and Margarita G.
Saldajeno entered into a
"Memorandum Agreement", a
copy of which is hereto attached
as Appendix 'E' in Civil Case 4797
of the Court of First Instance of
Negros Occidental.
6. That on May 26, 1958 the
defendants Leon Garibay,
Timoteo Tubungbanua and
Margarita G. Saldajeno executed
a document entitled "Assignment
of Rights with Chattel Mortgage",
a copy of which documents and its
Annexes "A" to "A-5" forming a
part of the record of the above
mentioned Civil Case No. 4797,
which deed was referred to in the
Decision of the Court ofFirst
Instance of Negros Occidental in
Civil Case No. 4797 dated May
29, 1958, a copy of which is

hereto attached as Appendix "F"


and "F-1" respectively.
7. That thereafter the defendants
Leon Garibay and Timoteo
Tubungbanua did not divide the
assets and properties of the
"Isabela Sawmill" between them,
but they continued the business of
said partnership under the same
firm name "Isabela Sawmill".
8. That on May 18, 1959 the
Provincial Sheriff of Negros
Occidental published two (2)
notices that he would sell at public
auction on June 5, 1959 at
Isabela, Negros Occidental certain
trucks, tractors, machinery,
officeequipment and other things
that were involved in Civil Case
No. 5223 of the Court of First
Instance of Negros Occidental,
entitled "Margarita G. Saldajeno
vs. Leon Garibay, et al." See
Appendices "G" and "G-1".
9. That on October 15, 1969 the
Provincial Sheriff of Negros
Occidental executed a Certificate
ofSale in favor of the defendant
Margarita G. Saldajeno, as a
result of the sale conducted by
him on October 14 and 15, 1959
for the enforcement of the
judgment rendered in Civil Case
No. 5223 of the Court of First
Instance of Negros Occidental, a
certified copy of which certificte of
sale is hereto attached as
Appendix "H".
10. That on October 20, 1959 the
defendant Margarita G. Saldajeno
executed a deed of sale in favor of
the Pan Oriental Lumber
Company transfering to the latter
for the sum of P45,000.00 the
trucks, tractors, machinery, and
other things that she had
purchashed at a public auction
referred to in the foregoing
paragraph, a certified true copy of
which Deed of Sale is hereto
attached as Appendix "I".
11. The plaintiffs and the
defendants Cecilio Saldajeno and
Margarita G. Saldajeno reserve
the right to present additional
evidence at the hearing of this
case.
Forming parts of the above copied
stipulation are documents that were
marked as Appendices "A", "B", "C", "C1", "C-2", "D", "E", "F", "F-1", "G", "G-1",
"H", and "I".

The plaintiffs and the defendants Cecilio


and Margarita G. Saldajeno presented
additional evidence, mostly
documentary, while the crossdefendants did not present any
evidence. The case hardly involves
quetions of fact at all, but only questions
of law.
The fact that the defendnat 'Isabela
Sawmill' is indebted to theplaintiff
Oppen, Esteban, Inc. in the amount of
P1,288.89 as the unpaid balance of an
obligation of P20,500.00 contracted on
February 3, 10956 is expressly admitted
in paragraph 2 and 3 of the Stipulation,
Exh. "A" and its Appendices "B", "C", "C1", and "C-2".
The plaintiff Agustin E. Tonssay proved
by his own testimony and his Exhs. "B"
to"G" that from October 6, 1958 to
November 8, 1958 he advanced a total
of P4,200.00 to the defendant 'Isabela
Sawmill'. Agaist the said advances said
defendant delivered to Tonsay
P3,266.27 worth of lumber, leavng an
unpaid balance of P933.73, which
balance was confirmed on May 15, 1959
by the defendant Leon Garibay, as
Manager of the defendant partnership.
The plaintiff Manuel G. Singsong proved
by his own testimony and by his Exhs.
"J" to "L" that from May 25, 1988 to
January 13, 1959 he sold on credit to
the defendnat "Isabela Sawmill" rice and
bran, on account of which business
transaction there remains an unpaid
balance of P3,580.50. The same plaintiff
also proved that the partnership ownes
him the sum of P143.00 for nipa
shingles bought from him on credit and
unpaid for.
The plaintiff Jose L. Espinos proved
through the testimony of his witness
Cayetano Palmares and his Exhs. "N" to
"O-3" that he owns the "Guia Lumber
Yard", that on October 11, 1958 said
lumber yard advanced the sum of
P2,500.00 to the defendant "Isabela
Sawmill", that against the said cash
advance, the defendant partnership
delivered to Guia Lumber Yard P920.56
worth of lumber, leaving an outstanding
balance of P1,579.44.
The plaintiff Bacolod Southern Lumber
Yard proved through the testimony of
the witness Cayetano Palmares an its
Exhs. "P" to "Q-1" that on October 11,
1958 said plaintiff advanced the sum of
P1,500.00 to the defendsant 'Isabela
Sawmill', that against the said cash
advance, the defendant partnership
delivered to the said plaintiff on

November 19, 1958 P377.72 worth of


lumber, and P73.54 worth of lumber on
January 27, 1959, leaving an
outstanding balance of P1,048.78.
The plaintiff Jose Balzunce proved
through the testimony of Leon Garibay
whom he called as his witness, and
through the Exhs. "R" to "E" that from
September 14, 1958 to November 27,
1958 he sold to the defedant "Isabela
Sawmill" gasoline, motor fuel, and
lubricating oils, and that on account of
said transactions, the defendant
partnersip ownes him an unpaid balance
of P2,052.10.
Appendix "H" of the stipulation Exh. "A"
shows that on October 13 and 14, 1959
the Provincial Sheriff sold to the
defendant Margrita G. Saldajeno for
P38,040.00 the assets of the defendsant
"Isabela Sawmill" which the defendants
Leon G. Garibay and Timoteo
Tubungbanua had mortgaged to her,
and said purchase price was applied to
the judgment that she has obtained
against he said mortgagors in Civil Case
No. 5223 of this Court.
Appendix "I" of the same stipulation Exh.
"A" shows that on October 20, 1959 the
defendant Margarita G. Saldajeno sold
to the PAN ORIENTAL LUMBER
COMPANY for P45,000.00 part of the
said properties that she had bought at
public aucton one week before.
7
xxx xxx xxx
It is contended by the appellants that the Court of First
Instance of Negros Occidental had no jurisdiction over
Civil Case No. 5343 because the plaintiffs Oppen,
Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos and
the Bacolod Southern Lumber Yard sought to collect
sums of moeny, the biggest amount of which was less
than P2,000.00 and, therefore, within the jurisdiction of
the municipal court.
This contention is devoid of merit because all the
plaintiffs also asked for the nullity of the assignment of
right with chattel mortgage entered into by and between
Margarita G. Saldajeno and her former partners Leon
Garibay and Timoteo Tubungbanua. This cause of
action is not capable of pecuniary estimation and falls
under the jurisdiction of the Court of First Instnace.
Where the basic issue is something more than the right
to recover a sum of MONEY

and where

the MONEY
claim is purely incidental to or a
consequence of the principal relief sought, the action is
as a case where the subject of the litigation is not
capable of pecuniary estimation and is cognizable
exclusively by the Court of First Instance.
The jurisdiction of all courts in the Philippines, in so far
as the authority thereof depends upon the nature of
litigation, is defined in the amended Judiciary Act,

pursuant to which courts of first instance shall have


exclusive original jurisdiction over any case the subject
matter of which is not capable of pecuniary estimation.
An action for the annulment of a judgment and an order
8
of a court of justice belongs to th category.
In determining whether an action is one the subject
matter of which is not capable of pecuniary estimation
this Court has adopted the criterion of first ascertaining
the nature of the principal action or remedy sought. If it is
primarily for the recovery of a sum of MONEY
, the
cliam is considered capable of pecuniary estimation, and
whether jurisdiciton is in the municipal courts or in the
courts of first instance would depend on the amount of
the claim. However, where the basic issue is something
other than the right to recover a sum of money, where
the money claim is purely incidental to, or a
consequence of, the principal relief sought, this Court
has considered such actions as cases where the subject
ogf the litigation may not be estimated in terms of
money, and are cognizable exclusively by courts of first
instance.
9
In Andres Lapitan vs. SCANDIA, Inc., et al., this Court
held:
Actions for specific performance of contracts have
been expressly prounounced to be exclusively
cognizable by courts of first instance: De Jesus vs.
Judge Garcia, L-26816, February 28,
1967;Manufacturers' Distributors, Inc. vs. Yu Siu
Liong, L-21285, April 29, 1966. And no cogent
reason appears, and none is here advanced by the
parties, why an actin for rescission (or resolution)
should be differently treated, a "rescission" being a
counterpart, so to speak, of "specific performance'.
In both cases, the court would certainly have to
undertake an investigation into facts that would
justify one act of the other. No award for damages
may be had in an action for resicssion without first
conducting an inquiry into matters which would
justify the setting aside of a contract, in the same
manner that courts of first instance would have to
make findings of fact and law in actions not capable
of pecuniary estimnation espressly held to be so by
this Court, arising from issues like those arised in
Arroz v. Alojado, et al., L-22153, March 31, 1967
(the legality or illegality of the conveyance sought for
and the determination of the validity of the money
deposit made); De Ursua v. Pelayo, L-13285, April
18, 1950 (validity of a judgment); Bunayog v. Tunas,
L-12707, December 23, 1959 (validity of a
mortgage); Baito v. Sarmiento, L-13105, August 25,
1960 (the relations of the parties, the right to support
created by the relation, etc., in actions for
support); De Rivera, et al. v. Halili, L-15159,
September 30, 1963 (the validity or nullity of
documents upon which claims are predicated).
Issues of the same nature may be raised by a party
against whom an action for rescission has been
brought, or by the plaintiff himself. It is, therefore,
difficult to see why a prayer for damages in an action
for rescission should be taken as the basis for
concluding such action for resiccison should be

taken as the basis for concluding such action as one


cpable of pecuniary estimation - a prayer which must
be included in the main action if plaintiff is to be
compensated for what he may have suffered as a
result of the breach committed by defendant, and
not later on precluded from recovering damages by
the rule against splitting a cause of action and
discouraging multiplicitly of suits.
The foregoing doctrine was reiterated in The Good
10
Development Corporation vs. Tutaan, where this Court
held:
On the issue of which court has
jurisdiction, the case of SENO vs.
Pastolante, et al., is in point. It was ruled
therein that although the purposes of an
action is to recover an amount plus
interest which comes within the original
jurisidction of the Justice of the Peace
Court, yet when said action involves the
foreclosure of a chattel mortgage
covering personal properties valued at
more than P2,000, (now P10,000.00)
the action should be instituted before
the Court of First Instance.
In the instanct, case, the action is to
recover the amount of P1,520.00 plus
interest and costs, and involves the
foreclosure of a chattel mortgage of
personal properties valued at
P15,340.00, so that it is clearly within
the competence of the respondent court
to try and resolve.
In the light of the foregoing recent rulings, the Court of
First Instance of Negros Occidental did no err in
exercising jurisidction over Civil Case No. 5343.
The appellants also contend that the chattel mortgage
may no longer be annulled because it had been judicially
approved in Civil Case No. 4797 of the Court of First
Instance of Negros Occidental and said chattel mortgage
had been ordered foreclosed in Civil Case No. 5223 of
the same court.
On the question of whether a court may nullify a final
judgment of another court of co-equal, concurrent and
coordinate jusridiction, this Court originally ruled that:
A court has no power to interfere with
the judgments or decrees of a court of
concurrent or coordinate jurisdiction
having equal power to grant the relief
sought by the injunction.
The various branches of the Court of
First Instance of Manila are in a sense
coordinate courts and cannot be allowed
to interfere with each others' judgments
11
or decrees.
The foregoing doctrine was reiterated in a 1953
12
case where this Court said:
The rule which prohibits a Judge from
intertering with the actuations of the
Judge of another branch of the same
court is not infringed when the Judge
who modifies or annuls the order isued
by the other Judge acts in the same

case and belongs to the same court


(Eleazar vs. Zandueta, 48 Phil. 193. But
the rule is infringed when the Judge of a
branch of the court issues a writ of
preliminary injunction in a case to
enjoint the sheriff from carrying out an
order by execution issued in another
case by the Judge of another branch of
the same court. (Cabigao and Izquierdo
vs. Del Rosario et al., 44 Phil. 182).
This ruling was maintained in 1967. In Mas vs.
13
Dumaraog, the judgment sought to be annulled was
rendered by the Court of First Instance of Iloilo and the
action for annullment was filed with the Court of First
Instance of Antique, both courts belonging to the same
Judicial District. This Court held that:
The power to open, modify or vacant a
judgment is not only possessed by but
restricted to the court in which the
judgment was rendered.
The reason of this Court was:
Pursuant to the policy of judicial stability,
the judgment of a court of competent
jurisdiction may not be interfered with by
any court concurrrent jurisdiction.
Again, in 1967 this Court ruled that the jurisdiction to
annul a judgement of a branch of the court of First
Instance belongs solely to the very same branch which
14
rendered the judgement.
Two years later, the same doctrine was laid down in the
15

Sterling INVESTMENT
case.
In December 1971, however, this court re-examined and
reversed its earlier doctrine on the matter. In Dupla v.
16
Court of Appeals, this Tribunal, speaking through Mr.
Justice Villamor declared:
... the underlying philosophy expressed
in the Dumara-og case, the policy of
judicial stability, to the end that the
judgment of a court of competent
jurisdiction may not be interfered with by
any court of concurrent jurisdiction may
not be interfered with by any court of
concurrent jurisdiciton, this Court feels
that this is as good an occasion as any
to re-examine the doctrine laid down ...
In an action to annul the judgment of a
court, the plaintiff's cause of action
springs from the alleged nullity of the
judgment based on one ground or
another, particularly fraud, which fact
affords the plaintiff a right to judicial
interference in his behalf. In such a suit
the cause of action is entirely different
from that in the actgion which grave rise
to the judgment sought to be annulled,
for a direct attack against a final and
executory judgment is not a incidental
to, but is the main object of the
proceeding. The cause of action in the
two cases being distinct and separate
from each other, there is no plausible

reason why the venue of the action to


annul the judgment should necessarily
follow the venue of the previous action
...
The present doctrine which postulate
that one court or one branch of a court
may not annul the judgment of another
court or branch, not only opens the door
to a violation of Section 2 of Rule 4, (of
the Rules of Court) but also limit the
opportunity for the application of said
rule.
Our conclusion must therefore be that a
court of first instance or a branch thereof
has the authority and jurisdiction to take
cognizance of, and to act in, suit to
annul final and executory judgment or
order rendered by another court of first
instance or by another branch of the
same court...
In February 1974 this Court reiterated the ruling in the
17
Dulap case.
In the light of the latest ruling of the Supreme Court,
there is no doubt that one branch of the Court of First
Instance of Negros Occidental can take cognizance of
an action to nullify a final judgment of the other two
branches of the same court.
It is true that the dissolution of a partnership is caused
by any partner ceasing to be associated in the carrying
18
on of the business. However, on dissolution, the
partnershop is not terminated but continuous until the
19
winding up to the business.
The remaining partners did not terminate the business of
the partnership "Isabela Sawmill". Instead of winding up
the business of the partnership, they continued the
business still in the name of said partnership. It is
expressly stipulated in the memorandum-agreement that
the remaining partners had constituted themselves as
20
the partnership entity, the "Isabela Sawmill".
There was no liquidation of the assets of the partnership.
The remaining partners, Leon Garibay and Timoteo
Tubungbanua, continued doing the business of the
partnership in the name of "Isabela Sawmill". They used
the properties of said partnership.
The properties mortgaged to Margarita G. Saldajeno by
the remaining partners, Leon Garibay and Timoteo
Tubungbanua, belonged to the partnership "Isabela
Sawmill." The appellant, Margarita G. Saldajeno, was
correctly held liable by the trial court because she
purchased at public auction the properties of the
partnership which were mortgaged to her.
It does not appear that the withdrawal of Margarita G.
Saldajeno from the partnership was published in the
newspapers. The appellees and the public in general
had a right to expect that whatever, credit they extended
to Leon Garibay and Timoteo Tubungbanua doing the
business in the name of the partnership "Isabela
Sawmill" could be enforced against the proeprties of said
partnership. The judicial foreclosure of the chattel
mortgage executed in favor of Margarita G. Saldajeno
did not relieve her from liability to the creditors of the
partnership.

The appellant, margrita G. Saldajeno, cannot complain.


She is partly to blame for not insisting on the liquidaiton
of the assets of the partnership. She even agreed to let
Leon Garibay and Timoteo Tubungbanua continue doing
the business of the partnership "Isabela Sawmill" by
entering into the memorandum-agreement with them.
Although it may be presumed that Margarita G.
Saldajeno had action in good faith, the appellees aslo
acted in good faith in extending credit to the partnership.
Where one of two innocent persons must suffer, that
person who gave occasion for the damages to be
caused must bear the consequences. Had Margarita G.
Saldajeno not entered into the memorandum-agreement
allowing Leon Garibay and Timoteo Tubungbanua to
continue doing the business of the aprtnership, the
applees would not have been misled into thinking that
they were still dealing with the partnership "Isabela
Sawmill". Under the facts, it is of no moment that
technically speaking the partnership "Isabela Sawmill"
was dissolved by the withdrawal therefrom of Margarita
G. Saldajeno. The partnership was not terminated and it
continued doping business through the two remaining
partners.
The contention of the appellant that the appleees cannot
bring an action to annul the chattel mortgage of the
propertiesof the partnership executed by Leon Garibay
and Timoteo Tubungbanua in favor of Margarita G.
Saldajeno has no merit.
As a rule, a contract cannot be assailed by one who is
not a party thereto. However, when a contract prejudices
the rights of a third person, he may file an action to annul
the contract.
This Court has held that a person, who is not a party
obliged principally or subsidiarily under a contract, may
exercised an action for nullity of the contract if he is
prejudiced in his rights with respect to one of the
contracting parties, and can show detriment which would
positively result to him from the contract in which he has
21
no intervention.
The plaintiffs-appellees were prejudiced in their rights by
the execution of the chattel mortgage over the properties
of the partnership "Isabela Sawmill" in favopr of
Margarita G. Saldajeno by the remaining partners, Leon
Garibay and Timoteo Tubungbanua. Hence, said
appelees have a right to file the action to nullify the
chattel mortgage in question.
The portion of the decision appealed from ordering the
appellants to pay attorney's fees to the plaintiffsappellees cannot be sustained. There is no showing that
the appellants displayed a wanton disregard of the rights
of the plaintiffs. Indeed, the appellants believed in good
faith, albeit erroneously, that they are not liable to pay
the claims.
The defendants-appellants have a right to be reimbursed
whatever amounts they shall pay the appellees by their
co-defendants Leon Garibay and Timoteo Tubungbanua.
In the memorandum-agreement, Leon Garibay and
Timoteo Tubungbaun undertook to release Margarita G.
Saldajeno from any obligation of "Isabela Sawmill" to
22
third persons.
WHEREFORE, the decision appealed from is hereby
affirmed with the elimination of the portion ordering

appellants to pay attorney's fees and with the


modification that the defendsants, Leon Garibay and
Timoteo Tubungbanua, should reimburse the
defendants-appellants, Margarita G. Saldajeno and her
husband Cecilio Saldajeno, whatever they shall pay to
the plaintiffs-appellees, without pronouncement as to
costs.
SO ORDERED.
Teehankee (Chairman), Makasiar, Guerrero, De Castro
and Melencio-Herrera, JJ., concur.

Teodoro v. Mirasol, G.R. No. L-8934


FACTS: Defendant and plaintiff entered into a two-year
lease contract, which would expire on October 1, 1952
and could be renewed for another two years upon
written consent of both parties.
On October 15, 1952, defendant wrote plaintiff that the
lease already expired. He gave plaintiff notice of
termination since plaintiff lost interest in renewing the
lease.
Plaintiff filed an action for specific performance and/or
declaratory relief in CFI alleging that it is not true that he
lost interest since defendant allowed him to renew the
lease; that defendant is barred from denying it; and that
he has already paid. Plaintiff prayed that the court fix the
extended period of lease to 2 years and that defendant
be required to pay P10,000 moral damage.
Defendant filed a motion to dismiss alleging that the
court has no jurisdiction; that there is a pending unlawful
detainer case in MTC between the parties; and that
plaintiff's claim is barred by Statute of Frauds.
Plaintiff replied that the unlawful detainer suit in MTC
was filed after plaintiff's action in CFI and that the former
must be dismissed. Besides, plaintiff is claiming for
moral damages, which the CFI must determine.
CFI dismissed the case and denied plaintiff's motion for
reconsideration since the issue on extension of lease
can be resolved in the ejectment case even if it was filed
later, as ruled in Lim v Lim.
Plaintiff argues before SC that there is no identity
between unlawful detainer case and his case since this
one is for specific performance or for declaratory relief
and that this suit includes a claim for moral damages,
both of which the CFI can only decide, not the MTC.
ISSUE: Whether or not the action for declaratory relief is
proper.
HELD: NO. Action for declaratory relief is meant only for
those cases where a contract is desired to be construed
prior to its breach because of an impending controversy
and that the parties may be informed of their rights.
Here, the lease contract had already expired and there
has already been a breach; hence, the action for
declaratory relief is no longer proper.
Even if proper, there is no longer any need for the action
since the matter could be threshed out in the unlawful
detainer suit.
The claim for damages is merely an incident of the main
question of whether or not plaintiff should be allowed to
continue the lease for two years more. He may not
assert it in the action for declaratory relief, as an excuse
or reason for continuing his suit.

EN BANC
[G.R. No. L-8934. May 18, 1956.]
ANASTACIO T. TEODORO, JR., Plaintiff-Appellant,
vs. ARMANDO MIRASOL, Defendant-Appellee.
DECISION
LABRADOR, J.:
Appeal against an order dismissing the complaint.
On November 20, 1952, Defendant leased to Plaintiff a
parcel of land situated along Taft Avenue, Ermita,
Manila, for a monthly rental of P490, payable on or
before the fifth day of each month. The contract provides
that the term of the lease is two years, beginning on
October 1, 1952, which may be extended for another
period not exceeding two years with the written consent
of both parties. (Par. 2, Exh. A of Exh. 1, p. 24, Record
on Appeal.)
On October 15, 1954, Defendant wrote Plaintiff that the
lease expired on October 1, 1954, and that as the latter
has lost interest in renewing the same and the retention
by the lessee will mean a great financial loss to the
owner, Defendant is
giving Plaintiff notice
of
the
termination of the contract. (Par. 2, Complaint, p. 2,
Record on Appeal.
It is alleged in Plaintiffs complaint that it is not true
that Plaintiff has lost interest in the renewal of the lease
contract; chan
roblesvirtualawlibrarythat
as Defendant allowed Plaintiff to choose to continue the
lease for another two years, Defendant is now estopped
from denying that the said period had actually been
extended for another period of two years; chan
roblesvirtualawlibraryand
that Plaintiff has
already
paidDefendant a considerable sum of MONEY
,
besides spending another big sum for the improvements
on the land. Plaintiff prays that the court fix a longer term
for the lease, or rather extend the lease for another
period of two years and that Defendant be also required
to pay Plaintiff P10,000 as indemnity for moral damages,
because Defendants wife had stated that a check
issued by the Plaintiff had been dishonored, such
statement having been made for the purpose of affecting
adversely Plaintiffs business.
Upon receipt of the summons, Defendant promptly filed
a motion to dismiss the complaint on the following
grounds:chanroblesvirtuallawlibrary that the court has no
jurisdiction to grant the remedy prayed for in the
complaint; chan roblesvirtualawlibrarythat there is
another action pending between the same parties and
for the same cause; chan roblesvirtualawlibrarythat the
complaint
states
no
cause
of
action
against Defendant; chan
roblesvirtualawlibraryand
thatPlaintiffs claim cannot be enforced because the
same is barred by the Statute of Frauds. In connection
with the allegation that another action is pending
between the same parties and for the same cause, a
copy of a complaint for ejectment filed by
the Defendant against Plaintiffin the Municipal Court of
Manila on December 20, 1954, was attached as Exhibit
1. The complaint for ejectment alleges that the lease
was terminated on October 1, 1954, and that even if the
contract could be extended for another period of two

years the same had already expired on December 20,


1954.
In his reply to the motion for dismissal, Plaintiff argues
that as the ejectment suit in the Municipal Court of
Manila was filed later than Plaintiffs action in the Court
of First Instance, the former must be dismissed; chan
roblesvirtualawlibrarythat the Plaintiff is claiming moral
damages for P10,000, and this must be determined in
the
Court
of
First
Instance; chan
roblesvirtualawlibraryand that by the letter that
theDefendant has
sent Plaintiff,
the Defendant is
estopped from denying that the contract of lease has
been extended for another period of two years.
The trial court, after considering a rejoinder
of Defendant to Plaintiffs reply, sustained the motion for
dismissal on the ground that in view of the filing of the
action for ejectment or unlawful detainer, all matters
alleged in the Plaintiffs complaints could be decided
therein. After the denial of Plaintiffs motion for the
reconsideration of the order, Plaintiff appealed to this
Court.
There is no doubt in our mind that the order of dismissal
appealed from should be sustained. The real issue
between the parties is whether or not the PlaintiffAppellant should be allowed to continue occupying the
land under the terms of the lease contract. This is the
subject matter of the action for unlawful detainer filed
by Defendant in the Municipal Court, and it is also the
main or principal purpose of this Action. As we have held
in the case of Pue, et al. vs. Gonzales, 87 Phil., 81 and
in the recent case of Lim Si vs. Lim, 98 Phil., 856, the
right of a lessee to occupy the land leased against the
lessor should be decided under Rule 72 of the Rules of
Court. The mere fact that the unlawful detainer or
ejectment case was filed later did not deter us from
applying this ruling in the case of Lim vs. Lim, supra.
In case at bar, we are led to the belief that the present
action in the Court of First Instance was prompted by a
desire on Plaintiffs part to anticipate the action for
unlawful detainer, the probability of which was apparent
from the letter of the Defendant to the Plaintiff advising
the latter that the contract of lease expired on October 1,
1954.
The Defendant evidently
desired
to
give Plaintiff sufficient time to leave the premises
because no action for unlawful detainer was filed
immediately after the giving of the notice of the
expiration of the lease. But Plaintifftook advantage
of Defendants delayed unlawful detainer suit to file this
case in the Court of First Instance of anticipation of the
action for unlawful detainer, in order perhaps that he
may claim that the action in the Court of First Instance
was prior to the unlawful detainer case, and, therefore,
should enjoy preference over the action filed in the
Municipal Court.
It is to be noted that the Rules do not require as a
ground for dismissal of a complaint that there is a prior
pending action. They provide that there is a pending
action, not a pending prior action. The fact that the
unlawful detainer suit was of a later date is no bar to the
dismissal of the present action. We find, therefore, no
error in the ruling of the court a quo that Plaintiffs action
should be dismissed on the ground of the pendency of

another more appropriate action between the same


parties and for the same cause.
It is also asserted by Appellant that there is no identity
between
the
unlawful
detainer
case
filed
by Defendant and the case at bar, first because this one
is for specific performance or for declaratory relief and
second, this suit also includes a demand for moral
damages in the sum of P10,000, both of which remedies
may not be within the municipal courts jurisdiction to try
and decide. In answer it may be stated that, be that as it
may, Plaintiffs action for declaratory relief is
improper; chan roblesvirtualawlibrarythis action is mean
only for those cases where a contract is desired to be
construed prior to its breach because of an impending
controversy, that the parties thereto may be informed of
their rights thereunder. In the case at bar, the lease
contract had already expired and there has already been
a breach thereof, hence the action for a declaratory
judgment is no longer proper.
SEC 2. Before Breach A contract or statute may be
construed before there has been a breach thereof.
(Rule 66, Rules of Court.)
Besides, cognizance of actions for declaratory relief is
vested in the sound discretion of the court, which may
dismiss the action if a declaration is no longer
necessary.
SEC. 6. Discretionary. The court may refuse to
exercise the power to declare rights and to construe
instruments in any case where a decision under it would
not terminate the uncertainty or controversy which gave
rise to the action, or in any case where the declaration,
or construction is not necessary and proper at the time
under all the circumstances. (Id.)
There is no longer any need for the action, even if
proper, because the matter could be threshed out in the
unlawful detainer suit that the Defendant had instituted in
the municipal court.
It is not true that Plaintiffs supposed rights to an
extension cannot be decided in the unlawful detainer
suit. If the Plaintiff has any right to the extension of the
lease at all, such right is a proper and legitimate issue
that could be raised in the unlawful detainer case,
because it may be used as a defense to the
action. Plaintiff suit, therefore, violates the principle
prohibiting multiplicity of suits, as the court a quo
correctly ruled.
The claim for damages is also invoked as a ground for
allowing the continuance of the action. We note that this
supposed cause of action is merely an incident of the
main question of whether or not Plaintiff should be
allowed to continue the lease for two years more. It is
not alleged as an independent cause of action. It is not
set forth in a paragraph different from the others as the
Rules require. If Plaintiff wants to insist on these
damages, he may do so clearly and plainly in another
action; chan roblesvirtualawlibraryhe may not assert it in
the action for declaratory relief, as an excuse or reason
for continuing his said suit for declaratory relief, which is
improper under the circumstances.
The order of dismissal may also be sustained on another
ground, namely, that on the face of the complaint
the Plaintiff has no cause of action against Defendant.

The contract expressly provides that the lease is for two


years from October 1, 1952, but may be extended by
written consent of both parties for another two years. But
there is no allegation in the complaint that this period of
time was extended by the written consent of the parties.
The allegation in the complaint that the Defendants
assumption that Plaintiff was no longer interested in
renewing the lease is false and estops Defendants from
claiming that the lease has been terminated is either a
conclusion of law or it does not create any right of action
in favor of Plaintiff for the extension of the lease. As the
contract of lease can be extended, according to its
terms, only by written consent of the parties, no right for
extension can arise without such written consent. There
is no allegation that such written consent was ever
given. Hence there is no sufficient ground alleged in the
complaint for the Plaintiff to be entitled to the extension.
The order of dismissal was, therefore, further justified by
the fact thatPlaintiffs complaint alleges no cause of
action against Defendant.
For the foregoing considerations, the judgment appealed
from is hereby affirmed, with costs against PlaintiffAppellant.
Paras, C.J., Bengzon, Padilla, Montemayor, Jugo,
Concepcion, Reyes, J.B.L., and Endencia, JJ.,
concur.
G.R. No. 168384 August 18, 2006
CHARLES BERNARD H. REYES doing business
under the name and style CBH REYES
ARCHITECTS,Petitioner,
vs.
ANTONIO YULO BALDE II, PAULINO M. NOTO and
ERNESTO J. BATTAD, SR., in their capacities as
Arbitrators of the CONSTRUCTION INDUSTRY
ARBITRATION COMMISSION, SPOUSES CESAR and
CARMELITA ESQUIG and ROSEMARIE
PAPAS, Respondents.
RESOLUTION
YNARES-SANTIAGO, J.:
Before the Court is a "Motion to Inhibit the Honorable
Chief Justice and Motion to Refer Case to the Court En
Banc," dated August 4, 2006, filed by Atty. Francisco I.
Chavez.
I.
According to the movant, the Motion to Inhibit the Chief
Justice "is not an accusation of wrongdoing on the part
of the Honorable Chief Justice. Rather it is impelled by
Atty. Chavezs perception that in this case, the
Honorable Chief Justice has not acted in an objective,
impartial and neutral manner in disposing of incidental
issues and motions presented by the parties."
The movant adds that "the dizzying pace by which
private respondents motions have been received and
favorably acted upon in record time supports Atty.
Chavezs perception that private respondents motions
without as much as requiring petitioner to respond
thereto have been granted special attention and favor
by the Honorable Chief Justice." (bold types in original)
Atty. Chavezs perception about the alleged "closeness
and the good relationship between Atty. Ordoez and
the Chief Justice" to impair the latters objectivity and
impartiality has no basis, for the following reasons:

(1) The actions taken on the various motions and


incidents enumerated by the movant were made by the
entire membership of the First Division. Not being the
ponente, the Chief Justice did not initiate or propose any
of the actions and rulings made by the Court. Like the
three other Division members, he merely concurred with
the actions/rulings proposed by the ponente. While some
orders and actions, especially temporary restraining
orders, are issued in the name of the Division chairman
(who in this case is the Chief Justice), they are really
collective actions of the entire Division, not merely those
of the Chair. This is the normal procedure in all
Divisions, not just in the First.
(2) The alleged "unpleasant interaction these past 19
years between Atty. Chavez and Atty. Sedfrey Ordoez
with whom Chief Justice worked either as associate or
partner sometime ago" has nothing to do at all with the
concurrences made by the Chief Justice on this case.
These concurrences were given on the basis only of
legal merit, and on nothing else.
(3) True, the Chief Justice was an associate (not a
partner) in 1961 to 1963 in the Salonga, Ordoez and
Associates, which incidentally had been dissolved in
1987. True also, he has had a close personal and
professional relationship with the principal partner in that
law firm, Sen. Jovito R. Salonga. That is the reason the
Chief Justice has inhibited himself from cases in which
1
Sen. Salonga was/is a party or a counsel.
However, he had no similar closeness with Atty.
Ordoez. That is why he has not inhibited himself from
cases involving Atty. Ordoez. In fact, he has not
hesitated, on several occasions, to vote against
parties/causes represented by the former Secretary of
Justice.
(4) In fairness to all concerned, Atty. Ordoez has never
spoken, directly or indirectly, with the Chief Justice on
any matter pending in the Supreme Court and in any
other court. He has never attempted, directly or
indirectly, personally or through others, to influence the
Chief Justice in any manner whatsoever. In fact, the
Chief Justice understands that Atty. Ordoez has been
seriously ill, going in and out of the hospital, over the
past several months. And yet the Chief Justice has not
even visited or spoken with him during such period.
(5) On the other hand, the Chief Justice, when so
warranted by the facts and law, has voted in favor of
causes and parties represented by Atty. Chavez. One
outstanding example is Chavez v. PCGG (360 Phil. 133,
December 9, 1998; 366 Phil. 863, May 19, 1999), which
was written by then Associate Justice Artemio V.
Panganiban. Atty. Chavez knows that he has won the
vote of the Chief Justice without his having to speak with
or influence him in any manner.
(6) Movants perception "that Atty. Ordoezs concern for
and interest in upholding the CIAC jurisdiction must have
somehow been relayed to the Honorable Chief Justice"
is completely baseless. As already stated, there had
been no conversation or communication, directly or
indirectly, personally or through others, between the
Chief Justice and Atty. Ordoez (or anyone representing
him) about any matter related to any case in this, or any
other, court. Neither is the Chief Justice aware of any

alleged personal interest of Atty. Ordoez to uphold the


CIAC.
(7) In a few months, the incumbent Chief Justice is
scheduled to retire from the judiciary. It is totally
inconceivable that he will smear his eleven year record
of integrity, independence and ethical conduct in the
Supreme Court with any action that is less than
"objective, impartial and neutral." On the other hand, he
assures movant (and all concerned) that he will continue
with his vow "to lead a judiciary characterized by four
Ins: independence, integrity, industry and intelligence."
II.
Following his misperception of "closeness and bonding
between Atty. Ordoez and the Chief Justice," the
movant assailed certain "proceedings in this Honorable
Courts First Division." However, these proceedings can
easily be explained, thus:
(1) Respondents Motion to Include Hon. Pedro
Sabundayo, Jr., Presiding Judge, Regional Trial Court of
Muntinlupa City, Branch 203, as public respondent was
denied because Section 4, Rule 45 of the Rules of Court
provides that in a petition for review on certiorari to the
Supreme Court, there is no need to implead the lower
courts or judges thereof either as petitioners or
respondents. There is no irregularity when the
Resolution denying respondents motion was issued
when the Chief Justice was on official leave. The
remaining Members of the Division can proceed with
official business despite the absence of the Chief Justice
as long as the required majority is present. This is in
accordance with Section 4(3), Article VIII of the
Constitution which provides that "cases or matters heard
by a division shall be decided or resolved with the
concurrence of a majority of the Members who actually
took part in the deliberations on the issues in the case
and voted thereon, and in no case, without the
concurrence of at least three of such Members."
(2) The issuance of a TRO enjoining the Presiding Judge
of Muntinlupa City, Branch 203 from continuing with any
of the proceedings in Civil Case No. 03-110 and from
enforcing the Order of the trial court dated June 29, 2006
ordering the sheriff to implement the writ of execution
dated May 17, 2006, is in order. Respondents
satisfactorily established that they are entitled to the
injunction.
It appears from the records that petitioner filed a
complaint against respondents with the Regional Trial
Court of Muntinlupa City which was docketed as Civil
Case No. 03-110 praying that an accounting be
rendered to determine the cost of the materials
purchased by respondent Papas; that respondents be
ordered to pay the cost of the additional works done on
the property; that the Design-Build Construction
Agreement be ordered rescinded because respondents
breach the same; and that respondents be ordered to
pay moral and exemplary damages. Based on the same
Design-Build Construction Agreement, respondents filed
with the Construction Industry Arbitration Commission
(CIAC) a complaint praying that petitioner be ordered to
finish the project or, in the alternative, to pay the cost to
finish the same; to reimburse the overpayments made by

respondents; and to pay liquidated damages, attorneys


fees and costs of the suit.
2
On June 8, 2005, the CIAC rendered a decision on the
merits of the case awarding in favor of respondents the
sum of P4,419,094.98. The case is presently on appeal
3
with the Court of Appeals docketed as CA-G.R. SP No.
4
90136.
Meanwhile, on July 29, 2005, the trial court rendered
judgment in Civil Case No. 03-110 in favor of petitioner
ordering the respondents to pay P840,300.00
representing the cost of the additional works;
P296,658.95 representing the balance of the contract
price; P500,000.00 by way of moral damages;
P500,000.00 as exemplary damages; P500,000.00 as
attorneys fees and costs of the suit. In an Order dated
May 17, 2006, Judge Sabundayo, Jr. directed Sheriff
Melvin T. Bagabaldo to implement the writ of execution
by causing the respondents to "render an accounting of
all the construction materials they bought for the
construction of the project x x x; to levy the goods and
chattels of the [respondents] x x x and to make the sale
5
thereof x x x."
In their Second Manifestation with Prayer for Issuance of
6
a Temporary Restraining Order/Injunction filed with this
Court on July 10, 2006, respondents averred that from
July 7, 2006 until 4 oclock in the morning of July 8,
2006, Sheriff Bagabaldo went to the residence of
respondent Papas and levied several of her personal
7
properties. Respondents bewailed that despite the
pronouncement of the Court of Appeals that the CIAC,
not the Regional Trial Court, which has jurisdiction over
the case, and despite the pendency of the instant case
before us, the Regional Trial Court still proceeded with
the implementation of the writ.
It is important to mention that in both cases, the parties
insist that the other breached their obligation under the
Design-Build Construction Agreement. Petitioner
however argues that the Regional Trial Court properly
took cognizance of the case while respondents claim
that CIAC has the exclusive and original jurisdiction on
the subject matter. Otherwise stated, if we rule in the
instant case that CIAC has jurisdiction over the
controversy, then it would necessarily follow that the
Regional Trial Court does not have jurisdiction. Since it
did not acquire jurisdiction over the controversy, then the
writ of execution that it issued was void. If we allow the
RTC Judge and the Sheriff to continue with the
proceedings in Civil Case No. 03-110, then, whatever
judgment that would be rendered in the instant case
would be rendered nugatory. In view of the above
circumstances, respondents clearly established that they
are entitled to the issuance of a TRO.
Thus on July 12, 2006, the Court issued a Resolution
that reads:
Acting on the prayer for issuance of a temporary
restraining order/injunction, the Court further resolves to
issue a TEMPORARY RESTRAINING ORDER enjoining
the Presiding Judge, Regional Trial Court, Branch 203,
Muntinlupa City, from continuing with any of the
proceedings in Civil Case No. 03-110 entitled "Charles
Bernard H. Reyes, doing business under the name and
style of CBH Reyes Architects vs. Spouses Mely and

Cesar Esquig, et al." [subject matter of the assailed


Court of Appeals decision and resolution dated February
18, 2005 and May 20, 2005, respectively, in CA-G.R. SP
No. 83816 entitled "Charles Bernard H. Reyes, doing
business under the name and style CBH REYES
ARCHITECTS vs. Antonio Yulo Balde II, et al"] and from
enforcing the Order dated June 29, 2006 ordering the
designated sheriff to implement the writ of execution
dated May 17, 2006 to enforce the decision dated July
29, 2005 in Civil Case No. 03-110, upon the private
respondents filing of a bond in the amount of Three
Hundred Thousand Pesos (P300,000.00) within a period
of five (5) days from notice hereof x x x.
(3) Thereafter, respondents filed an Urgent Motion for
Clarification of the above resolution. Accordingly, on July
19, 2006, we issued a resolution which is a clarification
of the TRO issued on July 12, 2006. Both the July 12,
2006 and July 19, 2006 Resolutions are covered by the
same bond in the amount of P300,000.00.
(4) A petition review under Rule 45 of the Rules of Court
is not a matter of right but of sound judicial
8
discretion. For purposes of determining whether the
petition should be dismissed or denied, or where the
petition is given due course, the Supreme Court may
require or allow the filing of such pleadings, briefs,
memoranda or documents as it may deem necessary
within such periods and under such conditions as it may
consider appropriate, and impose the corresponding
sanctions in case of non-filing or unauthorized filing of
such pleadings and documents or non-compliance with
9
the conditions therefor. This Court exercised its
discretion when it did not require petitioner to file
comment on respondents Manifestation with Urgent
Motion to Resolve with Prayer for Injunction, Second
Manifestation with Prayer for Issuance of a Temporary
Restraining Order/Injunction, Urgent Motion for
Clarification, and Compliance.
(5) The Court did not exceed its jurisdiction; neither did it
encroach on the jurisdiction of the Court of Appeals or of
the lower court when it issued the Resolution dated July
12, 2006. As discussed, there is compelling reason to
issue a TRO as the respondents satisfactorily
established they are entitled to the relief demanded. It
may further be said that the issuance of a TRO on July
12, 2006 is not a final determination of the matter. It was
a remedy intended to avoid any irreparable injury that
might be caused to the parties. It may be recalled that
the CIAC and the trial court each asserted its jurisdiction
over the controversy to the exclusion of the other.
(6) There is no truth or basis to the allegation that the
case has been given "special attention." All actions on
the motions and incidents have been performed
regularly.
WHEREFORE, the Motion to Inhibit the Honorable Chief
Justice is DENIED. The Motion to Refer Case to the
Court En Banc is GRANTED.
SO ORDERED.
CONSUELO YNARES-SANTIAGO
Associate Justice
WE CONCUR:
G.R. NO. 152471 August 18, 2006

FIESTA WORLD MALL CORPORATION, Petitioner,


vs.
LINBERG PHILIPPINES, INC., Respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the instant Petition for Review on
1
2
Certiorari assailing the Decision dated December 12,
3
2001 and Resolution dated February 28, 2002 rendered
by the Court of Appeals in CA-G.R. SP No. 63671,
entitled "Fiesta World Mall Corporation, petitioner,
versus Hon. Florito S. Macalino, Presiding Judge of the
Regional Trial Court (RTC), Branch 267, Pasig City, and
Linberg Philippines, Inc., respondents."
The facts of this case are:
Fiesta World Mall Corporation, petitioner, owns and
operates Fiesta World Mall located at Barangay
Maraouy, Lipa City; while Linberg Philippines, Inc.,
respondent, is a corporation that builds and operates
power plants.
On January 19, 2000, respondent filed with the Regional
Trial Court (RTC), Branch 267, Pasig City, a Complaint
for Sum of MONEY
against petitioner, docketed as
Civil Case No. 67755. The complaint alleges that on
November 12, 1997, petitioner and respondent executed
a build-own-operate agreement, entitled "Contract
Agreement for Power Supply Services, 3.8 MW Base
4
Load Power Plant" (the Contract). Under this Contract,
respondent will construct, at its own cost, and operate as
owner a power plant, and to supply petitioner
power/electricity at its shopping mall in Lipa City.
Petitioner, on the other hand, will pay respondent
"energy fees" to be computed in accordance with the
Seventh Schedule of the Contract, the pertinent portions
of which provide:
2.1 x x x
E1 988,888 kw-hr x BER
E2 (ED-988,888) x BER
Where:
E1 & E2 Energy fees in pesos for the billing period.
Where E1 is based on the minimum energy off-take of
988,888 kw-hrs. per month and E2 is based on the
actual meter reading less the minimum off-take.
BER Base energy rate at Ps 2.30/Kw-Hr billing rate
based on the exchange rate of Ps 26.20 to the US dollar,
and with fuel oil to be supplied by LINBERG at its own
cost. The base energy rate is subject to exchange rate
adjustment accordingly to the formula as follows:
BER 0.6426 + 0.3224 Pn + 1.345 Fn
26.40 4.00
WHERE:
Pn is defined as the average of the Bangko Sentral ng
Pilipinas published dealing rates for thirty (30) trading
days immediately prior to the new billing rate.
Fn Weighted average of fuel price per liter based on
the average of the last three (3) purchases made by
LINBERG as evidenced by purchase invoices.
ED Energy delivered in kw-hrs per meter reading.
3. Minimum Energy Off-Take
The energy fees payable to LINBERG shall be on the
basis of actual KWH generated by the plant. However, if
the actual KWH generated is less than the minimum

energy off-take level, the calculation of the energy fees


shall be made as if LINBERG has generated the
minimum energy off-take level of 988,888 KW-HR per
month.
The complaint further alleges that respondent
constructed the power plant in Lipa City at a cost of
aboutP130,000,000.00. In November 1997, the power
plant became operational and started supplying
power/electricity to petitioners shopping mall in Lipa
City. In December 1997, respondent started billing
petitioner. As of May 21, 1999, petitioners unpaid
obligation amounted to P15,241,747.58, exclusive of
interest. However, petitioner questioned the said amount
and refused to pay despite respondents repeated
demands.
In its Answer with Compulsory Counterclaim, petitioner
specifically denied the allegations in the complaint,
claiming that respondent failed to fulfill its obligations
under the Contract by failing to supply all its power/fuel
needs. From November 10, 1998 until May 21, 1999,
petitioner personally shouldered the cost of fuel.
Petitioner also disputed the amount of energy fees
specified in the billings made by respondent because the
latter failed to monitor, measure, and record the
quantities of electricity delivered by taking photographs
of the electricity meter reading prior to the issuance of its
invoices and billings, also in violation of the
5
Contract. Moreover, in the computation of the electrical
billings, the minimum off-take of energy (E2) was based
solely on the projected consumption as computed by
respondent. However, based on petitioners actual
experience, it could not consume the energy pursuant to
the minimum off-take even if it kept open all its lights and
operated all its machinery and equipment for twenty-four
hours a day for a month. This fact was admitted by
respondent. While both parties had discussions on the
questioned billings, however, "there were no earnest
efforts to resolve the differences in accordance with the
arbitration clause provided for in the Contract."
Finally, as a special affirmative defense in its answer,
petitioner alleged that respondents filing of the
complaint is premature and should be dismissed on the
ground of non-compliance with paragraph 7.4 of the
Contract which provides:
7.4 Disputes
If FIESTA WORLD disputes the amount specified by any
invoice, it shall pay the undisputed amount on or before
such date(s), and the disputed amount shall be resolved
by arbitration of three (3) persons, one (1) by mutual
choice, while the other two (2) to be each chosen by the
parties themselves, within fourteen (14) days after the
due date for such invoice and all or any part of the
disputed amount paid to LINBERG shall be paid together
with interest pursuant to Article XXV from the due date of
the invoice. It is agreed, however, that both parties must
resolve the disputes within thirty (30) days, otherwise
any delay in payment resulting to loss to LINBERG when
converted to $US as a result of depreciation of the
Pesos shall be for the account of FIESTA WORLD.
Corollarily, in case of erroneous billings, however,
LINBERG shall be liable to pay FIESTA WORLD for the
cost of such deterioration, plus interest computed

pursuant to Art. XXV from the date FIESTA WORLD


paid for the erroneous billing. (Underscoring supplied)
Thereafter, petitioner filed a Motion to Set Case for
Preliminary Hearing on the ground that respondent
violated the arbitration clause provided in the Contract,
thereby rendering its cause of action premature.
This was opposed by respondent, claiming that
paragraph 7.4 of the Contract on arbitration is not the
provision applicable to this case; and that since the
parties failed to settle their dispute, then respondent may
resort to court action pursuant to paragraph 17.2 of the
same Contract which provides:
17.2 Amicable Settlement
The parties hereto agree that in the event there is any
dispute or difference between them arising out of this
Agreement or in the interpretation of any of the
provisions hereto, they shall endeavor to meet together
in an effort to resolve such dispute by discussion
between them but failing such resolution the Chief
Executives of LINBERG and FIESTA WORLD shall meet
to resolve such dispute or difference and the joint
decision of such shall be binding upon the parties
hereto, and in the event that a settlement of any such
dispute or difference is not reached, then the provisions
of Article XXI shall apply.
Article XXI, referred to in paragraph 17.2 above, reads:
ARTICLE XXI
JURISDICTION
The parties hereto submit to the exclusive jurisdiction of
the proper courts of Pasig City, Republic of the
Philippines for the hearing and determination of any
action or proceeding arising out of or in connection with
this Agreement.
In its Order dated October 3, 2000, the trial court denied
petitioners motion for lack of merit.
Petitioner then filed a Motion for Reconsideration but it
was denied in an Order dated January 11, 2001.
Dissatisfied, petitioner elevated the matter to the Court
of Appeals via a Petition for Certiorari, docketed as CAG.R. SP No. 63671. On December 12, 2001, the
appellate court rendered its Decision dismissing the
petition and affirming the challenged Orders of the trial
court.
Petitioners Motion for Reconsideration of the above
Decision was likewise denied by the appellate court in its
6
Resolution dated February 28, 2002.
Hence, the instant Petition for Review on Certiorari.
The sole issue for our resolution is whether the filing with
the trial court of respondents complaint is premature.
Paragraph 7.4 of the Contract, quoted earlier, mandates
that should petitioner dispute any amount of energy fees
in the invoice and billings made by respondent, the same
"shall be resolved by arbitration of three (3) persons, one
(1) by mutual choice, while the other two (2) to be each
chosen by the parties themselves." The parties, in
incorporating such agreement in their Contract,
expressly intended that the said matter in dispute must
first be resolved by an arbitration panel before it reaches
the court. They made such arbitration mandatory.
It is clear from the records that petitioner disputed the
amount of energy fees demanded by respondent.
However, respondent, without prior recourse to

arbitration as required in the Contract, filed directly with


the trial court its complaint, thus violating the arbitration
clause in the Contract.
It bears stressing that such arbitration agreement is the
law between the parties. Since that agreement is binding
between them, they are expected to abide by it in good
7
faith. And because it covers the dispute between them
in the present case, either of them may compel the other
8
to arbitrate. Thus, it is well within petitioners right to
demand recourse to arbitration.
We cannot agree with respondent that it can directly
seek judicial recourse by filing an action against
petitioner simply because both failed to settle their
differences amicably. Suffice it to state that there is
nothing in the Contract providing that the parties may
dispense with the arbitration clause. Article XXI on
jurisdiction cited by respondent, i.e., that "the parties
hereto submit to the exclusive jurisdiction of the proper
courts of Pasig City" merely provides for the venue of
any action arising out of or in connection with the
stipulations of the parties in the Contract.
Moreover, we note that the computation of the energy
fees disputed by petitioner also involves technical
matters that are better left to an arbitration panel who
has expertise in those areas. Alternative dispute
resolution methods or ADRs like arbitration, mediation,
negotiation and conciliation are encouraged by this
Court. By enabling the parties to resolve their disputes
amicably, they provide solutions that are less timeconsuming, less tedious, less confrontational, and more
9
productive of goodwill and lasting relationships. To
brush aside such agreement providing for arbitration in
case of disputes between the parties would be a step
backward. As we held in BF Corporation v. Court of
10
Appeals,
It should be noted that in this jurisdiction, arbitration has
been held valid and constitutional. Even before the
approval on June 19, 1953 of Republic Act No. 876 (The
Arbitration Law), this Court has countenanced the
settlement of disputes through arbitration (Puromines,
Inc. v. Court of Appeals, G.R. No. 91228, March 22,
1993, 220 SCRA 281-290). Republic Act No. 876 was
adopted to supplement the New Civil Codes provisions
on arbitration (Chung Fu Industries Phils., Inc. v. Court
of Appeals, G.R. No. 92683, February 25, 1992, 206
SCRA 545, 551). Its potentials as one of the alternative
dispute resolution methods that are now rightfully
vaunted as the wave of the future in international
relations, is recognized worldwide. To brush aside a
contractual agreement calling for arbitration in case of
disagreement between the parties would therefore be a
step backward.
In this connection, since respondent has already filed a
complaint with the trial court without prior recourse to
arbitration, the proper procedure to enable an arbitration
panel to resolve the parties dispute pursuant to their
Contract is for the trial court to stay the
11
proceedings. After the arbitration proceeding has been
pursued and completed, then the trial court may confirm
12
the award made by the arbitration panel.

In sum, we hold that the Court of Appeals erred in


disregarding the arbitration clause in the parties
Contract.
WHEREFORE, we GRANT the instant petition. The
assailed Decision and Resolution of the Court of
Appeals in CA-G.R. SP No. 63671 are REVERSED. The
parties are ordered to submit their controversy to the
arbitration panel pursuant to paragraph 7.4 of the
Contract. The Regional Trial Court, Branch 267, Pasig
City is directed to suspend the proceedings in Civil Case
No. 67755 until after the Arbitration Panel shall have
resolved the controversy and submitted its report to the
trial court. Costs against respondent.
SO ORDERED.
G.R. No. 143581
January 7, 2008
KOREA TECHNOLOGIES CO., LTD., petitioner,
vs.
HON. ALBERTO A. LERMA, in his capacity as
Presiding Judge of Branch 256 of Regional Trial
Court of Muntinlupa City, and PACIFIC GENERAL
STEEL MANUFACTURING
CORPORATION, respondents.
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
1
Contract whereby KOGIES would set up an LPG
Cylinder Manufacturing Plant in Carmona, Cavite. The
contract was executed in the Philippines. On April 7,
1997, the parties executed, in Korea, an Amendment for
Contract No. KLP-970301 dated March 5,
2
1997 amending the terms of payment. The contract and
its amendment stipulated that KOGIES will ship the
machinery and facilities necessary for manufacturing
LPG cylinders for which PGSMC would pay USD
1,224,000. KOGIES would install and initiate the
operation of the plant for which PGSMC bound itself to
pay USD 306,000 upon the plants production of the 11kg. LPG cylinder samples. Thus, the total contract price
amounted to USD 1,530,000.
On October 14, 1997, PGSMC entered into a Contract of
3
Lease with Worth Properties, Inc. (Worth) for use of
Worths 5,079-square meter property with a 4,032square 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.
4
However, gleaned from the Certificate executed by the
parties on January 22, 1998, after the installation of the
plant, the initial operation could not be conducted as
PGSMC encountered financial difficulties affecting the
supply of materials, thus forcing the parties to agree that
KOGIES would be deemed to have completely complied
with the terms and conditions of the March 5, 1997
contract.
For the remaining balance of USD306,000 for the
installation and initial operation of the plant, PGSMC
issued two postdated checks: (1) BPI Check No.
0316412 dated January 30, 1998 for PhP 4,500,000;
and (2) BPI Check No. 0316413 dated March 30, 1998
5
for PhP 4,500,000.
When KOGIES deposited the checks, these were
dishonored for the reason "PAYMENT STOPPED."
6
Thus, on May 8, 1998, KOGIES sent a demand letter to
PGSMC threatening criminal action for violation of Batas
Pambansa Blg. 22 in case of nonpayment. On the same
date, the wife of PGSMCs President faxed a letter dated
May 7, 1998 to KOGIES President who was then
staying at a Makati City hotel. She complained that not
only did KOGIES deliver a different brand of hydraulic
press from that agreed upon but it had not delivered
several equipment parts already paid for.
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
7
KOGIES.
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, Korea pursuant to Art. 15 of the Contract as
amended.

On July 3, 1998, KOGIES filed a Complaint for Specific


Performance, docketed as Civil Case No. 988
117 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
9
Compulsory Counterclaim 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
10
an injunctive writ was denied. 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
11
Answer to Counterclaim. 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
12
Appeals, insisted that the arbitration clause was
without question valid.
After KOGIES filed a Supplemental Memorandum with
13
Motion to Dismiss answering PGSMCs memorandum
of July 22, 1998 and seeking dismissal of PGSMCs
counterclaims, KOGIES, on August 4, 1998, filed its
14
Motion for Reconsideration 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
15
Court in Chung Fu Industries (Phils.), Inc.
In the meantime, PGSMC filed a Motion for Inspection of
16
Things 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
17
Reconsideration 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
18
Appeals (CA) a petition for certiorari docketed as CAG.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,
19
1998.
Thereafter, KOGIES filed a Supplement to the
20
Petition 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
21
Sheriffs Report 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
22
Decision 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 and September 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 nonattachment 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
23
SAME FOR ALLEGEDLY "WITHOUT MERIT."
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 dated July 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 cross-claim 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
24
under Sec. 5 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
25
Citing Gamboa v. Cruz, the CA also pronounced that
"certiorari and Prohibition are neither the remedies to
question the propriety of an interlocutory order of the trial
26
court." 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
27
challenged by an appeal. 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
28
allows certiorari as a mode of redress.
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
29
discretion, the remedy is certiorari.
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
30
court."
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.)
31
32
33
Arts. 2038, 2039, and 2040 abovecited refer to
instances where a compromise or an arbitral award, as
34
applied to Art. 2044 pursuant to Art. 2043, 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
35
both parties. In Gonzales v. Climax Mining Ltd., we
held that submission to arbitration is a contract and that
a clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a
36
contract. Again in Del Monte Corporation-USA v. Court
of Appeals, we likewise ruled that "[t]he provision to
submit to arbitration any dispute arising therefrom and
the relationship of the parties is part of that contract and
37
is itself a contract."
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 ofEastboard Navigation Ltd. v. Juan Ysmael and
38
Co., Inc., 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
39
arbitration." 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
40
of arbitration.
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
41
International Commercial Arbitration 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
42
vested right has yet attached nor arisen from them.

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
43
implemented immediately. Sec. 35 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
44
876 and shall be recognized as final and executory
45
decisions of the RTC, they may only be assailed before
the RTC and vacated on the grounds provided under
46
Sec. 25 of RA 876.
(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.
47
De Los Angeles and reiterated in succeeding
48
cases, 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 in Korea.
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
49
original action for certiorari. 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) to prevent irreparable loss or
injury;
(ii) to provide security for the
performance of any obligation;
(iii) to produce or preserve any
evidence; or
(iv) to compel any other appropriate act
or omission.
(c) The order granting provisional relief may be
conditioned upon the provision of security 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
50
act or to act effectively.
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
51
a good father of a family 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 andSET ASIDE;
(3) The parties are hereby ORDERED to submit
themselves to the arbitration of their dispute and
differences arising from the subject Contract before the
KCAB; and
(4) PGSMC is hereby ALLOWED to dismantle and
transfer the equipment and machineries, if it had not
done so, and ORDERED to preserve and maintain them
until the finality of whatever arbitral award is given in the
arbitration proceedings.
No pronouncement as to costs.
SO ORDERED.
Quisumbing,Chairperson Carpio, Carpio-Morales, Tinga,
JJ., concur.