DEL MONTE CORPORATION-USA, PAUL E. DERBY, JR.

, DANIEL COLLINS and LUIS HIDALGO, petitioners,

vs. COURT OF APPEALS, JUDGE BIENVENIDO L. REYES in his capacity as Presiding Judge, RTC-Br. 74,
Malabon, Metro Manila, MONTEBUENO MARKETING, INC., LIONG LIONG C. SY and SABROSA FOODS,
INC., respondents. Del Monte Corporation-USA vs. Court of Appeals, 351 SCRA 373, G.R. No. 136154
February 7, 2001

This Petition for Review on certiorari assails the 17 July 1998 Decision of the Court of Appeals affirming the 11
November 1997 Orderof the Regional Trial Court which denied petitioners Motion to Suspend Proceedings in Civil Case
No. 2637-MN. It also questions the appellate courts Resolution of 30 October 1998 which denied petitioners Motion for
Reconsideration.

On 1 July 1994, in a Distributorship Agreement, petitioner Del Monte Corporation-USA (DMC-USA) appointed private
respondent Montebueno Marketing, Inc. (MMI) as the sole and exclusive distributor of its Del Monte products in the
Philippines for a period of five (5) years, renewable for two (2) consecutive five (5) year periods with the consent of the
parties. The Agreement provided, among others, for an arbitration clause which states that it shall be governed by the
laws of the State of California and/or, if applicable, the United States of America. All disputes arising out of or relating to
this Agreement or the parties relationship, including the termination thereof, shall be resolved by arbitration in the City
of San Francisco, State of California, under the Rules of the American Arbitration Association. The arbitration panel shall
consist of three members, one of whom shall be selected by DMC-USA, one of whom shall be selected by MMI, and third
of whom shall be selected by the other two members and shall have relevant experience in the industry

In October 1994 the appointment of private respondent MMI as the sole and exclusive distributor of Del Monte products
in the Philippines was published in several newspapers in the country.Immediately after its appointment, private
respondent MMI appointed Sabrosa Foods, Inc. (SFI), with the approval of petitioner DMC-USA, as MMIs marketing arm
to concentrate on its marketing and selling function as well as to manage its critical relationship with the trade.
On 3 October 1996 private respondents MMI, SFI and MMIs Managing Director Liong Liong C. Sy (LILY SY) filed a
Complain against petitioners DMC-USA, Paul E. Derby, Jr., Daniel Collins and Luis Hidalgo, and Dewey Ltd. before the
Regional Trial Court of Malabon, Metro Manila. Private respondents predicated their complaint on the alleged violations
by petitioners of Arts. 20, 21 and 23of the Civil Code. According to private respondents, DMC-USA products continued to
be brought into the country by parallel importers despite the appointment of private respondent MMI as the sole and
exclusive distributor of Del Monte products thereby causing them great embarrassment and substantial damage. They
alleged that the products brought into the country by these importers were aged, damaged, fake or counterfeit, so that
in March 1995 they had to cause, after prior consultation with Antonio Ongpin, Market Director for Special Markets of Del
Monte Philippines, Inc., the publication of a "warning to the trade" paid advertisement in leading newspapers.
Petitioners DMC-USA and Paul E. Derby, Jr., apparently upset with the publication, instructed private respondent MMI to
stop coordinating with Antonio Ongpin and to communicate directly instead with petitioner DMC-USA through Paul E.
Derby, Jr.

Private respondents further averred that petitioners knowingly and surreptitiously continued to deal with the former in
bad faith by involving disinterested third parties and by proposing solutions which were entirely out of their control.
Private respondents claimed that they had exhausted all possible avenues for an amicable resolution and settlement of
their grievances; that as a result of the fraud, bad faith, malice and wanton attitude of petitioners, they should be held
responsible for all the actual expenses incurred by private respondents in the delayed shipment of orders which resulted
in the extra handling thereof, the actual expenses and cost of money for the unused Letters of Credit (LCs) and the
substantial opportunity losses due to created out-of-stock situations and unauthorized shipments of Del Monte-USA
products to the Philippine Duty Free Area and Economic Zone; that the bad faith, fraudulent acts and willful negligence
of petitioners, motivated by their determination to squeeze private respondents out of the outstanding and ongoing
Distributorship Agreement in favor of another party, had placed private respondent LILY SY on tenterhooks since then;
and, that the shrewd and subtle manner with which petitioners concocted imaginary violations by private respondent
MMI of the Distributorship Agreement in order to justify the untimely termination thereof was a subterfuge. For the
foregoing, private respondents claimed, among other reliefs, the payment of actual damages, exemplary damages,
attorneys fees and litigation expenses.
On 21 October 1996 petitioners filed a Motion to Suspend Proceedings invoking the arbitration clause in their Agreement
with private respondents.
In a Resolution dated 23 December 1996 the trial court deferred consideration of petitioners Motion to Suspend
Proceedings as the grounds alleged therein did not constitute the suspension of the proceedings considering that the
action was for damages with prayer for the issuance of Writ of Preliminary Attachment and not on the Distributorship
Agreement.
On 15 January 1997 petitioners filed a Motion for Reconsideration to which private respondents filed their
Comment/Opposition. On 31 January 1997 petitioners filed their Reply. Subsequently, private respondents filed an
Urgent Motion for Leave to Admit Supplemental Pleading dated 2 April 1997. This Motion was admitted, over petitioners
opposition, in an Order of the trial court dated 27 June 1997.
As a result of the admission of the Supplemental Complaint, petitioners filed on 22 July 1997 a Manifestation adopting
their Motion to Suspend Proceedings of 17 October 1996 and Motion for Reconsideration of 14 January 1997.
On 11 November 1997 the Motion to Suspend Proceedings was denied by the trial court on the ground that it "will not
serve the ends of justice and to allow said suspension will only delay the determination of the issues, frustrate the quest
of the parties for a judicious determination of their respective claims, and/or deprive and delay their rights to seek
redress."[15]
On appeal, the Court of Appeals affirmed the decision of the trial court. It held that the alleged damaging acts recited in
the Complaint, constituting petitioners causes of action, required the interpretation of Art. 21 of the Civil Code [16] and
that in determining whether petitioners had violated it "would require a full blown trial" making arbitration "out of the
question."[17] Petitioners Motion for Reconsiderationof the affirmation was denied. Hence, this Petition for Review.
The crux of the controversy boils down to whether the dispute between the parties warrants an order compelling them
to submit to arbitration.
Petitioners contend that the subject matter of private respondents causes of action arises out of or relates to the
Agreement between petitioners and private respondents. Thus, considering that the arbitration clause of the Agreement
provides that all disputes arising out of or relating to the Agreement or the parties relationship, including the termination
thereof, shall be resolved by arbitration, they insist on the suspension of the proceedings in Civil Case No. 2637-MN as
mandated by Sec. 7 of RA 876[18] -
Sec. 7. Stay of Civil Action. If any suit or proceeding be brought upon an issue arising out of an agreement providing for
arbitration thereof, the court in which such suit or proceeding is pending, upon being satisfied that the issue involved in
such suit or proceeding is referable to arbitration, shall stay the action or proceeding until an arbitration has been had in
accordance with the terms of the agreement.Provided, That the applicant for the stay is not in default in proceeding with
such arbitration.
Private respondents claim, on the other hand, that their causes of action are rooted in Arts. 20, 21 and 23 of the Civil
Code,[19] the determination of which demands a full blown trial, as correctly held by the Court of Appeals. Moreover, they
claim that the issues before the trial court were not joined so that the Honorable Judge was not given the opportunity to
satisfy himself that the issue involved in the case was referable to arbitration. They submit that, apparently, petitioners
filed a motion to suspend proceedings instead of sending a written demand to private respondents to arbitrate because
petitioners were not sure whether the case could be a subject of arbitration. They maintain that had petitioners done so
and private respondents failed to answer the demand, petitioners could have filed with the trial court their demand for
arbitration that would warrant a determination by the judge whether to refer the case to arbitration. Accordingly, private
respondents assert that arbitration is out of the question.
Private respondents further contend that the arbitration clause centers more on venue rather than on arbitration. They
finally allege that petitioners filed their motion for extension of time to file this petition on the same date [20] petitioner
DMC-USA filed a petition to compel private respondent MMI to arbitrate before the United States District Court in
Northern California, docketed as Case No. C-98-4446. They insist that the filing of the petition to compel arbitration in
the United States made the petition filed before this Court an alternative remedy and, in a way, an abandonment of the
cause they are fighting for here in the Philippines, thus warranting the dismissal of the present petition before this Court.
There is no doubt that arbitration is valid and constitutional in our jurisdiction.Even before the
enactment of RA 876, this Court has countenanced the settlement of disputes through arbitration.
Unless the agreement is such as absolutely to close the doors of the courts against the parties, which
agreement would be void, the courts will look with favor upon such amicable arrangement and will only
interfere with great reluctance to anticipate or nullify the action of the arbitrator.Moreover, as RA 876
expressly authorizes arbitration of domestic disputes, foreign arbitration as a system of settling
commercial disputes was likewise recognized when the Philippines adhered to the United Nations
"Convention on the Recognition and the Enforcement of Foreign Arbitral Awards of 1958" under the 10
May 1965 Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and allowing
enforcement of international arbitration agreements between parties of different nationalities within a
contracting state.
A careful examination of the instant case shows that the arbitration clause in the Distributorship Agreement between
petitioner DMC-USA and private respondent MMI is valid and the dispute between the parties is arbitrable. However, this
Court must deny the petition.
The Agreement between petitioner DMC-USA and private respondent MMI is a contract. The provision to
submit to arbitration any dispute arising therefrom and the relationship of the parties is part of that
contract and is itself a contract. As a rule, contracts are respected as the law between the contracting
parties and produce effect as between them, their assigns and heirs. [24] Clearly, only parties to the
Agreement, i.e., petitioners DMC-USA and its Managing Director for Export Sales Paul E. Derby, Jr., and
private respondents MMI and its Managing Director LILY SY are bound by the Agreement and its
arbitration clause as they are the only signatories thereto. Petitioners Daniel Collins and Luis Hidalgo,
and private respondent SFI, not parties to the Agreement and cannot even be considered assigns or heirs
of the parties, are not bound by the Agreement and the arbitration clause therein. Consequently, referral
to arbitration in the State of California pursuant to the arbitration clause and the suspension of the
proceedings in Civil Case No. 2637-MN pending the return of the arbitral award could be called for[25] but
only as to petitioners DMC-USA and Paul E. Derby, Jr., and private respondents MMI and LILY SY, and not
as to the other parties in this case, in accordance with the recent case of Heirs of Augusto L. Salas, Jr. v.
Laperal Realty Corporation,[26] which superseded that of Toyota Motor Philippines Corp. v. Court of
Appeals.[27]
In Toyota, the Court ruled that "[t]he contention that the arbitration clause has become dysfunctional because of the
presence of third parties is untenable ratiocinating that "[c]ontracts are respected as the law between the contracting
parties"[28] and that "[a]s such, the parties are thereby expected to abide with good faith in their contractual
commitments."[29] However, in Salas, Jr., only parties to the Agreement, their assigns or heirs have the right to arbitrate
or could be compelled to arbitrate. The Court went further by declaring that in recognizing the right of the contracting
parties to arbitrate or to compel arbitration, the splitting of the proceedings to arbitration as to some of the parties on
one hand and trial for the others on the other hand, or the suspension of trial pending arbitration between some of the
parties, should not be allowed as it would, in effect, result in multiplicity of suits, duplicitous procedure and unnecessary
delay
The object of arbitration is to allow the expeditious determination of a dispute. Clearly, the issue before
us could not be speedily and efficiently resolved in its entirety if we allow simultaneous arbitration
proceedings and trial, or suspension of trial pending arbitration. Accordingly, the interest of justice
would only be served if the trial court hears and adjudicates the case in a single and complete
proceeding.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals affirming the Order of the Regional Trial
Court of Malabon, Metro Manila, in Civil Case No. 2637-MN, which denied petitioners Motion to Suspend Proceedings, is
AFFIRMED. The Regional Trial Court concerned is directed to proceed with the hearing of Civil Case No. 2637-MN with
dispatch. No costs.
SO ORDERED.

12. TEODORO I. CHAVEZ, petitioner, vs. HON. COURT OF APPEALS and JACINTO S. TRILLANA,
respondent Chavez vs. Court of Appeals, 453 SCRA 843, G.R. No. 159411 March 18, 2005

PUNO, J.:

Assailed in this petition for review is the Decision dated April 2, 2003 of the Court of Appeals in CA-G.R. CV No. 59023
which modified the Decision dated December 15, 1997 of the Regional Trial Court (RTC) of Valenzuela City, Branch 172,
in Civil Case No. 5139-V-97, as well as its Resolution dated August 8, 2003[3] which denied petitioners motion for
reconsideration.

The antecedent facts are as follows:

In October 1994, petitioner Teodoro Chavez and respondent Jacinto Trillana entered into a contract of lease whereby
the former leased to the latter his fishpond at Sitio Pariahan, Taliptip, Bulacan, Bulacan, for a term of six (6) years
commencing from October 23, 1994 to October 23, 2000. The rental for the whole term was two million two hundred
forty thousand (P2,240,000.00) pesos, of which one million (P1,000,000.00) pesos was to be paid upon signing of the
contract. The balance was payable as follows:

b. That, after six (6) months and/or, on or before one (1) year from the date of signing this contract, the amount of
THREE HUNDRED FORTY-FOUR THOUSAND (P344,000.00) pesos shall be paid on April 23, 1995 and/or, on or before
October 23, 1995 shall be paid by the LESSEE to the LESSOR.

c. That, the LESSEE, shall pay the amount of FOUR HUNDRED FORTY-EIGHT THOUSAND (P448,000.00) pesos x x x to
the LESSOR on April 23, 1997 and/or, on or before October 23, 1997, and on April 23, 1998 and/or, on or before October
23, 1998 the amount of FOUR HUNDRED FORTY-EIGHT THOUSAND (P448,000.00) pesos x x x.

Paragraph 5 of the contract further provided that respondent shall undertake all construction and preservation of
improvements in the fishpond that may be destroyed during the period of the lease, at his expense, without
reimbursement from petitioner.

In August 1996, a powerful typhoon hit the country which damaged the subject fishpond. Respondent did not
immediately undertake the necessary repairs as the water level was still high. Three (3) weeks later, respondent was
informed by a barangay councilor that major repairs were being undertaken in the fishpond with the use of a crane.
Respondent found out that the repairs were at the instance of petitioner who had grown impatient with his delay in
commencing the work.

In September 1996, respondent filed a complaint before the Office of the Barangay Captain of Taliptip, Bulacan, Bulacan.
He complained about the unauthorized repairs undertaken by petitioner, the ouster of his personnel from the leased
premises and its unlawful taking by petitioner despite their valid and subsisting lease contract. After conciliation
proceedings, an agreement was reached, viz.:

KASUNDUAN

Napagkasunduan ngayong araw na to ika-17 ng Setyembre ng nagpabuwis Teodoro Chavez at bumubuwis na si G. Jay
Trillana na ibabalik ni G. Chavez ang halagang P150,000.00 kay G. Trillana bilang sukli sa natitirang panahon ng
buwisan.

Ngunit kung maibibigay ni G. Chavez ang halagang P100,000.00 bago sumapit o pagsapit ng ika-23 ng Setyembre,
taong kasalukuyan, to ay nangangahulugan ng buong kabayaran at hindi P150,000.00.

Kung sakali at hindi maibigay ang P100,000.00 ang magiging kabayaran ay mananatiling P150,000.00 na may paraan
ng pagbabayad ng sumusunod:

Ang P50,000.00 ay ibibigay bago sumapit o pagsapit ng ika-31 ng Oktubre 1996 at ang balanseng P100,000.00 ay
ibibigay sa loob ng isang taon subalit magbibigay ng promissory note si G. Chavez at kung mabubuwisang ang kanyang
palaisdaan ay ibibigay lahat ni G. Chavez ang buong P150,000.00 sa lalong madaling panahon.

Kung magkakaroon ng sapat at total na kabayaran si G. Chavez kay G. Trillana ang huli ay lalagda sa kasulatan bilang
waiver o walang anumang paghahabol sa nabanggit na buwisan.

Alleging non-compliance by petitioner with their lease contract and the foregoing Kasunduan, respondent filed a
complaint on February 7, 1997 against petitioner before the RTC of Valenzuela City, docketed as Civil Case No.
5139-V-97. Respondent prayed that the following amounts be awarded him, viz.: (a) P300,000.00 as reimbursement for
rentals of the leased premises corresponding to the unexpired portion of the lease contract; (b) P500,000.00 as
unrealized profits; (c) P200,000.00 as moral damages; (d) P200,000.00 as exemplary damages; and, (e) P100,000.00
as attorneys fees plus P1,000.00 for each court appearance of respondents counsel.

Petitioner filed his answer but failed to submit the required pretrial brief and to attend the pretrial conference. On
October 21, 1997, respondent was allowed to present his evidence ex-parte before the Acting Branch Clerk of Court.[5]
On the basis thereof, a decision was rendered on December 15, 1997[6] in favor of respondent, the dispositive portion
of which reads:

WHEREFORE, judgment is hereby rendered as follows:

(1) Ordering the defendant to reimburse to the plaintiff the sum of P300,000.00 representing rental payment of the
leased premises for the unused period of lease;

(2) Ordering the defendant to pay plaintiff the sum of P500,000.00 representing unrealized profit as a result of the
unlawful deprivation by the defendant of the possession of the subject premises;

(3) Ordering the defendant to pay plaintiff the sum of P200,000.00 as moral damages;

(4) Ordering the defendant to pay plaintiff the sum of P200,000.00 as exemplary damages; and

(5) Ordering the defendant to pay plaintiff the sum of P100,000.00 as and for attorneys fees, plus costs of suit.

Petitioner appealed to the Court of Appeals which modified the decision of the trial court by deleting the award of
P500,000.00 for unrealized profits for lack of basis, and by reducing the award for attorneys fees to P50,000.00.[7]
Petitioners motion for reconsideration was denied. Hence, this petition for review.

Petitioner contends that the Court of Appeals erred in ruling that the RTC of Valenzuela City had jurisdiction over the
action filed by respondent considering that the subject matter thereof, his alleged violation of the lease contract with
respondent, was already amicably settled before the Office of the Barangay Captain of Taliptip, Bulacan, Bulacan.
Petitioner argued that respondent should have followed the procedure for enforcement of the amicable settlement as
provided for in the Revised Katarungang Pambarangay Law. Assuming arguendo that the RTC had jurisdiction, it cannot
award more than the amount stipulated in the Kasunduan which is P150,000.00. In any event, no factual or legal basis
existed for the reimbursement of alleged advance rentals for the unexpired portion of the lease contract as well as for
moral and exemplary damages, and attorneys fees.

Indeed, the Revised Katarungang Pambarangay Law provides that an amicable settlement reached after
barangay conciliation proceedings has the force and effect of a final judgment of a court if not
repudiated or a petition to nullify the same is filed before the proper city or municipal court within ten
(10) days from its date. It further provides that the settlement may be enforced by execution by the
lupong tagapamayapa within six (6) months from its date, or by action in the appropriate city or
municipal court, if beyond the six-month period. This special provision follows the general precept
enunciated in Article 2037 of the Civil Code, A compromise has upon the parties the effect and authority of res
judicata; but there shall be no execution except in compliance with a judicial compromise.

Thus, we have held that a compromise agreement which is not contrary to law, public order, public policy,
morals or good customs is a valid contract which is the law between the parties themselves. It has
upon them the effect and authority of res judicata even if not judicially approved, and cannot be lightly
set aside or disturbed except for vices of consent and forgery.

However, in Heirs of Zari, et al. v. Santos,[14] we clarified that the broad precept enunciated in Art. 2037 is qualified by
Art. 2041 of the same Code, which provides:

If one of the parties fails or refuses to abide by the compromise, the other party may either enforce the compromise or
regard it as rescinded and insist upon his original demand.

We explained, viz:

[B]efore the onset of the new Civil Code, there was no right to rescind compromise agreements. Where a party violated
the terms of a compromise agreement, the only recourse open to the other party was to enforce the terms thereof.

When the new Civil Code came into being, its Article 2041 x x x created for the first time the right of rescission. That
provision gives to the aggrieved party the right to either enforce the compromise or regard it as rescinded and insist
upon his original demand. Article 2041 should obviously be deemed to qualify the broad precept enunciated in Article
2037 that [a] compromise has upon the parties the effect and authority of res judicata. (underscoring ours)

In exercising the second option under Art. 2041, the aggrieved party may, if he chooses, bring the suit contemplated or
involved in his original demand, as if there had never been any compromise agreement, without bringing an action for
rescission.[15] This is because he may regard the compromise as already rescinded[16] by the breach thereof of the
other party.

Thus, in Morales v. National Labor Relations Commission[17] we upheld the National Labor Relations Commission when
it heeded the original demand of four (4) workers for reinstatement upon their employers failure to comply with its
obligation to pay their monetary benefits within the period prescribed under the amicable settlement. We reiterated the
rule that the aggrieved party may either (1) enforce the compromise by a writ of execution, or (2) regard it as rescinded
and so insist upon his original demand upon the other partys failure or refusal to abide by the compromise. We also
recognized the options in Mabale v. Apalisok,[18] Canonizado v. Benitez,[19] and Ramnani v. Court of Appeals,[20] to
name a few cases.

In the case at bar, the Revised Katarungang Pambarangay Law provides for a two-tiered mode of
enforcement of an amicable settlement, to wit:
(a) by execution by the Punong Barangay which is quasi-judicial and summary in nature on mere motion
of the party entitled thereto; and
(b) an action in regular form, which remedy is judicial.
However, the mode of enforcement does not rule out the right of rescission under Art. 2041 of the Civil
Code.

The availability of the right of rescission is apparent from the wording of Sec. 417 itself which provides
that the amicable settlement may be enforced by execution by the lupon within six (6) months from its
date or by action in the appropriate city or municipal court, if beyond that period. The use of the word
may clearly makes the procedure provided in the Revised Katarungang Pambarangay Law directory or
merely optional in nature.

Thus, although the Kasunduan executed by petitioner and respondent before the Office of the Barangay
Captain had the force and effect of a final judgment of a court, petitioners non-compliance paved the
way for the application of Art. 2041 under which respondent may either enforce the compromise,
following the procedure laid out in the Revised Katarungang Pambarangay Law, or regard it as rescinded
and insist upon his original demand. Respondent chose the latter option when he instituted Civil Case No.
5139-V-97 for recovery of unrealized profits and reimbursement of advance rentals, moral and
exemplary damages, and attorneys fees. Respondent was not limited to claiming P150,000.00 because
although he agreed to the amount in the Kasunduan, it is axiomatic that a compromise settlement is not
an admission of liability but merely a recognition that there is a dispute and an impending litigation
which the parties hope to prevent by making reciprocal concessions, adjusting their respective positions
in the hope of gaining balanced by the danger of losing.[25] Under the Kasunduan, respondent was only
required to execute a waiver of all possible claims arising from the lease contract if petitioner fully
complies with his obligations thereunder.[26] It is undisputed that herein petitioner did not.

Having affirmed the RTCs jurisdiction over the action filed by respondent, we now resolve petitioners remaining
contention. Petitioner contends that no factual or legal basis exists for the reimbursement of alleged advance rentals,
moral and exemplary damages, and attorneys fees awarded by the court a quo and the Court of Appeals.

The rule is that actual damages cannot be presumed, but must be proved with a reasonable degree of certainty.In the
case at bar, we agree with petitioner that no competent proof was presented to prove that respondent had paid
P300,000.00 as advance rentals for the unexpired period of the lease contract. On the contrary, the lease contract itself
provided that the remaining rentals of P448,000.00 shall be paid on April 23, 1997 and/or, on or before October 23,
1997, and on April 23, 1998 and/or, on or before October 23, 1998 the amount P448,000.00. Respondent filed his
complaint on February 7, 1997. No receipt or other competent proof, aside from respondents self-serving assertion, was
presented to prove that respondent paid the rentals which were not yet due. No proof was even presented by
respondent to show that he had already paid P1,000,000.00 upon signing of the lease contract, as stipulated therein.
Petitioner, in paragraphs 2 and 7 of his answer, specifically denied that respondent did so. Courts must base actual
damages suffered upon competent proof and on the best obtainable evidence of the actual amount thereof.
As to moral damages, Art. 2220 of the Civil Code provides that same may be awarded in breaches of contract where the
defendant acted fraudulently or in bad faith. In the case at bar, respondent alleged that petitioner made unauthorized
repairs in the leased premises and ousted his personnel therefrom despite their valid and subsisting lease agreement.
Petitioner alleged, by way of defense, that he undertook the repairs because respondent abandoned the leased
premises and left it in a state of disrepair. However, petitioner presented no evidence to prove his allegation, as he did
not attend the pretrial conference and was consequently declared in default. What remains undisputed therefore is that
petitioner had a valid and subsisting lease contract with respondent which he refused to honor by giving back possession
of the leased premises to respondent. We therefore sustain the conclusion of both the trial court and the Court of
Appeals that an award of moral damages is justified under the circumstances. We likewise sustain the award for
exemplary damages considering petitioners propensity not to honor his contractual obligations, first under the lease
contract and second, under the amicable settlement executed before the Office of the Barangay Captain. Since
respondent was compelled to litigate and incur expenses to protect his interest on account of petitioners refusal to
comply with his contractual obligations,[30] the award of attorneys fees has to be sustained.

IN VIEW WHEREOF, the petition is PARTIALLY GRANTED. The assailed Decision dated April 2, 2003 of the Court of
Appeals in CA-G.R. CV No. 59023 is modified by deleting the award of P300,000.00 as reimbursement of advance rentals.
The assailed Decision is AFFIRMED in all other respects.

SO ORDERED.

13. WILLIAM GOLANGCO CONSTRUCTION CORPORATION, petitioner, vs. RAY BURTON

DEVELOPMENT CORPORATION, respondent William Galangco Construction Corporation vs. Ray Burton
Developmet Corporation, 627 SCRA 74, G.R. No. 163582 August 9, 2010

PERALTA, J.:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that the Decision[1] of
the Court of Appeals (CA) dated December 19, 2003, holding that the Construction Industry Arbitration Commission
(CIAC) had no jurisdiction over the dispute between herein parties, and the CA Resolution[2] dated May 24, 2004,
denying herein petitioner's motion for reconsideration, be reversed and set aside.

The undisputed facts, as accurately narrated in the CA Decision, are as follows.

On July 20, 1995, petitioner Ray Burton Development Corporation [herein respondent] (RBDC for brevity) and private
respondent William Golangco Construction Corporation [herein petitioner] (WGCC) entered into a Contract for the
construction of the Elizabeth Place (Office/Residential Condominium).
On March 18, 2002, private respondent WGCC filed a complaint with a request for arbitration with the Construction
Industry Arbitration Commission (hereinafter referred to as CIAC). In its complaint, private respondent prayed that CIAC
render judgment ordering petitioner to pay private respondent the amount of, to wit:

1. P24,703,132.44 for the unpaid balance on the contract price;

2. P10,602,670.25 for the unpaid balance on the labor cost adjustment;

3. P9,264,503.70 for the unpaid balance of additive works;

4. P2,865,615.10 for extended overhead expenses;

5. P1,395,364.01 for materials cost adjustment and trade contractors' utilities expenses;

6. P4,835,933.95 for interest charges on unpaid overdue billings on labor cost adjustment and
change orders.

or for a total of Fifty Three Million Six Hundred Sixty-Seven Thousand Two Hundred Nineteen and 45/xx
(P53,667,219.45) and interest charges based on the prevailing bank rates on the foregoing amount from March 1, 2002
and until such time as the same shall be fully paid.

On April 12, 2002, petitioner RBDC filed a Motion to Dismiss the aforesaid complaint on the ground of lack of jurisdiction.
It is petitioner's contention that the CIAC acquires jurisdiction over disputes arising from or connected with construction
contracts only when the parties to the contract agree to submit the same to voluntary arbitration. In the contract
between petitioner and private respondent, petitioner claimed that only disputes by reason of differences in
interpretation of the contract documents shall be deemed subject to arbitration.

Private respondent filed a Comment and Opposition to the aforesaid Motion dated April 15, 2002. Private respondent
averred that the claims set forth in the complaint require contract interpretation and are thus cognizable by the CIAC
pursuant to the arbitration clause in the construction contract between the parties. Moreover, even assuming that the
claims do not involve differing contract interpretation, they are still cognizable by the CIAC as the arbitration clause
mandates their direct filing therewith.

On May 6, 2002, the CIAC rendered an Order the pertinent portion of which reads as follows:

The Commission has taken note of the foregoing arguments of the parties. After due deliberations, the Commission
resolved to DENY Respondent's motion on the following grounds:

[1] Clause 17.2 of Art. XVII of the Contract Agreement explicitly provides that any dispute arising under the construction
contract shall be submitted to the Construction Arbitration Authority created by the Government. Even without this
provision, the bare agreement to submit a construction dispute to arbitration vests in the Commission original and
exclusive jurisdiction by virtue of Sec. 4 of Executive Order No. 1008, whether or not a dispute involves a collection of
sum of money or contract interpretation as long as the same arises from, or in connection with, contracts entered into
by the parties involved. The Supreme Court jurisprudence on Tesco vs. Vera case referred to by respondent is no longer
controlling as the same was based on the old provision of Article III, Sec. 1 of the CIAC Rules which has long been
amended.
[2] The issue raised by Respondent in its Motion to Dismiss is similar to the issue set forth in CA-G.R. Sp. No. 67367,
Continental Cement Corporation vs. CIAC and EEI Corporation, where the appellate court upheld the ruling of the CIAC
thereon that since the parties agreed to submit to arbitration any dispute, the same does not exclude disputes relating
to claims for payment in as much as the said dispute originates from execution of the works. As such, the subject
dispute falls within the original and exclusive jurisdiction of the CIAC.

WHEREFORE, in view of the foregoing, Respondent's Motion to Dismiss is DENIED for lack of merit. Respondent is given
anew an inextendible period of ten (10) days from receipt hereof within which to file its Answer and nominees for the
Arbitral Tribunal. If Respondent shall fail to comply within the prescribed period, the Commission shall proceed with
arbitration in accordance with its Rules. x x x

Thereafter, petitioner filed a Motion to Suspend Proceedings praying that the CIAC order a suspension of the
proceedings in Case No. 13-2002 until the resolution of the negotiations between the parties, and consequently, that the
period to file an Answer be held in abeyance.

Private respondent filed an Opposition to the aforesaid Motion and a Counter-Motion to Declare respondent to Have
Refused to Arbitrate and to Proceed with Arbitration Ex Parte.

On May 24, 2002 the CIAC issued an Order, the pertinent portion of which reads:

In view of the foregoing, Respondent's (petitioner's) Motion to Suspend Proceedings is DENIED. Accordingly,
respondent is hereby given a non-extendible period of five (5) days from receipt thereof within which to submit its
Answer and nominees for the Arbitral Tribunal. In default thereof, claimant's (private respondent's) Counter-Motion is
deemed granted and arbitration shall proceed in accordance with the CIAC Rules Governing Construction Arbitration.

SO ORDERED. x x x

On June 3, 2002, petitioner RBDC filed [with the Court of Appeals (CA)] a petition for Certiorari and Prohibition with
prayer for the issuance of a temporary restraining order and a writ of preliminary injunction. Petitioner contended that
CIAC acted without or in excess of its jurisdiction when it issued the questioned order despite the clear showing that
there is lack of jurisdiction on the issue submitted by private respondent for arbitration.[3]

On December 19, 2003, the CA rendered the assailed Decision granting the petition for certiorari, ruling that the CIAC
had no jurisdiction over the subject matter of the case because the parties agreed that only disputes regarding
differences in interpretation of the contract documents shall be submitted for arbitration, while the allegations in the
complaint make out a case for collection of sum of money. Petitioner moved for reconsideration of said ruling, but the
same was denied in a Resolution dated May 24, 2004.

Hence, this petition where it is alleged that:

I.
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN FAILING TO DISMISS PRIVATE
RESPONDENT RBDC'S PETITION IN CA-G.R. SP NO. 70959 OUTRIGHT IN VIEW OF RBDC'S FAILURE TO FILE A
MOTION FOR RECONSIDERATION OF THE CIAC'S ORDER, AS WELL AS FOR RBDC'S FAILURE TO ATTACH TO THE
PETITION THE RELEVANT PLEADINGS IN CIAC CASE NO. 13-2002, IN VIOLATION OF THE REQUIREMENT UNDER
RULE 65, SECTIONS 1 AND 2, PARAGRAPH 2 THEREOF, AND RULE 46, SECTION 3, PARAGRAPH 2 THEREOF.

II.

THE COURT OF APPEALS ERRED GRAVELY IN NOT RULING THAT THE CIAC HAS JURISDICTION OVER WGCC'S CLAIMS,
WHICH ARE IN THE NATURE OF ARBITRABLE DISPUTES COVERED BY CLAUSE 17.1 OF ARTICLE XVII INVOLVING
CONTRACT INTERPRETATION.

xxxx

III.

THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO DISCERN THAT CLAUSE 17.2 OF ARTICLE XVII CANNOT BE
TREATED AS BEING LIMITED TO DISPUTES ARISING FROM INTERPRETATION OF THE CONTRACT.

xxxx

IV.

THE COURT OF APPEALS ERRED GRAVELY IN NOT RULING THAT RBDC IS ESTOPPED FROM DISPUTING THE
JURISDICTION OF THE CIAC.

xxxx

V.

FINALLY, THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REFUSING TO PAY HEED TO THE
DECLARATION IN EXECUTIVE ORDER NO. 1008 THAT THE POLICY OF THE STATE IS IN FAVOR OF ARBITRATION OF
CONSTRUCTION DISPUTES, WHICH POLICY HAS BEEN REINFORCED FURTHER BY THE RECENT PASSAGE OF THE
ALTERNATIVE DISPUTE RESOLUTION ACT OF 2004(R.A. NO. 9285).[4]

The petition is meritorious.

The aforementioned issues boil down to (1) whether the CA acted with grave abuse of discretion in failing to dismiss the
petition for certiorari filed by herein respondent, in view of the latter's failure to file a motion for reconsideration of the
assailed CIAC Order and for failure to attach to the petition the relevant pleadings in CIAC Case No. 13-2002; and (2)
whether the CA gravely erred in not upholding the jurisdiction of the CIAC over the subject complaint.
Petitioner is correct that it was grave error for the CA to have given due course to respondent's petition
for certiorari despite its failure to attach copies of relevant pleadings in CIAC Case No. 13-2002. In Tagle
v. Equitable PCI Bank,[5] the party filing the petition for certiorari before the CA failed to attach the
Motion to Stop Writ of Possession and the Order denying the same. On the ground of non-compliance
with the rules, the CA dismissed said petition for certiorari. When the case was elevated to this Court via
a petition for certiorari, the same was likewise dismissed. In said case, the Court emphasized the
importance of complying with the formal requirements for filing a petition for certiorari and held as
follows:

x x x Sec. 1, Rule 65, in relation to Sec. 3, Rule 46, of the Revised Rules of Court. Sec. 1 of Rule 65 reads:

SECTION 1. Petition for certiorari. When any tribunal, board or officer exercising judicial or quasi-judicial
functions has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion
amounting to lack or excess of [its or his] jurisdiction, and there is no appeal, or any plain, speedy, and
adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in
the proper court, alleging the facts with certainty and praying that judgment be rendered annulling or
modifying the proceedings of such tribunal, board or officer, and granting such incidental reliefs as law
and justice may require.

The petition shall be accompanied by a certified true copy of the judgment, order or resolution subject
thereof, copies of all pleadings and documents relevant and pertinent thereto, and a sworn certification
of non-forum shopping as provided in the third paragraph of Section 3, Rule 46. (Emphasis supplied.)

And Sec. 3 of Rule 46 provides:

SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. The petition shall
contain the full names and actual addresses of all the petitioners and respondents, a concise statement
of the matters involved, the factual background of the case, and the grounds relied upon for the relief
prayed for.

In actions filed under Rule 65, the petition shall further indicate the material dates showing when notice
of the judgment or final order or resolution subject thereof was received, when a motion for new trial or
reconsideration, if any, was filed and when notice of the denial thereof was received.

It shall be filed in seven (7) clearly legible copies together with proof of service thereof on the
respondent with the original copy intended for the court indicated as such by the petitioner and shall be
accompanied by a clearly legible duplicate original or certified true copy of the judgment, order,
resolution, or ruling subject thereof, such material portions of the record as are referred to therein, and
other documents relevant or pertinent thereto. The certification shall be accomplished by the proper
clerk of court or by his duly-authorized representative, or by the proper officer of the court, tribunal,
agency or office involved or by his duly authorized representative. The other requisite number of copies
of the petition shall be accompanied by clearly legible plain copies of all documents attached to the
original.

xxxx
The failure of the petitioner to comply with any of the foregoing requirements shall be sufficient ground
for the dismissal of the petition. (Emphasis supplied.)

The afore-quoted provisions are plain and unmistakable. Failure to comply with the requirement that the
petition be accompanied by a duplicate original or certified true copy of the judgment, order, resolution
or ruling being challenged is sufficient ground for the dismissal of said petition. Consequently, it cannot
be said that the Court of Appeals acted with grave abuse of discretion amounting to lack or excess of
jurisdiction in dismissing the petition x x x for non-compliance with Sec. 1, Rule 65, in relation to Sec. 3,
Rule 46, of the Revised Rules of Court.

In the present case, herein petitioner (private respondent below) strongly argued against the CA's granting due course
to the petition, pointing out that pertinent pleadings such as the Complaint before the CIAC, herein respondent's Motion
to Dismiss, herein petitioner's Comment and Opposition (Re: Motion to Dismiss), and the Motion to Suspend
Proceedings, have not been attached to the petition. Herein respondent (petitioner before the CA) argued in its Reply[7]
before the CA that it did not deem such pleadings or documents germane to the petition. However, in the CA Resolution
dated July 4, 2002, the appellate court itself revealed the necessity of such documents by ordering the submission of
copies of pleadings relevant to the petition. Indeed, such pleadings are necessary for a judicious resolution of the issues
raised in the petition and should have been attached thereto. As mandated by the rules, the failure to do so is
sufficient ground for the dismissal of the petition. The CA did not give any convincing reason why the rule
regarding requirements for filing a petition should be relaxed in favor of herein respondent. Therefore, it
was error for the CA to have given due course to the petition for certiorari despite herein respondent's
failure to comply with the requirements set forth in Section 1, Rule 65, in relation to Section 3, Rule 46,
of the Revised Rules of Court.

Even on the main issue regarding the CIAC's jurisdiction, the CA erred in ruling that said arbitration body had no
jurisdiction over the complaint filed by herein petitioner. There is no question that, as provided under Section 4 of
Executive Order No. 1008, also known as the Construction Industry Arbitration Law, the CIAC has original and exclusive
jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in construction in
the Philippines and all that is needed for the CIAC to acquire jurisdiction is for the parties to agree to submit the same to
voluntary arbitration. Nevertheless, respondent insists that the only disputes it agreed to submit to voluntary arbitration
are those arising from interpretation of contract documents. It argued that the claims alleged in petitioner's complaint
are not disputes arising from interpretation of contract documents; hence, the CIAC cannot assume jurisdiction over the
case.

Respondent's contention is tenuous.

The contract between herein parties contained an arbitration clause which reads as follows:

17.1.1. Any dispute arising in the course of the execution of this Contract by reason of differences in interpretation of the
Contract Documents which the OWNER and the CONTRACTOR are unable to resolve between themselves, shall be
submitted by either party for resolution or decision, x x x to a Board of Arbitrators composed of three (3) members, to be
chosen as follows:

One (1) member each shall be chosen by the OWNER and the CONTRACTOR. The said two (2) members, in turn, shall
select a third member acceptable to both of them. The decision of the Board of Arbitrators shall be rendered within
fifteen (15) days from the first meeting of the Board. The decision of the Board of Arbitrators when reached through the
affirmative vote of at least two (2) of its members shall be final and binding upon the OWNER and the CONTRACTOR.

17.2 Matters not otherwise provided for in this Contract or by special agreement of the parties shall be
governed by the provisions of the Construction Arbitration Law of the Philippines. As a last resort, any dispute which is
not resolved by the Board of Arbitrators shall be submitted to the Construction Arbitration Authority created by the
government.[9]

In gist, the foregoing provisions mean that herein parties agreed to submit disputes arising by reason of differences in
interpretation of the contract to a Board of Arbitrators the composition of which is mutually agreed upon by the parties,
and, as a last resort, any other dispute which had not been resolved by the Board of Arbitrators shall be submitted to the
Construction Arbitration Authority created by the government, which is no other than the CIAC. Moreover, other matters
not dealt with by provisions of the contract or by special agreements shall be governed by provisions of the Construction
Industry Arbitration Law, or Executive Order No. 1008.

The Court finds that petitioner's claims that it is entitled to payment for several items under their contract, which claims
are, in turn, refuted by respondent, involves a dispute arising from differences in interpretation of the contract. Verily,
the matter of ascertaining the duties and obligations of the parties under their contract all involve interpretation of the
provisions of the contract. Therefore, if the parties cannot see eye to eye regarding each others obligations, i.e., the
extent of work to be expected from each of the parties and the valuation thereof, this is properly a dispute arising from
differences in the interpretation of the contract.

Note, further, that in respondent's letter[10] dated February 14, 2000, it stated that disputed items of work such as
Labor Cost Adjustment and interest charges, retention, processing of payment on Cost Retained by WGCC,
Determination of Cost of Deletion for miscellaneous Finishing Works, are considered unresolved dispute[s] as to the
proper interpretation of our respective obligations under the Contract, which should be referred to the Board of
Arbitrators. Even if the dispute subject matter of said letter had been satisfactorily settled by herein parties, the contents
of the letter evinces respondent's frame of mind that the claims being made by petitioner in the complaint subject of this
petition, are indeed matters involving disputes arising from differences in interpretation.

Clearly, the subject matter of petitioner's claims arose from differences in interpretation of the contract, and under the
terms thereof, such disputes are subject to voluntary arbitration. Since, under Section 4 of Executive Order No. 1008 the
CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in the Philippines and all that is needed for the
CIAC to acquire jurisdiction is for the parties to agree to submit the same to voluntary arbitration, there
can be no other conclusion but that the CIAC had jurisdiction over petitioner's complaint. Furthermore, Section 1, Article
III of the CIAC Rules of Procedure Governing Construction Arbitration (CIAC Rules) further provide that [a]n arbitration
clause in a construction contract or a submission to arbitration of a construction dispute shall be deemed an agreement
to submit an existing or future controversy to CIAC jurisdiction, notwithstanding the reference to a different arbitration
institution or arbitral body in such contract or submission. Thus, even if there is no showing that petitioner previously
brought its claims before a Board of Arbitrators constituted under the terms of the contract, this circumstance would not
divest the CIAC of jurisdiction. In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila Tollways Corporation,[11]
the Court held that:

Under Section 1, Article III of the CIAC Rules, an arbitration clause in a construction contract shall be deemed as an
agreement to submit an existing or future controversy to CIAC jurisdiction, notwithstanding the reference to a different
arbitration institution or arbitral body in such contract x x x. Elementary is the rule that when laws or rules are clear, it is
incumbent on the court to apply them. When the law (or rule) is unambiguous and unequivocal, application, not
interpretation thereof, is imperative.

Hence, the bare fact that the parties herein incorporated an arbitration clause in the EPCC is sufficient to vest the CIAC
with jurisdiction over any construction controversy or claim between the parties. The arbitration clause in the
construction contract ipso facto vested the CIAC with jurisdiction. This rule applies, regardless of whether the parties
specifically choose another forum or make reference to another arbitral body. Since the jurisdiction of CIAC is conferred
by law, it cannot be subjected to any condition; nor can it be waived or diminished by the stipulation, act or omission of
the parties, as long as the parties agreed to submit their construction contract dispute to arbitration, or if there is an
arbitration clause in the construction contract. The parties will not be precluded from electing to submit their dispute to
CIAC, because this right has been vested in each party by law.

xxxx

It bears to emphasize that the mere existence of an arbitration clause in the construction contract is considered by law
as an agreement by the parties to submit existing or future controversies between them to CIAC jurisdiction, without
any qualification or condition precedent. To affirm a condition precedent in the construction contract, which would
effectively suspend the jurisdiction of the CIAC until compliance therewith, would be in conflict with the recognized
intention of the law and rules to automatically vest CIAC with jurisdiction over a dispute should the construction contract
contain an arbitration clause.

Moreover, the CIAC was created in recognition of the contribution of the construction industry to national development
goals. Realizing that delays in the resolution of construction industry disputes would also hold up the development of the
country, Executive Order No. 1008 expressly mandates the CIAC to expeditiously settle construction industry disputes
and, for this purpose, vests in the CIAC original and exclusive jurisdiction over disputes arising from, or connected with,
contracts entered into by the parties involved in construction in the Philippines.[12]

Thus, there is no question that in this case, the CIAC properly took cognizance of petitioner's complaint as it had
jurisdiction over the same.

IN VIEW OF THE FOREGOING, the Petition is GRANTED. The Decision of the Court of Appeals, dated December 19, 2003,
and its Resolution dated May 24, 2004 in CA-G.R. SP No. 70959 are REVERSED and SET ASIDE. The Order of the
Construction Industry Arbitration Commission is REINSTATED.

14 .DEPARTMENT OF FOREIGN AFFAIRS and BANGKO SENTRAL NG PILIPINAS, petitioners, vs. HON.
FRANCO T. FALCON, IN HIS CAPACITY AS THE PRESIDING JUDGE OF BRANCH 71 OF THE REGIONAL
TRIAL COURT IN PASIG CITY and BCA INTERNATIONAL CORPORATION, respondents. Department of
Foreign Affair vs. Falcon, 629 SCRA 644, G.R. No. 176657<br/> September 1, 2010

LEONARDO-DE CASTRO, J.:

Before the Court is a Petition for Certiorari and prohibition under Rule 65 of the Rules of Court with a prayer for the
issuance of a temporary restraining order and/or a writ of preliminary injunction filed by petitioners Department of
Foreign Affairs (DFA) and Bangko Sentral ng Pilipinas (BSP). Petitioners pray that the Court declare as null and void the
Order[1] dated February 14, 2007 of respondent Judge Franco T. Falcon (Judge Falcon) in Civil Case No. 71079, which
granted the application for preliminary injunction filed by respondent BCA International Corporation (BCA). Likewise,
petitioners seek to prevent respondent Judge Falcon from implementing the corresponding Writ of Preliminary
Injunction dated February 23, 2007[2] issued pursuant to the aforesaid Order.

The facts of this case, as culled from the records, are as follows:

Being a member state of the International Civil Aviation Organization (ICAO),[3] the Philippines has to comply with the
commitments and standards set forth in ICAO Document No. 9303[4] which requires the ICAO member states to issue
machine readable travel documents (MRTDs)[5] by April 2010.

Thus, in line with the DFAs mandate to improve the passport and visa issuance system, as well as the storage and
retrieval of its related application records, and pursuant to our governments ICAO commitments, the DFA secured the
approval of the President of the Philippines, as Chairman of the Board of the National Economic and Development
Authority (NEDA), for the implementation of the Machine Readable Passport and Visa Project (the MRP/V Project) under
the Build-Operate-and-Transfer (BOT) scheme, provided for by Republic Act No. 6957, as amended by Republic Act No.
7718 (the BOT Law), and its Implementing Rules and Regulations (IRR). Thus, a Pre-qualification, Bids and Awards
Committee (PBAC) published an invitation to pre-qualify and bid for the supply of the needed machine readable
passports and visas, and conducted the public bidding for the MRP/V Project on January 10, 2000. Several bidders
responded and BCA was among those that pre-qualified and submitted its technical and financial proposals. On June 29,
2000, the PBAC found BCAs bid to be the sole complying bid; hence, it permitted the DFA to engage in direct
negotiations with BCA. On even date, the PBAC recommended to the DFA Secretary the award of the MRP/V Project to
BCA on a BOT arrangement.

In compliance with the Notice of Award dated September 29, 2000 and Section 11.3, Rule 11 of the IRR of the BOT
Law,[6] BCA incorporated a project company, the Philippine Passport Corporation (PPC) to undertake and implement
the MRP/V Project.

On February 8, 2001, a Build-Operate-Transfer Agreement[7] (BOT Agreement) between the DFA and PPC was signed
by DFA Acting Secretary Lauro L. Baja, Jr. and PPC President Bonifacio Sumbilla. Under the BOT Agreement, the MRP/V
Project was defined as follows:

Section 1.02 MRP/V Project refers to all the activities and services undertaken in the fulfillment of the Machine Readable
Passport and Visa Project as defined in the Request for Proposals (RFP), a copy of which is hereto attached as Annex A,
including but not limited to project financing, systems development, installation and maintenance in the Philippines and
Foreign Service Posts (FSPs), training of DFA personnel, provision of all project consumables (related to the production
of passports and visas, such as printer supplies, etc.), scanning of application and citizenship documents, creation of
data bases, issuance of machine readable passports and visas, and site preparation in the Central Facility and Regional
Consular Offices (RCOs) nationwide.[8]

On April 5, 2002, former DFA Secretary Teofisto T. Guingona and Bonifacio Sumbilla, this time as BCA President, signed
an Amended BOT Agreement[9] in order to reflect the change in the designation of the parties and to harmonize Section
11.3 with Section 11.8[10] of the IRR of the BOT Law. The Amended BOT Agreement was entered into by the DFA and
BCA with the conformity of PPC.

The two BOT Agreements (the original version signed on February 8, 2001 and the amended version signed April 5,
2002) contain substantially the same provisions except for seven additional paragraphs in the whereas clauses and two
new provisions Section 9.05 on Performance and Warranty Securities and Section 20.15 on Miscellaneous Provisions.
The two additional provisions are quoted below:
Section 9.05. The PPC has posted in favor of the DFA the performance security required for Phase 1 of the MRP/V
Project and shall be deemed, for all intents and purposes, to be full compliance by BCA with the provisions of this Article
9.

xxxx

Section 20.15 It is clearly and expressly understood that BCA may assign, cede and transfer all of its rights and
obligations under this Amended BOT Agreement to PPC, as fully as if PPC is the original signatory to this Amended BOT
Agreement, provided however that BCA shall nonetheless be jointly and severally liable with PPC for the performance of
all the obligations and liabilities under this Amended BOT Agreement.[11]

Also modified in the Amended BOT Agreement was the Project Completion date of the MRP/V Project which set the
completion of the implementation phase of the project within 18 to 23 months from the date of effectivity of the
Amended BOT Agreement as opposed to the previous period found in the original BOT Agreement which set the
completion within 18 to 23 months from receipt of the NTP (Notice to Proceed) in accordance with the Project Master
Plan.

On April 12, 2002, an Assignment Agreement[12] was executed by BCA and PPC, whereby BCA assigned and ceded its
rights, title, interest and benefits arising from the Amended BOT Agreement to PPC.

As set out in Article 8 of the original and the Amended BOT Agreement, the MRP/V Project was divided into six phases:

Phase 1. Project Planning Phase The Project Proponent [BCA] shall prepare detailed plans and specifications in
accordance with Annex A of this [Amended] BOT Agreement within three (3) months from issuance of the NTP (Notice
to Proceed) [from the date of effectivity of this Amended BOT Agreement]. This phase shall be considered complete
upon the review, acceptance and approval by the DFA of these plans and the resulting Master Plan, including the Master
Schedule, the business process specifications, the acceptance criteria, among other plans.
xxxx

The DFA must approve all detailed plans as a condition precedent to the issuance of the CA [Certificate of Acceptance]
for Phase 1.

Phase 2. Implementation of the MRP/V Project at the Central Facility Within six (6) months from issuance of the CA for
Phase 1, the PROJECT PROPONENT [BCA] shall complete the implementation of the MRP/V Project in the DFA Central
Facility, and establish the network design between the DFA Central Facility, the ten (10) RCOs [Regional Consular
Offices] and the eighty (80) FSPs [Foreign Service Posts].

xxxx

Phase 3. Implementation of the MRP/V Project at the Regional Consular Offices This phase represents the replication of
the systems as approved from the Central Facility to the RCOs throughout the country, as identified in the RFP [Request
for Proposal]. The approved systems are those implemented, evaluated, and finally approved by DFA as described in
Phase 1. The Project Proponent [BCA] will be permitted to begin site preparation and the scanning and database
building operations in all offices as soon as the plans are agreed upon and accepted. This includes site preparation and
database building operations in these Phase-3 offices.

Within six (6) months from issuance of CA for Phase 2, the Project Proponent [BCA] shall complete site preparation and
implementation of the approved systems in the ten (10) RCOs, including a fully functional network connection between
all equipment at the Central Facility and the RCOs.

Phase 4. Full Implementation, including all Foreign Service Posts Within three (3) to eight (8) months from issuance of
the CA for Phase-3, the Project Proponent [BCA] shall complete all preparations and fully implement the approved
systems in the eighty (80) FSPs, including a fully functional network connection between all equipment at the Central
Facility and the FSPs. Upon satisfactory completion of Phase 4, a CA shall be issued by the DFA.

Phase 5. In Service Phase Operation and maintenance of the complete MRP/V Facility to provide machine readable
passports and visas in all designated locations around the world.
Phase 6. Transition/Turnover Transition/Turnover to the DFA of all operations and equipment, to include an orderly
transfer of ownership of all hardware, application system software and its source code and/or licenses (subject to
Section 5.02 [H]), peripherals, leasehold improvements, physical and computer security improvements, Automated
Fingerprint Identification Systems, and all other MRP/V facilities shall commence at least six (6) months prior to the end
of the [Amended] BOT Agreement. The transition will include the training of DFA personnel who will be taking over the
responsibilities of system operation and maintenance from the Project Proponent [BCA]. The Project Proponent [BCA]
shall bear all costs related to this transfer.[13] (Words in brackets appear in the Amended BOT Agreement)

To place matters in the proper perspective, it should be pointed out that both the DFA and BCA impute breach of the
Amended BOT Agreement against each other.

According to the DFA, delays in the completion of the phases permeated the MRP/V Project due to the submission of
deficient documents as well as intervening issues regarding BCA/PPCs supposed financial incapacity to fully implement
the project.

On the other hand, BCA contends that the DFA failed to perform its reciprocal obligation to issue to BCA a Certificate of
Acceptance of Phase 1 within 14 working days of operation purportedly required by Section 14.04 of the Amended BOT
Agreement. BCA bewailed that it took almost three years for the DFA to issue the said Certificate allegedly because
every appointee to the position of DFA Secretary wanted to review the award of the project to BCA. BCA further alleged
that it was the DFAs refusal to approve the location of the DFA Central Facility which prevented BCA from proceeding
with Phase 2 of the MRP/V Project.

Later, the DFA sought the opinion of the Department of Finance (DOF) and the Department of Justice (DOJ) regarding
the appropriate legal actions in connection with BCAs alleged delays in the completion of the MRP/V Project. In a Letter
dated February 21, 2005,[14] the DOJ opined that the DFA should issue a final demand upon BCA to make good on its
obligations, specifically on the warranties and responsibilities regarding the necessary capitalization and the required
financing to carry out the MRP/V Project. The DOJ used as basis for said recommendation, the Letter dated April 19,
2004[15] of DOF Secretary Juanita Amatong to then DFA Secretary Delia Albert stating, among others, that BCA may
not be able to infuse more capital into PPC to use for the completion of the MRP/V Project.

Thus, on February 22, 2005, DFA sent a letter[16] to BCA, through its project company PPC, invoking BCAs financial
warranty under Section 5.02(A) of the Amended BOT Agreement.[17] The DFA required BCA to submit (a) proof of
adequate capitalization (i.e., full or substantial payment of stock subscriptions); (b) a bank guarantee indicating the
availability of a credit facility of P700 million; and (c) audited financial statements for the years 2001 to 2004.

In reply to DFAs letter, BCA, through PPC, informed the former of its position that its financial capacity was already
passed upon during the prequalification process and that the Amended BOT Agreement did not call for any additional
financial requirements for the implementation of the MRP/V Project. Nonetheless, BCA submitted its financial statements
for the years 2001 and 2002 and requested for additional time within which to comply with the other financial
requirements which the DFA insisted on.[18]

According to the DFA, BCAs financial warranty is a continuing warranty which requires that it shall have the necessary
capitalization to finance the MRP/V Project in its entirety and not on a per phase basis as BCA contends. Only upon
sufficient proof of its financial capability to complete and implement the whole project will the DFAs obligation to choose
and approve the location of its Central Facility arise. The DFA asserted that its approval of a Central Facility site was not
ministerial and upon its review, BCAs proposed site for the Central Facility was purportedly unacceptable in terms of
security and facilities. Moreover, the DFA allegedly received conflicting official letters and notices[19] from BCA and PPC
regarding the true ownership and control of PPC. The DFA implied that the disputes among the shareholders of PPC and
between PPC and BCA appeared to be part of the reason for the hampered implementation of the MRP/V Project.

BCA, in turn, submitted various letters and documents to prove its financial capability to complete the MRP/V Project.[20]
However, the DFA claimed these documents were unsatisfactory or of dubious authenticity. Then on August 1, 2005,
BCA terminated its Assignment Agreement with PPC and notified the DFA that it would directly implement the MRP/V
Project.[21] BCA further claims that the termination of the Assignment Agreement was upon the instance, or with the
conformity, of the DFA, a claim which the DFA disputed.

On December 9, 2005, the DFA sent a Notice of Termination[22] to BCA and PPC due to their alleged failure to submit
proof of financial capability to complete the entire MRP/V Project in accordance with the financial warranty under
Section 5.02(A) of the Amended BOT Agreement. The Notice states:

After a careful evaluation and consideration of the matter, including the reasons cited in your letters dated March 3, May
3, and June 20, 2005, and upon the recommendation of the Office of the Solicitor General (OSG), the Department is of
the view that your continuing default in complying with the requisite bank guarantee and/or credit facility, despite
repeated notice and demand, is legally unjustified.

In light of the foregoing considerations and upon the instruction of the Secretary of Foreign Affairs, the Department
hereby formally TERMINATE (sic) the Subject Amended BOT Agreement dated 5 April 2005 (sic)[23] effective 09
December 2005. Further, and as a consequence of this termination, the Department formally DEMAND (sic) that you pay
within ten (10) days from receipt hereof, liquidated damages equivalent to the corresponding performance security
bond that you had posted for the MRP/V Project.

Please be guided accordingly.

On December 14, 2005, BCA sent a letter[24] to the DFA demanding that it immediately reconsider and revoke its
previous notice of termination, otherwise, BCA would be compelled to declare the DFA in default pursuant to the
Amended BOT Agreement. When the DFA failed to respond to said letter, BCA issued its own Notice of Default dated
December 22, 2005[25] against the DFA, stating that if the default is not remedied within 90 days, BCA will be
constrained to terminate the MRP/V Project and hold the DFA liable for damages.

BCAs request for mutual discussion under Section 19.01 of the Amended BOT Agreement[26] was purportedly ignored
by the DFA and left the dispute unresolved through amicable means within 90 days. Consequently, BCA filed its Request
for Arbitration dated April 7, 2006[27] with the Philippine Dispute Resolution Center, Inc. (PDRCI), pursuant to Section
19.02 of the Amended BOT Agreement which provides:

Section 19.02 Failure to Settle Amicably If the Dispute cannot be settled amicably within ninety (90) days by mutual
discussion as contemplated under Section 19.01 herein, the Dispute shall be settled with finality by an arbitrage tribunal
operating under International Law, hereinafter referred to as the Tribunal, under the UNCITRAL Arbitration Rules
contained in Resolution 31/98 adopted by the United Nations General Assembly on December 15, 1976, and entitled
Arbitration Rules on the United Nations Commission on the International Trade Law. The DFA and the BCA undertake to
abide by and implement the arbitration award. The place of arbitration shall be Pasay City, Philippines, or such other
place as may mutually be agreed upon by both parties. The arbitration proceeding shall be conducted in the English
language.[28]

As alleged in BCAs Request for Arbitration, PDRCI is a non-stock, non-profit organization composed of independent
arbitrators who operate under its own Administrative Guidelines and Rules of Arbitration as well as under the United
Nations Commission on the International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration
and other applicable laws and rules. According to BCA, PDRCI can act as an arbitration center from whose pool of
accredited arbitrators both the DFA and BCA may select their own nominee to become a member of the arbitral tribunal
which will render the arbitration award.
BCAs Request for Arbitration filed with the PDRCI sought the following reliefs:

1. A judgment nullifying and setting aside the Notice of Termination dated December 9, 2005 of Respondent [DFA],
including its demand to Claimant [BCA] to pay liquidated damages equivalent to the corresponding performance security
bond posted by Claimant [BCA];

2. A judgment (a) confirming the Notice of Default dated December 22, 2005 issued by Claimant [BCA] to Respondent
[DFA]; and (b) ordering Respondent [DFA] to perform its obligation under the Amended BOT Agreement dated April 5,
2002 by approving the site of the Central Facility at the Star Mall Complex on Shaw Boulevard, Mandaluyong City, within
five days from receipt of the Arbitral Award; and

3. A judgment ordering respondent [DFA] to pay damages to Claimant [BCA], reasonably estimated at P50,000,000.00
as of this date, representing lost business opportunities; financing fees, costs and commissions; travel expenses; legal
fees and expenses; and costs of arbitration, including the fees of the arbitrator/s.[29]

PDRCI, through a letter dated April 26, 2006,[30] invited the DFA to submit its Answer to the Request for Arbitration
within 30 days from receipt of said letter and also requested both the DFA and BCA to nominate their chosen arbitrator
within the same period of time.

Initially, the DFA, through a letter dated May 22, 2006,[31] requested for an extension of time to file its answer, without
prejudice to jurisdictional and other defenses and objections available to it under the law. Subsequently, however, in a
letter dated May 29, 2006,[32] the DFA declined the request for arbitration before the PDRCI. While it expressed its
willingness to resort to arbitration, the DFA pointed out that under Section 19.02 of the Amended BOT Agreement, there
is no mention of a specific body or institution that was previously authorized by the parties to settle their dispute. The
DFA further claimed that the arbitration of the dispute should be had before an ad hoc arbitration body, and not before
the PDRCI which has as its accredited arbitrators, two of BCAs counsels of record. Likewise, the DFA insisted that PPC,
allegedly an indispensable party in the instant case, should also participate in the arbitration.
The DFA then sought the opinion of the DOJ on the Notice of Termination dated December 9, 2005 that it sent to BCA
with regard to the MRP/V Project.

In DOJ Opinion No. 35 (2006) dated May 31, 2006,[33] the DOJ concurred with the steps taken by the DFA, stating that
there was basis in law and in fact for the termination of the MRP/V Project. Moreover, the DOJ recommended the
immediate implementation of the project (presumably by a different contractor) at the soonest possible time.

Thereafter, the DFA and the BSP entered into a Memorandum of Agreement for the latter to provide the former
passports compliant with international standards. The BSP then solicited bids for the supply, delivery, installation and
commissioning of a system for the production of Electronic Passport Booklets or e-Passports.[34]

For BCA, the BSPs invitation to bid for the supply and purchase of e-Passports (the e-Passport Project) would only
further delay the arbitration it requested from the DFA. Moreover, this new e-Passport Project by the BSP and the DFA
would render BCAs remedies moot inasmuch as the e-Passport Project would then be replacing the MRP/V Project which
BCA was carrying out for the DFA.

Thus, BCA filed a Petition for Interim Relief[35] under Section 28 of the Alternative Dispute Resolution Act of 2004 (R.A.
No. 9285),[36] with the Regional Trial Court (RTC) of Pasig City, Branch 71, presided over by respondent Judge Falcon.
In that RTC petition, BCA prayed for the following:

WHEREFORE, BCA respectfully prays that this Honorable Court, before the constitution of the arbitral tribunal in PDRCI
Case No. 30-2006/BGF, grant petitioner interim relief in the following manner:

(a) upon filing of this Petition, immediately issue an order temporarily restraining Respondents [DFA and BSP], their
agents, representatives, awardees, suppliers and assigns (i) from awarding a new contract to implement the Project, or
any similar electronic passport or visa project; or (ii) if such contract has been awarded, from implementing such Project
or similar projects until further orders from this Honorable Court;

(b) after notice and hearing, issue a writ of preliminary injunction ordering Respondents [DFA and BSP], their agents,
representatives, awardees, suppliers and assigns to desist (i) from awarding a new contract to implement the Project or
any similar electronic passport or visa project; or (ii) if such contract has been awarded, from implementing such Project
or similar projects, and to maintain the status quo ante pending the resolution on the merits of BCAs Request for
Arbitration; and

(c) render judgment affirming the interim relief granted to BCA until the dispute between the parties shall have been
resolved with finality.

BCA also prays for such other relief, just and equitable under the premises.[37]

BCA alleged, in support for its application for a Temporary Restraining Order (TRO), that unless the DFA and the BSP
were immediately restrained, they would proceed to undertake the project together with a third party to defeat the
reliefs BCA sought in its Request for Arbitration, thus causing BCA to suffer grave and irreparable injury from the loss of
substantial investments in connection with the implementation of the MRP/V Project.

Thereafter, the DFA filed an Opposition (to the Application for Temporary Restraining Order and/or Writ of Preliminary
Injunction) dated January 18, 2007,[38] alleging that BCA has no cause of action against it as the contract between
them is for machine readable passports and visas which is not the same as the contract it has with the BSP for the supply
of electronic passports. The DFA also pointed out that the Filipino people and the governments international standing
would suffer great damage if a TRO would be issued to stop the e-Passport Project. The DFA mainly anchored its
opposition on Republic Act No. 8975, which prohibits trial courts from issuing a TRO, preliminary injunction or
mandatory injunction against the bidding or awarding of a contract or project of the national government.

On January 23, 2007, after summarily hearing the parties oral arguments on BCAs application for the issuance of a TRO,
the trial court ordered the issuance of a TRO restraining the DFA and the BSP, their agents, representatives, awardees,
suppliers and assigns from awarding a new contract to implement the Project or any similar electronic passport or visa
project, or if such contract has been awarded, from implementing such or similar projects.[39] The trial court also set for
hearing BCAs application for preliminary injunction.

Consequently, the DFA filed a Motion for Reconsideration[40] of the January 23, 2007 Order. The BSP, in turn, also
sought to lift the TRO and to dismiss the petition. In its Urgent Omnibus Motion dated February 1, 2007,[41] the BSP
asserted that BCA is not entitled to an injunction, as it does not have a clear right which ought to be protected, and that
the trial court has no jurisdiction to enjoin the implementation of the e-Passport Project which, the BSP alleged, is a
national government project under Republic Act No. 8975.
In the hearings set for BCAs application for preliminary injunction, BCA presented as witnesses, Mr. Bonifacio Sumbilla,
its President, Mr. Celestino Mercader, Jr. from the Independent Verification and Validation Contractor commissioned by
the DFA under the Amended BOT Agreement, and DFA Assistant Secretary Domingo Lucenario, Jr. as adverse party
witness.

The DFA and the BSP did not present any witness during the hearings for BCAs application for preliminary injunction.
According to the DFA and the BSP, the trial court did not have any jurisdiction over the case considering that BCA did not
pay the correct docket fees and that only the Supreme Court could issue a TRO on the bidding for a national government
project like the e-Passport Project pursuant to the provisions of Republic Act No. 8975. Under Section 3 of Republic Act
No. 8975, the RTC could only issue a TRO against a national government project if it involves a matter of extreme
urgency involving a constitutional issue, such that unless a TRO is issued, grave injustice and irreparable injury will arise.

Thereafter, BCA filed an Omnibus Comment [on Opposition and Supplemental Opposition (To the Application for
Temporary Restraining Order and/or Writ of Preliminary Injunction)] and Opposition [to Motion for Reconsideration (To
the Temporary Restraining Order dated January 23, 2007)] and Urgent Omnibus Motion [(i) To Lift Temporary
Restraining Order; and (ii) To Dismiss the Petition] dated January 31, 2007.[42] The DFA and the BSP filed their
separate Replies (to BCAs Omnibus Comment) dated February 9, 2007[43] and February 13, 2007,[44] respectively.

On February 14, 2007, the trial court issued an Order granting BCAs application for preliminary injunction, to wit:

WHEREFORE, in view of the above, the court resolves that it has jurisdiction over the instant petition and to issue the
provisional remedy prayed for, and therefore, hereby GRANTS petitioners [BCAs] application for preliminary injunction.
Accordingly, upon posting a bond in the amount of Ten Million Pesos (P10,000,000.00), let a writ of preliminary
injunction issue ordering respondents [DFA and BSP], their agents, representatives, awardees, suppliers and assigns to
desist (i) from awarding a new contract to implement the project or any similar electronic passport or visa project or (ii)
if such contract has been awarded from implementing such project or similar projects.

The motion to dismiss is denied for lack of merit. The motions for reconsideration and to lift temporary restraining Order
are now moot and academic by reason of the expiration of the TRO.[45]
On February 16, 2007, BCA filed an Amended Petition,[46] wherein paragraphs 3.3(b) and 4.3 were modified to add
language to the effect that unless petitioners were enjoined from awarding the e-Passport Project, BCA would be
deprived of its constitutionally-protected right to perform its contractual obligations under the original and amended
BOT Agreements without due process of law. Subsequently, on February 26, 2007, the DFA and the BSP received the
Writ of Preliminary Injunction dated February 23, 2007.

Hence, on March 2, 2007, the DFA and the BSP filed the instant Petition for Certiorari[47] and prohibition under Rule 65
of the Rules of Court with a prayer for the issuance of a temporary restraining order and/or a writ of preliminary
injunction, imputing grave abuse of discretion on the trial court when it granted interim relief to BCA and issued the
assailed Order dated February 14, 2007 and the writ of preliminary injunction dated February 23, 2007.

The DFA and the BSP later filed an Urgent Motion for Issuance of a Temporary Restraining Order and/or Writ of
Preliminary Injunction dated March 5, 2007.[48]

On March 12, 2007, the Court required BCA to file its comment on the said petition within ten days from notice and
granted the Office of the Solicitor Generals urgent motion for issuance of a TRO and/or writ of preliminary injunction,[49]
thus:

After deliberating on the petition for certiorari and prohibition with temporary restraining order and/or writ of
preliminary injunction assailing the Order dated 14 February 2007 of the Regional Trial Court, Branch 71, Pasig City, in
Civil Case No. 71079, the Court, without necessarily giving due course thereto, resolves to require respondents to
COMMENT thereon (not to file a motion to dismiss) within ten (10) days from notice.

The Court further resolves to GRANT the Office of the Solicitor Generals urgent motion for issuance of a temporary
restraining order and/or writ of preliminary injunction dated 05 March 2007 and ISSUE a TEMPORARY RESTRAINING
ORDER, as prayed for, enjoining respondents from implementing the assailed Order dated 14 February 2007 and the
Writ of Preliminary Injunction dated 23 February 2007, issued by respondent Judge Franco T. Falcon in Civil Case No.
71079 entitled BCA International Corporation vs. Department of Foreign Affairs and Bangko Sentral ng Pilipinas, and
from conducting further proceedings in said case until further orders from this Court.
BCA filed on April 2, 2007 its Comment with Urgent Motion to Lift TRO,[50] to which the DFA and the BSP filed their
Reply dated August 14, 2007.[51]

In a Resolution dated June 4, 2007,[52] the Court denied BCAs motion to lift TRO. BCA filed another Urgent Omnibus
Motion dated August 17, 2007, for the reconsideration of the Resolution dated June 4, 2007, praying that the TRO
issued on March 12, 2007 be lifted and that the petition be denied.

In a Resolution dated September 10, 2007,[53] the Court denied BCAs Urgent Omnibus Motion and gave due course to
the instant petition. The parties were directed to file their respective memoranda within 30 days from notice of the
Courts September 10, 2007 Resolution.

Petitioners DFA and BSP submit the following issues for our consideration:

ISSUES

WHETHER OR NOT THE RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION AMOUNTING TO LACK OR EXCESS
OF JURISDICTION WHEN HE ISSUED THE ASSAILED ORDER, WHICH EFFECTIVELY ENJOINED THE IMPLEMENTATION
OF THE E-PASSPORT PROJECT -- A NATIONAL GOVERNMENT PROJECT UNDER REPUBLIC ACT NO. 8975.

II
WHETHER OR NOT THE RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN GRANTING RESPONDENT BCAS INTERIM RELIEF INASMUCH AS:

(I) RESPONDENT BCA HAS NOT ESTABLISHED A CLEAR RIGHT THAT CAN BE PROTECTED BY AN
INJUNCTION; AND

(II) RESPONDENT BCA HAS NOT SHOWN THAT IT WILL SUSTAIN GRAVE AND IRREPARABLE INJURY
THAT MUST BE PROTECTED BY AN INJUNCTION. ON THE CONTRARY, IT IS THE FILIPINO PEOPLE, WHO
PETITIONERS PROTECT, THAT WILL SUSTAIN SERIOUS AND SEVERE INJURY BY THE INJUNCTION.[54]

At the outset, we dispose of the procedural objections of BCA to the petition, to wit: (a) petitioners did not follow the
hierarchy of courts by filing their petition directly with this Court, without filing a motion for reconsideration with the RTC
and without filing a petition first with the Court of Appeals; (b) the person who verified the petition for the DFA did not
have personal knowledge of the facts of the case and whose appointment to his position was highly irregular; and (c)
the verification by the Assistant Governor and General Counsel of the BSP of only selected paragraphs of the petition
was with the purported intent to mislead this Court.

Although the direct filing of petitions for certiorari with the Supreme Court is discouraged when litigants
may still resort to remedies with the lower courts, we have in the past overlooked the failure of a party to
strictly adhere to the hierarchy of courts on highly meritorious grounds. Most recently, we relaxed the
rule on court hierarchy in the case of Roque, Jr. v. Commission on Elections wherein we held:

The policy on the hierarchy of courts, which petitioners indeed failed to observe, is not an iron-clad rule.
For indeed the Court has full discretionary power to take cognizance and assume jurisdiction of special
civil actions for certiorari and mandamus filed directly with it for exceptionally compelling reasons or if
warranted by the nature of the issues clearly and specifically raised in the petition.[56] (Emphases ours.)

The Court deems it proper to adopt a similarly liberal attitude in the present case in consideration of the transcendental
importance of an issue raised herein. This is the first time that the Court is confronted with the question of whether an
information and communication technology project, which does not conform to our traditional notion of the term
infrastructure, is covered by the prohibition on the issuance of court injunctions found in Republic Act No. 8975, which is
entitled An Act to Ensure the Expeditious Implementation and Completion of Government Infrastructure Projects by
Prohibiting Lower Courts from Issuing Temporary Restraining Orders, Preliminary Injunctions or Preliminary Mandatory
Injunctions, Providing Penalties for Violations Thereof, and for Other Purposes. Taking into account the current trend of
computerization and modernization of administrative and service systems of government offices, departments and
agencies, the resolution of this issue for the guidance of the bench and bar, as well as the general public, is both timely
and imperative.

Anent BCAs claim that Mr. Edsel T. Custodio (who verified the Petition on behalf of the DFA) did not have personal
knowledge of the facts of the case and was appointed to his position as Acting Secretary under purportedly irregular
circumstances, we find that BCA failed to sufficiently prove such allegations. In any event, we have previously held that
[d]epending on the nature of the allegations in the petition, the verification may be based either purely on personal
knowledge, or entirely on authentic records, or on both sources.[57] The alleged lack of personal knowledge of Mr.
Custodio (which, as we already stated, BCA failed to prove) would not necessarily render the verification defective for he
could have verified the petition purely on the basis of authentic records.

As for the assertion that the partial verification of Assistant Governor and General Counsel Juan de Zuniga, Jr. was for
the purpose of misleading this Court, BCA likewise failed to adduce evidence on this point. Good faith is always
presumed. Paragraph 3 of Mr. Zunigas verification indicates that his partial verification is due to the fact that he is
verifying only the allegations in the petition peculiar to the BSP. We see no reason to doubt that this is the true reason
for his partial or selective verification.

In sum, BCA failed to successfully rebut the presumption that the official acts (of Mr. Custodio and Mr.
Zuniga) were done in good faith and in the regular performance of official duty. Even assuming the
verifications of the petition suffered from some defect, we have time and again ruled that [t]he ends of
justice are better served when cases are determined on the merits after all parties are given full
opportunity to ventilate their causes and defenses rather than on technicality or some procedural
imperfections. In other words, the Court may suspend or even disregard rules when the demands of
justice so require.

We now come to the substantive issues involved in this case.

On whether the trial court had jurisdiction to issue a writ of preliminary injunction in the present case
In their petition, the DFA and the BSP argue that respondent Judge Falcon gravely abused his discretion amounting to
lack or excess of jurisdiction when he issued the assailed orders, which effectively enjoined the bidding and/or
implementation of the e-Passport Project. According to petitioners, this violated the clear prohibition under Republic Act
No. 8975 regarding the issuance of TROs and preliminary injunctions against national government projects, such as the
e-Passport Project.

The prohibition invoked by petitioners is found in Section 3 of Republic Act No. 8975, which reads:

Section 3. Prohibition on the Issuance of Temporary Restraining Orders, Preliminary Injunctions and Preliminary
Mandatory Injunctions. No court, except the Supreme Court, shall issue any temporary restraining order, preliminary
injunction or preliminary mandatory injunction against the government, or any of its subdivisions, officials or any person
or entity, whether public or private, acting under the governments direction, to restrain, prohibit or compel the following
acts:

(a) Acquisition, clearance and development of the right-of-way and/or site or location of any national government
project;

(b) Bidding or awarding of contract/project of the national government as defined under Section 2 hereof;

(c) Commencement, prosecution, execution, implementation, operation of any such contract or project;

(d) Termination or rescission of any such contract/project; and

(e) The undertaking or authorization of any other lawful activity necessary for such contract/project.

This prohibition shall apply in all cases, disputes or controversies instituted by a private party, including but not limited
to cases filed by bidders or those claiming to have rights through such bidders involving such contract/project. This
prohibition shall not apply when the matter is of extreme urgency involving a constitutional issue, such that unless a
temporary restraining order is issued, grave injustice and irreparable injury will arise. The applicant shall file a bond, in
an amount to be fixed by the court, which bond shall accrue in favor of the government if the court should finally decide
that the applicant was not entitled to the relief sought.

If after due hearing the court finds that the award of the contract is null and void, the court may, if appropriate under
the circumstances, award the contract to the qualified and winning bidder or order a rebidding of the same, without
prejudice to any liability that the guilty party may incur under existing laws.

From the foregoing, it is indubitable that no court, aside from the Supreme Court, may enjoin a national
government project unless the matter is one of extreme urgency involving a constitutional issue such
that unless the act complained of is enjoined, grave injustice or irreparable injury would arise.

What then are the national government projects over which the lower courts are without jurisdiction to issue the
injunctive relief as mandated by Republic Act No. 8975?

Section 2(a) of Republic Act No. 8975 provides:

Section 2. Definition of Terms.

(a) National government projects shall refer to all current and future national government infrastructure,
engineering works and service contracts, including projects undertaken by government-owned and -controlled
corporations, all projects covered by Republic Act No. 6975, as amended by Republic Act No. 7718, otherwise known as
the Build-Operate-and-Transfer Law, and other related and necessary activities, such as site acquisition, supply and/or
installation of equipment and materials, implementation, construction, completion, operation, maintenance,
improvement, repair and rehabilitation, regardless of the source of funding.

As petitioners themselves pointed out, there are three types of national government projects enumerated in Section
2(a), to wit:
(a) current and future national government infrastructure projects, engineering works and service
contracts, including projects undertaken by government-owned and controlled corporations;

(b) all projects covered by R.A. No. 6975, as amended by R.A. No. 7718, or the
Build-Operate-and-Transfer ( BOT) Law; and

(c) other related and necessary activities, such as site acquisition, supply and/or installation of
equipment and materials, implementation, construction, completion, operation, maintenance, improvement repair and
rehabilitation, regardless of the source of funding.

Under Section 2(a) of the BOT Law as amended by Republic Act No. 7718,[61] private sector
infrastructure or development projects are those normally financed and operated by the public sector
but which will now be wholly or partly implemented by the private sector, including but not limited to,
power plants, highways, ports, airports, canals, dams, hydropower projects, water supply, irrigation,
telecommunications, railroads and railways, transport systems, land reclamation projects, industrial
estates or townships, housing, government buildings, tourism projects, markets, slaughterhouses,
warehouses, solid waste management, information technology networks and database infrastructure,
education and health facilities, sewerage, drainage, dredging, and other infrastructure and development
projects as may be authorized by the appropriate agency.

In contrast, Republic Act No. 9184,[62] also known as the Government Procurement Reform Act, defines infrastructure
projects in Section 5(k) thereof in this manner:

(k) Infrastructure Projects - include the construction, improvement, rehabilitation, demolition, repair,
restoration or maintenance of roads and bridges, railways, airports, seaports, communication facilities,
civil works components of information technology projects, irrigation, flood control and drainage, water
supply, sanitation, sewerage and solid waste management systems, shore protection, energy/power and
electrification facilities, national buildings, school buildings, hospital buildings and other related
construction projects of the government. (Emphasis supplied.)
In the present petition, the DFA and the BSP contend that the bidding for the supply, delivery, installation and
commissioning of a system for the production of Electronic Passport Booklets, is a national government project within
the definition of Section 2 of Republic Act No. 8975. Petitioners also point to the Senate deliberations on Senate Bill No.
2038[63] (later Republic Act No. 8975) which allegedly show the legislatives intent to expand the scope and definition of
national government projects to cover not only the infrastructure projects enumerated in Presidential Decree No. 1818,
but also future projects that may likewise be considered national government infrastructure projects, like the e-Passport
Project, to wit:

Senator Cayetano. x x x Mr. President, the present bill, the Senate Bill No. 2038, is actually an improvement of P.D. No.
1818 and definitely not a repudiation of what I have earlier said, as my good friend clearly stated. But this is really an
effort to improve both the scope and definition of the term government projects and to ensure that lower court judges
obey and observe this prohibition on the issuance of TROs on infrastructure projects of the government.

xxxx

Senator Cayetano. That is why, Mr. President, I did try to explain why I would accept the proposed amendment,
meaning the totality of the repeal of P.D. 1818 which is not found in the original version of the bill, because of my earlier
explanation that the definition of the term government infrastructure project covers all of those enumerated in Section
1 of P.D. No. 1818. And the reason for that, as we know, is we do not know what else could be considered government
infrastructure project in the next 10 or 20 years.

x x x So, using the Latin maxim of expression unius est exclusion alterius, which means what is expressly mentioned is
tantamount to an express exclusion of the others, that is the reason we did not include particularly an enumeration of
certain activities of the government found in Section 1 of P.D. No. 1818. Because to do that, it may be a good excuse for
a brilliant lawyer to say Well, you know, since it does not cover this particular activity, ergo, the Regional Trial Court may
issue TRO.

Using the foregoing discussions to establish that the intent of the framers of the law was to broaden the scope and
definition of national government projects and national infrastructure projects, the DFA and the BSP submit that the said
scope and definition had since evolved to include the e-Passport Project. They assert that the concept of infrastructure
must now refer to any and all elements that provide support, framework, or structure for a given system or organization,
including information technology, such as the e-Passport Project.
Interestingly, petitioners represented to the trial court that the e-Passport Project is a BOT project but in their petition
with this Court, petitioners simply claim that the e-Passport Project is a national government project under Section 2 of
Republic Act No. 8975. This circumstance is significant, since relying on the claim that the e-Passport Project is a BOT
project, the trial court ruled in this wise:

The prohibition against issuance of TRO and/or writ of preliminary injunction under RA 8975 applies only to national
government infrastructure project covered by the BOT Law, (RA 8975, Sec 3[b] in relation to Sec. 2).

The national government projects covered under the BOT are enumerated under Sec. 2 of RA6957, as amended,
otherwise known as the BOT Law. Notably, it includes information technology networks and database infrastructure.

In relation to information technology projects, infrastructure projects refer to the civil works components thereof. (R.A.
No. 9184 [2003], Sec. 5[c]{sic}).[64]

Respondent BSPs request for bid, for the supply, delivery, installation and commissioning of a system for the production
of Electronic Passport Booklets appears to be beyond the scope of the term civil works. Respondents did not present
evidence to prove otherwise.[65] (Emphases ours.)

From the foregoing, it can be gleaned that the trial court accepted BCAs reasoning that, assuming the e-Passport Project
is a project under the BOT Law, Section 2 of the BOT Law must be read in conjunction with Section 5(c) of Republic Act
No. 9184 or the Government Procurement Reform Act to the effect that only the civil works component of information
technology projects are to be considered infrastructure. Thus, only said civil works component of an information
technology project cannot be the subject of a TRO or writ of injunction issued by a lower court.

Although the Court finds that the trial court had jurisdiction to issue the writ of preliminary injunction, we cannot uphold
the theory of BCA and the trial court that the definition of the term infrastructure project in Republic Act No. 9184 should
be applied to the BOT Law.
Section 5 of Republic Act No. 9184 prefaces the definition of the terms therein, including the term infrastructure project,
with the following phrase: For purposes of this Act, the following terms or words and phrases shall mean or be
understood as follows x x x.

This Court has stated that the definition of a term in a statute is not conclusive as to the meaning of the same term as
used elsewhere.[66] This is evident when the legislative definition is expressly made for the purposes of the statute
containing such definition.[67]

There is no legal or rational basis to apply the definition of the term infrastructure project in one statute to another
statute enacted years before and which already defined the types of projects it covers. Rather, a reading of the two
statutes involved will readily show that there is a legislative intent to treat information technology projects differently
under the BOT Law and the Government Procurement Reform Act.

In the BOT Law as amended by Republic Act No. 7718, the national infrastructure and development projects covered by
said law are enumerated in Section 2(a) as follows:

SEC. 2. Definition of Terms. - The following terms used in this Act shall have the meanings stated below:

(a) Private sector infrastructure or development projects - The general description of infrastructure or
development projects normally financed and operated by the public sector but which will now be wholly or partly
implemented by the private sector, including but not limited to, power plants, highways, ports, airports, canals, dams,
hydropower projects, water supply, irrigation, telecommunications, railroads and railways, transport systems, land
reclamation projects, industrial estates of townships, housing, government buildings, tourism projects, markets,
slaughterhouses, warehouses, solid waste management, information technology networks and database infrastructure,
education and health facilities, sewerage, drainage, dredging, and other infrastructure and development projects as
may be authorized by the appropriate agency pursuant to this Act. Such projects shall be undertaken through
contractual arrangements as defined hereunder and such other variations as may be approved by the President of the
Philippines.

For the construction stage of these infrastructure projects, the project proponent may obtain financing from foreign
and/or domestic sources and/or engage the services of a foreign and/or Filipino contractor: Provided, That, in case an
infrastructure or a development facility's operation requires a public utility franchise, the facility operator must be a
Filipino or if a corporation, it must be duly registered with the Securities and Exchange Commission and owned up to at
least sixty percent (60%) by Filipinos: Provided, further, That in the case of foreign contractors, Filipino labor shall be
employed or hired in the different phases of construction where Filipino skills are available: Provided, finally, That
projects which would have difficulty in sourcing funds may be financed partly from direct government appropriations
and/or from Official Development Assistance (ODA) of foreign governments or institutions not exceeding fifty percent
(50%) of the project cost, and the balance to be provided by the project proponent. (Emphasis supplied.)

A similar provision appears in the Revised IRR of the BOT Law as amended, to wit:

SECTION 1.3 - DEFINITION OF TERMS

For purposes of these Implementing Rules and Regulations, the terms and phrases hereunder shall be understood as
follows:

xxxx

v. Private Sector Infrastructure or Development Projects - The general description of infrastructure or Development
Projects normally financed, and operated by the public sector but which will now be wholly or partly financed,
constructed and operated by the private sector, including but not limited to, power plants, highways, ports, airports,
canals, dams, hydropower projects, water supply, irrigation, telecommunications, railroad and railways, transport
systems, land reclamation projects, industrial estates or townships, housing, government buildings, tourism projects,
public markets, slaughterhouses, warehouses, solid waste management, information technology networks and database
infrastructure, education and health facilities, sewerage, drainage, dredging, and other infrastructure and development
projects as may otherwise be authorized by the appropriate Agency/LGU pursuant to the Act or these Revised IRR. Such
projects shall be undertaken through Contractual Arrangements as defined herein, including such other variations as
may be approved by the President of the Philippines.

xxxx
SECTION 2.2 - ELIGIBLE TYPES OF PROJECTS

The Construction, rehabilitation, improvement, betterment, expansion, modernization, operation, financing and
maintenance of the following types of projects which are normally financed and operated by the public sector which will
now be wholly or partly financed, constructed and operated by the private sector, including other infrastructure and
development projects as may be authorized by the appropriate agencies, may be proposed under the provisions of the
Act and these Revised IRR, provided however that such projects have a cost recovery component which covers at least
50% of the Project Cost, or as determined by the Approving Body:

xxxx

h. Information technology (IT) and data base infrastructure, including modernization of IT, geo-spatial resource
mapping and cadastral survey for resource accounting and planning. (Underscoring supplied.)

Undeniably, under the BOT Law, wherein the projects are to be privately funded, the entire information technology
project, including the civil works component and the technological aspect thereof, is considered an infrastructure or
development project and treated similarly as traditional infrastructure projects. All the rules applicable to traditional
infrastructure projects are also applicable to information technology projects. In fact, the MRP/V Project awarded to BCA
under the BOT Law appears to include both civil works (i.e., site preparation of the Central Facility, regional DFA offices
and foreign service posts) and non-civil works aspects (i.e., development, installation and maintenance in the Philippines
and foreign service posts of a computerized passport and visa issuance system, including creation of databases, storage
and retrieval systems, training of personnel and provision of consumables).

In contrast, under Republic Act No. 9184 or the Government Procurement Reform Act, which contemplates projects to
be funded by public funds, the term infrastructure project was limited to only the civil works component of information
technology projects. The non-civil works component of information technology projects would be treated as an
acquisition of goods or consulting services as the case may be.
This limited definition of infrastructure project in relation to information technology projects under Republic Act No.
9184 is significant since the IRR of Republic Act No. 9184 has some provisions that are particular to infrastructure
projects and other provisions that are applicable only to procurement of goods or consulting services.[68]

Implicitly, the civil works component of information technology projects are subject to the provisions on infrastructure
projects while the technological and other components would be covered by the provisions on procurement of goods or
consulting services as the circumstances may warrant.

When Congress adopted a limited definition of what is to be considered infrastructure in relation to information
technology projects under the Government Procurement Reform Act, legislators are presumed to have taken into
account previous laws concerning infrastructure projects (the BOT Law and Republic Act No. 8975) and deliberately
adopted the limited definition. We can further presume that Congress had written into law a different treatment for
information technology projects financed by public funds vis-a-vis privately funded projects for a valid legislative
purpose.

The idea that the definitions of terms found in the Government Procurement Reform Act were not meant to be applied
to projects under the BOT Law is further reinforced by the following provision in the IRR of the Government
Procurement Reform Act:

Section 1. Purpose and General Coverage

This Implementing Rules and Regulations (IRR) Part A, hereinafter called IRR-A, is promulgated pursuant to Section 75
of Republic Act No. 9184 (R.A. 9184), otherwise known as the Government Procurement Reform Act (GPRA), for the
purpose of prescribing the necessary rules and regulations for the modernization, standardization, and regulation of the
procurement activities of the government. This IRR-A shall cover all fully domestically-funded procurement activities
from procurement planning up to contract implementation and termination, except for the following:

a) Acquisition of real property which shall be governed by Republic Act No. 8974 (R.A. 8974), entitled An Act to Facilitate
the Acquisition of Right-of-Way Site or Location for National Government Infrastructure Projects and for Other Purposes,
and other applicable laws; and
b) Private sector infrastructure or development projects and other procurement covered by Republic Act No. 7718 (R.A.
7718), entitled An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by
the Private Sector, and for Other Purposes, as amended: Provided, however, That for the portions financed by the
Government, the provisions of this IRR-A shall apply.

The IRR-B for foreign-funded procurement activities shall be the subject of a subsequent issuance. (Emphases
supplied.)

The foregoing provision in the IRR can be taken as an administrative interpretation that the provisions of Republic Act
No. 9184 are inapplicable to a BOT project except only insofar as such portions of the BOT project that are financed by
the government.

Taking into account the different treatment of information technology projects under the BOT Law and the Government
Procurement Reform Act, petitioners contention the trial court had no jurisdiction to issue a writ of preliminary injunction
in the instant case would have been correct if the e-Passport Project was a project under the BOT Law as they
represented to the trial court.

However, petitioners presented no proof that the e-Passport Project was a BOT project. On the contrary, evidence
adduced by both sides tended to show that the e-Passport Project was a procurement contract under Republic Act No.
9184.

The BSPs on-line request for expression of interest and to bid for the e-Passport Project[69] from the BSP website and
the newspaper clipping[70] of the same request expressly stated that [t]he two stage bidding procedure under Section
30.4 of the Implementing Rules and Regulation (sic) Part-A of Republic Act No. 9184 relative to the bidding and award
of the contract shall apply. During the testimony of DFA Assistant Secretary Domingo Lucenario, Jr. before the trial court,
he admitted that the e-Passport Project is a BSP procurement project and that it is the BSP that will pay the suppliers.[71]
In petitioners Manifestation dated July 29, 2008[72] and the Erratum[73] thereto, petitioners informed the Court that a
contract for the supply of a complete package of systems design, technology, hardware, software, and peripherals,
maintenance and technical support, ecovers and datapage security laminates for the centralized production and
personalization of Machine Readable Electronic Passport was awarded to Francois Charles Oberthur Fiduciaire. In the
Notice of Award dated July 2, 2008[74] attached to petitioners pleading, it was stated that the failure of the
contractor/supplier to submit the required performance bond would be sufficient ground for the imposition of
administrative penalty under Section 69 of the IRR-A of Republic Act No. 9184.
Being a government procurement contract under Republic Act No. 9184, only the civil works component of the
e-Passport Project would be considered an infrastructure project that may not be the subject of a lower court-issued writ
of injunction under Republic Act No. 8975.

Could the e-Passport Project be considered as engineering works or a service contract or as related and necessary
activities under Republic Act No. 8975 which may not be enjoined?

We hold in the negative. Under Republic Act No. 8975, a service contract refers to infrastructure contracts
entered into by any department, office or agency of the national government with private entities and
nongovernment organizations for services related or incidental to the functions and operations of the
department, office or agency concerned. On the other hand, the phrase other related and necessary
activities obviously refers to activities related to a government infrastructure, engineering works,
service contract or project under the BOT Law. In other words, to be considered a service contract or
related activity, petitioners must show that the e-Passport Project is an infrastructure project or
necessarily related to an infrastructure project. This, petitioners failed to do for they saw fit not to
present any evidence on the details of the e-Passport Project before the trial court and this Court. There
is nothing on record to indicate that the e-Passport Project has a civil works component or is necessarily
related to an infrastructure project.

Indeed, the reference to Section 30.4[75] of the IRR of Republic Act No. 9184 (a provision specific to the procurement
of goods) in the BSPs request for interest and to bid confirms that the e-Passport Project is a procurement of goods and
not an infrastructure project. Thus, within the context of Republic Act No. 9184 which is the governing law for the
e-Passport Project the said Project is not an infrastructure project that is protected from lower court issued injunctions
under Republic Act No. 8975, which, to reiterate, has for its purpose the expeditious and efficient implementation and
completion of government infrastructure projects.

We note that under Section 28, Republic Act No. 9285 or the Alternative Dispute Resolution Act of 2004,[76] the grant
of an interim measure of protection by the proper court before the constitution of an arbitral tribunal is allowed:

Sec. 28. Grant of Interim Measure of Protection. (a) It is not incompatible with an arbitration agreement for a party to
request, before constitution of the tribunal, from a Court an interim measure of protection and for the Court to grant
such measure. After constitution of the arbitral tribunal and during arbitral proceedings, a request for an interim
measure of protection, or modification thereof, may be made with the arbitral tribunal or to the extent that the arbitral
tribunal has no power to act or is unable to act effectively, the request may be made with the Court. The arbitral tribunal
is deemed constituted when the sole arbitrator or the third arbitrator, who has been nominated, has accepted the
nomination and written communication of said nomination and acceptance has been received by the party making the
request.
(a) The following rules on interim or provisional relief shall be observed:

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

(2) Such relief may be granted:

(i) to prevent irreparable loss or injury;

(ii) to provide security for the performance of any obligation;

(iii) to produce or preserve any evidence; or

(iv) to compel any other appropriate act or omission.

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

(4) Interim or provisional relief is requested by written application transmitted by reasonable means to
the Court or arbitral tribunal as the case may be and the party against whom the relief is sought, describing in
appropriate detail the precise relief, the party against whom the relief is requested, the grounds for the relief, and the
evidence supporting the request.
(5) The order shall be binding upon the parties.

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

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

Section 3(h) of the same statute provides that the "Court" as referred to in Article 6 of the Model Law shall mean a
Regional Trial Court.

Republic Act No. 9285 is a general law applicable to all matters and controversies to be resolved through
alternative dispute resolution methods. This law allows a Regional Trial Court to grant interim or
provisional relief, including preliminary injunction, to parties in an arbitration case prior to the
constitution of the arbitral tribunal. This general statute, however, must give way to a special law
governing national government projects, Republic Act No. 8975 which prohibits courts, except the
Supreme Court, from issuing TROs and writs of preliminary injunction in cases involving national
government projects.

However, as discussed above, the prohibition in Republic Act No. 8975 is inoperative in this case, since
petitioners failed to prove that the e-Passport Project is national government project as defined therein.
Thus, the trial court had jurisdiction to issue a writ of preliminary injunction against the e-Passport
Project.

On whether the trial courts issuance of a writ of injunction was proper

Given the above ruling that the trial court had jurisdiction to issue a writ of injunction and going to the second issue
raised by petitioners, we answer the question: Was the trial courts issuance of a writ of injunction warranted under the
circumstances of this case?

Petitioners attack on the propriety of the trial courts issuance of a writ of injunction is two-pronged: (a) BCA purportedly
has no clear right to the injunctive relief sought; and (b) BCA will suffer no grave and irreparable injury even if the
injunctive relief were not granted.

To support their claim that BCA has no clear right to injunctive relief, petitioners mainly allege that the MRP/V Project
and the e-Passport Project are not the same project. Moreover, the MRP/V Project purportedly involves a technology
(the 2D optical bar code) that has been rendered obsolete by the latest ICAO developments while the e-Passport Project
will comply with the latest ICAO standards (the contactless integrated circuit). Parenthetically, and not as a main
argument, petitioners imply that BCA has no clear contractual right under the Amended BOT Agreement since BCA had
previously assigned all its rights and obligations under the said Agreement to PPC.

BCA, on the other hand, claims that the Amended BOT Agreement also contemplated the supply and/or delivery of
e-Passports with the integrated circuit technology in the future and not only the machine readable passport with the 2D
optical bar code technology. Also, it is BCAs assertion that the integrated circuit technology is only optional under the
ICAO issuances. On the matter of its assignment of its rights to PPC, BCA counters that it had already terminated
(purportedly at DFAs request) the assignment agreement in favor of PPC and that even assuming the termination was
not valid, the Amended BOT Agreement expressly stated that BCA shall remain solidarily liable with its assignee, PPC.

Most of these factual allegations and counter-allegations already touch upon the merits of the main controversy
between the DFA and BCA, i.e., the validity and propriety of the termination of the Amended BOT Agreement (the
MRP/V Project) between the DFA and BCA. The Court deems it best to refrain from ruling on these matters since they
should be litigated in the appropriate arbitration or court proceedings between or among the concerned parties.

One preliminary point, however, that must be settled here is whether BCA retains a right to seek relief against the DFA
under the Amended BOT Agreement in view of BCAs previous assignment of its rights to PPC. Without preempting any
factual finding that the appropriate court or arbitral tribunal on the matter of the validity of the assignment agreement
with PPC or its termination, we agree with BCA that it remained a party to the Amended BOT Agreement,
notwithstanding the execution of the assignment agreement in favor of PPC, for it was stipulated in the Amended BOT
Agreement that BCA would be solidarily liable with its assignee. For convenient reference, we reproduce the relevant
provision of the Amended BOT Agreement here:
Section 20.15. It is clearly and expressly understood that BCA may assign, cede and transfer all of its rights and
obligations under this Amended BOT Agreement to PPC [Philippine Passport Corporation], as fully as if PPC is the
original signatory to this Amended BOT Agreement, provided however that BCA shall nonetheless be jointly and
severally liable with PPC for the performance of all the obligations and liabilities under this Amended BOT Agreement.
(Emphasis supplied.)

Furthermore, a review of the records shows that the DFA continued to address its correspondence regarding the MRP/V
Project to both BCA and PPC, even after the execution of the assignment agreement. Indeed, the DFAs Notice of
Termination dated December 9, 2005 was addressed to Mr. Bonifacio Sumbilla as President of both BCA and PPC and
referred to the Amended BOT Agreement executed between the Department of Foreign Affairs (DFA), on one hand, and
the BCA International Corporation and/or the Philippine Passport Corporation (BCA/PPC). At the very least, the DFA is
estopped from questioning the personality of BCA to bring suit in relation to the Amended BOT Agreement since the DFA
continued to deal with both BCA and PPC even after the signing of the assignment agreement. In any event, if the DFA
truly believes that PPC is an indispensable party to the action, the DFA may take necessary steps to implead PPC but this
should not prejudice the right of BCA to file suit or to seek relief for causes of action it may have against the DFA or the
BSP, for undertaking the e-Passport Project on behalf of the DFA.

With respect to petitioners contention that BCA will suffer no grave and irreparable injury so as to justify the grant of
injunctive relief, the Court finds that this particular argument merits consideration.

The BOT Law as amended by Republic Act No. 7718, provides:

SEC. 7. Contract Termination. - In the event that a project is revoked, cancelled or terminated by the Government
through no fault of the project proponent or by mutual agreement, the Government shall compensate the said project
proponent for its actual expenses incurred in the project plus a reasonable rate of return thereon not exceeding that
stated in the contract as of the date of such revocation, cancellation or termination: Provided, That the interest of the
Government in this instances shall be duly insured with the Government Service Insurance System [GSIS] or any other
insurance entity duly accredited by the Office of the Insurance Commissioner: Provided, finally, That the cost of the
insurance coverage shall be included in the terms and conditions of the bidding referred to above.

In the event that the government defaults on certain major obligations in the contract and such failure is not remediable
or if remediable shall remain unremedied for an unreasonable length of time, the project proponent/contractor may, by
prior notice to the concerned national government agency or local government unit specifying the turn-over date,
terminate the contract. The project proponent/contractor shall be reasonably compensated by the Government for
equivalent or proportionate contract cost as defined in the contract. (Emphases supplied.)
In addition, the Amended BOT Agreement, which is the law between and among the parties to it, pertinently provides:

Section 17.01 Default In case a party commits an act constituting an event of default, the non-defaulting party may
terminate this Amended BOT Agreement by serving a written notice to the defaulting party specifying the grounds for
termination and giving the defaulting party a period of ninety (90) days within which to rectify the default. If the default
is not remedied within this period to the satisfaction of the non-defaulting party, then the latter will serve upon the
former a written notice of termination indicating the effective date of termination.

Section 17.02 Proponents Default If this Amended BOT Agreement is terminated by reason of the BCAs default, the DFA
shall have the following options:

A. Allow the BCAs unpaid creditors who hold a lien on the MRP/V Facility to foreclose on the MRP/V
Facility. The right of the BCAs unpaid creditors to foreclose on the MRP/V Facility shall be valid for the duration of the
effectivity of this Amended BOT Agreement; or,

B. Allow the BCAs unpaid creditors who hold a lien on the MRP/V Facility to designate a substitute
BCA for the MRP/V Project, provided the designated substitute BCA is qualified under existing laws and acceptable to the
DFA. This substitute BCA shall hereinafter be referred to as the Substitute BCA. The Substitute BCA shall assume all the
BCAs rights and privileges, as well as the obligations, duties and responsibilities hereunder; provided, however, that the
DFA shall at all times and its sole option, have the right to invoke and exercise any other remedy which may be available
to the DFA under any applicable laws, rules and/or regulations which may be in effect at any time and from time to time.
The DFA shall cooperate with the creditors with a view to facilitating the choice of a Substitute BCA, who shall take-over
the operation, maintenance and management of the MRP/V Project, within three (3) months from the BCAs receipt of
the notice of termination from the DFA. The Substituted BCA shall have all the rights and obligations of the previous BCA
as contained in this Amended BOT Agreement; or

C. Take-over the MRP/V Facility and assume all attendant liabilities thereof.
D. In all cases of termination due to the default of the BCA, it shall pay DFA liquidated damages
equivalent to the applicable the (sic) Performance Security.

Section 17.03 DFAs Default If this Amended BOT Agreement is terminated by the BCA by reason of the DFAs Default,
the DFA shall:

A. Be obligated to take over the MRP/V Facility on an as is, where is basis, and shall forthwith assume
attendant liabilities thereof; and

B. Pay liquidated damages to the BCA equivalent to the following amounts, which may be charged to
the insurance proceeds referred to in Article 12:

(1) In the event of termination prior to completion of the implementation of the MRP/V Project,
damages shall be paid equivalent to the value of completed implementation, minus the aggregate amount of the
attendant liabilities assumed by the DFA, plus ten percent (10%) thereof. The amount of such compensation shall be
determined as of the date of the notice of termination and shall become due and demandable ninety (90) days after the
date of this notice of termination. Under this Amended BOT Agreement, the term Value of the Completed
Implementation shall mean the aggregate of all reasonable costs and expenses incurred by the BCA in connection with,
in relation to and/or by reason of the MRP/V Project, excluding all interest and capitalized interest, as certified by a
reputable and independent accounting firm to be appointed by the BCA and subject to the approval by the DFA, such
approval shall not be unreasonably withheld.

(2) In the event of termination after completion of design, development, and installation of the MRP/V
Project, just compensation shall be paid equivalent to the present value of the net income which the BCA expects to earn
or realize during the unexpired or remaining term of this Amended BOT Agreement using the internal rate of return on
equity (IRRe) defined in the financial projections of the BCA and agreed upon by the parties, which is attached hereto
and made as an integral part of this Amended BOT Agreement as Schedule 1. (Emphases supplied.)

The validity of the DFAs termination of the Amended BOT Agreement and the determination of the party or parties in
default are issues properly threshed out in arbitration proceedings as provided for by the agreement itself. However,
even if we hypothetically accept BCAs contention that the DFA terminated the Amended BOT Agreement without any
default or wrongdoing on BCAs part, it is not indubitable that BCA is entitled to injunctive relief.
The BOT Law expressly allows the government to terminate a BOT agreement, even without fault on the part of the
project proponent, subject to the payment of the actual expenses incurred by the proponent plus a reasonable rate of
return.

Under the BOT Law and the Amended BOT Agreement, in the event of default on the part of the government (in this
case, the DFA) or on the part of the proponent, the non-defaulting party is allowed to terminate the agreement, again
subject to proper compensation in the manner set forth in the agreement.

Time and again, this Court has held that to be entitled to injunctive relief the party seeking such relief
must be able to show grave, irreparable injury that is not capable of compensation.

In Lopez v. Court of Appeals, [77] we held:

Generally, injunction is a preservative remedy for the protection of one's substantive right or interest. It is not a cause of
action in itself but merely a provisional remedy, an adjunct to a main suit. It is resorted to only when there is a pressing
necessity to avoid injurious consequences which cannot be remedied under any standard compensation. The application
of the injunctive writ rests upon the existence of an emergency or of a special reason before the main case can be
regularly heard. The essential conditions for granting such temporary injunctive relief are that the complaint alleges
facts which appear to be sufficient to constitute a proper basis for injunction and that on the entire showing from the
contending parties, the injunction is reasonably necessary to protect the legal rights of the plaintiff pending the litigation.
Two requisites are necessary if a preliminary injunction is to issue, namely, the existence of a right to be protected and
the facts against which the injunction is to be directed are violative of said right. In particular, for a writ of preliminary
injunction to issue, the existence of the right and the violation must appear in the allegation of the complaint and a
preliminary injunction is proper only when the plaintiff (private respondent herein) appears to be entitled to the relief
demanded in his complaint. (Emphases supplied.)

We reiterated this point in Transfield Philippines, Inc. v. Luzon Hydro Corporation,[78] where we likewise opined:

Before a writ of preliminary injunction may be issued, there must be a clear showing by the complaint that there exists
a right to be protected and that the acts against which the writ is to be directed are violative of the said right. It must be
shown that the invasion of the right sought to be protected is material and substantial, that the right of complainant is
clear and unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious damage.
Moreover, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any standard compensation. (Emphasis supplied.)

As the Court explained previously in Philippine Airlines, Inc. v. National Labor Relations Commission[79]:

An injury is considered irreparable if it is of such constant and frequent recurrence that no fair and
reasonable redress can be had therefor in a court of law, or where there is no standard by which their
amount can be measured with reasonable accuracy, that is, it is not susceptible of mathematical
computation. It is considered irreparable injury when it cannot be adequately compensated in damages
due to the nature of the injury itself or the nature of the right or property injured or when there exists no
certain pecuniary standard for the measurement of damages. (Emphases supplied.)

It is still contentious whether this is a case of termination by the DFA alone or both the DFA and BCA. The DFA contends
that BCA, by sending its own Notice of Default, likewise terminated or abandoned the Amended BOT Agreement. Still,
whether this is a termination by the DFA alone without fault on the part of BCA or a termination due to default on the
part of either party, the BOT Law and the Amended BOT Agreement lay down the measure of compensation to be paid
under the appropriate circumstances.

Significantly, in BCAs Request for Arbitration with the PDRCI, it prayed for, among others, a judgment ordering
respondent [DFA] to pay damages to Claimant [BCA], reasonably estimated at P50,000,000.00 as of [the date of the
Request for Arbitration], representing lost business opportunities; financing fees, costs and commissions; travel
expenses; legal fees and expenses; and costs of arbitration, including the fees of the arbitrator/s.[80] All the purported
damages that BCA claims to have suffered by virtue of the DFAs termination of the Amended BOT Agreement are plainly
determinable in pecuniary terms and can be reasonably estimated according to BCAs own words.

Indeed, the right of BCA, a party which may or may not have been in default on its BOT contract, to have the
termination of its BOT contract reversed is not guaranteed by the BOT Law. Even assuming BCAs innocence of any
breach of contract, all the law provides is that BCA should be adequately compensated for its losses in case of contract
termination by the government.
There is one point that none of the parties has highlighted but is worthy of discussion. In seeking to enjoin the
government from awarding or implementing a machine readable passport project or any similar electronic passport or
visa project and praying for the maintenance of the status quo ante pending the resolution on the merits of BCAs
Request for Arbitration, BCA effectively seeks to enjoin the termination of the Amended BOT Agreement for the MRP/V
Project.

There is no doubt that the MRP/V Project is a project covered by the BOT Law and, in turn, considered a national
government project under Republic Act No. 8795. Under Section 3(d) of that statute, trial courts are prohibited from
issuing a TRO or writ of preliminary injunction against the government to restrain or prohibit the termination or
rescission of any such national government project/contract.

The rationale for this provision is easy to understand. For if a project proponent that the government believes to be in
default is allowed to enjoin the termination of its contract on the ground that it is contesting the validity of said
termination, then the government will be unable to enter into a new contract with any other party while the controversy
is pending litigation. Obviously, a courts grant of injunctive relief in such an instance is prejudicial to public interest since
government would be indefinitely hampered in its duty to provide vital public goods and services in order to preserve the
private proprietary rights of the project proponent. On the other hand, should it turn out that the project proponent was
not at fault, the BOT Law itself presupposes that the project proponent can be adequately compensated for the
termination of the contract. Although BCA did not specifically pray for the trial court to enjoin the termination of the
Amended BOT Agreement and thus, there is no direct violation of Republic Act No. 8795, a grant of injunctive relief as
prayed for by BCA will indirectly contravene the same statute.

Verily, there is valid reason for the law to deny preliminary injunctive relief to those who seek to contest the
governments termination of a national government contract. The only circumstance under which a court may grant
injunctive relief is the existence of a matter of extreme urgency involving a constitutional issue, such that unless a TRO
or injunctive writ is issued, grave injustice and irreparable injury will result.

Now, BCA likewise claims that unless it is granted injunctive relief, it would suffer grave and irreparable injury since the
bidding out and award of the e-Passport Project would be tantamount to a violation of its right against deprivation of
property without due process of law under Article III, Section 1 of the Constitution. We are unconvinced.

Article III, Section 1 of the Constitution provides [n]o person shall be deprived of life, liberty, or property without due
process of law, nor shall any person be denied the equal protection of the laws. Ordinarily, this constitutional provision
has been applied to the exercise by the State of its sovereign powers such as, its legislative power,[81] police power,[82]
or its power of eminent domain.[83]
In the instant case, the State action being assailed is the DFAs termination of the Amended BOT Agreement with BCA.
Although the said agreement involves a public service that the DFA is mandated to provide and, therefore, is imbued
with public interest, the relationship of DFA to BCA is primarily contractual and their dispute involves the adjudication of
contractual rights. The propriety of the DFAs acts, in relation to the termination of the Amended BOT Agreement, should
be gauged against the provisions of the contract itself and the applicable statutes to such contract. These contractual
and statutory provisions outline what constitutes due process in the present case. In all, BCA failed to demonstrate that
there is a constitutional issue involved in this case, much less a constitutional issue of extreme urgency.

As for the DFAs purported failure to appropriate sufficient amounts in its budget to pay for liquidated damages to BCA,
this argument does not support BCAs position that it will suffer grave and irreparable injury if it is denied injunctive relief.
The DFAs liability to BCA for damages is contingent on BCA proving that it is entitled to such damages in the proper
proceedings. The DFA has no obligation to set aside funds to pay for liquidated damages, or any other kind of damages,
to BCA until there is a final and executory judgment in favor of BCA. It is illogical and impractical for the DFA to set aside
a significant portion of its budget for an event that may never happen when such idle funds should be spent on providing
necessary services to the populace. For if it turns out at the end of the arbitration proceedings that it is BCA alone that
is in default, it would be the one liable for liquidated damages to the DFA under the terms of the Amended BOT
Agreement.

With respect to BCAs allegation that the e-Passport Project is grossly disadvantageous to the Filipino people since it is
the government that will be spending for the project unlike the MRP/V Project which would have been privately funded,
the same is immaterial to the issue at hand. If it is true that the award of the e-Passport Project is inimical to the public
good or tainted with some anomaly, it is indeed a cause for grave concern but it is a matter that must be investigated
and litigated in the proper forum. It has no bearing on the issue of whether BCA would suffer grave and irreparable
injury such that it is entitled to injunctive relief from the courts.

In all, we agree with petitioners DFA and BSP that the trial courts issuance of a writ of preliminary injunction, despite the
lack of sufficient legal justification for the same, is tantamount to grave abuse of discretion.

To be very clear, the present decision touches only on the twin issues of (a) the jurisdiction of the trial court to issue a
writ of preliminary injunction as an interim relief under the factual milieu of this case; and (b) the entitlement of BCA to
injunctive relief. The merits of the DFA and BCAs dispute regarding the termination of the Amended BOT Agreement
must be threshed out in the proper arbitration proceedings. The civil case pending before the trial court is purely for the
grant of interim relief since the main case is to be the subject of arbitration proceedings.

BCAs petition for interim relief before the trial court is essentially a petition for a provisional remedy (i.e., preliminary
injunction) ancillary to its Request for Arbitration in PDRCI Case No. 30-2006/BGF. BCA specifically prayed that the trial
court grant it interim relief pending the constitution of the arbitral tribunal in the said PDRCI case. Unfortunately, during
the pendency of this case, PDRCI Case No. 30-2006/BGF was dismissed by the PDRCI for lack of jurisdiction, in view of
the lack of agreement between the parties to arbitrate before the PDRCI.[84] In Philippine National Bank v. Ritratto
Group, Inc.,[85] we held:
A writ of preliminary injunction is an ancillary or preventive remedy that may only be resorted to by a litigant to protect
or preserve his rights or interests and for no other purpose during the pendency of the principal action. The dismissal
of the principal action thus results in the denial of the prayer for the issuance of the writ. x x x. (Emphasis supplied.)

In view of intervening circumstances, BCA can no longer be granted injunctive relief and the civil case before the trial
court should be accordingly dismissed. However, this is without prejudice to the parties litigating the main controversy in
arbitration proceedings, in accordance with the provisions of the Amended BOT Agreement, which should proceed with
dispatch.

It does not escape the attention of the Court that the delay in the submission of this controversy to arbitration was
caused by the ambiguity in Section 19.02 of the Amended BOT Agreement regarding the proper body to which a dispute
between the parties may be submitted and the failure of the parties to agree on such an arbitral tribunal. However, this
Court cannot allow this impasse to continue indefinitely. The parties involved must sit down together in good faith and
finally come to an understanding regarding the constitution of an arbitral tribunal mutually acceptable to them.

WHEREFORE, the instant petition is hereby GRANTED. The assailed Order dated February 14, 2007 of the Regional Trial
Court of Pasig in Civil Case No. 71079 and the Writ of Preliminary Injunction dated February 23, 2007 are REVERSED
and SET ASIDE. Furthermore, Civil Case No. 71079 is hereby DISMISSED.

ELPIDIO S. UY v. PUBLIC ESTATES AUTHORITY ,G.R. Nos. 147925-26 July 7, 2010

NACHURA, J.:

Before us are (i) the Motion for Partial Reconsideration filed by petitioner Elpidio S. Uy (Uy), doing business under the
name and style of Edison Development & Construction (EDC), and (ii) the Motion for Reconsideration filed by
respondent Public Estates Authority (PEA) of our June 8, 2009 Decision, the fallo of which reads:
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed Joint Decision and Joint Resolution of the Court of
Appeals in CA-G.R. SP Nos. 59308 and 59849 are AFFIRMED with MODIFICATIONS. Respondent Public Estates Authority
is ordered to pay Elpidio S. Uy, doing business under the name and style Edison Development and Construction,
P55,680,492.38 for equipment rentals on standby; P2,275,721.00 for the cost of idle manpower; and P6,050,165.05 for
the construction of the nursery shade net area; plus interest at 6% per annum to be computed from the date of the filing
of the complaint until finality of this Decision and 12% per annum thereafter until full payment. Respondent PEA is
further ordered to pay petitioner Uy 10% of the total award as attorneys fees.

SO ORDERED.[1]

Uy seeks partial reconsideration of our Decision. He argues that:

x x x THE HONORABLE COURT ERRED IN THE COMPUTATION OF THE DAMAGES DUE THE PETITIONER FOR THE
STANDBY EQUIPMENT COST.

II

x x x PETITIONER SHOULD BE REIMBURSED FOR COSTS INCURRED FOR ADDITIONAL HAULING DISTANCE OF
TOPSOIL ALSO BECAUSE THE EVIDENCE ON RECORD CONFIRMS THE EXISTENCE OF RESPONDENT PEAS WRITTEN
CONSENT, AND THE FACT THAT IT IS INDESPENSABLE TO COMPLETING THE PROJECT. WITHOUT SUCH ASSURANCE
OF REIMBURSEMENT, PETITIONER WOULD NOT HAVE TAKEN SUCH PRUDENT ACTION.

III
x x x PETITIONER SHOULD BE ALLOWED TO RECOVER THE COSTS HE INCURRED FOR THE MOBILIZATION OF WATER
TRUCKS ALSO BECAUSE RESPONDENT BREACHED ITS OBLIGATIONS UNDER THE CONTRACT.

IV

WITH REGARD TO THE COURT OF APPEALS ILLEGAL INJUNCTION PREVENTING PETITIONER FROM RECOVERING HIS
CLAIMS AGAINST RESPONDENT PEA IN CIAC CASE NO. 03-2001, THIS SHOULD HAVE BEEN LIFTED SINCE IT
INVOLVES CLAIMS SEPARATE AND DISTINCT FROM THE CASE A QUO.[2]

PEA, on the other hand, assails the Decision on the following grounds:

I.

THE FACTUAL FINDINGS AND CONCLUSIONS OF THE CONSTRUCTION INDUSTRY ARBITRATION COMMISSION (CIAC)
INSOFAR AS THE ARBITRAL AWARD TO PETITIONER IS CONCERNED, WHICH THE COURT OF APPEALS AND THE
FIRST DIVISION OF THIS HONORABLE COURT AFFIRMED, HAS LONG BECOME FINAL AND EXECUTORY.

II.

THE CIAC ARBITRAL AWARD HAD ALREADY BEEN IMPLEMENTED UNDER WRIT OF EXECUTION DATED 19 SEPTEMBER
2000, WRIT OF EXECUTION DATED 31 AUGUST 2001 AND SUPPLEMENTAL WRIT OF EXECUTION DATED 10 APRIL
2002.[3]
We will deal first with Uys motion.

Uy objects to the factor rate used in the computation of the award for standby equipment costs. He points out that the
actual number of equipment deployed and which remained on standby, occasioned by the delay in delivery of work
areas, has not been considered in the computation. The Association of Carriers and Equipment Lessors (ACEL) rate or
the factor rate used was only the total average rate, without regard to the actual number of equipment deployed. He,
therefore, insists that an increase in the award is in order.

We find Uys argument on this point meritorious; and this Court is swayed to modify the formula used in the computation
of the award.

The Certification,[4] dated December 6, 1996, shows that EDC mobilized the following equipment for the Heritage Park
Project, viz.:

Description

Number

Road Grader

Pay Loader

Dump Trucks

10

Tractor with attachments

2

Backhoe

Delivery Trucks

Rolo-tiller

Concrete Mixer

Bar Cutter

Welding Machine

Roller

Bulldozer

Concrete Cutter

2
Plate Compactor

Compressor/Jack Hammer

Genset 5KVA

Electric drill/ Holesaw

These equipment remained in the project site on the days that EDC was waiting for the turnover of additional work
areas.[5] Thus, we agree with Uy that the actual number of equipment mobilized should be included in computing the
award for standby equipment cost. The award must, therefore, be modified using the following formula:

Actual period of delay (18.2 months) x average rate per ACEL x number of equipment

However, we cannot simply accept in full Uys claim that he is entitled to P71,009,557.95 as standby equipment cost. The
records show that not all of the equipment were operational; several were under repair.[6] Accordingly, we find it
necessary to remand the records of the case to the Construction Industry Arbitration Commission (CIAC), which decided
the case in the first instance, for the proper computation of the award of standby equipment cost based on the foregoing
formula.

On the claim for costs for additional hauling distance of topsoil and for mobilization of water truck, we maintain our
ruling that a written approval of PEAs general manager was indispensable before the claim for additional cost can be
granted. In this case, the additional costs were incurred without the written approval of PEA. The denial of Uys claims
was, therefore, appropriate.
We cannot sustain this claim that is premised mainly on the principle of unjust enrichment. We stress that the principle
of unjust enrichment cannot be validly invoked by a party who, through his own act or omission, took the risk of being
denied payment for additional costs by not giving the other party prior notice of such costs and/or by not securing their
written consent thereto, as required by law and their contract.[7]

Similarly, we find no cogent reason to lift the injunction issued in CIAC Case No. 03-2001. We are not persuaded by Uys
argument that the claims under CIAC Case No. 03-2001 are different from his claims in CIAC Case No. 02-2000. As we
explained in our Decision, there is only one cause of action running through Uys undertakings the violation of his alleged
right under the Landscaping and Construction Agreement. Therefore, the landscaping agreement is indispensable in the
prosecution of his claims in both CIAC Cases No. 02-2000 and No. 03-2001. We reiterate that a party, either by varying
the form or action or by bringing forward in a second case additional parties or arguments, cannot escape the effects of
res judicata when the facts remain the same, at least where such new parties or matter could have been impleaded or
pleaded in the prior action.

In fine, except for the claim for standby equipment costs, this Court finds no cogent reason to depart from our June 8,
2009 Decision.

We now go to PEAs motion.

PEA insists that our Decision in this case transgresses the principle of res judicata. It asserts that the propriety of Uys
monetary claims against PEA had already been considered and passed upon by this Court in G.R. Nos. 147933-34.

The argument is specious.

In G.R. Nos. 147933-34, this Court was very explicit in its declaration that its Decision was independent of, and without
prejudice to, the appeal filed by Uy, viz.:

However, in order not to prejudice the deliberations of the Courts Second Division in G.R. Nos. 147925-26, it should be
stated that the findings made in this case, especially as regards the correctness of the findings of the CIAC, are limited
to the arbitral awards granted to respondent Elpidio S. Uy and to the denial of the counterclaims of petitioner Public
Estates Authority. Our decision in this case does not affect the other claims of respondent Uy which were not granted by
the CIAC in its questioned decision, the merits of which were not submitted to us for determination in the instant
petition.[8]

Indubitably, this Courts Decision in G.R. Nos. 147933-34 will not bar the grant of additional award to Uy.

WHEREFORE, Uys Motion for Partial Reconsideration is PARTLY GRANTED. PEAs Motion for Reconsideration, on the
other hand, is DENIED with FINALITY. The assailed Decision dated June 8, 2009 is AFFIRMED with MODIFICATION as to
the award of standby equipment cost. The case is hereby REMANDED to the Construction Industry Arbitration
Commission solely for the purpose of computing the exact amount of standby equipment cost pursuant to the formula
herein specified. The CIAC is DIRECTED to compute the award and effect payment thereof within thirty (30) days from
receipt of the records of this case.

16. SHINRYO (PHILIPPINES) COMPANY, INC., petitioner, vs. RRN INCORPORATED,** respondent.
Shinryo (Philippines) Company, Inc. vs. RRN Incorporated, 634 SCRA 123, G.R. No. 172525 October 20,
2010

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that the Decision[1] of
the Court of Appeals (CA) dated February 22, 2006, affirming the Decision of the Construction Industry Arbitration
Commission (CIAC), and the CA Resolution[2] dated April 26, 2006, denying herein petitioner's motion for
reconsideration, be reversed and set aside.

The facts, as accurately narrated in the CA Decision, are as follows.

Petitioner Shinryo (Philippines) Company, Inc. (hereinafter petitioner) is a domestic corporation organized under
Philippine laws. Private respondent RRN Incorporated (hereinafter respondent) is likewise a domestic corporation
organized under Philippine laws.

Respondent filed a claim for arbitration against petitioner before CIAC for recovery of unpaid account which consists of
unpaid portions of the sub-contract, variations and unused materials in the total sum of P5,275,184.17 and legal interest
in the amount of P442,014.73. Petitioner filed a counterclaim for overpayment in the amount of P2,512,997.96.

The parties admitted several facts before the CIAC. It was shown that petitioner and respondent executed an
Agreement and Conditions of Sub-contract (hereafter Agreement signed on June 11, 1996 and June 14, 1996,
respectively. Respondent signified its willingness to accept and perform for petitioner in any of its projects, a part or the
whole of the works more particularly described in Conditions of Sub-Contract and other Sub-contract documents.
On June 11, 2002, the parties executed a Supply of Manpower, Tools/Equipment, Consumables for the Electrical
Works-Power and Equipment Supply, Bus Duct Installation for the Phillip Morris Greenfield Project (hereafter Project)
covered by Purchase Order Nos. 4501200300-000274 and 4501200300-000275 amounting to P15,724,000.00 and
P9,276,000.00 respectively, or a total amount of P25,000,000.00. The parties also agreed that respondent will perform
variation orders in the Project. In connection with the Project, petitioner supplied manpower chargeable against
respondent.

Respondent was not able to finish the entire works with petitioner due to financial difficulties. Petitioner paid respondent
a total amount of P26,547,624.76. On June 25, 2005 [should read 2003], respondent, through its former counsel sent a
letter to petitioner demanding for the payment of its unpaid balance amounting to P5,275,184.17. Petitioner claimed
material back charges in the amount of P4,063,633.43. On September 26, 2003, respondent only acknowledged
P2,371,895.33 as material back charges. Thereafter, on October 16, 2003, respondent sent another letter to petitioner
for them to meet and settle their dispute.

On January 8, 2004, respondent sent another letter to petitioner regarding the cost of equipment rental and the use of
scaffolding. Thereafter, on August 12, 2004, petitioner sent a letter to respondent denying any unpaid account and the
failure in their negotiations for amicable settlement.

On September 3, 2004, respondent, through its new counsel, advised petitioner of their intention to submit the matter
to arbitration. Thereafter, their dispute was submitted to arbitration. During the preliminary conference, the parties
agreed in their Terms of Reference to resolve eight issues, to wit:

1. What should be the basis in evaluating the variation cost?

1.1 How much is the variation cost?

2. Is the Respondent (petitioner in the instant case) justified in charging claimant (herein respondent)
the equipment rental fee and for the use of the scaffoldings? If so, how much should be charged to Claimant?

3. What should be the basis in evaluating the total cost of materials supplied by Respondent to the
Project which is chargeable to Claimant?

3.1 How much is the total cost of materials supply chargeable to Claimant?

4. How much is the value of the remaining works left undone by the Claimant in the project?

5. Is the Claimant's claim for inventory of excess materials valid? If so, how much is the value
thereof?

6. Is the Respondent entitled to its claim for an overpayment in the amount of P2,512,997.96?

7. Is Claimant entitled to its claim for interest? If so, how much?

8. Who between the parties shall bear the cost of Arbitration?

The CIAC rendered the assailed decision after the presentation of the parties' evidence. [The dispositive portion of said
decision reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the claimant and respondent is ordered to pay claimant its unpaid
account in the sum of P3,728,960.54 plus legal interest of 6% reckoned from June 25, 2003 up to the filing of the case
on October 11, 2004 and 12% of P3,728,960.54 from the finality of the judgment until fully paid and arbitration cost of
P104,333.82 representing claimant's share of the arbitration cost which respondent should reimburse.

SO ORDERED.]

Petitioner accepts the ruling of the CIAC only in Issue No. 1 and Sub-Issue No. 1.1 and in Issue No. 2 in so far as the
amount of P440,000.00 awarded as back charges for the use of scaffoldings. x x x[3]

On February 22, 2006, the CA promulgated the assailed Decision affirming the decision of the CIAC. The CA upheld the
CIAC ruling that petitioner failed to adduce sufficient proof that the parties had an agreement regarding charges for
respondent's use of the manlift. As to the other charges for materials, the CA held that the evidence on record amply
supports the CIAC findings. Petitioner moved for reconsideration of said ruling, but the same was denied per Resolution
dated April 26, 2006.

Hence, this petition where it is alleged that:

I. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR WHEN IT

DENIED PETITIONER'S CLAIM FOR MANLIFT EQUIPMENT RENTAL IN THE AMOUNT OF P511,000.00 DESPITE
EVIDENCE ON RECORD THAT RESPONDENT RRN ACTUALLY USED AND BENEFITED FROM THE MANLIFT EQUIPMENT.

II. IN RENDERING THE QUESTIONED DECISION AND QUESTIONED RESOLUTION, THE HONORABLE
COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND/OR WITH THE
APPLICABLE DECISIONS OF THE HONORABLE SUPREME COURT.

III. THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN AFFIRMING THE CIAC
AWARD FOR THE VALUE OF INVENTORIED MATERIALS CONSIDERING THAT:
A. RESPONDENT RRN ADMITTED THE VALIDITY OF THE DEDUCTIONS ON ACCOUNT OF MATERIAL SUPPLY, WHICH
INCLUDED THE INVENTORIED MATERIALS.

B. RESPONDENT RRN HAS NO BASIS TO CLAIM BECAUSE ENGR. BONIFACIO ADMITTED THAT RESPONDENT RRN
FAILED TO ESTABLISH WHETHER THE MATERIALS CAME FROM RESPONDENT RRN OR FROM PETITIONER AND THAT
IT WAS PETITIONER THAT ACTUALLY INSTALLED THE SAID MATERIALS AS PART OF REMAINING WORKS THAT
PETITIONER TOOK OVER FROM RESPONDENT RRN.

C. THE CLAIM FOR THE VALUE OF INVENTORIED MATERIALS IS A DOUBLE CLAIM OR DOUBLE ENTRY BECAUSE IN
THE COMPUTATION OF THE FINAL ACCOUNT, RESPONDENT RRN WAS CREDITED THE FULL CONTRACT PRICE AND
THE COST OF VARIATIONS, WHICH INCLUDED THE INVENTORIED MATERIALS.

IV. IN RENDERING THE QUESTIONED DECISION AND QUESTIONED RESOLUTION, THE COURT OF
APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN THAT IT COMPLETELY DISREGARDED THE PROVISION OF THE
SUBCONTRACT, WHICH ALLOWED PAYMENT OF ACTUAL COST INCURRED BY PETITIONER IN COMPLETING THE
REMAINING WORKS THAT PRIVATE RESPONDENT ADMITTEDLY FAILED TO COMPLETE.

V. THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR WHEN IT COMPLETELY

DISREGARDED THE EVIDENCE ON ACTUAL COST INCURRED BY PETITIONER IN COMPLETING THE REMAINING
WORKS.

VI. THE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR WHEN IT AFFIRMED THE CIAC
AWARD FOR INTERESTS AND ARBITRATION COSTS IN FAVOR OF RESPONDENT RRN.[4]

The petition is bereft of merit.

Despite petitioner's attempts to make it appear that it is advancing questions of law, it is quite clear that what petitioner
seeks is for this Court to recalibrate the evidence it has presented before the CIAC. It insists that its evidence sufficiently
proves that it is entitled to payment for respondent's use of its manlift equipment, and even absent proof of the
supposed agreement on the charges petitioner may impose on respondent for the use of said equipment, respondent
should be made to pay based on the principle of unjust enrichment. Petitioner also questions the amounts awarded by
the CIAC for inventoried materials, and costs incurred by petitioner for completing the work left unfinished by
respondent.

As reiterated by the Court in IBEX International, Inc. v. Government Service Insurance System,[5] to
wit:

It is settled that findings of fact of quasi-judicial bodies, which have acquired expertise because their
jurisdiction is confined to specific matters, are generally accorded not only respect, but also finality,
especially when affirmed by the Court of Appeals. In particular, factual findings of construction
arbitrators are final and conclusive and not reviewable by this Court on appeal.

This rule, however, admits of certain exceptions. In Uniwide Sales Realty and Resources Corporation v.
Titan-Ikeda Construction and Development Corporation, we said:

In David v. Construction Industry and Arbitration Commission, we ruled that, as exceptions, factual
findings of construction arbitrators may be reviewed by this Court when the petitioner proves
affirmatively that:

(1) the award was procured by corruption, fraud or other undue means;

(2) there was evident partiality or corruption of the arbitrators or any of them;

(3) the arbitrators were guilty of misconduct in refusing to hear evidence pertinent and material to the
controversy;

(4) one or more of the arbitrators were disqualified to act as such under Section nine of Republic Act No.
876 and willfully refrained from disclosing such disqualifications or of any other misbehavior by which
the rights of any party have been materially prejudiced; or

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

Other recognized exceptions are as follows:

(1) when there is a very clear showing of grave abuse of discretion resulting in lack or loss of jurisdiction
as when a party was deprived of a fair opportunity to present its position before the Arbitral Tribunal or
when an award is obtained through fraud or the corruption of arbitrators,

(2) when the findings of the Court of Appeals are contrary to those of the CIAC, and

(3) when a party is deprived of administrative due process.

A perusal of the records would reveal that none of the aforementioned circumstances, which would justify exemption of
this case from the general rule, are present here. Such being the case, the Court, not being a trier of facts, is not
duty-bound to examine, appraise and analyze anew the evidence presented before the arbitration body.[7]

Petitioner's reliance on the principle of unjust enrichment is likewise misplaced. The ruling of the Court
in University of the Philippines v. Philab Industries, Inc.[8] is highly instructive, thus:

Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations of
others, but instead it must be shown that a party was unjustly enriched in the sense that the term
unjustly could mean illegally or unlawfully.

Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that
another party knowingly received something of value to which he was not entitled and that the state of
affairs are such that it would be unjust for the person to keep the benefit. Unjust enrichment is a term
used to depict result or effect of failure to make remuneration of or for property or benefits received
under circumstances that give rise to legal or equitable obligation to account for them; to be entitled to
remuneration, one must confer benefit by mistake, fraud, coercion, or request. Unjust enrichment is not
itself a theory of reconvey. Rather, it is a prerequisite for the enforcement of the doctrine of restitution.

Article 22 of the New Civil Code reads:

Every 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.

In order that accion in rem verso may prosper, the essential elements must be present: (1) that the defendant has been
enriched, (2) that the plaintiff has suffered a loss, (3) that the enrichment of the defendant is without just or legal
ground, and (4) that the plaintiff has no other action based on contract, quasi-contract, crime or quasi-delict.

An accion in rem verso is considered merely an auxiliary action, available only when there is no other remedy on
contract, quasi-contract, crime, and quasi-delict. If there is an obtainable action under any other institution of positive
law, that action must be resorted to, and the principle of accion in rem verso will not lie.[9]
As found by both the CIAC and affirmed by the CA, petitioner failed to prove that respondent's free use of the manlift
was without legal ground based on the provisions of their contract. Thus, the third requisite, i.e., that the enrichment of
respondent is without just or legal ground, is missing. In addition, petitioner's claim is based on contract, hence, the
fourth requisite − that the plaintiff has no other action based on contract, quasi-contract, crime or quasi-delict − is also
absent. Clearly, the principle of unjust enrichment is not applicable in this case.

The other issues raised by petitioner all boil down to whether the CIAC or the CA erred in rejecting its claims for costs of
some materials.

Again, these issues are purely factual and cannot be properly addressed in this petition for review on
certiorari. In Hanjin Heavy Industries and Construction Co., Ltd. v. Dynamic Planners and Construction
Corp.,[10] it was emphasized that mathematical computations, the propriety of arbitral awards, claims
for other costs and abandonment are factual questions. Since the discussions of the CIAC and the CA in
their respective Decisions show that its factual findings are supported by substantial evidence, there is
no reason why this Court should not accord finality to said findings. Verily, to accede to petitioner's
request for a recalibration of its evidence, which had been thoroughly studied by both the CIAC and the
CA would result in negating the objective of Executive Order No. 1008, which created an arbitration body
to ensure the prompt and efficient settlement of disputes in the construction industry. Thus, the Court held
in Uniwide Sales Realty and Resources Corporation v. Titan-Ikeda Construction and Development Corporation,[11] that:

x x x The Court will not review the factual findings of an arbitral tribunal upon the artful allegation that such body had
"misapprehended facts" and will not pass upon issues which are, at bottom, issues of fact, no matter how cleverly
disguised they might be as "legal questions." The parties here had recourse to arbitration and chose the arbitrators
themselves; they must have had confidence in such arbitrators. The Court will not, therefore, permit the parties to
relitigate before it the issues of facts previously presented and argued before the Arbitral Tribunal, save only where a
clear showing is made that, in reaching its factual conclusions, the Arbitral Tribunal committed an error so egregious and
hurtful to one party as to constitute a grave abuse of discretion resulting in lack or loss of jurisdiction.[12]

As discussed above, there is nothing in the records that point to any grave abuse of discretion committed by the CIAC.

The awards for interests and arbitration costs are, likewise, correct as they are in keeping with prevailing
jurisprudence.[13]
IN VIEW OF THE FOREGOING, the Petition is DENIED. The Decision of the Court of Appeals dated February 22, 2006
and its Resolution dated April 26, 2006 are AFFIRMED.

SO ORDERED.

17. TRANSCEPT CONSTRUCTION AND MANAGEMENT PROFESSIONALS, INC., petitioner, vs. TERESA C.
AGUILAR, respondent. Transcept Construction and Management Professionals, Inc. vs. Aguilar, 637
SCRA 574, G.R. No. 177556 December 8, 2010

Before the Court is a petition for review assailing the 24 January 2007 Decision1 and the 20 April 2007 Resolution2 of
the Court of Appeals in CA-G.R. SP No. 93021.

The Antecedent Facts

From the decisions of the Court of Appeals and the Construction Industry Arbitration Commission (CIAC), we gathered
the following facts:

On 18 August 2004, Teresa C. Aguilar (Aguilar) entered into an Owner-General Contractor Agreement (First Contract)
with Transcept Construction and Management Professionals, Inc. (Transcept) for the construction of a two-storey split
level vacation house (the Project) located at Phase 3, Block 3, Lot 7, Canyon Woods, Laurel, Batangas. Under the First
Contract, the Project would cost ₱3,486,878.64 and was to be completed within 2103 working days from the date of the
First Contract or on 7 June 2005. Aguilar paid a downpayment of ₱1 million on 27 August 2004.

On 30 November 2004, Transcept submitted its First Billing to Aguilar for work accomplishments from start to 15
November 2004, in accordance with the Progressive Billing payment scheme. Aguilar paid ₱566,356.

On 1 February 2005, Aguilar received the Second Billing amounting to ₱334,488 for the period of 16 November 2004 to
15 December 2004. Transcept informed Aguilar that non-payment would force them to halt all works on the Project.
Aguilar questioned the Second Billing as unusual for being 45 days ahead of actual accomplishment. Aguilar did not pay
and on 2 February 2005, Transcept stopped working on the Project.

Thereafter, Aguilar hired ASTEC, a duly accredited testing laboratory, to test Transcept’s quality of work. The test
showed substandard works done by Transcept. In a letter dated 7 March 2005, Transcept outlined its program to
reinforce or redo the substandard works discovered by ASTEC. On 28 March 2005, ASTEC, through Engr. Jaime E.
Rioflorido (Engr. Rioflorido), sent Aguilar an Evaluation of Contractor’s Performance which showed that aside from the
substandard workmanship and use of substandard materials, Transcept was unreasonably and fraudulently billing
Aguilar. Of the downpayment amounting to ₱1,632,436.29, Engr. Rioflorido’s reasonable assessment of Transcept’s
accomplishment amounted only to ₱527,875.94. Engr. Rioflorido recommended the partial demolition of Transcept’s
work.

On 30 May 2005, Transcept and Aguilar entered into a Construction Contract (Second Contract) to extend the date of
completion from 7 June 2005 to 29 July 2005 and to use up the ₱1.6 million downpayment paid by Aguilar. Aguilar hired
the services of Engr. Edgardo Anonuevo (Engr. Anonuevo) to ensure that the works would comply with the plans in the
Second Contract.

Transcept failed to finish the Project on 29 July 2005, alleging that the delay was due to additional works ordered by
Aguilar. Transcept also asked for payment of the additional amount of ₱290,824.96. Aguilar countered that the Second
Contract did not provide for additional works.

On 2 September 2005, Aguilar sent a demand letter to Transcept asking for payment of ₱581,844.54 for refund and
damages. Transcept ignored the demand letter. On 6 September 2005, Aguilar filed a complaint against Transcept
before CIAC.

The Decision of the CIAC

CIAC assessed the work accomplished with the corresponding costs, as against the downpayment of ₱1,632,436.29
which was the contract price in the Second Contract. On 16 January 2006, the CIAC promulgated its Decision.4

For Labor and Materials of the Scope of Work, the CIAC credited the accomplishment to be ₱1,110,440.13 representing
Aguilar’s estimate which was reassessed by the CIAC after the ocular inspection conducted by the parties. For indirect
costs for General Requirements of the Scope of Work, the CIAC’s computation was ₱275,355.50. The CIAC noted that
Aguilar did not submit any evidence on indirect costs and her counsel did not cross-examine Transcept’s witnesses on
the matter. For the Septic Tank, which the CIAC found to be part of the Second Contract, the CIAC assessed the
accomplishment to amount to ₱7,300. The CIAC added 5% Contingencies and 10% Contractor’s Profit which are the
minimum factors in making estimates practiced in the construction industry. The CIAC thus estimated that the total
accomplishment amounted to ₱1,602,359.97 which was ₱30,076.72 below the contract price of ₱1,632,436.29. The
tabulated amount shows:

Direct Costs for Labor and Materials ₱1,110,440.13

Indirect Costs for General Requirements 275,355.50

Septic Tank 7,300.00

Sub-Total ₱1,393,095.63

Plus 5% Contingencies 69,654.78

Add 10% of Sub-Total for Contractor's Profit 139,309.56

Total ₱1,602,359.97

The CIAC ruled that the accomplishment of ₱1,602,359.97 was 98.16% of ₱1,632,436.29, which was way above 95%
and should therefore be considered as substantial completion of the Project. As such, the CIAC ruled that liquidated
damages could not be awarded to Aguilar. The CIAC, however, ruled that Aguilar was entitled to ₱75,000 as Consultancy
Expenses.

The CIAC also found that Aguilar demanded extra works which entailed additional working days. The CIAC computed
that the additional works performed over and above the Second Contract amounted to ₱189,909.91.

The dispositive portion of the CIAC’s decision reads:

In view of all the foregoing, it is hereby ordered that:

1. Respondent [Transcept] shall pay Claimant [Aguilar] the amount of ₱30,076.72, representing the unaccomplished
works in the contract, plus 6% interests from the date of the promulgation of this case, until fully paid.

2. Respondent shall pay Claimant the amount of ₱75,000.00, representing the cost of Consultancy Services, plus 6%
interests from the date of the promulgation of this case, until fully paid.

3. Claimant shall pay Respondent the amount of ₱189,909.91, representing the cost of work performed over & above
the scope of work in the contract.

4. The cost for liquidated damages and cost representing interests of construction bond, prayed for the Claimant, are
denied for being without merit.

5. Attorney’s fees prayed for by both parties are denied for being without merit.

6. Cost of Arbitration shall be shared equally by the parties.

SO ORDERED.5

Aguilar assailed the CIAC’s decision before the Court of Appeals.

The Decision of the Court of Appeals

In its 24 January 2007 Decision, the Court of Appeals reversed the CIAC’s decision.

The Court of Appeals agreed with the CIAC that Aguilar did not allege in her complaint the amount corresponding to the
indirect costs for General Requirements. However, the Court of Appeals made a recomputation of the indirect costs for
General Requirements based on ₱1,632,436.29 and made the following findings:

Direct Costs for Labor and Materials ₱1,110,440.13

Indirect Costs for General Requirements 128,799.22

Septic Tank 7,300.00

Sub-Total ₱1,246,539.35

Plus 5% Contingencies 62,326.96

Add 10% of Sub-Total for Contractor's Profit 124,653.93

Total ₱1,433,520.24

The Court of Appeals then deducted ₱1,433,520.24 from ₱1,632,436.29 and concluded that Aguilar is entitled to
₱198,916.05 instead of ₱30,076.72.

From the above computation, the Court of Appeals ruled that Transcept only accomplished 87.81% of the contract price
thus entitling Aguilar to liquidated damages equivalent to 10% of ₱1,632,436.29 or ₱163,243.63.
The Court of Appeals further ruled that Transcept was not entitled to payment for additional works because they were in
fact only rectifications of the works poorly done by Transcept. Finally, the Court of Appeals ruled that Aguilar was able to
prove that she paid ₱135,000 for consultancy services.

The dispositive portion of the Court of Appeals’ decision reads:

WHEREFORE, the foregoing considered, the instant petition is hereby GRANTED and the assailed decision REVERSED
AND SET ASIDE. Accordingly, a new one is entered ordering respondent to pay petitioner the following:

1) ₱198,916.02 for unaccomplished works in the second contract, plus 6% interest from the date of the filing of the case,
until fully paid;

2) ₱135,000.00, representing the cost of consultancy services, plus 6% interest from the filing of the case, until fully
paid; and

3) ₱163,243.63 as and by way of liquidated damages.

The award of ₱189,909.91 in favor of Aguilar for additional works is hereby deleted.

No costs.

SO ORDERED.6

Transcept filed a motion for reconsideration. In its 20 April 2007 Resolution, the Court of Appeals denied the motion.

Hence, the petition before this Court.

The Issues

The issues in this case are the following:

1. Whether the Court of Appeals erred in holding that Aguilar is entitled to ₱198,916.02 instead of ₱30,076.72 for
unaccomplished works;

2. Whether the Court of Appeals erred in awarding Aguilar liquidated damages;

3. Whether the Court of Appeals erred in deleting the CIAC’s award of ₱189,909.91 to Transcept representing additional
works done under the Second Contract; and

4. Whether the Court of Appeals erred in awarding Aguilar the amount of ₱135,000 for consultancy services.
The Ruling of this Court

The petition is partly meritorious.

Refund for Unaccomplished Works

The Court of Appeals ruled that CIAC erred in adopting Transcept’s computation of unaccomplished works. The Court of
Appeals agreed with Aguilar that the CIAC’s computation was based on what Transcept submitted which was based on
the original contract price of ₱3,486,878.64 instead of the contract price of ₱1,632,436.29 under the Second Contract.

However, the Court of Appeals failed to consider the CIAC’s as well as its own finding that Aguilar did not present any
evidence on indirect costs for General Requirements. In addition, Aguilar’s counsel did not cross-examine Transcept’s
witnesses. In short, Aguilar did not dispute but merely accepted Transcept’s computation on indirect expenses. Aguilar
did not interpose any objection to the computation until after the CIAC ruled that Transcept substantially complied with
the Project. We also note Transcept’s explanation, as well as the CIAC’s finding, that General Requirements refer to
mobilization, overhead, insurance, hoarding and protection, temporary facilities, equipment, materials testing, line set
out, as-built drawings, and clean out. They had been used up at the start of the Project. Hence, costs for General
Requirements are not dependent on the amount of the contract because they were incurred at the beginning of the
Project. We should therefore revert to the computation made by the CIAC, as follows:

Direct Costs for Labor and Materials ₱1,110,440.13

Indirect Costs for General Requirements 275,355.50

Septic Tank 7,300.00

Sub-Total ₱1,393,095.63

Plus 5% Contingencies 69,654.78

Add 10% of Sub-Total for Contractor's Profit 139,309.56

Total ₱1,602,359.97

Liquidated Damages

Section 20.11(A)(a) of the Construction Industry Authority of the Philippines (CIAP) Document No. 102
provides that "[t]here is substantial completion when the Contractor completes 95% of the Work,
provided that the remaining work and the performance of the work necessary to complete the Work shall
not prevent the normal use of the completed portion."

According to CIAC’s computation, Transcept’s accomplishment amounted to 98.16% of the contract

price. It is beyond the 95% required under CIAP Document No. 102 and is considered a substantial
completion of the Project. We thus agree with CIAC’s application of Article 1234 of the Civil Code, which
provides that "[i]f the obligation had been substantially performed in good faith, the obligor may recover
as though there had been a strict and complete fulfillment, less damages suffered by the obligee."

There being a substantial completion of the Project, Aguilar is not entitled to liquidated damages but
only to actual damages of ₱30,076.72, representing the unaccomplished works in the Second Contract as
found by the CIAC, which is the difference between the contract price of ₱1,632,436.29 and the
accomplishment of ₱1,602,359.97.

Additional Works
The Second Contract excluded the construction of the following works:

1. Architectural Works - - Roofing System

2. Interior Fit-Out Works/Glass/Windows/CAB/CARP

3. Truss System

4. Supply and Installation of Plumbing Fixtures and Bathroom Accessories

5. Supply and Installation of Downspout System

6. Electrical Roughing-in and Wiring Works

7. Supply and Installation of Wiring Devices

8. Supply and Installation of Circuit Breakers

9. Testing and Commissioning.8

The CIAC found that Aguilar demanded additional works from Transcept. The CIAC found that the additional works
include the balcony, lifting of roof beams, and extra fast walls which are not covered by the Second Contract. However,
we agree with the Court of Appeals that the works done were just for correction of the substandard works done under
the First Contract. During the ocular inspection, Aguilar pointed out that the lifting of the roof beam was done because
the construction was three meters short of that specified in the First Contact.9 Hence, while the roofing system is
excluded from the Second Contract, it could not be said that the lifting of the roof beam is an additional work on the part
of Transcept.

The Court notes that the Second Contract was entered into by the parties precisely to correct the substandard works
discovered by ASTEC. Hence, Aguilar should not be made to pay for works done to correct these substandard works.

Consultancy Services

The Court of Appeals correctly awarded Aguilar the cost of consultancy services amounting to ₱135,000. While Engr.
Rioflorido was not presented as a witness, it was established that Aguilar hired ASTEC, a duly accredited testing
laboratory, to test Transcept’s quality of work, and that Engr. Rioflorido represented ASTEC. As found by the Court of
Appeals, Aguilar paid Engr. Rioflorido the amount of ₱65,000 for the services, which should be added to the ₱75,000
consultancy services awarded to Aguilar.10

WHEREFORE, we AFFIRM the 24 January 2007 Decision and the 20 April 2007 Resolution of the Court of Appeals in
CA-G.R. SP No. 93021, with the MODIFICATION that the award of ₱198,916.02 for unaccomplished works is reduced to
₱30,076.72, and the award of ₱163,243.63 for liquidated damages is deleted.
SO ORDERED.

18. CARGILL PHILIPPINES, INC., petitioner, vs. SAN FERNANDO REGALA TRADING, INC., respondent.
Cargill Philippines, Inc. vs. San Fernando Regala Trading, Inc., 641 SCRA 31, G.R. No. 175404 January 31,
2011

PERALTA, J.:

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

The factual antecedents are as follows:

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

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

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

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

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

In its Reply, petitioner maintained that the cited decisions were already inapplicable, having been rendered prior to the
effectivity of the New Civil Code in 1950 and the Arbitration Law in 1953.

In its Rejoinder, respondent argued that the arbitration clause relied upon by petitioner is invalid and unenforceable,
considering that the requirements imposed by the provisions of the Arbitration Law had not been complied with.

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

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

Premises considered, defendant's Motion To Dismiss/Suspend Proceedings and To Refer Controversy To Voluntary
Arbitration is hereby DENIED. Defendant is directed to file its answer within ten (10) days from receipt of a copy of this
order.[9]
In denying the motion, the RTC found that there was no clear basis for petitioner's plea to dismiss the case, pursuant to
Section 7 of the Arbitration Law. The RTC said that the provision directed the court concerned only to stay the action or
proceeding brought upon an issue arising out of an agreement providing for the arbitration thereof, but did not impose
the sanction of dismissal. However, the RTC did not find the suspension of the proceedings warranted, since the
Arbitration Law contemplates an arbitration proceeding that must be conducted in the Philippines under the jurisdiction
and control of the RTC; and before an arbitrator who resides in the country; and that the arbitral award is subject to
court approval, disapproval and modification, and that there must be an appeal from the judgment of the RTC. The RTC
found that the arbitration clause in question contravened these procedures, i.e., the arbitration clause contemplated an
arbitration proceeding in New York before a non-resident arbitrator (American Arbitration Association); that the arbitral
award shall be final and binding on both parties. The RTC said that to apply Section 7 of the Arbitration Law to such an
agreement would result in disregarding the other sections of the same law and rendered them useless and mere
surplusages.

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

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

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

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

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

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

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

Hence, this petition.

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

defenses are inconsistent with each other; and (d) the complaint filed by respondent with the trial court is premature.

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

Petitioner contends that as the defendant in the RTC, it presented two alternative defenses, i.e., the parties had not
entered into any agreement upon which respondent as plaintiff can sue upon; and, assuming that such agreement
existed, there was an arbitration clause that should be enforced, thus, the dispute must first be submitted to arbitration
before an action can be instituted in court. Petitioner argues that under Section 1(j) of Rule 16 of the Rules of Court,
included as a ground to dismiss a complaint is when a condition precedent for filing the complaint has not been complied
with; and that submission to arbitration when such has been agreed upon is one such condition precedent. Petitioner
submits that the proceedings in the RTC must be dismissed, or at least suspended, and the parties be ordered to
proceed with arbitration.

On March 12, 2007, petitioner filed a Manifestation[12] saying that the CA's rationale in declining to order arbitration
based on the 2005 Gonzales ruling had been modified upon a motion for reconsideration decided in 2007; that the CA
decision lost its legal basis, because it had been ruled that the arbitration agreement can be implemented
notwithstanding that one of the parties thereto repudiated the contract which contained such agreement based on the
doctrine of separability.

In its Comment, respondent argues that certiorari under Rule 65 is not the remedy against an order denying a Motion to
Dismiss/Suspend Proceedings and To Refer Controversy to Voluntary Arbitration. It claims that the Arbitration Law
which petitioner invoked as basis for its Motion prescribed, under its Section 29, a remedy, i.e., appeal by a petition for
review on certiorari under Rule 45. Respondent contends that the Gonzales case, which was decided in 2007, is
inapplicable in this case, especially as to the doctrine of separability enunciated therein. Respondent argues that even if
the existence of the contract and the arbitration clause is conceded, the decisions of the RTC and the CA declining
referral of the dispute between the parties to arbitration would still be correct. This is so because respondent's complaint
filed in Civil Case No. 98-1376 presents the principal issue of whether under the facts alleged in the complaint,
respondent is entitled to rescind its contract with petitioner and for the latter to pay damages; that such issue
constitutes a judicial question or one that requires the exercise of judicial function and cannot be the subject of
arbitration.

Respondent contends that Section 8 of the Rules of Court, which allowed a defendant to adopt in the same action
several defenses, alternatively or hypothetically, even if such defenses are inconsistent with each other refers to
allegations in the pleadings, such as complaint, counterclaim, cross-claim, third-party complaint, answer, but not to a
motion to dismiss. Finally, respondent claims that petitioner's argument is premised on the existence of a contract with
respondent containing a provision for arbitration. However, its reliance on the contract, which it repudiates, is
inappropriate.

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

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

Section 29.

x x x An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered upon an
award through certiorari proceedings, but such appeals shall be limited to question of law. x x x.
To support its argument, respondent cites the case of Gonzales v. Climax Mining Ltd.[13] (Gonzales case), wherein we
ruled the impropriety of a petition for certiorari under Rule 65 as a mode of appeal from an RTC Order directing the
parties to arbitration.

We find the cited case not in point.

In the Gonzales case, Climax-Arimco filed before the RTC of Makati a petition to compel arbitration under R.A. No. 876,
pursuant to the arbitration clause found in the Addendum Contract it entered with Gonzales. Judge Oscar Pimentel of
the RTC of Makati then directed the parties to arbitration proceedings. Gonzales filed a petition for certiorari with Us
contending that Judge Pimentel acted with grave abuse of discretion in immediately ordering the parties to proceed with
arbitration despite the proper, valid and timely raised argument in his Answer with counterclaim that the Addendum
Contract containing the arbitration clause was null and void. Climax-Arimco assailed the mode of review availed of by
Gonzales, citing Section 29 of R.A. No. 876 contending that certiorari under Rule 65 can be availed of only if there was
no appeal or any adequate remedy in the ordinary course of law; that R.A. No. 876 provides for an appeal from such
order. We then ruled that Gonzales' petition for certiorari should be dismissed as it was filed in lieu of an appeal by
certiorari which was the prescribed remedy under R.A. No. 876 and the petition was filed far beyond the reglementary
period.

We found that Gonzales petition for certiorari raises a question of law, but not a question of jurisdiction; that Judge
Pimentel acted in accordance with the procedure prescribed in R.A. No. 876 when he ordered Gonzales to proceed with
arbitration and appointed a sole arbitrator after making the determination that there was indeed an arbitration
agreement. It had been held that as long as a court acts within its jurisdiction and does not gravely abuse its discretion
in the exercise thereof, any supposed error committed by it will amount to nothing more than an error of judgment
reviewable by a timely appeal and not assailable by a special civil action of certiorari.[14]

In this case, petitioner raises before the CA the issue that the respondent Judge acted in excess of jurisdiction or with
grave abuse of discretion in refusing to dismiss, or at least suspend, the proceedings a quo, despite the fact that the
partys agreement to arbitrate had not been complied with. Notably, the RTC found the existence of the arbitration
clause, since it said in its decision that hardly disputed is the fact that the arbitration clause in question contravenes
several provisions of the Arbitration Law x x x and to apply Section 7 of the Arbitration Law to such an agreement would
result in the disregard of the afore-cited sections of the Arbitration Law and render them useless and mere surplusages.
However, notwithstanding the finding that an arbitration agreement existed, the RTC denied petitioner's motion and
directed petitioner to file an answer.
In La Naval Drug Corporation v. Court of Appeals,[15] it was held that R.A. No. 876 explicitly confines the courts
authority only to the determination of whether or not there is an agreement in writing providing for arbitration. In the
affirmative, the statute ordains that the court shall issue an order summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof. If the court, upon the other hand, finds that no such agreement exists,
the proceedings shall be dismissed.

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

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

We find merit in the petition.

Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in our
jurisdiction. R.A. No. 876 authorizes arbitration of domestic disputes. Foreign arbitration, as a system of
settling commercial disputes of an international character, is likewise recognized. 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.

A contract is required for arbitration to take place and to be binding.[20] Submission to arbitration is a
contract [21] and a clause in a contract providing that all matters in dispute between the parties shall be
referred to arbitration is a contract.[22] The provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of the contract and is itself a contract.[23]

In this case, the contract sued upon by respondent provides for an arbitration clause, to wit:

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

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

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

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

The question of validity of the contract containing the agreement to submit to arbitration will affect the applicability of
the arbitration clause itself. A party cannot rely on the contract and claim rights or obligations under it and at the same
time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent positions....

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

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

In so ruling that the validity of the contract containing the arbitration agreement does not affect the applicability of the
arbitration clause itself, we then applied the doctrine of separability, thus:

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

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

Respondent argues that the separability doctrine is not applicable in petitioner's case, since in the Gonzales case,
Climax-Arimco sought to enforce the arbitration clause of its contract with Gonzales and the former's move was
premised on the existence of a valid contract; while Gonzales, who resisted the move of Climax-Arimco for arbitration,
did not deny the existence of the contract but merely assailed the validity thereof on the ground of fraud and oppression.
Respondent claims that in the case before Us, petitioner who is the party insistent on arbitration also claimed in their
Motion to Dismiss/Suspend Proceedings that the contract sought by respondent to be rescinded did not exist or was not
consummated; thus, there is no room for the application of the separability doctrine, since there is no container or main
contract or an arbitration clause to speak of.

We are not persuaded.

Applying the Gonzales ruling, an arbitration agreement which forms part of the main contract shall not
be regarded as invalid or non-existent just because the main contract is invalid or did not come into
existence, since the arbitration agreement shall be treated as a separate agreement independent of the
main contract. To reiterate. a contrary ruling would suggest that a party's mere repudiation of the main
contract is sufficient to avoid arbitration and that is exactly the situation that the separability doctrine
sought to avoid. Thus, we find that even the party who has repudiated the main contract is not prevented
from enforcing its arbitration clause.

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

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

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

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

On a review on certiorari, we affirmed the CAs finding that the Panel of Arbitrators who, under R.A. No. 7942 of the
Philippine Mining Act of 1995, has exclusive and original jurisdiction to hear and decide mining disputes, such as mining
areas, mineral agreements, FTAAs or permits and surface owners, occupants and claimholders/concessionaires, is
bereft of jurisdiction over the complaint for declaration of nullity of the addendum contract; thus, the Panels' jurisdiction
is limited only to those mining disputes which raised question of facts or matters requiring the technical knowledge and
experience of mining authorities. We then said:
In Pearson v. Intermediate Appellate Court, this Court observed that the trend has been to make the adjudication of
mining cases a purely administrative matter. Decisions of the Supreme Court on mining disputes have recognized a
distinction between (1) the primary powers granted by pertinent provisions of law to the then Secretary of Agriculture
and Natural Resources (and the bureau directors) of an executive or administrative nature, such as granting of license,
permits, lease and contracts, or approving, rejecting, reinstating or canceling applications, or deciding conflicting
applications, and (2) controversies or disagreements of civil or contractual nature between litigants which are questions
of a judicial nature that may be adjudicated only by the courts of justice. This distinction is carried on even in Rep. Act
No. 7942.[28]

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

Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the parties as to some
provisions of the contract between them, which needs the interpretation and the application of that particular
knowledge and expertise possessed by members of that Panel. It is not proper when one of the parties repudiates the
existence or validity of such contract or agreement on the ground of fraud or oppression as in this case. The validity of
the contract cannot be subject of arbitration proceedings. Allegations of fraud and duress in the execution of a contract
are matters within the jurisdiction of the ordinary courts of law. These questions are legal in nature and require the
application and interpretation of laws and jurisprudence which is necessarily a judicial function.[29]

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

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

SO ORDERED.

19.
LICOMCEN, INCORPORATED, petitioner, vs. FOUNDATION SPECIALISTS, INC., respondent.

LICOMCEN, Incorporated vs. Foundation Specialists, Inc., 647 SCRA 83, G.R. No. 167022 April 4, 2011

The petitioner, LICOMCEN Incorporated (LICOMCEN), is a domestic corporation engaged in the business of operating
shopping malls in the country.

In March 1997, the City Government of Legaspi awarded to LICOMCEN, after a public bidding, a lease contract over a lot
located in the central business district of the city.Under the contract, LICOMCEN was obliged to finance the construction
of a commercial complex/mall to be known as the LCC Citimall (Citimall). It was also granted the right to operate and
manage Citimall for 50 years, and was, thereafter, required to turn over the ownership and operation to the City
Government.[1]

For the Citimall project, LICOMCEN hired E.S. de Castro and Associates (ESCA) to act as its engineering
consultant. Since the Citimall was envisioned to be a high-rise structure, LICOMCEN contracted respondent Foundation
Specialists, Inc. (FSI) to do initial construction works, specifically, the construction and installation of bored piles
foundation.[2] LICOMCEN and FSI signed the Construction Agreement,[3] and the accompanying Bid
Documents[4] and General Conditions of Contract[5] (GCC) on September 1, 1997. Immediately thereafter, FSI
purchased the materials needed for the Citimall[6] project and began working in order to meet the 90-day deadline set
by LICOMCEN.

On December 16, 1997, LICOMCEN sent word to FSI that it was considering major design revisions and the suspension
of work on the Citimall project. FSI replied on December 18, 1997, expressing concern over the revisions and the
suspension, as it had fully mobilized its manpower and equipment, and had ordered the delivery of steel bars. FSI also
asked for the payment of accomplished work amounting to P3,627,818.00.[7] A series of correspondence between
LICOMCEN and FSI then followed.

ESCA wrote FSI on January 6, 1998, stating that the revised design necessitated a change in the bored piles
requirement and a substantial reduction in the number of piles. Thus, ESCA proposed to FSI that only 50% of the steel
bars be delivered to the jobsite and the rest be shipped back to Manila.[8] Notwithstanding this instruction, all the
ordered steel bars arrived in Legaspi City on January 14, 1998.[9]

On January 15, 1998, LICOMCEN instructed FSI to hold all construction activities on the project,[10] in view of a
pending administrative case against the officials of the City Government of Legaspi and LICOMCEN filed before the
Ombudsman (OMB-ADM-1-97-0622).[11] On January 19, 1998, ESCA formalized the suspension of construction
activities and ordered the constructions demobilization until the case was resolved.[12] In response, FSI sent ESCA a
letter, dated February 3, 1998, requesting payment of costs incurred on account of the suspension which
totaled P22,667,026.97.[13] FSI repeated its demand for payment on March 3, 1998.[14]

ESCA replied to FSIs demands for payment on March 24, 1998, objecting to some of the claims.[15] It denied the claim
for the cost of the steel bars that were delivered, since the delivery was done in complete disregard of its instructions. It
further disclaimed liability for the other FSI claims based on the suspension, as its cause was not due to LICOMCENs
fault. FSI rejected ESCAs evaluation of its claims in its April 15, 1998 letter.[16]

On March 14, 2001, FSI sent a final demand letter to LICOMCEN for payment of P29,232,672.83.[17] Since LICOMCEN
took no positive action on FSIs demand for payment,[18] FSI filed a petition for arbitration with the Construction
Industry Arbitration Commission (CIAC) on October 2, 2002, docketed as CIAC Case No. 37-2002.[19]In the arbitration
petition, FSI demanded payment of the following amounts:

a. Unpaid accomplished work billings. P 1,264,404.12

b. Material costs at site.. 15,143,638.51

c. Equipment and labor standby costs.. 3,058,984.34

d. Unrealized gross profit.. 9,023,575.29 LICOMCEN again

denied liability for
e. Attorneys fees.. 300,000.00 the amounts
f. Interest expenses ... equivalent to 15% of the total claim claimed by FSI. It
justified its decision
to indefinitely
suspend the Citimall
project due to the cases filed against it involving its Lease Contract with the City Government of Legaspi. LICOMCEN also
assailed the CIACs jurisdiction, contending that FSIs claims were matters not subject to arbitration under GC-61 of the
GCC, but one that should have been filed before the regular courts of Legaspi City pursuant to GC-05.[20]

During the preliminary conference of January 28, 2003, LICOMCEN reiterated its objections to the CIACs jurisdiction,
which the arbitrators simply noted. Both FSI and LICOMCEN then proceeded to draft the Terms of Reference.[21]

On February 4, 2003, LICOMCEN, through a collaborating counsel, filed its Ex Abundati Ad Cautela Omnibus Motion,
insisting that FSIs petition before the CIAC should be dismissed for lack of jurisdiction; thus, it prayed for the suspension
of the arbitration proceedings until the issue of jurisdiction was finally settled. The CIAC denied LICOMCENs motion in
its February 20, 2003 order,[22] finding that the question of jurisdiction depends on certain factual conditions that have
yet to be established by ample evidence. As the CIACs February 20, 2003 order stood uncontested, the arbitration
proceedings continued, with both parties actively participating.

The CIAC issued its decision on July 7, 2003,[23] ruling in favor of FSI and awarding the following amounts:

a. Unpaid accomplished work billings. P 1,264,404.12

b. Material costs at site 14,643,638.51 LICOMCEN was

also required to
c. Equipment and labor standby costs 2,957,989.94 bear the costs of
d. Unrealized gross profit 5,120,000.00 arbitration in the
total amount
of P474,407.95.

LICOMCEN appealed the CIACs decision before the Court of Appeals (CA). On November 23, 2004, the CA upheld the
CIACs decision, modifying only the amounts awarded by (a) reducing LICOMCENs liability for material costs at site
to P5,694,939.87, and (b) deleting its liability for equipment and labor standby costs and unrealized gross profit; all the
other awards were affirmed.[24] Both parties moved for the reconsideration of the CAs Decision; LICOMCENs motion
was denied in the CAs February 4, 2005Resolution, while FSIs motion was denied in the CAs September 13,
2005 Resolution. Hence, the parties filed their own petition for review on certiorari before the Court.[25]

LICOMCENs Arguments

LICOMCEM principally raises the question of the CIACs jurisdiction, insisting that FSIs claims are non-arbitrable. In
support of its position, LICOMCEN cites GC-61 of the GCC:

GC-61. DISPUTES AND ARBITRATION

Should any dispute of any kind arise between the LICOMCEN INCORPORATED and the Contractor [referring to FSI] or
the Engineer [referring to ESCA] and the Contractor in connection with, or arising out of the execution of the Works,
such dispute shall first be referred to and settled by the LICOMCEN, INCORPORATED who shall within a period of thirty
(30) days after being formally requested by either party to resolve the dispute, issue a written decision to the Engineer
and Contractor.

Such decision shall be final and binding upon the parties and the Contractor shall proceed with the execution of the
Works with due diligence notwithstanding any Contractor's objection to the decision of the Engineer. If within a period
of thirty (30) days from receipt of the LICOMCEN, INCORPORATED's decision on the dispute, either party does not
officially give notice to contest such decision through arbitration, the said decision shall remain final and binding.
However, should any party, within thirty (30) days from receipt of the LICOMCEN, INCORPORATED's decision, contest
said decision, the dispute shall be submitted for arbitration under the Construction Industry Arbitration Law, Executive
Order 1008. The arbitrators appointed under said rules and regulations shall have full power to open up, revise and
review any decision, opinion, direction, certificate or valuation of the LICOMCEN, INCORPORATED. Neither party shall
be limited to the evidence or arguments put before the LICOMCEN, INCORPORATED for the purpose of obtaining his
said decision. No decision given by the LICOMCEN, INCORPORATED shall disqualify him from being called as a witness
and giving evidence in the arbitration. It is understood that the obligations of the LICOMCEN, INCORPORATED, the
Engineer and the Contractor shall not be altered by reason of the arbitration being conducted during the progress of the
Works.[26]

LICOMCEN posits that only disputes in connection with or arising out of the execution of the Works are subject to
arbitration. LICOMCEN construes the phrase execution of the Works as referring to the physical construction activities,
since Works under the GCC specifically refer to the structures and facilities required to be constructed and completed for
the Citimall project.[27] It considers FSIs claims as mere contractual monetary claims that should be litigated before the
courts of Legaspi City, as provided in GC-05 of the GCC:

GC-05. JURISDICTION

Any question between the contracting parties that may arise out of or in connection with the Contract, or breach thereof,
shall be litigated in the courts of Legaspi City except where otherwise specifically stated or except when such question is
submitted for settlement thru arbitration as provided herein.[28]

LICOMCEN also contends that FSI failed to comply with the condition precedent for arbitration laid down in GC-61 of the
GCC. An arbitrable dispute under GC-61 must first be referred to and settled by LICOMCEN, which has 30 days to resolve
it. If within a period of 30 days from receipt of LICOMCENs decision on the dispute, either party does not officially give
notice to contest such decision through arbitration, the said decision shall remain final and binding. However, should
any party, within 30 days from receipt of LICOMCENs decision, contest said decision, the dispute shall be submitted for
arbitration under the Construction Industry Arbitration Law.

LICOMCEN considers its March 24, 1998 letter as its final decision on FSIs claims, but declares that FSIs reply letter
of April 15, 1998 is not the notice to contest required by GC-61 that authorizes resort to arbitration before the CIAC. It
posits that nothing in FSIs April 15, 1998 letter states that FSI will avail of arbitration as a mode to settle its dispute with
LICOMCEN. While FSIs final demand letter of March 14, 2001 mentioned its intention to refer the matter to arbitration,
LICOMCEN declares that the letter was made three years after its March 24, 1998 letter, hence, long after the 30-day
period provided in GC-61. Indeed, FSI filed the petition for arbitration with the CIAC only on October 2,
2002.[29] Considering FSIs delays in asserting its claims, LICOMCEN also contends that FSIs action is barred by laches.

With respect to the monetary claims of FSI, LICOMCEM alleges that the CA erred in upholding its liability for material
costs at site for the reinforcing steel bars in the amount of P5,694,939.87, computed as follows[30]:

2nd initial rebar requirements purchased from Pag-Asa Steel Works,

Inc..
P 799,506.83
 Reinforcing steel bars purchased from ARCA Industrial Sales (total
net weight of 744,197.66 kilograms) 50% of net amount due.

5,395,433.04

Subtotal. 6,194,939.87

Less

Purchase cost of steel bars by Ramon Quinquileria..

(500,000.00)

TOTAL LIABILITY OF LICOMCEN TO FSI FOR MATERIAL COSTS AT

SITE...
5,694,939.87

Citing GC-42(2) of the GCC, LICOMCEN says it shall be liable to pay FSI [t]he cost of materials or goods reasonably
ordered for the Permanent or Temporary Workswhich have been delivered to the Contractor but not yet used, and
which delivery has been certified by the Engineer.[31] None of these requisites were allegedly complied with. It
contends that FSI failed to establish that the steel bars delivered in Legaspi City, on January 14, 1998, were for the
Citimall project. In fact, the steel bars were delivered not at the site of the Citimall project, but at FSIs batching plant
called Tuanzon compound, a few hundred meters from the site. Even if delivery to Tuanzon was allowed, the delivery
was done in violation of ESCAs instruction to ship only 50% of the materials. Advised as early as December 1997 to
suspend the works, FSI proceeded with the delivery of the steel bars in January 1998. LICOMCEN declared that it should
not be made to pay for costs that FSI willingly incurred for itself.[32]

Assuming that LICOMCEN is liable for the costs of the steel bars, it argues that its liability should be minimized by the
fact that FSI incurred no actual damage from the purchase and delivery of the steel bars. During the suspension of the
works, FSI sold 125,000 kg of steel bars for P500,000.00 to a third person (a certain Ramon Quinquileria).LICOMCEN
alleges that FSI sold the steel bars for a ridiculously low price of P 4.00/kilo, when the prevailing rate
was P20.00/kilo. The sale could have garnered a higher price that would offset LICOMCENs liability. LICOMCEN also
wants FSI to account for and deliver to it the remaining 744 metric tons of steel bars not sold. Otherwise, FSI would be
unjustly enriched at LICOMCENs expense, receiving payment for materials not delivered to LICOMCEN.[33]

LICOMCEN also disagrees with the CA ruling that declared it solely liable to pay the costs of arbitration. The ruling was
apparently based on the finding that LICOMCENs failure or refusal to meet its obligations, legal, financial, and moral,
caused FSI to bring the dispute to arbitration.[34] LICOMCEN asserts that it was FSIs decision to proceed with the
delivery of the steel bars that actually caused the dispute; it insists that it is not the party at fault which should bear the
arbitration costs.[35]

FSIs Arguments

FSI takes exception to the CA ruling that modified the amount for material costs at site, and deleted the awards for
equipment and labor standby costs and unrealized profits.

Proof of damage to FSI is not required for LICOMCEN to be liable for the material costs of the steel bars. Under GC-42,
it is enough that the materials were delivered to the contractor, although not used. FSI said that the 744 metric tons of
steel bars were ordered and paid for by it for the Citimall project as early as November 1997. If LICOMCEN contends
that these were procured for other projects FSI also had in Legaspi City, it should have presented proof of this claim, but
it failed to do so.[36]

ESCAs January 6, 1998 letter simply suggested that only 50% of the steel bars be shipped to Legaspi City; it was not a
clear and specific directive. Even if it was, the steel bars were ordered and paid for long before the notice to suspend
was given; by then, it was too late to stop the delivery. FSI also claims that since it believed in good faith that the
Citimall project was simply suspended, it expected work to resume soon after and decided to proceed with the
shipment.[37]
Contrary to LICOMCENs arguments, GC-42 of the GCC does not require delivery of the materials at the site of the
Citimall project; it only requires delivery to the contractor, which is FSI. Moreover, the Tuanzon compound, where the
steel bars were actually delivered, is very close to the Citimall project site. FSI contends that it is a normal construction
practice for contractors to set up a staging site, to prepare the materials and equipment to be used, rather than stock
them in the crowded job/project site. FSI also asserts that it was useless to have the delivery certified by ESCA because
by then the Citimall project had been suspended. It would be unfair to demand FSI to perform an act that ESCA and
LICOMCEN themselves had prevented from happening.[38]

The CA deleted the awards for equipment and labor standby costs on the ground that FSIs documentary evidence was
inadequate. FSI finds the ruling erroneous, since LICOMCEN never questioned the list of employees and equipments
employed and rented by FSI for the duration of the suspension.[39]

FSI also alleges that LICOMCEN maliciously and unlawfully suspended the Citimall project. While LICOMCEN cited
several other cases in its petition for review on certiorari as grounds for suspending the works, its letters/notices of
suspension only referred to one case, OMB-ADM-1-97-0622, an administrative case before the Ombudsman that was
dismissed as early as October 12, 1998. LICOMCEN never notified FSI of the dismissal of this case. More importantly, no
restraining order or injunction was issued in any of these cases to justify the suspension of the Citimall project.[40] FSI
posits that LICOMCENs true intent was to terminate its contract with it, but, to avoid paying damages for breach of
contract, simply declared it as indefinitely suspended. That LICOMCEN conducted another public bidding for the new
designs is a telling indication of LICOMCENs intent to ease out FSI.[41] Thus, FSI states that LICOMCENs bad faith in
indefinitely suspending the Citimall project entitles it to claim unrealized profit. The restriction under GC-41 that [t]he
contractor shall have no claim for anticipated profits on the work thus terminated,[42] will not apply because the
stipulation refers to a contract lawfully and properly terminated. FSI seeks to recover unrealized profits under Articles
1170 and 2201 of the Civil Code.

THE COURTS RULING

The jurisdiction of the CIAC

The CIAC was created through Executive Order No. 1008 (E.O. 1008), in recognition of the need to establish an arbitral
machinery that would expeditiously settle construction industry disputes. The prompt resolution of problems arising
from or connected with the construction industry was considered of necessary and vital for the fulfillment of national
development goals, as the construction industry provides employment to a large segment of the national labor force and
is a leading contributor to the gross national product.[43] Section 4 of E.O. 1008 states:

Sec. 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in the Philippines, whether the dispute arises before or after
the completion of the contract, or after the abandonment or breach thereof. These disputes may involve government or
private contracts. For the Board to acquire jurisdiction, the parties to a dispute must agree to submit the same to
voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship;
violation of the terms of agreement; interpretation and/or application of contractual time and delays; maintenance and
defects; payment, default of employer or contractor and changes in contract cost.

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

The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and the law.[44] It cannot be fixed
by the will of the parties to a dispute;[45] the parties can neither expand nor diminish a tribunals jurisdiction by
stipulation or agreement. The text of Section 4 of E.O. 1008 is broad enough to cover any dispute arising from, or
connected with construction contracts, whether these involve mere contractual money claims or execution of the
works.[46] Considering the intent behind the law and the broad language adopted, LICOMCEN erred in insisting on its
restrictive interpretation of GC-61. The CIACs jurisdiction cannot be limited by the parties stipulation that only disputes
in connection with or arising out of the physical construction activities (execution of the works) are arbitrable before it.

In fact, all that is required for the CIAC to acquire jurisdiction is for the parties to a construction contract to agree to
submit their dispute to arbitration. Section 1, Article III of the 1988 CIAC Rules of Procedure (as amended by CIAC
Resolution Nos. 2-91 and 3-93) states:

Section 1. Submission to CIAC Jurisdiction. An arbitration clause in a construction contract or a submission to arbitration
of a construction dispute shall be deemed an agreement to submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution or arbitral body in such contract or submission. When
a contract contains a clause for the submission of a future controversy to arbitration, it is not necessary for the parties to
enter into a submission agreement before the claimant may invoke the jurisdiction of CIAC.

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

In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila Tollways Corporation,[47] the Court declared that the
bare fact that the parties x x x incorporated an arbitration clause in [their contract] is sufficient to vest the CIAC with
jurisdiction over any construction controversy or claim between the parties. The arbitration clause in the construction
contract ipso facto vested the CIAC with jurisdiction.

Under GC-61 and GC-05 of the GCC, read singly and in relation with one another, the Court sees no intent to limit resort
to arbitration only to disputes relating to the physical construction activities.

First, consistent with the intent of the law, an arbitration clause pursuant to E.O. 1008 should be interpreted at its widest
signification. Under GC-61, the voluntary arbitration clause covers any dispute of any kind, not only arising of out the
execution of the works but also in connection therewith. The payments, demand and disputed issues in this case namely,
work billings, material costs, equipment and labor standby costs, unrealized profits all arose because of the construction
activities and/or are connected or related to these activities. In other words, they are there because of the construction
activities. Attorneys fees and interests payment, on the other hand, are costs directly incidental to the dispute. Hence,
the scope of the arbitration clause, as worded, covers all the disputed items.

Second and more importantly, in insisting that contractual money claims can be resolved only through court action,
LICOMCEN deliberately ignores one of the exceptions to the general rule stated in GC-05:

GC-05. JURISDICTION

Any question between the contracting parties that may arise out of or in connection with the Contract, or breach thereof,
shall be litigated in the courts of Legaspi City except where otherwise specifically stated or except when such question is
submitted for settlement thru arbitration as provided herein.
The second exception clause authorizes the submission to arbitration of any dispute between LICOMCEM and FSI, even
if the dispute does not directly involve the execution of physical construction works. This was precisely the avenue taken
by FSI when it filed its petition for arbitration with the CIAC.

If the CIACs jurisdiction can neither be enlarged nor diminished by the parties, it also cannot be subjected to a condition
precedent. GC-61 requires a party disagreeing with LICOMCENs decision to officially give notice to contest such
decision through arbitration within 30 days from receipt of the decision. However, FSIs April 15, 1998 letter is not the
notice contemplated by GC-61; it never mentioned FSIs plan to submit the dispute to arbitration and instead requested
LICOMCEN to reevaluate its claims.Notwithstanding FSIs failure to make a proper and timely notice, LICOMCENs
decision (embodied in its March 24, 1998 letter) cannot become final and binding so as to preclude resort to the CIAC
arbitration. To reiterate, all that is required for the CIAC to acquire jurisdiction is for the parties to agree to submit their
dispute to voluntary arbitration:

[T]he mere existence of an arbitration clause in the construction contract is considered by law as an agreement by the
parties to submit existing or future controversies between them to CIAC jurisdiction, without any qualification or
condition precedent. To affirm a condition precedent in the construction contract, which would effectively suspend the
jurisdiction of the CIAC until compliance therewith, would be in conflict with the recognized intention of the law and
rules to automatically vest CIAC with jurisdiction over a dispute should the construction contract contain an arbitration
clause.[48]

The CIAC is given the original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered
into by parties involved in construction in the Philippines.[49] This jurisdiction cannot be altered by stipulations
restricting the nature of construction disputes, appointing another arbitral body, or making that bodys decision final and
binding.

The jurisdiction of the CIAC to resolve the dispute between LICOMCEN and FSI is, therefore, affirmed.

The validity of the indefinite

suspension of the works on the

Citimall project

Before the Court rules on each of FSIs contractual monetary claims, we deem it important to discuss the validity of
LICOMCENs indefinite suspension of the works on the Citimall project. We quote below two contractual stipulations
relevant to this issue:

GC-38. SUSPENSION OF WORKS

The Engineer [ESCA] through the LICOMCEN, INCORPORATED shall have the authority to suspend the Works wholly or
partly by written order for such period as may be deemed necessary, due to unfavorable weather or other conditions
considered unfavorable for the prosecution of the Works, or for failure on the part of the Contractor to correct work
conditions which are unsafe for workers or the general public, or failure or refusal to carry out valid orders, or due to
change of plans to suit field conditions as found necessary during construction, or to other factors or causes which, in
the opinion of the Engineer, is necessary in the interest of the Works and to the LICOMCEN, INCORPORATED. The
Contractor [FSI] shall immediately comply with such order to suspend the work wholly or partly directed.

In case of total suspension or suspension of activities along the critical path of the approved PERT/CPM network and the
cause of which is not due to any fault of the Contractor, the elapsed time between the effective order for suspending
work and the order to resume work shall be allowed the Contractor by adjusting the time allowed for his execution of the
Contract Works.

The Engineer through LICOMCEN, INCORPORATED shall issue the order lifting the suspension of work when conditions
to resume work shall have become favorable or the reasons for the suspension have been duly corrected.[50]

GC-41 LICOMCEN, INCORPORATED's RIGHT TO SUSPEND WORK OR TERMINATE THE CONTRACT

xxxx

2. For Convenience of LICOMCEN, INCORPORATED

If any time before completion of work under the Contract it shall be found by the LICOMCEN, INCORPORATED
that reasons beyond the control of the parties render itimpossible or against the interest of the LICOMCEN,
INCORPORATED to complete the work, the LICOMCEN, INCORPORATED at any time, by written notice to the Contractor,
may discontinue the work and terminate the Contract in whole or in part. Upon the issuance of such notice of
termination, the Contractor shall discontinue to work in such manner, sequence and at such time as the LICOMCEN,
INCORPORATED/Engineer may direct, continuing and doing after said notice only such work and only until such time or
times as the LICOMCEN, INCORPORATED/Engineer may direct.[51]

Under these stipulations, we consider LICOMCENs initial suspension of the works valid. GC-38 authorizes the
suspension of the works for factors or causes which ESCA deems necessary in the interests of the works and
LICOMCEN. The factors or causes of suspension may pertain to a change or revision of works, as cited in the December
16, 1997 and January 6, 1998 letters of ESCA, or to the pendency of a case before the Ombudsman
(OMB-ADM-1-97-0622), as cited in LICOMCENs January 15, 1998 letter and ESCAs January 19, 1998 and February 17,
1998 letters. It was not necessary for ESCA/LICOMCEN to wait for a restraining or injunctive order to be issued in any of
the cases filed against LICOMCEN before it can suspend the works. The language of GC-38 gives ESCA/LICOMCEN
sufficient discretion to determine whether the existence of a particular situation or condition necessitates the suspension
of the works and serves the interests of LICOMCEN.

Although we consider the initial suspension of the works as valid, we find that LICOMCEN wrongfully prolonged the
suspension of the works (or indefinite suspension as LICOMCEN calls it). GC-38 requires ESCA/LICOMCEN to issue an
order lifting the suspension of work when conditions to resume work shall have become favorable or the reasons for the
suspension have been duly corrected. The Ombudsman case (OMB-ADM-1-97-0622), which ESCA and LICOMCEN cited
in their letters to FSI as a ground for the suspension, was dismissed as early as October 12, 1998, but neither ESCA nor
LICOMCEN informed FSI of this development. The pendency of the other cases[52] may justify the continued
suspension of the works, but LICOMCEN never bothered to inform FSI of the existence of these cases until the
arbitration proceedings commenced. By May 28, 2002, the City Government of Legaspi sent LICOMCEN a notice
instructing it to proceed with the Citimall project;[53] again, LICOMCEN failed to relay this information to FSI. Instead,
LICOMCEN conducted a rebidding of the Citimall project based on the new design.[54] LICOMCENs claim that the
rebidding was conducted merely to get cost estimates for the new design goes against the established practice in the
construction industry. We find the CIACs discussion on this matter relevant:

But what is more appalling and disgusting is the allegation x x x that the x x x invitation to bid was issued x x x solely to
gather cost estimates on the redesigned [Citimall project] x x x. This Arbitral Tribunal finds said act of asking for bids,
without any intention of awarding the project to the lowest and qualified bidder, if true, to be extremely irresponsible
and highly unprofessional. It might even be branded as fraudulent x x x [since] the invited bidders [were required] to
pay P2,000.00 each for a set of the new plans, which amount was non-refundable.The presence of x x x deceit makes
the whole story repugnant and unacceptable.[55]
LICOMCENs omissions and the imprudent rebidding of the Citimall project are telling indications of LICOMCENs intent to
ease out FSI and terminate their contract. As with GC-31, GC-42(2) grants LICOMCEN ample discretion to determine
what reasons render it against its interest to complete the work in this case, the pendency of the other cases and the
revised designs for the Citimall project. Given this authority, the Court fails to the see the logic why LICOMCEN had to
resort to an indefinite suspension of the works, instead of outrightly terminating the contract in exercise of its rights
under GC-42(2).

We now proceed to discuss the effects of these findings with regard to FSIs monetary claims against LICOMCEN.

The claim for material costs at site

GC-42 of the GCC states:

GC-42 PAYMENT FOR TERMINATED CONTRACT

If the Contract is terminated as aforesaid, the Contractor will be paid for all items of work executed, satisfactorily
completed and accepted by the LICOMCEN, INCORPORATED up to the date of termination, at the rates and prices
provided for in the Contract and in addition:

1. The cost of partially accomplished items of additional or extra work agreed upon by the LICOMCEN,
INCORPORATED and the Contractor.

2. The cost of materials or goods reasonably ordered for the Permanent or Temporary Works which have been
delivered to the Contractor but not yet used and which delivery has been certified by the Engineer.

3. The reasonable cost of demobilization

For any payment due the Contractor under the above conditions, the LICOMCEN, INCORPORATED, however, shall
deduct any outstanding balance due from the Contractor for advances in respect to mobilization and materials, and any
other sum the LICOMCEN, INCORPORATED is entitled to be credited.[56]

For LICOMCEN to be liable for the cost of materials or goods, item two of GC-42 requires that

a. the materials or goods were reasonably ordered for the Permanent or Temporary Works;

b. the materials or goods were delivered to the Contractor but not yet used; and

c. the delivery was certified by the Engineer.

Both the CIAC and the CA agreed that these requisites were met by FSI to make LICOMCEN liable for the cost of the
steel bars ordered for the Citimall project; the two tribunals differed only to the extent of LICOMCENs liability because
the CA opined that it should be limited only to 50% of the cost of the steel bars. A review of the records compels us to
uphold the CAs finding.

Prior to the delivery of the steel bars, ESCA informed FSI of the suspension of the works; ESCAs January 6, 1998 letter
reads:
As per our information to you on December 16, 1997, a major revision in the design of the Legaspi Citimall necessitated
a change in the bored piles requirement of the project. The change involved a substantial reduction in the number and
length of piles.

We expected that you would have suspended the deliveries of the steel bars until the new design has been approved.

According to you[,] the steel bars had already been paid and loaded and out of Manila on said date.

In order to avoid double handling, storage, security problems, we suggest that only 50% of the total requirement of
steel bars be delivered at jobsite. The balance should be returned to Manila where storage and security is better.

In order for us to consider additional cost due to the shipping of the excess steel bars, we need to know the actual
dates of purchase, payments and loading of the steel bars. Obviously, we cannot consider the additional cost if you have
had the chance to delay the shipping of the steel bars.[57]

From the above, it appears that FSI was informed of the necessity of suspending the works as early as December 16,
1997. Pursuant to GC-38 of the GCC, FSI was expected to immediately comply with the order to suspend the
work.[58] Though ESCAs December 16, 1997 notice may not have been categorical in ordering the suspension of the
works, FSIs reply letter of December 18, 1997 indicated that it actually complied with the notice to suspend, as it said,
We hope for the early resolution of the new foundation plan and the resumption of work.[59] Despite the suspension,
FSI claimed that it could not stop the delivery of the steel bars (nor found the need to do so) because (a) the steel bars
were ordered as early as November 1997 and were already loaded in Manila and expected to arrive in Legaspi City by
December 23, 1997, and (b) it expected immediate resumption of work to meet the 90-day deadline.[60]

Records, however, disclose that these claims are not entirely accurate. The memorandum of agreement and sale
covering the steel bars specifically stated that these would be withdrawn from the Cagayan de Oro depot,
not Manila[61]; indeed, the bill of lading stated that the steel bars were loaded in Cagayan de Oro on January 11, 1998,
and arrived in Legaspi City within three days, on January 14, 1998.[62] The loading and delivery of the steel bar thus
happened after FSI received ESCAs December 16, 1997 and January 6, 1998 letters days after the instruction to
suspend the works. Also, the same stipulation that authorizes LICOMCEN to suspend the works allows the extension of
the period to complete the works. The relevant portion of
GC-38 states:

In case of total suspension x x x and the cause of which is not due to any fault of the Contractor [FSI], the elapsed time
between the effective order for suspending work and the order to resume work shall be allowed the Contractor by
adjusting the time allowed for his execution of the Contract Works.[63]

The above stipulation, coupled with the short period it took to ship the steel bars from Cagayan de Oro to Legaspi City,
thus negates both FSIs

argument and the CIACs ruling[64] that there was no necessity to stop the shipment so as to meet the 90-day
deadline. These circumstances prove that FSI acted imprudently in proceeding with the delivery, contrary to
LICOMCENs instructions. The CA was correct in holding LICOMCEN liable for only 50% of the costs of the steel bars
delivered.

The claim for equipment and

labor standby costs

The Court upholds the CAs ruling deleting the award for equipment and labor standby costs. We quote in agreement
pertinent portions of the CA decision:

The CIAC relied solely on the list of 37 pieces of equipment respondent allegedly rented and maintained at the
construction site during the suspension of the project with the prorated rentals incurred x x x. To the mind of this
Court, these lists are not sufficient to establish the fact that indeed [FSI] incurred the said expenses. Reliance on said
lists is purely speculative x x x the list of equipments is a mere index or catalog of the equipments, which may be utilized
at the construction site. It is not the best evidence to prove that said equipment were in fact rented and maintained at
the construction site during the suspension of the work. x x x [FSI] should have presented the lease contracts or any
similar documents such as receipts of payments x x x. Likewise, the list of employees does not in anyway prove that
those employees in the list were indeed at the construction site or were required to be on call should their services be
needed and were being paid their salaries during the suspension of the project. Thus, in the absence of sufficient
evidence, We deny the claim for equipment and labor standby costs.[65]

The claim for unrealized profit

FSI contends that it is not barred from recovering unrealized profit under GC-41(2), which states:

GC-41. LICOMCEN, INCORPORATEDs RIGHT TO SUSPEND WORK OR TERMINATE THE CONTRACT

xxxx

2. For Convenience of the LICOMCEN, INCORPORATED

x x x. The Contractor [FSI] shall not claim damages for such discontinuance or termination of the Contract, but the
Contractor shall receive compensation for reasonable expenses incurred in good faith for the performance of the
Contract and for reasonable expenses associated with termination of the Contract. The LICOMCEN, INCORPORATED will
determine the reasonableness of such expenses. The Contractor [FSI] shall have no claim for anticipated profits on the
work thus terminated, nor any other claim, except for the work actually performed at the time of complete
discontinuance, including any variations authorized by the LICOMCEN, INCORPORATED/Engineer to be done.

The prohibition, FSI posits, applies only where the contract was properly and lawfully terminated, which was not the
case at bar. FSI also took pains in differentiating its claim for unrealized profit from the prohibited claim for anticipated
profits; supposedly, unrealized profit is one that is built-in in the contract price, while anticipated profit is not. We fail to
see the distinction, considering that the contract itself neither defined nor differentiated the two terms. [A] contract
must be interpreted from the language of the contract itself, according to its plain and ordinary meaning.[66] If the
terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the
stipulations shall control.[67]

Nonetheless, on account of our earlier discussion of LICOMCENs failure to observe the proper procedure in terminating
the contract by declaring that it was merely indefinitely suspended, we deem that FSI is entitled to the payment of
nominal damages. Nominal damages may be awarded to a plaintiff whose right has been violated or invaded by the
defendant, for the purpose of vindicating or recognizing that right, and not for indemnifying the plaintiff for any loss
suffered by him.[68] Its award is, thus, not for the purpose of indemnification for a loss but for the recognition and
vindication of a right. A violation of the plaintiffs right, even if only technical, is sufficient to support an award of nominal
damages.[69] FSI is entitled to recover the amount of P100,000.00 as nominal damages.

The liability for costs of arbitration

Under the parties Terms of Reference, executed before the CIAC, the costs of arbitration shall be equally divided
between them, subject to the CIACs determination of which of the parties shall eventually shoulder the
amount.[70] The CIAC eventually ruled that since LICOMCEN was the party at fault, it should bear the costs. As the CA
did, we agree with this finding. Ultimately, it was LICOMCENs imprudent declaration of indefinitely suspending the
works that caused the dispute between it and FSI. LICOMCEN should bear the costs of arbitration.

WHEREFORE, premises considered, the petition for review on certiorari of LICOMCEN INCORPORATED, docketed as G.R.
No. 167022, and the petition for review on certiorari of FOUNDATION SPECIALISTS, INC., docketed as G.R. No. 169678,
are DENIED. The November 23, 2004 Decision of the Court of Appeals in CA-G.R. SP No. 78218 is MODIFIED to include
the award of nominal damages in favor of FOUNDATION SPECIALISTS, INC. Thus, LICOMCEN INCORPORATED is
ordered to pay FOUNDATION SPECIALISTS, INC. the following amounts:

a. P1,264,404.12 for unpaid balance on FOUNDATION SPECIALISTS, INC. billings;

b. P5,694,939.87 for material costs at site; and

c. P100,000.00 for nominal damages.

LICOMCEN INCORPORATED is also ordered to pay the costs of arbitration. No costs.

SO ORDERED.

20. TUNA PROCESSING VS. PHILIPPINE KINGFORD 667 SCRA 287

PEREZ J:

Can a foreign corporation not licensed to do business in the Philippines, but which collects royalties from entities in the
Philippines, sue here to enforce a foreign arbitral award?

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

The Antecedents

On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the licensor), co-patentee of U.S. Patent No.
5,484,619, Philippine Letters Patent No. 31138, and Indonesian Patent No. ID0003911 (collectively referred to as the
Yamaoka Patent),[6] and five (5) Philippine tuna processors, namely, Angel Seafood Corporation, East Asia Fish Co.,
Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc., and respondent Kingford (collectively referred to as the
sponsors/licensees)[7] entered into a Memorandum of Agreement (MOA),[8] pertinent provisions of which read:

1. Background and objectives. The Licensor, co-owner of U.S.Patent No. 5,484,619, Philippine Patent No. 31138,
and Indonesian Patent No. ID0003911 xxx wishes to form an alliance with Sponsors for purposes of enforcing his three
aforementioned patents, granting licenses under those patents, and collecting royalties.

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

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

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

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

xxx

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

Due to a series of events not mentioned in the petition, the licensees, including respondent Kingford, withdrew from
petitioner TPI and correspondingly reneged on their obligations.[12] Petitioner submitted the dispute for arbitration
before the International Centre for Dispute Resolution in the State of California, United States and won the case against
respondent.[13] Pertinent portions of the award read:

13.1 Within thirty (30) days from the date of transmittal of this Award to the Parties, pursuant to the terms of this award,
the total sum to be paid by RESPONDENT KINGFORD to CLAIMANT TPI, is the sum of ONE MILLION SEVEN HUNDRED
FIFTY THOUSAND EIGHT HUNDRED FORTY SIX DOLLARS AND TEN CENTS ($1,750,846.10).

(A) For breach of the MOA by not paying past due assessments, RESPONDENT KINGFORD shall pay CLAIMANT the
total sum of TWO HUNDRED TWENTY NINE THOUSAND THREE HUNDRED AND FIFTY FIVE DOLLARS AND NINETY
CENTS ($229,355.90) which is 20% of MOA assessments since September 1, 2005[;]

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

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

xxx[15]

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

At Branch 150, respondent Kingford filed a Motion to Dismiss.[16] After the court denied the motion for lack of
merit,[17] respondent sought for the inhibition of Judge Alameda and moved for the reconsideration of the order
denying the motion.[18] Judge Alameda inhibited himself notwithstanding [t]he unfounded allegations and
unsubstantiated assertions in the motion.[19] Judge Cedrick O. Ruiz of Branch 61, to which the case was re-raffled, in
turn, granted respondents Motion for Reconsideration and dismissed the petition on the ground that the petitioner
lacked legal capacity to sue in the Philippines.[20]
Petitioner TPI now seeks to nullify, in this instant Petition for Review on Certiorari under Rule 45, the order of the trial
court dismissing its Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award.

Issue

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

Our Ruling

The petition is impressed with merit.

The Corporation Code of the Philippines expressly provides:

Sec. 133. Doing business without a license. - No foreign corporation transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.

It is pursuant to the aforequoted provision that the court a quo dismissed the petition. Thus:

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

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

The petitioner counters, however, that it is entitled to seek for the recognition and enforcement of the subject foreign
arbitral award in accordance with Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004),[22] the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards drafted during the United Nations
Conference on International Commercial Arbitration in 1958 (New York Convention), and the UNCITRAL Model Law on
International Commercial Arbitration (Model Law),[23]as none of these specifically requires that the party seeking for
the enforcement should have legal capacity to sue. It anchors its argument on the following:

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

Simply put, how do we reconcile the provisions of the Corporation Code of the Philippines on one hand, and
the Alternative Dispute Resolution Act of 2004, the New York Convention and the Model Law on the other?
In several cases, this Court had the occasion to discuss the nature and applicability of the Corporation Code of the
Philippines, a general law, viz-a-viz other special laws.Thus, in Koruga v. Arcenas, Jr.,[25] this Court rejected the
application of the Corporation Code and applied the New Central Bank Act. It ratiocinated:

Korugas invocation of the provisions of the Corporation Code is misplaced. In an earlier case with similar antecedents,
we ruled that:

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

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

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

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

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

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

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

xxx

SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign arbitration proceeding may oppose an application
for recognition and enforcement of the arbitral award in accordance with the procedural rules to be promulgated by the
Supreme Court only on those grounds enumerated under Article V of the New York Convention. Any other ground raised
shall be disregarded by the regional trial court.

It also expressly adopted the Model Law, to wit:

Sec. 19. Adoption of the Model Law on International Commercial Arbitration. International commercial arbitration shall
be governed by the Model Law on International Commercial Arbitration (the Model Law) adopted by the United Nations
Commission on International Trade Law on June 21, 1985 xxx.
Now, does a foreign corporation not licensed to do business in the Philippines have legal capacity to sue under the
provisions of the Alternative Dispute Resolution Act of 2004? We answer in the affirmative.

Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in an application for
recognition and enforcement of the arbitral award may raise only those grounds that were enumerated under Article V
of the New York Convention, to wit:

Article V

1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked,
only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:

(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity,
or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon,
under the law of the country where the award was made; or

(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of
the arbitration proceedings or was otherwise unable to present his case; or

(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration,
or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on
matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains
decisions on matters submitted to arbitration may be recognized and enforced; or

(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the
parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place;
or

(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority
of the country in which, or under the law of which, that award was made.

2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country
where recognition and enforcement is sought finds that:

(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or

(b) The recognition or enforcement of the award would be contrary to the public policy of that country.

Clearly, not one of these exclusive grounds touched on the capacity to sue of the party seeking the recognition and
enforcement of the award.

Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution,[31] which was promulgated by the
Supreme Court, likewise support this position.

Rule 13.1 of the Special Rules provides that [a]ny party to a foreign arbitration may petition the court to recognize and
enforce a foreign arbitral award. The contents of such petition are enumerated in Rule 13.5.[32] Capacity to sue is not
included. Oppositely, in the Rule on local arbitral awards or arbitrations in instances where the place of arbitration is in
the Philippines,[33] it is specifically required that a petition to determine any question concerning the existence, validity
and enforceability of such arbitration agreement[34] available to the parties before the commencement of arbitration
and/or a petition for judicial relief from the ruling of the arbitral tribunal on a preliminary question upholding or declining
its jurisdiction[35] after arbitration has already commenced should state [t]he facts showing that the persons named as
petitioner or respondent have legal capacity to sue or be sued.[36]

Indeed, it is in the best interest of justice that in the enforecement of a foreign arbitral award, we deny availment
by the losing party of the rule that bars foreign corporations not licensed to do business in the
Philippines from maintaining a suit in our courts. When a party enters
into a contract containing a 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.

21. THE MANILA INSURANCE COMPANY, INC., petitioner, vs. SPOUSES ROBERTO and AIDA AMURAO,
respondents. The Manila Insurance Company, vs. Amurao, 688 SCRA 609, G.R. No. 179628 January 16,
2013

DEL CASTILLO, J.:

The jurisdiction of the Construction Industry Arbitration Commission (CIAC) is conferred by law. Section 41 of Executive
Order (E.O.) No. I 008, otherwise known as the Construction Industry Arbitration Law, "is broad enough to cover any
dispute arising from, or connected with construction contracts, whether these involve mere contractual money claims or
execution of the works."2

This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails the Decision4 dated June 7, 2007 and
the Resolution5 dated September 7, 2007 of the Court of Appeals (CA) in CA-G.R. SP No. 96815.

Factual Antecedents
On March 7, 2000, respondent-spouses Roberto and Aida Amurao entered into a Construction Contract Agreement
(CCA)6 with Aegean Construction and Development Corporation (Aegean) for the construction of a six-storey
commercial building in Tomas Morato corner E. Rodriguez Avenue, Quezon City.7 To guarantee its full and faithful
compliance with the terms and conditions of the CCA, Aegean posted performance bonds secured by petitioner The
Manila Insurance Company, Inc.8 (petitioner) and Intra Strata Assurance Corporation (Intra Strata).9

On November 15, 2001, due to the failure of Aegean to complete the project, respondent spouses filed with the Regional
Trial Court (RTC) of Quezon City, Branch 217, a Complaint,10 docketed as Civil Case No. Q-01-45573, against petitioner
and Intra Strata to collect on the performance bonds they issued in the amounts of ₱2,760,000.00 and ₱4,440,000.00,
respectively.11

Intra Strata, for its part, filed an Answer12 and later, a Motion to Admit Third Party Complaint,13 with attached Third
Party Complaint14 against Aegean, Ronald D. Nicdao, and Arnel A. Mariano.

Petitioner, on the other hand, filed a Motion to Dismiss15 on the grounds that the Complaint states no cause of action16
and that the filing of the Complaint is premature due to the failure of respondent-spouses to implead the principal
contractor, Aegean.17 The RTC, however, denied the motion in an Order18 dated May 8, 2002. Thus, petitioner filed an
Answer with Counterclaim and Cross-claim,19 followed by a Third Party Complaint20 against Aegean and spouses
Ronald and Susana Nicdao.

During the pre-trial, petitioner and Intra Strata discovered that the CCA entered into by respondent-spouses and Aegean
contained an arbitration clause.21

Hence, they filed separate Motions to Dismiss22 on the grounds of lack of cause of action and lack of jurisdiction.

Ruling of the Regional Trial Court

On May 5, 2006, the RTC denied both motions.23 Petitioner and Intra Strata separately moved for reconsideration but
their motions were denied by the RTC in its subsequent Order24 dated September 11, 2006.

Aggrieved, petitioner elevated the case to the CA by way of special civil action for certiorari.25

Ruling of the Court of Appeals

On June 7, 2007, the CA rendered a Decision26 dismissing the petition. The CA ruled that the presence of an arbitration
clause in the CCA does not merit a dismissal of the case because under the CCA, it is only when there are differences in
the interpretation of Article I of the construction agreement that the parties can resort to arbitration.27 The CA also
found no grave abuse of discretion on the part of the RTC when it disregarded the fact that the CCA was not yet signed
at the time petitioner issued the performance bond on February 29, 2000.28 The CA explained that the performance
bond was intended to be coterminous with the construction of the building.29 It pointed out that "if the delivery of the
original contract is contemporaneous with the delivery of the surety’s obligation, each contract becomes completed at
the same time, and the consideration which supports the principal contract likewise supports the subsidiary one."30 The
CA likewise said that, although the contract of surety is only an accessory to the principal contract, the surety’s liability
is direct, primary and absolute.31 Thus:

WHEREFORE, we resolve to DISMISS the petition as we find that no grave abuse of discretion attended the issuance of
the order of the public respondent denying the petitioner’s motion to dismiss.
IT IS SO ORDERED.32

Petitioner moved for reconsideration but the CA denied the same in a Resolution33 dated September 7, 2007.

Issues

Hence, this petition raising the following issues:

A.

THE HONORABLE CA ERRED WHEN IT HELD THAT IT IS ONLY WHEN THERE ARE DIFFERENCES IN THE
INTERPRETATION OF ARTICLE I OF THE CONSTRUCTION AGREEMENT THAT THE PARTIES MAY RESORT TO
ARBITRATION BY THE CIAC.

B.

THE HONORABLE CA ERRED IN TREATING PETITIONER AS A SOLIDARY DEBTOR INSTEAD OF A SOLIDARY

GUARANTOR.

C.

THE HONORABLE [CA] OVERLOOKED AND FAILED TO CONSIDER THE FACT THAT THERE WAS NO ACTUAL AND
EXISTING CONSTRUCTION AGREEMENT AT THE TIME THE MANILA INSURANCE BOND NO. G (13) 2082 WAS ISSUED
ON FEBRUARY 29, 2000.34

Petitioner’s Arguments

Petitioner contends that the CA erred in ruling that the parties may resort to arbitration only when there is difference in
the interpretation of the contract documents stated in Article I of the CCA.35 Petitioner insists that under Section 4 of
E.O. No. 1008, it is the CIAC that has original and exclusive jurisdiction over construction disputes, such as the instant
case.36

Petitioner likewise imputes error on the part of the CA in treating petitioner as a solidary debtor instead of a solidary
guarantor.37 Petitioner argues that while a surety is bound solidarily with the obligor, this does not make the surety a
solidary co-debtor.38 A surety or guarantor is liable only if the debtor is himself liable.39 In this case, since
respondent-spouses and Aegean agreed to submit any dispute for arbitration before the CIAC, it is imperative that the
dispute between respondent-spouses and Aegean must first be referred to arbitration in order to establish the liability of
Aegean.40 In other words, unless the liability of Aegean is determined, the filing of the instant case is premature.41

Finally, petitioner puts in issue the fact that the performance bond was issued prior to the execution of the CCA.42
Petitioner claims that since there was no existing contract at the time the performance bond was executed,
respondent-spouses have no cause of action against petitioner.43 Thus, the complaint should be dismissed.44

Respondent spouses’ Arguments

Respondent-spouses, on the other hand, maintain that the CIAC has no jurisdiction over the case because there is no
ambiguity in the provisions of the CCA.45 Besides, petitioner is not a party to the CCA.46 Hence, it cannot invoke Article
XVII of the CCA, which provides for arbitration proceedings.47 Respondent-spouses also insist that petitioner as a surety
is directly and equally bound with the principal.48 The fact that the performance bond was issued prior to the execution
of the CCA also does not affect the latter’s validity because the performance bond is coterminous with the construction
of the building.49

Our Ruling

The petition has merit.

Nature of the liability of the surety

A contract of suretyship is defined as "an agreement whereby a party, called the surety, guarantees the performance by
another party, called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee.
It includes official recognizances, stipulations, bonds or undertakings issued by any company by virtue of and under the
provisions of Act No. 536, as amended by Act No. 2206."50 We have consistently held that a surety’s liability is joint and
several, limited to the amount of the bond, and determined strictly by the terms of contract of suretyship in relation to
the principal contract between the obligor and the obligee.51 It bears stressing, however, that although the contract of
suretyship is secondary to the principal contract, the surety’s liability to the obligee is nevertheless direct, primary, and
absolute.52

In this case, respondent-spouses (obligee) filed with the RTC a Complaint against petitioner (surety) to collect on the
performance bond it issued. Petitioner, however, seeks the dismissal of the Complaint on the grounds of lack of cause of
action and lack of jurisdiction.

The respondent-spouses have cause of action against the petitioner; the performance bond is coterminous with the CCA

Petitioner claims that respondent-spouses have no cause of action against it because at the time it issued the
performance bond, the CCA was not yet signed by respondent-spouses and Aegean.

We do not agree.

A careful reading of the Performance Bond reveals that the "bond is coterminous with the final acceptance of the
project."53 Thus, the fact that it was issued prior to the execution of the CCA does not affect its validity or effectivity.

But while there is a cause of action against petitioner, the complaint must still be dismissed for lack of jurisdiction.

The CIAC has jurisdiction over the case

Section 4 of E.O. No. 1008 provides that:

SEC. 4. Jurisdiction. – The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected
with, contracts entered into by parties involved in construction in the Philippines, whether the dispute arises before or
after the completion of the contract, or after the abandonment or breach thereof. These disputes may involve
government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute must agree to submit the
same to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship,
violation of the terms of agreement, interpretation and/or application of contractual time and delays, maintenance and
defects, payment, default of employer or contractor, and changes in contract cost.

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

Based on the foregoing, in order for the CIAC to acquire jurisdiction two requisites must concur: "first, the dispute must
be somehow connected to a construction contract; and second, the parties must have agreed to submit the dispute to
arbitration proceedings."54

In this case, both requisites are present.

The parties agreed to submit to arbitration proceedings "any dispute arising in the course of the execution and
performance of the CCA by reason of difference in interpretation of the Contract Documents x x x which the parties are
unable to resolve amicably between themselves."55 Article XVII of the CCA reads:

ARTICLE XVII – ARBITRATION

17.1 Any dispute arising in the course of the execution and performance of this Agreement by reason of difference in
interpretation of the Contract Documents set forth in Article I which the OWNER and the CONTRACTOR are unable to
resolve amicably between themselves shall be submitted by either party to a board of arbitrators composed of Three (3)
members chosen as follows: One (1) member shall be chosen by the CONTRACTOR AND One (1) member shall be
chosen by the OWNER. The said Two (2) members, in turn, shall select a third member acceptable to both of them. The
decision of the Board of Arbitrators shall be rendered within Ten (10) days from the first meeting of the board, which
decision when reached through the affirmative vote of at least Two (2) members of the board shall be final and binding
upon the OWNER and CONTRACTOR.1âwphi1

17.2 Matters not otherwise provided for in this Contract or by Special Agreement of the parties shall be governed by the
provisions of the Arbitration Law, Executive Order No. 1008.56

In William Golangco Construction Corporation v. Ray Burton Development Corporation,57 we declared that monetary
claims under a construction contract are disputes arising from "differences in interpretation of the contract" because
"the matter of ascertaining the duties and obligations of the parties under their contract all involve interpretation of the
provisions of the contract."58 Following our reasoning in that case, we find that the issue of whether
respondent-spouses are entitled to collect on the performance bond issued by petitioner is a "dispute arising in the
course of the execution and performance of the CCA by reason of difference in the interpretation of the contract
documents."

The fact that petitioner is not a party to the CCA cannot remove the dispute from the jurisdiction of the CIAC because
the issue of whether respondent-spouses are entitled to collect on the performance bond, as we have said, is a dispute
arising from or connected to the CCA.

In fact, in Prudential Guarantee and Assurance, Inc. v. Anscor Land, Inc.,59 we rejected the argument that the
jurisdiction of CIAC is limited to the construction industry, and thus, cannot extend to surety contracts. In that case, we
declared that "although not the construction contract itself, the performance bond is deemed as an associate of the
main construction contract that it cannot be separated or severed from its principal. The Performance Bond is
significantly and substantially connected to the construction contract that there can be no doubt it is the CIAC, under
Section 4 of E.O. No. 1008, which has jurisdiction over any dispute arising from or connected with it."60

In view of the foregoing, we agree with the petitioner that juriisdiction over the instant case lies with the CIAC, and not
with the RTC. Thus, the Complaint filed by respondent-spouses with the RTC must be dismissed.

WHEREFORE, the petition is hereby GRANTED. The Decision dated June 7, 2007 and the Resolution dated September 7,
2007 of the Court of Appeals in CA-G.R. SP No. 96815 are hereby ANNULLED and SET ASIDE. The Presiding Judge of the
Regional Trial Court of Quezon City, Branch 217 1s DIRECTED to dismiss Civil Case No. Q-01-45573 for lack of
jurisdiction.

SO ORDERED.

22. J PLUS ASIA DEVELOPMENT CORPORATION, petitioner, vs. UTILITY ASSURANCE CORPORATION,
respondent. J Plus Asia Development Corporation vs. Utility Assurance Corporation, 700 SCRA 134, G.R.
No. 199650 June 26, 2013

VILLARAMA, JR., J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended,
assailing the Decision1 dated January 27,2011 and Resolution2 dated December 8, 2011 of the Court of Appeals (CA) in
CA-G.R. SP No. 112808.

The Facts

On December 24, 2007, petitioner J Plus Asia Development Corporation represented by its Chairman, Joo Han Lee, and
Martin E. Mabunay, doing business under the name and style of Seven Shades of Blue Trading and Services, entered
into a Construction Agreement3 whereby the latter undertook to build the former's 72-room condominium/hotel
(Condotel Building 25) located at the Fairways & Bluewaters Golf & Resort in Boracay Island, Malay, Aklan. The project,
costing ₱42,000,000.00, was to be completed within one year or 365 days reckoned from the first calendar day after
signing of the Notice of Award and Notice to Proceed and receipt of down payment (20% of contract price). The
₱8,400,000.00 down payment was fully paid on January 14, 2008.4 Payment of the balance of the contract price will be
based on actual work finished within 15 days from receipt of the monthly progress billings. Per the agreed work schedule,
the completion date of the project was December 2008.5 Mabuhay also submitted the required Performance Bond6
issued by respondent Utility Assurance Corporation (UTASSCO) in the amount equivalent to 20% down payment or ₱8.4
million.

Mabunay commenced work at the project site on January 7, 2008. Petitioner paid up to the 7th monthly progress billing
sent by Mabunay. As of September 16, 2008, petitioner had paid the total amount of ₱15,979,472.03 inclusive of the
20% down payment. However, as of said date, Mabunay had accomplished only 27.5% of the project.7

In the Joint Construction Evaluation Result and Status Report8 signed by Mabunay assisted by Arch. Elwin Olavario, and
Joo Han Lee assisted by Roy V. Movido, the following findings were accepted as true, accurate and correct:

III STATUS OF PROJECT AS OF 14 NOVEMBER 2008

1) After conducting a joint inspection and evaluation of the project to determine the actual percentage of
accomplishment, the contracting parties, assisted by their respective technical groups, SSB assisted by Arch. Elwin
Olavario and JPLUS assisted by Engrs. Joey Rojas and Shiela Botardo, concluded and agreed that as of 14 November
2008, the project is only Thirty One point Thirty Nine Percent (31.39%) complete.

2) Furthermore, the value of construction materials allocated for the completion of the project and currently on site has
been determined and agreed to be ONE MILLION FORTY NINE THOUSAND THREE HUNDRED SIXTY FOUR PESOS AND
FORTY FIVE CENTAVOS (₱1,049,364.45)

3) The additional accomplishment of SSB, reflected in its reconciled and consolidated 8th and 9th billings, is Three point
Eighty Five Percent (3.85%) with a gross value of ₱1,563,553.34 amount creditable to SSB after deducting the
withholding tax is ₱1,538,424.84

4) The unrecouped amount of the down payment is ₱2,379,441.53 after deducting the cost of materials on site and the
net billable amount reflected in the reconciled and consolidated 8th and 9th billings. The uncompleted portion of the
project is 68.61% with an estimated value per construction agreement signed is ₱27,880,419.52.9 (Emphasis supplied.)

On November 19, 2008, petitioner terminated the contract and sent demand letters to Mabunay and respondent surety.
As its demands went unheeded, petitioner filed a Request for Arbitration10 before the Construction Industry Arbitration
Commission (CIAC). Petitioner prayed that Mabunay and respondent be ordered to pay the sums of ₱8,980,575.89 as
liquidated damages and ₱2,379,441.53 corresponding to the unrecouped down payment or overpayment petitioner
made to Mabunay.11

In his Answer,12 Mabunay claimed that the delay was caused by retrofitting and other revision works ordered by Joo
Han Lee. He asserted that he actually had until April 30, 2009 to finish the project since the 365 days period of
completion started only on May 2, 2008 after clearing the retrofitted old structure. Hence, the termination of the
contract by petitioner was premature and the filing of the complaint against him was baseless, malicious and in bad
faith.

Respondent, on the other hand, filed a motion to dismiss on the ground that petitioner has no cause of action and the
complaint states no cause of action against it. The CIAC denied the motion to dismiss. Respondent’s motion for
reconsideration was likewise denied.13

In its Answer Ex Abundante Ad Cautelam With Compulsory Counterclaims and Cross-claims,14 respondent argued that
the performance bond merely guaranteed the 20% down payment and not the entire obligation of Mabunay under the
Construction Agreement. Since the value of the project’s accomplishment already exceeded the said amount,
respondent’s obligation under the performance bond had been fully extinguished. As to the claim for alleged
overpayment to Mabunay, respondent contended that it should not be credited against the 20% down payment which
was already exhausted and such application by petitioner is tantamount to reviving an obligation that had been legally
extinguished by payment. Respondent also set up a cross-claim against Mabunay who executed in its favor an
Indemnity Agreement whereby Mabunay undertook to indemnify respondent for whatever amounts it may be adjudged
liable to pay petitioner under the surety bond.

Both petitioner and respondent submitted their respective documentary and testimonial evidence. Mabunay failed to
appear in the scheduled hearings and to present his evidence despite due notice to his counsel of record. The CIAC thus
declared that Mabunay is deemed to have waived his right to present evidence.15

On February 2, 2010, the CIAC rendered its Decision16 and made the following award:
Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby adjudges, orders and directs:

1. Respondents Mabunay and Utassco to jointly and severally pay claimant the following:

a) ₱4,469,969.90, as liquidated damages, plus legal interest thereon at the rate of 6% per annum computed from the
date of this decision up to the time this decision becomes final, and 12% per annum computed from the date this
decision becomes final until fully paid, and

b) ₱2,379,441.53 as unrecouped down payment plus interest thereon at the rate of 6% per annum computed from the
date of this decision up to the time this decision becomes final, and 12% per annum computed from the date this
decision becomes final until fully paid.

It being understood that respondent Utassco’s liability shall in no case exceed ₱8.4 million.

2. Respondent Mabunay to pay to claimant the amount of ₱98,435.89, which is respondent Mabunay’s share in the
arbitration cost claimant had advanced, with legal interest thereon from January 8, 2010 until fully paid.

3. Respondent Mabunay to indemnify respondent Utassco of the amounts respondent Utassco will have paid to claimant
under this decision, plus interest thereon at the rate of 12% per annum computed from the date he is notified of such
payment made by respondent Utassco to claimant until fully paid, and to pay Utassco ₱100,000.00 as attorney’s fees.

SO ORDERED.17

Dissatisfied, respondent filed in the CA a petition for review under Rule 43 of the 1997 Rules of Civil Procedure, as
amended.

In the assailed decision, the CA agreed with the CIAC that the specific condition in the Performance Bond did not clearly
state the limitation of the surety’s liability. Pursuant to Article 137718 of the Civil Code, the CA said that the provision
should be construed in favor of petitioner considering that the obscurely phrased provision was drawn up by respondent
and Mabunay. Further, the appellate court stated that respondent could not possibly guarantee the down payment
because it is not Mabunay who owed the down payment to petitioner but the other way around. Consequently, the
completion by Mabunay of 31.39% of the construction would not lead to the extinguishment of respondent’s liability.
The ₱8.4 million was a limit on the amount of respondent’s liability and not a limitation as to the obligation or
undertaking it guaranteed.

However, the CA reversed the CIAC’s ruling that Mabunay had incurred delay which entitled petitioner to the stipulated
liquidated damages and unrecouped down payment. Citing Aerospace Chemical Industries, Inc. v. Court of Appeals,19
the appellate court said that not all requisites in order to consider the obligor or debtor in default were present in this
case. It held that it is only from December 24, 2008 (completion date) that we should reckon default because the
Construction Agreement provided only for delay in the completion of the project and not delay on a monthly basis using
the work schedule approved by petitioner as the reference point. Hence, petitioner’s termination of the contract was
premature since the delay in this case was merely speculative; the obligation was not yet demandable.

The dispositive portion of the CA Decision reads:

WHEREFORE, premises considered, the instant petition for review is GRANTED. The assailed Decision dated 13 January
2010 rendered by the CIAC Arbitral Tribunal in CIAC Case No. 03-2009 is hereby REVERSED and SET ASIDE. Accordingly,
the Writ of Execution dated 24 November 2010 issued by the same tribunal is hereby ANNULLED and SET ASIDE.

SO ORDERED.20

Petitioner moved for reconsideration of the CA decision while respondent filed a motion for partial reconsideration. Both
motions were denied.

The Issues

Before this Court petitioner seeks to reverse the CA insofar as it denied petitioner’s claims under the Performance Bond
and to reinstate in its entirety the February 2, 2010 CIAC Decision. Specifically, petitioner alleged that –

A. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT HOLDING THAT THE ALTERNATIVE DISPUTE RESOLUTION
ACT AND THE SPECIAL RULES ON ALTERNATIVE DISPUTE RESOLUTION HAVE STRIPPED THE COURT OF APPEALS OF
JURISDICTION TO REVIEW ARBITRAL AWARDS.

B. THE COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE ARBITRAL AWARD ON AN ISSUE THAT WAS NOT
RAISED IN THE ANSWER. NOT IDENTIFIED IN THE TERMS OF REFERENCE, NOT ASSIGNED AS ANERROR, AND NOT
ARGUED IN ANY OF THE PLEADINGS FILED BEFORE THE COURT.

C. THE COURT OF APPEALS SERIOUSLY ERRED IN RELYING ON THE CASE OF AEROSPACE CHEMICAL INDUSTRIES,
INC. v. COURT OF APPEALS, 315 SCRA 94, WHICH HAS NOTHING TO DO WITH CONSTRUCTION AGREEMENTS.21

Our Ruling

On the procedural issues raised, we find no merit in petitioner’s contention that with the institutionalization of alternative
dispute resolution under Republic Act (R.A.) No. 9285,22 otherwise known as the Alternative Dispute Resolution Act of
2004, the CA was divested of jurisdiction to review the decisions or awards of the CIAC. Petitioner erroneously relied on
the provision in said law allowing any party to a domestic arbitration to file in the Regional Trial Court (RTC) a petition
either to confirm, correct or vacate a domestic arbitral award.

We hold that R.A. No. 9285 did not confer on regional trial courts jurisdiction to review awards or decisions of the CIAC
in construction disputes. On the contrary, Section 40 thereof expressly declares that confirmation by the RTC is not
required, thus:

SEC. 40. Confirmation of Award. – The confirmation of a domestic arbitral award shall be governed by Section 23 of R.A.
876.

A domestic arbitral award when confirmed shall be enforced in the same manner as final and executory decisions of the
Regional Trial Court.

The confirmation of a domestic award shall be made by the regional trial court in accordance with the Rules of
Procedure to be promulgated by the Supreme Court.
A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided under E.O. No. 1008.
(Emphasis supplied.)

Executive Order (EO) No. 1008 vests upon the CIAC original and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by parties involved in construction in the Philippines, whether the dispute arises
before or after the completion of the contract, or after the abandonment or breach thereof. By express provision of
Section 19 thereof, the arbitral award of the CIAC is final and unappealable, except on questions of law, which are
appealable to the Supreme Court. With the amendments introduced by R.A. No. 7902 and promulgation of the 1997
Rules of Civil Procedure, as amended, the CIAC was included in the enumeration of quasijudicial agencies whose
decisions or awards may be appealed to the CA in a petition for review under Rule 43. Such review of the CIAC award
may involve either questions of fact, of law, or of fact and law.23

Petitioner misread the provisions of A.M. No. 07-11-08-SC (Special ADR Rules) promulgated by this Court and which
took effect on October 30, 2009. Since R.A. No. 9285 explicitly excluded CIAC awards from domestic arbitration awards
that need to be confirmed to be executory, said awards are therefore not covered by Rule 11 of the Special ADR
Rules,24 as they continue to be governed by EO No. 1008, as amended and the rules of procedure of the CIAC. The
CIAC Revised Rules of Procedure Governing Construction Arbitration25 provide for the manner and mode of appeal from
CIAC decisions or awards in Section 18 thereof, which reads:

SECTION 18.2 Petition for review. – A petition for review from a final award may be taken by any of the parties within
fifteen (15) days from receipt thereof in accordance with the provisions of Rule 43 of the Rules of Court.

As to the alleged error committed by the CA in deciding the case upon an issue not raised or litigated before the CIAC,
this assertion has no basis. Whether or not Mabunay had incurred delay in the performance of his obligations under the
Construction Agreement was the very first issue stipulated in the Terms of Reference26 (TOR), which is distinct from the
issue of the extent of respondent’s liability under the Performance Bond.

Indeed, resolution of the issue of delay was crucial upon which depends petitioner’s right to the liquidated damages
pursuant to the Construction Agreement. Contrary to the CIAC’s findings, the CA opined that delay should be reckoned
only after the lapse of the one-year contract period, and consequently Mabunay’s liability for liquidated damages arises
only upon the happening of such condition.

We reverse the CA.

Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by reason of a cause imputable
to the former. It is the non-fulfillment of an obligation with respect to time.27

Article 1169 of the Civil Code provides:

ART. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.

xxxx

It is a general rule that one who contracts to complete certain work within a certain time is liable for the damage for not
completing it within such time, unless the delay is excused or waived.28
The Construction Agreement provides in Article 10 thereof the following conditions as to completion time for the project

1. The CONTRACTOR shall complete the works called for under this Agreement within ONE (1) YEAR or 365 Days
reckoned from the 1st calendar day after signing of the Notice of Award and Notice to Proceed and receipt of down
payment.

2. In this regard the CONTRACTOR shall submit a detailed work schedule for approval by OWNER within Seven (7) days
after signing of this Agreement and full payment of 20% of the agreed contract price. Said detailed work schedule shall
follow the general schedule of activities and shall serve as basis for the evaluation of the progress of work by
CONTRACTOR.29

In this jurisdiction, the following requisites must be present in order that the debtor may be in default: (1) that the
obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor
requires the performance judicially or extrajudicially.30

In holding that Mabunay has not at all incurred delay, the CA pointed out that the obligation to perform or complete the
project was not yet demandable as of November 19, 2008 when petitioner terminated the contract, because the agreed
completion date was still more than one month away (December 24, 2008). Since the parties contemplated delay in the
completion of the entire project, the CA concluded that the failure of the contractor to catch up with schedule of work
activities did not constitute delay giving rise to the contractor’s liability for damages.

We cannot sustain the appellate court’s interpretation as it is inconsistent with the terms of the Construction Agreement.
Article 1374 of the Civil Code requires that the various stipulations of a contract shall be interpreted together, attributing
to the doubtful ones that sense which may result from all of them taken jointly. Here, the work schedule approved by
petitioner was intended, not only to serve as its basis for the payment of monthly progress billings, but also for
evaluation of the progress of work by the contractor. Article 13.01 (g) (iii) of the Construction Agreement provides that
the contractor shall be deemed in default if, among others, it had delayed without justifiable cause the completion of the
project "by more than thirty (30) calendar days based on official work schedule duly approved by the OWNER."31

Records showed that as early as April 2008, or within four months after Mabunay commenced work activities, the
project was already behind schedule for reasons not attributable to petitioner. In the succeeding months, Mabunay was
still unable to catch up with his accomplishment even as petitioner constantly advised him of the delays, as can be
gleaned from the following notices of delay sent by petitioner’s engineer and construction manager, Engr. Sheila N.
Botardo:

April 30, 2008

Seven Shades of Blue

Boracay Island

Malay, Aklan

1âwphi1

Attention : Mr. Martin Mabunay

General Manager

Thru : Engr. Reynaldo Gapasin

Project : Villa Beatriz

Subject : Notice of Delay

Dear Mr. Mabunay:

This is to formalize our discussion with your Engineers during our meeting last April 23, 2008 regarding the delay in the
implementation of major activities based on your submitted construction schedule. Substantial delay was noted in
concreting works that affects your roof framing that should have been 40% completed as of this date. This delay will
create major impact on your over-all schedule as the finishing works will all be dependent on the enclosure of the
building.

In this regard, we recommend that you prepare a catch-up schedule and expedite the delivery of critical materials on
site. We would highly appreciate if you could attend our next regular meeting so we could immediately address this
matter. Thank you.

Very truly yours,

Engr. Sheila N. Botardo

Construction Manager – LMI/FEPI32

October 15, 2008

xxxx

Dear Mr. Mabunay,

We have noticed continuous absence of all the Engineers that you have assigned on-site to administer and supervise
your contracted work. For the past two (2) weeks, your company does not have a Technical Representative manning the
jobsite considering the critical activities that are in progress and the delays in schedule that you have already incurred.
In this regard, we would highly recommend the immediate replacement of your Project Engineer within the week.

We would highly appreciate your usual attention on this matter.

x x x x33

November 5, 2008

xxxx

Dear Mr. Mabunay,

This is in reference to your discussion during the meeting with Mr. Joohan Lee last October 30, 2008 regarding the
construction of the Field Office and Stock Room for Materials intended for Villa Beatriz use only. We understand that you
have committed to complete it November 5, 2008 but as of this date there is no improvement or any ongoing
construction activity on the said field office and stockroom.
We are expecting deliveries of Owner Supplied Materials very soon, therefore, this stockroom is badly needed. We will
highly appreciate if this matter will be given your immediate attention.

Thank you.

x x x x34

November 6, 2008

xxxx

Dear Mr. Mabunay,

We would like to call your attention regarding the decrease in your manpower assigned on site. We have observed that
for the past three (3) weeks instead of increasing your manpower to catch up with the delay it was reduced to only 8
workers today from an average of 35 workers in the previous months.

Please note that based on your submitted revised schedule you are already delayed by approximately 57% and this will
worsen should you not address this matter properly.

We are looking forward for [sic] your cooperation and continuous commitment in delivering this project as per contract
agreement.

x x x x35

Subsequently, a joint inspection and evaluation was conducted with the assistance of the architects and engineers of
petitioner and Mabunay and it was found that as of November 14, 2008, the project was only 31.39% complete and that
the uncompleted portion was 68.61% with an estimated value per Construction Agreement as ₱27,880,419.52. Instead
of doubling his efforts as the scheduled completion date approached, Mabunay did nothing to remedy the delays and
even reduced the deployment of workers at the project site. Neither did Mabunay, at anytime, ask for an extension to
complete the project. Thus, on November 19, 2008, petitioner advised Mabunay of its decision to terminate the contract
on account of the tremendous delay the latter incurred. This was followed by the claim against the Performance Bond
upon the respondent on December 18, 2008.

Petitioner’s claim against the Performance Bond included the liquidated damages provided in the Construction
Agreement, as follows:

ARTICLE 12 – LIQUIDATED DAMAGES:

12.01 Time is of the essence in this Agreement. Should the CONTRACTOR fail to complete the PROJECT within the
period stipulated herein or within the period of extension granted by the OWNER, plus One (1) Week grace period,
without any justifiable reason, the CONTRACTOR hereby agrees –
a. The CONTRACTOR shall pay the OWNER liquidated damages equivalent to One Tenth of One Percent (1/10 of 1%) of
the Contract Amount for each day of delay after any and all extensions and the One (1) week Grace Period until
completed by the CONTRACTOR.

b. The CONTRACTOR, even after paying for the liquidated damages due to unexecuted works and/or delays shall not
relieve it of the obligation to complete and finish the construction.

Any sum which maybe payable to the OWNER for such loss may be deducted from the amounts retained under Article 9
or retained by the OWNER when the works called for under this Agreement have been finished and completed.

Liquidated Damage[s] payable to the OWNER shall be automatically deducted from the contractors collectibles without
prior consent and concurrence by the CONTRACTOR.

12.02 To give full force and effect to the foregoing, the CONTRACTOR hereby, without necessity of any further act and
deed, authorizes the OWNER to deduct any amount that may be due under Item (a) above, from any and all money or
amounts due or which will become due to the CONTRACTOR by virtue of this Agreement and/or to collect such amounts
from the Performance Bond filed by the CONTRACTOR in this Agreement.36 (Emphasis supplied.)

Liability for liquidated damages is governed by Articles 2226 to 2228 of the Civil Code, which provide:

ART. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof.

ART. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are
iniquitous or unconscionable.

ART. 2228. When the breach of the contract committed by the defendant is not the one contemplated by the parties in
agreeing upon the liquidated damages, the law shall determine the measure of damages, and not the stipulation.

A stipulation for liquidated damages is attached to an obligation in order to ensure performance and has a double
function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat
of greater responsibility in the event of breach.37 The amount agreed upon answers for damages suffered by the owner
due to delays in the completion of the project.38 As a precondition to such award, however, there must be proof of the
fact of delay in the performance of the obligation.39

Concededly, Article 12.01 of the Construction Agreement mentioned only the failure of the contractor to complete the
project within the stipulated period or the extension granted by the owner. However, this will not defeat petitioner’s
claim for damages nor respondent’s liability under the Performance Bond. Mabunay was clearly in default considering
the dismal percentage of his accomplishment (32.38%) of the work he contracted on account of delays in executing the
scheduled work activities and repeated failure to provide sufficient manpower to expedite construction works. The
events of default and remedies of the Owner are set forth in Article 13, which reads:

ARTICLE 13 – DEFAULT OF CONTRACTOR:

13.01 Any of the following shall constitute an Event of Default on the part of the CONTRACTOR.

xxxx
g. In case the CONTRACTOR has done any of the following:

(i.) has abandoned the Project

(ii.) without reasonable cause, has failed to commence the construction or has suspended the progress of the Project for
twenty-eight days

(iii.) without justifiable cause, has delayed the completion of the Project by more than thirty (30) calendar days based on
official work schedule duly approved by the OWNER

(iv.) despite previous written warning by the OWNER, is not executing the construction works in accordance with the
Agreement or is persistently or flagrantly neglecting to carry out its obligations under the Agreement.

(v.) has, to the detriment of good workmanship or in defiance of the Owner’s instructions to the contrary, sublet any
part of the Agreement.

13.02 If the CONTRACTOR has committed any of the above reasons cited in Item 13.01, the OWNER may after giving
fourteen (14) calendar days notice in writing to the CONTRACTOR, enter upon the site and expel the CONTRACTOR
therefrom without voiding this Agreement, or releasing the CONTRACTOR from any of its obligations, and liabilities
under this Agreement. Also without diminishing or affecting the rights and powers conferred on the OWNER by this
Agreement and the OWNER may himself complete the work or may employ any other contractor to complete the work.
If the OWNER shall enter and expel the CONTRACTOR under this clause, the OWNER shall be entitled to confiscate the
performance bond of the CONTRACTOR to compensate for all kinds of damages the OWNER may suffer. All expenses
incurred to finish the Project shall be charged to the CONTRACTOR and/or his bond. Further, the OWNER shall not be
liable to pay the CONTRACTOR until the cost of execution, damages for the delay in the completion, if any, and all; other
expenses incurred by the OWNER have been ascertained which amount shall be deducted from any money due to the
CONTRACTOR on account of this Agreement. The CONTRACTOR will not be compensated for any loss of profit, loss of
goodwill, loss of use of any equipment or property, loss of business opportunity, additional financing cost or overhead or
opportunity losses related to the unaccomplished portions of the work.40 (Emphasis supplied.)

As already demonstrated, the contractor’s default in this case pertains to his failure to substantially perform the work on
account of tremendous delays in executing the scheduled work activities. Where a party to a building construction
contract fails to comply with the duty imposed by the terms of the contract, a breach results for which an action may be
maintained to recover the damages sustained thereby, and of course, a breach occurs where the contractor inexcusably
fails to perform substantially in accordance with the terms of the contract.41

The plain and unambiguous terms of the Construction Agreement authorize petitioner to confiscate the Performance
Bond to answer for all kinds of damages it may suffer as a result of the contractor’s failure to complete the building.
Having elected to terminate the contract and expel the contractor from the project site under Article 13 of the said
Agreement, petitioner is clearly entitled to the proceeds of the bond as indemnification for damages it sustained due to
the breach committed by Mabunay. Such stipulation allowing the confiscation of the contractor’s performance bond
partakes of the nature of a penalty clause. A penalty clause, expressly recognized by law, is an accessory undertaking to
assume greater liability on the part of the obligor in case of breach of an obligation. It functions to strengthen the
coercive force of obligation and to provide, in effect, for what could be the liquidated damages resulting from such a
breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence
and on the measure of damages caused by the breach. It is well-settled that so long as such stipulation does not
contravene law, morals, or public order, it is strictly binding upon the obligor.42

Respondent, however, insists that it is not liable for the breach committed by Mabunay because by the terms of the
surety bond it issued, its liability is limited to the performance by said contractor to the extent equivalent to 20% of the
down payment. It stresses that with the 32.38% completion of the project by Mabunay, its liability was extinguished
because the value of such accomplishment already exceeded the sum equivalent to 20% down payment (₱8.4 million).

The appellate court correctly rejected this theory of respondent when it ruled that the Performance Bond guaranteed the
full and faithful compliance of Mabunay’s obligations under the Construction Agreement, and that nowhere in law or
jurisprudence does it state that the obligation or undertaking by a surety may be apportioned.

The pertinent portions of the Performance Bond provide:

The conditions of this obligation are as follows:

Whereas the JPLUS ASIA, requires the principal SEVEN SHADES OF BLUE CONSTRUCTION AND DEVELOPMENT, INC. to
post a bond of the abovestated sum to guarantee 20% down payment for the construction of Building 25 (Villa Beatriz)
72-Room Condotel, The Lodgings inside Fairways and Bluewater, Boracay Island, Malay, Aklan.

Whereas, said contract required said Principal to give a good and sufficient bond in the above-stated sum to secure the
full and faithful performance on his part of said contract.

It is a special provision of this undertaking that the liability of the surety under this bond shall in no case exceed the sum
of ₱8,400,000.00 Philippine Currency.

Now, Therefore, if the Principal shall well and truly perform and fulfill all the undertakings, covenants, terms, conditions
and agreements stipulated in said contract, then this obligation shall be null and void; otherwise to remain in full force
and effect.43 (Emphasis supplied.)

While the above condition or specific guarantee is unclear, the rest of the recitals in the bond unequivocally declare that
it secures the full and faithful performance of Mabunay’s obligations under the Construction Agreement with petitioner.
By its nature, a performance bond guarantees that the contractor will perform the contract, and usually provides that if
the contractor defaults and fails to complete the contract, the surety can itself complete the contract or pay damages up
to the limit of the bond.44 Moreover, the rule is that if the language of the bond is ambiguous or uncertain, it will be
construed most strongly against a compensated surety and in favor of the obligees or beneficiaries under the bond, in
this case petitioner as the Project Owner, for whose benefit it was ostensibly executed.45

The imposition of interest on the claims of petitioner is likewise in order. As we held in Commonwealth Insurance
Corporation v. Court of Appeals46

Petitioner argues that it should not be made to pay interest because its issuance of the surety bonds was made on the
condition that its liability shall in no case exceed the amount of the said bonds.

We are not persuaded. Petitioner’s argument is misplaced.

Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and Union Gurantee Co. and reiterated in Plaridel
Surety & Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc., and more recently, in Republic vs. Court of Appeals and
R & B Surety and Insurance Company, Inc., we have sustained the principle that if a surety upon demand fails to pay, he
can be held liable for interest, even if in thus paying, its liability becomes more than the principal obligation. The
increased liability is not because of the contract but because of the default and the necessity of judicial collection.
Petitioner’s liability under the suretyship contract is different from its liability under the law.1âwphi1 There is no question
that as a surety, petitioner should not be made to pay more than its assumed obligation under the surety bonds.
However, it is clear from the above-cited jurisprudence that petitioner’s liability for the payment of interest is not by
reason of the suretyship agreement itself but because of the delay in the payment of its obligation under the said
agreement.47 (Emphasis supplied; citations omitted.)

WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated January 27, 2011 and Resolution
dated December 8, 2011 of the Court of Appeals in CA-G.R. SP No. 112808 are hereby REVERSED and SET ASIDE.

The Award made in the Decision dated February 2, 2010 of the Construction Industry Arbitration Commission Is hereby
REINSTATED with the following MODIFICATIONS:

"Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby adjudges, orders and directs:

1) Respondent Utassco to pay to petitioner J Plus Asia Development Corporation the full amount of the Performance
Bond, ₱8,400,000.00, pursuant to Art. 13 of the Construction Agreement dated December 24, 2007, with interest at the
rate of 6% per annum computed from the date of the filing of the complaint until the finality of this decision, and 12%
per annum computed from the date this decision becomes final until fully paid; and

2) Respondent Mabunay to indemnify respondent Utassco of the amounts respondent Utassco will have paid to claimant
under this decision, plus interest thereon at the rate of 12% per annum computed from the date he is notified of such
payment made by respondent Utassco to claimant until fully paid, and to pay Utassco ₱100,000.00 as attorney's fees.

SO ORDERED.

With the above modifications, the Writ of Execution dated November 24, 2010 issued by the CIAC Arbitral Tribunal in
CIAC Case No. 03-2009 is hereby REINSTATED and UPHELD.

No pronouncement as to costs.

SO ORDERED.