VI. Republic Act No.

876, June 19, 1953

REPUBLIC ACT NO. 876

AN ACT TO AUTHORIZE THE MAKING OF ARBITRATION AND

SUBMISSION AGREEMENTS, TO PROVIDE FOR THE APPOINTMENT
OF ARBITRATORS AND THE PROCEDURE FOR ARBITRATION IN
CIVIL CONTROVERSIES, AND FOR OTHER PURPOSES

Section 1. Short Title. - This Act shall be known as "The Arbitration Law."
Section 2. Persons and matters subject to arbitration. - Two or more persons
or parties may submit to the arbitration of one or more arbitrators any
controversy existing between them at the time of the submission and which
may be the subject of an action, or the parties to any contract may in such
contract agree to settle by arbitration a controversy thereafter arising
between them. Such submission or contract shall be valid, enforceable and
irrevocable, save upon such grounds as exist at law for the revocation of any
contract.
Such submission or contract may include question arising out of valuations,
appraisals or other controversies which may be collateral, incidental,
precedent or subsequent to any issue between the parties.
A controversy cannot be arbitrated where one of the parties to the
controversy is an infant, or a person judicially declared to be incompetent,
unless the appropriate court having jurisdiction approve a petition for
permission to submit such controversy to arbitration made by the general
guardian or guardian ad litem of the infant or of the incompetent.
But where a person capable of entering into a submission or contract has
knowingly entered into the same with a person incapable of so doing, the
objection on the ground of incapacity can be taken only in behalf of the
person so incapacitated.
Section 3. Controversies or cases not subject to the provisions of this Act. -
This Act shall not apply to controversies and to cases which are subject to
the jurisdiction of the Court of Industrial Relations or which have been
submitted to it as provided by Commonwealth Act Numbered One hundred
and three, as amended.
Section 4. Form of arbitration agreement. - A contract to arbitrate a
controversy thereafter arising between the parties, as well as a submission
to arbitrate an existing controversy shall be in writing and subscribed by the
party sought to be charged, or by his lawful agent.
The making of a contract or submission for arbitration described in section
two hereof, providing for arbitration of any controversy, shall be deemed a
consent of the parties to the jurisdiction of the Court of First Instance of the
province or city where any of the parties resides, to enforce such contract or
submission.
Section 5. Preliminary procedure. - An arbitration shall be instituted by:
(a) In the case of a contract to arbitrate future controversies by the service
by either party upon the other of a demand for arbitration in accordance with
the contract. Such demand shall be set forth the nature of the controversy,
the amount involved, if any, and the relief sought, together with a true copy
of the contract providing for arbitration. The demand shall be served upon
any party either in person or by registered mail. In the event that the contract
between the parties provides for the appointment of a single arbitrator, the
demand shall be set forth a specific time within which the parties shall agree
upon such arbitrator. If the contract between the parties provides for the
appointment of three arbitrators, one to be selected by each party, the
demand shall name the arbitrator appointed by the party making the demand;
and shall require that the party upon whom the demand is made shall within
fifteen days after receipt thereof advise in writing the party making such
demand of the name of the person appointed by the second party; such
notice shall require that the two arbitrators so appointed must agree upon
the third arbitrator within ten days from the date of such notice.
(b) In the event that one party defaults in answering the demand, the
aggrieved party may file with the Clerk of the Court of First Instance having
jurisdiction over the parties, a copy of the demand for arbitration under the
contract to arbitrate, with a notice that the original demand was sent by
registered mail or delivered in person to the party against whom the claim is
asserted. Such demand shall set forth the nature of the controversy, the
amount involved, if any, and the relief sought, and shall be accompanied by
a true copy of the contract providing for arbitration.
(c) In the case of the submission of an existing controversy by the filing with
the Clerk of the Court of First Instance having jurisdiction, of the submission
agreement, setting forth the nature of the controversy, and the amount
involved, if any. Such submission may be filed by any party and shall be duly
executed by both parties.
(d) In the event that one party neglects, fails or refuses to arbitrate under a
submission agreement, the aggrieved party shall follow the procedure
prescribed in subparagraphs (a) and (b) of this section.
Section 6. Hearing by court. - A party aggrieved by the failure, neglect or
refusal of another to perform under an agreement in writing providing for
arbitration may petition the court for an order directing that such arbitration
proceed in the manner provided for in such agreement. Five days notice in
writing of the hearing of such application shall be served either personally or
by registered mail upon the party in default. The court shall hear the parties,
and upon being satisfied that the making of the agreement or such failure to
comply therewith is not in issue, shall make an order directing the parties to
proceed to arbitration in accordance with the terms of the agreement. If the
making of the agreement or default be in issue the court shall proceed to
summarily hear such issue. If the finding be that no agreement in writing
providing for arbitration was made, or that there is no default in the
proceeding thereunder, the proceeding shall be dismissed. If the finding be
that a written provision for arbitration was made and there is a default in
proceeding thereunder, an order shall be made summarily directing the
parties to proceed with the arbitration in accordance with the terms thereof.
The court shall decide all motions, petitions or applications filed under the
provisions of this Act, within ten days after such motions, petitions, or
applications have been heard by it.
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.
Section 8. Appointment of arbitrators. - If, in the contract for arbitration or in
the submission described in section two, provision is made for a method of
naming or appointing an arbitrator or arbitrators, such method shall be
followed; but if no method be provided therein the Court of First Instance
shall designate an arbitrator or arbitrators.
The Court of First Instance shall appoint an arbitrator or arbitrators, as the
case may be, in the following instances:
(a) If the parties to the contract or submission are unable to agree upon a
single arbitrator; or
(b) If an arbitrator appointed by the parties is unwilling or unable to serve,
and his successor has not been appointed in the manner in which he was
appointed; or
(c) If either party to the contract fails or refuses to name his arbitrator within
fifteen days after receipt of the demand for arbitration; or
(d) If the arbitrators appointed by each party to the contract, or appointed by
one party to the contract and by the proper Court, shall fail to agree upon or
to select the third arbitrator.
(e) The court shall, in its discretion appoint one or three arbitrators, according
to the importance of the controversy involved in any of the preceding cases
in which the agreement is silent as to the number of arbitrators.
(f) Arbitrators appointed under this section shall either accept or decline their
appointments within seven days of the receipt of their appointments. In case
of declination or the failure of an arbitrator or arbitrators to duly accept their
appointments the parties or the court, as the case may be, shall proceed to
appoint a substitute or substitutes for the arbitrator or arbitrators who decline
or failed to accept his or their appointments.
Section 9. Appointment of additional arbitrators. - Where a submission or
contract provides that two or more arbitrators therein designated or to be
thereafter appointed by the parties, may select or appoint a person as an
additional arbitrator, the selection or appointment must be in writing. Such
additional arbitrator must sit with the original arbitrators upon the hearing.
Section 10. Qualifications of arbitrators. - Any person appointed to serve as
an arbitrator must be of legal age, in full-enjoyment of his civil rights and
know how to read and write. No person appointed to served as an arbitrator
shall be related by blood or marriage within the sixth degree to either party
to the controversy. No person shall serve as an arbitrator in any proceeding
if he has or has had financial, fiduciary or other interest in the controversy or
cause to be decided or in the result of the proceeding, or has any personal
bias, which might prejudice the right of any party to a fair and impartial award.
No party shall select as an arbitrator any person to act as his champion or to
advocate his cause.
If, after appointment but before or during hearing, a person appointed to
serve as an arbitrator shall discover any circumstances likely to create a
presumption of bias, or which he believes might disqualify him as an impartial
arbitrator, the arbitrator shall immediately disclose such information to the
parties. Thereafter the parties may agree in writing:
(a) to waive the presumptive disqualifying circumstances; or
(b) to declare the office of such arbitrator vacant. Any such vacancy shall be
filled in the same manner as the original appointment was made.
Section 11. Challenge of arbitrators. - The arbitrators may be challenged
only for the reasons mentioned in the preceding section which may have
arisen after the arbitration agreement or were unknown at the time of
arbitration.
The challenge shall be made before them.
If they do not yield to the challenge, the challenging party may renew the
challenge before the Court of First Instance of the province or city in which
the challenged arbitrator, or, any of them, if there be more than one, resides.
While the challenging incident is discussed before the court, the hearing or
arbitration shall be suspended, and it shall be continued immediately after
the court has delivered an order on the challenging incident.
Section 12. Procedure by arbitrators. - Subject to the terms of the
submission or contract, if any are specified therein, are arbitrators selected
as prescribed herein must, within five days after appointment if the parties to
the controversy reside within the same city or province, or within fifteen days
after appointment if the parties reside in different provinces, set a time and
place for the hearing of the matters submitted to them, and must cause notice
thereof to be given to each of the parties. The hearing can be postponed or
adjourned by the arbitrators only by agreement of the parties; otherwise,
adjournment may be ordered by the arbitrators upon their own motion only
at the hearing and for good and sufficient cause. No adjournment shall
extend the hearing beyond the day fixed in the submission or contract for
rendering the award, unless the time so fixed is extended by the written
agreement of the parties to the submission or contract or their attorneys, or
unless the parties have continued with the arbitration without objection to
such adjournment.
The hearing may proceed in the absence of any party who, after due notice,
fails to be present at such hearing or fails to obtain an adjournment thereof.
An award shall not be made solely on the default of a party. The arbitrators
shall require the other party to submit such evidence as they may require for
making an award.
No one other than a party to said arbitration, or a person in the regular
employ of such party duly authorized in writing by said party, or a practicing
attorney-at-law, shall be permitted by the arbitrators to represent before him
or them any party to the arbitration. Any party desiring to be represented by
counsel shall notify the other party or parties of such intention at least five
days prior to the hearing.
The arbitrators shall arrange for the taking of a stenographic record of the
testimony when such a record is requested by one or more parties, and when
payment of the cost thereof is assumed by such party or parties.
Persons having a direct interest in the controversy which is the subject of
arbitration shall have the right to attend any hearing; but the attendance of
any other person shall be at the discretion of the arbitrators.
Section 13. Oath of arbitrators. - Before hearing any testimony, arbitrators
must be sworn, by any officer authorized by law to administer an oath,
faithfully and fairly to hear and examine the matters in controversy and to
make a just award according to the best of their ability and understanding.
Arbitrators shall have the power to administer the oaths to all witnesses
requiring them to tell the whole truth and nothing but the truth in any
testimony which they may give in any arbitration hearing. This oath shall be
required of every witness before any of his testimony is heard.
Section 14. Subpoena and subpoena duces tecum. - Arbitrators shall have
the power to require any person to attend a hearing as a witness. They shall
have the power to subpoena witnesses and documents when the relevancy
of the testimony and the materiality thereof has been demonstrated to the
arbitrators. Arbitrators may also require the retirement of any witness during
the testimony of any other witness. All of the arbitrators appointed in any
controversy must attend all the hearings in that matter and hear all the
allegations and proofs of the parties; but an award by the majority of them is
valid unless the concurrence of all of them is expressly required in the
submission or contract to arbitrate. The arbitrator or arbitrators shall have the
power at any time, before rendering the award, without prejudice to the rights
of any party to petition the court to take measures to safeguard and/or
conserve any matter which is the subject of the dispute in arbitration.
Section 15. Hearing by arbitrators. - Arbitrators may, at the commencement
of the hearing, ask both parties for brief statements of the issues in
controversy and/or an agreed statement of facts. Thereafter the parties may
offer such evidence as they desire, and shall produce such additional
evidence as the arbitrators shall require or deem necessary to an
understanding and determination of the dispute. The arbitrators shall be the
sole judge of the relevancy and materiality of the evidence offered or
produced, and shall not be bound to conform to the Rules of Court pertaining
to evidence. Arbitrators shall receive as exhibits in evidence any document
which the parties may wish to submit and the exhibits shall be properly
identified at the time of submission. All exhibits shall remain in the custody
of the Clerk of Court during the course of the arbitration and shall be returned
to the parties at the time the award is made. The arbitrators may make an
ocular inspection of any matter or premises which are in dispute, but such
inspection shall be made only in the presence of all parties to the arbitration,
unless any party who shall have received notice thereof fails to appear, in
which event such inspection shall be made in the absence of such party.
Section 16. Briefs. - At the close of the hearings, the arbitrators shall
specifically inquire of all parties whether they have any further proof or
witnesses to present; upon the receipt of a negative reply from all parties,
the arbitrators shall declare the hearing closed unless the parties have
signified an intention to file briefs. Then the hearing shall be closed by the
arbitrations after the receipt of briefs and/or reply briefs. Definite time limit for
the filing of such briefs must be fixed by the arbitrators at the close of the
hearing. Briefs may filed by the parties within fifteen days after the close of
the oral hearings; the reply briefs, if any, shall be filed within five days
following such fifteen-day period.
Section 17. Reopening of hearing. - The hearing may be reopened by the
arbitrators on their own motion or upon the request of any party, upon good
cause, shown at any time before the award is rendered. When hearings are
thus reopened the effective date for the closing of the hearings shall be the
date of the closing of the reopened hearing.
Section 18. Proceeding in lieu of hearing. - The parties to a submission or
contract to arbitrate may, by written agreement, submit their dispute to
arbitration by other than oral hearing. The parties may submit an agreed
statement of facts. They may also submit their respective contentions to the
duly appointed arbitrators in writing; this shall include a statement of facts,
together with all documentary proof. Parties may also submit a written
argument. Each party shall provide all other parties to the dispute with a copy
of all statements and documents submitted to the arbitrators. Each party
shall have an opportunity to reply in writing to any other party's statements
and proofs; but if such party fails to do so within seven days after receipt of
such statements and proofs, he shall be deemed to have waived his right to
reply. Upon the delivery to the arbitrators of all statements and documents,
together with any reply statements, the arbitrators shall declare the
proceedings in lieu of hearing closed.
Section 19. Time for rendering award. - Unless the parties shall have
stipulated by written agreement the time within which the arbitrators must
render their award, the written award of the arbitrators shall be rendered
within thirty days after the closing of the hearings or if the oral hearings shall
have been waived, within thirty days after the arbitrators shall have declared
such proceedings in lieu of hearing closed. This period may be extended by
mutual consent of the parties. alf-itc

Section 20. Form and contents of award. - The award must be made in
writing and signed and acknowledged by a majority of the arbitrators, if more
than one; and by the sole arbitrator, if there is only one. Each party shall be
furnished with a copy of the award. The arbitrators in their award may grant
any remedy or relief which they deem just and equitable and within the scope
of the agreement of the parties, which shall include, but not be limited to, the
specific performance of a contract.
In the event that the parties to an arbitration have, during the course of such
arbitration, settled their dispute, they may request of the arbitrators that such
settlement be embodied in an award which shall be signed by the arbitrators.
No arbitrator shall act as a mediator in any proceeding in which he is acting
as arbitrator; and all negotiations towards settlement of the dispute must take
place without the presence of the arbitrators.
The arbitrators shall have the power to decide only those matters which have
been submitted to them. The terms of the award shall be confined to such
disputes.
The arbitrators shall have the power to assess in their award the expenses
of any party against another party, when such assessment shall be deemed
necessary.
Section 21. Fees of arbitration. - The fees of the arbitrators shall be fifty
pesos per day unless the parties agree otherwise in writing prior to the
arbitration.
Section 22. Arbitration deemed a special proceeding. - Arbitration under a
contract or submission shall be deemed a special proceeding, of which the
court specified in the contract or submission, or if none be specified, the
Court of First Instance for the province or city in which one of the parties
resides or is doing business, or in which the arbitration was held, shall have
jurisdiction. Any application to the court, or a judge thereof, hereunder shall
be made in manner provided for the making and hearing of motions, except
as otherwise herein expressly provided.
Section 23. Confirmation of award. - At any time within one month after the
award is made, any party to the controversy which was arbitrated may apply
to the court having jurisdiction, as provided in section twenty-eight, for an
order confirming the award; and thereupon the court must grant such order
unless the award is vacated, modified or corrected, as prescribed herein.
Notice of such motion must be served upon the adverse party or his attorney
as prescribed by law for the service of such notice upon an attorney in action
in the same court.
Section 24. Grounds for vacating award. - In any one of the following cases,
the court must make an order vacating the award upon the petition of any
party to the controversy when such party proves affirmatively that in the
arbitration proceedings:
(a) The award was procured by corruption, fraud, or other undue means; or
(b) That there was evident partiality or corruption in the arbitrators or any of
them; or
(c) That the arbitrators were guilty of misconduct in refusing to postpone the
hearing upon sufficient cause shown, or in refusing to hear evidence
pertinent and material to the controversy; that one or more of the arbitrators
was disqualified to act as such under section nine hereof, and wilfully
refrained from disclosing such disqualifications or of any other misbehavior
by which the rights of any party have been materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so imperfectly executed
them, that a mutual, final and definite award upon the subject matter
submitted to them was not made.
Where an award is vacated, the court, in its discretion, may direct a new
hearing either before the same arbitrators or before a new arbitrator or
arbitrators to be chosen in the manner provided in the submission or contract
for the selection of the original arbitrator or arbitrators, and any provision
limiting the time in which the arbitrators may make a decision shall be
deemed applicable to the new arbitration and to commence from the date of
the court's order.
Where the court vacates an award, costs, not exceeding fifty pesos and
disbursements may be awarded to the prevailing party and the payment
thereof may be enforced in like manner as the payment of costs upon the
motion in an action.
Section 25. Grounds for modifying or correcting award. - In any one of the
following cases, the court must make an order modifying or correcting the
award, upon the application of any party to the controversy which was
arbitrated:
(a) Where there was an evident miscalculation of figures, or an evident
mistake in the description of any person, thing or property referred to in the
award; or
(b) Where the arbitrators have awarded upon a matter not submitted to them,
not affecting the merits of the decision upon the matter submitted; or
(c) Where the award is imperfect in a matter of form not affecting the merits
of the controversy, and if it had been a commissioner's report, the defect
could have been amended or disregarded by the court.
The order may modify and correct the award so as to effect the intent thereof
and promote justice between the parties.
Section 26. Motion to vacate, modify or correct award: when made. - Notice
of a motion to vacate, modify or correct the award must be served upon the
adverse party or his counsel within thirty days after award is filed or
delivered, as prescribed by law for the service upon an attorney in an action.
Section 27. Judgment. - Upon the granting of an order confirming, modifying
or correcting an award, judgment may be entered in conformity therewith in
the court wherein said application was filed. Costs of the application and the
proceedings subsequent thereto may be awarded by the court in its
discretion. If awarded, the amount thereof must be included in the judgment.
Section 28. Papers to accompany motion to confirm, modify, correct, or
vacate award. - The party moving for an order confirming, modifying,
correcting, or vacating an award, shall at the time that such motion is filed
with the court for the entry of judgment thereon also file the following papers
with the Clerk of Court;
(a) The submission, or contract to arbitrate; the appointment of the arbitrator
or arbitrators; and each written extension of the time, if any, within which to
make the award.
(b) A verified of the award.
(c) Each notice, affidavit, or other paper used upon the application to confirm,
modify, correct or vacate such award, and a copy of each of the court upon
such application.
The judgment shall be docketed as if it were rendered in an action.
The judgment so entered shall have the same force and effect in all respects,
as, and be subject to all the provisions relating to, a judgment in an action;
and it may be enforced as if it had been rendered in the court in which it is
entered.
Section 29. Appeals. - An appeal may be taken from an order made in a
proceeding under this Act, or from a judgment entered upon an award
through certiorari proceedings, but such appeals shall be limited to questions
of law. The proceedings upon such an appeal, including the judgment
thereon shall be governed by the Rules of Court in so far as they are
applicable.
Section 30. Death of party. - Where a party dies after making a submission
or a contract to arbitrate as prescribed in this Act, the proceedings may be
begun or continued upon the application of, or notice to, his executor or
administrator, or temporary administrator of his estate. In any such case, the
court may issue an order extending the time within which notice of a motion
to confirm, vacate, modify or correct an award must be served. Upon
confirming an award, where a party has died since it was filed or delivered,
the court must enter judgment in the name of the original party; and the
proceedings thereupon are the same as where a party dies after a verdict.
Section 31. Repealing clause. - The provisions of chapters one and two,
Title XIV, of the Civil Code shall remain in force. All other laws and parts of
laws inconsistent with this Act are hereby repealed. If any provision of this
Act shall be held invalid the remainder that shall not be affected thereby.
Section 32. Effectivity. - This Act shall take effect six months after its
approval.
Approved: June 19, 1953
Cases:

1. Umbao v. Yap, G.R. No. L-8933, February 28, 1957

G.R. No. L-8933 February 28, 1957

SILVERIO UMBAO, plaintiff-appellee,

vs.
SANTIAGO YAP, defendant-appellant.

E. G. Cammayo for appellant.

Mauro C. Reyes, Jr. for appellee.

BENGZON, J.:

This is an appeal from the judgment of the Manila Court of First Instance "ordering the defendant to
pay to the plaintiff the sum of P2,298.97, representing plaintiff's unpaid overtime pay while in
defendant's employ, plus P300 as attorney's fees, with interest on the amount first mentioned at the
rate of 6 per cent per annum from the date of the filing of the complaint on November 4, 1954, until
said amount has been paid in full. With costs against the defendant."

The complaint sought enforcement of an arbitration award rendered by the Wage Administration
Service in pursuance of the arbitration agreement signed by Silverio Umbao and Santiago Yap to
settle their dispute regarding unpaid wages claimed by the first as employee from the second as
employer.

The complaint alleged that in June 1954 both had agreed in writing to "submit their case to the Wage
Administration Service for investigation" and "to abide by whatever decision (said) office may render
on the case" which "they recognized . . . to be final and conclusive." It also alleged, that proper
investigation had been conducted by Severo Puncan of the same Service, who after hearing the
parties and considering their evidence, declared in a written report, respondent Yap to be liable for
unpaid wages in the amount of P2,998.97; that the award had been approved by Ruben Santos,
Acting Chief of the Service; and that Yap had refused to abide by and comply with it. The pleading
included a copy of the arbitration agreement and of the award.

The defendant's answer did not deny the existence of the covenant and of the award. But it
questioned the enforceability of both, 1 contending mainly that the Service had no legal authority to
act as arbitration, that the procedural requirements of Republic Act No. 602 had not been followed,
and that the provisions of Republic Act No. 876 known as the Arbitration Law had been disregarded.

In view of the answer, the plaintiff asked for judgment on the pleadings. And the Court, nothing non-
observance of the procedure outlined in Republic Act No. 876, gave judgment for defendant.
However upon motion to reconsider, the judge seeing differently, held the arbitration agreements to
be a contract obligatory on the parties under the provisions of the New Civil Code Arts. 2042 et seq.
Consequently he rendered judgment against defendant, the dispositive part of which has been
quoted above. Hence this appeal.

Defendant argues that the New Civil Code does not apply, because arbitration only takes place
where a covenant is entered into "whereby parties litigant by making reciprocal concessions or
agreements of facts, avoid a litigation or put an end to one already commenced" which was not the
case at bar. The argument evidently assumes that a compromise agreement is the same as an
arbitration agreement. Such assumption is error: one is different from the other; they are treated in
two separate chapters of the Code.

Again appellant argues that the award should not be executed because the arbitration had not been
appointed in accordance with rules promulgated by the Supreme Court, pursuant to Article 2046 of
the New Civil Code.

ART. 2046. The appointment of arbitrators and the procedure for arbitration shall be
governed by the provisions of such rules of court as the Supreme Court shall promulgate.

No rules have been promulgated by this Court. However the Legislature adopted such rules in
Republic Act No. 876 known as "The Arbitration Law' effective December 1953.

The question then is: has this arbitration by the Service conformed with the Act? This brings up the
appellant's first assignment of error he points out that no application had been filed in court for the
appointment of the arbitrator under Republic Act No. 876, and the court had appointed Severo
Puncan as such.

Said act was obviously adopted to supplement-not to supplant-the New Civil Code on arbitration. It
expressly declares that "the provisions of chapters one and two, Title XIV, Book of the Civil Code the
parties may select the arbitrator without court intervention. And section 8 of the Act impliedly permits
them to do so. There is nothing in Republic Act 876 requiring court permission of knowledge or
intervention before the arbitrator selected by the parties may perform his assigned work.

True, there is section 5 of the Act which provides:

SEC. 5. Preliminary procedure. An arbitration shall be instituted by:

(a) In the case of a contract to arbitrate future controversies by the service by either party
upon the other of a demand for arbitration in accordance with the contract. Such demand
shall set forth the nature of the controversy, the amount involved, if any, and the relief
sought, together with a true copy of the contract providing for arbitration. . . .

(b) In the event that one party defaults in answering the demand, the aggrieved party may
file with the Clerk of Court of First Instance having jurisdiction over the parties, a copy of the
demand for arbitration under the contract to arbitrate, . . . .

(c) In the case of the submission of an existing controversy by the filing with the clerk of the
Court of First Instance having jurisdiction, of the submission agreement, setting forth the
nature of the controversy, and the amount involved, if any. Such submission may be filed by
any party and shall be duly executed by both parties.
 (d) In the event that one party neglets, fails or refuses to arbitrate under a submission
agreement, the aggrieved party shall follow the procedure prescribed in subparagraphs (a)
and (b) of this section.

Paragraph (c) seems, at first glance, to require the institution of court proceedings. But on second
thought it will be preceived that court action is needed when one party, after entering into the
contract to arbitrate, neglets, fails or refuses to arbitrate as provided in paragraph (d) It may also be
applied where the arbitrator has not been selected by the parties who have agreed to arbitrate. The
section does not mean there can be no arbitration without a previous court actuation.

The case between herein litigants has not required court intervention from the beginning, because
they had named the arbitrator: the Administration Service2 and necessarily the proper officer,
thereof, Severo Puncan. And this defendant should not be permitted to question the authority of said
officer now, because he voluntarily submitted his evidence to him; and he only turned around to
deny such authority when the resultant verdict adversely affected his pocket. He even appealed to
the Secretary of Labor, and without questioning Puncan's authority, pleaded for exoneration on the
merits.3

So much for court initiative, and arbitrator's appointment. As to the arbitration proceedings, Republic
Act No. 876 contains provisions about the procedure to be adopted by arbitrators, their oath, the
hearings, and the form and content of the award. Even so, herein appellant asserted no prejudicial
departure therefrom.

As already stated. Republic Act No. 876 did not require court intervention (in the case at bar) prior to
the award of the arbitrator, no ground for it having arisen, as the parties voluntarily took steps to
carry out the settlement process down to the arbiter's decision. It was only after such award, when
defendant refused to comply that judicial action became necessary, thru the means afforded by the
statute:

SEC. 23. Confirmation of award. At any time within one month after the award is made,
any party to the controversy which was arbitrated may apply to the court having jurisdiction,
as provided thereupon the court must grant such order unless the award is vacated, modified
or corrected, as prescribed herein. . . .

SEC. 27. Judgment. Upon the granting of an order confirming, modifying or correcting an
award, judgment maybe entered in conformity therewith in the court wherein said application
was filed. . . . (Republic Act 876.) .

These provisions, we believe, apply whether or not the court intervened from the very beginning.

Now then, examining the complaint and the judgment entered herein in the light of the above
directions, we find substantial conformity therewith; so much so that defendant raised no issue on
the same.

Wherefore, the judgment should be, and is hereby affirmed, with costs. So ordered.

Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Reyes, J.B.L., Endencia
and Felix, JJ.,concur.
2.Continental Marble Corp. V. National Labor Relations Commission
(Nlrc);, Et Al., G.R. No. L-43825, May 9, 1988

G.R. No. L-43825 May 9, 1988

CONTINENTAL MARBLE CORP. and FELIPE DAVID, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC); ARBITRATOR JOSE T. COLLADO and
RODITO NASAYAO, respondents.

Benito P. Fabie for petitioners.

Narciso C. Parayno, Jr. for respondents.

PADILLA, J.:

In this petition for mandamus, prohibition and certiorari with preliminary injunction, petitioners seek to
annul and set aside the decision rendered by the respondent Arbitrator Jose T. Collado, dated 29
December 1975, in NLRC Case No. LR-6151, entitled: "Rodito Nasayao,
complainant, versus Continental Marble Corp. and Felipe David, respondents," and the resolution
issued by the respondent Commission, dated 7 May 1976, which dismissed herein petitioners'
appeal from said decision.

In his complaint before the NLRC, herein private respondent Rodito Nasayao claimed that sometime
in May 1974, he was appointed plant manager of the petitioner corporation, with an alleged
compensation of P3,000.00, a month, or 25% of the monthly net income of the company, whichever
is greater, and when the company failed to pay his salary for the months of May, June, and July
1974, Rodito Nasayao filed a complaint with the National Labor Relations Commission, Branch IV,
for the recovery of said unpaid varies. The case was docketed therein as NLRC Case No. LR-6151.

Answering, the herein petitioners denied that Rodito Nasayao was employed in the company as
plant manager with a fixed monthly salary of P3,000.00. They claimed that the undertaking agreed
upon by the parties was a joint venture, a sort of partnership, wherein Rodito Nasayao was to keep
the machinery in good working condition and, in return, he would get the contracts from end-users
for the installation of marble products, in which the company would not interfere. In addition, private
respondent Nasayao was to receive an amount equivalent to 25% of the net profits that the
petitioner corporation would realize, should there be any. Petitioners alleged that since there had
been no profits during said period, private respondent was not entitled to any amount.

The case was submitted for voluntary arbitration and the parties selected the herein respondent
Jose T. Collado as voluntary arbitrator. In the course of the proceedings, however, the herein
petitioners challenged the arbitrator's capacity to try and decide the case fairly and judiciously and
asked him to desist from further hearing the case. But, the respondent arbitrator refused. In due
time, or on 29 December 1975, he rendered judgment in favor of the complainant, ordering the
herein petitioners to pay Rodito Nasayao the amount of P9,000.00, within 10 days from notice. 1

Upon receipt of the decision, the herein petitioners appealed to the National Labor Relations
Commission on grounds that the labor arbiter gravely abused his discretion in persisting to hear and
decide the case notwithstanding petitioners' request for him to desist therefrom: and that the
appealed decision is not supported by evidence. 2

On 18 March 1976, Rodito Nasayao filed a motion to dismiss the appeal on the ground that the
decision of the voluntary arbitrator is final, unappealable, and immediately executory; 3 and, on 23
March 1976, he filed a motion for the issuance of a writ of execution. 4

Acting on the motions, the respondent Commission, in a resolution dated 7 May 1976, dismissed the
appeal on the ground that the decision appealed from is final, unappealable and immediately
executory, and ordered the herein petitioners to comply with the decision of the voluntary arbitrator
within 10 days from receipt of the resolution. 5

The petitioners are before the Court in the present recourse. As prayed for, the Court issued a
temporary restraining order, restraining herein respondents from enforcing and/or carrying out the
questioned decision and resolution. 6

The issue for resolution is whether or not the private respondent Rodito Nasayao was employed as
plant manager of petitioner Continental Marble Corporation with a monthly salary of P3,000.00 or
25% of its monthly income, whichever is greater, as claimed by said respondent, or entitled to
receive only an amount equivalent to 25% of net profits, if any, that the company would realize, as
contended by the petitioners.

The respondent arbitrator found that the agreement between the parties was for the petitioner
company to pay the private respondent, Rodito Nasayao, a monthly salary of P3,000.00, and,
consequently, ordered the company to pay Rodito Nasayao the amount of P9,000.00 covering a
period of three (3) months, that is, May, June and July 1974.

The respondent Rodito Nasayao now contends that the judgment or award of the voluntary arbitrator
is final, unappealable and immediately executory, and may not be reviewed by the Court. His
contention is based upon the provisions of Art. 262 of the Labor Code, as amended.

The petitioners, upon the other hand, maintain that "where there is patent and manifest abuse of
discretion, the rule on unappealability of awards of a voluntary arbitrator becomes flexible and it is
the inherent power of the Courts to maintain the people's faith in the administration of justice." The
question of the finality and unappealability of a decision and/or award of a voluntary arbitrator had
been laid to rest in Oceanic Bic Division (FFW) vs. Romero, 7and reiterated in Mantrade FMMC
Division Employees and Workers Union vs. Bacungan. 8 The Court therein ruled that it can review the
decisions of voluntary arbitrators, thus-

We agree with the petitioner that the decisions of voluntary arbitrators must be given
the highest respect and as a general rule must be accorded a certain measure of
finality. This is especially true where the arbitrator chosen by the parties enjoys the
first rate credentials of Professor Flerida Ruth Pineda Romero, Director of the U.P.
Law Center and an academician of unquestioned expertise in the field of Labor Law.
It is not correct, however, that this respect precludes the exercise of judicial review
over their decisions. Article 262 of the Labor Code making voluntary arbitration
awards final, inappealable, and executory except where the money claims exceed P l
 00,000.00 or 40% of paid-up capital of the employer or where there is abuse of
discretion or gross incompetence refers to appeals to the National Labor Relations
Commission and not to judicial review.

Inspite of statutory provisions making 'final' the decisions of certain administrative

agencies, we have taken cognizance of petitions questioning these decisions where
want of jurisdiction, grave abuse of discretion, violation of due process, denial of
substantial justice, or erroneous interpretation of the law were brought to our
attention. There is no provision for appeal in the statute creating the Sandiganbayan
but this has not precluded us from examining decisions of this special court brought
to us in proper petitions. ...

The Court further said:

A voluntary arbitrator by the nature of her fucntions acts in quasi-judicial capacity.

There is no reason why herdecisions involving interpretation of law should be beyond
this Court's review. Administrative officials are presumed to act in accordance with
law and yet we do hesitate to pass upon their work where a question of law is
involved or where a showing of abuse of authority or discretion in their official acts is
properly raised in petitions for certiorari.

The foregoing pronouncements find support in Section 29 of Republic Act No. 876, otherwise known
as the Arbitration Law, which provides:

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

The private respondent, Rodito Nasayao, in his Answer to the petition, 9 also claims that the case is
premature for non-exhaustion of administrative remedies. He contends that the decision of the
respondent Commission should have been first appealed by petitioners to the Secretary of Labor, and, if
they are not satisfied with his decision, to appeal to the President of the Philippines, before resort is made
to the Court.

The contention is without merit. The doctrine of exhaustion of administrative remedies cannot be
invoked in this case, as contended. In the recent case of John Clement Consultants, Inc. versus
National Labor Relations Commission, 10 the Court said:

As is well known, no law provides for an appeal from decisions of the National Labor
Relations Commission; hence, there can be no review and reversal on appeal by
higher authority of its factual or legal conclusions. When, however, it decides a case
without or in excess of its jurisdiction, or with grave abuse of discretion, the party
thereby adversely affected may obtain a review and nullification of that decision by
this Court through the extraordinary writ of certiorari. Since, in this case, it appears
that the Commission has indeed acted without jurisdiction and with grave abuse of
discretion in taking cognizance of a belated appeal sought to be taken from a
decision of Labor Arbiter and thereafter reversing it, the writ of certiorari will issue to
undo those acts, and do justice to the aggrieved party.
We also find no merit in the contention of Rodito Nasayao that only questions of law, and not
findings of fact of a voluntary arbitrator may be reviewed by the Court, since the findings of fact of
the voluntary arbitrator are conclusive upon the Court.

While the Court has accorded great respect for, and finality to, findings of fact of a voluntary
arbitrator 11 and administrative agencies which have acquired expertise in their respective fields, like the
Labor Department and the National Labor Relations Commission, 12 their findings of fact and the
conclusions drawn therefrom have to be supported by substantial evidence. ln that instant case, the
finding of the voluntary arbitrator that Rodito Nasayao was an employee of the petitioner corporation is
not supported by the evidence or by the law.

On the other hand, we find the version of the petitioners to be more plausible and in accord with
human nature and the ordinary course of things. As pointed out by the petitioners, it was illogical for
them to hire the private respondent Rodito Nasayao as plant manager with a monthly salary of
P3,000.00, an amount which they could ill-afford to pay, considering that the business was losing, at
the time he was hired, and that they were about to close shop in a few months' time.

Besides, there is nothing in the record which would support the claim of Rodito Nasayao that he was
an employee of the petitioner corporation. He was not included in the company payroll, nor in the list
of company employees furnished the Social Security System.

Most of all, the element of control is lacking. In Brotherhood Labor Unity Movement in the Philippines
vs. Zamora, 13the Court enumerated the factors in determining whether or not an employer-employee
relationship exists, to wit:

In determining the existence of an employer-employee relationship, the elements that

are generally considered are the following: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the
employer's power to control the employee with respect to the means and methods by
which the work is to be accomplished. It is the so-called "control test" that is the most
important element (Investment Planning Corp. of the Phils. vs. The Social Security
System, 21 SCRA 924; Mafinco Trading Corp. v. Ople, supra, and Rosario Brothers,
Inc. v. Ople, 131 SCRA 72). <re|| an1w>

In the instant case, it appears that the petitioners had no control over the conduct of Rodito Nasayao
in the performance of his work. He decided for himself on what was to be done and worked at his
own pleasure. He was not subject to definite hours or conditions of work and, in turn, was
compensated according to the results of his own effort. He had a free hand in running the company
and its business, so much so, that the petitioner Felipe David did not know, until very much later,
that Rodito Nasayao had collected old accounts receivables, not covered by their agreement, which
he converted to his own personal use. It was only after Rodito Nasayao had abandoned the plant
following discovery of his wrong- doings, that Felipe David assumed management of the plant.

Absent the power to control the employee with respect to the means and methods by which his work
was to be accomplished, there was no employer-employee relationship between the parties. Hence,
there is no basis for an award of unpaid salaries or wages to Rodito Nasayao.

WHEREFORE, the decision rendered by the respondent Jose T. Collado in NLRC Case No. LR-
6151, entitled: "Rodito Nasayao, complainant, versus Continental Marble Corp. and Felipe David,
respondents," on 29 December 1975, and the resolution issued by the respondent National Labor
Relations Commission in said case on 7 May 1976, are REVERSED and SET ASIDE and another
one entered DISMISSING private respondent's complaints. The temporary restraning order
heretofore isued by the Court is made permanent. Without costs.

SO ORDERED.

Yap, C.J, Melencio-Herrera, Paras and Sarmiento, JJ, concur.

3, Malayan Insurance Co., Inc. v. St. Francis Square Realty, G.R Nos.
198916-17, 198920-21, 11 January 2016

January 11, 2016

G.R. Nos. 198916-17

MALAYAN INSURANCE COMPANY, INC., Petitioner,

vs.
ST. FRANCIS SQUARE REALTY CORPORATION, Respondent.

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

G.R. Nos. 198920-21

ST. FRANCIS SQUARE REALTY CORPORATION, Petitioner,

vs.
MALAYAN INSURANCE COMPANY, INC., Respondent.

DECISION

PERALTA, J.:

This resolves the Petition for Partial Review on Certiorari under Rule 45 of the Rules of Court filed by
Malayan Insurance Company, Inc. and the Petition for Review filed by St. Francis Square Realty
Corporation, both seeking to reverse and/or modify the Court of Appeals Decision1 dated January 27,
2011 in CA-G.R. SP Nos. 109286 and 109298, which affirmed with modifications the Award2 dated
March 27, 2009 of the Construction Industry Arbitration Commission (CIAC) in CIAC CASE No. 33-
2008 entitled "ST. FRANCIS SQUARE REALTY CORPORATION, Claimant, - versus- MALAYAN
INSURANCE COMPANY, INC., Respondent."
Malayan Insurance Company, Inc. (Malayan) is a duly-organized domestic corporation engaged in
insurance business. Formerly known as ASB Realty Corporation (ASB), St. Francis Square Realty
Corporation (St. Francis) is a duly-organized domestic corporation engaged in real estate
development.

The admitted facts are as follows:

1. The parties respective juridical existence;

1.1 The ASB Group of Companies, which include the ASB Realty Corporation (now
St. Francis Square Realty Corp.), is under rehabilitation with the Securities and
Exchange Commission (SEC) pursuant to a petition dated May 2, 2000;

2. [Malayan], as Owner, and [St. Francis], as Developer, executed a Joint Project Development
Agreement (JPDA) on 09 November 1995 for the construction, development and completion of what
was then known as "ASB Malayan Tower" ("the Project"), originally a 50-storey office/residential
condominium located at the ADB Avenue cor. Opal St., Ortigas Center, Pasig City.

3. [Malayan] is the absolute and registered owner of the parcel of land (the Lot) in Pasig City where
the Project is located, as evidenced by Transfer Certificate of Title No. PT-78585 xxx;

4. The Certificate of Registration No. 96-04-2701 issued by the Housing Land Use and Regulatory
Board (HLURB) on 12 April 1996 shows that [Malayan] is the Owner and [St. Francis] is the
developer xxx;

5. The License to Sell No. 96-05-2844 issued by the HLURB also refers to [Malayan] as the Owner
and [St. Francis] as Developer xxx;

6. The Master Deed with Declaration of Restrictions of the ASB-Malayan Tower dated 13 May 1996
approved by the HLURB and registered with the Register of Deeds of Pasig City, sets forth Malayan
as "the Developer (absolute and registered owner) x x x ;

7. ASB Realty Corporation [

" now, St. Francis] was not able to complete the Project;

7.1 The parties executed a Memorandum of Agreement (MOA) on 30 April 2002,

under which [Malayan] undertook to complete the condominium project then known
as "ASB Malayan Project" that later became Malayan Plaza Tower" xxx;

8. The MOA was approved by the SEC;

9. The Lot was the subject of a Contract to Sell between [Malayan] as seller and [St. Francis] as
buyer, but [St. Francis] was unable to completely perform its obligation under the Contract to Sell;

10. Under Sec. 2 of the MOA, [Malayan] "shall invest the amount necessary to complete the Project",
among other obligations;

11. The basis for the distribution and disposition of the condominium units is the parties respective
capital investments in the Project as provided in Sec. 4 of the MOA;
 11.1 [St. Francis] represented and warranted to Malayan that Malayan can complete
the Project at a cost not exceeding Php452,424,849.00 (the Remaining Construction
Cost [RCC]) [Sec. 9 of MOA].

12. The net saleable area included in Schedule 4 of the 30 April 2002 MOA ("Reserved Units")
originally covered fifty-three (53) units with thirty-eight (38) parking spaces. The aforesaid 53
Reserved Units became only thirty-nine (39) units after a reconfiguration was done;

13. The aggregate monetary value of the Reserved Units as fixed by [St. Francis], is One Hundred
Seventy-Five Million Eight Hundred Fifty-Six Thousand Three Hundred Twenty-Three Pesos and
05/100 (P175,856,323.05);

14. Under the MOA, [Malayan] assumed vast powers and revoked all authorities previously granted
to [St. Francis] (Section 8 of the MOA, xxx), with the exception of including [St. Francis] in the
bidding committee for bidding of material and services requirements of the Project (Section 9,
paragraph v of the MOA, xxx). The general supervision, management and control of the day-to-day
operations were undertaken by [Malayan] (Section 5, paragraph b of the MOA, xxx) but under Sec. 9
of the MOA, "Malayan shall allow one (1) representative of [St. Francis] to observe the development
and completion of the Project";

15. On 24 August 2006, [St. Francis] sent a letter to [Malayan] seeking to reconcile several items
amounting to P133.64 million xxx;

16. There was a change in the specification of the floor finish from Narra Parque[t] to Kendall
Laminated Flooring;

17. [Malayan] made interest expense, amounting to P37,705,346.62 as of August 2006, as part of its
actual construction cost on that date;

18. [St. Francis] filed a case against the Register of Deeds of Pasig City and Atty. Francis Serrano
docketed as OMB-C-C-06-0583-J before the Office of the Ombudsman due to alleged alterations on
the Condominium Certificates of Title over the units comprising the net saleable area in Schedule 4
of the MOA;

19. [Malayan] has included some of the units under Schedule 4 of the MOA in the condotel pool
managed by Quantum Hotels and Resorts from which it derives income;

20. Despite the completion of the Project and the turnover of the units to [St. Francis], [Malayan],
and other buyers of units, the issue of actual cost of construction has not been resolved to the
mutual satisfaction of the parties; and

21. The parties agreed to submit a list of documents that they admitted the authenticity and due
execution thereof.3

On November 7, 2008, St. Francis filed with the CIAC a Complaint with Prayer for Interim Relief
against Malayan. St. Francis alleged that in August 2006, it secured a copy of a document entitled
"cost to complete" from Malayan which fixed the Actual Remaining Construction Cost (ARCC) at
P614,593,565.96. It disputed several cost items in the ARCC, amounting to P145,487,496.42, and
argued that their exclusion would entitle it to some reserved units.
On December 8, 2008, Malayan filed a Verified Answer (With Grounds for Immediate Dismissal),
claiming that St. Francis failed to state a cause of action because the ARCC had already reached
P635,018,369.05 as of November 30, 2008, thereby exceeding the Remaining Construction Cost
(RCC) [P452,424,849.00] by more than the aggregate value of the reserved units
[P175,856,323.05]; hence, St. Francis is no longer entitled to any of such units.

On January 20, 2009, a preliminary conference was held where the parties stipulated on facts,
formulated issues, and drafted and signed the Terms of Reference (TOR) which would govern the
proceedings of the case. Aside from the above-stated admitted facts, the TOR, which was later
amended, listed the following issues to be determined by the CIAC:

2. What is the meaning or scope of the term Remaining Construction Cost (RCC) as used in the
MOA as stated in Par. 11.1 of the Admitted Facts?

2.1. What is the meaning or scope of the term "actual remaining construction cost" as
used in the MOA?

2.2. Specifically, were the following costs and expenses part of the actual remaining
construction cost incurred by [Malayan] and questioned by [St. Francis] to wit:

2.2.1. Awarded contracts, specifically those pertaining to Narra Parquet

Works, Interior Design Works, Sanitary/Plumbing and Fire Protection Works,
Additional Consultants Fees and Audio Intercom and Paging System;

2.2.2. Change Orders, pursuant to the reconfiguration done on several of the

units;

2.2.3. Interest Expense from loans incurred to finance the construction,

development and completion of the Project;

2.2.4. Input Value Added Taxes ("VAT") paid to the government for goods
and services utilized from the Project;

2.2.5. Attendance Fees;

2.2.6. Alleged Prolongation Costs and Extended Overhead;

2.2.7. Judgment Award in CIAC Case No. 27-2007 (TVI v MICO); [Additional
issue from TOR Amendment]

2.2.8. Contractors All Risk Insurance;

2.2.9. Contingency Costs.

2.2.10 Other costs as mentioned in Exhibit "R-24" [Additional issue from TOR
Amendment]

3. What is the total capital investment or contribution respectively of [St. Francis] and [Malayan] to
the Project per MOA? [Additional issue from TOR Amendment]
4. What is the actual remaining construction cost to complete the Project spent by [Malayan] as of
today in excess of [St. Francis] estimate RCC?

5. After completion of the Project and computation of the actual remaining construction costs to
complete the same, is [St. Francis] still entitled to any of the Reserved units in Schedule 4 of the
MOA?

5.1. If so, is [St. Francis] entitled to the income therefrom?

6. Is [Malayan] entitled to its Counterclaim for the excess in the actual remaining construction cost it
incurred vis--vis the value of the Reserved Units?

7. Which party is entitled to attorneys fees?

[7.1] How much?

[8.] Which party shall bear the cost of arbitration?4

On March 2, 2009, St. Francis submitted the Joint Affidavit of Witnesses of Claimant, while Malayan
submitted the Joint Affidavit of Respondents Witnesses. Thereafter, both parties submitted their
respective Joint Reply-Affidavits. Malayan also filed a Joint Affidavit of Respondents Witnesses by
Way of (1) Evidence for New Issue No. 3 Defined under the Amended Terms of Reference; (2) Sur-
Rejoinder Affidavit of Claimants Witnesses; and (3) Redirect Examination.

Trial ensued during which the witnesses of St. Francis and Malayan testified. Both parties likewise
submitted Lists of Exhibits. After trial, the parties simultaneously filed on April 27, 2009 their
respective Memoranda in the form of Draft Decisions.

On May 27, 2009, the CIAC rendered its Award, the dispositive portion of which states:

WHEREFORE, AWARD is hereby made as follows:

FOR THE CLAIMANT[St. Francis]:

GRANT[S] its claims for DISALLOWANCES amounting to 52,864,385.00 from the ARCC of
P614,593.565.96 under Exhibit C-3;

ALLOCATES 37.8% ownership over the Reserved Units (P66,551,993.09/P175,856,325.05);

As a consequence of these awards, Respondent [Malayan] is hereby DIRECTED to deliver

possession and transfer title over the Reserved Units in the proportion hereby stated.

GRANTS 37.8% proportionate share of the income realized from rentals of the Reserved Units
up to the present date.

As a consequence of these awards, Respondent [Malayan] is hereby DIRECTED to pay the

Claimant [St. Francis] its proportionate share in the income from the Reserved Units.

FOR THE RESPONDENT [Malayan]:

ALLOCATES 62.2% proportionate share of the income realized from rentals of the Reserved Units
up to the present date (P109,304,331.96/P175,856,325.05);

GRANTS 62.2% proportionate share of the income realized from rentals of the Reserved Units
up to the present date.

FOR BOTH CLAIMANT [St. Francis] and RESPONDENT [Malayan], all their Claims and
Counterclaims for Attorneys Fees are DENIED. Arbitration costs are maintained according to
the pro rata sharing that they had initially shared.

SO ORDERED.5

Dissatisfied with the CIAC Award, both parties filed with the Court of Appeals (CA) their respective
Petitions for Review under Rule 43 of the Rules of Court. On January 27, 2011, the CA affirmed with
modifications the CIAC Award, the dispositive portion of the decision reads:

WHEREFORE, premises considered, the CIACs Award is hereby AFFIRMED subject to the
following modifications:

1) The total amount of deductions should be P15,135,166.51 and this is, in turn, shall
be deducted from the Total Actual Remaining Construction Cost
of P615,880,672.47 to arrive at the Net amount of P600,745,505.96 as computed
above;

2) St. Francis should be entitled to 16% ownership over the reserved units
(P27,535,668.09/P175,856,325.05) ownership of the reserved units to be done by
drawing of lots with the corresponding interest thereon;

3) As a consequence of the above awards, Malayan is hereby DIRECTED to deliver

possession and transfer title over the reserved units in accordance and in the
proportion above-stated and to pay St. Francis its proportionate share in the income
from the reserved units reckoned from the date of completion of the Project, that is
from June 7, 2006 up to the finality of this decision, and to render full accounting of
all the rentals and such other income derived from said reserved units so awarded to
St. Francis;

4) Arbitration Costs shall be maintained pro rata in accordance with their respective
shares in the reserved units.

5) Malayan and all others claiming rights under it, are enjoined from exercising acts
of ownership over the reserved units relative to the proportionate share awarded to
St. Francis hereunder;

6) The concerned Register of Deeds is directed to immediately reinstate the name of

St. Francis Square Realty Corporation (formerly ASB Realty Corporation) as the
registered owner in the corresponding Condominium Certificates of Title Covering
the reserved units herein awarded to St. Francis; and

7) All other awards granted by CIAC in its Award dated 27 May 2009 not affected by
the above modifications are affirmed. No costs.
SO ORDERED.6

Aggrieved by the CA decision, both parties filed their respective motions for reconsideration, which
were denied in the Resolution dated October 4, 2011. Hence, the present petitions of both parties.

St. Francis raises the following issues:

I.

The Court of Appeals gravely erred in ruling that interest [expenses] should be part of the actual
remaining construction cost. The ruling is contrary to law and the evidence on record.

II.

The Court of Appeals committed serious error in finding that the actual construction cost is
P554,583,160.20. The ruling is contrary to law and the evidence on record.

III.

The Court of Appeals erred in considering VAT as part of the ARCC. This is contrary to the facts and
records of the case.

IV.

The Court of Appeals committed grave error in allowing the inclusion of the alleged cost of the
Contractors All Risk Insurance as part of the ARCC. This is contrary to law and the records of the
case.

V.

The Court of Appeals committed grave and serious error on its allocation of the reserved units. This
is contrary to law and the records of the case.7

On the other hand, Malayan raises the following issues:

A.

THE COURT OF APPEALS COMMITTED SERIOUS LEGAL ERROR IN PLACING THE BURDEN
ON MALAYAN TO PROVE THAT IT HAD ACTUALLY INCURRED THE ARCC, DESPITE THE
FACT THAT DURING THE ARBITRAL PROCEEDINGS, ST. FRANCIS HAD NEVER DISPUTED,
AND THEREFORE, ADMITTED, THAT MALAYAN HAD INCURRED THE ARCC. THE COURT OF
APPEALS THUS DECIDED A QUESTION OF SUBSTANCE DEFINITELY NOT IN ACCORD WITH
THE BASIC LEGAL PRINCIPLE THAT A PARTY NEED NOT PROVE WHAT HAS NOT BEEN
RAISED, DISPUTED OR PUT IN ISSUE.

B.

THE COURT OF APPEALS SERIOUSLY ERRED IN ALLOWING ST. FRANCIS TO BELATEDLY

CHANGE ITS THEORY IN ITS DRAFT DECISION FILED WITH THE CIAC AND ITS APPEAL. THE
COURT OF APPEALS THUS DECIDED A QUESTION OF SUBSTANCE IN DISREGARD OF THE
BASIC DUE PROCESS TENET THAT A PARTY CANNOT CHANGE ITS THEORY AFTER TRIAL
OR ON APPEAL BECAUSE IN BOTH CASES THE OTHER PARTY IS DEPRIVED OF THE
OPPORTUNITY TO MEET THE NEW ISSUES.

C.

THE COURT OF APPEALS SERIOUSLY ERRED IN DISREGARDING UNCONTROVERTED

TESTIMONIAL EVIDENCE THAT MALAYAN HAD ACTUALLY INCURRED ITS ARCC, AND
FOCUSING EXCLUSIVELY ON DOCUMENTARY EVIDENCE.

D.

THE COURT OF APPEALS SERIOUSLY ERRED IN EXCLUDING THE FOLLOWING COSTS

FROM THE ARCC, DESPITE THE FACT THAT THEY WERE PROPER, NECESSARY AND
REASONABLE FOR THE COMPLETION OF THE PROJECT:

1. CHANGE ORDERS DUE TO RECONFIGURATION;

2. CHANGE ORDERS NOT DUE TO RECONFIGURATION;

3. HALF OF THE COSTS FOR THE NARRA PARQUET WORKS;

4. HALF OF THE COSTS FOR THE COMPREHENSIVE ALLRISK INSURANCE

(CARI);

5. HALF OF THE COSTS FOR THE INTERIOR DESIGN WORKS;

6. CONTINGENCY COSTS; AND

7. COSTS INCURRED AND/OR PAID AFTER JUNE 2006.

E.

THE COURT OF APPEALS SERIOUSLY ERRED IN RULING THAT ST. FRANCIS IS ENTITLED
TO SOME OF THE RESERVED UNITS. MALAYANS ARCC EXCEEDED THE ST. FRANCIS
WARRANTED RCC BY MORE THAN THE VALUE OF THE RESERVED UNITS. HENCE, ST.
FRANCIS SHOULD NOT GET EVEN ONE OF THE RESERVED UNITS.

F.

THE COURT OF APPEALS SERIOUSLY ERRED IN RULING THAT ST. FRANCIS IS ENTITLED
TO THE INCOME RECEIVED BY MALAYAN FROM ST. FRANCISS (sic) SHARE IN THE
RESERVED UNITS, IF ANY, MALAYAN IS ENTITLED TO ALL OF THE RESERVED UNITS. AND
EVEN ASSUMING ARGUENDO THAT ST. FRANCIS IS ENTITLED TO SOME RESERVED UNITS,
THE COURT OF APPEALS DIRECTIVE IS IN DISREGARD OF ARTICLE 1187 OF THE CIVIL
CODE.

G.
THE COURT OF APPEALS SERIOUSLY ERRED IN NOT AWARDING MALAYAN ITS
COUNTERCLAIMS AS WELL AS ATTORNEYS FEES, AND IN NOT ORDERING ST. FRANCIS TO
BEAR ALL THE COSTS OF ARBITRATION.8

The Court finds partial merit in both the petition for review of St. Francis and the petition for partial
review on certiorari of Malayan.

In resolving in seriatim all the issues raised by both parties, the Court is guided by the rule that
findings of fact of quasi-judicial bodies, which have acquired expertise because their jurisdiction is
confined to specific matters, are generally accorded not only respect, but also finality, especially
when affirmed by the CA. In particular, factual findings of construction arbitrators are final and
conclusive and not reviewable by this Court on appeal.9

As exceptions, however, factual findings of construction arbitrators may be reviewed by the Court
when the petitioner proves affirmatively that: (1) the award was procured by corruption, fraud or
other undue means; (2) there was evident partiality or corruption of the arbitrators or any of them; (3)
the arbitrators were guilty of misconduct in refusing to hear evidence pertinent and material to the
controversy; (4) one or more of the arbitrators were disqualified to act as such under Section Nine of
Republic Act No. 876 and willfully refrained from disclosing such disqualifications or of any other
misbehavior by which the rights of any party have been materially prejudiced; or (5) the arbitrators
exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon
the subject matter submitted to them was not made; (6) when there is a very clear showing of grave
abuse of discretion resulting in lack or loss of jurisdiction as when a party was deprived of a fair
opportunity to present its position before the Arbitral Tribunal or when an award is obtained through
fraud or the corruption of arbitrators; (7) when the findings of the CA are contrary to those of the
CIAC, and (8) when a party is deprived of administrative due process.10 Apart from conflicting
findings of fact of the CA and the CIAC as to the propriety of some arbitral awards, mathematical
computations, and entitlement to claim certain costs as part of the amount necessary to complete
the project, none of the other exceptions above was shown to obtain in this case. Hence, the Court
will not disturb those findings where the CA and the CIAC are consistent with each other, but will
review their findings which are inconsistent and cannot be reconciled.

The Court will discuss first the issues raised by St. Francis.

I. Interest expense

The CIAC stated that only costs directly related to construction costs can be included in the ARCC
because such intention of the parties in the MOA can be inferred from the fact that the baseline or
starting point for the determination of the ARCC is the estimate made by St. Francis based on
Schedule 9 of the MOA.11 The CIAC held that the ARCC was intended to be spent within and among
the four categories above exclusively, subject to adjustments by reason of price increases and
awarded contracts. It also rejected Malayans theory that costs which are not directly incurred for the
construction, but which are actually related to it and to the completion of the building, should be
included in the ARCC. According to the CIAC, such could not have been the intention of the parties;
otherwise, St. Francis would be placed at the complete mercy of Malayan since the determination of
what costs are related to construction is left to the latters entire discretion. Had such been the
intention, the parties would have set up standards to guide the discretion in determining what
expenses or costs are related to construction so as to be included in the term ARCC. Without such
standards, the validity of the MOA would have been questionable, as its interpretation would
contravene Article 1308 of the New Civil Code which provides that the performance of a contract
cannot be left to the will of one of the parties.
The CA reversed the CIAC ruling and held that Malayan had to obtain loans in order to finance the
completion of the project, and in doing so, it incurred interests which are deemed as an accessory of
such loans. It added that actual expenditures should not be limited only to traditional construction
costs as the parties intention was to include those relative to the actual completion of the project, for
which Malayan had to invest in the form of seeking loan facilities from banking institutions in order to
fully finance the obligations set forth in the MOA. It also stressed that it was specifically stated in the
MOA that the parties investment in the project would be distributed in accordance with their
respective contributions

St. Francis contends that interest expense should not be included in the computation of the Actual
Remaining Construction Cost (ARCC). According to St. Francis, the term ARCC should be
understood in its ordinary context or plain meaning. The word "construction" refers to all on-site work
on buildings or altering structures from land clearance through completion, including excavation,
erection and the assembly and installation of components and equipment. Plainly, ARCC is the
actual cost of completing and building the structure which is the condominium/project.

Malayan counters that the MOA itself is replete with provisions recognizing the parties contractual
intent to include the ARCC interest expense and the parties respective capital contributions or
investment in the project. Such intent is confirmed by the parties contemporaneous and subsequent
acts when St. Francis own interest expense was credited to determine the number of units it was
entitled to.

The Court upholds the CIAC ruling to disallow the interest expense from loans secured by Malayan
to finance the completion of the project, and thus, reverses the CA ruling that such expense in the
amount of P39,348,659.88 should be included in the computation of the ARCC. As correctly held by
the CIAC, only costs directly related to construction costs should be included in the ARCC. Interest
expense should not be included in the computation of the ARCC because it is not an actual
expenditure necessary to complete the project, but a mere financial cost. As will be discussed later,
the term ARCC should be construed in its traditional "construction" sense, rather than in the
"investment" sense.

It also bears emphasis that part of Malayans investment under Section 2 of the MOA12 is the
payment of P65,804,381.00 as the principal amount of the loan obtained by ASB from the Rizal
Commercial Banking Corporation (RCBC) to finance the project. If it were the intention of the parties
to include interest expense as part of their investments, or even the ARCC, then the MOA would
have expressly indicated such intent in the provisions on investments of Malayan and of ASB.
Nowhere in the provisions of the MOA can it be gathered that interest expense is included in the
computation of the ARCC.

Apart from the ARCCs definition as actual expenditures necessary to complete the project, the
closest provision in the MOA that could shed light on the scope and meaning of ARCC is Section 9
on the Remaining Construction Cost (RCC) whereby St. Francis represented and warranted that
Malayan can complete the project at a cost not exceeding P452,424,849.00 as set forth in ASBs
Construction Budget Report, which reads:

Estimated Cost to Complete

I. Balance to Complete Existing Contracts - Php 161,098,039.86

II. Unawarded Contracts 224,045,419.16
III. Professional Fee 4,138,108.08
IV. Contingencies 63,143,281.10
 Php 452,424,849.10

The Court concurs with the CIAC that the ARCC was intended to be spent within and among the four
categories above, subject to adjustments by reason of price increases and awarded contracts. In
construction parlance, "contingency" is an amount of money, included in the budget for building
construction, that is uncommitted for any purpose, intended to cover the cost of unforeseen factors
related to the construction which are not specifically addressed in the budget.13 Being a cost of
borrowing money, interest expense from bank loans to finance the project completion can hardly be
considered as a cost due to unforeseen factors.

That interest expense cannot be considered as part of any of the said categories is further
substantiated by the reports of the Davis Langdon Seah Philippines, Inc. (DLS) and Surequest
Development Associates (Surequest), which contain traditional construction cost components and
items, but not investment costs such as interest expense. As the one who engaged the services of
both DLS and Surequest to come up with a valuation of the cost to complete the project and to
evaluate what had been accomplished in the project prior the take-over, Malayan cannot deny that
interest expense is not included in their computation of the construction costs.

As regards the supposed contemporaneous act of St. Francis of including the amount of
P207,500,000.00 as interest expense in its claim for reimbursement for its contributions in the
project, in the form of several units per Schedules 1 and 3 of the MOA, the Court cannot determine
whether or not such expense should be considered as its contribution for purposes of computing the
return of capital investment. Unlike the investment of Malayan which is specifically stated under
Section 214 of the MOA, but does not include payment of interest of the bank loan to finance the
project, the investment of ASB (now St. Francis) is merely described as follows:

Section 3. Recognition of ASBs Investment. The parties confirm that as of the date hereof, ASB
invested in the Project an amount equivalent to its entitlement to the net saleable area of the
Building under Section 4 below, including ASBs interest as buyer under the Contract to Sell.

From such vague definition of ASBs investment, the Court cannot rule if St. Francis should also be
disallowed from claiming interest expense as part of its investment, unlike Malayan which is
disallowed from including interest expense as part of the ARCC contemplated in the MOA, because
such financial cost is not an actual expenditure necessary to complete the project. Having in mind
the rule that the interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity,15 the Court cannot give credence to the August 1, 2000 telefax of Evelyn
Nolasco, St. Francis former Chief Financial Officer (CFO), to Malayans CFO, Gema Cheng, which
shows St. Francis computation for reimbursement, including the claim of P207,500,000.00 as
interest expense.

Further negating Malayans claim that interest expense should be included in the computation of the
ARCC is the restrictive construction industry definition of the term "construction cost" which means
the cost of all construction portions of the project, generally based upon the sum of the construction
contract(s) and other direct construction costs; it does not include the compensation paid to the
architect and consultants, the cost of the land, right-of-way, or other costs which are defined in the
contract documents as being the responsibility of the owner.16 Aside from the fact that such expense
is not a directly related construction cost, Section 2 of the MOA states that Malayans investment
includes, among other matters, the amount it had paid to RCBC, on behalf of ASB, for the principal
loan to finance the project, but not the interest thereof. This casts doubt on Malayans claim that the
parties intended interest expense to become part of their capital contribution, let alone the ARCC.
In view of the foregoing discussion, the Court will no longer delve into Malayans two other
contentions on the issue of interest expense, namely: (1) that since St. Francis only claimed that
such expense cannot be included as part of the ARCC as the same is not a direct construction cost,
it cannot now change its theory and argue that there is no substantial evidence to show that Malayan
incurred such expense in completing the project because it is deemed to have admitted the same,
and allowing St. Francis to do so would amount to a prohibited change of its theory; and (2) that
Malayan was able to prove that it incurred interest expense on loans which were used to finance
completion of the project.

II. Scope and total amount of ARCC

According to the CIAC, ARCC refers to actual expenditures made by Malayan to complete the
project. What is proper and necessary to complete the project is the essence of the dispute between
the parties. As used in the MOA, ARCC should be understood in the traditional "construction" sense
rather than in "investment" sense. The dispute is a construction dispute and not an investment
dispute which would have taken the dispute outside the ambit of construction arbitration. Notably,
the cost component/pay items stated in Exhibit "C-2" (MOA Schedule 9), Exhibit "R-7" (Surequest
Report) and Exhibit "R-8" (Davis Langdon Seah Report) contain basic and traditional construction
cost, and not investment cost which is broader in scope. As to the amount of the ARCC, CIAC held
that it is P614,593,565.96 as stated in Exhibit "C-3"17 which was prepared by Malayan itself and
submitted to St. Francis. Exhibit "C-3" listed the expenses incurred as of August 10, 2006 which was
close enough to the project completion date of June 7, 2006, as a basis to determine what items
should be disallowed therefrom.

Reversing the CIACs ruling, the CA held that actual expenditures should not be limited only to
traditional construction cost as the parties intention when they executed the MOA was to also
include expenditures relative to the actual completion of the project. It noted that the clear intention
of the parties that whatever expenditures they have spent shall be considered as their investment
subject to the proportionate sharing after determining the actual construction cost, can be gleaned
from the following provisions of the MOA:

Section 2. Investment of Malayan. Subject to the provisions of Section 9 below, Malayan shall invest
the amount necessary to complete the Project and the following amounts:

xxxx

Section 3. Recognition of [St. Francis] Investment. The parties confirm that as of the date hereof,
[St. Francis] invested in the Project an amount equivalent to its entitlement to the net saleable area
of the Building under Section 4 below, including [St. Francis] interest as buyer under the Contract to
Sell.

Section 4. Distribution and Disposition of Units (a) As a return of its capital investment in the
Project, each party shall be entitled to such portion of all the net saleable area of the Building that
their respective contributions to the Project bear to the actual construction cost. As of the date of the
execution hereof, and on the basis of the total costs incurred to date in relation to the Remaining
Construction Cost (as defined in Section 9(a) hereof), the parties shall respectively be entitled to the
following (which entitlement shall be conditioned on, and subject to, adjustments as provided in sub-
paragraph [b] of Section 4 in the event that the actual remaining construction cost exceeds the
Remaining Construction Cost):

The CA stressed that based on its reading of the MOA in its entirety, the ARCC clearly means the
"investment" incurred as contributed by Malayan in the completion of the project, and that there
being no ambiguity in the MOA, its literal meaning is controlling. The CA added that its interpretation
is consistent with the rule that when the terms of agreement have been reduced into writing, it is
considered as containing all the terms agreed upon by the parties and there can be between the
parties and their successors-in-interest, no evidence of such terms other than the contents of the
written agreement.

As to the amount of the ARCC, the CA found that the gross ARCC based on evidence is
P554,583,160.20 [Including 1/11% Input VAT and 2% Withholding Tax], while the net payment is
P552,152,508.70. According to the CA, St. Francis and Malayan correctly argued that the CIAC
mainly relied on Exhibit "C-3" which is a mere summary of the expenses or a tabulation of figures
incurred by Malayan without any other supporting documents to prove the contents and authenticity
of the figures stated therein. In determining the ARCC, the CA thus reviewed the records and ruled
that Exhibit "C-3" and Exhibit "R-24"18 [Project Cost to Complete as of October 2008 amounting to
P648,266,145.96] should be utilized vis--vis Exhibit "R-48-series" which contain construction costs
and computations supported by receipts, vouchers, checks and other documents that are necessary
to arrive at the final computation of the ARCC. In this regard, St. Francis agrees with the CA that
Exhibit "R-48-series" should be taken into account because it contains computations supported by
such documentary evidence, but gravely erred in considering only the summaries in such exhibit
without actually verifying and counter-checking if the amounts indicated in the summaries actually
correspond to the amounts reflected in the supporting documents. St. Francis points out that the
ARCC considered as being claimed by Malayan that are actually receipted is only P514,179,217.94
based on Exhibit "R-48-series."

Due to the conflicting findings of the CIAC and the CA on the scope, meaning and computation of
the ARCC, the Court is compelled to review them in light of the evidence on record.

As duly noted by the CA, the controversy between St. Francis and Malayan lies in the interpretation
of the term "Actual Remaining Construction Cost" (ARCC) in relation to the Estimated Remaining
Construction Cost (RCC), in order to determine the proportionate ownership over the reserved units,
if any, as embodied in their Memorandum of Agreement dated April 30, 2002, the pertinent
provisions of which read:

Section 4. Distribution and Disposition of Units (a) As a return of its capital investment in the
Project, each party shall be entitled to such portion of all the net saleable area of the Building that
their respective contributions to the Project bear to the actual construction cost. As of the date of the
execution hereof, and on the basis of the total costs incurred to date in relation to the Remaining
Construction Cost (as defined in Section 9(a) hereof), the parties shall respectively be entitled to the
following (which entitlement shall be conditioned on, and subject to, adjustments as provided in sub-
paragraph [b] of Section 4 in the event that the actual remaining construction cost exceeds the
Remaining Construction Cost):

xxx

(ii) ASB [now, St. Francis] the following net saleable area:

(C) provided that the actual remaining construction costs do not exceed the Remaining
Construction Cost, the net saleable area particularly described in Schedule 4 hereof which shall be
delivered to [St. Francis] upon completion of the Project and determination of its actual construction
costs. If the actual remaining construction costs exceed the Remaining Construction Cost, sub-
paragraph (b) of Section 4 shall apply.
(b) In the event that the actual remaining construction costs exceed the Remaining Construction
Cost as represented and warranted by [St. Francis] to Malayan under Section 9(a) hereof, and
Malayan pays for such excess, the pro rata sharing in the net saleable area of the Building, as
provided in sub-paragraph (a) of this Section 4 shall be adjusted accordingly. In such event, Malayan
shall be entitled to such net saleable area in Schedule 4 that corresponds to the excess of
the actual remaining cost over the Remaining Construction Cost.

xxx

Section 9. Remaining Construction Cost (a) [St. Francis] represents and warrants to Malayan that
Malayan can complete the Project at a cost not exceeding Four Hundred Fifty-Two Million Four
Hundred Twenty-Four Thousand Eight Hundred Forty-Nine Pesos (P452,424,849) (the Remaining
Construction Cost) as set forth in [St. Francis] Construction Budget Report attached hereto and
made an integral part hereof as Schedule 9 that:

xxx

(b) Malayan shall pay for any additional costs and expenses that may be incurred in excess of the
Remaining Construction Cost. In such event, it shall be entitled to such net saleable area as
indicated in Schedule 4 that corresponds to the increase in remaining construction cost. [St. Francis]
shall be entitled to such net saleable area, if any, remaining in the aforesaid Schedule 4.19

The ultimate purpose of determining the ARCC, as simply stated by CIAC, is to determine the
proportionate or absolute ownership of the properties over the net saleable area of the building
(Reserved Units), as provided in sub-paragraph (a) of Section 4 of the MOA, by calculating how
much was spent by Malayan to complete the project in excess of the estimate (Remaining
Construction Cost) made by St. Francis.

After a careful review of the MOA as to the scope and meaning of the term "ARCC," the Court
sustains the CIAC that such term should be understood as the actual expenditures necessary to
complete the project, which is the traditional "construction" sense rather than the "investment" sense.
The Court thus reverses the CAs ruling that the parties intention was to also include in the
computation of the ARCC whatever expenditures relative to the actual completion of the project, as
such expenses are considered as their investment subject to the proportionate sharing after
determining the actual construction cost.

It bears stressing that the intent of the parties in entering into the MOA is to provide for the terms
and conditions of the completion of the Project and the allocation of the ownership of condominium
units in the Project among themselves.20 To recall, Malayan and St. Francis (then ASB) entered into
the Joint Project Development Agreement (JPDA) dated November 9, 1995 to construct a thirty-six
(36)-storey condominium [but originally a fifty (50)-storey-building] whereby the parties agreed (a)
that Malayan would contribute a parcel of land, and ASB would defray the construction cost of the
project, and (b) that they would allocate the net saleable area of the project, as return of their capital
investment. In a Contract to Sell dated November 20, 1996, Malayan also agreed to sell the said
land to ASB (now St. Francis) for a consideration of P640,847,928.48, but the latter was only able to
pay P427,231,952.32. However, ASB was unable to completely perform its obligations under the
JPDA and the Contract to Sell because it underwent corporate rehabilitation, and the Securities and
Exchange Commission suspended, among other things, the performance of such obligations. Since
ASB had pre-sold a number of condominium units, and in order to protect the interests of the buyers,
to preserve its interest in the project, its goodwill and business reputation, Malayan proposed to
complete the project subject to the terms and conditions of the MOA.
Under Section 5(a) of the MOA, Malayan undertook to construct, develop and complete the Project
based on the general specifications already agreed upon by the parties and set forth in Schedule 6
of the MOA, within two (2) years from (i) the date of effectivity of Malayans obligations as provided
in Section 21, or (ii) the date of approval of all financing/loan facilities from any financial or banking
institution to fully finance the obligations of Malayan under the MOA, whichever of said dates shall
come later; or within such extended period as may be agreed upon by the parties. Section 21 of the
MOA provides that Malayan shall be bound by and perform its obligations, including the completion
of the Project, only upon (i) fulfillment by St. Francis of all its obligations under Section 6, items (a),
(b), (c) and (d),21 and (ii) approval by the Insurance Commission of the MOA.

Section 5(a) of the MOA also states that that the project shall be deemed complete, and the
obligation of Malayan fulfilled, if the construction and development of the Project is finished as
certified by the architect of the project. Upon completion of the project, the general provision which
governs the distribution and disposition of units is the first sentence of Section 4(a) of the MOA, to
wit: "[a]s a return of its capital investment in the Project, each party shall be entitled to such portion
of all the net saleable area of the Building that their respective contributions to the Project bear to the
actual construction cost." The second sentence22 of Section 4(a) provides the specific details on
the pro rata sharing of units to which the parties are entitled based on the RCC in relation to total
costs incurred as of the date of the execution of the MOA dated April 30, 2002. It also states,
however, that entitlement to certain units are subject to adjustments in the event that the ARCC
exceeds the RCC, and Malayan pays for such excess.

Clearly, the parties foresaw that Malayan may incur additional cost and expenses in excess of the
Remaining Construction Cost (RCC) of P452,424,849.00 which amount St. Francis represented and
warranted that Malayan would have to spend to complete the project. Section 9(b)23 of the MOA thus
adds that, in such event, Malayan shall be entitled to such net saleable area as indicated in
Schedule 4 that corresponds to the increase in remaining construction costs, while St. Francis shall
be entitled to such net saleable area, if any, remaining in the said Schedule 4. As admitted by the
parties in the Amended Terms of Reference, the net saleable area included in Schedule
4 ("Reserved Units") originally covered fifty-three (53) units (which was reduced to thirty-nine [39]
units after reconfiguration) with thirty-eight (38) parking spaces, and the aggregate monetary value
of said units is P175,856,323.05.

In determining the entitlement of the parties to the reserved units in Schedule 4, Malayan insists that
the ARCC should include all its capital contributions to complete the project, including financial costs
which are not directly related tothe construction of the building. It argues that the MOA is replete with
provisions recognizing the parties intent to include in the ARCC their respective capital contributions
or investment.

Malayans argument fails to persuade.

The term ARCC should only be construed in light of its plain meaning which is the actual
expenditures necessary to complete the project, and it is not equivalent to the term "investment"
under the MOA.

As stated in the MOA, the investment of Malayan is composed of (1) the amount necessary to
complete the project, and (2) the following amounts: (a) P65,804,381, representing Malayans
payment on behalf of ASB (now St. Francis) of the principal amount of the loan obtained by ASB
from the RCBC to finance the project; and (b) P38,176,725, representing Malayans payment on
behalf of ASB of the outstanding obligations to project contractors as of the signing of the MOA.24 On
the other hand, the investment of St. Francis is broadly defined as the ASBs invested amount
equivalent to its entitlement to the net saleable area of the Building under Section 4 of the MOA,
including ASBs interest as buyer under the Contract to Sell.25 Hence, the Court holds that the ARCC,
which pertains only to the amount necessary to complete the project, can be considered as part of
the capital investment, but they are not synonymous.

Likewise negating Malayans argument that all its contribution to complete the project should be
included in the ARCC is the restrictive construction industry definition of "construction cost", to wit:
the cost of all construction portions of the project, generally based upon the sum of the construction
contract(s) and other direct construction costs; it does not include the compensation paid to the
architect and consultants, the cost of the land, right-of-way, or other costs which are defined in the
contract documents as being the responsibility of the owner.26

As to the computation of the ARCC, the Court agrees with the CA that the CIAC erred in relying
mainly on Exhibit "C-3," which is a mere summary or tabulation of the cost to complete the project as
of August 10, 2006, and that Exhibit "R-24" (a 26-page Cost to Complete as of October 2008) and
Exhibit "R-48-series" (consisting of about 2,230 pages construction costs computation, receipts,
vouchers, checks and other documents) should also be considered in determining the ARCC. After a
careful review of the records, the Court finds partial merit in the claim of St. Francis that certain items
in the computations are unsubstantiated by evidence, while the other costs should either be included
or excluded in the ARCC for reasons that will be explained below. Hence, the CAs own computation
of the ARCC based on Exhibit "R-48-series" in the total amount of P554,583.160.20 (including
1/11% Input VAT and 2% withholding tax) should be modified in order to arrive at the net ARCC
of P505,391,573.63, thus:

Construction Cost as per receipts (Exhibit "R-48-series"27) (with 1/11% Input VAT and 2%
withholding tax) P554,583,160.20

Total Inclusion: P8,282,974.82

Award to Total Ventures, Inc.

(Prolongation costs and extended Overhead) + 8,282,974.82

Total ARCC: P554,583,160.20+8,282,974.82=P562,866,135.02

(Construction Costs as per receipts + Inclusion)

Total Deductions:P41,705,696.66

Interest expense paid by Malayan to RCBC P39,348,659.88

Change orders not due to Reconfiguration 971,796.29
Contingencies 631,154.39
Interior Design Works + 754,086.10
P41,705,696.66

Total Exclusions:P15,768,864.73

(Unsubstantiated Costs)

Item 1.028 P 9,297,947.22

Items 5.3 and 5.429 530,563.65
 Items 5.3 and 5.4 725,877.62
Item 5.7.130 50,710.61
Item 6.2.2531 194,171.00
Item 6.1132 3,499.64
Item 6.11 1,360.00
Item 6.12.333 2,397,047.8934
Item F335 368,397.52
Item F3 448,534.59
Item F3 634,232.26
Professional Fees C& D36 427,500.00
Professional Fees N37 + 79,022.73

P15,768,864.73
(Total Deductions) P41,705,696.66
(Total Exclusions) +15,768,864.73

P57,474,561.39

Total ARCC - Total Deductions & Exclusions = Net ARCC: P505,391,573.63

P562,866,135.02 - P57,474,561.39 = P 505,391,573.63

III. Input VAT

St. Francis contends that Input VAT should not be treated as part of construction cost, because it is
not part of the costs of goods and services purchased or engaged under Section 11038 of the
National Internal Revenue Code (NIRC). According to St. Francis, VAT Ruling No. 053-94, February
9, 1994, states that VAT paid by a VAT-registered person on his purchases (or input tax) is an asset
account in the Balance Sheet and not to be treated as an expense, unless he is exempt from VAT in
which case the VAT paid would form part of the cost to acquire what was purchased. In fact, per
Malayans own documentary evidence, cash vouchers in Exhibit"R-48-series," input VAT is indicated
as an account separate from the actual cost of services or materials. Also, in Malayans audited
financial statements, input VAT is treated as a separate item and was, in fact, claimed as an asset
under the heading "Other Assets."

St. Francis further points out that Malayans counsel admitted that input VAT is not part of cost when
he stated that VAT and interest expense are actually financial cost and part of its capital contribution
in the construction, but, strictly speaking, not directly related construction cost. St. Francis claims
that even from an accounting standpoint, input tax is not entered into the books as part of cost.
While contract prices for contractors or suppliers are VAT inclusive, it does not mean that input VAT
is considered part of cost; input VAT is treated as account in a different account, either under "Other
assets" or "Input Tax", which is an asset account. Besides, the input VAT claimed by Malayan as
part of its construction cost in the usual course of business as a VAT-able entity is offset or credited
against output VAT to determine the net VAT due or payable to the government. Since Malayan also
has output VAT from its sales of condo units in the project and from sales of insurance policies, it
should be able to credit such input VAT and not charge it as part of the construction cost.
St. Francis finally notes that Malayan admitted that it can apply for refund or issuance of tax credit
for excess input tax, and will thus benefit twice from charging input VAT as part of the construction
cost. Since input VAT had already been claimed by Malayan, and its audited financial statements
show the offsetting of input VAT against output VAT, then justice and equity dictate that it should not
be allowed to claim it as part of the ARCC.

The Court finds no compelling reason to disturb the consistent findings of the CA and the CIAC that
Input VAT should be allowed to remain in the ARCC. As aptly pointed out by the CA and the CIAC,
ARCC refers to the actual expenditures made by Malayan to complete the project. The Court thus
agrees with Malayan that in determining whether input VAT should be included as ARCC, the issue
is not the technical classification of taxes under accounting rules, but whether such tax was incurred
and paid as part of the construction cost. Given that input VAT is, strictly speaking, a financial cost
and not a direct construction cost, it cannot be denied that Malayan had to pay input VAT as part of
the contract price of goods and properties purchased, and services procured in order to complete
the project. Moreover, that the burden of such tax was shifted to Malayan by its suppliers and
contractors is evident from the photocopies of cash vouchers and official receipts on record,39 which
separately indicated the VAT component in accordance with Section 113(B)40 of the Tax Code.41

Anent the claim that it would be unjust and inequitable if Malayan would be allowed to include its
input VAT in the ARCC, as well as to offset such tax against its output tax, the Court finds that such
coincidence does not result in unjust enrichment at the expense of St. Francis. Unjust enrichment
claims do not lie simply because one party benefits from the efforts or obligations of others, but
instead it must be shown that a party was unjustly enriched in the sense that the term unjustly could
mean illegally or unlawfully.42 In offsetting its input VAT against output VAT, Malayan is merely
availing of the benefits of the tax credit provisions of the law, and it cannot be said to have benefitted
at the expense or to the damage of St. Francis. After all, Malayan is justified in including in the
ARCC the input VAT it had paid as part of the contract price of the goods, properties and services it
had procured to complete the project.

At any rate, St. Francis would also be entitled to avail of the same tax credit provisions upon the
eventual sale of its proportionate share of the reserved units allocated and transferred to it by
Malayan. It bears emphasis that the allocation of and transfer of such units to St. Francis is subject
to output VAT which Malayan could offset against its input VAT. In turn, St. Francis would incur input
VAT which it may later offset against its output VAT upon the sale of the said units. This is in
accordance with the tax credit method of computing the VAT of a taxpayer whereby the input tax
shifted by the seller to the buyer is credited against the buyers output taxes when it in turn sells the
taxable goods, properties or services.43

IV. Comprehensive All Risk Insurance (CARI)

St. Francis claims that the CARI should be disallowed from being part of the ARCC because there is
no proof of expense on the part of Malayan, and only official receipts were presented. However, the
first official receipt in the amount of P2,814,672.81 is not even readable, while in the second receipt,
the description of the contract for the CARI appears to be a different project. Considering that the
assured in the receipts is not just Malayan but jointly with LANDEV (project manager), St. Francis
adds that Malayan must prove that it actually paid for this expense.

It bears stressing that both the CIAC and the CA agreed that the CARI should be allowed as part of
the ARCC, but differed as to the amount. Due to St. Francis admission that it would allow inclusion
of P1,000,000.00, and considering that no basis has been suggested on how the said amount was
arrived at, the CIAC decided to split the amount contested (P2,814,678.80, excluding premium for
renewals, per Malayan) into equal shares, and allowed the CARI in the amount of P1,407,336.40 as
part of the ARCC. On the other hand, the CA allowed CARI in the amount of P2,168,035.66 as part
of ARCC, after reviewing the official receipts44 issued by Tokio Marine Insurance Co., and finding that
the total amount of the CARI should be P4,336,071.32 which should be split between Malayan and
St. Francis.

The Court holds that CARI in the amount of P4,361,291.34 is supported by official receipts;45 hence,
such amount should be allowed to remain in the ARCC. Although the official receipts of the CARI
appear to have been issued in the name of Malayan and/or LANDEV, the minutes of the December
20, 2002 Bids and Awards Committee Meeting, of which St. Francis President Luke Roxas was a
member, proves that it was unanimously agreed upon that the CARI would be secured directly by
the owner, Malayan. The official receipts and the said minutes prove that the premium of the policy,
as well as the renewals thereof, were shouldered by Malayan as the owner of the project. Against
the said substantial evidence of Malayan, the CA and the CIAC have no basis in ruling why the CARI
should be split between Malayan and St. Francis. As to the conflict between the CARI premium
payments shown in Exhibit "C-3" (Cost to Complete as of August 10, 2006) in the total amount of
P4,006,634.85 and Exhibit "R-48-M-series" (Item 5.0 Project Insurance, Tokio Marine Malayan
Insurance Co. Inc.) in the total amount of P4,361,291.34, the latter should prevail as it is supported
by official receipts.46

V. Allocation of Reserved Units

St. Francis asserts that the correct ARCC supported by receipts is only P514,179,217.94,47and after
making all the necessary deductions, the excess ARCC over the warranted RCC [P452,424,849.00]
would only be around P16,446,014.66, thus entitling it to the value of the reserved units of around
P159,410,310.39, as well as the income therefrom. On the other hand, Malayan insists that St.
Francis would no longer be entitled to any reserved units,and it would still be liable for
P19,038,339.91, as the ARCC and the RCC exceeded the aggregate value of the reserved and the
total aggregate value of the reserved units by such amount.

The CIAC held that the ARCC based on Exhibit "C-3" is P614,593,565.96, and that after deducting
the total disallowances of P52,864,385.00, as well as the amount of the RCC, the excess ARCC will
be P109,304,331.96 which is equivalent to Malayans 62.2% share in the total aggregate value of
the reserved units (P175,856,325.05). Meanwhile, the remaining 37.8% is the proportionate share of
St. Francis in the said units.

Modifying the ruling of the CIAC, the CA ruled that based on Exhibit "C-3", "Exhibit R-24" and Exhibit
"R-48-series," the total ARCC is P615,880,672.47. After excluding the deductions in the total amount
of P15,135,166.51 and the amount of the RCC, the excess ARCC will be P148,320,656.96 which is
equal to Malayans 84% share in the total aggregate value of the reserved units. The remaining 16%
is the proportionate share of St. Francis in the said units.

After a circumspect review of the records, the Court finds that the 30% of the reserved units should
be allocated to Malayan, while 70% should be allocated to St. Francis. Below is the computation of
the parties proportionate share in the said units:

P505,391,573.63 [Net ARCC] - P452,424,849.00 [RCC] = P52,966,724.63 [Excess ARCC]

P52,966,724.63 [Excess ARCC]/P175,856,323.05 [Total Aggregate Value of Reserved Units] =

.3011 or 30% - share of Malayan

P122,889,598.42/P175,856,323.05 = .6988 or 70% - share of St. Francis.

Prolongation Costs and Extended Overhead

The CIAC held that Prolongation Costs and Extended Overhead in the amount of P6,000,000.00
should be excluded as part of the ARCC because it would be unfair and unjust for Malayan to pass
on its liability to St. Francis after having been found responsible for the delay. The CIAC pointed out
that the resolution of this issue hinges upon whose fault the delay in the construction that gave rise
to prolongation costs may be attributed to, and this was resolved in CIAC Case No 27-2007 entitled
"Total Ventures and Project, Inc. vs. Malayan Insurance Company, Inc." where the arbitral tribunal
awarded in favor of claimant TVI the sum of P7,743,278.89 to compensate for the delay in the
completion of construction which has been caused essentially by Malayan.

On the contrary, the CA held that it is but proper to include in the ARCC the amount of
P21,948,852.39 which Malayan had paid to Total Ventures, Inc. (TVI) for the settlement in the CIAC
Case No. 27-2007.

St. Francis points out that without consideration of its arguments and contrary to CIACs finding, the
CA held that Malayan had paid TVI P21,948,852.39 which should be included in the ARCC. St.
Francis states that, assuming arguendo, that such settlement in the arbitration case can be
considered part of the ARCC, the entire amount thereof cannot be included because the combined
total amount of the award of prolongation costs and extended overhead (P7,743,278.89), and the
interest (P1,430,127.50) is only (P9,173,405.94). It adds that it is very clear in the decision of the
arbitral tribunal that the causes for the delay of TVI that warranted the grant of overhead expenses
are actually attributable to Malayan, to wit:

Based on the foregoing documentary evidence and the testimony of the witnesses, delays in the
project implementation was mainly attributed to the reconfiguration of the room layout of the building
at Discovery side and delay in the award by MICO [Malayan] of the subcontract packages for other
trade disciplines plus, the delayed delivery of material which had a domino effect on the work of the
succeeding packages, and eventually to the overall project completion date which had to be
extended to August 31, 2005.48

The CA grossly erred in ruling that the full amount of P21,948,852.39 paid by Malayan to TVI should
be included in the ARCC. A careful review of the decision of the arbitral tribunal in CIAC Case No.
27-2007 shows that such full amount consists of net amount due (P20,518,725.94) to TVI after
offsetting its various claims against the counterclaims of Malayan, plus the accrued interest of
P1,430,127.05.49Based on the said decision and the amount which St. Francis itself has conceded it
may be held liable for, the Court holds that the prolongation costs and extended overhead for the
period of January 2005 to August 2005 (P6,313,846.43) and September 1, 2005 to August 31, 2005
(P1,429,432.46) in the total amount P7,743,278.89,50 as well as the accrued interest in the amount of
P539,695.93,51 or a total amount of P8,282,974.82, should be included as part of the ARCC.

The Court agrees with Malayan that the cause of the delay in the completion of TVIs construction
works was the reconfiguration of the room layout of the building along the side facing Discovery
Suites hotel. Such delay was, in turn, caused by St. Francis deviation from the original April 12, 1996
floor plans for the 9th to 31st floors of the project, which resulted in units that were more typical of a
high-density, low-cost condominium project. Indeed, Malayan had to reconfigure the said layout of
several units that St. Francis had constructed as they were smaller and narrower than those
provided in the original floor plans, and in order to meet St. Francis commitment to the buyers of
pre-sold units to create a prestigious building and collaborative masterpiece that only the best in
interior design, landscape planning and architecture can truly offer, as well as to avoid possible
liability under Section 1952of the Subdivision and Condominium Buyers Protective Decree
(Presidential Decree No. 957).
The Court will now discuss jointly the first three interrelated issues raised by Malayan.

A. Whether St. Francis had never disputed and therefore admitted that Malayan had
incurred the ARCC.

B. Whether the CA erred in allowing St. Francis to belatedly change its theory in its
Draft Decision and in its Appeal.

C. Whether the CA erred in disregarding the uncontroverted testimonial evidence, and

focusing solely on documentary evidence.

According to Malayan, the CA overlooked the fact that St. Francis objected only to the perceived
impropriety of including certain costs in the ARCC. That Malayan incurred these costs was never in
issue during the arbitral proceedings. In view of the rule that all facts not in issue are admitted, and
that all facts judicially admitted do not require proof, Malayan claims that it should not bear the
burden to prove that it had actually incurred its ARCC.

Malayan also notes that St. Francis CIAC complaint contained no allegation that Malayan had not
actually incurred the costs in its ARCC, nor was there any claim that specific costs items in the
ARCC lacked evidentiary basis, or were otherwise fictitious or fabricated. Malayan argues that if its
alleged failure to substantiate the ARCC was enough basis to question costs included therein, it
follows that St. Francis would already have disputed in its complaint the entire amount of the ARCC.
Yet, St. Francis only chose to object to selected items in the ARCC, and not because of the alleged
lack of substantiation.

Malayan adds that from the time St. Francis filed its complaint, up to the conclusion of trial, it had the
same theory, i.e., although Malayan had indeed spent for its ARCC, some costs items ought to be
excluded as they could not be considered part of the ARCC. It was only belatedly in its Draft
Decision and its Petition before the CA that St. Francis argued for the first time that new cost items
should also be deducted from the ARCC because they were allegedly unsubstantiated or not fully
supported by official receipts. In light of the rule that a party cannot change his theory on appeal
when a party adopts a certain theory in the court below, Malayan faults the CA for excluding new
cost items from the ARCC due to lack of substantiation. Besides, Malayan claims that its entire
ARCC as of February 29, 2009 was expressly affirmed by its witnesses who are competent to testify
due to their involvement in the preparation and monitoring of the projects budget.

Stating that it did not have the burden of proving that it incurred the costs in its ARCC because this
was never in issue, Malayan concludes that the CA should have held St. Francis to its original theory
that Malayan had actually incurred all the items in its ARCC of P647,319,513.96, instead of
examining each item included therein and accepting only P615,880,672.47 as supported by
documentary evidence. Finally, Malayan insists that there can be no dispute that it incurred the
ARCC of P647,319,513.96 based on the unrebutted testimony of its witnesses and the voluminous
documents it introduced at trial.

Malayans contentions are misplaced.

Contrary to the claim that St. Francis admitted that Malayan had incurred the ARCC of
P647,319,513.96, the allegations in St. Francis complaint and the Amended Terms of Reference
would show that the substantiation of the cost items included in the ARCC and the exact amount
thereof arethe core issues of the construction arbitration before the CIAC.
For one, the contention that St. Francis complaint contained no allegation that Malayan had not
actually incurred the costs in its ARCC, nor was there any claim that specific costs items in the
ARCC lacked evidentiary basis, is belied by the following allegations in same complaint:

2.9 Sometime in August of 2006, [Malayan] presented a cost to complete construction of the Project
in the amount of SIX HUNDRED FOURTEEN MILLION FIVE HUNDRED NINETY THREE
THOUSAND FIVE HUNDRED SIXTY FIVE PESOS and 96/100 (P614,593,565.96). Said cost to
complete however was a mere tabulation with a listing of items and appurtenant costs.There
was no independent proof or basis as well as evidence that claimant incurred these costs,
much less, if these costs conform with the actual construction cost as the same is
understood under the MOA. xxx53

For another, one of the admitted facts in the Amended Terms of Reference states that "[d]espite the
completion of the Project and the turnover of the units to [St. Francis], [Malayan], and other buyers of
units, the issue of actual cost of construction has not been resolved to the mutual satisfaction of the
parties."54 Not to mention, one of the issues raised before the CIAC is "[w]hat is the actual remaining
construction cost to complete the Project spent by [Malayan] as of today in excess of [St. Francis]
estimate RCC?"55 Clearly, there is no merit in the claim that St. Francis admitted that Malayan had
incurred the ARCC of P647,319,513.96 as of October 2008. It can be gathered from the complaint
that, as early as August 2006 when the ARCC was just P614,593,565.96, St. Francis already
disputed such amountfor lack of independent proof or evidence that Malayan incurred these costs

Anent Malayans claim that St. Francis argued belatedly in its Draft Decision and its petition before
the CA that new cost items should also be deducted from the ARCC because they were allegedly
unsubstantiated or not fully supported by official receipts, suffice it to state that whether such cost
items should be excluded from the ARCC is impliedly included in the issue of "[w]hat is the actual
remaining construction cost to complete the Project spent by [Malayan] as of today in excess of [St.
Francis] estimate RCC?"56

Moreover, in an action arising out of cost overruns on a construction project, the builder who has
exclusive control of the project and is in a better position to know what other factors, if any, caused
the increases, has the burden of segregating the overruns attributable to its own conduct from
overruns due to other causes.57 As the co-owner and developer who assumed the general
supervision, management and control over the project, and the one in possession of all the checks,
vouchers, official receipts and other relevant documents, Malayan bears the burden of proving that it
incurred ARCC in excess of the RCC and the total aggregate value of the reserved units, in which
case St. Francis would no longer be entitled to a proportionate share in the reserved units pursuant
to the MOA.

In view of the foregoing discussion, the Court finds no merit in Malayans contentions (1) that it did
not have the burden of proving that it incurred the costs in its ARCC because this was never in
issue; and (2) that there can be no dispute that it had incurred the ARCC of P647,319,513.96 based
on the unrebutted testimony of its witnesses and the voluminous documents it introduced at trial.

D. Erroneous Cost Exclusions from the ARCC

D.1. Change Orders due to Reconfiguration

The CIAC held that costs of reconfiguration should be allowed to remain as part of the ARCC on
account of the greater savings generated. It found that Malayan has sufficiently established that the
reconfiguration did not result in additional costs, and net savings were realized. Since St. Francis
only concern was to minimize costs and maximize savings, there is no longer any basis to object to
the reconfiguration and the change order that were approved as a results thereof.

In contrast, the CA ruled that the CIAC erred in allowing the increased cost of P7,434,129.85 to be
included in the ARCC because it is immaterial whether there were net savings generated from the
reconfiguration, and the fact remains that there was an increase in the budgeted construction cost,
which Malayan alone should bear.

Finding substantial evidence on record to support the CIAC ruling, the Court reverses the CA ruling
and upholds the CIAC that the increased costs of P7,434,129.52 should be included in the
ARCC.The Court sustains the CIACs observation that although such reconfiguration was not really
necessary for the completion of the project and was undertaken only to make the units more
saleable, St. Francis had consented thereto on the condition that it would result in savings rather
than additional costs.58 No persuasive reason was shown to disturb the CIAC finding that despite the
increased costs of P7,434,129.52 as claimed by St. Francis, and even including the consultants
fees in the aggregate amount of P3,081,725.00, the savings amounting to P14,096,239.07 due to
reconfiguration, would still be in excess of the costs of additive change orders.59 In arriving at such
computation, the CIAC went over the disputed change orders due to reconfiguration, and proceeded
to calculate whether the cost of the additive works exceeded the savings realized from the deductive
works. Notably, no similar effort was exerted by the CA in arriving at its ruling. Without stating any
reason, the CA reversed the CIAC ruling that net savings were generated on account of change
orders due to reconfiguration,

D.2. Change Order not due to Reconfiguration

With respect to change orders not due to reconfiguration amounting to P971,796.29, the CIAC held
that such costs should be excluded from the computation of the ARCC because they were clearly
not within the scope of the original work covered by the MOA, but were plainly additive works
ordered by Malayan to improve or enhance the project. It also found no legal or equitable reason to
allow Malayan to pass on the costs of such unnecessary improvements or enhancementsto St.
Francis.

The CA deemed it unnecessary to disturb the CIACs findings on the change of orders not due to
reconfiguration, as the latter had extensively discussed the issue. According to the CA, the CIAC
correctly ruled that the change orders not due to reconfiguration cannot be considered as part of the
ARCC as these were not within the scope of the work agreed upon by the parties in the MOA. It also
noted that it is clear from Section 5 of the MOA that Malayan shall undertake, among other things, to
construct, develop and complete the Project based on the general specifications already agreed
upon by the parties and as set forth in the Schedule 6 of the MOA, with full powers to enter into
agreement with contractors, subcontractors, and suppliers for the completion of the various phases
of work. It concluded that when Malayan undertook additional works, improvements or
enhancements not within the specifications agreed upon, it presupposes that it shall bear the costs
thereof.

Since the findings of the CIAC and the CA on this issue are consistent, the Court perceives no
cogent reason to overturn such findings which are supported by substantial evidence. Besides, the
Court takes issue with Malayans claim that the CA gravely erred in rigidly applying the specifications
in Schedule 6 of the MOA, considering that they were "general" in character and "for reference"
purposes only. It is noteworthy that Schedule 660 not only provides for the Schedule of Finishes and
Materials of ASB Malayan Tower as of 26 October 2000, covering Exterior Works, Interior Works,
Elevators, Intercom, Fire Alarm System, Standby Generator Set, Lightning Protection and Pumps,
among other things,but also includes the project floor plans from Basement 2 to 6, and levels 4, 5, 7
to 12, 14 to 18, 20, 22 to 31, 33 to 35, penthouse and upper penthouse. When a building contract
refers to the plans and specifications and so makes them a part of itself, the contract is to be
construed as to its terms and scope together with the plans and specifications.61 When the plans and
specifications are by express terms made part of the contract, the terms of the plans and
specifications will control with the same force as if they were physically incorporated in the very
contract itself.62 Malayan cannot, therefore, brush aside Schedule 6 as "general" and "for reference
only" matters in the interpretation of the MOA.

As to the costs incurred due to the supposed reasonable deviations from specifications in the
exercise of its sound discretion as the developer, Malayan would do well to bear in mind that if the
terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control.63 Under Section 5 of the MOA, Malayan undertook to
construct, develop and complete the project based on the general specifications already agreed
upon by the parties and set forth in Schedule 6 thereof. As duly pointed out by the CIAC, since the
parties to the MOA had agreed on the specifications that will control the construction and completion
of the project, anything that alters or adds to these specifications which adds to the costs, should not
be part of the ARCC.

D.3. Half of Costs for Narra Parquet Works

The CIAC allowed only half of the increased flooring costs [P4,982,798.44] in the amount of
P2,491,399.22, plus the original budgeted expense for this item in the amount of P12,770,000.00, or
a total amount of P15,261,399.22, as part of the ARCC. According to the CIAC, since the cause of
change in flooring material and the increased cost was a force majeure (government log ban) for
which no one can be blamed, it is but fair that both parties will equally share the increased cost.

The CA ruled that the CIAC did not err in dividing the increased cost between the parties. It stressed
that the dispute pertains to the proportionate entitlement of the parties to the reserved units after
determining the actual construction cost. Thus, both parties should share in the reserved units, as it
is but fair that the increased cost should also be equally divided between them, and half of the
increased amount should be included in the computation of the ARCC.

Although the findings of the CA and the CIAC on this issue are consistent, the Court finds their
reasoning contrary to the MOA. The construction cost increase due to the change from Narra
parquet to Kendall laminated flooring is undisputedly due to the government logging ban which is
a force majeure. However, the equal sharing of such cost increase is contrary tothe MOA which
provides for the proportionate entitlement of the parties to the reserved units, depending on the
excess ARCC over the RCC and the total aggregate value of the reserved units. In addition, such
increased cost due to force majeure falls under the category of "Contingencies" under Schedule 9 of
the MOA, which term is defined as an amount of money, included in the budget for building
construction, that is uncommitted for any purpose, intended to cover the cost of unforeseen factors
related to the construction which are not specifically addressed in the budget.64 The Court therefore
holds that the entire increased cost of P4,982,798.44 due to the unforeseen necessity of change in
flooring materials, should be included in the computation of the ARCC.

D.4. Half of Costs for CARI

As discussed above, the CARI in the amount of P4,361,291.3465 is supported by official receipts;
hence, such amount should be allowed to remain in the ARCC. Although the official receipts of the
CARI appear to have been issued in the name of Malayan and/or LANDEV, the minutes of the
December 20, 2002 Bids and Awards Committee Meeting, of which St. Francis President Luke
Roxas was a member, proves that it was unanimously agreed upon that the CARI would be secured
directly by the owner, Malayan. The official receipts and the said minutes prove that the premium of
the policy, as well as the renewals thereof, were shouldered by Malayan as the owner of the project.
Against the said substantial evidence of Malayan, the CA and CIAC have no basis in ruling why the
CARI should be split equally between Malayan and St. Francis.

D.5. Half of Costs for Interior Design Works

In resolving this issue, the CIAC noted that it is crucial to determine whether the disputed amount
was spent to improve the original design or to comply with St. Francis commitments to the buyers.
According to the CIAC, force majeure (government log ban) also justified the change of flooring
materials from wood parquet to homogenous tiles and marble flooring. However, the difficulty in
resolving this issue is that the increased cost is not only because of the change of flooring materials,
but also due to the change of specifications and the inclusion of gym equipment. Thus, it is
impossible to separate the increased cost arising from flooring change and those from causes other
than gym equipment which is worth P962,250.00 and the underlay of plywood and rubber pads
worth P96,967.73.

The CIAC noted that the budgeted amount for this item of P5,600,000.00 made by St. Francis was
increased to P9,000,000.00 in Malayans budget, and that the difference of P3,400,000.00 reflects
the increase from unspecified causes such as supervening price increase. It added that both parties
agreed on the increase due to cost of glass doors, hardware and plumbing fixtures amounting to
P2,100,415.00. It was convinced that what is being contested by St. Francis is the increase in the
actual cost (P14,150,324.73) vis--vis the Effective Budget for Interior Design Works of
P11,100,415.00 or a net increase of P3,049,909.73.

In view of the above stated difficulty in resolving this issue, the CIAC held that the total increase of
P3,049,909.73 as cost of interior design works should be equally shared by both parties
(P1,524,954.86 each), as well as the cost of the gym equipment (P962,250.00) and the underlay of
plywood and rubber pads (P96,967.73), both amounting to P1,059,217.73. In sum, it allowed only
P2,054,563.73 or half of the total cost increase (P4,109,127.46) of such works to be included in the
ARCC

Upon review of the records under Exhibit "R-48-series," the CA found that the official receipts show
that the total payment due was P12,642,152.52. It agreed with the CIAC that the increased cost for
this item should be divided equally between the parties, but reduced the amount to
P1,508,172.2166 (or P754,086.10 each), instead of P3,049,909.73. The CA did not also disturb the
CIACs ruling on the disallowance of one-half of the cost of gym equipment and the underlay of
plywood, and rubber pads. Having noted a discrepancy in the total amount of P962,250.00 stated in
Exhibit "C-3" [Cost to Complete as of 10 August 2006], the adjusted contract price of P987,250.00,
and the official receipts showing the total payment of P978,275.01, the CA determined that the share
of each of the parties should be P493,625.00.

Malayan claims that no explanation was given why the costs for interior design works had to be
divided equally between the parties. In any event, the said works were awarded in accordance with
the MOA and St. Francis original marketing representations to the buyers of the pre-sold units, and
they were proper and necessary for the completion of the project. As regards the costs incurred for
the gym equipment and the underlay of plywood and rubber pads, they should be included in full in
the ARCC because: (1) Section 6 of the MOA provides that the project must have a
"Gym/Lounge/Childrens Play Area"; (2) the general specifications of the project lists as one of the
amenities a gym with equipment; and (3) St. Francis included such amenities in the marketing
brochures and fliers it gave to buyers of the pre-sold units.
The Court agrees with the CA and the CIAC rulings that the costs for interior design works should be
included in the computation of the ARCC, and that what is being contested is whether the net
increase of P3,049,909.73 from the original budget of P11,100,415.00. As correctly found by the CA
based on the official receipts, the net increase should only be P1,508,172.21. The Court also
sustains the CA that such increase should be equally divided between the parties (P754,086.10
each) due to the impossibility of separating the increased cost arising from flooring change and
those from causes (change of specifications) other than gym equipment and the underlay of plywood
and rubber pads.

However, there being no valid reason to extend such equal sharing of costs with respect to the gym
items, the Court reverses the CA and the CIAC in ruling that costs of the gym equipment
(P962,250.00) and the underlay of plywood and rubber (P96,967.73) amounting to P1,059,217.73
should be equally shared by the parties. The Court, thus, holds that the full amount thereof should
be included in the computation of the ARCC.

D.6. Contingency Costs

The CIAC disallowed the amount of P2,000,000.00 in contingency costs to be included in the ARCC
as they are not directly related to the completion of the project. The CIAC noted that what was
1w phi 1

included in the ARCC is the amount of P631,154.39 as payment for professional services and
various expenses connected with the claim for damages to the car that was hit by falling construction
debris, but Malayan included the amount of P2,000,000.00 in the ARCC. It added that Malayan,
being insured under the CARI, should assert its claim against the insurance company. If Malayan
failed to do so, or if it was able to recover less than what it had claimed, it would be unfair to pass on
(to St. Francis) the amount it failed to claim by adding it as part of the ARCC.

The CA upheld the CIACs ruling that contingency costs in the amount of P631,154.39 should not be
passed on to St. Francis, considering that what was paid as damages and expenses was a
consequence of an incident that occurred when a falling debris hit the Volvo car owned by Celestra.
The CA noted that Malayan should assert its claim against the insurer to recover whatever damages
it incurred in the course of the construction project. It added that legal fees paid to lawyers who
defended Malayan against the claim of one Tan-Yee, cannot be considered actual construction cost,
as no evidence was submitted relative thereto.

Malayan claims that the incident which led to the payment of contingency costs was construction-
related because a case was filed against it as a result of the incident and that a temporary
restraining order (TRO) was issued enjoining further construction works; hence, the engagement of
lawyers was necessary to ensure the immediate resumption of the construction project.

The Court sustains the CA in ruling that the contingency costs in the amount of P631,154.39 should
not be included in the computation of the ARCC. As duly noted by the CIAC and the CA, legal fees
cannot be considered as part of the ARCC, as they are not directly related to the completion of the
project. Despite the allegation that a TRO was issued, no proof of such order was presented by
Malayan. Hence, such costs should not be included as part of the ARCC, but should be charged
against the party responsible for the incident, or Malayan as the one responsible for the general
supervision, management, control over the project.

D.7. Costs Incurred/Paid after June 2006

The CIAC found it is unnecessary to resolve the issue: "What is the actual remaining construction
cost to complete the Project spend by [Malayan] as of today [20 January 2009] in excess of St.
Francis estimated RCC?" Instead, it resolved the same issue based on Exhibit "C-3" which is the
ARCC amounting to P614,593,565.96 as of August 10, 2006. Noting that Exhibit "C-3" was prepared
by Malayan itself and submitted to St. Francis, and was close enough to June 7, 2006 when the
project was completed, the CIAC used such evidence as the basis upon which disallowances were
to be made, in order to arrive at the ARCC of P561,729,180.96.

The CA agreed with the CIAC that it is important to determine when the project was completed, as
costs incurred after the cut-off date should no longer be included in the computation of the ARCC,
and that the incontrovertible proof that the project was completed on June 7, 2006 is the Certificate
of Occupancy67 submitted by C.E. Manzanero, the duly-licensed architect of Malayan.

The Court finds no compelling reason to disturb the CA and the CIAC rulings that are consistent with
Section 5 of the MOA which expressly states that the project "shall be deemed complete, and the
obligation of Malayan fulfilled, if the construction and development of Project is finished as certified
by the architect of the Project." Indeed, costs and expenses incurred after completion of the project
cannot be considered as part of the ARCC.

E. Entitlement to Reserved Units

As discussed and computed above, the Court holds that 30% of the reserved units should be
allocated to Malayan, while 70% should be allocated to St. Francis.

F. Income from Reserved Units

The CIAC held that income realized from rental of the reserved units during the period from June 7,
2006 and the present date, should be determined as having been received by Malayan in trust for
such party that would be determined to be the owner/s thereof. Considering its determination of the
excess ARCC over the RCC, the CIAC stated that the said income should be proportionately shared
as follows: 37.8% for St. Francis and 62.2% for Malayan. According to the CIAC, based on Sections
4 (a), (ii) (C)68 and 4 (b),69 ownership of the reserved units is in doubt during the intervening period
from completion of the project and final determination of costs because of the phrases "shall be
delivered to ASB" and "Malayan shall be entitled." Clearly, that the ownership of the reserved units
shall be determined only upon completion of the project and the determination of the ARCC,
because only then could it be computed if there is an excess ARCC over the RCC.

The CIAC observed that had the computation been done on the completion date of the project on
June 7, 2006, there would already have been an allocation of ownership over the reserved units.
Since the determination of the ARCC was doneonly almost three (3) years later during the arbitration
proceedings, the issue had arisen as to who between the parties is entitled to the rental income from
the reserved units which are deposited in the account of Malayan.

The CA agreed with the CIACs ruling but modified the proportionate sharing of the reserved units,
thus: 84% for Malayan and 16% for St. Francis. The CA explained that the income realized from
rentals and sales of reserved units from June 7, 2006 until the finality of this case shall be
considered as having been received by Malayan; thus, it must be subject to proper accounting in
order to arrive at the proper sharing in accordance with the general principles of equity, and pursuant
to the said proportionate sharing ratio.

Malayan contends that as the owner of the project, it is entitled to all of the civil fruits, including the
rents from the lease of the reserved units. With respect to the accruing fruits, Malayan invokes
Article 118770 of the New Civil Code, and claims that it is entitled to appropriate all the fruits and
interests realized from the reserved units prior to the happening of two (2) suspensive
conditions, i.e., the completion of the project and the determination of the ARCC. Malayan adds that
it is iniquitous to award St. Francis a share in the income from the reserved units without making it
share in the expenses and upkeep thereof.

The Court finds that Malayans obligation to give the reserved units is unilateral because it was
subject to 2 suspensive conditions, i.e., the completion of the project and the determination of the
ARCC, the happening of which are entirely dependent upon Malayan, without any equivalent
prestation on the part of St. Francis. Even if the obligation is unilateral, Malayan cannot appropriate
all the civil fruits received because it could be inferred from the nature and circumstances of the
obligation that the intention of the person constituting the same was different. Section 9(b) of the
MOA states that in the event that Malayan shall pay additional cost and expenses in excess of the
RCC, it shall be entitled to such net saleable areas indicated in Schedule 4 that corresponds to the
increase in the remaining construction costs, while St. Francis shall be entitled to such remaining
areas, if any.

As aptly noted by the CIAC, the determination of the ARCC should have been made upon the date
of completion of the project on June 7, 2006, but it was only about 3 years later during the arbitration
proceedings that such determination was done. Not until now has the issue of the correct
computation of the ARCC been finally resolved. Such long delay in the determination of the ARCC
and the proportionate distribution of units in the project could not have been the intention of the
parties. The Court, therefore, sustains the CA and the CIAC rulings that the income realized from the
reserved units from the completion date until present, should be considered as having been received
by Malayan in trust for such party that shall be determined to be the owner thereof. In light of the
determination of the excess of the ARCC over the RCC, the income should be proportionately
shared as follows: 30% for Malayan and 70% for St. Francis. Subject to proper accounting, upkeep
expenses for the reserved units should also be shared by the parties in the same proportion.

G. Counterclaims, Attorneys fees and Arbitration costs

Counterclaims

Having determined above that the ARCC does not exceed the RCC and the total aggregate value of
the reserved units, the Court joins the CA and the CIAC in ruling that Malayan is not entitled to its
counterclaims.

Attorneys fees

The CIAC denied for lack of factual or legal basis the parties respective claims and counterclaims
for the award of attorneys fees. It noted that the parties failed to point out the contractual stipulation
on attorneys fees and expenses of litigation in support of their respective claims therefor. According
to the CIAC, based on its extensive discussions made in disposing the claims and counterclaims of
the parties, it is clear that the two exceptions71 under Article 2208 of the New Civil Code cited by St.
Francis and Malayan do not obtain in this case. The CIAC explained that Malayans denial of St.
Francis claims cannot be characterized as made in gross and evident bad faith, and that the
disallowances of the ARCC in favor of St. Francis disprove that the filing of the arbitration case was
"clearly unfounded." The CA affirmed the CIAC.

Finding that none of the exceptions under Article 220872 of the New Civil Code is present in this case,
the Court agrees with the CA and the CIAC that the parties claims for attorneys fees must be
denied. As held in ABS-CBN Broadcasting Corporation v. Court of Appeals:73

The general rule is that attorneys fees cannot be recovered as part of damages because of the
policy that no premium should be placed on the right to litigate. They are not to be awarded every
time a party wins a suit. The power of the court to award attorneys fees under Article 2208 demands
factual, legal, and equitable justification. Even when a claimant is compelled to litigate with third
persons or to incur expenses to protect his rights, still attorneys fees may not be awarded where no
sufficient showing of bad faith could be reflected in a partys persistence in a case other than an
erroneous conviction of the righteousness of his cause.

Arbitration costs

The CIAC held that arbitration costs shall be maintained at the same level as initially shared based
on the pro rata sharing in accordance with the amounts claimed and counterclaimed by the parties.
Stating that Section 1, Rule 14274 of the Rules of Court suppletorily applies to arbitration proceedings
since there is no corresponding provision in the CIAC rules of procedure, the CIAC ruled that there
are good reasons to maintain their initial pro rata sharing thereof, considering that their respective
claims and counterclaims have merits. Thus, it is just and equitable that both Malayan and St.
Francis pay for their respective shares based on proportionate cost or amount of the claim. In
contrast, the CA ruled that arbitration costs shall be maintained pro rata in accordance with the
parties respective shares in the reserved units.

After reviewing the conflicting rulings of the CIAC and the CA on arbitration costs, the Court finds the
one rendered by CIAC to be in accord with law. Unlike the CAs ruling which is based only on the
MOA provision on distribution and disposition of reserved units, the CIACs ruling is based on the
Amended Terms of Reference (TOR) which specifically provides that the costs of arbitration shall be
on a pro rata basis subject to the determination of the CIAC which of the parties shall eventually
shoulder such costs or the mode of sharing thereof.75

Citing Section 1, Rule 142 of the Rules of Court, the CIAC found it just and equitable that both
Malayan and St. Francis pay for their respective shares based on the pro rata sharing in accordance
with the amounts claimed and counterclaimed by the parties. Under the amended TOR, the
Summary of Claims/Counterclaims and the arbitration expenses are as follows:

CLAIMANT [St. Francis]

Value of Reserved Units P 139,519,969.17
being claimed 41,190.550.59

P 180,710,519.76
Income 21,150,659.33
Attorneys fees 300,000.00

P 202,161,179.09
RESPONDENT [Malayan]
Actual damages P24,653,196.08
Attorneys fees 2,000,000.00

P 26,653,196.08
TOTAL SUM IN DISPUTE P 228,814,375.17

xxxx

IX ARBITRATION EXPENSES BASED ON A SUM IN DISPUTE OF P228,814,375.17

 Filing Fee P 91,009.98
Administrative Fee 92,329.98
Arbitrators Fees 629,566.60
ADF 214,566.60
TOTAL P 1,064,517.3876

Based on the parties claims and counterclaims involving the total disputed sum of P228,814,375.17,
the arbitration expenses in the total amount of P1,064,517.38 should be shared in the following
proportion:

1. St. Francis:P202,161,179.09/P228,814,375.17=0.88 x P1,064,517.38 = P 936,775.29

2. Malayan: P26,653,196.08/P228,814,375.17=0.12xP1,064,517.38 = 127,742.09
Total Arbitration Expenses = P1,064,517.38

WHEREFORE, premises considered, the Court of Appeals Decision dated January 27, 2011 in CA-
G.R. SP Nos. 109286 and 109298, is AFFIRMED with the following MODIFICATIONS:

1) The total amount of P57,474,561.39 should be deducted and excluded from the gross
Actual Remaining Construction Cost (ARCC) of P562,866,135.02 to arrive at the net ARCC
of P505,391,573.63;

2) Malayan is entitled to 30% ownership over the reserved units

(P52,966,724.63/P175,856,325.05), together with the corresponding interest in the income
realized thereon in the same proportion; while St. Francis is entitled to 70%
(P122,889,598.42/P175,856,325.05) ownership of the said units, as well as to its
corresponding share in the said income. The distribution of the parties proportionate share in
the units shall be made by drawing of lots;

3) Malayan is directed to deliver possession and transfer title over the reserved units in the
proportion above stated, to pay St. Francis its proportionate share of the income from the
reserved units reckoned from the date of the completion of the project on June 7, 2006 up to
the finality of this decision, and to render full accounting of all the upkeep expenses, rentals
and such other income derived from the reserved units so awarded to St. Francis;

4) Arbitration costs are maintained pursuant to the pro rata sharing that the parties had
initially shared in accordance with the amounts claimed and counterclaimed by them,
namely, St. Francis: P936,775.29; and Malayan: P127,742.09;

5) Malayan and all others claiming rights under it, are enjoined from exercising acts of
ownership over the reserved units relative to the proportionate share awarded to St. Francis;

6) The Register of Deeds of Pasig City is directed to immediately reinstate the name of St.
Francis Square Realty Corporation (formerly ASB Realty Corporation) as the registered
owner in the corresponding Condominium Certificates of Title covering the reserved units
awarded to St. Francis; and

7) All other awards granted by CIAC in its Award dated May 27, 2009 which are not affected
by the above modifications are affirmed. No costs.
4.) Bases Conversion Development Authority, et al., v. DMCI Project
Developers, Inc., et al., G.R. No. 173137, 11 January 2016

G.R. No. 173137, January 11, 2016

BASES CONVERSION DEVELOPMENT AUTHORITY, Petitioner, v. DMCI PROJECT DEVELOPERS,

INC., Respondent.

G.R. NO. 173170

NORTH LUZON RAILWAYS CORPORATION, Petitioner, v. DMCI PROJECT DEVELOPERS,

INC.Respondent.

DECISION

LEONEN, J.:

An arbitration clause in a document of contract may extend to subsequent documents of contract executed
for the same purpose. Nominees of a party to and beneficiaries of a contract containing an arbitration clause
may become parties to a proceeding initiated based on that arbitration clause.

On June 10, 1995, Bases Conversion Development Authority (BCDA) entered into a Joint Venture
Agreement1 with Philippine National Railways (PNR) and other foreign corporations.2 cha nroble svirtual lawlib rary

Under the Joint Venture Agreement, the parties agreed to construct a railroad system from Manila to
Clark with possible extensions to Subic Bay and La Union and later, possibly to Ilocos Norte and Nueva
Ecija.3 BCDA shall establish North Luzon Railways Corporation (Northrail) for purposes of constructing,
operating, and managing the railroad system.4 The Joint Venture Agreement contained the following
provision:

ARTICLE XVI
ARBITRATION

16. If any dispute arise hereunder which cannot be settled by mutual accord between the parties to
such dispute, then that dispute shall be referred to arbitration. The arbitration shall be held in
whichever place the parties to the dispute decide and failing mutual agreement as to a location
within twenty-one (21) days after the occurrence of the dispute, shall be held in Metro Manila and
shall be conducted in accordance with the Philippine Arbitration Law (Republic Act No. 876)
supplemented by the Rules of Conciliation and Arbitration of the International Chamber of
Commerce. All award of such arbitration shall be final and binding upon the parties to the dispute.5

BCDA organized and incorporated Northrail.6 Northrail was registered with the Securities and Exchange
Commission on August 22, 1995.7 chan roblesv irt uallawl ibra ry

BCDA invited investors to participate in the railroad project's financing and implementation. Among those
invited were D.M. Consunji, Inc. and Metro Pacific Corporation.8 chanro blesvi rtua llawli bra ry
On February 8, 1996, the Joint Venture Agreement was amended to include D.M. Consunji, Inc.
and/or its nominee as party.9 Under the amended Joint Venture Agreement, D.M. Consunji, Inc. shall be
an additional investor of Northrail.10 It shall subscribe to 20% of the increase in Northrail's authorized capital
stock.11 chanrob lesvi rtua llawlib ra ry

On February 8, 1996, BCDA and the other parties to the Joint Venture Agreement, including D.M. Consunji,
Inc. and/or its nominee, entered into a Memorandum of Agreement.12 Under this agreement, the parties
agreed that the initial seed capital of P600 million shall be infused to Northrail.13Of that amount, P200
million shall be D.M. Consunji, Inc.'s share, which shall be converted to equity upon NorthraiPs
privatization.14 Later, D.M. Consunji, Inc.'s share was increased to P300 million.15 chan roblesv irtuallaw lib rary

Upon BCDA and Northrail's request,16 DMCI Project Developers, Inc. (DMCI-PDI) deposited P300 million into
NorthraiPs account with Land Bank of the Philippines.17 The deposit was made on August 7, 199618for its
"future subscription of the Northrail shares of stocks."19 In NorthraiPs 1998 financial statements submitted
to the Securities and Exchange Commission, this amount was reflected as "Deposits For Future
Subscription."20 At that time, NorthraiPs application to increase its authorized capital stock was still pending
with the Securities and Exchange Commission.21 chanroble svi rtual lawlib rary

In letters22dated April 4, 1997, D.M. Consunji, Inc. informed PNR and the other parties that
DMCI-PDI shall be its designated nominee for all the agreements it entered and would enter with
them in connection with the railroad project. Pertinent portions of the letters provide:

[I]n order to formalize the inclusion of [DMCI Project Developers, Inc.] as a party to the JVA and MOA, DMCI
would like to notify all the parties that it is designating PDI as its nominee in both agreements and such
other agreements that may be signed by the parties in furtherance of or in connection with the PROJECT. By
this nomination, all the rights, obligations, warranties and commitments of DMCI under the JVA and MOA
shall henceforth be assumed performed and delivered by PDI.23 (Emphasis supplied)

Later, Northrail withdrew from the Securities and Exchange Commission its application for increased
authorized capital stock.24 Moreover, according to DMCI-PDI, BCDA applied for Official Development
Assistance from Obuchi Fund of Japan.25 This required Northrail to be a 100% government-owned and
controlled corporation.26 chan roble svirtuallaw lib rary

On September 27, 2000, DMCI-PDI started demanding from BCDA and Northrail the return of its P300
million deposit.27 DMCI-PDI cited Northrail's failure to increase its authorized capital stock as reason for the
demand.28 BCDA and Northrail refused to return the deposit29 for the following reasons:

a) At the outset, DMCI PDI/FBDC's participation in Northrail was as a joint venture partner and co-investor
in the Manila Clark Rapid Railway Project, and as such, was granted corresponding representation in the
Northrail Board.

b) DMCI PDI/FBDC was privy to all the deliberations of the Northrail Board and participated in the decisions
made and policies adopted to pursue the project.

c) DMCI PDI/FBDC had full access to the financial statements of Northrail and was regularly informed of the
corporation's financial condition.30 chan roble slaw

Upon BCDA's request, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 116,
Series of 200131 on June 27, 2001. The OGCC stated that "since no increase in capital stock was
implemented, it is but proper to return the investments of both FBDC and DMCI[.]"32 chan roblesv irt uallawl ibrary

In a January 19, 2005 letter,33 DMCI-PDI reiterated the request for the refund of its P300 million deposit for
future Northrail subscription. On March 18, 2005, BCDA denied34 DMCI-PDI's request:

We regret to say that we are of the position that the P300 [million] contribution should not be returned to
DMCI for the following reasons:

a. the P300 million was in the nature of a contribution, not deposits for future subscription; and

b. DMCI, as a joint venture partner, must share in profits and losses.35

On August 17, 2005,36 DMCI-PDI served a demand for arbitration to BCDA and Northrail, citing the
arbitration clause in the June 10, 1995 Joint Venture Agreement.37 BCDA and Northrail failed to
respond.38chan roble svi rtual lawlib rary

DMCI-PDI filed before the Regional Trial Court of Makati39 a Petition to Compel Arbitration40 against BCDA
and Northrail, pursuant to the alleged arbitration clause in the Joint Venture Agreement.41 DMCI-PDI prayed
for "an order directing the parties to proceed to arbitration in accordance with the terms and conditions of
the agreement."42 chanrob lesvi rtual lawlib rary

BCDA filed a Motion to Dismiss43 on the ground that there was no arbitration clause that DMCI-PDI could
enforce since DMCI-PDI was not a party to the Joint Venture Agreement containing the arbitration
clause.44 Northrail filed a separate Motion to Dismiss45 on the ground that the court did not have jurisdiction
over it and that DMCI-PDI had no cause for arbitration against it.46 chan roblesv irt uallawl ibra ry

In the Decision47 dated February 9, 2006, the trial court denied BCDA's and Northrail's Motions to Dismiss
and granted DMCI-PDI's Petition to Compel Arbitration. The dispositive portion of the decision reads:

WHEREFORE, the petition is granted. The parties are ordered to present their dispute to arbitration in
accordance with Article XVI of the Joint Agreement.

SO ORDERED.48 chanrobles law

The trial court ruled that the arbitration clause in the Joint Venture Agreement should cover all subsequent
documents including the amended Joint Venture Agreement and the Memorandum of Agreement. The three
(3) documents constituted one contract for the formation and funding of Northrail.49 chanroble svirtual lawlib rary

The trial court also ruled that even though DMCI-PDI was not a signatory to the Joint Venture Agreement
and the Memorandum of Agreement, it was an assignee of D.M. Consunji, Inc.'s rights. Therefore, it could
invoke the arbitration clause in the Joint Venture Agreement.50 chanro blesvi rt uallawli bra ry

In an Order51 dated June 9, 2006, the trial court denied BCDA and Northrail's Motion for Reconsideration of
the February 9, 2006 trial court Decision.

BCDA filed a Rule 45 Petition before this court, assailing the February 9, 2006 trial court Order granting
DMCI-PDI's Petition to Compel Arbitration and the June 9, 2006 Order denying BCDA and Northrail's Motion
for Reconsideration.52 c hanro blesvi rt uallawl ibra ry

The issue in this case is whether DMCI-PDI may compel BCDA and Northrail to submit to arbitration.

BCDA argued that only the parties to an arbitration agreement can be bound by that agreement.53 The
arbitration clause that DMCI-PDI sought to enforce was in the Joint Venture Agreement, to which DMCI-PDI
was not a party.54 There was also no evidence that the right to compel arbitration under the Joint Venture
Agreement was assigned to DMCI-PDI.55 Assuming that there was such an assignment, BCDA did not
consent to or recognize it.56 Therefore, the trial court's conclusion that DMCI-PDI was D.M. Consunji, Inc.'s
assignee had no basis.57 In BCDA's view, DMCI-PDI had no right to compel BCDA to submit to
arbitration.58 chan roble svirtuallaw lib rary

BCDA also argued that the trial court decided the Motion to Dismiss in violation of the parties' right to due
process. The trial court should have conducted a hearing so that the parties could have presented their
respective positions on the issue of assignment. The trial court merely accepted DMCI-PDI's allegations,
without basis.59 chanrob lesvi rtua llawli bra ry

In a separate Petition for Review,60 Northrail argued that it cannot be compelled to submit itself to
arbitration because it was not a party to the arbitration agreement.61 chan roblesv irtuallaw lib rary

Northrail also argued that DMCI-PDI cannot initiate an action to compel BCDA and Northrail to arbitration
because DMCI-PDI itself was not a party to the arbitration agreement. DMCI-PDI was not D.M. Consunji,
Inc.'s assignee because BCDA did not consent to that assignment.62 chan roblesv irtuallaw lib rary

In its Comment63 on BCDA's Petition, DMCI-PDI argued that Rule 45 was a wrong mode of appeal.64 The
issues raised by BCDA did not involve questions of law.65 chan roblesv irt uallawl ibrary
DMCI-PDI pointed out that BCDA breached their agreement when it failed to apply the P300 million deposit
to Northrail subscriptions. It turned out that such application was rendered impossible by the alleged loan
requirement that Northrail be wholly owned by the government and by Northrail's withdrawal from the
Securities and Exchange Commission of its application for an increase in authorized capital stock.66 chanrob lesvi rtual lawlib rary

DMCI-PDI also argued that it is an assignee and nominee of D.M. Consunji, Inc., which is a party to the
contracts. Therefore, it is also a party to the arbitration clause.67 chanro blesvi rt uallawli bra ry

DMCI-PDI contended that the arbitration agreement extended to all documents relating to the project.68Even
though the agreement was expressed only in the Joint Venture Agreement, its effect extends to the
amendment to the Joint Venture Agreement and Memorandum of Agreement.69 chanroblesv irt uallawl ibra ry

DMCI-PDI emphasized that BCDA had always recognized it as D.M. Consunji's assignee in its
correspondences with the OGCC and with the President of DMCI, Mr. Isidro Consunji.70 In those letters,
BCDA described DMCI-PDI's participation as being the "joint venture partner . . . and co-investor in the
Manila Clark Rapid Railway Project[.]"71 Hence, it is now estopped from denying its personality in this
case.72
chanrob lesvi rtua llawlib ra ry

We rule for DMCI-PDI. chanRoblesvi rtua lLawl ibra ry

I
The state has a policy in favor of arbitration

At the outset, we must state that BCDA and Northrail invoked the correct remedy. Rule 45 is applicable
when the issues raised before this court involved purely questions of law. In Villamor v. Balmores:73 chanrob lesvi rtua llawlib ra ry

[t]here is a question of law "when there is doubt or controversy as to what the law is on a certain [set] of
facts." The test is "whether the appellate court can determine the issue raised without reviewing or
evaluating the evidence." Meanwhile, there is a question of fact when there is "doubt ... as to the truth or
falsehood of facts." The question must involve the examination of probative value of the evidence
presented.74 cha nrob lesvi rtua llawli bra ry

BCDA and Northrail primarily ask us to construe the arbitration clause in the Joint Venture Agreement. They
assert that the clause does not bind DMCI-PDI and Northrail. This issue is a question of law. It does not
require us to examine the probative value of the evidence presented. The prayer is essentially for this court
to determine the scope of an arbitration clause.

Arbitration is a mode of settling disputes between parties.75 Like many alternative dispute resolution
processes, it is a product of the meeting of minds of parties submitting a pre-defined set of disputes. They
agree among themselves to a process of dispute resolution that avoids extended litigation.

The state adopts a policy in favor of arbitration. Republic Act No. 928576 expresses this policy:

SEC. 2. Declaration of Policy. - It is hereby declared the policy of the State to actively promote party
autonomy in the resolution of disputes or the freedom of the parties to make their own arrangements to
resolve their disputes. Towards this end, the State shall encourage and actively promote the use of
Alternative Dispute Resolution (ADR) as an important means to achieve speedy and impartial justice and
declog court dockets. As such, the State shall provide means for the use of ADR as an efficient tool and an
alternative procedure for the resolution of appropriate cases. Likewise, the State shall enlist active private
sector participation in the settlement of disputes through ADR. This Act shall be without prejudice to the
adoption by the Supreme Court of any ADR system, such as mediation, conciliation, arbitration, or any
combination thereof as a means of achieving speedy and efficient means of resolving cases pending before
all courts in the Philippines which shall be governed by such rules as the Supreme Court may approve from
time to time. (Emphasis supplied)

Our policy in favor of party autonomy in resolving disputes has been reflected in our laws as early as 1949
when our Civil Code was approved.77 Republic Act No. 87678 later explicitly recognized the validity and
enforceability of parties' decision to submit disputes and related issues to arbitration.79 chan roblesv irt uallawl ibra ry

Arbitration agreements are liberally construed in favor of proceeding to arbitration.80 We adopt the
interpretation that would render effective an arbitration clause if the terms of the agreement allow for such
interpretation.81 In LM Power Engineering Corporation v. Capitol Industrial Construction Groups, Inc.,82 this
court said:

Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods, courts
should liberally construe arbitration clauses. Provided such clause is susceptible of an interpretation that
covers the asserted dispute, an order to arbitrate should be granted. Any doubt should be resolved in favor
of arbitration.83
chan robles law

This manner of interpreting arbitration clauses is made explicit in Section 25 of Republic Act No. 9285:

SEC. 25. Interpretation of the Act.-In interpreting the Act, the court shall have due regard to the policy of
the law in favor of arbitration. Where action is commenced by or against multiple parties, one or more of
whom are parties to an arbitration agreement, the court shall refer to arbitration those parties who are
bound by the arbitration agreement although the civil action may continue as to those who are not bound by
such arbitration agreement.

Hence, we resolve the issue of whether DMCI-PDI may compel BCDA and Northrail to submit to arbitration
proceedings in light of the policy in favor of arbitration.

BCDA and Northrail assail DMCI-PDI's right to compel them to submit to arbitration based on the
assumption that DMCI-PDI was not a party to the agreement containing the arbitration clause.

Three documents (a) Joint Venture Agreement, (b) amended Joint Venture Agreement, and (c)
Memorandum of Agreement represent the agreement between BCDA, Northrail, and D.M. Consunji, Inc.
Among the three documents, only the Joint Venture Agreement contains the arbitration clause. DMCI-PDI
was allegedly not a party to the Joint Venture Agreement.

To determine the coverage of the arbitration clause, the relation among the three documents and DMCI-
PDI's involvement in the execution of these documents must first be understood.

The Joint Venture Agreement was executed by BCDA, PNR, and some foreign corporations.84 The purpose of
the Joint Venture Agreement was for the construction of a railroad system from Manila to Clark with a
possible extension to Subic Bay and later to San Fernando, La Union, Laoag, Ilocos Norte, and San Jose,
Nueva Ejica.85 Under the Joint Venture Agreement, BCDA agreed to incorporate Northrail, which shall have
an authorized capital stock of F5.5 billion.86 The parties agreed that BCDA/PNR shall have a 30% equity with
Northrail.87 Other Filipino partners shall have a total of 50% equity, while foreign partners shall have at most
20% equity.88 Pertinent provisions of the Joint Venture Agreement are as follows:

JOINT VENTURE AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This Joint Venture Agreement (JVA) made and executed at Makati, Metro Manila, this__ day of June
1995 by and between:

The BASES CONVERSION DEVELOPMENT AUTHORITY

. . . hereinafter referred to as BASECON;

The PHILIPPINE NATIONAL RAILWAYS ...;

The following corporations collectively referred to as the Foreign Group:

a) CONSTRUCCIONES Y AUXILIAR DE FERROCARRILES, S.A... .;

b) ENTRECANALES Y TAVORA, SA . . .;

c) CUBIERTAS MZOV, S.A. . . .;

d) COBRA, S.A....; and

e) Others who may later participate in the JVA. chanRoblesvi rtual Lawli bra ry
 -and-

EUROMA DEVELOPMENT CORPORATION . . .

WITNESSETH:

....

WHEREAS, a project identified pursuant to the aforesaid policy is the establishment of a Premier
International Airport Complex located at the former Clark Air Base as expressed in Executive Order 174 s.
1994 in order to accommodate the expected heavy flow of passenger and cargo traffic to and from the
Philippines, to start the development of the Northern Luzon Grid and to accelerate the development of
Central Luzon and finally to decongest Metro Manila of its vehicular traffic;

WHEREAS, in order to implement and provide such a mass transit and access system, the parties hereto
agreed to construct a double-trac[k] railway system from Manila to Clark with a possible extension to Subic
Bay and later to San Fernando, La Union, as the second phase, and finally to Laoag, Ilocos Norte and to San
Jose, Nueva Ecija, as the third phase of the project, hereinafter referred to as the PROJECT;

ARTICLE I
DEFINITION OF TERMS

....

1.5 "PROJECT" means the construction, operation and management of a double-track railway system from
Manila to Clark with an extension to Subic Bay, and a possible extension to San Fernando, La Union, as the
second phase, and finally to Laoag, Ilocos Norte and to San Jose, Nueva Ecija, as the third phase of the
PROJECT.

1.6 "North Luzon Railways Corporation (NORTHRAIL)["] means the joint venture corporation to be
established in accordance with Article II hereof.
.... chanRoblesvirt ual Lawlib rary

ARTICLE II
THE NORTH LUZON RAILROAD CORPORATION

2.1 BASECON shall establish and incorporate in accordance with the laws of the Republic of the Philippines a
corporation to be known as NORTH LUZON RAILWAYS CORPORATION (NORTHRAIL) with an initial
capitalization of one hundred million pesos (PI 00,000,000.00).

2.2 NORTHRAIL shall eventually have an authorized capital stock of FIVE BILLION FIVE HUNDRED MILLION
PESOS (P 5.5 Billion) divided into 55,000,000 shares with par value of P 100 per share.
.... chanRoblesvirt ual Lawlib rary

ARTICLE III

PURPOSE OF NORTHRAIL

A. PRIMARY PURPOSE

3.1 To construct, operate and manage a railroad system to serve Northern and Central Luzon; and to
develop, construct, manage, own, lease, sublease and operate establishments and facilities of all kinds
related to the railroad system;
.... chanRoblesvirt ual Lawlib rary

ARTICLE IV

PARTICIPATION/TRANSFER/ENCUMBRANCE OF SHARES
4.1 NORTHRAIL shall increase its authorized capital stock upon the subscription thereon by the parties to
this JVA in accordance with the following equity proportion/participation:

Foreign Group up to 20%

Euroma/Filipino partners 50%
BASECON/PNR 30%

....

4.4 The shares owned by Filipino stockholders including BASECON, PNR, EUROMA Development Corporation
and hereinafter to be owned by Filipino corporations shall not be less than sixty percent (60%) at any given
time.
.... chanRoblesvirt ual Lawlib rary

ARTICLE XVI

ARBITRATION

16. If any dispute arise hereunder which cannot be settled by mutual accord between the parties to such
dispute, then that dispute shall be referred to arbitration. The arbitration shall be held in whichever place
the parties to the dispute decide and failing mutual agreement as to a location within twenty-one (21) days
after the occurrence of the dispute, shall be held in Metro Manila and shall be conducted in accordance with
the Philippine Arbitration Law (Republic Act No. 876) as supplemented by the Rules of Conciliation and
Arbitration of the International Chamber of Commerce. All award of such arbitration shall be final and
binding upon the parties to the dispute.

ARTICLE XVII
ASSIGNMENT

17.1 No party to this Agreement may assign, transfer or convey this Agreement, create or incur any
encumbrance of its rights or any part of its rights and obligations hereunder or any shares of stocks of
NORTHRAIL to any person, firm or corporation without the prior written consent of the other parties or
except as provided in the Articles of Incorporation and By-Laws of NORTHRAIL and this Agreement.

17.2 This Agreement shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assignees and designees or nominees whenever possible.89 chan roble slaw

The Joint Venture Agreement was amended on February 8, 199690 to include D.M. Consunji, Inc. and/or its
nominee as party.91 The participations of the parties in Northrail were also modified. Pertinent provisions of
the amended Joint Venture Agreement are reproduced as follows:

This Amendment to the Joint Venture Agreement dated 10th of June 1995 (the Agreement) made and
executed at_____________ , Metro Manila, on this 8th day of February 1996 by and among: chanRoblesvi rtua lLaw lib rary

BASES CONVERSION DEVELOPMENT AUTHORITY . . . hereinafter referred to as BASECON;

with

PHILIPPINE NATIONAL RAILWAYS ...

and

The following corporations collectively referred to as the FOREIGN GROUP:

CONSTRUCCIONES Y AUXILIAR DE FERROCARRILES, S.A.. . .;

ENTRECANALES Y TAVORA, S.A....; CUBIERTAS Y MZOV, S.A. . . .;

COBRA INSTALACIONES Y SERVICIOS, S.A.. . .; and

Other investors who may later participate in the Joint Venture; chanRoble svirtual Lawli bra ry

and

Other local investors to be represented by EUROMA DEVELOPMENT CORPORATION . . .

and

P.M. CONSUNJI. INC. and/or its nominee . . .

WITNESSETH THAT

WHEREAS, a Joint Venture Agreement (JVA) was executed on the 10th of June 1995 between BASECON,
PNR, FOREIGN GROUP, and EUROMA;
....

NOW, THEREFORE, for and in consideration of the foregoing premises and of the mutual covenant
contained therein, THE PARTIES HEREBY AGREE that the JVA should be amended as follows:

1. In Article 1.3, D.M. CONSUNJI, INC. shall be included as strategic partner, being one of the
Philippine registered companies selected by BASECON, PNR and the Lead Group on the basis of its
qualifications for the implementation of the Project.

2. Article 4.1 should read as follows:

"NORTHRAIL shall increase its authorized capital stock upon the subscription thereon by the Parties
to this JVA in accordance with the following equity proportion/participation:

SRG.............................................. up to 10%
DMCI..................................................... 20%
BASECON/PNR............................. up to 30%
Others..................................................... 40%

3. In Article 4.4, the Filipino corporations whose total shares in NORTHRAIL's capital stock, which
should not be less than sixty percent (60%) at any given time, shall include D.M. CONSUNJI,
INC.93 (Underscoring supplied)

On February 8, 1996, the same date of the execution of the amended Joint Venture Agreement, the same
parties executed a Memorandum of Agreement94 "to set up the mechanics for raising the seed capitalization
needed by NORTHRAIL[.]"95 Pertinent provisions of the Memorandum of Agreement are reproduced as
follows:

WITNESSETH THAT

WHEREAS, the Manila - Clark Rapid Railway System Project, hereinafter referred to as the Project, was
identified as one of the major infrastructure projects to accelerate the development of Central Luzon,
particularly the former U.S. bases at Clark and Subic;
....

WHEREAS, the North Luzon Railways Corporation (NORTHRAIL) was organized and incorporated to
implement the development, construction, operation and maintenance of the railway system in Northern
Luzon;

WHEREAS, NORTHRAIL is wholly owned and controlled by BASECON;

WHEREAS, the privatization of NORTHRAIL is necessary in order to accelerate the implementation of the
Project by tapping the financial resources and expertise of the private sector;
....

WHEREAS, the Parties of the Joint Venture Agreement (JVA) of 10 June 1995, namely BASECON, PNR,
SPANISH RAILWAY GROUP and EUROMA, agreed to invite other private investors to help in the financing and
implementation of the Project, and to raise the required equity in order to accelerate the privatization of
NORTHRAIL;

WHEREAS, DMCI and other private investors. . . have manifested their desire to be strategic partners in
implementing the Project;

WHEREAS, DMCI and other private investors have the financial capability to implement the Project;

WHEREAS, Phase I of the Project covers the Manila - Clark section of the North Luzon railway network as
defined by the JVA of 10 June 1995 . . .[;]
.... chanRoblesvirt ual Lawlib rary

ARTICLE I
PURPOSE

1.1 Purpose. This Agreement is entered into by the Parties in order to set up the mechanics for raising the
seed capitalization needed by NORTHRAIL to accelerate the implementation of the Project.
.... chanRoblesvirt ual Lawlib rary

ARTICLE II
TERMS OF AGREEMENT

....

2.1 The Parties agree to put up the necessary seed capitalization needed by NORTHRAIL to fast-track the
implementation of the Rapid Rail Transit System Project according to the following schedule:

BCDA/PNR...................... PHP 300 Million

DMCI..................................................... PHP 200 Million
SRG...................................................... PHP 100 Million
TOTAL................................................... PHP 600 Million
....

2.3 The amounts contributed by BCDA/PNR, DMCI, SRG, and others are committed to be converted to
equity when NORTHRAIL is privatized.96 chan roble svirtuallaw lib rary

There is no rule that a contract should be contained in a single document.97 A whole contract may be
contained in several documents that are consistent with one other.98 chan roblesv irt uallawl ibrary

Moreover, at any time during the lifetime of an agreement, circumstances may arise that may cause the
parties to change or add to the terms they previously agreed upon. Thus, amendments or supplements to
the agreement may be executed by contracting parties to address the circumstances or issues that arise
while a contract subsists.

When an agreement is amended, some provisions are changed. Certain parts or provisions may be added,
removed, or corrected. These changes may cause effects that are inconsistent with the wordings of the
contract before the changes were applied. In that case, the old provisions shall be deemed to have lost their
force and effect, while the changes shall be deemed to have taken effect. Provisions that are not affected by
the changes usually remain effective.

When a contract is supplemented, new provisions that are not inconsistent with the old provisions are
added. The nature, scope, and terms and conditions are expanded. In that case, the old and the new
provisions form part of the contract.

A reading of all the documents of agreement shows that they were executed by the same parties. Initially,
the Joint Venture Agreement was executed only by BCD A, PNR, and the foreign corporations. When the
Joint Venture Agreement was amended to include D.M. Consunji, Inc. and/or its nominee, D.M. Consunji,
Inc. and/or its nominee were deemed to have been also a party to the original Joint Venture Agreement
executed by BCDA, PNR, and the foreign corporations. D.M. Consunji, Inc. and/or its nominee became
bound to the terms of both the Joint Venture Agreement and its amendment.

Moreover, each document was executed to achieve the single purpose of implementing the railroad project,
such that documents of agreement succeeding the original Joint Venture Agreement merely amended or
supplemented the provisions of the original Joint Venture Agreement.

The first agreement the Joint Venture Agreement defined the project, its purposes, the parties, the
parties' equity participation, and their responsibilities. The second agreement the amended Joint Venture
Agreement - only changed the equity participation of the parties and included D.M. Consunji, Inc. and/or
its nominee as party to the railroad project. The third agreement the Memorandum of Agreement
raised the seed capitalization of Northrail from P100 million as indicated in the first agreement to P600
million, in order to accelerate the implementation of the same project defined in the first agreement.

The Memorandum of Agreement is an implementation of the Joint Venture Agreement and the amended
Joint Venture Agreement. It could not exist without referring to the provisions of the original and amended
Joint Venture Agreements. It assumes a prior knowledge of its terms. Thus, it referred to "North Luzon
railway network as defined by the JVA of 10 June 1995[.]"99 chanrob lesvi rtua llawli bra ry

In other words, each document of agreement represents a step toward the implementation of the project,
such that the three agreements must be read together for a complete understanding of the parties' whole
agreement. The Joint Venture Agreement, the amended Joint Venture Agreement, and the Memorandum of
Agreement should be treated as one contract because they all form part of a whole agreement.

Hence, the arbitration clause in the Joint Venture Agreement should not be interpreted as applicable only to
the Joint Venture Agreement's original parties. The succeeding agreements are deemed part of or a
continuation of the Joint Venture Agreement. The arbitration clause should extend to all the agreements and
its parties since it is still consistent with all the terms and conditions of the amendments and
supplements. chanRoble svirtual Lawli bra ry

II

BCDA and Northrail argued that they did not consent to D.M. Consunji, Inc.'s assignment of rights to DMCI-
PDI. Therefore, DMCI-PDI did not validly become a party to any of the agreement. Section 17.1 of the Joint
Venture Agreement provides that rights under the agreement may not be assigned, transferred, or conveyed
without the consent of the other party.100 Thus:

17.1 No party to this Agreement may assign, transfer or convey this Agreement, create or incur any
encumbrance of its rights or any part of its rights and obligations hereunder or any shares of stocks of
NORTHRAIL to any person, firm or corporation without the prior written consent of the other parties or
except as provided in the Articles of Incorporation and By-Laws of NORTHRAIL and the Agreement.101 chan roblesv irtuallawl ib rary

However, Section 17.2 of the Joint Venture Agreement provides that the agreement shall be binding on
nominees:

17.2 This Agreement shall inure to the benefit of and be binding upon the parties . . . and their respective
successors and permitted assignees and designees or nominees whenever applicable.102 (Emphasis supplied)

The principal parties to the agreement after its amendment include D.M. Consunji, Inc. and/or its nominee:

AMENDMENT TO THE JOINT VENTURE AGREEMENT

This Amendment to the Joint Venture Agreement dated 10th of June 1995 (the Agreement) made and
executed at _____________ , Metro Manila, on this 8th day of February 1996 by and among:

BASES CONVERSION DEVELOPMENT AUTHORITY . . .

with
PHILIPPINE NATIONAL RAILWAYS . . . chanRoblesvi rtual Lawli bra ry

and

....

D.M. CONSUNJI, INC. and/or its nominee, a domestic corporation duly organized and created pursuant
to the laws of the Republic of the Philippines . . .103 (Emphasis supplied) c hanRoblesv irtual Lawlib rary

MEMORANDUM OF AGREEMENT

This Agreement made and executed at Pasig, Metro Manila, Philippines on this 8[th] day of February 1996
by and among:

BASES CONVERSION DEVELOPMENT AUTHORITY . . . chanRoblesvi rtua lLawl ibra ry

with

PHILIPPINE NATIONAL RAILWAYS ... chanRoblesvi rtua lLawl ibra ry

and

D.M. CONSUNJI, INC. and/or its nominee, a domestic corporation duly organized and created pursuant
to the laws of the Republic of the Philippines . . .104 (Emphasis supplied)

Based on DMCI-PDFs letter to BCDA and Northrail dated April 4, 1997, D.M. Consunji, Inc. designated DMCI-
PDI as its nominee for the agreements it entered into in relation to the project:

[I]n order to formalize the inclusion of [DMCI Project Developers, Inc.] as a party to the JVA and MOA, DMCI
would like to notify all the parties that it is designating PDI as its nominee in both agreements and such
other agreements that may be signed by the parties in furtherance of or in connection with the PROJECT. By
this nomination, all the rights, obligations, warranties and commitments of DMCI under the JVA and MOA
shall henceforth be assumed performed and delivered by PDI.105 (Emphasis supplied)

Thus, lack of consent to the assignment is irrelevant because there was no assignment or transfer of rights
to DMCI-PDI. DMCI-PDI was D.M. Consunji, Inc.'s nominee.

Section 17.2 of the Joint Venture Agreement clearly shows an intent to treat assignment and nomination
differently.

17.2 This Agreement shall inure to the benefit of and be binding upon the parties . . . and their respective
successors and permitted assignees and designees or nominees whenever applicable.106 (Emphasis supplied)

Assignment involves the transfer of rights after the perfection of a contract. Nomination pertains to the act
of naming the party with whom it has a relationship of trust or agency.

In Philippine Coconut Producers Federation, Inc. (COCOFED) v. Republic,107 this court defined "nominee" as
follows:

In its most common signification, the term "nominee'' refers to one who is designated to act for another
usually in a limited way; a person in whose name a stock or bond certificate is registered but who is not the
actual owner thereof is considered a nominee."Corpus Juris Secundum describes a nominee as one:

". . . designated to act for another as his representative in a rather limited sense. It has no connotation,
however, other than that of acting for another, in representation of another or as the grantee of another. In
its commonly accepted meaning the term connoted the delegation of authority to the nominee in a
representative or nominal capacity only, and does not connote the transfer or assignment to the nominee of
any property in, or ownership of, the rights of the person nominating him."108 (Citations omitted)
Contrary to BCDA and Northrail's position, therefore, the agreement's prohibition against transfers,
conveyance, and assignment of rights without the consent of the other party does not apply to nomination.

DMCI-PDI is a party to all the agreements, including the arbitration agreement. It may, thus, invoke the
arbitration clause against all the parties. chanRoblesv irt ual Lawlib rary

III

Northrail, although not a signatory to the contracts, is also bound by the arbitration agreement.

In Lanuza v. BF Corporation,109 we recognized that there are instances when non-signatories to a contract
may be compelled to submit to arbitration.110 Among those instances is when a non-signatory is allowed to
invoke rights or obligations based on the contract.111 chanro blesvi rtua llawli bra ry

The subject of BCDA and D.M. Consunji, Inc.'s agreement was the construction and operation of a railroad
system. Northrail was established pursuant to this agreement and its terms, and for the same purpose,
thus:

ARTICLE III

PURPOSE OF NORTHRAIL

A. PRIMARY PURPOSE

3.1. To construct, operate and manage a railroad system to serve Northern and Central Luzon; and to
develop, construct, manage, own, lease, sublease and operate establishments and facilities of all kinds
related to the railroad system[.]112chan roble slaw

Northrail's capitalization and the composition of its subscribers are also subject to the provisions of the
original and amended Joint Venture Agreements, and the subsequent Memorandum of Agreement. It was
pursuant to the terms of these agreements that Northrail demanded from D.M. Consunji, Inc. the infusion of
its share in subscription.

Therefore, Northrail cannot deny understanding that its existence, purpose, rights, and obligations are tied
to the agreements. When Northrail demanded for the amount of D.M. Consunji, Inc.'s subscription based on
the agreements and later accepted the latter's funds, it proved that it was bound by the agreements' terms.
It is also deemed to have accepted the term that such funds shall be used for its privatization. It cannot
choose to demand the enforcement of some of its provisions if it is in its favor, and then later by whim, deny
being bound by its terms.

Hence, when BCDA and Northrail decided not to proceed with Northrail's privatization and the transfer of
subscriptions to D.M. Consunji, Inc., any obligation to return its supposed subscription attached not only to
BCDA as party to the agreement but primarily to Northrail as beneficiary that impliedly accepted the terms
of the agreement and received D.M. Consunji, Inc.'s funds.

There is, therefore, merit to DMCI-PDI's argument that if the Civil Code113 gives third party beneficiaries to a
contract the right to demand the contract's fulfillment in its favor, the reverse should also be true.114A
beneficiary who communicated his or her acceptance to the terms of the agreement before its revocation
may be compelled to abide by the terms of an agreement, including the arbitration clause. In this case,
Northrail is deemed to have communicated its acceptance of the terms of the agreements when it accepted
D.M. Consunji, Inc.'s funds.

Finally, judicial efficiency and economy require a policy to avoid multiplicity of suits. As we said in Lanuza:

Moreover, in Heirs ofAugusto Salas, this court affirmed its policy against multiplicity of suits and
unnecessary delay. This court said that "to split the proceeding into arbitration for some parties and trial for
other parties would "result in multiplicity of suits, duplicitous procedure and unnecessary delay." This court
also intimated that the interest of justice would be best observed if it adjudicated rights in a single
proceeding. While the facts of that case prompted this court to direct the trial court to proceed to determine
the issues of that case, it did not prohibit courts from allowing the case to proceed to arbitration, when
circumstances warrant.115 chanrob leslaw

WHEREFORE, the petitions are DENIED. The February 9, 2006 Regional Trial Court Decision and the June
9, 2006 Regional Trial Court Order are AFFIRMED.

SO ORDERED. cralawlawlibra ry

5.) ABS-CBN Broadcasting Corp. v. World Interactive Network Systems

Japan Co., Ltd., G.R. No. 169332, February 11, 2008

ABS-CBN V. WORLD INTERACTIVE

NETWORK SYSTEMS (G.R. NO. 169332)
Facts:
Petitioner ABS-CBN Broadcasting Corporation entered into a licensing
agreement with respondent World Interactive Network Systems (WINS) Japan
Co., Ltd., a foreign corporation licensed under the laws of Japan, in that the
former granted respondent the exclusive license to distribute and sublicense
the distribution of the television service known as The Filipino Channel
(TFC) in Japan. By virtue thereof, petitioner undertook to transmit the TFC
programming signals to respondent which the latter received through its
decoders and distributed to its subscribers. A dispute arose between the parties
when petitioner accused respondent of inserting nine episodes of WINS
WEEKLY, a weekly 35-minute community news program for Filipinos in
Japan, into the TFC programming. Petitioner claimed that these were
unauthorized insertions constituting a material breach of their agreement.
Consequently, petitioner notified respondent of its intention to terminate the
agreement. Thereafter, respondent filed an arbitration suit pursuant to the
arbitration clause of its agreement with petitioner. The parties appointed
Professor Alfredo F. Tadiar to act as sole arbitrator who then rendered a
decision in favor of respondent holding that petitioner gave its approval for the
airing of WINS WEEKLY as shown by a series of written exchanges between
the parties and that petitioner threatened to terminate the agreement due to its
desire to compel respondent to re-negotiate the terms thereof for higher fees.
He then allowed respondent to recover temperate damages, attorneys fees and
one-half of the amount it paid as arbitrators fee. Petitioner filed in the CA a
petition for review under Rule 43 of the Rules of Court or, in the alternative, a
petition for certiorari under Rule 65 of the same Rules, with application for
temporary restraining order and writ of preliminary injunction. Respondent, on
the other hand, filed a petition for confirmation of arbitral award. The CA
rendered the assailed decision dismissing ABS-CBNs petition for lack of
jurisdiction. Petitioner moved for reconsideration but the same was denied.
Issue:
The issue before us is whether or not an aggrieved party in a voluntary
arbitration dispute may avail of, directly in the CA, a petition for review under
Rule 43 or a petition for certiorari under Rule 65 of the Rules of Court, instead
of filing a petition to vacate the award in the RTC when the grounds invoked
to overturn the arbitrators decision are other than those for a petition to vacate
an arbitral award enumerated under RA 876.
Ruling:
RA 876 itself mandates that it is the Court of First Instance, now the RTC,
which has jurisdiction over questions relating to arbitration, such as a petition
to vacate an arbitral award. As RA 876 did not expressly provide for errors of
fact and/or law and grave abuse of discretion (proper grounds for a petition for
review under Rule 43 and a petition for certiorari under Rule 65, respectively)
as grounds for maintaining a petition to vacate an arbitral award in the RTC, it
necessarily follows that a party may not avail of the latter remedy on the
grounds of errors of fact and/or law or grave abuse of discretion to overturn an
arbitral award. Adamson v. Court of Appeals gave ample warning that a
petition to vacate filed in the RTC which is not based on the grounds
enumerated in Section 24 of RA 876 should be dismissed.
In cases not falling under any of the aforementioned grounds to vacate an
award, the Court has already made several pronouncements that a petition for
review under Rule 43 or a petition for certiorari under Rule 65 may be availed
of in the CA. Which one would depend on the grounds relied upon by
petitioner.
Nevertheless, although petitioners position on the judicial remedies available
to it was correct, we sustain the dismissal of its petition by the CA. The remedy
petitioner availed of, entitled alternative petition for review under Rule 43 or
petition for certiorari under Rule 65, was wrong. Time and again, we have
ruled that the remedies of appeal and certiorari are mutually exclusive and not
alternative or successive.
A careful reading of the assigned errors reveals that the real issues calling for
the CAs resolution were less the alleged grave abuse of discretion exercised
by the arbitrator and more about the arbitrators appreciation of the issues and
evidence presented by the parties. Therefore, the issues clearly fall under the
classification of errors of fact and law questions which may be passed upon
by the CA via a petition for review under Rule 43. Petitioner cleverly crafted
its assignment of errors in such a way as to straddle both judicial remedies, that
is, by alleging serious errors of fact and law (in which case a petition for review
under Rule 43 would be proper) and grave abuse of discretion (because of
which a petition for certiorari under Rule 65 would be permissible).
Wherefore, the petition is hereby denied. The decision and resolution of the
CA directing the RTC to proceed with the trial of the petition for confirmation
of arbitral award is affirmed.

Full case :

G.R. No. 169332 February 11, 2008

ABS-CBN BROADCASTING CORPORATION, petitioner,

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

DECISION

CORONA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside the
February 16, 2005 decision1 and August 16, 2005 resolution2 of the Court of Appeals (CA) in CA-
G.R. SP No. 81940.

On September 27, 1999, petitioner ABS-CBN Broadcasting Corporation entered into a licensing
agreement with respondent World Interactive Network Systems (WINS) Japan Co., Ltd., a foreign
corporation licensed under the laws of Japan. Under the agreement, respondent was granted the
exclusive license to distribute and sublicense the distribution of the television service known as "The
Filipino Channel" (TFC) in Japan. By virtue thereof, petitioner undertook to transmit the TFC
programming signals to respondent which the latter received through its decoders and distributed to
its subscribers.
A dispute arose between the parties when petitioner accused respondent of inserting nine episodes
of WINS WEEKLY, a weekly 35-minute community news program for Filipinos in Japan, into the
TFC programming from March to May 2002.3 Petitioner claimed that these were "unauthorized
insertions" constituting a material breach of their agreement. Consequently, on May 9,
2002,4 petitioner notified respondent of its intention to terminate the agreement effective June 10,
2002.

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

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

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

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

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

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

xxx xxx xxx

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

Petitioner filed in the CA a petition for review under Rule 43 of the Rules of Court or, in the
alternative, a petition for certiorari under Rule 65 of the same Rules, with application for temporary
restraining order and writ of preliminary injunction. It was docketed as CA-G.R. SP No. 81940. It
alleged serious errors of fact and law and/or grave abuse of discretion amounting to lack or excess
of jurisdiction on the part of the arbitrator.

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

Consequently, petitioner filed a supplemental petition in the CA seeking to enjoin the RTC of Quezon
City from further proceeding with the hearing of respondent's petition for confirmation of arbitral
award. After the petition was admitted by the appellate court, the RTC of Quezon City issued an
order holding in abeyance any further action on respondent's petition as the assailed decision of the
arbitrator had already become the subject of an appeal in the CA. Respondent filed a motion for
reconsideration but no resolution has been issued by the lower court to date.8

On February 16, 2005, the CA rendered the assailed decision dismissing ABS-CBNs petition for
lack of jurisdiction. It stated that as the TOR itself provided that the arbitrator's decision shall be final
and unappealable and that no motion for reconsideration shall be filed, then the petition for review
must fail. It ruled that it is the RTC which has jurisdiction over questions relating to arbitration. It held
that the only instance it can exercise jurisdiction over an arbitral award is an appeal from the trial
court's decision confirming, vacating or modifying the arbitral award. It further stated that a petition
for certiorari under Rule 65 of the Rules of Court is proper in arbitration cases only if the courts
refuse or neglect to inquire into the facts of an arbitrator's award. The dispositive portion of the CA
decision read:

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

SO ORDERED.

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

Petitioner contends that the CA, in effect, ruled that: (a) it should have first filed a petition to vacate
the award in the RTC and only in case of denial could it elevate the matter to the CA via a petition for
review under Rule 43 and (b) the assailed decision implied that an aggrieved party to an arbitral
award does not have the option of directly filing a petition for review under Rule 43 or a petition for
certiorari under Rule 65 with the CA even if the issues raised pertain to errors of fact and law or
grave abuse of discretion, as the case may be, and not dependent upon such grounds as
enumerated under Section 24 (petition to vacate an arbitral award) of RA 876 (the Arbitration Law).
Petitioner alleged serious error on the part of the CA.

The issue before us is whether or not an aggrieved party in a voluntary arbitration dispute may avail
of, directly in the CA, a petition for review under Rule 43 or a petition for certiorari under Rule 65 of
the Rules of Court, instead of filing a petition to vacate the award in the RTC when the grounds
invoked to overturn the arbitrators decision are other than those for a petition to vacate an arbitral
award enumerated under RA 876.

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

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

Sec. 24. Grounds for vacating award. - In any one of the following cases, the court must
make an order vacating the award upon the petition of any party to the controversy when
such party proves affirmatively that in the arbitration proceedings:

(a) The award was procured by corruption, fraud, or other undue means; or
 (b) That there was evident partiality or corruption in the arbitrators or any of them; or

(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon
sufficient cause shown, or in refusing to hear evidence pertinent and material to the
controversy; that one or more of the arbitrators was disqualified to act as such under section
nine hereof, and willfully refrained from disclosing such disqualifications or of any other
misbehavior by which the rights of any party have been materially prejudiced; or

(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject matter submitted to them was not made.

Based on the foregoing provisions, the law itself clearly provides that the RTC must issue an order
vacating an arbitral award only "in any one of the . . . cases" enumerated therein. Under the legal
maxim in statutory construction expressio unius est exclusio alterius, the explicit mention of one
thing in a statute means the elimination of others not specifically mentioned. As RA 876 did not
expressly provide for errors of fact and/or law and grave abuse of discretion (proper grounds for a
petition for review under Rule 43 and a petition for certiorari under Rule 65, respectively) as grounds
for maintaining a petition to vacate an arbitral award in the RTC, it necessarily follows that a party
may not avail of the latter remedy on the grounds of errors of fact and/or law or grave abuse of
discretion to overturn an arbitral award.

Adamson v. Court of Appeals10 gave ample warning that a petition to vacate filed in the RTC which is
not based on the grounds enumerated in Section 24 of RA 876 should be dismissed. In that case,
the trial court vacated the arbitral award seemingly based on grounds included in Section 24 of RA
876 but a closer reading thereof revealed otherwise. On appeal, the CA reversed the decision of the
trial court and affirmed the arbitral award. In affirming the CA, we held:

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

xxx xxx xxx

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

xxx xxx xxx

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

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

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

xxx xxx xxx

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

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

SECTION 1. Scope. - This Rule shall apply to appeals from judgments or final orders of the
Court of Tax Appeals and from awards, judgments, final orders or resolutions of or
authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions. Among
these agencies are the Civil Service Commission, Central Board of Assessment Appeals,
Securities and Exchange Commission, Office of the President, Land Registration Authority,
Social Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks and
Technology Transfer, National Electrification Administration, Energy Regulatory Board,
National Telecommunications Commission, Department of Agrarian Reform under Republic
Act Number 6657, Government Service Insurance System, Employees Compensation
Commission, Agricultural Inventions Board, Insurance Commission, Philippine Atomic
Energy Commission, Board of Investments, Construction Industry Arbitration Commission,
and voluntary arbitrators authorized by law. (Emphasis supplied)

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

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

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

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

Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine whether
 or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government. (Emphasis
supplied)

As may be gleaned from the above stated provision, it is well within the power and jurisdiction of the
Court to inquire whether any instrumentality of the Government, such as a voluntary arbitrator, has
gravely abused its discretion in the exercise of its functions and prerogatives. Any agreement
stipulating that "the decision of the arbitrator shall be final and unappealable" and "that no further
judicial recourse if either party disagrees with the whole or any part of the arbitrator's award may be
availed of" cannot be held to preclude in proper cases the power of judicial review which is inherent
in courts.16 We will not hesitate to review a voluntary arbitrator's award where there is a showing of
grave abuse of authority or discretion and such is properly raised in a petition for certiorari17 and
there is no appeal, nor any plain, speedy remedy in the course of law.18

Significantly, Insular Savings Bank v. Far East Bank and Trust Company19 definitively outlined
several judicial remedies an aggrieved party to an arbitral award may undertake:

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

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

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

Nevertheless, although petitioners position on the judicial remedies available to it was correct, we
sustain the dismissal of its petition by the CA. The remedy petitioner availed of, entitled
"alternative petition for review under Rule 43 or petition for certiorari under Rule 65," was wrong.

Time and again, we have ruled that the remedies of appeal and certiorari are mutually exclusive and
not alternative or successive.20

Proper issues that may be raised in a petition for review under Rule 43 pertain to errors of fact, law
or mixed questions of fact and law.21 While a petition for certiorari under Rule 65 should only limit
itself to errors of jurisdiction, that is, grave abuse of discretion amounting to a lack or excess of
jurisdiction.22 Moreover, it cannot be availed of where appeal is the proper remedy or as a substitute
for a lapsed appeal.23

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

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

ABUSED HIS DISCRETION IN RULING THAT THE BROADCAST OF "WINS WEEKLY"
WAS DULY AUTHORIZED BY ABS-CBN.

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

ABUSED HIS DISCRETION IN RULING THAT THE UNAUTHORIZED BROADCAST DID
NOT CONSTITUTE MATERIAL BREACH OF THE AGREEMENT.
 C. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR GRAVELY
ABUSED HIS DISCRETION IN RULING THAT WINS SEASONABLY CURED THE
BREACH.

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

ABUSED HIS DISCRETION IN RULING THAT TEMPERATE DAMAGES IN THE AMOUNT
OF P1,166,955.00 MAY BE AWARDED TO WINS.

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

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

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

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

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

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

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

Costs against petitioner.

SO ORDERED.