Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-38212 February 27, 1976

THE PHILIPPINE MERCHANT MARINE ACADEMY, ROGELIO C. MORALES and EMILIO S.

PRIETO, JR.,petitioners,
vs.
THE HONORABLE COURT OF APPEALS, HON. ARSENIO B. ALCANTARA, as Presiding
Judge of Branch XV of the Court of First Instance of Rizal, VICTOR BALCE, ROMEO
TIBAYAN, JR., and REMEDIOS BLANCAFLOR TECSON TIBAYAN, respondents.

Solicitor General Estelito P. Mendoza, Assistant Solicitor General Conrado T. Limcaoco Assistant
Solicitor General Jaime M. Lantin and Solicitor Norberto P. Eduardo for petitioners.

Sanidad & Catipon Law Office for private respondents.

MUÑOZ PALMA, J.:

Victor Balce and Romeo Tibayan, Jr., fourth year students at the Philippine Merchant Marine
Academy (PMMA), a government institution created under Republic Act 3680, main petitioner in this
case now before Us, formed, allegedly contrary to a previous order issued by the Academy, a
student organization known as the Council of Cadet-Seamen. PMMA President Rogelio C.
Morales 1 a co-petitioner, learned of the formation of this organization in a letter signed by 14 cadets
including Balce and Tibayan, purportedly couched in discourteous language, charging the Academy of
mismanagement. Thereupon, Morales created an investigating committee headed by Emilio S. Prieto, Jr.,
Acting Executive Officer of PMMA, another co-petitioner, to look into the matter. An investigation was
conducted and respondents Balce and Tibayan, along with seven other students, were found guilty of 64
violation of the rules and regulations of the Academy, involving fraud, insubordination and willful disregard
of superior order or decision." As a consequence, the PMMA President dismissed them. 2

Subsequently, on February 12, 1971, respondents Victor Balce and Romeo Tibayan, Jr., the latter
assisted by his mother, Remedios Blancaflor Tecson Tibayan, filed with the Court of First Instance of
Rizal an action for mandamus, injunction and damages, docketed as Civil Case No. 597-M (14388),
against herein petitioners Philippine Merchant Marine Academy (PMMA), Rogelio C. Morales,' and
Emilio S. Prieto, Jr., to compel the latter to reinstate them as students of good standing at the PMMA
and to enjoin them from curtailing and suppressing private respondents' exercise of their
constitutional rights. Private respondents also sought payment of moral damages and attorney's
fees. (pp. 12-13, rollo)

On July 31, 1972, the Court of First Instance rendered a decision ordering petitioners to reinstate
private respondents Balce and Tibayan as students of good standing at the, PMMA and to pay
P1,000.00 as attorney's fees. Copy of the decision was received by petitioners on August 21, 1972.
(pp. 16, 36, Id.)

On September 18, 1972, petitioners filed a motion for reconsideration which was, however, denied in
the lower court's order of September 30, 1972. (id.)
Upon receipt of said order on October 10, 1972, petitioners filed on the same day a notice of appeal
from the decision, but moved thrice on October 11 and 24, and November 7, 1972, for extension of
time within which to submit their record on appeal. The motions were not acted upon by the Court
owing to the retirement at that time of Judge Vivencio Ruiz, Presiding Judge of Branch XV. On
November 18, 1972, petitioners filed their record on appeal. (pp. 16-17, 36, Id.)

On December 18, 1972, Hon. Arsenio B. Alcantara who had assumed the office of Presiding Judge
of Branch XV, issued an order disapproving petitioners' record on appeal and dismissing the appeal
on the ground that the record on appeal was not seasonably filed. On January 24, 1973, petitioners
filed a motion for reconsideration. The same was denied in an order dated March 30, 1973, a copy of
which was received by petitioners on April 6, 1973. On August 21, 1973, private respondents filed a
motion for execution of judgment (p. 36, Id.). No indication appears on record whether or not the
motion has been acted upon.

On October 4, 1973, petitioners filed with the Court of Appeals a petition for certiorari, mandamus
and preliminary injunction pursuant to Sec. 15, Rule 41 of the Rules of Court, which provides as
follows:

Sec. 15. Mandamus. — When erroneously a motion to dismiss an appeal is granted

or a record on appeal is in allowed by the trial court a proper petition for mandamus
may be filed in the appellate court. (Emphasis supplied)

This special civil action which prayed for the issuance of an order directing the trial court to give due
course to petitioners' appeal in Civil Case No. 597-M (14388), was dismissed by the Court of
Appeals in a resolution dated October 17, 1953. (p. 19, Id.) Petitioners filed a motion for
reconsideration but the same was likewise denied by the appellate court in its resolution of January
28, 1974. (p. 20 Id.)

Hence, this petition for certiorari and mandamus with writ of preliminary injunction 3 to set aside the
aforesaid resolutions.

All that we have to resolve is whether or not grave abuse of discretion was committed by the trial
court in dismissing petitioners' appeal from its aforementioned decision.

1. Dismissing petitioners' action for mandamus, the Court of Appeals ruled that it was filed out of
time. Respondent appellate court declared that the trial court's order of March 30, 1973 denying
herein petitioners' motion for reconsideration of the order disapproving the record on appeal and
dismissing the appeal, became final on May 6, 1973, i.e., 30 days after its receipt by petitioners on
April 6, 1973. (p. 36, rollo) Noting that the petition was filed two days short of a full five-month period
after the order became final (or six months after its receipt by petitioners) and only when private
respondents had filed with the trial court a motion for execution, respondent court said that it was too
late now to pass upon the trial court's dismissal of the appeal.

Under the circumstances of the instant case, We are constrained to disagree with respondent
appellate court.

Section 15, Rule 41 of the Rules of Court which provides for the remedy of mandamus in case a
record on appeal is disallowed or the appeal dismissed does not specify the period within which the
petition for mandamus may be filed.

In Centenera vs. Yatco, 106 Phil. 1064, where the petition for mandamus was filed four months from
the denial of petitioners' motion to reconsider the disapproval of the appeal, and after the lower court
had already issued a writ of execution, this Court in granting the relief prayed for held in the words of
Mr. Justice J.B.L. Reyes:

... Section 15, Rule 41 of the Rules of Court does not specify the period for the filing
of mandamus proceedings against an order disapproving an appeal, which implies
that the period for its filing is variable as the ends of justice may demand. Indeed, the
constant Policy of the courts is not to deny the writ if the result would be to deprive a
party of his substantial right and leave, him without remedy (14 C.J.S. 190).
(Emphasis supplied)

The Centenera ruling was reaffirmed in Province of Misamis Occidental vs. Catolico, L-24397, June
29, 1968, 23 SCRA 1295, where the petition for mandamus was filed after four months and twenty-
one days from the denial of the appeal.

In the light of the above doctrine and the rationale behind it, and the particular circumstances
attendant to-this case, viz: (1) that the decision of the trial Court sought to be appealed was allegedly
rendered without the benefit of a trial on the merits; (2) that, to be explained later, the filing of a
record on appeal was unnecessary in the instant case; and (3) that the nature of the issues involved
in the litigation are important enough to warrant due consideration of the appeallate tribunal, We are
disposed to overlook the delay of six months in the initiation of this mandamus proceedings.

2. Respondent Court of Appeals holds, however, that even if the petition were filed on time, it is
nonetheless without jurisdiction to entertain the petition.

Respondent Court reasoned out that Civil Case No. 597-M (14388) was decided by the Court of First
Instance of Rizal against herein petitioners without the benefit of a trial on the merits and that an
appeal from the lower court's order would necessarily raise only questions of law, thus bringing the
appealed case under the exclusive jurisdiction of the Supreme Court. (p. 40, rollo) It concluded that
since petitioners could not appeal thereto but only to the Supreme Court owing to the absence of
disputed factual issues, its interference by way of issuance of writ of certiorari or mandamus cannot
be considered to be in aid of its appellate jurisdiction and hence, unwarranted. (pp. 40-41, Id.)

This contention is devoid of merit.

Section 30 of the Judiciary Act of 1948, as amended, defines the jurisdiction of the Court of Appeals
to issue writs 6f certiorari or mandamus, to wit:

See. 30. Original jurisdiction of the Court of Appeals. — The Court of Appeals shall
have original jurisdiction to issue writs of mandamus, prohibition,
injunction, certiorari, habeas corpus, and all other auxiliary writs and process in aid of
its appellate jurisdiction. (Emphasis supplied)

Likewise, Section 4, Rule 65 of the Rules of Court provides as follows:

See. 4. Where petition filed. — The petition (for certiorari, prohibition and mandamus
may be filed in the Supreme Court, or if it relates to the acts or omissions of an
inferior court, or of a corporation, board, officer or person, in a Court of First Instance
having jurisdiction thereof. It may also be filed in the Court of Appeals it is in aid of its
appellate jurisdiction . (Emphasis supplied)
Expounding on the meaning of the phrase "in aid of its appellate jurisdiction" found in Section 30 of
the Judiciary Act, as amended, and Section 4, Rule 65 of the Rules of Court quoted above, this
Court in Breslin vs. Luzon Stevedoring Co., 84 Phil. 618, citing Roldan vs. Villaroman, 69 Phil. 12,-
stated:

... the basis of the original jurisdiction of the Court of Appeals should not be the
appeal which may be interposed ... but the right to appeal.

xxx xxx xxx

The argument or reason in support of the resolution of the Court of' Appeals that if
the petitioners herein had sought a review, by appeal or writ of error, of the order of
the lower court dismissing the Plaintiffs complaint (because the order denying the
admission of the amended complaint is not appealable), the case would have fallen
under the exclusive appellate jurisdiction of the Supreme Court, has no bearing on
the question whether or not the writ of certiorari prayed for herein is sought in aid of
the appellate jurisdiction of the Court Appeals; because the determining factor for the
solution of the question that is above stated, whether the Court of Appeal has to
review the final den of the Court of First Instance the merits of the petitioners action
... in view of the nature of the action in the complaint.

xxx xxx xxx

Of course the Court of Appeals is right when it states that 'If the petitioner's herein
had sought a review of these orders by appeal or of error, the case would have fallen
under the exclusive appellate jurisdiction of the Supreme Court, only question of law
being involved therein.' But it does not follow, as the Court of Appeals concludes, that
'the writ of certiorari prayed for herein is not sought in aid of the appellate jurisdiction
of this court (Court of Appeals), which it does not have under the facts in the present
case. (pp. 622-624, Id.)

The original jurisdiction of the Court of Appeals to issue writs of certiorari or mandamus in aid of its
appellate jurisdiction is not dependent upon the kind of questions, as being of fact or of law, raised or
to be raised on appeal. Such jurisdiction is not even determined by the contingency of whether or not
an appeal will be taken. (Roldan vs. Villaroman, supra.)

The test here is whether or not the Court of Appeals has jurisdiction to review the decision of the
Court of First Instance on the merits of private respondents' action in view of its nature. That the
Court of Appeals has appellate jurisdiction of the action between the parties is obvious. Section 29 of
the Judiciary Act, as amended, provides that "(t)he Court of Appeals shall have exclusive appellate
jurisdiction over all cases, actions, and proceedings, not enumerated in section seventeen of this Act
properly brought to it ..." 4 Private respondents' action for mandamus, injunction and damages filed with
the lower court against herein petitioners is not among the exclusions enumerated in the law. Hence, lack
of jurisdiction of this petition for certiorari and mandamus is no valid ground for denying it.

3. Respondent Court finally holds that even on the merits, petitioners' action must fail. Why?
Because it is a fact that petitioners' record on appeal was filed out of time and it is well settled in this
jurisdiction that certiorari and mandamus will not lie as a substitute for an appeal. (p. 6, rollo).

Note however that the suit filed by private respondents with the Court of First Instance was one for
certiorari and mandamus. In actions of this nature, all that is required to perfect an appeal is to file a
notice ' of appeal. A record on appeal is not necessary inasmuch as pursuant to Sec. 17, Rule 41,
Rules of Court, the original record of the case is to be transmitted to the appellate court in lieu of the
record on appeal. 5

Aside from the fact that there was no need of filing a record on appeal, there was likewise no
necessity of filing an appeal bond as the appeal was being taken by a government institution duly
represented by the Solicitor General.6

For purposes of petitioners herein, therefore, they perfected their appeal when they filed the notice
of appeal with the trial court and served copy thereof on the adverse party on October 10, 1972,
which was well within the thirty days from receipt of the judgment after discounting the period
pending resolution of their motion for reconsideration. 7 The appeal having been perfected pursuant to
the Rules, the trial court consequently lost jurisdiction over the case (Syquia vs. Concepcion, 60 Phi 1.
186; Santiago vs. Valenzuela, 78 Phil. 397; Uvero vs. Court of Appeals, 95 Phil. 11; LVM Trans. Co. vs.
Fernandez, 103 Phil. 1171; People vs. Aranda, 57 O.G. 3303; Commissioner of Immigration vs. Romero,
L-19782, Jan. 31, 1964, 10 SCRA 216), except to give due course to the appeal and, to issue such orders
as may be necessary for the protection and preservation of the rights of the parties which do not involve
any matter litigated by the appeal. (See. 9, Rule 41, Rules of Court)

Respondent Court of Appeals castigates petitioners, however, for submitting themselves to the
jurisdiction of the trial court when they asked for extensions of time within which to file their record on
appeal and filed in fact a record on appeal, and subsequently turning about and claiming that there
was no necessity of filing a record on appeal, which inconsistent postures tended to trifle with the
courts. (p. 7, rollo)

We do not blame respondent Court for censuring petitioners on the action taken especially if we
consider that their counsel should indeed have been cognizant right from the start of the procedural
law on the matter.

Nevertheless, a mistake of petitioners, nay, even their ignorance of the Rules would not alter the fact
that Sec. 17, Rule 41 of the Rules of Court expressly provides that a record on appeal is not required
in appeals in certiorari and mandamus proceedings. And for Us to sustain the dismissal of the
appeal of petitioners for lack or a late filing of a record on appeal would be to place a premium on
technicality and to allow "the shadow to prevail over the substance."

In fact, the trial court aware of the Rules should have motu propio declared that the late filing of a
record on appeal was inconsequential as such record on appeal was unnecessary. Unfortunately,
instead of disregarding the record on appeal, the trial court utilized its alleged late filing as a valid
reason for disallowing petitioners recourse to the appellate court. Although the right to appeal is
merely statutory, 8 it is, nevertheless, an essential part of our judicial system, and courts are enjoined to
facilitate its being given due coure. 9

WHEREFORE, the questioned Resolutions of respondent Court of Appeals are set aside, and the
Presiding Judge of the Court of First Instance of Rizal, Branch XV, is directed to give due course to
petitioners appears in Civil Case No. 597-M (14388).

Without pronouncement as to costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Esguerra and Concepcion, * JJ., concur.

Footnotes

1 The petition also refers to Rogelio C. Morales as PMMA Superintendent. (p. 11,
rollo)

2 The suspended cadets, with the exception of respondents Victor Balce and Romeo
Tibayan, Jr. were later reinstated upon making a public apology to the Crew of Cadet
Seamen and their instructors as directed in Special Order No. 108, series of 1971, of
the Chairman of the PMMA Board. They also apologized to the Superintendent.
Private respondents submitted a written apology but the same was not accepted by
the PMMA President as it was not in the form required by the Special Order. (p.
15, Id.)

3 In a Resolution of this Court dated June 19, 1974, the petition designated as one
for review, was considered as a special civil action (see p. 69, Id.)

4 Section 17. Jurisdiction of the Supreme Court. —

xxx xxx xxx

The Supreme Court shall have exclusive jurisdiction to review, reverse modify or
affirm an appeal, as the law or rules of court may provide, final judgments and d of
inferior courts as, herein provided, in

(1) All criminal cases involving offense for which the penalty imposed is death or life
imprisonment; and those involving other offenses which, although not so punished,
arose out of the same occurrence or which may have been committed by the on the
same occasion, as that giving rise to the more serious offense, regardless of whether
the accused are charged as principals, accomplices or accessories, or whether they
have been tried jointly or separately;

(2) All cases involving petitions for naturalization or denaturalization; and

(3) All decisions of the Auditor General, if the appellant is a private person or entity.

The Supreme Court shall further have exclusive jurisdiction to review, revise,
reverse, modify or affirm on certiorari as the law or rules of court may provide, final
judgments and decrees of inferior courts as herein provided, in —

(1) All cases in which the constitutionality or validity of any treaty, law, ordinance, or
executive order or regulation is in question;

(2) All cases involving the legality of any tax, impost, assessment or toll, or any
penalty imposed in relation thereto;

(3) All in which the jurisdiction of any inferior court is in issue;

(4) All other cases in which only errors or questions of law are involved: Provided,
however, That if, in addition to constitutional, tax or jurisdictional questions, the cases
mentioned in the three next preceding paragraphs also involve questions of fact or
mixed questions of fact and law, the aggrieved party shall appeal to the Court of
Appeals; and the final judgment or decision of the latter may be reviewed, revised,
reversed, modified or affirmed by the Supreme Court on writ of certiorari; and

(5) Final awards, judgments, decisions or orders of the Commission on Elections,

Court of Tax Appeals, Court of Industrial Relations, the Public Service Commission,
and the Workmen's Compensation Commission. RA Nos. 2613 & 5440)

5 Sec. 17. Appeal in certiorari, prohibition, mandamus, quo warranto, and employers'
liability cases. — In appeal in certiorari, prohibition, mandamus, quo warranto,
workmen's compensation, and employers' liability c the original record of the case
shall be to its court in lieu of the record on appeal The clerk of the trial court shall
observe the provisions of section 11 of this rule as far as practicable. (emphasis
supplied)

6 Commissioner of Immigration vs. Romero, L-19782, January 31, 1964, 10 SCRA

216; Embroidery and Apparel Control and Inspection Board vs. Cloribel, L-20024,
June 30, 1967.20 SCRA 517

7 ... while under the former Rules a period of only 15 days was allowed for appealing
from decisions in actions for certiorari, prohibition mandamus quo warranto, and
employers' liability cases, in contrast to the period of 30 days provided for appeals in
ordinary action no such distinction appeals in the present rules. Instead, a of 30 days
is now allowed for appeals in all actions." (Angel Enciso vs. Remo, L-23670,
September 30, 1969, 29 SCRA 580; emphasis supplied; see also City of Cebu va.
Mendoza, L-26321, Feb. 25, 1975, 62 SCRA 440)

The period of 30 days within which an appeal may be taken in ordinary actions, as
provided in Section 3, Rule 41 of the Rules of out is applicable to actions for certiorari
and mandamus, among others.

Section 1. of Rule 62 provides: "Section 1. Preceding rules applicable in special civil

actions. The provisions of the preceding rules (Section 3, Rule 41 is one of them)
shall apply in special actions for interpleader, declaratory relief and similar remedies,
certiorari, prohibition, quo warranto, eminent domain, foreclosure of mortgage,
petition, forcible entry and detainer, and contempt, which are not intent of may serve
to supply the of the to special civil actions." (emphasis supplied)

Section 3 of Rule 41 is not inconsistent with the provision of Section 17, Rule 41,
which relates to appeals in certiorari and mandamus among other cases, and which
is silent as to the period within which such appeals may be made.

8 Bello vs. Fernando, L-16970, Jan. 30, 1962, 4 SCRA 135; Marinduque Mining and
Industrial Corp. vs. Enriquez, L-26485, June 7, 1971, 39 SCRA 369; Workmen's
insurance Co., Inc. vs. Augusto, L-31060 July 29, 1971, 40 SCRA 123; Rodriguez vs.
Director of Prisons, L-35386, Sept. 28, 1972, 47 SCRA 153; Velasco vs. Court of
Appeals, L-31018, June 29, 1973, 51 SCRA 439.

9 Republic of the Philippines vs. Gomez, L-17852, May 31, 1962, 5, SCRA 368

* Justice Ruperto G. Martin took no part.

PHILIPPINE NATIONAL G.R. No. 165433
CONSTRUCTION
CORPORATION,
Petitioner, Present:

YNARES-SANTIAGO, J.,
- versus - Chairperson,
AUSTRIA-MARTINEZ,
CALLEJO, SR., and
THE HONORABLE COURT OF CHICO-NAZARIO, JJ.
APPEALS and MCS
CONSTRUCTION and
DEVELOPMENT Promulgated:
CORPORATION,
Respondents. February 6, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules

of Civil Procedure, assailing the Decision[1] of the Court of Appeals in CA-G.R. SP
No. 76198, dated 19 July 2004, which dismissed Philippine National Construction
Corporations (PNCCs) Petition for Review of the Decision[2] of the Construction
Industry Arbitration Commission (CIAC) Arbitral Tribunal awarding herein
respondent MCS Construction and Development Corporation (MCS) the amount
of P6,352,791.33, with interest at the rate of 6% per annum from 6 June 1999 up to
the date of award and an interest rate of 12% per annum as of the date the decision
becomes final and executory until fully paid.
A contract for the construction of the Philippine Merchant Marine Academys
(PMMAs) Replication Project located in San Marcelino, Zambales, was entered into
between the PNCC and PMMA. Included in the scope of works for the Replication
Project was the construction of a gymnasium building. The construction of said
gymnasium was subcontracted by PNCC to MCS under a Subcontract Agreement
dated 28 September 1998 for a consideration in the amount of P19,483,572.65.

In a Certificate of Acceptance dated 6 April 2000, PNCC certified that MCS

had satisfactorily completed the construction of the gymnasium building based on
the plans, drawings, and specifications thereof on March 1999. However, despite
several demands made by MCS, PNCC failed to pay the balance of the contract price
left after deducting the partial payments made by the latter.

Hence, on 6 September 2002, MCS filed with the CIAC Arbitral Tribunal a
Request for Adjudication praying for the award of various sums of money, including
interest and damages, against PNCC in the total amount of P24,988,597.44. MCS
maintained that notwithstanding the fact that the construction of the gymnasium had
been satisfactorily completed as early as 1999, PNCC still failed to fully satisfy its
obligation to pay the price of the construction project under the Subcontract
Agreement despite several written demands.

For its defense, PNCC alleged that the request for arbitration was premature,
as MCS had no cause of action against PNCC since the latter is still in the process
of paying its obligation to MCS. Furthermore, PNCC claimed that although its
payments were made in installments, said payments were made regularly, contrary
to the claim of MCS that said installment payments were irregular and took a very
long period of time.

In a preliminary conference held on 4 December 2002, the parties defined the

issues to be resolved in the proceedings before the CIAC Arbitral Tribunal as
follows:

1. Was the filing of this case before CIAC premature for lack of
cause of action?

1.1 In the event this case is proven to have been prematurely filed, is
Respondent entitled to its claim to be compensated for the alleged
bad reputation suffered? If so, how much?

1.2 If the filing of the case is not premature, is Claimant entitled to its
claim for the balance of the contract price, damages and interest? If
so, how much?

2. Who between the parties is entitled to attorneys fees?

 3. Who between the parties shall shoulder the cost of
arbitration?[3]

On 10 March 2003, the CIAC Arbitral Tribunal rendered a Decision in favor

of MCS, the decretal portion of which reads:

PNCC contends that Article IV of the Subcontract Agreement (Exhibit A)

shows that MCS cause of action is premature because the corresponding payments
from PMMA had not been received.The pertinent portion of Article IV reads as
follows:

Manner of Payment

4.1. The price referred to in Article 111 above shall be paid by PNCC to
Subcontractor in the following manner and subject to receipt by
PNCC of corresponding payment/s from PMMA:

xxxx

PNCC submitted in evidence a summary of the accounts payable to MCS

and the payments made thereunder as of October 10, 2002 (Exhibit
14). Unfortunately for PNCC, the same document also listed down the payments it
had received from PMMA on the gymnasium building project the very same
building for which MCS has been engaged to construct on behalf of PNCC.

Exhibit 14 clearly showed that PNCC had received a total of

P31,249,223.30 from PMMA on the gymnasium building, with a further balance of
P6,972,043.44 still due from PMMA.Parenthetically, PNCC did not submit in
evidence in these proceedings any copy of its contract or contracts with
PMMA. Other than Exhibit 14, PNCC did not submit any evidence to show that the
payments made to it by PMMA had reference to other accounts between PMMA
and PNCC, or that said payments were inadequate to warrant PNCCs payment in
full of the amounts due MCS.

On the contrary, having already received a total of P31,249,233.30 from

PMMA on the gymnasium building project, PNCC saw fit to consider the same
sufficient to justify payment to MCS of only P9,965,465.98 (as adjusted by this
arbitral tribunal). Since there still appeared a receivable of P6,972,043.44 from
PMMA, PNCC chose to relegate such receivable to the payment of the balance due
MCS, in the amount of P6,352,791.33. In other words, PNCC opted to reap and
enjoy its margins from the PMMA contract before satisfying its obligations to its
sub-contractor MCS. This, the arbitral tribunal finds to have been done in bad faith
on the part of PNCC.
 Noteworthy also is the fact that PNCC did not raise this defense in its
answer nor among the special and affirmative defenses included in said
answer. PNCC merely invoked its financial difficulties in trying to justify its
belated payments due MCS.

The arbitral tribunal therefore holds that MCS cause was not prematurely
filed, and that its claim for payment of the balance of the contract consideration
made in these proceedings was proper.

Aside from the said unpaid balance, to what other amount or amounts is
MCS entitled arising from PNCCs breach in bad faith?

xxxx

xxx MCS is entitled to interest, attorneys fees and reimbursement of the

costs of arbitration which (aside from its claims on the deterioration of the value of
the Phil. Peso) were all that MCS prayed for.

xxxx

It is the ruling of this arbitral tribunal that, there having been unwarranted
and baseless delay in the payment required of the respondent PNCC, the claimant
is entitled to interest at the legal rate of 6% p.a. on the amount of
P6,352,791.33 adjudicated in its favor, computed from the date of first extrajudicial
demand, which was on June 6, 1999 (Exhibit C). However, when the award herein
becomesexecutory, the amount thereof will then partake of the nature of
a forebearance of credit and will thereupon be entitled therefrom to the interest rate
of 12% p.a. until fully paid (Eastern Shipping Lines, Inc. vs. Court of Appeals, 234
SCRA 78, 95-97 [1994]); reiterated
in Bangko Sentral ng Pilipinas vs. Santamaria, G.R. No. 139885, Jan. 13, 2003,
page 13).

In respect of the costs of arbitration, Sec. 5, Article XV of the Rules of

Procedure Governing Construction Arbitration states:

Decision as to Cost of Arbitration. In the case of non-

monetary claims or where the parties agreed that the sharing of fees
shall be determined by the Arbitrator(s), the award shall, in addition
to dealing with the merits of the case, fix the cost of arbitration,
and/or decide which of the parties shall bear the cost(s) or in what
proportion the cost(s) shall be borne by each.

Rule 142 of the Revised Rules of Court of the Philippines governing the
imposition of costs likewise provides the following:
 Section 1. Costs Ordinarily follow the result of suit. Unless
otherwise provided in these rules, costs shall be allowed to the
prevailing party as a matter of course, but the court shall have power
for special reasons, to adjudge that either party shall pay the cost of
an action, or that the same shall be divided, as may be equitable.

Since the institution of this arbitration case was necessitated by

respondent PNCCs refusal to pay claimant MCS the amounts due the latter, this
tribunal holds that respondent PNCC should exclusively bear the costs of
arbitration. PNCC had refused to satisfy MCS valid and demandable claims;
consequently, MCS had been compelled to institute the present proceedings to
protect its interests.Furthermore, PNCC was in gross and evident bad faith in
delaying the payment of MCS claim. It is, therefore, only just and equitable that
respondent PNCC be ordered to pay the costs of arbitration and to refund to MCS
all the amounts the latter had advanced in instituting and pursuing these arbitration
proceedings.

The same aforementioned circumstances warranting the award of

arbitration costs in favor of the claimant likewise constitute justification for an
award of attorneys fees by way of damages, also in favor of claimant (Art. 2208 [5]
and [11]. Considering the years of travail which claimant went through in waiting
and following-up the payment of the contract consideration to which claimant was
lawfully entitled, eventually culminating in these arbitration proceedings, the
arbitral tribunal finds that an amount equivalent to ten per cent (10%) of the
principal claim plus the interests accruing thereon up to the date of payment is just;
equitable and reasonable in the premises.

WHREFORE, arbitral award is hereby rendered in favor of claimant MCS

Construction and Development Corp. and against respondent Philippine National
Construction Corporation, ordering the latter to pay the former the following
amounts:

(a) The principal claim of P6,352,791.33, with interest thereon at 6% per

annum computed from June 6, 1999 provided however that said rate shall be
increased to 12% per annum effective as of the date that the decision herein
becomes final and executory, until the aforesaid principal amount is paid in full;

(b) Attorneys fees equivalent to ten per cent (10%) of such principal claim
and the interests accruing thereon until all of such principal claim and interests are
paid in full; and,

(c) To reimburse the claimant the costs of arbitration paid

and/or advanced thereby.

Respondents counterclaim is dismissed for lack of basis.[4]

 Asserting that the CIAC Arbitral Tribunal committed error in ruling that the
claim of MCS is not premature, PNCC filed a Petition for Review before the Court
of Appeals, which was dismissed by the appellate court in a Decision dated 19 July
2004. According to the Court of Appeals:

Petitioner PNCC avers that the claims of respondent MCS are not yet ripe
for court and/or legal action because petitioner PNCC has yet to violate the rights
of respondent MCS, since, before the filing of the complaint, petitioner was already
in the process of paying its obligations to respondent MCS. In fact, petitioner
PNCC argues that its last installment payment was made in July 2002 while
respondent MCS last written demand was in April 2002.

We disagree.

As alleged in the complaint of respondent MCS, in pursuance to the

agreement, the latter made billings for various amounts on different
dates. However, aside from making its payments irregularly, petitioner also took a
long time to make the payments, so much so, that even after the lapse of more [than]
three years from the time the gymnasium project was satisfactorily completed in
1999, petitioner has not been able to fully settle its obligation without lawful
ground.

It has been held that a cause of action is defined as an act or omission of one
party in violation of the legal rights of the other which causes the latter injury
(Rebollido v. Court of Appeals, 170 SCRA 800 [1989]).

In determining whether or not a cause of action exists the following

elements must be present: (1) a right in favor of the plaintiff by whatever means
and under whatever law it arises or is created; (2) an obligation on the part of the
defendant to respect or not violate such right; and (3) an act or omission on the part
of such defendant in violation of the right of the plaintiff or constituting a breach
of the obligation of the defendant to the plaintiff for which the latter may maintain
an action for recovery of damages (Relucio v. Lopez, 373 SCRA 578 [2002]).

In the instant case, respondent MCS has a right to be paid for its services in
constructing the gymnasium and petitioner PNCC recognized this right under the
Subcontractors Agreement.Notwithstanding several written demands made by the
respondent MCS and considering the lapse of a considerable period of time since
the project was completed, petitioner PNCC has not complied with its duty to pay
respondent for its services. Petitioner maintains that it was suffering from financial
difficulties but no evidence was shown to substantiate the same.
 Well-settled is that rule that the cause of action does not accrue until the
party obligated refuses, expressly or impliedly, to comply with his duty (Summit
Guaranty and Insurance Company, Inc. v. De Guzman, 151 SCRA 389 [1987]).

Note should be taken on the arbitral tribunals finding of the existence of a

cause of action by respondent MCS. Thus:

Unfortunately for PNCC, the same document also listed down the
payments it had received from PMMA on the gymnasium building
project the very same building for which MCS has been engaged to
construct on behalf of PNCC.

xxx

Exhibit 14 clearly showed that PNCC had received a total of

P31,249,223.30 from PMMA on the gymnasium building, with a
further balance of P6,972,043.44 still due from PMMA. xxxOther
than Exhibit 14, PNCC did not submit any evidence to show that the
payments made to it by PMMA had reference to other accounts
between PMMA and PNCC, or that said payments were inadequate
to warrant PNCCs payment in full of the amounts due MCS. (Rollo,
p. 124)

Also, it has been held that where a contract is to be performed periodically,

as by installments, each failure to pay an installment constitutes a cause of action
and can be subject of a separate suit as the installment falls due, or can be included
in the pending or supplemental pleading (Larena v. Villanueva, 53 Phil. 923
[1928]).

xxxx

The arbitral tribunal ruled that petitioner PNCC was guilty of gross and
evident bad faith in delaying payment of respondents claims, and as such, it was
only just and equitable that petitioner PNCC should bear the costs of arbitration.

In the instant case, the arbitral tribunal found that because petitioner PNCC
had unjustifiably refused to satisfy MCS valid and demandable claims,
notwithstanding the presence of sufficient funds at its disposal, respondent MCS
was compelled to institute the present action in order to protect its interests. xxx

xxxx

Contrary to petitioners argument that the body of the decision of the arbitral
tribunal failed to state legal and factual bases for the award of attorneys fees, the
decision stated the following basis to justify the award of attorneys fees:
 The same aforementioned circumstances warranting the award of
arbitration costs in favor of the claimant likewise constitute justification
for an award of attorneys fees by way of damages, also in favor of claimant
(Art. 2208 [5] and [11], Civil Code). (Rollo, p. 126)

In administrative or quasi-judicial bodies like the CIAC, a fact may be

established if supported by substantial evidence or that amount of relevant evidence
which a reasonable mind might accept as adequate to justify a conclusion
(MegaWorld Globus Asia, Inc. v. DSM Construction and Development
Corporation, et al., G.R. No. 153310, March 2, 2004).

xxxx

We are convinced that the CIAC Arbitral Tribunal considered the evidence
at hand and the records clearly show that its decision is amply supported by
substantial evidence; thus, we find no reason to disturb the same.

WHEREFORE, premises considered, the petition is DISMISSED. The

Decision dated March 10, 2003 of the CIAC Arbitral Tribunal is AFFIRMED. The
motion for reconsideration assailing the October 1, 2003 Resolution of this Court
is likewise DENIED.[5]

Aggrieved by the aforequoted Decision, PNCC filed the instant petition

raising as issues the alleged prematurity of respondents action and the impropriety
of the award of attorneys fees and arbitration fees.

While petitioner does not dispute the fact that MCS has remaining receivables
from PNCC under the Subcontract Agreement, PNCC insists that such obligation of
petitioner to pay respondent the remaining balance of the contract price is not yet
ripe for court or legal action as no cause of action exists, since PNCC has not yet
violated the rights of respondent. PNCC maintains that before the filing of the
complaint for arbitration, petitioner was in the process of paying its obligations with
claimant, thus the complaint for arbitration filed by MCS was premature.

In its Memorandum, petitioner rationalizes its position that the Request for
Adjudication made by MCS before the CIAC Arbitral Tribunal is premature in view
of the fact that PNCCs last installment payment to MCS was in July 2002, after the
latters last demand for payment in April 2002. Petitioner further highlights its efforts
to fulfill its obligations to MCS by stressing the fact that it had paid MCS a
substantial amount under the Subcontract Agreement, inasmuch as out of the
contract price of P19,483,572.65, only the balance of P6,352,791.33 remains
unpaid. PNCC argues that it has never refused, expressly nor impliedly, to comply
with its responsibility under the Subcontract Agreement, thus, MCS lacks a cause of
action as against petitioner.

Petitioners contention is without merit.

It is unmistakable that PNCCs obligation to MCS has not been discharged by

the amount it has already paid, no matter how substantial it may be. Nevertheless,
PNCC seems to insist that said obligation may not be a subject of a court action as
MCS is yet to attain a cause of action since PNCC still continues to pay part of its
obligation under the Subcontract Agreement. We cannot agree in petitioners
position as this will imply that PNCCs obligation to pay may not at all become a
proper subject of any court action as long as PNCC continues to tender irregular
installment payments, regardless of the amount, even to the prejudice of MCS.

A careful perusal of the Subcontract Agreement entered into by the parties

will reveal the clear manner of payment by which PNCCs obligation to pay MCS
for the construction of the PMMA gymnasium is to be made. According to Article
IV of said Subcontract Agreement:

Manner of Payment

4.2. The price referred to in Article 111 above shall be paid by PNCC
to SUBCONTRACTOR in the following manner and subject to receipt by
PNCC of corresponding payment/s from PMMA:

xxxx
b. thru semi-monthly progress billings computed based on accomplishment
as approved/accepted by PNCC/Owner and the agreed unit prices;[6]

From the facts of the case, it is undisputed that the gymnasium building
project subject of the Subcontract Agreement had been satisfactorily completed by
MCS as early as March 1999 and correspondingly acknowledged by PNCC in a
Certificate of Acceptance dated 6 April 2000. It is also admitted by both parties that
in accordance with the provisions of the Subcontract Agreement, MCS had sent
PNCC, on several dates, billings for various amounts which petitioner paid on
installment basis. However, despite the lapse of more than three years from the
completion of the construction project, PNCC still failed to settle its obligation in
full, leaving an unpaid balance of P6,352,791.33 as of the time of filing of the instant
case.
 PNCC justifies its failure to completely settle its obligation to MCS by citing
its financial difficulties. However, apart from failing to present any competent
evidence to substantiate its claim of financial difficulties, it has been found by the
CIAC Arbitral Tribunal that PNCC has already received a total of P31,249,233.30
from PMMA on the gymnasium building project. Nonetheless, PNCC only saw it
fit to pay MCS P9,965,465.98. Evidently, PNCC lacks any reasonable defense for
its continued neglect of its obligations to MCS.

This conduct demonstrated by PNCC in refusing to expeditiously settle its

obligation to MCS, despite the latters satisfactory completion of its duties under the
Subcontract Agreement, is clearly violative of the Subcontract Agreement. Under
the pertinent portion of the said contract cited above, PNCC shall pay MCS thru
semi-monthly progress billings upon PNCCs receipt of corresponding payments
from PMMA. As found by the CIAC Arbitral Tribunal, based on the evidence
presented by PNCC itself, petitioner has already received from PMMA a total
of P31,249,233.30 for the construction of the gymnasium building. This amount is
evidently sufficient to pay the whole subcontract price in the amount of
only P19,483,572.65, and still leave PNCC the amount of P11,765,660.65 as
margin/profit from the contract.

Petitioners contention that its failure to fully pay MCS is because it still has a
receivable of P6,972,043.44 from PMMA is untenable. Notwithstanding this fact
that PNCC still has a receivable in an amount sufficient to fulfill its remaining
obligation to MCS, it is not adequate a reason to justify the irregular installment
payments PNCC has been making to MCS in light of the CIAC Arbitral Tribunals
finding that PNCC had already received more than a substantial amount from
PMMA to satisfy the whole of its obligation to MCS.As deduced by the CIAC
Arbitral Tribunal, this act of PNCC in opting to reap and enjoy its margins from the
PMMA contract before satisfying its obligations to its Subcontractor MCS is an
illustration of bad faith on the part of PNCC.

Having said all these, it is now apparent that MCS has a cause of action as
against PNCC for the full satisfaction of the remaining balance of the contract
price. As stated in the case of Navoa v. Court of Appeals:[7]

A cause of action is the fact or combination of facts which affords a party a right to
judicial interference in his behalf. The requisites for a cause of action are: (a) a right
in favor of the plaintiff by whatever means and under whatever law it arises or is
created, (b) an obligation on the part of the defendant to respect and not to violate
such right; and, (c) an act or omission on the part of the defendant constituting a
 violation of the plaintiffs right or breach of the obligation of the defendant to the
plaintiff. Briefly stated, it is the reason why the litigation has come about, it is the
act or omission of defendant resulting in the violation of someones rights.[8]

In continuing to delay the full satisfaction of its obligation under the Subcontract
Agreement despite satisfactory completion by MCS of the gymnasium project
almost three years earlier and adequate payment by PMMA, PNCC has clearly
breached the provisions of the Subcontract Agreement, entitling MCS resort to the
courts for protection of its interest.

On the issue of the propriety of the award of attorneys fees and arbitration
costs, petitioner maintains that the Decision of the CIAC Arbitral Tribunal failed to
state the legal and factual basis for the same. We do not agree. As correctly stated
by the Court of Appeals, the CIAC Arbitral Tribunal Decision amply explained the
bases for the awards of attorneys fees and arbitration cost. As pointed out by the
appellate court, on the basis of its findings that PNCC exercised gross and evident
bad faith in delaying its payment of MCS claims and the law applicable in such
cases, the CIAC Arbitral Tribunal adjudged PNCC liable for attorneys fees and cost
of arbitration. Furthermore, we agree with the Court of Appeals when it said that
that there is no justifiable reason to disturb the findings of the CIAC Arbitral
Tribunal as said quasi-judicial body has considered the evidence at hand and the
records clearly show that its decision is amply supported by substantial evidence.

Petitioners argument that the CIAC Arbitral Tribunal should not have passed
upon the issue of attorneys fees as said issue is non-arbitrable under Section 2 of
Article IV of the Rules Governing Construction Arbitration is rejected. Under the
Section 2, Article IV of the Rules of Procedure Governing Construction Arbitration:
Section 2. Non-Arbitrable Issues Pursuant to Section 4 of Executive Order No.
1008, claims for moral damages, exemplary damages, opportunity/business losses
in addition to liquidated damages, and attorneys fees are not arbitrable except
when the parties acquiesce or mutually agree to submit the same for
arbitration and to abide by the decision of the arbitrator thereon. [Emphasis
ours]

While it is true that under the aforementioned provision of law, attorneys fees is not
an arbitrable issue, yet, the same also provides that it may be the subject of
arbitration if the parties agree to submit the same for arbitration. In the case it bar, it
must be underscored that under the Terms of Reference agreed to by the parties
during the arbitration proceedings, PNCC agreed that one of the issues to be
determined in the proceedings is who between the parties is entitled to attorneys
fees. Clearly, petitioner has acquiesced to the submission of the issue of attorneys
fees to arbitration. What's more, in petitioners very own Answer submitted before
the CIAC Arbitral Tribunal, petitioner asked for attorneys fees as part of its own
compulsory counterclaim. This act of petitioner clearly negates its further assertion
that it never agreed to submit the issue of attorneys fees for arbitration.

WHEREFORE, premises considered, the instant petition is

hereby DENIED. The Decision of the Court of Appeals in CA G.R. SP No. 76198
dated 19 July 2004 is hereby AFFIRMED. Costs against petitioner.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.

Associate Justice Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer of
the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice