RCBC VS MAGWILL CORP

On 4 March 1999 petitioner Rizal Commercial Banking Corporation (RCBC) filed a complaint for reco
very of a sum of money with prayer for a writ of preliminary attachment against respondents Magwin
Marketing Corporation, Nelson Tiu, Benito Sy and Anderson Uy.1 On 26 April 1999, the trial court iss
ued a writ of attachment.2 On 4 June 1999 the writ was returned partially satisfied since only a parcel
of land purportedly owned by defendant Benito Sy was attached.3 In the meantime, summons was se
rved on each of the defendants, respondents herein, who filed their respective answers, except for de
fendant Gabriel Cheng who was dropped without prejudice as party-defendant as his whereabouts co
uld not be located.4 On 21 September 1999 petitioner moved for an alias writ of attachment which on
18 January 2000 the court a quo denied.
Petitioner did not cause the case to be set for pre-trial.6 For about six (6) months thereafter, discussio
ns between petitioner and respondents Magwin Marketing Corporation, Nelson Tiu, Benito Sy and An
derson Uy, as parties in Civil Case No. 99-518, were undertaken to restructure the indebtedness of re
spondent Magwin Marketing Corporation.7 On 9 May 2000 petitioner approved a debt payment sche
me for the corporation which on 15 May 2000 was communicated to the latter by means of a letter dat
ed 10 May 2000 for the conformity of its officers, i.e., respondent Nelson Tiu as President/General Ma
nager of Magwin Marketing Corporation and respondent Benito Sy as Director thereof.8 Only respond
ent Nelson Tiu affixed his signature on the letter to signify his agreement to the terms and conditions
of the restructuring.9
On 20 July 2000 the RTC of Makati City, on its own initiative, issued an Order dismissing without prej
udice Civil Case No. 99-518 for failure of petitioner as plaintiff therein to "prosecute its action for an u
nreasonable length of time . . .."10 On 31 July 2000 petitioner moved for reconsideration of the Order
by informing the trial court of respondents' unremitting desire to settle the case amicably through a loa
n restructuring program.11 On 22 August 2000 petitioner notified the trial court of the acquiescence th
ereto of respondent Nelson Tiu as an officer of Magwin Marketing Corporation and defendant in the ci
vil case.12
On 8 September 2000 the court a quo issued an Order reconsidering the dismissal without prejudice
of Civil Case No. 99-518 -
Acting on plaintiff's "Motion for Reconsideration" of the Order dated 20 July 2000 dismissing this case
for failure to prosecute, it appearing that there was already conformity to the restructuring of defendan
ts' indebtedness with plaintiff by defendant Nelson Tiu, President of defendant corporation per "Manif
estation and Motion" filed by plaintiff on 22 August 2000, there being probability of settlement among t
he parties, as prayed for, the Order dated 20 July 2000 is hereby set aside.
Plaintiff is directed to submit the compromise agreement within 15 days from receipt hereof. Failure o
n the part of plaintiff to submit the said agreement shall cause the imposition of payment of the requir
ed docket fees for re-filing of this case.
On 27 July 2000 petitioner filed in Civil Case No. 99-518 a Manifestation and Motion to Set Case for
Pre-Trial Conference alleging that "[t]o date, only defendant Nelson Tiu had affixed his signature on th
e May 10, 2000 letter which informed the defendants that plaintiff [herein petitioner] already approved
defendant Magwin Marketing Corporations request for restructuring of its loan obligations to plaintiff b
ut subject to the terms and conditions specified in said letter."14 This motion was followed on 5 Octob
er 2000 by petitioner's Supplemental Motion to Plaintiffs Manifestation and Motion to Set Case for Pre
-Trial Conference affirming that petitioner "could not submit a compromise agreement because only d
efendant Nelson Tiu had affixed his signature on the May 10, 2000 letter . . .."15 Respondent Anders
on Uy opposed the foregoing submissions of petitioner while respondents Magwin Marketing Corpora
tion, Nelson Tiu and Benito Sy neither contested nor supported them.16
The trial court, in an undated Order (although a date was later inserted in the Order), denied petitione
r's motion to calendar Civil Case No. 99-518 for pre-trial stating that -
ACting on plaintiff's [herein petitioner] "Manifestation and Motion to Set Case for Pre-Trial Conference
," the "Opposition" filed by defendant Uy and the subsequent "Supplemental Motion" filed by plaintiff;
defendant Uy's "Opposition," and plaintiff's "Reply;" for failure of the plaintiff to submit a compromise a
greement pursuant to the Order dated 8 September 2000 plaintiff's motion to set case for pre-trial con
ference is hereby denied.17
On 15 November 2000 petitioner filed its Notice of Appeal from the 8 September 2000 Order of the tri
al court as well as its undated Order in Civil Case No. 99-518. On 16 November 2000 the trial court is
sued two (2) Orders, one of which inserted the date "6 November 2000" in the undated Order rejectin
g petitioner's motion for pre-trial in the civil case, and the other denying due course to the Notice of A
ppeal on the ground that the "Orders dated 8 September 2000 and 6 November 2000 are interlocutor
y orders and therefore, no appeal may be taken . . .."18

On 7 December 2000 petitioner elevated the Orders dated 8 September 2000, 6 November 2000 and
16 November 2000 of the trial court to the Court of Appeals in a petition for certiorari under Rule 65 of
the Rules of Civil Procedure.19 In the main, petitioner argued that the court a quo had no authority to
compel the parties in Civil Case No. 99-518 to enter into an amicable settlement nor to deny the holdi
ng of a pre-trial conference on the ground that no compromise agreement was turned over to the cour
t a quo.20
On 28 September 2001 the appellate court promulgated its Decision dismissing the petition for lack of
merit and affirming the assailed Orders of the trial court21 holding that -
. . . although the language of the September 8, 2000 Order may not be clear, yet, a careful reading of
the same would clearly show that the setting aside of the Order dated July 20, 2000 which dismissed
petitioner's complaint . . . for failure to prosecute its action for an unreasonable length of time is depen
dent on the following conditions, to wit: a) The submission of the compromise agreement by petitioner
within fifteen (15) days from notice; and b) Failure of petitioner to submit the said compromise agreem
ent shall cause the imposition of the payment of the required docket fees for the re-filing of the case;
so much so that the non-compliance by petitioner of condition no. 1 would make condition no. 2 effect
ive, especially that petitioner's manifestation and motion to set case for pre-trial conference and suppl
emental motion . . . [were] denied by the respondent judge in his Order dated November 6, 2000, whi
ch in effect means that the Order dated July 20, 2000 was ultimately not set aside considering that a
party need not pay docket fees for the re-filing of a case if the original case has been revived and rein
stated.22
On 2 April 2002 reconsideration of the Decision was denied; hence, this petition.
In the instant case, petitioner maintains that the trial court cannot coerce the parties in Civil Case No.
99-518 to execute a compromise agreement and penalize their failure to do so by refusing to go forw
ard with the pre-trial conference. To hold otherwise, so petitioner avers, would violate Art. 2029 of the
Civil Code which provides that "[t]he court shall endeavor to persuade the litigants in a civil case to ag
ree upon some fair compromise," and this Court's ruling in Goldloop Properties, Inc. v. Court of Appe
als23 where it was held that the trial court cannot dismiss a complaint for failure of the parties to sub
mit a compromise agreement.
On the other hand, respondent Anderson Uy filed his comment after several extensions asserting that
there are no special and important reasons for undertaking this review. He also alleges that petitioner'
s attack is limited to the Order dated 8 September 2000 as to whether it is conditional as the Court of
Appeals so found and the applicability to this case of the ruling in Goldloop Properties, Inc. v. Court of
Appeals. Respondent Uy claims that the Order reconsidering the dismissal of Civil Case No. 99-518
without prejudice is on its face contingent upon the submission of the compromise agreement which i
n the first place was the principal reason of petitioner to justify the withdrawal of the Order declaring hi
s failure to prosecute the civil case. He further contends that the trial court did not force the parties in t
he civil case to execute a compromise agreement, the truth being that it dismissed the complaint ther
ein for petitioner's dereliction.
Finally, respondent Uy contests the relevance of Goldloop Properties, Inc. v. Court of Appeals, and re
fers to its incongruence with the instant case, i.e., that the complaint of petitioner was dismissed for fa
ilure to prosecute and not for its reckless disregard to present an amicable settlement as was the situ
ation in Goldloop Properties, Inc., and that the dismissal was without prejudice, in contrast with the di
smissal with prejudice ordered in the cited case. For their part, respondents Magwin Marketing Corpo
ration, Nelson Tiu and Benito Sy waived their right to file a comment on the instant petition and submi
tted the same for resolution of this Court.24
The petition of Rizal Commercial Banking Corporation is meritorious. It directs our attention to questio
ns of substance decided by the courts a quo plainly in a way not in accord with applicable precedents
as well as the accepted and usual course of judicial proceedings; it offers special and important reaso
ns that demand the exercise of our power of supervision and review. Furthermore, petitioner's objecti
ons to the proceedings below encompass not only the Order of 8 September 2000 but include the cog
nate Orders of the trial court of 6 and 16 November 2000. This is evident from the prayer of the instan
t petition which seeks to reverse and set aside the Decision of the appellate court and to direct the tria
l court to proceed with the pre-trial conference in Civil Case No. 99-518. Evidently, the substantive iss
ue involved herein is whether the proceedings in the civil case should progress, a question which at b
ottom embroils all the Orders affirmed by the Court of Appeals.
On the task at hand, we see no reason why RTC-Br. 135 of Makati City should stop short of hearing t
he civil case on the merits. There is no substantial policy worth pursuing by requiring petitioner to pay
again the docket fees when it has already discharged this obligation simultaneously with the filing of t
he complaint for collection of a sum of money. The procedure for dismissed cases when re-filed is the
same as though it was initially lodged, i.e., the filing of answer, reply, answer to counter-claim, includi
ng other foot-dragging maneuvers, except for the rigmarole of raffling cases which is dispensed with s
ince the re-filed complaint is automatically assigned to the branch to which the original case pertained
.25 A complaint that is re-filed leads to the re-enactment of past proceedings with the concomitant full
attention of the same trial court exercising an immaculate slew of jurisdiction and control over the cas
e that was previously dismissed,26 which in the context of the instant case is a waste of judicial time,
capital and energy
What judicial benefit do we derive from starting the civil case all over again, especially where three (3)
of the four (4) defendants, i.e., Magwin Marketing Corporation, Nelson Tiu and Benito Sy, have not co
ntested petitioner's plea before this Court and the courts a quo to advance to pre-trial conference? Ind
eed, to continue hereafter with the resolution of petitioner's complaint without the usual procedure for
the re-filing thereof, we will save the court a quo invaluable time and other resources far outweighing t
he docket fees that petitioner would be forfeiting should we rule otherwise.
Going over the specifics of this petition and the arguments of respondent Anderson Uy, we rule that t
he Order of 8 September 2000 did not reserve conditions on the reconsideration and reversal of the
Order dismissing without prejudice Civil Case No. 99-518. This is quite evident from its text which doe
s not use words to signal an intent to impose riders on the dispositive portion -
Acting on plaintiff's "Motion for Reconsideration" of the Order dated 20 July 2000 dismissing this case
for failure to prosecute, it appearing that there was already conformity to the restructuring of defendan
ts' indebtedness with plaintiff by defendant Nelson Tiu, President of defendant corporation per "Manif
estation and Motion" filed by plaintiff on 22 August 2000, there being probability of settlement among t
he parties, as prayed for, the Order dated 20 July 2000 is hereby set aside.
Plaintiff is directed to submit the compromise agreement within 15 days from receipt hereof. Failure o
n the part of plaintiff to submit the said agreement shall cause the imposition of payment of the requir
ed docket fees for re-filing of this case.27
Contrary to respondent Uy's asseverations, the impact of the second paragraph upon the first is simpl
y to illustrate what the trial court would do after setting aside the dismissal without prejudice: submissi
on of the compromise agreement for the consideration of the trial court. Nothing in the second paragr
aph do we read that the reconsideration is subject to two (2) qualifications. Certainly far from it, for in
Goldloop Properties, Inc. v. Court of Appeals28 a similar directive, i.e., "[t]he parties are given a perio
d of fifteen (15) days from today within which to submit a Compromise Agreement," was held to mean
that "should the parties fail in their negotiations the proceedings would continue from where they left o
ff." Goldloop Properties, Inc. further said that its order, or a specie of it, did not constitute an agreeme
nt or even an expectation of the parties that should they fail to settle their differences within the stipul
ated number of days their case would be dismissed.
The addition of the second sentence in the second paragraph does not change the absolute nullificati
on of the dismissal without prejudice decreed in the first paragraph. The sentence "[f]ailure on the part
of plaintiff to submit the said agreement shall cause the imposition of payment of the required docket f
ees for re-filing of this case" is not a directive to pay docket fees but only a statement of the event that
may result in its imposition. The reason for this is that the trial court could not have possibly made suc
h payment obligatory in the same civil case, i.e., Civil Case No. 99-518, since docket fees are defraye
d only after the dismissal becomes final and executory and when the civil case is re-filed.
It must be emphasized however that once the dismissal attains the attribute of finality, the trial court c
annot impose legal fees anew because a final and executory dismissal although without prejudice div
ests the trial court of jurisdiction over the civil case as well as any residual power to order anything rel
ative to the dismissed case; it would have to wait until the complaint is docketed once again.29 On th
e other hand, if we are to concede that the trial court retains jurisdiction over Civil Case No. 99-518 fo
r it to issue the assailed Orders, a continuation of the hearing thereon would not trigger a disburseme
nt for docket fees on the part of petitioner as this would obviously imply the setting aside of the order
of dismissal and the reinstatement of the complaint.
Indubitably, it is speculative to reckon the effectivity of the Order of dismissal without prejudice to the
presentation of the compromise agreement. If we are to admit that the efficacy of the invalidation of th
e Order of dismissal is dependent upon this condition, then we must inquire: from what date do we co
unt the fifteen (15)-day reglementary period within which the alleged revival of the order of dismissal b
egan to run? Did it commence from the lapse of the fifteen (15) days provided for in the Order of 8 Se
ptember 2000? Or do we count it from the 6 November 2000 Order when the trial court denied the hol
ding of a pre-trial conference? Or must it be upon petitioner's receipt of the 16 November 2000 Order
denying due course to its Notice of Appeal? The court a quo could not have instituted an Order that m
arked the proceedings before it with a shadow of instability and chaos rather than a semblance of con
stancy and firmness.
The subsequent actions of the trial court also belie an intention to revive the Order of dismissal withou
t prejudice in the event that petitioner fails to submit a compromise agreement. The Orders of 6 and 1
6 November 2000 plainly manifest that it was retaining jurisdiction over the civil case, a fact which wo
uld not have been possible had the dismissal without prejudice been resuscitated. Surely, the court a
quo could not have denied on 6 November 2000 petitioner's motion to calendar Civil Case No. 99-518
for pre-trial if the dismissal had been restored to life in the meantime. By then the dismissal without pr
ejudice would have already become final and executory so as to effectively remove the civil case from
the docket of the trial court.
The same is true with the Order of 16 November 2000 denying due course to petitioner's Notice of Ap
peal. There would have been no basis for such exercise of discretion because the jurisdiction of the c
ourt a quo over the civil case would have been discharged and terminated by the presumed dismissal
thereof. Moreover, we note the ground for denying due course to the appeal: the "Orders dated 8 Sep
tember 2000 and 6 November 2000 are interlocutory orders and therefore, no appeal may be taken fr
om . . .."30 This declaration strongly suggests that something more was to be accomplished in the civi
l case, thus negating the claim that the Order of dismissal without prejudice was resurrected upon the
parties' failure to yield a compromise agreement. A "final order" issued by a court has been defined a
s one which disposes of the subject matter in its entirety or terminates a particular proceeding or actio
n, leaving nothing else to be done but to enforce by execution what has been determined by the court
, while an "interlocutory order" is one which does not dispose of a case completely but leaves somethi
ng more to be decided upon.31
Besides the semantic and consequential improbabilities of respondent Uy's argument, our ruling in G
oldloop Properties, Inc., is decisive of the instant case. In Goldloop Properties, Inc., we reversed the a
ction of the trial court in dismissing the complaint for failure of the plaintiff to prosecute its case, which
was in turn based on its inability to forge a compromise with the other parties within fifteen (15) days f
rom notice of the order to do so and held -
Since there is nothing in the Rules that imposes the sanction of dismissal for failing to submit a compr
omise agreement, then it is obvious that the dismissal of the complaint on the basis thereof amounts
no less to a gross procedural infirmity assailable by certiorari. For such submission could at most be d
irectory and could not result in throwing out the case for failure to effect a compromise. While a compr
omise is encouraged, very strongly in fact, failure to consummate one does not warrant any procedur
al sanction, much less an authority to jettison a civil complaint worth P4,000,000.00 . . . Plainly, submi
ssion of a compromise agreement is never mandatory, nor is it required by any rule.32
As also explained therein, the proper course of action that should have been taken by the court a quo
, upon manifestation of the parties of their willingness to discuss a settlement, was to suspend the pro
ceedings and allow them reasonable time to come to terms (a) If willingness to discuss a possible co
mpromise is expressed by one or both parties; or (b) If it appears that one of the parties, before the c
ommencement of the action or proceeding, offered to discuss a possible compromise but the other pa
rty refused the offer, pursuant to Art. 2030 of the Civil Code. If despite efforts exerted by the trial court
and the parties the negotiations still fail, only then should the action continue as if no suspension had
taken place.33
Ostensibly, while the rules allow the trial court to suspend its proceedings consistent with the policy to
encourage the use of alternative mechanisms of dispute resolution, in the instant case, the trial court
only gave the parties fifteen (15) days to conclude a deal. This was, to say the least, a passive and pa
ltry attempt of the court a quo in its task of persuading litigants to agree upon a reasonable concessio
n.34 Hence, if only to inspire confidence in the pursuit of a middle ground between petitioner and resp
ondents, we must not interpret the trial court's Orders as dismissing the action on its own motion beca
use the parties, specifically petitioner, were anxious to litigate their case as exhibited in their several
manifestations and motions.
We reject respondent Uy's contention that Goldloop Properties, Inc. v. Court of Appeals is irrelevant t
o the case at bar on the dubious reasoning that the complaint of petitioner was dismissed for failure to
prosecute and not for the non-submission of a compromise agreement which was the bone of content
ion in that case, and that the dismissal imposed in the instant case was without prejudice, in contrast t
o the dismissal with prejudice decreed in the cited case. To begin with, whether the dismissal is with o
r without prejudice if grievously erroneous is detrimental to the cause of the affected party; Goldloop
Properties, Inc. does not tolerate a wrongful dismissal just because it was without prejudice. More imp
ortantly, the facts in Goldloop Properties, Inc. involve, as in the instant case, a dismissal for failure to
prosecute on the ground of the parties' inability to come up with a compromise agreement within fiftee
n (15) days from notice of the court's order therein. All told, the parallelism between them is unmistak
able.
Even if we are to accept on face value respondent's understanding of Goldloop Properties, Inc. as sol
ely about the failure to submit a compromise agreement, it is apparent that the present case confronts
a similar problem. Perhaps initially the issue was one of failure to prosecute, as can be observed from
the Order dated 20 July 2000, although later reversed and set aside. But thereafter, in the Order of 6
November 2000, the trial court refused to proceed to pre-trial owing to the "failure of the plaintiff to su
bmit a compromise agreement pursuant to the Order dated 8 September 2000." When the civil case
was stalled on account of the trial court's refusal to call the parties to a pre-trial conference, the reaso
n or basis therefor was the absence of a negotiated settlement - a circumstance that takes the case a
t bar within the plain ambit of Goldloop Properties, Inc. In any event, given that the instant case merel
y revolves around the search for a reasonable interpretation of the several Orders of the trial court, i.e
., as to whether the dismissal without prejudice was revived upon petitioner's helplessness to perfect
an out-of-court arrangement, with more reason must we employ the ruling in Goldloop Properties, Inc.
to resolve the parties' differences of opinion.

We also find nothing in the record to support respondent Uy's conclusion that petitioner has been mer
cilessly delaying the prosecution of Civil Case No. 99-518 to warrant its dismissal. A complaint may b
e dismissed due to plaintiff's fault: (a) if he fails to appear during a scheduled trial, especially on the d
ate for the presentation of his evidence in chief, or when so required at the pre-trial; (b) if he neglects
to prosecute his action for an unreasonable length of time; or (c) if he does not comply with the rules
or any order of the court. None of these was obtaining in the civil case.
While there was a lull of about six (6) months in the prosecution of Civil Case No. 99-518, it must be r
emembered that respondents themselves contributed largely to this delay. They repeatedly asked pet
itioner to consider re-structuring the debt of respondent Magwin Marketing Corporation to which petiti
oner graciously acceded. Petitioner approved a new debt payment scheme that was sought by respo
ndents, which it then communicated to respondent Corporation through a letter for the conformity of t
he latter's officers, i.e., respondent Nelson Tiu as President/General Manager and respondent Benito
Sy as Director thereof. Regrettably, only respondent Nelson Tiu affixed his signature on the letter to si
gnify his concurrence with the terms and conditions of the arrangement. The momentary lag in the civ
il case was aggravated when respondent Benito Sy for unknown and unexplained reasons paid no he
ed to the adjustments in the indebtedness although curiously he has not opposed before this Court or
the courts a quo petitioner's desire to go ahead with the pre-trial conference.
Admittedly, delay took place in this case but it was not an interruption that should have entailed the di
smissal of the complaint even if such was designated as without prejudice. To constitute a sufficient g
round for dismissal, the inattention of plaintiff to pursue his cause must not only be prolonged but also
be unnecessary and dilatory resulting in the trifling of judicial processes. In the instant case, the adjou
rnment was not only fleeting as it lasted less than six (6) months but was also done in good faith to ac
commodate respondents' incessant pleas to negotiate. Although the dismissal of a case for failure to
prosecute is a matter addressed to the sound discretion of the court, that judgment however must not
be abused. The availability of this recourse must be determined according to the procedural history of
each case, the situation at the time of the dismissal, and the diligence of plaintiff to proceed therein.3
5 Stress must also be laid upon the official directive that courts must endeavor to convince parties in
a civil case to consummate a fair settlement36 and to mitigate damages to be paid by the losing party
who has shown a sincere desire for such give-and-take.37 All things considered, we see no compellin
g circumstances to uphold the dismissal of petitioner's complaint regardless of its characterization as
being without prejudice.
In fine, petitioner cannot be said to have lost interest in fighting the civil case to the end. A court may
dismiss a case on the ground of non prosequitur but the real test of the judicious exercise of such po
wer is whether under the circumstances plaintiff is chargeable with want of fitting assiduousness in no
t acting on his complaint with reasonable promptitude. Unless a party's conduct is so indifferent, irres
ponsible, contumacious or slothful as to provide substantial grounds for dismissal, i.e., equivalent to d
efault or non-appearance in the case, the courts should consider lesser sanctions which would still a
mount to achieving the desired end.38 In the absence of a pattern or scheme to delay the disposition
of the case or of a wanton failure to observe the mandatory requirement of the rules on the part of the
plaintiff, as in the case at bar, courts should decide to dispense rather than wield their authority to dis
miss.39
Clearly, another creative remedy was available to the court a quo to attain a speedy disposition of Civ
il Case No. 99-518 without sacrificing the course of justice. Since the failure of petitioner to submit a c
ompromise agreement was the refusal of just one of herein respondents, i.e., Benito Sy, to sign his n
ame on the conforme of the loan restructure documents, and the common concern of the courts a qu
o was dispatch in the proceedings, the holding of a pre-trial conference was the best-suited solution t
o the problem as this stage in a civil action is where issues are simplified and the dispute quickly and
genuinely reconciled. By means of pre-trial, the trial court is fully empowered to sway the litigants to a
gree upon some fair compromise.
Dismissing the civil case and compelling petitioner to re-file its complaint is a dangerous, costly and ci
rcuitous route that may end up aggravating, not resolving, the disagreement. This case management
strategy is frighteningly deceptive because it does so at the expense of petitioner whose cause of acti
on, perhaps, may have already been admitted by its adverse parties as shown by three (3) of four (4)
defendants not willing to contest petitioner's allegations, and more critically, since this approach prom
otes the useless and thankless duplication of hard work already undertaken by the trial court. As we h
ave aptly observed, "[i]nconsiderate dismissals, even if without prejudice, do not constitute a panacea
nor a solution to the congestion of court dockets. While they lend a deceptive aura of efficiency to rec
ords of individual judges, they merely postpone the ultimate reckoning between the parties. In the abs
ence of clear lack of merit or intention to delay, justice is better served by a brief continuance, trial on
the merits, and final disposition of the cases before the court."40
G.R. No. 120105 BF CORP VS CA
The basic issue in this petition for review on certiorari is whether or not the contract for the constructio
n of the EDSA Plaza between petitioner BF Corporation and respondent Shangri-la Properties, Inc. e
mbodies an arbitration clause in case of disagreement between the parties in the implementation of c
ontractual provisions.
Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an agreement whereby the lat
ter engaged the former to construct the main structure of the "EDSA Plaza Project," a shopping mall c
omplex in the City of Mandaluyong. The construction work was in progress when SPI decided to expa
nd the project by engaging the services of petitioner again. Thus, the parties entered into an agreeme
nt for the main contract works after which construction work began.
However, petitioner incurred delay in the construction work that SPI considered as "serious and subst
antial."1 On the other hand, according to petitioner, the construction works "progressed in faithful com
pliance with the First Agreement until a fire broke out on November 30, 1990 damaging Phase I" of th
e Project.2 Hence, SPI proposed the re-negotiation of the agreement between them.
Consequently, on May 30, 1991, petitioner and SPI entered into a written agreement denominated as
"Agreement for the Execution of Builder's Work for the EDSA Plaza Project." Said agreement would c
over 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 co
ntract. On July 12, 1993, upon SPI's initiative, the parties' respective representatives met in conferenc
e 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 com
plaint 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. Calayco, 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 c
onstruction of the project provided for a clause requiring prior resort to arbitration before judicial interv
ention could be invoked in any dispute arising from the contract. The following day, SPI submitted a c
opy of the conditions of the contract containing the arbitration clause that it failed to append to its moti
on to suspend proceedings.

Petitioner opposed said motion claiming that there was no formal contract between the parties althou
gh they entered into an agreement defining their rights and obligations in undertaking the project. It e
mphasized that the agreement did not provide for arbitration and therefore the court could not be depr
ived of jurisdiction conferred by law by the mere allegation of the existence of an arbitration clause in t
he agreement between the parties.
In reply to said opposition, SPI insisted that there was such an arbitration clause in the existing contra
ct between petitioner and SPI. It alleged that suspension of proceedings would not necessarily depriv
e the court of its jurisdiction over the case and that arbitration would expedite rather than delay the se
ttlement of the parties' respective claims against each other.
In a rejoinder to SPI's reply, petitioner reiterated that there was no arbitration clause in the contract be
tween the parties. It averred that granting that such a clause indeed formed part of the contract, susp
ension of the proceedings was no longer proper. It added that defendants should be declared in defa
ult for failure to file their answer within the reglementary period.
In its sur-rejoinder, SPI pointed out the significance of petitioner's admission of the due execution of t
he "Articles of Agreement." Thus, on page D/6 thereof, the signatures of Rufo B. Colayco, SPI presid
ent, and Bayani Fernando, president of petitioner appear, while page D/7 shows that the agreement i
s a public document duly notarized on November 15, 1991 by Notary Public Nilberto R. Briones as do
cument 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 court6 denied the motion
to suspend proceedings, thus:
It appears from the said document that in the letter-agreement dated May 30, 1991 (Annex C, Compl
aint), plaintiff BF and defendant Shangri-La Properties, Inc. agreed upon the terms and conditions of t
he Builders Work for the EDSA Plaza Project (Phases I, II and Carpark), subject to the execution by t
he parties of a formal trade contract. Defendants have submitted a copy of the alleged trade contract,
which is entitled "Contract Documents For Builder's Work Trade Contractor" dated 01 May 1991, pag
e 2 of which is entitled "Contents of Contract Documents" with a list of the documents therein contain
ed, and Section A thereof consists of the abovementioned Letter-Agreement dated May 30, 1991. Se
ction 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 sai
d Articles of Agreement appears to have been duly signed by President Rufo B. Colayco of Shangri-L
a Properties, Inc. and President Bayani F. Fernando of BF and their witnesses, and was thereafter ac
knowledged 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 de
emed an integral part of this Agreement", and one of the said documents is the "Conditions of Contra
ct" which contains the Arbitration Clause relied upon by the defendants in their Motion to Suspend Pr
oceedings.
This Court notes, however, that the 'Conditions of Contract' referred to, contains the following provisio
ns:
3. Contract Document.
Three copies of the Contract Documents referred to in the Articles of Agreement shall be signed by th
e parties to the contract and distributed to the Owner and the Contractor for their safe keeping." (emp
hasis supplied).
And it is significant to note further that the said "Conditions of Contract" is not duly signed by the parti
es on any page thereof — although it bears the initials of BF's representatives (Bayani F. Fernando a
nd 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 o
r signed by the parties, and the failure of the defendants to submit any signed copy of the said docum
ent, this Court entertains serious doubt whether or not the arbitration clause found in the said Conditio
ns of Contract is binding upon the parties to the Articles of Agreement." (Emphasis 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 arbitra
tion clause:
Notice of the demand for arbitration of a dispute shall be filed in writing with the other party to the cont
ract and a copy filed with the Project Manager. The demand for arbitration shall be made within a rea
sonable time after the dispute has arisen and attempts to settle amicably have failed; in no case, how
ever, shall the demand he made be later than the time of final payment except as otherwise expressly
stipulated in the contract.
Against the above backdrop, the lower court found that per the May 30, 1991 agreement, the project
was to be completed by October 31, 1991. Thereafter, the contractor would pay P80,000 for each day
of delay counted from November 1, 1991 with "liquified (sic) damages up to a maximum of 5% of the t
otal contract price."

The lower court also found that after the project was completed in accordance with the agreement tha
t contained a provision on "progress payment billing," SPI "took possession and started operations th
ereof 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 b
ut 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 . . . . i
n no case . . . . later than the time of final payment . . . "which apparently, had elapsed, not only beca
use defendants had taken possession of the finished works and the plaintiff's billings for the payment
thereof had remained pending since November, 1991 up to the filing of this case on July 14, 1993, bu
t 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 proce
edings in this case as required by Sec. 7 of Republic Act No. 876, because defendants are in default i
n proceeding with such arbitration.
The lower court denied SPI's 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 Rule
s of Court before the Court of Appeals. Said appellate court granted the petition, annulled and set asi
de 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 ar
e untenable.
1. The notarized copy of the articles of agreement attached as Annex A to petitioners' reply date
d 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 artic
les 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 provisio
ns 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 M
anager on his behalf and the Contractor, either during the progress or after the completion or abando
nment 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 Contrac
t to the discretion of the Project Manager or the withholding by the Project Manager of any certificate t
o which the Contractor may claim to be entitled or the measurement and valuation mentioned in claus
e 30 (5) (a) of these Conditions' or the rights and liabilities of the parties under clauses 25, 26, 32 or 3
3 of these Conditions), the Owner and the Contractor hereby agree to exert all efforts to settle their dif
ferences 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 respo
ndent Corporation's representatives, Bayani Fernando and Reynaldo de la Cruz, without that of the re
presentative of petitioner Shangri-La Properties, Inc. does not militate against its effectivity. Said petiti
oner having categorically admitted that the document, Annex A to its reply dated August 26, 1993 (An
nex G, petition), is the agreement between the parties, the initial or signature of said petitioner's repre
sentative 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 require
d that "Notice of the demand for arbitration of a dispute shall be filed in writing with the other party . . .
in no case . . . later than the time of final payment," which apparently, had elapsed, not only because
defendants had taken possession of the finished works and the plaintiff's billings for the payment ther
eof had remained pending since November, 1991 up to the filing of this case on July 14, 1993, but als
o for the reason that defendants have failed to file any written notice of any demand for arbitration dur
ing the said long period of one year and eight months, . . . ."

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 reasona
ble 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 stipulat
ed in the contract (emphasis supplied)
quoted in its order (Annex A, petition). As the respondent Court there said, after the final demand to p
ay the amount of P110,883,101.52, instead of paying, petitioners set up its own claim against respon
dent Corporation in the amount of P220,000,000.00 and set a conference thereon on July 12, 1993. S
aid conference proved futile. The next day, July 14, 1993, respondent Corporation filed its complaint a
gainst petitioners. On August 13, 1993, petitioners wrote to respondent Corporation requesting arbitra
tion. Under the circumstances, it cannot be said that petitioners' resort to arbitration was made beyon
d reasonable time. Neither can they be considered in default of their obligation to respondent Corpora
tion.
Hence, this petition before this Court. Petitioner assigns the following errors:
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 t
he 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 d
ecision containing a finding that the contract has no arbitration clause can then be elevated to a highe
r 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 woul
d 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 Appeals8 as follows:
. . . . Countless times in the past, this Court has held that "where appeal is the proper remedy, certior
ari will not lie." The writs of certiorari and prohibition are remedies to correct lack or excess of jurisdicti
on or grave abuse of discretion equivalent to lack of jurisdiction committed by a lower court. "Where t
he proper remedy is appeal, the action for certiorari will not be entertained. . . . Certiorari is not a rem
edy for errors of judgment. Errors of judgment are correctible by appeal, errors of jurisdiction are revie
wable by certiorari."
Rule 65 is very clear. The extraordinary remedies of certiorari, prohibition and mandamus are availabl
e only when "there is no appeal or any plain, speedy and adequate remedy in the ordinary course of l
aw . . . ." That is why they are referred to as "extraordinary." . . . .

The Court has likewise ruled that "certiorari will not be issued to cure errors in proceedings or correct
erroneous conclusions of law or fact. As long as a court acts within its jurisdiction, any alleged errors
committed in the exercise of its jurisdiction will amount to nothing more than errors of judgment which
are reviewable by timely appeal and not by a special civil action of certiorari."9
This is not exactly so in the instant case. While this Court does not deny the eventual jurisdiction of th
e lower court over the controversy, the issue posed basically is whether the lower court prematurely a
ssumed jurisdiction over it. If the lower court indeed prematurely assumed jurisdiction over the case, t
hen it becomes an error of jurisdiction which is a proper subject of a petition for certiorari before the C
ourt of Appeals. And if the lower court does not have jurisdiction over the controversy, then any decisi
on 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 foun
d 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 Arbitr
ation Clause does not in fact exist. On its face, the 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 th
e Arbitration Clause in accordance with Republic Act No. 876 (Arbitration Law) and existing jurisprude
nce which will be extensively discussed hereunder. In effect, the issue posed before the Court of App
eals was likewise a question of law. Being a question of law, the private respondents rightfully invoke
d the special civil action of certiorari.
It is that mode of appeal taken by private respondents before the Court of Appeals that is being questi
oned by the petitioners before this Court. But at the heart of said issue is the question of whether ther
e exists an Arbitration Clause because if an Arbitration Clause does not exist, then private respondent
s 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 the
re 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 res
ult in a manifest failure or miscarriage of justice, the provisions of the Rules of Court which are techni
cal rules may be relaxed. 10 As we shall show hereunder, had the Court of Appeals dismissed the pet
ition for certiorari, the issue of whether or not an arbitration clause exists in the contract would not hav
e been resolved in accordance with evidence extant in the record of the case. Consequently, this wou
ld 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 co
ntract between petitioner and private respondents is a legal issue that must be determined in this petit
ion 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 b
y the parties. Second, private respondents misrepresented before the Court of Appeals that they prod
uced 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 respon
dents were therefore "of dubious authenticity" because: (a) the Agreement for the Execution of Builde
r's Work for the EDSA Plaza Project does not contain an arbitration clause, (b) private respondents "s
urreptitiously attached as Annexes "G-3" to "G-5" to their petition before the Court of Appeals but thes
e documents are not parts of the Agreement of the parties as "there was no formal trade contract exe
cuted," (c) if the entire compilation of documents "is indeed a formal trade contract," then it should ha
ve 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 . . . is available in the files
of (said) office as Notarial Registry Entry only," (e) the same certification attests that the document en
tered in the notarial registry pertains to the Articles of Agreement only without any other accompanyin
g documents, and therefore, it is not a formal trade contract, and (f) the compilation submitted by resp
ondents 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 th
e representatives of the contracting corporations did not sign the "Conditions of Contract" that contain
ed the said clause. Its other contentions, specifically that insinuating fraud as regards the alleged inse
rtion 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' c
ontract. Republic Act No. 876 provides for the formal requisites of an arbitration agreement as follows
:
Sec. 4. Form of arbitration agreement. — A contract to arbitrate a controversy thereafter arising betwe
en the parties, as well as a submission to arbitrate an existing controversy, shall be in writing and sub
scribed 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 ar
bitration of any controversy, shall be deemed a consent of the parties of the province or city where an
y of the parties resides, to enforce such contract of submission. (Emphasis supplied.).
The formal requirements of an agreement to arbitrate are therefore the following: (a) it must be in writi
ng and (b) it must be subscribed by the parties or their representatives. There is no denying that the p
arties entered into a written contract that was submitted in evidence before the lower court. To "subsc
ribe" means to write underneath, as one's 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 i
n the contract in question. The Articles of Agreement, which incorporates all the other contracts and a
greements between the parties, was signed by representatives of both parties and duly notarized. Th
e failure of the private respondent's representative to initial the "Conditions of Contract" would therefo
r not affect compliance with the formal requirements for arbitration agreements because that particula
r portion of the covenants between the parties was included by reference in the Articles of Agreement
.
Petitioner's contention that there was no arbitration clause because the contract incorporating said pr
ovision is part of a "hodge-podge" document, is therefore untenable. A contract need not be containe
d 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 co
ntracts entered into by correspondence. 13 A contract may be encompassed in several instruments e
ven though every instrument is not signed by the parties, since it is sufficient if the unsigned instrume
nts are clearly identified or referred to and made part of the signed instrument or instruments. Similarl
y, 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 sign
ed it. The flaw in petitioner's contentions therefore lies in its having segmented the various component
s of the whole contract between the parties into several parts. This notwithstanding, petitioner ironicall
y 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 c
ontains the Arbitration Clause.'" It is this Articles of Agreement that was duly signed by Rufo B. Colay
co, 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, th
e subscription of the principal agreement effectively covered the other documents incorporated by ref
erence therein.
This Court likewise does not find that the Court of Appeals erred in ruling that private respondents we
re 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 ti
nder the contract in accordance with its terms. However, misunderstandings appeared to have croppe
d up between the parties ostensibly brought about by either delay in the completion of the constructio
n work or by force majeure or the fire that partially gutted the project. The almost two-year delay in pa
ying its liabilities may not therefore be wholly ascribed to private respondent SPI.
Besides, private respondent SPI's 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 l
ower court. Thus, while private respondent SPI's request for arbitration on August 13, 1993 might app
ear an afterthought as it was made after it had filed the motion to suspend proceedings, it was becaus
e 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 wh
ich 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 c
onference on July 12, 1993 until private respondent SPI notified petitioner that it was invoking the arbi
tration 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 arbitratio
n 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. Sec
tion 7 of Republic Act No. 876 provides that proceedings therein have only been stayed. After the spe
cial proceeding of arbitration 16 has been pursued and completed, then the lower court may confirm t
he award 17 made by the arbitrator.
It should be noted that in this jurisdiction, arbitration has been held valid and constitutional. Even befo
re the approval on June 19, 1953 of Republic Act No. 876, this Court has countenanced the settleme
nt of disputes through arbitration. 18 Republic Act No. 876 was adopted to supplement the New Civil
Code's 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 worl
dwide. To brush aside a contractual agreement calling for arbitration in case of disagreement betwee
n the parties would therefore be a step backward.
G.R. No. L-9324 FAJARDO VS FAJARDO
On 3 November 1954 Angelina F. de Lopez, Pacita F. de Villavicencio and Corazon F. del Castillo, ch
ildren of the late Jacobo Fajardo y Puno, filed a petition in the Court of First Instance of Manila in Spe
cial Proceedings No. 59819, alleging that, pursuant to an agreement dated 18 November 1952, as a
mended by another dated 30 September 1953, entered into by and between the widow and heirs of th
e deceased, they agreed to subdivide into several lots the parcel of land covered by transfer certificat
e of title No. 352 and the parcel of land leased by the deceased in his lifetime from the Government, a
ll situate in the province of Cotabato, and adjudicate the lots thus subdivided to the groups of heirs; th
at in order to arrive at a fair distribution of the estate, a committee to appraise the value of the share a
djudicated to each group of heirs was formed; that the committee formed was composed of Demetrio
Fajardo, representing the first group of heirs, and Lucio R. Ildefonso, representing the second group o
f heirs; that the parties agreed further that in case of conflict in the reports of the two members, Edgar
do Villavicencio shall submit a report on the value of the lots as appraised by him and his report shall
be final and binding upon the parties; that as the two members of the committee submitted different a
nd conflicting reports, Edgardo Villavicencio submitted his own report on 6 September 1954; that in th
is report the widow Antonia J. Vda. de Fajardo, who is the administratrix of the estate, is called upon t
o pay to the petitioners the sum of P44,539.68, to settle the difference in value between the share adj
udicated to the former and the latter; and that all the heirs are about to register the two agreements m
entioned and to secure the corresponding certificates of title to the respective parcels of land adjudica
ted to them. Upon the foregoing allegations the petitioners prayed that the probate court direct the Re
gistrar of Deeds in and for the province of Cotabato to annotate on the transfer certificate of title to be
issued to Antonia J. Vda. de Fajardo for the lots adjudicated to her obligation to pay the sum of P44,5
39.68 due and owing to the petitioners.
On 12 November 1954 the administratrix objected to the motion to annotate the lien on the ground th
at the sum of P44,539.68 awarded to the petitioners has not yet been approved by the Court, and for
that reason the order to annotate the lieu would be premature; that the sum of P44,539.68 awarded to
the petitioners is unreasonable because the account trees planted in the parcel of land owned by the
deceased are given the same valuation as those planted in the parcel of land leased from the Govern
ment; that the administratrix has a claim still unpaid in the amount of P3,631.76 against each of the p
etitioners which may be set of partially against the sum of P44,539.68; that the administratrix has mad
e certain advances reimbursible by the heirs which may also be set off partially against the sum claim
ed by the heirs due them; that in the project of partition dated 24 November 1952 already approved b
y the Court, the petitioner Angelina F. de Lopez is required to pay the estate of the deceased Abelard
o Fajardo the sum of P2,018.40, but the said sum still remains unpaid; and that the report submitted b
y Edgardo Villavicencio has not yet been approved by the Court.
On 12 January 1955, the petitioners filed a reply to the opposition alleging that the report of Edgardo
Villavicencio was submitted in compliance with the agreement entered into by the heirs duly approved
by the Court on 10 October 1953; that in accordance with article 2044 of the new Civil Code, the repo
rt need not be approved by the Court to bind the parties therein; that granting that the sum of P44,539
.68 awarded to the petitioners is unreasonable, the objection thereto is not well taken because unreas
onableness is not a ground upon which the validity of the report may be assailed pursuant to article 2
038 of the same Code; that the administratrix has waived her right collect from each of the heirs the s
um of P3,631.76; that even if there is a sum of money due the estate of the deceased Abelardo Fajar
do from petitioners Angelina F. de Lopez, the same cannot be set up as ground to object to the report
filed by Edgardo Villavicencio because the creditor is a different estate; and that if any sum of money i
s due the estate of the late Abelardo Fajardo from the petitioners, their individual liability does not exc
eed P672.80 which they are willing to pay to the said estate.

On 28 January 1955 the Court issued an order, the dispositive part of which provides:
Premises considered this Court finds that the report of Edgardo Villavicencio in question does not req
uire judicial approval in view of the terms of the agreement above quoted, and that the unreasonablen
ess of the amount awarded is not one of the grounds provided for by law to contest the award or deci
sion of an arbitrator.
However, it appearing that there are amounts allegedly due and payable to the oppositor from each of
the movants, and in order to avoid multiplicity of incidents and actions, this Court is of the opinion that
the matter should beset for hearing, as it is hereby set for hearing on February 17, 1955, at 8:30 a.m.,
for the purpose of adjusting respective claims of the movants and the oppositor indicated above.
On 9 March 1955, acting upon the various pleadings filed by the parties, namely, motion for reconside
ration, reply thereto, rejoinder to reply, and opposition to the rejoinder, the Court issued an order deny
ing the motion for reconsideration.
The administratrix has appealed.
The aforequoted dispositive part of the order of the probate court appealed from holds in effect that th
e report of Edgardo Villavicencio is final binding upon the parties and that the sum of P44,539.68 is d
ue and payable by the administratrix to the petitioners.
The appellant contends that the said report is not final and binding upon the parties; that it must be ap
proved by the Court to be so; and that part of the agreement stipulating that the decision of the arbitra
tor is final, is contrary to public policy, for it deprives the courts of jurisdiction, and for that reason null
and void. The appellees, on the other hand, invoke article 2044 of the new Civil Code which provides
that "Any stipulation that the arbitrators' award or decision shall be final, is valid . . . .
Nowhere in the aforequoted stipulation of the agreement, as amended, is the arbitrator empower to a
ward to any heir the sum of money he did award to the petitioners. The purpose in forming the commi
ttee of two was to appraise the value of the estate as a step leading to its just and fair partition among
the heirs. At most that part of the report of the arbitrator awarding to the herein petitioners the sum of
P44,539.68 as due from the administratrix, would merely be recommendatory but could not be deeme
d final and binding upon the administratrix. What is final and binding upon the parties is that part of th
ere port appraising the subdivided parcels of land and improvements thereon. Section 24 (d), Republi
c Act No. 876, known as the Arbitration Law, which took effect on 19 December 1953, and may be ret
roactively applied to the case at bar because it is procedural in character, provides that the court may
vacate an award of an arbitrator when he has exceeded his powers. The probate court in effect, awar
ds to the petitioners the sum of P44,539.68 as due from the administratrix upon the ground "that the r
eport of Edgardo Villavicencio in question does not require Judicial approval in view of the terms of th
e agreement above quoted, and that the unreasonableness of the amount awarded is not one of the g
rounds provided for by law to contest the award or decision of an arbitrator." As already adverted to, t
his is an error, because the agreement entered into by the parties does not give the arbitrator the pow
er to do so.
The order appealed from in so far as it holds "that the report of Edgardo Villavicencio in question does
not require judicial approval in view of the terms of the agreement above quoted, and that the unreas
onableness of the amount awarded is not one of the grounds provided for by law to contest the award
or decision of an arbitrator," is set aside. Let the probate court proceed with the hearing of the case "f
or the purpose of adjusting the respective claims of the movants and the oppositor indicated above,"
without pronouncement as to costs.
G.R. No. L-21549 VEGA VS SAN CARLOS
By virtue of these considerations, the court is of opinion that with respect to the complaint, the plaintiff
must be held to have a better right to the possession of the 32,959 kilos of centrifugal sugar manufact
ured in the defendants' central and the latter is sentenced to deliver them to the plaintiff, and in defaul
t, the selling price thereof, amounting to P5,981.06 deposited in the office of the clerk of the court. Pla
intiff's claim for damages is denied, because it has not been shown that the defendant caused the plai
ntiff any damages. Plaintiff is absolved from defendant's counterclaim and declared not bound to pay t
he such claimed therein. Plaintiff is also absolved from the counterclaim of P1,000, for damages, it no
t having been proved that any damages were caused and suffered by defendant, since the writ of atta
chment issued in this case was legal and proper. Without pronouncement as to costs.
So ordered.
The defendant company appealed from this judgment, and alleges that the lower court erred in havin
g held itself with jurisdiction to take cognizance of and render judgment in the cause; in holding that th
e defendant was bound to supply cars gratuitously to the plaintiff for the cane; in not ordering the plai
ntiff to pay to the defendant the sum of P2,866 for the cars used by him, with illegal interest on said s
um from the filing of the counterclaim, and the costs, and that said judgment is contrary to the weight
of the evidence and the law.
The first assignment of error is based on clause 23 of the Mill's covenants and clause 14 of the Plante
r's Covenant as they appear in Exhibit A, which is the same instrument as Exhibit 1.
Said clauses are as follows:
3. That it (the Mill — Party of the first part) will submit and all differences that may arise between
the Mill and the Planters to the decision of arbitrators, two of whom shall be chosen by the Mill and tw
o by the Planters, who in case of inability to agree shall select a fifth arbitrator, and to respect and abi
de by the decision of said arbitrators, or any three of them, as the case may be.
14. That they (the Planters--Parties of the second part) will submit any and all differences that ma
y arise between the parties of the first part and the parties of the second part of the decision of arbitra
tors, two of whom shall be chosen by the said parties of the first part and two by the said party of the
second part, who in case of inability to agree, shall select a fifth arbitrator, and will respect and abide
by the decision of said arbitrators, or any three of them, as the case may be.
It is an admitted fact that the differences which arose between the parties, and which are the subject
of the present litigation have not been submitted to the arbitration provided for in the above quoted cla
uses.
Defendant contends that as such stipulations on arbitration are valid, they constitute a condition prece
dent, to which the plaintiff should have resorted before applying to the courts, as he prematurely did.
The defendant is right in contending that such covenants on arbitration are valid, but they are not for t
he reason a bar to judicial action, in view of the way they are expressed:
An agreement to submit to arbitration, not consummated by an award, is no bar to suit at law or in eq
uity concerning the subject matter submitted. And the rule applies both in respect of agreements to su
bmit existing differences and agreements to submit differences which may arise in the future. (5 C. J.,
42.)
And in view of the terms in which the said covenants on arbitration are expressed, it cannot be held th
at in agreeing on this point, the parties proposed to establish the arbitration as a condition precedent t
o judicial action, because these clauses quoted do not create such a condition either expressly or by
necessary inference.
Submission as Condition Precedent to Suit. — Clauses in insurance and other contracts providing for
arbitration in case of disagreement are very similar, and the question whether submission to arbitratio
n is a condition precedent to a suit upon the contract depends upon the language employed in each p
articular stipulation. Where by the same agreement which creates the liability, the ascertainment of ce
rtain facts by arbitrators is expressly made a condition precedent to a right of action thereon, suit can
not be brought until the award is made. But the courts generally will not construe an arbitration clause
as ousting them of their jurisdiction unless such construction is inevitable, and consequently when the
arbitration clause is not made a condition precedent by express words or necessary implication, it will
be construed as merely collateral to the liability clause, and so no bar to an action in the courts withou
t an award. (2 R. C. L., 362, 363.)
Neither does not reciprocal covenant No. 7 of said contract Exhibit A expressly or impliedly establish t
he arbitration as a condition precedent. Said reciprocal covenant No. 7 reads:
7. Subject to the provisions as to arbitration, hereinbefore appearing, it is mutually agreed that th
e courts of the City of Iloilo shall have jurisdiction of any and all judicial proceedings that may arise ou
t of the contractual relations herein between the party of the first and the part is of the second part.
The expression "subject to the provisions as to arbitration, hereinbefore appearing" does not declare
such to be a condition precedent. This phrase does not read "subject to the arbitration," but "subject t
o the provisions as to arbitration hereinbefore appearing." And, which are these "provisions as to arbit
ration hereinbefore appearing?" Undoubtedly clauses 23 and 14 quoted above, which do not make ar
bitration a condition precedent.
We find no merit in the first assignment of error.
The second raises the most important question in this controversy, to wit: Whether or not the defenda
nt was obliged to supply the plaintiff which cars gratuitously for cane.
The Central, of course, bound itself according to the contract exhibit A in clause 3 of the "Covenant by
Mill," as follows:
3. That it will construct and thereafter maintain and operate during the term of this agreement a s
team or motor railway, or both, for plantation use in transporting sugar cane, sugar and fertilizer, as n
ear the center of the can ands as to contour of the lands will permit paying due attention to grades an
d curves; that it will also construct branch lines at such points as may be necessary where the presen
t plantations are of such shape that the main line cannot run approximately through the center of said
plantations, free of charge to the Planters, and will properly equip said railway with locomotives or mo
tors and cars, and will further construct a branch line from the main railway line, mill and warehouses
to the before mentioned wharf and will further construct yard accomodations near the sugar mill. All st
eam locomotives shall be provided which effective spark arresters. The railway shall be constructed u
pon suitable and properly located right-of-way, through all plantations so as to give, as far as practica
ble, to each plantations equal benefit thereof; said right-of-way to b two and one-half meters in width
on either said from the center of track on both main line and switches and branches.
By this covenant, the defendant, the defendant bound itself to construct branch lines of the railway at
such points on the estate as might be necessary, but said clause No. 3 can hardly be construed to bin
d the defendant to gratuitously supply the plaintiff with cars to transport cane from his fields to the bra
nch lines agreed upon on its estate.
But on March 18, 1916, the defendant company, through its manager Mr. F. J. Bell, addressed the foll
owing communication to the plaintiff:

DEAR SIR: In reply to yours of March 15th.

Yesterday I tried to come out to San Antonio to see you but the railway was full of cars of San Jose a
nd I could not get by with my car. I will try again as soon as I finish shipping sugar. The steamer is ex
pected today.
I had a switch built in the big cut on San Antonio for loading your cane near the boundary of Santa Cr
uz. will not this sufficient? We have no another switch here and I hope you can get along with the 3 yo
u now have.
Some of the planters are now using short switches made of 16-lb. portable track. These can be place
d on the main line at any place and cars run off into the field and loaded. I think one on your hacienda
would repay you in one season.
The rain record can wait.
It is suggested to the plaintiff in this letter that he install a 16-lb. rail portable track switch, to be used i
n connection with the main line, so the cars may run on it. It is not suggested that he purchase cars, a
nd the letter implies that the cars mentioned therein belong to the defendant.
As a result of this suggestion, the plaintiff bought a portable track which cost him about P10,000, and
after the track was laid, the defendant began to use it without comment or objection from the latter, no
r payment of any indemnity for over four years.
With this letter Exhibit D, and its conduct in regard to the same, the defendant deliberately and intenti
onally induced the plaintiff to believe that by the latter purchasing the said portable track, the defenda
nt would allow the free use of its cars upon said track, thus inducing the plaintiff to act in reliance on s
uch belief, that is, to purchase such portable track, as in fact he did and laid it and used it without pay
ment, the cars belonging to the defendant.
This is an estoppel, and defendant cannot be permitted to gainsay its own acts and agreement.
The defendant cannot now demand payment of the plaintiff for such use of the cars. And this is so, no
t because the fact of having supplied them was an act of pure liberality, to which having once started i
t, the defendant was forever bound, which would be unreasonable, but because the act of providing s
uch cars was, under the circumstances of the case, of compliance of an obligation to which defendant
is bound on account of having induced the plaintiff to believe, and to act and incur expenses on the st
renght of this belief.
The question of whether or not the plaintiff was under the necessity of first showing a cooperative spir
it and conduct, does not affect the right which he thus acquired of using the cars in question gratuitou
sly.
We do not find sufficient reason to support the second assignment of error.
The point raised in the third assignment of error is a consequence of the second. If the plaintiff was e
ntitled, as we have said, to use the cars gratuitously, the defendant has no right to demand any paym
ent from him for the use of said cars.
The other assignments of error are consequences of the preceding ones.
We find nothing in the record to serve as a legal and sufficient bar to plaintiff's action against the defe
ndant for the delivery of the sugar in question, or its value. A discussion as to the retention of this dep
osit to apply upon what is due by reason thereof made in the judgment appealed from, is here necess
ary. The parties do not raise this question in the present instance. Furthermore, it has not been prove
n that the plaintiff owes the defendant anything by reason of such deposit.
The judgment appealed from is hereby affirmed with the costs of this instance against the appellant.
So ordered.

G.R. No. L-27283 PENGSON VS CHAN

This is a case involving arbitration. On June 21, 1966 Soledad F. Bengson and Mariano M. Chan ente
red into a contract for the construction of a six-story building on Bengson's lot located at Rizal Avenue
, San Fernando, La Union. In that contract Soledad F. Bengson found herself to pay Chan, the contra
ctor, the sum of P352,000 for the materials, labor and construction expenses.
It was stipulated inter alia that the construction would start on July 5, 1965; that the first and second st
ories, together with the theater, should be completed and available for use within five months from Jul
y 5, 1965, and that the construction should be finished within twelve calendar months from that date i
n conformity with the plans and specifications signed by the parties. The contract contains the followin
g arbitration clause:
15. Any and all questions, disputes or differences arising between the parties hereto relative to th
e construction of the BUILDING shall be determined by arbitration of two persons, each chosen by th
e parties themselves. The determination of said arbitration shall be final, conclusive and binding upon
both parties hereto, unless they choose to go to court, in which case the determination by arbitration i
s a condition precedent for taking any court action. The expenses of arbitration shall be borne by both
parties equally.
On May 24, 1966 Soledad F. Bengson filed an action for damages against Mariano M. Chan and the
sureties on his performance bond. She alleged that Mariano M. Chan violated the contract by not con
structing the first and second stories within the stipulated five- month period; that because the contrac
tor admitted at a conference on May 8, 1966 that he was unable to continue or complete the construct
ion, Soledad F. Bengson terminated the contract; that she suffered damages amounting to P85,000 a
s a consequence of Chan's failure to construct the commercial building, and that Chan did not comply
with clauses 7 and 8 of the contract in not attending to his work and in not submitting periodic reports
of the work done as a basis for the payment of the laborers' wages. The damages claimed totalled P1
83,800.
Mariano M. Chan and his sureties, Leoncio Chan (the owner of the Universal Construction Supply) an
d Mutual Security Insurance Corporation, alleged in their answer that the contractor stopped the const
ruction use Soledad F. Bengson refused to pay for ninety percent of the work already accomplished; t
hat the construction actually started in February, 1966 because of the changes requested by Bengso
n; that the demolition of the old building was effected from July to December, 1965, and that the stipul
ation for the construction of the first and second stories within five months was novated b the parties.
The contractor and his sureties further alleged that Soledad F. Bengson had paid him P74,750 but ref
used to pay on May 8, 1966 the additional sum of P31,450 as the balance of ninety percent of the wor
k already accomplished worth P118,000; that by reason of Bengson's failure to pay the balance, Cha
n notified her that he would stop the construction, and that he actually stopped the construction on Ma
y 30, 1966 when he was served with a copy of the complaint.
Mariano M. Chan filed counterclaims for P45,223.23 as the balance due on the contract; P15,000 as t
he value of the materials in the construction yard; P5,000 as reimbursement of the expenses for the d
emolition of the old building, P5,000 as the value of his construction equipment under Bengson's cont
rol and P35,000 as damages.
On November 16, 1966 the defendants filed an amended answer wherein they alleged as an addition
al affirmative defense that the complaint states no cause of action because Soledad F. Bengson did n
ot submit the controversy for arbitration as required in the aforequoted paragraph 15 of the constructi
on contract.
After holding a hearing, the trial court in its order of November 24, 1966 sustained that new defense a
nd dismissed the complaint. Bengson appealed.

Appellant Bengson's five assignments of errors may be reduced to the issues of whether the trial cour
t erred (1) in allowing the defendants to plead a new affirmative defense in their amended answer and
(2) in holding that the cause of action in plaintiff's complaint are embraced in the requirement for arbitr
ation as a condition precedent to a court action.
(1) We hold that there is no merit in appellant Bengson's contention that the defendants waived th
e defense of lack of cause of action. It is true that the defendants did not interpose as a defense in th
eir original answer Bengson's failure to resort to arbitration before going to court or the defense that h
er complaint does not state a cause of action. The omission did not constitute a waiver of that defens
e because section 2, Rule 9 of the Rules of Court explicitly provides that "defenses and objections not
pleaded either in a motion to dismiss or in the answer are deemed waived; except the failure to state
a cause of action which may be alleged in a later pleading, if one is permitted".
(2) Appellant Bengson's other contention that her causes of action do not involve disputes relative
to the construction of the building and, consequently, should not be submitted for arbitration, is not we
ll-taken.
The trial court sensibly said that "all the causes of action alleged in the plaintiff's amended complaint
are based upon the supposed violations committed by the defendants of the 'Contract for the Constru
ction of a Building"' and that "the provisions of paragraph 15 hereof leave very little room for doubt tha
t the said causes of action are embraced within the phrase 'any and all questions, disputes or differen
ces between the parties hereto relative to the construction of the building', which must be determined
by arbitration of two persons and such determination by the arbitrators shall be 'final, conclusive and
binding upon both parties' unless they go to court, in which case the determination by arbitration is ' a
condition precedent for taking any court action'."
Appellant Bengson argues that paragraph 15 refers to disputes as to "the technical process of putting
up the building", meaning whether there was an adherence to the plans and specifications, and that h
er causes of action for damages do not involve questions as to the construction of the building but ref
er to disputes "based on violation of the contract for construction".
She points out that the contract for the construction of the building and the construction of the building
are different concepts, just as the Constitution and the formation of the government under the Constit
ution are different concepts; that a dispute relating to the construction contract is not necessarily a dis
pute relative to the construction of the building; that the parties did not have any dispute prior to the fili
ng of the complaint, and that it was only after the filing of the case that a dispute arose between them.
Appellant Bengson alternatively argues that if arbitration is proper, then the trial court in conformity wit
h section 6 of the Arbitration Law, Republic Act No. 876, should have required the parties to proceed t
o arbitration.
On the other hand, the defendants argue that the broad and inclusive terms of paragraph 15 embrace
all breaches of the contract regarding submission to arbitration of the contractor's request for extensio
ns shows that arbitration is not restricted to disputes relative to "the technical process of putting up th
e building".
We hold that the terms of paragraph 15 clearly express the intention of the parties that all disputes be
tween them should first be arbitrated before court action can be taken by the aggrieved party.
Bengson's interpretation of paragraph 15 as being limited to controversies with respect "to the joining
together of stones, steel, wood and other material to put up a building" has a sophistical flavor. Her su
perfine distinction between the contract for the construction of the building and the construction of the
building is specious but not convincing.

However, although the causes of action in Bengson's complaint are covered by paragraph 15, her fail
ure to resort to arbitration does not warrant the dismissal of her complaint. We agree with her alternati
ve contention that arbitration may be resorted to during the pendency of the case. The Arbitration Law
provides:
SEC. 6. Hearing by court. — A party aggrieved by the failure, neglect or refusal of another to p
erform under an agreement in writing providing for arbitration may petition the court for an order direct
ing that such arbitration proceed in the manner provided for in such agreement. Five days notice in wr
iting 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 agre
ement or such failure to comply therewith is not in issue, shall make an order directing the parties to p
roceed to arbitration in accordance with the terms of the agreement. If the making of the agreement o
r default be in issue the court shall proceed to summarily hear such issue. If the finding be that no agr
eement in writing providing for arbitration was made, or that there is no default in the proceeding ther
eunder, 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 arbitration in accordance with the terms thereof.
The court shall decide all motions, petitions or applications filed under the provisions of this Act, withi
n ten days after such motions, petitions, or applications have been heard by it.
SEC. 7. Stay of civil action. — If any suit or proceeding be brought upon an issue arising out of an agr
eement providing for the arbitration thereof, the court in which such quit or proceeding is pending, upo
n 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 agreem
ent: Provided, That the applicant for the stay is not in default in proceeding with such arbitration.
Within the meaning of section 6, the failure of Soledad F. Bengson to resort to arbitration may be rega
rded as a refusal to comply with the stipulation for arbitration. And defendants p interposition of the de
fense that arbitration is a condition precedent to the institution of a court action may be interpreted as
a petition for an order that arbitration should proceed as contemplated in section 15.
Therefore, instead of dismissing the case, the proceedings therein should be suspended and the parti
es should be directed to go through the motions of arbitration at least within a sixty-day period. With t
he consent of the parties, the trial court may appoint a third arbitrator to prevent a deadlock between t
he two arbitrators. In the event that the disputes between the parties could not be settled definitively b
y arbitration, then the hearing of the instant case should be resumed.
WHEREFORE, the trial court's order of dismissal is reversed and set aside. If the parties cannot reac
h an amicable settlement at this late hour, then the trial court should give them at least sixty days fro
m notice within which to settle their disputes by arbitration and, if no settlement is finalized within that
period, it should hold a pre-trial and try the case. No costs.
SO ORDERED.
G.R. No. L-51996 WESTERN VS CA
A series of contracts was entered into between Western Minolco Corporation and Gregorian Mining C
ompany, basically for the operation by the former of the latter's mining claims. 1 One of the stipulation
s in the contracts (a) declared certain particular disputes to be subject to arbitration and (b) specified t
he manner of enforcement by court action of the resulting arbitration awards. 2 The stipulation reads
as follows:

Article XII
12.01. Should any dispute, difference or disagreement arise between the CLAIM-OWNER and the C
OMPANY regarding the meaning, application or effect of this Agreement or of any clause thereof, or i
n regard to the amount and computation of the royalties, deductions, or other item of expense hereina
bove provided, such dispute, difference or disagreement shall be referred to a board of arbitration to b
e composed of one arbitrator to be appointed by the COMPANY, another to be appointed by the CLAI
M-OWNER, and a third to be selected by the two aforementioned arbitrators, the decision of a majorit
y of the said arbitrators to be binding upon the parties, insofar as the same is permitted by law. No act
ion shall be instituted in any Court by either party hereto, unless the dispute, difference or disagreeme
nt, shall have been first submitted to and received by said board of arbitrators, and any such action sh
all be based upon the award as obtained.
12.02—The parties stipulate that the venue of the actions referred to in Section 12.01 shall be in the
City of Manila.
There are, it will be noted, only two (2) classes of disputes or disagreements governed by these provi
sions:
1) those "regarding the meaning, application or effect of the agreement(s) or any clause thereof,"
and
2) those "in regard to the amount and computation of the royalties, deductions, or other item of e
xpense" provided in the agreement.
It is made quite clear that these two (2) classes of disputes are to be "referred to a board of arbitration
." It is made equally clear that no action concerning them may be instituted in any court by either party
(1) unless the controversy be "first submitted to and received by said board of arbitrators," and (2) onl
y if the action "be based upon the award as obtained. " In the event of such an action, the venue ther
eof "shall be in the City of Manila."
Now, it appears that Western Minolco Corporation subsequently executed another agreement with an
other firm, the Dreamers Mining Association, for the validation of 36 mineral lode claims in the latter's
favor. As it happened, those 36 claims were believed by Gregorian Mining Company to be in conflict
with, and had been superimposed on its own claims, which it had earlier located and which were in fa
ct subject of the series of agreements signed by it and Western Minolco Corporation. Gregorian Minin
g Company consequently brought suit against Western Minolco Corporation in the Court of First Insta
nce of Baguio and Benguet, for the rescission of their agreements and damages. 3
Western Minolco moved to dismiss the complaint, theorizing that (a) venue had been improperly laid,
and (b) the complaint stated no cause of action. 4 Gregorian opposed the motion, arguing that (a) the
stipulation regarding venue in the parties' agreements was merely permissive and did not preclude th
e filing of an action conformably with the general rules of venue in Section 2, Rule 4 of the Rules of C
ourt, and (b) there was a cause of action set forth in the complaint within the Trial Court's jurisdiction
because the action involved a dispute which was not arbitrable in accordance with their contracts. 5
Western Minolco filed a reply. 6 The Trial Court 7 denied Western Minolco's motion to dismiss and re
quired it to file its responsive pleading within the prescribed period. 8 The Court also denied Western
Minolco's motion for reconsideration. 9
In the meantime, and while it was seeking reconsideration of the Baguio Court's adverse order, West
ern Minolco filed a petition with the Court of First Instance of Manila to compel arbitration, in line with i
ts agreement with Gregorian, and for recovery of damages against the latter. 10 After an exchange of
pleadings, the petition was granted. 11 Gregorian sought to take an appeal to the Court of Appeals; 1
2 but the Manila Court ruled that the appeal should more properly be taken to this Court. 13

Gregorian decided to forego the appeal, and to await instead the decision of the Court of Appeals on t
he petition for certiorari and prohibition which Western Minolco had in the meantime filed to assail the
Orders of the CFI of Baguio and Benguet (refusing to dismiss the action [Case No. 2272 (220)] broug
ht against it by Gregorian). 14 The Court of Appeals was not persuaded by Western Minolco's argum
ents, and dismissed its petition, by decision dated August 29, 1979. 15 It later denied Western Minolc
o's motion for reconsideration. 16 This decision of August 29, 1979, and the order denying reconsider
ation, are challenged in the instant appeal. The verdict must go against the petitioner, Western Minolc
o Corporation.
It is Western Minolco's thesis that it was reversible error for the Court of Appeals to find and declare t
hat—
a) the venue of the action instituted against it by Gregorian Mining Co. was improperly laid;
b) the action could not be instituted until and unless the dispute subject thereof had first been res
olved by arbitration, as covenanted by the parties;
c) public policy encourages arbitration and arbitration agreements are to be liberally construed;
d) the Trial Court had no business interpreting the provisions of the agreement the terms of whic
h were otherwise clear, unambiguous and unequivocal
The terms of the applicable provision of the parties' agreements are indeed "clear, unambiguous, and
unequivocal." As pointed out in the opening paragraphs of this opinion, only two (2) kinds of "disputes
, differences or disagreements" have been made subject of arbitration:
1) those "regarding the meaning, application or effect of the agreement(s) or any clause thereof;"
and
2) those "in regard to the amount and computation of the royalties, deduction, or other item of ex
pense" provided in the agreement.
The controversy involved in the action brought by Gregorian against Western Minolco was the alleged
violation by the latter of its agreements with the former, consisting of its entering into a contract with a
third party for the validation of mining claims which it knew had already been located by Gregorian. W
hat was involved, in other words, was the breach of faith, or the double dealing of Western Minolco in
undertaking to validate in favor of a third party the self—same claims which it had earlier undertaken t
o operate for Gregorian. Clearly, such a controversy does not fall within either of the two categories of
disputes which must first be submitted for arbitration. The stipulation in question (for arbitration to be f
irst had) did not therefore constitute an impediment or a bar to the institution of the action commence
d by Gregorian against Western Minolco, for rescission and damages.
Even if, for the sake of argument, some measure of tenability be conceded to the opposite view: that t
he controversy subject of Civil Case No. 2272 (220) might be considered as dealing with the "meanin
g, application or effect" of the agreement—specifically, whether the claims therein described are the v
ery same mining claims subject of Western Minolco's subsequent agreement with a third party—and t
herefore should first be submitted to and resolved by a board of arbitrators, the worst that could then
be said of the orders of the Trial Court, affirmed by the Court of Appeals, is that they are attended by
an error in the analysis and interpretation of the language and import of the stipulation in question, but
certainly not by that whimsical, capricious, or totally groundless or tangential exercise of adjudgment
or discretion as would justify the issuance of the extraordinary writ of certiorari or prohibition. 17 In no
sense may it be said that power has been exercised by either the Appellate Court or the Trial Court in
so arbitrary or despotic a manner, as by reason of passion, prejudice or personal hostility, or in so pat
ently and grossly mistaken a manner as to amount to an evasion of positive duty or a virtual refusal to
perform a duty enjoined or to act at all in contemplation of law, so as to make needful the extension of
this Court's correcting hand by the peremptory writ of certiorari or prohibition. 18
Since the stipulation as to venue becomes relevant only when an action has to be instituted "based u
pon the award as obtained" (from the board of arbitrators) (i.e., as the mode of enforcement of the aw
ard); and since there is here no such award because no controversy subject to arbitration existed and
was ever submitted to arbitration, no error can possibly be imputed to the Trial Court in not applying t
he stipulation to the action a quo. In any event, it is not entirely amiss to restate the doctrine that stipu
lations in a contract, which specify a definite place for the institution of an action arising in connection
therewith, do not, as a rule, supersede the general rules on the matter set out in Rule 4 of the Rules o
f Court, but should be construed merely as an agreement on an additional forum, not as limiting venu
e to the specified place. 19