G.R. No. 91228 March 22, 1993 PUROMINES, INC., petitioner, vs.

COURT OF APPEALS and PHILIPP BROTHERS OCEANIC, INC., respondents. Fajardo Law Offices for petitioner. Del Rosario & Del Rosario for private respondent. NOCON, J.: This is a special civil action for certiorari and prohibition to annul and set aside the Decision of the respondent Court of Appeals dated November 16, 1989 1 reversing the order of the trial court and dismissing petitioner's complaint in Civil Case No. 89-47403, entitled Puromines, Inc. v. Maritime Factors, Inc. and Philipp Brothers Oceanic, Inc. Culled from the records of this case, the facts show that petitioner, Puromines, Inc. (Puromines for brevity) and Makati Agro Trading, Inc. (not a party in this case) entered into a contract with private respondent Philipp Brothers Oceanic, Inc. for the sale of prilled Urea in bulk. The Sales Contract No. S151.8.01018 provided, among others an arbitration clause which states, thus: 9. Arbitration Any disputes arising under this contract shall be settled by arbitration in London in accordance with the Arbitration Act 1950 and any statutory amendment or modification thereof. Each party is to appoint an Arbitrator, and should they be unable to agree, the decision of an Umpire appointed by them to be final. The Arbitrators and Umpire are all to be commercial men and resident in London. This submission may be made a rule of the High Court of Justice in England by either party. 2 On or about May 22, 1988, the vessel M/V "Liliana Dimitrova" loaded on board at Yuzhny, USSR a shipment of 15,500 metric tons prilled Urea in bulk complete and in good order and condition for transport to Iloilo and Manila, to be delivered to petitioner. Three bills of lading were issued by the ship-agent in the Philippines, Maritime Factors Inc., namely: Bill of Lading No. 1 dated May 12, 1988 covering 10,000 metric tons for discharge in Manila; Bill of Lading No. 2 of even date covering 4,000 metric tons for unloading in Iloilo City; and Bill of Lading No. 3, also dated May 12, 1988, covering 1,500 metric tons likewise for discharge in Manila. The shipment covered by Bill of Lading No. 2 was discharged in Iloilo City complete and in good order and condition. However, the shipments covered by Bill of Lading Nos. 1 and 3 were discharged in Manila in bad order and condition, caked, hardened and lumpy, discolored and contaminated with rust and dirt. Damages were valued at P683,056.29 including additional discharging expenses. Consequently, petitioner filed a complaint 3 with the trial court 4 for breach of contract of carriage against Maritime Factors, Inc. (which was not included as respondent in this petition) as ship-agent in the Philippines for the owners of the vessel MV "Liliana Dimitrova," while private respondent,

Philipp Brothers Oceanic, Inc., was impleaded as charterer of the said vessel and proper party to accord petitioner complete relief. Maritime Factors, Inc. filed its Answer 5to the complaint, while private respondent filed a motion to dismiss, dated February 9, 1989, on the grounds that the complaint states no cause of action; that it was prematurely filed; and that petitioner should comply with the arbitration clause in the sales contract. 6 The motion to dismiss was opposed by petitioner contending the inapplicability of the arbitration clause inasmuch as the cause of action did not arise from a violation of the terms of the sales contract but rather for claims of cargo damages where there is no arbitration agreement. On April 26, 1989, the trial court denied respondent's motion to dismiss in this wise: The sales contract in question states in part: Any disputes arising under this contract shall be settled by arbitration . . . (emphasis supplied) A perusal of the facts alleged in the complaint upon which the question of sufficiency of the cause of action is to be determined shows quite clearly that the cause of action of the complaint arose from a breach of contract of carriage by the vessel chartered by the defendant Philipp Brothers Oceanic, Inc. Thus, the aforementioned arbitration clause cannot apply to the dispute in the present action which concerns plaintiff's claim for cargo loss/damage arising from breach of contract of carriage. That the defendant is not the ship owner or common carrier and therefore plaintiff does not have a legal right against it since every action must be brought against the real party in interest has no merit either for by the allegations in the complaint the defendant herein has been impleaded as charterer of the vessel, hence, a proper party. 7 Elevating the matter to the Court of Appeals, petitioner's complaint was dismissed. The appellate court found that the arbitration provision in the sales contract and/or the bills of lading is applicable in the present case. Said the court: An examination of the sales contract No. S151.8.01018 shows that it is broad enough to include the claim for damages arising from the carriage and delivery of the goods subject-matter thereof. It is also noted that the bills of lading attached as Annexes "A", "B" and "C" to the complaint state, in part, "any dispute arising under this Bill of Lading shall be referred to arbitration of the Maritime Arbitration Commission at the USSR Chamber of Commerce and Industry, 6 Kuibyshevskaia Str., Moscow, USSR, in accordance with the rules of procedure of said commission." Considering that the private respondent was one of the signatories to the sales contract . . . all parties are obliged to respect the terms and conditions of the said sales contract, including the provision thereof on "arbitration." Hence, this petition. The issue raised is: Whether the phrase "any dispute arising under this contract" in the arbitration clause of the sales contract covers a cargo claim against the vessel (owners and/or charterers) for breach of contract of carriage.

Petitioner states in its complaint that Philipp Brothers "was the charterer of the vessel MV "Liliana Dimitrova" which transported the shipment from Yuzhny USSR to Manila." Petitioner further alleged that the caking and hardening, wetting and melting, and contamination by rust and dirt of the damaged portions of the shipment were due to the improper ventilation and inadequate storage facilities of the vessel; that the wetting of the cargo was attributable to the failure of the crew to close the hatches before and when it rained while the shipment was being unloaded in the Port of Manila; and that as a direct and natural consequence of the unseaworthiness and negligence of the vessel (sic), petitioner suffered damages in the total amount of P683,056.29 Philippine currency." 8 (emphasis supplied). Moreover, in its Opposition to the Motion to Dismiss, petitioner said that "[t]he cause of action of the complaint arose from breach of contract of carriage by the vessel that was chartered by defendant Philipp Brothers." 9 In the present petition, petitioner argues that the sales contract does not include the contract of carriage which is a different contract entered into by the carrier with the cargo owners. That it was an error for the respondent court to touch upon the arbitration provision of the bills of lading in its decision inasmuch as the same was not raised as an issue by private respondent who was not a party in the bills of lading (emphasis Ours). Petitioner contradicts itself. We agree with the court a quo that the sales contract is comprehensive enough to include claims for damages arising from carriage and delivery of the goods. As a general rule, the seller has the obligation to transmit the goods to the buyer, and concomitant thereto, the contracting of a carrier to deliver the same. Art. 1523 of the Civil Code provides: Art. 1523. Where in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the cases provided for in article 1503, first, second and third paragraphs, or unless a contrary intent appears. Unless otherwise authorized by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may be reasonable, having regard to the nature of the goods and the other circumstances of the case. If the seller omit so to do, and the goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself, or may hold the seller responsible in damages. xxx xxx xxx The disputed sales contract provides for conditions relative to the delivery of goods, such as date of shipment, demurrage, weight as determined by the bill of lading at load port and more particularly the following provisions: 3. Intention is to ship in one bottom, approximately 5,000 metric tons to Puromines and approximately 15,000 metric tons to Makati

Agro. However, Sellers to have right to ship material as partial shipment or co-shipment in addition to above. In the event of coshipment to a third party within Philippines same to be discussed with and acceptable to both Puromines and Makati Agro. 4. Sellers to appoint neutral survey for Seller's account to conduct initial draft survey at first discharge port and final survey at last discharge port. Surveyors results to be binding and final. In the event draft survey results show a quantity less than the combined Bills of Lading quantity for both Puromines and Makati Agro, Sellers to refund the difference. In the event that draft survey results show a quantity in excess of combined Bills of Lading quantity of both Puromines and Makati Agro then Buyers to refund the difference. 5. It is expressly and mutually agreed that neither Sellers nor vessel's Owners have any liability to separate cargo or to deliver cargo separately or to deliver minimum/maximum quantities stated on individual Bills of Lading. At each port vessel is to discharge in accordance with Buyers local requirements and it is Buyer's responsibility to separate individual quantities required by each of them at each port during or after discharge. As argued by respondent on its motion to dismiss, "the (petitioner) derives his right to the cargo from the bill of lading which is the contract of affreightment together with the sales contract. Consequently, the (petitioner) is bound by the provisions and terms of said bill of lading and of the arbitration clause incorporated in the sales contract." Assuming arguendo that the liability of respondent is not based on the sales contract, but rather on the contract of carriage, being the charterer of the vessel MV "Liliana Dimitrova," it would, therefore, be material to show what kind of charter party the respondent had with the shipowner to determine respondent's liability. American jurisprudence defines charter party as a contract by which an entire ship or some principal part thereof is let by the owner to another person for a specified time or use. 10 Charter or charter parties are of two kinds. Charter of demise or bareboat and contracts of affreightment. Under the demise or bareboat charter of the vessel, the charterer will generally be considered as owner for the voyage or service stipulated. The charterer mans the vessel with his own people and becomes, in effect, the owner pro hac vice, subject to liability to others for damages caused by negligence. 11 To create a demise the owner of a vessel must completely and exclusively relinquish possession, command and navigation thereof to the charterer; anything short of such a complete transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all. On the other hand, a contract of affreightment is one in which the owner of the vessel leases part or all of its space to haul goods for others. It is a contract for a special service to be rendered by the owner of the vessel 12 and under such contract the general owner retains the possession, command and navigation of the ship, the charterer or freighter merely having use of the space in the vessel in return for his payment of

the charter hire. 13 If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for the voyage, the rights, responsibilities of ownership rest on the owner and the charterer is usually free from liability to third persons in respect of the ship. 14 Responsibility to third persons for goods shipped on board a vessel follows the vessel's possession and employment; and if possession is transferred to the charterer by virtue of a demise, the charterer, and not the owner, is liable as carrier on the contract of affreightment made by himself or by the master with third persons, and is answerable for loss, damage or nondelivery of goods received for transportation. An owner who retains possession of the ship, though the hold is the property of the charterer, remains liable as carrier and must answer for any breach of duty as to the care, loading or unloading of the cargo. 15 Assuming that in the present case, the charter party is a demise or bareboat charter, then Philipp Brothers is liable to Puromines, Inc., subject to the terms and conditions of the sales contract. On the other hand, if the contract between respondent and the owner of the vessel MV "Liliana Dimitrova" was merely that of affreightment, then it cannot be held liable for the damages caused by the breach of contract of carriage, the evidence of which is the bills of lading. In any case, whether the liability of respondent should be based on the sales contract or that of the bill of lading, the parties are nevertheless obligated to respect the arbitration provisions on the sales contract and/or the bill of lading. Petitioner being a signatory and party to the sales contract cannot escape from his obligation under the arbitration clause as stated therein. Neither can petitioner contend that the arbitration provision in the bills of lading should not have been discussed as an issue in the decision of the Court of Appeals since it was not raised as a special or affirmative defense. The three bills of lading were attached to the complaint as Annexes "A," "B," and "C," and are therefore parts thereof and may be considered as evidence although not introduced as such. 16 Hence, it was then proper for the court a quo to discuss the contents of the bills of lading, having been made part of the record. Going back to the main subject of this case, arbitration has been held valid and constitutional. Even before the enactment of Republic Act No. 876, this Court has countenanced the settlement of disputes through arbitration. 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 interfere with great reluctance to anticipate or nullify the action of the arbitrator. 17 As pointed out in the case of Mindanao Portland Cement Corp. v. McDonough Construction Company of Florida 18 wherein the plaintiff sued

defendant for damages arising from a contract, the Court said: 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 their 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. And although it has been ruled that a frivolous or patently baseless claim should not be ordered to arbitration it is also recognized that the mere fact that a defense exists against a claim does not make it frivolous or baseless. 19 In the case of Bengson v. Chan, 20 We upheld the provision of a contract which required the parties to submit their disputes to arbitration and We held as follows: The trial court sensibly said that "all the causes of action alleged in the plaintiff's amended complaint are based upon the supposed violations committed by the defendants of the "Contract of Construction of a Building" and that "the provisions of paragraph 15 hereof leave a very little room for doubt that the said causes of action are embraced within the phrase "any and all questions, disputes or differences between the parties hereto relative to the construction of the building," which must be determined by arbitration of two persons and such determination by the arbitrators shall be "final, conclusive and binding upon both parties" unless they go to court, in which the case the determination by arbitration is a condition precedent "for taking any court action." xxx xxx xxx We hold that the terms of paragraph 15 clearly express the intention of the parties that all disputes between them should first be arbitrated before court action can be taken by the aggrieved party. 21 Premises considered, We uphold the validity and applicability of the arbitration clause as stated in Sales Contract No. S151.8.01018 to the present dispute. WHEREFORE, petition is hereby DISMISSED and the decision of the court a quo is AFFIRMED. SO ORDERED. Narvasa, C.J., Padilla, Regalado and Campos, Jr., JJ., concur.

G.R. No. 114323 July 23, 1998 OIL AND NATURAL GAS COMMISSION, petitioner, vs. COURT OF APPEALS and PACIFIC CEMENT COMPANY, INC., respondents. MARTINEZ, J.: This proceeding involves the enforcement of a foreign judgment rendered by the Civil Judge of Dehra Dun, India in favor of the petitioner, OIL AND NATURAL GAS COMMISSION and against the private respondent, PACIFIC CEMENT COMPANY, INCORPORATED. The petitioner is a foreign corporation owned and controlled by the Government of India while the private respondent is a private corporation duly organized and existing under the laws of the Philippines. The present conflict between the petitioner and the private respondent has its roots in a contract entered into by and between both parties on February 26, 1983 whereby the private respondent undertook to supply the petitioner FOUR THOUSAND THREE HUNDRED (4,300) metric tons of oil well cement. In consideration therefor, the petitioner bound itself to pay the private respondent the amount of FOUR HUNDRED SEVENTY-SEVEN THOUSAND THREE HUNDRED U.S. DOLLARS ($477,300.00) by opening an irrevocable, divisible, and confirmed letter of credit in favor of the latter. The oil well cement was loaded on board the ship MV SURUTANA NAVA at the port of Surigao City, Philippines for delivery at Bombay and Calcutta, India. However, due to a dispute between the shipowner and the private respondent, the cargo was held up in Bangkok and did not reach its point destination. Notwithstanding the fact that the private respondent had already received payment and despite several demands made by the

petitioner, the private respondent failed to deliver the oil well cement. Thereafter, negotiations ensued between the parties and they agreed that the private respondent will replace the entire 4,300 metric tons of oil well cement with Class "G" cement cost free at the petitioner's designated port. However, upon inspection, the Class "G" cement did not conform to the petitioner's specifications. The petitioner then informed the private respondent that it was referring its claim to an arbitrator pursuant to Clause 16 of their contract which stipulates: Except where otherwise provided in the supply order/contract all questions and disputes, relating to the meaning of the specification designs, drawings and instructions herein before mentioned and as to quality of workmanship of the items ordered or as to any other question, claim, right or thing whatsoever, in any way arising out of or relating to the supply order/contract design, drawing, specification, instruction or these conditions or otherwise concerning the materials or the execution or failure to execute the same during stipulated/extended period or after the completion/abandonment thereof shall be referred to the sole arbitration of the persons appointed by Member of the Commission at the time of dispute. It will be no objection to any such appointment that the arbitrator so appointed is a Commission employer (sic) that he had to deal with the matter to which the supply or contract relates and that in the course of his duties as Commission's employee he had expressed views on all or any of the matter in dispute or difference. The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason the Member of the Commission shall appoint another person to act as arbitrator in accordance with the terms of the contract/supply order. Such person shall be entitled to proceed with reference from the stage at which it was left by his predecessor. Subject as aforesaid the provisions of the Arbitration Act, 1940, or any Statutory modification or re-enactment there of and the rules made there under and for the time being in force shall apply to the arbitration proceedings under this clause. The arbitrator may with the consent of parties enlarge the time, from time to time, to make and publish the award. The venue for arbitration shall be at Dehra dun. 1* On July 23, 1988, the chosen arbitrator, one Shri N.N. Malhotra, resolved the dispute in petitioner's favor setting forth the arbitral award as follows: NOW THEREFORE after considering all facts of the case, the evidence, oral and documentarys adduced by the claimant and carefully examining the various written statements, submissions, letters, telexes, etc. sent by the respondent, and the oral arguments addressed by the counsel for the claimants, I, N.N. Malhotra, Sole Arbitrator, appointed under clause 16 of the supply order dated 26.2.1983, according to which the parties, i.e. M/S Oil and Natural Gas Commission and the Pacific Cement Co., Inc. can refer the dispute to the sole arbitration under the provision of the Arbitration Act. 1940, do hereby award and

direct as follows: The Respondent will pay the following to the claimant: 1. Amount received by the Respondent against the letter of credit No. 11/19 dated 28.2.1983 US $ 477,300.00 2. Re-imbursement of expenditure incurred by the claimant on the inspection team's visit to Philippines in August 1985 US $ 3,881.00 3. L.C. Establishment charges incurred by the claimant US $ 1,252.82 4. Loss of interest suffered by claimant from 21.6.83 to 23.7.88 US $ 417,169.95 Total amount of award US $ 899,603.77 In addition to the above, the respondent would also be liable to pay to the claimant the interest at the rate of 6% on the above amount, with effect from 24.7.1988 up to the actual date of payment by the Respondent in full settlement of the claim as awarded or the date of the decree, whichever is earlier. I determine the cost at Rs. 70,000/- equivalent to US $5,000 towards the expenses on Arbitration, legal expenses, stamps duly incurred by the claimant. The cost will be shared by the parties in equal proportion. Pronounced at Dehra Dun to-day, the 23rd of July 1988. 2 To enable the petitioner to execute the above award in its favor, it filed a Petition before the Court of the Civil Judge in Dehra Dun. India (hereinafter referred to as the foreign court for brevity), praying that the decision of the arbitrator be made "the Rule of Court" in India. The foreign court issued notices to the private respondent for filing objections to the petition. The private respondent complied and sent its objections dated January 16, 1989. Subsequently, the said court directed the private respondent to pay the filing fees in order that the latter's objections could be given consideration. Instead of paying the required filing fees, the private respondent sent the following communication addressed to the Civil judge of Dehra Dun: The Civil Judge Dehra Dun (U.P.) India Re: Misc. Case No. 5 of 1989 M/S Pacific Cement Co., Inc. vs. ONGC Case Sir: 1. We received your letter dated 28 April 1989 only last 18 May 1989. 2. Please inform us how much is the court fee to be paid. Your letter did not mention the amount to be paid. 3. Kindly give us 15 days from receipt of your letter advising us how much to pay to comply with the same. Thank you for your kind consideration. Pacific Cement Co., Inc.

By: Jose Cortes, Jr. President 3 Without responding to the above communication, the foreign court refused to admit the private respondent's objections for failure to pay the required filing fees, and thereafter issued an Order on February 7, 1990, to wit: ORDER Since objections filed by defendant have been rejected through Misc. Suit No. 5 on 7.2.90, therefore, award should be made Rule of the Court. ORDER Award dated 23.7.88, Paper No. 3/B-1 is made Rule of the Court. On the basis of conditions of award decree is passed. Award Paper No. 3/B-1 shall be a part of the decree. The plaintiff shall also be entitled to get from defendant (US$ 899,603.77 (US$ Eight Lakhs ninety nine thousand six hundred and three point seventy seven only) along with 9% interest per annum till the last date of realisation. 4 Despite notice sent to the private respondent of the foregoing order and several demands by the petitioner for compliance therewith, the private respondent refused to pay the amount adjudged by the foreign court as owing to the petitioner. Accordingly, the petitioner filed a complaint with Branch 30 of the Regional Trial Court (RTC) of Surigao City for the enforcement of the aforementioned judgment of the foreign court. The private respondent moved to dismiss the complaint on the following grounds: (1) plaintiffs lack of legal capacity to sue; (2) lack of cause of action; and (3) plaintiffs claim or demand has been waived, abandoned, or otherwise extinguished. The petitioner filed its opposition to the said motion to dismiss, and the private respondent, its rejoinder thereto. On January 3, 1992, the RTC issued an order upholding the petitioner's legal capacity to sue, albeit dismissing the complaint for lack of a valid cause of action. The RTC held that the rule prohibiting foreign corporations transacting business in the Philippines without a license from maintaining a suit in Philippine courts admits of an exception, that is, when the foreign corporation is suing on an isolated transaction as in this case. 5 Anent the issue of the sufficiency of the petitioner's cause of action, however, the RTC found the referral of the dispute between the parties to the arbitrator under Clause 16 of their contract erroneous. According to the RTC, [a] perusal of the shove-quoted clause (Clause 16) readily shows that the matter covered by its terms is limited to "ALL QUESTIONS AND DISPUTES, RELATING TO THE MEANING OF THE SPECIFICATION, DESIGNS, DRAWINGS AND INSTRUCTIONS HEREIN BEFORE MENTIONED and as to the QUALITY OF WORKMANSHIP OF THE ITEMS ORDERED or as to any other questions, claim, right or thing whatsoever, but qualified to "IN ANY WAY ARISING OR RELATING TO THE SUPPLY ORDER/CONTRACT, DESIGN, DRAWING, SPECIFICATION, etc.," repeating the enumeration in the opening sentence of the clause. The court is inclined to go along with the observation of the defendant that the breach, consisting of the non-delivery of the purchased materials, should have been properly litigated before a

court of law, pursuant to Clause No. 15 of the Contract/Supply Order, herein quoted, to wit: "JURISDICTION All questions, disputes and differences, arising under out of or in connection with this supply order, shall be subject to the EXCLUSIVE JURISDICTION OF THE COURT, within the local limits of whose jurisdiction and the place from which this supply order is situated." 6 The RTC characterized the erroneous submission of the dispute to the arbitrator as a "mistake of law or fact amounting to want of jurisdiction". Consequently, the proceedings had before the arbitrator were null and void and the foreign court had therefore, adopted no legal award which could be the source of an enforceable right. 7 The petitioner then appealed to the respondent Court of Appeals which affirmed the dismissal of the complaint. In its decision, the appellate court concurred with the RTC's ruling that the arbitrator did not have jurisdiction over the dispute between the parties, thus, the foreign court could not validly adopt the arbitrator's award. In addition, the appellate court observed that the full text of the judgment of the foreign court contains the dispositive portion only and indicates no findings of fact and law as basis for the award. Hence, the said judgment cannot be enforced by any Philippine court as it would violate the constitutional provision that no decision shall be rendered by any court without expressing therein clearly and distinctly the facts and the law on which it is based. 8 The appellate court ruled further that the dismissal of the private respondent's objections for non-payment of the required legal fees, without the foreign court first replying to the private respondent's query as to the amount of legal fees to be paid, constituted want of notice or violation of due process. Lastly, it pointed out that the arbitration proceeding was defective because the arbitrator was appointed solely by the petitioner, and the fact that the arbitrator was a former employee of the latter gives rise to a presumed bias on his part in favor of the petitioner. 9 A subsequent motion for reconsideration by the petitioner of the appellate court's decision was denied, thus, this petition for review on certiorari citing the following as grounds in support thereof: RESPONDENT COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE LOWER COURT'S ORDER OF DISMISSAL SINCE: A. THE NON-DELIVERY OF THE CARGO WAS A MATTER PROPERLY COGNIZABLE BY THE PROVISIONS OF CLAUSE 16 OF THE CONTRACT; B. THE JUDGMENT OF THE CIVIL COURT OF DEHRADUN, INDIA WAS AN AFFIRMATION OF THE FACTUAL AND LEGAL FINDINGS OF THE ARBITRATOR AND THEREFORE ENFORCEABLE IN THIS JURISDICTION; C. EVIDENCE MUST BE RECEIVED TO REPEL THE EFFECT OF A PRESUMPTIVE RIGHT UNDER A FOREIGN JUDGMENT. 10 The threshold issue is whether or not the arbitrator had jurisdiction over the dispute between the petitioner and the private respondent under Clause 16 of the contract. To reiterate, Clause 16 provides as follows: Except where otherwise provided in the supply order/contract all

questions and disputes, relating to the meaning of the specification designs, drawings and instructions herein before mentioned and as to quality of workmanship of the items ordered or as to any other question, claim, right or thing whatsoever, in any way arising out of or relating to the supply order/contract design, drawing, specification, instruction or these conditions or otherwise concerning the materials or the execution or failure to execute the same during stipulated/extended period or after the completion/abandonment thereof shall be referred to the sole arbitration of the persons appointed by Member of the Commission at the time of dispute. It will be no objection to any such appointment that the arbitrator so appointed is a Commission employer (sic) that he had to deal with the matter to which the supply or contract relates and that in the course of his duties as Commission's employee he had expressed views on all or any of the matter in dispute or difference. 11 The dispute between the parties had its origin in the non-delivery of the 4,300 metric tons of oil well cement to the petitioner. The primary question that may be posed, therefore, is whether or not the non-delivery of the said cargo is a proper subject for arbitration under the above-quoted Clause 16. The petitioner contends that the same was a matter within the purview of Clause 16, particularly the phrase, ". . . or as to any other questions, claim, right or thing whatsoever, in any way arising or relating to the supply order/contract, design, drawing, specification, instruction . . .". 12 It is argued that the foregoing phrase allows considerable latitude so as to include non-delivery of the cargo which was a "claim, right or thing relating to the supply order/contract". The contention is bereft of merit. First of all, the petitioner has misquoted the said phrase, shrewdly inserting a comma between the words "supply order/contract" and "design" where none actually exists. An accurate reproduction of the phrase reads, ". . . or as to any other question, claim, right or thing whatsoever, in any way arising out of or relating to the supply order/contract design, drawing, specification, instruction or these conditions . . .". The absence of a comma between the words "supply order/contract" and "design" indicates that the former cannot be taken separately but should be viewed in conjunction with the words "design, drawing, specification, instruction or these conditions". It is thus clear that to fall within the purview of this phrase, the "claim, right or thing whatsoever" must arise out of or relate to the design, drawing, specification, or instruction of the supply order/contract. The petitioner also insists that the non-delivery of the cargo is not only covered by the foregoing phrase but also by the phrase, ". . . or otherwise concerning the materials or the execution or failure to execute the same during the stipulated/extended period or after completion/abandonment thereof . . .". The doctrine of noscitur a sociis, although a rule in the construction of statutes, is equally applicable in the ascertainment of the meaning and scope of vague contractual stipulations, such as the aforementioned phrase. According to the maxim noscitur a sociis, where a particular word or phrase is ambiguous in itself or is equally susceptible of various meanings, its correct construction may be made clear and specific by considering the company of the words in which it is found or with which it

is associated, or stated differently, its obscurity or doubt may be reviewed by reference to associated words. 13 A close examination of Clause 16 reveals that it covers three matters which may be submitted to arbitration namely, (1) all questions and disputes, relating to the meaning of the specification designs, drawings and instructions herein before mentioned and as to quality of workmanship of the items ordered; or (2) any other question, claim, right or thing whatsoever, in any way arising out of or relating to the supply order/contract design, drawing, specification, instruction or these conditions; or (3) otherwise concerning the materials or the execution or failure to execute the same during stipulated/extended period or after the completion/abandonment thereof. The first and second categories unmistakably refer to questions and disputes relating to the design, drawing, instructions, specifications or quality of the materials of the supply/order contract. In the third category, the clause, "execution or failure to execute the same", may be read as "execution or failure to execute the supply order/contract". But in accordance with the doctrine of noscitur a sociis, this reference to the supply order/contract must be construed in the light of the preceding words with which it is associated, meaning to say, as being limited only to the design, drawing, instructions, specifications or quality of the materials of the supply order/contract. The non-delivery of the oil well cement is definitely not in the nature of a dispute arising from the failure to execute the supply order/contract design, drawing, instructions, specifications or quality of the materials. That Clause 16 should pertain only to matters involving the technical aspects of the contract is but a logical inference considering that the underlying purpose of a referral to arbitration is for such technical matters to be deliberated upon by a person possessed with the required skill and expertise which may be otherwise absent in the regular courts. This Court agrees with the appellate court in its ruling that the non-delivery of the oil well cement is a matter properly cognizable by the regular courts as stipulated by the parties in Clause 15 of their contract: All questions, disputes and differences, arising under out of or in connection with this supply order, shall be subject to the exclusive jurisdiction of the court, within the local limits of whose jurisdiction and the place from which this supply order is situated. 14 The following fundamental principles in the interpretation of contracts and other instruments served as our guide in arriving at the foregoing conclusion: Art. 1373. If some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual. 15 Art. 1374. The various stipulations of a contract shall be interpreted together, attributing the doubtful ones that sense which may result from all of them taken jointly. 16 Sec. 11. Instrument construed so as to give effect to all provisions. In the construction of an instrument, where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all. 17

Thus, this Court has held that as in statutes, the provisions of a contract should not be read in isolation from the rest of the instrument but, on the contrary, interpreted in the light of the other related provisions. 18 The whole and every part of a contract must be considered in fixing the meaning of any of its harmonious whole. Equally applicable is the canon of construction that in interpreting a statute (or a contract as in this case), care should be taken that every part thereof be given effect, on the theory that it was enacted as an integrated measure and not as a hodge-podge of conflicting provisions. The rule is that a construction that would render a provision inoperative should be avoided; instead, apparently inconsistent provisions should be reconciled whenever possible as parts of a coordinated and harmonious whole. 19 The petitioner's interpretation that Clause 16 is of such latitude as to contemplate even the non-delivery of the oil well cement would in effect render Clause 15 a mere superfluity. A perusal of Clause 16 shows that the parties did not intend arbitration to be the sole means of settling disputes. This is manifest from Clause 16 itself which is prefixed with the proviso, "Except where otherwise provided in the supply order/contract . . .", thus indicating that the jurisdiction of the arbitrator is not all encompassing, and admits of exceptions as may be provided elsewhere in the supply order/contract. We believe that the correct interpretation to give effect to both stipulations in the contract is for Clause 16 to be confined to all claims or disputes arising from or relating to the design, drawing, instructions, specifications or quality of the materials of the supply order/contract, and for Clause 15 to cover all other claims or disputes. The petitioner then asseverates that granting, for the sake of argument, that the non-delivery of the oil well cement is not a proper subject for arbitration, the failure of the replacement cement to conform to the specifications of the contract is a matter clearly falling within the ambit of Clause 16. In this contention, we find merit. When the 4,300 metric tons of oil well cement were not delivered to the petitioner, an agreement was forged between the latter and the private respondent that Class "G" cement would be delivered to the petitioner as replacement. Upon inspection, however, the replacement cement was rejected as it did not conform to the specifications of the contract. Only after this latter circumstance was the matter brought before the arbitrator. Undoubtedly, what was referred to arbitration was no longer the mere non-delivery of the cargo at the first instance but also the failure of the replacement cargo to conform to the specifications of the contract, a matter clearly within the coverage of Clause 16. The private respondent posits that it was under no legal obligation to make replacement and that it undertook the latter only "in the spirit of liberality and to foster good business relationship". 20 Hence, the undertaking to deliver the replacement cement and its subsequent failure to conform to specifications are not anymore subject of the supply order/contract or any of the provisions thereof. We disagree. As per Clause 7 of the supply order/contract, the private respondent undertook to deliver the 4,300 metric tons of oil well cement at "BOMBAY (INDIA) 2181 MT and CALCUTTA 2119 MT". 21 The failure of the private respondent to deliver the cargo to the designated places remains undisputed. Likewise, the fact that the petitioner had already paid for the

cost of the cement is not contested by the private respondent. The private respondent claims, however, that it never benefited from the transaction as it was not able to recover the cargo that was unloaded at the port of Bangkok. 22 First of all, whether or not the private respondent was able to recover the cargo is immaterial to its subsisting duty to make good its promise to deliver the cargo at the stipulated place of delivery. Secondly, we find it difficult to believe this representation. In its Memorandum filed before this Court, the private respondent asserted that the Civil Court of Bangkok had already ruled that the non-delivery of the cargo was due solely to the fault of the carrier. 23 It is, therefore, but logical to assume that the necessary consequence of this finding is the eventual recovery by the private respondent of the cargo or the value thereof. What inspires credulity is not that the replacement was done in the spirit of liberality but that it was undertaken precisely because of the private respondent's recognition of its duty to do so under the supply order/contract, Clause 16 of which remains in force and effect until the full execution thereof. We now go to the issue of whether or not the judgment of the foreign court is enforceable in this jurisdiction in view of the private respondent's allegation that it is bereft of any statement of facts and law upon which the award in favor of the petitioner was based. The pertinent portion of the judgment of the foreign court reads: ORDER Award dated 23.7.88, Paper No. 3/B-1 is made Rule of the Court. On the basis of conditions of award decree is passed. Award Paper No. 3/B-1 shall be a part of the decree. The plaintiff shall also be entitled to get from defendant (US$ 899,603.77 (US$ Eight Lakhs ninety nine thousand six hundred and three point seventy seven only) along with 9% interest per annum till the last date of realisation. 24 As specified in the order of the Civil Judge of Dehra Dun, "Award Paper No. 3/B-1 shall be a part of the decree". This is a categorical declaration that the foreign court adopted the findings of facts and law of the arbitrator as contained in the latter's Award Paper. Award Paper No. 3/B-1, contains an exhaustive discussion of the respective claims and defenses of the parties, and the arbitrator's evaluation of the same. Inasmuch as the foregoing is deemed to have been incorporated into the foreign court's judgment the appellate court was in error when it described the latter to be a "simplistic decision containing literally, only the dispositive portion". 25 The constitutional mandate that no decision shall be rendered by any court without expressing therein dearly and distinctly the facts and the law on which it is based does not preclude the validity of "memorandum decisions" which adopt by reference the findings of fact and conclusions of law contained in the decisions of inferior tribunals. In Francisco v. Permskul, 26 this Court held that the following memorandum decision of the Regional Trial Court of Makati did not transgress the requirements of Section 14, Article VIII of the Constitution: MEMORANDUM DECISION After a careful perusal, evaluation and study of the records of this case, this Court hereby adopts by reference the findings of fact and conclusions of law contained in the decision of the Metropolitan Trial Court of Makati, Metro

Manila, Branch 63 and finds that there is no cogent reason to disturb the same. WHEREFORE, judgment appealed from is hereby affirmed in toto. 27 (Emphasis supplied.) This Court had occasion to make a similar pronouncement in the earlier case of Romero v. Court of Appeals, 28 where the assailed decision of the Court of Appeals adopted the findings and disposition of the Court of Agrarian Relations in this wise: We have, therefore, carefully reviewed the evidence and made a re-assessment of the same, and We are persuaded, nay compelled, to affirm the correctness of the trial court's factual findings and the soundness of its conclusion. For judicial convenience and expediency, therefore, We hereby adopt by way of reference, the findings of facts and conclusions of the court a quo spread in its decision, as integral part of this Our decision.29 (Emphasis supplied) Hence, even in this jurisdiction, incorporation by reference is allowed if only to avoid the cumbersome reproduction of the decision of the lower courts, or portions thereof, in the decision of the higher court. 30This is particularly true when the decision sought to be incorporated is a lengthy and thorough discussion of the facts and conclusions arrived at, as in this case, where Award Paper No. 3/B-1 consists of eighteen (18) single spaced pages. Furthermore, the recognition to be accorded a foreign judgment is not necessarily affected by the fact that the procedure in the courts of the country in which such judgment was rendered differs from that of the courts of the country in which the judgment is relied on. 31 This Court has held that matters of remedy and procedure are governed by the lex fori or the internal law of the forum. 32 Thus, if under the procedural rules of the Civil Court of Dehra Dun, India, a valid judgment may be rendered by adopting the arbitrator's findings, then the same must be accorded respect. In the same vein, if the procedure in the foreign court mandates that an Order of the Court becomes final and executory upon failure to pay the necessary docket fees, then the courts in this jurisdiction cannot invalidate the order of the foreign court simply because our rules provide otherwise. The private respondent claims that its right to due process had been blatantly violated, first by reason of the fact that the foreign court never answered its queries as to the amount of docket fees to be paid then refused to admit its objections for failure to pay the same, and second, because of the presumed bias on the part of the arbitrator who was a former employee of the petitioner. Time and again this Court has held that the essence of due process is to be found in the reasonable opportunity to be heard and submit any evidence one may have in support of one's defense 33 or stated otherwise, what is repugnant to due process is the denial of opportunity to be heard. 34 Thus, there is no violation of due process even if no hearing was conducted, where the party was given a chance to explain his side of the controversy and he waived his right to do so. 35 In the instant case, the private respondent does not deny the fact that it

was notified by the foreign court to file its objections to the petition, and subsequently, to pay legal fees in order for its objections to be given consideration. Instead of paying the legal fees, however, the private respondent sent a communication to the foreign court inquiring about the correct amount of fees to be paid. On the pretext that it was yet awaiting the foreign court's reply, almost a year passed without the private respondent paying the legal fees. Thus, on February 2, 1990, the foreign court rejected the objections of the private respondent and proceeded to adjudicate upon the petitioner's claims. We cannot subscribe to the private respondent's claim that the foreign court violated its right to due process when it failed to reply to its queries nor when the latter rejected its objections for a clearly meritorious ground. The private respondent was afforded sufficient opportunity to be heard. It was not incumbent upon the foreign court to reply to the private respondent's written communication. On the contrary, a genuine concern for its cause should have prompted the private respondent to ascertain with all due diligence the correct amount of legal fees to be paid. The private respondent did not act with prudence and diligence thus its plea that they were not accorded the right to procedural due process cannot elicit either approval or sympathy from this Court. 36 The private respondent bewails the presumed bias on the part of the arbitrator who was a former employee of the petitioner. This point deserves scant consideration in view of the following stipulation in the contract: . . . . It will be no objection any such appointment that the arbitrator so appointed is a Commission employer (sic) that he had to deal with the matter to which the supply or contract relates and that in the course of his duties as Commission's employee he had expressed views on all or any of the matter in dispute or difference.37 (Emphasis supplied.) Finally, we reiterate hereunder our pronouncement in the case of Northwest Orient Airlines, Inc. v. Court of Appeals 38 that: A foreign judgment is presumed to be valid and binding in the country from which it comes, until the contrary is shown. It is also proper to presume the regularity of the proceedings and the giving of due notice therein. Under Section 50, Rule 39 of the Rules of Court, a judgment in an action in personam of a tribunal of a foreign country having jurisdiction to pronounce the same is presumptive evidence of a right as between the parties and their successors-in-interest by a subsequent title. The judgment may, however, be assailed by evidence of want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact. Also, under Section 3 of Rule 131, a court, whether of the Philippines or elsewhere, enjoys the presumption that it was acting in the lawful exercise of jurisdiction and has regularly performed its official duty. 39 Consequently, the party attacking a foreign judgment, the private respondent herein, had the burden of overcoming the presumption of its validity which it failed to do in the instant case. The foreign judgment being valid, there is nothing else left to be done than to order its enforcement, despite the fact that the petitioner merely prays

for the remand of the case to the RTC for further proceedings. As this Court has ruled on the validity and enforceability of the said foreign judgment in this jurisdiction, further proceedings in the RTC for the reception of evidence to prove otherwise are no longer necessary. WHEREFORE, the instant petition is GRANTED, and the assailed decision of the Court of Appeals sustaining the trial court's dismissal of the OIL AND NATURAL GAS COMMISSION's complaint in Civil Case No. 4006 before Branch 30 of the RTC of Surigao City is REVERSED, and another in its stead is hereby rendered ORDERING private respondent PACIFIC CEMENT COMPANY, INC. to pay to petitioner the amounts adjudged in the foreign judgment subject of said case. SO ORDERED. Regalado, Melo and Puno, JJ., concur. Mendoza, J., took no part.

G.R. No. 114323 September 28, 1999 OIL AND NATURAL GAS COMMISSION, petitioner, vs. COURT OF APPEALS and PACIFIC CEMENT COMPANY, INC., respondents. RESOLUTION YNARES-SANTIAGO, J.: This resolves the Motion for Reconsideration filed by private respondent against the Decision rendered by this Court's Second Division on July 23, 1998. The facts as set forth in the Decision sought to be reconsidered are restated thus: The petitioner is a foreign corporation owned and controlled by the Government of India while the private respondent is a private corporation duly organized and existing under the laws of the Philippines. The present conflict between the petitioner and the private respondent has its roots in a contract entered into by and between both parties on February 26, 1983 whereby the private respondent undertook to supply the petitioner FOUR THOUSAND THREE HUNDRED (4,300) metric tons of oil well cement. In consideration therefor, the petitioner bound itself to pay the private respondent the amount of FOUR HUNDRED SEVENTYSEVEN THOUSAND THREE HUNDRED U.S. DOLLARS ($477,300.00) by opening an irrevocable, divisible, and confirmed letter of credit in favor of the latter. The oil well cement was loaded on board the ship MV SURUTANA NAVA at the port of Surigao City, Philippines for delivery at Bombay and Calcutta, India. However, due to a dispute between the shipowner and the private respondent, the cargo was held up in Bangkok and did not reach its point of destination. Notwithstanding the fact that the private respondent had already received payment and despite several demands made by the petitioner, the private respondent failed to deliver the oil well cement. Thereafter, negotiations ensued between the parties and they agreed that the private respondent will replace the entire 4,300 metric tons of oil well cement with Class "G" cement cost free at the petitioner's designated port. However, upon inspection, the Class "G" cement did not conform to the petitioner's specifications. The petitioner then informed the private respondent that it was referring its claim to an arbitrator pursuant to Clause 16 of their contract which stipulates: Except where otherwise provided in the supply order/contract all questions and disputes, relating to the meaning of the specification designs, drawings and instructions herein before mentioned and as to quality of workmanship of the items ordered or as to any other question, claim, right or thing whatsoever, in any way arising out of or relating to the supply order/contract design, drawing, specification, instruction or these conditions or otherwise concerning the materials or the

execution or failure to execute the same during stipulated/extended period or after the completion/abandonment thereof shall be referred to the sole arbitration of the persons appointed by Member of the Commission at the time of dispute. It will be no objection to any such appointment that the arbitrator so appointed is a Commission employer (sic) that he had to deal with the matter to which the supply or contract relates and that in the course of his duties as Commission's employee he had expressed views on all or any of the matter in dispute or difference. The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason the Member of the Commission shall appoint another person to act as arbitrator in accordance with the terms of the contract/supply order. Such person shall be entitled to proceed with reference from the stage at which it was left by his predecessor. Subject as aforesaid the provisions of the Arbitration Act, 1940, or any Statutary modification or re-enactment there of and the rules made there under and for the time being in force shall apply to the arbitration proceedings under this clause. The arbitrator may with the consent of parties enlarge the time, from time to time, to make and publish the award. The venue for arbitration shall be at Dehra dun. 1 On July 23, 1988, the chosen arbitrator, one Shri N.N. Malhotra, resolved the dispute in petitioner's favor setting forth the arbitral award as follows: NOW THEREFORE after considering all facts of the case, the evidence, oral and documentarys adduced by the claimant and carefully examining the various written statements, submissions, letters, telexes, etc. sent by the respondent, and the oral arguments addressed by the counsel for the claimants, I, N.N. Malhotra, Sole Arbitrator, appointed under clause 16 of the supply order dated 26.2.1983; according to which the parties, i.e. M/S Oil and Natural Gas Commission and the Pacific Cement Co., Inc. can refer the dispute to the sole arbitration under the provision of the Arbitration Act. 1940, do hereby award and direct as follows: The Respondent will pay the following to the claimant: 1. Amount received by the Respondent against the letter of credit No. 11/19 dated 28.2.1983 US $ 477,300.00 2. Re-imbursement of expenditure incurred by the claimant on the inspection team's visit to Philippines in August 1985 US $ 3,881.00 3. L. C. Establishment charges incurred by the

claimant US $ 1,252.82 4. Loss of interest suffered by claimant from 21.6.83 to 23.7.88 US $ 417,169.95 Total amount of award US $ 899,603.77 In addition to the above, the respondent would also be liable to pay to the claimant the interest at the rate of 6% on the above amount, with effect from 24.7.1988 up to the actual date of payment by the Respondent in full settlement of the claim as awarded or the date of the decree, whichever is earlier. I determine the cost at Rs. 70,000/ equivalent to US $5,000 towards the expenses on Arbitration, legal expenses, stamps duly incurred by the claimant. The cost will be shared by the parties in equal proportion. Pronounced at Dehra Dun to-day, the 23rd of July 1988. 2 To enable the petitioner to execute the above award in its favor, it filed a Petition before the Court of the Civil Judge in Dehra Dun, India (hereinafter referred to as the foreign court for brevity), praying that the decision of the arbitrator be made "the Rule of Court" in India. The foreign court issued notices to the private respondent for filing objections to the petition. The private respondent complied and sent its objections dated January 16, 1989. Subsequently, the said court directed the private respondent to pay the filing fees in order that the latter's objections could be given consideration. Instead of paying the required filing fees, the private respondent sent the following communication addressed to the Civil Judge of Dehra Dun: The Civil Judge Dehra Dun (U.P.) India Re: Misc. Case No. 5 of 1989 M/S Pacific Cement Co., Inc. vs. ONGC Case Sir: 1. We received your letter dated 28 April 1989 only last 18 May 1989. 2. Please inform us how much is the court fee to be paid. Your letter did not mention the amount to be paid. 3. Kindly give us 15 days from receipt of your letter advising us how much to pay to comply with the same. Thank you for your kind consideration. Pacific Cement Co., Inc. By: Jose Cortes, Jr. President 3 Without responding to the above communication, the foreign court refused to admit the private respondent's objections for failure to pay the required filing fees, and thereafter issued an Order on February 7, 1990, to wit:

ORDER Since objections filed by defendant have been rejected through Misc. Suit No. 5 on 7.2.90, therefore, award should be made "Rule of the Court. ORDER Award dated 23.7.88, Paper No. 3/B-1 is made Rule of the Court. On the basis of conditions of award decree is passed. Award Paper No. 3/B-1 shall be a part of the decree. The plaintiff shall also be entitled to get from defendant (US$ 899,603.77 (US$ Eight Lakhs ninety nine thousand six hundred and three point seventy seven only) along with 9% interest per annum till the last date of realization. 4 Despite notice sent to the private respondent of the foregoing order and several demands by the petitioner for compliance therewith, the private respondent refused to pay the amount adjudged by the foreign court as owing to the petitioner. Accordingly, the petitioner filed a complaint with Branch 30 of the Regional Trial Court (RTC) of Surigao City for the enforcement of the aforementioned judgment of the foreign court. The private respondent moved to dismiss the complaint on the following grounds: (1) plaintiffs lack of legal capacity to sue; (2) lack of cause of action; and (3) plaintiffs claim or demand has been waived, abandoned, or otherwise extinguished. The petitioner filed its opposition to the said motion to dismiss, and the private respondent, its rejoinder thereto. On January 3, 1992, the RTC issued an order upholding the petitioner's legal capacity to sue, albeit dismissing the complaint for lack of a valid cause of action. The RTC held that the rule prohibiting foreign corporations transacting business in the Philippines without a license from maintaining a suit in Philippine courts admits of an exception, that is, when the foreign corporation is suing on an isolated transaction as in this case. 5 Anent the issue of the sufficiency of the petitioner's cause of action, however, the RTC found the referral of the dispute between the parties to the arbitrator under Clause 16 of their contract erroneous. According to the RTC, [a] perusal of the above-quoted clause (Clause 16) readily shows that the matter covered by its terms is limited to "ALL QUESTIONS AND DISPUTES, RELATING TO THE MEANING OF THE SPECIFICATION, DESIGNS, DRAWINGS AND INSTRUCTIONS HEREIN BEFORE MENTIONED and as to the QUALITY OF WORKMANSHIP OF THE ITEMS ORDERED or as to any other questions, claim, right or thing whatsoever, but qualified to "IN ANY WAY ARISING OR RELATING TO THE SUPPLY ORDER/CONTRACT, DESIGN, DRAWING, SPECIFICATION, etc.," repeating the enumeration in the opening sentence of the clause. The court is inclined to go along with the observation of the defendant that the breach, consisting of the nondelivery of the purchased materials, should have been

properly litigated before a court of law, pursuant to Clause No. 15 of the Contract/Supply Order, herein quoted, to wit: JURISDICTION All questions, disputes and differences, arising under out of or in connection with this supply order, shall be subject to the EXCLUSIVE JURISDICTION OF THE COURT, within the local limits of whose jurisdiction and the place from which this supply order is situated. 6 The RTC ruled that the arbitration proceedings was null and void because the submission of the dispute to the arbitrator was a "mistake of law or fact amounting to want of jurisdiction". It then concluded that petitioner acquired no enforceable right under the foreign court's judgment because of the invalid adoption of the arbitrator's award. 7 On appeal, the Court of Appeals affirmed the trial court's ruling that the arbitrator did not have jurisdiction over the dispute and that the full text of the foreign court's judgment did not contain any findings of facts and law but merely a "simplistic decision containing literally, only the dispositive portion" 8 in contravention of the Constitution. 9 The appellate court ruled further that the dismissal of the private respondent's objections for non-payment of the required legal fees, without the foreign court first replying to the private respondent's query as to the amount of legal fees to be paid, constituted want of notice or violation of due process. Finally, the Court of Appeals held that the arbitration proceeding was defective because the arbitrator was appointed solely by the petitioner, and the fact that the arbitrator was a former employee of the latter gives rise to a presumed bias on his part in favor of the petitioner. 10 After petitioner's motion for reconsideration was denied, it brought a petition for review on certiorari to this Court,11 wherein the threshold issue raised was the enforceability of the foreign judgment rendered by the Civil Judge of Dehra Dun, India in favor of petitioner and against private respondent the resolution of which hinges on whether or not the arbitrator had jurisdiction over the dispute between the said two parties under Clause 16 of the contract. On July 23, 1998, this Court, as stated, rendered the assailed Decision in favor of petitioner, the dispositive portion of which reads: WHEREFORE, the instant petition is GRANTED, and the assailed decision of the Court of Appeals sustaining the trial court's dismissal of the OIL AND NATURAL GAS COMMISSION's complaint in Civil Case No. 4006 before Branch 30 of the RTC of Surigao City is REVERSED, and another in its stead is hereby rendered ORDERING private respondent PACIFIC CEMENT COMPANY, INC. to pay to petitioner the amounts adjudged in the foreign judgment subject of said case. SO ORDERED. The dispute is within the jurisdiction of the arbitrator pursuant to Clause 16 of the contract which provides: Except where otherwise provided in the supply order/contract all questions and disputes, relating to the meaning of the specification designs, drawings and instructions herein before mentioned and as to quality of workmanship of the items ordered or as to any other question, claim, right or thing whatsoever, in any way arising out

of or relating to the supply order/contract design, drawing, specification, instruction or these conditions or otherwise concerning the materials or the execution or failure to execute the same during stipulated/extended period or after the completion/abandonment thereof shall be referred to the sole arbitration of the persons appointed by Member of the Commission at the time of dispute. It will be no objection to any such appointment that the arbitrator so appointed is a Commission employer (sic) that he had to deal with the matter to which the supply or contract relates and that in the course of his duties as Commission's employee he had expressed views on all or any of the matter in dispute or difference. 12 This Court reiterates its ruling in the Decision of July 23, 1998, to wit: The dispute between the parties had its origin in the nondelivery of the 4,300 metric tons of oil well cement to the petitioner. The primary question that may be posed, therefore, is whether or not the non-delivery of the said cargo is a proper subject for arbitration under the abovequoted Clause 16. The petitioner contends that the same was a matter within the purview of Clause 16, particularly the phrase, ". . . or as to any other questions, claim, right or thing whatsoever, in any way arising or relating to the supply order/contract, design, drawing, specification, instruction . . .". 13 It is argued that the foregoing phrase allows considerable latitude so as to include non-delivery of the cargo which was a "claim, right or thing relating to the supply order/contract". The contention is bereft of merit. First of all, the petitioner has misquoted the said phrase, shrewdly inserting a comma between the words "supply order/contract" and "design" where none actually exists. An accurate reproduction of the phrase reads, ". . . or as to any other question, claim, right or thing whatsoever, in any way arising out of or relating to the supply order/contract design, drawing, specification, instruction or these conditions . . .". The absence of a comma between the words "supply order/contract" and "design" indicates that the former cannot be taken separately but should be viewed in conjunction with the words "design, drawing, specification, instruction or these conditions". It is thus clear that to fall within the purview of this phrase, the "claim, right or thing whatsoever" must arise out of or relate to the design, drawing, specification, or instruction of the supply order/contract. The petitioner also insists that the non-delivery of the cargo is not only covered by the foregoing phrase but also by the phrase, ". . . or otherwise concerning the materials or the execution or failure to execute the same during the stipulated/extended period or after completion/abandonment thereof . . . .1wphi1.nt . . . . The non-delivery of the oil well cement is definitely

not in the nature of a dispute arising from the failure to execute the supply order/contract design, drawing, instructions, specifications or quality of the materials. That Clause 16 should pertain only to matters involving the technical aspects of the contract is but a logical inference considering that the underlying purpose of a referral to arbitration is for such technical matters to be deliberated upon by a person possessed with the required skill and expertise which may be otherwise absent in the regular courts. This Court agrees with the appellate court in its ruling that the non-delivery of the oil well cement is a matter properly cognizable by the regular courts as stipulated by the parties in Clause 15 of their contract: All questions, disputes and differences, arising under out of or in connection with this supply order, shall be subject to the exclusive jurisdiction of the court, within the local limits of whose jurisdiction and the place from which this supply order is situated. 14 If Clause 16 would be interpreted to include even the non-delivery of the oil well cement, it would render Clause 15 a surplusage. Manifestly clear from Clause 16 is that the arbitration is not the only means of settling disputes between the parties. Precisely, it is prefixed with the proviso, "Except where otherwise provided in the supply order/contract . . .", thus indicating that the jurisdiction of the arbitrator is not all encompassing, and admits of exceptions as may be provided elsewhere in the supply order/contract. So as not to negate one provision against the other, Clause 16 should be confined to all claims or disputes arising from or relating to the design, drawing, instructions, specifications or quality of the materials of the supply order/contract, and Clause 15 to cover all other claims or disputes. However, private respondent alleges that the foreign court's judgment is not enforceable in this jurisdiction because it failed to contain a statement of the facts and the law upon which the award in favor of petitioner was based. The foreign judgment sought to be enforced reads: ORDER Since objections filed by defendant have been rejected through Misc. Suit No. 5 on 7.2.90, therefore, award should be made "Rule of the Court." ORDER Award dated 23.7.88, Paper No. 3/B-1 is made Rule of the Court. On the basis of conditions of award decree is passed. Award Paper No. 3/B-1 shall be a part of the decree. The plaintiff shall also be entitled to get from defendant (US$899,603.77 (US$ Eight Lakhs ninety nine thousand six hundred and three point seventy seven only) along with 9% interest per annum till the last date of realisation. (Emphasis supplied). 15 The foreign court explicitly declared in its Order that "Award Paper No. 3/B1 shall be part of the decree." This curt ruling of the foreign court may be

categorized in the nature of memorandum decisions or those which adopt by reference the findings of facts and conclusions of law of inferior tribunals. In this jurisdiction, it has been held that memorandum decisions do not transgress the constitutional requirement in Article VIII, Section 14, on clearly and distinctly stating the facts and the law on which the decision is based. 16 Nonetheless, it would be more prudent for a memorandum decision not to be simply limited to the dispositive portion but to state the nature of the case, summarize the facts with references to the record, and contain a statement of the applicable laws and jurisprudence and the tribunal's assessments and conclusions on the case. This practice would better enable a court to make an appropriate consideration of whether the dispositive portion of the judgment sought to be enforced is consistent with the findings of facts and conclusions of law made by the tribunal that rendered the decision. This is particularly true where the decisions, orders, or resolutions came from a court in another jurisdiction. Otherwise, the enforcement of the decisions would be based on presumptions that laws in other jurisdictions are similar to our laws, at the expense of justice based on the merits. Moreover, the constitutional guideline set forth in Article VIII, Section 14 cannot prevail over the fundamental elements of due process. Matters of procedure even if laid down in the Constitution must be tempered by substantial justice provided it has factual and legal basis. Considering that the case involves significant properties, the overriding consideration of a judgment based on the merits should prevail over the primordial interests of strict enforcement on matters of technicalities. Procedural lapses, absent any collusion or intent to defraud the parties or mislead the tribunals, should not be allowed to defeat the claim of a party who is not well-informed in the technical aspects of the case but whose interest is merely to enforce what he believes to be his rightful claim. In this case, considering that petitioner simply prayed for the remand of the case to the lower court, the outright ruling and adherence to the foreign courts' order adopting by reference another entity's findings and conclusion was misplaced. The adjudication of this case demands a full ventilation of the facts and issues and the presentation of their respective arguments in support and in rebuttal of the claims of the contending parties. This is all the more applicable herein since the Court is not a trier of facts, 17 but oftentimes simply relies on the cold pages of the silent records of the case. ACCORDINGLY, in the interest of due process, the case is REMANDED to the Regional Trial Court of Surigao City for further proceedings.1wphi1.nt SO ORDERED. Melo and Puno, JJ., concur. Mendoza, J., took no part.

G.R. No. 155001

May 5, 2003

DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA, MANUEL ANTONIO B. BOE, MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V. DOMALAON, CONRADO G. DIMAANO, LOLITA R. HIZON, REMEDIOS P. ADOLFO, BIENVENIDO C. HILARIO, MIASCOR WORKERS UNION - NATIONAL LABOR UNION (MWU-NLU), and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION (PALEA),petitioners, vs. PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS and SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and Communications, respondents, MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION SYSTEMS CORPORATION, MACROASIA-EUREST SERVICES, INC., MACROASIA-MENZIES AIRPORT SERVICES CORPORATION, MIASCOR CATERING SERVICES CORPORATION, MIASCOR AIRCRAFT MAINTENANCE CORPORATION, and MIASCOR LOGISTICS CORPORATION, petitioners-in-intervention, x---------------------------------------------------------x G.R. No. 155547 May 5, 2003 SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G. JARAULA, petitioners, vs. PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and Communications, and SECRETARY SIMEON A. DATUMANONG, in his capacity as Head of the Department of Public Works and Highways, respondents, JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON VILLARAMA, PROSPERO C. NOGRALES, PROSPERO A. PICHAY, JR., HARLIN CAST ABAYON, and BENASING O. MACARANBON, respondents-intervenors, x---------------------------------------------------------x G.R. No. 155661 May 5, 2003 CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA V. GAERLAN, LEONARDO DE LA ROSA, DINA C. DE LEON, VIRGIE CATAMIN RONALD SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON and SAMAHANG MANGGAGAWA SA PALIPARAN NG PILIPINAS (SMPP), petitioners, vs. PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and Communications, respondents. PUNO, J.: Petitioners and petitioners-in-intervention filed the instant petitions for

prohibition under Rule 65 of the Revised Rules of Court seeking to prohibit the Manila International Airport Authority (MIAA) and the Department of Transportation and Communications (DOTC) and its Secretary from implementing the following agreements executed by the Philippine Government through the DOTC and the MIAA and the Philippine International Air Terminals Co., Inc. (PIATCO): (1) the Concession Agreement signed on July 12, 1997, (2) the Amended and Restated Concession Agreement dated November 26, 1999, (3) the First Supplement to the Amended and Restated Concession Agreement dated August 27, 1999, (4) the Second Supplement to the Amended and Restated Concession Agreement dated September 4, 2000, and (5) the Third Supplement to the Amended and Restated Concession Agreement dated June 22, 2001 (collectively, the PIATCO Contracts). The facts are as follows: In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct a comprehensive study of the Ninoy Aquino International Airport (NAIA) and determine whether the present airport can cope with the traffic development up to the year 2010. The study consisted of two parts: first, traffic forecasts, capacity of existing facilities, NAIA future requirements, proposed master plans and development plans; and second, presentation of the preliminary design of the passenger terminal building. The ADP submitted a Draft Final Report to the DOTC in December 1989. Some time in 1993, six business leaders consisting of John Gokongwei, Andrew Gotianun, Henry Sy, Sr., Lucio Tan, George Ty and Alfonso Yuchengco met with then President Fidel V. Ramos to explore the possibility of investing in the construction and operation of a new international airport terminal. To signify their commitment to pursue the project, they formed the Asia's Emerging Dragon Corp. (AEDC) which was registered with the Securities and Exchange Commission (SEC) on September 15, 1993. On October 5, 1994, AEDC submitted an unsolicited proposal to the Government through the DOTC/MIAA for the development of NAIA International Passenger Terminal III (NAIA IPT III) under a buildoperate-and-transfer arrangement pursuant to RA 6957 as amended by RA 7718 (BOT Law).1 On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the Prequalification Bids and Awards Committee (PBAC) for the implementation of the NAIA IPT III project. On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of AEDC to the National Economic and Development Authority (NEDA). A revised proposal, however, was forwarded by the DOTC to NEDA on December 13, 1995. On January 5, 1996, the NEDA Investment Coordinating Council (NEDA ICC) Technical Board favorably endorsed the project to the ICC Cabinet Committee which approved the same, subject to certain conditions, on January 19, 1996. On February 13, 1996, the NEDA passed Board Resolution No. 2 which approved the NAIA IPT III project. On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two

daily newspapers of an invitation for competitive or comparative proposals on AEDC's unsolicited proposal, in accordance with Sec. 4-A of RA 6957, as amended. The alternative bidders were required to submit three (3) sealed envelopes on or before 5:00 p.m. of September 20, 1996. The first envelope should contain the Prequalification Documents, the second envelope the Technical Proposal, and the third envelope the Financial Proposal of the proponent. On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of the Bid Documents and the submission of the comparative bid proposals. Interested firms were permitted to obtain the Request for Proposal Documents beginning June 28, 1996, upon submission of a written application and payment of a non-refundable fee of P50,000.00 (US$2,000). The Bid Documents issued by the PBAC provided among others that the proponent must have adequate capability to sustain the financing requirement for the detailed engineering, design, construction, operation, and maintenance phases of the project. The proponent would be evaluated based on its ability to provide a minimum amount of equity to the project, and its capacity to secure external financing for the project. On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a pre-bid conference on July 29, 1996. On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid Documents. The following amendments were made on the Bid Documents: a. Aside from the fixed Annual Guaranteed Payment, the proponent shall include in its financial proposal an additional percentage of gross revenue share of the Government, as follows: i. First 5 years ii. Next 10 years iii. Next 10 years 5.0% 7.5% 10.0%

b. The amount of the fixed Annual Guaranteed Payment shall be subject of the price challenge. Proponent may offer an Annual Guaranteed Payment which need not be of equal amount, but payment of which shall start upon site possession. c. The project proponent must have adequate capability to sustain the financing requirement for the detailed engineering, design, construction, and/or operation and maintenance phases of the project as the case may be. For purposes of pre-qualification, this capability shall be measured in terms of: i. Proof of the availability of the project proponent and/or the consortium to provide the minimum amount of equity for the project; and ii. a letter testimonial from reputable banks attesting that the project proponent and/or the members of the consortium are banking with them, that the project proponent and/or the members are of good financial standing, and have adequate resources. d. The basis for the prequalification shall be the proponent's compliance with the minimum technical and financial requirements

provided in the Bid Documents and the IRR of the BOT Law. The minimum amount of equity shall be 30% of the Project Cost. e. Amendments to the draft Concession Agreement shall be issued from time to time. Said amendments shall only cover items that would not materially affect the preparation of the proponent's proposal. On August 29, 1996, the Second Pre-Bid Conference was held where certain clarifications were made. Upon the request of prospective bidder People's Air Cargo & Warehousing Co., Inc (Paircargo), the PBAC warranted that based on Sec. 11.6, Rule 11 of the Implementing Rules and Regulations of the BOT Law, only the proposed Annual Guaranteed Payment submitted by the challengers would be revealed to AEDC, and that the challengers' technical and financial proposals would remain confidential. The PBAC also clarified that the list of revenue sources contained in Annex 4.2a of the Bid Documents was merely indicative and that other revenue sources may be included by the proponent, subject to approval by DOTC/MIAA. Furthermore, the PBAC clarified that only those fees and charges denominated as Public Utility Fees would be subject to regulation, and those charges which would be actually deemed Public Utility Fees could still be revised, depending on the outcome of PBAC's query on the matter with the Department of Justice. In September 1996, the PBAC issued Bid Bulletin No. 5, entitled "Answers to the Queries of PAIRCARGO as Per Letter Dated September 3 and 10, 1996." Paircargo's queries and the PBAC's responses were as follows: 1. It is difficult for Paircargo and Associates to meet the required minimum equity requirement as prescribed in Section 8.3.4 of the Bid Documents considering that the capitalization of each member company is so structured to meet the requirements and needs of their current respective business undertaking/activities. In order to comply with this equity requirement, Paircargo is requesting PBAC to just allow each member of (sic) corporation of the Joint Venture to just execute an agreement that embodies a commitment to infuse the required capital in case the project is awarded to the Joint Venture instead of increasing each corporation's current authorized capital stock just for prequalification purposes. In prequalification, the agency is interested in one's financial capability at the time of prequalification, not future or potential capability. A commitment to put up equity once awarded the project is not enough to establish that "present" financial capability. However, total financial capability of all member companies of the Consortium, to be established by submitting the respective companies' audited financial statements, shall be acceptable. 2. At present, Paircargo is negotiating with banks and other institutions for the extension of a Performance Security to the joint venture in the event that the Concessions Agreement (sic) is awarded to them. However, Paircargo is being required to submit a copy of the draft concession as one of the documentary requirements. Therefore, Paircargo is requesting that they'd (sic) be furnished copy of the approved negotiated agreement between the PBAC and the AEDC at the soonest possible time.

A copy of the draft Concession Agreement is included in the Bid Documents. Any material changes would be made known to prospective challengers through bid bulletins. However, a final version will be issued before the award of contract. The PBAC also stated that it would require AEDC to sign Supplement C of the Bid Documents (Acceptance of Criteria and Waiver of Rights to Enjoin Project) and to submit the same with the required Bid Security. On September 20, 1996, the consortium composed of People's Air Cargo and Warehousing Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank) (collectively, Paircargo Consortium) submitted their competitive proposal to the PBAC. On September 23, 1996, the PBAC opened the first envelope containing the prequalification documents of the Paircargo Consortium. On the following day, September 24, 1996, the PBAC prequalified the Paircargo Consortium. On September 26, 1996, AEDC informed the PBAC in writing of its reservations as regards the Paircargo Consortium, which include: a. The lack of corporate approvals and financial capability of PAIRCARGO; b. The lack of corporate approvals and financial capability of PAGS; c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the amount that Security Bank could legally invest in the project; d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for prequalification purposes; and e. The appointment of Lufthansa as the facility operator, in view of the Philippine requirement in the operation of a public utility. The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the issues raised by the latter, and that based on the documents submitted by Paircargo and the established prequalification criteria, the PBAC had found that the challenger, Paircargo, had prequalified to undertake the project. The Secretary of the DOTC approved the finding of the PBAC. The PBAC then proceeded with the opening of the second envelope of the Paircargo Consortium which contained its Technical Proposal. On October 3, 1996, AEDC reiterated its objections, particularly with respect to Paircargo's financial capability, in view of the restrictions imposed by Section 21-B of the General Banking Act and Sections 1380 and 1381 of the Manual Regulations for Banks and Other Financial Intermediaries. On October 7, 1996, AEDC again manifested its objections and requested that it be furnished with excerpts of the PBAC meeting and the accompanying technical evaluation report where each of the issues they raised were addressed. On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the Paircargo Consortium containing their respective financial proposals. Both proponents offered to build the NAIA Passenger Terminal III for at least $350 million at no cost to the government and to pay the government: 5% share in gross revenues for the first five years of operation, 7.5% share in gross revenues for the next ten years of operation, and 10% share in gross revenues for the last ten years of operation, in accordance with the Bid Documents. However, in addition to the foregoing, AEDC offered to pay the government a total of P135 million

as guaranteed payment for 27 years while Paircargo Consortium offered to pay the government a total of P17.75 billion for the same period. Thus, the PBAC formally informed AEDC that it had accepted the price proposal submitted by the Paircargo Consortium, and gave AEDC 30 working days or until November 28, 1996 within which to match the said bid, otherwise, the project would be awarded to Paircargo. As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary Amado Lagdameo, on December 11, 1996, issued a notice to Paircargo Consortium regarding AEDC's failure to match the proposal. On February 27, 1997, Paircargo Consortium incorporated into Philippine International Airport Terminals Co., Inc. (PIATCO). AEDC subsequently protested the alleged undue preference given to PIATCO and reiterated its objections as regards the prequalification of PIATCO. On April 11, 1997, the DOTC submitted the concession agreement for the second-pass approval of the NEDA-ICC. On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for Declaration of Nullity of the Proceedings, Mandamus and Injunction against the Secretary of the DOTC, the Chairman of the PBAC, the voting members of the PBAC and Pantaleon D. Alvarez, in his capacity as Chairman of the PBAC Technical Committee. On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the approval, on a no-objection basis, of the BOT agreement between the DOTC and PIATCO. As the ad referendum gathered only four (4) of the required six (6) signatures, the NEDA merely noted the agreement. On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO. On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO, through its President, Henry T. Go, signed the "Concession Agreement for the Build-Operate-and-Transfer Arrangement of the Ninoy Aquino International Airport Passenger Terminal III" (1997 Concession Agreement). The Government granted PIATCO the franchise to operate and maintain the said terminal during the concession period and to collect the fees, rentals and other charges in accordance with the rates or schedules stipulated in the 1997 Concession Agreement. The Agreement provided that the concession period shall be for twenty-five (25) years commencing from the in-service date, and may be renewed at the option of the Government for a period not exceeding twenty-five (25) years. At the end of the concession period, PIATCO shall transfer the development facility to MIAA. On November 26, 1998, the Government and PIATCO signed an Amended and Restated Concession Agreement (ARCA). Among the provisions of the 1997 Concession Agreement that were amended by the ARCA were: Sec. 1.11 pertaining to the definition of "certificate of completion"; Sec. 2.05 pertaining to the Special Obligations of GRP; Sec. 3.02 (a) dealing with the exclusivity of the franchise given to the Concessionaire; Sec. 4.04 concerning the assignment by Concessionaire of its interest in the Development Facility; Sec. 5.08 (c) dealing with the proceeds of Concessionaire's insurance; Sec. 5.10 with respect to the temporary takeover of operations by GRP; Sec. 5.16 pertaining to the taxes, duties and other imposts that may be levied on the Concessionaire; Sec. 6.03 as

regards the periodic adjustment of public utility fees and charges; the entire Article VIII concerning the provisions on the termination of the contract; and Sec. 10.02 providing for the venue of the arbitration proceedings in case a dispute or controversy arises between the parties to the agreement. Subsequently, the Government and PIATCO signed three Supplements to the ARCA. The First Supplement was signed on August 27, 1999; the Second Supplement on September 4, 2000; and the Third Supplement on June 22, 2001 (collectively, Supplements). The First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining "Revenues" or "Gross Revenues"; Sec. 2.05 (d) of the ARCA referring to the obligation of MIAA to provide sufficient funds for the upkeep, maintenance, repair and/or replacement of all airport facilities and equipment which are owned or operated by MIAA; and further providing additional special obligations on the part of GRP aside from those already enumerated in Sec. 2.05 of the ARCA. The First Supplement also provided a stipulation as regards the construction of a surface road to connect NAIA Terminal II and Terminal III in lieu of the proposed access tunnel crossing Runway 13/31; the swapping of obligations between GRP and PIATCO regarding the improvement of Sales Road; and the changes in the timetable. It also amended Sec. 6.01 (c) of the ARCA pertaining to the Disposition of Terminal Fees; Sec. 6.02 of the ARCA by inserting an introductory paragraph; and Sec. 6.02 (a) (iii) of the ARCA referring to the Payments of Percentage Share in Gross Revenues. The Second Supplement to the ARCA contained provisions concerning the clearing, removal, demolition or disposal of subterranean structures uncovered or discovered at the site of the construction of the terminal by the Concessionaire. It defined the scope of works; it provided for the procedure for the demolition of the said structures and the consideration for the same which the GRP shall pay PIATCO; it provided for time extensions, incremental and consequential costs and losses consequent to the existence of such structures; and it provided for some additional obligations on the part of PIATCO as regards the said structures. Finally, the Third Supplement provided for the obligations of the Concessionaire as regards the construction of the surface road connecting Terminals II and III. Meanwhile, the MIAA which is charged with the maintenance and operation of the NAIA Terminals I and II, had existing concession contracts with various service providers to offer international airline airport services, such as in-flight catering, passenger handling, ramp and ground support, aircraft maintenance and provisions, cargo handling and warehousing, and other services, to several international airlines at the NAIA. Some of these service providers are the Miascor Group, DNATA-Wings Aviation Systems Corp., and the MacroAsia Group. Miascor, DNATA and MacroAsia, together with Philippine Airlines (PAL), are the dominant players in the industry with an aggregate market share of 70%. On September 17, 2002, the workers of the international airline service providers, claiming that they stand to lose their employment upon the implementation of the questioned agreements, filed before this Court a petition for prohibition to enjoin the enforcement of said agreements. 2 On October 15, 2002, the service providers, joining the cause of the

petitioning workers, filed a motion for intervention and a petition-inintervention. On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez and Constantino Jaraula filed a similar petition with this Court. 3 On November 6, 2002, several employees of the MIAA likewise filed a petition assailing the legality of the various agreements.4 On December 11, 2002. another group of Congressmen, Hon. Jacinto V. Paras, Rafael P. Nantes, Eduardo C. Zialcita, Willie B. Villarama, Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin Cast Abayon and Benasing O. Macaranbon, moved to intervene in the case as Respondents-Intervenors. They filed their Comment-In-Intervention defending the validity of the assailed agreements and praying for the dismissal of the petitions. During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on November 29, 2002, in her speech at the 2002 Golden Shell Export Awards at Malacaang Palace, stated that she will not "honor (PIATCO) contracts which the Executive Branch's legal offices have concluded (as) null and void."5 Respondent PIATCO filed its Comments to the present petitions on November 7 and 27, 2002. The Office of the Solicitor General and the Office of the Government Corporate Counsel filed their respective Comments in behalf of the public respondents. On December 10, 2002, the Court heard the case on oral argument. After the oral argument, the Court then resolved in open court to require the parties to file simultaneously their respective Memoranda in amplification of the issues heard in the oral arguments within 30 days and to explore the possibility of arbitration or mediation as provided in the challenged contracts. In their consolidated Memorandum, the Office of the Solicitor General and the Office of the Government Corporate Counsel prayed that the present petitions be given due course and that judgment be rendered declaring the 1997 Concession Agreement, the ARCA and the Supplements thereto void for being contrary to the Constitution, the BOT Law and its Implementing Rules and Regulations. On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003 PIATCO commenced arbitration proceedings before the International Chamber of Commerce, International Court of Arbitration (ICC) by filing a Request for Arbitration with the Secretariat of the ICC against the Government of the Republic of the Philippines acting through the DOTC and MIAA. In the present cases, the Court is again faced with the task of resolving complicated issues made difficult by their intersecting legal and economic implications. The Court is aware of the far reaching fall out effects of the ruling which it makes today. For more than a century and whenever the exigencies of the times demand it, this Court has never shirked from its solemn duty to dispense justice and resolve "actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction." 6 To be sure, this Court will not begin to do otherwise today. We shall first dispose of the procedural issues raised by respondent PIATCO which they allege will bar the resolution of the instant controversy.

Petitioners' Legal Standing to File the present Petitions a. G.R. Nos. 155001 and 155661 In G.R. No. 155001 individual petitioners are employees of various service providers7 having separate concession contracts with MIAA and continuing service agreements with various international airlines to provide in-flight catering, passenger handling, ramp and ground support, aircraft maintenance and provisions, cargo handling and warehousing and other services. Also included as petitioners are labor unions MIASCOR Workers Union-National Labor Union and Philippine Airlines Employees Association. These petitioners filed the instant action for prohibition as taxpayers and as parties whose rights and interests stand to be violated by the implementation of the PIATCO Contracts. Petitioners-Intervenors in the same case are all corporations organized and existing under Philippine laws engaged in the business of providing inflight catering, passenger handling, ramp and ground support, aircraft maintenance and provisions, cargo handling and warehousing and other services to several international airlines at the Ninoy Aquino International Airport. Petitioners-Intervenors allege that as tax-paying international airline and airport-related service operators, each one of them stands to be irreparably injured by the implementation of the PIATCO Contracts. Each of the petitioners-intervenors have separate and subsisting concession agreements with MIAA and with various international airlines which they allege are being interfered with and violated by respondent PIATCO. In G.R. No. 155661, petitioners constitute employees of MIAA and Samahang Manggagawa sa Paliparan ng Pilipinas - a legitimate labor union and accredited as the sole and exclusive bargaining agent of all the employees in MIAA. Petitioners anchor their petition for prohibition on the nullity of the contracts entered into by the Government and PIATCO regarding the build-operate-and-transfer of the NAIA IPT III. They filed the petition as taxpayers and persons who have a legitimate interest to protect in the implementation of the PIATCO Contracts. Petitioners in both cases raise the argument that the PIATCO Contracts contain stipulations which directly contravene numerous provisions of the Constitution, specific provisions of the BOT Law and its Implementing Rules and Regulations, and public policy. Petitioners contend that the DOTC and the MIAA, by entering into said contracts, have committed grave abuse of discretion amounting to lack or excess of jurisdiction which can be remedied only by a writ of prohibition, there being no plain, speedy or adequate remedy in the ordinary course of law. In particular, petitioners assail the provisions in the 1997 Concession Agreement and the ARCA which grant PIATCO the exclusive right to operate a commercial international passenger terminal within the Island of Luzon, except those international airports already existing at the time of the execution of the agreement. The contracts further provide that upon the commencement of operations at the NAIA IPT III, the Government shall cause the closure of Ninoy Aquino International Airport Passenger Terminals I and II as international passenger terminals. With respect to existing concession agreements between MIAA and international airport service providers regarding certain services or operations, the 1997 Concession Agreement and the ARCA uniformly provide that such services

or operations will not be carried over to the NAIA IPT III and PIATCO is under no obligation to permit such carry over except through a separate agreement duly entered into with PIATCO. 8 With respect to the petitioning service providers and their employees, upon the commencement of operations of the NAIA IPT III, they allege that they will be effectively barred from providing international airline airport services at the NAIA Terminals I and II as all international airlines and passengers will be diverted to the NAIA IPT III. The petitioning service providers will thus be compelled to contract with PIATCO alone for such services, with no assurance that subsisting contracts with MIAA and other international airlines will be respected. Petitioning service providers stress that despite the very competitive market, the substantial capital investments required and the high rate of fees, they entered into their respective contracts with the MIAA with the understanding that the said contracts will be in force for the stipulated period, and thereafter, renewed so as to allow each of the petitioning service providers to recoup their investments and obtain a reasonable return thereon. Petitioning employees of various service providers at the NAIA Terminals I and II and of MIAA on the other hand allege that with the closure of the NAIA Terminals I and II as international passenger terminals under the PIATCO Contracts, they stand to lose employment. The question on legal standing is whether such parties have "alleged such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination of difficult constitutional questions." 9 Accordingly, it has been held that the interest of a person assailing the constitutionality of a statute must be direct and personal. He must be able to show, not only that the law or any government act is invalid, but also that he sustained or is in imminent danger of sustaining some direct injury as a result of its enforcement, and not merely that he suffers thereby in some indefinite way. It must appear that the person complaining has been or is about to be denied some right or privilege to which he is lawfully entitled or that he is about to be subjected to some burdens or penalties by reason of the statute or act complained of.10 We hold that petitioners have the requisite standing. In the abovementioned cases, petitioners have a direct and substantial interest to protect by reason of the implementation of the PIATCO Contracts. They stand to lose their source of livelihood, a property right which is zealously protected by the Constitution. Moreover, subsisting concession agreements between MIAA and petitioners-intervenors and service contracts between international airlines and petitioners-intervenors stand to be nullified or terminated by the operation of the NAIA IPT III under the PIATCO Contracts. The financial prejudice brought about by the PIATCO Contracts on petitioners and petitioners-intervenors in these cases are legitimate interests sufficient to confer on them the requisite standing to file the instant petitions. b. G.R. No. 155547 In G.R. No. 155547, petitioners filed the petition for prohibition as members of the House of Representatives, citizens and taxpayers. They allege that as members of the House of Representatives, they are

especially interested in the PIATCO Contracts, because the contracts compel the Government and/or the House of Representatives to appropriate funds necessary to comply with the provisions therein. 11 They cite provisions of the PIATCO Contracts which require disbursement of unappropriated amounts in compliance with the contractual obligations of the Government. They allege that the Government obligations in the PIATCO Contracts which compel government expenditure without appropriation is a curtailment of their prerogatives as legislators, contrary to the mandate of the Constitution that "[n]o money shall be paid out of the treasury except in pursuance of an appropriation made by law."12 Standing is a peculiar concept in constitutional law because in some cases, suits are not brought by parties who have been personally injured by the operation of a law or any other government act but by concerned citizens, taxpayers or voters who actually sue in the public interest. Although we are not unmindful of the cases of Imus Electric Co. v. Municipality of Imus13 and Gonzales v. Raquiza 14 wherein this Court held that appropriation must be made only on amounts immediately demandable, public interest demands that we take a more liberal view in determining whether the petitioners suing as legislators, taxpayers and citizens have locus standi to file the instant petition. In Kilosbayan, Inc. v. Guingona,15 this Court held "[i]n line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and even association of planters, and non-profit civic organizations were allowed to initiate and prosecute actions before this Court to question the constitutionality or validity of laws, acts, decisions, rulings, or orders of various government agencies or instrumentalities."16 Further, "insofar as taxpayers' suits are concerned . . . (this Court) is not devoid of discretion as to whether or not it should be entertained." 17 As such ". . . even if, strictly speaking, they [the petitioners] are not covered by the definition, it is still within the wide discretion of the Court to waive the requirement and so remove the impediment to its addressing and resolving the serious constitutional questions raised."18 In view of the serious legal questions involved and their impact on public interest, we resolve to grant standing to the petitioners. Other Procedural Matters Respondent PIATCO further alleges that this Court is without jurisdiction to review the instant cases as factual issues are involved which this Court is ill-equipped to resolve. Moreover, PIATCO alleges that submission of this controversy to this Court at the first instance is a violation of the rule on hierarchy of courts. They contend that trial courts have concurrent jurisdiction with this Court with respect to a special civil action for prohibition and hence, following the rule on hierarchy of courts, resort must first be had before the trial courts. After a thorough study and careful evaluation of the issues involved, this Court is of the view that the crux of the instant controversy involves significant legal questions. The facts necessary to resolve these legal questions are well established and, hence, need not be determined by a trial court. The rule on hierarchy of courts will not also prevent this Court from assuming jurisdiction over the cases at bar. The said rule may be relaxed when the redress desired cannot be obtained in the appropriate courts or

where exceptional and compelling circumstances justify availment of a remedy within and calling for the exercise of this Court's primary jurisdiction.19 It is easy to discern that exceptional circumstances exist in the cases at bar that call for the relaxation of the rule. Both petitioners and respondents agree that these cases are of transcendental importance as they involve the construction and operation of the country's premier international airport. Moreover, the crucial issues submitted for resolution are of first impression and they entail the proper legal interpretation of key provisions of the Constitution, the BOT Law and its Implementing Rules and Regulations. Thus, considering the nature of the controversy before the Court, procedural bars may be lowered to give way for the speedy disposition of the instant cases. Legal Effect of the Commencement of Arbitration Proceedings by PIATCO There is one more procedural obstacle which must be overcome. The Court is aware that arbitration proceedings pursuant to Section 10.02 of the ARCA have been filed at the instance of respondent PIATCO. Again, we hold that the arbitration step taken by PIATCO will not oust this Court of its jurisdiction over the cases at bar. In Del Monte Corporation-USA v. Court of Appeals, 20 even after finding that the arbitration clause in the Distributorship Agreement in question is valid and the dispute between the parties is arbitrable, this Court affirmed the trial court's decision denying petitioner's Motion to Suspend Proceedings pursuant to the arbitration clause under the contract. In so ruling, this Court held that as contracts produce legal effect between the parties, their assigns and heirs, only the parties to the Distributorship Agreement are bound by its terms, including the arbitration clause stipulated therein. This Court ruled that arbitration proceedings could be called for but only with respect to the parties to the contract in question. Considering that there are parties to the case who are neither parties to the Distributorship Agreement nor heirs or assigns of the parties thereto, this Court, citing its previous ruling in Salas, Jr. v. Laperal Realty Corporation, 21 held that to tolerate the splitting of proceedings by allowing arbitration as to some of the parties on the one hand and trial for the others on the other hand would, in effect, result in multiplicity of suits, duplicitous procedure and unnecessary delay.22 Thus, we ruled that the interest of justice would best be served if the trial court hears and adjudicates the case in a single and complete proceeding. It is established that petitioners in the present cases who have presented legitimate interests in the resolution of the controversy are not parties to the PIATCO Contracts. Accordingly, they cannot be bound by the arbitration clause provided for in the ARCA and hence, cannot be compelled to submit to arbitration proceedings. A speedy and decisive resolution of all the critical issues in the present controversy, including those raised by petitioners, cannot be made before an arbitral tribunal. The object of arbitration is precisely to allow an expeditious determination of a dispute. This objective would not be met if this Court were to allow the parties to settle the cases by arbitration as there are certain issues involving non-parties to the PIATCO Contracts

which the arbitral tribunal will not be equipped to resolve. Now, to the merits of the instant controversy. I Is PIATCO a qualified bidder? Public respondents argue that the Paircargo Consortium, PIATCO's predecessor, was not a duly pre-qualified bidder on the unsolicited proposal submitted by AEDC as the Paircargo Consortium failed to meet the financial capability required under the BOT Law and the Bid Documents. They allege that in computing the ability of the Paircargo Consortium to meet the minimum equity requirements for the project, the entire net worth of Security Bank, a member of the consortium, should not be considered. PIATCO relies, on the other hand, on the strength of the Memorandum dated October 14, 1996 issued by the DOTC Undersecretary Primitivo C. Cal stating that the Paircargo Consortium is found to have a combined net worth of P3,900,000,000.00, sufficient to meet the equity requirements of the project. The said Memorandum was in response to a letter from Mr. Antonio Henson of AEDC to President Fidel V. Ramos questioning the financial capability of the Paircargo Consortium on the ground that it does not have the financial resources to put up the required minimum equity of P2,700,000,000.00. This contention is based on the restriction under R.A. No. 337, as amended or the General Banking Act that a commercial bank cannot invest in any single enterprise in an amount more than 15% of its net worth. In the said Memorandum, Undersecretary Cal opined: The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that financial capability will be evaluated based on total financial capability of all the member companies of the [Paircargo] Consortium. In this connection, the Challenger was found to have a combined net worth of P3,926,421,242.00 that could support a project costing approximately P13 Billion. It is not a requirement that the net worth must be "unrestricted." To impose that as a requirement now will be nothing less than unfair. The financial statement or the net worth is not the sole basis in establishing financial capability. As stated in Bid Bulletin No. 3, financial capability may also be established by testimonial letters issued by reputable banks. The Challenger has complied with this requirement. To recap, net worth reflected in the Financial Statement should not be taken as the amount of the money to be used to answer the required thirty percent (30%) equity of the challenger but rather to be used in establishing if there is enough basis to believe that the challenger can comply with the required 30% equity. In fact, proof of sufficient equity is required as one of the conditions for award of contract (Section 12.1 IRR of the BOT Law) but not for prequalification (Section 5.4 of the same document). 23 Under the BOT Law, in case of a build-operate-and-transfer arrangement, the contract shall be awarded to the bidder "who, having satisfied the minimum financial, technical, organizational and legal standards" required by the law, has submitted the lowest bid and most favorable terms of the

project.24 Further, the 1994 Implementing Rules and Regulations of the BOT Law provide: Section 5.4 Pre-qualification Requirements. xxx xxx xxx c. Financial Capability: The project proponent must have adequate capability to sustain the financing requirements for the detailed engineering design, construction and/or operation and maintenance phases of the project, as the case may be. For purposes of pre-qualification, this capability shall be measured in terms of (i) proof of the ability of the project proponent and/or the consortium to provide a minimum amount of equity to the project, and (ii) a letter testimonial from reputable banks attesting that the project proponent and/or members of the consortium are banking with them, that they are in good financial standing, and that they have adequate resources. The government agency/LGU concerned shall determine on a project-to-project basis and before prequalification, the minimum amount of equity needed. (emphasis supplied) Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16, 1996 amending the financial capability requirements for prequalification of the project proponent as follows: 6. Basis of Pre-qualification The basis for the pre-qualification shall be on the compliance of the proponent to the minimum technical and financial requirements provided in the Bid Documents and in the IRR of the BOT Law, R.A. No. 6957, as amended by R.A. 7718. The minimum amount of equity to which the proponent's financial capability will be based shall be thirty percent (30%) of the project cost instead of the twenty percent (20%) specified in Section 3.6.4 of the Bid Documents. This is to correlate with the required debt-to-equity ratio of 70:30 in Section 2.01a of the draft concession agreement. The debt portion of the project financing should not exceed 70% of the actual project cost. Accordingly, based on the above provisions of law, the Paircargo Consortium or any challenger to the unsolicited proposal of AEDC has to show that it possesses the requisite financial capability to undertake the project in the minimum amount of 30% of the project cost through (i) proof of the ability to provide a minimum amount of equity to the project, and (ii) a letter testimonial from reputable banks attesting that the project proponent or members of the consortium are banking with them, that they are in good financial standing, and that they have adequate resources. As the minimum project cost was estimated to be US$350,000,000.00 or roughly P9,183,650,000.00, 25 the Paircargo Consortium had to show to the satisfaction of the PBAC that it had the ability to provide the minimum equity for the project in the amount of at least P2,755,095,000.00. Paircargo's Audited Financial Statements as of 1993 and 1994 indicated that it had a net worth of P2,783,592.00 and P3,123,515.00 respectively.26 PAGS' Audited Financial Statements as of 1995 indicate that it has approximately P26,735,700.00 to invest as its equity for the

project.27 Security Bank's Audited Financial Statements as of 1995 show that it has a net worth equivalent to its capital funds in the amount of P3,523,504,377.00. 28 We agree with public respondents that with respect to Security Bank, the entire amount of its net worth could not be invested in a single undertaking or enterprise, whether allied or non-allied in accordance with the provisions of R.A. No. 337, as amended or the General Banking Act: Sec. 21-B. The provisions in this or in any other Act to the contrary notwithstanding, the Monetary Board, whenever it shall deem appropriate and necessary to further national development objectives or support national priority projects, may authorize a commercial bank, a bank authorized to provide commercial banking services, as well as a government-owned and controlled bank, to operate under an expanded commercial banking authority and by virtue thereof exercise, in addition to powers authorized for commercial banks, the powers of an Investment House as provided in Presidential Decree No. 129, invest in the equity of a non-allied undertaking, or own a majority or all of the equity in a financial intermediary other than a commercial bank or a bank authorized to provide commercial banking services: Provided, That (a) the total investment in equities shall not exceed fifty percent (50%) of the net worth of the bank; (b) the equity investment in any one enterprise whether allied or non-allied shall not exceed fifteen percent (15%) of the net worth of the bank; (c) the equity investment of the bank, or of its wholly or majority-owned subsidiary, in a single non-allied undertaking shall not exceed thirty-five percent (35%) of the total equity in the enterprise nor shall it exceed thirty-five percent (35%) of the voting stock in that enterprise; and (d) the equity investment in other banks shall be deducted from the investing bank's net worth for purposes of computing the prescribed ratio of net worth to risk assets. xxx xxx xxx Further, the 1993 Manual of Regulations for Banks provides: SECTION X383. Other Limitations and Restrictions. The following limitations and restrictions shall also apply regarding equity investments of banks. a. In any single enterprise. The equity investments of banks in any single enterprise shall not exceed at any time fifteen percent (15%) of the net worth of the investing bank as defined in Sec. X106 and Subsec. X121.5. Thus, the maximum amount that Security Bank could validly invest in the Paircargo Consortium is only P528,525,656.55, representing 15% of its entire net worth. The total net worth therefore of the Paircargo Consortium, after considering the maximum amounts that may be validly invested by each of its members isP558,384,871.55 or only 6.08% of the project cost,29 an amount substantially less than the prescribed minimum equity investment required for the project in the amount of P2,755,095,000.00 or 30% of the project cost. The purpose of pre-qualification in any public bidding is to determine, at the earliest opportunity, the ability of the bidder to undertake the project.

Thus, with respect to the bidder's financial capacity at the pre-qualification stage, the law requires the government agency to examine and determine the ability of the bidder to fund the entire cost of the project by considering the maximum amounts that each bidder may invest in the project at the time of pre-qualification. The PBAC has determined that any prospective bidder for the construction, operation and maintenance of the NAIA IPT III project should prove that it has the ability to provide equity in the minimum amount of 30% of the project cost, in accordance with the 70:30 debt-to-equity ratio prescribed in the Bid Documents. Thus, in the case of Paircargo Consortium, the PBAC should determine the maximum amounts that each member of the consortium may commit for the construction, operation and maintenance of the NAIA IPT III project at the time of pre-qualification. With respect to Security Bank, the maximum amount which may be invested by it would only be 15% of its net worth in view of the restrictions imposed by the General Banking Act. Disregarding the investment ceilings provided by applicable law would not result in a proper evaluation of whether or not a bidder is pre-qualified to undertake the project as for all intents and purposes, such ceiling or legal restriction determines the true maximum amount which a bidder may invest in the project. Further, the determination of whether or not a bidder is pre-qualified to undertake the project requires an evaluation of the financial capacity of the said bidder at the time the bid is submitted based on the required documents presented by the bidder. The PBAC should not be allowed to speculate on the future financial abilityof the bidder to undertake the project on the basis of documents submitted. This would open doors to abuse and defeat the very purpose of a public bidding. This is especially true in the case at bar which involves the investment of billions of pesos by the project proponent. The relevant government authority is duty-bound to ensure that the awardee of the contract possesses the minimum required financial capability to complete the project. To allow the PBAC to estimate the bidder's future financial capability would not secure the viability and integrity of the project. A restrictive and conservative application of the rules and procedures of public bidding is necessary not only to protect the impartiality and regularity of the proceedings but also to ensure the financial and technical reliability of the project. It has been held that: The basic rule in public bidding is that bids should be evaluated based on the required documents submitted before and not after the opening of bids. Otherwise, the foundation of a fair and competitive public bidding would be defeated. Strict observance of the rules, regulations, and guidelines of the bidding process is the only safeguard to a fair, honest and competitive public bidding. 30 Thus, if the maximum amount of equity that a bidder may invest in the project at the time the bids are submitted falls short of the minimum amounts required to be put up by the bidder, said bidder should be properly disqualified. Considering that at the pre-qualification stage, the maximum amounts which the Paircargo Consortium may invest in the project fell short of the minimum amounts prescribed by the PBAC, we hold that Paircargo Consortium was not a qualified bidder. Thus the award of the contract by the PBAC to the Paircargo Consortium, a disqualified

bidder, is null and void. While it would be proper at this juncture to end the resolution of the instant controversy, as the legal effects of the disqualification of respondent PIATCO's predecessor would come into play and necessarily result in the nullity of all the subsequent contracts entered by it in pursuance of the project, the Court feels that it is necessary to discuss in full the pressing issues of the present controversy for a complete resolution thereof. II Is the 1997 Concession Agreement valid? Petitioners and public respondents contend that the 1997 Concession Agreement is invalid as it contains provisions that substantially depart from the draft Concession Agreement included in the Bid Documents. They maintain that a substantial departure from the draft Concession Agreement is a violation of public policy and renders the 1997 Concession Agreement null and void. PIATCO maintains, however, that the Concession Agreement attached to the Bid Documents is intended to be adraft, i.e., subject to change, alteration or modification, and that this intention was clear to all participants, including AEDC, and DOTC/MIAA. It argued further that said intention is expressed in Part C (6) of Bid Bulletin No. 3 issued by the PBAC which states: 6. Amendments to the Draft Concessions Agreement Amendments to the Draft Concessions Agreement shall be issued from time to time. Said amendments shall only cover items that would not materially affect the preparation of the proponent's proposal. By its very nature, public bidding aims to protect the public interest by giving the public the best possible advantages through open competition. Thus: Competition must be legitimate, fair and honest. In the field of government contract law, competition requires, not only `bidding upon a common standard, a common basis, upon the same thing, the same subject matter, the same undertaking,' but also that it be legitimate, fair and honest; and not designed to injure or defraud the government.31 An essential element of a publicly bidded contract is that all bidders must be on equal footing. Not simply in terms of application of the procedural rules and regulations imposed by the relevant government agency, but more importantly, on the contract bidded upon. Each bidder must be able to bid on the same thing. The rationale is obvious. If the winning bidder is allowed to later include or modify certain provisions in the contract awarded such that the contract is altered in any material respect, then the essence of fair competition in the public bidding is destroyed. A public bidding would indeed be a farce if after the contract is awarded, the winning bidder may modify the contract and include provisions which are favorable to it that were not previously made available to the other bidders. Thus: It is inherent in public biddings that there shall be a fair competition among the bidders. The specifications in such biddings provide the common ground or basis for the bidders. The

specifications should, accordingly, operate equally or indiscriminately upon all bidders.32 The same rule was restated by Chief Justice Stuart of the Supreme Court of Minnesota: The law is well settled that where, as in this case, municipal authorities can only let a contract for public work to the lowest responsible bidder, the proposals and specifications therefore must be so framed as to permit free and full competition. Nor can they enter into a contract with the best bidder containing substantial provisions beneficial to him, not included or contemplated in the terms and specifications upon which the bids were invited. 33 In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its argument that the draft concession agreement is subject to amendment, the pertinent portion of which was quoted above, the PBAC also clarified that"[s]aid amendments shall only cover items that would not materially affect the preparation of the proponent's proposal." While we concede that a winning bidder is not precluded from modifying or amending certain provisions of the contract bidded upon, such changes must not constitute substantial or material amendments that would alter the basic parameters of the contract and would constitute a denial to the other bidders of the opportunity to bid on the same terms. Hence, the determination of whether or not a modification or amendment of a contract bidded out constitutes a substantial amendment rests on whether the contract, when taken as a whole, would contain substantially different terms and conditions that would have the effect of altering the technical and/or financial proposals previously submitted by other bidders. The alterations and modifications in the contract executed between the government and the winning bidder must be such as to render such executed contract to be an entirely different contract from the one that was bidded upon. In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc.,34 this Court quoted with approval the ruling of the trial court that an amendment to a contract awarded through public bidding, when such subsequent amendment was made without a new public bidding, is null and void: The Court agrees with the contention of counsel for the plaintiffs that the due execution of a contract after public bidding is a limitation upon the right of the contracting parties to alter or amend it without another public bidding, for otherwise what would a public bidding be good for if after the execution of a contract after public bidding, the contracting parties may alter or amend the contract, or even cancel it, at their will? Public biddings are held for the protection of the public, and to give the public the best possible advantages by means of open competition between the bidders. He who bids or offers the best terms is awarded the contract subject of the bid, and it is obvious that such protection and best possible advantages to the public will disappear if the parties to a contract executed after public bidding may alter or amend it without another previous public bidding.35

Hence, the question that comes to fore is this: is the 1997 Concession Agreement the same agreement that was offered for public bidding, i.e., the draft Concession Agreement attached to the Bid Documents? A close comparison of the draft Concession Agreement attached to the Bid Documents and the 1997 Concession Agreement reveals that the documents differ in at least two material respects: a. Modification on the Public Utility Revenues and Non-Public Utility Revenues that may be collected by PIATCO The fees that may be imposed and collected by PIATCO under the draft Concession Agreement and the 1997 Concession Agreement may be classified into three distinct categories: (1) fees which are subject to periodic adjustment of once every two years in accordance with a prescribed parametric formula and adjustments are made effective only upon written approval by MIAA; (2) fees other than those included in the first category which maybe adjusted by PIATCO whenever it deems necessary without need for consent of DOTC/MIAA; and (3) new fees and charges that may be imposed by PIATCO which have not been previously imposed or collected at the Ninoy Aquino International Airport Passenger Terminal I, pursuant to Administrative Order No. 1, Series of 1993, as amended. The glaring distinctions between the draft Concession Agreement and the 1997 Concession Agreement lie in the types of fees included in each category and the extent of the supervision and regulation which MIAA is allowed to exercise in relation thereto. For fees under the first category, i.e., those which are subject to periodic adjustment in accordance with a prescribed parametric formula and effective only upon written approval by MIAA, the draft Concession Agreement includes the following: 36 (1) aircraft parking fees; (2) aircraft tacking fees; (3) groundhandling fees; (4) rentals and airline offices; (5) check-in counter rentals; and (6) porterage fees. Under the 1997 Concession Agreement, fees which are subject to adjustment and effective upon MIAA approval are classified as "Public Utility Revenues" and include:37 (1) aircraft parking fees; (2) aircraft tacking fees; (3) check-in counter fees; and (4) Terminal Fees. The implication of the reduced number of fees that are subject to MIAA approval is best appreciated in relation to fees included in the second category identified above. Under the 1997 Concession Agreement, fees which PIATCO may adjust whenever it deems necessary without need for consent of DOTC/MIAA are "Non-Public Utility Revenues" and is defined as "all other income not classified as Public Utility Revenues derived from operations of the Terminal and the Terminal Complex."38 Thus, under the 1997 Concession Agreement, ground handling fees, rentals from airline offices and porterage fees are no longer subject

to MIAA regulation. Further, under Section 6.03 of the draft Concession Agreement, MIAA reserves the right to regulate (1) lobby and vehicular parking fees and (2) other new fees and charges that may be imposed by PIATCO. Such regulation may be made by periodic adjustment and is effective only upon written approval of MIAA. The full text of said provision is quoted below: Section 6.03. Periodic Adjustment in Fees and Charges. Adjustments in the aircraft parking fees, aircraft tacking fees, groundhandling fees, rentals and airline offices, check-in-counter rentals and porterage fees shall be allowed only once every two years and in accordance with the Parametric Formula attached hereto as Annex F. Provided that adjustments shall be made effective only after the written express approval of the MIAA. Provided, further, that such approval of the MIAA, shall be contingent only on the conformity of the adjustments with the above said parametric formula. The first adjustment shall be made prior to the In-Service Date of the Terminal. The MIAA reserves the right to regulate under the foregoing terms and conditions the lobby and vehicular parking fees and other new fees and charges as contemplated in paragraph 2 of Section 6.01 if in its judgment the users of the airport shall be deprived of a free option for the services they cover.39 On the other hand, the equivalent provision under the 1997 Concession Agreement reads: Section 6.03 Periodic Adjustment in Fees and Charges. xxx xxx xxx (c) Concessionaire shall at all times be judicious in fixing fees and charges constituting Non-Public Utility Revenues in order to ensure that End Users are not unreasonably deprived of services. While the vehicular parking fee, porterage fee and greeter/well wisher fee constitute Non-Public Utility Revenues of Concessionaire, GRP may intervene and require Concessionaire to explain and justify the fee it may set from time to time, if in the reasonable opinion of GRP the said fees have become exorbitant resulting in the unreasonable deprivation of End Users of such services. 40 Thus, under the 1997 Concession Agreement, with respect to (1) vehicular parking fee, (2) porterage fee and (3) greeter/well wisher fee, all that MIAA can do is to require PIATCO to explain and justify the fees set by PIATCO. In the draft Concession Agreement, vehicular parking fee is subject to MIAA regulation and approval under the second paragraph of Section 6.03 thereof while porterage fee is covered by the first paragraph of the same provision. There is an obvious relaxation of the extent of control and regulation by MIAA with respect to the particular fees that may be charged by PIATCO. Moreover, with respect to the third category of fees that may be imposed and collected by PIATCO, i.e., new fees and charges that may be imposed by PIATCO which have not been previously imposed or collected at the Ninoy Aquino International Airport Passenger Terminal I, under Section 6.03 of the draft Concession Agreement MIAA has reserved the right to

regulate the same under the same conditions that MIAA may regulate fees under the first category, i.e., periodic adjustment of once every two years in accordance with a prescribed parametric formula and effective only upon written approval by MIAA. However, under the 1997 Concession Agreement, adjustment of fees under the third category is not subject to MIAA regulation. With respect to terminal fees that may be charged by PIATCO, 41 as shown earlier, this was included within the category of "Public Utility Revenues" under the 1997 Concession Agreement. This classification is significant because under the 1997 Concession Agreement, "Public Utility Revenues" are subject to an "Interim Adjustment" of fees upon the occurrence of certain extraordinary events specified in the agreement.42 However, under the draft Concession Agreement, terminal fees are not included in the types of fees that may be subject to "Interim Adjustment."43 Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except terminal fees, are denominated in US Dollars44 while payments to the Government are in Philippine Pesos. In the draft Concession Agreement, no such stipulation was included. By stipulating that "Public Utility Revenues" will be paid to PIATCO in US Dollars while payments by PIATCO to the Government are in Philippine currency under the 1997 Concession Agreement, PIATCO is able to enjoy the benefits of depreciations of the Philippine Peso, while being effectively insulated from the detrimental effects of exchange rate fluctuations. When taken as a whole, the changes under the 1997 Concession Agreement with respect to reduction in the types of fees that are subject to MIAA regulation and the relaxation of such regulation with respect to other fees are significant amendments that substantially distinguish the draft Concession Agreement from the 1997 Concession Agreement. The 1997 Concession Agreement, in this respect, clearly gives PIATCO more favorable terms than what was available to other bidders at the time the contract was bidded out. It is not very difficult to see that the changes in the 1997 Concession Agreement translate to direct and concrete financial advantages for PIATCO which were not available at the time the contract was offered for bidding. It cannot be denied that under the 1997 Concession Agreement only "Public Utility Revenues" are subject to MIAA regulation. Adjustments of all other fees imposed and collected by PIATCO are entirely within its control. Moreover, with respect to terminal fees, under the 1997 Concession Agreement, the same is further subject to "Interim Adjustments" not previously stipulated in the draft Concession Agreement. Finally, the change in the currency stipulated for "Public Utility Revenues" under the 1997 Concession Agreement, except terminal fees, gives PIATCO an added benefit which was not available at the time of bidding. b. Assumption by the Government of the liabilities of PIATCO in the event of the latter's default thereof Under the draft Concession Agreement, default by PIATCO of any of its obligations to creditors who have provided, loaned or advanced funds for the NAIA IPT III project does not result in the assumption by the

Government of these liabilities. In fact, nowhere in the said contract does default of PIATCO's loans figure in the agreement. Such default does not directly result in any concomitant right or obligation in favor of the Government. However, the 1997 Concession Agreement provides: Section 4.04 Assignment. xxx xxx xxx (b) In the event Concessionaire should default in the payment of an Attendant Liability, and the default has resulted in the acceleration of the payment due date of the Attendant Liability prior to its stated date of maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP in writing of such default. GRP shall, within one hundred eighty (180) Days from receipt of the joint written notice of the Unpaid Creditors and Concessionaire, either (i) take over the Development Facility and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to be substituted as concessionaire and operator of the Development Facility in accordance with the terms and conditions hereof, or designate a qualified operator acceptable to GRP to operate the Development Facility, likewise under the terms and conditions of this Agreement; Provided that if at the end of the 180-day period GRP shall not have served the Unpaid Creditors and Concessionaire written notice of its choice, GRP shall be deemed to have elected to take over the Development Facility with the concomitant assumption of Attendant Liabilities. (c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the latter shall form and organize a concession company qualified to take over the operation of the Development Facility. If the concession company should elect to designate an operator for the Development Facility, the concession company shall in good faith identify and designate a qualified operator acceptable to GRP within one hundred eighty (180) days from receipt of GRP's written notice. If the concession company, acting in good faith and with due diligence, is unable to designate a qualified operator within the aforesaid period, then GRP shall at the end of the 180-day period take over the Development Facility and assume Attendant Liabilities. The term "Attendant Liabilities" under the 1997 Concession Agreement is defined as: Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced funds actually used for the Project, including all interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and other related expenses, and further including amounts owed by Concessionaire to its suppliers, contractors and sub-contractors. Under the above quoted portions of Section 4.04 in relation to the definition of "Attendant Liabilities," default by PIATCO of its loans used to finance the NAIA IPT III project triggers the occurrence of certain events that leads to the assumption by the Government of

the liability for the loans. Only in one instance may the Government escape the assumption of PIATCO's liabilities, i.e., when the Government so elects and allows a qualified operator to take over as Concessionaire. However, this circumstance is dependent on the existence and availability of a qualified operator who is willing to take over the rights and obligations of PIATCO under the contract, a circumstance that is not entirely within the control of the Government. Without going into the validity of this provision at this juncture, suffice it to state that Section 4.04 of the 1997 Concession Agreement may be considered a form of security for the loans PIATCO has obtained to finance the project, an option that was not made available in the draft Concession Agreement. Section 4.04 is an important amendment to the 1997 Concession Agreement because it grants PIATCO a financial advantage or benefit which was not previously made available during the bidding process. This financial advantage is a significant modification that translates to better terms and conditions for PIATCO. PIATCO, however, argues that the parties to the bidding procedure acknowledge that the draft Concession Agreement is subject to amendment because the Bid Documents permit financing or borrowing. They claim that it was the lenders who proposed the amendments to the draft Concession Agreement which resulted in the 1997 Concession Agreement. We agree that it is not inconsistent with the rationale and purpose of the BOT Law to allow the project proponent or the winning bidder to obtain financing for the project, especially in this case which involves the construction, operation and maintenance of the NAIA IPT III. Expectedly, compliance by the project proponent of its undertakings therein would involve a substantial amount of investment. It is therefore inevitable for the awardee of the contract to seek alternate sources of funds to support the project. Be that as it may, this Court maintains that amendments to the contract bidded upon should always conform to the general policy on public bidding if such procedure is to be faithful to its real nature and purpose. By its very nature and characteristic, competitive public bidding aims to protect the public interest by giving the public the best possible advantages through open competition. 45 It has been held that the three principles in public bidding are (1) the offer to the public; (2) opportunity for competition; and (3) a basis for the exact comparison of bids. A regulation of the matter which excludes any of these factors destroys the distinctive character of the system and thwarts the purpose of its adoption.46 These are the basic parameters which every awardee of a contract bidded out must conform to, requirements of financing and borrowing notwithstanding. Thus, upon a concrete showing that, as in this case, the contract signed by the government and the contract-awardee is an entirely different contract from the contract bidded, courts should not hesitate to strike down said contract in its entirety for violation of public policy on public bidding. A strict adherence on the principles, rules and regulations on public bidding must be sustained if only to preserve the integrity and the faith of the general public on the procedure. Public bidding is a standard practice for procuring government contracts for public service and for furnishing supplies and other materials. It aims to

secure for the government the lowest possible price under the most favorable terms and conditions, to curtail favoritism in the award of government contracts and avoid suspicion of anomalies and it places all bidders in equal footing. 47 Any government action which permits any substantial variance between the conditions under which the bids are invited and the contract executed after the award thereof is a grave abuse of discretion amounting to lack or excess of jurisdiction which warrants proper judicial action. In view of the above discussion, the fact that the foregoing substantial amendments were made on the 1997 Concession Agreement renders the same null and void for being contrary to public policy. These amendments convert the 1997 Concession Agreement to an entirely different agreement from the contract bidded out or the draft Concession Agreement. It is not difficult to see that the amendments on (1) the types of fees or charges that are subject to MIAA regulation or control and the extent thereof and (2) the assumption by the Government, under certain conditions, of the liabilities of PIATCO directly translates concrete financial advantages to PIATCO that were previously not available during the bidding process. These amendments cannot be taken as merely supplements to or implementing provisions of those already existing in the draft Concession Agreement. The amendments discussed above present new terms and conditions which provide financial benefit to PIATCO which may have altered the technical and financial parameters of other bidders had they known that such terms were available. III Direct Government Guarantee Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997 Concession Agreement provides: Section 4.04 Assignment xxx xxx xxx (b) In the event Concessionaire should default in the payment of an Attendant Liability, and the default resulted in the acceleration of the payment due date of the Attendant Liability prior to its stated date of maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP in writing of such default. GRP shall within one hundred eighty (180) days from receipt of the joint written notice of the Unpaid Creditors and Concessionaire, either (i) take over the Development Facility and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified to be substituted as concessionaire and operator of the Development facility in accordance with the terms and conditions hereof, or designate a qualified operator acceptable to GRP to operate the Development Facility, likewise under the terms and conditions of this Agreement; Provided, that if at the end of the 180-day period GRP shall not have served the Unpaid Creditors and Concessionaire written notice of its choice, GRP shall be deemed to have elected to take over the Development Facility with the concomitant assumption of Attendant Liabilities. (c) If GRP, by written notice, allow the Unpaid Creditors to be

substituted as concessionaire, the latter shall form and organize a concession company qualified to takeover the operation of the Development Facility. If the concession company should elect to designate an operator for the Development Facility, the concession company shall in good faith identify and designate a qualified operator acceptable to GRP within one hundred eighty (180) days from receipt of GRP's written notice. If the concession company, acting in good faith and with due diligence, is unable to designate a qualified operator within the aforesaid period, then GRP shall at the end of the 180-day period take over the Development Facility and assume Attendant Liabilities. . Section 1.06. Attendant Liabilities Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced funds actually used for the Project, including all interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and other related expenses, and further including amounts owed by Concessionaire to its suppliers, contractors and sub-contractors. 48 It is clear from the above-quoted provisions that Government, in the event that PIATCO defaults in its loan obligations, is obligated to pay "all amounts recorded and from time to time outstanding from the books" of PIATCO which the latter owes to its creditors. 49 These amounts include "all interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and other related expenses."50 This obligation of the Government to pay PIATCO's creditors upon PIATCO's default would arise if the Government opts to take over NAIA IPT III. It should be noted, however, that even if the Government chooses the second option, which is to allow PIATCO's unpaid creditors operate NAIA IPT III, the Government is still at a risk of being liable to PIATCO's creditors should the latter be unable to designate a qualified operator within the prescribed period.51 In effect,whatever option the Government chooses to take in the event of PIATCO's failure to fulfill its loan obligations, the Government is still at a risk of assuming PIATCO's outstanding loans. This is due to the fact that the Government would only be free from assuming PIATCO's debts if the unpaid creditors would be able to designate a qualified operator within the period provided for in the contract. Thus, the Government's assumption of liability is virtually out of its control. The Government under the circumstances provided for in the 1997 Concession Agreement is at the mercy of the existence, availability and willingness of a qualified operator. The above contractual provisions constitute a direct government guarantee which is prohibited by law. One of the main impetus for the enactment of the BOT Law is the lack of government funds to construct the infrastructure and development projects necessary for economic growth and development. This is why private sector resources are being tapped in order to finance these projects. The BOT law allows the private sector to participate, and is in fact encouraged to do so by way of incentives, such as minimizing the unstable

flow of returns,52 provided that the government would not have to unnecessarily expend scarcely available funds for the project itself. As such, direct guarantee, subsidy and equity by the government in these projects are strictly prohibited. 53 This is but logical for if the government would in the end still be at a risk of paying the debts incurred by the private entity in the BOT projects, then the purpose of the law is subverted. Section 2(n) of the BOT Law defines direct guarantee as follows: (n) Direct government guarantee An agreement whereby the government or any of its agencies or local government units assume responsibility for the repayment of debt directly incurred by the project proponent in implementing the project in case of a loan default. Clearly by providing that the Government "assumes" the attendant liabilities, which consists of PIATCO's unpaid debts, the 1997 Concession Agreement provided for a direct government guarantee for the debts incurred by PIATCO in the implementation of the NAIA IPT III project. It is of no moment that the relevant sections are subsumed under the title of "assignment". The provisions providing for direct government guarantee which is prohibited by law is clear from the terms thereof. The fact that the ARCA superseded the 1997 Concession Agreement did not cure this fatal defect. Article IV, Section 4.04(c), in relation to Article I, Section 1.06, of the ARCA provides: Section 4.04 Security xxx xxx xxx (c) GRP agrees with Concessionaire (PIATCO) that it shall negotiate in good faith and enter into direct agreement with the Senior Lenders, or with an agent of such Senior Lenders (which agreement shall be subject to the approval of the Bangko Sentral ng Pilipinas), in such form as may be reasonably acceptable to both GRP and Senior Lenders, with regard, inter alia, to the following parameters: xxx xxx xxx (iv) If the Concessionaire [PIATCO] is in default under a payment obligation owed to the Senior Lenders, and as a result thereof the Senior Lenders have become entitled to accelerate the Senior Loans, the Senior Lenders shall have the right to notify GRP of the same, and without prejudice to any other rights of the Senior Lenders or any Senior Lenders' agent may have (including without limitation under security interests granted in favor of the Senior Lenders), to either in good faith identify and designate a nominee which is qualified under sub-clause (viii)(y) below to operate the Development Facility [NAIA Terminal 3] or transfer the Concessionaire's [PIATCO] rights and obligations under this Agreement to a transferee which is qualified under sub-clause (viii) below; xxx xxx xxx (vi) if the Senior Lenders, acting in good faith and using reasonable efforts, are unable to designate a nominee or effect a transfer in terms and conditions satisfactory to the

Senior Lenders within one hundred eighty (180) days after giving GRP notice as referred to respectively in (iv) or (v) above, then GRP and the Senior Lenders shall endeavor in good faith to enter into any other arrangement relating to the Development Facility [NAIA Terminal 3] (other than a turnover of the Development Facility [NAIA Terminal 3] to GRP) within the following one hundred eighty (180) days. If no agreement relating to the Development Facility [NAIA Terminal 3] is arrived at by GRP and the Senior Lenders within the said 180-day period, then at the end thereof the Development Facility [NAIA Terminal 3] shall be transferred by the Concessionaire [PIATCO] to GRP or its designee and GRP shall make a termination payment to Concessionaire [PIATCO] equal to the Appraised Value (as hereinafter defined) of the Development Facility [NAIA Terminal 3] or the sum of the Attendant Liabilities, if greater. Notwithstanding Section 8.01(c) hereof, this Agreement shall be deemed terminated upon the transfer of the Development Facility [NAIA Terminal 3] to GRP pursuant hereto; xxx xxx xxx Section 1.06. Attendant Liabilities Attendant Liabilities refer to all amounts in each case supported by verifiable evidence from time to timeowed or which may become owing by Concessionaire [PIATCO] to Senior Lenders or any other persons or entities who have provided, loaned, or advanced funds or provided financial facilities to Concessionaire [PIATCO] for the Project [NAIA Terminal 3], including, without limitation, all principal, interest, associated fees, charges, reimbursements, and other related expenses (including the fees, charges and expenses of any agents or trustees of such persons or entities), whether payable at maturity, by acceleration or otherwise, and further including amounts owed by Concessionaire [PIATCO] to its professional consultants and advisers, suppliers, contractors and sub-contractors.54 It is clear from the foregoing contractual provisions that in the event that PIATCO fails to fulfill its loan obligations to its Senior Lenders, the Government is obligated to directly negotiate and enter into an agreement relating to NAIA IPT III with the Senior Lenders, should the latter fail to appoint a qualified nominee or transferee who will take the place of PIATCO. If the Senior Lenders and the Government are unable to enter into an agreement after the prescribed period, the Government must then pay PIATCO, upon transfer of NAIA IPT III to the Government, termination payment equal to the appraised value of the project or the value of the attendant liabilities whichever is greater. Attendant liabilities as defined in the ARCA includes all amounts owed or thereafter may be owed by PIATCO not only to the Senior Lenders with whom PIATCO has defaulted in its loan obligations but to all other persons who may have loaned, advanced funds or provided any other type of financial facilities to PIATCO

for NAIA IPT III. The amount of PIATCO's debt that the Government would have to pay as a result of PIATCO's default in its loan obligations -- in case no qualified nominee or transferee is appointed by the Senior Lenders and no other agreement relating to NAIA IPT III has been reached between the Government and the Senior Lenders -- includes, but is not limited to, "all principal, interest, associated fees, charges, reimbursements, and other related expenses . . . whether payable at maturity, by acceleration or otherwise."55 It is clear from the foregoing that the ARCA provides for a direct guarantee by the government to pay PIATCO's loans not only to its Senior Lenders but all other entities who provided PIATCO funds or services upon PIATCO's default in its loan obligation with its Senior Lenders. The fact that the Government's obligation to pay PIATCO's lenders for the latter's obligation would only arise after the Senior Lenders fail to appoint a qualified nominee or transferee does not detract from the fact that, should the conditions as stated in the contract occur, the ARCA still obligates the Government to pay any and all amounts owed by PIATCO to its lenders in connection with NAIA IPT III. Worse, the conditions that would make the Government liable for PIATCO's debts is triggered by PIATCO's own default of its loan obligations to its Senior Lenders to which loan contracts the Government was never a party to. The Government was not even given an option as to what course of action it should take in case PIATCO defaulted in the payment of its senior loans. The Government, upon PIATCO's default, would be merely notified by the Senior Lenders of the same and it is the Senior Lenders who are authorized to appoint a qualified nominee or transferee. Should the Senior Lenders fail to make such an appointment, the Government is then automatically obligated to "directly deal and negotiate" with the Senior Lenders regarding NAIA IPT III. The only way the Government would not be liable for PIATCO's debt is for a qualified nominee or transferee to be appointed in place of PIATCO to continue the construction, operation and maintenance of NAIA IPT III. This "pre-condition", however, will not take the contract out of the ambit of a direct guarantee by the government as the existence, availability and willingness of a qualified nominee or transferee is totally out of the government's control. As such the Government is virtually at the mercy of PIATCO (that it would not default on its loan obligations to its Senior Lenders), the Senior Lenders (that they would appoint a qualified nominee or transferee or agree to some other arrangement with the Government) and the existence of a qualified nominee or transferee who is able and willing to take the place of PIATCO in NAIA IPT III. The proscription against government guarantee in any form is one of the policy considerations behind the BOT Law. Clearly, in the present case, the ARCA obligates the Government to pay for all loans, advances and obligations arising out of financial facilities extended to PIATCO for the implementation of the NAIA IPT III project should PIATCO default in its loan obligations to its Senior Lenders and the latter fails to appoint a qualified nominee or transferee. This in effect would make the Government liable for PIATCO's loans should the conditions as set forth in the ARCA arise. This is a form of direct government guarantee. The BOT Law and its implementing rules provide that in order for an unsolicited proposal for a BOT project may be accepted, the following

conditions must first be met: (1) the project involves a new concept in technology and/or is not part of the list of priority projects, (2) no direct government guarantee, subsidy or equity is required, and (3) the government agency or local government unit has invited by publication other interested parties to a public bidding and conducted the same. 56 The failure to meet any of the above conditions will result in the denial of the proposal. It is further provided that the presence of direct government guarantee, subsidy or equity will "necessarily disqualify a proposal from being treated and accepted as an unsolicited proposal." 57 The BOT Law clearly and strictly prohibits direct government guarantee, subsidy and equity in unsolicited proposals that the mere inclusion of a provision to that effect is fatal and is sufficient to deny the proposal. It stands to reason therefore that if a proposal can be denied by reason of the existence of direct government guarantee, then its inclusion in the contract executed after the said proposal has been accepted is likewise sufficient to invalidate the contract itself. A prohibited provision, the inclusion of which would result in the denial of a proposal cannot, and should not, be allowed to later on be inserted in the contract resulting from the said proposal. The basic rules of justice and fair play alone militate against such an occurrence and must not, therefore, be countenanced particularly in this instance where the government is exposed to the risk of shouldering hundreds of million of dollars in debt. This Court has long and consistently adhered to the legal maxim that those that cannot be done directly cannot be done indirectly. 58 To declare the PIATCO contracts valid despite the clear statutory prohibition against a direct government guarantee would not only make a mockery of what the BOT Law seeks to prevent -- which is to expose the government to the risk of incurring a monetary obligation resulting from a contract of loan between the project proponent and its lenders and to which the Government is not a party to -- but would also render the BOT Law useless for what it seeks to achieve - to make use of the resources of the private sector in the "financing, operation and maintenance of infrastructure and development projects"59 which are necessary for national growth and development but which the government, unfortunately, could ill-afford to finance at this point in time. IV Temporary takeover of business affected with public interest Article XII, Section 17 of the 1987 Constitution provides: Section 17. In times of national emergency, when the public interest so requires, the State may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any privately owned public utility or business affected with public interest. The above provision pertains to the right of the State in times of national emergency, and in the exercise of its police power, to temporarily take over the operation of any business affected with public interest. In the 1986 Constitutional Commission, the term "national emergency" was defined to include threat from external aggression, calamities or national disasters, but not strikes "unless it is of such proportion that would paralyze government service."60 The duration of the emergency itself is the

determining factor as to how long the temporary takeover by the government would last.61 The temporary takeover by the government extends only to the operation of the business and not to the ownership thereof. As such the government is not required to compensate the private entity-owner of the said business as there is no transfer of ownership, whether permanent or temporary. The private entity-owner affected by the temporary takeover cannot, likewise, claim just compensation for the use of the said business and its properties as the temporary takeover by the government is in exercise of its police power and not of its power of eminent domain. Article V, Section 5.10 (c) of the 1997 Concession Agreement provides: Section 5.10 Temporary Take-over of operations by GRP. . (c) In the event the development Facility or any part thereof and/or the operations of Concessionaire or any part thereof, become the subject matter of or be included in any notice, notification, or declaration concerning or relating to acquisition, seizure or appropriation by GRP in times of war or national emergency, GRP shall, by written notice to Concessionaire, immediately take over the operations of the Terminal and/or the Terminal Complex. During such take over by GRP, the Concession Period shall be suspended; provided, that upon termination of war, hostilities or national emergency, the operations shall be returned to Concessionaire, at which time, the Concession period shall commence to run again.Concessionaire shall be entitled to reasonable compensation for the duration of the temporary take over by GRP, which compensation shall take into account the reasonable cost for the use of the Terminal and/or Terminal Complex, (which is in the amount at least equal to the debt service requirements of Concessionaire, if the temporary take over should occur at the time when Concessionaire is still servicing debts owed to project lenders), any loss or damage to the Development Facility, and other consequential damages. If the parties cannot agree on the reasonable compensation of Concessionaire, or on the liability of GRP as aforesaid, the matter shall be resolved in accordance with Section 10.01 [Arbitration]. Any amount determined to be payable by GRP to Concessionaire shall be offset from the amount next payable by Concessionaire to GRP. 62 PIATCO cannot, by mere contractual stipulation, contravene the Constitutional provision on temporary government takeover and obligate the government to pay "reasonable cost for the use of the Terminal and/or Terminal Complex."63 Article XII, section 17 of the 1987 Constitution envisions a situation wherein the exigencies of the times necessitate the government to "temporarily take over or direct the operation of any privately owned public utility or business affected with public interest." It is the welfare and interest of the public which is the paramount consideration in determining whether or not to temporarily take over a particular business. Clearly, the State in effecting the temporary takeover is exercising its police power. Police power is the "most essential, insistent, and illimitable of powers."64 Its exercise

therefore must not be unreasonably hampered nor its exercise be a source of obligation by the government in the absence of damage due to arbitrariness of its exercise.65 Thus, requiring the government to pay reasonable compensation for the reasonable use of the property pursuant to the operation of the business contravenes the Constitution. V Regulation of Monopolies A monopoly is "a privilege or peculiar advantage vested in one or more persons or companies, consisting in the exclusive right (or power) to carry on a particular business or trade, manufacture a particular article, or control the sale of a particular commodity."66 The 1987 Constitution strictly regulates monopolies, whether private or public, and even provides for their prohibition if public interest so requires. Article XII, Section 19 of the 1987 Constitution states: Sec. 19. The state shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed. Clearly, monopolies are not per se prohibited by the Constitution but may be permitted to exist to aid the government in carrying on an enterprise or to aid in the performance of various services and functions in the interest of the public.67 Nonetheless, a determination must first be made as to whether public interest requires a monopoly. As monopolies are subject to abuses that can inflict severe prejudice to the public, they are subject to a higher level of State regulation than an ordinary business undertaking. In the cases at bar, PIATCO, under the 1997 Concession Agreement and the ARCA, is granted the "exclusive right to operate a commercial international passenger terminal within the Island of Luzon" at the NAIA IPT III.68This is with the exception of already existing international airports in Luzon such as those located in the Subic Bay Freeport Special Economic Zone ("SBFSEZ"), Clark Special Economic Zone ("CSEZ") and in Laoag City.69 As such, upon commencement of PIATCO's operation of NAIA IPT III, Terminals 1 and 2 of NAIA would cease to function as international passenger terminals. This, however, does not prevent MIAA to use Terminals 1 and 2 as domestic passenger terminals or in any other manner as it may deem appropriate except those activities that would compete with NAIA IPT III in the latter's operation as an international passenger terminal.70 The right granted to PIATCO to exclusively operate NAIA IPT III would be for a period of twenty-five (25) years from the In-Service Date71 and renewable for another twenty-five (25) years at the option of the government.72 Both the 1997 Concession Agreement and the ARCA further provide that, in view of the exclusive right granted to PIATCO, the concession contracts of the service providers currently servicing Terminals 1 and 2 would no longer be renewed and those concession contracts whose expiration are subsequent to the In-Service Date would cease to be effective on the said date. 73 The operation of an international passenger airport terminal is no doubt an undertaking imbued with public interest. In entering into a BuildOperateand-Transfer contract for the construction, operation and maintenance of NAIA IPT III, the government has determined that public interest would be

served better if private sector resources were used in its construction and an exclusive right to operate be granted to the private entity undertaking the said project, in this case PIATCO. Nonetheless, the privilege given to PIATCO is subject to reasonable regulation and supervision by the Government through the MIAA, which is the government agency authorized to operate the NAIA complex, as well as DOTC, the department to which MIAA is attached.74 This is in accord with the Constitutional mandate that a monopoly which is not prohibited must be regulated. 75While it is the declared policy of the BOT Law to encourage private sector participation by "providing a climate of minimum government regulations," 76 the same does not mean that Government must completely surrender its sovereign power to protect public interest in the operation of a public utility as a monopoly. The operation of said public utility can not be done in an arbitrary manner to the detriment of the public which it seeks to serve. The right granted to the public utility may be exclusive but the exercise of the right cannot run riot. Thus, while PIATCO may be authorized to exclusively operate NAIA IPT III as an international passenger terminal, the Government, through the MIAA, has the right and the duty to ensure that it is done in accord with public interest. PIATCO's right to operate NAIA IPT III cannot also violate the rights of third parties. Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide: 3.01 Concession Period xxx xxx xxx (e) GRP confirms that certain concession agreements relative to certain services and operations currently being undertaken at the Ninoy Aquino International Airport passenger Terminal I have a validity period extending beyond the In-Service Date. GRP through DOTC/MIAA, confirms that these services and operations shall not be carried over to the Terminal and the Concessionaire is under no legal obligation to permit such carry-over except through a separate agreement duly entered into with Concessionaire. In the event Concessionaire becomes involved in any litigation initiated by any such concessionaire or operator, GRP undertakes and hereby holds Concessionaire free and harmless on full indemnity basis from and against any loss and/or any liability resulting from any such litigation, including the cost of litigation and the reasonable fees paid or payable to Concessionaire's counsel of choice, all such amounts shall be fully deductible by way of an offset from any amount which the Concessionaire is bound to pay GRP under this Agreement. During the oral arguments on December 10, 2002, the counsel for the petitioners-in-intervention for G.R. No. 155001 stated that there are two service providers whose contracts are still existing and whose validity extends beyond the In-Service Date. One contract remains valid until 2008 and the other until 2010. 77 We hold that while the service providers presently operating at NAIA Terminal 1 do not have an absolute right for the renewal or the extension of their respective contracts, those contracts whose duration extends beyond NAIA IPT III's In-Service-Date should not be unduly prejudiced.

These contracts must be respected not just by the parties thereto but also by third parties. PIATCO cannot, by law and certainly not by contract, render a valid and binding contract nugatory. PIATCO, by the mere expedient of claiming an exclusive right to operate, cannot require the Government to break its contractual obligations to the service providers. In contrast to the arrastre and stevedoring service providers in the case of Anglo-Fil Trading Corporation v. Lazaro78 whose contracts consist of temporary hold-over permits, the affected service providers in the cases at bar, have a valid and binding contract with the Government, through MIAA, whose period of effectivity, as well as the other terms and conditions thereof, cannot be violated. In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The provisions of the 1997 Concession Agreement and the ARCA did not strip government, thru the MIAA, of its right to supervise the operation of the whole NAIA complex, including NAIA IPT III. As the primary government agency tasked with the job,79 it is MIAA's responsibility to ensure that whoever by contract is given the right to operate NAIA IPT III will do so within the bounds of the law and with due regard to the rights of third parties and above all, the interest of the public. VI CONCLUSION In sum, this Court rules that in view of the absence of the requisite financial capacity of the Paircargo Consortium, predecessor of respondent PIATCO, the award by the PBAC of the contract for the construction, operation and maintenance of the NAIA IPT III is null and void. Further, considering that the 1997 Concession Agreement contains material and substantial amendments, which amendments had the effect of converting the 1997 Concession Agreement into an entirely different agreement from the contract bidded upon, the 1997 Concession Agreement is similarly null and void for being contrary to public policy. The provisions under Sections 4.04(b) and (c) in relation to Section 1.06 of the 1997 Concession Agreement and Section 4.04(c) in relation to Section 1.06 of the ARCA, which constitute a direct government guarantee expressly prohibited by, among others, the BOT Law and its Implementing Rules and Regulations are also null and void. The Supplements, being accessory contracts to the ARCA, are likewise null and void. WHEREFORE, the 1997 Concession Agreement, the Amended and Restated Concession Agreement and the Supplements thereto are set aside for being null and void. SO ORDERED. Davide, Jr., C.J., Bellosillo, Ynares-Santiago, Sandoval-Gutierrez, AustriaMartinez, Corona, and Carpio-Morales, JJ., concur. Vitug, J., see separate (dissenting) opinion. Panganiban, J., please see separate opinion. Quisumbing, J., no jurisdiction, please see separate opinion of J. Vitug in which he concurs. Carpio, J., no part. Callejo, Sr., J., also concur in the separate opinion of J. Panganiban. Azcuna, J., joins the separate opinion of J. Vitug.

G.R. No. L-22470 May 28, 1970 SOORAJMULL NAGARMULL, plaintiff-appellee, vs. BINALBAGAN-ISABELA SUGAR COMPANY, INC., defendant-appellant. S. Emiliano Calma for plaintiff-appellee. Salonga, Ordoez & Associates for defendant-appellant. DIZON, J.: Appeal taken by Binalbagan-Isabela Sugar Company, Inc. from the decision of the Court of First Instance of Manila in Civil Case No. 41103 entitled

Soorajmull Nagarmull vs. Binalbagan-Isabela Sugar Company, Inc." of the following tenor: IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered in favor of the plaintiff, Soorajmull Nagarmull, ordering the defendant, Binalbagan-Isabela Sugar Co., Inc. to pay said plaintiff the sum of 18,562 rupees and 8 annas, with reservation for the plaintiff to prove its equivalent in Philippine pesos on the date of the filing of the complaint, plus the costs of suit. The parties submitted to the trial court the following, stipulation of facts: 1. Under Contract G/14370 dated May 6, 1949, plaintiff, a foreign corporation with offices at No. 8 Dalhousie Square (East) Calcutta, India, agreed to sell to defendant, a domestic corporation with offices at the Chronicle Building, Aduana Street, Manila, 1,700,000 pieces of Hessian bags at $26.20 per 100 bags, C.I.F. Iloilo. Shipment of these bags was to be made in equal installments of 425,000 pcs. or 425 bales (1,000 pcs. to a bale during each of the months of July, August, September and October, 1949. A copy of this contract marked Annex 'A' and the Calcutta Jute Fabrics Shippers Association Form 1935 which was made a part of the contract and marked as Annex 'A-l' are hereto attached. 2. This agreement was confirmed in a letter by the plaintiff to the defendant on May 7, 1949, copy of which is attached hereto and made a part hereof as Annex 'B'; . 3. On September 8, 1949, plaintiff advised defendant that of the 850 bales scheduled for shipment in July and August, the former was able to ship only 310 bales owing to the alleged failure of the Adamjee Jute Mills to supply the goods in due time. Copy of plaintiff's letter is attached hereto as Annex 'C' and made an integral part hereof; "4. In a letter dated September 29, 1949, defendant requested plaintiff to ship 100 bales of the 540 bales defaulted from the July and August shipments. A copy of this letter marked Annex 'D' is hereto attached. In this connection, it may also be mentioned that of the 425 bales scheduled for shipment in September, 54 bales were likewise defaulted resulting in a total of 154 bales which is now the object of the controversy. 5. Defendant requested plaintiff to pay 5% of the value of the 154 bales defaulted as penalty which plaintiff did. 6. Meanwhile, on October 1, 1949, the Government of India increased the export duty of jute bags from 80 to 350 rupees per ton, and on October 5, 1949, plaintiff requested defendant to increase its letter of credit to cover the enhanced rate of export duty imposed upon the goods that were to be shipped in October, reminding the latter that under their agreement, any alteration in export duty was to be for the buyer's account. Copy of plaintiff's letter is attached hereto as Annex 'E'; 7. On October 25, 1949, defendant, in compliance with plaintiff's request, increased the amount of its letter of credit by $10,986.25 to cover the increase in export duty on 425 bales scheduled under the contract for the shipment in October, 1949. A copy of defendants letter marked Annex 'F' is hereto attached; 8. On October 27, 1949, plaintiff wrote to defendant for a further

increase of $4,000.00 in its letter of credit to cover the shipment of 154 bales which under the contract should have been included in the July, August and September shipments. A copy of said letter is attached hereto as Annex 'G'; 9. On November 17, 1949, plaintiff wrote defendant a letter reiterating its claim for $4,000.00 corresponding to the increased export taxes on the 154 bales delivered to defendant from the defaulted shipments for the months of July, August and September, 1949. A copy of said letter is attached hereto as Annex 'H'; 10. On February 6, 1951, defendant received notification from the Bengal Chamber of Commerce Tribunal of Arbitration in Calcutta, India, advising it that on December 28, 1950, Plaintiff applied to said Tribunal for arbitration regarding their claim. The Tribunal requested the defendant to send them its version of the case. This, defendant did on March 1, 1951, thru the then Government Corporate Counsel, former Justice Pompeyo Diaz. A copy of the letter of authority is attached as Annex 'I'; 11. The case was heard by the Tribunal of Arbitration on July 5, 1951. Having previously requested the Secretary Foreign Affairs for Assistance, defendant was represented at the hearing by the Philippine Consulate General in Calcutta, India, by Consul Jose Moreno. A copy of the authority, consisting of the letter of Government Corporate Counsel Pompeyo Diaz, dated March 1, 1951, and 1st Indorsement thereon, dated March 2, 1951, are attached hereto as Annexes 'J' and 'J-1'; 12. As presented to the Tribunal of Arbitration, the whole case revolved on the question of whether or not defendant is liable to the plaintiff for the payment of increased export taxes imposed by the Indian Government on the shipments of jute sacks. Defendant contended that if the jute sacks in question were delivered by plaintiff in the months of July, August, and September, 1949, pursuant to the terms of the contract, then there would have been no increased export taxes to pay because said increased taxes became effective only on October 1, 1949, while on the other hand, plaintiff argued that the contract between the parties and all papers and documents made parts thereto should prevail, including defendant's letter of September 29, 1949; 13. The Bengal Chamber of Commerce, Tribunal of Arbitration, refused to sustain defendant's contention and decided in favor of the plaintiff, ordering the defendant to pay to the plaintiff the sum of 18,562 rupees and 8 annas. This award was thereafter referred to the Calcutta High Court which issued a decree affirming the award; 14. For about two years, the plaintiff attempted to enforce the said award through the Philippine Charge de'Affaires in Calcutta, the Indian Legation here in the Philippines, and the Department of Foreign Affairs. On September 22, 1952, plaintiff, thru the Department of Foreign Affairs, sought to enforce its claim to which letter defendant replied on August 11, 1952, saying that they are not bound by the decision of the Bengal Chamber of Commerce and consequently are not obligated to pay the claim in question.

Copies of said letters are attached hereto as Annexes 'K' and 'L', respectively; 15. For more than three years thereafter, no communication was received by defendant from the plaintiff regarding their claim until January 26, 1956, when Atty. S. Emiliano Calma wrote the defendant a letter of demand, copy of which is attached hereto as Annex 'M'; 16. On February 3, 1956, defendant's counsel replied informing Atty. S. Emiliano Calma that it refuses to pay plaintiff's claim because the same has no foundation in law and in fact. A copy of this letter is attached hereto as Annex 'N'; 17. Thereafter, no communication was received by defendant from plaintiff or its lawyers regarding their claim until June, 1959, when the present complaint was filed. FINALLY, parties thru their respective counsel, state that much as they have endeavored to agree on all matters of fact, they have failed to do so on certain points. It is, therefore respectfully prayed of this Honorable Court that parties be allowed to present evidence on the disputed facts. Thereafter the parties submitted additional evidence pursuant to the reservation they made in the above stipulation. The appeal was elevated to the Court of Appeals but the latter, by its resolution of January 27, 1964, elevated it to this Court because the additional documents and oral evidence presented by the parties did not raise any factual issue, and said court further found that "the three assigned errors quoted above all pose questions of law." As may be gathered from the pleadings and the facts stipulated, the action below was for the enforcement of a foreign judgment: the decision rendered by the Tribunal of Arbitration of the Bengal Chamber of Commerce in Calcutta, India, as affirmed by the High Court of Judicature of Calcutta. The appealed decision provides for its enforcement subject to the right reserved to appellee to present evidence on the equivalent in Philippine currency of the amount adjudged in Indian currency. The record does not disclose any evidence presented for that purpose subsequent to the rendition of judgment. To secure a reversal of the appealed decision appellant claims that the lower court committed the following errors: I THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF-APPELLEE, A FOREIGN CORPORATION NOT LICENSED TO TRANSACT BUSINESS IN THE PHILIPPINES, HAS THE RIGHT TO SUE IN PHILIPPINE COURTS. II THE LOWER COURT ERRED WHEN IT FAILED TO CONSIDER PLAINTIFF-APPELLEE'S DEFAULT, AND INSTEAD RELIED SOLELY ON THE AWARD OF THE BENGAL CHAMBER OF COMMERCE TRIBUNAL OF ARBITRATION. III THE LOWER COURT ERRED WHEN IT HELD THAT PLAINTIFFAPPELLEE WAS NOT GUILTY OF LACHES. The main issue to be resolved is whether or not the decision of the Tribunal

of Arbitration of the Bengal Chamber of Commerce, as affirmed by the High Court of Judicature of Calcutta, is enforceable in the Philippines. For the purpose of this decision We shall assume that appellee contrary to appellant's contention has the right to sue in Philippine courts and that, as far as the instant case is concerned, it is not guilty of laches. This notwithstanding, We are constrained to reverse the appealed decision upon the ground that it is based upon a clear mistake of law and its enforcement will give rise to a patent injustice. It is true that under the provisions of Section 50 of Rule 39, Rules of Court, a judgment for a sum of money rendered by a foreign court "is presumptive evidence of a right as between the parties and their successors in interest by a subsequent title", but when suit for its enforcement is brought in a Philippine court, said judgment "may be repelled by evidence of a want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact" (Emphasis supplied.) Upon the facts of record, We are constrained to hold that the decision sought to be enforced was rendered upon a "clear mistake of law" and because of that it makes appellant an innocent party suffer the consequences of the default or breach of contract committed by appellee. There is no question at all that appellee was guilty of a breach of contract when it failed to deliver one-hundred fifty-four Hessian bales which, according to the contract entered into with appellant, should have been delivered to the latter in the months of July, August and September, all of the year 1949. It is equally clear beyond doubt that had these one-hundred fifty-four bales been delivered in accordance with the contract aforesaid, the increase in the export tax due upon them would not have been imposed because said increased export tax became effective only on October 1, 1949. To avoid its liability for the aforesaid increase in the export tax, appellee claims that appellant should be held liable therefor on the strength of its letter of September 29, 1949 asking appellee to ship the shortage. This argument is unavailing because it is not only illogical but contrary to known principles of fairness and justice. When appellant demanded that appellee deliver the shortage of 154 bales it did nothing more than to demand that to which it was entitled as a matter of right. The breach of contract committed by appellee gave appellant, under the law and even under general principles of fairness, the right to rescind the contract or to ask for its specific performance, in either case with right to demand damages. Part of the damages appellant was clearly entitled to recover from appellee growing out of the latter's breach of the contract consists precisely of the amount of the increase decreed in the export tax due on the shortage which, because of appellee's fault, had to be delivered after the effectivity of the increased export tax. To the extent, therefore, that the decisions of the Tribunal of Arbitration of the Bengal Chamber of Commerce and of the High Court of Judicature of Calcutta fail to apply to the facts of this case fundamental principles of contract, the same may be impeached, as they have been sufficiently impeached by appellant, on the ground of "clear mistake of law". We agree in this regard with the majority opinion in Ingenohl vs. Walter E. Olsen & Co. (47 Phil. 189), although its view was reversed by the Supreme Court of the United States (273 U.S. 541, 71 L. ed. 762) which at that time had

jurisdiction to review by certiorari decisions of this Court. We can not sanction a clear mistake of law that would work an obvious injustice upon appellant. WHEREFORE, the appealed judgment is reversed and set aside, with costs. Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo and Villamor, JJ., concur. Castro, J., is on leave.

G.R. No. 115412 November 19, 1999 HOME BANKERS SAVINGS AND TRUST COMPANY, petitioner, vs. COURT OF APPEALS and FAR EAST BANK & TRUST CO., INC. respondents. BUENA, J.: This appeal by certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the decision 1 of the Court of Appeals 2 dated January 21,

1994 in CA-G.R. SP No. 29725, dismissing the petition for certiorari filed by petitioner to annul the two (2) orders issued by the Regional Trial Court of Makati 3 in Civil Case No. 92-145, the first, dated April 30, 1992, denying petitioner's motion to dismiss and the second, dated October 1, 1992 denying petitioner's motion for reconsideration thereof. The pertinent facts may be briefly stated as follows: Victor Tancuan, one of the defendants in Civil Case No. 92-145, issued Home Bankers Savings and Trust Company (HBSTC) check No. 193498 for P25,250,000.00 while Eugene Arriesgado issued Far East Bank and Trust Company (FEBTC) check Nos. 464264, 464272 and 464271 for P8,600,000.00, P8,500,000.00 and P8,100,000.00, respectively, the three checks amounting to P25,200,000.00. Tancuan and Arriesgado exchanged each other's checks and deposited them with their respective banks for collection. When FEBTC presented Tancuan's HBSTC check for clearing, HBSTC dishonored it for being "Drawn Against Insufficient Funds." On October 15, 1991, HBSTC sent Arriesgado's three (3) FEBTC checks through the Philippine Clearing House Corporation (PCHC) to FEBTC but was returned on October 18, 1991 as "Drawn Against Insufficient Funds." HBSTC received the notice of dishonor on October 21, 1991 but refused to accept the checks and on October 22, 1991, returned them to FEBTC through the PCHC for the reason "Beyond Reglementary Period," implying that HBSTC already treated the three (3) FEBTC checks as cleared and allowed the proceeds thereof to be withdrawn. 4 FEBTC demanded reimbursement for the returned checks and inquired from HBSTC whether it had permitted any withdrawal of funds against the unfunded checks and if so, on what date. HBSTC, however, refused to make any reimbursement and to provide FEBTC with the needed information. Thus, on December 12, 1991, FEBTC submitted the dispute for arbitration before the PCHC Arbitration Committee, 5 under the PCHC's Supplementary Rules on Regional Clearing to which FEBTC and HBSTC are bound as participants in the regional clearing operations administered by the PCHC. 6 On January 17, 1992, while the arbitration proceeding was still pending, FEBTC filed an action for sum of money and damages with preliminary attachment 7 against HBSTC, Robert Young, Victor Tancuan and Eugene Arriesgado with the Regional Trial Court of Makati, Branch 133. A motion to dismiss was filed by HBSTC claiming that the complaint stated no cause of action and accordingly ". . . should be dismissed because it seeks to enforce an arbitral award which as yet does not exist." 8 The trial court issued an omnibus order dated April 30, 1992 denying the motion to dismiss and an order dated October 1, 1992 denying the motion for reconsideration. On December 16, 1992, HBSTC filed a petition for certiorari with the respondent Court of Appeals contending that the trial court acted with grave abuse of discretion amounting to lack of jurisdiction in denying the motion to dismiss filed by HBSTC. In a Decision 9 dated January 21, 1994, the respondent court dismissed the petition for lack of merit and held that "FEBTC can reiterate its cause of action before the courts which it had already raised in the arbitration case" 10after finding that the complaint filed by FEBTC ". . . seeks to collect a sum of money from HBT [HBSTC] and not to enforce or confirm an

arbitral award." 11 The respondent court observed that "[i]n the Complaint, FEBTC applied for the issuance of a writ of preliminary attachment over HBT's [HBSTC] property" 12 and citing section 14 of Republic Act No. 876, otherwise known as the Arbitration Law, maintained that "[n]ecessarily, it has to reiterate its main cause of action for sum of money against HBT [HBSTC]," 13 and that "[t]his prayer for conservatory relief [writ of preliminary attachment] satisfies the requirement of a cause of action which FEBTC may pursue in the courts." 14 Furthermore, the respondent court ruled that based on section 7 of the Arbitration Law and the cases of National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc., 15 and Bengson vs. Chan, 16 ". . . when there is a condition requiring prior submission to arbitration before the institution of a court action, the complaint is not to be dismissed but should be suspended for arbitration." 17 Finding no merit in HBSTC's contention that section 7 of the Arbitration Law ". . . contemplates a situation in which a party to an arbitration agreement has filed a court action without first resorting to arbitration, while in the case at bar, FEBTC has initiated arbitration proceedings before filing a court action," the respondent court held that ". . . if the absence of a prior arbitration may stay court action, so too and with more reason, should an arbitration already pending as obtains in this case stay the court action. A party to a pending arbitral proceeding may go to court to obtain conservatory reliefs in connection with his cause of action although the disposal of that action on the merits cannot as yet be obtained." 18 The respondent court discarded Puromines, Inc. vs. Court of Appeals, 19 stating that ". . . perhaps Puromines may have been decided on a different factual basis." 20 In the instant petition, 21 petitioner contends that first, "no party litigant can file a non-existent complaint," 22arguing that ". . . one cannot file a complaint in court over a subject that is undergoing arbitration." 23 Second, petitioner submits that "[s]ince arbitration is a special proceeding by a clear provision of law, 24 the civil suit filed below is, without a shadow of doubt, barred by litis pendentia and should be dismissed de plano insofar as HBSTC is concerned." 25 Third, petitioner insists that "[w]hen arbitration is agreed upon and suit is filed without arbitration having been held and terminated, the case that is filed should be dismissed," 26 citing Associated Bank vs. Court of Appeals, 27 Puromines, Inc. vs. Court of Appeals, 28 as and Ledesma vs. Court of Appeals. 29Petitioner demurs that the Puromines ruling was deliberately not followed by the respondent court which claimed that: xxx xxx xxx It would really be much easier for Us to rule to dismiss the complaint as the petitioner here seeks to do, following Puromines. But with utmost deference to the Honorable Supreme Court, perhaps Puromines may have been decided on a different factual basis. xxx xxx xxx 30 Petitioner takes exception to FEBTC's contention that Puromines cannot modify or reverse the rulings inNational Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc., 31 and Bengson vs.Chan, 32 where this Court suspended the action filed pending arbitration, and argues that

"[s]ound policy requires that the conclusion of whether a Supreme Court decision has or has not reversed or modified [a] previous doctrine, should be left to the Supreme Court itself; until then, the latest pronouncement should prevail." 33 Fourth, petitioner alleges that the writ of preliminary attachment issued by the trial court is void considering that the case filed before it "is a separate action which cannot exist," 34 and ". . . there is even no need for the attachment as far as HBSTC is concerned because such automatic debit/credit procedure 35 may be regarded as a security for the transactions involved and, as jurisprudence confirms, one requirement in the issuance of an attachment [writ of preliminary attachment] is that the debtor has no sufficient security." 36 Petitioner asserts further that a writ of preliminary attachment is unwarranted because no ground exists for its issuance. According to petitioner, ". . . the only allegations against it [HBSTC] are that it refused to refund the amounts of the checks of FEBTC and that it knew about the fraud perpetrated by the other defendants," 37 which, at best, constitute only "incidental fraud" and not causal fraud which justifies the issuance of the writ of preliminary attachment. Private respondent FEBTC, on the other hand, contends that ". . . the cause of action for collection [of a sum of money] can coexist in the civil suit and the arbitration [proceeding]" 38 citing section 7 of the Arbitration Law which provides for the stay of the civil action until an arbitration has been had in accordance with the terms of the agreement providing for arbitration. Private respondent further asserts that following section 4(3), article VIII 39 of the 1987 Constitution, the subsequent case of Puromines does not overturn the ruling in the earlier cases ofNational Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc., 40 and Bengson vs. Chan,41 hence, private respondent concludes that the prevailing doctrine is that the civil action must be stayed rather than dismissed pending arbitration. In this petition, the lone issue presented for the consideration of this Court is: WHETHER OR NOT PRIVATE RESPONDENT WHICH COMMENCED AN ARBITRATION PROCEEDING UNDER THE AUSPICES OF THE PHILIPPINE CLEARING HOUSE CORPORATION (PCHC) MAY SUBSEQUENTLY FILE A SEPARATE CASE IN COURT OVER THE SAME SUBJECT MATTER OF ARBITRATION DESPITE THE PENDENCY OF THAT ARBITRATION, SIMPLY TO OBTAIN THE PROVISIONAL REMEDY OF ATTACHMENT AGAINST THE BANK THE ADVERSE PARTY IN THE ARBITRATION PROCEEDING. 42 We find no merit in the petition. Section 14 of Republic Act 876, otherwise known as the Arbitration Law, allows any party to the arbitration proceeding to petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in arbitration, thus: Sec. 14. Subpoena and subpoena duces tecum. Arbitrators shall have the power to require any person to attend a hearing as a witness. They shall have the power to subpoena witnesses and documents when the relevancy of the testimony and the materiality thereof has been demonstrated to the arbitrators.

Arbitrators may also require the retirement of any witness during the testimony of any other witness. All of the arbitrators appointed in any controversy must attend all the hearings in that matter and hear all the allegations and proofs of the parties; but an award by the majority of them is valid unless the concurrence of all of them is expressly required in the submission or contract to arbitrate. The arbitrator or arbitrators shall have the power at any time, before rendering the award, without prejudice to 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. (emphasis supplied) Petitioner's exposition of the foregoing provision deserves scant consideration. Section 14 simply grants an arbitrator the power to issue subpoena and subpoena duces tecum at any time before rendering the award. The exercise of such power is without prejudice to the right of a party to file a petition in court to safeguard any matter which is the subject of the dispute in arbitration. In the case at bar, private respondent filed an action for a sum of money with prayer for a writ of preliminary attachment. Undoubtedly, such action involved the same subject matter as that in arbitration, i.e., the sum of P25,200,000.00 which was allegedly deprived from private respondent in what is known in banking as a "kiting scheme." However, the civil action was not a simple case of a money claim since private respondent has included a prayer for a writ of preliminary attachment, which is sanctioned by section 14 of the Arbitration Law. Petitioner cites the cases of Associated Bank vs. Court of Appeals, 43 Puromines, Inc. vs. Court of Appeals, 44and Ledesma vs. Court of Appeals 45 in contending that "[w]hen arbitration is agreed upon and suit is filed without arbitration having been held and terminated, the case that is filed should be dismissed." 46 However, the said cases are not in point. In Associated Bank, we affirmed the dismissal of the third-party complaint filed by Associated Bank against Philippine Commercial International Bank, Far East Bank & Trust Company, Security Bank and Trust Company, and Citytrust Banking Corporation for lack of jurisdiction, it being shown that the said parties were bound by the Clearing House Rules and Regulations on Arbitration of the Philippine Clearing House Corporation. In Associated Bank, we declared that: . . . . . .. Under the rules and regulations of the Philippine Clearing House Corporation (PCHC), the mere act of participation of the parties concerned in its operations in effect amounts to a manifestation of agreement by the parties to abide by its rules and regulations. As a consequence of such participation, a party cannot invoke the jurisdiction of the courts over disputes and controversies which fall under the PCHC Rules and Regulations without first going through the arbitration processes laid out by the body. 47 (emphasis supplied) And thus we concluded: Clearly therefore, petitioner Associated Bank, by its voluntary participation and its consent to the arbitration rules cannot go directly to the Regional Trial Court when it finds it convenient to do so. The jurisdiction of the PCHC under the rules and regulations is clear, undeniable and is particularly applicable to all the parties in

the third party complaint under their obligation to first seek redress of their disputes and grievances with the PCHC before going to the trial court. 48 (emphasis supplied) Simply put, participants in the regional clearing operations of the Philippine Clearing House Corporation cannot bypass the arbitration process laid out by the body and seek relief directly from the courts. In the case at bar, undeniably, private respondent has initiated arbitration proceedings as required by the PCHC rules and regulations, and pending arbitration has sought relief from the trial court for measures to safeguard and/or conserve the subject of the dispute under arbitration, as sanctioned by section 14 of the Arbitration Law, and otherwise not shown to be contrary to the PCHC rules and regulations. Likewise, in the case of Puromines, Inc. vs. Court of Appeals, 49 we have ruled that: In any case, whether the liability of respondent should be based on the sales contract or that of the bill of lading, the parties are nevertheless obligated to respect the arbitration provisions on the sales contract and/or bill of lading. Petitioner being a signatory and party to the sales contract cannot escape from his obligation under the arbitration clause as stated therein. In Puromines, we found the arbitration clause stated in the sales contract to be valid and applicable, thus, we ruled that the parties, being signatories to the sales contract, are obligated to respect the arbitration provisions on the contract and cannot escape from such obligation by filing an action for breach of contract in court without resorting first to arbitration, as agreed upon by the parties. At this point, we emphasize that arbitration, as an alternative method of dispute resolution, is encouraged by this Court. Aside from unclogging judicial dockets, it also hastens solutions especially of commercial disputes. 50 The Court looks with favor upon such amicable arrangement and will only interfere with great reluctance to anticipate or nullify the action of the arbitrator. 51 WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of the court a quo is AFFIRMED. SO ORDERED. Bellosillo, Mendoza, Quisumbing and De Leon, Jr., JJ., concur.

G.R. No. L-26054 July 21, 1978 LUZON SURETY CO., INC., plaintiff-appellee, vs. JESUS PANAGUITON, ET AL., defendants, CUSTODIA J. VDA. DE VELASCO, as Administratrix of the Intestate Estate of ANGELES VELASCO, defendant-appellant. GUERRERO, J.: This is an appeal from the order of the Court of First Instance of Manila, issued in Civil Case No. 35662 denying the appellant's petition for relief from judgment. The Court of Appeals, finding that this case posed only questions of law, elevated it to this Court for disposition pursuant to section 31 of the Judiciary Act, as amended, and section 3, Rule 50 of the Revised Rules of Court. The records disclose the following undisputed facts: That on April 21, 1955, plaintiff, as surety, and defendant Jesus Panaguiton, as principal, executed jointly and severally a surety bond for P10,000.00 in favor of the International Tobacco Co., Inc. to secure the payment of all his monetary liabilities, as well as the faithful performance of his obligation to said Company (Exhibit A); that in consideration of the execution by plaintiff of the said Surety Bond (Exhibit A), there were, in turn, executed in the latter's favor an Indemnity Agreement (Exhibit B) by defendant Jesus Panaguiton, Paz Lomugdan, Emilia Lotilla, Julian Panaguiton (now deceased) and succeeded by Paz T. Panaguiton, Estefania Panaguiton, Juana Panaguiton and Epifania Panaguiton), Angeles Velasco (also deceased and whose estate is now represented by Custodia J. Vda. de Velasco) and Juana Alera Vda. de Lotilla, and a Mortgage (Exhibit C) by defendants Paz Lomugdan, Emilia Lotilla, the two deceased just mentioned (now represented by their respective representatives above referred to) and Juana Alera Vda. de Lotilla, which Mortgage is duly registered with the Register of Deeds of the Province of Antique; that for failure of defendant Jesus Panaguiton to comply with the terms and conditions of the Surety Bond (Exhibit A), the International Tobacco Co., Inc. filed Civil Case No. 30842 of the Court of First Instance of Manila against plaintiff and said Jesus Panaguiton (Exhibits D and F); that in the Civil Case just mentioned, a decision was rendered sentencing the defendants therein (Jesus Panaguiton and Luzon Surety Co., Inc.) to pay to the International Tobacco Co., Inc., the sum of P3,752.61 with 6% interest thereon from October 9, 1956, together with P600.00 as attorney's fees (Exhibit F); that in compliance with said decision, herein plaintiff paid to the International Tobacco Co., Inc., the sum of P600.00 and P3,552.61 on November 15, 1957 and December 24, 1957 (Exhibits G to G-3) and that notwithstanding demands made by plaintiff on defendants herein for the reimbursement of the sums thus paid by it to the said International

Tobacco Co., Inc., said defendant have failed and refused to make said reimbursement (Exhibits H to H-14) ... 1 On July 20, 1960, the trial court rendered judgment ordering defendants, including herein defendant-appellant to pay plaintiff within ninety (90) days from notice jointly and severally, the sum of P4,352.61 with interest thereon at 12% per annum plus attorney's fees and costs. On October 7, 1960, defendant-appellant Custodia J. Vda. de Velasco (as administratrix of the estate of the deceased Angeles Velasco) filed a petition for relief from judgment, accompanied with an affidavit of merit, alleging: 1. That the said decision, in so far as the petitioning defendant is concerned, is a complete nullity for the reason that she was not notified of the hearing of the case held on March 1, 1960; 2. That if she was duly notified of the hearing she would be able to show that the Indemnity Agreement (Exhibit B) was not at all signed by the deceased Angeles Velasco; and 3. That the petitioning defendant, not having been represented by legal counsel, was of the mistaken belief that she has sixty (60) days within which to file a petition for new trial, or reconsideration or appeal from the decision, 2 After the trial court's denial of her petition for relief from judgment on December 6, 1960, defendant-appellant or December 27, 1960 filed a motion for reconsideration of the order denying her petition for relief, which motion was also denied, hence the present appeal. The order appealed from dated December 6, 1960 states: Considering (1) defendant Custodia J. Vda. de Velasco's Petition for Relief From Judgment and (2) plaintiff's Answer To Petition for Relief and it being admitted by said defendant that she received copy of the decision of this Court of July 20, 1960, on August 26, 1960: that she could have appealed from said decision within thirty(30) days from the date last mentioned, but failed to do so, hence the said decision has become final, and that therefore she is no longer entitled to the said Petition For Relief From Judgment the latter is hereby denied. SO ORDERED. Manila, Philippines, December 6, 1960. (Sgd.) E. SORIANO In her brief, the appellant assigns the following errors: I The lower court erred in denying the appellant's petition for relief from judgment on the erroneous ground that the appellant had a remedy by appeal from the decision of July 26, 1960, which she did not avail of and allowed to lapse, without considering that the decision subject matter of the petition is a complete nullity in so far as appellant is concerned because she was never notified of the hearing of the case and was deprived of her day in court. II The lower court erred in denying the petition for relief from judgment in spite of the fact that it was filed within the period provided for in Sec. 3, Rule 38 of the Rules of Court and the further

fact that appellant has a substantial and meritorious defense which warrant the granting of said relief. We find merit in defendant-appellant's contention that the trial court committed reversible errors. That the defendant-appellant was not notified of the hearings set for March lst and May 13, 1960 is borne by the records. Her name as a party defendant does not even appear in the list of persons to be given notice of the hearings by the Clerk of Court. 3 She was, therefore, denied the fundamental right to be heard, an essential element of procedural due process which this Court in the leading case of El Banco Espaol Filipino vs. Palanca 37 Phil. 921 said, and We must reiterate, thus: "(D)ue process of law implies that there must be a court or tribunal clothed with power to hear and determine the matter before it, that jurisdiction shall have been lawfully acquired, that the defendant shall have an opportunity to be heard, and that judgment shall be rendered upon lawful hearing." For well-entrenched indeed in our jurisprudence is the indispensable requisite that for the constitutional guarantee of the right to be heard, parties to the case must be notified as to when such hearing shall take place. Not only have the parties the right to be present at the trial of their cases but are also entitled to a reasonable notice of the time fixed for trial. Nothing is better settled than that absent such notice, resulting in the failure of a litigant to be accorded his day in court, there can be a resort to this Tribunal. Its response has invariably been to assure that such a right be respected. 4 We agree with defendant-appellant's contention that not having been duly informed of the scheduled hearings, the decision is a complete nullity insofar as she is concerned, The ruling of this Court in the case of Cayetano v. Ceguerra, 5 wherein We held that: "Having filed an answer, defendants should have been entitled to notice of hearing. And if the answer was not responsive, the trial court should have apprised the defendants of such fact, considering that they were not lawyers. It appearing that they were not informed of the scheduled hearing, all the proceedings undertaken herein became a nullity, there being a deprivation of their day in court, amounting to lack of due process," squarely supports defendant-appellant's position. Philippine jurisprudence is replete with decisions of this Court laying down as a fundamental part of due process the essential requisite that a party should be given an opportunity to be heard by notifying or informing him or his counsel as to when such a hearing will take place, affording him reasonable notice of the time fixed for the hearing or trial of the case. To cite a few of these decisions: Lack of notice to a party in a judicial proceedings is a denial of due process. (Shell Company of the Philippines vs. Enage, 49 SCRA 416) Denial of procedural due process is a grave jurisdictional defect rendering judgment void. (Aducayen vs. Flores, 51 SCRA 78) Procedural due process is that which hears before its condemns, which proceeds upon inquiry and renders judgment only after trial.

It contemplates notice and opportunity to be heard before judgment is rendered affecting one's person or property. (Macabingkil vs. Yatco, 21 SCRA 151; Batangas Laguna Tayabas Bus Company vs. Cadiao L-28725, March 12, 1966, 22 SCRA 987; Bermejo vs. Barrios, 31 SCRA 764, 775; Jose Carandang vs. Hon. Joe Cabatuando, etc., et al. L-25384, October 26, 1973) Lack of notice to a party adversely affected has invariably been held to mean the nullity of the decisions rendered in ordinary civil case since they suffer from a fatal infirmity for want of due process. (Tiglao vs. Commission on Elections, et al., L-31566 and 31847, August 31, 1970.) The rationale of these rulings is so basic and fundamental, founded on fair play, simple justice and fairness that We cannot but express our concern, if not displeasure, when cases as the case at bar are delayed and keep clogging court dockets for the failure, negligence and/or ignorance of judges to apply these simple legal precepts and judicial pronouncements. In the instant case, the trial court had peremptorily rejected defendantappellant's petition for relief from judgment, declaring that her failure to appeal within 30 days from receipt of the decision was fatal to her cause. We disagree with the court's ruling. It is precisely because of the expiration of the period for appeal that she seeks to avail of the remedy of relief from judgment, alleging that being a layman and without the benefit of counsel. she was of the mistaken belief that she had sixty (60) days within which to appeal the decision. Such remedy of relief from judgment is available to her as provided under Rule 38, Sec. 2 and 3, Revised Rules of Court, thus: Sec. 2. Petition to Court of First Instance for relief from judgment or other proceeding thereof When a judgment or order is entered, or any other proceeding is taken, against a party in a Court of First Instance through fraud, accident, mistake, or excusable negligence, he may file a petition in such court and in the same cause praying that the judgment, order or proceeding be set aside. Sec. 3. I'ime for filing petition, contents and verification. A petition provided for in either of the preceding sections of this rule must be verified, filed within sixty (60) days after the petitioner learns of the judgment order, or other proceeding to be set aside, and not more than six (6) months after such judgment or order was entered, or such proceeding was taken; and must be accompanied with affidavits showing the fraud, accident, mistake, or excusable negligence relied upon, and the facts constituting the petitioner's good and substantial cause of action or defense, as the case may be. Appellant having received on August 26, 1960 notice of the decision dated July 20, 1960, filed her petition for relief from judgment on October 6, 1960, accompanied with the affidavit of merit, which is clearly within the sixty (60) days period laid down by the Rules. The trial court gravely erred in denying appellant' s petition for relief. WHEREFORE, the decision rendered by the trial court on July 20, 1960 is hereby nullified and set aside insofar as herein defendant-appellant is concerned. The case is remanded to the trial court to enable the defendant-appellant to present her evidence and for said trial court to proceed and act accordingly.

SO ORDERED. Teehankee (Chairman), Makasiar, Muoz Palma and Fernandez, JJ., concur.

FEDERICO BALIBALOS, RODITO DAVA, ALEXANDER GARCES, DRISENCIO RUBIO, HONORATO OLIVERIO, ROGELIO CANUEL, PUBLIO JAPSON, SONIA BALDON, ANDY VELOSO, ANTONIO DE LA JUDGE ROSA, JULIET NALZARO, PEDRO ACAL, CELEDONIO PEREZ, EDUARDO ESTRADA, ANTONIO COSTALES, BLANCAFLOR FLORES, PEDRITO DE GUZMAN, SOFRONIO JARANILLA, ARMANDO MARARAC, DOMINADOR QUINTO, GREGORIO BALBIN and COURT OF INDUSTRIAL RELATIONS, respondents. Felipe P. Fuentes, Jr. for petitioner. Francisco M. de los Reyes for respondent Court. MUNOZ PALMA, J.: Involved in this Petition for Review on certiorari is an Order of the Court of Industrial Relations dated May 3, 1974, issued in CIR Case No. 5843-ULP entitled: "Savory Luncheonette, petitioner, vs. Lakas ng Manggagawang Pilipino, et al., respondents" which directed that the testimony of Atty. Emiliano Morabe, a witness of petitioner herein, be stricken off the record and that the witness of petitioner, Bienvenida Ting, be recalled for further cross-examination by herein private respondents. * It appears from the Petition that on September 27, 1972, the Savory Luncheonette through a Court Prosecutor of the Court of Industrial Relations filed a complaint charging the private respondents to whom We shall refer at times as LAKAS PILIPINO, with unfair labor practice for having violated certain provisions of Republic Act 875 (Industrial Peace Act), to wit: declaring a strike in violation of a no-strike clause of an existing collective bargaining agreement without prior resort to the grievance procedure provided for therein and without having observed the 30-day cooling off period prescribed by law; employing illegal and unlawful means in carrying out their strike; and staging said strike to obtain recognition inspite of the fact that there was another labor union duly certified by the Court of Industrial Relations (CIR for short) as the sole and exclusive bargaining agent of the workers of the petitioner (Annex A, p. 24 rollo). To sustain its charges, petitioner presented as its key witness, its legal counsel, Atty. Emiliano Morabe. As legal counsel, Atty. Morabe had allegedly taken charge of the labor-management problems of the petitioner and had thereby acquired first-hand knowledge of the facts of the labor dispute. Petitioner's counsel conducted the direct examination of Atty. Morabe and concluded the same on March 2, 1973. Atty. Rodolfo Amante, counsel of LAKAS PILIPINO, was called to cross-examine Atty. Morabe, but he moved for a postponement on the ground that he was "not in a position to crossexamine the witness." Accordingly, the cross-examination of Atty. Morabe was re-scheduled for March 7, 1973, but when such date arrived, Atty. Amante did not appear and so the cross-examination was once more transferred to March 17, 1973, with the warning from the court that "should the respondents still fail to cross-examine Atty. Morabe, the right to cross-examine him will be deemed waived." Not heeding this warning, Atty. Amante, for the third time failed to crossexamine the witness on March 17 for the reason that he was not prepared to do so. Accordingly, the cross-examination was again re-set for March 27, 1973 with the statement that "in view of the professed unpreparedness of

G.R. No. L-38964 January 31, 1975 SAVORY LUNCHEONETTE, petitioner, vs. LAKAS NG MANGGAGAWANG PILIPINO, ELISEO GUZMAN, ROMEO RASCO, LUCIA VIVERO, PEDRO BASILIO, CESAR MARTINEZ, RAFAEL IBANA, RICARDO ELICO, CIRILO ENOLPE, VIRGINIA BACLOR,

the representative of the respondents, the Court will give him one last chance to be ready at the next scheduled hearing." 1 This warning notwithstanding Atty. Amante again failed and to conduct the crossexamination invoking the excuse that he did not have a copy of the transcript of the direct testimony. For the fifth time and again upon motion of LAKAS PILIPINO, the cross-examination was postponed to April 2, 1973 with the reservation made by the witness, Atty. Morabe, however, to challenge the ruling of the court granting another postponement of his cross-examination. Atty. Morabe succumbed to a heart attack on March 31, 1973. On April 12, LAKAS PILIPINO filed a motion to strike out the direct testimony of Atty. Morabe from the records on the ground that since cross-examination was no longer possible, such direct testimony "Could no longer be rebutted." (Annex B, p. 29, ibid) Petitioner filed an opposition to the said motion contending that by private respondents' repeated failure and refusal to cross-examine despite all the time and opportunity granted by the court, they are deemed to have the same (Annex C, p. 30, ibid) On June 14, 1973, private respondents filed another motion seeking the recall of petitioner's witness Bienvenida Ting for further cross-examination (Annex E, p. 41, ibid) Mrs. Ting was presented as a witness to the petitioner on March 27, 1973 and cross-examined by the private respondents on June 4, 1973. The petitioner also opposed this motion on two counts: first, that the witness was already cross-examined on June 4, 1973 or more than two months after her direct testimony, thus giving private respondents sufficient time to go over the said testimony, and second, that the motion failed to state the points that were not taken up during the previous cross-examination thus giving rise to the conclusion that the recall of the witness was manifestly for delay and to harass and inconvenience the witness. In an Order dated May 3, 1974, respondent court granted the to motion (Annex F, p. 43, ibid) Thereupon, petitioner filed a motion for reconsideration of the said order but the same was denied in a resolution en banc dated July 5, 1974. (Annex G, p. 46, ibid) A copy of the resolution denying the motion for reconsideration was received by the petitioner on July 12, 1974 and on July 16,1974, it filed its notice of appeal. (Annex H, p. 17, ibid) After an extension of time was granted to petitioner by this Court, the present Petition for Review was filed on August 6, 1974. Petitioner now strongly asserts that respondent Court acted with grave abuse of discretion when the latter ordered that the direct testimony of its principal witness, Atty. Morabe, be stricken off the record for "(T)o strike out the testimony of Atty. Morabe after the respondents had been given sufficient and repeated opportunities to cross-examine him, and after they have practically waived their right to cross-examine him is unjust and unfair. It is not warranted by our rules of procedure and would place a premium on respondents' repeated failure and refusal to cross-examine the witness. Respondents should not be allowed to profit and benefit from their own neglect and omission." (pp. 18-19, rollo) Petitioner's cause merits relief. The right of a party to confront and cross-examine opposing witnesses in a judicial litigation, be it criminal or civil in nature, or in proceedings before

administrative tribunals with quasi-judicial powers, is a fundamental right which is part of due process. 2 However, the right is a personal one which may be waived expressly or impliedly by conduct amounting to a renunciation of the right of cross-examination. 3 Thus, where a Party has had the opportunity to cross-examine a witness but failed to avail himself of it, he necessarily forfeits the rights to cross-examine and the testimony given on direct examination of the witness will be received or allowed to remain in the record. 4 The conduct of a party which may be construed as an implied waiver of the right to cross-examine may take various forms. But the common basic principle underlying the application of the rule on implied waiver is that the party was given the opportunity to confront and cross-examine an opposing witness but failed to take advantage of it for reasons attributable to himself alone. In People vs. De la Cruz, L-28110, March 27, 1974, 56 SCRA 84, 91, one of the issues raised by appellant De la Cruz who was convicted of rape was that he was not accorded the right to cross-examine the complainant. The Court discarded this contention of appellant under the following circumstances: after the direct examination of the offended party on February 22, 1966, she was cross-examined but the cross-examination was not finished; two days later or on February 24, the cross-examination was resumed at 10:00 o'clock in the morning but after a few minutes the examination was suspended; the case was then called at 10:35 that same morning for the resumption of the cross-examination, however, the counsel for the accused asked for postponement and so the hearing was transferred to March 1 reserving to the defendant the right to continue with the cross-examination; no hearing was held, however, on March 1, after which other hearings were scheduled with the offended girl duly subpoenaed to appear at those hearings; after some cancellations or transfers, the trial was resumed on June 27, 1966; on that date, June 27, counsel for the accused could have asked that he be allowed to continue the cross-examination but did not do so, and did not object when the Fiscal called his next witness, either because the counsel forgot or waived further cross-examination of the offended party. Under the foregoing circumstances, this Court ruled that: it cannot be said the constitutional right of the accused to meet the witnesses face to face or the right to confrontation (Sec. 1 [f], Rule 115, Rules of Court; Sec. 1 [17] Art. III, Old Constitution) was impaired. The fact that the cross-examination of the complainant was not formally terminated is not an irregularity that would justify a new trial. The right to confront the witnesses may be waived by the accused expressly or by implication (U.S. vs. Anastacio, 6 Phil. 413; 4 Moran's Comments on the Rules of Court, 1970 Ed., p. 201-2). In State of Hawaii vs. Brooks, 352 P 2d 611, the facts were: defendant was convicted in the Circuit Court, First Circuit, City and County of Honolulu, of robbery in the second degree and when the case came up to the Supreme Court of Hawaii on a writ of error, one of the issues raised by appellant was that the trial court erred in refusing to allow him to cross-examine John Torres, a prosecution witness. The record showed, however, that when the prosecution asked leave of the trial court to withdraw Torres as witness

after partial direct examination, counsel for the defendant made a reservation of his right to cross-examine when the witness is recalled. The prosecution, however, subsequently rested its case without recalling the witness. When defendant called the court's attention to the fact that he had not had the opportunity to cross-examine, it was brought out that at one instance, the Court asked counsel for the defendant if he wanted to cross-examine the witness who was then in the corridors, to which question the said counsel answered "YES!" The record does not show, however, that defendant pursued this point any further. No motion, no objection, no ruling and no exception was made or taken, nor did the defendant call the witness in question for cross-examination. In overruling appellant's contention, the Supreme Court of Hawaii held that while the right to cross-examine a witness is fundamental and accepted as a basic right in the State's judicial system, however, when a party fails to avail himself of the opportunity to cross-examine, he forfeits such right, and the fact of the case conclusively showed that defendant was given an opportunity to cross-examine, and that appellant's failure to proceed must be construed as an abandonment of his earlier desire or intention to crossexamine the witness and he cannot now be heard to contend that the trial court refused to permit said cross-examination. The case of the herein petitioner, Savory Luncheonette, easily falls within the confines of the jurisprudence given above. Private respondents through their counsel, Atty. Amante, were given not only one but five opportunities to cross-examine the witness, Atty. Morabe, but despite the warning and admonitions of respondent court for Atty. Amante to conduct the cross-examination or else it will be deemed waived and despite the readiness, willingness, and insistence or the witness that he be cross-examined, said counsel by his repeated absence and/or unpreparedness failed to do so until death sealed the witness's lips forever. By such repeated absence and lack of preparation on the part of the counsel of private respondents, the latter lost their right to examine the witness, Atty. Morabe, and they alone must stiffer the consequences. The mere fact that the witness died after giving his testimony is no ground in itself for excluding his from the record so long as the adverse party was afforded an adequate opportunity for cross-examination but through fault of his own failed to cross-examine the witness. 4* The applicability of the rule is especially justified in proceedings before tribunals with quasi-judicial powers such as the Court of Industrial Relations. Under Section 20, Commonwealth Act No. 103, which created the Court of Industrial Relations, respondent court is authorized to disengage itself from the rigidity of the technicalities applicable to ordinary courts of justice; it is not narrowly constrained by technical rules of procedure but is enjoined to act according to justice and equity. 5 Thus, in National City Bank of New York vs. National City Bank Employees Union, 98 Phil., 301, invoked by petitioner herein, the National City Bank of New York sought to declare illegal the strike of its employees held on June 11, 1952. After trial, the Court of Industrial Relations rendered a decision on January 6, 1953, declaring the strike illegal and ordering the dismissal of the leaders of the strike but allowing the return of 51 employees to their former positions. The Bank moved for a reconsideration of the order on the ground that it was not granted an opportunity to present any evidence or

confront the witnesses; that motion was denied and a petition for certiorari was filed with this Court. Dismissing the petition, the Court held that the failure to grant petitioner bank an opportunity to cross-examine the persons from whom inquiries were made by an agent of the Court of Industrial Relations as to the reasons why said 51 employees failed to return back to work, is not a sufficient ground for the reversal of the order of the court and its findings because: (1) the Court of Industrial Relations is not bound by strict rules of evidence in the determination of facts under Section 20, Commonwealth Act 103; and (2) there is no showing that petitioner bank ever claimed that the evidence gathered by the representative of the court was false or that it had in its possession material evidence to disprove said findings. The Court said further: "In the absence of an express allegation that a new hearing will change facts found, the new trial or cross-examination demanded would be idle ceremony; it would not serve the ends of justice at all especially so in a quasi-administrative body like the Court of Industrial Relations where the rules of confrontation and cross-examination have not been expressly granted as in a trial against an accused in a criminal case." (ibid, p. 305, Emphasis Ours) The second motion of the order of respondent court of May 3, 1974, which is assailed by petitioner directs the recall of Bienvenida Ting for further cross-examination. We believe that this order is unwarranted. As claimed by petitioner, the motion to recall the witness is intended merely to delay the proceedings and to harass and inconvenience the witness sought to he recalled. We particularly note that the direct examination of the witness was completed on March 27, 1973, and that her cross-examination was conducted on June 4, 1973, or after more than two months since the direct examination. That interval of time was long enough for private respondents' counsel to scrutinize and dissect the direct testimony of the witness and prepare himself for cross-examination. That the counsel had all the time to himself when he conducted his cross-examination on June 4, 1973, and that he concluded such cross-examination when more time was alloted for it, showed that he had asked all the questions he could possibly ask. Had the witness been cross-examined right after she gave her direct testimony, there might be reason to believe the claim that counsel unintentionally forgot to ask some material questions. But that was not so. Under those circumstances, where it was shown that a witness had been previously cross-examined extensively, it was more in consonance with justice and equity for respondent court to have denied the recall of the witness concerned. 6 More so, when the motion to recall failed to mention the matters sought to be established in the additional cross-examination. One point raised by respondent court in its Comment to this Petition is that certiorari does not lie from the orders complained of for the reason that they are interlocutory in nature. (p. 57, rollo) Suffice it for Us to re-state what this Court said in Manila Electric Co., et al. vs. Enriquez, et al., 110 Phil. 499: While the Supreme Court would not entertain a petition for a writ of certiorari questioning the legality and validity of an interlocutory order, when a grave abuse of discretion is very patently committed, it devolves upon said court to exercise its supervisory authority to correct the error committed. (emphasis supplied)

The instant Petition presents a clear case of grave abuse of discretion which justifies the Court's intervention at this stage of the proceedings in the court below. PREMISES CONSIDERED, the writ of certiorari prayed for is granted and the Orders of respondent Court of May 3, 1974, and July 5, 1974, under review are hereby set aside. With costsagainst private respondents. So Ordered. G.R. No. L-42020 March 31, 1978 SUPERIOR CONCRETE PRODUCTS, INC., petitioner, vs. WORKMEN'S COMPENSATION COMMISSION and CARMELITO BENOZA, respondents. G. V. Jacinto Law Office for petitioner. Ricardo M. Perez for private respondent. MUOZ PALMA, J.: In this petition the Superior Concrete Products, Inc. seeks to set aside an award of the Workmen's Compensation Commission dated November 11, 1975 in RO 4-W. C. C. No. 144437 granting to Carmelito Benoza compensation benefits for his illness which incapacitated him to work for a total number of 343-4/7 weeks as of the date of the filing of the claim or the maximum amount of P6,000.00 pursuant to Section 14 of the Workmen's Compensation Act. 1 Superior Concrete Products, Inc. submits: 1. That respondent Commission gravely erred in rendering a decision in Case No. 144437 while another case involving the same claim, Case No. 14617, was still pending, thereby resulting in a denial of due process; and 2. That the claim is barred by prescription and laches, it having been filed after the lapse of more than ten years from the time the illness allegedly occurred. We gave due course to this Petition to inquire into the veracity of petitioner's submittal that the decision under review was rendered without due process of law and for this purpose We caused the records of respondent Commission to be elevated for examination. The records of the Commission show that Carmelito A. Benoza filed with Regional Office 4 of the Department of Labor a notice of sickness and claim for compensation dated April 20, 1971 which was docketed as Case No. 122718 wherein he alleged that he was a laborer of Superior Concrete Products, Inc. with a daily wage of P10.00; that in the course of his employment, more particularly on February 2, 1963, he contracted tuberculosis, and onMarch 24, 1967 he had to stop working by reason of said sickness. 2 Notice of the filing of this claim was received by Superior Concrete Products on April 26, 1971, 3 but it was only on July 12, 1971, when it filed its report controverting the claim on the ground that the sickness did not arise in the course of the employment, and that the claim had lapsed. 4 On July 12, 1971, Acting Chief Referee Atanacio Marco issued an award in favor of the t in the sum of P6,000.00 on the basis of his finding that the claimant, a laborer of the Superior Concrete Products contracted "PTB, Chronic Active Minimal, Bilateral", in the course of his employment and that the employer failed to controvert the claim within

the reglementary period provided by law, the notice of the claim having been received by the employer on April 26, 1971, and the supposed controversion having been filed only on or about July 12, 1971. 5 The employer corporation filed a Motion for Reconsideration of the abovementioned award in case No. 122718calling attention to the fact that it had not received any notice of the claim from the Department of Labor, and that the claim was filed only on April 20, 1971 or after more than seven years had passed since the happening of the alleged sickness in February, 1963 6 Acting on this Motion for Reconsideration, the award was vacated and the claim was re-docketed as RO 4WC case 14617. A hearing was held in case 14617 and for failure of claimant to appear the case was dismissed without prejudice on August 21, 1972. 7 The claimant however filed a motion to revive the case 8 which was granted by the Acting Referee Tomas Montesines in an order of May 18, 1973. 9 On September 1, 1973, Carmelito Benoza filed once more his claim now docketed as case No. 144437. On October 26, 1973, Acting Chief Referee Ernesto Cruz issued an award 10 granting to claimant P6,000.00 as maximum compensation for his disability from March 26, 1967 up to October 25, 1973. A Motion for Reconsideration was filed by Superior Concrete Products, alleging that there was a denial of due process as it was deprived of its right to present evidence in this particular case No. 14437 especially since an earlier claim for the same ailment docketed as case No. 122718 which later was redocketed as case 14617 was pending wherein the parties were still in the process of presenting their evidence. 11 The aforementioned Motion for Reconsideration was denied by Acting Chief of Section, E.M. Cayapas, for lack of merit. 12 The case was elevated to the Commission en banc for re-view which however affirmed the abovementioned award in a decision dated November 11, 1975. 13 Hence, this petition for review. On the issues posed by petitioner We hold: 1. There was no denial of due process to petitioner. As shown by the facts narrated above, case No. 122718 was dismissed without prejudice by the referee and on motion of the claimant the case was revived and set for hearing. While it is true that the referee could have proceeded with case No. 122718, no substantial prejudice was caused to petitioner however when claimant filed a new claim which was docketed as case no. 144437considering that, as found by the Commission and which We confirm to be the fact, copy of the notice of this second claim dated August 30, 1973, was sent to and received by Superior Concrete Products on September 3, 1973. 14 Notwithstanding receipt of said notice in case No. 144437 petitioner-employer did not file a report of controversion within the reglementary period as of September 26, 1973. Almost a month later the Acting Chief Referee issued the disputed award of P6,000.00 in case No. 144437. During that intervening period from September 3, 1973 to October 26, 1973, no action was taken by petitioner and that justified the issuance of an outright award on the basis of the documentary evidence submitted by the claimant. There is denial of procedural due process when a party is not accorded an opportunity to be heard in a case filed against him. 15 What the law prohibits however is not the absence of a previous notice, but the absolute

absence thereof and lack of opportunity to be heard. 16 Hence, in "Y" Shipping Corporation v. Erispe, et al, where the employer had full opportunity Co contest the claim filed against it with the Workmen's Compensation Commission but did not appear before the Regional Office notwithstanding notice, the Court held that the employer cannot complain that it was denied due process before the award was rendered. 17 In the case now before Us, the employer was furnished a copy of the notice of claim in case No. 144437 sinceSeptember 3, 1973, but it did not file any notice of controversion or opposition to said claim up to the time an award was rendered by the Acting Referee on October 26, 1973. Not only that, the employer filed a motion for reconsideration invoking denial of due process and the same was denied by the Acting Referee. The referee's award was then elevated for review to respondent Commission en banc which considered the argument of petitioner herein that it was denied due process when case No. 144437 was decided by the referee notwithstanding the pendency of case No. 122718, but the Commission held the argument to be without merit inasmuch as case No. 122718 was dismissed without prejudice and therefore the claim could be refiled and that in fact the employer received notice of the filing of the second claim. All these incidents show that petitioner was duly heard and his arguments duly disposed of. In Caltex v. Castillo, et al., the Court stressed that "(S)ince what due process contemplates is freedom from arbitrariness and what it requires is fairness or justice, the substance rather than the form being paramount, an allegation based solely on the lack of opportunity to be heard without notice does not per se merit unconditional approval." Thus where the petitioner Caltex was given the opportunity to ventilate its protest against the award in a motion for reconsideration, it cannot be said that it was denied an opportunity to be heard and that the decision against it by the Workmen's Compensation Commission was issued without due process." 18 2. An outright award in favor of the claimant is justified by the evidence existing in the record of this case. A certification from the Quezon Institute of the Philippine Anti-Tuberculosis Society, Quezon City, dated September 14, 1973, confirms that Carmelito Benoza was sick of pulmonary tuberculosis and that he had his chest x-ray examinations in said hospital on certain specific dates with the corresponding findings, as follows: June 26, 1963 (PF-S64) RIGHT HEMITHORAX: Scattered mottled infiltrations at lst 2nd, and 3rd interspaces. LEFT HEMITHORAX: Fibroxudative lesions from apex, 1st 2nd and 3rd interspaces, Area of radioluconey at lst and 2nd interpsaces. June 2, 1964 (MC-43827) RIGHT HEMITHORAX: There is pleural fluid at basal region with extorsion to minor fissure. Fibroxudative lesions in upper lung field. LEFT HEMITHORAX: Scattered fibro-condular changes throughout lung field with cavity at sub-clavicular area. July 14, 1964 (MC-43927) RIGHT HEMITHORAX: Less marked basal effusion but parenchymal lesions are practically unchanged. LEFT HEMITHORAX: Slight improvement of upper third infiltrations although size of sub-clavicular cavity is unchanged.

September 29, 1964 (PF-138) RIGHT HEMITHORAX: Disseminate fibroxudative lesions at upper third. LEFT HEMITHORAX: Cavity in upper lobe with disseminate lesions at lst 2nd and 3rd interspaces. Dec. 7, 1965 (PF-939) RIGHT HEMITHORAX: Scattered fibrosis almost throughout with some Perifocal exudate in upper lung and inner basal area. LEFT HEMITHORAX: Partially contracted upper lobe with fairly large cavity at inner sub-clavicular area. Fibrosis at 2nd and 3rd interspaces. Confluent infiltrations at base. September 23, 1968 (PF-531) RIGHT HEMITHORAX: Apical and sub-clavicular infiltrations. LEFT HEMITHORAX: Apical and sub-clavicular. Jan. 24, 1967 (PF-923) RIGHT HEMITHORAX: Minimal fibrosing changes in upper third with prominent lung markings at inner base. LEFT HEMITHORAX: Prominent and irregular lung markings at inner zone of lower half with density at inner lst and 2nd interspaces. Jan. 3, 1968 (PF-970) RIGHT HEMITHORAX: Minimal residual fibroid changes in both upper thirds. LEFT HEMITHORAX: July 15, 1968 (PF-115) RIGHT HEMITHORAX: Denso inner base with exudative lesions at 1st and 2nd interspaces. LEFT HEMITHORAX: Fibroid changes at apex, 1st and 2nd interspaces. May 4, 1970 (PF-955) RIGHT HEMITHORAX: Minimal apical and sub-clavicular infiltrations. LEFT HEMITHORAX: Hazy apex. May 24, 1971 (PF-504) RIGHT HEMITHORAX: Stationary findings as of x-ray taken on May 4, 1970 (Minimal apical and sub-clavicular infiltrations). LEFT HEMITHORAX: Stationary findings as of x-ray taken on May 4, 1970 Masy apex). Oct. 4, 1973 (PF-730) RIGHT HEMITHORAX: Infiltrations at 1st interspace. LEFT HEMITHORAX: Denso apex. (pp. 2 & 3 W.C.C. words) In addition, claimant Carmelito Benoza was examined by respondent Commission's Compensation Rating Officer, Dr. Valente L. Peji, on October 18, 1973, and was found to be suffering still of pulmonary tuberculosis and therefore entitled to received compensation for temporary total disability under Section 14 of the Workmen's Compensation Act. 19 We cannot now dispute the findings of respondent Commission that Carmelito Benoza became afflicted with pulmonary tuberculosis sometime in February 1963 in the course of his employment as a laborer of petitioner corporation. Due to his need for earning a livelihood, Benoza however continued working until in March, 1967, the progress of his ailment was

such that he could no longer cope with the physical demands of his work and had to leave his employment. Since then, Benoza was physically disabled from pursuing his customary occupation and was in fact still suffering from his sickness up to the latest date of his chest x-ray on October 4, 1973. With the ailment having occurred in the course of employment and aggravated by the claimant's manual labor which exposed him to dust and heat and necessitated the lifting and moving of heavy concrete products, claimant enjoys the benefits of Section 44 of the Workmen's Compensation Act which establishes the presumption of compensability of a claim of this nature thereby justifying an outright award in his favor. 20 3. The claim for compensation benefits filed by private respondent Benoza has not prescribed. Petitioner asserts that inasmuch as the claimant alleges that he became sick with pulmonary tuberculosis in February of 1963, the claim for compensation has long prescribed and the employee is guilty of laches since the latter filed the claim for the first time only in April of 1971. Although the herein claimant became ill in February of 1963, however, it was only in March of 1967 when he became disabled from work, and inasmuch as it is the employee's disability to pursue his occupation by reason of illness which entitles him to compensation, Benoza's cause of action accrued only in March of 1967, consequently, the filing of his claim in April of 1971 was well-within the ten-year prescriptive period for compensation cases of this nature. 21 If there was any delay in the filing of this claim that may be attributed to the fact that claimant is a mere laborer, unschooled, and ignorant of his rights under the law, and that proper advice could have come to him only at a late date. At any rate, with the failure of the employer to controvert the present claim of Benoza within fourteen days after the disability or within ten days after he had knowledge thereof (notice of the claim in case No. 144437 was received on September 3, 1973) it lost its right to raise nonjurisdictional defenses, and ultimately admitted the compensability of the claim. 22 WHEREFORE, the petition is denied and We affirm the decision under review with modification as follows Petitioner is ordered: 1. To pay the claimant the sum of Six Thousand (P6,000.00) Pesos as disability compensation; 2. Provide the claimant with such services and supplies needed for his early recovery from his illness; 3. To pay c claimant's counsel, Atty. Ricardo M. Perez, the sum of Six Hundred (P600.00) Pesos as attorney's fees for his appearance before the Commission as well as before this Court; 4. To pay the Workmen's Compensation Commission Sixty One (P61.00) Pesos as Administrative Fees; and 5. To pay costs. So Ordered.

Teehankee (Chairman), Makasiar, Fernandez, and Guerrero, JJ., concur.

G.R. No. L-31948 July 25, 1978 PHILIPPINE NATIONAL RAILWAYS, petitioner, vs. UNION DE MAQUINISTAS, FOGONEROS y MOTORMEN and THE COURT OF INDUSTRIAL RELATIONS,respondents. FERNANDO, J.: The main issue posed in this certiorari proceedings, whether or not the funds of the Philippine National Railways could be garnished or levied upon on execution, was resolved in two recent decisions, Philippine National Bank v. Court of Industrial Relations, 1 and Philippine National Bank v. Honorable Judge Pabalan. 2 This Court, in both cases, answered the question in the affirmative. There was no legal bar to garnishment or execution. The argument based on the non-suability of a state allegedly because the funds are governmental in character was unavailing. 3 So it must be again. The other ground alleged to justify a petition of this character, namely, that the assailed order of October 6, 1969 was contrary to a previous order made three years before, is equally lacking in solidity as a basis for the writ of certiorari prayed for. We dismiss the petition. The facts set forth in the petition follow: "In an Order dated October 6, 1969 in Case No. 368-V entitled Manila Railroad Company v. Union de Maquinistas, Fogoneros, Ayudantes y Motormen, respondent CIR approved (1) Partial Report of Examiner dated April 22, 1969 covering the computation due Mr. Juan Mercado for the period January 1, 1952 to December 31, 1953 in the amount of P7,608.66; (2) Partial Report of Examiner dated April 22, 1969 covering overtime compensation for one (1) year period due the motormen of the Philippine National Railways for the period January 1, 1956 to December 31, 1956 in the amount of P8,695.68; and (3) Report of Examiner dated August 12, 1969 covering overtime compensation for five (5) months (1955) due the Maquinistas and Fogoneros of the Philippine National Railways in the amount of P20,679.16 and directed the Philippine National Railways to deposit with respondent CIR the amounts involved in said Reports of Examiner within Thirty (30) days from receipt of the order, for further disposition." 4 Then came this allegation: "On October 16, 1969, your Petitioner filed Motion with respondent CIR in said Case No. 368-V praying that payment of the amounts mentioned in: (1) Partial Report of Examiner dated April 22, 1969 covering the computation due Mr. Juan Mercado for the period January 1, 1952 to December 31, 1953 in the amount of P7,608.66; (2) Partial Report of Examiner dated April 22, 1969 covering overtime compensation for one (1) year period due the motormen of the Philippine National Railways for the period January 1, 1956 to December 31, 1956 in the amount of P8,695.68; and (3) Report of Examiner dated August 12, 1969 covering overtime compensation for five (5) months (1955) due the Maquinistas and Fogoneros of the Philippine National Railways in the amount of P20,679.16,

mentioned in the next preceding paragraph, be deferred in accordance with the Order of respondent CIR dated October 22, 1966 in Case No. 68IPA." 5 It was then asserted by petitioner that without passing on the motion of October 16, 1969, respondent Court of Industrial Relations issued a writ of execution for the amount of P36,983.50. 6 There was a motion to lift the writ of execution but it was dismissed. 7 It was followed by a motion for reconsideration but it was not successful either. 8 Hence this petition. To repeat, the petition lacks merit. 1. It is worth recalling that in the second Philippine National Bank cited at the outset, the grave abuse of discretion imputed to respondent Judge Pabalan was his issuance of a writ of execution followed thereafter by a notice of garnishment of the funds of the Philippine Virginia Tobacco Administration. This Court did not consider as lacking in validity such an actuation. It does not suffice for the constitutional principle of non-suability to come into play just because the funds are governmental in character. The opinion explained why: "The alleged grave abuse of discretion, the basis of this certiorari proceeding, was sought to be justified on the failure of respondent Judge to set aside the notice of garnishment of funds belonging to respondent Philippine Virginia Tobacco Administration. This excerpt from the aforecited decision of Philippine National Bank v. Court of Industrial Relations makes manifest why such an argument is far from persuasive. 'The premise that the funds could be spoken of as public in character may be accepted in the sense that the People's Homesite and Housing Corporation was a government-owned entity. It does not follow though that they were exempt from garnishment. National Shipyard and Steel Corporation v. Court of Industrial Relations is squarely in point. As was explicitly stated in the opinion of the then Justice, later Chief Justice, Concepcion: "The allegation to the effect that the funds of the NASSCO are public funds of the government, and that, as such, the same may not be garnished attached or levied upon, is untenable for, as a governmentowned and controlled corporation, the NASSCO has a personality of its own, distinct and separate from that of the Government. It has pursuant to Section 2 of Executive Order No. 356, dated October 23, 1950 ..., pursuant to which the NASSCO has been established 'all the powers of a corporation under the Corporation Law ... .' Accordingly, it may sue and be sued and may be subjected to court processes just take any other corporation (Section 13, Act No. 1459, as amended.) " ... To repeat, the ruling was the appropriate remedy for the prevailing party which could proceed against the funds of a corporate entity even if owned or controlled by the government." 9 There is this equally relevant paragraph found in that decision: "The National Shipyard and Steel Corporation" decision was not the first of its kind. The ruling therein could be inferred from the judgment announced in Manila Hotel Employees Association v. Manila Hotel Company, decided as far back as 1941. In the language of its ponente, Justice Ozaeta 'On the other hand, it is well-settled that when the government enters into commercial business, it abandons its sovereign capacity and is to be treated like any other corporation. (Bank of the United States v. Planters' Bank, 9 Wheat. 904,6 L. ed. 244). By engaging in a particular business thru the instrumentality of a corporation, the

government divests itself pro hac vice of its sovereign character, so as to render the corporation subject to the rules of law governing private corporations.' It is worth mentioning that Justice Ozaeta could find support for such a pronouncement from the leading American Supreme Court case of United States v. Planters' Bank with the opinion coming from the illustrious Chief Justice Marshall. It was handed down more than one hundred fifty years ago, 1824 to be exact. It is apparent, therefore, that petitioner Bank could not legally set forth as a bar or impediment to a notice of garnishment the doctrine of non-suability. " 10 2. Equally so, the contention that respondent Court of Industrial Relations committed a grave abuse of discretion when it issued the assailed order of October 6, 1969 due to its alleged inconsistency with a previous order of three years before, deferring the payment of certain obligations of petitioner in view of its poor financial condition, is far from tenable. It does not admit of doubt that as matter of law, a later order could supersede one previously issued especially so, after some time had elapsed with due regard to altered conditions. An even more conclusive indication that there was no grave abuse Of discretion may be apparent from the facts as set forth in the Petition itself. The order now sought to be set aside merely directed that the total sum of P36,983,50 be subject to execution, there being no question that the payments decreed to the personnel involved had reached the stage of finality, one in the amount of P7,608.66, another in the amount of P8,695.68, and the third in the amount of P20,679.16, the last two sums covering overtime compensation for the motormen, the maquinistas and the fogoneros of petitioner. The previous order referred to provided for deferment of the satisfaction of certain obligations of petitioner, in the sizeable amounts of P454,283.70, P354,473.31, P145,191.33, P940.350.85, payable to certain counsel of record. 11 Certainly, considering such enormous sums, it was reasonable if in 1966, petitioner was able to secure such deferment in view of its then precarious financial condition. What is important to bear in mind was that three years had elapsed. Conditions could have changed. Moreover, what was ordered by respondent Court was merely for petitioner to make long overdue payments to its personnel as required both by statute and Constitution in amounts that could hardly pose the financial drain on its treasury, unlike the claims specified in the 1966 order, one of which was in the staggering sum of close to a million pesos. That was in conformity with both the social justice and protection to labor norms binding on an government agencies. Still another mode of looking at the matter, also adverse to pretension of petitioner, is that the later order was dictated by a factual appraisal which this Court must leave undisturbed. WHEREFORE, the petition for certiorari is dismissed for lack of merit. Barredo, Antonio, Aquino, Concepcion, Jr. and Santos, JJ., concur.