Pertinent terms of such lease agreement, as provided
in the Deed of Donation, were as follows:
Koppel, Inc. vs. Makati Rotary Club Foundation,
Inc. [2013]
December 11, 2013Juan Knows
Jurisprudence Tags: Alternative Dispute
Resolution, Arbitration Clause, Arbitration Law, Case
Digests, Case Law, Construction
Indus, Jurisprudence, Law, Philippines
Will the disagreement between parties to a
contract be rendered non-arbitrable if, in the
arbitration thereof, the validity of the contract
itself will have to be determined?
May a party to a contract invoke the arbitration
clause thereof and, at the same time, impugn
the validity of the contract itself?
Is it necessary for a party seeking arbitration to
first file a request or an application therefor
with the court to render an arbitration clause
operational?
If parties to a contract already underwent
Judicial Dispute Resolution (JDR) proceedings
before the court, may they still refer their
dispute to arbitration?
G.R. No. 198075 (September 04, 2013)
PEREZ, J.:
FACTS:
In 1975, Fedders Koppel, Incorporated (FKI)
bequeathed a parcel of land exclusive of improvements
thereon in favor of Respondent Makati Rotary Club
Foundation, Inc. by way of a conditional donation.
Respondent accepted the donation with all of its
conditions. On 26 May 1975, FKI and the Respondent
executed a Deed of Donation evidencing their
consensus.
One of the conditions of the donation required the
Respondent to lease the subject land back to FKI under
terms specified in their Deed of Donation. With the
Respondents acceptance of the donation, a lease
agreement between them was, therefore, effectively
incorporated in the Deed of Donation.
1. The period of the lease is for twenty-five (25) years,
or until the 25th of May 2000;
2. The amount of rent to be paid by FKI for the first
twenty-five (25) years is P40,126.00 per annum.
The Deed of Donation also stipulated that the lease
over the subject property is renewable for another
period of twenty-five (25) years upon mutual
agreement of FKI and the Respondent. In which case,
the amount of rent shall be determined in accordance
with item 2(g) of the Deed of Donation.
In October 1976, FKI and the Respondent executed
an Amended Deed of Donation that reiterated the
provisions of the Deed of Donation, including those
relating to the lease of the subject land.
Verily, by virtue of the lease agreement contained in
the Deed of Donation and Amended Deed of Donation,
FKI was able to continue in its possession and use of
the subject land.
Two (2) days before the lease incorporated in the Deed
of Donation and Amended Deed of Donation was set to
expire, or on 23 May 2000, FKI and Respondent
executed another contract of lease (2000 Lease
Contract) covering the subject land. In this 2000 Lease
Contract, FKI and Respondent agreed on a new five-
year lease to take effect on the 26th of May 2000, with
annual rents ranging from P4M for the first year up to
P4.9M for the fifth year.
The 2000 Lease Contract also contained an arbitration
clause enforceable in the event the parties come to
disagreement about the interpretation, application
and execution of the lease.
After the 2000 Lease Contract expired, FKI and
Respondent agreed to renew their lease for another
five (5) years. This new lease (2005 Lease Contract)
required FKI to pay a fixed annual rent of P4.2M.In
addition to paying the fixed rent, however, the 2005
Lease Contract also obligated FKI to make a yearly
donation of money to the Respondent. Such
donations ranged from P3M for the first year up to
P3.9M for the fifth year.
Notably, the 2005 Lease Contract contained an
arbitration clause similar to that in the 2000 Lease
Contract, to wit:
19. Governing Law The provisions of this [2005 Lease
Contract] shall be governed, interpreted and construed
in all aspects in accordance with the laws of the
Republic of the Philippines.
Any disagreement as to the interpretation,
application or execution of this [2005 Lease
Contract] shall be submitted to a board of three
(3) arbitrators constituted in accordance with
the arbitration law of the Philippines. The
decision of the majority of the arbitrators shall
be binding upon [FKI and Respondent]. (Emphasis
supplied)
From 2005 to 2008, FKI faithfully paid the rentals and
donations due it per the 2005 Lease Contract. But in
June of 2008, FKI sold all its rights and properties
relative to its business in favor of herein Petitioner
Koppel, Incorporated.
On 29 August 2008, FKI and Petitioner executed
an Assignment and Assumption of Lease and Donation
wherein FKI, with the conformity of the Respondent,
formally assigned all of its interests and obligations
under the Amended Deed of Donationand the 2005
Lease Contract in favor of Petitioner.
The following year, Petitioner discontinued the
payment of the rent and donation under the
2005 Lease Contract.
Petitioners refusal to pay such rent and donation Donation.
emanated from its belief that the rental stipulations of
the 2005 Lease Contract, and even of the 2000 Lease
Contract, cannot be given effect because they violated
one of the material conditions of the donation of the
subject land, as stated in the Deed of
Donation and Amended Deed of Donation.
According to Petitioner, the Deed of
Donation and Amended Deed of Donation actually
established not only one but two (2) lease agreements
between FKI and Respondent, i.e., one lease for the
first twenty-five (25) years or from 1975 to 2000, and
another lease for the next twenty-five (25) years
thereafter or from 2000 to 2025. Both leases are
material conditions of the donation of the subject land.
Petitioner points out that while a definite amount of
rent for the second twenty-five (25) year lease was not
fixed in the Deed of Donation and Amended Deed of
Donation, both deeds nevertheless prescribed rules
and limitations by which the same may be determined.
Such rules and limitations ought to be observed in any
succeeding lease agreements between Petitioner and
Respondent for they are, in themselves, material
conditions of the donation of the subject land.
In this connection, Petitioner cites item 2(g) of
the Deed of Donation and Amended Deed of
Donation that supposedly limits the amount of rent for
the lease over the second twenty-five (25) years to
only three percent (3%) of the fair market value of the
[subject] land excluding the improvements.
For Petitioner then, the rental stipulations of both
the 2000 Lease Contract and 2005 Lease
Contract cannot be enforced as they are clearly, in
view of their exorbitant exactions, in violation of the
aforementioned threshold in item 2(g) of the Deed of
Donation and Amended Deed of Donation.
Consequently, Petitioner insists that the amount of rent
it has to pay thereon is and must still be governed by
the limitations prescribed in the Deed of
Donation and Amended Deed of Donation.
Respondent then sent Demand Letters to Petitioners
notifying the latter of its default, demanding for the
settlement of the rent and donations due for the year
2009. Respondent intimated of cancelling the 2005
Lease Contract should Petitioner fail to settle the said
obligations. In its last sent Demand Letter, Respondent
demand Petitioner to immediately vacate the leased
premises should it fail to pay such obligations within
seven (7) days from its receipt of the letter.
Petitioner refused to comply with the demands of the
Respondent. Instead, on 30 September 2009, Petitioner
filed with the RTC of Paraaque City a Complaint for
the Rescission or Cancellation of the Deed of
Donation and Amended Deed of Donation against the
Respondent.
On 5 October 2009, Respondent filed an Unlawful
Detainer caseagainst the Petitioner before the MeTC of
Paraaque City.
On 4 November 2009, Petitioner filed an Answer with
Compulsory Counterclaim.In it, Petitioner reiterated its
objection over the rental stipulations of the 2005 Lease
Contract for being violative of the material conditions
of the Deed of Donation and Amended Deed of
On 27 April 2010, the MeTC rendered judgment in favor
of the Petitioner. While the MeTC refused to dismiss the
action on the ground that the dispute is subject to
arbitration, it nonetheless sided with the Petitioner with
respect to the issues regarding the insufficiency of the
Respondents demand and the nullity of the 2005
Lease Contract.
The Respondent appealed to the RTC which reversed
the MeTCs decision.
Aggrieved, the Petitioner appealed to the CA which
affirmed the decision of the RTC.
Hence, the present Petition for Review on
Certiorari under Rule 45.
ISSUE:
Whether or not the present dispute is arbitrable under
the Arbitration Clause of the 2005 Lease Agreement
Contract?
ARGUMENTS:
At different points in the proceedings of this case, the
following arguments were offered against the
application of the arbitration clause of the 2005 Lease
Contract:
1. The disagreement between the Petitioner and
Respondent is non-arbitrable as it will
inevitably touch upon the issue of the validity
of the 2005 Lease Contract. It was submitted
that one of the reasons offered by the
Petitioner in justifying its failure to pay under
the 2005 Lease Contractwas the nullity of such
contract for being contrary to law and public
policy. The Supreme Court, in Gonzales v.
Climax Mining, Ltd. [2005], held that the
validity of contract cannot be subject of
arbitration proceedings as such questions are
legal in nature and require the application and
interpretation of laws and jurisprudence which
is necessarily a judicial function.
2. The Petitioner cannot validly invoke the
arbitration clause of the 2005 Lease
Contract while, at the same time, impugn such
contracts validity.
3. Even assuming that it can invoke the
arbitration clause whilst denying the validity of
the 2005 Lease Contract, Petitioner still did not
file a formal application before the MeTC so as
 to render such arbitration clause operational.
Section 24 of Republic Act No. 9285 requires
the party seeking arbitration to first file a
request or an application therefor with the
court not later than the preliminary conference.
4. Petitioner and Respondent already
underwent JDR proceedings before the RTC.
Hence, a further referral of the dispute to
arbitration would only be circuitous. Moreover,
an ejectment case, in view of its summary
nature, already fulfills the prime purpose of
arbitration, i.e., to provide parties in conflict
with an expedient method for the resolution of
their dispute. Arbitration then would no longer
be necessary in this case.
RULING:
YES. None of the above-mentioned arguments have
any merit. The MeTC, RTC and CA all erred in
overlooking the significance of the arbitration clause
incorporated in the 2005 Lease Contract. As the SC
sees it, that is a fatal mistake.
Hence, the Petition is GRANTED and thus referring the
Petitioner and the Respondent to arbitration pursuant
to the arbitration clause of the 2005 Lease Contract,
repeatedly included in the 2000 Lease Contract and in
the 1976 Amended Deed of Donation.
RATIO DECIDENDI:
The arbitration clause of the 2005 Lease
Contract stipulates that any disagreement as to the
interpretation, application or execution of the 2005
Lease Contract ought to be submitted to arbitration. To
the mind of the Court, such stipulation is clear and is
comprehensive enough so as to include virtually any
kind of conflict or dispute that may arise from the 2005
Lease Contract including the one that presently besets
Petitioner and Respondent.
First. The disagreement between the Petitioner and
Respondent falls within the all-encompassing terms of
the arbitration clause of the 2005 Lease Contract.
While it may be conceded that in the arbitration of
such disagreement, the validity of the 2005 Lease
Contract, or at least, of such contracts rental
stipulations would have to be determined, the same
would not render such disagreement non-arbitrable.
The quotation from Gonzalescase that was used to
justify the contrary position was taken out of context.
The pivotal issue that confronted the Court in
the Gonzales case was whether the complaint for
arbitration raises arbitrable issues that the Panel of
Arbitrators of the Mines and Geosciences Bureau (PA-
MGB) can take cognizance of.
Gonzales decided the issue in the negative. In holding
that the PA-MGB was devoid of any jurisdiction to take
cognizance of the complaint for arbitration, this Court
pointed out to the provisions of R.A. No. 7942, or the
Mining Act of 1995, which granted the PA-MGB with
exclusive original jurisdiction only over mining
disputes, i.e., disputes involving rights to mining
areas, mineral agreements or permits, and surface should have been filed with the regular courts as it
owners, occupants, claimholders or concessionaires
requiring the technical knowledge and experience of
mining authorities in order to be resolved. Accordingly,
since the complaint for arbitration in Gonzales did not
raise mining disputes as contemplated under R.A. No.
7942 but only issues relating to the validity of certain
mining related agreements, SC held that such
complaint could not be arbitrated before the PA-MGB. It
is in this context that SC made the pronouncement now
in discussion:
Arbitration before the Panel of Arbitrators is proper only
when there is a disagreement between the parties as
to some provisions of the contract between them,
which needs the interpretation and the application of
that particular knowledge and expertise possessed by
members of that Panel. It is not proper when one of the
parties repudiates the existence or validity of such
contract or agreement on the ground of fraud or
oppression as in this case. The validity of the
contract cannot be subject of arbitration
proceedings.Allegations of fraud and duress in the
execution of a contract are matters within the
jurisdiction of the ordinary courts of law. These
questions are legal in nature and require the
application and interpretation of laws and
jurisprudence which is necessarily a judicial
function. (Emphasis supplied)
SC in Gonzales did not simply base its rejection of the
complaint for arbitration on the ground that the issue
raised therein, i.e., the validity of contracts, is per
se non-arbitrable. The real consideration behind the
ruling was the limitation that was placed by R.A.
No. 7942 upon the jurisdiction of the PA-MGB as
an arbitral body. Gonzales rejected the complaint
for arbitration because the issue raised therein is not
a mining dispute per R.A. No. 7942 and it is for this
reason, and only for this reason, that such issue is
rendered non-arbitrable before the PA-MGB. As stated
beforehand, R.A. No. 7942 clearly limited the
jurisdiction of the PA-MGB only to mining disputes.
Much more instructive for our purposes, on the other
hand, is the recent case of Cargill Philippines, Inc.
v. San Fernando Regal Trading, Inc [2011].
In Cargill, SC answered the question of whether issues
involving the rescission of a contract are arbitrable.
The respondent in Cargill argued against arbitrability,
also citing therein Gonzales. After
dissecting Gonzales, SC ruled in favor of arbitrability.
Thus, SC held:
Respondent contends that assuming that the existence
of the contract and the arbitration clause is conceded,
the CAs decision declining referral of the parties
dispute to arbitration is still correct. It claims that its
complaint in the RTC presents the issue of whether
under the facts alleged, it is entitled to rescind the
contract with damages; and that issue constitutes a
judicial question or one that requires the exercise of
judicial function and cannot be the subject of an
arbitration proceeding. Respondent cites our ruling in
Gonzales, wherein we held that a panel of arbitrator is
bereft of jurisdiction over the complaint for declaration
of nullity/or termination of the subject contracts on the
grounds of fraud and oppression attendant to the
execution of the addendum contract and the other
contracts emanating from it, and that the complaint
involved issues which are judicial in nature.
Such argument is misplaced and respondent
cannot rely on the Gonzales case to support its
argument. (Emphasis ours)
Second. Petitioner may still invoke the arbitration
clause of the 2005 Lease Contract notwithstanding the
fact that it assails the validity of such contract. This is
due to the doctrine of separability.
Under the doctrine of separability, an arbitration
agreement is considered as independent of the main
contract. Being a separate contract in itself, the
arbitration agreement may thus be invoked regardless
of the possible nullity or invalidity of the main contract.
Once again instructive is Cargill, wherein SC held that,
as a further consequence of the doctrine of
separability, even the very party who repudiates the
main contract may invoke its arbitration clause.
Third. The operation of the arbitration clause in this
case is not at all defeated by the failure of the
Petitioner to file a formal request or application
therefor with the MeTC. SC finds that the filing of a
request pursuant to Section 24 of R.A. No.
9285 is not the sole means by which an arbitration
clause may be validly invoked in a pending suit.
Section 24 of R.A. No. 9285 reads:
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 that 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. [Emphasis
ours; italics original]
The request referred to in the above provision is, in
turn, implemented by Rules 4.1 to 4.3 of A.M. No. 07-
11-08-SC or the Special Rules of Court on Alternative
Dispute Resolution (Special ADR Rules):
RULE 4: REFERRAL TO ADR
Rule 4.1. Who makes the request. A party to a
pending action filed in violation of the arbitration
agreement, whether contained in an arbitration clause
or in a submission agreement, may request the court
to refer the parties to arbitration in accordance with
such agreement.
Rule 4.2. When to make request. (A) Where the
arbitration agreement exists before the action is filed.
The request for referral shall be made not later than
the pre-trial conference. After the pre-trial conference,
the court will only act upon the request for referral if it
is made with the agreement of all parties to the case.
(B) Submission agreement. If there is no existing
arbitration agreement at the time the case is filed but
the parties subsequently enter into an arbitration
agreement, they may request the court to refer their
dispute to arbitration at any time during the
proceedings.
Rule 4.3. Contents of request. The request for
referral shall be in the form of a motion, which shall
state that the dispute is covered by an arbitration
agreement.
Apart from other submissions, the movant shall attach
to his motion an authentic copy of the arbitration
agreement.
The request shall contain a notice of hearing addressed
to all parties specifying the date and time when it
would be heard. The party making the request shall
serve it upon the respondent to give him the
opportunity to file a comment or opposition as
provided in the immediately succeeding Rule before
the hearing. [Emphasis ours; italics original]
Attention must be paid, however, to the salient
wordings of Rule 4.1. It reads: [a] party to a pending
action filed in violation of the arbitration agreement x x
x may request the court to refer the parties to
arbitration in accordance with such agreement.
In using the word may to qualify the act of filing a
request under Section 24 of R.A. No. 9285, the
Special ADR Rules clearly did not intend to limit the
invocation of an arbitration agreement in a pending
suit solely via such request. After all, non-compliance
with an arbitration agreement is a valid defense to any
offending suit and, as such, may even be raised in
an answer as provided in our ordinary rules of
procedure.
In this case, it is conceded that Petitioner was not able
to file a separate request of arbitration before the
MeTC. However, it is equally conceded that the
Petitioner, as early as in its Answer with Counterclaim,
had already apprised the MeTC of the existence of the
arbitration clause in the 2005 Lease Contractand, more
significantly, of its desire to have the same enforced in
this case. This act of Petitioner is enough valid
invocation of his right to arbitrate.
Fourth. The fact that the Petitioner and Respondent
already underwent through JDR proceedings before the
RTC, will not make the subsequent conduct of
arbitration between the parties unnecessary or
circuitous. The JDR system is substantially different
from arbitration proceedings.
The JDR framework is based on the processes
of mediation, conciliation or early neutral
evaluation which entails the submission of a dispute
before a JDR judge who shall merely facilitate
settlement between the parties in conflict or make a
non-binding evaluation or assessment of the chances
of each partys case. Thus in JDR, the JDR judge lacks
the authority to render a resolution of the dispute that
is binding upon the parties in conflict. In arbitration, on
the other hand, the dispute is submitted to
an arbitrator/sa neutral third person or a group of
thereofwho shall have the authority to render a
resolution binding upon the parties.
Clearly, the mere submission of a dispute to JDR
proceedings would not necessarily render the
subsequent conduct of arbitration a mere surplusage.
The failure of the parties in conflict to reach an
amicable settlement before the JDR may, in fact, be
supplemented by their resort to arbitration where a
binding resolution to the dispute could finally be
achieved. This situation precisely finds application to
the case at bench.
Neither would the summary nature of ejectment cases
be a valid reason to disregard the enforcement of the
arbitration clause of the 2005 Lease Contract.
Notwithstanding the summary nature of ejectment
cases, arbitration still remains relevant as it aims not
only to afford the parties an expeditious method of
resolving their dispute.
A pivotal feature of arbitration as an alternative mode
of dispute resolution is that it is, first and foremost, a
product of party autonomy or the freedom of the
parties to make their own arrangements to resolve
their own disputes. Arbitration agreements manifest
not only the desire of the parties in conflict for an
expeditious resolution of their dispute. They also
represent, if not more so, the parties mutual aspiration
to achieve such resolution outside of judicial auspices,
in a more informal and less antagonistic environment
under the terms of their choosing. Needless to state,
this critical feature can never be satisfied in an
ejectment case no matter how summary it may be.
Legal Effect of the Application of the Arbitration
Clause
Since there really are no legal impediments to the
application of the arbitration clause of the 2005
Contract of Lease in this case, We find that the instant
unlawful detainer action was instituted in violation of
such clause. The Law, therefore, should have governed
the fate of the parties and this suit:
R.A. No. 876
Section 7. Stay of civil action. If any suit or
proceeding be brought upon an issue arising out of an
agreement providing for the arbitration thereof, the
court in which such suit or proceeding is pending, upon
being satisfied that the issue involved in such suit or
proceeding is referable to arbitration, shall stay the
action or proceeding until an arbitration has
been had in accordance with the terms of the
agreement: Provided, That the applicant for the stay
is not in default in proceeding with such arbitration.
[Emphasis supplied]
R.A. No. 9285
Section 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 that 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. [Emphasis
supplied]
It is clear that under the law, the instant unlawful
detainer action should have been stayed; the Petitioner
and the Respondent should have been referred to
arbitration pursuant to the arbitration clause of
the 2005 Lease Contract. The MeTC, however, did not
do so in violation of the lawwhich violation was, in
turn, affirmed by the RTC and Court of Appeals on
appeal.
The violation by the MeTC of the clear directives under
R.A. Nos. 876 and 9285 renders invalid all proceedings
it undertook in the ejectment case after the filing by
Petitioner of its Answer with Counterclaimthe point
when the Petitioner and the Respondent should have
been referred to arbitration. This case must, therefore,
be remanded to the MeTC and be suspended at said
point. Inevitably, the decisions of the MeTC, RTC and
the Court of Appeals must all be vacated and set aside.
The Petitioner and the Respondent must then be
referred to arbitration pursuant to the arbitration
clause of the 2005 Lease Contract.
KOPPEL INC V. MAKATI ROTARY CLUB
FOUNDATION INC, G.R. NO 198075 (2013)
FACTS: Fedders Koppel Inc (FKI) owned a parcel of
land in Paranaque. Within the subject property are
buildings and other improvements dedicated to the
business of FKI
1. In 1975, FKI bequeathed the subject property
(exclusive of the improvements) in favor of
Makati Rotary Club by way of a conditional
donation
2. The donation provides that the donee, Makati
Rotary Club, was required to lease the subject
property to FKI under the terms specified in the
Deed of Donation.
3. The stipulations in the donation provides:
a. that the period of lease shall be for 25
years (until May 25, 2000) and the annual
rent for the first 25 years is P40,126
b. The lease is subject to renewable for
another 25 years upon mutual agreement
of the donor and donee
c. In case of disagreement, the matter shall
be referred to a Board of arbitrators (3-
member) appointed and with powers in
accordance with the Arbitration Law of the
Philippines (RA 878)
4. Before the lease contract was set to expire, FKI
and Makati Rotary Club executed another
contract extending the lease for 5 years, with
annual rents ranging from P4,000,000 for the
1st year up to P4,900,00 for the 5th year. The
2000 Lease contract an arbitration clause
worded as:
Any disagreement as to the interpretation,
application or execution of the [2000 Lease]
contract shall be submitted to a board of 3
arbitrators constituted in accordance with the
Arbitration Law of the Philippines. The decision
of the majority of the board shall be binding
upon FKI and respondent
5. After the 2000 Lease Contract expired, FKI and
respondent agreed to renew their lease for
another 5 years at a fixed rate pf P4,200,000
per annum (2005 Lease Contract). In addition,
the contract also obligated FKI to make a
yearly donation of money to respondent
ranging from P3 million for the 1st year up to
P3.9 million for the 5th year. The lease contract
contained an arbitration clause similar to the
2000 lease contract. From 2005 to 2008, FKI
paid the rentals and donations due based on
the 2005 Lease Contract.
6. In Aug 2008, FKI assigned all its interest and
obligations in favor of petitioner Koppel Inc.
The next year, Koppel discontinued the
payment of the rentals and donations under
the 2005 Lease Contract. Koppels refusal to
pay was based on the premise that the
subsequent lease contracts violated one of the
 material conditions of the donation of the
property, i.e. Item 2(g) of the Deed of Donation
states that the rent of the subject property
over the second 25 years was limited to only
3% of the fair market value of the subject
property excluding the improvements
7. On June 1, 2009, Makati Rotary Club sent a
demand letter notifying Koppel of its default.
Petitioner (Sept 22, 2009) sent a reply
expressing its disagreement over the rental
stipulations of the 2005 Lease Contract and
offered to pay P80,502.79 instead of
P8,394,000 as demanded by respondent
8. Respondent send a subsequent demand letter
(Sept 25, 2009) ordering Koppel Inc to vacate
the premises should it fail to pay its obligation
within 7 days from receipt of letter.
9. Petitioner Koppel refused to comply with the
demands of the respondent and instead, filed
with RTC Paranaque a complaint for the
rescission or cancellation of the Deed of
Donation
10. Thereafter, Makati Rotary Club filed an unlawful
detainer case against Koppel before MTC
Paranaque. In the ejectment suit, Koppel
reiterated its objections over the rental
stipulations of the 2005 Lease Contract and
questioned the jurisdiction of the MTC in view
of the arbitration clause contained in the Lease
Contract
11. In the ejectment case, RTC ruled in favor of
Koppel Inc. While it did not dismiss the action
on the ground of arbitration, MTC sided with
petitioner with respect to the issues regarding
the insufficiency of the respondents demand
and the nullity of the 2005 Lease contract
12. On appeal, RTC reversed the MTC decision and
ordered Koppel to vacate the subject property.
As to the existing improvements, RTC held that
the same were built in good faith subject to the
provisions under Art 1678 NCC. CA affirmed
13. Arguments against arbitration:
The dispute between petitioner and
respondent involves the validity of the
2005 Lease Contract. Citing Gonzales v.
Climax Mining: The validity of contract
cannot be subject the arbitration
proceedings as such questions are legal in
nature and require the application of
interpretation of laws and jurisprudence
which is necessarily a judicial function
Petitioner cannot validly invoke the
arbitration clause while at the same time,
impugn such contracts validity
Petitioner did not file a formal application
before the MTC so as to render the
arbitration clause operational
The parties underwent Judicial Dispute
Resolution (JDR); further referral of the
dispute to arbitration would only be
circuitous
ISSUE: WON the present dispute is subject
arbitration
HELD: Yes. Respondent took the ruling in the Gonzales
case out of context. PA-MGB was devoid of any
jurisdiction to take cognizance of the complaint for
arbitration because RA 7942 (Mining Act of 1995)
grants PA-MGB with exclusive original jurisdiction only
over mining disputes. Since the complaint for
arbitration in the Gonzales case did not raise mining
disputes as contemplated under RA 7942, the SC held
such complaint could not arbitrated before the PA-MGB.
The Court in Gonzales did not simply reject the
complaint on the ground that the issue of validity of
contracts per se is non-arbitrable. The real
consideration bind the ruling was the limitation that
was placed by RA 7942 upon the jurisdiction of PA-MGB
as an arbitral body.
Petitioner may still invoke the arbitration clause of the
2005 Lease Contract notwithstanding the fact that it
assails the validity of such contract. This is due to the
doctrine of separability. Under said doctrine, an
arbitration agreement is considered as independent of
the main contract. Being a separate contract in itself,
the arbitration agreement may thus be invoked
regardless of the possible nullity or invalidity of the
main contract.
The operation of the arbitration clause in this case is
not defeated by Koppels failure to file a formal
request or application with the MTC. In using the
word may to qualify the act of filing a request
under Sec 24 of RA 9285 (Special ADR Rues) clearly did
not intend to limit invocation of an arbitration
agreement in a pending suit solely via such request.
After all, non-compliance with an arbitration agreement
is a valid defense to any offending suit and, as such,
may even be raised in an answer as provided in our
ordinary rules of procedure.
CAB: As early as in its answer with counterclaim,
Koppel had already apprised MTC of the existence of
the arbitration clause in the 2005 Lease Contract; such
act is enough valid invocation of his right to arbitrate.
The fact that petitioner and respondent already
underwent through JDR proceedings before the RTC,
will not make the subsequent arbitration between the
parties unnecessary or circuitous. The JDR system is
substantially different from arbitration proceedings.
The JDR framework is based on the processes
of mediation, conciliation or early neutral
evaluation which entails the submission of a dispute
before a JDR judge who shall merely facilitate
settlement between the parties in conflict or make a
non-binding evaluation or assessment of the chances
of each partys case. Thus in JDR, the JDR judge lacks
the authority to render a resolution of the dispute that
is binding upon the parties in conflict. In arbitration, on
the other hand, the dispute is submitted to an
arbitrator/sa neutral third person or a group of
thereofwho shall have the authority to render a
resolution binding upon the parties.
ISSUE: What is the nature of an arbitration
proceeding?
to
HELD: A pivotal feature of arbitration as an alternative
mode of dispute resolution is that it is, first and
foremost, a product of party autonomy or the freedom
of the parties to make their own arrangements to
resolve their own disputes. Arbitration agreements
manifest not only the desire of the parties in conflict
for an expeditious resolution of their dispute. They also
represent, if not more so, the parties mutual aspiration
to achieve such resolution outside of judicial auspices,
in a more informal and less antagonistic environment
under the terms of their choosing. Needless to state,
this critical feature can never be satisfied in an
ejectment case no matter how summary it may be.
ISSUE: What are the legal effects of the arbitration
clause?
HELD: Since there really are no legal impediments to
the application of the arbitration clause of the 2005
Contract of Lease in this case, the unlawful detainer
action was instituted in violation of such clause.
Under Sec 7, RA 9285, the instant unlawful detainer
action should have been stayed; the petitioner and the
respondent should have been referred to arbitration
pursuant to the arbitration clause of the 2005 Lease
Contract. The MeTC, however, did not do so in violation
of the lawwhich violation was, in turn, affirmed by the
RTC and Court of Appeals on appeal.
The violation by the MTC of the clear directives under
R.A. Nos. 876 and 9285 renders invalid all proceedings
it undertook in the ejectment case after the filing by
petitioner of its Answer with Counterclaimthe point
when the petitioner and the respondent should have
been referred to arbitration. This case must, therefore,
be remanded to the MeTC and be suspended at said
point. Inevitably, the decisions of the MeTC, RTC and
the Court of Appeals must all be vacated and set aside.
J Plus Asia Development Corporation vs. Utility
Assurance Corporation [2013]
December 2, 2013Juan Knows
Jurisprudence Tags: Alternative Dispute
Resolution, Arbitration Clause, Arbitration Law, Case
Digests, Case Law, Construction
Indus, Jurisprudence, Law, Philippines
Does CA have jurisdiction to review arbitral
awards?
G.R. No. 199650 (June 26, 2013)
VILLARAMA, JR., J.:
FACTS:
Petitioner J Plus Asia Development Corporation and
Martin E. Mabunay entered into a Construction
Agreement on December 24, 2007 whereby the latter
undertook to build the formers 72-room
condominium/hotel located in Boracay Island.
The project, costing P42M, was to be completed within
one year or 365 days reckoned from the first calendar
day after signing of the Notice of Award and Notice to
Proceed and receipt of down payment (20% of contract
price). The P8.4M down payment was fully paid on
January 14, 2008. Payment of the balance of the
contract price will be based on actual work finished
within 15 days from receipt of the monthly progress
billings. Per the agreed work schedule, the completion
date of the project was December 2008. Mabunay also
submitted the required Performance Bond issued by
Respondent Utility Assurance Corporation in the
amount equivalent to 20% down payment or P8.4M.
Mabunay commenced work at the project site on
January 7, 2008. Petitioner paid up to the 7th monthly
progress billing sent by Mabunay. As of September 16,
2008, Petitioner had paid the total amount of P15.98M
inclusive of the 20% down payment. However, as of
said date, Mabunay had accomplished only 27.5% of
the project. It was later found out by the joint
inspection and evaluation by the Petitioner and
Mabunay that, as of November 14, 2008, the project
was only 31.39% complete and that the uncompleted
portion was 68.61%.
On November 19, 2008, Petitioner terminated the
contract and sent Demand Letters to Mabunay and
Respondent surety. As its demands went unheeded,
Petitioner filed a Request for Arbitration before the
Construction Industry Arbitration Commission (CIAC).
In his Answer, Mabunay claimed that the delay was
caused by retrofitting and other revision works ordered
by Petitioner. He asserted that he actually had until
April 30, 2009 to finish the project since the 365 days
period of completion started only on May 2, 2008 after
clearing the retrofitted old structure. Hence, the
termination of the contract by Petitioner was
premature and the filing of the Complaint against him
was baseless, malicious and in bad faith.
Respondent, on the other hand, filed a Motion to
Dismiss on the ground that Petitioner has no cause of
action and the complaint states no cause of action
against it. The CIAC denied the Motion to Dismiss.
In its Answer Ex Abundante Ad Cautelam with
Compulsory Counterclaims and Cross-claims,
Respondent argued that the Performance Bond merely
guaranteed the 20% down payment and not the entire
obligation of Mabunay under the Construction
Agreement. Since the value of the projects
accomplishment already exceeded the said amount,
Respondents obligation under the Performance
Bond had been fully extinguished. As to the claim for
alleged overpayment to Mabunay, Respondent
contended that it should not be credited against the
20% down payment which was already exhausted and
such application by Petitioner is tantamount to reviving
an obligation that had been legally extinguished by
payment. Respondent also set up a cross-claim
against Mabunay who executed in its favor
an Indemnity Agreement whereby Mabunay undertook
to indemnify Respondent for whatever amounts it may
be adjudged liable to pay Petitioner under the surety
bond.
On February 2, 2010, CIAC rendered its Decision and
made Awards in favor of Petitioner. CIAC ruled that
Mabunay had incurred delay which entitled Petitioner
to the stipulated liquidated damages and unrecouped
down payment.
Dissatisfied, Respondent filed in the CA a Petition for
Reviewunder Rule 43 of the 1997 Rules of Civil
Procedure, as amended, which reversed the CIACs
ruling.
Hence, the present Petition for Review on
Certiorari under Rule 45 seeking to reverse the CA
insofar as it denied its claims under the Performance
Bond and to reinstate in its entirety the February 2,
2010 CIAC Decision.
ISSUE:
Whether or not the Alternative Dispute Resolution Act
of 2004 and the Special ADR Rules have stripped the
CA of jurisdiction to review arbitral awards?
ARGUMENT:
Petitioner contends that that with the
institutionalization of alternative dispute resolution
under RA No. 9285, otherwise known as the Alternative
Dispute Resolution Act of 2004, the CA was divested of
jurisdiction to review the decisions or awards of the
CIAC.
RULING:
NO. The Petitioners contention is without merit.
Petitioner erroneously relied on the provision in RA No.
9285 allowing any party to a domestic arbitration to
file in the RTC a petition either to confirm, correct or
vacate a domestic arbitral award.
The Petition is GRANTED. The assailed decision of the
CA is REVERSED and SET ASIDE. The Award made in
the Decision rendered by CIAC dated February 2, 2010
is REINSTATED with MODIFICATIONS.
RATIO DECIDENDI:
SC holds that RA No. 9285 did not confer on RTCs
jurisdiction to review awards or decisions of the CIAC in
construction disputes. On the contrary, Section 40
thereof expressly declares that confirmation by the RTC
is NOT required, thus:
SEC. 40. Confirmation of Award. The confirmation of a
domestic arbitral award shall be governed by Section
23 of R.A. 876.
A domestic arbitral award when confirmed shall be
enforced in the same manner as final and executory
decisions of the Regional Trial Court.
The confirmation of a domestic award shall be made by
the regional trial court in accordance with the Rules of
Procedure to be promulgated by the Supreme Court.
A CIAC arbitral award need not be confirmed by the
regional trial court to be executory as provided under
E.O. No. 1008. (Emphasis supplied.)
EO No. 1008 vests upon the CIAC original and exclusive
jurisdiction over disputes arising from, or connected
with, contracts entered into by parties involved in
construction in the Philippines, whether the dispute
arises before or after the completion of the contract, or
after the abandonment or breach thereof. By express
provision of Section 19 thereof, the arbitral award of
the CIAC is final and unappealable, except on questions
of law, which are appealable to the Supreme Court.
With the amendments introduced by RA No. 7902 and
promulgation of the 1997 Rules of Civil Procedure, as
amended, the CIAC was included in the enumeration of
quasi- judicial agencies whose decisions or awards may
be appealed to the CA in a Petition for Review under
Rule 43. Such review of the CIAC award may involve
either questions of fact, of law, or of fact and law.
Petitioner misread the provisions of A.M. No. 07-11-08-
SC (Special ADR Rules) promulgated by the SC and
which took effect on October 30, 2009. Since RA No.
9285 explicitly excluded CIAC awards from domestic
arbitration awards that need to be confirmed to be
executory, said awards are therefore not covered by
Rule 11 of the Special ADR Rules, as they continue to
be governed by EO No. 1008, as amended and the
rules of procedure of the CIAC. The CIAC Revised
Rules of Procedure Governing Construction
Arbitration provide for the manner and mode of appeal
from CIAC decisions or awards in Section 18 thereof,
which reads:
SECTION 18.2 Petition for review. A petition for review
from a final award may be taken by any of the parties
within fifteen (15) days from receipt thereof in
accordance with the provisions of Rule 43 of the Rules
of Court.
Puromines v CA
March 22, 1993
PUROMINES, INC.
vs.
COURT OF APPEALS and PHILIPP BROTHERS OCEANIC,
INC
NOCON, J p:
SUMMARY: A sales contract for the sale of prilled urea
was entered into by Puromines and Makati Agro and it
was provided therein that any disputes arising from the
contract shall be settled by arbitration in London. The
shipment covered by 3 bills of lading was undertaken
by MV Liliana Dimitrova with Philipp Brothers as
charterer of said vessel. When shipment covered by Bill
of Lading 2&3 were discharged in Manila in bad order
and condition, Puromines filed a complaint with TC for
breach of contract of carriage against Maritime, ship-
agent and Philipp Brothers, as charterer. Philipp filed a
motion to dismiss on the basis that case should be
brought to arbitration first. Puromines opposed
contending that the sales contract does not include
contract of carriage, the latter not covered by
agreement on arbitration. SC: Granted Motion to
Dismiss, sales contract and bill of lading provides
covers arbitration clause. Assuming the cause of action
is based on contract of carriage, it must be first
determined what kind of charter party had with the
shipowner to determine liability. If contract of
affreightment, charterer is not liable as possession is
still with owner. If charter of demise or bareboat, then
charterer is liable as it is considered the owner and
therefore would be liable for damage or loss.
FACTS:
Puromines, Inc. and Makati Agro Trading, Inc. (not a
party in this case) entered into a contract with
Philipp Brothers Oceanic, Inc. for the sale of
prilled Urea in bulk.
Sales Contract provided an arbitration clause:
o "9. Arbitration: "Any disputes arising under
this contract shall be settled by
arbitration in London in accordance with
the Arbitration Act 1950 and any statutory
amendment or modification thereof. Each
party is to appoint an Arbitrator, and
should they be unable to agree, the
decision of an Umpire appointed by them
to be final. The Arbitrators and Umpire are
all to be commercial men and resident
in London. This submission may be made
a rule of the High Court of Justice in
England by either party."
May 22, 88: M/V "Liliana Dimitrova" loaded on
board at Yuzhny, USSR a shipment of 15k metric
tons prilled Urea in bulk complete and in good
order and condition for transport to Iloilo and
Manila, to be delivered to Puromines.
3 bills of lading were issued by the ship-agent,
Maritime Factors Inc:
o Bill of Lading No. 1 dated May 12, 88
covering 10k metric tons for discharge to
Manila;
o Bill of Lading No. 2 of even date covering
4k metric tons for unloading in Iloilo City;
and
o Bill of Lading No. 3, same date, covering
1,500 metric tons likewise for discharge in
Manila
Shipment covered by Bill of Lading No. 2 was
discharged in Iloilo City complete and in good order
and condition. However, shipments covered by Bill
of Lading Nos. 1 and 3 were discharged in
Manila in bad order and condition, caked,
hardened and lumpy, discolored and contaminated
with rust and dirt.
o Damages were valued at P683, 056. 29
including additional discharging expenses.
Puromines filed a complaint with the trial court for
breach of contract of carriage against Maritime
Factors Inc. (not included as respondent in this
petition) as ship-agent for the owners of the vessel
MV "Liliana Dimitrova," while Philipp Brothers
Oceanic Inc., was impleaded as charterer of the
said vessel
o Caking and hardening, wetting and
melting, and contamination by rust and dirt
of the damaged portions of the shipment
were due to the improper ventilation and
inadequate storage facilities of the vessel
o Wetting of the cargo was attributable to the
failure of the crew to close the hatches
before and when it rained while the
shipment was being unloaded in the Port of
Manila;
o As a direct and natural consequence of the
unseaworthiness and negligence of the
vessel, Puromines suffered damages in the
total amount of P683, 056.29.
Maritime Factors, Inc. filed its Answer to the
complaint, while Philipp filed a motion to dismiss
on the grounds that:
o the complaint states no cause of action; it
was prematurely filed; and Puromines
should comply with the arbitration clause
in the sales contract.
Puromines opposed motion to dismiss contending
the inapplicability of the arbitration clause
inasmuch as the cause of action did not arise
from a violation of the terms of the sales contract
but rather for claims of cargo damages where
there is no arbitration agreement.
TC: Denied Philipp's motion to dismiss. Arbitration
not applicable.
o Sales contract states in part: 'Any
disputes arising under this contract
shall be settled by arbitration
o Facts alleged in the complaint show that
the cause of action arose from a breach of
contract of carriage by the vessel chartered
by Philipp Brothers thus; the arbitration
clause cannot apply to the dispute in the
present action which concerns Puromines'
claim for cargo loss/damage arising from
breach of contract of carriage.
o No merit to allegations that Philipp, not
being the ship owner, is therefore not the
real party in interest as it was impleaded
as charterer of the vessel, hence, a
proper party
CA: Complaint Dismissed. The arbitration provision
in the sales contract and/or the bills of lading is
applicable in the present case.
o Sales contract is broad enough to
include the claim for damages arising
from the carriage and delivery of the
goods subject-matter thereof.
 o Bills of lading state: 'Any dispute arising
under this Bill of Lading shall be referred to
arbitration of the Maritime Arbitration
Commission xxx
Hence, this special civil action for certiorari and
prohibition.
o Puromines argues that the sales contract
does not include the contract of
carriage which is a different contract
entered into by the carrier with the cargo
owners.
o Error for CA to touch upon the arbitration
provision of the bills lading in its decision
inasmuch as the same was not raised as
an issue by Philipp who was not a party in
the bills of lading
ISSUES:
1) Whether the phrase "any dispute arising under this
contract" in the arbitration clause of the sales contract
covers a cargo claim against the vessel (owner and/or
charterers) for breach of contract of carriage? (YES)
2) Assuming that the cause of action arises from the
contract of carriage, whether Philipp, as charterer,
would be liable for the loss or damage? (Depends on
type of charter, YES if charter of demise, NO if contract
of affreightment)
3) Whether arbitration provision should not have been
discussed as it was not raised as a defense? (NO)
RATIO:
1) Sales contract is comprehensive enough to include
claims for damages arising from carriage and delivery
of the goods.
GENERAL RULE: Seller has the obligation to
transmit the goods to the buyer, and concomitant
thereto, the contracting of a carrier to deliver
the same.
o Art. 1523: Where in pursuance of a
contract of sale, the seller is authorized or
required to send the goods to the
buyer, delivery of the goods to a
carrier, whether named by the buyer or
not, for the purpose of transmission to the
buyer is deemed to be a delivery of the
goods to the buyer, EXCEPT in the cases
provided for in article 1503, first, second
and third paragraphs, or UNLESS a contrary
intent appear.
o "Unless otherwise authorized by the buyer,
the seller must take such contract
with the carrier on behalf of the buyer
as may be reasonable, having regard to the
nature of the goods and the other
circumstances of the case. If the seller
omits so to do, and the goods are lost or
damaged in course of transit, the buyer
may decline to treat the delivery to
the carrier as a delivery to himself, or
may hold the seller responsible in
damages."
Sales Contract provides for conditions relative to
the delivery of goods, such as date of shipment,
demurrage, weight as determined by the bill of
lading at load port and more particularly the
provisions in the contract. xxxx
Puromines derives his right to the cargo from the
bill of lading which is the contract of
affreightment together with the sales
contract. It is BOUND by the provisions and terms
of said bill of lading and of the ARBITRATION
CLAUSE incorporated in the sales contract.
2) Assuming that the liability of Philipp is not based on
the sales contract, but rather on the contract of
carriage, being the charterer of the vessel MV "Liliana
Dimitrova," it is material to show what kind of charter
party Philipp had with owner of vessel to determine
former's liability. Assuming that in the present case,
the charter party is a demise or bareboat charter,
then Philipp Brothers is liable to Puromines, Inc.,
subject to the terms and conditions of the sales
contract. On the other hand, if the contract between
Philipp and the owner of the vessel MV "Liliana
Dimitrova" was merely that of affreightment, then it
cannot be held liable for the damages caused by the
breach of contract of carriage, the evidence of which is
the bill of lading.
Charter party: Definition
American jurisprudence defines charter party as a
contract by which an entire ship or some principal part
thereof is let by the owner to another person for a
specified time or use. (Ward v. Thompson)
Two Kinds of Charter Parties
o Charter of demise or bareboat AND contracts of
affreightment.
Demise or Bareboat Charter of Veseel
Charterer will generally be considered as OWNER for the
voyage or service stipulated
The charterer mans the vessel with his own people and
becomes, in effect, the owner pro hac vice, subject to
liability to others for damages caused by negligence.
(Assistance, Inc. v. Teledyne Industries Inc)
To create a demise, the owner of a vessel must
completely and exclusively relinquish possession.
Responsibility to third persons for goods shipped on board
a vessel follows the vessel's possession and employment;
and if possession is transferred to the charterer by virtue
of a demise, the charterer, and not the owner, is
liable as carrier on the contract of affreightment made
by himself or by the master with third persons, and is
answerable for loss, damage or non-delivery of goods
received for transportation.
o In any case, whether the liability of Philipp should
be based on the same contract or that of the bill of
lading, the parties are nevertheless obligated to
respect the arbitration provisions on the
sales contract and/or the bill of lading.
Puromines being a signatory and party to the sales
contract cannot escape from his obligation under
the arbitration clause as stated therein.
Arbitration Clauses
o Arbitration has been held valid and constitutional.
Even before the enactment of RA 876, SC has
countenanced the settlement of disputes
through arbitration. The rule now is that UNLESS
the agreement is such as absolutely to close the
doors of the courts against the parties, which
agreement would be void, the courts will look with
favor upon such amicable arrangements and will
only interfere with great reluctance to
 anticipate or nullify the action of the
arbitrator. (Arbitration as a Means of Reducing
Court Congestion, Coquia, Jorge quoting Malcolm,
J.)
o Mindanao Portland Cement Corp. v. McDonough
Construction Company of Florida: With a written
provision for arbitration as well as failure on
respondent's part to comply, parties must proceed
to their arbitration in accordance with the terms of
their agreement (Sec. 6, RA 876). Proceeding in
court is merely a summary remedy to enforce
the agreement to arbitrate. The duty of the
court in this case is not to resolve the merits of the
parties' claims but only to determine if they
should proceed to arbitration or not. And
although it has been ruled that a frivolous or
patently baseless claim should not be ordered to
arbitration it is also recognized that the mere fact
that a defense exist against a claim does not
make it frivolous or baseless.
3) Puromines contention that the arbitration provision
in the bills of lading should not have been discussed as
an issue in the CA decision since it was not raised as a
special or affirmative defense is without merit. The 3
bills of lading were attached to the complaint as
Annexes and are therefore parts thereof and may be
considered as evidence although not introduced as
such. (Philippine Bank of Communications v. CA) It was
then proper for CA/TC to discuss the contents of the
bills of lading, having been made part of the record.
DISPOSITIVE: Arbitration clause stated in Sales
Contract valid and applicable. CA Affirmed.
Puromines v. CA, 220 SCRA 281
FACTS:
Puromines, Inc. (Puromines for brevity) and Makati Agro
Trading, Inc. (not a party in this case) entered into a
contract with private respondent Philipp Brothers
Oceanic, Inc. for the sale of prilled Urea in bulk. The
Sales Contract No. S151.8.01018 provided, among
others an arbitration clause which states, thus: Any
disputes arising under this contract shall be settled by
arbitration in London in accordance with the Arbitration
Act 1950 and any statutory amendment or modification
thereof. Each party is to appoint an Arbitrator, and
should they be unable to agree, the decision of an
Umpire appointed by them to be final. The Arbitrators
and Umpire are all to be commercial men and resident
in London. This submission may be made a rule of the
High Court of Justice in England by either party.
On or about May 22, 1988, the vessel M/V "Liliana
Dimitrova" loaded on board at Yuzhny, USSR a
shipment of 15,500 metric tons prilled Urea in bulk
complete and in good order and condition for transport
to Iloilo and Manila, to be delivered to petitioner. Three
bills of lading were issued by the ship-agent in the
Philippines, Maritime Factors Inc., namely: Bill of Lading
No. 1 dated May 12, 1988 covering 10,000 metric tons
for discharge in Manila; Bill of Lading No. 2 of even
date covering 4,000 metric tons for unloading in Iloilo
City; and Bill of Lading No. 3, also dated May 12, 1988,
covering 1,500 metric tons likewise for discharge in
Manila. The shipment covered by Bill of Lading No. 2
was discharged in Iloilo City complete and in good
order and condition. However, the shipments covered
by Bill of Lading Nos. 1 and 3 were discharged in
Manila in bad order and condition, caked, hardened
and lumpy, discolored and contaminated with rust and
dirt. Damages were valued at P683,056.29 including
additional discharging expenses. Consequently,
petitioner filed a complaint 3 with the trial court 4 for
breach of contract of carriage against Maritime Factors,
Inc. (which was not included as respondent in this
petition) as ship-agent in the Philippines for the owners
of the vessel MV "Liliana Dimitrova," while private
respondent, Philipp Brothers Oceanic, Inc., was
impleaded as charterer of the said vessel and proper
party to accord petitioner complete relief. Answer to
the complaint, while private respondent filed a motion
to dismiss, dated February 9, 1989, on the grounds
that the complaint states no cause of action; that it
was prematurely filed; and that petitioner should
comply with the arbitration clause in the sales contract.
The motion to dismiss was opposed by petitioner
contending the inapplicability of the arbitration clause
inasmuch as the cause of action did not arise from a
violation of the terms of the sales contract but rather
for claims of cargo damages where there is no
arbitration agreement. The Court rendered a decision
in favor of the petitioner. Unsatisfied with the
judgment, the respondent appealed and the lowers
courts decision was reversed by the appellate court.
Hence this petition.
ISSUE:
Whether the phrase "any dispute arising under this
contract" in the arbitration clause of the sales contract
covers a cargo claim against the vessel (owners and/or
charterers) for breach of contract of carriage
RULING:
Yes. An examination of the sales contract No.
S151.8.01018 shows that it is broad enough to include
the claim for damages arising from the carriage and
delivery of the goods subject-matter thereof.
Considering that the private respondent was one of the
signatories to the sales contract . . . all parties are
obliged to respect the terms and conditions of the said
sales contract, including the provision thereof on
"arbitration." Arbitration has been held valid and
constitutional. Even before the enactment of Republic
Act No. 876, this Court has countenanced the
settlement of disputes through arbitration. The rule
now is that unless the agreement is such as absolutely
to close the doors of the courts against the parties,
which agreement would be void, the courts will look
with favor upon such amicable arrangements and will
only interfere with great reluctance to anticipate or
nullify the action of the arbitrator. Premises considered,
we uphold the validity and applicability of the
arbitration clause as stated in Sales Contract No.
S151.8.01018 to the present dispute. WHEREFORE,
petition is hereby DISMISSED and the decision of the
court a quo is AFFIRMED.
CHUNG FU INDUSTRIES V. CA (G.R. NO. 96283)
Facts:
Petitioner Chung Fu Industries (Philippines) and private
respondent Roblecor Philippines, Inc. forged a
construction agreement whereby respondent
contractor committed to construct and finish petitioner
corporations industrial/factory complex. In the event of
disputes arising from the performance of subject
contract, it was stipulated therein that the issue(s)
shall be submitted for resolution before a single
arbitrator chosen by both parties. Roblecor filed a
petition for Compulsory Arbitration with prayer for
Temporary Restraining Order before respondent RTC to
claim the unsatisfied account and unpaid progress
billings. Chung Fu moved to dismiss the petition and
further prayed for the quashing of the restraining order.
Subsequent negotiations between the parties
eventually led to the formulation of an arbitration
agreement which, among others, provides: The parties
mutually agree that the decision of the arbitrator shall
be final and unappealable. Therefore, there shall be no
further judicial recourse if either party disagrees with
the whole or any part of the arbitrators
award. Respondent RTC approved the arbitration
agreement and thereafter, Engr. Willardo Asuncion was
appointed as the sole arbitrator. Arbitrator Asuncion
ordered petitioner to immediately pay respondent
contractor and further declared the award as final and
unappealable. Roblecor then moved for the
confirmation of said award which was accordingly
confirmed and a writ of execution granted to it.
Meanwhile, Chung Fu moved to remand the case for
further hearing and asked for a reconsideration of the
judgment award claiming that Arbitrator Asuncion
committed twelve (12) instances of grave error by
disregarding the provisions of the parties contract.
Chung Fus Motion was denied and similarly its motion
for reconsiderationn. Chung Fu elevated the case via a
petition for certiorari to respondent CA. The respondent
appellate court concurred with the findings and
conclusions of respondent trial court. A motion for
reconsideration of said resolution was filed by
petitioner, but was similarly denied.
Issue:
Whether or not petitioners are estopped from
questioning the arbitration award allegedly in view of
the stipulations in the parties arbitration agreement
that the decision of the arbitrator shall be final and
unappealable and that there shall be no further
judicial recourse if either party disagrees with the
whole or any part of the arbitrators award.
Ruling:
We rule in the negative. It is stated explicitly under Art.
2044 of the Civil Code that the finality of the
arbitrators award is not absolute and without
exceptions. Where the conditions described in Articles
2038, 2039 and 2040 applicable to both compromises
and arbitrations are obtaining, the arbitrators award
may be annulled or rescinded. Additionally, under
Sections 24 and 25 of the Arbitration Law, there are
grounds for vacating, modifying or rescinding an
arbitrators award. Thus, if and when the factual
circumstances referred to in the above-cited provisions
are present, judicial review of the award is properly
warranted.
This is where the proper remedy is certiorari under
Rule 65 of the Revised Rules of Court. It is to be borne
in mind, however, that this action will lie only where a
grave abuse of discretion or an act without or in excess
of jurisdiction on the part of the voluntary arbitrator is
clearly shown. It should be stressed, too, that voluntary
arbitrators, by the nature of their functions, act in a
quasi-judicial capacity. It stands to reason, therefore,
that their decisions should not be beyond the scope of
the power of judicial review of this Court.
In the case at bar, petitioners assailed the arbitral
award on the following grounds, most of which allege
error on the part of the arbitrator in granting
compensation for various items which apparently are
disputed by said petitioners. After closely studying the
list of errors, as well as petitioners discussion of the
same in their Motion to Remand Case For Further
Hearing and Reconsideration and Opposition to Motion
for Confirmation of Award, we find that petitioners have
amply made out a case where the voluntary arbitrator
failed to apply the terms and provisions of the
Construction Agreement which forms part of the law
applicable as between the parties, thus committing a
grave abuse of discretion. Furthermore, in granting
unjustified extra compensation to respondent for
several items, he exceeded his powers all of which
would have constituted ground for vacating the award
under Section 24 (d) of the Arbitration Law.
Wherefore, the petition is granted. The Resolutions of
the CA as well as the Orders of respondent RTC are
hereby SET ASIDE. Accordingly, this case is REMANDED
to the court of origin for further hearing on this matter.
All incidents arising therefrom are reverted to
the status quo ante until such time as the trial court
shall have passed upon the merits of this case.
CALIFORNIA AND HAWAIIAN SUGAR COMPANY vs.
PIONEER INSURANCE AND SURETY CORPORATION [G.R.
No. 139273. November 28, 2000] CALIFORNIA AND
HAWAIIAN SUGAR COMPANY; PACIFIC GULF MARINE,
INC.; and C.F. SHARP & COMPANY, petitioners, vs.
PIONEER INSURANCE AND SURETY CORPORATION,
respondent. Facts of the Case: Before us is a Petition
for Review on Certiorari under Rule 45 of the Rules of
Court, assailing the January 21, 1999 Decision of the
Court of Appeals[1] (CA) in CA-GR SP No. 33723, as
well as the July 6, 1999 CA Resolution[2] denying
reconsideration. The challenged Decision, which
sustained the Orders[3]of the Regional Trial Court of
Makati City, dismissing the instant petition. The Facts,
as summarized as follows: November 27, 1990 >>the
vessel MV SUGAR ISLANDER arrived at the port of
Manila carrying a cargo of soybean meal in bulk
consigned to several consignees, one of which was the
Metro Manila Feed Millers Association (Metro for
[b]revity). Discharging of cargo from vessel to barges
commenced on November 30, 1990. From the barges,
the cargo was allegedly offloaded, rebagged and
reloaded on consignees delivery trucks. Respondent,
however, claims that when the cargo [was] weighed on
a licensed truck scale a shortage of 255.051 metric
tons valued at P1,621,171.16 was discovered. The
above-mentioned shipment was insured with private
respondent against all risk in the amount of
P19,976,404.00. Due to the alleged refusal of
petitioners to settle their respective liabilities,
respondent, as insurer, paid the consignee Metro
Manila Feed Millers Association. March 26, 1992 >>as
alleged subrogee of Metro, private respondent filed a
complaint for damages against herein petitioners.
Within the reglementary period to file an Answer,
petitioners filed a Motion to Dismiss the complaint on
the ground that respondents claim is premature, the
same being arbitrable. Private respondent filed its
Opposition thereto and petitioners filed their Reply to
Opposition. November 11, 1992 >>[the RTC] issued an
Order deferring the hearing on the Motion to Dismiss
until the trial and directing petitioners to file their
Answer. Petitioners then moved to reconsider said
Order which was, however, denied by [the RTC] on the
ground that the reason relied upon by herein
petitioners in its Motion to Dismiss and Motion for
Reconsideration [was] a matter of defense which they
must prove with their evidence. August 20, 1993 >>
petitioners filed their Answer with Counterclaim and
Crossclaim alleging therein that plaintiff, herein
respondent, did not comply with the arbitration clause
of the charter party; hence, the complaint was
allegedly prematurely filed. The trial court set the case
for pre-trial on November 26, 1993. November 15 and
16, 1993 >>petitioners filed a Motion to Defer Pre-Trial
and Motion to Set for Preliminary Hearing the
Affirmative Defense of Lack of Cause of Action for
Failure to comply with Arbitration Clause, respectively.
Private respondent did not file an Opposition to the
said Motion to Set for Preliminary Hearing. December
28, 1993 >>[the RTC] issued an Order denying the
Motion to Set for Preliminary Hearing. February 2, 1994
>>petitioners filed a Motion for Reconsideration of the
Order dated December 28, 1993. February 11, 1994
>> [the RTC] issued an Order denying petitioners
Motion for Reconsideration. Hence, the instant petition.
January 21, 1999 >>CA affirmed the decision of RTC
July 6, 1999 >>CA denied the motion for
reconsideration Issue: In their Memorandum,
petitioners submit the following issues for our
consideration: 1. Whether or not insurer, as subrogee
of the consignee, is bound by the charter party which is
incorporated and referred to in the bill of lading. 2.
Whether or not the motion to dismiss should be
granted on the ground that a condition precedent has
not been complied with, based on the arbitration
clause incorporated in the bill of lading. 3. Whether or
not the Court of Appeals erred in holding that the trial
court did not commit grave abuse of discretion in
denying petitioners motion for preliminary hearing. 4.
Whether or not the trial court can defer the resolution
of a motion to dismiss on the ground that the ground
relied upon is indubitable. 5. Whether or not the
petitioners have resorted to an improper remedy which
makes them responsible for delaying the case. In the
main, the two principal matters before us are: (1) the
denial of petitioners Motion for Preliminary Hearing
and (2) the propriety of the CA ruling regarding the
arbitration clause. Held: The Petition is meritorious.
Affirmative Defense May Be Raised True, Section 6,
Rule 16 of the 1997 Rules,[11] specifically provides
that a preliminary hearing on the affirmative defenses
may be allowed only when no motion to dismiss has
been filed. Section 6, however, must be viewed in the
light of Section 3 of the same Rule,[12] which requires
courts to resolve a motion to dismiss and prohibits
them from deferring its resolution on the ground of
indubitability. Clearly then, Section 6 disallows a
preliminary hearing of affirmative defenses once a
motion to dismiss has been filed because such defense
should have already been resolved. In the present
case, however, the trial court did not categorically
resolve petitioners Motion to Dismiss, but merely
deferred resolution thereof. Indeed, the present Rules
are consistent with Section 5, Rule 16 of the pre- 1997
Rules of Court, because both presuppose that no
motion to dismiss had been filed; or in the case of the
pre-1997 Rules, if one has been filed, it has not been
unconditionally denied.[14] Hence, the ground invoked
may still be pleaded as an affirmative defense even if
the defendants Motion to Dismiss has been filed but
not definitely resolved, or if it has been deferred as it
could be under the pre-1997 Rules. Denial of the
Motion for a Preliminary Hearing Was a Grave Abuse of
Discretion Undeniably, a preliminary hearing is not
mandatory, but subject to the discretion of the trial
court. In the light of the circumstances in this case,
though, we find that the lower court committed grave
abuse of discretion in refusing to grant the Motion. We
note that the trial court deferred the resolution of
petitioners Motion to Dismiss because of a single
issue. It was apparently unsure whether the charter
party that the bill of lading referred to was indeed the
Baltimore Berth Grain Charter Party submitted by
petitioners. Considering that there was only one
question, which may even be deemed to be the very
touchstone of the whole case, the trial court had no
cogent reason to deny the Motion for Preliminary
Hearing. Indeed, it committed grave abuse of
discretion when it denied a preliminary hearing on a
simple issue of fact that could have possibly settled the
entire case. Verily, where a preliminary hearing
appears to suffice, there is no reason to go on to trial.
One reason why dockets of trial courts are clogged is
the unreasonable refusal to use a process or
procedure, like a motion to dismiss, which is designed
to abbreviate the resolution of a case. Second Issue:
The Arbitration Clause The CA also erred when it held
that the arbitration clause was not binding on
respondent. We reiterate that the crux of this case is
whether the trial court committed grave abuse of
discretion in denying the aforecited Motion. There was
neither need nor reason to rule on the applicability of
the arbitration clause. Be that as it may, we find the
CAs reasoning on this point faulty. Citing Pan Malayan
Insurance Corporation v. CA,[17] it ruled that the right
of respondent insurance company as subrogee was not
based on the charter party or any other contract;
rather, it accrued upon the payment of the insurance
claim by private respondent to the insured consignee.
There was nothing in Pan Malayan, however, that
prohibited the applicability of the arbitration clause to
the subrogee. That case merely discussed, inter alia,
the accrual of the right of subrogation and the legal
basis therefor.[18] This issue is completely different
from that of the consequences of such subrogation;
that is, the rights that the insurer acquires from the
insured upon payment of the indemnity. WHEREFORE,
the Petition is GRANTED and the appealed Decision is
hereby REVERSED. The case is REMANDED to the trial
court for preliminary hearing on petitioners affirmative
defense. No costs.
G.R. No. 107918 June 14, 1994
ASSOCIATED BANK, petitioner,
vs.
HON. COURT OF APPEALS, HON. MARINA L.
BUZON, as Presiding Judge of RTC, Quezon City,
MM, Br. 91, VISITACION SERRA FLORES RTC,
Quezon City, MM, Br. 91, MA. ASUNCION FLORES,
PHILIPPINE COMMERCIAL INTERNATIONAL BANK,
FAR EAST BANK & TRUST CO., SECURITY BANK &
TRUST CO. and CITYTRUST BANKING
CORPORATION, respondents.
Soluta, Leonidas, Marifosque, Balce, Santiago & Aguila
Law Office for petitioner.
Rector Law Office for respondent Flores.
Balgos and Perez Law Office for respondent PCIB.
Dumaraos, Oracion, Panganiban & Associates for
respondent FEBTC.
Cauton, Banares, Carpio, Ishiwata and Associates for
respondent SBTC.
Gonzaga, Soneja and Gale Law Offices for respondent
Citytrust.
KAPUNAN, J.:
This is a petition for review on certiorari seeking the
reversal of the decision of the Court of Appeals on
November 18, 1992 affirming in toto the Order of the
Regional Trial Court of Quezon City, Branch 91
dismissing the petitioners third-party complaint
against private respondent banks for lack of
jurisdiction.
The facts of the case, as found by both the trial court
and the Court of Appeals are undisputed:
In a complaint for Violation of the
Negotiable Instrument Law and
Damages, plaintiffs 1 seek the recovery
of the amount of P900,913.60 which
defendant bank 2 charged against their
current account by virtue of the sixteen
(16) checks drawn by them despite the
apparent alterations therein with
respect to the name of the payee, that
is, the name Filipinas Shell was erased
and substituted with Ever Trading and
DBL Trading by their supervisor
Jeremias Cabrera, without their
knowledge and consent.
Answering the complaint, defendant
bank claimed that the subject checks
appeared to have been regularly issued
and free from any irregularity which
would excite or arouse any suspicion or
warrant their dishonor when the same
were negotiated and honored by it;
that it observed and exercised the
required diligence, care and the
prescribed standard verification
procedures before finally accepting and
honoring the subject checks and that
the proximate cause of plaintiffs loss,
if any, was their own laxity, negligence
and lack of control, due care and
diligence in the conduct of their
business affairs.
With leave of court, defendant bank
filed a Third-Party Complaint against
Philippine Commercial International
Bank, Far East Bank & Trust Company,
Security Bank and Trust Company and
Citytrust Banking Corporation for
reimbursement, contribution,
indemnity from said third-party
defendants for being the collecting
banks of the subject checks and by
virtue of their bank guarantee for all
checks sent for clearing to the
Philippine Clearing House Corporation
(PCHC), as provided for in Section 17,
(PCHC), as provided for in Section 17,
PCHC Clearing House Rules and
Regulations.
In its Answer to the Third-Party
Complaint, Citytrust Banking
Corporation averred that the subject
checks appeared to be complete and
regular on their face with no indication
that an original payees name was
erased and superimposed with
another; that plaintiffs fault and
negligence in failing to examine their
monthly bank statements, together
with the returned checks and their own
check stubs, put them under estoppel
and cannot recover the proceeds of the
checks against it, an innocent third-
party, and plaintiff must suffer the loss
as their negligence was the proximate
cause thereof; and that third party
plaintiff is barred from recovering from
it base on the provisions of Sections 20
and 21 of the Philippine Clearing Rules
and Regulations.
Philippine Commercial International
Bank alleged that the subject check
was complete and regular on its face
and was paid by it only upon
presentment to the drawee bank for
clearing who, upon examination
thereof, found the same to be complete
and regular on its face; that it was only
after said check was cleared by third-
party plaintiff for payment that it
allowed the payee to withdraw the
proceeds of the check from its account;
that the cause of action of the third-
party plaintiff is barred by estoppel
and/or laches for its failure to return
the check to it within the period
provided for under Clearing House
Rules and Regulations; that this Court
has no jurisdiction over the suit as it
and third-party plaintiff are members of
the Philippine Clearing House and
bound by the Rules and Regulations
thereof providing for arbitration.
A Motion To Dismiss was filed by
Security Bank and Trust Company on
the grounds that third-party plaintiff
failed to resort to arbitration as
provided for in Section 36 of the
Clearing House Rules and Regulations
of the Philippine Clearing House
Corporation, and that it was released
from any liability with the acceptance
by third-party plaintiff of the subject
check.
The record does not show of any
Answer to the Third-Party Complaint
having been filed by Far East Bank &
Trust Company, although a "Reply To
FEBTC Answer" was filed by third-party
plaintiff.
On the other hand, third-party plaintiff
maintains that this Court has
jurisdiction over the suit as the
provisions of the Clearing House Rules
and Regulations are applicable only if
the suit or action is between
participating member banks, whereas
the plaintiffs are private persons and
the third-party complaint between
participating member banks is only a
consequence of the original action
initiated by the plaintiffs. 3
The trial court dismissed the third-party complaint for
lack of jurisdiction citing Section 36 of the Clearing
House Rules and Regulations of the PCHC providing for
settlement of disputes and controversies involving any
check or item cleared through the body with the PCHC.
It ruled citing the Arbitration Rules of Procedure
that the decision or award of the PCHC through its
arbitration committee/arbitrator is appealable only on
questions of law to any of the Regional Trial Courts in
the National Capital Region where the head office of
any of the parties is located. 4
On the plaintiffs contention that jurisdiction vests with
the court only if the suit or action is between
participating member banks without the involvement
of private parties the trial court held:
The third-party complaint concerning a
dispute or controversy among clearing
participants involving the subject
checks cleared through PCHC is
actually independent of, separate and
distinct from the plaintiffs
complaint. . . .
xxx xxx xxx
As the plaintiffs are not parties to the
third party complaint, the provisions of
the clearing house rules and
regulations on arbitration are,
therefore, applicable to Third-Party
plaintiff and third party defendant.
Consequently this court has no
jurisdiction over the third party
complaint. 5
After the trial court denied plaintiffs Motion for
Reconsideration, 6 petitioner appealed to the Court of
Appeals which promulgated the challenged decision on
November 18, 1992 dismissing the petition for lack of
merit.
Undaunted, petitioner is now before this Court seeking
a review of respondent courts decision on a lone
assignment of error:
RESPONDENT COURT OF APPEALS
ERRED IN HOLDING THAT PETITIONER
DRAWEE BANKS THIRD PARTY
COMPLAINT AGAINST PRIVATE
RESPONDENT COLLECTING BANKS FALL
WITHIN THE JURISDICTION OF THE
PCHC AND NOT THE REGULAR COURT.
We find no merit in the petition.
The Clearing House Rules and Regulations on
Arbitration of the Philippine Clearing House Corporation
are clearly applicable to petitioner and private
respondents, third party plaintiff and defendants,
respectively, in the court below. Petitioner Associated
Banks third party complaint in the trial court was one
for reimbursement, contribution and indemnity against
the Philippine Commercial and Industrial Bank (PCIB),
the Far East Bank and Trust, Co. (FEBTC), Security Bank
and Trust Co. (SBTC), and the CityTrust Banking
Corporation (CTBC), in connection with petitioners
having honored sixteen checks which said respondent
banks supposedly endorsed to the former for collection
in 1989. Under the rules and regulations of the
Philippine Clearing House Corporation (PCHC), the
mere act of participation of the parties concerned in its
operations in effect amounts to a manifestation of
agreement by the parties to abide by its rules and
regulations. 7 As a consequence of such participation, a
party cannot invoke the jurisdiction of the courts over
disputes and controversies which fall under the PCHC
Rules and Regulations without first going through the
arbitration processes laid out by the body. Since claims
relating to the regularity of checks cleared by banking
institutions are among those claims which should first
be submitted for resolution by the PCHCs Arbitration
Committee, petitioner Associated Bank, having
voluntarily bound itself to abide by such rules and
regulations, is estopped from seeking relief from the
Regional Trial Court on the coattails of a private claim
and in the guise of a third party complaint without first
having obtained a decision adverse to its claim from
the said body. It cannot bypass the arbitration process
on the basis of its averment that its third party
complaint is inextricably linked to the original
complaint in the Regional Trial Court.
Under its Articles of Incorporation, the PCHC provides
"an effective, convenient, efficient, economical and
relevant exchange and facilitate service limited to
check processing and sorting by way of assisting
member banks, entities in clearing checks and other
clearing items as defined and existing in future Central
Bank of the Philippines Circulars, memoranda, circular
letters rules and regulations and policies in pursuance
of Section 107 of RA 265." Pursuant to its function
involving the clearing of checks and other clearing
items, the PCHC has adopted rules and regulations
designed to provide member banks with a procedure
whereby disputes involving the clearance of checks
and other negotiable instruments undergo a process of
arbitration prior to submission to the courts below. This
procedure not only ensures a uniformity of rulings
relating to factual disputes involving checks and other
negotiable instruments but also provides a mechanism
for settling minor disputes among participating and
member banks which would otherwise go directly to
the trial courts. While the PCHC Rules and Regulations
allow appeal to the Regional Trial Courts only on
questions of law, this does not preclude our lower
courts from dealing with questions of fact already
decided by the PCHC arbitration when warranted and
appropriate.
In Banco de Oro Savings and Mortgage Banks vs.
Equitable Banking Corporation 8 this Court had the
occasion to rule on the validity of these rules as well as
the jurisdiction of the PCHC as a forum for resolving
disputes and controversies involving checks and other
clearing items when it held that "the participation of
two banks. . . in the Clearing Operations of the PCHC
(was) a manifestation of its submission to its
jurisdiction." 9
The applicable PCHC provisions on the question of
jurisdiction provide:
Sec. 3 AGREEMENT TO THESE RULES
It is the general agreement and
understanding, that any participant in
the PCHC MICR clearing operations, by
the mere act of participation, thereby
manifests its agreement to these Rules
and Regulations, and its subsequent
amendments.
xxx xxx xxx
Sec. 36 ARBITRATION
36.1 Any dispute or controversy
between two or more clearing
participants involving any check/item
cleared thru PCHC shall be submitted
to the Arbitration Committee, upon
written complaint of any involved
participant by filing the same with the
PCHC serving the same upon the other
party or parties, who shall within fifteen
(15) days after receipt thereof, file with
the Arbitration Committee its written
answer to such written complaint and
also within the same period serve the
same upon the complaining
participant. This period of fifteen (15)
days may be extended by the
Committee not more than once for
another period of fifteen (15) days, but
upon agreement in writing of the
complaining party, said extension may
be for such period as the latter may
agree to.
Section 36.6 is even more emphatic:
36.6 The fact that a bank participates
in the clearing operations of PCHC shall
be deemed its written and subscribed
consent to the binding effect of this
arbitration agreement as if it had done
so in accordance with Section 4 of the
Republic Act No. 876 otherwise known
as the Arbitration Law.
Thus, not only do the parties manifest by mere
participation their consent to these rules, but such
participation is deemed (their) written and subscribed
consent to the binding effect of arbitration agreements
under the PCHC rules. Moreover, a participant subject
to the Clearing House Rules and Regulations of the
PCHC may go on appeal to any of the Regional Trial
Courts in the National Capital Region where the head
office of any of the parties is located only after a
decision or award has been rendered by the arbitration
committee or arbitrator on questions of law. 10
Clearly therefore, petitioner Associated Bank, by its
voluntary participation and its consent to the
arbitration rules cannot go directly to the Regional Trial
Court when it finds it convenient to do so. The
jurisdiction of the PCHC under the rules and regulations
is clear, undeniable and is particularly applicable to all
the parties in the third party complaint under their
obligation to first seek redress of their disputes and
grievances with the PCHC before going to the trial
court.
Finally, the contention that the third party complaint
should not have been dismissed for being a necessary
and inseparable offshoot of the main case over which
the court a quo had already exercised jurisdiction
misses the fundamental point about such pleading. A
third party complaint is a mere procedural device
which under the Rules of Court is allowed only with the
courts permission. It is an action "actually independent
of, separate and distinct from the plaintiffs complaint"
(s)uch that, were it not for the Rules of Court, it would
be necessary to file the action separately from the
original complaint by the defendant against the third
party. 11
IN VIEW OF THE FOREGOING, the petition is DENIED for
lack of merit. With costs against petitioner.
SO ORDERED.
[G.R. No. 155651. July 28, 2005]
COCA-COLA BOTTLERS PHILIPPINES, INC., SALES
FORCE UNION-PTGWO-BALAIS, petitioner,
vs. COCA-COLA BOTTLERS, PHILIPPINES,
INC., respondent.
DECISION
CHICO-NAZARIO, J.:
This is a petition for review on certiorari seeking
the reversal of the Court of Appeals Decision [1] and
Resolution[2] dated 22 May 2002 and 03 October 2002,
respectively, affirming the 21 January 2001 Decision of
the panel of voluntary arbitrators (Panel) of the
National Conciliation Mediation Board (NCMB) for the
reason that the Panel decision had already attained
finality.
The following is a narration by the Court of
Appeals of the undisputed facts:
The Coca-Cola Bottlers Philippines, Inc. Sales Force
Union-PTGWO is a legitimate labor organization duly
registered with the Department of Labor and
Employment, and is the sole and exclusive bargaining
representative of all regular route salesmen, regular
relief route salesmen, regular lead helpers, regular
relief lead helpers, regular route helpers, regular relief
route helpers and order-taker collectors who are
assigned in various sales offices specified in the parties
collective bargaining agreement. On the other hand,
the respondent company is a domestic corporation
duly organized and existing under the laws of the
Philippines and is engaged in the manufacture and
distribution of its soft drink products.
In January 1989, the UNION filed a Notice of Strike with
the National Conciliation and Mediation Board raising
certain issues for conciliation. As a result of said
dispute, the UNION staged a strike.
Subsequently, the Board succeeded in making the
parties agree to a voluntary settlement of the case via
a Memorandum of Agreement signed by them on
February 9, 1989. Among others, the petitioner and the
respondent agreed, as follows:
...
1. Christmas Bonus
The Company shall grant to all those covered by the
Bargaining Unit represented by the Union an amount
equivalent to fifty (50%) percent of their average
commission for the last six (6) months.
The union hereby acknowledges that the granting of a
Christmas bonus is purely a Management prerogative
and as such, in determining the amount thereof the
same is solely a discretion of Management. The parties
however agree that henceforth whenever Management
exercises this prerogative, the same shall include the
average commission for the last six (6) months prior to
the grant.
Since then, the management granted to each covered
employee every December of the year a certain
percentage of his basic pay and an amount equivalent
to fifty (50%) percent of his average commission for
the last six months prior to the grant. However, in
December 1999, the respondent granted a fixed
amount of P4,000.00 only, eliminating thereby the said
50% employees average commission for the last six
months for members of the union. Thus, claiming the
same as violation of the MOA, the union submitted its
grievance to the respondent. No settlement was
reached, hence, the case was then referred to a Panel
of Voluntary Arbitrators.
Petitioner claimed that the MOA establishes the
companys obligation to pay additionally 50% of the
average commission whenever it decides to grant a
bonus and that the fixed amount of P4,000.00 granted
in December 1999, although denominated as ex-gratia
was actually a Christmas bonus. In support of its stand,
the Union submitted sample payslips for the prior years
wherein the company granted a performance grant or
one time grant computed as a percentage of the
employees basic salary. An illustrative example was
that given to Jose Manalusan. His payslip dated
December 6, 1996 shows his basic rate at P5,080.00
and an item SPL GRNT in the amount of P4,786.41. On
top of the payslip (sic) appear the words 80%
performance grant. According to the Union, this
amount of P4,786. is P722.41 more than 80% of
Manalusans then basic rate (80% of P5,080.00 being
PhP4,064.00). Thus, the Union concludes that the
difference of P722.41 represents additional 50% of
average commission. In sum, the Union asseverates
that the grant of the additional 50% of the average
commission has become a practice since 1989 and has
ripened into a contractual obligation.
On the other hand, the respondent company countered
that in 1999 it suffered its worst financial performance
in its history; that its sales volume was twenty percent
(20%) behind plan and ten percent (10%) below the
sales in 1998, as a result, it suffered an abnormal loss
of Two Billion Five Hundred Million Pesos
(P2,500,000,000.00); that faced with tremendous
losses, the management decided not to grant bonuses
to its employees in 1999; that through Memorandum
99010 dated December 14, 1999, its President, Mr.
Peter Baker explained to the employees the companys
financial situation and the decision not to grant
bonuses; that in the same memo however, the
company granted a special ex gratia payment of Four
Thousand Pesos (P4,000.00) to all its permanent
employees, . . .
During the past year (sic) we have suffered greatly as a
result of a number of internal and external issues
including the effect of the general economic pressures
in the Philippines.
Our sales volume in 1999 is approximately 20% behind
the plan and 10% below last year. This together with
lower than expected prices and increased costs will
result in a financial performance which is undoubtedly
the worst in our history.
The Coca-cola Amatil Board has announced that it
expects an abnormal loss of PhP2.5 Billion (AUD100
million) before tax at CCBPI in 1999 and that reported
on-going results will be below everyones expectations.
In these circumstances the CCBPI Executive Committee
has decided that the CCBPI is not able to pay bonuses
to any staff in 1999. As your new president, it
disappoints me greatly to have to inform you of this
situation.
Our situation has been discussed with the CCA Board
and they are understanding of the difficulties we face a
(sic) present and grateful of the efforts of our
associates at all levels. Furthermore, the management
of CCA has agreed to make a special Ex
Gratia payment PhP4,000.00 to all permanent
employees of CCBPI. Our hope that [t]his will assist in
some way to allow you and your families to enjoy the
festive season.
In denying the claim of the Union for the payment of
the additional 50% of the average commission for the
last six months, the respondent argues that the said
MOA is not applicable since the company did not grant
Christmas bonus in 1999.
After hearing and the submission of evidence and
position papers, the Arbitration Panel composed of
Apron Mangabat and Noel Sanchez, as chairman and
member, respectively, denied petitioners claim and
declared that the P4,000.00 given as ex gratia is not a
bonus, while Arnel Dolendo, another member
dissented. The dispositive portion of the decision reads
as follows:
WHEREFORE, judgment is hereby rendered declaring
that the special Ex Gratia payment of P4,000.00 made
pursuant to the Memo of Mr. Peter Baker dated
December 14, 1999 was not a Christmas bonus and
therefore, the claim of the Union for an additional 50%
of average commission on top of said P4,000.00 is
hereby denied.[3]
A copy of this Decision dated 21 January 2001 was
received by petitioners counsel on 20 February 2001.
Said Decision was signed only by the Chairman of the
Panel, Mr. Apron Mangabat, and one of its members,
Atty. Noel Sanchez. As to the third member, Atty. Arnel
Dolendo, instead of a signature on top of his printed
name, the following notation appears:
Dissented during deliberation.
Will file a separate opinion.
No separate opinion, however, was attached to the
Decision as received by petitioner, through its counsel.
Thus, on 22 February 2001 (two days after receipt of
the Decision), petitioner filed an Urgent Ex-Parte
Manifestation with Motion where it essentially
questioned the validity of the decision, opining that the
Panels decision without such dissenting and separate
opinion attached thereto makes the decision
incomplete and prematurely issued. It consequently
prayed that the questioned Decision be held in
abeyance and for the Panel to immediately issue an
order to the effect that the prescriptive period available
to any of the parties to seek any legal remedy or relief
be suspended in the meantime.
The Panel did not directly act on this motion.
Instead, on 02 March 2001, petitioner received a Notice
of Transmittal from the NCMB furnishing it a copy of
Atty. Dolendos separate opinion together with the 21
January 2001 Decision. Thus, on 12 March 2001,
petitioner filed a motion for reconsideration of the 21
January 2001 Decision.
 On 30 May 2001, the Panel denied petitioners
motion for reconsideration. A copy of the Order of
denial was received by petitioner on 09 July 2001. By
virtue thereof, petitioner filed a Petition for Review
before the Court of Appeals on 24 July 2001.
In dealing with the controversy, the Court of
Appeals adopted a two-tiered approach. First, it held
that contrary to the view of the Panel, the P4,000.00
special ex gratia payment is a Christmas bonus, hence,
petitioners members are entitled to the additional 50%
average commission for the last six months prior to the
grant pursuant to the Memorandum of Agreement
entered into between petitioner and respondent Coca-
Cola Bottlers Philippines, Inc. This notwithstanding, the
Court of Appeals dismissed the petition on the ground
that petitioners motion for reconsideration dated 12
March 2001 of the Decision of the Panel that was
originally received on 20 February 2001 was filed out of
time; hence, the said Decision already became final
and executory after ten (10) calendar days from receipt
of the copy of the Decision by the parties pursuant to
Article 262-A of the Labor Code. The Court of Appeals
ratiocinated thus:
On the matter of procedure, Article 262-A of the Labor
Code governs. It provides that the award or decision of
the Voluntary Arbitrator or panel of Voluntary
Arbitrators shall be final and executory after ten (10)
calendar days from receipt of the copy of the award or
decision by the parties. Moreover, Section 6, Rule VII of
the NCMB Procedural Guidelines in the Conduct of
Voluntary Arbitration Proceedings, dated July 28, 1989,
states categorically, to wit:
Section 6. Finality of Award or Decisions. Awards or
decisions of voluntary arbitrator become final and
executory after ten (10) calendar days from receipt of
copies of the award or decision by the parties.
The above-mentioned rule makes the voluntary
arbitrators award final and executory after ten calendar
days from receipt of a copy of the decision or award by
the parties. Presumably, the decision may still be
reconsidered by the Voluntary Arbitrator on the basis of
a motion for reconsideration seasonably filed during
that period. Thus, the seasonable filing of a motion for
reconsideration following the receipt by the petitioner
of a copy of the decision or award of the panel of
Voluntary Arbitrators, is a mandatory requirement to
forestall the finality of such decision or award. In the
case at bar however, the petitioner filed on March 12,
2001 a motion for reconsideration of the arbitrators
decision, which it received on February 20, 2001.
Without doubt at the time the said motion was filed,
which was beyond the reglementary period of ten (10)
days, the decision had already become final and
executory. It is a hornbook rule that once a judgment
has become final and executory, it may no longer be
modified in any respect, even if the modification is
meant to be an erroneous conclusion of fact or law,
and regardless of whether the modification is
attempted to be made by the court rendering it or by
the highest court of the land, as what remains to be
done is the purely ministerial enforcement or execution
of the judgment.
The doctrine of finality of judgment is grounded on
fundamental considerations of public policy and sound
practice that at the risk of occasional errors, the
judgment of adjudicating bodies must become final
and executory on some definite date fixed by law. In
the more recent case of DBP v. NLRC, the Supreme
Court reiterated that the doctrine of immutability of
final judgment is adhered to by necessity
notwithstanding occasional errors that may result
thereby, since litigations must somehow come to an
end for otherwise, it would be even more intolerable
than the wrong and injustice it is designed to correct.
And, acting on petitioners motion for reconsideration,
the Court of Appeals held:
We cannot simply yield to the submission of the
petitioner that the decision of the panel of Voluntary
Arbitrators had not yet became final and executory. It
is not correct to say that March 2, 2001, the date when
the petitioner union received the January 21, 2001
decision of the panel of Voluntary Arbitrators together
with the dissenting opinion of Voluntary Arbitrator Arnel
Dolendo should be considered as the reckoning date
for purposes of filing a motion for reconsideration. The
absence of the dissenting opinion in the copy of the
assailed decision duly received by the petitioner on
February 20, 2001 did not make the said decision
incomplete, for it disposed of all the issues of the case
validly raised. Well settled is the rule that a dissenting
opinion, as it is, is a mere expression of the individual
view of the dissenting justice from the conclusion held
by the majority of the court and therefore, not binding.
It is the dispositive portion of the decision or the fallo,
which contains the final and actual adjudication of the
rights of the parties that constitutes the judgment of
the court. Hence, to forestall the finality of the
arbitrators award, petitioner should have filed a motion
for reconsideration within the reglementary period of
ten (10) days, without waiting for the dissenting
opinion of Voluntary Arbitrator Dolendo. Thus, the filing
of the motion for reconsideration of the arbitrators
award only on March 12, 2001 was way beyond the ten
(10) day reglementary period and had the effect of
rendering the panel of Voluntary Arbitrators decision
final and executory. Certainly, in allowing the
arbitrators award to lapse into finality on the flimsy
excuse that it has to receive the dissenting opinion of
Arnel Dolendo does not find support in law. Finality of
judgment becomes a fact when the reglementary
period to appeal lapses, and no appeal is perfected
within such period. It is a jurisdictional event which can
not be made to depend on the convenience of a party.
[4]
From this aspect of the Court of Appeals Decision
and Resolution, petitioner now comes before us for
redress, assigning as sole issue the following:
THE HONORABLE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR WHEN IT DISMISSED THE PETITION
ON MERE TECHNICALITY CONTRARY TO SETTLED
JURISPRUDENCE, AFTER FAVORABLY RULING ON THE
MERITS IN FAVOR OF PETITIONER
The resolution of the present controversy hinges
for the most part on the correct disposition of
petitioners argument that the Panels Decision sans the
dissenting opinion of one of its members was
irregularly issued; hence, did not toll the running of the
prescriptive period within which to file a motion for
reconsideration. To sustain petitioners argument would
mean that the subject Decision could still be reviewed
by the Court of Appeals. A contrary resolution would
stamp the subject decision with finality rendering it
impervious to review pursuant to the doctrine of
finality of judgments.
Rule VII, Section 1 of the Procedural Guidelines in
the Conduct of Voluntary Arbitration Proceedings
provides the key. Therein, what constitutes the
voluntary arbitrators decision (and, by extension, that
of the Panel of voluntary arbitrators) is defined with
precision, to wit:
Section 1. Decision Award. -- The final arbitral
disposition of issue/s submitted to voluntary arbitration
is the Decision. The disposition may take the form of a
dismissal of a claim or grant of specific remedy, either
by way of prohibition of particular acts or specific
performance of particular acts. In the latter case the
decision is called an Award.
In herein case, the Decision of the Panel was in the
form of a dismissal of petitioners complaint. Naturally,
this dismissal was contained in the main decision and
not in the dissenting opinion. Thus, under Section 6,
Rule VII of the same guidelines implementing Article
262-A of the Labor Code, this Decision, as a matter of
course, would become final and executory after ten
(10) calendar days from receipt of copies of the
decision by the parties even without receipt of the
dissenting opinion unless, in the meantime, a motion
for reconsideration[5] or a petition for review to the
Court of Appeals under Rule 43 of the Rules of
Court[6] is filed within the same 10-day period. As
correctly pointed out by the Court of Appeals, a
dissenting opinion is not binding on the parties as it is
a mere expression of the individual view of the
dissenting member from the conclusion held by the
majority of the Court, following our ruling in Garcia v.
Perez[7] as reiterated in National Union of Workers in
Hotels, Restaurants and Allied Industries v. NLRC.[8]
Prescinding from the foregoing, the Court of
Appeals correctly dismissed the petition before it as it
no longer had any appellate jurisdiction to alter or
nullify the decision of the Panel.[9]The Panels Decision
had become final and executory, hence,
unchallengeable.
We are not unmindful that in labor disputes, social
justice exhorts courts to lean backwards in favor of the
working class. Corollary thereto, it is doctrinal that in
labor disputes, rules of procedure cannot be applied in
a rigid and technical sense.[10] Thus, in appropriate
cases, we have not hesitated to relax matters of
procedure in the interest of substantial justice.[11] As
applied herein, however, our hands are tied by the fact
that the case had already attained finality long before
it got here. As we declared in Nacuray v. National
Labor Relations Commission[12] --
. . . Nothing is more settled in law than that when a
judgment becomes final and executory it becomes
immutable and unalterable. The same may no longer
be modified in any respect, even if the modification is
meant to correct what is perceived to be an erroneous
conclusion of fact or law, and whether made by the
highest court of the land. The reason is grounded on
the fundamental considerations of public policy and
sound practice that, at the risk of occasional error, the
judgments or orders of courts must be final at some
definite date fixed by law.
WHEREFORE, premises considered, the Court of
Appeals Decision dated 22 May 2002 and its Resolution
dated 03 October 2002 are hereby AFFIRMED. No
costs.
SO ORDERED.
JORGE GONZALES and PANEL OF ARBITRATORS vs.
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP.
and AUSTRALASIAN PHILIPPINES MINING INC., G.R.
No. 161957, January 22, 2007
Facts: This is a consolidation of two petitions rooted in
the same disputed Addendum Contract entered into by
the parties.
In one case, the Court held that the DENR Panel of
Arbitrators had no jurisdiction over the complaint for
the annulment of the Addendum Contract on grounds
of fraud and violation of the Constitution and that the
action should have been brought before the regular
courts as it involved judicial issues.
Gonzales averred that the DENR Panel of Arbitrators
Has jurisdiction because the case involves a mining
dispute that properly falls within the ambit of the
Panels authority.
Respondents Climax Mining Ltd., et al., on the other
hand, seek reconsideration/clarification on the decision
holding that the case should not be brought for
arbitration under R.A. No. 876. They argued that the
arbitration clause in the Addendum Contract should be
treated as an agreement independent of the other
terms of the contract, and that a claimed rescission of
the main contract does not avoid the duty to arbitrate.
On another case, Gonzales challenged the order of the
RTC requiring him to proceed with the arbitration
proceedings while the complaint for the nullification of
the Addendum Contract was pending before the DENR
Panel of Arbitrators. He contended that any issue as to
the nullity, inoperativeness, or incapability of
performance of the arbitration clause/agreement raised
by one of the parties to the alleged arbitration
agreement must be determined by the court prior to
referring them to arbitration.
While Climax-Arimco contended that an application to
compel arbitration under Sec. 6 of R.A. No. 876 confers
on the trial court only a limited and special
jurisdiction, i.e., a jurisdiction solely to determine (a)
whether or not the parties have a written contract to
arbitrate, and (b) if the defendant has failed to comply
with that contract.
Issue: Whether or not arbitration is proper even
though issues of validity and nullity of the Addendum
Contract and, consequently, of the arbitration clause
were raised.
Ruling: Positive.
In La Naval Drug Corporation v. Court of Appeals, the
Court held that R.A. No. 876 explicitly confines the
court's authority only to the determination of whether
or not there is an agreement in writing providing for
arbitration. In the affirmative, the statute ordains that
the court shall issue an order "summarily directing the
parties to proceed with the arbitration in accordance
with the terms thereof." If the court, upon the other
hand, finds that no such agreement exists, "the
proceeding shall be dismissed." The cited case also
stressed that the proceedings are summary in nature.
Implicit in the summary nature of the judicial
proceedings is the separable or independent character
of the arbitration clause or agreement.
The doctrine of separability or severability enunciates
that an arbitration agreement is independent of the
main contract. The arbitration agreement is to be
treated as a separate agreement and the arbitration
agreement does not automatically terminate when the
contract of which it is part comes to an end.
The separability of the arbitration agreement is
especially significant to the determination of whether
the invalidity of the main contract also nullifies the
arbitration clause. Indeed, the doctrine denotes that
the invalidity of the main contract, also referred to as
the container contract, does not affect the validity of
the arbitration agreement. Irrespective of the fact that
the main contract is invalid, the arbitration
clause/agreement still remains valid and enforceable.
The validity of the contract containing the agreement
to submit to arbitration does not affect the applicability
of the arbitration clause itself. A contrary ruling would
suggest that a partys mere repudiation of the main
contract is sufficient to avoid arbitration. That is
exactly the situation that the separability doctrine, as
well as jurisprudence applying it, seeks to avoid.
The Court added that when it declared that the case
should not be brought for arbitration, it should be
clarified that the case referred to is the case actually
filed by Gonzales before the DENR Panel of Arbitrators,
which was for the nullification of the main contract on
the ground of fraud, as it had already been determined
that the case should have been brought before the
regular courts involving as it did judicial issues.
Gonzales v. climax mining 512 scra 138 (CHECK
BECAUSE THE DIGEST CIRCULATED STATES
ANOTHER CASE)
Facts:
co-production, joint venture and/or
production-sharing letter-agreement :
-Gonzales granted to GeoPhilippines and Inmex
the exclusive right to explore and survey the
mining claims for 36 months w/n w/c the
GeoPhilippines and Immex could decide to take
an operating agreement on the mining claims
and/or develop, operated, mine and otherwise
exploit the mining claims and market any and all
minerals
-They later extended the agreement to another 3
years and then agreed to an Addendum to the
latter extension contract wherein Arimco would
obtain a Financial and Technical Assistance
Agreement (FTAA) from the Govt, which it did.
-An OPERATING AND FINANCIAL ACCOMODATION
CONTRACT and Assignment, Accession
Agreement was entered between Climax-Arimco
and Australasian Philippines whereby Climax-
Arimco transfers its FTAA t Australasian
Philippines.
-GONZALES FILED BEFORE THE PANEL OF
ARBITRATORS, REGION II, MINES AND
GEOSCIENCES BUREAU OF THE DENR vs. Climax-
Arimco Mining Corporation, Climax, and
Australasian Philippines a COMPLAINT FOR
NULLIFICATION OF THE ADDENDM CONTRACT
(which provides for Arimco-Climax applying for a
FTAA), the FTAA, and the other two agreements
entered between Arimco-Climax and Australasian
Philippines on the grounds of FRAUD,
OPPRESSION, AND/OR VIOLATION OF SECTION 2,
ARTICLE XII OF THE CONSTI
*ARB PANEL: COMPLAINT DISMISSED, lack of
jurisdiction. MR GRANTED (dispute involves
rights to mining areas and dispute involves
surface owners, occupansta and claim
owners/concessionaires, the ruling on the validity
of the assailed contracts would result to the
grant or denial of mining rights over the
properties)
NOTE, HOWEVER, THAT DID NOT RULE ON
CONSTITUTIONALITY. MR by Arimco-Climax and
Australasian Philippines.
*ARB PANEL: DENIED (there was a mining
dispute involved, contacts involve exploration
and exploitation of minerals over disputed areas.
PETITION FOR CERTIORARI W/ CA.
*CA: GRANTE PETITION.
a Jurisdiction of Arb Panel: NONE OVER THE
ISSUE
...limited only to the resolution of mining
disputes, defined as those which raise
a question of fact or matter requiring the
technical knowledge and experience of
mining authorities. As the complaint
alleged fraud, oppression and violation of
the Consti, which are QUESTIONS OF
LAW, Arb Panel had NO JURISDICTION.
 a NO AVERMENTS AS TO FRAUD OR (WON THE COMPLAINT RAISES A MINING
OPPRESSION DISPUTE OR A JUDICIAL QUESTION)? NO
and if ever there are, it would only make
JUDICIAL QUESTION MINING D
the contract voidable
a ACTION PRESCRIBED proper for determination by the courts Panel of
Addendum Contract executed 1991,
should have annulled it w/n 4 years (til question involves the determination of what (a) rights
1995) but action was filed in 1999. the law is and what the legal rights of the (b) miner
a PETITION SHOULD HAVE BEEN SETTLED parties are with respect to the matter in (c) surfac
THROUGH ARBITRATION controversy.
*MR DENIED (Lack of merit)
*PETITION FOR REVIEW, R45 Controversies or disagreements of civil or granting
ISSUES contractual nature between litigants permits,
(a) Whether there was forum-shopping on the deciding
part of respondents for their failure to disclose to
-what the COMPLAINT ALLEGES: respondents,
this Court their filing of a Petition to Compel for
conspiring and confederating w/ one another,
Arbitration before the Regional Trial Court of
misrepresented under the Addendum Contract
Makati City, Branch 148, which is currently
and FTAA that Climax-Arimco possessed financial
pending.
and technical capacity to put the project into
(b) Whether counsel for respondent Climax
commercial production, when in truth it had no
had authority to file the petition for
such qualification whatsoever. By so doing,
certiorari before the Court of Appeals
respondents have allegedly caused damage not
considering that the signor of the petition for
only to petitioner but also to RP
certioraris Verification and Certification of Non-
-IF FRAUD: complaint avers fraud or
forum Shopping was not authorized to sign the
misrepresentation, which vitiates Gonzales'
same in behalf of respondent Climax.
consent, and under A1390 of the NCC, is one of
(c) Whether the complaint filed by petitioner
the grounds for the annulment of a voidable
raises a mining dispute over which the Panel of
contract.
Arbitrators has jurisdiction, or a judicial question
-IF VIOLATION OF ART XII, SECTION 2 OF
which should properly be brought before the
CONSTI: by their lack of financial and technical
regular courts.
competence to carry out the mining project, do
(d) Whether the dispute between the
not qualify to enter into a co-production, joint
parties should be brought for arbitration
venture or production sharing agreement with
under Rep. Act No. 876.
the Government, in circumvention of and in
HELD
patent violation of the spirit and purpose of the
(a)On Forum Shopping: NONE
Constitution, particularly Section 2, Article XII
-copies of the Petition to Compel for Arbitration
thereof.
not attached, so Court cannot determine WON
(WAH! WRONG CASE) THE RULING HERE IS
the same involves related COA and the grant of
THIS:
the same or substantially the same reliefs
The DENR Panel of Arbitrators had NO
-Nature of actions different: Petition for certiorari
JURISDICTION over the complaint for the
determines GADALEJ, Petition to compel for
annulment of the Addendum Contract on grounds
arbitration seeks implementation of the
of fraud and violation of the Constitution + Action
arbitration clause
should have been brought before the regular
(b)AUTHORITY OF COUNSEL TO FILE
courts as it involves judicial issues.
PETITION FOR CERTIORARI
Court also ruled that case should not be brought
W/O SECRETARY'S CERTIFICATE, AND THE
for arbitration under RA 876
VERIFICATION IN THE CNFS: NO AUTHORITY,
FROM THE DIGEST: MR of the 1995 case!
NO CNFS. BUT IRRELEVANT AS THE PANEL
From the 1995 ruling, BOTH PARTIES FILED MR
OF ARBITRATORS HAD NO JURISDICTION
NOTE: there is another Case wherein RTC ordered
OVER THE COMPLAINT FILED BY GONZALES.
Gonzales to proceed w/ arbitration proceedings
-CNFS FOR CORPORATIONS: The signatory in the
(un ung forum shopping argument ni Gonzales)
case of the corporation should be a duly
GONZALES ARGUES
authorized director or officer of the corporation
DENR Panel of Arbitrators had jurisdiction: the
who has knowledge of the matter being certified.
case involves a mining dispute
If, as in this case, the petitioner is a corporation,
CLIMAX ARGUES
a board resolution authorizing a corporate
Case could be brought for arbitration under RA
officer to execute the certification against forum-
876: the arbitration clause in the Addendum
shopping is necessary. A certification not signed
Contract should be treated as an agreement
by a duly authorized person renders the petition
independent of the other terms of the contract,
subject to dismissal.
and that a claimed rescission of the main
(c)WON PANEL OF ARBITRATORS HAVE
contract does not avoid the duty to arbitrate
JURISDICTION OVER THE COMPLAINT FOR
ISSUES AND RULING:
DECLARATION OF NULLITY AND/OR
1 WON DENR PANEL OF ARBITRATORS HAD
TERMINATION OF THE SUBJECT CONTRACTS
JURISDICTION over Gonzales' petition for
ON THE GROUND OF FRAUD, OPPRESSION
nullification of the container contract
AND VIOLATION OF THE CONSTITUTION
AS I JUST GOT THIS FROM THE DIGEST, IT'S
MAGULO. The digest seem to imply YES.
 BOTH the PANEL OF ARBITRATORS AND THE CA
FOUND THAT:
a THROUGH THE VARIOUS AGREEMENT,
GONZALES HAD ASSIGNED HIS INTEREST
OVER THE MINERAL CLAIMS ALL IN FAVOR
OF CLIMAX-ARIMCO
a W/O GONZALES ASSIGNING HIS INTEREST
OVER THE MINERAL CLAIMS IN FAVOR OF
CLIMAX-ARIMCO, THERE WOULD BE NO
FTAA TO SPEAK OF
BUT CA LIKEWISE FOUND THAT GONZALES'
ALLEGATION OF FRAUD, OPPRESSION, AND
VIOLATION OF THE CONSTITUTION WERE
UNSUBSTANTIATED. WEIRD. PERO I GUESS NO
DAPAT.
1 WON THE PETITION IS PROPER SUBJECT OF
RA 876
NO. Note however that this case involves the
petition of Gonzales to nullify the Container
contract which was already held proper ONLY
FOR THE COURTS TO determine. The validity of
the container contract is not a proper subject for
arbitration.
-As would be seen in the resolution of the court
below, the dispute between Climax-Arimco and
Gonzales (though I don't know what are the
grounds invoked by Climax-Arimco in enforcing
the Arbitration contract) is proper for arbitration,
with the RTC finding that the Arbitration Contract
(separable from the container clause) was validly
made.
PETITION to COMPEL FOR ARBITRATION
CASE FILED BY CLIMAX-ARIMCO:
FACTS: Climax-Arimco sent Gonzales a Demand
for Arbitration pursuant to Clause 19.1 of the
Addendum Contract and Section 5 of RA 876. As
Gonzales did not heed the demand, they filed a
Petition to compel aritration before RTC Makati.
-Gonzales filed MTD, but failed to set for hearing
so filed an ANSWER w/ Counterclaim:
a Question validity of Addendum Contract:
VOID for Climax-Arimco's acts of fraud,
oppression and violation of the consti (as
he argued earlier)
*RTC: Set case for pre-trial (though initially, it
was not granted): Gonzales made the issue of
the making the arbitration agreement (i.e.
validity of arbitration agreement)
---ARB AGREEMENT VALID. PROCEED W/
ARBITRATION. APPOINTED RETIRED CA JUSTICE
COQUIA AS SOLE ARBITRATOR. MFR DENIED.
*Gonzales filed R65 PETITION
ISSUES AND RULING
1 WON R65 PETITION MAY BE CONSIDERED
AN APPEAL IN ARBITRATION PROCEEDINGS.
NO.
-under RA 876, it should be APPEAL BY
CERTIORARI (R45! PETITION FOR REVIEW UNDER
CERTIORARI, PURE QUESTIONS OF LAW)
-term "may": refers to the filing of an
appeal, not the mode of review to be
employed.
-right to appeal is not part of due process of law
but is a mere statutory privilege to be exercised
ONLY IN THE MANNER AND IN ACCORDANCE W/
LAW
BF CASE NOT APPLICABLE: Here, Gonzales'
petition raises a QUESTION OF LAW, NOT A
QUESTION OF JURISDICTION
-plus Judge Pimentel merely acted pursuant to RA
876, thus it acted w/n its jurisdiction.
1 WON it was proper for the RTC to order
arbitration even if the validity of both the
Container Contract and the Arbitration
Clause was questioned? YES. Sans the issue
of the validity of the Container Contract,
based on the DOCTRINE OF SEPARABILITY, if
there's a valid arbitration clause then the
parties should proceed arbitration.
2 points:
1 RA 876 is limited only to the resolution of the
question of WON the arbitration agreement was
validly entered (not the validity of the container
contract)
1 The separability of the arbitration clause from the
Container Contract means that regardless if the
container contract is valid or not, the arbitration
clause's validity is a different issue.
ON HISTORY OF ARBITRATION IN RP
Civil Code and RA 876 expressly authorizes
arbitration of domestic disputes.
Foreign arbitration, as a system of settling
commercial disputes of an international
character, was likewise recognized when RP
adhered to the UN CONVENTION ON THE
RECOGNITION AND ENFORECEMENT OF FOREIGN
ARBITRAL AWARDS OF 1958, giving reciprocal
recognition and allowing enforcement of
international arbitration agreements between
parties of different nationalities w/ a contracting
state
The enactment of RA 9285 further
institutionalized the use of alternative dispute
resolution systems, including arbitration, in the
settlement of disputes
ON LA NAVAL V. CA: RA 876 explicitly confines
the court's authority only to the DETERMINATION
OF WON THERE IS AN AGREEMENT IN WRITING
PROVIDING FOR ARBITRATION.
>IF THERE IS: the court would issue an order
"summarily directing the parties to proceed w/
arbitration in accordance w/ the terms thereof:
>IF THERE'S NONE: dismiss proceedings
ON DOCTRINE OF SEPARABILITY OF THE
ARB CLAUSE: an agreement is to be treated as
a separate agreement and the arbitration
agreement does not automatically terminate
when the contract of which it is part comes to an
end.
-the invalidity of the main contract (CONTAINER
CONTRACT) does not affect the validity of the
arbitration agreement.
ON ARTICLE 16 (1) OF THE UNCITRAL
MODEL LAW _ ARTICLE 21(2) OF THE
UNCITRAL ARBITRATION RULES, PRIMA
PAINTS CASE:
-in the Prima Paints case, Prima Paints argues
that it had been fraudulently induced by F&C to
sign the consulting agreement. The US High
Court held that the court should not order the
parties to arbitrate IF THE MAKING OF
THE ARBITRATION AGREEMENT IS IN ISSUE.
Court should not entertain the argument of fraud
in the making of the CONTAINER AGREEMENT
and if the arguments of the parties pertain to the
validity of the CONTAINER AGREEMENT, NOT THE
ARBITRATION AGREEMENT, then don't take
cognizance of the case.
Oil and national gas comm vs. ca 293 scra 26
FACTS
-Oil and Natural Gas Commission (ONGC) is an
Indian GOCC. Pacific Cement is a private RP
Corporation.
-the 2 entered a contract wherein Pacific Cement
would supply ONGC 4,300 metric tons of OIL
WELL CEMENT and ONGC would pay
$477,300.00.
THE DISPUTE
-Oil well cement was loaded on board the ship
MV SURUTANA NAVA for delivery to Bombay and
Calcutta, India BUT A DISPUTE BETWEEN PACIFIC
CEMENT AND SHIPOWNER CAUSED THE OIL WELL
CEMENT NOT BE DELIVERED. Pacific Cement was
already paid for the oil well cement so ONGC
demanded the delivery of the said cement
-Negotiations ensued. Pacific Cement agreed to
replace the 4300 metric tons of oil well cement
w/ CLASS "G" CEMEENT free. But the CLASS "G"
cement did not conform with the specifications of
ONGC.
DEMAND FOR ARBITRATION
-ONGC informed Pacific Cement that it was
referring its claim to an arbitrator pursuant to
Clause 16 of their contract:
Except where otherwise provided in the supply
order/contract all questions and disputes,
relating to the meaning of the specification
designs, drawings and instructions herein before
mentioned and as to quality of workmanship of
the items ordered or as to any other question,
claim, right or thing whatsoever, in any way
arising out of or relating to the supply
order/contract design, drawing, specification,
instruction or these conditions or otherwise
concerning the materials or the execution or
failure to execute the same during
stipulated/extended period or after the
completion/abandonment thereof shall be
referred to the sole arbitration of the persons
appointed by Member of the Commission at the
time of dispute. It will be no objection to any
such appointment that the arbitrator so
appointed is a Commission employer (sic) that he
had to deal with the matter to which the supply
or contract relates and that in the course of his
duties as Commission's employee he had
expressed views on all or any of the matter in
dispute or difference.
The arbitrator to whom the matter is originally
referred being transferred or vacating his office
or being unable to act for any reason the Member
of the Commission shall appoint another person
to act as arbitrator in accordance with the terms
of the contract/supply order. Such person shall be
entitled to proceed with reference from the stage
at which it was left by his predecessor. Subject as
aforesaid the provisions of the Arbitration Act,
1940, or any Statutory modification or re-
enactment there of and the rules made there
under and for the time being in force shall apply
to the arbitration proceedings under this clause.
The arbitrator may with the consent of parties
enlarge the time, from time to time, to make and
publish the award.
The venue for arbitration shall be at Dehra dun.
ARBITRAL AWARD
-for ONGS, Pacific Cement LIABLE
ENFORCEMENT OF THE AWARD
In Dehru Dun, India
-ONGC filed PETITION w/ foreign Court in India,
praying that the decision of the arbitrator be
made "the Rule of Court" in India
-Foreign court sent notices to Pacific Cement for
filing objections, which it did. It was also notified
that it needed to pay the required filing fees, w/o
specifying how much filing fees are required.
Pacific Cement inquired how much they were
supposed to pay BUT THE FOREIGN COURT, W/O
REPLYING ON THE SAID REQUEST, GRANTED THE
PETITION OF ONGC.
-ONGC made demands for Pacific Cement to
comply with said order but Pacific Cement
refused. SO
In Surigao
-ONGC filed a COMPLAINT FOR ENFORCEMENT OF
FOREIGN AWARD OF FOREIGN COURT
- Pacific Cement filed MTD:
a ONGC had NO CAPACITY TO SUE
a Lack of COA
a Claim or demand has been waived,
abandoned, or otherwise extinguished
-OPPOSITION TO MTD, rejoinder
*RTC: DISMISS COMPLAINT
a ONGC has COA: the rule prohibiting
foreign corporations transacting business
in the Philippines without a license from
maintaining a suit in Philippine courts
admits of an exception, that is, when the
foreign corporation is suing on an isolated
transaction as in this case
a BUT ONGC lacks a valid COA: the
dispute (nondelivery of the purchased
materials) is not covered by the Arbitration
Clause and should have been properly
litigated before a court of law, pursuant to
Clause No. 15 of the Contract/Supply Order.
THUS, THE PROCEEDINGS BEFORE THE
ARBITRATOR WERE NULL AND VOID AND
THE FOREIGN COURT HAD, THEREFORE,
ADOPTED NO LEGAL AWARD W/C COULD
BE THE SOURCE OF AN ENFORCEABLE
RIGHT.
*appeal to CA: affirm RTC. DISMISS COMPLAINT.
a Arbitrator did not have jurisdiction over the
dispute between the parties, so foreign
court cannot validly adopt arbitrator's
award
a Full text of the foreign judgment ONLY
CONTAINS THE DISPOSITIE PORTION, NO
FINDINGS OF FACT AND LAW so CANNOT
BE ENFORCED BY ANY PHILIPPINE COURT.
a Foreign court violated due process when if
dismissed objections of Pacific Cement w/o
first replying as to the amount of filing fees
required to give Pacific Cement the
opportunity to pay the same
a Arbitration proceeding defective because
only ONGC appointed the arbitrator, and
 the arbitrator is a former employee of
ONGC (presumed bias). MR DENIED
ISSUES AND RULING
WON the arbitrator had jurisdiction over
the dispute between ONGC and Pacific
Cement under Clause 16? YES
a WON the non-delivery of the Oil Well
Cement is a proper subject for arbitration
under Clause 16)? NO
Relevant part of Clause 16:
". . . or as to any other question, claim, right or
thing whatsoever, in any way arising out of or
relating to the supply order/contract design,
drawing, specification, instruction or these
conditions . . .".
COURT: to fall within the purview of this phrase,
the "claim, right or thing whatsoever" must arise
out of or relate to the design, drawing,
specification, or instruction of the supply
order/contract.
". . . or otherwise concerning the materials or the
execution or failure to execute the same during
the stipulated/extended period or after
completion/abandonment thereof . . ."
COURT: The doctrine of noscitur a sociis,
although a rule in the construction of statutes, is
equally applicable in the ascertainment of the
meaning and scope of vague contractual
stipulations, such as the aforementioned phrase.
According to the maxim noscitur a sociis, where
a particular word or phrase is ambiguous in itself
or is equally susceptible of various meanings, its
correct construction may be made clear and
specific by considering the company of the words
in which it is found or with which it is associated,
or stated differently, its obscurity or doubt may
be reviewed by reference to associated words.
*Under the Arbitration Clause: 3 matters
may be submitted for arbitration:
(1) all questions and disputes, relating to
the meaning of the specification designs,
drawings and instructions herein before
mentioned and as to quality or workmanship of
the items ordered; or
(2) any other question, claim, right or thing
whatsoever, in any way arising out of or relating
to the supply order/contract design, drawing,
specification, instruction or these conditions; or
(3) otherwise concerning the materials or
the execution or failure to execute the
same during stipulated/extended period or after
the completion/abandonment thereof.
*COURT: The non-delivery of the oil well cement
is definitely not in the nature of a dispute arising
from the failure to execute the supply
order/contract design, drawing, instructions,
specifications or quality of the materials. That
Clause 16 should pertain only to matters
involving the technical aspects of the contract is
but a logical inference considering that the
underlying purpose of a referral to arbitration is
for such technical matters to be deliberated upon
by a person possessed with the required skill and
expertise which may be otherwise absent in the
regular courts.
-agrees w/ CA that the matter is properly
cognizable by regular courts under Clause 15.
All questions, disputes and differences, arising
under out of or in connection with this supply
order, shall be subject to the exclusive
jurisdiction of the court, within the local limits of
whose jurisdiction and the place from which this
supply order is situated.
*review on StatCon
-If the Clause 16 would be interpreted to
contemplate even the non-delivery of the oil well
cement, Clause 15 would be a mere superfluity!
The correct interpretation to give effect to both
stipulations in the contract is for Clause 16 to be
confined to all claims or disputes arising from or
relating to the design, drawing, instructions,
specifications or quality of the materials of the
supply order/contract, and for Clause 15 to cover
all other claims or disputes.
a WON the failure of the replacement cement
to conform to the specifications of the
contact falls w/n the ambit of the
Arbitration Clause? YES
-This may fall under the first classification (see
above)
ON ARGUMENT OF PACIFIC CEMENT THAT IT HAD
NO OBLIGATION TO MAKE REPLACEMENT, AND
THAT IT UNDERTOOK THE LATTER ONLY IN THE
SPIRIT OF LIBERALITY AND TO FOSTER GOOD
BUSINESS RELATIONSHIP: NONSENSE!
a WON Pacific Cement was able to recover
the cargo is immaterial to its subsisting
duty to make good its promise to deliver
the cargo at the stipulated place of
delivery.
a What inspires credulity is not that the
replacement was done in the spirit of
liberality but that it was undertaken
precisely because of the private
respondent's recognition of its duty to do
so under the supply order/contract, Clause
16 of which remains in force and effect
until the full execution thereof.
WON the judgment of the foreign court is
enforceable in this jurisdiction even if it
does not state the facts and the law upon
which the award was based? YES
-The Order of the Civil Judge of Dehra Dun
adopted the findings of facts and law of the
arbitrator as contained in the Award Paper. The
Award Paper contains an exhaustive discussion of
the representative claims and defenses of the
parties, and the arbitrator's evaluation of the
same
-the consti mandate DOES NOT PRECLUDE THE
VALIDITY OF "MEMORANDUM DECISIONS"
(Francisco v. Permskul, Romero vs. CA).
Even in RP, incorporation by reference is allowed
IF ONLY TO AVOID THE CUMBERSOME
REPRODUCTION OF THE DECISION OF THE
LOWER COURTS, OR PORTIONS THEROF, IN THE
DECISION OF THE HIGHER COURT. This is
particularly true when the decision sought to be
incorporated is a lengthy and thorough
discussion of the facts and conclusions arrived
at. (Award Paper in this case is 18 pages long,
single spaced)
NORTHWEST ORIENT AIRLINES V. CA: A
foreign judgment is presumed to be valid and
binding in the country from which it comes, until
 the contrary is shown. It is also proper to
presume the regularity of the proceedings and
the giving of due notice therein.
Under Section 50, Rule 39 of the Rules of Court, a
judgment in an action in personam of a tribunal CORO
HON. FRANCO T. FALCON, IN HIS CAPACITY
of a foreign country having jurisdiction to AS THE PRESIDING JUDGE OF BRANCH 71 Chair
pronounce the same is presumptive evidence of OF THE REGIONAL TRIAL COURT IN PASIG
a right as between the parties and their VELA
CITY and BCA INTERNATIONAL
successors-in-interest by a subsequent title. The
CORPORATION,
judgment may, however, be assailed by evidence LEON
of want of jurisdiction, want of notice to the
party, collusion, fraud, or clear mistake of law or Respondents. DEL C
fact. Also, under Section 3 of Rule 131, a court,
whether of the Philippines or elsewhere, enjoys PERE
the presumption that it was acting in the lawful
exercise of jurisdiction and has regularly
performed its official duty. 39
-Consequently, the party attacking a foreign
judgment, the private respondent herein, had the Prom
burden of overcoming the presumption of its
validity which it failed to do in the instant case.
-The foreign judgment being valid, there is
nothing else left to be done than to order its
enforcement, despite the fact that the petitioner
merely prays for the remand of the case to the Septe
RTC for further proceedings. As this Court has
ruled on the validity and enforceability of the x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
said foreign judgment in this jurisdiction, further - - - - - - - - - - -x
proceedings in the RTC for the reception of
evidence to prove otherwise are no longer
necessary.
WON Pacific Cement's right to due process
was violated? DECISION
NO. There is no violation of due process even if
no hearing was conducted, where the party was
given a chance to explain his side of the
controversy and he waived his right to do so.
ON FAILURE OF THE FOREIGN COURT TO LEONARDO-DE CASTRO, J.:
REPLY
-Pacific Cement should not have waited almost 1
year for the foreign court's reply, as the court is
not required to do so. A genuine concern for its
cause should have prompted the private
respondent to ascertain with all due diligence the Before the Court is a Petition for Certiorari and
correct amount of legal fees to be paid. The
private respondent did not act with prudence and prohibition under Rule 65 of the Rules of Court with a
diligence thus its plea that they were not
prayer for the issuance of a temporary restraining
accorded the right to procedural due process
cannot elicit either approval or sympathy from order and/or a writ of preliminary injunction filed by
this Court.
ON PRESUMED BIAS OF THE ARBITRATOR petitioners Department of Foreign Affairs (DFA) and
-the Arbitration clause specifically provides that if
the arbitrator is an employee of the ONGC, it is Bangko Sentral ng Pilipinas (BSP). Petitioners pray that
not a ground for objection. the Court declare as null and void the Order [1] dated
DISPOSITION: GRANT PETITION, ENFORCE February 14, 2007 of respondent Judge Franco T. Falcon
FOREIGN JUDGMENT.
DEPARTMENT OF FOREIGN AFFAIRS and (Judge Falcon) in Civil Case No. 71079, which granted
BANGKO SENTRAL NG PILIPINAS, G.R. No.
the application for preliminary injunction filed by
Petitioners, respondent BCA International Corporation

(BCA). Likewise, petitioners seek to prevent respondent

Judge Falcon from implementing the corresponding Writ

- versus - of Preliminary Injunction dated February 23,

Present:
2007[2] issued pursuant to the aforesaid Order.

The facts of this case, as culled from the records, are
as follows:
Being a member state of the International Civil Aviation
Organization (ICAO),[3] the Philippines has to comply
with the commitments and standards set forth in ICAO
Document No. 9303[4] which requires the ICAO member
states to issue machine readable travel documents
(MRTDs)[5] by April 2010.
Thus, in line with the DFAs mandate to improve the
passport and visa issuance system, as well as the
storage and retrieval of its related application records,
and pursuant to our governments ICAO commitments,
the DFA secured the approval of the President of the
Philippines, as Chairman of the Board of the National
Economic and Development Authority (NEDA), for the
implementation of the Machine Readable Passport and
Visa Project (the MRP/V Project) under the Build-
Operate-and-Transfer (BOT) scheme, provided for by
Republic Act No. 6957, as amended by Republic Act No.
7718 (the BOT Law), and its Implementing Rules and
Regulations (IRR). Thus, a Pre-qualification, Bids and
Awards Committee (PBAC) published an invitation to
pre-qualify and bid for the supply of the needed
machine readable passports and visas, and conducted
the public bidding for the MRP/V Project on January 10,
2000. Several bidders responded and BCA was among
those that pre-qualified and submitted its technical and
financial proposals.On June 29, 2000, the PBAC found
BCAs bid to be the sole complying bid; hence, it
permitted the DFA to engage in direct negotiations with
BCA. On even date, the PBAC recommended to the DFA
Secretary the award of the MRP/V Project to BCA on a
BOT arrangement.
In compliance with the Notice of Award dated
September 29, 2000 and Section 11.3, Rule 11 of the
IRR of the BOT Law, [6] BCA incorporated a project
company, the Philippine Passport Corporation (PPC) to
undertake and implement the MRP/V Project.
On February 8, 2001, a Build-Operate-Transfer
Agreement[7] (BOT Agreement) between the DFA and
PPC was signed by DFA Acting Secretary Lauro L. Baja,
Jr. and PPC President Bonifacio Sumbilla. Under the BOT
Agreement, the MRP/V Project was defined as follows:
Section 1.02 MRP/V
Project refers to all the activities and
services undertaken in the fulfillment of
the Machine Readable Passport and
Visa Project as defined in the Request
for Proposals (RFP), a copy of which is
hereto attached as Annex A, including
but not limited to project financing,
systems development, installation and
maintenance in the Philippines and
Foreign Service Posts (FSPs), training of
DFA personnel, provision of all project
consumables (related to the production
of passports and visas, such as printer
supplies, etc.), scanning of application
and citizenship documents, creation of
data bases, issuance of machine
readable passports and visas, and site
preparation in the Central Facility and
Regional Consular Offices (RCOs)
nationwide.[8]
On April 5, 2002, former DFA Secretary Teofisto
T. Guingona and Bonifacio Sumbilla, this time as BCA
President, signed an Amended BOT Agreement [9] in
order to reflect the change in the designation of the
parties and to harmonize Section 11.3 with Section
11.8[10] of the IRR of the BOT Law. The Amended BOT
Agreement was entered into by the DFA and BCA with
the conformity of PPC.
 The two BOT Agreements (the original version
signed on February 8, 2001 and the amended version
signed April 5, 2002) contain substantially the same
provisions except for seven additional paragraphs in
the whereas clauses and two new provisions Section
9.05 on Performance and Warranty Securities and
Section 20.15 on Miscellaneous Provisions. The two
additional provisions are quoted below:
Section 9.05. The PPC has
posted in favor of the DFA the
performance security required for
Phase 1 of the MRP/V Project and shall
be deemed, for all intents and
purposes, to be full compliance by BCA
with the provisions of this Article 9.
xxxx
Section 20.15 It is clearly and
expressly understood that BCA may
assign, cede and transfer all of its
rights and obligations under this
Amended BOT Agreement to PPC, as
fully as if PPC is the original signatory
to this Amended BOT Agreement,
provided however that BCA shall
nonetheless be jointly and severally
liable with PPC for the performance of
all the obligations and liabilities under
this Amended BOT Agreement.[11]
Also modified in the Amended BOT Agreement
was the Project Completion date of the MRP/V Project
which set the completion of the implementation phase
of the project within 18 to 23 months from the date of
effectivity of the Amended BOT Agreement as opposed
to the previous period found in the original BOT
Agreement which set the completion within 18 to 23
months from receipt of the NTP (Notice to Proceed) in
accordance with the Project Master Plan.
On April 12, 2002, an Assignment
Agreement[12] was executed by BCA and PPC, whereby
BCA assigned and ceded its rights, title, interest and
benefits arising from the Amended BOT Agreement to
PPC.
As set out in Article 8 of the original and the
Amended BOT Agreement, the MRP/V Project was
divided into six phases:
Phase 1. Project Planning
Phase The Project Proponent [BCA]
shall prepare detailed plans and
specifications in accordance with
Annex A of this [Amended] BOT
Agreement within three (3) months
from issuance of the NTP (Notice to
Proceed) [from the date of effectivity of
this Amended BOT Agreement]. This
phase shall be considered complete
upon the review, acceptance and
approval by the DFA of these plans and
the resulting Master Plan, including the
Master Schedule, the business process
specifications, the acceptance criteria,
among other plans.
xxxx
The DFA must approve all detailed
plans as a condition precedent to the
issuance of the CA [Certificate of
Acceptance] for Phase 1.
Phase 2. Implementation of
the MRP/V Project at the Central
Facility Within six (6) months from
issuance of the CA for Phase 1, the
PROJECT PROPONENT [BCA] shall
complete the implementation of the
MRP/V Project in the DFA Central
Facility, and establish the network
design between the DFA Central
Facility, the ten (10) RCOs [Regional
Consular Offices] and the eighty (80)
FSPs [Foreign Service Posts].
xxxx
 application system software and its
source code and/or licenses (subject to
Phase 3. Implementation of Section 5.02 [H]), peripherals,
the MRP/V Project at the Regional leasehold improvements, physical and
Consular Offices This phase computer security improvements,
represents the replication of the Automated Fingerprint Identification
systems as approved from the Central Systems, and all other MRP/V facilities
Facility to the RCOs throughout the shall commence at least six (6) months
country, as identified in the RFP prior to the end of the [Amended] BOT
[Request for Proposal]. The approved Agreement. The transition will include
systems are those implemented, the training of DFA personnel who will
evaluated, and finally approved by DFA be taking over the responsibilities of
as described in Phase 1.The Project system operation and maintenance
Proponent [BCA] will be permitted to from the Project Proponent [BCA]. The
begin site preparation and the Project Proponent [BCA] shall bear all
scanning and database building costs related to this transfer. [13] (Words
operations in all offices as soon as the in brackets appear in the Amended
plans are agreed upon and BOT Agreement)
accepted. This includes site
preparation and database building
operations in these Phase-3 offices.

Within six (6) months from issuance of To place matters in the proper perspective, it
CA for Phase 2, the Project Proponent should be pointed out that both the DFA and BCA
[BCA] shall complete site preparation
and implementation of the approved impute breach of the Amended BOT Agreement against
systems in the ten (10) RCOs, including
each other.
a fully functional network connection
between all equipment at the Central
Facility and the RCOs.

According to the DFA, delays in the completion

Phase 4. Full of the phases permeated the MRP/V Project due to the
Implementation, including all
Foreign Service Posts Within three submission of deficient documents as well as
(3) to eight (8) months from issuance
intervening issues regarding BCA/PPCs supposed
of the CA for Phase-3, the Project
Proponent [BCA] shall complete all financial incapacity to fully implement the project.
preparations and fully implement the
approved systems in the eighty (80)
FSPs, including a fully functional
network connection between all
equipment at the Central Facility and On the other hand, BCA contends that the DFA
the FSPs. Upon satisfactory completion failed to perform its reciprocal obligation to issue to
of Phase 4, a CA shall be issued by the
DFA. BCA a Certificate of Acceptance of Phase 1 within 14

working days of operation purportedly required by

Phase 5. In Service Section 14.04 of the Amended BOT Agreement. BCA

Phase Operation and maintenance of bewailed that it took almost three years for the DFA to
the complete MRP/V Facility to provide
machine readable passports and visas issue the said Certificate allegedly because every
in all designated locations around the
appointee to the position of DFA Secretary wanted to
world.
review the award of the project to BCA. BCA further

alleged that it was the DFAs refusal to approve the

Phase
6. Transition/Turnover Transition/Tur location of the DFA Central Facility which prevented
nover to the DFA of all operations and
BCA from proceeding with Phase 2 of the MRP/V
equipment, to include an orderly
transfer of ownership of all hardware, Project.
 which to comply with the other financial requirements

which the DFA insisted on.[18]

Later, the DFA sought the opinion of the

Department of Finance (DOF) and the Department of

Justice (DOJ) regarding the appropriate legal actions in

According to the DFA, BCAs financial warranty
connection with BCAs alleged delays in the completion
is a continuing warranty which requires that it shall
of the MRP/V Project. In a Letter dated February 21,
have the necessary capitalization to finance the MRP/V
2005,[14] the DOJ opined that the DFA should issue a
Project in its entirety and not on a per phase basis as
final demand upon BCA to make good on its
BCA contends. Only upon sufficient proof of its financial
obligations, specifically on the warranties and
capability to complete and implement the whole
responsibilities regarding the necessary capitalization
project will the DFAs obligation to choose and approve
and the required financing to carry out the MRP/V
the location of its Central Facility arise. The DFA
Project.The DOJ used as basis for said
asserted that its approval of a Central Facility site was
recommendation, the Letter dated April 19, 2004[15] of
not ministerial and upon its review, BCAs proposed site
DOF Secretary Juanita Amatong to then DFA Secretary
for the Central Facility was purportedly unacceptable in
Delia Albert stating, among others, that BCA may not
terms of security and facilities. Moreover, the DFA
be able to infuse more capital into PPC to use for the
allegedly received conflicting official letters and
completion of the MRP/V Project.
notices[19] from BCA and PPC regarding the true

ownership and control of PPC. The DFA implied that the

disputes among the shareholders of PPC and between

Thus, on February 22, 2005, DFA sent a
PPC and BCA appeared to be part of the reason for the
letter[16] to BCA, through its project company PPC,
hampered implementation of the MRP/V Project.
invoking BCAs financial warranty under Section 5.02(A)

of the Amended BOT Agreement.[17] The DFA required

BCA to submit (a) proof of adequate capitalization

BCA, in turn, submitted various letters and documents
(i.e., full or substantial payment of stock subscriptions);
to prove its financial capability to complete the MRP/V
(b) a bank guarantee indicating the availability of a
Project.[20] However, the DFA claimed these documents
credit facility of P700 million; and (c) audited financial
were unsatisfactory or of dubious authenticity. Then on
statements for the years 2001 to 2004.
August 1, 2005, BCA terminated its Assignment

Agreement with PPC and notified the DFA that it would

directly implement the MRP/V Project. [21] BCA further

In reply to DFAs letter, BCA, through PPC, informed the
claims that the termination of the Assignment
former of its position that its financial capacity was
Agreement was upon the instance, or with the
already passed upon during the prequalification
conformity, of the DFA, a claim which the DFA disputed.
process and that the Amended BOT Agreement did not

call for any additional financial requirements for the

implementation of the MRP/V Project. Nonetheless, BCA

On December 9, 2005, the DFA sent a Notice of
submitted its financial statements for the years 2001
Termination[22] to BCA and PPC due to their alleged
and 2002 and requested for additional time within
failure to submit proof of financial capability to

complete the entire MRP/V Project in accordance with

the financial warranty under Section 5.02(A) of the BCAs request for mutual discussion under Section

Amended BOT Agreement. The Notice states: 19.01 of the Amended BOT Agreement[26] was

purportedly ignored by the DFA and left the dispute

unresolved through amicable means within 90 days.

After a careful evaluation and
consideration of the matter, including
the reasons cited in your letters dated
March 3, May 3, and June 20, 2005, and
upon the recommendation of the Office
of the Solicitor General (OSG), the
Department is of the view that your
continuing default in complying with
the requisite bank guarantee and/or
credit facility, despite repeated notice
and demand, is legally unjustified.
In light of the foregoing
considerations and upon the instruction
of the Secretary of Foreign Affairs, the
Department hereby formally
TERMINATE (sic) the Subject Amended
BOT Agreement dated 5 April 2005
(sic)[23] effective 09 December
2005. Further, and as a consequence of
this termination, the Department
formally DEMAND (sic) that you pay
within ten (10) days from receipt
hereof, liquidated damages equivalent
to the corresponding performance
security bond that you had posted for
the MRP/V Project.
Please be guided accordingly.
Consequently, BCA filed its Request for Arbitration
dated April 7, 2006[27] with the Philippine Dispute
Resolution Center, Inc. (PDRCI), pursuant to Section
19.02 of the Amended BOT Agreement which provides:
Section 19.02 Failure to
Settle Amicably If the Dispute cannot
be settled amicably within ninety (90)
days by mutual discussion as
contemplated under Section 19.01
herein, the Dispute shall be settled
with finality by an arbitrage tribunal
operating under International Law,
hereinafter referred to as the Tribunal,
under the UNCITRAL Arbitration Rules
contained in Resolution 31/98 adopted
by the United Nations General
Assembly on December 15, 1976, and
entitled Arbitration Rules on the United
Nations Commission on the
International Trade Law.The DFA and
the BCA undertake to abide by and
implement the arbitration award. The
place of arbitration shall be Pasay City,
Philippines, or such other place as may
mutually be agreed upon by both
parties. The arbitration proceeding
shall be conducted in the English
language.[28]

On December 14, 2005, BCA sent a letter [24] to the DFA

demanding that it immediately reconsider and revoke As alleged in BCAs Request for Arbitration, PDRCI is a
its previous notice of termination, otherwise, BCA non-stock, non-profit organization composed of
would be compelled to declare the DFA in default independent arbitrators who operate under its own
pursuant to the Amended BOT Agreement. When the Administrative Guidelines and Rules of Arbitration as
DFA failed to respond to said letter, BCA issued its own well as under the United Nations Commission on the
Notice of Default dated December 22, 2005 [25]
against International Trade Law (UNCITRAL) Model Law on
the DFA, stating that if the default is not remedied International Commercial Arbitration and other
within 90 days, BCA will be constrained to terminate applicable laws and rules. According to BCA, PDRCI can
the MRP/V Project and hold the DFA liable for damages. act as an arbitration center from whose pool of

accredited arbitrators both the DFA and BCA may

select their own nominee to become a member of the

arbitral tribunal which will render the arbitration award.

 and objections available to it under the

law. Subsequently, however, in a letter dated May 29,

BCAs Request for Arbitration filed with the PDRCI
2006,[32] the DFA declined the request for arbitration
sought the following reliefs:
before the PDRCI. While it expressed its willingness to

resort to arbitration, the DFA pointed out that under

1. A judgment nullifying and Section 19.02 of the Amended BOT Agreement, there is
setting aside the Notice of Termination
dated December 9, 2005 of no mention of a specific body or institution that was
Respondent [DFA], including its previously authorized by the parties to settle their
demand to Claimant [BCA] to pay
liquidated damages equivalent to the dispute. The DFA further claimed that the arbitration of
corresponding performance security
the dispute should be had before an ad hocarbitration
bond posted by Claimant [BCA];
body, and not before the PDRCI which has as its

accredited arbitrators, two of BCAs counsels of

2. A judgment (a) confirming
the Notice of Default dated December record. Likewise, the DFA insisted that PPC, allegedly
22, 2005 issued by Claimant [BCA] to
an indispensable party in the instant case, should also
Respondent [DFA]; and (b) ordering
Respondent [DFA] to perform its participate in the arbitration.
obligation under the Amended BOT
Agreement dated April 5, 2002 by
approving the site of the Central
Facility at the Star Mall Complex on
Shaw Boulevard, Mandaluyong City, The DFA then sought the opinion of the DOJ on the
within five days from receipt of the
Notice of Termination dated December 9, 2005 that it
Arbitral Award; and
sent to BCA with regard to the MRP/V Project.

3. A judgment ordering
respondent [DFA] to pay damages to
Claimant [BCA], reasonably estimated In DOJ Opinion No. 35 (2006) dated May 31, 2006,
at P50,000,000.00 as of this date,
representing lost business
[33]
the DOJ concurred with the steps taken by the DFA,
opportunities; financing fees, costs and
stating that there was basis in law and in fact for the
commissions; travel expenses; legal
fees and expenses; and costs of termination of the MRP/V Project. Moreover, the DOJ
arbitration, including the fees of the
arbitrator/s.[29] recommended the immediate implementation of the

project (presumably by a different contractor) at the

soonest possible time.

PDRCI, through a letter dated April 26, 2006,

[30]
invited the DFA to submit its Answer to the Request
for Arbitration within 30 days from receipt of said letter
and also requested both the DFA and BCA to nominate
their chosen arbitrator within the same period of time.
Thereafter, the DFA and the BSP entered into a
Memorandum of Agreement for the latter to provide
the former passports compliant with international
standards. The BSP then solicited bids for the supply,

delivery, installation and commissioning of a system

for the production of Electronic Passport Booklets or e-

Initially, the DFA, through a letter dated May 22, 2006, Passports.[34]
[31]
requested for an extension of time to file its answer,

without prejudice to jurisdictional and other defenses

 merits of BCAs Request for Arbitration;
For BCA, the BSPs invitation to bid for the supply and and
purchase of e-Passports (the e-Passport Project) would

only further delay the arbitration it requested from the

(c) render judgment affirming
DFA.Moreover, this new e-Passport Project by the BSP the interim relief granted to BCA until
the dispute between the parties shall
and the DFA would render BCAs remedies moot have been resolved with finality.
inasmuch as the e-Passport Project would then be

replacing the MRP/V Project which BCA was carrying

BCA also prays for such other relief,
out for the DFA. just and equitable under the premises.
[37]

Thus, BCA filed a Petition for Interim Relief [35] under

Section 28 of the Alternative Dispute Resolution Act of

BCA alleged, in support for its application for a
2004 (R.A. No. 9285),[36] with the Regional Trial Court
Temporary Restraining Order (TRO), that unless the
(RTC) of Pasig City, Branch 71, presided over by
DFA and the BSP were immediately restrained, they
respondent Judge Falcon. In that RTC petition, BCA
would proceed to undertake the project together with a
prayed for the following:
third party to defeat the reliefs BCA sought in its

Request for Arbitration, thus causing BCA to suffer

WHEREFORE, BCA respectfully prays grave and irreparable injury from the loss of substantial
that this Honorable Court, before the investments in connection with the implementation of
constitution of the arbitral tribunal in
PDRCI Case No. 30-2006/BGF, grant the MRP/V Project.
petitioner interim relief in the following
manner:

Thereafter, the DFA filed an Opposition (to the

(a) upon filing of this Petition,
immediately issue an order temporarily Application for Temporary Restraining Order and/or Writ
restraining Respondents [DFA and BSP], of Preliminary Injunction) dated January 18, 2007,
their agents, representatives,
awardees, suppliers and assigns (i) [38]
alleging that BCA has no cause of action against it
from awarding a new contract to
as the contract between them is for machine readable
implement the Project, or any similar
electronic passport or visa project; or passports and visas which is not the same as the
(ii) if such contract has been awarded,
from implementing such Project or contract it has with the BSP for the supply of electronic
similar projects until further orders
passports. The DFA also pointed out that the Filipino
from this Honorable Court;
people and the governments international standing

would suffer great damage if a TRO would be issued to

(b) after notice and hearing, issue a
writ of preliminary injunction ordering stop the e-Passport Project. The DFA mainly anchored
Respondents [DFA and BSP], their
its opposition on Republic Act No. 8975, which prohibits
agents, representatives, awardees,
suppliers and assigns to desist (i) from trial courts from issuing a TRO, preliminary injunction
awarding a new contract to implement
the Project or any similar electronic or mandatory injunction against the bidding or
passport or visa project; or (ii) if such awarding of a contract or project of the national
contract has been awarded, from
implementing such Project or similar government.
projects, and to maintain the status
quo ante pending the resolution on the
On January 23, 2007, after summarily hearing the
parties oral arguments on BCAs application for the
issuance of a TRO, the trial court ordered the issuance
of a TRO restraining the DFA and the BSP, their agents,
representatives, awardees, suppliers and assigns from
awarding a new contract to implement the Project or
any similar electronic passport or visa project, or if
such contract has been awarded, from implementing
such or similar projects.[39] The trial court also set for
hearing BCAs application for preliminary injunction.
Consequently, the DFA filed a Motion for
Reconsideration[40] of the January 23, 2007 Order. The
BSP, in turn, also sought to lift the TRO and to dismiss
the petition. In its Urgent Omnibus Motion dated
February 1, 2007,[41] the BSP asserted that BCA is not
entitled to an injunction, as it does not have a clear
right which ought to be protected, and that the trial
court has no jurisdiction to enjoin the implementation
of the e-Passport Project which, the BSP alleged, is a
national government project under Republic Act No.
8975.
In the hearings set for BCAs application for preliminary
injunction, BCA presented as witnesses, Mr. Bonifacio
Sumbilla, its President, Mr. Celestino Mercader, Jr. from
the Independent Verification and Validation Contractor
commissioned by the DFA under the Amended BOT
Agreement, and DFA Assistant Secretary Domingo
Lucenario, Jr. as adverse party witness.
The DFA and the BSP did not present any witness
during the hearings for BCAs application for preliminary
injunction. According to the DFA and the BSP, the trial
court did not have any jurisdiction over the case
considering that BCA did not pay the correct docket
fees and that only the Supreme Court could issue a
TRO on the bidding for a national government project
like the e-Passport Project pursuant to the provisions of
Republic Act No. 8975. Under Section 3 of Republic Act
No. 8975, the RTC could only issue a TRO against a
national government project if it involves a matter
of extreme urgency involving a constitutional issue,
such that unless a TRO is issued, grave injustice and
irreparable injury will arise.
Thereafter, BCA filed an Omnibus Comment [on
Opposition and Supplemental Opposition (To the
Application for Temporary Restraining Order and/or Writ
of Preliminary Injunction)] and Opposition [to Motion for
Reconsideration (To the Temporary Restraining Order
dated January 23, 2007)] and Urgent Omnibus Motion
[(i) To Lift Temporary Restraining Order; and (ii) To
Dismiss the Petition] dated January 31, 2007. [42] The
DFA and the BSP filed their separate Replies (to BCAs
Omnibus Comment) dated February 9, 2007 [43] and
February 13, 2007,[44] respectively.
On February 14, 2007, the trial court issued an Order
granting BCAs application for preliminary injunction, to
wit:
WHEREFORE, in view of the
above, the court resolves that it has
jurisdiction over the instant petition
and to issue the provisional remedy
prayed for, and therefore, hereby
GRANTS petitioners [BCAs] application
for preliminary injunction. Accordingly,
upon posting a bond in the amount of
Ten Million Pesos (P10,000,000.00), let
a writ of preliminary injunction issue
ordering respondents [DFA and BSP],
their agents, representatives,
awardees, suppliers and assigns to
desist (i) from awarding a new contract
to implement the project or any similar
electronic passport or visa project or
(ii) if such contract has been awarded
from implementing such project or
similar projects.
 urgent motion for issuance of a TRO and/or writ of
The motion to dismiss is denied
preliminary injunction,[49] thus:
for lack of merit. The motions for
reconsideration and to lift temporary
restraining Order are now moot and
academic by reason of the expiration of
After deliberating on the
the TRO.[45]
petition for certiorari and prohibition
with temporary restraining order and/or
writ of preliminary injunction assailing
the Order dated 14 February 2007 of
the Regional Trial Court, Branch 71,
On February 16, 2007, BCA filed an Amended Petition, Pasig City, in Civil Case No. 71079, the
Court, without necessarily giving due
[46]
wherein paragraphs 3.3(b) and 4.3 were modified to course thereto, resolves to require
respondents to COMMENT thereon
add language to the effect that unless petitioners were
(not to file a motion to dismiss) within
enjoined from awarding the e-Passport Project, BCA ten (10) days from notice.

would be deprived of its constitutionally-protected right

to perform its contractual obligations under the original The Court further resolves
to GRANT the Office of the Solicitor
and amended BOT Agreements without due process of
Generals urgent motion for issuance of
law. Subsequently, on February 26, 2007, the DFA and a temporary restraining order and/or
writ of preliminary injunction dated 05
the BSP received the Writ of Preliminary Injunction March 2007 and ISSUE a TEMPORARY
dated February 23, 2007. RESTRAINING ORDER, as prayed for,
enjoining respondents from
implementing the assailed Order dated
14 February 2007 and the Writ of
Preliminary Injunction dated 23
Hence, on March 2, 2007, the DFA and the BSP filed the February 2007, issued by respondent
Judge Franco T. Falcon in Civil Case No.
instant Petition for Certiorari[47] and prohibition under
71079 entitled BCA International
Rule 65 of the Rules of Court with a prayer for the Corporation vs. Department of Foreign
Affairs and Bangko Sentral ng Pilipinas,
issuance of a temporary restraining order and/or a writ and from conducting further
of preliminary injunction, imputing grave abuse of proceedings in said case until further
orders from this Court.
discretion on the trial court when it granted interim

relief to BCA and issued the assailed Order dated

February 14, 2007 and the writ of preliminary

injunction dated February 23, 2007. BCA filed on April 2, 2007 its Comment with Urgent

Motion to Lift TRO,[50] to which the DFA and the BSP

filed their Reply dated August 14, 2007.[51]

The DFA and the BSP later filed an Urgent Motion for

Issuance of a Temporary Restraining Order and/or Writ

of Preliminary Injunction dated March 5, 2007.[48] In a Resolution dated June 4, 2007, [52] the Court denied

BCAs motion to lift TRO. BCA filed another Urgent

Omnibus Motion dated August 17, 2007, for the

On March 12, 2007, the Court required BCA to file its reconsideration of the Resolution dated June 4, 2007,
comment on the said petition within ten days from praying that the TRO issued on March 12, 2007 be
notice and granted the Office of the Solicitor Generals lifted and that the petition be denied.
 (II) RESPONDEN
In a Resolution dated September 10, 2007, [53] the Court T BCA HAS NOT
denied BCAs Urgent Omnibus Motion and gave due SHOWN THAT
IT WILL
course to the instant petition. The parties were SUSTAIN GRAVE
AND
directed to file their respective memoranda within 30
IRREPARABLE
days from notice of the Courts September 10, 2007 INJURY THAT
MUST BE
Resolution. PROTECTED BY
AN
INJUNCTION.ON
THE
CONTRARY, IT
Petitioners DFA and BSP submit the following issues for IS THE FILIPINO
PEOPLE, WHO
our consideration: PETITIONERS
PROTECT, THAT
WILL SUSTAIN
SERIOUS AND
SEVERE INJURY
ISSUES
BY THE
INJUNCTION.[54]

WHETHER OR NOT THE RESPONDENT

JUDGE GRAVELY ABUSED HIS At the outset, we dispose of the procedural
DISCRETION AMOUNTING TO LACK OR
objections of BCA to the petition, to wit: (a) petitioners
EXCESS OF JURISDICTION WHEN HE
ISSUED THE ASSAILED ORDER, WHICH did not follow the hierarchy of courts by filing their
EFFECTIVELY ENJOINED THE
IMPLEMENTATION OF THE E-PASSPORT petition directly with this Court, without filing a motion
PROJECT -- A NATIONAL GOVERNMENT for reconsideration with the RTC and without filing a
PROJECT UNDER REPUBLIC ACT NO.
8975. petition first with the Court of Appeals; (b) the person

who verified the petition for the DFA did not have

II personal knowledge of the facts of the case and whose

appointment to his position was highly irregular; and

(c) the verification by the Assistant Governor and

WHETHER OR NOT THE RESPONDENT
JUDGE ACTED WITH GRAVE ABUSE OF General Counsel of the BSP of only selected
DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN GRANTING paragraphs of the petition was with the purported
RESPONDENT BCAS INTERIM intent to mislead this Court.
RELIEF INASMUCH AS:

(I) RESPONDE
NT BCA HAS
NOT Although the direct filing of petitions
ESTABLISHED A for certiorari with the Supreme Court is discouraged
CLEAR RIGHT
THAT CAN BE when litigants may still resort to remedies with the
PROTECTED BY
lower courts, we have in the past overlooked the failure
AN
INJUNCTION; of a party to strictly adhere to the hierarchy of courts
AND
on highly meritorious grounds. Most recently, we

relaxed the rule on court hierarchy in the case

of Roque, Jr. v. Commission on Elections, [55] wherein we was appointed to his position as Acting Secretary under

held: purportedly irregular circumstances, we find that BCA

failed to sufficiently prove such allegations. In any

event, we have previously held that [d]epending on the

The policy on the hierarchy of nature of the allegations in the petition, the verification
courts, which petitioners indeed failed may be based either purely on personal knowledge, or
to observe, is not an iron-clad rule.
For indeed the Court has full entirely on authentic records, or on both sources.
discretionary power to take cognizance [57]
The alleged lack of personal knowledge of Mr.
and assume jurisdiction of special civil
actions Custodio (which, as we already stated, BCA failed to
for certiorari and mandamus filed
directly with it for exceptionally prove) would not necessarily render the verification
compelling reasons or if warranted
defective for he could have verified the petition purely
by the nature of the issues clearly
and specifically raised in the petition. on the basis of authentic records.
[56]
(Emphases ours.)

As for the assertion that the partial verification

The Court deems it proper to adopt a similarly liberal of Assistant Governor and General Counsel Juan de
attitude in the present case in consideration of the
Zuniga, Jr. was for the purpose of misleading this Court,
transcendental importance of an issue raised
BCA likewise failed to adduce evidence on this
herein. This is the first time that the Court is confronted
with the question of whether an information and point. Good faith is always presumed. Paragraph 3 of

communication technology project, which does not Mr. Zunigas verification indicates that his partial
conform to our traditional notion of the term verification is due to the fact that he is verifying only
infrastructure, is covered by the prohibition on the
the allegations in the petition peculiar to the BSP. We
issuance of court injunctions found in Republic Act No.
see no reason to doubt that this is the true reason for
8975, which is entitled An Act to Ensure the
Expeditious Implementation and Completion of his partial or selective verification.

Government Infrastructure Projects by Prohibiting

Lower Courts from Issuing Temporary Restraining
Orders, Preliminary Injunctions or Preliminary
Mandatory Injunctions, Providing Penalties for In sum, BCA failed to successfully rebut the
Violations Thereof, and for Other Purposes. Taking into presumption that the official acts (of Mr. Custodio and
account the current trend of computerization and
Mr. Zuniga) were done in good faith and in the regular
modernization of administrative and service systems of
performance of official duty.[58] Even assuming the
government offices, departments and agencies, the
resolution of this issue for the guidance of the bench verifications of the petition suffered from some defect,
and bar, as well as the general public, is both timely we have time and again ruled that [t]he ends of justice
and imperative. are better served when cases are determined on the

merits after all parties are given full opportunity to

ventilate their causes and defenses rather than on

technicality or some procedural imperfections.[59] In

Anent BCAs claim that Mr. Edsel T. Custodio
other words, the Court may suspend or even disregard
(who verified the Petition on behalf of the DFA) did not
rules when the demands of justice so require.[60]
have personal knowledge of the facts of the case and
 the governments direction, to restrain,
prohibit or compel the following acts:

(a) Acquisition, clearance

We now come to the substantive issues
and development of
involved in this case. the right-of-way and/or
site or location of any
national government
project;

On whether
the trial court (b) Bidding or awarding of
had contract/project of the
jurisdiction to national government as
issue a writ defined under Section 2
of hereof;
preliminary
injunction in
the present
case (c) Commencement,
prosecution, execution,
implementation,
operation of any such
contract or project;

In their petition, the DFA and the BSP argue

that respondent Judge Falcon gravely abused his (d) Termination or

rescission of any such
discretion amounting to lack or excess of jurisdiction contract/project; and
when he issued the assailed orders, which effectively

enjoined the bidding and/or implementation of the e- (e) The undertaking or

Passport Project. According to petitioners, this violated authorization of any
other lawful activity
the clear prohibition under Republic Act No. 8975 necessary for such
contract/project.
regarding the issuance of TROs and preliminary

injunctions against national government projects, such

as the e-Passport Project. This prohibition shall apply in all cases,

The prohibition invoked by petitioners is found
in Section 3 of Republic Act No. 8975, which reads:
Section 3. Prohibition on the
Issuance of Temporary Restraining
Orders, Preliminary Injunctions and
Preliminary Mandatory Injunctions. No
court, except the Supreme Court, shall
issue any temporary restraining order,
preliminary injunction or preliminary
mandatory injunction against the
government, or any of its subdivisions,
officials or any person or entity,
whether public or private, acting under
disputes or controversies instituted by
a private party, including but not
limited to cases filed by bidders or
those claiming to have rights through
such bidders involving such
contract/project. This prohibition shall
not apply when the matter is of
extreme urgency involving a
constitutional issue, such that unless a
temporary restraining order is issued,
grave injustice and irreparable injury
will arise. The applicant shall file a
bond, in an amount to be fixed by the
court, which bond shall accrue in favor
of the government if the court should
finally decide that the applicant was
not entitled to the relief sought.
If after due hearing the court finds that
the award of the contract is null and
void, the court may, if appropriate
under the circumstances, award the
 contract to the qualified and winning
bidder or order a rebidding of the
same, without prejudice to any liability
that the guilty party may incur under
existing laws.
As petitioners themselves pointed out, there

are three types of national government projects

enumerated in Section 2(a), to wit:

From the foregoing, it is indubitable that no

court, aside from the Supreme Court, may enjoin a

national government project unless the matter is one (a) current and future
national government
of extreme urgency involving a constitutional issue infrastructure projects,
such that unless the act complained of is enjoined, engineering works and
service contracts, including
grave injustice or irreparable injury would arise. projects undertaken by
government-owned and
controlled corporations;

What then are the national government

(b) all projects covered
projects over which the lower courts are without by R.A. No. 6975, as amended
jurisdiction to issue the injunctive relief as mandated by R.A. No. 7718, or the Build-
Operate-and-Transfer ( BOT)
by Republic Act No. 8975? Law; and

(c) other related and

Section 2(a) of Republic Act No. 8975 provides: necessary activities, such as
site acquisition, supply and/or
installation of equipment and
materials, implementation,
construction, completion,
Section 2. Definition of Terms. operation, maintenance,
improvement repair and
rehabilitation, regardless of the
source of funding.

(a) National government

projects shall refer to all current and
future national government
infrastructure, engineering works and
service contracts, including projects
undertaken by government-owned and
-controlled corporations, all projects Under Section 2(a) of the BOT Law as amended
covered by Republic Act No. 6975, as by Republic Act No. 7718,[61] private sector
amended by Republic Act No. 7718,
otherwise known as the Build-Operate- infrastructure or development projects are those
and-Transfer Law, and other related
normally financed and operated by the public
and necessary activities, such as site
acquisition, supply and/or installation sector but which will now be wholly or partly
of equipment and materials,
implementation, construction, implemented by the private sector, including but
completion, operation, maintenance, not limited to, power plants, highways, ports,
improvement, repair and rehabilitation,
regardless of the source of funding. airports, canals, dams, hydropower projects, water

supply, irrigation, telecommunications, railroads and

railways, transport systems, land reclamation projects, national government projects to cover not only the

industrial estates or townships, housing, government infrastructure projects enumerated in Presidential

buildings, tourism projects, markets, slaughterhouses, Decree No. 1818, but also future projects that may

warehouses, solid waste management, information likewise be considered national government

technology networks and database infrastructure projects, like the e-Passport Project, to

infrastructure, education and health facilities, wit:

sewerage, drainage, dredging, and other infrastructure

and development projects as may be authorized by the

appropriate agency. Senator Cayetano. x x x Mr.

President, the present bill, the Senate
Bill No. 2038, is actually an
improvement of P.D. No. 1818 and
definitely not a repudiation of what I
In contrast, Republic Act No. 9184, [62] also known as the have earlier said, as my good friend
clearly stated. But this is really an
Government Procurement Reform Act, defines
effort to improve both the scope and
infrastructure projects in Section 5(k) thereof in this definition of the term government
projects and to ensure that lower court
manner: judges obey and observe this
prohibition on the issuance of TROs on
infrastructure projects of the
government.
(k) Infrastructure Projects -
include the construction, improvement,
rehabilitation, demolition, repair,
restoration or maintenance of roads
and bridges, railways, airports, xxxx
seaports, communication
facilities, civil works components of
information technology projects,
irrigation, flood control and drainage, Senator Cayetano. That is why, Mr.
water supply, sanitation, sewerage and President, I did try to explain why I
solid waste management systems, would accept the proposed
shore protection, energy/power and amendment, meaning the totality of
electrification facilities, national the repeal of P.D. 1818 which is not
buildings, school buildings, hospital found in the original version of the bill,
buildings and other related because of my earlier explanation that
construction projects of the the definition of the term government
government. (Emphasis supplied.) infrastructure project covers all of
those enumerated in Section 1 of P.D.
No. 1818. And the reason for that, as
we know, is we do not know what else
could be considered government
infrastructure project in the next 10 or
In the present petition, the DFA and the BSP 20 years.

contend that the bidding for the supply, delivery,

installation and commissioning of a system for the

x x x So, using the Latin maxim of
production of Electronic Passport Booklets, is a national
expression unius est exclusion alterius,
government project within the definition of Section 2 of which means what is expressly
mentioned is tantamount to an express
Republic Act No. 8975. Petitioners also point to the exclusion of the others, that is the
Senate deliberations on Senate Bill No. 2038[63] (later reason we did not include particularly
an enumeration of certain activities of
Republic Act No. 8975) which allegedly show the the government found in Section 1 of
P.D. No. 1818. Because to do that, it
legislatives intent to expand the scope and definition of
may be a good excuse for a brilliant
 lawyer to say Well, you know, since it information technology networks
does not cover this particular activity, and database infrastructure.
ergo, the Regional Trial Court may issue
TRO.

In relation to information
technology projects, infrastructure
projects refer to the civil works
components thereof. (R.A. No.
9184 [2003], Sec. 5[c]{sic}).[64]
Using the foregoing discussions to establish that the

intent of the framers of the law was to broaden the

scope and definition of national government projects Respondent BSPs request for bid, for
and national infrastructure projects, the DFA and the the supply, delivery, installation and
commissioning of a system for the
BSP submit that the said scope and definition had since production of Electronic Passport
Booklets appears to be beyond the
evolved to include the e-Passport Project. They assert
scope of the term civil works.
that the concept of infrastructure must now refer to Respondents did not present evidence
to prove otherwise.[65] (Emphases ours.)
any and all elements that provide support, framework,

or structure for a given system or organization,

including information technology, such as the e-

Passport Project.

From the foregoing, it can be gleaned that the trial

court accepted BCAs reasoning that, assuming the e-

Passport Project is a project under the BOT Law,

Interestingly, petitioners represented to the trial court
Section 2 of the BOT Law must be read in conjunction
that the e-Passport Project is a BOT project but in their
with Section 5(c) of Republic Act No. 9184 or the
petition with this Court, petitioners simply claim that
Government Procurement Reform Act to the effect that
the e-Passport Project is a national government project
only the civil works component of information
under Section 2 of Republic Act No. 8975. This
technology projects are to be considered
circumstance is significant, since relying on the claim
infrastructure. Thus, only said civil works component of
that the e-Passport Project is a BOT project, the trial
an information technology project cannot be the
court ruled in this wise:
subject of a TRO or writ of injunction issued by a lower

court.

The prohibition against issuance of TRO

and/or writ of preliminary injunction
under RA 8975 applies only to
national government Although the Court finds that the trial court had
infrastructure project covered by
the BOT Law, (RA 8975, Sec 3[b] in jurisdiction to issue the writ of preliminary injunction,
relation to Sec. 2).
we cannot uphold the theory of BCA and the trial court

that the definition of the term infrastructure project in

Republic Act No. 9184 should be applied to the BOT

The national government projects
covered under the BOT are Law.
enumerated under Sec. 2 of RA6957,
as amended, otherwise known as the
BOT Law. Notably, it includes
 development projects -
Section 5 of Republic Act No. 9184 prefaces the The general description
definition of the terms therein, including the term of infrastructure or
development projects
infrastructure project, with the following phrase: For normally financed and
operated by the public
purposes of this Act, the following terms or words
sector but which will
and phrases shall mean or be understood as follows x x now be wholly or partly
implemented by the
x. private sector,
including but not
limited to, power
plants, highways, ports,
airports, canals, dams,
hydropower projects,
This Court has stated that the definition of a term in a
water supply, irrigation,
statute is not conclusive as to the meaning of the same telecommunications,
railroads and railways,
term as used elsewhere.[66] This is evident when the transport systems, land
legislative definition is expressly made for the reclamation projects,
industrial estates of
purposes of the statute containing such definition. [67] townships, housing,
government buildings,
tourism projects,
markets,
slaughterhouses,
warehouses, solid
There is no legal or rational basis to apply the
waste
definition of the term infrastructure project in one management, informa
tion technology
statute to another statute enacted years before and networks and
which already defined the types of projects it database
infrastructure,
covers. Rather, a reading of the two statutes involved education and health
facilities, sewerage,
will readily show that there is a legislative intent to drainage, dredging,
treat information technology projects differently under and other
infrastructure and
the BOT Law and the Government Procurement Reform development projects
as may be authorized
Act.
by the appropriate
agency pursuant to this
Act. Such projects shall
be undertaken through
contractual
In the BOT Law as amended by Republic Act No. 7718, arrangements as
defined hereunder and
the national infrastructure and development projects such other variations
covered by said law are enumerated in Section 2(a) as as may be approved by
the President of the
follows: Philippines.

For the
construction stage of
SEC. 2. Definition of Terms. -
these infrastructure
The following terms used in this Act
projects, the project
shall have the meanings stated below:
proponent may obtain
financing from foreign
and/or domestic
(a) Pri sources and/or engage
vate sector the services of a
infrastructure or foreign and/or Filipino
 contractor: Provided,
That, in case an
infrastructure or a xxxx
development facility's
operation requires a
public utility franchise, v. Private
the facility operator Sector Infrastructure
must be a Filipino or if or Development
a corporation, it must Projects - The general
be duly registered with description of
the Securities and infrastructure or
Exchange Commission Development Projects
and owned up to at normally financed, and
least sixty percent operated by the public
(60%) by sector but which will
Filipinos: Provided, now be wholly or partly
further, That in the financed, constructed
case of foreign and operated by the
contractors, Filipino private sector,
labor shall be including but not
employed or hired in limited to, power
the different phases of plants, highways, ports,
construction where airports, canals, dams,
Filipino skills are hydropower projects,
available: Provided, water supply, irrigation,
finally, That projects telecommunications,
which would have railroad and railways,
difficulty in sourcing transport systems, land
funds may be financed reclamation projects,
partly from direct industrial estates or
government townships, housing,
appropriations and/or government buildings,
from Official tourism projects, public
Development markets,
Assistance (ODA) of slaughterhouses,
foreign governments or warehouses, solid
institutions not waste
exceeding fifty percent management, informati
(50%) of the project on technology
cost, and the balance networks and database
to be provided by the infrastructure, educatio
project proponent. n and health facilities,
(Emphasis supplied.) sewerage, drainage,
dredging, and other
infrastructure and
development projects
as may otherwise be
authorized by the
A similar provision appears in the Revised IRR of the appropriate
Agency/LGU pursuant
BOT Law as amended, to wit: to the Act or these
Revised IRR. Such
projects shall be
undertaken through
Contractual
SECTION 1.3 - DEFINITION OF Arrangements as
TERMS defined herein,
including such other
variations as may be
For purposes of these Implementing approved by the
Rules and Regulations, the terms and President of the
phrases hereunder shall be understood Philippines.
as follows:
 xxxx
Project awarded to BCA under the BOT Law appears to

include both civil works (i.e., site preparation of the

SECTION 2.2 -
Central Facility, regional DFA offices and foreign service
ELIGIBLE TYPES OF PROJECTS
posts) and non-civil works aspects (i.e., development,

installation and maintenance in the Philippines and

The Construction, rehabilitation,
improvement, betterment, expansion, foreign service posts of a computerized passport and
modernization, operation, financing
visa issuance system, including creation of databases,
and maintenance of the following types
of projects which are normally financed storage and retrieval systems, training of personnel
and operated by the public sector
which will now be wholly or partly and provision of consumables).
financed, constructed and operated by
the private sector, including other
infrastructure and development
projects as may be authorized by the
appropriate agencies, may be proposed In contrast, under Republic Act No. 9184 or the
under the provisions of the Act and
these Revised IRR, provided however Government Procurement Reform Act, which
that such projects have a cost recovery
contemplates projects to be funded by public funds,
component which covers at least 50%
of the Project Cost, or as determined by the term infrastructure project was limited to only the
the Approving Body:
civil works component of information technology

projects. The non-civil works component of information

xxxx
technology projects would be treated as an acquisition

of goods or consulting services as the case may be.

h. Information
technology (IT) and
data base
infrastructure,
including
This limited definition of infrastructure project in
modernization of IT,
geo-spatial resource relation to information technology projects under
mapping and cadastral
survey for resource Republic Act No. 9184 is significant since the IRR of
accounting and Republic Act No. 9184 has some provisions that are
planning.
(Underscoring particular to infrastructure projects and other
supplied.)
provisions that are applicable only to procurement of

goods or consulting services.[68]

Undeniably, under the BOT Law, wherein the projects

are to be privately funded, the entire information Implicitly, the civil works component of information

technology project, including the civil works technology projects are subject to the provisions on

component and the technological aspect thereof, is infrastructure projects while the technological and

considered an infrastructure or development project other components would be covered by the provisions

and treated similarly as traditional infrastructure on procurement of goods or consulting services as the

projects. All the rules applicable to traditional circumstances may warrant.

infrastructure projects are also applicable to

information technology projects. In fact, the MRP/V

 Government Infrastructure Projects and
When Congress adopted a limited definition of what is for Other Purposes, and other
to be considered infrastructure in relation to applicable laws; and

information technology projects under the Government

Procurement Reform Act, legislators are presumed to b) Private sector infrastructure or

development projects and other
have taken into account previous laws concerning procurement covered by Republic
infrastructure projects (the BOT Law and Republic Act Act No. 7718 (R.A. 7718), entitled
An Act Authorizing the Financing,
No. 8975) and deliberately adopted the limited Construction, Operation and
Maintenance of Infrastructure
definition. We can further presume that Congress had
Projects by the Private Sector, and
written into law a different treatment for information for Other Purposes, as
amended: Provided, however, That
technology projects financed by public funds vis-a- for the portions financed by the
visprivately funded projects for a valid legislative Government, the provisions of this
IRR-A shall apply.
purpose.

The IRR-B for foreign-funded

procurement activities shall be the
subject of a subsequent issuance.
The idea that the definitions of terms found in the (Emphases supplied.)

Government Procurement Reform Act were not meant

to be applied to projects under the BOT Law is further

reinforced by the following provision in the IRR of the

Government Procurement Reform Act: The foregoing provision in the IRR can be taken as an

administrative interpretation that the provisions of

Republic Act No. 9184 are inapplicable to a BOT project

except only insofar as such portions of the BOT project

Section 1. Purpose and General
Coverage that are financed by the government.

This Implementing Rules and

Regulations (IRR) Part A, hereinafter
called IRR-A, is promulgated pursuant Taking into account the different treatment of
to Section 75 of Republic Act No. 9184
(R.A. 9184), otherwise known as the information technology projects under the BOT Law
Government Procurement Reform Act
and the Government Procurement Reform Act,
(GPRA), for the purpose of prescribing
the necessary rules and regulations for petitioners contention the trial court had no jurisdiction
the modernization, standardization,
and regulation of the procurement to issue a writ of preliminary injunction in the instant
activities of the government. This IRR-
case would have been correct if the e-Passport Project
A shall cover all fully domestically-
funded procurement activities from was a project under the BOT Law as they represented
procurement planning up to contract
implementation and to the trial court.
termination, exceptfor the following:

a) Acquisition of real property which

shall be governed by Republic Act No.
8974 (R.A. 8974), entitled An Act to
Facilitate the Acquisition of Right-of-
Way Site or Location for National
However, petitioners presented no proof that the e-
Passport Project was a BOT project. On the contrary,
evidence adduced by both sides tended to show that
the e-Passport Project was a procurement contract

under Republic Act No. 9184.

Could the e-Passport Project be considered as

engineering works or a service contract or as related

and necessary activities under Republic Act No. 8975

The BSPs on-line request for expression of interest and which may not be enjoined?
to bid for the e-Passport Project[69] from the BSP

website and the newspaper clipping [70] of the same

request expressly stated that [t]he two stage bidding

procedure under Section 30.4 of the Implementing We hold in the negative. Under Republic Act No. 8975,

Rules and Regulation (sic) Part-A of Republic Act No. a service contract refers

9184 relative to the bidding and award of the contract to infrastructure contracts entered into by any

shall apply. During the testimony of DFA Assistant department, office or agency of the national

Secretary Domingo Lucenario, Jr. before the trial court, government with private entities and nongovernment

he admitted that the e-Passport Project is a BSP organizations for services related or incidental to the

procurement project and that it is the BSP that will pay functions and operations of the department, office or

the suppliers.[71] In petitioners Manifestation dated July agency concerned.On the other hand, the phrase other

29, 2008[72] and the Erratum[73] thereto, petitioners related and necessary activities obviously refers to

informed the Court that a contract for the supply of a activities related to a government infrastructure,

complete package of systems design, technology, engineering works, service contract or project under

hardware, software, and peripherals, maintenance and the BOT Law. In other words, to be considered a service

technical support, ecovers and datapage security contract or related activity, petitioners must show that

laminates for the centralized production and the e-Passport Project is an infrastructure project or

personalization of Machine Readable Electronic necessarily related to an infrastructure project. This,

Passport was awarded to Francois Charles Oberthur petitioners failed to do for they saw fit not to present

Fiduciaire. In the Notice of Award dated July 2, any evidence on the details of the e-Passport Project

2008[74] attached to petitioners pleading, it was stated before the trial court and this Court. There is nothing

that the failure of the contractor/supplier to submit the on record to indicate that the e-Passport Project has a

required performance bond would be sufficient ground civil works component or is necessarily related to an

for the imposition of administrative penalty under infrastructure project.

Section 69 of the IRR-A of Republic Act No. 9184.

Indeed, the reference to Section 30.4[75] of the IRR of

Republic Act No. 9184 (a provision specific to the

Being a government procurement contract under
Republic Act No. 9184, only the civil works component
of the e-Passport Project would be considered an
infrastructure project that may not be the subject of a
lower court-issued writ of injunction under Republic Act
No. 8975.
procurement of goods) in the BSPs request for interest
and to bid confirms that the e-Passport Project is a
procurement of goods and not an infrastructure
project. Thus, within the context of Republic Act No.
9184 which is the governing law for the e-Passport
Project the said Project is not an infrastructure project
 (2) Suc
that is protected from lower court issued injunctions h relief may be
under Republic Act No. 8975, which, to reiterate, has granted:

for its purpose the expeditious and efficient

implementation and completion of government (i) to

prevent
infrastructure projects. irrepara
ble loss
or
injury;
We note that under Section 28, Republic Act

No. 9285 or the Alternative Dispute Resolution Act of

(ii) to
2004,[76] the grant of an interim measure of protection provide
security
by the proper court before the constitution of an for the
arbitral tribunal is allowed: perform
ance of
any
obligati
Sec. 28. Grant of Interim on;
Measure of Protection. (a) It is not
incompatible with an arbitration
agreement for a party to request, (iii) to
before constitution of the tribunal, from produc
a Court an interim measure of e or
protection and for the Court to grant preserv
such measure. After constitution of the e any
arbitral tribunal and during arbitral evidenc
proceedings, a request for an interim e; or
measure of protection, or modification
thereof, may be made with the arbitral (iv) to
tribunal or to the extent that the compel
arbitral tribunal has no power to act or any
is unable to act effectively, the request other
may be made with the Court.The appropr
arbitral tribunal is deemed constituted iate act
when the sole arbitrator or the third or
arbitrator, who has been nominated, omissio
has accepted the nomination and n.
written communication of said
nomination and acceptance has been
received by the party making the (3) Th
request. e order granting
provisional relief may
be conditioned upon
(a) The following rules the provision of
on interim or security or any act or
provisional relief shall omission specified in
be observed: the order.

(1) An (4) Int

y party may request erim or provisional
that provisional relief relief is requested by
be granted against the written application
adverse party. 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 governing national government projects, Republic Act
appropriate detail the No. 8975 which prohibits courts, except the Supreme
precise relief, the party
against whom the relief Court, from issuing TROs and writs of preliminary
is requested, the
injunction in cases involving national government
grounds for the relief,
and the evidence projects.
supporting the request.

(5) Th However, as discussed above, the prohibition in

e order shall be binding
upon the parties. Republic Act No. 8975 is inoperative in this case, since

petitioners failed to prove that the e-Passport Project is

(6) Eit national government project as defined therein. Thus,

her party may apply the trial court had jurisdiction to issue a writ of
with the Court for
assistance in preliminary injunction against the e-Passport Project.
implementing or
enforcing an interim
measure ordered by an
arbitral tribunal. On whether
the trial
courts
issuance of a
(7) A
writ of
party who does not
injunction
comply with the order
was proper
shall be liable for all
damages resulting from
noncompliance,
including all expenses
and reasonable
attorneys fees, paid in Given the above ruling that the trial court had
obtaining the orders
judicial enforcement. jurisdiction to issue a writ of injunction and going to the

second issue raised by petitioners, we answer the

question: Was the trial courts issuance of a writ of

injunction warranted under the circumstances of this

Section 3(h) of the same statute provides that
case?
the "Court" as referred to in Article 6 of the Model Law

shall mean a Regional Trial Court.

Petitioners attack on the propriety of the trial

courts issuance of a writ of injunction is two-

Republic Act No. 9285 is a general law
pronged: (a) BCA purportedly has no clear right to the
applicable to all matters and controversies to be
injunctive relief sought; and (b) BCA will suffer no
resolved through alternative dispute resolution
grave and irreparable injury even if the injunctive relief
methods. This law allows a Regional Trial Court to grant
were not granted.
interim or provisional relief, including preliminary

injunction, to parties in an arbitration case prior to the

constitution of the arbitral tribunal. This general To support their claim that BCA has no clear
statute, however, must give way to a special law right to injunctive relief, petitioners mainly allege that
the MRP/V Project and the e-Passport Project are not
the same project.Moreover, the MRP/V Project
purportedly involves a technology (the 2D optical bar
code) that has been rendered obsolete by the latest
ICAO developments while the e-Passport Project will
comply with the latest ICAO standards (the contactless
integrated circuit). Parenthetically, and not as a main
argument, petitioners imply that BCA has no clear
contractual right under the Amended BOT Agreement
since BCA had previously assigned all its rights and
obligations under the said Agreement to PPC.
BCA, on the other hand, claims that the
Amended BOT Agreement also contemplated the
supply and/or delivery of e-Passports with
integrated circuit technology in the future and not only
the machine readable passport with the 2D optical bar
code technology. Also, it is BCAs assertion that the
integrated circuit technology is only optional under the
ICAO issuances. On the matter of its assignment of its
rights to PPC, BCA counters that it had already
terminated (purportedly at DFAs request)
assignment agreement in favor of PPC and that even
assuming the termination was not valid, the Amended
BOT Agreement expressly stated that BCA shall remain
solidarily liable with its assignee, PPC.
Most of these factual allegations and counter-
allegations already touch upon the merits of the main
controversy between the DFA and BCA, i.e., the validity
and propriety of the termination of the Amended BOT
Agreement (the MRP/V Project) between the DFA and
BCA. The Court deems it best to refrain from ruling on
these matters since they should be litigated in the
appropriate arbitration or court proceedings between
or among the concerned parties.
One preliminary point, however, that must be
settled here is whether BCA retains a right to seek
relief against the DFA under the Amended BOT
Agreement in view of BCAs previous assignment of its
rights to PPC. Without preempting any factual finding
that the appropriate court or arbitral tribunal on the
matter of the validity of the assignment agreement
with PPC or its termination, we agree with BCA that it
remained a party to the Amended BOT Agreement,
notwithstanding the execution of the assignment
agreement in favor of PPC, for it was stipulated in the
Amended BOT Agreement that BCA would be solidarily
liable with its assignee. For convenient reference, we
reproduce the relevant provision of the Amended BOT
Agreement here:
the
Section 20.15. It is clearly
and expressly understood that BCA
may assign, cede and transfer all of its
rights and obligations under this
Amended BOT Agreement to PPC
[Philippine Passport Corporation], as
fully as if PPC is the original signatory
to this Amended BOT
Agreement, provided however that
the BCA shall nonetheless be jointly
and severally liable with PPC for
the performance of all the
obligations and liabilities under
this Amended BOT
Agreement. (Emphasis supplied.)
Furthermore, a review of the records shows
that the DFA continued to address its correspondence
regarding the MRP/V Project to both BCA and PPC, even
after the execution of the assignment agreement.
Indeed, the DFAs Notice of Termination dated
December 9, 2005 was addressed to Mr. Bonifacio
Sumbilla as President of both BCA and PPC and referred
to the Amended BOT Agreement executed between the
Department of Foreign Affairs (DFA), on one hand, and
the BCA International Corporation and/or the Philippine
Passport Corporation (BCA/PPC). At the very least, the
 In the event that the government
DFA is estopped from questioning the personality of defaults on certain major obligations
BCA to bring suit in relation to the Amended BOT in the contract and such failure is not
remediable or if remediable shall
Agreement since the DFA continued to deal with both remain unremedied for an
unreasonable length of time, the
BCA and PPC even after the signing of the assignment
project proponent/contractor may,
agreement. In any event, if the DFA truly believes that by prior notice to the concerned
national government agency or local
PPC is an indispensable party to the action, the DFA government unit specifying the turn-
may take necessary steps to implead PPC but this over date, terminate the contract.
The project proponent/contractor shall
should not prejudice the right of BCA to file suit or to be reasonably compensated by the
Government for equivalent or
seek relief for causes of action it may have against the
proportionate contract cost as
DFA or the BSP, for undertaking the e-Passport Project defined in the contract. (Emphases
supplied.)
on behalf of the DFA.

With respect to petitioners contention that BCA

In addition, the Amended BOT Agreement,
will suffer no grave and irreparable injury so as to
which is the law between and among the parties to it,
justify the grant of injunctive relief, the Court finds that
pertinently provides:
this particular argument merits consideration.
Section 17.01 Default In
case a party commits an act
constituting an event of default,
the non-defaulting party may
The BOT Law as amended by Republic Act No. terminate this Amended BOT
Agreement by serving a written notice
7718, provides: to the defaulting party specifying the
grounds for termination and giving the
defaulting party a period of ninety (90)
days within which to rectify the default.
SEC. 7. Contract Termination. - In the If the default is not remedied within
event that a project is revoked, this period to the satisfaction of the
cancelled or terminated by the non-defaulting party, then the latter
Government through no fault of will serve upon the former a written
the project proponent or by mutual notice of termination indicating the
agreement, the Government effective date of termination.
shall compensate the said project
proponent for its actual
expenses incurred in the project plus
a reasonable rate of return thereon Section 17.02 Proponents
not exceeding that stated in the Default If this Amended BOT
contract as of the date of such Agreement is terminated by reason
revocation, cancellation or of the BCAs default, the DFA shall
termination: Provided, That the interest have the following options:
of the Government in this instances
shall be duly insured with the
Government Service Insurance System A. Allow the
[GSIS] or any other insurance entity BCAs unpaid
duly accredited by the Office of the creditors who
Insurance Commissioner: Provided, hold a lien on
finally, That the cost of the insurance the MRP/V
coverage shall be included in the terms Facility to
and conditions of the bidding referred foreclose on
to above. the MRP/V
Facility. The
right of the
BCAs unpaid
 creditors to time and from
foreclose on time to time.
the MRP/V The DFA shall
Facility shall be cooperate with
valid for the the creditors
duration of the with a view to
effectivity of facilitating the
this Amended choice of a
BOT Substitute BCA,
Agreement; or, who shall take-
over the
operation,
maintenance
B. Allow the
and
BCAs unpaid
management of
creditors who
the MRP/V
hold a lien on
Project, within
the MRP/V
three (3)
Facility to
months from
designate a
the BCAs
substitute
receipt of the
BCA for the
notice of
MRP/V Project,
termination
provided the
from the DFA.
designated
The Substituted
substitute BCA
BCA shall have
is qualified
all the rights
under existing
and obligations
laws and
of the previous
acceptable to
BCA as
the DFA. This
contained in
substitute BCA
this Amended
shall
BOT
hereinafter be
Agreement; or
referred to as
the Substitute
BCA. The
Substitute BCA C. Take-over
shall assume the MRP/V
all the BCAs Facility and
rights and assume all
privileges, as attendant
well as the liabilities
obligations, thereof.
duties and
responsibilities
hereunder;
D. In all
provided,
cases of
however, that
termination
the DFA shall at
due to the
all times and its
default of the
sole option,
BCA, it shall
have the right
pay DFA
to invoke and
liquidated
exercise any
damages equi
other remedy
valent to the
which may be
applicable the
available to the
(sic)
DFA under any
Performance
applicable laws,
Security.
rules and/or
regulations
which may be
in effect at any Section 17.03 DFAs
Default If this Amended BOT
Agreement is terminated by the BCA by menta
reason of the DFAs Default, the DFA tion,
shall: minus
the
aggreg
ate
A. Be
amoun
obligated to
t of
take over the
the
MRP/V
attend
Facility on an
ant
as is, where is
liabiliti
basis, and shall
es
forthwith
assum
assume
ed by
attendant
the
liabilities
DFA,
thereof; and
plus
ten
percen
B. Pay t
liquidated (10%)
damages to thereo
the BCA f. The
equivalent to amount
the following of such
amounts, which compe
may be nsation
charged to the shall be
insurance determi
proceeds ned as
referred to in of the
Article 12: date of
the
notice
(1) In of
the termina
event tion
of and
termin shall
ation becom
prior e due
to and
compl deman
etion o dable
f the ninety
implem (90)
entatio days
n of the after
MRP/V the
Project, date of
damag this
es notice
shall of
be termina
paid tion.
equiva Under
lent to this
the Amend
value ed BOT
of Agreem
compl ent, the
eted term
imple Value
of the unreas
Comple onably
ted withhel
Implem d.
entatio
n shall
mean
(2) In
the
the
aggreg
event
ate of
of
all
termin
reasona
ation
ble
after
costs
compl
and
etion
expens
of
es
design
incurre
,
d by
develo
the
pment
BCA in
, and
connect
install
ion
ation
with, in
of the
relation
MRP/V
to
Projec
and/or
t, just
by
compe
reason
nsatio
of the
n shall
MRP/V
be
Project,
paid
excludi
equiva
ng all
lent to
interest
the
and
presen
capitali
t value
zed
of the
interest
net
, as
incom
certifie
e
d by a
which
reputab
the
le and
BCA
indepe
expect
ndent
s to
account
earn
ing firm
or
to be
realize
appoint
during
ed by
the
the
unexpi
BCA
red or
and
remain
subject
ing
to the
term
approv
of this
al by
Amend
the
ed
DFA,
BOT
such
Agree
approv
ment u
al shall
sing
not be
 the
internal the part of the project proponent, subject to the
rate of payment of the actual expenses incurred by the
return
on proponent plus a reasonable rate of return.
equity
(IRRe)
defined
in the
Under the BOT Law and the Amended BOT
financia
l Agreement, in the event of default on the part of the
projecti
ons of government (in this case, the DFA) or on the part of the
the proponent, the non-defaulting party is allowed to
BCA
and terminate the agreement, again subject to proper
agreed
compensation in the manner set forth in the
upon
by the agreement.
parties,
which
Time and again, this Court has held that to be entitled
is
attache to injunctive relief the party seeking such relief must
d
hereto be able to show grave, irreparable injury that is not
and capable of compensation.
made
as an
integral
part of
this In Lopez v. Court of Appeals, [77] we held:
Amend
ed BOT
Agreem
ent as Generally, injunction is a
Schedul preservative remedy for the protection
e 1. of one's substantive right or interest. It
(Empha is not a cause of action in itself
ses but merely a provisional remedy, an
supplie adjunct to a main suit. It is resorted
d.) to only when there is a pressing
necessity to avoid injurious
consequences which cannot be
remedied under any standard
compensation. The application of the
injunctive writ rests upon the existence
The validity of the DFAs termination of the of an emergency or of a special reason
before the main case can be regularly
Amended BOT Agreement and the determination of the
heard. The essential conditions for
party or parties in default are issues properly threshed granting such temporary injunctive
relief are that the complaint alleges
out in arbitration proceedings as provided for by the facts which appear to be sufficient to
agreement itself. However, even if we hypothetically constitute a proper basis for injunction
and that on the entire showing from
accept BCAs contention that the DFA terminated the the contending parties, the injunction is
reasonably necessary to protect the
Amended BOT Agreement without any default or
legal rights of the plaintiff pending the
wrongdoing on BCAs part, it is not indubitable that BCA litigation. Two requisites are necessary
if a preliminary injunction is to issue,
is entitled to injunctive relief. namely, the existence of a right to be
protected and the facts against which
The BOT Law expressly allows the government the injunction is to be directed are
violative of said right. In particular, for
to terminate a BOT agreement, even without fault on a writ of preliminary injunction to issue,
 the existence of the right and the there exists no certain pecuniary
violation must appear in the allegation standard for the measurement of
of the complaint and a preliminary damages. (Emphases supplied.)
injunction is proper only when the
plaintiff (private respondent
herein) appears to be entitled to
the relief demanded in his
complaint. (Emphases supplied.)
It is still contentious whether this is a case of

termination by the DFA alone or both the DFA and

BCA. The DFA contends that BCA, by sending its own

We reiterated this point in Transfield Philippines, Inc. v. Notice of Default, likewise terminated or abandoned

Luzon Hydro Corporation,[78] where we likewise opined: the Amended BOT Agreement. Still, whether this is a

termination by the DFA alone without fault on the part

of BCA or a termination due to default on the part of

Before a writ of preliminary injunction
may be issued, there must be a clear either party, the BOT Law and the Amended BOT
showing by the complaint that there Agreement lay down the measure of compensation to
exists a right to be protected and that
the acts against which the writ is to be be paid under the appropriate circumstances.
directed are violative of the said right.
It must be shown that the invasion of
the right sought to be protected is
material and substantial, that the right
Significantly, in BCAs Request for Arbitration with the
of complainant is clear and
unmistakable and that there is an PDRCI, it prayed for, among others, a judgment
urgent and paramount necessity for
the writ to prevent serious ordering respondent [DFA] to pay damages to Claimant
damage. Moreover, an injunctive [BCA], reasonably estimated at P50,000,000.00 as of
remedy may only be resorted to
when there is a pressing necessity [the date of the Request for Arbitration], representing
to avoid injurious consequences
lost business opportunities; financing fees, costs and
which cannot be remedied under
any standard compensation. commissions; travel expenses; legal fees and
(Emphasis supplied.)
expenses; and costs of arbitration, including the fees of

the arbitrator/s.[80] All the purported damages that BCA

claims to have suffered by virtue of the DFAs

As the Court explained previously in Philippine Airlines, termination of the Amended BOT Agreement are plainly

Inc. v. National Labor Relations Commission [79]: determinable in pecuniary terms and can be

reasonably estimated according to BCAs own words.

An injury is considered
irreparable if it is of such constant
and frequent recurrence that no fair Indeed, the right of BCA, a party which may or may not
and reasonable redress can be had
therefor in a court of law, or where have been in default on its BOT contract, to have the
there is no standard by which their termination of its BOT contract reversed is not
amount can be measured with
reasonable accuracy, that is, it is guaranteed by the BOT Law. Even assuming BCAs
not susceptible of mathematical
innocence of any breach of contract, all the law
computation. It is considered
irreparable injury when it cannot be provides is that BCA should be adequately
adequately compensated in
damages due to the nature of the compensated for its losses in case of contract
injury itself or the nature of the termination by the government.
right or property injured or when
There is one point that none of the parties has BOT Agreement and thus, there is no direct violation of

highlighted but is worthy of discussion. In seeking to Republic Act No. 8795, a grant of injunctive relief as

enjoin the government from awarding or implementing prayed for by BCA will indirectly contravene the same

a machine readable passport project or any similar statute.

electronic passport or visa project and praying for the

maintenance of the status quo ante pending the

resolution on the merits of BCAs Request for Verily, there is valid reason for the law to deny

Arbitration, BCA effectively seeks to enjoin the preliminary injunctive relief to those who seek to

termination of the Amended BOT Agreement for the contest the governments termination of a national

MRP/V Project. government contract. The only circumstance under

which a court may grant injunctive relief is the

existence of a matter of extreme urgency involving a

There is no doubt that the MRP/V Project is a project constitutional issue, such that unless a TRO or

covered by the BOT Law and, in turn, considered a injunctive writ is issued, grave injustice and irreparable

national government project under Republic Act No. injury will result.

8795. Under Section 3(d) of that statute, trial courts

Now, BCA likewise claims that unless it is granted
are prohibited from issuing a TRO or writ of preliminary
injunctive relief, it would suffer grave and irreparable
injunction against the government to restrain or
injury since the bidding out and award of the e-
prohibit the termination or rescission of any such
Passport Project would be tantamount to a violation of
national government project/contract.
its right against deprivation of property without due

process of law under Article III, Section 1 of the

Constitution. We are unconvinced.

The rationale for this provision is easy to understand.

For if a project proponent that the government believes

to be in default is allowed to enjoin the termination of

Article III, Section 1 of the Constitution provides [n]o
its contract on the ground that it is contesting the
person shall be deprived of life, liberty, or property
validity of said termination, then the government will
without due process of law, nor shall any person be
be unable to enter into a new contract with any other
denied the equal protection of the laws. Ordinarily, this
party while the controversy is pending
constitutional provision has been applied to the
litigation. Obviously, a courts grant of injunctive relief
exercise by the State of its sovereign powers such as,
in such an instance is prejudicial to public interest
its legislative power,[81] police power,[82] or its power of
since government would be indefinitely hampered in its
eminent domain.[83]
duty to provide vital public goods and services in order

to preserve the private proprietary rights of the project

proponent. On the other hand, should it turn out that

In the instant case, the State action being assailed is
the project proponent was not at fault, the BOT Law
the DFAs termination of the Amended BOT Agreement
itself presupposes that the project proponent can be
with BCA. Although the said agreement involves a
adequately compensated for the termination of the
public service that the DFA is mandated to provide and,
contract. Although BCA did not specifically pray for the
therefore, is imbued with public interest, the
trial court to enjoin the termination of the Amended
relationship of DFA to BCA is primarily contractual and with some anomaly, it is indeed a cause for grave

their dispute involves the adjudication of contractual concern but it is a matter that must be investigated

rights. The propriety of the DFAs acts, in relation to the and litigated in the proper forum. It has no bearing on

termination of the Amended BOT Agreement, should be the issue of whether BCA would suffer grave and

gauged against the provisions of the contract itself and irreparable injury such that it is entitled to injunctive

the applicable statutes to such contract. These relief from the courts.

contractual and statutory provisions outline what

constitutes due process in the present case. In all, BCA

failed to demonstrate that there is a constitutional In all, we agree with petitioners DFA and BSP that the

issue involved in this case, much less a constitutional trial courts issuance of a writ of preliminary injunction,

issue of extreme urgency. despite the lack of sufficient legal justification for the

same, is tantamount to grave abuse of discretion.

As for the DFAs purported failure to appropriate

sufficient amounts in its budget to pay for liquidated To be very clear, the present decision touches only on

damages to BCA, this argument does not support BCAs the twin issues of (a) the jurisdiction of the trial court

position that it will suffer grave and irreparable injury if to issue a writ of preliminary injunction as an interim

it is denied injunctive relief. The DFAs liability to BCA relief under the factual milieu of this case; and (b) the

for damages is contingent on BCA proving that it is entitlement of BCA to injunctive relief. The merits of

entitled to such damages in the proper the DFA and BCAs dispute regarding the termination of

proceedings. The DFA has no obligation to set aside the Amended BOT Agreement must be threshed out in

funds to pay for liquidated damages, or any other kind the proper arbitration proceedings. The civil case

of damages, to BCA until there is a final and executory pending before the trial court is purely for the grant of

judgment in favor of BCA. It is illogical and impractical interim relief since the main case is to be the subject of

for the DFA to set aside a significant portion of its arbitration proceedings.

budget for an event that may never happen when such

idle funds should be spent on providing necessary

services to the populace. For if it turns out at the end BCAs petition for interim relief before the trial court is

of the arbitration proceedings that it is BCA alone that essentially a petition for a provisional remedy

is in default, it would be the one liable for liquidated (i.e., preliminary injunction) ancillary to its Request for

damages to the DFA under the terms of the Amended Arbitration in PDRCI Case No. 30-2006/BGF. BCA

BOT Agreement. specifically prayed that the trial court grant it interim

relief pending the constitution of the arbitral tribunal in

With respect to BCAs allegation that the e-Passport
the said PDRCI case.Unfortunately, during the
Project is grossly disadvantageous to the Filipino
pendency of this case, PDRCI Case No. 30-2006/BGF
people since it is the government that will be spending
was dismissed by the PDRCI for lack of jurisdiction, in
for the project unlike the MRP/V Project which would
view of the lack of agreement between the parties to
have been privately funded, the same is immaterial to
arbitrate before the PDRCI.[84] In Philippine National
the issue at hand. If it is true that the award of the e-
Bank v. Ritratto Group, Inc.,[85] we held:
Passport Project is inimical to the public good or tainted
 19.02 of the Amended BOT Agreement regarding the

A writ of preliminary injunction is an proper body to which a dispute between the parties
ancillary or preventive remedy that
may be submitted and the failure of the parties to
may only be resorted to by a litigant to
protect or preserve his rights or agree on such an arbitral tribunal. However, this Court
interests and for no other purpose
during the pendency of the principal cannot allow this impasse to continue indefinitely. The
action. The dismissal of the parties involved must sit down together in good faith
principal action thus results in the
denial of the prayer for the and finally come to an understanding regarding the
issuance of the writ. x x x.
constitution of an arbitral tribunal mutually acceptable
(Emphasis supplied.)
to them.

In view of intervening circumstances, BCA can no WHEREFORE, the instant petition is

longer be granted injunctive relief and the civil case hereby GRANTED. The assailed Order dated February
before the trial court should be accordingly 14, 2007 of the Regional Trial Court of Pasig in Civil
dismissed. However, this is without prejudice to the Case No. 71079 and the Writ of Preliminary Injunction
parties litigating the main controversy in arbitration dated February 23, 2007 are REVERSED and SET
proceedings, in accordance with the provisions of the ASIDE. Furthermore, Civil Case No. 71079 is
Amended BOT Agreement, which should proceed with hereby DISMISSED.
dispatch.

No pronouncement as to costs.
It does not escape the attention of the Court that the

delay in the submission of this controversy to

arbitration was caused by the ambiguity in Section