ABS-CBN BROADCASTING G.R. No.

169332
CORPORATION,

Petitioner, Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and
LEONARDO-DE CASTRO, JJ.

WORLD INTERACTIVE
NETWORK SYSTEMS (WINS)
JAPAN CO., LTD.,
Respondent. Promulgated:

February 11, 2008

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

DECISION

CORONA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside the February

16, 2005 decision[1] and August 16, 2005 resolution[2]of the Court of Appeals (CA) in CA-G.R. SP No.

81940.

On September 27, 1999, petitioner ABS-CBN Broadcasting Corporation entered into a licensing

agreement with respondent World Interactive Network Systems (WINS) Japan Co., Ltd., a foreign

corporation licensed under the laws of Japan. Under the agreement, respondent was granted the

exclusive license to distribute and sublicense the distribution of the television service known as The

Filipino Channel (TFC) in Japan. By virtue thereof, petitioner undertook to transmit the TFC

programming signals to respondent which the latter received through its decoders and distributed to its

subscribers.

A dispute arose between the parties when petitioner accused respondent of inserting nine episodes of

WINS WEEKLY, a weekly 35-minute community news program for Filipinos in Japan, into the TFC

programming from March to May 2002.[3] Petitioner claimed that these were unauthorized insertions

constituting a material breach of their agreement. Consequently, on May 9, 2002, [4] petitioner notified

respondent of its intention to terminate the agreement effective June 10, 2002.

Thereafter, respondent filed an arbitration suit pursuant to the arbitration clause of its agreement with

petitioner. It contended that the airing of WINS WEEKLY was made with petitioner's prior approval. It

also alleged that petitioner only threatened to terminate their agreement because it wanted to renegotiate

the terms thereof to allow it to demand higher fees. Respondent also prayed for damages for petitioner's

alleged grant of an exclusive distribution license to another entity, NHK (Japan Broadcasting
Corporation).[5]

The parties appointed Professor Alfredo F. Tadiar to act as sole arbitrator. They stipulated on the

following issues in their terms of reference (TOR)[6]:

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

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

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

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

xxx xxx xxx

The arbitrator found in favor of respondent.[7] He held that petitioner gave its approval to respondent for

the airing of WINS WEEKLY as shown by a series of written exchanges between the parties. He also

ruled that, had there really been a material breach of the agreement, petitioner should have terminated

the same instead of sending a mere notice to terminate said agreement. The arbitrator found that

petitioner threatened to terminate the agreement due to its desire to compel respondent to re-negotiate

the terms thereof for higher fees. He further stated that even if respondent committed a breach of the
agreement, the same was seasonably cured. He then allowed respondent to recover temperate damages,

attorney's fees and one-half of the amount it paid as arbitrator's fee.

Petitioner filed in the CA a petition for review under Rule 43 of the Rules of Court or, in the alternative,

a petition for certiorari under Rule 65 of the same Rules, with application for temporary restraining

order and writ of preliminary injunction. It was docketed as CA-G.R. SP No. 81940. It alleged serious

errors of fact and law and/or grave abuse of discretion amounting to lack or excess of jurisdiction on the

part of the arbitrator.

Respondent, on the other hand, filed a petition for confirmation of arbitral award before the Regional

Trial Court (RTC) of Quezon City, Branch 93, docketed as Civil Case No. Q-04-51822.

Consequently, petitioner filed a supplemental petition in the CA seeking to enjoin the RTC of Quezon

City from further proceeding with the hearing of respondent's petition for confirmation of arbitral award.

After the petition was admitted by the appellate court, the RTC of Quezon City issued an order holding

in abeyance any further action on respondent's petition as the assailed decision of the arbitrator had

already become the subject of an appeal in the CA. Respondent filed a motion for reconsideration but no
resolution has been issued by the lower court to date.[8]

On February 16, 2005, the CA rendered the assailed decision dismissing ABS-CBNs petition for lack of

jurisdiction. It stated that as the TOR itself provided that the arbitrator's decision shall be final and

unappealable and that no motion for reconsideration shall be filed, then the petition for review must fail.

It ruled that it is the RTC which has jurisdiction over questions relating to arbitration. It held that the

only instance it can exercise jurisdiction over an arbitral award is an appeal from the trial court's

decision confirming, vacating or modifying the arbitral award. It further stated that a petition for

certiorari under Rule 65 of the Rules of Court is proper in arbitration cases only if the courts refuse or

neglect to inquire into the facts of an arbitrator's award. The dispositive portion of the CA decision read:

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

SO ORDERED.

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

Petitioner contends that the CA, in effect, ruled that: (a) it should have first filed a petition to vacate the

award in the RTC and only in case of denial could it elevate the matter to the CA via a petition for

review under Rule 43 and (b) the assailed decision implied that an aggrieved party to an arbitral award

does not have the option of directly filing a petition for review under Rule 43 or a petition for certiorari

under Rule 65 with the CA even if the issues raised pertain to errors of fact and law or grave abuse of

discretion, as the case may be, and not dependent upon such grounds as enumerated under Section 24

(petition to vacate an arbitral award) of RA 876 (the Arbitration Law). Petitioner alleged serious error on

the part of the CA.

The issue before us is whether or not an aggrieved party in a voluntary arbitration dispute may

avail of, directly in the CA, a petition for review under Rule 43 or a petition for certiorari under Rule 65

of the Rules of Court, instead of filing a petition to vacate the award in the RTC when the grounds

invoked to overturn the arbitrators decision are other than those for a petition to vacate an arbitral award

enumerated under RA 876.

RA 876 itself mandates that it is the Court of First Instance, now the RTC, which has jurisdiction

over questions relating to arbitration,[9] such as a petition to vacate an arbitral award.

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

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

(a) The award was procured by corruption, fraud, or other undue means; or

(b) That there was evident partiality or corruption in the arbitrators or any of them; or

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

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

Based on the foregoing provisions, the law itself clearly provides that the RTC must issue an

order vacating an arbitral award only in any one of the . . . cases enumerated therein. Under the legal

maxim in statutory construction expressio unius est exclusio alterius, the explicit mention of one thing in
a statute means the elimination of others not specifically mentioned. As RA 876 did not expressly

provide for errors of fact and/or law and grave abuse of discretion (proper grounds for a petition for

review under Rule 43 and a petition for certiorari under Rule 65, respectively) as grounds for

maintaining a petition to vacate an arbitral award in the RTC, it necessarily follows that a party may not

avail of the latter remedy on the grounds of errors of fact and/or law or grave abuse of discretion to

overturn an arbitral award.

Adamson v. Court of Appeals[10] gave ample warning that a petition to vacate filed in the RTC which is

not based on the grounds enumerated in Section 24 of RA 876 should be dismissed. In that case, the trial

court vacated the arbitral award seemingly based on grounds included in Section 24 of RA 876 but a

closer reading thereof revealed otherwise. On appeal, the CA reversed the decision of the trial court and

affirmed the arbitral award. In affirming the CA, we held:

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

xxx xxx xxx

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

xxx xxx xxx

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

In cases not falling under any of the aforementioned grounds to vacate an award, the Court has already

made several pronouncements that a petition for review under Rule 43 or a petition for certiorari under

Rule 65 may be availed of in the CA. Which one would depend on the grounds relied upon by

petitioner.

In Luzon Development Bank v. Association of Luzon Development Bank Employees,[11] the Court held

that a voluntary arbitrator is properly classified as a quasi-judicial instrumentality and is, thus, within

the ambit of Section 9 (3) of the Judiciary Reorganization Act, as amended. Under this section, the

Court of Appeals shall exercise:

xxx xxx xxx

(3) Exclusive appellate jurisdiction over all final judgments, decisions,

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

As such, decisions handed down by voluntary arbitrators fall within the exclusive appellate jurisdiction

of the CA. This decision was taken into consideration in approving Section 1 of Rule 43 of the Rules of

Court.[12] Thus:

SECTION 1. Scope. - This Rule shall apply to appeals from judgments or final orders of
the Court of Tax Appeals and from awards, judgments, final orders or resolutions of or
authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions.
Among these agencies are the Civil Service Commission, Central Board of Assessment
Appeals, Securities and Exchange Commission, Office of the President, Land
Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of
Patents, Trademarks and Technology Transfer, National Electrification Administration,
Energy Regulatory Board, National Telecommunications Commission, Department of
Agrarian Reform under Republic Act Number 6657, Government Service Insurance
System, Employees Compensation Commission, Agricultural Inventions Board,
Insurance Commission, Philippine Atomic Energy Commission, Board of Investments,
Construction Industry Arbitration Commission, and voluntary arbitrators authorized
by law. (Emphasis supplied)
This rule was cited in Sevilla Trading Company v. Semana,[13] Manila Midtown Hotel v. Borromeo,[14]

and Nippon Paint Employees Union-Olalia v. Court of Appeals.[15] These cases held that the proper

remedy from the adverse decision of a voluntary arbitrator, if errors of fact and/or law are raised, is a

petition for review under Rule 43 of the Rules of Court. Thus, petitioner's contention that it may avail of

a petition for review under Rule 43 under the circumstances of this case is correct.

As to petitioner's arguments that a petition for certiorari under Rule 65 may also be resorted to, we hold

the same to be in accordance with the Constitution and jurisprudence.

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

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

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

As may be gleaned from the above stated provision, it is well within the power and jurisdiction of the

Court to inquire whether any instrumentality of the Government, such as a voluntary arbitrator, has

gravely abused its discretion in the exercise of its functions and prerogatives. Any agreement stipulating

that the decision of the arbitrator shall be final and unappealable and that no further judicial recourse if

either party disagrees with the whole or any part of the arbitrator's award may be availed of cannot be

held to preclude in proper cases the power of judicial review which is inherent in courts. [16] We will not

hesitate to review a voluntary arbitrator's award where there is a showing of grave abuse of authority or

discretion and such is properly raised in a petition for certiorari [17] and there is no appeal, nor any plain,

speedy remedy in the course of law.[18]

Significantly, Insular Savings Bank v. Far East Bank and Trust Company [19] definitively outlined

several judicial remedies an aggrieved party to an arbitral award may undertake:

(1) a petition in the proper RTC to issue an order to vacate the award on the
grounds provided for in Section 24 of RA 876;
(2) a petition for review in the CA under Rule 43 of the Rules of Court on
questions of fact, of law, or mixed questions of fact and law; and
(3) a petition for certiorari under Rule 65 of the Rules of Court should the
arbitrator have acted without or in excess of his jurisdiction or with grave abuse of
discretion amounting to lack or excess of jurisdiction.

Nevertheless, although petitioners position on the judicial remedies available to it was correct, we

sustain the dismissal of its petition by the CA. The remedy petitioner availed of, entitled alternative

petition for review under Rule 43 or petition for certiorari under Rule 65, was wrong.
Time and again, we have ruled that the remedies of appeal and certiorari are mutually exclusive and not

alternative or successive.[20]

Proper issues that may be raised in a petition for review under Rule 43 pertain to errors of fact, law or

mixed questions of fact and law.[21] While a petition for certiorari under Rule 65 should only limit itself

to errors of jurisdiction, that is, grave abuse of discretion amounting to a lack or excess of jurisdiction.
[22]
Moreover, it cannot be availed of where appeal is the proper remedy or as a substitute for a lapsed

appeal.[23]

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

following:

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

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

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

ABUSED HIS DISCRETION IN RULING THAT THE UNAUTHORIZED
BROADCAST DID NOT CONSTITUTE MATERIAL BREACH OF THE
AGREEMENT.

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

ABUSED HIS DISCRETION IN RULING THAT WINS SEASONABLY CURED THE
BREACH.

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

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

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

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

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

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

A careful reading of the assigned errors reveals that the real issues calling for the CA's resolution were

less the alleged grave abuse of discretion exercised by the arbitrator and more about the arbitrators

appreciation of the issues and evidence presented by the parties. Therefore, the issues clearly fall under

the classification of errors of fact and law questions which may be passed upon by the CA via a petition

for review under Rule 43. Petitioner cleverly crafted its assignment of errors in such a way as to straddle

both judicial remedies, that is, by alleging serious errors of fact and law (in which case a petition for

review under Rule 43 would be proper) and grave abuse of discretion (because of which a petition for

certiorari under Rule 65 would be permissible).

It must be emphasized that every lawyer should be familiar with the distinctions between the two

remedies for it is not the duty of the courts to determine under which rule the petition should fall. [24]

Petitioner's ploy was fatal to its cause. An appeal taken either to this Court or the CA by the wrong or

inappropriate mode shall be dismissed.[25] Thus, the alternative petition filed in the CA, being an

inappropriate mode of appeal, should have been dismissed outright by the CA.

WHEREFORE, the petition is hereby DENIED. The February 16, 2005 decision and August 16, 2005

resolution of the Court of Appeals in CA-G.R. SP No. 81940 directing the Regional Trial Court of

Quezon City, Branch 93 to proceed with the trial of the petition for confirmation of arbitral award is

AFFIRMED.

Costs against petitioner.

SO ORDERED.
 [G.R. No. 155001. May 5, 2003]

DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA,

MANUEL ANTONIO B. BOE, MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY
V. DOMALAON, CONRADO G. DIMAANO, LOLITA R. HIZON, REMEDIOS P.
ADOLFO, BIENVENIDO C. HILARIO, MIASCOR WORKERS UNION - NATIONAL
LABOR UNION (MWU-NLU), and PHILIPPINE AIRLINES EMPLOYEES
ASSOCIATION (PALEA), petitioners, vs. PHILIPPINE INTERNATIONAL AIR
TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY,
DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS and SECRETARY
LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation
and Communications, respondents,
MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION SYSTEMS
CORPORATION, MACROASIA-EUREST SERVICES, INC., MACROASIA-MENZIES
AIRPORT SERVICES CORPORATION, MIASCOR CATERING SERVICES
CORPORATION, MIASCOR AIRCRAFT MAINTENANCE CORPORATION, and
MIASCOR LOGISTICS CORPORATION, petitioners-in-intervention,

[G.R. No. 155547. May 5, 2003]

SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G. JARAULA,

petitioners, vs. PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA
INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION
AND COMMUNICATIONS, DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS,
SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of
Transportation and Communications, and SECRETARY SIMEON A. DATUMANONG, in
his capacity as Head of the Department of Public Works and Highways, respondents,
JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON
VILLARAMA, PROSPERO C. NOGRALES, PROSPERO A. PICHAY, JR., HARLIN
CAST ABAYON, and BENASING O. MACARANBON, respondents-intervenors,

[G.R. No. 155661. May 5, 2003]

CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA V.

GAERLAN, LEONARDO DE LA ROSA, DINA C. DE LEON, VIRGIE CATAMIN
RONALD SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON and
SAMAHANG MANGGAGAWA SA PALIPARAN NG PILIPINAS (SMPP), petitioners, vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA
INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION
AND COMMUNICATIONS, SECRETARY LEANDRO M. MENDOZA, in his capacity as
Head of the Department of Transportation and Communications, respondents.
 DECISION
PUNO, J.:

Petitioners and petitioners-in-intervention filed the instant petitions for prohibition under Rule 65 of
the Revised Rules of Court seeking to prohibit the Manila International Airport Authority (MIAA) and
the Department of Transportation and Communications (DOTC) and its Secretary from implementing
the following agreements executed by the Philippine Government through the DOTC and the MIAA and
the Philippine International Air Terminals Co., Inc. (PIATCO): (1) the Concession Agreement signed on
July 12, 1997, (2) the Amended and Restated Concession Agreement dated November 26, 1999, (3) the
First Supplement to the Amended and Restated Concession Agreement dated August 27, 1999, (4) the
Second Supplement to the Amended and Restated Concession Agreement dated September 4, 2000, and
(5) the Third Supplement to the Amended and Restated Concession Agreement dated June 22, 2001
(collectively, the PIATCO Contracts).
The facts are as follows:
In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct a
comprehensive study of the Ninoy Aquino International Airport (NAIA) and determine whether the
present airport can cope with the traffic development up to the year 2010. The study consisted of two
parts: first, traffic forecasts, capacity of existing facilities, NAIA future requirements, proposed master
plans and development plans; and second, presentation of the preliminary design of the passenger
terminal building. The ADP submitted a Draft Final Report to the DOTC in December 1989.
Some time in 1993, six business leaders consisting of John Gokongwei, Andrew Gotianun, Henry
Sy, Sr., Lucio Tan, George Ty and Alfonso Yuchengco met with then President Fidel V. Ramos to explore
the possibility of investing in the construction and operation of a new international airport terminal. To
signify their commitment to pursue the project, they formed the Asias Emerging Dragon Corp. (AEDC)
which was registered with the Securities and Exchange Commission (SEC) on September 15, 1993.
On October 5, 1994, AEDC submitted an unsolicited proposal to the Government through the
DOTC/MIAA for the development of NAIA International Passenger Terminal III (NAIA IPT III) under a
build-operate-and-transfer arrangement pursuant to RA 6957 as amended by RA 7718 (BOT Law).[1]
On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the Prequalification
Bids and Awards Committee (PBAC) for the implementation of the NAIA IPT III project.
On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of AEDC to the
National Economic and Development Authority (NEDA). A revised proposal, however, was forwarded
by the DOTC to NEDA on December 13, 1995. On January 5, 1996, the NEDA Investment
Coordinating Council (NEDA ICC) Technical Board favorably endorsed the project to the ICC Cabinet
Committee which approved the same, subject to certain conditions, on January 19, 1996. On February
13, 1996, the NEDA passed Board Resolution No. 2 which approved the NAIA IPT III project.
On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily newspapers of an
invitation for competitive or comparative proposals on AEDCs unsolicited proposal, in accordance with
Sec. 4-A of RA 6957, as amended. The alternative bidders were required to submit three (3) sealed
envelopes on or before 5:00 p.m. of September 20, 1996. The first envelope should contain the
Prequalification Documents, the second envelope the Technical Proposal, and the third envelope the
Financial Proposal of the proponent.
On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of the Bid
Documents and the submission of the comparative bid proposals. Interested firms were permitted to
obtain the Request for Proposal Documents beginning June 28, 1996, upon submission of a written
application and payment of a non-refundable fee of P50,000.00 (US$2,000).
The Bid Documents issued by the PBAC provided among others that the proponent must have
adequate capability to sustain the financing requirement for the detailed engineering, design,
construction, operation, and maintenance phases of the project. The proponent would be evaluated based
on its ability to provide a minimum amount of equity to the project, and its capacity to secure external
financing for the project.
On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a pre-bid
conference on July 29, 1996.
On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid Documents. The
following amendments were made on the Bid Documents:
a. Aside from the fixed Annual Guaranteed Payment, the proponent shall include in its financial proposal
an additional percentage of gross revenue share of the Government, as follows:

i. First 5 years 5.0%

ii. Next 10 years 7.5%

iii. Next 10 years 10.0%

b. The amount of the fixed Annual Guaranteed Payment shall be subject of the price challenge.
Proponent may offer an Annual Guaranteed Payment which need not be of equal amount, but payment
of which shall start upon site possession.

c. The project proponent must have adequate capability to sustain the financing requirement for the
detailed engineering, design, construction, and/or operation and maintenance phases of the project as the
case may be. For purposes of pre-qualification, this capability shall be measured in terms of:

i. Proof of the availability of the project proponent and/or the consortium to provide the minimum
amount of equity for the project; and

ii. a letter testimonial from reputable banks attesting that the project proponent and/or the members of
the consortium are banking with them, that the project proponent and/or the members are of good
financial standing, and have adequate resources.

d. The basis for the prequalification shall be the proponents compliance with the minimum technical and
financial requirements provided in the Bid Documents and the IRR of the BOT Law. The minimum
amount of equity shall be 30% of the Project Cost.

e. Amendments to the draft Concession Agreement shall be issued from time to time. Said amendments
shall only cover items that would not materially affect the preparation of the proponents proposal.

On August 29, 1996, the Second Pre-Bid Conference was held where certain clarifications were
made. Upon the request of prospective bidder Peoples Air Cargo & Warehousing Co., Inc (Paircargo),
the PBAC warranted that based on Sec. 11.6, Rule 11 of the Implementing Rules and Regulations of the
BOT Law, only the proposed Annual Guaranteed Payment submitted by the challengers would be
revealed to AEDC, and that the challengers technical and financial proposals would remain confidential.
The PBAC also clarified that the list of revenue sources contained in Annex 4.2a of the Bid Documents
was merely indicative and that other revenue sources may be included by the proponent, subject to
approval by DOTC/MIAA. Furthermore, the PBAC clarified that only those fees and charges
denominated as Public Utility Fees would be subject to regulation, and those charges which would be
actually deemed Public Utility Fees could still be revised, depending on the outcome of PBACs query
on the matter with the Department of Justice.
In September 1996, the PBAC issued Bid Bulletin No. 5, entitled Answers to the Queries of
PAIRCARGO as Per Letter Dated September 3 and 10, 1996. Paircargos queries and the PBACs
responses were as follows:

1. It is difficult for Paircargo and Associates to meet the required minimum equity requirement as
prescribed in Section 8.3.4 of the Bid Documents considering that the capitalization of each member
company is so structured to meet the requirements and needs of their current respective business
undertaking/activities. In order to comply with this equity requirement, Paircargo is requesting PBAC to
just allow each member of (sic) corporation of the Joint Venture to just execute an agreement that
embodies a commitment to infuse the required capital in case the project is awarded to the Joint Venture
instead of increasing each corporations current authorized capital stock just for prequalification
purposes.

In prequalification, the agency is interested in ones financial capability at the time of prequalification,
not future or potential capability.

A commitment to put up equity once awarded the project is not enough to establish that present financial
capability. However, total financial capability of all member companies of the Consortium, to be
established by submitting the respective companies audited financial statements, shall be acceptable.
2. At present, Paircargo is negotiating with banks and other institutions for the extension of a
Performance Security to the joint venture in the event that the Concessions Agreement (sic) is awarded
to them. However, Paircargo is being required to submit a copy of the draft concession as one of the
documentary requirements. Therefore, Paircargo is requesting that theyd (sic) be furnished copy of the
approved negotiated agreement between the PBAC and the AEDC at the soonest possible time.

A copy of the draft Concession Agreement is included in the Bid Documents. Any material changes
would be made known to prospective challengers through bid bulletins. However, a final version will be
issued before the award of contract.

The PBAC also stated that it would require AEDC to sign Supplement C of the Bid Documents
(Acceptance of Criteria and Waiver of Rights to Enjoin Project) and to submit the same with the
required Bid Security.
On September 20, 1996, the consortium composed of Peoples Air Cargo and Warehousing Co., Inc.
(Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank)
(collectively, Paircargo Consortium) submitted their competitive proposal to the PBAC. On September
23, 1996, the PBAC opened the first envelope containing the prequalification documents of the
Paircargo Consortium. On the following day, September 24, 1996, the PBAC prequalified the Paircargo
Consortium.
On September 26, 1996, AEDC informed the PBAC in writing of its reservations as regards the
Paircargo Consortium, which include:

a. The lack of corporate approvals and financial capability of PAIRCARGO;

b. The lack of corporate approvals and financial capability of PAGS;

c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the amount that
Security Bank could legally invest in the project;

d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for prequalification
purposes; and

e. The appointment of Lufthansa as the facility operator, in view of the Philippine requirement in the
operation of a public utility.

The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the issues
raised by the latter, and that based on the documents submitted by Paircargo and the established
prequalification criteria, the PBAC had found that the challenger, Paircargo, had prequalified to
undertake the project. The Secretary of the DOTC approved the finding of the PBAC.
The PBAC then proceeded with the opening of the second envelope of the Paircargo Consortium
which contained its Technical Proposal.
On October 3, 1996, AEDC reiterated its objections, particularly with respect to Paircargos financial
capability, in view of the restrictions imposed by Section 21-B of the General Banking Act and Sections
1380 and 1381 of the Manual Regulations for Banks and Other Financial Intermediaries. On October 7,
1996, AEDC again manifested its objections and requested that it be furnished with excerpts of the
PBAC meeting and the accompanying technical evaluation report where each of the issues they raised
were addressed.
On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the Paircargo
Consortium containing their respective financial proposals. Both proponents offered to build the NAIA
Passenger Terminal III for at least $350 million at no cost to the government and to pay the government:
5% share in gross revenues for the first five years of operation, 7.5% share in gross revenues for the next
ten years of operation, and 10% share in gross revenues for the last ten years of operation, in accordance
with the Bid Documents. However, in addition to the foregoing, AEDC offered to pay the government a
total of P135 million as guaranteed payment for 27 years while Paircargo Consortium offered to pay the
government a total of P17.75 billion for the same period.
Thus, the PBAC formally informed AEDC that it had accepted the price proposal submitted by the
Paircargo Consortium, and gave AEDC 30 working days or until November 28, 1996 within which to
match the said bid, otherwise, the project would be awarded to Paircargo.
 As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary Amado
Lagdameo, on December 11, 1996, issued a notice to Paircargo Consortium regarding AEDCs failure to
match the proposal.
On February 27, 1997, Paircargo Consortium incorporated into Philippine International Airport
Terminals Co., Inc. (PIATCO).
AEDC subsequently protested the alleged undue preference given to PIATCO and reiterated its
objections as regards the prequalification of PIATCO.
On April 11, 1997, the DOTC submitted the concession agreement for the second-pass approval of
the NEDA-ICC.
On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for Declaration of
Nullity of the Proceedings, Mandamus and Injunction against the Secretary of the DOTC, the Chairman
of the PBAC, the voting members of the PBAC and Pantaleon D. Alvarez, in his capacity as Chairman
of the PBAC Technical Committee.
On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the approval, on a no-
objection basis, of the BOT agreement between the DOTC and PIATCO. As the ad referendum gathered
only four (4) of the required six (6) signatures, the NEDA merely noted the agreement.
On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.
On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO,
through its President, Henry T. Go, signed the Concession Agreement for the Build-Operate-and-
Transfer Arrangement of the Ninoy Aquino International Airport Passenger Terminal III (1997
Concession Agreement). The Government granted PIATCO the franchise to operate and maintain the
said terminal during the concession period and to collect the fees, rentals and other charges in
accordance with the rates or schedules stipulated in the 1997 Concession Agreement. The Agreement
provided that the concession period shall be for twenty-five (25) years commencing from the in-service
date, and may be renewed at the option of the Government for a period not exceeding twenty-five (25)
years. At the end of the concession period, PIATCO shall transfer the development facility to MIAA.
On November 26, 1998, the Government and PIATCO signed an Amended and Restated
Concession Agreement (ARCA). Among the provisions of the 1997 Concession Agreement that were
amended by the ARCA were: Sec. 1.11 pertaining to the definition of certificate of completion; Sec. 2.05
pertaining to the Special Obligations of GRP; Sec. 3.02 (a) dealing with the exclusivity of the franchise
given to the Concessionaire; Sec. 4.04 concerning the assignment by Concessionaire of its interest in the
Development Facility; Sec. 5.08 (c) dealing with the proceeds of Concessionaires insurance; Sec. 5.10
with respect to the temporary take-over of operations by GRP; Sec. 5.16 pertaining to the taxes, duties
and other imposts that may be levied on the Concessionaire; Sec. 6.03 as regards the periodic adjustment
of public utility fees and charges; the entire Article VIII concerning the provisions on the termination of
the contract; and Sec. 10.02 providing for the venue of the arbitration proceedings in case a dispute or
controversy arises between the parties to the agreement.
Subsequently, the Government and PIATCO signed three Supplements to the ARCA. The First
Supplement was signed on August 27, 1999; the Second Supplement on September 4, 2000; and the
Third Supplement on June 22, 2001 (collectively, Supplements).
The First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining Revenues or Gross
Revenues; Sec. 2.05 (d) of the ARCA referring to the obligation of MIAA to provide sufficient funds for
the upkeep, maintenance, repair and/or replacement of all airport facilities and equipment which are
owned or operated by MIAA; and further providing additional special obligations on the part of GRP
aside from those already enumerated in Sec. 2.05 of the ARCA. The First Supplement also provided a
stipulation as regards the construction of a surface road to connect NAIA Terminal II and Terminal III in
lieu of the proposed access tunnel crossing Runway 13/31; the swapping of obligations between GRP
and PIATCO regarding the improvement of Sales Road; and the changes in the timetable. It also
amended Sec. 6.01 (c) of the ARCA pertaining to the Disposition of Terminal Fees; Sec. 6.02 of the
ARCA by inserting an introductory paragraph; and Sec. 6.02 (a) (iii) of the ARCA referring to the
Payments of Percentage Share in Gross Revenues.
The Second Supplement to the ARCA contained provisions concerning the clearing, removal,
demolition or disposal of subterranean structures uncovered or discovered at the site of the construction
of the terminal by the Concessionaire. It defined the scope of works; it provided for the procedure for
the demolition of the said structures and the consideration for the same which the GRP shall pay
PIATCO; it provided for time extensions, incremental and consequential costs and losses consequent to
the existence of such structures; and it provided for some additional obligations on the part of PIATCO
as regards the said structures.
Finally, the Third Supplement provided for the obligations of the Concessionaire as regards the
construction of the surface road connecting Terminals II and III.
Meanwhile, the MIAA which is charged with the maintenance and operation of the NAIA Terminals
I and II, had existing concession contracts with various service providers to offer international airline
airport services, such as in-flight catering, passenger handling, ramp and ground support, aircraft
maintenance and provisions, cargo handling and warehousing, and other services, to several
international airlines at the NAIA. Some of these service providers are the Miascor Group, DNATA-
Wings Aviation Systems Corp., and the MacroAsia Group. Miascor, DNATA and MacroAsia, together
with Philippine Airlines (PAL), are the dominant players in the industry with an aggregate market share
of 70%.
On September 17, 2002, the workers of the international airline service providers, claiming that they
stand to lose their employment upon the implementation of the questioned agreements, filed before this
Court a petition for prohibition to enjoin the enforcement of said agreements.[2]
On October 15, 2002, the service providers, joining the cause of the petitioning workers, filed a
motion for intervention and a petition-in-intervention.
On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez and Constantino Jaraula
filed a similar petition with this Court.[3]
On November 6, 2002, several employees of the MIAA likewise filed a petition assailing the
legality of the various agreements.[4]
On December 11, 2002. another group of Congressmen, Hon. Jacinto V. Paras, Rafael P. Nantes,
Eduardo C. Zialcita, Willie B. Villarama, Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin Cast
Abayon and Benasing O. Macaranbon, moved to intervene in the case as Respondents-Intervenors. They
filed their Comment-In-Intervention defending the validity of the assailed agreements and praying for
the dismissal of the petitions.
During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on
November 29, 2002, in her speech at the 2002 Golden Shell Export Awards at Malacaang Palace, stated
that she will not honor (PIATCO) contracts which the Executive Branchs legal offices have concluded
(as) null and void.[5]
Respondent PIATCO filed its Comments to the present petitions on November 7 and 27, 2002. The
Office of the Solicitor General and the Office of the Government Corporate Counsel filed their
respective Comments in behalf of the public respondents.
On December 10, 2002, the Court heard the case on oral argument. After the oral argument, the
Court then resolved in open court to require the parties to file simultaneously their respective
Memoranda in amplification of the issues heard in the oral arguments within 30 days and to explore the
possibility of arbitration or mediation as provided in the challenged contracts.
In their consolidated Memorandum, the Office of the Solicitor General and the Office of the
Government Corporate Counsel prayed that the present petitions be given due course and that judgment
be rendered declaring the 1997 Concession Agreement, the ARCA and the Supplements thereto void for
being contrary to the Constitution, the BOT Law and its Implementing Rules and Regulations.
On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003 PIATCO
commenced arbitration proceedings before the International Chamber of Commerce, International Court
of Arbitration (ICC) by filing a Request for Arbitration with the Secretariat of the ICC against the
Government of the Republic of the Philippines acting through the DOTC and MIAA.
In the present cases, the Court is again faced with the task of resolving complicated issues made
difficult by their intersecting legal and economic implications. The Court is aware of the far reaching fall
out effects of the ruling which it makes today. For more than a century and whenever the exigencies of
the times demand it, this Court has never shirked from its solemn duty to dispense justice and resolve
actual controversies involving rights which are legally demandable and enforceable, and to determine
whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction. [6] To
be sure, this Court will not begin to do otherwise today.
We shall first dispose of the procedural issues raised by respondent PIATCO which they allege will
bar the resolution of the instant controversy.
Petitioners Legal Standing to File
the present Petitions
a. G.R. Nos. 155001 and 155661
In G.R. No. 155001 individual petitioners are employees of various service providers [7] having
separate concession contracts with MIAA and continuing service agreements with various international
airlines to provide in-flight catering, passenger handling, ramp and ground support, aircraft maintenance
and provisions, cargo handling and warehousing and other services. Also included as petitioners are
labor unions MIASCOR Workers Union-National Labor Union and Philippine Airlines Employees
Association. These petitioners filed the instant action for prohibition as taxpayers and as parties whose
rights and interests stand to be violated by the implementation of the PIATCO Contracts.
Petitioners-Intervenors in the same case are all corporations organized and existing under Philippine
laws engaged in the business of providing in-flight catering, passenger handling, ramp and ground
support, aircraft maintenance and provisions, cargo handling and warehousing and other services to
several international airlines at the Ninoy Aquino International Airport. Petitioners-Intervenors allege
that as tax-paying international airline and airport-related service operators, each one of them stands to
be irreparably injured by the implementation of the PIATCO Contracts. Each of the petitioners-
intervenors have separate and subsisting concession agreements with MIAA and with various
international airlines which they allege are being interfered with and violated by respondent PIATCO.
In G.R. No. 155661, petitioners constitute employees of MIAA and Samahang Manggagawa sa
Paliparan ng Pilipinas - a legitimate labor union and accredited as the sole and exclusive bargaining
agent of all the employees in MIAA. Petitioners anchor their petition for prohibition on the nullity of the
contracts entered into by the Government and PIATCO regarding the build-operate-and-transfer of the
NAIA IPT III. They filed the petition as taxpayers and persons who have a legitimate interest to protect
in the implementation of the PIATCO Contracts.
Petitioners in both cases raise the argument that the PIATCO Contracts contain stipulations which
directly contravene numerous provisions of the Constitution, specific provisions of the BOT Law and its
Implementing Rules and Regulations, and public policy. Petitioners contend that the DOTC and the
MIAA, by entering into said contracts, have committed grave abuse of discretion amounting to lack or
excess of jurisdiction which can be remedied only by a writ of prohibition, there being no plain, speedy
or adequate remedy in the ordinary course of law.
In particular, petitioners assail the provisions in the 1997 Concession Agreement and the ARCA
which grant PIATCO the exclusive right to operate a commercial international passenger terminal within
the Island of Luzon, except those international airports already existing at the time of the execution of
the agreement. The contracts further provide that upon the commencement of operations at the NAIA
IPT III, the Government shall cause the closure of Ninoy Aquino International Airport Passenger
Terminals I and II as international passenger terminals. With respect to existing concession agreements
between MIAA and international airport service providers regarding certain services or operations, the
1997 Concession Agreement and the ARCA uniformly provide that such services or operations will not
be carried over to the NAIA IPT III and PIATCO is under no obligation to permit such carry over except
through a separate agreement duly entered into with PIATCO.[8]
With respect to the petitioning service providers and their employees, upon the commencement of
operations of the NAIA IPT III, they allege that they will be effectively barred from providing
international airline airport services at the NAIA Terminals I and II as all international airlines and
passengers will be diverted to the NAIA IPT III. The petitioning service providers will thus be
compelled to contract with PIATCO alone for such services, with no assurance that subsisting contracts
with MIAA and other international airlines will be respected. Petitioning service providers stress that
despite the very competitive market, the substantial capital investments required and the high rate of
fees, they entered into their respective contracts with the MIAA with the understanding that the said
contracts will be in force for the stipulated period, and thereafter, renewed so as to allow each of the
petitioning service providers to recoup their investments and obtain a reasonable return thereon.
Petitioning employees of various service providers at the NAIA Terminals I and II and of MIAA on
the other hand allege that with the closure of the NAIA Terminals I and II as international passenger
terminals under the PIATCO Contracts, they stand to lose employment.
The question on legal standing is whether such parties have alleged such a personal stake in the
outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of
issues upon which the court so largely depends for illumination of difficult constitutional questions. [9]
Accordingly, it has been held that the interest of a person assailing the constitutionality of a statute must
be direct and personal. He must be able to show, not only that the law or any government act is invalid,
but also that he sustained or is in imminent danger of sustaining some direct injury as a result of its
enforcement, and not merely that he suffers thereby in some indefinite way. It must appear that the
person complaining has been or is about to be denied some right or privilege to which he is lawfully
entitled or that he is about to be subjected to some burdens or penalties by reason of the statute or act
complained of.[10]
We hold that petitioners have the requisite standing. In the above-mentioned cases, petitioners have
a direct and substantial interest to protect by reason of the implementation of the PIATCO Contracts.
They stand to lose their source of livelihood, a property right which is zealously protected by the
Constitution. Moreover, subsisting concession agreements between MIAA and petitioners-intervenors
and service contracts between international airlines and petitioners-intervenors stand to be nullified or
terminated by the operation of the NAIA IPT III under the PIATCO Contracts. The financial prejudice
brought about by the PIATCO Contracts on petitioners and petitioners-intervenors in these cases are
legitimate interests sufficient to confer on them the requisite standing to file the instant petitions.
b. G.R. No. 155547
In G.R. No. 155547, petitioners filed the petition for prohibition as members of the House of
Representatives, citizens and taxpayers. They allege that as members of the House of Representatives,
they are especially interested in the PIATCO Contracts, because the contracts compel the Government
and/or the House of Representatives to appropriate funds necessary to comply with the provisions
therein.[11] They cite provisions of the PIATCO Contracts which require disbursement of unappropriated
amounts in compliance with the contractual obligations of the Government. They allege that the
Government obligations in the PIATCO Contracts which compel government expenditure without
appropriation is a curtailment of their prerogatives as legislators, contrary to the mandate of the
Constitution that [n]o money shall be paid out of the treasury except in pursuance of an appropriation
made by law.[12]
Standing is a peculiar concept in constitutional law because in some cases, suits are not brought by
parties who have been personally injured by the operation of a law or any other government act but by
concerned citizens, taxpayers or voters who actually sue in the public interest. Although we are not
unmindful of the cases of Imus Electric Co. v. Municipality of Imus [13] and Gonzales v. Raquiza[14]
wherein this Court held that appropriation must be made only on amounts immediately demandable,
public interest demands that we take a more liberal view in determining whether the petitioners
suing as legislators, taxpayers and citizens have locus standi to file the instant petition. In
Kilosbayan, Inc. v. Guingona,[15] this Court held [i]n line with the liberal policy of this Court on locus
standi, ordinary taxpayers, members of Congress, and even association of planters, and non-profit civic
organizations were allowed to initiate and prosecute actions before this Court to question the
constitutionality or validity of laws, acts, decisions, rulings, or orders of various government agencies or
instrumentalities.[16] Further, insofar as taxpayers' suits are concerned . . . (this Court) is not devoid of
discretion as to whether or not it should be entertained.[17] As such . . . even if, strictly speaking, they
[the petitioners] are not covered by the definition, it is still within the wide discretion of the Court to
waive the requirement and so remove the impediment to its addressing and resolving the serious
constitutional questions raised.[18] In view of the serious legal questions involved and their impact on
public interest, we resolve to grant standing to the petitioners.
Other Procedural Matters
Respondent PIATCO further alleges that this Court is without jurisdiction to review the instant
cases as factual issues are involved which this Court is ill-equipped to resolve. Moreover, PIATCO
alleges that submission of this controversy to this Court at the first instance is a violation of the rule on
hierarchy of courts. They contend that trial courts have concurrent jurisdiction with this Court with
respect to a special civil action for prohibition and hence, following the rule on hierarchy of courts,
resort must first be had before the trial courts.
After a thorough study and careful evaluation of the issues involved, this Court is of the view that
the crux of the instant controversy involves significant legal questions. The facts necessary to resolve
these legal questions are well established and, hence, need not be determined by a trial court.
The rule on hierarchy of courts will not also prevent this Court from assuming jurisdiction over the
cases at bar. The said rule may be relaxed when the redress desired cannot be obtained in the
appropriate courts or where exceptional and compelling circumstances justify availment of a
remedy within and calling for the exercise of this Courts primary jurisdiction.[19]
It is easy to discern that exceptional circumstances exist in the cases at bar that call for the
relaxation of the rule. Both petitioners and respondents agree that these cases are of transcendental
importance as they involve the construction and operation of the countrys premier international airport.
Moreover, the crucial issues submitted for resolution are of first impression and they entail the proper
legal interpretation of key provisions of the Constitution, the BOT Law and its Implementing Rules and
Regulations. Thus, considering the nature of the controversy before the Court, procedural bars may be
lowered to give way for the speedy disposition of the instant cases.
Legal Effect of the Commencement
of Arbitration Proceedings by
PIATCO
There is one more procedural obstacle which must be overcome. The Court is aware that arbitration
proceedings pursuant to Section 10.02 of the ARCA have been filed at the instance of respondent
PIATCO. Again, we hold that the arbitration step taken by PIATCO will not oust this Court of its
jurisdiction over the cases at bar.
In Del Monte Corporation-USA v. Court of Appeals,[20] even after finding that the arbitration
clause in the Distributorship Agreement in question is valid and the dispute between the parties is
arbitrable, this Court affirmed the trial courts decision denying petitioners Motion to Suspend
Proceedings pursuant to the arbitration clause under the contract. In so ruling, this Court held that as
contracts produce legal effect between the parties, their assigns and heirs, only the parties to the
Distributorship Agreement are bound by its terms, including the arbitration clause stipulated therein.
This Court ruled that arbitration proceedings could be called for but only with respect to the parties to
the contract in question. Considering that there are parties to the case who are neither parties to the
Distributorship Agreement nor heirs or assigns of the parties thereto, this Court, citing its previous ruling
in Salas, Jr. v. Laperal Realty Corporation,[21] held that to tolerate the splitting of proceedings by
allowing arbitration as to some of the parties on the one hand and trial for the others on the other hand
would, in effect, result in multiplicity of suits, duplicitous procedure and unnecessary delay.[22] Thus,
we ruled that the interest of justice would best be served if the trial court hears and adjudicates the case
in a single and complete proceeding.
It is established that petitioners in the present cases who have presented legitimate interests in the
resolution of the controversy are not parties to the PIATCO Contracts. Accordingly, they cannot be
bound by the arbitration clause provided for in the ARCA and hence, cannot be compelled to submit to
arbitration proceedings. A speedy and decisive resolution of all the critical issues in the present
controversy, including those raised by petitioners, cannot be made before an arbitral tribunal. The
object of arbitration is precisely to allow an expeditious determination of a dispute. This objective would
not be met if this Court were to allow the parties to settle the cases by arbitration as there are certain
issues involving non-parties to the PIATCO Contracts which the arbitral tribunal will not be equipped to
resolve.
Now, to the merits of the instant controversy.
I
Is PIATCO a qualified bidder?
Public respondents argue that the Paircargo Consortium, PIATCOs predecessor, was not a duly pre-
qualified bidder on the unsolicited proposal submitted by AEDC as the Paircargo Consortium failed to
meet the financial capability required under the BOT Law and the Bid Documents. They allege that in
computing the ability of the Paircargo Consortium to meet the minimum equity requirements for the
project, the entire net worth of Security Bank, a member of the consortium, should not be
considered.
PIATCO relies, on the other hand, on the strength of the Memorandum dated October 14, 1996
issued by the DOTC Undersecretary Primitivo C. Cal stating that the Paircargo Consortium is found to
have a combined net worth of P3,900,000,000.00, sufficient to meet the equity requirements of the
project. The said Memorandum was in response to a letter from Mr. Antonio Henson of AEDC to
President Fidel V. Ramos questioning the financial capability of the Paircargo Consortium on the ground
that it does not have the financial resources to put up the required minimum equity of
P2,700,000,000.00. This contention is based on the restriction under R.A. No. 337, as amended or the
General Banking Act that a commercial bank cannot invest in any single enterprise in an amount more
than 15% of its net worth. In the said Memorandum, Undersecretary Cal opined:

The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that financial capability will
be evaluated based on total financial capability of all the member companies of the [Paircargo]
Consortium. In this connection, the Challenger was found to have a combined net worth of
P3,926,421,242.00 that could support a project costing approximately P13 Billion.

It is not a requirement that the net worth must be unrestricted. To impose that as a requirement now will
be nothing less than unfair.

The financial statement or the net worth is not the sole basis in establishing financial capability. As
stated in Bid Bulletin No. 3, financial capability may also be established by testimonial letters issued by
reputable banks. The Challenger has complied with this requirement.

To recap, net worth reflected in the Financial Statement should not be taken as the amount of the money
to be used to answer the required thirty percent (30%) equity of the challenger but rather to be used in
establishing if there is enough basis to believe that the challenger can comply with the required 30%
equity. In fact, proof of sufficient equity is required as one of the conditions for award of contract
(Section 12.1 IRR of the BOT Law) but not for pre-qualification (Section 5.4 of the same document).[23]

Under the BOT Law, in case of a build-operate-and-transfer arrangement, the contract shall be
awarded to the bidder who, having satisfied the minimum financial, technical, organizational and
legal standards required by the law, has submitted the lowest bid and most favorable terms of the
project.[24] Further, the 1994 Implementing Rules and Regulations of the BOT Law provide:

Section 5.4 Pre-qualification Requirements.

c. Financial Capability: The project proponent must have adequate capability to sustain the financing
requirements for the detailed engineering design, construction and/or operation and maintenance phases
of the project, as the case may be. For purposes of pre-qualification, this capability shall be measured in
terms of (i) proof of the ability of the project proponent and/or the consortium to provide a
minimum amount of equity to the project, and (ii) a letter testimonial from reputable banks
attesting that the project proponent and/or members of the consortium are banking with them,
that they are in good financial standing, and that they have adequate resources. The government
agency/LGU concerned shall determine on a project-to-project basis and before pre-qualification, the
minimum amount of equity needed. (emphasis supplied)

Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16, 1996 amending
the financial capability requirements for pre-qualification of the project proponent as follows:

6. Basis of Pre-qualification

The basis for the pre-qualification shall be on the compliance of the proponent to the minimum technical
and financial requirements provided in the Bid Documents and in the IRR of the BOT Law, R.A. No.
6957, as amended by R.A. 7718.

The minimum amount of equity to which the proponents financial capability will be based shall be
thirty percent (30%) of the project cost instead of the twenty percent (20%) specified in Section
3.6.4 of the Bid Documents. This is to correlate with the required debt-to-equity ratio of 70:30 in
Section 2.01a of the draft concession agreement. The debt portion of the project financing should not
exceed 70% of the actual project cost.

Accordingly, based on the above provisions of law, the Paircargo Consortium or any challenger to
the unsolicited proposal of AEDC has to show that it possesses the requisite financial capability to
undertake the project in the minimum amount of 30% of the project cost through (i) proof of the
ability to provide a minimum amount of equity to the project, and (ii) a letter testimonial from reputable
banks attesting that the project proponent or members of the consortium are banking with them, that
they are in good financial standing, and that they have adequate resources.
As the minimum project cost was estimated to be US$350,000,000.00 or roughly
P9,183,650,000.00,[25] the Paircargo Consortium had to show to the satisfaction of the PBAC that it had
the ability to provide the minimum equity for the project in the amount of at least P2,755,095,000.00.
Paircargos Audited Financial Statements as of 1993 and 1994 indicated that it had a net worth of
P2,783,592.00 and P3,123,515.00 respectively.[26] PAGS Audited Financial Statements as of 1995
indicate that it has approximately P26,735,700.00 to invest as its equity for the project. [27] Security
Banks Audited Financial Statements as of 1995 show that it has a net worth equivalent to its capital
funds in the amount of P3,523,504,377.00.[28]
We agree with public respondents that with respect to Security Bank, the entire amount of its net
worth could not be invested in a single undertaking or enterprise, whether allied or non-allied in
accordance with the provisions of R.A. No. 337, as amended or the General Banking Act:

Sec. 21-B. The provisions in this or in any other Act to the contrary notwithstanding, the Monetary
Board, whenever it shall deem appropriate and necessary to further national development objectives or
support national priority projects, may authorize a commercial bank, a bank authorized to provide
commercial banking services, as well as a government-owned and controlled bank, to operate
under an expanded commercial banking authority and by virtue thereof exercise, in addition to
powers authorized for commercial banks, the powers of an Investment House as provided in
Presidential Decree No. 129, invest in the equity of a non-allied undertaking, or own a majority or
all of the equity in a financial intermediary other than a commercial bank or a bank authorized to
provide commercial banking services: Provided, That (a) the total investment in equities shall not
exceed fifty percent (50%) of the net worth of the bank; (b) the equity investment in any one
enterprise whether allied or non-allied shall not exceed fifteen percent (15%) of the net worth of
the bank; (c) the equity investment of the bank, or of its wholly or majority-owned subsidiary, in a
single non-allied undertaking shall not exceed thirty-five percent (35%) of the total equity in the
enterprise nor shall it exceed thirty-five percent (35%) of the voting stock in that enterprise; and (d) the
equity investment in other banks shall be deducted from the investing bank's net worth for purposes of
computing the prescribed ratio of net worth to risk assets.

Further, the 1993 Manual of Regulations for Banks provides:

SECTION X383. Other Limitations and Restrictions. The following limitations and restrictions shall
also apply regarding equity investments of banks.

a. In any single enterprise. The equity investments of banks in any single enterprise shall not exceed at
any time fifteen percent (15%) of the net worth of the investing bank as defined in Sec. X106 and
Subsec. X121.5.

Thus, the maximum amount that Security Bank could validly invest in the Paircargo Consortium is
only P528,525,656.55, representing 15% of its entire net worth. The total net worth therefore of the
Paircargo Consortium, after considering the maximum amounts that may be validly invested by each of
its members is P558,384,871.55 or only 6.08% of the project cost,[29] an amount substantially less than
the prescribed minimum equity investment required for the project in the amount of P2,755,095,000.00
or 30% of the project cost.
The purpose of pre-qualification in any public bidding is to determine, at the earliest opportunity,
the ability of the bidder to undertake the project. Thus, with respect to the bidders financial capacity at
the pre-qualification stage, the law requires the government agency to examine and determine the ability
of the bidder to fund the entire cost of the project by considering the maximum amounts that each
bidder may invest in the project at the time of pre-qualification.
The PBAC has determined that any prospective bidder for the construction, operation and
maintenance of the NAIA IPT III project should prove that it has the ability to provide equity in the
minimum amount of 30% of the project cost, in accordance with the 70:30 debt-to-equity ratio
prescribed in the Bid Documents. Thus, in the case of Paircargo Consortium, the PBAC should
determine the maximum amounts that each member of the consortium may commit for the
construction, operation and maintenance of the NAIA IPT III project at the time of pre-qualification.
With respect to Security Bank, the maximum amount which may be invested by it would only be 15%
of its net worth in view of the restrictions imposed by the General Banking Act. Disregarding the
investment ceilings provided by applicable law would not result in a proper evaluation of whether or not
a bidder is pre-qualified to undertake the project as for all intents and purposes, such ceiling or legal
restriction determines the true maximum amount which a bidder may invest in the project.
Further, the determination of whether or not a bidder is pre-qualified to undertake the project
requires an evaluation of the financial capacity of the said bidder at the time the bid is submitted based
on the required documents presented by the bidder. The PBAC should not be allowed to speculate on the
future financial ability of the bidder to undertake the project on the basis of documents submitted. This
would open doors to abuse and defeat the very purpose of a public bidding. This is especially true in the
case at bar which involves the investment of billions of pesos by the project proponent. The relevant
government authority is duty-bound to ensure that the awardee of the contract possesses the minimum
required financial capability to complete the project. To allow the PBAC to estimate the bidders future
financial capability would not secure the viability and integrity of the project. A restrictive and
conservative application of the rules and procedures of public bidding is necessary not only to protect
the impartiality and regularity of the proceedings but also to ensure the financial and technical reliability
of the project. It has been held that:

The basic rule in public bidding is that bids should be evaluated based on the required documents
submitted before and not after the opening of bids. Otherwise, the foundation of a fair and competitive
public bidding would be defeated. Strict observance of the rules, regulations, and guidelines of the
bidding process is the only safeguard to a fair, honest and competitive public bidding. [30]

Thus, if the maximum amount of equity that a bidder may invest in the project at the time the
bids are submitted falls short of the minimum amounts required to be put up by the bidder, said bidder
should be properly disqualified. Considering that at the pre-qualification stage, the maximum amounts
which the Paircargo Consortium may invest in the project fell short of the minimum amounts prescribed
by the PBAC, we hold that Paircargo Consortium was not a qualified bidder. Thus the award of the
contract by the PBAC to the Paircargo Consortium, a disqualified bidder, is null and void.
While it would be proper at this juncture to end the resolution of the instant controversy, as the legal
effects of the disqualification of respondent PIATCOs predecessor would come into play and necessarily
result in the nullity of all the subsequent contracts entered by it in pursuance of the project, the Court
feels that it is necessary to discuss in full the pressing issues of the present controversy for a complete
resolution thereof.
II
Is the 1997 Concession Agreement valid?
Petitioners and public respondents contend that the 1997 Concession Agreement is invalid as it
contains provisions that substantially depart from the draft Concession Agreement included in the Bid
Documents. They maintain that a substantial departure from the draft Concession Agreement is a
violation of public policy and renders the 1997 Concession Agreement null and void.
PIATCO maintains, however, that the Concession Agreement attached to the Bid Documents is
intended to be a draft, i.e., subject to change, alteration or modification, and that this intention was clear
to all participants, including AEDC, and DOTC/MIAA. It argued further that said intention is expressed
in Part C (6) of Bid Bulletin No. 3 issued by the PBAC which states:

6. Amendments to the Draft Concessions Agreement

Amendments to the Draft Concessions Agreement shall be issued from time to time. Said amendments
shall only cover items that would not materially affect the preparation of the proponents proposal.

By its very nature, public bidding aims to protect the public interest by giving the public the best
possible advantages through open competition. Thus:

Competition must be legitimate, fair and honest. In the field of government contract law, competition
requires, not only `bidding upon a common standard, a common basis, upon the same thing, the same
subject matter, the same undertaking,' but also that it be legitimate, fair and honest; and not designed to
injure or defraud the government.[31]

An essential element of a publicly bidded contract is that all bidders must be on equal footing. Not
simply in terms of application of the procedural rules and regulations imposed by the relevant
government agency, but more importantly, on the contract bidded upon. Each bidder must be able
to bid on the same thing. The rationale is obvious. If the winning bidder is allowed to later include or
modify certain provisions in the contract awarded such that the contract is altered in any material
respect, then the essence of fair competition in the public bidding is destroyed. A public bidding would
indeed be a farce if after the contract is awarded, the winning bidder may modify the contract and
include provisions which are favorable to it that were not previously made available to the other bidders.
Thus:
It is inherent in public biddings that there shall be a fair competition among the bidders. The
specifications in such biddings provide the common ground or basis for the bidders. The specifications
should, accordingly, operate equally or indiscriminately upon all bidders.[32]

The same rule was restated by Chief Justice Stuart of the Supreme Court of Minnesota:

The law is well settled that where, as in this case, municipal authorities can only let a contract for public
work to the lowest responsible bidder, the proposals and specifications therefore must be so framed as to
permit free and full competition. Nor can they enter into a contract with the best bidder containing
substantial provisions beneficial to him, not included or contemplated in the terms and
specifications upon which the bids were invited.[33]

In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its argument that the draft
concession agreement is subject to amendment, the pertinent portion of which was quoted above, the
PBAC also clarified that [s]aid amendments shall only cover items that would not materially affect
the preparation of the proponents proposal.
While we concede that a winning bidder is not precluded from modifying or amending certain
provisions of the contract bidded upon, such changes must not constitute substantial or material
amendments that would alter the basic parameters of the contract and would constitute a denial to
the other bidders of the opportunity to bid on the same terms. Hence, the determination of whether
or not a modification or amendment of a contract bidded out constitutes a substantial amendment rests
on whether the contract, when taken as a whole, would contain substantially different terms and
conditions that would have the effect of altering the technical and/or financial proposals previously
submitted by other bidders. The alterations and modifications in the contract executed between the
government and the winning bidder must be such as to render such executed contract to be an entirely
different contract from the one that was bidded upon.
In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc., [34] this Court quoted with
approval the ruling of the trial court that an amendment to a contract awarded through public bidding,
when such subsequent amendment was made without a new public bidding, is null and void:

The Court agrees with the contention of counsel for the plaintiffs that the due execution of a contract
after public bidding is a limitation upon the right of the contracting parties to alter or amend it without
another public bidding, for otherwise what would a public bidding be good for if after the execution
of a contract after public bidding, the contracting parties may alter or amend the contract, or even
cancel it, at their will? Public biddings are held for the protection of the public, and to give the public
the best possible advantages by means of open competition between the bidders. He who bids or offers
the best terms is awarded the contract subject of the bid, and it is obvious that such protection and
best possible advantages to the public will disappear if the parties to a contract executed after
public bidding may alter or amend it without another previous public bidding. [35]

Hence, the question that comes to fore is this: is the 1997 Concession Agreement the same
agreement that was offered for public bidding, i.e., the draft Concession Agreement attached to the
Bid Documents? A close comparison of the draft Concession Agreement attached to the Bid Documents
and the 1997 Concession Agreement reveals that the documents differ in at least two material respects:
a. Modification on the Public
Utility Revenues and Non-Public
Utility Revenues that may be
collected by PIATCO
The fees that may be imposed and collected by PIATCO under the draft Concession Agreement and
the 1997 Concession Agreement may be classified into three distinct categories: (1) fees which are
subject to periodic adjustment of once every two years in accordance with a prescribed parametric
formula and adjustments are made effective only upon written approval by MIAA; (2) fees other than
those included in the first category which maybe adjusted by PIATCO whenever it deems necessary
without need for consent of DOTC/MIAA; and (3) new fees and charges that may be imposed by
PIATCO which have not been previously imposed or collected at the Ninoy Aquino International Airport
Passenger Terminal I, pursuant to Administrative Order No. 1, Series of 1993, as amended. The glaring
distinctions between the draft Concession Agreement and the 1997 Concession Agreement lie in the
types of fees included in each category and the extent of the supervision and regulation which MIAA is
allowed to exercise in relation thereto.
 For fees under the first category, i.e., those which are subject to periodic adjustment in accordance
with a prescribed parametric formula and effective only upon written approval by MIAA, the draft
Concession Agreement includes the following:[36]

(1) aircraft parking fees;

(2) aircraft tacking fees;

(3) groundhandling fees;

(4) rentals and airline offices;

(5) check-in counter rentals; and

(6) porterage fees.

Under the 1997 Concession Agreement, fees which are subject to adjustment and effective upon
MIAA approval are classified as Public Utility Revenues and include:[37]

(1) aircraft parking fees;

(2) aircraft tacking fees;

(3) check-in counter fees; and

(4) Terminal Fees.

The implication of the reduced number of fees that are subject to MIAA approval is best appreciated
in relation to fees included in the second category identified above. Under the 1997 Concession
Agreement, fees which PIATCO may adjust whenever it deems necessary without need for consent of
DOTC/MIAA are Non-Public Utility Revenues and is defined as all other income not classified as
Public Utility Revenues derived from operations of the Terminal and the Terminal Complex. [38] Thus,
under the 1997 Concession Agreement, groundhandling fees, rentals from airline offices and porterage
fees are no longer subject to MIAA regulation.
Further, under Section 6.03 of the draft Concession Agreement, MIAA reserves the right to
regulate (1) lobby and vehicular parking fees and (2) other new fees and charges that may be imposed by
PIATCO. Such regulation may be made by periodic adjustment and is effective only upon written
approval of MIAA. The full text of said provision is quoted below:

Section 6.03. Periodic Adjustment in Fees and Charges. Adjustments in the aircraft parking fees, aircraft
tacking fees, groundhandling fees, rentals and airline offices, check-in-counter rentals and porterage fees
shall be allowed only once every two years and in accordance with the Parametric Formula attached
hereto as Annex F. Provided that adjustments shall be made effective only after the written express
approval of the MIAA. Provided, further, that such approval of the MIAA, shall be contingent only on
the conformity of the adjustments with the above said parametric formula. The first adjustment shall be
made prior to the In-Service Date of the Terminal.

The MIAA reserves the right to regulate under the foregoing terms and conditions the lobby and
vehicular parking fees and other new fees and charges as contemplated in paragraph 2 of Section
6.01 if in its judgment the users of the airport shall be deprived of a free option for the services
they cover.[39]

On the other hand, the equivalent provision under the 1997 Concession Agreement reads:
Section 6.03 Periodic Adjustment in Fees and Charges.
.

(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting Non-Public
Utility Revenues in order to ensure that End Users are not unreasonably deprived of services. While the
vehicular parking fee, porterage fee and greeter/well wisher fee constitute Non-Public Utility
Revenues of Concessionaire, GRP may intervene and require Concessionaire to explain and justify
the fee it may set from time to time, if in the reasonable opinion of GRP the said fees have become
exorbitant resulting in the unreasonable deprivation of End Users of such services.[40]

Thus, under the 1997 Concession Agreement, with respect to (1) vehicular parking fee, (2)
porterage fee and (3) greeter/well wisher fee, all that MIAA can do is to require PIATCO to explain and
justify the fees set by PIATCO. In the draft Concession Agreement, vehicular parking fee is subject to
MIAA regulation and approval under the second paragraph of Section 6.03 thereof while porterage fee is
covered by the first paragraph of the same provision. There is an obvious relaxation of the extent of
control and regulation by MIAA with respect to the particular fees that may be charged by PIATCO.
Moreover, with respect to the third category of fees that may be imposed and collected by
PIATCO, i.e., new fees and charges that may be imposed by PIATCO which have not been previously
imposed or collected at the Ninoy Aquino International Airport Passenger Terminal I, under Section 6.03
of the draft Concession Agreement MIAA has reserved the right to regulate the same under the same
conditions that MIAA may regulate fees under the first category, i.e., periodic adjustment of once every
two years in accordance with a prescribed parametric formula and effective only upon written approval
by MIAA. However, under the 1997 Concession Agreement, adjustment of fees under the third
category is not subject to MIAA regulation.
With respect to terminal fees that may be charged by PIATCO,[41] as shown earlier, this was
included within the category of Public Utility Revenues under the 1997 Concession Agreement. This
classification is significant because under the 1997 Concession Agreement, Public Utility Revenues are
subject to an Interim Adjustment of fees upon the occurrence of certain extraordinary events specified in
the agreement.[42] However, under the draft Concession Agreement, terminal fees are not included in
the types of fees that may be subject to Interim Adjustment.[43]
Finally, under the 1997 Concession Agreement, Public Utility Revenues, except terminal fees, are
denominated in US Dollars[44] while payments to the Government are in Philippine Pesos. In the draft
Concession Agreement, no such stipulation was included. By stipulating that Public Utility Revenues
will be paid to PIATCO in US Dollars while payments by PIATCO to the Government are in Philippine
currency under the 1997 Concession Agreement, PIATCO is able to enjoy the benefits of depreciations
of the Philippine Peso, while being effectively insulated from the detrimental effects of exchange rate
fluctuations.
When taken as a whole, the changes under the 1997 Concession Agreement with respect to
reduction in the types of fees that are subject to MIAA regulation and the relaxation of such regulation
with respect to other fees are significant amendments that substantially distinguish the draft Concession
Agreement from the 1997 Concession Agreement. The 1997 Concession Agreement, in this respect,
clearly gives PIATCO more favorable terms than what was available to other bidders at the time
the contract was bidded out. It is not very difficult to see that the changes in the 1997 Concession
Agreement translate to direct and concrete financial advantages for PIATCO which were not
available at the time the contract was offered for bidding. It cannot be denied that under the 1997
Concession Agreement only Public Utility Revenues are subject to MIAA regulation. Adjustments
of all other fees imposed and collected by PIATCO are entirely within its control. Moreover, with
respect to terminal fees, under the 1997 Concession Agreement, the same is further subject to Interim
Adjustments not previously stipulated in the draft Concession Agreement. Finally, the change in the
currency stipulated for Public Utility Revenues under the 1997 Concession Agreement, except terminal
fees, gives PIATCO an added benefit which was not available at the time of bidding.
b. Assumption by the
Government of the liabilities of
PIATCO in the event of the latters
default thereof
Under the draft Concession Agreement, default by PIATCO of any of its obligations to creditors
who have provided, loaned or advanced funds for the NAIA IPT III project does not result in the
assumption by the Government of these liabilities. In fact, nowhere in the said contract does default of
PIATCOs loans figure in the agreement. Such default does not directly result in any concomitant right or
obligation in favor of the Government.
However, the 1997 Concession Agreement provides:
Section 4.04 Assignment.
.
(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the default
has resulted in the acceleration of the payment due date of the Attendant Liability prior to its stated date
of maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP in writing of such
default. GRP shall, within one hundred eighty (180) Days from receipt of the joint written notice of the
Unpaid Creditors and Concessionaire, either (i) take over the Development Facility and assume the
Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to be substituted as concessionaire
and operator of the Development Facility in accordance with the terms and conditions hereof, or
designate a qualified operator acceptable to GRP to operate the Development Facility, likewise under the
terms and conditions of this Agreement; Provided that if at the end of the 180-day period GRP shall not
have served the Unpaid Creditors and Concessionaire written notice of its choice, GRP shall be deemed
to have elected to take over the Development Facility with the concomitant assumption of Attendant
Liabilities.

(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the
latter shall form and organize a concession company qualified to take over the operation of the
Development Facility. If the concession company should elect to designate an operator for the
Development Facility, the concession company shall in good faith identify and designate a qualified
operator acceptable to GRP within one hundred eighty (180) days from receipt of GRPs written notice.
If the concession company, acting in good faith and with due diligence, is unable to designate a qualified
operator within the aforesaid period, then GRP shall at the end of the 180-day period take over the
Development Facility and assume Attendant Liabilities.

The term Attendant Liabilities under the 1997 Concession Agreement is defined as:

Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the
Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced funds
actually used for the Project, including all interests, penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related expenses, and further including amounts owed by
Concessionaire to its suppliers, contractors and sub-contractors.

Under the above quoted portions of Section 4.04 in relation to the definition of Attendant Liabilities,
default by PIATCO of its loans used to finance the NAIA IPT III project triggers the occurrence of
certain events that leads to the assumption by the Government of the liability for the loans. Only in
one instance may the Government escape the assumption of PIATCOs liabilities, i.e., when the
Government so elects and allows a qualified operator to take over as Concessionaire. However, this
circumstance is dependent on the existence and availability of a qualified operator who is willing
to take over the rights and obligations of PIATCO under the contract, a circumstance that is not
entirely within the control of the Government.
Without going into the validity of this provision at this juncture, suffice it to state that Section 4.04
of the 1997 Concession Agreement may be considered a form of security for the loans PIATCO has
obtained to finance the project, an option that was not made available in the draft Concession
Agreement. Section 4.04 is an important amendment to the 1997 Concession Agreement because it
grants PIATCO a financial advantage or benefit which was not previously made available during
the bidding process. This financial advantage is a significant modification that translates to better terms
and conditions for PIATCO.
PIATCO, however, argues that the parties to the bidding procedure acknowledge that the draft
Concession Agreement is subject to amendment because the Bid Documents permit financing or
borrowing. They claim that it was the lenders who proposed the amendments to the draft Concession
Agreement which resulted in the 1997 Concession Agreement.
We agree that it is not inconsistent with the rationale and purpose of the BOT Law to allow the
project proponent or the winning bidder to obtain financing for the project, especially in this case which
involves the construction, operation and maintenance of the NAIA IPT III. Expectedly, compliance by
the project proponent of its undertakings therein would involve a substantial amount of investment. It is
therefore inevitable for the awardee of the contract to seek alternate sources of funds to support the
project. Be that as it may, this Court maintains that amendments to the contract bidded upon should
always conform to the general policy on public bidding if such procedure is to be faithful to its real
nature and purpose. By its very nature and characteristic, competitive public bidding aims to protect the
public interest by giving the public the best possible advantages through open competition. [45] It has been
held that the three principles in public bidding are (1) the offer to the public; (2) opportunity for
competition; and (3) a basis for the exact comparison of bids. A regulation of the matter which excludes
any of these factors destroys the distinctive character of the system and thwarts the purpose of its
adoption.[46] These are the basic parameters which every awardee of a contract bidded out must conform
to, requirements of financing and borrowing notwithstanding. Thus, upon a concrete showing that, as in
this case, the contract signed by the government and the contract-awardee is an entirely different
contract from the contract bidded, courts should not hesitate to strike down said contract in its entirety
for violation of public policy on public bidding. A strict adherence on the principles, rules and
regulations on public bidding must be sustained if only to preserve the integrity and the faith of the
general public on the procedure.
Public bidding is a standard practice for procuring government contracts for public service and for
furnishing supplies and other materials. It aims to secure for the government the lowest possible price
under the most favorable terms and conditions, to curtail favoritism in the award of government
contracts and avoid suspicion of anomalies and it places all bidders in equal footing. [47] Any
government action which permits any substantial variance between the conditions under which
the bids are invited and the contract executed after the award thereof is a grave abuse of
discretion amounting to lack or excess of jurisdiction which warrants proper judicial action.
In view of the above discussion, the fact that the foregoing substantial amendments were made on
the 1997 Concession Agreement renders the same null and void for being contrary to public policy.
These amendments convert the 1997 Concession Agreement to an entirely different agreement from
the contract bidded out or the draft Concession Agreement. It is not difficult to see that the amendments
on (1) the types of fees or charges that are subject to MIAA regulation or control and the extent thereof
and (2) the assumption by the Government, under certain conditions, of the liabilities of PIATCO
directly translates concrete financial advantages to PIATCO that were previously not available
during the bidding process. These amendments cannot be taken as merely supplements to or
implementing provisions of those already existing in the draft Concession Agreement. The amendments
discussed above present new terms and conditions which provide financial benefit to PIATCO which
may have altered the technical and financial parameters of other bidders had they known that such terms
were available.
III
Direct Government Guarantee
Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997 Concession Agreement
provides:
Section 4.04 Assignment
.

(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the
default resulted in the acceleration of the payment due date of the Attendant Liability prior to its stated
date of maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP in writing of
such default. GRP shall within one hundred eighty (180) days from receipt of the joint written notice of
the Unpaid Creditors and Concessionaire, either (i) take over the Development Facility and assume the
Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified to be substituted as concessionaire
and operator of the Development facility in accordance with the terms and conditions hereof, or
designate a qualified operator acceptable to GRP to operate the Development Facility, likewise under the
terms and conditions of this Agreement; Provided, that if at the end of the 180-day period GRP shall not
have served the Unpaid Creditors and Concessionaire written notice of its choice, GRP shall be deemed
to have elected to take over the Development Facility with the concomitant assumption of
Attendant Liabilities.

(c) If GRP, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the latter
shall form and organize a concession company qualified to takeover the operation of the Development
Facility. If the concession company should elect to designate an operator for the Development Facility,
the concession company shall in good faith identify and designate a qualified operator acceptable to
GRP within one hundred eighty (180) days from receipt of GRPs written notice. If the concession
company, acting in good faith and with due diligence, is unable to designate a qualified operator within
the aforesaid period, then GRP shall at the end of the 180-day period take over the Development
Facility and assume Attendant Liabilities.

.
Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books
of the Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced funds
actually used for the Project, including all interests, penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related expenses, and further including amounts owed by
Concessionaire to its suppliers, contractors and sub-contractors.[48]

It is clear from the above-quoted provisions that Government, in the event that PIATCO defaults
in its loan obligations, is obligated to pay all amounts recorded and from time to time outstanding
from the books of PIATCO which the latter owes to its creditors.[49] These amounts include all interests,
penalties, associated fees, charges, surcharges, indemnities, reimbursements and other related expenses.
[50]
This obligation of the Government to pay PIATCOs creditors upon PIATCOs default would arise if
the Government opts to take over NAIA IPT III. It should be noted, however, that even if the
Government chooses the second option, which is to allow PIATCOs unpaid creditors operate NAIA IPT
III, the Government is still at a risk of being liable to PIATCOs creditors should the latter be unable to
designate a qualified operator within the prescribed period.[51] In effect, whatever option the
Government chooses to take in the event of PIATCOs failure to fulfill its loan obligations, the
Government is still at a risk of assuming PIATCOs outstanding loans. This is due to the fact that the
Government would only be free from assuming PIATCOs debts if the unpaid creditors would be able to
designate a qualified operator within the period provided for in the contract. Thus, the Governments
assumption of liability is virtually out of its control. The Government under the circumstances
provided for in the 1997 Concession Agreement is at the mercy of the existence, availability and
willingness of a qualified operator. The above contractual provisions constitute a direct government
guarantee which is prohibited by law.
One of the main impetus for the enactment of the BOT Law is the lack of government funds to
construct the infrastructure and development projects necessary for economic growth and development.
This is why private sector resources are being tapped in order to finance these projects. The BOT law
allows the private sector to participate, and is in fact encouraged to do so by way of incentives, such as
minimizing the unstable flow of returns,[52] provided that the government would not have to
unnecessarily expend scarcely available funds for the project itself. As such, direct guarantee, subsidy
and equity by the government in these projects are strictly prohibited. [53] This is but logical for if the
government would in the end still be at a risk of paying the debts incurred by the private entity in
the BOT projects, then the purpose of the law is subverted.

Section 2(n) of the BOT Law defines direct guarantee as follows:

(n) Direct government guarantee An agreement whereby the government or any of its agencies or local
government units assume responsibility for the repayment of debt directly incurred by the project
proponent in implementing the project in case of a loan default.

Clearly by providing that the Government assumes the attendant liabilities, which consists of
PIATCOs unpaid debts, the 1997 Concession Agreement provided for a direct government guarantee for
the debts incurred by PIATCO in the implementation of the NAIA IPT III project. It is of no moment
that the relevant sections are subsumed under the title of assignment. The provisions providing for direct
government guarantee which is prohibited by law is clear from the terms thereof.
The fact that the ARCA superseded the 1997 Concession Agreement did not cure this fatal defect.
Article IV, Section 4.04(c), in relation to Article I, Section 1.06, of the ARCA provides:
Section 4.04 Security
.

(c) GRP agrees with Concessionaire (PIATCO) that it shall negotiate in good faith and enter into
direct agreement with the Senior Lenders, or with an agent of such Senior Lenders (which agreement
shall be subject to the approval of the Bangko Sentral ng Pilipinas), in such form as may be reasonably
acceptable to both GRP and Senior Lenders, with regard, inter alia, to the following parameters:

(iv) If the Concessionaire [PIATCO] is in default under a payment obligation owed to the Senior
Lenders, and as a result thereof the Senior Lenders have become entitled to accelerate the Senior Loans,
the Senior Lenders shall have the right to notify GRP of the same, and without prejudice to any other
rights of the Senior Lenders or any Senior Lenders agent may have (including without limitation under
security interests granted in favor of the Senior Lenders), to either in good faith identify and designate a
nominee which is qualified under sub-clause (viii)(y) below to operate the Development Facility [NAIA
Terminal 3] or transfer the Concessionaires [PIATCO] rights and obligations under this Agreement to a
transferee which is qualified under sub-clause (viii) below;

(vi) if the Senior Lenders, acting in good faith and using reasonable efforts, are unable to designate a
nominee or effect a transfer in terms and conditions satisfactory to the Senior Lenders within one
hundred eighty (180) days after giving GRP notice as referred to respectively in (iv) or (v) above, then
GRP and the Senior Lenders shall endeavor in good faith to enter into any other arrangement relating to
the Development Facility [NAIA Terminal 3] (other than a turnover of the Development Facility [NAIA
Terminal 3] to GRP) within the following one hundred eighty (180) days. If no agreement relating to
the Development Facility [NAIA Terminal 3] is arrived at by GRP and the Senior Lenders within the
said 180-day period, then at the end thereof the Development Facility [NAIA Terminal 3] shall be
transferred by the Concessionaire [PIATCO] to GRP or its designee and GRP shall make a
termination payment to Concessionaire [PIATCO] equal to the Appraised Value (as hereinafter
defined) of the Development Facility [NAIA Terminal 3] or the sum of the Attendant Liabilities, if
greater. Notwithstanding Section 8.01(c) hereof, this Agreement shall be deemed terminated upon the
transfer of the Development Facility [NAIA Terminal 3] to GRP pursuant hereto;

Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all amounts in each case supported by verifiable evidence from time to
time owed or which may become owing by Concessionaire [PIATCO] to Senior Lenders or any
other persons or entities who have provided, loaned, or advanced funds or provided financial
facilities to Concessionaire [PIATCO] for the Project [NAIA Terminal 3], including, without
limitation, all principal, interest, associated fees, charges, reimbursements, and other related
expenses (including the fees, charges and expenses of any agents or trustees of such persons or entities),
whether payable at maturity, by acceleration or otherwise, and further including amounts owed by
Concessionaire [PIATCO] to its professional consultants and advisers, suppliers, contractors and sub-
contractors.[54]

It is clear from the foregoing contractual provisions that in the event that PIATCO fails to fulfill its
loan obligations to its Senior Lenders, the Government is obligated to directly negotiate and enter into
an agreement relating to NAIA IPT III with the Senior Lenders, should the latter fail to appoint a
qualified nominee or transferee who will take the place of PIATCO. If the Senior Lenders and the
Government are unable to enter into an agreement after the prescribed period, the Government must then
pay PIATCO, upon transfer of NAIA IPT III to the Government, termination payment equal to the
appraised value of the project or the value of the attendant liabilities whichever is greater. Attendant
liabilities as defined in the ARCA includes all amounts owed or thereafter may be owed by PIATCO not
only to the Senior Lenders with whom PIATCO has defaulted in its loan obligations but to all other
persons who may have loaned, advanced funds or provided any other type of financial facilities to
PIATCO for NAIA IPT III. The amount of PIATCOs debt that the Government would have to pay as a
result of PIATCOs default in its loan obligations -- in case no qualified nominee or transferee is
appointed by the Senior Lenders and no other agreement relating to NAIA IPT III has been reached
between the Government and the Senior Lenders -- includes, but is not limited to, all principal, interest,
associated fees, charges, reimbursements, and other related expenses . . . whether payable at maturity, by
acceleration or otherwise.[55]
It is clear from the foregoing that the ARCA provides for a direct guarantee by the
government to pay PIATCOs loans not only to its Senior Lenders but all other entities who
provided PIATCO funds or services upon PIATCOs default in its loan obligation with its Senior
Lenders. The fact that the Governments obligation to pay PIATCOs lenders for the latters obligation
would only arise after the Senior Lenders fail to appoint a qualified nominee or transferee does not
detract from the fact that, should the conditions as stated in the contract occur, the ARCA still obligates
the Government to pay any and all amounts owed by PIATCO to its lenders in connection with NAIA
IPT III. Worse, the conditions that would make the Government liable for PIATCOs debts is triggered by
PIATCOs own default of its loan obligations to its Senior Lenders to which loan contracts the
Government was never a party to. The Government was not even given an option as to what course of
action it should take in case PIATCO defaulted in the payment of its senior loans. The Government,
upon PIATCOs default, would be merely notified by the Senior Lenders of the same and it is the Senior
Lenders who are authorized to appoint a qualified nominee or transferee. Should the Senior Lenders fail
to make such an appointment, the Government is then automatically obligated to directly deal and
negotiate with the Senior Lenders regarding NAIA IPT III. The only way the Government would not be
liable for PIATCOs debt is for a qualified nominee or transferee to be appointed in place of PIATCO to
continue the construction, operation and maintenance of NAIA IPT III. This pre-condition, however, will
not take the contract out of the ambit of a direct guarantee by the government as the existence,
availability and willingness of a qualified nominee or transferee is totally out of the governments
control. As such the Government is virtually at the mercy of PIATCO (that it would not default on its
loan obligations to its Senior Lenders), the Senior Lenders (that they would appoint a qualified nominee
or transferee or agree to some other arrangement with the Government) and the existence of a qualified
nominee or transferee who is able and willing to take the place of PIATCO in NAIA IPT III.
The proscription against government guarantee in any form is one of the policy considerations
behind the BOT Law. Clearly, in the present case, the ARCA obligates the Government to pay for all
loans, advances and obligations arising out of financial facilities extended to PIATCO for the
implementation of the NAIA IPT III project should PIATCO default in its loan obligations to its Senior
Lenders and the latter fails to appoint a qualified nominee or transferee. This in effect would make the
Government liable for PIATCOs loans should the conditions as set forth in the ARCA arise. This is a
form of direct government guarantee.
The BOT Law and its implementing rules provide that in order for an unsolicited proposal for a
BOT project may be accepted, the following conditions must first be met:(1) the project involves a new
concept in technology and/or is not part of the list of priority projects, (2) no direct government
guarantee, subsidy or equity is required, and (3) the government agency or local government unit has
invited by publication other interested parties to a public bidding and conducted the same. [56] The failure
to meet any of the above conditions will result in the denial of the proposal. It is further provided that
the presence of direct government guarantee, subsidy or equity will necessarily disqualify a proposal
from being treated and accepted as an unsolicited proposal. [57] The BOT Law clearly and strictly
prohibits direct government guarantee, subsidy and equity in unsolicited proposals that the mere
inclusion of a provision to that effect is fatal and is sufficient to deny the proposal. It stands to reason
therefore that if a proposal can be denied by reason of the existence of direct government guarantee, then
its inclusion in the contract executed after the said proposal has been accepted is likewise sufficient to
invalidate the contract itself. A prohibited provision, the inclusion of which would result in the denial of
a proposal cannot, and should not, be allowed to later on be inserted in the contract resulting from the
said proposal. The basic rules of justice and fair play alone militate against such an occurrence and must
not, therefore, be countenanced particularly in this instance where the government is exposed to the risk
of shouldering hundreds of million of dollars in debt.
This Court has long and consistently adhered to the legal maxim that those that cannot be done
directly cannot be done indirectly.[58] To declare the PIATCO contracts valid despite the clear
statutory prohibition against a direct government guarantee would not only make a mockery of
what the BOT Law seeks to prevent -- which is to expose the government to the risk of incurring a
monetary obligation resulting from a contract of loan between the project proponent and its
lenders and to which the Government is not a party to -- but would also render the BOT Law
useless for what it seeks to achieve - to make use of the resources of the private sector in the
financing, operation and maintenance of infrastructure and development projects [59] which are
necessary for national growth and development but which the government, unfortunately, could
ill-afford to finance at this point in time.
IV
Temporary takeover of business affected with public interest

Article XII, Section 17 of the 1987 Constitution provides:

Section 17. In times of national emergency, when the public interest so requires, the State may, during
the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation
of any privately owned public utility or business affected with public interest.

The above provision pertains to the right of the State in times of national emergency, and in the
exercise of its police power, to temporarily take over the operation of any business affected with public
interest. In the 1986 Constitutional Commission, the term national emergency was defined to include
threat from external aggression, calamities or national disasters, but not strikes unless it is of such
proportion that would paralyze government service.[60] The duration of the emergency itself is the
determining factor as to how long the temporary takeover by the government would last. [61] The
temporary takeover by the government extends only to the operation of the business and not to the
ownership thereof. As such the government is not required to compensate the private entity-owner
of the said business as there is no transfer of ownership, whether permanent or temporary. The
private entity-owner affected by the temporary takeover cannot, likewise, claim just compensation for
the use of the said business and its properties as the temporary takeover by the government is in exercise
of its police power and not of its power of eminent domain.
Article V, Section 5.10 (c) of the 1997 Concession Agreement provides:
Section 5.10 Temporary Take-over of operations by GRP.
.

(c) In the event the development Facility or any part thereof and/or the operations of Concessionaire or
any part thereof, become the subject matter of or be included in any notice, notification, or declaration
concerning or relating to acquisition, seizure or appropriation by GRP in times of war or national
emergency, GRP shall, by written notice to Concessionaire, immediately take over the operations of the
Terminal and/or the Terminal Complex. During such take over by GRP, the Concession Period shall be
suspended; provided, that upon termination of war, hostilities or national emergency, the operations shall
be returned to Concessionaire, at which time, the Concession period shall commence to run again.
Concessionaire shall be entitled to reasonable compensation for the duration of the temporary
take over by GRP, which compensation shall take into account the reasonable cost for the use of
the Terminal and/or Terminal Complex, (which is in the amount at least equal to the debt service
requirements of Concessionaire, if the temporary take over should occur at the time when
Concessionaire is still servicing debts owed to project lenders), any loss or damage to the Development
Facility, and other consequential damages. If the parties cannot agree on the reasonable compensation of
Concessionaire, or on the liability of GRP as aforesaid, the matter shall be resolved in accordance with
Section 10.01 [Arbitration]. Any amount determined to be payable by GRP to Concessionaire shall be
offset from the amount next payable by Concessionaire to GRP.[62]

PIATCO cannot, by mere contractual stipulation, contravene the Constitutional provision on

temporary government takeover and obligate the government to pay reasonable cost for the use of
the Terminal and/or Terminal Complex.[63] Article XII, section 17 of the 1987 Constitution envisions a
situation wherein the exigencies of the times necessitate the government to temporarily take over or
direct the operation of any privately owned public utility or business affected with public interest. It is
the welfare and interest of the public which is the paramount consideration in determining whether or
not to temporarily take over a particular business.Clearly, the State in effecting the temporary takeover is
exercising its police power. Police power is the most essential, insistent, and illimitable of powers. [64] Its
exercise therefore must not be unreasonably hampered nor its exercise be a source of obligation by the
government in the absence of damage due to arbitrariness of its exercise. [65] Thus, requiring the
government to pay reasonable compensation for the reasonable use of the property pursuant to the
operation of the business contravenes the Constitution.
V
Regulation of Monopolies
A monopoly is a privilege or peculiar advantage vested in one or more persons or companies,
consisting in the exclusive right (or power) to carry on a particular business or trade, manufacture a
particular article, or control the sale of a particular commodity. [66] The 1987 Constitution strictly
regulates monopolies, whether private or public, and even provides for their prohibition if public
interest so requires. Article XII, Section 19 of the 1987 Constitution states:

Sec. 19. The state shall regulate or prohibit monopolies when the public interest so requires. No
combinations in restraint of trade or unfair competition shall be allowed.

Clearly, monopolies are not per se prohibited by the Constitution but may be permitted to exist to
aid the government in carrying on an enterprise or to aid in the performance of various services and
functions in the interest of the public.[67] Nonetheless, a determination must first be made as to whether
public interest requires a monopoly. As monopolies are subject to abuses that can inflict severe prejudice
to the public, they are subject to a higher level of State regulation than an ordinary business undertaking.
 In the cases at bar, PIATCO, under the 1997 Concession Agreement and the ARCA, is granted the
exclusive right to operate a commercial international passenger terminal within the Island of Luzon at
the NAIA IPT III.[68] This is with the exception of already existing international airports in Luzon such as
those located in the Subic Bay Freeport Special Economic Zone (SBFSEZ), Clark Special Economic
Zone (CSEZ) and in Laoag City.[69] As such, upon commencement of PIATCOs operation of NAIA IPT
III, Terminals 1 and 2 of NAIA would cease to function as international passenger terminals. This,
however, does not prevent MIAA to use Terminals 1 and 2 as domestic passenger terminals or in any
other manner as it may deem appropriate except those activities that would compete with NAIA IPT III
in the latters operation as an international passenger terminal.[70] The right granted to PIATCO to
exclusively operate NAIA IPT III would be for a period of twenty-five (25) years from the In-Service
Date[71] and renewable for another twenty-five (25) years at the option of the government. [72] Both the
1997 Concession Agreement and the ARCA further provide that, in view of the exclusive right
granted to PIATCO, the concession contracts of the service providers currently servicing
Terminals 1 and 2 would no longer be renewed and those concession contracts whose expiration
are subsequent to the In-Service Date would cease to be effective on the said date.[73]
The operation of an international passenger airport terminal is no doubt an undertaking imbued with
public interest. In entering into a BuildOperate-and-Transfer contract for the construction, operation and
maintenance of NAIA IPT III, the government has determined that public interest would be served better
if private sector resources were used in its construction and an exclusive right to operate be granted to
the private entity undertaking the said project, in this case PIATCO. Nonetheless, the privilege given to
PIATCO is subject to reasonable regulation and supervision by the Government through the MIAA,
which is the government agency authorized to operate the NAIA complex, as well as DOTC, the
department to which MIAA is attached.[74]
This is in accord with the Constitutional mandate that a monopoly which is not prohibited must be
regulated.[75] While it is the declared policy of the BOT Law to encourage private sector participation by
providing a climate of minimum government regulations,[76] the same does not mean that Government
must completely surrender its sovereign power to protect public interest in the operation of a public
utility as a monopoly. The operation of said public utility can not be done in an arbitrary manner to the
detriment of the public which it seeks to serve. The right granted to the public utility may be exclusive
but the exercise of the right cannot run riot. Thus, while PIATCO may be authorized to exclusively
operate NAIA IPT III as an international passenger terminal, the Government, through the MIAA, has
the right and the duty to ensure that it is done in accord with public interest. PIATCOs right to operate
NAIA IPT III cannot also violate the rights of third parties.
Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:

3.01 Concession Period

(e) GRP confirms that certain concession agreements relative to certain services and operations
currently being undertaken at the Ninoy Aquino International Airport passenger Terminal I have a
validity period extending beyond the In-Service Date. GRP through DOTC/MIAA, confirms that
these services and operations shall not be carried over to the Terminal and the Concessionaire is under
no legal obligation to permit such carry-over except through a separate agreement duly entered into
with Concessionaire. In the event Concessionaire becomes involved in any litigation initiated by any
such concessionaire or operator, GRP undertakes and hereby holds Concessionaire free and harmless on
full indemnity basis from and against any loss and/or any liability resulting from any such litigation,
including the cost of litigation and the reasonable fees paid or payable to Concessionaires counsel of
choice, all such amounts shall be fully deductible by way of an offset from any amount which the
Concessionaire is bound to pay GRP under this Agreement.

During the oral arguments on December 10, 2002, the counsel for the petitioners-in-intervention for
G.R. No. 155001 stated that there are two service providers whose contracts are still existing and whose
validity extends beyond the In-Service Date. One contract remains valid until 2008 and the other until
2010.[77]
We hold that while the service providers presently operating at NAIA Terminal 1 do not have an
absolute right for the renewal or the extension of their respective contracts, those contracts whose
duration extends beyond NAIA IPT IIIs In-Service-Date should not be unduly prejudiced. These
contracts must be respected not just by the parties thereto but also by third parties. PIATCO cannot, by
law and certainly not by contract, render a valid and binding contract nugatory. PIATCO, by the mere
expedient of claiming an exclusive right to operate, cannot require the Government to break its
contractual obligations to the service providers. In contrast to the arrastre and stevedoring service
providers in the case of Anglo-Fil Trading Corporation v. Lazaro[78] whose contracts consist of
temporary hold-over permits, the affected service providers in the cases at bar, have a valid and binding
contract with the Government, through MIAA, whose period of effectivity, as well as the other terms
and conditions thereof, cannot be violated.
In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The provisions of
the 1997 Concession Agreement and the ARCA did not strip government, thru the MIAA, of its right to
supervise the operation of the whole NAIA complex, including NAIA IPT III. As the primary
government agency tasked with the job,[79] it is MIAAs responsibility to ensure that whoever by contract
is given the right to operate NAIA IPT III will do so within the bounds of the law and with due regard to
the rights of third parties and above all, the interest of the public.
VI
CONCLUSION
In sum, this Court rules that in view of the absence of the requisite financial capacity of the
Paircargo Consortium, predecessor of respondent PIATCO, the award by the PBAC of the contract for
the construction, operation and maintenance of the NAIA IPT III is null and void. Further, considering
that the 1997 Concession Agreement contains material and substantial amendments, which amendments
had the effect of converting the 1997 Concession Agreement into an entirely different agreement from
the contract bidded upon, the 1997 Concession Agreement is similarly null and void for being contrary
to public policy. The provisions under Sections 4.04(b) and (c) in relation to Section 1.06 of the 1997
Concession Agreement and Section 4.04(c) in relation to Section 1.06 of the ARCA, which constitute a
direct government guarantee expressly prohibited by, among others, the BOT Law and its Implementing
Rules and Regulations are also null and void. The Supplements, being accessory contracts to the ARCA,
are likewise null and void.
WHEREFORE, the 1997 Concession Agreement, the Amended and Restated Concession
Agreement and the Supplements thereto are set aside for being null and void.
SO ORDERED.
CARGILL PHILIPPINES, INC., G.R. No. 175404
Petitioner,
Present:

CARPIO, J., Chairperson,

- versus - NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

SAN FERNANDO REGALA TRADING, INC., Promulgated:

Respondent.
January 31, 2011

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

DECISION

PERALTA, J.:

Before us is a petition for review on certiorari seeking to reverse and set aside the Decision [1] dated July
31, 2006 and the Resolution[2] dated November 13, 2006 of the Court of Appeals (CA) in CA G.R. SP
No. 50304.

The factual antecedents are as follows:

On June 18, 1998, respondent San Fernando Regala Trading, Inc. filed with the Regional Trial Court
(RTC) of Makati City a Complaint for Rescission of Contract with Damages [3] against petitioner Cargill
Philippines, Inc. In its Complaint, respondent alleged that it was engaged in buying and selling of
molasses and petitioner was one of its various sources from whom it purchased molasses. Respondent
alleged that it entered into a contract dated July 11, 1996 with petitioner, wherein it was agreed upon that
respondent would purchase from petitioner 12,000 metric tons of Thailand origin cane blackstrap
molasses at the price of US$192 per metric ton; that the delivery of the molasses was to be made in
January/February 1997 and payment was to be made by means of an Irrevocable Letter of Credit
payable at sight, to be opened by September 15, 1996; that sometime prior to September 15, 1996, the
parties agreed that instead of January/February 1997, the delivery would be made in April/May 1997 and
that payment would be by an Irrevocable Letter of Credit payable at sight, to be opened upon petitioner's
advice. Petitioner, as seller, failed to comply with its obligations under the contract, despite demands
from respondent, thus, the latter prayed for rescission of the contract and payment of damages.

On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend Proceedings and To Refer Controversy
to Voluntary Arbitration,[4] wherein it argued that the alleged contract between the parties, dated July 11,
1996, was never consummated because respondent never returned the proposed agreement bearing its
written acceptance or conformity nor did respondent open the Irrevocable Letter of Credit at sight.
Petitioner contended that the controversy between the parties was whether or not the alleged contract
between the parties was legally in existence and the RTC was not the proper forum to ventilate such
issue. It claimed that the contract contained an arbitration clause, to wit:

ARBITRATION

Any dispute which the Buyer and Seller may not be able to settle by mutual agreement
shall be settled by arbitration in the City of New York before the American Arbitration
Association. The Arbitration Award shall be final and binding on both parties.[5]

that respondent must first comply with the arbitration clause before resorting to court, thus, the RTC
must either dismiss the case or suspend the proceedings and direct the parties to proceed with
arbitration, pursuant to Sections 6[6] and 7[7] of Republic Act (R.A.) No. 876, or the Arbitration Law.

Respondent filed an Opposition, wherein it argued that the RTC has jurisdiction over the action for
rescission of contract and could not be changed by the subject arbitration clause. It cited cases wherein
arbitration clauses, such as the subject clause in the contract, had been struck down as void for being
contrary to public policy since it provided that the arbitration award shall be final and binding on both
parties, thus, ousting the courts of jurisdiction.

In its Reply, petitioner maintained that the cited decisions were already inapplicable, having been
rendered prior to the effectivity of the New Civil Code in 1950 and the Arbitration Law in 1953.
In its Rejoinder, respondent argued that the arbitration clause relied upon by petitioner is invalid and
unenforceable, considering that the requirements imposed by the provisions of the Arbitration Law had
not been complied with.

By way of Sur-Rejoinder, petitioner contended that respondent had even clarified that the issue boiled
down to whether the arbitration clause contained in the contract subject of the complaint is valid and
enforceable; that the arbitration clause did not violate any of the cited provisions of the Arbitration Law.

On September 17, 1998, the RTC rendered an Order,[8] the dispositive portion of which reads:

Premises considered, defendant's Motion To Dismiss/Suspend Proceedings and To Refer

Controversy To Voluntary Arbitration is hereby DENIED. Defendant is directed to file its
answer within ten (10) days from receipt of a copy of this order.[9]

In denying the motion, the RTC found that there was no clear basis for petitioner's plea to dismiss the
case, pursuant to Section 7 of the Arbitration Law. The RTC said that the provision directed the court
concerned only to stay the action or proceeding brought upon an issue arising out of an agreement
providing for the arbitration thereof, but did not impose the sanction of dismissal. However, the RTC did
not find the suspension of the proceedings warranted, since the Arbitration Law contemplates an
arbitration proceeding that must be conducted in the Philippines under the jurisdiction and control of the
RTC; and before an arbitrator who resides in the country; and that the arbitral award is subject to court
approval, disapproval and modification, and that there must be an appeal from the judgment of the RTC.
The RTC found that the arbitration clause in question contravened these procedures, i.e., the arbitration
clause contemplated an arbitration proceeding in New York before a non-resident arbitrator (American
Arbitration Association); that the arbitral award shall be final and binding on both parties. The RTC said
that to apply Section 7 of the Arbitration Law to such an agreement would result in disregarding the
other sections of the same law and rendered them useless and mere surplusages.

Petitioner filed its Motion for Reconsideration, which the RTC denied in an Order [10] dated November
25, 1998.

Petitioner filed a petition for certiorari with the CA raising the sole issue that the RTC acted in excess of
jurisdiction or with grave abuse of discretion in refusing to dismiss or at least suspend the proceedings a
quo, despite the fact that the party's agreement to arbitrate had not been complied with.

Respondent filed its Comment and Reply. The parties were then required to file their respective
Memoranda.

On July 31, 2006, the CA rendered its assailed Decision denying the petition and affirming the RTC
Orders.

In denying the petition, the CA found that stipulation providing for arbitration in contractual obligation
is both valid and constitutional; that arbitration as an alternative mode of dispute resolution has long
been accepted in our jurisdiction and expressly provided for in the Civil Code; that R.A. No. 876 (the
Arbitration Law) also expressly authorized the arbitration of domestic disputes. The CA found error in
the RTC's holding that Section 7 of R.A. No. 876 was inapplicable to arbitration clause simply because
the clause failed to comply with the requirements prescribed by the law. The CA found that there was
nothing in the Civil Code, or R.A. No. 876, that require that arbitration proceedings must be conducted
only in the Philippines and the arbitrators should be Philippine residents. It also found that the RTC
ruling effectively invalidated not only the disputed arbitration clause, but all other agreements which
provide for foreign arbitration. The CA did not find illegal or against public policy the arbitration clause
so as to render it null and void or ineffectual.

Notwithstanding such findings, the CA still held that the case cannot be brought under the Arbitration
Law for the purpose of suspending the proceedings before the RTC, since in its Motion to
Dismiss/Suspend proceedings, petitioner alleged, as one of the grounds thereof, that the subject contract
between the parties did not exist or it was invalid; that the said contract bearing the arbitration clause
was never consummated by the parties, thus, it was proper that such issue be first resolved by the court
through an appropriate trial; that the issue involved a question of fact that the RTC should first resolve.
Arbitration is not proper when one of the parties repudiated the existence or validity of the contract.

Petitioner's motion for reconsideration was denied in a Resolution dated November 13, 2006.

Hence, this petition.

 Petitioner alleges that the CA committed an error of law in ruling that arbitration cannot proceed
despite the fact that: (a) it had ruled, in its assailed decision, that the arbitration clause is valid,
enforceable and binding on the parties; (b) the case of Gonzales v. Climax Mining Ltd.[11] is inapplicable
here; (c) parties are generally allowed, under the Rules of Court, to adopt several defenses, alternatively
or hypothetically, even if such
defenses are inconsistent with each other; and (d) the complaint filed by respondent with the trial court
is premature.

Petitioner alleges that the CA adopted inconsistent positions when it found the arbitration clause
between the parties as valid and enforceable and yet in the same breath decreed that the arbitration
cannot proceed because petitioner assailed the existence of the entire agreement containing the
arbitration clause. Petitioner claims the inapplicability of the cited Gonzales case decided in 2005,
because in the present case, it was respondent who had filed the complaint for rescission and damages
with the RTC, which based its cause of action against petitioner on the alleged agreement dated July 11,
2006 between the parties; and that the same agreement contained the arbitration clause sought to be
enforced by petitioner in this case. Thus, whether petitioner assails the genuineness and due execution of
the agreement, the fact remains that the agreement sued upon provides for an arbitration clause; that
respondent cannot use the provisions favorable to him and completely disregard those that are
unfavorable, such as the arbitration clause.

Petitioner contends that as the defendant in the RTC, it presented two alternative defenses, i.e., the
parties had not entered into any agreement upon which respondent as plaintiff can sue upon; and,
assuming that such agreement existed, there was an arbitration clause that should be enforced, thus, the
dispute must first be submitted to arbitration before an action can be instituted in court. Petitioner argues
that under Section 1(j) of Rule 16 of the Rules of Court, included as a ground to dismiss a complaint is
when a condition precedent for filing the complaint has not been complied with; and that submission to
arbitration when such has been agreed upon is one such condition precedent. Petitioner submits that the
proceedings in the RTC must be dismissed, or at least suspended, and the parties be ordered to proceed
with arbitration.
On March 12, 2007, petitioner filed a Manifestation [12] saying that the CA's rationale in declining to
order arbitration based on the 2005 Gonzales ruling had been modified upon a motion for
reconsideration decided in 2007; that the CA decision lost its legal basis, because it had been ruled that
the arbitration agreement can be implemented notwithstanding that one of the parties thereto repudiated
the contract which contained such agreement based on the doctrine of separability.

In its Comment, respondent argues that certiorari under Rule 65 is not the remedy against an
order denying a Motion to Dismiss/Suspend Proceedings and To Refer Controversy to Voluntary
Arbitration. It claims that the Arbitration Law which petitioner invoked as basis for its Motion
prescribed, under its Section 29, a remedy, i.e., appeal by a petition for review on certiorari under Rule
45. Respondent contends that the Gonzales case, which was decided in 2007, is inapplicable in this case,
especially as to the doctrine of separability enunciated therein. Respondent argues that even if the
existence of the contract and the arbitration clause is conceded, the decisions of the RTC and the CA
declining referral of the dispute between the parties to arbitration would still be correct. This is so
because respondent's complaint filed in Civil Case No. 98-1376 presents the principal issue of whether
under the facts alleged in the complaint, respondent is entitled to rescind its contract with petitioner and
for the latter to pay damages; that such issue constitutes a judicial question or one that requires the
exercise of judicial function and cannot be the subject of arbitration.
Respondent contends that Section 8 of the Rules of Court, which allowed a defendant to adopt in the
same action several defenses, alternatively or hypothetically, even if such defenses are inconsistent with
each other refers to allegations in the pleadings, such as complaint, counterclaim, cross-claim, third-
party complaint, answer, but not to a motion to dismiss. Finally, respondent claims that petitioner's
argument is premised on the existence of a contract with respondent containing a provision for
arbitration. However, its reliance on the contract, which it repudiates, is inappropriate.

In its Reply, petitioner insists that respondent filed an action for rescission and damages on the basis of
the contract, thus, respondent admitted the existence of all the provisions contained thereunder,
including the arbitration clause; that if respondent relies on said contract for its cause of action against
petitioner, it must also consider itself bound by the rest of the terms and conditions contained thereunder
notwithstanding that respondent may find some provisions to be adverse to its position; that respondents
citation of the Gonzales case, decided in 2005, to show that the validity of the contract cannot be the
subject of the arbitration proceeding and that it is the RTC which has the jurisdiction to resolve the
situation between the parties herein, is not correct since in the resolution of the Gonzales' motion for
reconsideration in 2007, it had been ruled that an arbitration agreement is effective notwithstanding the
fact that one of the parties thereto repudiated the main contract which contained it.

We first address the procedural issue raised by respondent that petitioners petition for certiorari under
Rule 65 filed in the CA against an RTC Order denying a Motion to Dismiss/Suspend Proceedings and to
Refer Controversy to Voluntary Arbitration was a wrong remedy invoking Section 29 of R.A. No. 876,
which provides:

Section 29.

x x x An appeal may be taken from an order made in a proceeding under this Act, or from
a judgment entered upon an award through certiorari proceedings, but such appeals shall
be limited to question of law. x x x.

To support its argument, respondent cites the case of Gonzales v. Climax Mining Ltd.[13] (Gonzales case),
wherein we ruled the impropriety of a petition for certiorari under Rule 65 as a mode of appeal from an
RTC Order directing the parties to arbitration.

We find the cited case not in point.

In the Gonzales case, Climax-Arimco filed before the RTC of Makati a petition to compel arbitration
under R.A. No. 876, pursuant to the arbitration clause found in the Addendum Contract it entered with
Gonzales. Judge Oscar Pimentel of the RTC of Makati then directed the parties to arbitration
proceedings. Gonzales filed a petition for certiorari with Us contending that Judge Pimentel acted with
grave abuse of discretion in immediately ordering the parties to proceed with arbitration despite the
proper, valid and timely raised argument in his Answer with counterclaim that the Addendum Contract
containing the arbitration clause was null and void. Climax-Arimco assailed the mode of review availed
of by Gonzales, citing Section 29 of R.A. No. 876 contending that certiorari under Rule 65 can be
availed of only if there was no appeal or any adequate remedy in the ordinary course of law; that R.A.
No. 876 provides for an appeal from such order. We then ruled that Gonzales' petition for certiorari
should be dismissed as it was filed in lieu of an appeal by certiorari which was the prescribed remedy
under R.A. No. 876 and the petition was filed far beyond the reglementary period.
We found that Gonzales petition for certiorari raises a question of law, but not a question of jurisdiction;
that Judge Pimentel acted in accordance with the procedure prescribed in R.A. No. 876 when he ordered
Gonzales to proceed with arbitration and appointed a sole arbitrator after making the determination that
there was indeed an arbitration agreement. It had been held that as long as a court acts within its
jurisdiction and does not gravely abuse its discretion in the exercise thereof, any supposed error
committed by it will amount to nothing more than an error of judgment reviewable by a timely appeal
and not assailable by a special civil action of certiorari.[14]

In this case, petitioner raises before the CA the issue that the respondent Judge acted in excess of
jurisdiction or with grave abuse of discretion in refusing to dismiss, or at least suspend, the proceedings
a quo, despite the fact that the partys agreement to arbitrate had not been complied with. Notably, the
RTC found the existence of the arbitration clause, since it said in its decision that hardly disputed is the
fact that the arbitration clause in question contravenes several provisions of the Arbitration Law x x x
and to apply Section 7 of the Arbitration Law to such an agreement would result in the disregard of the
afore-cited sections of the Arbitration Law and render them useless and mere surplusages. However,
notwithstanding the finding that an arbitration agreement existed, the RTC denied petitioner's motion
and directed petitioner to file an answer.

In La Naval Drug Corporation v. Court of Appeals,[15] it was held that R.A. No. 876 explicitly
confines the courts authority only to the determination of whether or not there is an agreement in writing
providing for arbitration. In the affirmative, the statute ordains that the court shall issue an order
summarily directing the parties to proceed with the arbitration in accordance with the terms thereof. If
the court, upon the other hand, finds that no such agreement exists, the proceedings shall be dismissed.

In issuing the Order which denied petitioner's Motion to Dismiss/Suspend Proceedings and to
Refer Controversy to Voluntary Arbitration, the RTC went beyond its authority of determining only the
issue of whether or not there is an agreement in writing providing for arbitration by directing petitioner
to file an answer, instead of ordering the parties to proceed to arbitration. In so doing, it acted in excess
of its jurisdiction and since there is no plain, speedy, and adequate remedy in the ordinary course of law,
petitioners resort to a petition for certiorari is the proper remedy.

We now proceed to the substantive issue of whether the CA erred in finding that this case cannot
be brought under the arbitration law for the purpose of suspending the proceedings in the RTC.

We find merit in the petition.

Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in
our jurisdiction.[16] R.A. No. 876[17] authorizes arbitration of domestic disputes. Foreign arbitration, as a
system of settling commercial disputes of an international character, is likewise recognized. [18] The
enactment of R.A. No. 9285 on April 2, 2004 further institutionalized the use of alternative dispute
resolution systems, including arbitration, in the settlement of disputes.[19]

A contract is required for arbitration to take place and to be binding. [20] Submission to arbitration
is a contract [21] and a clause in a contract providing that all matters in dispute between the parties shall
be referred to arbitration is a contract.[22] The provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of the contract and is itself a contract.[23]
In this case, the contract sued upon by respondent provides for an arbitration clause, to wit:
 ARBITRATION

Any dispute which the Buyer and Seller may not be able to settle by mutual agreement
shall be settled by arbitration in the City of New York before the American Arbitration
Association, The Arbitration Award shall be final and binding on both parties.

The CA ruled that arbitration cannot be ordered in this case, since petitioner alleged that the contract
between the parties did not exist or was invalid and arbitration is not proper when one of the parties
repudiates the existence or validity of the contract. Thus, said the CA:

Notwithstanding our ruling on the validity and enforceability of the assailed arbitration
clause providing for foreign arbitration, it is our considered opinion that the case at bench
still cannot be brought under the Arbitration Law for the purpose of suspending the
proceedings before the trial court. We note that in its Motion to Dismiss/Suspend
Proceedings, etc, petitioner Cargill alleged, as one of the grounds thereof, that the alleged
contract between the parties do not legally exist or is invalid. As posited by petitioner, it is
their contention that the said contract, bearing the arbitration clause, was never
consummated by the parties. That being the case, it is but proper that such issue be first
resolved by the court through an appropriate trial. The issue involves a question of fact
that the trial court should first resolve.

Arbitration is not proper when one of the parties repudiates the existence or validity of
the contract. Apropos is Gonzales v. Climax Mining Ltd., 452 SCRA 607,
(G.R.No.161957), where the Supreme Court held that:

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....

Consequently, the petitioner herein cannot claim that the contract was never
consummated and, at the same time, invokes the arbitration clause provided for under the
contract which it alleges to be non-existent or invalid. Petitioner claims that private
respondent's complaint lacks a cause of action due to the absence of any valid contract
between the parties. Apparently, the arbitration clause is being invoked merely as a
fallback position. The petitioner must first adduce evidence in support of its claim that
there is no valid contract between them and should the court a quo find the claim to be
meritorious, the parties may then be spared the rigors and expenses that arbitration in a
foreign land would surely entail.[24]

However, the Gonzales case,[25] which the CA relied upon for not ordering arbitration, had been
modified upon a motion for reconsideration in this wise:

x x x The adjudication of the petition in G.R. No. 167994 effectively modifies part of
the Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that
the validity of the contract containing the agreement to submit to arbitration does
not affect the applicability of the arbitration clause itself. A contrary ruling would
suggest that a party's mere repudiation of the main contract is sufficient to avoid
arbitration. That is exactly the situation that the separability doctrine, as well as
jurisprudence applying it, seeks to avoid. We add that when it was declared in G.R. No.
161957 that the case should not be brought for arbitration, it should be clarified that the
case referred to is the case actually filed by Gonzales before the DENR Panel of
Arbitrators, which was for the nullification of the main contract on the ground of fraud, as
it had already been determined that the case should have been brought before the regular
courts involving as it did judicial issues.[26]
In so ruling that the validity of the contract containing the arbitration agreement does not affect the
applicability of the arbitration clause itself, we then applied the doctrine of separability, thus:

The doctrine of separability, or severability as other writers call it, enunciates that
an arbitration agreement is independent of the main contract. The arbitration agreement is
to be treated as a separate agreement and the arbitration agreement does not automatically
terminate when the contract of which it is a part comes to an end.

The separability of the arbitration agreement is especially significant to the determination

of whether the invalidity of the main contract also nullifies the arbitration clause. Indeed,
the doctrine denotes that the invalidity of the main contract, also referred to as the
"container" contract, does not affect the validity of the arbitration agreement. Irrespective
of the fact that the main contract is invalid, the arbitration clause/agreement still remains
valid and enforceable.[27]

Respondent argues that the separability doctrine is not applicable in petitioner's case, since in the
Gonzales case, Climax-Arimco sought to enforce the arbitration clause of its contract with Gonzales and
the former's move was premised on the existence of a valid contract; while Gonzales, who resisted the
move of Climax-Arimco for arbitration, did not deny the existence of the contract but merely assailed
the validity thereof on the ground of fraud and oppression. Respondent claims that in the case before Us,
petitioner who is the party insistent on arbitration also claimed in their Motion to Dismiss/Suspend
Proceedings that the contract sought by respondent to be rescinded did not exist or was not
consummated; thus, there is no room for the application of the separability doctrine, since there is no
container or main contract or an arbitration clause to speak of.
We are not persuaded.
Applying the Gonzales ruling, an arbitration agreement which forms part of the main contract
shall not be regarded as invalid or non-existent just because the main contract is invalid or did not come
into existence, since the arbitration agreement shall be treated as a separate agreement independent of
the main contract. To reiterate. a contrary ruling would suggest that a party's mere repudiation of the
main contract is sufficient to avoid arbitration and that is exactly the situation that the separability
doctrine sought to avoid. Thus, we find that even the party who has repudiated the main contract is not
prevented from enforcing its arbitration clause.

Moreover, it is worthy to note that respondent filed a complaint for rescission of contract and
damages with the RTC. In so doing, respondent alleged that a contract exists between respondent and
petitioner. It is that contract which provides for an arbitration clause which states that any dispute which
the Buyer and Seller may not be able to settle by mutual agreement shall be settled before the City of
New York by the American Arbitration Association. The arbitration agreement clearly expressed the
parties' intention that any dispute between them as buyer and seller should be referred to arbitration. It is
for the arbitrator and not the courts to decide whether a contract between the parties exists or is valid.

Respondent contends that assuming that the existence of the contract and the arbitration clause is
conceded, the CA's decision declining referral of the parties' dispute to arbitration is still correct. It
claims that its complaint in the RTC presents the issue of whether under the facts alleged, it is entitled to
rescind the contract with damages; and that issue constitutes a judicial question or one that requires the
exercise of judicial function and cannot be the subject of an arbitration proceeding. Respondent cites our
ruling in Gonzales, wherein we held that a panel of arbitrator is bereft of jurisdiction over the complaint
for declaration of nullity/or termination of the subject contracts on the grounds of fraud and oppression
attendant to the execution of the addendum contract and the other contracts emanating from it, and that
the complaint should have been filed with the regular courts as it involved issues which are judicial in
nature.

Such argument is misplaced and respondent cannot rely on the Gonzales case to support its argument.

In Gonzales, petitioner Gonzales filed a complaint before the Panel of Arbitrators, Region II, Mines and
Geosciences Bureau, of the Department of Environment and Natural Resources (DENR) against
respondents Climax- Mining Ltd, Climax-Arimco and Australasian Philippines Mining Inc, seeking the
declaration of nullity or termination of the addendum contract and the other contracts emanating from it
on the grounds of fraud and oppression. The Panel dismissed the complaint for lack of jurisdiction.
However, the Panel, upon petitioner's motion for reconsideration, ruled that it had jurisdiction over the
dispute maintaining that it was a mining dispute, since the subject complaint arose from a contract
between the parties which involved the exploration and exploitation of minerals over the disputed area.
Respondents assailed the order of the Panel of Arbitrators via a petition for certiorari before the CA.
The CA granted the petition and declared that the Panel of Arbitrators did not have jurisdiction over the
complaint, since its jurisdiction was limited to the resolution of mining disputes, such as those which
raised a question of fact or matter requiring the technical knowledge and experience of mining
authorities and not when the complaint alleged fraud and oppression which called for the interpretation
and application of laws. The CA further ruled that the petition should have been settled through
arbitration under R.A. No. 876 − the Arbitration Law − as provided under the addendum contract.

On a review on certiorari, we affirmed the CAs finding that the Panel of Arbitrators who, under R.A.
No. 7942 of the Philippine Mining Act of 1995, has exclusive and original jurisdiction to hear and
decide mining disputes, such as mining areas, mineral agreements, FTAAs or permits and surface
owners, occupants and claimholders/concessionaires, is bereft of jurisdiction over the complaint for
declaration of nullity of the addendum contract; thus, the Panels' jurisdiction is limited only to those
mining disputes which raised question of facts or matters requiring the technical knowledge and
experience of mining authorities. We then said:

In Pearson v. Intermediate Appellate Court, this Court observed that the trend has
been to make the adjudication of mining cases a purely administrative matter. Decisions 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.[28]

We found that since the complaint filed before the DENR Panel of Arbitrators charged
respondents with disregarding and ignoring the addendum contract, and acting in a fraudulent and
oppressive manner against petitioner, the complaint filed before the Panel was not a dispute involving
rights to mining areas, or was it a dispute involving claimholders or concessionaires, but essentially
judicial issues. We then said that the Panel of Arbitrators did not have jurisdiction over such issue, since
it does not involve the application of technical knowledge and expertise relating to mining. It is in this
context that we said that:

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.[29]

In fact, We even clarified in our resolution on Gonzales motion for reconsideration that when we
declared that the case should not be brought for arbitration, it should be clarified that the case referred to
is the case actually filed by Gonzales before the DENR Panel of Arbitrators, which was for the
nullification of the main contract on the ground of fraud, as it had already been determined that the case
should have been brought before the regular courts involving as it did judicial issues. We made such
clarification in our resolution of the motion for reconsideration after ruling that the parties in that case
can proceed to arbitration under the Arbitration Law, as provided under the Arbitration Clause in their
Addendum Contract.

WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2006 and the Resolution
dated November 13, 2006 of the Court of Appeals in CA-G.R. SP No. 50304 are REVERSED and SET
ASIDE. The parties are hereby ORDERED to SUBMIT themselves to the arbitration of their dispute,
pursuant to their July 11, 1996 agreement.

SO ORDERED.

[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]
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 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 certioraribecause 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.

[G.R. No. 126212. March 2, 2000]

SEA-LAND SERVICE, INC., petitioner, vs. COURT OF APPEALS, A.P. MOLLER/MAERSK

LINE and MAERSK-TABACALERA SHIPPING AGENCY (FILIPINAS), INC., respondents.

DECISION

YNARES-SANTIAGO, J.:
This petition for review on certiorari seeks to annul and set aside the decision of the Court of Appeals
dated September 29, 1995 in CA-G.R. SP No. 35777,[1] dismissing the petition for certiorari filed by
petitioner to annul the two (2) orders issued by the Regional Trial Court of Quezon City, Branch 216, in
Civil Case No. Q-92-12593.

The facts are as follows:

On April 29, 1991, petitioner Sea-Land Services, Inc. and private respondent A.P. Moller/Maersk Line
(hereinafter referred to as "AMML"), both carriers of cargo in containerships as well as common
carriers, entered into a contract entitled, "Co-operation in the Pacific"[2] (hereinafter referred to as the
"Agreement"), a vessel sharing agreement whereby they mutually agreed to purchase, share and
exchange needed space for cargo in their respective containerships. Under the Agreement, they could be,
depending on the occasion, either a principal carrier (with a negotiable bill of lading or other contract of
carriage with respect to cargo) or a containership operator (owner, operator or charterer of containership
on which the cargo is carried).

During the lifetime of the said Agreement, or on 18 May 1991, Florex International, Inc. (hereinafter
referred to as "Florex") delivered to private respondent AMML cargo of various foodstuffs, with
Oakland, California as port of discharge and San Francisco as place of delivery. The corresponding Bill
of Lading No. MAEU MNL110263 was issued to Florex by respondent AMML. Pursuant to the
Agreement, respondent AMML loaded the subject cargo on MS Sealand Pacer, a vessel owned by
petitioner. Under this arrangement, therefore, respondent AMML was the principal carrier while
petitioner was the containership operator.

The consignee refused to pay for the cargo, alleging that delivery thereof was delayed. Thus, on June 26,
1992, Florex filed a complaint against respondent Maersk-Tabacalera Shipping Agency (Filipinas), Inc.
for reimbursement of the value of the cargo and other charges.[3] According to Florex, the cargo was
received by the consignee only on June 28, 1991, since it was discharged in Long Beach, California,
instead of in Oakland, California on June 5, 1991 as stipulated.

Respondent AMML filed its Answer[4] alleging that even on the assumption that Florex was entitled to
reimbursement, it was petitioner who should be liable. Accordingly, respondent AMML filed a Third
Party Complaint[5] against petitioner on November 10, 1992, averring that whatever damages sustained
by Florex were caused by petitioner, which actually received and transported Florexs cargo on its vessels
and unloaded them.

On January 1, 1993, petitioner filed a Motion to Dismiss the Third Party Complaint[6] on the ground of
failure to state a cause of action and lack of jurisdiction, the amount of damages not having been
specified therein. Petitioner also prayed either for dismissal or suspension of the Third Party Complaint
on the ground that there exists an arbitration agreement between it and respondent AMML. On
September 27, 1993, the lower court issued an Order denying petitioners Motion to Dismiss. Petitioners
Motion for Reconsideration was likewise denied by the lower court in its August 22, 1994 Order.

Undaunted, petitioner filed a petition for certiorari[7] with the Court of Appeals on November 23, 1994.
Meanwhile, petitioner also filed its Answer to the Third Party Complaint in the trial court.

On September 29, 1995, respondent Court of Appeals rendered the assailed Decision dismissing the
petition for certiorari. With the denial of its Motion for Reconsideration, petitioner filed the instant
petition for review, raising the following issues

I.

THE COURT OF APPEALS DISREGARDED AN AGREEMENT TO ARBITRATE IN

VIOLATION OF STATUTE AND SUPREME COURT DECISIONS HOLDING THAT
ARBITRATION IS A CONDITION PRECEDENT TO SUIT WHERE SUCH AN
AGREEMENT TO ARBITRATE EXISTS.

II.

THE COURT OF APPEALS HAS RULED IN A MANNER NOT IN ACCORD WITH

JURISPRUDENCE WHEN IT REFUSED TO HAVE THE THIRD-PARTY
COMPLAINT DISMISSED FOR FAILURE TO STATE A CAUSE OF ACTION AND
 FOR RULING THAT THE FAILURE TO STATE A CAUSE OF ACTION MAY BE
REMEDIED BY REFERENCE TO ITS ATTACHMENTS.[8]

Resolving first the issue of failure to state a cause of action, respondent Court of Appeals did not err in
reading the Complaint of Florex and respondent AMMLs Answer together with the Third Party
Complaint to determine whether a cause of action is properly alleged. In Fil-Estate Golf and
Development, Inc. vs. Court of Appeals,[9] this Court ruled that in the determination of whether or not the
complaint states a cause of action, the annexes attached to the complaint may be considered, they being
parts of the complaint.

Coming now to the main issue of arbitration, the pertinent clauses of the "Co-operation in the Pacific"
contract entered into by the parties provide:

16.2 For the purposes of this agreement the Containership Operator shall be deemed to
have issued to the Principal Carrier for good consideration and for both loaded and empty
containers its non-negotiable memo bills of lading in the form attached hereto as
Appendix 6, consigned only to the Principal Carrier or its agents, provisions of which
shall govern the liability between the Principal Carrier and the Containership Operator
and that for the purpose of determining the liability in accordance with either Lines
memo bill of lading, the number of packages or customary freight units shown on the bill
of lading issued by the Principal Carrier to its shippers shall be controlling.

16.3 The Principal Carrier shall use all reasonable endeavours to defend all in personam
and in rem suits for loss of or damage to cargo carried pursuant to bills of lading issued
by it, or to settle such suits for as low a figure as reasonably possible. The Principal
Carrier shall have the right to seek damages and/or an indemnity from the
Containership Operator by arbitration pursuant to Clause 32 hereof.
Notwithstanding the provisions of the Lines memo bills of lading or any statutory rules
incorporated therein or applicable thereto, the Principal Carrier shall be entitled to
commence such arbitration at any time until one year after its liability has been
finally determined by agreement, arbitration award or judgment, such award or
judgment not being the subject of appeal, provided that the Containership Operator
has been given notice of the said claim in writing by the Principal Carrier within
three months of the Principal Carrier receiving notice in writing of the claim.
Further the Principal Carrier shall have the right to grant extensions of time for the
commencement of suit to any third party interested in the cargo without prior reference to
the Containership Operator provided that notice of any extension so granted is given to
the Containership Operator within 30 days of any such extension being granted.

xxxxxxxxx

32. ARBITRATION

32.1 If at any time a dispute or claim arises out of or in connection with the Agreement
the Lines shall endeavour to settle such amicably, failing which it shall be referred to
arbitration by a single arbitrator in London, such arbitrator to be appointed by agreement
between the Lines within 14 days after service by one Line upon the other of a notice
specifying the nature of the dispute or claim and requiring reference of such dispute or
claim to arbitration pursuant to this Article.

32.2 Failing agreement upon an arbitrator within such period of 14 days, the dispute shall
be settled by three Arbitrators, each party appointing one Arbitrator, the third being
appointed by the President of the London Maritime Arbitrators Association.

32.3 If either of the appointed Arbitrators refuses or is incapable of acting, the party who
appointed him shall appoint a new Arbitrator in his place.

32.4 If one of the parties fails to appoint an Arbitrator either originally or by way of
substitution for two weeks after the other party having appointed his Arbitrator has sent
the party making default notice by mail, fax or telex to make the appointment, the party
appointing the third Arbitrator shall, after application from the party having appointed his
Arbitrator, also appoint an Arbitrator in behalf of the party making default.
 32.5 Any such arbitration shall be in accordance with the Arbitration Act 1950 as
amended by the Arbitration Act 1979 or any other subsequent legislation and the
arbitrators award shall be final and binding upon Lines. To the extent permitted by the
Arbitration Act 1979 the Lines hereto exclude pursuant to S 3(1) of that Act the
jurisdiction of the English High Court of Justice to entertain any appeal or application
under Section 1 and 2 of the Arbitration Act 1979.[10]

From the foregoing, the following matters are clear: First, disputes between the Principal Carrier and the
Containership Operator arising from contracts of carriage shall be governed by the provisions of the bills
of lading issued to the Principal Carrier by the Containership Operator. Second, the Principal Carrier
shall use its best efforts to defend or settle all suits against it for loss of or damage to cargo pursuant to
bills of lading issued by it. Third, the Principal Carrier shall have the right to seek damages and/or
indemnity from the Containership Operator by arbitration, pursuant to Clause 32 of the agreement.
Fourth, the Principal Carrier shall have the right to commence such arbitration any time until one year
after its liability has been finally determined by agreement, arbitration award or judgment, provided that
the Containership Operator was given notice in writing by the Principal Carrier within three months of
the Principal Carrier receiving notice in writing of said claim.

Prescinding from the foregoing matters, we find that both the trial court and the Court of Appeals erred
in denying petitioners prayer for arbitration.

To begin with, allowing respondent AMMLs Third Party Claim against petitioner to proceed would be in
violation of Clause 16.2 of the Agreement. As summarized, the clause provides that whatever dispute
there may be between the Principal Carrier and the Containership Operator arising from contracts of
carriage shall be governed by the provisions of the bills of lading deemed issued to the Principal Carrier
by the Containership Operator. On the other hand, to sustain the Third Party Complaint would be to
allow private respondent to hold petitioner liable under the provisions of the bill of lading issued by the
Principal Carrier to Florex, under which the latter is suing in its Complaint, not under the bill of lading
petitioner, as containership operator, issued to respondent AMML, as Principal Carrier, contrary to what
is contemplated in Clause 16.2.

The Court of Appeals ruled that the terms of the Agreement "explicitly required that the principal
carriers claim against the containership operator first be finally determined by, among others, a court
judgment, before the right to arbitration accrues." However, the Court of Appeals failed to consider that,
precisely, arbitration is the mode by which the liability of the Containership Operator may be finally
determined. This is clear from the mandate of Clause 16.3 that "(T)he Principal Carrier shall have the
right to seek damages and/or an indemnity from the Containership Operator by arbitration" and that it
"shall be entitled to commence such arbitration at any time until one yearafter its liability has been
finally determined by agreement, arbitration award or judgment".

For respondent Court of Appeals to say that the terms of the contract do not require arbitration as a
condition precedent to judicial action is erroneous. In the light of the Agreement clauses aforequoted, it
is clear that arbitration is the mode provided by which respondent AMML as Principal Carrier can seek
damages and/or indemnity from petitioner, as Containership Operator. Stated differently, respondent
AMML is barred from taking judicial action against petitioner by the clear terms of their Agreement.

As the Principal Carrier with which Florex directly dealt with, respondent AMML can and should be
held accountable by Florex in the event that it has a valid claim against the former. Pursuant to Clause
16.3 of the Agreement, respondent AMML, when faced with such a suit "shall use all reasonable
endeavours to defend" itself or "settle such suits for as low a figure as reasonably possible". In turn,
respondent AMML can seek damages and/or indemnity from petitioner as Containership Operator for
whatever final judgment may be adjudged against it under the Complaint of Florex. The crucial point is
that collection of said damages and/or indemnity from petitioner should be by arbitration.

All told, when the text of a contract is explicit and leaves no doubt as to its intention, the court may not
read into it any other intention that would contradict its plain import.[11] Arbitration being the mode of
settlement between the parties expressly provided for by their Agreement, the Third Party Complaint
should have been dismissed.

This Court has previously held that arbitration is one of the alternative methods of dispute resolution that
is now rightfully vaunted as "the wave of the future" in international relations, and 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.[12]

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is GRANTED. The
decision of the Court of Appeals in CA-G.R. SP No. 35777 is REVERSED and SET ASIDE. The
Regional Trial Court of Quezon City, Branch 77, is ordered to DISMISS Respondent AMMLs Third
Party Complaint in Civil Case No. Q-92-12593. No pronouncement as to costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.
 [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, orthe 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. 135362. December 13, 1999]

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, vs. LAPERAL REALTY CORPORATION,
ROCKWAY REAL ESTATE CORPORATION, SOUTH RIDGE VILLAGE, INC.,
MAHARAMI DEVELOPMENT CORPORATION, Spouses THELMA D. ABRAJANO
and GREGORIO ABRAJANO, OSCAR DACILLO, Spouses VIRGINIA D. LAVA and
RODEL LAVA, EDUARDO A. VACUNA, FLORANTE DE LA CRUZ, JESUS VICENTE
B. CAPELLAN, and the REGISTER OF DEEDS FOR LIPA CITY, respondents.

DECISION
DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Order[1] of Branch 85 of the 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.
Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

G.R. No. 198075 September 4, 2013

KOPPEL, INC. (formerly known as KPL AIRCON, INC.), Petitioner,

vs.
MAKATI ROTARY CLUB FOUNDATION, INC., Respondent.

DECISION

PEREZ, J.:

This case is an appeal1 from the Decision2 dated 19 August 2011 of the Court of Appeals in C.A.-G.R.
SP No. 116865.
The facts:

The Donation

Fedders Koppel, Incorporated (FKI), a manufacturer of air-conditioning products, was the registered
owner of a parcel of land located at Km. 16, South Superhighway, Parañaque City (subject land). 3
Within the subject land are buildings and other improvements dedicated to the business of FKI.4

In 1975, FKI5 bequeathed the subject land (exclusive of the improvements thereon) in favor of herein
respondent Makati Rotary Club Foundation, Incorporated by way of a conditional donation. 6 The
respondent accepted the donation with all of its conditions. 7 On 26 May1975, FKI and the respondent
executed a Deed of Donation8evidencing their consensus.

The Lease and the Amended Deed of Donation

One of the conditions of the donation required the respondent to lease the subject land back to FKI under
terms specified in their Deed of Donation.9 With the respondent’s acceptance of the donation, a lease
agreement between FKI and the respondent was, therefore, effectively incorporated in the Deed of
Donation.

Pertinent terms of such lease agreement, as provided in the Deed of Donation , were as follows:

1. The period of the lease is for twenty-five (25) years,10 or until the 25th of May 2000;

2. The amount of rent to be paid by FKI for the first twenty-five (25) years is ₱40,126.00 per annum
.11

The Deed of Donation also stipulated that the lease over the subject property is renewable for another
period of twenty-five (25) years " upon mutual agreement" of FKI and the respondent. 12 In which case,
the amount of rent shall be determined in accordance with item 2(g) of the Deed of Donation, viz:

g. The rental for the second 25 years shall be the subject of mutual agreement and in case of
disagreement the matter shall be referred to a Board of three Arbitrators appointed and with powers in
accordance with the Arbitration Law of the Philippines, Republic Act 878, whose function shall be to
decide the current fair market value of the land excluding the improvements, provided, that, any increase
in the fair market value of the land shall not exceed twenty five percent (25%) of the original value of
the land donated as stated in paragraph 2(c) of this Deed. The rental for the second 25 years shall not
exceed three percent (3%) of the fair market value of the land excluding the improvements as
determined by the Board of Arbitrators.13

In October 1976, FKI and the respondent executed an Amended Deed of Donation 14 that reiterated the
provisions of the Deed of Donation , including those relating to the lease of the subject land.

Verily, by virtue of the lease agreement contained in the Deed of Donation and Amended Deed of
Donation , FKI was able to continue in its possession and use of the subject land.

2000 Lease Contract

Two (2) days before the lease incorporated in the Deed of Donation and Amended Deed of Donation was
set to expire, or on 23 May 2000, FKI and respondent executed another contract of lease ( 2000 Lease
Contract )15covering the subject land. In this 2000 Lease Contract, FKI and respondent agreed on a new
five-year lease to take effect on the 26th of May 2000, with annual rents ranging from ₱4,000,000 for
the first year up to ₱4,900,000 for the fifth year. 16 The 2000 Lease Contract also contained an arbitration
clause enforceable in the event the parties come to disagreement about the" interpretation, application
and execution" of the lease, viz :

19. Governing Law – The provisions of this 2000 Lease Contract shall be governed, interpreted and
construed in all aspects in accordance with the laws of the Republic of the Philippines.

Any disagreement as to the interpretation, application or execution of this 2000 Lease Contract shall be
submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of the
Philippines. The decision of the majority of the arbitrators shall be binding upon FKI and respondent. 17
(Emphasis supplied)

2005 Lease Contract

After the 2000 Lease Contract expired, FKI and respondent agreed to renew their lease for another five
(5) years. This new lease (2005 Lease Contract ) 18 required FKI to pay a fixed annual rent of
₱4,200,000.19 In addition to paying the fixed rent, however, the 2005 Lease Contract also obligated FKI
to make a yearly " donation " of money to the respondent.20 Such donations ranged from ₱3,000,000 for
the first year up to ₱3,900,000for the fifth year. 21Notably, the 2005 Lease Contract contained an
arbitration clause similar to that in the 2000 Lease Contract, to wit:

19. Governing Law – The provisions of this 2005 Lease Contract shall be governed, interpreted and
construed in all aspects in accordance with the laws of the Republic of the Philippines.

Any disagreement as to the interpretation, application or execution of this 2005 Lease Contract shall be
submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of the
Philippines. The decision of the majority of the arbitrators shall be binding upon FKI and respondent. 22
(Emphasis supplied)

The Assignment and Petitioner’s Refusal to Pay

From 2005 to 2008, FKI faithfully paid the rentals and " donations "due it per the 2005 Lease Contract. 23
But in June of 2008, FKI sold all its rights and properties relative to its business in favor of herein
petitioner Koppel, Incorporated.24 On 29 August 2008, FKI and petitioner executed an Assignment and
Assumption of Lease and Donation 25 —wherein FKI, with the conformity of the respondent, formally
assigned all of its interests and obligations under the Amended Deed of Donation and the 2005 Lease
Contract in favor of petitioner.

The following year, petitioner discontinued the payment of the rent and " donation " under the 2005
Lease Contract.

Petitioner’s refusal to pay such rent and "donation " emanated from its belief that the rental stipulations
of the 2005 Lease Contract, and even of the 2000 Lease Contract, cannot be given effect because they
violated one of the" material conditions " of the donation of the subject land, as stated in the Deed of
Donation and Amended Deed of Donation.26

According to petitioner, the Deed of Donation and Amended Deed of Donation actually established not
only one but two (2) lease agreements between FKI and respondent, i.e. , one lease for the first twenty-
five (25)years or from 1975 to 2000, and another lease for the next twenty-five (25)years thereafter or
from 2000 to 2025. 27 Both leases are material conditions of the donation of the subject land.

Petitioner points out that while a definite amount of rent for the second twenty-five (25) year lease was
not fixed in the Deed of Donation and Amended Deed of Donation , both deeds nevertheless prescribed
rules and limitations by which the same may be determined. Such rules and limitations ought to be
observed in any succeeding lease agreements between petitioner and respondent for they are, in
themselves, material conditions of the donation of the subject land.28

In this connection, petitioner cites item 2(g) of the Deed of Donation and Amended Deed of Donation
that supposedly limits the amount of rent for the lease over the second twenty-five (25) years to only "
three percent (3%) of the fair market value of the subject land excluding the improvements.29

For petitioner then, the rental stipulations of both the 2000 Lease Contract and 2005 Lease Contract
cannot be enforced as they are clearly, in view of their exorbitant exactions, in violation of the
aforementioned threshold in item 2(g) of the Deed of Donation and Amended Deed of Donation .
Consequently, petitioner insists that the amount of rent it has to pay thereon is and must still be governed
by the limitations prescribed in the Deed of Donation and Amended Deed of Donation.30

The Demand Letters

On 1 June 2009, respondent sent a letter (First Demand Letter) 31 to petitioner notifying the latter of its
default " per Section 12 of the 2005 Lease Contract " and demanding for the settlement of the rent and "
donation " due for the year 2009. Respondent, in the same letter, further intimated of canceling the 2005
Lease Contract should petitioner fail to settle the said obligations. 32 Petitioner received the First Demand
Letter on2 June 2009.33

On 22 September 2009, petitioner sent a reply34 to respondent expressing its disagreement over the
rental stipulations of the 2005 Lease Contract — calling them " severely disproportionate,"
"unconscionable" and "in clear violation to the nominal rentals mandated by the Amended Deed of
Donation." In lieu of the amount demanded by the respondent, which purportedly totaled to
₱8,394,000.00, exclusive of interests, petitioner offered to pay only ₱80,502.79, 35 in accordance with the
rental provisions of the Deed of Donation and Amended Deed of Donation. 36Respondent refused this
offer.37

On 25 September 2009, respondent sent another letter (Second Demand Letter)38 to petitioner, reiterating
its demand for the payment of the obligations already due under the 2005 Lease Contract. The Second
Demand Letter also contained a demand for petitioner to " immediately vacate the leased premises "
should it fail to pay such obligations within seven (7) days from its receipt of the letter. 39 The respondent
warned of taking " legal steps " in the event that petitioner failed to comply with any of the said
demands.40 Petitioner received the Second Demand Letter on 26September 2009.41

Petitioner refused to comply with the demands of the respondent. Instead, on 30 September 2009,
petitioner filed with the Regional Trial Court (RTC) of Parañaque City a complaint 42 for the rescission or
cancellation of the Deed of Donation and Amended Deed of Donation against the respondent. This case
is currently pending before Branch 257 of the RTC, docketed as Civil Case No. CV 09-0346.

The Ejectment Suit

On 5 October 2009, respondent filed an unlawful detainer case 43 against the petitioner before the
Metropolitan Trial Court (MeTC) of Parañaque City. The ejectment case was raffled to Branch 77 and
was docketed as Civil Case No. 2009-307.

On 4 November 2009, petitioner filed an Answer with Compulsory Counterclaim. 44 In it, petitioner
reiterated its objection over the rental stipulations of the 2005 Lease Contract for being violative of the
material conditions of the Deed of Donation and Amended Deed of Donation. 45 In addition to the
foregoing, however, petitioner also interposed the following defenses:

1. The MeTC was not able to validly acquire jurisdiction over the instant unlawful detainer case in
view of the insufficiency of respondent’s demand. 46 The First Demand Letter did not contain an
actual demand to vacate the premises and, therefore, the refusal to comply there with does not give
rise to an action for unlawful detainer.47

2. Assuming that the MeTC was able to acquire jurisdiction, it may not exercise the same until the
disagreement between the parties is first referred to arbitration pursuant to the arbitration clause of
the 2005 Lease Contract.48

3. Assuming further that the MeTC has jurisdiction that it can exercise, ejectment still would not lie
as the 2005 Lease Contract is void abinitio. 49 The stipulation in the 2005 Lease Contract requiring
petitioner to give yearly " donations " to respondent is a simulation, for they are, in fact, parts of the
rent. 50 Such grants were only denominated as " donations " in the contract so that the respondent—
anon-stock and non-profit corporation—could evade payment of the taxes otherwise due thereon.51

In due course, petitioner and respondent both submitted their position papers, together with their other
documentary evidence.52 Remarkably, however, respondent failed to submit the Second Demand Letter
as part of its documentary evidence.

Rulings of the MeTC, RTC and Court of Appeals

On 27 April 2010, the MeTC rendered judgment53 in favor of the petitioner. While the MeTC refused to
dismiss the action on the ground that the dispute is subject to arbitration, it nonetheless sided with the
petitioner with respect to the issues regarding the insufficiency of the respondent’s demand and the
nullity of the 2005 Lease Contract.54 The MeTC thus disposed:

WHEREFORE, judgment is hereby rendered dismissing the case x x x, without pronouncement as to

costs.
SO ORDERED.55

The respondent appealed to the Regional Trial Court (RTC). This appeal was assigned to Branch 274 of
the RTC of Parañaque City and was docketed as Civil Case No. 10-0255.

On 29 October 2010, the RTC reversed 56 the MeTC and ordered the eviction of the petitioner from the
subject land:

WHEREFORE, all the foregoing duly considered, the appealed Decision of the Metropolitan Trial
Court, Branch 77, Parañaque City, is hereby reversed, judgment is thus rendered in favor of the plaintiff-
appellant and against the defendant-appellee, and ordering the latter –

(1) to vacate the lease[d] premises made subject of the case and to restore the possession thereof to
the plaintiff-appellant;

(2) to pay to the plaintiff-appellant the amount of Nine Million Three Hundred Sixty Two Thousand
Four Hundred Thirty Six Pesos (₱9,362,436.00), penalties and net of 5% withholding tax, for the
lease period from May 25, 2009 to May 25, 2010 and such monthly rental as will accrue during the
pendency of this case;

(3) to pay attorney’s fees in the sum of ₱100,000.00 plus appearance fee of ₱3,000.00;

(4) and costs of suit.

As to the existing improvements belonging to the defendant-appellee, as these were built in good faith,
the provisions of Art. 1678of the Civil Code shall apply.

SO ORDERED.57

The ruling of the RTC is premised on the following ratiocinations:

1. The respondent had adequately complied with the requirement of demand as a jurisdictional
precursor to an unlawful detainer action.58 The First Demand Letter, in substance, contains a
demand for petitioner to vacate when it mentioned that it was a notice " per Section12 of the 2005
Lease Contract."59 Moreover, the issue of sufficiency of the respondent’s demand ought to have been
laid to rest by the Second Demand Letter which, though not submitted in evidence, was nonetheless
admitted by petitioner as containing a" demand to eject " in its Answer with Compulsory
Counterclaim.60

2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contract while, at
the same time, impugn such contract’s validity.61 Even assuming that it can, petitioner still did not
file a formal application before the MeTC so as to render such arbitration clause operational. 62 At
any rate, the MeTC would not be precluded from exercising its jurisdiction over an action for
unlawful detainer, over which, it has exclusive original jurisdiction.63

3. The 2005 Lease Contract must be sustained as a valid contract since petitioner was not able to
adduce any evidence to support its allegation that the same is void. 64 There was, in this case, no
evidence that respondent is guilty of any tax evasion.65

Aggrieved, the petitioner appealed to the Court of Appeals.

On 19 August 2011, the Court of Appeals affirmed66 the decision of the RTC:

WHEREFORE , the petition is DENIED . The assailed Decision of the Regional Trial Court of
Parañaque City, Branch 274, in Civil Case No. 10-0255 is AFFIRMED.

xxxx

SO ORDERED.67

Hence, this appeal.

On 5 September 2011, this Court granted petitioner’s prayer for the issuance of a Temporary Restraining
Order68staying the immediate implementation of the decisions adverse to it.

OUR RULING

Independently of the merits of the case, the MeTC, RTC and Court of Appeals all erred in overlooking
the significance of the arbitration clause incorporated in the 2005 Lease Contract . As the Court sees it,
that is a fatal mistake.

For this reason, We grant the petition.

Present Dispute is Arbitrable Under the

Arbitration Clause of the 2005 Lease
Agreement Contract

Going back to the records of this case, it is discernable that the dispute between the petitioner and
respondent emanates from the rental stipulations of the 2005 Lease Contract. The respondent insists
upon the enforce ability and validity of such stipulations, whereas, petitioner, in substance, repudiates
them. It is from petitioner’s apparent breach of the 2005 Lease Contract that respondent filed the instant
unlawful detainer action.

One cannot escape the conclusion that, under the foregoing premises, the dispute between the petitioner
and respondent arose from the application or execution of the 2005 Lease Contract . Undoubtedly, such
kinds of dispute are covered by the arbitration clause of the 2005 Lease Contract to wit:

19. Governing Law – The provisions of this 2005 Lease Contract shall be governed, interpreted and
construed in all aspects in accordance with the laws of the Republic of the Philippines.

Any disagreement as to the interpretation, application or execution of this 2005 Lease Contract shall be
submitted to a board of three (3) arbitrators constituted in accordance with the arbitration law of the
Philippines. The decision of the majority of the arbitrators shall be binding upon FKI and respondent. 69
(Emphasis supplied)

The arbitration clause of the 2005 Lease Contract stipulates that "any disagreement" as to the "
interpretation, application or execution " of the 2005 Lease Contract ought to be submitted to
arbitration.70 To the mind of this Court, such stipulation is clear and is comprehensive enough so as to
include virtually any kind of conflict or dispute that may arise from the 2005 Lease Contract including
the one that presently besets petitioner and respondent.

The application of the arbitration clause of the 2005 Lease Contract in this case carries with it certain
legal effects. However, before discussing what these legal effects are, We shall first deal with the
challenges posed against the application of such arbitration clause.

Challenges Against the Application of the

Arbitration Clause of the 2005 Lease
Contract

Curiously, despite the lucidity of the arbitration clause of the 2005 Lease Contract, the petitioner, as well
as the MeTC, RTC and the Court of Appeals, vouched for the non-application of the same in the instant
case. A plethora of arguments was hurled in favor of bypassing arbitration. We now address them.

At different points in the proceedings of this case, the following arguments were offered against the
application of the arbitration clause of the 2005 Lease Contract:

1. The disagreement between the petitioner and respondent is non-arbitrable as it will inevitably
touch upon the issue of the validity of the 2005 Lease Contract. 71 It was submitted that one of the
reasons offered by the petitioner in justifying its failure to pay under the 2005 Lease Contract was
the nullity of such contract for being contrary to law and public policy. 72 The Supreme Court, in
Gonzales v. Climax Mining, Ltd.,73 held that " the validity of contract cannot be subject of
arbitration proceedings " as such questions are " legal in nature and require the application and
interpretation of laws and jurisprudence which is necessarily a judicial function ." 74
 2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contract while, at
the same time, impugn such contract’s validity.75

3. Even assuming that it can invoke the arbitration clause whilst denying the validity of the 2005
Lease Contract , petitioner still did not file a formal application before the MeTC so as to render
such arbitration clause operational.76 Section 24 of Republic Act No. 9285 requires the party seeking
arbitration to first file a " request " or an application therefor with the court not later than the
preliminary conference.77

4. Petitioner and respondent already underwent Judicial Dispute Resolution (JDR) proceedings
before the RTC.78 Hence, a further referral of the dispute to arbitration would only be circuitous. 79
Moreover, an ejectment case, in view of its summary nature, already fulfills the prime purpose of
arbitration, i.e. , to provide parties in conflict with an expedient method for the resolution of their
dispute.80 Arbitration then would no longer be necessary in this case.81

None of the arguments have any merit.

First. As highlighted in the previous discussion, the disagreement between the petitioner and respondent
falls within the all-encompassing terms of the arbitration clause of the 2005 Lease Contract. While it
may be conceded that in the arbitration of such disagreement, the validity of the 2005 Lease Contract, or
at least, of such contract’s rental stipulations would have to be determined, the same would not render
such disagreement non-arbitrable. The quotation from Gonzales that was used to justify the contrary
position was taken out of context. A rereading of Gonzales would fix its relevance to this case.

In Gonzales, a complaint for arbitration was filed before the Panel of Arbitrators of the Mines and
Geosciences Bureau (PA-MGB) seeking the nullification of a Financial Technical Assistance Agreement
and other mining related agreements entered into by private parties.82

Grounds invoked for the nullification of such agreements include fraud and unconstitutionality. 83 The
pivotal issue that confronted the Court then was whether the PA-MGB has jurisdiction over that
particular arbitration complaint. Stated otherwise, the question was whether the complaint for arbitration
raises arbitrable issues that the PA-MGB can take cognizance of.

Gonzales decided the issue in the negative. In holding that the PA-MGB was devoid of any jurisdiction
to take cognizance of the complaint for arbitration, this Court pointed out to the provisions of R.A. No.
7942, or the Mining Act of 1995, which granted the PA-MGB with exclusive original jurisdiction only
over mining disputes, i.e., disputes involving " rights to mining areas," "mineral agreements or permits,"
and " surface owners, occupants, claim holders or concessionaires" requiring the technical knowledge
and experience of mining authorities in order to be resolved. 84 Accordingly, since the complaint for
arbitration in Gonzales did not raise mining disputes as contemplated under R.A. No. 7942 but only
issues relating to the validity of certain mining related agreements, this Court held that such complaint
could not be arbitrated before the PA-MGB.85 It is in this context that we made the pronouncement now
in discussion:

Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the
parties as to some provisions of the contract between them, which needs the interpretation and the
application of that particular knowledge and expertise possessed by members of that Panel. It is not
proper when one of the parties repudiates the existence or validity of such contract or agreement on the
ground of fraud or oppression as in this case. The validity of the contract cannot be subject of arbitration
proceedings. Allegations of fraud and duress in the execution of a contract are matters within the
jurisdiction of the ordinary courts of law. These questions are legal in nature and require the application
and interpretation of laws and jurisprudence which is necessarily a judicial function. 86(Emphasis
supplied)

The Court in Gonzales did not simply base its rejection of the complaint for arbitration on the ground
that the issue raised therein, i.e. , the validity of contracts, is per se non-arbitrable. The real consideration
behind the ruling was the limitation that was placed by R.A. No. 7942 upon the jurisdiction of the PA-
MGB as an arbitral body . Gonzales rejected the complaint for arbitration because the issue raised
therein is not a mining dispute per R.A. No. 7942 and it is for this reason, and only for this reason, that
such issue is rendered non-arbitrable before the PA-MGB. As stated beforehand, R.A. No. 7942 clearly
limited the jurisdiction of the PA-MGB only to mining disputes.87
Much more instructive for our purposes, on the other hand, is the recent case of Cargill Philippines, Inc.
v. San Fernando Regal Trading, Inc. 88 In Cargill , this Court answered the question of whether issues
involving the rescission of a contract are arbitrable. The respondent in Cargill argued against
arbitrability, also citing therein Gonzales . After dissecting Gonzales , this Court ruled in favor of
arbitrability.89 Thus, We held:

Respondent contends that assuming that the existence of the contract and the arbitration clause is
conceded, the CA's decision declining referral of the parties' dispute to arbitration is still correct. It
claims that its complaint in the RTC presents the issue of whether under the facts alleged, it is entitled to
rescind the contract with damages; and that issue constitutes a judicial question or one that requires the
exercise of judicial function and cannot be the subject of an arbitration proceeding. Respondent cites our
ruling in Gonzales, wherein we held that a panel of arbitrator is bereft of jurisdiction over the complaint
for declaration of nullity/or termination of the subject contracts on the grounds of fraud and oppression
attendant to the execution of the addendum contract and the other contracts emanating from it, and that
the complaint should have been filed with the regular courts as it involved issues which are judicial in
nature.

Such argument is misplaced and respondent cannot rely on the Gonzales case to support its
argument.90(Emphasis ours)

Second. Petitioner may still invoke the arbitration clause of the 2005 Lease Contract notwithstanding the
fact that it assails the validity of such contract. This is due to the doctrine of separability.91

Under the doctrine of separability, an arbitration agreement is considered as independent of the main
contract.92Being a separate contract in itself, the arbitration agreement may thus be invoked regardless of
the possible nullity or invalidity of the main contract.93

Once again instructive is Cargill, wherein this Court held that, as a further consequence of the doctrine
of separability, even the very party who repudiates the main contract may invoke its arbitration clause.94

Third . The operation of the arbitration clause in this case is not at all defeated by the failure of the
petitioner to file a formal "request" or application therefor with the MeTC. We find that the filing of a
"request" pursuant to Section 24 of R.A. No. 9285 is not the sole means by which an arbitration clause
may be validly invoked in a pending suit.

Section 24 of R.A. No. 9285 reads:

SEC. 24. Referral to Arbitration . - A court before which an action is brought in a matter which is the
subject matter of an arbitration agreement shall, if at least one party so requests not later that the pre-trial
conference, or upon the request of both parties thereafter, refer the parties to arbitration unless it finds
that the arbitration agreement is null and void, inoperative or incapable of being performed. [Emphasis
ours; italics original]

The " request " referred to in the above provision is, in turn, implemented by Rules 4.1 to 4.3 of A.M.
No. 07-11-08-SC or the Special Rules of Court on Alternative Dispute Resolution (Special ADR Rules):

RULE 4: REFERRAL TO ADR

Rule 4.1. Who makes the request. - A party to a pending action filed in violation of the arbitration
agreement, whether contained in an arbitration clause or in a submission agreement, may request the
court to refer the parties to arbitration in accordance with such agreement.

Rule 4.2. When to make request. - (A) Where the arbitration agreement exists before the action is filed .
- The request for referral shall be made not later than the pre-trial conference. After the pre-trial
conference, the court will only act upon the request for referral if it is made with the agreement of all
parties to the case.

(B) Submission agreement . - If there is no existing arbitration agreement at the time the case is filed but
the parties subsequently enter into an arbitration agreement, they may request the court to refer their
dispute to arbitration at any time during the proceedings.

Rule 4.3. Contents of request. - The request for referral shall be in the form of a motion, which shall
state that the dispute is covered by an arbitration agreement.

A part from other submissions, the movant shall attach to his motion an authentic copy of the arbitration
agreement.

The request shall contain a notice of hearing addressed to all parties specifying the date and time when it
would be heard. The party making the request shall serve it upon the respondent to give him the
opportunity to file a comment or opposition as provided in the immediately succeeding Rule before the
hearing. [Emphasis ours; italics original]

Attention must be paid, however, to the salient wordings of Rule 4.1.It reads: "a party to a pending
action filed in violation of the arbitration agreement x x x may request the court to refer the parties to
arbitration in accordance with such agreement."

In using the word " may " to qualify the act of filing a " request " under Section 24 of R.A. No. 9285, the
Special ADR Rules clearly did not intend to limit the invocation of an arbitration agreement in a pending
suit solely via such "request." After all, non-compliance with an arbitration agreement is a valid defense
to any offending suit and, as such, may even be raised in an answer as provided in our ordinary rules of
procedure.95

In this case, it is conceded that petitioner was not able to file a separate " request " of arbitration before
the MeTC. However, it is equally conceded that the petitioner, as early as in its Answer with
Counterclaim ,had already apprised the MeTC of the existence of the arbitration clause in the 2005
Lease Contract96 and, more significantly, of its desire to have the same enforced in this case.97 This act of
petitioner is enough valid invocation of his right to arbitrate. Fourth . The fact that the petitioner and
respondent already under went through JDR proceedings before the RTC, will not make the subsequent
conduct of arbitration between the parties unnecessary or circuitous. The JDR system is substantially
different from arbitration proceedings.

The JDR framework is based on the processes of mediation, conciliation or early neutral evaluation
which entails the submission of a dispute before a " JDR judge " who shall merely " facilitate settlement
" between the parties in conflict or make a " non-binding evaluation or assessment of the chances of
each party’s case."98 Thus in JDR, the JDR judge lacks the authority to render a resolution of the dispute
that is binding upon the parties in conflict. In arbitration, on the other hand, the dispute is submitted to
an arbitrator/s —a neutral third person or a group of thereof— who shall have the authority to render a
resolution binding upon the parties.99

Clearly, the mere submission of a dispute to JDR proceedings would not necessarily render the
subsequent conduct of arbitration a mere surplusage. The failure of the parties in conflict to reach an
amicable settlement before the JDR may, in fact, be supplemented by their resort to arbitration where a
binding resolution to the dispute could finally be achieved. This situation precisely finds application to
the case at bench.

Neither would the summary nature of ejectment cases be a valid reason to disregard the enforcement of
the arbitration clause of the 2005 Lease Contract . Notwithstanding the summary nature of ejectment
cases, arbitration still remains relevant as it aims not only to afford the parties an expeditious method of
resolving their dispute.

A pivotal feature of arbitration as an alternative mode of dispute resolution is that it is, first and
foremost, a product of party autonomy or the freedom of the parties to " make their own arrangements to
resolve their own disputes."100Arbitration agreements manifest not only the desire of the parties in
conflict for an expeditious resolution of their dispute. They also represent, if not more so, the parties’
mutual aspiration to achieve such resolution outside of judicial auspices, in a more informal and less
antagonistic environment under the terms of their choosing. Needless to state, this critical feature can
never be satisfied in an ejectment case no matter how summary it may be.

Having hurdled all the challenges against the application of the arbitration clause of the 2005 Lease
Agreement in this case, We shall now proceed with the discussion of its legal effects.

Legal Effect of the Application of the

Arbitration Clause
Since there really are no legal impediments to the application of the arbitration clause of the 2005
Contract of Lease in this case, We find that the instant unlawful detainer action was instituted in
violation of such clause. The Law, therefore, should have governed the fate of the parties and this suit:

R.A. No. 876 Section 7. Stay of civil action. - If any suit or proceeding be brought upon an issue arising
out of an agreement providing for the arbitration thereof, the court in which such suit or proceeding is
pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration,
shall stay the action or proceeding until an arbitration has been had in accordance with the terms of the
agreement: Provided, That the applicant for the stay is not in default in proceeding with such arbitration.
[Emphasis supplied]

R.A. No. 9285

Section 24. Referral to Arbitration. - A court before which an action is brought in a matter which is the
subject matter of an arbitration agreement shall, if at least one party so requests not later that the pre-trial
conference, or upon the request of both parties thereafter, refer the parties to arbitration unless it finds
that the arbitration agreement is null and void, in operative or incapable of being performed. [Emphasis
supplied]

It is clear that under the law, the instant unlawful detainer action should have been stayed; 101 the
petitioner and the respondent should have been referred to arbitration pursuant to the arbitration clause
of the 2005 Lease Contract . The MeTC, however, did not do so in violation of the law—which violation
was, in turn, affirmed by the RTC and Court of Appeals on appeal.

The violation by the MeTC of the clear directives under R.A. Nos.876 and 9285 renders invalid all
proceedings it undertook in the ejectment case after the filing by petitioner of its Answer with
Counterclaim —the point when the petitioner and the respondent should have been referred to
arbitration. This case must, therefore, be remanded to the MeTC and be suspended at said point.
Inevitably, the decisions of the MeTC, RTC and the Court of Appeals must all be vacated and set aside.

The petitioner and the respondent must then be referred to arbitration pursuant to the arbitration clause
of the 2005 Lease Contract.

This Court is not unaware of the apparent harshness of the Decision that it is about to make.
Nonetheless, this Court must make the same if only to stress the point that, in our jurisdiction, bona fide
arbitration agreements are recognized as valid; 102 and that laws,103 rules and regulations104 do exist
protecting and ensuring their enforcement as a matter of state policy. Gone should be the days when
courts treat otherwise valid arbitration agreements with disdain and hostility, if not outright "
jealousy,"105 and then get away with it. Courts should instead learn to treat alternative means of dispute
resolution as effective partners in the administration of justice and, in the case of arbitration agreements,
to afford them judicial restraint.106 Today, this Court only performs its part in upholding a once
disregarded state policy.

Civil Case No. CV 09-0346

This Court notes that, on 30 September 2009, petitioner filed with the RTC of Parañaque City, a
complaint107 for the rescission or cancellation of the Deed of Donation and Amended Deed of Donation
against the respondent. The case is currently pending before Branch 257 of the RTC, docketed as Civil
Case No. CV 09-0346.

This Court recognizes the great possibility that issues raised in Civil Case No. CV 09-0346 may involve
matters that are rightfully arbitrable per the arbitration clause of the 2005 Lease Contract. However,
since the records of Civil Case No. CV 09-0346 are not before this Court, We can never know with true
certainty and only speculate. In this light, let a copy of this Decision be also served to Branch 257of the
RTC of Parañaque for its consideration and, possible, application to Civil Case No. CV 09-0346.

WHEREFORE, premises considered, the petition is hereby GRANTED . Accordingly, We hereby render
a Decision:

1. SETTING ASIDE all the proceedings undertaken by the Metropolitan Trial Court, Branch 77, of
Parañaque City in relation to Civil Case No. 2009-307 after the filing by petitioner of its Answer
with Counterclaim ;
 2. REMANDING the instant case to the MeTC, SUSPENDED at the point after the filing by
petitioner of its Answer with Counterclaim;

3. SETTING ASIDE the following:

a. Decision dated 19 August 2011 of the Court of Appeals in C.A.-G.R. SP No. 116865,

b. Decision dated 29 October 2010 of the Regional Trial Court, Branch 274, of Parañaque City
in Civil Case No. 10-0255,

c. Decision dated 27 April 2010 of the Metropolitan Trial Court, Branch 77, of Parañaque City
in Civil Case No. 2009-307; and

4. REFERRING the petitioner and the respondent to arbitration pursuant to the arbitration clause of
the 2005 Lease Contract, repeatedly included in the 2000 Lease Contract and in the 1976 Amended
Deed of Donation.

Let a copy of this Decision be served to Branch 257 of the RTC of Parañaque for its consideration and,
possible, application to Civil Case No. CV 09-0346.

No costs.

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

DECISION
VELASCO, JR., J.:

In our jurisdiction, the policy is to favor alternative methods of resolving disputes, particularly in civil
and commercial disputes. Arbitration along with mediation, conciliation, and negotiation, being
inexpensive, speedy and less hostile methods have long been favored by this Court. The petition before
us puts at issue an arbitration clause in a contract mutually agreed upon by the parties stipulating that
they would submit themselves to arbitration in a foreign country.Regrettably, instead of hastening the
resolution of their dispute, the parties wittingly or unwittingly prolonged the controversy.

Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is engaged in
the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants, while
private respondent Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic corporation.

On March 5, 1997, PGSMC and KOGIES executed a Contract [1] whereby KOGIES would set up
an LPG Cylinder Manufacturing Plant in Carmona, Cavite. The contract was executed in the Philippines.
On April 7, 1997, the parties executed, in Korea, an Amendment for Contract No. KLP-970301 dated
March 5, 1997[2] amending the terms of payment. The contract and its amendment stipulated that
KOGIES will ship the machinery and facilities necessary for manufacturing LPG cylinders for which
PGSMC would pay USD 1,224,000. KOGIES would install and initiate the operation of the plant for
which PGSMC bound itself to pay USD 306,000 upon the plants production of the 11-kg. LPG cylinder
samples. Thus, the total contract price amounted to USD 1,530,000.

On October 14, 1997, PGSMC entered into a Contract of Lease [3] with Worth Properties, Inc.
(Worth) for use of Worths 5,079-square meter property with a 4,032-square meter warehouse building to
house the LPG manufacturing plant. The monthly rental was PhP 322,560 commencing on January 1,
1998 with a 10% annual increment clause. Subsequently, the machineries, equipment, and facilities for
the manufacture of LPG cylinders were shipped, delivered, and installed in the Carmona plant. PGSMC
paid KOGIES USD 1,224,000.

However, gleaned from the Certificate[4] executed by the parties on January 22, 1998, after the
installation of the plant, the initial operation could not be conducted as PGSMC encountered financial
difficulties affecting the supply of materials, thus forcing the parties to agree that KOGIES would be
deemed to have completely complied with the terms and conditions of the March 5, 1997 contract.

For the remaining balance of USD306,000 for the installation and initial operation of the plant,
PGSMC issued two postdated checks: (1) BPI Check No. 0316412 dated January 30, 1998 for PhP
4,500,000; and (2) BPI Check No. 0316413 dated March 30, 1998 for PhP 4,500,000.[5]

When KOGIES deposited the checks, these were dishonored for the reason PAYMENT
STOPPED. Thus, on May 8, 1998, KOGIES sent a demand letter [6]to PGSMC threatening criminal
action for violation of Batas Pambansa Blg. 22 in case of nonpayment. On the same date, the wife of
PGSMCs President faxed a letter dated May 7, 1998 to KOGIES President who was then staying at a
Makati City hotel. She complained that not only did KOGIES deliver a different brand of hydraulic
press from that agreed upon but it had not delivered several equipment parts already paid for.

On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully funded but
the payments were stopped for reasons previously made known to KOGIES.[7]
 On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their Contract dated
March 5, 1997 on the ground that KOGIES had altered the quantity and lowered the quality of the
machineries and equipment it delivered to PGSMC, and that PGSMC would dismantle and transfer the
machineries, equipment, and facilities installed in the Carmona plant. Five days later, PGSMC filed
before the Office of the Public Prosecutor an Affidavit-Complaint for Estafa docketed as I.S. No. 98-
03813 against Mr. Dae Hyun Kang, President of KOGIES.

On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not
unilaterally rescind their contract nor dismantle and transfer the machineries and equipment on mere
imagined violations by KOGIES. It also insisted that their disputes should be settled by arbitration as
agreed upon in Article 15, the arbitration clause of their contract.

On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1, 1998
letter threatening that the machineries, equipment, and facilities installed in the plant would be
dismantled and transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES instituted an Application for
Arbitration before the Korean Commercial Arbitration Board (KCAB) in Seoul, Korea pursuant to Art.
15 of the Contract as amended.

On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as Civil Case
No. 98-117[8] against PGSMC before the Muntinlupa City Regional Trial Court (RTC). The RTC granted
a temporary restraining order (TRO) on July 4, 1998, which was subsequently extended until July 22,
1998. In its complaint, KOGIES alleged that PGSMC 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 although it earlier certified to the contrary as shown in a January 22, 1998 Certificate.
Likewise, KOGIES averred that PGSMC violated Art. 15 of their Contract, as amended, by unilaterally
rescinding the contract without resorting to arbitration. KOGIES also asked that PGSMC be restrained
from dismantling and transferring the machinery and equipment installed in the plant which the latter
threatened to do on July 4, 1998.

On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled
to the TRO since Art. 15, the arbitration clause, was null and void for being against public policy as it
ousts the local courts of jurisdiction over the instant controversy.

On July 17, 1998, PGSMC filed its Answer with Compulsory Counterclaim [9] asserting that it
had the full right to dismantle and transfer the machineries and equipment because it had paid for them
in full as stipulated in the contract; that KOGIES was not entitled to the PhP 9,000,000 covered by the
checks for failing to completely install and make the plant operational; and that KOGIES was liable for
damages amounting to PhP 4,500,000 for altering the quantity and lowering the quality of the
machineries and equipment. Moreover, PGSMC averred that it has already paid PhP 2,257,920 in rent
(covering January to July 1998) to Worth and it was not willing to further shoulder the cost of renting
the premises of the plant considering that the LPG cylinder manufacturing plant never became
operational.

After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an Order denying
the application for a writ of preliminary injunction, reasoning that PGSMC had paid KOGIES USD
1,224,000, the value of the machineries and equipment as shown in the contract such that KOGIES no
longer had proprietary rights over them. And finally, the RTC held that Art. 15 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. KOGIES prayer for an injunctive writ was denied. [10] The dispositive
portion of the Order stated:

WHEREFORE, in view of the foregoing consideration, this Court believes and so holds
that no cogent reason exists for this Court to grant the writ of preliminary injunction to
restrain and refrain defendant from dismantling the machineries and facilities at the lot
and building of Worth Properties, Incorporated at Carmona, Cavite and transfer the same
to another site: and therefore denies plaintiffs application for a writ of preliminary
injunction.

On July 29, 1998, KOGIES filed its Reply to Answer and Answer to Counterclaim. [11] KOGIES
denied it had altered the quantity and lowered the quality of the machinery, equipment, and facilities it
delivered to the plant. It claimed that it had performed all the undertakings under the contract and had
already produced certified samples of LPG cylinders. It averred that whatever was unfinished was
PGSMCs fault since it failed to procure raw materials due to lack of funds. KOGIES, relying on Chung
Fu Industries (Phils.), Inc. v. Court of Appeals,[12] insisted that the arbitration clause was without
question valid.

After KOGIES filed a Supplemental Memorandum with Motion to Dismiss [13] answering
PGSMCs memorandum of July 22, 1998 and seeking dismissal of PGSMCs counterclaims, KOGIES, on
August 4, 1998, filed its Motion for Reconsideration [14] of the July 23, 1998 Order denying its
application for aninjunctive writ claiming that the contract was not merely for machinery and facilities
worth USD 1,224,000 but was for the sale of an LPG manufacturing plant consisting of supply of all the
machinery and facilities and transfer of technology for a total contract price of USD 1,530,000 such that
the dismantling and transfer of the machinery and facilities would result in the dismantling and transfer
of the very plant itself to the great prejudice of KOGIES as the still unpaid owner/seller of the plant.
Moreover, KOGIES points out that the arbitration clause under Art. 15 of the Contract as amended was a
valid arbitration stipulation under Art. 2044 of the Civil Code and as held by this Court in Chung Fu
Industries (Phils.), Inc.[15]

In the meantime, PGSMC filed a Motion for Inspection of Things [16] to determine whether there
was indeed alteration of the quantity and lowering of quality of the machineries and equipment, and
whether these were properly installed. KOGIES opposed the motion positing that the queries and issues
raised in the motion for inspection fell under the coverage of the arbitration clause in their contract.

On September 21, 1998, the trial court issued an Order (1) granting PGSMCs motion for
inspection; (2) denying KOGIES motion for reconsideration of the July 23, 1998 RTC Order; and (3)
denying KOGIES motion to dismiss PGSMCs compulsory counterclaims as these counterclaims fell
within the requisites of compulsory counterclaims.

On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration [17] of the September
21, 1998 RTC Order granting inspection of the plant and denying dismissal of PGSMCs compulsory
counterclaims.

Ten days after, on October 12, 1998, without waiting for the resolution of its October 2, 1998
urgent motion for reconsideration, KOGIES filed before the Court of Appeals (CA) a petition for
certiorari[18] docketed as CA-G.R. SP No. 49249, seeking annulment of the July 23, 1998 and September
21, 1998 RTC Orders and praying for the issuance of writs of prohibition, mandamus, and preliminary
injunction to enjoin the RTC and PGSMC from inspecting, dismantling, and transferring the machineries
and equipment in the Carmona plant, and to direct the RTC to enforce the specific agreement on
arbitration to resolve the dispute.

In the meantime, on October 19, 1998, the RTC denied KOGIES urgent motion for
reconsideration and directed the Branch Sheriff to proceed with the inspection of the machineries and
equipment in the plant on October 28, 1998.[19]

Thereafter, KOGIES filed a Supplement to the Petition[20] in CA-G.R. SP No. 49249 informing
the CA about the October 19, 1998 RTC Order. It also reiterated its prayer for the issuance of the writs
of prohibition, mandamus and preliminary injunction which was not acted upon by the CA. KOGIES
asserted that the Branch Sheriff did not have the technical expertise to ascertain whether or not the
machineries and equipment conformed to the specifications in the contract and were properly installed.

On November 11, 1998, the Branch Sheriff filed his Sheriffs Report [21] finding that the
enumerated machineries and equipment were not fully and properly installed.

The Court of Appeals affirmed the trial court and declared

the arbitration clause against public policy

On May 30, 2000, the CA rendered the assailed Decision [22] affirming the RTC Orders and
dismissing the petition for certiorari filed by KOGIES. The CA found that the RTC did not gravely
abuse its discretion in issuing the assailed July 23, 1998 and September 21, 1998 Orders. Moreover, the
CA reasoned that KOGIES contention that the total contract price for USD 1,530,000 was for the whole
plant and had not been fully paid was contrary to the finding of the RTC that PGSMC fully paid the
price of USD 1,224,000, which was for all the machineries and equipment. According to the CA, this
determination by the RTC was a factual finding beyond the ambit of a petition for certiorari.

On the issue of the validity of the arbitration clause, the CA agreed with the lower court 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.

On the issue of nonpayment of docket fees and non-attachment of a certificate of non-forum

shopping by PGSMC, the CA held that the counterclaims of PGSMC were compulsory ones and
payment of docket fees was not required since the Answer with counterclaim was not an initiatory
pleading. For the same reason, the CA said a certificate of non-forum shopping was also not required.

Furthermore, the CA held that the petition for certiorari had been filed prematurely since
KOGIES did not wait for the resolution of its urgent motion for reconsideration of the September 21,
1998 RTC Order which was the plain, speedy, and adequate remedy available. According to the CA, the
RTC must be given the opportunity to correct any alleged error it has committed, and that since the
assailed orders were interlocutory, these cannot be the subject of a petition for certiorari.

Hence, we have this Petition for Review on Certiorari under Rule 45.
 The Issues

Petitioner posits that the appellate court committed the following errors:
a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY
AND FACILITIES AS A QUESTION OF FACT BEYOND THE AMBIT OF A
PETITION FOR CERTIORARI INTENDED ONLY FOR CORRECTION OF ERRORS
OF JURISDICTION OR GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OF (SIC) EXCESS OF JURISDICTION, AND CONCLUDING THAT THE TRIAL
COURTS FINDING ON THE SAME QUESTION WAS IMPROPERLY RAISED IN
THE PETITION BELOW;

b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE

15 OF THE CONTRACT BETWEEN THE PARTIES FOR BEING CONTRARY TO
PUBLIC POLICY AND FOR OUSTING THE COURTS OF JURISDICTION;

c. DECREEING PRIVATE RESPONDENTS COUNTERCLAIMS TO BE

ALL COMPULSORY NOT NECESSITATING PAYMENT OF DOCKET FEES AND
CERTIFICATION OF NON-FORUM SHOPPING;

d. RULING THAT THE PETITION WAS FILED PREMATURELY

WITHOUT WAITING FOR THE RESOLUTION OF THE MOTION FOR
RECONSIDERATION OF THE ORDER DATED SEPTEMBER 21, 1998 OR
WITHOUT GIVING THE TRIAL COURT AN OPPORTUNITY TO CORRECT
ITSELF;

e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND

SEPTEMBER 21, 1998 NOT TO BE PROPER SUBJECTS OF CERTIORARI AND
PROHIBITION FOR BEING INTERLOCUTORY IN NATURE;

f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN

HE (SIC) PETITION AND, INSTEAD, DISMISSING THE SAME FOR ALLEGEDLY
WITHOUT MERIT.[23]

The Courts Ruling

The petition is partly meritorious.

Before we delve into the substantive issues, we shall first tackle the procedural issues.

The rules on the payment of docket fees for counterclaims

and cross claims were amended effective August 16, 2004

KOGIES strongly argues that when PGSMC filed the counterclaims, it should have paid docket
fees and filed a certificate of non-forum shopping, and that its failure to do so was a fatal defect.

We disagree with KOGIES.

As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in its Answer with
Compulsory Counterclaim dated July 17, 1998 in accordance with Section 8 of Rule 11, 1997 Revised
Rules of Civil Procedure, the rule that was effective at the time the Answer with Counterclaim was filed.
Sec. 8 on existing counterclaim or cross-claim states, A compulsory counterclaim or a cross-claim that a
defending party has at the time he files his answer shall be contained therein.
 On July 17, 1998, at the time PGSMC filed its Answer incorporating its counterclaims against
KOGIES, it was not liable to pay filing fees for said counterclaims being compulsory in nature. We
stress, however, that effective August 16, 2004 under Sec. 7, Rule 141, as amended by A.M. No. 04-2-
04-SC, docket fees are now required to be paid in compulsory counterclaim or cross-claims.

As to the failure to submit a certificate of forum shopping, PGSMCs Answer is not an initiatory
pleading which requires a certification against forum shopping under Sec. 5 [24] of Rule 7, 1997 Revised
Rules of Civil Procedure. It is a responsive pleading, hence, the courts a quo did not commit reversible
error in denying KOGIES motion to dismiss PGSMCs compulsory counterclaims.

Interlocutory orders proper subject of certiorari

Citing Gamboa v. Cruz,[25] the CA also pronounced that certiorari and Prohibition are neither the
remedies to question the propriety of an interlocutory order of the trial court. [26] The CA erred on its
reliance on Gamboa. Gamboa involved the denial of a motion to acquit in a criminal case which was not
assailable in an action for certiorari since the denial of a motion to quash required the accused to plead
and to continue with the trial, and whatever objections the accused had in his motion to quash can then
be used as part of his defense and subsequently can be raised as errors on his appeal if the judgment of
the trial court is adverse to him. The general rule is that interlocutory orders cannot be challenged by an
appeal.[27] Thus, in Yamaoka v. Pescarich Manufacturing Corporation, we held:

The proper remedy in such cases is an ordinary appeal from an adverse judgment
on the merits, incorporating in said appeal the grounds for assailing the interlocutory
orders. Allowing appeals from interlocutory orders would result in the sorry spectacle of
a case being subject of a counterproductive ping-pong to and from the appellate court as
often as a trial court is perceived to have made an error in any of its interlocutory rulings.
However, where the assailed interlocutory order was issued with grave abuse of
discretion or patently erroneous and the remedy of appeal would not afford adequate and
expeditious relief, the Court allows certiorari as a mode of redress.[28]

Also, appeals from interlocutory orders would open the floodgates to endless occasions for
dilatory motions. Thus, where the interlocutory order was issued without or in excess of jurisdiction or
with grave abuse of discretion, the remedy is certiorari.[29]

The alleged grave abuse of discretion of the respondent court equivalent to lack of jurisdiction in
the issuance of the two assailed orders coupled with the fact that there is no plain, speedy, and adequate
remedy in the ordinary course of law amply provides the basis for allowing the resort to a petition for
certiorari under Rule 65.

Prematurity of the petition before the CA

Neither do we think that KOGIES was guilty of forum shopping in filing the petition for
certiorari. Note that KOGIES motion for reconsideration of the July 23, 1998 RTC Order which denied
the issuance of the injunctive writ had already been denied. Thus, KOGIES only remedy was to assail
the RTCs interlocutory order via a petition for certiorari under Rule 65.

While the October 2, 1998 motion for reconsideration of KOGIES of the September 21, 1998
RTC Order relating to the inspection of things, and the allowance of the compulsory counterclaims has
not yet been resolved, the circumstances in this case would allow an exception to the rule that before
certiorari may be availed of, the petitioner must have filed a motion for reconsideration and said motion
should have been first resolved by the court a quo. The reason behind the rule is to enable the lower
court, in the first instance, to pass upon and correct its mistakes without the intervention of the higher
court.[30]

The September 21, 1998 RTC Order directing the branch sheriff to inspect the plant, equipment,
and facilities when he is not competent and knowledgeable on said matters is evidently flawed and
devoid of any legal support. Moreover, there is an urgent necessity to resolve the issue on the
dismantling of the facilities and any further delay would prejudice the interests of KOGIES. Indeed,
there is real and imminent threat of irreparable destruction or substantial damage to KOGIES equipment
and machineries. We find the resort to certiorari based on the gravely abusive orders of the trial court
sans the ruling on the October 2, 1998 motion for reconsideration to be proper.

The Core Issue: Article 15 of the Contract

We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration clause. It
provides:

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. (Emphasis supplied.)

Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null and void.

Petitioner is correct.

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. (Emphasis supplied.)

Arts. 2038,[31] 2039,[32] and 2040[33] abovecited refer to instances where a compromise or an
arbitral award, as applied to Art. 2044 pursuant to Art. 2043, [34] may be voided, rescinded, or annulled,
but these would not denigrate the finality of the arbitral award.

The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not been
shown to be contrary to any law, or against morals, good customs, public order, or public policy. There
has been no showing that the parties have not dealt with each other on equal footing. We find no reason
why the arbitration clause should not be respected and complied with by both parties. In Gonzales v.
Climax Mining Ltd.,[35] we held that submission to arbitration is a contract and that a clause in a contract
providing that all matters in dispute between the parties shall be referred to arbitration is a contract. [36]
Again in Del Monte Corporation-USA v. Court of Appeals, we likewise ruled that [t]he provision to
submit to arbitration any dispute arising therefrom and the relationship of the parties is part of that
contract and is itself a contract.[37]

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. In the 1957 case of Eastboard Navigation Ltd. v. Juan Ysmael and Co., Inc.,[38] this
Court had occasion to rule that an arbitration clause to resolve differences and breaches of mutually
agreed contractual terms is valid. In BF Corporation v. Court of Appeals, we held that [i]n 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. Republic Act No. 876 was adopted to supplement the New Civil Codes provisions on
arbitration.[39] And in LM Power Engineering Corporation v. Capitol Industrial Construction Groups,
Inc., we declared that:

Being an inexpensive, speedy and amicable method of settling disputes,

arbitrationalong with mediation, conciliation and negotiationis encouraged by the
Supreme Court. Aside from unclogging judicial dockets, arbitration also hastens the
resolution of disputes, especially of the commercial kind. It is thus regarded as the wave
of the future in international civil and commercial disputes. Brushing aside a contractual
agreement calling for arbitration between the parties would be a step backward.

Consistent with the above-mentioned policy of encouraging alternative dispute

resolution methods, courts should liberally construe arbitration clauses. Provided such
clause is susceptible of an interpretation that covers the asserted dispute, an order to
arbitrate should be granted. Any doubt should be resolved in favor of arbitration.[40]

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.

RA 9285 incorporated the UNCITRAL Model law

to which we are a signatory

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 [41] 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:

CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION

SEC. 19. Adoption of the Model Law on International Commercial

 Arbitration.International commercial arbitration shall be governed by the Model Law on
International Commercial Arbitration (the Model Law) adopted by the United Nations
Commission on International Trade Law on June 21, 1985 (United Nations Document
A/40/17) and recommended for enactment by the General Assembly in Resolution No.
40/72 approved on December 11, 1985, copy of which is hereto attached as Appendix A.

SEC. 20. Interpretation of Model Law.In interpreting the Model Law, regard shall
be had to its international origin and to the need for uniformity in its interpretation and
resort may be made to the travaux preparatories and the report of the Secretary General
of the United Nations Commission on International Trade Law dated March 25, 1985
entitled, International Commercial Arbitration: Analytical Commentary on Draft Trade
identified by reference number A/CN. 9/264.

While RA 9285 was passed only in 2004, it nonetheless applies in the instant case since it is a
procedural law which has a retroactive effect. Likewise, KOGIES filed its application for arbitration
before the KCAB on July 1, 1998 and it is still pending because no arbitral award has yet been rendered.
Thus, RA 9285 is applicable to the instant case. Well-settled is the rule that procedural laws are
construed to be applicable to actions pending and undetermined at the time of their passage, and are
deemed retroactive in that sense and to that extent. As a general rule, the retroactive application of
procedural laws does not violate any personal rights because no vested right has yet attached nor arisen
from them.[42]

Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL Model
Law are the following:

(1) The RTC must refer to arbitration in proper cases

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.

(2) Foreign arbitral awards must be confirmed by the RTC

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, thus:

SEC. 42. Application of the New York Convention.The New York Convention
shall govern the recognition and enforcement of arbitral awards covered by said
Convention.

The recognition and enforcement of such arbitral awards shall be filed with the
 Regional Trial Court in accordance with the rules of procedure to be promulgated by the
Supreme Court. Said procedural rules shall provide that the party relying on the award or
applying for its enforcement shall file with the court the original or authenticated copy of
the award and the arbitration agreement. If the award or agreement is not made in any of
the official languages, the party shall supply a duly certified translation thereof into any
of such languages.

The applicant shall establish that the country in which foreign arbitration award
was made in party to the New York Convention.

xxxx

SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not Covered
by the New York Convention.The recognition and enforcement of foreign arbitral awards
not covered by the New York Convention shall be done in accordance with procedural
rules to be promulgated by the Supreme Court. The Court may, on grounds of comity and
reciprocity, recognize and enforce a non-convention award as a convention award.

SEC. 44. Foreign Arbitral Award Not Foreign Judgment.A foreign arbitral award when
confirmed by a court of a foreign country, shall be recognized and enforced as a foreign
arbitral award and not as a judgment of a foreign court.

A foreign arbitral award, when confirmed by the Regional Trial Court, shall be
enforced in the same manner as final and executory decisions of courts of law of the
Philippines

xxxx

SEC. 47. Venue and Jurisdiction.Proceedings for recognition and enforcement of

an arbitration agreement or for vacations, setting aside, correction or modification of an
arbitral award, and any application with a court for arbitration assistance and supervision
shall be deemed as special proceedings and shall be filed with the Regional Trial Court (i)
where arbitration proceedings are conducted; (ii) where the asset to be attached or levied
upon, or the act to be enjoined is located; (iii) where any of the parties to the dispute
resides or has his place of business; or (iv) in the National Judicial Capital Region, at the
option of the applicant.

SEC. 48. Notice of Proceeding to Parties.In a special proceeding for recognition

and enforcement of an arbitral award, the Court shall send notice to the parties at their
address of record in the arbitration, or if any part cannot be served notice at such address,
at such partys last known address. The notice shall be sent al least fifteen (15) days before
the date set for the initial hearing of the application.

It is now clear that 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.

Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to
judgments or awards given by some of our quasi-judicial bodies, like the National Labor Relations
Commission and Mines Adjudication Board, whose final judgments are stipulated to be final and
binding, but not immediately executory in the sense that they may still be judicially reviewed, upon the
instance of any party. Therefore, the final foreign arbitral awards are similarly situated in that they need
first to be confirmed by the RTC.

(3) The RTC has jurisdiction to review foreign arbitral awards

Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with specific authority
and jurisdiction to set aside, reject, or vacate a foreign arbitral award on grounds provided under Art.
34(2) of the UNCITRAL Model Law. Secs. 42 and 45 provide:

SEC. 42. Application of the New York Convention.The New York Convention
shall govern the recognition and enforcement of arbitral awards covered by said
Convention.

The recognition and enforcement of such arbitral awards shall be filed with the
Regional Trial Court in accordance with the rules of procedure to be promulgated by the
Supreme Court. Said procedural rules shall provide that the party relying on the award or
applying for its enforcement shall file with the court the original or authenticated copy of
the award and the arbitration agreement. If the award or agreement is not made in any of
the official languages, the party shall supply a duly certified translation thereof into any
of such languages.

The applicant shall establish that the country in which foreign arbitration award
was made is party to the New York Convention.

If the application for rejection or suspension of enforcement of an award has been

made, the Regional Trial Court may, if it considers it proper, vacate its decision and may
also, on the application of the party claiming recognition or enforcement of the award,
order the party to provide appropriate security.

xxxx

SEC. 45. Rejection of a Foreign Arbitral Award.A party to a foreign arbitration

proceeding may oppose an application for recognition and enforcement of the arbitral
award in accordance with the procedures and rules to be promulgated by the Supreme
Court only on those grounds enumerated under Article V of the New York Convention.
Any other ground raised shall be disregarded by the Regional Trial Court.

Thus, 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.
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.
(4) Grounds for judicial review different in domestic and foreign arbitral awards

The differences between a final arbitral award from an international or foreign arbitral tribunal
and an award given by a local arbitral tribunal are the specific grounds or conditions that vest
jurisdiction over our courts to review the awards.

For foreign or international arbitral awards which must first be confirmed by the RTC, the
grounds for setting aside, rejecting or vacating the award by the RTC are provided under Art. 34(2) of
the UNCITRAL Model Law.

For final domestic arbitral awards, which also need confirmation by the RTC pursuant to Sec. 23
of RA 876[44] and shall be recognized as final and executory decisions of the RTC, [45] they may only be
assailed before the RTC and vacated on the grounds provided under Sec. 25 of RA 876.[46]

(5) RTC decision of assailed foreign arbitral award appealable

 Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved party in
cases where the RTC sets aside, rejects, vacates, modifies, or corrects an arbitral award, thus:

SEC. 46. Appeal from Court Decision or Arbitral Awards.A decision of the
Regional Trial Court confirming, vacating, setting aside, modifying or correcting an
arbitral award may be appealed to the Court of Appeals in accordance with the rules and
procedure to be promulgated by the Supreme Court.

The losing party who appeals from the judgment of the court confirming an
arbitral award shall be required by the appellate court to post a counterbond executed in
favor of the prevailing party equal to the amount of the award in accordance with the
rules to be promulgated by the Supreme Court.

Thereafter, the CA decision may further be appealed or reviewed before this Court through a
petition for review under Rule 45 of the Rules of Court.
PGSMC has remedies to protect its interests

Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign
arbitration as it bound itself through the subject contract. While it may have misgivings on the foreign
arbitration done in Korea by the KCAB, it has available remedies under RA 9285. Its interests are duly
protected by the law which requires that the arbitral award that may be rendered by KCAB must be
confirmed here by the RTC before it can be enforced.

With our disquisition above, petitioner is correct in its contention that an arbitration clause,
stipulating that the arbitral award is final and binding, does not oust our courts of jurisdiction as the
international arbitral award, the award of which is not absolute and without exceptions, is still judicially
reviewable under certain conditions provided for by the UNCITRAL Model Law on ICA as applied and
incorporated in RA 9285.

Finally, it must be noted that there is nothing in the subject Contract which provides that the
parties may dispense with the arbitration clause.

Unilateral rescission improper and illegal

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.
What this Court held in University of the Philippines v. De Los Angeles [47] and reiterated in
succeeding cases,[48] that the act of treating a contract as rescinded on account of infractions by the other
contracting party is valid albeit provisional as it can be judicially assailed, is not applicable to the instant
case on account of a valid stipulation on arbitration. Where an arbitration clause in a contract is availing,
neither of the parties can unilaterally treat the contract as rescinded since whatever infractions or
breaches by a party or differences arising from the contract must be brought first and resolved by
arbitration, and not through an extrajudicial rescission or judicial action.

The issues arising from the contract between PGSMC and KOGIES 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 KOGIES in the production of the samples, given the alleged fact that PGSMC
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, KOGIES 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 PGSMC to abide by its commitment to arbitrate.

Corollarily, the trial court gravely abused its discretion in granting PGSMCs Motion for
Inspection of Things on September 21, 1998, as the subject matter of the motion is under the primary
jurisdiction of the mutually agreed arbitral body, the KCAB in Korea.
In addition, whatever findings and conclusions made by the RTC Branch Sheriff from the
inspection made on October 28, 1998, as ordered by the trial court on October 19, 1998, is of no worth
as said Sheriff is not technically competent to ascertain the actual status of the equipment and
machineries as installed in the plant.

For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders pertaining to the
grant of the inspection of the equipment and machineries have to be recalled and nullified.

Issue on ownership of plant proper for arbitration

Petitioner assails the CA ruling that the issue petitioner raised on whether the total contract price of USD
1,530,000 was for the whole plant and its installation is beyond the ambit of a Petition for Certiorari.

Petitioners position is untenable.

It is settled that questions of fact cannot be raised in an original action for certiorari. [49] Whether or not
there was full payment for the machineries and equipment and installation is indeed a factual issue
prohibited by Rule 65.

However, what appears to constitute a grave abuse of discretion is the order of the RTC in resolving the
issue on the ownership of the plant when it is the arbitral body (KCAB) and not the RTC which has
jurisdiction and authority over the said issue. The RTCs determination of such factual issue constitutes
grave abuse of discretion and must be reversed and set aside.

RTC has interim jurisdiction to protect the rights of the parties

Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving the way for
PGSMC to dismantle and transfer the equipment and machineries, we find it to be in order considering
the factual milieu of the instant case.

Firstly, while the issue of the proper installation of the equipment and machineries might well be
under the primary jurisdiction of the arbitral body to decide, yet the RTC under Sec. 28 of RA 9285 has
jurisdiction to hear and grant interim measures to protect vested rights of the parties. Sec. 28 pertinently
provides:

SEC. 28. Grant of interim Measure of Protection.(a) It is not incompatible with

an arbitration agreement for a party to request, before constitution of the tribunal,
from a Court to grant such measure. After constitution of the arbitral tribunal and
during arbitral proceedings, a request for an interim measure of protection, or
modification thereof, may be made with the arbitral or to the extent that the arbitral
tribunal has no power to act or is unable to act effectivity, the request may be made
with the Court. The arbitral tribunal is deemed constituted when the sole arbitrator or the
third arbitrator, who has been nominated, has accepted the nomination and written
communication of said nomination and acceptance has been received by the party making
the request.

(b) The following rules on interim or provisional relief shall be observed:

Any party may request that provisional relief be granted against the adverse party.

Such relief may be granted:

(i) to prevent irreparable loss or injury;

(ii) to provide security for the performance of any obligation;
(iii) to produce or preserve any evidence; or
(iv) to compel any other appropriate act or omission.

(c) The order granting provisional relief may be conditioned upon the provision of
security or any act or omission specified in the order.

(d) Interim or provisional relief is requested by written application transmitted by

reasonable means to the Court or arbitral tribunal as the case may be and the party against
whom the relief is sought, describing in appropriate detail the precise relief, the party
against whom the relief is requested, the grounds for the relief, and the evidence
supporting the request.

(e) The order shall be binding upon the parties.

(f) Either party may apply with the Court for assistance in implementing or
enforcing an interim measure ordered by an arbitral tribunal.

(g) A party who does not comply with the order shall be liable for all damages
resulting from noncompliance, including all expenses, and reasonable attorney's fees,
paid in obtaining the orders judicial enforcement. (Emphasis ours.)

Art. 17(2) of the UNCITRAL Model Law on ICA defines an interim measure of protection as:

Article 17. Power of arbitral tribunal to order interim measures

xxx xxx xxx

(2) An interim measure is any temporary measure, whether in the form of an award or in
another form, by which, at any time prior to the issuance of the award by which the
dispute is finally decided, the arbitral tribunal orders a party to:

(a) Maintain or restore the status quo pending determination of the dispute;

(b) Take action that would prevent, or refrain from taking action that is likely to cause,
current or imminent harm or prejudice to the arbitral process itself;

(c) Provide a means of preserving assets out of which a subsequent award may be
satisfied; or

(d) Preserve evidence that may be relevant and material to the resolution of the dispute.

Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction to issue
interim measures:

Article 17 J. Court-ordered interim measures

A court shall have the same power of issuing an interim measure in relation to
arbitration proceedings, irrespective of whether their place is in the territory of this State,
as it has in relation to proceedings in courts. The court shall exercise such power in
accordance with its own procedures in consideration of the specific features of
international arbitration.

In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro Corporation, we were
explicit that even the pendency of an arbitral proceeding does not foreclose resort to the courts for
provisional reliefs. We explicated this way:

As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to
the courts for provisional reliefs. The Rules of the ICC, which governs the parties arbitral
dispute, allows the application of a party to a judicial authority for interim or
conservatory measures. Likewise, Section 14 of Republic Act (R.A.) No. 876 (The
Arbitration Law) recognizes the rights of any party to petition the court to take measures
to safeguard and/or conserve any matter which is the subject of the dispute in arbitration.
In addition, R.A. 9285, otherwise known as the Alternative Dispute Resolution Act of
2004, allows the filing of provisional or interim measures with the regular courts
whenever the arbitral tribunal has no power to act or to act effectively.[50]

It is thus beyond cavil that the RTC has authority and jurisdiction to grant interim measures of
protection.

Secondly, considering that the equipment and machineries are in the possession of PGSMC, it
has the right to protect and preserve the equipment and machineries in the best way it can. Considering
that the LPG plant was non-operational, PGSMC has the right to dismantle and transfer the equipment
and machineries either for their protection and preservation or for the better way to make good use of
them which is ineluctably within the management discretion of PGSMC.

Thirdly, and of greater import is the reason that maintaining the equipment and machineries in
Worths property is not to the best interest of PGSMC due to the prohibitive rent while the LPG plant as
set-up is not operational. PGSMC was losing PhP322,560 as monthly rentals or PhP3.87M for 1998
alone without considering the 10% annual rent increment in maintaining the plant.

Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating to the
preservation or transfer of the equipment and machineries as an interim measure, yet on hindsight, the
July 23, 1998 Order of the RTC allowing the transfer of the equipment and machineries given the non-
recognition by the lower courts of the arbitral clause, has accorded an interim measure of protection to
PGSMC which would otherwise been irreparably damaged.

Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial amount based
on the contract. Moreover, KOGIES is amply protected by the arbitral action it has instituted before the
KCAB, the award of which can be enforced in our jurisdiction through the RTC. Besides, by our
decision, PGSMC is compelled to submit to arbitration pursuant to the valid arbitration clause of its
contract with KOGIES.

PGSMC to preserve the subject equipment and machineries

 Finally, while PGSMC may have been granted the right to dismantle and transfer the subject
equipment and machineries, it does not have the right to convey or dispose of the same considering the
pending arbitral proceedings to settle the differences of the parties. PGSMC therefore must preserve and
maintain the subject equipment and machineries with the diligence of a good father of a family [51] until
final resolution of the arbitral proceedings and enforcement of the award, if any.

WHEREFORE, this petition is PARTLY GRANTED, in that:

(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET ASIDE;

(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-117 are
REVERSED and SET ASIDE;

(3) The parties are hereby ORDERED to submit themselves to the arbitration of their dispute
and differences arising from the subject Contract before the KCAB; and

(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and machineries, if it
had not done so, and ORDERED to preserve and maintain them until the finality of whatever arbitral
award is given in the arbitration proceedings.

No pronouncement as to costs.

SO ORDERED.
PHILIPPINE ECONOMIC ZONE G.R. No. 179537
AUTHORITY,
Petitioner, Present:

QUISUMBING, J., Chairperson,

CARPIO,*
CARPIO MORALES,
- versus - BERSAMIN,** and
ABAD, JJ.

EDISON (BATAAN) COGENERATION

CORPORATION, Promulgated:
Respondent. October 23, 2009

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

DECISION

CARPIO MORALES, J.:

Petitioner Philippine Economic Zone Authority (PEZA) and Edison (Bataan) Cogeneration
Corporation (respondent) entered into a Power Supply and Purchase Agreement (PSPA or agreement) for
a 10-year period effective October 25, 1997 whereby respondent undertook to construct, operate, and
maintain a power plant which would sell, supply and deliver electricity to PEZA for resale to business
locators in the Bataan Economic Processing Zone.
In the course of the discharge of its obligation, respondent requested from PEZA a tariff increase
with a mechanism for adjustment of the cost of fuel and lubricating oil, which request it reiterated on
March 5, 2004.

PEZA did not respond to both requests, however, drawing respondent to write PEZA on May 3,
2004. Citing a tariff increase which PEZA granted to the East Asia Utilities Corporation (EAUC), another
supplier of electricity in the Mactan Economic Zone, respondent informed PEZA of a violation of its
obligation under Clause 4.9 of the PSPA not to give preferential treatment to other power suppliers.

After the lapse of 90 days, respondent terminated the PSPA, invoking its right thereunder, and
demanded P708,691,543.00 as pre-termination fee. PEZA disputed respondents right to terminate the
agreement and refused to pay the pre-termination fee, prompting respondent to request PEZA to submit
the dispute to arbitration pursuant to the arbitration clause of the PSPA.

Petitioner refused to submit to arbitration, however, prompting respondent to file a Complaint [1]
against PEZA for specific performance before the Regional Trial Court (RTC) of Pasay, alleging that,
inter alia:

xxxx

4. Under Clauses 14.1 and 14.2 of the Agreement, the dispute shall be resolved
through arbitration before an Arbitration Committee composed of one
representative of each party and a third member who shall be mutually
acceptable to the parties: x x x
xxx

5. Conformably with the Agreement, plaintiff notified defendant in a letter dated

September 6, 2004 requesting that the parties submit their dispute to arbitration.
In a letter dated September 8, 2004, which defendant received on the same date,
defendant unjustifiably refused to comply with the request for arbitration, in
violation of its undertaking under the Agreement. Defendant likewise refused to
nominate its representative to the Arbitration Committee as required by the
Agreement.

6. Under Section 8 of Republic Act No. 876 (1953), otherwise known as the
Arbitration Law, (a) if either party to the contract fails or refuses to name his
arbitrator within 15 days after receipt of the demand for arbitration; or (b) if the
arbitrators appointed by each party to the contract, or appointed by one party to
the contract and by the proper court, shall fail to agree upon or to select the third
arbitrator, then this Honorable Court shall appoint the arbitrator or
arbitrators.[2](Emphasis and underscoring supplied)

Respondent accordingly prayed for judgment

x x x (a) designating (i) an arbitrator to represent defendant; and (ii) the third
arbitrator who shall act as Chairman of the Arbitration Committee; and (b) referring
the attached Request for Arbitration to the Arbitration Committee to commence the
arbitration.[3]

and for other just and equitable reliefs.

In its Answer,[4] PEZA (hereafter petitioner):

1. ADMIT[TED] the allegations in paragraphs 1, 2, 3, 4, and 6

 of the complaint, with the qualification that the alleged dispute
subject of the plaintiffs Request for Arbitration dated October 20,
2004 is not an arbitrable issue, considering that the provision on
pre-termination fee in the Power Sales and Purchase Agreement
(PSPA), is gravely onerous, unconscionable, greatly
disadvantageous to the government, against public policy and
therefore invalid and unenforceable.

2. ADMIT[TED] the allegation in paragraph 5 of the

complaint with the qualification that the refusal of the defendant to
arbitrate is justified considering that the provision on the pre-
termination fee subject of the plaintiffs Request for Arbitration is
invalid and unenforceable. Moreover, the pre-termination of the
PSPA is whimsical, has no valid basis and in violation of the
provisions thereof, constituting breach of contract on the part of the
plaintiff.[5] (Emphasis and underscoring supplied)

Xxxx
Respondent thereafter filed a Reply and Motion to Render Judgment on the Pleadings,[6]
contending that since petitioner

x x x does not challenge the fact that (a) there is a dispute between the parties;
(b) the dispute must be resolved through arbitration before a three-member arbitration
committee; and (c) defendant refused to submit the dispute to arbitration by naming its
representative in the arbitration committee,

judgment may be rendered directing the appointment of the two other members to complete the
composition of the arbitration committee that will resolve the dispute of the parties.[7]

By Order of April 5, 2005, Branch 118 of the Pasay City RTC granted respondents Motion to
Render Judgment on the Pleadings, disposing as follows:

WHEREFORE, all the foregoing considered, this Court hereby renders

judgment in favor of the plaintiff and against the defendant. Pursuant to Section 8 of
RA 876, also known as the Arbitration Law, and Power Sales and Purchase
Agreement, this Court hereby appoints, subject to their agreement as arbitrators,
retired Supreme Court Chief Justice Andres Narvasa, as chairman of the committee,
and retired Supreme Court Justices Hugo Gutierrez, and Justice Jose Y. Feria, as
defendants and plaintiffs representative, respectively, to the arbitration committee.
Accordingly, let the Request for Arbitration be immediately referred to the Arbitration
Committee so that it can commence with the arbitration.

SO ORDERED.[8] (Underscoring supplied)

On appeal,[9] the Court of Appeals, by Decision of April 10, 2007, affirmed the RTC Order. [10] Its
Motion for Reconsideration[11] having been denied,[12] petitioner filed the present Petition for Review on
Certiorari,[13] faulting the appellate court

. . . WHEN IT DISMISSED PETITIONERS APPEAL AND AFFIRMED THE 05

APRIL 2004 ORDER OF THE TRIAL COURT WHICH RENDERED
JUDGMENTON THE PLEADINGS, DESPITE THE FACT THAT PETITIONERS
 ANSWER TENDERED AN ISSUE.

II

. . . WHEN IT AFFIRMED THE ORDER OF THE TRIAL COURT WHICH

REFERRED RESPONDENTS REQUEST FOR ARBITRATION DESPITE THE
FACT THAT THE ISSUE PRESENTED BY THE RESPONDENT IS NOT AN
ARBITRABLE ISSUE.[14] (Underscoring supplied)

The petition fails.

The dispute raised by respondent calls for a proceeding under Section 6 of Republic Act No. 876,
AN ACT TO AUTHORIZE THE MAKING OF ARBITRATION AND SUBMISSION AGREEMENTS,
TO PROVIDE FOR THE APPOINTMENT OF ARBITRATORS AND THE PROCEDURE FOR
ARBITRATION IN CIVIL CONTROVERSIES, AND FOR OTHER PURPOSES which reads:

SECTION 6. Hearing by court. A party aggrieved by the failure, neglect or refusal of

another to perform under an agreement in writing providing for arbitration may
petition the court for an order directing that such arbitration proceed in the manner
provided for in such agreement. Five days notice in writing of the hearing of such
application shall be served either personally or by registered mail upon the party in
default. The court shall hear the parties, and upon being satisfied that the making of
the agreement or such failure to comply therewith is not in issue, shall make an order
directing the parties to proceed to arbitration in accordance with the terms of the
agreement. If the making of the agreement or default be in issue the court shall
proceed to summarily hear such issue. If the finding be that no agreement in writing
providing for arbitration was made, or that there is no default in the proceeding
thereunder, the proceeding shall be dismissed. If the finding be that a written provision
for arbitration was made and there is a default in proceeding thereunder, an order shall
be made summarily directing the parties to proceed with the arbitration in accordance
with the terms thereof.

x x x x (Underscoring supplied)

R.A. No. 876 explicitly confines the courts authority only to the determination of whether or not
there is an agreement in writing providing for arbitration. [15] Given petitioners admission of the material
allegations of respondents complaint including the existence of a written agreement to resolve disputes
through arbitration, the assailed appellate courts affirmance of the trial courts grant of respondents
Motion for Judgment on the Pleadings is in order.

Petitioner argues that it tendered an issue in its Answer as it disputed the legality of the pre-
termination fee clause of the PSPA. Even assuming arguendo that the clause is illegal, it would not affect
the agreement between petitioner and respondent to resolve their dispute by arbitration.

The doctrine of separability, or severability as other writers call it, enunciates

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

The separability of the arbitration agreement is especially significant to the

determination of whether the invalidity of the main contract also nullifies the
arbitration clause. Indeed, the doctrine denotes that the invalidity of the main contract,
also referred to as the container contract, does not affect the validity of the arbitration
agreement. Irrespective of the fact that the main contract is invalid, the arbitration
clause/agreement still remains valid and enforceable. [16] (Emphasis in the original;
underscoring supplied)
 Petitioner nevertheless contends that the legality of the pre-termination fee clause is not
arbitrable, citing Gonzales v. Climax Mining Ltd. [17] which declared that the therein complaint should be
brought before the regular courts, and not before an arbitral tribunal, as it involved a judicial issue. Held
the Court:

We agree that the case should not be brought under the ambit of the Arbitration
Law xxx. 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.[18]

The ruling in Gonzales was, on motion for reconsideration filed by the parties, modified, however, in this
wise:

x x x The adjudication of the petition in G.R. No. 167994 effectively modifies

part of the Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold
that the validity of the contract containing the agreement to submit to arbitration
does not affect the applicability of the arbitration clause itself. A contrary ruling
would suggest that a partys mere repudiation of the main contract is sufficient to avoid
arbitration. That is exactly the situation that the separability doctrine, as well as
jurisprudence applying it, seeks to avoid. We add that when it was declared in G.R.
No. 161957 that the case should not be brought for arbitration, it should be clarified
that the case referred to is the case actually filed by Gonzales before the DENR Panel
of Arbitrators, which was for the nullification of the main contract on the ground of
fraud, as it had already been determined that the case should have been brought before
the regular courts involving as it did judicial issues.[19] (Emphasis and underscoring
supplied)

It bears noting that respondent does not seek to nullify the main contract. It merely submits these
issues for resolution by the arbitration committee, viz:

a. Whether or not the interest of Claimant in the project or its economic

return in its investment was materially reduced as a result of any laws or
regulations of the Philippine Government or any agency or body under its
control;

b. Whether or not the parties failed to reach an agreement on the

amendments to the Agreement within 90 days from notice to respondent on
May 3, 2004 of the material reduction in claimants economic return under the
Agreement;

c. Whether or not as a result of (a) and (b) above, Claimant is entitled to

terminate the Agreement;

d. Whether or not Respondent accorded preferential treatment to EAUC in

violation of the Agreement;

e. Whether or not as a result of (d) above, Claimant is entitled to terminate

the Agreement;
 f. Whether or not Claimant is entitled to a termination fee equivalent to
P708,691,543.00; and

g. Who between Claimant and Respondent shall bear the cost and expenses
of the arbitration, including arbitrators fees, administrative expenses and legal
fees.[20]

In fine, the issues raised by respondent are subject to arbitration in accordance with the arbitration
clause in the parties agreement.

WHEREFORE, the petition is DENIED.

SO ORDERED.

G.R. No. 168612 December 10, 2014

PHILIPPINE ELECTRIC CORPORATION (PHILEC), Petitioner,

vs.
COURT OF APPEALS, NATIONAL CONCILIATION AND MEDIATION BOARD (NCMB),
Department of Labor and Employment, RAMON T. JIMENEZ, in his capacity as Voluntary
Arbitrator, PHILEC WORKERS' UNION (PWU), ELEODORO V. LIPIO, and EMERLITO C.
IGNACIO, Respondents.

DECISION

LEONEN, J.:

An appeal to reverse or modify a Voluntary Arbitrator's award or decision must be filed before the Court
of Appeals within 10 calendar days from receipt of the award or decision.

This is a petition1 for review on certiorari of the Court of Appeals’ decision2 dated May 25, 2004,
dismissing the Philippine Electric Corporation’s petition for certiorari for lack of merit. Philippine
Electric Corporation (PHILEC) is a domestic corporation "engaged in the manufacture and repairs of
high voltage transformers."3 Among its rank-and-file employees were Eleodoro V. Lipio (Lipio) and
Emerlito C. Ignacio, Sr. (Ignacio, Sr.), former members of the PHILEC Workers’ Union (PWU). 4 PWU
is a legitimate labor organization and the exclusive bargaining representative of PHILEC’s rank-and-file
employees.5

From June 1, 1989 to May 31, 1997, PHILEC and its rank-and-file employees were governed by
collective bargaining agreements providing for the following step increases in an employee’s basic
salary in case of promotion:6

Rank-and-File (PWU)
Pay
Grade June 1, 1989 to June 1, 1992 to June 1, 1994 to
May 31, 1992 May 31, 1994 May 31, 1997
I – II 50 60 65
II – III 60 70 78
III – IV 70 80 95
IV – V 80 110 120
V- VI 100 140 150
VI – VII 120 170 195
VII – VIII 170 230 255
VIII – IX 220 290 340
IX – X 260 350 455

On August 18, 1997 and with the previous collective bargaining agreements already expired, PHILEC
selected Lipio for promotion from Machinist under Pay Grade VIII 7 to Foreman I under Pay Grade B.8
PHILEC served Lipio a memorandum,9 instructing him to undergo training for the position of Foreman I
beginning on August 25, 1997. PHILEC undertook to pay Lipio training allowance as provided in the
memorandum:

This will confirm your selection and that you will undergo training for the position of Foreman I (PG B)
of the Tank Finishing Section, Distribution Transformer Manufacturing and Repair effective August 25,
1997.

You will be trained as a Foreman I,and shall receive the following training allowance until you have
completed the training/observation period which shall not exceed four (4) months.

First Month ----- 350.00

Second month - - - - - 815.00
Third month ----- 815.00
Fourth month ----- 815.00
Please be guided accordingly.10

Ignacio, Sr., then DT-Assembler with Pay Grade VII, 11 was likewise selected for training for the position
of Foreman I.12 On August 21, 1997, PHILEC served Ignacio, Sr. a memorandum, 13 instructing him to
undergo training with the following schedule of allowance:

This will confirm your selection and that you will undergo training for the position of Foreman I (PG B)
of the Assembly Section, Distribution Transformer Manufacturing and Repair effective

August 25, 1997.

You will be trained as a Foreman I,and shall receive the following training allowance until you have
completed the training/observation period which shall not exceed four (4) months.

First Month ----- 255.00

Second month - - - - - 605.00
Third month ----- 1,070.00
Fourth month ----- 1,070.00

Please be guided accordingly.14

On September 17, 1997, PHILEC and PWU entered into a new collective bargaining agreement,
effective retroactively on June 1, 1997 and expiring on May 31, 1999.15 Under Article X, Section 4 of
the June 1, 1997 collective bargaining agreement, a rank-and-file employee promoted shall be entitled to
the following step increases in his or her basic salary:16

Section 4. STEP INCREASES. [Philippine Electric Corporation] shall adopt the following step increases
on the basic salary in case of promotion effective June 1, 1997. Such increases shall be based on the
scale below or upon the minimum of the new pay grade to which the employee is promoted, whichever
is higher:

Pay Grade Step Increase

I - II ₱80.00
II - III ₱105.00
III - IV ₱136.00
IV - V ₱175.00
V - VI ₱224.00
VI -
₱285.00
VII
VII -
₱361.00
VIII
VIII -
₱456.00
IX
IX - X ₱575.00
To be promoted, a rank-and-file employee shall undergo training or observation and shall receive
training allowance as provided in Article IX, Section 1(f) of the June 1, 1997 collective bargaining
agreement:17

Section 1. JOB POSTING AND BIDDING:

....

(f) Allowance for employees under Training or Observation shall be on a graduated basis as follows:

For the first month of training, the allowance should be equivalent to one step increase of the next higher
grade. Every month thereafter the corresponding increase shall be equivalent to the next higher grade
until the allowance for the grade applied for is attained.

As an example, if a Grade I employee qualifies for a Grade III position, he will receive the training
allowance for Grade I to Grade II for the first month. On the second month, he will receive the training
allowance for Grade I to Grade II plus the allowance for Grade II to Grade III. He will then continue to
receive this amount until he finishes his training or observation period.18

Claiming that the schedule of training allowance stated in the memoranda served on Lipio and
Ignacio,Sr. did not conform to Article X, Section 4 of the June 1, 1997 collective bargaining agreement,
PWU submitted the grievance to the grievance machinery.19

PWU and PHILEC failed to amicably settle their grievance. Thus, on December 21, 1998, the parties
filed a submission agreement20 with the National Conciliation and Mediation Board, submitting the
following issues to voluntary arbitration:

WHETHER OR NOT PHILEC VIOLATED SECTION 4 (Step Increases) ARTICLE X (Wage and
Position Standardization) OF THE EXISTING COLLECTIVE BARGAINING AGREEMENT (CBA)
IN IMPLEMENTING THE STEP INCREASES RELATIVE TO THE PROMOTION OF INDIVIDUAL
COMPLAINANTS.

II

WHETHER OR NOT PHILEC’s MANNER OF IMPLEMENTING THE STEP INCREASES IN

CONNECTION WITH THE PROMOTION OF INDIVIDUAL COMPLAINANTS IN RELATION TO
THE PROVISIONS OF SECTION 4, ARTICLE X OF THE CBA CONSTITUTES UNFAIR LABOR
PRACTICE.21

In their submission agreement, PWU and PHILEC designated Hon. Ramon T. Jimenez as Voluntary
Arbitrator (Voluntary Arbitrator Jimenez).22

Voluntary Arbitrator Jimenez, in the order23 dated January 4, 1999, directed the parties to file their
respective position papers.

In its position paper,24 PWU maintained that PHILEC failed to follow the schedule of step increases
under Article X, Section 4 of the June 1, 1997 collective bargaining agreement. Machinist I, Lipio’s
position before he underwent training for Foreman I, fell under Pay Grade VIII, while Foreman I fell
under Pay Grade X. Following the schedule under Article X, Section 4 of the June 1, 1997 collective
bargaining agreement and the formula under Article IX, Section 1(f), Lipio should be paid training
allowance equal to the step increase for pay grade bracket VIII-IX for the first month of training. For the
succeeding months, Lipio should be paid an allowance equal to the step increase for pay grade bracket
VIII-IX plus the step increase for pay grade bracket IX-X, thus:25

First Month ----- ₱456.00

Second month - - - - - ₱1,031.00
Third month ----- ₱1,031.00
Fourth month ----- ₱1,031.00.

With respect to Ignacio, Sr., he was holding the position of DTAs sembler under Pay Grade VII when
hewas selected to train for the position of Foreman I under Pay Grade X. Thus, for his first month of
training, Ignacio, Sr. should be paid training allowance equal to the step increase under pay grade
bracket VII-VIII. For the second month, he should be paid an allowance equal to the step increase under
pay grade bracket VIIVIII plus the step increase under pay grade bracket VIII-IX. For the third and
fourth months, Ignacio, Sr. should receive an allowance equal to the amount he received for the second
month plus the amount equal to the step increase under pay grade bracket IX-X, thus:26

First Month ----- ₱361.00

Second month - - - - - ₱817.00
Third month ----- ₱1,392.00
Fourth month ----- ₱1,392.00.
For PHILEC’s failure to apply the schedule of step increases under Article X of the June 1, 1997
collective bargaining agreement, PWU argued that PHILEC committed an unfair labor practice under
Article 24827 of the Labor Code.28

In its position paper,29 PHILEC emphasized that it promoted Lipio and Ignacio, Sr. while it was still
negotiating a new collective bargaining agreement with PWU. Since PHILEC and PWU had not yet
negotiated a new collective bargaining agreement when PHILEC selected Lipio and Ignacio, Sr. for
training, PHILEC applied the "Modified SGV" pay grade scale in computing Lipio’s and Ignacio, Sr.’s
training allowance.30

This "Modified SGV" pay grade scale, which PHILEC and PWU allegedly agreed to implement
beginning on May 9, 1997, covered both rank-and-file and supervisory employees.31 According to
PHILEC, its past collective bargaining agreements withthe rank-and-file and supervisory unions resulted
in an overlap of union membership in Pay Grade IX of the rank-and-file employees and Pay Grade A of
the supervisory employees.32 Worse, past collective bargaining agreements resulted in rank-and-file
employees under Pay Grades IX and X enjoying higher step increases than supervisory employees under
Pay Grades A and B:33

Pay Grade
Pay Grade Scale
Scale under the
Step Increase under the Step Increase
Rank-and-File
Supervisory CBA
CBA
VIII-IX ₱340.00 A ₱290.00
IX-X ₱455.00 A-B ₱350.00

To preserve the hierarchical wage structure within PHILEC’s enterprise, PHILEC and PWU allegedly
agreed to implement the uniform pay grade scale under the "Modified SGV" pay grade system, thus:34

Pay Grade
Step Increase
Rank-and-File Supervisory
I – II ₱65.00
II-III ₱78.00
III-IV ₱95.00
IV-V ₱120.00
V-VI ₱150.00
VI-VII ₱195.00
VII-VIII ₱255.00
VIII-IX A ₱350.00
IX-X A-B ₱465.00
X-XI B-C ₱570.00
XI-XII C-D ₱710.00
D-E ₱870.00
E-F ₱1,055.00

Pay grade bracket I–IX covered rank-and-file employees, while pay grade bracket A–F covered
supervisory employees.35

Under the "Modified SGV" pay grade scale, the position of Foreman I fell under Pay Grade B. PHILEC
then computed Lipio’s and Ignacio, Sr.’s training allowance accordingly.36

PHILEC disputed PWU’s claim of unfair labor practice. According to PHILEC, it did not violate its
collective bargaining agreement with PWU when it implemented the "Modified SGV" scale. Even
assuming that it violated the collective bargaining agreement, PHILEC argued that its violation was not
"gross" or a "flagrant and/or malicious refusal to comply with the economic provisions of [the collective
bargaining agreement]."37 PHILEC, therefore, was not guilty of unfair labor practice.38

Voluntary Arbitrator Jimenez held in the decision39 dated August 13, 1999, that PHILEC violated its
collective bargaining agreement with PWU. 40 According to Voluntary Arbitrator Jimenez, the June 1,
1997 collective bargaining agreement governed when PHILEC selected Lipio and Ignacio, Sr. for
promotion on August 18 and 21, 1997.41 The provisions of the collective bargaining agreement being the
law between the parties, PHILEC should have computed Lipio’s and Ignacio, Sr.’s training allowance
based on Article X, Section 4 of the June 1, 1997 collective bargaining agreement.42

As to PHILEC’s claim that applying Article X, Section 4 would result in salary distortion within
PHILEC’s enterprise, Voluntary Arbitrator Jimenez ruled that this was "a concern that PHILEC could
have anticipated and could have taken corrective action"43 before signing the collective bargaining
agreement.

Voluntary Arbitrator Jimenez dismissed PWU’s claim of unfair labor practice. 44 According to him,
PHILEC’s acts "cannot be considered a gross violation of the [collective bargaining agreement] nor . . .
[a] flagrant and/or malicious refusal to comply withthe economic provisions of the [agreement]."45

Thus, Voluntary Arbitrator Jimenez ordered PHILEC to pay Lipio and Ignacio, Sr. training allowance
based on Article X, Section 4 and Article IX, Section 1 of the June 1, 1997 collective bargaining
agreement.46

PHILEC received a copy of Voluntary Arbitrator Jimenez’s decision on August 16, 1999. 47 On August
26, 1999, PHILEC filed a motion for partial reconsideration 48 of Voluntary Arbitrator Jimenez’s
decision.

In the resolution49 dated July 7, 2000, Voluntary Arbitrator Jimenez denied PHILEC’s motion for partial
reconsideration for lack of merit. PHILEC received a copy of the July 7, 2000 resolution on August 11,
2000.50

On August 29, 2000, PHILEC filed a petition 51 for certiorari before the Court of Appeals, alleging that
Voluntary Arbitrator Jimenez gravely abused his discretion in rendering his decision. 52 PHILEC
maintained that it did not violate the June 1, 1997 collective bargaining agreement. 53 It applied the
"Modified SGV" pay grade rates toavoid salary distortion within its enterprise.54

In addition, PHILEC argued that Article X, Section 4 of the collective bargaining agreement did not
apply to Lipio and Ignacio, Sr. Considering that Lipio and Ignacio, Sr. were promoted to a supervisory
position, their training allowance should be computed based on the provisions of PHILEC’s collective
bargaining agreement with ASSET, the exclusive bargaining representative of PHILEC’s supervisory
employees.55

The Court of Appeals affirmed Voluntary Arbitrator Jimenez’s decision. 56 It agreed that PHILEC was
bound to apply Article X, Section 4 of its June 1, 1997 collective bargaining agreement with PWU in
computing Lipio’s and Ignacio, Sr.’s training allowance. 57 In its decision, the Court of Appeals denied
due course and dismissed PHILEC’s petition for certiorari for lack of merit.58

PHILEC filed a motion for reconsideration, which the Court of Appeals denied in the resolution 59 dated
June 23, 2005.

On August 3, 2005, PHILEC filed its petition for review on certiorari before this court, 60 insisting that it
did not violate its collective bargaining agreement with PWU. 61 PHILEC maintains that Lipio and
Ignacio, Sr. were promoted to a position covered by the pay grade scale for supervisory employees. 62
Consequently, the provisions of PHILEC’s collective bargaining agreement with its supervisory
employees should apply, not its collective bargaining agreement with PWU. 63 To insist on applying the
pay grade scale in Article X, Section 4, PHILEC argues, would result in a salary distortion within
PHILEC.64

In the resolution65 dated September 21, 2005,this court ordered PWU to comment on PHILEC’s petition
for review on certiorari.
In its comment,66 PWU argues that Voluntary Arbitrator Jimenez did not gravely abuse his discretion in
rendering his decision. He correctly applied the provisions of the PWU collective bargaining agreement,
the law between PHILEC and its rank-and-file employees, in computing Lipio’s and Ignacio, Sr.’s
training allowance.67

On September 27, 2006, PHILEC filed its reply, 68 reiterating its arguments in its petition for review on
certiorari.

The issue for our resolution is whether Voluntary Arbitrator Jimenez gravely abused his discretion in
directing PHILEC to pay Lipio’s and Ignacio, Sr.’s training allowance based on Article X, Section 4 of
the June 1, 1997 rank-and-file collective bargaining agreement.

This petition should be denied.

The Voluntary Arbitrator’s decision

dated August 13, 1999 is already final and
executory

We note that PHILEC filed before the Court of Appeals a petition for certiorari under Rule 65 of the
Rules ofCourt against Voluntary Arbitrator Jimenez’s decision.69

This was not the proper remedy.

Instead, the proper remedy to reverse or modify a Voluntary Arbitrator’s or a panel of Voluntary
Arbitrators’ decision or award is to appeal the award or decision before the Court of Appeals. Rule 43,
Sections 1 and 3 of the Rules of Court provide:

Section 1. Scope.

This Rule shall apply to appeals from judgments or final orders of the Court of Tax Appeals and from
awards, judgments, final orders or resolutions of orauthorized by any quasi-judicial agency in the
exercise of its quasi-judicial functions. Among these agencies are the Civil Service Commission, Central
Board of Assessment Appeals, Securities and Exchange Commission, Office of the President, Land
Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of Patents,
Trademarks and Technology Transfer, National Electrification Administration, Energy Regulatory
Board, National Telecommunications Commission, Department of Agrarian Reform under Republic Act
No. 6657, Government Service Insurance System, Employees Compensation Commission, Agricultural
Inventions Board, Insurance Commission, Philippine Atomic Energy Commission, Board of
Investments, Construction Industry Arbitration Commission, and voluntary arbitrators authorized by
law.

....

Sec. 3. Where to appeal.

An appeal under this Rule may be taken to the Court of Appeals within the period and in the manner
herein provided, whether the appeal involves questions of fact, of law, or mixed questions of fact and
law. (Emphasis supplied)

A Voluntary Arbitrator or a panel of Voluntary Arbitrators has the exclusive original jurisdiction over
grievances arising from the interpretation or implementation of collective bargaining agreements.
Should the parties agree, a Voluntary Arbitrator or a panel of Voluntary Arbitrators shall also resolve the
parties’ other labor disputes, including unfair labor practices and bargaining deadlocks. Articles 261 and
262 of the Labor Code provide:

ART. 261. JURISDICTION OF VOLUNTARY ARBITRATORS OR PANEL OF VOLUNTARY

ARBITRATORS.

The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have original and exclusive jurisdiction
to hear and decide all unresolved grievances arising from the interpretation or implementation of the
Collective Bargaining Agreement and those arising from the interpretation or enforcement of company
personnel policies referred to in the immediately preceding article. Accordingly, violations of a
Collective Bargaining Agreement, except those which are gross in character, shall no longer be treated
as unfair labor practice and shall be resolved as grievances under the Collective Bargaining Agreement.
For purposes of this article, gross violations of Collective Bargaining Agreement shall mean flagrant
and/or malicious refusal to comply with the economic provisions of such agreement.

The Commission, its Regional Offices and the Regional Directors of the Department of Labor and
Employment shall not entertain disputes, grievances, or matters under the exclusive and original
jurisdiction of the Voluntary Arbitrator orpanel of Voluntary Arbitrators and shall immediately dispose
and refer the same to the Grievance Machinery or Voluntary Arbitration provided in the Collective
Bargaining Agreement.

ART. 262. JURISDICTION OVER OTHER LABOR DISPUTES.

The Voluntary Arbitrator or panel of Voluntary Arbitrators, upon agreement of the parties, shall also hear
and decide all other labor disputes including unfair labor practices and bargaining deadlocks.

In Luzon Development Bank v. Association of Luzon Development Bank Employees, 70 this court ruled
that the proper remedy against the award or decision of the Voluntary Arbitratoris an appeal before the
Court of Appeals. This court first characterized the office ofa Voluntary Arbitrator or a panel of
Voluntary Arbitrators as a quasi-judicial agency, citing Volkschel Labor Union, et al. v. NLRC 71 and
Oceanic Bic Division (FFW) v. Romero:72

In Volkschel Labor Union, et al. v. NLRC, et al.,on the settled premise that the judgments of courts and
awards of quasi-judicial agencies must become final at some definite time, this Court ruled that the
awards of voluntary arbitrators determine the rights of parties; hence, their decisions have the same legal
effect as judgments of a court. In Oceanic Bic Division (FFW), et al. v. Romero, et al., this Court ruled
that "a voluntary arbitrator by the nature of her functions acts in a quasi-judicial capacity." Under these
rulings, it follows that the voluntary arbitrator, whether acting solely or in a panel, enjoys in law the
status of a quasijudicial agency but independent of, and apart from, the NLRC since his decisions are not
appealable to the latter.73 (Citations omitted)

This court then stated that the office of a Voluntary Arbitrator or a panel of Voluntary Arbitrators, even
assuming that the office is not strictly a quasi-judicial agency, may be considered an instrumentality,
thus:

Assuming arguendo that the voluntaryarbitrator or the panel of voluntary arbitrators may not strictly be
considered as a quasi-judicial agency, board or commission, still both he and the panel are
comprehended within the concept of a "quasi-judicial instrumentality." It may even be stated that it was
to meet the very situation presented by the quasi-judicial functions of the voluntary arbitrators here, as
well as the subsequent arbitrator/arbitral tribunal operating under the Construction Industry Arbitration
Commission, that the broader term "instrumentalities" was purposely included in the above-quoted
provision.

An "instrumentality" is anything used as a means or agency. Thus, the terms governmental "agency" or
"instrumentality" are synonymous in the sense that either of them is a means by which a government
acts, or by which a certain government act or function is performed. The word "instrumentality," with
respect to a state, contemplates an authority to which the state delegates governmental power for the
performance of a state function. An individual person, like an administrator or executor, is a judicial
instrumentality in the settling of an estate, in the same manner that a sub-agent appointed by a
bankruptcy court is an instrumentality of the court, and a trustee in bankruptcy of a defunct corporation
is an instrumentality of the state.

The voluntary arbitrator no less performs a state function pursuant to a governmental power delegated to
him under the provisions therefor in the Labor Code and he falls, therefore, within the contemplation of
the term "instrumentality" in the aforequoted Sec. 9 of B.P. 129.74 (Citations omitted)

Since the office of a Voluntary Arbitrator or a panel of Voluntary Arbitrators is considered a quasi-
judicial agency, this court concluded that a decision or award rendered by a Voluntary Arbitrator is
appealable before the Court of Appeals. Under Section 9 of the Judiciary Reorganization Act of 1980,
the Court of Appeals has the exclusive original jurisdiction over decisions or awards of quasi-judicial
agencies and instrumentalities:

Section 9. Jurisdiction. The Court of Appeals shall exercise:

....

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

Luzon Development Bankwas decided in 1995 but remains "good law." 75 In the 2002 case of Alcantara,
Jr. v. Court of Appeals,76 this court rejected petitioner Santiago Alcantara, Jr.’s argument that the Rules
of Court, specifically Rule 43, Section 2, superseded the Luzon Development Bank ruling:

Petitioner argues, however, that Luzon Development Bank is no longer good law because of Section 2,
Rule 43 of the Rules of Court, a new provision introduced by the 1997 revision. The provision reads:

SEC. 2. Cases not covered. -This Rule shall not apply to judgments or final orders issued under the
Labor Code of the Philippines.

The provisions may be new to the Rules of Court but it is far from being a new law. Section 2, Rule 42
of the 1997 Rules of Civil Procedure, as presently worded, is nothing more but a reiteration of the
exception to the exclusive appellate jurisdiction of the Court of Appeals, as provided for in Section 9,
Batas Pambansa Blg. 129,7 as amended by Republic Act No. 7902:8

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

The Court took into account this exception in Luzon Development Bank but, nevertheless, held that the
decisions of voluntary arbitrators issued pursuant to the Labor Codedo not come within its ambit:

x x x. The fact that [the voluntary arbitrator’s] functions and powers are provided for in the Labor Code
does not place him within the exceptions to said Sec. 9 since he is a quasi-judicial instrumentality as
contemplated therein. It will be noted that, although the Employees’ Compensation Commission is also
provided for in the Labor Code, Circular No. 1-91, which is the forerunner of the present Revised
Administrative Circular No. 1-95, laid down the procedure for the appealability of its decisions to the
Court of Appeals under the foregoing rationalization, and this was later adopted by Republic Act No.
7902 in amending Sec. 9 of B.P. 129.

A fortiori, the decision or award of the voluntary arbitrator or panel of arbitrators should likewise be
appealable to the Court of Appeals, in line with the procedure outlined in Revised Administrative
Circular No. 1-95, just like those of the quasi-judicial agencies, boards and commissions enumerated
therein.77 (Emphases in the original)

This court has since reiterated the Luzon Development Bankruling in its decisions.78

Article 262-A of the Labor Code provides that the award or decision of the Voluntary Arbitrator "shall
befinal and executory after ten (10) calendar days from receipt of the copy of the award or decision by
the parties":

Art. 262-A. PROCEDURES. The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have the
power to hold hearings, receive evidences and take whatever action isnecessary to resolve the issue or
issues subject of the dispute, including efforts to effect a voluntary settlement between parties.

All parties to the dispute shall beentitled to attend the arbitration proceedings. The attendance of any
third party or the exclusion of any witness from the proceedings shall be determined by the Voluntary
Arbitrator or panel of Voluntary Arbitrators. Hearing may be adjourned for cause or upon agreement by
the parties.

Unless the parties agree otherwise, it shall be mandatory for the Voluntary Arbitrator or panel of
Voluntary Arbitrators to render an award or decision within twenty (20) calendar days from the date of
submission of the dispute to voluntary arbitration.

The award or decision of the Voluntary Arbitrator or panel of Voluntary Arbitrators shall contain the
facts and the law on which it is based. It shall be final and executory after ten (10) calendar days from
receipt of the copy of the award or decision by the parties.

Upon motion of any interested party, the Voluntary Arbitrator or panel of Voluntary Arbitrators or the
Labor Arbiter in the region where the movant resides, in case of the absence or incapacity of the
Voluntary Arbitrator or panel of Voluntary Arbitrators, for any reason, may issue a writ of execution
requiring either the sheriff of the Commission or regular courts or any public official whomthe parties
may designate in the submission agreement to execute the final decision, order or award. (Emphasis
supplied)

Thus, in Coca-Cola Bottlers Philippines, Inc. Sales Force UnionPTGWO-BALAIS v. Coca Cola-
Bottlers Philippines, Inc.,79 this court declared that the decision of the Voluntary Arbitrator had become
final and executory because it was appealed beyond the 10-day reglementary period under Article 262-A
of the Labor Code.

It is true that Rule 43, Section 4 of the Rules of Court provides for a 15-day reglementary period for
filing an appeal:

Section 4. Period of appeal. — The appeal shall be taken within fifteen (15) days from notice of the
award, judgment, final order or resolution, or from the date of its last publication, if publication is
required by law for its effectivity, or of the denial of petitioner's motion for new trial or reconsideration
duly filed in accordance with the governing law of the court or agency a quo. Only one (1) motion for
reconsideration shall be allowed. Upon proper motion and the payment of the full amount of the docket
fee before the expiration of the reglementary period, the Court of Appeals may grant an additional
period of fifteen (15) days only within which to file the petition for review. No further extension shall be
granted except for the most compelling reason and in no case to exceed fifteen (15) days. (Emphasis
supplied)

The 15-day reglementary period has been upheld by this court in a long line of cases. 80 In AMA
Computer College-Santiago City, Inc. v. Nacino,81 Nippon Paint Employees Union-OLALIA v. Court of
Appeals,82 Manila Midtown Hotel v. Borromeo, 83 and Sevilla Trading Company v. Semana, 84 this court
denied petitioners’ petitions for review on certiorari since petitioners failed to appeal the Voluntary
Arbitrator’s decision within the 15-day reglementary period under Rule43. In these cases, the Court of
Appeals had no jurisdiction to entertain the appeal assailing the Voluntary Arbitrator’s decision.

Despite Rule 43 providing for a 15-day period to appeal, we rule that the Voluntary Arbitrator’s decision
mustbe appealed before the Court of Appeals within 10 calendar days from receipt of the decision as
provided in the Labor Code.

Appeal is a "statutory privilege,"85 which may be exercised "only in the manner and in accordance
withthe provisions of the law."86 "Perfection of an appeal within the reglementary period is not only
mandatory but also jurisdictional so that failure to doso rendered the decision final and executory, and
deprives the appellate court of jurisdiction to alter the final judgment much less to entertain the
appeal."87

We ruled that Article 262-A of the Labor Code allows the appeal of decisions rendered by Voluntary
Arbitrators.88Statute provides that the Voluntary Arbitrator’s decision "shall befinal and executory after
ten (10) calendar days from receipt of the copy of the award or decision by the parties." Being provided
in the statute,this 10-day period must be complied with; otherwise, no appellate court willhave
jurisdiction over the appeal. This absurd situation occurs whenthe decision is appealed on the 11th to
15th day from receipt as allowed under the Rules, but which decision, under the law, has already become
final and executory.

Furthermore, under Article VIII, Section 5(5) of the Constitution, this court "shall not diminish, increase,
or modify substantive rights" in promulgating rules of procedure in courts. 89 The 10-day period to appeal
under the Labor Code being a substantive right, this period cannot be

diminished, increased, or modified through the Rules of Court.90

In Shioji v. Harvey,91 this court held that the "rules of court, promulgated by authority of law, have the
force and effect of law, if not in conflict with positive law."92 Rules of Court are "subordinate to the
statute."93 In case of conflict between the law and the Rules of Court, "the statute will prevail."94

The rule, therefore, is that a Voluntary Arbitrator’s award or decision shall be appealed before the Court
of Appeals within 10 days from receipt of the award or decision. Should the aggrieved party choose to
file a motion for reconsideration with the Voluntary Arbitrator, 95 the motion must be filed within the
same 10-day period since a motion for reconsideration is filed "within the period for taking an appeal."96

A petition for certiorari is a special civil action "adopted to correct errors of jurisdiction committed by
the lower court or quasi-judicial agency, or when there is grave abuse of discretion on the part of such
court or agency amounting to lack or excess of jurisdiction."97 An extraordinary remedy,98 a petition for
certiorari may be filed only if appeal is not available. 99 If appeal is available, an appeal must be taken
even if the ground relied upon is grave abuse of discretion.100

As an exception to the rule, this court has allowed petitions for certiorari to be filed in lieu of an appeal
"(a) when the public welfare and the advancement of public policy dictate; (b) when the broader
interests of justice so require; (c) when the writs issued are null; and (d) when the questioned order
amounts to an oppressive exercise of judicial authority."101

In Unicraft Industries International Corporation, et al. v. The Hon. Court of Appeals, 102 petitioners filed a
petition for certiorari against the Voluntary Arbitrator’s decision. Finding that the Voluntary Arbitrator
rendered an award without giving petitioners an opportunity to present evidence, this court allowed
petitioners’ petition for certiorari despite being the wrong remedy. The Voluntary Arbitrator’s award,
thiscourt said, was null and void for violation of petitioners’ right to due process. This court decided the
case on the merits.

In Leyte IV Electric Cooperative, Inc. v. LEYECO IV Employees Union-ALU, 103 petitioner likewise
filed a petition for certiorari against the Voluntary Arbitrator’s decision, alleging that the decision lacked
basis in fact and in law. Ruling that the petition for certiorari was filed within the reglementary period
for filing an appeal, this court allowed petitioner’s petition for certiorari in "the broader interests of
justice."104

In Mora v. Avesco Marketing Corporation,105 this court held that petitioner Noel E. Mora erred in filing a
petition for certiorari against the Voluntary Arbitrator’s decision. Nevertheless, this court decided the
case on the merits "in the interest of substantial justice to arrive at the proper conclusion that is
conformable to the evidentiary facts."106

None of the circumstances similar to Unicraft, Leyte IV Electric Cooperative, and Moraare present in
this case. PHILEC received Voluntary Arbitrator Jimenez’s resolution denying its motion for partial
reconsideration on August 11, 2000.107 PHILEC filed its petition for certiorari before the Court
ofAppeals on August 29, 2000,108 which was 18 days after its receipt of Voluntary Arbitrator Jimenez’s
resolution. The petition for certiorari was filed beyond the 10-day reglementary period for filing an
appeal. We cannot consider PHILEC’s petition for certiorari as an appeal.

There being no appeal seasonably filed in this case, Voluntary Arbitrator Jimenez’s decision became
final and executory after 10 calendar days from PHILEC’s receipt of the resolution denying its motion
for partial reconsideration.109 Voluntary Arbitrator Jimenez’s decision is already "beyond the purview of
this Court to act upon."110

II

PHILEC must pay training allowance

 based on the step increases provided in
the June 1, 1997 collective bargaining
agreement

The insurmountable procedural issue notwithstanding, the case will also fail on its merits. Voluntary
Arbitrator Jimenez correctly awarded both Lipio and Ignacio, Sr. training allowances based on the
amounts and formula provided in the June 1, 1997 collective bargaining agreement.

A collective bargaining agreement is "a contract executed upon the request of either the employer or the
exclusive bargaining representative of the employees incorporating the agreement reached after
negotiations with respect to wages, hours of work and all other terms and conditions of employment,
including proposals for adjusting any grievances or questions arising under such agreement." 111 A
collective bargaining agreement being a contract, its provisions "constitute the law between the
parties"112 and must be complied with in good faith.113

PHILEC, as employer, and PWU, as the exclusive bargaining representative of PHILEC’s rank-and-file
employees, entered into a collective bargaining agreement, which the parties agreed to make effective
from June 1, 1997 to May 31, 1999. Being the law between the parties, the June 1, 1997 collective
bargaining agreement must govern PHILEC and its rank-and-file employees within the agreed period.

Lipio and Ignacio, Sr. were rank-and-file employees when PHILEC selected them for training for the
position of Foreman I beginning August 25, 1997. Lipio and Ignacio, Sr. were selected for training
during the effectivity of the June 1, 1997 rank-and-file collective bargaining agreement. Therefore,
Lipio’s and Ignacio, Sr.’s training allowance must be computed based on Article X, Section 4 and
ArticleIX, Section 1(f) of the June 1, 1997 collective bargaining agreement.

Contrary to PHILEC’s claim, Lipio and Ignacio, Sr. were not transferred out of the bargaining unit when
they were selected for training. Lipio and Ignacio, Sr. remained rank-and-file employees while they
trained for the position of Foreman I. Under Article IX, Section 1(e) of the June 1, 1997 collective
bargaining agreement,114 a trainee who is "unable to demonstrate his ability to perform the work . . . shall
be reverted to his previous assignment. . . ." 115According to the same provision, the trainee "shall hold
that job on a trial or observation basis and . . . subject to prior approval of the authorized management
official, be appointed to the position in a regular capacity."116

Thus, training is a condition precedent for promotion. Selection for training does not mean automatic
transfer out of the bargaining unit of rankand-file employees.

Moreover, the June 1, 1997 collective bargaining agreement states that the training allowance of a rank-
and-file employee "whose application for a posted job is accepted shall [be computed] in accordance
with Section (f) of [Article IX]."117 Since Lipio and Ignacio, Sr. were rank-and-file employees when they
applied for training for the position of Foreman I, Lipio’s and Ignacio, Sr.’s training allowance must be
computed based on Article IX, Section 1(f) of the June 1, 1997 rank-and-file collective bargaining
agreement.

PHILEC allegedly applied the "Modified SGV" pay grade scale to prevent any salary distortion within
PHILEC’s enterprise. This, however, does not justify PHILEC’s non-compliance with the June 1, 1997
collective bargaining agreement. This pay grade scale is not provided in the collective bargaining
agreement. In Samahang Manggagawa sa Top Form Manufacturing United Workers of the Philippines
(SMTFM-UWP) v. NLRC,118 this court ruled that "only provisions embodied in the [collective
bargaining agreement] should be so interpreted and complied with. Where a proposal raised by a
contracting party does not find print in the [collective bargaining agreement], it is not part thereof and
the proponent has no claim whatsoever to its implementation."119

Had PHILEC wanted the "Modified SGV" pay grade scale applied within its enterprise, "it could have
requested or demanded that [the ‘Modified SGV’ scale] be incorporated in the [collective bargaining
agreement]."120 PHILEC had "the means under the law to compel [PWU] to incorporate this specific
economic proposal in the [collective bargaining agreement]." 121 It "could have invoked Article 252 of the
Labor Code"122 to incorporate the "Modified SGV" pay grade scale in its collective bargaining
agreement with PWU. But it did not. Since this "Modified SGV" pay grade scale does not appear in
PHILEC’s collective bargaining agreement with PWU, PHILEC cannot insist on the "Modified SGV"
pay grade scale’s application. We reiterate Voluntary Arbitrator Jimenez’s decision dated August 13,
1999 where he said that:
. . . since the signing of the current CBA took place on September 27, 1997, PHILEC, by oversight, may
have overlooked the possibility of a wage distortion occurring among ASSET-occupied positions. It is
surmised that this matter could have been negotiated and settled with PWU before the actual signing of
the CBA on September 27. Instead, PHILEC, again, allowed the provisions of Art. X, Sec. 4 of the CBA
to remain the way it is and is now suffering the consequences of its laches.123 (Emphasis in the original)

We note that PHILEC did not dispute PWU’s contention that it selected several rank-and-file employees
for training and paid them training allowance based on the schedule provided in the collective
bargaining agreement effective at the time of the trainees’ selection. 124 PHILEC cannot choose when and
to whom to apply the provisions of its collective bargaining agreement. The provisions of a collective
bargaining agreement must be applied uniformly and complied with in good faith.

Given the foregoing, Lipio’s and Ignacio, Sr.’s training allowance should be computed based on Article
X, Section 4 in relation to Article IX, Section 1(f) of the June 1, 1997 rank-and-file collective bargaining
agreement. Lipio, who held the position of Machinist before selection for training as Foreman I, should
receive training allowance based on the following schedule:

First Month ----- ₱456.00

Second month - - - - - ₱1,031.00
Third month ----- ₱1,031.00
Fourth month ----- ₱1,031.00

Ignacio, Sr., who held the position of DT-Assembler before selection for training as Foreman I, should
receive training allowance based on the following schedule:

First Month ----- ₱361.00

Second month - - - - - ₱817.00
Third month ----- ₱1,392.00
Fourth month ----- ₱1,392.00

Considering that Voluntary Arbitrator Jimenez’s decision awarded sums of money, Lipio and Ignacio, Sr.
are entitled to legal interest on their training allowances. Voluntary Arbitrator Jimenez’s decision having
become final and executory on August 22, 2000, PHILEC is liable for legal interest equal to 12% per
annum from finality of the decision until full payment as this court ruled in Eastern Shipping Lines, Inc.
v. Court of Appeals:125

When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest. . . shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then as equivalent to a forbearance of credit.126

The 6% legal interest under CircularNo. 799, Series of 2013, of the Bangko Sentral ng Pilipinas
Monetary Board shall not apply, Voluntary Arbitrator Jimenez’s decision having become final and
executory prior to the effectivity of the circular on July 1, 2013.1avvphi1 In Nacar v. Gallery Frames,127
we held that:

. . . with regard to those judgments that have become final and executory prior to July 1, 2013, said
judgments shall not be disturbed and shall continue to be implemented applying the rate of interest fixed
therein.128

WHEREFORE, the petition for review on certiorari is DENIED. The Court of Appeals' decision dated
May 25, 2004 is AFFIRMED.

Petitioner Philippine Electric Corporation is ORDERED to PAY respondent Eleodoro V. Lipio a total of
₱3,549.00 for a four (4)-month training for the position of Foreman I with legal interest of 12% per
annum from August 22, 2000 until the amount's full satisfaction.

For respondent Emerlito C. Ignacio, Sr., Philippine Electric Corporation is ORDERED to PAY a total of
₱3,962.00 for a four (4)-month training for the position of Foreman I with legal interest of 12% per
annum from August 22, 2000 until the amount's full satisfaction.

SO ORDERED.

TUNA PROCESSING, INC., G.R. No. 185582

Petitioner,

Present:

CARPIO, J.,
-versus- Chairperson,
BRION,
PEREZ,
SERENO, and
REYES, JJ.

PHILIPPINE KINGFORD, INC., Promulgated:

Respondent.
February 29, 2012

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

DECISION

PEREZ, J.:

Can 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?

In this Petition for Review on Certiorari under Rule 45,[1] petitioner Tuna Processing, Inc. (TPI),
a foreign corporation not licensed to do business in the Philippines, prays that the Resolution [2] dated 21
November 2008 of the Regional Trial Court (RTC) of Makati City be declared void and the case be
remanded to the RTC for further proceedings. In the assailed Resolution, the RTC dismissed petitioners
Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award [3] against
respondent Philippine Kingford, Inc. (Kingford), a corporation duly organized and existing under the
laws of the Philippines,[4] on the ground that petitioner lacked legal capacity to sue.[5]

The Antecedents

On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the licensor), co-patentee of

U.S. Patent No. 5,484,619, Philippine Letters Patent No. 31138, and Indonesian Patent No. ID0003911
(collectively referred to as the Yamaoka Patent),[6] and five (5) Philippine tuna processors, namely, Angel
Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods,
Inc., and respondent Kingford (collectively referred to as the sponsors/licensees)[7] entered into a
Memorandum of Agreement (MOA),[8] pertinent provisions of which read:

1. Background and objectives. The Licensor, co-owner of U.S.Patent No. 5,484,619,

Philippine Patent No. 31138, and Indonesian Patent No. ID0003911 xxx wishes to form
an alliance with Sponsors for purposes of enforcing his three aforementioned patents,
granting licenses under those patents, and collecting royalties.

The Sponsors wish to be licensed under the aforementioned patents in order to practice
the processes claimed in those patents in the United States, the Philippines, and
Indonesia, enforce those patents and collect royalties in conjunction with Licensor.

xxx

4. Establishment of Tuna Processors, Inc. The parties hereto agree to the establishment of
Tuna Processors, Inc. (TPI), a corporation established in the State of California, in
order to implement the objectives of this Agreement.

5. Bank account. TPI shall open and maintain bank accounts in the United States, which
will be used exclusively to deposit funds that it will collect and to disburse cash it will
be obligated to spend in connection with the implementation of this Agreement.

6. Ownership of TPI. TPI shall be owned by the Sponsors and Licensor. Licensor shall be
assigned one share of TPI for the purpose of being elected as member of the board of
directors. The remaining shares of TPI shall be held by the Sponsors according to their
respective equity shares. [9]

xxx

The parties likewise executed a Supplemental Memorandum of Agreement [10] dated 15 January 2003 and
an Agreement to Amend Memorandum of Agreement[11] dated 14 July 2003.

Due to a series of events not mentioned in the petition, the licensees, including respondent
Kingford, withdrew from petitioner TPI and correspondingly reneged on their obligations. [12] Petitioner
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.[13] Pertinent portions of the award read:

13.1 Within thirty (30) days from the date of transmittal of this Award to the Parties,
pursuant to the terms of this award, the total sum to be paid by RESPONDENT
KINGFORD to CLAIMANT TPI, is the sum of ONE MILLION SEVEN HUNDRED
FIFTY THOUSAND EIGHT HUNDRED FORTY SIX DOLLARS AND TEN
CENTS ($1,750,846.10).
(A) For breach of the MOA by not paying past due assessments, RESPONDENT
KINGFORD shall pay CLAIMANT the total sum of TWO HUNDRED TWENTY
NINE THOUSAND THREE HUNDRED AND FIFTY FIVE DOLLARS AND
NINETY CENTS ($229,355.90) which is 20% of MOA assessments since September 1,
2005[;]

(B) For breach of the MOA in failing to cooperate with CLAIMANT TPI in fulfilling the
objectives of the MOA, RESPONDENT KINGFORD shall pay CLAIMANT the total
sum of TWO HUNDRED SEVENTY ONE THOUSAND FOUR HUNDRED
NINETY DOLLARS AND TWENTY CENTS ($271,490.20)[;][14] and

(C) For violation of THE LANHAM ACT and infringement of the YAMAOKA 619
PATENT, RESPONDENT KINGFORD shall pay CLAIMANT the total sum of ONE
 MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS
($1,250,000.00). xxx

xxx[15]

To enforce the award, petitioner TPI filed on 10 October 2007 a Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award before the RTC of Makati City. The petition
was raffled to Branch 150 presided by Judge Elmo M. Alameda.

At Branch 150, respondent Kingford filed a Motion to Dismiss.[16] After the court denied the
motion for lack of merit,[17] respondent sought for the inhibition of Judge Alameda and moved for the
reconsideration of the order denying the motion. [18] Judge Alameda inhibited himself notwithstanding
[t]he unfounded allegations and unsubstantiated assertions in the motion. [19] Judge Cedrick O. Ruiz of
Branch 61, to which the case was re-raffled, in turn, granted respondents Motion for Reconsideration
and dismissed the petition on the ground that the petitioner lacked legal capacity to sue in the
Philippines.[20]

Petitioner TPI now seeks to nullify, in this instant Petition for Review on Certiorari under Rule
45, the order of the trial court dismissing its Petition for Confirmation, Recognition, and Enforcement of
Foreign Arbitral Award.

Issue

The core issue in this case is whether or not the court a quo was correct in so dismissing the
petition on the ground of petitioners lack of legal capacity to sue.

Our Ruling

The petition is impressed with merit.

The Corporation Code of the Philippines expressly provides:

Sec. 133. Doing business without a license. - 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.

It is pursuant to the aforequoted provision that the court a quo dismissed the petition. Thus:
Herein plaintiff TPIs Petition, etc. acknowledges that it is a foreign corporation
established in the State of California and was given the exclusive right to license or
sublicense the Yamaoka Patent and was assigned the exclusive right to enforce the said
patent and collect corresponding royalties in the Philippines. TPI likewise admits that it
does not have a license to do business in the Philippines.

There is no doubt, therefore, in the mind of this Court that TPI has been doing
business in the Philippines, but sans a license to do so issued by the concerned government
agency of the Republic of the Philippines, when it collected royalties from five (5)
Philippine tuna processors[,] namely[,] Angel Seafood Corporation, East Asia Fish Co.,
Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc. and respondent Philippine
Kingford, Inc. This being the real situation, TPI cannot be permitted to maintain or
intervene in any action, suit or proceedings in any court or administrative agency of the
 Philippines. A priori, the Petition, etc. extant of the plaintiff TPI should be dismissed for it
does not have the legal personality to sue in the Philippines.[21]

The petitioner counters, however, that it is entitled to seek for the recognition and enforcement of
the subject foreign arbitral award in accordance with Republic Act No. 9285 (Alternative Dispute
Resolution Act of 2004),[22] 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),[23] as none of these specifically requires that the party seeking for the enforcement should
have legal capacity to sue. It anchors its argument on the following:

In the present case, enforcement has been effectively refused on a ground not found in the
[Alternative Dispute Resolution Act of 2004], New York Convention, or Model Law.It is for
this reason that TPI has brought this matter before this most Honorable Court, as it [i]s
imperative to clarify whether the Philippines international obligations and State policy to
strengthen arbitration as a means of dispute resolution may be defeated by misplaced
technical considerations not found in the relevant laws.[24]
Simply put, how do we reconcile the provisions of the Corporation Code of the Philippines on
one hand, and the Alternative Dispute Resolution Act of 2004, the New York Convention and the Model
Law on the other?

In several cases, this Court had the occasion to discuss the nature and applicability of the
Corporation Code of the Philippines, a general law, viz-a-viz other special laws. Thus, in Koruga v.
Arcenas, Jr.,[25] this Court rejected the application of the Corporation Code and applied the New Central
Bank Act. It ratiocinated:

Korugas invocation of the provisions of the Corporation Code is misplaced. In an

earlier case with similar antecedents, we ruled that:
The Corporation Code, however, is a general law applying to all types
of corporations, while the New Central Bank Act regulates specifically banks
and other financial institutions, including the dissolution and liquidation
thereof. As between a general and special law, the latter shall prevail
generalia specialibus non derogant. (Emphasis supplied)[26]

Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential Agrarian Reform Council,
[27]
this Court held:

Without doubt, the Corporation Code is the general law providing for the formation,
organization and regulation of private corporations. On the other hand, RA 6657 is the
special law on agrarian reform. As between a general and special law, the latter shall
prevailgeneralia specialibus non derogant.[28]

Following the same principle, the Alternative Dispute Resolution Act of 2004 shall apply in this
case as the Act, as its title - 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 - would suggest, is a law especially enacted to actively promote party autonomy in the
resolution of disputes or the freedom of the party to make their own arrangements to resolve their
disputes.[29] It specifically provides exclusive grounds available to the party opposing an application for
recognition and enforcement of the arbitral award.[30]

Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal law, applies in the
instant petition, we do not see the need to discuss compliance with international obligations under the
New York Convention and the Model Law. After all, both already form part of the law.

In particular, the Alternative Dispute Resolution Act of 2004 incorporated the New York
Convention in the Act by specifically providing:

SEC. 42. Application of the New York Convention. - The New York Convention
shall govern the recognition and enforcement of arbitral awards covered by the said
Convention.

xxx

SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign arbitration

proceeding may oppose an application for recognition and enforcement of the arbitral
award in accordance with the procedural rules to be promulgated by the Supreme Court
only on those grounds enumerated under Article V of the New York Convention. Any other
ground raised shall be disregarded by the regional trial court.

It also expressly adopted the Model Law, to wit:

Sec. 19. Adoption of the Model Law on International Commercial Arbitration.

International commercial arbitration shall be governed by the Model Law on International
Commercial Arbitration (the Model Law) adopted by the United Nations Commission on
International Trade Law on June 21, 1985 xxx.

Now, does a foreign corporation not licensed to do business in the Philippines have legal
capacity to sue under the provisions of the Alternative Dispute Resolution Act of 2004? We answer in the
affirmative.

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; or
(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; or
(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; or
(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.

Clearly, not one of these 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,[31] 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.[32] 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, [33] it is specifically required
that a petition to determine any question concerning the existence, validity and enforceability of such
arbitration agreement[34] 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[35] 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.[36]

Indeed, it is in the best interest of justice that in the enforecement of a foreign arbitral award, we
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 our courts. When a party enters into a contract containing a
foreignarbitration 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,[37] 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.[38]

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 court a quo correctly observed
that the Model Law, not the New York Convention, governs the subject arbitral award,[39] petitioner 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.[40]
Premises considered, 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.

II
 The remaining arguments of respondent Kingford are likewise unmeritorious.

First. There is no need to consider respondents contention that petitioner TPI improperly raised a
question of fact when it posited that its act of entering into a MOA should not be considered doing
business in the Philippines for the purpose of determining capacity to sue. We reiterate that the foreign
corporations capacity to sue in the Philippines is not material insofar as the recognition and enforcement
of a foreign arbitral award is concerned.

Second. Respondent cannot fault petitioner for not filing a motion for reconsideration of the
assailed Resolution dated 21 November 2008 dismissing the case. We have, time and again, ruled that
the prior filing of a motion for reconsideration is not required in certiorari under Rule 45.[41]

Third. While we agree that petitioner failed to observe the principle of hierarchy of courts,
which, under ordinary circumstances, warrants the outright dismissal of the case, [42] we opt to relax the
rules following the pronouncement in Chua v. Ang,[43] to wit:

[I]t must be remembered that [the principle of hierarchy of courts] generally

applies to cases involving conflicting factual allegations. Cases which depend on disputed
facts for decision cannot be brought immediately before us as we are not triers of facts. [44]
A strict application of this rule may be excused when the reason behind the rule is not
present in a case, as in the present case, where the issues are not factual but purely legal.
In these types of questions, this Court has the ultimate say so that we merely abbreviate
the review process if we, because of the unique circumstances of a case, choose to hear
and decide the legal issues outright.[45]

Moreover, the novelty and the paramount importance of the issue herein raised should be seriously
considered.[46] Surely, there is a need to take cognizance of the case not only to guide the bench and the
bar, but if only to strengthen arbitration as a means of dispute resolution, and uphold the policy of the
State embodied in the Alternative Dispute Resolution Act of 2004, to wit:

Sec. 2. Declaration of Policy. - It is hereby declared the policy of the State to

actively promote party autonomy in the resolution of disputes or the freedom of the party
to make their own arrangements to resolve their disputes. Towards this end, the State shall
encourage and actively promote the use of Alternative Dispute Resolution (ADR) as an
important means to achieve speedy and impartial justice and declog court dockets. xxx

Fourth. As regards the issue on the validity and enforceability of the foreign arbitral award, we
leave its determination to the court a quo where its recognition and enforcement is being sought.

Fifth. Respondent claims that petitioner failed to furnish the court of origin a copy of the motion
for time to file petition for review on certiorari before the petition was filed with this Court. [47] We,
however, find petitioners reply in order. Thus:

26. Admittedly, reference to Branch 67 in petitioner TPIs Motion for Time to File a
Petition for Review on Certiorari under Rule 45 is a typographical error. As correctly
pointed out by respondent Kingford, the order sought to be assailed originated from
Regional Trial Court, Makati City, Branch 61.

27. xxx Upon confirmation with the Regional Trial Court, Makati City, Branch 61,
a copy of petitioner TPIs motion was received by the Metropolitan Trial Court, Makati
City, Branch 67. On 8 January 2009, the motion was forwarded to the Regional Trial
Court, Makati City, Branch 61.[48]
 All considered, petitioner TPI, although a foreign corporation not licensed to do business in the
Philippines, is not, for that reason alone, precluded from filing the Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award before a Philippine court.

WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial Court, Branch
61, Makati City in Special Proceedings No. M-6533 is hereby REVERSED and SET ASIDE. The case
is REMANDED to Branch 61 for further proceedings.

SO ORDERED.
 WILLIAM GOLANGCO CONSTRUCTION G.R. No. 163582
CORPORATION, Present:
Petitioner,
CARPIO, J., Chairperson,
NACHURA,
- versus PERALTA
ABAD, and
MENDOZA, JJ.

RAY BURTON DEVELOPMENT CORPORATION, Promulgated:

Respondent.
August 9, 2010

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

DECISION

PERALTA, J.:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that the
Decision[1] of the Court of Appeals (CA) dated December 19, 2003, holding that the Construction
Industry Arbitration Commission (CIAC) had no jurisdiction over the dispute between herein parties,
and the CA Resolution[2] dated May 24, 2004, denying herein petitioner's motion for reconsideration, be
reversed and set aside.

The undisputed facts, as accurately narrated in the CA Decision, are as follows.

On July 20, 1995, petitioner Ray Burton Development Corporation [herein
respondent] (RBDC for brevity) and private respondent William Golangco Construction
Corporation [herein petitioner] (WGCC) entered into a Contract for the construction of the
Elizabeth Place (Office/Residential Condominium).

On March 18, 2002, private respondent WGCC filed a complaint with a request for
arbitration with the Construction Industry Arbitration Commission (hereinafter referred to
as CIAC). In its complaint, private respondent prayed that CIAC render judgment ordering
petitioner to pay private respondent the amount of, to wit:

1. P24,703,132.44 for the unpaid balance on the contract price;

2. P10,602,670.25 for the unpaid balance on the labor cost
adjustment;
3. P9,264,503.70 for the unpaid balance of additive works;
4. P2,865,615.10 for extended overhead expenses;
5. P1,395,364.01 for materials cost adjustment and trade
contractors' utilities expenses;
6. P4,835,933.95 for interest charges on unpaid overdue billings
on labor cost adjustment and change orders.

or for a total of Fifty Three Million Six Hundred Sixty-Seven Thousand Two Hundred
Nineteen and 45/xx (P53,667,219.45) and interest charges based on the prevailing bank
rates on the foregoing amount from March 1, 2002 and until such time as the same shall
be fully paid.

On April 12, 2002, petitioner RBDC filed a Motion to Dismiss the aforesaid complaint on
the ground of lack of jurisdiction. It is petitioner's contention that the CIAC acquires
jurisdiction over disputes arising from or connected with construction contracts only when
the parties to the contract agree to submit the same to voluntary arbitration. In the contract
between petitioner and private respondent, petitioner claimed that only disputes by reason
of differences in interpretation of the contract documents shall be deemed subject to
arbitration.

Private respondent filed a Comment and Opposition to the aforesaid Motion dated April
15, 2002. Private respondent averred that the claims set forth in the complaint require
contract interpretation and are thus cognizable by the CIAC pursuant to the arbitration
clause in the construction contract between the parties. Moreover, even assuming that the
claims do not involve differing contract interpretation, they are still cognizable by the
CIAC as the arbitration clause mandates their direct filing therewith.

On May 6, 2002, the CIAC rendered an Order the pertinent portion of which reads as
follows:

The Commission has taken note of the foregoing arguments of the parties.
After due deliberations, the Commission resolved to DENY Respondent's
motion on the following grounds:
[1] Clause 17.2 of Art. XVII of the Contract Agreement explicitly provides
that any dispute arising under the construction contract shall be submitted
to the Construction Arbitration Authority created by the Government.
Even without this provision, the bare agreement to submit a construction
dispute to arbitration vests in the Commission original and exclusive
jurisdiction by virtue of Sec. 4 of Executive Order No. 1008, whether or
not a dispute involves a collection of sum of money or contract
interpretation as long as the same arises from, or in connection with,
contracts entered into by the parties involved. The Supreme Court
jurisprudence on Tesco vs. Vera case referred to by respondent is no longer
controlling as the same was based on the old provision of Article III, Sec.
1 of the CIAC Rules which has long been amended.

[2] The issue raised by Respondent in its Motion to Dismiss is similar to

the issue set forth in CA-G.R. Sp. No. 67367, Continental Cement
Corporation vs. CIAC and EEI Corporation, where the appellate court
upheld the ruling of the CIAC thereon that since the parties agreed to
submit to arbitration any dispute, the same does not exclude disputes
relating to claims for payment in as much as the said dispute originates
from execution of the works. As such, the subject dispute falls within the
original and exclusive jurisdiction of the CIAC.

WHEREFORE, in view of the foregoing, Respondent's Motion to

Dismiss is DENIED for lack of merit. Respondent is given anew an
inextendible period of ten (10) days from receipt hereof within which to
file its Answer and nominees for the Arbitral Tribunal. If Respondent shall
fail to comply within the prescribed period, the Commission shall proceed
with arbitration in accordance with its Rules. x x x

Thereafter, petitioner filed a Motion to Suspend Proceedings praying that the CIAC order
a suspension of the proceedings in Case No. 13-2002 until the resolution of the
negotiations between the parties, and consequently, that the period to file an Answer be
held in abeyance.

Private respondent filed an Opposition to the aforesaid Motion and a Counter-Motion to

Declare respondent to Have Refused to Arbitrate and to Proceed with Arbitration Ex Parte.

On May 24, 2002 the CIAC issued an Order, the pertinent portion of which reads:

In view of the foregoing, Respondent's (petitioner's) Motion to

Suspend Proceedings is DENIED. Accordingly, respondent is hereby
given a non-extendible period of five (5) days from receipt thereof within
which to submit its Answer and nominees for the Arbitral Tribunal. In
default thereof, claimant's (private respondent's) Counter-Motion is
deemed granted and arbitration shall proceed in accordance with the CIAC
 Rules Governing Construction Arbitration.

SO ORDERED. x x x

On June 3, 2002, petitioner RBDC filed [with the Court of Appeals (CA)] a petition
for Certiorari and Prohibition with prayer for the issuance of a temporary restraining order
and a writ of preliminary injunction. Petitioner contended that CIAC acted without or in
excess of its jurisdiction when it issued the questioned order despite the clear showing that
there is lack of jurisdiction on the issue submitted by private respondent for arbitration.[3]

On December 19, 2003, the CA rendered the assailed Decision granting the petition for certiorari, ruling
that the CIAC had no jurisdiction over the subject matter of the case because the parties agreed that only
disputes regarding differences in interpretation of the contract documents shall be submitted for
arbitration, while the allegations in the complaint make out a case for collection of sum of money.
Petitioner moved for reconsideration of said ruling, but the same was denied in a Resolution dated May
24, 2004.

Hence, this petition where it is alleged that:

I.
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN
FAILING TO DISMISS PRIVATE RESPONDENT RBDC'S PETITION IN CA-G.R.
SP NO. 70959 OUTRIGHT IN VIEW OF RBDC'S FAILURE TO FILE A MOTION
FOR RECONSIDERATION OF THE CIAC'S ORDER, AS WELL AS FOR RBDC'S
FAILURE TO ATTACH TO THE PETITION THE RELEVANT PLEADINGS IN CIAC
CASE NO. 13-2002, IN VIOLATION OF THE REQUIREMENT UNDER RULE 65,
SECTIONS 1 AND 2, PARAGRAPH 2 THEREOF, AND RULE 46, SECTION 3,
PARAGRAPH 2 THEREOF.

II.
THE COURT OF APPEALS ERRED GRAVELY IN NOT RULING THAT THE CIAC
HAS JURISDICTION OVER WGCC'S CLAIMS, WHICH ARE IN THE NATURE OF
ARBITRABLE DISPUTES COVERED BY CLAUSE 17.1 OF ARTICLE XVII
INVOLVING CONTRACT INTERPRETATION.

xxxx

III.
THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO DISCERN THAT
CLAUSE 17.2 OF ARTICLE XVII CANNOT BE TREATED AS BEING LIMITED TO
DISPUTES ARISING FROM INTERPRETATION OF THE CONTRACT.

xxxx

IV.
THE COURT OF APPEALS ERRED GRAVELY IN NOT RULING THAT RBDC IS
ESTOPPED FROM DISPUTING THE JURISDICTION OF THE CIAC.

xxxx

V.
FINALLY, THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF
DISCRETION IN REFUSING TO PAY HEED TO THE DECLARATION IN
EXECUTIVE ORDER NO. 1008 THAT THE POLICY OF THE STATE IS IN FAVOR
OF ARBITRATION OF CONSTRUCTION DISPUTES, WHICH POLICY HAS BEEN
REINFORCED FURTHER BY THE RECENT PASSAGE OF THE ALTERNATIVE
DISPUTE RESOLUTION ACT OF 2004(R.A. NO. 9285).[4]
 The petition is meritorious.

The aforementioned issues boil down to (1) whether the CA acted with grave abuse of discretion in
failing to dismiss the petition for certiorari filed by herein respondent, in view of the latter's failure to
file a motion for reconsideration of the assailed CIAC Order and for failure to attach to the petition the
relevant pleadings in CIAC Case No. 13-2002; and (2) whether the CA gravely erred in not upholding
the jurisdiction of the CIAC over the subject complaint.

Petitioner is correct that it was grave error for the CA to have given due course to respondent's
petition for certiorari despite its failure to attach copies of relevant pleadings in CIAC Case No. 13-
2002. In Tagle v. Equitable PCI Bank,[5] the party filing the petition for certiorari before the CA failed to
attach the Motion to Stop Writ of Possession and the Order denying the same. On the ground of non-
compliance with the rules, the CA dismissed said petition for certiorari. When the case was elevated to
this Court via a petition for certiorari, the same was likewise dismissed. In said case, the Court
emphasized the importance of complying with the formal requirements for filing a petition for certiorari
and held as follows:

x x x Sec. 1, Rule 65, in relation to Sec. 3, Rule 46, of the Revised Rules of Court.
Sec. 1 of Rule 65 reads:

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 or his 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 ordinary 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
reliefs as law and justice may require.

The petition shall be accompanied by a certified true copy of the

judgment, order or resolution subject thereof, copies of all pleadings and
documents relevant and pertinent thereto, and a sworn certification of non-
forum shopping as provided in the third paragraph of Section 3, Rule 46.
(Emphasis supplied.)

And Sec. 3 of Rule 46 provides:

SEC. 3. Contents and filing of petition; effect of non-compliance with

requirements. The petition shall contain the full names and actual addresses of
all the petitioners and respondents, a concise statement of the matters
involved, the factual background of the case, and the grounds relied upon for
the relief prayed for.

In actions filed under Rule 65, the petition shall further indicate the
material dates showing when notice of the judgment or final order or
resolution subject thereof was received, when a motion for new trial or
reconsideration, if any, was filed and when notice of the denial thereof was
received.

It shall be filed in seven (7) clearly legible copies together with proof
of service thereof on the respondent with the original copy intended for the
court indicated as such by the petitioner and shall be accompanied by a
clearly legible duplicate original or certified true copy of the judgment, order,
resolution, or ruling subject thereof, such material portions of the record as
 are referred to therein, and other documents relevant or pertinent thereto. The
certification shall be accomplished by the proper clerk of court or by his duly-
authorized representative, or by the proper officer of the court, tribunal,
agency or office involved or by his duly authorized representative. The other
requisite number of copies of the petition shall be accompanied by clearly
legible plain copies of all documents attached to the original.

xxxx

The failure of the petitioner to comply with any of the foregoing

requirements shall be sufficient ground for the dismissal of the petition.
(Emphasis supplied.)

The afore-quoted provisions are plain and unmistakable. Failure to comply with the
requirement that the petition be accompanied by a duplicate original or certified true copy
of the judgment, order, resolution or ruling being challenged is sufficient ground for the
dismissal of said petition. Consequently, it cannot be said that the Court of Appeals
acted with grave abuse of discretion amounting to lack or excess of jurisdiction in
dismissing the petition x x x for non-compliance with Sec. 1, Rule 65, in relation to
Sec. 3, Rule 46, of the Revised Rules of Court.[6]

In the present case, herein petitioner (private respondent below) strongly argued against the CA's
granting due course to the petition, pointing out that pertinent pleadings such as the Complaint before
the CIAC, herein respondent's Motion to Dismiss, herein petitioner's Comment and Opposition (Re:
Motion to Dismiss), and the Motion to Suspend Proceedings, have not been attached to the petition.
Herein respondent (petitioner before the CA) argued in its Reply [7]before the CA that it did not deem
such pleadings or documents germane to the petition. However, in the CA Resolution [8] dated July 4,
2002, the appellate court itself revealed the necessity of such documents by ordering the submission of
copies of pleadings relevant to the petition. Indeed, such pleadings are necessary for a judicious
resolution of the issues raised in the petition and should have been attached thereto. As mandated by the
rules, the failure to do so is sufficient ground for the dismissal of the petition. The CA did not give any
convincing reason why the rule regarding requirements for filing a petition should be relaxed in favor of
herein respondent. Therefore, it was error for the CA to have given due course to the petition for
certiorari despite herein respondent's failure to comply with the requirements set forth in Section 1,
Rule 65, in relation to Section 3, Rule 46, of the Revised Rules of Court.

Even on the main issue regarding the CIAC's jurisdiction, the CA erred in ruling that said
arbitration body had no jurisdiction over the complaint filed by herein petitioner. There is no question
that, as provided under Section 4 of Executive Order No. 1008, also known as the Construction Industry
Arbitration Law, the CIAC has original and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by parties involved in construction in the Philippines and all that
is needed for the CIAC to acquire jurisdiction is for the parties to agree to submit the same to voluntary
arbitration. Nevertheless, respondent insists that the only disputes it agreed to submit to voluntary
arbitration are those arising from interpretation of contract documents. It argued that the claims alleged
in petitioner's complaint are not disputes arising from interpretation of contract documents; hence, the
CIAC cannot assume jurisdiction over the case.

Respondent's contention is tenuous.

The contract between herein parties contained an arbitration clause which reads as follows:

17.1.1. Any dispute arising in the course of the execution of this Contract by reason of
 differences in interpretation of the Contract Documents which the OWNER and the
CONTRACTOR are unable to resolve between themselves, shall be submitted by either
party for resolution or decision, x x x to a Board of Arbitrators composed of three (3)
members, to be chosen as follows:

One (1) member each shall be chosen by the OWNER and the
CONTRACTOR. The said two (2) members, in turn, shall select a third
member acceptable to both of them. The decision of the Board of
Arbitrators shall be rendered within fifteen (15) days from the first
meeting of the Board. The decision of the Board of Arbitrators when
reached through the affirmative vote of at least two (2) of its members
shall be final and binding upon the OWNER and the CONTRACTOR.

17.2 Matters not otherwise provided for in this Contract or by special agreement of
the parties shall be governed by the provisions of the Construction Arbitration Law of the
Philippines. As a last resort, any dispute which is not resolved by the Board of Arbitrators
shall be submitted to the Construction Arbitration Authority created by the government.[9]

In gist, the foregoing provisions mean that herein parties agreed to submit disputes arising by
reason of differences in interpretation of the contract to a Board of Arbitrators the composition of which
is mutually agreed upon by the parties, and, as a last resort, any other dispute which had not been
resolved by the Board of Arbitrators shall be submitted to the Construction Arbitration Authority created
by the government, which is no other than the CIAC. Moreover, other matters not dealt with by
provisions of the contract or by special agreements shall be governed by provisions of the Construction
Industry Arbitration Law, or Executive Order No. 1008.

The Court finds that petitioner's claims that it is entitled to payment for several items under their
contract, which claims are, in turn, refuted by respondent, involves a dispute arising from differences in
interpretation of the contract. Verily, the matter of ascertaining the duties and obligations of the parties
under their contract all involve interpretation of the provisions of the contract. Therefore, if the parties
cannot see eye to eye regarding each others obligations, i.e., the extent of work to be expected from each
of the parties and the valuation thereof, this is properly a dispute arising from differences in the
interpretation of the contract.

Note, further, that in respondent's letter[10] dated February 14, 2000, it stated that disputed items
of work such as Labor Cost Adjustment and interest charges, retention, processing of payment on Cost
Retained by WGCC, Determination of Cost of Deletion for miscellaneous Finishing Works, are
considered unresolved dispute[s] as to the proper interpretation of our respective obligations under the
Contract, which should be referred to the Board of Arbitrators. Even if the dispute subject matter of said
letter had been satisfactorily settled by herein parties, the contents of the letter evinces respondent's
frame of mind that the claims being made by petitioner in the complaint subject of this petition, are
indeed matters involving disputes arising from differences in interpretation.

Clearly, the subject matter of petitioner's claims arose from differences in interpretation of the
contract, and under the terms thereof, such disputes are subject to voluntary arbitration. Since, under
Section 4 of Executive Order No. 1008 the CIAC shall have original and exclusive jurisdiction over
disputes arising from, or connected with, contracts entered into by parties involved in construction in the
Philippines and all that is needed for the CIAC to acquire jurisdiction is for the parties to agree to submit
the same to voluntary arbitration, there can be no other conclusion but that the CIAC had jurisdiction
over petitioner's complaint. Furthermore, Section 1, Article III of the CIAC Rules of Procedure
Governing Construction Arbitration (CIAC Rules) further provide that [a]n 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. Thus, even
if there is no showing that petitioner previously brought its claims before a Board of Arbitrators
constituted under the terms of the contract, this circumstance would not divest the CIAC of jurisdiction.
In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila Tollways Corporation,[11] the Court held
that:

Under Section 1, Article III of the CIAC Rules, an arbitration clause in a

construction contract shall be deemed as 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 x x x. Elementary is the rule that
when laws or rules are clear, it is incumbent on the court to apply them. When the law (or
rule) is unambiguous and unequivocal, application, not interpretation thereof, is
imperative.

Hence, the bare fact that the parties herein incorporated an arbitration clause in
the EPCC is sufficient to vest the CIAC with jurisdiction over any construction
controversy or claim between the parties. The arbitration clause in the construction
contract ipso facto vested the CIAC with jurisdiction. This rule applies, regardless of
whether the parties specifically choose another forum or make reference to another
arbitral body. Since the jurisdiction of CIAC is conferred by law, it cannot be subjected
to any condition; nor can it be waived or diminished by the stipulation, act or omission of
the parties, as long as the parties agreed to submit their construction contract dispute to
arbitration, or if there is an arbitration clause in the construction contract. The parties will
not be precluded from electing to submit their dispute to CIAC, because this right has
been vested in each party by law.

xxxx

It bears to emphasize that the mere existence of an arbitration clause in the

construction contract is considered by law as an agreement by the parties to submit
existing or future controversies between them to CIAC jurisdiction, without any
qualification or condition precedent. To affirm a condition precedent in the
construction contract, which would effectively suspend the jurisdiction of the CIAC
until compliance therewith, would be in conflict with the recognized intention of the law
and rules to automatically vest CIAC with jurisdiction over a dispute should the
construction contract contain an arbitration clause.

Moreover, the CIAC was created in recognition of the contribution of the

construction industry to national development goals. Realizing that delays in the
resolution of construction industry disputes would also hold up the development of the
country, Executive Order No. 1008 expressly mandates the CIAC to expeditiously settle
construction industry disputes and, for this purpose, vests in the CIAC original and
exclusive jurisdiction over disputes arising from, or connected with, contracts entered
into by the parties involved in construction in the Philippines.[12]

Thus, there is no question that in this case, the CIAC properly took cognizance of petitioner's
complaint as it had jurisdiction over the same.

IN VIEW OF THE FOREGOING, the Petition is GRANTED. The Decision of the Court of Appeals,
dated December 19, 2003, and its Resolution dated May 24, 2004 in CA-G.R. SP No. 70959 are
REVERSED and SET ASIDE. The Order of the Construction Industry Arbitration Commission is
REINSTATED.

SO ORDERED.
G.R. No. 212081 February 23, 2015

DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES (DENR), Petitioner, vs.

UNITED PLANNERS CONSULTANTS , INC. (UPCI), Respondent.

D E C I S I O N PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari 1 is the Decision2 dated March 26, 2014 of the Court of
Appeals (CA) in CA-G.R. SP No. 126458 which dismissed the petition for certiorari filed by petitioner
the Department of Environment and Natural Resources (petitioner).

The Facts

On July 26, 1993, petitioner, through the Land Management Bureau (LMB), entered into an Agreement
for Consultancy Services3 (Consultancy Agreement) with respondent United Planners Consultants, Inc.
(respondent) in connection with the LMB' s Land Resource Management Master Plan Project
(LRMMP).4 Under the Consultancy Agreement, petitioner committed to pay a total contract price of
₱4,337,141.00, based on a predetermined percentage corresponding to the particular stage of work
accomplished.5

In December 1994, respondent completed the work required, which petitioner formally accepted on
December 27, 1994.6 However, petitioner was able to pay only 47% of the total contract price in the
amount of ₱2,038,456.30.7

On October 25, 1994, the Commission on Audit (COA) released the Technical Services Office Report 8
(TSO) finding the contract price of the Agreement to be 84.14% excessive. 9 This notwithstanding,
petitioner, in a letter dated December 10, 1998, acknowledged its liability to respondent in the amount of
₱2,239,479.60 and assured payment at the soonest possible time.10

For failure to pay its obligation under the Consultancy Agreement despite repeated demands, respondent
instituted a Complaint11 against petitioner before the Regional Trial Court of Quezon City, Branch 222
(RTC), docketed as Case No. Q-07-60321.12

Upon motion of respondent, the case was subsequently referred to arbitration pursuant to the arbitration
clause of the Consultancy Agreement,13 which petitioner did not oppose.14 As a result, Atty. Alfredo F.
Tadiar, Architect Armando N. Alli, and Construction Industry Arbitration Commission (CIAC)
Accredited Arbitrator Engr. Ricardo B. San Juan were appointed as members of the Arbitral Tribunal.
The court-referred arbitration was then docketed as Arbitration Case No. A-001.15

During the preliminary conference, the parties agreed to adopt the CIAC Revised Rules Governing
Construction Arbitration16 (CIAC Rules) to govern the arbitration proceedings. 17 They further agreed to
submit their respective draft decisions in lieu of memoranda of arguments on or before April 21, 2010,
among others.18

On the due date for submission of the draft decisions, however, only respondent complied with the given
deadline,19while petitioner moved for the deferment of the deadline which it followed with another
motion for extension of time, asking that it be given until May 11, 2010 to submit its draft decision.20

In an Order21 dated April 30, 2010, the Arbitral Tribunal denied petitioner’s motions and deemed its non-
submission as a waiver, but declared that it would still consider petitioner’s draft decision if submitted
before May 7, 2010, or the expected date of the final award’s promulgation. 22 Petitioner filed its draft
decision23 only on May 7, 2010.

The Arbitral Tribunal rendered its Award24 dated May 7, 2010 (Arbitral Award) in favor of respondent,
directing petitioner to pay the latter the amount of (a) ₱2,285,089.89 representing the unpaid progress
billings, with interest at the rate of 12% per annum from the date of finality of the Arbitral Award upon
confirmation by the RTC until fully paid; (b) ₱2,033,034.59 as accrued interest thereon; (c) ₱500,000.00
as exemplary damages; and (d) ₱150,000.00 as attorney’s fees. 25 It also ordered petitioner to reimburse
respondent its proportionate share in the arbitration costs as agreed upon in the amount of ₱182,119.44.26

Unconvinced, petitioner filed a motion for reconsideration,27 which the Arbitral Tribunal merely noted
without any action, claiming that it had already lost jurisdiction over the case after it had submitted to
the RTC its Report together with a copy of the Arbitral Award.28

Consequently, petitioner filed before the RTC a Motion for Reconsideration 29 dated May 19, 2010 (May
19, 2010 Motion for Reconsideration)and a Manifestation and Motion 30 dated June 1, 2010 (June 1,
2010 Manifestation and Motion), asserting that it was denied the opportunity to be heard when the
Arbitral Tribunal failed to consider its draft decision and merely noted its motion for reconsideration. 31 It
also denied receiving a copy of the Arbitral Award by either electronic or registered mail. 32 For its part,
respondent filed an opposition thereto and moved for the confirmation 33 of the Arbitral Award in
accordance with the Special Rules of Court on Alternative Dispute Resolution (Special ADR Rules).34

In an Order35 dated March 30, 2011, the RTC merely noted petitioner’s aforesaid motions, finding that
copies of the Arbitral Award appear to have been sent to the parties by the Arbitral Tribunal, including
the OSG, contrary to petitioner’s claim. Onthe other hand, the RTC confirmed the Arbitral Award
pursuant to Rule 11.2 (A)36 of the Special ADR Rules and ordered petitioner to pay respondent the costs
of confirming the award, as prayed for, in the total amount of ₱50,000.00. From this order, petitioner did
not file a motion for reconsideration.

Thus, on June 15, 2011, respondent moved for the issuance of a writ of execution, to which no
comment/opposition was filed by petitioner despite the RTC’s directive therefor. In an Order 37 dated
September 12, 2011, the RTC granted respondent’s motion.38

Petitioner moved to quash39 the writ of execution, positing that respondent was not entitled to its
monetary claims. It also claimed that the issuance of said writ was premature since the RTC should have
first resolved its May 19, 2010 Motion for Reconsideration and June 1, 2010 Manifestation and Motion,
and not merely noted them, thereby violating its right to due process.40

The RTC Ruling: In an Order41 dated July 9, 2012, the RTC denied petitioner’s motion to quash.

It found no merit in petitioner’s contention that it was denied due process, ruling that its May 19, 2010
Motion for Reconsideration was a prohibited pleading under Section 17.2,42 Rule 17 of the CIAC Rules.
It explained that the available remedy to assail an arbitral award was to file a motion for correction of
final award pursuant to Section 17.143 of the CIAC Rules, and not a motion for reconsideration of the
said award itself.44 On the other hand, the RTC found petitioner’s June 1, 2010 Manifestation and
Motion seeking the resolution of its May 19, 2010 Motion for Reconsideration to be defective for
petitioner’s failure to observe the three day notice rule. 45 Having then failed to avail of the remedies
attendant to an order of confirmation, the Arbitral Award had become final and executory.46

On July 12, 2012, petitioner received the RTC’s Order dated July 9, 2012 denying its motion to quash.47

Dissatisfied, it filed on September 10, 2012a petition for certiorari48 before the CA, docketed as CA-
G.R. SP No. 126458, averring in the main that the RTC acted with grave abuse of discretion in
confirming and ordering the execution of the Arbitral Award.

The CA Ruling

In a Decision49 dated March 26, 2014, the CA dismissed the certiorari petition on two (2) grounds,
namely: (a) the petition essentially assailed the merits of the Arbitral Award which is prohibited under
Rule 19.750 of the Special ADR Rules;51 and (b) the petition was filed out of time, having been filed way
beyond 15 days from notice of the RTC’s July 9, 2012 Order, in violation of Rule 19.28 52 in relation to
Rule 19.853 of said Rules which provide that a special civil action for certiorari must be filed before the
CA within 15 days from notice of the judgment, order, or resolution sought to be annulled or set aside
(or until July 27, 2012). Aggrieved, petitioner filed the instant petition.

The Issue Before the Court

The core issue for the Court’s resolution is whether or not the CA erred in applying the provisions of the
Special ADR Rules, resulting in the dismissal of petitioner’s special civil action for certiorari.

The Court’s Ruling: The petition lacks merit.

I.

Republic Act No. (RA) 9285,54 otherwise known as the Alternative Dispute Resolution Act of 2004,"
institutionalized the use of an Alternative Dispute Resolution System (ADR System) 55 in the Philippines.
The Act, however, was without prejudice to the adoption by the Supreme Court of any ADR system as a
means of achieving speedy and efficient means of resolving cases pending before all courts in the
Philippines.56

Accordingly, A.M. No. 07-11-08-SC was created setting forth the Special Rules of Court on Alternative
Dispute Resolution (referred herein as Special ADR Rules) that shall govern the procedure to be
followed by the courts whenever judicial intervention is sought in ADR proceedings in the specific cases
where it is allowed.57

Rule 1.1 of the Special ADR Rules lists down the instances when the said rules shall apply, namely: "(a)
Relief on the issue of Existence, Validity, or Enforceability of the Arbitration Agreement; (b) Referral to
Alternative Dispute Resolution ("ADR"); (c) Interim Measures of Protection; (d) Appointment of
Arbitrator; (e) Challenge to Appointment of Arbitrator; (f) Termination of Mandate of Arbitrator; (g)
Assistance in Taking Evidence; (h) Confirmation, Correction or Vacation of Award in Domestic
Arbitration; (i) Recognition and Enforcement or Setting Aside of an Award in International Commercial
Arbitration; (j) Recognition and Enforcement of a Foreign Arbitral Award; (k) Confidentiality/Protective
Orders; and (l) Deposit and Enforcement of Mediated Settlement Agreements."58

Notably, the Special ADR Rules do not automatically govern the arbitration proceedings itself. A pivotal
feature of arbitration as an alternative mode of dispute resolution is that it is a product of party autonomy
or the freedom of the parties to make their own arrangements to resolve their own disputes. 59 Thus, Rule
2.3 of the Special ADR Rules explicitly provides that "parties are free to agree on the procedure to be
followed in the conduct of arbitral proceedings. Failing such agreement, the arbitral tribunal may
conduct arbitration in the manner it considers appropriate."60

In the case at bar, the Consultancy Agreement contained an arbitration clause. 61 Hence, respondent, after
it filed its complaint, moved for its referral to arbitration 62 which was not objected to by petitioner.63 By
its referral to arbitration, the case fell within the coverage of the Special ADR Rules. However, with
respect to the arbitration proceedings itself, the parties had agreed to adopt the CIAC Rules before the
Arbitral Tribunal in accordance with Rule 2.3 of the Special ADR Rules.

On May 7, 2010, the Arbitral Tribunal rendered the Arbitral Award in favor of respondent. Under
Section 17.2, Rule 17 of the CIAC Rules, no motion for reconsideration or new trial may be sought, but
any of the parties may file a motion for correction 64 of the final award, which shall interrupt the running
of the period for appeal,65 based on any of the following grounds, to wit: a. an evident miscalculation of
figures, a typographical or arithmetical error;

b. an evident mistake in the description of any party, person, date, amount, thing or property referred to
in the award;

c. where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits of
the decision upon the matter submitted;

d. where the arbitrators have failed or omitted to resolve certain issue/s formulated by the parties in the
Terms of Reference (TOR) and submitted to them for resolution, and

e. where the award is imperfect in a matter of form not affecting the merits of the controversy.
The motion shall be acted upon by the Arbitral Tribunal or the surviving/remaining members.66

Moreover, the parties may appeal the final award to the CA through a petition for review under Rule43
of the Rules of Court.67

Records do not show that any of the foregoing remedies were availed of by petitioner. Instead, it filed
the May 19, 2010 Motion for Reconsideration of the Arbitral Award, which was a prohibited pleading
under the Section 17.2,68Rule 17 of the CIAC Rules, thus rendering the same final and executory.

Accordingly, the case was remanded to the RTC for confirmation proceedings pursuant to Rule 11 of the
Special ADR Rules which requires confirmation by the court of the final arbitral award. This is
consistent with Section 40, Chapter 7 (A) of RA 9285 which similarly requires a judicial confirmation of
a domestic award to make the same enforceable:

SEC. 40. Confirmation of Award.– The confirmation of a domestic arbitral award shall be governed by
Section 2369of R.A. 876.70

A domestic arbitral award when confirmed shall be enforced in the same manner as final and executory
decisions of the regional trial court.

The confirmation of a domestic award shall be made by the regional trial court in accordance with the
Rules of Procedure to be promulgated by the Supreme Court.

A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided
under E.O. No. 1008. (Emphases supplied)

During the confirmation proceedings, petitioners did not oppose the RTC’s confirmation by filing a
petition to vacate the Arbitral Award under Rule 11.2 (D) 71 of the Special ADR Rules. Neither did it seek
reconsideration of the confirmation order in accordance with Rule 19.1 (h) thereof. Instead, petitioner
filed only on September 10, 2012 a special civil action for certiorari before the CA questioning the
propriety of (a) the RTC Order dated September 12, 2011 granting respondent’s motion for issuance of a
writ of execution, and (b) Order dated July 9,2012 denying its motion to quash. Under Rule 19.26 of the
Special ADR Rules, "[w]hen the Regional Trial Court, in making a ruling under the Special ADR Rules,
has acted without or in excess of its jurisdiction, or with grave abuse of discretion amounting to lack or
excess of jurisdiction, and there is no appeal or any plain, speedy, and adequate remedy in the ordinary
course of law, a party may file a special civil action for certiorari to annul or set aside a ruling of the
Regional Trial Court." Thus, for failing to avail of the foregoing remedies before resorting to certiorari,
the CA correctly dismissed its petition.

II.

Note that the special civil action for certiorari described in Rule 19.26 above may be filed to annul or set
aside the following orders of the Regional Trial Court.

a. Holding that the arbitration agreement is in existent, invalid or unenforceable;

b. Reversing the arbitral tribunal’s preliminary determination upholding its jurisdiction;

c. Denying the request to refer the dispute to arbitration;

d. Granting or refusing an interim relief;

e. Denying a petition for the appointment of an arbitrator;

f. Confirming, vacating or correcting a domestic arbitral award;

g. Suspending the proceedings to set aside an international commercial arbitral award and referring
the case back to the arbitral tribunal;

h. Allowing a party to enforce an international commercial arbitral award pending appeal;

i. Adjourning or deferring a ruling on whether to set aside, recognize and or enforce an international
 commercial arbitral award;

j. Allowing a party to enforce a foreign arbitral award pending appeal; and

k. Denying a petition for assistance in taking evidence. (Emphasis supplied)

Further, Rule 19.772 of the Special ADR Rules precludes a party to an arbitration from filing a petition
for certiorari questioning the merits of an arbitral award.

If so falling under the above-stated enumeration, Rule 19.28 of the Special ADR Rules provide that said
certiorari petition should be filed "with the [CA] within fifteen (15) days from notice of the judgment,
order or resolution sought to be annulled or set aside. No extension of time to file the petition shall be
allowed."

In this case, petitioner asserts that its petition is not covered by the Special ADR Rules (particularly,
Rule 19.28 on the 15-day reglementary period to file a petition for certiorari) but by Rule 65 of the Rules
of Court (particularly, Section 4 thereof on the 60-day reglementary period to file a petition for
certiorari), which it claimed to have suppletory application in arbitration proceedings since the Special
ADR Rules do not explicitly provide for a procedure on execution. The position is untenable.

Execution is fittingly called the fruit and end of suit and the life of the law. A judgment, if left
unexecuted, would be nothing but an empty victory for the prevailing party.73

While it appears that the Special ADR Rules remain silent on the procedure for the execution of a
confirmed arbitral award, it is the Court’s considered view that the Rules’ procedural mechanisms cover
not only aspects of confirmation but necessarily extend to a confirmed award’s execution in light of the
doctrine of necessary implication which states that every statutory grant of power, right or privilege is
deemed to include all incidental power, right or privilege. In Atienza v. Villarosa, 74 the doctrine was
explained, thus:

No statute can be enacted that can provide all the details involved in its application.1âwphi1 There is
always an omission that may not meet a particular situation. What is thought, at the time of enactment,
to be an all embracing legislation may be inadequate to provide for the unfolding of events of the future.
So-called gaps in the law develop as the law is enforced. One of the rules of statutory construction used
to fill in the gap is the doctrine of necessary implication. The doctrine states that what is implied in a
statute is as much a part thereof as that which is expressed. Every statute is understood, by implication,
to contain all such provisions as may be necessary to effectuate its object and purpose, or to make
effective rights, powers, privileges or jurisdiction which it grants, including all such collateral and
subsidiary consequences as may be fairly and logically inferred from its terms. Ex necessitate legis. And
every statutory grant of power, right or privilege is deemed to include all incidental power, right or
privilege. This is so because the greater includes the lesser, expressed in the maxim, in eo plus sit,
simper inest et minus.75 (Emphases supplied)

As the Court sees it, execution is but a necessary incident to the Court’s confirmation of an arbitral
award. To construe it otherwise would result in an absurd situation whereby the confirming court
previously applying the Special ADR Rules in its confirmation of the arbitral award would later shift to
the regular Rules of Procedure come execution. Irrefragably, a court’s power to confirm a judgment
award under the Special ADR Rules should be deemed to include the power to order its execution for
such is but a collateral and subsidiary consequence that may be fairly and logically inferred from the
statutory grant to regional trial courts of the power to confirm domestic arbitral awards.

All the more is such interpretation warranted under the principle of ratio legis est anima which provides
that a statute must be read according to its spirit or intent, 76 for what is within the spirit is within the
statute although it is not within its letter, and that which is within the letter but not within the spirit is not
within the statute.77 Accordingly, since the Special ADR Rules are intended to achieve speedy and
efficient resolution of disputes and curb a litigious culture, 78every interpretation thereof should be made
consistent with these objectives.

Thus, with these principles in mind, the Court so concludes that the Special ADR Rules, as far as
practicable, should be made to apply not only to the proceedings on confirmation but also to the
confirmed award’s execution.
Further, let it be clarified that – contrary to petitioner’s stance – resort to the Rules of Court even in a
suppletory capacity is not allowed. Rule 22.1 of the Special ADR Rules explicitly provides that "[t]he
provisions of the Rules of Court that are applicable to the proceedings enumerated in Rule 1.1 of these
Special ADR Rules have either been included and incorporated in these Special ADR Rules or
specifically referred to herein."79 Besides, Rule 1.13 thereof provides that "[i]n situations where no
specific rule is provided under the Special ADR Rules, the court shall resolve such matter summarily
and be guided by the spirit and intent of the Special ADR Rules and the ADR Laws."

As above-mentioned, the petition for certiorari permitted under the Special ADR Rules must be filed
within a period of fifteen (15) days from notice of the judgment, order or resolution sought to be
annulled or set aside.80 Hence, since petitioner’s filing of its certiorari petition in CA-G.R. SP No.
126458 was made nearly two months after its receipt of the RTC’s Order dated July 9, 2012,or on
September 10, 2012,81 said petition was clearly dismissible.82

III.

Discounting the above-discussed procedural considerations, the Court still finds that the certiorari
petition had no merit.

Indeed, petitioner cannot be said to have been denied due process as the records undeniably show that it
was accorded ample opportunity to ventilate its position. There was clearly nothing out of line when the
Arbitral Tribunal denied petitioner’s motions for extension to file its submissions having failed to show
a valid reason to justify the same or in rendering the Arbitral Award sans petitioner’s draft decision
which was filed only on the day of the scheduled promulgation of final award on May 7, 2010. 83 The
touchstone of due process is basically the opportunity to be heard. Having been given such opportunity,
petitioner should only blame itself for its own procedural blunder.

On this score, the petition for certiorari in CA-G.R. SP No. 126458 was likewise properly dismissed.

IV.

Nevertheless, while the Court sanctions the dismissal by the CA of the petition for certiorari due to
procedural infirmities, there is a need to explicate the matter of execution of the confirmed Arbitral
Award against the petitioner, a government agency, in the light of Presidential Decree No. (PD) 1445 84
otherwise known as the "Government Auditing Code of the Philippines." Section 26 of PD 1445
expressly provides that execution of money judgment against the Government or any of its subdivisions,
agencies and instrumentalities is within the primary jurisdiction of the COA, to wit:

SEC. 26. General jurisdiction. The authority and powers of the Commission shall extend to and
comprehend all matters relating to auditing procedures, systems and controls, the keeping of the general
accounts of the Government, the preservation of vouchers pertaining thereto for a period of ten years,
the examination and inspection of the books, records, and papers relating to those accounts; and the
audit and settlement of the accounts of all persons respecting funds or property received or held by them
in an accountable capacity, as well as the examination, audit, and settlement of all debts and claims of
any sort due from or owing to the Government or any of its subdivisions, agencies and instrumentalities.
The said jurisdiction extends to all government-owned or controlled corporations, including their
subsidiaries, and other self-governing boards, commissions, or agencies of the Government, and as
herein prescribed, including non-governmental entities subsidized by the government, those funded by
donation through the government, those required to pay levies or government share, and those for which
the government has put up a counterpart fund or those partly funded by the government. (Emphases
supplied)

From the foregoing, the settlement of respondent’s money claim is still subject to the primary
jurisdiction of the COA despite finality of the confirmed arbitral award by the RTC pursuant to the
Special ADR Rules.85 Hence, the respondent has to first seek the approval of the COA of their monetary
claim. This appears to have been complied with by the latter when it filed a "Petition for Enforcement
and Payment of Final and Executory Arbitral Award" 86before the COA. Accordingly, it is now the COA
which has the authority to rule on this latter petition. WHEREFORE, the petition is DENIED. The
Decision dated March 26, 2014 of the Court of Appeals in CA-G.R. SP No. 126458 which dismissed the
petition for certiorari filed by petitioner the Department of Environment and Natural Resources is hereby
AFFIRMED.
SO ORDERED.

G.R. No. 204197

FRUEHAUF ELECTRONICS PHILIPPINES CORPORATION, Petitioner,

vs.
TECHNOLOGY ELECTRONICS ASSEMBLY AND MANAGEMENT PACIFIC
CORPORATION, Respondent.

DECISION

BRION, J.:

The fundamental importance of this case lies in its delineation of the extent of permissible judicial
review over arbitral awards. We make this determination from the prism of our existing laws on the
subject and the prevailing state policy to uphold the autonomy of arbitration proceedings.

This is a petition for review on certiorari of the Court of Appeals' (CA) decision in CA-G.R. SP. No.
112384 that reversed an arbitral award and dismissed the arbitral complaint for: lack of merit. 1 The CA
breached the bounds of its jurisdiction when it reviewed the substance of the arbitral award outside of
the permitted grounds under the Arbitration Law.2

Brief Factual Antecedents

In 1978, Fruehauf Electronics Philippines Corp. (Fruehauf) leased several parcels of land in Pasig City
to Signetics Filipinas Corporation (Signetics) for a period of 25 years (until May 28, 2003). Signetics
constructed a semiconductor assembly factory on the land on its own account.

In 1983, Signetics ceased its operations after the Board of Investments (BOI) withdrew the investment
incentives granted to electronic industries based in Metro Manila.

In 1986, Team Holdings Limited (THL) bought Signetics. THL later changed its name to Technology
Electronics Assembly and Management Pacific Corp. (TEAM).

In March 1987, Fruehauf filed an unlawful detainer case against TEAM. In an effort to amicably settle
the dispute, both parties executed a Memorandum of Agreement (MOA) on June 9, 1988.3 Under the
MOA, TEAM undertook to pay Fruehauf 14.7 million pesos as unpaid rent (for the period of December
1986 to June 1988).

They also entered a 15-year lease contract4 (expiring on June 9, 2003) that was renewable for another 25
years upon mutual agreement. The contract included an arbitration agreement:5

17. ARBITRATION

In the event of any dispute o~ disagreement between the parties hereto involving the interpretation or
implementation of any provision of this Contract of Lease, the dispute or disagreement shall be referred
to arbitration by a three (3) member arbitration committee, one member to be appointed by the
LESSOR, another member to be appointed by the LESSEE, and the third member to be appointed by
these two members. The arbitration shall be conducted in accordance with the Arbitration Law (R.A. No.
876).

The contract also authorized TEAM to sublease the property. TEAM subleased the property to Capitol
Publishing House (Capitol) on December 2, 1996 after notifying Fruehauf.

On May 2003, TEAM informed Fruehauf that it would not be renewing the lease. 6

On May 31, 2003, the sublease between TEAM and Capitol expired. However, Capitol only vacated the
premises on March 5, 2005. In the meantime, the master lease between TEAM and Fruehauf expired on
June 9, 2003.

On March 9, 2004, Fruehauf instituted SPProc. No.11449 before the Regional Trial Court (RTC) for
"Submission of an Existing Controversy for Arbitration." 7 It alleged: (1) that when the lease expired, the
property suffered from damage that required extensive renovation; (2) that when the lease expired,
TEAM failed to turn over the premises and pay rent; and (3) that TEAM did not restore the property to
its original condition as required in the contract. Accordingly, the parties are obliged to submit the
dispute to arbitration pursuant to the stipulation in the lease contract.

The RTC granted the petition and directed the parties to comply with the arbitration clause of the
contract. 8

Pursuant to the arbitration agreement, the dispute was referred to a three-member arbitration tribunal.
TEAM and Fruehauf appointed one member each while the Chairman was appointed by the first two
members. The tribunal was formally constituted ion September 27, 2004 with retired CA Justice Hector
L. Hofileña, as chairman, retired CA Justice Mariano M. Umali and Atty. Maria Clara B. Tankeh-
Asuncion as members.9

The parties initially submitted the following issues to the tribunal for resolution: 10

1. Whether or not TEAM had complied with its obligation to return the leased premises to Fruehauf after
the expiration of the lease on June 9, 2003.

1.1. What properties should be returned and in what condition?

2. Is TEAM liable for payment of rentals after June 9, 2003?

2.1. If so, how much and for what period?

3. Is TEAM liable for payment of real estate taxes, insurance, and other expenses on the leased premises
after June 9, 2003?

4. Who is liable for payment of damages and how much?

5. Who is liable for payment of attorney's fees and how much?

11
Subsequently, the following issues were also submitted for resolution after TEAM proposed their
inclusion:

1. Who is liable for the expenses of arbitration, including arbitration fees?

2. Whether or not TEAM has the obligation to return the premises to Fruehauf as a "complete,
rentable, and fully facilitized electronic plant."

The Arbitral Award12

On December 3, 2008, the arbitral tribunal awarded Fruehauf: (1) 8.2 million pesos as (the balance of)
unpaid rent from June 9, 2003 until March 5, 2005; and (2) 46.8 million pesos as damages. 13

The tribunal found that Fruehauf made several demands for the return of the leased premises before and
after: the expiration of the lease14 and that there was no express or implied renewal of the lease after
June 9, 2003. It recognized that the sub-lessor, Capitol, remained in possession of the lease. However,
relying on the commentaries of Arturo Tolentino on the subject, the tribunal held that it was not enough
for lessor to simply vacate the leased property; it is necessary that he place the thing at the disposal of
the lessor, so that the latter can receive it without any obstacle. 15

For failing to return the property' to Fruehauf, TEAM remained liable for the payment of rents.
However, if it can prove that Fruehauf received rentals from Capitol, TEAM can deduct these from its
liability. 16 Nevertheless, the award of rent and damages was without prejudice to TEAM's right to seek
redress from its sub-lessee, Capitol. 17
With respect to the improvements on the land, the tribunal viewed the situation from two perspectives:

First, while the Contract admitted that Fruehauf was only leasing the land and not the buildings and
improvements thereon, it nevertheless obliged TEAM to deliver the buildings, installations and other
improvements existing at the inception of the lease uponits expiration. 18

The other view, is that the MOA and the Contract recognized that TEAM owned the existing
improvements on the property and considered them as separate from the land for the initial 15-year term
of the lease. 19 However, Fruehauf had a vested right to become the owner of these improvements at the
end of the 15-year term. Consequently, the contract specifically obligated TEAM not to remove, transfer,
destroy, or in any way alienate or encumber these improvements without prior written consent from
Fruehauf. 20

Either way, TEAM had the obligation to deliver the existing improvements on the land upon the
expiration of the lease. However, there was no obligation under the lease to return the premises as a
"complete, rentable, and fully facilitized electronics plant."21Thus, TEAM's obligation was to vacate the
leased property and deliver to Fruehauf the buildings, improvements, and installations (including the
machineries and equipment existing thereon) in the same condition as when the lease commenced, save
for what had been lost or impaired by 1the lapse of time, ordinary wear and tear, or any other inevitable
cause. 22

The tribunal found TEAM negligent in the maintenance of the premises, machineries, and equipment it
was obliged to deliver to Fruehauf. 23 For this failure to conduct the necessary repairs or to notify
Fruehauf of their necessity, the tribunal held TEAM accountable for damages representing the value of
the repairs necessary to restore the premises to a condition "suitable for the use to which it has been
devoted' less their depreciation expense.24

On the other issues, the tribunal held that TEAM had no obligation to pay real estate taxes, insurance,
and other expenses on the leased premises considering these obligations can only arise from a renewal of
the contract.25Further, the tribunal refused: to award attorney's fees, finding no evidence that either party
acted in bad faith. 26 For the same reason, it held both parties equally liable for the expenses of litigation,
including the arbitrators' fees. 27

TEAM moved for reconsideration28 which the tribunal denied. 29 Thus, TEAM petitioned the RTC to
partially vacate or modify the arbitral award.30 It argued that the tribunal failed to properly appreciate the
facts and the terms of the lease contract.

The RTC Ruling

On April 29, 2009, the RTC31 found insufficient legal grounds under Sections 24 and 25 of the
Arbitration Law to modify or vacate the award. 32 It denied the petition and CONFIRMED, the arbitral
award. 33 TEAM filed a Notice of Appeal.

On July 3, 2009,34 the RTC refused to give due course to the Notice of Appeal because according to
Section 29 35 of the Arbitration Law, an ordinary appeal under Rule 41 is not the proper mode of appeal
against an order confirming an arbitral award. 36

TEAM moved for reconsideration but the R TC denied the motion on November 15, 2009.37 Thus,
TEAM filed a petition for certiorari38before the CA arguing that the RTC gravely abused its discretion
in: (1) denying due course to its notice of appeal; and (2) denying the motion to partially vacate and/or
modify the arbitral award.39

TEAM argued that an ordinary appeal under Rule 41 was the proper remedy against the RTC's order
confirming, modifying, correcting, or vacating an arbitral award. 40 It argued that Rule 42 was not
available because the order denying its motion to vacate was not rendered in the exercise of the RTC's
appellate jurisdiction. Further, Rule 43 only applies to decisions of quasi-judicial bodies. Finally, an
appeal under Rule 45 to the Supreme Court would preclude it from raising questions of fact or mixed
questions of fact and law.41

TEAM maintained that it was appealing the RTC's order denying its petition to partially vacate/modify
the award, not the arbitral award itself. 42 Citing Rule 41, Section 13 of the Rules of Court, the RTC's
authority to dismiss the appeal is limited to instances when it was filed out of time or when the appellant
fails to pay the docket fees within the reglementary period.43

TEAM further maintained that the RTC gravely abused its discretion by confirming the Arbitral
Tribunal's award when it evidently had legal and factual errors, miscalculations, and ambiguities. 44

The petition was docketed as CA-G.R. SP. No.112384.

The CA decision 45

The CA initially dismissed the petition. 46 As the RTC did, it cited Section 29 of the Arbitration Law:

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

It concluded that the appeal contemplated under the law is an appeal by certiorari limited only to
questions of law.47

The CA continued that TEAM failed to substantiate its claim as to the "evident miscalculation of
figures." It further held that disagreement with the arbitrators' factual determinations and legal
conclusions does not empower courts to amend or overrule arbitral judgments.48

However, the CA amended its decision on October 25, 2012 upon a motion for reconsideration.49

The CA held that Section 29 of the Arbitration Law does not preclude the aggrieved party from resorting
to other judicial remedies.50 Citing Asset Privatization Trust v. Court of Appeals,51the CA held that the
aggrieved party may resort to a petition for certiorari when the R TC to which the award was submitted
for confirmation Has acted without jurisdiction, or with grave abuse of discretion and there is no appeal,
nor any plain, speedy remedy in the course of law.52

The CA further held that the mere filing of a notice of appeal is sufficient as the issues raised in the
appeal were not purely questions of law. 53 It further cited Section 46 of the Alternative Dispute
Resolution

(ADR) Law:54

SEC. 46. Appeal from Court Decisions on Arbitral Awards. - A decision of the regional trial court
confirming, vacating, setting aside, modifying or correcting an arbitral award may be appealed to the
Court of Appeals in accordance with the rules of procedure to be promulgated by the Supreme Court.

The losing party who appeals from the judgment of the court confirming an arbitral award shall be
required by the appellant court to post counterbond executed in favor of the prevailing party equal to the
amount of the award in accordance with the rules to be promulgated by the Supreme Court. 55

However, the CA made no further reference to A.M. No. 07-11-08-SC, the Special Rules of Court on
Alternative Dispute Resolution (Special ADR Rules) which govern the appeal procedure.

The CA further revisited the merits of the arbitral award and found several errors in law and in fact. It
held: (1) that TEAM was not obliged to pay rent because it was Capitol, not TEAM, that remained in
possession of the property upon the expiration of the lease; 56 and (2) that Fruehauf was not entitled to
compensation for the repair$ on the buildings because it did not become the owner of the building until
after the expiration of the lease. 57

Also citing Tolentino, the CA opined: (1) that a statement by the lessee that he has abandoned the
premises should, as a general rule, constitute sufficient compliance with his duty to return the leased
premises; and (2) that any new arrangement made by the lessor with another person, such as the sub-
lessor, operates as a resumption of his possession.58

On the issue of damages, the CA held that TEAM can never be liable for the damages for the repairs of
the improvements on the premises because they were owned by TEAM itself (through its predecessor,
Signetics) when the lease commenced. 59
The CA REVERSED AND SET ASIDE the arbitral award and DISMISSED the arbitral complaint for
lack of merit.60

This CA action prompted Fruehauf to file the present petition for review.

The Arguments

Fruehauf argues that courts do riot have the power to substitute their judgment for that of the
arbitrators.61 It also insists that an ordinary appeal is not the proper remedy against an RTC's order
confirming, vacating, correcting or modifying an arbitral &ward but a petition for review on certiorari
under Rule 45. 62

Furthermore, TEAM's petition before the CA went beyond the permissible scope of certiorari - the
existence of grave abuse of discretion or errors jurisdiction - by including questions of fact and law that
challenged the merits of the arbitral award.63

However, Fruehauf inconsistently argues that the remedies against an arbitral award are (1) a petition to
vacate the award, (2) a petition for review under Rule 43 raising questions of fact, of law, or mixed
questions of fact and law, or (3) a petition for certiorari under Rule 65.64 Fruehauf cites an article from
the Philippine Dispute Resolution Center65and Insular Savings Bank v. Far East Bank and Trust, Co.66

TEAM counters that the CA correctly resolved the substantive issues of the case and that the arbitral
tribunal's errors were sufficient grounds to vacate or modify the award. 67 It insists that the RTC's
misappreciation of the facts from a patently erroneous award warranted an appeal under Rule 41.68

TEAM reiterates that it "disagreed with the arbitral award mainly on questions of fact and not only
on questions of law," specifically, "on factual matters relating to specificprovisions in the contract
on ownership of structures and improvements thereon, and the improper award of rentals and
penalties."69Even assuming that it availed of the wrong mode of appeal, TEAM posits that its appeal
should still have been given due course in the interest of substantial justice. 70

TEAM assails the inconsistencies of Fruehauf’s position as to the available legal remedies against an
arbitral award.71 However, it maintains that Section 29 of the Arbitration Law does not foreclose other
legal remedies (aside from an appeal by certiorari) against the RTC's order confirming or vacating an
arbitral award pursuant to Insular Savings Bank WINS) Japan Co., Ltd. 72

The Issues

This case raises the following questions:

1. What are the remedies or the modes of appeal against an unfavorable arbitral award?

2. What are the available remedies from an RTC decision confirming, vacating, modifying, or
correcting an arbitral award?

3. Did the arbitral tribunal err in awarding Fruehauf damages for the repairs of the building and
rental fees from the expiration of the lease?

Our Ruling

The petition is meritorious.

Arbitration is an alternative mode of dispute resolution outside of the regular court system. Although
adversarial in character, arbitration is technically not litigation. It is a voluntary process in which one or
more arbitrators - appointed according to the parties' agreement or according to the applicable rules of
the Alternative Dispute Resolution (ADR) Law - resolve a dispute by rendering an award. 73 While
arbitration carries many advantages over court litigation, in :many ways these advantages also translate
into its disadvantages.

Resort to arbitration is voluntary. It requires consent from both parties in the form of an arbitration
clause that pre-existed the dispute or a subsequent submission agreement. This written arbitration
agreement is an independent and legally enforceable contract that must be complied with in good faith.
By entering into an arbitration agreement, the parties agree to submit their dispute to an arbitrator
(ortribunal) of their own choosing and be bound by the latter's resolution.

However, this contractual and consensual character means that the parties cannot implead a third-party
in the proceedings even if the latter's participation is necessary for a complete settlement of the dispute.
The

tribunal does not have the power to compel a person to participate in the arbitration proceedings without
that person's consent. It also has no authority to decide on issues that the parties did not submit (or agree
to submit) for its resolution.

As a purely private mode of dispute resolution, arbitration proceedings, including the records, the
evidence, and the arbitral award, are confidential 74 unlike court proceedings which are generally public.
This allows the parties to avoid negative publicity and protect their privacy. Our law highly regards the
confidentiality of arbitration proceedings that it devised a judicial remedy to prevent or prohibit the
unauthorized disclosure of confidential information obtained therefrom. 75

The contractual nature of arbitral proceedings affords the parties I substantial autonomy over the
proceedings. The parties are free to agree on the procedure to be observed during the proceedings. 76
This lends considerable flexibility to arbitration ; proceedings as compared to court I litigation governed
by the Rules of Court.

The parties likewise appoint the arbitrators based on agreement. There are no other legal requirements
as to the competence or technical qualifications of an arbitrator. Their only legal qualifications are: (1)
being of legal age; (2) full-enjoyment of their civil rights; and (3) the ability to read and write.77 The
parties can tailor-fit the tribunal's composition to the nature of their dispute. Thus, a specialized dispute
can be resolved by experts on the subject.

However, because arbitrators do not necessarily have a background in law, they cannot be expected to
have the legal mastery of a magistrate. There is a greater risk that an arbitrator might misapply the law
or misappreciate the facts en route to an erroneous decision.

This risk of error is compounded by the absence of an effective appeal mechanism. The errors of an;
arbitral tribunal are not subject to correction by the judiciary. As a private alternative to court
proceedings, arbitration is meant to be an end, not the beginning, of litigation. 78Thus, the arbitral
award is final and binding on the parties by reason of their contract - the arbitration agreement. 79

An Arbitral Tribunal does not exercise

quasi-judicial powers

Quasi-judicial or administrative adjudicatory power is the power: (1) to hear and determine questions of
fact to which legislative policy is to apply, and (2) to decide in accordance with the standards laid down
by the law itself in enforcing and administering the same law. 80Quasi-judicial power is only exercised by
administrative agencies - legal organs of the government.

Quasi-judicial bodies can only exercise such powers and jurisdiction as are expressly or by necessary
implication conferred upon them by their enabling statutes. 81 Like courts, a quasi-judicial body's
jurisdiction over a subject matter is conferred by law and exists independently from the will of the
parties. As government organs necessary for an effective legal system, a quasi-judicial tribunal's legal
existence, continues beyond the resolution of a specific dispute. In other words, quasi-judicial bodies are
creatures of law.

As a contractual and consensual: body, the arbitral tribunal does not have any inherent powers over the
parties. It has no power to issue coercive writs or compulsory processes. Thus, there is a need to resort
 82
to the regular courts for interim measures of protection and for the recognition or enforcement of the
arbitral award. 83

The arbitral tribunal acquires jurisdiction over the parties and the subject matter through stipulation.
Upoh the rendition of the final award, the tribunal becomes functus officio and - save for a few
exceptions84 - ceases to have any further jurisdiction over the dispute. 85 The tribunal's powers (or in the
case of ad hoc tribunals, their very existence) stem from the obligatory force of the arbitration
agreement and its ancillary stipulations.86 Simply put, an arbitral tribunal is a creature of contract.

Deconstructing the view that arbitral

tribunals are quasi-judicial agencies

We are aware of the contrary view expressed by the late Chief Justice Renato Corona in ABS-CBN
Broadcasting Corporation v. World Interactive Network Systems (WINS)Japan Co., Ltd. 87

The ABS-CBN Case opined that a voluntary arbitrator is a "quasi-judicial instrumentality" of the
government 88pursuant to Luzon Development Bank v. Association of Luzon Development Bank
Employees, 89 Sevilla Trading Company v. Sernana, 90 Manila Midtown Hotel v. Borromeo, 91 and
Nippon Paint Employees Union-Olalia v. Court of Appeals. 92 Hence, voluntary arbitrators are included
in the Rule 43 jurisdiction of the Court of Appeals:

SECTION 1. Scope.-This Rule shall apply to appeals from judgments or final orders of the Court of Tax
Appeals and from awards, judgments, final orders or resolutions of or authorized by any quasi-judicial
agency in the exercise of its quasi-judicial functions. Among these agencies are the Civil Service
Commission, Central: Board of Assessment Appeals, Securities and Exchange Commission, Office of
the President, Land Registration Authority, Social Security Commission, Civil Aeronautics Board,
Bureau of Patents, Trademarks and Technology Transfer, National Electrification Administration,
Energy Regulatory Board, National Telecommunications Commission, Department of Agrarian Reform
under Republic Act No. 6657, Government Service Insurance System, Employees Compensation
Commission, Agricultural Inventions Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction Industry Arbitration Commission, and voluntary
arbitrators authorized by law.93 (emphasis supplied)

Citing Insular Savings Bank v. Far East Bank and Trust Co., 94 the ABS-CBN Case pronounced that the
losing party in an arbitration proceeding may avail of three alternative remedies: (1) a petition to vacate
the arbitral award before the RTC; (2) a petition for review with the CA under Rule 43 of the Rules of
Court raising questions of fact, of law, or of both; and (3) a I petition for certiorari under Rule 65 should
the arbitrator act beyond its jurisdiction or with grave abuse of discretion. 95

At first glance, the logic of this position appears to be sound. However, a critical examination of the
supporting authorities would show that the conclusion is wrong.

First, the pronouncements made in the ABS-CBN Case and in the Insular Savings Bank Case (which
served as the authority for the ABS-CBN Case) were both obiter dicta.

In the ABS-CBN Case, we sustained the CA's dismissal of the petition because it was filed as an
"alternative petition for review under Rule 43 or petition for certiorari under Rule 65." 96 We held that it
was an inappropriate mode of appeal because, a petition for review and a petition for certiorari are
mutually exclusive and not alternative or successive.

In the Insular Savings Bank case, the lis mota of the case was the RTC's jurisdiction over an appeal
from an arbitral award. The parties to the arbitration agreement agreed that the rules of the arbitration
provider97 - which stipulated that the R TC shall have jurisdiction to review arbitral awards - will govern
the proceedings.98 The Court ultimately held that the RTC does not have jurisdiction to review the
merits of the award because legal jurisdiction is conferred by law, not by mere agreement of the parties.

In both cases, the pronouncements as to the remedies against an arbitral award were unnecessary for
their resolution. Therefore, these are obiter dicta - judicial comments made, in passing which are not
essential to the resolution of the case and cannot therefore serve as precedents.99
Second, even if we disregard the obiter dicta character of both pronouncements, a more careful scrutiny
deconstructs their legal authority.

The ABS-CBN Case committed the classic fallacy of equivocation. It equated the term "voluntary
arbitrator" used in Rule 43, Section 1 and in the cases of Luzon Development Bank v. Association of
Luzon Development Bank Employees, Sevilla Trading Company v. Semana, Manila Midtown Hotel v.
Borromeo, and Nippon Paint Employees Union-Olalia v. Court of Appeals with the term
"arbitrator/arbitration tribunal."

The first rule of legal construction, verba legis, requires that, wherever possible, the words used in the
Constitution or in the statute must be given their ordinary meaning except where technical terms are
employed. 100Notably, all of the cases cited in the ABS-CBN Case involved labor disputes.

The term "Voluntary Arbitrator" does not refer to an ordinary "arbitrator" who voluntarily agreed to:
resolve a dispute. It is a technical term with a specific definition under the Labor Code:

Art. 212 Definitions. xxx

14. "Voluntary Arbitrator" means any' person accredited by the Board as such or any person named or
designated in the Collective Bargaining Agreement by the parties to act as their Voluntary Arbitrator, or
one chosen with or without the assistance of the National Conciliation and Mediation Board, pursuant to
a selection procedure agreed upon in the Collective Bargaining Agreement, or any official that may be
authorized by the Secretary of Labor and Employment to act as Voluntary Arbitrator upon the written
request and agreement of the parties to a labor dispute. 101

Voluntary Arbitrators resolve labor disputes and grievances arising from the interpretation of Collective
Bargaining Agreements. 102 These disputes were specifically excluded: from the coverage of both the
Arbitration Law103 and the ADR Law. 104

Unlike purely commercial relationships, the relationship between capital and labor are heavily
impressed with public interest. 105Because of this, Voluntary Arbitrators authorized to resolve labor
disputes have been clothed with quasi-judicial authority.

On the other hand, commercial relationships covered by our commercial arbitration laws are purely
private and contractual in nature. Unlike labor relationships, they do not possess the same compelling
state interest that would justify state interference into the autonomy of contracts. Hence, commercial
arbitration is a purely private system of adjudication facilitated by private citizens instead of government
instrumentalities wielding quasi-judicial powers.

Moreover, judicial or quasi-judicial jurisdiction cannot be conferred upon a tribunal by the parties alone.
The Labor Code itself confers subject-matter jurisdiction to Voluntary Arbitrators. 106

Notably, the other arbitration body listed in Rule 43 - the Construction Industry Arbitration Commission
(CIAC) - is also a government agency 107 attached to the Department of Trade and Industry. 108 Its
jurisdiction is likewise conferred by statute. 109 By contrast, the subject-matter jurisdiction of commercial
arbitrators is stipulated by the parties.

These account for the legal differences between "ordinary" or "commercial" arbitrators under the
Arbitration Law and the ADR Law, and "voluntary arbitrators" under the Labor Code. The two terms are
not synonymous with each other. Interchanging them with one another results in the logical fallacy of
equivocation - using the same word with different meanings.

Further, Rule 43, Section 1 enumerates quasi-judicial tribunals whose decisions are appealable to the
CA instead of the RTC. But where legislation provides for an appeal from decisions of certain
administrative bodies to the CA, it means that such bodies are co-equal with the RTC in terms of rank
and stature, logically placing them beyond the control of the latter. 110

However, arbitral tribunals and the RTC are not co-equal bodies because the RTC is authorized to
confirm or to vacate (but not reverse) arbitral awards. 111 If we were to deem arbitrators as included in
the scope of Rule 43, we would effectively place it' on equal footing with the RTC and remove arbitral
awards from the scope of RTC review.
All things considered, there is no legal authority supporting the position that commercial arbitrators are
quasi-judicial bodies.

What are remedies from a final domestic arbitral award?

The right to an appeal is neither' a natural right nor an indispensable component of due process; it is a
mere statutory privilege that cannot be invoked in the absence of an enabling statute. Neither the
Arbitration Law nor the ADR Law allows a losing party to appeal from the arbitral award. The statutory
absence of an appeal mechanism reflects the State's policy of upholding the autonomy of arbitration
proceedings and their corresponding arbitral awards.

This Court recognized this when we enacted the Special Rules of Court on Alternative Dispute
Resolution in 2009: 112

Rule 2.1. General policies. -- It is the policy of the State to actively promote the use of various modes of
ADR and to respect party autonomy or the freedom of the parties to make their own arrangements in the
resolution of disputes with the greatest cooperation of and the least intervention from the courts. xxx

The Court shall exercise the power of judicial review as provided by these Special ADR Rules. Courts
shall intervene only in the cases allowed by law or these Special ADR Rules. 113

Rule 19.7. No appeal or certiorari on the merits of an arbitral award - An agreement to refer a dispute
to arbitration shall mean that the arbitral award shall be final and binding. Consequently, a party to an
arbitration is precluded from filing an appeal or a petition for certiorari questioning the merits of
an arbitral award. 114 (emphasis supplied)

More than a decade earlier in Asset Privatization Trust v. Court of Appeals, we likewise defended the
autonomy of arbitral awards through our policy of non-intervention on their substantive merits:

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. Courts are without power to amend or overrule merely because of disagreement
with matters of law or facts determined by the arbitrators. They will not review the findings of law
and fact contained in an award, and will not undertake to substitute their judgment for that of the
arbitrators, since any other rule would make an award the commencement, not the end, of litigation.
Errors of law and fact, or an erroneous decision of matters submitted to the judgment of the arbitrators,
are insufficient to invalidate an award fairly and honestly made. Judicial review of an arbitration is,
thus, more limited than judicial review of a trial. 115

Nonetheless, an arbitral award is not absolute. Rule 19.10 of the Special ADR Rules - by referring to
Section 24 of the Arbitration Law and Article 34 of the 1985 United Nations Commission on
International Trade Law (UNCITRAL) Model Law - recognizes the very limited exceptions to the
autonomy of arbitral awards:

Rule 19.10. Rule on judicial review on arbitration in the Philippines. - As a general rule, the court can
only vacate or set aside the decision of an arbitral tribunal upon a clear showing' that the award suffers
from any of the infirmities or grounds for vacating an arbitral award under Section 24 of Republic Act
No. 876 or under Rule 34 of the Model Law in a domestic arbitration, or for setting aside an award
in an international arbitration under Article 34 of the Model Law, or for such other grounds provided
under these Special Rules.

If the Regional Trial Court is asked to set aside an arbitral award in a domestic or international
arbitration on any ground other than those provided in the Special ADR Rules, the court shall
entertain such ground for the setting aside or non-recognition of the arbitral award only if the same
amounts to a violation of public policy.

The court shall not set aside or vacate the award of the arbitral tribunal merely on the ground that
the arbitral tribunal committed errors of fact, or of law, or of fact and law, as the court cannot
substitute its judgment for that of the arbitral tribunal.116

The grounds for vacating a domestic arbitral award under Section 24 of the Arbitration Law
contemplate the following scenarios:
 (a) when the award is procured by corruption, fraud, or other undue means; or

(b) there was evident partiality or corruption in the arbitrators or any of them; or

(c) the arbitrators were guilty of misconduct that materially prejudiced the rights of any party; or

(d) the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and
definite award upon the subject matter submitted to them was not made. 117

The award may also be vacated if an arbitrator who was disqualified to act willfully refrained from
disclosing his disqualification to the parties. 118 Notably, none of these grounds pertain to the correctness
of the award but relate to the misconduct of arbitrators.

The RTC may also set aside the arbitral award based on Article 34 of the UNCITRAL Model Law. These
grounds are reproduced in Chapter 4 of the Implementing Rules and Regulations (IRR) of the 2004 ADR
Act:

(i) the party making the application furnishes proof that:

(aa) a party to the arbitration agreement was 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 Philippines; or

(bb) the party making the application was not given proper notice of the appointment of an
arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(cc) the award deals with a dispute not contemplated by or not falling within the terms of the
submission to arbitration, or 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, only the part of the award which contains decisions on matters not submitted
to arbitration may be set aside; or

(dd) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the
agreement of the parties, unless such agreement was in conflict with a provision of ADR Act from
which the parties cannot derogate, or, failing such agreement, was not in accordance with ADR Act;
or

(ii) The Court finds that:

(aa) the subject-matter of the dispute is not capable of settlement by arbitration under the law of
the Philippines; or

(bb) the award is in conflict with the public policy of the Philippines. 119

Chapter 4 of the IRR of the, ADR Act applies particularly to International Commercial Arbitration.
However, the abovementioned grounds taken from the UNCITRAL, Model Law are specifically made
applicable to domestic arbitration by the Special ADR Rules. 120

Notably, these grounds are not concerned with the correctness of the award; they go into the validity of
the arbitration agreement or the regularity of the arbitration proceedings.

These grounds for vacating an arbitral award are exclusive. Under the ADR Law, courts are obliged to
disregard any other grounds invoked to set aside an award:

SEC. 41. Vacation Award. - A party to a domestic arbitration may question the arbitral award with the
appropriate regional trial court in accordance with the rules of procedure to be promulgated by the
Supreme Court only on those grounds enumerated in Section 25 of Republic Act No. 876. Any other
ground raised against a domestic arbitral award shall be disregarded by the regional trial court.121

Consequently, the winning party can generally expect the enforcement of the award. This is a stricter
rule that makes Article 2044122 of the Civil Code regarding the finality of an arbitral award redundant.
As established earlier, an arbitral: award is not appealable via Rule 43 because: (1) there is no statutory
basis for an appeal from the final award of arbitrators; (2) arbitrators are not quasi-judicial bodies; and
(3) the Special ADR Rules specifically prohibit the filing of an appeal to question the merits of an
arbitral award.

The Special ADR Rules allow, the RTC to correct or modify an arbitral award pursuant to Section 25 of
the Arbitration Law. However, this authority cannot be interpreted as jurisdiction to review the merits of
the award. The RTC can modify or correct the award only in the following cases:

a. Where there was an evident miscalculation of figures or an evident mistake in the description of
any person, thing or property referred to in the award;

b. Where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits
of the decision upon the matter submitted;

c. Where the arbitrators have omitted to resolve an issue submitted to them for resolution; or

d. Where the award is imperfect in a matter of form not affecting the merits of the controversy, and
if it had been a commissioner's report, the defect could have been amended or disregarded by the
Court. 123

A losing party is likewise precluded from resorting to certiorari under Rule 65 of the Rules of Court. 124
Certiorari is a prerogative writ designed to correct errors of jurisdiction committed by a judicial or
quasi-judicial body. 125 Because an arbitral tribunal is not a government organ exercising judicial or
quasi-judicial powers, it is removed from the ambit of Rule 65.

Not even the Court's expanded certiorari jurisdiction under the Constitution 126 can justify judicial
intrusion into the merits of arbitral awards. While the Constitution expanded the scope of certiorari
proceedings, this power remains limited to a review' of the acts of "any branch or instrumentality of the
Government." As a purely private creature of contract, an arbitral tribunal remains outside the scope of
certiorari.

Lastly, the Special ADR Rules are a self-contained body of rules. The parties cannot invoke remedies
and other provisions from the Rules of Court unless they were incorporated in the Special ADR Rules:

Rule 22.1. Applicability of Rules of Court. - The provisions of the Rules of Court that are applicable to
the proceedings enumerated in Rule 1.1 of these Special ADR Rules have either been included and
incorporated in these Special ADR Rules or specifically referred to herein.

In Connection with the above proceedings, the Rules of Evidence shall be liberally construed to achieve
the objectives of the Special ADR Rules. 127

Contrary to TEAM's position, the Special ADR Rules actually forecloses against other remedies outside
of itself. Thus, a losing party cannot assail an arbitral award through; a petition for review under Rule 43
or a petition for certiorari under Rule 65 because these remedies are not specifically permitted in the
Special ADR Rules.

In sum, the only remedy against; a final domestic arbitral award is to file petition to vacate or to
modify/correct the award not later than thirty (30) days from the receipt of the award. 128 Unless a
ground to vacate has been established, the RTC must confirm the arbitral award as a matter of course.

The remedies against an order

Confirming, vacating, correcting, or
modifying an arbitral award

Once the RTC orders the confirmation, vacation, or correction/modification of a domestic arbitral award,
the aggrieved party may move for reconsideration within a non-extendible period of fifteen (15) days
from receipt of the order. 129 The losing party may also opt to appeal from the RTC's ruling instead.

Under the Arbitration Law, the mode of appeal was via petition for review on certiorari:

Section 29. Appeals. - An appeal may be taken from an order made in a proceeding under this Act, or
from a judgment entered upon an award through certiorari proceedings, but such appeals shall be
limited to questions of law. The proceedings upon such appeal, including the judgment thereon shall be
governed by, the Rules of Court in so far as they are applicable.130

The Arbitration Law did not specify which Court had jurisdiction to entertain the appeal but left the
matter to be governed by the Rules of Court. As the appeal was limited to questions of law and was
described as "certiorari proceedings," the mode of appeal can be interpreted as an Appeal By Certiorari
to this Court under Rule 45.

When the ADR Law was enacted in 2004, it specified that the appeal shall be made to the CA in
accordance with the rules of procedure to be promulgated by this Court. 131 The Special ADR Rules
provided that the mode of appeal from the RTC's order confirming, vacating, or correcting/modifying a
domestic arbitral award was through a petition for review with the CA. 132 However, the Special ADR
Rules only took effect on October 30, 2009.

In the present case, the R TC disallowed TEAM' s notice of appeal from the former's decision
confirming the arbitral award on July 3, 2009. TEAM moved for reconsideration which was likewise
denied on November 15, 2009. In the interim, the Special ADR Rules became effective. Notably, the
Special ADR Rules apply retroactively in light of its procedural character. 133 TEAM filed its petition for
certiorari soon after.

Nevertheless, whether we apply, Section 29 of the Arbitration Law, Section 46 of the ADR Law, or Rule
19.12 of the Special ADR Rules, there is no legal basis that an ordinary appeal (via notice of appeal) is
the correct remedy from an order confirming, vacating, or correcting an arbitral award. Thus, there is no
merit in the CA's ruling that the RTC gravely abused its discretion when it refused to give due course to
the notice of appeal.

The correctness or incorrectness

of the arbitral award

We have deliberately refrained from passing upon the merits of the arbitral award - not because the
award was erroneous - but because it would be improper. None of the grounds to vacate an arbitral
award are present in this case and as already established, the merits of the award cannot be reviewed by
the courts.

Our refusal to review the award is not a simple matter of putting procedural technicalities over the
substantive merits of a case; it goes into the very legal substance of the issues. There is no law granting
the judiciary authority to review the merits of an arbitral award. If we were to insist on reviewing the
correctness of the award: (or consent to the CA's doing so), it would be tantamount to expanding our
jurisdiction without the benefit of legislation. This translates to judicial legislation - a breach of the
fundamental principle of separation of powers.

The CA reversed the arbitral award - an action that it has no power to do - because it disagreed with the
tribunal's factual findings and application of the law. However, the alleged incorrectness of the award is
insufficient cause to vacate the award, given the State's policy of upholding the autonomy of arbitral
awards.

The CA passed upon questions such as: (1) whether or not TEAM effectively returned the property upon
the expiration of the lease; (2) whether or not TEAM was liable to pay rentals after the expiration of the
lease; and (3) whether or not TEAM was liable to pay Fruehauf damages corresponding to the cost of
repairs. These were the same questions that were specifically submitted to the arbitral tribunal for its
resolution. 134

The CA disagreed with the tribunal's factual determinations and legal interpretation of TEAM's
obligations under the contract - particularly, that TEAM's obligation to turn over the improvements on
the land at the end of the lease in the same condition as when the lease commenced translated to an
obligation to make ordinary repairs necessary for its preservation. 135

Assuming arguendo that the tribunal's interpretation of the contract was incorrect, the errors would have
been simple errors of law.1âwphi1 It was the tribunal - not the RTC or the CA - that had jurisdiction
and authority over the issue by virtue of the parties' submissions; the CA's substitution of its own
judgment for the arbitral award cannot be more compelling than the overriding public policy to uphold
the autonomy of arbitral awards. Courts are precluded from disturbing an arbitral tribunal's factual
findings and interpretations of law. 136 The CA's ruling is an unjustified judicial intrusion in excess of its
jurisdiction - a judicial overreach. 137

Upholding the CA's ruling would weaken our alternative dispute resolution mechanisms by allowing the
courts to "throw their weight around" whenever they disagree with the results. It erodes the obligatory
force of arbitration agreements by allowing the losing parties to "forum shop" for a more favorable
ruling from the judiciary.

Whether or not the arbitral tribunal correctly passed upon the issues is irrelevant. Regardless of the
amount, of the sum involved in a case, a simple error of law remains a simple error of law. Courts are
precluded from revising the award in a particular way, revisiting the tribunal's findings of fact or
conclusions of law, or otherwise encroaching upon the independence of an arbitral tribunal. 138At the risk
of redundancy, we emphasize Rule 19.10 of the Special ADR Rules promulgated by this Court en banc:

Rule 19.10. Rule on judicial review on arbitration in the Philippines. - As a general rule, the court can
only vacate or set aside the decision of an arbitral tribunal upon a clear showing that the award
suffers from any of the infirmities or grounds for vacating an arbitral award under Section 24 of
Republic Act No. 876 or under Rule 34 of the Model Law in a domestic arbitration, or for setting
aside an award in an international arbitration under Article 34 of the Model Law, or for such other
grounds provided under these Special Rules.

If the Regional Trial Court is asked to set aside an arbitral award in a domestic or international
arbitration on any ground other than those provided in the Special ADR Rules, the court shall entertain
such ground for the setting aside or non-recognition of the arbitral award only if thesame amounts to a
violation of public policy.

The court shall not set aside or vacate the award of the arbitral tribunal merely on the ground that
the arbitral tribunal committed errors of fact, or of law, or of fact and law, as the court cannot
substitute its judgment for that of the arbitral tribunal.

In other words, simple errors of fact, of law, or of fact and law committed by the arbitral tribunal are not
justiciable errors in this jurisdiction. 139

TEAM agreed to submit their disputes to an arbitral tribunal. It understood all the risks - including the
absence of an appeal mechanism - and found that its benefits (both legal and economic) outweighed the
disadvantages. Without a showing that any of the grounds to vacate the award exists or that the same
amounts to a violation of an overriding public policy, the award is subject to confirmation as a matter of
course. 140

WHEREFORE, we GRANT the petition. The CA's decision in CA-G. R. SP. No. 112384 is SET
ASIDE and the RTC's order CONFIRMING the arbitral award in SP. Proc. No. 11449 is
REINSTATED.

SO ORDERED.