SECOND DIVISION
Towards this end, the State shall encourage and actively
[ G.R. No. 225051, July 19, 2017 ]
DEPARTMENT OF FOREIGN AFFAIRS (DFA), PETITIONER,
VS. BCA INTERNATIONAL CORPORATION & AD HOC
ARBITRAL TRIBUNAL, COMPOSED OF CHAIRMAN DANILO
L. CONCEPCION AND MEMBERS, CUSTODIO O. PARLADE
AND ANTONIO P. JAMON, JR., RESPONDENTS.
Civil Law; Contracts; Established in this jurisdiction is the
rule that the law of the place where the contract is made
governs, or lex loci contractus.—Under Article 33 of the
UNCITRAL Arbitration Rules governing the parties, “the
arbitral tribunal shall apply the law designated by the
parties as applicable to the substance of the dispute.”
“Failing such designation by the parties, the arbitral
tribunal shall apply the law determined by the conflict of
laws rules which it considers applicable.” Established in
this jurisdiction is the rule that the law of the place
where the contract is made governs, or lex loci
contractus. As the parties did not designate the
applicable law and the Agreement was perfected in the
Philippines, our Arbitration laws, particularly, RA No.
876, RA No. 9285 and its IRR, and the Special ADR Rules
apply. The IRR of RA No. 9285 provides that “[t]he
arbitral tribunal shall decide the dispute in accordance
with such law as is chosen by the parties. In the absence
of such agreement, Philippine law shall apply.”
Same; Arbitration; Alternative Dispute Resolution; The
State shall encourage and actively promote the use of
Alternative Dispute Resolution (ADR) as an important
means to achieve speedy and impartial justice and
declog court dockets.—RA No. 9285 declares the policy of
the State to actively promote party autonomy in the
resolution of disputes or the freedom of the parties to
make their own arrangements to resolve their disputes.
promote the use of Alternative Dispute Resolution as an
important means to achieve speedy and impartial justice
and declog court dockets. Same; Same; Same;
Alternative Dispute Resolution Act of 2004; Court
intervention is allowed under Republic Act (RA) No. 9285
in the following instances: (1) when a party in the
arbitration proceedings requests for an interim measure
of protection; (2) judicial review of arbitral awards by
the Regional Trial Court (RTC); and (3) appeal from the
RTC decisions on arbitral awards to the Court of Appeals
(CA).—Court intervention is allowed under RA No. 9285
in the following instances: (1) when a party in the
arbitration proceedings requests for an interim measure
of protection; (2) judicial review of arbitral awards by
the Regional Trial Court (RTC); and (3) appeal from the
RTC decisions on arbitral awards to the Court of Appeals.
Same; Same; Same; Same; Remedies Through Which
Court Intervention is the Special Alternative Dispute
Resolution (ADR) Rules is Allowed.—Court intervention in
the Special ADR Rules is allowed through these
remedies: (1) Specific Court Relief, which includes
Judicial Relief Involving the Issue of Existence, Validity
and Enforceability of the Arbitral Agreement, Interim
Measures of Protection, Challenge to the Appointment of
Arbitrator, Termination of Mandate of Arbitrator,
Assistance in Taking Evidence, Confidentiality/Protective
Orders, Confirmation, Correction or Vacation of Award in
Domestic Arbitration, all to be filed with the RTC; (2) a
motion for reconsideration may be filed by a party with
the RTC on the grounds specified in Rule 19.1; (3) an
appeal to the Court of Appeals through a petition for
review under Rule 19.2 or through a special civil action
for certiorari under Rule 19.26; and (4) a petition for
certiorari with the Supreme Court from a judgment or
final order or resolution of the Court of Appeals, raising
only questions of law.
Remedial Law; Civil Procedure; Appeals; Petition for
Review on Certiorari; An appeal by certiorari to the
Supreme Court (SC) is from a judgment or final order or
resolution of the Court of Appeals (CA) and only
questions of law may be raised.—It is clear that an
appeal by certiorari to the Supreme Court is from a
judgment or final order or resolution of the Court of
Appeals and only questions of law may be raised. There
have been instances when we overlooked the rule on
hierarchy of courts and took cognizance of a petition for
certiorari alleging grave abuse of discretion by the
Regional Trial Court when it granted interim relief to a
party and issued an Order assailed by the petitioner,
considering the transcendental importance of the issue
involved therein or to better serve the ends of justice
when case is determined on the merits rather on
technicality. However, in this case, the appeal by
certiorari is not from a final Order of the Court of Appeals
or the Regional Trial Court, but from an interlocutory
order of the Arbitral Tribunal; hence, the petition must
be dismissed
DECISION
PERALTA, J.:
This is a petition for certiorari under Rule 65 of the Rules of
Court, seeking to annul and set aside Procedural Order No. 11
dated February 15, 2016 and Procedural Order No. 12 dated
June 8, 2016, both issued by the UNCITRAL Ad Hoc Arbitral
Tribunal in the arbitration proceedings between petitioner
Department of Foreign Affairs (DFA) and respondent BCA
International Corporation.
The facts are as follows:
In an Amended Build-Operate-Transfer (BOT)
Agreement[1] dated April 5, 2002 (Agreement), petitioner DFA
awarded the Machine Readable Passport and Visa Project
(MRP/V Project) to respondent BCA International Corporation.
In the course of implementing the MRPN Project, conflict arose
and petitioner sought to terminate the Agreement.
Respondent opposed the termination and filed a Request for
Arbitration on April 20, 2006. The Arbitral Tribunal was
constituted on June 29, 2009.[2]
In its Statement of Claims[3] dated August 24, 2009,
respondent sought the following reliefs against petitioner: (a) a
judgment nullifying and setting aside the Notice of Termination
dated December 9, 2005 of the DFA, including its demand to
BCA to pay liquidated damages equivalent to the corresponding
performance security bond posted by BCA; (b) a judgment
confirming the Notice of Default dated December 22, 2005
issued by BCA to the DFA and ordering the DFA to perform its
obligation under the Amended BOT Agreement dated April 5,
2002 by approving the site of the Central Facility at the Star
Mall Complex in Shaw Boulevard, Mandaluyong City, within five
days from receipt of the Arbitral Award; (c) a judgment
ordering the DFA to pay damages to BCA, reasonably estimated
at P100,000,000.00 as of this date, representing lost business
opportunities; financing fees, costs and commissions; travel
expenses; legal fees and expenses; and cost of arbitration,
including the fees of the members of the Arbitral Tribunal; and
(d) other just or equitable relief.
On October 5, 2013, respondent manifested that it shall file an
Amended Statement of Claims so that its claim may conform to
the evidence they have presented.[4]
Petitioner opposed respondent's manifestation, arguing that
such amendment at the very late stage of the proceedings will
cause undue prejudice to its interests. However, the Arbitral
Tribunal gave respondent a period of time within which to file
its Amended Statement of Claims and gave petitioner time to premise that respondent would no longer present any additional
formally interpose its objections.[5] evidence in-chietPetitioner was given a period of 20 days from
receipt of the Order to file its Answer to the Amended
In the Amended Statement of Claims[6] dated October 25, Statement of Claims and to manifest before the Tribunal if it
2013, respondent interposed the alternative relief that, in the will present additional evidence in support of its Amended
event specific performance by petitioner was no longer Answer in order for the Tribunal to act accordingly.
possible, petitioner prayed that the Arbitral Tribunal shall
render judgment ordering petitioner to pay respondent Procedural Order No. 11 reads:
P1,648,611,531.00, representing the net income respondent is
For resolution by the Tribunal is BCA's Motion to Admit the
expected to earn under the Agreement, and P100,000,000.00
Amended Statement of Claim dated 30 April2015 objected to by
as exemplary, temperate or nominal damages.[7]
DFA in its Opposition dated 6 November 2015.
In an Opposition dated December 19, 2013, petitioner objected
BCA's Counsel made representations during the hearings that
to respondent's Amended Statement of Claims, averring that its
the Amendment is for the simple purpose of making the
belated filing violates its right to due process and will prejudice
Statement of Claim conform with what BCA believes it was able
its interest and that the Tribunal has no jurisdiction over the
to prove in the course of the proceedings and that the
alternative reliefs sought by respondent.[8]
Amendment will no longer require the presentation of any
additional evidence-in-chief.
On August 6, 2014, respondent filed a Motion to Withdraw
Amended Statement of Claims[9] in the light of petitioner's
Without ruling on what BCA was able to prove, the Tribunal
opposition to the admission of the Amended Statement of
hereby grants the Motion to Admit on the premise that BCA will
Claims and to avoid further delay in the arbitration of its claims,
no longer present any additional evidence-in-chief to prove the
without prejudice to the filing of such claims for liquidated and
bigger claim in the Amended Statement.
other damages at the appropriate time and proceeding.
Thereafter, respondent filed a motion to resume proceedings.
For the additional claim of 300 million pesos, BCA should pay
the additional fee of 5% or 15 million pesos. Having paid 12
However, on May 4, 2015, respondent filed anew a Motion to
million pesos, the balance of 3 million pesos shall be payable
Admit Attache,d Amended Statement of Claims dated April 30,
upon submission of this case for resolution. No award shall be
2015, increasing the actual damages sought to
issued and promulgated by the Tribunal unless the balance of
P390,000,000.00, plus an additional P10,000,000.00 for
40% in the Arbitrators' fees for the original Claim and
exemplary, temperate or nominal damages.[10]
Counterclaim, respectively, and the balance of 3 million for the
Amended Claim, are all fully paid by the parties.
On November 6, 2015, petitioner filed an Opposition to the
Motion to Admit Attached Amended Statement of Claims.
DFA is hereby given the period of 20 days from receipt of this
Order to file its Answer to the Amended Statement of
In Procedural Order No. 11 dated F bruary 15, 2016, the
[11]
Complaint, and to manifest before this Tribunal if it will present
Arbitral Tribunal granted respondent's Motion to Admit Attached
Amended Statement of Claims dated April 30, 2015 on the
additional evidence in support of its Amended Answer in order the Parties in their pleadings, the Tribunal hereby decides to
for the Tribunal to act accordingly.[12] allow the submission of additional documentary evidence by
any Party in support of its position in relation to the Amended
On February 18, 2016, respondent filed a Motion for Partial
Statement of Claims and to which the other may submit its
Reconsideration[13] of Procedural Order No. 11 and prayed for
comments or objections. The Tribunal, however, will still not
the admission of its Amended Statement of Claims by the
allow the taking of testimonial evidence from any witness by
Arbitral Tribunal without denying respondent's right to present
any Party. The Tribunal allowed the amendment of the
evidence on the actual damages, such as attorney's fees and
Statement of Claims but only for the purpose of making the
legal cost that it continued to incur.
Statement of Claims conform with the evidence that had
already been presented, assuming that, indeed, it was the case.
On February 19, 2016, petitioner filed a Motion for
In resting its case, Respondent must have already dealt with
Reconsideration of Procedural Order No. 11 and, likewise, filed
and addressed the evidence that had already been presented
a Motion to Suspend Proceedings dated February 19, 2016.
by Claimant and that allegedly supports the amended Claim.
Further, on February 29, 2016, petitioner filed its
However, in order to give the Parties more opportunity to prove
Comment/Opposition to respondent's Motion for Partial
their respective positions, additional evidence shall be accepted
Reconsideration of Procedural Order No. 11.
by the Tribunal, but only documentary evidence.

The Arbitral Tribunal, thereafter, issued Procedural Order No.

Wherefore, Procedural Order No. 11 is modified accordingly.
12 dated June 8, 2016, which resolved respondent's Motion for
The Claimant is given until 25 June 2016 to submit its
Partial Reconsideration of Procedural Order No. 11, disallowing
additional documentary evidence in support of the Amended
the presentation of additional evidence-in-chief by respondent
Statement of Claims. Respondent is given until 15 July 2016 to
to prove the increase in the amount of its claim as a limitation
file its Answer to the Amended Statement of Claims, together
to the Tribunals' decision granting respondent's Motion to
with all the documentary evidence in support of its position.
Amend its Statement of Claims. In Procedural Order No. 12, the
Claimant is given until 30 July 2016 to comment or oppose the
Tribunal directed the parties to submit additional documentary
Answer and the supporting documentary evidence, while
evidence in support of their respective positions in relation to
Respondent is given until 14 August 2016 to file its comment or
the Amended Statement of Claims and to which the other party
opposition to the Claimant's submission, together with any
may submit its comment or objections.
supporting documentary evidence. Thereafter, hearing of the
case shall be deemed terminated. The periods allowed herein
Procedural Order No. 12 reads:
are non-extendible and the Tribunal will not act on any motion
For resolution is the partial Motion for Reconsideration of the for extension of time to comply.
Tribunal's Procedural Order No. 11 disallowing the presentation
of additional evidence-in-chief by Claimant to prove the The Parties shall submit their Formal Offer of Evidence, in the
increase in the amount of its Claim as a limitation to this manner previously agreed upon, on 20 September 2016 while
Tribunal's decision granting Claimant's Motion to Amend its their respective Memorandum shall be filed on 20 October
Statement of Claims. 2016. The Reply Memoranda of the Parties shall be filed on 20
November 2016. Thereafter, with or without the foregoing
After a careful consideration of all the arguments presented by
submissions, the case shall be deemed submitted for
Resolution.[14]
As Procedural Order No. 12 denied petitioner's motion for
reconsideration of Procedural Order No. 11, petitioner filed this
petition for certiorari under Rule 65 of the Rules of Court with
application for issuance of a temporary restraining order and/or
writ of preliminary injunction, seeking to annul and set aside
Procedural Order No. 11 dated February 15, 2016 and
Procedural Order No. 12 dated June 8, 2016.
Petitioner stated that it opted to file the petition directly with
this court in view of the immensity of the claim concerned,
significance of the public interest involved in this case, and the
circumvention of the temporary restraining order issued by this
Court in Department of Foreign Affairs v. BCA International
Corporation, docketed as G.R. No. 210858. It cited Department
of Foreign Affairs, et al. v. Hon. Judge Falcon,[15] wherein the
Court overlooked the rule on hierarchy of courts and took
cognizance of the petition for certiorari.
Petitioner raised these issues:
THE AD HOC ARBITRAL TRIBUNAL COMMITTED GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT ADMITTED THE AMENDED STATEMENT
OF CLAIMS DATED 30 APRIL 2015 NOTWITHSTANDING THAT:
I. THE AMENDMENT CAUSES UNDUE DELAY AND
PREJUDICE TO PETITIONER DFA;
II. THE ALTERNATIVE RELIEF IN THE AMENDED
STATEMENT OF CLAIMS FALLS OUTSIDE THE SCOPE OF
THE ARBITRATION CLAUSE; HENCE, OUTSIDE THE
JURISDICTION OF THE AD HOC ARBITRAL TRIBUNAL;
III. THE AMENDMENT CIRCUMVENTS THE TEMPORARY
RESTRAINING ORDER DATED 02 APRIL 2014 ISSUED BY
THIS HONORABLE COURT IN G.R. NO. 210858; AND
IV. PROCEDURAL ORDER NO. 12 DATED 8 JUNE 2016
VIOLATES PETITIONER DFA'S RIGHT TO DUE
PROCESS.[16]
Petitioner states that Article 20 of the 1976 UNCITRAL
Arbitration Rules grants a tribunal the discretion to deny a
motion to amend where the tribunal "considers it inappropriate
to allow such amendment having regard to the delay in making
it or prejudice to the other party or any other circumstances." It
further proscribes an amendment where "the amended claim
falls outside the scope of the arbitral clause or separate
arbitration agreement."
Petitioner contends that respondent's Motion to Admit Attached
Amended Statement of Claims dated April 30, 2015 should
have been denied by the Arbitral Tribunal as there has been
delay and prejudice to it. Moreover, other circumstances such
as fair and efficient administration of the proceedings should
have warranted the denial of the motion to amend. Finally, the
Arbitral Tribunal did not have jurisdiction over the amended
claims.
Petitioner prays that a temporary restraining order and/or writ
of preliminary injunction be issued enjoining the Arbitral
Tribunal from implementing Procedural Order No. 11 dated
February 15, 2016 and Procedural Order No. 12 dated June 8,
2016; that the said Procedural Orders be nullified for having
been rendered in violation of the 1976 UNCITRAL Arbitration
Rules and this Court's Resolution dated April 2, 2014 rendered
in G.R. No. 210858; that respondent's Amended Statement of
Claims dated April 30, 2015 be denied admission; and, if this
Court affirms the admission of respondent's Amended
Statement of Claims, petitioner be allowed to present
testimonial evidence to refute the allegations and reliefs in the
Amended Statement of Claims and to prove its additional
defenses or claims in its Answer to the Amended Statement of
Claims or Amended Statement of Defense with Counterclaims.
Petitioner contends that the parties in this case have agreed to
refer any dispute to arbitration under the 1976 UNCITRAL
Arbitration Rules and to compel a party to be bound by the
application of a different rule on arbitration such as the
Alternative Dispute Resolution (ADR) Act of 2004 or Republic
Act (RA) No. 9285 transgresses such vested right and amounts
to vitiation of consent to participate in the arbitration
proceedings.
In its Comment, respondent contends that this Court has no
jurisdiction to intervene in a private arbitration, which is a
special proceeding governed by the ADR Act of 2004, its
Implementing Rules and Regulations (IRR) and the Special
Rules of Court on Alternative Dispute Resolution (Special ADR
Rules).
Respondent avers that petitioner's objections to the admission
of its Amended Statement of Claims by the Arbitral Tribunal,
through the assailed Procedural Order Nos. 11 and 12, are
properly within the competence and jurisdiction of the Arbitral
Tribunal to resolve. The Arbitral Tribunal derives their authority
to hear and resolve the parties' dispute from the contractual
consent of the parties expressed in Section 19.02 of the
Agreement.
In a Resolution dated July 25, 2016, the Court resolved to note
the Office of the Solicitor General's Very Urgent Motion for the
Issuance of a Temporary Restraining Order and/or Writ of
Preliminary Injunction dated July 5, 2016.
In regard to the allegation that the Amended Statement of
Claims circumvents the temporary restraining order dated April
2, 2014 issued by the Court in DFA v. BCA International
Corporation, docketed as G.R. No. 210858, it should be pointed
out that the said temporary restraining order has been
superseded by the Court's Decision promulgated on June 29,
2016, wherein the Court resolved to partially grant the petition
and remand the case to the RTC of Makati City, Branch 146, to
determine whether the documents and records sought to be
subpoenaed are protected by the deliberative process privilege
as explained in the Decision.
The issues to be resolved at the outset are which laws apply to
the arbitration proceedings and whether the petition filed before
the Court is proper.
The Agreement provides for the resolution of dispute between
the parties in Section 19.02 thereof, thus:
If the Dispute cannot be settled amicably within ninety (90)
days by mutual discussion as contemplated under Section
19.01 herein, the Dispute shall be settled with finality by an
arbitrage tribunal operating under International Law,
hereinafter referred to as the "Tribunal," under the UNCITRAL
Arbitration Rules contained in Resolution 31/98 adopted by the
United Nations General Assembly on December 15, 1976, and
entitled "Arbitration Rules on the United Nations Commission on
the International Trade Law." The DFA and BCA undertake to
abide by and implement the arbitration award. The place of
arbitration shall be Pasay City, Philippines, or such other place
as may mutually be agreed upon by both parties. The
Arbitration proceeding shall be conducted in the English
language.
Under Article 33 of the UNCITRAL Arbitration Rules governing
the parties, "the arbitral tribunal shall apply the law designated
by the parties as applicable to the substance of the dispute."
"Failing such designation by the parties, the arbitral tribunal
shall apply the law determined by the conflict of laws rules
which it considers applicable." Established in this jurisdiction is
the rule that the law of the place where the contract is made
governs, or lex loci contractus.[17] As the parties did not
designate the applicable law and the Agreement was perfected
in the Philippines, our Arbitration laws, particularly, RA No.
876,[18] RA No. 9285[19] and its IRR, and the Special ADR Rules
apply.[20] The IRR of RA No. 9285 provides that "[t]he arbitral
tribunal shall decide the dispute in accordance with such law as
is chosen by the parties. In the absence of such agreement,
Philippine law shall apply."[21]
In another earlier case filed by petitioner entitled Department
of Foreign Affairs v. BCA International Corporation,[22] docketed
as G.R. No. 210858, petitioner also raised as one of its issues
that the 1976 UNCITRAL Arbitration Rules and the Rules of
Court apply to the present arbitration proceedings, not RA No.
9285 and the Special ADR Rules. We ruled therein thus:
Arbitration is deemed a special proceeding and governed by the
special provisions of RA 9285, its IRR, and the Special ADR
Rules. RA 9285 is the general law applicable to all matters and
controversies to be resolved through alternative dispute
resolution methods. While enacted only in 2004, we held that
RA 9285 applies to pending arbitration proceedings since it is a
procedural law, which has retroactive effect.
xxxx
The IRR of RA 9285 reiterate that RA 9285 is procedural in
character and applicable to all pending arbitration proceedings.
Consistent with Article 2046 of the Civil Code, the Special ADR
Rules were formulated and were also applied to all pending
arbitration proceedings covered by RA 9285, provided no
vested rights are impaired. Thus, contrary to DFA's contention,
RA 9285, its IRR, and the Special ADR Rules are applicable to
the present arbitration proceedings. The arbitration between
the OFA and BCA is still pending, since no arbitral award has
yet been rendered. Moreover, DFA did not allege any vested
rights impaired by the application of those procedural rules.
RA No. 9285 declares the policy of the State to actively
promote party autonomy in the resolution of disputes or the
freedom of the parties to make their own arrangements to
resolve their disputes.[23] Towards this end, the State shall
encourage and actively promote the use of Alternative Dispute
Resolution as an important means to achieve speedy and
impartial justice and declog court docl [24]
Court intervention is allowed under RA No. 9285 in the
following instances: (1) when a party in the arbitration
proceedings requests for an interim measure of
protection;[25] (2) judicial review of arbitral awards[26] by the
Regional Trial Court (RTC); and (3) appeal from the RTC
decisions on arbitral awards to the Court of Appeals.[27]
The extent of court intervention in domestic arbitration is
specified in the IRR ofRA No. 9285, thus:
Art. 5.4. Extent of Court Intervention. In matters governed by
this Chapter, no court shall intervene except in accordance with
the Special ADR Rules.
Court intervention in the Special ADR Rules is allowed through
these remedies: (1) Specific Court Relief, which includes
Judicial Relief Involving the Issue of Existence, Validity and
Enforceability of the Arbitral Agreement,[28] Interim Measures of
Protection,[29] Challenge to the Appointment of
Arbitrator,[30] Termination of Mandate of
Arbitrator,[31] Assistance in Taking
Evidence,[32] Confidentiality/Protective Orders,[33] Confirmation,
Correction or Vacation of Award in Domestic Arbitration,[34] all
to be filed with the RTC; (2) a motion for reconsideration may
be filed by a party with the RTC on the grounds specified in
Rule 19.1; (3) an appeal to the Court of Appeals through a
petition for review under Rule 19.2 or through a special civil
action for certiorari under Rule 19.26; and (4) a petition
for certiorari with the Supreme Court from a judgment or final
order or resolution of the Court of Appeals, raising only
questions of law.
Under the Special ADR Rules, review by the Supreme Court of
an appeal by certiorari is not a matter of right, thus:
RULE 19.36. Review Discretionary. - A review by the Supreme
Court is not a matter of right, but of sound judicial discretion,
which will be granted only for serious and compelling reasons
resulting in grave prejudice to the aggrieved party. The
following, while neither controlling nor fully measuring the
court's discretion, indicate the serious and compelling, and
necessarily, restrictive nature of the grounds that will warrant
the exercise of the Supreme Court's discretionary powers, when
the Court of Appeals:
a. Failed to apply the applicable standard or test for judicial
review prescribed in these Special ADR Rules in arriving at its
decision resulting in substantial prejudice to the aggrieved
party;
b. Erred in upholding a final order or decision despite the lack
of jurisdiction of the court that rendered such final order or
decision;
c. Failed to apply any provision, principle, policy or rule
contained in these Special ADR Rules resulting in substantial
prejudice to the aggrieved party; and
d. Committed an error so egregious and harmful to a party as
to amount to an undeniable excess of jurisdiction.
The mere fact that the petitioner disagrees with the Court of
Appeals' determination of questions of fact, of law or both
questions of fact and law, shall not warrant the exercise of the
Supreme Court's discretionary power. The error imputed to the
Court of Appeals must be grounded upon any of the above
prescribed grounds for review or be closely analogous thereto.
A mere general allegation that the Court of Appeals has
committed serious and substantial error or that it has acted
with grave abuse of discretion resulting in substantial prejudice
to the petitioner without indicating with specificity the nature of
such error or abuse of discretion and the serious prejudice
suffered by the petitioner on account thereof, shall constitute
sufficient ground for the Supreme Court to dismiss outright the
petition.
RULE 19.37. Filing of Petition with Supreme Court. - A party
desiring to appeal by certiorari from a judgment or final order
or resolution of the Court of Appeals issued pursuant to these
Special ADR Rules may file with the Supreme Court a verified
petition for review on certiorari. The petition shall raise only
questions of law, which must be distinctly set forth.
It is clear that an appeal by certiorari to the Supreme Court is
from a judgment or final order or resolution of the Court of
Appeals and only questions of law may be raised. There have
been instances when we overlooked the rule on hierarchy of
courts and took cognizance of a petition for certiorari alleging
grave abuse of discretion by the Regional Trial Court when it
granted interim relief to a party and issued an Order assailed
by the petitioner, considering the transcendental importance of
the issue involved therein[35] or to better serve the ends of
justice when the case is determined on the merits rather on
technicality.[36] However, in this case, the appeal by certiorari is
not from a final Order of the Court of Appeals or the Regional
Trial Court, but from an interlocutory order of the Arbitral
Tribunal; hence, the petition must be dismissed.
WHEREFORE, the Court resolves to DISMISS the pet1t1on for
failure to observe the rules on court intervention allowed by RA
No. 9285 and the Special ADR Rules, specifically Rule 19.36
and Rule 19.37 of the latter, in the pending arbitration
proceedings of the parties to this case.
SO ORDERED.
 [G.R. No. 135362. December 13, 1999.]
HEIRS OF AUGUSTO L. SALAS, JR., namely: TERESITA D.
SALAS for herself and as legal guardian of the minor
FABRICE CYRILL D. SALAS, MA. CRISTINA S. LESACA, and
KARINA TERESA D. SALAS, Petitioners, v. LAPERAL
REALTY CORPORATION, ROCKWAY REAL ESTATE
CORPORATION, SOUTH RIDGE VILLAGE, INC.,
MAHARAMI DEVELOPMENT CORPORATION, Spouses
THELMA D. ABRAJANO and GREGORIO ABRAJANO,
OSCAR DACILLO, Spouses VIRGINIA D. LAVA and RODEL
LAVA, EDUARDO A. VACUNA, FLORANTE DE LA CRUZ,
JESUS VICENTE B. CAPELLAN, and the REGISTER OF
DEEDS FOR LIPA CITY, Respondents.
Remedial Law; Arbitration; Court has recognized arbitration
agreements as valid, binding, enforceable and not contrary to
public policy.—In a catena of cases inspired by Justice
Malcolm’s provocative dissent in Vega v. San Carlos Milling Co.,
this Court has recognized arbitration agreements as valid,
binding, enforceable and not contrary to public policy so much
so that when there obtains a written provision for arbitration
which is not complied with, the trial court should suspend the
proceedings and order the parties to proceed to arbitration in
accordance with the terms of their agreement. Arbitration is the
“wave of the future” in dispute resolution. To brush aside a
contractual agreement calling for arbitration in case of
disagreement between parties would be a step backward.
Same; Same; As a contract, the Agreement containing the
stipulation on arbitration, binds the parties thereto, as well as
their assigns and heirs.—A submission to arbitration is a
contract. As such, the Agreement, containing the stipulation on
arbitration, binds the parties thereto, as well as their assigns
and heirs. But only they. Petitioners, as heirs of Salas, Jr., and
respondent Laperal Realty are certainly bound by the
Agreement. If respondent Laperal Realty had assigned its rights
under the Agreement to a third party, making the former, the
assignor, and the latter, the assignee, such assignee would also
be bound by the arbitration provision since assignment involves
such transfer of rights as to vest in the assignee the power to
enforce them to the same extent as the assignor could have
enforced them against the debtor or in this case, against the
heirs of the original party to the Agreement.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Order 1 of
Branch 85 of the Regional Trial Court of Lipa City 2 dismissing
petitioners’ complaint 3 for rescission of several sale
transactions involving land owned by Augusto L. Salas, Jr., their
predecessor-in-interest, on the ground that they failed to first
resort to arbitration.cralawnad
Salas, Jr. was the registered owner of a vast tract of land in
Lipa City, Batangas spanning 1,484,354 square meters.
On May 15, 1987, he entered into an Owner-Contractor
Agreement 4 (hereinafter referred to as the Agreement) with
respondent Laperal Realty Corporation (hereinafter referred to
as Laperal Realty) to render and provide complete (horizontal)
construction services on his land.
On September 23, 1988, Salas, Jr. executed a Special Power of
Attorney in favor of respondent Laperal Realty to exercise
general control, supervision and management of the sale of his
land, for cash or on installment basis.
On June 10, 1989, Salas, Jr. left his home in the morning for a
business trip to Nueva Ecija. He never returned.chanrobles.com
: virtual law library
On August 6, 1996, Teresita Diaz Salas filed with the Regional
Trial Court of Makati City a verified petition for the declaration
of presumptive death of her husband, Salas, Jr., who had then
been missing for more than seven (7) years. It was granted on
December 12, 1996. 5
Meantime, respondent Laperal Realty subdivided the land of
Salas, Jr. and sold subdivided portions thereof to respondents
Rockway Real Estate Corporation and South Ridge Village, Inc.
on February 22, 1990; to respondent spouses Abrajano and
Lava and Oscar Dacillo on June 27, 1991; and to respondents
Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capalan
on June 4, 1996 (all of whom are hereinafter referred to as
respondent lot buyers).
On February 3, 1998, petitioners as heirs of Salas, Jr. filed in
the Regional Trial Court of Lipa City a Complaint 6 for
declaration of nullity of sale, reconveyance, cancellation of
contract, accounting and damages against herein respondents
which was docketed as Civil Case No. 98-0047.chanrobles law
library : red
On April 24, 1998, respondent Laperal Realty filed a Motion to
Dismiss 7 on the ground that petitioners failed to submit their
grievance to arbitration as required under Article VI of the
Agreement which provides:jgc:chanrobles.com.ph
"ARTICLE VI. ARBITRATION.
All cases of dispute between CONTRACTOR and OWNER’S
representative shall be referred to the committee represented
by:chanrob1es virtual 1aw library
a. One representative of the OWNER;
b. One representative of the CONTRACTOR;
c. One representative acceptable to both OWNER and
CONTRACTOR." 8
On May 5, 1998, respondent spouses Abrajano and Lava and
respondent Dacillo filed a Joint Answer with Counterclaim and
Crossclaim 9 praying for dismissal of petitioners’ Complaint for
the same reason.
On August 9, 1998, the trial court issued the herein assailed
Order dismissing petitioners’ Complaint for non-compliance with
the foregoing arbitration clause.
Hence this petition.chanrobles.com : virtual law library
Petitioners argue, thus:jgc:chanrobles.com.ph
"The petitioners’ causes of action did not emanate from the
Owner-Contractor Agreement."cralaw virtua1aw library
"The petitioners’ causes of action for cancellation of contract
and accounting are covered by the exception under the
Arbitration Law."cralaw virtua1aw library
"Failure to arbitrate is not a ground for dismissal." 10
In a catena of cases 11 inspired by Justice Malcolm’s
provocative dissent in Vega v. San Carlos Milling Co. 12 , this
Court has recognized arbitration agreements as valid, binding,
enforceable and not contrary to public policy so much so that
when there obtains a written provision for arbitration which is
not complied with, the trial court should suspend the
proceedings and order the parties to proceed to arbitration in
accordance with the terms of their agreement. 13 Arbitration is
the "wave of the future" in dispute resolution. 14 To brush
aside a contractual agreement calling for arbitration in case of
disagreement between parties would be a step backward. 15
Nonetheless, we grant the petition.cralawnad
A submission to arbitration is a contract. 16 As such, the
Agreement, containing the stipulation on arbitration, binds the
parties thereto, as well as their assigns and heirs. 17 But only
they. Petitioners, as heirs of Salas, Jr., and respondent Laperal
Realty are certainly bound by the Agreement. If respondent
Laperal Realty had assigned its rights under the Agreement to a
third party, making the former, the assignor, and the latter, the
assignee, such assignee would also be bound by the arbitration
provision since assignment involves such transfer of rights as to
vest in the assignee the power to enforce them to the same
extent as the assignor could have enforced them against the
debtor 18 or in this case, against the heirs of the original party
to the Agreement. However, respondents Rockway Real Estate procedure and unnecessary delay. On the other hand, it would
Corporation, South Ridge Village, Inc., Maharami Development be in the interest of justice if the trial court hears the complaint
Corporation, spouses Abrajano, spouses Lava, Oscar Dacillo, against all herein respondents and adjudicates petitioners’
Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capellan rights as against theirs in a single and complete proceeding.
are not assignees of the rights of respondent Laperal Realty
under the Agreement to develop Salas, Jr.’s land and sell the WHEREFORE, the instant petition is hereby GRANTED. The
same. They are, rather, buyers of the land that respondent Order dated August 19, 1998 of Branch 85 of the Regional Trial
Laperal Realty was given the authority to develop and sell Court of Lipa City is hereby NULLIFIED and SET ASIDE. Said
under the Agreement. As such, they are not "assigns" court is hereby ordered to proceed with the hearing of Civil
contemplated in Art. 1311 of the New Civil Code which provides Case No. 98-0047.
that "contracts take effect only between the parties, their
assigns and heirs" . Costs against private respondents.chanrobles.com.ph : virtual
law library
Petitioners claim that they suffered lesion of more than one-
fourth (1/4) of the value of Salas, Jr.’s land when respondent SO ORDERED.
Laperal Realty subdivided it and sold portions thereof to
respondent lot buyers. Thus, they instituted action 19 against
both respondent Laperal Realty and respondent lot buyers for
rescission of the sale transactions and reconveyance to them of
the subdivided lots. They argue that rescission, being their
cause of action, falls under the exception clause in Sec. 2 of
Republic Act No. 876 which provides that "such submission [to]
or contract [of arbitration] shall be valid, enforceable and
irrevocable, save, upon such grounds as exist at law for the
revocation of any contract" .

The petitioners’ contention is without merit. For while

rescission, as a general rule, is an arbitrable issue, 20 they
impleaded in the suit for rescission the respondent lot buyers
who are neither parties to the Agreement nor the latter’s
assigns or heirs. Consequently, the right to arbitrate as
provided in Article VI of the Agreement was never vested in
respondent lot buyers.chanroblesvirtual|awlibrary

Respondent Laperal Realty, as a contracting party to the

Agreement, has the right to compel petitioners to first arbitrate
before seeking judicial relief. However, to split the proceedings
into arbitration for respondent Laperal Realty and trial for the
respondent lot buyers, or to hold trial in abeyance pending
arbitration between petitioners and respondent Laperal Realty,
would in effect result in multiplicity of suits, duplicitous
 [G.R. No. 115412. November 19, 1999.]
HOME BANKERS SAVINGS AND TRUST
COMPANY, Petitioner, v. COURT OF APPEALS and FAR
EAST BANK & TRUST CO., INC., Respondents.
Actions; Arbitration Law (R.A. 876); Section 14 of Republic Act
876, otherwise known as the Arbitration Law, allows any party
to the arbitration proceeding to petition the court to take
measures to safeguard and/or conserve any matter which is the
subject of the dispute in arbitration.—We find no merit in the
petition. Section 14 of Republic Act 876, otherwise known as
the Arbitration Law, allows any party to the arbitration
proceeding to petition the court to take measures to safeguard
and/or conserve any matter which is the subject of the dispute
in arbitration, thus: Section 14. Subpoena and subpoena duces
tecum.—Arbitrators shall have the power to require any person
to attend a hearing as a witness. They shall have the power to
subpoena witnesses and documents when the relevancy of the
testimony and the materiality thereof has been demonstrated
to the arbitrators. Arbitrators may also require the retirement
of any witness during the testimony of any other witness. All of
the arbitrators appointed in any controversy must attend all the
hearings in that matter and hear all the allegations and proofs
of the parties; but an award by the majority of them is valid
unless the concurrence of all of them is expressly required in
the submission or contract to arbitrate. The arbitrator or
arbitrators shall have the power at any time, before rendering
the award, without prejudice to the rights of any party to
petition the court to take measures to safeguard and/or
conserve any matter which is the subject of the dispute in
arbitration.
Same; Same; Banks and Banking; Philippine Clearing House
Corporation; Participants in the regional clearing operations of
the Philippine Clearing House Corporation cannot bypass the
arbitration process laid out by the body and seek relief directly
from the courts.—Simply put, participants in the regional
clearing operations of the Philippine Clearing House Corporation
cannot bypass the arbitration process laid out by the body and
seek relief directly from the courts. In the case at bar,
undeniably, private respondent has initiated arbitration
proceedings as required by the PCHC rules and regulations, and
pending arbitration has sought relief from the trial court for
measures to safeguard and/or conserve the subject of the
dispute under arbitration, as sanctioned by section 14 of the
Arbitration Law, and otherwise not shown to be contrary to the
PCHC rules and regulations.
Same; Same; Arbitration, as an alternative method of dispute
resolution, is encouraged.—At this point, we emphasize that
arbitration, as an alternative method of dispute resolution, is
encouraged by this Court. Aside from unclogging judicial
dockets, it also hastens solutions especially of commercial
disputes. The Court looks with favor upon such amicable
arrangement and will only interfere with great reluctance to
anticipate or nullify the action of the arbitrator
DECISION
BUENA, J.:
This appeal by certiorari under Rule 45 of the Rules of Court
seeks to annul and set aside the decision 1 of the Court of
Appeals 2 dated January 21, 1994 in CA-G.R. SP No. 29725,
dismissing the petition for certiorari filed by petitioner to annul
the two (2) orders issued by the Regional Trial Court of Makati
3 in Civil Case No. 92-145, the first, dated April 30, 1992,
denying petitioner’s motion to dismiss and the second, dated
October 1, 1992 denying petitioner’s motion for reconsideration
thereof.chanroblesvirtuallawlibrary
The pertinent facts may be briefly stated as follows: Victor
Tancuan, one of the defendants in Civil Case No. 92-145, issued
Home Bankers Savings and Trust Company (HBSTC) check No.
193498 for P25,250,000.00 while Eugene Arriesgado issued Far
East Bank and Trust Company (FEBTC) check Nos. 464264,
464272 and 464271 for P8,600,000.00, P8,500,000.00 and
P8,100,000.00, respectively, the three checks amounting to
P25,200,000.00. Tancuan and Arriesgado exchanged each
other’s checks and deposited them with their respective banks
for collection. When FEBTC presented Tancuan’s HBSTC check
for clearing, HBSTC dishonored it for being "Drawn Against
Insufficient Funds." On October 15, 1991, HBSTC sent
Arriesgado’s three (3) FEBTC checks through the Philippine
Clearing House Corporation (PCHC) to FEBTC but was returned
on October 18, 1991 as "Drawn Against Insufficient Funds."
HBSTC received the notice of dishonor on October 21, 1991 but
refused to accept the checks and on October 22, 1991,
returned them to FEBTC through the PCHC for the reason
"Beyond Reglementary Period," implying that HBSTC already
treated the three (3) FEBTC checks as cleared and allowed the
proceeds thereof to be withdrawn. 4 FEBTC demanded
reimbursement for the returned checks and inquired from
HBSTC whether it had permitted any withdrawal of funds
against the unfunded checks and if so, on what date. HBSTC,
however, refused to make any reimbursement and to provide
FEBTC with the needed information.
Thus, on December 12, 1991, FEBTC submitted the dispute for
arbitration before the PCHC Arbitration Committee, 5 under the
PCHC’s Supplementary Rules on Regional Clearing to which
FEBTC and HBSTC are bound as participants in the regional
clearing operations administered by the PCHC. 6
On January 17, 1992, while the arbitration proceeding was still
pending, FEBTC filed an action for sum of money and damages
with preliminary attachment 7 against HBSTC, Robert Young,
Victor Tancuan and Eugene Arriesgado with the Regional Trial
Court of Makati, Branch 133. A motion to dismiss was filed by
HBSTC claiming that the complaint stated no cause of action
and accordingly." . . should be dismissed because it seeks to
enforce an arbitral award which as yet does not exist." 8 The
trial court issued an omnibus order dated April 30, 1992
denying the motion to dismiss and an order dated October 1,
1992 denying the motion for
reconsideration.chanrobles.com:cralaw:red
On December 16, 1992, HBSTC filed a petition
for certiorari with the respondent Court of Appeals contending
that the trial court acted with grave abuse of discretion
amounting to lack of jurisdiction in denying the motion to
dismiss filed by HBSTC.
In a Decision 9 dated January 21, 1994, the respondent court
dismissed the petition for lack of merit and held that "FEBTC
can reiterate its cause of action before the courts which it had
already raised in the arbitration case" 10 after finding that the
complaint filed by FEBTC." . . seeks to collect a sum of money
from HBT [HBSTC] and not to enforce or confirm an arbitral
award." 11 The respondent court observed that" [i]n the
Complaint, FEBTC applied for the issuance of a writ of
preliminary attachment over HBT’s [HBSTC] property" 12 and
citing section 14 of Republic Act No. 876, otherwise known as
the Arbitration Law, maintained that" [n]ecessarily, it has to
reiterate its main cause of action for sum of money against HBT
[HBSTC]," 13 and that" [t]his prayer for conservatory relief
[writ of preliminary attachment] satisfies the requirement of a
cause of action which FEBTC may pursue in the courts." 14
Furthermore, the respondent court ruled that based on section
7 of the Arbitration Law and the cases of National Union Fire
Insurance Company of Pittsburg v. Stolt-Nielsen Philippines,
Inc., 15 and Bengson v. Chan, 16." . . when there is a condition
requiring prior submission to arbitration before the institution of
a court action, the complaint is not to be dismissed but should
be suspended for arbitration." 17 Finding no merit in HBSTC’s
contention that section 7 of the Arbitration Law." . .
contemplates a situation in which a party to an arbitration
agreement has filed a court action without first resorting to
arbitration, while in the case at bar, FEBTC has initiated
arbitration proceedings before filing a court action," the
respondent court held that." . . if the absence of a prior
arbitration may stay court action, so too and with more reason,
should an arbitration already pending as obtains in this case
stay the court action. A party to a pending arbitral proceeding
may go to court to obtain conservatory reliefs in connection
with his cause of action although the disposal of that action on
the merits cannot as yet be obtained." 18 The respondent court
discarded Puromines, Inc. v. Court of Appeals, 19 stating that."
. . perhaps Puromines may have been decided on a different
factual basis." 20
In the instant petition, 21 petitioner contends that first, "no
party litigant can file a non-existent complaint," 22 arguing
that." . . one cannot file a complaint in court over a subject that
is undergoing arbitration." 23 Second, petitioner submits that"
[s]ince arbitration is a special proceeding by a clear provision of
law, 24 the civil suit filed below is, without a shadow of doubt,
barred by litis pendentia and should be dismissed de plano
insofar as HBSTC is concerned." 25 Third, petitioner insists
that" [w]hen arbitration is agreed upon and suit is filed without
arbitration having been held and terminated, the case that is
filed should be dismissed," 26 citing Associated Bank v. Court of
Appeals, 27 Puromines, Inc. v. Court of Appeals, 28 and
Ledesma v. Court of Appeals. 29 Petitioner demurs that the
Puromines ruling was deliberately not followed by the
respondent court which claimed that:jgc:chanrobles.com.ph
"x x x
It would really be much easier for Us to rule to dismiss the
complaint as the petitioner here seeks to do, following
Puromines. But with utmost deference to the Honorable
Supreme Court, perhaps Puromines may have been decided on
a different factual basis.
x x x." 30
Petitioner takes exception to FEBTC’s contention that
Puromines cannot modify or reverse the rulings in National
Union Fire Insurance Company of Pittsburg v. Stolt-Nielsen
Philippines, Inc., 31 and Bengson v. Chan, 32 where this Court
suspended the action filed pending arbitration, and argues that"
[s]ound policy requires that the conclusion of whether a
Supreme Court decision has or has not reversed or modified [a]
previous doctrine, should be left to the Supreme Court itself;
until then, the latest pronouncement should prevail." 33 Fourth,
petitioner alleges that the writ of preliminary attachment issued
by the trial court is void considering that the case filed before it
"is a separate action which cannot exist," 34 and." . . there is
even no need for the attachment as far as HBSTC is concerned
because such automatic debit/credit procedure 35 may be
regarded as a security for the transactions involved and, as
jurisprudence confirms, one requirement in the issuance of an
attachment [writ of preliminary attachment] is that the debtor
has no sufficient security." 36 Petitioner asserts further that a
writ of preliminary attachment is unwarranted because no
ground exists for its issuance. According to petitioner,." . . the
only allegations against it [HBSTC] are that it refused to refund
the amounts of the checks of FEBTC and that it knew about the
fraud perpetrated by the other defendants," 37 which, at best,
constitute only "incidental fraud" and not causal fraud which
justifies the issuance of the writ of preliminary attachment.
Private respondent FEBTC, on the other hand, contends that." .
. the cause of action for collection [of a sum of money] can
coexist in the civil suit and the arbitration [proceeding]" 38
citing section 7 of the Arbitration Law which provides for the
stay of the civil action until an arbitration has been had in
accordance with the terms of the agreement providing for
arbitration. Private respondent further asserts that following
section 4(3), article VIII 39 of the 1987 Constitution, the
subsequent case of Puromines does not overturn the ruling in
the earlier cases of National Union Fire Insurance Company of
Pittsburg v. Stolt-Nielsen Philippines, Inc., 40 and Bengson v.
Chan, 41 hence, private respondent concludes that the
prevailing doctrine is that the civil action must be stayed rather
than dismissed pending arbitration.
In this; petition, the lone issue presented for the consideration
of this Court is:jgc:chanrobles.com.ph
"WHETHER OR NOT PRIVATE RESPONDENT WHICH
COMMENCED AN ARBITRATION PROCEEDING UNDER THE
AUSPICES OF THE PHILIPPINE CLEARING HOUSE
CORPORATION (PCHC) MAY SUBSEQUENTLY FILE A SEPARATE
CASE IN COURT .OVER THE SAME SUBJECT MATTER OF
ARBITRATION DESPITE THE PENDENCY OF THAT ARBITRATION,
SIMPLY TO OBTAIN THE PROVISIONAL REMEDY OF
ATTACHMENT AGAINST THE BANK THE ADVERSE PARTY IN THE
ARBITRATION PROCEEDING." 42
We find no merit in the petition. Section 14 of Republic Act 876,
otherwise known as the Arbitration Law, allows any party to the
arbitration proceeding to petition the court to take measures to
safeguard and/or conserve any matter which is the subject of
the dispute in arbitration, thus:chanroblesvirtual|awlibrary
SECTION 14. Subpoena and subpoena duces tecum. —
Arbitrators shall have the power to require any person to attend
a hearing as a witness. They shall have the power to subpoena
witnesses and documents when the relevancy of the testimony
and the materiality thereof has been demonstrated to the
arbitrators. Arbitrators may also require the retirement of any
witness during the testimony of any other witness. All of the
arbitrators appointed in any controversy must attend all the
hearings in that matter and hear all the allegations and proofs
of the parties; but an award by the majority of them is valid
unless the concurrence of all of them is expressly required in
the submission or contract to arbitrate. The arbitrator or
arbitrators shall have the power at any time, before rendering
the award, without prejudice to the rights of any party to
petition the court to take measures to safeguard and/or
conserve any matter which is the subject of the dispute in
arbitration. (Emphasis supplied)
Petitioner’s exposition of the foregoing provision deserves scant
consideration. Section 14 simply grants an arbitrator the power
to issue subpoena and subpoena duces tecum at any time
before rendering the award. The exercise of such power is
without prejudice to the right of a party to file a petition in
court to safeguard any matter which is the subject of the
dispute in arbitration. In the case at bar, private respondent
filed an action for a sum of money with prayer for a writ of
preliminary attachment. Undoubtedly, such action involved the
same subject matter as that in arbitration, i.e., the sum of
P25,200,000.00 which was allegedly deprived from private
respondent in what is known in banking as a "kiting scheme."
However, the civil action was not a simple case of a money
claim since private respondent has included a prayer for a writ
of preliminary attachment, which is sanctioned by section 14 of
the Arbitration Law.
Petitioner cites the cases of Associated Bank v. Court of
Appeals, 43 Puromines, Inc. v. Court of Appeals, 44 and
Ledesma v. Court of Appeals 45 in contending that" [w]hen
arbitration is agreed upon and suit is filed without arbitration
having been held and terminated, the case that is filed should
be dismissed." 46 However, the said cases are not in point. In
Associated Bank, we affirmed the dismissal of the third-party
complaint filed by Associated Bank against Philippine
Commercial International Bank, Far East Bank & Trust
Company, Security Bank and Trust Company, and Citytrust
Banking Corporation for lack of jurisdiction, it being shown that
the said parties were bound by the Clearing House Rules and
Regulations on Arbitration of the Philippine Clearing House
Corporation. In Associated Bank, we declared
that:jgc:chanrobles.com.ph
". . . . Under the rules and regulations of the Philippine Clearing
House Corporation (PCHC), the mere act of participation of the
parties concerned in its operations in effect amounts to a
manifestation of agreement by the parties to abide by its rules
and regulations. As a consequence of such participation, a party
cannot invoke the jurisdiction of the courts over disputes and
controversies which fall under the PCHC Rules and Regulations
without first going through the arbitration processes laid out by
the body." 47 (Emphasis supplied)
And thus we concluded:jgc:chanrobles.com.ph
"Clearly therefore, petitioner Associated Bank, by its voluntary
participation and its consent to the arbitration rules cannot go
directly to the Regional Trial Court when it finds it convenient to
do so. The jurisdiction of the PCHC under the rules and
regulations is clear, undeniable and is particularly applicable to
all the parties in the third party complaint under their obligation
to first seek redress of their disputes and grievances with the
PCHC before going to the trial court." 48 (Emphasis supplied)
Simply put, participants in the regional clearing operations of
the Philippine Clearing House Corporation cannot bypass the
arbitration process laid out by the body and seek relief directly
from the courts. In the case at bar, undeniably, private
respondent has initiated arbitration proceedings as required by
the PCHC rules and regulations, and pending arbitration has
sought relief from the trial court for measures to safeguard
and/or conserve the subject of the dispute under arbitration, as
sanctioned by section 14 of the Arbitration Law, and otherwise
not shown to be contrary to the PCHC rules and regulations.

Likewise, in the case of Puromines, Inc. v. Court of Appeals, 49

we have ruled that:jgc:chanrobles.com.ph

"In any case, whether the liability of respondent should be

based on the sales contract or that of the bill of lading, the
parties are nevertheless obligated to respect the arbitration
provisions on the sales contract and/or bill of lading. Petitioner
being a signatory and party to the sales contract cannot escape
from his obligation under the arbitration clause as stated
therein."cralaw virtua1aw library

In Puromines, we found the arbitration clause stated in the

sales contract to be valid and applicable, thus, we ruled that
the parties, being signatories to the sales contract, are
obligated to respect the arbitration provisions on the contract
and cannot escape from such obligation by filing an action for
breach of contract in court without resorting first to arbitration,
as agreed upon by the parties.

At this point, we emphasize that arbitration, as an alternative

method of dispute resolution, is encouraged by this Court.
Aside from unclogging judicial dockets, it also hastens solutions
especially of commercial disputes. 50 The Court looks with
favor upon such amicable arrangement and will only interfere
with great reluctance to anticipate or nullify the action of the
arbitrator. 51

WHEREFORE, premises considered, the petition is hereby

DISMISSED and the decision of the court a quo is
AFFIRMED.cralawnad

SO ORDERED.
G.R. No. 141833 March 26, 2003
LM POWER ENGINEERING CORPORATION, petitioner,
vs.
CAPITOL INDUSTRIAL CONSTRUCTION GROUPS,
INC., respondent.
Alternative Dispute Resolution; Arbitration; Courts; Jurisdiction;
The inclusion of an arbitration clause in a contract does not ipso
facto divest the courts of jurisdiction to pass upon the findings
of arbitral bodies, because the awards are still judicially
reviewable under certain conditions.—We side with respondent.
Essentially, the dispute arose from the parties’ incongruent
positions on whether certain provisions of their Agreement
could be applied to the facts. The instant case involves
technical discrepancies that are better left to an arbitral body
that has expertise in those areas. In any event, the inclusion of
an arbitration clause in a contract does not ipso facto divest the
courts of jurisdiction to pass upon the findings of arbitral
bodies, because the awards are still judicially reviewable under
certain conditions.
Same; Same; Same; Being an inexpensive, speedy and
amicable method of settling disputes, arbitration—along with
mediation, conciliation and negotiation—is encouraged by the
Supreme Court; Arbitration is regarded as the “wave of the
future” in international civil and commercial disputes;
Consistent with the policy of encouraging alternative dispute
resolution methods, courts should liberally construe arbitration
clauses.—Being an inexpensive, speedy and amicable method
of settling disputes, arbitration—along with mediation,
conciliation and negotiation—is encouraged by the Supreme
Court. Aside from unclogging judicial dockets, arbitration also
hastens the resolution of disputes, especially of the commercial
kind. It is thus regarded as the “wave of the future” in
international civil and commercial disputes. Brushing aside a
contractual agreement calling for arbitration between the
parties would be a step backward. Consistent with the above-
mentioned policy of encouraging alternative dispute resolution
methods, courts should liberally construe arbitration clauses.
Provided such clause is susceptible of an interpretation that
covers the asserted dispute, an order to arbitrate should be
granted. Any doubt should be resolved in favor of arbitration.
Same; Same; Same; Construction Industry Arbitration
Commission (CIAC); Recourse to the CIAC may now be availed
of whenever a contract “contains a clause for the submission of
a future controversy to arbitration.—On the other hand, Section
1 of Article III of the new Rules of Procedure Governing
Construction Arbitration has dispensed with this requirement
and recourse to the CIAC may now be availed of whenever a
contract “contains a clause for the submission of a future
controversy to arbitration,” in this wise: “SECTION 1.
Submission to CIAC Jurisdiction.—An arbitration clause in a
construction contract or a submission to arbitration of a
construction dispute shall be deemed an agreement to submit
an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration
institution or arbitral body in such contract or submission.
When a contract contains a clause for the submission of a
future controversy to arbitration, it is not necessary for the
parties to enter into a submission agreement before the
claimant may invoke the jurisdiction of CIAC.” The foregoing
amendments in the Rules were formalized by CIAC Resolution
Nos. 2-91 and 3-93.
PANGANIBAN, J.:
Alternative dispute resolution methods or ADRs -- like
arbitration, mediation, negotiation and conciliation -- are
encouraged by the Supreme Court. By enabling parties to
resolve their disputes amicably, they provide solutions that are
less time-consuming, less tedious, less confrontational, and
more productive of goodwill and lasting relationships.1
The Case
Before us is a Petition for Review on Certiorari 2 under Rule 45
of the Rules of Court, seeking to set aside the January 28, 2000
Decision of the Court of Appeals3 (CA) in CA-GR CV No. 54232.
The dispositive portion of the Decision reads as follows:
"WHEREFORE, the judgment appealed from is REVERSED and
SET ASIDE. The parties are ORDERED to present their dispute
to arbitration in accordance with their Sub-contract Agreement.
The surety bond posted by [respondent] is [d]ischarged."4
The Facts
On February 22, 1983, Petitioner LM Power Engineering
Corporation and Respondent Capitol Industrial Construction
Groups Inc. entered into a "Subcontract Agreement" involving
electrical work at the Third Port of Zamboanga. 5
On April 25, 1985, respondent took over some of the work
contracted to petitioner.6 Allegedly, the latter had failed to
finish it because of its inability to procure materials.7
Upon completing its task under the Contract, petitioner billed
respondent in the amount of P6,711,813.90.8 Contesting the
accuracy of the amount of advances and billable
accomplishments listed by the former, the latter refused to pay.
Respondent also took refuge in the termination clause of the
Agreement.9 That clause allowed it to set off the cost of the
work that petitioner had failed to undertake -- due to
termination or take-over -- against the amount it owed the
latter.
Because of the dispute, petitioner filed with the Regional Trial
Court (RTC) of Makati (Branch 141) a Complaint10 for the
collection of the amount representing the alleged balance due it
under the Subcontract. Instead of submitting an Answer,
respondent filed a Motion to Dismiss,11 alleging that the
Complaint was premature, because there was no prior recourse
to arbitration.
In its Order12 dated September 15, 1987, the RTC denied the
Motion on the ground that the dispute did not involve the
interpretation or the implementation of the Agreement and
was, therefore, not covered by the arbitral clause. 13
After trial on the merits, the RTC14 ruled that the take-over of
some work items by respondent was not equivalent to a
termination, but a mere modification, of the Subcontract. The
latter was ordered to give full payment for the work completed
by petitioner.
Ruling of the Court of Appeals
On appeal, the CA reversed the RTC and ordered the referral of
the case to arbitration. The appellate court held as arbitrable
the issue of whether respondent’s take-over of some work
items had been intended to be a termination of the original
contract under Letter "K" of the Subcontract. It ruled likewise
on two other issues: whether petitioner was liable under the
warranty clause of the Agreement, and whether it should
reimburse respondent for the work the latter had taken over.15
Hence, this Petition.16
The Issues
In its Memorandum, petitioner raises the following issues for
the Court’s consideration:
"A
Whether or not there exist[s] a controversy/dispute between
petitioner and respondent regarding the interpretation and
implementation of the Sub-Contract Agreement dated February
22, 1983 that requires prior recourse to voluntary arbitration;
"B
In the affirmative, whether or not the requirements provided in
Article III 1 of CIAC Arbitration Rules regarding request for
arbitration ha[ve] been complied with[.]"17
The Court’s Ruling
The Petition is unmeritorious.
First Issue:
Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the
interpretation or the implementation of the Agreement. Thus,
without having to resort to prior arbitration, it is entitled to
collect the value of the services it rendered through an ordinary
action for the collection of a sum of money from respondent.
On the other hand, the latter contends that there is a need for
prior arbitration as provided in the Agreement. This is because
there are some disparities between the parties’ positions
regarding the extent of the work done, the amount of advances
and billable accomplishments, and the set off of expenses
incurred by respondent in its take-over of petitioner’s work.
We side with respondent. Essentially, the dispute arose from
the parties’ ncongruent positions on whether certain provisions
of their Agreement could be applied to the facts. The instant
case involves technical discrepancies that are better left to an
arbitral body that has expertise in those areas. In any event,
the inclusion of an arbitration clause in a contract does not ipso
facto divest the courts of jurisdiction to pass upon the findings
of arbitral bodies, because the awards are still judicially
reviewable under certain conditions.18
In the case before us, the Subcontract has the following arbitral
clause:
"6. The Parties hereto agree that any dispute or conflict as
regards to interpretation and implementation of this
Agreement which cannot be settled between [respondent] and
[petitioner] amicably shall be settled by means of arbitration x
x x."19
Clearly, the resolution of the dispute between the parties herein
requires a referral to the provisions of their Agreement. Within
the scope of the arbitration clause are discrepancies as to the
amount of advances and billable accomplishments, the
application of the provision on termination, and the consequent
set-off of expenses.
A review of the factual allegations of the parties reveals that
they differ on the following questions: (1) Did a take-
over/termination occur? (2) May the expenses incurred by
respondent in the take-over be set off against the amounts it
owed petitioner? (3) How much were the advances and billable
accomplishments?
The resolution of the foregoing issues lies in the interpretation
of the provisions of the Agreement. According to respondent,
the take-over was caused by petitioner’s delay in completing
the work. Such delay was in violation of the provision in the
Agreement as to time schedule:
"G. TIME SCHEDULE
"[Petitioner] shall adhere strictly to the schedule related to the
WORK and complete the WORK within the period set forth in
Annex C hereof. NO time extension shall be granted by
[respondent] to [petitioner] unless a corresponding time
extension is granted by [the Ministry of Public Works and
Highways] to the CONSORTIUM."20
Because of the delay, respondent alleges that it took over some
of the work contracted to petitioner, pursuant to the following
provision in the Agreement:
"K. TERMINATION OF AGREEMENT
"[Respondent] has the right to terminate and/or take over this
Agreement for any of the following causes:
xxx xxx xxx
‘6. If despite previous warnings by [respondent], [petitioner]
does not execute the WORK in accordance with this Agreement,
or persistently or flagrantly neglects to carry out [its]
obligations under this Agreement."21
Supposedly, as a result of the "take-over," respondent incurred
expenses in excess of the contracted price. It sought to set off
those expenses against the amount claimed by petitioner for
the work the latter accomplished, pursuant to the following
provision:
"If the total direct and indirect cost of completing the remaining
part of the WORK exceed the sum which would have been
payable to [petitioner] had it completed the WORK, the amount
of such excess [may be] claimed by [respondent] from either of
the following:
‘1. Any amount due [petitioner] from [respondent] at the time
of the termination of this Agreement."22
The issue as to the correct amount of petitioner’s advances and
billable accomplishments involves an evaluation of the manner
in which the parties completed the work, the extent to which
they did it, and the expenses each of them incurred in
connection therewith. Arbitrators also need to look into the
computation of foreign and local costs of materials, foreign and
local advances, retention fees and letters of credit, and taxes
and duties as set forth in the Agreement. These data can be
gathered from a review of the Agreement, pertinent portions of
which are reproduced hereunder:
"C. CONTRACT PRICE AND TERMS OF PAYMENT
xxx xxx xxx
"All progress payments to be made by [respondent] to
[petitioner] shall be subject to a retention sum of ten percent
(10%) of the value of the approved quantities. Any claims by
[respondent] on [petitioner] may be deducted by [respondent]
from the progress payments and/or retained amount. Any
excess from the retained amount after deducting [respondent’s]
claims shall be released by [respondent] to [petitioner] after
the issuance of [the Ministry of Public Works and Highways] of
the Certificate of Completion and final acceptance of the WORK
by [the Ministry of Public Works and Highways].
xxx xxx xxx
"D. IMPORTED MATERIALS AND EQUIPMENT
"[Respondent shall open the letters of credit for the importation
of equipment and materials listed in Annex E hereof after the
drawings, brochures, and other technical data of each items in
the list have been formally approved by [the Ministry of Public
Works and Highways]. However, petitioner will still be fully
responsible for all imported materials and equipment.
"All expenses incurred by [respondent], both in foreign and
local currencies in connection with the opening of the letters of
credit shall be deducted from the Contract Prices.
xxx xxx xxx
"N. OTHER CONDITIONS
xxx xxx xxx
"2. All customs duties, import duties, contractor’s taxes, income
taxes, and other taxes that may be required by any
government agencies in connection with this Agreement shall
be for the sole account of [petitioner]."23
Being an inexpensive, speedy and amicable method of settling
disputes,24 arbitration -- along with mediation, conciliation and
negotiation -- is encouraged by the Supreme Court. Aside from
unclogging judicial dockets, arbitration also hastens the
resolution of disputes, especially of the commercial kind.25 It is
thus regarded as the "wave of the future" in international civil
and commercial disputes.26 Brushing aside a contractual
agreement calling for arbitration between the parties would be
a step backward.27
Consistent with the above-mentioned policy of encouraging
alternative dispute resolution methods, courts should liberally
construe arbitration clauses. Provided such clause is susceptible
of an interpretation that covers the asserted dispute, an order
to arbitrate should be granted.28 Any doubt should be resolved
in favor of arbitration.29
Second Issue:
Prior Request for Arbitration
According to petitioner, assuming arguendo that the dispute is
arbitrable, the failure to file a formal request for arbitration with
the Construction Industry Arbitration Commission (CIAC)
precluded the latter from acquiring jurisdiction over the
question. To bolster its position, petitioner even cites our ruling
in Tesco Services Incorporated v. Vera.30 We are not
persuaded.
Section 1 of Article II of the old Rules of Procedure Governing
Construction Arbitration indeed required the submission of a
request for arbitration, as follows:
"SECTION. 1. Submission to Arbitration -- Any party to a
construction contract wishing to have recourse to arbitration by
the Construction Industry Arbitration Commission (CIAC) shall
submit its Request for Arbitration in sufficient copies to the
Secretariat of the CIAC; PROVIDED, that in the case of
government construction contracts, all administrative remedies
available to the parties must have been exhausted within 90
days from the time the dispute arose."
Tesco was promulgated by this Court, using the foregoing
provision as reference.
On the other hand, Section 1 of Article III of the new Rules of
Procedure Governing Construction Arbitration has dispensed
with this requirement and recourse to the CIAC may now be
availed of whenever a contract "contains a clause for the
submission of a future controversy to arbitration," in this wise:
"SECTION 1. Submission to CIAC Jurisdiction — An arbitration
clause in a construction contract or a submission to arbitration
of a construction dispute shall be deemed an agreement to
submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration
institution or arbitral body in such contract or submission.
When a contract contains a clause for the submission of a
future controversy to arbitration, it is not necessary for the
parties to enter into a submission agreement before the
claimant may invoke the jurisdiction of CIAC."
The foregoing amendments in the Rules were formalized by
CIAC Resolution Nos. 2-91 and 3-93.31
The difference in the two provisions was clearly explained
in China Chang Jiang Energy Corporation (Philippines) v. Rosal
Infrastructure Builders et al.32 (an extended unsigned
Resolution) and reiterated in National Irrigation Administration
v. Court of Appeals,33 from which we quote thus:
"Under the present Rules of Procedure, for a particular
construction contract to fall within the jurisdiction of CIAC, it is
merely required that the parties agree to submit the same to
voluntary arbitration Unlike in the original version of Section 1,
as applied in the Tesco case, the law as it now stands does not
provide that the parties should agree to submit disputes arising
from their agreement specifically to the CIAC for the latter to
acquire jurisdiction over the same. Rather, it is plain and clear
that as long as the parties agree to submit to voluntary
arbitration, regardless of what forum they may choose, their
agreement will fall within the jurisdiction of the CIAC, such that,
even if they specifically choose another forum, the parties will
not be precluded from electing to submit their dispute before
the CIAC because this right has been vested upon each party
by law, i.e., E.O. No. 1008."34
Clearly, there is no more need to file a request with the CIAC in
order to vest it with jurisdiction to decide a construction
dispute.
The arbitral clause in the Agreement is a commitment on the
part of the parties to submit to arbitration the disputes covered
therein. Because that clause is binding, they are expected to
abide by it in good faith.35 And because it covers the dispute
between the parties in the present case, either of them may
compel the other to arbitrate.36
Since petitioner has already filed a Complaint with the RTC
without prior recourse to arbitration, the proper procedure to
enable the CIAC to decide on the dispute is to request the stay
or suspension of such action, as provided under RA 876 [the
Arbitration Law].37
WHEREFORE, the Petition is DENIED and the assailed Decision
AFFIRMED. Costs against petitioner.
SO ORDERED.
Puno, (Chairman), Sandoval-Gutierrez, Corona and Carpio-
Morales, JJ., concur.
LUZON IRON DEVELOPMENT GROUP CORPORATION AND
CONSOLIDATED IRON SANDS, LTD., PETITIONERS, V.
BRIDESTONE MINING AND DEVELOPMENT
CORPORATION AND ANACONDA MINING AND
DEVELOPMENT CORPORATION, RESPONDENTS.
Remedial Law; Civil Procedure; Forum Shopping; Forum
shopping is committed when multiple suits involving the same
parties and the same causes of action are filed, either
simultaneously or successively, for the purpose of obtaining a
favorable judgment through means other than appeal or
certiorari.—Forum shopping is committed when multiple suits
involving the same parties and the same causes of action are
filed, either simultaneously or successively, for the purpose of
obtaining a favorable judgment through means other than
appeal or certiorari. The prohibition on forum shopping seeks to
prevent the possibility that conflicting decisions will be rendered
by two tribunals.
Same; Same; Same; Elements of Forum Shopping.—There is
forum shopping when the following elements are present: (a)
identity of parties, or at least such parties representing the
same interests in both actions; (b) identity of rights asserted
and reliefs prayed for, the relief being founded on the same
facts; and (c) the identity of the two preceding particulars, such
that any judgment rendered in the other action will, regardless
of which party is successful, amounts to res judicata in the
action under consideration. All the above stated elements are
present in the case at bench.
Same; Same; Same; Identity of Parties; The requirement is
only substantial, and not absolute, identity of parties; and there
is substantial identity of parties when there is community of
interest between a party in the first case and a party in the
second case, even if the latter was not impleaded in the other
case.—In both the complaints before the RTC and the DENR,
Luzon Iron was impleaded as defendant while Consolidated Iron
was only impleaded in the complaint before the RTC. Even if
Consolidated Iron was not impleaded in the DENR complaint,
the element still exists. The requirement is only substantial,
and not absolute, identity of parties; and there is substantial
identity of parties when there is community of interest between
a party in the first case and a party in the second case, even if
the latter was not impleaded in the other case. Consolidated
Iron and Luzon Iron had a common interest under the TPAA as
the latter was a wholly-owned subsidiary of the former.
Same; Same; Same; Identity of Causes of Action; The test to
determine whether the causes of action are identical is to
ascertain whether the same evidence will sustain both actions,
or whether there is an identity in the facts essential to the
maintenance of the two (2) actions.—A reading of the
complaints filed before the RTC and the DENR reveals that they
had almost identical causes of action and they prayed for
similar reliefs as they ultimately sought the return of their
respective Exploration Permit on the ground of the alleged
violations of the TPAA committed by the petitioners. In Yap v.
Chua, 672 SCRA 419 (2012), the Court ruled that identity of
causes of action did not mean absolute identity. Hornbook is
the rule that identity of causes of action does not mean
absolute identity; otherwise, a party could easily escape the
operation of res judicata by changing the form of the action or
the relief sought. The test to determine whether the causes of
action are identical is to ascertain whether the same evidence
will sustain both actions, or whether there is an identity in the
facts essential to the maintenance of the two actions. If the
same facts or evidence would sustain both, the two actions are
considered the same, and a judgment in the first case is a bar
to the subsequent action. Hence, a party cannot, by varying the
form of action or adopting a different method of presenting his
case, escape the operation of the principle that one and the
same cause of action shall not be twice litigated between the
same parties or their privies. In the case at bench, both
complaints filed before different fora involved similar facts and
issues, the resolution of which depends on analogous evidence.
Thus, the filing of two separate complaints by the petitioners
with the RTC and the DENR clearly constitutes forum shopping.
It is worth noting that the very evil which the prohibition
against forum shopping sought to prevent had happened — the
RTC and the DENR had rendered conflicting decisions. The trial
court ruled that it had jurisdiction notwithstanding the
arbitration clause in the TPAA. On the other hand, the DENR
found that it was devoid of jurisdiction because the matter was
subject to arbitration.
Same; Same; Service of Summons; Section 12 of Rule 14 of
the Revised Rules of Court provides that “[w]hen the defendant
is a foreign private juridical entity which has transacted
business in the Philippines, service may be made on its resident
agent designated in accordance with law for that purpose, or, if
there be no such agent, on the government official designated
by law to that effect, or on any of its officers or agents within
the Philippines.”—Section 12 of Rule 14 of the Revised Rules of
Court provides that “[w]hen the defendant is a foreign private
juridical entity which has transacted business in the Philippines,
service may be made on its resident agent designated in
accordance with law for that purpose, or, if there be no such
agent, on the government official designated by law to that
effect, or on any of its officers or agents within the Philippines.”
Same; Same; Same; Under the present legal milieu, the rules
on service of summons on foreign private juridical entities had
been expanded as it recognizes additional modes by which
summons may be served.—Under the present legal milieu, the
rules on service of summons on foreign private juridical entities
had been expanded as it recognizes additional modes by which
summons may be served. A.M. No. 11-3-6-SC thus provides:
Section 12, Rule 14 of the Rules of Court is hereby amended to
read as follows: “SEC. 12. Service upon foreign private juridical
entity.—When the defendant is a foreign private juridical entity
which has transacted business in the Philippines, service may
be made on its resident agent designated in accordance with
law for that purpose, or, if there be no such agent, on the
government official designated by law to that effect, or on any
of its officers or agents within the Philippines. If the foreign
private juridical entity is not registered in the Philippines or has
no resident agent, service may, with leave of court, be effected
out of the Philippines through any of the following means: a) By
personal service coursed through the appropriate court in the
foreign country with the assistance of the Department of
Foreign Affairs; b) By publication once in a newspaper of
general circulation in the country where the defendant may be
found and by serving a copy of the summons and the court
order by registered mail at the last known address of the
defendant; c) By facsimile or any recognized electronic means
that could generate proof of service; or d) By such other means
as the court may in its discretion direct.”
Corporations; Subsidiary Corporations; A wholly-owned
subsidiary is a distinct and separate entity from its mother
corporation and the fact that the latter exercises control over
the former does not justify disregarding their separate
personality.—The respondents err in insisting that Luzon Iron
could be served summons as an agent of Consolidated Iron, it
being a wholly-owned subsidiary of the latter. The allegations in
the complaint must clearly show a connection between the
principal foreign corporation and its alleged agent corporation
with respect to the transaction in question as a general
allegation of agency will not suffice. In other words, the
allegations of the complaint taken as whole should be able to
convey that the subsidiary is but a business conduit of the
principal or that by reason of fraud, their separate and distinct
personality should be disregarded. A wholly-owned subsidiary is
a distinct and separate entity from its mother corporation and
the fact that the latter exercises control over the former does
not justify disregarding their separate personality. It is true that
under the TPAA, Consolidated Iron wielded great control over
the actions of Luzon Iron under the said agreement. This,
nonetheless, does not warrant the conclusion that Luzon Iron
was a mere conduit of Consolidated Iron. Civil Law; Arbitration;
Consistent with the state policy of favoring arbitration, the
present Tenement Partnership and Acquisition Agreement
(TPAA) must be construed in such a manner that would give life
to the arbitration clause rather than defeat it, if such
interpretation is permissible.—Consistent with the state policy
of favoring arbitration, the present TPAA must be construed in
such a manner that would give life to the arbitration clause
rather than defeat it, if such interpretation is permissible. With
this in mind, the Court views the interpretation forwarded by
the petitioners as more in line with the state policy favoring
arbitration. Paragraphs 14.8 and 15.1 of the TPAA should be
harmonized in such a way that the arbitration clause is given
life, especially since such construction is possible in the case at
bench. A synchronized reading of the above mentioned TPAA
provisions will show that a claim or action raising the
sufficiency, validity, legality or constitutionality of: (a) the
assignments of the EP to Luzon Iron; (b) any other assignments
contemplated by the TPAA; or (c) any agreement to which the
EPs may be converted, may be instituted only when there is a
direct and/or blatant violation of the TPAA. In turn, the said
action or claim is commenced by proceeding with arbitration, as
espoused in the TPAA.
Same; Same; The petitioners’ failure to refer the case for
arbitration does not render the arbitration clause in the present
Tenement Partnership and Acquisition Agreement (TPAA)
inoperative.—The petitioners’ failure to refer the case for
arbitration, however, does not render the arbitration clause in
the TPAA inoperative. In Koppel, Inc. v. Makati Rotary Club
Foundation, Inc. (Koppel), 705 SCRA 142 (2013), the Court
explained that an arbitration clause becomes operative,
notwithstanding the lack of a formal request, when a party has
appraised the trial court of the existence of an arbitration
clause, viz.: x x x The operation of the arbitration clause in this
case is not at all defeated by the failure of the petitioner to file
a formal “request” or application therefor with the MeTC. We
find that the filing of a “request” pursuant to Section 24 of R.A.
No. 9285 is not the sole means by which an arbitration clause
may be validly invoked in a pending suit.
Same; Same; Generally, the action of the court is stayed if the
matter raised before it is subject to arbitration.—Generally, the
action of the court is stayed if the matter raised before it is
subject to arbitration. In the case at bench, however, the
complaints filed before the RTC should have been dismissed
considering that the petitioners were able to establish the
ground for their dismissal, that is, violating the prohibition on
forum shopping. The parties, nevertheless, are directed to
initiate arbitration proceedings as provided under Paragraph
15.1 of the TPAA
DECISION
MENDOZA, J.:
This petition for review on certiorari with prayer for the
issuance of a writ of preliminary injunction and/or temporary
restraining order (TRO) seeks to reverse and set aside the
September 8, 2015 Decision[1] of the Court of Appeals (CA) in
CA-G.R. SP No. 133296, which affirmed the March 18,
2013[2] and September 18, 2013[3] Orders of the Regional Trial
Court, Branch 59, Makati City (RTC), in the consolidated case
for rescission of contract and damages.
The Antecedents.
On October 25, 2012, respondents Bridestone Mining and
Development Corporation (Bridestone) and Anaconda Mining
and Development Corporation (Anaconda) filed separate
complaints before the RTC for rescission of contract and
damages against petitioners Luzon Iron Development Group
Corporation (Luzon Iron) and Consolidated Iron Sands, Ltd.
(Consolidated Iron), docketed as Civil Case No. 12-1053 and
Civil Case No. 12-1054, respectively. Both complaints sought
the rescission of the Tenement Partnership and Acquisition
Agreement (TPAA)[4] entered into by Luzon Iron and
Consolidated Iron, on one hand, and Bridestone and Anaconda,
on the other, for the assignment of the Exploration Permit
Application of the former in favor of the latter. The complaints
also sought the return of the Exploration Permits to Bridestone
and Anaconda.[5]
Thereafter, Luzon Iron and Consolidated Iron filed their Special
Appearance with Motion to Dismiss[6] separately against
Bridestone's complaint and Anaconda's complaint. Both motions
to dismiss presented similar grounds for dismissal. They
contended that the RTC could not acquire jurisdiction over
Consolidated Iron because it was a foreign corporation that had
never transacted business in the Philippines. Likewise, they
argued that the RTC had no jurisdiction over the subject matter
because of an arbitration clause in the TPAA.
On December 19, 2012, the RTC ordered the consolidation of
the two cases.[7] Subsequently, Luzon Iron and Consolidated
Iron filed their Special Appearance and Supplement to Motions
to Dismiss,[8] dated January 31, 2013, seeking the dismissal of
the consolidated cases. The petitioners alleged that Bridestone
and Anaconda were guilty of forum shopping because they filed
similar complaints before the Department of Environment and
Natural Resources (DENR), Mines and Geosciences Bureau,
Regional Panel of Arbitrators against Luzon Iron.
The RTC Orders
In its March 18, 2013 Order, the RTC denied the motions to
dismiss, as well as the supplemental motion to dismiss, finding
that Consolidated Iron was doing business in the Philippines,
with Luzon Iron as its resident agent. The RTC ruled that it had
jurisdiction over the subject matter because under clause 14.8
of the TPAA, the parties could go directly to courts when a
direct and/or blatant violation of the provisions of the TPAA had
been committed. The RTC also opined that the complaint filed
before the DENR did not constitute forum shopping because
there was neither identity of parties nor identity of reliefs
sought.
Luzon Iron and Consolidated Iron moved for reconsideration,
but the RTC denied their motion in its September 18, 2013
Order.
Undaunted, they filed their petition for review with prayer for
the issuance of a writ of preliminary injunction and/or TRO
before the CA.
The CA Ruling
In its September 8, 2015 Decision, the CA affirmed the March
18, 2013 and September 18, 2013 RTC Orders in denying the
motions to dismiss and the supplemental motions to dismiss. It
agreed that the court acquired jurisdiction over the person of
Consolidated Iron because the summons may be validly served
through its agent Luzon Iron, considering that the latter was
merely the business conduit of the former. The CA also
sustained the jurisdiction of the RTC over the subject matter
opining that the arbitration clause in the TPAA provided for an
exception where parties could directly go to court.
Further, the CA also disregarded the averment of forum
shopping, explaining that in the complaint before the RTC, both
Consolidated Iron and Luzon Iron were impleaded but in the
complaint before the DENR only the latter was impleaded. It
stated that there was no identity of relief and no identity of
cause of action.
Hence, this appeal raising the following:
ISSUES
I
WHETHER THE COURT OF APPEALS ERRED IN RULING
THAT THE TRIAL COURT ACQUIRED JURISDICTION OVER
THE PERSON OF CONSOLIDATED IRON;
II
WHETHER THE COURT OF APPEALS ERRED IN RULING
THAT THE TRIAL COURT HAS JURISDICTION OVER THE
SUBJECT MATTER OF THE CONSOLIDATED CASES; AND
III
WHETHER THE COURT OF APPEALS ERRED IN RULING
THAT BRIDESTONE/ANACONDA WERE NOT GUILTY OF
FORUM SHOPPING.[9]
Petitioners Luzon Iron and Consolidated Iron insist that the RTC
has no jurisdiction over the latter because it is a foreign
corporation which is neither doing business nor has transacted
business in the Philippines. They argue that there could be no
means by which the trial court could acquire jurisdiction over
the person of Consolidated Iron under any mode of service of
summons. The petitioners claim that the service of summons to
Consolidated Iron was defective because the mere fact that
Luzon Iron was a wholly-owned subsidiary of Consolidated Iron
did not establish that Luzon Iron was the agent of Consolidated
Iron. They emphasize that Consolidated Iron and Luzon Iron
are two distinct and separate entities.
The petitioners further assert that the trial court had no
jurisdiction over the consolidated cases because of the
arbitration clause set forth in the TPAA. They reiterate that
Luzon Iron and Consolidated Iron were guilty of forum shopping
because their DENR complaint contained similar causes of
action and reliefs sought. They stress that the very evil sought
to be prevented by the prohibition on forum shopping had
occurred when the DENR and the RTC issued conflicting orders
in dismissing or upholding the complaints filed before them.
Position of Respondents
In their Comment/Opposition,[10] dated January 7, 2016,
respondents Bridestone and Anaconda countered that the RTC
validly acquired jurisdiction over the person of Consolidated
Iron. They posited that Consolidated Iron was doing business in
the Philippines as Luzon Iron was merely its conduit. Thus, they
insisted that summons could be served to Luzon Iron as
Consolidated Iron's agent. Likewise, they denied that they were
guilty of forum shopping as the issues and the reliefs prayed for
in the complaints before the RTC and the DENR differed.
Further, the respondents asserted that the trial court had
jurisdiction over the complaints because the TPAA itself allowed
a direct resort before the courts in exceptional circumstances.
They cited paragraph 14.8 thereof as basis explaining that
when a direct and/or blatant violation of the TPAA had been
committed, a party could go directly to the courts. They faulted
the petitioners in not moving for the referral of the case for
arbitration instead of merely filing a motion to dismiss. They
added that actions that are subject to arbitration agreement
were merely suspended, and not dismissed.
Reply of Petitioners
In their Reply,[11] dated April 29, 2016, the petitioners stated
that Consolidated Iron was not necessarily doing business in
the Philippines by merely establishing a wholly-owned
subsidiary in the form of Luzon Iron. Also, they asserted that
Consolidated Iron had not been validly served the summons
because Luzon Iron is neither its resident agent nor its
representative in the Philippines. The petitioners explained that
Luzon Iron, as a wholly-owned subsidiary, had a separate and
distinct personality from Consolidated Iron.
The petitioners explained that Paragraph 14.8 of the TPAA
should not be construed as an authority to directly resort to
court action in case of a direct and/or blatant violation of the
TPAA because such interpretation would render the arbitration
clause nugatory. They contended that, even for the sake of
argument, the judicial action under the said provisions was
limited to issues or matters which were inexistent in the
present case. They added that a party was not required to file a
formal request for arbitration before an arbitration clause
became operational. Lastly, they insisted that the respondents
were guilty of forum shopping in simultaneously filing
complaints before the trial court and the DENR.
The Court's Ruling
The petition is impressed with merit.
Filing of complaints
before the RTC and the
DENR is forum shopping
Forum shopping is committed when multiple suits involving the
same parties and the same causes of action are filed, either
simultaneously or successively, for the purpose of obtaining a
favorable judgment through means other than appeal or
certiorari.[12] The prohibition on forum shopping seeks to
prevent the possibility that conflicting decisions will be rendered
by two tribunals.[13]
In Spouses Arevalo v. Planters Development Bank,[14] the Court
elaborated that forum shopping vexed the court and warranted
the dismissal of the complaints. Thus:
Forum shopping is the act of litigants who repetitively avail
themselves of multiple judicial remedies in different fora,
simultaneously or successively, all substantially founded on the
same transactions and the same essential facts and
circumstances; and raising substantially similar issues either
pending in or already resolved adversely by some other court;
or for the purpose of increasing their chances of obtaining a
favorable decision, if not in one court, then in another. The
rationale against forum-shopping is that a party should
not be allowed to pursue simultaneous remedies in two
different courts, for to do so would constitute abuse of
court processes which tends to degrade the
administration of justice, wreaks havoc upon orderly
judicial procedure, and adds to the congestion of the
heavily burdened dockets of the courts.
xxxx
What is essential in determining the existence of forum-
shopping is the vexation caused the courts and litigants
by a party who asks different courts and/or
administrative agencies to rule on similar or related
causes and/or grant the same or substantially similar
reliefs, in the process creating the possibility of
conflicting decisions being rendered upon the same
issues.
xxxx
We emphasize that the grave evil sought to be avoided by the
rule against forum-shopping is the rendition by two competent
tribunals of two separate and contradictory decisions. To avoid
any confusion, this Court adheres strictly to the rules
against forum shopping, and any violation of these rules
results in the dismissal of a case. The acts committed and
described herein can possibly constitute direct
contempt.[15] [Emphases supplied]
There is forum shopping when the following elements are
present: (a) identity of parties, or at least such parties
representing the same interests in both actions; (b) identity of
rights asserted and reliefs prayed for, the relief being founded
on the same facts; and (c) the identity of the two preceding
particulars, such that any judgment rendered in the other
action will, regardless of which party is successful, amounts
to res judicata in the action under consideration.[16] All the
above-stated elements are present in the case at bench.
First, there is identity of parties. In both the complaints before
the RTC and the DENR, Luzon Iron was impleaded as defendant
while Consolidated Iron was only impleaded in the complaint
before the RTC. Even if Consolidated Iron was not impleaded in
the DENR complaint, the element still exists. The requirement is
only substantial, and not absolute, identity of parties; and there
is substantial identity of parties when there is community of
interest between a party in the first case and a party in the
second case, even if the latter was not impleaded in the other
case.[17] Consolidated Iron and Luzon Iron had a common
interest under the TPAA as the latter was a wholly-owned
subsidiary of the former.
Second, there is identity of causes of action. A reading of the
complaints filed before the RTC and the DENR reveals that they
had almost identical causes of action and they prayed for
similar reliefs as they ultimately sought the return of their
respective Exploration Permit on the ground of the alleged
violations of the TPAA committed by the petitioners.[18] In Yap
v. Chua,[19] the Court ruled that identity of causes of action did
not mean absolute identity.
Hornbook is the rule that identity of causes of action does not
mean absolute identity; otherwise, a party could easily escape
the operation of res judicata by changing the form of the action
or the relief sought. The test to determine whether the
causes of action are identical is to ascertain whether the
same evidence will sustain both actions, or whether
there is an identity in the facts essential to the
maintenance of the two actions. If the same facts or
evidence would sustain both, the two actions are
considered the same, and a judgment in the first case is
a bar to the subsequent action. Hence, a party cannot, by
varying the form of action or adopting a different method of
presenting his case, escape the operation of the principle that
one and the same cause of action shall not be twice litigated
between the same parties or their privies. xxx[20] [Emphases
supplied]
In the case at bench, both complaints filed before
different fora involved similar facts and issues, the resolution of
which depends on analogous evidence. Thus, the filing of two
separate complaints by the petitioners with the RTC and the
DENR clearly constitutes forum shopping.
It is worth noting that the very evil which the prohibition
against forum shopping sought to prevent had happened—the
RTC and the DENR had rendered conflicting decisions. The trial
court ruled that it had jurisdiction notwithstanding the
arbitration clause in the TPAA. On the other hand, the DENR
found that it was devoid of jurisdiction because the matter was
subject to arbitration.
Summons were not
validly served
Section 12 of Rule 14 of the Revised Rules of Court provides
that "[w]hen the defendant is a foreign private juridical entity
which has transacted business in the Philippines, service
may be made on its resident agent designated in accordance
with law for that purpose, or, if there be no such agent, on the
government official designated by law to that effect, or on any
of its officers or agents within the Philippines."
The Rule on Summons, as it now reads, thus, makes the
question whether Consolidated Iron was "doing business in the
Philippines" irrelevant as Section 12, Rule 14 of the Rules of
Court was broad enough to cover corporations which have
"transacted business in the Philippines."
In fact, under the present legal milieu, the rules on service of
summons on foreign private juridical entities had been
expanded as it recognizes additional modes by which summons
may be served. A.M No. 11-3-6-SC[21] thus provides:
Section 12. Rule 14 of the Rules of Court is hereby amended to
read as follows:
"SEC. 12. Service upon foreign private juridical entity. — When
the defendant is a foreign private juridical entity which has
transacted business in the Philippines, service may be made on
its resident agent designated in accordance with law for that
purpose, or, if there be no such agent, on the government
official designated by law to that effect, or on any of its officers
or agents within the Philippines.
If the foreign private juridical entity is not registered in the
Philippines or has no resident agent, service may, with leave of
court, be effected out of the Philippines through any of the
following means:
a) By personal service coursed through the appropriate court in
the foreign country with the assistance of the Department of
Foreign Affairs;
b) By publication once in a newspaper of general circulation in
the country where the defendant may be found and by serving
a copy of the summons and the court order by registered mail
at the last known address of the defendant;
c) By facsimile or any recognized electronic means that could
generate proof of service; or
d) By such other means as the court may in its discretion
direct."
The petitioners are mistaken in arguing that it cannot be served
summons because under Section 15, Rule 14 of the Rules of
Court, extrajudicial service of summons may be resorted to
only when the action is in rem or quasi in rem and not when
the action is in personam. The premise of the petitioners is
erroneous as the rule on extraterritorial service of summons
provided in Section 15, Rule 14 of the Rules of Court is a
specific provision dealing precisely with the service of summons
on a defendant which does not reside and is not found in the
Philippines. On the other hand, Section 12, Rule 14 thereof,
specifically applies to a defendant foreign private juridical entity
which had transacted business in the Philippines. Both rules
may provide for similar modes of service of summons,
nevertheless, they should only be applied in particular cases,
with one applicable to defendants which do not reside and are
not found in the Philippines and the other to foreign private
juridical entities which had transacted business in the
Philippines.
In the case at bench, it is crystal clear that Consolidated Iron
transacted business in the Philippines as it was a signatory in
the TPAA that was executed in Makati. Hence, as the
respondents argued, it may be served with the summons in
accordance with the modes provided under Section 12, Rule 14
of the Rules of Court.
In Atiko Trans, Inc. v. Prudential Guarantee and Assurance,
Inc.,[23] the Court elucidated on the means by which summons
could be served on a foreign juridical entity, to wit:
On this score, we find for the petitioners. Before it was
amended by A.M. No. 11-3-6-SC, Section 12 of Rule 14 of the
Rules of Court reads:
SEC. 12. Service upon foreign private juridical entity. — When
the defendant is a foreign private juridical entity which has
transacted business in the Philippines, service may be made on
its resident agent designated in accordance with law for that
purpose, or, if there be no such agent, on the government
official designated by law to that effect, or on any of its officers
or agents within the Philippines.
Elucidating on the above provision of the Rules of Court, this
Court declared in Pioneer International, Ltd. v. Guadiz, Jr. that
when the defendant is a foreign juridical entity, service
of summons maybe made upon:
1. Its resident agent designated in accordance with law
for that purpose;
2. The government official designated by law to receive
summons if the corporation does not have a resident agent;
or,
3. Any of the corporation's officers or agents within the
Philippines.[24] [Emphasis supplied]
The Court, however, finds that Consolidated Iron was not
properly served with summons through any of the permissible
modes under the Rules of Court. Indeed, Consolidated Iron was
served with summons through Luzon Iron. Such service of
summons, however, was defective.
It is undisputed that Luzon Iron was never registered before the
Securities and Exchange Commission (SEC) as Consolidated
Iron's resident agent. Thus, the service of summons to
Consolidated Iron through Luzon Iron cannot be deemed a
service to a resident agent[25] under the first mode of service.
Likewise, the respondents err in insisting that Luzon Iron could
be served summons as an agent of Consolidated Iron, it being a
wholly-owned subsidiary of the latter. The allegations in the
complaint must clearly show a connection between the principal
foreign corporation and its alleged agent corporation with
respect to the transaction in question as a general allegation of
agency will not suffice.[26] In other words, the allegations of the
complaint taken as whole should be able to convey that the
subsidiary is but a business conduit of the principal or that by
reason of fraud, their separate and distinct personality should
be disregarded.[27] A wholly-owned subsidiary is a distinct and
separate entity from its mother corporation and the fact that
the latter exercises control over the former does not justify
disregarding their separate personality. It is true that under the
TPAA, Consolidated Iron wielded great control over the actions
of Luzon Iron under the said agreement. This, nonetheless,
does not warrant the conclusion that Luzon Iron was a mere
conduit of Consolidated Iron. In Pacific Rehouse Corporation v.
CA,[28] the Court ruled:
Albeit the RTC bore emphasis on the alleged control exercised
by Export Bank upon its subsidiary E-Securities, "[c]ontrol, by
itself, does not mean that the controlled corporation is a mere
instrumentality or a business conduit of the mother
company. Even control over the financial and operational
concerns of a subsidiary company does not by itself call
for disregarding its corporate fiction. There must be a
perpetuation of fraud behind the control or at least a fraudulent
or illegal purpose behind the control in order to justify piercing
the veil of corporate fiction. Such fraudulent intent is lacking in
this case.[29] [Emphasis supplied]
In the case at bench, the complaint merely contained a general
statement that Luzon Iron was the resident agent of
Consolidated Iron, and that it was a wholly-owned subsidiary of
the latter. There was no allegation showing that Luzon Iron was
merely a business conduit of Consolidated Iron, or that the
latter exercised control over the former to the extent that their
separate and distinct personalities should be set aside. Thus,
Luzon Iron cannot be deemed as an agent of Consolidated Iron
in connection with the third mode of service of summons.
To reiterate, the Court did not acquire jurisdiction over
Consolidated Iron because the service of summons, coursed
through Luzon Iron, was defective. Luzon Iron was neither the
resident agent nor the conduit or agent of Consolidated Iron.
On the abovementioned procedural issues alone, the dismissal
of the complaints before the RTC was warranted. Even granting
that the complaints were not procedurally defective, there still
existed enough reason for the trial court to refrain from
proceeding with the case.
Controversy must be
referred for arbitration
The petitioners insisted that the RTC had no jurisdiction over
the subject matter because under Paragraph 15.1 of the TPAA,
any dispute out of or in connection with the TPAA must be
resolved by arbitration. The said provision provides:
If, for any reasonable reason, the Parties cannot resolve a
material fact, material event or any dispute arising out of or in
connection with this TPAA, including any question regarding its
existence, validity or termination, within 90 days from its
notice, shall be referred to and finally resolved by arbitration in
Singapore in accordance with the Arbitration Rules of the
Singapore International Arbitration Centre ("SIAC Rules") for
the time being in force, which rules are deemed to be
incorporated by reference in this clause 15.1.30
The RTC, as the CA agreed, countered that Paragraph 14.8 of
the TPAA allowed the parties to directly resort to courts in case
of a direct and/or blatant violation of the provisions of the
TPAA. Paragraph 14.8 stated:
Each Party agrees not to commence or procure the
commencement of any challenge or claim, action, judicial or
legislative enquiry, review or other investigation into the
sufficiency, validity, legality or constitutionality of (i) the
assignments of the Exploration Permit Applications(s) (sic) to
LIDGC, (ii) any other assignments contemplated by this TPAA,
and/or (iii) or (sic) any agreement to which the Exploration
Permit Application(s) may be converted, unless a direct and/or
blatant violation of the provisions of the TPAA has been
committed.[31]
In Bases Conversion Development Authority v. DMCI Project
Developers, Inc.,[32] the Court emphasized that the State
favored arbitration, to wit:
The state adopts a policy in favor of arbitration. Republic
Act No. 9285 expresses this policy:
SEC. 2. Declaration of Policy. — It is hereby declared the policy
of the State to actively promote party autonomy in the
resolution of disputes or the freedom of the parties to make
their own arrangements to resolve their disputes. Towards
this end, the State shall encourage and actively promote
the use of Alternative Dispute Resolution (ADR) as an
important means to achieve speedy and impartial justice
and declog court dockets. As such, the State shall
provide means for the use of ADR as an efficient tool and
an alternative procedure for the resolution of appropriate
cases. Likewise, the State shall enlist active private sector
participation in the settlement of disputes through ADR. This
Act shall be without prejudice to the adoption by the Supreme
Court of any ADR system, such as mediation, conciliation,
arbitration, or any combination thereof as a means of achieving
speedy and efficient means of resolving cases pending before
all courts in the Philippines which shall be governed by such
rules as the Supreme Court may approve from time to time.
Our policy in favor of party autonomy in resolving
disputes has been reflected in our laws as early as 1949
when our Civil Code was approved. Republic Act No. 876
later explicitly recognized the validity and enforceability of
parties' decision to submit disputes and related issues to
arbitration.
Arbitration agreements are liberally construed in favor of
proceeding to arbitration. We adopt the interpretation
that would render effective an arbitration clause if the
terms of the agreement allow for such
interpretation.[33] [Emphases supplied]
Thus, consistent with the state policy of favoring arbitration,
the present TPAA must be construed in such a manner that
would give life to the arbitration clause rather than defeat it, if
such interpretation is permissible. With this in mind, the Court
views the interpretation forwarded by the petitioners as more in
line with the state policy favoring arbitration.
Paragraphs 14.8 and 15.1 of the TPAA should be harmonized in
such a way that the arbitration clause is given life, especially
since such construction is possible in the case at bench. A
synchronized reading of the abovementioned TPAA provisions
will show that a claim or action raising the sufficiency, validity,
legality or constitutionality of: (a) the assignments of the EP to
Luzon Iron; (b) any other assignments contemplated by the
TPAA; or (c) any agreement to which the EPs may be
converted, may be instituted only when there is a direct and/or
blatant violation of the TPAA. In turn, the said action or claim is
commenced by proceeding with arbitration, as espoused in the
TPAA.
The Court disagrees with the respondents that Paragraph 14.8
of the TPAA should be construed as an exception to the
arbitration clause where direct court action may be resorted to
in case of direct and/or blatant violation of the TPAA occurs. If
such interpretation is to be espoused, the arbitration clause
would be rendered inutile as practically all matters may be
directly brought before the courts. Such construction is
anathema to the policy favoring arbitration.
A closer perusal of the TPAA will also reveal that paragraph 14
and all its sub-paragraphs are general provisions, whereas
paragraphs 15 and all its sub-clauses specifically refer to
arbitration. When general and specific provisions are
inconsistent, the specific provision shall be paramount and
govern the general provision.[34]
The petitioners' failure to refer the case for arbitration,
however, does not render the arbitration clause in the TPAA
inoperative. In Koppel, Inc. v. Makati Rotary Club Foundation,
Inc. (Koppel),[35] the Court explained that an arbitration clause
becomes operative, notwithstanding the lack of a formal
request, when a party has appraised the trial court of the
existence of an arbitration clause, viz:
xxx The operation of the arbitration clause in this case is
not at all defeated by the failure of the petitioner to file a
formal "request" or application therefor with the
MeTC. We find that the filing of a "request" pursuant to Section
24 of R.A. No. 9285 is not the sole means by which an
arbitration clause may be validly invoked in a pending suit.
Section 24 of R.A. No. 9285 reads:
SEC. 24. Referral to Arbitration. — A court before which an
action is brought in a matter which is the subject matter of an
arbitration agreement shall, if at least one party so requests not
later that the pre-trial conference, or upon the request of both
parties thereafter, refer the parties to arbitration unless it finds
that the arbitration agreement is null and void, inoperative or
incapable of being performed.
The "request" referred to in the above provision is, in turn,
implemented by Rules 4.1 to 4.3 of A.M. No. 07-11-08-SC or
the Special Rules of Court on Alternative Dispute
Resolution (Special ADR Rules):
RULE 4: REFERRAL TO ADR
Rule 4.1. Who makes the request. — A party to a pending
action filed in violation of the arbitration agreement, whether
contained in an arbitration clause or in a submission
agreement, may request the court to refer the parties to
arbitration in accordance with such agreement.
xxxx
Attention must be paid, however, to the salient wordings of
Rule 4.1. It reads: "[a] party to a pending action filed in
violation of the arbitration agreement xxx may request the
court to refer the parties to arbitration in accordance with such
agreement."
In using the word "may" to qualify the act of filing a
"request" under Section 24 of R.A. No. 9285, the Special
ADR Rules clearly did not intend to limit the invocation of
an arbitration agreement in a pending suit
solely via such "request." After all, non-compliance with an
arbitration agreement is a valid defense to any offending suit
and, as such, may even be raised in an answer as provided in
our ordinary rules of procedure.
In this case, it is conceded that petitioner was not able to file a
separate "request" of arbitration before the MeTC. However, it
is equally conceded that the petitioner, as early as in
its Answer with Counterclaim, had already apprised the
MeTC of the existence of the arbitration clause in the 2005
Lease Contract and, more significantly, of its desire to have the
same enforced in this case. This act of petitioner is enough
valid invocation of his right to arbitrate. xxx[36] [Emphases
supplied; italics in the original]
It is undisputed that the petitioners Luzon Iron and
Consolidated Iron never made any formal request for
arbitration. As expounded in Koppel, however, a formal request
is not the sole means of invoking an arbitration clause in a
pending suit. Similar to the said case, the petitioners here
made the RTC aware of the existence of the arbitration clause
in the TPAA as they repeatedly raised this as an issue in all
their motions to dismiss. As such, it was enough to activate the
arbitration clause and, thus, should have alerted the RTC in
proceeding with the case.
Moreover, judicial restraint should be exercised pursuant to the
competence-competence principle embodied in Rule 2.4 of the
Special Rules of Court on Alternative Dispute Resolution.[37] The
said provision reads:
RULE 2.4. Policy Implementing Competence-Competence
Principle. — The arbitral tribunal shall be accorded the first
opportunity or competence to rule on the issue of whether or
not it has the competence or jurisdiction to decide a dispute
submitted to it for decision, including any objection with respect
to the existence or validity of the arbitration agreement. When
a court is asked to rule upon issue/s affecting the
competence or jurisdiction of an arbitral tribunal in a
dispute brought before it, either before or after the
arbitral tribunal is constituted, the court must exercise
judicial restraint and defer to the competence or
jurisdiction of the arbitral tribunal by allowing the
arbitral tribunal the first opportunity to rule upon such
issues.
Where the court is asked to make a determination of whether
the arbitration agreement is null and void, inoperative or
incapable of being performed, under this policy of judicial
restraint, the court must make no more than a prima
facie determination of that issue.
Unless the court, pursuant to such prima facie determination,
concludes that the arbitration agreement is null and void,
inoperative or incapable of being performed, the court must
suspend the action before it and refer the parties to arbitration
pursuant to the arbitration agreement. [Emphasis supplied]
Generally, the action of the court is stayed if the matter raised
before it is subject to arbitration.[38] In the case at bench,
however, the complaints filed before the RTC should have been
dismissed considering that the petitioners were able to establish
the ground for their dismissal, that is, violating the prohibition
on forum shopping. The parties, nevertheless, are directed to
initiate arbitration proceedings as provided under Paragraph
15.1 of the TPAA.
WHEREFORE, the petition is GRANTED. The September 8,
2015 Decision of the Court of Appeals in CA-G.R. SP No.
133296, affirming the March 18, 2013 and September 18, 2013
Orders of the Regional Trial Court, Branch 59, Makati City, is
hereby SET ASIDE. The complaints in Civil Case Nos. 12-1053
and 12-1054 are DISMISSED. The parties, however,
are ORDERED to commence arbitration proceedings pursuant
to Paragraph 15.1 of the Tenement Partnership and Acquisition
Agreement.
SO ORDERED.
 GR. No. 196072, September 20, 2017
STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION
(BERMUDA) LIMITED, Petitioner, v. SULPICIO LINES,
INC., Respondent.
G.R. NO. 208603
SULPICIO LINES, INC., Petitioner, v. STEAMSHIP MUTUAL
UNDERWRITING ASSOCIATION (BERMUDA)
LIMITED, Respondent.
Remedial Law; Civil Procedure; Appeals; Petition for Review on
Certiorari; A Rule 45 petition is the proper remedy to reverse a
decision or resolution of the Court of Appeals (CA) even if the
error assigned is grave abuse of discretion in the findings of
fact or of law.—A Rule 45 petition is the proper remedy to
reverse a decision or resolution of the Court of Appeals even if
the error assigned is grave abuse of discretion in the findings of
fact or of law. “The existence and availability of the right of
appeal prohibits the resort to certiorari because one of the
requirements for the latter remedy is that there should be no
appeal.” Allegations in the petition of grave abuse of discretion
on the part of the Court of Appeals do not ipso facto render the
intended remedy that of certiorari under Rule 65 of the Rules of
Court. In Microsoft Corporation v. Best Deal Computer Center
Corporation, 389 SCRA 615 (2002), this Court discussed the
distinction between a Petition for Certiorari under Rule 65 and a
Petition for Review on Certiorari under Rule 45.
Same; Same; Same; Same; Under Rule 45 of the Rules of
Court, a petition for review must be verified and must contain a
sworn certification against forum shopping.—Under Rule 45 of
the Rules of Court, a petition for review must be verified and
must contain a sworn certification against forum shopping. “A
pleading is verified by an affidavit that the affiant has read the
pleading and that the allegations therein are true and correct of
his [or her] personal knowledge or based on authentic records.”
On the other hand, a certification against forum shopping is a
petitioner’s, statement “under oath that he [or she] has
not . . . commenced any other action involving the same issues
in the Supreme Court, the Court of Appeals or different
divisions, or any other tribunal or agency[.]” In this
certification, the petitioner must state the status of any other
action or proceeding, if there is any, and undertakes to report
to the courts and other tribunal within five (5) days from
learning of any similar action or proceeding. Failure to comply
with the foregoing mandates constitutes a sufficient ground for
the denial of the petition.
Corporations; Verification; Certification Against Forum
Shopping; In case the petitioner is a private corporation, the
verification and certification may be signed, for and on behalf of
this corporation, by a specifically authorized person, including
its retained counsel, who has personal knowledge of the facts
required to be established by the documents.—In case the
petitioner is a private corporation, the verification and
certification may be signed, for and on behalf of this
corporation, by a specifically authorized person, including its
retained counsel, who has personal knowledge of the facts
required to be established by the documents. The reason is
that: A corporation, such as the petitioner, has no powers
except those expressly conferred on it by the Corporation Code
and those that are implied by or are incidental to its existence.
In turn, a corporation exercises said powers through its board
of directors and/or its duly authorized officers and agents.
Physical acts, like the signing of documents, can be performed
only by natural persons duly authorized for the purpose by
corporate bylaws or by a specific act of the board of directors.
“All acts within the powers of a corporation may be performed
by agents of its selection; and, except so far as limitations or
restrictions which may be imposed by special charter, bylaw, or
statutory provisions, the same general principles of law which
govern the relation of agency for a natural person govern the
officer or agent of a corporation, of whatever status or rank, in
respect to his power to act for the corporation; and agents once
appointed, or members acting in their stead, are subject to the
same rules, liabilities and incapacities as are agents of
individuals and private persons.” . . . . For who else knows of
the circumstances required in the Certificate but its own
retained counsel. Its regular officers, like its board chairman
and president may not even know the details required therein.
 Same; Certification Against Forum Shopping; A certification
not signed by a duly authorized person renders the petition
subject to dismissal.—A certification not signed by a duly
authorized person renders the petition subject to dismissal.
Moreover, the lack of or defect in the certification is not
generally curable by its subsequent submission or correction.
However, there are cases where this Court exercised leniency
due to the presence of special circumstances or compelling
reasons, such as the prima facie merits of the petition. In some
cases, the subsequent submission of proof of authority of the
party signing the certification on behalf of the corporation was
considered as substantial compliance with the rules and the
petition was given due course.
Same; Verification; Certification Against Forum Shopping;
Forum Shopping; The rules on forum shopping are not to be
interpreted with “absolute literalness” as to subvert the
procedural rules ultimate objective of achieving substantial
justice as expeditiously as possible. These goals would not be
circumvented by the Supreme Court’s (SC’s) recognition of the
authorized counsel’s signature in the verification and
certification of non-forum shopping.—The rules on forum
shopping are “designed . . . to promote and facilitate the
orderly administration of justice.” They are not to be
interpreted with “absolute literalness” as to subvert the
procedural rules’ ultimate objective of achieving substantial
justice as expeditiously as possible. These goals would not be
circumvented by this Court’s recognition of the authorized
counsel’s signature in the verification and certification of non-
forum shopping.
Civil Law; Arbitration; Alternative Dispute Resolution Act of
2004; Section 25 of the Alternative Dispute Resolution Act of
2004 (ADR Law) specifically provides that “the court shall refer
to arbitration those parties who are bound by the arbitration
agreement although the civil action may continue as to those
who are not bound by such arbitration agreement.”—Steamship
argues that a referral of the case to arbitration is imperative
pursuant to the mandates of Republic Act No. 9285 or the ADR
Law. It adds that the trial court’s reliance on the ruling in
European Resources and Technologies, Inc. v. Ingenieuburo
Birkhann + Nolte, Ingeniurgesellschaft mbh, 435 SCRA 246
(2004), was misplaced. That case was decided on the basis of
Republic Act No. 876 or the Old Arbitration Law, which did not
provide for instances where some of the multiple impleaded
parties were not covered by an arbitration agreement. It adds
that now, Section 25 of the ADR Law specifically provides that
“the court shall refer to arbitration those parties who are bound
by the arbitration agreement although the civil action may
continue as to those who are not bound by such arbitration
agreement.” Even from a procedural standpoint, Steamship
contends that the claim against it may be separated from
Pioneer Insurance and Seaboard-Eastern as these local
insurance companies were impleaded as solidary
obligors/debtors.
Same; Contracts; Freedom of Contract Principle; Under the
freedom of contract principle, parties to a contract may
stipulate on a particular method of settling any conflict between
them.—It is the State’s policy to promote party autonomy in
the mode of resolving disputes. Under the freedom of contract
principle, parties to a contract may stipulate on a particular
method of settling any conflict between them. Arbitration and
other alternative dispute resolution methods like mediation,
negotiation, and conciliation are favored over court action.
Republic Act No. 9285 expresses this policy: Section 2.
Declaration of Policy.—It is hereby declared the policy of the
State to actively promote party autonomy in the resolution of
disputes or the freedom of the parties to make their own
arrangements to resolve their disputes. Towards this end, the
State shall encourage and actively promote the use of
Alternative Dispute Resolution (ADR) as an important means to
achieve speedy and impartial justice and declog court dockets.
As such, the State shall provide means for the use of ADR as an
efficient tool and an alternative procedure for the resolution of
appropriate cases. Likewise, the State shall enlist active private
sector participation in the settlement of disputes through ADR.
This Act shall be without prejudice to the adoption by the
Supreme Court of any ADR system, such as mediation,
conciliation, arbitration, or any combination thereof as a means
of achieving speedy and efficient means of resolving cases
pending before all courts in the Philippines which shall be
governed by such rules as the Supreme Court may approve
from time to time.
Insurance Law; Insurance Policy; Words and Phrases; Title VI,
Section 49 of Presidential Decree (PD) No. 612 or the Insurance
Code defines an insurance policy as “the written instrument in
which a contract of insurance is set forth.”—Title VI, Section 49
of Presidential Decree No. 612 or the Insurance Code defines an
insurance policy as “the written instrument in which a contract
of insurance is set forth.” Section 50 of this Code provides that
the policy, which is required to be in printed form, “may contain
blank spaces; and any word, phrase, clause, mark, sign,
symbol, signature, number, or word necessary to complete the
contract of insurance shall be written on the blank spaces.” Any
rider, clause, warranty, or endorsement attached and referred
to in the policy by its descriptive title or name is considered
part of this policy or contract of insurance and binds the
insured. Section 51 of the Insurance Code prescribes the
information that must be stated in the policy, namely: the
parties in the insurance contract, amount insured, premium,
property or life insured, risks insured against, and period of
insurance. However, there is nothing in the law that prohibits
the parties from agreeing to other terms and conditions that
would govern their relationship, in which case the general rules
of the Civil Code regulating contracts will apply.
Civil Law; Contracts; Interpretation of Contracts; When the text
of a contract is explicit and leaves no doubt as to its intention,
the court may not read into it any other intention that would
contradict its plain import.—“[W]hen the text of a contract is
explicit and leaves no doubt as to its intention, the court may
not read into it any other intention that would contradict its
plain import.” The incorporation of the Club Rules in the
insurance policy is without any qualification. This includes the
arbitration clause even if not particularly stipulated. A basic rule
in construction is that the entire contract, and each and all of
its parts, must be read together and given effect, with all its
clauses and provisions harmonized with one another.
Same; Arbitration; In domestic arbitration, the formal
requirements of an arbitration agreement are that it must “be
in writing and subscribed by the party sought to be charged, or
by his lawful agent.” In international commercial arbitration, it
is likewise required that the arbitration agreement must be in
writing.—The Court of Appeals ruled that the arbitration
agreement in the 2005/2006 Club Rules is not valid because it
was not signed by the parties. In domestic arbitration, the
formal requirements of an arbitration agreement are that it
must “be in writing and subscribed by the party sought to be
charged, or by his lawful agent.” In international commercial
arbitration, it is likewise required that the arbitration agreement
must be in writing. An arbitration agreement is in writing if it is
contained (1) in a document signed by the parties, (2) in an
exchange of letters, telex,telegrams or other means of
telecommunication which provide a record of the agreement, or
(3) in an exchange of statements of claim and defense in which
the existence of an agreement is alleged by a party and not
denied by another. The reference in a contract to a document
containing an arbitration clause constitutes an arbitration
agreement provided, that the contract is in writing and the
reference is such as to make that clause part of the contract.
Same; Same; An arbitration agreement that was not embodied
in the main agreement but set forth in another document is
binding upon the parties, where the document was incorporated
by reference to the main agreement.—An arbitration agreement
that was not embodied in the main agreement but set forth in
another document is binding upon the parties, where the
document was incorporated by reference to the main
agreement. The arbitration agreement contained in the Club
Rules, which in turn was referred to in the Certificate of Entry
and Acceptance, is binding upon Sulpicio even though there
was no specific stipulation on dispute resolution in this
Certificate. Furthermore, as stated earlier, Sulpicio became a
member of Steamship by the very act of making a contract of
insurance with it. The Certificate of Entry and Acceptance
issued by Steamship states that “[its] name has been entered
in the Register of Members of the Club as a Member.” Sulpicio
admits its membership and the entry of its vessels to
Steamship.
Same; Contracts; A party is not relieved of the duty to exercise
the ordinary care and prudence that would be exacted in
relation to other contracts.—“[A] party is not relieved of the
duty to exercise the ordinary care and prudence that would be
exacted in relation to other contracts. The conformity of the
insured to the terms of the policy is implied from [its] failure to
express any disagreement with what is provided for.” The
agreement to submit all disputes to arbitration is a long
standing provision in the Club Rules. It was incumbent upon
Sulpicio to familiarize itself with the Club Rules, under the
presumption that a person takes due care of its concerns. Being
a member of Steamship for 20 years, it has been bound by its
Rules and has been expected to abide by them in good faith.
Same; Estoppel; “In estoppel, a person, who by his [or her]
deed or conduct has induced another to act in a particular
manner, is barred from adopting an inconsistent position,
attitude or course of conduct that thereby causes loss or injury
to another.”—Sulpicio is estopped from denying knowledge of
the Rulebook by its own acts and representations, as evidenced
by its various letters to Steamship, showing its familiarity with
the Rulebook and its provisions. “In estoppel, a person, who by
his [or her] deed or conduct has induced another to act in a
particular manner, is barred from adopting an inconsistent
position, attitude or course of conduct that thereby causes loss
or injury to another.” It further bars a party from denying or
disproving a fact, which has become settled by its acts. Hence,
this Court finds a preponderance of evidence showing that
Sulpicio was given a copy and had knowledge of the 2005/2006
Club Rules. Moreover, the 2005/2006 Club Rules’ provision on
arbitration is valid and binding upon Sulpicio.
Same; Arbitration; The present rule on multiple parties
manifests due regard to the policy of the law in favor of
arbitration.—The present rule on multiple parties manifests due
regard to the policy of the law in favor of arbitration. In light of
the express mandate of Republic Act No. 9285 and the
subsequent 2009 Special ADR Rules, this Court’s ruling in
European Resources and Technologies, Inc. v. Ingenieuburo
Birkhann + Nolte, Ingeniurgesellschaft mbh, 435 SCRA 246
(2004), is deemed abrogated.
Same; Same; Where a motion is filed in court for the referral of
a dispute to arbitration, Section 24 of Republic Act (RA) No.
9285 ordains that the dispute shall be referred “to arbitration
unless it finds that the arbitration agreement is null and void,
inoperative or incapable of being performed.”—Where a motion
is filed in court for the referral of a dispute to arbitration,
Section 24 of Republic Act No. 9285 ordains that the dispute
shall be referred “to arbitration unless it finds that the
arbitration agreement is null and void, inoperative or incapable
of being performed.” Thus, the Regional Trial Court went
beyond its authority of determining only the issue of whether or
not there was a valid arbitration agreement between the parties
when it denied Steamship’s Motion to Dismiss and/or to Refer
Case to Arbitration solely on the ground that it would not be the
most prudent action under the circumstances of the case. The
Regional Trial Court went against the express mandate of
Republic Act No. 9285. Consequently, the Court of Appeals
erred in finding no grave abuse of discretion on the part of the
trial court in denying referral to arbitration.
Remedial Law; Special Civil Actions; Contempt; The court’s
contempt power should be exercised with restraint and for a
preservative, and not a vindictive, purpose. “Only in cases of
clear and contumacious refusal to obey should the power be
exercised.”—The court’s contempt power should be exercised
with restraint and for a preservative, and not a vindictive,
purpose. “Only in cases of clear and contumacious refusal to
obey should the power be exercised.” In Lorenzo Shipping
Corporation v. Distribution Management Association of the
Philippines, 656 SCRA 331 (2011), this Court held that: There
is no question that in contempt the intent goes to the gravamen
of the offense. Thus, the good faith, or lack of it, of the alleged
contemnor should be considered. Where the act complained of
is ambiguous or does not clearly show on its face that it is
contempt, and is one which, if the party is acting in good faith,
is within his rights, the presence or absence of a contumacious
intent is, in some instances, held to be determinative of its
character. A person should not be condemned for contempt
where he contends for what he believes to be right and in good
faith institutes proceedings for the purpose, however erroneous
may be his conclusion as to his rights. To constitute contempt,
the act must be done willfully and for an illegitimate or World, evidenced by a Certificate of Entry and Acceptance
improper purpose. issued by Steamship, which provided:

DECISION CERTIFICATE OF ENTRY AND ACCEPTANCE

by the Club of your proposal for entering the ship(s) specified
LEONEN, J.: below, and of
the tonnage set out against each, in:
An insured member may be compelled to arbitration pursuant
Class 1 PROTECTION AND INDEMNITY
to the Rules of the Protection and Indemnity Club, which were
of the Club from
incorporated in the insurance policy by reference. Where there
Noon 20th February 2005 to Noon 20th February 2006
are multiple parties, the court must refer to arbitration the
parties covered by the agreement while proceeding with the
civil action against those who were not bound by the arbitration
agreement.
or until sold, lost, withdrawn or the entry is terminated in
accordance with the rules, to the extent specified and in
G.R. No. 196072 is a Petition for Review1 seeking to set aside
accordance with the Act, By(e)-Laws and the Rules from time to
the November 26, 2010 Decision2 and March 10, 2011
time in force and the special terms specified overleaf.
Resolution3 of the Court of Appeals in CA-GR. SP No. 106103.
Your name has been entered in the Register of Members of the
GR. No. 208603 is a Petition for Indirect Contempt4 filed by
Club as a Member.
Sulpicio Lines, Inc. (Sulpicio) against Steamship Mutual
Underwriting Association (Bermuda) Limited (Steamship). It
prays, among others, that Steamship be (a) declared guilty of
FOR ACCOUNT CERTIFICATE
indirect contempt; (b) imposed a fine of P30,000.00; and (c) NUMBER
OF
ordered to restitute to Sulpicio the amount of US$69,570.99 or
Sulpicio
its equivalent in Philippine currency plus interest, computed
Lines Inc., 155,534
from December 3, 2012 until fully restituted.5
1st Floor,
Reclamation
Steamship was a Bermuda-based Protection and Indemnity
Area,
Club, managed outside London, England.6 It insures its
P.O. Box
members-shipowners against "third party risks and liabilities"
No. 137
for claims arising from (a) death or injury to passengers; (b)
Cebu City,
loss or damage to cargoes; and (c) loss or damage from
Philippines.
collisions.7

Sulpicio insured its fleet of inter-island vessels with Steamship NAME OF BUILT ENTE CLA PORT
for Protection & Indemnity risks through local insurance agents, SHIP RED SS OF
Pioneer Insurance and Surety Corporation (Pioneer Insurance) GROS REGI
or Seaboard-Eastern Insurance Co., Inc. (Seaboard- S STRY
1975
Eastern).8 One (1) of these vessels was the M/V Princess of the
"PRINCESS B.V S OF ORATIN
TONN
OF THE . ENTRY G ALL
AGE
OCEAN" 1983 6,150 BEING PREVIO
CANCEL US
LED ALTERA
Cebu B.V AND AS TIONS
"PRINCESS 1979 City . 13,52 TO AND A
OF THE 6 THE COPY IS
UNIVERSE" CIRCUM SENT
1972 B.V STANCE TO
Cebu
. 3,768 S OF AN EACH
City
"PRINCESS ALTERA MEMBE
OF THE TION IN R.
1984
CARIBBEAN" THE ALTERA
(Rebuilt Cebu B.V 9,627
RULES TIONS
1990) City . OR CAN BE
BY(E)- MADE
"PRINCESS 19,32 LAWS. BY
OF THE 9 ORDINA
Cebu X.X
WORLD" RY
City .
RESOLU
TION
"PRINCESS FOLLOW
OF THE Cebu ING A
STARS" City GENERA
L
MEETIN
....
G
NOTES NOTIFIE
D TO
1. REFERE 2. THE ALL
NCE IS RULES MEMBE
REQUES ARE RS.[9
TED TO PRINTE
THE D
RULES ANNUAL
AS TO LY IN
THE BOOK On July 7, 2005, M/V Princess of the World was gutted by fire
CIRCUM FORM, while on voyage from Iloilo to Zamboanga City, resulting in
STANCE INCORP total loss of its cargoes. The fire incident was found by the
Department of Interior and Local Government to be "accidental"
in nature.10
Sulpicio claimed indemnity from Steamship under the
Protection & Indemnity insurance policy. Steamship denied the
claim and subsequently rescinded the insurance coverage of
Sulpicio's other vessels on the ground that "Sulpicio was grossly
negligent in conducting its business regarding safety,
maintaining the seaworthiness of its vessels as well as proper
training of its crew."11
On June 28, 2007, Sulpicio filed a Complaint12 with the Regional
Trial Court of Makati City against Steamship; one (1) of its
directors, Gary Rynsard; and its local insurance agents Pioneer
Insurance and Seaboard-Eastern for specific performance and
damages. This Complaint was docketed as Civil Case No. 07-
577, was amended on August 10, 2007,13 and further amended
on September 11, 2007.14
Steamship filed its Motion to Dismiss and/or to Refer Case to
Arbitration15 pursuant to Republic Act No. 9285, or the
Alternative Dispute Resolution Act of 2004 (ADR Law), and to
Rule 4716 of the 2005/2006 Club Rules, which supposedly
provided for arbitration in London of disputes between
Steamship and its members.17 The other defendants filed
separate motions to dismiss.18
Branch 149, Regional Trial Court, Makati City denied the
motions to dismiss. In its July 11, 2008 Order, 19 denying
Steamship's motion and supplemental motion to dismiss and
citing20European Resources and Technologies, Inc. v.
Ingenieuburo Birkhann + Nolte, Ingeniurgesellschaft
Gmbh21 the Regional Trial Court held that "arbitration [did] not
appear to be the most prudent action, . . . considering that the
other defendants . . . ha[d] already filed their [respective]
[a]nswers."22 Steamship filed its Motion for
Reconsideration,23 but it was likewise denied in the
Order24 dated September 24, 2008.
Steamship assailed trial court orders before the Court of
Appeals through a Rule 65 Petition, docketed as CA-G.R. SP No.
106103.25 The Court of Appeals dismissed the petition in its
November 26, 2010 Decision.26 It found no grave abuse of
discretion on the part of the trial court in denying Steamship's
Motion to Dismiss and/or to Refer Case to Arbitration27 or any
convincing evidence to show that a valid arbitration agreement
existed between the parties.28 Steamship's Motion for
Reconsideration of this Decision was likewise denied in the
Resolution29 dated March 10, 2011.
On April 29, 2011, Steamship filed before this Court this
Petition for Review, docketed as G.R. No. 196072. In
compliance with this Court's June 13, 2011
Resolution,30 Sulpicio filed its Comment31 on August 31, 2011
and Steamship filed its Reply32 on October 20, 2011.
On September 6, 2013, Sulpicio filed with this Court a Petition
for Indirect Contempt33 under Rule 71 of the Rules of Court
against Steamship. This Petition was docketed as GR. No.
208603.
Sulpicio alleges that sometime in September 2012, it settled its
judgment liability of P4,121,600.00 in Civil Case No. CEB-
24783, entitled Verna Unabia v. Sulpicio Lines, Inc.34 However,
the actual amount reimbursed by Steamship was not
P4,121,600.00, equivalent to US$96,958.47, but only
US$27,387.48.35 Steamship deducted US$69,570.99, which
allegedly represented Sulpicio's share in the arbitration costs
for the arbitration in London of the dispute in Civil Case No. 07-
577.36
Sulpicio accuses Steamship of indirect contempt for its
"improper conduct tending directly, or indirectly, to impede,
obstruct, or degrade the administration of justice" 37 consisting
of the following acts:
(a) Without Sulpicio's knowledge or consent, Steamship
initiated and "concluded" during the pendency of this case an
alleged "arbitration proceeding" in London for the "Arbitrator"
there to "resolve" the very dispute involved in this case;
(b) Without Sulpicio's knowledge or consent, Steamship
proclaimed itself the "victor" entitled to arbitration costs from
Sulpicio;
This Court addresses first the procedural issue raised by
(c) Without Sulpicio's knowledge or consent, Steamship Sulpicio.
unceremoniously deducted from the refund due to Sulpicio in
the separate "Unabia Case" the huge amount I.A
of U.S.$69,570.99 despite the fact that: (a) Said "Unabia
Case" is unrelated to the instant case; (b) The propriety of a
London arbitration is still to be resolved in this case by this Sulpicio contends that Steamship's Petition for Review should
Honorable Court; (c) Steamship "enforced" by itself said be dismissed outright on procedural grounds.42
"arbitration costs" against Sulpicio without the courtesy of even
informing this Honorable Court about it[; and] First, this Petition, couched as a Rule 45 Petition, is actually a
Rule 65 Petition because it contained arguments dealing with
(d) Without Sulpicio's knowledge or consent, and more "grave abuse of discretion" allegedly committed by the Court of
importantly, without the prior approval of this Honorable Court, Appeals.43
Steamship initiated and "concluded" said London "arbitration"
during the pendency of this G.R. No. 196072 and before this Second, the Petition's Verification and Certification Against
Honorable Court could render its ruling or decision.38 (Emphasis Forum Shopping is defective because it was signed and
in the original) executed by Steamship's lawyer. Additionally, the Power of
Attorney appended to the Petition did not indicate its
signatory's name and authority.44
Steamship filed its Comment/Opposition39on January 30, 2014,
to which Sulpicio filed its Reply40 on July 2, 2014.
Third, the issue of whether or not Sulpicio has been furnished
with the Club's Rulebook, which contained the arbitration
In its Resolution41 dated January 15, 2014, this Court resolved
clause, is factual and beyond the realm of a Rule 45 petition.45
to consolidate G.R. Nos. 208603 and 196072.
In its Reply, Steamship avers that its counsel's law firm was
The issues for this Court's resolution are:
duly authorized to sign its Verification and Certification against
Forum Shopping. Moreover, Sulpicio never assailed this law
First, whether or not the petition in G.R. No. 196072 is proper
firm's authority to represent Steamship before the Regional
under the Rules of Court;
Trial Court, and therefore, is estopped to deny its authority
before this Court.46 Together with its Reply, Steamship
Second, whether or not there is a valid and binding arbitration
submitted a copy of the Secretary's Certificate47 to the July 24,
agreement between Steamship Mutual Underwriting (Bermuda)
2007 Board of Directors' resolution authorizing Scott Davis
Limited and Sulpicio Lines, Inc.;
(Davis) or his Assistant Secretaries to sign a Power of Attorney
on behalf of Steamship. It also appended a Secretary's
Third, whether or not the Court of Appeals gravely erred in
Certificate48 to the Jvly 26, 2011 Board of Directors' resolution
affirming the Regional Trial Court Order denying referral of
re appointing Davis and John Charles Ross Collis49 to their
Sulpicio Lines, Inc.'s complaint to arbitration in London in
current positions as Secretary and Assistant Secretary,
accordance with the 2005/2006 Club Rules; and
respectively.
Finally, whether or not Steamship Mutual Underwriting
Steamship further contends that the basic issues raised in the
(Bermuda) Limited is guilty of indirect contempt.
petition are questions of law that are cognizable by this
Court.50 It adds that a reversal of some factual findings is
warranted because the Court of Appeals committed a grave
abuse of discretion in concluding that Sulpicio was ignorant of
the 2005/2006 Club Rules and its arbitration clause, when
Steamship had presented ample evidence to establish
otherwise.51 Steamship submits that this Court may exercise its
power of review to reverse errors committed by the lower
courts including grave abuse of discretion of the Court of
Appeals.52
This Court finds for Steamship.
The appeal from a final disposition of the Court of Appeals is a
petition for review under Rule 45 and not a special civil action
under Rule 65.53 Rule 45, Section 1 is clear that:
Section 1. Filing of petition with Supreme Court. A patty
desiring to appeal by certiorari from a judgment or final order
or resolution of the Court of Appeals, the Sandiganbayan, the
Regional Trial Court or other courts whenever authorized by
law, may file with the Supreme Court a verified petition for
review on certiorari. The petition shall raise only questions of
law which must be distinctly set forth.
A Rule 45 petition is the proper remedy to reverse a decision or
resolution of the Court of Appeals even if the error assigned is
grave abuse of discretion in the findings of fact or of law. "The
existence and availability of the right of appeal prohibits the
resort to certiorari because one of the requirements for the
latter remedy is that there should be no appeal."54
Allegations in the petition of grave abuse of discretion on the
part of the Court of Appeals do not ipso facto render the
intended remedy that of certiorari under Rule 65 of the Rules of
Court. In Microsoft Corporation v. Best Deal Computer Center
Corporation,55 this Court discussed the distinction between a
Petition for Certiorari under Rule 65 and a Petition for Review
on Certiorari under Rule 45:
Significantly, even assuming that the orders were erroneous,
such error would merely be deemed as an error of judgment
that cannot be remedied by certiorari. As long as the
respondent acted with jurisdiction, any error committed by him
or it in the exercise thereof will amount to nothing more than
an error of judgment which may be reviewed or corrected only
by appeal. The distinction is clear: A petition for certiorari seeks
to correct errors of jurisdiction while a petition for review seeks
to correct errors of judgment committed by the court. Errors of
judgment include errors of procedure or mistakes in the court's
findings. Where a court has jurisdiction over the person and
subject matter, the decision on all other questions arising in the
case an exercise of that jurisdiction. Consequently, all errors
committed in the exercise of such jurisdiction are merely errors
of judgment. Certiorari under Rule 65 is a remedy designed for
the correction of errors of jurisdiction and not errors of
judgment.56 (Citations omitted)
In this case, what Steamship seeks to rectify may be construed
as errors of judgment of the Court of Appeals. These errors
pertain to Steamship's allegations of the Court of Appeals'
failure to rule that a valid arbitration agreement existed
between the parties and to refer the case to arbitration. It does
not impute any error with respect to the Court of Appeals'
exercise of jurisdiction, As such, the Petition is simply a
continuation of the appellate process where a case is elevated
from the trial court of origin, to the Court of Appeals, and to
this Court via Rule 45.
The basic issues raised in the Petition for Review are: (1)
whether or not an arbitration agreement may be validly
incorporated by reference to a contract; and (2) how the trial
court should proceed to trial upon its finding "that only some
and not all of the defendants are bound by an arbitration
agreement[.]"57 These are questions of law properly cognizable
in a Rule 45 petition.
In BCDA v. DMCI Project Developers, Inc..58 citing Villamor v.
Balmores59:
[T]here is a question of law "when there is doubt or controversy
as to what the law is on a certain [set] of facts." The test is
"whether the appellate court can determine the issue raised
without reviewing or evaluating the evidence." Meanwhile,
there is a question of fact when there is "doubt . . . as to the
truth or falsehood of facts." The question must involve the
examination of probative value of the evidence presented.60
Sulpicio denies being bound by the arbitration clause in the
Club Rules since neither the Certificate of Entry and
Acceptance, which covers M/V Princess of the World, mentioned
this arbitration agreement, nor was it given a copy of the Club
Rulebook.
In sustaining the denial of Steamship's Motion to Dismiss
and/or to Refer Case to Arbitration, the Court of Appeals ruled:
Unfortunately, the Court is not convinced that a valid and
binding arbitration agreement exists between the Steamship
and Sulpicio. And even assuming that there is such an
agreement, it does not comply with Section 4 of the Arbitration
Law which provides that "a contract to arbitrate a controversy
thereafter arising between the parties, as well as a submission
to arbitrate an existing controversy shall be in writing and
subscribed by the party sought to be charged, or by his lawful
agent."
As correctly pointed out by Sulpicio, there is no proof that it
was served a copy of the Club Rules in question and that it
signed therein.61 (Emphasis supplied)
A factual question on whether or not Sulpicio was given a copy
of the Club Rulebook must be resolved because it has a bearing
on the legal issue of whether or not a binding arbitration
agreement existed between the parties. Factual review,
nonetheless, may be justified: (1) when there is a grave abuse
of discretion in the appreciation of facts;62 (2) when the
judgment of the Court of Appeals is premised on a
misapprehension of facts;63 and (3) when the Court of Appeals'
findings of fact are premised on the absence of evidence but
such findings are contradicted by the evidence on record.64
Here, this Court finds grave abuse of discretion by the Court of
Appeals in its appreciation of facts. As will be discussed later,
the evidence on record shows that Sulpicio was furnished a
copy of the Club Rulebook and was aware of its provisions.
Other pieces of evidence were Sulpicio's letters 65 to Steamship
and the affidavits of Director and Head of Underwriting of the
Club and In-Charge of Far East membership including the
Philippines, Jonathan Andrews;66 Vice-President of Pioneer
Insurance who was in charge of Sulpicio's account, Roderick Gil
Narvacan;67 and Manager of Seaboard-Eastern's Marine
Department who was in charge of Sulpicio's account, Elmer
Felipe.68
I.B
The Verification and Certification against Forum Shopping
signed by Steamship's counsel substantially complied with
the requirements of the Rules of Court.
Under Rule 45 of the Rules of Court, a petition for review must
be verified69 and must contain a sworn certification against
forum shopping.70
"A pleading is verified by an affidavit that the affiant has read
the pleading and that the allegations therein are true and
correct of his [or her] personal knowledge or based on
authentic records."71
On the other hand, a certification against forum shopping is a
petitioner's, statement "under oath that he [or she] has not . . .
commenced any other action involving the same issues in the
Supreme Court, the Court of Appeals or different divisions, or
any other tribunal or agency[.]72 In this certification, the
petitioner must state the status of any other action or
proceeding, if there is any, and undertakes to report to the
courts and other tribunal within five (5) days from learning of
any similar action or proceeding.73
Failure to comply with the foregoing mandates constitutes a
sufficient ground for the denial of the petition.74
In case the petitioner is a private corporation, the verification
and certification may be signed, for and on behalf of this
corporation, by a specifically authorized person, including its
retained counsel, who has personal knowledge of the facts
required to be established by the documents.75 The reason is
that:
A corporation, such as the petitioner, has no powers except
those expressly conferred on it by the Corporation Code and
those that are implied by or are incidental to its existence. In
turn, a corporation exercises said powers through its board of
directors and/or its duly authorized officers and agents. Physical
acts, like the signing of documents, can be performed only by
natural persons duly authorized for the purpose by corporate
bylaws or by a specific act of the board of directors. "All acts
within the powers of a corporation may be performed by agents
of its selection; and, except so far as limitations or restrictions
which may be imposed by special charter, by-law, or statutory
provisions, the same general principles of law which govern the
relation of agency for a natural person govern the officer or
agent of a corporation, of whatever status or rank, in respect to
his power to act for the corporation; and agents once
appointed, or members acting in their stead, are subject to the
same rules, liabilities and incapacities as are agents of
individuals and private persons."
....
For who else knows of the circumstances required in the
Certificate but its own retained counsel. Its regular officers, like
its board chairman and president may not even know the
details required therein.76
In this case, Steamship's Petition's Verification and Certification
against forum shopping was signed by its counsel. A Power of
Attorney77 dated August 1, 2007 was appended to the Petition,
which purportedly authorized "Atty. Charles Jay D. Dela Cruz or
any of the partners of Del Rosario & Del Rosario . . . to sign the
verification or certification"78 against forum shopping of
petitions and appeals in appellate courts necessary in
representing and defending Steamship. It was notarized,
apostilled in accordance with the law of Bermuda and
authenticated by the Philippine consulate in London, United
Kingdom. However, a closer look into the Power of Attorney
reveals that the signatory of the document was not identified.
This was pointed out by Sulpicio in its Comment.79
Nonetheless, Steamship subsequent filed its Reply,80 to which it
attached two (2) Secretary's Certificates81 signed by Davis
containing excerpts of the July 24, 2007 and July 26, 2011
board resolutions showing Davis' authority to execute the
Power of Attorney on its behalf, and Davis' reappointment as
Corporate Secretary, respectively. The signature in the Power
of Attorney was similar in form and appearance to Davis'
signature in the Secretary's Certificates, which lends credence
to Steamship's submission that the Power of Attorney was
executed and signed by Davis.82
The rule on verification of a pleading is a formal, not
jurisdictional, requirement.83 This Court has held that:
Non compliance with the verification requirement does not
necessarily render the pleading fatally defective, and is
substantially complied with when signed by one who has ample
knowledge of the truth of the allegations in the complaint or
petition, and when matters alleged in the petition have been
made in good faith or are true and correct.84 (Citation omitted)
On the other hand, a certification not signed by a duly
authorized person renders the petition subject to
dismissal.85 Moreover, the lack of or defect in the certification is
not generally curable by its subsequent submission or
correction.86 However, there are cases where this Court
exercised leniency due to the presence of special circumstances
or compelling reasons, such as the prima facie merits of the
petition.87 In some cases, the subsequent submission of proof
of authority of the party signing the certification on behalf of
the corporation was considered as substantial compliance with
the rules and the petition was given due course. 88
In Shipside Incorporated v. Court of Appeals,89 this Court held:
Moreover, in Loyola, Roadway, and Uy, the Court excused non-
compliance with the requirement as to the certificate of non-
forum shopping. With more, reason should we allow the instant
petition since petitioner herein did submit a certification on
non-forum shopping, failing only to show proof that the
signatory was authorized to do so. That petitioner subsequently
submitted a secretary's certificate attesting that Balbin was
authorized to file an action on behalf of petitioner likewise
mitigates this oversight.90
Likewise, this Court ho1ds that there is substantial compliance
with the rules on verification and certification against forum
shopping. Steamship's subsequent submission of the
Secretary's Certificates showing Davis' authority to execute the
Power of Attorney in favor of Del Rosario & Del Rosario cured
the defect in the verification and certification appended to the
petition. Under the circumstances of this case, Steamship's
counsel would be in the best position to determine the
truthfulness of the allegations in the petition and certify on non-
forum shopping considering that "it has handled the case for . .
. Steamship since its inception."91 This Court also considers
Steamship's allegations that the same Power of Attorney was
used in its Answer Ad Cautelam filed on August 12, 2008 before
the Regional Trial Court and in its Petition for Certiorari before
the Court of Appeals on November 12, 2008. Significantly,
Sulpicio never questioned the authority of Del Rosario & Del
Rosario to represent Steamship in the proceedings before the
lower courts.92
The rules on forum-shopping are "designed . . . to promote and
facilitate the orderly administration of justice." They are not to
be interpreted with "absolute literalness" as to subvert the
procedural rules' ultimate objective of achieving substantial
justice as expeditiously as possible.93 These goals would not be
circumvented by this Court's recognition of the authorized
counsel's signature in the verification and certification of non-
forum shopping.
This Court now proceeds to the substantive issues of whether
or not there was a valid arbitration agreement between the
parties and whether or not referral to arbitration was
imperative.
II
Steamship contends that the arbitration agreement set forth in
its Club Rules, which in turn is incorporated by reference in the
Certificate of Entry and Acceptance of M/V Princess of the
World,94 is valid and binding upon Sulpicio,95 pursuant to this
Court's ruling in BF Corporation v. Court of Appeals.96
Steamship further avers that the Court of Appeals' finding that
there was no proof that Sulpicio was given a copy of the Club
Rules was incorrect and contradicted by the evidence on
record.97 Steamship adds that by Sulpicio's own declarations in
its letter-application98 for membership of its vessels, Sulpicio
acknowledged that it had received a copy of the Club Rules and
that its membership in Steamship is subject to them. 99 It
contends that Sulpicio was "provided with copies of the Club's
Rule books on an annual basis by Pioneer Insurance and
Seaboard-Eastern who acted as brokers [for Sulpicio's]
entry."100 Moreover, throughout Sulpicio's almost 20 years of
membership,101 it has been aware of, and relied upon, the
terms of the Club Rules, as revealed in its various
correspondences through its brokers with Steamship.102 Thus,
Sulpicio is estopped to deny that it was aware of, and agreed to
be bound by, the Club Rules and their provisions.103
Steamship argues that a referral of the case to arbitration is
imperative pursuant to the mandates of Republic Act No. 9285
or the ADR Law.104 It adds that the trial court's reliance on the
ruling in European Resources and Technologies, Inc. v.
Ingenieuburo Birkhann + Nolte, Ingeniurgesellschaft
Gmbh105 was misplaced. That case was decided on the basis of
Republic Act 876 or the Old Arbitration Law, which did not
provide for instances where some of the multiple impleaded
parties were not covered by an arbitration agreement. 106 It
adds that now, Section 25 of the ADR Law specifically provides
that "the court shall refer to arbitration those parties who are
bound by the arbitration agreement although the civil action
may continue as to those who are not bound by such arbitration
agreement."107 Even from a procedural standpoint, Steamship
contends that the claim against it may be separated from
Pioneer Insurance and Seaboard-Eastern as these local
insurance companies were impleaded as solidary
obligors/debtors.108
Steamship further submits that "a Philippine court is an
inconvenient forum to thresh out the issues involved in
Sulpicio's claim."109 First, Sulpicio's claim is governed by the
English Law, as expressly stated in the 2005/2006 Club
Rules.110 Second, a Philippine court would be "an ineffective
venue" to enforce any judgment that may be obtained against
Steamship, a foreign corporation.111 Thus, on the basis of the
doctrine of forum non conveniens alone, Steamship contends
that the claim against it should be referred to arbitration in
London.112
Finally, Steamship holds that "Sulpicio should participate in the
London Arbitration as [it] is already progressing . . . [i]nstead
of wasting its time on prosecuting its claim before a Philippine
court that is devoid of jurisdiction[.]113
Sulpicio counters that the Court of Appeals was correct in ruling
that there was no arbitration agreement between the
parties.114 The arbitration clause in the 2005/2006 Club Rules is
not valid and binding for failure to comply with Section 4 of the
ADR Law, which requires that an arbitration agreement be in
writing and subscribed by the parties or their lawful
agent.115 Sulpicio adds that "[i]n White Gold Marine Services,
Inc. vs. Pioneer Insurance and Surety Corporation, . . .
Steamship did not invoke arbitration but filed suit before a
Philippine court, which . . . proves that [the 2005/2006 Club
Rules' arbitration clause] is neither mandatory nor binding"
upon the parties.116
Sulpicio further contends that the Certificate of Entry and
Acceptance did not provide for arbitration as a mode of dispute
resolution, that the rules referred to was not particularly
identified or described, and that it never received a copy of the
Club Rules.117
Assuming there was valid arbitration agreement between them,
Sulpicio submits that the trial court correctly relied on the ruling
in European Resources in denying the referral of the case to
arbitration.118 Arbitration in London would not be the "most
prudent action" because the arbitral decision will not be binding
on Pioneer Insurance and Seaboard-Eastern and it would result
in a "split jurisdiction."119 Sulpicio further contends that the
exception laid down in European Resources still applies because
the ADR Law was already in effect when the case was decided
by this Court.120
In its Reply, Steamship maintains that there is a valid
arbitration clause between them and that Sulpicio was well
aware of its Club Rules. It adds that Sulpicio is merely feigning
ignorance of the Club Rules to escape the obligatory nature of
the arbitration agreement. Steamship further reiterates that
Section 25 of the ADR Law is plain and clear that when there
are multiple parties in an action, the court must "refer to
arbitration those parties bound by the arbitration agreement
and let the action remain as to those who are not
bound."121 "Moreover, as the relationship between . . .
Steamship and . . . Sulpicio are governed by English Law[,] it
may be more prudent to refer the disgute to arbitration in
London under the doctrine of forum non conveniens."122
Finally, Steamship avers that under Rule 47 of the 2005/2006
Club Rules, it has "the right to pursue legal action against a
[m]ember before any jurisdiction at its sole discretion."123 Even
if there is no such provision, Steamship contends that it may
waive its rights to compel arbitration in individual cases. 124 It
adds that the waiver of such right in White Gold has no effect to
this case because Sulpicio is not a party in that case.125
II.A

It is the State's policy to promote party autonomy in the mode
of resolving disputes.126 Under the freedom of contract
principle, parties to a contract may stipulate on a particular
method of settling any conflict between them. 127 Arbitration
and other alternative dispute resolution methods like mediation,
negotiation, and conciliation are favored over court action.
Republic Act No. 9285128 expresses this policy:
Section 2. Declaration of Policy. — It is hereby declared the
policy of the State to actively promote party autonomy in the
resolution of disputes or the freedom of the parties to make
their own arrangements to resolve their disputes. Towards this
end, the State shall encourage and actively promote the use of
Alternative Dispute Resolution (ADR) as an important means to
achieve speedy and impartial justice and declog court
dockets. As such, the State shall provide means for the use of
ADR as an efficient tool and an alternative procedure for the
resolution of appropriate cases. Likewise, the State shall enlist
active private sector participation in the settlement of disputes
through ADR. This Act shall be without prejudice to the
adoption by the Supreme Court of any ADR system, such as
mediation, conciliation, arbitration, or any combination thereof
as a means of achieving speedy and efficient means of
resolving cases pending before all courts in the Philippines
which shall be governed by such rules as the Supreme Court
may approve from time to time. (Emphasis supplied)
Arbitration, as a mode of settling disputes, was already
recognized in the Civil Code.129 In 1953, Republic Act No. 876
was passed, which reinforced domestic arbitration as a process
of dispute resolution. Foreign arbitration was likewise
recognized through the Philippines' adherence to the United
Nations Convention on the Recognition and Enforcement of
Foreign Arbitral Awards of 1958, otherwise known as the New
York Convention.130 Republic Act No. 9285 sets the basic
principles in the enforcement of foreign arbitral awards in the
Philippines.131
Consistent with State policy, "arbitration agreements are
liberally construed in favor of proceeding to
arbitration."132 Every reasonable interpretation is indulged to
give effect to arbitration agreements. Thus, courts must give
effect to the arbitration clause as much as the terms of the
agreement would allow.133 "Any doubt should be resolved in
favor of arbitration."134
II.B
Sulpicio contends that there was no valid arbitration agreement
between them, and if there were, it was not aware of it.
This Court rules against Sulpicio's submission.
The contract between Sulpicio and Steamship is more than a
contract of insurance between a marine insurer and a
shipowner. By entering its vessels in Steamship, Sulpicio not
only obtains insurance coverage for its vessels but also
becomes a member of Steamship.
A protection and indemnity club, like Steamship, is an
association composed of shipowners generally formed for the
specific purpose of providing insurance cover against third-
party liabilities of its members.135 A protection and indemnity
club is a mutual insurance association, described in White Gold
Marine Services, Inc. v. Pioneer Insurance and Surety
Corp.136 as follows:
[A] mutual insurance company is a cooperative enterprise
where the members are both the insurer and insured. In it, the
members all contribute, by a system of premiums or
assessments, to the creation of a fund from which all losses and
liabilities are paid, and where the profits are divided among
themselves, in proportion to their interest. Additionally, mutual
insurance associations, or clubs, provide three types of
coverage, namely, protection and indemnity, war risks, and
defense costs.137
A shipowner wishing to enter its fleet of vessels to Steamship
Reclamation
must fill in an application for entry form, which states:
Area,
P.O. Box
PLEASE ENTER IN THE ASSOCIATION, SUBJECT TO THE RULES,
No. 137
RECEIPT OF WHICH WE ACKNOWLEDGE, THE
Cebu City,
UNDERMENTIONED VESSEL(S).138
Philippines.

NAME OF BUILT ENTE CLA PORT

The application form is signed by the shipowner or its SHIP RED SS OF
authorized representative. GROS REGI
S STRY
Steamship then issues a Certificate of Entry and Acceptance of 1975
TONN
the vessels, showing its acceptance of the entry. The Certificate "PRINCESS B.V
AGE
of Entry and Acceptance for M/V Princess of the World states: OF THE .
OCEAN" 6,150
1983
CERTIFICATE OF ENTRY AND ACCEPTANCE
Cebu
B.V
by the Club of your proposal for entering the ship(s) specified City
"PRINCESS . 13,52
below, and of the tonnage set out against each, in: 1979
OF THE 6
UNIVERSE"
Class 1 PROTECTION AND INDEMNITY Cebu
of the Club from B.V
1972 City
Noon 20th February 2005 to Noon 20th February 2006 . 3,768
"PRINCESS
OF THE
CARIBBEAN" 1984 Cebu
B.V 9,627
or until sold, lost, withdrawn or the entry is terminated in (Rebuilt City
.
accordance with the rules, to the extent specified and in 1990)
accordance with the Act, By(e)-Laws and the Rules from time to "PRINCESS
time in force and the special terms specified overleaf. 19,32
OF THE Cebu
X.X 9
WORLD" City
Your name has been entered in the Register of Members of the .
Club as a Member.

"PRINCESS Cebu
FOR ACCOUNT CERTIFICATE OF THE City
OF NUMBER STARS"
Sulpicio
Lines Inc., 155,534 ....
1st Floor,
NOTES NOTIFIE
D TO
1. REFERE 2. THE ALL
NCE IS RULES MEMBE
REQUES ARE RS.[139
TED TO PRINTE
THE D
RULES ANNUAL
AS TO LY IN
THE BOOK Thus, a contract of insurance is perfected between the parties
CIRCUM FORM, upon Steamship's issuance of the Certificate of Entry and
STANCE INCORP Acceptance.
S OF ORATIN
ENTRY G ALL [A] contract of insurance, like other contracts, must be
BEING PREVIO assented to by both parties either in person or by their agents.
CANCEL US So long as an application for insurance has not been either
LED ALTERA accepted or rejected, it is merely an offer or proposal to make a
AND AS TIONS contract. The contract, to be binding from the date of
TO AND A application, must have been a completed contract, one that
THE COPY IS leaves nothing to be done, nothing to be completed, nothing to
CIRCUM SENT be passed upon, or determined, before it shall take effect.
STANCE TO There can be no contract of insurance unless the minds of the
S OF AN EACH parties have met in agreement.140
ALTERA MEMBE
TION IN R.
THE ALTERA Title VI, Section 49 of Presidential Decree No. 612141 or the
RULES TIONS Insurance Code defines an insurance policy as "the written
OR CAN BE instrument in which a contract of insurance is set forth."
BY(E)- MADE Section 50 of this Code provides that the policy, which is
LAWS. BY required to be in printed form, "may contain blank spaces; and
ORDINA any word, phrase, clause, mark, sign, symbol, signature,
RY number, or word necessary to complete the contract of
RESOLU insurance shall be written on the blank spaces." Any rider,
TION clause, warranty, or endorsement attached and referred to in
FOLLOW the policy by its descriptive title or name is considered part of
ING A this policy or contract of insurance and binds the insured.
GENERA
L Section 51 of the Insurance Code prescribes the information
MEETIN that must be stated in the policy, namely: the parties in the
G insurance contract, amount insured, premium, property or life
insured, risks insured against, and period of insurance.
However, there is nothing in the law that prohibits the parties
from agreeing to other terms and conditions that would govern
their relationship, in which case the general rules of the Civil
Code regulating contracts will apply.142
The Certificate of Entry and Acceptance plainly provides that
the Class 1 protection and indemnity coverage would be to the
extent specified and in accordance with the Act, the By-Laws,
and the Rules of the Club in force at the time of the coverage.
The "Notes" in the bottom portion of the Certificate states that
these Rules "are printed annually in book form" and
disseminated to all members. M/V Princess of the World was
insured from February 20, 2005 to February 20, 2006. Hence,
the 2005/2006 Club Rules apply.
Moreover, attached to the Certificate of Entry and Acceptance is
a War Risk Extension clause and Bio-Chem clause which refer
to Rule 21 of the 2005/2006 Club Rules relating to war risk
insurance.
WAR RISK EXTENSION
Cover excluded under Rule 21 is hereby reinstated subject to
the terms set out in this Certificate of Entry and any
Endorsement thereto, and to the following conditions.
....
At any time or times before, or at the commencement of, or
during the currency of any Policy Year of the Club, the Directors
may in their discretion determine that any ports, places,
countries, zones or areas (whether of land or sea) be excluded
from the insurance provided by this [Protection and Indemnity]
war risks cover. Save as otherwise provided by the Directors,
this [Protection and Indemnity] war risks cover shall cease in
respect of such ports, places, countries, zones or areas at
midnight on the seventh day following the issue to the Members
of notice of such detem1ination in accordance with the terms of
the cover provided pursuant to Rule 21 of the Club's Rules
....
Notwithstanding any other term or condition of this insurance,
the Directors may in their discretion cancel this special cover
giving 7 days' notice to the Members (such cancellation
becoming effective on the expiry of 7 days from midnight of the
day on which notice of cancellation is issued by the Club and
the Directors may at any time after the issue of notice of such
cancellation resolve to reinstate special cover pursuant to the
proviso to the terms of the cover issued pursuant to Rule 21 on
such terms and conditions and subject to such limit as the
Directors in their discretion may determine.
When either a Demise, Time, Voyage, Space or Slot Charterer
and/or the Owner of the Entered Ship are separately insured for
losses, liabilities, or the costs and expenses incidental thereto
covered under Rule 21 of the Club and/or the equivalent Rule of
any other Association which participates in the Pooling
Agreement and General Excess Loss Reinsurance Contract, the
aggregate of claims in respect of such losses, liabilities, or the
costs and expenses incidental thereto covered under Rule 21 of
the Club and/or the equivalent Rule of such other
Association(s), shall be limited to the amount set out in the
Certificate of Entry in respect of any one ship, any one incident
or occurrence.143
Sulpicio's acceptance of the Certificate of Entry and Acceptance
manifests its acquiescence to all its provisions. There is no
showing in the records or in Sulpicio's contentions that it
objected to any of the terms in this Certificate. Its acceptance,
likewise, operated as an acceptance of the entire provisions of
the Club Rules.
When a contract is embodied in two (2) or more writings, the
writings of the parties should be read and interpreted together
in such a way as to render their intention effective.144
With the exception of the War Risk Extension clause, the Bio-
chem clause, and a succinct statement of the limits of liability,
warranties, exclusion, and deductibles, the Certificate of Entry
and Acceptance does not contain the details of the insurance
coverage. A person would have to refer to the Club Rules to
have a complete understanding of the contract between the
parties.
The Club Rules contain the terms and conditions of the
relationship between the Steamship and its members including
the scope, nature, and extent of insurance coverage of its
members' vessels. The 2005/2006 Club Rules145 of Class 1,
which cover protection and indemnity risks provide, insofar as
relevant:
3 Scope of Cover
i. The terms upon which a Member is entered in the
Club are set out in the Rules and any Certificate
of Entry for that Member.
ii. The risks against which a Member is insured by
entry in the Club are set out in Rule 25 and are
always subject to the conditions, exceptions,
limitations and other terms set out in the
remainder of these Rules and any Certificate of
Entry for that Member.
....
6 Entry
....
iv. The provisions of this Rule apply throughout the
period of entry of the Ship in the Club . . .
....
8 Members
i. Every Owner who enters any ship in the Club
shall (if not already a Member) be and become a
Member of the Club as from the date of the
commencement of such entry. Each Member is
bound by the Act and By(e)-Laws of the Club and
by these Rules.
....
iv. All contracts of insurance with the Club shall be
deemed to be subject to and incorporate all the
provisions of these Rules except to the extent
otherwise expressly agreed in writing with the
Managers.
v. Each Member or other person whose application
for insurance or reinsurance is accepted shall be
deemed to have agreed both for itself and its
successors and each of them that both it and
they and each and all of them will be subject to
and bound by and will perform their obligations
under the Rules, Act and By(e)-Laws of the Club
and any contract of insurance with the Club.
....
45 Amendments to Rules
The Rules of this Class may be altered or added to by Ordinary
Resolution passed at a separate meeting of the Members of this
Class provided that no such alterations shall be effective unless
and until the same shall be sanctioned by the Directors. 146
The 2005/2006 Club Rules also provide the nature of
Steamship's Protection and Indemnity cover and the terms on
which it is provided. In particular, Rule 25(i) to (xxi) identify a
member's liabilities, costs, and expenses covered by the
insurance, Rules 18 to 24 set out the general exclusions and
limitations, Rule 26 provides the requirements for classification
and condition surveys, and Rule 28 addresses general terms
and conditions for recovery of claims. The 2005/2006 Club
Rules also contain provisions on double insurance (Rule 23),
claims handling (Rules 30 and 31), cessation of membership
(Rule 35), cessation of insurance of individual vessels (Rule 36)
deduction and set-off (Rule 40), and assignment and
subrogation (Rules 41 and 42).
The arbitration clause is found in Rule 47 of the 2005/2006
Club Rules:
47 dispute resolution, Adjudication
i. in the event of any difference or dispute
whatsoever, between or affecting a Member and
the Club and concerning the insurance afforded
by the Club under these rules or any amounts
due from the Club to the Member or the Member
to the Club, such difference or dispute shall in the
first instance be referred to adjudication by the
Directors. That adjudication shall be on the basis
of documents and written submissions alone.
Notwithstanding the terms of this Rule 47i, the
Managers shall be entitled to refer any difference
or dispute to arbitration in accordance with sub-
paragraph ii below without prior adjudication by
the Directors.
ii. If the Member does not accept the decision of the
Directors, or if the Managers, in their absolute
discretion, so decide, the difference or dispute
shall be referred to the arbitration of three
arbitrators, one to be appointed by each of the
parties and the third by the two arbitrators so
chosen, in London. The submission to arbitration
and all the proceedings therein shall be subject to
the provisions of the English Arbitration Act, 1996
and the schedules thereto or any statutory
modifications or re-enactment thereof.
iii. No Member shall be entitled to maintain any
action, suit or other legal proceedings against the
Club upon any such difference or dispute unless
and until the same has been submitted to the
Directors and they shall have given their decision
thereon, or shall have made default for three
months in so doing; and, if such decision be not
accepted by the Member or such default be
made, unless and until the difference or dispute
shall have been referred to arbitration in the
manner provided in this Rule, and the Award
shall have been published; and then only for such
sum as the Award may direct to be paid by the
Club. And the sole obligation of the Club to the
Member under these Rules or otherwise
howsoever in respect of any disputed claim made
by the Member shall be to pay such sum as may
be directed by such an Award.
iv. In any event no request for adjudication by the
Member shall be made to the Directors in respect
of any difference or dispute between, or matter
affecting, the Member and the Club more than
two years from the date when that dispute,
difference or matter arose unless, prior to the
expiry of this limitation period, the Managers
have agreed in writing to extend the same.
v. Nothing in this Rule 47 including paragraph i, or
in any other Rule or otherwise shall preclude the
Club from taking any legal action of whatsoever
nature in any jurisdiction at its absolute
discretion in order to pursue or enforce any of its
rights whatsoever and howsoever arising
including but not limited to: -
a. Recovering sums it considers to be due
from the Member to the Club;
b. Obtaining security for such sums; and/or
c. Enforcement of its right of lien whether
arising by law or under these rules.
vi. These rules and any contract of insurance
between the Club and the Member shall be
 governed by and construed in accordance with
English law.147 (Emphasis in the original)
Under Rule 47, any dispute concerning the insurance afforded
by Steamship must first be brought by a claiming member to
the Directors for adjudication. If this member disagrees with
the decision of the Director, the dispute must be referred to
arbitration in London. Despite the member's disagreement, the
Managers of Steamship may refer the dispute to arbitration
without adjudication of the Directors. This procedure must be
complied with before the member can pursue legal proceedings
against Steamship.
There is no ambiguity in the terms and clauses of the Certificate
of Entry Acceptance. Contrary to the ruling of the Court of
Appeals, the Certificate clearly incorporates the entire Club
Rules—not only those provisions relating to cancellation and
alteration of the policy.148
"[W]hen the text of a contract is explicit and leaves no doubt as
to its intention, the court may not read into it any other
intention that would contradict its plain import."149
The incorporation of the Club Rules in the insurance policy is
without any qualification. This includes the arbitration clause
even if not particularly stipulated. A basic rule in construction is
that the entire contract, and each and all of its parts, must be
read together and given effect, with all its clauses and
provisions harmomonized with one another.150
II.C
The Court of Appeals ruled that the arbitration agreement in the
2005/2006 Club Rules is not valid because it was not signed by
the parties.
In domestic arbitration, the formal requirements of an
arbitration agreement are that it must "be in writing and
subscribed by the party sought to be charged, or by his lawful
agent."151 In international commercial arbitration,152 it is
likewise required that the arbitration agreement must be in
writing.
An arbitration agreement is in writing if it is contained (1) in a
document signed by the parties, (2) in an exchange of letters,
telex, telegrams or other means of telecommunication which
provide a record of the agreement, or (3) in an exchange of
statements of claim and defense in which the existence of an
agreement is alleged by a party and not denied by another. The
reference in a contract to a document containing an arbitration
clause constitutes an arbitration agreement provided that the
contract is in writing and the reference is such as to make that
clause part of the contract.153
In BF Corp. v. Court of Appeals,154 one (1) of the parties denied
the existence of the arbitration cause on the ground that it did
not sign the Conditions of Contract that contained the clause.
This Court held that the arbitration clause was nonetheless
binding because the Conditions of Contract were expressly
made an integral part of the principal contract between the
parties. The formal requirements of the law were deemed
complied with because "the subscription of the principal
agreement effectively covered the other documents
incorporated by reference [to them]."155 In, arriving at this
ruling, this Court explained:
A contract need not be contained in a single writing. It may be
collected from several different writings which do not conflict
with each other and which, when connected, show the parties,
subject matter, terms and consideration, as in contracts
entered into by correspondence. A contract may be
encompassed in several instruments even though every
instrument is not signed by the parties, since it is
sufficient if the unsigned instruments are clearly
identified or referred to and made part of the signed
instrument or instruments. Similarly, a written agreement of
which there are two copies, one signed by each of the parties,
is binding on both to the same extent as though there had been
only one copy of the agreement and both had signed
it.156 (Emphasis supplied)
Thus, an arbitration agreement that was not embodied in the
main agreement but set forth in another document is binding
upon the parties, where the document was incorporated by
reference to the main agreement. The arbitration agreement
contained in the Club Rules, which in turn was referred to in the
Certificate of Entry and Acceptance, is binding upon Sulpicio
even though there was no specific stipulation on dispute
resolution in this Certificate.
Furthermore, as stated earlier, Sulpicio became a member of
Steamship by the very act of making a contract of insurance
with it. The Certificate of Entry and Acceptance issued by
Steamship states that "[its] name has been entered in the
Register of Members of the Club as a Member." 157 Sulpicio
admits its membership and the entry of its vessels to
Steamship.
Rule 8(v) of the 2005/2006 Club Rules provides that:
Each Member or other person whose application for insurance
or reinsurance is accepted shall be deemed to have agreed both
for itself and its successors and each of them that both it and
they and each and all of them will be subject to and bound by
and will perform their obligations under the Rules, Act and
By(e)-Laws of the Club and any contract of insurance with the
Club.
Sulpicio's agreement to abide by Steamship's Club Rules,
including its arbitration clause, can be reasonably inferred from
its submission of an application for entry of its vessels to
Steamship "subject to the Rules, receipt of which we
acknowledge."158
The ruling of this Court in Associated Bank v. Court of
Appeals159 is applicable by analogy to this case.
In that case, plaintiffs sought to recover the amount of 16
checks that were honored by Associated Bank despite the
apparent alterations in the name of the payee. Associated Bank
filed a Third-Party Complaint against Philippine Commercial
International Bank, Far East Bank & Trust Company, Security
Bank and Trust Company, and Citytrust Banking Corporation for
reimbursement, contribution, and indemnity. This Complaint
was based on their being the collecting banks and by virtue of
their bank guarantee for all checks sent for clearing to the
Philippine Clearing House Corporation (PCHC). The trial court
dismissed the Third-Party Complaint for lack of jurisdiction,
citing Section 36 of the Clearing House Rules and Regulations of
the PCHC, which provides for arbitration. This Court, in
affirming the dismissal, held:
Under the rules and regulations of the Philippine Clearing House
Corporation (PCHC), the mere act of participation of the parties
concerned in its operations in effect amounts to a manifestation
of agreement by the parties to abide by its rules and
regulations. As a consequence of such participation, a party
cannot invoke the jurisdiction of the courts over disputes and
controversies which fall under the PCHC Rules and Regulations
without first going through the arbitration processes laid out by
the body. Since claims relating to the regularity of checks
cleared by banking institutions are among those claims which
should first be submitted for resolution by the PCHC's
Arbitration Committee, petitioner Associated Bank, having
voluntarily bound itself to abide by such rules and regulations,
is estopped from seeking relief from the Regional Trial Court on
the coattails of a private claim and in the guise of a third party
complaint without first having obtained a decision adverse to its
claim from the said body. lt cannot bypass the arbitration
process on the basis of its averment that its third party
complaint is inextricably linked to the original complaint in the
Regional Trial Court.
....
Section 36.6 is even more emphatic:
36.6 The fact that a bank participates in the clearing operations
of PCHC shall be deemed its written and subscribed consent to
the binding effect of this arbitration agreement as if it had done
so in accordance with Section 4 of the Republic Act No. 876
otherwise known as the Arbitration Law.
Thus, not only do the parties manifest by mere participation
their consent to these rules, but such participation is deemed
(their) written and subscribed consent to the binding effect of
arbitration agreements under the PCHC rules. Moreover, a
participant subject to the Clearing House Rules and Regulations
of the PCHC may go on appeal to any of the Regional Trial
Courts in the National Capital Region where the head office of
any of the parties is located only after a decision or award has
been rendered by the arbitration committee or arbitrator on
questions of law.160 (Emphasis supplied, citation omitted)
This Court held that mere participation by the banks in the
clearing operations of the PCHC manifest their consent to the
PCHC Rules, including the binding effect of the arbitration
agreements under these Rules.
In this case, by its act of entering its fleet of vessels to
Steamship and accepting without objection the Certificate of
Entry and Acceptance covering its vessels, Sulpicio manifests its
consent to be bound by the Club Rules. The contract between
Sulpicio and Steamship gives rise to reciprocal rights and
obligations. Steamship undertakes to provide protection and
indemnity cover to Sulpicio's fleet. On the other hand, Sulpicio,
as a member, agrees to observe Steamship's rules and
regulations, including its provisions on arbitration.
III.A
The Court of Appeals' finding that there was no proof that
Sulpicio was given a copy of the 2005/2006 Club Rules is
contradicted by the evidence on record.
In its Comment, Sulpicio contends that it "was never given or
sent a copy" of the Rulebook as stated in the affidavits of its
Executive Vice President, Atty. Eusebio S. Go and its Safety and
Quality Assurance Manager, Engr. Ernelson P. Morales.161 It
also quoted a portion of the Affidavit of its Executive Vice
President and Chief Executive Officer, Carlos S. Go, who
declared that "[Sulpicio] and Steamship have not signed any
arbitration agreement" and "[n]o such agreement exists."162
Sulpicio cannot feign ignorance of the arbitration clause since it
was already charged with notice of the Club Rules due to an
appropriate reference to it in the Certificate of Entry and
Acceptance. Assuming its contentions were true that it was not
furnished a copy of the 2005/2006 Club Rules, by the exercise
of ordinary diligence, it could have easily obtained a copy of
them from Pioneer Insurance or Seaboard-Eastern.
In any case, Sulpicio's bare denials cannot succeed in light of
the preponderance of evidence submitted by Steamship.
The Affidavit163 dated August 29, 2007 of Jonathan Andrews,
Director and Head of Underwriting of the Eastern Syndicate of
the Managers of Steamship and in charge of Steamship's Far
East membership, including the Philippines, stated:
4. The contract of insurance between the Club and a
Member is contained in, and evidenced by:
a) The Rules of the Club for whichever Class or Classes the
vessel is entered, for the time being in force; and
b) A Certificate of Entry.
5.
....
5. The Club's policy year runs from noon on
20th February of each year until noon on
20th February of the year following . . . The Rule
book is published on an annual basis prior to the
 commencement of the Policy year to which it
applies. Although the Rules can be amended
pursuant to Rule 45, the dispute resolution
provisions of the Rules have provided for
arbitration in London since well before the
Plaintiff's entry in the Club.
....
10. In addition, it is quite clear that throughout their
lengthy membership of the Club, the Plaintiffs
were aware of, and relied upon, the terms of the
Club's Rules. Produced and shown to me, marked
"JHDA 4", is a copy of a letter164 from the
Plaintiffs, dated 4th June, 1993, seeking a refund
of premium for the "SURIGAO PRINCESS" on the
grounds that the vessel was laid up. That letter's
enclosures consist of:
(a) The Club's printed form for returns of premium when a
vessel is laid-up . . . signed by Mr. Carlos S. Go on
behalf of the Plaintiffs;
(b) A photocopy of the relevant provision in the Club's Rules
dealing with laid-up returns, Rule 29; and
(c) A Certificate from the Philippines Port Authority . . .
11.
The fact that Sulpicio's application for a laid up
return attached a photocopy of the Club's Rule
book demonstrates both that this was physically
in their possession and that they were familiar
with its contents.
11. Throughout the lengthy period of this entry, as
might be anticipated, there was a considerable
volume of correspondence between the Plaintiffs
and the Club via the former's brokers. Examples
of that correspondence are produced and shown
to me, marked "JHDA 5". As the Court will note
from that correspondence, it contains numerous
and frequent references to various of the Club's
Rules, e.g.:
 Rule 22, dealing with double insurance
 Rule 25 xix, dealing with towage
 Rule 23 i, dealing with classification
 Rule 23 v b and c, dealing with defect
warranties
 Rule 23 iv, dealing with safety audits.
12. The fact that Plaintiffs possessed and were fully
conversant with the Club's Rules is most clearly
demonstrated by the correspondence provided
and shown to me, marked "JHDA 6". After the
grounding of the "PRINCESS OF THE PACIFIC",
due to the concerns arising out of this casualty,
the Club initially reserved cover pending further
investigation and required an independent audit
of the Plaintiffs Safety Management System.
When this decision was conveyed to the Plaintiffs
via their brokers, Seaboard-Eastern, they replied:
As expected, Carlos Go was so upset and expressed
disappointment when the undersigned spoke to him about the
report of Noble Denton and the club's decision to suspend any
action on the claim especially so since owners believe the
findings of the surveyors to the club are inaccurate and after
relating such findings to the club rules owners find no basis for
club's decision to suspend action on the claim.165
Roderick Gil Narvacan, Vice-President of the Hull Unit of Pioneer
Insurance which handled Sulpicio's account, also narrated in his
Affidavit[166 dated September 4, 2007:
7. I know for a fact that Sulpicio received a copy of the Club's
Rule Book and had full knowledge of the Club's Rules during the
length of time that it was a member of the Club.
8. [I]n all Entry Forms signed and submitted by Sulpicio to the
Club throughout its years of membership in the Club, Sulpicio
always acknowledged that it received a copy of Club's Rule
Book. A sample of Sulpicio's duly signed Entry Form submitted
to the Club on 6 February 1997 is hereto attached as Annex
"1."
9. The Company, through my department, also makes it a point
to remind all the Club's Members including Sulpicio to
familiarize themselves with the Club's Rulebook as the rules
therein provided are applied to all Club related matters
including claims procedures. A copy of Ms. May Valles'
email167 to Sulpicio dated 27 August 2002 is hereto attached as
Annex "2" and her letter168 to Sulpicio dated 17 October 2002 is
hereto attached as Annex "3." Ms. Valles was a former member
of the Company's Hull Department and in both written
communications, she reminded Sulpicio through its Executive
Vice-President and CFO Mr. Carlos S. Go of certain Club Rules
such as the prescriptive period to claim for lay-up premium
refund.
10. In reply to the 27 August 2002 email, Mr. Carlos S. Go, by
a 28 August 2002 email169 to Ms. Valles, explained his
understanding of the provision on the prescriptive period to
claim for lay-up premium refund under the Club's Rules,
thereby clearly showing that Sulpicio was aware of the Club's
Rules. A copy of the 28 August 2002 email of Mr. Go is hereto
attached as Annex "4."
11. To further prove Sulpicio's knowledge of Club's Rules, I
hereto attach the following copies of letters from Sulpicio
addressed to the Company with attached letter by Sulpicio to
the Club:
 Letter-request170 for refund of lay-up premiums
for the vessel M/V Surigao Princess dated 4 June
1993 as Annex "5";
 Letter-request171 for refund of lay-up premiums
for the vessel M/V Manila Princess dated 10 June
1998 as Annex '"6";
 Letter request172 for refund of lay-up premiums
for the vessel M/V Filipina Princess dated 21 June
1999 as Annex "7";
 Letter-request173 for refund of lay-up premiums
for the vessel M/V Manila Princess dated 17 May
2001 as Annex "8"; and
 Letter-request174 for refund of lay-up premiums
for the vessel M/V Nasipit Princess dated 16
August 2002 as Annex "9";
In each of the above letters, Sulpicio declared to both the
Company and the Club that "(w)e shall therefore be glad to
receive a credit note for the return of premium under the Rules
of the Association."175 (Emphasis in the original)
Finally, Elmer Felipe, Manager of Marine Department of
Seaboard-Eastern in charge of Sulpicio's account, also
narrated:
11. As insurers for the Hull & Machinery of Sulpicio's Fleet, the
Company, through my department, assisted Sulpicio in regard
to its [Protection and Indemnity] cover by sending copy of the
Club's Rulebook while it was an active Member of the Club.
12. By way of example, in the year 2002, the Company sent
five (5) copies of the Club's Rulebook to Mr. Carlos S. Go,
Executive Vice-President and CEO of Sulpicio as evidenced by a
transmittal letter dated 11 April 2002 duly signed by the
Company's First Vice-President Joli Co-Wu. A copy of said
transmittal letter176 dated 11 April 2002 is hereto attached as
Annex "1."
13. The other transmittal letters proving distribution of the
Club's Rulebook to Sulpicio in its other years of membership
with the Club were among those discarded by the Company
when it moved . . . to a smaller office . . .
14. [Sulpicio is presumed to] know the Club's Rules as it was
provided with copies of the Rulebook on an annual basis.
15. In fact, in a 8 May 2004 letter addressed to the Company,
Sulpicio claimed for refund of lay-up premiums from the Club in
connection with the vessel M/V Princess of the World and in
Sulpicio's letter to the Club attached to the said 8 May 2004
letter, Sulpicio declared that "(w)e shall therefore be glad to
receive a credit note for the return of premium under the Rules
of the Association." This was followed by December 2004 letter
for refund of lay-up returns for the vessel M/V Princess of the
World where Sulpicio also invoked the Club Rules. A copy of the
8 May 2004 letter177 with attachment is hereto attached as
Annex "2" and a copy of the 8 December 2004 letter178 is
hereto attached as Annex "3."
....
18. More importantly, after the Club denied cover for the vessel
M/V Princess of the World and prior to the date when the
termination of Sulpicio's entry in the Club took effect, our EVP,
Mr. Jose G. Banzon, Jr. sent an emai1179 dated 30 November
2005 to Mr. Carlos Go reminding Sulpicio of the remedy of
voluntary arbitration under Rule 47 of the Club's Rulebook and
attaching a copy of Rule 47. Copies of these documents are
attached as Annex "4."180
These foregoing affidavits and the attached supporting
documents consistently declared that Sulpicio was given copies
of the Rulebook on an annual basis and had even invoked its
provisions in making a claim from Steamship. Sulpicio's
previous letters to Steamship referring to provisions of the Club
Rules show its knowledge. Sulpicio was also reminded of the
arbitration clause during the negotiations preceding the
institution of the present case.
"[A] party is not relieved of the duty to exercise the ordinary
care and prudence that would be exacted in relation to other
contracts. The conformity of the insured to the terms of the
policy is implied from [its] failure to express any disagreement
with what is provided for."181 The agreement to submit all
disputes to arbitration is a long standing provision in the Club
Rules. It was incumbent upon Sulpicio to familiarize itself with
the Club Rules, under the presumption that a person takes due
care of its concerns. Being a member of Steamship for 20
years,182 it has been bound by its Rules and has been expected
to abide by them in good faith.
In Development Bank of the Philippines v. National
Merchandising Corp.,183 the parties, who were acute
businessmen of experience, were presumed to have assented
to the assailed documents with full knowledge:
The principal stockholders and officers of NAMERCO, particularly
the Sycips who co-signed the promissory notes in question,
were, as the lower court found, businessmen of experience and
intelligence . . . We might say — paraphrasing Tin Tua Sia vs.
Yu Biao Sontua, 56 Phil. 707 — that they being of age and
businessmen of experience, it must be presumed that they had
acted with due care and to have signed the documents in
question with full knowledge of their import and the obligations
they were assuming thereby; that this presumption of law may
not be overcome by the mere testimony of the obligor or
obligors; that, to permit a party, when, sued upon a contract,
to admit that he signed it but to deny that it expresses the
agreement he had made, or to allow him to admit that he
signed it solely on the verbal assurance given by one party,
however high his station may be, that he would not be held
liable thereon, would destroy the value of all contracts. Indeed,
it would be disastrous to give more weight and reliability to the
self-serving testimony of a party bound by the contract than to
the contents thereof. Verba volant, scripta manent.184
Sulpicio is estopped from denying knowledge of the Rulebook
by its own acts and representations, as evidenced by its various
letters to Steamship, showing its familiarity with the Rulebook
and its provisions.
"In estoppel, a person, who by his [or her] deed or conduct has
induced another to act in a particular manner, is barred from
adopting an inconsistent position, attitude or course of conduct
that thereby causes loss or injury to another." 185 It further bars
a party from denying or disproving a fact, which has become
settled by its acts.186
Hence, this Court finds a preponderance of evidence showing
that Sulpicio was given a copy and had knowledge of the
2005/2006 Club Rules. Moreover, the 2005/2006 Club Rules'
provision on arbitration is valid and binding upon Sulpicio.
III.B
The Regional Trial Court should suspend proceedings to give
way to arbitration. Even if there are other defendants who are
not parties to the arbitration agreement, arbitration is still
proper.
Republic Act No. 9285 was approved on April 2, 2004 and was
the controlling law at the time the original and amended
complaints were filed.
Section 25 of Republic Act No. 9285 is explicit that:
[W]here action is commenced by or against multiple parties,
one or more of whom are parties to an arbitration agreement,
the court shall refer to arbitration those parties who are bound
by the arbitration agreement although the civil action may
continue as to those who are not bound by such arbitration
agreement.
Rule 4.7 of the Special Rules on Alternative Dispute
Resolution187 (2009 Special ADR Rules) further expresses:
The court shall not decline to refer some or all of the parties to
arbitration for any of the following reasons:
a. Not all of the disputes subject of the civil action
may be referred to arbitration;
b. Not all of the parties to the civil action are bound
by the arbitration agreement and referral to
arbitration would result in multiplicity of suits;
c. The issues raised in the civil action could be
speedily and efficiently resolved in its entirety by
the court rather than in arbitration;
d. Referral to arbitration does not appear to be the
most prudent action; or
e. The stay of the action would prejudice the rights
of the parties to the civil action who are not
bound by the arbitration agreement.
The present rule on multiple parties manifests due regard to
the policy of the law in favor of arbitration. In light of the
express mandate of Republic Act No. 9285 and the subsequent
2009 Special ADR Rules, this Court's ruling in European
Resources and Technologies, Inc. v. Ingenieuburo Birkhann +
Nolte, Ingeniurgesellschaft Gmbh188 is deemed abrogated.
Notably, the Regional Trial Court did not rule on whether or not
a valid and existing arbitration .agreement existed between the
parties. It merely stated in its Order. citing European
Resources, that:
["]Even if there is an arbitration clause, there are instances
when referral to arbitration does not appear to be the most
prudent action. The object of arbitration is to allow the
expeditious determination of a dispute. Clearly, the issue before
us could not be speedily and efficiently resolved in its entirety if
we allow simultaneous arbitration proceedings and trial, or
suspension of trial pending arbitration."
Moreover, it is noted that defendants Seaboard-Eastern
Insurance Co. Inc. and Pioneer Insurance and Surety
Corporation already filed their respective Answers to the second
amended complaint.189

On this basis, the Regional Trial Court denied Steamship's
Motion to Dismiss and/or to Refer Case to Arbitration and
directed it to file an answer.
This Court finds that the Regional Trial Court acted in excess of
its jurisdiction.
Where a motion is filed in court for the referral of a dispute to
arbitration, Section 24 of Republic Act No. 9285 ordains that
the dispute shall be referred "to arbitration unless it finds that
the arbitration agreement is null and void, inoperative or
incapable of being performed."
Thus, the Regional Trial Court went beyond its authority of
determining only the issue of whether or not there was a valid
arbitration agreement between the parties when it denied
Steamship's Motion to Dismiss and/or to Refer Case to
Arbitration solely on the ground that it would not be the most
prudent action under the circumstances of the case. The
Regional Trial Court went against the express mandate of
Republic Act No. 9285. Consequently, the Court of Appeals
erred in finding no grave abuse of discretion on the part of the
trial court in denying referral to arbitration.
IV
In G.R. No. 208603, Sulpicio contends that Steamship's acts
were contumacious because they were intended to defeat Civil
Case No. 07-577 and oust the Regional Trial Court of its
jurisdiction, without the approval of this Court.
Sulpicio further contends that there was no valid off-setting of
the amount of US$69,570.99 from the refund payable to it in
the Unabia case because the issue on the propriety of the
referral to arbitration had yet to be resolved by this Court. 190 It
adds that the "arbitration – anti-suit injuction" cost was not a
debt of Sulpicio but a unilateral charge arising from an
arbitration that it had not participated in, or was enforceable in
the Philippines.191
In its Comment/Opposition192 to the Petition for Indirect
Contempt, Steamship contends that it "exercised its right to
set-off in good faith"193 and that the amount set-off represents
costs of obtaining the Anti-Suit Injunction awarded to it by the
English Commercial Court and are not arbitration costs as
contended by Sulpicio.194 It also holds that Sulpicio's prayer for
restitution of the offset amount was improper in a petition for
indirect contempt.195
Steamship emphasizes that even before the denial of its Motion
to Dismiss in Civil Case No. 07-577 on July 11, 2008, it already
commenced arbitration in London196 on July 31, 2007.197 It had
also "obtained a permanent Anti-Suit Injunction [with interim
award for costs]198 from the English Commercial Court on
4th April 2008[.]"199 The April 4, 2008 Order enjoined Sulpicio
from proceeding with Civil Case No. 07-577 and to refer the
dispute to arbitration in London.200
Steamship further avers that "Sulpicio was served a copy of an
Order to file Claims Submissions in the London arbitration and a
copy of the Anti-Suit Injunction but it refused to participate in
the London Arbitration."201 It also did not pay the costs of the
Anti-Suit Injunction. Sulpicio refused "service of all orders,
notices, pleadings and documents related to the London
arbitration and the Commercial Court proceedings."202
Steamship adds that in 2012, Sulpicio filed a claim for
reimbursement of US$96,958.47 representing passenger
liabilities arising from the capsizing of one (1) of Sulpicio's fleet
in 1998.203 Pursuant to Rule 32 of the Club Rules for the 1998
policy, which gave Steamship "the right to make deduction
'from any claims . . . due to a Member' of 'any liabilities of such
Member to the Club,'"204 Steamship set-off the costs awarded
by the English Commercial Court from the amount reimbursed
to Sulpicio. Sulpicio's brokers and lawyers were informed of the
set-off through an email dated December 3, 2012.205
Steamship contends that there was no legal impediment when
it initiated arbitration proceedings in London.206 The action was
taken in good faith to preserve its rights while defending its
position that Sulpicio's filing of Civil Case No. 07-577
constituted a breach of the Club Rules.207 On the other hand,
Sulpicio's acts were far from desirable for it did not only fail to
participate in the London arbitration proceedings but also
evaded service of all notices so that it could feign ignorance of
the existence of arbitration proceedings."208
This Court finds Sulpicio's arguments to be untenable.
Steamship's commencement of arbitration even before the
Regional Trial Court had ruled on its motion to dismiss and
suspend proceedings does not constitute an "improper conduct"
that "impede[s], obstruct[s] or degrade[s] the administration of
justice."209
In Heirs of Trinidad de Leon vda. de Roxas v. Court of
Appeals,210 this Court explained the concept of contempt of
court:
Contempt of court is a defiance of the authority, justice or
dignity of the court; such conduct as tends to bring the
authority and administration of the law into disrespect or to
interfere with or prejudice parties litigant or their witnesses
during litigation . . .
Contempt of court is defined as a disobedience to the Court by
acting in opposition to its authority, justice and dignity. It
signifies not only a willful disregard or disobedience of the
court's orders, but such conduct as tends to bring the authority
of the court and the administration of law into disrepute or in
some manner to impede the due administration of justice . . .
This Court has thus repeatedly declared that the power to
punish for contempt is inherent in all courts and is essential to
the preservation of order in judicial proceedings and to the
enforcement of judgments, orders, and mandates of the court,
and consequently, to the due administration of justice . . .211
The court's contempt power should be exercised with restraint
and for a preservative, and not a vindictive, purpose. "Only in
cases of clear and contumacious refusal to obey should the
power be exercised."212
In Lorenzo Shipping Corporation v. Distribution Management
Association of the Philippines,213 this Court held that:
There is no question that in contempt the intent goes to the
gravamen of the offense. Thus, the good faith, or lack of it, of
the alleged contemnor should be considered. Where the act
complained of is ambiguous or does not clearly show on its face
that it is contempt, and is one which, if the party is acting in
good faith, is within his rights, the presence or absence of a
contumacious intent is, in some instances, held to be
determinative of its character. A person should not be
condemned for contempt where he contends for what he
believes to be right and in good faith institutes proceedings for
the purpose, however erroneous may be his conclusion as to
his rights. To constitute contempt, the act must be done
willfully and for an illegitimate or improper
purpose.214 (Citations omitted)
In Lim Lua v. Lua,215 the father's deferral in giving monthly
support pendente lite granted by the trial court was held not
contumacious, considering that "he had not been remiss in
actually providing for the needs of his children." It was also
taken into account that he "believed in good faith that the trial
and appellate courts, upon equitable grounds, would allow him
to offset the substantial amounts he had spent or paid directly
to his children." This Court explained:
Contempt of court is defined as a disobedience to the court by
acting in opposition to its authority, justice, and dignity. It
signifies not only a willful disregard or disobedience of the
court's order, but such conduct which tends to bring the
authority of the court and the administration of law into
disrepute or, in some manner, to impede the due
administration of justice. To constitute contempt, the act must
be done willfully and for an illegitimate or improper purpose.
The good faith, or lack of it, of the alleged contemnor should be to determine the validity of the set-off and to make a factual
considered.216 determination relating to the propriety of ordering restitution.

WHEREFORE, the Petition for Review in G.R. No.

196072 is GRANTED. The Decision dated November 26, 2010
This Court finds no dear and contumacious conduct on the part
of the Court of Appeals in CA-G.R. SP No. 106103 and the
of Steamship. It does not appear that Steamship was motivated
by bad faith in initiating the arbitration proceedings. Rather, its Order dated July 11, 2008 of the Regional Trial Court, Branch
149, Makati City in Civil Case No. 07-577 are SET ASIDE. The
act of commencing arbitration in London is but a bona fide
dispute between Sulpicio Lines, Inc. and Steamship Mutual
attempt to preserve and enforce its rights under the Club Rules.
Underwriting (Bermuda) Limited is referred to arbitration in
There was no legal impediment at the time Steamship initiated London in accordance with Rule 47 of the 2005/2006 Club
Rules.
London arbitration proceedings. Steamship commenced
arbitration on July 31, 2007 even before the Regional Trial
Court denied its Motion to Dismiss and/or Refer Case to The Petition for Indirect Contempt in G.R. No.
208603 is DISMISSED for lack of merit.
Arbitration on July 11, 2008. There was no order from the
Regional Trial Court enjoining Steamship from initiating
SO ORDERED
arbitration proceedings in London. Besides, the 2009 Special
ADR Rules specifically provided that arbitration proceedings
may be commenced or continued and an award may be made,
while the motion for the stay of civil action and for referral to
arbitration is pending resolution by the court. 217

This Court notes that while the arbitration proceeding was

commenced as early as July 31, 2007, it is only six (6) years
later that Sulpicio filed its Petition218 to cite Steamship for
indirect contempt. Sulpicio cannot invoke lack of knowledge of
the London arbitration proceedings due to several reasons.
First, it received and replied219 to the notice of commencement
of arbitration proceedings220 dated July 31, 2007. Second,
Steamship presented evidence showing Sulpicio's refusal to
receive any notices, orders, or communications related to the
arbitration proceedings. Lastly, the pendency of the London
arbitration was made known to the Court of Appeals and this
Court through Steamship's petitions. Sulpicio's belated filing of
its Petition, only after Steamship has deducted from the refund
due it the alleged "arbitration costs," indicates its lack of
sincerity and good faith.

Finally, this Court finds Sulpicio's claim for damages to be

improperly raised. It should be addressed in an ordinary civil
action. Its petition for indirect contempt is not the proper action

G.R. No. 179732, September 13, 2017
DEPARTMENT OF PUBLIC WORKS AND
HIGHWAYS, Petitioner, v. CMC/MONARK/PACIFIC/HI-TRI
JOINT VENTURE, Respondent.
Pleadings and Practice; Certification against Forum Shopping; It
is settled that certification against forum shopping must be
executed by the party or principal and not by counsel.—This
Court has long enforced the strict procedural requirement of
verification and certification against non-forum shopping. It is
settled that certification against forum shopping must be
executed by the party or principal and not by counsel. In
Anderson v. Ho, 688 SCRA 8 (2013), this Court explained that
it is the party who is in the best position to know whether he or
she has filed a case before any courts. It is clear in this case
that counsel for petitioner, Atty. Valderama, was not clothed
with authority to sign on petitioner’s behalf.
Same; Same; The Supreme Court (SC) ruled before that: “the
lack of a certification against forum shopping, unlike that of
verification, is generally not cured by its submission after the
filing of the petition.” Nevertheless, exceptions exist, as in the
case at bar, and it is more prudent to resolve the case on its
merits than dismiss it on purely technical grounds.—This Court
ruled before that: “the lack of a certification against forum
shopping, unlike that of verification, is generally not cured by
its submission after the filing of the petition.” Nevertheless,
exceptions exist, as in the case at bar, and it is more prudent to
resolve the case on its merits than dismiss it on purely technical
grounds.
Moot and Academic; Exceptions exist that would not prevent a
court from taking cognizance of cases seemingly moot and
academic.—Indeed, the rule is that courts will not rule on moot
cases. However, the moot and academic principle is “not a
magical formula that can automatically dissuade the courts in
resolving a case.” Exceptions exist that would not prevent a
court from taking cognizance of cases seemingly moot and
academic.
Remedial Law; Civil Procedure; Exhaustion of Administrative
Remedies; Under the doctrine of exhaustion of administrative
remedies, the concerned administrative agency must be given
the opportunity to decide a matter within its jurisdiction before
an action is brought before the courts, otherwise, the action will
be declared premature.—Under the doctrine of exhaustion of
administrative reme-dies, the concerned administrative agency
must be given the oppor-tunity to decide a matter within its
jurisdiction before an action is brought before the courts,
otherwise, the action will be declared premature. In this case,
CIAC found and correctly ruled that respon-dent had duly
complied with the contractual obligation to exhaust
administrative remedies provided for under subclause 67.1 of
the Conditions of Contract before it brought the case before the
tribunal.
Construction Industry; Construction Industry Arbitration
Com---mission; Jurisdiction; Construction Industry Arbitration
Commission’s (CIAC’s) specific purpose is the “early and
expeditious settlement of disputes” in the construction industry
as a recognition of the industry’s role in “the furtherance of
national development goals.”—CIAC was created under
Executive Order No. 1008, or the “Construction Industry
Arbitration Law.” It was originally under the administrative
supervision of the Philip-pine Domestic Construction Board
which, in turn, was an imple-menting agency of the
Construction Industry Authority of the Philip-pines. The
Construction Industry Authority of the Philippines is presently a
part of the Department of Trade and Industry as an attached
agency. CIAC’s specific purpose is the “early and expedi-tious
settlement of disputes” in the construction industry as a
recog­nition of the industry’s role in “the furtherance of national
development goals.”
Same; Same; Same; As a general rule, findings of fact of
Construction Industry Arbitration Commission (CIAC), a quasi-
judicial tribunal which has expertise on matters regarding the
construction industry, should be respected and upheld.—As a
general rule, findings of fact of CIAC, a quasi-judicial tribunal
which has expertise on matters regarding the construction
industry, should be respected and upheld. In National Housing
Authority v. First United Constructors Corp., 657 SCRA 175
(2011), this Court held that CIAC’s factual findings, as affirmed
by the Court of Appeals, will not be overturned except as to the
most compelling of reasons: As this finding of fact by the CIAC
was affirmed by the Court of Appeals, and it being apparent
that the CIAC arrived at said finding after a thorough
consideration of the evidence presented by both parties, the
same may no longer be reviewed by this Court. The all too
familiar rule is that the Court will not, in a petition for review on
certiorari, entertain matters factual in nature, save for the most
compelling and cogent reasons, like when such factual findings
were drawn from a vacuum or arbitrarily reached, or are
grounded entirely on speculation or conjectures, are conflicting
or are premised on the supposed evidence and contradicted by
the evidence on record or when the inference made is
manifestly mistaken or absurd. This conclusion is made more
compelling by the fact that the CIAC is a quasi-judicial body
whose jurisdiction is confined to construction disputes. Indeed,
settled is the rule that findings of fact of administrative
agencies and quasi-judicial bodies, which have acquired
expertise because their jurisdiction is confined to specific
matters, are generally accorded not only respect, but finality
when affirmed by the Court of Appeals.
Arbitration; “Commercial Arbitration” and “Voluntary
Arbit­ration,” Distinguished.—In distinguishing between
commercial arbitration, voluntary arbitration under Article
219(14) of the Labor Code, and construction arbitration,
Freuhauf Electronics Philippines Corporation v. Technology
Electronics Assembly and Management Pacific, 810 SCRA 280
(2016), ruled that commercial arbitral tribu-nals are purely ad
hoc bodies operating through contractual consent, hence, they
are not quasi-judicial agencies. In contrast, voluntary
arbitration under the Labor Code and construction arbitration
derive their authority from statute in recognition of the public
interest inherent in their respective spheres. Furthermore,
voluntary arbitra-tion under the Labor Code and construction
arbitration exist independently of the will of the contracting
parties: Voluntary Arbitrators resolve labor disputes and
grievances arising from the interpretation of Collective
Bargaining Agreements. These disputes were specifically
excluded from the coverage of both the Arbitration Law and the
ADR Law. Unlike purely commercial relationships, the
relationship between capital and labor are heavily impressed
with public interest. Because of this, Voluntary Arbitrators
authorized to resolve labor disputes have been clothed with
quasi-judicial authority. On the other hand, commercial
relationships covered by our commercial arbitration laws are
purely private and contractual in nature. Unlike labor
relationships, they do not possess the same compelling state
interest that would justify state interference into the autonomy
of contracts. Hence, commercial arbitration is a purely private
system of adjudication facilitated by private citizens instead of
government instrumentalities wielding quasi-judicial powers.
Moreover, judicial or quasi-judicial jurisdiction cannot be
conferred upon a tribunal by the parties alone. The Labor Code
itself confers subject-matter jurisdiction to Voluntary
Arbitrators. Notably, the other arbitration body listed in Rule 43
— the Construction Industry Arbitration Commission (CIAC) —
is also a government agency attached to the Department of
Trade and Industry. Its jurisdiction is likewise conferred by
statute. By contrast, the subject matter jurisdiction of
commercial arbitrators is stipulated by the parties.
Remedial Law; Civil Procedure; Factual Findings; Findings of
fact of administrative agencies and quasi-judicial bodies are
entitled to great respect and even finality when affirmed by the
appellate court.—To reiterate, findings of fact of administrative
agencies and quasi--judicial bodies are entitled to great respect
and even finality when affirmed by the appellate court. In this
case, the Court of Appeals found that respondent was entitled
to the time extensions as evaluated by CIAC, the agency tasked
to resolve issues regarding the construction industry. Both
tribunal found that respondent was entitled to the extensions
due to petitioners delayed payments, peace and order situation,
and Variation Order No. 2. These findings are clearly supported
by the facts on record.
Executive Agreements; Foreign Loan Agreements; A foreign
loan agreement with international financial institutions, such as
a multilateral lending agency organized by governments like the
Asian Development our government procurement system.—This
Court has held that a foreign loan agreement with international
financial institu-tions, such as a multilateral lending agency
organized by govern-ments like the Asian Development Bank, is
an executive or inter-national agreement contemplated by our
government procure-ment system.
Remedial Law; Civil Procedure; Specific Denials; Under Rule 8,
Section 10 of the Rules of Court, the “defendant must specify
each material allegation of fact the truth of which he does not
admit and, whenever practicable, shall set forth the substance
of the matters upon which he relies to support his denial.”—
Under Rule 8, Section 10 of the Rules of Court, the “defendant
must specify each material allegation of fact the truth of which
he does not admit and, whenever practicable, shall set forth the
substance of the matters upon which he relies to support his
denial.” There are three (3) modes of specific denial provided
for under the Rules: 1) by specifying each material allegation of
the fact in the complaint, the truth of which the defen-dant
does not admit, and whenever practicable, setting forth the
substance of the matters which he will rely upon to support his
denial; (2) by specifying so much of an averment in the
complaint as is true and material and denying only the
remainder; (3) by stating that the defendant is without
knowledge or information sufficient to form a belief as to the
truth of a material averment in the complaint, which has the
effect of a denial.
Same; Same; Same; The denial in the answer must be definite
as to what is admitted and what is denied, such that the
adverse party will not have to resort to guesswork over “what is
admitted, what is denied, and what is covered by denials of
knowledge as sufficient to form a belief.”—In Aquintey v.
Spouses Tibong, 511 SCRA 414 (2006), this Court held that
using “specifically” in a general denial does not automatically
convert that general denial to a specific one. The denial in the
answer must be definite as to what is admitted and what is
denied, such that the adverse party will not have to resort to
guesswork over “what is admitted, what is denied, and what is
covered by denials of knowledge as sufficient to form a belief.”
Civil Law; Contracts; It is fundamental that a contract is the law
between the parties and, absent any showing that its provisions
are wholly or in part contrary to law, morals, good customs,
public order, or public policy, it shall be enforced to the letter
by them courts.—It is fundamental that a contract is the law
between the parties and, absent any showing that its provisions
are wholly or in part contrary to law, morals, good customs,
public order, or public policy, it shall be enforced to the letter
by the courts. Respondent was not able to establish the basis of
its claim that it is entitled to an award of 24% interest.
Moreover, as found by the Court of Appeals and CIAC, the
parties had agreed to delete the provision on interest on
delayed payments, since the project was funded by the Asian
Development Bank. There is also no basis to award respondent
24% interest as actual damages for the additional expenses it
incurred due to petitioner’s delayed payments.
Same; Damages; Actual Damages; The issue on the amount of
actual or compensatory damages is a question of fact, and
except as provided by law or by stipulation, one is entitled to
adequate compensation only for pecuniary loss duly proven.
Before actual damages may be awarded, it is imperative that
the claimant proves its claims first. The issue on the amount of
actual or compensatory damages is a question of fact, and
except as provided by law or by stipulation, one is entitled to
adequate compensation only for pecuniary loss duly proven. In
this case, respondent has not sufficiently shown how awarding
it 24% interest per annum on delayed payments corresponds to
the actual damages it allegedly suffered. Respondent failed to
show a causal relation between the alleged losses and the
injury it suffered from petitioner’s actions.
Interest Rates; On May 16, 2013, the Monetary Board of the
Bangko Sentral ng Pilipinas (BSP) issued Resolution No. 796,
which revised the interest rate to be imposed on the loan or
forbearance of any money, goods, or credits.—On May 16,
2013, the Monetary Board of the Bangko Sentral ng Pilipinas
issued Resolution No. 796, which revised the interest rate to be
imposed on the loan or forbearance of any money, goods, or
credits. This was implemented in Bangko Sentral ng Pilipinas
Circular No.799 Series of 2013, which reads: The Monetary
Board, in its Resolution No. 796 dated 16 May 2013, approved
the following revisions governing the rate of interest in the
absence of stipulation in loan contracts, thereby amending
Section 2 of Circular No. 905, Series of 1982: Section 1. The
rate of interest for the loan or forbearance of any money, goods
or credits and the rate allowed in judgments, in the absence of
an express contract as to such rate of interest, shall be six
percent (6%) per annum. Section 2. In view of the above,
Subsection X305.1 of the Manual of Regulations for Banks and
Sections 4305Q.1, 43058.3 and 4303P.1 of the Manual of
Regulations for Non-Bank Financial Institutions are hereby
amended accordingly. This Circular shall take effect on 1 July
2013.
Civil Law; Before Nacar v. Gallery Frames, 703 SCRA 439
(2013), and Bangko Sentral ng Pilipinas-Monetary Board (BSP-
MB) Resolution No. 796 dated May 16, 2013, the rate of legal
interest was pegged at twelve percent (12%) per annum from
finality of judgment until its satisfaction, “this interim period
being deemed to be by then an equivalent to a forbearance of
credit.”—Before Nacar v. Gallery Frames, 703 SCRA 439
(2013), and Bangko Sentral ng Pilipinas-Monetary Board
Resolution No. 796 dated May 16, 2013, the rate of legal
interest was pegged at 12% per annum from finality of
judgment until its satisfaction, “this interim period being
deemed to be by then an equivalent to a forbearance of credit.”
With this Court’s pronouncement in Nacar, the rate of interest
imposed should be modified. The monetary awards, as
computed by the CIAC, should earn legal interest at the rate of
12% per annum until June 30, 2013, after which, it shall earn
legal interest at the rate of 6% per annum until full satisfaction.
DECISION
LEONEN, J.:
As the administrative agency tasked with resolving issues
pertaining to the construction industry, the Construction
Industry Arbitration Commission enjoys a wide latitude in
recognition of its technical expertise and experience. Its factual
findings are, thus, accorded respect and even finality,
particularly when they are affirmed by an appellate court.
This is a Petition for Review on Certiorari 1 assailing the Court of
Appeals Decision2 dated September 20, 2007 in CA-G.R. SP
Nos. 88953 and 88911, which affirmed the March 1, 2005
Award of the Construction Industry Arbitration Commission
(CIAC).
On April 29, 1999, Republic of the Philippines, through the
Department of Public Works and Highways (DPWH), and
CMC/Monark/Pacific/Hi-Tri J.V. (the Joint Venture) executed
"Contract Agreement for the Construction of Contract Package
6MI-9, Pagadian-Buug Section, Zamboanga del Sur, Sixth Road
Project, Road Improvement Component Loan No. 1473-
PHI"3 (Contract) for a total contract amount of
P713,330,885.28.4
Parts I (General Conditions with forms of tender + agreement)
and II (Conditions of Particular Application + Guidelines for
Preparation of Part II Clauses) of the "Conditions of Contract for
Works of Civil Engineering Construction of the Federation
International Des Ingenieurs - Conseils" (Conditions of
Contract) formed. part of the Contract.5 DPWH hired BCEOM
French Engineering Consultants to oversee the project.6
On October 23, 2002, or while the project was ongoing, the
Joint Venture's truck and equipment were set on fire. On March
11, 2003, a bomb exploded at Joint Venture's hatching plant
located at Brgy. West Boyogan, Kumalarang, Zamboanga del Php10,297,090.42 +
Sur. According to reports, the bombing incident was caused by (US$118,094.93@34.90)
members of the Moro Islamic Liberation Front.7

The Joint Venture made several written demands for extension

and payment of the foreign component of the Contract. There Equipment and financial loses 5,080,000.00
were efforts between the parties to settle the unpaid Payment
Certificates amounting to P26,737,029.49. Thus, only the
foreign component of US$358,227.95 was up for negotiations Additional costs in the contract
subject to further reduction of the amount on account of price under Clause 69.4
payments subsequently received by the Joint Venture from 20,311,072.66
DPWH.8

In a letter dated September 18, 2003, BCEOM French

Engineering Consultants recommended that DPWH promptly
pay the outstanding monies due the Joint Venture.9 The letter Adjustment in the contract price
also stated that the actual volume of the Joint Venture's under Presidential Decree No. 1594
accomplishment was "2,732m2 of hardrock and 4,444m3 of 18,626,805.81
rippable rock," making the project 80% complete when it was (9,313,402.91 in pesos and
halted.10 266,859.68 in dollar)

On March 3, 2004, the Joint Venture filed a Complaint11 against

DPWH before CIAC. Joint Venture' claims, which amounted to Effect of the bomping incident 6,267,410.48
P77,206,047.88, were as follows:

CLAIMANT'S CLAIM
TOTAL CLAIMS Php77,206,047.8812

Foreign component of the project
of
(US$358,227.95 @Php34.90)
Interest as of December 3, 4003
(Computation for the damages &
losses incurred:
Meanwhile, on July 8, 2004, the Joint Venture sent a "Notice of
Mutual Termination of Contract",13 to DPWH requesting for a
Php12,502,155.46 mutual termination of the contract subject of the arbitration
case. This is due to its diminished financial capability due to
DPWH's late payments, changes in the project involving
payment terms, peace and order problems, and previous
agreement by the parties.
On July 16, 2004, then DPWH Acting Secretary Florante
Php14,418,603.47 Soriquez accepted the Joint Venture's request for mutual
termination of the contract.14

After hearing and submission of the parties' respective

memoranda,15 CIAC promulgated an Award16 on March 1, 2005,
directing DPWH to pay the Joint Venture its money claims plus
legal interest. CIAC, however, denied the Joint Venture's claim
for price adjustment due to the delay in the issuance of a
Notice to Proceed under Presidential Decree No. 1594 or the
"Policies, Guidelines, Rules, and Regulations for Government
Infrastructure Contracts."17 The dispositive portion of the Award
read:
WHEREFORE, premises considered and in view of the resolution
of the issues presented, an Award is hereby rendered ordering
the Respondent DPWH to pay the Claimant the following:
1. Foreign Component of US$358,227.95 plus legal interest of
US$18,313.79;
2. Equipment and Plant Losses of P5,080,000, plus legal
interest of P464,298.08;
3. Additional Costs resulting from the Bombing of
P6,267,410.48 plus legal interest of P320,410.63, and
4. Additional Costs in the contract price under Clause 69.4 of
P20,311,072.66 plus legal interest of [P]1,038,368.78.
The claim of Claimant for adjustment under [Presidential
Decree No.] 1594 of P18,626,805.81 is hereby denied.
Pursuant to the case of Eastern Shipping Lines vs. Court of
Appeals, 234 SCRA 78, the foregoing monetary awards shall
earn interest at the rate of 12% per annum from the date the
Award becomes final and executor until its satisfaction.
SO ORDERED.18
DPWH and the Joint Venture filed their respective petitions for
review before the Court of Appeals.19
The Court of Appeals in its Decision20 dated September 20,
2007, sustained CIAC's Award with certain modifications and
remanded the case to CIAC for the determination of the
number of days' extension that the Joint Venture is entitled to
and "the conversion rate in pesos of the awarded foreign
exchange payments stated."21
The Court of Appeals held that CIAC did not commit reversible
error in not awarding the price adjustment sought by the Joint
Venture under Presidential Decree No. 1594 since it was the
Asian Development Bank's Guidelines on procurement that was
applicable and not Presidential Decree No. 1594.22
The Court of Appeals also held that CIAC did not err in not
awarding actual damages in the form of interest at the rate of
24% since there was no provision for such interest payment in
the Contract. However, the Court of Appeals ruled that CIAC
was correct when it awarded legal interest.23
The Court of Appeals sustained the Joint Venture's argument on
the non-inclusion of a clear finding of its entitlement to time
extensions in the dispositive portion of the CIAC Award.24 The
Court of Appeals held that CIAC did not clearly dispose of the
matter:
Yet, a close scrutiny of the foregoing disposition shows that it
does not refer to the 133 days as per Variation Order No. 2
since CIAC made mention that the project is already terminated
and the entire volume under said Order "will not be consumed".
Whether or not the Claimant then deserves to get the full 133
calendar days is a matter that has to be clearly resolved. On
this, We hold that this Court is not prepared to engage into a
technical bout that only the expertise of the CIAC can pass
upon.25
On the other hand, the Court of Appeals did not accept DPWH's
argument that the case was already moot and academic.
According to the Court of Appeals, when the Joint Venture
requested for the mutual termination of the Contract on July 8,
2004, it did not waive its right to be paid the amounts due to
it.26
The Court of Appeals, however, raised a concern with regard to
CIAC's order for DPWH to pay its liabilities in US dollars. It held
that the parties have agreed that "all payments for works
carried out after 31 May 2003 and related price escalation
claims and retention releases in the contract will be in pesos
only, therefore no foreign exchange payments." This was never
contested by the Joint Venture; hence, it may be presumed that
it acquiesced to the request of the DPWH.27
The dispositive portion of the Court of Appeals Decision read:
WHEREFORE, premises considered, the assailed Decision is
hereby AFFIRMED with MODIFICATION to include the award
to the Claimant of time extensions per: 1) delay in payment at
One Hundred Eight (108) days, and 2) extension Twenty Nine
(29) days due to peace and order situation.
Re 1) the award of time extension per Variation Order No. 2-as
stated earlier elsewhere in the Decision, the CIAC must make a
vivid presentation of the number of calendar days the Claimant
is entitled to, and 2) the conversion rate in pesos of the
awarded foreign exchange payments states, supra, in the
assailed Decision, these matters are hereby REMANDED to the
CIAC for proper disposition. Accordingly, the rest of the
challenged Decision STANDS.
SO ORDERED.28 (Emphasis in the original)
Petitioner DPWH filed the present Petition for Review29 assailing
the Court of Appeals Decision. In a Resolution30 dated January.
28, 2008, this Court required respondent Joint Venture to file
its Comment.
On March 27, 2008, respondent filed its
comment/opposition.31 Petitioner thereafter filed its Reply32 on
September 3, 2008.
The issues for resolution in this case are:
First, whether or not the case has become moot and academic
due to the parties' mutual termination of the Construction
Contract;
Second, whether or not the case is premature due to Joint
Venture's non-compliance with the doctrine of exhaustion of
administrative remedies;
Third, whether or not the Joint Venture is entitled to the foreign
component of the Project in the amount of US$358,227.95;
Fourth, whether or not the Joint Venture is entitled to time
extensions due to Variation Order No. 2, peace and order
problems, and delay in payment;
Fifth, whether or not the Joint Venture is entitled to a price
adjustment due to the delay of the issuance of the Notice of the
Proceed;
Sixth, whether or not the Asian Development Bank Guidelines
on Procurement or Presidential Decree 1594 applies with regard
to once adjustments due to the delay of the issuance of the
Notice to Proceed;
Seventh, whether or not the Joint Venture is entitled to its
claim for equipment and financial losses due to peace and order
situation (additional costs);
Eighth, whether or not the Joint Venture is entitled to actual
damages and interest on its claims; and
Finally, whether or not the Joint Venture should be paid in local
currency or in U.S. dollars.
I
According to respondent Joint Venture, the Petition suffers from
a fatal defect in its certification against non-forum shopping.
The verification and certification against non-forum shopping
was signed only by petitioner's counsel, Atty. Mary Jean D.
Valderama, from the Office of the Solicitor General.33
This Court has long enforced the strict procedural requirement
of verification and certification against non-forum shopping.34 It
is settled that certification against forum shopping must be
executed by the party or principal and not by
counsel.35 In Anderson v. Ho,36 this Court explained that it is
the party who is in the best position to know whether he or she
has filed a case before any courts.37 It is clear in this case that
counsel for petitioner, Atty. Valderama, was not clothed with
authority to sign on petitioner's behalf.
In Resolution38 dated December 10, 2007, this Court noted
petitioner's Manifestation that after the petition was posted, the
verification page signed by DPWH Secretary Hermogenes E.
Ebdane was submitted to the Office of the Solicitor General. In
the same Resolution, this Court granted the Office of the
Solicitor General's motion to admit the attached verification and
to substitute and attach it to the petition.
This Court ruled before that: "the lack of a certification against
forum shopping, unlike that of verification, is generally not
cured by its submission after the filing of the
petition."39 Nevertheless, exceptions40 exist, as in the case at
bar, and it is more prudent to resolve the case on its merits
than dismiss it on purely technical grounds.41
II
In the assailed Decision, the Court of Appeals held that the
mutual termination of the Contract by the parties did not render
the case moot and academic.42 Accordingly, when respondent
requested for the mutual termination of the Contract, it did not
waive its right to be paid the amounts due to it as shown in its
letter:
In view of the above considerations, we hereby respectfully
request for MUTUAL TERMINATION of our Contract. Our
availment of this remedy does not mean though that we are
waiving our rights (1) to be paid for any and all monetary
benefits due and owing to us under the contract such as but not
limited to payments for works already done, materials delivered
on site which are intended solely for the construction and
completion of the project, price escalation, etc., (2) and without
prejudice to our outstanding claims and entitlements that are
lawfully due to us.43 (Emphasis supplied)
Petitioner argues that the Court of Appeals erred in rendering
the assailed Decision, considering that the case is already moot
and academic. Petitioner insists that "the parties' mutual
termination of their contract prior to the adjudication of this
case by the CIAC on March 1, 2005, rendered the proceedings
before CIAC moot and academic."44
According to petitioner, the principle of unjust enrichment does
not apply in this case "because respondent has incurred
negative slippage/delay in carrying out their contractual
obligations due to reasons attributable to it. Moreover, the
parties' mutual termination of the contract rendered the
proceedings before the CIAC moot because there was no more
contract to be enforced."45
Petitioner's argument is untenable.
Indeed, the rule is that courts will not rule on moot
cases.46 However, the moot and academic principle is "not a
magical formula that can automatically dissuade the courts in
resolving a case."47 Exceptions exist that would not prevent a
court from taking cognizance of cases seemingly moot and
academic.48
In Carpio v. Court of Appeals,49 this Court held that a case
could not be deemed moot and academic when there remains
an unresolved justiciable controversy. In that case, this Court
affirmed the Court of Appeals' assailed resolutions, which
denied petitioner's prayer for dismissal based on the argument
that the Sheriff's execution pending appeal of the trial court's
decision rendered the case moot and academic. This Court held
that:
[I]t is obvious that there remains an unresolved justiciable
controversy in the appealed case for accion publiciana. In
particular, did respondent-spouses Oria really encroach on the
land of petitioner? If they did, does he have the right to recover
possession of the property? Furthermore, without preempting
the disposition of the case for accion publiciana pending before
the CA, we note that if respondents built structures on the
subject land, and if they were builders in good faith, they would
be entitled to appropriate rights under the Civil Code. This
Court merely points out that there are still issues that the CA
needs to resolve in the appealed case before it.
Moreover, there are also the questions of whether respondents
should be made to pay back monthly rentals for the alleged
encroachment; and whether the reward of attorney's fees,
which are also being questioned, was proper. The
pronouncements of the CA on these issues would certainly be of
practical value to the parties. After all, should it find that there
was no encroachment, for instance, respondents would be
entitled to substantial relief. In view of all these considerations,
it cannot be said that the main case has become moot and
academic.50 (Emphasis supplied.)
In this case, issues arising from the mutually terminated
Contract are not moot and academic. As the Court of Appeals
found, there are actual substantial reliefs that respondent is
entitled to. There is a practical use or value to decide on the
issues raised by the parties despite the mutual termination of
the Contract between them. These issues include the
determination of amounts payable to respondent by virtue of
the time extensions, respondent's entitlement to price
adjustments due to the delay of the issuance of the Notice to
Proceed, additional costs, actual damages, and interest on its
claims. The agreement to mutually terminate the Contract did
not wipe out petitioner's obligation to pay respondent on works
done before the Contract's termination on October 27, 2004.
III
According to petitioner, the filing of the claim before CIAC was
premature, since under CIAC rules, there must be an
exhaustion of administrative remedies first before government
contracts are brought to it for arbitration.51
Respondent, on the other hand, denies violating the rule on
exhaustion of administrative remedies. It claims that it sent at
least 17 demand letters to petitioner, four (4) of which were
sent to the DPWH Secretary directly.52
Petitioner's argument fails to convince.
The case is not premature. The pertinent provision on available
administrative remedies can be found in Sub-Clause 67.1 of the
Conditions of Contract:
Settlement of Disputes
Engineer's Decision 67.1 If a dispute of any kind whatsoever
arises between the Employer and the Contractor in connection
with, or arising out of, the Contract or the execution of the
Works, whether during the execution of the Works or after their
completion and whether before or after repudiation or other
termination of the Contract, including any dispute as to any
opinion, instruction, determination, certificate or valuation of
the Engineer, the matter in dispute shall, in the first place, be
referred in writing to the Engineer, with a copy to the other
party. Such reference shall state that it is made pursuant to
this Clause. No later than the eighty-fourth day after the day on
which he received such reference the Engineer shall give notice
of his decision to the Employer and the Contractor. Such
decision shall state that it is made pursuant to this Clause.
Unless the Contract has already been repudiated or terminated,
the Contractor shall, in every case, continue to proceed with
the Works with all due diligence and the Contractor and the
Employer shall give effect forthwith to every such decision of
the Engineer unless and until the same shall be revised, as
hereinafter provided, in an amicable settlement or an arbitral
award.
If either the Employer or the Contractor be dissatisfied with any
decision of the Engineer, or if the Engineer fails to give notice of
his decision on or before the eighty-fourth day after the day on
which he received the reference, then either the Employer or
the Contractor may, on or before the seventieth day after the
day on which he received notice of such decision, or on or
before the seventieth day after the day on which the said
period of 84 days expired, as the case may be, give notice to
the other party, with a copy for information to the Engineer, of
his intention to commence arbitration, as hereinafter provided,
as to the matter in dispute. Such notice shall establish the
entitlement of the party giving the same to commence
arbitration, as hereinafter provided, as to such dispute and,
subject to Sub-Clause 67.4, no arbitration in respect thereof
may be commenced unless such notice is given.
If the Engineer has given notice of his decision as to a matter in
dispute to the Employer and the Contractor and no notice of
intention to commence arbitration as to such dispute has been
given by either the Employer or the Contractor on or before the
seventieth day after the day on which the patties received
notice as to such decision from the Engineer, the said decision
shall become final and binding upon the Employer and the
Contractor.53 (Emphasis supplied)
Under the doctrine of exhaustion of administrative remedies,
the concerned administrative agency must be given the
opportunity to decide a matter within its jurisdiction before an
action is brought before the courts, otherwise, the action will be
declared premature.54
In this case, CIAC found and correctly ruled that respondent
had duly complied with the contractual obligation to exhaust
administrative remedies provided for under sub-clause 67.1 of
the Conditions of Contract before it brought the case before the
tribunal:
The Claimant further alleged that, despite of such knowledge,
no relief from the Secretary was forthcoming. It would
therefore be an exercise in futility if Claimant, after it had sent
respondent the seventeen (17) demand letters and despite the
unequivocal admission by Respondent's foreign consultant in
charge of the project of respondent's liability and failure to pay
(Annex C of the Complaint), will further be required to undergo
another series of presentation and exchange of documentation.
Moreover, Respondent has not indicated any practical benefit of
resending the demand to the Secretary nor any prejudice for
not doing so.
In this particular contract project, the procedural requirements
governing the Settlement of Disputes is specifically provided
under Clause 67 of the Conditions of the Contract which
Claimant has complied with pursuant to the first paragraph of
its letter dated September 10, 2004 (annex R) pertinent
provisions thereof is read, as follows:
"Pursuant to the provision of Clause 67.1 of the conditions of
contracts, we are formally referring to your good office several
office several [sic] points of disagreement between the position
you have taken and the position we have argued for. These
were already the subject of voluminous correspondence
between your good self and our company but no clear-cut
resolution of the issues raised was ever made."
In the last paragraph of the letter on September 10, 2004
(Annex "R"), Claimant has requested Respondent for a
definitive ruling on the disputes which were enumerated therein
so that Claimant could avail of the remedies given to it by the
aforesaid Clause 67.1. In spite of Claimant's request,
respondent DPWH did not act on the same.
The evidence also disclosed that as far as delayed payments
are concerned, Claimant made various verbal and written
demands for payment as evidenced by Exhibits "E" to "E-16" or
starting December 5, 2000. The demands were not heeded.55
A total of 17 demand letters were sent to petitioner to no avail.
To require respondent to wait for the DPWH Secretary's
response while respondent continued to suffer financially would
be to condone petitioner's avoidance of its obligations to
respondent. Hence, even assuming that subclause 67.1 was not
applicable, the case would still fall within the exceptions to the
doctrine of exhaustion of administrative remedies 56 since strict
application of the doctrine will be set aside when requiring it
would only be unreasonable under the circumstances.57
IV
Petitioner avers that the Court of Appeals gravely erred in
rendering the assailed decision because it completely ignored,
overlooked, or misappreciated facts of substance, which, if duly
considered, would materially affect the outcome of the case.
Petitioner argues that the present case is an exception to the
rule that only questions of law may be raised in a Petition for
Review under Rule 45 of the Rules of Court.58
Before delving into the issues raised, it is imperative to
understand CIAC's role as the arbitral tribunal at the center of
this dispute.
CIAC was created under Executive Order No. 1008, or the
"Construction Industry Arbitration Law." It was originally under
the administrative supervision of the Philippine Domestic
Construction Board59 which, in turn, was an implementing
agency of the Construction Industry Authority of the
Philippines.60 The Construction Industry Authority of the
Philippines is presently a part of the Department of Trade and
Industry as an attached agency.61
CIAC's specific purpose is the "early and expeditious settlement
of disputes"62 in the construction industry as a recognition of
the industry's role in "the furtherance of national development
goals."63
Section 4 of the Construction Industry Arbitration Law lays out
CIAC's jurisdiction:
Section 4. Jurisdiction. - The CIAC shall have original and
exclusive jurisdiction over disputes arising from, or connected
with, contracts entered into by parties involved in construction
in the Philippines, whether the dispute arises before or after the
completion of the contract, or after the abandonment or breach
thereof. These disputes may involve government or private
contracts. For the Board to acquire jurisdiction, the parties to a
dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to
violation of specifications for materials and workmanship;
violation of the terms of agreement; interpretation and/or
application of contractual time and delays; maintenance and
defects; payment, default of employer or contractor and
changes in contract cost.
Excluded from the coverage of this law are disputes arising
from employer-employee relationships which shall continue to
be covered by the Labor Code of the Philippines.
Republic Act No. 9184 or the "Government Procurement Reform
Act," recognized CIAC's competence in arbitrating over
contractual disputes within the construction industry:
Section 59. Arbitration, Any and all disputes arising from the
implementation of a contract covered by this Act shall be
submitted to arbitration in the Philippines according to the
provisions of Republic Act No. 876, otherwise known as the
"Arbitration Law": Provided, however, That, disputes that are
within the competence of the Construction Industry Arbitration
Commission to resolve shall be referred thereto. The process of
arbitration shall be incorporated as a provision in the contract
that will be executed pursuant to the provisions of this Act:
Provided, That by mutual agreement, the parties may agree in
writing to resort to alternative modes of dispute resolution.
(Emphasis supplied)
CIAC's authority to arbitrate construction disputes was then
incorporated into the general statutory framework on
alternative dispute resolution through Republic Act No. 9285,
the "Alternative Dispute Resolution Act of 2004". Section 34 of
Republic Act No. 9285 specifically referred to the Construction
Industry Arbitration Law, while Section 35 confirmed CIAC's
jurisdiction:
CHAPTER 6 - ARBITRATION OF CONSTRUCTION DISPUTES
Section 34. Arbitration of Construction Disputes: Governing
Law. - The arbitration of construction disputes shall be
governed by Executive Order No. 1008, otherwise known as the
Constitution Industry Arbitration Law.
Section 35. Coverage of the Law. - Construction disputes which
fall within the original and exclusive jurisdiction of the
Construction Industry Arbitration Commission (the
"Commission") shall include those between or among parties to,
or who are otherwise bound by, an arbitration agreement,
directly or by reference whether such parties are project owner,
contractor, subcontractor, quantity surveyor, bondsman or
issuer of an insurance policy in a construction project.
The Commission shall continue to exercise original and
exclusive jurisdiction over construction disputes although the
arbitration is "commercial" pursuant to Section 21 of this Act.
As a general rule, findings of fact of CIAC, a quasi-judicial
tribunal which has expertise on matters regarding the
construction industry, should be respected and upheld.
In National Housing Authority v. First United Constructors
Corp.,64 this Court held that CIAC's factual findings, as affirmed
by the Court of Appeals, will not be overturned except as to the
most compelling of reasons:
As this finding of fact by the CIAC was affirmed by the Court of
Appeals, and it being apparent that the CIAC arrived at said
finding after a thorough consideration of the evidence
presented by both parties, the same may no longer be reviewed
by this Court. The all too-familiar rule is that the Court will not,
in a petition for review on certiorari, entertain matters factual in
nature, save for the most compelling and cogent reasons, like
when such factual findings were drawn from a vacuum or
arbitrarily reached, or are grounded entirely on speculation or
conjectures, are conflicting or are premised on the supposed
evidence and contradicted by the evidence on record or when
the inference made is manifestly mistaken or absurd. This
conclusion is made more compelling by the fact that the CIAC is
a quasi-judicial body whose jurisdiction is confined to
construction disputes. Indeed, settled is the rule that findings of
fact of administrative agencies and quasi-judicial bodies, which
have acquired expertise because their jurisdiction is confined to
specific matters, are generally accorded not only respect, but
finality when affirmed by the Court of Appeals.65 (Emphasis
supplied)
In distinguishing between commercial arbitration, voluntary
arbitration under Article 219(14) of the Labor Code,66 and
construction arbitration, Freuhauf Electronics Philippines
Corporation v. Technology Electronics Assembly and
Management Pacific67 ruled that commercial arbitral tribunals
are purely ad hoc bodies operating through contractual consent,
hence, they are not quasi-judicial agencies. In contrast,
voluntary arbitration under the Labor Code and construction
arbitration derive their authority from statute in recognition of
the public interest inherent in their respective spheres.
Furthermore, voluntary arbitration under the Labor Code and
construction arbitration exist independently of the will of the
contracting parties:
Voluntary Arbitrators resolve labor disputes and grievances
arising from the interpretation of Collective Bargaining
Agreements. These disputes were specifically excluded from the
coverage of both the Arbitration Law and the ADR Law.
Unlike purely commercial relationships, the relationship
between capital and labor are heavily impressed with public
interest. Because of this, Voluntary Arbitrators authorized to
resolve labor disputes have been clothed with quasi-judicial
authority.
On the other hand, commercial relationships covered by our
commercial arbitration laws are purely private and contractual
in nature. Unlike labor relationships, they do not possess the
same compelling state interest that would justify state
interference into the autonomy of contracts. Hence, commercial
arbitration is a purely private system of adjudication facilitated
by private citizens instead of government instrumentalities
wielding quasi-judicial powers.
Moreover, judicial or quasi-judicial jurisdiction cannot be
conferred upon a tribunal by the parties alone. The Labor Code
itself confers subject-matter jurisdiction to Voluntary
Arbitrators.
Notably, the other arbitration body listed in Rule 43 - the
Construction Industry Arbitration Commission (CIAC) - is also a
government agency attached to the Department of Trade and
Industry. Its jurisdiction is likewise conferred by statute. By
contrast, the subject matter jurisdiction of commercial
arbitrators is stipulated by the.parties.68 (Emphasis supplied)
V
Petitioner argues that respondent is not entitled to
US$358,227.95, as the foreign component of the Contract,
because it is not yet legally demandable.69 In declaring that
petitioner should pay the amount as the foreign component of
the project, CIAC held that petitioner did not deny said amount
in its answer and that respondent's failure to renew its Letter of
Credit does not justify petitioner's act in withholding the dollar
component of the project.70
Petitioner maintains that the delay in payment was due to the
negative slippage incurred by respondent and its failure to
renew its Letter of Credit. Petitioner argues that under Clause
60.11 of the Conditions of the Contract, Part II, an irrevocable
standby letter of credit is required before petitioner can release
the advance payment.71 Petitioner states:
In this case, respondent does not deny that its LC No. OIDS-
00022-00027-0 issued by the United Coconut Planters
Bank (UCPB) expired on October 15, 2003. Petitioner
reminded respondent several times on the imperative need for
the renewal of its LC to avoid delay in the processing of its
billing. The purpose of said LC is to guarantee the return of the
advance payment by petitioner to respondent.72
Hence, petitioner claims that respondent cannot compel the
payment of the foreign component of the Contract because it
did not comply with the letter of credit requirement. Moreover,
petitioner asserts that "In directing petitioner to pay the said
award to respondent without the latter posting the said letter of
credit, the CIAC and the Court of Appeals effectively amended
the stipulation thereon in the contract which is legally
impermissible."73
For respondent's part, it argues that it was impossible to renew
the Letter of Credit. It explained that banks refused the renewal
of the Letter of Credit since the original contract period had
already expired and petitioner did not act on respondent's
requests for extension.74 In addition, evidence shows that "the
main reason of the non-payment of dollar component was due
to unresolved issues, the right of way acquisition problem
between ADB and the [government], wherein ADB was forced
to suspend the loan disbursement for the entire 6th Road
Improvement Project effective 01 June 2003 due to this
conflict."75 Nevertheless, respondent admitted that the mutual
termination of the Contract rendered the requirement of a
Letter of Credit for the release of the $358,227.95 moot and
academic.76
This Court affirms the findings of CIAC and the Court of Appeals
that respondent is entitled to the foreign component of the
Contract.
CIAC found that petitioner was not justified in withholding the
payment for the dollar component of the Contract.77 Further, it
found that respondent was justified and not at fault for not
reviewing the Letter of Credit. It held that:
The Arbitral Tribunal is persuaded that the main reason for the
nonpayment of the dollar component was due to the unresolved
issues (right of way acquisition) between the ADB and the
Government of the Philippines where the Loan Disbursement
was suspended by ADB for the 61 Road Improvement Project
effective 01 June 2003 . . . The foreign Consultant even
admonished Respondent DPWH and reiterated that it should
take prompt action to effect payment of outstanding monies
due, and nothing was ever mentioned of the failure to renew
the Letter of Credit. (paragraph 3.2 of affidavit by Ferdinand
Mariano)
Moreover, Claimant explained to the Respondent why the Letter
of credit could not be renewed in its letter of 01 and 15 March
2004 (Exh. "C-16" and "C-17"). It appears that one of the
bank's requirements for issuance of the Letter of Credit was the
approved time extension and the extension of the contract, but
Respondent refused to issue any document extending the
contract.
On the other hand, the Respondent's justification was only
based on its accounting requirement. It asserted that the LC
guaranteed the advance payment as well as the work
completion. It further stated that the LC was a requirement by
the funding bank (By Subair S. Diron, paragraph 3.1.1 of Joint
Affidavit by Heinz Reister, Diron and Pandapatan)78 (Emphasis
supplied)
In National Housing Authority v. First United Constructors
Corp.,79 this Court held that the respondent contractor was
entitled to the payment of its claims, as the non-posting of the
required Payment Guarantee Bond was due to the inaction of
petitioner National Housing Authority:
Petitioner's subsequent refusal to process and pay these claims
despite FUCC's willingness to submit a surety bond to secure
the balance of the advance payment still to be recouped by
NHA - as the parties had agreed upon which bond would be
submitted when the check payment for the claim is about to be
released, clearly constitutes a violation by NHA of FUCC's right
to be paid these acknowledged and recognized claims. Thus,
respondent had an accrued cause of action against petitioner
for these claims at the time it filed its Complaint, the
constitutive elements of which are clearly set forth
therein.80 (Emphasis supplied)
In the present case, the renewal of the Letter of Credit hinged
on the extension of the contract period. Despite notice by
respondent of the bank's requirement for the renewal of the
Letter of Credit, petitioner chose to ignore respondent's
requests for time extensions. Therefore, petitioner cannot shift
the blame to respondent and claim that the Letter of Credit was
a condition sine qua non for the payment of the dollar
component of the project.
VI
Petitioner also assails the findings of the Court of Appeals with
regard to the time extensions respondent is entitled to.
Petitioner argues that both the CIAC and the Court of Appeals
failed to consider the subsequent payments made to
respondent after the conclusion of the arbitration hearings.
Thus, the tribunal's finding that petitioner still owes respondent
US$358,227.95 is factually erroneous.
Petitioner claims that "respondent failed to prove that it is
entitled to the time extensions of: (1) 133 calendar days in
addition to the 144-calendar days previously agreed by the
parties and (2) 108-calendar days due to delayed payments."81
On the other hand, respondent argues that it is entitled to time
extensions in addition to the 144 calendar days granted to it
under Variation Order No. 2.82 Respondent claims it is entitled
to a total of 277 calendar days based on the approved revised
Project Evaluation Review Tracking Critical Path Method (PERT-
CPM) diagram and S-Curve,83 As explained by witness Engr.
Reyes, rock excavation requires special skills, equipment, and
explosives. These factors were not considered when the original
contract schedule was prepared.84
Respondent further claims that it is entitled to another time
extension due to the delay in payment. Respondent maintains
that it infused more than double the 10% credit line amounting
to P157,747,945.00.85 Respondent also claims that it had
already mobilized working and state-of-the-art equipment.86
The DPWH Bureau of Construction evaluated respondent's
request for time extension and recommended its approval to
the Secretary.87 However, the recommendation was withdrawn
"on the pretext that said DPWH guidelines for computation of
time extension due to delayed payments [were] revised and
modified."88
Respondent points out that petitioner, through Engr. Pierre
Castelli, had acknowledged that the delayed payment had
greatly affected respondent's cash flow.89
Respondent likewise asserts that it is entitled to a time
extension due to peace and order problems. Petitioner did not
object to respondent's entitlement to an extension due to the
peace and order situation. Hence, the only thing required is to
determine the number of calendar days' extension respondent
is entitled to based on the circumstances.90
Chief Resident Engineer Andre Drockur of BCEOM French
Engineering Consultant recommended a time extension of 29
calendar days due to the peace and order situation. While
respondent did not agree with the consultant's
recommendation, it still adopted such recommendation to
expedite the computation of time extension due to peace and
order problems.91
According to CIAC, respondent was entitled to time extensions
in addition to the 144-calendar day extension agreed upon by
the parties, as per Variation Order No. 2:
The Arbitral tribunal finds that the computation presented by
the Claimant based form the approved revised PERT/CPM and
S-Curve is acceptable and the 277 calendar days should have
been granted by the Respondent or an additional of 133
calendar days. However, the project is now terminated. The
actual accomplishment as per letter of [Chief Resident
Engineer] to DPWH dated September 18, 2003 shows that the
actual volume of accomplishment was only 2,732 m2 of
hardrock an 4,444 m3 of rippable rock. Thus, the entire volume
under Change Order #2 [or Variation Order No. 2] will not be
consumed as the work is no 80% comp1ete[.]92
The Court of Appeals affirmed that respondent was entitled to a
133-day time extension in addition to the 144 calendar days
under Variation Order No. 2.93 However, the Court of Appeals
noted that CIAC did not specify whether respondent was
entitled to the full 133 days' extension, considering that it
found that the entire volume in Variation Order No. 2 will not be
fully used up due to respondent's 80% accomplishment.94
CIAC also held that respondent was entitled to a time extension
of 108 calendar days due to petitioner's delayed
payments95 and another time extension of 29 calendar days
due to the peace and order situation in the project area.96
This Court sees no reason to deviate from the findings of both
CIAC and the Court of Appeals with regard to respondent's
entitlement to time extensions: 1) under Variation Order No. 2;
2) due to the delay in payment; and 3) due to the peace and
order situation, since these are supported by the evidence on
record.
To reiterate, findings of fact of administrative agencies and
quasi-judicial bodies are entitled to great respect and even
finality when affirmed by the appellate court,97 In this case, the
Court of Appeals found that respondent was entitled to the time
extensions as evaluated by CIAC, the agency tasked to resolve
issues regarding the construction industry. Both tribunal found
that respondent was entitled to the extensions due to
petitioners delayed payments, peace and order situation, and
Variation Order No. 2. These findings are clearly supported by
the facts on record.
However, in light of the mutual termination of the Contract, the
remand of the case to CIAC will serve no practical purpose and
is, therefore, unnecessary.
VII
According to respondent the delay in the issuance of the Notice
to Proceed entitles it to a price adjustment under Presidential
Decree No. 1594. Bidding was conducted in January 1998 and
respondent was declared the winning bidder. The Contract was
signed on April 29, 1999. However, the Notice to Proceed was
issued on May 5, 1999, or after a delay of more than 120 days
from the bidding date, which entitles the bidder to an
adjustment in the contract unit price under Presidential Decree
No. 1594.98
On the other hand, petitioner claims that respondent did not
question the findings of the Court of Appeals regarding price
adjustment and claim for actual damages. Hence, it should not
be allowed to assail the Court of Appeals' ruling on this issue
before this Court.99
Both CIAC and the Court of Appeals found that respondent was
not entitled to a price adjustment:
As to the first issue raised by the Claimant, this Court finds that
the CIAC committed no reversible error in not awarding the
price adjustment being sought by the Claimant under P.D.
1594, finding as flawed its claim based on the alleged DPWH's
delay in the issuance of the notice to proceed.
We quote with approval the pertinent ratiocination of the CIAC
on this point, thus:
....
However, the Claimant is not entitled to a price adjustment
under P.D. 1594 because it is the ADB Guideline[s] on
Procurement which should be followed, and not the provisions
on P.D. 1594. In fact the bid of the Contractor was awarded
despite its being above the approved Agency Estimates (AAE),
based on the ADB guidelines, and against the provisions of P.D.
1594 (paragraph 7.2 of Joint Affidavit by Heinz Reister, Diron
and Pandapatan).
The Arbitral Tribunal finds that the Guidelines of the Asian
Development Bank govern this subject Project. Moreover, P.D.
1594 honors the treaties and international or executive
agreements to which the Philippine Government is a signatory.
Loan agreements such as those entered into with international
funding institutions like ADB are considered to be within the
ambit of DOJ opinion No. 46, S. 1987 and are therefore exempt
from the application of P.D. No. 1594 as amended (Paragraph
7.1.1 of Joint Affidavit by Heinz Reister, Diron and Pandapatan).
....
If the Claimant's bid was awarded despite its being above the
approved Agency Estimates based on the ADB guidelines, and
against the provisions of P.D. 1594, We cannot see the have agreed upon, i.e., the Asian Development Bank
rationale on why the Claimant now refuses to abide by the ADB Guidelines, that should govern in case of issues arising from the
guidelines on procurement. After the claimant was benefited by contract. Respondent failed to proffer evidence on what the
the approved bid at the inception of the project, We hold that it Asian Development Bank Guidelines provide, if any, in the
is unjustified for the Claimant not to be bound by the ADB event of a delay in the issuance of a Notice to Proceed.
guidelines under the pretext that it fails to get the supposed
price adjustment.100 (Emphasis supplied) VIII
While respondent did not appeal the Court of Appeals' ruling
Petitioner argues that "CIAC and the Court of Appeals grossly
with regard to its entitlement to a price adjustment under
erred in awarding P5,080,000.00, plus legal interest of
Presidential Decree No. 1594, for purposes of clarity and to
P464,298.08 for the alleged equipment and financial losses;
finally settle the matter, this Court affirms the findings of CIAC
and additional cost resulting from the alleged bombing incident
and the Court of Appeals.
of P6,267,410.48, plus legal interest of P320,410.63."106
This Court has held that a foreign loan agreement with
Furthermore, petitioner asserts that "the award to respondent
international financial institutions, such as a multilateral lending
of additional costs in the contract price under Clause 69.4 of
agency organized by governments like the Asian Development
the General Conditions of the Contract in the amount of
Bank, is an executive or international agreement contemplated
P20,311,072.66, plus legal interest of P1,038,368.78 is
by our government procurement system.101
improper."107 Petitioner maintains that the award to respondent
of additional costs in the contract price under Clause 69.4 of
In Abaya v. Ebdane, Jr.,102 this Court upheld the applicability of
the General Conditions of Contract was baseless, since the
the Japan Bank for International Cooperation's Procurement
Engineer had not yet consulted with the parties to determine
Guidelines to the implementation of the projects to be
the amount of additional costs.108
undertaken pursuant to the loan agreement between the
Republic of the Philippines and Japan Bank for International
In contrast, respondent claims that it is entitled to equipment
Cooperation.103
and financial losses due to the peace and order situation.109
While the Implementing Rules and Regulations104 of Presidential
Petitioner's arguments are untenable.
Decree No. 1594 provide the formula for price adjustment in
case of delay in the issuance of a notice to proceed, the law
It has been sufficiently established that a peace and order
does not proscribe parties from making certain contractual
problem arose at the project site:
stipulations. In this case, the Construction Contract is clear that
The Arbitral Tribunal was persuaded by the fact that six (6)
in case of price adjustments, Clause 70 of the Conditions of
named persons and four (4) John Does were accused of
Contract will apply:
Destructive Arson in the Municipal Circuit Trial Court of
3. That computation and payment of contract prices adjustment
Dumalinao Zamboanga del Sur for feloniously setting on fire
will be applied in accordance with Clause 70 of the Conditions of
simultaneously one (1) unit of Kumatsu Payloader amounting to
Contract;105
Php3,000,000.00 and one (1) unit Isuzu 10 Wheeler Dump
It is unclear from the records, however, whether the Asian Truck amounting to Php800,000.00, both belonging to the
Development Bank Guidelines was substantially the same as Claimant. The accused are believed NP's with motives of hatred
Clause 70 of the Conditions of Contract. Nevertheless, as in due to vain collection of revolutionary taxes from Claimant
the Abaya case, it should be the guidelines that the parties (Exh. "C-5").

The burning of the Payloader and Dump Truck, subject of the
criminal case (Exh. "C-5'') was corroborated in its entirety by
the testimony of Pedrito G. Palancos, operator of the burnt
Payloader in his affidavit, paragraph 6.6 to 6.9, part of the
records of this case.
The Chief of Police of Kumalarang, Zamboanga del Sur
submitted a Special Written Report to the PNP Provincial
Director, regarding the bombing at Claimant's hatching plant in
Boyugan, Kumalarang, del Sur on 11 March 2003.
The bombing incident revealed that it resulted in conflagration
causing damage to the Generator Set, Caterpillar Brand KVA
180-180 and the Conveyor, with total estimated cost of
Php7,300,000.00.
Intelligence Action Agent gathered information that MILF
Members, all armed with undetermined numbers, but believed
to be under Commander Susob Edris, were sighted by the
barangay officials and the neighbor of the Plant location, when
the incident occurred. (Exh. "C-9").
The two incidents described above, one costing approximately
Php3,800,000.00 and the other costing approximately
Php7,300,000.00, will have a total of approximately
Php11,100,000.00 or Php11,347,410.48 to be exact. This is the
amount that Claimant is entitled due to the peace and order
situation at the Project site.110
This Court finds that CIAC and the Court of Appeals did not err
when they found that respondent was entitled to its claim for
equipment and financial losses. The situation was an assumed
risk of petitioner as employer and is, thus, compensable under
Clause 20.4 of the Conditions of Contract, which lists the
Employer's risks as:
(a) war, hostilities (whether war be declared or not), invasion,
act of foreign enemies,
(b) rebellion, revolution, insurrection, or military or usurped
power, or civil war,
(c) ionising radiations, or contamination by radio-activity from
any nuclear fuel, or from any nuclear waste from the
combustion of nuclear fuel, radio active toxic explosive, or
other hazardous properties of any explosive nuclear assembly
or nuclear component thereof,
(d) pressure waves caused by aircraft or other aerial devices
travelling at sonic or supersonic speeds,
(e) riot, commotion or disorder, unless solely restricted to
employees of the Contractor or of his Subcontractors and
arising from the conduct of the Works,
(f) loss or damage due to the use or occupation by the
Employer of any Section or part of the Permanent Works,
except as may be provided for in the Contract,
(g) loss or damage to the extent that it is due to the design of
the Works, other any part of the design provided by the
Contractor or for which the Contractor is responsible,
(h) any operation of the forces of nature against which an
experienced contractor could not reasonably have been
expected to take precautions.111 (Emphasis supplied)
It is clear from the above provision that the assumed risks of
the employer under Clause 20.4 of the Conditions of Contract
include rebellion, revolution, insurrection, or military or usurped
power, or civil war.
Petitioner further insists that respondent is not yet entitled to
the claim because there is no determination by the Engineer of
the costs incurred, as required under Clause 69.4 of the
Conditions of Contract.112
In its Answer before CIAC, petitioner denied respondent's
claims for additional costs under Clause 69.4. Petitioner stated
that its denial will be explained more specifically in its
Affirmative Defenses:
6. DENIES the allegations in paragraphs 12, 13, 14, 15 and 16
of the complaint for being preposterous, misleading and
patently without legal and factual basis, the truth being that as
per the Conditions of Contract, complainant is not entitled to
the payment of additional cost on slowdown or suspension of
work on the project, reimbursement for alleged equipment
losses and additional time extensions to complete the
project specifically stated/discussed in the Affirmative Defenses
hereof.113 (Emphasis supplied)
However, a perusal of petitioner's Affirmative Defenses reveals
that no such qualification was made.
Under Rule 8, Section 10 of the Rules of Court, the "defendant
must specify each material allegation of fact the truth of which
he does not admit and, whenever practicable, shall set forth the
substance of the matters upon which he relies to support his
denial." There are three (3) modes of specific denial provided
for under the Rules:
1) by specifying each material allegation of the fact in the
complaint, the truth of which the defendant does not admit,
and whenever practicable, setting forth the substance of the
matters which he will rely upon to support his denial; (2) by
specifying so much of an averment in the complaint as is true
and material and denying only the remainder; (3) by stating
that the defendant is without knowledge or information
sufficient to form a belief as to the truth of a material averment
in the complaint, which has the effect of a denial.114
In Aquintey v. Spouses Tibong,115 this Court held that using
"specifically" in a general denial does not automatically convert
that general denial to a specific one. The denial in the answer
must be definite as to what is admitted and what is denied,
such that the adverse party will not have to resort to guesswork
over "what is admitted, what is denied, and what is covered by
denials of knowledge as sufficient to form a belief."116
The petitioner only tackled the issue on the claim for additional
costs in the Joint Affidavit of petitioner's witnesses Heinz
Reister, Subair S. Diron, and Abdulfatak A. Pandapatan:
Issue No. 9. Is claimant entitled to additional cost under Clause
69.4 of the General Conditions of Contract? If so, how much?
Subair S. Diron and Abdulfatak A. Pandapatan testifying:
9.1 Q: Is claimant entitled to additional cost/charges under
Clause 69.4 of the General Conditions of Contract?
A: Not yet, the claimant should establish that it is
allowed.117
This Court finds that petitioner failed to specifically deny the
claims of respondent and had, therefore, admitted such claims.
This Court agrees that respondent was able to establish its
claims before the CIAC. This Court notes that the project was in
Mindanao, and mobilization of workers and equipment is not an
easy feat and not without cost. Respondent believed that the
suspension would only be temporary and work could resume at
any time once petitioner settled its obligation. Petitioner must
compensate respondent for the costs it incurred without any
fault on respondent's part.
IX
During the arbitration hearing before the CIAC, respondent
itself admitted that there was no provision in the Conditions of
Contract for interest at the rate of 24% per annum on delayed
payments.118
Respondent tries to excuse the lack of contractual stipulations
by claiming that the amount of 24% interest is payment for
actual damages and not stipulated interest.119
Respondent claims that petitioner is liable for the amounts
respondent owes its creditors in the total amounts of
P10,297,090.42 and USD$118,094.93. In addition, respondent
avers that petitioner should pay it 6% interest per annum
computed from the receipt of the first demand letter for
payment sent by respondent, as a result of delay in the
payment for work accomplished.120
The Court is not convinced.
It is fundamental that a contract is the law between the parties
and, absent any showing that its provisions are wholly or in
part contrary to law, morals, good customs, public order, or
public policy, it shall be enforced to the letter by the courts.121
Respondent was not able to establish the basis of its claim that
it is entitled to an award of 24% interest. Moreover, as found
by the Court of Appeals and CIAC, the parties had agreed to
delete the provision on interest on delayed payments, since the
project was funded by the Asian Development Bank.122
There is also no basis to award respondent 24% interest as
actual damages for the additional expenses it incurred due to
petitioner's delayed payments.
Before actual damages may be awarded, it is imperative that
the claimant proves its claims first. The issue on the amount of
actual or compensatory damages is a question of fact,123 and
except as provided by law or by stipulation, one is entitled to
adequate compensation only for pecuniary loss duly proven. 124
In this case, respondent has not sufficiently shown how
awarding it 24% interest per annum on delayed payments
corresponds to the actual damages it allegedly suffered.
Respondent failed to show a causal relation between the alleged
losses and the injury it suffered from petitioner's actions.
X be clarified by no less than the CIAC itself.127 (Emphasis supplied)
Respondent claims that it should be paid in U.S. dollars as
specified in the Contract.125 It argues that the present case is
an exception to the general rule that obligations should be paid
in Philippine currency.126
The Court of Appeals held that the parties subsequently agreed
that payments made after March 31, 2003 shall be in pesos
only:
However, one aspect in the CIAC decision is shrouded with
cloud. This concerns CIAC's order to DPWH to pay its alleged
liability to the Claimant in US dollars. It is worthy to note that
aside from the agreement of the parties - particularly in
paragraph 5 of the contract, supra, to fix the exchange rate at
P34.9 for every US$1.00, the Claimant itself has acknowledged
in its request that it was advised by the DPWH per its letter
dated 13 August 2003 that all payments for works earned out
after 31 March 2003 and related price escalation claims and
retention releases in the contract will be in pesos only,
therefore no foreign exchange payments. This fact was never
contested by the Claimant thereby creating a presumption that
it has acquiesced to the request of the DPWH. Thus, We cannot
see Our way through on why the CIAC has still to make a ruling
on the Interest Computation of Delayed Payment at 6% Per
Annum at US$45,206.14 as well as the Foreign Component of
US$358,227.95 plus legal interest at US$18.313.79 citing the
exemption of transactions where the funds involved are the
proceeds of loans or investments made through bona fide
intermediaries or agents, by foreign government and banking
institutions such as the Asian Development Bank (ADB) from
the coverage of Republic Act 529 otherwise known a[s] "An Act
to Assure Uniform Value to Philippine Coin and Currency".
Worse, there was no mention about the subsequent notice by
the DPWH to the Claimant, supra about their subseq ent
understanding on "no foreign exchange payments". This is
indeed one dubious area that nt, eds to he darified by no less
than the CIAC itself.e DPWH to the Claimant, supra about their subsequent
understanding on "no foreign exchange payments". This is indeed one dubious area that needs to
Again, considering that respondent did not appeal the Court of
Appeals decision, the appellate court's ruling on this issue is
deemed final as to respondent, and there is no need to remand
this issue to the CIAC. Issues not raised on appeal are already
final and cannot be disturbed.128
XI
CIAC imposed legal interest in its Award as follows:
In view of the foregoing, the Claimant is entitled to payment of
legal interest of 6% per annum from the receipt of its
extrajudicial demand.
Thus, under Issue No. 3 where the Claimant was awarded
US$358,227.95, the Claimant is entitled to legal interest of 6%
per annum commencing from 2 March 2004 up to this date (or
311 days) in the amount of US$18,313.79.
Under Issue No. 8 where the Claimant was awarded
P11,347,410.48, the Claimant is entitled to legal interest of 6%
per annum for the Equipment and Plant of P5,080,000.00
commencing from 1 July 2003 (or 556 days) in, the amount of
P464,298.08 and for the resulting Additional Expenses of
P6,267,410.48 commencing from 2 March 2004 (or 311 days)
in the amount of P320,410.63.
Under Issue No. 9 where the Claimant was awarded
P20,311,072.66, the Claimant is entitled to legal interest of 6%
per annum for Additional Cost under 69.4 of the Conditions of
Contract commencing from 2 March 2004 (or 311 days) in the
amount of P1,038,368.78.
Under Issue No. 10 with respect to the delayed payment of
billings for various amounts and on various dates, the Claimant
is entitled to legal interest of 6% per annum as detailed in
Attachment 1, in the amount of US$45,206.14 and
P2,175,516.63.
However, pursuant to the Eastern Shipping Lines vs. Court of
Appeals, 234 SCRA 78 (1994), a monetary award shall earn
interest at the rate of 12% per annum from the date when the
award becomes final and executory until its satisfaction.129
On May 16, 2013, the Monetary Board of the Bangko Sentral ng
Pilipinas issued Resolution No. 796, which revised the interest
rate to be imposed on the loan or forbearance of any money,
goods, or credits. This was implemented in Bangko Sentral ng
Pilipinas Circular No.799130 Series of 2013, which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May
2013, approved the following revisions governing the rate of
interest in the absence of stipulation in loan contracts, thereby
amending Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of
any money, goods or credits and the rate allowed in judgments,
in the absence of an express contract as to such rate of
interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the
Manual of Regulations for Banks and Sections 4305Q.1,
43058.3 and 4303P.1 of the Manual of Regulations for Non-
Bank Financial Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Nacar v. Gallery Frames131 then laid down the guidelines for the
imposition of legal interest:
To recapitulate and for future guidance, the guidelines laid
down in the case of Eastern Shipping Lines are accordingly
modified to embody BSP MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law,
contracts, quasi-contracts, delicts or quasi-delicts is breached,
the contravenor can be held liable for damages. The provisions
under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists
in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be
that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn
legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate
of interest shall be 6% per annum to be
computed from default, i.e., from judicial or
extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest
on the amount of damages awarded may be
 imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages,
except when or until the demand can be
established with reasonable certainty.
Accordingly, where the demand is established
with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially
or extrajudicially (Art. 1169, Civil Code), but
when such certainty cannot be so reasonably
established at the time the demand is made, the
interest shall begin to run only from the date the
judgment of the court is made (at which time the
quantification of damages may be deemed to
have been reasonably ascertained). The actual
base for the computation of legal interest shall, in
any case, be on the amount finally adjudged.
computed by the CIAC, should earn legal interest at the rate of
12% per annum until June 30, 2013, after which, it shall earn
legal interest at the rate of 6% per annum until full satisfaction.
The other issues raised by the parties were no longer discussed
due to the mutual termination of the Contract by parties, which
rendered them moot and academic.
WHEREFORE, the Petition is DENIED. The Court of Appeals
Decision dated September 20, 2007 in CA-G.R. SP Nos. 88953
and 88911 is AFFIRMED with MODIFICATION as follows: (1)
that the order remanding the case to the Construction Industry
Arbitration Commission for proper disposition is REVERSED for
being moot and academic; and (2) that the legal interest rate is
pegged at twelve percent (12%) per annum until June 30,
2013, and then at six percent (6%) per annum until full
satisfaction.

3. When the judgment of the court awarding a sum

of money becomes final and executory, the rate
of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be
6% per annum from such finality until its
satisfaction, this interim period being deemed to
be by then an equivalent to a forbearance of
credit.

And, in addition to the above, judgments that have become

final and executory prior to July 1, 2013, shall not be disturbed
and shall continue to be implemented applying the rate of
interest fixed therein.132
Before Nacar and Bangko Sentral ng Pilipinas Monetary Board
Resolution No. 796 dated May 16, 2013, the rate of legal
interest was pegged at 12% per annurn from finality of
judgment until its satisfaction, "this interim period being
deemed to be by then an equivalent to a forbearance of
credit."133

With this Court's pronouncement in Nacar, the rate of interest

imposed should be modified. The monetary awards, as

G.R. No. 173137, January 11, 2016
BASES CONVERSION DEVELOPMENT
AUTHORITY, Petitioner, v. DMCI PROJECT DEVELOPERS,
INC., Respondent.
G.R. NO. 173170
NORTH LUZON RAILWAYS
CORPORATION, Petitioner, v. DMCI PROJECT DEVELOPERS,
INC. Respondent.
Remedial Law; Civil Procedure; Appeals; Petition for Review on
Certiorari; Rule 45 is applicable when the issues raised before
the Supreme Court (SC) involved purely questions of law.—At
the outset, we must state that BCDA and Northrail invoked the
correct remedy. Rule 45 is applicable when the issues raised
before this court involved purely questions of law. In Villamor,
Jr. v. Umale, 736 SCRA 325 (2014): [t]here is a question of law
“when there is doubt or controversy as to what the law is on a
certain [set] of facts.” The test is “whether the appellate court
can determine the issue raised without reviewing or evaluating
the evidence.” Meanwhile, there is a question of fact when
there is “doubt . . . as to the truth or falsehood of facts.” The
question must involve the examination of probative value of the
evidence presented.
Civil Law; Alternative Dispute Resolution; Arbitration; Like
many alternative dispute resolution processes, arbitration is a
product of the meeting of minds of parties submitting a
predefined set of disputes.—Arbitration is a mode of settling
disputes between parties. Like many alternative dispute
resolution processes, it is a product of the meeting of minds of
parties submitting a predefined set of disputes. They agree
among themselves to a process of dispute resolution that
avoids extended litigation. The state adopts a policy in favor of
arbitration. Republic Act No. 9285 expresses this policy: SEC. 2.
Declaration of Policy.—It is hereby declared the policy of the
State to actively promote party autonomy in the resolution of
disputes or the freedom of the parties to make their own
arrangements to resolve their disputes. Towards this end, the
State shall encourage and actively promote the use of
Alternative Dispute Resolution (ADR) as an important means to
achieve speedy and impartial justice and declog court
dockets. As such, the State shall provide means for the use of
ADR as an efficient tool and an alternative procedure for the
resolution of appropriate cases. Likewise, the State shall enlist
active private sector participation in the settlement of disputes
through ADR. This Act shall be without prejudice to the
adoption by the Supreme Court of any ADR system, such as
mediation, conciliation, arbitration, or any combination thereof
as a means of achieving speedy and efficient means of
resolving cases pending before all courts in the Philippines
which shall be governed by such rules as the Supreme Court
may approve from time to time.
Same; Contracts; At any time during the lifetime of an
agreement, circumstances may arise that may cause the
parties to change or add to the terms they previously agreed
upon. Thus, amendments or supplements to the agreement
may be executed by contracting parties to address the
circumstances or issues that arise while a contract subsists.—
There is no rule that a contract should be contained in a single
document. A whole contract may be contained in several
documents that are consistent with one other. Moreover, at any
time during the lifetime of an agreement, circumstances may
arise that may cause the parties to change or add to the terms
they previously agreed upon. Thus, amendments or
supplements to the agreement may be executed by contracting
parties to address the circumstances or issues that arise while a
contract subsists.
Same; Same; Amended Contracts; When an agreement is
amended, some provisions are changed. Certain parts or
provisions may be added, removed, or corrected. These
changes may cause effects that are inconsistent with the
wordings of the contract before the changes were applied.—
When an agreement is amended, some provisions are changed.
Certain parts or provisions may be added, removed, or
corrected. These changes may cause effects that are
inconsistent with the wordings of the contract before the
changes were applied. In that case, the old provisions shall be
deemed to have lost their force and effect, while the changes
shall be deemed to have taken effect. Provisions that are not
affected by the changes usually remain effective.
Same; Same; Supplemented Contracts; When a contract is
supplemented, new provisions that are not inconsistent with the
old provisions are added.—When a contract is supplemented,
new provisions that are not inconsistent with the old provisions
are added. The nature, scope, and terms and conditions are
expanded. In that case, the old and the new provisions form
part of the contract.
Same; Same; “Assignment” and “Nomination,” Distinguished.—
Assignment involves the transfer of rights after the perfection
of a contract. Nomination pertains to the act of naming the
party with whom it has a relationship of trust or agency.
In Philippine Coconut Producers Federation, Inc. (COCOFED) v.
Republic, 663 SCRA 514 (2012), this court defined “nominee”
as follows: In its most common signification, the term
“nominee’’ refers to one who is designated to act for another
usually in a limited way; a person in whose name a stock or
bond certificate is registered but who is not the actual owner
thereof is considered a nominee.” Corpus Juris
Secundum describes a nominee as one: “. . . designated to act
for another as his representative in a rather limited sense. It
has no connotation, however, other than that of acting for
another, in representation of another or as the grantee of
another. In its commonly accepted meaning the term connoted
the delegation of authority to the nominee in a representative
or nominal capacity only, and does not connote the transfer or
assignment to the nominee of any property in, or ownership of,
the rights of the person nominating him.” (Citations omitted)
Contrary to BCDA and Northrail’s position, therefore, the
agreement’s prohibition against transfers, conveyance, and
assignment of rights without the consent of the other party
does not apply to nomination.
Same; Same; A beneficiary who communicated his or her
acceptance to the terms of the agreement before its revocation
may be compelled to abide by the terms of an agreement,
including the arbitration clause.—There is, therefore, merit to
DMCI-PDI’s argument that if the Civil Code gives third party
beneficiaries to a contract the right to demand the contract’s
fulfillment in its favor, the reverse should also be true. A
beneficiary who communicated his or her acceptance to the
terms of the agreement before its revocation may be compelled
to abide by the terms of an agreement, including the arbitration
clause. In this case, Northrail is deemed to have communicated
its acceptance of the terms of the agreements when it accepted
D.M. Consunji, Inc.’s funds.
Multiplicity of Suits; Judicial efficiency and economy require a
policy to avoid multiplicity of suits.—Judicial efficiency and
economy require a policy to avoid multiplicity of suits. As we
said in Lanuza v. BF Corporation, 737 SCRA 275 (2014):
Moreover, in Heirs of Augusto Salas, Jr., this court affirmed its
policy against multiplicity of suits and unnecessary delay. This
court said that “to split the proceeding into arbitration for some
parties and trial for other parties would result in multiplicity of
suits, duplicitous procedure and unnecessary delay.” This court
also intimated that the interest of justice would be best
observed if it adjudicated rights in a single proceeding. While
the facts of that case prompted this court to direct the trial
court to proceed to determine the issues of that case, it did not
prohibit courts from allowing the case to proceed to arbitration,
when circumstances warrant.
DECISION
LEONEN, J.:
An arbitration clause in a document of contract may extend to
subsequent documents of contract executed for the same
purpose. Nominees of a party to and beneficiaries of a contract
containing an arbitration clause may become parties to a
proceeding initiated based on that arbitration clause.
On June 10, 1995, Bases Conversion Development Authority
(BCDA) entered into a Joint Venture Agreement 1 with Philippine
National Railways (PNR) and other foreign
corporations.2chanroblesvirtuallawlibrary
Under the Joint Venture Agreement, the parties agreed to
construct a railroad system from Manila to Clark with possible
extensions to Subic Bay and La Union and later, possibly to
Ilocos Norte and Nueva Ecija.3 BCDA shall establish North Luzon
Railways Corporation (Northrail) for purposes of constructing,
operating, and managing the railroad system.4 The Joint
Venture Agreement contained the following provision:
ARTICLE XVI
ARBITRATION
16. If any dispute arise hereunder which cannot be
settled by mutual accord between the parties to
such dispute, then that dispute shall be referred
to arbitration. The arbitration shall be held in
whichever place the parties to the dispute decide
and failing mutual agreement as to a location
within twenty-one (21) days after the occurrence
of the dispute, shall be held in Metro Manila and
shall be conducted in accordance with the
Philippine Arbitration Law (Republic Act No. 876)
supplemented by the Rules of Conciliation and
Arbitration of the International Chamber of
Commerce. All award of such arbitration shall be
final and binding upon the parties to the dispute.5
BCDA organized and incorporated Northrail.6 Northrail was
registered with the Securities and Exchange Commission on
August 22, 1995.7chanroblesvirtuallawlibrary
BCDA invited investors to participate in the railroad project's
financing and implementation. Among those invited were D.M.
Consunji, Inc. and Metro Pacific
Corporation.8chanroblesvirtuallawlibrary
On February 8, 1996, the Joint Venture Agreement was
amended to include D.M. Consunji, Inc. and/or its
nominee as party.9 Under the amended Joint Venture
Agreement, D.M. Consunji, Inc. shall be an additional investor
of Northrail.10 It shall subscribe to 20% of the increase in
Northrail's authorized capital stock.11chanroblesvirtuallawlibrary
On February 8, 1996, BCDA and the other parties to the Joint
Venture Agreement, including D.M. Consunji, Inc. and/or its
nominee, entered into a Memorandum of
Agreement.12 Under this agreement, the parties agreed that
the initial seed capital of P600 million shall be infused to
Northrail.13 Of that amount, P200 million shall be D.M.
Consunji, Inc.'s share, which shall be converted to equity upon
NorthraiPs privatization.14 Later, D.M. Consunji, Inc.'s share
was increased to P300 million.15chanroblesvirtuallawlibrary
Upon BCDA and Northrail's request,16 DMCI Project Developers,
Inc. (DMCI-PDI) deposited P300 million into NorthraiPs account
with Land Bank of the Philippines.17 The deposit was made on
August 7, 199618 for its "future subscription of the Northrail
shares of stocks."19 In NorthraiPs 1998 financial statements
submitted to the Securities and Exchange Commission, this
amount was reflected as "Deposits For Future
Subscription."20 At that time, NorthraiPs application to increase
its authorized capital stock was still pending with the Securities
and Exchange Commission.21chanroblesvirtuallawlibrary
In letters22dated April 4, 1997, D.M. Consunji, Inc.
informed PNR and the other parties that DMCI-PDI shall
be its designated nominee for all the agreements it
entered and would enter with them in connection with
the railroad project. Pertinent portions of the letters provide:
[I]n order to formalize the inclusion of [DMCI Project
Developers, Inc.] as a party to the JVA and MOA, DMCI would
like to notify all the parties that it is designating PDI as its
nominee in both agreements and such other agreements that
may be signed by the parties in furtherance of or in connection
with the PROJECT. By this nomination, all the rights,
obligations, warranties and commitments of DMCI under the
JVA and MOA shall henceforth be assumed performed and
delivered by PDI.23 (Emphasis supplied)
Later, Northrail withdrew from the Securities and Exchange
Commission its application for increased authorized capital
stock.24 Moreover, according to DMCI-PDI, BCDA applied for
Official Development Assistance from Obuchi Fund of
Japan.25 This required Northrail to be a 100% government-
owned and controlled corporation.26chanroblesvirtuallawlibrary
On September 27, 2000, DMCI-PDI started demanding from
BCDA and Northrail the return of its P300 million
deposit.27 DMCI-PDI cited Northrail's failure to increase its
authorized capital stock as reason for the demand.28 BCDA and
Northrail refused to return the deposit29 for the following
reasons:
a) At the outset, DMCI PDI/FBDC's participation in Northrail was
as a joint venture partner and co-investor in the Manila Clark
Rapid Railway Project, and as such, was granted corresponding
representation in the Northrail Board.
b) DMCI PDI/FBDC was privy to all the deliberations of the
Northrail Board and participated in the decisions made and
policies adopted to pursue the project.
c) DMCI PDI/FBDC had full access to the financial statements of
Northrail and was regularly informed of the corporation's
financial condition.30chanrobleslaw
Upon BCDA's request, the Office of the Government Corporate
Counsel (OGCC) issued Opinion No. 116, Series of 2001 31 on
June 27, 2001. The OGCC stated that "since no increase in
capital stock was implemented, it is but proper to return the
investments of both FBDC and
DMCI[.]"32chanroblesvirtuallawlibrary
In a January 19, 2005 letter,33 DMCI-PDI reiterated the request
for the refund of its P300 million deposit for future Northrail
subscription. On March 18, 2005, BCDA denied34 DMCI-PDI's
request:
We regret to say that we are of the position that the P300
[million] contribution should not be returned to DMCI for the
following reasons:
a. the P300 million was in the nature of a
contribution, not deposits for future subscription;
and
b. DMCI, as a joint venture partner, must share in
profits and losses.35
On August 17, 2005,36 DMCI-PDI served a demand for
arbitration to BCDA and Northrail, citing the arbitration clause
in the June 10, 1995 Joint Venture Agreement.37 BCDA and
Northrail failed to respond.38chanroblesvirtuallawlibrary
DMCI-PDI filed before the Regional Trial Court of Makati 39 a
Petition to Compel Arbitration40 against BCDA and Northrail,
pursuant to the alleged arbitration clause in the Joint Venture
Agreement.41 DMCI-PDI prayed for "an order directing the
parties to proceed to arbitration in accordance with the terms
and conditions of the agreement."42chanroblesvirtuallawlibrary
BCDA filed a Motion to Dismiss43 on the ground that there was
no arbitration clause that DMCI-PDI could enforce since DMCI-
PDI was not a party to the Joint Venture Agreement containing
the arbitration clause.44 Northrail filed a separate Motion to
Dismiss45 on the ground that the court did not have jurisdiction
over it and that DMCI-PDI had no cause for arbitration against
it.46chanroblesvirtuallawlibrary
In the Decision47 dated February 9, 2006, the trial court denied
BCDA's and Northrail's Motions to Dismiss and granted DMCI-
PDI's Petition to Compel Arbitration. The dispositive portion of
the decision reads:
WHEREFORE, the petition is granted. The parties are ordered to
present their dispute to arbitration in accordance with Article
XVI of the Joint Agreement.
SO ORDERED.48chanrobleslaw
The trial court ruled that the arbitration clause in the Joint
Venture Agreement should cover all subsequent documents
including the amended Joint Venture Agreement and the
Memorandum of Agreement. The three (3) documents
constituted one contract for the formation and funding of
Northrail.49chanroblesvirtuallawlibrary
The trial court also ruled that even though DMCI-PDI was not a
signatory to the Joint Venture Agreement and the Memorandum
of Agreement, it was an assignee of D.M. Consunji, Inc.'s
rights. Therefore, it could invoke the arbitration clause in the
Joint Venture Agreement.50chanroblesvirtuallawlibrary
In an Order51 dated June 9, 2006, the trial court denied BCDA
and Northrail's Motion for Reconsideration of the February 9,
2006 trial court Decision.
BCDA filed a Rule 45 Petition before this court, assailing the
February 9, 2006 trial court Order granting DMCI-PDI's Petition
to Compel Arbitration and the June 9, 2006 Order denying
BCDA and Northrail's Motion for
Reconsideration.52chanroblesvirtuallawlibrary
The issue in this case is whether DMCI-PDI may compel BCDA
and Northrail to submit to arbitration.
BCDA argued that only the parties to an arbitration agreement
can be bound by that agreement.53 The arbitration clause that
DMCI-PDI sought to enforce was in the Joint Venture
Agreement, to which DMCI-PDI was not a party.54 There was
also no evidence that the right to compel arbitration under the
Joint Venture Agreement was assigned to DMCI-
PDI.55 Assuming that there was such an assignment, BCDA did
not consent to or recognize it.56 Therefore, the trial court's
conclusion that DMCI-PDI was D.M. Consunji, Inc.'s assignee
had no basis.57 In BCDA's view, DMCI-PDI had no right to
compel BCDA to submit to
arbitration.58chanroblesvirtuallawlibrary
BCDA also argued that the trial court decided the Motion to
Dismiss in violation of the parties' right to due process. The trial
court should have conducted a hearing so that the parties could
have presented their respective positions on the issue of
assignment. The trial court merely accepted DMCI-PDI's
allegations, without basis.59chanroblesvirtuallawlibrary
In a separate Petition for Review,60 Northrail argued that it
cannot be compelled to submit itself to arbitration because it
was not a party to the arbitration
agreement.61chanroblesvirtuallawlibrary
Northrail also argued that DMCI-PDI cannot initiate an action to
compel BCDA and Northrail to arbitration because DMCI-PDI
itself was not a party to the arbitration agreement. DMCI-PDI
was not D.M. Consunji, Inc.'s assignee because BCDA did not
consent to that assignment.62chanroblesvirtuallawlibrary
In its Comment63 on BCDA's Petition, DMCI-PDI argued that
Rule 45 was a wrong mode of appeal.64 The issues raised by
BCDA did not involve questions of
law.65chanroblesvirtuallawlibrary
DMCI-PDI pointed out that BCDA breached their agreement
when it failed to apply the P300 million deposit to Northrail
subscriptions. It turned out that such application was rendered
impossible by the alleged loan requirement that Northrail be
wholly owned by the government and by Northrail's withdrawal
from the Securities and Exchange Commission of its application
for an increase in authorized capital
stock.66chanroblesvirtuallawlibrary
DMCI-PDI also argued that it is an assignee and nominee of
D.M. Consunji, Inc., which is a party to the contracts.
Therefore, it is also a party to the arbitration
clause.67chanroblesvirtuallawlibrary
DMCI-PDI contended that the arbitration agreement extended
to all documents relating to the project.68 Even though the
agreement was expressed only in the Joint Venture Agreement,
its effect extends to the amendment to the Joint Venture
Agreement and Memorandum of
Agreement.69chanroblesvirtuallawlibrary
DMCI-PDI emphasized that BCDA had always recognized it as
D.M. Consunji's assignee in its correspondences with the OGCC
and with the President of DMCI, Mr. Isidro Consunji.70 In those
letters, BCDA described DMCI-PDI's participation as being the
"joint venture partner . . . and co-investor in the Manila Clark
Rapid Railway Project[.]"71 Hence, it is now estopped from
denying its personality in this case.72chanroblesvirtuallawlibrary
We rule for DMCI-PDI.chanRoblesvirtualLawlibrary
I dockets. As such, the State shall provide means for the use of
The state has a policy in favor of arbitration
At the outset, we must state that BCDA and Northrail invoked
the correct remedy. Rule 45 is applicable when the issues
raised before this court involved purely questions of law.
In Villamor v. Balmores:73chanroblesvirtuallawlibrary
[t]here is a question of law "when there is doubt or controversy
as to what the law is on a certain [set] of facts." The test is
"whether the appellate court can determine the issue raised
without reviewing or evaluating the evidence." Meanwhile,
there is a question of fact when there is "doubt ... as to the
truth or falsehood of facts." The question must involve the
examination of probative value of the evidence
presented.74chanroblesvirtuallawlibrary
BCDA and Northrail primarily ask us to construe the arbitration
clause in the Joint Venture Agreement. They assert that the
clause does not bind DMCI-PDI and Northrail. This issue is a
question of law. It does not require us to examine the probative
value of the evidence presented. The prayer is essentially for
this court to determine the scope of an arbitration clause.
Arbitration is a mode of settling disputes between
parties.75 Like many alternative dispute resolution processes, it
is a product of the meeting of minds of parties submitting a
pre-defined set of disputes. They agree among themselves to a
process of dispute resolution that avoids extended litigation.
The state adopts a policy in favor of arbitration. Republic Act
No. 928576 expresses this policy:
SEC. 2. Declaration of Policy. - It is hereby declared the policy
of the State to actively promote party autonomy in the
resolution of disputes or the freedom of the parties to make
their own arrangements to resolve their disputes. Towards this
end, the State shall encourage and actively promote the use of
Alternative Dispute Resolution (ADR) as an important means to
achieve speedy and impartial justice and declog court
ADR as an efficient tool and an alternative procedure for the
resolution of appropriate cases. Likewise, the State shall enlist
active private sector participation in the settlement of disputes
through ADR. This Act shall be without prejudice to the
adoption by the Supreme Court of any ADR system, such as
mediation, conciliation, arbitration, or any combination thereof
as a means of achieving speedy and efficient means of
resolving cases pending before all courts in the Philippines
which shall be governed by such rules as the Supreme Court
may approve from time to time. (Emphasis supplied)
Our policy in favor of party autonomy in resolving disputes has
been reflected in our laws as early as 1949 when our Civil Code
was approved.77 Republic Act No. 87678 later explicitly
recognized the validity and enforceability of parties' decision to
submit disputes and related issues to
arbitration.79chanroblesvirtuallawlibrary
Arbitration agreements are liberally construed in favor of
proceeding to arbitration.80 We adopt the interpretation that
would render effective an arbitration clause if the terms of the
agreement allow for such interpretation.81 In LM Power
Engineering Corporation v. Capitol Industrial Construction
Groups, Inc.,82 this court said:
Consistent with the above-mentioned policy of encouraging
alternative dispute resolution methods, courts should liberally
construe arbitration clauses. Provided such clause is susceptible
of an interpretation that covers the asserted dispute, an order
to arbitrate should be granted. Any doubt should be resolved in
favor of arbitration.83chanrobleslaw
This manner of interpreting arbitration clauses is made explicit
in Section 25 of Republic Act No. 9285:
SEC. 25. Interpretation of the Act.-In interpreting the Act, the
court shall have due regard to the policy of the law in favor of
arbitration. Where action is commenced by or against multiple
parties, one or more of whom are parties to an arbitration
agreement, the court shall refer to arbitration those parties who
are bound by the arbitration agreement although the civil action
may continue as to those who are not bound by such arbitration
agreement.
Hence, we resolve the issue of whether DMCI-PDI may compel
BCDA and Northrail to submit to arbitration proceedings in light
of the policy in favor of arbitration.
BCDA and Northrail assail DMCI-PDI's right to compel them to
submit to arbitration based on the assumption that DMCI-PDI
was not a party to the agreement containing the arbitration
clause.
Three documents — (a) Joint Venture Agreement, (b) amended
Joint Venture Agreement, and (c) Memorandum of Agreement
— represent the agreement between BCDA, Northrail, and D.M.
Consunji, Inc. Among the three documents, only the Joint
Venture Agreement contains the arbitration clause. DMCI-PDI
was allegedly not a party to the Joint Venture Agreement.
To determine the coverage of the arbitration clause, the
relation among the three documents and DMCI-PDI's
involvement in the execution of these documents must first be
understood.
The Joint Venture Agreement was executed by BCDA, PNR, and
some foreign corporations.84 The purpose of the Joint Venture
Agreement was for the construction of a railroad system from
Manila to Clark with a possible extension to Subic Bay and later
to San Fernando, La Union, Laoag, Ilocos Norte, and San Jose,
Nueva Ejica.85 Under the Joint Venture Agreement, BCDA
agreed to incorporate Northrail, which shall have an authorized
capital stock of F5.5 billion.86 The parties agreed that
BCDA/PNR shall have a 30% equity with Northrail.87 Other
Filipino partners shall have a total of 50% equity, while foreign
partners shall have at most 20% equity.88 Pertinent provisions
of the Joint Venture Agreement are as follows:
JOINT VENTURE AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Joint Venture Agreement (JVA) made and executed at
Makati, Metro Manila, this__ day of June 1995 by and between:
The BASES CONVERSION DEVELOPMENT AUTHORITY

. . . hereinafter referred to as BASECON;
The PHILIPPINE NATIONAL RAILWAYS ...;
The following corporations collectively referred to as
the Foreign Group:
a) CONSTRUCCIONES Y AUXILIAR DE
FERROCARRILES, S.A... .;
b) ENTRECANALES Y TAVORA, SA . . .;
c) CUBIERTAS MZOV, S.A. . . .;
d) COBRA, S.A....; and
e) Others who may later participate in the
JVA.chanRoblesvirtualLawlibrary
-and-
EUROMA DEVELOPMENT CORPORATION . . .
WITNESSETH:
....
WHEREAS, a project identified pursuant to the aforesaid policy
is the establishment of a Premier International Airport Complex
located at the former Clark Air Base as expressed in Executive
Order 174 s. 1994 in order to accommodate the expected
heavy flow of passenger and cargo traffic to and from the
Philippines, to start the development of the Northern Luzon Grid
and to accelerate the development of Central Luzon and finally
to decongest Metro Manila of its vehicular traffic;
WHEREAS, in order to implement and provide such a mass
transit and access system, the parties hereto agreed to
construct a double-trac[k] railway system from Manila to Clark
with a possible extension to Subic Bay and later to San
Fernando, La Union, as the second phase, and finally to Laoag,
Ilocos Norte and to San Jose, Nueva Ecija, as the third phase of
the project, hereinafter referred to as the PROJECT;
ARTICLE I
DEFINITION OF TERMS
....
1.5 "PROJECT" means the construction, operation and
management of a double-track railway system from Manila to
Clark with an extension to Subic Bay, and a possible extension
to San Fernando, La Union, as the second phase, and finally to
Laoag, Ilocos Norte and to San Jose, Nueva Ecija, as the third
phase of the PROJECT.
1.6 "North Luzon Railways Corporation
(NORTHRAIL)["] means the joint venture corporation to be
established in accordance with Article II hereof.
. . . .chanRoblesvirtualLawlibrary
ARTICLE II
THE NORTH LUZON RAILROAD CORPORATION
2.1 BASECON shall establish and incorporate in accordance
with the laws of the Republic of the Philippines a corporation to
be known as NORTH LUZON RAILWAYS CORPORATION
(NORTHRAIL) with an initial capitalization of one hundred
million pesos (PI 00,000,000.00).
2.2 NORTHRAIL shall eventually have an authorized capital
stock of FIVE BILLION FIVE HUNDRED MILLION PESOS (P 5.5
Billion) divided into 55,000,000 shares with par value of P 100
per share.
. . . .chanRoblesvirtualLawlibrary
ARTICLE III
PURPOSE OF NORTHRAIL

A. PRIMARY PURPOSE
3.1 To construct, operate and manage a railroad system to
serve Northern and Central Luzon; and to develop, construct,
manage, own, lease, sublease and operate establishments and
facilities of all kinds related to the railroad system;
. . . .chanRoblesvirtualLawlibrary
ARTICLE IV
PARTICIPATION/TRANSFER/ENCUMBRANCE OF SHARES
4.1 NORTHRAIL shall increase its authorized capital stock upon
the subscription thereon by the parties to this JVA in
accordance with the following equity proportion/participation:
Foreign Group up to 20%
Euroma/Filipino partners 50%
BASECON/PNR 30%
....
4.4 The shares owned by Filipino stockholders including
BASECON, PNR, EUROMA Development Corporation and
hereinafter to be owned by Filipino corporations shall not be
less than sixty percent (60%) at any given time.
. . . .chanRoblesvirtualLawlibrary
ARTICLE XVI
ARBITRATION
16. If any dispute arise hereunder which cannot be settled by
mutual accord between the parties to such dispute, then that
dispute shall be referred to arbitration. The arbitration shall be
held in whichever place the parties to the dispute decide and
failing mutual agreement as to a location within twenty-one
(21) days after the occurrence of the dispute, shall be held in
Metro Manila and shall be conducted in accordance with the
Philippine Arbitration Law (Republic Act No. 876) as
supplemented by the Rules of Conciliation and Arbitration of the
International Chamber of Commerce. All award of such
arbitration shall be final and binding upon the parties to the
dispute.
ARTICLE XVII
ASSIGNMENT
17.1 No party to this Agreement may assign, transfer or
convey this Agreement, create or incur any encumbrance of its
rights or any part of its rights and obligations hereunder or any
shares of stocks of NORTHRAIL to any person, firm or
corporation without the prior written consent of the other
parties or except as provided in the Articles of Incorporation
and By-Laws of NORTHRAIL and this Agreement.
17.2 This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors
and permitted assignees and designees or nominees whenever
possible.89chanrobleslaw
The Joint Venture Agreement was amended on February 8,
199690 to include D.M. Consunji, Inc. and/or its nominee as
party.91 The participations of the parties in Northrail were also
modified. Pertinent provisions of the amended Joint Venture
Agreement are reproduced as follows:
This Amendment to the Joint Venture Agreement dated 10th of
June 1995 (the Agreement) made and executed
at_____________ , Metro Manila, on this 8th day of February
1996 by and among:chanRoblesvirtualLawlibrary
BASES CONVERSION DEVELOPMENT AUTHORITY . . .
hereinafter referred to as BASECON;
with
PHILIPPINE NATIONAL RAILWAYS ...
and

The following corporations collectively referred to as
the FOREIGN GROUP:
CONSTRUCCIONES Y AUXILIAR DE FERROCARRILES, S.A..
. .;
ENTRECANALES Y TAVORA, S.A....; CUBIERTAS Y MZOV,
S.A. . . .;
COBRA INSTALACIONES Y SERVICIOS, S.A.. . .; and
Other investors who may later participate in the Joint
Venture;chanRoblesvirtualLawlibrary
and
Other local investors to be represented by EUROMA
DEVELOPMENT CORPORATION . . .
and
P.M. CONSUNJI. INC. and/or its nominee . . .
WITNESSETH THAT
WHEREAS, a Joint Venture Agreement (JVA) was executed on
the 10th of June 1995 between BASECON, PNR, FOREIGN
GROUP, and EUROMA;
....
NOW, THEREFORE, for and in consideration of the foregoing
premises and of the mutual covenant contained therein, THE
PARTIES HEREBY AGREE that the JVA should be amended as
follows:
1. In Article 1.3, D.M. CONSUNJI, INC.
shall be included as strategic partner,
being one of the Philippine registered
companies selected by BASECON, PNR and
the Lead Group on the basis of its
qualifications for the implementation of
the Project.
2. Article 4.1 should read as follows:
"NORTHRAIL shall increase its authorized
capital stock upon the subscription
thereon by the Parties to this JVA in
accordance with the following equity
proportion/participation:
SRG...........................................
... up to 10%
DMCI..........................................
........... 20%
BASECON/PNR.............................
up to 30%
Others........................................
............. 40%
3. In Article 4.4, the Filipino corporations
whose total shares in NORTHRAIL's capital
stock, which should not be less than sixty
percent (60%) at any given time, shall
include D.M. CONSUNJI,
INC.93 (Underscoring supplied)
On February 8, 1996, the same date of the execution of the
amended Joint Venture Agreement, the same parties executed
a Memorandum of Agreement94 "to set up the mechanics for
raising the seed capitalization needed by
NORTHRAIL[.]"95 Pertinent provisions of the Memorandum of
Agreement are reproduced as follows:
WITNESSETH THAT

WHEREAS, the Manila - Clark Rapid Railway System Project,
hereinafter referred to as the Project, was identified as one of
the major infrastructure projects to accelerate the development
of Central Luzon, particularly the former U.S. bases at Clark
and Subic;
....
WHEREAS, the North Luzon Railways Corporation
(NORTHRAIL) was organized and incorporated to implement the
development, construction, operation and maintenance of the
railway system in Northern Luzon;
WHEREAS, NORTHRAIL is wholly owned and controlled by
BASECON;
WHEREAS, the privatization of NORTHRAIL is necessary in
order to accelerate the implementation of the Project by
tapping the financial resources and expertise of the private
sector;
....
WHEREAS, the Parties of the Joint Venture Agreement (JVA) of
10 June 1995, namely BASECON, PNR, SPANISH RAILWAY
GROUP and EUROMA, agreed to invite other private investors to
help in the financing and implementation of the Project, and to
raise the required equity in order to accelerate the privatization
of NORTHRAIL;
WHEREAS, DMCI and other private investors. . . have
manifested their desire to be strategic partners in implementing
the Project;
WHEREAS, DMCI and other private investors have the financial
capability to implement the Project;
WHEREAS, Phase I of the Project covers the Manila - Clark
section of the North Luzon railway network as defined by the
JVA of 10 June 1995 . . .[;]
. . . .chanRoblesvirtualLawlibrary
ARTICLE I
PURPOSE
1.1 Purpose. This Agreement is entered into by the Parties in
order to set up the mechanics for raising the seed capitalization
needed by NORTHRAIL to accelerate the implementation of the
Project.
. . . .chanRoblesvirtualLawlibrary
ARTICLE II
TERMS OF AGREEMENT
....
2.1 The Parties agree to put up the necessary seed
capitalization needed by NORTHRAIL to fast-track the
implementation of the Rapid Rail Transit System Project
according to the following schedule:
BCDA/PNR...................... PHP 300 Million
DMCI..................................................... PHP 200 Million
SRG...................................................... PHP 100 Million
TOTAL................................................... PHP 600 Million
....
2.3 The amounts contributed by BCDA/PNR, DMCI, SRG, and
others are committed to be converted to equity when
NORTHRAIL is privatized.96chanroblesvirtuallawlibrary
There is no rule that a contract should be contained in a single
document.97 A whole contract may be contained in several
documents that are consistent with one
other.98chanroblesvirtuallawlibrary
Moreover, at any time during the lifetime of an agreement,
circumstances may arise that may cause the parties to change
or add to the terms they previously agreed upon. Thus,
amendments or supplements to the agreement may be
executed by contracting parties to address the circumstances or
issues that arise while a contract subsists.

When an agreement is amended, some provisions are changed.
Certain parts or provisions may be added, removed, or
corrected. These changes may cause effects that are
inconsistent with the wordings of the contract before the
changes were applied. In that case, the old provisions shall be
deemed to have lost their force and effect, while the changes
shall be deemed to have taken effect. Provisions that are not
affected by the changes usually remain effective.
When a contract is supplemented, new provisions that are not
inconsistent with the old provisions are added. The nature,
scope, and terms and conditions are expanded. In that case,
the old and the new provisions form part of the contract.
A reading of all the documents of agreement shows that they
were executed by the same parties. Initially, the Joint Venture
Agreement was executed only by BCD A, PNR, and the foreign
corporations. When the Joint Venture Agreement was amended
to include D.M. Consunji, Inc. and/or its nominee, D.M.
Consunji, Inc. and/or its nominee were deemed to have been
also a party to the original Joint Venture Agreement executed
by BCDA, PNR, and the foreign corporations. D.M. Consunji,
Inc. and/or its nominee became bound to the terms of both the
Joint Venture Agreement and its amendment.
Moreover, each document was executed to achieve the single
purpose of implementing the railroad project, such that
documents of agreement succeeding the original Joint Venture
Agreement merely amended or supplemented the provisions of
the original Joint Venture Agreement.
The first agreement — the Joint Venture Agreement — defined
the project, its purposes, the parties, the parties' equity
participation, and their responsibilities. The second agreement
— the amended Joint Venture Agreement —- only changed the
equity participation of the parties and included D.M. Consunji,
Inc. and/or its nominee as party to the railroad project. The
third agreement — the Memorandum of Agreement — raised
the seed capitalization of Northrail from P100 million as
indicated in the first agreement to P600 million, in order to
accelerate the implementation of the same project defined in
the first agreement.
The Memorandum of Agreement is an implementation of the
Joint Venture Agreement and the amended Joint Venture
Agreement. It could not exist without referring to the provisions
of the original and amended Joint Venture Agreements. It
assumes a prior knowledge of its terms. Thus, it referred to
"North Luzon railway network as defined by the JVA of 10 June
1995[.]"99chanroblesvirtuallawlibrary
In other words, each document of agreement represents a step
toward the implementation of the project, such that the three
agreements must be read together for a complete
understanding of the parties' whole agreement. The Joint
Venture Agreement, the amended Joint Venture Agreement,
and the Memorandum of Agreement should be treated as one
contract because they all form part of a whole agreement.
Hence, the arbitration clause in the Joint Venture Agreement
should not be interpreted as applicable only to the Joint Venture
Agreement's original parties. The succeeding agreements are
deemed part of or a continuation of the Joint Venture
Agreement. The arbitration clause should extend to all the
agreements and its parties since it is still consistent with all the
terms and conditions of the amendments and
supplements.chanRoblesvirtualLawlibrary
II
BCDA and Northrail argued that they did not consent to D.M.
Consunji, Inc.'s assignment of rights to DMCI-PDI. Therefore,
DMCI-PDI did not validly become a party to any of the
agreement. Section 17.1 of the Joint Venture Agreement
provides that rights under the agreement may not be assigned,
transferred, or conveyed without the consent of the other
party.100 Thus:
17.1 No party to this Agreement may assign, transfer or
convey this Agreement, create or incur any encumbrance of its
rights or any part of its rights and obligations hereunder or any
shares of stocks of NORTHRAIL to any person, firm or
corporation without the prior written consent of the other
parties or except as provided in the Articles of Incorporation
and By-Laws of NORTHRAIL and the
Agreement.101chanroblesvirtuallawlibrary
However, Section 17.2 of the Joint Venture Agreement provides
that the agreement shall be binding on nominees:
17.2 This Agreement shall inure to the benefit of and be
binding upon the parties . . . and their respective successors
and permitted assignees and designees or nominees whenever
applicable.102 (Emphasis supplied)
The principal parties to the agreement after its amendment
include D.M. Consunji, Inc. and/or its nominee:
AMENDMENT TO THE JOINT VENTURE AGREEMENT
This Amendment to the Joint Venture Agreement dated 10th of
June 1995 (the Agreement) made and executed at
_____________ , Metro Manila, on this 8th day of February
1996 by and among:
BASES CONVERSION DEVELOPMENT AUTHORITY . . .
with
PHILIPPINE NATIONAL RAILWAYS . .
.chanRoblesvirtualLawlibrary
and
....
D.M. CONSUNJI, INC. and/or its nominee, a domestic
corporation duly organized and created pursuant to the laws of
the Republic of the Philippines . . .103 (Emphasis
supplied)chanRoblesvirtualLawlibrary
MEMORANDUM OF AGREEMENT
This Agreement made and executed at Pasig, Metro Manila,
Philippines on this 8[th] day of February 1996 by and among:
BASES CONVERSION DEVELOPMENT AUTHORITY . .
.chanRoblesvirtualLawlibrary
with
PHILIPPINE NATIONAL
RAILWAYS ...chanRoblesvirtualLawlibrary
and
D.M. CONSUNJI, INC. and/or its nominee, a domestic
corporation duly organized and created pursuant to the laws of
the Republic of the Philippines . . .104 (Emphasis supplied)
Based on DMCI-PDFs letter to BCDA and Northrail dated April 4,
1997, D.M. Consunji, Inc. designated DMCI-PDI as its nominee
for the agreements it entered into in relation to the project:
[I]n order to formalize the inclusion of [DMCI Project
Developers, Inc.] as a party to the JVA and MOA, DMCI would
like to notify all the parties that it is designating PDI as its
nominee in both agreements and such other agreements that
may be signed by the parties in furtherance of or in connection
with the PROJECT. By this nomination, all the rights,
obligations, warranties and commitments of DMCI under the
JVA and MOA shall henceforth be assumed performed and
delivered by PDI.105 (Emphasis supplied)
Thus, lack of consent to the assignment is irrelevant because
there was no assignment or transfer of rights to DMCI-PDI.
DMCI-PDI was D.M. Consunji, Inc.'s nominee.
Section 17.2 of the Joint Venture Agreement clearly shows an
intent to treat assignment and nomination differently.
17.2 This Agreement shall inure to the benefit of and be
binding upon the parties . . . and their respective successors
and permitted assignees and designees or nominees whenever
applicable.106 (Emphasis supplied)
Assignment involves the transfer of rights after the perfection
of a contract. Nomination pertains to the act of naming the
party with whom it has a relationship of trust or agency.
In Philippine Coconut Producers Federation, Inc. (COCOFED) v.
Republic,107 this court defined "nominee" as follows:
In its most common signification, the term "nominee'' refers to
one who is designated to act for another usually in a limited
way; a person in whose name a stock or bond certificate is
registered but who is not the actual owner thereof is considered
a nominee." Corpus Juris Secundum describes a nominee as
one:
". . . designated to act for another as his representative in a
rather limited sense. It has no connotation, however, other
than that of acting for another, in representation of another or
as the grantee of another. In its commonly accepted meaning
the term connoted the delegation of authority to the nominee in
a representative or nominal capacity only, and does not
connote the transfer or assignment to the nominee of any
property in, or ownership of, the rights of the person
nominating him."108 (Citations omitted)
Contrary to BCDA and Northrail's position, therefore, the
agreement's prohibition against transfers, conveyance, and
assignment of rights without the consent of the other party
does not apply to nomination.
DMCI-PDI is a party to all the agreements, including the
arbitration agreement. It may, thus, invoke the arbitration
clause against all the parties.chanRoblesvirtualLawlibrary
III
Northrail, although not a signatory to the contracts, is also
bound by the arbitration agreement.
In Lanuza v. BF Corporation,109 we recognized that there are
instances when non-signatories to a contract may be compelled
to submit to arbitration.110 Among those instances is when a
non-signatory is allowed to invoke rights or obligations based
on the contract.111chanroblesvirtuallawlibrary
The subject of BCDA and D.M. Consunji, Inc.'s agreement was
the construction and operation of a railroad system. Northrail
was established pursuant to this agreement and its terms, and
for the same purpose, thus:
ARTICLE III
PURPOSE OF NORTHRAIL
A. PRIMARY PURPOSE
3.1. To construct, operate and manage a railroad system to
serve Northern and Central Luzon; and to develop, construct,
manage, own, lease, sublease and operate establishments and
facilities of all kinds related to the railroad
system[.]112chanrobleslaw
Northrail's capitalization and the composition of its subscribers
are also subject to the provisions of the original and amended
Joint Venture Agreements, and the subsequent Memorandum of
Agreement. It was pursuant to the terms of these agreements
that Northrail demanded from D.M. Consunji, Inc. the infusion
of its share in subscription.
Therefore, Northrail cannot deny understanding that its
existence, purpose, rights, and obligations are tied to the
agreements. When Northrail demanded for the amount of D.M.
Consunji, Inc.'s subscription based on the agreements and later
accepted the latter's funds, it proved that it was bound by the
agreements' terms. It is also deemed to have accepted the
term that such funds shall be used for its privatization. It
cannot choose to demand the enforcement of some of its
provisions if it is in its favor, and then later by whim, deny
being bound by its terms.
2006 Regional Trial Court Decision and the June 9, 2006
Regional Trial Court Order are AFFIRMED.
SO ORDERED.cralawlawlibrary

Hence, when BCDA and Northrail decided not to proceed with

Northrail's privatization and the transfer of subscriptions to
D.M. Consunji, Inc., any obligation to return its supposed
subscription attached not only to BCDA as party to the
agreement but primarily to Northrail as beneficiary that
impliedly accepted the terms of the agreement and received
D.M. Consunji, Inc.'s funds.

There is, therefore, merit to DMCI-PDI's argument that if the

Civil Code113 gives third party beneficiaries to a contract the
right to demand the contract's fulfillment in its favor, the
reverse should also be true.114 A beneficiary who communicated
his or her acceptance to the terms of the agreement before its
revocation may be compelled to abide by the terms of an
agreement, including the arbitration clause. In this case,
Northrail is deemed to have communicated its acceptance of
the terms of the agreements when it accepted D.M. Consunji,
Inc.'s funds.

Finally, judicial efficiency and economy require a policy to avoid

multiplicity of suits. As we said in Lanuza:

Moreover, in Heirs ofAugusto Salas, this court affirmed its

policy against multiplicity of suits and unnecessary delay. This
court said that "to split the proceeding into arbitration for some
parties and trial for other parties would "result in multiplicity of
suits, duplicitous procedure and unnecessary delay." This court
also intimated that the interest of justice would be best
observed if it adjudicated rights in a single proceeding. While
the facts of that case prompted this court to direct the trial
court to proceed to determine the issues of that case, it did not
prohibit courts from allowing the case to proceed to arbitration,
when circumstances warrant.115chanrobleslaw

WHEREFORE, the petitions are DENIED. The February 9,


G.R. No. 204197
FRUEHAUF ELECTRONICS PHILIPPINES
CORPORATION, Petitioner,
vs.
TECHNOLOGY ELECTRONICS ASSEMBLY AND
MANAGEMENT PACIFIC CORPORATION, Respondent.
Arbitration; Arbitration is an alternative mode of dispute
resolution outside of the regular court system. Although
adversarial in character, arbitration is technically not
litigation.—Arbitration is an alternative mode of dispute
resolution outside of the regular court system. Although
adversarial in character, arbitration is technically not litigation.
It is a voluntary process in which one or more arbitrators —
appointed according to the parties’ agreement or according to
the applicable rules of the Alternative Dispute Resolution (ADR)
Law — resolve a dispute by rendering an award.
Same; Resort to arbitration is voluntary. It requires consent
from both parties in the form of an arbitration clause that
preexisted the dispute or a subsequent submission
agreement.—Resort to arbitration is voluntary. It requires
consent from both parties in the form of an arbitration clause
that preexisted the dispute or a subsequent submission
agreement. This written arbitration agreement is an
independent and legally enforceable contract that must be
complied with in good faith. By entering into an arbitration
agreement, the parties agree to submit their dispute to an
arbitrator (or tribunal) of their own choosing and be bound by
the latter’s resolution.
Same; The contractual and consensual character of arbitration
means that the parties cannot implead a third party in the
proceedings even if the latter’s participation is necessary for a
complete settlement of the dispute.—However, this contractual
and consensual character means that the parties cannot
implead a third party in the proceedings even if the latter’s
participation is necessary for a complete settlement of the
dispute. The tribunal does not have the power to compel a
person to participate in the arbitration proceedings without that
person’s consent. It also has no authority to decide on issues
that the parties did not submit (or agree to submit) for its
resolution.
Same; As a purely private mode of dispute resolution,
arbitration proceedings, including the records, the evidence,
and the arbitral award, are confidential.—As a purely private
mode of dispute resolution, arbitration proceedings, including
the records, the evidence, and the arbitral award, are
confidential unlike court proceedings which are generally public.
This allows the parties to avoid negative publicity and protect
their privacy.
Same; The contractual nature of arbitral proceedings affords
the parties substantial autonomy over the proceedings. The
parties are free to agree on the procedure to be observed
during the proceedings.—The contractual nature of arbitral
proceedings affords the parties substantial autonomy over the
proceedings. The parties are free to agree on the procedure to
be observed during the proceedings. This lends considerable
flexibility to arbitration proceedings as compared to court
litigation governed by the Rules of Court.
Same; The parties likewise appoint the arbitrators based on
agreement. There are no other legal requirements as to the
competence or technical qualifications of an arbitrator.—The
parties likewise appoint the arbitrators based on agreement.
There are no other legal requirements as to the competence or
technical qualifications of an arbitrator. Their only legal
qualifications are: (1) being of legal age; (2) full enjoyment of
their civil rights; and (3) the ability to read and write. The
parties can tailor-fit the tribunal’s composition to the nature of
their dispute.
Same; As an alternative to court proceedings, arbitration is
meant to be an end, not the beginning, of litigation. Thus, the
arbitral award is final and binding on the parties by reason of
their contract — the arbitration agreement.—The errors of an
arbitral tribunal are not subject to correction by the judiciary.
As a private alternative to court proceedings, arbitration is
meant to be an end, not the beginning, of litigation. Thus, the
arbitral award is final and binding on the parties by reason of
their contract — the arbitration agreement.
Quasi-Judicial Power; Quasi-judicial or administrative
adjudicatory power is the power: (1) to hear and determine
questions of fact to which legislative policy is to apply, and (2)
to decide in accordance with the standards laid down by the law
itself in enforcing and administering the same law.—Quasi-
judicial or administrative adjudicatory power is the power: (1)
to hear and determine questions of fact to which legislative
policy is to apply, and (2) to decide in accordance with the
standards laid down by the law itself in enforcing and
administering the same law. Quasi-judicial power is only
exercised by administrative agencies — legal organs of the
government.
Arbitration; As a contractual and consensual body, the arbitral
tribunal does not have any inherent powers over the parties. It
has no power to issue coercive writs or compulsory
processes.—As a contractual and consensual body, the arbitral
tribunal does not have any inherent powers over the parties. It
has no power to issue coercive writs or compulsory processes.
Thus, there is a need to resort to the regular courts for interim
measures of protection and for the recognition or enforcement
of the arbitral award.
Same; The term “Voluntary Arbitrator” does not refer to an
ordinary “arbitrator” who voluntarily agreed to resolve a
dispute. It is a technical term with a specific definition under
the Labor Code.—The term “Voluntary Arbitrator” does not refer
to an ordinary “arbitrator” who voluntarily agreed to resolve a
dispute. It is a technical term with a specific definition under
the Labor Code.
Same; Commercial arbitration is a purely private system of
adjudication facilitated by private citizens instead of
government instrumentalities wielding quasi-judicial powers.—
Commercial relationships covered by our commercial arbitration
laws are purely private and contractual in nature. Unlike labor
relationships, they do not possess the same compelling state
interest that would justify state interference into the autonomy
of contracts. Hence, commercial arbitration is a purely private
system of adjudication facilitated by private citizens instead of
government instrumentalities wielding quasi-judicial powers.
Same; Arbitral tribunals and the Regional Trial Court (RTC) are
not coequal bodies because the RTC is authorized to confirm or
to vacate (but not reverse) arbitral awards.—Arbitral tribunals
and the RTC are not coequal bodies because the RTC is
authorized to confirm or to vacate (but not reverse) arbitral
awards. If we were to deem arbitrators as included in the scope
of Rule 43, we would effectively place it on equal footing with
the RTC and remove arbitral awards from the scope of RTC
review.
Same; Appeals; The right to an appeal is neither a natural right
nor an indispensable component of due process; it is a mere
statutory privilege that cannot be invoked in the absence of an
enabling statute. Neither the Arbitration Law nor the Alternative
Dispute Resolution (ADR) Law allows a losing party to appeal
from the arbitral award.—The right to an appeal is neither a
natural right nor an indispensable component of due process; it
is a mere statutory privilege that cannot be invoked in the
absence of an enabling statute. Neither the Arbitration Law nor
the ADR Law allows a losing party to appeal from the arbitral
award. The statutory absence of an appeal mechanism reflects
the State’s policy of upholding the autonomy of arbitration
proceedings and their corresponding arbitral awards.
Same; Same; Grounds for vacating a domestic arbitral
award.—The grounds for vacating a domestic arbitral award
under Section 24 of the Arbitration Law contemplate the
following scenarios: (a) when the award is procured by
corruption, fraud, or other undue means; or (b) there was
evident partiality or corruption in the arbitrators or any of
them; or (c) the arbitrators were guilty of misconduct that
materially prejudiced the rights of any party; or (d) the
arbitrators exceeded their powers, or so imperfectly executed
them, that a mutual, final and definite award upon the subject
matter submitted to them was not made.
Same; Same; The Regional Trial Court (RTC) may also set
aside the arbitral award based on Article 34 of the United
Nations Commission on International Trade Law (UNCITRAL)
Model Law. The RTC may also set aside the arbitral award
based on Article 34 of the UNCITRAL Model Law. These grounds
are reproduced in Chapter 4 of the Implementing Rules and
Regulations (IRR) of the 2004 ADR Act.
Same; Same; The grounds for vacating an arbitral award are
exclusive. These grounds for vacating an arbitral award are
exclusive. Under the ADR Law, courts are obliged to disregard
any other grounds invoked to set aside an award.
Same; Same; An arbitral award is not appealable via Rule 43
because: (1) there is no statutory basis for an appeal from the
final award of arbitrators; (2) arbitrators are not bodies; and
(3) the Special Alternative Dispute Resolution (ADR) Rules
specifically prohibit the filing of an appeal to question the
merits of an arbitral award.—As established earlier, an arbitral
award is not appealable via Rule 43 because: (1) there is no
statutory basis for an appeal from the final award of
arbitrators; (2) arbitrators are not quasi-judicial bodies; and (3)
the Special ADR Rules specifically prohibit the filing of an appeal
to question the merits of an arbitral award.
Same; Same; The Special Alternative Dispute Resolution (ADR)
Rules allow, the Regional Trial Court (RTC) to correct or modify
an arbitral award pursuant to Section 25 of the Arbitration
Law.—The Special ADR Rules allow the RTC to correct or modify
an arbitral award pursuant to Section 25 of the Arbitration Law.
However, this authority cannot be interpreted as jurisdiction to
review the merits of the award.
Same; Same; Because an arbitral tribunal is not a government
organ exercising judicial or quasi-judicial powers, it is removed
from the ambit of Rule 65.—A losing party is likewise precluded
from resorting to certiorari under Rule 65 of the Rules of Court.
Certiorari is a prerogative writ designed to correct errors of
jurisdiction committed by a judicial or quasi-judicial body.
Because an arbitral tribunal is not a government organ
exercising judicial or quasi-judicial powers, it is removed from
the ambit of Rule 65.
Same; Same; Constitutional Law; Not even the Court’s
expanded certiorari jurisdiction under the Constitution can
justify judicial intrusion into the merits of arbitral awards.—Not
even the Court’s expanded certiorari jurisdiction under the
Constitution can justify judicial intrusion into the merits of
arbitral awards. While the Constitution expanded the scope of
certiorari proceedings, this power remains limited to a review of
the acts of “any branch or instrumentality of the Government.”
As a purely private creature of contract, an arbitral tribunal
remains outside the scope of certiorari.
Same; Same; The only remedy against a final domestic arbitral
award is to file petition to vacate or to modify/correct the award
not later than thirty (30) days from receipt of the award.—In
sum, the only remedy against a final domestic arbitral award is
to file petition to vacate or to modify/correct the award not
later than thirty (30) days from the receipt of the award. Unless
a ground to vacate has been established, the RTC must confirm
the arbitral award as a matter of course.
Same; Same; Once the Regional Trial Court (RTC) orders the
confirmation, vacation, or correction/modification of a domestic
arbitral award, the aggrieved party may move for
reconsideration within a non-extendible period of fifteen (15)
days from receipt of the order. The losing party may also opt to
appeal from the RTC’s ruling instead.—Once the RTC orders the
confirmation, vacation, or correction/modification of a domestic
arbitral award, the aggrieved party may move for
reconsideration within a non-extendible period of fifteen (15)
days from receipt of the order. The losing party may also opt to
appeal from the RTC’s ruling instead.
Same; Same; Simple errors of fact, of law, or of fact and law
committed by the arbitral tribunal are not justiciable errors in
this jurisdiction.—In other words, simple errors of fact, of law,
or of fact and law
DEL CASTILLO, J., Dissenting Opinion:
Arbitration; View that any arbitrator/s appointed by parties by
mutual agreement or contract to settle their differences would
have to be a voluntary arbitrator “authorized by law” — that is,
Article 2042 of the Civil Code.—Rule 43 covers decisions of a
voluntary arbitrator “authorized by law.” Under Article 2042 of
the Civil Code, arbitration is allowed as a mode of settling
controversies, and for this purpose, “[t]he same persons who
may enter into a compromise may submit their controversies to
one or more arbitrators for decision.” Applied well, basic logic
should enable one to reach the conclusion that any arbitrator/s
appointed by parties by mutual agreement or contract to settle
their differences would have to be a voluntary arbitrator
“authorized by law” — that is, Article 2042 of the Civil Code.
This simple legal tenet should dispel any notion that
“commercial arbitration is a purely private system of
adjudication facilitated by private citizens instead of
government instrumentalities wielding quasi-judicial powers.”
Same; Appeals; View that the Special Alternative Dispute
Resolution (ADR) Rules tends to support the availability of the
remedies of a petition for review and a petition for certiorari.—A
profound examination of RA 9285 which came into effect in
2004, the ABS-CBN Broadcasting Corporation v. World
Interactive Network Systems (WINS) Japan Co., Ltd., 544 SCRA
308, case which was promulgated in 2008, and the Special ADR
Rules (Special Rules of Court on Alternative Dispute Resolution)
which was issued in 2009, would reveal that there is no conflict.
In particular, the Special ADR Rules cannot be said to have
superseded the pronouncement in the ABS-CBN case; quite the
contrary, the latter merely echo the conclusions arrived at in
the former. In fact, the Special ADR Rules tends to support my
position on the availability of the remedies of a petition for
review and a petition for certiorari.
Same; View that the Arbitral Tribunal’s imperfect execution of
powers and “excessive exercise of arbitral power” are valid
grounds for vacating the arbitral award.—Finally, I am aware
that an arbitral award can be assailed based on limited
grounds, among which is when “the arbitrators exceeded their
powers, or so imperfectly executed them, that a mutual, final
and definite award upon the subject matter submitted to them
was not made.” This is exactly what happened in this case and
this was the ground upon which the vacation of the arbitral
award should be anchored on. The Arbitral Tribunal’s imperfect
execution of powers and “excessive exercise of arbitral power”
are valid grounds for vacating the arbitral award.
 DECISION
BRION, J.:
The fundamental importance of this case lies in its delineation
of the extent of permissible judicial review over arbitral awards.
We make this determination from the prism of our existing laws
on the subject and the prevailing state policy to uphold the
autonomy of arbitration proceedings.
This is a petition for review on certiorari of the Court of
Appeals' (CA) decision in CA-G.R. SP. No. 112384 that
reversed an arbitral award and dismissed the arbitral complaint
for: lack of merit.1 The CA breached the bounds of its
jurisdiction when it reviewed the substance of the arbitral
award outside of the permitted grounds under the Arbitration
Law.2
Brief Factual Antecedents
In 1978, Fruehauf Electronics Philippines
Corp. (Fruehauf) leased several parcels of land in Pasig City to
Signetics Filipinas Corporation (Signetics) for a period of 25
years (until May 28, 2003). Signetics constructed a
semiconductor assembly factory on the land on its own
account.
In 1983, Signetics ceased its operations after the Board of
Investments (BOI) withdrew the investment incentives granted
to electronic industries based in Metro Manila.
In 1986, Team Holdings Limited (THL) bought Signetics. THL
later changed its name to Technology Electronics Assembly and
Management Pacific Corp. (TEAM).
In March 1987, Fruehauf filed an unlawful detainer case against
TEAM. In an effort to amicably settle the dispute, both parties
executed a Memorandum of Agreement (MOA) on June 9,
1988.3 Under the MOA, TEAM undertook to pay Fruehauf 14.7
million pesos as unpaid rent (for the period of December 1986
to June 1988).
They also entered a 15-year lease contract4 (expiring on June
9, 2003) that was renewable for another 25 years upon mutual
agreement. The contract included an arbitration agreement: 5
17. ARBITRATION
In the event of any dispute o~ disagreement between the
parties hereto involving the interpretation or implementation of
any provision of this Contract of Lease, the dispute or
disagreement shall be referred to arbitration by a three (3)
member arbitration committee, one member to be appointed by
the LESSOR, another member to be appointed by the LESSEE,
and the third member to be appointed by these two members.
The arbitration shall be conducted in accordance with the
Arbitration Law (R.A. No. 876).
The contract also authorized TEAM to sublease the property.
TEAM subleased the property to Capitol Publishing
House (Capitol) on December 2, 1996 after notifying Fruehauf.
On May 2003, TEAM informed Fruehauf that it would not be
renewing the lease. 6
On May 31, 2003, the sublease between TEAM and Capitol
expired. However, Capitol only vacated the premises on March
5, 2005. In the meantime, the master lease between TEAM and
Fruehauf expired on June 9, 2003.
On March 9, 2004, Fruehauf instituted SPProc.
No.11449 before the Regional Trial
Court (RTC) for "Submission of an Existing Controversy for
Arbitration." 7 It alleged: (1) that when the lease expired, the
property suffered from damage that required extensive
renovation; (2) that when the lease expired, TEAM failed to
turn over the premises and pay rent; and (3) that TEAM did not
restore the property to its original condition as required in the
contract. Accordingly, the parties are obliged to submit the
dispute to arbitration pursuant to the stipulation in the lease
contract.
The RTC granted the petition and directed the parties to comply
with the arbitration clause of the contract. 8
Pursuant to the arbitration agreement, the dispute was referred
to a three-member arbitration tribunal. TEAM and Fruehauf
appointed one member each while the Chairman was appointed
by the first two members. The tribunal was formally constituted
ion September 27, 2004 with retired CA Justice Hector L.
Hofileña, as chairman, retired CA Justice Mariano M. Umali and
Atty. Maria Clara B. Tankeh-Asuncion as members.9
The parties initially submitted the following issues to the
tribunal for resolution: 10
1. Whether or not TEAM had complied with its obligation to
return the leased premises to Fruehauf after the expiration of
the lease on June 9, 2003.
1.1. What properties should be returned and in
what condition?
2. Is TEAM liable for payment of rentals after June 9, 2003?
2.1. If so, how much and for what period?
3. Is TEAM liable for payment of real estate taxes, insurance,
and other expenses on the leased premises after June 9, 2003?
4. Who is liable for payment of damages and how much?
5. Who is liable for payment of attorney's fees and how much?
Subsequently, the following issues were also submitted for
resolution after TEAM proposed 11 their inclusion:
1. Who is liable for the expenses of arbitration, including
arbitration fees?
2. Whether or not TEAM has the obligation to return the
premises to Fruehauf as a "complete, rentable, and fully
facilitized electronic plant."
The Arbitral Award12
On December 3, 2008, the arbitral tribunal awarded Fruehauf:
(1) 8.2 million pesos as (the balance of) unpaid rent from June
9, 2003 until March 5, 2005; and (2) 46.8 million pesos as
damages. 13
The tribunal found that Fruehauf made several demands for the
return of the leased premises before and after: the expiration of
the lease14 and that there was no express or implied renewal of
the lease after June 9, 2003. It recognized that the sub-lessor,
Capitol, remained in possession of the lease. However, relying
on the commentaries of Arturo Tolentino on the subject, the
tribunal held that it was not enough for lessor to simply vacate
the leased property; it is necessary that he place the thing at
the disposal of the lessor, so that the latter can receive it
without any obstacle. 15
For failing to return the property' to Fruehauf, TEAM remained
liable for the payment of rents. However, if it can prove that
Fruehauf received rentals from Capitol, TEAM can deduct these
from its liability. 16 Nevertheless, the award of rent and
damages was without prejudice to TEAM's right to seek redress
from its sub-lessee, Capitol. 17
With respect to the improvements on the land, the tribunal
viewed the situation from two perspectives:
First, while the Contract admitted that Fruehauf was only
leasing the land and not the buildings and improvements
thereon, it nevertheless obliged TEAM to deliver the buildings,
installations and other improvements existing at the inception
of the lease uponits expiration. 18
The other view, is that the MOA and the Contract recognized
that TEAM owned the existing improvements on the property
and considered them as separate from the land for the initial
15-year term of the lease. 19 However, Fruehauf had a vested
right to become the owner of these improvements at the end of
the 15-year term. Consequently, the contract specifically
obligated TEAM not to remove, transfer, destroy, or in any way
alienate or encumber these improvements without prior written
consent from Fruehauf. 20
Either way, TEAM had the obligation to deliver the existing
improvements on the land upon the expiration of the lease.
However, there was no obligation under the lease to return the
premises as a "complete, rentable, and fully facilitized
electronics plant."21Thus, TEAM's obligation was to vacate the
leased property and deliver to Fruehauf the buildings,
improvements, and installations (including the machineries and
equipment existing thereon) in the same condition as when the
lease commenced, save for what had been lost or impaired by
1the lapse of time, ordinary wear and tear, or any other
inevitable cause. 22
The tribunal found TEAM negligent in the maintenance of the
premises, machineries, and equipment it was obliged to deliver
to Fruehauf. 23 For this failure to conduct the necessary repairs
or to notify Fruehauf of their necessity, the tribunal held TEAM
accountable for damages representing the value of the repairs
necessary to restore the premises to a condition "suitable for
the use to which it has been devoted' less their depreciation
expense.24
On the other issues, the tribunal held that TEAM had no
obligation to pay real estate taxes, insurance, and other
expenses on the leased premises considering these obligations
can only arise from a renewal of the contract. 25 Further, the
tribunal refused: to award attorney's fees, finding no evidence
that either party acted in bad faith. 26 For the same reason, it
held both parties equally liable for the expenses of litigation,
including the arbitrators' fees. 27
TEAM moved for reconsideration28 which the tribunal
denied. 29 Thus, TEAM petitioned the RTC to partially vacate or
modify the arbitral award.30 It argued that the tribunal failed to
properly appreciate the facts and the terms of the lease
contract.
The RTC Ruling
On April 29, 2009, the RTC31 found insufficient legal
grounds under Sections 24 and 25 of the Arbitration Law to
modify or vacate the award.32 It denied the petition and
CONFIRMED, the arbitral award. 33 TEAM filed a Notice of
Appeal.
On July 3, 2009,34 the RTC refused to give due course to the
Notice of Appeal because according to Section 29 35 of the
Arbitration Law, an ordinary appeal under Rule 41 is not the
proper mode of appeal against an order confirming an arbitral
award. 36
TEAM moved for reconsideration but the R TC denied the
motion on November 15, 2009.37 Thus, TEAM filed a petition
for certiorari38before the CA arguing that the RTC gravely
abused its discretion in: (1) denying due course to its notice of
appeal; and (2) denying the motion to partially vacate and/or
modify the arbitral award.39
TEAM argued that an ordinary appeal under Rule 41 was the
proper remedy against the RTC's order confirming, modifying,
correcting, or vacating an arbitral award. 40 It argued that Rule
42 was not available because the order denying its motion to
vacate was not rendered in the exercise of the RTC's appellate
jurisdiction. Further, Rule 43 only applies to decisions of quasi-
judicial bodies. Finally, an appeal under Rule 45 to the Supreme
Court would preclude it from raising questions of fact or mixed
questions of fact and law.41
TEAM maintained that it was appealing the RTC's order denying
its petition to partially vacate/modify the award, not the
arbitral award itself. 42 Citing Rule 41, Section 13 of the
Rules of Court, the RTC's authority to dismiss the appeal is
limited to instances when it was filed out of time or when the
appellant fails to pay the docket fees within the reglementary
period.43
TEAM further maintained that the RTC gravely abused its
discretion by confirming the Arbitral Tribunal's award when it
evidently had legal and factual errors, miscalculations, and
ambiguities. 44
The petition was docketed as CA-G.R. SP. No.112384.
The CA decision 45
The CA initially dismissed the petition. 46
As the RTC did, it cited
Section 29 of the Arbitration Law:
Section 29. Appeals. - An appeal may be taken from an
order made in a proceeding under this Act, or from a judgment
entered upon an award through certiorari proceedings, but
such appeals shall be limited to questions of law. The
proceedings upon such appeal, including the judgment thereon
shall be governed by the Rules of Court in so far as they are
applicable.
It concluded that the appeal contemplated under the law is an
appeal by certiorari limited only to questions of law.47
The CA continued that TEAM failed to substantiate its claim as
to the "evident miscalculation of figures." It further held that
disagreement with the arbitrators' factual determinations and
legal conclusions does not empower courts to amend or
overrule arbitral judgments.48
However, the CA amended its decision on October 25, 2012
upon a motion for reconsideration.49
The CA held that Section 29 of the Arbitration Law does not
preclude the aggrieved party from resorting to other judicial
remedies.50 Citing Asset Privatization Trust v. Court of
Appeals,51the CA held that the aggrieved party may resort to a
petition for certiorari when the R TC to which the award was
submitted for confirmation Has acted without jurisdiction, or
with grave abuse of discretion and there is no appeal, nor any
plain, speedy remedy in the course of law.52
The CA further held that the mere filing of a notice of appeal is
sufficient as the issues raised in the appeal were not purely
questions of law. 53 It further cited Section 46 of the Alternative
Dispute Resolution
(ADR) Law:54
SEC. 46. Appeal from Court Decisions on Arbitral
Awards. - A decision of the regional trial court confirming,
vacating, setting aside, modifying or correcting an arbitral
award may be appealed to the Court of Appeals in accordance
with the rules of procedure to be promulgated by the Supreme
Court.
The losing party who appeals from the judgment of the court
confirming an arbitral award shall be required by the appellant
court to post counterbond executed in favor of the prevailing
party equal to the amount of the award in accordance with the
rules to be promulgated by the Supreme Court. 55
However, the CA made no further reference to A.M. No. 07-11-
08-SC, the Special Rules of Court on Alternative Dispute
Resolution (Special ADR Rules) which govern the appeal
procedure.
The CA further revisited the merits of the arbitral award and
found several errors in law and in fact. It held: (1) that TEAM
was not obliged to pay rent because it was Capitol, not TEAM,
that remained in possession of the property upon the expiration
of the lease;56 and (2) that Fruehauf was not entitled to
compensation for the repair$ on the buildings because it did not
become the owner of the building until after the expiration of
the lease. 57
Also citing Tolentino, the CA opined: (1) that a statement by
the lessee that he has abandoned the premises should, as a
general rule, constitute sufficient compliance with his duty to
return the leased premises; and (2) that any new arrangement
made by the lessor with another person, such as the sub-
lessor, operates as a resumption of his possession.58
On the issue of damages, the CA held that TEAM can never be
liable for the damages for the repairs of the improvements on
the premises because they were owned by TEAM itself (through
its predecessor, Signetics) when the lease commenced. 59
The CA REVERSED AND SET ASIDE the arbitral award
and DISMISSED the arbitral complaint for lack of merit.60
This CA action prompted Fruehauf to file the present petition for
review.
The Arguments
Fruehauf argues that courts do riot have the power to
substitute their judgment for that of the arbitrators.61 It also
insists that an ordinary appeal is not the proper remedy against
an RTC's order confirming, vacating, correcting or modifying an
arbitral &ward but a petition for review on certiorari under Rule
45. 62
Furthermore, TEAM's petition before the CA went beyond the
permissible scope of certiorari - the existence of grave abuse of
discretion or errors jurisdiction - by including questions of fact
and law that challenged the merits of the arbitral award.63
However, Fruehauf inconsistently argues that the remedies
against an arbitral award are (1) a petition to vacate the award,
(2) a petition for review under Rule 43 raising questions of fact,
of law, or mixed questions of fact and law, or (3) a petition
for certiorari under Rule 65.64 Fruehauf cites an article from the
Philippine Dispute Resolution Center65 and Insular Savings Bank
v. Far East Bank and Trust, Co.66
TEAM counters that the CA correctly resolved the substantive
issues of the case and that the arbitral tribunal's errors were
sufficient grounds to vacate or modify the award.67 It insists
that the RTC's misappreciation of the facts from a patently
erroneous award warranted an appeal under Rule 41.68
I
TEAM reiterates that it "disagreed with the arbitral award
mainly on questions of fact and not only on questions of
law," specifically, "on factual matters relating to
specificprovisions in the contract on ownership of
structures and improvements thereon, and the improper
award of rentals and penalties."69Even assuming that it
availed of the wrong mode of appeal, TEAM posits that its
appeal should still have been given due course in the interest of
substantial justice. 70
TEAM assails the inconsistencies of Fruehauf’s position as to the
available legal remedies against an arbitral award.71 However, it
maintains that Section 29 of the Arbitration Law does not
foreclose other legal remedies (aside from an appeal
by certiorari) against the RTC's order confirming or vacating an
arbitral award pursuant to Insular Savings Bank WINS) Japan
Co., Ltd. 72
The Issues
This case raises the following questions:
1. What are the remedies or the modes of appeal
against an unfavorable arbitral award?
2. What are the available remedies from an RTC decision
confirming, vacating, modifying, or correcting an arbitral
award?
3. Did the arbitral tribunal err in awarding Fruehauf
damages for the repairs of the building and rental fees
from the expiration of the lease?
 Our Ruling
The petition is meritorious.
Arbitration is an alternative mode of dispute resolution outside
of the regular court system. Although adversarial in
character, arbitration is technically not litigation. It is a
voluntary process in which one or more arbitrators - appointed
according to the parties' agreement or according to the
applicable rules of the Alternative Dispute Resolution (ADR) Law
- resolve a dispute by rendering an award. 73 While arbitration
carries many advantages over court litigation, in :many ways
these advantages also translate into its disadvantages.
Resort to arbitration is voluntary. It requires consent from
both parties in the form of an arbitration clause that pre-
existed the dispute or a subsequent submission
agreement. This written arbitration agreement is an
independent and legally enforceable contract that must be
complied with in good faith. By entering into an arbitration
agreement, the parties agree to submit their dispute to an
arbitrator (ortribunal) of their own choosing and be bound by
the latter's resolution.
However, this contractual and consensual character means that
the parties cannot implead a third-party in the proceedings
even if the latter's participation is necessary for a complete
settlement of the dispute. The
tribunal does not have the power to compel a person to
participate in the arbitration proceedings without that person's
consent. It also has no authority to decide on issues that the
parties did not submit (or agree to submit) for its resolution.
As a purely private mode of dispute resolution, arbitration
proceedings, including the records, the evidence, and the
arbitral award, are confidential 74 unlike court proceedings
which are generally public. This allows the parties to avoid
negative publicity and protect their privacy. Our law highly
regards the confidentiality of arbitration proceedings that it
devised a judicial remedy to prevent or prohibit the
unauthorized disclosure of confidential information obtained
therefrom. 75
The contractual nature of arbitral proceedings affords the
parties I substantial autonomy over the proceedings. The
parties are free to agree on the procedure to be
observed during the proceedings. 76 This lends considerable
flexibility to arbitration ; proceedings as compared to court I
litigation governed by the Rules of Court.
The parties likewise appoint the arbitrators based on
agreement. There are no other legal requirements as to the
competence or technical qualifications of an arbitrator. Their
only legal qualifications are: (1) being of legal age; (2) full-
enjoyment of their civil rights; and (3) the ability to read and
write.77 The parties can tailor-fit the tribunal's composition to
the nature of their dispute. Thus, a specialized dispute can be
resolved by experts on the subject.
However, because arbitrators do not necessarily have a
background in law, they cannot be expected to have the legal
mastery of a magistrate. There is a greater risk that an
arbitrator might misapply the law or misappreciate the facts en
route to an erroneous decision.
I
This risk of error is compounded by the absence of an
effective appeal mechanism. The errors of an; arbitral
tribunal are not subject to correction by the judiciary. As a
private alternative to court proceedings, arbitration is meant
to be an end, not the beginning, of litigation. 78Thus, the
arbitral award is final and binding on the parties by reason of
their contract - the arbitration agreement. 79
An Arbitral Tribunal does not exercise
quasi-judicial powers
Quasi-judicial or administrative adjudicatory power is the
power: (1) to hear and determine questions of fact to which
legislative policy is to apply, and (2) to decide in accordance
with the standards laid down by the law itself in enforcing and
administering the same law.80Quasi-judicial power is only
exercised by administrative agencies - legal organs of the
government.
Quasi-judicial bodies can only exercise such powers and
jurisdiction as are expressly or by necessary implication
conferred upon them by their enabling statutes.81 Like courts, a
quasi-judicial body's jurisdiction over a subject matter is
conferred by law and exists independently from the will of the
parties. As government organs necessary for an effective legal
system, a quasi-judicial tribunal's legal existence, continues
beyond the resolution of a specific dispute. In other words,
quasi-judicial bodies are creatures of law.
As a contractual and consensual: body, the arbitral tribunal
does not have any inherent powers over the parties. It has no
power to issue coercive writs or compulsory processes. Thus,
there is a need to resort to the regular courts for interim
measures of protection 82 and for the recognition or
enforcement of the arbitral award. 83
The arbitral tribunal acquires jurisdiction over the parties and
the subject matter through stipulation. Upoh the rendition of
the final award, the tribunal becomes functus officio and - save
for a few exceptions84 - ceases to have any further jurisdiction
over the dispute.85 The tribunal's powers (or in the case of ad
hoc tribunals, their very existence) stem from the obligatory
force of the arbitration agreement and its ancillary
stipulations.86 Simply put, an arbitral tribunal is a creature
of contract.
Deconstructing the view that arbitral
tribunals are quasi-judicial agencies
We are aware of the contrary view expressed by the late Chief
Justice Renato Corona in ABS-CBN Broadcasting Corporation v.
World Interactive Network Systems (WINS)Japan Co., Ltd. 87
The ABS-CBN Case opined that a voluntary arbitrator is a
"quasi-judicial instrumentality" of the government 88 pursuant
to Luzon Development Bank v. Association of Luzon
Development Bank Employees, 89 Sevilla Trading Company v.
Sernana, 90 Manila Midtown Hotel v. Borromeo, 91 and Nippon
Paint Employees Union-Olalia v. Court of Appeals. 92 Hence,
voluntary arbitrators are included in the Rule 43 jurisdiction of
the Court of Appeals:
SECTION 1. Scope.-This Rule shall apply to appeals from
judgments or final orders of the Court of Tax Appeals and from
awards, judgments, final orders or resolutions of or authorized
by any quasi-judicial agency in the exercise of its quasi-judicial
functions. Among these agencies are the Civil Service
Commission, Central: Board of Assessment Appeals, Securities
and Exchange Commission, Office of the President, Land
Registration Authority, Social Security Commission, Civil
Aeronautics Board, Bureau of Patents, Trademarks and
Technology Transfer, National Electrification Administration,
Energy Regulatory Board, National Telecommunications
Commission, Department of Agrarian Reform under Republic
Act No. 6657, Government Service Insurance System,
Employees Compensation Commission, Agricultural Inventions
Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction Industry
Arbitration Commission, and voluntary arbitrators
authorized by law.93 (emphasis supplied)
Citing Insular Savings Bank v. Far East Bank and Trust
Co., 94 the ABS-CBN Case pronounced that the losing party in
an arbitration proceeding may avail of three alternative
remedies: (1) a petition to vacate the arbitral award before the
RTC; (2) a petition for review with the CA under Rule 43 of the
Rules of Court raising questions of fact, of law, or of both; and
(3) a I petition for certiorari under Rule 65 should the arbitrator
act beyond its jurisdiction or with grave abuse of discretion. 95
At first glance, the logic of this position appears to be sound.
However, a critical examination of the supporting authorities
would show that the conclusion is wrong.
First, the pronouncements made in the ABS-CBN Case and in
the Insular Savings Bank Case (which served as the authority
for the ABS-CBN Case) were both obiter dicta.
In the ABS-CBN Case, we sustained the CA's dismissal of the
petition because it was filed as an "alternative petition for
review under Rule 43 or petition for certiorari under Rule
65." 96 We held that it was an inappropriate mode of appeal
because, a petition for review and a petition for certiorari are
mutually exclusive and not alternative or successive.
In the Insular Savings Bank case, the lis mota of the case
was the RTC's jurisdiction over an appeal from an arbitral
award. The parties to the arbitration agreement agreed that the
rules of the arbitration provider97 - which stipulated that the R
TC shall have jurisdiction to review arbitral awards - will govern
the proceedings.98 The Court ultimately held that the RTC does
not have jurisdiction to review the merits of the award because
legal jurisdiction is conferred by law, not by mere agreement of
the parties.
In both cases, the pronouncements as to the remedies against
an arbitral award were unnecessary for their resolution.
Therefore, these are obiter dicta - judicial comments made, in
passing which are not essential to the resolution of the case
and cannot therefore serve as precedents.99
Second, even if we disregard the obiter dicta character of both
pronouncements, a more careful scrutiny deconstructs their
legal authority.
The ABS-CBN Case committed the classic fallacy of
equivocation. It equated the term "voluntary arbitrator" used
in Rule 43, Section 1 and in the cases of Luzon Development
Bank v. Association of Luzon Development Bank Employees,
Sevilla Trading Company v. Semana, Manila Midtown Hotel v.
Borromeo, and Nippon Paint Employees Union-Olalia v. Court of
Appeals with the term "arbitrator/arbitration tribunal."
The first rule of legal construction, verba legis, requires that,
wherever possible, the words used in the Constitution or in the
statute must be given their ordinary meaning except where
technical terms are employed. 100Notably, all of the cases cited
in the ABS-CBN Case involved labor disputes.
The term "Voluntary Arbitrator" does not refer to an
ordinary "arbitrator" who voluntarily agreed to: resolve a
dispute. It is a technical term with a specific definition under
the Labor Code:
Art. 212 Definitions. xxx
14. "Voluntary Arbitrator" means any' person accredited by the
Board as such or any person named or designated in the
Collective Bargaining Agreement by the parties to act as their
Voluntary Arbitrator, or one chosen with or without the
assistance of the National Conciliation and Mediation Board,
pursuant to a selection procedure agreed upon in the Collective
Bargaining Agreement, or any official that may be authorized
by the Secretary of Labor and Employment to act as Voluntary
Arbitrator upon the written request and agreement of the
parties to a labor dispute. 101
Voluntary Arbitrators resolve labor disputes and grievances
arising from the interpretation of Collective Bargaining
Agreements. 102 These disputes were specifically excluded: from
the coverage of both the Arbitration Law103 and the ADR
Law. 104
Unlike purely commercial relationships, the relationship
between capital and labor are heavily impressed with public
interest. 105Because of this, Voluntary Arbitrators authorized to
resolve labor disputes have been clothed with quasi-judicial
authority.
On the other hand, commercial relationships covered by our
commercial arbitration laws are purely private and contractual
in nature. Unlike labor relationships, they do not possess the
same compelling state interest that would justify state
interference into the autonomy of contracts. Hence, commercial
arbitration is a purely private system of adjudication facilitated
by private citizens instead of government instrumentalities
wielding quasi-judicial powers.
Moreover, judicial or quasi-judicial jurisdiction cannot be
conferred upon a tribunal by the parties alone. The Labor Code
itself confers subject-matter jurisdiction to Voluntary
Arbitrators. 106
Notably, the other arbitration body listed in Rule 43 - the
Construction Industry Arbitration Commission (CIAC) - is also a
government agency107 attached to the Department of Trade and
Industry. 108 Its jurisdiction is likewise conferred by
statute. 109 By contrast, the subject-matter jurisdiction of
commercial arbitrators is stipulated by the parties.
These account for the legal differences between "ordinary" or
"commercial" arbitrators under the Arbitration Law and the ADR
Law, and "voluntary arbitrators" under the Labor Code. The two
terms are not synonymous with each other. Interchanging them
with one another results in the logical fallacy of equivocation -
using the same word with different meanings.
Further, Rule 43, Section 1 enumerates quasi-judicial tribunals
whose decisions are appealable to the CA instead of the RTC.
But where legislation provides for an appeal from decisions of
certain administrative bodies to the CA, it means that such
bodies are co-equal with the RTC in terms of rank and stature,
logically placing them beyond the control of the latter. 110
However, arbitral tribunals and the RTC are not co-equal bodies
because the RTC is authorized to confirm or to vacate (but not
reverse) arbitral awards. 111 If we were to deem arbitrators as
included in the scope of Rule 43, we would effectively place it'
on equal footing with the RTC and remove arbitral awards from
the scope of RTC review.
All things considered, there is no legal authority supporting the
position that commercial arbitrators are quasi-judicial bodies.
What are remedies from a final domestic
arbitral award?
The right to an appeal is neither' a natural right nor an
indispensable component of due process; it is a mere statutory
privilege that cannot be invoked in the absence of an enabling
statute. Neither the Arbitration Law nor the ADR Law allows a
losing party to appeal from the arbitral award. The statutory
absence of an appeal mechanism reflects the State's policy of
upholding the autonomy of arbitration proceedings and their
corresponding arbitral awards.
This Court recognized this when we enacted the Special Rules
of Court on Alternative Dispute Resolution in 2009: 112
Rule 2.1. General policies. -- It is the policy of the State to
actively promote the use of various modes of ADR and to
respect party autonomy or the freedom of the parties to make
their own arrangements in the resolution of disputes with the
greatest cooperation of and the least intervention from the
courts. xxx
The Court shall exercise the power of judicial review as
provided by these Special ADR Rules. Courts shall intervene
only in the cases allowed by law or these Special ADR
Rules. 113
xxxx
Rule 19.7. No appeal or certiorari on the merits of an arbitral
award - An agreement to refer a dispute to arbitration shall
mean that the arbitral award shall be final and binding.
Consequently, a party to an arbitration is precluded from
filing an appeal or a petition for certiorari questioning
the merits of an arbitral award. 114 (emphasis supplied)
More than a decade earlier in Asset Privatization Trust v.
Court of Appeals, we likewise defended the autonomy of
arbitral awards through our policy of non-intervention on their
substantive merits:
As a rule, the award of an arbitrator cannot be set aside for
mere errors of judgment either as to the law or as to the facts.
Courts are without power to amend or overrule merely
because of disagreement with matters of law or facts
determined by the arbitrators. They will not review the
findings of law and fact contained in an award, and will not
undertake to substitute their judgment for that of the
arbitrators, since any other rule would make an award the
commencement, not the end, of litigation. Errors of law and
fact, or an erroneous decision of matters submitted to the
judgment of the arbitrators, are insufficient to invalidate an
award fairly and honestly made. Judicial review of an
arbitration is, thus, more limited than judicial review of a
trial. 115
Nonetheless, an arbitral award is not absolute. Rule 19.10 of
the Special ADR Rules - by referring to Section 24 of the
Arbitration Law and Article 34 of the 1985 United Nations
Commission on International Trade Law (UNCITRAL) Model Law
- recognizes the very limited exceptions to the autonomy of
arbitral awards:
Rule 19.10. Rule on judicial review on arbitration in the
Philippines. - As a general rule, the court can only vacate or
set aside the decision of an arbitral tribunal upon a clear
showing' that the award suffers from any of the infirmities or
grounds for vacating an arbitral award under Section 24 of
Republic Act No. 876 or under Rule 34 of the Model Law
in a domestic arbitration, or for setting aside an award in an
international arbitration under Article 34 of the Model Law, or
for such other grounds provided under these Special Rules.
If the Regional Trial Court is asked to set aside an arbitral
award in a domestic or international arbitration on any ground
other than those provided in the Special ADR Rules, the
court shall entertain such ground for the setting aside or non-
recognition of the arbitral award only if the same amounts
to a violation of public policy.
The court shall not set aside or vacate the award of the
arbitral tribunal merely on the ground that the arbitral
tribunal committed errors of fact, or of law, or of fact and
law, as the court cannot substitute its judgment for that
of the arbitral tribunal.116
The grounds for vacating a domestic arbitral award under
Section 24 of the Arbitration Law contemplate the following
scenarios:
(a) when the award is procured by corruption, fraud, or
other undue means; or
(b) there was evident partiality or corruption in the
arbitrators or any of them; or
(c) the arbitrators were guilty of misconduct that
materially prejudiced the rights of any party; or
(d) the arbitrators exceeded their powers, or so
imperfectly executed them, that a mutual, final and
definite award upon the subject matter submitted to
them was not made. 117
The award may also be vacated if an arbitrator who was
disqualified to act willfully refrained from disclosing his
disqualification to the parties. 118 Notably, none of these
grounds pertain to the correctness of the award but relate to
the misconduct of arbitrators.
The RTC may also set aside the arbitral award based on Article
34 of the UNCITRAL Model Law. These grounds are reproduced
in Chapter 4 of the Implementing Rules and Regulations (IRR)
of the 2004 ADR Act:
(i) the party making the application furnishes proof that:
(aa) a party to the arbitration agreement was
under some incapacity; or the said agreement is
not valid under the law to which the parties have
subjected it or, failing any indication thereon,
under the law of the Philippines; or
(bb) the party making the application was not
given proper notice of the appointment of an
arbitrator or of the arbitral proceedings or was
otherwise unable to present his case; or
(cc) the award deals with a dispute not
contemplated by or not falling within the terms of
the submission to arbitration, or contains
decisions on matters beyond the scope of the
submission to arbitration, provided that, if the
decisions on matters submitted to arbitration can
be separated from those not so submitted, only
the part of the award which contains decisions on
matters not submitted to arbitration may be set
aside; or
(dd) the composition of the arbitral tribunal or
the arbitral procedure was not in accordance with
the agreement of the parties, unless such
agreement was in conflict with a provision of ADR
Act from which the parties cannot derogate, or,
failing such agreement, was not in accordance
with ADR Act; or
(ii) The Court finds that:
(aa) the subject-matter of the dispute is not
capable of settlement by arbitration under
the law of the Philippines; or
(bb) the award is in conflict with the public
policy of the Philippines. 119
Chapter 4 of the IRR of the, ADR Act applies particularly to
International Commercial Arbitration. However, the
abovementioned grounds taken from the UNCITRAL, Model Law
are specifically made applicable to domestic arbitration by the
Special ADR Rules. 120
Notably, these grounds are not concerned with the correctness
of the award; they go into the validity of the arbitration
agreement or the regularity of the arbitration proceedings.
These grounds for vacating an arbitral award are exclusive.
Under the ADR Law, courts are obliged to disregard any other
grounds invoked to set aside an award:
SEC. 41. Vacation Award. - A party to a domestic arbitration
may question the arbitral award with the appropriate regional
trial court in accordance with the rules of procedure to be
promulgated by the Supreme Court only on those grounds
enumerated in Section 25 of Republic Act No. 876. Any other
ground raised against a domestic arbitral award shall be
disregarded by the regional trial court. 121
Consequently, the winning party can generally expect the
enforcement of the award. This is a stricter rule that makes
Article 2044122 of the Civil Code regarding the finality of an
arbitral award redundant.
As established earlier, an arbitral: award is not appealable via
Rule 43 because: (1) there is no statutory basis for an appeal
from the final award of arbitrators; (2) arbitrators are not
quasi-judicial bodies; and (3) the Special ADR Rules specifically
prohibit the filing of an appeal to question the merits of an
arbitral award.
The Special ADR Rules allow, the RTC to correct or modify an
arbitral award pursuant to Section 25 of the Arbitration Law.
However, this authority cannot be interpreted as jurisdiction to
review the merits of the award. The RTC can modify or correct
the award only in the following cases:
a. Where there was an evident miscalculation of figures
or an evident mistake in the description of any person,
thing or property referred to in the award;
b. Where the arbitrators have awarded upon a matter
not submitted to them, not affecting the merits of the
decision upon the matter submitted;
c. Where the arbitrators have omitted to resolve an
issue submitted to them for resolution; or
d. Where the award is imperfect in a matter of form not
affecting the merits of the controversy, and if it had
been a commissioner's report, the defect could have
been amended or disregarded by the Court. 123
A losing party is likewise precluded from resorting
to certiorari under Rule 65 of the Rules of Court. 124 Certiorari is
a prerogative writ designed to correct errors of jurisdiction
committed by a judicial or quasi-judicial body. 125 Because an
arbitral tribunal is not a government organ exercising judicial
or quasi-judicial powers, it is removed from the ambit of Rule
65.
Not even the Court's expanded certiorari jurisdiction under the
Constitution 126 can justify judicial intrusion into the merits of
arbitral awards. While the Constitution expanded the scope
of certiorari proceedings, this power remains limited to a
review' of the acts of "any branch or instrumentality of the
Government." As a purely private creature of contract, an
arbitral tribunal remains outside the scope of certiorari.
Lastly, the Special ADR Rules are a self-contained body of rules.
The parties cannot invoke remedies and other provisions from
the Rules of Court unless they were incorporated in the Special
ADR Rules:
Rule 22.1. Applicability of Rules of Court. - The provisions of
the Rules of Court that are applicable to the proceedings
enumerated in Rule 1.1 of these Special ADR Rules have either
been included and incorporated in these Special ADR
Rules or specifically referred to herein.
In Connection with the above proceedings, the Rules of
Evidence shall be liberally construed to achieve the objectives
of the Special ADR Rules. 127
Contrary to TEAM's position, the Special ADR Rules actually
forecloses against other remedies outside of itself. Thus, a
losing party cannot assail an arbitral award through; a petition
for review under Rule 43 or a petition for certiorari under Rule
65 because these remedies are not specifically permitted in the
Special ADR Rules.
In sum, the only remedy against; a final domestic arbitral
award is to file petition to vacate or to modify/correct the award
not later than thirty (30) days from the receipt of the
award. 128 Unless a ground to vacate has been established, the
RTC must confirm the arbitral award as a matter of course.
The remedies against an order
Confirming, vacating, correcting, or
modifying an arbitral award
Once the RTC orders the confirmation, vacation, or
correction/modification of a domestic arbitral award, the
aggrieved party may move for reconsideration within a non-
extendible period of fifteen (15) days from receipt of the
order. 129 The losing party may also opt to appeal from the
RTC's ruling instead.
Under the Arbitration Law, the mode of appeal was via petition
for review on certiorari:
Section 29. Appeals. - An appeal may be taken from an order
made in a proceeding under this Act, or from a judgment
entered upon an award through certiorari proceedings, but
such appeals shall be limited to questions of law. The
proceedings upon such appeal, including the judgment thereon
shall be governed by, the Rules of Court in so far as they are
applicable.130
The Arbitration Law did not specify which Court had jurisdiction
to entertain the appeal but left the matter to be governed by
the Rules of Court. As the appeal was limited to questions of
law and was described as "certiorari proceedings," the mode of
appeal can be interpreted as an Appeal By Certiorari to this
Court under Rule 45.
When the ADR Law was enacted in 2004, it specified that
the appeal shall be made to the CA in accordance with the rules
of procedure to be promulgated by this Court. 131 The Special
ADR Rules provided that the mode of appeal from the RTC's
order confirming, vacating, or correcting/modifying a domestic
arbitral award was through a petition for review with the
CA. 132 However, the Special ADR Rules only took effect on
October 30, 2009.
In the present case, the R TC disallowed TEAM' s notice of
appeal from the former's decision confirming the arbitral award
on July 3, 2009. TEAM moved for reconsideration which was
likewise denied on November 15, 2009. In the interim, the
Special ADR Rules became effective. Notably, the Special ADR
Rules apply retroactively in light of its procedural
character. 133 TEAM filed its petition for certiorari soon after.
Nevertheless, whether we apply, Section 29 of the Arbitration
Law, Section 46 of the ADR Law, or Rule 19.12 of the Special
ADR Rules, there is no legal basis that an ordinary appeal (via
notice of appeal) is the correct remedy from an order
confirming, vacating, or correcting an arbitral award. Thus,
there is no merit in the CA's ruling that the RTC gravely abused
its discretion when it refused to give due course to the notice of
appeal.
The correctness or incorrectness
of the arbitral award
We have deliberately refrained from passing upon the merits of
the arbitral award - not because the award was erroneous - but
because it would be improper. None of the grounds to vacate
an arbitral award are present in this case and as already
established, the merits of the award cannot be reviewed by the
courts.
Our refusal to review the award is not a simple matter of
putting procedural technicalities over the substantive merits of
a case; it goes into the very legal substance of the issues.
There is no law granting the judiciary authority to review the
merits of an arbitral award. If we were to insist on reviewing
the correctness of the award: (or consent to the CA's doing
so), it would be tantamount to expanding our jurisdiction
without the benefit of legislation. This translates to judicial
legislation - a breach of the fundamental principle of separation
of powers.
The CA reversed the arbitral award - an action that it has no
power to do - because it disagreed with the tribunal's factual
findings and application of the law. However, the alleged
incorrectness of the award is insufficient cause to vacate the
award, given the State's policy of upholding the autonomy of
arbitral awards.
The CA passed upon questions such as: (1) whether or not
TEAM effectively returned the property upon the expiration of
the lease; (2) whether or not TEAM was liable to pay rentals
after the expiration of the lease; and (3) whether or not TEAM
was liable to pay Fruehauf damages corresponding to the cost
of repairs. These were the same questions that were specifically
submitted to the arbitral tribunal for its resolution. 134
The CA disagreed with the tribunal's factual determinations and
legal interpretation of TEAM's obligations under the contract -
particularly, that TEAM's obligation to turn over the
improvements on the land at the end of the lease in the same
condition as when the lease commenced translated to an
obligation to make ordinary repairs necessary for its
preservation. 135
Assuming arguendo that the tribunal's interpretation of the
contract was incorrect, the errors would have been simple
errors of law.1âwphi1 It was the tribunal - not the RTC or the
CA - that had jurisdiction and authority over the issue by virtue
of the parties' submissions; the CA's substitution of its own
judgment for the arbitral award cannot be more compelling
than the overriding public policy to uphold the autonomy of
arbitral awards. Courts are precluded from disturbing an
arbitral tribunal's factual findings and interpretations of
law. 136 The CA's ruling is an unjustified judicial intrusion in
excess of its jurisdiction - a judicial overreach. 137
Upholding the CA's ruling would weaken our alternative dispute
resolution mechanisms by allowing the courts to "throw their
weight around" whenever they disagree with the results.
It erodes the obligatory force of arbitration agreements by
allowing the losing parties to "forum shop" for a more favorable
ruling from the judiciary.
Whether or not the arbitral tribunal correctly passed upon the
issues is irrelevant. Regardless of the amount, of the sum
involved in a case, a simple error of law remains a simple error
of law. Courts are precluded from revising the award in a
particular way, revisiting the tribunal's findings of fact or
conclusions of law, or otherwise encroaching upon the
independence of an arbitral tribunal. 138At the risk of
redundancy, we emphasize Rule 19.10 of the Special ADR Rules
promulgated by this Court en banc:
Rule 19.10. Rule on judicial review on arbitration in the
Philippines. - As a general rule, the court can only vacate or
set aside the decision of an arbitral tribunal upon a clear
showing that the award suffers from any of the
infirmities or grounds for vacating an arbitral award
under Section 24 of Republic Act No. 876 or under Rule
34 of the Model Law in a domestic arbitration, or for
setting aside an award in an international arbitration under
Article 34 of the Model Law, or for such other grounds provided
under these Special Rules.
If the Regional Trial Court is asked to set aside an arbitral
award in a domestic or international arbitration on any ground
other than those provided in the Special ADR Rules, the court
shall entertain such ground for the setting aside or non-
recognition of the arbitral award only if thesame amounts to
a violation of public policy.
The court shall not set aside or vacate the award of the
arbitral tribunal merely on the ground that the arbitral
tribunal committed errors of fact, or of law, or of fact and
law, as the court cannot substitute its judgment for that
of the arbitral tribunal.
In other words, simple errors of fact, of law, or of fact and law
committed by the arbitral tribunal are not justiciable errors in
this jurisdiction. 139
TEAM agreed to submit their disputes to an arbitral tribunal. It
understood all the risks - including the absence of an appeal
mechanism - and found that its benefits (both legal and
economic) outweighed the disadvantages. Without a showing
that any of the grounds to vacate the award exists or that the
same amounts to a violation of an overriding public policy, the
award is subject to confirmation as a matter of course. 140
WHEREFORE, we GRANT the petition. The CA's decision
in CA-G. R. SP. No. 112384 is SET ASIDE and the RTC's
order CONFIRMING the arbitral award in SP. Proc. No.
11449 is REINSTATED.
SO ORDERED.

G.R. No. 174938 October 1, 2014
GERARDO LANUZA, JR. AND ANTONIO O.
OLBES, Petitioners,
vs.
BF CORPORATION, SHANGRI-LA PROPERTIES, INC.,
ALFREDO C. RAMOS, RUFO B. COLAYCO, MAXIMO G.
LICAUCO III, AND BENJAMIN C. RAMOS, Respondents.
Civil Law; Arbitration; Arbitration allows the parties to avoid
litigation and settle disputes amicably and more expeditiously
by themselves and through their choice of arbitrators.—This
jurisdiction adopts a policy in favor of arbitration. Arbitration
allows the parties to avoid litigation and settle disputes
amicably and more expeditiously by themselves and through
their choice of arbitrators. The policy in favor of arbitration has
been affirmed in our Civil Code, which was approved as early as
1949. It was later institutionalized by the approval of Republic
Act No. 876, which expressly authorized, made valid,
enforceable, and irrevocable parties’ decision to submit their
controversies, including incidental issues, to arbitration.
Same; Same; In view of our policy to adopt arbitration as a
manner of settling disputes, arbitration clauses are liberally
construed to favor arbitration.—In view of our policy to adopt
arbitration as a manner of settling disputes, arbitration clauses
are liberally construed to favor arbitration. Thus, in LM Power
Engineering Corporation v. Capitol Industrial Construction
Groups, Inc., 399 SCRA 562 (2003), this court said: Being an
inexpensive, speedy and amicable method of settling disputes,
arbitration — along with mediation, conciliation and negotiation
— is encouraged by the Supreme Court. Aside from unclogging
judicial dockets, arbitration also hastens the resolution of
disputes, especially of the commercial kind. It is thus regarded
as the “wave of the future” in international civil and commercial
disputes. Brushing aside a contractual agreement calling for
arbitration between the parties would be a step backward.
Consistent with the above mentioned policy of encouraging
alternative dispute resolution methods, courts should liberally
construe arbitration clauses. Provided such clause is susceptible
of an interpretation that covers the asserted dispute, an order
to arbitrate should be granted. Any doubt should be resolved in
favor of arbitration.
Same; Same; If there is an interpretation that would render
effective an arbitration clause for purposes of avoiding litigation
and expediting resolution of the dispute, that interpretation
shall be adopted.—If there is an interpretation that would
render effective an arbitration clause for purposes of avoiding
litigation and expediting resolution of the dispute, that
interpretation shall be adopted. Petitioners’ main argument
arises from the separate personality given to juridical persons
vis-à-vis their directors, officers, stockholders, and agents.
Since they did not sign the arbitration agreement in any
capacity, they cannot be forced to submit to the jurisdiction of
the Arbitration Tribunal in accordance with the arbitration
agreement. Moreover, they had already resigned as directors of
Shangri-La at the time of the alleged default.
Corporations; Separate Legal Personality; A corporation, in the
legal sense, is an individual with a personality that is distinct
and separate from other persons including its stockholders,
officers, directors, representatives, and other juridical
entities.—A corporation is an artificial entity created by fiction
of law. This means that while it is not a person, naturally, the
law gives it a distinct personality and treats it as such. A
corporation, in the legal sense, is an individual with a
personality that is distinct and separate from other persons
including its stockholders, officers, directors, representatives,
and other juridical entities. The law vests in corporations rights,
powers, and attributes as if they were natural persons with
physical existence and capabilities to act on their own. For
instance, they have the power to sue and enter into
transactions or contracts.
Same; Same; A corporation’s representatives are generally not
bound by the terms of the contract executed by the
corporation. They are not personally liable for obligations and
liabilities incurred on or in behalf of the corporation.—Because a
corporation’s existence is only by fiction of law, it can only
exercise its rights and powers through its directors, officers, or
agents, who are all natural persons. A corporation cannot sue
or enter into contracts without them. A consequence of a
corporation’s separate personality is that consent by a
corporation through its representatives is not consent of the
representative, personally. Its obligations, incurred through
official acts of its representatives, are its own. A stockholder,
director, or representative does not become a party to a
contract just because a corporation executed a contract through
that stockholder, director or representative. Hence, a
corporation’s representatives are generally not bound by the
terms of the contract executed by the corporation. They are not
personally liable for obligations and liabilities incurred on or in
behalf of the corporation.
Same; Same; Arbitration; As a general rule, therefore, a
corporation’s representative who did not personally bind himself
or herself to an arbitration agreement cannot be forced to
participate in arbitration proceedings made pursuant to an
agreement entered into by the corporation.—As a general rule,
therefore, a corporation’s representative who did not personally
bind himself or herself to an arbitration agreement cannot be
forced to participate in arbitration proceedings made pursuant
to an agreement entered into by the corporation. He or she is
generally not considered a party to that agreement. However,
there are instances when the distinction between personalities
of directors, officers, and representatives, and of the
corporation, are disregarded. We call this piercing the veil of
corporate fiction.
Same; Same; Piercing the Veil of Corporate Fiction; Piercing the
corporate veil is warranted when “[the separate personality of a
corporation] is used as a means to perpetrate fraud or an illegal
act, or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, or to confuse legitimate issues.”—
Piercing the corporate veil is warranted when “[the separate
personality of a corporation] is used as a means to perpetrate
fraud or an illegal act, or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, or to confuse
legitimate issues.” It is also warranted in alter ego cases
“where a corporation is merely a farce since it is a mere alter
ego or business conduit of a person, or where the corporation is
so organized and controlled and its affairs are so conducted as
to make it merely an instrumentality, agency, conduit or
adjunct of another corporation.” When corporate veil is pierced,
the corporation and persons who are normally treated as
distinct from the corporation are treated as one person, such
that when the corporation is adjudged liable, these persons,
too, become liable as if they were the corporation. Among the
persons who may be treated as the corporation itself under
certain circumstances are its directors and officers.
Same; Same; Same; Section 31 of the Corporation Code
provides the instances when directors, trustees, or officers may
become liable for corporate acts.—Section 31 of the Corporation
Code provides the instances when directors, trustees, or
officers may become liable for corporate acts: Sec. 31. Liability
of directors, trustees or officers.—Directors or trustees who
willfully and knowingly vote for or assent to patently unlawful
acts of the corporation or who are guilty of gross negligence or
bad faith in directing the affairs of the corporation or acquire
any personal or pecuniary interest in conflict with their duty as
such directors or trustees shall be liable jointly and severally for
all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons. When a director,
trustee or officer attempts to acquire or acquires, in violation of
his duty, any interest adverse to the corporation in respect of
any matter which has been reposed in him in confidence, as to
which equity imposes a disability upon him to deal in his own
behalf, he shall be liable as a trustee for the corporation and
must account for the profits which otherwise would have
accrued to the corporation. (n)
Same; Same; Same; Cases When a Director, Trustee, or Officer
of a Corporation May Be Made Solidarily Liable With it for All
Damages Suffered by the Corporation, its Stockholders or
Members, and Other Persons.—A director, trustee, or officer of
a corporation may be made solidarily liable with it for all
damages suffered by the corporation, its stockholders or
members, and other persons in any of the following cases: a)
The director or trustee willfully and knowingly voted for or
assented to a patently unlawful corporate act; b) The director
or trustee was guilty of gross negligence or bad faith in
directing corporate affairs; and c) The director or trustee
acquired personal or pecuniary interest in conflict with his or
her duties as director or trustee. Solidary liability with the
corporation will also attach in the following instances: a) “When
a director or officer has consented to the issuance of watered
stocks or who, having knowledge thereof, did not forthwith file
with the corporate secretary his written objection thereto”; b)
“When a director, trustee or officer has contractually agreed or
stipulated to hold himself personally and solidarily liable with
the corporation”; and c) “When a director, trustee or officer is
made, by specific provision of law, personally liable for his
corporate action.”
Same; Same; Same; When there are allegations of bad faith or
malice against corporate directors or representatives, it
becomes the duty of courts or tribunals to determine if these
persons and the corporation should be treated as one. Without
a trial, courts and tribunals have no basis for determining
whether the veil of corporate fiction should be pierced.—When
there are allegations of bad faith or malice against corporate
directors or representatives, it becomes the duty of courts or
tribunals to determine if these persons and the corporation
should be treated as one. Without a trial, courts and tribunals
have no basis for determining whether the veil of corporate
fiction should be pierced. Courts or tribunals do not have such
prior knowledge. Thus, the courts or tribunals must first
determine whether circumstances exist to warrant the courts or
tribunals to disregard the distinction between the corporation
and the persons representing it. The determination of these
circumstances must be made by one tribunal or court in a
proceeding participated in by all parties involved, including
current representatives of the corporation, and those persons
whose personalities are impliedly the same as the corporation.
This is because when the court or tribunal finds that
circumstances exist warranting the piercing of the corporate
veil, the corporate representatives are treated as the
corporation itself and should be held liable for corporate acts.
The corporation’s distinct personality is disregarded, and the
corporation is seen as a mere aggregation of persons
undertaking a business under the collective name of the
corporation.
Remedial Law; Civil Procedure; Actions; Splitting Single Cause
of Action; Dismissal of Actions; Institution of more than one
suit for the same cause of action constitutes splitting the cause
of action, which is a ground for the dismissal of the others.—
Under the Rules of Court, filing of multiple suits for a single
cause of action is prohibited. Institution of more than one suit
for the same cause of action constitutes splitting the cause of
action, which is a ground for the dismissal of the others. Thus,
in Rule 2: Section 3. One suit for a single cause of action.—A
party may not institute more than one suit for a single cause of
action. (3a) Section 4. Splitting a single cause of action; effect
of.—If two or more suits are instituted on the basis of the same
cause of action, the filing of one or a judgment upon the merits
in any one is available as a ground for the dismissal of the
others.
Civil Law; Arbitration; Parties; Only parties to an arbitration
agreement may be compelled to submit to arbitration;
Assignees and heirs may be considered parties to an arbitration
agreement entered into by their assignor because the
assignor’s rights and obligations are transferred to them upon
assignment.—In ruling that petitioners may be compelled to
submit to the arbitration proceedings, we are not overturning
Heirs of Augusto Salas, Jr. v. Laperal Realty Corporation, 320
SCRA 610 (1999), wherein this court affirmed the basic
arbitration principle that only parties to an arbitration
agreement may be compelled to submit to arbitration. In that
case, this court recognized that persons other than the main
party may be compelled to submit to arbitration, e.g.,
assignees and heirs. Assignees and heirs may be considered
parties to an arbitration agreement entered into by their
assignor because the assignor’s rights and obligations are
transferred to them upon assignment. In other words, the
assignor’s rights and obligations become their own rights and
obligations. In the same way, the corporation’s obligations are
treated as the representative’s obligations when the corporate
veil is pierced.
Same; Same; Same; Solidary Liability; In cases alleging
solidary liability with the corporation or praying for the piercing
of the corporate veil, parties who are normally treated as
distinct individuals should be made to participate in the
arbitration proceedings in order to determine if such distinction
should indeed be disregarded and, if so, to determine the
extent of their liabilities.—When the courts disregard the
corporation’s distinct and separate personality from its directors
or officers, the courts do not say that the corporation, in all
instances and for all purposes, is the same as its directors,
stockholders, officers, and agents. It does not result in an
absolute confusion of personalities of the corporation and the
persons composing or representing it. Courts merely discount
the distinction and treat them as one, in relation to a specific
act, in order to extend the terms of the contract and the
liabilities for all damages to erring corporate officials who
participated in the corporation’s illegal acts. This is done so that
the legal fiction cannot be used to perpetrate illegalities and
injustices. Thus, in cases alleging solidary liability with the
corporation or praying for the piercing of the corporate veil,
parties who are normally treated as distinct individuals should
be made to participate in the arbitration proceedings in order to
determine if such distinction should indeed be disregarded and,
if so, to determine the extent of their liabilities.
DECISION
LEONEN, J.:
Corporate representatives may be compelled to submit to
arbitration proceedings pursuant to a contract entered into by
the corporation they represent if there are allegations of bad
faith or malice in their acts representing the corporation.
This is a Rule 45 petition, assailing the Court of Appeals' May
11, 2006 decision and October 5, 2006 resolution. The Court of
Appeals affirmed the trial court's decision holding that
petitioners, as director, should submit themselves as parties
tothe arbitration proceedings between BF Corporation and
Shangri-La Properties, Inc. (Shangri-La).
In 1993, BF Corporation filed a collection complaint with the
Regional Trial Court against Shangri-Laand the members of its
board of directors: Alfredo C. Ramos, Rufo B.Colayco, Antonio
O. Olbes, Gerardo Lanuza, Jr., Maximo G. Licauco III, and
Benjamin C. Ramos.1
BF Corporation alleged in its complaint that on December 11,
1989 and May 30, 1991, it entered into agreements with
Shangri-La wherein it undertook to construct for Shangri-La a
mall and a multilevel parking structure along EDSA.2
Shangri-La had been consistent in paying BF Corporation in
accordance with its progress billing statements.3 However, by
October 1991, Shangri-La started defaulting in payment.4
BF Corporation alleged that Shangri-La induced BF Corporation
to continue with the construction of the buildings using its own
funds and credit despite Shangri-La’s default.5 According to BF
Corporation, ShangriLa misrepresented that it had funds to pay
for its obligations with BF Corporation, and the delay in
payment was simply a matter of delayed processing of BF
Corporation’s progress billing statements. 6
BF Corporation eventually completed the construction of the
buildings.7 Shangri-La allegedly took possession of the buildings
while still owing BF Corporation an outstanding balance.8
BF Corporation alleged that despite repeated demands,
Shangri-La refused to pay the balance owed to it.9 It also
alleged that the Shangri-La’s directors were in bad faith in
directing Shangri-La’s affairs. Therefore, they should be held
jointly and severally liable with Shangri-La for its obligations as
well as for the damages that BF Corporation incurred as a result
of Shangri-La’s default.10
On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B.
Colayco, Maximo G. Licauco III, and Benjamin C. Ramos filed a
motion to suspend the proceedings in view of BF Corporation’s
failure to submit its dispute to arbitration, in accordance with
the arbitration clauseprovided in its contract, quoted in the
motion as follows:11
35. Arbitration
(1) Provided always that in case any dispute or difference shall
arise between the Owner or the Project Manager on his behalf
and the Contractor, either during the progress or after the
completion or abandonment of the Works as to the construction
of this Contract or as to any matter or thing of whatsoever
nature arising there under or inconnection therewith (including
any matter or thing left by this Contract to the discretion of the
Project Manager or the withholding by the Project Manager of
any certificate to which the Contractor may claim to be entitled
or the measurement and valuation mentioned in clause
30(5)(a) of these Conditions or the rights and liabilities of the
parties under clauses 25, 26, 32 or 33 of these Conditions), the
owner and the Contractor hereby agree to exert all efforts to
settle their differences or dispute amicably. Failing these efforts
then such dispute or difference shall be referred to arbitration
in accordance with the rules and procedures of the Philippine
Arbitration Law.
xxx xxx xxx
(6) The award of such Arbitrators shall be final and binding on
the parties. The decision of the Arbitrators shall be a condition
precedent to any right of legal action that either party may
have against the other. . . .12 (Underscoring in the original)
On August 19, 1993, BF Corporation opposed the motion to
suspend proceedings.13
In the November 18, 1993 order, the Regional Trial Court
denied the motion to suspend proceedings.14
On December 8, 1993, petitioners filed an answer to BF
Corporation’s complaint, with compulsory counter claim against
BF Corporation and crossclaim against Shangri-La.15 They
alleged that they had resigned as members of Shangri-La’s
board of directors as of July 15, 1991.16
After the Regional Trial Court denied on February 11, 1994 the
motion for reconsideration of its November 18, 1993 order,
Shangri-La, Alfredo C. Ramos, Rufo B. Colayco,Maximo G.
Licauco III, and Benjamin Ramos filed a petition for certiorari
with the Court of Appeals.17
On April 28, 1995, the Court of Appeals granted the petition for
certiorari and ordered the submission of the dispute to
arbitration.18
Aggrieved by the Court of Appeals’ decision, BF Corporation
filed a petition for review on certiorari with this court.19 On
March 27, 1998, this court affirmed the Court of Appeals’
decision, directing that the dispute be submitted for
arbitration.20
Another issue arose after BF Corporation had initiated
arbitration proceedings. BF Corporation and Shangri-La failed to
agree as to the law that should govern the arbitration
proceedings.21 On October 27, 1998, the trial court issued the
order directing the parties to conduct the proceedings in
accordance with Republic Act No. 876.22
Shangri-La filed an omnibus motion and BF Corporation an
urgent motion for clarification, both seeking to clarify the term,
"parties," and whether Shangri-La’s directors should be
included in the arbitration proceedings and served with
separate demands for arbitration.23
Petitioners filed their comment on Shangri-La’s and BF
Corporation’s motions, praying that they be excluded from the
arbitration proceedings for being non-parties to Shangri-La’s
and BF Corporation’s agreement.24
On July 28, 2003, the trial court issued the order directing
service of demands for arbitration upon all defendants in BF
Corporation’s complaint.25 According to the trial court, Shangri-
La’s directors were interested parties who "must also be served
with a demand for arbitration to give them the opportunity to
ventilate their side of the controversy, safeguard their interest
and fend off their respective positions."26 Petitioners’ motion for
reconsideration ofthis order was denied by the trial court on
January 19, 2005.27
Petitioners filed a petition for certiorari with the Court of
Appeals, alleging grave abuse of discretion in the issuance of
orders compelling them to submit to arbitration proceedings
despite being third parties to the contract between Shangri-La
and BF Corporation.28
In its May 11, 2006 decision,29 the Court of Appeals dismissed
petitioners’ petition for certiorari. The Court of Appeals ruled
that ShangriLa’s directors were necessary parties in the
arbitration proceedings.30 According to the Court of Appeals:
[They were] deemed not third-parties tothe contract as they
[were] sued for their acts in representation of the party to the
contract pursuant to Art. 31 of the Corporation Code, and that
as directors of the defendant corporation, [they], in accordance
with Art. 1217 of the Civil Code, stand to be benefited or
injured by the result of the arbitration proceedings, hence,
being necessary parties, they must be joined in order to have
complete adjudication of the controversy. Consequently, if
[they were] excluded as parties in the arbitration proceedings
and an arbitral award is rendered, holding [Shangri-La] and its
board of directors jointly and solidarily liable to private
respondent BF Corporation, a problem will arise, i.e., whether
petitioners will be bound bysuch arbitral award, and this will
prevent complete determination of the issues and resolution of
the controversy.31
The Court of Appeals further ruled that "excluding petitioners in
the arbitration proceedings . . . would be contrary to the policy
against multiplicity of suits."32
The dispositive portion of the Court of Appeals’ decision reads:
WHEREFORE, the petition is DISMISSED. The assailed orders
dated July 28, 2003 and January 19, 2005 of public respondent
RTC, Branch 157, Pasig City, in Civil Case No. 63400, are
AFFIRMED.33
The Court of Appeals denied petitioners’ motion for
reconsideration in the October 5, 2006 resolution.34
On November 24, 2006, petitioners filed a petition for review of
the May 11, 2006 Court of Appeals decision and the October 5,
2006 Court of Appeals resolution.35
The issue in this case is whether petitioners should be made
parties to the arbitration proceedings, pursuant to the
arbitration clause provided in the contract between BF
Corporation and Shangri-La.
Petitioners argue that they cannot be held personally liable for
corporate acts or obligations.36 The corporation is a separate
being, and nothing justifies BF Corporation’s allegation that
they are solidarily liable with Shangri-La.37 Neither did they
bind themselves personally nor did they undertake to shoulder
Shangri-La’s obligations should it fail in its obligations.38 BF
Corporation also failed to establish fraud or bad faith on their
part.39
Petitioners also argue that they are third parties to the contract
between BF Corporation and Shangri-La.40 Provisions including
arbitration stipulations should bind only the parties.41 Based on
our arbitration laws, parties who are strangers to an agreement
cannot be compelled to arbitrate.42
Petitioners point out thatour arbitration laws were enacted to
promote the autonomy of parties in resolving their
disputes.43 Compelling them to submit to arbitration is against
this purpose and may be tantamount to stipulating for the
parties.44
Separate comments on the petition werefiled by BF
Corporation, and Maximo G. Licauco III, Alfredo C.Ramos and
Benjamin C. Ramos.45
Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C.
Ramos agreed with petitioners that Shangri-La’sdirectors, being
non-parties to the contract, should not be made personally
liable for Shangri-La’s acts.46 Since the contract was executed
only by BF Corporation and Shangri-La, only they should be
affected by the contract’s stipulation.47 BF Corporation also
failed to specifically allege the unlawful acts of the directors
that should make them solidarily liable with Shangri-La for its
obligations.48
Meanwhile, in its comment, BF Corporation argued that the
courts’ ruling that the parties should undergo arbitration
"clearly contemplated the inclusion of the directors of the
corporation[.]"49 BF Corporation also argued that while
petitioners were not parties to the agreement, they were still
impleaded under Section 31 of the Corporation Code.50 Section
31 makes directors solidarily liable for fraud, gross negligence,
and bad faith.51 Petitioners are not really third parties to the
agreement because they are being sued as Shangri-La’s
representatives, under Section 31 of the Corporation Code.52
BF Corporation further argued that because petitioners were
impleaded for their solidary liability, they are necessary parties
to the arbitration proceedings.53 The full resolution of all
disputes in the arbitration proceedings should also be done in
the interest of justice.54
In the manifestation dated September 6, 2007, petitioners
informed the court that the Arbitral Tribunal had already
promulgated its decision on July 31, 2007.55 The Arbitral
Tribunal denied BF Corporation’s claims against
them.56 Petitioners stated that "[they] were included by the
Arbitral Tribunal in the proceedings conducted . . .
notwithstanding [their] continuing objection thereto. . .
."57 They also stated that "[their] unwilling participation in the
arbitration case was done ex abundante ad cautela, as
manifested therein on several occasions."58 Petitioners informed
the court that they already manifested with the trial court that
"any action taken on [the Arbitral Tribunal’s decision] should be
without prejudice to the resolution of [this] case." 59
Upon the court’s order, petitioners and Shangri-La filed their
respective memoranda. Petitioners and Maximo G. Licauco III,
Alfredo C. Ramos, and Benjamin C. Ramos reiterated their
arguments that they should not be held liable for Shangri-La’s
default and made parties to the arbitration proceedings because
only BF Corporation and Shangri-La were parties to the
contract.
In its memorandum, Shangri-La argued that petitioners were
impleaded for their solidary liability under Section 31 of the
Corporation Code. Shangri-La added that their exclusion from
the arbitration proceedings will result in multiplicity of suits,
which "is not favored in this jurisdiction."60 It pointed out that
the case had already been mooted by the termination of the
arbitration proceedings, which petitioners actively participated
in.61 Moreover, BF Corporation assailed only the correctness of
the Arbitral Tribunal’s award and not the part absolving
Shangri-La’s directors from liability.62
BF Corporation filed a counter-manifestation with motion to
dismiss63 in lieu of the required memorandum.
In its counter-manifestation, BF Corporation pointed out that
since "petitioners’ counterclaims were already dismissed with
finality, and the claims against them were likewise dismissed
with finality, they no longer have any interest orpersonality in
the arbitration case. Thus, there is no longer any need to
resolve the present Petition, which mainly questions the
inclusion of petitioners in the arbitration proceedings."64 The
court’s decision in this case will no longer have any effect on
the issue of petitioners’ inclusion in the arbitration
proceedings.65
The petition must fail.
The Arbitral Tribunal’s decision, absolving petitioners from
liability, and its binding effect on BF Corporation, have rendered
this case moot and academic.
The mootness of the case, however, had not precluded us from
resolving issues so that principles may be established for the
guidance of the bench, bar, and the public. In De la Camara v.
Hon. Enage,66 this court disregarded the fact that petitioner in
that case already escaped from prison and ruled on the issue of
excessive bails:
While under the circumstances a ruling on the merits of the
petition for certiorari is notwarranted, still, as set forth at the
opening of this opinion, the fact that this case is moot and
academic should not preclude this Tribunal from setting forth in
language clear and unmistakable, the obligation of fidelity on
the part of lower court judges to the unequivocal command of
the Constitution that excessive bail shall not be required.67
This principle was repeated in subsequent cases when this court
deemed it proper to clarify important matters for guidance.68
Thus, we rule that petitioners may be compelled to submit to
the arbitration proceedings in accordance with Shangri-Laand
BF Corporation’s agreement, in order to determine if the
distinction between Shangri-La’s personality and their
personalities should be disregarded.
This jurisdiction adopts a policy in favor of arbitration.
Arbitration allows the parties to avoid litigation and settle
disputes amicably and more expeditiously by themselves and
through their choice of arbitrators.
The policy in favor of arbitration has been affirmed in our Civil
Code,69 which was approved as early as 1949. It was later
institutionalized by the approval of Republic Act No.
876,70 which expressly authorized, made valid, enforceable, and
irrevocable parties’ decision to submit their controversies,
including incidental issues, to arbitration. This court recognized
this policy in Eastboard Navigation, Ltd. v. Ysmael and
Company, Inc.:71
As a corollary to the question regarding the existence of an
arbitration agreement, defendant raises the issue that, even if
it be granted that it agreed to submit its dispute with plaintiff to
arbitration, said agreement is void and without effect for it
amounts to removing said dispute from the jurisdiction of the
courts in which the parties are domiciled or where the dispute
occurred. It is true that there are authorities which hold that "a
clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitrators and to them
alone, is contrary to public policy and cannot oust the courts of
jurisdiction" (Manila Electric Co. vs. Pasay Transportation Co.,
57 Phil., 600, 603), however, there are authorities which favor
"the more intelligent view that arbitration, as an inexpensive,
speedy and amicable method of settling disputes, and as a
means of avoiding litigation, should receive every
encouragement from the courts which may be extended without
contravening sound public policy or settled law" (3 Am. Jur., p.
835). Congress has officially adopted the modern view when it
reproduced in the new Civil Code the provisions of the old Code
on Arbitration. And only recently it approved Republic Act No.
876 expressly authorizing arbitration of future
disputes.72 (Emphasis supplied)
In view of our policy to adopt arbitration as a manner of settling
disputes, arbitration clauses are liberally construed to favor
arbitration. Thus, in LM Power Engineering Corporation v.
Capitol Industrial Construction Groups, Inc.,73 this court said:
Being an inexpensive, speedy and amicable method of settling
disputes, arbitration — along with mediation, conciliation and
negotiation — is encouraged by the Supreme Court. Aside from
unclogging judicial dockets, arbitration also hastens the
resolution of disputes, especially of the commercial kind. It is
thus regarded as the "wave of the future" in international civil
and commercial disputes. Brushing aside a contractual
agreement calling for arbitration between the parties would be
a step backward.
Consistent with the above-mentioned policy of encouraging
alternative dispute resolution methods, courts should liberally
construe arbitration clauses. Provided such clause is susceptible
of an interpretation that covers the asserted dispute, an order
to arbitrate should be granted. Any doubt should be resolved in
favor of arbitration.74 (Emphasis supplied)
A more clear-cut statement of the state policy to encourage
arbitration and to favor interpretations that would render
effective an arbitration clause was later expressed in Republic
Act No. 9285:75
SEC. 2. Declaration of Policy.- It is hereby declared the policy of
the State to actively promote party autonomy in the resolution
of disputes or the freedom of the party to make their own
arrangements to resolve their disputes. Towards this end, the
State shall encourage and actively promote the use of
Alternative Dispute Resolution (ADR) as an important means to
achieve speedy and impartial justice and declog court dockets.
As such, the State shall provide means for the use of ADR as an
efficient tool and an alternative procedure for the resolution of
appropriate cases. Likewise, the State shall enlist active private
sector participation in the settlement of disputes through ADR.
This Act shall be without prejudice to the adoption by the
Supreme Court of any ADR system, such as mediation,
conciliation, arbitration, or any combination thereof as a means
of achieving speedy and efficient means of resolving cases
pending before all courts in the Philippines which shall be
governed by such rules as the Supreme Court may approve
from time to time.
....
SEC. 25. Interpretation of the Act.- In interpreting the Act, the
court shall have due regard to the policy of the law in favor of
arbitration.Where action is commenced by or against multiple
parties, one or more of whomare parties who are bound by the
arbitration agreement although the civil action may continue as
to those who are not bound by such arbitration agreement.
(Emphasis supplied)
Thus, if there is an interpretation that would render effective an
arbitration clause for purposes ofavoiding litigation and
expediting resolution of the dispute, that interpretation shall be
adopted. Petitioners’ main argument arises from the separate
personality given to juridical persons vis-à-vis their directors,
officers, stockholders, and agents. Since they did not sign the
arbitration agreement in any capacity, they cannot be forced to
submit to the jurisdiction of the Arbitration Tribunal in
accordance with the arbitration agreement. Moreover, they had
already resigned as directors of Shangri-Laat the time of the
alleged default.
Indeed, as petitioners point out, their personalities as directors
of Shangri-La are separate and distinct from Shangri-La.
A corporation is an artificial entity created by fiction of
law.76 This means that while it is not a person, naturally, the
law gives it a distinct personality and treats it as such. A
corporation, in the legal sense, is an individual with a
personality that is distinct and separate from other persons
including its stockholders, officers, directors,
representatives,77 and other juridical entities. The law vests in
corporations rights,powers, and attributes as if they were
natural persons with physical existence and capabilities to act
on their own.78 For instance, they have the power to sue and
enter into transactions or contracts. Section 36 of the
Corporation Code enumerates some of a corporation’s powers,
thus:
Section 36. Corporate powers and capacity.– Every corporation
incorporated under this Code has the power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of
time stated in the articles of incorporation and the
certificate ofincorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance
with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or
public policy, and to amend or repeal the same in
accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to
subscribers and to sell treasury stocks in accordance
with the provisions of this Code; and to admit members
to the corporation if it be a non-stock corporation;
7. To purchase, receive, take or grant, hold, convey,
sell, lease, pledge, mortgage and otherwise deal with
such real and personal property, including securities and
bonds of other corporations, as the transaction of the
lawful business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed
by law and the Constitution;
8. To enter into merger or consolidation with other
corporations as provided in this Code;
9. To make reasonable donations, including those for the
public welfare or for hospital, charitable, cultural,
scientific, civic, or similar purposes: Provided, That no
corporation, domestic or foreign, shall give donations in
aid of any political party or candidate or for purposes of
partisan political activity;
10. To establish pension, retirement, and other plans for
the benefit of its directors, trustees, officers and
employees; and
11. To exercise such other powers asmay be essential or
necessary to carry out its purpose or purposes as stated
in its articles of incorporation. (13a)
Because a corporation’s existence is only by fiction of law, it
can only exercise its rights and powers through itsdirectors,
officers, or agents, who are all natural persons. A corporation
cannot sue or enter into contracts without them.
A consequence of a corporation’s separate personality is that
consent by a corporation through its representatives is not
consent of the representative, personally. Its obligations,
incurred through official acts of its representatives, are its own.
A stockholder, director, or representative does not become a
party to a contract just because a corporation executed a
contract through that stockholder, director or representative.
Hence, a corporation’s representatives are generally not bound
by the terms of the contract executed by the corporation. They
are not personally liable for obligations and liabilities incurred
on or in behalf of the corporation.
Petitioners are also correct that arbitration promotes the
parties’ autonomy in resolving their disputes. This court
recognized in Heirs of Augusto Salas, Jr. v. Laperal Realty
Corporation79 that an arbitration clause shall not apply to
persons who were neither parties to the contract nor assignees
of previous parties, thus:
A submission to arbitration is a contract. As such, the
Agreement, containing the stipulation on arbitration, binds the
parties thereto, as well as their assigns and heirs. But only
they.80 (Citations omitted)
Similarly, in Del Monte Corporation-USA v. Court of
Appeals,81 this court ruled:
The provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of that
contract and is itself a contract. As a rule, contracts are
respected as the law between the contracting parties and
produce effect as between them, their assigns and heirs.
Clearly, only parties to the Agreement . . . are bound by the
Agreement and its arbitration clause as they are the only
signatories thereto.82 (Citation omitted)
This court incorporated these rulings in Agan, Jr. v. Philippine
International Air Terminals Co., Inc.83 and Stanfilco Employees
v. DOLE Philippines, Inc., et al.84
As a general rule, therefore, a corporation’s representative who
did not personally bind himself or herself to an arbitration
agreement cannot be forced to participate in arbitration
proceedings made pursuant to an agreement entered into by
the corporation. He or she is generally not considered a party to
that agreement.
However, there are instances when the distinction between
personalities of directors, officers,and representatives, and of
the corporation, are disregarded. We call this piercing the veil
of corporate fiction.
Piercing the corporate veil is warranted when "[the separate
personality of a corporation] is used as a means to perpetrate
fraud or an illegal act, or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, or to confuse
legitimate issues."85 It is also warranted in alter ego cases
"where a corporation is merely a farce since it is a mere alter
ego or business conduit of a person, or where the corporation is
so organized and controlled and its affairs are so conducted as
to make it merely an instrumentality, agency, conduit or
adjunct of another corporation."86
When corporate veil is pierced, the corporation and persons
who are normally treated as distinct from the corporation are
treated as one person, such that when the corporation is
adjudged liable, these persons, too, become liable as if they
were the corporation.
Among the persons who may be treatedas the corporation itself
under certain circumstances are its directors and officers.
Section 31 of the Corporation Code provides the instances when
directors, trustees, or officers may become liable for corporate
acts:
Sec. 31. Liability of directors, trustees or officers. - Directors or
trustees who willfully and knowingly vote for or assent to
patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors or trustees shall be
liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and
other persons.
When a director, trustee or officer attempts to acquire or
acquires, in violation of his duty, any interest adverse to the
corporation in respect of any matter which has been reposed
inhim in confidence, as to which equity imposes a disability
upon him to deal in his own behalf, he shall be liable as a
trustee for the corporation and must account for the profits
which otherwise would have accrued to the corporation. (n)
Based on the above provision, a director, trustee, or officer of a
corporation may be made solidarily liable with it for all damages
suffered by the corporation, its stockholders or members, and
other persons in any of the following cases:
a) The director or trustee willfully and knowingly voted
for or assented to a patently unlawful corporate act;
b) The director or trustee was guilty of gross negligence
or bad faith in directing corporate affairs; and
c) The director or trustee acquired personal or pecuniary
interest in conflict with his or her duties as director or
trustee.
Solidary liability with the corporation will also attach in the
following instances:
a) "When a director or officer has consented to the
issuance of watered stocks or who, having knowledge
thereof, did not forthwith file with the corporate
secretary his written objection thereto";87
b) "When a director, trustee or officer has contractually
agreed or stipulated to hold himself personally and
solidarily liable with the corporation";88 and
c) "When a director, trustee or officer is made, by
specific provision of law, personally liable for his
corporate action."89
When there are allegations of bad faith or malice against
corporate directors or representatives, it becomes the duty of
courts or tribunals to determine if these persons and the
corporation should be treated as one. Without a trial, courts
and tribunals have no basis for determining whether the veil of
corporate fiction should be pierced. Courts or tribunals do not
have such prior knowledge. Thus, the courts or tribunals must
first determine whether circumstances exist towarrant the
courts or tribunals to disregard the distinction between the
corporation and the persons representing it. The determination
of these circumstances must be made by one tribunal or court
in a proceeding participated in by all parties involved, including
current representatives of the corporation, and those persons
whose personalities are impliedly the sameas the corporation.
This is because when the court or tribunal finds that
circumstances exist warranting the piercing of the corporate
veil, the corporate representatives are treated as the
corporation itself and should be held liable for corporate acts.
The corporation’s distinct personality is disregarded, and the
corporation is seen as a mere aggregation of persons
undertaking a business under the collective name of the
corporation.
Hence, when the directors, as in this case, are impleaded in a
case against a corporation, alleging malice orbad faith on their
part in directing the affairs of the corporation, complainants are
effectively alleging that the directors and the corporation are
not acting as separate entities. They are alleging that the acts
or omissions by the corporation that violated their rights are
also the directors’ acts or omissions.90 They are alleging that
contracts executed by the corporation are contracts executed
by the directors. Complainants effectively pray that the
corporate veilbe pierced because the cause of action between
the corporation and the directors is the same.
In that case, complainants have no choice but to institute only
one proceeding against the parties.1âwphi1 Under the Rules of
Court, filing of multiple suits for a single cause of action is
prohibited. Institution of more than one suit for the same cause
of action constitutes splitting the cause of action, which is a
ground for the dismissal ofthe others. Thus, in Rule 2:
Section 3. One suit for a single cause of action. — A party may
not institute more than one suit for a single cause of action.
(3a)
Section 4. Splitting a single cause of action;effect of. — If two
or more suits are instituted on the basis of the same cause of
action, the filing of one or a judgment upon the merits in any
one is available as a ground for the dismissal of the others. (4a)
It is because the personalities of petitioners and the corporation
may later be found to be indistinct that we rule that petitioners
may be compelled to submit to arbitration.
However, in ruling that petitioners may be compelled to submit
to the arbitration proceedings, we are not overturning Heirs of
Augusto Salas wherein this court affirmed the basic arbitration
principle that only parties to an arbitration agreement may be
compelled to submit to arbitration. In that case, this court
recognizedthat persons other than the main party may be
compelled to submit to arbitration, e.g., assignees and heirs.
Assignees and heirs may be considered parties to an arbitration
agreement entered into by their assignor because the
assignor’s rights and obligations are transferred to them upon
assignment. In other words, the assignor’s rights and
obligations become their own rights and obligations. In the
same way, the corporation’s obligations are treated as the
representative’s obligations when the corporate veil is pierced.
Moreover, in Heirs of Augusto Salas, this court affirmed its
policy against multiplicity of suits and unnecessary delay. This
court said that "to split the proceeding into arbitration for some
parties and trial for other parties would "result in multiplicity of
suits, duplicitous procedure and unnecessary delay."91 This
court also intimated that the interest of justice would be best
observed if it adjudicated rights in a single proceeding.92 While
the facts of that case prompted this court to direct the trial
court to proceed to determine the issues of thatcase, it did not
prohibit courts from allowing the case to proceed to arbitration,
when circumstances warrant.
Hence, the issue of whether the corporation’s acts in violation
of complainant’s rights, and the incidental issue of whether
piercing of the corporate veil is warranted, should be
determined in a single proceeding. Such finding would
determine if the corporation is merely an aggregation of
persons whose liabilities must be treated as one with the
corporation.
However, when the courts disregard the corporation’s distinct
and separate personality from its directors or officers, the
courts do not say that the corporation, in all instances and for
all purposes, is the same as its directors, stockholders, officers,
and agents. It does not result in an absolute confusion of
personalities of the corporation and the persons composing or
representing it. Courts merely discount the distinction and treat
them as one, in relation to a specific act, in order to extend the
terms of the contract and the liabilities for all damages to erring
corporate officials who participated in the corporation’s illegal
acts. This is done so that the legal fiction cannot be used to
perpetrate illegalities and injustices.
Thus, in cases alleging solidary liability with the corporation or
praying for the piercing of the corporate veil, parties who are
normally treated as distinct individuals should be made to
participate in the arbitration proceedings in order to determine
ifsuch distinction should indeed be disregarded and, if so, to
determine the extent of their liabilities.
In this case, the Arbitral Tribunal rendered a decision, finding
that BF Corporation failed to prove the existence of
circumstances that render petitioners and the other directors
solidarily liable. It ruled that petitioners and Shangri-La’s other
directors were not liable for the contractual obligations of
Shangri-La to BF Corporation. The Arbitral Tribunal’s decision
was made with the participation of petitioners, albeit with their
continuing objection. In view of our discussion above, we rule
that petitioners are bound by such decision.
WHEREFORE, the petition is DENIED. The Court of Appeals'
decision of May 11, 2006 and resolution of October 5, 2006 are
AFFIRMED.
SO ORDERED.