Barely two days later or on July 14, 1993, petitioner filed with the Regional Trial
Court of Pasig a complaint for collection of the balance due under the construction
[G.R. No. 120105. March 27, 1998]
BF CORPORATION, petitioner, vs. COURT OF APPEALS, SHANGRI-LA
PROPERTIES, COLAYCO, ALFREDO C. RAMOS, INC., RUFO B.
MAXIMO G. LICAUCO III and BENJAMIN C. RAMOS, respondents.
DECISION
ROMERO, J.:
The basic issue in this petition for review on certiorari is whether or not the
contract for the construction of the EDSA Plaza between petitioner BF Corporation
and respondent Shangri-la Properties, Inc. embodies an arbitration clause in case of
disagreement between the parties in the implementation of contractual provisions.
Petitioner and respondent Shangri-la Properties, Inc. (SPI) 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 the City of Mandaluyong.
The construction work was in progress when SPI decided to expand the project
by engaging the services of petitioner again. Thus, the parties entered into an
agreement for the main contract works after which construction work began.
However, petitioner incurred delay in the construction work that SPI considered
as serious and substantial.[1] On the other hand, according to petitioner, the
construction works progressed in faithful compliance with the First Agreement until a
fire broke out on November 30, 1990 damaging Phase I of the Project. [2] Hence, SPI
proposed the re-negotiation of the agreement between them.
Consequently, on May 30, 1991, petitioner and SPI entered into a written
agreement denominated as Agreement for the Execution of Builders 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.[3] This resulted in disagreements between the parties as
regards their respective liabilities under the contract. On July 12, 1993, upon SPIs
initiative, the parties respective representatives met in conference but they failed to
come to an agreement.[4]
agreement. Named defendants therein were SPI and members of its board of
directors namely, Alfredo C. Ramos, Rufo B. Colayco, Antonio B. Olbes, Gerardo O.
Lanuza, Jr., Maximo G. Licauco III and Benjamin C. Ramos.
On August 3, 1993, 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. The following day, SPI submitted a
copy of the conditions of the contract containing the arbitration clause that it failed to
append to its motion to suspend proceedings.
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. It emphasized that the agreement did not
provide for arbitration and therefore the court could not be deprived of jurisdiction
conferred by law by the mere allegation of the existence of an arbitration clause in the
agreement between the parties.
In reply to said opposition, SPI insisted that there was such an arbitration clause
in the existing contract between petitioner and SPI. It alleged that suspension of
proceedings would not necessarily deprive the court of its jurisdiction over the case
and that arbitration would expedite rather than delay the settlement of the parties
respective claims against each other.
In a rejoinder to SPIs reply, petitioner reiterated that there was no arbitration
clause in the contract between the parties. It averred that granting that such a clause
indeed formed part of the contract, suspension of the proceedings was no longer
proper. It added that defendants should be declared in default for failure to file their
answer within the reglementary period.
In its sur-rejoinder, SPI pointed out the significance of petitioners admission of
the due execution of the Articles of Agreement. Thus, on page D/6 thereof, the
signatures of Rufo B. Colayco, SPI president, and Bayani Fernando, president of
petitioner appear, while page D/7 shows that the agreement is a public document duly
notarized on November 15, 1991 by Notary Public Nilberto R. Briones as document
No. 345, page 70, book No. LXX, Series of 1991 of his notarial register. [5]
Thereafter, upon a finding that an arbitration clause indeed exists, the lower
court[6] denied the motion to suspend proceedings, thus:
It appears from the said document that in the letter-agreement dated May
30, 1991 (Annex C, Complaint), plaintiff BF and defendant Shangri-La
Properties, Inc. agreed upon the terms and conditions of the Builders Work
for the EDSA Plaza Project (Phases I, II and Carpark), subject to the
 execution by the parties of a formal trade contract. Defendants have
submitted a copy of the alleged trade contract, which is entitled `Contract
Documents For Builders Work Trade Contractor dated 01 May 1991, page
2 of which is entitled `Contents of Contract Documents with a list of the
documents therein contained, and Section A thereof consists of the
abovementioned Letter-Agreement dated May 30, 1991. Section C of the
said Contract Documents is entitled `Articles of Agreement and Conditions
of Contract which, per its Index, consists of Part A (Articles of Agreement)
and B (Conditions of Contract). The said Articles of Agreement appears to
have been duly signed by President Rufo B. Colayco of Shangri-La
Properties, Inc. and President Bayani F. Fernando of BF and their
witnesses, and was thereafter acknowledged before Notary Public Nilberto
R. Briones of Makati, Metro Manila on November 15, 1991. The said
Articles of Agreement also provides that the `Contract Documents' therein
listed `shall be deemed an integral part of this Agreement, and one of the
said documents is the `Conditions of Contract which contains the
Arbitration Clause relied upon by the defendants in their Motion to Suspend
Proceedings.
This Court notes, however, that the `Conditions of Contract referred to,
contains the following provisions:
`3. Contract Document.
Three copies of the Contract Documents referred to in
the Articles of Agreement shall be signed by the
parties to the contract and distributed to the Owner and
the Contractor for their safe keeping. (underscoring
supplied)
And it is significant to note further that the said `Conditions of Contract is
not duly signed by the parties on any page thereof --- although it bears the
initials of BFs representatives (Bayani F. Fernando and Reynaldo M. de la
Cruz) without the initials thereon of any representative of Shangri-La
Properties, Inc.
Considering the insistence of the plaintiff that the said 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, this Court
entertains serious doubt whether or not the arbitration clause found in the
said Conditions of Contract is binding upon the parties to the Articles of
Agreement. (Underscoring supplied.)
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. It
quoted the following provision of the arbitration clause:
Notice of the demand for arbitration of a dispute shall be filed in writing with
the other party to the contract and a copy filed with the Project
Manager. The demand for arbitration shall be made within a reasonable
time after the dispute has arisen and attempts to settle amicably have
failed; in no case, however, shall the demand he made be later than the
time of final payment except as otherwise expressly stipulated in the
contract.
Against the above backdrop, the lower court found that per the May 30, 1991
agreement, the project was to be completed by October 31, 1991. Thereafter, the
contractor would pay P80,000 for each day of delay counted from November 1, 1991
with liquified (sic) damages up to a maximum of 5% of the total contract price.
The lower court also found that after the project was completed in accordance
with the agreement that contained a provision on progress payment billing, SPI took
possession and started operations thereof by opening the same to the public in
November, 1991.SPI, having failed to pay for the works, petitioner billed SPI in the
total amount of P110,883,101.52, contained in a demand letter sent by it to SPI on
February 17, 1993. Instead of paying the amount demanded, SPI set up its own claim
of P220,000,000.00 and scheduled a conference on that claim for July 12, 1993. The
conference took place but it proved futile.
Upon the above facts, the lower court concluded:
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 x x x x in no case x x x x
later than the time of final payment x x x x which apparently, had elapsed,
not only because defendants had taken possession of the finished works
and the plaintiffs billings for the payment thereof had remained pending
since November, 1991 up to the filing of this case on July 14, 1993, but
also for the reason that defendants have failed to file any written notice of
any demand for arbitration during the said long period of one year and eight
months, this Court finds that it cannot stay the proceedings in this case as
required by Sec. 7 of Republic Act No. 876, because defendants are in
default in proceeding with such arbitration.
The lower court denied SPIs motion for reconsideration for lack of merit and
directed it and the other defendants to file their responsive pleading or answer within
fifteen (15) days from notice.
Instead of filing an answer to the complaint, SPI filed a petition
for certiorari under Rule 65 of the Rules of Court before the Court of Appeals. Said
appellate court granted the petition, annulled and set aside the orders and stayed the
proceedings in the lower court.In so ruling, the Court of Appeals held:
 The reasons given by the respondent Court in denying petitioners motion to
suspend proceedings are untenable.
1. The notarized copy of the articles of agreement attached as Annex A to petitioners
reply dated August 26, 1993, has been submitted by them to the respondent Court
(Annex G, petition). It bears the signature of petitioner Rufo B. Colayco, president of
petitioner Shangri-La Properties, Inc., and of Bayani Fernando, president of
respondent Corporation (Annex G-1, petition). At page D/4 of said articles of
agreement it is expressly provided that the conditions of contract are `deemed an
integral part thereof (page 188, rollo). And it is at pages D/42 to D/44 of the conditions
of contract that the provisions for arbitration are found (Annexes G-3 to G-5, petition,
pp. 227-229). Clause No. 35 on arbitration specifically provides:
Provided always that in case any dispute or difference shall arise between the Owner
or the Project Manager on his behalf and the Contractor, either during the progress or
after the completion or abandonment of the Works as to the construction of this
Contract or as to any matter or thing of whatsoever nature arising thereunder or in
connection therewith (including any matter or being left by this Contract to the
discretion of the Project Manager or the withholding by the Project Manager of any
certificate to which the Contractor may claim to be entitled or the measurement and
valuation mentioned in clause 30 (5) (a) of these Conditions or the rights and liabilities
of the parties under clauses 25, 26, 32 or 33 of these Conditions), the Owner and the
Contractor hereby agree to exert all efforts to settle their differences or dispute
amicably. Failing these efforts then such dispute or difference shall be referred to
Arbitration in accordance with the rules and procedures of the Philippine Arbitration
Law.
The fact that said conditions of contract containing the arbitration clause bear only the
initials of respondent Corporations representatives, Bayani Fernando and Reynaldo
de la Cruz, without that of the representative of petitioner Shangri-La Properties, Inc.
does not militate against its effectivity. Said petitioner having categorically admitted
that the document, Annex A to its reply dated August 26, 1993 (Annex G, petition), is
the agreement between the parties, the initial or signature of said petitioners
representative to signify conformity to arbitration is no longer necessary. The parties,
therefore, should be allowed to submit their dispute to arbitration in accordance with
their agreement.
2. The respondent Court held that petitioners `are in default in proceeding with such
arbitration. It took note of `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 x x x in no case x x x later than the time of final
payment, which apparently, had elapsed, not only because defendants had taken
possession of the finished works and the plaintiffs billings for the payment thereof had
remained pending since November, 1991 up to the filing of this case on July 14, 1993,
but also for the reason that defendants have failed to file any written notice of any
demand for arbitration during the said long period of one year and eight months, x x x.
Respondent Court has overlooked the fact that under the arbitration clause
Notice of the demand for arbitration dispute shall be filed in writing with the other party
to the contract and a copy filed with the Project Manager. The demand for arbitration
shall be made within a reasonable time after the dispute has arisen and attempts to
settle amicably had failed; in no case, however, shall the demand be made later than
the time of final payment except as otherwise expressly stipulated in the contract
(underscoring supplied)
quoted in its order (Annex A, petition). As the respondent Court there said, after the
final demand to pay the amount of P110,883,101.52, instead of paying, petitioners set
up its own claim against respondent Corporation in the amount of P220,000,000.00
and set a conference thereon on July 12, 1993. Said conference proved futile. The
next day, July 14, 1993, respondent Corporation filed its complaint against petitioners.
On August 13, 1993, petitioners wrote to respondent Corporation requesting
arbitration. Under the circumstances, it cannot be said that petitioners resort to
arbitration was made beyond reasonable time. Neither can they be considered in
default of their obligation to respondent Corporation.
Hence, this petition before this Court. Petitioner assigns the following errors:
A.
THE COURT OF APPEALS ERRED IN ISSUING THE
EXTRAORDINARY WRIT OF CERTIORARI ALTHOUGH THE
REMEDY OF APPEAL WAS AVAILABLE TO RESPONDENTS.
B.
THE COURT OF APPEALS ERRED IN FINDING GRAVE ABUSE OF
DISCRETION IN THE FACTUAL FINDINGS OF THE TRIAL COURT
THAT:
(i) THE PARTIES DID NOT ENTER INTO AN
AGREEMENT TO ARBITRATE.
(ii) ASSUMING THAT THE PARTIES DID ENTER INTO
THE AGREEMENT TO ARBITRATE,
RESPONDENTS ARE ALREADY IN DEFAULT
IN INVOKING THE AGREEMENT TO
ARBITRATE.
 On the first assigned error, petitioner contends that the Order of the lower court
denying the motion to suspend proceedings is a resolution of an incident on the
merits. As such, upon the continuation of the proceedings, the lower court would
appreciate the evidence adduced in their totality and thereafter render a decision on
the merits that may or may not sustain the existence of an arbitration clause. A
decision containing a finding that the contract has no arbitration clause can then be
elevated to a higher court in an ordinary appeal where an adequate remedy could be
obtained. Hence, to petitioner, the Court of Appeals should have dismissed the
petition for certiorari because the remedy of appeal would still be available to private
respondents at the proper time.[7]
The above contention is without merit.
The rule that the special civil action of certiorari may not be invoked as a
substitute for the remedy of appeal is succinctly reiterated in Ongsitco v. Court of
Appeals[8] as follows:
x x x. Countless times in the past, this Court has held that `where appeal is the proper
remedy, certiorari will not lie. The writs of certiorari and prohibition are remedies to
correct lack or excess of jurisdiction or grave abuse of discretion equivalent to lack of
jurisdiction committed by a lower court. `Where the proper remedy is appeal, the
action for certiorari will not be entertained. x x x. Certiorari is not a remedy for errors
of judgment. Errors of judgment are correctible by appeal, errors of jurisdiction are
reviewable by certiorari.
Rule 65 is very clear. The extraordinary remedies of certiorari, prohibition
and mandamus are available only when `there is no appeal or any plain, speedy and
adequate remedy in the ordinary course of law x x x. That is why they are referred to
as `extraordinary. x x x.
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.[9]v. Court of Appeals, 327 Phil. 1,
41-42 (1996).9
This is not exactly so in the instant case. While this Court does not deny the
eventual jurisdiction of the lower court over the controversy, the issue posed basically
is whether the lower court prematurely assumed jurisdiction over it. If the lower court
indeed prematurely assumed jurisdiction over the case, then it becomes an error of
jurisdiction which is a proper subject of a petition for certiorari before the Court of
Appeals. And if the lower court does not have jurisdiction over the controversy, then
any decision or order it may render may be annulled and set aside by the appellate
court.
However, 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.
The issue, therefore, posed before the Court of Appeals in a petition for
certiorari is whether the Arbitration Clause does not in fact exist. On its face, the
question is one of fact which is not proper in a petition for certiorari.
The Court of Appeals found that an Arbitration Clause does in fact exist. In
resolving said question of fact, the Court of Appeals interpreted the construction of the
subject contract documents containing the Arbitration Clause in accordance with
Republic Act No. 876 (Arbitration Law) and existing jurisprudence which will be
extensively discussed hereunder. In effect, the issue posed before the Court of
Appeals was likewise a question of law. Being a question of law, the private
respondents rightfully invoked the special civil action of certiorari.
It is that mode of appeal taken by private respondents before the Court of
Appeals 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 Court of Appeals.
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. [10] As we
shall show hereunder, had the Court of Appeals 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.
Petitioner, while not denying that there exists an arbitration clause in the
contract in question, asserts that in contemplation of law there could not have been
one considering the following points. First, the trial court found that the conditions of
contract embodying the arbitration clause is not duly signed by the parties. Second,
private respondents misrepresented before the Court of Appeals that they produced
in the trial court a notarized duplicate original copy of the construction agreement
because what were submitted were mere photocopies thereof. The contract(s)
introduced in court by private respondents were therefore of dubious authenticity
because: (a) the Agreement for the Execution of Builders Work for the EDSA Plaza
Project does not contain an arbitration clause, (b) private respondents surreptitiously
attached as Annexes `G-3 to `G-5 to their petition before the Court of Appeals but
these documents are not parts of the Agreement of the parties as there was no formal
trade contract executed, (c) if the entire compilation of documents is indeed a formal
trade contract, then it should have been duly notarized, (d) the certification from the
Records Management and Archives Office dated August 26, 1993 merely states that
the notarial record of Nilberto Briones x x x is available in the files of (said) office
as Notarial Registry Entry only, (e) the same certification attests that the document
entered in the notarial registry pertains to the Articles of Agreement only without any
other accompanying documents, and therefore, it is not a formal trade contract, and
(f) the compilation submitted by respondents are a mere hodge-podge of documents
and do not constitute a single intelligible agreement.
In other words, petitioner denies the existence of the arbitration clause primarily
on the ground that the representatives of the contracting corporations did not sign the
Conditions of Contract that contained the said clause. Its other contentions,
specifically that insinuating fraud as regards the alleged insertion of the arbitration
clause, are questions of fact that should have been threshed out below.
This Court may as well proceed to determine whether the arbitration clause
does exist in the parties contract. Republic Act No. 876 provides for the formal
requisites of an arbitration agreement as follows:
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
of the province or city where any of the parties resides, to enforce such contract of
submission. (Underscoring supplied.)
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. There is no denying that the parties entered into a written contract
that was submitted in evidence before the lower court. To subscribe means to write
underneath, as ones name; to sign at the end of a document.[11] That word may
sometimes be construed to mean to give consent to or to attest. [12]
The Court finds that, upon a scrutiny of the records of this case, these requisites
were complied with in the contract in question. The Articles of Agreement, which
incorporates all the other contracts and agreements between the parties, was signed
by representatives of both parties and duly notarized. The failure of the private
respondents representative to initial the `Conditions of Contract would therefor not
affect compliance with the formal requirements for arbitration agreements because
that particular portion of the covenants between the parties was included by reference
in the Articles of Agreement.
Petitioners contention that there was no arbitration clause because the contract
incorporating said provision is part of a hodge-podge document, is therefore
untenable. A contract need not be contained in a single writing. It may be collected
from several different writings which do not conflict with each other and which, when
connected, show the parties, subject matter, terms and consideration, as in contracts
entered into by correspondence.[13] A contract may be encompassed in several
instruments even though every instrument is not signed by the parties, since it is
sufficient if the unsigned instruments are clearly identified or referred to and made
part of the signed instrument or instruments. Similarly, a written agreement of which
there are two copies, one signed by each of the parties, is binding on both to the
same extent as though there had been only one copy of the agreement and both had
signed it.[14]
The flaw in petitioners contentions therefore lies in its having segmented the
various components of the whole contract between the parties into several parts. This
notwithstanding, petitioner ironically admits the execution of the Articles of
Agreement. Notably, too, the lower court found that the said Articles of Agreement
also provides that the `Contract Documents therein listed `shall be deemed an
integral part of this Agreement, and one of the said documents is the `Conditions of
Contract which contains the Arbitration Clause.It is this Articles of Agreement that was
duly signed by Rufo B. Colayco, president of private respondent SPI, and Bayani F.
Fernando, president of petitioner corporation. The same agreement was duly
subscribed before notary public Nilberto R. Briones. In other words, the subscription
of the principal agreement effectively covered the other documents incorporated by
reference therein.
This Court likewise does not find that the Court of Appeals erred in ruling that
private respondents were not in default in invoking the provisions of the arbitration
clause which states that (t)he demand for arbitration shall be made within a
reasonable time after the dispute has arisen and attempts to settle amicably had
failed. Under the factual milieu, private respondent SPI should have paid its liabilities
under the contract in accordance with its terms. However, misunderstandings
appeared to have cropped up between the parties ostensibly brought about by either
delay in the completion of the construction work or by force majeure or the fire that
partially gutted the project. The almost two-year delay in paying its liabilities may not
therefore be wholly ascribed to private respondent SPI.
 Besides, private respondent SPIs initiative in calling for a conference between
the parties was a step towards the agreed resort to arbitration. However, petitioner
posthaste filed the complaint before the lower court. Thus, while private respondent
SPIs request for arbitration on August 13, 1993 might appear an afterthought as it
was made after it had filed the motion to suspend proceedings, it was because
petitioner also appeared to act hastily in order to resolve the controversy through the
courts.
The arbitration clause provides for a reasonable time within which the parties
may avail of the relief under that clause. Reasonableness is a relative term and the
question of whether the time within which an act has to be done is reasonable
depends on attendant circumstances.[15] This Court finds that under the
circumstances obtaining in this case, a one-month period from the time the parties
held a conference on July 12, 1993 until private respondent SPI notified petitioner that
it was invoking the arbitration clause, is a reasonable time. Indeed, petitioner may not
be faulted for resorting to the court to claim what was due it under the
contract. However, we find its denial of the existence of the arbitration clause as an
attempt to cover up its misstep in hurriedly filing the complaint before the lower court.
In this connection, it bears stressing that the lower court has not lost its
jurisdiction over the case. Section 7 of Republic Act No. 876 provides that
proceedings therein have only been stayed. After the special proceeding of
arbitration[16] has been pursued and completed, then the lower court may confirm the
award[17] made by the arbitrator.
It should be noted that in this jurisdiction, arbitration has been held valid and
constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876,
this Court has countenanced the settlement of disputes through
arbitration.[18] Republic Act No. 876 was adopted to supplement the New Civil Codes
provisions on arbitration.[19] Its potentials as one of the alternative dispute resolution
methods that are now rightfully vaunted as the wave of the future in international
relations, is recognized worldwide. To brush aside a contractual agreement calling for
arbitration in case of disagreement between the parties would therefore be a step
backward.
WHEREFORE, the questioned Decision of the Court of Appeals is hereby
AFFIRMED and the petition for certiorari DENIED. This Decision is immediately
executory. Costs against petitioner.
SO ORDERED.
Narvasa, C.J., (Chairman), Kapunan, and Purisima, JJ., concur.
Associated Bank vs CA 233 SCRA 137 (1994)
Facts
In a complaint for Violation of the NIL and Damages, Visitacion and Asuncion
Flores seek therecovery of the amount of P900,913.60 which petitioner charged
against their current account by virtue of the 16 checks drawn by them despite
the apparent alterations therein with respect to the name of the payee, that is, the
name Filipinas Shell was erased and substituted with Ever Trading and DBL Trading
by their supervisor Jeremias Cabrera, without their knowledge and consent.
Petitioner claimed that the subject checks appeared to have been regularly issued
and free from any irregularity which would excite or arouse any suspicion or warrant
their dishonor when the same were negotiated and honored by it. Petitioner filed a
TPC against PCIB, Far East Bank and City Trust for reimbursement, contribution,
indemnity for being the collecting banks of the subject checks and by virtue of their
bank guarantee for all checks sent for clearing to the Philippine Clearing House
Corporation (PCHC), as provided for in Section 17, (PCHC), as provided for in
Section 17, PCHC Clearing House Rules and Regulations. Citytrust and PCIB
claimed that the checks were complete and regular on their face.
A Motion To Dismiss was filed by Security Bank on the grounds that petitioner
failed to resort to arbitration as provided for in Section 36 of the Clearing House
Rules and Regulations of the Philippine Clearing House Corporation. Petitioner
maintains that this Court has jurisdiction over the suit as the provisions of the
Clearing House Rules and Regulations are applicable only if the suit or action is
between participating member banks, whereas the Floreses are private persons
and the third-party complaint between participating member banks is only a
consequence of the original action initiated by the plaintiffs. The trial court
dismissed the TPC for lack of jurisdiction citing Section 36 of the Clearing
House Rules and Regulations of the PCHC providing for settlement of disputes
andncontroversies involving any check or item cleared through the body with
the PCHC.
It ruled— citing the Arbitration Rules of Procedure — that the decision or award of the
PCHC through its arbitration committee/arbitrator is appealable only on questions
of law to any of the Regional Trial Courts in the National Capital Region where the
head office of any of the parties is located. The CA affirmed
Issue
Whether or not the case should be dismissed for failure to arbitrate
Held
Yes. The Clearing House Rules and Regulations on Arbitration of the Philippine
Clearing House Corporation are clearly applicable to petitioner and private
respondents. Petitioner’s third party complaint in the trial court was one for
reimbursement, contribution and indemnity against PCIB, FarEast, Security Bank,
and CityTrust, in connection with petitioner’s having honored sixteen checks which participation their consent to these rules, but such participation is deemed
said banks supposedly (their) written and subscribed consent to the binding effect of arbitration
endorsed to the former for collection in 1989. Under the rules and regulations of the agreements under the PCHC rules. Moreover, a participant subject to the Clearing
PCHC, the mere act of participation of the parties concerned in its operations in House Rules and Regulations of the PCHC may go on appeal to any of the Regional
effect amounts to a manifestation of agreement by the parties to abide by its Trial Courts in the
rules and regulations. National Capital Region where the head office of any of the parties is located only
after a decision or award has been rendered by the arbitration committee or
As a consequence of such participation, a party cannot invoke the jurisdiction of arbitrator on questions of law.
the courts over disputes and controversies which fall under the PCHC Rules Clearly therefore, petitioner, by its voluntary participation and its consent to the
and Regulations without first going through the arbitration processes laid out arbitration rules cannot go directly to the RTC when it finds it convenient to do
by the so.
body. Since claims relating to the regularity of checks cleared by banking institutions The jurisdiction of the PCHC under the rules and regulations is clear, undeniable and
are among those claims which should first be submitted for resolution by the PCHC’s is particularly applicable to all the parties in the third party complaint under their
Arbitration Committee, petitioner, having voluntarily bound itself to abide by such rules obligation to first seek redress of their disputes and grievances with the PCHC before
and regulations, is estopped from seeking relief from the RTC on the coattails of a going to the trial
private claim and in the guise of a third party complaint without first having obtained a court. Finally, the contention that the third party complaint should not have been
decision adverse to its claim from the said body. It cannot bypass the arbitration dismissed for being a necessary and inseparable offshoot of the main case over
process on the basis of its which the court a quo had already exercised The applicable PCHC provisions on the
averment that its third party complaint is inextricably linked to the original complaint in question of jurisdiction
the RTC. provide:

Pursuant to PCHC’s function involving the clearing of checks and other clearing 1) Sec. 3 — AGREEMENT TO THESE RULES
items, the PCHC has adopted rules and regulations designed to provide member It is the general agreement and understanding, that any participant in the PCHC
banks with a procedure whereby disputes involving the clearance of checks MICR clearing operations, by the mere act of participation, thereby manifests its
and other negotiable instruments undergo a process of arbitration prior to agreement to these Rules and Regulations, and its subsequent amendments.
submission to the courts below. This procedure:
2) Sec. 36 — ARBITRATION
(1) ensures a uniformity of rulings relating to factual disputes involving checks and a) 36.1 Any dispute or controversy between two or more clearing participants
other negotiable instruments involving any check/item cleared thru PCHC shall be submitted to the Arbitration
(2) provides a mechanism for settling minor disputes among participating and Committee, upon written complaint of any involved participant by filing the same with
member banks which would otherwise go directly to the trial courts. While the PCHC the PCHC serving the same upon the other party or parties, who shall within fifteen
Rules and Regulations allow appeal to the Regional Trial Courts only on (15) days after receipt thereof, file with the Arbitration Committee its written answer to
questions of law, this does not preclude our lower courts from dealing with such written complaint and also within the same period serve the same upon the
questions of fact complaining participant. This period of fifteen (15) days may be extended by the
already decided by the PCHC arbitration when warranted and appropriate. Committee not more than once for another period of fifteen (15) days, but upon
agreement in writing of the complaining party, said extension may be for such period
In Banco de Oro Savings and Mortgage Banks vs. Equitable Banking Corporation this as the latter may agree to.
Court had the occasion to rule on the validity of these rules as well as the
jurisdiction of the PCHC as a forum for resolving disputes and controversies b) Section 36.6 is even more emphatic:
involving checks and other clearing items when it held that "the participation of two
banks. . . in the Clearing 36.6 The fact that a bank participates in the clearing operations of PCHC shall
Operations of the PCHC (was) a manifestation of its submission to its jurisdiction. be deemed its written and subscribed consent to the binding effect of this
arbitration agreement as if it had done so in accordance with Section 4 of the
Under the PCHC Rules and Regulations,7 not only do the parties manifest by Republic Act No. 876
mere otherwise known as the Arbitration Law. jurisdiction misses the fundamental point
about such pleading. A third party complaint is a mere procedural device which
under the Rules of Court is allowed only with the court’s permission. It is an LEONARDO-DE CASTRO, J.:
action "actually independent of, separate and distinct from the plaintiffs’
complaint" (s)uch that, were it not for the Rules of Court, it would be necessary to file Before the Court is a special civil action for certiorari assailing the
the action separately from the original complaint by the defendant against the third Decision[1] dated December 7, 2001 and the Resolution dated October 30, 2002 of
party. the Court of Appeals (CA) in CA-G.R. SP No. 56166 which set aside the Joint
Orders[2] dated August 26, 1999 and October 29, 1999 issued by the Regional Trial
Court (RTC) of Ormoc City, Branch 12 upholding petitioners legal personality to
demand arbitration from respondents and directing respondents to nominate two
ORMOC SUGARCANE PLANTERS G.R. No. 156660 arbitrators to represent them in the Board of Arbitrators.
ASSOCIATION, INC.
(OSPA),OCCIDENTAL LEYTE Petitioners are associations organized by and whose members are individual
FARMERS MULTI-PURPOSE sugar planters (Planters). The membership of each association follows: 264 Planters
COOPERATIVE, INC. (OLFAMCA), were members of OSPA; 533 Planters belong to OLFAMCA; 617 Planters joined
UNIFARM MULTI-PURPOSE Present: UNIFARM; 760 Planters enlisted with ONDIMCO; and the rest belong to BAP-MPC
COOPERATIVE, INC. (UNIFARM) and which did not join the lawsuit.
ORMOC NORTH DISTRICT IRRIGATION PUNO, C.J., Chairperson,
MULTI-PURPOSE COOPERATIVE, INC. CARPIO, Respondents Hideco Sugar Milling Co., Inc. (Hideco) and Ormoc Sugar
(ONDIMCO), CORONA, Milling Co, Inc. (OSCO) are sugar centrals engaged in grinding and milling sugarcane
Petitioners, LEONARDO-DE CASTRO, and delivered to them by numerous individual sugar planters, who may or may not be
BERSAMIN, JJ. members of an association such as petitioners.
-versus-
Petitioners assert that the relationship between respondents and the
THE COURT OF APPEALS (Special individual sugar planters is governed by milling contracts. To buttress this claim,
Former Sixth Division), HIDECO petitioners presented representative samples of the milling contracts. [3]
SUGAR MILLING CO., INC., and
ORMOC SUGAR MILLING CO., INC., Notably, Article VII of the milling contracts provides that 34% of the sugar
Respondents. Promulgated: and molasses produced from milling the Planters sugarcane shall belong to the
centrals (respondents) as compensation, 65% thereof shall go to the Planter and the
August 24, 2009 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) memberstwo (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.
x----------------------------------------------------------------------------------------x
On June 4, 1999, petitioners, without impleading any of their individual
DECISION members, filed twin petitions with the RTC for Arbitration under R.A. 876, Recovery of
Equal Additional Benefits, Attorneys 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 [5] 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.
xxx
Their subsequent motion for reconsideration having been denied by the RTC
in its Joint Order[6] 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[7] 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.
Section 1 of Rule 65 states:
Section 1. Petition for Certiorari. When any tribunal, board or officer
exercising judicial or quasi-judicial functions has acted without or in
excess of its jurisdiction, or with grave abuse of discretion
amounting to lack or excess of its or his jurisdiction and there is no
appeal, or any plain, speedy and adequate remedy in the
course of law, a person aggrieved thereby may file a verified
petition in the proper court, alleging the facts with certainty and
praying that judgment be rendered annulling or modifying the
proceedings of such tribunal, board or officer, and granting such
incidental relief as law and justice require. xxx xxx xxx (emphasis
ours)
The instant recourse is improper because the resolution of the CA was a final order
from which the remedy of appeal was available under Rule 45 in relation to Rule
56. The existence and availability of the right of appeal proscribes resort to certiorari
because one of the requirements for availment of the latter is precisely that there
should be no appeal. It is elementary that for certiorari to prosper, it is not enough that
the trial court committed grave abuse of discretion amounting to lack or excess of
jurisdiction; the requirement that there is no appeal, nor any plain, speedy and
adequate remedy in the ordinary course of law must likewise be satisfied. [8] The
proper mode of recourse for petitioners was to file a petition for review of the CAs
decision under Rule 45.
Petitioners principally argue that the CA committed a grave error in setting
aside the challenged Joint Orders of the RTC which allegedly unduly curtailed the
right of petitioners to represent their planters-members and enforce the milling
contracts with respondents. Petitioners assert the said which orders were issued in
accordance with Article XX of the Milling Contract and the applicable provisions of
Republic Act (R.A.) No. 876.

Where the issue or question involved affects the wisdom or legal soundness
of the decision not the jurisdiction of the court to render said decision the same is
beyond the province of a special civil action for certiorari. Erroneous findings and
conclusions do not render the appellate court vulnerable to the corrective writ of
certiorari. For where the court has jurisdiction over the case, even if its findings are
not correct, they would, at most constitute errors of law and not abuse of discretion
correctable by certiorari.[9]
Moreover, even if this Court overlooks the procedural lapse committed by
petitioners and decides this matter on the merits, the present petition will still not
prosper.
Stripped to the core, the pivotal issue here is 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.
On this point, we agree with the findings of the CA.
Section 2 of R.A. No. 876 (the Arbitration Law)[10] 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 contracts 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.[11] 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.[12]
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 ones name; to sign
at the end of a document. That word may sometimes be construed to mean to give
consent to or to attest.[13]
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.
We held in Oco v. Limbaring[14] 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 ones
benefit. (emphasis ours)
In Uy v. Court of Appeals,[15] this Court 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.[16] None was ever presented here.
Lastly, petitioners theorize that they could demand and sue for arbitration
independently of the Planters because the milling contract is a contract pour
autrui under Article 1311 of the Civil Code.
ART. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the
value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a
third person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its revocation. A
mere incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a
favor upon a third person.
To summarize, the requisites of a stipulation pour autrui or a stipulation in
favor of a third person are the following: (1) there must be a stipulation in favor of a
third person, (2) the stipulation must be a part, not the whole, of the contract, (3) the
contracting parties must have clearly and deliberately conferred a favor upon a third
person, not a mere incidental benefit or interest, (4) the third person must have
communicated his acceptance to the obligor before its revocation, and (5) neither of
the contracting parties bears the legal representation or authorization of the third
party.[17] These requisites are not present in this case.
Article VI of the Milling Contract is the solitary provision that mentions some
benefit in favor of the association of which the planter is a member and we quote:
VI
SHARE IN THE SUGAR
Thirty four per centrum (34%) of the sugar ad molasses
resulting from the milling of the PLANTERs sugarcane, as
computed from the weight and analysis of the sugarcane delivered
by the PLANTER, shall belong to the CENTRAL; sixty five per
centum (65%) thereof to the PLANTER, and one per centum (1%)
as aid to the association of the PLANTER; provided that, if the
PLANTER is not a member of any association recognized by the
CENTRAL, said one per centum (1%) shall revert to the
CENTRAL. The 1% aid shall be used by the association for any
purpose that it may deem fit for its members, laborers and their
dependents, or for its other socio-economic projects.
The foregoing provision cannot, by any stretch of the imagination, be
considered as a stiputation pour autrui or for the benefit of the petitioners. The
primary rationale for the said stipulation is to ensure a just share in the proceeds of
the harvest to the Planters. In other words, it is a stipulation meant to benefit the
Planters. Even the 1% share to be given to the association as aid does not redound to
the benefit of the association but is intended to be used for its member Planters. Not
only that, it is explicit that said share reverts back to respondent sugar centrals if the
contracting Planter is not affiliated with any recognized association.
To be considered a pour autrui provision, an incidental benefit or interest,
which another person gains, is not sufficient. The contracting parties must have
clearly and deliberately conferred a favor upon a third person. [18] Even the clause
stating that respondents must secure the consent of the association if respondents
grant better benefits to a Planter has for its rationale the protection of the member
Planter. The only interest of the association therein is that its member Planter will not
be put at a disadvantage vis a vis other Planters. Thus, the associations interest in
these milling contracts is only incidental to their avowed purpose of advancing the
welfare and rights of their member Planters.
 In all, the Court finds no grave abuse of discretion nor reversible error
committed by the CA in setting aside the Joint Orders issued by the RTC.
WHEREFORE, petition is hereby DISMISSED.
Costs against petitioners.
SO ORDERED.
[G.R. No. 161957. February 28, 2005]
JORGE GONZALES and PANEL OF ARBITRATORS, petitioners, vs. CLIMAX
MINING LTD., CLIMAX-ARIMCO MINING CORP., and AUSTRALASIAN
PHILIPPINES MINING INC., respondents.
DECISION
TINGA, J.:
Petitioner Jorge Gonzales, as claimowner of mineral deposits located within the
Addendum Area of Influence in Didipio, in the provinces of Quirino and Nueva
Vizcaya, entered into a co-production, joint venture and/or production-sharing letter-
agreement designated as the May 14, 1987 Letter of Intent with Geophilippines, Inc,
and Inmex Ltd. Under the agreement, petitioner, as claimowner, granted to
Geophilippines, Inc. and Inmex Ltd. collectively, the exclusive right to explore and
survey the mining claims for a period of thirty-six (36) months within which the latter
could decide to take an operating agreement on the mining claims and/or develop,
operate, mine and otherwise exploit the mining claims and market any and all
minerals that may be derived therefrom.
On 28 February 1989, the parties to the May 14, 1987 Letter of
Intent renegotiated the same into the February 28, 1989 Agreement whereby the
exploration of the mining claims was extended for another period of three years.
On 9 March 1991, petitioner Gonzales, Arimco Mining Corporation,
Geophilippines Inc., Inmex Ltd., and Aumex Philippines, Inc. signed a document
designated as the Addendum to the May 14, 1987 Letter of Intent and February 28,
1989 Agreement with Express Adhesion Thereto (hereafter, the Addendum
Contract).[1] Under the Addendum Contract, Arimco Mining Corporation would apply
to the Government of the Philippines for permission to mine the claims as the
Governments contractor under a Financial and Technical Assistance
Agreement (FTAA). On 20 June 1994, Arimco Mining Corporation obtained the
FTAA[2] and carried out work under the FTAA.
Respondents executed the Operating and Financial Accommodation
Contract[3] (between Climax-Arimco Mining Corporation and Climax Mining Ltd., as
first parties, and Australasian Philippines Mining Inc., as second party) dated 23
December 1996 and Assignment, Accession Agreement[4] (between Climax-Arimco
Mining Corporation and Australasian Philippines Mining Inc.) dated 3 December 1996.
Respondent Climax Mining Corporation (Climax) and respondent Australasian
Philippines Mining Inc. (APMI) entered into a Memorandum of Agreement[5] dated 1
June 1991 whereby the former transferred its FTAA to the latter.
On 8 November 1999, petitioner Gonzales filed before the Panel of Arbitrators,
Region II, Mines and Geosciences Bureau of the Department of Environment and
Natural Resources, against respondents Climax-Arimco Mining Corporation (Climax-
Arimco), Climax, and APMI,[6] a Complaint[7] seeking the declaration of nullity or
termination of the Addendum Contract, the FTAA, the Operating and Financial
Accommodation Contract, the Assignment, Accession Agreement, and
the Memorandum of Agreement. Petitioner Gonzales prayed for an unspecified
amount of actual and exemplary damages plus attorneys fees and for the issuance of
a temporary restraining order and/or writ of preliminary injunction to restrain or enjoin
respondents from further implementing the questioned agreements. He sought said
releifs on the grounds of FRAUD, OPPRESSION and/or VIOLATION of Section 2,
Article XII of the CONSTITUTION perpetrated by these foreign RESPONDENTS,
conspiring and confederating with one another and with each other.[8]
On 21 February 2001, the Panel of Arbitrators dismissed the Complaint for lack
of jurisdiction. Petitioner moved for reconsideration and this was granted on 18
October 2001, the Panel believing that the case involved a dispute involving rights to
mining areas and a dispute involving surface owners, occupants and claim
owners/concessionaires. According to the Panel, although the issue raised in
the Complaint appeared to be purely civil in nature and should be within the
jurisdiction of the regular courts, a ruling on the validity of the assailed contracts
would result to the grant or denial of mining rights over the properties; therefore, the
question on the validity of the contract amounts to a mining conflict or dispute. Hence,
the Panel granted the Motion for Reconsideration with regard to the issues of nullity,
termination, withdrawal or damages, but with regard to the constitutionality of
the Addendum Agreement and FTAA, it held that it had no jurisdiction.[9]
Respondents filed their motion for reconsideration but this was denied on 25
June 2002. The Panel of Arbitrators maintained that there was a mining dispute
between the parties since the subject matter of the Complaint arose from contracts
between the parties which involve the exploration and exploitation of minerals over
the disputed area.[10]
 Respondents assailed the orders of the Panel of Arbitrators via a petition for
certiorari before the Court of Appeals.
On 30 July 2003, the Court of Appeals granted the petition, declaring that the
Panel of Arbitrators did not have jurisdiction over the complaint filed by
petitioner.[11] The jurisdiction of the Panel of Arbitrators, said the Court of Appeals, is
limited only to the resolution of mining disputes, defined as those which raise a
question of fact or matter requiring the technical knowledge and experience of mining
authorities. It was found that the complaint alleged fraud, oppression and violation of
the Constitution, which called for the interpretation and application of laws, and did
not involve any mining dispute. The Court of Appeals also observed that there were
no averments relating to particular acts constituting fraud and oppression. It added
that since the Addendum Contract was executed in 1991, the action to annul it should
have been brought not later than 1995, as the prescriptive period for an action for
annulment is four years from the time of the discovery of the fraud.[12] When petitioner
filed his complaint before the Panel in 1999, his action had already prescribed. Also,
the Court of Appeals noted that fraud and duress only make a contract
voidable,[13] not inexistent, hence the contract remains valid until annulled. The Court
of Appeals was of the opinion that the petition should have been settled through
arbitration under Republic Act No. 876 (The Arbitration Law) as stated in Clause 19.1
of the Addendum Contract. The Court of Appeals therefore declared as invalid the
orders dated 18 October 2001 and 25 June 2002 issued by the Panel of Arbitrators.
On 28 January 2004, the Court of Appeals denied petitioners motion for
reconsideration for lack of merit.[14]
Petitioner filed on 22 March 2004 this Petition for Review on Certiorari Under
Rule 45 assailing the decision and resolution of the Court of Appeals. Petitioner raises
the following issues:
A.
PROCEDURAL GROUND
THE HONORABLE COURT OF APPEALS SHOULD HAVE SUMMARILY
DISMISSED RESPONDENTS PETITION A QUO FOR FAILURE TO COMPLY WITH
PROCEDURAL REQUIREMENTS.
i.
WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE
RULES AND ESTABLISHED JURISPRUDENCE WHEN IT DID NOT DISMISS THE
PETITION A QUO DESPITE RESPONDENTS FAILURE TO COMPLY WITH THE
RULES ON DISCLOSURE IN THE VERIFICATION AND CERTIFICATION PORTION
OF THEIR PETITION A QUO.
ii.
WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE
RULES AND ESTABLISHED JURISPRUDENCE WHEN IT DID NOT DISMISS THE
PETITION A QUO FILED BY RESPONDENT CLIMAX DESPITE THE LACK OF THE
REQUISITE AUTHORITY TO FILE THE PETITION A QUO.
B.
SUBSTANTIVE GROUND
THE HONORABLE COURT OF APPEALS ERRED IN GRANTING THE PETITION A
QUO FILED BY RESPONDENTS AND IN DENYING MOTION FOR
RECONSIDERATION FILED BY PETITIONER FOR UTTER LACK OF BASIS IN
FACT AND IN LAW.
i.
WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE
RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT
PETITIONER CEDED HIS CLAIMS OVER THE MINERAL DEPOSITS LOCATED
WITHIN THE ADDENDUM AREA OF INFLUENCE.
ii.
WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE
RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT THE PANEL
OF ARBITRATORS IS BEREFT OF JURISDICTION OVER THE SUBJECT MATTER
OF CASE NO. 058.
iii.
WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE
RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT THE
COMPLAINT FILED BY THE PETITIONER FAILED TO ALLEGE ULTIMATE FACTS
OR PARTICULARS OF FRAUD.
iv.
WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE
RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT
PETITIONER AND RESPONDENTS SHOULD SUBMIT TO ARBITRATION UNDER
R.A. 876.
v.
WHETHER THE HONORABLE COURT OF APPEALS DEPARTED FROM THE
RULES AND ESTABLISHED JURISPRUDENCE WHEN IT HELD THAT THE
ACTION TO DECLARE THE NULLITY OF THE ADDENDUM CONTRACT, FTAA,
OFAC AND AAAA ON THE GROUND OF FRAUD HAS PRESCRIBED.
The issues for resolution in this petition for review are:
(a) Whether there was forum-shopping on the part of respondents for their
failure to disclose to this Court their filing of a Petition to Compel for
Arbitration before the Regional Trial Court of Makati City, Branch 148, which is
currently pending.
(b) Whether counsel for respondent Climax had authority to file the petition for
certiorari before the Court of Appeals considering that the signor of the petition for
certioraris Verification and Certification of Non-forum Shopping was not authorized
to sign the same in behalf of respondent Climax.
(c) Whether the complaint filed by petitioner raises a mining dispute over which
the Panel of Arbitrators has jurisdiction, or a judicial question which should properly
be brought before the regular courts.
(d) Whether the dispute between the parties should be brought for arbitration
under Rep. Act No. 876.
Let us deal first with procedural matters.
Petitioner claims that respondents are guilty of forum-shopping for failing to
disclose before this Court that they had filed a Petition to Compel for
Arbitration before the RTC of Makati City. However, it cannot be determined from
petitioners mere allegations in the Petition that the Petition to Compel for
Arbitration instituted by respondent Climax-Arimco, involves related causes of action
and the grant of the same or substantially the same reliefs as those involved in the
instant case. Petitioner did not attach copies of the Petition to Compel for
Arbitration or any order or resolution of the RTC of Makati City related to that case.
Furthermore, it can be gleaned from the nature of the two actions that the issues
in the case before the RTC of Makati City and in the petition for certiorari before the
Court of Appeals are different. A petition for certiorari raises the issue of whether or
not there was grave abuse of discretion, while the Petition to Compel for
Arbitration seeks the implementation of the arbitration clause in the agreement
between the parties.
Petitioner next alleges that there was no authority granted by respondent Climax
to the law firm of Sycip Salazar Hernandez & Gatmaitan to file the petition before the
Court of Appeals. There is allegedly no Secretarys Certificate from respondent Climax
attached to the petition. The Verification and Certification only contains a statement
made by one Marianne M. Manzanas that she is also the authorized representative of
[respondent Climax] without presenting further proof of such authority. Hence, it is
argued that as to respondent Climax, the petition filed before the Court of Appeals is
an unauthorized act and the assailed orders of the Panel of Arbitrators have become
final.
Under Section 3, Rule 46 of the Rules of Court, a petitioner is required to
submit, together with the petition, a sworn certification of non-forum shopping, and
failure to comply with this requirement is sufficient ground for dismissal of the petition.
The requirement that petitioner should sign the certificate of non-forum shopping
applies even to corporations, the Rules of Court making no distinction between
natural and juridical persons. The signatory in the case of the corporation should be a
duly authorized director or officer of the corporation who has knowledge of the matter
being certified.[15] If, as in this case, the petitioner is a corporation, a board resolution
authorizing a corporate officer to execute the certification against forum-shopping is
necessary. A certification not signed by a duly authorized person renders the petition
subject to dismissal.[16]
On this point, we have to agree with petitioner. There appears to be no
subsequent compliance with the requirement to attach a board resolution authorizing
the signor Marianne M. Manzanas to file the petition in behalf of respondent Climax.
Respondent also failed to refute this in its Comment.[17] However, this latter issue
becomes irrelevant in the light of our decision to deny this petition for review for lack
of jurisdiction by the Panel of Arbitrators over the complaint filed by petitioner, as will
be discussed below.
We now come to the meat of the case which revolves mainly around the
question of jurisdiction by the Panel of Arbitrators: Does the Panel of Arbitrators have
jurisdiction over the complaint for declaration of nullity and/or termination of the
subject contracts on the ground of fraud, oppression and violation of the Constitution?
This issue may be distilled into the more basic question of whether
the Complaint raises a mining dispute or a judicial question.
A judicial question is a question that is proper for determination by the courts, as
opposed to a moot question or one properly decided by the executive or legislative
branch.[18] A judicial question is raised when the determination of the question
involves the exercise of a judicial function; that is, the question involves the
determination of what the law is and what the legal rights of the parties are with
respect to the matter in controversy.[19]
 On the other hand, a mining dispute is a dispute involving (a) rights to mining
areas, (b) mineral agreements, FTAAs, or permits, and (c) surface owners, occupants
and claimholders/concessionaires.[20] Under Republic Act No. 7942 (otherwise known
as the Philippine Mining Act of 1995), the Panel of Arbitrators has exclusive and
original jurisdiction to hear and decide these mining disputes. [21] The Court of
Appeals, in its questioned decision, correctly stated that the Panels jurisdiction is
limited only to those mining disputes which raise questions of fact or matters requiring
the application of technological knowledge and experience.[22]
In Pearson v. Intermediate Appellate Court,[23] this Court observed that the trend
has been to make the adjudication of mining cases a purely administrative
matter.[24] Decisions[25] of the Supreme Court on mining disputes have recognized a
distinction between (1) the primary powers granted by pertinent provisions of law to
the then Secretary of Agriculture and Natural Resources (and the bureau directors) of
an executive or administrative nature, such as granting of license, permits, lease and
contracts, or approving, rejecting, reinstating or canceling applications, or deciding
conflicting applications, and (2) controversies or disagreements of civil or contractual
nature between litigants which are questions of a judicial nature that may be
adjudicated only by the courts of justice. This distinction is carried on even in Rep. Act
No. 7942.
The Complaint charged respondents with disregarding and ignoring the
provisions of the Addendum Contract, violating the purpose and spirit of the May 14,
1987 Letter of Intent and February 28, 1989 Agreement, and acting in a fraudulent
and oppressive manner against petitioner and practicing fraud and deception against
the Government.[26] Petitioner alleged in his Complaint that under the original
agreements (the May 14, 1987 Letter of Intent and February 28, 1989 Agreement)
respondent Climax-Arimco had committed to complete the Bankable Feasibility Study
by 28 February 1992, but the same was not accomplished. Instead, respondent
Climax-Arimco, through false and insidious representations and machinations by
alleging technical and financial capacity, induced petitioner to enter into
the Addendum Contract and the FTAA in order to repeatedly extend the option period
within which to conduct the feasibility study. In essence, petitioner alleges that
respondents, conspiring and confederating with one another, misrepresented under
the Addendum Contract and FTAA that respondent Climax-Arimco possessed
financial and technical capacity to put the project into commercial production, when in
truth it had no such qualification whatsoever to do so. By so doing, respondents have
allegedly caused damage not only to petitioner but also to the Republic of the
Philippines.[27]
It is apparent that the Panel of Arbitrators is bereft of jurisdiction over
the Complaint filed by petitioner. The basic issue in petitioners Complaint is the
presence of fraud or misrepresentation allegedly attendant to the execution of
the Addendum Contract and the other contracts emanating from it, such that the
contracts are rendered invalid and not binding upon the parties. It avers that petitioner
was misled by respondents into agreeing to the Addendum Contract. This constitutes
fraud which vitiated petitioners consent, and under Article 1390 of the Civil Code, is
one of the grounds for the annulment of a voidable contract. Voidable or annullable
contracts, before they are set aside, are existent, valid, and binding, and are effective
and obligatory between the parties.[28] They can be ratified.[29]
Petitioner insists that the Complaint is actually one for the declaration of nullity of
void contracts. He argues that respondents, by their lack of financial and technical
competence to carry out the mining project, do not qualify to enter into a co-
production, joint venture or production sharing agreement with the Government, in
circumvention of and in patent violation of the spirit and purpose of the Constitution,
particularly Section 2, Article XII thereof. Petitioner relies on the Civil Code for
support:[30]
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;
....
(7) Those expressly prohibited or declared void by law.
....
Petitioner asserts that for circumventing and being in patent violation of the
Constitution, the Addendum Contract, the FTAA and the other contracts are void
contracts. As such, they do not produce any effect and cannot be ratified.
However, whether the case involves void or voidable contracts is still a judicial
question. It may, in some instances, involve questions of fact especially with regard to
the determination of the circumstances of the execution of the contracts. But the
resolution of the validity or voidness of the contracts remains a legal or judicial
question as it requires the exercise of judicial function. It requires the ascertainment of
what laws are applicable to the dispute, the interpretation and application of those
laws, and the rendering of a judgment based thereon. Clearly, the dispute is not a
mining conflict. It is essentially judicial. The complaint was not merely for the
determination of rights under the mining contracts since the very validity of those
contracts is put in issue.
The Complaint is not about a dispute involving rights to mining areas, nor is it a
dispute involving claimholders or concessionaires. The main question raised was the
validity of the Addendum Contract, the FTAA and the subsequent contracts. The
question as to the rights of petitioner or respondents to the mining area pursuant to
these contracts, as well as the question of whether or not petitioner had ceded his
mining claims in favor of respondents by way of execution of the questioned
contracts, is merely corollary to the main issue, and may not be resolved without first
determining the main issue.
The Complaint is also not what is contemplated by Rep. Act No. 7942 when it
says the dispute should involve FTAAs. The Complaint is not exclusively within the
jurisdiction of the Panel of Arbitrators just because, or for as long as, the dispute
involves an FTAA. The Complaint raised the issue of the constitutionality of the FTAA,
which is definitely a judicial question. The question of constitutionality is exclusively
within the jurisdiction of the courts to resolve as this would clearly involve the exercise
of judicial power. The Panel of Arbitrators does not have jurisdiction over such an
issue since it does not involve the application of technical knowledge and expertise
relating to mining. This the Panel of Arbitrators has even conceded in its Orders dated
18 October 2001 and 25 June 2002. At this juncture, it is worthy of note that in a
case,[31] which was resolved only on 1 December 2004, this Court upheld the validity
of the FTAA entered into by the Republic of the Philippines and WMC (Philippines),
Inc. and constitutionality of Rep. Act No. 7942 and DENR Administrative Order 96-
40.[32] In fact, the Court took the case on an original petition, recognizing the
exceptional character of the situation and the paramount public interest involved, as
well as the necessity for a ruling to put an end to the uncertainties plaguing the mining
industry and the affected communities as a result of doubts case upon the
constitutionality and validity of the Mining Act, the subject FTAA and future FTAAs,
and the need to avert a multiplicity of suits.[33]
Arbitration before the Panel of Arbitrators is proper only when there is a
disagreement between the parties as to some provisions of the contract between
them, which needs the interpretation and the application of that particular knowledge
and expertise possessed by members of that Panel. It is not proper when one of the
parties repudiates the existence or validity of such contract or agreement on the
ground of fraud or oppression as in this case. The validity of the contract cannot be
subject of arbitration proceedings. Allegations of fraud and duress in the execution of
a contract are matters within the jurisdiction of the ordinary courts of law. These
questions are legal in nature and require the application and interpretation of laws and
jurisprudence which is necessarily a judicial function.
Petitioner also disagrees with the Court of Appeals ruling that the case should
be brought for arbitration under Rep. Act 876, pursuant to the arbitration clause in
the Addendum Contract which states that [a]ll disputes arising out of or in connection
with the Contract, which cannot be settled amicably among the Parties, shall finally be
settled under R.A. 876. He points out that respondents Climax and APMI are not
parties to the Addendum Contract and are thus not bound by the arbitration clause in
said contract.
We agree that the case should not be brought under the ambit of the Arbitration
Law, but for a different reason. The question of validity of the contract containing the
agreement to submit to arbitration will affect the applicability of the arbitration clause
itself. A party cannot rely on the contract and claim rights or obligations under it and at
the same time impugn its existence or validity. Indeed, litigants are enjoined from
taking inconsistent positions. As previously discussed, the complaint should have
been filed before the regular courts as it involved issues which are judicial in nature.
WHEREFORE, in view of the foregoing, the Petition for Review on Certiorari
Under Rule 45 is DENIED. The Orders dated 18 October 2001 and 25 June 2002 of
the Panel of Arbitrators are SET ASIDE. Costs against petitioner Jorge Gonzales.
SO ORDERED.
KOREA TECHNOLOGIES CO., G.R. No. 143581
LTD.,
Petitioner,
Present:
- versus - QUISUMBING, J., Chairperson,
CARPIO,
CARPIO MORALES,
HON. ALBERTO A. LERMA, in TINGA, and
his capacity as Presiding Judge of VELASCO, JR., JJ.
Branch 256 of Regional Trial
Court of Muntinlupa City, and
PACIFIC GENERAL STEEL Promulgated:
MANUFACTURING
CORPORATION,
Respondents. January 7, 2008
Doctrine: Established in this jurisdiction is the rule that the law of the place where the
contract is made governs. Lex loci contractus. A contract perfected in the Philippines
will be governed by Philippine laws. 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 without prejudice to Articles 2038, 2039 and 2040, which
refer to instances where a compromise or an arbitral award, as applied to Art. 2044
pursuant to Art. 2043, may be voided, rescinded, or annulled, but these would not
denigrate the finality of the arbitral award.
While the RTC does not have jurisdiction over disputes governed by arbitration
mutually agreed upon by the parties, still the foreign arbitral award is subject to
judicial review by the RTC which can set aside, reject, or vacate it.
Summary: Korea Tech and Pacific General entered into a contract where Korea Tech
would set up an LPG Cylinder Manufacturing Plant in Carmona, Cavite for Pacific
General. The contract was executed in the Philippines and it contained an Arbitration
Clause which provided that disputes must be referred to a tribunal body in Korea.
During the performance of the contract, issues arose regarding the non-delivery of
certain equipment and the delivery of equipment of lesser quality than that agreed
upon. Pacific General wanted to unilaterally rescind the contract, while Korea Tech
opposed, arguing that the dispute should be referred to arbitration. Pacific General
argued that the arbitration clause was void for being violative of public policy as it oust
jurisdiction from the Courts. RTC and CA ruled for Pacific General. SC reversed
upholding the validity of the arbitration clause. It explained that by the principle of lex
loci contractus, contract executed in the Philippines should be governed by Philippine
law, however, the law also provides that where parties mutually agree on an
arbitration clause, the courts must refer such case to arbitration. The arbitral award is
however subject to judicial confirmation to be final, binding and enforceable, thus, it is
wrong to argue that the courts are oust from jurisdiction. Hence, the parties must
submit to arbitration.
Facts:
1. Korea Technologies Co., Ltd. (Korea Tech), a Korean corporation, entered into a
contract with Pacific General Steel Manufacturing Corporation (Pacific General),
a domestic corporation. The contract was executed in the Philippines. It also
contains an Arbitration Clause (Art. 15 of the Contract) which provided that
disputes must be referred to a tribunal body in Korea.
“Article 15. Arbitration.All disputes, controversies, or differences which may arise
between the parties, out of or in relation to or in connection with this Contract or for
the breach thereof, shall finally be settled by arbitration in Seoul, Korea in accordance
with the Commercial Arbitration Rules of the Korean Commercial Arbitration Board.
The award rendered by the arbitration(s) shall be final and binding upon both parties
concerned.”
2. Under the contract, Korea Tech would set up an LPG Cylinder Manufacturing
Plant in Carmona, Cavite. The contract was later amended, which then provided
that Korea Tech undertook to ship and install in Pacific General’s site in
Carmona, Cavite the machinery and facilities necessary for manufacturing LPG
cylinders, and to initially operate the plant after it is installed.
3. The last payments made by Pacific General to Korea Tech consisted of
postdated checks which were dishonored upon presentment by reason of
“stopped payment”. Pacific General stopped payment because it was alleged
that Korea Tech had delivered a hydraulic press which was different in kind and
of lower quality than that agreed upon and that Korea Tech also failed to deliver
equipment parts already paid for by Pacific General.
4. Pacific General later informed Korea Tech that it was was canceling their
Contract on the ground that Korea Tech had altered the quantity and lowered
the quality of the machineries and equipment it delivered to Pacific General, and
that Pacific General would dismantle and transfer the machineries, equipment,
and facilities installed in the Carmona plant. Five days later, Pacific General filed
before the Office of the Public Prosecutor an Affidavit-Complaint for Estafa.
5. Korea Tech wrote to Pacific General, informing the latter that Pacific General
could not unilaterally rescind their contract nor dismantle and transfer the
machineries and equipment on mere imagined violations by Korea Tech. It also
insisted that their disputes should be settled by arbitration as agreed upon in
Article 15, the arbitration clause of their contract.
6. Korea Tech initiated arbitration before the Korea Commercial Arbitration Board
[KCAB] in Seoul, Korea pursuant to Art. 15 of the Contract as amended..
7. Korea Tech filed a Complaint for Specific Performance against Pacific General
before the RTC. In its complaint, Korea Tech alleged that Pacific General had
initially admitted that the checks that were stopped were not funded but later on
claimed that it stopped payment of the checks for the reason that their value was
not received as the former allegedly breached their contract by altering the
quantity and lowering the quality of the machinery and equipment installed in the
plant and failed to make the plant operational. Likewise, Korea Tech averred
that Pacific General violated Art. 15 of their Contract, as amended, by
unilaterally rescinding the contract without resorting to arbitration. The Court
granted a TRO which restrained Pacific General from dismantling and
transferring the machinery and equipment installed in the plant.
8. Pacific General opposed the application and argued that the arbitration clause
was null and void, being contrary to public policy as it ousts the local court of
jurisdiction.
9. The trial court denied the application for a writ of preliminary injunction,
reasoning that Pacific General had paid Korea Tech the value of the
machineries and equipment as shown in the contract such that Korea Tech no
longer had proprietary rights over them. It also ruled that arbitration clause of the
Contract as amended was invalid as it tended to oust the trial court or any other
court jurisdiction over any dispute that may arise between the parties.
10. The Court of Appeals affirmed the trial court and found that Pacific General had
paid the value of the machineries and declared the arbitration clause against
public policy.
Issue:
W/N the arbitration clause stated in Article 15 of the contract is to be deemed null and
void for being against public policy - NO, hence parties must submit to arbitration
W/N the RTC is oust of its jurisdiction on a foreign arbitral award. - NO, although the
court is mandated to refer cases to arbitration in proper cases, foreign arbitral awards
must still be confirmed by the RTC
HELD:
11. The arbitration clause not contrary to public policy. The arbitration clause which
stipulates that the arbitration must be done in Seoul, Korea in accordance with
the Commercial Arbitration Rules of the KCAB, and that the arbitral award is
 final and binding, is not contrary to public policy. This Court has sanctioned the
validity of arbitration clauses in a catena of cases.
12. 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.” Arts. 2038,
2039, and 2040 abovecited refer to instances where a compromise or an arbitral
award, as applied to Art. 2044 pursuant to Art. 2043, may be voided, rescinded,
or annulled, but these would not denigrate the finality of the arbitral award.
13. 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.
14. 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.
15. For domestic arbitration proceedings, we have particular agencies to arbitrate
disputes arising from contractual relations. In case a foreign arbitral body is
chosen by the parties, the arbitration rules of our domestic arbitration bodies
would not be applied. As signatory to the Arbitration Rules of the UNCITRAL
Model Law on International Commercial Arbitration of the United Nations
Commission on International Trade Law (UNCITRAL) in the New York
Convention on June 21, 1985, the Philippines committed itself to be bound by
the Model Law. We have even incorporated the Model Law in Republic Act No.
(RA) 9285, otherwise known as the Alternative Dispute Resolution Act of 2004
entitled An Act to Institutionalize the Use of an Alternative Dispute Resolution
System in the Philippines and to Establish the Office for Alternative Dispute
Resolution, and for Other Purposes, promulgated on April 2, 2004. Secs. 19 and
20 of Chapter 4 of the Model Law are the pertinent provisions.
16. Under Sec. 24 of RA 9285, the RTC does not have jurisdiction over disputes
that are properly the subject of arbitration pursuant to an arbitration clause, and
mandates the referral to arbitration in such cases, thus:
SEC. 24. Referral to Arbitration.—A court before which an action is brought in a
matter which is the subject matter of an arbitration agreement shall, if at least one
party so requests not later than the pre-trial conference, or upon the request of both
parties thereafter, refer the parties to arbitration unless it finds that the arbitration
agreement is null and void, inoperative or incapable of being performed.
17. Foreign arbitral awards while mutually stipulated by the parties in the arbitration
clause to be final and binding are not immediately enforceable or cannot be
implemented immediately. Sec. 35[43] of the UNCITRAL Model Law stipulates
the requirement for the arbitral award to be recognized by a competent court for
enforcement, which court under Sec. 36 of the UNCITRAL Model Law may
refuse recognition or enforcement on the grounds provided for. RA 9285
incorporated these provisos to Secs. 42, 43, and 44 relative to Secs. 47 and 48
18. While the RTC does not have jurisdiction over disputes governed by arbitration
mutually agreed upon by the parties, still the foreign arbitral award is subject to
judicial review by the RTC which can set aside, reject, or vacate it. In this sense,
what this Court held in Chung Fu Industries (Phils.), Inc., 206 SCRA 545 (1992),
relied upon by Korea Tech is applicable insofar as the foreign arbitral awards,
while final and binding, do not oust courts of jurisdiction since these arbitral
awards are not absolute and without exceptions as they are still judicially
reviewable. Chapter 7 of RA 9285 has made it clear that all arbitral awards,
whether domestic or foreign, are subject to judicial review on specific grounds
provided for.
19. Thus, foreign arbitral awards when confirmed by the RTC are deemed not as a
judgment of a foreign court but as a foreign arbitral award, and when confirmed,
are enforced as final and executory decisions of our courts of law.
20. Having ruled that the arbitration clause of the subject contract is valid and
binding on the parties, and not contrary to public policy; consequently, being
bound to the contract of arbitration, a party may not unilaterally rescind or
terminate the contract for whatever cause without first resorting to arbitration.
21. The issues arising from the contract between Pacific General and Korea Tech
on whether the equipment and machineries delivered and installed were
properly installed and operational in the plant in Carmona, Cavite; the ownership
of equipment and payment of the contract price; and whether there was
substantial compliance by Korea Tech in the production of the samples, given
the alleged fact that Pacific General could not supply the raw materials required
to produce the sample LPG cylinders, are matters proper for arbitration. Indeed,
we note that on July 1, 1998, Korea Tech instituted an Application for Arbitration
before the KCAB in Seoul, Korea pursuant to Art. 15 of the Contract as
amended. Thus, it is incumbent upon Pacific General to abide by its commitment
to arbitrate.

Korea Technologies Co., Ltd. vs. Lerma
Doctrine: Established in this jurisdiction is the rule that the law of the place where the
contract is made governs. Lex loci contractus. A contract perfected in the Philippines
will be governed by Philippine laws. 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 without prejudice to Articles 2038, 2039 and 2040, which
refer to instances where a compromise or an arbitral award, as applied to Art. 2044
pursuant to Art. 2043, may be voided, rescinded, or annulled, but these would not
denigrate the finality of the arbitral award.
While the RTC does not have jurisdiction over disputes governed by arbitration
mutually agreed upon by the parties, still the foreign arbitral award is subject to
judicial review by the RTC which can set aside, reject, or vacate it.
Facts:
 Korea Technologies Co., Ltd. [Korea Tech], a Korean corporation, entered
into a contract with Pacific General Steel Manufacturing Corporation [Pacific
General], a domestic corporation. The contract was executed in the
Philippines. It also contains an Arbitration Clause which provided that
disputes must be referred to a tribunal body in Korea.
 Korea Tech undertook to ship and install in Pacific General’s site in
Carmona, Cavite the machinery and facilities necessary for manufacturing
LPG cylinders, and to initially operate the plant after it is installed.
 The last payments made by Pacific General to Korea Tech consisted of
postdated checks which were dishonored upon presentment., it stopped
payment because Korea Tech had delivered a hydraulic press which was
different in kind and of lower quality than that agreed upon.
 Korea Tech also failed to deliver equipment parts already paid for by it.
 Korea Tech initiated arbitration before the Korea Commercial Arbitration
Board [KCAB] in Seoul, Korea.
 Pacific General opposed the application and argued that the arbitration
clause was null and void, being contrary to public policy as it ousts the local
court of jurisdiction.
 The trial court declared the arbitration agreement null and void.
 Korea Tech filed a petition for certiorari before the Court of Appeals
[CA]. The court dismissed the petition and held that an arbitration clause
which provided for a final determination of the legal rights of the parties to
the contract by arbitration was against public policy.
Issue:
Whether or not the arbitration clause stated in Article 15 of the contract is to be
deemed null and void.
Whether or not the RTC is oust of its jurisdiction on a foreign arbitral award.
HELD:
 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.”
Arts. 2038, 2039, and 2040 abovecited refer to instances where a
compromise or an arbitral award, as applied to Art. 2044 pursuant to Art.
2043, may be voided, rescinded, or annulled, but these would not denigrate
the finality of the arbitral award.
 For domestic arbitration proceedings, we have particular agencies to
arbitrate disputes arising from contractual relations. In case a foreign arbitral
body is chosen by the parties, the arbitration rules of our domestic arbitration
bodies would not be applied. As signatory to the Arbitration Rules of the
UNCITRAL Model Law on International Commercial Arbitration of the United
Nations Commission on International Trade Law (UNCITRAL) in the New
York Convention on June 21, 1985, the Philippines committed itself to be
bound by the Model Law. We have even incorporated the Model Law in
Republic Act No. (RA) 9285, otherwise known as the Alternative Dispute
Resolution Act of 2004 entitled An Act to Institutionalize the Use of an
Alternative Dispute Resolution System in the Philippines and to Establish the
Office for Alternative Dispute Resolution, and for Other Purposes,
promulgated on April 2, 2004. Secs. 19 and 20 of Chapter 4 of the Model
Law are the pertinent provisions.
 Under Sec. 24, the RTC does not have jurisdiction over disputes that are
properly the subject of arbitration pursuant to an arbitration clause, and
mandates the referral to arbitration in such cases, thus: SEC. 24. Referral to
Arbitration.—A court before which an action is brought in a matter which is
the subject matter of an arbitration agreement shall, if at least one party so
requests not later than the pre-trial conference, or upon the request of both
parties thereafter, refer the parties to arbitration unless it finds that the
arbitration agreement is null and void, inoperative or incapable of being
performed.
 While the RTC does not have jurisdiction over disputes governed by
arbitration mutually agreed upon by the parties, still the foreign arbitral award
is subject to judicial review by the RTC which can set aside, reject, or vacate
it. In this sense, what this Court held in Chung Fu Industries (Phils.), Inc.,
206 SCRA 545 (1992), relied upon by KOGIES is applicable insofar as the
foreign arbitral awards, while final and binding, do not oust courts of
jurisdiction since these arbitral awards are not absolute and without
exceptions as they are still judicially reviewable. Chapter 7 of RA 9285 has
made it clear that all arbitral awards, whether domestic or foreign, are
subject to judicial review on specific grounds provided for.
[G.R. No. 129916. March 26, 2001]
MAGELLAN CAPITAL MANAGEMENT CORPORATION and MAGELLAN
CAPITAL HOLDINGS CORPORATION, petitioners, vs. ROLANDO M.
ZOSA and HON. JOSE P. SOBERANO, JR., in his capacity as Presiding
Judge of Branch 58 of the Regional Trial Court Of Cebu, 7th Judicial
Region, respondents.
DECISION
BUENA, J.:
Under a management agreement entered into on March 18, 1994, Magellan
Capital Holdings Corporation [MCHC] appointed Magellan Capital
Management Corporation [MCMC] as manager for the operation of its
business and affairs.[1] Pursuant thereto, on the same month, MCHC,
MCMC, and private respondent Rolando M. Zosa entered into an
"Employment Agreement" designating Zosa as President and Chief
Executive Officer of MCHC.
Under the "Employment Agreement", the term of respondent Zosa's
employment shall be co-terminous with the management agreement, or until
March 1996,[2] unless sooner terminated pursuant to the provisions of the
Employment Agreement.[3] The grounds for termination of employment are
also provided in the Employment Agreement.
On May 10, 1995, the majority of MCHCs Board of Directors decided not to
re-elect respondent Zosa as President and Chief Executive Officer of MCHC
on account of loss of trust and confidence[4] arising from alleged violation of
the resolution issued by MCHC's board of directors and of the non-
competition clause of the Employment Agreement.[5] Nevertheless,
respondent Zosa was elected to a new position as MCHC's Vice-
Chairman/Chairman for New Ventures Development.[6]
On September 26, 1995, respondent Zosa communicated his resignation for
good reason from the position of Vice-Chairman under paragraph 7 of the
Employment Agreement on the ground that said position had less
responsibility and scope than President and Chief Executive Officer. He
demanded that he be given termination benefits as provided for in Section 8
(c) (i) (ii) and (iii) of the Employment Agreement.[7]
In a letter dated October 20, 1995, MCHC communicated its non-acceptance
of respondent Zosa's resignation for good reason, but instead informed him
that the Employment Agreement is terminated for cause, effective November
19, 1995, in accordance with Section 7 (a) (v) of the said agreement, on
account of his breach of Section 12 thereof. Respondent Zosa was further
advised that he shall have no further rights under the said Agreement or any
claims against the Manager or the Corporation except the right to receive
within thirty (30) days from November 19, 1995, the amounts stated in
Section 8 (a) (i) (ii) of the Agreement.[8]
Disagreeing with the position taken by petitioners, respondent Zosa invoked
the Arbitration Clause of the Employment Agreement, to wit:
23. Arbitration. In the event that any dispute, controversy or claim arises out
of or under any provisions of this Agreement, then the parties hereto agree
to submit such dispute, controversy or claim to arbitration as set forth in this
Section and the determination to be made in such arbitration shall be final
and binding. Arbitration shall be effected by a panel of three arbitrators. The
Manager, Employee and Corporation shall designate one (1) arbitrator who
shall, in turn, nominate and elect who among them shall be the chairman of
the committee. Any such arbitration, including the rendering of an arbitration
award, shall take place in Metro Manila. The arbitrators shall interpret this
Agreement in accordance with the substantive laws of the Republic of the
Philippines. The arbitrators shall have no power to add to, subtract from or
otherwise modify the terms of Agreement or to grant injunctive relief of any
nature. Any judgment upon the award of the arbitrators may be entered in
any court having jurisdiction thereof, with costs of the arbitration to be borne
equally by the parties, except that each party shall pay the fees and
expenses of its own counsel in the arbitration.
On November 10, 1995, respondent Zosa designated his brother, Atty.
Francis Zosa, as his representative in the arbitration panel[9] while MCHC
designated Atty. Inigo S. Fojas[10] and MCMC nominated Atty. Enrique I.
Quiason[11] as their respective representatives in the arbitration panel.
However, instead of submitting the dispute to arbitration, respondent Zosa,
on April 17, 1996, filed an action for damages against petitioners before the
Regional Trial Court of Cebu[12] to enforce his benefits under the
Employment Agreement.
On July 3, 1996, petitioners filed a motion to dismiss[13] arguing that (1) the
trial court has no jurisdiction over the instant case since respondent Zosa's
claims should be resolved through arbitration pursuant to Section 23 of the
Employment Agreement with petitioners; and (2) the venue is improperly laid
since respondent Zosa, like the petitioners, is a resident of Pasig City and
thus, the venue of this case, granting without admitting that the respondent
has a cause of action against the petitioners cognizable by the RTC, should
be limited only to RTC-Pasig City.[14]

Meanwhile, respondent Zosa filed an amended complaint dated July 5,
1996.
On August 1, 1996, the RTC Branch 58 of Cebu City issued an Order
denying petitioners motion to dismiss upon the findings that (1) the validity
and legality of the arbitration provision can only be determined after trial on
the merits; and (2) the amount of damages claimed, which is over
P100,000.00, falls within the jurisdiction of the RTC.[15] Petitioners filed a
motion for reconsideration which was denied by the RTC in an order dated
September 5, 1996.[16]
In the interim, on August 22, 1996, in compliance with the earlier order of the
court directing petitioners to file responsive pleading to the amended
complaint, petitioners filed their Answer Ad Cautelam with counterclaim
reiterating their position that the dispute should be settled through arbitration
and the court had no jurisdiction over the nature of the action.[17]
On October 21, 1996, the trial court issued its pre-trial order declaring the
pre-trial stage terminated and setting the case for hearing. The order states:
ISSUES:
The Court will only resolve one issue in so far as this case is concerned, to
wit:
Whether or not the Arbitration Clause contained in Sec.23 of the
Employment Agreement is void and of no effect: and, if it is void and of no
effect, whether or not the plaintiff is entitled to damages in accordance with
his complaint and the defendants in accordance with their counterclaim.
It is understood, that in the event the arbitration clause is valid and binding
between the parties, the parties shall submit their respective claim to the
Arbitration Committee in accordance with the said arbitration clause, in
which event, this case shall be deemed dismissed.[18]
On November 18, 1996, petitioners filed their Motion Ad Cautelam for the
Correction, Addition and Clarification of the Pre-trial Order dated November
15 1996,[19] which was denied by the court in an order dated November 28,
1996.[20]
Thereafter, petitioners MCMC and MCHC filed a Motion Ad Cautelam for the
parties to file their Memoranda to support their respective stand on the issue
of the validity of the arbitration clause contained in the Employment
Agreement. In an order dated December 13, 1996, the trial court denied the
motion of petitioners MCMC and MCHC.
On January 17, 1997, petitioners MCMC and MCHC filed a petition for
certiorari and prohibition under Rule 65 of the Rules of Court with the Court
of Appeals, questioning the trial court orders dated August 1, 1996,
September 5, 1996, and December 13, 1996.[21]
On March 21, 1997, the Court of Appeals rendered a decision, giving due
course to the petition, the decretal portion of which reads:
WHEREFORE, the petition is GIVEN DUE COURSE. The respondent court
is directed to resolve the issue on the validity or effectivity of the arbitration
clause in the Employment Agreement, and to suspend further proceedings in
the trial on the merits until the said issue is resolved. The questioned orders
are set aside insofar as they contravene this Courts resolution of the issues
raised as herein pronounced.
The petitioner is required to remit to this Court the sum of P81.80 for cost
within five (5) days from notice.
SO ORDERED.[22]
Petitioners filed a motion for partial reconsideration of the CA decision
praying (1) for the dismissal of the case in the trial court, on the ground of
lack of jurisdiction, and (2) that the parties be directed to submit their dispute
to arbitration in accordance with the Employment Agreement dated March
1994. The CA, in a resolution promulgated on June 20, 1997, denied the
motion for partial reconsideration for lack of merit.
In compliance with the CA decision, the trial court, on July 18, 1997,
rendered a decision declaring the arbitration clause in the Employment
Agreement partially void and of no effect. The dispositive portion of the
decision reads:
WHEREFORE, premises considered, judgment is hereby rendered partially
declaring the arbitration clause of the Employment Agreement void and of no
effect, only insofar as it concerns the composition of the panel of arbitrators,
and directing the parties to proceed to arbitration in accordance with the
Employment Agreement under the panel of three (3) arbitrators, one for the
plaintiff, one for the defendants, and the third to be chosen by both the
plaintiff and defendants. The other terms, conditions and stipulations in the
arbitration clause remain in force and effect."[23]
In view of the trial courts decision, petitioners filed this petition for review on
certiorari, under Rule 45 of the Rules of Court, assigning the following errors
for the Courts resolution:
I. The trial court gravely erred when it ruled that the arbitration clause under
the employment agreement is partially void and of no effect, considering
that:
A. The arbitration clause in the employment agreement dated March 1994
between respondent Zosa and defendants MCHC and MCMC is valid and
binding upon the parties thereto.
B. In view of the fact that there are three parties to the employment
agreement, it is but proper that each party be represented in the arbitration
panel.
C. The trial court grievously erred in its conclusion that petitioners MCMC
and MCHC represent the same interest.
D. Respondent Zosa is estopped from questioning the validity of the
arbitration clause, including the right of petitioner MCMC to nominate its own
arbitrator, which he himself has invoked.
II. In any event, the trial court acted without jurisdiction in hearing the case
below, considering that it has no jurisdiction over the nature of the action or
suit since controversies in the election or appointment of officers or
managers of a corporation, such as the action brought by respondent Zosa,
fall within the original and exclusive jurisdiction of the Securities and
Exchange Commission.
III. Contrary to respondent Zosas allegation, the issue of the trial courts
jurisdiction over the case below has not yet been resolved with finality
considering that petitioners have expressly reserved their right to raise said
issue in the instant petition. Moreover, the principle of the law of the case is
not applicable in the instant case.
IV. Contrary to respondent Zosas allegation, petitioners MCMC and MCHC
are not guilty of forum shopping.
V. Contrary to respondent Zosas allegation, the instant petition for review
involves only questions of law and not of fact.[24]
We rule against the petitioners.
It is error for the petitioners to claim that the case should fall under the
jurisdiction of the Securities and Exchange Commission [SEC, for brevity].
The controversy does not in anyway involve the election/appointment of
officers of petitioner MCHC, as claimed by petitioners in their assignment of
errors. Respondent Zosas amended complaint focuses heavily on the
illegality of the Employment Agreements Arbitration Clause initially invoked
by him in seeking his termination benefits under Section 8 of the
employment contract. And under Republic Act No. 876, otherwise known as
the Arbitration Law, it is the regional trial court which exercises jurisdiction
over questions relating to arbitration. We thus advert to the following
discussions made by the Court of Appeals, speaking thru Justice Minerva P.
Gonzaga-Reyes,[25] in C.A.-G.R. S.P. No. 43059, viz:
As regards the fourth assigned error, asserting that jurisdiction lies with the
SEC, which is raised for the first time in this petition, suffice it to state that
the Amended Complaint squarely put in issue the question whether the
Arbitration Clause is valid and effective between the parties. Although the
controversy which spawned the action concerns the validity of the
termination of the service of a corporate officer, the issue on the validity and
effectivity of the arbitration clause is determinable by the regular courts, and
do not fall within the exclusive and original jurisdiction of the SEC.
The determination and validity of the agreement is not a matter intrinsically
connected with the regulation and internal affairs of corporations (see
Pereyra vs. IAC, 181 SCRA 244; Sales vs. SEC, 169 SCRA 121); it is rather
an ordinary case to be decided in accordance with the general laws, and do
not require any particular expertise or training to interpret and apply (Viray
vs. CA, 191 SCRA 308).[26]
Furthermore, the decision of the Court of Appeals in CA-G.R. SP No. 43059
affirming the trial courts assumption of jurisdiction over the case has become
the law of the case which now binds the petitioners. The law of the case
doctrine has been defined as a term applied to an established rule that when
an appellate court passes on a question and remands the cause to the lower
court for further proceedings, the question there settled becomes the law of
the case upon subsequent appeal.[27] To note, the CAs decision in CA-G.R.
SP No. 43059 has already attained finality as evidenced by a Resolution of
this Court ordering entry of judgment of said case, to wit:
ENTRY OF JUDGMENT
This is to certify that on September 8, 1997 a decision/resolution rendered in
the above-entitled case was filed in this Office, the dispositive part of which
reads as follows:
G.R. No. 129615 (Magellan Capital Management Corporation, et al. vs.
Court of Appeals, Rolando Zosa, et al.).- Considering the petitioners
manifestation dated August 11, 1997 and withdrawal of intention to file
petition for review on certiorari, the Court Resolved to DECLARE THIS
CASE TERMINATED and DIRECT the Clerk of Court to INFORM the parties
that the judgment sought to be reviewed has become final and executory, no
appeal therefore having been timely perfected.
and that the same has, on September 17, 1997, become final and executory
and is hereby recorded in the Book of Entries of Judgments. [28]
Petitioners, therefore, are barred from challenging anew, through another
remedial measure and in any other forum, the authority of the regional trial
court to resolve the validity of the arbitration clause, lest they be truly guilty
of forum-shopping which the courts consistently consider as a contumacious
practice that derails the orderly administration of justice.
Equally unavailing for the petitioners is the review by this Court, via the
instant petition, of the factual findings made by the trial court that the
composition of the panel of arbitrators would, in all probability, work injustice
to respondent Zosa. We have repeatedly stressed that the jurisdiction of this
Court in a petition for review on certiorari under Rule 45 of the Revised
Rules of Court is limited to reviewing only errors of law, not of fact, unless
the factual findings complained of are devoid of support by the evidence on
record, or the assailed judgment is based on misapprehension of facts.[29]
Even if procedural rules are disregarded, and a scrutiny of the merits of the
case is undertaken, this Court finds the trial courts observations on why the
composition of the panel of arbitrators should be voided, incisively correct so
as to merit our approval. Thus,
From the memoranda of both sides, the Court is of the view that the
defendants [petitioner] MCMC and MCHC represent the same interest.
There is no quarrel that both defendants are entirely two different
corporations with personalities distinct and separate from each other and
that a corporation has a personality distinct and separate from those persons
composing the corporation as well as from that of any other legal entity to
which it may be related.
But as the defendants [herein petitioner] represent the same interest, it could
never be expected, in the arbitration proceedings, that they would not protect
and preserve their own interest, much less, would both or either favor the
interest of the plaintiff. The arbitration law, as all other laws, is intended for
the good and welfare of everybody. In fact, what is being challenged by the
plaintiff herein is not the law itself but the provision of the Employment
Agreement based on the said law, which is the arbitration clause but only as
regards the composition of the panel of arbitrators. The arbitration clause in
question provides, thus:
In the event that any dispute, controversy or claim arise out of or under any
provisions of this Agreement, then the parties hereto agree to submit such
dispute, controversy or claim to arbitration as set forth in this Section and the
determination to be made in such arbitration shall be final and binding.
Arbitration shall be effected by a panel of three arbitrators. The Manager,
Employee, and Corporation shall designate one (1) arbitrator who shall, in
turn, nominate and elect as who among them shall be the chairman of the
committee. Any such arbitration, including the rendering of an arbitration
award, shall take place in Metro Manila. The arbitrators shall interpret this
Agreement in accordance with the substantive laws of the Republic of the
Philippines. The arbitrators shall have no power to add to, subtract from or
otherwise modify the terms of this Agreement or to grant injunctive relief of
any nature. Any judgment upon the award of the arbitrators may be entered
in any court having jurisdiction thereof, with costs of the arbitration to be
borne equally by the parties, except that each party shall pay the fees and
expenses of its own counsel in the arbitration. (Emphasis supplied).
From the foregoing arbitration clause, it appears that the two (2) defendants
[petitioners] (MCMC and MCHC) have one (1) arbitrator each to compose
the panel of three (3) arbitrators. As the defendant MCMC is the Manager of
defendant MCHC, its decision or vote in the arbitration proceeding would
naturally and certainly be in favor of its employer and the defendant MCHC
would have to protect and preserve its own interest; hence, the two (2) votes
of both defendants (MCMC and MCHC) would certainly be against the lone
arbitrator for the plaintiff [herein defendant]. Hence, apparently, plaintiff
[defendant] would never get or receive justice and fairness in the arbitration
proceedings from the panel of arbitrators as provided in the aforequoted
arbitration clause. In fairness and justice to the plaintiff [defendant], the two
defendants (MCMC and MCHC)[herein petitioners] which represent the
same interest should be considered as one and should be entitled to only
one arbitrator to represent them in the arbitration proceedings. Accordingly,
the arbitration clause, insofar as the composition of the panel of arbitrators is
concerned should be declared void and of no effect, because the law says,
Any clause giving one of the parties power to choose more arbitrators than
the other is void and of no effect (Article 2045, Civil Code).
The dispute or controversy between the defendants (MCMC and MCHC)
[herein petitioners] and the plaintiff [herein defendant] should be settled in
the arbitration proceeding in accordance with the Employment Agreement,
but under the panel of three (3) arbitrators, one (1) arbitrator to represent the
plaintiff, one (1) arbitrator to represent both defendants (MCMC and
 MCHC)[herein petitioners] and the third arbitrator to be chosen by the
plaintiff [defendant Zosa] and defendants [petitioners].
x x x x x x x x x[30]
In this connection, petitioners attempt to put respondent in estoppel in
assailing the arbitration clause must be struck down. For one, this issue of
estoppel, as likewise noted by the Court of Appeals, found its way for the
first time only on appeal. Well-settled is the rule that issues not raised below
cannot be resolved on review in higher courts.[31] Secondly, employment
agreements such as the one at bar are usually contracts of adhesion. Any
ambiguity in its provisions is generally resolved against the party who drafted
the document. Thus, in the relatively recent case of Phil. Federation of Credit
Cooperatives, Inc. (PFCCI) and Fr. Benedicto Jayoma vs. NLRC and
Victoria Abril,[32] we had the occasion to stress that where a contract of
employment, being a contract of adhesion, is ambiguous, any ambiguity
therein should be construed strictly against the party who prepared it. And,
finally, respondent Zosa never submitted himself to arbitration proceedings
(as there was none yet) before bewailing the composition of the panel of
arbitrators. He in fact, lost no time in assailing the arbitration clause upon
realizing the inequities that may mar the arbitration proceedings if the
existing line-up of arbitrators remained unchecked.
We need only to emphasize in closing that arbitration proceedings are
designed to level the playing field among the parties in pursuit of a mutually
acceptable solution to their conflicting claims. Any arrangement or scheme
that would give undue advantage to a party in the negotiating table is
anathema to the very purpose of arbitration and should, therefore, be
resisted.
WHEREFORE, premises considered, the petition is hereby DISMISSED and
the decision of the trial court dated July 18, 1997 is AFFIRMED.
SO ORDERED.
[G.R. No. 114323. July 23, 1998]
OIL AND NATURAL GAS COMMISSION, petitioner, vs. COURT OF APPEALS
and PACIFIC CEMENT COMPANY, INC. respondents.
DECISION
MARTINEZ, J.:
This proceeding involves the enforcement of a foreign judgment rendered by the
Civil Judge of Dehra Dun, India in favor of the petitioner, OIL AND NATURAL GAS
COMMISSION and against the private respondent, PACIFIC CEMENT COMPANY,
INCORPORATED.
The petitioner is a foreign corporation owned and controlled by the Government
of India while the private respondent is a private corporation duly organized and
existing under the laws of the Philippines. The present conflict between the petitioner
and the private respondent has its roots in a contract entered into by and between
both parties on February 26, 1983 whereby the private respondent undertook to
supply the petitioner FOUR THOUSAND THREE HUNDRED (4,300) metric tons of oil
well cement. In consideration therefor, the petitioner bound itself to pay the private
respondent the amount of FOUR HUNDRED SEVENTY-SEVEN THOUSAND THREE
HUNDRED U.S. DOLLARS ($477,300.00) by opening an irrevocable, divisible, and
confirmed letter of credit in favor of the latter. The oil well cement was loaded on
board the ship MV SURUTANA NAVA at the port of Surigao City, Philippines for
delivery at Bombay and Calcutta, India. However, due to a dispute between the
shipowner and the private respondent, the cargo was held up in Bangkok and did not
reach its point of destination. Notwithstanding the fact that the private respondent had
already received payment and despite several demands made by the petitioner, the
private respondent failed to deliver the oil well cement. Thereafter, negotiations
ensued between the parties and they agreed that the private respondent will replace
the entire 4,300 metric tons of oil well cement with Class G cement cost free at the
petitioners designated port. However, upon inspection, the Class G cement did not
conform to the petitioners specifications. The petitioner then informed the private
respondent that it was referring its claim to an arbitrator pursuant to Clause 16 of their
contract which stipulates:
Except where otherwise provided in the supply order/contract all questions and
disputes, relating to the meaning of the specification designs, drawings and
instructions herein before mentioned and as to quality of workmanship of the items
ordered or as to any other question, claim, right or thing whatsoever, in any way
arising out of or relating to the supply order/contract design, drawing, specification,
instruction or these conditions or otherwise concerning the materials or the execution
or failure to execute the same during stipulated/extended period or after the
completion/abandonment thereof shall be referred to the sole arbitration of the
persons appointed by Member of the Commission at the time of dispute. It will be no
objection to any such appointment that the arbitrator so appointed is a Commission
employer (sic) that he had to deal with the matter to which the supply or contract
relates and that in the course of his duties as Commissions employee he had
expressed views on all or any of the matter in dispute or difference.
The arbitrator to whom the matter is originally referred being transferred or vacating
his office or being unable to act for any reason the Member of the Commission shall
appoint another person to act as arbitrator in acordance with the terms of the
contract/supply order. Such person shall be entitled to proceed with reference from
the stage at which it was left by his predecessor. Subject as aforesaid the provisions
of the Arbitration Act, 1940, or any Statutary modification or re-enactment there of and
the rules made there under and for the time being in force shall apply to the arbitration
proceedings under this clause.
The arbitrator may with the consent of parties enlarge the time, from time to time, to
make and publish the award.
The venue for arbitration shall be at Dehra dun. [1]
On July 23, 1988, the chosen arbitrator, one Shri N.N. Malhotra, resolved the
dispute in petitioners favor setting forth the arbitral award as follows:
NOW THEREFORE after considering all facts of the case, the evidence, oral and
documentarys adduced by the claimant and carefully examining the various written
statements, submissions, letters, telexes, etc. sent by the respondent, and the oral
arguments addressed by the counsel for the claimants, I, N.N. Malhotra, Sole
Arbitrator, appointed under clause 16 of the supply order dated 26.2.1983, according
to which the parties, i.e. M/S Oil and Natural Gas Commission and the Pacific Cement
Co., Inc. can refer the dispute to the sole arbitration under the provision of the
Arbitration Act. 1940, do hereby award and direct as follows:-
The Respondent will pay the following to the claimant :-
1. Amount received by the Respondent
against the letter of credit No. 11/19
dated 28.2.1983 - - - US $ 477,300.00
2. Re-imbursement of expenditure incurred
by the claimant on the inspection teams
visit to Philippines in August 1985 - - - US$ 3,881.00
3. L. C. Establishment charges incurred
by the claimant - - - US $ 1,252.82
4. Loss of interest suffered by claimant
from 21.6.83 to 23.7.88 - - - US $ 417,169.95
Total amount of award - - - US $ 899,603.77
In addition to the above, the respondent would also be liable to pay to the claimant
the interest at the rate of 6% on the above amount, with effect from 24.7.1988 upto
the actual date of payment by the Respondent in full settlement of the claim as
awarded or the date of the decree, whichever is earlier.
I determine the cost at Rs. 70,000/- equivalent to US $5,000 towards the expenses on
Arbitration, legal expenses, stamps duly incurred by the claimant. The cost will be
shared by the parties in equal proportion.
Pronounced at Dehra Dun to-day, the 23rd of July 1988.[2]
To enable the petitioner to execute the above award in its favor, it filed a Petition
before the Court of the Civil Judge in Dehra Dun, India (hereinafter referred to as the
foreign court for brevity), praying that the decision of the arbitrator be made the Rule
of Court in India. The foreign court issued notices to the private respondent for filing
objections to the petition. The private respondent complied and sent its objections
dated January 16, 1989. Subsequently, the said court directed the private respondent
to pay the filing fees in order that the latters objections could be given consideration.
Instead of paying the required filing fees, the private respondent sent the following
communication addressed to the Civil Judge of Dehra Dun:
The Civil Judge
Dehra Dun (U.P.) India
Re: Misc. Case No. 5 of 1989
M/S Pacific Cement Co.,
Inc. vs. ONGC Case
Sir:
1. We received your letter dated 28 April 1989 only last 18 May 1989.
2. Please inform us how much is the court fee to be paid. Your letter did not
mention the amount to be paid.
3. Kindly give us 15 days from receipt of your letter advising us how much to
pay to comply with the same.
Thank you for your kind consideration.
Pacific Cement Co., Inc.
By:
 Jose Cortes, Jr.
President"[3]
Without responding to the above communication, the foreign court refused to
admit the private respondents objections for failure to pay the required filing fees, and
thereafter issued an Order on February 7, 1990, to wit:
ORDER
Since objections filed by defendant have been rejected through Misc. Suit No. 5 on
7.2.90, therefore, award should be made Rule of the Court.
ORDER
Award dated 23.7.88, Paper No. 3/B-1 is made Rule of the Court. On the basis of
conditions of award decree is passed. Award Paper No. 3/B-1 shall be a part of the
decree. The plaintiff shall also be entitled to get from defendant (US$ 899, 603.77
(US$ Eight Lakhs ninety nine thousand six hundred and three point seventy seven
only) alongwith 9% interest per annum till the last date of realisation. [4]
Despite notice sent to the private respondent of the foregoing order and several
demands by the petitioner for compliance therewith, the private respondent refused to
pay the amount adjudged by the foreign court as owing to the petitioner. Accordingly,
the petitioner filed a complaint with Branch 30 of the Regional Trial Court (RTC) of
Surigao City for the enforcement of the aforementioned judgment of the foreign court.
The private respondent moved to dismiss the complaint on the following grounds: (1)
plaintiffs lack of legal capacity to sue; (2) lack of cause of action; and (3) plaintiffs
claim or demand has been waived, abandoned, or otherwise extinguished. The
petitioner filed its opposition to the said motion to dismiss, and the private respondent,
its rejoinder thereto. On January 3, 1992, the RTC issued an order upholding the
petitioners legal capacity to sue, albeit dismissing the complaint for lack of a valid
cause of action. The RTC held that the rule prohibiting foreign corporations
transacting business in the Philippines without a license from maintaining a suit in
Philippine courts admits of an exception, that is, when the foreign corporation is suing
on an isolated transaction as in this case. [5] Anent the issue of the sufficiency of the
petitioners cause of action, however, the RTC found the referral of the dispute
between the parties to the arbitrator under Clause 16 of their contract erroneous.
According to the RTC,
[a] perusal of the above-quoted clause (Clause 16) readily shows that the matter
covered by its terms is limited to ALL QUESTIONS AND DISPUTES, RELATING TO
THE MEANING OF THE SPECIFICATION, DESIGNS, DRAWINGS AND
INSTRUCTIONS HEREIN BEFORE MENTIONED and as to the QUALITY OF
WORKMANSHIP OF THE ITEMS ORDERED or as to any other questions, claim,
right or thing whatsoever, but qualified to IN ANY WAY ARISING OR RELATING TO
THE SUPPLY ORDER/CONTRACT, DESIGN, DRAWING, SPECIFICATION, etc.,
repeating the enumeration in the opening sentence of the clause.
The court is inclined to go along with the observation of the defendant that the breach,
consisting of the non-delivery of the purchased materials, should have been properly
litigated before a court of law, pursuant to Clause No. 15 of the Contract/Supply
Order, herein quoted, to wit:
JURISDICTION
All questions, disputes and differences, arising under out of or in connection with this
supply order, shall be subject to the EXCLUSIVE JURISDICTION OF THE COURT,
within the local limits of whose jurisdiction and the place from which this supply order
is situated.[6]
The RTC characterized the erroneous submission of the dispute to the arbitrator as a
mistake of law or fact amounting to want of jurisdiction. Consequently, the
proceedings had before the arbitrator were null and void and the foreign court had
therefore, adopted no legal award which could be the source of an enforceable
right.[7]
The petitioner then appealed to the respondent Court of Appeals which affirmed
the dismissal of the complaint. In its decision, the appellate court concurred with the
RTCs ruling that the arbitrator did not have jurisdiction over the dispute between the
parties, thus, the foreign court could not validly adopt the arbitrators award. In
addition, the appellate court observed that the full text of the judgment of the foreign
court contains the dispositive portion only and indicates no findings of fact and law as
basis for the award. Hence, the said judgment cannot be enforced by any Philippine
court as it would violate the constitutional provision that no decision shall be rendered
by any court without expressing therein clearly and distinctly the facts and the law on
which it is based.[8] The appellate court ruled further that the dismissal of the private
respondents objections for non-payment of the required legal fees, without the foreign
court first replying to the private respondents query as to the amount of legal fees to
be paid, constituted want of notice or violation of due process. Lastly, it pointed out
that the arbitration proceeding was defective because the arbitrator was appointed
solely by the petitioner, and the fact that the arbitrator was a former employee of the
latter gives rise to a presumed bias on his part in favor of the petitioner.[9]
A subsequent motion for reconsideration by the petitioner of the appellate courts
decision was denied, thus, this petition for review on certiorari citing the following as
grounds in support thereof:
 RESPONDENT COURT OF APPEALS GRAVELY ERRED IN AFFIRMING
THE LOWER COURTS ORDER OF DISMISSAL SINCE:
A. THE NON-DELIVERY OF THE CARGO WAS A MATTER PROPERLY
COGNIZABLE BY THE PROVISIONS OF CLAUSE 16 OF THE CONTRACT;
B. THE JUDGMENT OF THE CIVIL COURT OF DEHRADUN, INDIA WAS AN
AFFIRMATION OF THE FACTUAL AND LEGAL FINDINGS OF THE
ARBITRATOR AND THEREFORE ENFORCEABLE IN THIS JURISDICTION;
C. EVIDENCE MUST BE RECEIVED TO REPEL THE EFFECT OF A
PRESUMPTIVE RIGHT UNDER A FOREIGN JUDGMENT.[10]
The threshold issue is whether or not the arbitrator had jurisdiction over the
dispute between the petitioner and the private respondent under Clause 16 of the
contract. To reiterate, Clause 16 provides as follows:
Except where otherwise provided in the supply order/contract all questions and
disputes, relating to the meaning of the specification designs, drawings and
instructions herein before mentioned and as to quality of workmanship of the items
ordered or as to any other question, claim, right or thing whatsoever, in any way
arising out of or relating to the supply order/contract design, drawing, specification,
instruction or these conditions or otherwise concerning the materials or the execution
or failure to execute the same during stipulated/extended period or after the
completion/abandonment thereof shall be referred to the sole arbitration of the
persons appointed by Member of the Commission at the time of dispute. It will be no
objection to any such appointment that the arbitrator so appointed is a Commission
employer (sic) that he had to deal with the matter to which the supply or contract
relates and that in the course of his duties as Commissions employee he had
expressed views on all or any of the matter in dispute or difference. [11]
The dispute between the parties had its origin in the non-delivery of the 4,300
metric tons of oil well cement to the petitioner. The primary question that may be
posed, therefore, is whether or not the non-delivery of the said cargo is a proper
subject for arbitration under the above-quoted Clause 16. The petitioner contends that
the same was a matter within the purview of Clause 16, particularly the phrase, x x
x or as to any other questions, claim, right or thing whatsoever, in any way arising or
relating to the supply order/contract, design, drawing, specification, instruction x x
x.[12] It is argued that the foregoing phrase allows considerable latitude so as to
include non-delivery of the cargo which was a claim, right or thing relating to the
supply order/contract. The contention is bereft of merit. First of all, the petitioner has
misquoted the said phrase, shrewdly inserting a comma between the words supply
order/contract and design where none actually exists. An accurate reproduction of the
phrase reads, x x x or as to any other question, claim, right or thing whatsoever, in
any way arising out of or relating to the supply order/contract design, drawing,
specification, instruction or these conditions x x x. The absence of a comma between
the words supply order/contract and design indicates that the former cannot be taken
separately but should be viewed in conjunction with the words design, drawing,
specification, instruction or these conditions. It is thus clear that to fall within the
purview of this phrase, the claim, right or thing whatsoever must arise out of or relate
to the design, drawing, specification, or instruction of the supply order/contract. The
petitioner also insists that the non-delivery of the cargo is not only covered by the
foregoing phrase but also by the phrase, x x x or otherwise concerning the materials
or the execution or failure to execute the same during the stipulated/extended period
or after completion/abandonment thereof x x x.
The doctrine of noscitur a sociis, although a rule in the construction of statutes,
is equally applicable in the ascertainment of the meaning and scope of vague
contractual stipulations, such as the aforementioned phrase. According to the
maxim noscitur a sociis, where a particular word or phrase is ambiguous in itself or is
equally susceptible of various meanings, its correct construction may be made clear
and specific by considering the company of the words in which it is found or with
which it is associated, or stated differently, its obscurity or doubt may be reviewed by
reference to associated words.[13] A close examination of Clause 16 reveals that it
covers three matters which may be submitted to arbitration namely,
(1) all questions and disputes, relating to the meaning of the specification
designs, drawings and instructions herein before mentioned and as to
quality of workmanship of the items ordered; or
(2) any other question, claim, right or thing whatsoever, in any way arising
out of or relating to the supply order/contract design, drawing,
specification, instruction or these conditions; or
(3) otherwise concerning the materials or the execution or failure to
execute the same during stipulated/extended period or after the
completion/abandonment thereof.
The first and second categories unmistakably refer to questions and disputes
relating to the design, drawing, instructions, specifications or quality of the materials
of the supply/order contract. In the third category, the clause, execution or failure to
execute the same, may be read as execution or failure to execute the supply
order/contract. But in accordance with the doctrine of noscitur a sociis, this reference
to the supply order/contract must be construed in the light of the preceding words with
which it is associated, meaning to say, as being limited only to the design, drawing,
instructions, specifications or quality of the materials of the supply order/contract. The
non-delivery of the oil well cement is definitely not in the nature of a dispute arising
from the failure to execute the supply order/contract design, drawing, instructions,
specifications or quality of the materials. That Clause 16 should pertain only to
matters involving the technical aspects of the contract is but a logical inference
considering that the underlying purpose of a referral to arbitration is for such technical
matters to be deliberated upon by a person possessed with the required skill and
expertise which may be otherwise absent in the regular courts.
This Court agrees with the appellate court in its ruling that the non-delivery of
the oil well cement is a matter properly cognizable by the regular courts as stipulated
by the parties in Clause 15 of their contract:
All questions, disputes and differences, arising under out of or in connection with this
supply order, shall be subject to the exclusive jurisdiction of the court, within the local
limits of whose jurisdiction and the place from which this supply order is situated. [14]
The following fundamental principles in the interpretation of contracts and other
instruments served as our guide in arriving at the foregoing conclusion:
"ART. 1373. If some stipulation of any contract should admit of several meanings, it
shall be understood as bearing that import which is most adequate to render it
effectual."[15]
ART. 1374. The various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken
jointly.[16]
Sec. 11. Instrument construed so as to give effect to all provisions. In the construction
of an instrument, where there are several provisions or particulars, such a
construction is, if possible, to be adopted as will give effect to all. [17]
Thus, this Court has held that as in statutes, the provisions of a contract should
not be read in isolation from the rest of the instrument but, on the contrary, interpreted
in the light of the other related provisions. [18] The whole and every part of a contract
must be considered in fixing the meaning of any of its parts and in order to produce a
harmonious whole. Equally applicable is the canon of construction that in interpreting
a statute (or a contract as in this case), care should be taken that every part thereof
be given effect, on the theory that it was enacted as an integrated measure and not
as a hodge-podge of conflicting provisions. The rule is that a construction that would
render a provision inoperative should be avoided; instead, apparently inconsistent
provisions should be reconciled whenever possible as parts of a coordinated and
harmonious whole.[19]
The petitioners interpretation that Clause 16 is of such latitude as to contemplate
even the non-delivery of the oil well cement would in effect render Clause 15 a mere
superfluity. A perusal of Clause 16 shows that the parties did not intend arbitration to
be the sole means of settling disputes. This is manifest from Clause 16 itself which is
prefixed with the proviso, Except where otherwise provided in the supply
order/contract x x x, thus indicating that the jurisdiction of the arbitrator is not all
encompassing, and admits of exceptions as may be provided elsewhere in the supply
order/contract. We believe that the correct interpretation to give effect to both
stipulations in the contract is for Clause 16 to be confined to all claims or disputes
arising from or relating to the design, drawing, instructions, specifications or quality of
the materials of the supply order/contract, and for Clause 15 to cover all other claims
or disputes.
The petitioner then asseverates that granting, for the sake of argument, that the
non-delivery of the oil well cement is not a proper subject for arbitration, the failure of
the replacement cement to conform to the specifications of the contract is a matter
clearly falling within the ambit of Clause 16. In this contention, we find merit. When
the 4,300 metric tons of oil well cement were not delivered to the petitioner, an
agreement was forged between the latter and the private respondent that Class G
cement would be delivered to the petitioner as replacement. Upon inspection,
however, the replacement cement was rejected as it did not conform to the
specifications of the contract. Only after this latter circumstance was the matter
brought before the arbitrator. Undoubtedly, what was referred to arbitration was no
longer the mere non-delivery of the cargo at the first instance but also the failure of
the replacement cargo to conform to the specifications of the contract, a matter clearly
within the coverage of Clause 16.
The private respondent posits that it was under no legal obligation to make
replacement and that it undertook the latter only in the spirit of liberality and to foster
good business relationship.[20] Hence, the undertaking to deliver the replacement
cement and its subsequent failure to conform to specifications are not anymore
subject of the supply order/contract or any of the provisions thereof. We disagree.
As per Clause 7 of the supply order/contract, the private respondent undertook
to deliver the 4,300 metric tons of oil well cement at BOMBAY (INDIA) 2181 MT and
CALCUTTA 2119 MT.[21] The failure of the private respondent to deliver the cargo to
the designated places remains undisputed. Likewise, the fact that the petitioner had
already paid for the cost of the cement is not contested by the private respondent.
The private respondent claims, however, that it never benefited from the transaction
as it was not able to recover the cargo that was unloaded at the port of
Bangkok.[22] First of all, whether or not the private respondent was able to recover the
cargo is immaterial to its subsisting duty to make good its promise to deliver the cargo
at the stipulated place of delivery. Secondly, we find it difficult to believe this
representation. In its Memorandum filed before this Court, the private respondent
asserted that the Civil Court of Bangkok had already ruled that the non-delivery of the
cargo was due solely to the fault of the carrier. [23] It is, therefore, but logical to assume
that the necessary consequence of this finding is the eventual recovery by the private
respondent of the cargo or the value thereof. What inspires credulity is not that the
replacement was done in the spirit of liberality but that it was undertaken precisely
because of the private respondents recognition of its duty to do so under the supply
order/contract, Clause 16 of which remains in force and effect until the full execution
thereof.
We now go to the issue of whether or not the judgment of the foreign court is
enforceable in this jurisdiction in view of the private respondents allegation that it is
bereft of any statement of facts and law upon which the award in favor of the
petitioner was based. The pertinent portion of the judgment of the foreign court reads:
ORDER
Award dated 23.7.88, Paper No. 3/B-1 is made Rule of the Court. On the basis of
conditions of award decree is passed. Award Paper No. 3/B-1 shall be a part of the
decree. The plaintiff shall also be entitled to get from defendant ( US$ 899, 603.77
(US$ Eight Lakhs ninety nine thousand six hundred and three point seventy seven
only) alongwith 9% interest per annum till the last date of realisation.[24]
As specified in the order of the Civil Judge of Dehra Dun, Award Paper No. 3/B-
1 shall be a part of the decree. This is a categorical declaration that the foreign court
adopted the findings of facts and law of the arbitrator as contained in the latters
Award Paper. Award Paper No. 3/B-1, contains an exhaustive discussion of the
respective claims and defenses of the parties, and the arbitrators evaluation of the
same. Inasmuch as the foregoing is deemed to have been incorporated into the
foreign courts judgment the appellate court was in error when it described the latter to
be a simplistic decision containing literally, only the dispositive portion.[25]
The constitutional mandate that no decision shall be rendered by any court
without expressing therein clearly and distinctly the facts and the law on which it is
based does not preclude the validity of memorandum decisions which adopt by
reference the findings of fact and conclusions of law contained in the decisions of
inferior tribunals. In Francisco v. Permskul,[26] this Court held that the following
memorandum decision of the Regional Trial Court of Makati did not transgress the
requirements of Section 14, Article VIII of the Constitution:
MEMORANDUM DECISION
After a careful perusal, evaluation and study of the records of this case, this Court
hereby adopts by reference the findings of fact and conclusions of law contained in
the decision of the Metropolitan Trial Court of Makati, Metro Manila, Branch 63 and
finds that there is no cogent reason to disturb the same.
WHEREFORE, judgment appealed from is hereby affirmed in toto.[27] (Underscoring
supplied.)
This Court had occasion to make a similar pronouncement in the earlier case
of Romero v. Court of Appeals,[28] where the assailed decision of the Court of Appeals
adopted the findings and disposition of the Court of Agrarian Relations in this wise:
We have, therefore, carefully reviewed the evidence and made a re-assessment of
the same, and We are persuaded, nay compelled, to affirm the correctness of the trial
courts factual findings and the soundness of its conclusion. For judicial convenience
and expediency, therefore, We hereby adopt by way of reference, the findings of facts
and conclusions of the court a quo spread in its decision, as integral part of this Our
decision.[29] (Underscoring supplied)
Hence, even in this jurisdiction, incorporation by reference is allowed if only to avoid
the cumbersome reproduction of the decision of the lower courts, or portions thereof,
in the decision of the higher court.[30] This is particularly true when the decision sought
to be incorporated is a lengthy and thorough discussion of the facts and conclusions
arrived at, as in this case, where Award Paper No. 3/B-1 consists of eighteen (18)
single spaced pages.
Furthermore, the recognition to be accorded a foreign judgment is not
necessarily affected by the fact that the procedure in the courts of the country in
which such judgment was rendered differs from that of the courts of the country in
which the judgment is relied on.[31] This Court has held that matters of remedy and
procedure are governed by the lex fori or the internal law of the forum.[32] Thus, if
under the procedural rules of the Civil Court of Dehra Dun, India, a valid judgment
may be rendered by adopting the arbitrators findings, then the same must be
accorded respect. In the same vein, if the procedure in the foreign court mandates
that an Order of the Court becomes final and executory upon failure to pay the
necessary docket fees, then the courts in this jurisdiction cannot invalidate the order
of the foreign court simply because our rules provide otherwise.
The private respondent claims that its right to due process had been blatantly
violated, first by reason of the fact that the foreign court never answered its queries as
to the amount of docket fees to be paid then refused to admit its objections for failure
to pay the same, and second, because of the presumed bias on the part of the
arbitrator who was a former employee of the petitioner.
Time and again this Court has held that the essence of due process is to be
found in the reasonable opportunity to be heard and submit any evidence one may
have in support of ones defense[33] or stated otherwise, what is repugnant to due
process is the denial of opportunity to be heard. [34] Thus, there is no violation of due
process even if no hearing was conducted, where the party was given a chance to
explain his side of the controversy and he waived his right to do so. [35]
In the instant case, the private respondent does not deny the fact that it was
notified by the foreign court to file its objections to the petition, and subsequently, to
pay legal fees in order for its objections to be given consideration. Instead of paying Consequently, the party attacking a foreign judgment, the private respondent herein,
the legal fees, however, the private respondent sent a communication to the foreign had the burden of overcoming the presumption of its validity which it failed to do in the
court inquiring about the correct amount of fees to be paid. On the pretext that it was instant case.
yet awaiting the foreign courts reply, almost a year passed without the private
respondent paying the legal fees. Thus, on February 2, 1990, the foreign court The foreign judgment being valid, there is nothing else left to be done than to
rejected the objections of the private respondent and proceeded to adjudicate upon order its enforcement, despite the fact that the petitioner merely prays for the remand
the petitioners claims. We cannot subscribe to the private respondents claim that the of the case to the RTC for further proceedings. As this Court has ruled on the validity
foreign court violated its right to due process when it failed to reply to its queries nor and enforceability of the said foreign judgment in this jurisdiction, further proceedings
when the latter rejected its objections for a clearly meritorious ground. The private in the RTC for the reception of evidence to prove otherwise are no longer necessary.
respondent was afforded sufficient opportunity to be heard. It was not incumbent upon WHEREFORE, the instant petition is GRANTED, and the assailed decision of
the foreign court to reply to the private respondents written communication. On the the Court of Appeals sustaining the trial courts dismissal of the OIL AND NATURAL
contrary, a genuine concern for its cause should have prompted the private GAS COMMISSIONs complaint in Civil Case No. 4006 before Branch 30 of the RTC
respondent to ascertain with all due diligence the correct amount of legal fees to be of Surigao City is REVERSED, and another in its stead is hereby rendered
paid. The private respondent did not act with prudence and diligence thus its plea that ORDERING private respondent PACIFIC CEMENT COMPANY, INC. to pay to
they were not accorded the right to procedural due process cannot elicit either petitioner the amounts adjudged in the foreign judgment subject of said case.
approval or sympathy from this Court.[36]
SO ORDERED.
The private respondent bewails the presumed bias on the part of the arbitrator
who was a former employee of the petitioner. This point deserves scant consideration
in view of the following stipulation in the contract:
x x x. It will be no objection to any such appointment that the arbitrator so
appointed is a Commission employer (sic) that he had to deal with the matter to which FIESTA WORLD MALL CORPORATION, G.R. NO. 152471
the supply or contract relates and that in the course of his duties as Commissions Petitioner,
employee he had expressed views on all or any of the matter in dispute or Present:
difference.[37] (Underscoring supplied.) - versus -
PUNO, J., Chairperson,
Finally, we reiterate hereunder our pronouncement in the case of Northwest SANDOVAL-GUTIERREZ,
Orient Airlines, Inc. v. Court of Appeals[38] that: CORONA,
*AZCUNA, and
LINBERG PHILIPPINES, INC.,
A foreign judgment is presumed to be valid and binding in the country from which it Respondent. GARCIA, JJ.
comes, until the contrary is shown. It is also proper to presume the regularity of the
proceedings and the giving of due notice therein.
Promulgated:
Under Section 50, Rule 39 of the Rules of Court, a judgment in an action in personam
August 18, 2006
of a tribunal of a foreign country having jurisdiction to pronounce the same is
presumptive evidence of a right as between the parties and their successors-in-
interest by a subsequent title. The judgment may, however, be assailed by evidence
of want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of
x---------------------------------------------------------------------------------------------x
law or fact. Also, under Section 3 of Rule 131, a court, whether of the Philippines or
elsewhere, enjoys the presumption that it was acting in the lawful exercise of
jurisdiction and has regularly performed its official duty.[39]
DECISION

SANDOVAL-GUTIERREZ, J.:
 BER 0.6426 + 0.3224 Pn + 1.345 Fn
For our resolution is the instant Petition for Review on Certiorari[1] assailing 26.40 4.00
the Decision[2] dated December 12, 2001 and Resolution[3] dated February 28, 2002 WHERE:
rendered by the Court of Appeals in CA-G.R. SP No. 63671, entitled Fiesta World
Mall Corporation, petitioner, versus Hon. Florito S. Macalino, Presiding Judge Pn is defined as the average of the Bangko Sentral ng
of the Regional Trial Court (RTC), Branch 267, Pasig City, and Linberg Philippines, Pilipinas published dealing rates for thirty
Inc., respondents. (30) trading days immediately prior to the
new billing rate.
The facts of this case are:
Fn Weighted average of fuel price per liter based on the
Fiesta World Mall Corporation, petitioner, owns and operates Fiesta World average of the last three (3) purchases
Mall located at Barangay Maraouy, Lipa City; while Linberg Philippines, made by LINBERG as evidenced by
Inc., respondent, is a corporation that builds and operates power plants. purchase invoices.
On January 19, 2000, respondent filed with the Regional Trial Court (RTC),
Branch 267, Pasig City, a Complaint for Sum of Money against petitioner, docketed ED Energy delivered in kw-hrs per meter reading.
as Civil Case No. 67755. The complaint alleges that on November 12, 1997,petitioner
and respondent executed a build-own-operate agreement, entitled Contract
Agreement for Power Supply Services, 3.8 MW Base Load Power Plant [4] (the 3. Minimum Energy Off-Take
Contract). Under this Contract, respondent will construct, at its own cost, and operate
as owner a power plant, and to supply petitioner power/electricity at its shopping mall The energy fees payable to LINBERG shall be on the basis of
in Lipa City. Petitioner, on the other hand, will pay respondent energy fees to be actual KWH generated by the plant. However, if the actual
computed in accordance with the Seventh Schedule of the Contract, the pertinent KWH generated is less than the minimum energy off-take
portions of which provide: level, the calculation of the energy fees shall be made as if
2.1 x x x LINBERG has generated the minimum energy off-take
level of 988,888 KW-HR per month.
E1 988,888 kw-hr x BER
E2 (ED-988,888) x BER
The complaint further alleges that respondent constructed the power plant
Where: in Lipa City at a cost of about P130,000,000.00. In November 1997, the power plant
became operational and started supplying power/electricity to petitioners shopping
E1 & E2 Energy fees in pesos for the billing mall in Lipa City. In December 1997, respondent started billing petitioner. As of May
period. Where E1 is based on the 21, 1999, petitioners unpaid obligation amounted to P15,241,747.58, exclusive of
minimum energy off-take of 988,888 kw- interest. However, petitioner questioned the said amount and refused to pay despite
hrs. per month and E2 is based on the respondents repeated demands.
actual meter reading less the minimum
off-take. In its Answer with Compulsory Counterclaim, petitioner specifically denied
the allegations in the complaint, claiming that respondent failed to fulfill its obligations
BER Base energy rate at Ps 2.30/Kw-Hr billing rate based under the Contract by failing to supply all its power/fuel needs. From November 10,
on the exchange rate of Ps 26.20 to the 1998 until May 21, 1999, petitioner personally shouldered the cost of fuel. Petitioner
US dollar, and with fuel oil to be also disputed the amount of energy fees specified in the billings made by
supplied by LINBERG at its own respondent because the latter failed to monitor, measure, and record the
cost. The base energy rate is subject to quantities of electricity delivered by taking photographs of the electricity meter
exchange rate adjustment accordingly to reading prior to the issuance of its invoices and billings, also in violation of the
the formula as follows: Contract.[5] Moreover, in the computation of the electrical billings, the minimum off-
take of energy (E2) was based solely on the projected consumption as computed
by
respondent. However, based on petitioners actual experience, it could not consume
the energy pursuant to the minimum off-take even if it kept open all its lights
and operated all its machinery and equipment for twenty-four hours a day for a
month. This fact was admitted by respondent. While both parties had discussions
on the questioned billings, however, there were no earnest efforts to resolve the
differences in accordance with the arbitration clause provided for in the Contract.
interpretation of any of the provisions hereto, they shall
endeavor to meet together in an effort to resolve such dispute
by discussion between them but failing such resolution the
Chief Executives of LINBERG and FIESTA WORLD shall meet
to resolve such dispute or difference and the joint decision of
such shall be binding upon the parties hereto, and in the event that
a settlement of any such dispute or difference is not reached,
then the provisions of Article XXI shall apply.

Finally, as a special affirmative defense in its answer, petitioner alleged that Article XXI, referred to in paragraph 17.2 above, reads:
respondents filing of the complaint is premature and should be dismissed on the
ground of non-compliance with paragraph 7.4 of the Contract which provides:
7.4 Disputes ARTICLE XXI
If FIESTA WORLD disputes the amount specified by any
invoice, it shall pay the undisputed amount on or before such JURISDICTION
date(s), and the disputed amount shall be resolved by
arbitration of three (3) persons, one (1) by mutual choice, while The parties hereto submit to the exclusive jurisdiction of the proper
the other two (2) to be each chosen by the parties courts of Pasig City, Republic of the Philippines for the hearing
themselves, within fourteen (14) days after the due date for such and determination of any action or proceeding arising out of or
invoice and all or any part of the disputed amount paid to LINBERG in connection with this Agreement.
shall be paid together with interest pursuant to Article XXV from the
due date of the invoice. It is agreed, however, that both parties must In its Order dated October 3, 2000, the trial
resolve the disputes within thirty (30) days, otherwise any delay in court denied petitioners motion for lack of merit.
payment resulting to loss to LINBERG when converted to $US as a
result of depreciation of the Pesos shall be for the account of Petitioner then filed a Motion for Reconsideration but it was denied in an
FIESTA WORLD. Corollarily, in case of erroneous billings, however, Order dated January 11, 2001.
LINBERG shall be liable to pay FIESTA WORLD for the cost of
such deterioration, plus interest computed pursuant to Art. XXV Dissatisfied, petitioner elevated the matter to the Court of Appeals via a
from the date FIESTA WORLD paid for the erroneous Petition for Certiorari, docketed as CA-G.R. SP No. 63671. On December 12,
billing. (Underscoring supplied) 2001, the appellate court rendered its Decision dismissing the petition and affirming
the challenged Orders of the trial court.

Thereafter, petitioner filed a Motion to Set Case for Preliminary Hearing on Petitioners Motion for Reconsideration of the above Decision was likewise
the ground that respondent violated the arbitration clause provided in the Contract, denied by the appellate court in its Resolution[6] dated February 28, 2002.
thereby rendering its cause of action premature.
Hence, the instant Petition for Review on Certiorari.
This was opposed by respondent, claiming that paragraph 7.4 of the
Contract on arbitration is not the provision applicable to this case; and that since the The sole issue for our resolution is whether the filing with the trial court
parties failed to settle their dispute, then respondent may resort to court action of respondents complaint is premature.
pursuant toparagraph 17.2 of the same Contract which provides: Paragraph 7.4 of the Contract, quoted earlier, mandates
that should petitioner dispute any amount of energy fees in the invoice
17.2 Amicable Settlement and billings made by respondent, the same shall be resolved by arbitration of three
The parties hereto agree that in the event there is any dispute or (3) persons, one (1) by mutual choice, while the other two (2) to be each chosen
difference between them arising out of this Agreement or in the by the parties themselves. The parties, in incorporating such agreement in their
Contract, expressly intended that the said matter in dispute must first be resolved by
an arbitration panel before it reaches the court. They made such
arbitration mandatory.
It is clear from the records that petitioner disputed the amount of energy fees
demanded by respondent. However, respondent, without prior recourse to arbitration
as required in the Contract, filed directly with the trial court its complaint, thus violating
the arbitration clause in the Contract.
It bears stressing that such arbitration agreement is the law between the
parties. Since that agreement is binding between them, they are expected to abide by
it in good faith.[7] And because it covers the dispute between them in the present case,
either of them may compel the other to arbitrate.[8] Thus, it is well within petitioners
right to demand recourse to arbitration.
We cannot agree with respondent that it can directly seek judicial recourse by
filing an action against petitioner simply because both failed to settle their
differences amicably. Suffice it to state that there is nothing in the
Contract providing that the parties may dispense with the arbitration
clause. Article XXI on jurisdiction cited by respondent, i.e., that the parties hereto
submit to the exclusive jurisdiction of the proper courts of Pasig City merely
provides for the venue of any action arising out of or in connection with the
stipulations of the parties in the Contract.
Moreover, we note that the computation of the energy fees disputed by
petitioner also involves technical matters that are better left to an arbitration
panel who has expertise in those areas. Alternative dispute resolution methods
or ADRs like arbitration, mediation, negotiation and conciliation are encouraged by
this Court. By enabling the parties to resolve their disputes amicably, they provide
solutions that are less time-consuming, less tedious, less confrontational, and more
productive of goodwill and lasting relationships.[9] To brush aside such agreement
providing for arbitration in case of disputes between the parties would be a step
backward. As we held in BF Corporation v. Court of Appeals,[10]
It should be noted that in this jurisdiction, arbitration has
been held valid and constitutional. Even before the approval
on June 19, 1953 of Republic Act No. 876 (The Arbitration Law),
this Court has countenanced the settlement of disputes through
arbitration (Puromines, Inc. v. Court of Appeals, G.R. No. 91228,
March 22, 1993, 220 SCRA 281-290). Republic Act No. 876 was
adopted to supplement the New Civil Codes provisions on
arbitration (Chung Fu Industries Phils., Inc. v. Court of
Appeals, G.R. No. 92683, February 25, 1992, 206 SCRA 545,
551). Its potentials as one of the alternative dispute resolution
methods that are now rightfully vaunted as the wave of the future in
international relations, is recognized worldwide. To brush aside a
contractual agreement calling for arbitration in case of disagreement
between the parties would therefore be a step backward.
In this connection, since respondent has already filed a complaint with the trial court
without prior recourse to arbitration, the proper procedure to enable an arbitration
panel to resolve the parties dispute pursuant to their Contract is for the trial court to
stay the proceedings.[11] After the arbitration proceeding has been pursued and
completed, then the trial court may confirm the award made by the arbitration panel. [12]
In sum, we hold that the Court of Appeals erred in disregarding the arbitration clause
in the parties Contract.
WHEREFORE, we GRANT the instant petition. The assailed Decision and
Resolution of the Court of Appeals in CA-G.R. SP No. 63671 are REVERSED. The
parties are ordered to submit their controversy to the arbitration panel pursuant to
paragraph 7.4 of the Contract. The Regional Trial Court, Branch 267, Pasig City is
directed to suspend the proceedings in Civil Case No. 67755 until after the Arbitration
Panel shall have resolved the controversy and submitted its report to the
trial court. Costs against respondent.
SO ORDERED.
SOLEDAD BENGSON VS MARIANO CHAN
GR. No. L-27283 July 29 1977
FACTS:
Bengson entered into a contract for the construction of a six storey building with
Chan as the contractor. Such contract includes an arbitration clause. Later, Bengson
filed for damages against Chan for violation of the contract by failing to construct the
1st and 2nd stories within the stipulated time. Chan filed for corresponding
counterclaims and alleged failure of appellant to state cause of action as the contract
stipulates that a controversy over it must first be submitted for arbitration. The trial
court dismissed the complaint. Hence the appeal.
ISSUES:
1.Whether or not appellant has a cause of action.
2.If the answer to the latter is in the affirmative, whether or not arbitration may be
resorted to during the pendency of the case.
HELD:
1.Appellant has a cause of action. The cause of action arose from the breach of the
construction contract caused by a delay on the construction. However, since the
contract includes an arbitration clause, duly agreed by both parties, appellant should
have resorted first to arbitration before filing a case in court.
2.Arbitration may be resorted to during the pendency of the case. Section 7 of the
Arbitration Law states,
Section 7. Stay of civil action. If any suit or proceeding be brought upon an issue
arising out of an agreement providing for an arbitration thereof, the court in which
such suit or proceeding is pending upon being satisfied that the issue involved in such
suit is referable to arbitration, SHALL STAY THE ACTION OR PROCEEDING UNTIL
AN ARBITRATION HAS BEEN HAD IN ACCORDANCE WITH THE TERMS OF THE
AGREEMENT PROVIDED THAT THE APPLICANT FOR THE STAY IS NOT IN
DEFAULT IN PROCEEDING WITH SUCH ARBITRATION.
Therefore, the proceedings of the case are to be suspended until after the designated
time ordered by the court for arbitration expires without definitely settling the dispute.
[G.R. No. 141833. March 26, 2003]
LM POWER ENGINEERING CORPORATION, petitioner, vs. CAPITOL INDUSTRIAL
CONSTRUCTION GROUPS, INC., respondent.
DECISION
PANGANIBAN, J.:
Alternative dispute resolution methods or ADRs -- like arbitration, mediation, negotiation
and conciliation -- are encouraged by the Supreme Court. By enabling parties to resolve their
disputes amicably, they provide solutions that are less time-consuming, less tedious, less
confrontational, and more productive of goodwill and lasting relationships.[1]
The Case
Before us is a Petition for Review on Certiorari[2] under Rule 45 of the Rules of Court,
seeking to set aside the January 28, 2000 Decision of the Court of Appeals [3] (CA) in CA-GR CV
No. 54232. The dispositive portion of the Decision reads as follows:
WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The parties are
ORDERED to present their dispute to arbitration in accordance with their Sub-contract
Agreement. The surety bond posted by [respondent] is [d]ischarged.[4]
The Facts
On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent
Capitol Industrial Construction Groups Inc. entered into a Subcontract Agreement involving
electrical work at the Third Port of Zamboanga.[5]
On April 25, 1985, respondent took over some of the work contracted to
petitioner.[6] Allegedly, the latter had failed to finish it because of its inability to procure
materials.[7]
Upon completing its task under the Contract, petitioner billed respondent in the amount
of P6,711,813.90.[8] Contesting the accuracy of the amount of advances and billable
accomplishments listed by the former, the latter refused to pay. Respondent also took refuge in
the termination clause of the Agreement.[9] That clause allowed it to set off the cost of the work
that petitioner had failed to undertake -- due to termination or take-over -- against the amount it
owed the latter.
Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati
(Branch 141) a Complaint[10] for the collection of the amount representing the alleged balance
due it under the Subcontract. Instead of submitting an Answer, respondent filed a Motion to
Dismiss,[11] alleging that the Complaint was premature, because there was no prior recourse to
arbitration.
In its Order[12] dated September 15, 1987, the RTC denied the Motion on the ground that
the dispute did not involve the interpretation or the implementation of the Agreement and was,
therefore, not covered by the arbitral clause.[13]
After trial on the merits, the RTC[14] ruled that the take-over of some work items by
respondent was not equivalent to a termination, but a mere modification, of the Subcontract. The
latter was ordered to give full payment for the work completed by petitioner.
Ruling of the Court of Appeals
On appeal, the CA reversed the RTC and ordered the referral of the case to
arbitration. The appellate court held as arbitrable the issue of whether respondents take-over of
some work items had been intended to be a termination of the original contract under Letter K of
the Subcontract. It ruled likewise on two other issues: whether petitioner was liable under the
warranty clause of the Agreement, and whether it should reimburse respondent for the work the
latter had taken over.[15]
Hence, this Petition.[16]
The Issues
In its Memorandum, petitioner raises the following issues for the Courts consideration:
A
Whether or not there exist[s] a controversy/dispute between petitioner and respondent regarding
the interpretation and implementation of the Sub-Contract Agreement dated February 22, 1983
that requires prior recourse to voluntary arbitration;
B
In the affirmative, whether or not the requirements provided in Article III [1] of CIAC Arbitration
Rules regarding request for arbitration ha[ve] been complied with[.][17]
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the interpretation or the implementation
of the Agreement. Thus, without having to resort to prior arbitration, it is entitled to collect the
value of the services it rendered through an ordinary action for the collection of a sum of money
from respondent. On the other hand, the latter contends that there is a need for prior arbitration
as provided in the Agreement. This is because there are some disparities between the parties
positions regarding the extent of the work done, the amount of advances and billable
accomplishments, and the set off of expenses incurred by respondent in its take-over of
petitioners work.
We side with respondent. Essentially, the dispute arose from the parties ncongruent
positions on whether certain provisions of their Agreement could be applied to the facts. The
instant case involves technical discrepancies that are better left to an arbitral body that has
expertise in those areas. In any event, the inclusion of an arbitration clause in a contract does
not ipso facto divest the courts of jurisdiction to pass upon the findings of arbitral bodies,
because the awards are still judicially reviewable under certain conditions. [18]
In the case before us, the Subcontract has the following arbitral clause:
6. The Parties hereto agree that any dispute or conflict as regards to interpretation
and implementation of this Agreement which cannot be settled between [respondent]
and [petitioner] amicably shall be settled by means of arbitration x x x.[19]
Clearly, the resolution of the dispute between the parties herein requires a referral to the
provisions of their Agreement. Within the scope of the arbitration clause are discrepancies as to
the amount of advances and billable accomplishments, the application of the provision on
termination, and the consequent set-off of expenses.
A review of the factual allegations of the parties reveals that they differ on the following
questions: (1) Did a take-over/termination occur? (2) May the expenses incurred by respondent
in the take-over be set off against the amounts it owed petitioner? (3) How much were the
advances and billable accomplishments?
 The resolution of the foregoing issues lies in the interpretation of the provisions of the
Agreement. According to respondent, the take-over was caused by petitioners delay in
completing the work. Such delay was in violation of the provision in the Agreement as to time
schedule:
G. TIME SCHEDULE
[Petitioner] shall adhere strictly to the schedule related to the WORK and complete
the WORK within the period set forth in Annex C hereof. NO time extension shall be
granted by [respondent] to [petitioner] unless a corresponding time extension is
granted by [the Ministry of Public Works and Highways] to the CONSORTIUM.[20]
Because of the delay, respondent alleges that it took over some of the work contracted to
petitioner, pursuant to the following provision in the Agreement:
K. TERMINATION OF AGREEMENT
[Respondent] has the right to terminate and/or take over this Agreement for any of
the following causes:
xxxxxxxxx
6. If despite previous warnings by [respondent], [petitioner] does not execute
the WORK in accordance with this Agreement, or persistently or flagrantly
neglects to carry out [its] obligations under this Agreement.[21]
Supposedly, as a result of the take-over, respondent incurred expenses in excess of the
contracted price. It sought to set off those expenses against the amount claimed by petitioner for
the work the latter accomplished, pursuant to the following provision:
If the total direct and indirect cost of completing the remaining part of the WORK exceed the
sum which would have been payable to [petitioner] had it completed the WORK, the amount of
such excess [may be] claimed by [respondent] from either of the following:
1. Any amount due [petitioner] from [respondent] at the time of the termination of this
Agreement.[22]
The issue as to the correct amount of petitioners advances and billable accomplishments
involves an evaluation of the manner in which the parties completed the work, the extent to
which they did it, and the expenses each of them incurred in connection therewith. Arbitrators
also need to look into the computation of foreign and local costs of materials, foreign and local
advances, retention fees and letters of credit, and taxes and duties as set forth in the
Agreement. These data can be gathered from a review of the Agreement, pertinent portions of
which are reproduced hereunder:
C. CONTRACT PRICE AND TERMS OF PAYMENT
xxxxxxxxx
All progress payments to be made by [respondent] to [petitioner] shall be subject to
a retention sum of ten percent (10%) of the value of the approved quantities. Any
claims by [respondent] on [petitioner] may be deducted by [respondent] from the
progress payments and/or retained amount. Any excess from the retained amount
after deducting [respondents] claims shall be released by [respondent] to [petitioner]
after the issuance of [the Ministry of Public Works and Highways] of the Certificate of
Completion and final acceptance of the WORK by [the Ministry of Public Works and
Highways].
xxxxxxxxx
D. IMPORTED MATERIALS AND EQUIPMENT
[Respondent shall open the letters of credit for the importation of equipment and
materials listed in Annex E hereof after the drawings, brochures, and other technical
data of each items in the list have been formally approved by [the Ministry of Public
Works and Highways]. However, petitioner will still be fully responsible for all
imported materials and equipment.
All expenses incurred by [respondent], both in foreign and local currencies in
connection with the opening of the letters of credit shall be deducted from the
Contract Prices.
xxxxxxxxx
N. OTHER CONDITIONS
xxxxxxxxx
2. All customs duties, import duties, contractors taxes, income taxes, and other
taxes that may be required by any government agencies in connection with this
Agreement shall be for the sole account of [petitioner].[23]
Being an inexpensive, speedy and amicable method of settling disputes,[24] arbitration --
along with mediation, conciliation and negotiation -- is encouraged by the Supreme Court. Aside
from unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially of
the commercial kind.[25] It is thus regarded as the wave of the future in international civil and
commercial disputes.[26] Brushing aside a contractual agreement calling for arbitration between
the parties would be a step backward.[27]
Consistent with the above-mentioned policy of encouraging alternative dispute resolution
methods, courts should liberally construe arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the asserted dispute, an order to arbitrate should be
granted.[28] Any doubt should be resolved in favor of arbitration.[29]
Second Issue:
Prior Request for Arbitration
According to petitioner, assuming arguendo that the dispute is arbitrable, the failure to file
a formal request for arbitration with the Construction Industry Arbitration Commission (CIAC)
precluded the latter from acquiring jurisdiction over the question. To bolster its position,
petitioner even cites our ruling in Tesco Services Incorporated v. Vera.[30] We are not persuaded.
Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration
indeed required the submission of a request for arbitration, as follows:
SECTION. 1. Submission to Arbitration -- Any party to a construction contract wishing to have
recourse to arbitration by the Construction Industry Arbitration Commission (CIAC) shall submit
its Request for Arbitration in sufficient copies to the Secretariat of the CIAC; PROVIDED, that in
the case of government construction contracts, all administrative remedies available to the
parties must have been exhausted within 90 days from the time the dispute arose.
Tesco was promulgated by this Court, using the foregoing provision as reference.
On the other hand, Section 1 of Article III of the new Rules of Procedure Governing
Construction Arbitration has dispensed with this requirement and recourse to the CIAC may now
be availed of whenever a contract contains a clause for the submission of a future controversy to
arbitration, in this wise:
SECTION 1. Submission to CIAC Jurisdiction An arbitration clause in a construction contract or
a submission to arbitration of a construction dispute shall be deemed an agreement to submit an
existing or future controversy to CIAC jurisdiction, notwithstanding the reference to a different
arbitration institution or arbitral body in such contract or submission. When a contract contains a
clause for the submission of a future controversy to arbitration, it is not necessary for the parties
to enter into a submission agreement before the claimant may invoke the jurisdiction of CIAC.
The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. 2-91
and 3-93.[31]
The difference in the two provisions was clearly explained in China Chang Jiang Energy
Corporation (Philippines) v. Rosal Infrastructure Builders et al. [32] (an extended unsigned
Resolution) and reiterated in National Irrigation Administration v. Court of Appeals,[33]from which
we quote thus:
Under the present Rules of Procedure, for a particular construction contract to fall within the
jurisdiction of CIAC, it is merely required that the parties agree to submit the same to voluntary
arbitration Unlike in the original version of Section 1, as applied in the Tesco case, the law as it
now stands does not provide that the parties should agree to submit disputes arising from their
agreement specifically to the CIAC for the latter to acquire jurisdiction over the same. Rather, it
is plain and clear that as long as the parties agree to submit to voluntary arbitration, regardless
of what forum they may choose, their agreement will fall within the jurisdiction of the CIAC, such
that, even if they specifically choose another forum, the parties will not be precluded from
electing to submit their dispute before the CIAC because this right has been vested upon each
party by law, i.e., E.O. No. 1008.[34]
Clearly, there is no more need to file a request with the CIAC in order to vest it with
jurisdiction to decide a construction dispute.
The arbitral clause in the Agreement is a commitment on the part of the parties to submit
to arbitration the disputes covered therein. Because that clause is binding, they are expected to
abide by it in good faith.[35] And because it covers the dispute between the parties in the present
case, either of them may compel the other to arbitrate.[36]
Since petitioner has already filed a Complaint with the RTC without prior recourse to arbitration,
the proper procedure to enable the CIAC to decide on the dispute is to request the stay or suspension
of such action, as provided under RA 876 [the Arbitration Law].[37]
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.
SO ORDERED.
[G.R. No. 148924. September 24, 2003]
TOYOTA MOTOR PHILS. CORPORATION WORKERS ASSOCIATION
(TMPCWA), petitioner, vs. COURT OF APPEALS (FOURTH DIVISION)
JUSTICES ROBERTO BARRIOS, RAMON MABUTAS and EDGARDO
CRUZ, and TOYOTA MOTOR PHILS. CORPORATION respondents.
DECISION
CALLEJO, SR., J.:
Before us is a petition for certiorari under Rule 65 of the 1997 Rules of Civil
Procedure filed by Toyota Motor Phils. Corporation Workers Association (TMPCWA)
for the nullification of the June 29, 2001 Resolution [1] of the Court of Appeals, which
granted a writ of preliminary injunction, prayed for by the respondent Toyota Motor
Philippines Corporation, and the writ of preliminary injunction issued by the CA on
July 12, 2001.[2]
The Antecedents
On February 19, 1997, this Court ruled that the employees of the respondent
Toyota Motor Philippines Corporation (TMPC) belonging to the Level 5 positions
under its Single Salary Structure set up were supervisory employees. [3] The decision
became final and executory. Thereafter, the respondent put up and implemented its
Three-Function Salary Structure for its personnel/employees.
On February 4, 1999, the petitioner Toyota Motor Philippines Corporation
Workers Association (TMPCWA) filed a petition for certification election in an
unorganized establishment, particularly for the rank-and-file employees at the Sta.
Rosa and Bicutan Plants of the respondent TMPC, before the Med-Arbitration Unit of
the Department of Labor and Employment, National Capital Region (DOLE-NCR),
docketed as NCR-OD-M-9907-017, later redocketed as NCR-OD-M-9902-001. The
respondent TMPC opposed the petition on the ground that a case was pending before
the Supreme Court between it and another union, the Toyota Motor Philippines
Corporation Labor Union (TMPCLU), whose registration certificate has been
cancelled. It asserted that the petitioners membership is the same as that of the
TMPCLU, which sought to represent the same bargaining unit. The respondent TMPC
further asserted that the petition was merely a rehash of its petition, which had been
dismissed on June 18, 1998.
On March 29, 1999, Med-Arbiter Zosima C. Lameyra resolved to dismiss the
petition.[4] On appeal, the DOLE, thru Undersecretary Rosalinda Dimapilis-Baldoz,
rendered a Decision[5] dated June 25, 1999 reversing the Med-Arbiters decision, and
ordering the conduct of a certification election. The DOLE denied the respondents
motion for reconsideration of the said decision.[6]
The respondent TMPC filed a petition for certiorari under Rule 65 of the Rules of
Court, as amended, with the CA, alleging grave abuse of discretion on the part of the
Secretary of Labor and Employment (SOLE). However, the CA denied the
petition.[7] It likewise denied the motion for reconsideration filed by the
respondent.[8] Thus, the June 25, 1999 Decision of the SOLE became final. The
certification election was set on March 8, 2000.
During the inclusion and exclusion proceedings before the Med-Arbiter
conducted on February 15, 2000, the respondent submitted a list of 1,110 employees
at its Bicutan and Sta. Rosa Plants included in the payroll list. The petitioner,
however, questioned the eligibility of the 120 employees in the list, contending that
they were not rank-and-file employees but supervisory employees of the respondent,
on the basis of the decision of this Court in Toyota Motor Phils. Corporation v. Toyota
Motor Phils. Corporation Labor Union. The respondent, for its part, asserted that the
establishment of its Three-Function Salary Structure had already superseded the
decision of this Court, whereby the real supervisors or managers are distinguished
from the rank-and-file employees in terms of the duties/functions of the
employees. Nonetheless, the certification election proceeded as scheduled. During
the certification election, 105 out of the 120 employees whose eligibilities had been
questioned by the petitioner were able to cast their votes, but these votes were not
opened and considered. The results of the election are herein quoted:
Bicutan Plant Sta. Rosa Plant Results
certified as the exclusive bargaining agent of the rank-and-file employees at its Sta.
Rosa and Bicutan Plants. The respondent further alleged that under the Three-
Function Salary Structure of its personnel which became effective in December 1994,
after the decision of this Court in Toyota Motor Phils. Corp. v. Toyota Motor Phils.
Corp. Labor Union[11] became final and executory, the following were rank-and-file
employees:

The General Staff

Yes Votes 305 198 503

Salary Levels 8 and below for as long as they function as ordinary staff and they have
No votes 302 138 440
no subordinates.

Challenged 91 14 105
Line Employees refers to the factory workers, those who are assigned at the
Votes
manufacturing plants.

Spoiled 4 11 15
Salary Levels 1-4
Ballots

Office Staff
Total Votes Cast 702 361 1,063[9]

Salary Levels 1-6[12]

With 503 affirmative votes and the exclusion of the 105 challenged votes, the
petitioner asserted that it garnered the majority votes of the 943 votes cast (less the
challenged votes); hence, it sought to be declared as the certified bargaining agent of
the respondent at its Sta. Rosa and Bicutan Plants. However, the respondent filed a
handwritten manifestation on the face of the election results in which it asserted that
the petitioner couldnt be certified as having won the election because its vote of 503
was 22 votes shy of the majority. It prayed for the opening of the 91 of the 105
challenged votes at the Bicutan Plant to enable the Med-Arbiter to look into and rule
on the qualifications of the said voters and ascertain whether the petitioner indeed
won the election. The manifestation in part reads:
The company through [the] undersigned counsel most respectfully manifest that the
union cannot be certified as having won in the certification election, because it has
failed to get the required majority of 50 [%] + 1 votes as there are still 91 valid votes
not yet counted, which the company has considered as belonging to bonafide rank-
and-file employees. Hence, the Med-Arbiter has to rule on the opening of said ballots
and/or rule on their qualification.[10]
The respondent asserted that out of the 105 challenged voters, at least 103
were members of the General Staff category of Levels 5 to 8 and are rank-and-file
employees under its Three-Function Salary Structure. The respondent appended to
its position paper the affidavit of Jose Ma. Aligada, First Vice-President of the General
Administration Division, as well as the affidavits of eighty-nine of the 105 challenged
votes. The list of the names of the challenged voters was appended to the position
paper.
After the submission of the petitioners and the respondents respective position
papers, Med-Arbiter Zosima Lameyra issued an Order on May 12, 2000, certifying the
petitioner as the exclusive bargaining agent of the rank-and-file employees of Toyota
in the said plants. She held that the challenged voters were supervisory employees
under the Three-Function Salary Structure, thus:
SUPERVISORY employees are those who belong to:

The General Staff

The respondent filed its position paper with the Med-Arbiter on April 25, 2000,
alleging that the 105 challenged votes should have been opened and considered in
the tabulation of the results of the election. It averred that if considered, the outcome Salary Levels 9-10 (Supervisors)
of the election would have been adverse to the petitioner; hence, the latter cannot be Salary Levels 7-8 (Group Heads, if they
 function as such, i.e., they are staff with
subordinates for whom they are responsible
in terms of daily work supervision)
Line Employees refers to the factory workers, those who are
assigned at the manufacturing plants.
Salary Levels 9-10 (Foremen)
Salary Levels 7-8 (Senior Group Chiefs)
Salary Levels 5-6 (Junior Group Chiefs-
includes Group Leaders
and Team Leaders)
Note: Levels 5-10 are considered supervisors only when their actual
functions dictate such categorization.
RANK-AND-FILE employees are all other employees, who do not fall
under either the Managerial or Supervisory classes, specifically:
The General Staff
Salary Levels 8 and below for as long as they function as
ordinary staff and they have no subordinates.
Line Employees refers to the factory workers, those who are
assigned at the manufacturing plants.
Salary Levels 1-4
Office Staff
Salary Levels 1-6[13]
The decretal portion of the order reads:
WHEREFORE, premises considered, judgment is hereby rendered declaring the
challenged voters as ineligible and excluding their votes from the totality of the valid
votes cast. Accordingly, TMPCWA is hereby declared to have obtained the majority of
the valid votes cast and is hereby certified as the bargaining agent of the rank-and-file
employees of the company.[14]
The respondent interposed an appeal from the said order before the DOLE,
alleging that the Med-Arbiter acted with grave abuse of discretion in issuing the
same. The respondent asserted that the challenged voters were rank-and-file
employees. The petitioner, on the other hand, insisted that the said employees
occupied position Levels 5 and upwards; hence, are supervisory employees, citing
the ruling of this Court in Toyota Motor Phils. Corporation v. Toyota Motor Corporation
Labor Union.
Meanwhile, on June 21, 2000, the employees of the respondent whose votes
were challenged filed a petition for declaratory relief with the Arbitration Board of the
DOLE, docketed as NLRC-NCR-30-06-02556-00 against the petitioner, praying that:
PRAYER
WHEREFORE, petitioners respectfully pray that after due consideration, the
Honorable Office render judgment declaring the petitioners are indeed rank-and-file
employees based on their employment contract, job description, actual duties and
responsibilities and affidavits.[15]
There was no appearance for the petitioner. On August 4, 2000, Jimmy Sy and
other employees of the respondent who were among the 105 challenged voters filed a
motion to intervene in NCR-OD-M-9902-001 alleging, inter alia, that they had earlier
filed a petition for declaratory relief in NLRC-NCR-30-06-02556-00. On August 7,
2000, Labor Arbiter Eduardo M. Madriaga rendered a decision granting the petition,
the decretal portion of which reads:
The Constitution mandates that the State shall accord protection to labor.
We are, therefore, constrained to grant the instant petition but only for the sole
purpose that petitioners may exercise all their rights and claim all legal benefits as
rank-and-file workers, as found in the Constitution and the Labor Code.
Otherwise, the rights of workers and their legal benefits may be rendered inutile if
their status is unresolved.
WHEREFORE, premises considered, the prayer in the Petition is hereby granted.
SO ORDERED.[16]
On August 28, 2000, the 105 challenged voters filed a motion in NCR-OD-M-
9902-001 for the remand of the case to the Med-Arbiter for the opening of the
ballots. They appended to their motion a copy of the order of Labor Arbiter Eduardo
M. Madriaga granting their petition for declaratory relief. On October 19, 2000, the
DOLE, thru Undersecretary Rosalinda Dimapilis-Baldoz, issued a Resolution affirming
the order of Med-Arbiter Zosima C. Almeyra,[17] holding that (a) since the challenged
voters were ineligible to vote, there was no need to open the votes of the challenged
voters; (b) the respondent should have adduced its evidence on the status of the
challenged voters as rank-and-file employees during the inclusion-exclusion
proceedings; (c) the respondent had no legal personality to move for the opening of
the challenged voters and delay the proclamation of the winners in the certification
election as the respondent is merely a bystander in certification election; (d) in any
event, the respondent failed to prove that the challenged voters were rank-and-file
employees; (e) the contention of the petitioner that the challenged voters were
supervisory employees finds support in the decision of this Court in Toyota Motor
Phils. Corporation v. Toyota Motor Phils. Corporation Labor Union; (f) the affidavits of
the challenged voters were barren of probative weight because the same were
executed only after the certification election; besides, the respondent failed to adduce
in evidence the job descriptions of the challenged voters for the year 2000. Anent the
petition of the challenged voters for a declaratory relief in NLRC-NCR (South) Case
No. 30-06-02556-00, the Undersecretary held:
We also take note that a motion to intervene, manifestation and hold proceedings in
abeyance had been filed by Jimmy R. Sy, et. al., dated 4 August 2000. The movants
are actually among the 105 challenged voters. The reason for the motion is that
movants, on 21 June 2000, filed a petition for declaratory relief with the Labor Arbiter,
National Labor Relations Commission, docketed as NLRC-NCR (South) Case No. 30-
06-02556-00, and captioned Jeofre A. De Leon, et al. v. Toyota Motor Philippines
Corporation and Toyota Motor Philippines Corporation Workers Association. The
petition prayed for a declaration of whether movants should be considered
supervisory or rank-and-file employees. We also note that movants also filed another
motion, dated 25 August 2000, seeking to remand the case to the Med-Arbiter for the
opening of ballots. Attached to this motion is a decision of Labor Arbiter Edgardo M.
Madriaga dated 7 August 2000, to whom Case No. 30-06-02556-00 was assigned,
declaring the movants as rank-and-file employees on the reasoning that rights of
workers and their legal benefits may be rendered inutile if their status is unresolved.
When appellant filed this appeal, the issue it submitted for determination is whether or
not the 105 challenged voters should be classified as rank-and-file or supervisory
employees. Indeed, it is within the exclusive jurisdiction of the Med-Arbiter and the
Office of the Secretary in certification election proceedings to resolve this issue. When
this case was filed, the Med-Arbiter and later on the Office of the Secretary acquired
jurisdiction over the subject matter of the case and the parties to it, to the exclusion of
all other adjudicating agencies. In so acquiring jurisdiction, the Med-Arbiter and later
on this Office had jurisdiction to resolve the principal issue on the status of the
workers whose rights, so the Labor Arbiter surmised, may be rendered inutile if their
status is unresolved.
If the petition filed by movants in the NLRC means anything, it is merely intended to
muddle the issue of the appropriate constituency of the bargaining unit which, to
stress, is within the exclusive jurisdiction of this Office to determine. Quite obviously,
herein appellant, while ostensibly the respondent in the NLRC case, cannot be said
not to have given its imprimatur on movants to file such case. For movants are, in the
first place, appellants own witnesses in this case.
This is also an occasion to stress that the NLRC is an attached agency of the
Department of Labor and Employment. While the attachment is for program and
policy coordination only (Article 213, Labor Code), such coordination is nevertheless
broad enough to cover common adherence to public policy objectives. The recourse
taken by movants with the NLRC regrettably amounts to a circumvention of the public
policy against forum shopping. It also undermines well-established principles on
jurisdiction. And it has led the office of the Labor Arbiter, wittingly or unwittingly, to be
used as a venue to bring about such undesirable effects.[18]
The respondent and the challenged voters filed a motion for reconsideration of
the said resolution on the following grounds:
1. The alleged misapplication of the Supreme Court ruling in Toyota Motor Philippines
Corporation v. Toyota Motor Philippines Corporation Labor Union, G.R. No. 121084,
19 February 1997, in view of the distinct factual circumstances obtaining therein vis--
vis the instant case;
2. The alleged erroneous finding that the 105 challenged voters are not rank and file
in view of the alleged substantial and compelling evidence appellant has submitted
vis--vis those submitted by the appellee.
3. The declaration that appellants position is procedurally infirm; and
4. The alleged misapplication of the bystander rule against the appellant, considering
that this case is one of the recognized exceptions to the rule.[19]
While the motion was pending, the respondent received on October 27, 2000 a
letter from the petitioner, through its President Ed Cubelo, and the members of its
Board of Directors, appending thereto its CBA proposal for the respondents
consideration.[20] On November 7, 2000, the respondent wrote the petitioner that it
could not as yet submit any counter-proposal because its motion for reconsideration
of the resolution of the SOLE was still pending. On November 15, 2000, Ed Cubelo
wrote the respondent demanding that the latter submit its counter-proposal to the
proposed CBA. On November 28, 2000, the respondent reiterated its stand that until
its motion for reconsideration was resolved, it would not negotiate with the petitioner
on its proposed CBA. On December 8, 2000, the respondent received another letter
from the petitioner giving the respondent a period of ten days within which to reply to
its CBA proposal.[21]
In the meantime, the hearing of the respondents motion for reconsideration of
the resolution of Undersecretary Rosalinda Dimapilis-Baldoz was set on February 22,
2001. On February 21, 2001, the respondent received a letter from the petitioner that
its members would absent themselves from work to attend the hearing. [22] The
petitioner informed the respondent that its members were willing to work on their rest
day to make up for their absence on February 22, 2001. During the hearing, 22 of the
challenged voters managed to testify on their duties and functions. The other
challenged voters failed to testify because they had to take the place of the
employees who attended the hearing.
On March 1, 2001, the petitioner voted to stage a strike at the Sta. Rosa and
Bicutan Plants of the respondent and filed a manifestation with the NCR-National
Conciliation and Mediation Board (NCR-NCMB)[23] informing the latter of its intention
to stage a strike from March 28, 2001 onwards.
On March 16, 2001, the petitioner filed a manifestation [24] with the NCR-NCMB
that the respondent had dismissed three hundred union members and
officers. Nevertheless, the petitioner gave several days for the respondent to mend its
mind and to cease and desist from committing unfair labor practice. The petitioner
further stated that the union members would stage a protest in front of the company
premises.
On the same day, the DOLE, thru Secretary Patricia Sto. Tomas, issued a
resolution denying with modification the motion for reconsideration of the
respondent.[25] The SOLE stated that her resolution shall become final and executory
within ten days from notice.She ruled that the respondent had the burden to prove
that the challenged voters were rank-and-file employees, but that the respondent
failed to discharge its burden; the respondent failed to adduce in evidence the job
descriptions of the challenged voters; the affidavits of Jose Ma. Aligada and of the
challenged voters were barren of probative weight because the affiants were not
presented to the Med-Arbiter to attest the truth of their affidavits; the Three-Function
Salary Structure adopted by the respondent in December 1994, did not change the
tasks performed by its employees; what is determinative of the classification of
employees is their actual functions. Only 18 of the challenged voters were rank-and-
file employees of the respondent, and such number is insufficient to overturn the
result of the election. The SOLE also ruled that the decision of Labor Arbiter Eduardo
C. Madriaga in NLRC-NCR-30-06-02556-00 was irrelevant because the petition in the
said case was a case of forum shopping, filed by the challenged voters at the behest
of the respondent. Entry of judgment was made of record on March 19, 2001.
On this same date, the petitioner wrote the respondent, suggesting that a
conference be held between them on March 21, 2002 to settle all issues amicably
including their current labor dispute and CBA regulations. For its part, the respondent
filed on March 27, 2001 a petition for certiorari with the CA under Rule 65 of the Rules
of Court, as amended, for the nullification of the October 19, 2000 and March 16,
2001 Resolutions of the SOLE, with a plea for the issuance of a preliminary injunction
or at least a temporary restraining order.[26] The respondent alleged, inter alia, that:
I
PUBLIC RESPONDENT SECRETARY GRAVELY ABUSED HER
DISCRETION, AMOUNTING TO LACK OR EXCESS OF HER
JURISDICTION, IN DECLARING THAT THE CHALLENGED VOTERS,
EXCEPT FOR EIGHTEEN (18) OF THEM, ARE SUPERVISORY
EMPLOYEES, AND THUS, INELIGIBLE TO VOTE IN THE
CERTIFICATION ELECTION AMONG THE COMPANYS RANK-AND-
FILE EMPLOYEES.
II
IT WAS GRAVE ABUSE OF DISCRETION ON THE PART OF
RESPONDENT SECRETARY WHEN SHE AFFIRMED THE ORDER OF
THE MED-ARBITER CERTIFYING PRIVATE RESPONDENT AS THE
EXCLUSIVE BARGAINING AGENT OF PETITIONER TMPCS RANK-
AND-FILE EMPLOYEES, DESPITE THE LATTERS FAILURE TO OBTAIN
A MAJORITY OF THE VALID VOTES CAST.[27]
Specifically, the respondent asserted that the petitioner bears the burden of
proving that the 105 challenged voters are supervisory
employees.[28] Assuming arguendo that the respondent had the burden, nevertheless,
it adduced overwhelming evidence that the challenged voters are, indeed, rank-and-
file employees.[29] Proceedings before labor agencies merely require the parties to
submit their respective position papers and supporting affidavits. Hence, the affidavits
of Jose Ma. Aligada and the challenged voters are admissible in evidence. [30] The
public respondent SOLE cannot consider the affidavits of the challenged voters as
defective by concluding that the same were not properly notarized, inasmuch as the
petitioner never challenged the matter before the Med-Arbiter below.[31] All the
affidavits of the challenged employees are admissible in evidence and entitled to
credence.[32] The petition for declaratory relief of the challenged voters had already
been granted by the labor arbiter. The decision of the Supreme Court in Toyota Motor
Philippines Corporation vs. Toyota Motor Philippines Corporation Labor Union is not
on all fours with the present case.[33] Meanwhile, the petitioner staged a strike on
March 28, 2001.
In compliance with the resolution of the CA, the petitioner filed its comment on
the petition asserting that the CA committed grave abuse of discretion amounting to
lack of jurisdiction, and grave error of law in taking cognizance of the petition and
issuing a temporary restraining order, as on its face the petition seeking to annul the
certification election, and the order certifying the union as the sole and exclusive
bargaining agent, was illegal. The respondent, as employer, is without locus standi to
appeal from a decision certifying the petitioner as the sole and exclusive bargaining
agent.
The petitioner further alleged that (a) the Court in the earlier Toyota case found
that the categorization of Levels 5 and 6 was for positions occupied by employees,
not merely for salary purposes; (b) the factual findings of the SOLE and the Med-
Arbiter are binding upon the CA, there being no showing of grave abuse of discretion
and duly supported by the evidence on record; (c) the Union was certified as the sole
and exclusive bargaining agent of all rank-and-file employees having obtained a
majority of the valid votes cast; (d)the alleged decision of Labor Arbiter Madriaga has
no bearing in the instant case as the Med-Arbiter and the SOLE has the original and
exclusive jurisdiction over petitions for certification elections, and on issues of who are
qualified to vote as members of the bargaining unit; and (e) certain misrepresentation
and false allegation must be exposed for what they are.
On April 3, 2001, the CA issued a Resolution granting a Temporary Restraining
Order (TRO) effective for a period of sixty (60) days, and directing the petitioner to file
its Comment on the petition.[34] In the meantime, the SOLE assumed jurisdiction over
the notice to strike, and issued an order to the members and officers of the petitioner
to return to work. The said members and officers complied with the order and ended
their strike on April 11, 2001.
During the hearing of the respondents plea for a writ of preliminary injunction on
June 13, 2001, the petitioner averred that the respondent was not the real party-in-
interest as it is merely a bystander in a certification election. Since the SOLE had
already assumed jurisdiction over the petitioners projected strike and the union
members and officers had complied with the return-to-work order, there was no longer
a need for the issuance of a writ of preliminary injunction. After the hearing, the
parties were ordered to submit their respective memoranda. On June 29, 2001, the
Court of Appeals issued a resolution granting the plea of the respondent herein for a
writ of preliminary injunction, thus:
...to GRANT the preliminary injunction prayed for by the petitioner, and upon its
posting of an injunction bond in the sum of P500,000.00, it is ORDERED of the
respondents and all those acting for or through them, to cease and desist from
enforcing, implementing or otherwise acting on and giving effect to the public
respondents assailed Resolutions of October 19, 2000 (Annex A of the Petition, p. 58,
rollo) and March 16, 2001 (Annex B of the Petition, p. 69, rollo) and allied processes
issued in O-A-4-27-99 (NCR-OD-M-9902-001) subject of this petition, pending the
termination of this litigation, and/or unless a contrary Resolution is issued by this
court.[35]
Aggrieved, the petitioner filed on July 27, 2001 the instant petition under Rule 65
of the Rules of Court, as amended, with a prayer for a temporary restraining
order/preliminary injunction.
The petitioner avers that the CA committed a grave abuse of its discretion
amounting to excess or lack of jurisdiction in granting a writ of preliminary injunction in
favor of the respondent. The petitioner asserts that the respondent, as the employer,
is not a party in a certification election case; hence, it is a mere bystander. The
respondent is not the real party-in-interest to assail the results of the certification
election and the proceedings therein. The respondent, as the employer, had no right
whatsoever nor an iota of interest in the results of the certification election. The
respondent failed to establish a clear right to injunctive relief. The ruling of the SOLE
that the petitioner was the sole and exclusive bargaining agent of all rank-and-file
employees of the respondent, having obtained a majority of the valid votes cast was
correct, based as it is on the evidence adduced by the parties.
The respondent, for its part, avers that the contention of the petitioner that the
respondent lacks the legal standing to assail the certification election results goes into
the merits of its petition in the CA. In resolving the issue in this case of whether or not
the CA committed a grave abuse of its discretion in issuing the writ of preliminary
injunction, the Court is proscribed from resolving the petition of the respondent with
the CA on its merits. The respondent asserts that it has a clear legal right to deal with
a bona fide bargaining agent. It sought injunctive relief from the CA precisely to
protect said right pending the resolution of its petition on the merits. The petitioner has
committed, and is still committing, acts which materially and substantially invade its
rights to collectively bargain with a bargaining agent properly certified in accordance
with law. The writ of injunction issued by the CA restrained the coercive actions of the
petitioner that resulted in serious damages to it. The matter of the issuance of a writ of
preliminary injunction rests entirely within the discretion of the CA. The petitioner
failed to establish that the CA committed a grave abuse of its discretion amounting to
lack or excess of jurisdiction in issuing the writ of preliminary injunction.
The petition is meritorious.
In Land Bank of the Philippines v. Court of Appeals,[36] we held, inter alia, that
the writ of certiorari issues for the correction of errors of jurisdiction only or grave
abuse of discretion amounting to lack or excess of jurisdiction. Its function is to keep
the inferior court within the bounds of its jurisdiction or to prevent it from committing
such a grave abuse of discretion amounting to lack or excess of jurisdiction. It may
issue only when the following requirements are alleged in the petition and
established: (1) the writ is directed against a tribunal, a board or any officer exercising
judicial or quasi-judicial functions; (2) such tribunal, board or officer has acted without
or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or
excess of jurisdiction; and (3) there is no appeal or any plain, speedy and adequate
remedy in the ordinary course of law. Excess of jurisdiction as distinguished from
absence of jurisdiction means that an act, though within the general power of a
tribunal, board or officer is not authorized, and invalid with respect to the particular
proceeding, because the conditions which alone authorize the exercise of the general
power in respect of it are wanting. Without jurisdiction means lack or want of legal
power, right or authority to hear and determine a cause or causes, considered either
in general or with reference to a particular matter. It means lack of power to exercise
authority.
In Placido Urbanes, Jr. v. Court of Appeals,[37] we held that the matter of the
issuance of a writ of preliminary injunction is addressed to the sound discretion of the
trial court, unless the court commits a grave abuse of discretion. Grave abuse of
discretion in the issuance of writs of preliminary injunction implies a capricious and
whimsical exercise of judgment that is equivalent to lack of jurisdiction or whether the
power is exercised in an arbitrary or despotic manner by reason of passion, prejudice
or personal aversion amounting to an evasion of positive duty or to a virtual refusal to
perform the duty enjoined, or to act at all in contemplation of law. For the
extraordinary writ of certiorari to lie, there must be a capricious, arbitrary and
whimsical exercise of power.
Section 1, Rule 58 of the Rules of Court, as amended, defines a preliminary
injunction as an order granted at any stage of an action prior to the judgment or final
order requiring a party or a court, agency or a person to refrain from a particular act or
acts. Injunction is accepted as the strong arm of equity or a transcendent remedy to
be used cautiously as it affects the respective rights of the parties, and only upon full
conviction on the part of the court of its extreme necessity. As an extraordinary
remedy, injunction is designed to preserve or maintain the status quo of things and is
generally availed of to present actual or threatened acts until the merits of the case
can be heard. It may be resorted to only by a litigant for the preservation or protection
of his rights or interests and for no other purpose during the pendency of the principal
action.[38] It is resorted to only when there is a pressing necessity to avoid injurious
consequences, which cannot be remedied under any standard compensation. [39] The
resolution of an application for a writ of preliminary injunction rests upon the existence
of an emergency or of a special recourse before the main case can be heard in due
course of proceedings.[40]
In Heirs of Joaquin Asuncion v. Hon. Gervacio, Jr.,[41] we held that the writ of
preliminary injunction is issued to prevent threatened or continuous irremediable
injury to parties before the case can be resolved on its merits.
We likewise held that the essential conditions for granting such temporary
injunctive relief are that the material averments in the complaint appear to be
sufficient to constitute a cause of action for injunction and that on the entire showing
from the parties it appears, in view of all the attendant circumstances, that the
injunctive relief is reasonably necessary to protect the legal rights of the
plaintiff/petitioner pendente lite. The plaintiff/petitioner must establish the following
requisites for preliminary injunctive relief: (a) the invasion of the right sought to be
protected is material and substantial; (b) the right of the complainant is clear and
unmistakable; (c) there is an urgent and paramount necessity for the writ to prevent
serious damage.[42] The existence of the right and the violation thereof by the
defendant must appear in the material allegation of the complaint/petition. When the
complainants right or title is doubtful, a preliminary injunction is not proper. The
possibility of irreparable damage without proof of actual existing right is not a ground
for injunction.[43] Moreover, the courts should avoid using a writ of preliminary
injunction, which in effect disposes of the main case without trial. [44] In resolving the
petition/application for a writ of preliminary injunction, the trial court or the CA includes
in its order/resolution the factual and legal laws granting or denying the said
petition/application.
In this case, we are convinced that the CA committed a grave abuse of
discretion in granting the respondents plea for injunctive relief.
First. The issue of whether or not the respondent is entitled to injunctive relief is
interwoven with the principal issue on the merits of the petition, whether or not the
respondent is the real party-in-interest to assail the resolution of the SOLE and the
resolution of the Med-Arbiter. For sure, the petitioner cited a plethora of decisions of
this Court that in certification elections, the employer is a bystander; it has no right or
material interest to assail the certification election.
On the other hand, the stand of the respondent cannot be dismissed as trivial
and unsubstantial. Central to the issue posed by the parties before the SOLE in this
case is the application of the doctrine enunciated by this Court in Toyota Motor
Philippines Corporation v. Toyota Motor Philippines Corporation Labor Union[45] in
which the respondent was the petitioner. The petitioner herein, as well as the Med-
Arbiter and the SOLE are one in saying that the doctrine enunciated by this Court in
said case is determinative of the principal issue posed by the parties in this case. The
respondent was as adamant in its pose that the pronouncement of this Court in the
said case is not decisive of the issue because after the decision of this Court in that
case had become final and executory, the respondent approved and implemented a
Three-Function Salary Structure for its personnel/employees. Moreover, the
respondent submits that it can be compelled to negotiate in and enter into a collective
bargaining agreement only with the appropriate bargaining unit of the rank-and-file
employees of the respondent and not by supervisory employees based on the job
descriptions of the employees and not on the titles of employment of the
employees.[46] If not elected by the majority of the rank-and-file employees of the
respondent, the petitioner has no legal right to negotiate and bargain with the
respondent for a collective bargaining agreement. By granting the respondents plea
for a writ of preliminary injunction, the CA, in effect, ruled that the respondent is the
real party-in-interest, and not merely a bystander in the certification election; hence,
has a material and substantial right sought to be protected. Thus, through the
issuance of the writ, the CA may be perceived as having prejudged the principal issue
before it.
 Second. The CA took into account the pleadings of the parties and their
admissions during the hearing of respondents plea for injunctive relief.
In its petition with the CA, the respondent prayed the CA for a writ of preliminary
injunction on its claim that (a) the petitioner was coercing and urging its members to
force the respondent to start with the negotiation of the CBA despite the serious
question on the status of the petitioner as the exclusive bargaining agent of the rank-
and-file employees; (b) 300 employees refused to render overtime service on
February 21, 2001 and deliberately did not report for work from February 22-23, 2001;
(c) during the said period, the operation of the respondents production plant was
paralyzed and lost potential sales in the amount of P40,000,000; (d) the government
will suffer considerable losses in taxes from the respondent; (e) if the status of the
challenged voters is not finally resolved, it will result in their mass promotion not on
the basis of their work performance but simply on the erroneous dictum of the SOLE;
(f) if the operations of the respondent are paralyzed because of the dispute on the
status of the challenged voters, its 1,600 employees will be adversely affected if the
respondent will be impelled to resort to cost-reduction or even the closure of its
business, thus contributing to the already worsening unemployment condition of the
country. However, during the hearing of the respondents plea for a writ of preliminary
injunction, the petitioner, through counsel, manifested to the CA that the SOLE had
assumed jurisdiction over the strike staged by it and that, in compliance with the order
of the SOLE, all the union members and officers who staged the strike had returned
to work. The SOLE had determined that the industry engaged in by the respondent is
indispensable to the national interest. The petitioner assured the CA and the
respondent that in view thereof, its members and officers would no longer stage a
strike because of the certification election:
issue because union busting demands dismissal of the union officers and about 200
plus members. That is the ground for the strike not because of the representation
issue. It is simply false on their part to allege that we are going to go on strike just
because of this representation issue which we did not in the past and which we do not
intend to do now even without any preliminary injunction Your Honor. [47]
In light of the express manifestations and guarantee made by the petitioner,
through counsel, which were unrebutted by the respondent, there was no longer any
emergency, urgency or a pressing necessity for the CA to still issue a writ of
preliminary injunction.There is no showing in the record that despite the assumption
by the SOLE of the dispute between the petitioner and the respondent, the petitioner
is bent on staging a strike against the respondent in defiance by the petitioner of the
order of the SOLE.
WHEREFORE, the petition is GRANTED. The Resolution of the Court of
Appeals dated June 29, 2001, and the Writ of Preliminary Injunction issued on July
12, 2002 are SET ASIDE and NULLIFIED.
SO ORDERED.
[G.R. NO. 135362. December 13, 1999]

ATTY. MARAVILLA: HEIRS OF AUGUSTO L. SALAS, JR., namely: TERESITA D. SALAS for herself
and as legal guardian of the minor FABRICE CYRILL D. SALAS, MA.
CRISTINA S. LESACA, and KARINA TERESA D. SALAS, petitioners,
... Your Honor, there is no danger at all posed if no injunction is issued. The
vs.LAPERAL REALTY CORPORATION, ROCKWAY REAL ESTATE
submission of counsel that the union would go on strike because of non-issuance of
CORPORATION, SOUTH RIDGE VILLAGE, INC., MAHARAMI
injunction is false Your Honor. Why? First, we say that they are not going to go on
DEVELOPMENT CORPORATION, Spouses THELMA D. ABRAJANO and
strike just because of the issue of this certification election. That is our
GREGORIO ABRAJANO, OSCAR DACILLO, Spouses VIRGINIA D.
guarantee. Second, there has already been an order from the Sec. of Labor assuming
LAVA and RODEL LAVA, EDUARDO A. VACUNA, FLORANTE DE LA
jurisdiction precisely over the issue, the issue of whether the union is the certified
CRUZ, JESUS VICENTE B. CAPELLAN, and the REGISTER OF DEEDS
bargaining agent or not Your Honor. So, since there is now injunction or an
FOR LIPA CITY, respondents.
assumption order, we are banned by law to go there. So there is no point Your Honor
to issue an injunction. It has been mooted Your Honor. Moreover, Your Honor, it was
false on the part of respondent to allege that we even went on strike even after the DECISION
assumption of jurisdiction. That is not true. We went on strike before the assumption
DE LEON, JR., J.:
of jurisdiction. They returned to work when the Sec. of Labor assumed
jurisdiction. They returned to work. As a matter of fact up to now we are still working,
at least those people they have accepted back to return to work. Your Honor, we are Before us is a petition for review on certiorari of the Order[1] of Branch 85 of the
referring to Annex L of our comment. The ground for our strike was not representation Regional Trial Court of Lipa City[2] dismissing petitioners complaint[3] for rescission of
several sale transactions involving land owned by Augusto L. Salas, Jr., their
predecessor-in-interest, on the ground that they failed to first resort to arbitration.
Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas
spanning 1,484,354 square meters.
On May 15, 1987, he entered into an Owner-Contractor
Agreement[4] (hereinafter referred to as the Agreement) with respondent Laperal
Realty Corporation (hereinafter referred to as Laperal Realty) to render and provide
complete (horizontal) construction services on his land.
On September 23, 1988, Salas, Jr. 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.
On June 10, 1989, Salas, Jr. left his home in the morning for a business trip to
Nueva Ecija. He never returned.
On August 6, 1996, Teresita Diaz Salas filed with the Regional Trial Court of
Makati City a verified petition for the declaration of presumptive death of her husband,
Salas, Jr., who had then been missing for more than seven (7) years. It was granted
on December 12, 1996.[5]
Meantime, respondent Laperal Realty subdivided the land of Salas, Jr. and sold
subdivided portions thereof to respondents Rockway Real Estate Corporation and
South Ridge Village, Inc. on February 22, 1990; to respondent spouses Abrajano and
Lava and Oscar Dacillo on June 27, 1991; and to respondents Eduardo Vacuna,
Florante de la Cruz and Jesus Vicente Capalan on June 4, 1996 (all of whom are
hereinafter referred to as respondent lot buyers).
On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the Regional Trial
Court of Lipa City a Complaint[6] for declaration of nullity of sale, reconveyance,
cancellation of contract, accounting and damages against herein respondents which
was docketed as Civil Case No. 98-0047.
On April 24, 1998, respondent Laperal Realty filed a Motion to Dismiss [7]on the
ground that petitioners failed to submit their grievance to arbitration as required under
Article VI of the Agreement which provides:
ARTICLE VI. ARBITRATION.
All cases of dispute between CONTRACTOR and OWNERS representative shall be
referred to the committee represented by:
a. One representative of the OWNER;
b. One representative of the CONTRACTOR;
c. One representative acceptable to both OWNER and CONTRACTOR.[8]
On May 5, 1998, respondent spouses Abrajano and Lava and respondent
Dacillo filed a Joint Answer with Counterclaim and Crossclaim [9] praying for dismissal
of petitioners Complaint for the same reason.
On August 9, 1998, the trial court issued the herein assailed Order dismissing
petitioners Complaint for non-compliance with the foregoing arbitration clause.
Hence this petition.
Petitioners argue, thus:
The petitioners causes of action did not emanate from the Owner-Contractor
Agreement.
The petitioners causes of action for cancellation of contract and accounting are
covered by the exception under the Arbitration Law.
Failure to arbitrate is not a ground for dismissal.[10]
In a catena of cases[11] inspired by Justice Malcolms provocative dissent in Vega
v. San Carlos Milling Co.[12], this Court 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[13] Arbitration is the wave of the future
in dispute resolution.[14] To brush aside a contractual agreement calling for arbitration
in case of disagreement between parties would be a step backward. [15]
Nonetheless, we grant the petition.
A submission to arbitration is a contract.[16] As such, the Agreement, containing
the stipulation on arbitration, binds the parties thereto, as well as their assigns and
heirs.[17] 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[18] or in this case, against the heirs of the original
party to the Agreement. However, respondents Rockway Real Estate Corporation,
South Ridge Village, Inc., Maharami Development Corporation, spouses Abrajano,
spouses Lava, Oscar Dacillo, Eduardo Vacuna, Florante de la Cruz and Jesus
Vicente Capellan 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.
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[19]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.
The petitioners contention is without merit. For while rescission, as a general
rule, is an arbitrable issue,[20] they impleaded in the suit for rescission the respondent
lot buyers who are neither parties to the Agreement nor the latters 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, 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.
WHEREFORE, the instant petition is hereby GRANTED. The Order dated
August 19, 1998 of Branch 85 of the Regional Trial Court of Lipa City is hereby
NULLIFIED and SET ASIDE. Said court is hereby ordered to proceed with the hearing
of Civil Case No. 98-0047.
Costs against private respondents.
SO ORDERED.
[G.R. No. 136154. February 7, 2001]
DEL MONTE CORPORATION-USA, PAUL E. DERBY, JR., DANIEL COLLINS and
LUIS HIDALGO, petitioners, vs. COURT OF APPEALS, JUDGE
BIENVENIDO L. REYES in his capacity as Presiding Judge, RTC-Br. 74,
Malabon, Metro Manila, MONTEBUENO MARKETING, INC., LIONG
LIONG C. SY and SABROSA FOODS, INC., respondents.
DECISION
BELLOSILLO, J.:
This Petition for Review on certiorari assails the 17 July 1998 Decision[1] of the
Court of Appeals affirming the 11 November 1997 Order [2] of the Regional Trial Court
which denied petitioners Motion to Suspend Proceedings in Civil Case No. 2637-
MN. It also questions the appellate courts Resolution[3] of 30 October 1998 which
denied petitioners Motion for Reconsideration.
On 1 July 1994, in a Distributorship Agreement, petitioner Del Monte
Corporation-USA (DMC-USA) appointed private respondent Montebueno Marketing,
Inc. (MMI) as the sole and exclusive distributor of its Del Monte products in the
Philippines for a period of five (5) years, renewable for two (2) consecutive five (5)
year periods with the consent of the parties. The Agreement provided, among others,
for an arbitration clause which states -
12. GOVERNING LAW AND ARBITRATION[4]
This Agreement shall be governed by the laws of the State of California and/or, if
applicable, the United States of America. All disputes arising out of or relating to this
Agreement or the parties relationship, including the termination thereof, shall be
resolved by arbitration in the City of San Francisco, State of California, under the
Rules of the American Arbitration Association. The arbitration panel shall consist of
three members, one of whom shall be selected by DMC-USA, one of whom shall be
selected by MMI, and third of whom shall be selected by the other two members and
shall have relevant experience in the industry x x x x
In October 1994 the appointment of private respondent MMI as the sole and
exclusive distributor of Del Monte products in the Philippines was published in several
newspapers in the country. Immediately after its appointment, private respondent MMI
appointed Sabrosa Foods, Inc. (SFI), with the approval of petitioner DMC-USA, as
MMIs marketing arm to concentrate on its marketing and selling function as well as to
manage its critical relationship with the trade.
On 3 October 1996 private respondents MMI, SFI and MMIs Managing Director
Liong Liong C. Sy (LILY SY) filed a Complaint[5] against petitioners DMC-USA, Paul
E. Derby, Jr.,[6] Daniel Collins[7] and Luis Hidalgo,[8] and Dewey Ltd.[9] before the
Regional Trial Court of Malabon, Metro Manila. Private respondents predicated their
complaint on the alleged violations by petitioners of Arts. 20, [10] 21[11] and 23[12] of the
Civil Code. According to private respondents, DMC-USA products continued to be
brought into the country by parallel importers despite the appointment of private
respondent MMI as the sole and exclusive distributor of Del Monte products thereby
causing them great embarrassment and substantial damage. They alleged that the
products brought into the country by these importers were aged, damaged, fake or
counterfeit, so that in March 1995 they had to cause, after prior consultation with
Antonio Ongpin, Market Director for Special Markets of Del Monte Philippines, Inc.,
the publication of a "warning to the trade" paid advertisement in leading
newspapers. Petitioners DMC-USA and Paul E. Derby, Jr., apparently upset with the
publication, instructed private respondent MMI to stop coordinating with Antonio
Ongpin and to communicate directly instead with petitioner DMC-USA through Paul E.
Derby, Jr.
Private respondents further averred that petitioners knowingly and surreptitiously
continued to deal with the former in bad faith by involving disinterested third parties
and by proposing solutions which were entirely out of their control. Private
respondents claimed that they had exhausted all possible avenues for an amicable
resolution and settlement of their grievances; that as a result of the fraud, bad faith,
malice and wanton attitude of petitioners, they should be held responsible for all the
actual expenses incurred by private respondents in the delayed shipment of orders
which resulted in the extra handling thereof, the actual expenses and cost of money
for the unused Letters of Credit (LCs) and the substantial opportunity losses due to
created out-of-stock situations and unauthorized shipments of Del Monte-USA
products to the Philippine Duty Free Area and Economic Zone; that the bad faith,
fraudulent acts and willful negligence of petitioners, motivated by their determination
to squeeze private respondents out of the outstanding and ongoing Distributorship
Agreement in favor of another party, had placed private respondent LILY SY on
tenterhooks since then; and, that the shrewd and subtle manner with which petitioners
concocted imaginary violations by private respondent MMI of the Distributorship
Agreement in order to justify the untimely termination thereof was a subterfuge. For
the foregoing, private respondents claimed, among other reliefs, the payment of
actual damages, exemplary damages, attorneys fees and litigation expenses.
On 21 October 1996 petitioners filed a Motion to Suspend
Proceedings[13] invoking the arbitration clause in their Agreement with private
respondents.
In a Resolution[14] dated 23 December 1996 the trial court deferred consideration
of petitioners Motion to Suspend Proceedings as the grounds alleged therein did not
constitute the suspension of the proceedings considering that the action was for
damages with prayer for the issuance of Writ of Preliminary Attachment and not on
the Distributorship Agreement.
On 15 January 1997 petitioners filed a Motion for Reconsideration to which
private respondents filed their Comment/Opposition. On 31 January 1997 petitioners
filed their Reply. Subsequently, private respondents filed an Urgent Motion for Leave
to Admit Supplemental Pleading dated 2 April 1997. This Motion was admitted, over
petitioners opposition, in an Order of the trial court dated 27 June 1997.
As a result of the admission of the Supplemental Complaint, petitioners filed on
22 July 1997 a Manifestation adopting their Motion to Suspend Proceedings of 17
October 1996 and Motion for Reconsideration of 14 January 1997.
On 11 November 1997 the Motion to Suspend Proceedings was denied by the
trial court on the ground that it "will not serve the ends of justice and to allow said
suspension will only delay the determination of the issues, frustrate the quest of the
parties for a judicious determination of their respective claims, and/or deprive and
delay their rights to seek redress."[15]
On appeal, the Court of Appeals affirmed the decision of the trial court. It held
that the alleged damaging acts recited in the Complaint, constituting petitioners
causes of action, required the interpretation of Art. 21 of the Civil Code [16] and that in
determining whether petitioners had violated it "would require a full blown trial"
making arbitration "out of the question." [17] Petitioners Motion for Reconsideration of
the affirmation was denied. Hence, this Petition for Review.
The crux of the controversy boils down to whether the dispute between the
parties warrants an order compelling them to submit to arbitration.
Petitioners contend that the subject matter of private respondents causes of
action arises out of or relates to the Agreement between petitioners and private
respondents. Thus, considering that the arbitration clause of the Agreement provides
that all disputes arising out of or relating to the Agreement or the parties relationship,
including the termination thereof, shall be resolved by arbitration, they insist on the
suspension of the proceedings in Civil Case No. 2637-MN as mandated by Sec. 7 of
RA 876[18] -
Sec. 7. Stay of Civil Action. If any suit or proceeding be brought upon an issue arising
out of an agreement providing for arbitration thereof, the court in which such suit or
proceeding is pending, upon being satisfied that the issue involved in such suit or
proceeding is referable to arbitration, shall stay the action or proceeding until an
arbitration has been had in accordance with the terms of the
agreement. Provided, That the applicant for the stay is not in default in proceeding
with such arbitration.
Private respondents claim, on the other hand, that their causes of action are
rooted in Arts. 20, 21 and 23 of the Civil Code,[19] the determination of which demands
a full blown trial, as correctly held by the Court of Appeals. Moreover, they claim that
the issues before the trial court were not joined so that the Honorable Judge was not
given the opportunity to satisfy himself that the issue involved in the case was
referable to arbitration. They submit that, apparently, petitioners filed a motion to
suspend proceedings instead of sending a written demand to private respondents to
arbitrate because petitioners were not sure whether the case could be a subject of
arbitration. They maintain that had petitioners done so and private respondents failed
to answer the demand, petitioners could have filed with the trial court their demand for
arbitration that would warrant a determination by the judge whether to refer the case
to arbitration. Accordingly, private respondents assert that arbitration is out of the
question.
Private respondents further contend that the arbitration clause centers more on
venue rather than on arbitration. They finally allege that petitioners filed their motion
for extension of time to file this petition on the same date [20] petitioner DMC-USA filed
a petition to compel private respondent MMI to arbitrate before the United States
District Court in Northern California, docketed as Case No. C-98-4446. They insist
that the filing of the petition to compel arbitration in the United States made the
petition filed before this Court an alternative remedy and, in a way, an abandonment
of the cause they are fighting for here in the Philippines, thus warranting the dismissal
of the present petition before this Court.
There is no doubt that arbitration is valid and constitutional in our
jurisdiction.[21] Even before the enactment of RA 876, this Court has countenanced
the settlement of disputes through arbitration. Unless the agreement is such as
absolutely to close the doors of the courts against the parties, which agreement would
be void, the courts will look with favor upon such amicable arrangement and will only
interfere with great reluctance to anticipate or nullify the action of the
arbitrator.[22] Moreover, as RA 876 expressly authorizes arbitration of domestic
disputes, foreign arbitration as a system of settling commercial disputes was likewise
recognized when the Philippines adhered to the United Nations "Convention on the
Recognition and the Enforcement of Foreign Arbitral Awards of 1958" under the 10
May 1965 Resolution No. 71 of the Philippine Senate, giving reciprocal recognition
and allowing enforcement of international arbitration agreements between parties of
different nationalities within a contracting state.[23]
A careful examination of the instant case shows that the arbitration clause in the
Distributorship Agreement between petitioner DMC-USA and private respondent MMI
is valid and the dispute between the parties is arbitrable. However, this Court must
deny the petition.
The Agreement between petitioner DMC-USA and private respondent MMI is a
contract. The 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. As a rule,
contracts are respected as the law between the contracting parties and produce effect
as between them, their assigns and heirs.[24] Clearly, only parties to the
Agreement, i.e., petitioners DMC-USA and its Managing Director for Export Sales
Paul E. Derby, Jr., and private respondents MMI and its Managing Director LILY SY
are bound by the Agreement and its arbitration clause as they are the only signatories
thereto. Petitioners Daniel Collins and Luis Hidalgo, and private respondent SFI, not
parties to the Agreement and cannot even be considered assigns or heirs of the
parties, are not bound by the Agreement and the arbitration clause
therein. Consequently, referral to arbitration in the State of California pursuant to the
arbitration clause and the suspension of the proceedings in Civil Case No. 2637-MN
pending the return of the arbitral award could be called for[25] but only as to petitioners
DMC-USA and Paul E. Derby, Jr., and private respondents MMI and LILY SY, and not
as to the other parties in this case, in accordance with the recent case of Heirs of
Augusto L. Salas, Jr. v. Laperal Realty Corporation,[26] which superseded that
of Toyota Motor Philippines Corp. v. Court of Appeals.[27]
In Toyota, the Court ruled that "[t]he contention that the arbitration clause has
become dysfunctional because of the presence of third parties is untenable
ratiocinating that "[c]ontracts are respected as the law between the contracting
parties"[28] and that "[a]s such, the parties are thereby expected to abide with good
faith in their contractual commitments."[29] However, in Salas, Jr., only parties to the
Agreement, their assigns or heirs have the right to arbitrate or could be compelled to
arbitrate. The Court went further by declaring that in recognizing the right of the
contracting parties to arbitrate or to compel arbitration, the splitting of the proceedings
to arbitration as to some of the parties on one hand and trial for the others on the
other hand, or the suspension of trial pending arbitration between some of the parties,
should not be allowed as it would, in effect, result in multiplicity of suits, duplicitous
procedure and unnecessary delay.[30]
The object of arbitration is to allow the expeditious determination of a
dispute.[31] Clearly, the issue before us could not be speedily and efficiently resolved
in its entirety if we allow simultaneous arbitration proceedings and trial, or suspension
of trial pending arbitration. Accordingly, the interest of justice would only be served if
the trial court hears and adjudicates the case in a single and complete proceeding. [32]
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals
affirming the Order of the Regional Trial Court of Malabon, Metro Manila, in Civil Case
No. 2637-MN, which denied petitioners Motion to Suspend Proceedings, is
AFFIRMED. The Regional Trial Court concerned is directed to proceed with the
hearing of Civil Case No. 2637-MN with dispatch. No costs.
SO ORDERED.
[G.R. No. 159586. July 26, 2004]
EUROPEAN RESOURCES AND TECHNOLOGIES, INC. and DELFIN J.
WENCESLAO, petitioners, vs. INGENIEUBURO BIRKHAHN + NOLTE,
Ingeniurgesellschaft mbh and HEERS & BROCKSTEDT GMBH &
CO., respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this Petition for Review under Rule 45 of the Rules of Court is the
Decision[1] of the Court of Appeals dated May 15, 2003, which sustained the Order of
the Regional Trial Court of Angeles City, Branch 61, dated June 28, 2001, and its
subsequent Resolution dated August 3, 2003 denying petitioners motion for
reconsideration.
European Resources and Technologies Inc. (hereinafter ERTI), a corporation
organized and existing under the laws of the Republic of the Philippines, is joined by
Delfin J. Wenceslao as petitioner in this case. Ingenieuburo Birkhan + Nolte
Ingiurgesellschaft mbh and Heers & Brockstedt Gmbh & Co. are German corporations
who are respondents in this case and shall be collectively referred to as the German
Consortium.
The German Consortium tendered and submitted its bid to the Clark
Development Corporation (CDC) to construct, operate and manage
the Integrated Waste Management Center at the Clark Special Economic Zone
(CSEZ). CDC accepted the German Consortiums bid and awarded the contract to
it. On October 6, 1999, CDC and the German Consortium executed the Contract for
Services[2] which embodies the terms and conditions of their agreement.
The Contract for Services provides that the German Consortium shall be
empowered to enter into a contract or agreement for the use of the integrated waste
management center by corporations, local government units, entities, and persons not
only within the CSEZ but also outside. For waste collected within the CSEZ, the
German Consortium may impose a tipping fee per ton of waste collected from
locators and residents of the CSEZ, which fees shall be subject to the schedule
agreed upon by the parties and specified in the Contract for Services. For its
operations outside of the CSEZ, the German Consortium shall pay CDC US$1.50 per
ton of non-hazardous solid waste collected.[3] The CDC shall guarantee that nineteen
thousand eighteen hundred (19,800) tons per year of solid waste volume shall be
collected from inside and outside the CSEZ.[4] The contract has a term of twenty-five
(25) years,[5] during which time the German Consortium shall operate the waste
management center on a day-to-day basis.[6]
Article VIII, Section 7 of the Contract for Services provides that the German
Consortium shall undertake to organize a local corporation as its representative for
this project. On April 18, 2000, the German Consortium entered into a Joint Venture
with D.M. Wenceslao and Associates, Inc. (DMWAI) and Ma. Elena B. Villarama
(doing business as LBV and Associates), embodied in a Memorandum of
Understanding[7] (MOU) signed by the parties. Under the MOU, the parties agreed to
jointly form a local corporation to which the German Consortium shall assign its rights
under the Contract for Services. Pursuant to this agreement, petitioner European
Resources and Technologies, Inc. was incorporated. The parties likewise agreed to
prepare and finalize a Shareholders Agreement within one (1) month from the
execution of the MOU, which shall provide that the German Consortium shall own
fifteen percent (15%) of the equity in the joint venture corporation, DMWAI shall own
seventy percent (70%) and LBV&A shall own fifteen percent (15%). In the event that
the parties fail to execute the Shareholders Agreement, the MOU shall be considered
null and void.[8]
On August 1, 2000, without the Shareholders Agreement having been executed,
the German Consortium and petitioner ERTI entered into a Memorandum of
Agreement (MOA)[9] whereby the German Consortium ceded its rights and obligations
under the Contract for Services in favor of ERTI and assigned unto ERTI, among
others, its license from CDC to engage in the business of providing environmental
services needed in the CSEZ in connection with the waste management within the
CSEZ and other areas.[10] Likewise, the parties agreed that should there be a
disagreement between or among them relative to the interpretation or implementation
of the MOA and the collateral documents including but not limited to the Contract for
Services between the German Consortium and CDC, the dispute shall be referred to
a panel of arbitrators.[11]
On December 11, 2000, ERTI received a letter from BN Consultants Philippines,
Inc., signed by Mr. Holger Holst for and on behalf of the German
Consortium,[12] stating that the German Consortiums contract with DMWAI, LBV&A
and ERTI has been terminated or extinguished on the following grounds: (a) the CDC
did not give its approval to the Consortiums request for the approval of the
assignment or transfer by the German Consortium in favor of ERTI of its rights and
interests under the Contract for Services; (b) the parties failed to prepare and finalize
the Shareholders Agreement pursuant to the provision of the MOU; (c) there is no
more factual or legal basis for the joint venture to continue; and (d) with the
termination of the MOU, the MOA is also deemed terminated or extinguished.
Attached to the letter was a copy of the letter of the CDC, [13] stating that the
German Consortiums assignment of an eighty-five percent (85%) majority interest to
another party violated its representation to undertake both the financial and technical
aspects of the project. The dilution of the Consortiums interest in ERTI is a substantial
modification of the Consortiums representations which were used as bases for the
award of the project to it.
 On February 20, 2001, petitioner ERTI, through counsel, sent a letter to CDC
requesting for the reconsideration of its disapproval of the agreement between ERTI
and the German Consortium.
Before CDC could act upon petitioner ERTIs letter, the German Consortium filed
a complaint for injunction against herein petitioners before
the Regional Trial Court of Angeles City, Branch 61, docketed as Civil Case No.
10049. The German Consortium claimed that petitioner ERTIs continued
misrepresentation as to their right to accept solid wastes from third parties for
processing at the waste management center will cause irreparable damage to the
Consortium and its exclusive right to operate the waste management center at the
CSEZ. Moreover, petitioner ERTIs acts destroy the Consortiums credibility and
undermine customer confidence in it. Hence, the German Consortium prayed that a
writ of temporary restraining order be issued against petitioner ERTI and, after
hearing, a writ of preliminary injunction be likewise issued ordering petitioner ERTI to
cease and desist from misrepresenting to third parties or the public that it has any
right or interest in the waste management center at CSEZ.[14]
Petitioners filed their Opposition to the application for preliminary injunction
on February 7, 2001. The following day, February 8, 2001, petitioners sent
respondents, through Mr. Holger Holst, a letter demanding that the parties proceed to
arbitration in accordance with Section 17 of the MOA. At the hearings on the
application for injunction, petitioners objected to the presentation of evidence on the
ground that the trial court had no jurisdiction over the case since the German
Consortium was composed of foreign corporations doing business in the country
without a license. Moreover, the MOA between the parties provides that the dispute
should be referred to arbitration.
The trial court overruled the objection and proceeded with the hearing. On June
28, 2001, the trial court issued an Order granting the writ of preliminary
injunction.[15] Petitioners filed a motion for reconsideration, which was denied in a
Resolution dated November 21, 2001.
On January 17, 2002, petitioners filed a petition for certiorari and prohibition
under Rule 65 of the Rules of Court before the Court of Appeals, assailing the trial
courts Orders dated June 28, 2001 and November 21, 2001.
Meanwhile, on February 11, 2002, the temporary restraining order issued was
lifted in view of respondents failure to file sufficient bond.[16] On September 6, 2002,
all proceedings in Civil Case No. 10049 were suspended until the petition for certiorari
pending before the Court of Appeals shall have been resolved. [17]
On May 15, 2003, the Court of Appeals dismissed the petition for
certiorari. Petitioners Motion for Reconsideration was denied in a Resolution
dated August 25, 2003.
Hence, this petition arguing that the Court of Appeals committed reversible error
in:
(a) Ruling that petitioners are estopped from assailing the capacity of the
respondents to institute the suit for injunction
(b) Ruling that respondents are entitled to an injunctive writ.
(c) Not holding that the dispute is covered by the arbitration clause in the
memorandum of agreement.
(d) Issuing the writ of preliminary injunction that is tantamount to a decision of
the case on the merits.[18]
The petition is partly meritorious.
There is no general rule or governing principle laid down as to what constitutes
doing or engaging in or transacting business in the Philippines. Thus, it has often
been held that a single act or transaction may be considered as doing business when
a corporation performs acts for which it was created or exercises some of the
functions for which it was organized.[19] We have held that the act of participating in a
bidding process constitutes doing business because it shows the foreign corporations
intention to engage in business in the Philippines. In this regard, it is the performance
by a foreign corporation of the acts for which it was created, regardless of volume of
business, that determines whether a foreign corporation needs a license or not.[20]
Consequently, the German Consortium is doing business in
the Philippines without the appropriate license as required by our laws. By
participating in the bidding conducted by the CDC for the operation of the waste
management center, the German Consortium exhibited its intent to transact business
in the Philippines. Although the Contract for Services provided for the establishment
of a local corporation to serve as respondents representative, it is clear from the other
provisions of the Contract for Services as well as the letter by the CDC containing the
disapproval that it will be the German Consortium which shall manage and conduct
the operations of the waste management center for at least twenty-five
years. Moreover, the German Consortium was allowed to transact with other entities
outside the CSEZ for solid waste collection. Thus, it is clear that the local corporation
to be established will merely act as a conduit or extension of the German Consortium.
As a general rule, unlicensed foreign non-resident corporations cannot file suits
in the Philippines. Section 133 of the Corporation Code specifically provides:
SECTION 133. No foreign corporation transacting business in the Philippines without
a license, or its successors or assigns, shall be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency of the Philippines,
but such corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine laws.
A corporation has legal status only within the state or territory in which it was
organized. For this reason, a corporation organized in another country has no
personality to file suits in the Philippines. In order to subject a foreign corporation
doing business in the country to the jurisdiction of our courts, it must acquire a license
from the Securities and Exchange Commission (SEC) and appoint an agent for
service of process. Without such license, it cannot institute a suit in the Philippines.[21]
However, there are exceptions to this rule. In a number of cases,[22] we have
declared a party estopped from challenging or questioning the capacity of an
unlicensed foreign corporation from initiating a suit in our courts. In the case
of Communication Materials and Design, Inc. v. Court of Appeals,[23] a foreign
corporation instituted an action before our courts seeking to enjoin a local corporation,
with whom it had a Representative Agreement, from using its corporate name, letter
heads, envelopes, sign boards and business dealings as well as the foreign
corporations trademark. The case arose when the foreign corporation discovered that
the local corporation has violated certain contractual commitments as stipulated in
their agreement. In said case, we held that a foreign corporation doing business in
the Philippines without license may sue in Philippine Courts a Philippine citizen or
entity that had contracted with and benefited from it.
Hence, the party is estopped from questioning the capacity of a foreign
corporation to institute an action in our courts where it had obtained benefits from its
dealings with such foreign corporation and thereafter committed a breach of or sought
to renege on its obligations. The rule relating to estoppel is deeply rooted in the axiom
of commodum ex injuria sua non habere debetno person ought to derive any
advantage from his own wrong.
In the case at bar, petitioners have clearly not received any benefit from its
transactions with the German Consortium. In fact, there is no question that petitioners
were the ones who have expended a considerable amount of money and effort
preparatory to the implementation of the MOA. Neither do petitioners seek to back out
from their obligations under both the MOU and the MOA by challenging respondents
capacity to sue. The reverse could not be any more accurate. Petitioners are insisting
on the full validity and implementation of their agreements with the German
Consortium.
To rule that the German Consortium has the capacity to institute an action
against petitioners even when the latter have not committed any breach of its
obligation would be tantamount to an unlicensed foreign corporation gaining access to
our courts for protection and redress. We cannot allow this without violating the very
rationale for the law prohibiting a foreign corporation not licensed to do business in
the Philippines from suing or maintaining an action in Philippine courts. The object of
requiring a license is not to prevent the foreign corporation from performing single
acts, but to prevent it from acquiring domicile for the purpose of business without
taking the steps necessary to render it amenable to suits in the local courts. [24] In
other words, the foreign corporation is merely prevented from being in a position
where it takes the good without accepting the bad.
On the issue of whether the respondents were entitled to the injunctive writ, the
petitioners claim that respondents right is not in esse but is rather a future right which
is contingent upon a judicial declaration that the MOA has been validly rescinded. The
Court of Appeals, in its decision, held that the MOA should be deemed subject to a
suspensive condition, that is, that CDCs prior written consent must be obtained for the
validity of the assignment.
This issue must be resolved in a separate proceeding. It must be noted that the
hearing conducted in the trial court was merely a preliminary hearing relating to the
issuance of the injunctive writ. In order to fully appreciate the facts of this case and
the surrounding circumstances relating to the agreements and contract involved,
further proof should be presented for consideration of the court. Likewise, corollary
matters, such as whether either of the parties is liable for damages and to what
extent, cannot be resolved with absolute certainty, thus rendering any decision we
might make incomplete as to fully dispose of this case.
More importantly, it is evident that CDC must be made a proper party in any
case which seeks to resolve the effectivity or ineffectivity of its disapproval of the
assignment made between petitioners and respondent German Consortium. Where,
as in the instant case, CDC is not impleaded as a party, any decision of the court
which will inevitably affect or involve CDC cannot be deemed binding on it.
For the same reason, petitioners assertion that the instant case should be
referred to arbitration pursuant to the provision of the MOA is untenable.
We have ruled in several cases that arbitration agreements are valid, binding,
enforceable and not contrary to public policy such 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.[25] In the case at bar, the MOA between petitioner ERTI and
respondent German Consortium provided:
17. Should there be a disagreement between or among the Parties relative to the
interpretation or implementation of this Agreement and the collateral documents
including but not limited to the Contract for Services between GERMAN
CONSORTIUM and CDC and the Parties cannot resolve the same by themselves, the
same shall be endorsed to a panel of arbitrators which shall be convened in
accordance with the process ordained under the Arbitration Law of the Republic of the
Philippines.[26]
 Indeed, to brush aside a contractual agreement calling for arbitration in case of
disagreement between parties would be a step backward. [27] But there are exceptions
to this rule. Even if there is an arbitration clause, there are instances when referral to
arbitration does not appear to be the most prudent action. The object of arbitration is
to allow the expeditious determination of a dispute. Clearly, the issue before us could
not be speedily and efficiently resolved in its entirety if we allow simultaneous
arbitration proceedings and trial, or suspension of trial pending arbitration. [28]
As discussed earlier, the dispute between respondent German Consortium and
petitioners involves the disapproval by the CDC of the assignment by the German
Consortium of its rights under the Contract for Services to petitioner ERTI. Admittedly,
the arbitration clause is contained in the MOA to which only the German Consortium
and petitioner ERTI were parties. Even if the case is brought before an arbitration
panel, the decision will not be binding upon CDC who is a non-party to the arbitration
agreement. What is more, the arbitration panel will not be able to completely dispose
of all the issues of this case without including CDC in its proceedings. Accordingly,
the interest of justice would only be served if the trial court hears and adjudicates the
case in a single and complete proceeding.
Lastly, petitioners question the propriety of the issuance of writ of preliminary
injunction claiming that such is already tantamount to granting the main prayer of
respondents complaint without the benefit of a trial. Petitioners point out that the
purpose of a preliminary injunction is to prevent threatened or continuous
irremediable injury to some of the parties before their claims can be thoroughly
studied and decided. It cannot be used to railroad the main case and seek a judgment
without a full-blown trial as in the instant case.
The Court of Appeals ruled that since petitioners did not raise this issue during
the hearing on the application for preliminary injunction before the trial court, the
same cannot be raised for the first time on appeal and even in special civil actions for
certiorari as in this case.
At the outset, it must be noted that with the finding that the German Consortium
is without any personality to file the petition with the trial court, the propriety of the
injunction writ issued is already moot and academic. Even assuming for the sake of
argument that respondents have the capacity to file the petition, we find merit in the
issue raised by petitioners against the injunction writ issued.
Before an injunctive writ can be issued, it is essential that the following
requisites are present: (1) there must be a right in esse or the existence of a right to
be protected; and (2) the act against which injunction to be directed is a violation of
such right.[29] The onus probandi is on movant to show that there exists a right to be
protected, which is directly threatened by the act sought to be enjoined. Further, there
must be a showing that the invasion of the right is material and substantial and that
there is an urgent and paramount necessity for the writ to prevent a serious
damage.[30]
Thus, it is clear that for the issuance of the writ of preliminary injunction to be
proper, it must be shown that the invasion of the right sought to be protected is
material and substantial, that the right of complainant is clear and unmistakable and
that there is an urgent and paramount necessity for the writ to prevent serious
damage.[31] At the time of its application for an injunctive writ, respondents right to
operate and manage the waste management center, to the exclusion of or without
any participation by petitioner ERTI, cannot be said to be clear and unmistakable. The
MOA executed between respondents and petitioner ERTI has not yet been judicially
declared as rescinded when the complaint was lodged in court.[32] Hence, a cloud of
doubt exists over respondent German Consortiums exclusive right relating to the
waste management center.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 68923
dated May 15, 2003 is REVERSED and SET ASIDE. The Orders of the trial court
dated June 28, 2001 and November 21, 2001 are ANNULLED and SET ASIDE and
Civil Case No. 10049 is DISMISSED for lack of legal capacity of respondents to
institute the action. Costs against respondents.
SO ORDERED.
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.
G.R. No. 181969 October 2, 2009
ROMAGO, INC. vs SIEMENS BUILDING TECHNOLOGIES, INC.
Romago Inc. was awarded the Sub-contract for the Building Services-Electrical
Package for the Insular Life Corporate Center. Under the consortium agreement and
Equipment Supply Sub-Contract Agreement (ESSA), Siemens Building Technologies
Inc. undertook to deliver the needed electrical equipment for the project for Romago.
SBTI made deliveries but ROMAGO failed to pay in full. The former made demands,
but they were not paid. Romago refused to pay its obligation which amounted to
P16,937,612.68, unless SBTI compensates ROMAGO for the total expenses it
allegedly incurred in taking over SBTI’s contractual obligations when the earlier
demands to pay were unheeded.
SBTI filed a Request for Arbitration with the Philippine Dispute Resolution Center, Inc.
(PDRCI) which was agreed to by Romago. After due proceedings, the arbitrator
awarded to SBTI its claim of the amount above mentioned plus legal interest,
attorney’s fees and costs.
SBTI filed a petition for Confirmation of the Arbitrator’s Decision, and instead of filing
a Motion to Vacate the Award, Romago filed an Answer. The RTC granted the
petition, confirmed the award and issued a Writ of Execution. This had become final
and executory. Despite receipt of the Order on July 3, 2006, Romago did not
interpose an appeal. It was only later on August 22, 2006 when Atty. Barrios withdrew
his appearance and the law office of Mutia Venadas entered appearance that
Romago sought for a petition for relief from judgment. Claiming that Atty. Barrios was
sick for three weeks and only later were they aware of the orders of the court.
SBTI opposed, and the RTC denied it. MR was denied. And upon petition for certiorari
to the CA,Romago raised the issue that the PDRCI had no jurisdiction over the
dispute since the contract with SBTI was a construction contract and was within the
jurisdiction of the CIAC. However, the CA also denied this.
Issue: was the contract between the parties a construction contract that would place it
in the jurisdiction of the CIAC?
Ruling:
No. It was a supply contract, thus, not within the jurisdiction of the CIAC.
SBTI’s scope of work under the ESSA was:
1.01 x x x to furnish all equipment in accordance with the equipment and
delivery schedule x x x
1.02 [to] supply and deliver the equipment in accordance with the Bill of
Quantities and Cost Schedule (Attachment Nos. 1 &2) and equipment
delivery schedule (Attachment -3) to the jobsite/designated areas including
unloading of equipment from the delivery truck.xxxx
By no stretch of the imagination can the ESSA be characterized as a construction
contract. Crystal clear from the provisions of the ESSA is that SBTI’s role was merely
to supply the needed equipment for the Insular Life Corporate Center project. The
ESSA is, therefore, a mere supply contract that does not fall within the original
and exclusive jurisdiction of CIAC.
We also note that the Consortium Agreement between ROMAGO and SBTI contained
an arbitration clause, wherein the parties agreed to submit any dispute between them
for arbitration under the Philippine Chamber of Commerce and Industry
(PCCI),36 such as the PDRCI.
Furthermore, the issue of jurisdiction was rendered moot by ROMAGO's active
participation in the proceedings before the PDRCI and the RTC. In fact, during
the proceedings for the confirmation of the Arbitrator’s award, ROMAGO’s opposition
zeroed in on the alleged bias and partiality of the Arbitrator in rendering the decision.
Even in its petition for relief from judgment filed with the RTC, the PDRCI’s alleged
lack of jurisdiction was never raised as an issue. It was only in its petition for certiorari
with the CA, and after a writ of execution had been issued, that ROMAGO raised the
issue of lack of jurisdiction.
ROMAGO attempted to avoid this final and executory judgment by filing a petition for
relief from judgment with the RTC. However, under the rules, the equitable remedy is
allowed only under exceptional circumstances of fraud, accident , mistake or
excusable negligence, which is not applicable in this case. Romago ascribes its
failure to appeal due to the negligence of its counsel, Atty. Barrios, who had suffered
from hypertension; but the court is not convinced since the affidavit it submit to prove
such allegations was filled with blanks of the name of the physician and hospital who
attended the lawyer. As such, It is settled that clients are bound by the mistakes,
negligence and omission of their counsel. While, exceptionally, the client may be
excused from the failure of counsel,49 the circumstances obtaining in the present
case do not persuade this Court to take exception.
ASSET PRIVATIZATION TRUST, petitioner,
vs.,
COURT OF APPEALS, JESUS S. CABARRUS, SR., JESUS S. CABARRUS, JR.,
JAIME T. CABARRUS, JOSE MIGUEL CABARRUS, ALEJANDRO S. PASTOR,
JR., ANTONIO U. MIRANDA, and MIGUEL M. ANTONIO, as Minority Stock
Holders of Marinduque Mining and Industrial Corporation, respondents.
Facts:
The Republic of the Philippines granted MMIC the exclusive right to explore, develop
and exploit minerals in the Surigao mineral reservation. The Philippine Government
undertook to support the financing of MMIC. On July 13, 1981, MMIC, PNB and DBP
executed a Mortgage Trust Agreement whereby MMIC, as mortgagor, agreed to
constitute a mortgage in favor of PNB and DBP as mortgagees, over all MMIC’s
assets.
By 1984, MMIC had an outstanding loan in the amount of
P22,668,537,770.05, and MMIC was having a difficult time meeting its financial
obligations. Thus, a financial restructuring plan (FRP) was designed; however, the
proposed FRP had never been formally adopted, approved or ratified by either PNB
or DBP.
The loans had become overdue, DBP and PNB exercised their right to
extrajudicially foreclose the mortgages in accordance with the Mortgage Trust
Agreement. The foreclosed assets were sold to PNB and were assigned to three
newly formed corporations. Thereafter, these assets were transferred to the Asset
Privatization Trust (APT).
Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC, filed a
derivative suit against DBP and PNB for Annulment of Foreclosures, Specific
Performance and Damages. In the course of the trial, the parties mutually agreed to
submit the case to arbitration by entering into a “Compromise and Arbitration
Agreement. The Compromise and Arbitration Agreement limited the issues to the
following: (a) propriety of the plaintiffs filing the derivative suit; (b) the regularity of the
foreclosure proceedings. The trial court approved the agreement and ordered that the
complaint be dismissed.
After conducting several hearings, the Arbitration Committee rendered a
majority decision in favor of MMIC. Motions for reconsiderations were filed by both
parties, but the same were denied.
In 1994, private respondents filed in the same Civil Case No. 9900 an
“Application/Motion for Confirmation of Arbitration Award.” Petitioner countered with
an “Opposition and Motion to Vacate Judgment.Private respondents filed a “reply and
opposition” arguing that a dismissal of Civil case No. 9900 was merely a “qualified
dismissal” to pave the way for the submission of the controversy to arbitration, and
operated simply as “a mere suspension of the proceedings.”
In an Order dated November 28, 1994, the trial court confirmed the award of
the Arbitration Committee.
The petitioner filed its motion for reconsideration; special civil action for
certiorari; petition for review on certiorari.
ISSUE:
  Whether or not the RTC of Makati, Branch 62, has jurisdiction to confirm the
arbitral award
 Whether or not the Arbitration Committee can resolve issues beyond the
scope of the arbitration agreement
RULING:
Admittedly the correct procedure was for the parties to go back to the court
where the case was pending to have the award confirmed by said court. However,
Branch 62 made the fatal mistake of issuing a final order dismissing the case. By its
own action, Branch 62 had lost jurisdiction over the case. It could not have validly
reacquired jurisdiction over the said case on mere motion of one of the parties. The
Rules of Court is specific on how a new case may be initiated and such is not done by
mere motion in a particular branch of the RTC. Consequently, as there was no
“pending action” to speak of, the petition to confirm the arbitral award should have
been filed as a new case and raffled accordingly to one of the branches of the
Regional Trial Court.
As a rule, the award of an arbitrator cannot be set aside for mere errors of
judgment either as to the law or as to the facts. Nonetheless, the arbitrators’ awards is
not absolute and without exceptions. The arbitrators cannot resolve issues beyond
the scope of the submission agreement. The parties to such an agreement are bound
by the arbitrators’ award only to the extent and in the manner prescribed by the
contract and only if the award is rendered in conformity thereto. Thus, Sections 24
and 25 of the Arbitration Law provide grounds for vacating, rescinding or modifying an
arbitration award. Where the conditions described in Articles 2038, 2039 and 2040 of
the Civil Code applicable to compromises and arbitration are attendant, the arbitration
award may also be annulled.
 The arbitrators shall have the power to decide only those matters which have
been submitted to them. The terms of the award shall be confined to such
disputes. (Otherwise, the arbitration award may be vacated, rescinded,
modified or annulled.)
Tuna Processing v. Philippine Kingford
G.R. No. 185582, February 29, 2012
FACTS:
Kanemitsu Yamaoka, co-patentee of a US Patent, Philippine Letters Patent, and an
Indonesian Patent, entered into a Memorandum of Agreement (MOA) with five
Philippine tuna processors including Respondent Philippine Kingford, Inc.
(KINGFORD). The MOA provides for the enforcing of the abovementioned patents,
granting licenses under the same, and collecting royalties, and for the establishment
of herein Petitioner Tuna Processors, Inc. (TPI).
Due to a series of events not mentioned in the Petition, the tuna processors, including
Respondent KINGFORD, withdrew from Petitioner TPI and correspondingly reneged
on their obligations. Petitioner TPI submitted the dispute for arbitration before the
International Centre for Dispute Resolution in the State of California, United States
and won the case against Respondent KINGFORD.
To enforce the award, Petitioner TPI filed a Petition for Confirmation, Recognition,
and Enforcement of Foreign Arbitral Award before the RTC of Makati City.
Respondent KINGFORD filed a Motion to Dismiss, which the RTC denied for lack of
merit. Respondent KINGFORD then sought for the inhibition of the RTC judge, Judge
Alameda, and moved for the reconsideration of the order denying the Motion. Judge
Alameda inhibited himself notwithstanding “[t]he unfounded allegations and
unsubstantiated assertions in the motion.” Judge Ruiz, to which the case was re-
raffled, in turn, granted Respondent KINGFORDS’s Motion for Reconsideration and
dismissed the Petition on the ground that Petitioner TPI lacked legal capacity to sue in
the Philippines. Petitioner TPI is a corporation established in the State of California
and not licensed to do business in the Philippines.
Hence, the present Petition for Review on Certiorari under Rule 45.
ISSUE:
Whether or not a foreign corporation not licensed to do business in the Philippines,
but which collects royalties from entities in the Philippines, sue here to enforce a
foreign arbitral award?
ARGUMENT:
Petitioner TPI contends that it is entitled to seek for the recognition and enforcement
of the subject foreign arbitral award in accordance with RA No. 9285 (Alternative
Dispute Resolution Act of 2004), the Convention on the Recognition and Enforcement
of Foreign Arbitral Awards drafted during the United Nations Conference on
International Commercial Arbitration in 1958 (New York Convention), and the
UNCITRAL Model Law on International Commercial Arbitration (Model Law), as none
of these specifically requires that the party seeking for the enforcement should have
legal capacity to sue.

RULING:
YES. Petitioner TPI, although not licensed to do business in the Philippines, may seek
recognition and enforcement of the foreign arbitral award in accordance with the
provisions of the Alternative Dispute Resolution Act of 2004. A foreign corporation’s
capacity to sue in the Philippines is not material insofar as the recognition and
enforcement of a foreign arbitral award is concerned.
The Resolution of the RTC is REVERSED and SET ASIDE.
RATIO DECIDENDI:
Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing
party in an application for recognition and enforcement of the arbitral award may raise
only those grounds that were enumerated under Article V of the New York
Convention, to wit:
Article V
1. Recognition and enforcement of the award may be refused, at the request of the
party against whom it is invoked, only if that party furnishes to the competent authority
where the recognition and enforcement is sought, proof that:
a. The parties to the agreement referred to in Article II were, under the law applicable
to them, under some incapacity, or the said agreement is not valid under the law to
which the parties have subjected it or, failing any indication thereon, under the law of
the country where the award was made;
b. The party against whom the award is invoked was not given proper notice of the
appointment of the arbitrator or of the arbitration proceedings or was otherwise unable
to present his case;
c. The award deals with a difference not contemplated by or not falling within the
terms of the submission to arbitration, or it contains decisions on matters beyond the
scope of the submission to arbitration, provided that, if the decisions on matters
submitted to arbitration can be separated from those not so submitted, that part of the
award which contains decisions on matters submitted to arbitration may be
recognized and enforced;
d. The composition of the arbitral authority or the arbitral procedure was not in
accordance with the agreement of the parties, or, failing such agreement, was not in
accordance with the law of the country where the arbitration took place; or
e. The award has not yet become binding on the parties, or has been set aside or
suspended by a competent authority of the country in which, or under the law of
which, that award was made.
2. Recognition and enforcement of an arbitral award may also be refused if the
competent authority in the country where recognition and enforcement is sought finds
that:
a. The subject matter of the difference is not capable of settlement by arbitration
under the law of that country; or
b. The recognition or enforcement of the award would be contrary to the public policy
of that country.
Not one of the abovementioned exclusive grounds touched on the capacity to sue of
the party seeking the recognition and enforcement of the award.
Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution,
which was promulgated by the Supreme Court, likewise support this position.
Rule 13.1 of the Special Rules provides that “[a]ny party to a foreign arbitration may
petition the court to recognize and enforce a foreign arbitral award.” The contents of
such petition are enumerated in Rule 13.5. Capacity to sue is not included.
Oppositely, in the rule on local arbitral awards or arbitrations in instances where “the
place of arbitration is in the Philippines,” it is specifically required that a petition “to
determine any question concerning the existence, validity and enforceability of such
arbitration agreement” available to the parties before the commencement of
arbitration and/or a petition for “judicial relief from the ruling of the arbitral tribunal on a
preliminary question upholding or declining its jurisdiction” after arbitration has already
commenced should state “[t]he facts showing that the persons named as petitioner or
respondent have legal capacity to sue or be sued.”
Indeed, it is in the best interest of justice that in the enforcement of a foreign
arbitral award, the Court deny availment by the losing party of the rule that bars
foreign corporations not licensed to do business in the Philippines from maintaining
a suit in Philippine courts. When a party enters into a contract containing a
foreign arbitration clause and, as in this case, in fact submits itself to arbitration, it
becomes bound by the contract, by the arbitration and by the result of arbitration,
conceding thereby the capacity of the other party to enter into the contract,
participate in the arbitration and cause the implementation of the result. Although not
on all fours with the instant case, also worthy to consider is the wisdom of then
Associate Justice Flerida Ruth P. Romero in her Dissenting Opinion in Asset
Privatization Trust v. Court of Appeals [1998], to wit:

xxx Arbitration, as an alternative mode of settlement, is gaining adherents in

legal and judicial circles here and abroad. If its tested mechanism can simply be
ignored by an aggrieved party, one who, it must be stressed, voluntarily and actively
participated in the arbitration proceedings from the very beginning, it will destroy the
very essence of mutuality inherent in consensual contracts.

Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected
not because it is favored over domestic laws and procedures, but because Republic
Act No. 9285 has certainly erased any conflict of law question.

Finally, even assuming, only for the sake of argument, that the RTC correctly
observed that the Model Law, not the New York Convention, governs the subject
arbitral award, Petitioner TPI may still seek recognition and enforcement of the award
in Philippine court, since the Model Law prescribes substantially identical exclusive
grounds for refusing recognition or enforcement.