we find that petitioners have amply made out a case where the voluntary
CHUNG FU INDUSTRIES V. CA (G.R. NO. 96283)
Facts:
Petitioner Chung Fu Industries (Philippines) and private respondent
Roblecor Philippines, Inc. forged a construction agreement whereby
respondent contractor committed to construct and finish petitioner
corporation’s industrial/factory complex. In the event of disputes arising
from the performance of subject contract, it was stipulated therein that the
issue(s) shall be submitted for resolution before a single arbitrator chosen
by both parties. Roblecor filed a petition for Compulsory Arbitration with
prayer for Temporary Restraining Order before respondent RTC to claim the
unsatisfied account and unpaid progress billings. Chung Fu moved to
dismiss the petition and further prayed for the quashing of the restraining
order. Subsequent negotiations between the parties eventually led to the
formulation of an arbitration agreement which, among others, provides:
The parties mutually agree that the decision of the arbitrator shall be final
and unappealable. Therefore, there shall be no further judicial recourse if
either party disagrees with the whole or any part of the arbitrator’s
award. Respondent RTC approved the arbitration agreement and
thereafter, Engr. Willardo Asuncion was appointed as the sole arbitrator.
Arbitrator Asuncion ordered petitioner to immediately pay respondent
contractor and further declared the award as final and unappealable.
Roblecor then moved for the confirmation of said award which was
accordingly confirmed and a writ of execution granted to it. Meanwhile,
Chung Fu moved to remand the case for further hearing and asked for a
reconsideration of the judgment award claiming that Arbitrator Asuncion
committed twelve (12) instances of grave error by disregarding the
provisions of the parties’ contract. Chung Fu’s Motion was denied and
similarly its motion for reconsiderationn. Chung Fu elevated the case via a
petition for certiorari to respondent CA. The respondent appellate court
concurred with the findings and conclusions of respondent trial court. A
motion for reconsideration of said resolution was filed by petitioner, but
was similarly denied.
Issue:
Whether or not petitioners are estopped from questioning the arbitration
award allegedly in view of the stipulations in the parties’ arbitration
agreement that “the decision of the arbitrator shall be final and
unappealable” and that “there shall be no further judicial recourse if either
party disagrees with the whole or any part of the arbitrator’s award.”
Ruling:
We rule in the negative. It is stated explicitly under Art. 2044 of the Civil
Code that the finality of the arbitrators’ award is not absolute and without
exceptions. Where the conditions described in Articles 2038, 2039 and 2040
applicable to both compromises and arbitrations are obtaining, the
arbitrators’ award may be annulled or rescinded. Additionally, under
Sections 24 and 25 of the Arbitration Law, there are grounds for vacating,
modifying or rescinding an arbitrator’s award. Thus, if and when the factual
circumstances referred to in the above-cited provisions are present, judicial
review of the award is properly warranted.
This is where the proper remedy is certiorari under Rule 65 of the Revised
Rules of Court. It is to be borne in mind, however, that this action will lie
only where a grave abuse of discretion or an act without or in excess of
jurisdiction on the part of the voluntary arbitrator is clearly shown. It should
be stressed, too, that voluntary arbitrators, by the nature of their functions,
act in a quasi-judicial capacity. It stands to reason, therefore, that their
decisions should not be beyond the scope of the power of judicial review of
this Court.
In the case at bar, petitioners assailed the arbitral award on the following
grounds, most of which allege error on the part of the arbitrator in granting
compensation for various items which apparently are disputed by said
petitioners. After closely studying the list of errors, as well as petitioners’
discussion of the same in their Motion to Remand Case For Further Hearing
and Reconsideration and Opposition to Motion for Confirmation of Award,
arbitrator failed to apply the terms and provisions of the Construction
Agreement which forms part of the law applicable as between the parties,
thus committing a grave abuse of discretion. Furthermore, in granting
unjustified extra compensation to respondent for several items, he
exceeded his powers — all of which would have constituted ground for
vacating the award under Section 24 (d) of the Arbitration Law.
Wherefore, the petition is granted. The Resolutions of the CA as well as the
Orders of respondent RTC are hereby SET ASIDE. Accordingly, this case is
REMANDED to the court of origin for further hearing on this matter. All
incidents arising therefrom are reverted to the status quo ante until such
time as the trial court shall have passed upon the merits of this case.
Advertisements
[G.R. No. 136154. February 7, 2001]
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.
BELLOSILLO, J.:
This Petition for Review on certiorari assails the 17 July 1998 Decision[1] of
the Court of Appeals affirming the 11 November 1997 Order[2] of the
Regional Trial Court which denied petitioners Motion to Suspend
Proceedings in Civil Case No. 2637-MN. It also questions the appellate
courts Resolution[3] 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 -
12. GOVERNING LAW AND ARBITRATION[4]
This Agreement 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 x x x x
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 Complaint[5] against petitioners
DMC-USA, Paul E. Derby, Jr.,[6] Daniel Collins[7] and Luis Hidalgo,[8] and
Dewey Ltd.[9] before the Regional Trial Court of Malabon, Metro Manila.
Private respondents predicated their complaint on the alleged violations by
petitioners of Arts. 20,[10] 21[11] and 23[12] of 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[13]
invoking the arbitration clause in their Agreement with private respondents.
In a Resolution[14] 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 Reconsideration of 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.[21] 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.[22]
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.[23]
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.[30]
The object of arbitration is to allow the expeditious determination of a
dispute.[31] 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.[32]
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.
_____________________________________________________________
G.R. No. 141818 June 22, 2006
INSULAR SAVINGS BANK, Petitioner,
vs.
FAR EAST BANK AND TRUST COMPANY, Respondent.
YNARES-SANTIAGO, J.:
This petition for review on certiorari1 assails the November 9, 1999 Order2
of the Regional Trial Court of Makati City, Branch 135, in Civil Case No. 92-
145 which dismissed the petition for review for lack of jurisdiction and its
February 1, 2000 Order3 denying reconsideration thereof.
The antecedent facts are as follows:
On December 11, 1991, Far East Bank and Trust Company (Respondent)
filed a complaint against Home Bankers Trust and Company (HBTC)4 with
the Philippine Clearing House Corporation’s (PCHC) Arbitration Committee
docketed as Arbicom Case No. 91-069.5 Respondent sought to recover from
the petitioner, the sum of P25,200,000.00 representing the total amount of
the three checks drawn and debited against its clearing account. HBTC sent
these checks to respondent for clearing by operation of the PCHC clearing
system. Thereafter, respondent dishonored the checks for insufficiency of
funds and returned the checks to HBTC. However, the latter refused to
accept them since the checks were returned by respondent after the
reglementary regional clearing period.6
Meanwhile, on January 17, 1992, before the termination of the arbitration
proceedings, respondent filed another complaint but this time with the
Regional Trial Court (RTC) in Makati City docketed as Civil Case No. 92-145
for Sum of Money and Damages with Preliminary Attachment. The
complaint was filed not only against HBTC but also against Robert Young,
Eugene Arriesgado and Victor Tancuan (collectively known as Defendants),
who were the president and depositors of HBTC respectively.7 Aware of the
arbitration proceedings between respondent and petitioner, the RTC, in an
Omnibus Order dated April 30, 1992,8 suspended the proceedings in the
case against all the defendants pending the decision of the Arbitration
Committee, to wit:
WHEREFORE, the Court hereby orders:
(a) Home Bankers & Trust Co. to produce and permit plaintiff to inspect,
copy and/or photograph the checking account deposit ledger of Victor
Tancuan’s Account No. 1803-00605-3;
(b) The Motions to Dismiss filed by all defendants denied, for lack of merit;
and
(c) Proceedings in this case against all defendants be suspended pending
award/decision in the arbitration proceedings against Home Bankers and
Trust Co.
SO ORDERED.9 (Emphasis supplied)
The above Omnibus Order was amended by the trial court in its October 1,
1992 Order,10 the dispositive portion of which reads as follows:
WHEREFORE, the Omnibus Order dated 30 April 1992 is hereby
reconsidered by deleting the phrase "since the complaint also seeks
exemplary damages, attorney’s fees, litigation expenses and costs of suit
against HBT," on page 4 thereof and par. C of its dispositive portion is
amended to read:
(c) "Procedings against Home Bankers and Trust Co. are suspended pending
award/decision in the arbitration proceedings while those against individual
defendants be immediately reinstated and continued."
HBT and Tancuan’s separate Motions for Reconsiderations are hereby
denied, for lack of merit.
SO ORDERED.11
On February 2, 1998, the PCHC Arbitration Committee rendered its decision
in favor of respondent,12 thus:
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered in favor of
the plaintiff and against the defendant sentencing the latter to pay the
plaintiff the sum of P25.2 million as principal. In view of the fact, however,
that this amount was split between the plaintiff and the defendant in the
course of the proceedings, the amount to be paid by the defendant to the
plaintiff should only be P12,600,000.00 plus interest on this latter amount
at the rate of 12% per annum from February 11, 1992, the date when the
total amount of P25.2 Million was split between plaintiff and defendant up
to the date of payment.
In view of the facts found by the committee, no attorney’s fees nor other
damages are awarded.
SO ORDERED.13
The motion for reconsideration filed by petitioner was denied by the
Arbitration Committee.14 Consequently, to appeal the decision of the
Arbitration Committee in Arbicom Case No. 91-069, petitioner filed a
petition for review in the earlier case filed by respondent in Branch 135 of
the RTC of Makati and docketed as Civil Case No. 92-145.15 In an order
dated January 20, 1999, the RTC directed both petitioner and respondent to
file their respective memoranda, after which, said petition would be
deemed submitted for resolution.16
Both parties filed several pleadings. On February 8, 1999, respondent filed a
Motion to Dismiss Petition for Review for Lack of Jurisdiction,17 which was
opposed by the petitioner.18 Respondent then filed its Reply to the
opposition,19 to which petitioner filed a Rejoinder.20 On August 16, 1999,
respondent submitted its Surrejoinder.21
On November 9, 1999, the RTC rendered the assailed Order which held,
thus:
Acting on plaintiff Far East Bank and Trust Company’s "Motion To Dismiss
Petition For Review For Lack Of Jurisdiction", considering that the petition
for review is a separate and distinct case, the same must comply with all the
requirements for filing initiatory pleadings for civil actions before this Court
so that since the commencement of the subject petition lacks the
mandatory requirements provided for, except the payment of docket fees,
for lack of jurisdiction, the petition for review is hereby dismissed.
SO ORDERED.22
The RTC denied petitioner’s motion for reconsideration,23 hence, this
petition on the sole ground, to wit:
THE REGIONAL TRIAL COURT ERRED IN DISMISSING THE PETITION OF
PETITIONER FOR LACK OF JURISDICTION ON THE GROUND THAT IT SHOULD
HAVE BEEN DOCKETED AS A SEPARATE CASE.24
Petitioner contends that Civil Case No. 92-145 was merely suspended to
await the outcome of the arbitration case pending before the PCHC. Thus,
any petition questioning the decision of the Arbitration Committee must be
filed in Civil Case No. 92-145 and should not be docketed as a separate
action. Likewise, petitioner avers that had it filed a separate action, "this
would have resulted in a multiplicity of suits, which is abhorred in
procedure."
Meanwhile respondent avers that the RTC correctly dismissed the appeal
from the award of private arbitrators since there is no statutory basis for
such appeal. Respondent argues that petitioner’s claim that the parties by
agreement had conferred on the RTC appellate jurisdiction over decisions of
private arbitrators is erroneous because they cannot confer a non-existent
jurisdiction on the RTC or any court. Furthermore, the petition for review
filed by petitioner violated the rule on commencing an original action under
Section 5, Rule 1, and the raffle of cases under Section 2, Rule 20 of the
Rules of Court, when it filed the same in Branch 135 of the RTC of Makati
where there was already a pending original action, i.e., Civil Case No. 92-
145.
The petition lacks merit.
The Philippine Clearing House Corporation was created to facilitate the
clearing of checks of member banks. Among these member banks exists a
compromissoire,25 or an arbitration agreement embedded in their contract
wherein they consent that any future dispute or controversy between its
PCHC participants involving any check would be submitted to the
Arbitration Committee for arbitration. Petitioner and respondent are
members of PCHC, thus they underwent arbitration proceedings.
The PCHC has its own Rules of Procedure for Arbitration (PCHC Rules).
However, this is governed by Republic Act No. 876, also known as The
Arbitration Law26 and supplemented by the Rules of Court.27 Thus, we first
thresh out the remedy of petition for review availed of by the petitioner to
appeal the order of the Arbitration Committee.
Sections 23, 24 and 29 of The Arbitration Law, and Section 13 of the PCHC
Rules, provide:
SEC. 23. Confirmation of award. – At any time within one month after the
award is made, any party to the controversy which was arbitrated may
apply to the court having jurisdiction, as provided in Section 28, for an order
confirming the award; and thereupon the court must grant such order
unless the award is vacated, modified or corrected, as prescribed herein.
Notice of such motion must be served upon the adverse party or his
attorney as prescribed by law for the service of such notice upon an
attorney in action in the same court.
SEC. 24. Grounds for vacating award. – In any one of the following cases,
the court must make an order vacating the award upon the petition of any
party to the controversy when such party proves affirmatively that in the
arbitration proceedings:
(a) The award was procured by corruption, fraud or other undue means; or
(b) That there was evident partiality or corruption in the arbitrators or any
of them; or
(c) That the arbitrators were guilty of misconduct in refusing to postpone
the hearing upon sufficient cause shown, or in refusing to hear evidence
pertinent and material to the controversy; that one or more of the
arbitrators was disqualified to act as such under section nine hereof, and
willfully refrained from disclosing such disqualification or of any other
misbehavior by which the rights of any party have been materially
prejudiced; or
(d) That the arbitrators exceeded their powers, or so imperfectly executed
them, that a mutual, final and definite award upon the subject matter
submitted to them was not made.
xxxx
SEC. 25. Grounds for modifying or correcting award. – In any one of the
following cases, the court must make an order modifying or correcting the
award, upon the application of any party to the controversy which was
arbitrated:
(a) Where there was an evident miscalculation of figures, or an evident
mistake in the description of any person, thing or property referred to in
the award; or
(b) Where the arbitrators have awarded upon a matter not submitted to
them, not affecting the merits of the decision upon the matter submitted;
or
(c) Where the award is imperfect in a matter of form not affecting the
merits of the controversy, and if it had been a commissioner’s report, the
defect could have been amended or disregarded by the court.
The order may modify and correct the award so as to effect the intent
thereof and promote justice between the parties.
SEC. 29. Appeals. – An appeal may be taken from an order made in a
proceeding under this Act, or from judgment entered upon an award
through certiorari proceedings, but such appeals shall be limited to
questions of law. The proceedings upon such an appeal, including the
judgment thereon shall be governed by the Rules of Court insofar as they
are applicable.
AMENDED ARBITRATION RULES OF PROCEDURE OF PCHC
Sec. 13. – The findings of facts of the decision or award rendered by the
Arbitration Committee or by the sole Arbitrator as the case may be shall be
final and conclusive upon all the parties in said arbitration dispute. The
decision or award of the Arbitration Committee or of the Sole Arbitrator or
of the Board of Directors, as the case may be, shall be appealable only on
questions of law to any of the Regional Trial Courts in the National Capital
Region where the Head Office of any of the parties is located. The appellant
shall perfect his appeal by filing a notice of appeal to the Arbitration
Secretariat and filing a Petition with the Regional Trial Court of the National
Capital Region for the review of the decision or award of the committee or
sole arbitrator or of the Board of Directors, as the case may be, within a
non-extendible period of fifteen (15) days from and after its receipt of the
order denying or granting said motion for reconsideration or new trial had
been filed, within a non-extendible period of fifteen (15) days from and
after its receipt of the order denying or granting said motion for
reconsideration or of the decision rendered after the new trial if one had
been granted.
x x x x. (Emphasis supplied)
As provided in the PCHC Rules, the findings of facts of the decision or award
rendered by the Arbitration Committee shall be final and conclusive upon
all the parties in said arbitration dispute.28 Under Article 204429 of the
New Civil Code, the validity of any stipulation on the finality of the
arbitrators’ award or decision is recognized. However, where the conditions
described in Articles 2038,30 203931 and 204032 applicable to both
compromises and arbitrations are obtaining, the arbitrators’ award may be
annulled or rescinded.33 Consequently, the decision of the Arbitration
Committee is subject to judicial review.
Furthermore, petitioner had several judicial remedies available at its
disposal after the Arbitration Committee denied its Motion for
Reconsideration. It may petition the proper RTC to issue an order vacating
the award on the grounds provided for under Section 24 of the Arbitration
Law.34 Petitioner likewise has the option to file a petition for review under
Rule 43 of the Rules of Court with the Court of Appeals on questions of fact,
of law, or mixed questions of fact and law.35 Lastly, petitioner may file a
petition for certiorari under Rule 65 of the Rules of Court on the ground
that the Arbitrator Committee acted without or in excess of its jurisdiction
or with grave abuse of discretion amounting to lack or excess of jurisdiction.
Since this case involves acts or omissions of a quasi-judicial agency, the
petition should be filed in and cognizable only by the Court of Appeals.36
In this instance, petitioner did not avail of any of the abovementioned
remedies available to it. Instead it filed a petition for review with the RTC
where Civil Case No. 92-145 is pending pursuant to Section 13 of the PCHC
Rules to sustain its action. Clearly, it erred in the procedure it chose for
judicial review of the arbitral award.
Having established that petitioner failed to avail of the abovementioned
remedies, we now discuss the issue of the jurisdiction of the trial court with
respect to the petition for review filed by petitioner.
Jurisdiction is the authority to hear and determine a cause - the right to act
in a case.37 Jurisdiction over the subject matter is the power to hear and
determine the general class to which the proceedings in question belong.
Jurisdiction over the subject matter is conferred by law and not by the
consent or acquiescence of any or all of the parties or by erroneous belief of
the court that it exists.38
In the instant case, petitioner and respondent have agreed that the PCHC
Rules would govern in case of controversy. However, since the PCHC Rules
came about only as a result of an agreement between and among member
banks of PCHC and not by law, it cannot confer jurisdiction to the RTC. Thus,
the portion of the PCHC Rules granting jurisdiction to the RTC to review
arbitral awards, only on questions of law, cannot be given effect.
Consequently, the proper recourse of petitioner from the denial of its
motion for reconsideration by the Arbitration Committee is to file either a
motion to vacate the arbitral award with the RTC, a petition for review with
the Court of Appeals under Rule 43 of the Rules of Court, or a petition for
certiorari under Rule 65 of the Rules of Court. In the case at bar, petitioner
filed a petition for review with the RTC when the same should have been
filed with the Court of Appeals under Rule 43 of the Rules of Court. Thus,
the RTC of Makati did not err in dismissing the petition for review for lack of
jurisdiction but not on the ground that petitioner should have filed a
separate case from Civil Case No. 92-145 but on the necessity of filing the
correct petition in the proper court. It is immaterial whether petitioner filed
the petition for review in Civil Case No. 92-145 as an appeal of the arbitral
award or whether it filed a separate case in the RTC, considering that the
RTC will only have jurisdiction over an arbitral award in cases of motions to
vacate the same. Otherwise, as elucidated herein, the Court of Appeals
retains jurisdiction in petitions for review or in petitions for certiorari.
Consequently, petitioner’s arguments, with respect to the filing of separate
action from Civil Case No. 92-145 resulting in a multiplicity of suits, cannot
be given due course.
Alternative dispute resolution methods or ADRs – like arbitration,
mediation, negotiation and conciliation – are encouraged by the Supreme
Court. By enabling parties to resolve their disputes amicably, they provide
solutions that are less time-consuming, less tedious, less confrontational,
and more productive of goodwill and lasting relationships.39 It must be
borne in mind that arbitration proceedings are mainly governed by the
Arbitration Law and suppletorily by the Rules of Court.
WHEREFORE, in light of the foregoing, the petition is DENIED. The
November 9, 1999 Order of the Regional Trial Court of Makati City, Branch
135, in Civil Case No. 92-145 which dismissed the petition for review for lack
of jurisdiction and the February 1, 2000 Order denying its reconsideration,
are AFFIRMED.
SO ORDERED.
G.R. No. 141833 March 26, 2003
LM POWER ENGINEERING CORPORATION, petitioner,
vs.
CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent.
PANGANIBAN, J.:
Alternative dispute resolution methods or ADRs -- like arbitration,
mediation, negotiation and conciliation -- are encouraged by the Supreme
Court. By enabling parties to resolve their disputes amicably, they provide
solutions that are less time-consuming, less tedious, less confrontational,
and more productive of goodwill and lasting relationships.1
The Case
Before us is a Petition for Review on Certiorari2 under Rule 45 of the Rules
of Court, seeking to set aside the January 28, 2000 Decision of the Court of
Appeals3 (CA) in CA-GR CV No. 54232. The dispositive portion of the
Decision reads as follows:
"WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE.
The parties are ORDERED to present their dispute to arbitration in
accordance with their Sub-contract Agreement. The surety bond posted by
[respondent] is [d]ischarged."4
The Facts
On February 22, 1983, Petitioner LM Power Engineering Corporation and
Respondent Capitol Industrial Construction Groups Inc. entered into a
"Subcontract Agreement" involving electrical work at the Third Port of
Zamboanga.5
On April 25, 1985, respondent took over some of the work contracted to
petitioner.6 Allegedly, the latter had failed to finish it because of its inability
to procure materials.7
Upon completing its task under the Contract, petitioner billed respondent in
the amount of P6,711,813.90.8 Contesting the accuracy of the amount of
advances and billable accomplishments listed by the former, the latter
refused to pay. Respondent also took refuge in the termination clause of
the Agreement.9 That clause allowed it to set off the cost of the work that
petitioner had failed to undertake -- due to termination or take-over --
against the amount it owed the latter.
Because of the dispute, petitioner filed with the Regional Trial Court (RTC)
of Makati (Branch 141) a Complaint10 for the collection of the amount
representing the alleged balance due it under the Subcontract. Instead of
submitting an Answer, respondent filed a Motion to Dismiss,11 alleging that
the Complaint was premature, because there was no prior recourse to
arbitration.
In its Order12 dated September 15, 1987, the RTC denied the Motion on the
ground that the dispute did not involve the interpretation or the
implementation of the Agreement and was, therefore, not covered by the
arbitral clause.13
After trial on the merits, the RTC14 ruled that the take-over of some work
items by respondent was not equivalent to a termination, but a mere
modification, of the Subcontract. The latter was ordered to give full
payment for the work completed by petitioner.
Ruling of the Court of Appeals
On appeal, the CA reversed the RTC and ordered the referral of the case to
arbitration. The appellate court held as arbitrable the issue of whether
respondent’s take-over of some work items had been intended to be a
termination of the original contract under Letter "K" of the Subcontract. It
ruled likewise on two other issues: whether petitioner was liable under the
warranty clause of the Agreement, and whether it should reimburse
respondent for the work the latter had taken over.15
Hence, this Petition.16
The Issues
In its Memorandum, petitioner raises the following issues for the Court’s
consideration:
"A
Whether or not there exist[s] a controversy/dispute between petitioner and
respondent regarding the interpretation and implementation of the Sub-
Contract Agreement dated February 22, 1983 that requires prior recourse
to voluntary arbitration;
"B
In the affirmative, whether or not the requirements provided in Article III 1
of CIAC Arbitration Rules regarding request for arbitration ha[ve] been
complied with[.]"17
The Court’s Ruling
The Petition is unmeritorious.
First Issue:
Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the interpretation or the
implementation of the Agreement. Thus, without having to resort to prior
arbitration, it is entitled to collect the value of the services it rendered
through an ordinary action for the collection of a sum of money from
respondent. On the other hand, the latter contends that there is a need for
prior arbitration as provided in the Agreement. This is because there are
some disparities between the parties’ positions regarding the extent of the
work done, the amount of advances and billable accomplishments, and the
set off of expenses incurred by respondent in its take-over of petitioner’s
work.
We side with respondent. Essentially, the dispute arose from the parties’
incongruent positions on whether certain provisions of their Agreement
could be applied to the facts. The instant case involves technical
discrepancies that are better left to an arbitral body that has expertise in
those areas. In any event, the inclusion of an arbitration clause in a contract
does not ipso facto divest the courts of jurisdiction to pass upon the
findings of arbitral bodies, because the awards are still judicially reviewable
under certain conditions.18
In the case before us, the Subcontract has the following arbitral clause:
"6. The Parties hereto agree that any dispute or conflict as regards to
interpretation and implementation of this Agreement which cannot be
settled between [respondent] and [petitioner] amicably shall be settled by
means of arbitration x x x."19
Clearly, the resolution of the dispute between the parties herein requires a
referral to the provisions of their Agreement. Within the scope of the
arbitration clause are discrepancies as to the amount of advances and
billable accomplishments, the application of the provision on termination,
and the consequent set-off of expenses.
A review of the factual allegations of the parties reveals that they differ on
the following questions: (1) Did a take-over/termination occur? (2) May the
expenses incurred by respondent in the take-over be set off against the
amounts it owed petitioner? (3) How much were the advances and billable
accomplishments?
The resolution of the foregoing issues lies in the interpretation of the
provisions of the Agreement. According to respondent, the take-over was
caused by petitioner’s delay in completing the work. Such delay was in
violation of the provision in the Agreement as to time schedule:
"G. TIME SCHEDULE
"[Petitioner] shall adhere strictly to the schedule related to the WORK and
complete the WORK within the period set forth in Annex C hereof. NO time
extension shall be granted by [respondent] to [petitioner] unless a
corresponding time extension is granted by [the Ministry of Public Works
and Highways] to the CONSORTIUM."20
Because of the delay, respondent alleges that it took over some of the work
contracted to petitioner, pursuant to the following provision in the
Agreement:
"K. TERMINATION OF AGREEMENT
"[Respondent] has the right to terminate and/or take over this Agreement
for any of the following causes:
xxx xxx xxx
‘6. If despite previous warnings by [respondent], [petitioner] does not
execute the WORK in accordance with this Agreement, or persistently or
flagrantly neglects to carry out [its] obligations under this Agreement."21
Supposedly, as a result of the "take-over," respondent incurred expenses in
excess of the contracted price. It sought to set off those expenses against
the amount claimed by petitioner for the work the latter accomplished,
pursuant to the following provision:
"If the total direct and indirect cost of completing the remaining part of the
WORK exceed the sum which would have been payable to [petitioner] had
it completed the WORK, the amount of such excess [may be] claimed by
[respondent] from either of the following:
‘1. Any amount due [petitioner] from [respondent] at the time of the
termination of this Agreement."22
The issue as to the correct amount of petitioner’s advances and billable
accomplishments involves an evaluation of the manner in which the parties
completed the work, the extent to which they did it, and the expenses each
of them incurred in connection therewith. Arbitrators also need to look into
the computation of foreign and local costs of materials, foreign and local
advances, retention fees and letters of credit, and taxes and duties as set
forth in the Agreement. These data can be gathered from a review of the
Agreement, pertinent portions of which are reproduced hereunder:
"C. CONTRACT PRICE AND TERMS OF PAYMENT
xxx xxx xxx
"All progress payments to be made by [respondent] to [petitioner] shall be
subject to a retention sum of ten percent (10%) of the value of the
approved quantities. Any claims by [respondent] on [petitioner] may be
deducted by [respondent] from the progress payments and/or retained
amount. Any excess from the retained amount after deducting
[respondent’s] claims shall be released by [respondent] to [petitioner] after
the issuance of [the Ministry of Public Works and Highways] of the
Certificate of Completion and final acceptance of the WORK by [the Ministry
of Public Works and Highways].
xxx xxx xxx
"D. IMPORTED MATERIALS AND EQUIPMENT
"[Respondent shall open the letters of credit for the importation of
equipment and materials listed in Annex E hereof after the drawings,
brochures, and other technical data of each items in the list have been
formally approved by [the Ministry of Public Works and Highways].
However, petitioner will still be fully responsible for all imported materials
and equipment.
"All expenses incurred by [respondent], both in foreign and local currencies
in connection with the opening of the letters of credit shall be deducted
from the Contract Prices.
xxx xxx xxx
"N. OTHER CONDITIONS
xxx xxx xxx
"2. All customs duties, import duties, contractor’s taxes, income taxes, and
other taxes that may be required by any government agencies in
connection with this Agreement shall be for the sole account of
[petitioner]."23
Being an inexpensive, speedy and amicable method of settling disputes,24
arbitration -- along with mediation, conciliation and negotiation -- is
encouraged by the Supreme Court. Aside from unclogging judicial dockets,
arbitration also hastens the resolution of disputes, especially of the
commercial kind.25 It is thus regarded as the "wave of the future" in
international civil and commercial disputes.26 Brushing aside a contractual
agreement calling for arbitration between the parties would be a step
backward.27
Consistent with the above-mentioned policy of encouraging alternative
dispute resolution methods, courts should liberally construe arbitration
clauses. Provided such clause is susceptible of an interpretation that covers
the asserted dispute, an order to arbitrate should be granted.28 Any doubt
should be resolved in favor of arbitration.29
Second Issue:
Prior Request for Arbitration
According to petitioner, assuming arguendo that the dispute is arbitrable,
the failure to file a formal request for arbitration with the Construction
Industry Arbitration Commission (CIAC) precluded the latter from acquiring
jurisdiction over the question. To bolster its position, petitioner even cites
our ruling in Tesco Services Incorporated v. Vera.30 We are not persuaded.
Section 1 of Article II of the old Rules of Procedure Governing Construction
Arbitration indeed required the submission of a request for arbitration, as
follows:
"SECTION. 1. Submission to Arbitration -- Any party to a construction
contract wishing to have recourse to arbitration by the Construction
Industry Arbitration Commission (CIAC) shall submit its Request for
Arbitration in sufficient copies to the Secretariat of the CIAC; PROVIDED,
that in the case of government construction contracts, all administrative
remedies available to the parties must have been exhausted within 90 days
from the time the dispute arose."
Tesco was promulgated by this Court, using the foregoing provision as
reference.
On the other hand, Section 1 of Article III of the new Rules of Procedure
Governing Construction Arbitration has dispensed with this requirement
and recourse to the CIAC may now be availed of whenever a contract
"contains a clause for the submission of a future controversy to arbitration,"
in this wise:
"SECTION 1. Submission to CIAC Jurisdiction — An arbitration clause in a
construction contract or a submission to arbitration of a construction
dispute shall be deemed an agreement to submit an existing or future
controversy to CIAC jurisdiction, notwithstanding the reference to a
different arbitration institution or arbitral body in such contract or
submission. When a contract contains a clause for the submission of a
future controversy to arbitration, it is not necessary for the parties to enter
into a submission agreement before the claimant may invoke the
jurisdiction of CIAC."
The foregoing amendments in the Rules were formalized by CIAC Resolution
Nos. 2-91 and 3-93.31
The difference in the two provisions was clearly explained in China Chang
Jiang Energy Corporation (Philippines) v. Rosal Infrastructure Builders et
al.32 (an extended unsigned Resolution) and reiterated in National
Irrigation Administration v. Court of Appeals,33 from which we quote thus:
"Under the present Rules of Procedure, for a particular construction
contract to fall within the jurisdiction of CIAC, it is merely required that the
parties agree to submit the same to voluntary arbitration Unlike in the
original version of Section 1, as applied in the Tesco case, the law as it now
stands does not provide that the parties should agree to submit disputes
arising from their agreement specifically to the CIAC for the latter to acquire
jurisdiction over the same. Rather, it is plain and clear that as long as the
parties agree to submit to voluntary arbitration, regardless of what forum
they may choose, their agreement will fall within the jurisdiction of the
CIAC, such that, even if they specifically choose another forum, the parties
will not be precluded from electing to submit their dispute before the CIAC
because this right has been vested upon each party by law, i.e., E.O. No.
1008."34
Clearly, there is no more need to file a request with the CIAC in order to
vest it with jurisdiction to decide a construction dispute.
The arbitral clause in the Agreement is a commitment on the part of the
parties to submit to arbitration the disputes covered therein. Because that
clause is binding, they are expected to abide by it in good faith.35 And
because it covers the dispute between the parties in the present case,
either of them may compel the other to arbitrate.36
Since petitioner has already filed a Complaint with the RTC without prior
recourse to arbitration, the proper procedure to enable the CIAC to decide
on the dispute is to request the stay or suspension of such action, as
provided under RA 876 [the Arbitration Law].37
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.
Costs against petitioner.
SO ORDERED.
G.R. No. 143581 January 7, 2008
KOREA TECHNOLOGIES CO., LTD., petitioner,
vs.
HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256
of Regional Trial Court of Muntinlupa City, and PACIFIC GENERAL STEEL
MANUFACTURING CORPORATION, respondents.
DECISION
VELASCO, JR., J.:
In our jurisdiction, the policy is to favor alternative methods of resolving
disputes, particularly in civil and commercial disputes. Arbitration along
with mediation, conciliation, and negotiation, being inexpensive, speedy
and less hostile methods have long been favored by this Court. The petition
before us puts at issue an arbitration clause in a contract mutually agreed
upon by the parties stipulating that they would submit themselves to
arbitration in a foreign country. Regrettably, instead of hastening the
resolution of their dispute, the parties wittingly or unwittingly prolonged
the controversy.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation
which is engaged in the supply and installation of Liquefied Petroleum Gas
(LPG) Cylinder manufacturing plants, while private respondent Pacific
General Steel Manufacturing Corp. (PGSMC) is a domestic corporation.
On March 5, 1997, PGSMC and KOGIES executed a Contract1 whereby
KOGIES would set up an LPG Cylinder Manufacturing Plant in Carmona,
Cavite. The contract was executed in the Philippines. On April 7, 1997, the
parties executed, in Korea, an Amendment for Contract No. KLP-970301
dated March 5, 19972 amending the terms of payment. The contract and its
amendment stipulated that KOGIES will ship the machinery and facilities
necessary for manufacturing LPG cylinders for which PGSMC would pay USD
1,224,000. KOGIES would install and initiate the operation of the plant for
which PGSMC bound itself to pay USD 306,000 upon the plant’s production
of the 11-kg. LPG cylinder samples. Thus, the total contract price amounted
to USD 1,530,000.
On October 14, 1997, PGSMC entered into a Contract of Lease3 with Worth
Properties, Inc. (Worth) for use of Worth’s 5,079-square meter property
with a 4,032-square meter warehouse building to house the LPG
manufacturing plant. The monthly rental was PhP 322,560 commencing on
January 1, 1998 with a 10% annual increment clause. Subsequently, the
machineries, equipment, and facilities for the manufacture of LPG cylinders
were shipped, delivered, and installed in the Carmona plant. PGSMC paid
KOGIES USD 1,224,000.
However, gleaned from the Certificate4 executed by the parties on January
22, 1998, after the installation of the plant, the initial operation could not
be conducted as PGSMC encountered financial difficulties affecting the
supply of materials, thus forcing the parties to agree that KOGIES would be
deemed to have completely complied with the terms and conditions of the
March 5, 1997 contract.
For the remaining balance of USD306,000 for the installation and initial
operation of the plant, PGSMC issued two postdated checks: (1) BPI Check
No. 0316412 dated January 30, 1998 for PhP 4,500,000; and (2) BPI Check
No. 0316413 dated March 30, 1998 for PhP 4,500,000.5
When KOGIES deposited the checks, these were dishonored for the reason
"PAYMENT STOPPED." Thus, on May 8, 1998, KOGIES sent a demand
letter6 to PGSMC threatening criminal action for violation of Batas
Pambansa Blg.22 in case of nonpayment. On the same date, the wife of
PGSMC’s President faxed a letter dated May 7, 1998 to KOGIES’ President
who was then staying at a Makati City hotel. She complained that not only
did KOGIES deliver a different brand of hydraulic press from that agreed
upon but it had not delivered several equipment parts already paid for.
On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were
fully funded but the payments were stopped for reasons previously made
known to KOGIES.7
On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their
Contract dated March 5, 1997 on the ground that KOGIES had altered the
quantity and lowered the quality of the machineries and equipment it
delivered to PGSMC, and that PGSMC would dismantle and transfer the
machineries, equipment, and facilities installed in the Carmona plant. Five
days later, PGSMC filed before the Office of the Public Prosecutor an
Affidavit-Complaint for Estafa docketed as I.S. No. 98-03813 against Mr.
Dae Hyun Kang, President of KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC
could not unilaterally rescind their contract nor dismantle and transfer the
machineries and equipment on mere imagined violations by KOGIES. It also
insisted that their disputes should be settled by arbitration as agreed upon
in Article 15, the arbitration clause of their contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its
June 1, 1998 letter threatening that the machineries, equipment, and
facilities installed in the plant would be dismantled and transferred on July
4, 1998. Thus, on July 1, 1998, KOGIES instituted an Application for
Arbitration before the Korean Commercial Arbitration Board (KCAB) in
Seoul, Korea pursuant to Art. 15 of the Contract as amended.
On July 3, 1998, KOGIES filed a Complaint for Specific Performance,
docketed as Civil Case No. 98-1178 against PGSMC before the Muntinlupa
City Regional Trial Court (RTC). The RTC granted a temporary restraining
order (TRO) on July 4, 1998, which was subsequently extended until July 22,
1998. In its complaint, KOGIES alleged that PGSMC had initially admitted
that the checks that were stopped were not funded but later on claimed
that it stopped payment of the checks for the reason that "their value was
not received" as the former allegedly breached their contract by "altering
the quantity and lowering the quality of the machinery and equipment"
installed in the plant and failed to make the plant operational although it
earlier certified to the contrary as shown in a January 22, 1998 Certificate.
Likewise, KOGIES averred that PGSMC violated Art. 15 of their Contract, as
amended, by unilaterally rescinding the contract without resorting to
arbitration. KOGIES also asked that PGSMC be restrained from dismantling
and transferring the machinery and equipment installed in the plant which
the latter threatened to do on July 4, 1998.
On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES
was not entitled to the TRO since Art. 15, the arbitration clause, was null
and void for being against public policy as it ousts the local courts of
jurisdiction over the instant controversy.
On July 17, 1998, PGSMC filed its Answer with Compulsory
Counterclaim9 asserting that it had the full right to dismantle and transfer
the machineries and equipment because it had paid for them in full as
stipulated in the contract; that KOGIES was not entitled to the PhP
9,000,000 covered by the checks for failing to completely install and make
the plant operational; and that KOGIES was liable for damages amounting
to PhP 4,500,000 for altering the quantity and lowering the quality of the
machineries and equipment. Moreover, PGSMC averred that it has already
paid PhP 2,257,920 in rent (covering January to July 1998) to Worth and it
was not willing to further shoulder the cost of renting the premises of the
plant considering that the LPG cylinder manufacturing plant never became
operational.
After the parties submitted their Memoranda, on July 23, 1998, the RTC
issued an Order denying the application for a writ of preliminary injunction,
reasoning that PGSMC had paid KOGIES USD 1,224,000, the value of the
machineries and equipment as shown in the contract such that KOGIES no
longer had proprietary rights over them. And finally, the RTC held that Art.
15 of the Contract as amended was invalid as it tended to oust the trial
court or any other court jurisdiction over any dispute that may arise
between the parties. KOGIES’ prayer for an injunctive writ was
denied.10 The dispositive portion of the Order stated:
WHEREFORE, in view of the foregoing consideration, this Court
believes and so holds that no cogent reason exists for this Court
to grant the writ of preliminary injunction to restrain and refrain
defendant from dismantling the machineries and facilities at the
lot and building of Worth Properties, Incorporated at Carmona,
Cavite and transfer the same to another site: and therefore denies
plaintiff’s application for a writ of preliminary injunction.
On July 29, 1998, KOGIES filed its Reply to Answer and Answer to
Counterclaim.11 KOGIES denied it had altered the quantity and lowered the
quality of the machinery, equipment, and facilities it delivered to the plant.
It claimed that it had performed all the undertakings under the contract and
had already produced certified samples of LPG cylinders. It averred that
whatever was unfinished was PGSMC’s fault since it failed to procure raw
materials due to lack of funds. KOGIES, relying on Chung Fu Industries
(Phils.), Inc. v. Court of Appeals,12 insisted that the arbitration clause was
without question valid.
After KOGIES filed a Supplemental Memorandum with Motion to
Dismiss13 answering PGSMC’s memorandum of July 22, 1998 and seeking
dismissal of PGSMC’s counterclaims, KOGIES, on August 4, 1998, filed its
Motion for Reconsideration14 of the July 23, 1998 Order denying its
application for an injunctive writ claiming that the contract was not merely
for machinery and facilities worth USD 1,224,000 but was for the sale of an
"LPG manufacturing plant" consisting of "supply of all the machinery and
facilities" and "transfer of technology" for a total contract price of USD
1,530,000 such that the dismantling and transfer of the machinery and
facilities would result in the dismantling and transfer of the very plant itself
to the great prejudice of KOGIES as the still unpaid owner/seller of the
plant. Moreover, KOGIES points out that the arbitration clause under Art. 15
of the Contract as amended was a valid arbitration stipulation under Art.
2044 of the Civil Code and as held by this Court in Chung Fu Industries
(Phils.), Inc.15
In the meantime, PGSMC filed a Motion for Inspection of Things16 to
determine whether there was indeed alteration of the quantity and
lowering of quality of the machineries and equipment, and whether these
were properly installed. KOGIES opposed the motion positing that the
queries and issues raised in the motion for inspection fell under the
coverage of the arbitration clause in their contract.
On September 21, 1998, the trial court issued an Order (1) granting
PGSMC’s motion for inspection; (2) denying KOGIES’ motion for
reconsideration of the July 23, 1998 RTC Order; and (3) denying KOGIES’
motion to dismiss PGSMC’s compulsory counterclaims as these
counterclaims fell within the requisites of compulsory counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration17 of
the September 21, 1998 RTC Order granting inspection of the plant and
denying dismissal of PGSMC’s compulsory counterclaims.
Ten days after, on October 12, 1998, without waiting for the resolution of
its October 2, 1998 urgent motion for reconsideration, KOGIES filed before
the Court of Appeals (CA) a petition for certiorari18 docketed as CA-G.R. SP
No. 49249, seeking annulment of the July 23, 1998 and September 21, 1998
RTC Orders and praying for the issuance of writs of prohibition, mandamus,
and preliminary injunction to enjoin the RTC and PGSMC from inspecting,
dismantling, and transferring the machineries and equipment in the
Carmona plant, and to direct the RTC to enforce the specific agreement on
arbitration to resolve the dispute.
In the meantime, on October 19, 1998, the RTC denied KOGIES’ urgent
motion for reconsideration and directed the Branch Sheriff to proceed with
the inspection of the machineries and equipment in the plant on October
28, 1998.19
Thereafter, KOGIES filed a Supplement to the Petition20 in CA-G.R. SP No.
49249 informing the CA about the October 19, 1998 RTC Order. It also
reiterated its prayer for the issuance of the writs of prohibition, mandamus
and preliminary injunction which was not acted upon by the CA. KOGIES
asserted that the Branch Sheriff did not have the technical expertise to
ascertain whether or not the machineries and equipment conformed to the
specifications in the contract and were properly installed.
On November 11, 1998, the Branch Sheriff filed his Sheriff’s Report21 finding
that the enumerated machineries and equipment were not fully and
properly installed.
The Court of Appeals affirmed the trial court and declared
the arbitration clause against public policy
On May 30, 2000, the CA rendered the assailed Decision22 affirming the RTC
Orders and dismissing the petition for certiorari filed by KOGIES. The CA
found that the RTC did not gravely abuse its discretion in issuing the
assailed July 23, 1998 and September 21, 1998 Orders. Moreover, the CA
reasoned that KOGIES’ contention that the total contract price for USD
1,530,000 was for the whole plant and had not been fully paid was contrary
to the finding of the RTC that PGSMC fully paid the price of USD 1,224,000,
which was for all the machineries and equipment. According to the CA, this
determination by the RTC was a factual finding beyond the ambit of a
petition for certiorari.
On the issue of the validity of the arbitration clause, the CA agreed with the
lower court that an arbitration clause which provided for a final
determination of the legal rights of the parties to the contract by arbitration
was against public policy.
On the issue of nonpayment of docket fees and non-attachment of a
certificate of non-forum shopping by PGSMC, the CA held that the
counterclaims of PGSMC were compulsory ones and payment of docket
fees was not required since the Answer with counterclaim was not an
initiatory pleading. For the same reason, the CA said a certificate of non-
forum shopping was also not required.
Furthermore, the CA held that the petition for certiorari had been filed
prematurely since KOGIES did not wait for the resolution of its urgent
motion for reconsideration of the September 21, 1998 RTC Order which was
the plain, speedy, and adequate remedy available. According to the CA, the
RTC must be given the opportunity to correct any alleged error it has
committed, and that since the assailed orders were interlocutory, these
cannot be the subject of a petition for certiorari.
Hence, we have this Petition for Review on Certiorari under Rule 45.
The Issues
Petitioner posits that the appellate court committed the following errors:
a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE
MACHINERY AND FACILITIES AS "A QUESTION OF FACT" "BEYOND
THE AMBIT OF A PETITION FOR CERTIORARI" INTENDED ONLY FOR
CORRECTION OF ERRORS OF JURISDICTION OR GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF (SIC) EXCESS OF
JURISDICTION, AND CONCLUDING THAT THE TRIAL COURT’S
FINDING ON THE SAME QUESTION WAS IMPROPERLY RAISED IN
THE PETITION BELOW;
b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN
ARTICLE 15 OF THE CONTRACT BETWEEN THE PARTIES FOR BEING
"CONTRARY TO PUBLIC POLICY" AND FOR OUSTING THE COURTS
OF JURISDICTION;
c. DECREEING PRIVATE RESPONDENT’S COUNTERCLAIMS TO BE
ALL COMPULSORY NOT NECESSITATING PAYMENT OF DOCKET
FEES AND CERTIFICATION OF NON-FORUM SHOPPING;
d. RULING THAT THE PETITION WAS FILED PREMATURELY
WITHOUT WAITING FOR THE RESOLUTION OF THE MOTION FOR
RECONSIDERATION OF THE ORDER DATED SEPTEMBER 21, 1998
OR WITHOUT GIVING THE TRIAL COURT AN OPPORTUNITY TO
CORRECT ITSELF;
e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND
SEPTEMBER 21, 1998 NOT TO BE PROPER SUBJECTS OF
CERTIORARI AND PROHIBITION FOR BEING "INTERLOCUTORY IN
NATURE;"
f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN HE
(SIC) PETITION AND, INSTEAD, DISMISSING THE SAME FOR
ALLEGEDLY "WITHOUT MERIT."23
The Court’s Ruling
The petition is partly meritorious.
Before we delve into the substantive issues, we shall first tackle the
procedural issues.
The rules on the payment of docket fees for counterclaims
and cross claims were amended effective August 16, 2004
KOGIES strongly argues that when PGSMC filed the counterclaims, it should
have paid docket fees and filed a certificate of non-forum shopping, and
that its failure to do so was a fatal defect.
We disagree with KOGIES.
As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in
its Answer with Compulsory Counterclaim dated July 17, 1998 in accordance
with Section 8 of Rule 11, 1997 Revised Rules of Civil Procedure, the rule
that was effective at the time the Answer with Counterclaim was filed. Sec.
8 on existing counterclaim or cross-claim states, "A compulsory
counterclaim or a cross-claim that a defending party has at the time he files
his answer shall be contained therein."
On July 17, 1998, at the time PGSMC filed its Answer incorporating its
counterclaims against KOGIES, it was not liable to pay filing fees for said
counterclaims being compulsory in nature. We stress, however, that
effective August 16, 2004 under Sec. 7, Rule 141, as amended by A.M. No.
04-2-04-SC, docket fees are now required to be paid in compulsory
counterclaim or cross-claims.
As to the failure to submit a certificate of forum shopping, PGSMC’s Answer
is not an initiatory pleading which requires a certification against forum
shopping under Sec. 524 of Rule 7, 1997 Revised Rules of Civil Procedure. It
is a responsive pleading, hence, the courts a quo did not commit reversible
error in denying KOGIES’ motion to dismiss PGSMC’s compulsory
counterclaims.
Interlocutory orders proper subject of certiorari
Citing Gamboa v. Cruz,25 the CA also pronounced that "certiorari and
Prohibition are neither the remedies to question the propriety of an
interlocutory order of the trial court."26 The CA erred on its reliance
on Gamboa. Gamboa involved the denial of a motion to acquit in a criminal
case which was not assailable in an action for certiorari since the denial of a
motion to quash required the accused to plead and to continue with the
trial, and whatever objections the accused had in his motion to quash can
then be used as part of his defense and subsequently can be raised as errors
on his appeal if the judgment of the trial court is adverse to him. The
general rule is that interlocutory orders cannot be challenged by an
appeal.27 Thus, in Yamaoka v. Pescarich Manufacturing Corporation, we
held:
The proper remedy in such cases is an ordinary appeal from an
adverse judgment on the merits, incorporating in said appeal the
grounds for assailing the interlocutory orders. Allowing appeals
from interlocutory orders would result in the ‘sorry spectacle’ of a
case being subject of a counterproductive ping-pong to and from
the appellate court as often as a trial court is perceived to have
made an error in any of its interlocutory rulings. However, where
the assailed interlocutory order was issued with grave abuse of
discretion or patently erroneous and the remedy of appeal would
not afford adequate and expeditious relief, the Court allows
certiorari as a mode of redress.28
Also, appeals from interlocutory orders would open the floodgates to
endless occasions for dilatory motions. Thus, where the interlocutory order
was issued without or in excess of jurisdiction or with grave abuse of
discretion, the remedy is certiorari.29
The alleged grave abuse of discretion of the respondent court equivalent to
lack of jurisdiction in the issuance of the two assailed orders coupled with
the fact that there is no plain, speedy, and adequate remedy in the ordinary
course of law amply provides the basis for allowing the resort to a petition
for certiorari under Rule 65.
Prematurity of the petition before the CA
Neither do we think that KOGIES was guilty of forum shopping in filing the
petition for certiorari. Note that KOGIES’ motion for reconsideration of the
July 23, 1998 RTC Order which denied the issuance of the injunctive writ
had already been denied. Thus, KOGIES’ only remedy was to assail the RTC’s
interlocutory order via a petition for certiorari under Rule 65.
While the October 2, 1998 motion for reconsideration of KOGIES of the
September 21, 1998 RTC Order relating to the inspection of things, and the
allowance of the compulsory counterclaims has not yet been resolved, the
circumstances in this case would allow an exception to the rule that before
certiorari may be availed of, the petitioner must have filed a motion for
reconsideration and said motion should have been first resolved by the
court a quo. The reason behind the rule is "to enable the lower court, in the
first instance, to pass upon and correct its mistakes without the
intervention of the higher court."30
The September 21, 1998 RTC Order directing the branch sheriff to inspect
the plant, equipment, and facilities when he is not competent and
knowledgeable on said matters is evidently flawed and devoid of any legal
support. Moreover, there is an urgent necessity to resolve the issue on the
dismantling of the facilities and any further delay would prejudice the
interests of KOGIES. Indeed, there is real and imminent threat of irreparable
destruction or substantial damage to KOGIES’ equipment and machineries.
We find the resort to certiorari based on the gravely abusive orders of the
trial court sans the ruling on the October 2, 1998 motion for
reconsideration to be proper.
The Core Issue: Article 15 of the Contract
We now go to the core issue of the validity of Art. 15 of the Contract, the
arbitration clause. It provides:
Article 15. Arbitration.—All disputes, controversies, or differences
which may arise between the parties, out of or in relation to or in
connection with this Contract or for the breach thereof, shall
finally be settled by arbitration in Seoul, Korea in accordance with
the Commercial Arbitration Rules of the Korean Commercial
Arbitration Board. The award rendered by the arbitration(s) shall
be final and binding upon both parties concerned. (Emphasis
supplied.)
Petitioner claims the RTC and the CA erred in ruling that the arbitration
clause is null and void.
Petitioner is correct.
Established in this jurisdiction is the rule that the law of the place where the
contract is made governs. Lex loci contractus. The contract in this case was
perfected here in the Philippines. Therefore, our laws ought to govern.
Nonetheless, Art. 2044 of the Civil Code sanctions the validity of mutually
agreed arbitral clause or the finality and binding effect of an arbitral award.
Art. 2044 provides, "Any stipulation that the arbitrators’ award or decision
shall be final, is valid, without prejudice to Articles 2038, 2039 and 2040."
(Emphasis supplied.)
Arts. 2038,31 2039,32 and 204033 abovecited refer to instances where a
compromise or an arbitral award, as applied to Art. 2044 pursuant to Art.
2043,34 may be voided, rescinded, or annulled, but these would not
denigrate the finality of the arbitral award.
The arbitration clause was mutually and voluntarily agreed upon by the
parties. It has not been shown to be contrary to any law, or against morals,
good customs, public order, or public policy. There has been no showing
that the parties have not dealt with each other on equal footing. We find no
reason why the arbitration clause should not be respected and complied
with by both parties. In Gonzales v. Climax Mining Ltd.,35 we held that
submission to arbitration is a contract and that a clause in a contract
providing that all matters in dispute between the parties shall be referred to
arbitration is a contract.36 Again in Del Monte Corporation-USA v. Court of
Appeals, we likewise ruled that "[t]he provision to submit to arbitration any
dispute arising therefrom and the relationship of the parties is part of that
contract and is itself a contract."37
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration must be done in
Seoul, Korea in accordance with the Commercial Arbitration Rules of the
KCAB, and that the arbitral award is final and binding, is not contrary to
public policy. This Court has sanctioned the validity of arbitration clauses in
a catena of cases. In the 1957 case of Eastboard Navigation Ltd. v. Juan
Ysmael and Co., Inc.,38 this Court had occasion to rule that an arbitration
clause to resolve differences and breaches of mutually agreed contractual
terms is valid. In BF Corporation v. Court of Appeals, we held that "[i]n this
jurisdiction, arbitration has been held valid and constitutional. Even before
the approval on June 19, 1953 of Republic Act No. 876, this Court has
countenanced the settlement of disputes through arbitration. Republic Act
No. 876 was adopted to supplement the New Civil Code’s provisions on
arbitration."39 And in LM Power Engineering Corporation v. Capitol
Industrial Construction Groups, Inc., we declared that:
Being an inexpensive, speedy and amicable method of settling
disputes, arbitration––along with mediation, conciliation and
negotiation––is encouraged by the Supreme Court. Aside from
unclogging judicial dockets, arbitration also hastens the resolution
of disputes, especially of the commercial kind. It is thus regarded
as the "wave of the future" in international civil and commercial
disputes. Brushing aside a contractual agreement calling for
arbitration between the parties would be a step backward.
Consistent with the above-mentioned policy of encouraging
alternative dispute resolution methods, courts should liberally
construe arbitration clauses. Provided such clause is susceptible of
an interpretation that covers the asserted dispute, an order to
arbitrate should be granted. Any doubt should be resolved in
favor of arbitration.40
Having said that the instant arbitration clause is not against public policy,
we come to the question on what governs an arbitration clause specifying
that in case of any dispute arising from the contract, an arbitral panel will
be constituted in a foreign country and the arbitration rules of the foreign
country would govern and its award shall be final and binding.
RA 9285 incorporated the UNCITRAL Model law
to which we are a signatory
For domestic arbitration proceedings, we have particular agencies to
arbitrate disputes arising from contractual relations. In case a foreign
arbitral body is chosen by the parties, the arbitration rules of our domestic
arbitration bodies would not be applied. As signatory to the Arbitration
Rules of the UNCITRAL Model Law on International Commercial
Arbitration41 of the United Nations Commission on International Trade Law
(UNCITRAL) in the New York Convention on June 21, 1985, the Philippines
committed itself to be bound by the Model Law. We have even
incorporated the Model Law in Republic Act No. (RA) 9285, otherwise
known as the Alternative Dispute Resolution Act of 2004 entitled An Act to
Institutionalize the Use of an Alternative Dispute Resolution System in the
Philippines and to Establish the Office for Alternative Dispute Resolution,
and for Other Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of
Chapter 4 of the Model Law are the pertinent provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION
SEC. 19. Adoption of the Model Law on International Commercial
Arbitration.––International commercial arbitration shall be
governed by the Model Law on International Commercial
Arbitration (the "Model Law") adopted by the United Nations
Commission on International Trade Law on June 21, 1985 (United
Nations Document A/40/17) and recommended for enactment by
the General Assembly in Resolution No. 40/72 approved on
December 11, 1985, copy of which is hereto attached as Appendix
"A".
SEC. 20. Interpretation of Model Law.––In interpreting the Model
Law, regard shall be had to its international origin and to the need
for uniformity in its interpretation and resort may be made to
the travaux preparatoriesand the report of the Secretary General
of the United Nations Commission on International Trade Law
dated March 25, 1985 entitled, "International Commercial
Arbitration: Analytical Commentary on Draft Trade identified by
reference number A/CN. 9/264."
While RA 9285 was passed only in 2004, it nonetheless applies in the instant
case since it is a procedural law which has a retroactive effect. Likewise,
KOGIES filed its application for arbitration before the KCAB on July 1, 1998
and it is still pending because no arbitral award has yet been rendered.
Thus, RA 9285 is applicable to the instant case. Well-settled is the rule that
procedural laws are construed to be applicable to actions pending and
undetermined at the time of their passage, and are deemed retroactive in
that sense and to that extent. As a general rule, the retroactive application
of procedural laws does not violate any personal rights because no vested
right has yet attached nor arisen from them.42
Among the pertinent features of RA 9285 applying and incorporating the
UNCITRAL Model Law are the following:
(1) The RTC must refer to arbitration in proper cases
Under Sec. 24, the RTC does not have jurisdiction over disputes that are
properly the subject of arbitration pursuant to an arbitration clause, and
mandates the referral to arbitration in such cases, thus:
SEC. 24. Referral to Arbitration.––A court before which an action
is brought in a matter which is the subject matter of an arbitration
agreement shall, if at least one party so requests not later than
the pre-trial conference, or upon the request of both parties
thereafter, refer the parties to arbitration unless it finds that the
arbitration agreement is null and void, inoperative or incapable of
being performed.
(2) Foreign arbitral awards must be confirmed by the RTC
Foreign arbitral awards while mutually stipulated by the parties in the
arbitration clause to be final and binding are not immediately enforceable
or cannot be implemented immediately. Sec. 3543 of the UNCITRAL Model
Law stipulates the requirement for the arbitral award to be recognized by a
competent court for enforcement, which court under Sec. 36 of the
UNCITRAL Model Law may refuse recognition or enforcement on the
grounds provided for. RA 9285 incorporated these provisos to Secs. 42, 43,
and 44 relative to Secs. 47 and 48, thus:
 SEC. 42. Application of the New York Convention.––The New York
Convention shall govern the recognition and enforcement of
arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards shall be
filed with the Regional Trial Court in accordance with the rules of
procedure to be promulgated by the Supreme Court. Said
procedural rules shall provide that the party relying on the award
or applying for its enforcement shall file with the court the
original or authenticated copy of the award and the arbitration
agreement. If the award or agreement is not made in any of the
official languages, the party shall supply a duly certified
translation thereof into any of such languages.
The applicant shall establish that the country in which foreign
arbitration award was made in party to the New York Convention.
xxxx
SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards
Not Covered by the New York Convention.––The recognition and
enforcement of foreign arbitral awards not covered by the New
York Convention shall be done in accordance with procedural
rules to be promulgated by the Supreme Court. The Court may, on
grounds of comity and reciprocity, recognize and enforce a non-
convention award as a convention award.
SEC. 44. Foreign Arbitral Award Not Foreign Judgment.––A foreign
arbitral award when confirmed by a court of a foreign country,
shall be recognized and enforced as a foreign arbitral award and
not as a judgment of a foreign court.
A foreign arbitral award, when confirmed by the Regional Trial
Court, shall be enforced in the same manner as final and
executory decisions of courts of law of the Philippines
xxxx
SEC. 47. Venue and Jurisdiction.––Proceedings for recognition and
enforcement of an arbitration agreement or for vacations, setting
aside, correction or modification of an arbitral award, and any
application with a court for arbitration assistance and supervision
shall be deemed as special proceedings and shall be filed with the
Regional Trial Court (i) where arbitration proceedings are
conducted; (ii) where the asset to be attached or levied upon, or
the act to be enjoined is located; (iii) where any of the parties to
the dispute resides or has his place of business; or (iv) in the
National Judicial Capital Region, at the option of the applicant.
SEC. 48. Notice of Proceeding to Parties.––In a special proceeding
for recognition and enforcement of an arbitral award, the Court
shall send notice to the parties at their address of record in the
arbitration, or if any part cannot be served notice at such address,
at such party’s last known address. The notice shall be sent al
least fifteen (15) days before the date set for the initial hearing of
the application.
It is now clear that foreign arbitral awards when confirmed by the RTC are
deemed not as a judgment of a foreign court but as a foreign arbitral award,
and when confirmed, are enforced as final and executory decisions of our
courts of law.
Thus, it can be gleaned that the concept of a final and binding arbitral
award is similar to judgments or awards given by some of our quasi-judicial
bodies, like the National Labor Relations Commission and Mines
Adjudication Board, whose final judgments are stipulated to be final and
binding, but not immediately executory in the sense that they may still be
judicially reviewed, upon the instance of any party. Therefore, the final
foreign arbitral awards are similarly situated in that they need first to be
confirmed by the RTC.
(3) The RTC has jurisdiction to review foreign arbitral awards
Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with
specific authority and jurisdiction to set aside, reject, or vacate a foreign
arbitral award on grounds provided under Art. 34(2) of the UNCITRAL Model
Law. Secs. 42 and 45 provide:
SEC. 42. Application of the New York Convention.––The New York
Convention shall govern the recognition and enforcement of
arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards shall be
filed with the Regional Trial Court in accordance with the rules of
procedure to be promulgated by the Supreme Court. Said
procedural rules shall provide that the party relying on the award
or applying for its enforcement shall file with the court the
original or authenticated copy of the award and the arbitration
agreement. If the award or agreement is not made in any of the
official languages, the party shall supply a duly certified
translation thereof into any of such languages.
The applicant shall establish that the country in which foreign
arbitration award was made is party to the New York Convention.
If the application for rejection or suspension of enforcement of an
award has been made, the Regional Trial Court may, if it considers
it proper, vacate its decision and may also, on the application of
the party claiming recognition or enforcement of the award, order
the party to provide appropriate security.
xxxx
SEC. 45. Rejection of a Foreign Arbitral Award.––A party to a
foreign arbitration proceeding may oppose an application for
recognition and enforcement of the arbitral award in accordance
with the procedures and rules to be promulgated by the Supreme
Court only on those grounds enumerated under Article V of the
New York Convention. Any other ground raised shall be
disregarded by the Regional Trial Court.
Thus, while the RTC does not have jurisdiction over disputes governed by
arbitration mutually agreed upon by the parties, still the foreign arbitral
award is subject to judicial review by the RTC which can set aside, reject, or
vacate it. In this sense, what this Court held in Chung Fu Industries (Phils.),
Inc. relied upon by KOGIES is applicable insofar as the foreign arbitral
awards, while final and binding, do not oust courts of jurisdiction since
these arbitral awards are not absolute and without exceptions as they are
still judicially reviewable. Chapter 7 of RA 9285 has made it clear that all
arbitral awards, whether domestic or foreign, are subject to judicial review
on specific grounds provided for.
(4) Grounds for judicial review different in domestic and foreign arbitral
awards
The differences between a final arbitral award from an international or
foreign arbitral tribunal and an award given by a local arbitral tribunal are
the specific grounds or conditions that vest jurisdiction over our courts to
review the awards.
For foreign or international arbitral awards which must first be confirmed
by the RTC, the grounds for setting aside, rejecting or vacating the award by
the RTC are provided under Art. 34(2) of the UNCITRAL Model Law.
For final domestic arbitral awards, which also need confirmation by the RTC
pursuant to Sec. 23 of RA 87644 and shall be recognized as final and
executory decisions of the RTC,45 they may only be assailed before the RTC
and vacated on the grounds provided under Sec. 25 of RA 876.46
(5) RTC decision of assailed foreign arbitral award appealable
Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of
an aggrieved party in cases where the RTC sets aside, rejects, vacates,
modifies, or corrects an arbitral award, thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards.—A
decision of the Regional Trial Court confirming, vacating, setting
aside, modifying or correcting an arbitral award may be appealed
to the Court of Appeals in accordance with the rules and
procedure to be promulgated by the Supreme Court.
The losing party who appeals from the judgment of the court
confirming an arbitral award shall be required by the appellate
court to post a counterbond executed in favor of the prevailing
party equal to the amount of the award in accordance with the
rules to be promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed before
this Court through a petition for review under Rule 45 of the Rules of Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA 9285, PGSMC must submit to
the foreign arbitration as it bound itself through the subject contract. While
it may have misgivings on the foreign arbitration done in Korea by the
KCAB, it has available remedies under RA 9285. Its interests are duly
protected by the law which requires that the arbitral award that may be
rendered by KCAB must be confirmed here by the RTC before it can be
enforced.
With our disquisition above, petitioner is correct in its contention that an
arbitration clause, stipulating that the arbitral award is final and binding,
does not oust our courts of jurisdiction as the international arbitral award,
the award of which is not absolute and without exceptions, is still judicially
reviewable under certain conditions provided for by the UNCITRAL Model
Law on ICA as applied and incorporated in RA 9285.
Finally, it must be noted that there is nothing in the subject Contract which
provides that the parties may dispense with the arbitration clause.
Unilateral rescission improper and illegal
Having ruled that the arbitration clause of the subject contract is valid and
binding on the parties, and not contrary to public policy; consequently,
being bound to the contract of arbitration, a party may not unilaterally
rescind or terminate the contract for whatever cause without first resorting
to arbitration.
What this Court held in University of the Philippines v. De Los Angeles47 and
reiterated in succeeding cases,48 that the act of treating a contract as
rescinded on account of infractions by the other contracting party is valid
albeit provisional as it can be judicially assailed, is not applicable to the
instant case on account of a valid stipulation on arbitration. Where an
arbitration clause in a contract is availing, neither of the parties can
unilaterally treat the contract as rescinded since whatever infractions or
breaches by a party or differences arising from the contract must be
brought first and resolved by arbitration, and not through an extrajudicial
rescission or judicial action.
The issues arising from the contract between PGSMC and KOGIES on
whether the equipment and machineries delivered and installed were
properly installed and operational in the plant in Carmona, Cavite; the
ownership of equipment and payment of the contract price; and whether
there was substantial compliance by KOGIES in the production of the
samples, given the alleged fact that PGSMC could not supply the raw
materials required to produce the sample LPG cylinders, are matters proper
for arbitration. Indeed, we note that on July 1, 1998, KOGIES instituted an
Application for Arbitration before the KCAB in Seoul, Korea pursuant to Art.
15 of the Contract as amended. Thus, it is incumbent upon PGSMC to abide
by its commitment to arbitrate.
Corollarily, the trial court gravely abused its discretion in granting PGSMC’s
Motion for Inspection of Things on September 21, 1998, as the subject
matter of the motion is under the primary jurisdiction of the mutually
agreed arbitral body, the KCAB in Korea.
In addition, whatever findings and conclusions made by the RTC Branch
Sheriff from the inspection made on October 28, 1998, as ordered by the
trial court on October 19, 1998, is of no worth as said Sheriff is not
technically competent to ascertain the actual status of the equipment and
machineries as installed in the plant.
For these reasons, the September 21, 1998 and October 19, 1998 RTC
Orders pertaining to the grant of the inspection of the equipment and
machineries have to be recalled and nullified.
Issue on ownership of plant proper for arbitration
Petitioner assails the CA ruling that the issue petitioner raised on whether
the total contract price of USD 1,530,000 was for the whole plant and its
installation is beyond the ambit of a Petition for Certiorari.
Petitioner’s position is untenable.
It is settled that questions of fact cannot be raised in an original action for
certiorari.49 Whether or not there was full payment for the machineries and
equipment and installation is indeed a factual issue prohibited by Rule 65.
However, what appears to constitute a grave abuse of discretion is the
order of the RTC in resolving the issue on the ownership of the plant when
it is the arbitral body (KCAB) and not the RTC which has jurisdiction and
authority over the said issue. The RTC’s determination of such factual issue
constitutes grave abuse of discretion and must be reversed and set aside.
RTC has interim jurisdiction to protect the rights of the parties
Anent the July 23, 1998 Order denying the issuance of the injunctive writ
paving the way for PGSMC to dismantle and transfer the equipment and
machineries, we find it to be in order considering the factual milieu of the
instant case.
Firstly, while the issue of the proper installation of the equipment and
machineries might well be under the primary jurisdiction of the arbitral
body to decide, yet the RTC under Sec. 28 of RA 9285 has jurisdiction to
hear and grant interim measures to protect vested rights of the parties. Sec.
28 pertinently provides:
SEC. 28. Grant of interim Measure of Protection.—(a) It is not
incompatible with an arbitration agreement for a party to
request, before constitution of the tribunal, from a Court to
grant such measure. After constitution of the arbitral tribunal and
during arbitral proceedings, a request for an interim measure of
protection, or modification thereof, may be made with the
arbitral or to the extent that the arbitral tribunal has no power
to act or is unable to act effectivity, the request may be made
with the Court. The arbitral tribunal is deemed constituted when
the sole arbitrator or the third arbitrator, who has been
nominated, has accepted the nomination and written
communication of said nomination and acceptance has been
received by the party making the request.
(b) The following rules on interim or provisional relief shall be
observed:
Any party may request that provisional relief be granted against
the adverse party.
Such relief may be granted:
(i) to prevent irreparable loss or injury;
(ii) to provide security for the performance of any
obligation;
(iii) to produce or preserve any evidence; or
(iv) to compel any other appropriate act or omission.
(c) The order granting provisional relief may be conditioned upon
the provision of security or any act or omission specified in the
order.
(d) Interim or provisional relief is requested by written application
transmitted by reasonable means to the Court or arbitral tribunal
as the case may be and the party against whom the relief is
sought, describing in appropriate detail the precise relief, the
party against whom the relief is requested, the grounds for the
relief, and the evidence supporting the request.
(e) The order shall be binding upon the parties.
(f) Either party may apply with the Court for assistance in
implementing or enforcing an interim measure ordered by an
arbitral tribunal.
(g) A party who does not comply with the order shall be liable for
all damages resulting from noncompliance, including all expenses,
and reasonable attorney's fees, paid in obtaining the order’s
judicial enforcement. (Emphasis ours.)
Art. 17(2) of the UNCITRAL Model Law on ICA defines an "interim measure"
of protection as:
Article 17. Power of arbitral tribunal to order interim measures
xxx xxx xxx
(2) An interim measure is any temporary measure, whether in the
form of an award or in another form, by which, at any time prior
to the issuance of the award by which the dispute is finally
decided, the arbitral tribunal orders a party to:
(a) Maintain or restore the status quo pending determination of
the dispute;
(b) Take action that would prevent, or refrain from taking action
that is likely to cause, current or imminent harm or prejudice to
the arbitral process itself;
(c) Provide a means of preserving assets out of which a
subsequent award may be satisfied; or
(d) Preserve evidence that may be relevant and material to the
resolution of the dispute.
Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and
jurisdiction to issue interim measures:
Article 17 J. Court-ordered interim measures
A court shall have the same power of issuing an interim measure
in relation to arbitration proceedings, irrespective of whether
their place is in the territory of this State, as it has in relation to
proceedings in courts. The court shall exercise such power in
accordance with its own procedures in consideration of the
specific features of international arbitration.
In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro
Corporation, we were explicit that even "the pendency of an arbitral
proceeding does not foreclose resort to the courts for provisional reliefs."
We explicated this way:
As a fundamental point, the pendency of arbitral proceedings
does not foreclose resort to the courts for provisional reliefs. The
Rules of the ICC, which governs the parties’ arbitral dispute,
allows the application of a party to a judicial authority for interim
or conservatory measures. Likewise, Section 14 of Republic Act
(R.A.) No. 876 (The Arbitration Law) recognizes the rights of any
party to petition the court to take measures to safeguard and/or
conserve any matter which is the subject of the dispute in
arbitration. In addition, R.A. 9285, otherwise known as the
"Alternative Dispute Resolution Act of 2004," allows the filing of
provisional or interim measures with the regular courts whenever
the arbitral tribunal has no power to act or to act effectively.50
It is thus beyond cavil that the RTC has authority and jurisdiction to grant
interim measures of protection.
Secondly, considering that the equipment and machineries are in the
possession of PGSMC, it has the right to protect and preserve the
equipment and machineries in the best way it can. Considering that the LPG
plant was non-operational, PGSMC has the right to dismantle and transfer
the equipment and machineries either for their protection and preservation
or for the better way to make good use of them which is ineluctably within
the management discretion of PGSMC.
Thirdly, and of greater import is the reason that maintaining the equipment
and machineries in Worth’s property is not to the best interest of PGSMC
due to the prohibitive rent while the LPG plant as set-up is not operational.
PGSMC was losing PhP322,560 as monthly rentals or PhP3.87M for 1998
alone without considering the 10% annual rent increment in maintaining
the plant.
Fourthly, and corollarily, while the KCAB can rule on motions or petitions
relating to the preservation or transfer of the equipment and machineries
as an interim measure, yet on hindsight, the July 23, 1998 Order of the RTC
allowing the transfer of the equipment and machineries given the non-
recognition by the lower courts of the arbitral clause, has accorded an
interim measure of protection to PGSMC which would otherwise been
irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already been
paid a substantial amount based on the contract. Moreover, KOGIES is
amply protected by the arbitral action it has instituted before the KCAB, the
award of which can be enforced in our jurisdiction through the RTC.
Besides, by our decision, PGSMC is compelled to submit to arbitration
pursuant to the valid arbitration clause of its contract with KOGIES.
PGSMC to preserve the subject equipment and machineries
Finally, while PGSMC may have been granted the right to dismantle and
transfer the subject equipment and machineries, it does not have the right
to convey or dispose of the same considering the pending arbitral
proceedings to settle the differences of the parties. PGSMC therefore must
preserve and maintain the subject equipment and machineries with the
diligence of a good father of a family51 until final resolution of the arbitral
proceedings and enforcement of the award, if any.
WHEREFORE, this petition is PARTLY GRANTED, in that:
(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249
is REVERSED and SET ASIDE;
(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case
No. 98-117 are REVERSED and SET ASIDE;
(3) The parties are hereby ORDERED to submit themselves to the arbitration
of their dispute and differences arising from the subject Contract before the
KCAB; and
(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment
and machineries, if it had not done so, and ORDERED to preserve and
maintain them until the finality of whatever arbitral award is given in the
arbitration proceedings.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 171763 June 5, 2009
MARIA LUISA PARK ASSOCIATION, INC., Petitioner,
vs.
SAMANTHA MARIE T. ALMENDRAS and PIA ANGELA T.
ALMENDRAS, Respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari assails the Decision1 dated August 31,
2005 and the Resolution2 dated February 13, 2006 of the Court of Appeals
in CA-G.R. SP No. 81069.
The facts, culled from the records, are as follows:
On February 6, 2002, respondents Samantha Marie T. Almendras and Pia
Angela T. Almendras purchased from MRO Development Corporation a
residential lot located in Maria Luisa Estate Park, Banilad, Cebu City. After
some time, respondents filed with petitioner Maria Luisa Park Association,
Incorporated (MLPAI) an application to construct a residential house, which
was approved in February 10, 2002. Thus, respondents commenced the
construction of their house.
Upon ocular inspection of the house, MLPAI found out that respondents
violated the prohibition against multi-dwelling3 stated in MLPAI’s Deed of
Restriction. Consequently, on April 28, 2003, MLPAI sent a letter to the
respondents, demanding that they rectify the structure; otherwise, it will be
constrained to forfeit respondents’ construction bond and impose stiffer
penalties.
In a Letter4 dated April 29, 2003, respondents, as represented by their
father Ruben D. Almendras denied having violated MLPAI’s Deed of
Restriction.
On May 5, 2003, MLPAI, in its reply, pointed out respondents’ specific
violations of the subdivision rules, to wit: (a) installation of a second water
meter and tapping the subdivision’s main water pipeline, and (b)
construction of "two separate entrances that are mutually exclusive of each
other." It likewise reiterated its warning that failure to comply with its
demand will result in its exercise of more stringent measures.
In view of these, respondents filed with the Regional Trial Court of Cebu
City, Branch 7, a Complaint5 on June 2, 2003 for Injunction, Declaratory
Relief, Annulment of Provisions of Articles and By-Laws with Prayer for
Issuance of a Temporary Restraining Order (TRO)/Preliminary Injunction.
MLPAI moved for the dismissal of the complaint on the ground of lack of
jurisdiction and failure to comply with the arbitration clause6 provided for in
MLPAI’s by-laws.
In an Order7 dated July 31, 2003, the trial court dismissed the complaint for
lack of jurisdiction, holding that it was the Housing and Land Use Regulatory
Board (HLURB) that has original and exclusive jurisdiction over the case.
Respondents moved for reconsideration but their motion was denied.
Aggrieved, the respondents questioned the dismissal of their complaint in a
petition for certiorari and prohibition before the Court of Appeals.
The Court of Appeals granted the petition in its Decision dated August 31,
2005, the dispositive portion of which reads:
WHEREFORE, in view of all the foregoing, the petition is GRANTED and the
assailed orders of the respondent trial court are declared NULL AND VOID,
and SET ASIDE. Respondent RTC is hereby ordered to take jurisdiction of
Civil Case No. CEB-29002.
SO ORDERED.8
MLPAI filed a motion for reconsideration but it was denied by the Court of
Appeals in its Resolution dated February 13, 2006.
Hence, this petition raising the following issues:
I.
WHETHER THE HONORABLE COURT OF APPEALS HAS DISREGARDED LAWS
AND WELL-SETTLED JURISPRUDENCE IN HOLDING THAT JURISDICTION OVER
[THE] DISPUTE BETWEEN HOMEOWNERS AND HOMEOWNERS’
ASSOCIATION LIES WITH THE REGULAR COURTS AND NOT WITH HLURB.
II.
WHETHER THERE IS NO OTHER RELIEF AND REMEDY AVAILABLE TO
PETITIONER TO AVERT THE CONDUCT OF A VOID [PROCEEDING] THAN THE
PRESENT RECOURSE.9
Simply stated, the issue is whether the appellate court erred in ruling that it
was the trial court and not the HLURB that has jurisdiction over the case.
Petitioner MLPAI contends that the HLURB10 has exclusive jurisdiction over
the present controversy, it being a dispute between a subdivision lot owner
and a subdivision association, where the latter aimed to compel
respondents to comply with the MLPAI’s Deed of Restriction, specifically the
provision prohibiting multi-dwelling.
Respondents, on the other hand, counter that the case they filed against
MLPAI is one for declaratory relief and annulment of the provisions of the
by-laws; hence, it is outside the competence of the HLURB to resolve. They
likewise stated that MLPAI’s rules and regulations are discriminatory and
violative of their basic rights as members of the association. They also
argued that MLPAI’s acts are illegal, immoral and against public policy and
that they did not commit any violation of the MLPAI’s Deed of Restriction.
We agree with the trial court that the instant controversy falls squarely
within the exclusive and original jurisdiction of the Home Insurance and
Guaranty Corporation (HIGC),11 now HLURB.
Originally, administrative supervision over homeowners’ associations was
vested by law with the Securities and Exchange Commission (SEC).
However, pursuant to Executive Order No. 535,12 the HIGC assumed the
regulatory and adjudicative functions of the SEC over homeowners’
associations. Section 2 of E.O. No. 535 provides:
2. In addition to the powers and functions vested under the Home Financing
Act, the Corporation, shall have among others, the following additional
powers:
(a) . . . and exercise all the powers, authorities and responsibilities
that are vested on the Securities and Exchange Commission with
respect to homeowners associations, the provision of Act 1459, as
amended by P.D. 902-A, to the contrary notwithstanding;
(b) To regulate and supervise the activities and operations of all
houseowners associations registered in accordance therewith;
xxxx
Moreover, by virtue of this amendatory law, the HIGC also assumed the
SEC’s original and exclusive jurisdiction under Section 5 of Presidential
Decree No. 902-A to hear and decide cases involving:
b) Controversies arising out of intra-corporate or partnership relations,
between and among stockholders, members, or associates; between any
and/or all of them and the corporation, partnership or association of
which they are stockholders, members or associates, respectively; and
between such corporation, partnership or association and the state insofar
as it concerns their individual franchise or right to exist as such
entity;13 (Emphasis supplied.)
xxxx
Consequently, in Sta. Clara Homeowners’ Association v. Gaston14 and Metro
Properties, Inc. v. Magallanes Village Association, Inc.,15 the Court
recognized HIGC’s "Revised Rules of Procedure in the Hearing of Home
Owner’s Disputes," pertinent portions of which are reproduced below:
RULE II
Disputes Triable by HIGC/Nature of Proceedings
Section 1. Types of Disputes – The HIGC or any person, officer, body, board
or committee duly designated or created by it shall have jurisdiction to hear
and decide cases involving the following:
xxxx
(b) Controversies arising out of intra-corporate relations between and
among members of the association, between any or all of them and the
association of which they are members, and between such association and
the state/general public or other entity in so far as it concerns its right to
exist as a corporate entity.16 (Emphasis supplied.)
xxxx
Later on, the above-mentioned powers and responsibilities, which had been
vested in the HIGC with respect to homeowners’ associations, were
transferred to the HLURB pursuant to Republic Act No. 8763,17 entitled
"Home Guaranty Corporation Act of 2000."
In the present case, there is no question that respondents are members of
MLPAI as they have even admitted it.18Therefore, as correctly ruled by the
trial court, the case involves a controversy between the homeowners’
association and some of its members. Thus, the exclusive and original
jurisdiction lies with the HLURB.
Indeed, in Sta. Clara Homeowners’ Association v. Gaston, we held:
. . . the HIGC exercises limited jurisdiction over homeowners' disputes. The
law confines its authority to controversies that arise from any of the
following intra-corporate relations: (1) between and among members of
the association; (2) between any and/or all of them and the association of
which they are members; and (3) between the association and the state
insofar as the controversy concerns its right to exist as a corporate
entity.19(Emphasis supplied.)
The extent to which the HLURB has been vested with quasi-judicial
authority must also be determined by referring to Section 3 of P.D. No.
957,20 which provides:
SEC. 3. National Housing Authority. – The National Housing Authority shall
have exclusive jurisdiction to regulate the real estate trade and business in
accordance with the provisions of this Decree. (Emphasis supplied.)
The provisions of P.D. No. 957 were intended to encompass all questions
regarding subdivisions and condominiums. The intention was aimed at
providing for an appropriate government agency, the HLURB, to which all
parties aggrieved in the implementation of provisions and the enforcement
of contractual rights with respect to said category of real estate may take
recourse. The business of developing subdivisions and corporations being
imbued with public interest and welfare, any question arising from the
exercise of that prerogative should be brought to the HLURB which has the
technical know-how on the matter.22
It is apparent that although the complaint was denominated as one for
declaratory relief/annulment of contracts, the allegations therein reveal
otherwise. It should be stressed that respondents neither asked for the
interpretation of the questioned by-laws nor did they allege that the same
is doubtful or ambiguous and require judicial construction. In fact, what
respondents really seek to accomplish is to have a particular provision of
the MLPAI’s by-laws nullified and thereafter absolve them from any
violations of the same.23 In Kawasaki Port Service Corporation v.
Amores,24the rule was stated:
. . . where a declaratory judgment as to a disputed fact would be
determinative of issues rather than a construction of definite stated rights,
status and other relations, commonly expressed in written instrument, the
case is not one for declaratory judgment.25
Contrary to the observation of the Court of Appeals, jurisdiction cannot be
made to depend on the exclusive characterization of the case by one of the
parties.26 While respondents are questioning the validity or legality of the
MLPAI’s articles of incorporation and its by-laws, they did not, however,
raise any legal ground to support its nullification. The legality of the by-laws
in its entirety was never an issue in the instant controversy but merely the
provision prohibiting multi-dwelling which respondents assert they did not
violate.27 So to speak, there is no justiciable controversy here that would
warrant declaratory relief, or even an annulment of contracts.
We reiterate that in jurisdictional issues, what determines the nature of an
action for the purpose of ascertaining whether a court has jurisdiction over
a case are the allegations in the complaint and the nature of the relief
sought.28
Moreover, under the doctrine of primary administrative jurisdiction, courts
cannot or will not determine a controversy where the issues for resolution
demand the exercise of sound administrative discretion requiring the
special knowledge, experience, and services of the administrative tribunal
to determine technical and intricate matters of fact.29
In the instant case, the HLURB has the expertise to resolve the basic
technical issue of whether the house built by the respondents violated the
Deed of Restriction, specifically the prohibition against multi-
dwelling.1avvphi1
As observed in C.T. Torres Enterprises, Inc. v. Hibionada:30
The argument that only courts of justice can adjudicate claims resoluble
under the provisions of the Civil Code is out of step with the fast-changing
times. There are hundreds of administrative bodies now performing this
function by virtue of a valid authorization from the legislature. This quasi-
judicial function, as it is called, is exercised by them as an incident of the
principal power entrusted to them of regulating certain activities falling
under their particular expertise.
In the Solid Homes case for example the Court affirmed the competence of
the Housing and Land Use Regulatory Board to award damages although
this is an essentially judicial power exercisable ordinarily only by the courts
of justice. This departure from the traditional allocation of governmental
powers is justified by expediency, or the need of the government to
respond swiftly and competently to the pressing problems of the modern
world.31
We also note that the parties failed to abide by the arbitration agreement in
the MLPAI by-laws. Article XII of the MLPAI by-laws entered into by the
parties provide:
Mode of Dispute Resolution
Mode of Dispute Resolution. Should any member of the Association have
any grievance, dispute or claim against the Association or any of the officers
and governors thereof in connection with their function and/or position in
the Association, the parties shall endeavor to settle the same amicably. In
the event that efforts at amicable settlement fail, such dispute, difference
or disagreement shall be brought by the member to an arbitration panel
composed of three (3) arbitrators for final settlement, to the exclusion of all
other fora. Such arbitration may be initiated by giving notice to the other
party, such notice designating one (1) independent arbitrator. Within thirty
(30) from the receipt of said notice, the other party shall designate a second
independent arbitrator by written notice to the first party. Both arbitrators
shall within fifteen (15) days thereafter select a third independent
arbitrator, who shall be the chairman of the Arbitration Tribunal. In the
event that the two (2) arbitrators respectively nominated by the parties fail
to select the third independent arbitrator within the fifteen-day period, the
third arbitrator shall be jointly selected by the parties. In the event that the
other party does not nominate an arbitrator, the Arbitration Tribunal shall
be composed of one (1) arbitrator nominated by the party initiating the
proceedings. The Arbitration Tribunal shall render its decision within forty-
five (45) days from the selection of the third arbitrator, which decision shall
be valid and binding between the parties unless repudiated within five (5)
days from receipt thereof on grounds that the same was procured through
fraud or violence, or that there are patent or gross errors in facts made
basis of the decision. The award of the Tribunal shall be enforced by a court
of competent jurisdiction. Venue of action covered by this Article shall be in
the courts of justice of Cebu City only.
Under the said provision of the by-laws, any dispute or claim against the
Association or any of its officers and governors shall first be settled
amicably. If amicable settlement fails, such dispute shall be brought by the
member to an arbitration panel for final settlement. The arbitral award shall
be valid and binding between the parties unless repudiated on grounds that
the same was procured through fraud or violence, or that there are patent
or gross errors in the tribunal’s findings of facts upon which the decision
was based.
The terms of Article XII of the MLPAI by-laws clearly express the intention of
the parties to bring first to the arbitration process all disputes between
them before a party can file the appropriate action. The agreement to
submit all disputes to arbitration is a contract. As such, the arbitration
agreement binds the parties thereto, as well as their assigns and
heirs.32 Respondents, being members of MLPAI, are bound by its by-laws,
and are expected to abide by it in good faith.33
In the instant case, we observed that while both parties exchanged
correspondence pertaining to the alleged violation of the Deed of
Restriction, they, however, made no earnest effort to resolve their
differences in accordance with the arbitration clause provided for in their
by-laws. Mere exchange of correspondence will not suffice much less satisfy
the requirement of arbitration. Arbitration being the mode of settlement
between the parties expressly provided for in their by-laws, the same
should be respected. Unless an arbitration agreement is such as absolutely
to close the doors of the courts against the parties, the courts should look
with favor upon such amicable arrangements.34
Arbitration is one of the alternative methods of dispute resolution that is
now rightfully vaunted as "the wave of the future" in international relations,
and is recognized worldwide. To brush aside a contractual agreement
calling for arbitration in case of disagreement between the parties would
therefore be a step backward.35
WHEREFORE, the instant petition is GRANTED. The Decision dated August
31, 2005 and Resolution dated February 13, 2006 of the Court of Appeals in
CA-G.R. SP No. 81069 are SET ASIDE. The Order dated July 31, 2003 of the
Regional Trial Court of Cebu City, Branch 7, is hereby REINSTATED.
SO ORDERED.
G.R. No. 182248 December 18, 2008
EQUITABLE PCI BANKING CORPORATION,1 GEORGE L. GO, PATRICK D. GO,
GENEVIEVE W.J. GO, FERDINAND MARTIN G. ROMUALDEZ, OSCAR P.
LOPEZ-DEE, RENE J. BUENAVENTURA, GLORIA L. TAN-CLIMACO, ROGELIO
S. CHUA, FEDERICO C. PASCUAL, LEOPOLDO S. VEROY, WILFRIDO V.
VERGARA, EDILBERTO V. JAVIER, ANTHONY F. CONWAY, ROMULAD U. DY
TANG, WALTER C. WESSMER, and ANTONIO N. COTOCO, petitioners,
vs.
RCBC CAPITAL CORPORATION, respondent.
DECISION
VELASCO, JR., J.:
The Case
This Petition for Review on Certiorari under Rule 45 seeks the reversal of
the January 8, 20082 and March 17, 20083 Orders of the Regional Trial Court
(RTC), Branch 148 in Makati City in SP Proc. Case No. 6046, entitled In the
Matter of ICC Arbitration Ref. No. 13290/MS/JB/JEM Between RCBC Capital
Corporation, (Claimant), and Equitable PCI Banking Corporation, Inc. et al.,
(Respondents). The assailed January 8, 2008 Order confirmed the Partial
Award dated September 27, 20074 rendered by the International Chamber
of Commerce-International Court of Arbitration (ICC-ICA) in Case No.
13290/MS/JB/JEM, entitled RCBC Capital Corporation (Philippines) v.
Equitable PCI Bank, Inc. & Others (Philippines). The March 17, 2008 Order
denied petitioners’ motion for reconsideration of the January 8, 2008
Order.
The Facts
On May 24, 2000, petitioners Equitable PCI Bank, Inc. (EPCIB) and the
individual shareholders of Bankard, Inc., as sellers, and respondent RCBC
Capital Corporation (RCBC), as buyer, executed a Share Purchase
Agreement5(SPA) for the purchase of petitioners’ interests in Bankard,
representing 226,460,000 shares, for the price of PhP 1,786,769,400. To
expedite the purchase, RCBC agreed to dispense with the conduct of a due
diligence audit on the financial status of Bankard.
Under the SPA, RCBC undertakes, on the date of contract execution, to
deposit, as downpayment, 20% of the purchase price, or PhP 357,353,880,
in an escrow account. The escrowed amount, the SPA stated, should be
released to petitioners on an agreed-upon release date and the balance of
the purchase price shall be delivered to the share buyers upon the
fulfillment of certain conditions agreed upon, in the form of a manager’s
check.
The other relevant provisions of the SPA are:
Section 5. Sellers’ Representations and Warranties
The SELLERS jointly and severally represent and warrant
to the BUYER that:
xxxx
The Financial Condition of Bankard
g. The audited financial statements of Bankard for the three (3)
fiscal years ended December 31, 1997, 1998 and 1999, and the
unaudited financial statements for the first quarter ended 31
March 2000, are fair and accurate, and complete in all material
respects, and have been prepared in accordance with generally
accepted accounting principles consistently followed throughout
the period indicated and:
i) the balance sheet of Bankard as of 31 December 1999,
as prepared and certified by SGV & Co. ("SGV"), and the
unaudited balance sheet for the first quarter ended 31
March 2000, present a fair and accurate statement as of
those dates, of Bankard’s financial condition and of all
its assets and liabilities, and is complete in all material
respects; and
ii) the statements of Bankard’s profit and loss accounts
for the fiscal years 1996 to 1999, as prepared and
certified by SGV, and the unaudited profit and loss
accounts for the first quarter ended 31 March 2000,
fairly and accurately present the results of the
operations of Bankard for the periods indicated, and are
complete in all material respects.
h. Except as disclosed in the Disclosures, and except to the extent
set forth or reserved in the audited financial statements of
Bankard as of 31 December 1999 and its unaudited financial
statements as of 31 March 2000, Bankard, as of such dates and up
to 31 May 2000, had and shall have no liabilities, omissions or
mistakes in its records which will have material adverse effect on
the net worth or financial condition of Bankard to the extent of
more than One Hundred Million Pesos (P100,000,000.00) in the
aggregate. In the event such material adverse effect on the net
 worth or financial condition of Bankard exceeds One Hundred
Million Pesos (P100,000,000.00), the Purchase Price shall be
reduced in accordance with the following formula:
Reduction in Purchase Price = X multiplied by
226,460,000
where
Amount by which negative adjustment exceeds
P100 Million
X= --------------------------------------------
338,000,000
xxxx
Section 7. Remedies for Breach of Warranties
a. If any of the representations and warranties of any or all of the
SELLERS or the BUYER (the "Defaulting Party") contained in
Sections 5 and 6 shall be found to be untrue when made and/or
as of the Closing Date, the other party, i.e., the BUYER if the
Defaulting Party is any or all of the SELLERS and the SELLERS if the
Defaulting Party is the BUYER (hereinafter referred to as the
"Non-Defaulting Party") shall have the right to require the
Defaulting Party, at the latter’s expense, to cure such breach,
and/or seek damages, by providing notice or presenting a claim to
the Defaulting Party, reasonably specifying therein the particulars
of the breach. The foregoing remedies shall be available to the
Non-Defaulting Party only if the demand therefor is presented in
writing to the Defaulting Party within three (3) years from the
Closing Date except that the remedy for a breach of the SELLERS’
representation and warrant in Section 5 (h) shall be available only
if the demand therefor is presented to the Defaulting Party in
writing together with schedules and to substantiate such demand,
within six (6) months from the Closing Date.6
On June 2, 2000, RCBC deposited the stipulated downpayment amount in
an escrow account after which it was given full management and
operational control of Bankard. June 2, 2000 is also considered by the
parties as the Closing Date referred to in the SPA.
Thereafter, the parties executed an Amendment to Share Purchase
Agreement (ASPA) dated September 19, 2000.7Its paragraph 2(e) provided
that:
2. Notwithstanding any provisions to the contrary in the Share
Purchase Agreement and/or any agreement, instrument or
document entered into or executed by the Parties in relation
thereto (the "Related Agreements"), the Parties hereby agree
that:
xxxx
e) Notwithstanding the provisions of Sec. 7 of the Share Purchase
Agreement to the contrary, the remedy for a breach of the
SELLERS’ representation and warranty in Section 5(h) of the
Share Purchase Agreement shall be available if the demand
therefor is presented to the SELLERS in writing together with
schedules and data to substantiate such demand, on or before 31
December 2000. (Emphasis added.)
Sometime in September 2000, RCBC had Bankard’s accounts audited,
creating for the purpose an audit team led by a certain Rubio, the Vice-
President for Finance of RCBC at the time. Rubio’s conclusion was that the
warranty, as contained in Section 5(h) of the SPA (simply Sec. 5[h]
hereinafter), was correct.
On December 28, 2000, RCBC paid the balance of the contract price. The
corresponding deeds of sale for the shares in question were executed in
January 2001.
Thereafter, in a letter of May 5, 2003, RCBC informed petitioners of its
having overpaid the purchase price of the subject shares, claiming that
(1.925)
there was an overstatement of valuation of accounts amounting to PhP 478
million, resulting in the overpayment of over PhP 616 million. Thus, RCBC
claimed that petitioners violated their warranty, as sellers, embodied in Sec.
5(g) of the SPA (Sec. 5[g] hereinafter).
Following unsuccessful attempts at settlement, RCBC, in accordance with
Sec. 10 of the SPA, filed a Request for Arbitration dated May 12, 20048 with
the ICC-ICA. In the request, RCBC charged Bankard with deviating from,
contravening and not following generally accepted accounting principles
and practices in maintaining their books. Due to these improper accounting
practices, RCBC alleged that both the audited and unaudited financial
statements of Bankard prior to the stock purchase were far from fair and
accurate and, hence, violated the representations and warranties of
petitioners in the SPA. Per RCBC, its overpayment amounted to PhP 556
million. It thus prayed for the rescission of the SPA, restitution of the
purchase price, payment of actual damages in the amount of PhP
573,132,110, legal interest on the purchase price until actual restitution,
moral damages, and litigation and attorney’s fees. As alternative to
rescission and restitution, RCBC prayed for damages in the amount of at
least PhP 809,796,092 plus legal interest.
To the Request for Arbitration, petitioners filed an Answer dated July 28,
2004,9 denying RCBC’s inculpatory averments and setting up the following
affirmative allegations: the period for filing of the asserted claim had
already lapsed by force of Sec. 7 of the SPA; RCBC is not entitled to
rescission having had ample opportunity and reasonable time to file a claim
against petitioners; RCBC is not entitled to its alternative prayer of
damages, being guilty of laches and failing to set out the details of the
breach as required under Sec. 7.
Arbitration in the ICC-ICA proceeded after the formation of the arbitration
tribunal consisting of retired Justice Santiago M. Kapunan, nominated by
petitioners; Neil Kaplan, RCBC’s nominee; and Sir Ian Barker, appointed by
the ICC-ICA.
After drawn out proceedings with each party alleging deviation and non-
compliance by the other with arbitration rules, the tribunal, with Justice
Kapunan dissenting, rendered a Partial Award dated September 27,
2007,10 the dispositive portion of which states:
15 AWARD AND DIRECTIONS
15.1 The Tribunal makes the following declarations by way of
Partial Award:
(a) The Claimant’s claim is not time-barred under the provisions of
this SPA.
(b) The Claimant is not estopped by its conduct or the equitable
doctrine of laches from pursuing its claim.
 (c) As detailed in the Partial Award, the Claimant has established
the following breaches by the Respondents of clause 5(g) of the
SPA:
i) the assets, revenue and net worth of Bankard were
overstated by reason of its policy on and recognition of
Late Payment Fees;
ii) reported receivables were higher than their realizable
values by reason of the ‘bucketing’ method, thus
overstating Bankard’s assets; and
iii) the relevant Bankard statements were inadequate
and misleading in that their disclosures caused readers
to be misinformed about Bankard’s accounting policies
on revenue and receivables.
(d) Subject to proof of loss the Claimant is entitled to damages for
the foregoing breaches.
(e) The Claimant is not entitled to rescission of the SPA.
(f) All other issues, including any issue relating to costs, will be
dealt with in a further or final award.
15.2 A further Procedural Order will be necessary subsequent to
the delivery of this Partial Award to deal with the determination
of quantum and in particular, whether there should be an Expert
appointed by the Tribunal under Article 20(4) of the ICC Rules to
assist the Tribunal in this regard.
15.3 This Award is delivered by a majority of the Tribunal (Sir Ian
Barker and Mr. Kaplan). Justice Kapunan is unable to agree with
the majority’s conclusion on the claim of estoppel brought by the
respondents.
On the matter of prescription, the tribunal held that RCBC’s claim is not
time-barred, the claim properly falling under the contemplation of Sec. 5(g)
and not Sec. 5(h). As such, the tribunal concluded, RCBC’s claim was filed
within the three (3)-year period under Sec. 5(g) and that the six (6)-month
period under Sec. 5(h) did not apply.
The tribunal also exonerated RCBC from laches, the latter having sought
relief within the three (3)-year period prescribed in the SPA. On the matter
of estoppel suggested in petitioners’ answer, the tribunal stated in par.
10.27 of the Partial Award the following:
10.27 Clearly, there has to be both an admission or representation
by (in this case) the Claimant [RCBC], plus reliance upon it by (in
this case) the Respondents [herein petitioners]. The Tribunal
cannot find as proved any admission/representation that the
Claimant was abandoning a 5(g) claim, any reliance by the
Respondents on an admission, and any detriment to the
Respondents such as would entitle them to have the Claimant
deprived of the benefit of clause 5(g). These aspects of the claim
for estoppels are rejected.11
Notably, the tribunal considered the rescission of the SPA and ASPA as
impracticable and "totally out of the question."12
In his Dissenting Opinion13 which he submitted to and which was received
on September 24, 2007 by the ICC-ICA, Justice Kapunan stated the
observation that RCBC’s claim is time-barred, falling as such claim did under
Sec. 5(h), which prescribes a comparatively shorter prescriptive period, not
5(g) as held by the majority of the tribunal, to wit:
Claimant admits that the Claim is for recovery of P431 million on
account of alleged "overvaluation of the net worth of Bankard,"
allegedly for "improper accounting practices" resulting in "its
book value per share as of 31 December 1999 [being] overstated."
Claimant’s witness, Dean Echanis asserts that "the inadequate
provisioning for Bankard’s doubtful accounts result[ed] in an
overstatement of its December 31, 1999 total assets and net
worth of by [sic] least P418.2 million."
In addition, Claimant’s demand letter addressed to the
Respondents alleged that "we overpaid for the Shares to the
extent of the impact of the said overstatement on the Book Value
per share".
These circumstances establish beyond dispute that the Claim is
based on the alleged overstatement of the 1999 net worth of
Bankard, which the parties relied on in setting the purchase price
of the shares. Moreover, it is clear that there was an
overstatement because of "improper accounting practices" which
led Claimant to overpay for the shares.
Ultimately, the Claim is one for recovery of overpayment in the
purchase price of the shares. x x x
As to the issue of estoppel, Justice Kapunan stated:
Moreover, Mr. Rubio’s findings merely corroborated the
disclosures made in the Information Memorandum that Claimant
received from the Respondents prior to the execution of the SPA.
In this connection, I note that Bankard’s policy on provisioning
and setting of allowances using the Bucketed Method and income
recognition from AR/Principal, AR/Interest and AR/LPFs were
disclosed in the Information Memorandum. Thus, these alleged
improper accounting practices were known to the Claimant even
prior to the execution of the SPA.
Thus, when Claimant paid the balance of the purchase price, it did
so with full knowledge of these accounting practices of Bankard
that it now assails. By paying the balance of the purchase price
without taking exception or objecting to the accounting practices
disclosed through Mr. Rubio’ s review and the Information
Memorandum, Claimant is deemed to have accepted such
practices as correctly reporting the 1999 net worth. x x x
xxxx
As last point, I note that my colleagues invoke a principle that for
estoppels to apply there must be positive indication that the right
to sue was waived. I am of the view that there is no such principle
under Philippine law. What is applicable is the holding in Knecht
and in Coca- Cola that prior knowledge of an unfavorable fact is
binding on the party who has such knowledge; "when the
purchaser proceeds to make investigations by himself, and the
vendor does nothing to prevent such investigation from being as
complete as the former might wish, the purchaser cannot later
allege that the vendor made false representations to him" (Cf.
Songco v. Sellner, 37 Phil 254 citations omitted).
 Applied to this case, the Claimant cannot seek relief on the basis
that when it paid the purchase price in December 2000, it was
unaware that the accounting practices that went into the
reporting of the 1999 net worth as amounting to P1,387,275,847
were not in conformity with GAAP [generally accepted accounting
principles]. (Emphasis added.)
On October 26, 2007, RCBC filed with the RTC a Motion to Confirm Partial
Award. On the same day, petitioners countered with a Motion to Vacate the
Partial Award. On November 9, 2007, petitioners again filed a Motion to
Suspend and Inhibit Barker and Kaplan.
On January 8, 2008, the RTC issued the first assailed order confirming the
Partial Award and denying the adverted separate motions to vacate and to
suspend and inhibit. From this order, petitioners sought reconsideration,
but their motion was denied by the RTC in the equally assailed second order
of March 17, 2008.
From the assailed orders, petitioners came directly to this Court through
this petition for review.
The Issues
This petition seeks the review, reversal and setting aside of the
orders Annexes A and B and, in lieu of them, it seeks judgment
vacating the arbitrators’ liability award, Annex C, on these
grounds:
(a) The trial court acted contrary to law and judicial authority in
refusing to vacate the arbitral award, notwithstanding it was
rendered in plain disregard of the parties’ contract and applicable
Philippine law, under which the claim in arbitration was
indubitably time-barred.
(b) The trial court acted contrary to law and judicial authority in
refusing to vacate and in confirming the arbitral award,
notwithstanding that the arbitrators had plainly and admittedly
failed to accord petitioners’ due process by denying them a
hearing on the basic factual matter upon which their liability is
predicated.
(c) The trial court committed grave error in confirming the
arbitrators’ award, which held petitioners-sellers liable for an
alleged improper recording of accounts, allegedly affecting the
value of the shares they sold, notwithstanding that the
respondent-buyer knew before contracting that the accounts
were kept in the manner complained of, and in fact ratified and
adopted the questioned accounting practice and policies.14
The Court’s Ruling
The petition must be denied.
On Procedural Misstep of Direct Appeal to This Court
As earlier recited, the ICC-ICA’s Partial Award dated September 27, 2007
was confirmed by the RTC in its first assailed order of January 8, 2008.
Thereafter, the RTC, by order of March 17, 2008, denied petitioners’ motion
for reconsideration. Therefrom, petitioners came directly to this Court on a
petition for review under Rule 45 of the Rules of Court.
This is a procedural miscue for petitioners who erroneously bypassed the
Court of Appeals (CA) in pursuit of its appeal. While this procedural gaffe
has not been raised by RCBC, still we would be remiss in not pointing out
the proper mode of appeal from a decision of the RTC confirming, vacating,
setting aside, modifying, or correcting an arbitral award.
Rule 45 is not the remedy available to petitioners as the proper mode of
appeal assailing the decision of the RTC confirming as arbitral award is an
appeal before the CA pursuant to Sec. 46 of Republic Act No. (RA) 9285,
otherwise known as the Alternative Dispute Resolution Act of 2004, or
completely, An Act to Institutionalize the Use of an Alternative Dispute
Resolution System in the Philippines and to Establish the Office for
Alternative Dispute Resolution, and for other Purposes, promulgated on
April 2, 2004 and became effective on April 28, 2004 after its publication on
April 13, 2004.
In Korea Technologies Co., Ltd v. Lerma, we explained, inter alia, that the
RTC decision of an assailed arbitral award is appealable to the CA and may
further be appealed to this Court, thus:
Sec. 46 of RA 9285 provides for an appeal before the CA as the
remedy of an aggrieved party in cases where the RTC sets aside,
rejects, vacates, modifies, or corrects an arbitral award, thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards.–A
decision of the Regional Trial Court confirming, vacating, setting
aside, modifying or correcting an arbitral award may be appealed
to the Court of Appeals in accordance with the rules and
procedure to be promulgated by the Supreme Court.
The losing party who appeals from the judgment of the court
confirming an arbitral award shall be required by the appellate
court to post a counterbond executed in favor of the prevailing
party equal to the amount of the award in accordance with the
rules to be promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed
before this Court through a petition for review under Rule 45 of
the Rules of Court.15
It is clear from the factual antecedents that RA 9285 applies to the instant
case. This law was already effective at the time the arbitral proceedings
were commenced by RCBC through a request for arbitration filed before the
ICC-ICA on May 12, 2004. Besides, the assailed confirmation order of the
RTC was issued on March 17, 2008. Thus, petitioners clearly took the wrong
mode of appeal and the instant petition can be outright rejected and
dismissed.
Even if we entertain the petition, the outcome will be the same.
The Court Will Not Overturn an Arbitral Award
Unless It Was Made in Manifest Disregard of the Law
In Asset Privatization Trust v. Court of Appeals,16 the Court passed on similar
issues as the ones tendered in the instant petition. In that case, the
arbitration committee issued an arbitral award which the trial court, upon
due proceedings, confirmed despite the opposition of the losing party.
Motions for reconsideration by the losing party were denied. An appeal
interposed by the losing party to the CA was denied due course. On appeal
to this Court, we established the parameters by which an arbitral award
may be set aside, to wit:
 As a rule, the award of an arbitrator cannot be set aside for
mere errors of judgment either as to the law or as to the facts.
Courts are without power to amend or overrule merely because
of disagreement with matters of law or facts determined by the
arbitrators. They will not review the findings of law and fact
contained in an award, and will not undertake to substitute their
judgment for that of the arbitrators, since any other rule would
make an award the commencement, not the end, of litigation.
Errors of law and fact, or an erroneous decision of matters
submitted to the judgment of the arbitrators, are insufficient to
invalidate an award fairly and honestly made. Judicial review of
an arbitration is, thus, more limited than judicial review of a
trial.
Nonetheless, the arbitrators’ awards is not absolute and without
exceptions. The arbitrators cannot resolve issues beyond the
scope of the submission agreement. The parties to such an
agreement are bound by the arbitrators’ award only to the extent
and in the manner prescribed by the contract and only if the
award is rendered in conformity thereto. Thus, Sections 24 and 25
of the Arbitration Law provide grounds for vacating, rescinding or
modifying an arbitration award. Where the conditions described
in Articles 2038, 2039 and 2040 of the Civil Code applicable to
compromises and arbitration are attendant, the arbitration award
may also be annulled.
xxxx
Finally, it should be stressed that while a court is precluded from
overturning an award for errors in determination of factual issues,
nevertheless, if an examination of the record reveals no support
whatever for the arbitrators’ determinations, their award must be
vacated. In the same manner, an award must be vacated if it was
made in "manifest disregard of the law."17 (Emphasis supplied.)
Following Asset Privatization Trust, errors in law and fact would not
generally justify the reversal of an arbitral award. A party asking for the
vacation of an arbitral award must show that any of the grounds for
vacating, rescinding, or modifying an award are present or that the arbitral
award was made in manifest disregard of the law. Otherwise, the Court is
duty-bound to uphold an arbitral award.
The instant petition dwells on the alleged manifest disregard of the law by
the ICC-ICA.
The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Jaros18 expounded on the phrase "manifest disregard of the law" in the
following wise:
This court has emphasized that manifest disregard of the law is a
very narrow standard of review. Anaconda Co. v. District Lodge
No. 27, 693 F.2d 35 (6th Cir.1982). A mere error in interpretation
or application of the law is insufficient. Anaconda, 693 F.2d at 37-
38. Rather, the decision must fly in the face of clearly established
legal precedent. When faced with questions of law, an arbitration
panel does not act in manifest disregard of the law unless (1) the
applicable legal principle is clearly defined and not subject to
reasonable debate; and (2) the arbitrators refused to heed that
legal principle.
Thus, to justify the vacation of an arbitral award on account of "manifest
disregard of the law," the arbiter’s findings must clearly and unequivocally
violate an established legal precedent. Anything less would not suffice.
In the present case, petitioners, in a bid to establish that the arbitral award
was issued in manifest disregard of the law, allege that the Partial Award
violated the principles of prescription, due process, and estoppel. A review
of petitioners’ arguments would, however, show that their arguments are
bereft of merit. Thus, the Partial Award dated September 27, 2007 cannot
be vacated.
RCBC’s Claim Is Not Time-Barred
Petitioners argue that RCBC’s claim under Sec. 5(g) is based on
overvaluation of Bankard’s revenues, assets, and net worth, hence, for price
reduction falling under Sec. 5(h), in which case it was belatedly filed, for
RCBC presented the claim to petitioners on May 5, 2003, when the period
for presenting it under Sec. 5(h) expired on December 31, 2000. As a
counterpoint, RCBC asserts that its claim clearly comes under Sec. 5(g) in
relation to Sec. 7 which thus gave it three (3) years from the closing date of
June 2, 2000, or until June 1, 2003, within which to make its claim. RCBC
contends having acted within the required period, having presented its
claim-demand on May 5, 2003.
To make clear the issue at hand, we highlight the pertinent portions of Secs.
5(g), 5(h), and 7 bearing on what petitioners warranted relative to the
financial condition of Bankard and the remedies available to RCBC in case of
breach of warranty:
g. The audited financial statements of Bankard for the three (3)
fiscal years ended December 31, 1997, 1998 and 1999, and the
unaudited financial statements for the first quarter ended 31
March 2000, are fair and accurate, and complete in all material
respects, and have been prepared in accordance with generally
accepted accounting principles consistently followed throughout
the period indicated and:
i) the balance sheet of Bankard as of 31 December
1999, as prepared and certified by SGV & Co. ("SGV"),
and the unaudited balance sheet for the first quarter
ended 31 March 2000, present a fair and accurate
statement as of those dates, of Bankard’s financial
condition and of all its assets and liabilities, and is
complete in all material respects; and
ii) the statements of Bankard’s profit and loss accounts
for the fiscal years 1996 to 1999, as prepared and
certified by SGV, and the unaudited profit and loss
accounts for the first quarter ended 31 March 2000,
fairly and accurately present the results of the
operations of Bankard for the periods indicated,
and are complete in all material respects.
h. Except as disclosed in the Disclosures, and except to the extent
set forth or reserved in the audited financial statements of
Bankard as of 31 December 1999 and its unaudited financial
statements for the first quarter ended 31 March 2000, Bankard,
as of such dates and up to 31 May 2000, had and shall have no
liabilities, omissions or mistakes in its records which will have a
material adverse effect on the net worth or financial condition
of Bankard to the extent of more than One Hundred Million
Pesos (P 100,000,000.00) in the aggregate. In the event such
material adverse effect on the net worth or financial condition of
Bankard exceeds One Hundred Million Pesos (P 100,000,000.00),
the Purchase Price shall be reduced in accordance with the
following formula:
 xxxx
Section 7. Remedies for Breach of Warranties
If any of the representations and warranties of any or all of the
SELLERS or the BUYER (the "Defaulting Party") contained in
Sections 5 and 6 shall be found to be untrue when made and/or
as of the Closing Date, the other party, i.e., the BUYER if the
Defaulting is any of the SELLERS and the SELLERS if the Defaulting
Party is the BUYER (hereinafter referred to as the "Non-Defaulting
Party") shall have the right to require the Defaulting Party, at the
latter’s expense, to cure such breach, and/or seek damages, by
providing notice or presenting a claim to the Defaulting Party,
reasonably specifying therein the particulars of the breach. The
foregoing remedies shall be available to the Non-Defaulting Party
only if the demand therefor is presented in writing to the
Defaulting Party within three (3) years from the Closing Date,
except that the remedy for a breach of the SELLERS’
representation and warranty in Section 5 (h) shall be available
only if the demand therefor is presented to the Defaulting Party
in writing together with schedules and data to substantiate such
demand, within six (6) months from the Closing Date. (Emphasis
supplied.)
Before we address the issue put forward by petitioners, there is a necessity
to determine the nature and application of the reliefs provided under Sec.
5(g) and Sec. 5(h) in conjunction with Sec. 7, thus:
(1) The relief under Sec. 5(h) is specifically for price reduction as said section
explicitly states that the "Purchase Price shall be reduced in accordance
with the following formula x x x." In addition, Sec. 7 gives the aggrieved
party the right to ask damages based on the stipulation that the non-
defaulting party "shall have the right to require the Defaulting Party, at the
latter’s expense, to cure such breach and/or seek damages."
On the other hand, the remedy under Sec. 5(g) in conjunction with Sec. 7
can include specific performance, damages, and other reliefs excluding
price reduction.
(2) Sec. 5(g) warranty covers the audited financial statements (AFS) for the
three (3) years ending December 31, 1997 to 1999 and the unaudited
financial statements (UFS) for the first quarter ending March 31, 2000. On
the other hand, the Sec. 5(h) warranty refers only to the AFS for the year
ending December 31, 1999 and the UFS up to May 31, 2000. It is undenied
that Sec. 5(h) refers to price reduction as it covers "only the most up-to-
date audited and unaudited financial statements upon which the price must
have been based."19
(3) Under Sec. 5(h), the responsibility of petitioners for its warranty
shall exclude the disclosures and reservations made in AFS of Bankard as of
December 31, 1999 and its UFS up to May 31, 2000. No such exclusions
were made under Sec. 5(g) with respect to the warranty of petitioners in
the AFS and UFS of Bankard.
(4) Sec. 5(h) gives relief only if there is material adverse effect in the net
worth in excess of PhP 100 million and it provides a formula for price
reduction.20 On the other hand, Sec. 5(g) can be the basis for remedies like
specific performance, damages, and other reliefs, except price reduction,
even if the overvaluation is less or above PhP 100 million and there is no
formula for computation of damages.
(5) Under Sec. 7, the aggrieved party shall present its written demand to the
defaulting party within three (3) years from closing date. Under Sec. 5(h),
the written demand shall be presented within six (6) months from closing
date. In accordance with par. 2(c) of the ASPA, the deadline to file the
demand under Sec. 5(h) was extended to December 31, 2000.
From the above determination, it becomes clear that the aggrieved party is
entitled to two (2) separate alternative remedies under Secs. 5 and 7 of the
SPA, thus:
1. A claim for price reduction under Sec. 5(h) and/or damages
based on the breach of warranty by Bankard on the absence of
liabilities, omissions and mistakes on the financial statements as
of 31 December 1999 and the UFS as of 31 May 2000, provided
that the material adverse effect on the net worth exceeds PhP
100M and the written demand is presented within six (6) months
from closing date (extended to 31 December 2000); and
2. An action to cure the breach like specific performance and/or
damages under Sec. 5(g) based on Bankard’s breach of warranty
involving its AFS for the three (3) fiscal years ending 31 December
1997, 1998, and 1999 and the UFS for the first quarter ending 31
March 2000 provided that the written demand shall be presented
within three (3) years from closing date.
Has RCBC the option to choose between Sec. 5(g) or Sec. 5(h)?
The answer is yes. Sec. 5 and Sec. 7 are clear that it is discretionary on the
aggrieved parties to avail themselves of any remedy mentioned above. They
may choose one and dispense with the other. Of course, the relief for price
reduction under Sec. 5(h) will have to conform to the prerequisites and time
frame of six (6) months; otherwise, it is waived.
Preliminarily, petitioners’ basic posture that RCBC’s claim is for the recovery
of overpayment is specious. The records show that in its Request for
Arbitration dated May 12, 2004, RCBC prayed for the rescission of the SPA,
restitution of the whole purchase price, and damages not for reduction of
price or for the return of any overpayment. Even in its May 5, 2000
letter,21 RCBC did not ask for the recovery of any overpayment or reduction
of price, merely stating in it that the accounts of Bankard, as reflected in its
AFS for 1999, were overstated which, necessarily, resulted in an
overpayment situation. RCBC was emphatic and unequivocal that
petitioners violated their warranty covered by Sec. 5(g) of the SPA.
It is thus evident that RCBC did not avail itself of the option under Sec. 5(h),
i.e., for price reduction or the return of any overpayment arising from the
overvaluation of Bankard’s financial condition. Clearly, RCBC invoked Sec.
5(g) to claim damages from petitioners which is one of the alternative
reliefs granted under Sec. 7 in addition to rescission and restitution of
purchase price.
Petitioners do not deny that RCBC formally filed its claim under Sec. 5(g)
which is anchored on the material overstatement or overvaluation of
Bankard’s revenues, assets, and net worth and, hence, the overstatement
of the purchase price. They, however, assert that such claim for
overpayment is actually a claim under Sec. 5(h) of the SPA for price
reduction which it forfeited after December 31, 2000.
We cannot sustain petitioners’ position.
It cannot be disputed that an overstatement or overvaluation of Bankard’s
financial condition as of closing date translates into a misrepresentation not
only of the accuracy and truthfulness of the financial statements under Sec.
5(g), but also as to Bankard’s actual net worth mentioned in Sec. 5(h).
Overvaluation presupposes mistakes in the entries in the financial
statements and amounts to a breach of petitioners’ representations and
warranties under Sec. 5. Consequently, such error in the financial
statements would impact on the figure representing the net worth of
Bankard as of closing date. An overvaluation means that the financial
condition of Bankard as of closing date, i.e., June 2, 2000, is overstated, a
situation that will definitely result in a breach of EPCIB’s representations
and warranties.
A scrutiny of Sec. 5(g) and Sec. 5(h) in relation to Sec. 7 of the SPA would
indicate the following remedies available to RCBC should it be discovered,
as of closing date, that there is overvaluation which will constitute breach of
the warranty clause under either Sec. 5(g) or (h), to wit:
(1) An overvaluation of Bankard’s actual financial condition as of closing
date taints the veracity and accuracy of the AFS for 1997, 1998, and 1999
and the UFS for the first quarter of 2000 and is an actionable breach of
petitioners’ warranties under Sec. 5(g).
(2) An overvaluation of Bankard’s financial condition as of May 31, 2000,
encompassing the warranted financial condition as of December 31, 1999
through the AFS for 1999 and as of March 31, 2000 through the UFS for the
first quarter of 2000, is a breach of petitioners’ representations and
warranties under Sec. 5(h).
Thus, RCBC has two distinct alternative remedies in case of an overvaluation
of Bankard’s financial condition. It may invoke Sec. 5(h) when the conditions
of the threshold aggregate overvaluation and the claim made within the six-
month time-bar are present. In the alternative, it may invoke Sec. 5(g) when
it finds that a claim for "curing the breach" and/or damages will be more
advantageous to its interests provided it is filed within three (3) years from
closing date. Since it has two remedies, RCBC may opt to exercise either
one. Of course, the exercise of either one will preclude the other.
Moreover, the language employed in Sec. 5(g) and Sec. 5(h) is clear and
bereft of any ambiguity. The SPA’s stipulations reveal that the non-use or
waiver of Sec. 5(h) does not preclude RCBC from availing itself of the second
relief under Sec. 5(g). Article 1370 of the Civil Code is explicit that "if terms
of a contract are clear and leave no doubt upon the intention of the
contracting parties the literal meaning of its stipulations shall control." Since
the terms of a contract have the force of law between the parties,22 then
the parties must respect and strictly conform to it. Lastly, it is a long held
cardinal rule that when the terms of an agreement are reduced to writing, it
is deemed to contain all the terms agreed upon and no evidence of such
terms can be admitted other than the contents of the agreement
itself.23 Since the SPA is unambiguous, and petitioners failed to adduce
evidence to the contrary, then they are legally bound to comply with it.
Petitioners agreed ultimately to the stipulation that:
Each of the representations and warranties of the SELLERS is
deemed to be a separate representation and warranty, and the
BUYER has placed complete reliance thereon in agreeing to the
Purchase Price and in entering into this Agreement. The
representations and warranties of the SELLERS shall be correct as
of the date of this Agreement and as of the Closing Date with the
same force and effect as though such representations and
warranties had been made as of the Closing Date.24 (Emphasis
supplied.)
The Court sustains the finding in the Partial Award that Sec. 5(g) of the SPA
is a free standing warranty and not constricted by Sec. 5(h) of the said
agreement.
Upon the foregoing premises and in the light of the undisputed facts on
record, RCBC’s claim for rescission of the SPA and damages due to
overvaluation of Bankard’s accounts was properly for a breach of the
warranty under Sec. 5(g) and was not time-barred. To repeat, RCBC
presented its written claim on May 5, 2003, or a little less than a month
before closing date, well within the three (3)-year prescriptive period
provided under Sec. 7 for the exercise of the right provided under Sec. 5(g).
Petitioners bemoan the fact that "the arbitrators’ liability award (a)
disregarded the 6-month contractual limitation for RCBC’s ‘overprice’ claim,
and [b] substituted in its place the 3-year limitation under the contract for
other claims,"25adopting in that regard the interpretation of the SPA made
by arbitral tribunal member, retired Justice Kapunan, in his Dissenting
Opinion, in which he asserted:
Ultimately, the Claim is one for recovery of overpayment in the
purchase price of the shares. And it is in this context, that I
respectfully submit that Section 5(h) and not Section 5(g), applies
to the present controversy.26
xxxx
True, without Section 5(h), the Claim for price recovery would fall
under Section 5(g). The recovery of the pecuniary loss of the
Claimant in the form of the excess price paid would be in the
nature of a claim for actual damages by way of compensation. In
that situation, all the accounts in the 1999 financial statements
would be the subject of the warranty in Section 5(g).
However, since the parties explicitly included Section 5(h) in their
SPA, which assures the Claimant that there were no "omissions or
mistakes in the records" that would misstate the 1999 net worth
account, I am left with no other conclusion but that the accuracy
of the net worth was the subject of the warranty in Section 5(h),
while the accuracy or correctness of the other accounts that did
not bear on, or affect Bankard’s net worth, were guaranteed by
Section 5(g).
xxxx
This manner of reconciling the two provisions is consistent with
the principle in Rule 130, Section 12 of the Rules of Court that
"when a general and a particular provision are inconsistent, the
latter is paramount to the former… [so] a particular intent will
control a general one that is inconsistent with it." This is also
consistent with existing doctrines on statutory construction, the
application of which is illustrated in the case of Commissioner of
Customs vs. Court of Tax Appeals, GR No. L-41861, dated March
23, 1987 x x x.
xxxx
The Claim is for recovery of the excess price by way of actual
damages.27 x x x (Emphasis supplied.)
Justice Kapunan noted that without Sec. 5(h), RCBC’s claim would fall under
Sec. 5(g), impliedly admitting that both provisions could very well cover
RCBC’s claim, except that Sec. 5(h) excludes the situation contemplated in it
from the general terms of Sec. 5(g).
Such view is incorrect.
While it is true that Sec. 5(h), as couched, is a warranty on the accuracy of
the Bankard’s net worth while Sec. 5(g), as also couched, is a warranty on
the veracity, accuracy, and completeness of the AFS in all material respects
as prepared in accordance with generally accepted accounting principles
consistently followed throughout the period audited, yet both warranties
boil down to the same thing and stem from the same accounts as
summarized in the AFS. Since the net worth is the balance of Bankard’s
assets less its liabilities, it necessarily includes all the accounts under the
AFS. In short, there are no accounts in the AFS that do not bear on the net
worth of Bankard. Moreover, as earlier elucidated, any overvaluation of
Bankard’s net worth is necessarily a misrepresentation of the veracity,
accuracy, and completeness of the AFS and also a breach of the warranty
under Sec. 5(g). Thus, the subject of the warranty in Sec. 5(h) is also covered
by the warranty in Sec. 5(g), and Sec. 5(h) cannot exclude such breach from
the ambit of Sec. 5(g). There is no need to rely on Sec. 12, Rule 130 of the
Rules of Court for both Sec. 5(g) and Sec. 5(h) as alternative remedies are of
equal footing and one need not categorize one section as a general
provision and the other a particular provision.
More importantly, a scrutiny of the four corners of the SPA does not
explicitly reveal any stipulation nor even impliedly that the parties intended
to limit the scope of the warranty in Sec. 5(g) or gave priority to Sec. 5(h)
over Sec. 5(g).
The arbitral tribunal did not find any legal basis in the SPA that Sec. 5(h)
"somehow cuts down" the scope of Sec. 5(g), thus:
9.10 In the opinion of the Tribunal, there is nothing in the
wording used in the SPA to give priority to one warranty over
the other. There is nothing in the wording used to indicate that
the parties intended to limit the scope of the warranty in 5(g). If
it be contended that, on a true construction of the two
warranties, 5(h) somehow cuts down the scope of 5(g), the
Tribunal can find no justification for such conclusion on the
wording used. Furthermore, the Tribunal is of the view that very
clear words would be needed to cut down the scope of the 5(g)
warranty.28
The Court upholds the conclusion of the tribunal and rules that the claim of
RCBC under Sec. 5(g) is not time-barred.
Petitioners Were Not Denied Due Process
Petitioners impute on RCBC the act of creating summaries of the accounts
of Bankard which "in turn were used by its experts to conclude that Bankard
improperly recorded its receivables and committed material deviations
from GAAP requirements."29 Later, petitioners would assert that "the
arbitrators’ partial award admitted and used the Summaries as evidence,
and held on the basis of the ‘information’ contained in them that
petitioners were in breach of their warranty in GAAP compliance."
To petitioners, the ICC-ICA’s use of such summaries but without presenting
the source documents violates their right to due process. Pressing the point,
petitioners had moved, but to no avail, for the exclusion of the said
summaries. Petitioners allege that they had reserved the right to cross-
examine the witnesses of RCBC who testified on the summaries, pending
the resolution of their motion to exclude. But, according to them, they were
effectively denied the right to cross-examine RCBC’s witnesses when the
ICC-ICA admitted the summaries of RCBC as evidence.
Petitioners’ position is bereft of merit.
Anent the use but non-presentation of the source documents as the
jumping board for a claim of denial of due process, petitioners
cite Compania Maritima v. Allied Free Worker’s Union.30 It may be stated,
however, that such case is not on all fours with the instant case and,
therefore, cannot be applied here considering that it does not involve an
administrative body exercising quasi-judicial function but rather the regular
court.
In a catena of cases, we have ruled that "[t]he essence of due process is the
opportunity to be heard. What the law prohibits is not the absence of
previous notice but the absolute absence thereof and the lack of
opportunity to be heard."31
We also explained in Lastimoso v. Asayo that "[d]ue process in an
administrative context does not require trial type proceedings similar to
those in courts of justice. Where an opportunity to be heard either through
oral arguments or through pleadings is accorded, there is no denial of
procedural due process."32
Were petitioners afforded the opportunity to refute the summaries and
pieces of evidence submitted by RCBC which became the bases of the
experts’ opinion?
The answer is in the affirmative.
We recall the events that culminated in the issuance of the challenged
Partial Award, thus:
On May 17, 2004, the ICC-ICA received the Request for Arbitration dated
May 12, 2004 from RCBC seeking rescission of the SPA and restitution of all
the amounts paid by RCBC to petitioners, with actual and moral damages,
interest, and costs of suit.
On August 8, 2004, petitioners filed an Answer to the Request for
Arbitration dated July 28, 2004, setting up a counterclaim for USD 300,000
for actual and exemplary damages.
RCBC filed its Reply33 dated August 31, 2004 to petitioners’ Answer to the
Request for Arbitration.
On October 4, 2004, the parties entered into the Terms of Reference.34 At
the same time, the chairperson of the arbitral tribunal issued a provisional
timetable35 for the arbitration.
On October 25, 2004, as previously agreed upon in the meeting on October
4, 2004, petitioners filed a Motion to Dismiss36 while RCBC filed a
"Claimant’s Position Paper (Re: [Petitioners’] Assertion that RCBC CAPITAL
CORPORATION’s Present Claim Is Time Barred)."37
Then, the tribunal issued Procedural Order No. 1 dated January 12,
2005,38 denying the motion to dismiss and setting the initial hearing of the
case on April 11, 2005.
In a letter dated February 9, 2005,39 petitioners requested that the tribunal
direct RCBC to produce certain documents. At the same time, petitioners
sought the postponement of the hearing on April 11, 2005 to March 21,
2005, in light of their own request.
On February 11, 2005, petitioners received RCBC’s brief of evidence and
supporting documentation in accordance with the provisional
timetable.40 In the brief of evidence, RCBC provided summaries of the
accounts of Bankard, which petitioners now question.
Later, in a letter dated February 14, 2005,41 petitioners complained to the
tribunal with regard to their lack of access to RCBC’s external auditor.
Petitioners sought an audit by an accounting firm of the records of Bankard
with respect to the claims of RCBC. By virtue of such requests, petitioners
also sought a rescheduling of the provisional timetable, despite their earlier
assurance to the tribunal that if they received the documents that they
requested on February 9, 2005 on or before February 21, 2005, they would
abide by the provisional timetable.
Thereafter, the tribunal issued Procedural Order No. 2 dated February 18,
2005,42 in which it allowed the discovery and inspection of the documents
requested by petitioners that were also scheduled on February 18, 2005.
The request for an audit of Bankard’s accounts was denied without
prejudice to the conduct of such audit during the course of the hearings.
Consequently, the tribunal amended the provisional timetable, extending
the deadline for petitioners to file their brief of evidence and documents to
March 21, 2005. The date of the initial hearing, however, remained on April
11, 2005.
On February 18, 2005, petitioners were furnished the documents that they
requested RCBC.43 The parties also agreed to meet again on February 23,
2005 to provide petitioners with a "walk-through" of Bankard’s Statistical
Analysis System and to provide petitioners with a soft copy of all of
Bankard’s cardholders.44
During the February 23, 2005 meeting, EPCIB’s counsels/representatives
were accompanied to the Bankard’s Credit-MIS Group. There, Bankard’s
representative, Amor Lazaro, described and explained to petitioners’
representatives the steps involved in procuring and translating raw data on
customer transactions. Lazaro explained that Bankard captures cardholder
information and transactions through encoding or electronic data capture.
Thereafter, such data are transmitted to its main credit card administration
system. Such raw data are then sent to Bankard’s Information Technology
Group. Using a proprietary software called SAS, the raw data is then
converted into SAS files which may be viewed, handled, and converted into
Excel files for reporting purposes. During the walk-through, petitioners’
representatives asked questions which were answered in detail by Lazaro.
At the same time, another Bankard representative, Felix L. Sincoñegue,
accompanied two auditors/representatives of petitioners to examine the
journal vouchers and supporting documents of Bankard consisting of
several boxes. The auditors randomly sifted through the boxes which they
had earlier requested to be inspected.
In addition, petitioners were furnished with an electronic copy of the details
of all cardholders, including relevant data for aging of receivables for the
years 2000 to 2003, as well as data containing details of written-off
accounts from 1999 to March 2000 contained in compact discs.45
On March 4, 2005, petitioners sent a letter46 to the tribunal requesting for a
postponement of the April 11, 2005 hearing of the case. Petitioners claim
that they could not confirm the summaries prepared by RCBC, considering
that RCBC allegedly did not cooperate in providing data that would facilitate
their verification. Petitioners specifically mentioned the following data: (1)
list of names of cardholders whose accounts are sources of data gathered or
calculated in the summaries; (2) references to the basic cardholder
documents from which such data were collected; and (3) access to the
underlying cardholder documents at a time and under conditions mutually
convenient to the parties. As regards the compact discs of information
provided to petitioners, it is claimed that such information could not be
accessed as the software necessary for the handling of the data could not
be made immediately available to them.
In Procedural Order No. 3 dated March 11 2005,47 the initial hearing was
moved to June 13 to 16, 2005, considering that petitioners failed to pay the
advance on costs of the tribunal.
On March 23, 2005, RCBC paid the balance of the advance on costs.48
On April 22, 2005, petitioners sent the tribunal a letter,49 requesting for the
postponement of the hearing scheduled on June 13 to 16, 2005 on the
ground that they could not submit their witness’ statements due to the
volume of data that they acquired from RCBC.
In a letter dated April 25, 2005,50 petitioners demanded from RCBC that
they be allowed to examine the journal vouchers earlier made available to
them during the February 23, 2005 meeting. This demand was answered by
RCBC in a letter dated April 26, 2005,51 stating that such demand was being
denied by virtue of Procedural Order No. 2, in which it was ruled that
further requests for discovery would not be made except with leave of the
chairperson of the tribunal.
In Procedural Order No. 4,52 the tribunal granted petitioners’ request for
the postponement of the hearing on June 13, 2005 and rescheduled it to
November 21, 2005 in light of the pending motions filed by EPCIB with the
RTC in Makati City.
On July 29, 2005, the parties held a meeting wherein it was agreed that
petitioners would be provided with hard and soft copies of the inventory of
the journal vouchers earlier presented to its representatives, while making
the journal vouchers available to petitioners for two weeks for examination
and photocopying.53
On September 2, 2005, petitioners applied for the postponement of the
November 21, 2005 hearing due to the following: (1) petitioners had earlier
filed a motion dated August 11, 2005 with the RTC, in which the issue of
whether the non-Filipino members of the tribunal were illegally practicing
law in the Philippines by hearing their case, which was still pending; and (2)
the gathering and processing of the data and documents made available by
RCBC would require 26 weeks.54 Such application was denied by the tribunal
in Procedural Order No. 5 dated September 16, 2005.55
On October 21, 2005, the tribunal issued Procedural Order No.
6,56 postponing the November 21, 2005 hearing by virtue of an order issued
by the RTC in Makati City directing the tribunal to reset the hearing for April
21 and 24, 2006.
Thereafter, in a letter dated January 18, 2006,57 petitioners wrote the
tribunal requesting that RCBC be directed to: (1) provide petitioners with
information identifying the journal vouchers and other supporting
documents that RCBC used to arrive at the figures set out in the summaries
and other relevant information necessary to enable them to reconstruct
and/or otherwise understand the figures or amounts in each summary; and
(2) submit to petitioners the requested pieces of information as soon as
these are or have become available, or in any case not later than five days.
In response to such letter, RCBC addressed a letter dated January 31,
200658 to the tribunal claiming that the pieces of information that
petitioners requested are already known to petitioners considering that
RCBC merely maintained the systems that they inherited when it bought
Bankard from petitioners. RCBC added that the documents that EPCIB
originally transmitted to it when RCBC bought Bankard were all being made
available to petitioners; thus, any missing supporting documents from these
files were never transmitted to them in the first place.
Later, petitioners sent to the tribunal a letter dated February 10,
2006,59 asking that it direct RCBC to provide petitioners with the supporting
documents that RCBC mentioned in its letter dated January 31, 2006.
Petitioners wrote that should RCBC fail to present such documents, RCBC’s
summaries should be excluded from the records.
In a letter dated March 10, 2006,60 petitioners requested that they be given
an additional period of at least 47 days within which to submit their
evidence-in-chief with the corresponding request for the cancellation of the
hearing on April 24, 2006. Petitioners submit that should such request be
denied, RCBC’s summaries should be excluded from the records.
On April 6, 2006, petitioners filed their arbitration briefs and witness
statements. By way of reply, on April 17, 2006, RCBC submitted Volumes IV
and V of its exhibits and Volume II of its evidence-in-chief.61
On April 18, 2006, petitioners requested the tribunal that they be allowed
to file rejoinder briefs, or otherwise exclude RCBC’s reply brief and witness
statements.62 In this request, petitioners also requested that the hearing set
for April 24, 2006 be moved. These requests were denied.
Consequently, on April 24 to 27, 2006, the arbitral tribunal conducted
hearings on the case.63
On December 4, 2006, petitioners submitted rejoinder affidavits, raising
new issues for the first time, to which RCBC submitted Volume III of its
evidence-in-chief by way of a reply.
On January 16, 2007, both parties simultaneously submitted their
memoranda. On January 26, 2007, both parties simultaneously filed their
reply to the other’s memorandum.64
Thus, on September 27, 2007, the Partial Award was rendered by the
Tribunal.
Later, petitioners moved to vacate the said award before the RTC. Such
motion was denied by the trial court in the first assailed order dated
January 8, 2008. Petitioners then moved for a reconsideration of such
order, but their motion was also denied in the second assailed order dated
March 17, 2008.
The foregoing events unequivocally demonstrate ample opportunity for
petitioners to verify and examine RCBC’s summaries, accounting records,
and reports. The pleadings reveal that RCBC granted petitioners’ requests
for production of documents and accounting records. More so, they had
more than three (3) years to prepare for their defense after RCBC’s
submission of its brief of evidence. Finally, it must be emphasized that
petitioners had the opportunity to appeal the Partial Award to the RTC,
which they in fact did. Later, petitioners even moved for the
reconsideration of the denial of their appeal. Having been able to appeal
and move for a reconsideration of the assailed rulings, petitioners cannot
claim a denial of due process.65
Petitioners’ right to due process was not breached.
As regards petitioners’ claim that its right to due process was violated when
they were allegedly denied the right to cross-examine RCBC’s witnesses,
their claim is also bereft of merit.
Sec. 15 of RA 876 or the Arbitration Law provides that:
Section 15. Hearing by arbitrators. – Arbitrators may, at the
commencement of the hearing, ask both parties for brief
statements of the issues in controversy and/or an agreed
statement of facts. Thereafter the parties may offer such evidence
as they desire, and shall produce such additional evidence as the
arbitrators shall require or deem necessary to an understanding
and determination of the dispute. The arbitrators shall be the
sole judge of the relevancy and materiality of the evidence
offered or produced, and shall not be bound to conform to the
Rules of Court pertaining to evidence. Arbitrators shall receive as
exhibits in evidence any document which the parties may wish
to submit and the exhibits shall be properly identified at the
time of submission. All exhibits shall remain in the custody of the
Clerk of Court during the course of the arbitration and shall be
returned to the parties at the time the award is made. The
arbitrators may make an ocular inspection of any matter or
premises which are in dispute, but such inspection shall be made
only in the presence of all parties to the arbitration, unless any
party who shall have received notice thereof fails to appear, in
which event such inspection shall be made in the absence of such
party. (Emphasis supplied.)
The well-settled rule is that administrative agencies exercising quasi-judicial
powers shall not be fettered by the rigid technicalities of procedure, albeit
they are, at all times required, to adhere to the basic concepts of fair play.
The Court wrote in CMP Federal Security Agency, Inc. v. NLRC:
While administrative tribunals exercising quasi-judicial powers,
like the NLRC and Labor Arbiters, are free from the rigidity of
certain procedural requirements, they are nonetheless bound by
law and practice to observe the fundamental and essential
requirements of due process. The standard of due process that
must be met in administrative tribunals allows a certain degree of
latitude as long as fairness is not ignored. Hence, it is not legally
objectionable, for being violative of due process, for the Labor
Arbiter to resolve a case based solely on the position papers,
affidavits or documentary evidence submitted by the parties. The
affidavits of witnesses in such case may take the place of their
direct testimony.66
Of the same tenor is our holding in Quiambao v. Court of Appeals:
In resolving administrative cases, conduct of full-blown trial is not
indispensable to dispense justice to the parties. The requirement
of notice and hearing does not connote full adversarial
proceedings. Submission of position papers may be sufficient for
as long as the parties thereto are given the opportunity to be
heard. In administrative proceedings, the essence of due process
is simply an opportunity to be heard, or an opportunity to
explain one’s side or opportunity to seek a reconsideration of
the action or ruling complained of. This constitutional mandate
is deemed satisfied if a person is granted an opportunity to seek
reconsideration of an action or a ruling. It does not require trial-
type proceedings similar to those in the courts of justice. Where
opportunity to be heard either through oral arguments or through
pleadings is accorded, there is no denial of procedural due
process.67 (Emphasis supplied.)
Citing Vertudes v. Buenaflor, petitioners also cry denial of due process when
they were allegedly denied the right to cross-examine the witnesses
presented by RCBC. It is true that in Vertudes, we stated: "The right of a
party to confront and cross-examine opposing witnesses in a judicial
litigation, be it criminal or civil in nature, or in proceedings before
administrative tribunals with quasi-judicial powers, is a fundamental right
which is part of due process."68
It is, however, equally true that:
[T]he right is a personal one which may be waived expressly or
impliedly by conduct amounting to a renunciation of the right of
cross-examination. Thus, where a party has had the opportunity
to cross-examine a witness but failed to avail himself of it, he
necessarily forfeits the right to cross-examineand the testimony
given on direct examination of the witness will be received or
allowed to remain in the record.69 (Emphasis supplied.)
We also held in one case:
However, the right has always been understood as requiring not
necessarily an actual cross-examination but merely an
opportunity to exercise the right to cross-examine if desired.
What is proscribed by statutory norm and jurisprudential
precept is the absence of the opportunity to cross-examine. The
right is a personal one and may be waived expressly or impliedly.
There is an implied waiver when the party was given the
opportunity to confront and cross-examine an opposing witness
but failed to take advantage of it for reasons attributable to
himself alone. If by his actuations, the accused lost his
opportunity to cross-examine wholly or in part the witnesses
against him, his right to cross-examine is impliedly
waived.70 (Emphasis supplied.)
And later in Velez v. De Vera, the Court En Banc expounded on the above
rulings, adding that in administrative proceedings, cross-examination is not
indispensable, thus:
Due process of law in administrative cases is not identical with
"judicial process" for a trial in court is not always essential to due
process. While a day in court is a matter of right in judicial
proceedings, it is otherwise in administrative proceedings since
they rest upon different principles. The due process clause
guarantees no particular form of procedure and its requirements
are not technical. Thus, in certain proceedings of administrative
character, the right to a notice or hearing [is] not essential to due
process of law. The constitutional requirement of due process is
met by a fair hearing before a regularly established administrative
agency or tribunal. It is not essential that hearings be had before
the making of a determination if thereafter, there is available trial
and tribunal before which all objections and defenses to the
making of such determination may be raised and considered. One
adequate hearing is all that due process requires. What is
required for "hearing" may differ as the functions of the
administrative bodies differ.
The right to cross-examine is not an indispensable aspect of due
process.71 x x x (Emphasis supplied.)
Clearly, the right to cross-examine a witness, although a fundamental right
of a party, may be waived. Petitioners themselves admit having had the
opportunity to cross-examine RCBC’s witnesses during the hearings before
the tribunal, but declined to do so by reserving such right at a later time.
Having had the opportunity to cross-examine RCBC’s witnesses, petitioners
were not denied their right to due process.
RCBC Is Not Estopped from Questioning
the Financial Condition of Bankard
On estoppel, petitioners contend that RCBC already knew the recording of
the Bankard accounts before it paid the balance of the purchase price and
could no longer challenge the financial statements of Bankard. RCBC, they
claim, had full control of the operations of Bankard since June 2, 2000 and
RCBC’s audit team reviewed the accounts in September 2000. Thus, RCBC is
now precluded from denying the fairness and accuracy of said accounts
since it did not seek price reduction under Sec. 5(h). Lastly, they asseverate
that RCBC continued with Bankard’s accounting policies and practices and
found them to conform to the generally accepted accounting principles,
contrary to RCBC’s allegations.
It also bears stating that in his dissent, retired Justice Kapunan, an arbitral
tribunal member, argued that Bankard’s accounting practices were
disclosed in the information memorandum provided to RCBC; hence, RCBC
was supposed to know such accounting practices and to have accepted
their propriety even before the execution of the SPA. He then argued that
when it paid the purchase price on December 29, 2000, RCBC could no
longer claim that the accounting practices that went into the reporting of
the 1999 AFS of Bankard were not in accord with generally accepted
accounting principles. He pointed out that RCBC was bound by the audit
conducted by a certain Rubio prior to the full payment of the purchase price
of Bankard. Anchored on these statements by Justice Kapunan, petitioners
conclude that RCBC is estopped from claiming that the former violated their
warranties under the SPA.
Petitioners’ contention is not meritorious.
Art. 1431 of the Civil Code, on the subject of estoppel, provides: "Through
estoppel an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person
relying thereon."
The doctrine of estoppel is based upon the grounds of public policy, fair
dealing, good faith, and justice; and its purpose is to forbid one to speak
against one’s own acts, representations, or commitments to the injury of
one to whom they were directed and who reasonably relied on them.72
We explained the principle of estoppel in Philippine Savings Bank v.
Chowking Food Corporation:
x x x The equitable doctrine of estoppel was explained by this
Court in Caltex (Philippines), Inc. v. Court of Appeals:
Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against
the person relying thereon. A party may not go back on
his own acts and representations to the prejudice of the
other party who relied upon them. In the law of
evidence, whenever a party has, by his own declaration,
act, or omission, intentionally and deliberately led
another to believe a particular thing true, to act upon
such belief, he cannot, in any litigation arising out of
such declaration, act, or omission, be permitted to
falsify it.
The principle received further elaboration in Maneclang v. Baun:
 In estoppel by pais, as related to the party sought to be
estopped, it is necessary that there be a concurrence of
the following requisites: (a) conduct amounting to false
representation or concealment of material facts or at
least calculated to convey the impression that the facts
are otherwise than, and inconsistent with, those which
the party subsequently attempts to assert; (b) intent, or
at least expectation that this conduct shall be acted
upon, or at least influenced by the other party; and (c)
knowledge, actual or constructive of the actual facts.
Estoppel may vary somewhat in definition, but all authorities
agree that a party invoking the doctrine must have been misled
to one’s prejudice. That is the final and, in reality, most important
of the elements of equitable estoppel. It is this element that is
lacking here.73 (Emphasis supplied.)
The elements of estoppel pertaining to the party estopped are:
(1) conduct which amounts to a false representation or
concealment of material facts, or, at least, which calculated to
convey the impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to
assert; (2) intention, or at least expectation, that such conduct
shall be acted upon by the other party; and (3) knowledge, actual
or constructive, of the actual facts.74
In the case at bar, the first element of estoppel in relation to the party
sought to be estopped is not present. Petitioners claim that RCBC
misrepresented itself when RCBC made it appear that they considered
petitioners to have sufficiently complied with its warranties under Sec. 5(g)
and 5(h), in relation to Sec. 7 of the SPA. Petitioners’ position is that "RCBC
was aware of the manner in which the Bankard accounts were recorded,
well before it consummated the SPA by taking delivery of the shares and
paying the outstanding 80% balance of the contract price."75
Petitioners, therefore, theorize that in this case, the first element of
estoppel in relation to the party sought to be estopped is that RCBC made a
false representation that it considered Bankard’s accounts to be in order
and, thus, RCBC abandoned any claim under Sec. 5(g) and 5(h) by its
inaction.
Such contention is incorrect.
It must be emphasized that it was only after a second audit that RCBC
presented its claim to petitioners for violation of Sec. 5(g), within the three
(3)-year period prescribed. In other words, RCBC, prior to such second
audit, did not have full and thorough knowledge of the correctness of
Bankard’s accounts, in relation to Sec. 5(g). RCBC, therefore, could not have
misrepresented itself considering that it was still in the process of verifying
the warranties covered under Sec. 5(g). Considering that there must be a
concurrence of the elements of estoppel for it to arise, on this ground alone
such claim is already negated. As will be shown, however, all the other
elements of estoppel are likewise absent in the case at bar.
As to the second element, in order to establish estoppel, RCBC must have
intended that petitioners would act upon its actions. This element is also
missing. RCBC by its actions did not mislead petitioners into believing that it
waived any claim for violation of a warranty. The periods under Sec. 5(g)
and 5(h) were still available to RCBC.
The element that petitioners relied on the acts and conduct of RCBC is
absent. The Court finds that there was no reliance on the part of petitioners
on the acts of RCBC that would lead them to believe that the RCBC will
forego the filing of a claim under Sec. 5(g). The allegation that RCBC knew
that the Bankard accounts did not comply with generally accepted
accounting principles before payment and, hence, it cannot question the
financial statements of Bankard is meritless. Precisely, the SPA explicitly
provides that claims for violation of the warranties under Sec. 5(g) can still
be filed within three (3) years from the closing date. Petitioners’ contention
that RCBC had full control of Bankard operations after payment of the price
and that an audit undertaken by the Rubio team did not find anything
wrong with the accounts could not have plausibly misled petitioners into
believing that RCBC will waive its right to file a claim under Sec. 5(g). After
all, the period to file a claim under Sec. 5(g) is three (3) years under Sec. 7,
much longer than the six (6)-month period under Sec. 5(h). Petitioners are
fully aware that the warranties under Sec. 5(g) (1997 up to March 2000) are
of a wider scope than that of Sec. 5(h) (AFS of 1999 and UFS up to May 31,
2000), necessitating a longer audit period than the six (6)-month period
under Sec. 5(h).
The third element of estoppel in relation to the party sought to be estopped
is also absent considering that, as stated, RCBC was still in the process of
verifying the correctness of Bankard’s accounts prior to presenting its claim
of overvaluation to petitioners. RCBC, therefore, had no sufficient
knowledge of the correctness of Bankard’s accounts.
On another issue, RCBC could not have immediately changed the Bankard
accounting practices until it had conducted a more extensive and thorough
audit of Bankard’s voluminous records and transactions to uncover any
irregularities. That would be the only logical explanation why Bankard’s
alleged irregular practices were maintained for more than two (2) years
from closing date. The fact that RCBC continued with the audit of Bankard’s
AFS and records after the termination of the Rubio audit can only send the
clear message to petitioners that RCBC is still entertaining the possibility of
filing a claim under Sec. 5(g). It cannot then be said that petitioners’ reliance
on RCBC’s acts after full payment of the price could have misled them into
believing that no more claim will be presented by RCBC.
The Arbitral Tribunal explained in detail why estoppel is not present in the
case at bar, thus:
10.18 The audit exercise conducted by Mr. Legaspi and Mr. Rubio
was clearly not one comprehensive enough to have discovered
the problems later unearthed by Dr. Laya and Dean Ledesma. x x x
10.19 Although the powers of the TC [Transition Committee] may
have been widely expressed in the view of Mr. Rogelio Chua, then
in charge of Bankard x x x the TC conducted meetings only to get
updated on the status and progress of Bankard’s operations.
Commercially, one would expect that an unpaid vendor expecting
to receive 80% of a large purchase price would not be receptive to
a purchaser making vast policy changes in the operation of the
business until the purchaser has paid up its money. It is more
likely that, until the settlement date, there was a practice of
maintaining the status quo at Bankard.
10.20 But neither the Claimant nor the TC did anything, in the
Tribunal’s view, which would have given the Respondents the
impression that they were being relieved over the next three
years of susceptibility to a claim under clause 5(g). Maybe the TC
could have been more proactive in commissioning further or
more in-depth audits but it was not. It did not have to be. It is
commercially unlikely that it have been done so, with the
necessary degree of attention to detail, within the relatively short
time between the appointment of the TC and the ultimate
settlement date of the purchase – a period of some three months.
An interim arrangement was obviously sensible to enable the
Claimant and its staff to become familiar with the practices and
procedures of Bankard.
10.21 The core consideration weighing with the Tribunal in
assessing these claims for estoppel is that the SPA allowed two
types of claim; one within six months under 5(h) and one within
three years under 5(g). The Tribunal has already held the present
claim is not barred by clause 5(h). It must therefore have been
within the reasonable contemplation of the parties that a 5(g)
claim could surface within the three-year period and that it could
be somewhat differently assessed than the claim under 5(h). The
Tribunal cannot find estoppel by conduct either from the
formation of the TC or from the limited auditing exercise done by
Mr. Rubio and Mr. Legaspi. The onus proving estoppel is on the
Respondents and it has not been discharged.
10.22 If the parties had wished the avenues of relief for
misrepresentation afforded to the Claimant to have been
restricted to a claim under Clause 5(h), then they could have said
so. The ‘special audit’ may have provided an answer to any claim
based on clause 5(h) but it cannot do so in respect of a claim
based on Clause 5(g). Clause 5(g) imposed a positive obligation on
the Respondents from which they cannot be excused, simply by
reason of either the formation and conduct of the TC or of the
limited audit.
10.23 The three-year limitation period obviously contemplated
that it could take some time to ascertain whether there had been
a breach of the GAAP standards, etc. Such was the case. A six-
month limitation period under Clause 5(h), in contrast, presaged a
somewhat less stringent enquiry of the kind carried out by Mr.
Rubio and Mr. Legaspi.
10.24 Clause 2(3) of the Amendment to the SPA strengthens the
conclusion that the parties were concerned only with a 5(h) claim
during the TC’s reign. The focus of the ‘audit’ – however intense it
was – conducted by Mr. Rubio and Mr. Legaspi, was on
establishing possible liability under that section and thus as a
possible reduction in the price to be paid on settlement.
10.25 The fact that the purchase price was paid over in full
without any deduction in terms of clause 5(h) is not a bar to the
Claimant bringing a claim under 5(g) within the three-year period.
The fact that payment was made can be, as the Tribunal has held,
a barrier to a claim for rescission and restitution ad inegrum. A
claim for estoppel needs a finding of representation by words of
conduct or a shared presumption that a right would not be relied
upon. The party relying on estoppel has to show reliance to its
detriment or that, otherwise, it would be unconscionable to resile
from the provision.
10.26 Article 1431 of the Civil Code states:
"Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon."
10.27 Clearly, there has to both an admission or representation by
(in this case) the Claimant, plus reliance upon it by (in this case)
the Respondents. The Tribunal cannot find as proved any
admission/representation that the Claimant was abandoning a
5(g) claim, any reliance by Respondents on an admission, and any
detriment to the Respondents such as would entitle them to have
the Claimant deprived of the benefit of clause 5(g). These aspects
of the claim of estoppel are rejected.
xxxx
10.42 The Tribunal is not the appropriate forum for deciding
whether there have been any regulatory or ethical infractions by
Bankard and/or the Claimant in setting the ‘buy-back’ price. It has
no bearing on whether the Claimant must be considered as having
waived its right to claim against the Respondents.
10.43 In the Tribunal’s view, neither any infraction by Bankard in
failing to advise the Central Bank of the experts’ findings, nor a
failure to put a tag on the accounts nor to have said something to
the shareholders in the buy-back exercise operates as a "technical
knock-out" of Claimant’s claim.
10.44 The Tribunal notes that the conciliation process mandated
by the SPA took most of 2003 and this may explain a part of the
delay in commencing arbitral proceedings.
10.45 Whatever the status of Mr. Rubio’s and Mr. Legaspi’s
enquiries in late 2000, the Claimant was quite entitled to
commission subsequent reports from Dr. Laya and Dr. Echanis
and, on the basis of those reports, make a timeous claim under
clause 5(g) of the SPA.
10.46 In the Tribunal’s view, therefore, there is no merit in
Respondents’ various submissions that the Claimant is debarred
from prosecuting its claims on the grounds of estoppel. There is
just no proof of the necessary representation to the Respondent,
nor any detriment to the Respondent proved. The grounds of
delay and laches are not substantiated.
In summary, the tribunal properly ruled that petitioners failed to prove that
the formation of the Transition Committee and the conduct of the audit by
Rubio and Legaspi were admissions or representations by RCBC that it
would not pursue a claim under Sec. 5(g) and that petitioners relied on such
representation to their detriment. We agree with the findings of the
tribunal that estoppel is not present in the situation at bar.
Additionally, petitioners claim that in Knecht v. Court of Appeals76 and Coca-
Cola Bottlers Philippines, Inc. v. Court of Appeals (Coca-Cola),77 this Court
ruled that the absence of the element of reliance by a party on the
representation of another does not negate the principle of estoppel. Those
cases are, however, not on all fours with and cannot be applied to this case.
In Knecht, the buyer had the opportunity of knowing the conditions of the
land he was buying early on in the transaction, but proceeded with the sale
anyway. According to the Court, the buyer was estopped from claiming that
the vendor made a false representation as to the condition of the land. This
is not true in the instant case. RCBC did not conduct a due diligence audit in
relation to Sec.5(g) prior to the sale due to petitioners’ express
representations and warranties. The examination conducted by RCBC,
through Rubio, after the execution of the SPA on June 2, 2000, was confined
to finding any breach under Sec. 5(h) for a possible reduction of the
purchase price prior to the payment of its balance on December 31, 2000.
Further, the parties clearly agreed under Sec. 7 of the SPA to a three (3)-
year period from closing date within which to present a claim for damages
for violation of the warranties under the SPA. Hence, Knecht is not a
precedent to the case at bar.
So is Coca-Cola. As lessee, Coca-Cola Bottlers was well aware of the nature
and situation of the land relative to its intended use prior to the signing of
the contract. Its subsequent assertion that the land was not suited for the
purpose it was leased was, therefore, cast aside for being unmeritorious.
Such circumstance does not obtain in the instant case. There was no prior
due diligence audit conducted by RCBC, it having relied, as earlier stated, on
the warranties of petitioners with regard to the financial condition of
Bankard under Sec. 5(g). As such, Sec. 5(g) guaranteed RCBC that it could
file a claim for damages for any mistakes in the AFS and UFS of Bankard.
Clearly, Coca-Cola also cannot be applied to the instant case.
It becomes evident from all of the foregoing findings that the ICC-ICA is not
guilty of any manifest disregard of the law on estoppel. As shown above,
the findings of the ICC-ICA in the Partial Award are well-supported in law
and grounded on facts. The Partial Award must be upheld.
We close this disposition with the observation that a member of the three-
person arbitration panel was selected by petitioners, while another was
respondent’s choice. The respective interests of the parties, therefore, are
very much safeguarded in the arbitration proceedings. Any suggestion,
therefore, on the partiality of the arbitration tribunal has to be dismissed.
WHEREFORE, the instant petition is hereby DENIED. The assailed January 8,
2008 and March 17, 2008 Orders of the RTC, Branch 148 in Makati City are
hereby AFFIRMED.
SO ORDERED.
G.R. No. 185758 March 9, 2011
LINDA M. CHAN KENT, represented by ROSITA MANALANG, Petitioner,
vs.
DIONESIO C. MICAREZ, SPOUSES ALVARO E. MICAREZ & PAZ MICAREZ, and
THE REGISTRY OF DEEDS, DAVAO DEL NORTE, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari seeking to reverse and set aside
the July 17, 2008 Order1 of the Regional Trial Court of Panabo City, Branch
34 (RTC), dismissing the complaint for recovery of property filed by
petitioner Linda M. Chan Kent (petitioner), docketed as Civil Case No. 13-
2007, and its November 21, 2008, Order2 denying her motion for
reconsideration.
The Facts
This petition draws its origin from a complaint for recovery of real property
and annulment of title filed by petitioner, through her younger sister and
authorized representative, Rosita Micarez-Manalang (Manalang), before
the RTC. Petitioner is of Filipino descent who became a naturalized
American citizen after marrying an American national in 1981. She is now a
permanent resident of the United States of America (USA).
In her complaint, petitioner claimed that the residential lot in Panabo City,
which she purchased in 1982, was clandestinely and fraudulently conveyed
and transferred by her parents, respondent spouses Alvaro and Paz
Micarez (Spouses Micarez), in favor of her youngest brother, respondent
Dionesio Micarez (Dionesio), to her prejudice and detriment. She alleged
that sometime in 1982, she asked her parents to look for a residential lot
somewhere in Poblacion Panabo where the Spouses Micarez would build
their new home. Aware that there would be difficulty in registering a real
property in her name, she being married to an American citizen, she
arranged to pay for the purchase price of the residential lot and register it,
in the meantime, in the names of Spouses Micarez under an implied trust.
The title thereto shall be transferred in her name in due time.
Thus, on October 20, 1982, a deed of absolute sale was executed between
Spouses Micarez and the owner, Abundio Panganiban, for the 328 square
meter residential lot covered by Transfer Certificate of Title (TCT) No. T-
25833. Petitioner sent the money which was used for the payment of the
lot. TCT No. T-25833 was cancelled upon the registration of the deed of sale
before the Registry of Deeds of Davao del Norte. In lieu thereof, TCT No. T-
38635 was issued in the names of Spouses Micarez on January 31, 1983.
Sometime in 2005, she learned from Manalang that Spouses Micarez sold
the subject lot to Dionesio on November 22, 2001 and that consequently,
TCT T-172286 was issued in her brother’s name on January 21, 2002.
At the end, petitioner prayed that she be declared as the true and real
owner of the subject lot; that TCT No. T-172286 be cancelled; and that a
new one be issued in her name.3
Considering that all the respondents are now also permanent residents of
the USA, summons was served upon them by publication per RTC
Order4 dated May 17, 2007. Meanwhile, the respondents executed two
special powers of attorney5 both dated August 3, 2007 before the Consulate
General of the Philippines in Los Angeles, California, U.S.A., authorizing their
counsel, Atty. Richard C. Miguel (Atty. Miguel), to file their answer in Civil
Case No. 13-2007 and to represent them during the pre-trial conference
and all subsequent hearings with power to enter into a compromise
agreement. By virtue thereof, Atty. Miguel timely filed his principals’ answer
denying the material allegations in the complaint.
After the parties had filed their respective pre-trial briefs, and the issues in
the case had been joined, the RTC explored the possibility of an amicable
settlement among the parties by ordering the referral of the case to the
Philippine Mediation Center (PMC). On March 1, 2008, Mediator Esmeraldo
O. Padao, Sr. (Padao) issued a Mediator’s Report6 and returned Civil Case
No. 13-2007 to the RTC allegedly due to the non-appearance of the
respondents on the scheduled conferences before him. Acting on said
Report, the RTC issued an order on May 29, 2009 allowing petitioner to
present her evidence ex parte.7
Later, Padao clarified, through a Manifestation,8 dated July 15, 2008, that it
was petitioner, represented by Atty. Benjamin Utulle (Atty. Utulle), who did
not attend the mediation proceedings set on March 1, 2008, and not Atty.
Miguel, counsel for the respondents and their authorized representative.
Padao explained that Atty. Miguel inadvertently affixed his signature for
attendance purposes on the column provided for the plaintiff’s counsel in
the mediator’s report. In light of this development, the RTC issued the
assailed Order9 dated July 17, 2008 dismissing Civil Case No. 13-2007. The
pertinent portion of said order reads:
Being so, the Order dated May 29, 2008 is hereby corrected. For plaintiff’s
and her counsel’s failure to appear during the mediation proceeding, this
instant case is hereby ordered DISMISSED.
SO ORDERED.
Petitioner, through her counsel, filed a motion for reconsideration10 to set
aside the order of dismissal, invoking the relaxation of the rule on non-
appearance in the mediation proceedings in the interest of justice and
equity. Petitioner urged the trial court not to dismiss the case based merely
on technicalities contending that litigations should as much as possible be
decided on the merits. Resolving the motion in its second assailed
Order11 dated November 21, 2008, the RTC ruled that it was not proper for
the petitioner to invoke liberality inasmuch as the dismissal of the civil
action was due to her own fault. The dispositive portion of said order reads:
WHEREFORE, there being no cogent reason to depart from our earlier
Order, this instant motion for reconsideration is hereby ordered DENIED.
SO ORDERED.12
The denial prompted the petitioner to file this petition directly with this
Court claiming that the dismissal of the case was not in accordance with
applicable law and jurisprudence.
ISSUES
1. WITH ALL DUE RESPECT, THE HONORABLE COURT A
QUO GRAVELY ERRED IN DISMISSING THE CASE SIMPLY ON THE
REASON THAT PLAINTIFF FAILED TO APPEAR DURING THE
MEDIATION PROCEEDING, ALTHOUGH PRESENT FOR TWO (2)
TIMES.
2. IS THE EXCUSABLE AND EXPLAINED FAILURE TO ATTEND THE
MEDIATION PROCEEDING FOR TWO (2) TIMES OR SETTINGS,
OUT OF THE FOUR (4) SCHEDULED SETTINGS, BY THE PLAINTIFF A
GROUND TO DISMISS THE CASE UNDER THE SUPREME COURT’S
ADMINISTRATIVE CIRCULAR NO. 20-2002?
The pivotal issue in this case is whether the RTC erred in dismissing Civil
Case No. 13-2007 due to the failure of petitioner’s duly authorized
representative, Manalang, and her counsel to attend the mediation
proceedings under the provisions of A.M. No. 01-10-5-SC-PHILJA and 1997
Rules on Civil Procedure.
Petitioner claims that the dismissal of the case was unjust because her
representative, Manalang, and her counsel, Atty. Etulle, did not deliberately
snub the mediation proceedings. In fact, Manalang and Atty. Etulle twice
attended the mediation conferences on January 19, 2008 and on February
9, 2008. On both occasions, Manalang was present but was not made to
sign the attendance sheet and was merely at the lobby waiting to be called
by Atty. Etulle upon arrival of Atty. Miguel. Manalang and Atty. Etulle only
left PMC at 11:00 o’clock in the morning when Atty. Miguel had not yet
arrived.13
Petitioner, however, admits that her representative and counsel indeed
failed to attend the last scheduled conference on March 1, 2008, when they
had to attend some urgent matters caused by the sudden increase in prices
of commodities.14
In the interest of justice, the Court grants the petition.
A.M. No. 01-10-5-SC-PHILJA dated October 16, 2001, otherwise known as
the Second Revised Guidelines for the Implementation of Mediation
Proceedings, was issued pursuant to par. (5), Section 5, Article VII of the
1987 Constitution mandating this Court to promulgate rules providing for a
simplified and inexpensive procedure for the speedy disposition of cases.
Also, Section 2(a), Rule 18 of the 1997 Rules of Civil Procedure, as amended,
requires the courts to consider the possibility of an amicable settlement or
of submission to alternative modes of resolution for the early settlement of
disputes so as to put an end to litigations. The provisions of A.M. No. 01-10-
5-SC-PHILJA pertinent to the case at bench are as follows:
9. Personal appearance/Proper authorizations
Individual parties are encouraged to personally appear for mediation. In the
event they cannot attend, their representatives must be fully authorized to
appear, negotiate and enter into a compromise by a Special Power of
Attorney. A corporation shall, by board resolution, fully authorize its
representative to appear, negotiate and enter into a compromise
agreement.
12. Sanctions
Since mediation is part of Pre-Trial, the trial court shall impose the
appropriate sanction including but not limited to censure, reprimand,
contempt and such other sanctions as are provided under the Rules of
Court for failure to appear for pre-trial, in case any or both of the parties
absent himself/themselves, or for abusive conduct during mediation
proceedings. [Underscoring supplied]
To reiterate, A.M. No. 01-10-5-SC-PHILJA regards mediation as part of pre-
trial where parties are encouraged to personally attend the proceedings.
The personal non-appearance, however, of a party may be excused only
when the representative, who appears in his behalf, has been duly
authorized to enter into possible amicable settlement or to submit to
alternative modes of dispute resolution. To ensure the attendance of the
parties, A.M. No. 01-10-5-SC-PHILJA specifically enumerates the sanctions
that the court can impose upon a party who fails to appear in the
proceedings which includes censure, reprimand, contempt, and even
dismissal of the action in relation to Section 5, Rule 18 of the Rules of
Court.15 The respective lawyers of the parties may attend the proceedings
and, if they do so, they are enjoined to cooperate with the mediator for the
successful amicable settlement of disputes16 so as to effectively reduce
docket congestion.
Although the RTC has legal basis to order the dismissal of Civil Case No. 13-
2007, the Court finds this sanction too severe to be imposed on the
petitioner where the records of the case is devoid of evidence of willful or
flagrant disregard of the rules on mediation proceedings. There is no clear
demonstration that the absence of petitioner’s representative during
mediation proceedings on March 1, 2008 was intended to perpetuate delay
in the litigation of the case. Neither is it indicative of lack of interest on the
part of petitioner to enter into a possible amicable settlement of the case.
The Court notes that Manalang was not entirely at fault for the
cancellation and resettings of the conferences. Let it be underscored that
respondents’ representative and counsel, Atty. Miguel, came late during
the January 19 and February 9, 2008 conferences which resulted in their
cancellation and the final resetting of the mediation proceedings to March
1, 2008. Considering the circumstances, it would be most unfair to
penalize petitioner for the neglect of her lawyer.1avvphi1
Assuming arguendo that the trial court correctly construed the absence of
Manalang on March 1, 2008 as a deliberate refusal to comply with its
Order or to be dilatory, it cannot be said that the court was powerless and
virtually without recourse. Indeed, there are other available remedies to
the court a quo under A.M. No. 01-10-5-SC-PHILJA, apart from
immediately ordering the dismissal of the case. If Manalang’s absence
upset the intention of the court a quo to promptly dispose the case, a
mere censure or reprimand would have been sufficient for petitioner’s
representative and her counsel so as to be informed of the court’s
intolerance of tardiness and laxity in the observation of its order. By
failing to do so and refusing to resuscitate the case, the RTC impetuously
deprived petitioner of the opportunity to recover the land which she
allegedly paid for.
Unless the conduct of the party is so negligent, irresponsible,
contumacious, or dilatory as for non-appearance to provide substantial
grounds for dismissal, the courts should consider lesser sanctions which
would still achieve the desired end. The Court has written "inconsiderate
dismissals, even if without prejudice, do not constitute a panacea nor a
solution to the congestion of court dockets, while they lend a deceptive
aura of efficiency to records of the individual judges, they merely
postpone the ultimate reckoning between the parties. In the absence of
clear lack of merit or intention to delay, justice is better served by a brief
continuance, trial on the merits, and final disposition of the cases before
the court.17
It bears emphasis that the subject matter of the complaint is a valuable
parcel of land measuring 328 square meters and that petitioner had
allegedly spent a lot of money not only for the payment of the docket and
other filing fees but also for the extra-territorial service of the summons
to the respondents who are now permanent residents of the U.S.A.
Certainly, petitioner stands to lose heavily on account of technicality. Even
if the dismissal is without prejudice, the refiling of the case would still be
injurious to petitioner because she would have to pay again all the
litigation expenses which she previously paid for. The Court should afford
party-litigants the amplest opportunity to enable them to have their cases
justly determined, free from constraints of technicalities.18 Technicalities
should take a backseat against substantive rights and should give way to
the realities of the situation. Besides, the petitioner has manifested her
interest to pursue the case through the present petition. At any rate, it
has not been shown that a remand of the case for trial would cause undue
prejudice to respondents.
In the light of the foregoing, the Court finds it just and proper that
petitioner be allowed to present her cause of action during trial on the
merits to obviate jeopardizing substantive justice. Verily, the better and
more prudent course of action in a judicial proceeding is to hear both sides
and decide the case on the merits instead of disposing the case by
technicalities. What should guide judicial action is the principle that a party-
litigant is to be given the fullest opportunity to establish the merits of his
complaint or defense rather than for him to lose life, liberty or property on
technicalities.19 The ends of justice and fairness would best be served if the
issues involved in the case are threshed out in a full-blown trial. Trial courts
are reminded to exert efforts to resolve the matters before them on the
merits and to adjudge them accordingly to the satisfaction of the parties,
lest in hastening the proceedings, they further delay the resolution of the
cases.
WHEREFORE, the petition is GRANTED. Civil Case No. 13-2007 is
hereby REINSTATED and REMANDED to the Regional Trial Court of Panobo
City, Branch 34 for referral back to the Philippine Mediation Center for
possible amicable settlement or for other proceedings.
SO ORDERED.
G.R. No. 163101 February 13, 2008
BENGUET CORPORATION, petitioner,
vs.
DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES -MINES
ADJUDICATION BOARD and J.G. REALTY AND MINING
CORPORATION, respondents.
DECISION
VELASCO, JR., J.:
The instant petition under Rule 65 of the Rules of Court seeks the
annulment of the December 2, 2002 Decision1and March 17, 2004
Resolution2 of the Department of Environment and Natural Resources-
Mining Adjudication Board (DENR-MAB) in MAB Case No. 0124-01 (Mines
Administrative Case No. R-M-2000-01) entitled Benguet Corporation
(Benguet) v. J.G. Realty and Mining Corporation (J.G. Realty). The December
2, 2002 Decision upheld the March 19, 2001 Decision3 of the MAB Panel of
Arbitrators (POA) which canceled the Royalty Agreement with Option to
Purchase (RAWOP) dated June 1, 19874 between Benguet and J.G. Realty,
and excluded Benguet from the joint Mineral Production Sharing
Agreement (MPSA) application over four mining claims. The March 17, 2004
Resolution denied Benguet’s Motion for Reconsideration.
The Facts
On June 1, 1987, Benguet and J.G. Realty entered into a RAWOP, wherein
J.G. Realty was acknowledged as the owner of four mining claims
respectively named as Bonito-I, Bonito-II, Bonito-III, and Bonito-IV, with a
total area of 288.8656 hectares, situated in Barangay Luklukam, Sitio
Bagong Bayan, Municipality of Jose Panganiban, Camarines Norte. The
parties also executed a Supplemental Agreement5 dated June 1, 1987. The
mining claims were covered by MPSA Application No. APSA-V-0009 jointly
filed by J.G. Realty as claimowner and Benguet as operator.
In the RAWOP, Benguet obligated itself to perfect the rights to the mining
claims and/or otherwise acquire the mining rights to the mineral claims.
Within 24 months from the execution of the RAWOP, Benguet should also
cause the examination of the mining claims for the purpose of determining
whether or not they are worth developing with reasonable probability of
profitable production. Benguet undertook also to furnish J.G. Realty with a
report on the examination, within a reasonable time after the completion of
the examination. Moreover, also within the examination period, Benguet
shall conduct all necessary exploration in accordance with a prepared
exploration program. If it chooses to do so and before the expiration of the
examination period, Benguet may undertake to develop the mining claims
upon written notice to J.G. Realty. Benguet must then place the mining
claims into commercial productive stage within 24 months from the written
notice.6 It is also provided in the RAWOP that if the mining claims were
placed in commercial production by Benguet, J.G. Realty should be entitled
to a royalty of five percent (5%) of net realizable value, and to royalty for
any production done by Benguet whether during the examination or
development periods.
Thus, on August 9, 1989, the Executive Vice-President of Benguet, Antonio
N. Tachuling, issued a letter informing J.G. Realty of its intention to develop
the mining claims. However, on February 9, 1999, J.G. Realty, through its
President, Johnny L. Tan, then sent a letter to the President of Benguet
informing the latter that it was terminating the RAWOP on the following
grounds:
 a. The fact that your company has failed to perform the
obligations set forth in the RAWOP, i.e., to undertake
development works within 2 years from the execution of the
Agreement;
b. Violation of the Contract by allowing high graders to operate on
our claim.
c. No stipulation was provided with respect to the term limit of
the RAWOP.
d. Non-payment of the royalties thereon as provided in the
RAWOP.7
In response, Benguet’s Manager for Legal Services, Reynaldo P. Mendoza,
wrote J.G. Realty a letter dated March 8, 1999,8 therein alleging that
Benguet complied with its obligations under the RAWOP by investing PhP
42.4 million to rehabilitate the mines, and that the commercial operation
was hampered by the non-issuance of a Mines Temporary Permit by the
Mines and Geosciences Bureau (MGB) which must be considered as force
majeure, entitling Benguet to an extension of time to prosecute such
permit. Benguet further claimed that the high graders mentioned by J.G.
Realty were already operating prior to Benguet’s taking over of the
premises, and that J.G. Realty had the obligation of ejecting such small scale
miners. Benguet also alleged that the nature of the mining business made it
difficult to specify a time limit for the RAWOP. Benguet then argued that
the royalties due to J.G. Realty were in fact in its office and ready to be
picked up at any time. It appeared that, previously, the practice by J.G.
Realty was to pick-up checks from Benguet representing such royalties.
However, starting August 1994, J.G. Realty allegedly refused to collect such
checks from Benguet. Thus, Benguet posited that there was no valid ground
for the termination of the RAWOP. It also reminded J.G. Realty that it
should submit the disagreement to arbitration rather than unilaterally
terminating the RAWOP.
On June 7, 2000, J.G. Realty filed a Petition for Declaration of
Nullity/Cancellation of the RAWOP9 with the Legaspi City POA, Region V,
docketed as DENR Case No. 2000-01 and entitled J.G. Realty v. Benguet.
On March 19, 2001, the POA issued a Decision,10 dwelling upon the issues of
(1) whether the arbitrators had jurisdiction over the case; and (2) whether
Benguet violated the RAWOP justifying the unilateral cancellation of the
RAWOP by J.G. Realty. The dispositive portion stated:
WHEREFORE, premises considered, the June 01, 1987 [RAWOP]
and its Supplemental Agreement is hereby declared cancelled and
without effect. BENGUET is hereby excluded from the joint MPSA
Application over the mineral claims denominated as "BONITO-I",
"BONITO-II", "BONITO-III" and "BONITO-IV".
SO ORDERED.
Therefrom, Benguet filed a Notice of Appeal11 with the MAB on April 23,
2001, docketed as Mines Administrative Case No. R-M-2000-01. Thereafter,
the MAB issued the assailed December 2, 2002 Decision. Benguet then filed
a Motion for Reconsideration of the assailed Decision which was denied in
the March 17, 2004 Resolution of the MAB. Hence, Benguet filed the instant
petition.
The Issues
1. There was serious and palpable error when the Honorable
Board failed to rule that the contractual obligation of the parties
to arbitrate under the Royalty Agreement is mandatory.
2. The Honorable Board exceeded its jurisdiction when it
sustained the cancellation of the Royalty Agreement for alleged
breach of contract despite the absence of evidence.
3. The Questioned Decision of the Honorable Board in cancelling
the RAWOP prejudice[d] the substantial rights of Benguet under
the contract to the unjust enrichment of JG Realty.12
Restated, the issues are: (1) Should the controversy have first been
submitted to arbitration before the POA took cognizance of the case?; (2)
Was the cancellation of the RAWOP supported by evidence?; and (3) Did
the cancellation of the RAWOP amount to unjust enrichment of J.G. Realty
at the expense of Benguet?
The Court’s Ruling
Before we dwell on the substantive issues, we find that the instant petition
can be denied outright as Benguet resorted to an improper remedy.
The last paragraph of Section 79 of Republic Act No. (RA) 7942 or the
"Philippine Mining Act of 1995" states, "A petition for review by certiorari
and question of law may be filed by the aggrieved party with the Supreme
Court within thirty (30) days from receipt of the order or decision of the
[MAB]."
However, this Court has already invalidated such provision in Carpio v. Sulu
Resources Development Corp.,13 ruling that a decision of the MAB must first
be appealed to the Court of Appeals (CA) under Rule 43 of the Rules of
Court, before recourse to this Court may be had. We held, thus:
To summarize, there are sufficient legal footings authorizing a
review of the MAB Decision under Rule 43 of the Rules of
Court. First, Section 30 of Article VI of the 1987 Constitution,
mandates that "[n]o law shall be passed increasing the appellate
jurisdiction of the Supreme Court as provided in this Constitution
without its advice and consent." On the other hand, Section 79 of
RA No. 7942 provides that decisions of the MAB may be reviewed
by this Court on a "petition for review by certiorari." This
provision is obviously an expansion of the Court’s appellate
jurisdiction, an expansion to which this Court has not consented.
Indiscriminate enactment of legislation enlarging the appellate
jurisdiction of this Court would unnecessarily burden it.
Second, when the Supreme Court, in the exercise of its rule-
making power, transfers to the CA pending cases involving a
review of a quasi-judicial body’s decisions, such transfer relates
only to procedure; hence, it does not impair the substantive and
vested rights of the parties. The aggrieved party’s right to appeal
is preserved; what is changed is only the procedure by which the
appeal is to be made or decided. The parties still have a remedy
and a competent tribunal to grant this remedy.
Third, the Revised Rules of Civil Procedure included Rule 43 to
provide a uniform rule on appeals from quasi-judicial agencies.
Under the rule, appeals from their judgments and final orders are
now required to be brought to the CA on a verified petition for
review. A quasi-judicial agency or body has been defined as an
organ of government, other than a court or legislature, which
 affects the rights of private parties through either adjudication or
rule-making. MAB falls under this definition; hence, it is no
different from the other quasi-judicial bodies enumerated under
Rule 43. Besides, the introductory words in Section 1 of Circular
No. 1-91––"among these agencies are"––indicate that the
enumeration is not exclusive or conclusive and acknowledge the
existence of other quasi-judicial agencies which, though not
expressly listed, should be deemed included therein.
Fourth, the Court realizes that under Batas Pambansa (BP) Blg.
129 as amended by RA No. 7902, factual controversies are usually
involved in decisions of quasi-judicial bodies; and the CA, which is
likewise tasked to resolve questions of fact, has more elbow room
to resolve them. By including questions of fact among the issues
that may be raised in an appeal from quasi-judicial agencies to the
CA, Section 3 of Revised Administrative Circular No. 1-95 and
Section 3 of Rule 43 explicitly expanded the list of such issues.
According to Section 3 of Rule 43, "[a]n appeal under this Rule
may be taken to the Court of Appeals within the period and in the
manner herein provided whether the appeal involves questions of
fact, of law, or mixed questions of fact and law." Hence, appeals
from quasi-judicial agencies even only on questions of law may be
brought to the CA.
Fifth, the judicial policy of observing the hierarchy of courts
dictates that direct resort from administrative agencies to this
Court will not be entertained, unless the redress desired cannot
be obtained from the appropriate lower tribunals, or unless
exceptional and compelling circumstances justify availment of a
remedy falling within and calling for the exercise of our primary
jurisdiction.14
The above principle was reiterated in Asaphil Construction and
Development Corporation v. Tuason, Jr. (Asaphil).15However,
the Carpio ruling was not applied to Asaphil as the petition in the latter case
was filed in 1999 or three years before the promulgation of Carpio in 2002.
Here, the petition was filed on April 28, 2004 when the Carpiodecision was
already applicable, thus Benguet should have filed the appeal with the CA.
Petitioner having failed to properly appeal to the CA under Rule 43, the
decision of the MAB has become final and executory. On this ground alone,
the instant petition must be denied.
Even if we entertain the petition although Benguet skirted the appeal to the
CA via Rule 43, still, the December 2, 2002 Decision and March 17, 2004
Resolution of the DENR-MAB in MAB Case No. 0124-01 should be
maintained.
First Issue: The case should have first been brought to
voluntary arbitration before the POA
Secs. 11.01 and 11.02 of the RAWOP pertinently provide:
11.01 Arbitration
Any disputes, differences or disagreements between BENGUET
and the OWNER with reference to anything whatsoever
pertaining to this Agreement that cannot be amicably settled by
them shall not be cause of any action of any kind whatsoever in
any court or administrative agency but shall, upon notice of one
party to the other, be referred to a Board of Arbitrators consisting
of three (3) members, one to be selected by BENGUET, another to
be selected by the OWNER and the third to be selected by the
aforementioned two arbitrators so appointed.
xxxx
11.02 Court Action
No action shall be instituted in court as to any matter in dispute as
hereinabove stated, except to enforce the decision of the majority
of the Arbitrators.16
Thus, Benguet argues that the POA should have first referred the case to
voluntary arbitration before taking cognizance of the case, citing Sec. 2 of
RA 876 on persons and matters subject to arbitration.
On the other hand, in denying such argument, the POA ruled that:
While the parties may establish such stipulations clauses, terms and
conditions as they may deem convenient, the same must not be contrary to
law and public policy. At a glance, there is nothing wrong with the terms
and conditions of the agreement. But to state that an aggrieved party
cannot initiate an action without going to arbitration would be tying one’s
hand even if there is a law which allows him to do so.17
The MAB, meanwhile, denied Benguet’s contention on the ground of
estoppel, stating:
Besides, by its own act, Benguet is already estopped in
questioning the jurisdiction of the Panel of Arbitrators to hear and
decide the case. As pointed out in the appealed Decision, Benguet
initiated and filed an Adverse Claim docketed as MAC-R-M-2000-
02 over the same mining claims without undergoing contractual
arbitration. In this particular case (MAC-R-M-2000-02) now
subject of the appeal, Benguet is likewise in estoppel from
questioning the competence of the Panel of Arbitrators to hear
and decide in the summary proceedings J.G. Realty’s petition,
when Benguet itself did not merely move for the dismissal of the
case but also filed an Answer with counterclaim seeking
affirmative reliefs from the Panel of Arbitrators.18
Moreover, the MAB ruled that the contractual provision on arbitration
merely provides for an additional forum or venue and does not divest the
POA of the jurisdiction to hear the case.19
In its July 20, 2004 Comment,20 J.G. Realty reiterated the above rulings of
the POA and MAB. It argued that RA 7942 or the "Philippine Mining Act of
1995" is a special law which should prevail over the stipulations of the
parties and over a general law, such as RA 876. It also argued that the POA
cannot be considered as a "court" under the contemplation of RA 876 and
that jurisprudence saying that there must be prior resort to arbitration
before filing a case with the courts is inapplicable to the instant case as the
POA is itself already engaged in arbitration.
On this issue, we rule for Benguet.
Sec. 2 of RA 876 elucidates the scope of arbitration:
Section 2. Persons and matters subject to arbitration.––Two or
more persons or parties may submit to the arbitration of one or
more arbitrators any controversy existing between them at the
 time of the submission and which may be the subject of an
action, or the parties to any contract may in such contract agree
to settle by arbitration a controversy thereafter arising between
them. Such submission or contract shall be valid, enforceable
and irrevocable, save upon such grounds as exist at law for the
revocation of any contract.
Such submission or contract may include question[s] arising out of
valuations, appraisals or other controversies which may be
collateral, incidental, precedent or subsequent to any issue
between the parties. (Emphasis supplied.)
In RA 9285 or the "Alternative Dispute Resolution Act of 2004," the
Congress reiterated the efficacy of arbitration as an alternative mode of
dispute resolution by stating in Sec. 32 thereof that domestic arbitration
shall still be governed by RA 876. Clearly, a contractual stipulation that
requires prior resort to voluntary arbitration before the parties can go
directly to court is not illegal and is in fact promoted by the State. Thus,
petitioner correctly cites several cases whereby arbitration clauses have
been upheld by this Court.21
Moreover, the contention that RA 7942 prevails over RA 876 presupposes a
conflict between the two laws. Such is not the case here. To reiterate,
availment of voluntary arbitration before resort is made to the courts or
quasi-judicial agencies of the government is a valid contractual stipulation
that must be adhered to by the parties. As stated in Secs. 6 and 7 of RA 876:
Section 6. Hearing by court.––A party aggrieved by the failure,
neglect or refusal of another to perform under an agreement in
writing providing for arbitration may petition the court for an
order directing that such arbitration proceed in the manner
provided for in such agreement. Five days notice in writing of the
hearing of such application shall be served either personally or by
registered mail upon the party in default. The court shall hear the
parties, and upon being satisfied that the making of the
agreement or such failure to comply therewith is not in issue,
shall make an order directing the parties to proceed to
arbitration in accordance with the terms of the agreement. If the
making of the agreement or default be in issue the court shall
proceed to summarily hear such issue. If the finding be that no
agreement in writing providing for arbitration was made, or that
there is no default in the proceeding thereunder, the proceeding
shall be dismissed. If the finding be that a written provision for
arbitration was made and there is a default in proceeding
thereunder, an order shall be made summarily directing the
parties to proceed with the arbitration in accordance with the
terms thereof.
xxxx
Section 7. Stay of civil action.––If any suit or proceeding be
brought upon an issue arising out of an agreement providing for
the arbitration thereof, the court in which such suit or proceeding
is pending, upon being satisfied that the issue involved in such suit
or proceeding is referable to arbitration, shall stay the action or
proceeding until an arbitration has been had in accordance with
the terms of the agreement: Provided, That the applicant, for the
stay is not in default in proceeding with such arbitration.
(Emphasis supplied.)
In other words, in the event a case that should properly be the subject of
voluntary arbitration is erroneously filed with the courts or quasi-judicial
agencies, on motion of the defendant, the court or quasi-judicial agency
shall determine whether such contractual provision for arbitration is
sufficient and effective. If in affirmative, the court or quasi-judicial agency
shall then order the enforcement of said provision. Besides, in BF
Corporation v. Court of Appeals, we already ruled:
In this connection, it bears stressing that the lower court has not
lost its jurisdiction over the case. Section 7 of Republic Act No.
876 provides that proceedings therein have only been stayed.
After the special proceeding of arbitration has been pursued and
completed, then the lower court may confirm the award made by
the arbitrator.22
J.G. Realty’s contention, that prior resort to arbitration is unavailing in the
instant case because the POA’s mandate is to arbitrate disputes involving
mineral agreements, is misplaced. A distinction must be made between
voluntary and compulsory arbitration. In Ludo and Luym Corporation v.
Saordino, the Court had the occasion to distinguish between the two types
of arbitrations:
Comparatively, in Reformist Union of R.B. Liner, Inc. vs. NLRC,
compulsory arbitration has been defined both as "the process of
settlement of labor disputes by a government agency which has
the authority to investigate and to make an award which is
binding on all the parties, and as a mode of arbitration where the
parties are compelled to accept the resolution of their dispute
through arbitration by a third party." While a voluntary arbitrator
is not part of the governmental unit or labor department’s
personnel, said arbitrator renders arbitration services provided
for under labor laws.23 (Emphasis supplied.)
There is a clear distinction between compulsory and voluntary arbitration.
The arbitration provided by the POA is compulsory, while the nature of the
arbitration provision in the RAWOP is voluntary, not involving any
government agency. Thus, J.G. Realty’s argument on this matter must fail.
As to J.G. Realty’s contention that the provisions of RA 876 cannot apply to
the instant case which involves an administrative agency, it must be pointed
out that Section 11.01 of the RAWOP states that:
[Any controversy with regard to the contract] shall not be cause of
any action of any kind whatsoever in any court
or administrative agency but shall, upon notice of one party to
the other, be referred to a Board of Arbitrators consisting of three
(3) members, one to be selected by BENGUET, another to be
selected by the OWNER and the third to be selected by the
aforementioned two arbiters so appointed.24 (Emphasis supplied.)
There can be no quibbling that POA is a quasi-judicial body which forms part
of the DENR, an administrative agency. Hence, the provision on mandatory
resort to arbitration, freely entered into by the parties, must be held
binding against them.25
In sum, on the issue of whether POA should have referred the case to
voluntary arbitration, we find that, indeed, POA has no jurisdiction over the
dispute which is governed by RA 876, the arbitration law.
However, we find that Benguet is already estopped from questioning the
POA’s jurisdiction. As it were, when J.G. Realty filed DENR Case No. 2000-01,
Benguet filed its answer and participated in the proceedings before the
POA, Region V. Secondly, when the adverse March 19, 2001 POA Decision
was rendered, it filed an appeal with the MAB in Mines Administrative Case
No. R-M-2000-01 and again participated in the MAB proceedings. When the
adverse December 2, 2002 MAB Decision was promulgated, it filed a motion
for reconsideration with the MAB. When the adverse March 17, 2004 MAB
Resolution was issued, Benguet filed a petition with this Court pursuant to
Sec. 79 of RA 7942 impliedly recognizing MAB’s jurisdiction. In this factual
milieu, the Court rules that the jurisdiction of POA and that of MAB can no
longer be questioned by Benguet at this late hour. What Benguet should
have done was to immediately challenge the POA’s jurisdiction by a special
civil action for certiorari when POA ruled that it has jurisdiction over the
dispute. To redo the proceedings fully participated in by the parties after
the lapse of seven years from date of institution of the original action with
the POA would be anathema to the speedy and efficient administration of
justice.
Second Issue: The cancellation of the RAWOP
was supported by evidence
The cancellation of the RAWOP by the POA was based on two grounds: (1)
Benguet’s failure to pay J.G. Realty’s royalties for the mining claims; and (2)
Benguet’s failure to seriously pursue MPSA Application No. APSA-V-0009
over the mining claims.
As to the royalties, Benguet claims that the checks representing payments
for the royalties of J.G. Realty were available for pick-up in its office and it is
the latter which refused to claim them. Benguet then thus concludes that it
did not violate the RAWOP for nonpayment of royalties. Further, Benguet
reasons that J.G. Realty has the burden of proving that the former did not
pay such royalties following the principle that the complainants must prove
their affirmative allegations.
With regard to the failure to pursue the MPSA application, Benguet claims
that the lengthy time of approval of the application is due to the failure of
the MGB to approve it. In other words, Benguet argues that the approval of
the application is solely in the hands of the MGB.
Benguet’s arguments are bereft of merit.
Sec. 14.05 of the RAWOP provides:
14.05 Bank Account
OWNER shall maintain a bank account at ___________ or any
other bank from time to time selected by OWNER with notice in
writing to BENGUET where BENGUET shall deposit to the
OWNER’s credit any and all advances and payments which may
become due the OWNER under this Agreement as well as the
purchase price herein agreed upon in the event that BENGUET
shall exercise the option to purchase provided for in the
Agreement. Any and all deposits so made by BENGUET shall be a
full and complete acquittance and release to [sic] BENGUET from
any further liability to the OWNER of the amounts represented
by such deposits. (Emphasis supplied.)
Evidently, the RAWOP itself provides for the mode of royalty payment by
Benguet. The fact that there was the previous practice whereby J.G. Realty
picked-up the checks from Benguet is unavailing. The mode of payment is
embodied in a contract between the parties. As such, the contract must be
considered as the law between the parties and binding on both.26 Thus,
after J.G. Realty informed Benguet of the bank account where deposits of
its royalties may be made, Benguet had the obligation to deposit the
checks. J.G. Realty had no obligation to furnish Benguet with a Board
Resolution considering that the RAWOP itself provided for such payment
scheme.
Notably, Benguet’s claim that J.G. Realty must prove nonpayment of its
royalties is both illogical and unsupported by law and jurisprudence.
The allegation of nonpayment is not a positive allegation as claimed by
Benguet. Rather, such is a negative allegation that does not require proof
and in fact transfers the burden of proof to Benguet. Thus, this Court ruled
in Jimenez v. National Labor Relations Commission:
As a general rule, one who pleads payment has the burden of
proving it. Even where the plaintiff must allege non-payment, the
general rule is that the burden rests on the defendant to prove
payment, rather than on the plaintiff to prove non-payment. The
debtor has the burden of showing with legal certainty that the
obligation has been discharged by payment.27 (Emphasis
supplied.)
In the instant case, the obligation of Benguet to pay royalties to J.G. Realty
has been admitted and supported by the provisions of the RAWOP. Thus,
the burden to prove such obligation rests on Benguet.
It should also be borne in mind that MPSA Application No. APSA-V-0009 has
been pending with the MGB for a considerable length of time. Benguet, in
the RAWOP, obligated itself to perfect the rights to the mining claims
and/or otherwise acquire the mining rights to the mineral claims but failed
to present any evidence showing that it exerted efforts to speed up and
have the application approved. In fact, Benguet never even alleged that it
continuously followed-up the application with the MGB and that it was in
constant communication with the government agency for the expeditious
resolution of the application. Such allegations would show that, indeed,
Benguet was remiss in prosecuting the MPSA application and clearly failed
to comply with its obligation in the RAWOP.
Third Issue: There is no unjust enrichment in the instant case
Based on the foregoing discussion, the cancellation of the RAWOP was
based on valid grounds and is, therefore, justified. The necessary
implication of the cancellation is the cessation of Benguet’s right to
prosecute MPSA Application No. APSA-V-0009 and to further develop such
mining claims.
In Car Cool Philippines, Inc. v. Ushio Realty and Development Corporation,
we defined unjust enrichment, as follows:
We have held that "[t]here is unjust enrichment when a
person unjustly retains a benefit to the loss of another, or when a
person retains money or property of another against the
fundamental principles of justice, equity and good conscience."
Article 22 of the Civil Code provides that "[e]very person who
through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense of
the latter without just or legal ground, shall return the same to
him." The principle of unjust enrichment under Article 22 requires
two conditions: (1) that a person is benefited without a valid basis
or justification, and (2) that such benefit is derived at another’s
expense or damage.
There is no unjust enrichment when the person who will benefit
has a valid claim to such benefit.28(Emphasis supplied.)
Clearly, there is no unjust enrichment in the instant case as the cancellation
of the RAWOP, which left Benguet without any legal right to participate in
further developing the mining claims, was brought about by its violation of
the RAWOP. Hence, Benguet has no one to blame but itself for its
predicament.
WHEREFORE, we DISMISS the petition, and AFFIRM the December 2, 2002
Decision and March 17, 2004 Resolution of the DENR-MAB in MAB Case No.
0124-01 upholding the cancellation of the June 1, 1987 RAWOP. No costs.
SO ORDERED.
G.R. No. 126619 December 20, 2006
UNIWIDE SALES REALTY AND RESOURCES CORPORATION, petitioner,
vs.
TITAN-IKEDA CONSTRUCTION AND DEVELOPMENT
CORPORATION, respondent.
DECISION
TINGA, J.:
This Petition for Review on Certiorari under Rule 45 seeks the partial
reversal of the 21 February 1996 Decision1 of the Court of Appeals Fifteenth
Division in CA-G.R. SP No. 37957 which modified the 17 April 1995
Decision2 of the Construction Industry Arbitration Commission (CIAC).
The case originated from an action for a sum of money filed by Titan-Ikeda
Construction and Development Corporation (Titan) against Uniwide Sales
Realty and Resources Corporation (Uniwide) with the Regional Trial Court
(RTC), Branch 119,3 Pasay City arising from Uniwide's non-payment of
certain claims billed by Titan after completion of three projects covered by
agreements they entered into with each other. Upon Uniwide's motion to
dismiss/suspend proceedings and Titan's open court manifestation agreeing
to the suspension, Civil Case No. 98-0814 was suspended for it to undergo
arbitration.4 Titan's complaint was thus re-filed with the CIAC.5 Before the
CIAC, Uniwide filed an answer which was later amended and re-amended,
denying the material allegations of the complaint, with counterclaims for
refund of overpayments, actual and exemplary damages, and attorney's
fees. The agreements between Titan and Uniwide are briefly described
below.
PROJECT 1.6
The first agreement (Project 1) was a written "Construction Contract"
entered into by Titan and Uniwide sometime in May 1991 whereby Titan
undertook to construct Uniwide's Warehouse Club and Administration
Building in Libis, Quezon City for a fee of P120,936,591.50, payable in
monthly progress billings to be certified to by Uniwide's
representative.7 The parties stipulated that the building shall be completed
not later than 30 November 1991. As found by the CIAC, the building was
eventually finished on 15 February 19928 and turned over to Uniwide.
PROJECT 2.
Sometime in July 1992, Titan and Uniwide entered into the second
agreement (Project 2) whereby the former agreed to construct an
additional floor and to renovate the latter's warehouse located at the EDSA
Central Market Area in Mandaluyong City. There was no written contract
executed between the parties for this project. Construction was allegedly to
be on the basis of drawings and specifications provided by Uniwide's
structural engineers. The parties proceeded on the basis of a cost estimate
of P21,301,075.77 inclusive of Titan's 20% mark-up. Titan conceded in its
complaint to having received P15,000,000.00 of this amount. This project
was completed in the latter part of October 1992 and turned over to
Uniwide.
PROJECT 3.9
The parties executed the third agreement (Project 3) in May 1992. In a
written "Construction Contract," Titan undertook to construct the Uniwide
Sales Department Store Building in Kalookan City for the price
of P118,000,000.00 payable in progress billings to be certified to by
Uniwide's representative.10 It was stipulated that the project shall be
completed not later than 28 February 1993. The project was completed and
turned over to Uniwide in June 1993.
Uniwide asserted in its petition that: (a) it overpaid Titan for unauthorized
additional works in Project 1 and Project 3; (b) it is not liable to pay the
Value-Added Tax (VAT) for Project 1; (c) it is entitled to liquidated damages
for the delay incurred in constructing Project 1 and Project 3; and (d) it
should not have been found liable for deficiencies in the defectively
constructed Project 2.
An Arbitral Tribunal consisting of a chairman and two members was created
in accordance with the CIAC Rules of Procedure Governing Construction
Arbitration. It conducted a preliminary conference with the parties and
thereafter issued a Terms of Reference (TOR) which was signed by the
parties. The tribunal also conducted an ocular inspection, hearings, and
received the evidence of the parties consisting of affidavits which were
subject to cross-examination. On 17 April 1995, after the parties submitted
their respective memoranda, the Arbitral Tribunal promulgated a
Decision,11 the decretal portion of which is as follows:
"WHEREFORE, judgment is hereby rendered as follows:
On Project 1 – Libis:
[Uniwide] is absolved of any liability for the claims made by [Titan]
on this Project.
Project 2 – Edsa Central:
[Uniwide] is absolved of any liability for VAT payment on this
project, the same being for the account of the [Titan]. On the
other hand, [Titan] is absolved of any liability on the counterclaim
for defective construction of this project.
[Uniwide] is held liable for the unpaid balance in the amount
of P6,301,075.77 which is ordered to be paid to the [Titan] with
12% interest per annum commencing from 19 December 1992
until the date of payment.
On Project 3 – Kalookan:
 [Uniwide] is held liable for the unpaid balance in the amount
of P5,158,364.63 which is ordered to be paid to the [Titan] with
12% interest per annum commencing from 08 September 1993
until the date of payment.
[Uniwide] is held liable to pay in full the VAT on this project, in
such amount as may be computed by the Bureau of Internal
Revenue to be paid directly thereto. The BIR is hereby notified
that [Uniwide] Sales Realty and Resources Corporation has
assumed responsibility and is held liable for VAT payment on this
project. This accordingly exempts Claimant Titan-Ikeda
Construction and Development Corporation from this obligation.
Let a copy of this Decision be furnished the Honorable Aurora P.
Navarette Recina, Presiding Judge, Branch 119, Pasay City, in Civil
Case No. 94-0814 entitled Titan-Ikeda Construction Development
Corporation, Plaintiff – versus – Uniwide Sales Realty and
Resources Corporation, Defendant, pending before said court for
information and proper action.
SO ORDERED."12
Uniwide filed a motion for reconsideration of the 17 April 1995 decision
which was denied by the CIAC in its Resolution dated 6 July 1995. Uniwide
accordingly filed a petition for review with the Court of Appeals,13 which
rendered the assailed decision on 21 February 1996. Uniwide's motion for
reconsideration was likewise denied by the Court of Appeals in its assailed
Resolution14 dated 30 September 1996.
Hence, Uniwide comes to this Court via a petition for review under Rule 45.
The issues submitted for resolution of this Court are as follows:15 (1)
Whether Uniwide is entitled to a return of the amount it allegedly paid by
mistake to Titan for additional works done on Project 1; (2) Whether
Uniwide is liable for the payment of the Value-Added Tax (VAT) on Project
1; (3) Whether Uniwide is entitled to liquidated damages for Projects 1 and
3; and (4) Whether Uniwide is liable for deficiencies in Project 2.
As a rule, findings of fact of administrative agencies and 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.16 In particular,
factual findings of construction arbitrators are final and conclusive and not
reviewable by this Court on appeal.17 This rule, however admits of certain
exceptions.
In David v. Construction Industry and Arbitration Commission,18 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 of 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.19
Other recognized exceptions are as follows: (1) when there is a very clear
showing of grave abuse of discretion20resulting 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,21 (2) when the findings of the Court of Appeals
are contrary to those of the CIAC,22 and (3) when a party is deprived of
administrative due process.23
Thus, in Hi-Precision Steel Center, Inc. v. Lim Kim Builders, Inc.,24 we refused
to review the findings of fact of the CIAC for the reason that petitioner was
requiring the Court to go over each individual claim and counterclaim
submitted by the parties in the CIAC. A review of the CIAC's findings of fact
would have had the effect of "setting at naught the basic objective of a
voluntary arbitration and would reduce arbitration to a largely inutile
institution." Further, petitioner therein failed to show any serious error of
law amounting to grave abuse of discretion resulting in lack of jurisdiction
on the part of the Arbitral Tribunal, in either the methods employed or the
results reached by the Arbitral Tribunal, in disposing of the detailed claims
of the respective parties. In Metro Construction, Inc. v. Chatham Properties,
Inc.,25 we reviewed the findings of fact of the Court of Appeals because its
findings on the issue of whether petitioner therein was in delay were
contrary to the findings of the CIAC. Finally, in Megaworld Globus Asia, Inc.
v. DSM Construction and Development Corporation,26 we declined to depart
from the findings of the Arbitral Tribunal considering that the
computations, as well as the propriety of the awards, are unquestionably
factual issues that have been discussed by the Arbitral Tribunal and
affirmed by the Court of Appeals.
In the present case, only the first issue presented for resolution of this
Court is a question of law while the rest are factual in nature. However, we
do not hesitate to inquire into these factual issues for the reason that the
CIAC and the Court of Appeals, in some matters, differed in their findings.
We now proceed to discuss the issues in seriatim.
Payment by Mistake for Project 1
The first issue refers to the P5,823,481.75 paid by Uniwide for additional
works done on Project 1. Uniwide asserts that Titan was not entitled to be
paid this amount because the additional works were without any written
authorization.
It should be noted that the contracts do not contain stipulations on
"additional works," Uniwide's liability for "additional works," and prior
approval as a requirement before Titan could perform "additional works."
Nonetheless, Uniwide cites Article (Art. ) 1724 of the New Civil Code as basis
for its claim that it is not liable to pay for "additional works" it did not
authorize or agree upon in writing. The provision states:
Art. 1724. The contractor who undertakes to build a structure or
any other work for a stipulated price, in conformity with plans and
specifications agreed upon with the landowner, can neither
withdraw from the contract nor demand an increase in the price
on account of the higher cost of labor or materials, save when
there has been a change in the plans and specifications, provided:
(1) Such change has been authorized by the proprietor in writing;
and
(2) The additional price to be paid to the contractor has been
determined in writing by both parties.
The Court of Appeals did take note of this provision, but deemed it
inapplicable to the case at bar because Uniwide had already paid, albeit
with unwritten reservations, for the "additional works." The provision
would have been operative had Uniwide refused to pay for the costs of the
"additional works." Instead, the Court of Appeals applied Art. 1423 27 of the
New Civil Code and characterized Uniwide's payment of the said amount as
a voluntary fulfillment of a natural obligation. The situation was
characterized as being akin to Uniwide being a debtor who paid a debt even
while it knew that it was not legally compelled to do so. As such debtor,
Uniwide could no longer demand the refund of the amount already paid.
Uniwide counters that Art. 1724 makes no distinction as to whether
payment for the "additional works" had already been made. It claims that it
had made the payments, subject to reservations, upon the false
representation of Titan-Ikeda that the "additional works" were authorized
in writing. Uniwide characterizes the payment as a "mistake," and not a
"voluntary" fulfillment under Art. 1423 of the Civil Code. Hence, it urges the
application, instead, of the principle of solutio indebiti under Arts.
215428 and 215629 of the Civil Code.
To be certain, this Court has not been wont to give an expansive
construction of Art. 1724, denying, for example, claims that it applies to
constructions made of ship vessels,30 or that it can validly deny the claim for
payment of professional fees to the architect.31 The present situation
though presents a thornier problem. Clearly, Art. 1724 denies, as a matter
of right, payment to the contractor for additional works which were not
authorized in writing by the proprietor, and the additional price of which
was not determined in writing by the parties.
Yet the distinction pointed out by the Court of Appeals is material. The issue
is no longer centered on the right of the contractor to demand payment for
additional works undertaken because payment, whether mistaken or not,
was already made by Uniwide. Thus, it would not anymore be incumbent on
Titan to establish that it had the right to demand or receive such payment.
But, even if the Court accepts Art. 1724 as applicable in this case, such
recognition does not ipso facto accord Uniwide the right to be reimbursed
for payments already made, since Art. 1724 does not effect such right of
reimbursement. It has to be understood that Art. 1724 does not preclude
the payment to the contractor who performs additional works without any
prior written authorization or agreement as to the price for such works if
the owner decides anyway to make such payment. What the provision does
preclude is the right of the contractor to insist upon payment for
unauthorized additional works.
Accordingly, Uniwide, as the owner who did pay the contractor for such
additional works even if they had not been authorized in writing, has to
establish its own right to reimbursement not under Art. 1724, but under a
different provision of law. Uniwide's burden of establishing its legal right to
reimbursement becomes even more crucial in the light of the general
presumption contained in Section 3(f), Rule 131 of the Rules of Court that
"money paid by one to another was due to the latter."
Uniwide undertakes such a task before this Court, citing the provisions
on solutio indebiti under Arts. 2154 and 2156 of the Civil Code. However, it
is not enough to prove that the payments made by Uniwide to Titan were
"not due" because there was no prior authorization or agreement with
respect to additional works. There is a further requirement that the
payment by the debtor was made either through mistake or under a cloud
of doubt. In short, for the provisions on solutio indebiti to apply, there has
to be evidence establishing the frame of mind of the payor at the time the
payment was made.32
The CIAC refused to acknowledge that the additional works on Project 1
were indeed unauthorized by Uniwide. Neither did the Court of Appeals
arrive at a contrary determination. There would thus be some difficulty for
this Court to agree with this most basic premise submitted by Uniwide that
it did not authorize the additional works on Project 1 undertaken by Titan.
Still, Uniwide does cite testimonial evidence from the record alluding to a
concession by employees of Titan that these additional works on Project 1
were either authorized or documented.33
Yet even conceding that the additional works on Project 1 were not
authorized or committed into writing, the undisputed fact remains that
Uniwide paid for these additional works. Thus, to claim a refund of
payments made under the principle of solutio indebiti, Uniwide must be
able to establish that these payments were made through mistake. Again,
this is a factual matter that would have acquired a mantle of invulnerability
had it been determined by both the CIAC and the Court of Appeals.
However, both bodies failed to arrive at such a conclusion. Moreover,
Uniwide is unable to direct our attention to any pertinent part of the record
that would indeed establish that the payments were made by reason of
mistake.
We note that Uniwide alleged in its petition that the CIAC award in favor of
Titan in the amount P5,158,364.63 as the unpaid balance in Project 3
included claims for additional works of P1,087,214.18 for which no written
authorization was presented. Unfortunately, this issue was not included in
its memorandum as one of the issues submitted for the resolution of the
Court.
Liability for the Value-Added Tax (VAT)
The second issue takes us into an inquiry on who, under the law, is liable for
the payment of the VAT, in the absence of a written stipulation on the
matter. Uniwide claims that the VAT was already included in the contract
price for Project 1. Citing Secs. 99 and 102 of the National Internal Revenue
Code, Uniwide asserts that VAT, being an indirect tax, may be shifted to the
buyer by including it in the cash or selling price and it is entirely up to the
buyer to agree or not to agree to absorb the VAT.34 Thus, Uniwide
concludes, if there is no provision in the contract as to who should pay the
VAT, it is presumed that it would be the seller.35
The contract for Project 1 is silent on which party should shoulder the VAT
while the contract for Project 3 contained a provision to the effect that
Uniwide is the party responsible for the payment of the VAT.36 Thus, when
Uniwide paid the amount of P2,400,000.00 as billed by Titan for VAT, it
assumed that it was the VAT for Project 3. However, the CIAC and the Court
of Appeals found that the same was for Project 1.
We agree with the conclusions of both the CIAC and the Court of Appeals
that the amount of P2,400,000.00 was paid by Uniwide as VAT for Project 1.
This conclusion was drawn from an Order of Payment37 dated 7 October
1992 wherein Titan billed Uniwide the amount of P2,400,000.00 as "Value
Added Tax based on P60,000,000.00 Contract," computed on the basis of
4% of P60,000,000.00. Said document which was approved by the President
of Uniwide expressly indicated that the project involved was the "UNIWIDE
SALES WAREHOUSE CLUB & ADMIN BLDG." located at "90 E. RODRIGUEZ JR.
AVE., LIBIS, Q.C." The reduced base for the computation of the tax,
according to the Court of Appeals, was an indication that the parties agreed
to pass the VAT for Project 1 to Uniwide but based on a lower contract
price. Indeed, the CIAC found as follows:
Without any documentary evidence than Exhibit "H" to show the
extent of tax liability assumed by [Uniwide], the Tribunal holds
that the parties is [sic] obliged to pay only a share of the VAT
payment up to P60,000,000.00 out of the total contract price
of P120,936,591.50. As explained by Jimmy Gow, VAT is paid on
labor only for construction contracts since VAT had already been
 paid on the materials purchased. Since labor costs is [sic]
proportionately placed at 60%-40% of the contract price,
simplified accounting computes VAT at 4% of the contract
price. Whatever is the balance for VAT that remains to be paid on
Project 1 – Libis shall remain the obligation of [Titan]. (Emphasis
supplied.)38
Liquidated Damages
On the third issue of liquidated damages, the CIAC rejected such claim while
the Court of Appeals held that the matter should be left for determination
in future proceedings where the issue has been made clear.
In rejecting Uniwide's claim for liquidated damages, the CIAC held that
there is no legal basis for passing upon and resolving Uniwide's claim for the
following reasons: (1) no claim for liquidated damages arising from the
alleged delay was ever made by Uniwide at any time before the
commencement of Titan's complaint; (2) the claim for liquidated damages
was not included in the counterclaims stated in Uniwide's answer to Titan's
complaint; (3) the claim was not formulated as an issue to be resolved by
the CIAC in the TOR;39 and (4) no attempt was made to modify the TOR to
accommodate the same as an issue to be resolved.
Uniwide insists that the CIAC should have applied Section 5, Rule 10 of the
Rules of Court.40 On this matter, the Court of Appeals held that the CIAC is
an arbitration body, which is not necessarily bound by the Rules of Court.
Also, the Court of Appeals found that the issue has never been made
concrete enough to make Titan and the CIAC aware that it will be an issue.
In fact, Uniwide only introduced and quantified its claim for liquidated
damages in its Memorandum submitted to the CIAC at the end of the
arbitration proceeding. The Court of Appeals also noted that the only
evidence on record to prove delay in the construction of Project 1 is the
testimony of Titan's engineer regarding the date of completion of the
project while the only evidence of delay in the construction of Project 3 is
the affidavit of Uniwide's President.
According to Uniwide, the ruling of the Court of Appeals on the issue of
liquidated damages goes against the established judicial policy that a court
should always strive to settle in one proceeding the entire controversy
leaving no root or branch to bear the seeds of future litigations.41 Uniwide
claims that the required evidence for an affirmative ruling on its claim is
already on the record. It cites the pertinent provisions of the written
contracts which contained deadlines for liquidated damages. Uniwide also
noted that the evidence show that Project 1 was completed either on 15
February 1992, as found by the CIAC, or 12 March 1992, as shown by Titan's
own evidence, while Project 3, according to Uniwide's President, was
completed in June 1993. Furthermore, Uniwide asserts, the CIAC should
have applied procedural rules such as Section 5, Rule 10 with more liberality
because it was an administrative tribunal free from the rigid technicalities
of regular courts.42
On this point, the CIAC held:
The Rule of Procedure Governing Construction Arbitration
promulgated by the CIAC contains no provision on the application
of the Rules of Court to arbitration proceedings, even in a
suppletory capacity. Hypothetically admitting that there is such a
provision, suppletory application is made only if it would not
contravene a specific provision in the arbitration rules and the
spirit thereof. The Tribunal holds that such importation of the
Rules of Court provision on amendment to conform to evidence
would contravene the spirit, if not the letter of the CIAC
rules. This is for the reason that the formulation of the Terms of
Reference is done with the active participation of the parties and
their counsel themselves. The TOR is further required to be signed
by all the parties, their respective counsel and all the members of
the Arbitral Tribunal. Unless the issues thus carefully formulated
in the Terms of Reference were expressly showed [sic] to be
amended, issues outside thereof may not be resolved. As already
noted in the Decision, "no attempt was ever made by the
[Uniwide] to modify the TOR in order to accommodate the issues
related to its belated counterclaim" on this issue. (Emphasis
supplied.)
Arbitration has been defined as "an arrangement for taking and abiding by
the judgment of selected persons in some disputed matter, instead of
carrying it to established tribunals of justice, and is intended to avoid the
formalities, the delay, the expense and vexation of ordinary
litigation."43 Voluntary arbitration, on the other hand, involves the
reference of a dispute to an impartial body, the members of which are
chosen by the parties themselves, which parties freely consent in advance
to abide by the arbitral award issued after proceedings where both parties
had the opportunity to be heard. The basic objective is to provide a speedy
and inexpensive method of settling disputes by allowing the parties to avoid
the formalities, delay, expense and aggravation which commonly
accompany ordinary litigation, especially litigation which goes through the
entire hierarchy of courts.44 As an arbitration body, the CIAC can only
resolve issues brought before it by the parties through the TOR which
functions similarly as a pre-trial brief. Thus, if Uniwide's claim for liquidated
damages was not raised as an issue in the TOR or in any modified or
amended version of it, the CIAC cannot make a ruling on it. The Rules of
Court cannot be used to contravene the spirit of the CIAC rules, whose
policy and objective is to "provide a fair and expeditious settlement of
construction disputes through a non-judicial process which ensures
harmonious and friendly relations between or among the parties." 45
Further, a party may not be deprived of due process of law by an
amendment of the complaint as provided in Section 5, Rule 10 of the Rules
of Court. In this case, as noted by the Court of Appeals, Uniwide only
introduced and quantified its claim for liquidated damages in its
memorandum submitted to the CIAC at the end of the arbitration
proceeding. Verily, Titan was not given a chance to present evidence to
counter Uniwide's claim for liquidated damages.
Uniwide alludes to an alleged judicial admission made by Engr. Luzon
Tablante wherein he stated that Project 1 was completed on 10 March
1992. It now claims that by virtue of Engr. Tablante's statement, Titan had
admitted that it was in delay. We disagree. The testimony of Engr. Tablante
was offered only to prove that Project 1 was indeed completed. It was not
offered to prove the fact of delay. It must be remembered that the purpose
for which evidence is offered must be specified because such evidence may
be admissible for several purposes under the doctrine of multiple
admissibility, or may be admissible for one purpose and not for another,
otherwise the adverse party cannot interpose the proper objection.
Evidence submitted for one purpose may not be considered for any other
purpose.46Furthermore, even assuming, for the sake of argument, that said
testimony on the date of completion of Project 1 is admitted, the
establishment of the mere fact of delay is not sufficient for the imposition
of liquidated damages. It must further be shown that delay was attributable
to the contractor if not otherwise justifiable. Contrarily, Uniwide's belated
claim constitutes an admission that the delay was justified and implies a
waiver of its right to such damages.
Project 2: "as-built" plans, overpricing, defective construction
To determine whether or not Uniwide is liable for the unpaid balance
of P6,301,075.77 for Project 2, we need to resolve four sub-issues, namely:
(1) whether or not it was necessary for Titan to submit "as-built" plans
before it can be paid by Uniwide; (2) whether or not there was overpricing
of the project; (3) whether or not the P15,000,000.00 paid by Uniwide to
Titan for Project 2 constitutes full payment; and (4) whether or not Titan
can be held liable for defective construction of Project 2.
The CIAC, as affirmed by the Court of Appeals, held Uniwide liable for
deficiency relating to Project 2 in the amount of P6,301,075.77. It is
nonetheless alleged by Uniwide that Titan failed to submit any "as-built"
plans for Project 2, such plans allegedly serving as a condition precedent for
payment. Uniwide further claims that Titan had substantially overcharged
Uniwide for Project 2, there being uncontradicted expert testimony that the
total cost of Project 2 did not exceed P7,812,123.60. Furthermore, Uniwide
alleged that the works performed were structurally defective, as evidenced
by the structural damage on four columns as observed on ocular inspection
by the CIAC and confirmed by Titan's project manager.
On the necessity of submitting "as-built" plans, this Court rules that the
submission of such plans is not a pre-requisite for Titan to be paid by
Uniwide. The argument that said plans are required by Section 308 of
Presidential Decree No. 1098 (National Building Code) and by Section 2.11
of its Implementing Rules before payment can be made is untenable. The
purpose of the law is "to safeguard life, health, property, and public
welfare, consistent with the principles of sound environmental
management and control." The submission of these plans is necessary only
in furtherance of the law's purpose by setting minimum standards and
requirements to control the "location, site, design, quality of materials,
construction, use, occupancy, and maintenance" of buildings constructed
and not as a requirement for payment to the contractor.47 The testimony of
Engr. Tablante to the effect that the "as-built" plans are required before
payment can be claimed by Titan is a mere legal conclusion which is not
binding on this Court.
Uniwide claims that, according to one of its consultants, the true price for
Project 2 is only P7,812,123.60. The CIAC and the Court of Appeals,
however, found the testimony of this consultant suspect and ruled that the
total contract price for Project 2 is P21,301,075.77. The CIAC held:
The Cost Estimate for Architectural and Site Development Works
for the EDSA Central, Dau Branch Project (Exhibit "2-A" for
[Uniwide] and made as a common exhibit by [Titan] who had it
marked at [sic] its own Exhibit "U"), which was admittedly
prepared by Fermindoza and Associates, [Uniwide]'s own
architects, shows that the amount of P17,750,896.48 was arrived
at. Together with the agreed upon mark-up of 20% on said
amount, the total project cost was P21,301,075.77.
The Tribunal holds that the foregoing document is binding upon
the [Uniwide], it being the mode agreed upon by which its liability
for the project cost was to be determined.48 (Emphasis supplied.)
Indeed, Uniwide is bound by the amount indicated in the above document.
Claims of connivance or fraudulent conspiracy between Titan and Uniwide's
representatives which, it is alleged, grossly exaggerated the price may
properly be dismissed. As held by the CIAC:
The Tribunal holds that [Uniwide] has not introduced any
evidence to sustain its charge of fraudulent conspiracy. As a
matter of fact, [Uniwide]'s own principal witness, Jimmy Gow,
admitted on cross-examination that he does not have any direct
evidence to prove his charge of connivance or complicity between
the [Titan] and his own representatives. He only made that
conclusion by the process of his own "logical reasoning" arising
from his consultation with other contractors who gave him a
much lower estimate for the construction of the Dau Project.
There is thus no reason to invalidate the binding character
of Exhibit "2-A" which, it is significant to point out, is [Uniwide]'s
own evidence.49 (Emphasis supplied.)
Accordingly, deducting the P15,000,000.00 already paid by Uniwide from
the total contract price of P21,301,075.77, the unpaid balance due for
Project 2 is P6,301,075.77. This is the same amount reflected in the Order of
Payment prepared by Uniwide's representative, Le Consultech, Inc. and
signed by no less than four top officers and architects of Le Consultech, Inc.
endorsing for payment by Uniwide to Titan the amount of P6,301,075.77.50
Uniwide asserts that Titan should not have been allowed to recover on
Project 2 because the said project was defective and would require repairs
in the amount of P800,000.00. It claims that the CIAC and the Court of
Appeals should have applied Nakpil and Sons v. Court of Appeals51 and Art.
1723 of the New Civil Code holding a contractor responsible for damages if
the edifice constructed falls within fifteen years from completion on
account of defects in the construction or the use of materials of inferior
quality furnished by him or due to any violation of the terms of the
contract.
On this matter, the CIAC conducted an ocular inspection of the premises on
30 January 1995. What transpired in the said ocular inspection is described
thus:
On 30 January 1995, an ocular inspection was conducted by the
Arbitral Tribunal as requested by [Uniwide]. Photographs were
taken of the alleged construction defects, an actual ripping off of
the plaster of a certain column to expose the alleged structural
defect that is claimed to have resulted in its being "heavily
damaged" was done, clarificatory questions were asked and
manifestations on observations were made by the parties and
their respective counsels. The entire proceedings were recorded
on tape and subsequently transcribed. The photographs and
transcript of the ocular inspection form part of the records and
considered as evidence.52
And, according to these evidence, the CIAC concluded as follows:
It is likewise the holding of this Tribunal that [Uniwide]'s
counterclaim of defective construction has not been sufficiently
proven. The credibility of Engr. Cruz, [Uniwide]'s principal witness
on this issue, has been severely impaired. During the ocular
inspection of the premises, he gave such assurance of the
soundness of his opinion as an expert that a certain column was
heavily damaged judging from the external cracks that was readily
apparent x x x
xxxx
On insistence of the Tribunal, the plaster was chipped off and
revealed a structurally sound column x x x
Further, it turns out that what was being passed off as a defective
construction by [Titan], was in fact an old column, as admitted by
Mr. Gow himself x x x x53 (Emphasis supplied.)
Uniwide had the burden of proving that there was defective construction in
Project 2 but it failed to discharge this burden. Even the credibility of its
own witness was severely impaired. Further, it was found that the concrete
slab placed by Titan was not attached to the old columns where cracks were
discovered. The CIAC held that the post-tensioning of the new concrete slab
could not have caused any of the defects manifested by the old columns.
We are bound by this finding of fact by the CIAC.
It is worthy to stress our ruling in Hi-Precision Steel Center, Inc. v. Lim Kim
Steel Builders, Inc.54 which was reiterated in David v. Construction Industry
and Arbitration Commission,55 that:
x x x Executive Order No. 1008 created an arbitration facility to
which the construction industry in the Philippines can have
recourse. The Executive Order was enacted to encourage the
early and expeditious settlement of disputes in the construction
industry, a public policy the implementation of which is
necessary and important for the realization of national
development goals.
Aware of the objective of voluntary arbitration in the labor field,
in the construction industry, and in any other area for that matter,
the Court will not assist one or the other or even both parties in
any effort to subvert or defeat that objective for their private
purposes. 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. Prototypical
examples would be factual conclusions of the Tribunal which
resulted in deprivation of one or the other party of a fair
opportunity to present its position before the Arbitral Tribunal,
and an award obtained through fraud or the corruption of
arbitrators. Any other, more relaxed rule would result in setting at
naught the basic objective of a voluntary arbitration and would
reduce arbitration to a largely inutile institution. (Emphasis
supplied.)
WHEREFORE, premises considered, the petition is DENIED and the Decision
of the Court of Appeals dated 21 February 1996 in CA-G.R. SP No. 37957 is
hereby AFFIRMED.
SO ORDERED.
G.R. No. 169332 February 11, 2008
ABS-CBN BROADCASTING CORPORATION, petitioner,
vs.
WORLD INTERACTIVE NETWORK SYSTEMS (WINS) JAPAN CO.,
LTD., respondent.
DECISION
CORONA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court
seeks to set aside the February 16, 2005 decision1 and August 16, 2005
resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 81940.
On September 27, 1999, petitioner ABS-CBN Broadcasting Corporation
entered into a licensing agreement with respondent World Interactive
Network Systems (WINS) Japan Co., Ltd., a foreign corporation licensed
under the laws of Japan. Under the agreement, respondent was granted the
exclusive license to distribute and sublicense the distribution of the
television service known as "The Filipino Channel" (TFC) in Japan. By virtue
thereof, petitioner undertook to transmit the TFC programming signals to
respondent which the latter received through its decoders and distributed
to its subscribers.
A dispute arose between the parties when petitioner accused respondent of
inserting nine episodes of WINS WEEKLY, a weekly 35-minute community
news program for Filipinos in Japan, into the TFC programming from March
to May 2002.3 Petitioner claimed that these were "unauthorized insertions"
constituting a material breach of their agreement. Consequently, on May 9,
2002,4 petitioner notified respondent of its intention to terminate the
agreement effective June 10, 2002.
Thereafter, respondent filed an arbitration suit pursuant to the arbitration
clause of its agreement with petitioner. It contended that the airing of WINS
WEEKLY was made with petitioner's prior approval. It also alleged that
petitioner only threatened to terminate their agreement because it wanted
to renegotiate the terms thereof to allow it to demand higher fees.
Respondent also prayed for damages for petitioner's alleged grant of an
exclusive distribution license to another entity, NHK (Japan Broadcasting
Corporation).5
The parties appointed Professor Alfredo F. Tadiar to act as sole arbitrator.
They stipulated on the following issues in their terms of reference (TOR)6:
1. Was the broadcast of WINS WEEKLY by the claimant duly
authorized by the respondent [herein petitioner]?
2. Did such broadcast constitute a material breach of the
agreement that is a ground for termination of the agreement in
accordance with Section 13 (a) thereof?
3. If so, was the breach seasonably cured under the same
contractual provision of Section 13 (a)?
4. Which party is entitled to the payment of damages they claim
and to the other reliefs prayed for?
xxx xxx xxx
The arbitrator found in favor of respondent.7 He held that petitioner gave
its approval to respondent for the airing of WINS WEEKLY as shown by a
series of written exchanges between the parties. He also ruled that, had
there really been a material breach of the agreement, petitioner should
have terminated the same instead of sending a mere notice to terminate
said agreement. The arbitrator found that petitioner threatened to
terminate the agreement due to its desire to compel respondent to re-
negotiate the terms thereof for higher fees. He further stated that even if
respondent committed a breach of the agreement, the same was
seasonably cured. He then allowed respondent to recover temperate
damages, attorney's fees and one-half of the amount it paid as arbitrator's
fee.
Petitioner filed in the CA a petition for review under Rule 43 of the Rules of
Court or, in the alternative, a petition for certiorari under Rule 65 of the
same Rules, with application for temporary restraining order and writ of
preliminary injunction. It was docketed as CA-G.R. SP No. 81940. It alleged
serious errors of fact and law and/or grave abuse of discretion amounting
to lack or excess of jurisdiction on the part of the arbitrator.
Respondent, on the other hand, filed a petition for confirmation of arbitral
award before the Regional Trial Court (RTC) of Quezon City, Branch 93,
docketed as Civil Case No. Q-04-51822.
Consequently, petitioner filed a supplemental petition in the CA seeking to
enjoin the RTC of Quezon City from further proceeding with the hearing of
respondent's petition for confirmation of arbitral award. After the petition
was admitted by the appellate court, the RTC of Quezon City issued an
order holding in abeyance any further action on respondent's petition as
the assailed decision of the arbitrator had already become the subject of an
appeal in the CA. Respondent filed a motion for reconsideration but no
resolution has been issued by the lower court to date.8
On February 16, 2005, the CA rendered the assailed decision dismissing
ABS-CBN’s petition for lack of jurisdiction. It stated that as the TOR itself
provided that the arbitrator's decision shall be final and unappealable and
that no motion for reconsideration shall be filed, then the petition for
review must fail. It ruled that it is the RTC which has jurisdiction over
questions relating to arbitration. It held that the only instance it can
exercise jurisdiction over an arbitral award is an appeal from the trial
court's decision confirming, vacating or modifying the arbitral award. It
further stated that a petition for certiorari under Rule 65 of the Rules of
Court is proper in arbitration cases only if the courts refuse or neglect to
inquire into the facts of an arbitrator's award. The dispositive portion of the
CA decision read:
WHEREFORE, the instant petition is hereby DISMISSED for lack of
jurisdiction. The application for a writ of injunction and temporary
restraining order is likewise DENIED. The Regional Trial Court of
Quezon City Branch 93 is directed to proceed with the trial for the
Petition for Confirmation of Arbitral Award.
SO ORDERED.
Petitioner moved for reconsideration. The same was denied. Hence, this
petition.
Petitioner contends that the CA, in effect, ruled that: (a) it should have first
filed a petition to vacate the award in the RTC and only in case of denial
could it elevate the matter to the CA via a petition for review under Rule 43
and (b) the assailed decision implied that an aggrieved party to an arbitral
award does not have the option of directly filing a petition for review under
Rule 43 or a petition for certiorari under Rule 65 with the CA even if the
issues raised pertain to errors of fact and law or grave abuse of discretion,
as the case may be, and not dependent upon such grounds as enumerated
under Section 24 (petition to vacate an arbitral award) of RA 876 (the
Arbitration Law). Petitioner alleged serious error on the part of the CA.
The issue before us is whether or not an aggrieved party in a voluntary
arbitration dispute may avail of, directly in the CA, a petition for review
under Rule 43 or a petition for certiorari under Rule 65 of the Rules of
Court, instead of filing a petition to vacate the award in the RTC when the
grounds invoked to overturn the arbitrator’s decision are other than those
for a petition to vacate an arbitral award enumerated under RA 876.
RA 876 itself mandates that it is the Court of First Instance, now the RTC,
which has jurisdiction over questions relating to arbitration,9 such as a
petition to vacate an arbitral award.
Section 24 of RA 876 provides for the specific grounds for a petition to
vacate an award made by an arbitrator:
Sec. 24. Grounds for vacating award. - In any one of the following
cases, the court must make an order vacating the award upon
the petition of any party to the controversy when such party
proves affirmatively that in the arbitration proceedings:
(a) The award was procured by corruption, fraud, or other undue
means; or
(b) That there was evident partiality or corruption in the
arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in refusing to
postpone the hearing upon sufficient cause shown, or in refusing
to hear evidence pertinent and material to the controversy; that
one or more of the arbitrators was disqualified to act as such
under section nine hereof, and willfully refrained from disclosing
such disqualifications or of any other misbehavior by which the
rights of any party have been materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so imperfectly
executed them, that a mutual, final and definite award upon the
subject matter submitted to them was not made.
Based on the foregoing provisions, the law itself clearly provides that the
RTC must issue an order vacating an arbitral award only "in any one of the .
. . cases" enumerated therein. Under the legal maxim in statutory
construction expressio unius est exclusio alterius, the explicit mention of
one thing in a statute means the elimination of others not specifically
mentioned. As RA 876 did not expressly provide for errors of fact and/or
law and grave abuse of discretion (proper grounds for a petition for review
under Rule 43 and a petition for certiorari under Rule 65, respectively) as
grounds for maintaining a petition to vacate an arbitral award in the RTC, it
necessarily follows that a party may not avail of the latter remedy on the
grounds of errors of fact and/or law or grave abuse of discretion to overturn
an arbitral award.
Adamson v. Court of Appeals10 gave ample warning that a petition to vacate
filed in the RTC which is not based on the grounds enumerated in Section 24
of RA 876 should be dismissed. In that case, the trial court vacated the
arbitral award seemingly based on grounds included in Section 24 of RA 876
but a closer reading thereof revealed otherwise. On appeal, the CA reversed
the decision of the trial court and affirmed the arbitral award. In affirming
the CA, we held:
 The Court of Appeals, in reversing the trial court's decision held
that the nullification of the decision of the Arbitration Committee
was not based on the grounds provided by the Arbitration Law
and that xxx private respondents (petitioners herein) have failed
to substantiate with any evidence their claim of partiality.
Significantly, even as respondent judge ruled against the
arbitrator's award, he could not find fault with their impartiality
and integrity. Evidently, the nullification of the award rendered
at the case at bar was not made on the basis of any of the
grounds provided by law.
xxx xxx xxx
It is clear, therefore, that the award was vacated not because of
evident partiality of the arbitrators but because the latter
interpreted the contract in a way which was not favorable to
herein petitioners and because it considered that herein private
respondents, by submitting the controversy to arbitration, was
seeking to renege on its obligations under the contract.
xxx xxx xxx
It is clear then that the Court of Appeals reversed the trial
court not because the latter reviewed the arbitration award
involved herein, but because the respondent appellate court
found that the trial court had no legal basis for vacating the
award. (Emphasis supplied).
In cases not falling under any of the aforementioned grounds to vacate an
award, the Court has already made several pronouncements that a petition
for review under Rule 43 or a petition for certiorari under Rule 65 may be
availed of in the CA. Which one would depend on the grounds relied upon
by petitioner.
In Luzon Development Bank v. Association of Luzon Development Bank
Employees,11 the Court held that a voluntary arbitrator is properly classified
as a "quasi-judicial instrumentality" and is, thus, within the ambit of Section
9 (3) of the Judiciary Reorganization Act, as amended. Under this section,
the Court of Appeals shall exercise:
xxx xxx xxx
(3) Exclusive appellate jurisdiction over all final judgments,
decisions, resolutions, orders or awards of Regional Trial Courts
and quasi-judicial agencies, instrumentalities, boards or
commissions, including the Securities and Exchange Commission,
the Employees’ Compensation Commission and the Civil Service
Commission, except those falling within the appellate jurisdiction
of the Supreme Court in accordance with the Constitution, the
Labor Code of the Philippines under Presidential Decree No. 442,
as amended, the provisions of this Act and of subparagraph (1) of
the third paragraph and subparagraph (4) of the fourth paragraph
of Section 17 of the Judiciary Act of 1948. (Emphasis supplied)
As such, decisions handed down by voluntary arbitrators fall within the
exclusive appellate jurisdiction of the CA. This decision was taken into
consideration in approving Section 1 of Rule 43 of the Rules of
Court.12 Thus:
SECTION 1. Scope. - This Rule shall apply to appeals from
judgments or final orders of the Court of Tax Appeals and from
awards, judgments, final orders or resolutions of or authorized by
any quasi-judicial agency in the exercise of its quasi-judicial
functions. Among these agencies are the Civil Service Commission,
Central Board of Assessment Appeals, Securities and Exchange
Commission, Office of the President, Land Registration Authority,
Social Security Commission, Civil Aeronautics Board, Bureau of
Patents, Trademarks and Technology Transfer, National
Electrification Administration, Energy Regulatory Board, National
Telecommunications Commission, Department of Agrarian
Reform under Republic Act Number 6657, Government Service
Insurance System, Employees Compensation Commission,
Agricultural Inventions Board, Insurance Commission, Philippine
Atomic Energy Commission, Board of Investments, Construction
Industry Arbitration Commission, and voluntary arbitrators
authorized by law. (Emphasis supplied)
This rule was cited in Sevilla Trading Company v. Semana,13 Manila
Midtown Hotel v. Borromeo,14 and Nippon Paint Employees Union-Olalia v.
Court of Appeals.15 These cases held that the proper remedy from the
adverse decision of a voluntary arbitrator, if errors of fact and/or law are
raised, is a petition for review under Rule 43 of the Rules of Court. Thus,
petitioner's contention that it may avail of a petition for review under Rule
43 under the circumstances of this case is correct.
As to petitioner's arguments that a petition for certiorari under Rule 65 may
also be resorted to, we hold the same to be in accordance with the
Constitution and jurisprudence.
Section 1 of Article VIII of the 1987 Constitution provides that:
SECTION 1. The judicial power shall be vested in one Supreme
Court and in such lower courts as may be established by law.
Judicial power includes the duty of the courts of justice to settle
actual controversies involving rights which are legally demandable
and enforceable, and to determine whether or not there has
been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the
Government. (Emphasis supplied)
As may be gleaned from the above stated provision, it is well within the
power and jurisdiction of the Court to inquire whether any instrumentality
of the Government, such as a voluntary arbitrator, has gravely abused its
discretion in the exercise of its functions and prerogatives. Any agreement
stipulating that "the decision of the arbitrator shall be final and
unappealable" and "that no further judicial recourse if either party
disagrees with the whole or any part of the arbitrator's award may be
availed of" cannot be held to preclude in proper cases the power of judicial
review which is inherent in courts.16 We will not hesitate to review a
voluntary arbitrator's award where there is a showing of grave abuse of
authority or discretion and such is properly raised in a petition for
certiorari17 and there is no appeal, nor any plain, speedy remedy in the
course of law.18
Significantly, Insular Savings Bank v. Far East Bank and Trust
Company19 definitively outlined several judicial remedies an aggrieved party
to an arbitral award may undertake:
(1) a petition in the proper RTC to issue an order to vacate the
award on the grounds provided for in Section 24 of RA 876;
(2) a petition for review in the CA under Rule 43 of the Rules of
Court on questions of fact, of law, or mixed questions of fact and
law; and
 (3) a petition for certiorari under Rule 65 of the Rules of Court
should the arbitrator have acted without or in excess of his
jurisdiction or with grave abuse of discretion amounting to lack or
excess of jurisdiction.
Nevertheless, although petitioner’s position on the judicial remedies
available to it was correct, we sustain the dismissal of its petition by the CA.
The remedy petitioner availed of, entitled "alternative petition for review
under Rule 43 or petition for certiorari under Rule 65," was wrong.
Time and again, we have ruled that the remedies of appeal and certiorari
are mutually exclusive and not alternative or successive.20
Proper issues that may be raised in a petition for review under Rule 43
pertain to errors of fact, law or mixed questions of fact and law.21 While a
petition for certiorari under Rule 65 should only limit itself to errors of
jurisdiction, that is, grave abuse of discretion amounting to a lack or excess
of jurisdiction.22 Moreover, it cannot be availed of where appeal is the
proper remedy or as a substitute for a lapsed appeal.23
In the case at bar, the questions raised by petitioner in its alternative
petition before the CA were the following:
A. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR
GRAVELY ABUSED HIS DISCRETION IN RULING THAT THE
BROADCAST OF "WINS WEEKLY" WAS DULY AUTHORIZED BY ABS-
CBN.
B. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR
GRAVELY ABUSED HIS DISCRETION IN RULING THAT THE
UNAUTHORIZED BROADCAST DID NOT CONSTITUTE MATERIAL
BREACH OF THE AGREEMENT.
C. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR
GRAVELY ABUSED HIS DISCRETION IN RULING THAT WINS
SEASONABLY CURED THE BREACH.
D. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR
GRAVELY ABUSED HIS DISCRETION IN RULING THAT TEMPERATE
DAMAGES IN THE AMOUNT OF P1,166,955.00 MAY BE AWARDED
TO WINS.
E. THE SOLE ARBITRATOR COMMITTED SERIOUS ERROR AND/OR
GRAVELY ABUSED HIS DISCRETION IN AWARDING ATTORNEY'S
FEES IN THE UNREASONABLE AMOUNT AND UNCONSCIONABLE
AMOUNT OF P850,000.00.
F. THE ERROR COMMITTED BY THE SOLE ARBITRATOR IS NOT A
SIMPLE ERROR OF JUDGMENT OR ABUSE OF DISCRETION. IT IS
GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS
OF JURISDICTION.
A careful reading of the assigned errors reveals that the real issues calling
for the CA's resolution were less the alleged grave abuse of discretion
exercised by the arbitrator and more about the arbitrator’s appreciation of
the issues and evidence presented by the parties. Therefore, the issues
clearly fall under the classification of errors of fact and law — questions
which may be passed upon by the CA via a petition for review under Rule
43. Petitioner cleverly crafted its assignment of errors in such a way as to
straddle both judicial remedies, that is, by alleging serious errors of fact and
law (in which case a petition for review under Rule 43 would be proper) and
grave abuse of discretion (because of which a petition for certiorari under
Rule 65 would be permissible).
It must be emphasized that every lawyer should be familiar with the
distinctions between the two remedies for it is not the duty of the courts to
determine under which rule the petition should fall.24 Petitioner's ploy was
fatal to its cause. An appeal taken either to this Court or the CA by the
wrong or inappropriate mode shall be dismissed.25Thus,
the alternative petition filed in the CA, being an inappropriate mode of
appeal, should have been dismissed outright by the CA.
WHEREFORE, the petition is hereby DENIED. The February 16, 2005
decision and August 16, 2005 resolution of the Court of Appeals in CA-G.R.
SP No. 81940 directing the Regional Trial Court of Quezon City, Branch 93 to
proceed with the trial of the petition for confirmation of arbitral award
is AFFIRMED.
Costs against petitioner.
SO ORDERED.
G.R. No. 156660 August 24, 2009
ORMOC SUGARCANE PLANTERS' ASSOCIATION, INC. (OSPA),OCCIDENTAL
LEYTE FARMERS MULTI-PURPOSE COOPERATIVE, INC. (OLFAMCA),
UNIFARM MULTI-PURPOSE COOPERATIVE, INC. (UNIFARM) and ORMOC
NORTH DISTRICT IRRIGATION MULTI-PURPOSE COOPERATIVE, INC.
(ONDIMCO), Petitioners,
vs.
THE COURT OF APPEALS (Special Former Sixth Division), HIDECO SUGAR
MILLING CO., INC., and ORMOC SUGAR MILLING CO., INC., Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a special civil action for certiorari assailing the
Decision1 dated December 7, 2001 and the Resolution dated October 30,
2002 of the Court of Appeals (CA) in CA-G.R. SP No. 56166 which set aside
the Joint Orders2 dated August 26, 1999 and October 29, 1999 issued by the
Regional Trial Court (RTC) of Ormoc City, Branch 12 upholding petitioners’
legal personality to demand arbitration from respondents and directing
respondents to nominate two arbitrators to represent them in the Board of
Arbitrators.
Petitioners are associations organized by and whose members are
individual sugar planters (Planters). The membership of each association
follows: 264 Planters were members of OSPA; 533 Planters belong to
OLFAMCA; 617 Planters joined UNIFARM; 760 Planters enlisted with
ONDIMCO; and the rest belong to BAP-MPC which did not join the lawsuit.
Respondents Hideco Sugar Milling Co., Inc. (Hideco) and Ormoc Sugar
Milling Co, Inc. (OSCO) are sugar centrals engaged in grinding and milling
sugarcane delivered to them by numerous individual sugar planters, who
may or may not be members of an association such as petitioners.
Petitioners assert that the relationship between respondents and the
individual sugar planters is governed by milling contracts. To buttress this
claim, petitioners presented representative samples of the milling
contracts.3
Notably, Article VII of the milling contracts provides that 34% of the sugar
and molasses produced from milling the Planter’s sugarcane shall belong to
the centrals (respondents) as compensation, 65% thereof shall go to the
Planter and the remaining 1% shall go the association to which the Planter
concerned belongs, as aid to the said association. The 1% aid shall be used
by the association for any purpose that it may deem fit for its members,
laborers and their dependents. If the Planter was not a member of any
association, then the said 1% shall revert to the centrals. Article XIV,
paragraph B4 states that the centrals may not, during the life of the milling
contract, sign or execute any contract or agreement that will provide better
or more benefits to a Planter, without the written consent of the existing
and recognized associations except to Planters whose plantations are
situated in areas beyond thirty (30) kilometers from the mill. Article XX
provides that all differences and controversies which may arise between the
parties concerning the agreement shall be submitted for discussion to a
Board of Arbitration, consisting of five (5) members—two (2) of which shall
be appointed by the centrals, two (2) by the Planter and the fifth to be
appointed by the four appointed by the parties.
On June 4, 1999, petitioners, without impleading any of their individual
members, filed twin petitions with the RTC for Arbitration under R.A. 876,
Recovery of Equal Additional Benefits, Attorney’s Fees and Damages,
against HIDECO and OSCO, docketed as Civil Case Nos. 3696-O and 3697-O,
respectively.
Petitioners claimed that respondents violated the Milling Contract when
they gave to independent planters who do not belong to any association
the 1% share, instead of reverting said share to the centrals. Petitioners
contended that respondents unduly accorded the independent Planters
more benefits and thus prayed that an order be issued directing the parties
to commence with arbitration in accordance with the terms of the milling
contracts. They also demanded that respondents be penalized by increasing
their member Planters’ 65% share provided in the milling contract by 1%, to
66%.
Respondents filed a motion to dismiss on ground of lack of cause of action
because petitioners had no milling contract with respondents. According to
respondents, only some eighty (80) Planters who were members of OSPA,
one of the petitioners, executed milling contracts. Respondents and these
80 Planters were the signatories of the milling contracts. Thus, it was the
individual Planters, and not petitioners, who had legal standing to invoke
the arbitration clause in the milling contracts. Petitioners, not being privy to
the milling contracts, had no legal standing whatsoever to demand or sue
for arbitration.
On August 26, 1999, the RTC issued a Joint Order5 denying the motion to
dismiss, declaring the existence of a milling contract between the parties,
and directing respondents to nominate two arbitrators to the Board of
Arbitrators, to wit:
When these cases were called for hearing today, counsels for the
petitioners and respondents argued their respective stand. The Court is
convinced that there is an existing milling contract between the petitioners
and respondents and these planters are represented by the officers of the
associations. The petitioners have the right to sue in behalf of the planters.
This Court, acting on the petitions, directs the respondents to nominate two
arbitrators to represent HIDECO/HISUMCO and OSCO in the Board of
Arbitrators within fifteen (15) days from receipt of this Order. xxx
However, if the respondents fail to nominate their two arbitrators, upon
proper motion by the petitioners, then the Court will be compelled to use
its discretion to appoint the two (2) arbitrators, as embodied in the Milling
Contract and R.A. 876.
xxx
Their subsequent motion for reconsideration having been denied by the
RTC in its Joint Order6 dated October 29, 1999, respondents elevated the
case to the CA through a Petition for Certiorari with Prayer for the Issuance
of Temporary Restraining Order and/or Writ of Preliminary Injunction.
On December 7, 2001, the CA rendered its challenged Decision, setting
aside the assailed Orders of the RTC. The CA held that petitioners neither
had an existing contract with respondents nor were they privy to the milling
contracts between respondents and the individual Planters. In the main, the
CA concluded that petitioners had no legal personality to bring the action
against respondents or to demand for arbitration.
Petitioners filed a motion for reconsideration, but it too was denied by the
CA in its Resolution7 dated October 30, 2002. Thus, the instant petition.
At the outset, it must be noted that petitioners filed the instant petition for
certiorari under Rule 65 of the Rules of Court, to challenge the judgment of
the CA. Section 1 of Rule 65 states:
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 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 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
relief as law and justice require. xxx xxx xxx (emphasis ours)
The instant recourse is improper because the resolution of the CA was a
final order from which the remedy of appeal was available under Rule 45 in
relation to Rule 56. The existence and availability of the right of appeal
proscribes resort to certiorari because one of the requirements for
availment of the latter is precisely that there should be no appeal. It is
elementary that for certiorari to prosper, it is not enough that the trial court
committed grave abuse of discretion amounting to lack or excess of
jurisdiction; the requirement that there is no appeal, nor any plain, speedy
and adequate remedy in the ordinary course of law must likewise be
satisfied.8 The proper mode of recourse for petitioners was to file a petition
for review of the CA’s decision under Rule 45.
Petitioners principally argue that the CA committed a grave error in setting
aside the challenged Joint Orders of the RTC which allegedly unduly
curtailed the right of petitioners to represent their planters-members and
enforce the milling contracts with respondents. Petitioners assert the said
which orders were issued in accordance with Article XX of the Milling
Contract and the applicable provisions of Republic Act (R.A.) No. 876.
Where the issue or question involved affects the wisdom or legal soundness
of the decision – not the jurisdiction of the court to render said decision –
the same is beyond the province of a special civil action for certiorari.
Erroneous findings and conclusions do not render the appellate court
vulnerable to the corrective writ of certiorari. For where the court has
jurisdiction over the case, even if its findings are not correct, they would, at
most constitute errors of law and not abuse of discretion correctable by
certiorari.9
Moreover, even if this Court overlooks the procedural lapse committed by
petitioners and decides this matter on the merits, the present petition will
still not prosper.
Stripped to the core, the pivotal issue here is whether or not petitioners ―
sugar planters’ associations ― are clothed with legal personality to file a
suit against, or demand arbitration from, respondents in their own name
without impleading the individual Planters.
On this point, we agree with the findings of the CA.
Section 2 of R.A. No. 876 (the Arbitration Law)10 pertinently provides:
Sec. 2. Persons and matters subject to arbitration. – Two or more persons
or parties may submit to the arbitration of one or more arbitrators any
controversy existing between them at the time of the submission and which
may be the subject of an action, or the parties to any contract may in such
contract agree to settle by arbitration a controversy thereafter arising
between them. Such submission or contract shall be valid, enforceable and
irrevocable, save upon such grounds as exist at law for the revocation of
any contract. xxx (Emphasis ours)
The foregoing provision speaks of two modes of arbitration: (a) an
agreement to submit to arbitration some future dispute, usually stipulated
upon in a civil contract between the parties, and known as an agreement to
submit to arbitration, and (b) an agreement submitting an existing matter of
difference to arbitrators, termed the submission agreement. Article XX of
the milling contract is an agreement to submit to arbitration because it was
made in anticipation of a dispute that might arise between the parties after
the contract’s execution.
Except where a compulsory arbitration is provided by statute, the first step
toward the settlement of a difference by arbitration is the entry by the
parties into a valid agreement to arbitrate. An agreement to arbitrate is a
contract, the relation of the parties is contractual, and the rights and
liabilities of the parties are controlled by the law of contracts.11 In an
agreement for arbitration, the ordinary elements of a valid contract must
appear, including an agreement to arbitrate some specific thing, and an
agreement to abide by the award, either in express language or by
implication.
The requirements that an arbitration agreement must be written and
subscribed by the parties thereto were enunciated by the Court in B.F.
Corporation v. CA.12
During the proceedings before the CA, it was established that there were
more than two thousand (2,000) Planters in the district at the time the case
was commenced at the RTC in 1999. The CA further found that of those
2,000 Planters, only about eighty (80) Planters, who were all members of
petitioner OSPA, in fact individually executed milling contracts with
respondents. No milling contracts signed by members of the other
petitioners were presented before the CA.
By their own allegation, petitioners are associations duly existing and
organized under Philippine law, i.e. they have juridical personalities
separate and distinct from that of their member Planters. It is likewise
undisputed that the eighty (80) milling contracts that were presented were
signed only by the member Planter concerned and one of the Centrals as
parties. In other words, none of the petitioners were parties or signatories
to the milling contracts. This circumstance is fatal to petitioners' cause since
they anchor their right to demand arbitration from the respondent sugar
centrals upon the arbitration clause found in the milling contracts. There is
no legal basis for petitioners' purported right to demand arbitration when
they are not parties to the milling contracts, especially when the language
of the arbitration clause expressly grants the right to demand arbitration
only to the parties to the contract.
Simply put, petitioners do not have any agreement to arbitrate with
respondents. Only eighty (80) Planters who were all members of OSPA were
shown to have such an agreement to arbitrate, included as a stipulation in
their individual milling contracts. The other petitioners failed to prove that
any of their members had milling contracts with respondents, much less,
that respondents had an agreement to arbitrate with the petitioner
associations themselves.
Even assuming that all the petitioners were able to present milling contracts
in favor of their members, it is undeniable that under the arbitration clause
in these contracts it is the parties thereto who have the right to submit a
controversy or dispute to arbitration.
Section 4 of R.A. 876 provides:
Section 4. Form of Arbitration Agreement – A contract to arbitrate a
controversy thereafter arising between the parties, as well as a submission
to arbitrate an existing controversy, shall be in writing and subscribed by
the party sought to be charged, or by his lawful agent.
The making of a contract or submission for arbitration described in section
two hereof, providing for arbitration of any controversy, shall be deemed a
consent of the parties to the jurisdiction of the Court of First Instance of the
province or city where any of the parties resides, to enforce such contract
of submission.
The formal requirements of an agreement to arbitrate are therefore the
following: (a) it must be in writing and (b) it must be subscribed by the
parties or their representatives. To subscribe means to write underneath, as
one’s name; to sign at the end of a document. That word may sometimes
be construed to mean to give consent to or to attest.13
Petitioners would argue that they could sue respondents, notwithstanding
the fact that they were not signatories in the milling contracts because they
are the recognized representatives of the Planters.
This claim has no leg to stand on since petitioners did not sign the milling
contracts at all, whether as a party or as a representative of their member
Planters. The individual Planter and the appropriate central were the only
signatories to the contracts and there is no provision in the milling contracts
that the individual Planter is authorizing the association to represent
him/her in a legal action in case of a dispute over the milling contracts.
Moreover, even assuming that petitioners are indeed representatives of the
member Planters who have milling contracts with the respondents and
assuming further that petitioners signed the milling contracts
as representativesof their members, petitioners could not initiate
arbitration proceedings in their own name as they had done in the present
case. As mere agents, they should have brought the suit in the name of the
principals that they purportedly represent. Even if Section 4 of R.A. No. 876
allows the agreement to arbitrate to be signed by a representative, the
principal is still the one who has the right to demand arbitration.
Indeed, Rule 3, Section 2 of the Rules of Court requires suits to be brought
in the name of the real party in interest, to wit:
Sec. 2. Parties in interest. A real party in interest is the party who stands to
be benefited or injured by the judgment in the suit, or the party entitled to
the avails of the suit. Unless otherwise authorized by law or these Rules,
every action must be prosecuted or defended in the name of the real party
in interest.
We held in Oco v. Limbaring14 that:
As applied to the present case, this provision has two requirements: 1) to
institute an action, the plaintiff must be the real party in interest; and 2) the
action must be prosecuted in the name of the real party in interest.
Necessarily, the purposes of this provision are 1) to prevent the prosecution
of actions by persons without any right, title or interest in the case; 2) to
require that the actual party entitled to legal relief be the one to prosecute
the action; 3) to avoid a multiplicity of suits; and 4) to discourage litigation
and keep it within certain bounds, pursuant to sound public policy.
Interest within the meaning of the Rules means material interest or an
interest in issue to be affected by the decree or judgment of the case, as
distinguished from mere curiosity about the question involved. One having
no material interest to protect cannot invoke the jurisdiction of the court as
the plaintiff in an action. When the plaintiff is not the real party in interest,
the case is dismissible on the ground of lack of cause of action.
xxx xxx xxx
The parties to a contract are the real parties in interest in an action upon
it, as consistently held by the Court. Only the contracting parties are bound
by the stipulations in the contract; they are the ones who would benefit
from and could violate it. Thus, one who is not a party to a contract, and for
whose benefit it was not expressly made, cannot maintain an action on it.
One cannot do so, even if the contract performed by the contracting
parties would incidentally inure to one’s benefit. (emphasis ours)
In Uy v. Court of Appeals,15 this Court held that the agents of the parties to a
contract do not have the right to bring an action even if they rendered
some service on behalf of their principals. To quote from that decision:
…[Petitioners] are mere agents of the owners of the land subject of the sale.
As agents, they only render some service or do something in representation
or on behalf of their principals. The rendering of such service did not make
them parties to the contracts of sale executed in behalf of the latter. Since
a contract may be violated only by the parties thereto as against each
other, the real parties-in-interest, either as plaintiff or defendant, in an
action upon that contract must, generally, either be parties to said
contract. (emphasis and words in brackets ours)
The main cause of action of petitioners in their request for arbitration with
the RTC is the alleged violation of the clause in the milling contracts
involving the proportionate sharing in the proceeds of the harvest.
Petitioners essentially demand that respondents increase the share of the
member Planters to 66% to equalize their situation with those of the non-
member Planters. Verily, from petitioners' own allegations, the party who
would be injured or benefited by a decision in the arbitration proceedings
will be the member Planters involved and not petitioners. In sum,
petitioners are not the real parties in interest in the present case.
Assuming petitioners had properly brought the case in the name of their
members who had existing milling contracts with respondents, petitioners
must still prove that they were indeed authorized by the said members to
institute an action for and on the members' behalf. In the same manner
that an officer of the corporation cannot bring action in behalf of a
corporation unless it is clothed with a board resolution authorizing an
officer to do so, an authorization from the individual member planter is a
sine qua non for the association or any of its officers to bring an action
before the court of law. The mere fact that petitioners were organized for
the purpose of advancing the interests and welfare of their members does
not necessarily mean that petitioners have the authority to represent their
members in legal proceedings, including the present arbitration
proceedings.
As we see it, petitioners had no intention to litigate the case in a
representative capacity, as they contend. All the pleadings from the RTC to
this Court belie this claim. Under Section 3 of Rule 3, where the action is
allowed to be prosecuted by a representative, the beneficiary shall be
included in the title of the case and shall be deemed to be the real party in
interest. As repeatedly pointed out earlier, the individual Planters were not
even impleaded as parties to this case. In addition, petitioners need a
power-of-attorney to represent the Planters whether in the lawsuit or to
demand arbitration.16 None was ever presented here.
Lastly, petitioners theorize that they could demand and sue for arbitration
independently of the Planters because the milling contract is a contract
pour autrui under Article 1311 of the Civil Code.
ART. 1311. Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he
received from the decedent.
If a contract should contain some stipulation in favor of a third person, he
may demand its fulfillment provided he communicated his acceptance to
the obligor before its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person.
To summarize, the requisites of a stipulation pour autrui or a stipulation in
favor of a third person are the following: (1) there must be a stipulation in
favor of a third person, (2) the stipulation must be a part, not the whole, of
the contract, (3) the contracting parties must have clearly and deliberately
conferred a favor upon a third person, not a mere incidental benefit or
interest, (4) the third person must have communicated his acceptance to
the obligor before its revocation, and (5) neither of the contracting parties
bears the legal representation or authorization of the third party.17 These
requisites are not present in this case.
Article VI of the Milling Contract is the solitary provision that mentions
some benefit in favor of the association of which the planter is a member
and we quote:
VI
SHARE IN THE SUGAR
Thirty four per centrum (34%) of the sugar ad molasses resulting from the
milling of the PLANTER’s sugarcane, as computed from the weight and
analysis of the sugarcane delivered by the PLANTER, shall belong to the
CENTRAL; sixty five per centum (65%) thereof to the PLANTER, and one per
centum (1%) as aid to the association of the PLANTER; provided that, if the
PLANTER is not a member of any association recognized by the CENTRAL,
said one per centum (1%) shall revert to the CENTRAL. The 1% aid shall be
used by the association for any purpose that it may deem fit for its
members, laborers and their dependents, or for its other socio-economic
projects.
The foregoing provision cannot, by any stretch of the imagination, be
considered as a stiputation pour autrui or for the benefit of the petitioners.
The primary rationale for the said stipulation is to ensure a just share in the
proceeds of the harvest to the Planters. In other words, it is a stipulation
meant to benefit the Planters. Even the 1% share to be given to the
association as aid does not redound to the benefit of the association but is
intended to be used for its member Planters. Not only that, it is explicit that
said share reverts back to respondent sugar centrals if the contracting
Planter is not affiliated with any recognized association.
To be considered a pour autrui provision, an incidental benefit or interest,
which another person gains, is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a third person.18 Even
the clause stating that respondents must secure the consent of the
association if respondents grant better benefits to a Planter has for its
rationale the protection of the member Planter. The only interest of the
association therein is that its member Planter will not be put at a
disadvantage vis a vis other Planters. Thus, the associations’ interest in
these milling contracts is only incidental to their avowed purpose of
advancing the welfare and rights of their member Planters.
In all, the Court finds no grave abuse of discretion nor reversible error
committed by the CA in setting aside the Joint Orders issued by the RTC.
WHEREFORE, petition is hereby DISMISSED.
Costs against petitioners.
SO ORDERED.
G.R. No. 175404 January 31, 2011
CARGILL PHILIPPINES, INC., Petitioner,
vs.
SAN FERNANDO REGALA TRADING, INC., Respondent.
DECISION
PERALTA, J.:
Before us is a petition for review on certiorari seeking to reverse and set
aside the Decision1 dated July 31, 2006 and the Resolution2 dated
November 13, 2006 of the Court of Appeals (CA) in CA G.R. SP No. 50304.
The factual antecedents are as follows:
On June 18, 1998, respondent San Fernando Regala Trading, Inc. filed with
the Regional Trial Court (RTC) of Makati City a Complaint for Rescission of
Contract with Damages3 against petitioner Cargill Philippines, Inc. In its
Complaint, respondent alleged that it was engaged in buying and selling of
molasses and petitioner was one of its various sources from whom it
purchased molasses. Respondent alleged that it entered into a contract
dated July 11, 1996 with petitioner, wherein it was agreed upon that
respondent would purchase from petitioner 12,000 metric tons of Thailand
origin cane blackstrap molasses at the price of US$192 per metric ton; that
the delivery of the molasses was to be made in January/February 1997 and
payment was to be made by means of an Irrevocable Letter of Credit
payable at sight, to be opened by September 15, 1996; that sometime prior
to September 15, 1996, the parties agreed that instead of January/February
1997, the delivery would be made in April/May 1997 and that payment
would be by an Irrevocable Letter of Credit payable at sight, to be opened
upon petitioner's advice. Petitioner, as seller, failed to comply with its
obligations under the contract, despite demands from respondent, thus, the
latter prayed for rescission of the contract and payment of damages.
On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend Proceedings
and To Refer Controversy to Voluntary Arbitration,4 wherein it argued that
the alleged contract between the parties, dated July 11, 1996, was never
consummated because respondent never returned the proposed
agreement bearing its written acceptance or conformity nor did respondent
open the Irrevocable Letter of Credit at sight. Petitioner contended that the
controversy between the parties was whether or not the alleged contract
between the parties was legally in existence and the RTC was not the
proper forum to ventilate such issue. It claimed that the contract contained
an arbitration clause, to wit:
ARBITRATION
Any dispute which the Buyer and Seller may not be able to settle by mutual
agreement shall be settled by arbitration in the City of New York before the
American Arbitration Association. The Arbitration Award shall be final and
binding on both parties.5
that respondent must first comply with the arbitration clause before
resorting to court, thus, the RTC must either dismiss the case or suspend
the proceedings and direct the parties to proceed with arbitration, pursuant
to Sections 66 and 77 of Republic Act (R.A.) No. 876, or the Arbitration Law.
Respondent filed an Opposition, wherein it argued that the RTC has
jurisdiction over the action for rescission of contract and could not be
changed by the subject arbitration clause. It cited cases wherein arbitration
clauses, such as the subject clause in the contract, had been struck down as
void for being contrary to public policy since it provided that the arbitration
award shall be final and binding on both parties, thus, ousting the courts of
jurisdiction.
In its Reply, petitioner maintained that the cited decisions were already
inapplicable, having been rendered prior to the effectivity of the New Civil
Code in 1950 and the Arbitration Law in 1953.
In its Rejoinder, respondent argued that the arbitration clause relied upon
by petitioner is invalid and unenforceable, considering that the
requirements imposed by the provisions of the Arbitration Law had not
been complied with.
By way of Sur-Rejoinder, petitioner contended that respondent had even
clarified that the issue boiled down to whether the arbitration clause
contained in the contract subject of the complaint is valid and enforceable;
that the arbitration clause did not violate any of the cited provisions of the
Arbitration Law.
On September 17, 1998, the RTC rendered an Order,8 the dispositive
portion of which reads:
Premises considered, defendant's "Motion To Dismiss/Suspend Proceedings
and To Refer Controversy To Voluntary Arbitration" is hereby DENIED.
Defendant is directed to file its answer within ten (10) days from receipt of
a copy of this order.9
In denying the motion, the RTC found that there was no clear basis for
petitioner's plea to dismiss the case, pursuant to Section 7 of the Arbitration
Law. The RTC said that the provision directed the court concerned only to
stay the action or proceeding brought upon an issue arising out of an
agreement providing for the arbitration thereof, but did not impose the
sanction of dismissal. However, the RTC did not find the suspension of the
proceedings warranted, since the Arbitration Law contemplates an
arbitration proceeding that must be conducted in the Philippines under the
jurisdiction and control of the RTC; and before an arbitrator who resides in
the country; and that the arbitral award is subject to court approval,
disapproval and modification, and that there must be an appeal from the
judgment of the RTC. The RTC found that the arbitration clause in question
contravened these procedures, i.e., the arbitration clause contemplated an
arbitration proceeding in New York before a non-resident arbitrator
(American Arbitration Association); that the arbitral award shall be final and
binding on both parties. The RTC said that to apply Section 7 of the
Arbitration Law to such an agreement would result in disregarding the other
sections of the same law and rendered them useless and mere surplusages.
Petitioner filed its Motion for Reconsideration, which the RTC denied in an
Order10 dated November 25, 1998.
Petitioner filed a petition for certiorari with the CA raising the sole issue
that the RTC acted in excess of jurisdiction or with grave abuse of discretion
in refusing to dismiss or at least suspend the proceedings a quo, despite the
fact that the party's agreement to arbitrate had not been complied with.
Respondent filed its Comment and Reply. The parties were then required to
file their respective Memoranda.
On July 31, 2006, the CA rendered its assailed Decision denying the petition
and affirming the RTC Orders.
In denying the petition, the CA found that stipulation providing for
arbitration in contractual obligation is both valid and constitutional; that
arbitration as an alternative mode of dispute resolution has long been
accepted in our jurisdiction and expressly provided for in the Civil Code;
that R.A. No. 876 (the Arbitration Law) also expressly authorized the
arbitration of domestic disputes. The CA found error in the RTC's holding
that Section 7 of R.A. No. 876 was inapplicable to arbitration clause simply
because the clause failed to comply with the requirements prescribed by
the law. The CA found that there was nothing in the Civil Code, or R.A. No.
876, that require that arbitration proceedings must be conducted only in
the Philippines and the arbitrators should be Philippine residents. It also
found that the RTC ruling effectively invalidated not only the disputed
arbitration clause, but all other agreements which provide for foreign
arbitration. The CA did not find illegal or against public policy the arbitration
clause so as to render it null and void or ineffectual.
Notwithstanding such findings, the CA still held that the case cannot be
brought under the Arbitration Law for the purpose of suspending the
proceedings before the RTC, since in its Motion to Dismiss/Suspend
proceedings, petitioner alleged, as one of the grounds thereof, that the
subject contract between the parties did not exist or it was invalid; that the
said contract bearing the arbitration clause was never consummated by the
parties, thus, it was proper that such issue be first resolved by the court
through an appropriate trial; that the issue involved a question of fact that
the RTC should first resolve. Arbitration is not proper when one of the
parties repudiated the existence or validity of the contract.
Petitioner's motion for reconsideration was denied in a Resolution dated
November 13, 2006.
Hence, this petition.
Petitioner alleges that the CA committed an error of law in ruling that
arbitration cannot proceed despite the fact that: (a) it had ruled, in its
assailed decision, that the arbitration clause is valid, enforceable and
binding on the parties; (b) the case of Gonzales v. Climax Mining Ltd.11 is
inapplicable here; (c) parties are generally allowed, under the Rules of
Court, to adopt several defenses, alternatively or hypothetically, even if
such
defenses are inconsistent with each other; and (d) the complaint filed by
respondent with the trial court is premature.
Petitioner alleges that the CA adopted inconsistent positions when it found
the arbitration clause between the parties as valid and enforceable and yet
in the same breath decreed that the arbitration cannot proceed because
petitioner assailed the existence of the entire agreement containing the
arbitration clause. Petitioner claims the inapplicability of the
cited Gonzales case decided in 2005, because in the present case, it was
respondent who had filed the complaint for rescission and damages with
the RTC, which based its cause of action against petitioner on the alleged
agreement dated July 11, 2006 between the parties; and that the same
agreement contained the arbitration clause sought to be enforced by
petitioner in this case. Thus, whether petitioner assails the genuineness and
due execution of the agreement, the fact remains that the agreement sued
upon provides for an arbitration clause; that respondent cannot use the
provisions favorable to him and completely disregard those that are
unfavorable, such as the arbitration clause.
Petitioner contends that as the defendant in the RTC, it presented two
alternative defenses, i.e., the parties had not entered into any agreement
upon which respondent as plaintiff can sue upon; and, assuming that such
agreement existed, there was an arbitration clause that should be enforced,
thus, the dispute must first be submitted to arbitration before an action can
be instituted in court. Petitioner argues that under Section 1(j) of Rule 16 of
the Rules of Court, included as a ground to dismiss a complaint is when a
condition precedent for filing the complaint has not been complied with;
and that submission to arbitration when such has been agreed upon is one
such condition precedent. Petitioner submits that the proceedings in the
RTC must be dismissed, or at least suspended, and the parties be ordered to
proceed with arbitration.
On March 12, 2007, petitioner filed a Manifestation12 saying that the CA's
rationale in declining to order arbitration based on the 2005 Gonzales ruling
had been modified upon a motion for reconsideration decided in 2007; that
the CA decision lost its legal basis, because it had been ruled that the
arbitration agreement can be implemented notwithstanding that one of the
parties thereto repudiated the contract which contained such agreement
based on the doctrine of separability.
In its Comment, respondent argues that certiorari under Rule 65 is not the
remedy against an order denying a Motion to Dismiss/Suspend Proceedings
and To Refer Controversy to Voluntary Arbitration. It claims that the
Arbitration Law which petitioner invoked as basis for its Motion prescribed,
under its Section 29, a remedy, i.e., appeal by a petition for review
on certiorari under Rule 45. Respondent contends that the Gonzales case,
which was decided in 2007, is inapplicable in this case, especially as to the
doctrine of separability enunciated therein. Respondent argues that even if
the existence of the contract and the arbitration clause is conceded, the
decisions of the RTC and the CA declining referral of the dispute between
the parties to arbitration would still be correct. This is so because
respondent's complaint filed in Civil Case No. 98-1376 presents the principal
issue of whether under the facts alleged in the complaint, respondent is
entitled to rescind its contract with petitioner and for the latter to pay
damages; that such issue constitutes a judicial question or one that requires
the exercise of judicial function and cannot be the subject of arbitration.
Respondent contends that Section 8 of the Rules of Court, which allowed a
defendant to adopt in the same action several defenses, alternatively or
hypothetically, even if such defenses are inconsistent with each other refers
to allegations in the pleadings, such as complaint, counterclaim, cross-claim,
third-party complaint, answer, but not to a motion to dismiss. Finally,
respondent claims that petitioner's argument is premised on the existence
of a contract with respondent containing a provision for arbitration.
However, its reliance on the contract, which it repudiates, is inappropriate.
In its Reply, petitioner insists that respondent filed an action for rescission
and damages on the basis of the contract, thus, respondent admitted the
existence of all the provisions contained thereunder, including the
arbitration clause; that if respondent relies on said contract for its cause of
action against petitioner, it must also consider itself bound by the rest of
the terms and conditions contained thereunder notwithstanding that
respondent may find some provisions to be adverse to its position; that
respondent’s citation of the Gonzales case, decided in 2005, to show that
the validity of the contract cannot be the subject of the arbitration
proceeding and that it is the RTC which has the jurisdiction to resolve the
situation between the parties herein, is not correct since in the resolution of
the Gonzales' motion for reconsideration in 2007, it had been ruled that an
arbitration agreement is effective notwithstanding the fact that one of the
parties thereto repudiated the main contract which contained it.
We first address the procedural issue raised by respondent that petitioner’s
petition for certiorari under Rule 65 filed in the CA against an RTC Order
denying a Motion to Dismiss/Suspend Proceedings and to Refer Controversy
to Voluntary Arbitration was a wrong remedy invoking Section 29 of R.A.
No. 876, which provides:
Section 29.
x x x An appeal may be taken from an order made in a proceeding under
this Act, or from a judgment entered upon an award
through certiorari proceedings, but such appeals shall be limited to question
of law. x x x.
To support its argument, respondent cites the case of Gonzales v. Climax
Mining Ltd.13 (Gonzales case), wherein we ruled the impropriety of a
petition for certiorari under Rule 65 as a mode of appeal from an RTC Order
directing the parties to arbitration.
We find the cited case not in point.
In the Gonzales case, Climax-Arimco filed before the RTC of Makati a
petition to compel arbitration under R.A. No. 876, pursuant to the
arbitration clause found in the Addendum Contract it entered with
Gonzales. Judge Oscar Pimentel of the RTC of Makati then directed the
parties to arbitration proceedings. Gonzales filed a petition
for certiorari with Us contending that Judge Pimentel acted with grave
abuse of discretion in immediately ordering the parties to proceed with
arbitration despite the proper, valid and timely raised argument in his
Answer with counterclaim that the Addendum Contract containing the
arbitration clause was null and void. Climax-Arimco assailed the mode of
review availed of by Gonzales, citing Section 29 of R.A. No. 876 contending
that certiorariunder Rule 65 can be availed of only if there was no appeal or
any adequate remedy in the ordinary course of law; that R.A. No. 876
provides for an appeal from such order. We then ruled that Gonzales'
petition for certiorari should be dismissed as it was filed in lieu of an appeal
by certiorari which was the prescribed remedy under R.A. No. 876 and the
petition was filed far beyond the reglementary period.
We found that Gonzales’ petition for certiorari raises a question of law, but
not a question of jurisdiction; that Judge Pimentel acted in accordance with
the procedure prescribed in R.A. No. 876 when he ordered Gonzales to
proceed with arbitration and appointed a sole arbitrator after making the
determination that there was indeed an arbitration agreement. It had been
held that as long as a court acts within its jurisdiction and does not gravely
abuse its discretion in the exercise thereof, any supposed error committed
by it will amount to nothing more than an error of judgment reviewable by
a timely appeal and not assailable by a special civil action of certiorari.14
In this case, petitioner raises before the CA the issue that the respondent
Judge acted in excess of jurisdiction or with grave abuse of discretion in
refusing to dismiss, or at least suspend, the proceedings a quo, despite the
fact that the party’s agreement to arbitrate had not been complied with.
Notably, the RTC found the existence of the arbitration clause, since it said
in its decision that "hardly disputed is the fact that the arbitration clause in
question contravenes several provisions of the Arbitration Law x x x and to
apply Section 7 of the Arbitration Law to such an agreement would result in
the disregard of the afore-cited sections of the Arbitration Law and render
them useless and mere surplusages." However, notwithstanding the finding
that an arbitration agreement existed, the RTC denied petitioner's motion
and directed petitioner to file an answer.
In La Naval Drug Corporation v. Court of Appeals,15 it was held that R.A. No.
876 explicitly confines the court’s authority only to the determination of
whether or not there is an agreement in writing providing for arbitration. In
the affirmative, the statute ordains that the court shall issue an order
summarily directing the parties to proceed with the arbitration in
accordance with the terms thereof. If the court, upon the other hand, finds
that no such agreement exists, the proceedings shall be dismissed.
In issuing the Order which denied petitioner's Motion to Dismiss/Suspend
Proceedings and to Refer Controversy to Voluntary Arbitration, the RTC
went beyond its authority of determining only the issue of whether or not
there is an agreement in writing providing for arbitration by directing
petitioner to file an answer, instead of ordering the parties to proceed to
arbitration. In so doing, it acted in excess of its jurisdiction and since there is
no plain, speedy, and adequate remedy in the ordinary course of law,
petitioner’s resort to a petition for certiorari is the proper remedy.
We now proceed to the substantive issue of whether the CA erred in finding
that this case cannot be brought under the arbitration law for the purpose
of suspending the proceedings in the RTC.
We find merit in the petition.
Arbitration, as an alternative mode of settling disputes, has long been
recognized and accepted in our jurisdiction.16R.A. No. 87617 authorizes
arbitration of domestic disputes. Foreign arbitration, as a system of settling
commercial disputes of an international character, is likewise
recognized.18 The enactment of R.A. No. 9285 on April 2, 2004 further
institutionalized the use of alternative dispute resolution systems, including
arbitration, in the settlement of disputes.19
A contract is required for arbitration to take place and to be
binding.20 Submission to arbitration is a contract 21 and a clause in a
contract providing that all matters in dispute between the parties shall be
referred to arbitration is a contract.22 The provision to submit to arbitration
any dispute arising therefrom and the relationship of the parties is part of
the contract and is itself a contract.23
In this case, the contract sued upon by respondent provides for an
arbitration clause, to wit:
ARBITRATION
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

Any dispute which the Buyer and Seller may not be able to settle by mutual
In so ruling that the validity of the contract containing the arbitration
agreement shall be settled by arbitration in the City of New York before the
agreement does not affect the applicability of the arbitration clause itself,
American Arbitration Association, The Arbitration Award shall be final and
we then applied the doctrine of separability, thus:
binding on both parties.

The doctrine of separability, or severability as other writers call it,

The CA ruled that arbitration cannot be ordered in this case, since petitioner
enunciates that an arbitration agreement is independent of the main
alleged that the contract between the parties did not exist or was invalid
contract. The arbitration agreement is to be treated as a separate
and arbitration is not proper when one of the parties repudiates the
agreement and the arbitration agreement does not automatically terminate
existence or validity of the contract. Thus, said the CA:
when the contract of which it is a part comes to an end.

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....
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.

Consequently, the petitioner herein cannot claim that the contract was
Applying the Gonzales ruling, an arbitration agreement which forms part of
never consummated and, at the same time, invokes the arbitration clause
the main contract shall not be regarded as invalid or non-existent just
provided for under the contract which it alleges to be non-existent or
because the main contract is invalid or did not come into existence, since
invalid. Petitioner claims that private respondent's complaint lacks a cause
the arbitration agreement shall be treated as a separate agreement
of action due to the absence of any valid contract between the parties.
independent of the main contract. To reiterate. a contrary ruling would
Apparently, the arbitration clause is being invoked merely as a fallback
suggest that a party's mere repudiation of the main contract is sufficient to
position. The petitioner must first adduce evidence in support of its claim
avoid arbitration and that is exactly the situation that the separability
that there is no valid contract between them and should the court a quo
doctrine sought to avoid. Thus, we find that even the party who has
find the claim to be meritorious, the parties may then be spared the rigors
repudiated the main contract is not prevented from enforcing its arbitration
and expenses that arbitration in a foreign land would surely entail.24
clause.

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
Moreover, it is worthy to note that respondent filed a complaint for
rescission of contract and damages with the RTC. In so doing, respondent
alleged that a contract exists between respondent and petitioner. It is that
contract which provides for an arbitration clause which states that "any
dispute which the Buyer and Seller may not be able to settle by mutual
agreement shall be settled before the City of New York by the American
Arbitration Association. The arbitration agreement clearly expressed the
parties' intention that any dispute between them as buyer and seller should
be referred to arbitration. It is for the arbitrator and not the courts to
decide whether a contract between the parties exists or is valid.
Respondent contends that assuming that the existence of the contract and
the arbitration clause is conceded, the CA's decision declining referral of the
parties' dispute to arbitration is still correct. It claims that its complaint in
the RTC presents the issue of whether under the facts alleged, it is entitled
to rescind the contract with damages; and that issue constitutes a judicial
question or one that requires the exercise of judicial function and cannot be
the subject of an arbitration proceeding. Respondent cites our ruling
in Gonzales, wherein we held that a panel of arbitrator is bereft of
jurisdiction over the complaint for declaration of nullity/or termination of
the subject contracts on the grounds of fraud and oppression attendant to
the execution of the addendum contract and the other contracts emanating
from it, and that the complaint should have been filed with the regular
courts as it involved issues which are judicial in nature.
Such argument is misplaced and respondent cannot rely on
the Gonzales case to support its argument.
In Gonzales, petitioner Gonzales filed a complaint before the Panel of
Arbitrators, Region II, Mines and Geosciences Bureau, of the Department of
Environment and Natural Resources (DENR) against respondents Climax-
Mining Ltd, Climax-Arimco and Australasian Philippines Mining Inc, seeking
the declaration of nullity or termination of the addendum contract and the
other contracts emanating from it on the grounds of fraud and oppression.
The Panel dismissed the complaint for lack of jurisdiction. However, the
Panel, upon petitioner's motion for reconsideration, ruled that it had
jurisdiction over the dispute maintaining that it was a mining dispute, since
the subject complaint arose from a contract between the parties which
involved the exploration and exploitation of minerals over the disputed
area.1âwphi1 Respondents assailed the order of the Panel of Arbitrators via
a petition for certiorari before the CA. The CA granted the petition and
declared that the Panel of Arbitrators did not have jurisdiction over the
complaint, since its jurisdiction was limited to the resolution of mining
disputes, such as those which raised a question of fact or matter requiring
the technical knowledge and experience of mining authorities and not when
the complaint alleged fraud and oppression which called for the
interpretation and application of laws. The CA further ruled that the
petition should have been settled through arbitration under R.A. No. 876 −
the Arbitration Law − as provided under the addendum contract.
On a review on certiorari, we affirmed the CA’s finding that the Panel of
Arbitrators who, under R.A. No. 7942 of the Philippine Mining Act of 1995,
has exclusive and original jurisdiction to hear and decide mining disputes,
such as mining areas, mineral agreements, FTAAs or permits and surface
owners, occupants and claimholders/concessionaires, is bereft of
jurisdiction over the complaint for declaration of nullity of the addendum
contract; thus, the Panels' jurisdiction is limited only to those mining
disputes which raised question of facts or matters requiring the technical
knowledge and experience of mining authorities. We then said:
In Pearson v. Intermediate Appellate Court, this Court observed that the
trend has been to make the adjudication of mining cases a purely
administrative matter. Decisions of the Supreme Court on mining disputes
have recognized a distinction between (1) the primary powers granted by
pertinent provisions of law to the then Secretary of Agriculture and Natural
Resources (and the bureau directors) of an executive or administrative
nature, such as granting of license, permits, lease and contracts, or
approving, rejecting, reinstating or canceling applications, or deciding
conflicting applications, and (2) controversies or disagreements of civil or
contractual nature between litigants which are questions of a judicial
nature that may be adjudicated only by the courts of justice. This distinction
is carried on even in Rep. Act No. 7942.28
We found that since the complaint filed before the DENR Panel of
Arbitrators charged respondents with disregarding and ignoring the
addendum contract, and acting in a fraudulent and oppressive manner
against petitioner, the complaint filed before the Panel was not a dispute
involving rights to mining areas, or was it a dispute involving claimholders or
concessionaires, but essentially judicial issues. We then said that the Panel
of Arbitrators did not have jurisdiction over such issue, since it does not
involve the application of technical knowledge and expertise relating to
mining. It is in this context that we said that:
Arbitration before the Panel of Arbitrators is proper only when there is a
disagreement between the parties as to some provisions of the contract
between them, which needs the interpretation and the application of that
particular knowledge and expertise possessed by members of that Panel. It
is not proper when one of the parties repudiates the existence or validity of
such contract or agreement on the ground of fraud or oppression as in this
case. The validity of the contract cannot be subject of arbitration
proceedings. Allegations of fraud and duress in the execution of a contract
are matters within the jurisdiction of the ordinary courts of law. These
questions are legal in nature and require the application and interpretation
of laws and jurisprudence which is necessarily a judicial function.29
In fact, We even clarified in our resolution on Gonzales’ motion for
reconsideration that "when we declared that the case should not be
brought for arbitration, it should be clarified that the case referred to is the
case actually filed by Gonzales before the DENR Panel of Arbitrators, which
was for the nullification of the main contract on the ground of fraud, as it
had already been determined that the case should have been brought
before the regular courts involving as it did judicial issues." We made such
clarification in our resolution of the motion for reconsideration after ruling
that the parties in that case can proceed to arbitration under the
Arbitration Law, as provided under the Arbitration Clause in their
Addendum Contract.
WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2006
and the Resolution dated November 13, 2006 of the Court of Appeals in CA-
G.R. SP No. 50304 are REVERSED and SET ASIDE. The parties are
hereby ORDERED to SUBMIT themselves to the arbitration of their dispute,
pursuant to their July 11, 1996 agreement.
SO ORDERED.
G.R. No. 164517 June 30, 2008
BF CORPORATION, petitioner,
vs.
MANILA INTERNATIONAL AIRPORT AUTHORITY, respondent.
DECISION
VELASCO, JR., J.:
In this petition for review under Rule 45, petitioner BF Corporation (BF)
assails the Decision of the Court of Appeals (CA) that disallowed BF to re-
implead the Manila International Airport Authority (MIAA) as a party-
defendant in Civil Case No. 66060 entitled BF Corporation v. Tokyu
Construction Co., Ltd., Mitsubishi Corporation, A.M. Oreta & Co., Inc., and
Manila International Airport Authority.
Mitsubishi Corporation (Mitsubishi), Tokyu Construction Co., Ltd. (Tokyu),
A.M. Oreta & Co., Inc. (Oreta), and BF formed themselves into the MTOB
Consortium (Consortium) to participate in the bidding for the construction
of the Ninoy Aquino International Airport Terminal II (NAIA II) Project. MIAA
awarded the contract to the Consortium, recognizing that the Consortium
was a distinct and separate entity from the four member corporations.
Unfortunately, the four members had serious business differences,
including the division of the contract price, forcing BF to file on January 10,
1997, with the Regional Trial Court (RTC) in Pasig City, an action for Specific
Performance, Rescission, and Damages with application for a Temporary
Restraining Order (TRO), docketed as Civil Case No. 66060. BF alleged in its
complaint that Tokyu and Mitsubishi invited BF to form a consortium for the
NAIA II Project and after the members of the Consortium reached an
agreement couched in general terms, for the purpose of prequalification
bidding, Tokyu allegedly refused to execute a final consortium agreement;
unreasonably demanded that BF reduce its asking prices for its assigned
work; engaged the services of other subcontractors to do BF’s portion of
the project; and refused to remit to BF its 20% share of the down payment,
thereby easing out BF in the project in breach of the Consortium
agreement. BF prayed that Tokyu be enjoined from further (1) receiving any
payment from MIAA for illegally executing BF’s portion of the work in the
project; (2) engaging the services of other subcontractors to do BF’s portion
of the project; (3) acting as lead partner of the Consortium; and (4)
compelling BF to reduce its prices. BF also prayed that MIAA be enjoined
from directly paying Tokyu the collectible compensation vis-à-vis Tokyu’s
illegal execution of BF’s portion in the project.1
The RTC served a TRO on Tokyu, the lead partner of the Consortium. During
the hearing on the preliminary injunction, MIAA stressed its position that it
should not be dragged into the dispute since it was a consortium internal
matter. Thereafter, in an amended complaint, BF dropped MIAA as a party-
defendant.
When the RTC issued the Order dated January 21, 1997 extending the TRO,
Tokyu filed with the CA a Petition for Certiorari and Prohibition with prayer
for a writ of preliminary injunction docketed as CA-G.R. SP No. 43133.
Tokyu contended that the order violated (1) Presidential Decree No. 1818
prohibiting any court in the Philippines from issuing any restraining order,
preliminary injunction, or preliminary mandatory injunction on any case,
dispute, or controversy involving an infrastructure project; and (2) Supreme
Court Circular No. 68-94 disallowing issuance of TROs in cases involving
government infrastructure projects to obviate complaints against
indiscriminate issuance of TROs.
On May 15, 1997, the CA dismissed the petition and ordered the trial court
to continue hearing the main case. With respect to MIAA’s right to
intervene, the CA stressed that MIAA was no longer a party-defendant since
it had been dropped from the complaint by BF and, therefore, no relief may
be had from MIAA. The CA explained that MIAA had nothing to do with
whatever BF alleges were violations of the Consortium agreement by Tokyu
because these were intra-consortium matters.2 The CA also said it was
convinced that "MIAA had no actual, direct and immediate interest" in CA-
G.R. SP No. 43133.
The CA denied the motion for reconsideration and the RTC proceeded with
the case subsequently issuing the Order dated July 8, 1997, which ordered
Tokyu to: (1) retrieve its deposit in Japan and make it available in the
Philippines for the prompt execution of the project; (2) remit to BF its 20%
share in the down payment and its share in the subsequent payments made
by MIAA; and (3) allow BF to execute its portion of the work in the project
by terminating the services of the subcontractors.3
Tokyu filed before the CA a Petition for Certiorari with urgent prayer for a
TRO and preliminary injunction docketed as CA-G.R. SP No. 44729. On
October 20, 1997, the Special Seventh Division of the CA granted Tokyu’s
petition and annulled the RTC’s Order dated July 8, 1997.
On November 26, 1999, when the project was nearing completion, BF filed
a second amended complaint. In it, BF pleaded causes of action against
Tokyu, Mitsubushi, and Oreta which have all submitted themselves to the
jurisdiction of the court, and also MIAA who had possession of money to be
paid to Tokyu. BF claimed it was entitled to a proportionate share of the
money based on the Consortium agreement. Thus, BF asked that MIAA be
re-impleaded as a party-defendant so it could obtain complete relief.4
In an Order dated May 24, 2001, the RTC directed that MIAA be re-
impleaded as a party-defendant in Civil Case No. 66060. It said that BF’s
earlier move to drop MIAA as a party-defendant should not preclude it from
re-impleading MIAA which still has the obligation to pay the remainder of
the contract price. The dispositive portion of the order reads:
WHEREFORE, the order of this Court dated February 23, 2001 is
hereby reconsidered insofar as it ordered the dismissal of this
case as against MIAA which is hereby restored and re-impleaded
as a party defendant.
SO ORDERED.
The motion for reconsideration was denied in an Order dated September
13, 2001.5 MIAA appealed to the CA alleging grave abuse of discretion on
the part of the RTC when it ordered MIAA to be re-impleaded as a party-
defendant. The petition was docketed as CA-G.R. SP No. 67765.
In a Decision dated January 9, 2004,6 the CA granted MIAA’s petition and
annulled and set aside the May 24, 2001 and September 13, 2001 Orders in
Civil Case No. 66060. The CA said that the RTC committed grave abuse of
discretion amounting to lack or excess of jurisdiction when it issued the
orders. According to the CA, MIAA’s refusal to be a part of the internal
squabble among members of the Consortium was not an "act or omission"
that gave BF a cause of action. MIAA had not in any way violated any right
of BF. The CA commented that an interference by MIAA in the Consortium
quarrel could even expose MIAA to a suit by the other members of the
Consortium. The CA stressed that MIAA had in fact earlier recognized the
Consortium as a distinct and separate personality from its members. As far
as MIAA was concerned, the CA concluded that BF was a stranger to the
contract between MIAA and the Consortium, and if BF’s interest was its
right to a portion of the contract price, its proper recourse was to first
secure an assignment of its proportionate rights from the Consortium.
The CA also pointed out that BF was estopped from treating MIAA as a
necessary party, because when it dropped MIAA as a party in its amended
complaint without stating why it did, BF implicitly admitted that MIAA was
not a necessary party.
The CA also ruled that res judicata had set in when the CA denied a
reconsideration of the Decision in CA-G.R. SP No. 43133 and said decision
was not appealed. Recall that in the said decision, the CA Fourteenth
Division stressed that MIAA was no longer a party-defendant since it had
been dropped by BF and, therefore, no relief may be had from MIAA; that
the case was not a matter in rem but can only give rise to a judgment in
personam; that the CA was convinced MIAA had no actual, direct, and
immediate interest in the dispute since the dispute was intra-corporate;
and that MIAA had nothing to do with BF’s complaint against Tokyu.7 The
CA added that since the issue with respect to MIAA was not appealed, the
said decision had become final and another case on the same issue had
been barred by res judicata.
The CA also noted that when MIAA was allowed to intervene in the
aforementioned case, the RTC had acquired jurisdiction over MIAA; thus,
there was identity of parties between CA-G.R. SP No. 43133 and CA-G.R. SP
No. 67765. According to the CA, although the subject matter of CA-G.R. SP
No. 43133 was the propriety of the grant of the TRO enjoining Tokyu from
receiving any amount from MIAA and the subject matter in CA-G.R. SP No.
67765 was the propriety in including MIAA as a party-defendant in Civil
Case No. 66060, both cases involved the issue of whether or not MIAA was
a proper party-defendant in Civil Case No. 66060. Thus, the CA concluded
that the elements of res judicata were present.
The motion for reconsideration was denied by the CA; hence, BF filed this
petition raising the following as issues:
I.
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT BF
HAS NO CAUSE OF ACTION AGAINST MIAA AS, IN FACT, BF’S
SECOND AMENDED COMPLAINT STATES A CAUSE OF ACTION
AGAINST MIAA.
II.
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT BF IS
ESTOPPED FROM IMPLEADING MIAA IN THE CASE.
III.
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT BF IS
BARRED UNDER THE DOCTRINE OF RES JUDICATA FROM
IMPLEADING MIAA IN THE MAIN CASE.
The appellate court had correctly granted the petition of MIAA.
In this petition before us, BF would have us believe that it dropped MIAA as
a party-defendant in its first amended complaint because its cause of action
against MIAA was not yet ripe.8 It said that it re-impleaded MIAA in the
second amended complaint because of the impending release of the final
payment and the retention money to Tokyu. And if the project were
completed and full payment were given to the Consortium, BF could no
longer get its supposed share in the payments.
The ultimate facts, as alleged by BF, that are the bases of its cause of action
against MIAA, are found on items 2.18 to 2.21 of BF’s second amended
complaint, as follows :
2.18 To protect its rights and interests, BF, through counsel, wrote
MIAA calling its attention to the contract violations committed by
TOKYU in bad faith, and requesting its intervention to see an early
end to the dispute. More specifically, BF requested MIAA to:
1. Persuade TOKYU to remit to us our rightful 20% share
in the downpayment of the Project;
2. Enjoin TOKYU’s unauthorized and illegally hired
subcontractors from executing BF’s portion of the NAIA
II project;
3. Directly remit to us our 20% share in the subsequent
payments to be made under the construction contract;
and
4. Should TOKYU stubbornly refuse to heed any of the
above, expel TOKYU from the consortium and let BF,
MITSUBISHI and ORETA take over the entire project.
xxxx
2.19 Later, BF, through counsel, wrote TOKYU revoking [its]
authority as lead partner to represent BF in dealing with MIAA in
connection with the execution of the Project x x x.
2.20 Despite the revocation made by BF and its request for
MIAA to resolve the dispute, TOKYU continued to act as the lead
partner and has in fact taken its role to the extreme by hiring
other subcontractors to do BF’s portion of the work. On the other
hand, MIAA has opted to take a nonchalant hands-off policy,
choosing to ignore TOKYU’s bullying tactics and iniquitous actions
by even awarding the latter with prompt payments of the
contract price. Worse, in coddling and protecting TOKYU despite
its illegal acts, MIAA has allowed this foreign country to unduly
profit from this centerpiece project and stash away the
Philippine money it has collected in commercial banks in Japan.
2.21 Further, as a result of MIAA’s inaction, the Project is now
complete with TOKYU ready and raring to collect the remainder of
the contract price from MIAA, including the 10% retention money
being held by MIAA and now ready to be released after the
Project had been completed.9 (Emphasis supplied.)
On the bases of these allegations, we can hardly rule that BF has a cause of
action against MIAA.
Section 2, Rule 2 of the Rules of Court defines "cause of action" as an act or
omission by which one party violates a right of another. It has three
elements: (1) a right existing in favor of the plaintiff, (2) a duty on the part
of the defendant to respect the right of the plaintiff, and (3) a breach of the
defendant’s duty.10
A close reading of the aforecited portions of the second amended complaint
discloses that the rights of BF that have allegedly been violated are those
contained in the Consortium agreement. A scrutiny of the agreement,
however, would readily show that there is nothing in it that would
constitute acts or omissions of MIAA that violate BF’s rights. Even if BF
wrote MIAA and called the latter’s attention to the contract violations of
Tokyu and asked MIAA to persuade Tokyu to remit to BF its 20% share in
the down payment; enjoin Tokyu from illegally hiring subcontractors to do
BF’s part of the project; and expel Tokyu from the Consortium, these facts
are insufficient to constitute the bases of BF’s cause of action against MIAA.
The test of sufficiency of the facts alleged in the complaint as constituting a
cause of action is whether or not admitting the facts alleged; the court
could render a valid verdict in accordance with the prayer of the
complaint.11 Even if we assume that the facts alleged were true, we still
cannot grant any of BF’s prayers against MIAA as we would have no basis to
do so in fact and in law.
The best evidence to show whether or not BF has a cause of action against
MIAA is the contract/agreement itself. The Agreement 12 awarding the NAIA
II Project to the Consortium was between MIAA and the Consortium, as
contractor, represented by the Consortium’s project manager. BF was not a
party to the Agreement. From the very start, MIAA had categorically said it
recognized the Consortium as a distinct and separate entity.
The Agreement laid down all the rights and obligations of MIAA to the
Consortium and vice-versa, and as aptly pointed out by MIAA, payment to
BF was not among them. The Agreement does not say that MIAA shall
withhold payment in the event that a dispute arises amongst the members
of the Consortium. Neither does the contract require MIAA to mediate in
any intra-consortium dispute that may arise within the Consortium. The
primary obligation of MIAA is found in Article III of the Agreement which
stipulates that "MIAA agrees to pay the CONTRACTOR the Contract Price x x
x in the manner prescribed by the Contract." Note that the CONTRACTOR
refers to the Consortium not to the individual members of the Consortium.
BF by itself is not a party to the Agreement. If MIAA is prevented from
making payments to the Consortium, MIAA will be considered in breach of
the Agreement. Verily, a preliminary prohibitory injunction, enjoining MIAA
from releasing to Tokyu the remainder of the contract price owing to the
Consortium or any amount for that matter, including the 10% retention fee
now ready for release after the project had been completed, cannot be
validly issued. If BF wants its share in what was yet due to the Consortium,
BF’s recourse is against the Consortium. It can present to MIAA an
assignment of its alleged rights from the Consortium. Impleading MIAA is
not the remedy to enable BF to collect its share in the NAIA II Project of the
Consortium. In short, MIAA cannot be ordered to be a collecting agent for
BF.
To sum up, none of the elements required in Sec. 2, Rule 2 of the Rules of
Court that constitute a cause of action are present in this case. BF cannot
ask MIAA to persuade Tokyu to remit to BF its 20% share in the down
payment; cannot enjoin Tokyu from hiring subcontractors to do BF’s part of
the project; and cannot expel Tokyu from the Consortium. MIAA is a
stranger to the Consortium agreement among Tokyu, Mitsubishi, Oreta, and
BF. Under both the Consortium agreement and the Agreement between
MIAA and the Consortium, MIAA has no obligation to have the terms of the
Consortium agreement enforced, MIAA not being privy to it. Lastly, BF even
admits that the Consortium agreement does not embody any specific
agreement between the parties as the agreement amongst them was
couched in general terms. In fact, the only clear agreement among the
members was that Tokyu is the appointed lead partner.
As to the issue of estoppel, we agree with the CA that BF is now estopped
from re-impleading MIAA. While the Rules allow amendments to pleadings
by leave of court, in our view, in this case, it would be an affront to the
judicial process to first include a party as defendant, then voluntarily drop
the party off from the complaint, only to ask that it be re-impleaded. When
BF dropped MIAA as defendant in its first amended complaint, it had
performed an affirmative act upon which MIAA based its subsequent
actions, e.g. payments to Tokyu, on the faith that there was no cause of
action against it, and so on. BF cannot now deny that it led MIAA to believe
BF had no cause of action against it only to make a complete turn-about and
renege on the effects of dropping MIAA as a party-defendant months after,
to the prejudice of MIAA. MIAA had all reasons to rely on the CA’s decision
that it was no longer a party to the suit. Under the doctrine of estoppel, an
admission or representation is conclusive on the person making it and
cannot be denied or disproved as against the person relying on it.13 A
person, who by deed or conduct has induced another to act in a particular
manner, is barred from adopting an inconsistent position, attitude, or
course of conduct that thereby causes loss or injury to another.14
Finally, we tackle the issue of res judicata. Did the decision in CA-G.R. SP No.
43133 constitute a bar to CA-G.R. SP No. 67765? For res judicata to exist,
the following elements must be present: (1) the judgment must be final; (2)
the court that rendered judgment must have jurisdiction over the parties
and the subject matter; (3) it must be a judgment on the merits; and (4)
there must be between the first and second actions identity of parties,
subject matter, and cause of action. There is no dispute on the presence of
the first three elements enumerated above. However, the same cannot be
said regarding the last element. As BF has correctly pointed out, CA-G.R. SP
No. 43133 was filed by Tokyu against the trial judge and BF, while CA-G.R.
SP No. 67765 was filed by MIAA in which Tokyu is not even a party. It is also
apparent that the subject matter in CA-G.R. SP No. 43133 was the propriety
of the TRO granted by the RTC, and the subject matter in CA-G.R. SP No.
67765 is the propriety of including MIAA as a party-defendant in Civil Case
No. 66060. While it may be true that both cases touched on MIAA as a
party-defendant, we are unable to say that the subject matters of CA-G.R.
SP No. 43133 and CA-G.R. SP No. 67765 are identical. As to the cause of
action, CA-G.R. SP No. 43133 is the off-shoot of the alleged abuse of
discretion of the trial judge in issuing the TRO, while CA-G.R. SP No. 67765 is
the result of the alleged grave abuse of discretion of the trial court judge in
allowing MIAA to be re-impleaded as a party-defendant. Lacking the
identity of parties, subject matter, and cause of action, the doctrine of res
judicata is inapplicable. This, however, should not detract from the fact that
the CA was correct in granting the petition.
WHEREFORE, we DENY this petition and AFFIRM the CA’s Decision dated
January 9, 2004 and Resolution dated July 13, 2004 in CA-G.R. SP No. 67765.
SO ORDERED.
G.R. No. 174966 February 14, 2008
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
ROMEO TESTON, represented by his Attorney-in- Fact, CONRADO O.
COLLARINA, respondent.
DECISION
CARPIO MORALES, J.:
By a Deed of Conditional Sale dated June 15, 1987, Romeo Teston
(respondent) purchased on installment basis from petitioner, Development
Bank of the Philippines (DBP), two (2) parcels of land situated in Mandaon,
Masbate, covered by Transfer Certificate of Title Nos. T-6176 and T-6177.
Respondent defaulted in the payment of his amortizations which had
amounted to P3,727,435.57 as of September 1990. The DBP thus rescinded
their contract by letter dated September 24, 1990 addressed to respondent.
DBP soon transferred the two (2) parcels of land to the government in
compliance with Republic Act No. 6657 (COMPREHENSIVE AGRARIAN
REFORM LAW OF 1988) and Executive Order 407 dated June 14, 1990
(ACCELERATING THE ACQUISITION AND DISTRIBUTION OF AGRICULTURAL
LANDS, PASTURE LANDS, FISHPONDS, AGRO-FORESTRY LANDS AND OTHER
LANDS OF THE PUBLIC DOMAIN SUITABLE FOR AGRICULTURE).1
It turned out that on December 1, 1988, respondent had voluntarily offered
the two parcels of land for inclusion in the Comprehensive Agrarian Reform
Program (CARP).
On September 18, 1995, respondent filed before the Department of
Agrarian Reform Adjudication Board (DARAB) Regional Office in Legazpi City
a Petition2 against DBP and the Land Bank of the Philippines (Land Bank),
alleging that under Republic Act No. 6657, his obligation to DBP was
assumed by the government through the Land Bank after the two parcels of
land became covered by the CARP, and that the operation of said law
extinguished DBP's right to rescind the sale.
Respondent thus prayed that judgment be rendered:
1. Declaring that the right of the respondent DBP to rescind the
Deed of Conditional Sale for non-payment of amortization was
extinguished by operation of law;
2. That the Land Bank be ordered to pay the just compensation of
the property which the Special Agrarian Court may determine to
be paid to the petitioner after deducting the balance of the
petitioner to the DBP.3
In its Answer/Position Paper,4 DBP alleged that, among other things, since
respondent had not acquired title to the two parcels of land, he had no
right to voluntarily offer them to the CARP.
The Land Bank raised substantially the same defenses as those raised by
DBP.5
By Order of March 30, 1998, the DARAB Regional Adjudicator dismissed
respondent's petition in this wise:
Petitioner has never been the owner of the land, hence could not
have validly offered the property under the [Voluntary Offer to
Sell] scheme. Under Section 72 of Republic Act No. 6657, "Other
claims" can not refer to payment of amortizations, more
specifically if such claim is made after the rescission of the
contract. Petitioner may well have questioned the rescission of
the contract in 1990 if he felt aggrieved by it and should not have
allowed five (5) years to elapse before acting on the same. This
creates the presumption that the rescission was reasonable and
valid and the non-impairment of contracts must be respected.
As against Land Bank, petitioner has no right of action
whatsoever, as there is nothing Land Bank could act on to favor
their petition.
In fine, DBP being still the owner, the government cannot step in
and assume the obligation to pay petitioner's amortization after
his default to make him the owner of the land and to bar DBP
from rescinding the conditional sale. x x x6 (Italics in the original;
underscoring supplied)
On appeal, the DARAB affirmed the Regional Adjudicator's decision, thus:
There is no doubt that the title to the subject property has not
been transferred to petitioner-appellant. The contract which he
entered into with the DBP is a conditional sale, the transfer of
property being conditioned upon compliance with the terms of
the sale, specifically the payment in full of the purchase price. As
petitioner-appellant failed to fulfill his obligation, DBP rescinded
the conditional Sale. Thus, petitioner-appellant has lost whatever
right he may have over the property pursuant to the contract. It is
clear on the records that the Deed of Conditional Sale dated July
15, 1987 was rescinded on September 24, 1990 or long before the
property was turned over to the DAR on November 29, 1990.
Evidently, petitioner-appellant had long lost his interest over the
property in question when the same was turned over to the
national government. Hence, petitioner-appellant could not have
validly offered the property under the Voluntary Offer to Sell
(VOS) scheme.
Moreover, the assertion of appellant that Section 72 of RA No.
6657 "extinguishes his obligation to pay full amount to the DBP
because it is already assumed by DAR or LBP is misplaced. Section
72 provides:
"Section 72 Lease, Management, Grower or Service
Contract, Mortgages and Other Claims"
xxxx
(b) Mortgages and other claims registered with the
[Register] of Deeds shall be assumed by the
government to an amount equivalent to the
landowner's compensation value as provided in this
Act" (Underscoring supplied.)
Surely, the other claims alluded to by law refer to payment of
amortizations under a contract of sale which have not been
extinguished by rescission. The government cannot assume an
obligation which does not exist.
Lastly, this Board has jurisdiction over agricultural landholdings
covered by CARP in respect to the preliminary determination and
payment of just compensation. (Sec. 1(b) of RULE II, DARAB New
Rules of Procedure). However, as elucidated above, since
petitioner-appellee is not the owner of the disputed landholdings,
[h]e has no cause of action against respondents-appellees.
WHEREFORE, the Decision of the Adjudicator a quo dated March
30, 1998 is AFFIRMED in toto.7(Emphasis in the original;
underscoring supplied)
Respondent assailed the DARAB decision via Petition for Review8 before the
Court of Appeals. By Decision9 of January 11, 2006, the appellate
court modified the trial court's decision by ordering DBP to return to
respondent "the P1,000,000 which [respondent] paid as downpayment,"
following the law on rescission.
We cannot write finis in this case without ordering respondent
DBP to return the payment made by herein petitioner in view of
the rescission of the subject Deed of Conditional Sale. Under
Article 1385 of the Civil Code, "rescission creates the obligation
to return the things which were the object of the contract,
together with their fruits, and the price with its interests x x x."
Hence, equity demands that the amount paid by the petitioner be
returned to him.
WHEREFORE, the assailed Decision dated February 23, 2004
is MODIFIED. With DBP's rescission of the contract it executed
with petitioner, DBP is consequently directed to return petitioner
the P1,000,000.00 which the latter paid as down payment for the
intended purchase of the subject parcels of land, plus 12% annual
interest thereon. The decision stands in all other
respects.10 (Italics and underscoring in the original.)
By a Partial Motion for Reconsideration,11 DBP questioned the order to
return the P1,000,000 which respondent had allegedly given as down
payment. Respondent, upon the other hand, filed a "Motion to Fix Date
When [the P1,000,000 Would] Earn Interest."12
The Court of Appeals denied DBP's Motion for Partial Reconsideration. It
granted respondent's motion and accordingly held that interest on
the P1,000,000 would accrue upon the finality of the judgment until full
payment.13
Hence, DBP's present Petition for Review on Certiorari14 faulting the
appellate court to have erred
I. . . . WHEN IT ORDERED DBP TO RETURN THE ALLEGED
DOWNPAYMENT MADE BY PETITIONER IN THE ALLEGED
AMOUNT OF P1,000,000.00 AS THIS WAS NEITHER RAISED AS AN
ISSUE IN THE TRIAL COURT NOR IN PRIVATE RESPONDENT'S
AMENDED PETITION FOR REVIEW IN THE COURT OF APPEALS. IT
WAS NOT EVEN ALLEGED AS ONE OF PRIVATE RESPONDENT'S
"ASSIGNED ERRORS."
II. . . . IN ORDERING THE REFUND OF P1,000,000.00 BASED
MERELY ON DOCUMENTS SUBMITTED IN THE APPELLATE COURT
BUT WERE NOT PROPERLY PRESENTED AND OFFERED AS
EVIDENCE IN THE DARAB PROCEEDINGS. HENCE, THERE IS
CERTAINLY NO BASIS FOR THE COURT TO ORDER DBP TO
RETURN THE AMOUNT OF P1,000,000.00 TO PRIVATE
RESPONDENT.
III. GRANTING ARGUENDO THAT THE ISSUE ON DEPOSIT MAY
PROPERLY BE CONSIDERED, [IN] FAIL[ING] TO CONSIDER THAT
UNDER THE LAW BETWEEN THE PARTIES, PETITIONER DBP IS
UNDER NO OBLIGATION TO RETURN THE ALLEGED DEPOSIT OF
P1,000,000.00 WHICH PRIVATE RESPONDENT ALLEGEDLY PAID
AS DOWNPAYMENT, BECAUSE THE DEED OF CONDITIONAL SALE
DATED JULY 15, 1987 EXPRESSLY PROVIDES THAT IN CASE OF
RESCISSION OF CONTRACT, ALL SUMS OF MONEY UNDER THE
CONTRACT (INCLUDING DEPOSIT) SHALL BE CONSIDERED AND
TREATED AS RENTALS FOR THE USE OF THE PROPERTY, [AND]
PROFFERING THAT . . . UNDER THE SAME DEED, THE PRIVATE
RESPONDENT IS DEEMED TO HAVE WAIVED ALL RIGHT/S TO ASK
OR DEMAND RETURN OF THE SAID DEPOSIT.15 (Emphasis in the
original)
The petition is meritorious.
The Court of Appeals erred in ordering DBP to return to respondent
"the P1,000,000.00" alleged down payment, a matter not raised in
respondent's Petition for Review before it. In Jose Clavano, Inc. v. Housing
and Land Use Regulatory Board,16 this Court held:
x x x It is elementary that a judgment must conform to, and be
supported by, both the pleadings and the evidence, and must be
in accordance with the theory of the action on which the
pleadings are framed and the case was tried. The judgment must
be secudum allegata et probata.17 (Italics in original)
Due process considerations justify this requirement. It is improper to enter
an order which exceeds the scope of relief sought by the pleadings, absent
notice which affords the opposing party an opportunity to be heard with
respect to the proposed relief.18 The fundamental purpose of the
requirement that allegations of a complaint must provide the measure of
recovery is to prevent surprise to the defendant.19
Respondent invokes20 this Court's pronouncement in Heirs of Ramon
Durano, Sr. v. Uy21 that "[t]he Court of Appeals is imbued with sufficient
discretion to review matters, not otherwise assigned as errors on appeal, if
it finds that their consideration is necessary in arriving at a complete and
just resolution of the case."22 He argues that the return of "the P1,000,000
downpayment" is a necessary consequence of the rescission of the sale.23
That rescission of a sale creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price
with its interests is undisputed.24 However, to require DBP to return the
alleged P1,000,000 without first giving it an opportunity to present evidence
would violate the Constitutional provision that "[n]o person shall be
deprived of life, liberty, or property without due process of law x x
x."25 The essence of due process is to be found in the reasonable
opportunity to be heard and submit any evidence one may have in support
of one's defense.26
In the case at bar, DBP had no opportunity to present evidence on its
behalf. As it contends,
Had [the] issue been raised in the lower court, petitioner DBP
could have contested and presented evidence against the
returning of the alleged deposit to private respondent. DBP could
have shown that private respondent did not make a deposit in
the amount of P1,000,000.00 but only P700,000.00 as the check
for P300,000.00 was returned to him. Furthermore, the amount
of P700,000.00, as previously discussed, was applied
to rental pursuant to the Deed of Conditional Sale dated July 15,
1987. Since this was not raised as an issue, DBP has been denied
the opportunity to rebut the belated claim of the private
respondent. Manifestly, the Decision of the Appellate Court for
the return of the alleged deposit made by the private respondent
is baseless and was clearly in contravention of the basic rules of
fair play, justice and due process.27 (Emphasis and underscoring
supplied)
In another vein, as DBP further contends, the Court of Appeals based its
order for the refund of P1,000.000 on documents submitted before it.
These documents, however, were not only mere photocopies but
were never formally offered in evidence, contrary to the provision of
Section 3 of Rule 130 of the Rules of Court and Section 34 of Rule 132 of the
same Rules which respectively read:
SEC. 3. Original document must be produced; exceptions. - When
the subject of inquiry is the contents of a document, no evidence
shall be admissible other than the original document itself, except
in the following cases:
(a) When the original has been lost or destroyed, or
cannot be produced in court, without bad faith on the
part of the offeror;
(b) When the original is in the custody or under the
control of the party against whom the evidence is
offered, and the latter fails to produce it after
reasonable notice;
(c) When the original consists of numerous accounts or
other documents which cannot be examined in court
without great loss of time and the fact sought to be
 established from them is only the general result of the
whole; and
(d) When the original is a public record in the custody of
a public officer or is recorded in a public office.
SEC. 34. Offer of evidence. - The court shall consider no evidence
which has not been formally offered. The purpose for which the
evidence is offered must be specified.
WHEREFORE, the petition is GRANTED. The January 11, 2006 decision of the
Court of Appeals is REVERSEDand SET ASIDE and the decision of the
Department of Agrarian Reform Adjudication Board is REINSTATED.
SO ORDERED.
G.R. Nos. 180880-81 September 25, 2009
KEPPEL CEBU SHIPYARD, INC., Petitioner,
vs.
PIONEER INSURANCE AND SURETY CORPORATION, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. Nos. 180896-97
PIONEER INSURANCE AND SURETY CORPORATION, Petitioner,
vs.
KEPPEL CEBU SHIPYARD, INC., Respondent.
DECISION
NACHURA, J.:
Before us are the consolidated petitions filed by the parties—Pioneer
Insurance and Surety Corporation1 (Pioneer) and Keppel Cebu Shipyard,
Inc.2 (KCSI)—to review on certiorari the Decision3 dated December 17, 2004
and the Amended Decision4 dated December 20, 2007 of the Court of
Appeals (CA) in CA-G.R. SP Nos. 74018 and 73934.
On January 26, 2000, KCSI and WG&A Jebsens Shipmanagement, Inc.
(WG&A) executed a Shiprepair Agreement5 wherein KCSI would renovate
and reconstruct WG&A’s M/V "Superferry 3" using its dry docking facilities
pursuant to its restrictive safety and security rules and regulations. Prior to
the execution of the Shiprepair Agreement, "Superferry 3" was already
insured by WG&A with Pioneer for US$8,472,581.78. The Shiprepair
Agreement reads—
SHIPREPAIR AGREEMENT6
Company: WG & A JEBSENS SHIPMANAGEMENT INC.
Address: Harbour Center II, Railroad & Chicago Sts.
Port Area, City of Manila
We, WG & A JEBSENS SHIPMGMT. Owner/Operator of M/V "SUPERFERRY
3" and KEPPEL CEBU SHIPYARD, INC. (KCSI) enter into an agreement that the
Drydocking and Repair of the above-named vessel ordered by the Owner’s
Authorized Representative shall be carried out under the Keppel Cebu
Shipyard Standard Conditions of Contract for Shiprepair, guidelines and
regulations on safety and security issued by Keppel Cebu Shipyard. In
addition, the following are mutually agreed upon by the parties:
1. The Owner shall inform its insurer of Clause 207 and
22 (a)8 (refer at the back hereof) and shall include
Keppel Cebu Shipyard as a co-assured in its insurance
policy.
2. The Owner shall waive its right to claim for any loss of
profit or loss of use or damages consequential on such
loss of use resulting from the delay in the redelivery of
the above vessel.
3. Owner’s sub-contractors or workers are not
permitted to work in the yard without the written
approval of the Vice President – Operations.
4. In consideration of Keppel Cebu Shipyard allowing
Owner to carry out own repairs onboard the vessel, the
Owner shall indemnify and hold Keppel Cebu Shipyard
harmless from any or all claims, damages, or liabilities
arising from death or bodily injuries to Owner’s workers,
or damages to the vessel or other property however
caused.
5. On arrival, the Owner Representative, Captain, Chief
Officer and Chief Engineer will be invited to attend a
conference with our Production, Safety and Security
personnel whereby they will be briefed on, and given
copies of Shipyard safety regulations.
6. An adequate number of officers and crew must
remain on board at all times to ensure the safety of the
vessel and compliance of safety regulations by crew and
owner employed workmen.
7. The ship’s officers/crew or owner appointed security
personnel shall maintain watch against pilferage and
acts of sabotage.
8. The yard must be informed and instructed to provide
the necessary security arrangement coverage should
there be inadequate or no crew on board to provide the
expressed safety and security enforcement.
9. The Owner shall be liable to Keppel Cebu Shipyard for
any death and/or bodily injuries for the [K]eppel Cebu
Shipyard’s employees and/or contract workers; theft
and/or damages to Keppel Cebu Shipyard’s properties
and other liabilities which are caused by the workers of
the Owner.
10. The invoice shall be based on quotation
reference 99-KCSI-211 dated December 20, 1999tariff
dated March 15, 1998.
11. Payment term shall be as follows:
 12. The Owner and Keppel Cebu Shipyard shall endeavor
to settle amicably any dispute that may arise under this
Agreement. Should all efforts for an amicable
settlement fail, the disputes shall be submitted for
arbitration in Metro Manila in accordance with
provisions of Executive Order No. 1008 under the
auspices of the Philippine Arbitration Commission.
(Signed)
BARRY CHIA SOO HOCK
(Printed Name/Signature Above Name)
(Printed Name/Signature Above Name)
Authorized Representative
Vice President – Operations
for and in behalf of:
Keppel Cebu Shipyard, Inc.
WG & A Jebsens Shipmgmt.
JAN. 26, 2000.
Date
On February 8, 2000, in the course of its repair, M/V "Superferry 3" was
gutted by fire. Claiming that the extent of the damage was pervasive,
WG&A declared the vessel’s damage as a "total constructive loss" and,
hence, filed an insurance claim with Pioneer.
On June 16, 2000, Pioneer paid the insurance claim of WG&A in the amount
of US$8,472,581.78. WG&A, in turn, executed a Loss and Subrogation
Receipt9 in favor of Pioneer, to wit:
LOSS AND SUBROGATION RECEIPT
16 June 2000
Our Claim Ref: MH-NIL-H0-99-00018
US$8,472,581.78
------------------------------------------------
RECEIVED from PIONEER INSURANCE & SURETY CORPORATION the sum of
U.S. DOLLARS EIGHT MILLION FOUR HUNDRED SEVENTY-TWO THOUSAND
FIVE HUNDRED EIGHTY-ONE & 78/100 (US$ 8,472,581.78) equivalent to
PESOS THREE HUNDRED SIXTY MILLION & 00/100 (Php 360,000,000.00), in
full satisfaction, compromise and discharge of all claims for loss and
expenses sustained to the vessel "SUPERFERRY 3" insured under Policy Nos.
MH-H0-99-0000168-00-D (H&M) and MH-H0-99-0000169 (I.V.) by reason as
follows:
Fire on board at Keppel Cebu Shipyard
on 08 February 2000
and in consideration of which the undersigned hereby assigns and transfers
to the said company each and all claims and demands against any person,
persons, corporation or property arising from or connected with such loss
or damage and the said company is subrogated in the place of and to the
claims and demands of the undersigned against said person, persons,
corporation or property in the premises to the extent of the amount above-
mentioned.
WILLIAM, GOTHONG & ABOITIZ, INC.
&/OR ABOITIZ SHIPPING CORP.
By:
(Signed)
______________________________________
Witnesses:
(Signed)
______________________________________
(Signed)
(Signed)
______________________________________
Armed with the subrogation receipt, Pioneer tried to collect from KCSI, but
the latter denied any responsibility for the loss of the subject vessel. As KCSI
continuously refused to pay despite repeated demands, Pioneer, on August
7, 2000, filed a Request for Arbitration before the Construction Industry
Arbitration Commission (CIAC) docketed as CIAC Case No. 21-2000, seeking
the following
Date reliefs:
1. To pay to the claimant Pioneer Insurance and Surety
Corporation the sum of U.S.$8,472,581.78 or its equivalent
amount in Philippine Currency, plus interest thereon computed
from the date of the "Loss and Subrogation Receipt" on 16 June
2000 or from the date of filing of [the] "Request for Arbitration,"
as may be found proper;
2. To pay to claimant WG&A, INC. and/or Aboitiz Shipping
Corporation and WG&A Jebsens Shipmanagement, Inc. the sum of
₱500,000,000.00 plus interest thereon from the date of filing [of
the] "Request for Arbitration" or date of the arbitral award, as
may be found proper;
3. To pay to the claimants herein the sum of ₱3,000,000.00 for
and as attorney’s fees; plus other damages as may be established
during the proceedings, including arbitration fees and other
litigation expenses, and the costs of suit.
It is likewise further prayed that Clauses 1 and 2 on the unsigned page 1 of
the "Shiprepair Agreement" (Annex "A") as well as the hardly legible Clauses
20 and 22 (a) and other similar clauses printed in very fine print on the
unsigned dorsal page thereof, be all declared illegal and void ab initio and
without any legal effect whatsoever.10
KCSI and WG&A reached an amicable settlement, leading the latter to file a
Notice of Withdrawal of Claim on April 17, 2001 with the CIAC. The CIAC
granted the withdrawal on October 22, 2001, thereby dismissing the claim
of WG&A against KCSI. Hence, the arbitration proceeded with Pioneer as
the remaining claimant.
In the course of the proceedings, Pioneer and KCSI stipulated, among
others, that: (1) on January 26, 2000, M/V "Superferry 3" arrived at KCSI in
Lapu-Lapu City, Cebu, for dry docking and repairs; (2) on the same date,
WG&A signed a ship repair agreement with KCSI; and (3) a fire broke out on
board M/V "Superferry 3" on February 8, 2000, while still dry docked in
KCSI’s shipyard.11
As regards the disputed facts, below are the respective positions of the
parties, viz.:
Pioneer’s Theory of the Case:
First, Pioneer (as Claimant) is the real party in interest in this case and that
Pioneer has been subrogated to the claim of its assured. The Claimant
claims that it has the preponderance of evidence over that of the
Respondent. Claimant cited documentary references on the Statutory
Source of the Principle of Subrogation. Claimant then proceeded to explain
that the Right of Subrogation:
Is by Operation of Law
exists in Property Insurance
is not Dependent Upon Privity of Contract.
Claimant then argued that Payment Operates as Equitable Assignment of
Rights to Insurer and that the Right of Subrogation Entitles Insurer to
Recover from the Liable Party.
Second, Respondent Keppel had custody of and control over the M/V
"Superferry 3" while said vessel was in Respondent Keppel’s premises. In its
Draft Decision, Claimant stated:
A. The evidence presented during the hearings indubitably proves
that respondent not only took custody but assumed responsibility
and control over M/V Superferry 3 in carrying out the dry-docking
and repair of the vessel.
B. The presence on board the M/V Superferry 3 of its officers and
crew does not relieve the respondent of its responsibility for said
vessel.
C. Respondent Keppel assumed responsibility over M/V
Superferry 3 when it brought the vessel inside its graving dock and
applied its own safety rules to the dry-docking and repairs of the
vessel.
D. The practice of allowing a shipowner and its sub-contractors to
perform maintenance works while the vessel was within
respondent’s premises does not detract from the fact that control
and custody over M/V Superferry 3 was transferred to the yard.
From the preceding statements, Claimant claims that Keppel is clearly liable
for the loss of M/V Superferry 3.
Third, the Vessel’s Safety Manual cannot be relied upon as proof of the
Master’s continuing control over the vessel.
Fourth, the Respondent Yard is liable under the Doctrine of Res Ipsa
Loquitur. According to Claimant, the Yard is liable under the ruling laid
down by the Supreme Court in the "Manila City" case. Claimant asserts that
said ruling is applicable hereto as The Law of the Case.
Fifth, the liability of Respondent does not arise merely from the application
of the Doctrine of Res Ipsa Loquitur, but from its negligence in this case.
Sixth, the Respondent Yard was the employer responsible for the negligent
acts of the welder. According to Claimant;
In contemplation of law, Sevillejo was not a loaned servant/employee. The
yard, being his employer, is solely and exclusively liable for his negligent
acts. Claimant proceeded to enumerate its reasons:
A. The "Control Test" – The yard exercised control over Sevillejo.
The power of control is not diminished by the failure to exercise
control.
B. There was no independent work contract between Joniga and
Sevillejo – Joniga was not the employer of Sevillejo, as Sevillejo
remained an employee of the yard at the time the loss occurred.
C. The mere fact that Dr. Joniga requested Sevillejo to perform
some of the Owner’s hot works under the 26 January 2000 work
order did not make Dr. Joniga the employer of Sevillejo.
Claimant proffers that Dr. Joniga was not a Contractor of the Hot Work
Done on Deck A. Claimant argued that:
A. The yard, not Dr. Joniga, gave the welders their marching
orders, and
B. Dr. Joniga’s authority to request the execution of owner’s hot
works in the passenger areas was expressly recognized by the
Yard Project Superintendent Orcullo.
Seventh, the shipowner had no legal duty to apply for a hotworks permit
since it was not required by the yard, and the owner’s hotworks were
conducted by welders who remained employees of the yard. Claimant
contends that the need, if any, for an owner’s application for a hot work
permit was canceled out by the yard’s actual knowledge of Sevillejo’s
whereabouts and the fact that he was in deck A doing owner’s hotworks.
Eight[h], in supplying welders and equipment as per The Work Order Dated
26 January 2000, the Yard did so at its own risk, and acted as a Less Than
Prudent Ship Repairer.1avvphi1
The Claimant then disputed the statements of Manuel Amagsila by claiming
that Amagsila was a disgruntled employee. Nevertheless, Claimant claims
that Amagsila affirmed that the five yard welders never became employees
of the owner so as to obligate the latter to be responsible for their conduct
and performance.
Claimant enumerated further badges of yard negligence.
According to Claimant:
A. Yard’s water supply was inadequate.
B. Yard Fire Fighting Efforts and Equipment Were Inadequate.
C. Yard Safety Practices and Procedures Were Unsafe or
Inadequate.
D. Yard Safety Assistants and Firewatch-Men were Overworked.
Finally, Claimant disputed the theories propounded by the Respondent (The
Yard). Claimant presented its case against:
(i) Non-removal of the life jackets theory.
(ii) Hole-in-the[-]floor theory.
(iii) Need for a plan theory.
 (iv) The unauthorized hot works theory.
(v) The Marina report theory.
The Claimant called the attention of the Tribunal (CIAC) on the non-
appearance of the welder involved in the cause of the fire, Mr. Severino
Sevillejo. Claimant claims that this is suppression of evidence by
Respondent.
KCSI’s Theory of the Case
1. The Claimant has no standing to file the Request for Arbitration
and the Tribunal has no jurisdiction over the case:
(a) There is no valid arbitration agreement between the
Yard and the Vessel Owner. On January 26, 2000, when
the ship repair agreement (which includes the
arbitration agreement) was signed by WG&A Jebsens on
behalf of the Vessel, the same was still owned by Aboitiz
Shipping. Consequently, when another firm, WG&A,
authorized WG&A Jebsens to manage the MV
Superferry 3, it had no authority to do so. There is, as a
result, no binding arbitration agreement between the
Vessel Owner and the Yard to which the Claimant can
claim to be subrogated and which can support CIAC
jurisdiction.
(b) The Claimant is not a real party in interest and has
no standing because it has not been subrogated to the
Vessel Owner. For the reason stated above, the
insurance policies on which the Claimant bases its right
of subrogation were not validly obtained. In any event,
the Claimant has not been subrogated to any rights
which the Vessel may have against the Yard because:
i. The Claimant has not proved payment of the
proceeds of the policies to any specific party.
As a consequence, it has also not proved
payment to the Vessel Owner.
ii. The Claimant had no legally demandable
obligation to pay under the policies and did so
only voluntarily. Under the policies, the
Claimant and the Vessel agreed that there is
no Constructive Total Loss "unless the
expense of recovering and repairing the vessel
would exceed the Agreed Value" of ₱360
million assigned by the parties to the Vessel, a
threshold which the actual repair cost for the
Vessel did not reach. Since the Claimant opted
to pay contrary to the provisions of the
policies, its payment was voluntary, and there
was no resulting subrogation to the Vessel.
iii. There was also no subrogation under
Article 1236 of the Civil Code. First, if the
Claimant asserts a right of payment only by
virtue of Article 1236, then there is no legal
subrogation under Article 2207 and it
does not succeed to the Vessel’s rights under
the Ship [R]epair Agreement and the
arbitration agreement. It does not have a right
to demand arbitration and will have only a
purely civil law claim for reimbursement to
the extent that its payment benefited the Yard
which should be filed in court. Second, since
the Yard is not liable for the fire and the
resulting damage to the Vessel, then it derived
no benefit from the Claimant’s payment to the
Vessel Owner. Third, in any event, the
Claimant has not proved payment of the
proceeds to the Vessel Owner.
2. The Ship [R]epair Agreement was not imposed upon the Vessel.
The Vessel knowingly and voluntarily accepted that agreement.
Moreover, there are no signing or other formal defects that can
invalidate the agreement.
3. The proximate cause of the fire and damage to the Vessel was
not any negligence committed by Angelino Sevillejo in cutting the
bulkhead door or any other shortcoming by the Yard. On the
contrary, the proximate cause of the fire was Dr. Joniga’s and the
Vessel’s deliberate decision to have Angelino Sevillejo undertake
cutting work in inherently dangerous conditions created by them.
(a) The Claimant’s material witnesses lied on the record
and the Claimant presented no credible proof of any
negligence by Angelino Sevillejo.
(b) Uncontroverted evidence proved that Dr. Joniga
neglected or decided not to obtain a hot work permit
for the bulkhead cutting and also neglected or refused
to have the ceiling and the flammable lifejackets
removed from underneath the area where he instructed
Angelino Sevillejo to cut the bulkhead door. These
decisions or oversights guaranteed that the cutting
would be done in extremely hazardous conditions and
were the proximate cause of the fire and the resulting
damage to the Vessel.
(c) The Yard’s expert witness, Dr. Eric Mullen gave the
only credible account of the cause and the mechanics of
ignition of the fire. He established that: i) the fire
started when the cutting of the bulkhead door resulted
in sparks or hot molten slag which fell through pre-
existing holes on the deck floor and came into contact
with and ignited the flammable lifejackets stored in the
ceiling void directly below; and ii) the bottom level of
the bulkhead door was immaterial, because the sparks
and slag could have come from the cutting of any of the
sides of the door. Consequently, the cutting itself of the
bulkhead door under the hazardous conditions created
by Dr. Joniga, rather than the positioning of the door’s
bottom edge, was the proximate cause of the fire.
(d) The Manila City case is irrelevant to this dispute and
in any case, does not establish governing precedent to
the effect that when a ship is damaged in dry dock, the
shipyard is presumed at fault. Apart from the
differences in the factual setting of the two cases, the
Manila City pronouncements regarding the res ipsa
loquitur doctrine are obiter dicta without value as
binding precedent. Furthermore, even if the principle
were applied to create a presumption of negligence by
the Yard, however, that presumption is conclusively
rebutted by the evidence on record.
 (e) The Vessel’s deliberate acts and its negligence
created the inherently hazardous conditions in which
the cutting work that could otherwise be done safely
ended up causing a fire and the damage to the Vessel.
The fire was a direct and logical consequence of the
Vessel’s decisions to: (1) take Angelino Sevillejo away
from his welding work at the Promenade Deck
restaurant and instead to require him to do
unauthorized cutting work in Deck A; and (2) to have
him do that without satisfying the requirements for and
obtaining a hot work permit in violation of the Yard’s
Safety Rules and without removing the flammable
ceiling and life jackets below, contrary to the
requirements not only of the Yard’s Safety Rules but
also of the demands of standard safe practice and the
Vessel’s own explicit safety and hot work policies.
(f) The vessel has not presented any proof to show that
the Yard was remiss in its fire fighting preparations or in
the actual conduct of fighting the 8 February 2000 fire.
The Yard had the necessary equipment and trained
personnel and employed all those resources
immediately and fully to putting out the 8 February
2000 fire.
4. Even assuming that Angelino Sevillejo cut the bulkhead door
close to the deck floor, and that this circumstance rather than the
extremely hazardous conditions created by Dr. Joniga and the
Vessel for that activity caused the fire, the Yard may still not be
held liable for the resulting damage.
(a) The Yard’s only contractual obligation to the Vessel
in respect of the 26 January 2000 Work Order was to
supply welders for the Promenade Deck restaurant who
would then perform welding work "per owner[‘s]
instruction." Consequently, once it had provided those
welders, including Angelino Sevillejo, its obligation to
the Vessel was fully discharged and no claim for
contractual breach, or for damages on account thereof,
may be raised against the Yard.
(b) The Yard is also not liable to the Vessel/Claimant on
the basis of quasi-delict.
i. The Vessel exercised supervision and control
over Angelino Sevillejo when he was doing
work at the Promenade Deck restaurant and
especially when he was instructed by Dr.
Joniga to cut the bulkhead door.
Consequently, the Vessel was the party with
actual control over his tasks and is deemed his
true and effective employer for purposes of
establishing Article 2180 employer liability.
ii. Even assuming that the Yard was Angelino
Sevillejo’s employer, the Yard may
nevertheless not be held liable under Article
2180 because Angelino Sevillejo was acting
beyond the scope of his tasks assigned by the
Yard (which was only to do welding for the
Promenade Deck restaurant) when he cut the
bulkhead door pursuant to instructions given
by the Vessel.
iii. The Yard is nonetheless not liable under
Article 2180 because it exercised due diligence
in the selection and supervision of Angelino
Sevillejo.
5. Assuming that the Yard is liable, it cannot be compelled to pay
the full amount of ₱360 million paid by the Claimant.
(a) Under the law, the Yard may not be held liable to the
Claimant, as subrogee, for an amount greater than that
which the Vessel could have recovered, even if the
Claimant may have paid a higher amount under its
policies. In turn, the right of the Vessel to recover is
limited to actual damage to the MV Superferry 3, at the
time of the fire.
(b) Under the Ship [R]epair Agreement, the liability of
the Yard is limited to ₱50 million – a stipulation which,
under the law and decisions of the Supreme Court, is
valid, binding and enforceable.
(c) The Vessel breached its obligation under Clause 22
(a) of the Yard’s Standard Terms to name the Yard as co-
assured under the policies – a breach which makes the
Vessel liable for damages. This liability should in turn be
set-off against the Claimant’s claim for damages.
The Respondent listed what it believes the Claimant wanted to impress
upon the Tribunal. Respondent enumerated and disputed these as follows:
1. Claimant’s counsel contends that the cutting of the bulkhead
door was covered by the 26 January 2000 Work Order.
2. Claimant’s counsel contends that Dr. Joniga told Gerry Orcullo
about his intention to have Angelino Sevillejo do cutting work at
the Deck A bulkhead on the morning of 8 February 2000.
3. Claimant’s counsel contends that under Article 1727 of the Civil
Code, "The contractor is responsible for the work done by persons
employed by him."
4. Claimant’s counsel contends that "[t]he second reason why
there was no job spec or job order for this cutting work, [is] the
cutting work was known to the yard and coordinated with Mr.
Gerry Orcullo, the yard project superintendent."
5. Claimant’s counsel also contends, to make the Vessel’s
unauthorized hot works activities seem less likely, that they could
easily be detected because Mr. Avelino Aves, the Yard Safety
Superintendent, admitted that "No hot works could really be
hidden from the Yard, your Honors, because the welding cables
and the gas hoses emanating from the dock will give these
hotworks away apart from the assertion and the fact that there
were also safety assistants supposedly going around the vessel."
Respondent disputed the above by presenting its own argument in its Final
Memorandum.12
On October 28, 2002, the CIAC rendered its Decision13 declaring both
WG&A and KCSI guilty of negligence, with the following findings and
conclusions—
The Tribunal agrees that the contractual obligation of the Yard is to provide
the welders and equipment to the promenade deck. [The] Tribunal agrees
that the cutting of the bulkhead door was not a contractual obligation of
the Yard. However, by requiring, according to its own regulations, that only
Yard welders are to undertake hotworks, it follows that there are certain
qualifications of Yard welders that would be requisite of yard welders
against those of the vessel welders. To the Tribunal, this means that yard
welders are aware of the Yard safety rules and regulations on hotworks
such as applying for a hotwork permit, discussing the work in a production
meeting, and complying with the conditions of the hotwork permit prior to
implementation. By the requirement that all hotworks are to be done by
the Yard, the Tribunal finds that Sevillejo remains a yard employee. The act
of Sevillejo is however mitigated in that he was not even a foreman, and
that the instructions to him was (sic) by an authorized person. The Tribunal
notes that the hotworks permit require[s] a request by at least a foreman.
The fact that no foreman was included in the five welders issued to the
Vessel was never raised in this dispute. As discussed earlier by the Tribunal,
with the fact that what was ask (sic) of Sevillejo was outside the work order,
the Vessel is considered equally negligent. This Tribunal finds the
concurrent negligence of the Yard through Sevillejo and the Vessel through
Dr. Joniga as both contributory to the cause of the fire that damaged the
vessel.14
Holding that the liability for damages was limited to ₱50,000,000.00, the
CIAC ordered KCSI to pay Pioneer the amount of ₱25,000,000.00, with
interest at 6% per annum from the time of the filing of the case up to the
time the decision is promulgated, and 12% interest per annum added to the
award, or any balance thereof, after it becomes final and executory. The
CIAC further ordered that the arbitration costs be imposed on both parties
on a pro rata basis.15
Pioneer appealed to the CA and its petition was docketed as CA-G.R. SP No.
74018. KCSI likewise filed its own appeal and the same was docketed as CA-
G.R. SP No. 73934. The cases were consolidated.
On December 17, 2004, the Former Fifteenth Division of the CA rendered its
Decision, disposing as follows:
WHEREFORE, premises considered, the Petition of Pioneer (CA-G.R. SP No.
74018) is DISMISSED while the Petition of the Yard (CA-G.R. SP No. 73934) is
GRANTED, dismissing petitioner’s claims in its entirety. No costs.
The Yard and The WG&A are hereby ordered to pay the arbitration costs
pro-rata.
SO ORDERED.16
Aggrieved, Pioneer sought reconsideration of the December 17, 2004
Decision, insisting that it suffered from serious errors in the appreciation of
the evidence and from gross misapplication of the law and jurisprudence on
negligence. KCSI, for its part, filed a motion for partial reconsideration of
the same Decision.
On December 20, 2007, an Amended Decision was promulgated by the
Special Division of Five – Former Fifteenth Division of the CA – in light of the
dissent of Associate Justice Lucas P. Bersamin,17 joined by Associate Justice
Japar B. Dimaampao. The fallo of the Amended Decision reads—
WHEREFORE, premises considered, the Court hereby decrees that:
1. Pioneer’s Motion for Reconsideration is PARTIALLY GRANTED,
ordering The Yard to pay Pioneer ₱25 Million, without legal
interest, within 15 days from the finality of this Amended
Decision, subject to the following modifications:
1.1 – Pioneer’s Petition (CA-G.R. SP No. 74018) is
PARTIALLY GRANTED as the Yard is hereby ordered to
pay Pioneer ₱25 Million without legal interest;
2. The Yard is hereby declared as equally negligent, thus, the total
GRANTING of its Petition (CA-G.R. SP No. 73934) is now reduced
to PARTIALLY GRANTED, in so far as it is ordered to pay Pioneer
₱25 Million, without legal interest, within 15 days from the finality
of this Amended Decision; and
3. The rest of the disposition in the original Decision remains the
same.
SO ORDERED.18
Hence, these petitions. Pioneer bases its petition on the following grounds:
I
THE COURT OF APPEALS ERRED IN BASING ITS ORIGINAL DECISION ON NON-
FACTS LEADING IT TO MAKE FALSE LEGAL CONCLUSIONS; NON-FACTS
REMAIN TO INVALIDATE THE AMENDED DECISION. THIS ALSO VIOLATES
SECTION 14, ARTICLE VIII OF THE CONSTITUTION.
II
THE COURT OF APPEALS ERRED IN LIMITING THE LEGAL LIABILITY OF THE
YARD TO THE SUM OF ₱50,000,000.00, IN THAT:
A. STARE DECISIS RENDERS INAPPLICABLE ANY
INVOCATION OF LIMITED LIABILITY BY THE YARD.
B. THE LIMITATION CLAUSE IS CONTRARY TO PUBLIC
POLICY.
C. THE VESSEL OWNER DID NOT AGREE THAT THE
YARD’S LIABILITY FOR LOSS OR DAMAGE TO THE VESSEL
ARISING FROM YARD’S NEGLIGENCE IS LIMITED TO THE
SUM OF ₱50,000,000.00 ONLY.
D. IT IS INIQUITOUS TO ALLOW THE YARD TO LIMIT
LIABILITY, IN THAT:
(i) THE YARD HAD CUSTODY AND CONTROL
OVER THE VESSEL (M/V "SUPERFERRY 3") ON
08 FEBRUARY 2000 WHEN IT WAS GUTTED BY
FIRE;
(ii) THE DAMAGING FIRE INCIDENT HAPPENED
IN THE COURSE OF THE REPAIRS EXCLUSIVELY
PERFORMED BY YARD WORKERS.
III
THE COURT OF APPEALS ERRED IN ITS RULING THAT WG&A WAS
CONCURRENTLY NEGLIGENT, CONSIDERING THAT:
 A. DR. JONIGA, THE VESSEL’S PASSAGE TEAM LEADER,
DID NOT SUPERVISE OR CONTROL THE REPAIRS.
B. IT WAS THE YARD THROUGH ITS PROJECT
SUPERINTENDENT GERMINIANO ORCULLO THAT
SUPERVISED AND CONTROLLED THE REPAIR WORKS.
C. SINCE ONLY YARD WELDERS COULD PERFORM HOT
WORKS IT FOLLOWS THAT THEY ALONE COULD BE
GUILTY OF NEGLIGENCE IN DOING THE SAME.
D. THE YARD AUTHORIZED THE HOT WORK OF YARD
WELDER ANGELINO SEVILLEJO.
E. THE NEGLIGENCE OF ANGELINO SEVILLEJO WAS THE
PROXIMATE CAUSE OF THE LOSS.
F. WG&A WAS NOT GUILTY OF NEGLIGENCE, BE IT
DIRECT OR CONTRIBUTORY TO THE LOSS.
IV
THE COURT OF APPEALS CORRECTLY RULED THAT WG&A SUFFERED A
CONSTRUCTIVE TOTAL LOSS OF ITS VESSEL BUT ERRED BY NOT HOLDING
THAT THE YARD WAS LIABLE FOR THE VALUE OF THE FULL CONSTRUCTIVE
TOTAL LOSS.
V
THE COURT OF APPEALS ERRED IN NOT HOLDING THE YARD LIABLE FOR
INTEREST.
VI
THE COURT OF APPEALS ERRED IN NOT HOLDING THE YARD SOLELY LIABLE
FOR ARBITRATION COSTS.19
On the other hand, KCSI cites the following grounds for the allowance of its
petition, to wit:
1. ABSENCE OF YARD RESPONSIBILITY
IT WAS GRIEVOUS ERROR FOR THE COURT OF APPEALS TO ADOPT,
WITHOUT EXPLANATION, THE CIAC’S RULING THAT THE YARD WAS
EQUALLY NEGLIGENT BECAUSE OF ITS FAILURE TO REQUIRE A HOT WORKS
PERMIT FOR THE CUTTING WORK DONE BY ANGELINO SEVILLEJO, AFTER
THE COURT OF APPEALS ITSELF HAD SHOWN THAT RULING TO BE
COMPLETELY WRONG AND BASELESS.
2. NO CONSTRUCTIVE TOTAL LOSS
IT WAS EQUALLY GRIEVOUS ERROR FOR THE COURT OF APPEALS TO RULE,
WITHOUT EXPLANATION, THAT THE VESSEL WAS A CONSTRUCTIVE TOTAL
LOSS AFTER HAVING ITSELF EXPLAINED WHY THE VESSEL COULD NOT BE A
CONSTRUCTIVE TOTAL LOSS.
3. FAILURE OR REFUSAL TO ADDRESS
KEPPEL’S MOTION FOR RECONSIDERATION
FINALLY, IT WAS ALSO GRIEVOUS ERROR FOR THE COURT OF APPEALS TO
HAVE EFFECTIVELY DENIED, WITHOUT ADDRESSING IT AND ALSO WITHOUT
EXPLANATION, KEPPEL’S PARTIAL MOTION FOR RECONSIDERATION OF THE
ORIGINAL DECISION WHICH SHOWED: 1) WHY PIONEER WAS NOT
SUBROGATED TO THE RIGHTS OF THE VESSEL OWNER AND SO HAD NO
STANDING TO SUE THE YARD; 2) WHY KEPPEL MAY NOT BE REQUIRED TO
REIMBURSE PIONEER’S PAYMENTS TO THE VESSEL OWNER IN VIEW OF THE
CO-INSURANCE CLAUSE IN THE SHIPREPAIR AGREEMENT; AND 3) WHY
PIONEER ALONE SHOULD BEAR THE COSTS OF ARBITRATION.
4. FAILURE TO CREDIT FOR SALVAGE RECOVERY
EVEN IF THE COURT OF APPEAL’S RULINGS ON ALL OF THE FOREGOING
ISSUES WERE CORRECT AND THE YARD MAY PROPERLY BE HELD EQUALLY
LIABLE FOR THE DAMAGE TO THE VESSEL AND REQUIRED TO PAY HALF OF
THE DAMAGES AWARDED (₱25 MILLION), THE COURT OF APPEALS STILL
ERRED IN NOT DEDUCTING THE SALVAGE VALUE OF THE VESSEL
RECOVERED AND RECEIVED BY THE INSURER, PIONEER, TO REDUCE ANY
LIABILITY ON THE PART OF THE YARD TO ₱9.874 MILLION.20
To our minds, these errors assigned by both Pioneer and KCSI may be
summed up in the following core issues:
A. To whom may negligence over the fire that broke out on board
M/V "Superferry 3" be imputed?
B. Is subrogation proper? If proper, to what extent can
subrogation be made?
C. Should interest be imposed on the award of damages? If so,
how much?
D. Who should bear the cost of the arbitration?
To resolve these issues, it is imperative that we digress from the general
rule that in petitions for review under Rule 45 of the Rules of Court, only
questions of law shall be entertained. Considering the disparate findings of
fact of the CIAC and the CA which led them to different conclusions, we are
constrained to revisit the factual circumstances surrounding this
controversy.21
The Court’s Ruling
A. The issue of negligence
Undeniably, the immediate cause of the fire was the hot work done by
Angelino Sevillejo (Sevillejo) on the accommodation area of the vessel,
specifically on Deck A. As established before the CIAC –
The fire broke out shortly after 10:25 and an alarm was raised (Exh. 1-Ms.
Aini Ling,22 p. 20). Angelino Sevillejo tried to put out the fire by pouring the
contents of a five-liter drinking water container on it and as he did so,
smoke came up from under Deck A. He got another container of water
which he also poured whence the smoke was coming. In the meantime,
other workers in the immediate vicinity tried to fight the fire by using fire
extinguishers and buckets of water. But because the fire was inside the
ceiling void, it was extremely difficult to contain or extinguish; and it spread
rapidly because it was not possible to direct water jets or the fire
extinguishers into the space at the source. Fighting the fire was extremely
difficult because the life jackets and the construction materials of the Deck
B ceiling were combustible and permitted the fire to spread within the
ceiling void. From there, the fire dropped into the Deck B accommodation
areas at various locations, where there were combustible materials.
Respondent points to cans of paint and thinner, in addition to the plywood
partitions and foam mattresses on deck B (Exh. 1-Mullen,23 pp. 7-8, 18; Exh.
2-Mullen, pp. 11-12).24
Pioneer contends that KCSI should be held liable because Sevillejo was its
employee who, at the time the fire broke out, was doing his assigned task,
and that KCSI was solely responsible for all the hot works done on board the
vessel. KCSI claims otherwise, stating that the hot work done was beyond
the scope of Sevillejo’s assigned tasks, the same not having been authorized
under the Work Order25dated January 26, 2000 or under the Shiprepair
Agreement. KCSI further posits that WG&A was itself negligent, through its
crew, particularly Dr. Raymundo Joniga (Dr. Joniga), for failing to remove
the life jackets from the ceiling void, causing the immediate spread of the
fire to the other areas of the ship.
We rule in favor of Pioneer.
First. The Shiprepair Agreement is clear that WG&A, as owner of M/V
"Superferry 3," entered into a contract for the dry docking and repair of the
vessel under KCSI’s Standard Conditions of Contract for Shiprepair, and its
guidelines and regulations on safety and security. Thus, the CA erred when
it said that WG&A would renovate and reconstruct its own vessel merely
using the dry docking facilities of KCSI.
Second. Pursuant to KCSI’s rules and regulations on safety and security, only
employees of KCSI may undertake hot works on the vessel while it was in
the graving dock in Lapu-Lapu City, Cebu. This is supported by Clause 3 of
the Shiprepair Agreement requiring the prior written approval of KCSI’s Vice
President for Operations before WG&A could effect any work performed by
its own workers or sub-contractors. In the exercise of this authority, KCSI’s
Vice-President for Operations, in the letter dated January 2, 1997, banned
any hot works from being done except by KCSI’s workers, viz.:
The Yard will restrict all hot works in the engine room, accommodation
cabin, and fuel oil tanks to be carried out only by shipyard workers x x x. 26
WG&A recognized and complied with this restrictive directive such that,
during the arrival conference on January 26, 2000, Dr. Joniga, the vessel’s
passage team leader in charge of its hotel department, specifically
requested KCSI to finish the hot works started by the vessel’s contractors on
the passenger accommodation decks.27 This was corroborated by the
statements of the vessel’s hotel manager Marcelo Rabe28 and the vessel’s
quality control officer Joselito Esteban.29 KCSI knew of the unfinished hot
works in the passenger accommodation areas. Its safety supervisor Esteban
Cabalhug confirmed that KCSI was aware "that the owners of this vessel
(M/V ‘Superferry 3’) had undertaken their own (hot) works prior to arrival
alongside (sic) on 26th January," and that no hot work permits could
thereafter be issued to WG&A’s own workers because "this was not allowed
for the Superferry 3."30 This shows that Dr. Joniga had authority only to
request the performance of hot works by KCSI’s welders as needed in the
repair of the vessel while on dry dock.
Third. KCSI welders covered by the Work Order performed hot works on
various areas of the M/V "Superferry 3," aside from its promenade deck.
This was a recognition of Dr. Joniga’s authority to request the conduct of
hot works even on the passenger accommodation decks, subject to the
provision of the January 26, 2000 Work Order that KCSI would supply
welders for the promenade deck of the ship.
At the CIAC proceedings, it was adequately shown that between February 4
and 6, 2000, the welders of KCSI: (a) did the welding works on the ceiling
hangers in the lobby of Deck A; (b) did the welding and cutting works on the
deck beam to access aircon ducts; and (c) did the cutting and welding works
on the protection bars at the tourist dining salon of Deck B,31 at a rate of
₱150.00/welder/hour.32 In fact, Orcullo, Project Superintendent of KCSI,
admitted that "as early as February 3, 2000 (five days before the fire) [the
Yard] had acknowledged Dr. Joniga’s authority to order such works or
additional jobs."33
It is evident, therefore, that although the January 26, 2000 Work Order was
a special order for the supply of KCSI welders to the promenade deck, it was
not restricted to the promenade deck only. The Work Order was only a
special arrangement between KCSI and WG&A that meant additional cost to
the latter.
Fourth. At the time of the fire, Sevillejo was an employee of KCSI and was
subject to the latter’s direct control and supervision.
Indeed, KCSI was the employer of Sevillejo—paying his salaries; retaining
the power and the right to discharge or substitute him with another welder;
providing him and the other welders with its equipment; giving him and the
other welders marching orders to work on the vessel; and monitoring and
keeping track of his and the other welders’ activities on board, in view of
the delicate nature of their work.34 Thus, as such employee, aware of KCSI’s
Safety Regulations on Vessels Afloat/Dry, which specifically provides that
"(n)o hotwork (welding/cutting works) shall be done on board [the] vessel
without [a] Safety Permit from KCSI Safety Section,"35 it was incumbent
upon Sevillejo to obtain the required hot work safety permit before starting
the work he did, including that done on Deck A where the fire started.
Fifth. There was a lapse in KCSI’s supervision of Sevillejo’s work at the time
the fire broke out.
It was established that no hot works could be hidden from or remain
undetected by KCSI because the welding cables and the gas hoses
emanating from the dock would give the hot works away. Moreover, KCSI
had roving fire watchmen and safety assistants who were moving around
the vessel.36 This was confirmed by Restituto Rebaca (Rebaca), KCSI’s Safety
Supervisor, who actually spotted Sevillejo on Deck A, two hours before the
fire, doing his cutting work without a hot work permit, a fire watchman, or a
fire extinguisher. KCSI contends that it did its duty when it prohibited
Sevillejo from continuing the hot work. However, it is noteworthy that, after
purportedly scolding Sevillejo for working without a permit and telling him
to stop until the permit was acquired and the other safety measures were
observed, Rebaca left without pulling Sevillejo out of the work area or
making sure that the latter did as he was told. Unfortunately for KCSI,
Sevillejo reluctantly proceeded with his cutting of the bulkhead door at
Deck A after Rebaca left, even disregarding the 4-inch marking set, thus
cutting the door level with the deck, until the fire broke out.
This conclusion on the failure of supervision by KCSI was absolutely
supported by Dr. Eric Mullen of the Dr. J.H. Burgoyne & Partners
(International) Ltd., Singapore, KCSI’s own fire expert, who observed that—
4.3. The foregoing would be compounded by Angelino Sevillejo being an
electric arc welder, not a cutter. The dangers of ignition occurring as a result
of the two processes are similar in that both electric arc welding and hot
cutting produce heat at the work area and sparks and incendive material
that can travel some distance from the work area. Hence, the safety
precautions that are expected to be applied by the supervisor are the same
for both types of work. However, the quantity and incendivity of the spray
from the hot cutting are much greater than those of sparks from electric arc
welding, and it may well be that Angelino Sevillejo would not have a full
appreciation of the dangers involved. This made it all the more important
that the supervisor, who should have had such an appreciation, ensured
that the appropriate safety precautions were carried out.37
In this light, therefore, Sevillejo, being one of the specially trained welders
specifically authorized by KCSI to do the hot works on M/V "Superferry 3" to
the exclusion of other workers, failed to comply with the strict safety
standards of KCSI, not only because he worked without the required permit,
fire watch, fire buckets, and extinguishers, but also because he failed to
undertake other precautionary measures for preventing the fire. For
instance, he could have, at the very least, ensured that whatever
combustible material may have been in the vicinity would be protected
from the sparks caused by the welding torch. He could have easily removed
the life jackets from the ceiling void, as well as the foam mattresses, and
covered any holes where the sparks may enter.
Conjunctively, since Rebaca was already aware of the hazard, he should
have taken all possible precautionary measures, including those above
mentioned, before allowing Sevillejo to continue with his hot work on Deck
A. In addition to scolding Sevillejo, Rebaca merely checked that no fire had
started yet. Nothing more. Also, inasmuch as KCSI had the power to
substitute Sevillejo with another electric arc welder, Rebaca should have
replaced him.
There is negligence when an act is done without exercising the competence
that a reasonable person in the position of the actor would recognize as
necessary to prevent an unreasonable risk of harm to another. Those who
undertake any work calling for special skills are required to exercise
reasonable care in what they do.38 Verily, there is an obligation all persons
have – to take due care which, under ordinary circumstances of the case, a
reasonable and prudent man would take. The omission of that care
constitutes negligence. Generally, the degree of care required is graduated
according to the danger a person or property may be subjected to, arising
from the activity that the actor pursues or the instrumentality that he uses.
The greater the danger, the greater the degree of care required.
Extraordinary risk demands extraordinary care. Similarly, the more
imminent the danger, the higher degree of care warranted. 39 In this aspect,
KCSI failed to exercise the necessary degree of caution and foresight called
for by the circumstances.
We cannot subscribe to KCSI’s position that WG&A, through Dr. Joniga, was
negligent.
On the one hand, as discussed above, Dr. Joniga had authority to request
the performance of hot works in the other areas of the vessel. These hot
works were deemed included in the January 26, 2000 Work Order and the
Shiprepair Agreement. In the exercise of this authority, Dr. Joniga asked
Sevillejo to do the cutting of the bulkhead door near the staircase of Deck A.
KCSI was aware of what Sevillejo was doing, but failed to supervise him with
the degree of care warranted by the attendant circumstances.
Neither can Dr. Joniga be faulted for not removing the life jackets from the
ceiling void for two reasons – (1) the life jackets were not even contributory
to the occurrence of the fire; and (2) it was not incumbent upon him to
remove the same. It was shown during the hearings before the CIAC that
the removal of the life jackets would not have made much of a difference.
The fire would still have occurred due to the presence of other combustible
materials in the area. This was the uniform conclusion of both
WG&A’s40 and KCSI’s41 fire experts. It was also proven during the CIAC
proceedings that KCSI did not see the life jackets as being in the way of the
hot works, thus, making their removal from storage unnecessary. 42
These circumstances, taken collectively, yield the inevitable conclusion that
Sevillejo was negligent in the performance of his assigned task. His
negligence was the proximate cause of the fire on board M/V "Superferry
3." As he was then definitely engaged in the performance of his assigned
tasks as an employee of KCSI, his negligence gave rise to the vicarious
liability of his employer43 under Article 2180 of the Civil Code, which
provides—
Art. 2180. The obligation imposed by article 2176 is demandable not only
for one’s own act or omission, but also for those of persons for whom one is
responsible.
xxxx
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even
though the former are not engaged in any business or industry.
xxxx
The responsibility treated of in this article shall cease when the persons
herein mentioned prove that they observed all the diligence of a good
father of a family to prevent damage.
KCSI failed to prove that it exercised the necessary diligence incumbent
upon it to rebut the legal presumption of its negligence in supervising
Sevillejo.44 Consequently, it is responsible for the damages caused by the
negligent act of its employee, and its liability is primary and solidary. All that
is needed is proof that the employee has, by his negligence, caused damage
to another in order to make the employer responsible for the tortuous act
of the former.45 From the foregoing disquisition, there is ample proof of the
employee’s negligence.
B. The right of subrogation
Pioneer asseverates that there existed a total constructive loss so that it
had to pay WG&A the full amount of the insurance coverage and, by
operation of law, it was entitled to be subrogated to the rights of WG&A to
claim the amount of the loss. It further argues that the limitation of liability
clause found in the Shiprepair Agreement is null and void for being
iniquitous and against public policy.
KCSI counters that a total constructive loss was not adequately proven by
Pioneer, and that there is no proof of payment of the insurance proceeds.
KCSI insists on the validity of the limited-liability clause up to
₱50,000,000.00, because WG&A acceded to the provision when it executed
the Shiprepair Agreement. KCSI also claims that the salvage value of the
vessel should be deducted from whatever amount it will be made to pay to
Pioneer.
We find in favor of Pioneer, subject to the claim of KCSI as to the salvage
value of M/V "Superferry 3."
In marine insurance, a constructive total loss occurs under any of the
conditions set forth in Section 139 of the Insurance Code, which provides—
Sec. 139. A person insured by a contract of marine insurance may abandon
the thing insured, or any particular portion hereof separately valued by the
policy, or otherwise separately insured, and recover for a total loss thereof,
when the cause of the loss is a peril insured against:
 (a) If more than three-fourths thereof in value is actually
lost, or would have to be expended to recover it from
the peril;
(b) If it is injured to such an extent as to reduce its value
more than three-fourths; x x x.
It appears, however, that in the execution of the insurance policies over
M/V "Superferry 3," WG&A and Pioneer incorporated by reference the
American Institute Hull Clauses 2/6/77, the Total Loss Provision of which
reads—
Total Loss
In ascertaining whether the Vessel is a constructive Total Loss the Agreed
Value shall be taken as the repaired value and nothing in respect of the
damaged or break-up value of the Vessel or wreck shall be taken into
account.
There shall be no recovery for a constructive Total Loss hereunder unless
the expense of recovering and repairing the Vessel would exceed the
Agreed Value in policies on Hull and Machinery. In making this
determination, only expenses incurred or to be incurred by reason of a
single accident or a sequence of damages arising from the same accident
shall be taken into account, but expenses incurred prior to tender of
abandonment shall not be considered if such are to be claimed separately
under the Sue and Labor clause. x x x.
In the course of the arbitration proceedings, Pioneer adduced in evidence
the estimates made by three (3) disinterested and qualified shipyards for
the cost of the repair of the vessel, specifically: (a) ₱296,256,717.00, based
on the Philippine currency equivalent of the quotation dated April 17, 2000
turned in by Tsuneishi Heavy Industries (Cebu) Inc.; (b) ₱309,780,384.15,
based on the Philippine currency equivalent of the quotation of Sembawang
Shipyard Pte. Ltd., Singapore; and (c) ₱301,839,974.00, based on the
Philippine currency equivalent of the quotation of Singapore Technologies
Marine Ltd. All the estimates showed that the repair expense would exceed
₱270,000,000.00, the amount equivalent to ¾ of the vessel’s insured value
of ₱360,000,000.00. Thus, WG&A opted to abandon M/V "Superferry 3"
and claimed from Pioneer the full amount of the policies. Pioneer paid
WG&A’s claim, and now demands from KCSI the full amount of
₱360,000,000.00, by virtue of subrogation.1avvphi1
KCSI denies the liability because, aside from its claim that it cannot be held
culpable for negligence resulting in the destructive fire, there was no
constructive total loss, as the amount of damage was only US$3,800,000.00
or ₱170,611,260.00, the amount of repair expense quoted by Simpson,
Spence & Young.
In the face of this apparent conflict, we hold that Section 139 of the
Insurance Code should govern, because (1) Philippine law is deemed
incorporated in every locally executed contract; and (2) the marine
insurance policies in question expressly provided the following:
IMPORTANT
This insurance is subject to English jurisdiction, except in the event that loss
or losses are payable in the Philippines, in which case if the said laws and
customs of England shall be in conflict with the laws of the Republic of the
Philippines, then the laws of the Republic of the Philippines shall
govern.(Underscoring supplied.)
The CA held that Section 139 of the Insurance Code is merely permissive on
account of the word "may" in the provision. This is incorrect. Properly
considered, the word "may" in the provision is intended to grant the
insured (WG&A) the option or discretion to choose the abandonment of the
thing insured (M/V "Superferry 3"), or any particular portion thereof
separately valued by the policy, or otherwise separately insured, and
recover for a total loss when the cause of the loss is a peril insured against.
This option or discretion is expressed as a right in Section 131 of the same
Code, to wit:
Sec. 131. A constructive total loss is one which gives to a person insured a
right to abandon under Section one hundred thirty-nine.
It cannot be denied that M/V "Superferry 3" suffered widespread damage
from the fire that occurred on February 8, 2000, a covered peril under the
marine insurance policies obtained by WG&A from Pioneer. The estimates
given by the three disinterested and qualified shipyards show that the
damage to the ship would exceed ₱270,000,000.00, or ¾ of the total value
of the policies – ₱360,000,000.00. These estimates constituted credible and
acceptable proof of the extent of the damage sustained by the vessel. It is
significant that these estimates were confirmed by the Adjustment Report
dated June 5, 2000 submitted by Richards Hogg Lindley (Phils.), Inc., the
average adjuster that Pioneer had enlisted to verify and confirm the extent
of the damage. The Adjustment Report verified and confirmed that the
damage to the vessel amounted to a constructive total loss and that the
claim for ₱360,000,000.00 under the policies was compensable.46 It is also
noteworthy that KCSI did not cross-examine Henson Lim, Director of
Richards Hogg, whose affidavit-direct testimony submitted to the CIAC
confirmed that the vessel was a constructive total loss.
Considering the extent of the damage, WG&A opted to abandon the ship
and claimed the value of its policies. Pioneer, finding the claim
compensable, paid the claim, with WG&A issuing a Loss and Subrogation
Receipt evidencing receipt of the payment of the insurance proceeds from
Pioneer. On this note, we find as unacceptable the claim of KCSI that there
was no ample proof of payment simply because the person who signed the
Receipt appeared to be an employee of Aboitiz Shipping Corporation.47 The
Loss and Subrogation Receipt issued by WG&A to Pioneer is the best
evidence of payment of the insurance proceeds to the former, and no
controverting evidence was presented by KCSI to rebut the presumed
authority of the signatory to receive such payment.
On the matter of subrogation, Article 2207 of the Civil Code provides—
Art. 2207. If the plaintiff’s property has been insured and he has received
indemnity from the insurance company for the injury or loss arising out of
the wrong or breach of contract complained of, the insurance company
shall be subrogated to the rights of the insured against the wrongdoer or
the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency from the person causing the
loss or injury.
Subrogation is the substitution of one person by another with reference to
a lawful claim or right, so that he who is substituted succeeds to the rights
of the other in relation to a debt or claim, including its remedies or
securities. The principle covers a situation wherein an insurer has paid a loss
under an insurance policy is entitled to all the rights and remedies
belonging to the insured against a third party with respect to any loss
covered by the policy. It contemplates full substitution such that it places
the party subrogated in the shoes of the creditor, and he may use all means
that the creditor could employ to enforce payment.48
We have held that payment by the insurer to the insured operates as an
equitable assignment to the insurer of all the remedies that the insured
may have against the third party whose negligence or wrongful act caused
the loss. The right of subrogation is not dependent upon, nor does it grow
out of, any privity of contract. It accrues simply upon payment by the
insurance company of the insurance claim. The doctrine of subrogation has
its roots in equity. It is designed to promote and to accomplish justice; and
is the mode that equity adopts to compel the ultimate payment of a debt by
one who, in justice, equity, and good conscience, ought to pay.49
We cannot accept KCSI’s insistence on upholding the validity Clause 20,
which provides that the limit of its liability is only up to ₱50,000,000.00; nor
of Clause 22(a), that KCSI stands as a co-assured in the insurance policies, as
found in the Shiprepair Agreement.
Clauses 20 and 22(a) of the Shiprepair Agreement are without factual and
legal foundation. They are unfair and inequitable under the premises. It was
established during arbitration that WG&A did not voluntarily and expressly
agree to these provisions. Engr. Elvin F. Bello, WG&A’s fleet manager,
testified that he did not sign the fine-print portion of the Shiprepair
Agreement where Clauses 20 and 22(a) were found, because he did not
want WG&A to be bound by them. However, considering that it was only
KCSI that had shipyard facilities large enough to accommodate the dry
docking and repair of big vessels owned by WG&A, such as M/V "Superferry
3," in Cebu, he had to sign the front portion of the Shiprepair Agreement;
otherwise, the vessel would not be accepted for dry docking. 50
Indeed, the assailed clauses amount to a contract of adhesion imposed on
WG&A on a "take-it-or-leave-it" basis. A contract of adhesion is so-called
because its terms are prepared by only one party, while the other party
merely affixes his signature signifying his adhesion thereto. Although not
invalid, per se, a contract of adhesion is void when the weaker party is
imposed upon in dealing with the dominant bargaining party, and its option
is reduced to the alternative of "taking it or leaving it," completely depriving
such party of the opportunity to bargain on equal footing.51
Clause 20 is also a void and ineffectual waiver of the right of WG&A to be
compensated for the full insured value of the vessel or, at the very least, for
its actual market value. There was clearly no intention on the part of WG&A
to relinquish such right. It is an elementary rule that a waiver must be
positively proved, since a waiver by implication is not normally
countenanced. The norm is that a waiver must not only be voluntary, but
must have been made knowingly, intelligently, and with sufficient
awareness of the relevant circumstances and likely consequences. There
must be persuasive evidence to show an actual intention to relinquish the
right.52 This has not been demonstrated in this case.
Likewise, Clause 20 is a stipulation that may be considered contrary to
public policy. To allow KCSI to limit its liability to only ₱50,000,000.00,
notwithstanding the fact that there was a constructive total loss in the
amount of ₱360,000,000.00, would sanction the exercise of a degree of
diligence short of what is ordinarily required. It would not be difficult for a
negligent party to escape liability by the simple expedient of paying an
amount very much lower than the actual damage or loss sustained by the
other.53
Along the same vein, Clause 22(a) cannot be upheld. The intention of the
parties to make each other a co-assured under an insurance policy is to be
gleaned principally from the insurance contract or policy itself and not from
any other contract or agreement, because the insurance policy
denominates the assured and the beneficiaries of the insurance contract.
Undeniably, the hull and machinery insurance procured by WG&A from
Pioneer named only the former as the assured. There was no manifest
intention on the part of WG&A to constitute KCSI as a co-assured under the
policies. To have deemed KCSI as a co-assured under the policies would
have had the effect of nullifying any claim of WG&A from Pioneer for any
loss or damage caused by the negligence of KCSI. No ship owner would
agree to make a ship repairer a co-assured under such insurance policy.
Otherwise, any claim for loss or damage under the policy would be
rendered nugatory. WG&A could not have intended such a result. 54
Nevertheless, we concur with the position of KCSI that the salvage value of
the damaged M/V "Superferry 3" should be taken into account in the grant
of any award. It was proven before the CIAC that the machinery and the hull
of the vessel were separately sold for ₱25,290,000.00 (or US$468,333.33)
and US$363,289.50, respectively. WG&A’s claim for the upkeep of the
wreck until the same were sold amounts to ₱8,521,737.75 (or
US$157,809.96), to be deducted from the proceeds of the sale of the
machinery and the hull, for a net recovery of US$673,812.87, or equivalent
to ₱30,252,648.09, at ₱44.8977/$1, the prevailing exchange rate when the
Request for Arbitration was filed. Not considering this salvage value in the
award would amount to unjust enrichment on the part of Pioneer.
C. On the imposition of interest
Pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of
Appeals,55 the award in favor of Pioneer in the amount of ₱350,146,786.89
should earn interest at 6% per annum from the filing of the case until the
award becomes final and executory. Thereafter, the rate of interest shall be
12% per annum from the date the award becomes final and executory until
its full satisfaction.
D. On the payment for the cost of arbitration
It is only fitting that both parties should share in the burden of the cost of
arbitration, on a pro rata basis. We find that Pioneer had a valid reason to
institute a suit against KCSI, as it believed that it was entitled to claim
reimbursement of the amount it paid to WG&A. However, we disagree with
Pioneer that only KCSI should shoulder the arbitration costs. KCSI cannot be
faulted for defending itself for perceived wrongful acts and conditions.
Otherwise, we would be putting a price on the right to litigate on the part of
Pioneer.
WHEREFORE, the Petition of Pioneer Insurance and Surety Corporation in
G.R. No. 180896-97 and the Petition of Keppel Cebu Shipyard, Inc. in G.R.
No. 180880-81 are PARTIALLY GRANTED and the Amended Decision dated
December 20, 2007 of the Court of Appeals is MODIFIED. Accordingly, KCSI
is ordered to pay Pioneer the amount of ₱360,000,000.00 less
₱30,252,648.09, equivalent to the salvage value recovered by Pioneer from
M/V "Superferry 3," or the net total amount of ₱329,747,351.91, with six
percent (6%) interest per annum reckoned from the time the Request for
Arbitration was filed until this Decision becomes final and executory, plus
twelve percent (12%) interest per annum on the said amount or any
balance thereof from the finality of the Decision until the same will have
been fully paid. The arbitration costs shall be borne by both parties on a pro
rata basis. Costs against KCSI.
SO ORDERED.