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Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 96283 February 25, 1992

CHUNG FU INDUSTRIES (PHILIPPINES) INC., its Directors and Officers namely:


HUANG KUO-CHANG, HUANG AN-CHUNG, JAMES J.R. CHEN, TRISTAN A.
CATINDIG, VICENTE B. AMADOR, ROCK A.C. HUANG, JEM S.C. HUANG, MARIA
TERESA SOLIVEN and VIRGILIO M. DEL ROSARIO, petitioners,

vs.

COURT OF APPEALS, HON. FRANCISCO X. VELEZ (Presiding Judge, Regional Trail


Court of Makati [Branch 57]) and ROBLECOR PHILIPPINES, INC., respondents.

ROMERO, J.:

This is a special civil action for certiorari seeking to annul the Resolutions of the Court of
Appeals* dated October 22, 1990 and December 3, 1990 upholding the Orders of July 31,
1990 and August 23, 1990 of the Regional Trial Court of Makati, Branch 57, in Civil Case
No. 90-1335. Respondent Court of Appeals affirmed the ruling of the trial court that herein
petitioners, after submitting themselves for arbitration and agreeing to the terms and
conditions thereof, providing that the arbitration award shall be final and unappealable,
are precluded from seeking judicial review of subject arbitration award.

It appears that on May 17, 1989, petitioner Chung Fu Industries (Philippines) (Chung Fu
for brevity) and private respondent Roblecor Philippines, Inc. (Roblecor for short) forged a
construction agreement whereby respondent contractor committed to construct and finish
1

on December 31, 1989, petitioner corporation's industrial/factory complex in Tanawan,


Tanza, Cavite for and in consideration of P42,000,000.00. 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.

Apart from the aforesaid construction agreement, Chung Fu and Roblecor entered into
two (2) other ancillary contracts, to wit: one dated June 23, 1989, for the construction of a
dormitory and support facilities with a contract price of P3,875,285.00, to be completed on
or before October 31, 1989; and the other dated August 12, 1989, for the installation of
2
electrical, water and hydrant systems at the plant site, commanding a price of P12.1
million and requiring completion thereof one month after civil works have been finished. 3

However, respondent Roblecor failed to complete the work despite the extension of time
allowed it by Chung Fu. Subsequently, the latter had to take over the construction when it
had become evident that Roblecor was not in a position to fulfill its obligation.

Claiming an unsatisfied account of P10,500,000.00 and unpaid progress billings of


P2,370,179.23, Roblecor on May 18, 1990, filed a petition for Compulsory Arbitration with
prayer for Temporary Restraining Order before respondent Regional Trial Court, pursuant
to the arbitration clause in the construction agreement. 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:

2. The parties mutually agree that the arbitration shall proceed in accordance with the
following terms and conditions: —

xxx xxx xxx

d. The parties mutually agree that they will abide by the decision of the arbitrator including
any amount that may be awarded to either party as compensation, consequential damage
and/or interest thereon;

e. 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.

f. As an exception to sub-paragraph (e) above, the parties mutually agree that either party
is entitled to seek judicial assistance for purposes of enforcing the arbitrator's award;
Only for this purpose
xxx xxx xxx 4

(Emphasis supplied)

Respondent Regional Trial Court approved the arbitration agreement thru its Order of May
30, 1990. Thereafter, Engr. Willardo Asuncion was appointed as the sole arbitrator.

On June 30, 1990, Arbitrator Asuncion ordered petitioners to immediately pay respondent
contractor, the sum of P16,108,801.00. He further declared the award as final and
unappealable, pursuant to the Arbitration Agreement precluding judicial review of the
award.

Consequently, Roblecor moved for the confirmation of said award. On the other hand,
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.

Respondent lower court denied Chung Fu's Motion to Remand thus compelling it to seek
reconsideration therefrom but to no avail. The trial court granted Roblecor's Motion for
Confirmation of Award and accordingly, entered judgment in conformity therewith.
Moreover, it granted the motion for the issuance of a writ of execution filed by respondent.

Chung Fu elevated the case via a petition for certiorari to respondent Court of Appeals.
On October 22,1990 the assailed resolution was issued. The respondent appellate court
concurred with the findings and conclusions of respondent trial court resolving that Chung
Fu and its officers, as signatories to the Arbitration Agreement are bound to observe the
stipulations thereof providing for the finality of the award and precluding any appeal
therefrom.

A motion for reconsideration of said resolution was filed by petitioner, but it was similarly
denied by respondent Court of Appeals thru its questioned resolution of December 3,
1990.

Hence, the instant petition anchored on the following grounds:

First

Respondents Court of Appeals and trial Judge gravely abused their discretion and/or
exceeded their jurisdiction, as well as denied due process and substantial justice to
petitioners, — (a) by refusing to exercise their judicial authority and legal duty to review
the arbitration award, and (b) by declaring that 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."

Second

Respondent Court of Appeals and trial Judge gravely abused their discretion and/or
exceeded their jurisdiction, as well as denied due process and substantial justice to
petitioner, by not vacating and annulling the award dated 30 June 1990 of the Arbitrator, on
the ground that the Arbitrator grossly departed from the terms of the parties' contracts and
misapplied the law, and thereby exceeded the authority and power delegated to him.
(Rollo, p. 17)

Allow us to take a leaf from history and briefly trace the evolution of arbitration as a mode
of dispute settlement.
Because conflict is inherent in human society, much effort has been expended by men
and institutions in devising ways of resolving the same. With the progress of civilization,
physical combat has been ruled out and instead, more specific means have been evolved,
such as recourse to the good offices of a disinterested third party, whether this be a court
or a private individual or individuals.

Legal history discloses that "the early judges called upon to solve private conflicts were
primarily the arbiters, persons not specially trained but in whose morality, probity and
good sense the parties in conflict reposed full trust. Thus, in Republican
Rome, arbiter and judge(judex) were synonymous. The magistrate or praetor, after noting
down the conflicting claims of litigants, and clarifying the issues, referred them for decision
to a private person designated by the parties, by common agreement, or selected by them
from an apposite listing (the album judicium) or else by having the arbiter chosen by lot.
The judges proper, as specially trained state officials endowed with own power and
jurisdiction, and taking cognizance of litigations from beginning to end, only appeared
under the Empire, by the so-called cognitio extra ordinem." 5

Such means of referring a dispute to a third party has also long been an accepted
alternative to litigation at common law. 6

Sparse though the law and jurisprudence may be on the subject of arbitration in the
Philippines, it was nonetheless recognized in the Spanish Civil Code; specifically, the
provisions on compromises made applicable to arbitrations under Articles 1820 and
1821. Although said provisions were repealed by implication with the repeal of the
7

Spanish Law of Civil Procedure, 8 these and additional ones were reinstated in the present Civil Code.
9

Arbitration found a fertile field in the resolution of labor-management disputes in the


Philippines. Although early on, Commonwealth Act 103 (1936) provided for compulsory
arbitration as the state policy to be administered by the Court of Industrial Relations, in
time such a modality gave way to voluntary arbitration. While not completely supplanting
compulsory arbitration which until today is practiced by government officials, the Industrial
Peace Act which was passed in 1953 as Republic Act No. 875, favored the policy of free
collective bargaining, in general, and resort to grievance procedure, in particular, as the
preferred mode of settling disputes in industry. It was accepted and enunciated more
explicitly in the Labor Code, which was passed on November 1, 1974 as Presidential
Decree No. 442, with the amendments later introduced by Republic Act No. 6715 (1989).

Whether utilized in business transactions or in employer-employee relations, arbitration


was gaining wide acceptance. A consensual process, it was preferred to orders imposed
by government upon the disputants. Moreover, court litigations tended to be
time-consuming, costly, and inflexible due to their scrupulous observance of the due
process of law doctrine and their strict adherence to rules of evidence.

As early as the 1920's, this Court declared:


In the Philippines fortunately, the attitude of the courts toward arbitration agreements is
slowly crystallizing into definite and workable form. . . . The rule now is that unless the
agreement is such as absolutely to close the doors of the courts against the parties, which
agreement would be void, the courts will look with favor upon such amicable
arrangements and will only with great reluctance interfere to anticipate or nullify the action
of the arbitrator.
10

That there was a growing need for a law regulating arbitration in general was
acknowledged when Republic Act No. 876 (1953), otherwise known as the Arbitration Law,
was passed. "Said Act was obviously adopted to
supplement — not to supplant — the New Civil Code on arbitration. It expressly declares
that "the provisions of chapters one and two, Title XIV, Book IV of the Civil Code shall
remain in force." 11

In recognition of the pressing need for an arbitral machinery for the early and expeditious
settlement of disputes in the construction industry, a Construction Industry Arbitration
Commission (CIAC) was created by Executive Order No. 1008, enacted on February 4,
1985.

In practice nowadays, absent an agreement of the parties to resolve their disputes via a
particular mode, it is the regular courts that remain the fora to resolve such matters.
However, the parties may opt for recourse to third parties, exercising their basic freedom
to "establish such stipulation, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order or public
policy." In such a case, resort to the arbitration process may be spelled out by them in a
12

contract in anticipation of disputes that may arise between them. Or this may be stipulated
in a submission agreement when they are actually confronted by a dispute. Whatever be
the case, such recourse to an extrajudicial means of settlement is not intended to
completely deprive the courts of jurisdiction. In fact, the early cases on arbitration carefully
spelled out the prevailing doctrine at the time, thus: ". . . a clause in a contract providing
that all matters in dispute between the parties shall be referred to arbitrators and to them
alone is contrary to public policy and cannot oust the courts of Jurisdiction." 13

But certainly, the stipulation to refer all future disputes to an arbitrator or to submit an
ongoing dispute to one is valid. Being part of a contract between the parties, it is binding
and enforceable in court in case one of them neglects, fails or refuses to arbitrate. Going a
step further, in the event that they declare their intention to refer their differences to
arbitration first before taking court action, this constitutes a condition precedent, such that
where a suit has been instituted prematurely, the court shall suspend the same and the
parties shall be directed forthwith to proceed to arbitration.14

A court action may likewise be proven where the arbitrator has not been selected by the
parties.15
Issue
Under present law, may the parties who agree to submit their disputes to arbitration
further provide that the arbitrators' award shall be final, unappealable and executory?

Article 2044 of the Civil Code recognizes the validity of such stipulation, thus:

Any stipulation that the arbitrators' award or decision shall be final is valid, without
prejudice to Articles 2038, 2039 and 2040.

Similarly, the Construction Industry Arbitration Law provides that the arbitral award "shall
be final and inappealable except on questions of law which shall be appealable to the
Supreme Court." 16

Under the original Labor Code, voluntary arbitration awards or decisions were final,
unappealable and executory. "However, voluntary arbitration awards or decisions on
money claims, involving an amount exceeding One Hundred Thousand Pesos
(P100,000.00) or forty-percent (40%) of the paid-up capital of the respondent employer,
whichever is lower, maybe appealed to the National Labor Relations Commission on any
of the following grounds: (a) abuse of discretion; and (b) gross incompetence." It is to be 17

noted that the appeal in the instances cited were to be made to the National Labor
Relations Commission and not to the courts.

With the subsequent deletion of the above-cited provision from the Labor Code, the
voluntary arbitrator is now mandated to render an award or decision within twenty (20)
calendar days from the date of submission of the dispute and such decision shall be final
and executory after ten (10) calendar days from receipt of the copy of the award or
decision by the parties. 18

Where the parties agree that the decision of the arbitrator shall be final and unappealable
as in the instant case, the pivotal inquiry is whether subject arbitration award is indeed
beyond the ambit of the court's power of judicial review.
No, the arbitration award is not beyond the ambit of the court’s
power of judicial review.
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
19

grounds for vacating, modifying or rescinding an arbitrator's award. Thus, if and when the
20

factual circumstances referred to in the above-cited provisions are present, judicial review
of the award is properly warranted.

What if courts refuse or neglect to inquire into the factual milieu of an arbitrator's award to
determine whether it is in accordance with law or within the scope of his authority? How
may the power of judicial review be invoked?
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. For "the writ of certiorari is an extra-ordinary remedy and that
certiorari jurisdiction is not to be equated with appellate jurisdiction. In a special civil action
of certiorari, the Court will not engage in a review of the facts found nor even of the law as
interpreted or applied by the arbitrator unless the supposed errors of fact or of law are so
patent and gross and prejudicial as to amount to a grave abuse of discretion or an exces
de pouvoir on the part of the arbitrator." 21

Even decisions of administrative agencies which are declared "final" by law are not
exempt from judicial review when so warranted. Thus, in the case of Oceanic Bic Division
(FFW), et al. v. Flerida Ruth P. Romero, et al., this Court had occasion to rule that:
22

. . . Inspite of statutory provisions making "final" the decisions of certain administrative


agencies, we have taken cognizance of petitions questioning these decisions where want
of jurisdiction, grave abuse of discretion, violation of due process, denial of substantial
justice or erroneous interpretation of the law were brought to our attention . . . (Emphasis
23

ours).

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
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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:

1. The Honorable Arbitrator committed grave error in failing to apply the terms and
conditions of the Construction Agreement, Dormitory Contract and Electrical Contract,
and in using instead the "practices" in the construction industry;

2. The Honorable Arbitrator committed grave error in granting extra compensation to


Roblecor for loss of productivity due to adverse weather conditions;

3. The Honorable Arbitrator committed grave error in granting extra compensation to


Roblecor for loss due to delayed payment of progress billings;

4. The Honorable Arbitrator committed grave error in granting extra compensation to


Roblecor for loss of productivity due to the cement crisis;

5. The Honorable Arbitrator committed grave error in granting extra compensation to


Roblecor for losses allegedly sustained on account of the failed coup d'état;
6. The Honorable Arbitrator committed grave error in granting to Roblecor the amount
representing the alleged unpaid billings of Chung Fu;

7. The Honorable Arbitrator committed grave error in granting to Roblecor the amount
representing the alleged extended overhead expenses;

8. The Honorable Arbitrator committed grave error in granting to Roblecor the amount
representing expenses for change order for site development outside the area of
responsibility of Roblecor;

9. The Honorable Arbitrator committed grave error in granting to Roblecor the cost of
warehouse No. 2;

10. The Honorable Arbitrator committed grave error in granting to Roblecor extra
compensation for airduct change in dimension;

11. The Honorable Arbitrator committed grave error in granting to Roblecor extra
compensation for airduct plastering; and

12. The Honorable Arbitrator committed grave error in awarding to Roblecor attorney's
fees.

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, we find that petitioners have amply made out a case
where the voluntary 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.

But the respondent trial court's refusal to look into the merits of the case, despite prima
facie showing of the existence of grounds warranting judicial review, effectively deprived
petitioners of their opportunity to prove or substantiate their allegations. In so doing, the
trial court itself committed grave abuse of discretion. Likewise, the appellate court, in not
giving due course to the petition, committed grave abuse of discretion. Respondent courts
should not shirk from exercising their power to review, where under the applicable laws
and jurisprudence, such power may be rightfully exercised; more so where the objections
raised against an arbitration award may properly constitute grounds for annulling, vacating
or modifying said award under the laws on arbitration.

WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated
October 22, 1990 and December 3, 1990 as well as the Orders of respondent Regional
Trial Court dated July 31, 1990 and August 23, 1990, including the writ of execution issued
pursuant thereto, 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. No costs.

SO ORDERED.

Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. L-6339 April 20, 1954

MANUEL LARA, ET AL., plaintiffs-appellants,


vs.
PETRONILO DEL ROSARIO, JR., defendant-appellee.

Manansala and Manansala for appellants.


Ramon L. Resurreccion for appellee.

MONTEMAYOR, J.:

In 1950 defendant Petronilo del Rosario, Jr., owner of twenty-five taxi cabs or cars,
operated a taxi business under the name of "Waval Taxi." He employed among others
three mechanics and 49 chauffeurs or drivers, the latter having worked for periods ranging
from 2 to 37 months. On September 4, 1950, without giving said mechanics and chauffeurs
30 days advance notice, Del Rosario sold his 25 units or cabs to La Mallorca, a
transportation company, as a result of which, according to the mechanics and chauffeurs
above-mentioned they lost their jobs because the La Mallorca failed to continue them in
their employment. They brought this action against Del Rosario to recover compensation
for overtime work rendered beyond eight hours and on Sundays and legal holidays, and
one month salary (mesada) provided for in article 302 of the Code of Commerce because
the failure of their former employer to give them one month notice. Subsequently, the
three mechanics unconditionally withdrew their claims. So only the 49 drivers remained as
plaintiffs. The defendant filed a motion for dismissal of the complaint on the ground that it
stated no cause of action and the trial court for the time being denied the motion saying
that it will be considered when the case was heard on the merits. After trial the complaint
was dismissed. Plaintiffs appealed from the order of dismissal to the Court of Appeals
which Tribunal after finding only questions of law are involved, certified the case to us.

The parties are agreed that the plaintiffs as chauffeurs received no fixed compensation
based on the hours or the period of time that they worked. Rather, they were paid on the
commission basis, that is to say, each driver received 20 per cent of the gross returns or
earnings from the operation of his taxi cab. Plaintiffs claim that as a rule, each drive
operated a taxi 12 hours a day with gross earnings ranging from P20 to P25, receiving
therefrom the corresponding 20 per cent share ranging from P4 to P5, and that in some
cases, especially during Saturdays, Sundays, and holidays when a driver worked 24 hours
a day he grossed from P40 to P50, thereby receiving a share of from P8 to P10 for the
period of twenty-four hours.

The reason given by the trial court in dismissing the complaint is that the defendant being
engaged in the taxi or transportation business which is a public utility, came under the
exception provided by the Eight-Hour Labor Law (Commonwealth Act No. 444); and
because plaintiffs did not work on a salary basis, that is to say, they had no fixed or
regular salary or remuneration other than the 20 per cent of their gross earnings "their
situation was therefore practically similar to piece workers and hence, outside the ambit of
article 302 of the Code of Commerce."

For purposes of reference we are reproducing the pertinent provisions of the Eight-Hour
Labor Law, namely, sections 1 to 4.

SECTION 1. The legal working day for any person employed by another shall not be more
than eight hours daily. When the work is not continuous, the time during which the laborer
is not working and can leave his working place and can rest completely shall not be
counted.

SEC. 2. This Act shall apply to all persons employed in any industry or occupation,
whether public or private, with the exception of farm laborers, laborers who prefer to be
paid on piece work basis, domestic servants and persons in the personal service of
another and members of the family of the employer working for him.

SEC. 3. Work may be performed beyond eight hours a day in case of actual or impending
emergencies, caused by serious accidents, fire flood, typhoon, earthquakes, epidemic, or
other disaster or calamity in order to prevent loss of life and property or imminent danger
to public safety; or in case of urgent work to be performed on the machines, equipment, or
installations in order to avoid a serious loss which the employer would otherwise suffer, or
some other just cause of a similar nature; but in all cases the laborers and the employees
shall be entitled to receive compensation for the overtime work performed at the same
rate as their regular wages or salary, plus at least twenty-five per centum additional.
In case of national emergency the Government is empowered to establish rules and
regulations for the operation of the plants and factories and to determine the wages to be
paid the laborers.

SEC. 4. No person, firm, or corporation, business establishment or place or center of work


shall compel an employee or laborer to work during Sundays and legal holidays, unless
he is paid an additional sum of at least twenty-five per centum of his regular
remuneration: Provided however, That this prohibition shall not apply to public utilities
performing some public service such as supplying gas, electricity, power, water, or
providing means of transportation or communication.

Under section 4, as a public utility, the defendant could have his chauffeurs work on
Sundays and legal holidays without paying them an additional sum of at least 25 per cent
of their regular remuneration: but that with reference only to work performed on Sundays
and holidays. If the work done on such days exceeds 8 hours a day, then the Eight-Hour
Labor Law would operate, provided of course that plaintiffs came under section 2 of the
said law. So that the question to be decided here is whether or not plaintiffs are entitled to
extra compensation for work performed in excess of 8 hours a day, Sundays and holidays
included.

It will be noticed that the last part of section 3 of Commonwealth Act 444 provides for extra
compensation for over-time work "at the same rate as their regular wages or salary, plus
at least twenty-five per centum additional'" and that section 2 of the same act excludes
application thereof laborers who preferred to be on piece work basis. This connotes that a
laborer or employee with no fixed salary, wages or remuneration but receiving as
compensation from his employer uncertain and variable amount depending upon the work
done or the result of said work (piece work) irrespective of the amount of time employed,
is not covered by the Eight-Hour Labor Law and is not entitled to extra compensation
should he work in excess of 8 hours a day. And this seems to be the condition of
employment of the plaintiffs. A driver in the taxi business of the defendant, like the
plaintiffs, in one day could operate his taxi cab eight hours, or less than eight hours or in
excess of 8 hours, or even 24 hours on Saturdays, Sundays, and holidays, with no limit or
restriction other than his desire, inclination and state of health and physical endurance. He
could drive continuously or intermittently, systematically or haphazardly, fast or slow, etc.
depending upon his exclusive wish or inclination. One day when he feels strong, active
and enthusiastic he works long, continuously, with diligence and industry and makes
considerable gross returns and receives as much as his 20 per cent commission. Another
day when he feels despondent, run down, weak or lazy and wants to rest between trips
and works for less number of hours, his gross returns are less and so is his commission.
In other words, his compensation for the day depends upon the result of his work, which in
turn depends on the amount of industry, intelligence and experience applied to it, rather
than the period of time employed. In short, he has no fixed salary or wages. In this we
agree with the learned trial court presided by Judge Felicisimo Ocampo which makes the
following findings and observations of this point.
. . . As already stated, their earnings were in the form of commission based on the gross
receipts of the day. Their participation in most cases depended upon their own industry.
So much so that the more hours they stayed on the road, the greater the gross returns
and the higher their commissions. They have no fixed hours of labor. They can retire at
pleasure, they not being paid a fixed salary on the hourly, daily, weekly or monthly basis.

It results that the working hours of the plaintiffs as taxi drivers were entirely characterized
by its irregularity, as distinguished from the specific regular remuneration predicated on
specific and regular hours of work of factories and commercial employees.

In the case of the plaintiffs, it is the result of their labor, not the labor itself, which
determines their commissions. They worked under no compulsion of turning a fixed
income for each given day. . . ..

In an opinion dated June 1, 1939 (Opinion No. 115) modified by Opinion No. 22, series
1940, dated June 11, 1940, the Secretary of Justice held that chauffeurs of the Manila
Yellow Taxicab Co. who "observed in a loose way certain working hours daily," and "the
time they report for work as well as the time they leave work was left to their discretion.,"
receiving no fixed salary but only 20 per cent of their gross earnings, may be considered
as piece workers and therefore not covered by the provisions of the Eight-Hour Labor
Law.

The Wage Administration Service of the Department of Labor in its Interpretative Bulletin
No. 2 dated May 28, 1953, under "Overtime Compensation," in section 3 thereof entitled
Coverage, says:

The provisions of this bulletin on overtime compensation shall apply to all persons
employed in any industry or occupation, whether public or private, with the exception of
farm laborers, non-agricultural laborers or employees who are paid on piece work,
contract, pakiao, task or commission basis, domestic servants and persons in the
personal service of another and members of the family of the employer working for him.

From all this, to us it is clear that the claim of the plaintiffs-appellants for overtime
compensation under the Eight-Hour Labor Law has no valid support.

As to the month pay (mesada) under article 302 of the Code of Commerce, article 2270 of
the new Civil Code (Republic Act 386) appears to have repealed said Article 302 when it
repealed the provisions of the Code of Commerce governing Agency. This repeal took
place on August 30, 1950, when the new Civil Code went into effect, that is, one year after
its publication in the Official Gazette. The alleged termination of services of the plaintiffs
by the defendant took place according to the complaint on September 4, 1950, that is to
say, after the repeal of Article 302 which they invoke. Moreover, said Article 302 of the
Code of Commerce, assuming that it were still in force speaks of "salary corresponding to
said month." commonly known as "mesada." If the plaintiffs herein had no fixed salary
either by the day, week or month, then computation of the month's salary payable would
be impossible. Article 302 refers to employees receiving a fixed salary. Dr. Arturo M.
Tolentino in his book entitled "Commentaries and Jurisprudence on the Commercial Laws
of the Philippines," Vol. 1, 4th edition, p. 160, says that article 302 is not applicable to
employees without fixed salary. We quote —

Employees not entitled to indemnity. — This article refers only to those who are engaged
under salary basis, and not to those who only receive compensation equivalent to
whatever service they may render. (1 Malagarriga 314, citing decision of Argentina Court
of Appeals on Commercial Matters.)

In view of the foregoing, the order appealed from is hereby affirmed, with costs against
appellants.

Pablo, Bengzon, Padilla, Reyes, Jugo, Bautista Angelo, Labrador, Concepcion, and
Diokno, JJ., concur.
Paras, C.J., concurs in the result.

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. L-8933 February 28, 1957

SILVERIO UMBAO, plaintiff-appellee,


vs.
SANTIAGO YAP, defendant-appellant.

E. G. Cammayo for appellant.


Mauro C. Reyes, Jr. for appellee.

BENGZON, J.:

This is an appeal from the judgment of the Manila Court of First Instance "ordering the
defendant to pay to the plaintiff the sum of P2,298.97, representing plaintiff's unpaid
overtime pay while in defendant's employ, plus P300 as attorney's fees, with interest on
the amount first mentioned at the rate of 6 per cent per annum from the date of the filing of
the complaint on November 4, 1954, until said amount has been paid in full. With costs
against the defendant."

The complaint sought enforcement of an arbitration award rendered by the Wage


Administration Service in pursuance of the arbitration agreement signed by Silverio
Umbao and Santiago Yap to settle their dispute regarding unpaid wages claimed by the
first as employee from the second as employer.

The complaint alleged that in June 1954 both had agreed in writing to "submit their case to
the Wage Administration Service for investigation" and "to abide by whatever decision
(said) office may render on the case" which "they recognized . . . to be final and
conclusive." It also alleged, that proper investigation had been conducted by Severo
Puncan of the same Service, who after hearing the parties and considering their evidence,
declared in a written report, respondent Yap to be liable for unpaid wages in the amount of
P2,998.97; that the award had been approved by Ruben Santos, Acting Chief of the
Service; and that Yap had refused to abide by and comply with it. The pleading included a
copy of the arbitration agreement and of the award.
Defendant’s contention
The defendant's answer did not deny the existence of the covenant and of the award. But
it questioned the enforceability of both, 1 contending mainly that the Service had no legal
authority to act as arbitration, that the procedural requirements of Republic Act No. 602
had not been followed, and that the provisions of Republic Act No. 876 known as the
Arbitration Law had been disregarded.

In view of the answer, the plaintiff asked for judgment on the pleadings. And the Court,
nothing non-observance of the procedure outlined in Republic Act No. 876, gave judgment
for defendant. However upon motion to reconsider, the judge seeing differently, held the
arbitration agreements to be a contract obligatory on the parties under the provisions of
the New Civil Code Arts. 2042 et seq. Consequently he rendered judgment against
defendant, the dispositive part of which has been quoted above. Hence this appeal.
Defendant’s contention
Defendant argues that the New Civil Code does not apply, because arbitration only takes
place where a covenant is entered into "whereby parties litigant by making reciprocal
concessions or agreements of facts, avoid a litigation or put an end to one already
commenced" which was not the case at bar. The argument evidently assumes that a
compromise agreement is the same as an arbitration agreement. Such assumption is
error: one is different from the other; they are treated in two separate chapters of the
Code.

Again appellant argues that the award should not be executed because the arbitration had
not been appointed in accordance with rules promulgated by the Supreme Court,
pursuant to Article 2046 of the New Civil Code.
ART. 2046. The appointment of arbitrators and the procedure for arbitration shall be
governed by the provisions of such rules of court as the Supreme Court shall promulgate.

No rules have been promulgated by this Court. However the Legislature adopted such
rules in Republic Act No. 876 known as "The Arbitration Law' effective December 1953.
Issue
The question then is: has this arbitration by the Service conformed with the Act? This
brings up the appellant's first assignment of error he points out that no application had
been filed in court for the appointment of the arbitrator under Republic Act No. 876, and
the court had appointed Severo Puncan as such.

Said act was obviously adopted to supplement-not to supplant-the New Civil Code on
arbitration. It expressly declares that "the provisions of chapters one and two, Title XIV,
Book of the Civil Code the parties may select the arbitrator without court intervention. And
section 8 of the Act impliedly permits them to do so. There is nothing in Republic Act 876
requiring court permission of knowledge or intervention before the arbitrator selected by
the parties may perform his assigned work.

True, there is section 5 of the Act which provides:

SEC. 5. Preliminary procedure. — An arbitration shall be instituted by:

(a) In the case of a contract to arbitrate future controversies by the service by either party
upon the other of a demand for arbitration in accordance with the contract. Such demand
shall set forth the nature of the controversy, the amount involved, if any, and the relief
sought, together with a true copy of the contract providing for arbitration. . . .

(b) In the event that one party defaults in answering the demand, the aggrieved party may
file with the Clerk of Court of First Instance having jurisdiction over the parties, a copy of
the demand for arbitration under the contract to arbitrate, . . . .

(c) In the case of the submission of an existing controversy by the filing with the clerk of
the Court of First Instance having jurisdiction, of the submission agreement, setting forth
the nature of the controversy, and the amount involved, if any. Such submission may be
filed by any party and shall be duly executed by both parties.

(d) In the event that one party neglets, fails or refuses to arbitrate under a submission
agreement, the aggrieved party shall follow the procedure prescribed in subparagraphs (a)
and (b) of this section.

Paragraph (c) seems, at first glance, to require the institution of court proceedings. But on
second thought it will be preceived that court action is needed when one party, after
entering into the contract to arbitrate, neglets, fails or refuses to arbitrate as provided in
paragraph (d) It may also be applied where the arbitrator has not been selected by the
parties who have agreed to arbitrate. The section does not mean there can be no
arbitration without a previous court actuation.

The case between herein litigants has not required court intervention from the beginning,
because they had named the arbitrator: the Administration Service2 and necessarily the
proper officer, thereof, Severo Puncan. And this defendant should not be permitted to
question the authority of said officer now, because he voluntarily submitted his evidence
to him; and he only turned around to deny such authority when the resultant verdict
adversely affected his pocket. He even appealed to the Secretary of Labor, and without
questioning Puncan's authority, pleaded for exoneration on the merits. 3

So much for court initiative, and arbitrator's appointment. As to the arbitration proceedings,
Republic Act No. 876 contains provisions about the procedure to be adopted by arbitrators,
their oath, the hearings, and the form and content of the award. Even so, herein appellant
asserted no prejudicial departure therefrom.

As already stated. Republic Act No. 876 did not require court intervention (in the case at
bar) prior to the award of the arbitrator, no ground for it having arisen, as the parties
voluntarily took steps to carry out the settlement process down to the arbiter's decision. It
was only after such award, when defendant refused to comply that judicial action became
necessary, thru the means afforded by the statute:

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 thereupon the court must grant such order unless the award is
vacated, modified or corrected, as prescribed herein. . . .

SEC. 27. Judgment. — Upon the granting of an order confirming, modifying or correcting
an award, judgment maybe entered in conformity therewith in the court wherein said
application was filed. . . . (Republic Act 876.) .

These provisions, we believe, apply whether or not the court intervened from the very
beginning.

Now then, examining the complaint and the judgment entered herein in the light of the
above directions, we find substantial conformity therewith; so much so that defendant
raised no issue on the same.

Wherefore, the judgment should be, and is hereby affirmed, with costs. So ordered.

Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Reyes, J.B.L.,
Endencia and Felix, JJ., concur.
SECOND DIVISION

[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.

DECISION

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.
Petitioner’s Contention
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
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.
Mendoza, Buena, and De Leon, Jr., JJ., concur.
Quisumbing, J., no part, related to counsel of a party.

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. 103200 August 31, 1994

LA NAVAL DRUG CORPORATION, petitioner,


vs.
THE HONORABLE COURT OF APPEALS and WILSON C. YAO, respondents.

Jerome T. Paras for petitioner.

Quasha, Asperilla, Ancheta, Peña & Nolasco for private respondent.

VITUG, J.:

In an effort to declog the courts of an increasing volume of work load and, most
importantly, in order to accord contending parties with expenditious alternatives for
settling disputes, the law authorities, indeed encourages, out of court settlements or
adjudications. Compromises and arbitration are widely known and used as such
acceptable methods of resolving adversarial claims.

Arbitrations, in particular, is governed by a special law, Republic Act 876, suppletory to


which are laws and rules of general application. This case before us concerns the
jurisdiction of courts, in relation to the provisions of Section 6 of Republic Act No. 876, and,
in that respect, the applicability of the doctrine of estoppel. The law (R.A. 876), specifically
Section 6 thereof, provides:
Memorize and understand by heart!
Sec. 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.

The court shall decide all motions, petitions or application filed under the provisions of this
Act, within ten days after such motions, petitions, or applications have been heard by it.

In chronology, the events that have led to the case at bench are detailed in the appealed
decision of respondent appellate court, which we here reproduce in toto.

Original action for Certiorari and Prohibition for Annulment of the Orders, dated April 26,
1990 and June 22, 1990, respectively, of Branch LXI, Regional Trial Court, Angeles City, in
Special Case No. 6024 for Enforcement of ARBITRATION Agreement with Damages.
Petitioner assails that portion of subject Order of April 26, 1990, stating as follows:

(1) Petitioner's claim for damages predicated on alleged tortuous acts of respondents La
Naval Drug corporation such as their alleged interference and dilatory tactics, etc. in the
implementation of the Arbitration Agreement in the Contract of Lease, thereby compelling
among others the petitioner to go to Court for redress; and respondent La Naval Drug
Corporation's counterclaim for damages may be entertained by this Court in a hearing —
not summary — for the purpose, under the Rules of Court.

(2) A preliminary hearing of the special and affirmative defense to show that Petitioner has
not cause of action against respondent's claim for damages is denied; a resolution on this
issue is deferred after the trial of the case on the merits.

And challenges the Order of June 22, 1990 denying its motion for reconsideration of the
said earlier Order.

From the petition below of respondent Yao, it appears that he is the present owner of a
commercial building a portion of which is leased to petitioner under a contract of lease
executed on December 23, 1993 with the former owner thereof, La Proveedora, Inc., which
contract expired on April 30, 1989. However, petitioner exercised its option to lease the
same building for another five years. But petitioner and respondent Yao disagreed on the
rental rate, and to resolve the controversy, the latter, thru written notices to the former,
expressed his intention to submit their disagreement to arbitration, in accordance with
Republic Act 876, otherwise known as the Arbitration Law, and paragraph 7 of their lease
contract, providing that:

7. . . . Should the parties fail to agree on the rate of rentals, the same shall be submitted to
a group of Arbitrators composed of three (3) members, one to be appointed by LESSOR,
another by LESSEE and the third one to be agreed upon by the two arbitrators previously
chosen and the parties hereto shall submit to the decision of the arbitrators.

Thus, on May 6, 1989, respondent Yao appointed Domingo Alamarez, Jr. as his arbitrator,
while on June 5, 1989, petitioner chose Atty. Casiano Sabile as its arbitrator. The
confirmation of the appointment of Aurelio Tupang, as third arbitrator, was held in
abeyance because petitioner instructed Atty. Sabile to defer the same until its Board of
Directors could convene and approve Tupang's appointment. Respondent Yao theorizes
that this was petitioner's design to delay the arbitration proceedings, in violation of the
Arbitration Law, and the governing stipulation of their contract of lease.

On the basis of the aforesaid allegations, respondent Yao prayed that after summary
hearing pursuant to Section 6 of the Arbitration Law, Atty. Casiano Sabile and Domingo
Alamarez be directed to proceed with the arbitration in accordance with Section 7 of
subject Contract of Lease and the applicable provisions of the Arbitration law, by
appointing and confirming the appointment of the Third Arbitrator; and that the Board of
Three Arbitrators be ordered to immediately convene and resolve the controversy before it,
pursuant to Section 12 and the succeeding sections of the Arbitration Law. (Annex "A,"
Petition.)

In its Answer with Counterclaim (Annex "C," Petition), petitioner here specifically denied
the averments of the petition below; theorizing that such petition is premature since
respondent Yao has not yet formally required arbitrators Alamarez and Sabile to agree on
the third arbitrator, within ten (10) days from notice, and that the delay in the arbitration
was due to respondent Yao's failure to perform what is incumbent upon him, of notifying
and thereafter, requiring both arbitrators to appoint the third member of the Board of
Arbitrators. According to petitioner, it actually gave arbitrators Sabile and Alamarez a free
hand in choosing the third arbitrator; and, therefore, respondent Yao has no cause of
action against it (petitioner). By way of Counterclaim, petitioner alleged that it suffered
actual damages of P100,000.00; and incurred attorney's fees of P50,000.00, plus P500.00
for every court appearance of its counsel.

On October 20, 1989, respondent Yao filed an amended petition for "Enforcement of
Arbitration Agreement with Damages;" praying that petitioner be ordered to pay interest
on the unpaid rents, at the prevailing rate of interest in commercial banks, and exemplary
damages of at least P250,000.00.
On October 24, 1989, despite petitioner's opposition to the motion to admit the amended
petition, the respondent court admitted the same.

On October 31, 1989, petitioner answered the amended petition; contending, among
others, that the amended petition should be dismissed on the ground of non-payment of
the requisite filing fees therefor; and it being in the nature of an ordinary civil action, a full
blown and regular trial, is necessary; so that respondent Yao's proposition for a summary
hearing of the arbitration issue and separate trial for his claim for damages is procedurally
untenable and implausible.

Invoking Section 5, Rule 16 of the Rules of Court, petitioner presented a "Motion to Set
Case for Preliminary Hearing" of its special and affirmative defenses, which are grounds
fro a motion to dismiss.

In its Order of November 14, 1989, the respondent court announced that the two
arbitrators chose Mrs. Eloisa R. Narciso as the third arbitrator. And on November 21, 1989,
it ordered the parties to submit their position papers on the issue as to whether or not
respondent Yao's claim for damages may be litigated upon in the summary proceeding for
enforcement of arbitration agreement. It likewise informed the parties that petitioner's
Motion to Set Case for Preliminary Hearing" of Special and Affirmative Defenses would be
resolved together with the question of damages.

On April 26, 1990, the aforequoted assailed Order issued. In moving for reconsideration of
the said Order, petitioner argued that in Special Case No. 6024, the respondent court sits
as a special court exercising limited jurisdiction and is not competent to act on respondent
Yao's claim for damages, which poses an issue litigable in an ordinary civil action. But the
respondent court was not persuaded by petitioner's submission. On June 22, 1990, it
denied the motion for reconsideration. (Rollo, pp. 89-93).

While the appellate court has agreed with petitioner that, under Section 6 of Republic Act
No. 876, a court, acting within the limits of its special jurisdiction, may in this case solely
determine the issue of whether the litigants should proceed or not to arbitration, it,
however, considered petitioner in estoppel from questioning the competence of the court
to additionally hear and decide in the summary proceedings private respondent's claim for
damages, it (petitioner) having itself filed similarly its own counterclaim with the court a
quo.

It is hardly disputable that when a court is called upon to exercise limited and special
jurisdiction, that court cannot stray to matters outside the area of its declared authority or
beyond what has been expressly invested by law (Elumbaring vs. Elumbaring, 12 Phil. 384,
387), particularly, such as in this instance, where the proceedings are summary in nature.

Prefatorily, recalling the distinctions, pertinent to the case, between the court's lack of
jurisdiction over the person of the defendant, on the one hand, and its lack of jurisdiction
over the subject matter or the nature of the action, upon the other hand, should be useful.
The lack of jurisdiction over the person of the defendant may be waived either expressly
or impliedly. When a defendant voluntarily appears, he is deemed to have submitted
himself to the jurisdiction of the court. If he so wishes not to waive this defense, he must
do so seasonably by motion for the purpose of objecting to the jurisdiction of the court;
otherwise, he shall be deemed to have submitted himself to that jurisdiction. The
decisions promulgated heretofore by this Court would likewise seemingly apply estoppel
to bar the defendant from pursuing that defense by alleging in his answer any other issue
for dismissing the action.

A citation of a few of our decisions might be apropos.

In Wang Laboratories, Inc., vs. Mendoza (156 SCRA 44), this Court has ruled that if the
defendant, besides setting up in a motion to dismiss his objection to the jurisdiction of the
court, alleges at the same time any other ground for dismissing the action, he is deemed
to have submitted himself to the jurisdiction of the court. In the process, it has equated the
matter to a situation where, such as in Immaculata vs. Judge Navarro, et al. (146 SCRA 5),
the defendant invokes an affirmative relief against his opponent.

In De Midgely vs. Judge Ferandos (64 SCRA 23, 31), the Court elaborated thusly:

We are of the opinion that the lower court has acquired jurisdiction over the person of Mrs.
Midgely by reason of her voluntary appearance. The reservation in her motion to dismiss
that she was making a special appearance to contest the court's jurisdiction over her
person may be disregarded.

It may be disregarded because it was nullified by the fact that in her motion to dismiss she
relied not only on the ground of lack of jurisdiction over her person but also on the ground
that there was no showing that earnest efforts were exerted to compromise the case and
because she prayed "for such other relief as" may be deemed "appropriate and proper."

xxx xxx xxx

When the appearance is by motion for the purpose of objecting to the jurisdiction of the
court over the person, it must be for the sole and separate purpose of objecting to the
jurisdiction of the court. If his motion is for any other purpose than to object to the
jurisdiction of the court over his person, he thereby submits himself to the jurisdiction of
the court. A special appearance by motion made for the purpose of objecting to the
jurisdiction of the court over the person will be held to be a general appearance, if the
party in said motion should, for example, ask for a dismissal of the action upon the further
ground that the court had no jurisdiction over the subject matter. (Syllabus, Flores vs.
Zurbito, supra , at page 751. That rule was followed in Ocampo vs. Mina and Arejola, 41
Phil. 308).

The justification for the rule was expressed in Republic vs. Ker and Companry, Ltd. (18
SCRA 207, 213-214), in this wise:
We observed that the motion to dismiss filed on April 14, 1962, aside from disputing the
lower court's jurisdiction over defendant's person, prayed for dismissal of the complaint on
the ground that plaintiff's cause of action had prescribed. By interposing such second
ground in its motion to dismiss, Ker & Co., Ltd. availed of an affirmative defense on the
basis of which it prayed the court to resolve controversy in its favor. For the court to validly
decide the said plea of defendant Ker & Co., Ltd., it necessarily had to acquire jurisdiction
upon the latter's person, who, being the proponent of the affirmative defense, should be
deemed to have abandoned its special appearance and voluntarily submitted itself to the
jurisdiction of the court.

Voluntary appearance cures defects of summons, if any, Such defect, if any, was further
cured when defendant filed its answer to the complaint. A defendant can not be permitted
to speculate upon the judgment of the court by objecting to the court's jurisdiction over its
person if the judgment is adverse to it, and acceding to jurisdiction over its person if and
when the judgment sustains its defenses.

The doctrine of estoppel is predicated on, and has its origin in, equity which, broadly
defined, is justice according to natural law and right. It is a principle intended to avoid a
clear case of injustice. The term is hardly distinguishable from a waiver of right. Estoppel,
like its said counterpart, must be unequivocal and intentional for, when misapplied, it can
easily become a most convenient and effective means of injustice. Estoppel is not
understood to be a principle that, as a rule, should prevalently apply but, such as it
concededly is, as a mere exception from the standard legal norms of general application
that can be invoked only in highly exceptional and justifiable cases.

Tested by the above criteria, the Court sees it propitious to re-examine specifically the
question of whether or not the submission of other issues in a motion to dismiss, or of an
affirmative defense (as distinguished from an affirmative relief) in an answer, would
necessarily foreclose, and have the effect of a waiver of, the right of a defendant to set up
the court's lack of jurisdiction over the person of the defendant.

Not inevitably.

Section 1, Rule 16, of the Rules of Court, provides that a motion to dismiss may be made
on the following grounds:

(a) That the court has no jurisdiction over the person of the defendant or over the subject
of the action or suit;

(b) That the court has no jurisdiction over the nature of the action or suit;

(c) The venue is improperly laid;

(d) That the plaintiff has no legal capacity to sue;


(e) That there is another action pending between the same parties for the same cause;

(f) That the cause of action is barred by a prior judgment or by statute of limitations;

(g) That the complaint states no cause of action;

(h) That the claim or demand set forth in the plaintiff's pleading has been paid, waived,
abandoned, or otherwise extinguished;

( i ) That the claim on which the action or suit is founded is unenforceable under the
provisions of the statute of frauds;

( j ) That the suit is between members of the same family and no earnest efforts towards a
compromise have been made.

Any ground for dismissal in a motion to dismiss, except improper venue, may, as further
set forth in Section 5 of the same rule, be pleaded as an affirmative defense and a
preliminary hearing may be had thereon as if a motion to dismiss had been filed. An
answer itself contains the negative, as well as affirmative, defenses upon which the
defendant may rely (Section 4, Rule 6, Rules of Court). A negative defense denies the
material facts averred in the complaint essential to establish the plaintiff's cause of action,
while an affirmative defense in an allegation of a new matter which, while admitting the
material allegations of the complaint, would, nevertheless, prevent or bar recovery by the
plaintiff. Inclusive of these defenses are those mentioned in Rule 16 of the Rules of Court
which would permit the filing of a motion to dismiss.

In the same manner that the plaintiff may assert two or more causes of action in a court
suit, a defendant is likewise expressly allowed, under Section 2, Rule 8, of the Rules of
Court, to put up his own defenses alternatively or even hypothetically. Indeed, under
Section 2, Rule 9, of the Rules of Court, defenses and objections not pleaded either in a
motion to dismiss or in an answer, except for the failure to state a cause of action, are
deemed waived. We take this to mean that a defendant may, in fact, feel enjoined to set
up, along with his objection to the court's jurisdiction over his person, all other possible
defenses. It thus appears that it is not the invocation of any of such defenses, but the
failure to so raise them, that can result in waiver or estoppel. By defenses, of course, we
refer to the grounds provided for in Rule 16 of the Rules of Court that must be asserted in
a motion to dismiss or by way of affirmative defenses in an answer.

Mindful of the foregoing, in Signetics Corporation vs. Court of Appeals and Freuhauf
Electronics Phils., Inc. (225 SCRA 737, 738), we lately ruled:

This is not to say, however, that the petitioner's right to question the jurisdiction of the
court over its person is now to be deemed a foreclosed matter. If it is true, as Signetics
claims, that its only involvement in the Philippines was through a passive investment in
Sigfil, which it even later disposed of, and that TEAM Pacific is not its agent, then it cannot
really be said to be doing business in the Philippines. It is a defense, however, that
requires the contravention of the allegations of the complaint, as well as full ventilation, in
effect, of the main merits of the case, which should not thus be within the province of a
mere motion to dismiss. So, also, the issue posed by the petitioner as to whether a foreign
corporation which has done business in the country, but which has ceased to do business
at the time of the filing of a complaint, can still be made to answer for a cause of action
which accrued while it was doing business, is another matter that would yet have to await
the reception and admission of evidence. Since these points have seasonably been
raised by the petitioner, there should be no real cause for what may understandably be its
apprehension, i.e., that by its participation during the trial on the merits, it may, absent an
invocation of separate or independent reliefs of its own, be considered to have voluntarily
submitted itself to the court's jurisdiction.

Lack of jurisdiction over the subject matter of the suit is yet another matter. Whenever it
appears that the court has no jurisdiction over the subject matter, the action shall be
dismissed (Section 2, Rule 9, Rules of Court). This defense may be interposed at any time,
during appeal (Roxas vs. Rafferty, 37 Phil. 957) or even after final judgment (Cruzcosa vs.
Judge Concepcion, et al., 101 Phil. 146). Such is understandable, as this kind of
jurisdiction is conferred by law and not within the courts, let alone the parties, to
themselves determine or conveniently set aside. In People vs. Casiano (111 Phil. 73 93-94),
this Court, on the issue of estoppel, held:

The operation of the principle of estoppel on the question of jurisdiction seemingly


depends upon whether the lower court actually had jurisdiction or not. If it had no
jurisdiction, but the case was tried and decided upon the theory that it had jurisdiction, the
parties are not barred, on appeal, from assailing such jurisdiction, for the same "must exist
as a matter of law, and may not be conferred by consent of the parties or by estoppel" (5
C.J.S., 861-863). However, if the lower court had jurisdiction, and the case was heard and
decided upon a given theory, such, for instance, as that the court had no jurisdiction, the
party who induced it to adopt such theory will not be permitted, on appeal, to assume an
inconsistent position — that the lower court had jurisdiction. Here, the principle of estoppel
applies. The rule that jurisdiction is conferred by law, and does not depend upon the will of
the parties, has not bearing thereon.

The rule was reiterated in Calimlim vs. Ramirez (118 SCRA 399, 406), and quite recently,
in Southeast Asian Fisheries Development Center-Aquaculture Department vs. National
Labor Relations Commission (206 SCRA 283).

Jurisdiction over the nature of the action, in concept, differs from jurisdiction over the
subject matter. Illustrated, lack of jurisdiction over the nature of the action is the situation
that arises when a court, which ordinarily would have the authority and competence to
take a case, is rendered without it either because a special law has limited the exercise of
its normal jurisdiction on a particular matter or because the type of action has been
reposed by law in certain other courts or quasi-judicial agencies for determination.
Nevertheless, it can hardly be questioned that the rules relating to the effects of want of
jurisdiction over the subject matter should apply with equal vigor to cases where the court
is similarly bereft of jurisdiction over the nature of the action.

In summary, it is our considered view, as we now so hereby express,


that —

(1) Jurisdiction over the person must be seasonably raised, i.e., that it is pleaded in a
motion to dismiss or by way of an affirmative defense in an answer. Voluntary appearance
shall be deemed a waiver of this defense. The assertion, however, of affirmative defenses
shall not be constructed as an estoppel or as a waiver of such defense.

(2) Where the court itself clearly has no jurisdiction over the subject matter or the nature of
the action, the invocation of this defense may be done at any time. It is neither for the
courts nor the parties to violate or disregard that rule, let alone to confer that jurisdiction,
this matter being legislative in character. Barring highly meritorious and exceptional
circumstances, such as hereinbefore exemplified, neither estoppel nor waiver shall apply.

In the case at bench, the want of jurisdiction by the court is indisputable, given the nature
of the controversy. The arbitration law explicitly confines the court's authority only to pass
upon the issue of whether there is or there is no 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
proceeding shall be dismissed." The proceedings are summary in nature.

All considered, the court a quo must then refrain from taking up the claims of the
contending parties for damages, which, upon the other hand, may be ventilated in
separate regular proceedings at an opportune time and venue. The circumstances
obtaining in this case are far, we hold, from justifying the application of estoppel against
either party.

WHEREFORE, the decision of the Court of Appeals and the orders of the trial court in
question are SET ASIDE. The court a quo, in the instant proceedings, is ordered to
DESIST from further hearing private respondent's claim, as well as petitioner's
counterclaim, for damages. No costs.

SO ORDERED.
FIRST DIVISION

INSULAR SAVINGS BANK, G.R. No. 141818

Petitioner,

Present:

Panganiban, C.J.

(Chairperson),

- versus - Ynares-Santiago,

Austria-Martinez,

Callejo, Sr., and

Chico-Nazario, JJ.

FAR EAST BANK AND

TRUST COMPANY, Promulgated:

Respondent.

June 22, 2006

----------------------------------------------------------------------------------------

DECISION
YNARES-SANTIAGO, J.:

This petition for review on certiorari[1] assails the November 9, 1999

Order [2] 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 Order [3] 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 Corporations

(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 Tancuans 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, 1992Order, [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, attorneys 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 Tancuans 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 attorneys 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 Companys 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 petitioners 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 petitioners 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 Law [26] 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
commissioners 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 2044[29] 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] 2039[31] and

2040[32] 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, petitioners

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.

FIRST DIVISION

CHARLES BERNARD H. REYES G.R. No. 168384

doing business under the name and

style CBH REYES ARCHITECTS,

Petitioner, Present:

Panganiban, C.J.

(Chairperson),

- versus - Ynares-Santiago,

Austria-Martinez,

Callejo, Sr., and

Chico-Nazario, JJ.

ANTONIO YULO BALDE II, PAULINO


M. NOTO and ERNESTO J. BATTAD,

SR., in their capacities as Arbitrators of

the CONSTRUCTION INDUSTRY

ARBITRATION COMMISSION, Promulgated:

SPOUSES CESAR and CARMELITA

ESQUIG and ROSEMARIE PAPAS,

Respondents. August 18, 2006

----------------------------------------------------------------------------------------

RESOLUTION

YNARES-SANTIAGO, J.:

Before the Court is a Motion to Inhibit the Honorable Chief Justice and

Motion to Refer Case to the Court En Banc, dated August 4, 2006, filed

by Atty. Francisco I. Chavez.

I.
According to the movant, the Motion to Inhibit the Chief Justice is

not an accusation of wrongdoing on the part of the Honorable Chief

Justice. Rather it is impelled by Atty. Chavezs perception that in this case,

the Honorable Chief Justice has not acted in an objective, impartial and

neutral manner in disposing of incidental issues and motions presented by

the parties.

The movant adds that the dizzying pace by which private respondents

motions have been received and favorably acted upon in record

time supports Atty. Chavezs perception that private respondents motions

without as much as requiring petitioner to respond thereto have been

granted special attention and favor by the Honorable Chief Justice. (bold

types in original)

Atty. Chavezs perception about the alleged closeness and the good

relationship between Atty. Ordoez and the Chief Justice to impair the

latters objectivity and impartiality has no basis, for the following reasons:

(1) The actions taken on the various motions and incidents enumerated by

the movant were made by the entire membership of the First

Division. Not being the ponente, the Chief Justice did not initiate or

propose any of the actions and rulings made by the Court. Like the three
other Division members, he merely concurred with the actions/rulings

proposed by the ponente. While some orders and actions, especially

temporary restraining orders, are issued in the name of the Division

chairman (who in this case is the Chief Justice), they are really collective

actions of the entire Division, not merely those of the Chair. This is the

normal procedure in all Divisions, not just in the First.

(2) The alleged unpleasant interaction these past 19 years between Atty.

Chavez and Atty. Sedfrey Ordoez with whom Chief Justice worked either

as associate or partner sometime ago has nothing to do at all with the

concurrences made by the Chief Justice on this case. These concurrences

were given on the basis only of legal merit, and on nothing else.

(3) True, the Chief Justice was an associate (not a partner) in 1961 to 1963

in the Salonga, Ordoez and Associates, which incidentally had been

dissolved in 1987. True also, he has had a close personal and professional

relationship with the principal partner in that law firm, Sen. Jovito R.

Salonga. That is the reason the Chief Justice has inhibited himself from

cases in which Sen. Salonga was/is a party or a counsel. [1]

However, he had no similar closeness with Atty. Ordoez. That is why he

has not inhibited himself from cases involving Atty. Ordoez. In fact, he
has not hesitated, on several occasions, to vote against parties/causes

represented by the former Secretary of Justice.

(4) In fairness to all concerned, Atty. Ordoez has never spoken, directly

or indirectly, with the Chief Justice on any matter pending in the Supreme

Court and in any other court. He has never attempted, directly or

indirectly, personally or through others, to influence the Chief Justice in

any manner whatsoever. In fact, the Chief Justice understands that Atty.

Ordoez has been seriously ill, going in and out of the hospital, over the

past several months. And yet the Chief Justice has not even visited or

spoken with him during such period.

(5) On the other hand, the Chief Justice, when so warranted by the facts

and law, has voted in favor of causes and parties represented by Atty.

Chavez. One outstanding example is Chavez v. PCGG (360 Phil.

133, December 9, 1998; 366 Phil. 863, May 19, 1999), which was written

by then Associate Justice Artemio V. Panganiban. Atty. Chavez knows

that he has won the vote of the Chief Justice without his having to speak

with or influence him in any manner.

(6) Movants perception that Atty. Ordoezs concern for and interest

in upholding the CIAC jurisdiction must have somehow been relayed to


the Honorable Chief Justice is completely baseless. As already stated,

there had been no conversation or communication, directly or indirectly,

personally or through others, between the Chief Justice and Atty. Ordoez

(or anyone representing him) about any matter related to any case in this,

or any other, court. Neither is the Chief Justice aware of any alleged

personal interest of Atty. Ordoez to uphold the CIAC.

(7) In a few months, the incumbent Chief Justice is scheduled to

retire from the judiciary. It is totally inconceivable that he will smear his

eleven year record of integrity, independence and ethical conduct in the

Supreme Court with any action that is less than objective, impartial and

neutral. On the other hand, he assures movant (and all concerned) that he

will continue with his vow to lead a judiciary characterized by four Ins:

independence, integrity, industry and intelligence.

II.

Following his misperception of closeness and bonding between Atty.

Ordoez and the Chief Justice, the movant assailed certain proceedings in

this Honorable Courts First Division. However, these proceedings can

easily be explained, thus:


(1) Respondents Motion to Include Hon. Pedro Sabundayo, Jr.,

Presiding Judge, Regional Trial Court of Muntinlupa City, Branch 203, as

public respondent was denied because Section 4, Rule 45 of the Rules of

Court provides that in a petition for review on certiorari to the Supreme

Court, there is no need to implead the lower courts or judges thereof

either as petitioners or respondents. There is no irregularity when the

Resolution denying respondents motion was issued when the Chief

Justice was on official leave. The remaining Members of the Division can

proceed with official business despite the absence of the Chief Justice as

long as the required majority is present. This is in accordance with

Section 4(3), Article VIII of the Constitution which provides that cases or

matters heard by a division shall be decided or resolved with the

concurrence of a majority of the Members who actually took part in the

deliberations on the issues in the case and voted thereon, and in no case,

without the concurrence of at least three of such Members.

(2) The issuance of a TRO enjoining the Presiding Judge of

Muntinlupa City, Branch 203 from continuing with any of the

proceedings in Civil Case No. 03-110 and from enforcing the Order of the

trial court dated June 29, 2006 ordering the sheriff to implement the writ

of execution dated May 17, 2006, is in order.Respondents satisfactorily

established that they are entitled to the injunction.


It appears from the records that petitioner filed a complaint against

respondents with the Regional Trial Court of Muntinlupa City which was

docketed as Civil Case No. 03-110 praying that an accounting be rendered

to determine the cost of the materials purchased by respondent Papas; that

respondents be ordered to pay the cost of the additional works done on

the property; that the Design-Build Construction Agreement be ordered

rescinded because respondents breach the same; and that respondents be

ordered to pay moral and exemplary damages. Based on the same

Design-Build Construction Agreement, respondents filed with the

Construction Industry Arbitration Commission (CIAC) a complaint

praying that petitioner be ordered to finish the project or, in the

alternative, to pay the cost to finish the same; to reimburse the

overpayments made by respondents; and to pay liquidated damages,

attorneys fees and costs of the suit.

On June 8, 2005,[2] the CIAC rendered a decision on the merits of

the case awarding in favor of respondents the sum of P4,419,094.98. The

case is presently on appeal with the Court of Appeals[3] docketed as

CA-G.R. SP No. 90136. [4]


Meanwhile, on July 29, 2005, the trial court rendered judgment in

Civil Case No. 03-110 in favor of petitioner ordering the respondents to

pay P840,300.00 representing the cost of the additional works; P296,658.95

representing the balance of the contract price; P500,000.00 by way of

moral damages; P500,000.00 as exemplary damages; P500,000.00 as

attorneys fees and costs of the suit. In an Order dated May 17, 2006, Judge

Sabundayo, Jr. directed Sheriff Melvin T. Bagabaldo to implement the

writ of execution by causing the respondents to render an accounting of

all the construction materials they bought for the construction of the

project x x x; to levy the goods and chattels of the [respondents] x x x and

to make the sale thereof x x x.[5]

In their Second Manifestation with Prayer for Issuance of a

Temporary Restraining Order/Injunction [6] filed with this Court on July

10, 2006, respondents averred that from July 7, 2006 until 4 oclock in the

morning of July 8, 2006, Sheriff Bagabaldo went to the residence of

respondent Papas and levied several of her personal

properties. [7] Respondents bewailed that despite the pronouncement of the

Court of Appeals that the CIAC, not the Regional Trial Court, which has

jurisdiction over the case, and despite the pendency of the instant case

before us, the Regional Trial Court still proceeded with the

implementation of the writ.


It is important to mention that in both cases, the parties insist that

the other breached their obligation under the Design-Build Construction

Agreement. Petitioner however argues that the Regional Trial Court

properly took cognizance of the case while respondents claim that CIAC

has the exclusive and original jurisdiction on the subject

matter. Otherwise stated, if we rule in the instant case that CIAC has

jurisdiction over the controversy, then it would necessarily follow that the

Regional Trial Court does not have jurisdiction. Since it did not acquire

jurisdiction over the controversy, then the writ of execution that it issued

was void. If we allow the RTC Judge and the Sheriff to continue with the

proceedings in Civil Case No. 03-110, then, whatever judgment that

would be rendered in the instant case would be rendered nugatory. In

view of the above circumstances, respondents clearly established that

they are entitled to the issuance of a TRO.

Thus on July 12, 2006, the Court issued a Resolution that reads:

Acting on the prayer for issuance of a temporary


restraining order/injunction, the Court further resolves to issue
a TEMPORARY RESTRAINING ORDER enjoining the
Presiding Judge, Regional Trial Court, Branch 203, Muntinlupa
City, from continuing with any of the proceedings in Civil
Case No. 03-110 entitled Charles Bernard H. Reyes, doing
business under the name and style of CBH Reyes Architects vs.
Spouses Mely and Cesar Esquig, et al. [subject matter of the
assailed Court of Appeals decision and resolution dated
February 18, 2005 and May 20, 2005, respectively, in CA-G.R.
SP No. 83816 entitled Charles Bernard H. Reyes, doing
business under the name and style CBH REYES
ARCHITECTS vs. Antonio Yulo Balde II, et al] and from
enforcing the Order dated June 29, 2006 ordering the
designated sheriff to implement the writ of execution dated
May 17, 2006 to enforce the decision dated July 29, 2005 in
Civil Case No. 03-110, upon the private respondents filing of a
bond in the amount of Three Hundred Thousand Pesos
(P300,000.00) within a period of five (5) days from notice
hereof x x x.

(3) Thereafter, respondents filed an Urgent Motion for

Clarification of the above resolution. Accordingly, on July 19, 2006, we

issued a resolution which is a clarification of the TRO issued on July 12,

2006. Both the July 12, 2006 and July 19, 2006 Resolutions are covered by

the same bond in the amount of P300,000.00.

(4) A petition review under Rule 45 of the Rules of Court is not a

matter of right but of sound judicial discretion.[8] For purposes of

determining whether the petition should be dismissed or denied, or where

the petition is given due course, the Supreme Court may require or allow

the filing of such pleadings, briefs, memoranda or documents as it may

deem necessary within such periods and under such conditions as it may

consider appropriate, and impose the corresponding sanctions in case of

non-filing or unauthorized filing of such pleadings and documents or

non-compliance with the conditions therefor.[9] This Court exercised its

discretion when it did not require petitioner to file comment on


respondents Manifestation with Urgent Motion to Resolve with Prayer for

Injunction, Second Manifestation with Prayer for Issuance of a

Temporary Restraining Order/Injunction, Urgent Motion for

Clarification, and Compliance.

(5) The Court did not exceed its jurisdiction; neither did it encroach

on the jurisdiction of the Court of Appeals or of the lower court when it

issued the Resolution dated July 12, 2006. As discussed, there is

compelling reason to issue a TRO as the respondents satisfactorily

established they are entitled to the relief demanded. It may further be said

that the issuance of a TRO on July 12, 2006 is not a final determination of

the matter. It was a remedy intended to avoid any irreparable injury that

might be caused to the parties. It may be recalled that the CIAC and the

trial court each asserted its jurisdiction over the controversy to the

exclusion of the other.

(6) There is no truth or basis to the allegation that the case has been

given special attention. All actions on the motions and incidents have

been performed regularly.


WHEREFORE, the Motion to Inhibit the Honorable Chief Justice

is DENIED. The Motion to Refer Case to the Court En Banc

is GRANTED.

SO ORDERED.

THIRD DIVISION

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

LM POWER ENGINEERING CORPORATION, petitioner,

vs. CAPITOL INDUSTRIAL CONSTRUCTION GROUPS,

INC., respondent.

DECISION

PANGANIBAN, J.:

Alternative dispute resolution methods or ADRs -- like arbitration,


mediation, negotiation and conciliation -- are encouraged by the Supreme
Court. By enabling parties to resolve their disputes amicably, they provide
solutions that are less time-consuming, less tedious, less confrontational, and
more productive of goodwill and lasting relationships. [1]
The Case

Before us is a Petition for Review on Certiorari [2] under Rule 45 of the Rules
of Court, seeking to set aside the January 28, 2000 Decision of the Court of
Appeals[3] (CA) in CA-GR CV No. 54232. The dispositive portion of the Decision
reads as follows:

WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE.


The parties are ORDERED to present their dispute to arbitration in
accordance with their 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 Complaint [10] for the collection of the amount
representing the alleged balance due it under the Subcontract. Instead of
submitting an Answer, respondent filed a Motion to Dismiss, [11] alleging that the
Complaint was premature, because there was no prior recourse to arbitration.
In its Order [12] dated September 15, 1987, the RTC denied the Motion on the
ground that the dispute did not involve the interpretation or the implementation
of the Agreement and was, therefore, not covered by the arbitral clause. [13]
After trial on the merits, the RTC [14] ruled that the take-over of some work
items by respondent was not equivalent to a termination, but a mere
modification, of the Subcontract. The latter was ordered to give full payment for
the work completed by petitioner.
Ruling of the Court of Appeals

On appeal, the CA reversed the RTC and ordered the referral of the case
to arbitration. The appellate court held as arbitrable the issue of whether
respondents 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 Courts
consideration:
A

Whether or not there exist[s] a controversy/dispute between petitioner and


respondent regarding the interpretation and implementation of the
Sub-Contract Agreement dated February 22, 1983 that requires prior
recourse to voluntary arbitration;

In the affirmative, whether or not the requirements provided in Article III [1] of
CIAC Arbitration Rules regarding request for arbitration ha[ve] been
complied with[.] [17]

The Courts Ruling

The Petition is unmeritorious.


First Issue:
Whether Dispute Is Arbitrable

Petitioner claims that there is no conflict regarding the interpretation or the


implementation of the Agreement. Thus, without having to resort to prior
arbitration, it is entitled to collect the value of the services it rendered through
an ordinary action for the collection of a sum of money from respondent. On
the other hand, the latter contends that there is a need for prior arbitration as
provided in the Agreement. This is because there are some disparities
between the parties positions regarding the extent of the work done, the
amount of advances and billable accomplishments, and the set off of expenses
incurred by respondent in its take-over of petitioners work.
We side with respondent. Essentially, the dispute arose from the parties
ncongruent positions on whether certain provisions of their Agreement could
be applied to the facts. The instant case involves technical discrepancies that
are better left to an arbitral body that has expertise in those areas. In any event,
the inclusion of an arbitration clause in a contract does not ipso facto divest the
courts of jurisdiction to pass upon the findings of arbitral bodies, because the
awards are still judicially reviewable under certain conditions.[18]
In the case before us, the Subcontract has the following arbitral clause:

6. The Parties hereto agree that any dispute or conflict as regards to


interpretation and implementation of this Agreement which cannot be
settled between [respondent] and [petitioner] amicably shall be
settled by means of arbitration x x x. [19]

Clearly, the resolution of the dispute between the parties herein requires a
referral to the provisions of their Agreement. Within the scope of the arbitration
clause are discrepancies as to the amount of advances and billable
accomplishments, the application of the provision on termination, and the
consequent set-off of expenses.
A review of the factual allegations of the parties reveals that they differ on
the following questions: (1) Did a take-over/termination occur? (2) May the
expenses incurred by respondent in the take-over be set off against the
amounts it owed petitioner? (3) How much were the advances and billable
accomplishments?
The resolution of the foregoing issues lies in the interpretation of the
provisions of the Agreement. According to respondent, the take-over was
caused by petitioners delay in completing the work. Such delay was in violation
of the provision in the Agreement as to time schedule:

G. TIME SCHEDULE

[Petitioner] shall adhere strictly to the schedule related to the WORK


and complete the WORK within the period set forth in Annex C
hereof. NO time extension shall be granted by [respondent] to
[petitioner] unless a corresponding time extension is granted by [the
Ministry of Public Works and Highways] to the CONSORTIUM. [20]

Because of the delay, respondent alleges that it took over some of the
work contracted to petitioner, pursuant to the following provision in the
Agreement:

K. TERMINATION OF AGREEMENT

[Respondent] has the right to terminate and/or take over this


Agreement for any of the following causes:

xxxxxxxxx
6. If despite previous warnings by [respondent], [petitioner] does
not execute the WORK in accordance with this Agreement,
or persistently or flagrantly neglects to carry out [its] obligations
under this Agreement. [21]

Supposedly, as a result of the take-over, respondent incurred expenses in


excess of the contracted price. It sought to set off those expenses against the
amount claimed by petitioner for the work the latter accomplished, pursuant to
the following provision:

If the total direct and indirect cost of completing the remaining part of the
WORK exceed the sum which would have been payable to [petitioner] had it
completed the WORK, the amount of such excess [may be] claimed by
[respondent] from either of the following:

1. Any amount due [petitioner] from [respondent] at the time of the


termination of this Agreement. [22]

The issue as to the correct amount of petitioners advances and billable


accomplishments involves an evaluation of the manner in which the parties
completed the work, the extent to which they did it, and the expenses each of
them incurred in connection therewith. Arbitrators also need to look into the
computation of foreign and local costs of materials, foreign and local advances,
retention fees and letters of credit, and taxes and duties as set forth in the
Agreement. These data can be gathered from a review of the Agreement,
pertinent portions of which are reproduced hereunder:

C. CONTRACT PRICE AND TERMS OF PAYMENT

xxxxxxxxx

All progress payments to be made by [respondent] to [petitioner]


shall be subject to a retention sum of ten percent (10%) of the value
of the approved quantities. Any claims by [respondent] on [petitioner]
may be deducted by [respondent] from the progress payments
and/or retained amount. Any excess from the retained amount after
deducting [respondents] claims shall be released by [respondent] to
[petitioner] after the issuance of [the Ministry of Public Works and
Highways] of the Certificate of Completion and final acceptance of
the WORK by [the Ministry of Public Works and Highways].

xxxxxxxxx

D. IMPORTED MATERIALS AND EQUIPMENT


[Respondent shall open the letters of credit for the importation of
equipment and materials listed in Annex E hereof after the drawings,
brochures, and other technical data of each items in the list have
been formally approved by [the Ministry of Public Works and
Highways]. However, petitioner will still be fully responsible for all
imported materials and equipment.

All expenses incurred by [respondent], both in foreign and local


currencies in connection with the opening of the letters of credit
shall be deducted from the Contract Prices.

xxxxxxxxx

N. OTHER CONDITIONS

xxxxxxxxx

2. All customs duties, import duties, contractors taxes, income taxes,


and other taxes that may be required by any government agencies in
connection with this Agreement shall be for the sole account of
[petitioner]. [23]

Being an inexpensive, speedy and amicable method of settling


disputes, [24]arbitration -- along with mediation, conciliation and negotiation -- is
encouraged by the Supreme Court. Aside from unclogging judicial dockets,
arbitration also hastens the resolution of disputes, especially of the commercial
kind.[25] It is thus regarded as the wave of the future in international civil and
commercial disputes. [26] Brushing aside a contractual agreement calling for
arbitration between the parties would be a step backward.[27]
Consistent with the above-mentioned policy of encouraging alternative
dispute resolution methods, courts should liberally construe arbitration
clauses. Provided such clause is susceptible of an interpretation that covers
the asserted dispute, an order to arbitrate should be granted. [28] Any doubt
should be resolved in favor of arbitration. [29]
Second Issue:
Prior Request for Arbitration

According to petitioner, assuming arguendo that the dispute is arbitrable,


the failure to file a formal request for arbitration with the Construction Industry
Arbitration Commission (CIAC) precluded the latter from acquiring jurisdiction
over the question.To bolster its position, petitioner even cites our ruling
in Tesco Services Incorporated v. Vera.[30] We are not persuaded.
Section 1 of Article II of the old Rules of Procedure Governing
Construction Arbitration indeed required the submission of a request for
arbitration, as follows:

SECTION. 1. Submission to Arbitration -- Any party to a construction


contract wishing to have recourse to arbitration by the Construction Industry
Arbitration Commission (CIAC) shall submit its Request for Arbitration in
sufficient copies to the Secretariat of the CIAC; PROVIDED, that in the case
of government construction contracts, all administrative remedies available
to the parties must have been exhausted within 90 days from the time the
dispute arose.

Tesco was promulgated by this Court, using the foregoing provision as


reference.
On the other hand, Section 1 of Article III of the new Rules of Procedure
Governing Construction Arbitration has dispensed with this requirement and
recourse to the CIAC may now be availed of whenever a contract contains a
clause for the submission of a future controversy to arbitration, in this wise:

SECTION 1. Submission to CIAC Jurisdiction An arbitration clause in a


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

The foregoing amendments in the Rules were formalized by CIAC


Resolution Nos. 2-91 and 3-93. [31]
The difference in the two provisions was clearly explained in China Chang
Jiang Energy Corporation (Philippines) v. Rosal Infrastructure Builders et
al.[32] (an extended unsigned Resolution) and reiterated in National Irrigation
Administration v. Court of Appeals,[33] from which we quote thus:

Under the present Rules of Procedure, for a particular construction contract


to fall within the jurisdiction of CIAC, it is merely required that the parties
agree to submit the same to voluntary arbitration Unlike in the original
version of Section 1, as applied in the Tesco case, the law as it now stands
does not provide that the parties should agree to submit disputes arising
from their agreement specifically to the CIAC for the latter to acquire
jurisdiction over the same. Rather, it is plain and clear that as long as the
parties agree to submit to voluntary arbitration, regardless of what forum
they may choose, their agreement will fall within the jurisdiction of the CIAC,
such that, even if they specifically choose another forum, the parties will not
be precluded from electing to submit their dispute before the CIAC because
this right has been vested upon each party by law, i.e., E.O. No. 1008. [34]

Clearly, there is no more need to file a request with the CIAC in order to
vest it with jurisdiction to decide a construction dispute.
The arbitral clause in the Agreement is a commitment on the part of the
parties to submit to arbitration the disputes covered therein. Because that
clause is binding, they are expected to abide by it in good faith. [35] And because
it covers the dispute between the parties in the present case, either of them
may compel the other to arbitrate.[36]
Since petitioner has already filed a Complaint with the RTC
without prior recourse to arbitration, the proper procedure to enable
the CIAC to decide on the dispute is to request the stay or suspension
of such action, as provided under RA 876 [the Arbitration Law]. [37]

WHEREFORE, the Petition is DENIED and the assailed


Decision AFFIRMED. Costs against petitioner.
SO ORDERED.

THIRD DIVISION

[G.R. No. 120105. March 27, 1998]

BF CORPORATION, petitioner, vs. COURT OF APPEALS,

SHANGRI-LA PROPERTIES, COLAYCO, ALFREDO C.

RAMOS, INC., RUFO B. MAXIMO G. LICAUCO III and

BENJAMIN C. RAMOS, respondents.

DECISION

ROMERO, J.:
The basic issue in this petition for review on certiorari is whether or not the
contract for the construction of the EDSA Plaza between petitioner BF
Corporation and respondent Shangri-la Properties, Inc. embodies an
arbitration clause in case of disagreement between the parties in the
implementation of contractual provisions.
Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an
agreement whereby the latter engaged the former to construct the main
structure of the EDSA Plaza Project, a shopping mall complex in the City of
Mandaluyong.
The construction work was in progress when SPI decided to expand the
project by engaging the services of petitioner again. Thus, the parties entered
into an agreement for the main contract works after which construction work
began.
However, petitioner incurred delay in the construction work that SPI
considered as serious and substantial. [1] On the other hand, according to
petitioner, the construction works progressed in faithful compliance with the
First Agreement until a fire broke out on November 30, 1990 damaging Phase I
of the Project. [2] Hence, SPI proposed the re-negotiation of the agreement
between them.
Consequently, on May 30, 1991, petitioner and SPI entered into a written
agreement denominated as Agreement for the Execution of Builders Work for
the EDSA Plaza Project. Said agreement would cover the construction work
on said project as of May 1, 1991 until its eventual completion.
According to SPI, petitioner failed to complete the construction works and
abandoned the project.[3] This resulted in disagreements between the parties
as regards their respective liabilities under the contract. On July 12, 1993, upon
SPIs initiative, the parties respective representatives met in conference but
they failed to come to an agreement. [4]
Barely two days later or on July 14, 1993, petitioner filed with the Regional
Trial Court of Pasig a complaint for collection of the balance due under the
construction agreement. Named defendants therein were SPI and members of
its board of directors namely, Alfredo C. Ramos, Rufo B. Colayco, Antonio B.
Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III and Benjamin C.
Ramos.
On August 3, 1993, SPI and its co-defendants filed a motion to suspend
proceedings instead of filing an answer. The motion was anchored on
defendants allegation that the formal trade contract for the construction of the
project provided for a clause requiring prior resort to arbitration before judicial
intervention could be invoked in any dispute arising from the contract. The
following day, SPI submitted a copy of the conditions of the contract containing
the arbitration clause that it failed to append to its motion to suspend
proceedings.
Petitioner opposed said motion claiming that there was no formal contract
between the parties although they entered into an agreement defining their
rights and obligations in undertaking the project. It emphasized that the
agreement did not provide for arbitration and therefore the court could not be
deprived of jurisdiction conferred by law by the mere allegation of the
existence of an arbitration clause in the agreement between the parties.
In reply to said opposition, SPI insisted that there was such an arbitration
clause in the existing contract between petitioner and SPI. It alleged that
suspension of proceedings would not necessarily deprive the court of its
jurisdiction over the case and that arbitration would expedite rather than delay
the settlement of the parties respective claims against each other.
In a rejoinder to SPIs reply, petitioner reiterated that there was no
arbitration clause in the contract between the parties. It averred that granting
that such a clause indeed formed part of the contract, suspension of the
proceedings was no longer proper. It added that defendants should be
declared in default for failure to file their answer within the reglementary
period.
In its sur-rejoinder, SPI pointed out the significance of petitioners
admission of the due execution of the Articles of Agreement. Thus, on page
D/6 thereof, the signatures of Rufo B. Colayco, SPI president, and Bayani
Fernando, president of petitioner appear, while page D/7 shows that the
agreement is a public document duly notarized on November 15, 1991 by
Notary Public Nilberto R. Briones as document No. 345, page 70, book No.
LXX, Series of 1991 of his notarial register.[5]
Thereafter, upon a finding that an arbitration clause indeed exists, the
lower court[6] denied the motion to suspend proceedings, thus:
It appears from the said document that in the letter-agreement dated
May 30, 1991 (Annex C, Complaint), plaintiff BF and defendant
Shangri-La Properties, Inc. agreed upon the terms and conditions of
the Builders Work for the EDSA Plaza Project (Phases I, II and
Carpark), subject to the execution by the parties of a formal trade
contract. Defendants have submitted a copy of the alleged trade
contract, which is entitled `Contract Documents For Builders Work
Trade Contractor dated 01 May 1991, page 2 of which is entitled
`Contents of Contract Documents with a list of the documents therein
contained, and Section A thereof consists of the abovementioned
Letter-Agreement dated May 30, 1991. Section C of the said Contract
Documents is entitled `Articles of Agreement and Conditions of
Contract which, per its Index, consists of Part A (Articles of Agreement)
and B (Conditions of Contract). The said Articles of Agreement
appears to have been duly signed by President Rufo B. Colayco of
Shangri-La Properties, Inc. and President Bayani F. Fernando of BF
and their witnesses, and was thereafter acknowledged before Notary
Public Nilberto R. Briones of Makati, Metro Manila on November 15,
1991. The said Articles of Agreement also provides that the `Contract
Documents' therein listed `shall be deemed an integral part of this
Agreement, and one of the said documents is the `Conditions of
Contract which contains the Arbitration Clause relied upon by the
defendants in their Motion to Suspend Proceedings.
This Court notes, however, that the `Conditions of Contract referred to,
contains the following provisions:
`3. Contract Document.
Three copies of the Contract Documents referred to in
the Articles of Agreement shall be signed by the parties
to the contract and distributed to the Owner and the
Contractor for their safe keeping. (underscoring
supplied)
And it is significant to note further that the said `Conditions of Contract
is not duly signed by the parties on any page thereof --- although it
bears the initials of BFs representatives (Bayani F. Fernando and
Reynaldo M. de la Cruz) without the initials thereon of any
representative of Shangri-La Properties, Inc.
Considering the insistence of the plaintiff that the said Conditions of
Contract was not duly executed or signed by the parties, and the
failure of the defendants to submit any signed copy of the said
document, this Court entertains serious doubt whether or not the
arbitration clause found in the said Conditions of Contract is binding
upon the parties to the Articles of Agreement. (Underscoring supplied.)
The lower court then ruled that, assuming that the arbitration clause was
valid and binding, still, it was too late in the day for defendants to invoke
arbitration. It quoted the following provision of the arbitration clause:
Notice of the demand for arbitration of a dispute shall be filed in writing
with the other party to the contract and a copy filed with the Project
Manager. The demand for arbitration shall be made within a
reasonable time after the dispute has arisen and attempts to settle
amicably have failed; in no case, however, shall the demand he made
be later than the time of final payment except as otherwise expressly
stipulated in the contract.
Against the above backdrop, the lower court found that per the May 30,
1991 agreement, the project was to be completed by October 31,
1991. Thereafter, the contractor would pay P80,000 for each day of delay
counted from November 1, 1991 with liquified (sic) damages up to a maximum
of 5% of the total contract price.
The lower court also found that after the project was completed in
accordance with the agreement that contained a provision on progress
payment billing, SPI took possession and started operations thereof by
opening the same to the public in November, 1991. SPI, having failed to pay for
the works, petitioner billed SPI in the total amount of P110,883,101.52,
contained in a demand letter sent by it to SPI on February 17, 1993. Instead of
paying the amount demanded, SPI set up its own claim of P220,000,000.00 and
scheduled a conference on that claim for July 12, 1993. The conference took
place but it proved futile.
Upon the above facts, the lower court concluded:
Considering the fact that under the supposed Arbitration Clause
invoked by defendants, it is required that `Notice of the demand for
arbitration of a dispute shall be filed in writing with the other party x x x
x in no case x x x x later than the time of final payment x x x x which
apparently, had elapsed, not only because defendants had taken
possession of the finished works and the plaintiffs billings for the
payment thereof had remained pending since November, 1991 up to
the filing of this case on July 14, 1993, but also for the reason that
defendants have failed to file any written notice of any demand for
arbitration during the said long period of one year and eight months,
this Court finds that it cannot stay the proceedings in this case as
required by Sec. 7 of Republic Act No. 876, because defendants are in
default in proceeding with such arbitration.
The lower court denied SPIs motion for reconsideration for lack of merit
and directed it and the other defendants to file their responsive pleading or
answer within fifteen (15) days from notice.
Instead of filing an answer to the complaint, SPI filed a petition
for certiorariunder Rule 65 of the Rules of Court before the Court of Appeals.
Said appellate court granted the petition, annulled and set aside the orders
and stayed the proceedings in the lower court. In so ruling, the Court of
Appeals held:
The reasons given by the respondent Court in denying petitioners
motion to suspend proceedings are untenable.

1. The notarized copy of the articles of agreement attached as Annex A to


petitioners reply dated August 26, 1993, has been submitted by them to the
respondent Court (Annex G, petition). It bears the signature of petitioner Rufo
B. Colayco, president of petitioner Shangri-La Properties, Inc., and of Bayani
Fernando, president of respondent Corporation (Annex G-1, petition). At page
D/4 of said articles of agreement it is expressly provided that the conditions of
contract are `deemed an integral part thereof (page 188, rollo). And it is at
pages D/42 to D/44 of the conditions of contract that the provisions for
arbitration are found (Annexes G-3 to G-5, petition, pp. 227-229). Clause No. 35
on arbitration specifically provides:

Provided always that in case any dispute or difference shall arise between the
Owner or the Project Manager on his behalf and the Contractor, either during
the progress or after the completion or abandonment of the Works as to the
construction of this Contract or as to any matter or thing of whatsoever nature
arising thereunder or in connection therewith (including any matter or being left
by this Contract to the discretion of the Project Manager or the withholding by
the Project Manager of any certificate to which the Contractor may claim to be
entitled or the measurement and valuation mentioned in clause 30 (5) (a) of
these Conditions or the rights and liabilities of the parties under clauses 25, 26,
32 or 33 of these Conditions), the Owner and the Contractor hereby agree to
exert all efforts to settle their differences or dispute amicably. Failing these
efforts then such dispute or difference shall be referred to Arbitration in
accordance with the rules and procedures of the Philippine Arbitration Law.

The fact that said conditions of contract containing the arbitration clause bear
only the initials of respondent Corporations representatives, Bayani Fernando
and Reynaldo de la Cruz, without that of the representative of petitioner
Shangri-La Properties, Inc. does not militate against its effectivity. Said
petitioner having categorically admitted that the document, Annex A to its reply
dated August 26, 1993 (Annex G, petition), is the agreement between the
parties, the initial or signature of said petitioners representative to signify
conformity to arbitration is no longer necessary. The parties, therefore, should
be allowed to submit their dispute to arbitration in accordance with their
agreement.

2. The respondent Court held that petitioners `are in default in proceeding with
such arbitration. It took note of `the fact that under the supposed Arbitration
Clause invoked by defendants, it is required that Notice of the demand for
arbitration of a dispute shall be filed in writing with the other party x x x in no
case x x x later than the time of final payment, which apparently, had elapsed,
not only because defendants had taken possession of the finished works and
the plaintiffs billings for the payment thereof had remained pending since
November, 1991 up to the filing of this case on July 14, 1993, but also for the
reason that defendants have failed to file any written notice of any demand for
arbitration during the said long period of one year and eight months, x x x.

Respondent Court has overlooked the fact that under the arbitration clause

Notice of the demand for arbitration dispute shall be filed in writing with the
other party to the contract and a copy filed with the Project Manager. The
demand for arbitration shall be made within a reasonable time after the dispute
has arisen and attempts to settle amicably had failed; in no case, however,
shall the demand be made later than the time of final payment except as
otherwise expressly stipulated in the contract (underscoring supplied)

quoted in its order (Annex A, petition). As the respondent Court there said,
after the final demand to pay the amount of P110,883,101.52, instead of paying,
petitioners set up its own claim against respondent Corporation in the amount
of P220,000,000.00 and set a conference thereon on July 12, 1993. Said
conference proved futile. The next day, July 14, 1993, respondent Corporation
filed its complaint against petitioners. On August 13, 1993, petitioners wrote to
respondent Corporation requesting arbitration. Under the circumstances, it
cannot be said that petitioners resort to arbitration was made beyond
reasonable time. Neither can they be considered in default of their obligation to
respondent Corporation.

Hence, this petition before this Court. Petitioner assigns the following
errors:
A.
THE COURT OF APPEALS ERRED IN ISSUING THE
EXTRAORDINARY WRIT OF CERTIORARI ALTHOUGH THE
REMEDY OF APPEAL WAS AVAILABLE TO RESPONDENTS.
B.
THE COURT OF APPEALS ERRED IN FINDING GRAVE ABUSE
OF DISCRETION IN THE FACTUAL FINDINGS OF THE TRIAL
COURT THAT:
(i) THE PARTIES DID NOT ENTER INTO AN
AGREEMENT TO ARBITRATE.
(ii) ASSUMING THAT THE PARTIES DID ENTER
INTO THE AGREEMENT TO ARBITRATE,
RESPONDENTS ARE ALREADY IN DEFAULT IN
INVOKING THE AGREEMENT TO ARBITRATE.
On the first assigned error, petitioner contends that the Order of the lower
court denying the motion to suspend proceedings is a resolution of an incident
on the merits. As such, upon the continuation of the proceedings, the lower
court would appreciate the evidence adduced in their totality and thereafter
render a decision on the merits that may or may not sustain the existence of an
arbitration clause. A decision containing a finding that the contract has no
arbitration clause can then be elevated to a higher court in an ordinary appeal
where an adequate remedy could be obtained. Hence, to petitioner, the Court
of Appeals should have dismissed the petition for certiorari because the
remedy of appeal would still be available to private respondents at the proper
time. [7]
The above contention is without merit.
The rule that the special civil action of certiorari may not be invoked as a
substitute for the remedy of appeal is succinctly reiterated in Ongsitco v. Court
of Appeals [8] as follows:

x x x. Countless times in the past, this Court has held that `where appeal is the
proper remedy, certiorari will not lie. The writs of certiorari and prohibition are
remedies to correct lack or excess of jurisdiction or grave abuse of discretion
equivalent to lack of jurisdiction committed by a lower court. `Where the proper
remedy is appeal, the action for certiorari will not be entertained. x x
x. Certiorari is not a remedy for errors of judgment. Errors of judgment are
correctible by appeal, errors of jurisdiction are reviewable by certiorari.

Rule 65 is very clear. The extraordinary remedies of certiorari, prohibition


and mandamus are available only when `there is no appeal or any plain,
speedy and adequate remedy in the ordinary course of law x x x. That is why
they are referred to as `extraordinary. x x x.

The Court has likewise ruled that certiorari will not be issued to cure errors
in proceedings or correct erroneous conclusions of law or fact. As long as a
court acts within its jurisdiction, any alleged errors committed in the exercise of
its jurisdiction will amount to nothing more than errors of judgment which are
reviewable by timely appeal and not by a special civil action of certiorari.[9] v.
Court of Appeals, 327 Phil. 1, 41-42 (1996).9
This is not exactly so in the instant case. While this Court does not deny
the eventual jurisdiction of the lower court over the controversy, the issue
posed basically is whether the lower court prematurely assumed jurisdiction
over it. If the lower court indeed prematurely assumed jurisdiction over the
case, then it becomes an error of jurisdiction which is a proper subject of a
petition for certiorari before the Court of Appeals. And if the lower court does
not have jurisdiction over the controversy, then any decision or order it may
render may be annulled and set aside by the appellate court.
However, the question of jurisdiction, which is a question of law depends
on the determination of the existence of the arbitration clause, which is a
question of fact.In the instant case, the lower court found that there exists an
arbitration clause.However, it ruled that in contemplation of law, said
arbitration clause does not exist.
The issue, therefore, posed before the Court of Appeals in a petition for
certiorari is whether the Arbitration Clause does not in fact exist. On its face,
the question is one of fact which is not proper in a petition for certiorari.
The Court of Appeals found that an Arbitration Clause does in fact exist. In
resolving said question of fact, the Court of Appeals interpreted the
construction of the subject contract documents containing the Arbitration
Clause in accordance with Republic Act No. 876 (Arbitration Law) and existing
jurisprudence which will be extensively discussed hereunder. In effect, the
issue posed before the Court of Appeals was likewise a question of law. Being
a question of law, the private respondents rightfully invoked the special civil
action of certiorari.
It is that mode of appeal taken by private respondents before the Court of
Appeals that is being questioned by the petitioners before this Court. But at the
heart of said issue is the question of whether there exists an Arbitration
Clausebecause if an Arbitration Clause does not exist, then private
respondents took the wrong mode of appeal before the Court of Appeals.
For this Court to be able to resolve the question of whether private
respondents took the proper mode of appeal, which, incidentally, is a question
of law, then it has to answer the core issue of whether there exists an
Arbitration Clause which, admittedly, is a question of fact.
Moreover, where a rigid application of the rule that certiorari cannot be a
substitute for appeal will result in a manifest failure or miscarriage of justice,
the provisions of the Rules of Court which are technical rules may be
relaxed.[10] As we shall show hereunder, had the Court of Appeals dismissed
the petition for certiorari, the issue of whether or not an arbitration clause
exists in the contract would not have been resolved in accordance with
evidence extant in the record of the case. Consequently, this would have
resulted in a judicial rejection of a contractual provision agreed by the parties
to the contract.
In the same vein, this Court holds that the question of the existence of the
arbitration clause in the contract between petitioner and private respondents is
a legal issue that must be determined in this petition for review on certiorari.
Petitioner, while not denying that there exists an arbitration clause in the
contract in question, asserts that in contemplation of law there could not have
been one considering the following points. First, the trial court found that the
conditions of contract embodying the arbitration clause is not duly signed by
the parties. Second, private respondents misrepresented before the Court of
Appeals that they produced in the trial court a notarized duplicate original copy
of the construction agreement because what were submitted were mere
photocopies thereof. The contract(s) introduced in court by private
respondents were therefore of dubious authenticity because: (a) the
Agreement for the Execution of Builders Work for the EDSA Plaza Project
does not contain an arbitration clause, (b) private respondents surreptitiously
attached as Annexes `G-3 to `G-5 to their petition before the Court of Appeals
but these documents are not parts of the Agreement of the parties as there
was no formal trade contract executed, (c) if the entire compilation of
documents is indeed a formal trade contract, then it should have been duly
notarized, (d) the certification from the Records Management and Archives
Office dated August 26, 1993 merely states that the notarial record of Nilberto
Briones x x x is available in the files of (said) office as Notarial Registry Entry
only, (e) the same certification attests that the document entered in the notarial
registry pertains to the Articles of Agreement only without any other
accompanying documents, and therefore, it is not a formal trade contract, and
(f) the compilation submitted by respondents are a mere hodge-podge of
documents and do not constitute a single intelligible agreement.
In other words, petitioner denies the existence of the arbitration clause
primarily on the ground that the representatives of the contracting corporations
did not sign the Conditions of Contract that contained the said clause. Its other
contentions, specifically that insinuating fraud as regards the alleged insertion
of the arbitration clause, are questions of fact that should have been threshed
out below.
This Court may as well proceed to determine whether the arbitration
clause does exist in the parties contract. Republic Act No. 876 provides for the
formal requisites of an arbitration agreement as follows:

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 of the province or city where any of the parties resides, to enforce
such contract of submission. (Underscoring supplied.)

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. There is no denying that the parties entered into a
written contract that was submitted in evidence before the lower court. To
subscribe means to write underneath, as ones name; to sign at the end of a
document. [11] That word may sometimes be construed to mean to give consent
to or to attest. [12]
The Court finds that, upon a scrutiny of the records of this case, these
requisites were complied with in the contract in question. The Articles of
Agreement, which incorporates all the other contracts and agreements
between the parties, was signed by representatives of both parties and duly
notarized. The failure of the private respondents representative to initial the
`Conditions of Contract would therefor not affect compliance with the formal
requirements for arbitration agreements because that particular portion of the
covenants between the parties was included by reference in the Articles of
Agreement.
Petitioners contention that there was no arbitration clause because the
contract incorporating said provision is part of a hodge-podge document, is
therefore untenable. A contract need not be contained in a single writing. It
may be collected from several different writings which do not conflict with each
other and which, when connected, show the parties, subject matter, terms and
consideration, as in contracts entered into by correspondence. [13] A contract
may be encompassed in several instruments even though every instrument is
not signed by the parties, since it is sufficient if the unsigned instruments are
clearly identified or referred to and made part of the signed instrument or
instruments. Similarly, a written agreement of which there are two copies, one
signed by each of the parties, is binding on both to the same extent as though
there had been only one copy of the agreement and both had signed it. [14]
The flaw in petitioners contentions therefore lies in its having segmented
the various components of the whole contract between the parties into several
parts. This notwithstanding, petitioner ironically admits the execution of the
Articles of Agreement. Notably, too, the lower court found that the said Articles
of Agreement also provides that the `Contract Documents therein listed `shall
be deemed an integral part of this Agreement, and one of the said documents
is the `Conditions of Contract which contains the Arbitration Clause. It is this
Articles of Agreement that was duly signed by Rufo B. Colayco, president of
private respondent SPI, and Bayani F. Fernando, president of petitioner
corporation. The same agreement was duly subscribed before notary public
Nilberto R. Briones. In other words, the subscription of the principal agreement
effectively covered the other documents incorporated by reference therein.
This Court likewise does not find that the Court of Appeals erred in ruling
that private respondents were not in default in invoking the provisions of the
arbitration clause which states that (t)he demand for arbitration shall be made
within a reasonable time after the dispute has arisen and attempts to settle
amicably had failed. Under the factual milieu, private respondent SPI should
have paid its liabilities under the contract in accordance with its terms.
However, misunderstandings appeared to have cropped up between the
parties ostensibly brought about by either delay in the completion of the
construction work or by force majeure or the fire that partially gutted the
project. The almost two-year delay in paying its liabilities may not therefore be
wholly ascribed to private respondent SPI.
Besides, private respondent SPIs initiative in calling for a conference
between the parties was a step towards the agreed resort to arbitration.
However, petitioner posthaste filed the complaint before the lower court. Thus,
while private respondent SPIs request for arbitration on August 13, 1993 might
appear an afterthought as it was made after it had filed the motion to suspend
proceedings, it was because petitioner also appeared to act hastily in order to
resolve the controversy through the courts.
The arbitration clause provides for a reasonable time within which the
parties may avail of the relief under that clause. Reasonableness is a relative
term and the question of whether the time within which an act has to be done is
reasonable depends on attendant circumstances. [15] This Court finds that under
the circumstances obtaining in this case, a one-month period from the time the
parties held a conference on July 12, 1993 until private respondent SPI notified
petitioner that it was invoking the arbitration clause, is a reasonable time.
Indeed, petitioner may not be faulted for resorting to the court to claim what
was due it under the contract. However, we find its denial of the existence of
the arbitration clause as an attempt to cover up its misstep in hurriedly filing
the complaint before the lower court.
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 [16] has been pursued and completed, then the lower court may
confirm the award [17] made by the arbitrator.
It should be noted that in 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.[18] Republic Act No. 876 was adopted to supplement the New Civil
Codes provisions on arbitration. [19] Its potentials as one of the alternative
dispute resolution methods that are now rightfully vaunted as the wave of the
future in international relations, 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.
WHEREFORE, the questioned Decision of the Court of Appeals is hereby
AFFIRMED and the petition for certiorari DENIED. This Decision is
immediately executory. Costs against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

EQUITABLE PCI BANKING G.R. No. 182248

CORPORATION, [1]

GEORGE L. GO, PATRICK D. GO, Present:

GENEVIEVE W.J. GO,

FERDINAND MARTIN G. QUISUMBING, J., Chairperson,

ROMUALDEZ, CARPIO MORALES,

OSCAR P. LOPEZ-DEE, TINGA,

RENE J. BUENAVENTURA, VELASCO, JR., and

GLORIA L. TAN-CLIMACO, BRION, JJ.

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,

- versus -

Promulgated:

RCBC CAPITAL CORPORATION,

Respondent. December 18, 2008

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

--x

DECISION

VELASCO, JR., J.:

The Case

This Petition for Review on Certiorari under Rule 45 seeks the

reversal of the January 8, 2008[2] and March 17, 2008[3] 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, 2007[4] 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 Agreement [5] (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

managers 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 Bankards financial
condition and of all its assets and liabilities, and is
complete in all material respects; and

ii) the statements of Bankards 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 = ------------------------------------------- (1.925)
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 latters 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.[7] Its 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 Bankards accounts

audited, creating for the purpose an audit team led by a certain Rubio, the

Vice-President for Finance of RCBC at the time. Rubios 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 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, 2004[8] 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 attorneys 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 RCBCs 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, RCBCs 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 Claimants 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 Bankards assets; and
iii) the relevant Bankard statements were
inadequate and misleading in that their disclosures
caused readers to be misinformed about Bankards
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 majoritys conclusion on the claim of
estoppel brought by the respondents.
On the matter of prescription, the tribunal held that RCBCs 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, RCBCs

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 Opinion [13] which he submitted to and which was

received on September 24, 2007 by the ICC-ICA, Justice Kapunan stated

the observation that RCBCs 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. Claimants witness, Dean Echanis asserts that the
inadequate provisioning for Bankards 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, Claimants 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. Rubios 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 Bankards 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 Courts Ruling

The petition must be denied.

On Procedural Misstep of Direct Appeal to This Court

As earlier recited, the ICC-ICAs 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.

Jaros [18] 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 arbiters 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.

RCBCs Claim Is Not Time-Barred

Petitioners argue that RCBCs claim under Sec. 5(g) is based on

overvaluation of Bankards 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
Bankards financial condition and of all its assets
and liabilities, and is complete in all material
respects; and

ii) the statements of Bankards 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 latters 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 latters 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 Bankards 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 RCBCs 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 Bankards 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

Bankards 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 Bankards

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 Bankards 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 EPCIBs 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 Bankards 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 Bankards 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 Bankards 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 SPAs 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, RCBCs claim for rescission of the SPA and damages due

to overvaluation of Bankards 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 RCBCs overprice

claim, and [b] substituted in its place the 3-year limitation under the

contract for other claims,[25] adopting 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 Bankards 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), RCBCs claim would

fall under Sec. 5(g), impliedly admitting that both provisions could very
well cover RCBCs 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 Bankards 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 Bankards 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 Bankards 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-ICAs 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 RCBCs 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 Workers 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 Reply[33] 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 timetable [35] for the arbitration.


On October 25, 2004, as previously agreed upon in the meeting on

October 4, 2004, petitioners filed a Motion to Dismiss [36] while RCBC

filed a Claimants Position Paper (Re: [Petitioners] Assertion that RCBC

CAPITAL CORPORATIONs 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 RCBCs 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 RCBCs 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 Bankards

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

Bankards Statistical Analysis System and to provide petitioners with a

soft copy of all of Bankards cardholders.[44]


During the February 23, 2005 meeting, EPCIBs

counsels/representatives were accompanied to the Bankards Credit-MIS

Group. There, Bankards 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 Bankards 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.

Sincoegue, 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 letter [46] 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 MakatiCity 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, 2006[58] 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,

RCBCs 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, RCBCs 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 RCBCs 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 others 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 RCBCs 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 RCBCs 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

RCBCs 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 ones 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-examine and 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. (Emphasis supplied.)
[70]

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 RCBCs 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

RCBCs 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 RCBCs 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 Bankards

accounting policies and practices and found them to conform to the

generally accepted accounting principles, contrary to RCBCs allegations.

It also bears stating that in his dissent, retired Justice Kapunan, an

arbitral tribunal member, argued that Bankards 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 ones 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 ones 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 Bankards 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 Bankards 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 Bankards accounts prior to

presenting its claim of overvaluation to petitioners. RCBC, therefore, had

no sufficient knowledge of the correctness of Bankards 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 Bankards voluminous records and transactions to

uncover any irregularities. That would be the only logical explanation

why Bankards alleged irregular practices were maintained for more than

two (2) years from closing date. The fact that RCBC continued with the

audit of Bankards 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 RCBCs 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 Bankards 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 Tribunals 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 TCs 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 Tribunals 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 Claimants 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. Rubios and Mr.


Legaspis 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 Tribunals 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

Appeals [76] 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 respondents 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.

Costs against petitioners.

SO ORDERED.

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