Jurisprudence: Heirs of Augusto L. Salas, Jr. vs.

Laperal Realty Corporation, et

al. [1999]
 Jurisprudence: Heirs of Augusto L. Salas, Jr. vs. Laperal Realty
Corporation

FACTS:

Augusto Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas.
He entered into an Owner-Contractor Agreement with Respondent Laperal Realty
Corporation to render and provide complete (horizontal) construction services on his
land. Said agreement contains an arbitration clause, to wit:
“ARTICLE VI. ARBITRATION.

All cases of dispute between CONTRACTOR and OWNER’S representative shall be

referred to the committee represented by:

1. One representative of the OWNER;

2. One representative of the CONTRACTOR;
3. One representative acceptable to both OWNER and CONTRACTOR.”

Salas, Jr. then executed a Special Power of Attorney in favor of Respondent Laperal
Realty to exercise general control, supervision and management of the sale of his land,
for cash or on installment basis. By virtue thereof, Respondent Laperal Realty
subdivided said land and sold portions thereof to Respondents Rockway Real Estate
Corporation and South Ridge Village, Inc. in 1990; to Respondent spouses Abrajano and
Lava and Oscar Dacillo in 1991; and to Respondents Eduardo Vacuna, Florante de la
Cruz and Jesus Vicente Capalan in 1996 (Respondent Lot Buyers hereinafter).
Back in 1989, Salas, Jr. left his home in the morning for a business trip to Nueva
Ecija. He, however, never returned on that unfaithful morning. Seven years later or in
1996, his wife, Teresita Diaz-Salas filed with the RTC of Makati City a verified Petition
for the Declaration of Presumptive Death, which Petition was granted.
In 1998, Petitioners, as heirs of Salas, Jr. filed in the RTC of Lipa City a Complaint for
Declaration of Nullity of Sale, Reconveyance, Cancellation of Contract, Accounting and
Damages against Respondents.
Respondent Laperal Realty filed a Motion to Dismiss on the ground that Petitioners
failed to submit their grievance to arbitration as required under Article VI of the Owner-
Contractor Agreement. Respondent spouses Abrajano and Lava and Respondent
Dacillo filed a Joint Answer with Counterclaim and Crossclaim praying for dismissal of
Petitioners’ Complaint for the same reason.
The RTC then issued the herein assailed Order dismissing Petitioners’ Complaint for
non-compliance with the foregoing arbitration clause.

Hence the present Petition for Review on Certiorari under Rule 45.
ISSUE:

Whether or not the arbitration clause under Article VI of the Owner-Contractor

Agreement is binding upon the Respondent Lot Buyers?

ARGUMENTS:

Petitioners argue that (1) their causes of action did not emanate from the Owner-
Contractor Agreement, (2) that their causes of action for cancellation of contract and
accounting are covered by the exception under the Arbitration Law, and (3) that failure
to arbitrate is not a ground for dismissal.
Petitioners claim that they suffered lesion of more than one-fourth (1/4) of the value of
Salas, Jr.’s land when Respondent Laperal Realty subdivided it and sold portions
thereof to Respondent Lot Buyers. Thus, they instituted action against both Respondent
Laperal Realty and Respondent Lot Buyers for rescission of the sale transactions and
reconveyance to them of the subdivided lots. They argue that rescission, being their
cause of action, falls under the exception clause in Sec. 2 of Republic Act No. 876 which
provides that “such submission [to] or contract [of arbitration] shall be valid,
enforceable and irrevocable, save upon such grounds as exist at law for the
revocation of any contract”.
RULING:

NO. Respondent Lot Buyers are neither parties to the Agreement nor the latter’s assigns
or heirs. Consequently, the right to arbitrate as provided in Article VI of the Agreement
was never vested in Respondent Lot Buyers.

Respondent Laperal Realty, on the other hand, as a contracting party to the Agreement,
has the right to compel Petitioners to first arbitrate before seeking judicial
relief. However, to split the proceedings into arbitration for Respondent Laperal Realty
and trial for the Respondent Lot Buyers, or to hold trial in abeyance pending arbitration
between Petitioners and Respondent Laperal Realty, would in effect result in
multiplicity of suits, duplicitous procedure and unnecessary delay. On the other hand, it
would be in the interest of justice if the trial court hears the complaint against all herein
Respondents and adjudicates Petitioners’ rights as against theirs in a single and
complete proceeding.

Petition is GRANTED. The assailed Order of RTC of Lipa City is NULLIFIED and SET
ASIDE.

RATIO DECIDENDI:

In a catena of cases inspired by Justice Malcolm’s provocative dissent in Vega v. San

Carlos Milling Co. [1924], the SC has recognized arbitration agreements as valid,
binding, enforceable and not contrary to public policy so much so that when there
obtains a written provision for arbitration which is not complied with, the trial court
should suspend the proceedings and order the parties to proceed to arbitration in
accordance with the terms of their agreement. Arbitration is the “wave of the future” in
dispute resolution. To brush aside a contractual agreement calling for arbitration in case
of disagreement between parties would be a step backward.
A submission to arbitration is a contract. As such, the Agreement, containing the
stipulation on arbitration, binds the parties thereto, as well as their assigns and heirs.
But only they. Petitioners, as heirs of Salas, Jr., and Respondent Laperal Realty are
certainly bound by the Agreement. If Respondent Laperal Realty, had assigned its
rights under the Agreement to a third party, making the former, the assignor, and the
latter, the assignee, such assignee would also be bound by the arbitration provision since
assignment involves such transfer of rights as to vest in the assignee the power to
enforce them to the same extent as the assignor could have enforced them against the
debtor or, in this case, against the heirs of the original party to the
Agreement. However, Respondent Lot Buyers are NOT assignees of the rights of
Respondent Laperal Realty under the Agreement to develop Salas, Jr.’s land and sell the
same. They are, rather, buyers of the land that Respondent Laperal Realty was given the
authority to develop and sell under the Agreement. As such, they are NOT “assigns”
contemplated in Art. 1311 of the New Civil Code which provides that “contracts take
effect only between the parties, their assigns and heirs”.
In the same vein, Petitioners’ contention that rescission, being their cause of action, falls
under the exception clause in Sec. 2 of Republic Act No. 876 is without merit. For while
rescission, as a general rule, is an arbitrable issue, they impleaded in the suit for
rescission the Respondent Lot Buyers who are neither parties to the Agreement nor the
latter’s assigns or heirs. Consequently, the right to arbitrate as provided in Article VI of
the Agreement was never vested in Respondent Lot Buyers.
 FIRST DIVISION
[ G.R. NO. 156660, August 24, 2009 ]
ORMOC SUGARCANE PLANTERS' ASSOCIATION, INC.
(OSPA),OCCIDENTAL LEYTE FARMERS MULTI-PURPOSE COOPERATIVE,
INC. (OLFAMCA), UNIFARM MULTI-PURPOSE COOPERATIVE, INC.
(UNIFARM) AND ORMOC NORTH DISTRICT IRRIGATION MULTI-
PURPOSE COOPERATIVE, INC. (ONDIMCO), PETITIONERS, VS. THE
COURT OF APPEALS (SPECIAL FORMER SIXTH DIVISION), HIDECO
SUGAR MILLING CO., INC., AND ORMOC SUGAR MILLING CO., INC.,
RESPONDENTS.

FACTS:

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

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

Petitioners assert that the relationship between respondents and the individual sugar
planters is governed by milling contracts. To buttress this claim, petitioners presented
representative samples of the milling contracts.

Notably, Article VII of the milling contracts provides that 34% of the sugar and molasses
produced from milling the Planter's sugarcane shall belong to the centrals (respondents)
as compensation, 65% thereof shall go to the Planter and the remaining 1% shall go the
association to which the Planter concerned belongs, as aid to the said association. The
1% aid shall be used by the association for any purpose that it may deem fit for its
members, laborers and their dependents. If the Planter was not a member of any
association, then the said 1% shall revert to the centrals. Article XIV, paragraph B[4]
states that the centrals may not, during the life of the milling contract, sign or execute
any contract or agreement that will provide better or more benefits to a Planter, without
the written consent of the existing and recognized associations except to Planters whose
plantations are situated in areas beyond thirty (30) kilometers from the mill. Article XX
provides that all differences and controversies which may arise between the parties
concerning the agreement shall be submitted for discussion to a Board of Arbitration,
consisting of five (5) members--two (2) of which shall be appointed by the centrals, two
(2) by the Planter and the fifth to be appointed by the four appointed by the parties.

On June 4, 1999, petitioners, without impleading any of their individual members, filed
twin petitions with the RTC for Arbitration under R.A. 876, Recovery of Equal
Additional Benefits, Attorney's Fees and Damages, against HIDECO and OSCO,
docketed as Civil Case Nos. 3696-O and 3697-O, respectively.

Petitioners claimed that respondents violated the Milling Contract when they gave to
independent planters who do not belong to any association the 1% share, instead of
reverting said share to the centrals. Petitioners contended that respondents unduly
accorded the independent Planters more benefits and thus prayed that an order be
issued directing the parties to commence with arbitration in accordance with the terms
of the milling contracts. They also demanded that respondents be penalized by
increasing their member Planters' 65% share provided in the milling contract by 1%, to
66%.
Respondents filed a motion to dismiss on ground of lack of cause of action because
petitioners had no milling contract with respondents. According to respondents, only
some eighty (80) Planters who were members of OSPA, one of the petitioners, executed
milling contracts. Respondents and these 80 Planters were the signatories of the milling
contracts. Thus, it was the individual Planters, and not petitioners, who had legal
standing to invoke the arbitration clause in the milling contracts. Petitioners, not being
privy to the milling contracts, had no legal standing whatsoever to demand or sue for
arbitration.

On August 26, 1999, the RTC issued a Joint Order denying the motion to dismiss,
declaring the existence of a milling contract between the parties, and directing
respondents to nominate two arbitrators to the Board of Arbitrators, to wit:
When these cases were called for hearing today, counsels for the petitioners and
respondents argued their respective stand. The Court is convinced that there is an
existing milling contract between the petitioners and respondents and these planters are
represented by the officers of the associations. The petitioners have the right to sue in
behalf of the planters.

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

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

Their subsequent motion for reconsideration having been denied by the RTC in its Joint
Order dated October 29, 1999, respondents elevated the case to the CA through a
Petition for Certiorari with Prayer for the Issuance of Temporary Restraining Order
and/or Writ of Preliminary Injunction.

On December 7, 2001, the CA rendered its challenged Decision, setting aside the
assailed Orders of the RTC. The CA held that petitioners neither had an existing contract
with respondents nor were they privy to the milling contracts between respondents and
the individual Planters. In the main, the CA concluded that petitioners had no legal
personality to bring the action against respondents or to demand for arbitration.

Petitioners filed a motion for reconsideration, but it too was denied by the CA in its
Resolution dated October 30, 2002. Thus, the instant petition.

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

ISSUE:

Whether or not petitioners sugar planters' associations are clothed with legal personality
to file a suit against, or demand arbitration from, respondents in their own name
without impleading the individual Planters.

RULING:

On this point, SC agrees with the findings of the CA.

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

 Sec. 2. Persons and matters subject to arbitration. - Two or more persons or
parties may submit to the arbitration of one or more arbitrators any
controversy existing between them at the time of the submission and
which may be the subject of an action, or the parties to any contract may in
such contract agree to settle by arbitration a controversy thereafter
arising between them. Such submission or contract shall be valid, enforceable
and irrevocable, save upon such grounds as exist at law for the revocation of any
contract. xxx (Emphasis ours)

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

Except where a compulsory arbitration is provided by statute, the first step toward the
settlement of a difference by arbitration is the entry by the parties into a valid
agreement to arbitrate. An agreement to arbitrate is a contract, the relation of the
parties is contractual, and the rights and liabilities of the parties are controlled by the
law of contracts. In an agreement for arbitration, the ordinary elements of a valid
contract must appear, including an agreement to arbitrate some specific thing, and an
agreement to abide by the award, either in express language or by implication.

The requirements that an arbitration agreement must be written and subscribed by the
parties thereto were enunciated by the Court in B.F. Corporation v. CA.

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

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

Simply put, petitioners do not have any agreement to arbitrate with respondents. Only
eighty (80) Planters who were all members of OSPA were shown to have such an
agreement to arbitrate, included as a stipulation in their individual milling contracts.
The other petitioners failed to prove that any of their members had milling contracts
with respondents, much less, that respondents had an agreement to arbitrate with the
petitioner associations themselves.

Even assuming that all the petitioners were able to present milling contracts in favor of
their members, it is undeniable that under the arbitration clause in these contracts it is
the parties thereto who have the right to submit a controversy or dispute to arbitration.
Section 4 of R.A. 876 provides:

Section 4. Form of Arbitration Agreement - A contract to arbitrate a controversy

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

The making of a contract or submission for arbitration described in section two

hereof, providing for arbitration of any controversy, shall be deemed a consent of
the parties to the jurisdiction of the Court of First Instance of the province or city
where any of the parties resides, to enforce such contract of submission.

The formal requirements of an agreement to arbitrate are therefore the following: (a) it
must be in writing and (b) it must be subscribed by the parties or their representatives.
To subscribe means to write underneath, as one's name; to sign at the end of a
document. That word may sometimes be construed to mean to give consent to or to
attest.

Petitioners would argue that they could sue respondents, notwithstanding the fact that
they were not signatories in the milling contracts because they are the recognized
representatives of the Planters.

This claim has no leg to stand on since petitioners did not sign the milling contracts at
all, whether as a party or as a representative of their member Planters. The individual
Planter and the appropriate central were the only signatories to the contracts and there
is no provision in the milling contracts that the individual Planter is authorizing the
association to represent him/her in a legal action in case of a dispute over the milling
contracts.

Moreover, even assuming that petitioners are indeed representatives of the member
Planters who have milling contracts with the respondents and assuming further that
petitioners signed the milling contracts as representatives of their members, petitioners
could not initiate arbitration proceedings in their own name as they had done in the
present case. As mere agents, they should have brought the suit in the name of the
principals that they purportedly represent. Even if Section 4 of R.A. No. 876 allows the
agreement to arbitrate to be signed by a representative, the principal is still the one who
has the right to demand arbitration.

Indeed, Rule 3, Section 2 of the Rules of Court requires suits to be brought in the name
of the real party in interest, to wit:

Sec. 2. Parties in interest. A real party in interest is the party who stands to be
benefited or injured by the judgment in the suit, or the party entitled to the avails
of the suit. Unless otherwise authorized by law or these Rules, every action must
be prosecuted or defended in the name of the real party in interest.

As held in Oco v. Limbaring that:

As applied to the present case, this provision has two requirements: 1) to institute an
action, the plaintiff must be the real party in interest; and 2) the action must be
prosecuted in the name of the real party in interest. Necessarily, the purposes of this
provision are 1) to prevent the prosecution of actions by persons without any right, title
or interest in the case; 2) to require that the actual party entitled to legal relief be the
one to prosecute the action; 3) to avoid a multiplicity of suits; and 4) to discourage
litigation and keep it within certain bounds, pursuant to sound public policy.

Interest within the meaning of the Rules means material interest or an

interest in issue to be affected by the decree or judgment of the case, as
distinguished from mere curiosity about the question involved. One having no material
interest to protect cannot invoke the jurisdiction of the court as the plaintiff in an action.
When the plaintiff is not the real party in interest, the case is dismissible on
the ground of lack of cause of action.
xxx xxx xxx

The parties to a contract are the real parties in interest in an action upon it,
as consistently held by the Court. Only the contracting parties are bound by the
stipulations in the contract; they are the ones who would benefit from and
could violate it. Thus, one who is not a party to a contract, and for whose benefit it
was not expressly made, cannot maintain an action on it. One cannot do so, even
if the contract performed by the contracting parties would incidentally
inure to one's benefit. (emphasis ours)

In Uy v. Court of Appeals, it was held that the agents of the parties to a contract do not
have the right to bring an action even if they rendered some service on behalf of their
principals. To quote from that decision:

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

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

Assuming petitioners had properly brought the case in the name of their members who
had existing milling contracts with respondents, petitioners must still prove that they
were indeed authorized by the said members to institute an action for and on the
members' behalf. In the same manner that an officer of the corporation cannot bring
action in behalf of a corporation unless it is clothed with a board resolution authorizing
an officer to do so, an authorization from the individual member planter is a sine qua
non for the association or any of its officers to bring an action before the court of law.
The mere fact that petitioners were organized for the purpose of advancing the interests
and welfare of their members does not necessarily mean that petitioners have the
authority to represent their members in legal proceedings, including the present
arbitration proceedings.

As we see it, petitioners had no intention to litigate the case in a representative capacity,
as they contend. All the pleadings from the RTC to this Court belie this claim. Under
Section 3 of Rule 3, where the action is allowed to be prosecuted by a representative, the
beneficiary shall be included in the title of the case and shall be deemed to be the real
party in interest. As repeatedly pointed out earlier, the individual Planters were not even
impleaded as parties to this case. In addition, petitioners need a power-of-attorney to
represent the Planters whether in the lawsuit or to demand arbitration. None was ever
presented here.
 JORGE GONZALES and PANEL OF ARBITRATORS vs. CLIMAX MINING LTD.,
CLIMAX-ARIMCO MINING CORP. and AUSTRALASIAN PHILIPPINES MINING
INC., G.R. No. 161957, January 22, 2007

Facts: This is a consolidation of two petitions rooted in the same disputed Addendum
Contract entered into by the parties.

In one case, the Court held that the DENR Panel of Arbitrators had no jurisdiction over
the complaint for the annulment of the Addendum Contract on grounds of fraud and
violation of the Constitution and that the action should have been brought before the
regular courts as it involved judicial issues.

Gonzales averred that the DENR Panel of Arbitrators Has jurisdiction because the case
involves a mining dispute that properly falls within the ambit of the Panel’s authority.

Respondents Climax Mining Ltd., et al., on the other hand, seek

reconsideration/clarification on the decision holding that the case should not be
brought for arbitration under R.A. No. 876. They argued that the arbitration clause in
the Addendum Contract should be treated as an agreement independent of the other
terms of the contract, and that a claimed rescission of the main contract does not avoid
the duty to arbitrate.

On another case, Gonzales challenged the order of the RTC requiring him to proceed
with the arbitration proceedings while the complaint for the nullification of the
Addendum Contract was pending before the DENR Panel of Arbitrators. He contended
that any issue as to the nullity, inoperativeness, or incapability of performance of the
arbitration clause/agreement raised by one of the parties to the alleged arbitration
agreement must be determined by the court prior to referring them to arbitration.

While Climax-Arimco contended that an application to compel arbitration under Sec. 6

of R.A. No. 876 confers on the trial court only a limited and special jurisdiction, i.e., a
jurisdiction solely to determine (a) whether or not the parties have a written contract to
arbitrate, and (b) if the defendant has failed to comply with that contract.

Issue: Whether or not arbitration is proper even though issues of validity and nullity of
the Addendum Contract and, consequently, of the arbitration clause were raised.

Ruling: Positive.

In La Naval Drug Corporation v. Court of Appeals, the Court held that R.A. No. 876
explicitly confines the court's authority only to the determination of whether or not
there is an agreement in writing providing for arbitration. In the affirmative, the statute
ordains that the court shall issue an order "summarily directing the parties to proceed
with the arbitration in accordance with the terms thereof." If the court, upon the other
hand, finds that no such agreement exists, "the proceeding shall be dismissed." The
cited case also stressed that the proceedings are summary in nature.

Implicit in the summary nature of the judicial proceedings is the separable or

independent character of the arbitration clause or agreement.

The doctrine of separability or severability enunciates that an arbitration agreement is

independent of the main contract. The arbitration agreement is to be treated as a
separate agreement and the arbitration agreement does not automatically terminate
when the contract of which it is part comes to an end.

The separability of the arbitration agreement is especially significant to the

determination of whether the invalidity of the main contract also nullifies the
arbitration clause. Indeed, the doctrine denotes that the invalidity of the main contract,
also referred to as the “container” contract, does not affect the validity of the arbitration
agreement. Irrespective of the fact that the main contract is invalid, the arbitration
clause/agreement still remains valid and enforceable.

The validity of the contract containing the agreement to submit to arbitration does not
affect the applicability of the arbitration clause itself. A contrary ruling would suggest
that a party’s mere repudiation of the main contract is sufficient to avoid
arbitration. That is exactly the situation that the separability doctrine, as well as
jurisprudence applying it, seeks to avoid.

The Court added that when it declared that the case should not be brought for
arbitration, it should be clarified that the case referred to is the case actually filed by
Gonzales before the DENR Panel of Arbitrators, which was for the nullification of the
main contract on the ground of fraud, as it had already been determined that the case
should have been brought before the regular courts involving as it did judicial issues.
G.R. No. 182248

December 18, 2008

EQUITABLE PCI BANKING CORPORATION,1 GEORGE L. GO, PATRICK D. GO,

GENEVIEVE W.J. GO, FERDINAND MARTIN G. ROMUALDEZ, OSCAR P. LOPEZ-
DEE, RENE J. BUENAVENTURA, GLORIA L. TAN-CLIMACO, ROGELIO S. CHUA,
FEDERICO C. PASCUAL, LEOPOLDO S. VEROY, WILFRIDO V. VERGARA,
EDILBERTO V. JAVIER, ANTHONY F. CONWAY, ROMULAD U. DY TANG, WALTER
C. WESSMER, and ANTONIO N. COTOCO vs. RCBC CAPITAL CORPORATION

The Facts

Petitioners Equitable PCI Bank, Inc. (EPCIB) and the individual shareholders of
Bankard, Inc., as sellers, and respondent 5 RCBC Capital Corporation (RCBC), as buyer,
executed a Share Purchase Agreement (SPA) for the purchase of petitioners’ interests in
Bankard, representing 226,460,000 shares, for the price of PhP 1,786,769,400. To
expedite the purchase, RCBC agreed to dispense with the conduct of a due diligence
audit on the financial status of Bankard. RCBC deposited the stipulated downpayment
amount in an escrow account after which it was given full management and operational
control of Bankard. June 2, 2000 is also considered by the parties as the Closing Date
referred to in the SPA. Sometime in September 2000, RCBC had Bankard’s accounts
audited, creating for the purpose an audit team and the conclusion was that the
warranty, as contained in Section 5(h) of the SPA (simply Sec. 5[h] hereinafter), was
correct. RCBC paid the balance of the contract price. The corresponding deeds of sale for
the shares in question were executed in January 2001. Thereafter RCBC informed
petitioners of its having overpaid the purchase price of the subject shares, claiming that
there was an overstatement of valuation of accounts amounting to PhP 478 million,
resulting in the overpayment of over PhP 616 million. Thus, RCBC claimed that
petitioners violated their warranty, as sellers, embodied in Sec. 5(g) of the SPA (Sec. 5[g]
hereinafter). RCBC, in accordance with Sec. 10 of the SPA, filed a Request for
Arbitration dated May 12, 2004 with the ICC-ICA. In the request, RCBC charged
Bankard with deviating from, contravening and not following generally accepted
accounting principles and practices in maintaining their books. Arbitration in the ICC-
ICA proceeded after the formation of the arbitration tribunal consisting of retired
Justice Santiago M. Kapunan, nominated by petitioners; Neil Kaplan, RCBC’s nominee;
an d Sir Ian Barker, appointed by the ICC-ICA. After drawn out proceedings with each
party alleging deviation and non-compliance by the other with arbitration rules, the
tribunal, with Justice Kapunan dissenting, rendered a Partial Award . On the matter of
prescription, the tribunal held that RCBC’s claim is not time-barred, the claim properly
falling under the contemplation of Sec. 5(g) and not Sec. 5(h). As such, the tribunal
concluded, RCBC’s claim was filed within the three (3) -year period under Sec. 5(g) and
that the six (6)month period under Sec. 5(h) did not apply.The tribunal also exonerated
RCBC from laches, the latter having sought relief within the three (3)-year period
prescribed in the SPA. Notably, the tribunal considered the rescission of the SPA and
ASPA as impracticable and "totally out of the question." RCBC filed with the RTC a
Motion to Confirm Partial Award. The RTC issued the first assailed order confirming the
Partial Award and denying the adverted separate motions to vacate and to suspend and
inhibit. From this order, petitioners sought reconsideration, but their motion was
denied by the RTC .

Issue:

WON there is manifest disregard of the law by the ICC-ICA

Held:

The petition must be denied.

This is a procedural miscue for petitioners who erroneously bypassed the Court of
Appeals (CA) in pursuit of its appeal. While this procedural gaffe has not been raised by
RCBC, still we would be remiss in not pointing out the proper mode of appeal from a
decision of the RTC confirming, vacating, setting aside, modifying, or correcting an
arbitral award. Rule 45 is not the remedy available to petitioners as the proper mode of
appeal assailing the decision of the RTC confirming as arbitral award is an appeal before
the CA pursuant to Sec. 46 of Republic Act No. (RA) 9285, otherwise known as the
Alternative Dispute Resolution Act of 2004, or completely, An Act to Institutionalize the
Use of an Alternative Dispute Resolution System in the Philippines and to Establish the
Office for Alternative Dispute Resolution, and for other Purposes, promulgated on April
2, 2004 and became effective on April 28, 2004 after its publication on April 13, 2004.
In Korea Technologies Co., Ltd v. Lerma, we explained, inter alia, that the RTC decision
of an assailed arbitral award is appealable to the CA and may further be appealed to this
Cour t.

It is clear from the factual antecedents that RA 9285 applies to the instant case. This law
was already effective at the time the arbitral proceedings were commenced by RCBC
through a request for arbitration filed before the ICC-ICA on May 12, 2004.

The Court Will Not Overturn an Arbitral Award Unless It Was Made in Manifest
Disregard of the Law Following Asset Privatization Trust vs CA, , errors in law and fact
would not generally justify the reversal of an arbitral award. A party asking for the
vacation of an arbitral award must show that any of the grounds for vacating,
rescinding, or modifying an award are present or that the arbitral award was made in
manifest disregard of the law. Otherwise, the Court is duty-bound to uphold an arbitral
award. The instant petition dwells on the alleged manifest disregard of the law by the
ICC-ICA. The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros law" in the
following wise:

18

expounded on the phrase "manifest disregard of the

This court has emphasized that manifest disregard of the law is a very narrow standard
of review. Anaconda Co. th v. District Lodge No. 27, 693 F.2d 35 (6 Cir.1982). A mere
error in interpretation or application of the law is insufficient. Anaconda, 693 F.2d at
37-38. Rather, the decision must fly in the face of clearly established legal precedent.
When faced with questions of law, an arbitration panel does not act in manifest
disregard of the law unless (1) the applicable legal principle is clearly defined and not
subject to reasonable debate; and (2) the arbitrators refused to heed that legal principle.
Thus, to justify the vacation of an arbitral award on account of "manifest disregard of
the law," the arbiter’s findings must clearly and unequivocally violate an established
legal precedent. Anything less would not suffice. A review of petitioners’ arguments
would, however, show that their arguments are bereft of merit. Thus, the Partial Award
cannot be vacated. RCBC’s Claim Is Not Time-Barred The Court upholds the conclusion
of the tribunal and rules that the claim of RCBC under Sec. 5(g) is not time-barred.
Petitioners Were Not Denied Due Process Petitioners assert that "the arbitrators’ partial
award admitted and used the Summaries as evidence, and held on the basis of the
‘information’ contained in them that petitioners were in breach of their warranty in
GAAP compliance." Petitioners’ position is bereft of merit. The petitioners afforded the
opportunity to refute the summaries and pieces of evidence submitted by RCBC which
became the bases of the experts’ opinion. Petitioners’ right to due process was not
breached. Sec. 15 of RA 876 or the Arbitration Law provides that: 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. (Emphasis supplied.) The well-settled rule is that
administrative agencies exercising quasi-judicial powers shall not be fettered by the
rigid technicalities of procedure, albeit they are, at all times required, to adhere to the
basic concepts of fair play. The right to cross-examine is not an indispensable aspect of
due process. RCBC Is Not Estopped from Questioning the Financial Condition of
Bankard On estoppel, petitioners contend that RCBC is now precluded from denying the
fairness and accuracy of said accounts since it did not seek price reduction under Sec.
5(h). Lastly, they ass everate that RCBC continued with Bankard’s

71

x x x (Emphasis supplied.)
accounting policies and practices and found them to conform to the generally accepted
accounting principles, contrary to RCBC’s allegations. Petitioners’ contention is not
meritorious. The doctrine of estoppel is based upon the grounds of public policy, fair
dealing, good faith, and justice; and its purpose is to forbid one to speak against one’s
own acts, representations, or commitments to the injury of one to whom they were 72
directed and who reasonably relied on them. The elements of estoppel pertaining to the
party estopped are: (1) conduct which amounts to a false representation or concealment
of material facts, or, at least, which calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party subsequently attempts to
assert; (2) intention, or at least expectation, that such conduct shall be acted upon by 74
the other party; and (3) knowledge, actual or constructive, of the actual facts. In the case
at bar, the first element of estoppel in relation to the party sought to be estopped is not
present. Petitioners’ position is that "RCBC was aware of the manner in which the
Bankard accounts were recorded, well before it 75 consummated the SPA by taking
delivery of the shares and paying the outstanding 80% balance of the contract price."
The Arbitral Tribunal explained in detail why estoppel is not present in the case at bar.
In summary, the tribunal properly ruled that petitioners failed to prove that the
formation of the Transition Committee and the conduct of the audit by Rubio and
Legaspi were admissions or representations by RCBC that it would not pursue a claim
under Sec. 5(g) and that petitioners relied on such representation to their detriment.
The SC agrees with the findings of the tribunal that estoppel is not present in the
situation at bar. It becomes evident from all of the foregoing findings that the ICC-ICA is
not guilty of any manifest disregard of the law on estoppel. As shown above, the findings
of the ICC-ICA in the Partial Award are well-supported in law and grounded on facts.
The Partial Award must be upheld. The member of the three-person arbitration panel
was selected by petitioners, while another was respondent’s cho ice. The respective
interests of the parties, therefore, are very much safeguarded in the arbitration
proceedings. Any suggestion, therefore, on the partiality of the arbitration tribunal has
to be dismissed. #
BENGUET CORPORATION v DENR-MAB (Natural Resources)
BENGUET CORPORATION v DENR-MAB

G.R. No. 163101

February 13, 2008

FACTS:

On June 1, 1987, Benguet and J.G. Realty entered into a RAWOP, wherein J.G. Realty
was acknowledged as the owner of four mining claims respectively named as Bonito-I,
Bonito-II, Bonito-III, and Bonito-IV, with a total area of 288.8656 hectares, situated in
Barangay Luklukam, Sitio Bagong Bayan, Municipality of Jose Panganiban, Camarines
Norte.

Thus, on August 9, 1989, the Executive Vice-President of Benguet, Antonio N.

Tachuling, issued a letter informing J.G. Realty of its intention to develop the mining
claims. However, on February 9, 1999, J.G. Realty, through its President, Johnny L.
Tan, then sent a letter to the President of Benguet informing the latter that it was
terminating the RAWOP on the following grounds:

a. The fact that your company has failed to perform the obligations set forth in the
RAWOP, i.e., to undertake development works within 2 years from the execution of the
Agreement; b. Violation of the Contract by allowing high graders to operate on our
claim. c. No stipulation was provided with respect to the term limit of the
RAWOP. d. Non-payment of the royalties thereon as provided in the RAWOP.

On June 7, 2000, J.G. Realty filed a Petition for Declaration of Nullity/Cancellation of

the RAWOP with the Legaspi City POA, Region V, docketed as DENR Case No. 2000-01
and entitled J.G. Realty v. Benguet.

DECISION OF LOWER COURTS: *POA: declared the RAWOP cancelled. *MAB:

affirmed POA.

ISSUES: (1) Should the controversy have first been submitted to arbitration before the
POA took cognizance of the case?; (2) Was the cancellation of the RAWOP supported by
evidence?; and (3) Did the cancellation of the RAWOP amount to unjust enrichment of
J.G. Realty at the expense of Benguet?
HELD: On correctness of appeal: Petitioner having failed to properly appeal to the CA
under Rule 43, the decision of the MAB has become final and executory. On this ground
alone, the instant petition must be denied.

(1) YES, the case should have first been brought to voluntary arbitration before the
POA.

Secs. 11.01 and 11.02 of the RAWOP pertinently provide:

11.01 Arbitration

Any disputes, differences or disagreements between BENGUET and the OWNER with
reference to anything whatsoever pertaining to this Agreement that cannot be amicably
settled by them shall not be cause of any action of any kind whatsoever in any court or
administrative agency but shall, upon notice of one party to the other, be referred to a
Board of Arbitrators consisting of three (3) members, one to be selected by BENGUET,
another to be selected by the OWNER and the third to be selected by the
aforementioned two arbitrators so appointed.

xxxx

11.02 Court Action

No action shall be instituted in court as to any matter in dispute as hereinabove stated,

except to enforce the decision of the majority of the Arbitrators

A contractual stipulation that requires prior resort to voluntary arbitration before the
parties can go directly to court is not illegal and is in fact promoted by the State.

To reiterate, availment of voluntary arbitration before resort is made to the courts or

quasi-judicial agencies of the government is a valid contractual stipulation that must be
adhered to by the parties.

In other words, in the event a case that should properly be the subject of voluntary
arbitration is erroneously filed with the courts or quasi-judicial agencies, on motion of
the defendant, the court or quasi-judicial agency shall determine whether such
contractual provision for arbitration is sufficient and effective. If in affirmative, the
court or quasi-judicial agency shall then order the enforcement of said provision.

In sum, on the issue of whether POA should have referred the case to voluntary
arbitration, we find that, indeed, POA has no jurisdiction over the dispute which is
governed by RA 876, the arbitration law.

HOWEVER, ESTOPPEL APPLIES. the Court rules that the jurisdiction of POA and that
of MAB can no longer be questioned by Benguet at this late hour. What Benguet should
have done was to immediately challenge the POA's jurisdiction by a special civil action
for certiorari when POA ruled that it has jurisdiction over the dispute. To redo the
proceedings fully participated in by the parties after the lapse of seven years from date
of institution of the original action with the POA would be anathema to the speedy and
efficient administration of justice.

(2) The cancellation of the RAWOP was supported by evidence.

(3) There is no unjust enrichment in the instant case. There is no unjust enrichment
when the person who will benefit has a valid claim to such benefit.

The principle of unjust enrichment under Article 22 requires two conditions: (1) that a
person is benefited without a valid basis or justification, and (2) that such benefit is
derived at another's expense or damage.

Clearly, there is no unjust enrichment in the instant case as the cancellation of the
RAWOP, which left Benguet without any legal right to participate in further developing
the mining claims, was brought about by its violation of the RAWOP. Hence, Benguet
has no one to blame but itself for its predicament.

OBITER DICTA:

(1) Difference between compulsory & voluntary arbitration --

In Reformist Union of R.B. Liner, Inc. vs. NLRC, compulsory arbitration has been
defined both as “the process of settlement of labor disputes by a government agency
which has the authority to investigate and to make an award which is binding on all the
parties, and as a mode of arbitration where the parties are compelled to accept the
resolution of their dispute through arbitration by a third party.” While a voluntary
arbitrator is not part of the governmental unit or labor department's personnel, said
arbitrator renders arbitration services provided for under labor laws.
There is a clear distinction between compulsory and voluntary arbitration. The
arbitration provided by the POA is compulsory, while the nature of the arbitration
provision in the RAWOP is voluntary, not involving any government agency.
BF Corporation v. CA, 288 SCRA 267 (1998)

Facts:
Petitioner and respondent Shangri-la Properties, Inc. entered into an agreement
whereby the latter engaged the former to construct the main structure of the "EDSA
Plaza Project," a shopping mall complex in Mandaluyong. Petitioner incurred delay in
the construction work that SPI considered as "serious and substantial." On the other
hand, according to petitioner, the construction works "progressed in faithful compliance
with the First Agreement until a fire broke out damaging Phase I" of the Project. Hence,
SPI proposed the re-negotiation of the agreement between them.
Petitioner and SPI entered into a written agreement denominated as "Agreement for the
Execution of Builder's Work for the EDSA Plaza Project." Said agreement would cover
the construction work on said project as of May 1, 1991 until its eventual completion.
According to SPI, petitioner "failed to complete the construction works and abandoned
the project." This resulted in disagreements between the parties as regards their
respective liabilities under the contract.

Petitioner filed with the RTC of Pasig a complaint for collection of the balance
due under the construction agreement. SPI and its co-defendants filed a motion to
suspend proceedings instead of filing an answer. The motion was anchored on
defendants' allegation that the formal trade contract for the construction of the project
provided for a clause requiring prior resort to arbitration before judicial intervention
could be invoked in any dispute arising from the contract. Petitioner opposed said
motion claiming that there was no formal contract between the parties although they
entered into an agreement defining their rights and obligations in undertaking the
project.

Thereafter, upon a finding that an arbitration clause indeed exists, the lower
court denied the motion to suspend proceedings as the Conditions of Contract was not
duly executed or signed by the parties, and the failure of the defendants to submit any
signed copy of the said document,.

The lower court then ruled that, assuming that the arbitration clause was valid
and binding, still, it was "too late in the day for defendants to invoke arbitration.
Considering the fact that under the supposed Arbitration Clause invoked by defendants,
it is required that "Notice of the demand for arbitration of a dispute shall be filed in
writing with the other party . . . . in no case . . . . later than the time of final payment . . .
"which apparently, had elapsed because defendants have failed to file any written notice
of any demand for arbitration during the said long period of one year and eight months.
The CA annulled the orders of the RTC.

Issue: WON a petition for certiorari is proper

Held:

Yes. The rule that the special civil action of certiorari may not be invoked as a
substitute for the remedy of appeal. The Court has likewise ruled that "certiorari will
not be issued to cure errors in proceedings or correct erroneous conclusions of law or
fact. As long as a court acts within its jurisdiction, any alleged errors committed in the
exercise of its jurisdiction will amount to nothing more than errors of judgment which
are reviewable by timely appeal and not by a special civil action of certiorari."

The question of jurisdiction, which is a question of law depends on the

determination of the existence of the arbitration clause, which is a question of fact. In
the instant case, the lower court found that there exists an arbitration clause. However,
it ruled that in contemplation of law, said arbitration clause does not exist. It is that
mode of appeal taken by private respondents before the CA that is being questioned by
the petitioners before this Court. But at the heart of said issue is the question of whether
there exists an Arbitration Clause because if an Arbitration Clause does not exist, then
private respondents took the wrong mode of appeal before the CA.

For this Court to be able to resolve the question of whether private respondents
took the proper mode of appeal, which, incidentally, is a question of law, then it has to
answer the core issue of whether there exists an Arbitration Clause which, admittedly, is
a question of fact.

Moreover, where a rigid application of the rule that certiorari cannot be a

substitute for appeal will result in a manifest failure or miscarriage of justice, the
provisions of the Rules of Court which are technical rules may be relaxed. As we shall
show hereunder, had the CA dismissed the petition for certiorari, the issue of whether
or not an arbitration clause exists in the contract would not have been resolved in
accordance with evidence extant in the record of the case. Consequently, this would have
resulted in a judicial rejection of a contractual provision agreed by the parties to the
contract.

In the same vein, this Court holds that the question of the existence of the
arbitration clause in the contract between petitioner and private respondents is a legal
issue that must be determined in this petition for review on certiorari.
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, 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. Respondent, on the other hand, filed a petition for confirmation of arbitral
award. The CA rendered the assailed decision dismissing ABS-CBN’s 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 arbitrator’s 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 petitioner’s 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 CA’s
resolution were less the alleged grave abuse of discretion exercised by the arbitrator and
more about the arbitrator’s 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.
 UNIWIDE SALES REALTY AND RESOURCES CORP v. TITAN-IKEDA
CONSTRUCTION
G.R. No. 126619; December 20, 2006
Ponente: J. Tinga

FACTS:

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

Upon Uniwide’s motion to dismiss/suspend proceedings and Titan’s open court

manifestation agreeing to the suspension, Civil Case No. 98-0814 was suspended for it
to undergo arbitration. Titan’s complaint was thus re-filed with the CIAC. Before the
CIAC, Uniwide filed an answer which was later amended and re-amended, denying the
material allegations of the complaint, with counterclaims for refund of overpayments,
actual and exemplary damages, and attorney’s fees.

An Arbitral Tribunal consisting of a chairman and two members was created in

accordance with the CIAC Rules of Procedure Governing Construction Arbitration. It
conducted a preliminary conference with the parties and thereafter issued a Terms of
Reference (TOR) which was signed by the parties. The tribunal also conducted an ocular
inspection, hearings, and received the evidence of the parties consisting of affidavits
which were subject to cross-examination.

On 17 April 1995, the Arbitral Tribunal promulgated a Decision, the decretal portion of
which is as follows:

“WHEREFORE, judgment is hereby rendered as follows:

On Project 1 – Libis:

[Uniwide] is absolved of any liability for the claims made by [Titan] on this
Project.

Project 2 – Edsa Central:

[Uniwide] is absolved of any liability for VAT payment on this project, the same
being for the account of the [Titan]. On the other hand, [Titan] is absolved of any
liability on the counterclaim for defective construction of this project.

[Uniwide] is held liable for the unpaid balance in the amount of P6,301,075.77
which is ordered to be paid to the [Titan] with 12% interest per annum commencing
from 19 December 1992 until the date of payment.

On Project 3 – Kalookan:

[Uniwide] is held liable for the unpaid balance in the amount of P5,158,364.63
which is ordered to be paid to the [Titan] with 12% interest per annum commencing
from 08 September 1993 until the date of payment.

[Uniwide] is held liable to pay in full the VAT on this project, in such amount as
may be computed by the Bureau of Internal Revenue to be paid directly thereto. The BIR
is hereby notified that [Uniwide] Sales Realty and Resources Corporation has assumed
responsibility and is held liable for VAT payment on this project. This accordingly
exempts Claimant Titan-Ikeda Construction and Development Corporation from this
obligation.

ISSUE:

Whether the award given by CIAC is final

HELD:

As a rule, findings of fact of administrative agencies and quasi-judicial bodies, which

have acquired expertise because their jurisdiction is confined to specific matters, are
generally accorded not only respect, but also finality, especially when affirmed by the
Court of Appeals. In particular, factual findings of construction arbitrators are final and
conclusive and not reviewable by this Court on appeal. This rule, however admits of
certain exceptions.

In David v. Construction Industry and Arbitration Commission, we ruled that, as

exceptions, factual findings of construction arbitrators may be reviewed by this Court
when the petitioner proves affirmatively that:
(1) the award was procured by corruption, fraud or other undue means;
(2) there was evident partiality or corruption of the arbitrators or of any of them; (3) the
arbitrators were guilty of misconduct in refusing to hear evidence pertinent and material
to the controversy;
(4) one or more of the arbitrators were disqualified to act as such under Section nine of
Republic Act No. 876 and willfully refrained from disclosing such disqualifications or of
any other misbehavior by which the rights of any party have been materially prejudiced;
or
(5) the arbitrators exceeded their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject matter submitted to them was not
made.

Other recognized exceptions are as follows:

(1) 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,
(2) when the findings of the Court of Appeals are contrary to those of the CIAC, and
(3) when a party is deprived of administrative due process.
NATIONAL POWER CORPORATION, PETITIONER
V.
HON. ROSE MARIE ALONZO-LEGASTO AS PRESIDING JUDGE, RTC QC BR 99 ET AL1
GR no.148318 November 22, 2004
Tinga, J.
SV: NPC and FUCC Entered into a project for excavation. FUCC needed to do blasting
works to continue with the project. NPC agreed that it will issue an extra work order for
the blasting works and subsequently pay FUCC but this did not happen. The two entered
into a compromise agreement and agreed that NPC will pay the undisputed unpaid
claims and that they will submit the agreement to an arbitration board to settle the
amount to be paid. After the arbitration issued its ruling, NPC questioned the award
which included the blasting works (no extra work order issued for it) allegedly due to
promissory estoppel.
SC: no basis for applying promissory estoppel. The payment was conditional on the
issuance of the extra work order. The acts of the officials of NPC exceeded their
authority and should not bind NPC unless the latter ratifies these acts. Unfortunately,
NPC did when it signed the compromise agreement. Hence, FUCC was entitled for
payment for the blasting works.

1. NPC and First United Constructors Corporation (FUCC) entered into a

construction of power facilities, one in Cawayan area and the other in Bacon,
Sorsogon. The price for grading excavation was P76.00 per cubic meter.
2. After commencement of the excavation, FUCC requested that it be allowed to
blast to the design grade of 495 meters above sea level as its dozers and rippers
could no longer excavate. It also requested that it be paid P1346 per cubic meter
3. NPC, after creating a task force to review the blasting works, offered to pay
P458.07 per cubic meter, which FUCC accepted in a letter.
4. FUCC eventually abandoned the project. NPC decided to take over the project to
stave-off huge pecuniary and non-monetary losses. FUCC, in order to prevent
this filed an action for specific performance and damages with preliminary
injunction and TRO against NPC.
5. RTC qc issued a TRO and later a writ of preliminary injunction.
a. NPC filed a petition for certiorari before the CA. CA granted petition and
set aside the lower court’s order
6. FUCC filed before the SC a petition for review assailing the decision of the CA but
pending the resolution of the SC, NPC and FUCC entered into a compromise
agreement.
a. In the compromise agreement, NPC shall pay the undisputed unpaid
billings of FUCC in connection with the project; that NPC shall have the
right to preceed with the works by re-bidding it; upon final resolution of
the arbitration, the parties shall mutually terminate the contract among
others
b. That the claims will be settled through 2 stages
i. One is the signing of the compromise agreement which they whill
submit for approval by this court
ii. It shall submit by arbitration to settle the price of the blasting,
damages and all other unresolved claims by the parties. The 3-man
commission was headed by Mr. Carmelo Sison
7. The compromise agreement was approved by the court and the case was then
referred to arbitration where it was held that an award of P118,681,328.28 as just
 compensation plus 10% thereof for attorney’s fees and expenses of litigation was
due. (NPC already paid 36,550,000 so they only owe FUCC P82,131,328.28)
8. FUCC filed a motion for execution while NPC filed a motion to vacate award by
the arbitration board. Judge Alonzo-LEgasto approved the motion for execution.
9. NPC went to the CA alleging GAD.
a. CA: no GAD. The arbitration board acted pursuant to its powers under the
compromise agreement. That NPC failed to prove by evidence that Mr.
Sison was biased. That although the blasting was not part of the unit price
for the project and that there was no perfected contract for it, FUCC relied
on the representation of NPC’s officials that the extra work order should
be submitted to its board of directors for approval and that the blasting
works would be paid. CA ruled that
FUCC is entitled to just compensation on grounds of equity and
promissory estoppel
10. NPC went up to the SC with basically the same arguments before the CA. one of
these arguments is that the claim for blasting works was not approved by
authorized officials, that the approval of extra work by authorized officials is
required for an extra work order is issued.

ISSUE: Is FUCC entitled to the payment for the extra work done on the
project?

 there was a discussion on arbitration and vacating an award. In the end SC

held that NPC’s only ground was the alleged bias of Mr. Sison, which it failed
to prove by evidence at the lower court. Hence they cannot depart from the
ruling upholding the award

 the court looked at Sec. 9 of PD 1594 (Prescribing Policies, Guidelines, Rules

and Regulations for Government Infrastructure Contracts,) which provides
that a change order or extra work order may be issued only for works
necessary for the completion of the project and, therefore, shall be within the
general scope of the contract as bid[ded] and awarded. All change orders and
extra work orders shall be subject to the approval of the Minister of Public
Works, Transportation and Communications, the Minister of Public
Highways, or the Minister of Energy, as the case may be.
 The SC also considered the facts which were used as bases for promissory
estoppel and held that although it appeared that NPC made promises that an
extra work order will be issued in connection with the blasting projects, none
came to existence.
o Promissory estoppel “may arise from the making of a promise, even
though without consideration, if it was intended that the promise
should be relied upon and in fact it was relied upon, and if a refusal to
enforce it would be virtually to sanction the perpetration of fraud or
would result in other injustice.” Promissory estoppel presupposes the
existence of a promise on the part of one against whom estoppel is
claimed. The promise must be plain and unambiguous and sufficiently
specific so that the court can understand the obligation assumed and
enforce the promise according to its terms.
o There was no basis for promissory estoppel since both parties knew
that the payment for the blasting works was dependent on the issuance
of an extra work order. The promise of NPC to pay was conditional
(upon the issuance of the work order) and FUCC knew of this fact.
o Mendoza v. CA: a cause of action for promissory estoppel does not lie
where an alleged oral promise was conditional, so that reliance upon it
was not reasonable. It does not operate to create liability where it does
not otherwise exist.
  NPC’s argument that it is not bound by the acts of its officials is correct. It is a
corporate entity performing proprietary functions and not a mere agency of
the government.
 The officials exceeded the scope of their authority when they authorized FUCC
to commence blasting without an extra work order. Their acts cannot bind
NPC unless it has ratified such acts or it is estopped from disclaiming them
 NPC RATIFIED THOSE ACTS! The compromise agreement is a confirmatory
act signifying NPC’s ratification of all the prior acts of its officers (the
president who signed it was acting pursuant to a board resolution)
SC in the end upheld the award of the arbitration except for the rate of interest which
was decreased from 12% to 6%.
Agan v PIATCO G.R. No. 155001. May 5, 2003

Facts: In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to
conduct a comprehensive study of the Ninoy Aquino International Airport (NAIA) and
determine whether the present airport can cope with the traffic development up to the
year 2010.

On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of Asia's
Emerging Dragon Corp. (unsolicited proposal dated Oct. 5, 1994) to the National
Economic and Development Authority (NEDA). A revised proposal, however, was
forwarded by the DOTC to NEDA on December 13, 1995. On January 5, 1996, the NEDA
Investment Coordinating Council (NEDA ICC) — Technical Board favorably endorsed
the project to the ICC — Cabinet Committee which approved the same, subject to certain
conditions, on January 19, 1996. On February 13, 1996, the NEDA passed Board
Resolution No. 2 which approved the NAIA IPT III Project.

On August 29, 1996, the Second Pre-Bid Conference was held where certain
clarifications were made. Upon the request of prospective bidder People's Air Cargo &
Warehousing Co., Inc (Paircargo), the PBAC warranted that based on Sec. 11.6, Rule 11
of the Implementing Rules and Regulations of the BOT Law, only the proposed Annual
Guaranteed Payment submitted by the challengers would be revealed to AEDC, and that
the challengers' technical and financial proposals would remain confidential. The PBAC
also clarified that the list of revenue sources contained in Annex 4.2a of the Bid
Documents was merely indicative and that other revenue sources may be included by
the proponent, subject to approval by DOTC/MIAA. Furthermore, the PBAC clarified
that only those fees and charges denominated as Public Utility Fees would be subject to
regulation, and those charges which would be actually deemed Public Utility Fees could
still be revised, depending on the outcome of PBAC's query on the matter with the
Department of Justice.

On September 26, 1996, AEDC informed the PBAC in writing of its reservations as
regards the Paircargo Consortium, which include:
a. The lack of corporate approvals and financial capability of PAIRCARGO;
b. The lack of corporate approvals and financial capability of PAGS;
c. The prohibition imposed by RA 337, as amended (the General Banking Act) on
the amount that Security Bank could legally invest in the project;
d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for
prequalification purposes; and
e. The appointment of Lufthansa as the facility operator, in view of the Philippine
requirement in the operation of a public utility.

The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered
the issues raised by the latter, and that based on the documents submitted by Paircargo
and the established prequalification criteria, the PBAC had found that the challenger,
Paircargo, had prequalified to undertake the project. The Secretary of the DOTC
approved the finding of the PBAC.

On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and
the Paircargo Consortium containing their respective financial proposals. Both
proponents offered to build the NAIA Passenger Terminal III for at least $350 million at
no cost to the government and to pay the government: 5% share in gross revenues for
the first five years of operation, 7.5% share in gross revenues for the next ten years of
operation, and 10% share in gross revenues for the last ten years of operation, in
accordance with the Bid Documents.

As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary
Amado Lagdameo, on December 11, 1996, issued a notice to Paircargo Consortium
regarding AEDC's failure to match the proposal. AEDC subsequently protested the
alleged undue preference given to PIATCO and reiterated its objections as regards the
prequalification of PIATCO.

On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile,
and PIATCO, through its President, Henry T. Go, signed the "Concession Agreement for
the Build-Operate-and-T+ransfer Arrangement of the Ninoy Aquino International
Airport Passenger Terminal III" (1997 Concession Agreement). The Government
granted PIATCO the franchise to operate and maintain the said terminal during the
concession period and to collect the fees, rentals and other charges in accordance with
the rates or schedules stipulated in the 1997 Concession Agreement. The Agreement
provided that the concession period shall be for twenty-five (25) years commencing
from the in-service date, and may be renewed at the option of the Government for a
period not exceeding twenty-five (25) years. At the end of the concession period,
PIATCO shall transfer the development facility to MIAA.

During the pendency of the case before this Court, President Gloria Macapagal
Arroyo, on November 29, 2002, in her speech at the 2002 Golden Shell Export Awards
at Malacañang Palace, stated that she will not "honor (PIATCO) contracts which the
Executive Branch's legal offices have concluded (as) null and void."

Issue: Whether the petitioners and the petitioners-in-intervention have standing;

Whether this Court has jurisdiction; and
Whether the BOT and contracts therein are unconstitutional.

Held: YES.
Ratio: Messrs. Lopez et al. are employees of the MIAA. These petitioners (Messrs.
Agan et al. and Messrs. Lopez et al.) are confronted with the prospect of being laid off
from their jobs and losing their means of livelihood when their employer-companies are
forced to shut down or otherwise retrench and cut back on manpower. Such
development would result from the imminent implementation of certain provisions in
the contracts that tend toward the creation of a monopoly in favor of Piatco, its
subsidiaries and related companies.

Petitioners-in-intervention are service providers in the business of furnishing airport-

related services to international airlines and passengers in the NAIA and are therefore
competitors of Piatco as far as that line of business is concerned. On account of
provisions in the Piatco contracts, petitioners-in-intervention have to enter into a
written contract with Piatco so as not to be shut out of NAIA Terminal III and barred
from doing business there. Since there is no provision to ensure or safeguard free and
fair competition, they are literally at its mercy. They claim injury on account of their
deprivation of property (business) and of the liberty to contract, without due process of
law.

By way of background, two monopolies were actually created by the Piatco contracts.
The first and more obvious one refers to the business of operating an international
passenger terminal in Luzon, the business end of which involves providing international
airlines with parking space for their aircraft, and airline passengers with the use of
departure and arrival areas, check-in counters, information systems, conveyor systems,
security equipment and paraphernalia, immigrations and customs processing areas; and
amenities such as comfort rooms, restaurants and shops.

In furtherance of the first monopoly, the Piatco Contracts stipulate that the NAIA
Terminal III will be the only facility to be operated as an international passenger
terminal; that NAIA Terminals I and II will no longer be operated as such; and that no
one (including the government) will be allowed to compete with Piatco in the operation
of an international passenger terminal in the NAIA Complex. Given that, at this time,
the government and Piatco are the only ones engaged in the business of operating an
international passenger terminal, I am not acutely concerned with this particular
monopolistic situation.

There was however another monopoly within the NAIA created by the subject
contracts for Piatco — in the business of providing international airlines with the
following: groundhandling, in-flight catering, cargo handling, and aircraft repair and
maintenance services. These are lines of business activity in which are engaged many
service providers (including the petitioners-in-intervention), who will be adversely
affected upon full implementation of the Piatco Contracts, particularly Sections 3.01(d)
and (e) of both the ARCA and the CA.

Should government pay at all for reasonable expenses incurred in the construction of
the Terminal? Indeed it should, otherwise it will be unjustly enriching itself at the
expense of Piatco and, in particular, its funders, contractors and investors — both local
and foreign. After all, there is no question that the State needs and will make use of
Terminal III, it being part and parcel of the critical infrastructure and transportation-
related programs of government.

The rule on hierarchy of courts will not also prevent this Court from assuming
jurisdiction over the cases at bar. The said rule may be relaxed when the redress desired
cannot be obtained in the appropriate courts or where exceptional and compelling
circumstances justify availment of a remedy within and calling for the exercise of this
Court's primary jurisdiction. Thus, considering the nature of the controversy before the
Court, procedural bars may be lowered to give way for the speedy disposition of the
instant cases.

In sum, this Court rules that in view of the absence of the requisite financial capacity
of the Paircargo Consortium, predecessor of respondent PIATCO, the award by the
PBAC of the contract for the construction, operation and maintenance of the NAIA IPT
III is null and void.

Is PIATCO a qualified bidder?

 Public respondents argue that the Paircargo Consortium, PIATCO's predecessor, was
not a duly pre-qualified bidder on the unsolicited proposal submitted by AEDC as the
Paircargo Consortium failed to meet the financial capability required under the BOT
Law and the Bid Documents. They allege that in computing the ability of the Paircargo
Consortium to meet the minimum equity requirements for the project, the entire net
worth of Security Bank, a member of the consortium, should not be considered. R.A. No.
337, as amended or the General Banking Act that a commercial bank cannot invest in
any single enterprise in an amount more than 15% of its net worth.

We agree with public respondents that with respect to Security Bank, the entire
amount of its net worth could not be invested in a single undertaking or enterprise,
whether allied or non-allied in accordance with the provisions of R.A. No. 337
The PBAC should not be allowed to speculate on the future financial ability of the
bidder to undertake the project on the basis of documents submitted. This would open
doors to abuse and defeat the very purpose of a public bidding.

Is the 1997 Concession Agreement valid?

Petitioners and public respondents contend that the 1997 Concession Agreement is
invalid as it contains provisions that substantially depart from the draft Concession
Agreement included in the Bid Documents. They maintain that a substantial departure
from the draft Concession Agreement is a violation of public policy and renders the 1997
Concession Agreement null and void.

If the winning bidder is allowed to later include or modify certain provisions in the
contract awarded such that the contract is altered in any material respect, then the
essence of fair competition in the public bidding is destroyed. A public bidding would
indeed be a farce if after the contract is awarded; the winning bidder may modify the
contract and include provisions which are favorable to it that were not previously made
available to the other bidders.

With respect to terminal fees that may be charged by PIATCO, as shown earlier, this
was included within the category of "Public Utility Revenues" under the 1997
Concession Agreement. This classification is significant because under the 1997
Concession Agreement, "Public Utility Revenues" are subject to an "Interim
Adjustment" of fees upon the occurrence of certain extraordinary events specified in the
agreement. However, under the draft Concession Agreement, terminal fees are not
included in the types of fees that may be subject to "Interim Adjustment."

Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except
terminal fees, are denominated in US Dollars while payments to the Government are in
Philippine Pesos. In the draft Concession Agreement, no such stipulation was included.
By stipulating that "Public Utility Revenues" will be paid to PIATCO in US Dollars while
payments by PIATCO to the Government are in Philippine currency under the 1997
Concession Agreement, PIATCO is able to enjoy the benefits of depreciations of the
Philippine Peso, while being effectively insulated from the detrimental effects of
exchange rate fluctuations.

Under the draft Concession Agreement, default by PIATCO of any of its obligations to
creditors who have provided, loaned or advanced funds for the NAIA IPT III project
does not result in the assumption by the Government of these liabilities. In fact,
nowhere in the said contract does default of PIATCO's loans figure in the agreement.
Such default does not directly result in any concomitant right or obligation in favor of
the Government.

It is clear from the above-quoted provisions that Government, in the event that
PIATCO defaults in its loan obligations, is obligated to pay "all amounts recorded and
from time to time outstanding from the books" of PIATCO which the latter owes to its
creditors. These amounts include "all interests, penalties, associated fees, charges,
surcharges, indemnities, reimbursements and other related expenses." This obligation
of the Government to pay PIATCO's creditors upon PIATCO's default would arise if the
Government opts to take over NAIA IPT III. It should be noted, however, that even if the
Government chooses the second option, which is to allow PIATCO's unpaid creditors
operate NAIA IPT III, the Government is still at a risk of being liable to PIATCO's
creditors should the latter be unable to designate a qualified operator within the
prescribed period. In effect, whatever option the Government chooses to take in the
event of PIATCO's failure to fulfill its loan obligations, the Government is still at a risk of
assuming PIATCO's outstanding loans.

As such the Government is virtually at the mercy of PIATCO (that it would not default
on its loan obligations to its Senior Lenders), the Senior Lenders (that they would
appoint a qualified nominee or transferee or agree to some other arrangement with the
Government) and the existence of a qualified nominee or transferee who is able and
willing to take the place of PIATCO in NAIA IPT III.

In view of regulation of monopolies

The operation of an international passenger airport terminal is no doubt an
undertaking imbued with public interest. In entering into a Build-Operate-and-Transfer
contract for the construction, operation and maintenance of NAIA IPT III, the
government has determined that public interest would be served better if private sector
resources were used in its construction and an exclusive right to operate be granted to
the private entity undertaking the said project, in this case PIATCO. Nonetheless, the
privilege given to PIATCO is subject to reasonable regulation and supervision by the
Government through the MIAA, which is the government agency authorized to operate
the NAIA complex, as well as DOTC, the department to which MIAA is attached.

While it is the declared policy of the BOT Law to encourage private sector
participation by "providing a climate of minimum government regulations," the same
does not mean that Government must completely surrender its sovereign power to
protect public interest in the operation of a public utility as a monopoly. The operation
of said public utility cannot be done in an arbitrary manner to the detriment of the
public which it seeks to serve.

In contrast to the arrastre and stevedoring service providers in the case of Anglo-Fil
Trading Corporation v. Lazaro whose contracts consist of temporary hold-over permits,
the affected service providers in the cases at bar, have a valid and binding contract with
the Government, through MIAA, whose period of effectivity, as well as the other terms
and conditions thereof cannot be violated.
Should the dispute be referred to arbitration prior to judicial recourse?
Respondent Piatco claims that Section 10.02 of the Amended and Restated
Concession Agreement (ARCA) provides for arbitration under the auspices of the
International Chamber of Commerce to settle any dispute or controversy or claim
arising in connection with the Concession Agreement, its amendments and
supplements. The government disagrees; however, insisting that there can be no
arbitration based on Section 10.02 of the ARCA, since all the Piatco contracts are void
ab initio.
Diesel vs UPSI

FACTS:

-Aug 26, 1995: Diesel and UPSI entered into a Construction Agreement for the interior
architectural construction works of the 14th to the 16th floors of UPSI Building 3
Meditel/Condotel Project located in Ermita, Manila. The agreement contained
provisions on contract works and completion, extension of contract period, change or
extra work orders, etc.

-Under the agreement, Diesel for 12.7M agreed to take the project payable by progress
billing. As stipulated, Diesel posted through FGU Insurance Corp, a bond in favor of
UPSI.

-Under the agreement, the project was to start on Aug 2, 1999 to run for a period of 90
days, or until Nov. 8, 1999. But they later agreed to move the commencement date to
Aug 21 and the completion to Nov 20, 1999.

-There was also a section in the agreement obliging Diesel in case of unjustifiable delay,
to pay the owner liquidated damages in the amount equivalent to 1/5 of 1% of the total
project cost for every calendar day of delay.

-During the project implementation, change orders and extensions were sought because
of the several delaying factors such as: 1) manual hauling of the materials from 14th to
16th floor, 2)delayed supply of marble, 3) various change orders, 4) delay in the
installation of shower assembly.

-UPSI disapproved the extensions putting Diesel in a state of default and assessed Diesel
for liquidated damages, deducting from his progress payments.

-Diesel, through its project manager, sent a letter of notice to UPSI, on March 16, 2000,
stating that the project has been completed as of that date. UPSI disregarded such and
refused to accept the delivery claiming that Diesel abandoned the project unfinished,
withholding the 10% retention money and refusing to pay the balance of the contract
price.

-Diesel filed a complaint before CIAC (Construction Industry Arbitration Commission),

praying that UPSI be compelled to pay the balance plus damages and attorney’s fees.
-UPSI’s counterclaim denied liability and prayed for the repayment of expenses it
incurred for completing the project and for a declaration that the deductions it made for
liquidated damages were proper.

-CIAC rendered a judgment ordering UPSI to pay Diesel about 4M covering the unpaid
balance and attorney’s fees, dismissing UPSI’s counterclaim.

-UPSI went to CA on a petition for review. CA modified the ruling of CIAC, granting the
claim of UPSI for liquidated damages (1.3M) representing 45days of delay. CA also ruled
that Diesel complied with the contract and is entitled to 100% payment of contract price
(2.4M unpaid balance). In sum, UPSI is held liable to Diesel in the amount of 1.1M.

-Both parties sought reconsideration. CA denied UPSI but partially granted Diesel’s
motion, reducting the liquidated damages. UPSI was held to be liable to Diesel for 2.5M.

-Parties filed separate petitions before the SC.

ISSUE:

Whether or not Diesel can be entitled to full payment of the contract amount.

HELD:

-The CIAC found Diesel not to have incurred delay, thus negating UPSI’s
entitlement to liquidated damages. The CA, on the other hand, found Diesel to
have been in delay for 45 days.

-In determining whether or not Diesel was in delay, they considered the fact that Diesel
had the Project period extended beyond 90-day completion period. Both agreed that
there were factors that gave Diesel the right to an extension but differed on the matter of
length of the extension, and on the nature of the delay, that is,

whether the delay is excusable or not.

-Diesel explained that there was no place for its own hoisting machine at the Project site.
Diesel could not use the site elevator of the General Contractor as its personnel were
only permitted to use the same for one hour every day at PhP 600 per hour.
-There were provisions on the agreement on excusable delays for which the contractor
shall inform the owner in a timely manner. This includes: acts of god, civil disturbance,
govt acts, wars, delays initiated by owner or his personnel. The delaying event
should be unforeseeable and beyond the control of Diesel. The lack of location for the
hoisting machine can be hardly tagged as foreseeable event.

-Delay caused by the manual hauling of materials is not excusable and cannot be a
ground for extension. This only granted Diesel an extension period of 85 days which was
a delay of 45 days in the completion of project. It was unfair to charge Diesel with 240
days of delays where UPSI was responsible for some of the delay.

[ CA: The records will show that while the original target date for the completion x x x
was 19 November 1999 x x x, there is a total of eighty-five (85) days of extension which
are justifiable and sanctioned by [UPSI], to wit: thirty (30) days as authorized on 27
January 2000 by UPSI’s Construction Manager x x x; thirty (30) days as again
consented to by the same Construction Manager on 24 February 2000 x x x; and
twenty-five (25) days on 16 March 2000 by Rider Hunt and Liacom x x x. The rest of
the days claimed by Diesel were, of course, found by Us to be unjustified in the main
opinion. Hence, the project should have been finished by February 12, 2000. However,
by 22 March 2000, as certified to by Grace S. Reyes Designs, Inc. the project was only
97.56% finished, meaning while it was substantially finished, it was not wholly
finished. By 25 March 2000, the same consultant conditionally accepted some floors
but were still punch listed, so that from 12 February 2000 to 25 March 2000 was a
period of forty-one (41) days. Allowing four (4) more days for the punch listed items to
be accomplished, and for the “general cleaning” mentioned by Grace S. Reyes Designs,
Inc., to be done, which to Us is a reasonable length of time, equals forty-five (45) days.
]

-The CA completely failed to factor in the change orders of UPSI to Diesel––

the directives effectively extending the Project completion time at the
behest of UPSI.

-UPSI issued Change Order (CO) Nos. 1 to 4 on February 3, 2, 8, and 9, 2000

respectively. Thereafter, Diesel submitted a Schedule of Completion of Additional
Works under which Diesel committed to undertake CO No. 1 for 30 days from February
10, 2000; CO No. 2 for 21 days from January 6, 2000; CO No. 3 for 15 days, subject to
UPSI’s acceptance of Diesel’s proposal; and CO No. 4 for 10 days after the receipt of the
items from UPSI. Thus, as correctly held by the CIAC, UPSI, no less, effectively
moved the completion date, through the various COs, to April 7, 2000.

Moreover, as evidenced by UPSI’s Progress Report No. 19 for the period

ending March 22, 2000, Diesel’s scope of work, as of that date, was already
97.56% complete. Such level of work accomplishment would, by any
rational norm, be considered as substantial to warrant full payment of the
contract amount, less actual damages suffered by UPSI. Article 1234 of the Civil Code
says as much, “If the obligation had been substantially performed in good faith, the
obligor may recover as though there had been a strict and complete fulfillment, less
damages suffered by the obligee.”

The fact that the laborers of Diesel were still at the work site as of March 22, 2000 is a
reflection of its honest intention to keep its part of the bargain and complete the Project.
Thus, when Diesel attempted to turn over the premises to UPSI, claiming it
had completed the Project on March 15, 2000, Diesel could no longer be
considered to be in delay. No liquidated damages for delay beyond the completion
time shall accrue after the date of substantial completion ofthe work.

In all, Diesel cannot be considered as in delay and, hence, is not amenable

under the Agreement for liquidated damages.

Diesel was not strictly in delay in the completion of the Project. No valid reason,
therefore, obtains for UPSI to withhold the retention money or to refuse to pay the
unpaid balance of the contract price. Indeed, the retention and nonpayment were, to us,
as was to the CIAC, resorted to by UPSI out of whim, thus forcing the hand of Diesel to
sue to recover what is rightfully due. Thus, the grant of attorney’s fees would be
justifiable under Art. 2208 of the Civil Code. The foregoing notwithstanding and
considering that Diesel may only be credited for 97.56% work
accomplishment, UPSI ought to be compensated, by way of damages, in the
amount corresponding to the value of the 2.44% unfinished portion (100% –
97.56% = 2.44%). In absolute terms, 2.44% of the total Project cost translates to PhP
310,834.01. This disposition is no more than adhering to the command of Art. 1234 of
the Civil Code.
KOREA TECHNOLOGIES CO. LTD VS LERMA (GR NO. 143581 JANUARY
7, 2008)
Korea Technologies Co. Ltd vs Lerma
GR No. 143581 January 7, 2008

Facts:
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is
engaged in the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder
manufacturing plants, while private respondent Pacific General Steel Manufacturing
Corp. (PGSMC) is a domestic corporation. On March 5, 1997, PGSMC and KOGIES
executed a Contract whereby KOGIES would set up an LPG Cylinder Manufacturing
Plant in Carmona, Cavite. The contract was executed in the Philippines. On April 7,
1997, the parties executed, in Korea, an Amendment for Contract No. KLP-970301 dated
March 5, 1997 amending the terms of payment.

The contract and its amendment stipulated that KOGIES will ship the machinery and
facilities necessary for manufacturing LPG cylinders for which PGSMC would pay USD
1,224,000. KOGIES would install and initiate the operation of the plant for which
PGSMC bound itself to pay USD 306,000 upon the plants production of the 11-kg. LPG
cylinder samples. Thus, the total contract price amounted to USD 1,530,000. On
October 14, 1997, PGSMC entered into a Contract of Lease with Worth Properties, Inc.
(Worth) for use of Worths 5,079-square meter property with a 4,032-square meter
warehouse building to house the LPG manufacturing plant. The monthly rental was PhP
322,560 commencing on January 1, 1998 with a 10% annual increment clause.
Subsequently, the machineries, equipment, and facilities for the manufacture of LPG
cylinders were shipped, delivered, and installed in the Carmona plant.

PGSMC paid KOGIES USD 1,224,000. However, gleaned from the Certificate executed
by the parties on January 22, 1998, after the installation of the plant, the initial
operation could not be conducted as PGSMC encountered financial difficulties affecting
the supply of materials, thus forcing the parties to agree that KOGIES would be deemed
to have completely complied with the terms and conditions of the March 5, 1997
contract. For the remaining balance of USD306,000 for the installation and initial
operation of the plant, PGSMC issued two postdated checks: (1) BPI Check No. 0316412
dated January 30, 1998 for PhP 4,500,000; and (2) BPI Check No. 0316413 dated
March 30, 1998 for PhP 4,500,000.

When KOGIES deposited the checks, these were dishonored for the reason PAYMENT
STOPPED. Thus, on May 8, 1998, KOGIES sent a demand letter to PGSMC threatening
criminal action for violation of Batas Pambansa Blg. 22 in case of nonpayment. On the
same date, the wife of PGSMCs President faxed a letter dated May 7, 1998 to KOGIES
President who was then staying at a Makati City hotel. She complained that not only did
KOGIES deliver a different brand of hydraulic press from that agreed upon but it had
not delivered several equipment parts already paid for.

Issue: Whether or not the arbitration clause in the contract of the parties should
govern.

Held: Yes. Established in this jurisdiction is the rule that the law of the place where the
contract is made governs. Lex loci contractus. The contract in this case was perfected
here in the Philippines. Therefore, our laws ought to govern. Nonetheless, Art. 2044 of
the Civil Code sanctions the validity of mutually agreed arbitral clause or the finality and
binding effect of an arbitral award. Art. 2044 provides, Any stipulation that the
arbitrators award or decision shall be final, is valid, without prejudice to Articles 2038,
2039 and 2040.
The arbitration clause was mutually and voluntarily agreed upon by the parties. It has
not been shown to be contrary to any law, or against morals, good customs, public order,
or public policy. There has been no showing that the parties have not dealt with each
other on equal footing. We find no reason why the arbitration clause should not be
respected and complied with by both parties. In Gonzales v. Climax Mining Ltd., we held
that submission to arbitration is a contract and that a clause in a contract providing that
all matters in dispute between the parties shall be referred to arbitration is a contract.
Again in Del Monte Corporation-USA v. Court of Appeals, we likewise ruled that [t]he
provision to submit to arbitration any dispute arising therefrom and the relationship of
the parties is part of that contract and is itself a contract.
Having said that the instant arbitration clause is not against public policy, we come to
the question on what governs an arbitration clause specifying that in case of any dispute
arising from the contract, an arbitral panel will be constituted in a foreign country and
the arbitration rules of the foreign country would govern and its award shall be final and
binding.
Thus, it can be gleaned that the concept of a final and binding arbitral award is similar
to judgments or awards given by some of our quasi-judicial bodies, like the National
Labor Relations Commission and Mines Adjudication Board, whose final judgments are
stipulated to be final and binding, but not immediately executory in the sense that they
may still be judicially reviewed, upon the instance of any party. Therefore, the final
foreign arbitral awards are similarly situated in that they need first to be confirmed by
the RTC.

Home Bankers Savings and Trust Company v. CA (G.R. No. 115412)

Facts:

Victor Tancuan issued Petitioner Home Bankers Savings and Trust Company a check
while Eugene Arriesgado issued Private Respondent Far East Bank and Trust Company
three checks; both checks totaling the amount of P25,250,000.00. Tancuan and
Arriesgado exchanged each other’s checks and deposited them with their respective
banks for collection. When FEBTC presented Tancuan’s HBSTC check for clearing, it
was dishonored for being DAIF. Meanwhile, HBSTC sent Arriesgado’s 3 FEBTC checks
through the Philippine Clearing House Corporation (PCHC) to FEBTC but was returned
for being DAIF.

HBSTC receive the notice of dishonor but refused to accept the checks and returned
them to FEBTC through the PCHC for the reason “Beyond Reglementary Period,”
implying that HBSTC already treated the 3 checks as cleared and allowed the proceeds
thereof to be withdrawn. FEBTC demanded reimbursement for the returned checks and
inquired from HBSTC whether it had permitted any withdrawal of funds against the
unfunded checks. HBSTC, however refused to make any reimbursement and to provide
FEBTC with the needed information.

Thus, FEBTC submitted the dispute for arbitration before the PCHC Arbitration
Committee, under its Supplementary Rules on Regional Clearing to which FEBTC and
HBSTC are bound as participants in the regional clearing operations administered by
the PCHC. While the arbitration proceeding was still pending, FEBTC filed an action for
sum of money and damages with preliminary attachment against HBSTC. HBSTC
moved to dismiss on the ground that there is no cause of action and because it seeks to
enforce an arbitral award which as yet does not exist. The trial court denied the motion
to dismiss and the motion for reconsideration. Petitioner then filed a petition for
certiorari with respondent CA to which it had dismissed.

Issue:

Whether or not private respondent which commenced an arbitration proceeding under

the auspices of the PCHC may subsequently file a separate case in court over the same
subject matter despite the pendency of that arbitration, simply to obtain the provisional
remedy of attachment against the adverse party in the arbitration proceeding.

Ruling:

We find no merit in the petition. Section 14 of Republic Act 876, otherwise known as the
Arbitration Law, allows any party to the arbitration proceeding to petition the court to
take measures to safeguard and/or conserve any matter which is the subject of the
dispute in arbitration.

Petitioner’s exposition of the foregoing provision deserves scant consideration. Section

14 simply grants an arbitrator the power to issue subpoena and subpoena duces
tecum at any time before rendering the award. The exercise of such power is without
prejudice to the right of a party to file a petition in court to safeguard any matter which
is the subject of the dispute in arbitration. In the case at bar, private respondent filed an
action for a sum of money with prayer for a writ of preliminary attachment.
Undoubtedly, such action involved the same subject matter as that in arbitration, i.e.,
the sum of P25,200,000.00 which was allegedly deprived from private respondent in
what is known in banking as a “kiting scheme.” However, the civil action was not a
simple case of a money claim since private respondent has included a prayer for a writ of
preliminary attachment, which is sanctioned by section 14 of the Arbitration Law.

Simply put, participants in the regional clearing operations of the Philippine Clearing
House Corporation cannot bypass the arbitration process laid out by the body and seek
relief directly from the courts. In the case at bar, undeniably, private respondent has
initiated arbitration proceedings as required by the PCHC rules and regulations, and
pending arbitration has sought relief from the trial court for measures to safeguard
and/or conserve the subject of the dispute under arbitration, as sanctioned by section 14
of the Arbitration Law, and otherwise not shown to be contrary to the PCHC rules and
regulations.

At this point, we emphasize that arbitration, as an alternative method of dispute

resolution, is encouraged by this Court. Aside from unclogging judicial dockets, it also
hastens solutions especially of commercial disputes. The Court looks with favor upon
such amicable arrangement and will only interfere with great reluctance to anticipate or
nullify the action of the arbitrator. Wherefore, premises considered, the petition is
hereby dismissed and the decision of the court a quo is affirmed.