Adr 1-31-2020

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 96283 February 25, 1992
CHUNG FU INDUSTRIES (PHILIPPINES) INC., its Directors and Officers namely: HUANG
KUO-CHANG, HUANG AN-CHUNG, JAMES J.R. CHEN, TRISTAN A. CATINDIG, VICENTE B. AMADOR,
ROCK A.C. HUANG, JEM S.C. HUANG, MARIA TERESA SOLIVEN and VIRGILIO M. DEL ROSARIO,
petitioners,
vs.
COURT OF APPEALS, HON. FRANCISCO X. VELEZ (Presiding Judge, Regional Trail Court of
Makati [Branch 57]) and ROBLECOR PHILIPPINES, INC., respondents.
ROMERO, J.:
This is a special civil action for certiorari seeking to annul the Resolutions of
the Court of Appeals* dated October 22, 1990 and December 3, 1990 upholding the
Orders of July 31, 1990 and August 23, 1990 of the Regional Trial Court of Makati,
Branch 57, in Civil Case No. 90-1335. Respondent Court of Appeals affirmed the
ruling of the trial court that herein petitioners, after submitting themselves for
arbitration and agreeing to the terms and conditions thereof, providing that the
arbitration award shall be final and unappealable, are precluded from seeking
judicial review of subject arbitration award.
It appears that on May 17, 1989, petitioner Chung Fu Industries (Philippines)

(Chung Fu for brevity) and private respondent Roblecor Philippines, Inc. (Roblecor
for short) forged a construction agreement 1 whereby respondent contractor
committed to construct and finish on December 31, 1989, petitioner corporation's
industrial/factory complex in Tanawan, Tanza, Cavite for and in consideration of
P42,000,000.00. In the event of disputes arising from the performance of subject
contract, it was stipulated therein that the issue(s) shall be submitted for
resolution before a single arbitrator chosen by both parties.
Apart from the aforesaid construction agreement, Chung Fu and Roblecor entered into
two (2) other ancillary contracts, to wit: one dated June 23, 1989, for the
construction of a dormitory and support facilities with a contract price of
P3,875,285.00, to be completed on or before October 31, 1989; 2 and the other dated
August 12, 1989, for the installation of electrical, water and hydrant systems at
the plant site, commanding a price of P12.1 million and requiring completion
thereof one month after civil works have been finished. 3
However, respondent Roblecor failed to complete the work despite the extension of
time allowed it by Chung Fu. Subsequently, the latter had to take over the
construction when it had become evident that Roblecor was not in a position to
fulfill its obligation.
Claiming an unsatisfied account of P10,500,000.00 and unpaid progress billings of

P2,370,179.23, Roblecor on May 18, 1990, filed a petition for Compulsory
Arbitration with prayer for Temporary Restraining Order before respondent Regional
Trial Court, pursuant to the arbitration clause in the construction agreement.
Chung Fu moved to dismiss the petition and further prayed for the quashing of the
restraining order.
Subsequent negotiations between the parties eventually led to the formulation of an

arbitration agreement which, among others, provides:
2. The parties mutually agree that the arbitration shall proceed in accordance with
the following terms and conditions: —
x x x x x x x x x
d. The parties mutually agree that they will abide by the decision of the
arbitrator including any amount that may be awarded to either party as
compensation, consequential damage and/or interest thereon;
e. The parties mutually agree that the decision of the arbitrator shall be final
and unappealable. Therefore, there shall be no further judicial recourse if either
party disagrees with the whole or any part of the arbitrator's award.
f. As an exception to sub-paragraph (e) above, the parties mutually agree that

either party is entitled to seek judicial assistance for purposes of enforcing the
arbitrator's award;
xxx xxx xxx 4
(Emphasis supplied)
Respondent Regional Trial Court approved the arbitration agreement thru its Order
of May 30, 1990. Thereafter, Engr. Willardo Asuncion was appointed as the sole
arbitrator.
On June 30, 1990, Arbitrator Asuncion ordered petitioners to immediately pay

respondent contractor, the sum of P16,108,801.00. He further declared the award as
final and unappealable, pursuant to the Arbitration Agreement precluding judicial
review of the award.
Consequently, Roblecor moved for the confirmation of said award. On the other hand,
Chung Fu moved to remand the case for further hearing and asked for a
reconsideration of the judgment award claiming that Arbitrator Asuncion committed
twelve (12) instances of grave error by disregarding the provisions of the parties'
contract.
Respondent lower court denied Chung Fu's Motion to Remand thus compelling it to
seek reconsideration therefrom but to no avail. The trial court granted Roblecor's
Motion for Confirmation of Award and accordingly, entered judgment in conformity
therewith. Moreover, it granted the motion for the issuance of a writ of execution
filed by respondent.
Chung Fu elevated the case via a petition for certiorari to respondent Court of
Appeals. On October 22,1990 the assailed resolution was issued. The respondent
appellate court concurred with the findings and conclusions of respondent trial
court resolving that Chung Fu and its officers, as signatories to the Arbitration
Agreement are bound to observe the stipulations thereof providing for the finality
of the award and precluding any appeal therefrom.
A motion for reconsideration of said resolution was filed by petitioner, but it was
similarly denied by respondent Court of Appeals thru its questioned resolution of
December 3, 1990.
Hence, the instant petition anchored on the following grounds:
First
Respondents Court of Appeals and trial Judge gravely abused their discretion and/or
exceeded their jurisdiction, as well as denied due process and substantial justice
to petitioners, — (a) by refusing to exercise their judicial authority and legal
duty to review the arbitration award, and (b) by declaring that petitioners are
estopped from questioning the arbitration award allegedly in view of the
stipulations in the parties' arbitration agreement that "the decision of the
arbitrator shall be final and unappealable" and that "there shall be no further
judicial recourse if either party disagrees with the whole or any part of the
arbitrator's award."
Second
Respondent Court of Appeals and trial Judge gravely abused their discretion and/or
exceeded their jurisdiction, as well as denied due process and substantial justice
to petitioner, by not vacating and annulling the award dated 30 June 1990 of the
Arbitrator, on the ground that the Arbitrator grossly departed from the terms of
the parties' contracts and misapplied the law, and thereby exceeded the authority
and power delegated to him. (Rollo, p. 17)
Allow us to take a leaf from history and briefly trace the evolution of arbitration
as a mode of dispute settlement.
Because conflict is inherent in human society, much effort has been expended by men
and institutions in devising ways of resolving the same. With the progress of
civilization, physical combat has been ruled out and instead, more specific means
have been evolved, such as recourse to the good offices of a disinterested third
party, whether this be a court or a private individual or individuals.
Legal history discloses that "the early judges called upon to solve private
conflicts were primarily the arbiters, persons not specially trained but in whose
morality, probity and good sense the parties in conflict reposed full trust. Thus,
in Republican Rome, arbiter and judge (judex) were synonymous. The magistrate or
praetor, after noting down the conflicting claims of litigants, and clarifying the
issues, referred them for decision to a private person designated by the parties,
by common agreement, or selected by them from an apposite listing (the album
judicium) or else by having the arbiter chosen by lot. The judges proper, as
specially trained state officials endowed with own power and jurisdiction, and
taking cognizance of litigations from beginning to end, only appeared under the
Empire, by the so-called cognitio extra ordinem." 5
Such means of referring a dispute to a third party has also long been an accepted
alternative to litigation at common law. 6
Sparse though the law and jurisprudence may be on the subject of arbitration in the
Philippines, it was nonetheless recognized in the Spanish Civil Code; specifically,
the provisions on compromises made applicable to arbitrations under Articles 1820
and 1821.7 Although said provisions were repealed by implication with the repeal of
the Spanish Law of Civil Procedure, 8 these and additional ones were reinstated in
the present Civil Code. 9
Arbitration found a fertile field in the resolution of labor-management disputes in

the Philippines. Although early on, Commonwealth Act 103 (1936) provided for
compulsory arbitration as the state policy to be administered by the Court of
Industrial Relations, in time such a modality gave way to voluntary arbitration.
While not completely supplanting compulsory arbitration which until today is
practiced by government officials, the Industrial Peace Act which was passed in
1953 as Republic Act No. 875, favored the policy of free collective bargaining, in
general, and resort to grievance procedure, in particular, as the preferred mode of
settling disputes in industry. It was accepted and enunciated more explicitly in
the Labor Code, which was passed on November 1, 1974 as Presidential Decree No.
442, with the amendments later introduced by Republic Act No. 6715 (1989).
Whether utilized in business transactions or in employer-employee relations,

arbitration was gaining wide acceptance. A consensual process, it was preferred to
orders imposed by government upon the disputants. Moreover, court litigations
tended to be time-consuming, costly, and inflexible due to their scrupulous
observance of the due process of law doctrine and their strict adherence to rules
of evidence.
As early as the 1920's, this Court declared:
In the Philippines fortunately, the attitude of the courts toward arbitration

agreements is slowly crystallizing into definite and workable form. . . . The rule
now is that 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 arrangements and will only with great reluctance
interfere to anticipate or nullify the action of the arbitrator. 10
That there was a growing need for a law regulating arbitration in general was
acknowledged when Republic Act No. 876 (1953), otherwise known as the Arbitration
Law, was passed. "Said Act was obviously adopted to
supplement — not to supplant — the New Civil Code on arbitration. It expressly
declares that "the provisions of chapters one and two, Title XIV, Book IV of the
Civil Code shall remain in force." 11
In recognition of the pressing need for an arbitral machinery for the early and
expeditious settlement of disputes in the construction industry, a Construction
Industry Arbitration Commission (CIAC) was created by Executive Order No. 1008,
enacted on February 4, 1985.
In practice nowadays, absent an agreement of the parties to resolve their disputes

via a particular mode, it is the regular courts that remain the fora to resolve
such matters. However, the parties may opt for recourse to third parties,
exercising their basic freedom to "establish such stipulation, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy." 12 In such a case, resort to
the arbitration process may be spelled out by them in a contract in anticipation of
disputes that may arise between them. Or this may be stipulated in a submission
agreement when they are actually confronted by a dispute. Whatever be the case,
such recourse to an extrajudicial means of settlement is not intended to completely
deprive the courts of jurisdiction. In fact, the early cases on arbitration
carefully spelled out the prevailing doctrine at the time, thus: ". . . a clause in
a contract providing that all matters in dispute between the parties shall be
referred to arbitrators and to them alone is contrary to public policy and cannot
oust the courts of Jurisdiction." 13
But certainly, the stipulation to refer all future disputes to an arbitrator or to

submit an ongoing dispute to one is valid. Being part of a contract between the
parties, it is binding and enforceable in court in case one of them neglects, fails
or refuses to arbitrate. Going a step further, in the event that they declare their
intention to refer their differences to arbitration first before taking court
action, this constitutes a condition precedent, such that where a suit has been
instituted prematurely, the court shall suspend the same and the parties shall be
directed forthwith to proceed to arbitration. 14
A court action may likewise be proven where the arbitrator has not been selected by
the parties. 15
Under present law, may the parties who agree to submit their disputes to
arbitration further provide that the arbitrators' award shall be final,
unappealable and executory?
Article 2044 of the Civil Code recognizes the validity of such stipulation, thus:
Any stipulation that the arbitrators' award or decision shall be final is valid,
without prejudice to Articles 2038, 2039 and 2040.
Similarly, the Construction Industry Arbitration Law provides that the arbitral
award "shall be final and inappealable except on questions of law which shall be
appealable to the Supreme Court." 16
Under the original Labor Code, voluntary arbitration awards or decisions were
final, unappealable and executory. "However, voluntary arbitration awards or
decisions on money claims, involving an amount exceeding One Hundred Thousand Pesos
(P100,000.00) or forty-percent (40%) of the paid-up capital of the respondent
employer, whichever is lower, maybe appealed to the National Labor Relations
Commission on any of the following grounds: (a) abuse of discretion; and (b) gross
incompetence." 17 It is to be noted that the appeal in the instances cited were to
be made to the National Labor Relations Commission and not to the courts.
With the subsequent deletion of the above-cited provision from the Labor Code, the
voluntary arbitrator is now mandated to render an award or decision within twenty
(20) calendar days from the date of submission of the dispute and such decision
shall be final and executory after ten (10) calendar days from receipt of the copy
of the award or decision by the parties. 18
Where the parties agree that the decision of the arbitrator shall be final and
unappealable as in the instant case, the pivotal inquiry is whether subject
arbitration award is indeed beyond the ambit of the court's power of judicial
review.
We rule in the negative. It is stated explicitly under Art. 2044 of the Civil Code
that the finality of the arbitrators' award is not absolute and without exceptions.
Where the conditions described in Articles 2038, 2039 and 2040 applicable to both
compromises and arbitrations are obtaining, the arbitrators' award may be annulled
or rescinded. 19 Additionally, under Sections 24 and 25 of the Arbitration Law,
there are grounds for vacating, modifying or rescinding an arbitrator's award. 20
Thus, if and when the factual circumstances referred to in the above-cited
provisions are present, judicial review of the award is properly warranted.
What if courts refuse or neglect to inquire into the factual milieu of an

arbitrator's award to determine whether it is in accordance with law or within the
scope of his authority? How may the power of judicial review be invoked?
This is where the proper remedy is certiorari under Rule 65 of the Revised Rules of
Court. It is to be borne in mind, however, that this action will lie only where a
grave abuse of discretion or an act without or in excess of jurisdiction on the
part of the voluntary arbitrator is clearly shown. For "the writ of certiorari is
an extra-ordinary remedy and that certiorari jurisdiction is not to be equated with
appellate jurisdiction. In a special civil action of certiorari, the Court will not
engage in a review of the facts found nor even of the law as interpreted or applied
by the arbitrator unless the supposed errors of fact or of law are so patent and
gross and prejudicial as to amount to a grave abuse of discretion or an exces de
pouvoir on the part of the arbitrator." 21
Even decisions of administrative agencies which are declared "final" by law are not
exempt from judicial review when so warranted. Thus, in the case of Oceanic Bic
Division (FFW), et al. v. Flerida Ruth P. Romero, et al., 22 this Court had
occasion to rule that:
. . . Inspite of statutory provisions making "final" the decisions of certain

administrative agencies, we have taken cognizance of petitions questioning these
decisions where want of jurisdiction, grave abuse of discretion, violation of due
process, denial of substantial justice or erroneous interpretation of the law were
brought to our attention . . . 23 (Emphasis ours).
It should be stressed, too, that voluntary arbitrators, by the nature of their

functions, act in a quasi-judicial capacity. 24 It stands to reason, therefore,
that their decisions should not be beyond the scope of the power of judicial review
of this Court.
In the case at bar, petitioners assailed the arbitral award on the following
grounds, most of which allege error on the part of the arbitrator in granting
compensation for various items which apparently are disputed by said petitioners:
1. The Honorable Arbitrator committed grave error in failing to apply the terms and
conditions of the Construction Agreement, Dormitory Contract and Electrical
Contract, and in using instead the "practices" in the construction industry;
2. The Honorable Arbitrator committed grave error in granting extra compensation to

Roblecor for loss of productivity due to adverse weather conditions;

Roblecor for loss due to delayed payment of progress billings;

Roblecor for loss of productivity due to the cement crisis;

Roblecor for losses allegedly sustained on account of the failed coup d'état;
6. The Honorable Arbitrator committed grave error in granting to Roblecor the

amount representing the alleged unpaid billings of Chung Fu;

amount representing the alleged extended overhead expenses;

amount representing expenses for change order for site development outside the area
of responsibility of Roblecor;
9. The Honorable Arbitrator committed grave error in granting to Roblecor the cost
of warehouse No. 2;
10. The Honorable Arbitrator committed grave error in granting to Roblecor extra
compensation for airduct change in dimension;
11. The Honorable Arbitrator committed grave error in granting to Roblecor extra
compensation for airduct plastering; and
12. The Honorable Arbitrator committed grave error in awarding to Roblecor

attorney's fees.
After closely studying the list of errors, as well as petitioners' discussion of
the same in their Motion to Remand Case For Further Hearing and Reconsideration and
Opposition to Motion for Confirmation of Award, we find that petitioners have amply
made out a case where the voluntary arbitrator failed to apply the terms and
provisions of the Construction Agreement which forms part of the law applicable as
between the parties, thus committing a grave abuse of discretion. Furthermore, in
granting unjustified extra compensation to respondent for several items, he
exceeded his powers — all of which would have constituted ground for vacating the
award under Section 24 (d) of the Arbitration Law.
But the respondent trial court's refusal to look into the merits of the case,
despite prima facie showing of the existence of grounds warranting judicial review,
effectively deprived petitioners of their opportunity to prove or substantiate
their allegations. In so doing, the trial court itself committed grave abuse of
discretion. Likewise, the appellate court, in not giving due course to the
petition, committed grave abuse of discretion. Respondent courts should not shirk
from exercising their power to review, where under the applicable laws and
jurisprudence, such power may be rightfully exercised; more so where the objections
raised against an arbitration award may properly constitute grounds for annulling,
vacating or modifying said award under the laws on arbitration.
WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated
October 22, 1990 and December 3, 1990 as well as the Orders of respondent Regional
Trial Court dated July 31, 1990 and August 23, 1990, including the writ of
execution issued pursuant thereto, are hereby SET ASIDE. Accordingly, this case is
REMANDED to the court of origin for further hearing on this matter. All incidents
arising therefrom are reverted to the status quo ante until such time as the trial
court shall have passed upon the merits of this case. No costs.
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-35469 October 9, 1987
ENCARNACION BANOGON, ZOSIMA MUNOZ, and DAVIDINA MUNOZ, petitioners,

vs.
MELCHOR ZERNA, CONSEJO ZERNA DE CORNELIO, FRANCISCO ZERNA, and the HON. CIPRIANO
VAMENTA, JR., Judge of the Court of First Instance of Negros Oriental (Branch III).
CRUZ, J.:
It's unbelievable. The original decision in this case was rendered by the cadastral
court way back on February 9, 1926, sixty one years ago. A motion to amend that
decision was filed on March 6, 1957, thirty one years later. This was followed by
an amended petition for review of the judgment on March 18, 1957, and an opposition
thereto on March 26, 1957. On October 11, 1971, or after fourteen years, a motion
to dismiss the petition was filed. The petition was dismissed on December 8, 1971,
and the motion for reconsideration was denied on February 14, 1972. 1 The
petitioners then came to us on certiorari to question the orders of the respondent
judge.2
These dates are not typographical errors. What is involved here are errors of law
and lawyers.
The respondent court dismissed the petition for review of the decision rendered in
1926 on the ground that it had been filed out of time, indeed thirty one years too
late. Laches, it was held, had operated against the petitioners. 3
The petitioners contend that the said judgment had not yet become final and
executory because the land in dispute had not yet been registered in favor of the
private respondents. The said judgment would become so only after one year from the
issuance of the decree of registration. If any one was guilty of laches, it was the
private respondents who had failed to enforce the judgment by having the land
registered in their the pursuant thereto.4
For their part, the private respondents argue that the decision of February 9,
1926, became final and executory after 30 days, same not having been appealed by
the petitioners during that period. They slept on their rights for thirty one years
before it occurred to them to question the judgment of the cadastral court. In
fact, their alleged predecessor-in-interest, Filomeno Banogon, lived for nineteen
more years after the 1926 decision and did not see fit to challenge it until his
death in 1945. The herein petitioners themselves waited another twelve years, or
until 195 7, to file their petition for review. 5
While arguing that they were not guilty of laches because the 1926 decision had not
yet become final and executory because the land subject thereof had not yet been
registered, the petitioners rationalize: "If an aggrieved party is allowed the
remedy of re-opening the case within one year after the issuance of the decree, why
should the same party be denied this remedy before the decree is issued? 6
Why not indeed? Why then did they not file their petition earlier? Why do they now
pretend that they have all the time in the world because the land has not yet been
registered and the one-year reglementary period has not yet expired?
Thinking to support their position, the petitioners cite Rivera v. Moran 7 where it
was held:
... It is conceded that no decree of registration has been entered and section 38
of the Land Registration Act provides that a petition for review of such a decree
on the grounds of fraud must be filed "within one year after entry of the decree."
Giving this provision a literal interpretation, it may first blush seem that the
petition for review cannot be presented until the final decree has been entered.
But on further reflection, it is obvious that such could not have been the
intention of the Legislature and that what it meant would have been better
expressed by stating that such petitioners must be presented before the expiration
of one year from the entry of the decree. Statutes must be given a reasonable
construction and there can be no possible reason for requiring the complaining
party to wait until the final decree is entered before urging his claim of fraud.
We therefore hold that a petition for review under section 38, supra, may be filed
at any time the rendition of the court's decision and before the expiration of one
year from the entry of the final decree of registration. (Emphasissupplied).
A reading thereof will show that it is against their contentions and that under
this doctrine they should not have delayed in asserting their claim of fraud. Their
delay was not only for thirty one days but for thirty one years. Laches bars their
petition now. Their position is clearly contrary to law and logic and to even
ordinary common sense.
This Court has repeatedly reminded litigants and lawyers alike:

"Litigation must end and terminate sometime and somewhere, and it is assent
essential to an effective and efficient administration of justice that, once a
judgment has become final, the winning party be not, through a mere subterfuge,
deprived of the fruits of the verdict. Courts must therefore guard against any
scheme calculated to bring about that result. Constituted as they are to put an end
to controversies, courts should frown upon any attempt to prolong them."8
There should be a greater awareness on the part of litigants that the time of the
judiciary, much more so of this Court, is too valuable to be wasted or frittered
away by efforts, far from commendable, to evade the operation of a decision final
and executory, especially so, where, as shown in this case, the clear and manifest
absence of any right calling for vindication, is quite obvious and indisputable. 9
This appeal moreover, should fail, predicated as it is on an insubstantial

objection bereft of any persuasive force. Defendants had to display ingenuity to
conjure a technicality. From Alonso v. Villamor, a 1910 decision, we have left no
doubt as to our disapproval of such a practice. The aim of a lawsuit is to render
justice to the parties according to law. Procedural rules are precisely designed to
accomplish such a worthy objective. Necessarily, therefore, any attempt to pervert
the ends for which they are intended deserves condemnation. We have done so before.
We do so again. 10
Regarding the argument that the private respondents took fourteen years to move for
the dismissal of the petition for review, it suffices to point out that an
opposition thereto had been made as early as March 26, 1957, or nine days after the
filing of the petition. 11 Moreover, it was for the petitioners to move for the
hearing of the petition instead of waiting for the private respondents to ask for
its dismissal. After all, they were the parties asking for relief, and it was the
private respondents who were in possession of the land in dispute.
One reason why there is a degree of public distrust for lawyers is the way some of
them misinterpret the law to the point of distortion in a cunning effort to achieve
their purposes. By doing so, they frustrate the ends of justice and at the same
time lessen popular faith in the legal profession as the sworn upholders of the
law. While this is not to say that every wrong interpretation of the law is to be
condemned, as indeed most of them are only honest errors, this Court must express
its disapproval of the adroit and intentional misreading designed precisely to
circumvent or violate it.
As officers of the court, lawyers have a responsibility to assist in the proper

administration of justice. They do not discharge this duty by filing pointless
petitions that only add to the workload of the judiciary, especially this Court,
which is burdened enough as it is. A judicious study of the facts and the law
should advise them when a case, such as this, should not be permitted to be filed
to merely clutter the already congested judicial dockets. They do not advance the
cause of law or their clients by commencing litigations that for sheer lack of
merit do not deserve the attention of the courts.
This petition is DISMISSED, with costs against the petitioners. This decision is
immediately executory. It is so ordered.
Teehankee, C.J., Narvasa and Paras, JJ., concur.
Gancayco, J., is on leave.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 143581 January 7, 2008
KOREA TECHNOLOGIES CO., LTD., petitioner,

vs.
HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256 of Regional
Trial Court of Muntinlupa City, and PACIFIC GENERAL STEEL MANUFACTURING
CORPORATION, respondents.
D E C I S I O N
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 Contract1 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, 19972 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 plant’s 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 Lease3 with Worth Properties,
Inc. (Worth) for use of Worth’s 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 Certificate4 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 letter6 to PGSMC threatening
criminal action for violation of Batas Pambansa Blg. 22 in case of nonpayment. On
the same date, the wife of PGSMC’s 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. 98-1178 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 Counterclaim9 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 plaintiff’s
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
PGSMC’s 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 Dismiss13 answering

PGSMC’s memorandum of July 22, 1998 and seeking dismissal of PGSMC’s counterclaims,
KOGIES, on August 4, 1998, filed its Motion for Reconsideration14 of the July 23,
1998 Order denying its application for an injunctive 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 Things16 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 PGSMC’s motion
for inspection; (2) denying KOGIES’ motion for reconsideration of the July 23, 1998
RTC Order; and (3) denying KOGIES’ motion to dismiss PGSMC’s compulsory
counterclaims as these counterclaims fell within the requisites of compulsory
counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration17 of the

September 21, 1998 RTC Order granting inspection of the plant and denying dismissal
of PGSMC’s 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 certiorari18 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 Petition20 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 Sheriff’s Report21 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 Decision22 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 COURT’S 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 RESPONDENT’S 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 Court’s 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, PGSMC’s Answer is not

an initiatory pleading which requires a certification against forum shopping under
Sec. 524 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 PGSMC’s 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 RTC’s 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 204033 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 Code’s 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,

arbitration––along with mediation, conciliation and negotiation––is encouraged by
the Supreme Court. Aside from unclogging judicial dockets, arbitration also hastens
the resolution of disputes, especially of the commercial kind. 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 Arbitration41 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. 3543 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.
x x x x
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
x x x x
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 party’s 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.
x x x x
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 87644 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 Angeles47 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 PGSMC’s
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.
Petitioner’s 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 RTC’s 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 order’s 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 Worth’s 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 family51 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.
Quisumbing,Chairperson Carpio, Carpio-Morales, Tinga, JJ., concur.

THIRD DIVISION
G.R. No. 141833 March 26, 2003
LM POWER ENGINEERING CORPORATION, petitioner,

vs.
CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent.
PANGANIBAN, J.:
Alternative dispute resolution methods or ADRs -- like arbitration, mediation,

negotiation and conciliation -- are encouraged by the Supreme Court. By enabling
parties to resolve their disputes amicably, they provide solutions that are less
time-consuming, less tedious, less confrontational, and more productive of goodwill
and lasting relationships.1
The Case
Before us is a Petition for Review on Certiorari2 under Rule 45 of the Rules of

Court, seeking to set aside the January 28, 2000 Decision of the Court of Appeals3
(CA) in CA-GR CV No. 54232. The dispositive portion of the Decision reads as
follows:
"WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The parties are
ORDERED to present their dispute to arbitration in accordance with their Sub-
contract Agreement. The surety bond posted by [respondent] is [d]ischarged."4
The Facts
On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent

Capitol Industrial Construction Groups Inc. entered into a "Subcontract Agreement"
involving electrical work at the Third Port of Zamboanga.5
On April 25, 1985, respondent took over some of the work contracted to petitioner.6
Allegedly, the latter had failed to finish it because of its inability to procure
materials.7
Upon completing its task under the Contract, petitioner billed respondent in the
amount of P6,711,813.90.8 Contesting the accuracy of the amount of advances and
billable accomplishments listed by the former, the latter refused to pay.
Respondent also took refuge in the termination clause of the Agreement.9 That
clause allowed it to set off the cost of the work that petitioner had failed to
undertake -- due to termination or take-over -- against the amount it owed the
latter.
Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of
Makati (Branch 141) a Complaint10 for the collection of the amount representing the
alleged balance due it under the Subcontract. Instead of submitting an Answer,
respondent filed a Motion to Dismiss,11 alleging that the Complaint was premature,
because there was no prior recourse to arbitration.
In its Order12 dated September 15, 1987, the RTC denied the Motion on the ground
that the dispute did not involve the interpretation or the implementation of the
Agreement and was, therefore, not covered by the arbitral clause.13
After trial on the merits, the RTC14 ruled that the take-over of some work items by
respondent was not equivalent to a termination, but a mere modification, of the
Subcontract. The latter was ordered to give full payment for the work completed by
petitioner.
Ruling of the Court of Appeals
On appeal, the CA reversed the RTC and ordered the referral of the case to
arbitration. The appellate court held as arbitrable the issue of whether
respondent’s take-over of some work items had been intended to be a termination of
the original contract under Letter "K" of the Subcontract. It ruled likewise on two
other issues: whether petitioner was liable under the warranty clause of the
Agreement, and whether it should reimburse respondent for the work the latter had
taken over.15
Hence, this Petition.16
The Issues
In its Memorandum, petitioner raises the following issues for the Court’s
consideration:
"A
Whether or not there exist[s] a controversy/dispute between petitioner and

respondent regarding the interpretation and implementation of the Sub-Contract
Agreement dated February 22, 1983 that requires prior recourse to voluntary
arbitration;
"B
In the affirmative, whether or not the requirements provided in Article III 1 of

CIAC Arbitration Rules regarding request for arbitration ha[ve] been complied
with[.]"17
The Court’s Ruling
The Petition is unmeritorious.
First Issue:
Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the interpretation or the

implementation of the Agreement. Thus, without having to resort to prior
arbitration, it is entitled to collect the value of the services it rendered
through an ordinary action for the collection of a sum of money from respondent. On
the other hand, the latter contends that there is a need for prior arbitration as
provided in the Agreement. This is because there are some disparities between the
parties’ positions regarding the extent of the work done, the amount of advances
and billable accomplishments, and the set off of expenses incurred by respondent in
its take-over of petitioner’s work.
We side with respondent. Essentially, the dispute arose from the parties’
ncongruent positions on whether certain provisions of their Agreement could be
applied to the facts. The instant case involves technical discrepancies that are
better left to an arbitral body that has expertise in those areas. In any event,
the inclusion of an arbitration clause in a contract does not ipso facto divest the
courts of jurisdiction to pass upon the findings of arbitral bodies, because the
awards are still judicially reviewable under certain conditions.18
In the case before us, the Subcontract has the following arbitral clause:
"6. The Parties hereto agree that any dispute or conflict as regards to
interpretation and implementation of this Agreement which cannot be settled between
[respondent] and [petitioner] amicably shall be settled by means of arbitration x x
x."19
Clearly, the resolution of the dispute between the parties herein requires a
referral to the provisions of their Agreement. Within the scope of the arbitration
clause are discrepancies as to the amount of advances and billable accomplishments,
the application of the provision on termination, and the consequent set-off of
expenses.
A review of the factual allegations of the parties reveals that they differ on the
following questions: (1) Did a take-over/termination occur? (2) May the expenses
incurred by respondent in the take-over be set off against the amounts it owed
petitioner? (3) How much were the advances and billable accomplishments?
The resolution of the foregoing issues lies in the interpretation of the provisions
of the Agreement. According to respondent, the take-over was caused by petitioner’s
delay in completing the work. Such delay was in violation of the provision in the
Agreement as to time schedule:
"G. TIME SCHEDULE
"[Petitioner] shall adhere strictly to the schedule related to the WORK and
complete the WORK within the period set forth in Annex C hereof. NO time extension
shall be granted by [respondent] to [petitioner] unless a corresponding time
extension is granted by [the Ministry of Public Works and Highways] to the
CONSORTIUM."20
Because of the delay, respondent alleges that it took over some of the work
contracted to petitioner, pursuant to the following provision in the Agreement:
"K. TERMINATION OF AGREEMENT
"[Respondent] has the right to terminate and/or take over this Agreement for any of
the following causes:
x x x x x x x x x
‘6. If despite previous warnings by [respondent], [petitioner] does not execute the
WORK in accordance with this Agreement, or persistently or flagrantly neglects to
carry out [its] obligations under this Agreement."21
Supposedly, as a result of the "take-over," respondent incurred expenses in excess

of the contracted price. It sought to set off those expenses against the amount
claimed by petitioner for the work the latter accomplished, pursuant to the
following provision:
"If the total direct and indirect cost of completing the remaining part of the WORK
exceed the sum which would have been payable to [petitioner] had it completed the
WORK, the amount of such excess [may be] claimed by [respondent] from either of the
following:
‘1. Any amount due [petitioner] from [respondent] at the time of the termination of
this Agreement."22
The issue as to the correct amount of petitioner’s advances and billable
accomplishments involves an evaluation of the manner in which the parties completed
the work, the extent to which they did it, and the expenses each of them incurred
in connection therewith. Arbitrators also need to look into the computation of
foreign and local costs of materials, foreign and local advances, retention fees
and letters of credit, and taxes and duties as set forth in the Agreement. These
data can be gathered from a review of the Agreement, pertinent portions of which
are reproduced hereunder:
"C. CONTRACT PRICE AND TERMS OF PAYMENT
x x x x x x x x x
"All progress payments to be made by [respondent] to [petitioner] shall be subject

to a retention sum of ten percent (10%) of the value of the approved quantities.
Any claims by [respondent] on [petitioner] may be deducted by [respondent] from the
progress payments and/or retained amount. Any excess from the retained amount after
deducting [respondent’s] claims shall be released by [respondent] to [petitioner]
after the issuance of [the Ministry of Public Works and Highways] of the
Certificate of Completion and final acceptance of the WORK by [the Ministry of
Public Works and Highways].
x x x x x x x x x
"D. IMPORTED MATERIALS AND EQUIPMENT
"[Respondent shall open the letters of credit for the importation of equipment and
materials listed in Annex E hereof after the drawings, brochures, and other
technical data of each items in the list have been formally approved by [the
Ministry of Public Works and Highways]. However, petitioner will still be fully
responsible for all imported materials and equipment.
"All expenses incurred by [respondent], both in foreign and local currencies in

connection with the opening of the letters of credit shall be deducted from the
Contract Prices.
x x x x x x x x x
"N. OTHER CONDITIONS
x x x x x x x x x
"2. All customs duties, import duties, contractor’s taxes, income taxes, and other
taxes that may be required by any government agencies in connection with this
Agreement shall be for the sole account of [petitioner]."23
Being an inexpensive, speedy and amicable method of settling disputes,24

arbitration -- along with mediation, conciliation and negotiation -- is encouraged
by the Supreme Court. Aside from unclogging judicial dockets, arbitration also
hastens the resolution of disputes, especially of the commercial kind.25 It is thus
regarded as the "wave of the future" in international civil and commercial
disputes.26 Brushing aside a contractual agreement calling for arbitration between
the parties would be a step backward.27

an order to arbitrate should be granted.28 Any doubt should be resolved in favor of
arbitration.29
Second Issue:
Prior Request for Arbitration
According to petitioner, assuming arguendo that the dispute is arbitrable, the

failure to file a formal request for arbitration with the Construction Industry
Arbitration Commission (CIAC) precluded the latter from acquiring jurisdiction over
the question. To bolster its position, petitioner even cites our ruling in Tesco
Services Incorporated v. Vera.30 We are not persuaded.
Section 1 of Article II of the old Rules of Procedure Governing Construction

Arbitration indeed required the submission of a request for arbitration, as
follows:
"SECTION. 1. Submission to Arbitration -- Any party to a construction contract

wishing to have recourse to arbitration by the Construction Industry Arbitration
Commission (CIAC) shall submit its Request for Arbitration in sufficient copies to
the Secretariat of the CIAC; PROVIDED, that in the case of government construction
contracts, all administrative remedies available to the parties must have been
exhausted within 90 days from the time the dispute arose."
Tesco was promulgated by this Court, using the foregoing provision as reference.
On the other hand, Section 1 of Article III of the new Rules of Procedure Governing
Construction Arbitration has dispensed with this requirement and recourse to the
CIAC may now be availed of whenever a contract "contains a clause for the
submission of a future controversy to arbitration," in this wise:
"SECTION 1. Submission to CIAC Jurisdiction — An arbitration clause in a

construction contract or a submission to arbitration of a construction dispute
shall be deemed an agreement to submit an existing or future controversy to CIAC
jurisdiction, notwithstanding the reference to a different arbitration institution
or arbitral body in such contract or submission. When a contract contains a clause
for the submission of a future controversy to arbitration, it is not necessary for
the parties to enter into a submission agreement before the claimant may invoke the
jurisdiction of CIAC."
The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. 2-91
and 3-93.31
The difference in the two provisions was clearly explained in China Chang Jiang
Energy Corporation (Philippines) v. Rosal Infrastructure Builders et al.32 (an
extended unsigned Resolution) and reiterated in National Irrigation Administration
v. Court of Appeals,33 from which we quote thus:
"Under the present Rules of Procedure, for a particular construction contract to

fall within the jurisdiction of CIAC, it is merely required that the parties agree
to submit the same to voluntary arbitration Unlike in the original version of
Section 1, as applied in the Tesco case, the law as it now stands does not provide
that the parties should agree to submit disputes arising from their agreement
specifically to the CIAC for the latter to acquire jurisdiction over the same.
Rather, it is plain and clear that as long as the parties agree to submit to
voluntary arbitration, regardless of what forum they may choose, their agreement
will fall within the jurisdiction of the CIAC, such that, even if they specifically
choose another forum, the parties will not be precluded from electing to submit
their dispute before the CIAC because this right has been vested upon each party by
law, i.e., E.O. No. 1008."34
Clearly, there is no more need to file a request with the CIAC in order to vest it
with jurisdiction to decide a construction dispute.
The arbitral clause in the Agreement is a commitment on the part of the parties to
submit to arbitration the disputes covered therein. Because that clause is binding,
they are expected to abide by it in good faith.35 And because it covers the dispute
between the parties in the present case, either of them may compel the other to
arbitrate.36
Since petitioner has already filed a Complaint with the RTC without prior recourse
to arbitration, the proper procedure to enable the CIAC to decide on the dispute is
to request the stay or suspension of such action, as provided under RA 876 [the
Arbitration Law].37
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.
SO ORDERED.
Puno, (Chairman), Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 174938 October 1, 2014
GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners,

vs.
BF CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B. COLAYCO,
MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS, Respondents.
D E C I S I O N
LEONEN, J.:
Corporate representatives may be compelled to submit to arbitration proceedings

pursuant to a contract entered into by the corporation they represent if there are
allegations of bad faith or malice in their acts representing the corporation.
This is a Rule 45 petition, assailing the Court of Appeals' May 11, 2006 decision
and October 5, 2006 resolution. The Court of Appeals affirmed the trial court's
decision holding that petitioners, as director, should submit themselves as parties
tothe arbitration proceedings between BF Corporation and Shangri-La Properties,
Inc. (Shangri-La).
In 1993, BF Corporation filed a collection complaint with the Regional Trial Court
against Shangri-Laand the members of its board of directors: Alfredo C. Ramos, Rufo
B.Colayco, Antonio O. Olbes, Gerardo Lanuza, Jr., Maximo G. Licauco III, and
Benjamin C. Ramos.1
BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991,
it entered into agreements with Shangri-La wherein it undertook to construct for
Shangri-La a mall and a multilevel parking structure along EDSA.2
Shangri-La had been consistent in paying BF Corporation in accordance with its

progress billing statements.3 However, by October 1991, Shangri-La started
defaulting in payment.4
BF Corporation alleged that Shangri-La induced BF Corporation to continue with the
construction of the buildings using its own funds and credit despite Shangri-La’s
default.5 According to BF Corporation, ShangriLa misrepresented that it had funds
to pay for its obligations with BF Corporation, and the delay in payment was simply
a matter of delayed processing of BF Corporation’s progress billing statements.6
BF Corporation eventually completed the construction of the buildings.7 Shangri-La

allegedly took possession of the buildings while still owing BF Corporation an
outstanding balance.8
BF Corporation alleged that despite repeated demands, Shangri-La refused to pay the
balance owed to it.9 It also alleged that the Shangri-La’s directors were in bad
faith in directing Shangri-La’s affairs. Therefore, they should be held jointly and
severally liable with Shangri-La for its obligations as well as for the damages
that BF Corporation incurred as a result of Shangri-La’s default.10
On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco

III, and Benjamin C. Ramos filed a motion to suspend the proceedings in view of BF
Corporation’s failure to submit its dispute to arbitration, in accordance with the
arbitration clauseprovided in its contract, quoted in the motion as follows:11
35. Arbitration
(1) 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 there
under or inconnection therewith (including any matter or thing 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.
x x x x x x x x x
(6) The award of such Arbitrators shall be final and binding on the parties. The
decision of the Arbitrators shall be a condition precedent to any right of legal
action that either party may have against the other. . . .12 (Underscoring in the
original)
On August 19, 1993, BF Corporation opposed the motion to suspend proceedings.13
In the November 18, 1993 order, the Regional Trial Court denied the motion to
suspend proceedings.14
On December 8, 1993, petitioners filed an answer to BF Corporation’s complaint,

with compulsory counter claim against BF Corporation and crossclaim against
Shangri-La.15 They alleged that they had resigned as members of Shangri-La’s board
of directors as of July 15, 1991.16
After the Regional Trial Court denied on February 11, 1994 the motion for
reconsideration of its November 18, 1993 order, Shangri-La, Alfredo C. Ramos, Rufo
B. Colayco,Maximo G. Licauco III, and Benjamin Ramos filed a petition for
certiorari with the Court of Appeals.17
On April 28, 1995, the Court of Appeals granted the petition for certiorari and
ordered the submission of the dispute to arbitration.18
Aggrieved by the Court of Appeals’ decision, BF Corporation filed a petition for

review on certiorari with this court.19 On March 27, 1998, this court affirmed the
Court of Appeals’ decision, directing that the dispute be submitted for
arbitration.20
Another issue arose after BF Corporation had initiated arbitration proceedings. BF

Corporation and Shangri-La failed to agree as to the law that should govern the
arbitration proceedings.21 On October 27, 1998, the trial court issued the order
directing the parties to conduct the proceedings in accordance with Republic Act
No. 876.22
Shangri-La filed an omnibus motion and BF Corporation an urgent motion for

clarification, both seeking to clarify the term, "parties," and whether Shangri-
La’s directors should be included in the arbitration proceedings and served with
separate demands for arbitration.23
Petitioners filed their comment on Shangri-La’s and BF Corporation’s motions,

praying that they be excluded from the arbitration proceedings for being non-
parties to Shangri-La’s and BF Corporation’s agreement.24
On July 28, 2003, the trial court issued the order directing service of demands for
arbitration upon all defendants in BF Corporation’s complaint.25 According to the
trial court, Shangri-La’s directors were interested parties who "must also be
served with a demand for arbitration to give them the opportunity to ventilate
their side of the controversy, safeguard their interest and fend off their
respective positions."26 Petitioners’ motion for reconsideration ofthis order was
denied by the trial court on January 19, 2005.27
Petitioners filed a petition for certiorari with the Court of Appeals, alleging
grave abuse of discretion in the issuance of orders compelling them to submit to
arbitration proceedings despite being third parties to the contract between
Shangri-La and BF Corporation.28
In its May 11, 2006 decision,29 the Court of Appeals dismissed petitioners’
petition for certiorari. The Court of Appeals ruled that ShangriLa’s directors were
necessary parties in the arbitration proceedings.30 According to the Court of
Appeals:
[They were] deemed not third-parties tothe contract as they [were] sued for their
acts in representation of the party to the contract pursuant to Art. 31 of the
Corporation Code, and that as directors of the defendant corporation, [they], in
accordance with Art. 1217 of the Civil Code, stand to be benefited or injured by
the result of the arbitration proceedings, hence, being necessary parties, they
must be joined in order to have complete adjudication of the controversy.
Consequently, if [they were] excluded as parties in the arbitration proceedings and
an arbitral award is rendered, holding [Shangri-La] and its board of directors
jointly and solidarily liable to private respondent BF Corporation, a problem will
arise, i.e., whether petitioners will be bound bysuch arbitral award, and this will
prevent complete determination of the issues and resolution of the controversy.31
The Court of Appeals further ruled that "excluding petitioners in the arbitration
proceedings . . . would be contrary to the policy against multiplicity of suits."32
The dispositive portion of the Court of Appeals’ decision reads:

WHEREFORE, the petition is DISMISSED. The assailed orders dated July 28, 2003 and
January 19, 2005 of public respondent RTC, Branch 157, Pasig City, in Civil Case
No. 63400, are AFFIRMED.33
The Court of Appeals denied petitioners’ motion for reconsideration in the October
5, 2006 resolution.34
On November 24, 2006, petitioners filed a petition for review of the May 11, 2006
Court of Appeals decision and the October 5, 2006 Court of Appeals resolution.35
The issue in this case is whether petitioners should be made parties to the
arbitration proceedings, pursuant to the arbitration clause provided in the
contract between BF Corporation and Shangri-La.
Petitioners argue that they cannot be held personally liable for corporate acts or
obligations.36 The corporation is a separate being, and nothing justifies BF
Corporation’s allegation that they are solidarily liable with Shangri-La.37 Neither
did they bind themselves personally nor did they undertake to shoulder Shangri-La’s
obligations should it fail in its obligations.38 BF Corporation also failed to
establish fraud or bad faith on their part.39
Petitioners also argue that they are third parties to the contract between BF
Corporation and Shangri-La.40 Provisions including arbitration stipulations should
bind only the parties.41 Based on our arbitration laws, parties who are strangers
to an agreement cannot be compelled to arbitrate.42
Petitioners point out thatour arbitration laws were enacted to promote the autonomy
of parties in resolving their disputes.43 Compelling them to submit to arbitration
is against this purpose and may be tantamount to stipulating for the parties.44
Separate comments on the petition werefiled by BF Corporation, and Maximo G.

Licauco III, Alfredo C.Ramos and Benjamin C. Ramos.45
Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C. Ramos agreed with
petitioners that Shangri-La’sdirectors, being non-parties to the contract, should
not be made personally liable for Shangri-La’s acts.46 Since the contract was
executed only by BF Corporation and Shangri-La, only they should be affected by the
contract’s stipulation.47 BF Corporation also failed to specifically allege the
unlawful acts of the directors that should make them solidarily liable with
Shangri-La for its obligations.48
Meanwhile, in its comment, BF Corporation argued that the courts’ ruling that the
parties should undergo arbitration "clearly contemplated the inclusion of the
directors of the corporation[.]"49 BF Corporation also argued that while
petitioners were not parties to the agreement, they were still impleaded under
Section 31 of the Corporation Code.50 Section 31 makes directors solidarily liable
for fraud, gross negligence, and bad faith.51 Petitioners are not really third
parties to the agreement because they are being sued as Shangri-La’s
representatives, under Section 31 of the Corporation Code.52
BF Corporation further argued that because petitioners were impleaded for their
solidary liability, they are necessary parties to the arbitration proceedings.53
The full resolution of all disputes in the arbitration proceedings should also be
done in the interest of justice.54
In the manifestation dated September 6, 2007, petitioners informed the court that
the Arbitral Tribunal had already promulgated its decision on July 31, 2007.55 The
Arbitral Tribunal denied BF Corporation’s claims against them.56 Petitioners stated
that "[they] were included by the Arbitral Tribunal in the proceedings
conducted . . . notwithstanding [their] continuing objection thereto. . . ."57 They
also stated that "[their] unwilling participation in the arbitration case was done
ex abundante ad cautela, as manifested therein on several occasions."58 Petitioners
informed the court that they already manifested with the trial court that "any
action taken on [the Arbitral Tribunal’s decision] should be without prejudice to
the resolution of [this] case."59
Upon the court’s order, petitioners and Shangri-La filed their respective
memoranda. Petitioners and Maximo G. Licauco III, Alfredo C. Ramos, and Benjamin C.
Ramos reiterated their arguments that they should not be held liable for Shangri-
La’s default and made parties to the arbitration proceedings because only BF
Corporation and Shangri-La were parties to the contract.
In its memorandum, Shangri-La argued that petitioners were impleaded for their
solidary liability under Section 31 of the Corporation Code. Shangri-La added that
their exclusion from the arbitration proceedings will result in multiplicity of
suits, which "is not favored in this jurisdiction."60 It pointed out that the case
had already been mooted by the termination of the arbitration proceedings, which
petitioners actively participated in.61 Moreover, BF Corporation assailed only the
correctness of the Arbitral Tribunal’s award and not the part absolving Shangri-
La’s directors from liability.62
BF Corporation filed a counter-manifestation with motion to dismiss63 in lieu of

the required memorandum.
In its counter-manifestation, BF Corporation pointed out that since "petitioners’

counterclaims were already dismissed with finality, and the claims against them
were likewise dismissed with finality, they no longer have any interest
orpersonality in the arbitration case. Thus, there is no longer any need to resolve
the present Petition, which mainly questions the inclusion of petitioners in the
arbitration proceedings."64 The court’s decision in this case will no longer have
any effect on the issue of petitioners’ inclusion in the arbitration proceedings.65
The petition must fail.
The Arbitral Tribunal’s decision, absolving petitioners from liability, and its
binding effect on BF Corporation, have rendered this case moot and academic.
The mootness of the case, however, had not precluded us from resolving issues so
that principles may be established for the guidance of the bench, bar, and the
public. In De la Camara v. Hon. Enage,66 this court disregarded the fact that
petitioner in that case already escaped from prison and ruled on the issue of
excessive bails:
While under the circumstances a ruling on the merits of the petition for certiorari
is notwarranted, still, as set forth at the opening of this opinion, the fact that
this case is moot and academic should not preclude this Tribunal from setting forth
in language clear and unmistakable, the obligation of fidelity on the part of lower
court judges to the unequivocal command of the Constitution that excessive bail
shall not be required.67
This principle was repeated in subsequent cases when this court deemed it proper to
clarify important matters for guidance.68
Thus, we rule that petitioners may be compelled to submit to the arbitration

proceedings in accordance with Shangri-Laand BF Corporation’s agreement, in order
to determine if the distinction between Shangri-La’s personality and their
personalities should be disregarded.
This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the
parties to avoid litigation and settle disputes amicably and more expeditiously by
themselves and through their choice of arbitrators.
The policy in favor of arbitration has been affirmed in our Civil Code,69 which was
approved as early as 1949. It was later institutionalized by the approval of
Republic Act No. 876,70 which expressly authorized, made valid, enforceable, and
irrevocable parties’ decision to submit their controversies, including incidental
issues, to arbitration. This court recognized this policy in Eastboard Navigation,
Ltd. v. Ysmael and Company, Inc.:71
As a corollary to the question regarding the existence of an arbitration agreement,

defendant raises the issue that, even if it be granted that it agreed to submit its
dispute with plaintiff to arbitration, said agreement is void and without effect
for it amounts to removing said dispute from the jurisdiction of the courts in
which the parties are domiciled or where the dispute occurred. It is true that
there are authorities which hold that "a clause in a contract providing that all
matters in dispute between the parties shall be referred to arbitrators and to them
alone, is contrary to public policy and cannot oust the courts of jurisdiction"
(Manila Electric Co. vs. Pasay Transportation Co., 57 Phil., 600, 603), however,
there are authorities which favor "the more intelligent view that arbitration, as
an inexpensive, speedy and amicable method of settling disputes, and as a means of
avoiding litigation, should receive every encouragement from the courts which may
be extended without contravening sound public policy or settled law" (3 Am. Jur.,
p. 835). Congress has officially adopted the modern view when it reproduced in the
new Civil Code the provisions of the old Code on Arbitration. And only recently it
approved Republic Act No. 876 expressly authorizing arbitration of future
disputes.72 (Emphasis supplied)
In view of our policy to adopt arbitration as a manner of settling disputes,

arbitration clauses are liberally construed to favor arbitration. Thus, in LM Power
Engineering Corporation v. Capitol Industrial Construction Groups, Inc.,73 this
court said:
Being an inexpensive, speedy and amicable method of settling disputes, arbitration

— along with mediation, conciliation and negotiation — is encouraged by the Supreme
Court. Aside from unclogging judicial dockets, arbitration also hastens the
resolution of disputes, especially of the commercial kind. 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.

an order to arbitrate should be granted. Any doubt should be resolved in favor of
arbitration.74 (Emphasis supplied)
A more clear-cut statement of the state policy to encourage arbitration and to

favor interpretations that would render effective an arbitration clause was later
expressed in Republic Act No. 9285:75
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. As such, the State shall provide means for the use of ADR as
an efficient tool and an alternative procedure for the resolution of appropriate
cases. Likewise, the State shall enlist active private sector participation in the
settlement of disputes through ADR. This Act shall be without prejudice to the
adoption by the Supreme Court of any ADR system, such as mediation, conciliation,
arbitration, or any combination thereof as a means of achieving speedy and
efficient means of resolving cases pending before all courts in the Philippines
which shall be governed by such rules as the Supreme Court may approve from time to
time.
. . . .
SEC. 25. Interpretation of the Act.- In interpreting the Act, the court shall have
due regard to the policy of the law in favor of arbitration.Where action is
commenced by or against multiple parties, one or more of whomare parties who are
bound by the arbitration agreement although the civil action may continue as to
those who are not bound by such arbitration agreement. (Emphasis supplied)
Thus, if there is an interpretation that would render effective an arbitration

clause for purposes ofavoiding litigation and expediting resolution of the dispute,
that interpretation shall be adopted. Petitioners’ main argument arises from the
separate personality given to juridical persons vis-à-vis their directors,
officers, stockholders, and agents. Since they did not sign the arbitration
agreement in any capacity, they cannot be forced to submit to the jurisdiction of
the Arbitration Tribunal in accordance with the arbitration agreement. Moreover,
they had already resigned as directors of Shangri-Laat the time of the alleged
default.
Indeed, as petitioners point out, their personalities as directors of Shangri-La

are separate and distinct from Shangri-La.
A corporation is an artificial entity created by fiction of law.76 This means that

while it is not a person, naturally, the law gives it a distinct personality and
treats it as such. A corporation, in the legal sense, is an individual with a
personality that is distinct and separate from other persons including its
stockholders, officers, directors, representatives,77 and other juridical entities.
The law vests in corporations rights,powers, and attributes as if they were natural
persons with physical existence and capabilities to act on their own.78 For
instance, they have the power to sue and enter into transactions or contracts.
Section 36 of the Corporation Code enumerates some of a corporation’s powers, thus:
Section 36. Corporate powers and capacity.– Every corporation incorporated under
this Code has the power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in the
articles of incorporation and the certificate ofincorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of this

Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or
repeal the same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers and to

sell treasury stocks in accordance with the provisions of this Code; and to admit
members to the corporation if it be a non-stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage
and otherwise deal with such real and personal property, including securities and
bonds of other corporations, as the transaction of the lawful business of the
corporation may reasonably and necessarily require, subject to the limitations
prescribed by law and the Constitution;
8. To enter into merger or consolidation with other corporations as provided in

this Code;
9. To make reasonable donations, including those for the public welfare or for
hospital, charitable, cultural, scientific, civic, or similar purposes: Provided,
That no corporation, domestic or foreign, shall give donations in aid of any
political party or candidate or for purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit of its
directors, trustees, officers and employees; and
11. To exercise such other powers asmay be essential or necessary to carry out its
purpose or purposes as stated in its articles of incorporation. (13a)
Because a corporation’s existence is only by fiction of law, it can only exercise

its rights and powers through itsdirectors, officers, or agents, who are all
natural persons. A corporation cannot sue or enter into contracts without them.
A consequence of a corporation’s separate personality is that consent by a

corporation through its representatives is not consent of the representative,
personally. Its obligations, incurred through official acts of its representatives,
are its own. A stockholder, director, or representative does not become a party to
a contract just because a corporation executed a contract through that stockholder,
director or representative.
Hence, a corporation’s representatives are generally not bound by the terms of the
contract executed by the corporation. They are not personally liable for
obligations and liabilities incurred on or in behalf of the corporation.
Petitioners are also correct that arbitration promotes the parties’ autonomy in
resolving their disputes. This court recognized in Heirs of Augusto Salas, Jr. v.
Laperal Realty Corporation79 that an arbitration clause shall not apply to persons
who were neither parties to the contract nor assignees of previous parties, thus:
A submission to arbitration is a contract. As such, the Agreement, containing the

stipulation on arbitration, binds the parties thereto, as well as their assigns and
heirs. But only they.80 (Citations omitted)
Similarly, in Del Monte Corporation-USA v. Court of Appeals,81 this court ruled:
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. Clearly, only parties to
the Agreement . . . are bound by the Agreement and its arbitration clause as they
are the only signatories thereto.82 (Citation omitted)
This court incorporated these rulings in Agan, Jr. v. Philippine International Air
Terminals Co., Inc.83 and Stanfilco Employees v. DOLE Philippines, Inc., et al.84
As a general rule, therefore, a corporation’s representative who did not personally

bind himself or herself to an arbitration agreement cannot be forced to participate
in arbitration proceedings made pursuant to an agreement entered into by the
corporation. He or she is generally not considered a party to that agreement.
However, there are instances when the distinction between personalities of

directors, officers,and representatives, and of the corporation, are disregarded.
We call this piercing the veil of corporate fiction.
Piercing the corporate veil is warranted when "[the separate personality of a

corporation] is used as a means to perpetrate fraud or an illegal act, or as a
vehicle for the evasion of an existing obligation, the circumvention of statutes,
or to confuse legitimate issues."85 It is also warranted in alter ego cases "where
a corporation is merely a farce since it is a mere alter ego or business conduit of
a person, or where the corporation is so organized and controlled and its affairs
are so conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation."86
When corporate veil is pierced, the corporation and persons who are normally
treated as distinct from the corporation are treated as one person, such that when
the corporation is adjudged liable, these persons, too, become liable as if they
were the corporation.
Among the persons who may be treatedas the corporation itself under certain
circumstances are its directors and officers. Section 31 of the Corporation Code
provides the instances when directors, trustees, or officers may become liable for
corporate acts:
Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who

willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the
affairs of the corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors or trustees shall be liable jointly and
severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or acquires, in violation

of his duty, any interest adverse to the corporation in respect of any matter which
has been reposed inhim in confidence, as to which equity imposes a disability upon
him to deal in his own behalf, he shall be liable as a trustee for the corporation
and must account for the profits which otherwise would have accrued to the
corporation. (n)
Based on the above provision, a director, trustee, or officer of a corporation may

be made solidarily liable with it for all damages suffered by the corporation, its
stockholders or members, and other persons in any of the following cases:
a) The director or trustee willfully and knowingly voted for or assented to a

patently unlawful corporate act;
b) The director or trustee was guilty of gross negligence or bad faith in directing
corporate affairs; and
c) The director or trustee acquired personal or pecuniary interest in conflict with

his or her duties as director or trustee.
Solidary liability with the corporation will also attach in the following
instances:
a) "When a director or officer has consented to the issuance of watered stocks or

who, having knowledge thereof, did not forthwith file with the corporate secretary
his written objection thereto";87
b) "When a director, trustee or officer has contractually agreed or stipulated to
hold himself personally and solidarily liable with the corporation";88 and
c) "When a director, trustee or officer is made, by specific provision of law,

personally liable for his corporate action."89
When there are allegations of bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to determine if these
persons and the corporation should be treated as one. Without a trial, courts and
tribunals have no basis for determining whether the veil of corporate fiction
should be pierced. Courts or tribunals do not have such prior knowledge. Thus, the
courts or tribunals must first determine whether circumstances exist towarrant the
courts or tribunals to disregard the distinction between the corporation and the
persons representing it. The determination of these circumstances must be made by
one tribunal or court in a proceeding participated in by all parties involved,
including current representatives of the corporation, and those persons whose
personalities are impliedly the sameas the corporation. This is because when the
court or tribunal finds that circumstances exist warranting the piercing of the
corporate veil, the corporate representatives are treated as the corporation itself
and should be held liable for corporate acts. The corporation’s distinct
personality is disregarded, and the corporation is seen as a mere aggregation of
persons undertaking a business under the collective name of the corporation.
Hence, when the directors, as in this case, are impleaded in a case against a
corporation, alleging malice orbad faith on their part in directing the affairs of
the corporation, complainants are effectively alleging that the directors and the
corporation are not acting as separate entities. They are alleging that the acts or
omissions by the corporation that violated their rights are also the directors’
acts or omissions.90 They are alleging that contracts executed by the corporation
are contracts executed by the directors. Complainants effectively pray that the
corporate veilbe pierced because the cause of action between the corporation and
the directors is the same.
In that case, complainants have no choice but to institute only one proceeding
against the parties.1âwphi1 Under the Rules of Court, filing of multiple suits for
a single cause of action is prohibited. Institution of more than one suit for the
same cause of action constitutes splitting the cause of action, which is a ground
for the dismissal ofthe others. Thus, in Rule 2:
Section 3. One suit for a single cause of action. — A party may not institute more
than one suit for a single cause of action. (3a)
Section 4. Splitting a single cause of action;effect of. — If two or more suits are
instituted on the basis of the same cause of action, the filing of one or a
judgment upon the merits in any one is available as a ground for the dismissal of
the others. (4a)
It is because the personalities of petitioners and the corporation may later be

found to be indistinct that we rule that petitioners may be compelled to submit to
arbitration.
However, in ruling that petitioners may be compelled to submit to the arbitration

proceedings, we are not overturning Heirs of Augusto Salas wherein this court
affirmed the basic arbitration principle that only parties to an arbitration
agreement may be compelled to submit to arbitration. In that case, this court
recognizedthat persons other than the main party may be compelled to submit to
arbitration, e.g., assignees and heirs. Assignees and heirs may be considered
parties to an arbitration agreement entered into by their assignor because the
assignor’s rights and obligations are transferred to them upon assignment. In other
words, the assignor’s rights and obligations become their own rights and
obligations. In the same way, the corporation’s obligations are treated as the
representative’s obligations when the corporate veil is pierced. Moreover, in Heirs
of Augusto Salas, this court affirmed its policy against multiplicity of suits and
unnecessary delay. This court said that "to split the proceeding into arbitration
for some parties and trial for other parties would "result in multiplicity of
suits, duplicitous procedure and unnecessary delay."91 This court also intimated
that the interest of justice would be best observed if it adjudicated rights in a
single proceeding.92 While the facts of that case prompted this court to direct the
trial court to proceed to determine the issues of thatcase, it did not prohibit
courts from allowing the case to proceed to arbitration, when circumstances
warrant.
Hence, the issue of whether the corporation’s acts in violation of complainant’s

rights, and the incidental issue of whether piercing of the corporate veil is
warranted, should be determined in a single proceeding. Such finding would
determine if the corporation is merely an aggregation of persons whose liabilities
must be treated as one with the corporation.
However, when the courts disregard the corporation’s distinct and separate
personality from its directors or officers, the courts do not say that the
corporation, in all instances and for all purposes, is the same as its directors,
stockholders, officers, and agents. It does not result in an absolute confusion of
personalities of the corporation and the persons composing or representing it.
Courts merely discount the distinction and treat them as one, in relation to a
specific act, in order to extend the terms of the contract and the liabilities for
all damages to erring corporate officials who participated in the corporation’s
illegal acts. This is done so that the legal fiction cannot be used to perpetrate
illegalities and injustices.
Thus, in cases alleging solidary liability with the corporation or praying for the
piercing of the corporate veil, parties who are normally treated as distinct
individuals should be made to participate in the arbitration proceedings in order
to determine ifsuch distinction should indeed be disregarded and, if so, to
determine the extent of their liabilities.
In this case, the Arbitral Tribunal rendered a decision, finding that BF

Corporation failed to prove the existence of circumstances that render petitioners
and the other directors solidarily liable. It ruled that petitioners and Shangri-
La’s other directors were not liable for the contractual obligations of Shangri-La
to BF Corporation. The Arbitral Tribunal’s decision was made with the participation
of petitioners, albeit with their continuing objection. In view of our discussion
above, we rule that petitioners are bound by such decision.
WHEREFORE, the petition is DENIED. The Court of Appeals' decision of May 11, 2006
and resolution of October 5, 2006 are AFFIRMED.
SO ORDERED.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 175404 January 31, 2011
CARGILL PHILIPPINES, INC., Petitioner,

vs.
SAN FERNANDO REGALA TRADING, INC., Respondent.
D E C I S I O N
PERALTA, J.:
Before us is a petition for review on certiorari seeking to reverse and set aside
the Decision1 dated July 31, 2006 and the Resolution2 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 Damages3 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 66 and 77 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 Order10
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 Manifestation12 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 respondent’s 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 petitioner’s

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
party’s 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 court’s authority only to the determination of whether or
not there is an agreement in writing providing for arbitration. In the affirmative,
the statute ordains that the court shall issue an order summarily directing the
parties to proceed with the arbitration in accordance with the terms thereof. If
the court, upon the other hand, finds that no such agreement exists, the
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, petitioner’s 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. 87617 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.1âwphi1 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 CA’s 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.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:

SUPREME COURT
Manila
SPECIAL SECOND DIVISION
G.R. No. 161957 January 22, 2007
JORGE GONZALES and PANEL OF ARBITRATORS, Petitioners,

vs.
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., and AUSTRALASIAN PHILIPPINES MINING
INC., Respondents.
x---------------------------------------------------------------------------------
x
G.R. No. 167994 January 22, 2007
JORGE GONZALES, Petitioner,

vs.
HON. OSCAR B. PIMENTEL, in his capacity as PRESIDING JUDGE of BR. 148 of the
REGIONAL TRIAL COURT of MAKATI CITY, and CLIMAX-ARIMCO MINING CORPORATION,
Respondents.
R E S O L U T I O N
TINGA, J.:
This is a consolidation of two petitions rooted in the same disputed Addendum

Contract entered into by the parties. In G.R. No. 161957, the Court in its Decision
of 28 February 20051 denied the Rule 45 petition of petitioner Jorge Gonzales
(Gonzales). It held that the DENR Panel of Arbitrators had no jurisdiction over the
complaint for the annulment of the Addendum Contract on grounds of fraud and
violation of the Constitution and that the action should have been brought before
the regular courts as it involved judicial issues. Both parties filed separate
motions for reconsideration. Gonzales avers in his Motion for Reconsideration2 that
the Court erred in holding that the DENR Panel of Arbitrators was bereft of
jurisdiction, reiterating its argument that the case involves a mining dispute that
properly falls within the ambit of the Panel’s authority. Gonzales adds that the
Court failed to rule on other issues he raised relating to the sufficiency of his
complaint before the DENR Panel of Arbitrators and the timeliness of its filing.
Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for
Partial Reconsideration and/or Clarification3 seeking reconsideration of that part
of the Decision holding that the case should not be brought for arbitration under
Republic Act (R.A.) No. 876, also known as the Arbitration Law.4 Respondents,
citing American jurisprudence5 and the UNCITRAL Model Law,6 argue that the
arbitration clause in the Addendum Contract should be treated as an agreement
independent of the other terms of the contract, and that a claimed rescission of
the main contract does not avoid the duty to arbitrate. Respondents add that
Gonzales’s argument relating to the alleged invalidity of the Addendum Contract
still has to be proven and adjudicated on in a proper proceeding; that is, an
action separate from the motion to compel arbitration. Pending judgment in such
separate action, the Addendum Contract remains valid and binding and so does the
arbitration clause therein. Respondents add that the holding in the Decision that
"the case should not be brought under the ambit of the Arbitration Law" appears to
be premised on Gonzales’s having "impugn[ed] the existence or validity" of the
addendum contract. If so, it supposedly conveys the idea that Gonzales’s unilateral
repudiation of the contract or mere allegation of its invalidity is all it takes to
avoid arbitration. Hence, respondents submit that the court’s holding that "the
case should not be brought under the ambit of the Arbitration Law" be understood or
clarified as operative only where the challenge to the arbitration agreement has
been sustained by final judgment.
Both parties were required to file their respective comments to the other party’s
motion for reconsideration/clarification.7 Respondents filed their Comment on 17
August 2005,8 while Gonzales filed his only on 25 July 2006.9
On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6 May 2005, or
while the motions for reconsideration in G.R. No. 16195710 were pending, wherein
Gonzales challenged the orders of the Regional Trial Court (RTC) requiring him to
proceed with the arbitration proceedings as sought by Climax-Arimco Mining
Corporation (Climax-Arimco).
On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were consolidated upon
the recommendation of the Assistant Division Clerk of Court since the cases are
rooted in the same Addendum Contract.
We first tackle the more recent case which is G.R. No. 167994. It stemmed from the
petition to compel arbitration filed by respondent Climax-Arimco before the RTC of
Makati City on 31 March 2000 while the complaint for the nullification of the
Addendum Contract was pending before the DENR Panel of Arbitrators. On 23 March
2000, Climax-Arimco had sent Gonzales a Demand for Arbitration pursuant to Clause
19.111 of the Addendum Contract and also in accordance with Sec. 5 of R.A. No. 876.
The petition for arbitration was subsequently filed and Climax-Arimco sought an
order to compel the parties to arbitrate pursuant to the said arbitration clause.
The case, docketed as Civil Case No. 00-444, was initially raffled to Br. 132 of
the RTC of Makati City, with Judge Herminio I. Benito as Presiding Judge.
Respondent Climax-Arimco filed on 5 April 2000 a motion to set the application to
compel arbitration for hearing.
On 14 April 2000, Gonzales filed a motion to dismiss which he however failed to set
for hearing. On 15 May 2000, he filed an Answer with Counterclaim,12 questioning
the validity of the Addendum Contract containing the arbitration clause. Gonzales
alleged that the Addendum Contract containing the arbitration clause is void in
view of Climax-Arimco’s acts of fraud, oppression and violation of the
Constitution. Thus, the arbitration clause, Clause 19.1, contained in the Addendum
Contract is also null and void ab initio and legally inexistent.1awphi1.net
On 18 May 2000, the RTC issued an order declaring Gonzales’s motion to dismiss moot
and academic in view of the filing of his Answer with Counterclaim.13
On 31 May 2000, Gonzales asked the RTC to set the case for pre-trial.14 This the
RTC denied on 16 June 2000, holding that the petition for arbitration is a special
proceeding that is summary in nature.15 However, on 7 July 2000, the RTC granted
Gonzales’s motion for reconsideration of the 16 June 2000 Order and set the case
for pre-trial on 10 August 2000, it being of the view that Gonzales had raised in
his answer the issue of the making of the arbitration agreement.16
Climax-Arimco then filed a motion to resolve its pending motion to compel

arbitration. The RTC denied the same in its 24 July 2000 order.
On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge Herminio I. Benito
for "not possessing the cold neutrality of an impartial judge."17 On 5 August 2000,
Judge Benito issued an Order granting the Motion to Inhibit and ordered the re-
raffling of the petition for arbitration.18 The case was raffled to the sala of
public respondent Judge Oscar B. Pimentel of Branch 148.
On 23 August 2000, Climax-Arimco filed a motion for reconsideration of the 24 July

2000 Order.19 Climax-Arimco argued that R.A. No. 876 does not authorize a pre-trial
or trial for a motion to compel arbitration but directs the court to hear the
motion summarily and resolve it within ten days from hearing. Judge Pimentel
granted the motion and directed the parties to arbitration. On 13 February 2001,
Judge Pimentel issued the first assailed order requiring Gonzales to proceed with
arbitration proceedings and appointing retired CA Justice Jorge Coquia as sole
arbitrator.20
Gonzales moved for reconsideration on 20 March 2001 but this was denied in the
Order dated 7 March 2005.21
Gonzales thus filed the Rule 65 petition assailing the Orders dated 13 February
2001 and 7 March 2005 of Judge Pimentel. Gonzales contends that public respondent
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, is null and void. Gonzales has also sought a temporary
restraining order to prevent the enforcement of the assailed orders directing the
parties to arbitrate, and to direct Judge Pimentel to hold a pre-trial conference
and the necessary hearings on the determination of the nullity of the Addendum
Contract.
In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876:
Sec. 6. Hearing by court.—A party aggrieved by the failure, neglect or refusal of

another to perform under an agreement in writing providing for arbitration may
petition the court for an order directing that such arbitration proceed in the
manner provided for in such agreement. Five days notice in writing of the hearing
of such application shall be served either personally or by registered mail upon
the party in default. The court shall hear the parties, and upon being satisfied
that the making of the agreement or such failure to comply therewith is not in
issue, shall make an order directing the parties to proceed to arbitration in
accordance with the terms of the agreement. If the making of the agreement or
default be in issue the court shall proceed to summarily hear such issue. If the
finding be that no agreement in writing providing for arbitration was made, or that
there is no default in the proceeding thereunder, the proceeding shall be
dismissed. If the finding be that a written provision for arbitration was made and
there is a default in proceeding thereunder, an order shall be made summarily
directing the parties to proceed with the arbitration in accordance with the terms
thereof.
The court shall decide all motions, petitions or applications filed under the
provisions of this Act, within ten (10) days after such motions, petitions, or
applications have been heard by it.
Gonzales also cites Sec. 24 of R.A. No. 9285 or the "Alternative Dispute Resolution
Act of 2004:"
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.
According to Gonzales, the above-quoted provisions of law outline the procedure to

be followed in petitions to compel arbitration, which the RTC did not follow. Thus,
referral of the parties to arbitration by Judge Pimentel despite the timely and
properly raised issue of nullity of the Addendum Contract was misplaced and without
legal basis. Both R.A. No. 876 and R.A. No. 9285 mandate that any issue as to the
nullity, inoperativeness, or incapability of performance of the arbitration
clause/agreement raised by one of the parties to the alleged arbitration agreement
must be determined by the court prior to referring them to arbitration. They
require that the trial court first determine or resolve the issue of nullity, and
there is no other venue for this determination other than a pre-trial and hearing
on the issue by the trial court which has jurisdiction over the case. Gonzales adds
that the assailed 13 February 2001 Order also violated his right to procedural due
process when the trial court erroneously ruled on the existence of the arbitration
agreement despite the absence of a hearing for the presentation of evidence on the
nullity of the Addendum Contract.
Respondent Climax-Arimco, on the other hand, assails the mode of review availed of
by Gonzales. Climax-Arimco cites Sec. 29 of R.A. No. 876:
Sec. 29. Appeals.—An appeal may be taken from an order made in a proceeding under
this Act, or from a judgment entered upon an award through certiorari proceedings,
but such appeals shall be limited to questions of law. The proceedings upon such an
appeal, including the judgment thereon shall be governed by the Rules of Court in
so far as they are applicable.
Climax-Arimco mentions that the special civil action for certiorari employed by
Gonzales is available only where there is no appeal or any plain, speedy, and
adequate remedy in the ordinary course of law against the challenged orders or
acts. Climax-Arimco then points out that R.A. No. 876 provides for an appeal from
such orders, which, under the Rules of Court, must be filed within 15 days from
notice of the final order or resolution appealed from or of the denial of the
motion for reconsideration filed in due time. Gonzales has not denied that the
relevant 15-day period for an appeal had elapsed long before he filed this petition
for certiorari. He cannot use the special civil action of certiorari as a remedy
for a lost appeal.
Climax-Arimco adds that an application to compel arbitration under Sec. 6 of R.A.

No. 876 confers on the trial court only a limited and special jurisdiction, i.e., a
jurisdiction solely to determine (a) whether or not the parties have a written
contract to arbitrate, and (b) if the defendant has failed to comply with that
contract. Respondent cites La Naval Drug Corporation v. Court of Appeals,22 which
holds that in a proceeding to compel arbitration, "[t]he arbitration law explicitly
confines the court’s authority only to pass upon the issue of whether there is or
there is no agreement in writing providing for arbitration," and "[i]n the
affirmative, the statute ordains that the court shall issue an order ‘summarily
thereof.’"23 Climax-Arimco argues that R.A. No. 876 gives no room for any other
issue to be dealt with in such a proceeding, and that the court presented with an
application to compel arbitration may order arbitration or dismiss the same,
depending solely on its finding as to those two limited issues. If either of these
matters is disputed, the court is required to conduct a summary hearing on it.
Gonzales’s proposition contradicts both the trial court’s limited jurisdiction and
the summary nature of the proceeding itself.
Climax-Arimco further notes that Gonzales’s attack on or repudiation of the

Addendum Contract also is not a ground to deny effect to the arbitration clause in
the Contract. The arbitration agreement is separate and severable from the contract
evidencing the parties’ commercial or economic transaction, it stresses. Hence, the
alleged defect or failure of the main contract is not a ground to deny enforcement
of the parties’ arbitration agreement. Even the party who has repudiated the main
contract is not prevented from enforcing its arbitration provision. R.A. No. 876
itself treats the arbitration clause or agreement as a contract separate from the
commercial, economic or other transaction to be arbitrated. The statute, in
particular paragraph 1 of Sec. 2 thereof, considers the arbitration stipulation an
independent contract in its own right whose enforcement may be prevented only on
grounds which legally make the arbitration agreement itself revocable, thus:
Sec. 2. Persons and matters subject to arbitration.—Two or more persons or parties

may submit to the arbitration of one or more arbitrators any controversy existing,
between them at the time of the submission and which may be the subject of an
action, or the parties to any contract may in such contract agree to settle by
arbitration a controversy thereafter arising between them. Such submission or
contract shall be valid, enforceable and irrevocable, save upon such grounds as
exist at law for the revocation of any contract.
x x x x
The grounds Gonzales invokes for the revocation of the Addendum Contract—fraud and
oppression in the execution thereof—are also not grounds for the revocation of the
arbitration clause in the Contract, Climax-Arimco notes. Such grounds may only be
raised by way of defense in the arbitration itself and cannot be used to frustrate
or delay the conduct of arbitration proceedings. Instead, these should be raised in
a separate action for rescission, it continues.
Climax-Arimco emphasizes that the summary proceeding to compel arbitration under

Sec. 6 of R.A. No. 876 should not be confused with the procedure in Sec. 24 of R.A.
No. 9285. Sec. 6 of R.A. No. 876 refers to an application to compel arbitration
where the court’s authority is limited to resolving the issue of whether there is
or there is no agreement in writing providing for arbitration, while Sec. 24 of
R.A. No. 9285 refers to an ordinary action which covers a matter that appears to be
arbitrable or subject to arbitration under the arbitration agreement. In the latter
case, the statute is clear that the court, instead of trying the case, may, on
request of either or both parties, refer the parties to arbitration, unless it
finds that the arbitration agreement is null and void, inoperative or incapable of
being performed. Arbitration may even be ordered in the same suit brought upon a
matter covered by an arbitration agreement even without waiting for the outcome of
the issue of the validity of the arbitration agreement. Art. 8 of the UNCITRAL
Model Law24 states that where a court before which an action is brought in a matter
which is subject of an arbitration agreement refers the parties to arbitration, the
arbitral proceedings may proceed even while the action is pending.
Thus, the main issue raised in the Petition for Certiorari is whether it was proper
for the RTC, in the proceeding to compel arbitration under R.A. No. 876, to order
the parties to arbitrate even though the defendant therein has raised the twin
issues of validity and nullity of the Addendum Contract and, consequently, of the
arbitration clause therein as well. The resolution of both Climax-Arimco’s Motion
for Partial Reconsideration and/or Clarification in G.R. No. 161957 and Gonzales’s
Petition for Certiorari in G.R. No. 167994 essentially turns on whether the
question of validity of the Addendum Contract bears upon the applicability or
enforceability of the arbitration clause contained therein. The two pending matters
shall thus be jointly resolved.
We address the Rule 65 petition in G.R. No. 167994 first from the remedial law
perspective. It deserves to be dismissed on procedural grounds, as it was filed in
lieu of appeal which is the prescribed remedy and at that far beyond the
reglementary period. It is elementary in remedial law that the use of an erroneous
mode of appeal is cause for dismissal of the petition for certiorari and it has
been repeatedly stressed that a petition for certiorari is not a substitute for a
lost appeal. As its nature, a petition for certiorari lies only where there is "no
appeal," and "no plain, speedy and adequate remedy in the ordinary course of
law."25 The Arbitration Law specifically provides for an appeal by certiorari,
i.e., a petition for review under certiorari under Rule 45 of the Rules of Court
that raises pure questions of law.26 There is no merit to Gonzales’s argument that
the use of the permissive term "may" in Sec. 29, R.A. No. 876 in the filing of
appeals does not prohibit nor discount the filing of a petition for certiorari
under Rule 65.27 Proper interpretation of the aforesaid provision of law shows that
the term "may" refers only to the filing of an appeal, not to the mode of review to
be employed. Indeed, the use of "may" merely reiterates the principle that the
right to appeal is not part of due process of law but is a mere statutory privilege
to be exercised only in the manner and in accordance with law.
Neither can BF Corporation v. Court of Appeals28 cited by Gonzales support his

theory. Gonzales argues that said case recognized and allowed a petition for
certiorari under Rule 65 "appealing the order of the Regional Trial Court
disregarding the arbitration agreement as an acceptable remedy."29 The BF
Corporation case had its origins in a complaint for collection of sum of money
filed by therein petitioner BF Corporation against Shangri-la Properties, Inc.
(SPI). SPI moved to suspend the proceedings alleging that the construction
agreement or the Articles of Agreement between the parties contained a clause
requiring prior resort to arbitration before judicial intervention. The trial court
found that an arbitration clause was incorporated in the Conditions of Contract
appended to and deemed an integral part of the Articles of Agreement. Still, the
trial court denied the motion to suspend proceedings upon a finding that the
Conditions of Contract were not duly executed and signed by the parties. The trial
court also found that SPI had failed to file any written notice of demand for
arbitration within the period specified in the arbitration clause. The trial court
denied SPI's motion for reconsideration and ordered it to file its responsive
pleading. Instead of filing an answer, SPI filed a petition for certiorari under
Rule 65, which the Court of Appeals, favorably acted upon. In a petition for review
before this Court, BF Corporation alleged, among others, that the Court of Appeals
should have dismissed the petition for certiorari since the order of the trial
court denying the motion to suspend proceedings "is a resolution of an incident on
the merits" and upon the continuation of the proceedings, the trial court would
eventually render a decision on the merits, which decision could then be elevated
to a higher court "in an ordinary appeal."30
The Court did not uphold BF Corporation’s argument. The issue raised before the
Court was whether SPI had taken the proper mode of appeal before the Court of
Appeals. The question before the Court of Appeals was whether the trial court had
prematurely assumed jurisdiction over the controversy. The question of jurisdiction
in turn depended on the question of existence of the arbitration clause which is
one of fact. While on its face the question of existence of the arbitration clause
is a question of fact that is not proper in a petition for certiorari, yet since
the determination of the question obliged the Court of Appeals as it did to
interpret the contract documents in accordance with R.A. No. 876 and existing
jurisprudence, the question is likewise a question of law which may be properly
taken cognizance of in a petition for certiorari under Rule 65, so the Court
held.31
The situation in B.F. Corporation is not availing in the present petition. The
disquisition in B.F. Corporation led to the conclusion that in order that the
question of jurisdiction may be resolved, the appellate court had to deal first
with a question of law which could be addressed in a certiorari proceeding. In the
present case, Gonzales’s petition raises a question of law, but not a question of
jurisdiction. 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 has 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.32 Even if we overlook the employment of the wrong remedy in the broader
interests of justice, the petition would nevertheless be dismissed for failure of
Gonzalez to show grave abuse of discretion.
Arbitration, as an alternative mode of settling disputes, has long been recognized

and accepted in our jurisdiction. The Civil Code is explicit on the matter.33 R.A.
No. 876 also expressly authorizes arbitration of domestic disputes. Foreign
arbitration, as a system of settling commercial disputes of an international
character, 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.34
The enactment of R.A. No. 9285 on 2 April 2004 further institutionalized the use of
alternative dispute resolution systems, including arbitration, in the settlement of
disputes.
Disputes do not go to arbitration unless and until the parties have agreed to abide
by the arbitrator’s decision. Necessarily, a contract is required for arbitration
to take place and to be binding. R.A. No. 876 recognizes the contractual nature of
the arbitration agreement, thus:
Sec. 2. Persons and matters subject to arbitration.—Two or more persons or parties

may submit to the arbitration of one or more arbitrators any controversy existing,
between them at the time of the submission and which may be the subject of an
action, or the parties to any contract may in such contract agree to settle by
arbitration a controversy thereafter arising between them. Such submission or
contract shall be valid, enforceable and irrevocable, save upon such grounds as
exist at law for the revocation of any contract.
Such submission or contract may include question arising out of valuations,

appraisals or other controversies which may be collateral, incidental, precedent or
subsequent to any issue between the parties.
A controversy cannot be arbitrated where one of the parties to the controversy is

an infant, or a person judicially declared to be incompetent, unless the
appropriate court having jurisdiction approve a petition for permission to submit
such controversy to arbitration made by the general guardian or guardian ad litem
of the infant or of the incompetent. [Emphasis added.]
Thus, we held in Manila Electric Co. v. Pasay Transportation Co.35 that a

submission to arbitration is a contract. A clause in a contract providing that all
matters in dispute between the parties shall be referred to arbitration is a
contract,36 and in Del Monte Corporation-USA v. Court of Appeals37 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. As a
rule, contracts are respected as the law between the contracting parties and
produce effect as between them, their assigns and heirs."38
The special proceeding under Sec. 6 of R.A. No. 876 recognizes the contractual
nature of arbitration clauses or agreements. It provides:
Sec. 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
thereof.
The court shall decide all motions, petitions or applications filed under the
provisions of this Act, within ten days after such motions, petitions, or
applications have been heard by it. [Emphasis added.]
This special proceeding is the procedural mechanism for the enforcement of the
contract to arbitrate. The jurisdiction of the courts in relation to Sec. 6 of R.A.
No. 876 as well as the nature of the proceedings therein was expounded upon in La
Naval Drug Corporation v. Court of Appeals.39 There it was held that R.A. No. 876
explicitly confines the court's authority only to the determination of whether or
not there is an agreement in writing providing for arbitration. In the affirmative,
the statute ordains that the court shall issue an order "summarily directing the
parties to proceed with the arbitration in accordance with the terms thereof." If
the court, upon the other hand, finds that no such agreement exists, "the
proceeding shall be dismissed."40 The cited case also stressed that the proceedings
are summary in nature.41 The same thrust was made in the earlier case of Mindanao
Portland Cement Corp. v. McDonough Construction Co. of Florida42 which held, thus:
Since there obtains herein a written provision for arbitration as well as failure
on respondent's part to comply therewith, the court a quo rightly ordered the
parties to proceed to arbitration in accordance with the terms of their agreement
(Sec. 6, Republic Act 876). Respondent's arguments touching upon the merits of the
dispute are improperly raised herein. They should be addressed to the arbitrators.
This proceeding is merely a summary remedy to enforce the agreement to arbitrate.
The duty of the court in this case is not to resolve the merits of the parties'
claims but only to determine if they should proceed to arbitration or not. x x x
x43
Implicit in the summary nature of the judicial proceedings is the separable or

independent character of the arbitration clause or agreement. This was highlighted
in the cases of Manila Electric Co. v. Pasay Trans. Co.44 and Del Monte
Corporation-USA v. Court of Appeals.45
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 part comes to an
end.46
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.47
The separability of the arbitration clause is confirmed in Art. 16(1) of the

UNCITRAL Model Law and Art. 21(2) of the UNCITRAL Arbitration Rules.48
The separability doctrine was dwelt upon at length in the U.S. case of Prima Paint
Corp. v. Flood & Conklin Manufacturing Co.49 In that case, Prima Paint and Flood
and Conklin (F & C) entered into a consulting agreement whereby F & C undertook to
act as consultant to Prima Paint for six years, sold to Prima Paint a list of its
customers and promised not to sell paint to these customers during the same period.
The consulting agreement contained an arbitration clause. Prima Paint did not make
payments as provided in the consulting agreement, contending that F & C had
fraudulently misrepresented that it was solvent and able for perform its contract
when in fact it was not and had even intended to file for bankruptcy after
executing the consultancy agreement. Thus, F & C served Prima Paint with a notice
of intention to arbitrate. Prima Paint sued in court for rescission of the
consulting agreement on the ground of fraudulent misrepresentation and asked for
the issuance of an order enjoining F & C from proceeding with arbitration. F & C
moved to stay the suit pending arbitration. The trial court granted F & C’s motion,
and the U.S. Supreme Court affirmed.
The U.S. Supreme Court did not address Prima Paint’s argument that it had been
fraudulently induced by F & C to sign the consulting agreement and held that no
court should address this argument. Relying on Sec. 4 of the Federal Arbitration
Act—which provides that "if a party [claims to be] aggrieved by the alleged failure
x x x of another to arbitrate x x x, [t]he court shall hear the parties, and upon
being satisfied that the making of the agreement for arbitration or the failure to
comply therewith is not in issue, the court shall make an order directing the
parties to proceed to arbitration x x x. If the making of the arbitration agreement
or the failure, neglect, or refusal to perform the same be in issue, the court
shall proceed summarily to the trial thereof"—the U.S. High Court held that the
court should not order the parties to arbitrate if the making of the arbitration
agreement is in issue. The parties should be ordered to arbitration if, and only
if, they have contracted to submit to arbitration. Prima Paint was not entitled to
trial on the question of whether an arbitration agreement was made because its
allegations of fraudulent inducement were not directed to the arbitration clause
itself, but only to the consulting agreement which contained the arbitration
agreement.50 Prima Paint held that "arbitration clauses are ‘separable’ from the
contracts in which they are embedded, and that where no claim is made that fraud
was directed to the arbitration clause itself, a broad arbitration clause will be
held to encompass arbitration of the claim that the contract itself was induced by
fraud."51
There is reason, therefore, to rule against Gonzales when he alleges that Judge
Pimentel acted with grave abuse of discretion in ordering the parties to proceed
with arbitration. Gonzales’s argument that the Addendum Contract is null and void
and, therefore the arbitration clause therein is void as well, is not tenable.
First, the proceeding in a petition for arbitration under R.A. No. 876 is limited
only to the resolution of the question of whether the arbitration agreement exists.
Second, the separability of the arbitration clause from the Addendum Contract means
that validity or invalidity of the Addendum Contract will not affect the
enforceability of the agreement to arbitrate. Thus, Gonzales’s petition for
certiorari should be dismissed.
This brings us back to G.R. No. 161957. 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.
The Motion for Reconsideration of Gonzales in G.R. No. 161957 should also be
denied. In the motion, Gonzales raises the same question of jurisdiction, more
particularly that the complaint for nullification of the Addendum Contract
pertained to the DENR Panel of Arbitrators, not the regular courts. He insists that
the subject of his complaint is a mining dispute since it involves a dispute
concerning rights to mining areas, the Financial and Technical Assistance Agreement
(FTAA) between the parties, and it also involves claimowners. He adds that the
Court failed to rule on other issues he raised, such as whether he had ceded his
claims over the mineral deposits located within the Addendum Area of Influence;
whether the complaint filed before the DENR Panel of Arbitrators alleged ultimate
facts of fraud; and whether the action to declare the nullity of the Addendum
Contract on the ground of fraud has prescribed.1avvphi1.net
These are the same issues that Gonzales raised in his Rule 45 petition in G.R. No.
161957 which were resolved against him in the Decision of 28 February 2005.
Gonzales does not raise any new argument that would sway the Court even a bit to
alter its holding that the complaint filed before the DENR Panel of Arbitrators
involves judicial issues which should properly be resolved by the regular courts.
He alleged fraud or misrepresentation in the execution of the Addendum Contract
which is a ground for the annulment of a voidable contract. Clearly, such
allegations entail legal questions which are within the jurisdiction of the courts.
The question of whether Gonzales had ceded his claims over the mineral deposits in
the Addendum Area of Influence is a factual question which is not proper for
determination before this Court. At all events, moreover, the question is
irrelevant to the issue of jurisdiction of the DENR Panel of Arbitrators. It should
be pointed out that the DENR Panel of Arbitrators made a factual finding in its
Order dated 18 October 2001, which it reiterated in its Order dated 25 June 2002,
that Gonzales had, "through the various agreements, assigned his interest over the
mineral claims all in favor of [Climax-Arimco]" as well as that without the
complainant [Gonzales] assigning his interest over the mineral claims in favor of
[Climax-Arimco], there would be no FTAA to speak of."52 This finding was affirmed
by the Court of Appeals in its Decision dated 30 July 2003 resolving the petition
for certiorari filed by Climax-Arimco in regard to the 18 October 2001 Order of the
DENR Panel.53
The Court of Appeals likewise found that Gonzales’s complaint alleged fraud but did
not provide any particulars to substantiate it. The complaint repeatedly mentioned
fraud, oppression, violation of the Constitution and similar conclusions but
nowhere did it give any ultimate facts or particulars relative to the
allegations.54
Sec. 5, Rule 8 of the Rules of Court specifically provides that in all averments of
fraud, the circumstances constituting fraud must be stated with particularity. This
is to enable the opposing party to controvert the particular facts allegedly
constituting the same. Perusal of the complaint indeed shows that it failed to
state with particularity the ultimate facts and circumstances constituting the
alleged fraud. It does not state what particulars about Climax-Arimco’s financial
or technical capability were misrepresented, or how the misrepresentation was done.
Incorporated in the body of the complaint are verbatim reproductions of the
contracts, correspondence and government issuances that reportedly explain the
allegations of fraud and misrepresentation, but these are, at best, evidentiary
matters that should not be included in the pleading.
As to the issue of prescription, Gonzales’s claims of fraud and misrepresentation

attending the execution of the Addendum Contract are grounds for the annulment of a
voidable contract under the Civil Code.55 Under Art. 1391 of the Code, an action
for annulment shall be brought within four years, in the case of fraud, beginning
from the time of the discovery of the same. However, the time of the discovery of
the alleged fraud is not clear from the allegations of Gonzales’s complaint. That
being the situation coupled with the fact that this Court is not a trier of facts,
any ruling on the issue of prescription would be uncalled for or even unnecessary.
WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is DISMISSED. Such
dismissal effectively renders superfluous formal action on the Motion for Partial
Reconsideration and/or Clarification filed by Climax Mining Ltd., et al. in G.R.
No. 161957.
The Motion for Reconsideration filed by Jorge Gonzales in G.R. No. 161957 is DENIED
WITH FINALITY.
SO ORDERED.
DANTE O. TINGA
Associate Justice
WE CONCUR:

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Republic of the Philippines

G.R. No. 96283 February 25, 1992

It appears that on May 17, 1989, petitioner Chung Fu Industries (Philippines)

Claiming an unsatisfied account of P10,500,000.00 and unpaid progress billings of

Subsequent negotiations between the parties eventually led to the formulation of an

f. As an exception to sub-paragraph (e) above, the parties mutually agree that

xxx xxx xxx 4

On June 30, 1990, Arbitrator Asuncion ordered petitioners to immediately pay

Arbitration found a fertile field in the resolution of labor-management disputes in

Whether utilized in business transactions or in employer-employee relations,

As early as the 1920's, this Court declared:

In the Philippines fortunately, the attitude of the courts toward arbitration

In practice nowadays, absent an agreement of the parties to resolve their disputes

But certainly, the stipulation to refer all future disputes to an arbitrator or to

What if courts refuse or neglect to inquire into the factual milieu of an

. . . Inspite of statutory provisions making "final" the decisions of certain

It should be stressed, too, that voluntary arbitrators, by the nature of their

2. The Honorable Arbitrator committed grave error in granting extra compensation to

3. The Honorable Arbitrator committed grave error in granting extra compensation to

4. The Honorable Arbitrator committed grave error in granting extra compensation to

5. The Honorable Arbitrator committed grave error in granting extra compensation to

6. The Honorable Arbitrator committed grave error in granting to Roblecor the

7. The Honorable Arbitrator committed grave error in granting to Roblecor the

8. The Honorable Arbitrator committed grave error in granting to Roblecor the

12. The Honorable Arbitrator committed grave error in awarding to Roblecor

Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.

G.R. No. L-35469 October 9, 1987

ENCARNACION BANOGON, ZOSIMA MUNOZ, and DAVIDINA MUNOZ, petitioners,

This Court has repeatedly reminded litigants and lawyers alike:

This appeal moreover, should fail, predicated as it is on an insubstantial

As officers of the court, lawyers have a responsibility to assist in the proper

Teehankee, C.J., Narvasa and Paras, JJ., concur.

Gancayco, J., is on leave.

G.R. No. 143581 January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner,

VELASCO, JR., J.:

In our jurisdiction, the policy is to favor alternative methods of resolving

Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is

On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as

After KOGIES filed a Supplemental Memorandum with Motion to Dismiss13 answering

In the meantime, PGSMC filed a Motion for Inspection of Things16 to determine

On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration17 of the

Thereafter, KOGIES filed a Supplement to the Petition20 in CA-G.R. SP No. 49249

The Court of Appeals affirmed the trial court and declared

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

c. DECREEING PRIVATE RESPONDENT’S COUNTERCLAIMS TO BE ALL COMPULSORY NOT

The Court’s Ruling

The petition is partly meritorious.

The rules on the payment of docket fees for counterclaims

We disagree with KOGIES.

As to the failure to submit a certificate of forum shopping, PGSMC’s Answer is not

Interlocutory orders proper subject of certiorari

Prematurity of the petition before the CA

The Core Issue: Article 15 of the Contract

Article 15. Arbitration.—All disputes, controversies, or differences which may

Arbitration clause not contrary to public policy

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

Consistent with the above-mentioned policy of encouraging alternative dispute

RA 9285 incorporated the UNCITRAL Model law

For domestic arbitration proceedings, we have particular agencies to arbitrate

CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION

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