SECOND DIVISION

PHILIPPINE
AUTHORITY,
Petitioner,

ECONOMIC

ZONE

G.R. No. 179537

Present:
QUISUMBING, J., Chairperson,
CARPIO,*
CARPIO MORALES,
BERSAMIN,** and
ABAD, JJ.

- versus -

EDISON (BATAAN) COGENERATION

CORPORATION,
Respondent.

Promulgated:
October 23, 2009

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

DECISION
CARPIO MORALES, J.:
Petitioner Philippine Economic Zone Authority (PEZA) and Edison (Bataan) Cogeneration Corporation
(respondent) entered into a Power Supply and Purchase Agreement (PSPA or agreement) for a 10-year period effective
October 25, 1997 whereby respondent undertook to construct, operate, and maintain a power plant which would sell,
supply and deliver electricity to PEZA for resale to business locators in the Bataan Economic Processing Zone.
In the course of the discharge of its obligation, respondent requested from PEZA a tariff increase with a
mechanism for adjustment of the cost of fuel and lubricating oil, which request it reiterated on March 5, 2004.
PEZA did not respond to both requests, however, drawing respondent to write PEZA on May 3, 2004. Citing a
tariff increase which PEZA granted to the East Asia Utilities Corporation (EAUC), another supplier of electricity in the
Mactan Economic Zone, respondent informed PEZA of a violation of its obligation under Clause 4.9 of the PSPA not to
give preferential treatment to other power suppliers.
After the lapse of 90 days, respondent terminated the PSPA, invoking its right thereunder, and
demanded P708,691,543.00 as pre-termination fee. PEZA disputed respondents right to terminate the agreement and
refused to pay the pre-termination fee, prompting respondent to request PEZA to submit the dispute to arbitration
pursuant to the arbitration clause of the PSPA.
Petitioner refused to submit to arbitration, however, prompting respondent to file a Complaint [1] against PEZA for
specific performance before the Regional Trial Court (RTC) of Pasay, alleging that, inter alia:
xxxx
4.

5.

6.

Under Clauses 14.1 and 14.2 of the Agreement, the dispute shall be resolved through
arbitration before an Arbitration Committee composed of one representative of each party and
a third member who shall be mutually acceptable to the parties: x x x
xxx
Conformably with the Agreement, plaintiff notified defendant in a letter dated September 6,
2004 requesting that the parties submit their dispute to arbitration. In a letter
datedSeptember 8, 2004, which defendant received on the same date, defendant unjustifiably
refused to comply with the request for arbitration, in violation of its undertaking under the
Agreement. Defendant likewise refused to nominate its representative to the Arbitration
Committee as required by the Agreement.
Under Section 8 of Republic Act No. 876 (1953), otherwise known as the Arbitration Law, (a)
if either party to the contract fails or refuses to name his arbitrator within 15 days after receipt
of the demand for arbitration; or (b) if the arbitrators appointed by each party to the contract,
or appointed by one party to the contract and by the proper court, shall fail to agree upon or to
select the third arbitrator, then this Honorable Court shall appoint the arbitrator or
arbitrators.[2] (Emphasis and underscoring supplied)

Respondent accordingly prayed for judgment

x x x (a) designating (i) an arbitrator to represent defendant; and (ii) the third arbitrator who
shall act as Chairman of the Arbitration Committee; and (b) referring the attached Request for
Arbitration to the Arbitration Committee to commence the arbitration. [3]
and for other just and equitable reliefs.
In its Answer,[4] PEZA (hereafter petitioner):
1.

ADMIT[TED] the allegations in paragraphs 1, 2, 3, 4, and 6 of the

complaint, with the qualification that the alleged dispute subject of the plaintiffs
Request for Arbitration dated October 20, 2004 is not an arbitrable

issue, considering that the provision on pre-termination fee in the Power Sales
and Purchase Agreement (PSPA), is gravely onerous, unconscionable, greatly
disadvantageous to the government, against public policy and therefore invalid
and unenforceable.
2.

ADMIT[TED] the allegation in paragraph 5 of the complaint with the

qualification that the refusal of the defendant to arbitrate is justified considering
that the provision on the pre-termination fee subject of the plaintiffs Request
for Arbitration is invalid and unenforceable. Moreover, the pre-termination of
the PSPA is whimsical, has no valid basis and in violation of the provisions
thereof, constituting breach of contract on the part of the plaintiff. [5] (Emphasis
and underscoring supplied)

Xxxx
Respondent thereafter filed a Reply and Motion to Render Judgment on the Pleadings,[6] contending that since
petitioner
x x x does not challenge the fact that (a) there is a dispute between the parties; (b) the
dispute must be resolved through arbitration before a three-member arbitration committee; and (c)
defendant refused to submit the dispute to arbitration by naming its representative in the arbitration
committee,
judgment may be rendered directing the appointment of the two other members to complete the composition of the
arbitration committee that will resolve the dispute of the parties. [7]
By Order of April 5, 2005, Branch 118 of the Pasay City RTC granted respondents Motion to Render Judgment on
the Pleadings, disposing as follows:
WHEREFORE, all the foregoing considered, this Court hereby renders judgment in favor of
the plaintiff and against the defendant. Pursuant to Section 8 of RA 876, also known as the
Arbitration Law, and Power Sales and Purchase Agreement, this Court hereby appoints, subject to
their agreement as arbitrators, retired Supreme Court Chief Justice Andres Narvasa, as chairman of
the committee, and retired Supreme Court Justices Hugo Gutierrez, and Justice Jose Y. Feria, as
defendants and plaintiffs representative, respectively, to the arbitration committee. Accordingly, let
the Request for Arbitration be immediately referred to the Arbitration Committee so that it can
commence with the arbitration.
SO ORDERED.[8] (Underscoring supplied)

On appeal,[9] the Court of Appeals, by Decision of April 10, 2007, affirmed the RTC Order.[10] Its Motion for
Reconsideration[11] having been denied,[12] petitioner filed the present Petition for Review on Certiorari, [13] faulting the
appellate court
I
. . . WHEN IT DISMISSED PETITIONERS APPEAL AND AFFIRMED THE 05 APRIL 2004 ORDER OF THE
TRIAL COURT WHICH RENDERED JUDGMENT ON THE PLEADINGS, DESPITE THE FACT THAT
PETITIONERS ANSWER TENDERED AN ISSUE.
II
. . . WHEN IT AFFIRMED THE ORDER OF THE TRIAL COURT WHICH REFERRED RESPONDENTS
REQUEST FOR ARBITRATION DESPITE THE FACT THAT THE ISSUE PRESENTED BY THE RESPONDENT IS
NOT AN ARBITRABLE ISSUE.[14] (Underscoring supplied)
The petition fails.
The dispute raised by respondent calls for a proceeding under Section 6 of Republic Act No. 876, AN ACT TO
AUTHORIZE THE MAKING OF ARBITRATION AND SUBMISSION AGREEMENTS, TO PROVIDE FOR THE APPOINTMENT OF
ARBITRATORS AND THE PROCEDURE FOR ARBITRATION IN CIVIL CONTROVERSIES, AND FOR OTHER PURPOSES which
reads:
SECTION 6. Hearing by court. A party aggrieved by the failure, neglect or refusal of another to
perform under an agreement in writing providing for arbitration may petition the court for an order
directing that such arbitration proceed in the manner provided for in such agreement. Five days
notice in writing of the hearing of such application shall be served either personally or by registered
mail upon the party in default. The court shall hear the parties, and upon being satisfied that the
making of the agreement or such failure to comply therewith is not in issue, shall make an order
directing the parties to proceed to arbitration in accordance with the terms of the agreement. If the
making of the agreement or default be in issue the court shall proceed to summarily hear such issue.
If the finding be that no agreement in writing providing for arbitration was made, or that there is no
default in the proceeding thereunder, the proceeding shall be dismissed. If the finding be that a
written provision for arbitration was made and there is a default in proceeding thereunder, an order
shall be made summarily directing the parties to proceed with the arbitration in accordance with the
terms thereof.
x x x x (Underscoring supplied)

R.A. No. 876 explicitly confines the courts authority only to the determination of whether or not there is an
agreement in writing providing for arbitration. [15] Given petitioners admission of the material allegations of respondents
complaint including the existence of a written agreement to resolve disputes through arbitration, the assailed appellate
courts affirmance of the trial courts grant of respondents Motion for Judgment on the Pleadings is in order.
Petitioner argues that it tendered an issue in its Answer as it disputed the legality of the pre-termination fee
clause of the PSPA. Even assuming arguendo that the clause is illegal, it would not affect the agreement between
petitioner and respondent to resolve their dispute by arbitration.
The doctrine of separability, or severability as other writers call it, enunciates that an
arbitration agreement is independent of the main contract. The arbitration agreement is to be
treated as a separate agreement and the arbitration agreement does not automatically terminate
when the contract of which it is a part comes to an end.
The separability of the arbitration agreement is especially significant to the determination of
whether the invalidity of the main contract also nullifies the arbitration clause. Indeed,the doctrine
denotes that the invalidity of the main contract, also referred to as the container contract,
does not affect the validity of the arbitration agreement. Irrespective of the fact that the main
contract is invalid, the arbitration clause/agreement still remains valid and enforceable. [16] (Emphasis
in the original; underscoring supplied)
Petitioner nevertheless contends that the legality of the pre-termination fee clause is not arbitrable,
citing Gonzales v. Climax Mining Ltd. [17] which declared that the therein complaint should be brought before the regular
courts, and not before an arbitral tribunal, as it involved a judicial issue. Held the Court:
We agree that the case should not be brought under the ambit of the Arbitration Law
xxx. The question of validity of the contract containing the agreement to submit to arbitration will
affect the applicability of the arbitration clause itself. A party cannot rely on the contract and claim
rights or obligations under it and at the same time impugn its existence or validity.Indeed, litigants
are enjoined from taking inconsistent positions. As previously discussed, the complaint should have
been filed before the regular courts as it involved issues which are judicial in nature. [18]
The ruling in Gonzales was, on motion for reconsideration filed by the parties, modified, however, in this wise:
x x x The adjudication of the petition in G.R. No. 167994 effectively modifies part of the
Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the validity of the
contract containing the agreement to submit to arbitration does not affect the applicability of
the arbitration clause itself. A contrary ruling would suggest that a partys mere repudiation of
the main contract is sufficient to avoid arbitration. That is exactly the situation that the separability
doctrine, as well as jurisprudence applying it, seeks to avoid. We add that when it was declared
in G.R. No. 161957 that the case should not be brought for arbitration, it should be clarified that
the case referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators,
which was for the nullification of the main contract on the ground of fraud, as it had already
been determined that the case should have been brought before the regular courts involving as it
did judicial issues.[19] (Emphasis and underscoring supplied)
It bears noting that respondent does not seek to nullify the main contract. It merely submits these issues for
resolution by the arbitration committee, viz:
a.

Whether or not the interest of Claimant in the project or its economic return in its investment
was materially reduced as a result of any laws or regulations of the Philippine Government or
any agency or body under its control;

b.

Whether or not the parties failed to reach an agreement on the amendments to the Agreement
within 90 days from notice to respondent on May 3, 2004 of the material reduction in claimants
economic return under the Agreement;

c.

Whether or not as a result of (a) and (b) above, Claimant is entitled to terminate the Agreement;

d.

Whether or not Respondent accorded preferential treatment to EAUC in violation of the

Agreement;

e.

Whether or not as a result of (d) above, Claimant is entitled to terminate the Agreement;

f.

Whether or not Claimant is entitled to a termination fee equivalent to P708,691,543.00; and

g.

Who between Claimant and Respondent shall bear the cost and expenses of the arbitration,
including arbitrators fees, administrative expenses and legal fees. [20]

In fine, the issues raised by respondent are subject to arbitration in accordance with the arbitration clause in the
parties agreement.
WHEREFORE, the petition is DENIED.

SECOND DIVISION
FIESTA
CORPORATION,
Petitioner,

WORLD

MALL

- versus -

LINBERG PHILIPPINES, INC.,

Respondent.

G.R. NO. 152471

Present:
PUNO, J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
*
AZCUNA, and
GARCIA, JJ.
Promulgated:
August 18, 2006

x---------------------------------------------------------------------------------------------x
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the instant Petition for Review on Certiorari[1] assailing the Decision[2] dated December
12, 2001 and Resolution[3] dated February 28, 2002 rendered by the Court of Appeals in CA-G.R. SP No. 63671,
entitled Fiesta
World
Mall
Corporation, petitioner,
versus
Hon. Florito S. Macalino, Presiding Judge
of the RegionalTrial Court (RTC), Branch 267, Pasig City, and Linberg Philippines, Inc., respondents.
The facts of this case are:
Fiesta World Mall Corporation, petitioner, owns and operates Fiesta World Mall located at
Barangay Maraouy, Lipa City; while Linberg Philippines, Inc., respondent, is acorporation that builds and operates power
plants.
On January 19, 2000, respondent filed with the Regional Trial Court (RTC), Branch 267, Pasig City, a Complaint
for Sum of Money against petitioner, docketed as Civil Case No. 67755. The complaint alleges that on November 12,
1997, petitioner and respondent executed a build-own-operate agreement, entitled Contract Agreement for Power
Supply Services, 3.8 MW Base Load Power Plant [4] (the Contract). Under this Contract, respondent will construct, at its
own cost, and operate as owner a power plant, and to supply petitioner power/electricity at its shopping mall
in Lipa City. Petitioner, on the other hand, will pay respondent energy fees to be computed in accordance with the
Seventh Schedule of the Contract, the pertinent portions of which provide:
2.1 x x x
E1 988,888 kw-hr x BER
E2 (ED-988,888) x BER
Where:
E1 & E2 Energy fees in pesos for the billing period. Where E1 is based on the minimum energy off-take of
988,888 kw-hrs. per month and E2 is based on the actual meter reading less the minimum off-take.
BER Base energy rate at Ps 2.30/Kw-Hr billing rate based on the exchange rate of Ps 26.20 to the US dollar,
and with fuel oil to be supplied by LINBERG at its own cost. The base energy rate is subject to exchange rate
adjustment accordingly to the formula as follows:
BER 0.6426 + 0.3224 Pn + 1.345 Fn
26.40 4.00
WHERE:
Pn is defined as the average of the Bangko Sentral ng Pilipinas published dealing rates for thirty (30) trading
days immediately prior to the new billing rate.
Fn Weighted average of fuel price per liter based on the average of the last three (3) purchases made by
LINBERG as evidenced by purchase invoices.
ED Energy delivered in kw-hrs per meter reading.

3. Minimum Energy Off-Take

The energy fees payable to LINBERG shall be on the basis of actual KWH generated by the plant. However, if the
actual KWH generated is less than the minimum energy off-take level, the calculation of the energy fees shall be made
as if LINBERG has generated the minimum energy off-take level of 988,888 KW-HR per month.
The complaint further alleges that respondent constructed the power plant in Lipa City at a cost of
about P130,000,000.00. In November 1997, the power plant became operational and started supplying power/electricity
to petitioners shopping mall in Lipa City. In December 1997, respondent started billing petitioner. As of May 21,
1999,petitioners unpaid obligation amounted to P15,241,747.58, exclusive of interest. However, petitioner questioned
the said amount and refused to pay despite respondents repeated demands.
In its Answer with Compulsory Counterclaim, petitioner specifically denied the allegations in the complaint,
claiming that respondent failed to fulfill its obligations under the Contract by failing to supply
all its power/fuel needs. From November 10, 1998 until May 21, 1999, petitioner personally shouldered the cost of
fuel. Petitioner also disputed the amount of energy fees specified in the billings made by respondent because the
latter failed to monitor, measure, and record the quantities of electricity delivered by taking photographs
of the electricity meter reading prior to the issuance of its invoices and billings, also in violation of the
Contract.[5] Moreover, in the computation of the electrical billings, the minimum off-take of energy
(E2) was based solely on
the projected
consumption as computed
by
respondent. However, based on petitioners actualexperience, it could not consume the energy pursuant to the
minimum off-take even if it kept open all its lights and operated all its machinery and equipment for
twenty-four hours a day for a month. This fact was admitted by respondent. While both parties had discussions
on the questioned billings, however, there were no earnest efforts to resolve the differences in accordance with the
arbitration clause provided for in the Contract.
Finally, as a special affirmative defense in its answer, petitioner alleged that respondents filing of
the complaint is premature and should be dismissed on the ground of non-compliance with paragraph 7.4 of the
Contract which provides:
7.4 Disputes
If FIESTA WORLD disputes the amount specified by any invoice, it shall pay the undisputed amount on or
before such date(s), and the disputed amount shall be resolved by arbitration of three (3) persons, one (1) by
mutual choice, while the other two (2) to be each chosen by the parties themselves, within fourteen (14) days
after the due date for such invoice and all or any part of the disputed amount paid to LINBERG shall be paid together
with interest pursuant to Article XXV from the due date of the invoice. It is agreed, however, that both parties must
resolve the disputes within thirty (30) days, otherwise any delay in payment resulting to loss to LINBERG when
converted to $US as a result of depreciation of the Pesos shall be for the account of FIESTA WORLD. Corollarily, in case of
erroneous billings, however, LINBERG shall be liable to pay FIESTA WORLD for the cost of such deterioration, plus
interest computed pursuant to Art. XXV from the date FIESTA WORLD paid for the erroneous billing. (Underscoring
supplied)
Thereafter, petitioner filed a Motion to Set Case for Preliminary Hearing on the ground that respondent
violated the arbitration clause provided in the Contract, thereby rendering its cause of action premature.
This was opposed by respondent, claiming that paragraph 7.4 of the Contract on arbitration is not the provision
applicable to this case; and that since the parties failed tosettle their dispute, then respondent may resort to court
action pursuant to paragraph 17.2 of the same Contract which provides:
17.2
Amicable Settlement
The parties hereto agree that in the event there is any dispute or difference between them arising out
of this Agreement or in the interpretation of any of the provisions hereto, they shall endeavor to meet
together in an effort to resolve such dispute by discussion between them but failing such resolution the
Chief Executives of LINBERG and FIESTA WORLD shall meet to resolve such dispute or difference and the
joint decision of such shall be binding upon the parties hereto, and in the event that a settlement of any such
dispute or difference is not reached, then the provisions of Article XXI shall apply.
Article XXI, referred to in paragraph 17.2 above, reads:
ARTICLE XXI
JURISDICTION
The parties hereto submit to the exclusive jurisdiction of the proper courts of Pasig City, Republic of
the Philippines for the hearing and determination of any action or proceeding arising out of or in connection
with this Agreement.
In its Order dated October 3, 2000, the trial court denied petitioners motion for lack of merit.
Petitioner then filed a Motion for Reconsideration but it was denied in an Order dated January 11, 2001.
Dissatisfied, petitioner elevated the matter to the Court of Appeals via a Petition for Certiorari, docketed as CAG.R. SP No. 63671. On December 12, 2001, the appellate court rendered its Decision dismissing the petition and
affirming the challenged Orders of the trial court.
Petitioners Motion for Reconsideration
court in its Resolution[6] dated February 28, 2002.

of

the

above

Decision

was

likewise

denied by

the appellate

Hence, the instant Petition for Review on Certiorari.

The sole issue for our resolution is whether the filing with the trial court of respondents complaint is premature.
Paragraph 7.4 of the Contract, quoted earlier, mandates that should petitioner dispute any amount of energy
fees in the invoice and billings made by respondent, the sameshall be resolved by arbitration of three (3)
persons, one (1) by mutual choice, while the other two (2) to be each chosen by the parties
themselves. The parties, in incorporating such agreement in their Contract, expressly intended that the said matter in
dispute must first be resolved by an arbitration panel before it reaches the court.They made such
arbitration mandatory.
It is clear from the records
that petitioner disputed the amount of energy fees
demanded by
respondent. However, respondent, without prior recourse to arbitration as required in the Contract, filed directly with the
trial court its complaint, thus violating the arbitration clause in the Contract.
It bears stressing that such arbitration agreement is the law between the parties. Since that agreement is
binding between them, they are expected to abide by it in good faith. [7] And because it covers the dispute between them
in the present case, either of them may compel the other to arbitrate. [8] Thus, it is well within petitioners right to demand
recourse to arbitration.
We cannot agree with respondent that it can directly seek judicial recourse by filing an action against petitioner
simply because both failed to settle their differencesamicably. Suffice it to state that there is nothing in the
Contract providing that the parties may dispense with the arbitration clause. Article XXI on jurisdiction cited by
respondent, i.e., that the parties hereto submit to the exclusive jurisdiction of the proper courts
of Pasig City merely provides for the venue of any action arising out of or in connection with the stipulations of the
parties in the Contract.
Moreover, we note that the computation of the energy fees disputed by petitioner also involves technical
matters that are better left to an arbitration panel who has expertise in those areas. Alternative dispute resolution
methods or ADRs like arbitration, mediation, negotiation and conciliation are encouraged by this Court. By enabling the
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. [9] To brush aside such agreement providing for
arbitration in case of disputes between the parties would be a step backward. As we held in BF Corporation v. Court of
Appeals,[10]
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 (The Arbitration Law), this Court has countenanced the settlement of
disputes through arbitration (Puromines, Inc. v. Court of Appeals, G.R. No. 91228, March 22, 1993, 220 SCRA 281290). Republic Act No. 876 was adopted to supplement the New Civil Codes provisions on arbitration (Chung Fu
Industries Phils., Inc. v. Court of Appeals, G.R. No. 92683, February 25, 1992, 206 SCRA 545, 551). 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.
In this connection, since respondent has already filed a complaint with the trial court without prior recourse to
arbitration, the proper procedure to enable an arbitration panel to resolve the parties dispute pursuant to their Contract
is for the trial court to stay the proceedings.[11] After the arbitration proceeding has been pursued and
completed, then thetrial court may confirm the award made by the arbitration panel. [12]
In sum, we hold that the Court of Appeals erred in disregarding the arbitration clause in the parties Contract.
WHEREFORE, we GRANT the instant petition. The assailed Decision and Resolution of the Court of Appeals in
CA-G.R. SP No. 63671 are REVERSED. The parties are ordered to submit their controversy to the arbitration panel
pursuant to paragraph 7.4 of the Contract. The Regional Trial Court, Branch 267, Pasig City is directed to suspend the
proceedings in Civil Case No. 67755 until after the Arbitration Panel shall have resolved the controversy and submitted
its report to the trial court. Costs against respondent.

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 renegotiation 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 payP80,000 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 certiorari under 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 ofcertiorari.[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
Clause because 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.
Narvasa, C.J., (Chairman), Kapunan, and Purisima, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 198075

September 4, 2013

KOPPEL, INC. (formerly known as KPL AIRCON, INC.), Petitioner,

vs.
MAKATI ROTARY CLUB FOUNDATION, INC., Respondent.
DECISION
PEREZ, J.:
This case is an appeal1 from the Decision2 dated 19 August 2011 of the Court of Appeals in C.A.-G.R. SP No. 116865.

The facts:
The Donation
Fedders Koppel, Incorporated (FKI), a manufacturer of air-conditioning products, was the registered owner of a parcel of
land located at Km. 16, South Superhighway, Paraaque City (subject land). 3 Within the subject land are buildings and
other improvements dedicated to the business of FKI. 4
In 1975, FKI5 bequeathed the subject land (exclusive of the improvements thereon) in favor of herein respondent Makati
Rotary Club Foundation, Incorporated by way of a conditional donation. 6 The respondent accepted the donation with all
of its conditions.7 On 26 May1975, FKI and the respondent executed a Deed of Donation8evidencing their consensus.
The Lease and the Amended Deed of Donation
One of the conditions of the donation required the respondent to lease the subject land back to FKI under terms
specified in their Deed of Donation. 9 With the respondents acceptance of the donation, a lease agreement between FKI
and the respondent was, therefore, effectively incorporated in the Deed of Donation.
Pertinent terms of such lease agreement, as provided in the Deed of Donation , were as follows:
1. The period of the lease is for twenty-five (25) years, 10 or until the 25th of May 2000;
2. The amount of rent to be paid by FKI for the first twenty-five (25) years is P40,126.00 per annum .11
The Deed of Donation also stipulated that the lease over the subject property is renewable for another period of twentyfive (25) years " upon mutual agreement" of FKI and the respondent. 12 In which case, the amount of rent shall be
determined in accordance with item 2(g) of the Deed of Donation, viz:
g. The rental for the second 25 years shall be the subject of mutual agreement and in case of disagreement the matter
shall be referred to a Board of three Arbitrators appointed and with powers in accordance with the Arbitration Law of
the Philippines, Republic Act 878, whose function shall be to decide the current fair market value of the land excluding
the improvements, provided, that, any increase in the fair market value of the land shall not exceed twenty five percent
(25%) of the original value of the land donated as stated in paragraph 2(c) of this Deed. The rental for the second 25
years shall not exceed three percent (3%) of the fair market value of the land excluding the improvements as
determined by the Board of Arbitrators.13
In October 1976, FKI and the respondent executed an Amended Deed of Donation 14 that reiterated the provisions of the
Deed of Donation , including those relating to the lease of the subject land.
Verily, by virtue of the lease agreement contained in the Deed of Donation and Amended Deed of Donation , FKI was
able to continue in its possession and use of the subject land.
2000 Lease Contract
Two (2) days before the lease incorporated in the Deed of Donation and Amended Deed of Donation was set to expire,
or on 23 May 2000, FKI and respondent executed another contract of lease ( 2000 Lease Contract ) 15covering the
subject land. In this 2000 Lease Contract, FKI and respondent agreed on a new five-year lease to take effect on the 26th
of May 2000, with annual rents ranging from P4,000,000 for the first year up to P4,900,000 for the fifth year.16 The 2000
Lease Contract also contained an arbitration clause enforceable in the event the parties come to disagreement about
the" interpretation, application and execution" of the lease, viz :
19. Governing Law The provisions of this 2000 Lease Contract shall be governed, interpreted and construed in all
aspects in accordance with the laws of the Republic of the Philippines.
Any disagreement as to the interpretation, application or execution of this 2000 Lease Contract shall be submitted to a
board of three (3) arbitrators constituted in accordance with the arbitration law of the Philippines. The decision of the
majority of the arbitrators shall be binding upon FKI and respondent. 17 (Emphasis supplied)
2005 Lease Contract
After the 2000 Lease Contract expired, FKI and respondent agreed to renew their lease for another five (5) years. This
new lease (2005 Lease Contract )18 required FKI to pay a fixed annual rent of P4,200,000.19 In addition to paying the
fixed rent, however, the 2005 Lease Contract also obligated FKI to make a yearly " donation " of money to the
respondent.20 Such donations ranged from P3,000,000 for the first year up to P3,900,000for the fifth year. 21 Notably, the
2005 Lease Contract contained an arbitration clause similar to that in the 2000 Lease Contract, to wit:
19. Governing Law The provisions of this 2005 Lease Contract shall be governed, interpreted and construed in all
aspects in accordance with the laws of the Republic of the Philippines.
Any disagreement as to the interpretation, application or execution of this 2005 Lease Contract shall be submitted to a
board of three (3) arbitrators constituted in accordance with the arbitration law of the Philippines. The decision of the
majority of the arbitrators shall be binding upon FKI and respondent. 22 (Emphasis supplied)

The Assignment and Petitioners Refusal to Pay

From 2005 to 2008, FKI faithfully paid the rentals and " donations "due it per the 2005 Lease Contract. 23 But in June of
2008, FKI sold all its rights and properties relative to its business in favor of herein petitioner Koppel, Incorporated. 24 On
29 August 2008, FKI and petitioner executed an Assignment and Assumption of Lease and Donation 25 wherein FKI,
with the conformity of the respondent, formally assigned all of its interests and obligations under the Amended Deed of
Donation and the 2005 Lease Contract in favor of petitioner.
The following year, petitioner discontinued the payment of the rent and " donation " under the 2005 Lease Contract.
Petitioners refusal to pay such rent and "donation " emanated from its belief that the rental stipulations of the 2005
Lease Contract, and even of the 2000 Lease Contract, cannot be given effect because they violated one of the" material
conditions " of the donation of the subject land, as stated in the Deed of Donation and Amended Deed of Donation. 26
According to petitioner, the Deed of Donation and Amended Deed of Donation actually established not only one but two
(2) lease agreements between FKI and respondent, i.e. , one lease for the first twenty-five (25)years or from 1975 to
2000, and another lease for the next twenty-five (25)years thereafter or from 2000 to 2025. 27 Both leases are material
conditions of the donation of the subject land.
Petitioner points out that while a definite amount of rent for the second twenty-five (25) year lease was not fixed in the
Deed of Donation and Amended Deed of Donation , both deeds nevertheless prescribed rules and limitations by which
the same may be determined. Such rules and limitations ought to be observed in any succeeding lease agreements
between petitioner and respondent for they are, in themselves, material conditions of the donation of the subject land. 28
In this connection, petitioner cites item 2(g) of the Deed of Donation and Amended Deed of Donation that supposedly
limits the amount of rent for the lease over the second twenty-five (25) years to only " three percent (3%) of the fair
market value of the subject land excluding the improvements. 29
For petitioner then, the rental stipulations of both the 2000 Lease Contract and 2005 Lease Contract cannot be enforced
as they are clearly, in view of their exorbitant exactions, in violation of the aforementioned threshold in item 2(g) of the
Deed of Donation and Amended Deed of Donation . Consequently, petitioner insists that the amount of rent it has to
pay thereon is and must still be governed by the limitations prescribed in the Deed of Donation and Amended Deed of
Donation.30
The Demand Letters
On 1 June 2009, respondent sent a letter (First Demand Letter) 31 to petitioner notifying the latter of its default " per
Section 12 of the 2005 Lease Contract " and demanding for the settlement of the rent and " donation " due for the year
2009. Respondent, in the same letter, further intimated of canceling the 2005 Lease Contract should petitioner fail to
settle the said obligations.32 Petitioner received the First Demand Letter on2 June 2009.33
On 22 September 2009, petitioner sent a reply 34 to respondent expressing its disagreement over the rental stipulations
of the 2005 Lease Contract calling them " severely disproportionate," "unconscionable" and "in clear violation to the
nominal rentals mandated by the Amended Deed of Donation." In lieu of the amount demanded by the respondent,
which purportedly totaled to P8,394,000.00, exclusive of interests, petitioner offered to pay only P80,502.79,35 in
accordance with the rental provisions of the Deed of Donation and Amended Deed of Donation. 36 Respondent refused
this offer.37
On 25 September 2009, respondent sent another letter (Second Demand Letter) 38 to petitioner, reiterating its demand
for the payment of the obligations already due under the 2005 Lease Contract. The Second Demand Letter also
contained a demand for petitioner to " immediately vacate the leased premises " should it fail to pay such obligations
within seven (7) days from its receipt of the letter. 39 The respondent warned of taking " legal steps " in the event that
petitioner failed to comply with any of the said demands. 40 Petitioner received the Second Demand Letter on
26September 2009.41
Petitioner refused to comply with the demands of the respondent. Instead, on 30 September 2009, petitioner filed with
the Regional Trial Court (RTC) of Paraaque City a complaint 42 for the rescission or cancellation of the Deed of Donation
and Amended Deed of Donation against the respondent. This case is currently pending before Branch 257 of the RTC,
docketed as Civil Case No. CV 09-0346.
The Ejectment Suit
On 5 October 2009, respondent filed an unlawful detainer case 43 against the petitioner before the Metropolitan Trial
Court (MeTC) of Paraaque City. The ejectment case was raffled to Branch 77 and was docketed as Civil Case No. 2009307.
On 4 November 2009, petitioner filed an Answer with Compulsory Counterclaim. 44 In it, petitioner reiterated its
objection over the rental stipulations of the 2005 Lease Contract for being violative of the material conditions of the
Deed of Donation and Amended Deed of Donation. 45 In addition to the foregoing, however, petitioner also interposed
the following defenses:
1. The MeTC was not able to validly acquire jurisdiction over the instant unlawful detainer case in view of the
insufficiency of respondents demand.46 The First Demand Letter did not contain an actual demand to vacate

the premises and, therefore, the refusal to comply there with does not give rise to an action for unlawful
detainer.47
2. Assuming that the MeTC was able to acquire jurisdiction, it may not exercise the same until the disagreement
between the parties is first referred to arbitration pursuant to the arbitration clause of the 2005 Lease
Contract.48
3. Assuming further that the MeTC has jurisdiction that it can exercise, ejectment still would not lie as the 2005
Lease Contract is void abinitio.49 The stipulation in the 2005 Lease Contract requiring petitioner to give yearly "
donations " to respondent is a simulation, for they are, in fact, parts of the rent. 50 Such grants were only
denominated as " donations " in the contract so that the respondentanon-stock and non-profit corporation
could evade payment of the taxes otherwise due thereon.51
In due course, petitioner and respondent both submitted their position papers, together with their other documentary
evidence.52 Remarkably, however, respondent failed to submit the Second Demand Letter as part of its documentary
evidence.
Rulings of the MeTC, RTC and Court of Appeals
On 27 April 2010, the MeTC rendered judgment 53 in favor of the petitioner. While the MeTC refused to dismiss the action
on the ground that the dispute is subject to arbitration, it nonetheless sided with the petitioner with respect to the
issues regarding the insufficiency of the respondents demand and the nullity of the 2005 Lease Contract. 54 The MeTC
thus disposed:
WHEREFORE, judgment is hereby rendered dismissing the case x x x, without pronouncement as to costs.
SO ORDERED.55
The respondent appealed to the Regional Trial Court (RTC). This appeal was assigned to Branch 274 of the RTC of
Paraaque City and was docketed as Civil Case No. 10-0255.
On 29 October 2010, the RTC reversed56 the MeTC and ordered the eviction of the petitioner from the subject land:
WHEREFORE, all the foregoing duly considered, the appealed Decision of the Metropolitan Trial Court, Branch 77,
Paraaque City, is hereby reversed, judgment is thus rendered in favor of the plaintiff-appellant and against the
defendant-appellee, and ordering the latter
(1) to vacate the lease[d] premises made subject of the case and to restore the possession thereof to the
plaintiff-appellant;
(2) to pay to the plaintiff-appellant the amount of Nine Million Three Hundred Sixty Two Thousand Four Hundred
Thirty Six Pesos (P9,362,436.00), penalties and net of 5% withholding tax, for the lease period from May 25,
2009 to May 25, 2010 and such monthly rental as will accrue during the pendency of this case;
(3) to pay attorneys fees in the sum of P100,000.00 plus appearance fee of P3,000.00;
(4) and costs of suit.
As to the existing improvements belonging to the defendant-appellee, as these were built in good faith, the provisions
of Art. 1678of the Civil Code shall apply.
SO ORDERED.57
The ruling of the RTC is premised on the following ratiocinations:
1. The respondent had adequately complied with the requirement of demand as a jurisdictional precursor to an
unlawful detainer action.58 The First Demand Letter, in substance, contains a demand for petitioner to vacate
when it mentioned that it was a notice " per Section12 of the 2005 Lease Contract." 59 Moreover, the issue of
sufficiency of the respondents demand ought to have been laid to rest by the Second Demand Letter which,
though not submitted in evidence, was nonetheless admitted by petitioner as containing a" demand to eject " in
its Answer with Compulsory Counterclaim.60
2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contract while, at the same
time, impugn such contracts validity. 61 Even assuming that it can, petitioner still did not file a formal application
before the MeTC so as to render such arbitration clause operational. 62 At any rate, the MeTC would not be
precluded from exercising its jurisdiction over an action for unlawful detainer, over which, it has exclusive
original jurisdiction.63
3. The 2005 Lease Contract must be sustained as a valid contract since petitioner was not able to adduce any
evidence to support its allegation that the same is void. 64 There was, in this case, no evidence that respondent
is guilty of any tax evasion.65

Aggrieved, the petitioner appealed to the Court of Appeals.

On 19 August 2011, the Court of Appeals affirmed 66 the decision of the RTC:
WHEREFORE , the petition is DENIED . The assailed Decision of the Regional Trial Court of Paraaque City, Branch 274,
in Civil Case No. 10-0255 is AFFIRMED.
xxxx
SO ORDERED.67
Hence, this appeal.
On 5 September 2011, this Court granted petitioners prayer for the issuance of a Temporary Restraining Order 68staying
the immediate implementation of the decisions adverse to it.
OUR RULING
Independently of the merits of the case, the MeTC, RTC and Court of Appeals all erred in overlooking the significance of
the arbitration clause incorporated in the 2005 Lease Contract . As the Court sees it, that is a fatal mistake.
For this reason, We grant the petition.
Present Dispute is Arbitrable Under the
Arbitration Clause of the 2005 Lease
Agreement Contract
Going back to the records of this case, it is discernable that the dispute between the petitioner and respondent
emanates from the rental stipulations of the 2005 Lease Contract. The respondent insists upon the enforce ability and
validity of such stipulations, whereas, petitioner, in substance, repudiates them. It is from petitioners apparent breach
of the 2005 Lease Contract that respondent filed the instant unlawful detainer action.
One cannot escape the conclusion that, under the foregoing premises, the dispute between the petitioner and
respondent arose from the application or execution of the 2005 Lease Contract . Undoubtedly, such kinds of dispute are
covered by the arbitration clause of the 2005 Lease Contract to wit:
19. Governing Law The provisions of this 2005 Lease Contract shall be governed, interpreted and construed in all
aspects in accordance with the laws of the Republic of the Philippines.
Any disagreement as to the interpretation, application or execution of this 2005 Lease Contract shall be submitted to a
board of three (3) arbitrators constituted in accordance with the arbitration law of the Philippines. The decision of the
majority of the arbitrators shall be binding upon FKI and respondent. 69 (Emphasis supplied)
The arbitration clause of the 2005 Lease Contract stipulates that "any disagreement" as to the " interpretation,
application or execution " of the 2005 Lease Contract ought to be submitted to arbitration. 70 To the mind of this Court,
such stipulation is clear and is comprehensive enough so as to include virtually any kind of conflict or dispute that may
arise from the 2005 Lease Contract including the one that presently besets petitioner and respondent.
The application of the arbitration clause of the 2005 Lease Contract in this case carries with it certain legal effects.
However, before discussing what these legal effects are, We shall first deal with the challenges posed against the
application of such arbitration clause.
Challenges Against the Application of the
Arbitration Clause of the 2005 Lease
Contract
Curiously, despite the lucidity of the arbitration clause of the 2005 Lease Contract, the petitioner, as well as the MeTC,
RTC and the Court of Appeals, vouched for the non-application of the same in the instant case. A plethora of arguments
was hurled in favor of bypassing arbitration. We now address them.
At different points in the proceedings of this case, the following arguments were offered against the application of the
arbitration clause of the 2005 Lease Contract:
1. The disagreement between the petitioner and respondent is non-arbitrable as it will inevitably touch upon the
issue of the validity of the 2005 Lease Contract. 71 It was submitted that one of the reasons offered by the
petitioner in justifying its failure to pay under the 2005 Lease Contract was the nullity of such contract for being
contrary to law and public policy.72 The Supreme Court, in Gonzales v. Climax Mining, Ltd., 73 held that " the
validity of contract cannot be subject of arbitration proceedings " as such questions are " legal in nature and
require the application and interpretation of laws and jurisprudence which is necessarily a judicial function ." 74
2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contract while, at the same
time, impugn such contracts validity.75

3. Even assuming that it can invoke the arbitration clause whilst denying the validity of the 2005 Lease Contract
, petitioner still did not file a formal application before the MeTC so as to render such arbitration clause
operational.76 Section 24 of Republic Act No. 9285 requires the party seeking arbitration to first file a " request "
or an application therefor with the court not later than the preliminary conference. 77
4. Petitioner and respondent already underwent Judicial Dispute Resolution (JDR) proceedings before the
RTC.78 Hence, a further referral of the dispute to arbitration would only be circuitous. 79 Moreover, an ejectment
case, in view of its summary nature, already fulfills the prime purpose of arbitration, i.e. , to provide parties in
conflict with an expedient method for the resolution of their dispute. 80 Arbitration then would no longer be
necessary in this case.81
None of the arguments have any merit.
First. As highlighted in the previous discussion, the disagreement between the petitioner and respondent falls within the
all-encompassing terms of the arbitration clause of the 2005 Lease Contract. While it may be conceded that in the
arbitration of such disagreement, the validity of the 2005 Lease Contract, or at least, of such contracts rental
stipulations would have to be determined, the same would not render such disagreement non-arbitrable. The quotation
from Gonzales that was used to justify the contrary position was taken out of context. A rereading of Gonzales would fix
its relevance to this case.
In Gonzales, a complaint for arbitration was filed before the Panel of Arbitrators of the Mines and Geosciences Bureau
(PA-MGB) seeking the nullification of a Financial Technical Assistance Agreement and other mining related agreements
entered into by private parties.82
Grounds invoked for the nullification of such agreements include fraud and unconstitutionality. 83 The pivotal issue that
confronted the Court then was whether the PA-MGB has jurisdiction over that particular arbitration complaint. Stated
otherwise, the question was whether the complaint for arbitration raises arbitrable issues that the PA-MGB can take
cognizance of.
Gonzales decided the issue in the negative. In holding that the PA-MGB was devoid of any jurisdiction to take
cognizance of the complaint for arbitration, this Court pointed out to the provisions of R.A. No. 7942, or the Mining Act
of 1995, which granted the PA-MGB with exclusive original jurisdiction only over mining disputes, i.e., disputes involving
" rights to mining areas," "mineral agreements or permits," and " surface owners, occupants, claim holders or
concessionaires" requiring the technical knowledge and experience of mining authorities in order to be
resolved.84 Accordingly, since the complaint for arbitration in Gonzales did not raise mining disputes as contemplated
under R.A. No. 7942 but only issues relating to the validity of certain mining related agreements, this Court held that
such complaint could not be arbitrated before the PA-MGB. 85 It is in this context that we made the pronouncement now
in discussion:
Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the parties as to some
provisions of the contract between them, which needs the interpretation and the application of that particular
knowledge and expertise possessed by members of that Panel. It is not proper when one of the parties repudiates the
existence or validity of such contract or agreement on the ground of fraud or oppression as in this case. The validity of
the contract cannot be subject of arbitration proceedings. Allegations of fraud and duress in the execution of a contract
are matters within the jurisdiction of the ordinary courts of law. These questions are legal in nature and require the
application and interpretation of laws and jurisprudence which is necessarily a judicial function. 86 (Emphasis supplied)
The Court in Gonzales did not simply base its rejection of the complaint for arbitration on the ground that the issue
raised therein, i.e. , the validity of contracts, is per se non-arbitrable. The real consideration behind the ruling was the
limitation that was placed by R.A. No. 7942 upon the jurisdiction of the PA-MGB as an arbitral body . Gonzales rejected
the complaint for arbitration because the issue raised therein is not a mining dispute per R.A. No. 7942 and it is for this
reason, and only for this reason, that such issue is rendered non-arbitrable before the PA-MGB. As stated beforehand,
R.A. No. 7942 clearly limited the jurisdiction of the PA-MGB only to mining disputes. 87
Much more instructive for our purposes, on the other hand, is the recent case of Cargill Philippines, Inc. v. San Fernando
Regal Trading, Inc.88 In Cargill , this Court answered the question of whether issues involving the rescission of a contract
are arbitrable. The respondent in Cargill argued against arbitrability, also citing therein Gonzales . After dissecting
Gonzales , this Court ruled in favor of arbitrability. 89 Thus, We held:
Respondent contends that assuming that the existence of the contract and the arbitration clause is conceded, the CA's
decision declining referral of the parties' dispute to arbitration is still correct. It claims that its complaint in the RTC
presents the issue of whether under the facts alleged, it is entitled to rescind the contract with damages; and that issue
constitutes a judicial question or one that requires the exercise of judicial function and cannot be the subject of an
arbitration proceeding. Respondent cites our ruling in Gonzales, wherein we held that a panel of arbitrator is bereft of
jurisdiction over the complaint for declaration of nullity/or termination of the subject contracts on the grounds of fraud
and oppression attendant to the execution of the addendum contract and the other contracts emanating from it, and
that the complaint should have been filed with the regular courts as it involved issues which are judicial in nature.
Such argument is misplaced and respondent cannot rely on the Gonzales case to support its argument. 90(Emphasis
ours)
Second. Petitioner may still invoke the arbitration clause of the 2005 Lease Contract notwithstanding the fact that it
assails the validity of such contract. This is due to the doctrine of separability. 91

Under the doctrine of separability, an arbitration agreement is considered as independent of the main contract. 92Being
a separate contract in itself, the arbitration agreement may thus be invoked regardless of the possible nullity or
invalidity of the main contract.93
Once again instructive is Cargill, wherein this Court held that, as a further consequence of the doctrine of separability,
even the very party who repudiates the main contract may invoke its arbitration clause. 94
Third . The operation of the arbitration clause in this case is not at all defeated by the failure of the petitioner to file a
formal "request" or application therefor with the MeTC. We find that the filing of a "request" pursuant to Section 24 of
R.A. No. 9285 is not the sole means by which an arbitration clause may be validly invoked in a pending suit.
Section 24 of R.A. No. 9285 reads:
SEC. 24. Referral to Arbitration . - A court before which an action is brought in a matter which is the subject matter of an
arbitration agreement shall, if at least one party so requests not later that the pre-trial conference, or upon the request
of both parties thereafter, refer the parties to arbitration unless it finds that the arbitration agreement is null and void,
inoperative or incapable of being performed. [Emphasis ours; italics original]
The " request " referred to in the above provision is, in turn, implemented by Rules 4.1 to 4.3 of A.M. No. 07-11-08-SC or
the Special Rules of Court on Alternative Dispute Resolution (Special ADR Rules):
RULE 4: REFERRAL TO ADR
Rule 4.1. Who makes the request. - A party to a pending action filed in violation of the arbitration agreement, whether
contained in an arbitration clause or in a submission agreement, may request the court to refer the parties to
arbitration in accordance with such agreement.
Rule 4.2. When to make request. - (A) Where the arbitration agreement exists before the action is filed . - The request
for referral shall be made not later than the pre-trial conference. After the pre-trial conference, the court will only act
upon the request for referral if it is made with the agreement of all parties to the case.
(B) Submission agreement . - If there is no existing arbitration agreement at the time the case is filed but the parties
subsequently enter into an arbitration agreement, they may request the court to refer their dispute to arbitration at any
time during the proceedings.
Rule 4.3. Contents of request. - The request for referral shall be in the form of a motion, which shall state that the
dispute is covered by an arbitration agreement.
A part from other submissions, the movant shall attach to his motion an authentic copy of the arbitration agreement.
The request shall contain a notice of hearing addressed to all parties specifying the date and time when it would be
heard. The party making the request shall serve it upon the respondent to give him the opportunity to file a comment
or opposition as provided in the immediately succeeding Rule before the hearing. [Emphasis ours; italics original]
Attention must be paid, however, to the salient wordings of Rule 4.1.It reads: "a party to a pending action filed in
violation of the arbitration agreement x x x may request the court to refer the parties to arbitration in accordance with
such agreement."
In using the word " may " to qualify the act of filing a " request " under Section 24 of R.A. No. 9285, the Special ADR
Rules clearly did not intend to limit the invocation of an arbitration agreement in a pending suit solely via such
"request." After all, non-compliance with an arbitration agreement is a valid defense to any offending suit and, as such,
may even be raised in an answer as provided in our ordinary rules of procedure. 95
In this case, it is conceded that petitioner was not able to file a separate " request " of arbitration before the MeTC.
However, it is equally conceded that the petitioner, as early as in its Answer with Counterclaim ,had already apprised
the MeTC of the existence of the arbitration clause in the 2005 Lease Contract 96 and, more significantly, of its desire to
have the same enforced in this case. 97 This act of petitioner is enough valid invocation of his right to arbitrate. Fourth .
The fact that the petitioner and respondent already under went through JDR proceedings before the RTC, will not make
the subsequent conduct of arbitration between the parties unnecessary or circuitous. The JDR system is substantially
different from arbitration proceedings.
The JDR framework is based on the processes of mediation, conciliation or early neutral evaluation which entails the
submission of a dispute before a " JDR judge " who shall merely " facilitate settlement " between the parties in conflict
or make a " non-binding evaluation or assessment of the chances of each partys case." 98 Thus in JDR, the JDR judge
lacks the authority to render a resolution of the dispute that is binding upon the parties in conflict. In arbitration, on the
other hand, the dispute is submitted to an arbitrator/s a neutral third person or a group of thereof who shall have
the authority to render a resolution binding upon the parties. 99
Clearly, the mere submission of a dispute to JDR proceedings would not necessarily render the subsequent conduct of
arbitration a mere surplusage. The failure of the parties in conflict to reach an amicable settlement before the JDR may,
in fact, be supplemented by their resort to arbitration where a binding resolution to the dispute could finally be
achieved. This situation precisely finds application to the case at bench.

Neither would the summary nature of ejectment cases be a valid reason to disregard the enforcement of the arbitration
clause of the 2005 Lease Contract . Notwithstanding the summary nature of ejectment cases, arbitration still remains
relevant as it aims not only to afford the parties an expeditious method of resolving their dispute.
A pivotal feature of arbitration as an alternative mode of dispute resolution is that it is, first and foremost, a product of
party autonomy or the freedom of the parties to " make their own arrangements to resolve their own
disputes."100 Arbitration agreements manifest not only the desire of the parties in conflict for an expeditious resolution
of their dispute. They also represent, if not more so, the parties mutual aspiration to achieve such resolution outside of
judicial auspices, in a more informal and less antagonistic environment under the terms of their choosing. Needless to
state, this critical feature can never be satisfied in an ejectment case no matter how summary it may be.
Having hurdled all the challenges against the application of the arbitration clause of the 2005 Lease Agreement in this
case, We shall now proceed with the discussion of its legal effects.
Legal Effect of the Application of the
Arbitration Clause
Since there really are no legal impediments to the application of the arbitration clause of the 2005 Contract of Lease in
this case, We find that the instant unlawful detainer action was instituted in violation of such clause. The Law, therefore,
should have governed the fate of the parties and this suit:
R.A. No. 876 Section 7. Stay of civil action. - If any suit or proceeding be brought upon an issue arising out of an
agreement providing for the arbitration thereof, the court in which such suit or proceeding is pending, upon being
satisfied that the issue involved in such suit or proceeding is referable to arbitration, shall stay the action or proceeding
until an arbitration has been had in accordance with the terms of the agreement: Provided, That the applicant for the
stay is not in default in proceeding with such arbitration.[Emphasis supplied]
R.A. No. 9285
Section 24. Referral to Arbitration. - A court before which an action is brought in a matter which is the subject matter of
an arbitration agreement shall, if at least one party so requests not later that the pre-trial conference, or upon the
request of both parties thereafter, refer the parties to arbitration unless it finds that the arbitration agreement is null
and void, in operative or incapable of being performed. [Emphasis supplied]
It is clear that under the law, the instant unlawful detainer action should have been stayed; 101 the petitioner and the
respondent should have been referred to arbitration pursuant to the arbitration clause of the 2005 Lease Contract . The
MeTC, however, did not do so in violation of the lawwhich violation was, in turn, affirmed by the RTC and Court of
Appeals on appeal.
The violation by the MeTC of the clear directives under R.A. Nos.876 and 9285 renders invalid all proceedings it
undertook in the ejectment case after the filing by petitioner of its Answer with Counterclaim the point when the
petitioner and the respondent should have been referred to arbitration. This case must, therefore, be remanded to the
MeTC and be suspended at said point. Inevitably, the decisions of the MeTC, RTC and the Court of Appeals must all be
vacated and set aside.
The petitioner and the respondent must then be referred to arbitration pursuant to the arbitration clause of the 2005
Lease Contract.
This Court is not unaware of the apparent harshness of the Decision that it is about to make. Nonetheless, this Court
must make the same if only to stress the point that, in our jurisdiction, bona fide arbitration agreements are recognized
as valid;102 and that laws,103 rules and regulations104 do exist protecting and ensuring their enforcement as a matter of
state policy. Gone should be the days when courts treat otherwise valid arbitration agreements with disdain and
hostility, if not outright " jealousy," 105 and then get away with it. Courts should instead learn to treat alternative means
of dispute resolution as effective partners in the administration of justice and, in the case of arbitration agreements, to
afford them judicial restraint.106 Today, this Court only performs its part in upholding a once disregarded state policy.
Civil Case No. CV 09-0346
This Court notes that, on 30 September 2009, petitioner filed with the RTC of Paraaque City, a complaint 107 for the
rescission or cancellation of the Deed of Donation and Amended Deed of Donation against the respondent. The case is
currently pending before Branch 257 of the RTC, docketed as Civil Case No. CV 09-0346.
This Court recognizes the great possibility that issues raised in Civil Case No. CV 09-0346 may involve matters that are
rightfully arbitrable per the arbitration clause of the 2005 Lease Contract. However, since the records of Civil Case No.
CV 09-0346 are not before this Court, We can never know with true certainty and only speculate. In this light, let a copy
of this Decision be also served to Branch 257of the RTC of Paraaque for its consideration and, possible, application to
Civil Case No. CV 09-0346.
WHEREFORE, premises considered, the petition is hereby GRANTED . Accordingly, We hereby render a Decision:
1. SETTING ASIDE all the proceedings undertaken by the Metropolitan Trial Court, Branch 77, of Paraaque City
in relation to Civil Case No. 2009-307 after the filing by petitioner of its Answer with Counterclaim ;

2. REMANDING the instant case to the MeTC, SUSPENDED at the point after the filing by petitioner of its Answer
with Counterclaim;
3. SETTING ASIDE the following:
a. Decision dated 19 August 2011 of the Court of Appeals in C.A.-G.R. SP No. 116865,
b. Decision dated 29 October 2010 of the Regional Trial Court, Branch 274, of Paraaque City in Civil
Case No. 10-0255,
c. Decision dated 27 April 2010 of the Metropolitan Trial Court, Branch 77, of Paraaque City in Civil
Case No. 2009-307; and
4. REFERRING the petitioner and the respondent to arbitration pursuant to the arbitration clause of the 2005
Lease Contract, repeatedly included in the 2000 Lease Contract and in the 1976 Amended Deed of Donation.
Let a copy of this Decision be served to Branch 257 of the RTC of Paraaque for its consideration and, possible,
application to Civil Case No. CV 09-0346.
No costs.
SO ORDERED.