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[G.R. No. 127004.

March 11, 1999]

February 27, 2009


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SO ORDERED.

THIRD DIVISION
DECISION

FORT BONIFACIO DEVELOPMENT


CORPORATION,
Petitioner,

G.R. No. 180765

CHICO-NAZARIO, J.:

Present:
Before this Court is a Petition for Review on Certiorari under
QUISUMBING, J.,*

Rule 45 of the Revised Rules of Court, filed by petitioner Fort


Bonifacio Development Corporation, seeking to reverse and set

- versus -

CARPIO,**

aside the Decision dated 19 July 2007[1] and the Resolution

CHICO-NAZARIO,

dated 10 December 2007[2] of the Court of Appeals in CA-G.R.

Acting Chairperson,
NACHURA, and
MANUEL N. DOMINGO,

PERALTA, JJ.

SP No. 97731. The appellate court, in its assailed Decision,


affirmed the Order[3] of the Regional Trial Court (RTC) of Pasay City,
Branch 109, in Civil Case No. 06-2000-CFM, denying the Motion to
Dismiss of petitioner; and in its assailed Resolution, refused to
reconsider its decision.

Respondent.

Promulgated:

Petitioner, a domestic corporation duly organized under


Philippine laws, is engaged in the real estate development
business. Respondent is the assignee of L and M Maxco Specialist

Engineering Construction (LMM Construction) of its receivables from

against LMM Construction, wherein LMM Construction was adjudged

petitioner.

liable to Asia-Con Builders for the amount of P5,990,927.77.

On 5 July 2000, petitioner entered into a Trade Contract with

On 30 April 2005, petitioner received a letter dated 18 April

LMM Construction for partial structural and architectural works on

2005 from respondent inquiring on the retention money supposedly

one of its projects, the Bonifacio Ridge Condominium. According to

due to LMM Construction and informing petitioner that a portion of

the said Contract, petitioner had the right to withhold the retention

the amount receivable by LMM Construction therefrom was already

money equivalent to 5% of the contract price for a period of one

assigned to him as evidenced by the Deed of Assignment executed

year after the completion of the project. Retention money is a

by LMM Construction in respondents favor on 28 February

portion of the contract price, set aside by the project owner, from

2005. LMM Construction assigned its receivables from petitioner to

all approved billings and retained for a certain period to guarantee

respondent to settle the alleged unpaid obligation of LMM

the performance by the contractor of all corrective works during the

Construction to respondent amounting to P804,068.21.

defect-liability period.

[4]

Through its letter dated 11 October 2005, addressed to


Due to the defect and delay in the work of LMM Construction

respondent, petitioner acknowledged that LMM Construction did

on the condominium project, petitioner unilaterally terminated the

have receivables still with petitioner, consisting of the retention

Trade Contract

[5]

and hired another contractor to finish the rest of

money; but petitioner also advised respondent that the retention

the work left undone by LMM Construction. Despite the pre-

money was not yet due and demandable and may be ascertained

termination of the Trade Contract, petitioner was liable to pay LMM

only after the completion of the corrective works undertaken by the

Construction a fraction of the contract price in proportion to the

new

works already performed by the latter.

[6]

contractor

on

the

condominium

project. Petitioner also

notified respondent that part of the receivables was also being


garnished by the other creditors of LMM Construction.

On 30 July 2004, petitioner received the first Notice of


Garnishment against the receivables of LMM Construction issued by
the

Construction

Industry

Arbitration

Commission

(CIAC)

Unsatisfied with the reply of petitioner, respondent sent

in

another letter dated 14 October 2005 asserting his ownership over

connection with CIAC Case No. 11-2002 filed by Asia-Con Builders

a portion of the retention money assigned to him and maintaining

that the amount thereof pertaining to him can no longer be

A third Notice of Garnishment against the receivables of

garnished to satisfy the obligations of LMM Construction to other

LMM Construction, already accompanied by an Order of Delivery of

persons since it already ceased to be the property of LMM

Money, both issued by the RTC of Makati, Branch 133, was served

Construction by virtue of the Deed of Assignment. Attached to

upon petitioner on 26 January 2006. The Order enjoined petitioner

respondents letter was the endorsement of LMM Construction

to deliver the amount of P558,448.27 to the Sheriff to answer for

dated 17 January 2005 approving respondents claim upon

the favorable judgment obtained by Concrete Masters, Inc.

petitioner in the amount of P804,068.21 chargeable against the

(Concrete Masters) against LMM Construction in Civil Case No. 05-

retention money that may be received by LMM Construction from

164.

the petitioner.

Petitioner, in a letter dated 31 January 2006, categorically


Before

respondents

claim

could

be

fully

addressed,

denied respondents claim on the retention money, reasoning that

petitioner, on 6 June 2005, received the second Notice of

after the completion of the rectification works on the condominium

Garnishment against the receivables of LMM Construction, this

project and satisfaction of the various garnishment orders, there

time, issued by the National Labor Relations Commission (NLRC) to

was no more left of the retention money of LMM Construction.

satisfy the liability of LMM Construction to Nicolas Consigna in NLRC


Case No. 00-07-05483-2003.
It would appear, however, that petitioner fully satisfied the
first Notice of Garnishment in the amount of P5,110,833.44 only
On 13 July 2005, petitioner received an Order of Delivery of

on 31 January 2006,[7] the very the same date that it expressly

Money issued by the Office of the Clerk of Court and Ex-Officio

denied respondents claim. Also, petitioner complied with the

Sheriff enforcing the first Notice of Garnishment and directing

Notice of Garnishment and its accompanying Order of Delivery of

petitioner to deliver to Asia-Con Builders, through the Sheriff, the

Money in the amount ofP558,448.27 on 8 February 2006, a week

amount

after its denial of respondents claim.[8]

of P5,990,227.77

belonging

to

LMM

Construction. In

compliance with the said Order, petitioner was able to deliver to


Asia-Con Builders on 22 July 2005 and on 11 August 2005 partial
payments amounting to P1,170,601.81, covered by the appropriate
Acknowledgement Receipts.

The foregoing events prompted respondent to file a


Complaint for collection of sum of money, against both LMM

Construction and petitioner, docketed as Civil Case No. 06-0200-

that respondent, as the assignee of LMM Construction, was bound

CFM before the RTC of Pasay City, Branch 109.

by the stipulation in the Trade Contract that disputes arising


therefrom should be brought before the CIAC. The Court of Appeals
declared that respondent was not privy, but a third party, to the

Instead of filing an Answer, petitioner filed a Motion to

Trade Contract; and money claims of third persons against the

Dismiss Civil Case No. 06-0200-CFM on the ground of lack of

contractor, developer, or owner of the project are lodged in the

jurisdiction over the subject matter. Petitioner argued that since

regular courts and not in the CIAC.

respondent merely stepped into the shoes of LMM Construction as


its assignor, it was the CIAC and not the regular courts that had
jurisdiction over the dispute as provided in the Trade Contract.

Similarly ill-fated was petitioners Motion for Reconsideration,


which was denied by the Court of Appeals in its Resolution dated 10
December 2007.

On 6 June 2006, the RTC issued an Order denying the


Motion to Dismiss of petitioner, ruling that a full-blown trial was
necessary to determine which one between LMM Construction and

Petitioner now comes to this Court via this instant Petition for

petitioner should be made accountable for the sum due to

Review on Certiorari praying for the reversal of the 19 July 2007

respondent.

Decision of the Court of Appeals and 6 June 2006 Order of the RTC
and, ultimately, for the dismissal of Civil Case No. 06-0200-CFM
pending before the RTC.

Petitioner sought remedy from the Court of Appeals by filing


a Petition for Certiorari, docketed as CA-G.R. SP No. 97731,
challenging the RTC Order dated 6 June 2006for having been

For the resolution of this Court is the sole issue of:

rendered by the trial court with grave abuse of discretion.

In its Decision promulgated on 19 July 2007, the Court of


Appeals dismissed the Petition for Certiorari and affirmed the 6 June
2006 Order

of

the

RTC

denying

the

Motion

to

Dismiss

of

petitioner. The appellate court rejected the argument of petitioner

WHETHER OR NOT THE RTC HAS JURISDICTION


OVER CIVIL CASE NO. 06-0200-CFM.

The jurisdiction of CIAC is defined under Executive Order No.


1008 as follows:

In assailing the 19 July 2007 Decision of the Court of


Appeals, petitioner invoked Article 1311 of the Civil Code on
relativity of contracts. According to said provision, all contracts
shall only take effect between the contracting parties, their

SECTION 4. Jurisdiction.The CIAC shall have


original and exclusive jurisdiction over disputes
arising from, or connected with, contracts entered
into by parties involved in construction in the
Philippines, whether the disputes arises before or
after the completion of the contract, or after the
abandonment or breach thereof. These disputes may
involve government or private contracts. For the
Board to acquire jurisdiction, the parties to a dispute
must agree to submit the same to voluntary
arbitration.

The jurisdiction of the CIAC may include but is


not limited to violation of specifications for materials
and workmanship; violation of the terms of
agreement; interpretation and/or application of
contractual provisions; amount of damages and
penalties;
commencement
time
and
delays;
maintenance and defects; payment default of
employer or contractor and changes in contract cost.

assigns and heirs except when the rights and obligations arising
from the contract are not transmissible. Petitioner argues that the
appellate court, in recognizing the existence of the Deed of
Assignment executed by LMM Construction -- in favor of respondent
-- of its receivables under the Trade Contract, should have
considered the concomitant result thereof, i.e., that respondent
became a party to the Trade Contract and, therefore, bound by the
arbitral clause therein.

Respondent counters that the CIAC is devoid of jurisdiction


over money claims of third persons against the contractor,
developer or owner of the project. The jurisdiction of the CIAC is
limited to settling disputes arising among contractors, developers
and/or owners of construction projects. It does not include the
determination of who among the many creditors of the contractor
should enjoy preference in payment of its receivables from the

Excluded from the coverage of this law are


disputes
arising
from
employer-employee
relationships which shall continue to be covered by
the Labor Code of the Philippines.

developer/owner.

It is an elementary rule of procedural law that jurisdiction of


the court over the subject matter is determined by the allegations
of the complaint, irrespective of whether or not the plaintiff is
entitled to recover upon all or some of the claims asserted
therein. As a necessary consequence, the jurisdiction of the court

cannot be made to depend upon the defenses set up in the answer

0200-CFM. A

scrupulous

examination

of

the

aforementioned

or upon the motion to dismiss; for otherwise, the question of

allegations in respondents Complaint unveils the fact that his

jurisdiction would almost entirely depend upon the defendant. What

cause of action springs not from a violation of the provisions of the

determines the jurisdiction of the court is the nature of the action

Trade Contract, but from the non-payment of the monetary

pleaded as appearing from the allegations in the complaint. The

obligation of LMM Construction to him.

averments therein and the character of the relief sought are the
ones to be consulted.[9] Accordingly, the issues in the instant case
can only be properly resolved by an examination and evaluation of

A cause of action is a partys act or omission that violates

respondents allegations in his Complaint in Civil Case No. 06-0200-

the rights of the other.[10] The right of the respondent that was

CFM.

violated, prompting him to initiate Civil Case No. 06-0200-CFM, was


his right to receive payment for the financial obligation incurred by
LMM Construction and to be preferred over the other creditors of
The allegations in respondents Complaint are clear and

LMM Construction, a right which pre-existed and, thus, was

simple: That LMM Construction had an outstanding obligation to

separate

respondent in the amount of P804,068.21; that in payment of the

Construction under the Trade Contract.

said

amount,

LMM Construction

assigned to

respondent

and

distinct

from

the

right

to

payment

of

LMM

its

receivables from petitioner, which assignment was properly made


known to petitioner as early as 18 April 2005; that despite due

Petitioners unceasing reliance on Article 1311 [11] of the Civil

notice of such assignment, petitioner still refused to deliver the

Code on relativity of contracts is unavailing. It is true that

amount assigned to respondent, giving preference, instead, to the

respondent, as the assignee of the receivables of LMM Construction

garnishing creditors of LMM Construction; that at the time

from petitioner under the Trade Contract, merely stepped into the

petitioner was notified of the assignment, only one notice of

shoes of LMM Construction. However, it bears to emphasize that

garnishment, the first Notice of Garnishment, was received by it;

the right of LMM Construction to such receivables from petitioner

that had petitioner properly recognized respondents right as an

under the Trade Contract is not even in dispute in Civil Case No. 06-

assignee of a portion of the receivables of LMM Construction, there

0200-CFM. What respondent puts in issue before the RTC is the

could have been sufficient residual amounts to satisfy respondents

purportedly arbitrary exercise of discretion by the petitioner in

claim;

giving preference to the claims of the other creditors of LMM

and

that,

uncertain

over

which

one

between

LMM

Construction and petitioner he may resort to for payment,


respondent named them both as defendants in Civil Case No. 06-

Construction over the receivables of the latter.

It is encouraged that disputes arising from construction

still had receivables due from petitioner, and respondent did not

contracts be referred first to the CIAC for their arbitration and

even have to refer to a single provision in the Trade Contract to

settlement, since such cases would often require expertise and

assert his claim. What respondent is demanding is that a portion of

technical knowledge in construction. Hence, some of the matters

such receivables amounting to P804,068.21 should have been paid

over which the CIAC may exercise jurisdiction, upon agreement of

to him first before the other creditors of LMM Construction, which,

the parties to the construction contract, include but [are] not

clearly, does not require the CIACs expertise and technical

limited to violation of specifications for materials and workmanship;

knowledge of construction.

violation

of

the

terms

of

agreement;

interpretation

and/or

application of contractual provisions; amount of damages and


penalties; commencement time and delays; maintenance and

The adjudication of Civil Case No. 06-0200-CFM necessarily

defects; payment default of employer or contractor and changes in

involves the application of pertinent statutes and jurisprudence to

contract cost.

[12]

Although the jurisdiction of the CIAC is not

matters such as obligations, contracts of assignment, and, if

limited to the afore-stated enumeration, other issues which it could

appropriate, even preference of credits, a task more suited for a

take cognizance of must be of the same or a closely related kind or

trial court to carry out after a full-blown trial, than an arbitration

species applying the principle of ejusdem generis in statutory

body specifically devoted to construction contracts.

construction.

This Court recognizes the laudable objective of voluntary


Respondents claim is not even construction-related at

arbitration to provide a speedy and inexpensive method of settling

all. Construction is defined as referring to all on-site works on

disputes by allowing the parties to avoid the formalities, delay,

buildings or altering structures, from land clearance through

expense and aggravation which commonly accompany ordinary

completion including excavation, erection and assembly and

litigation, especially litigation which goes through the entire

installation

of

components

and

equipment.

[13]

Petitioners

hierarchy of courts. It cannot, however, altogether surrender to

insistence on the application of the arbitration clause of the Trade

arbitration those cases, such as the one at bar, the extant facts of

Contract to respondent is clearly anchored on an erroneous

which plainly call for the exercise of jurisdiction by the regular

premise that respondent is seeking to enforce a right under the

courts for their resolution.

same. Again, the right to the receivables of LMM Construction from


petitioner under the Trade Contract is not being impugned
herein. In fact, petitioner readily conceded that LMM Construction

WHEREFORE, premises considered, the instant Petition


Promulgated:

is DENIED. The Decision dated 19 July 2007 and the Resolution


dated 10 December 2007 of the Court of Appeals in CA-G.R. SP No.
97731 are hereby AFFIRMED in toto. Costs against the petitioner.

CITRA METRO
CORPORATION,

SO ORDERED.

MANILA

TOLLWAYS

April 24, 2009

Respondent.
x-------------------------------------------------x

THIRD DIVISION

DECISION
HUTAMA-RSEA
INC.,

JOINT

OPERATIONS,

G.R. No. 180640

Petitioner,

CHICO-NAZARIO, J.:
Present:

Before Us is a Petition[1] for Review on Certiorari under Rule

YNARES-SANTIAGO,
45
Chairperson,
AUSTRIA-MARTINEZ,
- versus -

of

the

Rules

of

Court

seeking

to

set

PERALTA, JJ.

the

Decision[2] dated 23 May 2007 and Resolution[3] dated 16 November


2007 of the Court of Appeals in CA-G.R. SP No. 92504.

CHICO-NAZARIO,
NACHURA, and

aside

The facts, culled from the records, are as follows:

Petitioner HUTAMA-RSEA Joint Operations Incorporation and


respondent

are

public use, and toll fees were accordingly collected. After informing

Philippine

respondent that the construction of the Skyway Project was already

laws. Petitioner is a sub-contractor engaged in engineering and

complete, petitioner reiterated its demand that respondent pay the

construction works. Respondent, on the other hand, is the general

outstanding balance on the interim billings, as well as the Early

contractor and operator of the South Metro Manila Skyway Project

Completion Bonus agreed upon in the EPCC. Respondent refused

(Skyway Project).

to comply with petitioners demands.[6]

corporations

Citra

Metro

Manila

organized

and

Tollways
existing

Corporation

The Skyway Project was opened on 15 December 1999 for

under

On 25 September 1996, petitioner and respondent entered

On 24 May 2004, petitioner, through counsel, sent a letter to

into an Engineering Procurement Construction Contract (EPCC)

respondent

whereby petitioner would undertake the construction of Stage 1 of

outstanding balance on the interim billings; (2) the amount of

the Skyway Project, which stretched from the junction of Buendia

petitioners final billing; (3) early completion bonus; and (4) interest

Avenue, Makati City, up to Bicutan Interchange, Taguig City. As

charges on the delayed payment. Thereafter, petitioner and

consideration for petitioners undertaking, respondent obliged itself

respondent, through their respective officers and representatives,

under

held several meetings to discuss the possibility of amicably settling

the

EPCC

to

pay

the

former

total

amount

of

US$369,510,304.00.[4]

the

demanding

dispute. Despite

payment

several

of

the

following:

meetings

and

(1)

the

continuous

negotiations, lasting for a period of almost one year, petitioner and


respondent failed to reach an amicable settlement.[7]
During the construction of the Skyway Project, petitioner
wrote respondent on several occasions requesting payment of the
formers interim billings, pursuant to the provisions of the EPCC.

Petitioner

finally

filed

with

the

Construction

Industry

Respondent only partially paid the said interim billings, thus,

Arbitration Commission (CIAC) a Request for Arbitration, seeking to

prompting

enforce

petitioner

to

demand

that

respondent

pay

the

outstanding balance thereon, but respondent still failed to do so. [5]

its

money

claims

against

respondent. [8] Petitioners

Request was docketed as CIAC Case No. 17-2005.

In

its

Answer ad

cautelam with

Motion

to

Dismiss,

respondent averred that the CIAC had no jurisdiction over CIAC

(1) Is prior resort to the DAB a precondition to


submission of the dispute to arbitration considering
that the DAB was not constituted?;

Case No. 17-2005. Respondent argued that the filing by petitioner


of

said

case

was

premature

because

condition

precedent, i.e., prior referral by the parties of their dispute to the


Dispute Adjudication Board (DAB), required by Clause 20.4 of the

(2) Is [herein petitioner] entitled to the


balance of the principal amount of the contract? If so,
how much?;

EPCC, had not been satisfied or complied with. Respondent asked


the CIAC to dismiss petitioners Request for Arbitration in CIAC Case
No. 17-2005 and to direct the parties to comply first with Clause
20.4 of the EPCC.[9]

After submission by the parties of the necessary pleadings

(3) Is [petitioner] entitled to the early


compensation bonus net of VAT due thereon? If so,
how much?;

(4) Was there delay in the completion of the


project? If so, is [herein respondent] entitled to its
counterclaim for liquidated damages?;

on the matter of jurisdiction, the CIAC issued on 30 August 2005,


an Order in CIAC Case No. 17-2005, favoring petitioner. The CIAC
ruled that it had jurisdiction over CIAC Case No. 17-2005, and that
the determination of whether petitioner had complied with Clause
20.4 of the EPCC was a factual issue that may be resolved during

(5) Is [petitioner] entitled to payment of


interest on the amounts of its claims for unpaid
billings and early completion bonus? If so, at what
rate and for what period?;

the trial. It then ordered respondent to file an Answer to


petitioners Request for Arbitration.[10]

(6) Which of the parties is entitled to


reimbursement of the arbitration costs incurred? [11]

After respondent and petitioner filed an Answer and a Reply,


respectively, in CIAC Case No. 17-2005, the CIAC conducted a
preliminary conference, wherein petitioner and respondent signed
the Terms of Reference outlining the issues to be resolved, viz:

Respondent, however, subsequently filed an Urgent Motion


requesting that CIAC refrain from proceeding with the trial proper of
CIAC Case No. 17-2005 until it had resolved the issue of whether

prior resort by the parties to DAB was a condition precedent to the


submission of the dispute to CIAC. [12] Respondents Urgent Motion
was denied by the CIAC in its Order dated 6 December 2005.[13]

Respondent filed a Motion for Reconsideration of the CIAC


Order

dated 6

December

2005.

[14]

The

CIAC

issued,

on 12

December 2005, an Order denying respondents Motion for


Reconsideration.[15] It held that prior resort by the parties to DAB
was not a condition precedent for it to assume jurisdiction over
CIAC Case No. 17-2005. Aggrieved, respondent assailed the CIAC
Order dated 12 December 2005 by filing a special civil action
for certiorari and prohibition with the Court of Appeals,[16] docketed
as CA-G.R. SP No. 92504.

The dispositive portion of the 23 May 2007 Decision of the


Court of Appeals reads:

WHEREFORE,
the
instant
petition
is GRANTED and the order of the Arbitration Tribunal
of the Construction Industry Arbitration Commission
dated
December
12,
2005
is
herebyANNULED and SET
ASIDE and,
instead,
[CIAC, members of the Arbitral Tribunal, [17] and herein
petitioner], their agents or anybody acting in their
behalf, are enjoined from further proceeding with
CIAC Case No. 17-2005, promulgating a decision
therein, executing the same if one has already been
promulgated or otherwise enforcing said order of
December 12, 2005 until the dispute has been
referred to and decided by the Dispute Adjudication
Board to be constituted by the parties in accordance
with Sub-Clause 20.4 of the Engineering Procurement
Construction Contract dated September 25, 1996.

On 23 May 2007, the Court of Appeals rendered its Decision


in CA-G.R. SP No. 92504, annulling the 12 December 2005 Order of
the CIAC, and enjoining the said Commission from proceeding with
CIAC Case No. 17-2005 until the dispute between petitioner and
respondent had been referred to and decided by the DAB, to be
constituted by the parties pursuant to Clause 20.4 of the

Petitioner filed a Motion for Reconsideration of the aforementioned Decision but this was denied by the Court of Appeals in
a Resolution dated 16 November 2007.

EPCC. The appellate court, thus, found that the CIAC exceeded its
jurisdiction in taking cognizance of petitioners Request for
Arbitration in CIAC Case No. 17-2005 despite the latters failure to
initially refer its dispute with respondent to the DAB, as directed by
Clause 20.4 of the EPCC.

Hence, petitioner filed the instant Petition for Review before


us raising the sole issue of whether CIAC has jurisdiction over CIAC
Case No. 17-2005.

Further, Section 1, Article III of the CIAC Rules of Procedure


Section 4 of Executive Order No. 1008[18] defines the

Governing Construction Arbitration[19] (CIAC Rules), provides:

jurisdiction of CIAC, thus:

SECTION 4. Jurisdiction. - The CIAC shall have


original and exclusive jurisdiction over disputes
arising from, or connected with, contracts entered
into by parties involved in construction in the
Philippines, whether the disputes arises before or
after the completion of the contract, or after the
abandonment or breach thereof. These disputes may
involve government or private contracts. For the
Board to acquire jurisdiction, the parties to a
dispute must agree to submit the same to
voluntary arbitration.

The jurisdiction of the CIAC may include but is


not limited to violation of specifications for materials
and workmanship; violation of the terms of
agreement; interpretation and/or application of
contractual provisions; amount of damages and
penalties;
commencement
time
and
delays;
maintenance and defects; payment default of
employer or contractor and changes in contract cost.

Excluded from the coverage of this law are


disputes
arising
from
employer-employee
relationships which shall continue to be covered by
the Labor Code of the Philippines. (Emphasis ours.)

SECTION 1. Submission to CIAC Jurisdiction.


An arbitration clause in a construction
contract or a submission to arbitration of a
construction dispute shall be deemed an
agreement to submit an existing or future
controversy
to
CIAC
jurisdiction,
notwithstanding the reference to a different
arbitration institution or arbitral body in such
contract or submission. When a contract contains
a clause for the submission of a future controversy to
arbitration, it is not necessary for the parties to enter
into a submission agreement before the claimant
may invoke the jurisdiction of CIAC.

An arbitration agreement or a submission to


arbitration shall be in writing, but it need not be
signed by the parties, as long as the intent is clear
that the parties agree to submit a present or future
controversy arising from a construction contract to
arbitration.

It may be in the form of exchange of letters


sent by post or by telefax, telexes, telegrams or any
other modes of communication. (Emphasis ours.)

Based on the foregoing provisions, the CIAC shall have


jurisdiction over a dispute involving a construction contract if said

contract contains an arbitration clause (nothwithstanding any


reference by the same contract to another arbitration institution or
arbitral body); or, even in the absence of such a clause in the

member for the approval of the other party,


and the parties shall mutually agree upon and
appoint the third member (who shall act as
chairman).

construction contract, the parties still agree to submit their dispute


to arbitration.

The terms of appointment of the Dispute


Adjudication Board shall:

It is undisputed that in the case at bar, the EPCC contains an

(a)

incorporate
the
model
terms
published
by
the
Fdration
Internationale des Ingnieurs-Conseils
(FIDIC),

(b)

require each member of the Dispute


Adjudication Board to be, and to
remain throughout the appointment,
independent of the parties,

(c)

require the Dispute Adjudication Board


to act impartially and in accordance
with the Contract, and

(d)

include undertakings by the parties (to


each other and to the Dispute
Adjudication Board) that the members
of the Dispute Adjudication Board shall
in no circumstances be liable for
breach of duty or of contract arising
out of their appointment; the parties
shall indemnify the members against
such claims.

arbitration clause in which the petitioner and respondent explicitly


agree to submit to arbitration any dispute between them arising
from or connected with the EPCC, under the following terms and
conditions[20]:

CLAIMS, DISPUTES and ARBITRATION

xxxx

20.3

Unless the member or members of the


Dispute Adjudication Board have been
previously mutually agreed upon by the
parties and named in the Contract, the parties
shall, within 28 days of the Effective Date,
jointly ensure the appointment of a Dispute
Adjudication
Board. Such
Dispute
Adjudication Board shall comprise suitably
qualified persons as members, the number of
members being either one or three, as stated
in the Appendix to Tender. If the Dispute
Adjudication Board is to comprise three
members, each party shall nominate one

The terms of the remuneration of the Dispute


Adjudication
Board,
including
the
remuneration of each member and of any
specialist from whom the Dispute Adjudication
Board may require to seek advice, shall be
mutually agreed upon by the Employer, the
Contractor and each member of the Dispute
Adjudication Board when agreeing such terms
of appointment. In the event of disagreement,
the remuneration of each member shall
include
reimbursement
for
reasonable
expenses, a daily fee in accordance with the
daily fee established from time to time for
arbitrators under the administrative and
financial regulations of the International
Centre for Settlement of Investment Disputes,
and a retainer fee per calendar month
equivalent to three times such daily fee.

The Employer and the Contractor shall each


pay one-half of the Dispute Adjudication
Boards remuneration in accordance with its
terms of remuneration. If, at any time, either
party shall fail to pay its due proportion of
such remuneration, the other party shall be
entitled to make payment on his behalf and
recover if from the party in default.

The
Dispute
Adjudication
Boards
appointment may be terminated only by
mutual agreement of the Employer and the
Contractor. The Dispute Adjudication Boards
appointment shall expire when the discharge
referred to in Sub-Clause 13.12 shall have
become effective, or at such other time as the
parties may mutually agree.

It, at any time, the parties so agree, they may


appoint a suitably qualified person to replace
(or to be available to replace) any or all
members of the
Dispute
Adjudication
Board. The appointment will come into effect
if a member of the Dispute Adjudication Board
declines to act or is unable to act as a result
of death, disability, resignation or termination
of appointment. If a member so declines or is
unable to act, and no such replacement is
available to act, the member shall be replaced
in the same manner as such member was to
have been nominated.

If any of the following conditions apply,


namely:

(a)

the parties fail to agree upon the


appointment of the sole member of a
one-person Dispute Adjudication Board
within 28 days of the Effective Date,

(b)

either party fails to nominate an


acceptable member, for the Dispute
Adjudication Board of three members,
within 28 days of the Effective Date,

(c)

the parties fail to agree upon the


appointment of the third member (to
act as chairman) within 28 days of the
Effective Date, or

(d)

the parties fail to agree upon the


appointment of a replacement member
of the Dispute Adjudication Board
within 28 days of the date on which a
member of the Dispute Adjudication
Board declines to act or is unable to
act as a result of death, disability,
resignation
or
termination
of
appointment,

then the person or administration named in


the Appendix to the Tender shall, after due
consultation with the parties, nominate such
member of the Dispute Adjudication Board,
and such nomination shall be final and
conclusive.

20.4

If a dispute arises between the Employer and


the Contractor in connection with, or arising
out of, the Contract or the execution of the
Works, including any dispute as to any
opinion,
instruction,
determination,
certification or valuation of the Employers
Representative, the dispute shall initially be
referred in writing to the Dispute Adjudication
Board for its decision, with a copy to the other
party. Such reference shall state that it is
made under this Sub-Clause. The parties
shall promptly make available to the Dispute
Adjudication Board all such information,
access to the Site, and appropriate facilities,
as the Dispute Adjudication Board may require
for the purposes of rendering its decision. No
later than the fifty-sixth day after the day on
which it received such reference, the Dispute
Adjudication Board, acting as a panel of
expert(s) and not as arbitrator(s), shall give

notice of its decision to the parties. Such


notice shall include reasons and shall state
that it is given under this Sub-Clause.

Unless the Contract has already been


repudiated or terminated, the Contractor
shall, in every case, continue to proceed with
the Works with all due diligence, and the
Contractor and the Employer shall give effect
forthwith to every decision of the Dispute
Adjudication Board, unless and until the same
shall be revised, as hereinafter provided, in an
amicable settlement or an arbitral award.

If either party is dissatisfied with the Dispute


Adjudication Boards decision, then either
party, on or before the twenty-eighth day
after the day on which it received notice of
such decision, may notify the other party of
its dissatisfaction. If the Dispute Adjudication
Board fails to give notice of its decision on or
before the fifty-sixth day after the day on
which it received the reference, then either
party, on or before the twenty-eighth day
after the day on which the said period of fiftysix days has expired, may notify the other
party of its dissatisfaction. In either event,
such notice of dissatisfaction shall state that it
is given under this Sub-Clause, such notice
shall set out the matters in dispute and the
reason(s) for dissatisfaction and, subject to
Sub-Clauses 20.7 and 20.8, no arbitration in
respect of such dispute may be commenced
unless such notice is given.

If the Dispute Adjudication Board has given


notice of its decision as to a matter in dispute
to the Employer and the Contractor and no
notice of dissatisfaction has been given by
either party on or before the twenty-eighth
day after the day on which the parties
received the Dispute Adjudication Boards
decision, then the Dispute Adjudication
Boards decision shall become final and
binding upon the Employer and the
Contractor.

20.5

20.6

shall be finally decided by international


arbitration. The arbitration rules under
which the arbitration is conducted, the
institution to nominate the arbitrator(s)
or to administer the arbitration rules
(unless named therein), the number of
arbitrators, and the language and place
of such arbitration shall be as set out in
the
Appendix
to
Tender. The
arbitrator(s) shall have full power to
open up, review and revise any decision
of the Dispute Adjudication Board.

Where notice of dissatisfaction has


been given under Sub-Clause 20.4, the
parties shall attempt to settle such
dispute
amicably
before
the
commencement of arbitration. Provided
that unless the parties agree otherwise,
arbitration may be commenced on or
after the fifty-sixth day after the day on
which notice of dissatisfaction was
given, even if no attempt at amicable
settlement has been made.

Neither party shall be limited, in the


proceedings before such arbitrator(s), to
the evidence or arguments previously
put before the Dispute Adjudication
Board to obtain its decision.

Arbitration may be commenced prior to


or after completion of the Works. The
obligations of the parties and the
Dispute Adjudication Board shall not be
altered by reason of the arbitration
being conducted during the progress of
the Works.

Any dispute in respect of which:

(a)

(b)

the decision, if any, of the


Dispute Adjudication Board has
not become final and binding
pursuant
to
Sub-Clause 20.4, and

amicable settlement has not been


reached,

20.7

Where neither party has given notice of


dissatisfaction within the period stated
in Sub-Clause 20.4 and the Dispute
Adjudication Boards related decision, if
any, has become final and binding, either
party may, if the other party fails to
comply with such decision, and without

prejudice to any other rights it may


have,
refer
the
failure
itself
to
arbitration under Sub-Clause 20.6. The
provisions of Sub-Clauses 20.4 and 20.5
shall not apply to any such reference.

initially referred to the DAB for decision, and only when the parties
are dissatisfied with the decision of the DAB should arbitration
commence. This does not mean, however, that the CIAC is barred
from assuming jurisdiction over the dispute if such clause was not
complied with.

20.8

When the appointment of the Dispute


Adjudication
Board
and
of
any
replacement has expired, any such
dispute referred to in Sub-Clause 20.4
shall be finally settled by arbitration
pursuant
to
Sub-Clause
20.6. The
provisions of Sub-Clauses 20.4 and 20.5
shall
not
apply
to
any
such
reference. (Emphasis ours.)

Under Section 1, Article III of the CIAC Rules, an arbitration


clause in a construction contract shall be deemed as an agreement
to submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the

reference

to

different

arbitration

institution or arbitral body in such contract x x x. Elementary is


the rule that when laws or rules are clear, it is incumbent on the
court to apply them. When the law (or rule) is unambiguous and
Despite the presence of the afore-quoted arbitration clause
in the EPCC, it is respondents position, upheld by the Court of

unequivocal, application, not interpretation thereof, is imperative.


[22]

Appeals, that the CIAC still cannot assume jurisdiction over CIAC
Case No. 17-2005 (petitioners Request for Arbitration) because
petitioner has not yet referred its dispute with respondent to the

Hence, the bare fact that the parties herein incorporated an

DAB, as directed by Clause 20.4 of the EPCC. Prior resort of the

arbitration clause in the EPCC is sufficient to vest the CIAC with

dispute to DAB is a condition precedent and an indispensable

jurisdiction over any construction controversy or claim between the

requirement for the CIAC to acquire jurisdiction over CIAC Case No.

parties.[23] The arbitration clause in the construction contract ipso

17-2005.[21]

facto vested

the

CIAC

with

jurisdiction. [24] This

rule

applies,

regardless of whether the parties specifically choose another forum


or make reference to another arbitral body. [25] Since the jurisdiction
It is true that Clause 20.4 of the EPCC states that a dispute

of CIAC is conferred by law, it cannot be subjected to any condition;

between petitioner and respondent as regards the EPCC shall be

nor can it be waived or diminished by the stipulation, act or

omission of the parties, as long as the parties agreed to submit


their construction contract dispute to arbitration, or if there is an
arbitration clause in the construction contract. [26] The parties will
not be precluded from electing to submit their dispute to CIAC,
because this right has been vested in each party by law. [27]

In China Chang Jiang Energy Corporation (Philippines) v.


Rosal Infrastructure Builders,[28] we elucidated thus:

What the law merely requires for a


particular construction contract to fall within
the jurisdiction of CIAC is for the parties to
agree to submit the same to voluntary
arbitration. Unlike in the original version of Section
1, as applied in the Tesco case, the law does not
mention that the parties should agree to submit
disputes arising from their agreement specifically to
the CIAC for the latter to acquire jurisdiction over
such disputes. Rather, it is plain and clear that
as long as the parties agree to submit to
voluntary arbitration, regardless of what forum
they may choose, their agreement will fall
within the jurisdiction of the CIAC, such that,
even if they specially choose another forum,
the parties will not be precluded from electing
to submit their dispute before the CIAC
because this right has been vested upon each
party by law, i.e., E.O. No. 1008.

xxxx

Now that Section 1, Article III [CIAC Rules of


Procedure Governing Construction Arbitration], as
amended, is submitted to test in the present petition,
we
rule
to
uphold
its
validity
with
full
certainty. However, this should not be understood to
mean that the parties may no longer stipulate to
submit their disputes to a different forum or arbitral
body. Parties may continue to stipulate as
regards their preferred forum in case of
voluntary arbitration, but in so doing, they may
not divest the CIAC of jurisdiction as provided
by law. Under the elementary principle on the
law on contracts that laws obtaining in a
jurisdiction form part of all agreements, when
the law provides that the Board acquires
jurisdiction when the parties to the contract
agree to submit the same to voluntary
arbitration, the law in effect, automatically
gives the parties an alternative forum before
whom they may submit their disputes. That
alternative forum is the CIAC. This, to the
mind of the Court, is the real spirit of E.O. No.
1008, as implemented by Section 1, Article III
of the CIAC Rules. (Emphases ours.)

Likewise, in National Irrigation Administration v. Court of


Appeals,[29] we pronounced that:

Under the present Rules of Procedure [CIAC


Rules
of
Procedure
Governing
Construction
Arbitration], for a particular construction contract to
fall within the jurisdiction of CIAC, it is merely
required that the parties agree to submit the same to

voluntary arbitration. Unlike in the original version of


Section 1, as applied in the Tesco case, the law as it
now stands does not provide that the parties should
agree to submit disputes arising from their
agreement specifically to the CIAC for the latter to
acquire jurisdiction over the same. Rather, it is plain
and clear that as long as the parties agree to submit
to voluntary arbitration, regardless of what forum
they may choose, their agreement will fall within the
jurisdiction of the CIAC, such that, even if they
specifically choose another forum, the parties will not
be precluded from electing to submit their dispute
before the CIAC because this right has been vested
upon each party by law, i.e., E.O. No. 1008.

suspend the jurisdiction of the CIAC until compliance therewith,


would be in conflict with the recognized intention of the law and
rules to automatically vestCIAC with jurisdiction over a dispute
should

the

construction

contract

contain

an

arbitration

clause.

Moreover, the CIAC was created in recognition of the


contribution of the construction industry to national development
goals. Realizing that delays in the resolution of construction
industry disputes would also hold up the development of the
country, Executive Order No. 1008 expressly mandates the CIAC

We note that this is not a case wherein the arbitration clause


in the construction contract named another forum, not the CIAC,
which shall have jurisdiction over the dispute between the parties;
rather, the said clause requires prior referral of the dispute to the

to expeditiously settle construction industry disputes and, for this


purpose, vests in the CIAC original and exclusive jurisdiction over
disputes arising from, or connected with, contracts entered into by
the parties involved in construction in the Philippines.[30]

DAB. Nonetheless, we still hold that this condition precedent, or


more appropriately, non-compliance therewith, should not deprive
CIAC of its jurisdiction over the dispute between the parties.

The dispute between petitioner and respondent has been


lingering for almost five years now. Despite numerous meetings
and negotiations between the parties, which took place prior to

It bears to emphasize that the mere existence of an


arbitration clause in the construction contract is considered by law
as an agreement by the parties to submit existing or future
controversies between them to CIAC jurisdiction, without any
qualification

or

condition

precedent. To

affirm

condition

precedent in the construction contract, which would effectively

petitioners filing with the CIAC of its Request for Arbitration, no


amicable settlement was reached. A ruling requiring the parties to
still appoint a DAB, to which they should first refer their dispute
before the same could be submitted to the CIAC, would merely be
circuitous and dilatory at this point. It would entail unnecessary
delays and expenses on both parties, which Executive Order No.

- versus -

1008 precisely seeks to prevent. It would, indeed, defeat the

AUSTRIA-MARTINEZ,
CHICO-NAZARIO,

purpose for which the CIAC was created.

VELASCO, JR.,* and


NACHURA, JJ.
WHEREFORE,

the

Petition

is

hereby GRANTED. The

Decision, dated 23 May 2007, and Resolution, dated 16 November


2007, of the Court of Appeals in CA-G.R. SP No. 92504 are
hereby REVERSED and SET

ASIDE. The

instant

case

CAPITOL INDUSTRIAL CONSTRUCTION


GROUPS, INC.,

is

Promulgated:

Respondent.

hereby REMANDED for further proceedings to the CIAC which

September 26, 2008

is DIRECTED to resolve the same with dispatch.


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

DECISION
SO ORDERED.
NACHURA, J.:
THIRD DIVISION
Before us is a Petition for Review on Certiorari under Rule 45
of
EMPIRE EAST LAND HOLDINGS, INC.,

G.R. No. 168074

Petitioner,

the

Decision

Rules
[1]

of

Court,

of

the

Court

of

Appeals

dated November 3, 2004 and its Resolution

[2]

(CA)

dated May

10, 2005, in CA-G.R. SP No. 58980. The assailed decision modified


Present:

the Decision[3] of the Construction Industry Arbitration Commission


(CIAC) dated May 16, 2000 in CIAC No. 39-99.

YNARES-SANTIAGO,
Chairperson,

The facts of the case, as found by the CIAC and affirmed by


the CA, follow:

On February 12, 1997, petitioner Empire East Land Holdings,


Inc. and respondent Capitol Industrial Corporation Groups, Inc.
entered into a Construction Agreement[4]whereby the latter bound
itself to undertake the complete supply and installation of the
building shell wet construction of the formers building known as
Gilmore Heights Phase I, located at Gilmore cor. Castilla St., San
Juan, Metro Manila.[5] The pertinent portion of the aforesaid
agreement is quoted hereunder for easy reference:

slabs, stairs, stair slabs, cement floor topping, ramps,


rubbed concrete.
b)
MASONRY WORKS interior and
exterior walls including stiffeners, CHB laying, interior
and exterior plastering, non-skid tile installation and
scratch coating for tile installation.
c)

d)
OTHER CONCRETE WORKS trenches,
platform for transformers, ger sets and aircons
e)
METAL WORKS trench grating, Ibeam separator, manhole cover, ladder rungs of
tanks, stair railings and stair nosing

ARTICLE II - SCOPE OF WORK

f)
2.1.
The CONTRACTOR shall complete the
civil/structural and masonry works of the building
based on the works (sic) items covered by the
CONTRACTORs Proposal of Complete Supply and
Installation of Building Shell Wet Construction Works
as indicated in the plans and specifications at the
Contract Price and within the Contract time herein
stipulated and in accordance with the plans and
specifications. The CONTRACTOR shall furnish and
supply all necessary labor, equipment and tools,
supervision and other facilities needed and shall
perform everything necessary for the complete and
successful masonry works of the building described
hereof, provided that it pertains to or is part of the
above mentioned work or items covered by the
Contract documents.
2.2.
The scope of works as
hereunder but not limited to the following:

FORMWORKS

stated

a)
CONCRETE WORKS foundation and
footings, tie beams, walls, columns, beams, girders,

MISCELLANEOUS WORK
installation of Doors and Jambs (metal
and wood)
Lintel Beams/Stiffener Columns
Installation
accessories

of

Hardwares

and

Window and Door Openings

g)
MISCELLANEOUS ITEMS column
guard, wheel guard, waterstop, vapor barrier,
incidental embeds, floor hardener, dustproofer,
sealant, soil treatment, elevator block-outs for call
button, block-outs for electro-mechanical works and
concrete landing sills.
h)
ROOFING
WORKS
Steel
Trusses/Purlins, Rib Type pre-painted roofing sheets,
Insulation
i)

Garbage Chutes

2.3.
The work of the CONTRACTOR shall
include but not be limited to, preparing the bill of
materials, canvassing of prices, requisition of
materials for purchase by OWNER, following up of
orders, checking the quality and quantity of the
materials within the premises of the construction site
and returning defective materials.[6]

Third, petitioner
directed
respondent
to
reduce the monthly target accomplishment to P1
million worth of work and up to one (1) floor only.[11]

Respondent further agreed that the construction work would be


completed within 330 calendar days from Day 1, upon the
Construction

Managers

confirmation.

[7]

Petitioner

initially

considered February 20, 1997 as Day 1 of the project. However,


when respondent entered the project site, it could not start work
due

to

the

on-going

bulk

excavation

by

another

contractor. Respondent thus asked petitioner to move Day 1 to a


later date, when the bulk excavation contractor would have
completely turned over the site.[8]
After a series of correspondence between petitioner and
respondent, February

25,

1997 was

proposed

as

Day

1. Accordingly, respondents completion date of the project was


fixed on January 21, 1998.[9]
Prior to and during the construction period, changes in
circumstances arose, prompting the parties to make adjustments in
the initial terms of their contract. The following pertinent changes

Fourth, the following


respondents scope of work: a)
related items from 6th floor
exterior masonry works from
and c) Garbage chute.[12]

were deleted from


Masonry works and all
to roof deck; b) All
4th floor to roof deck;

Fifth, as a consequence of the deletion of the


above works, the contract price was reduced
to P62,828,826.53.[13]
Sixth, the parties agreed: that the items of
work or any part thereof not completed by the
respondent as of February 28, 1999 should be
deleted from its contract, except demobilization; the
punch list items under respondents scope of
responsibility not yet made good/corrected as of the
same period shall be done by others at a fixed cost
to be agreed upon by all concerned; and respondent
should be compensated for the cost of utilities it
installed but were still needed by other contractors to
complete their work.[14]
Lastly, they agreed that a joint quantification
should be done to establish the bottom line figures
as to what were to be deleted from the respondents
contract and the cost of completing the punch list
items which were deductible from respondents
receivables.[15]

were mutually agreed upon by the parties:


First, as the bulk excavation contractor
refused to return to the project site, petitioner
directed respondent to continue the excavation work;
[10]

Second, in addition to respondents scope of


work, it was made to perform side trimmings.

In view of the limitation on the target accomplishment to P1


million worth of work per month, respondent asked that the
topping-off be moved to February 1999. Respondent likewise
requested a price adjustment with respect to overhead and
equipment expenses and legislated additional labor cost. These
requests were not, however, acted upon by petitioner. [16]

After the completion of the side trimmings and excavation of

b.

PhP3,153,733.60
as
the
amount remaining unpaid for
additional works;

c.

PhP13,976,427.00
overhead expenses; and

d.

PhP1,198,385.16
as
additional costs due to wage
escalation;

the buildings foundation, respondent demanded the payment


of P2,248,507.70

and P1,805,225.90,

respectively. Instead

of

paying the amount, petitioner agreed with the respondent on a


negotiated amount of P900,000.00 for side trimmings.[17] However,
respondents claim for foundation excavation was not acted upon.
[18]

During the construction period, petitioner granted, on separate

occasions,

respondents

accommodations.

requests

for

payroll

and

material

[19]

On March 13, 1999, respondent submitted its final billing,


amounting to P4,442,430.90 representing its work accomplishment
and retention, less all deductions. On March 23, 1999, a punch list
was drawn as a result of the joint inspection undertaken by the
parties. Petitioner, on the other hand, refused to issue a certificate

as

Other reliefs equitable under the premises are


also prayed for.[22]
On May 16, 2000, the CIAC rendered a decision[23] in favor of
the respondent, disposing, as follows:
WHEREFORE, judgment is hereby rendered
and AWARD of monetary claims is hereby made as
follows:

of completion. It, instead, sent a letter to respondent informing the


latter that it was already in default.[20]

FOR THE CLAIMANT:

On September 14, 1999, respondent was constrained to file


a

Request

for

Adjudication

[21]

with

the

1.

CIAC. Respondent

Unpaid Billings

specifically prayed, thus:


WHEREFORE,
premises
considered,
the
Claimant-Contractor prays that this Honorable
Commission render judgment against RespondentOwner EMPIRE EAST LAND HOLDINGS, INC., ordering
said Respondents to pay the Claimant the amount of
PhP22,770,976.66 plus costs of suit, broken down as
follows
a.

Retention Money

Retention Money

P4,502,886
(P1,607,627.65)
(6,110,514.29)

2
.

Additional Work: Excavation for Foundations

1,805,225

3.

Overhead Expenses

1,397,642

4.

Labor Costs Escalation

PhP4,442,430.90 as unpaid
amount from the contract price;

308,226

Total due the Claimant

P8,013,981.81
that they were formally deleted from respondents scope of work,
which in turn caused the reduction of their total contract price.
[25]

FOR THE RESPONDENT:

Petitioners claim for liquidated damages was likewise found

unmeritorious because it allowed respondent to complete the


1.

works despite knowledge that the latter was already in default.


P248,350.00
[26]
On the other hand, as the punch list was drawn after the joint

Punch List Items

inspection by the parties, CIAC found for the petitioner and thus
awarded a total amount of P248,350.00[27]
P248,350.00

Total due the Respondent

Aggrieved, petitioner elevated the matter to the CA via a


All other
dismissed.

claims

and

counterclaims

are

OFFSETTING the lesser amount due from


Claimant with the bigger amount from the
Respondent, EMPIRE EAST LAND HOLDINGS, INC. is
hereby ordered to pay CAPITOL INDUSTRIAL
CONSTRUCTION GROUPS, INC. the net amount of
SEVEN MILLION SEVEN HUNDRED SIXTY-FIVE
THOUSAND SIX HUNDRED THIRTY-ONE AND 81/100
(P7,765,631.81) with 6% legal interest from the time
the request for adjudication was filed with the CIAC
on September 14, 1999 up to the time this Decision
becomes final and executory.
Thereafter, interest at the rate of 12% per
annum shall accrue on the final judgment until it is
fully paid.
The arbitration fees and expenses shall be
paid on a pro rata basis as initially shared by the
parties.
SO ORDERED.[24]
As to petitioners counterclaim, the CIAC denied those which
referred to masonry and other works that it took over, considering

petition for review under Rule 43 of the Rules of Court. On


November 3, 2004, the CA affirmed the CIACs findings of fact and
conclusions of law with a slight modification, and ruled:
WHEREFORE, the Decision, dated 16 May
2000, of the Construction Industry Arbitration
Commission Arbitral Tribunal is hereby AFFIRMED
WITH MODIFICATION in that CIACs award on Labor
Cost Escalation is hereby DELETED for lack of factual
basis and, consequently, for lack of cause of action
and CIACs award on Additional Work for Foundation
Excavation
is
hereby
equitably
REDUCED
to P980,376.34. All other awards, as well as the
rates of interest, are hereby AFFIRMED.
Accordingly, the total amount due to CICG
is P6,880,905.68. While
EELH
is
entitled P248,350.00. Offsetting the award of EELH
from the amount due to CICG, EELH is hereby
ORDERED to pay CICG the total amount of SIX
MILLION SIX HUNDRED THIRTY-TWO THOUSAND FIVE
HUNDRED FIFTY-FIVE PESOS (P6,632,555.00). No
costs at this instance.
SO ORDERED.[28]

In deleting respondents claim for labor cost escalation and

The petition is partly meritorious.

reducing its claim for the cost of the excavation of foundation, the

On the Release of Retention Money

appellate court said that respondent failed to show that it in fact


paid said wage increase pursuant to the New Wage Order, [29] while

Petitioner contends that both the CIAC and the CA erred in

the reduction of the cost of foundation excavation was the result of

ordering the release of the retention money despite respondents

the reduction of its cost per cubic meter.

[30]

Hence, the present petition, raising the following issues:

failure to comply with the conditions for its release as set forth in
the contract.
We find for the petitioner.
In the construction industry, the ten percent (10%) retention

I.
WHETHER OR NOT THE COURT OF APPEALS
COMMITTED REVERSIBLE ERROR WHEN IT ORDERED
THE RELEASE OF RETENTION MONEY IN FAVOR OF
CICG.
II.
WHETHER OR NOT THE COURT OF APPEALS
COMMITTED REVERSIBLE ERROR WHEN IT AWARDED
THE CLAIM OF CICG FOR THE EXCAVATION OF
FOUNDATION.
III
WHETHER OR NOT THE COURT OF APPEALS
COMMITTED REVERSIBLE ERROR WHEN IT AFFIRMED
CIACS AWARD FOR THE PAYMENT OF ALLEGED
OVERHEAD EXPENSES

money is a portion of the contract price automatically deducted


from the contractors billings, as security for the execution of
corrective work if any becomes necessary. [32]
The construction contract gave petitioner the right to retain
10% of each progress payment until completion and acceptance of
all

works.[33] Undoubtedly,

will

be

discussed

hereunder,

respondent complied fully with its obligations, save only those


items of work which were mutually deleted by the parties from its
scope

of

work. However,

apart

from

the

completion

and

acceptance of all works, the following requisites were set as preconditions for the release of the retention money:
a)

Contractors Sworn Statement showing


that all taxes due from the CONTRACTOR, and
all obligations on materials used and labor
employed in connection with this contract
have been duly paid

b)

Guarantee Bond to answer for faulty


and/or defective materials or workmanship as
stated in Article IX Section 9.3 of this
Contract;

IV.
WHETHER OR NOT THE COURT OF APPEALS
COMMITTED REVERSIBLE ERROR WHEN IT DENIED
EMPIRE EASTS CLAIM FOR MASONRY AND OTHER
WORKS, LIQUIDATED DAMAGES, AND COST OF
MONEY FOR PAYROLL ASSISTANCE AND MATERIALS
ACCOMMODATION.[31]

as

c)

Original and signed and sealed Three


(3) sets of prints of As Built drawings.[34]

guarantee bond may be deemed to have been complied with. But

The CA affirmed the CIACs decision to order the release of

unfulfilled conditions-precedent. Since no proof was adduced that

the retention money despite respondents failure to establish the

these two conditions were complied with, petitioners obligation to

fulfillment of the aforementioned conditions, as both tribunals

release the retention money had not, as yet, arisen. We would like

merely

of

to emphasize, though, that this is without prejudice to respondents

completion, which, according to respondent, was a pre-requisite to

compliance with the unfulfilled conditions, after which, release of

the issuance of a guarantee bond. The CA concluded that the

the retention money must, perforce, follow.

focused

on

the

non-issuance

of

the

certificate

we cannot apply the rule to conditions (a) and (c), which remain as

conditions were deemed fulfilled because the creditor voluntarily


prevented their fulfillment.

On Respondents Right to Additional Overhead Cost


Respondent claimed P13,976,427.00 as additional overhead

To this, we cannot agree.

expenses brought about by the delay in the completion of the

The record of the case is bereft of any evidence to show that

project due to petitioners own acts. The CIAC, however, awarded

conditions (a) and (c) were complied with. Petitioner categorically

only a nominal amount which is 10% of respondents claim

stated in all its pleadings that they were not. Surprisingly,

because of its failure to present supporting documents to prove

respondent did not squarely argue this point. It relied solely on

such additional expenses. The arbitral tribunal observed that

petitioners failure to issue the certificate of completion, which

respondent only presented its own computation without any other

prevented the acquisition of a guarantee bond and thus resulted in

document to substantiate its claim. The CA, in turn, affirmed the

the non-release of the retention money. While it is true that

CIAC findings, ratiocinating that petitioners failure to present

respondent was entitled to a certificate of completion as the

countervailing evidence was an implied admission on its part that

issuance

the computation made by respondent was correct.

thereof

was

just

ministerial

duty

of

petitioner

considering that the project had already been completed, the


certificate was not the only condition for said release. It was simply

We beg to differ.

a pre-requisite for the issuance of the guarantee bond. And there

It is undisputed that the only piece of evidence presented

was no showing that the absence of the certificate of completion

by respondent in support of its claim for additional overhead cost

was the only reason why no guarantee bond was issued.

was its own computation of the said expenses. It failed to adduce

If we were to apply the civil law rule of constructive


fulfillment the condition shall be deemed fulfilled if the creditor
voluntarily prevented its fulfillment then the submission of a

actual receipts, invoices, contracts and similar documents. To be


sure, respondents claim for overhead cost may be classified as a
claim for actual damages. Actual damages are those damages

which the injured party is entitled to recover for the wrong done

through Change Order Nos. 3[37] and 4[38] where it agreed to

and injuries received when none were intended. They indicate

pay P250,000.00 and P650,000.00, respectively. This P900,000.00

such losses as are actually sustained and are susceptible of

negotiated amount referred specifically to side trimmings and

measurement. As such, they must be proven with a reasonable

hauling out of adobe soil. It is unfortunate, though, that the parties

degree of certainty.

[35]

failed to arrive at a settlement as to respondents claim for the cost

This is not the first time that a contractors claim for

of excavation of foundation.

additional overhead costs was denied because of insufficiency or

The additional works having been undertaken by respondent,

absence of evidence to support the same. In Filipinas (Pre Fab

and the fact of non-payment thereof having been established, we

Bldg.) Systems, Inc. v. MRT Development Corporation, [36] we denied

find no reason to disturb the CIACs conclusion that respondent is

FSIs claim because only summaries, and not actual receipts,

entitled to its claim for the cost of excavation of foundation. As to

were presented during the hearing. Similarly, in the instant case,

the propriety of the award, both the CIAC and the CA were in a

respondent, by presenting only its own computation to substantiate

better position to compute the same considering that said issue is

its

factual

claim,

is

not

entitled

even

to

the

reduced

amount

in

nature. Significantly,

jurisprudence

teaches

that

of P1,397,642.70 which is 10% of its original claim. Instead, we

mathematical computations, as well as the propriety of arbitral

altogether deny its prayer for additional overhead costs.

awards, are factual determinations[39] which are better examined by

On Respondents Right to the Cost of Foundation


Excavation
As to respondents entitlement to the cost of excavation of
foundation, we find no cogent reason to disturb the CIACs
conclusion, as modified by the CA.
Side trimmings and the excavation of foundation were not
included in respondents original scope of work. They were,
however, undertaken by the respondent upon the directive of
petitioner, due to the previous contractors refusal to resume its
excavation work. These works, therefore, constitute an additional
claim of respondent over and above the original contract price. A
confirmation of these works had, in fact, been given by petitioner

the lower courts as trier of facts. Thus, we affirm the award


of P980,376.34 for foundation excavation.
On

Petitioners

Counterclaim

for

the

Cost

of

Unfinished Works
During the construction period, the parties mutually agreed
that some items of work be deleted from respondents scope of
work. Specifically, as claimed by respondent, the following were
deleted: a) masonry works and all related items from the 6 th floor
to the roof deck; b) all exterior masonry works from the 4 th floor to
the roof deck; and c) the garbage chute. This deletion was,
however, denied by petitioner. It, instead, claimed that the only
modification it approved was the reduction by three floors of the
total number of floors to be constructed by respondent.[40]

After a thorough review of the documents presented by

In addition to its claim for the cost of masonry and other

both parties, both the CIAC and the CA concluded that the

works, petitioner demanded the payment of liquidated damages on

unfinished works, i.e., masonry works, were actually recognized

the ground that respondent was in default in the performance of its

and accepted by petitioner. It thus agreed to take over, through its

obligation.

new contractor, the balance of work. The only consequence of


such acceptance was the deduction of the value of the unfinished
works from the total contract price.[41] This was the reason why the
contract

price

was

to P62,828,826.53. The

reduced

deletion

was,

from P84
likewise,

million

confirmed

by

respondent in a letter dated August 21, 1998.[42]


Applying Article 1235[43] of the Civil Code, petitioners act
exempted respondent from liability for the unfinished works. A
person entering into a contract has a right to insist on its
performance in all particulars, according to its meaning and
spirit. But if he chooses to waive any of the terms introduced for
his own benefit, he may do so.[44]When the obligee accepts the
performance, knowing its incompleteness or irregularity, and
without expressing any protest or objection, the obligation is
deemed fully complied with.

Liquidated damages are those that the parties agree to be


paid in case of a breach. As worded, the amount agreed upon
answers for damages suffered by the owner due to delays in the
completion of the project. Under Philip
pine laws, they are in the nature of penalties. They are
attached to the obligation in order to ensure performance. [45] As a
pre-condition to such award, however, there must be proof of the
fact of delay in the performance of the obligation.
Thus, the resolution of the issue of petitioners entitlement
to liquidated damages hinges on whether respondent was in
default in the performance of its obligation
The completion date of the construction project was initially
fixed on January 21, 1998. However, due to causes beyond the
control of respondent, the latter failed to perform its obligation as

In the instant case, petitioner was aware of the unfinished


work of respondent; yet, it did not raise any objection or protest. It,
instead, voluntarily hired another contractor to perform the
unfinished work, and opted to reduce the contract price. By
removing from the contract price the value of the works deleted, it
is as if said items were not included in the original terms, in the first
place. Thus, as correctly concluded by the CIAC, and as affirmed by
the CA, petitioner is not entitled to reimbursement from respondent
for the expenses it incurred to complete the unfinished works.
On Petitioners Counterclaim for Liquidated Damage

scheduled. The CIAC[46] and the CA enumerated the causes of the


delay, viz., the delayed issuance of building permit; [47] additional
work undertaken by respondent, i.e., bulk excavation and side
trimmings;[48] delayed payment of progress billings;[49] delayed
delivery of owner-supplied construction materials; [50] and limitation
of monthly accomplishment.[51] All these causes of respondents
failure to complete the project on time were attributable to
petitioners fault.

Still, petitioner contends that even at the start and for the
entire duration of the construction, respondent was guilty of delay

[petitioners] payroll accommodation and material


accommodations.[53]

due to insufficient manpower and lack of technical know-how.


[52]

Yet, petitioner allowed respondent to proceed with the project;

thus,

petitioner

cannot

now

be

permitted

to

raise

anew

respondents alleged delay. More importantly, respondent is not


guilty of breach of the obligation; hence, it cannot be held liable for
liquidated damages.
On

Petitioners

As can be gleaned from the appealed CA decision, the


appellate court had reviewed the case based on the petition and
annexes, and weighed them against the Comment of respondent
and the decision of the arbitral tribunal to arrive at the conclusion

Counterclaim

for

the

Cost

of

Payroll Assistance and Materials Accommodation


Finally, as to petitioners counterclaim for payroll assistance
and materials accommodation, we quote with approval the CAs
observation in this wise:
[W]ith respect to EELHs [petitioners] claim for
payroll and material assistance, a perusal of CIACs
questioned Decision reveals that these were already
taken into consideration and, were in fact, deducted
from CICGs [respondents] retention money itemized
as unpaid billings amounting to P1,607,627.65.

that the latter decision was based on substantial evidence. In


administrative or quasi-judicial bodies like the CIAC, a fact may be
established if supported by substantial evidence, or that amount of
relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion.[54]
It is well established that under Rule 45 of the Rules of
Court, only questions of law, not of fact, may be raised before the
Supreme Court. It must be stressed that this Court is not a trier of
facts and it is not its function to re-examine and weigh anew the
respective evidence of the parties. [55] To be sure, findings of fact of
lower courts are deemed conclusive and binding upon the Supreme

On page 9 of CIACs Decision, the arbitral


tribunal found that the total amount of payroll
accommodation advanced by EELH [petitioner] for
(sic) CICG [respondent] isP10,044,966.16, while the
material assistance advanced by EELH [petitioner]
is P2,837,645.26. These
amounts
were
added
together with other items and were deducted from
the reduced contract price. Hence, as can be
gleaned from page 13 of the CIACs Decision, EELHs
[petitioners]
overpayment
amounting
to P1,607,627.65
already
included
EELHs

Court, save only in clear exceptional cases.[56]

In view of the foregoing, after deducting from the final


contract price the retention money (that is yet to be released), the
payments as well as the payroll and material accommodations
made by the petitioner, there was an overpayment to respondent
in the total amount of P1,607,627.65. From said amount shall be
deducted P980,376.34

due

the

respondent

for

the

cost

of

foundation excavation. On the other hand, as held by the CIAC and

SO ORDERED.

affirmed by the CA, petitioner is entitled to its claim for punch list
ABS-CBN BROADCASTING
CORPORATION,

items amounting to P248,350.00.

Petitioner,

Considering that the conditions set forth in the contract


have not yet been complied with, the release of the retention
money shall be held in abeyance. Thus, respondent is liable to

G.R. No. 169332

Chairperson,

SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA and
LEONARDO-DE
CASTRO, JJ.

-versus-

petitioner for the payment of P875,601.31, which is the difference


between the overpayment and the cost of foundation excavation,
plus the cost of punch list items.

WHEREFORE,

premises

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

the

Present:
PUNO, C.J.,

Promulgated:

petition

is PARTIALLY GRANTED. The Decision of the Court of Appeals

February 11, 2008

dated November 3, 2004 and its Resolution datedMay 10, 2005 in

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

CA-G.R. SP No. 58980, are MODIFIED by deleting the award of


additional overhead cost amounting to P1,397,642.70.

DECISION
CORONA, J.:

The petitioner is directed to issue to respondent the


required certificate of completion in order to enable the latter to
obtain the corresponding guarantee bond. In view of the nonfulfillment of the conditions-precedent, the release of the retention
money is hereby held in abeyance. Thus, respondent is ordered to
pay the petitioner P875,601.31 subject to the return of the amount
when

respondent

aforesaid.

shall

have

complied

with

the

This petition for review on certiorari under Rule 45 of the


Rules of Court seeks to set aside the February 16, 2005
decision[1] and August 16, 2005 resolution[2] of the Court of Appeals
(CA) in CA-G.R. SP No. 81940.

conditions
On September 27, 1999, petitioner ABS-CBN Broadcasting
Corporation entered into a licensing agreement with respondent

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

terms thereof to allow it to demand higher fees. Respondent also

corporation

the

prayed for damages for petitioner's alleged grant of an exclusive

agreement, respondent was granted the exclusive license to

distribution license to another entity, NHK (Japan Broadcasting

distribute and sublicense the distribution of the television service

Corporation).[5]

licensed

under

the

laws

of

Japan. Under

known as The Filipino Channel (TFC) in Japan. By virtue thereof,


petitioner undertook to transmit the TFC programming signals to
respondent which the latter received through its decoders and
distributed to its subscribers.

The parties appointed Professor Alfredo F. Tadiar to act as


sole arbitrator. They stipulated on the following issues in their
terms of reference (TOR)[6]:
1.

Was the broadcast of WINS WEEKLY by the


claimant duly authorized by the respondent
[herein petitioner]?

2.

Did such broadcast constitute a material


breach of the agreement that is a ground for
termination of the agreement in accordance
with Section 13 (a) thereof?

3.

If so, was the breach seasonably cured under


the same contractual provision of Section 13
(a)?

4.

Which party is entitled to the payment of


damages they claim and to the other reliefs
prayed for?

A dispute arose between the parties when petitioner accused


respondent of inserting nine episodes of WINS WEEKLY, a weekly
35-minute community news program for Filipinos in Japan, into the
TFC programming from March to May 2002. [3] Petitioner claimed
that these were unauthorized insertions constituting a material
breach of their agreement. Consequently, on May 9, 2002,
[4]

petitioner notified respondent of its intention to terminate the

agreement effective June 10, 2002.

xxx

xxx

xxx

Thereafter, respondent filed an arbitration suit pursuant to


the arbitration clause of its agreement with petitioner. It contended

The arbitrator found in favor of respondent. [7] He held that

that the airing of WINS WEEKLY was made with petitioner's prior

petitioner gave its approval to respondent for the airing of WINS

approval. It also alleged that petitioner only threatened to

WEEKLY as shown by a series of written exchanges between the

terminate their agreement because it wanted to renegotiate the

parties. He also ruled that, had there really been a material breach

of the agreement, petitioner should have terminated the same

proceeding

instead of sending a mere notice to terminate said agreement. The

confirmation of arbitral award. After the petition was admitted by

arbitrator found that petitioner threatened to terminate the

the appellate court, the RTC of Quezon City issued an order holding

agreement due to its desire to compel respondent to re-negotiate

in abeyance any further action on respondent's petition as the

the terms thereof for higher fees. He further stated that even if

assailed decision of the arbitrator had already become the subject

respondent committed a breach of the agreement, the same was

of

seasonably

reconsideration but no resolution has been issued by the lower

cured.

He

then

allowed

respondent

to

recover

temperate damages, attorney's fees and one-half of the amount it


paid as arbitrator's fee.

an

with

appeal

in

the

the

hearing

CA.

of

respondent's

Respondent

filed

petition

motion

for

for

court to date.[8]
On February 16, 2005, the CA rendered the assailed decision

Petitioner filed in the CA a petition for review under Rule 43

dismissing ABS-CBNs petition for lack of jurisdiction. It stated that

of the Rules of Court or, in the alternative, a petition for certiorari

as the TOR itself provided that the arbitrator's decision shall be

under Rule 65 of the same Rules, with application for temporary

final and unappealable and that no motion for reconsideration shall

restraining order and writ of preliminary injunction. It was docketed

be filed, then the petition for review must fail. It ruled that it is the

as CA-G.R. SP No. 81940. It alleged serious errors of fact and law

RTC which has jurisdiction over questions relating to arbitration. It

and/or grave abuse of discretion amounting to lack or excess of

held that the only instance it can exercise jurisdiction over an

jurisdiction on the part of the arbitrator.

arbitral award is an appeal from the trial court's decision


confirming, vacating or modifying the arbitral award. It further

Respondent,

on

the

other

hand,

filed

petition

for
stated that a petition for certiorari under Rule 65 of the Rules of

confirmation of arbitral award before the Regional Trial Court (RTC)


Court is proper in arbitration cases only if the courts refuse or
of Quezon City, Branch 93, docketed as Civil Case No. Q-04-51822.
neglect to inquire into the facts of an arbitrator's award. The
Consequently, petitioner filed a supplemental petition in the
CA seeking to enjoin the RTC of Quezon City from further

dispositive portion of the CA decision read:

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

The issue before us is whether or not an aggrieved party in a


voluntary arbitration dispute may avail of, directly in the CA, a
petition for review under Rule 43 or a petition for certiorari under
Rule 65 of the Rules of Court, instead of filing a petition to vacate
the award in the RTC when the grounds invoked to overturn the
arbitrators decision are other than those for a petition to vacate an

Petitioner moved for reconsideration. The same was denied.

arbitral award enumerated under RA 876.

Hence, this petition.


RA 876 itself mandates that it is the Court of First Instance,
Petitioner contends that the CA, in effect, ruled that: (a) it
should have first filed a petition to vacate the award in the RTC and

now the RTC, which has jurisdiction over questions relating to


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

only in case of denial could it elevate the matter to the CA via a


petition for review under Rule 43 and (b) the assailed decision
implied that an aggrieved party to an arbitral award does not have
the option of directly filing a petition for review under Rule 43 or a
petition for certiorari under Rule 65 with the CA even if the issues
raised pertain to errors of fact and law or grave abuse of discretion,
as the case may be, and not dependent upon such grounds as
enumerated under Section 24 (petition to vacate an arbitral award)
of RA 876 (the Arbitration Law). Petitioner alleged serious error on
the part of the CA.

Section 24 of RA 876 provides for the specific grounds for a


petition to vacate an award made by an arbitrator:
Sec. 24. Grounds for vacating award. - In any
one of the following cases, the court must
make an order vacating the award upon the
petition of any party to the controversy when such
party proves affirmatively that in the arbitration
proceedings:
(a) The award was procured by corruption,
fraud, or other undue means; or
(b) That there was evident partiality or
corruption in the arbitrators or any of them; or
(c) That the arbitrators were guilty of
misconduct in refusing to postpone the hearing upon
sufficient cause shown, or in refusing to hear
evidence pertinent and material to the controversy;
that one or more of the arbitrators was disqualified to

act as such under section nine hereof, and willfully


refrained from disclosing such disqualifications or of
any other misbehavior by which the rights of any
party have been materially prejudiced; or
(d) That the arbitrators exceeded their
powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject
matter submitted to them was not made.

In that case, the trial court vacated the arbitral award seemingly
based on grounds included in Section 24 of RA 876 but a closer
reading thereof revealed otherwise. On appeal, the CA reversed the
decision of the trial court and affirmed the arbitral award. In
affirming the CA, we held:

Based on the foregoing provisions, the law itself clearly


provides that the RTC must issue an order vacating an arbitral
award only in any one of the . . . cases enumerated therein.
Under the legal maxim in statutory construction expressio unius est
exclusio alterius, the explicit mention of one thing in a statute
means the elimination of others not specifically mentioned. As RA
876 did not expressly provide for errors of fact and/or law and
grave abuse of discretion (proper grounds for a petition for review
under Rule 43 and a petition for certiorari under Rule 65,
respectively) as grounds for maintaining a petition to vacate an
arbitral award in the RTC, it necessarily follows that a party may not
avail of the latter remedy on the grounds of errors of fact and/or
law or grave abuse of discretion to overturn an arbitral award.
Adamson v. Court of Appeals[10] gave ample warning that a
petition to vacate filed in the RTC which is not based on the
grounds enumerated in Section 24 of RA 876 should be dismissed.

The Court of Appeals, in reversing the trial


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

xxx

xxx

It is clear, therefore, that the award was


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

xxx

xxx

It is clear then that the Court of Appeals


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

In cases not falling under any of the aforementioned grounds

As such, decisions handed down by voluntary arbitrators fall

to vacate an award, the Court has already made several

within the exclusive appellate jurisdiction of the CA. This decision

pronouncements that a petition for review under Rule 43 or a

was taken into consideration in approving Section 1 of Rule 43 of

petition for certiorari under Rule 65 may be availed of in the CA.

the Rules of Court.[12] Thus:


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

Which one would depend on the grounds relied upon by petitioner.


In Luzon

Development

Bank

v.

Association

of

Luzon

Development Bank Employees,[11] the Court held that a voluntary


arbitrator is properly classified as a quasi-judicial instrumentality
and is, thus, within the ambit of Section 9 (3) of the Judiciary
Reorganization Act, as amended. Under this section, the Court of
Appeals shall exercise:
xxx

xxx

xxx

(3) Exclusive appellate jurisdiction over all


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

This rule was cited in Sevilla Trading Company v. Semana,


[13]

Manila

Midtown

Hotel

v.

Borromeo,[14] and Nippon

Paint

Employees Union-Olalia v. Court of Appeals. [15] These cases held


that the proper remedy from the adverse decision of a voluntary
arbitrator, if errors of fact and/or law are raised, is a petition for
review under Rule 43 of the Rules of Court. Thus, petitioner's

contention that it may avail of a petition for review under Rule 43

or any part of the arbitrator's award may be availed of cannot be

under the circumstances of this case is correct.

held to preclude in proper cases the power of judicial review which

As to petitioner's arguments that a petition for certiorari


under Rule 65 may also be resorted to, we hold the same to be in
accordance with the Constitution and jurisprudence.

is inherent in courts.[16] We will not hesitate to review a voluntary


arbitrator's award where there is a showing of grave abuse of
authority or discretion and such is properly raised in a petition for
certiorari[17] and there is no appeal, nor any plain, speedy remedy in

Section 1 of Article VIII of the 1987 Constitution provides

the course of law.[18]

that:
SECTION 1. The judicial power shall be vested
in one Supreme Court and in such lower courts as
may be established by law.
Judicial power includes the duty of the
courts of justice to settle actual controversies
involving rights which are legally demandable and
enforceable, and to determine whether or not
there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on
the part of any branch or instrumentality of the
Government. (Emphasis supplied)

Significantly, Insular Savings Bank v. Far East Bank and


Trust Company[19] definitively outlined several judicial remedies an
aggrieved party to an arbitral award may undertake:
(1)
(2)

(3)
As may be gleaned from the above stated provision, it is well
within the power and jurisdiction of the Court to inquire whether

a petition in the proper RTC to issue an


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

any instrumentality of the Government, such as a voluntary


arbitrator, has gravely abused its discretion in the exercise of its
functions and prerogatives. Any agreement stipulating that the
decision of the arbitrator shall be final and unappealable and that
no further judicial recourse if either party disagrees with the whole

Nevertheless, although petitioners position on the judicial


remedies available to it was correct, we sustain the dismissal of its
petition by the CA. The remedy petitioner availed of, entitled

alternative petition for review under Rule 43 or petition for


certiorari under Rule 65, was wrong.
Time and again, we have ruled that the remedies of appeal
and certiorari are mutually exclusive and not alternative or
successive.[20]
Proper issues that may be raised in a petition for review
under Rule 43 pertain to errors of fact, law or mixed questions of
fact and law.[21] While a petition for certiorari under Rule 65 should
only limit itself to errors of jurisdiction, that is, grave abuse of
discretion amounting to a lack or excess of jurisdiction. [22] Moreover,

C. THE SOLE ARBITRATOR COMMITTED


SERIOUS ERROR AND/OR GRAVELY ABUSED HIS
DISCRETION IN RULING THAT WINS SEASONABLY
CURED THE BREACH.
D. THE SOLE ARBITRATOR COMMITTED
SERIOUS ERROR AND/OR GRAVELY ABUSED HIS
DISCRETION IN RULING THAT TEMPERATE DAMAGES
IN THE AMOUNT OF P1,166,955.00 MAY BE AWARDED
TO WINS.
E. THE SOLE ARBITRATOR COMMITTED
SERIOUS ERROR AND/OR GRAVELY ABUSED HIS
DISCRETION IN AWARDING ATTORNEY'S FEES IN THE
UNREASONABLE AMOUNT AND UNCONSCIONABLE
AMOUNT OF P850,000.00.
F. THE ERROR COMMITTED BY THE SOLE
ARBITRATOR IS NOT A SIMPLE ERROR OF JUDGMENT
OR ABUSE OF DISCRETION. IT IS GRAVE ABUSE OF
DISCRETION TANTAMOUNT TO LACK OR EXCESS OF
JURISDICTION.

it cannot be availed of where appeal is the proper remedy or as a


substitute for a lapsed appeal.[23]

A careful reading of the assigned errors reveals that the real


issues calling for the CA's resolution were less the alleged grave

In the case at bar, the questions raised by petitioner in


its alternative petition before the CA were the following:
A. THE SOLE ARBITRATOR COMMITTED
SERIOUS ERROR AND/OR GRAVELY ABUSED HIS
DISCRETION IN RULING THAT THE BROADCAST OF
WINS WEEKLY WAS DULY AUTHORIZED BY ABSCBN.
B. THE SOLE ARBITRATOR COMMITTED
SERIOUS ERROR AND/OR GRAVELY ABUSED HIS
DISCRETION IN RULING THAT THE UNAUTHORIZED
BROADCAST DID NOT CONSTITUTE MATERIAL
BREACH OF THE AGREEMENT.

abuse of discretion exercised by the arbitrator and more about the


arbitrators appreciation of the issues and evidence presented by
the parties. Therefore, the issues clearly fall under the classification
of errors of fact and law questions which may be passed upon by
the CA via a petition for review under Rule 43. Petitioner cleverly
crafted its assignment of errors in such a way as to straddle both
judicial remedies, that is, by alleging serious errors of fact and law
(in which case a petition for review under Rule 43 would be proper)

- versus and grave abuse of discretion (because of which a petition for


certiorari under Rule 65 would be permissible).

UPSI PROPERTY HOLDINGS, INC.,


Respondent.

It must be emphasized that every lawyer should be familiar


with the distinctions between the two remedies for it is not the duty
of

the

courts

to

determine

under

which

rule

the

petition should fall.[24] Petitioner's ploy was fatal to its

x------------------------------------------------x
UPSI PROPERTY HOLDINGS, INC., G.R. No. 154937
Petitioner,
Present:
QUISUMBING, J.,
Chairperson,

cause. An appeal taken either to this Court or the CA by the


wrong

or

inappropriate

mode

shall

be

- versus -

CARPIO MORALES,
TINGA,
VELASCO, JR., and
CHICO-NAZARIO,* JJ.

dismissed. [25] Thus,

the alternative petition filed in the CA, being an inappropriate


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

DIESEL CONSTRUCTION CO., INC. Promulgated:


and FGU INSURANCE CORP.,
Respondents.
March 24, 2008
x-----------------------------------------------------------------------------------------x

WHEREFORE, the petition is hereby DENIED. The February


16, 2005 decision and August 16, 2005 resolution of the Court of

DECISION
VELASCO, JR., J.:

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

The Case

of Quezon City, Branch 93 to proceed with the trial of the petition


Before the Court are these petitions for review under Rule

for confirmation of arbitral award is AFFIRMED.

45 separately interposed by Diesel Construction Co., Inc. (Diesel)


and

Costs against petitioner.

UPSI

Decision

[1]

Property
dated

Holdings,

April

16,

Inc.

2002

(UPSI)
as

to

partly

set

aside

modified

in

the
a

Resolution[2] of August 21, 2002, both rendered by the Court of

SO ORDERED.

Appeals (CA) in CA-G.R. SP No. 68340, entitled UPSI Property


DIESEL CONSTRUCTION CO.,
INC.,
Petitioner,

G.R. No. 154885

Holdings, Inc. v. Diesel Construction Co., Inc., and FGU Insurance


Corporation. The CA

Decision

dated December

2001 of

14,

modified
the

Arbitral

the
Tribunal

Decision
of

the

Construction Industry Arbitration Commission (CIAC) in CIAC Case

until November 8, 1999. The parties later agreed to move the

No. 18-2001, while the CA Resolution granted in part the motion of

commencement

Diesel for reconsideration and denied a similar motion of UPSI.

necessitating the corresponding movement of the completion date

The Facts
The facts, as found in the CA Decision under review, are as
follows:

date

to August

21,

1999,

development

to November 20, 1999.


Of particular relevance to this case is the section obliging the
contractor, in case of unjustifiable delay, to pay the owner
liquidated damages in the amount equivalent to one-fifth (1/5) of

On August 26, 1995, Diesel, as Contractor, and UPSI, as


Owner, entered into a Construction Agreement [3] (Agreement) for

one (1) percent of the total Project cost for each calendar day of
delay.[7]

the interior architectural construction works for the 14th to 16th


floors of the UPSI Building 3 Meditel/Condotel Project (Project)

In the course of the Project implementation, change orders

located on Gen. Luna St., Ermita, Manila. Under the Agreement, as

were effected and extensions sought. At one time or another,

amended, Diesel, for PhP 12,739,099, agreed to undertake the

Diesel requested for extension owing to the following causes or

Project, payable by progress billing.

[4]

As stipulated, Diesel posted,

delaying factors: (1) manual hauling of materials from the 14th to

through FGU Insurance Corp. (FGU), a performance bond in favor of

16th floors; (2) delayed supply of marble; (3) various change

UPSI.

[5]

orders; and (4) delay in the installation of shower assembly.[8]

Inter alia, the Agreement contained provisions on contract

UPSI, it would appear, disapproved the desired extensions

works and Project completion, extensions of contract period,

on the basis of the foregoing causes, thus putting Diesel in a state

change/extra works orders, delays, and damages for negative

of default for a given contract work. And for every default

slippage.

situation, UPSI assessed Diesel for liquidated damages in the form


of deductions from Diesels progress payments, as stipulated in the

Tasked to oversee Diesels work progress were: Grace S.

Agreement.[9]

Reyes Designs, Inc. for interior design and architecture, D.L. Varias
and Associates as Construction Manager, and Ryder Hunt Loacor,
Inc. as Quantity Surveyor.

[6]

Apparently irked by and excepting from the actions taken by


UPSI, Diesel, thru its Project manager, sent, on March 16, 2000, a
letter notice to UPSI stating that the Project has been completed as

Under the Agreement, the Project prosecution proper was to

of that date. UPSI, however, disregarded the notice, and refused to

start on August 2, 1999, to run for a period of 90 days or

accept delivery of the contracted premises, claiming that Diesel

had abandoned the Project unfinished. Apart therefrom, UPSI


withheld Diesels 10% retention money and refused to pay the
unpaid balance of the contract price.[10]
It is upon the foregoing factual backdrop that Diesel filed a
complaint before the CIAC, praying that UPSI be compelled to pay
the unpaid balance of the contract price, plus damages and
attorneys fees. In an answer with counterclaim, UPSI denied
liability, accused Diesel of abandoning a project yet to be finished,
and prayed for repayment of expenses it allegedly incurred for
completing the Project and for a declaration that the deductions it
made for liquidated damages were proper. UPSI also sought
payment of attorneys fees.[11]
After due hearing following a protracted legal sparring, the
Arbitral Tribunal of the CIAC, on December 14, 2001, in CIAC Case
No. 18-2001, rendered judgment for Diesel, albeit for an amount
lesser than its original demand. To be precise, the CIAC ordered
UPSI to pay Diesel the total amount of PhP 4,027,861.60, broken
down as follows: PhP 3,661,692.60, representing the unpaid
balance of the contract price; and PhP 366,169 as attorneys
fees. In

the

counterclaim

[12]

same

decision,

the

CIAC

dismissed

UPSIs

and assessed it for arbitration costs in the amount

of PhP 298,406.03.[13]
In time, UPSI went to the CA on a petition for review,
docketed as CA-G.R. SP No. 68340. Eventually, the appellate court
rendered its assailed Decision dated April 16, 2002, modifying that
of the CIAC, thus:

WHEREFORE,
premises
considered,
the
petition is GRANTED and the questioned Decision is
MODIFIED in this wise:
a.
The claim of [UPSI] for liquidated
damages is GRANTED to the extent of PESOS: ONE
MILLION THREE HUNDRED NINE THOUSAND AND FIVE
HUNDRED (P1,309,500.00) representing forty-five
(45) days of delay at P29,100 per diem;
b.
We hold that [Diesel] substantially
complied with the Construction Contract and is
therefore entitled to one hundred percent (100%)
payment of the contract price. Therefore, the claim
of [Diesel] for an unpaid balance of PESOS: TWO
MILLION FOUR HUNDRED FORTY-ONE THOUSAND
FOUR HUNDRED EIGHTY TWO and SIXTY FOUR
centavos (P2,441,482.64), which amount already
includes the retention on the additional works or
Change Orders, is GRANTED, minus liquidated
damages. In sum, [UPSI] is held liable to [Diesel] in
the amount of PESOS: ONE MILLION ONE HUNDRED
THIRTY ONE THOUSAND NINE HUNDRED EIGHTY TWO
and sixty four centavos (P1,131,982.64), with legal
interest until the same is fully paid;
c.
The parties are liable equally for the
payment of arbitration costs;
d.
All claims for attorneys fees are
DISMISSED; and
e.
Since there is still due and owing from
UPSI an amount of money in favor of Diesel,
respondent FGU is DISCHARGED as surety for Diesel.
Costs de officio.
SO ORDERED.[14]
Therefrom, Diesel and UPSI each sought reconsideration.
On August 21, 2002, the CA issued its equally assailed Resolution
denying reconsideration to UPSI, but partially granting Diesels
motion, disposing as follows:
WHEREFORE, the Motion for Reconsideration
of [Diesel] is partially GRANTED. The liquidated
damages are hereby reduced to P1,146,519.00 (45
days multiplied by P25,478.20 per diem). However,

in accordance with the main opinion, We hold that


[UPSI] is liable to [Diesel] for the total amount of
P3,661,692.64, representing the unpaid balance of
the contract price plus the ten-percent retention,
from which the liquidated damages, must, of course,
be deducted. Thus, in sum, as amended, We hold
that petitioner is still liable to respondent Diesel in
the amount of P2,515,173.64, with legal interest until
the same is fully paid.
The main opinion, in all other respects,
STANDS.
SO ORDERED.[15]

Hence, these separate petitions are before us.


Per its Resolution of March 17, 2003, the Court ordered the
consolidation of the petitions.
The Issues
In its petition in G.R. No. 154885, Diesel raises the following
issues:
1.

2.

Whether or not the [CA] has the


discretion, indeed the jurisdiction, to pass
upon the qualifications of the individual
members of the CIAC Arbitral Tribunal and
declare them to be non-technocrats and not
exceptionally well-versed in the construction
industry warranting reversal and nullification
of the tribunals findings.
Whether or not the [CA] may intervene
to annul the findings of a highly specialized
agency, like the CIAC, on the ground that
essentially the question to be resolved goes
to the very heart of the substantiality of
evidence, when in so doing, [CA] merely
substituted its own conjectural opinion to that

of the CIAC Arbitral Tribunals well-supported


findings and award.
3.

Whether or not the [CA] erred in its


findings, which are contrary to the findings of
the CIAC Arbitral Tribunal.[16]

On the other hand, in G.R. No. 154937, UPSI presents the


following issues:

Whether or not portion of the Decision dated April


16, 2002 of the Honorable [CA] denying additional
expenses to complete the unfinished and abandoned
work of [Diesel], is null and void for being contrary to
clean and convincing evidence on record.
II
Whether or not portion of the Decision x x x of the
[CA] finding delay of only forty five (45) days is null
and void for being not in accord with contractual
stipulations upon which the controversy arise.
III
Whether or not the resolution of the Honorable Court
of Appeals denying the herein petitioners motion for
reconsideration
and
partially
granting
the
respondents motion for reconsideration is likewise
null and void as it does not serve its purpose for
being more on expounding than rectifying errors.[17]
The issues shall be discussed in seriatim.
The Courts Ruling
We resolve to modify the assailed CA Decision.
First Issue

Diesel maintains that the CA erred in its declaration that it


may review the CIACs decision considering the doctrine on the
binding effect of conclusions of fact of highly specialized agencies,
such as the CIAC, when supported by substantial evidence.
The

above

contention

is erroneous

and,

as couched,

misleading.
As is noted, the CA, in its assailed resolution, dismissed as
untenable Diesels position that the factual findings of the CIAC are
binding on and concludes the appellate court. The CA went to

This dictum finds greater application in the


case of the CIAC because x x x as pointed out by
petitioner in its Comment, the doctrine of primary
jurisdiction relied upon by [Diesel] is diluted by the
indubitable fact that the CIAC panel x x x is not at all
composed of technocrats, or persons exceptionally
well-versed in the construction industry. For instance,
its chair x x x is a statistician; another member, x x x
a former magistrate, is a member of the Bar.
Doubtless, these two are preeminent in their fields,
and their competence and proficiency in their chosen
professions are unimpeachable. However, when it
comes to determining findings of fact with respect to
the matter before Us, the said panel which they
partly comprise cannot claim to have any special
advantage over the members of this Court.[19]

clarify, however, that the general rule is that factual conclusions of


highly specialized bodies are given great weight and even finality
when supported by substantial evidence. Given this perspective,
the CA was correct in holding that it may validly review and even
overturn such conclusion of facts when the matter of its being
adequately supported by substantial evidence duly adduced on

The question of whether or not the findings of fact of the


CIAC are supported by substantial evidence has no causal
connection to the personal qualifications of the members of the
arbitration

panel. Surely,

persons

undergraduate

or

postgraduate degrees, as the case may be, can hardly be invoked


as the sole, fool proof basis to determine that persons qualification

record comes to the fore and is raised as an issue.

to hold a certain position. Ones work experiences and attendance


Well-established jurisprudence has it that [t]he consequent
policy and practice underlying our Administrative Law is that courts
of justice should respect the findings of fact of said administrative

in relevant seminars and trainings would perhaps be the more


important factors in gauging a persons fitness to a certain
undertaking.

agencies, unless there is absolutely no evidence in support thereof


or

such

evidence

is

clearly,

manifestly

and

patently

insubstantial.[18]
There can be no serious dispute about the correctness of the
CAs above posture. However, what the appellate court stated later
to belabor its point strikes the Court as specious and uncalled for.
Wrote the CA:

Correlatively,

Diesel,

obviously

having

in

mind

the

disputable presumption of regularity, correctly argues that highly


specialized agencies are presumed to have the necessary technical
expertise in their line of authority. In other words, the members of
the Arbitral Tribunal of the CIAC have in their favor the presumption
of possessing the necessary qualifications and competence exacted
by law. A party in whose favor the legal presumption exists may

rely on and invoke such legal presumption to establish a fact in

As it were, the CA reduced the award for unpaid balance of

issue. One need not introduce evidence to prove that the fact for a

the contract cost from PhP 3,661,692.60, as earlier fixed by the

presumption is prima facie proof of the fact presumed.

[20]

CIAC, to PhP 2,441,482.64, although it would consider the reduction

To set the records straight, however, the CA did not cast

and revert to the original CIAC figure. Unlike the CIAC which found

aspersion on the competence let alone the bona fides of the

the award of liquidated damages to be without basis, the CA was of

members of the Arbitral Tribunal to arbitrate. In context, what the

a different disposition and awarded UPSI PhP 1,309,500, only to

appellate court saidin reaction to Diesels negative commentary

reduce the same to PhP 1,146,519 in its assailed resolution. Also,

about the CAs expertise on construction mattersis that the said

the CA struck out the CIAC award of PhP 366,169 to Diesel for

members do not really enjoy a special advantage over the

attorneys fees. Additionally, the CIACs ruling making UPSI alone

members of the CA in terms of fleshing out the facts from the

liable for the costs of arbitration was modified by the CA, which

evidence on record.

directed UPSI and Diesel to equally share the burden.

In any event, the fact remains that the CA stands justified in


reviewing the CIAC decision.

The CIAC found Diesel not to have incurred delay, thus


negating UPSIs entitlement to liquidated damages. The CA, on the
other hand, found Diesel to have been in delay for 45 days.

Second and Third Issues


In determining whether or not Diesel was in delay, the CIAC
The next two issues, being interrelated, shall be discussed
jointly.

and CA first turned on the question of Diesels claimed entitlement


to have the Project period extended, an excusable delay being
chargeable against the threshold 90-day completion period. Both

Diesel submits that the CA, in reaching its decision,

were one in saying that occurrence of certain events gave Diesel

substituted its own conjectural opinion to that of the CIACs well-

the right to an extension, but differed on the matter of length of the

grounded findings and award.

extension, and on the nature of the delay, that is, whether the
delay is excusable or not. The CA deemed the delay, and the

Even as Diesels submission has little to commend itself, we

resulting extension of 14 days, arising from the manual hauling of

deem it prudent to address its concern by reviewing the

materials, as undeserved. But the CIAC saw it otherwise for the

incongruent determinations of the CIAC and CA and the factual

reason that Frederick W. Crespillo, the witness UPSI presented to

premises holding such determinations together.

refute the allegation of Diesels entitlement to time extension for


the manual hauling of materials, was incompetent to testify on the

issue. As CIAC observed, Crespillo lacked personal knowledge of

time is of the essence of this agreement, all other


delays shall not be excusable.[21]

the real situation at the worksite.


As may be noted, a common thread runs among the events
The CIACs reasoning, however, is flawed, assuming that the
onus rested on UPSI, instead of on Diesel, to prove that the delay in
the execution of the Project was excusable. Diesel explained that
there was no place for its own hoisting machine at the Project site
as the assigned location was being used by the General Contractor,
while the alternative location was not feasible due to power
constraint. Moreover, Diesel could not use the site elevator of the
General Contractor as its personnel were only permitted to use the
same for one hour every day at PhP 600 per hour.

The provisions in the Agreement on excusable delays read:


2.3
Excusable delays: The Contractor shall
inform the owner in a timely manner, of any delay
caused by the following:
2.3.a Acts of God, such as storm, floods or
earthquakes.
2.3.b Civil disturbance, such as riots,
revolutions, insurrection.
2.3.c Any
government
acts,
decrees,
general
orders
or
regulations
limiting
the
performance of the work.
2.3.d Wars (declared or not).
2.3.e Any delays initiated by the Owner or
his personnel which are clearly outside the control of
the Contractor.
2.3.1 Delays caused by the foregoing shall
be excusable. A new schedule or adjustments in
contract time shall be negotiated with the Owner. As

listed above, that is, the delaying event is unforeseeable and/or its
occurrence is beyond the control of Diesel as contractor. Here, the
lack of a location to establish Diesels own hoisting machine can
hardly be tagged as a foreseeable event. As the CA aptly observed:
[U]nder the terms of the contract, it is Diesel
that would formulate the schedule to be followed in
the completion of the works; therefore, it was
encumbent upon Diesel to take into account all
factors that would come into play in the course of the
project. From the records it appears that the General
Contractor x x x had been in the premises ahead of
Diesel; hence it would have been a simple matter for
Diesel to have conferred with the formers officer if
the use of its equipment would be viable. Likewise, it
would not have been too much trouble for Diesel to
have made a prior request from UPSI for the use of
its freight elevator in the face of the denial thereof,
it could have made the necessary remedial measures
x x x. In other words, those delays were foreseeable
on the part of Diesel, with the application of even
ordinary diligence. But Diesel did all of those when
construction was about to commence. Therefore, We
hold that the delays occasioned by Diesels inability
to install its hoisting machine x x x [were]
attributable solely to Diesel, and thus the resultant
delay cannot be charged against the ninety-day
period for the termination of the construction. [22]
There can be no quibbling that the delay caused by the
manual hauling of materials is not excusable and, hence, cannot
validly be set up as ground for an extension. Thus, the CA excluded
the delay caused thereby and only allowed Diesel a total extension
period of 85 days. Such extension, according to that court,

effectively translated to a delay of 45 days in the completion of the


project. The CA, in its assailed decision, explained why:
7. All told, We find, and so hold, that [Diesel]
has incurred in delay. x x x However, under the
circumstances wherein UPSI was responsible for
some of the delay, it would be most unfair to charge
Diesel with two hundred and forty (240) days of
delay, so much so that it would still owe UPSI, even
after liquidated damages have eaten up the retention
and unpaid balance, the amount of [P4,340,000.00].
Thus, based on Our own calculations, We deem it
more in accord with the spirit of the contract, as
amended, x x x to assess Diesel with an unjustifiable
delay of forty-five (45) days only; hence, at the rate
of 1/5 of one percent as stated in the contract, [or at
P1,309,500.00], which should be deducted from the
total unpaid balance of [P2,441,482.64], which
amount already includes the retention on the
additional works or Change Orders.[23]

24 February 2000 x x x; and twenty-five (25) days on


16 March 2000 by Rider Hunt and Liacom x x x. The
rest of the days claimed by Diesel were, of course,
found by Us to be unjustified in the main opinion.
Hence, the project should have been finished
by February 12, 2000. However, by 22 March 2000,
as certified to by Grace S. Reyes Designs, Inc. the
project was only 97.56% finished, meaning while it
was substantially finished, it was not wholly finished.
By 25 March 2000, the same consultant conditionally
accepted some floors but were still punch listed, so
that from 12 February 2000 to 25 March 2000 was a
period of forty-one (41) days. Allowing four (4) more
days for the punch listed items to be accomplished,
and for the general cleaning mentioned by Grace
S. Reyes Designs, Inc., to be done, which to Us is a
reasonable length of time, equals forty-five (45)
days.
This is why We find the [conclusion] made by
the CIAC, x x x that there was no delay whatsoever in
the work done by [Diesel], too patently absurd for Us
to offer Our unconditional assent.[24]

The CA, in its questioned resolution, expounded on how it


arrived at the figure of 45-day delay in this wise:
7. x x x We likewise cannot give Our assent to
the asseveration of [Diesel] that Our calculations as
to the number of days of delay have no basis. For
indeed, the same was arrived at after taking a
holistic view of the entire circumstances attendant to
the instant case. x x x
But prescinding from the above, the basis for
Our ruling should not be hard to discern. To disabuse
the mind of [Diesel] that the forty-five day delay was
plucked from out of the blue, allow Us to let the
records speak. The records will show that while the
original target date for the completion x x x was 19
November 1999 x x x, there is a total of eighty-five
(85) days of extension which are justifiable and
sanctioned by [UPSI], to wit: thirty (30) days as
authorized on 27 January 2000 by UPSIs
Construction Manager x x x; thirty (30) days as again
consented to by the same Construction Manager on

Aside from the fact that the CA seemingly assumed


contradictory positions in the span of two paragraphs, its holding
immediately adverted to above is patently erroneous. The CA
completely failed to factor in the change orders of UPSI to Diesel
the directives effectively extending the Project completion time at
the behest of UPSI.
Section

of

the

Agreement

on

the

subject Change

Orders reads:

WORK
WORK

V. CHANGES IN SCOPE OF WORK AND EXTRA


Any changes or extra work in the SCOPE OF
recommended
by
the
INTERIOR

DESIGNER/ARCHITECT or directed and approved by


the OWNER shall be presented to the CONTRACTOR.
Within the shortest time possible, the CONTRACTOR
x x x shall also inform the OWNER if such changes
shall require a new schedule and/or revised
completion date.
The Parties shall then negotiate mutually
agreeable terms x x x. The CONTRACTOR shall not
perform any change order or extra work until the
covering terms are agreed upon [in writing and
signed by the parties].[25]

Moreover, as evidenced by UPSIs Progress Report No. 19 for


the period ending March 22, 2000, Diesels scope of work, as of
that date, was already 97.56% complete. [28] Such level of work
accomplishment would, by any rational norm, be considered as
substantial to warrant full payment of the contract amount, less
actual damages suffered by UPSI. Article 1234 of the Civil Code
says as much, If the obligation had been substantially performed
in good faith, the obligor may recover as though there had been a
strict and complete fulfillment, less damages suffered by the

Pursuant thereto, UPSI issued Change Order (CO) Nos. 1 to 4

obligee.

on February 3, 2, 8, and 9, 2000 respectively. Thereafter, Diesel


submitted a Schedule of Completion of Additional Works [26] under

The fact that the laborers of Diesel were still at the work site

which Diesel committed to undertake CO No. 1 for 30 days from

as of March 22, 2000 is a reflection of its honest intention to keep

February 10, 2000; CO No. 2 for 21 days from January 6, 2000; CO

its part of the bargain and complete the Project. Thus, when Diesel

No. 3 for 15 days, subject to UPSIs acceptance of Diesels proposal;

attempted to turn over the premises to UPSI, claiming it had

and CO No. 4 for 10 days after the receipt of the items from UPSI.

completed the Project on March 15, 2000, Diesel could no longer


be considered to be in delay. Likewise, the CIAC cited the Uniform
General Conditions of Contract for Private Construction (CIAP
Document 102), wherein it is stated that no liquidated damages for

The CIAC found that the COs were actually implemented on


the following dates:
CO No. 1 February 9 to March 3, 2000
CO No. 3 February 24 to March 10, 2000
CO No. 4 March 16 to April 7, 2000[27]

delay beyond the completion time shall accrue after the date of
substantial completion of the work.[29]
In all, Diesel cannot be considered as in delay and, hence, is
not amenable under the Agreement for liquidated damages.

Hence, as correctly held by the CIAC, UPSI, no less,

As to the issue of attorneys fees, Diesel insists that bad

effectively moved the completion date, through the various COs,

faith tainted UPSIs act of imposing liquidated damages on account

to April 7, 2000.

of its (Diesels) alleged delay. And, this prompted Diesel to file its
petition for arbitration. Thus, the CIAC granted Diesel an award of

PhP 366,169 as attorneys fees. However, the CA reversed the CIAC


on the award, it being its finding that Diesel was in delay.

UPSI urges a review of the factual basis for the parallel


denial by the CIAC and CA of its claim for additional expenses to
complete the Project. UPSI states that the reality of Diesel having

The Court resolves to reinstate the CIACs award of


attorneys fees, there being sufficient justification for this kind of

abandoned the Project before its agreed completion is supported by


clear and convincing evidence.

disposition. As earlier discussed, Diesel was not strictly in delay in


the completion of the Project. No valid reason, therefore, obtains for

The Court cannot accord the desired review. It is settled

UPSI to withhold the retention money or to refuse to pay the unpaid

rule that the Court, not being a trier of facts, is under no obligation

balance

to

of

the

contract

price. Indeed,

the

retention

and

examine,

winnow,

and

weigh

anew

evidence

adduced

nonpayment were, to us, as was to the CIAC, resorted to by UPSI

below. This general rule is, of course, not absolute. In Superlines

out of whim, thus forcing the hand of Diesel to sue to recover what

Transportation Company, Inc. v. Philippine National Construction

is rightfully due. Thus, the grant of attorneys fees would be

Company, the Court enumerated the recognized exceptions to be:

justifiable under Art. 2208 of the Civil Code, thus:


Article 2208. In the absence of stipulation,
attorneys fees and expenses of litigation x x x
cannot be recovered, except:
xxxx
(5) Where the defendant acted in gross and
evident bad faith in refusing to satisfy the plaintiffs
plainly valid, just and demandable claim.

And for the same reason justifying the award of attorneys


fees, arbitration costs ought to be charged against UPSI, too.

Fourth Issue

x x x (1) when the findings are grounded


entirely on speculation, surmises or conjectures; (2)
when the inference made is manifestly mistaken,
absurd or impossible; (3) when there is grave abuse
of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of
facts are conflicting; (6) when in making its findings
the [CA] went beyond the issues of the case, or its
findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are
contrary to the trial court; (8) when the findings are
conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in
the petition as well as in the petitioners main and
reply briefs are not disputed by the respondent; (10)
when the findings of fact are premised on the
supposed absence of evidence and contradicted by
the evidence on record; and (11) when the Court
of Appeals manifestly overlooked certain
relevant facts not disputed by the parties,
which, if properly considered, would justify a
different conclusion.[30] (Emphasis supplied.)

In the instant case, the factual findings of the CIAC and CA,

Given the 97.56% work accomplishment tendered by Diesel,

with regard to the completion of the Project and UPSIs entitlement

UPSIs theory of abandonment and of its having spent a sum to

to recover expenses allegedly incurred to finish the Project, do not

complete the work must fall on its face. We can concede

fall under any one of these exceptions. As things stand, the factual

hypothetically that UPSI undertook what it characterized as

findings of the CIAC and CA are supported by evidence presented

additional or rectification works on the Project. But as both the

during the hearing before the Arbitral Tribunal. Consider what the

CIAC and CA held, UPSI failed to show that such additional or

CIAC wrote:

rectification works, if there be any, were the necessary result of

This Tribunal finds overwhelming evidence to


prove that accomplishment as of the alleged period
of takeover was 95.87% as of March 3, 2000 and
increased to 97.56% on March 15, 2000 based on
Progress Report # 18. x x x This is supported by the
statement of [UPSIs] witness, Mr. Crespillo x x
x where he conceded that such admissions and
statements bound [UPSI, the Owner]. By that time,
[Diesel] had substantially completed the project and
only needed to correct the items included in the
punchlist.[31]

the faulty workmanship of Diesel.


The Court perceives of no reason to doubt, much less
disturb, the coinciding findings of the CIAC and CA on the matter.
The foregoing notwithstanding and considering that Diesel
may only be credited for 97.56% work accomplishment, UPSI ought
to

The CA seconded what the CIAC said, thus:

be

compensated,

by

way

of

damages,

in

the

amount

corresponding to the value of the 2.44% unfinished portion (100%


97.56% = 2.44%). In absolute terms, 2.44% of the total Project

6.
Neither are We prepared to
sustain UPSIs argument that Diesel left the work
unfinished and pulled-out all of its workmen from the
project. This claim is belied by the assessment of its
own Construction Manager in Progress Report No. 19
for the period ending 22 March 2000, wherein it
was plaintly stated that as of that period, with
respect to Diesel, there were still twenty-three
laborers on site with the project 97.56% complete
x x x. This indicates that the contracted works of
Diesel were substantially completed with only minor
corrections x x x, thus contradicting the avowal of
UPSI that the work was abandoned in such a state
that necessitated the engagement of another
contractor for the project to be finished. It was
therefore not right for UPSI to have declined the turnover and refused the full payment of the contract
price, x x x.[32]

cost translates to PhP 310,834.01. This disposition is no more than


adhering to the command of Art. 1234 of the Civil Code.
The fifth and sixth issues have already been discussed
earlier and need not detain us any longer.
WHEREFORE,

Diesels

is PARTIALLY GRANTED and

UPSIs Petition

petition
is DENIED with

qualification. The assailed Decision dated April 16, 2002 and


Resolution dated August 21, 2002 of the CA are MODIFIED, as
follows:
(1)

The award for liquidated damages is DELETED;

(2)

The award to Diesel for the unpaid balance of the

contract price of PhP 3,661,692.64 is AFFIRMED;


(3)

UPSI shall pay the costs of arbitration before the CIAC

in the amount of PhP 298,406.03;


(4) Diesel is awarded attorneys fees in the amount of PhP
366,169; and
(5) UPSI is awarded damages in the amount of PhP

CARPIO,
CARPIO MORALES,
HON. ALBERTO A. LERMA, in
TINGA, and
his capacity as Presiding Judge of
VELASCO, JR., JJ.
Branch 256 of Regional Trial
Court of Muntinlupa City, and
PACIFIC GENERAL STEEL
Promulgated:
MANUFACTURING
CORPORATION,
Respondents.
January 7, 2008
x-----------------------------------------------------------------------------------------x

310,834.01, the same to be deducted from the retention money, if

DECISION

there still be any, and, if necessary, from the amount referred to in


item (2) immediately above.
VELASCO, JR., J.:
In summary, the aggregate award to Diesel shall be PhP

In our jurisdiction, the policy is to favor alternative methods

3,717,027.64. From this amount shall be deducted the award of


actual damages of PhP 310,834.01 to UPSI which shall pay the
costs of arbitration in the amount of PhP 298,406.03.

of

resolving

disputes,

disputes. Arbitration

particularly

along

with

in

civil

mediation,

and

commercial

conciliation,

and

negotiation, being inexpensive, speedy and less hostile methods


have long been favored by this Court. The petition before us puts
at issue an arbitration clause in a contract mutually agreed upon by
the parties stipulating that they would submit themselves to
FGU is released from liability for the performance bond that

arbitration in a foreign country. Regrettably, instead of hastening


the resolution of their dispute, the parties wittingly or unwittingly

it issued in favor of Diesel.

prolonged the controversy.


No costs.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean
SO ORDERED.
KOREA TECHNOLOGIES CO.,
LTD.,
Petitioner,

corporation which is engaged in the supply and installation of


G.R. No. 143581

private respondent Pacific General Steel Manufacturing Corp.


Present:

Chairperson,

- versus -

Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants, while

QUISUMBING, J.,

(PGSMC) is a domestic corporation.

On March

5,

Contract[1] whereby
Manufacturing

1997,

PGSMC

KOGIES

would

Plant

in

and
set

KOGIES
up

an

Carmona, Cavite. The

executed
LPG

Cylinder

contract

completely complied with the terms and conditions of the March 5,


1997 contract.

was

executed in the Philippines. On April 7, 1997, the parties executed,

For the remaining balance of USD306,000 for the installation

in Korea, an Amendment for Contract No. KLP-970301 dated March

and initial operation of the plant, PGSMC issued two postdated

5, 1997[2] amending the terms of payment. The contract and its

checks: (1) BPI Check No. 0316412 dated January 30, 1998 for PhP

amendment stipulated that KOGIES will ship the machinery and

4,500,000; and (2) BPI Check No. 0316413 dated March 30, 1998

facilities necessary for manufacturing LPG cylinders for which

for PhP 4,500,000.[5]

PGSMC would pay USD 1,224,000. KOGIES would install and initiate
the operation of the plant for which PGSMC bound itself to pay USD

When KOGIES deposited the checks, these were dishonored

306,000 upon the plants production of the 11-kg. LPG cylinder

for the reason PAYMENT STOPPED. Thus, on May 8, 1998, KOGIES

samples. Thus,

sent a demand letter[6] to PGSMC threatening criminal action for

the

total

contract

price

amounted

to

USD

1,530,000.

violation of Batas Pambansa Blg. 22 in case of nonpayment. On the


same date, the wife of PGSMCs President faxed a letter dated May

On October 14, 1997, PGSMC entered into a Contract of

7,

1998to

KOGIES

President

who

was

then

staying

at

Lease[3] with Worth Properties, Inc. (Worth) for use of Worths 5,079-

a Makati City hotel. She complained that not only did KOGIES

square meter property with a 4,032-square meter warehouse

deliver a different brand of hydraulic press from that agreed upon

building to house the LPG manufacturing plant. The monthly rental

but it had not delivered several equipment parts already paid for.

was PhP 322,560 commencing on January 1, 1998 with a 10%


annual

increment

clause. Subsequently,

the

machineries,

On May 14, 1998, PGSMC replied that the two checks it

equipment, and facilities for the manufacture of LPG cylinders were

issued KOGIES were fully funded but the payments were stopped

shipped, delivered, and installed in the Carmona plant. PGSMC

for reasons previously made known to KOGIES.[7]

paid KOGIES USD 1,224,000.


On June 1, 1998, PGSMC informed KOGIES that PGSMC was
However, gleaned from the Certificate

[4]

executed by the

canceling their Contract dated March 5, 1997 on the ground that

parties on January 22, 1998, after the installation of the plant, the

KOGIES had altered the quantity and lowered the quality of the

initial operation could not be conducted as PGSMC encountered

machineries and equipment it delivered to PGSMC, and that PGSMC

financial difficulties affecting the supply of materials, thus forcing

would dismantle and transfer the machineries, equipment, and

the parties to agree that KOGIES would be deemed to have

facilities installed in the Carmona plant. Five days later, PGSMC


filed before the Office of the Public Prosecutor an Affidavit-

Complaint for Estafa docketed as I.S. No. 98-03813 against Mr. Dae

a January 22, 1998 Certificate. Likewise, KOGIES averred that

Hyun Kang, President of KOGIES.

PGSMC violated Art. 15 of their Contract, as amended, by


unilaterally

On June 15, 1998, KOGIES wrote PGSMC informing the latter

rescinding

the

contract

without

resorting

to

arbitration. KOGIES also asked that PGSMC be restrained from

that PGSMC could not unilaterally rescind their contract nor

dismantling

and

transferring

the

machinery

and

equipment

dismantle and transfer the machineries and equipment on mere

installed in the plant which the latter threatened to do on July 4,

imagined violations by KOGIES. It also insisted that their disputes

1998.

should be settled by arbitration as agreed upon in Article 15, the


arbitration clause of their contract.

On July 9, 1998, PGSMC filed an opposition to the TRO


arguing that KOGIES was not entitled to the TRO since Art. 15, the

On June 23, 1998, PGSMC again wrote KOGIES reiterating

arbitration clause, was null and void for being against public policy

the contents of its June 1, 1998 letter threatening that the

as it ousts the local courts of jurisdiction over the instant

machineries, equipment, and facilities installed in the plant would

controversy.

be dismantled and transferred on July 4, 1998. Thus, on July 1,


1998, KOGIES instituted an Application for Arbitration before the
Korean

Commercial

Arbitration

Board

(KCAB)

in Seoul, Korea pursuant to Art. 15 of the Contract as amended.

On July 17, 1998, PGSMC filed its Answer with Compulsory


Counterclaim[9] asserting that it had the full right to dismantle and
transfer the machineries and equipment because it had paid
for them in full as stipulated in the contract; that KOGIES was not

On July 3, 1998, KOGIES filed a Complaint for Specific

entitled to the PhP 9,000,000 covered by the checks for failing to

Performance, docketed as Civil Case No. 98-117 [8] against PGSMC

completely install and make the plant operational; and that KOGIES

before the Muntinlupa City Regional Trial Court (RTC). The RTC

was liable for damages amounting to PhP 4,500,000 for altering the

granted a temporary restraining order (TRO) on July 4, 1998, which

quantity

was subsequently extended until July 22, 1998. In its complaint,

equipment. Moreover, PGSMC averred that it has already paid PhP

KOGIES alleged that PGSMC had initially admitted that the checks

2,257,920 in rent (covering January to July 1998) to Worth and it

that were stopped were not funded but later on claimed that it

was not willing to further shoulder the cost of renting the premises

stopped payment of the checks for the reason that their value was

of the plant considering that the LPG cylinder manufacturing plant

not received as the former allegedly breached their contract by

never became operational.

and

lowering

the

quality

of

the

machineries

and

altering the quantity and lowering the quality of the machinery


and equipment installed in the plant and failed to make the plant

After the parties submitted their Memoranda, on July 23,

operational although it earlier certified to the contrary as shown in

1998, the RTC issued an Order denying the application for a writ of

preliminary injunction, reasoning that PGSMC had paid KOGIES USD

After KOGIES filed a Supplemental Memorandum with Motion

1,224,000, the value of the machineries and equipment as shown

to Dismiss[13] answering PGSMCs memorandum of July 22, 1998

in the contract such that KOGIES no longer had proprietary rights

and seeking dismissal of PGSMCs counterclaims, KOGIES, on

over them. And finally, the RTC held that Art. 15 of the Contract as

August 4, 1998, filed its Motion for Reconsideration [14] of the July

amended was invalid as it tended to oust the trial court or any

23, 1998 Order denying its application for an injunctive writ

other court jurisdiction over any dispute that may arise between

claiming that the contract was not merely for machinery and

the parties. KOGIES prayer for an injunctive writ was denied.

facilities worth USD 1,224,000 but was for the sale of an LPG

[10]

manufacturing plant consisting of supply of all the machinery and

The dispositive portion of the Order stated:

facilities and transfer of technology for a total contract price of


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

USD 1,530,000 such that the dismantling and transfer of the


machinery and facilities would result in the dismantling and
transfer of the very plant itself to the great prejudice of KOGIES as
the still unpaid owner/seller of the plant. Moreover, KOGIES points
out that the arbitration clause under Art. 15 of the Contract as
amended was a valid arbitration stipulation under Art. 2044 of the
Civil Code and as held by this Court in Chung Fu Industries (Phils.),
Inc.[15]

On July 29, 1998, KOGIES filed its Reply to Answer and


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

In the meantime, PGSMC filed a Motion for Inspection of


Things[16] to determine whether there was indeed alteration of the
quantity and lowering of quality of the machineries and equipment,
and whether these were properly installed. KOGIES opposed the
motion positing that the queries and issues raised in the motion for
inspection fell under the coverage of the arbitration clause in their
contract.
On September 21, 1998, the trial court issued an Order (1)
granting PGSMCs motion for inspection; (2) denying KOGIES
motion for reconsideration of the July 23, 1998 RTC Order; and (3)
denying

KOGIES

motion

to

dismiss

PGSMCs

compulsory

counterclaims as these counterclaims fell within the requisites of

not the machineries and equipment conformed to the specifications

compulsory counterclaims.

in the contract and were properly installed.

On October 2, 1998, KOGIES filed an Urgent Motion for


Reconsideration

[17]

of the September 21, 1998 RTC Order granting

inspection of the

plant and

denying

dismissal

of PGSMCs

compulsory counterclaims.

On November 11, 1998, the Branch Sheriff filed his Sheriffs


Report

[21]

finding that the enumerated machineries and equipment

were not fully and properly installed.


The Court of Appeals affirmed the trial court and declared
the arbitration clause against public policy

Ten days after, on October 12, 1998, without waiting for the
resolution of its October 2, 1998 urgent motion for reconsideration,
KOGIES filed before the Court of Appeals (CA) a petition for
certiorari[18] docketed as CA-G.R. SP No. 49249, seeking annulment
of the July 23, 1998 and September 21, 1998 RTC Orders and
praying for the issuance of writs of prohibition, mandamus, and
preliminary

injunction

to

enjoin

the

RTC

and

PGSMC

from

inspecting, dismantling, and transferring the machineries and


equipment in the Carmona plant, and to direct the RTC to enforce
the specific agreement on arbitration to resolve the dispute.
In the meantime, on October 19, 1998, the RTC denied
KOGIES urgent motion for reconsideration and directed the Branch
Sheriff to proceed with the inspection of the machineries and
equipment in the plant on October 28, 1998.[19]
Thereafter, KOGIES filed a Supplement to the Petition [20] in
CA-G.R. SP No. 49249 informing the CA about the October 19,
1998 RTC Order. It also reiterated its prayer for the issuance of the
writs of prohibition, mandamus and preliminary injunction which
was not acted upon by the CA. KOGIES asserted that the Branch
Sheriff did not have the technical expertise to ascertain whether or

On May
Decision

[22]

30,

2000,

the

CA

rendered

the

assailed

affirming the RTC Orders and dismissing the petition for

certiorari filed by KOGIES. The CA found that the RTC did not
gravely abuse its discretion in issuing the assailed July 23,
1998 and September 21, 1998 Orders. Moreover, the CA reasoned
that KOGIES contention that the total contract price for USD
1,530,000 was for the whole plant and had not been fully paid was
contrary to the finding of the RTC that PGSMC fully paid the price of
USD

1,224,000,

which

was

for

all

the

machineries

and

equipment. According to the CA, this determination by the RTC was


a factual finding beyond the ambit of a petition for certiorari.
On the issue of the validity of the arbitration clause, the CA
agreed with the lower court that an arbitration clause which
provided for a final determination of the legal rights of the parties
to the contract by arbitration was against public policy.
On the issue of nonpayment of docket fees and nonattachment of a certificate of non-forum shopping by PGSMC, the
CA held that the counterclaims of PGSMC were compulsory ones

and payment of docket fees was not required since the Answer with
counterclaim was not an initiatory pleading. For the same reason,
the CA said a certificate of non-forum shopping was also not
required.
Furthermore, the CA held that the petition for certiorari had
been filed prematurely since KOGIES did not wait for the resolution
of its urgent motion for reconsideration of the September 21, 1998
RTC Order which was the plain, speedy, and adequate remedy
available. According to the CA, the RTC must be given the
opportunity to correct any alleged error it has committed, and that
since the assailed orders were interlocutory, these cannot be the
subject of a petition for certiorari.
Hence, we have this Petition for Review on Certiorari under
Rule 45.

CONTRACT BETWEEN THE PARTIES FOR BEING


CONTRARY TO PUBLIC POLICY AND FOR OUSTING
THE COURTS OF JURISDICTION;
c.
DECREEING PRIVATE RESPONDENTS
COUNTERCLAIMS TO BE ALL COMPULSORY NOT
NECESSITATING PAYMENT OF DOCKET FEES AND
CERTIFICATION OF NON-FORUM SHOPPING;
d.
RULING THAT THE PETITION WAS FILED
PREMATURELY
WITHOUT
WAITING
FOR
THE
RESOLUTION
OF
THE
MOTION
FOR
RECONSIDERATION
OF
THE
ORDER
DATED
SEPTEMBER 21, 1998 OR WITHOUT GIVING THE
TRIAL COURT AN OPPORTUNITY TO CORRECT ITSELF;
e.
PROCLAIMING THE TWO ORDERS
DATED JULY 23 AND SEPTEMBER 21, 1998 NOT TO BE
PROPER SUBJECTS OF CERTIORARI AND PROHIBITION
FOR BEING INTERLOCUTORY IN NATURE;
f.
NOT GRANTING THE RELIEFS AND
REMEDIES PRAYED FOR IN HE (SIC) PETITION AND,
INSTEAD, DISMISSING THE SAME FOR ALLEGEDLY
WITHOUT MERIT.[23]

The Issues

The Courts Ruling

Petitioner posits that the appellate court committed the


following errors:
a.
PRONOUNCING
THE
QUESTION
OF
OWNERSHIP OVER THE MACHINERY AND FACILITIES
AS A QUESTION OF FACT BEYOND THE AMBIT OF A
PETITION FOR CERTIORARI INTENDED ONLY FOR
CORRECTION OF ERRORS OF JURISDICTION OR
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OF
(SIC)
EXCESS
OF
JURISDICTION,
AND
CONCLUDING THAT THE TRIAL COURTS FINDING ON
THE SAME QUESTION WAS IMPROPERLY RAISED IN
THE PETITION BELOW;
b.
DECLARING AS NULL AND VOID
ARBITRATION CLAUSE IN ARTICLE 15 OF

THE
THE

The petition is partly meritorious.


Before we delve into the substantive issues, we shall first
tackle the procedural issues.
The rules on the payment of docket fees for counterclaims
and cross claims were amended effective August 16, 2004
KOGIES

strongly

argues

that

when

PGSMC

filed

the

counterclaims, it should have paid docket fees and filed a

certificate of non-forum shopping, and that its failure to do so was a


fatal defect.

Interlocutory orders proper subject of certiorari


Citing Gamboa v. Cruz,[25] the CA also pronounced that

We disagree with KOGIES.

certiorari and Prohibition are neither the remedies to question the


As aptly ruled by the CA, the counterclaims of PGSMC were

propriety of an interlocutory order of the trial court. [26] The CA

incorporated in its Answer with Compulsory Counterclaim dated July

erred on its reliance on Gamboa. Gamboa involved the denial of a

17, 1998 in accordance with Section 8 of Rule 11, 1997 Revised

motion to acquit in a criminal case which was not assailable in an

Rules of Civil Procedure, the rule that was effective at the time the

action for certiorari since the denial of a motion to quash required

Answer

on existing

the accused to plead and to continue with the trial, and whatever

counterclaim or cross-claimstates, A compulsory counterclaim or a

objections the accused had in his motion to quash can then be used

cross-claim that a defending party has at the time he files his

as part of his defense and subsequently can be raised as errors on

answer shall be contained therein.

his appeal if the judgment of the trial court is adverse to him. The

with

Counterclaim

was

filed. Sec.

general rule is that interlocutory orders cannot be challenged by an


On July 17, 1998, at the time PGSMC filed its Answer
incorporating its counterclaims against KOGIES, it was not liable to
pay filing fees for said counterclaims being compulsory in
nature. We stress, however, that effective August 16, 2004 under
Sec. 7, Rule 141, as amended by A.M. No. 04-2-04-SC, docket fees
are now required to be paid in compulsory counterclaim or crossclaims.
As

to

the

failure

to

submit

certificate

of

forum

shopping, PGSMCs Answer is not an initiatory pleading which


requires a certification against forum shopping under Sec. 5 [24] of
Rule 7, 1997 Revised Rules of Civil Procedure. It is a responsive
pleading, hence, the courts a quo did not commit reversible error in
denying

KOGIES

counterclaims.

motion

to

dismiss

PGSMCs

compulsory

appeal.[27] Thus,

in Yamaoka

v.

Pescarich

Manufacturing

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

Also, appeals from interlocutory orders would open the


floodgates to endless occasions for dilatory motions. Thus, where

court, in the first instance, to pass upon and correct its mistakes
without the intervention of the higher court.[30]

the interlocutory order was issued without or in excess of


jurisdiction or with grave abuse of discretion, the remedy is
certiorari.

[29]

The September 21, 1998 RTC Order directing the branch


sheriff to inspect the plant, equipment, and facilities when he is not
competent and knowledgeable on said matters is evidently flawed

The alleged grave abuse of discretion of the respondent

and devoid of any legal support. Moreover, there is an urgent

court equivalent to lack of jurisdiction in the issuance of the two

necessity to resolve the issue on the dismantling of the facilities

assailed orders coupled with the fact that there is no plain, speedy,

and

and adequate remedy in the ordinary course of law amply provides

KOGIES. Indeed, there is real and imminent threat of irreparable

the basis for allowing the resort to a petition for certiorari under

destruction or substantial damage to KOGIES equipment and

Rule 65.

machineries. We find the resort to certiorari based on the gravely

any

further

delay

would

prejudice

the

interests

of

abusive orders of the trial court sans the ruling on the October 2,
Prematurity of the petition before the CA
Neither do we think that KOGIES was guilty of forum

1998 motion for reconsideration to be proper.


The Core Issue: Article 15 of the Contract

shopping in filing the petition for certiorari. Note that KOGIES


motion for reconsideration of the July 23, 1998 RTC Order which
denied the issuance of the injunctive writ had already been
denied. Thus, KOGIES only remedy was to assail the RTCs
interlocutory order via a petition for certiorari under Rule 65.
While the October 2, 1998 motion for reconsideration of
KOGIES of the September 21, 1998 RTC Order relating to the
inspection of things, and the allowance of the compulsory
counterclaims has not yet been resolved, the circumstances in this
case would allow an exception to the rule that before certiorari may

We now go to the core issue of the validity of Art. 15 of the


Contract, the arbitration clause. It provides:
Article
15. Arbitration.All
disputes,
controversies, or differences which may arise
between the parties, out of or in relation to or in
connection with this Contract or for the breach
thereof, shall finally be settled by arbitration in
Seoul, Korea in accordance with the Commercial
Arbitration Rules of the Korean Commercial
Arbitration Board. The award rendered by the
arbitration(s) shall be final and binding upon
both parties concerned. (Emphasis supplied.)

be availed of, the petitioner must have filed a motion for


reconsideration and said motion should have been first resolved by
the court a quo. The reason behind the rule is to enable the lower

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

provision to submit to arbitration any dispute arising therefrom and


Petitioner is correct.

the relationship of the parties is part of that contract and is itself a


contract.[37]

Established in this jurisdiction is the rule that the law of the


place

where

the

contract

is

made

governs. Lex

loci

Arbitration clause not contrary to public policy

contractus. The contract in this case was perfected here in


the Philippines. Therefore, our laws ought to govern. Nonetheless,

The arbitration clause which stipulates that the arbitration

Art. 2044 of the Civil Code sanctions the validity of mutually agreed

must be done in Seoul, Korea in accordance with the Commercial

arbitral clause or the finality and binding effect of an arbitral

Arbitration Rules of the KCAB, and that the arbitral award is final

award. Art.

the

and binding, is not contrary to public policy. This Court has

arbitrators award or decision shall be final, is valid, without

sanctioned the validity of arbitration clauses in a catena of

prejudice to Articles 2038, 2039 and 2040. (Emphasis supplied.)

cases. In the 1957 case ofEastboard Navigation Ltd. v. Juan Ysmael

2044

provides,

Any

stipulation

that

and Co., Inc.,[38] this Court had occasion to rule that an arbitration
Arts.

2038,[31] 2039,[32] and

2040[33] abovecited

refer

to

clause to resolve differences and breaches of mutually agreed

instances where a compromise or an arbitral award, as applied to

contractual terms is valid. In BF Corporation v. Court of Appeals,

Art. 2044 pursuant to Art. 2043, [34] may be voided, rescinded, or

we held that [i]n this jurisdiction, arbitration has been held valid

annulled, but these would not denigrate the finality of the arbitral

and constitutional. Even before the approval on June 19, 1953 of

award.

Republic Act No. 876, this Court has countenanced the settlement
of disputes through arbitration. Republic Act No. 876 was adopted
The arbitration clause was mutually and voluntarily agreed

to

supplement
[39]

the

New

Civil

Codes

provisions

upon by the parties. It has not been shown to be contrary to any

arbitration.

law, or against morals, good customs, public order, or public

Industrial Construction Groups, Inc., we declared that:

policy. There has been no showing that the parties have not dealt
with each other on equal footing. We find no reason why the
arbitration clause should not be respected and complied with by
both parties. In Gonzales v. Climax Mining Ltd.,[35] we held that
submission to arbitration is a contract and that a clause in a
contract providing that all matters in dispute between the parties
shall be referred to arbitration is a contract. [36] Again in Del Monte
Corporation-USA v. Court of Appeals, we likewise ruled that [t]he

on

And in LM Power Engineering Corporation v. Capitol

Being an inexpensive, speedy and amicable


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

calling for arbitration between the parties would be a


step backward.

in the Philippines and to Establish the Office for Alternative Dispute


Resolution, and for Other Purposes, promulgated on April 2,

Consistent with the above-mentioned policy of


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

2004. Secs. 19 and 20 of Chapter 4 of the Model Law are the


pertinent provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL
ARBITRATION

Having said that the instant arbitration clause is not against


public policy, we come to the question on what governs an
arbitration clause specifying that in case of any dispute arising from
the contract, an arbitral panel will be constituted in a foreign
country and the arbitration rules of the foreign country would
govern and its award shall be final and binding.
RA 9285 incorporated the UNCITRAL Model law
to which we are a signatory

For domestic arbitration proceedings, we have particular


agencies to arbitrate disputes arising from contractual relations. In
case a foreign arbitral body is chosen by the parties, the arbitration
rules of our domestic arbitration bodies would not be applied. As

SEC. 19. Adoption of the Model Law on


International Commercial Arbitration.International
commercial arbitration shall be governed by the
Model Law on International Commercial Arbitration
(the Model Law) adopted by the United Nations
Commission on International Trade Law on June 21,
1985 (United Nations Document A/40/17) and
recommended for enactment by the General
Assembly in Resolution No. 40/72 approved on
December 11, 1985, copy of which is hereto attached
as Appendix A.
SEC. 20. Interpretation of Model Law.In
interpreting the Model Law, regard shall be had to its
international origin and to the need for uniformity in
its interpretation and resort may be made to
the travaux preparatories and the report of the
Secretary General of the United Nations Commission
on International Trade Law dated March 25, 1985
entitled, International Commercial Arbitration:
Analytical Commentary on Draft Trade identified by
reference number A/CN. 9/264.

signatory to the Arbitration Rules of the UNCITRAL Model Law on


International

Commercial

Arbitration[41] of

the United

Nations

Commission on International Trade Law (UNCITRAL) in the New York

While RA 9285 was passed only in 2004, it nonetheless

Convention on June 21, 1985, the Philippinescommitted itself to be

applies in the instant case since it is a procedural law which has a

bound by the Model Law. We have even incorporated the Model

retroactive

Law

as

arbitration before the KCAB on July 1, 1998 and it is still pending

the Alternative Dispute Resolution Act of 2004 entitled An Act to

because no arbitral award has yet been rendered. Thus, RA 9285 is

Institutionalize the Use of an Alternative Dispute Resolution System

applicable to the instant case. Well-settled is the rule that

in

Republic

Act

No.

(RA)

9285,

otherwise

known

effect. Likewise,

KOGIES

filed

its

application

for

procedural laws are construed to be applicable to actions pending

immediately

enforceable

or

cannot

be

implemented

and undetermined at the time of their passage, and are deemed

immediately. Sec. 35[43] of the UNCITRAL Model Law stipulates the

retroactive in that sense and to that extent. As a general rule,

requirement for the arbitral award to be recognized by a competent

the retroactive application of procedural laws does not violate any

court for enforcement, which court under Sec. 36 of the UNCITRAL

personal rights because no vested right has yet attached nor arisen

Model Law may refuse recognition or enforcement on the grounds

from them.[42]

provided for. RA 9285 incorporated these provisos to Secs. 42, 43,


and 44 relative to Secs. 47 and 48, thus:

Among the pertinent features of RA 9285 applying and


incorporating the UNCITRAL Model Law are the following:
(1)

The RTC must refer to arbitration in proper cases


Under Sec. 24, the RTC does not have jurisdiction over

disputes that are properly the subject of arbitration pursuant to an


arbitration clause, and mandates the referral to arbitration in such
cases, thus:
SEC. 24. Referral to Arbitration.A court
before which an action is brought in a matter which is
the subject matter of an arbitration agreement shall,
if at least one party so requests not later than the
pre-trial conference, or upon the request of both
parties thereafter, refer the parties to arbitration
unless it finds that the arbitration agreement is null
and void, inoperative or incapable of being
performed.

SEC.
42. Application
of
the New
York Convention.The New York Convention shall
govern the recognition and enforcement of arbitral
awards covered by said Convention.
The recognition and enforcement of such
arbitral awards shall be filed with the Regional Trial
Court in accordance with the rules of procedure to
be promulgated by the Supreme Court. Said
procedural rules shall provide that the party relying
on the award or applying for its enforcement shall file
with the court the original or authenticated copy of
the award and the arbitration agreement. If the
award or agreement is not made in any of the official
languages, the party shall supply a duly certified
translation thereof into any of such languages.
The applicant shall establish that the country
in which foreign arbitration award was made in party
to the New York Convention.
xxxx

Foreign arbitral awards while mutually stipulated by the

SEC. 43. Recognition and Enforcement of


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

parties in the arbitration clause to be final and binding are not

SEC. 44. Foreign Arbitral Award Not Foreign

(2)

Foreign arbitral awards must be confirmed by the RTC

Judgment.A foreign arbitral award when confirmed


by a court of a foreign country, shall be recognized
and enforced as a foreign arbitral award and not as a
judgment of a foreign court.
A foreign arbitral award, when confirmed by
the Regional Trial Court, shall be enforced in the
same manner as final and executory decisions of
courts of law of the Philippines
xxxx
SEC. 47. Venue and Jurisdiction.Proceedings
for recognition and enforcement of an arbitration
agreement or for vacations, setting aside, correction
or modification of an arbitral award, and any
application with a court for arbitration assistance and
supervision shall be deemed as special proceedings
and shall be filed with the Regional Trial Court (i)
where arbitration proceedings are conducted; (ii)
where the asset to be attached or levied upon, or the
act to be enjoined is located; (iii) where any of the
parties to the dispute resides or has his place of
business; or (iv) in the National Judicial Capital
Region, at the option of the applicant.
SEC. 48. Notice of Proceeding to Parties.In
a special proceeding for recognition and enforcement
of an arbitral award, the Court shall send notice to
the parties at their address of record in the
arbitration, or if any part cannot be served notice at
such address, at such partys last known
address. The notice shall be sent al least fifteen (15)
days before the date set for the initial hearing of the
application.

It is now clear that foreign arbitral awards when confirmed


by the RTC are deemed not as a judgment of a foreign court but as
a foreign arbitral award, and when confirmed, are enforced as final
and executory decisions of our courts of law.

Thus, it can be gleaned that the concept of a final and


binding arbitral award is similar to judgments or awards given by
some of our quasi-judicial bodies, like the National Labor Relations
Commission and Mines Adjudication Board, whose final judgments
are stipulated to be final and binding, but not immediately
executory in the sense that they may still be judicially reviewed,
upon the instance of any party. Therefore, the final foreign arbitral
awards are similarly situated in that they need first to be confirmed
by the RTC.
(3)

The RTC has jurisdiction to review foreign arbitral

awards
Sec. 42 in relation to Sec. 45 of RA 9285 designated and
vested the RTC with specific authority and jurisdiction to set aside,
reject, or vacate a foreign arbitral award on grounds provided under
Art. 34(2) of the UNCITRAL Model Law. Secs. 42 and 45 provide:
SEC.
42. Application
of
the New
York Convention.The New York Convention shall
govern the recognition and enforcement of arbitral
awards covered by said Convention.
The recognition and enforcement of such
arbitral awards shall be filed with the Regional Trial
Court in accordance with the rules of procedure to
be promulgated by the Supreme Court. Said
procedural rules shall provide that the party relying
on the award or applying for its enforcement shall file
with the court the original or authenticated copy of
the award and the arbitration agreement. If the
award or agreement is not made in any of the official
languages, the party shall supply a duly certified
translation thereof into any of such languages.

The applicant shall establish that the country


in which foreign arbitration award was made is party
to the New York Convention.
If the application for rejection or suspension of
enforcement of an award has been made, the
Regional Trial Court may, if it considers it proper,
vacate its decision and may also, on the application
of the party claiming recognition or enforcement of
the award, order the party to provide appropriate
security.
xxxx
SEC. 45. Rejection of a Foreign Arbitral
Award.A party to a foreign arbitration proceeding
may oppose an application for recognition and
enforcement of the arbitral award in accordance with
the procedures and rules to be promulgated by the
Supreme Court only on those grounds enumerated
under Article V of the New York Convention. Any
other ground raised shall be disregarded by the
Regional Trial Court.

The differences between a final arbitral award from an


international or foreign arbitral tribunal and an award given by a
local arbitral tribunal are the specific grounds or conditions that
vest jurisdiction over our courts to review the awards.
For foreign or international arbitral awards which must first
be confirmed by the RTC, the grounds for setting aside, rejecting or
vacating the award by the RTC are provided under Art. 34(2) of the
UNCITRAL Model Law.
For

domestic

arbitral

awards,

which

also

need

confirmation by the RTC pursuant to Sec. 23 of RA 876 [44] and shall


be recognized as final and executory decisions of the RTC, [45] they
may only be assailed before the RTC and vacated on the grounds
provided under Sec. 25 of RA 876.[46]
(5)

Thus, while the RTC does not have jurisdiction over disputes

final

RTC

decision

of

assailed

foreign

arbitral

award

appealable

governed by arbitration mutually agreed upon by the parties, still


the foreign arbitral award is subject to judicial review by the RTC

Sec. 46 of RA 9285 provides for an appeal before the CA as

which can set aside, reject, or vacate it. In this sense, what this

the remedy of an aggrieved party in cases where the RTC sets

Court held in Chung Fu Industries (Phils.), Inc. relied upon by

aside, rejects, vacates, modifies, or corrects an arbitral award, thus:

KOGIES is applicable insofar as the foreign arbitral awards, while


final and binding, do not oust courts of jurisdiction since these
arbitral awards are not absolute and without exceptions as they are
still judicially reviewable. Chapter 7 of RA 9285 has made it clear
that all arbitral awards, whether domestic or foreign, are subject to
judicial review on specific grounds provided for.
(4)
Grounds for judicial review different in domestic and
foreign arbitral awards

SEC. 46. Appeal from Court Decision or


Arbitral Awards.A decision of the Regional Trial
Court confirming, vacating, setting aside, modifying
or correcting an arbitral award may be appealed to
the Court of Appeals in accordance with the rules and
procedure to be promulgated by the Supreme Court.
The losing party who appeals from the
judgment of the court confirming an arbitral award
shall be required by the appellate court to post a

counterbond executed in favor of the prevailing party


equal to the amount of the award in accordance with
the rules to be promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or
reviewed before this Court through a petition for review under Rule
45 of the Rules of Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA 9285, PGSMC
must submit to the foreign arbitration as it bound itself through the
subject contract. While it may have misgivings on the foreign
arbitration done in Korea by the KCAB, it has available remedies
under RA 9285. Its interests are duly protected by the law which
requires that the arbitral award that may be rendered by KCAB
must be confirmed here by the RTC before it can be enforced.
With our disquisition above, petitioner is correct in its

Having ruled that the arbitration clause of the subject


contract is valid and binding on the parties, and not contrary to
public policy; consequently, being bound to the contract of
arbitration, a party may not unilaterally rescind or terminate the
contract for whatever cause without first resorting to arbitration.
What this Court held in University of the Philippines v. De
Los Angeles[47] and reiterated in succeeding cases, [48] that the act of
treating a contract as rescinded on account of infractions by the
other contracting party is valid albeit provisional as it can be
judicially assailed, is not applicable to the instant case on account
of a valid stipulation on arbitration. Where an arbitration clause in
a contract is availing, neither of the parties can unilaterally treat
the contract as rescinded since whatever infractions or breaches by
a party or differences arising from the contract must be brought
first and resolved by arbitration, and not through an extrajudicial
rescission or judicial action.

contention that an arbitration clause, stipulating that the arbitral


award is final and binding, does not oust our courts of jurisdiction
as the international arbitral award, the award of which is not
absolute and without exceptions, is still judicially reviewable under
certain conditions provided for by the UNCITRAL Model Law on ICA
as applied and incorporated in RA 9285.
Finally, it must be noted that there is nothing in the subject
Contract which provides that the parties may dispense with the
arbitration clause.
Unilateral rescission improper and illegal

The issues arising from the contract between PGSMC and


KOGIES on whether the equipment and machineries delivered and
installed were properly installed and operational in the plant in
Carmona, Cavite; the ownership of equipment and payment of the
contract price; and whether there was substantial compliance by
KOGIES in the production of the samples, given the alleged fact
that PGSMC could not supply the raw materials required to produce
the

sample

LPG

cylinders,

are

matters

proper

for

arbitration. Indeed, we note that on July 1, 1998, KOGIES instituted


an

Application

for

in Seoul, Korea pursuant

Arbitration
to

Art.

15

before
of

the

the

KCAB

Contract

as

amended. Thus, it is incumbent upon PGSMC to abide by its


commitment to arbitrate.

However, what appears to constitute a grave abuse of


Corollarily, the trial court gravely abused its discretion in

discretion is the order of the RTC in resolving the issue on the

granting PGSMCs Motion for Inspection of Things on September 21,

ownership of the plant when it is the arbitral body (KCAB) and not

1998, as the subject matter of the motion is under the primary

the RTC which has jurisdiction and authority over the said

jurisdiction of the mutually agreed arbitral body, the KCAB

issue. The RTCs determination of such factual issue constitutes

in Korea.

grave abuse of discretion and must be reversed and set aside.

In addition, whatever findings and conclusions made by the


RTC Branch Sheriff from the inspection made on October 28, 1998,
as ordered by the trial court on October 19, 1998, is of no worth as
said Sheriff is not technically competent to ascertain the actual

RTC has interim jurisdiction to protect the rights of the

status of the equipment and machineries as installed in the plant.

parties

For these reasons, the September 21, 1998 and October 19,

Anent the July 23, 1998 Order denying the issuance of the

1998 RTC Orders pertaining to the grant of the inspection of the

injunctive writ paving the way for PGSMC to dismantle and transfer

equipment and machineries have to be recalled and nullified.

the equipment and machineries, we find it to be in order


considering the factual milieu of the instant case.

Issue on ownership of plant proper for arbitration


Firstly, while the issue of the proper installation of the
Petitioner assails the CA ruling that the issue petitioner

equipment and machineries might well be under the primary

raised on whether the total contract price of USD 1,530,000 was

jurisdiction of the arbitral body to decide, yet the RTC under Sec. 28

for the whole plant and its installation is beyond the ambit of a

of RA 9285 has jurisdiction to hear and grant interim measures to

Petition for Certiorari.

protect vested rights of the parties. Sec. 28 pertinently provides:

Petitioners position is untenable.


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

SEC. 28. Grant of interim Measure of


Protection.(a) It is not incompatible with an
arbitration agreement for a party to request,
before constitution of the tribunal, from a
Court to grant such measure. After constitution
of the arbitral tribunal and during arbitral
proceedings, a request for an interim measure of
protection, or modification thereof, may be made
with the arbitral or to the extent that the arbitral
tribunal has no power to act or is unable to act
effectivity, the request may be made with the

Court. The arbitral tribunal is deemed constituted


when the sole arbitrator or the third arbitrator, who
has been nominated, has accepted the nomination
and written communication of said nomination and
acceptance has been received by the party making
the request.
(b) The following rules on
provisional relief shall be observed:

interim

or

Any party may request that provisional relief


be granted against the adverse party.

injury;

to

prevent

irreparable

Art. 17(2) of the UNCITRAL Model Law on ICA defines an


interim measure of protection as:
Article 17. Power of arbitral tribunal to order interim
measures
xxx

Such relief may be granted:


(i)

noncompliance,
including
all
expenses,
and
reasonable attorney's fees, paid in obtaining the
orders judicial enforcement. (Emphasis ours.)

loss

or

(ii)
to
provide
security
for
the
performance of any obligation;
(iii)
to produce or preserve any evidence;
or
(iv)
to compel any other appropriate act or
omission.
(c) The order granting provisional relief may
be conditioned upon the provision of security or any
act or omission specified in the order.
(d) Interim or provisional relief is requested
by written application transmitted by reasonable
means to the Court or arbitral tribunal as the case
may be and the party against whom the relief is
sought, describing in appropriate detail the precise
relief, the party against whom the relief is requested,
the grounds for the relief, and the evidence
supporting the request.
(e) The order shall be binding upon the
parties.

xxx

(2) An interim measure is any temporary measure,


whether in the form of an award or in another form,
by which, at any time prior to the issuance of the
award by which the dispute is finally decided, the
arbitral tribunal orders a party to:
(a) Maintain or restore the status quo pending
determination of the dispute;
(b) Take action that would prevent, or refrain from
taking action that is likely to cause, current or
imminent harm or prejudice to the arbitral process
itself;
(c) Provide a means of preserving assets out of which
a subsequent award may be satisfied; or
(d) Preserve evidence that may be relevant and
material to the resolution of the dispute.

Art. 17 J of UNCITRAL Model Law on ICA also grants courts


power and jurisdiction to issue interim measures:

(f) Either party may apply with the Court for


assistance in implementing or enforcing an interim
measure ordered by an arbitral tribunal.
(g) A party who does not comply with the
order shall be liable for all damages resulting from

xxx

Article 17 J. Court-ordered interim measures


an

A court shall have the same power of issuing


interim measure in relation to arbitration

proceedings, irrespective of whether their place is in


the territory of this State, as it has in relation to
proceedings in courts. The court shall exercise such
power in accordance with its own procedures in
consideration of the specific features of international
arbitration.

has the right to dismantle and transfer the equipment and


machineries either for their protection and preservation or for the
better way to make good use of them which is ineluctably within
the management discretion of PGSMC.

In the recent 2006 case of Transfield Philippines, Inc. v.

Thirdly, and of greater import is the reason that maintaining

Luzon Hydro Corporation, we were explicit that even the pendency

the equipment and machineries in Worths property is not to the

of an arbitral proceeding does not foreclose resort to the courts for

best interest of PGSMC due to the prohibitive rent while the LPG

provisional reliefs. We explicated this way:

plant as set-up is not operational. PGSMC was losing PhP322,560


as monthly rentals or PhP3.87M for 1998 alone without considering

As a fundamental point, the pendency of arbitral


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

the 10% annual rent increment in maintaining the plant.


Fourthly, and corollarily, while the KCAB can rule on motions
or petitions relating to the preservation or transfer of the
equipment and machineries as an interim measure, yet on
hindsight, the July 23, 1998 Order of the RTC allowing the transfer
of the equipment and machineries given the non-recognition by the
lower courts of the arbitral clause, has accorded an interim
measure of protection to PGSMC which would otherwise been
irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already

It is thus beyond cavil that the RTC has authority and


jurisdiction to grant interim measures of protection.

been

paid a substantial

amount

based

on

the

contract. Moreover, KOGIES is amply protected by the arbitral


action it has instituted before the KCAB, the award of which can be

Secondly, considering that the equipment and machineries

enforced in our jurisdiction through the RTC. Besides, by our

are in the possession of PGSMC, it has the right to protect and

decision, PGSMC is compelled to submit to arbitration pursuant to

preserve the equipment and machineries in the best way it

the valid arbitration clause of its contract with KOGIES.

can. Considering that the LPG plant was non-operational, PGSMC


PGSMC to preserve the subject equipment and machineries

Finally, while PGSMC may have been granted the right to


dismantle and transfer the subject equipment and machineries, it

SO ORDERED.
FG.R. No. 55159 December 22, 1989

does not have the right to convey or dispose of the same


considering

the

pending

arbitral

proceedings

to

settle

the

differences of the parties. PGSMC therefore must preserve and


maintain the subject equipment and machineries with the diligence
of a good father of a family[51] until final resolution of the arbitral
proceedings and enforcement of the award, if any.

PHILIPPINE AIRLINES, INC., petitioner


vs.
NATIONAL LABOR RELATIONS COMMISSION and ARMANDO
DOLINA, respondents.
Ermitano Manzano & Associates for petitioner.
Solon Garcia collaborating counsel for petitioner.

WHEREFORE, this petition is PARTLY GRANTED, in that:


(1)

CORTES, J.:

The May 30, 2000 CA Decision in CA-G.R. SP No.

49249 is REVERSED and SET ASIDE;


(2)

The September 21, 1998 and October 19, 1998 RTC

Orders in Civil Case No. 98-117 are REVERSED and SET ASIDE;
(3)

The

parties

are

hereby ORDERED to

submit

Petitioner impugns in this petition for certiorari that part of the


public respondent National Labor Relations Commission's (NLRC)
decision in NLRC Case No. RB-IV-9319-77 which ordered petitioner
to restore private respondent Dolina to its payroll, and to pay his
salaries from 1 April 1979 "until this case is finally resolved" [Rollo,
p. 33]. Petitioner contends that public respondent NLRC gravely
abused its discretion considering that in the same decision public
respondent affirmed the decision of the Labor Arbiter in toto
granting respondent's application for clearance to dismiss the
private respondent.

themselves to the arbitration of their dispute and differences


The pertinent facts are as follows:

arising from the subject Contract before the KCAB; and


(4)
the

PGSMC is hereby ALLOWED to dismantle and transfer

equipment

and

machineries,

if

it

had

not

done

so,

and ORDERED to preserve and maintain them until the finality of


whatever arbitral award is given in the arbitration proceedings.
No pronouncement as to costs.

Private respondent Dolina was admitted to the Philippine Airlines


(PAL) Aviation School for training as a pilot beginning 16 January
1973. The training agreement bound PAL to provide regular and
permanent employment to Dolina upon completion of the training
course. On 25 January 1974, Dolina completed the course, and
undertook an equipment qualification course up to 4 October 1974.
On 9 October 1974, the Civil Aeronautics Administration issued him
a license as Commercial Pilot and PAL then extended him a

temporary appointment for six (6) months as Limited First Officer.


When his appointment was due to expire on 30 April 1975, Dolina
had only logged eighty four (84) hours and fifty five (55) minutes
flying time, short of the minimum 500 flying hours required for
regularization as First Officer. To enable him to complete the
requirement, his employment was extended for another six months
which appointment was described as "permanent." On 31 October
1975, when his appointment was again due to expire, he was still
short of the minimum flying time requirement such that his
appointment was again extended up to 30 April 1976. During this
third extension of his appointment, Dolina completed the 500 flying
hours requirement, and thus on 31 March 1976 he applied for
regularization as First Officer. Pending his physical examination by
the chief Flight Surgeon, his appointment was again extended to 31
October 1976. On 17 August 1976, Dolina took a psychological
examination wherein his "Adaptability Rating" was found to be
"unacceptable" [Annex "L" to the Petition. p. 8; Rollo, p. 116]. On 23
September 1976, complainant was again subjected to an
examination and interview by the Pilot Acceptance Qualifications
Board as part of the regularization process, which examination
revealed the following:
xxx xxx xxx

1976 [Rollo, 35]. On 26 January 1977 the Officer-in-Charge of the


Department of Labor Regional Office No. IV lifted the preventive
suspension, and ordered petitioner to reinstate Dolina to his former
position with full backwages from 1 October 1976 up to actual
reinstatement. The issue of termination and damages was referred
to the Executive Labor Arbiter for compulsory arbitration [Rollo, p.
71].
Petitioner appealed the order lifting Dolina's suspension to the
Secretary of Labor. However, on 2 March 1977, pending the
resolution of petitioner's appeal, the parties signed an agreement
before the Undersecretary of Labor, the terms of which are as
follows:
AGREEMENT
The undersigned parties hereby agree to the
following:
1 While pending final resolution of the complaint of
Mr. Armando Dolina against the Philippine Airlines, he
shall be considered in the payroll effective 1 October
1976.

b. Armando Dolina - After thorough evaluation of the


candidate's past records, his performance and the
result of his medical examination as submitted by the
Medical Sub-Department, the Board finds Mr. A.
Dolina not qualified for regular employment in the
Company.

2 The order of Regional Director Vicente Leogardo for


the reinstatement with backwages of Mr. Dolina is
hereby rendered moot and academic.

xxx xxx xxx

xxx xxx xxx

[NLRC Decision, pp. 3-4; Rollo, pp. 25-26].


Conformably, the Board recommended the termination of the
complainant pursuant to which PAL filed a clearance application
[Rollo, p. 34] for Dolina's termination. In the meantime Dolina was
placed under preventive suspension effective 1 October 1976.
Dolina countered with a complaint for illegal dismissal on 6 October

3 The parties shall consider this arrangement


pending final resolution of the case by arbitration.

Subsequently, on 30 May 1977, the Acting Secretary of Labor


issued an order finding that the propriety of the suspension had
been rendered moot and academic by the above agreement and
referred the case for compulsory arbitration to the Executive Labor
Arbiter [Annex "J" to the Petition; Rollo, p. 85]. On 23 March 1979,
the Labor Arbiter rendered its decision, the dispositive portion of
which reads as follows:

IN VIEW OF ALL THE FOREGOING, it is our considered


opinion that there is merit on the application for
clearance, and therefore, the same should be as it is
hereby GRANTED. Consequently, the oppositor's
TERMINATION IS IN ORDER.

still being litigated. The complainant, therefore, must


be restored to the payroll and paid for his salaries
from 1 April 1979, the date he was dropped from the
respondent's payroll.

Since the termination is upheld, perforce the claim


for moral damages is denied. Besides pursuant to
P.D. No. 1367 dated May 1, 1978, this office is devoid
of jurisdiction to entertain said claim.

WHEREFORE, the Decision appealed from should be


as it is hereby affirmed in toto. However the
respondent is ordered to restore the complainant to
its payroll and to pay his salaries from 1 April 1979
until this case is finally resolved.

SO ORDERED. [Decision of Labor Arbiter, p. 12; Rollo,


p. 97].

SO ORDERED. [NLRC Decision, pp. 10-11; Rollo, pp.


32-33; Italics supplied]

By virtue of the above decision, PAL removed Dolina from its payroll
effective 1 April 1979. Dolina then appealed the Labor Arbiter's
decision to the public respondent NLRC on 29 April 1979 and there
filed a motion praying that PAL be ordered to return him to PAL's
payroll, contending that the Labor Arbiter's decision was not yet
final because of his timely appeal. PAL opposed the motion claiming
that it was no longer obliged to return Dolina to its payroll since the
decision of the Labor Arbiter dated 23 March 1979 in its favor was a
final resolution of the case by arbitration [Annex "N" to the Petition,
p. 1; Rollo, p. 137].
On 8 February 1980, public respondent NLRC rendered its decision
containing the assailed portion to wit:
xxx xxx xxx
In fine it is our considered view that the respondent's
application for clearance to dismiss the complainant
has sufficiently surmounted the test of validity.
Be that as it may, we are not in accord with the
discontinuation of the payment of complainant's
salaries. The agreement of the parties stipulated in
no uncertain terms that the complainant [Dolina] is
to be carried in respondent's payroll until this case is
finally resolved. As things stand, the main issue is

Hence, this petition, with a prayer for a temporary restraining order.


The Court issued a temporary restraining order on 10 October
1980. Private respondent Dolina failed to file his comment and the
Solicitor General submitted his own Comment supporting the stand
of petitioner. Due to the adverse stand of the Solicitor General,
public respondent NLRC submitted its own Comment.
The issue before the Court is whether or not the NLRC committed
grave abuse of discretion in holding that private respondent Dolina
was entitled to his salaries from 1 April 1979 "until this case is
finally resolved."
PAL contends that inasmuch as the respondent Commission acting
en banc had affirmed in toto the decision of the Labor Arbiter
granting petitioner the clearance for the dismissal of private
respondent Dolina, it is an act of grave abuse of discretion
amounting to lack of jurisdiction on its part to order petitioner to
pay private respondent's salaries from 1 April 1979 until the case is
finally terminated. PAL contends that said stipulation refers only to
the resolution of the case by arbitration and said arbitration of the
case was terminated when the Labor Arbiter rendered its decision
dated 23 March 1979. PAL argues that the arbitration of the case is
limited to and comprises merely the proceedings before the Labor
Arbiter such that when the latter renders a decision, arbitration of
the dispute is terminated .

Public respondent NLRC on the other hand contends that arbitration


is a continuing process from the time the case is referred by the
Secretary of Labor to the Arbitration Branch until the final judgment
is had on appeal. Since the Labor Arbiter's decision in favor of
petitioner did not finally resolve the case in view of the timely
appeal by private respondent from said decision, the case was not
yet finally terminated by arbitration and Dolina is entitled to be
placed in petitioner's payroll until the complaint is finally resolved.
The above contentions call for the proper interpretation of the
agreement between the parties, specifically the third stipulation
containing the clause "pending final resolution of the case by
arbitration."
It is a basic rule in interpretation of contracts that the
circumstances under which an instrument was made, including the
situation of the subject thereof and the parties to it, may be
considered so that the intention of the contracting parties may be
judged correctly [Art. 1371, Civil Code of the Philippines; Section
11, Rule 130, Rules of Court; Lim v. Court of Appeals, G.R. No. L40258, September 11, 1980, 99 SCRA 668.] In the instant case, the
stipulation in the 2 March 1977 agreement that Dolina shag be
included in the payroll of PAL until final resolution of the case by
arbitration was intended to supersede the order of the Regional
Director which, by stipulation of the parties, was rendered moot
and academic. In lieu of reinstatement and the payment of his
backwages, private respondent was included in petitioner's payroll,
effective from the time he was preventively suspended until final
resolution of the case by arbitration, without having to perform any
work for the petitioner. In entering into the agreement, the parties
could not have intended to include in the clause "final resolution of
the case by arbitration" the whole adjudicatory process, including
appeal. For if it were so, even proceedings on certiorari before this
Court would be embraced by the term "arbitration" and private
respondent will continue to receive monthly salary without
rendering any service to the petitioner regardless of the outcome of
the proceedings before the Labor Arbiter, for as long as one of the
parties appeal to the NLRC and until the case is finally resolved by
this Court. This is clearly an absurdity which could not have been
contemplated by the parties.

Neither can proceedings on appeal before the NLRC en banc be


considered as part of the arbitration proceeding. In its broad sense,
arbitration is the reference of a dispute to an impartial third person,
chosen by the parties or appointed by statutory authority to hear
and decide the case in controversy [Chan Linte v. Law Union and
Rock, Ins. Co., 42 Phil. 548 (1921)]. When the consent of one of the
parties is enforced by statutory provisions, the proceeding is
referred to as compulsory arbitration. In labor cases, compulsory
arbitration is the process of settlement of labor disputes by a
government agency which has the authority to investigate and to
make an award which is binding on all the parties [See Wood v.
Seattle, 23 Wash. 1, 62 P 135, 52 LRA 369 (1920); Amalgamated
Association v. Wisconsin Employees' Relations Board, 340 U.S. 383410,95 L. Ed. 381 (1951)]. Under the Labor Code, it is the Labor
Arbiter who is clothed with the authority to conduct compulsory
arbitration on cases involving termination disputes [Article 217,
Pres. Decree No. 442, as amended]. When the Labor Arbiter renders
his decision, compulsory arbitration is deemed terminated because
by then the hearing and determination of the controversy has
ended. Any appeal raised by an aggrieved party from the Labor
Arbiter's decision is already beyond the scope of arbitration since in
the appeal stage, the NLRC en banc merely reviews the Labor
Arbiter's decision for errors of fact or law and no longer duplicates
the proceedings before the Labor Arbiter. Thus, the clause "pending
final resolution of the case by arbitration" should be understood to
be limited only to the proceedings before the Labor Arbiter, such
that when the latter rendered his decision, the case was finally
resolved by arbitration.
More important, however, is the fact that the NLRC's order for the
continued payment of Dolina's salaries is inconsistent with its
affirmance of the Labor Arbiter's decision upholding the validity of
Dolina's dismissal. In affirming the Labor Arbiter's decision granting
the termination clearance, the NLRC held that:
With respect to the issue of whether or not the
complainant's [Dolina] dismissal was sufficiently
grounded, we are not persuaded that the respondent
[herein petitioner PAL] is under obligation to employ
him as regular employee simply because he was

certified physically fit and technically to proficient by


the CAA.
This is understandable for it concerns the safety of its
properties, and above all, the safety of the lives and
properties of its passengers, which by law it is
committed to transport safely. In the absence,
therefore, of any showing that its standards are
unreasonable and discriminatory, which we do not
find here, We cannot disturb them. We can only say
that for exercising extraordinary diligence in the
selection of its pilots, We join the public in
commending it.
xxx xxx xxx
In fine, it is Our considered view that the
respondent's application for clearance to dismiss the
complainant has sufficiently surmounted the test of
validity.
In view of the above finding of valid dismissal, the NLRC had no
authority to order the continued payment of Dolina's salaries from
1 April 1979 until the case is finally resolved. The NLRC's order
would result in compensating Dolina for services no longer
rendered and when he is no longer in PAL's employ. This is contrary
to the age-old rule of "a fair day's wage for a fair day's labor" which
continues to govern the relation between labor and capital and
remains a basic factor in determining employees' wages [Durabilt
Recapping Plant & Co. v. National Labor Relations Commission, G.R.
No. 76746, July 27, 1987, 152 SCRA 328]. So that, if there is no
work performed by the employee there can be no wage or pay
unless the laborer was able, willing and ready to work but was
prevented by management or was illegally locked out, suspended
or dismissed. Where the employee's dismissal was for a just cause,
it would neither be fair nor just to allow the employee to recover
something he has not earned and could not have earned [Santos v.
National Labor Relations Commission, G.R. No. 76721, September
21, 1987, 154 SCRA 166].

Moreover, in ordering the continued payment of Dolina's salaries


from 1 April 1979 until the case is finally resolved, the NLRC in
effect ordered the payment of backwages to Dolina
notwithstanding its finding of a valid dismissal.
This is clearly untenable.
In the first place, backwages in general are granted on grounds of
equity for earnings which a worker or employee has lost due to his
illegal dismissal [New Manila Candy Workers Union (NACONWAPAFLU) v. Court of Industrial Relations, G.R. No. L-29728, October
30, 1978, 86 SCRA 37; Durabilt Recapping Plant & Co. v. National
Labor Relations Commission, supra; Chong Guan Trading v. National
Labor Relations Commission, G. R. No. 81471, April 26, 1989;
Santos v. National Labor Relations Commission, supra]. Where, as
in this case, the dismissal was for a just cause, there is no factual
or legal basis for ordering the payment of backwages. The order of
the NLRC for the continued payment of Dolina's salaries would
allow the latter to unjustly enrich himself at the expense of the
petitioner. This Court has reiterated time and again that the law, in
protecting the rights of the laborer, authorizes neither oppression
nor self-destruction of the employer [Colgate Palmolive Philippines,
Inc. v. Ople, G.R. No. 73681, June 30,1988,163 SCRA 323]. In this
case, the NLRC chose not to adhere with fidelity to this doctrine.
Secondly, NLRC's order for continued payment of Dolina's salary
from 1 April 1979 up to the final resolution of the case would place
Dolina in a better position than those workers who were found to
have been illegally dismissed by their employer. For in the latter
case, the backwages that can be recovered by the worker is limited
to three years [Mercury Drug Co., Inc. v. Court of Industrial
Relations, G.R. No. L-23357, April 30, 1974, 56 SCRA 694; Philippine
Airlines, Inc. v. National Labor Relations Commission, G.R. No.
64809, November 29, 1983, 126 SCRA 223; Madrigal & Co., Inc. v.
Zamora, G.R. No. L-48237, Madrigal & Co., Inc. v. Minister of Labor,
G.R. No. L-49023, June 30,1987] while Dolina, whose dismissal was
found to be valid, can recover approximately ten years backwages,
which corresponds to the period from 1 April 1979 until "final
resolution" of the instant case.

Considering the foregoing, the Court holds that respondent NLRC's


order for the continued payment of Dolina's salaries from "l April
1979 until the case is finally resolved" is contrary to law and
established jurisprudence and the NLRC acted in excess of its
jurisdiction in issuing the assailed order. In the recent case of Llora
Motors, Inc. v. Drilon, G.R. No. 82895, November 7, 1989 the Court
held as an act without or in excess of jurisdiction the portion of the
Labor Arbiter's award, which required the employer to pay to its
employee an amount equivalent to a half month's pay for every
year of service as retirement benefits, for being without basis either
in law or contract. Similarly, there is in this case an excess of
jurisdiction on the part of the NLRC in ordering the continued
payment of Dolina's salaries "from 1 April 1979 until the case is
finally resolved."

WHEREFORE, that part of the dispositive portion of the decision of


the National Labor Relations Commission in NLRC CASE NO. RB-IV9319-77 requiring petitioner to restore private respondent to its
payroll and ordering the payment of his salaries from 1 April 1979
until the case is finally resolved is hereby declared NULL and VOID
and SET ASIDE. The temporary Restraining Order issued by the
Court on 10 October 1980 is made PERMANENT.
SO ORDERED.

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