ADR Jurisprudence

SECOND DIVISION
TUNA PROCESSING,
INC.,
Petitioner,

G.R. No. 185582

Present:

-versus-

CARPIO, J.,
Chairperson,
BRION,
PEREZ,
SERENO, and
REYES, JJ.
Promulgated:

PHILIPPINE
KINGFORD, INC.,
Respondent.

February 29, 2012

DECISION
PEREZ, J.:
Can a foreign corporation not licensed to do business in the Philippines, but which
collects royalties from entities in the Philippines, sue here to enforce a foreign arbitral
award?
In this Petition for Review on Certiorari under Rule 45,[1] petitioner Tuna
Processing, Inc. (TPI), a foreign corporation not licensed to do business in the
Philippines, prays that the Resolution[2] dated 21 November 2008 of the Regional Trial
Court (RTC) of Makati City be declared void and the case be remanded to the RTC for

further proceedings.In the assailed Resolution, the RTC dismissed petitioners Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral Award[3] against
respondent Philippine Kingford, Inc. (Kingford), a corporation duly organized and
existing under the laws of the Philippines,[4] on the ground that petitioner lacked legal
capacity to sue.[5]
The Antecedents
On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the licensor),
co-patentee of U.S. Patent No. 5,484,619, Philippine Letters Patent No. 31138, and
Indonesian Patent No. ID0003911 (collectively referred to as the Yamaoka Patent), [6] and
five (5) Philippine tuna processors, namely, Angel Seafood Corporation, East Asia Fish
Co., Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc., and respondent
Kingford (collectively referred to as the sponsors/licensees) [7] entered into a
Memorandum of Agreement (MOA),[8] pertinent provisions of which read:
1.

Background and objectives. The Licensor, co-owner of U.S.Patent

No. 5,484,619, Philippine Patent No. 31138, and Indonesian Patent No.
ID0003911 xxx wishes to form an alliance with Sponsors for purposes of
enforcing his three aforementioned patents, granting licenses under those
patents, and collecting royalties.
The Sponsors wish to be licensed under the aforementioned patents in
order to practice the processes claimed in those patents in the United
States, the Philippines, and Indonesia, enforce those patents and collect
royalties in conjunction with Licensor.

xxx
4. Establishment of Tuna Processors, Inc. The parties hereto agree to the
establishment of Tuna Processors, Inc. (TPI), a corporation established
in the State of California, in order to implement the objectives of this
Agreement.
5. Bank account. TPI shall open and maintain bank accounts in the United
States, which will be used exclusively to deposit funds that it will collect
and to disburse cash it will be obligated to spend in connection with the
implementation of this Agreement.
6. Ownership of TPI. TPI shall be owned by the Sponsors and
Licensor. Licensor shall be assigned one share of TPI for the purpose of
being elected as member of the board of directors. The remaining shares

of TPI shall be held by the Sponsors according to their respective equity

shares. [9]
xxx
The parties likewise executed a Supplemental Memorandum of Agreement [10] dated 15
January 2003 and an Agreement to Amend Memorandum of Agreement [11] dated 14 July
2003.
Due to a series of events not mentioned in the petition, the licensees, including
respondent Kingford, withdrew from petitioner TPI and correspondingly reneged on their
obligations.[12] Petitioner submitted the dispute for arbitration before the International
Centre for Dispute Resolution in the State of California, United States and won the case
against respondent.[13] Pertinent portions of the award read:
13.1 Within thirty (30) days from the date of transmittal of this Award to
the Parties, pursuant to the terms of this award, the total sum to be paid
by RESPONDENT KINGFORD toCLAIMANT TPI, is the sum of ONE
MILLION SEVEN HUNDRED FIFTY THOUSAND EIGHT
HUNDRED FORTY SIX DOLLARS AND TEN CENTS
($1,750,846.10).
(A) For
breach
of
the MOA by
not
paying
past
due
assessments, RESPONDENT KINGFORD shall pay CLAIMANT the
total sum of TWO HUNDRED TWENTY NINE THOUSAND THREE
HUNDRED AND FIFTY FIVE DOLLARS AND NINETY CENTS
($229,355.90) which is 20% of MOA assessments since September 1,
2005[;]
(B) For breach of the MOA in failing to cooperate with CLAIMANT
TPI in fulfilling the objectives of the MOA, RESPONDENT
KINGFORD shall pay CLAIMANT the total sum ofTWO HUNDRED
SEVENTY ONE THOUSAND FOUR HUNDRED NINETY
DOLLARS AND TWENTY CENTS ($271,490.20)[;][14] and
(C) For violation of THE LANHAM ACT and infringement of
the YAMAOKA 619 PATENT, RESPONDENT KINGFORD shall
pay CLAIMANT the total sum of ONE MILLION TWO HUNDRED
FIFTY THOUSAND DOLLARS AND NO CENTS ($1,250,000.00). xxx
xxx[15]

To enforce the award, petitioner TPI filed on 10 October 2007 a Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before the RTC
of Makati City. The petition was raffled to Branch 150 presided by Judge Elmo M.
Alameda.
At Branch 150, respondent Kingford filed a Motion to Dismiss.[16] After the court
denied the motion for lack of merit,[17] respondent sought for the inhibition of Judge
Alameda and moved for the reconsideration of the order denying the motion. [18] Judge
Alameda inhibited himself notwithstanding [t]he unfounded allegations and
unsubstantiated assertions in the motion.[19] Judge Cedrick O. Ruiz of Branch 61, to which
the case was re-raffled, in turn, granted respondents Motion for Reconsideration and
dismissed the petition on the ground that the petitioner lacked legal capacity to sue in the
Philippines.[20]
Petitioner TPI now seeks to nullify, in this instant Petition for Review on
Certiorari under Rule 45, the order of the trial court dismissing its Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral Award.
Issue
The core issue in this case is whether or not the court a quo was correct in so
dismissing the petition on the ground of petitioners lack of legal capacity to sue.
Our Ruling
The petition is impressed with merit.
The Corporation Code of the Philippines expressly provides:
Sec. 133. Doing business without a license. - No foreign corporation
transacting business in the Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but
such corporation may be sued or proceeded against before Philippine courts
or administrative tribunals on any valid cause of action recognized under
Philippine laws.

It is pursuant to the aforequoted provision that the court a quo dismissed the
petition. Thus:
Herein plaintiff TPIs Petition, etc. acknowledges that it is a foreign
corporation established in the State of California and was given the
exclusive right to license or sublicense the Yamaoka Patent and was
assigned the exclusive right to enforce the said patent and collect
corresponding royalties in the Philippines. TPI likewise admits that it does
not have a license to do business in the Philippines.
There is no doubt, therefore, in the mind of this Court that TPI has
been doing business in the Philippines, but sans a license to do so issued by
the concerned government agency of the Republic of the Philippines, when
it collected royalties from five (5) Philippine tuna processors[,] namely[,]
Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna
Resources, Santa Cruz Seafoods, Inc. and respondent Philippine Kingford,
Inc. This being the real situation, TPI cannot be permitted to maintain or
intervene in any action, suit or proceedings in any court or administrative
agency of the Philippines. A priori, the Petition, etc. extant of the plaintiff
TPI should be dismissed for it does not have the legal personality to sue in
the Philippines.[21]
The petitioner counters, however, that it is entitled to seek for the recognition and
enforcement of the subject foreign arbitral award in accordance with Republic Act No.
9285 (Alternative Dispute Resolution Act of 2004),[22] the Convention on the Recognition
and Enforcement of Foreign Arbitral Awards drafted during the United Nations
Conference on International Commercial Arbitration in 1958 (New York Convention), and
the UNCITRAL Model Law on International Commercial Arbitration (Model Law),[23] as
none of these specifically requires that the party seeking for the enforcement should have
legal capacity to sue. It anchors its argument on the following:
In the present case, enforcement has been effectively refused on a ground
not found in the [Alternative Dispute Resolution Act of 2004], New York
Convention, or Model Law. It is for this reason that TPI has brought this
matter before this most Honorable Court, as it [i]s imperative to clarify
whether the Philippines international obligations and State policy to
strengthen arbitration as a means of dispute resolution may be defeated by
misplaced technical considerations not found in the relevant laws.[24]
Simply put, how do we reconcile the provisions of the Corporation Code of the
Philippines on one hand, and the Alternative Dispute Resolution Act of 2004, the New
York Convention and the Model Law on the other?

In several cases, this Court had the occasion to discuss the nature and applicability
of the Corporation Code of the Philippines, a general law, viz-a-viz other special
laws.Thus, in Koruga v. Arcenas, Jr.,[25] this Court rejected the application of the
Corporation Code and applied the New Central Bank Act. It ratiocinated:
Korugas invocation of the provisions of the Corporation Code is
misplaced. In an earlier case with similar antecedents, we ruled that:
The Corporation Code, however, is a general law
applying to all types of corporations, while the New Central
Bank Act regulates specifically banks and other financial
institutions, including the dissolution and liquidation
thereof. As between a general and special law, the latter shall
prevail generalia specialibus non derogant. (Emphasis
supplied)[26]
Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential Agrarian
Reform Council,[27] this Court held:
Without doubt, the Corporation Code is the general law providing for
the formation, organization and regulation of private corporations. On the
other hand, RA 6657 is the special law on agrarian reform. As between a
general and special law, the latter shall prevailgeneralia specialibus non
derogant.[28]

Following the same principle, the Alternative Dispute Resolution Act of 2004 shall
apply in this case as the Act, as its title - An Act to Institutionalize the Use of an
Alternative Dispute Resolution System in the Philippines and to Establish the Office for
Alternative Dispute Resolution, and for Other Purposes - would suggest, is a law
especially enacted to actively promote party autonomy in the resolution of disputes or the
freedom of the party to make their own arrangements to resolve their disputes. [29] It
specifically provides exclusive grounds available to the party opposing an application for
recognition and enforcement of the arbitral award.[30]
Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal
law, applies in the instant petition, we do not see the need to discuss compliance with
international obligations under the New York Convention and the Model Law. After all,
both already form part of the law.

In particular, the Alternative Dispute Resolution Act of 2004 incorporated the New
York Convention in the Act by specifically providing:
SEC. 42. Application of the New York Convention. - The New York
Convention shall govern the recognition and enforcement of arbitral awards
covered by the said Convention.
xxx
SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a
foreign arbitration proceeding may oppose an application for recognition
and enforcement of the arbitral award in accordance with the procedural
rules to be promulgated by the Supreme Court only on those grounds
enumerated under Article V of the New York Convention. Any other ground
raised shall be disregarded by the regional trial court.
It also expressly adopted the Model Law, to wit:
Sec. 19. Adoption of the Model Law on International Commercial
Arbitration. International commercial arbitration shall be governed by the
Model Law on International Commercial Arbitration (the Model Law)
adopted by the United Nations Commission on International Trade Law on
June 21, 1985 xxx.
Now, does a foreign corporation not licensed to do business in the Philippines
have legal capacity to sue under the provisions of the Alternative Dispute Resolution Act
of 2004? We answer in the affirmative.
Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the
opposing party in an application for recognition and enforcement of the arbitral award
may raise only those grounds that were enumerated under Article V of the New York
Convention, to wit:
Article V
1. Recognition and enforcement of the award may be refused, at the request
of the party against whom it is invoked, only if that party furnishes to the
competent authority where the recognition and enforcement is sought,
proof that:
(a) The parties to the agreement referred to in article II were, under the law
applicable to them, under some incapacity, or the said agreement is not
valid under the law to which the parties have subjected it or, failing any
indication thereon, under the law of the country where the award was
made; or

(b) The party against whom the award is invoked was not given proper
notice of the appointment of the arbitrator or of the arbitration proceedings
or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not falling
within the terms of the submission to arbitration, or it contains decisions on
matters beyond the scope of the submission to arbitration, provided that, if
the decisions on matters submitted to arbitration can be separated from
those not so submitted, that part of the award which contains decisions on
matters submitted to arbitration may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was
not in accordance with the agreement of the parties, or, failing such
agreement, was not in accordance with the law of the country where the
arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set
aside or suspended by a competent authority of the country in which, or
under the law of which, that award was made.
2. Recognition and enforcement of an arbitral award may also be refused if
the competent authority in the country where recognition and enforcement
is sought finds that:
(a) The subject matter of the difference is not capable of settlement by
arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to the
public policy of that country.
Clearly, not one of these exclusive grounds touched on the capacity to sue of the party
seeking the recognition and enforcement of the award.
Pertinent provisions of the Special Rules of Court on Alternative Dispute
Resolution,[31] which was promulgated by the Supreme Court, likewise support this
position.
Rule 13.1 of the Special Rules provides that [a]ny party to a foreign arbitration
may petition the court to recognize and enforce a foreign arbitral award. The contents of
such petition are enumerated in Rule 13.5. [32] Capacity to sue is not included. Oppositely,
in the Rule on local arbitral awards or arbitrations in instances where the place of
arbitration is in the Philippines,[33] it is specifically required that a petition to determine
any question concerning the existence, validity and enforceability of such arbitration
agreement[34] available to the parties before the commencement of arbitration and/or a
petition for judicial relief from the ruling of the arbitral tribunal on a preliminary question
upholding or declining its jurisdiction[35] after arbitration has already commenced should

state [t]he facts showing that the persons named as petitioner or respondent have legal
capacity to sue or be sued.[36]
Indeed, it is in the best interest of justice that in the enforecement of a
foreign arbitral award, we deny availment by the losing party of the rule that bars foreign
corporations not licensed to do business in the Philippines from maintaining a suit in our
courts. When a party enters into a contract containing a foreign arbitration clause and, as
in this case, in fact submits itself to arbitration, it becomes bound by the contract, by the
arbitration and by the result of arbitration, conceding thereby the capacity of
the otherparty to enter into the contract, participate in the arbitration and cause the
implementation of the result. Although not on all fours with the instant case, also worthy
to consider is the wisdom of then Associate Justice Flerida Ruth P. Romero in her
Dissenting Opinion in Asset Privatization Trust v. Court of Appeals,[37] to wit:
xxx Arbitration, as an alternative mode of settlement, is gaining
adherents in legal and judicial circles here and abroad. If its tested
mechanism can simply be ignored by an aggrieved party, one who, it must
be stressed, voluntarily and actively participated in the arbitration
proceedings from the very beginning, it will destroy the very essence of
mutuality inherent in consensual contracts.[38]
Clearly, on the matter of capacity to sue, a foreign arbitral award should be
respected not because it is favored over domestic laws and procedures, but because
Republic Act No. 9285 has certainly erased any conflict of law question.
Finally, even assuming, only for the sake of argument, that the court a
quo correctly observed that the Model Law, not the New York Convention, governs the
subject arbitral award,[39] petitioner may still seek recognition and enforcement of the
award in Philippine court, since the Model Law prescribes substantially identical
exclusive grounds for refusing recognition or enforcement.[40]
Premises considered, petitioner TPI, although not licensed to do business in the
Philippines, may seek recognition and enforcement of the foreign arbitral award in
accordance with the provisions of the Alternative Dispute Resolution Act of 2004.
II
The remaining arguments of respondent Kingford are likewise unmeritorious.

First. There is no need to consider respondents contention that petitioner TPI

improperly raised a question of fact when it posited that its act of entering into a MOA
should not be considered doing business in the Philippines for the purpose of determining
capacity to sue. We reiterate that the foreign corporations capacity to sue in the
Philippines is not material insofar as the recognition and enforcement of a foreign arbitral
award is concerned.
Second. Respondent cannot fault petitioner for not filing a motion for
reconsideration of the assailed Resolution dated 21 November 2008 dismissing the
case. We have, time and again, ruled that the prior filing of a motion for reconsideration
is not required in certiorari under Rule 45.[41]
Third. While we agree that petitioner failed to observe the principle of hierarchy
of courts, which, under ordinary circumstances, warrants the outright dismissal of the
case,[42] we opt to relax the rules following the pronouncement in Chua v. Ang,[43] to wit:
[I]t must be remembered that [the principle of hierarchy of courts]
generally applies to cases involving conflicting factual allegations. Cases
which depend on disputed facts for decision cannot be brought immediately
before us as we are not triers of facts.[44] A strict application of this rule
may be excused when the reason behind the rule is not present in a case, as
in the present case, where the issues are not factual but purely legal. In
these types of questions, this Court has the ultimate say so that we merely
abbreviate the review process if we, because of the unique circumstances of
a case, choose to hear and decide the legal issues outright.[45]
Moreover, the novelty and the paramount importance of the issue herein raised should be
seriously considered.[46] Surely, there is a need to take cognizance of the case not only to
guide the bench and the bar, but if only to strengthen arbitration as a means of dispute
resolution, and uphold the policy of the State embodied in the Alternative Dispute
Resolution Act of 2004, to wit:
Sec. 2. Declaration of Policy. - It is hereby declared the policy of
the State to actively promote party autonomy in the resolution of disputes
or the freedom of the party to make their own arrangements to resolve their
disputes. Towards this end, the State shall encourage and actively promote
the use of Alternative Dispute Resolution (ADR) as an important means to
achieve speedy and impartial justice and declog court dockets. xxx

Fourth. As regards the issue on the validity and enforceability of the foreign
arbitral award, we leave its determination to the court a quo where its recognition and
enforcement is being sought.
Fifth. Respondent claims that petitioner failed to furnish the court of origin a copy
of the motion for time to file petition for review on certiorari before the petition was filed
with this Court.[47] We, however, find petitioners reply in order. Thus:
26. Admittedly, reference to Branch 67 in petitioner TPIs Motion
for Time to File a Petition for Review on Certiorari under Rule 45 is a
typographical error. As correctly pointed out by respondent Kingford, the
order sought to be assailed originated from Regional Trial Court, Makati
City, Branch 61.
27. xxx Upon confirmation with the Regional Trial Court, Makati
City, Branch 61, a copy of petitioner TPIs motion was received by the
Metropolitan Trial Court, Makati City, Branch 67. On 8 January 2009, the
motion was forwarded to the Regional Trial Court, Makati City, Branch 61.
[48]

All considered, petitioner TPI, although a foreign corporation not licensed to do

business in the Philippines, is not, for that reason alone, precluded from filing
the Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral
Award before a Philippine court.
WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial
Court, Branch 61, Makati City in Special Proceedings No. M-6533 is
hereby REVERSED and SET ASIDE. The case is REMANDED to Branch 61 for
further proceedings.
SO ORDERED.

Republic of the Philippines

Supreme Court
Manila

SECOND DIVISION
CARGILL PHILIPPINES, INC.,
Petitioner,

G.R. No. 175404

Present:
CARPIO, J., Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

- versus -

SAN FERNANDO REGALA TRADING,

INC.,
Respondent.

Promulgated:
January 31, 2011

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

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

On June 18, 1998, respondent San Fernando Regala Trading, Inc. filed with the Regional
Trial Court (RTC) of Makati City a Complaint for Rescission of Contract with
Damages[3] against petitioner Cargill Philippines, Inc. In its Complaint, respondent
alleged that it was engaged in buying and selling of molasses and petitioner was one of its
various sources from whom it purchased molasses. Respondent alleged that it entered into
a contract dated July 11, 1996 with petitioner, wherein it was agreed upon that respondent
would purchase from petitioner 12,000 metric tons of Thailand origin cane blackstrap
molasses at the price of US$192 per metric ton; that the delivery of the molasses was to
be made in January/February 1997 and payment was to be made by means of an
Irrevocable Letter of Credit payable at sight, to be opened by September 15, 1996; that
sometime prior to September 15, 1996, the parties agreed that instead of
January/February 1997, the delivery would be made in April/May 1997 and that payment
would be by an Irrevocable Letter of Credit payable at sight, to be opened upon
petitioner's advice. Petitioner, as seller, failed to comply with its obligations under the
contract, despite demands from respondent, thus, the latter prayed for rescission of the
contract and payment of damages.
On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend Proceedings and To Refer
Controversy to Voluntary Arbitration,[4] wherein it argued that the alleged contract
between the parties, dated July 11, 1996, was never consummated because respondent
never returned the proposed agreement bearing its written acceptance or conformity nor
did respondent open the Irrevocable Letter of Credit at sight. Petitioner contended that the
controversy between the parties was whether or not the alleged contract between the
parties was legally in existence and the RTC was not the proper forum to ventilate such
issue. It claimed that the contract contained an arbitration clause, to wit:

ARBITRATION
Any dispute which the Buyer and Seller may not be able to settle by mutual
agreement shall be settled by arbitration in the City of New York before the
American Arbitration Association. The Arbitration Award shall be final and
binding on both parties.[5]
that respondent must first comply with the arbitration clause before resorting to court,
thus, the RTC must either dismiss the case or suspend the proceedings and direct the
parties to proceed with arbitration, pursuant to Sections 6 [6] and 7[7] of Republic Act
(R.A.) No. 876, or the Arbitration Law.
Respondent filed an Opposition, wherein it argued that the RTC has jurisdiction over the
action for rescission of contract and could not be changed by the subject arbitration
clause. It cited cases wherein arbitration clauses, such as the subject clause in the
contract, had been struck down as void for being contrary to public policy since it
provided that the arbitration award shall be final and binding on both parties, thus,
ousting the courts of jurisdiction.
In its Reply, petitioner maintained that the cited decisions were already inapplicable,
having been rendered prior to the effectivity of the New Civil Code in 1950 and the
Arbitration Law in 1953.
In its Rejoinder, respondent argued that the arbitration clause relied upon by petitioner is
invalid and unenforceable, considering that the requirements imposed by the provisions
of the Arbitration Law had not been complied with.
By way of Sur-Rejoinder, petitioner contended that respondent had even clarified that the
issue boiled down to whether the arbitration clause contained in the contract subject of
the complaint is valid and enforceable; that the arbitration clause did not violate any of
the cited provisions of the Arbitration Law.
On September 17, 1998, the RTC rendered an Order,[8] the dispositive portion of which
reads:
Premises considered, defendant's Motion To Dismiss/Suspend Proceedings
and To Refer Controversy To Voluntary Arbitration is hereby DENIED.
Defendant is directed to file its answer within ten (10) days from receipt of
a copy of this order.[9]

In denying the motion, the RTC found that there was no clear basis for petitioner's plea to
dismiss the case, pursuant to Section 7 of the Arbitration Law. The RTC said that the
provision directed the court concerned only to stay the action or proceeding brought upon
an issue arising out of an agreement providing for the arbitration thereof, but did not
impose the sanction of dismissal. However, the RTC did not find the suspension of the
proceedings warranted, since the Arbitration Law contemplates an arbitration proceeding
that must be conducted in the Philippines under the jurisdiction and control of the RTC;
and before an arbitrator who resides in the country; and that the arbitral award is subject
to court approval, disapproval and modification, and that there must be an appeal from
the judgment of the RTC. The RTC found that the arbitration clause in question
contravened these procedures, i.e., the arbitration clause contemplated an arbitration
proceeding in New York before a non-resident arbitrator (American Arbitration
Association); that the arbitral award shall be final and binding on both parties. The RTC
said that to apply Section 7 of the Arbitration Law to such an agreement would result in
disregarding the other sections of the same law and rendered them useless and mere
surplusages.
Petitioner filed its Motion for Reconsideration, which the RTC denied in an
Order[10] dated November 25, 1998.
Petitioner filed a petition for certiorari with the CA raising the sole issue that the RTC
acted in excess of jurisdiction or with grave abuse of discretion in refusing to dismiss or
at least suspend the proceedings a quo, despite the fact that the party's agreement to
arbitrate had not been complied with.
Respondent filed its Comment and Reply. The parties were then required to file their
respective Memoranda.
On July 31, 2006, the CA rendered its assailed Decision denying the petition and
affirming the RTC Orders.
In denying the petition, the CA found that stipulation providing for arbitration in
contractual obligation is both valid and constitutional; that arbitration as an alternative
mode of dispute resolution has long been accepted in our jurisdiction and expressly
provided for in the Civil Code; that R.A. No. 876 (the Arbitration Law) also expressly
authorized the arbitration of domestic disputes. The CA found error in the RTC's holding
that Section 7 of R.A. No. 876 was inapplicable to arbitration clause simply because the
clause failed to comply with the requirements prescribed by the law. The CA found that
there was nothing in the Civil Code, or R.A. No. 876, that require that arbitration
proceedings must be conducted only in the Philippines and the arbitrators should be

Philippine residents. It also found that the RTC ruling effectively invalidated not only the
disputed arbitration clause, but all other agreements which provide for foreign arbitration.
The CA did not find illegal or against public policy the arbitration clause so as to render it
null and void or ineffectual.
Notwithstanding such findings, the CA still held that the case cannot be brought under the
Arbitration Law for the purpose of suspending the proceedings before the RTC, since in
its Motion to Dismiss/Suspend proceedings, petitioner alleged, as one of the grounds
thereof, that the subject contract between the parties did not exist or it was invalid; that
the said contract bearing the arbitration clause was never consummated by the parties,
thus, it was proper that such issue be first resolved by the court through an appropriate
trial; that the issue involved a question of fact that the RTC should first
resolve. Arbitration is not proper when one of the parties repudiated the existence or
validity of the contract.
Petitioner's motion for reconsideration was denied in a Resolution dated November 13,
2006.
Hence, this petition.
Petitioner alleges that the CA committed an error of law in ruling that arbitration
cannot proceed despite the fact that: (a) it had ruled, in its assailed decision, that the
arbitration clause is valid, enforceable and binding on the parties; (b) the case
of Gonzales v. Climax Mining Ltd.[11] is inapplicable here; (c) parties are generally
allowed, under the Rules of Court, to adopt several defenses, alternatively or
hypothetically, even if such

defenses are inconsistent with each other; and (d) the complaint filed by respondent with
the trial court is premature.
Petitioner alleges that the CA adopted inconsistent positions when it found the arbitration
clause between the parties as valid and enforceable and yet in the same breath decreed
that the arbitration cannot proceed because petitioner assailed the existence of the entire
agreement containing the arbitration clause. Petitioner claims the inapplicability of the
cited Gonzales case decided in 2005, because in the present case, it was respondent who
had filed the complaint for rescission and damages with the RTC, which based its cause
of action against petitioner on the alleged agreement dated July 11, 2006 between the
parties; and that the same agreement contained the arbitration clause sought to be
enforced by petitioner in this case. Thus, whether petitioner assails the genuineness and
due execution of the agreement, the fact remains that the agreement sued upon provides
for an arbitration clause; that respondent cannot use the provisions favorable to him and
completely disregard those that are unfavorable, such as the arbitration clause.
Petitioner contends that as the defendant in the RTC, it presented two alternative
defenses, i.e., the parties had not entered into any agreement upon which respondent as
plaintiff can sue upon; and, assuming that such agreement existed, there was an
arbitration clause that should be enforced, thus, the dispute must first be submitted to
arbitration before an action can be instituted in court. Petitioner argues that under Section
1(j) of Rule 16 of the Rules of Court, included as a ground to dismiss a complaint is when
a condition precedent for filing the complaint has not been complied with; and that
submission to arbitration when such has been agreed upon is one such condition
precedent. Petitioner submits that the proceedings in the RTC must be dismissed, or at
least suspended, and the parties be ordered to proceed with arbitration.
On March 12, 2007, petitioner filed a Manifestation[12] saying that the CA's rationale in
declining to order arbitration based on the 2005 Gonzales ruling had been modified upon
a motion for reconsideration decided in 2007; that the CA decision lost its legal basis,
because it had been ruled that the arbitration agreement can be implemented
notwithstanding that one of the parties thereto repudiated the contract which contained
such agreement based on the doctrine of separability.
In its Comment, respondent argues that certiorari under Rule 65 is not the remedy
against an order denying a Motion to Dismiss/Suspend Proceedings and To Refer
Controversy to Voluntary Arbitration. It claims that the Arbitration Law which petitioner

invoked as basis for its Motion prescribed, under its Section 29, a remedy, i.e., appeal by
a petition for review on certiorari under Rule 45. Respondent contends that
the Gonzales case, which was decided in 2007, is inapplicable in this case, especially as
to the doctrine of separability enunciated therein. Respondent argues that even if the
existence of the contract and the arbitration clause is conceded, the decisions of the RTC
and the CA declining referral of the dispute between the parties to arbitration would still
be correct. This is so because respondent's complaint filed in Civil Case No. 98-1376
presents the principal issue of whether under the facts alleged in the complaint,
respondent is entitled to rescind its contract with petitioner and for the latter to pay
damages; that such issue constitutes a judicial question or one that requires the exercise
of judicial function and cannot be the subject of arbitration.
Respondent contends that Section 8 of the Rules of Court, which allowed a defendant to
adopt in the same action several defenses, alternatively or hypothetically, even if such
defenses are inconsistent with each other refers to allegations in the pleadings, such as
complaint, counterclaim, cross-claim, third-party complaint, answer, but not to a motion
to dismiss. Finally, respondent claims that petitioner's argument is premised on the
existence of a contract with respondent containing a provision for arbitration. However,
its reliance on the contract, which it repudiates, is inappropriate.
In its Reply, petitioner insists that respondent filed an action for rescission and damages
on the basis of the contract, thus, respondent admitted the existence of all the provisions
contained thereunder, including the arbitration clause; that if respondent relies on said
contract for its cause of action against petitioner, it must also consider itself bound by the
rest of the terms and conditions contained thereunder notwithstanding that respondent
may find some provisions to be adverse to its position; that respondents citation of
theGonzales case, decided in 2005, to show that the validity of the contract cannot be the
subject of the arbitration proceeding and that it is the RTC which has the jurisdiction to
resolve the situation between the parties herein, is not correct since in the resolution of
the Gonzales' motion for reconsideration in 2007, it had been ruled that an arbitration
agreement is effective notwithstanding the fact that one of the parties thereto repudiated
the main contract which contained it.
We first address the procedural issue raised by respondent that petitioners petition
for certiorari under Rule 65 filed in the CA against an RTC Order denying a Motion to
Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary Arbitration was a
wrong remedy invoking Section 29 of R.A. No. 876, which provides:

Section 29.
x x x An appeal may be taken from an order made in a proceeding under
this Act, or from a judgment entered upon an award
through certiorari proceedings, but such appeals shall be limited to
question of law. x x x.

To support its argument, respondent cites the case of Gonzales v. Climax Mining Ltd.
[13]
(Gonzales case), wherein we ruled the impropriety of a petition for certiorari under
Rule 65 as a mode of appeal from an RTC Order directing the parties to arbitration.
We find the cited case not in point.
In the Gonzales case, Climax-Arimco filed before the RTC of Makati a petition to compel
arbitration under R.A. No. 876, pursuant to the arbitration clause found in the Addendum
Contract it entered with Gonzales. Judge Oscar Pimentel of the RTC of Makati then
directed the parties to arbitration proceedings. Gonzales filed a petition forcertiorari with
Us contending that Judge Pimentel acted with grave abuse of discretion in immediately
ordering the parties to proceed with arbitration despite the proper, valid and timely raised
argument in his Answer with counterclaim that the Addendum Contract containing the
arbitration clause was null and void. Climax-Arimco assailed the mode of review availed
of by Gonzales, citing Section 29 of R.A. No. 876 contending that certiorari under Rule
65 can be availed of only if there was no appeal or any adequate remedy in the ordinary
course of law; that R.A. No. 876 provides for an appeal from such order. We then ruled
that Gonzales' petition for certiorari should be dismissed as it was filed in lieu of an
appeal by certiorari which was the prescribed remedy under R.A. No. 876 and the
petition was filed far beyond the reglementary period.
We found that Gonzales petition for certiorari raises a question of law, but not a question
of jurisdiction; that Judge Pimentel acted in accordance with the procedure prescribed in
R.A. No. 876 when he ordered Gonzales to proceed with arbitration and appointed a sole
arbitrator after making the determination that there was indeed an arbitration agreement.
It had been held that as long as a court acts within its jurisdiction and does not gravely
abuse its discretion in the exercise thereof, any supposed error committed by it will
amount to nothing more than an error of judgment reviewable by a timely appeal and not
assailable by a special civil action of certiorari.[14]

In this case, petitioner raises before the CA the issue that the respondent Judge acted in
excess of jurisdiction or with grave abuse of discretion in refusing to dismiss, or at least
suspend, the proceedings a quo, despite the fact that the partys agreement to arbitrate had
not been complied with. Notably, the RTC found the existence of the arbitration clause,
since it said in its decision that hardly disputed is the fact that the arbitration clause in
question contravenes several provisions of the Arbitration Law x x x and to apply Section
7 of the Arbitration Law to such an agreement would result in the disregard of the aforecited sections of the Arbitration Law and render them useless and mere
surplusages.However, notwithstanding the finding that an arbitration agreement existed,
the RTC denied petitioner's motion and directed petitioner to file an answer.
In La Naval Drug Corporation v. Court of Appeals,[15] it was held that R.A. No.
876 explicitly confines the courts authority only to the determination of whether or not
there is an agreement in writing providing for arbitration. In the affirmative, the statute
ordains that the court shall issue an order summarily directing the parties to proceed with
the arbitration in accordance with the terms thereof. If the court, upon the other hand,
finds that no such agreement exists, the proceedings shall be dismissed.
In issuing the Order which denied petitioner's Motion to Dismiss/Suspend
Proceedings and to Refer Controversy to Voluntary Arbitration, the RTC went beyond its
authority of determining only the issue of whether or not there is an agreement in writing
providing for arbitration by directing petitioner to file an answer, instead of ordering the
parties to proceed to arbitration. In so doing, it acted in excess of its jurisdiction and since
there is no plain, speedy, and adequate remedy in the ordinary course of law, petitioners
resort to a petition for certiorari is the proper remedy.
We now proceed to the substantive issue of whether the CA erred in finding that
this case cannot be brought under the arbitration law for the purpose of suspending the
proceedings in the RTC.
We find merit in the petition.
Arbitration, as an alternative mode of settling disputes, has long been recognized
and accepted in our jurisdiction.[16] R.A. No. 876[17] authorizes arbitration of domestic
disputes. Foreign arbitration, as a system of settling commercial disputes of an
international character, is likewise recognized.[18] The enactment of R.A. No. 9285
on April 2, 2004 further institutionalized the use of alternative dispute resolution systems,
including arbitration, in the settlement of disputes.[19]

A contract is required for arbitration to take place and to be binding.

[20]
Submission to arbitration is a contract [21] and a clause in a contract providing that all
matters in dispute between the parties shall be referred to arbitration is a contract. [22] The
provision to submit to arbitration any dispute arising therefrom and the relationship of the
parties is part of the contract and is itself a contract.[23]
In this case, the contract sued upon by respondent provides for an arbitration
clause, to wit:
ARBITRATION
Any dispute which the Buyer and Seller may not be able to settle by mutual
agreement shall be settled by arbitration in the City of New York before the
American Arbitration Association, The Arbitration Award shall be final and
binding on both parties.
The CA ruled that arbitration cannot be ordered in this case, since petitioner alleged that
the contract between the parties did not exist or was invalid and arbitration is not proper
when one of the parties repudiates the existence or validity of the contract. Thus, said the
CA:
Notwithstanding our ruling on the validity and enforceability of the assailed
arbitration clause providing for foreign arbitration, it is our considered
opinion that the case at bench still cannot be brought under the Arbitration
Law for the purpose of suspending the proceedings before the trial court.
We note that in its Motion to Dismiss/Suspend Proceedings, etc, petitioner
Cargill alleged, as one of the grounds thereof, that the alleged contract
between the parties do not legally exist or is invalid. As posited by
petitioner, it is their contention that the said contract, bearing the arbitration
clause, was never consummated by the parties. That being the case, it is but
proper that such issue be first resolved by the court through an appropriate
trial. The issue involves a question of fact that the trial court should first
resolve.
Arbitration is not proper when one of the parties repudiates the existence
or validity of the contract. Apropos is Gonzales v. Climax Mining Ltd.,
452 SCRA 607, (G.R.No.161957), where the Supreme Court held that:
The question of validity of the contract
containing the agreement to submit to arbitration will
affect the applicability of the arbitration clause itself. A
party cannot rely on the contract and claim rights or
obligations under it and at the same time impugn its

existence or validity. Indeed, litigants are enjoined from

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

However, the Gonzales case,[25] which the CA relied upon for not ordering arbitration,
had been modified upon a motion for reconsideration in this wise:
x x x The adjudication of the petition in G.R. No. 167994 effectively
modifies part of the Decision dated 28 February 2005 in G.R. No.
161957. Hence, we now hold that the validity of the contract containing
the agreement to submit to arbitration does not affect the applicability
of the arbitration clause itself. A contrary ruling would suggest that a
party's mere repudiation of the main contract is sufficient to avoid
arbitration. That is exactly the situation that the separability doctrine,
as well as jurisprudence applying it, seeks to avoid. We add that when it
was declared in G.R. No. 161957 that the case should not be brought for
arbitration, it should be clarified that the case referred to is the case actually
filed by Gonzales before the DENR Panel of Arbitrators, which was for the
nullification of the main contract on the ground of fraud, as it had already
been determined that the case should have been brought before the regular
courts involving as it did judicial issues.[26]
In so ruling that the validity of the contract containing the arbitration agreement does not
affect the applicability of the arbitration clause itself, we then applied the doctrine of
separability, thus:
The doctrine of separability, or severability as other writers call it,
enunciates that an arbitration agreement is independent of the main
contract. The arbitration agreement is to be treated as a separate agreement
and the arbitration agreement does not automatically terminate when the
contract of which it is a part comes to an end.
The separability of the arbitration agreement is especially significant to the
determination of whether the invalidity of the main contract also nullifies
the arbitration clause. Indeed, the doctrine denotes that the invalidity of the

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

Respondent argues that the separability doctrine is not applicable in petitioner's

case, since in the Gonzales case, Climax-Arimco sought to enforce the arbitration clause
of its contract with Gonzales and the former's move was premised on the existence of a
valid contract; while Gonzales, who resisted the move of Climax-Arimco for arbitration,
did not deny the existence of the contract but merely assailed the validity thereof on the
ground of fraud and oppression. Respondent claims that in the case before Us, petitioner
who is the party insistent on arbitration also claimed in their Motion to Dismiss/Suspend
Proceedings that the contract sought by respondent to be rescinded did not exist or was
not consummated; thus, there is no room for the application of the separability doctrine,
since there is no container or main contract or an arbitration clause to speak of.
We are not persuaded.
Applying the Gonzales ruling, an arbitration agreement which forms part of the
main contract shall not be regarded as invalid or non-existent just because the main
contract is invalid or did not come into existence, since the arbitration agreement shall be
treated as a separate agreement independent of the main contract. To reiterate. a contrary
ruling would suggest that a party's mere repudiation of the main contract is sufficient to
avoid arbitration and that is exactly the situation that the separability doctrine sought to
avoid. Thus, we find that even the party who has repudiated the main contract is not
prevented from enforcing its arbitration clause.
Moreover, it is worthy to note that respondent filed a complaint for rescission of
contract and damages with the RTC. In so doing, respondent alleged that a contract exists
between respondent and petitioner. It is that contract which provides for an arbitration
clause which states that any dispute which the Buyer and Seller may not be able to settle
by mutual agreement shall be settled before the City of New York by the American
Arbitration Association. The arbitration agreement clearly expressed the parties' intention
that any dispute between them as buyer and seller should be referred to arbitration. It is
for the arbitrator and not the courts to decide whether a contract between the parties exists
or is valid.
Respondent contends that assuming that the existence of the contract and the arbitration
clause is conceded, the CA's decision declining referral of the parties' dispute to
arbitration is still correct. It claims that its complaint in the RTC presents the issue of

whether under the facts alleged, it is entitled to rescind the contract with damages; and
that issue constitutes a judicial question or one that requires the exercise of judicial
function and cannot be the subject of an arbitration proceeding. Respondent cites our
ruling inGonzales, wherein we held that a panel of arbitrator is bereft of jurisdiction over
the complaint for declaration of nullity/or termination of the subject contracts on the
grounds of fraud and oppression attendant to the execution of the addendum contract and
the other contracts emanating from it, and that the complaint should have been filed with
the regular courts as it involved issues which are judicial in nature.
Such argument is misplaced and respondent cannot rely on the Gonzales case to support
its argument.
In Gonzales, petitioner Gonzales filed a complaint before the Panel of Arbitrators, Region
II, Mines and Geosciences Bureau, of the Department of Environment and Natural
Resources (DENR) against respondents Climax- Mining Ltd, Climax-Arimco and
Australasian Philippines Mining Inc, seeking the declaration of nullity or termination of
the addendum contract and the other contracts emanating from it on the grounds of fraud
and oppression. The Panel dismissed the complaint for lack of jurisdiction. However, the
Panel, upon petitioner's motion for reconsideration, ruled that it had jurisdiction over the
dispute maintaining that it was a mining dispute, since the subject complaint arose from a
contract between the parties which involved the exploration and exploitation of minerals
over the disputed area. Respondents assailed the order of the Panel of Arbitrators via a
petition for certiorari before the CA. The CA granted the petition and declared that the
Panel of Arbitrators did not have jurisdiction over the complaint, since its jurisdiction was
limited to the resolution of mining disputes, such as those which raised a question of fact
or matter requiring the technical knowledge and experience of mining authorities and not
when the complaint alleged fraud and oppression which called for the interpretation and
application of laws. The CA further ruled that the petition should have been settled
through arbitration under R.A. No. 876 the Arbitration Law as provided under the
addendum contract.
On a review on certiorari, we affirmed the CAs finding that the Panel of Arbitrators who,
under R.A. No. 7942 of the Philippine Mining Act of 1995, has exclusive and original
jurisdiction to hear and decide mining disputes, such as mining areas, mineral
agreements, FTAAs or permits and surface owners, occupants and
claimholders/concessionaires, is bereft of jurisdiction over the complaint for declaration
of nullity of the addendum contract; thus, the Panels' jurisdiction is limited only to those

mining disputes which raised question of facts or matters requiring the technical
knowledge and experience of mining authorities. We then said:
In Pearson v. Intermediate Appellate Court, this Court observed that
the trend has been to make the adjudication of mining cases a purely
administrative matter. Decisions of the Supreme Court on mining disputes
have recognized a distinction between (1) the primary powers granted by
pertinent provisions of law to the then Secretary of Agriculture and Natural
Resources (and the bureau directors) of an executive or administrative
nature, such as granting of license, permits, lease and contracts, or
approving, rejecting, reinstating or canceling applications, or deciding
conflicting applications, and (2) controversies or disagreements of civil or
contractual nature between litigants which are questions of a judicial nature
that may be adjudicated only by the courts of justice. This distinction is
carried on even in Rep. Act No. 7942.[28]
We found that since the complaint filed before the DENR Panel of Arbitrators
charged respondents with disregarding and ignoring the addendum contract, and acting in
a fraudulent and oppressive manner against petitioner, the complaint filed before the
Panel was not a dispute involving rights to mining areas, or was it a dispute involving
claimholders or concessionaires, but essentially judicial issues. We then said that the
Panel of Arbitrators did not have jurisdiction over such issue, since it does not involve the
application of technical knowledge and expertise relating to mining. It is in this context
that we said that:
Arbitration before the Panel of Arbitrators is proper only when there is a
disagreement between the parties as to some provisions of the contract
between them, which needs the interpretation and the application of that
particular knowledge and expertise possessed by members of that Panel. It
is not proper when one of the parties repudiates the existence or validity
of such contract or agreement on the ground of fraud or oppression as in
this case. The validity of the contract cannot be subject of arbitration
proceedings. Allegations of fraud and duress in the execution of a contract
are matters within the jurisdiction of the ordinary courts of law. These
questions are legal in nature and require the application and interpretation
of laws and jurisprudence which is necessarily a judicial function.[29]
In fact, We even clarified in our resolution on Gonzales motion for reconsideration that
when we declared that the case should not be brought for arbitration, it should be clarified
that the case referred to is the case actually filed by Gonzales before the DENR Panel of
Arbitrators, which was for the nullification of the main contract on the ground of fraud, as
it had already been determined that the case should have been brought before the regular

courts involving as it did judicial issues. We made such clarification in our resolution of
the motion for reconsideration after ruling that the parties in that case can proceed to
arbitration under the Arbitration Law, as provided under the Arbitration Clause in their
Addendum Contract.
WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2006 and
the Resolution dated November 13, 2006 of the Court of Appeals in CA-G.R. SP No.
50304
are REVERSED
and
SET
ASIDE. The
parties
are
hereby ORDERED to SUBMIT themselves to the arbitration of their dispute, pursuant
to their July 11, 1996agreement.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

BENGUET CORPORATION, G.R. No. 163101

Petitioner,
Present:
- versus - QUISUMBING, J., Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
DEPARTMENT OF ENVIRONMENT VELASCO, JR., JJ.
AND NATURAL RESOURCES
-MINES ADJUDICATION BOARD
and J.G. REALTY AND MINING Promulgated:
CORPORATION,
Respondents. February 13, 2008
x-----------------------------------------------------------------------------------------x
DECISION
VELASCO, JR., J.:
The instant petition under Rule 65 of the Rules of Court seeks the annulment of the
December 2, 2002 Decision[1] and March 17, 2004 Resolution[2] of the Department of
Environment and Natural Resources-Mining Adjudication Board (DENR-MAB) in MAB
Case No. 0124-01 (Mines Administrative Case No. R-M-2000-01) entitled Benguet
Corporation (Benguet) v. J.G. Realty and Mining Corporation (J.G. Realty). The
December 2, 2002 Decision upheld the March 19, 2001 Decision [3] of the MAB Panel of
Arbitrators (POA) which canceled the Royalty Agreement with Option to Purchase
(RAWOP) dated June 1, 1987[4] between Benguet and J.G. Realty, and excluded Benguet
from the joint Mineral Production Sharing Agreement (MPSA) application over four
mining claims. The March 17, 2004 Resolution denied Benguets Motion for
Reconsideration.
The Facts
On June 1, 1987, Benguet and J.G. Realty entered into a RAWOP, wherein J.G. Realty
was acknowledged as the owner of four mining claims respectively named as Bonito-I,
Bonito-II, Bonito-III, and Bonito-IV, with a total area of 288.8656 hectares, situated in
Barangay Luklukam, Sitio Bagong Bayan, Municipality of Jose Panganiban, Camarines
Norte. The parties also executed a Supplemental Agreement [5] dated June 1, 1987. The
mining claims were covered by MPSA Application No. APSA-V-0009 jointly filed by
J.G. Realty as claimowner and Benguet as operator.

In the RAWOP, Benguet obligated itself to perfect the rights to the mining claims and/or
otherwise acquire the mining rights to the mineral claims. Within 24 months from the
execution of the RAWOP, Benguet should also cause the examination of the mining
claims for the purpose of determining whether or not they are worth developing with
reasonable probability of profitable production. Benguet undertook also to furnish J.G.
Realty with a report on the examination, within a reasonable time after the completion of
the examination. Moreover, also within the examination period, Benguet shall conduct all
necessary exploration in accordance with a prepared exploration program. If it chooses to
do so and before the expiration of the examination period, Benguet may undertake to
develop the mining claims upon written notice to J.G. Realty. Benguet must then place
the mining claims into commercial productive stage within 24 months from the written
notice.[6] It is also provided in the RAWOP that if the mining claims were placed in
commercial production by Benguet, J.G. Realty should be entitled to a royalty of five
percent (5%) of net realizable value, and to royalty for any production done by Benguet
whether during the examination or development periods.
Thus, on August 9, 1989, the Executive Vice-President of Benguet, Antonio N.
Tachuling, issued a letter informing J.G. Realty of its intention to develop the mining
claims. However, on February 9, 1999, J.G. Realty, through its President, Johnny L. Tan,
then sent a letter to the President of Benguet informing the latter that it was terminating
the RAWOP on the following grounds:
a.
The fact that your company has failed to perform the
obligations set forth in the RAWOP, i.e., to undertake development works
within 2 years from the execution of the Agreement;
b.
Violation of the Contract by allowing high graders to operate
on our claim.
c.
No stipulation was provided with respect to the term limit of
the RAWOP.
d.
Non-payment of the royalties thereon as provided in the
[7]
RAWOP.

In response, Benguets Manager for Legal Services, Reynaldo P. Mendoza, wrote

J.G. Realty a letter dated March 8, 1999,[8] therein alleging that Benguet complied with

its obligations under the RAWOP by investing PhP 42.4 million to rehabilitate the mines,
and that the commercial operation was hampered by the non-issuance of a Mines
Temporary Permit by the Mines and Geosciences Bureau (MGB) which must be
considered as force majeure, entitling Benguet to an extension of time to prosecute such
permit. Benguet further claimed that the high graders mentioned by J.G. Realty were
already operating prior to Benguets taking over of the premises, and that J.G. Realty had
the obligation of ejecting such small scale miners. Benguet also alleged that the nature of
the mining business made it difficult to specify a time limit for the RAWOP. Benguet then
argued that the royalties due to J.G. Realty were in fact in its office and ready to be
picked up at any time. It appeared that, previously, the practice by J.G. Realty was to
pick-up checks from Benguet representing such royalties. However, starting August 1994,
J.G. Realty allegedly refused to collect such checks from Benguet. Thus, Benguet posited
that there was no valid ground for the termination of the RAWOP. It also reminded J.G.
Realty that it should submit the disagreement to arbitration rather than unilaterally
terminating the RAWOP.
On June 7, 2000, J.G. Realty filed a Petition for Declaration of
Nullity/Cancellation of the RAWOP[9] with the Legaspi City POA, Region V, docketed as
DENR Case No. 2000-01 and entitled J.G. Realty v. Benguet.
On March 19, 2001, the POA issued a Decision,[10] dwelling upon the issues of (1)
whether the arbitrators had jurisdiction over the case; and (2) whether Benguet violated
the RAWOP justifying the unilateral cancellation of the RAWOP by J.G. Realty. The
dispositive portion stated:
WHEREFORE, premises considered, the June 01, 1987 [RAWOP]
and its Supplemental Agreement is hereby declared cancelled and without
effect. BENGUET is hereby excluded from the joint MPSA Application
over the mineral claims denominated as BONITO-I, BONITO-II,
BONITO-III and BONITO-IV.
SO ORDERED.
Therefrom, Benguet filed a Notice of Appeal[11] with the MAB on April 23, 2001,
docketed as Mines Administrative Case No. R-M-2000-01. Thereafter, the MAB issued
the assailed December 2, 2002 Decision. Benguet then filed a Motion for Reconsideration

of the assailed Decision which was denied in the March 17, 2004 Resolution of the MAB.
Hence, Benguet filed the instant petition.
The Issues
1.
There was serious and palpable error when the Honorable
Board failed to rule that the contractual obligation of the parties to
arbitrate under the Royalty Agreement is mandatory.
2.
The Honorable Board exceeded its jurisdiction when it
sustained the cancellation of the Royalty Agreement for alleged breach of
contract despite the absence of evidence.
3.
The Questioned Decision of the Honorable Board in
cancelling the RAWOP prejudice[d] the substantial rights of Benguet
under the contract to the unjust enrichment of JG Realty.[12]

Restated, the issues are: (1) Should the controversy have first been submitted to
arbitration before the POA took cognizance of the case?; (2) Was the cancellation of the
RAWOP supported by evidence?; and (3) Did the cancellation of the RAWOP amount to
unjust enrichment of J.G. Realty at the expense of Benguet?
The Courts Ruling
Before we dwell on the substantive issues, we find that the instant petition can be
denied outright as Benguet resorted to an improper remedy.
The last paragraph of Section 79 of Republic Act No. (RA) 7942 or the Philippine Mining
Act of 1995 states, A petition for review by certiorari and question of law may be filed by
the aggrieved party with the Supreme Court within thirty (30) days from receipt of the
order or decision of the [MAB].
However, this Court has already invalidated such provision in Carpio v. Sulu Resources
Development Corp.,[13] ruling that a decision of the MAB must first be appealed to the
Court of Appeals (CA) under Rule 43 of the Rules of Court, before recourse to this Court
may be had. We held, thus:
To summarize, there are sufficient legal footings authorizing a
review of the MAB Decision under Rule 43 of the Rules of
Court. First, Section 30 of Article VI of the 1987 Constitution, mandates

that [n]o law shall be passed increasing the appellate jurisdiction of the
Supreme Court as provided in this Constitution without its advice and
consent. On the other hand, Section 79 of RA No. 7942 provides that
decisions of the MAB may be reviewed by this Court on a petition for
review by certiorari. This provision is obviously an expansion of the
Courts appellate jurisdiction, an expansion to which this Court has not
consented. Indiscriminate enactment of legislation enlarging the appellate
jurisdiction of this Court would unnecessarily burden it.
Second, when the Supreme Court, in the exercise of its rulemaking power, transfers to the CA pending cases involving a review of a
quasi-judicial bodys decisions, such transfer relates only to procedure;
hence, it does not impair the substantive and vested rights of the parties.
The aggrieved partys right to appeal is preserved; what is changed is only
the procedure by which the appeal is to be made or decided. The parties
still have a remedy and a competent tribunal to grant this remedy.
Third, the Revised Rules of Civil Procedure included Rule 43 to
provide a uniform rule on appeals from quasi-judicial agencies. Under the
rule, appeals from their judgments and final orders are now required to be
brought to the CA on a verified petition for review. A quasi-judicial agency
or body has been defined as an organ of government, other than a court or
legislature, which affects the rights of private parties through either
adjudication or rule-making. MAB falls under this definition; hence, it is
no different from the other quasi-judicial bodies enumerated under Rule
43. Besides, the introductory words in Section 1 of Circular No. 191among these agencies areindicate that the enumeration is not exclusive
or conclusive and acknowledge the existence of other quasi-judicial
agencies which, though not expressly listed, should be deemed included
therein.
Fourth, the Court realizes that under Batas Pambansa (BP) Blg.
129 as amended by RA No. 7902, factual controversies are usually
involved in decisions of quasi-judicial bodies; and the CA, which is
likewise tasked to resolve questions of fact, has more elbow room to
resolve them. By including questions of fact among the issues that may be
raised in an appeal from quasi-judicial agencies to the CA, Section 3 of
Revised Administrative Circular No. 1-95 and Section 3 of Rule 43
explicitly expanded the list of such issues.
According to Section 3 of Rule 43, [a]n appeal under this Rule may
be taken to the Court of Appeals within the period and in the manner
herein provided whether the appeal involves questions of fact, of law, or
mixed questions of fact and law. Hence, appeals from quasi-judicial
agencies even only on questions of law may be brought to the CA.

Fifth, the judicial policy of observing the hierarchy of courts

dictates that direct resort from administrative agencies to this Court will
not be entertained, unless the redress desired cannot be obtained from the
appropriate lower tribunals, or unless exceptional and compelling
circumstances justify availment of a remedy falling within and calling for
the exercise of our primary jurisdiction.[14]

The above principle was reiterated in Asaphil Construction and Development

Corporation v. Tuason, Jr. (Asaphil).[15] However, the Carpio ruling was not applied
to Asaphil as the petition in the latter case was filed in 1999 or three years before the
promulgation of Carpio in 2002. Here, the petition was filed on April 28, 2004 when
the Carpio decision was already applicable, thus Benguet should have filed the appeal
with the CA.
Petitioner having failed to properly appeal to the CA under Rule 43, the decision
of the MAB has become final and executory. On this ground alone, the instant petition
must be denied.
Even if we entertain the petition although Benguet skirted the appeal to the CA
via Rule 43, still, the December 2, 2002 Decision and March 17, 2004 Resolution of the
DENR-MAB in MAB Case No. 0124-01 should be maintained.
First Issue: The case should have first been brought to
voluntary arbitration before the POA
Secs. 11.01 and 11.02 of the RAWOP pertinently provide:
11.01 Arbitration
Any disputes, differences or disagreements between BENGUET and the
OWNER with reference to anything whatsoever pertaining to this
Agreement that cannot be amicably settled by them shall not be cause of
any action of any kind whatsoever in any court or administrative agency
but shall, upon notice of one party to the other, be referred to a Board of
Arbitrators consisting of three (3) members, one to be selected by
BENGUET, another to be selected by the OWNER and the third to be
selected by the aforementioned two arbitrators so appointed.
xxxx
11.02 Court Action

No action shall be instituted in court as to any matter in dispute as

hereinabove stated, except to enforce the decision of the majority of the
Arbitrators.[16]

Thus, Benguet argues that the POA should have first referred the case to voluntary
arbitration before taking cognizance of the case, citing Sec. 2 of RA 876 on persons and
matters subject to arbitration.
On the other hand, in denying such argument, the POA ruled that:
While the parties may establish such stipulations clauses, terms and
conditions as they may deem convenient, the same must not be contrary to
law and public policy. At a glance, there is nothing wrong with the terms
and conditions of the agreement. But to state that an aggrieved party
cannot initiate an action without going to arbitration would be tying ones
hand even if there is a law which allows him to do so.[17]

The MAB, meanwhile, denied Benguets contention on the ground of estoppel, stating:
Besides, by its own act, Benguet is already estopped in questioning the
jurisdiction of the Panel of Arbitrators to hear and decide the case. As
pointed out in the appealed Decision, Benguet initiated and filed an
Adverse Claim docketed as MAC-R-M-2000-02 over the same mining
claims without undergoing contractual arbitration. In this particular case
(MAC-R-M-2000-02) now subject of the appeal, Benguet is likewise in
estoppel from questioning the competence of the Panel of Arbitrators to
hear and decide in the summary proceedings J.G. Realtys petition, when
Benguet itself did not merely move for the dismissal of the case but also
filed an Answer with counterclaim seeking affirmative reliefs from the
Panel of Arbitrators.[18]

Moreover, the MAB ruled that the contractual provision on arbitration merely provides
for an additional forum or venue and does not divest the POA of the jurisdiction to hear
the case.[19]
In its July 20, 2004 Comment,[20] J.G. Realty reiterated the above rulings of the POA and
MAB. It argued that RA 7942 or the Philippine Mining Act of 1995 is a special law
which should prevail over the stipulations of the parties and over a general law, such as

RA 876. It also argued that the POA cannot be considered as a court under the
contemplation of RA 876 and that jurisprudence saying that there must be prior resort to
arbitration before filing a case with the courts is inapplicable to the instant case as the
POA is itself already engaged in arbitration.
On this issue, we rule for Benguet.
Sec. 2 of RA 876 elucidates the scope of arbitration:
Section 2. Persons and matters subject to arbitration.Two or more
persons or parties may submit to the arbitration of one or more
arbitrators any controversy existing between them at the time of the
submission and which may be the subject of an action, or the parties
to any contract may in such contract agree to settle by arbitration a
controversy thereafter arising between them. Such submission or
contract shall be valid, enforceable and irrevocable, save upon such
grounds as exist at law for the revocation of any contract.
Such submission or contract may include question[s] arising out of
valuations, appraisals or other controversies which may be collateral,
incidental, precedent or subsequent to any issue between the parties.
(Emphasis supplied.)

In RA 9285 or the Alternative Dispute Resolution Act of 2004, the Congress reiterated the
efficacy of arbitration as an alternative mode of dispute resolution by stating in Sec. 32
thereof that domestic arbitration shall still be governed by RA 876. Clearly, a contractual
stipulation that requires prior resort to voluntary arbitration before the parties can go
directly to court is not illegal and is in fact promoted by the State. Thus, petitioner
correctly cites several cases whereby arbitration clauses have been upheld by this Court.
[21]

Moreover, the contention that RA 7942 prevails over RA 876 presupposes a conflict
between the two laws. Such is not the case here. To reiterate, availment of voluntary
arbitration before resort is made to the courts or quasi-judicial agencies of the
government is a valid contractual stipulation that must be adhered to by the parties. As
stated in Secs. 6 and 7 of RA 876:
Section 6. Hearing by court.A party aggrieved by the failure,
neglect or refusal of another to perform under an agreement in
writing providing for arbitration may petition the court for an order

directing that such arbitration proceed in the manner provided for in

such agreement. Five days notice in writing of the hearing of such
application shall be served either personally or by registered mail upon the
party in default. The court shall hear the parties, and upon being
satisfied that the making of the agreement or such failure to comply
therewith is not in issue, shall make an order directing the parties to
proceed to arbitration in accordance with the terms of the agreement.
If the making of the agreement or default be in issue the court shall
proceed to summarily hear such issue. If the finding be that no
agreement in writing providing for arbitration was made, or that
there is no default in the proceeding thereunder, the proceeding shall
be dismissed. If the finding be that a written provision for arbitration
was made and there is a default in proceeding thereunder, an order
shall be made summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof.
xxxx
Section 7. Stay of civil action.If any suit or proceeding be brought
upon an issue arising out of an agreement providing for the arbitration
thereof, the court in which such suit or proceeding is pending, upon being
satisfied that the issue involved in such suit or proceeding is referable to
arbitration, shall stay the action or proceeding until an arbitration has been
had in accordance with the terms of the agreement: Provided, That the
applicant, for the stay is not in default in proceeding with such arbitration.
(Emphasis supplied.)

In other words, in the event a case that should properly be the subject of voluntary
arbitration is erroneously filed with the courts or quasi-judicial agencies, on motion of the
defendant, the court or quasi-judicial agency shall determine whether such contractual
provision for arbitration is sufficient and effective. If in affirmative, the court or quasijudicial agency shall then order the enforcement of said provision. Besides, in BF
Corporation v. Court of Appeals, we already ruled:
In this connection, it bears stressing that the lower court has not
lost its jurisdiction over the case. Section 7 of Republic Act No. 876
provides that proceedings therein have only been stayed. After the special
proceeding of arbitration has been pursued and completed, then the lower
court may confirm the award made by the arbitrator.[22]

J.G. Realtys contention, that prior resort to arbitration is unavailing in the instant case
because the POAs mandate is to arbitrate disputes involving mineral agreements, is

misplaced. A distinction must be made between voluntary and compulsory arbitration.

In Ludo and Luym Corporation v. Saordino, the Court had the occasion to distinguish
between the two types of arbitrations:
Comparatively, in Reformist Union of R.B. Liner, Inc. vs. NLRC,
compulsory arbitration has been defined both as 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,
and as a mode of arbitration where the parties are compelled to accept the
resolution of their dispute through arbitration by a third party. While a
voluntary arbitrator is not part of the governmental unit or labor
departments personnel, said arbitrator renders arbitration services
provided for under labor laws.[23] (Emphasis supplied.)

There is a clear distinction between compulsory and voluntary arbitration. The arbitration
provided by the POA is compulsory, while the nature of the arbitration provision in the
RAWOP is voluntary, not involving any government agency. Thus, J.G. Realtys argument
on this matter must fail.
As to J.G. Realtys contention that the provisions of RA 876 cannot apply to the instant
case which involves an administrative agency, it must be pointed out that Section 11.01 of
the RAWOP states that:
[Any controversy with regard to the contract] shall not be cause of any
action of any kind whatsoever in any court or administrative agency but
shall, upon notice of one party to the other, be referred to a Board of
Arbitrators consisting of three (3) members, one to be selected by
BENGUET, another to be selected by the OWNER and the third to be
selected by the aforementioned two arbiters so appointed.[24] (Emphasis
supplied.)
There can be no quibbling that POA is a quasi-judicial body which forms part of the
DENR, an administrative agency. Hence, the provision on mandatory resort to arbitration,
freely entered into by the parties, must be held binding against them.[25]
In sum, on the issue of whether POA should have referred the case to voluntary
arbitration, we find that, indeed, POA has no jurisdiction over the dispute which is
governed by RA 876, the arbitration law.
However, we find that Benguet is already estopped from questioning the POAs
jurisdiction. As it were, when J.G. Realty filed DENR Case No. 2000-01, Benguet filed

its answer and participated in the proceedings before the POA, Region V. Secondly, when
the adverse March 19, 2001 POA Decision was rendered, it filed an appeal with the MAB
in Mines Administrative Case No. R-M-2000-01 and again participated in the MAB
proceedings. When the adverse December 2, 2002 MAB Decision was promulgated, it
filed a motion for reconsideration with the MAB. When the adverse March 17, 2004
MAB Resolution was issued, Benguet filed a petition with this Court pursuant to Sec. 79
of RA 7942 impliedly recognizing MABs jurisdiction. In this factual milieu, the Court
rules that the jurisdiction of POA and that of MAB can no longer be questioned by
Benguet at this late hour. What Benguet should have done was to immediately challenge
the POAs jurisdiction by a special civil action for certiorari when POA ruled that it has
jurisdiction over the dispute. To redo the proceedings fully participated in by the parties
after the lapse of seven years from date of institution of the original action with the POA
would be anathema to the speedy and efficient administration of justice.
Second Issue: The cancellation of the RAWOP
was supported by evidence
The cancellation of the RAWOP by the POA was based on two grounds: (1)
Benguets failure to pay J.G. Realtys royalties for the mining claims; and (2) Benguets
failure to seriously pursue MPSA Application No. APSA-V-0009 over the mining claims.
As to the royalties, Benguet claims that the checks representing payments for the
royalties of J.G. Realty were available for pick-up in its office and it is the latter which
refused to claim them. Benguet then thus concludes that it did not violate the RAWOP for
nonpayment of royalties. Further, Benguet reasons that J.G. Realty has the burden of
proving that the former did not pay such royalties following the principle that the
complainants must prove their affirmative allegations.
With regard to the failure to pursue the MPSA application, Benguet claims that
the lengthy time of approval of the application is due to the failure of the MGB to
approve it. In other words, Benguet argues that the approval of the application is solely in
the hands of the MGB.
Benguets arguments are bereft of merit.
Sec. 14.05 of the RAWOP provides:
14.05 Bank Account

OWNER shall maintain a bank account at ___________ or any other bank

from time to time selected by OWNER with notice in writing to
BENGUET where BENGUET shall deposit to the OWNERs credit any
and all advances and payments which may become due the OWNER under
this Agreement as well as the purchase price herein agreed upon in the
event that BENGUET shall exercise the option to purchase provided for in
the Agreement. Any and all deposits so made by BENGUET shall be a
full and complete acquittance and release to [sic] BENGUET from any
further liability to the OWNER of the amounts represented by such
deposits. (Emphasis supplied.)

Evidently, the RAWOP itself provides for the mode of royalty payment by Benguet. The
fact that there was the previous practice whereby J.G. Realty picked-up the checks from
Benguet is unavailing. The mode of payment is embodied in a contract between the
parties. As such, the contract must be considered as the law between the parties and
binding on both.[26] Thus, after J.G. Realty informed Benguet of the bank account where
deposits of its royalties may be made, Benguet had the obligation to deposit the checks.
J.G. Realty had no obligation to furnish Benguet with a Board Resolution considering
that the RAWOP itself provided for such payment scheme.
Notably, Benguets claim that J.G. Realty must prove nonpayment of its royalties
is both illogical and unsupported by law and jurisprudence.
The allegation of nonpayment is not a positive allegation as claimed by Benguet.
Rather, such is a negative allegation that does not require proof and in fact transfers the
burden of proof to Benguet. Thus, this Court ruled in Jimenez v. National Labor
Relations Commission:
As a general rule, one who pleads payment has the burden of
proving it. Even where the plaintiff must allege non-payment, the general
rule is that the burden rests on the defendant to prove payment, rather than
on the plaintiff to prove non-payment. The debtor has the burden of
showing with legal certainty that the obligation has been discharged
by payment.[27](Emphasis supplied.)

In the instant case, the obligation of Benguet to pay royalties to J.G. Realty has
been admitted and supported by the provisions of the RAWOP. Thus, the burden to prove
such obligation rests on Benguet.

It should also be borne in mind that MPSA Application No. APSA-V-0009 has been
pending with the MGB for a considerable length of time. Benguet, in the RAWOP,
obligated itself to perfect the rights to the mining claims and/or otherwise acquire the
mining rights to the mineral claims but failed to present any evidence showing that it
exerted efforts to speed up and have the application approved. In fact, Benguet never
even alleged that it continuously followed-up the application with the MGB and that it
was in constant communication with the government agency for the expeditious
resolution of the application. Such allegations would show that, indeed, Benguet was
remiss in prosecuting the MPSA application and clearly failed to comply with its
obligation in the RAWOP.
Third Issue: There is no unjust enrichment in the instant case
Based on the foregoing discussion, the cancellation of the RAWOP was based on valid
grounds and is, therefore, justified. The necessary implication of the cancellation is the
cessation of Benguets right to prosecute MPSA Application No. APSA-V-0009 and to
further develop such mining claims.
In Car Cool Philippines, Inc. v. Ushio Realty and Development Corporation, we defined
unjust enrichment, as follows:
We have held that [t]here is unjust enrichment when a
person unjustly retains a benefit to the loss of another, or when a person
retains money or property of another against the fundamental principles of
justice, equity and good conscience. Article 22 of the Civil Code provides
that [e]very person who through an act of performance by another, or any
other means, acquires or comes into possession of something at the
expense of the latter without just or legal ground, shall return the same to
him. The principle of unjust enrichment under Article 22 requires two
conditions: (1) that a person is benefited without a valid basis or
justification, and (2) that such benefit is derived at anothers expense or
damage.
There is no unjust enrichment when the person who will
benefit has a valid claim to such benefit.[28] (Emphasis supplied.)

Clearly, there is no unjust enrichment in the instant case as the cancellation of the
RAWOP, which left Benguet without any legal right to participate in further developing

the mining claims, was brought about by its violation of the RAWOP. Hence, Benguet has
no one to blame but itself for its predicament.
WHEREFORE, we DISMISS the petition, and AFFIRM the December 2, 2002
Decision and March 17, 2004 Resolution of the DENR-MAB in MAB Case No. 0124-01
upholding the cancellation of the June 1, 1987 RAWOP. No costs.
SO ORDERED.

THIRD DIVISION

[G.R. No. 141833. March 26, 2003]

LM

POWER
ENGINEERING CORPORATION, petitioner,
INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent.
DECISION

vs. CAPITOL

PANGANIBAN, J.:
Alternative dispute resolution methods or ADRs -- like arbitration, mediation,
negotiation and conciliation -- are encouraged by the Supreme Court. By enabling parties
to resolve their disputes amicably, they provide solutions that are less time-consuming,
less tedious, less confrontational, and more productive of goodwill and lasting
relationships.[1]
The Case
Before us is a Petition for Review on Certiorari[2] under Rule 45 of the Rules of
Court, seeking to set aside the January 28, 2000 Decision of the Court of Appeals [3] (CA)
in CA-GR CV No. 54232. The dispositive portion of the Decision reads as follows:
WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The parties
are ORDERED to present their dispute to arbitration in accordance with their Subcontract Agreement. The surety bond posted by [respondent] is [d]ischarged.[4]
The Facts
On February 22, 1983, Petitioner LM Power Engineering Corporation and
Respondent Capitol Industrial Construction Groups Inc. entered into a Subcontract
Agreement involving electrical work at the Third Port of Zamboanga.[5]
[6]

On April 25, 1985, respondent took over some of the work contracted to petitioner.
Allegedly, the latter had failed to finish it because of its inability to procure materials.[7]

Upon completing its task under the Contract, petitioner billed respondent in the
amount of P6,711,813.90.[8] Contesting the accuracy of the amount of advances and
billable accomplishments listed by the former, the latter refused to pay. Respondent also
took refuge in the termination clause of the Agreement. [9] That clause allowed it to set off
the cost of the work that petitioner had failed to undertake -- due to termination or takeover -- against the amount it owed the latter.
Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of
Makati (Branch 141) a Complaint[10] for the collection of the amount representing the
alleged balance due it under the Subcontract. Instead of submitting an Answer,
respondent filed a Motion to Dismiss,[11] alleging that the Complaint was premature,
because there was no prior recourse to arbitration.
In its Order[12] dated September 15, 1987, the RTC denied the Motion on the ground
that the dispute did not involve the interpretation or the implementation of the Agreement
and was, therefore, not covered by the arbitral clause.[13]

After trial on the merits, the RTC[14] ruled that the take-over of some work items by
respondent was not equivalent to a termination, but a mere modification, of the
Subcontract. The latter was ordered to give full payment for the work completed by
petitioner.
Ruling of the Court of Appeals
On appeal, the CA reversed the RTC and ordered the referral of the case to
arbitration. The appellate court held as arbitrable the issue of whether respondents takeover of some work items had been intended to be a termination of the original contract
under Letter K of the Subcontract. It ruled likewise on two other issues: whether
petitioner was liable under the warranty clause of the Agreement, and whether it should
reimburse respondent for the work the latter had taken over.[15]
Hence, this Petition.[16]
The Issues
In its Memorandum, petitioner raises the following issues for the Courts
consideration:
A
Whether or not there exist[s] a controversy/dispute between petitioner and respondent
regarding the interpretation and implementation of the Sub-Contract Agreement dated
February 22, 1983 that requires prior recourse to voluntary arbitration;
B
In the affirmative, whether or not the requirements provided in Article III [1] of CIAC
Arbitration Rules regarding request for arbitration ha[ve] been complied with[.][17]
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the interpretation or the
implementation of the Agreement. Thus, without having to resort to prior arbitration, it is

entitled to collect the value of the services it rendered through an ordinary action for the
collection of a sum of money from respondent. On the other hand, the latter contends that
there is a need for prior arbitration as provided in the Agreement. This is because there
are some disparities between the parties positions regarding the extent of the work done,
the amount of advances and billable accomplishments, and the set off of expenses
incurred by respondent in its take-over of petitioners work.
We side with respondent. Essentially, the dispute arose from the parties ncongruent
positions on whether certain provisions of their Agreement could be applied to the
facts. The instant case involves technical discrepancies that are better left to an arbitral
body that has expertise in those areas. In any event, the inclusion of an arbitration clause
in a contract does not ipso facto divest the courts of jurisdiction to pass upon the findings
of arbitral bodies, because the awards are still judicially reviewable under certain
conditions.[18]
In the case before us, the Subcontract has the following arbitral clause:
6. The Parties hereto agree that any dispute or conflict as regards to
interpretation and implementation of this Agreement which cannot be settled
between [respondent] and [petitioner] amicably shall be settled by means of
arbitration x x x.[19]
Clearly, the resolution of the dispute between the parties herein requires a referral to
the provisions of their Agreement. Within the scope of the arbitration clause are
discrepancies as to the amount of advances and billable accomplishments, the application
of the provision on termination, and the consequent set-off of expenses.
A review of the factual allegations of the parties reveals that they differ on the
following questions: (1) Did a take-over/termination occur? (2) May the expenses
incurred by respondent in the take-over be set off against the amounts it owed petitioner?
(3) How much were the advances and billable accomplishments?
The resolution of the foregoing issues lies in the interpretation of the provisions of
the Agreement. According to respondent, the take-over was caused by petitioners delay in
completing the work. Such delay was in violation of the provision in the Agreement as to
time schedule:
G. TIME SCHEDULE
[Petitioner] shall adhere strictly to the schedule related to the WORK and
complete the WORK within the period set forth in Annex C hereof. NO time
extension shall be granted by [respondent] to [petitioner] unless a corresponding
time extension is granted by [the Ministry of Public Works and Highways] to the
CONSORTIUM.[20]
Because of the delay, respondent alleges that it took over some of the work
contracted to petitioner, pursuant to the following provision in the Agreement:

K. TERMINATION OF AGREEMENT
[Respondent] has the right to terminate and/or take over this Agreement for any
of the following causes:
xxxxxxxxx
6. If despite previous warnings by [respondent], [petitioner] does not
execute the WORK in accordance with this Agreement, or persistently or
flagrantly neglects to carry out [its] obligations under this Agreement.[21]
Supposedly, as a result of the take-over, respondent incurred expenses in excess of
the contracted price. It sought to set off those expenses against the amount claimed by
petitioner for the work the latter accomplished, pursuant to the following provision:
If the total direct and indirect cost of completing the remaining part of the WORK exceed
the sum which would have been payable to [petitioner] had it completed the WORK, the
amount of such excess [may be] claimed by [respondent] from either of the following:
1. Any amount due [petitioner] from [respondent] at the time of the termination of this
Agreement.[22]
The issue as to the correct amount of petitioners advances and billable
accomplishments involves an evaluation of the manner in which the parties completed the
work, the extent to which they did it, and the expenses each of them incurred in
connection therewith. Arbitrators also need to look into the computation of foreign and
local costs of materials, foreign and local advances, retention fees and letters of credit,
and taxes and duties as set forth in the Agreement. These data can be gathered from a
review of the Agreement, pertinent portions of which are reproduced hereunder:
C. CONTRACT PRICE AND TERMS OF PAYMENT
xxxxxxxxx
All progress payments to be made by [respondent] to [petitioner] shall be subject
to a retention sum of ten percent (10%) of the value of the approved
quantities. Any claims by [respondent] on [petitioner] may be deducted by
[respondent] from the progress payments and/or retained amount. Any excess
from the retained amount after deducting [respondents] claims shall be released
by [respondent] to [petitioner] after the issuance of [the Ministry of Public Works
and Highways] of the Certificate of Completion and final acceptance of the
WORK by [the Ministry of Public Works and Highways].
xxxxxxxxx
D. IMPORTED MATERIALS AND EQUIPMENT

[Respondent shall open the letters of credit for the importation of equipment and
materials listed in Annex E hereof after the drawings, brochures, and other
technical data of each items in the list have been formally approved by [the
Ministry of Public Works and Highways]. However, petitioner will still be fully
responsible for all imported materials and equipment.
All expenses incurred by [respondent], both in foreign and local currencies in
connection with the opening of the letters of credit shall be deducted from the
Contract Prices.
xxxxxxxxx
N. OTHER CONDITIONS
xxxxxxxxx
2. All customs duties, import duties, contractors taxes, income taxes, and other
taxes that may be required by any government agencies in connection with this
Agreement shall be for the sole account of [petitioner].[23]
Being an inexpensive, speedy and amicable method of settling disputes, [24] arbitration
-- along with mediation, conciliation and negotiation -- is encouraged by the Supreme
Court. Aside from unclogging judicial dockets, arbitration also hastens the resolution of
disputes, especially of the commercial kind.[25] It is thus regarded as the wave of the
future in international civil and commercial disputes.[26] Brushing aside a contractual
agreement calling for arbitration between the parties would be a step backward.[27]
Consistent with the above-mentioned policy of encouraging alternative dispute
resolution methods, courts should liberally construe arbitration clauses. Provided such
clause is susceptible of an interpretation that covers the asserted dispute, an order to
arbitrate should be granted.[28] Any doubt should be resolved in favor of arbitration.[29]
Second Issue:
Prior Request for Arbitration
According to petitioner, assuming arguendo that the dispute is arbitrable, the failure
to file a formal request for arbitration with the Construction Industry Arbitration
Commission (CIAC) precluded the latter from acquiring jurisdiction over the
question. To bolster its position, petitioner even cites our ruling in Tesco Services
Incorporated v. Vera.[30] We are not persuaded.
Section 1 of Article II of the old Rules of Procedure Governing Construction
Arbitration indeed required the submission of a request for arbitration, as follows:
SECTION. 1. Submission to Arbitration -- Any party to a construction contract wishing to
have recourse to arbitration by the Construction Industry Arbitration Commission (CIAC)

shall submit its Request for Arbitration in sufficient copies to the Secretariat of the CIAC;
PROVIDED, that in the case of government construction contracts, all administrative
remedies available to the parties must have been exhausted within 90 days from the time
the dispute arose.
Tesco was promulgated by this Court, using the foregoing provision as reference.
On the other hand, Section 1 of Article III of the new Rules of Procedure Governing
Construction Arbitration has dispensed with this requirement and recourse to the CIAC
may now be availed of whenever a contract contains a clause for the submission of a
future controversy to arbitration, in this wise:
SECTION 1. Submission to CIAC Jurisdiction An arbitration clause in a construction
contract or a submission to arbitration of a construction dispute shall be deemed an
agreement to submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution or arbitral body in such
contract or submission. When a contract contains a clause for the submission of a future
controversy to arbitration, it is not necessary for the parties to enter into a submission
agreement before the claimant may invoke the jurisdiction of CIAC.
The foregoing amendments in the Rules were formalized by CIAC Resolution Nos.
2-91 and 3-93.[31]
The difference in the two provisions was clearly explained in China Chang Jiang
Energy Corporation (Philippines) v. Rosal Infrastructure Builders et al. [32] (an extended
unsigned Resolution) and reiterated in National Irrigation Administration v. Court of
Appeals,[33] from which we quote thus:
Under the present Rules of Procedure, for a particular construction contract to fall within
the jurisdiction of CIAC, it is merely required that the parties agree to submit the same to
voluntary arbitration Unlike in the original version of Section 1, as applied in
the Tesco case, the law as it now stands does not provide that the parties should agree to
submit disputes arising from their agreement specifically to the CIAC for the latter to
acquire jurisdiction over the same. Rather, it is plain and clear that as long as the parties
agree to submit to voluntary arbitration, regardless of what forum they may choose, their
agreement will fall within the jurisdiction of the CIAC, such that, even if they specifically
choose another forum, the parties will not be precluded from electing to submit their
dispute before the CIAC because this right has been vested upon each party by law, i.e.,
E.O. No. 1008.[34]
Clearly, there is no more need to file a request with the CIAC in order to vest it with
jurisdiction to decide a construction dispute.
The arbitral clause in the Agreement is a commitment on the part of the parties to
submit to arbitration the disputes covered therein. Because that clause is binding, they are
expected to abide by it in good faith. [35] And because it covers the dispute between the
parties in the present case, either of them may compel the other to arbitrate.[36]

Since petitioner has already filed a Complaint with the RTC without prior recourse to
arbitration, the proper procedure to enable the CIAC to decide on the dispute is to request the
stay or suspension of such action, as provided under RA 876 [the Arbitration Law].[37]
WHEREFORE,
the
Petition
Decision AFFIRMED. Costs against petitioner.

is DENIED and

the

assailed

SO ORDERED.
Puno, (Chairman), Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.

FIRST DIVISION

FRABELLE
CORPORATION,

FISHING
Petitioner,

versus -

THE PHILIPPINE AMERICAN LIFE

INSURANCE COMPANY, PHILAM
PROPERTIES CORPORATION and
PERF REALTY CORPORATION,
Respondents.

G.R. No. 158560

Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.
Promulgated:
August 17, 2007

x --------------------------------------------------------------------------------------x
DECISION
SANDOVAL-GUTIERREZ, J.:

Before us is the instant Petition for Review on Certiorari under Rule 45 of the 1997
Rules of Civil Procedure, as amended, assailing the Decision[1] and Resolution of the
Court of Appeals dated December 2, 2002 and May 30, 2003, respectively, in CA-G.R.
SP No. 71389.

The facts are:

Philam Properties Corporation, Philippine American Life Insurance Company, and PERF
Realty Corporation, herein respondents, are all corporations duly organized and existing
under Philippine laws.

On May 8, 1996, respondents entered into a Memorandum of Agreement (1996

MOA) whereby each agreed to contribute cash, property, and services for the
[2]

construction and development of Philamlife Tower, a 45-storey office condominium

along Paseo de Roxas, Makati City.

On December 6, 1996, respondents executed a Deed of Assignment (1996 DOA)

[3]
wherein they assigned to Frabelle Properties Corporation (Frabelle) their rights and
obligations under the 1996 MOA with respect to the construction, development, and
subsequent ownership of Unit No. 38-B located at the 38 th floor of Philamlife Tower. The
parties also stipulated that the assignee shall be deemed as a co-developer of the
construction project with respect to Unit No. 38-B.[4]

Frabelle, in turn, assigned to Frabelle Fishing Corporation (Frabelle Fishing), petitioner

herein, its rights, obligations and interests over Unit No. 38-B.

On March 9, 1998, petitioner Frabelle Fishing and respondents executed a Memorandum

of Agreement (1998 MOA)[5] to fund the construction of designated office floors
inPhilamlife Tower.

The dispute between the parties started when petitioner found material concealment on
the part of respondents regarding certain details in the 1996 DOA and 1998 MOA and
their gross violation of their contractual obligations as condominium developers. These
violations are: (a) the non-construction of a partition wall between Unit No. 38-B and the
rest of the floor area; and (b) the reduction of the net usable floor area from four hundred
sixty eight (468) square meters to only three hundred fifteen (315) square meters.

Dissatisfied with its existing arrangement with respondents, petitioner, on October

22, 2001, referred the matter to the Philippine Dispute Resolution Center, Inc. (PDRCI)
for arbitration.[6] However, in a letter[7] dated November 7, 2001, respondents manifested
their refusal to submit to PDRCIs jurisdiction.

On February 11, 2002, petitioner filed with the Housing and Land Use Regulatory
Board (HLURB), Expanded National Capital Region Field Office a complaint [8] for
reformation of instrument, specific performance and damages against respondents,
docketed as HLURB Case No. REM-021102-11791. Petitioner alleged, among others,
that the contracts do not reflect the true intention of the parties; and that it is a mere buyer
and not co-developer and/or co-owner of the condominium unit.

After considering their respective memoranda, HLURB Arbiter Atty. Dunstan T.

San Vicente, with the approval of HLURB Regional Director Jesse A. Obligacion, issued
an Order[9] dated May 14, 2002, the dispositive portion of which reads:

Accordingly, respondents plea for the outright dismissal of the

present case is denied. Set the initial preliminary hearing of this case
on June 25, 2002 at 10:00 A.M.
IT IS SO ORDERED.

Respondents then filed with the Court of Appeals a petition for prohibition with
prayer for the issuance of a temporary restraining order and/or writ of preliminary
injunction,[10] docketed as CA-G.R. SP No. 71389. Petitioner claimed, among others, that
the HLURB has no jurisdiction over the subject matter of the controversy and that the
contracts between the parties provide for compulsory arbitration.

On December 2, 2002, the Court of Appeals rendered its Decision [11] granting the
petition, thus:

WHEREFORE, premises considered, the petition is GRANTED.

Public respondents Atty. Dunstan San Vicente and Jesse A. Obligacion of

the Housing and Land Use Regulatory Board, Expanded National Capital
Region Field Office are hereby permanently ENJOINED and
PROHIBITED from further proceeding with and acting on HLURB Case
No. REM-021102-11791. The order of May 14, 2002 is hereby SET
ASIDE and the complaint is DISMISSED.
SO ORDERED.
In dismissing petitioners complaint, the Court of Appeals held that the HLURB
has no jurisdiction over an action for reformation of contracts. The jurisdiction lies with
the Regional Trial Court.

Forthwith, petitioner filed a motion for reconsideration [12] but it was denied by the
appellate court in its Resolution[13] dated May 30, 2003.

Hence, the instant petition for review on certiorari.

The issues for our resolution are: (1) whether the HLURB has jurisdiction over
the complaint for reformation of instruments, specific performance and damages; and (2)
whether the parties should initially resort to arbitration.

The petition lacks merit.

As the records show, the complaint filed by petitioner with the HLURB is one
for reformation of instruments. Petitioner claimed that the terms of the contract are not
clear and prayed that they should be reformed to reflect the true stipulations of the
parties. Petitioner prayed:

WHEREFORE, in view of all the foregoing, it is respectfully

prayed of this Honorable Office that after due notice and hearing, a
judgment be please rendered:
1. Declaring that the instruments executed by the complainant
FRABELLE and respondent PHILAM to have been in fact a Contract
to Sell. The parties are thereby governed by the provisions of P.D. 957

entitled, Regulating the Sale of Subdivision Lots and Condominiums,

Providing Penalties for Violations Thereof as buyer and developer,
respectively, of a condominium unit and not as co-developer and/or coowner of the same;
x x x (Emphasis supplied)
We hold that being an action for reformation of instruments, petitioners complaint
necessarily falls under the jurisdiction of the Regional Trial Court pursuant to Section 1,
Rule 63 of the 1997 Rules of Civil Procedure, as amended, which provides:
SECTION 1. Who may file petition. Any person interested under a
deed, will, contract or other written instrument, whose rights are affected
by a statute, executive order or regulation, ordinance, or any other
governmental regulation may, before breach or violation thereof, bring an
action in the appropriate Regional Trial Court to determine any question
of construction or validity arising, and for a declaration of his rights or
duties thereunder.
An action for the reformation of an instrument, to quiet title to
real property or remove clouds therefrom, or to consolidate ownership
under Article 1607 of the Civil Code, may be brought under this Rule.
(Emphasis ours)

As correctly held by the Court of Appeals, any disagreement as to the nature of

the parties relationship which would require first an amendment or reformation of
their contract is an issue which the courts may and can resolve without the need of the
expertise and specialized knowledge of the HLURB.

With regard to the second and last issue, paragraph 4.2 of the 1998 MOA
mandates that any dispute between or among the parties shall finally be settled by
arbitration conducted in accordance with the Rules of Conciliation and Arbitration
of the International Chamber of Commerce.[14] Petitioner referred the dispute to the
PDRCI but respondents refused to submit to its jurisdiction.

It bears stressing that such arbitration agreement is the law between the
parties. They are, therefore, expected to abide by it in good faith.[15]

This Court has previously held that arbitration is one of the alternative methods of
dispute resolution that is now rightfully vaunted as the wave of the future in international
relations, and is recognized worldwide. To brush aside a contractual agreement calling for
arbitration in case of disagreement between the parties would therefore be a step
backward.[16]

WHEREFORE, we DENY the petition. The challenged Decision and Resolution

of the Court of Appeals in CA-G.R. SP No. 71389 are AFFIRMED.

Costs against petitioner.

SO ORDERED.