RepublicofthePhilippines

SUPREMECOURT
Manila

SECONDDIVISION

EQUITABLEPCIBANKINGG.R.No.182248
CORPORATION,[1]
GEORGEL.GO,PATRICKD.GO,Present:
GENEVIEVEW.J.GO,
FERDINANDMARTING.QUISUMBING,J.,Chairperson,
ROMUALDEZ,CARPIOMORALES,
OSCARP.LOPEZDEE,TINGA,
RENEJ.BUENAVENTURA,VELASCO,JR.,and
GLORIAL.TANCLIMACO,BRION,JJ.
ROGELIOS.CHUA,
FEDERICOC.PASCUAL,
LEOPOLDOS.VEROY,
WILFRIDOV.VERGARA,
EDILBERTOV.JAVIER,
ANTHONYF.CONWAY,
ROMULADU.DYTANG,
WALTERC.WESSMER,and
ANTONION.COTOCO,
Petitioners,

versus
Promulgated:
RCBCCAPITALCORPORATION,
Respondent.December18,2008
xx

DECISION

VELASCO,JR.,J.:

TheCase

ThisPetitionforReviewonCertiorariunderRule45seeksthereversal
of the January 8, 2008[2]and March 17, 2008[3]Orders of the Regional Trial
Court(RTC),Branch148inMakatiCityinSPProc.CaseNo.6046,entitledIn
the Matter of ICC Arbitration Ref. No. 13290/MS/JB/JEM Between RCBC
CapitalCorporation,(Claimant),andEquitablePCIBankingCorporation,Inc.
etal.,(Respondents).TheassailedJanuary8,2008OrderconfirmedthePartial
AwarddatedSeptember27,2007[4]renderedbytheInternationalChamberof
CommerceInternational Court of Arbitration (ICCICA) in Case No.
13290/MS/JB/JEM, entitledRCBC Capital Corporation (Philippines) v.
EquitablePCIBank,Inc.&Others(Philippines).TheMarch17,2008Order
deniedpetitionersmotionforreconsiderationoftheJanuary8,2008Order.

TheFacts

OnMay24,2000,petitionersEquitablePCIBank,Inc.(EPCIB)and
theindividualshareholdersofBankard,Inc.,assellers,andrespondentRCBC
Capital Corporation (RCBC), as buyer, executed aShare Purchase
Agreement[5](SPA) for the purchase of petitioners interests in Bankard,
representing 226,460,000 shares, for the price of PhP 1,786,769,400. To
expedite the purchase, RCBC agreed to dispense with the conduct of a due
diligenceauditonthefinancialstatusofBankard.

UndertheSPA,RCBCundertakes,onthedateofcontractexecution,to
deposit,asdownpayment,20%ofthepurchaseprice,orPhP357,353,880,inan
escrowaccount.Theescrowedamount,theSPAstated,shouldbereleasedto
petitionersonanagreeduponreleasedateandthebalanceofthepurchaseprice
shallbedeliveredtothesharebuyersuponthefulfillmentofcertainconditions
agreedupon,intheformofamanagerscheck.

TheotherrelevantprovisionsoftheSPAare:

Section5.SellersRepresentationsandWarranties

The SELLERS jointly and severally represent and

warranttotheBUYERthat:

xxxx

TheFinancialConditionofBankard

g.TheauditedfinancialstatementsofBankardforthe
three (3) fiscal years ended December 31, 1997, 1998 and
1999, and the unaudited financial statements for the first
quarter ended 31 March 2000, are fair and accurate, and
completeinallmaterialrespects,andhavebeenpreparedin
accordance with generally accepted accounting principles
consistentlyfollowedthroughouttheperiodindicatedand:

i) the balance sheet of Bankard as of 31

December1999,aspreparedandcertifiedbySGV&
Co.(SGV),andtheunauditedbalancesheetforthe
firstquarterended31March2000,presentafairand
accurate statement as of those dates, of Bankards
financialconditionandofallitsassetsandliabilities,
andiscompleteinallmaterialrespects;and

ii)thestatementsofBankardsprofitandloss
accounts for the fiscal years 1996 to 1999, as
prepared and certified by SGV, and the unaudited
profitandlossaccountsforthefirstquarterended31
March2000,fairlyandaccuratelypresenttheresults
of the operations of Bankard for the periods
indicated,andarecompleteinallmaterialrespects.

h.ExceptasdisclosedintheDisclosures,andexcept
to the extent set forth or reserved in the audited financial
statements of Bankard as of 31 December 1999 and its
unauditedfinancialstatementsasof31March2000,Bankard,
asofsuchdatesandupto31May2000,hadandshallhaveno
liabilities,omissionsormistakesinitsrecordswhichwillhave
materialadverseeffectonthenetworthorfinancialcondition
ofBankardtotheextentofmorethanOneHundredMillion
Pesos(P100,000,000.00)intheaggregate.Intheeventsuch
materialadverseeffectonthenetworthorfinancialcondition

of Bankard exceeds One Hundred Million Pesos

(P100,000,000.00), the Purchase Price shall be reduced in
accordancewiththefollowingformula:

Reduction in Purchase Price = X multiplied by

226,460,000

where
Amountbywhichnegative
adjustmentexceedsP100Million
X
=
(1.925)
338,000,000

xxxx

Section7.RemediesforBreachofWarranties

a.Ifanyoftherepresentationsandwarrantiesofany
or all of the SELLERS or the BUYER (the Defaulting
Party)containedinSections5and6shallbefoundtobe
untruewhenmadeand/orasoftheClosingDate,theother
party,i.e.,theBUYERiftheDefaultingPartyisanyorallof
theSELLERSandtheSELLERSiftheDefaultingPartyisthe
BUYER (hereinafter referred to as the NonDefaulting
Party)shallhavetherighttorequiretheDefaultingParty,at
thelattersexpense,tocuresuchbreach,and/orseekdamages,
byprovidingnoticeorpresentingaclaim totheDefaulting
Party, reasonably specifying therein the particulars of the
breach.TheforegoingremediesshallbeavailabletotheNon
DefaultingPartyonlyifthedemandthereforispresentedin
writingtotheDefaultingPartywithinthree(3)yearsfromthe
Closing Date except that the remedy for a breach of the
SELLERSrepresentationandwarrantinSection5(h)shall
beavailableonlyifthedemandthereforispresentedtothe
Defaulting Party in writing together with schedules and to
substantiate such demand, within six (6) months from the
ClosingDate.[6]


OnJune2,2000,RCBCdepositedthestipulateddownpaymentamount
inanescrowaccountafterwhichitwasgivenfullmanagementandoperational
controlofBankard.June2,2000isalsoconsideredbythepartiesastheClosing
DatereferredtointheSPA.

Thereafter, the parties executed anAmendment to Share Purchase

Agreement(ASPA) datedSeptember 19, 2000.[7]Its paragraph 2(e) provided
that:

2.Notwithstanding any provisions to the

contrary in the Share Purchase Agreement and/or any
agreement,instrumentordocumententeredintoorexecuted
bythePartiesinrelationthereto(theRelatedAgreements),
thePartiesherebyagreethat:

xxxx

e) Notwithstanding the provisions of Sec. 7 of the

SharePurchaseAgreementtothecontrary,theremedyfora
breachoftheSELLERSrepresentationandwarrantyin
Section 5(h)of the Share Purchase Agreementshall be
available if the demand therefor is presentedto the
SELLERS in writing together with schedules and data to
substantiatesuchdemand,onorbefore31December2000.
(Emphasisadded.)

SometimeinSeptember2000,RCBChadBankardsaccountsaudited,
creatingforthepurposeanauditteamledbyacertainRubio,theVicePresident
forFinanceofRCBCatthetime.Rubiosconclusionwasthatthewarranty,as
containedinSection5(h)oftheSPA(simplySec.5[h]hereinafter),wascorrect.

OnDecember 28, 2000, RCBC paid the balance of the contract

price.Thecorrespondingdeedsofsaleforthesharesinquestionwereexecuted
inJanuary2001.
Thereafter,inaletterofMay5,2003,RCBCinformedpetitionersofits
havingoverpaidthepurchasepriceofthesubjectshares,claimingthattherewas
an overstatement of valuation of accounts amounting to PhP 478 million,

resultingintheoverpaymentofoverPhP616million.Thus,RCBCclaimedthat
petitionersviolatedtheirwarranty,assellers,embodiedinSec.5(g)oftheSPA
(Sec.5[g]hereinafter).

Followingunsuccessfulattemptsatsettlement,RCBC,inaccordance
with Sec. 10 of the SPA, filed aRequest for ArbitrationdatedMay 12,
2004[8]with the ICCICA.In therequest, RCBC charged Bankard with
deviatingfrom,contraveningandnotfollowinggenerallyacceptedaccounting
principles and practices in maintaining their books.Due to these improper
accounting practices, RCBC alleged that both the audited and unaudited
financialstatementsofBankardpriortothestockpurchasewerefarfromfair
and accurate and, hence, violated the representations and warranties of
petitioners in the SPA. Per RCBC, its overpayment amounted to PhP 556
million.ItthusprayedfortherescissionoftheSPA,restitutionofthepurchase
price, payment of actual damages in the amount of PhP 573,132,110, legal
interest on the purchase price until actual restitution, moral damages, and
litigationandattorneysfees.Asalternativetorescissionandrestitution,RCBC
prayed for damages in the amount of at least PhP 809,796,092 plus legal
interest.

TotheRequestforArbitration,petitionersfiledanAnswerdatedJuly
28,2004,[9]denyingRCBCsinculpatoryavermentsandsettingupthefollowing
affirmativeallegations:theperiodforfilingoftheassertedclaimhadalready
lapsedbyforceofSec.7oftheSPA;RCBCisnotentitledtorescissionhaving
hadampleopportunityandreasonabletimetofileaclaimagainstpetitioners;
RCBCisnotentitledtoitsalternativeprayerofdamages,beingguiltyoflaches
andfailingtosetoutthedetailsofthebreachasrequiredunderSec.7.
Arbitration in the ICCICA proceeded after the formation of the
arbitration tribunal consisting of retired Justice Santiago M. Kapunan,
nominatedbypetitioners;NeilKaplan,RCBCsnominee;andSirIanBarker,
appointedbytheICCICA.

Afterdrawnout proceedingswitheachpartyallegingdeviationand
noncompliancebytheotherwitharbitrationrules,thetribunal,withJustice
Kapunandissenting,renderedaPartialAwarddatedSeptember27,2007, [10]the
dispositiveportionofwhichstates:

15AWARDANDDIRECTIONS

15.1The Tribunal makes the following

declarationsbywayofPartialAward:

(a)TheClaimantsclaimisnottimebarredunderthe
provisionsofthisSPA.
(b)TheClaimantisnotestoppedbyitsconductorthe
equitabledoctrineoflachesfrompursuingitsclaim.
(c)AsdetailedinthePartialAward,theClaimanthas
established the following breaches by the Respondents of
clause5(g)oftheSPA:

i) the assets, revenue and net worth of

Bankardwereoverstatedbyreasonofitspolicyon
andrecognitionofLatePaymentFees;
ii) reported receivables were higher than
theirrealizablevaluesbyreasonofthebucketing
method,thusoverstatingBankardsassets;and
iii) the relevant Bankard statements were
inadequate and misleading in that their disclosures
caused readers to be misinformed about Bankards
accountingpoliciesonrevenueandreceivables.

(d)SubjecttoproofoflosstheClaimantisentitledto
damagesfortheforegoingbreaches.
(e)TheClaimantisnotentitledtorescissionofthe
SPA.
(f)Allotherissues,includinganyissuerelatingto
costs,willbedealtwithinafurtherorfinalaward.
15.2 A further Procedural Order will be necessary
subsequenttothedeliveryofthisPartialAwardtodealwith
thedeterminationofquantumandinparticular,whetherthere
shouldbeanExpertappointedbytheTribunalunderArticle
20(4)oftheICCRulestoassisttheTribunalinthisregard.

15.3ThisAwardisdeliveredbya majorityofthe
Tribunal(SirIanBarkerandMr.Kaplan).JusticeKapunanis
unabletoagreewiththemajoritysconclusionontheclaimof
estoppelbroughtbytherespondents.

Onthematterofprescription,thetribunalheldthatRCBCsclaimis
nottimebarred,theclaimproperlyfallingunderthecontemplationofSec.5(g)
andnotSec.5(h).Assuch,thetribunalconcluded,RCBCsclaimwasfiled
withinthethree(3)yearperiodunderSec.5(g)andthatthesix(6)monthperiod
underSec.5(h)didnotapply.

The tribunal also exonerated RCBC from laches, the latter having
sought reliefwithinthethree(3)yearperiodprescribedintheSPA.Onthe
matterofestoppelsuggestedinpetitionersanswer,thetribunalstatedinpar.
10.27ofthePartialAwardthefollowing:

10.27Clearly,therehastobebothanadmissionor
representation by (in this case) the Claimant [RCBC], plus
reliance upon it by (in this case) the Respondents [herein
petitioners]. The Tribunal cannot find as proved any
admission/representationthattheClaimantwasabandoninga
5(g)claim,anyreliancebytheRespondentsonanadmission,
andanydetrimenttotheRespondentssuchaswouldentitle
themtohavetheClaimantdeprivedofthebenefitofclause
5(g).Theseaspectsoftheclaimforestoppelsarerejected.[11]

Notably,thetribunalconsideredtherescissionoftheSPAandASPAas
impracticableandtotallyoutofthequestion.[12]

In his Dissenting Opinion[13]which he submitted to and which was

receivedonSeptember24,2007bytheICCICA,JusticeKapunanstatedthe
observationthatRCBCsclaimistimebarred,fallingassuchclaimdidunder
Sec.5(h),whichprescribesacomparativelyshorterprescriptiveperiod,not5(g)
asheldbythemajorityofthetribunal,towit:

Claimant admits that the Claim is for recovery of

P431milliononaccountofallegedovervaluationofthenet
worth of Bankard, allegedly for improper accounting
practices resulting in its book value per share as of31
December1999[being]overstated.Claimantswitness,Dean
Echanis asserts that the inadequate provisioning for
Bankardsdoubtfulaccountsresult[ed]inanoverstatementof
itsDecember31,1999totalassetsandnetworthofby[sic]
leastP418.2million.


In addition, Claimants demand letter addressed to
theRespondentsallegedthatweoverpaidfortheSharesto
theextentoftheimpactofthesaidoverstatementontheBook
Valuepershare.

These circumstances establish beyond dispute that

theClaimisbasedontheallegedoverstatementofthe1999
networthofBankard,whichthepartiesreliedoninsettingthe
purchasepriceoftheshares.Moreover,itisclearthatthere
was an overstatement because of improper accounting
practiceswhichledClaimanttooverpayfortheshares.

Ultimately, the Claim is one for recovery of

overpaymentinthepurchasepriceoftheshares.xxx

Astotheissueofestoppel,JusticeKapunanstated:

Moreover,Mr.Rubiosfindingsmerelycorroborated
the disclosures made in the Information Memorandum that
ClaimantreceivedfromtheRespondentspriortotheexecution
oftheSPA.Inthisconnection,InotethatBankardspolicyon
provisioning and setting of allowances using the Bucketed
Method and income recognition from AR/Principal,
AR/InterestandAR/LPFsweredisclosedintheInformation
Memorandum. Thus, these alleged improper accounting
practices were known to the Claimant even prior to the
executionoftheSPA.

Thus, when Claimant paid the balance of the

purchase price, it did so with full knowledge of these
accountingpracticesofBankardthatitnowassails.Bypaying
thebalanceofthepurchasepricewithouttakingexceptionor
objecting to the accounting practices disclosed through Mr.
RubiosreviewandtheInformationMemorandum,Claimant
is deemed to have accepted such practices as correctly
reportingthe1999networth.xxx

xxxx

As last point, I note that my colleagues invoke a

principle that for estoppels to apply there must be positive
indicationthattherighttosuewaswaived.Iamoftheview
thatthereisnosuchprincipleunderPhilippinelaw.Whatis
applicableistheholdinginKnechtandinCocaColathat
priorknowledgeofanunfavorablefactisbindingontheparty
whohassuchknowledge; whenthepurchaserproceedsto
makeinvestigationsbyhimself,andthevendordoesnothing
topreventsuchinvestigationfrombeingascompleteasthe
formermightwish,thepurchasercannotlaterallegethatthe
vendor made false representations to him (Cf. Songco v.
Sellner,37Phil254citationsomitted).

Appliedtothiscase,theClaimantcannotseekrelief
onthebasisthatwhenitpaidthepurchasepriceinDecember
2000,itwasunawarethattheaccountingpracticesthatwent
into the reporting of the 1999 net worth as amounting to
P1,387,275,847werenotinconformitywithGAAP[generally
acceptedaccountingprinciples].(Emphasisadded.)

OnOctober26,2007,RCBCfiledwiththeRTCaMotiontoConfirm
PartialAward.Onthesameday,petitionerscounteredwithaMotiontoVacate
thePartialAward.OnNovember9,2007,petitionersagainfiledaMotionto
SuspendandInhibitBarkerandKaplan.

OnJanuary8,2008,theRTCissuedthefirstassailedorderconfirming
thePartialAwardanddenyingtheadvertedseparatemotionstovacateandto
suspend and inhibit. From this order, petitioners sought reconsideration, but
their motion was denied by the RTC in the equally assailed second order
ofMarch17,2008.

From the assailed orders, petitioners came directly to this Court

throughthispetitionforreview.

TheIssues

Thispetitionseeksthereview,reversal andsetting
asideoftheordersAnnexesAandBand,inlieuofthem,it
seeks judgment vacating the arbitrators liability award,
AnnexC,onthesegrounds:

(a)The trial court acted contrary to law

andjudicialauthorityinrefusingtovacatethearbitral
award, notwithstanding it was rendered in plain
disregard of the parties contract and applicable
Philippinelaw,underwhichtheclaiminarbitration
wasindubitablytimebarred.

(b)Thetrialcourtactedcontrarytolawand
judicial authority in refusing to vacate and in
confirming the arbitral award, notwithstanding that
the arbitrators had plainly and admittedly failed to
accord petitioners due process by denying them a
hearingonthebasicfactualmatteruponwhichtheir
liabilityispredicated.

(c)Thetrial court committedgraveerror

in confirming the arbitrators award, which held
petitionerssellers liable for an alleged improper
recordingofaccounts,allegedlyaffectingthevalue
of the shares they sold, notwithstanding that the
respondentbuyer knew before contracting that the
accountswerekeptinthemannercomplainedof,and
infactratifiedandadoptedthequestionedaccounting
practiceandpolicies.[14]

TheCourtsRuling

Thepetitionmustbedenied.

OnProceduralMisstepofDirectAppealtoThisCourt

As earlier recited, the ICCICAs Partial Award datedSeptember 27,

2007wasconfirmedbytheRTCinitsfirstassailedorderofJanuary8,2008.
Thereafter,theRTC,byorderofMarch17,2008,deniedpetitionersmotionfor
reconsideration.Therefrom,petitionerscamedirectlytothisCourtonapetition
forreviewunderRule45oftheRulesofCourt.

Thisisaproceduralmiscueforpetitionerswhoerroneouslybypassedthe
CourtofAppeals(CA)inpursuitofitsappeal.Whilethisproceduralgaffehas
not been raised byRCBC,still wewouldbe remissinnot pointingout the
propermodeofappealfromadecisionoftheRTCconfirming,vacating,setting
aside,modifying,orcorrectinganarbitralaward.

Rule45isnottheremedyavailabletopetitionersasthepropermodeof
appeal assailing the decisionof the RTC confirming as arbitral award isan
appeal before the CA pursuant to Sec. 46 of Republic Act No. (RA) 9285,
otherwise known as theAlternative Dispute Resolution Act of 2004, or
completely,An Act to Institutionalize the Use of an Alternative Dispute
ResolutionSysteminthePhilippinesandtoEstablishtheOfficeforAlternative
DisputeResolution,andforotherPurposes,promulgatedonApril2,2004and
becameeffectiveonApril28,2004afteritspublicationonApril13,2004.

InKorea TechnologiesCo.,Ltdv. Lerma,weexplained,interalia,that

theRTCdecisionofanassailedarbitralawardisappealabletotheCAandmay
furtherbeappealedtothisCourt,thus:

Sec.46ofRA9285providesforanappealbeforethe
CAastheremedyofanaggrievedpartyincaseswherethe
RTC sets aside, rejects, vacates, modifies, or corrects an
arbitralaward,thus:

SEC. 46.Appeal from Court Decision or Arbitral

Awards.AdecisionoftheRegionalTrialCourtconfirming,
vacating, setting aside, modifying or correcting an arbitral
award may beappealed to the Court of Appealsin
accordancewiththerulesandproceduretobepromulgatedby
theSupremeCourt.

Thelosingpartywhoappealsfromthejudgmentof
thecourtconfirminganarbitralawardshallberequiredbythe

appellatecourttopostacounterbondexecutedinfavorofthe
prevailing party equal to the amount of the award in
accordancewiththerulestobepromulgatedbytheSupreme
Court.

Thereafter,theCAdecisionmayfurtherbeappealed
orreviewedbeforethisCourtthroughapetitionforreview
underRule45oftheRulesofCourt.[15]

It is clear from the factual antecedents that RA 9285 applies to the

instantcase.Thislawwasalreadyeffectiveatthetimethearbitralproceedings
werecommencedbyRCBCthrougharequestforarbitrationfiledbeforethe
ICCICAonMay12,2004.Besides,theassailedconfirmationorderoftheRTC
wasissuedonMarch17,2008.Thus,petitionersclearlytookthewrongmode
ofappealandtheinstantpetitioncanbeoutrightrejectedanddismissed.

Evenifweentertainthepetition,theoutcomewillbethesame.

TheCourtWillNotOverturnanArbitralAward
UnlessItWasMadeinManifestDisregardoftheLaw

InAssetPrivatizationTrustv.CourtofAppeals,[16]theCourtpassedon
similar issues as the ones tendered in the instant petition. In that case, the
arbitrationcommitteeissuedanarbitralawardwhichthetrialcourt,upondue
proceedings,confirmeddespitetheoppositionofthelosingparty.Motionsfor
reconsiderationbythelosingpartyweredenied.Anappealinterposedbythe
losingpartytotheCAwasdeniedduecourse.Onappeal tothisCourt,we
establishedtheparametersbywhichanarbitralawardmaybesetaside,towit:

Asarule,theawardofanarbitratorcannotbeset
asideformereerrorsofjudgmenteitherastothelaworas
to the facts. Courts are without power to amend or
overrulemerelybecauseofdisagreementwithmattersof
laworfactsdeterminedbythearbitrators.Theywillnot
reviewthefindingsoflawandfactcontainedinanaward,
and will not undertake to substitute their judgment for
thatofthearbitrators,sinceanyotherrulewouldmakean

award the commencement, not the end, of litigation.

Errorsoflawandfact,oranerroneousdecisionofmatters
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
limitedthanjudicialreviewofatrial.

Nonetheless,thearbitratorsawardsisnot absolute
andwithoutexceptions.Thearbitratorscannotresolveissues
beyondthescopeofthesubmissionagreement.Thepartiesto
suchanagreementareboundbythearbitratorsawardonlyto
theextentandinthemannerprescribedbythecontractand
only if the award is rendered in conformity thereto. Thus,
Sections24and25oftheArbitrationLawprovidegroundsfor
vacating,rescindingormodifyinganarbitrationaward.Where
theconditionsdescribedinArticles2038,2039and2040of
theCivilCodeapplicabletocompromisesandarbitrationare
attendant,thearbitrationawardmayalsobeannulled.

xxxx

Finally, it should be stressed that while a court is

precluded from overturning an award for errors in
determinationoffactualissues,nevertheless,ifanexamination
oftherecordrevealsnosupportwhateverforthearbitrators
determinations, their award must be vacated. In the same
manner,an award must be vacated if it was made in
manifestdisregardofthelaw.[17](Emphasissupplied.)

FollowingAssetPrivatizationTrust,errorsinlawandfactwouldnot
generally justify the reversal of an arbitral award. A party asking for the
vacationofanarbitralawardmustshowthatanyofthegroundsforvacating,
rescinding,ormodifyinganawardarepresentorthatthearbitralawardwas
madeinmanifestdisregardofthelaw.Otherwise,theCourtisdutyboundto
upholdanarbitralaward.

Theinstantpetitiondwellsontheallegedmanifestdisregardofthelaw
bytheICCICA.
TheUScase ofMerrill Lynch, Pierce, Fenner & Smith, Inc. v.
Jaros[18]expounded on the phrase manifest disregard of the law in the
followingwise:

Thiscourthasemphasizedthatmanifestdisregardof
thelawisaverynarrowstandardofreview.AnacondaCo.v.
District Lodge No. 27, 693 F.2d 35 (6thCir.1982). A mere
error in interpretation or application of the law is
insufficient.Anaconda,693F.2dat3738.Rather,thedecision
must fly in the face of clearly established legal precedent.
Whenfacedwithquestionsoflaw,anarbitrationpaneldoes
not act in manifest disregard of the law unless (1) the
applicablelegalprincipleisclearlydefinedandnotsubjectto
reasonabledebate;and(2)thearbitratorsrefusedtoheedthat
legalprinciple.

Thus, to justify the vacation of an arbitral award on account of

manifest disregard of the law, the arbiters findings must clearly and
unequivocallyviolateanestablishedlegalprecedent.Anythinglesswouldnot
suffice.

Inthepresentcase,petitioners,inabidtoestablishthatthearbitral
awardwasissuedinmanifestdisregardofthelaw,allegethatthePartialAward
violatedtheprinciplesofprescription,dueprocess,andestoppel.Areviewof
petitionersargumentswould,however,showthattheirargumentsarebereftof
merit.Thus,thePartialAwarddatedSeptember27,2007cannotbevacated.

RCBCsClaimIsNotTimeBarred

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

overvaluation of Bankards revenues, assets, and net worth, hence, for price
reductionfallingunderSec.5(h),inwhichcaseitwasbelatedlyfiled,forRCBC
presented the claim to petitioners on May 5, 2003, when the period for
presentingitunderSec.5(h)expiredonDecember31,2000.Asacounterpoint,
RCBCassertsthatitsclaimclearlycomesunderSec.5(g)inrelationtoSec.7

whichthusgaveitthree(3)yearsfrom theclosingdateofJune2,2000,or
untilJune1,2003,withinwhichtomakeitsclaim.RCBCcontendshavingacted
withintherequiredperiod,havingpresenteditsclaimdemandonMay5,2003.

Tomakecleartheissueathand,wehighlightthepertinentportionsof
Secs.5(g),5(h),and7bearingonwhat petitionerswarrantedrelativetothe
financialconditionofBankardandtheremediesavailabletoRCBCincaseof
breachofwarranty:

g.TheauditedfinancialstatementsofBankardforthe
three(3)fiscalyearsendedDecember31,1997,1998
and1999,andtheunauditedfinancialstatementsfor
thefirstquarterended31March2000,arefairand
accurate, and complete in all material respects, and
have beenprepared in accordance with generally
accepted accounting principlesconsistently followed
throughouttheperiodindicatedand:

i)thebalance sheet of Bankard as of 31

December 1999, as prepared and certified by
SGV&Co.(SGV),andtheunauditedbalance
sheet for the first quarter ended 31 March
2000,presentafairandaccuratestatementas
of those dates, of Bankards financial
condition andofallitsassetsand liabilities,
andiscompleteinallmaterialrespects;and

ii)thestatementsofBankardsprofitandloss
accountsforthefiscalyears1996to1999,as
prepared and certified by SGV,and the
unaudited profit and loss accounts for the
firstquarterended31March2000,fairlyand
accurately present the results of the
operations of Bankardfor the periods
indicated, andare complete in all material
respects.

h.ExceptasdisclosedintheDisclosures,andexcepttothe
extent set forth or reserved in the audited financial
statementsofBankardasof31December1999andits
unauditedfinancialstatementsforthefirstquarterended
31March2000,Bankard,asofsuchdatesandupto31
May2000,hadandshallhavenoliabilities,omissions
ormistakesinitsrecordswhichwillhaveamaterial
adverseeffectonthenetworthorfinancialcondition
ofBankardtotheextentofmorethanOneHundred
MillionPesos(P100,000,000.00)intheaggregate.In
theeventsuchmaterialadverseeffectonthenetworthor
financial condition of Bankard exceeds One Hundred
Million Pesos (P 100,000,000.00), the Purchase Price
shall be reduced in accordance with the following
formula:

xxxx

Section7.RemediesforBreachofWarranties

Ifanyoftherepresentationsandwarrantiesofanyor
alloftheSELLERSortheBUYER(theDefaultingParty)
containedinSections5and6shallbefoundtobeuntruewhen
madeand/orasoftheClosingDate,theotherparty,i.e.,the
BUYER if the Defaulting is any of the SELLERS and the
SELLERSiftheDefaultingPartyistheBUYER(hereinafter
referred to as the NonDefaulting Party)shall have the
right to require the Defaulting Party, at the latters
expense, to cure such breach, and/or seek damages, by
providingnoticeorpresentingaclaimtotheDefaulting
Party, reasonably specifying therein the particulars of the
breach.TheforegoingremediesshallbeavailabletotheNon
DefaultingPartyonlyifthedemandthereforispresentedin
writingtotheDefaultingPartywithinthree(3)yearsfrom
theClosingDate,exceptthattheremedyforabreachof
theSELLERSrepresentationandwarrantyinSection5
(h) shall be available only if the demand therefor is

presentedto the Defaulting Party in writing together with

schedulesanddatatosubstantiatesuchdemand,withinsix(6)
monthsfromtheClosingDate.(Emphasissupplied.)

Beforeweaddresstheissueputforwardbypetitioners,thereisa
necessitytodeterminethenatureandapplicationofthereliefsprovidedunder
Sec.5(g)andSec.5(h)inconjunctionwithSec.7,thus:

(1)ThereliefunderSec.5(h)isspecificallyforpricereductionas
said section explicitly states that the Purchase Price shall be reduced in
accordancewiththefollowingformulaxxx.Inaddition,Sec.7givesthe
aggrievedpartytherighttoaskdamagesbasedonthestipulationthatthenon
defaulting party shall have the right to require the Defaulting Party, at the
lattersexpense,tocuresuchbreachand/orseekdamages.

Ontheotherhand,theremedyunderSec.5(g)inconjunctionwith
Sec.7canincludespecificperformance,damages,andotherreliefsexcluding
pricereduction.

(2)Sec.5(g)warrantycoverstheauditedfinancialstatements(AFS)
forthethree(3)yearsendingDecember31,1997to1999andtheunaudited
financialstatements(UFS)forthefirstquarterendingMarch31,2000.Onthe
other hand, the Sec. 5(h) warranty refers only to the AFS for the year
endingDecember31,1999andtheUFSuptoMay31,2000.Itisundeniedthat
Sec.5(h)referstopricereductionasitcoversonlythemostuptodateaudited
and unaudited financial statements upon which the price must have been
based.[19]

(3)UnderSec.5(h),theresponsibilityofpetitionersforitswarranty
shallexcludethe disclosures and reservations made in AFS of Bankard as
ofDecember31,1999anditsUFSuptoMay31,2000.Nosuchexclusions
weremadeunderSec.5(g)withrespecttothewarrantyofpetitionersintheAFS
andUFSofBankard.

(4)Sec.5(h)givesreliefonlyifthereismaterialadverseeffectinthe
net worth inexcess of PhP 100 millionand it provides aformula for price
reduction.[20]Ontheotherhand,Sec.5(g)canbethebasisforremedieslike

specificperformance,damages,andotherreliefs,exceptpricereduction,evenif
theovervaluationislessorabovePhP100millionandthereisnoformulafor
computationofdamages.

(5)UnderSec.7,theaggrievedpartyshallpresentitswrittendemand
tothedefaultingpartywithinthree(3)yearsfromclosingdate.UnderSec.5(h),
the written demand shall be presented within six (6) months from closing
date.Inaccordancewithpar.2(c)oftheASPA,thedeadlinetofilethedemand
underSec.5(h)wasextendedtoDecember31,2000.

Fromtheabovedetermination,itbecomesclearthattheaggrievedpartyis
entitledtotwo(2)separatealternativeremediesunderSecs.5and7oftheSPA,
thus:

1.AclaimforpricereductionunderSec.5(h)
and/ordamagesbasedonthebreachofwarrantybyBankard
ontheabsenceofliabilities,omissionsandmistakesonthe
financialstatementsasof31December1999andtheUFSas
of31May2000,providedthatthematerialadverseeffecton
thenetworthexceedsPhP100Mandthewrittendemandis
presentedwithinsix(6)monthsfromclosingdate(extendedto
31December2000);and

2.An action to cure the breach like specific

performance and/or damages under Sec. 5(g) based on
BankardsbreachofwarrantyinvolvingitsAFSforthethree
(3)fiscalyearsending31December1997,1998,and1999and
theUFSforthefirstquarterending31March2000provided
that the writtendemand shall bepresentedwithinthree(3)
yearsfromclosingdate.

HasRCBCtheoptiontochoosebetweenSec.5(g)orSec.5(h)?

Theanswerisyes.Sec.5andSec.7areclearthatitisdiscretionaryon
theaggrievedpartiestoavailthemselvesofanyremedymentionedabove.They
maychooseoneanddispensewiththeother.Ofcourse,thereliefforprice
reductionunderSec.5(h)willhavetoconformtotheprerequisitesandtime
frameofsix(6)months;otherwise,itiswaived.

Preliminarily, petitioners basic posture that RCBCs claim is for the

recoveryofoverpaymentisspecious.TherecordsshowthatinitsRequestfor
ArbitrationdatedMay12,2004,RCBCprayedfortherescissionoftheSPA,
restitutionofthewholepurchaseprice,anddamagesnotforreductionofprice
orforthereturnofanyoverpayment.EveninitsMay5,2000letter,[21]RCBC
didnotaskfortherecoveryofanyoverpaymentorreductionofprice,merely
statinginitthattheaccountsofBankard,asreflectedinitsAFSfor1999,were
overstatedwhich,necessarily,resultedinanoverpaymentsituation.RCBCwas
emphaticandunequivocalthatpetitionersviolatedtheirwarrantycoveredby
Sec.5(g)oftheSPA.

ItisthusevidentthatRCBCdidnotavailitselfoftheoptionunderSec.
5(h),i.e.,forpricereductionorthereturnofanyoverpaymentarisingfromthe
overvaluationof Bankards financial condition.Clearly,RCBC invokedSec.
5(g)toclaimdamagesfrompetitionerswhichisoneofthealternativereliefs
grantedunderSec.7inadditiontorescissionandrestitutionofpurchaseprice.

PetitionersdonotdenythatRCBCformallyfileditsclaimunderSec.5(g)
whichisanchoredonthematerialoverstatementorovervaluationofBankards
revenues,assets,andnetworthand,hence,theoverstatementofthepurchase
price.They,however,assertthatsuchclaimforoverpaymentisactuallyaclaim
underSec.5(h)oftheSPAforpricereductionwhichitforfeitedafterDecember
31,2000.

Wecannotsustainpetitionersposition.
ItcannotbedisputedthatanoverstatementorovervaluationofBankards
financialconditionasofclosingdatetranslatesintoamisrepresentationnotonly
oftheaccuracyandtruthfulnessofthefinancialstatementsunderSec.5(g),but
alsoastoBankardsactual networthmentionedinSec.5(h).Overvaluation
presupposesmistakesintheentriesinthefinancialstatementsandamountstoa
breach of petitioners representations and warranties under Sec.
5.Consequently,sucherrorinthefinancial statementswouldimpact onthe
figure representing the net worth of Bankard as of closing date.An
overvaluation means that the financial condition of Bankard as of closing
date,i.e.,June2,2000,isoverstated,asituationthatwilldefinitelyresultina
breachofEPCIBsrepresentationsandwarranties.

AscrutinyofSec.5(g)andSec.5(h)inrelationtoSec.7oftheSPA
would indicate the following remedies available to RCBC should it be
discovered,asofclosingdate,thatthereisovervaluationwhichwillconstitute
breachofthewarrantyclauseundereitherSec.5(g)or(h),towit:

(1) An overvaluation of Bankards actual financial condition as of

closingdatetaintstheveracityandaccuracyoftheAFSfor1997,1998,and
1999andtheUFSforthefirstquarterof2000andisanactionablebreachof
petitionerswarrantiesunderSec.5(g).

(2)AnovervaluationofBankardsfinancialconditionasofMay31,
2000, encompassing the warranted financial condition as ofDecember 31,
1999throughtheAFSfor1999andasofMarch31,2000throughtheUFSfor
the first quarter of 2000, is a breach of petitioners representations and
warrantiesunderSec.5(h).

Thus, RCBC has two distinct alternative remedies in case of an

overvaluationofBankardsfinancialcondition.ItmayinvokeSec.5(h)when
the conditions of the threshold aggregate overvaluation and the claim made
withinthesixmonthtimebararepresent.Inthealternative,itmayinvokeSec.
5(g)whenitfindsthataclaimforcuringthebreachand/ordamageswillbe
moreadvantageoustoitsinterestsprovideditisfiledwithinthree(3)yearsfrom
closing date. Since it has two remedies, RCBC may opt to exercise either
one.Ofcourse,theexerciseofeitheronewillprecludetheother.

Moreover,thelanguageemployedinSec.5(g)andSec.5(h)isclear
andbereftofanyambiguity.TheSPAsstipulationsrevealthatthenonuseor
waiverofSec.5(h)doesnotprecludeRCBCfromavailingitselfofthesecond
reliefunderSec.5(g).Article1370oftheCivilCodeisexplicitthatiftermsof
acontractareclearandleavenodoubtupontheintentionofthecontracting
partiestheliteralmeaningofitsstipulationsshallcontrol.Sincethetermsofa
contract have the force of law between the parties, [22]then the parties must
respectandstrictlyconformtoit.Lastly,itisalongheldcardinalrulethatwhen
thetermsofanagreementarereducedtowriting,itisdeemedtocontainallthe
termsagreeduponandnoevidenceofsuchtermscanbeadmittedotherthanthe
contents of the agreement itself.[23]Since the SPA is unambiguous, and
petitionersfailedtoadduceevidencetothecontrary,thentheyarelegallybound
tocomplywithit.

Petitionersagreedultimatelytothestipulationthat:

Each of the representations and warranties of the

SELLERS is deemed to be aseparate representation and
warranty, and the BUYER has placed complete reliance
thereoninagreeingtothePurchasePriceandinenteringinto
this Agreement.The representations and warranties of the
SELLERSshallbecorrectasofthedateofthisAgreement
andasoftheClosingDatewiththesameforceandeffectas
thoughsuchrepresentationsandwarrantieshadbeenmadeas
oftheClosingDate.[24](Emphasissupplied.)

TheCourtsustainsthefindinginthePartialAwardthatSec.5(g)ofthe
SPAisafreestandingwarrantyandnotconstrictedbySec.5(h)ofthesaid
agreement.

Upontheforegoingpremisesandinthelightoftheundisputedfactson
record, RCBCs claim for rescission of the SPA and damages due to
overvaluationofBankardsaccountswasproperlyforabreachofthewarranty
underSec.5(g)andwasnottimebarred.Torepeat,RCBCpresenteditswritten
claimonMay5,2003,oralittlelessthanamonthbeforeclosingdate,well
within the three (3)year prescriptive period provided under Sec. 7 for the
exerciseoftherightprovidedunderSec.5(g).

Petitioners bemoan the fact that the arbitrators liability award (a)
disregardedthe6monthcontractuallimitationforRCBCsoverpriceclaim,
and[b]substitutedinitsplacethe3yearlimitationunderthecontractforother
claims,[25]adoptinginthatregardtheinterpretationoftheSPAmadebyarbitral
tribunalmember,retiredJusticeKapunan,inhisDissentingOpinion,inwhich
heasserted:

Ultimately, the Claim is one for recovery of

overpaymentinthepurchasepriceoftheshares.Anditisin
thiscontext,thatIrespectfullysubmitthatSection5(h)and
notSection5(g),appliestothepresentcontroversy.[26]

xxxx


True, without Section 5(h), the Claim for price
recoverywouldfallunderSection5(g).Therecoveryofthe
pecuniarylossoftheClaimantintheformoftheexcessprice
paidwouldbeinthenatureofaclaimforactualdamagesby
wayofcompensation.Inthatsituation,alltheaccountsinthe
1999financialstatementswouldbethesubjectofthewarranty
inSection5(g).
However,sincethepartiesexplicitlyincludedSection
5(h)intheirSPA,whichassurestheClaimantthattherewere
noomissionsormistakesintherecordsthatwouldmisstate
the 1999 net worth account,I am left with no other
conclusionbutthattheaccuracyofthenetworthwasthe
subjectofthewarrantyinSection5(h),whiletheaccuracy
orcorrectnessoftheotheraccountsthatdidnotbearon,
oraffectBankardsnetworth,wereguaranteedbySection
5(g).

xxxx

This manner of reconciling the two provisions is

consistentwiththeprincipleinRule130,Section12ofthe
RulesofCourtthatwhenageneralandaparticularprovision
areinconsistent,thelatterisparamounttotheformer[so]a
particularintentwillcontrolageneralonethatisinconsistent
with it. This is also consistent with existing doctrines on
statutoryconstruction,theapplicationofwhichisillustratedin
the case of Commissioner of Customs vs. Court of Tax
Appeals,GRNo.L41861,datedMarch23,1987xxx.

xxxx

TheClaimisforrecoveryoftheexcesspriceby
wayofactualdamages.[27]xxx(Emphasissupplied.)

JusticeKapunannotedthatwithoutSec.5(h),RCBCsclaimwould
fallunderSec.5(g),impliedlyadmittingthatbothprovisionscouldverywell

coverRCBCsclaim,exceptthatSec.5(h)excludesthesituationcontemplated
initfromthegeneraltermsofSec.5(g).

Suchviewisincorrect.

WhileitistruethatSec.5(h),ascouched,isawarrantyontheaccuracy
oftheBankardsnetworthwhileSec.5(g),asalsocouched,isawarrantyonthe
veracity, accuracy, and completeness of the AFS in all material respects as
prepared in accordance with generally accepted accounting principles
consistentlyfollowedthroughouttheperiodaudited,yet bothwarrantiesboil
downtothesamethingandstemfromthesameaccountsassummarizedinthe
AFS.Since thenet worth is the balance of Bankards assets less its
liabilities, it necessarily includes all the accounts under the AFS.In
short,therearenoaccountsintheAFSthatdonotbearonthenetworthof
Bankard.Moreover,asearlierelucidated,anyovervaluationofBankardsnet
worth is necessarily a misrepresentation of the veracity, accuracy, and
completenessoftheAFSandalsoabreachofthewarrantyunderSec.5(g).
Thus,thesubjectofthewarrantyinSec.5(h)isalsocoveredbythewarrantyin
Sec.5(g),andSec.5(h)cannotexcludesuchbreachfromtheambitofSec.5(g).
ThereisnoneedtorelyonSec.12,Rule130oftheRulesofCourtforbothSec.
5(g)andSec.5(h)asalternativeremediesareofequalfootingandoneneednot
categorize one section as a general provision and the other a particular
provision.

Moreimportantly,ascrutinyofthefourcornersoftheSPAdoesnot
explicitlyrevealanystipulationnorevenimpliedlythatthepartiesintendedto
limitthescopeofthewarrantyinSec.5(g)orgaveprioritytoSec.5(h)over
Sec.5(g).

ThearbitraltribunaldidnotfindanylegalbasisintheSPAthatSec.
5(h)somehowcutsdownthescopeofSec.5(g),thus:

9.10IntheopinionoftheTribunal,thereisnothing
in the wording used in the SPA to give priority to one
warrantyovertheother.Thereisnothinginthewording
usedtoindicatethatthepartiesintendedtolimitthescope
ofthewarrantyin5(g).Ifitbecontendedthat,onatrue
constructionofthetwowarranties,5(h)somehowcutsdown

thescopeof5(g),theTribunalcanfindnojustificationfor
such conclusion on the wording used. Furthermore, the
Tribunalisoftheviewthatveryclearwordswouldbeneeded
tocutdownthescopeofthe5(g)warranty.[28]

The Court upholdsthe conclusionofthe tribunal andrules that the

claimofRCBCunderSec.5(g)isnottimebarred.

PetitionersWereNotDeniedDueProcess

Petitioners impute on RCBC the act of creating summaries of the

accountsofBankardwhichinturnwereusedbyitsexpertstoconcludethat
Bankardimproperlyrecordeditsreceivablesandcommittedmaterialdeviations
from GAAP requirements.[29]Later, petitioners would assert that the
arbitratorspartialawardadmittedandusedtheSummariesasevidence,and
heldonthebasisoftheinformationcontainedinthemthatpetitionerswerein
breachoftheirwarrantyinGAAPcompliance.

To petitioners, the ICCICAs use of such summaries but without

presentingthesourcedocumentsviolatestheirrighttodueprocess.Pressingthe
point, petitioners had moved, but to no avail, for the exclusion of the said
summaries.Petitionersallegethattheyhadreservedtherighttocrossexamine
thewitnessesofRCBCwhotestifiedonthesummaries,pendingtheresolution
oftheirmotiontoexclude.But,accordingtothem,theywereeffectivelydenied
therighttocrossexamineRCBCswitnesseswhentheICCICAadmittedthe
summariesofRCBCasevidence.

Petitionerspositionisbereftofmerit.

Anent the use but nonpresentation of the source documents as the

jumpingboardforaclaimofdenialofdueprocess,petitionersciteCompania
Maritimav.AlliedFreeWorkersUnion.[30]Itmaybestated,however,thatsuch
caseisnotonallfourswiththeinstantcaseand,therefore,cannotbeapplied
here considering that it does not involve an administrative body exercising
quasijudicialfunctionbutrathertheregularcourt.

Inacatenaofcases,wehaveruledthat[t]heessenceofdueprocessis
the opportunity to be heard. What the law prohibits is not the absence of
previousnoticebuttheabsoluteabsencethereofandthelackofopportunityto
beheard.[31]

We also explained inLastimoso v. Asayothat [d]ue process in an

administrativecontextdoesnotrequiretrialtypeproceedingssimilartothosein
courts of justice. Where an opportunity to be heard either through oral
argumentsorthroughpleadingsisaccorded,thereisnodenialofproceduraldue
process.[32]

Werepetitionersaffordedtheopportunitytorefutethesummariesand
piecesofevidencesubmittedbyRCBCwhichbecamethebasesoftheexperts
opinion?

Theanswerisintheaffirmative.

Werecalltheeventsthatculminatedintheissuanceofthechallenged
PartialAward,thus:

OnMay 17, 2004, the ICCICA received theRequest for

ArbitrationdatedMay12,2004fromRCBCseekingrescissionoftheSPAand
restitutionofalltheamountspaidbyRCBCtopetitioners,withactualandmoral
damages,interest,andcostsofsuit.

OnAugust 8, 2004, petitioners filed an Answer to the Request for

ArbitrationdatedJuly28,2004,settingupacounterclaimforUSD300,000for
actualandexemplarydamages.

RCBCfileditsReply[33]datedAugust31,2004topetitionersAnswer
totheRequestforArbitration.
OnOctober4,2004,thepartiesenteredintotheTermsofReference.
[34]
Atthesametime,thechairpersonofthearbitraltribunalissuedaprovisional
timetable[35]forthearbitration.

OnOctober25,2004,aspreviouslyagreeduponinthemeetingon
October4,2004,petitionersfiledaMotiontoDismiss [36]whileRCBCfileda

ClaimantsPositionPaper(Re:[Petitioners]AssertionthatRCBCCAPITAL
CORPORATIONsPresentClaimIsTimeBarred).[37]

Then, the tribunal issued Procedural Order No. 1 datedJanuary 12,

[38]
2005, denyingthemotiontodismissandsettingtheinitialhearingofthecase
onApril11,2005.

In a letter datedFebruary 9, 2005,[39]petitioners requested that the

tribunal direct RCBC to produce certain documents. At the same time,
petitionerssoughtthepostponementofthehearingonApril11,2005toMarch
21,2005,inlightoftheirownrequest.

OnFebruary11,2005,petitionersreceivedRCBCsbriefofevidence
and supporting documentation in accordance with the provisional timetable.
[40]
In the brief of evidence, RCBC provided summaries of the accounts of
Bankard,whichpetitionersnowquestion.

Later,inaletterdatedFebruary14,2005,[41]petitionerscomplainedto
the tribunal with regard to their lack of access to RCBCs external auditor.
PetitionerssoughtanauditbyanaccountingfirmoftherecordsofBankardwith
respect to the claims of RCBC. By virtue of such requests, petitioners also
soughtareschedulingoftheprovisionaltimetable,despitetheirearlierassurance
to the tribunal that if they received the documents that they requested
onFebruary9,2005onorbeforeFebruary21,2005,theywouldabidebythe
provisionaltimetable.

Thereafter,thetribunalissuedProceduralOrderNo.2datedFebruary
18,2005,[42]inwhichitallowedthediscoveryandinspectionofthedocuments
requestedbypetitionersthat werealsoscheduledonFebruary18,2005.The
requestforanauditofBankardsaccountswasdeniedwithoutprejudicetothe
conduct of such audit during the course of the hearings. Consequently, the
tribunal amended the provisional timetable, extending the deadline for
petitionerstofiletheirbriefofevidenceanddocumentstoMarch21,2005.The
dateoftheinitialhearing,however,remainedonApril11,2005.

OnFebruary18,2005,petitionerswerefurnishedthedocumentsthat
theyrequestedRCBC.[43]ThepartiesalsoagreedtomeetagainonFebruary23,
2005to provide petitioners with a walkthrough of Bankards Statistical

AnalysisSystemandtoprovidepetitionerswithasoftcopyofallofBankards
cardholders.[44]

During theFebruary 23, 2005meeting, EPCIBs

counsels/representativeswereaccompaniedtotheBankardsCreditMISGroup.
There, Bankards representative, Amor Lazaro, described and explained to
petitionersrepresentativesthestepsinvolvedinprocuringandtranslatingraw
data on customer transactions. Lazaro explained that Bankard captures
cardholder information and transactions through encoding or electronic data
capture. Thereafter, such data are transmitted to its main credit card
administrationsystem.SuchrawdataarethensenttoBankardsInformation
TechnologyGroup.UsingaproprietarysoftwarecalledSAS,therawdatais
thenconvertedintoSASfileswhichmaybeviewed,handled,andconvertedinto
Excel files for reporting purposes. During the walkthrough, petitioners
representativesaskedquestionswhichwereansweredindetailbyLazaro.

Atthesametime,anotherBankardrepresentative,FelixL.Sincoegue,
accompaniedtwoauditors/representativesofpetitionerstoexaminethejournal
vouchersandsupportingdocumentsofBankardconsistingofseveralboxes.The
auditorsrandomlysiftedthroughtheboxeswhichtheyhadearlierrequestedto
beinspected.

Inaddition,petitionerswerefurnishedwithanelectroniccopyofthe
detailsofallcardholders,includingrelevantdataforagingofreceivablesforthe
years2000to2003,aswellasdatacontainingdetailsofwrittenoffaccounts
from1999toMarch2000containedincompactdiscs.[45]

OnMarch4,2005,petitionerssentaletter[46]tothetribunalrequesting
forapostponementoftheApril11,2005hearingofthecase.Petitionersclaim
thattheycouldnotconfirmthesummariespreparedbyRCBC,consideringthat
RCBCallegedlydidnotcooperateinprovidingdatathatwouldfacilitatetheir
verification. Petitioners specifically mentioned the following data: (1) list of
namesofcardholderswhoseaccountsaresourcesofdatagatheredorcalculated
inthesummaries;(2)referencestothebasiccardholderdocumentsfromwhich
suchdatawerecollected;and(3)accesstotheunderlyingcardholderdocuments
atatimeandunderconditionsmutuallyconvenienttotheparties.Asregardsthe
compact discsofinformationprovidedtopetitioners,it isclaimedthat such
informationcouldnotbeaccessedasthesoftwarenecessaryforthehandlingof
thedatacouldnotbemadeimmediatelyavailabletothem.

InProceduralOrderNo.3datedMarch112005,[47]theinitialhearing
wasmovedtoJune13to16,2005,consideringthatpetitionersfailedtopaythe
advanceoncostsofthetribunal.

OnMarch23,2005,RCBCpaidthebalanceoftheadvanceoncosts.[48]

OnApril22,2005,petitionerssentthetribunalaletter, [49]requesting
forthepostponementofthehearingscheduledonJune13to16,2005onthe
groundthattheycouldnotsubmittheirwitnessstatementsduetothevolumeof
datathattheyacquiredfromRCBC.

InaletterdatedApril25,2005,[50]petitionersdemandedfromRCBC
thattheybeallowedtoexaminethejournalvouchersearliermadeavailableto
them during theFebruary 23, 2005meeting. This demand was answered by
RCBCinaletterdatedApril26,2005,[51]statingthatsuchdemandwasbeing
deniedbyvirtueofProceduralOrderNo.2,inwhichitwasruledthatfurther
requestsfordiscoverywouldnotbemadeexceptwithleaveofthechairperson
ofthetribunal.

InProceduralOrderNo.4,[52]thetribunalgrantedpetitionersrequest
for the postponement of the hearing onJune 13, 2005and rescheduled it
toNovember21,2005inlightofthependingmotionsfiledbyEPCIBwiththe
RTCinMakatiCity.

OnJuly29,2005,thepartiesheldameetingwhereinitwasagreedthat
petitionerswouldbeprovidedwithhardandsoftcopiesoftheinventoryofthe
journal vouchers earlier presented to its representatives, while making the
journal vouchers available to petitioners for two weeks for examination and
photocopying.[53]

OnSeptember2,2005,petitionersappliedforthepostponementofthe
November21,2005hearingduetothefollowing:(1)petitionershadearlierfiled
amotiondatedAugust11,2005withtheRTC,inwhichtheissueofwhetherthe
nonFilipino members of the tribunal were illegally practicing law in the
Philippinesbyhearingtheircase,whichwasstillpending;and(2)thegathering
and processing of the data and documents made available by RCBC would
require26weeks.[54]SuchapplicationwasdeniedbythetribunalinProcedural
OrderNo.5datedSeptember16,2005.[55]

OnOctober 21, 2005, the tribunal issued Procedural Order No. 6,

postponingtheNovember21,2005hearingbyvirtueofanorderissuedby
theRTCinMakatiCitydirectingthetribunaltoresetthehearingforApril21
and24,2006.

Thereafter,inaletterdatedJanuary18,2006, [57]petitionerswrotethe
tribunal requesting that RCBC be directed to: (1) provide petitioners with
informationidentifyingthejournalvouchersandothersupportingdocuments
that RCBC usedtoarrive at thefigures set out inthesummariesand other
relevantinformationnecessarytoenablethemtoreconstructand/orotherwise
understand the figures or amounts in each summary; and (2) submit to
petitioners the requested pieces of information as soonas these are or have
becomeavailable,orinanycasenotlaterthanfivedays.

Inresponsetosuchletter,RCBCaddressedaletterdatedJanuary31,
[58]
2006 tothetribunalclaimingthatthepiecesofinformationthatpetitioners
requested are already known to petitioners considering that RCBC merely
maintained the systems that they inherited when it bought Bankard from
petitioners.RCBCaddedthatthedocumentsthatEPCIBoriginallytransmitted
toitwhenRCBCboughtBankardwereallbeingmadeavailabletopetitioners;
thus,anymissingsupportingdocumentsfromthesefileswerenevertransmitted
totheminthefirstplace.

Later,petitionerssenttothetribunalaletterdatedFebruary10,2006,
[59]
asking that it direct RCBC to provide petitioners with the supporting
documentsthatRCBCmentionedinitsletterdatedJanuary31,2006.Petitioners
wrotethatshouldRCBCfailtopresentsuchdocuments,RCBCssummaries
shouldbeexcludedfromtherecords.

InaletterdatedMarch10,2006,[60]petitionersrequestedthattheybe
given an additional period of at least 47 days within which to submit their
evidenceinchief with the corresponding request for the cancellation of the
hearingonApril24,2006.Petitionerssubmitthatshouldsuchrequestbedenied,
RCBCssummariesshouldbeexcludedfromtherecords.

OnApril6,2006,petitionersfiledtheirarbitrationbriefsandwitness
statements.Bywayofreply,onApril17,2006,RCBCsubmittedVolumesIV
andVofitsexhibitsandVolumeIIofitsevidenceinchief.[61]

[56]

OnApril 18, 2006, petitioners requested the tribunal that they be

allowedtofilerejoinderbriefs,orotherwiseexcludeRCBCsreplybriefand
witnessstatements.[62]Inthisrequest,petitionersalsorequestedthatthehearing
setforApril24,2006bemoved.Theserequestsweredenied.

Consequently,onApril24to27,2006,thearbitraltribunalconducted
hearingsonthecase.[63]
OnDecember 4, 2006, petitioners submitted rejoinder affidavits,
raisingnewissuesforthefirsttime,towhichRCBCsubmittedVolumeIIIofits
evidenceinchiefbywayofareply.

OnJanuary 16, 2007, both parties simultaneously submitted their

memoranda.OnJanuary26,2007,bothpartiessimultaneouslyfiledtheirreply
totheothersmemorandum.[64]

Thus,onSeptember27,2007,thePartialAwardwasrenderedbythe
Tribunal.

Later,petitionersmovedtovacatethesaidawardbeforetheRTC.Such
motionwasdeniedbythetrialcourtinthefirstassailedorderdatedJanuary8,
2008. Petitioners then moved for a reconsideration of such order, but their
motionwasalsodeniedinthesecondassailedorderdatedMarch17,2008.

Theforegoingeventsunequivocallydemonstrateampleopportunityfor
petitionerstoverifyandexamineRCBCssummaries,accountingrecords,and
reports. The pleadings reveal that RCBC granted petitioners requests for
productionofdocumentsandaccountingrecords.Moreso,theyhadmorethan
three(3)yearstopreparefortheirdefenseafterRCBCssubmissionofitsbrief
ofevidence.Finally,itmustbeemphasizedthatpetitionershadtheopportunity
toappealthePartialAwardtotheRTC,whichtheyinfactdid.Later,petitioners
evenmovedforthereconsiderationofthedenialoftheirappeal.Havingbeen
abletoappealandmoveforareconsiderationoftheassailedrulings,petitioners
cannotclaimadenialofdueprocess.[65]

Petitionersrighttodueprocesswasnotbreached.
Asregardspetitionersclaimthatitsrighttodueprocesswasviolated
whentheywereallegedlydeniedtherighttocrossexamineRCBCswitnesses,
theirclaimisalsobereftofmerit.

Sec.15ofRA876ortheArbitrationLawprovidesthat:

Section15.Hearingbyarbitrators.Arbitrators
may,atthecommencementofthehearing,askbothpartiesfor
briefstatementsoftheissuesincontroversyand/oranagreed
statement of facts. Thereafter the parties may offer such
evidence as they desire, and shall produce such additional
evidenceasthearbitratorsshallrequireordeemnecessaryto
an understanding and determination of the dispute.The
arbitrators shall be the sole judge of the relevancy and
materialityoftheevidenceofferedorproduced,andshall
notbeboundtoconformtotheRulesofCourtpertaining
to evidence. Arbitrators shall receive as exhibits in
evidence any document which the parties may wish to
submitandtheexhibitsshallbeproperlyidentifiedatthe
timeofsubmission.Allexhibitsshallremaininthecustody
oftheClerkofCourtduringthecourseofthearbitrationand
shallbereturnedtothepartiesatthetimetheawardismade.
Thearbitratorsmaymakeanocularinspectionofanymatter
orpremiseswhichareindispute,butsuchinspectionshallbe
made only in the presence of all parties to the arbitration,
unlessanypartywhoshallhavereceivednoticethereoffailsto
appear,inwhicheventsuchinspectionshallbemadeinthe
absenceofsuchparty.(Emphasissupplied.)

Thewellsettledruleisthatadministrativeagenciesexercisingquasi
judicial powersshall not befetteredbytherigidtechnicalitiesofprocedure,
albeittheyare,atalltimesrequired,toadheretothebasicconceptsoffairplay.
TheCourtwroteinCMPFederalSecurityAgency,Inc.v.NLRC:

While administrative tribunals exercising quasi

judicialpowers,liketheNLRCandLaborArbiters,arefree
fromtherigidityofcertainproceduralrequirements,theyare
nonetheless bound by law and practice to observe the
fundamentalandessentialrequirementsofdueprocess. The
standard of due process that must be met in administrative
tribunalsallowsacertaindegreeoflatitudeaslongasfairness

isnotignored.Hence,itisnotlegallyobjectionable,forbeing
violativeofdueprocess,fortheLaborArbitertoresolvea
case based solely on the position papers, affidavits
ordocumentary evidence submitted by the parties. The
affidavitsofwitnessesinsuchcasemaytaketheplaceoftheir
directtestimony.[66]

OfthesametenorisourholdinginQuiambaov.CourtofAppeals:

Inresolvingadministrativecases,conductoffullblowntrialis
not indispensable to dispense justice to the parties. The
requirement of notice and hearing does not connote full
adversarial proceedings.Submissionofpositionpapersmay
besufficientforaslongasthepartiestheretoaregiventhe
opportunitytobeheard.Inadministrativeproceedings,the
essence of due process is simply an opportunity to be
heard, or an opportunity to explain ones side or
opportunity to seek a reconsideration of the action or
ruling complained of. This constitutional mandate is
deemedsatisfiedifapersonisgrantedanopportunityto
seekreconsiderationofanactionoraruling.Itdoesnot
requiretrialtypeproceedingssimilartothoseinthecourtsof
justice. Where opportunity to be heard either through oral
argumentsorthroughpleadingsisaccorded,thereisnodenial
ofproceduraldueprocess.[67](Emphasissupplied.)

CitingVertudesv.Buenaflor,petitionersalsocrydenialofdueprocess
when they wereallegedly denied the right to crossexamine the witnesses
presentedbyRCBC.ItistruethatinVertudes,westated:Therightofaparty
toconfrontandcrossexamineopposingwitnessesinajudiciallitigation,beit
criminalorcivilinnature,orinproceedingsbeforeadministrativetribunalswith
quasijudicialpowers,isafundamentalrightwhichispartofdueprocess.[68]

Itis,however,equallytruethat:

[T]herightisapersonalonewhichmaybewaived
expresslyorimpliedlybyconductamountingtoarenunciation
oftherightofcrossexamination.Thus,whereapartyhas

hadtheopportunitytocrossexamineawitnessbutfailed
to avail himself ofit,henecessarilyforfeitsthe rightto
crossexamineand the testimony given on direct
examinationofthewitnesswillbereceivedorallowedto
remainintherecord.[69](Emphasissupplied.)

Wealsoheldinonecase:

However, the right has always been understood as

requiringnotnecessarilyanactualcrossexaminationbut
merely an opportunity to exercise the right to cross
examineifdesired.Whatisproscribedbystatutorynorm
and jurisprudential precept is the absence of the
opportunity to crossexamine.The right is a personal one
and may be waived expressly or impliedly.There is an
impliedwaiverwhenthepartywasgiventheopportunityto
confrontandcrossexamineanopposingwitnessbutfailedto
takeadvantageofitforreasonsattributabletohimselfalone.If
byhisactuations,theaccusedlosthisopportunitytocross
examinewhollyorinpartthewitnessesagainsthim,hisright
tocrossexamineisimpliedlywaived.[70](Emphasissupplied.)

AndlaterinVelezv.DeVera,theCourtEnBancexpoundedonthe
aboverulings,addingthatinadministrativeproceedings,crossexaminationis
notindispensable,thus:

Due process of law in administrative cases is not

identical with judicial process for a trial in court is not
alwaysessential todue process. Whilea dayincourt isa
matter of right in judicial proceedings, it is otherwise in
administrative proceedings since they rest upon different
principles. Thedue process clause guaranteesnoparticular
form of procedure and its requirements are not technical.
Thus,incertainproceedingsofadministrativecharacter,the
righttoanoticeorhearing[is]notessentialtodueprocessof
law.Theconstitutionalrequirementofdueprocessismetbya

fair hearing before a regularly established administrative

agency or tribunal. It is not essential that hearings be had
before the making of a determination if thereafter, there is
available trial and tribunal before which all objections and
defensestothemakingofsuchdeterminationmayberaised
andconsidered.Oneadequatehearingisallthatdueprocess
requires. What is required for hearing may differ as the
functionsoftheadministrativebodiesdiffer.

Therighttocrossexamineisnotanindispensable
aspectofdueprocess.[71]xxx(Emphasissupplied.)

Clearly,therighttocrossexamineawitness,althoughafundamental
rightofaparty,maybewaived.Petitionersthemselvesadmithavinghadthe
opportunitytocrossexamineRCBCswitnessesduringthehearingsbeforethe
tribunal,butdeclinedtodosobyreservingsuchrightatalatertime.Havinghad
theopportunitytocrossexamineRCBCswitnesses,petitionerswerenotdenied
theirrighttodueprocess.

RCBCIsNotEstoppedfromQuestioning
theFinancialConditionofBankard

Onestoppel,petitionerscontendthatRCBCalreadyknewtherecording
oftheBankardaccountsbeforeitpaidthebalanceofthepurchasepriceand
could no longer challenge the financial statements of Bankard. RCBC, they
claim, had full control of the operations of Bankard sinceJune 2, 2000and
RCBCsauditteamreviewedtheaccountsinSeptember2000.Thus,RCBCis
nowprecludedfromdenyingthefairnessandaccuracyofsaidaccountssinceit
didnotseekpricereductionunderSec.5(h).Lastly,theyasseveratethatRCBC
continuedwithBankardsaccountingpoliciesandpracticesandfoundthemto
conformtothegenerallyacceptedaccountingprinciples,contrarytoRCBCs
allegations.

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

arbitral tribunal member, argued that Bankards accounting practices were
disclosedintheinformationmemorandum providedtoRCBC;hence,RCBC
wassupposedtoknowsuchaccountingpracticesandtohaveacceptedtheir
proprietyevenbeforetheexecutionoftheSPA.Hethenarguedthatwhenit

paidthepurchasepriceonDecember29,2000,RCBCcouldnolongerclaim
thattheaccountingpracticesthatwentintothereportingofthe1999AFSof
Bankardwerenotinaccordwithgenerallyacceptedaccountingprinciples.He
pointedoutthatRCBCwasboundbytheauditconductedbyacertainRubio
priortothefullpaymentofthepurchasepriceofBankard.Anchoredonthese
statements by Justice Kapunan, petitioners conclude that RCBC is estopped
fromclaimingthattheformerviolatedtheirwarrantiesundertheSPA.

Petitionerscontentionisnotmeritorious.

Art. 1431 of the Civil Code, on the subject of estoppel, provides:

Throughestoppelanadmissionorrepresentationisrenderedconclusiveupon
thepersonmakingit,andcannotbedeniedordisprovedasagainsttheperson
relyingthereon.

Thedoctrineofestoppelisbaseduponthegroundsofpublicpolicy,
fairdealing,goodfaith,andjustice;anditspurposeistoforbidonetospeak
againstonesownacts,representations,orcommitmentstotheinjuryofoneto
whomtheyweredirectedandwhoreasonablyreliedonthem.[72]

WeexplainedtheprincipleofestoppelinPhilippineSavingsBankv.
ChowkingFoodCorporation:

x x xThe equitable doctrine of estoppel was

explainedbythisCourtinCaltex(Philippines),Inc.v.Court
ofAppeals:

Underthedoctrineofestoppel,anadmission
or representation is rendered conclusive upon the
personmakingit,andcannotbedeniedordisproved
asagainstthepersonrelyingthereon. Apartymay
notgobackonhisownactsandrepresentationsto
the prejudice of the other party who relied upon
them.Inthelawofevidence,wheneverapartyhas,
byhisowndeclaration,act,oromission,intentionally
and deliberately led another to believe a particular
thingtrue,toactuponsuchbelief,hecannot,inany
litigation arising out of such declaration, act, or
omission,bepermittedtofalsifyit.


The principle received further elaboration
inManeclangv.Baun:

Inestoppel bypais,asrelatedtotheparty
soughttobeestopped,itisnecessarythattherebea
concurrenceofthefollowingrequisites:(a)conduct
amountingtofalserepresentationorconcealmentof
material facts or at least calculated to convey the
impression that the facts are otherwise than, and
inconsistentwith,thosewhichthepartysubsequently
attemptstoassert;(b)intent,oratleastexpectation
that this conduct shall be acted upon, or at least
influenced by the other party; and (c) knowledge,
actualorconstructiveoftheactualfacts.

Estoppel may vary somewhat in definition, but all

authorities agree thata party invoking the doctrine must
havebeenmisledtoonesprejudice.Thatisthefinaland,in
reality, most important of the elements of equitable
estoppel.Itisthiselementthatislackinghere.[73](Emphasis
supplied.)

Theelementsofestoppelpertainingtothepartyestoppedare:

(1)conductwhichamountstoafalserepresentation
orconcealmentofmaterialfacts,or,atleast,whichcalculated
toconveytheimpressionthatthefactsareotherwisethan,and
inconsistentwith,thosewhichthepartysubsequentlyattempts
to assert; (2) intention, or at least expectation, that such
conduct shall be acted upon by the other party; and (3)
knowledge,actualorconstructive,oftheactualfacts.[74]
Inthecaseatbar,thefirstelementofestoppelinrelationtotheparty
sought to be estopped is not present. Petitioners claim that RCBC
misrepresented itself when RCBC made it appear that they considered
petitionerstohavesufficientlycompliedwithitswarrantiesunderSec.5(g)and
5(h),inrelationtoSec.7oftheSPA.PetitionerspositionisthatRCBCwas
awareofthemannerinwhichtheBankardaccountswererecorded,wellbefore

it consummated the SPA by taking delivery of the shares and paying the
outstanding80%balanceofthecontractprice.[75]

Petitioners, therefore, theorize that in this case, the first element of

estoppelinrelationtothepartysoughttobeestoppedisthatRCBCmadeafalse
representationthatitconsideredBankardsaccountstobeinorderand,thus,
RCBCabandonedanyclaimunderSec.5(g)and5(h)byitsinaction.

Suchcontentionisincorrect.

ItmustbeemphasizedthatitwasonlyafterasecondauditthatRCBC
presenteditsclaimtopetitionersforviolationofSec.5(g),withinthethree(3)
yearperiodprescribed.Inotherwords,RCBC,priortosuchsecondaudit,did
nothavefullandthoroughknowledgeofthecorrectnessofBankardsaccounts,
inrelationtoSec.5(g).RCBC,therefore,couldnothavemisrepresenteditself
consideringthatitwasstillintheprocessofverifyingthewarrantiescovered
underSec.5(g).Consideringthattheremustbeaconcurrenceoftheelementsof
estoppelforittoarise,onthisgroundalonesuchclaimisalreadynegated.As
willbeshown,however,alltheotherelementsofestoppelarelikewiseabsentin
thecaseatbar.

Astothesecondelement,inordertoestablishestoppel,RCBCmust
haveintendedthatpetitionerswouldactuponitsactions.Thiselementisalso
missing.RCBCbyitsactionsdidnotmisleadpetitionersintobelievingthatit
waivedanyclaimforviolationofawarranty.TheperiodsunderSec.5(g)and
5(h)werestillavailabletoRCBC.

TheelementthatpetitionersreliedontheactsandconductofRCBCis
absent.TheCourtfindsthattherewasnorelianceonthepartofpetitionerson
theactsofRCBCthatwouldleadthemtobelievethattheRCBCwillforegothe
filing of a claim under Sec. 5(g). The allegation that RCBC knew that the
Bankardaccountsdidnotcomplywithgenerallyacceptedaccountingprinciples
before payment and, hence, it cannot question the financial statements of
Bankard is meritless. Precisely, the SPA explicitly provides that claims for
violationofthewarrantiesunderSec.5(g)canstillbefiledwithinthree(3)
yearsfromtheclosingdate.PetitionerscontentionthatRCBChadfullcontrol
ofBankardoperationsafterpaymentofthepriceandthatanauditundertakenby
theRubioteamdidnotfindanythingwrongwiththeaccountscouldnothave
plausiblymisledpetitionersintobelievingthatRCBCwillwaiveitsrighttofile

aclaimunderSec.5(g).Afterall,theperiodtofileaclaimunderSec.5(g)is
three(3)yearsunderSec.7,muchlongerthanthesix(6)monthperiodunder
Sec.5(h).PetitionersarefullyawarethatthewarrantiesunderSec.5(g)(1997
uptoMarch2000)areofawiderscopethanthatofSec.5(h)(AFSof1999and
UFSuptoMay31,2000),necessitatingalongerauditperiodthanthesix(6)
monthperiodunderSec.5(h).

The third element of estoppel in relation to the party sought to be

estoppedisalsoabsentconsideringthat,asstated,RCBCwasstillintheprocess
ofverifyingthecorrectnessofBankardsaccountspriortopresentingitsclaim
ofovervaluationtopetitioners.RCBC,therefore,hadnosufficientknowledgeof
thecorrectnessofBankardsaccounts.

On another issue, RCBC could not have immediately changed the

Bankard accounting practices until it had conducted a more extensive and
thoroughauditofBankardsvoluminousrecordsandtransactionstouncoverany
irregularities.ThatwouldbetheonlylogicalexplanationwhyBankardsalleged
irregularpracticesweremaintainedformorethantwo(2)yearsfromclosing
date. The fact that RCBC continued with the audit of Bankards AFS and
recordsaftertheterminationoftheRubioauditcanonlysendtheclearmessage
topetitionersthat RCBCisstillentertainingthepossibilityoffilingaclaim
underSec.5(g).ItcannotthenbesaidthatpetitionersrelianceonRCBCsacts
afterfullpaymentofthepricecouldhavemisledthemintobelievingthatno
moreclaimwillbepresentedbyRCBC.

TheArbitralTribunalexplainedindetailwhyestoppelisnotpresent
inthecaseatbar,thus:

10.18TheauditexerciseconductedbyMr.LegaspiandMr.
Rubiowasclearlynotonecomprehensiveenoughto
havediscoveredtheproblemslaterunearthedbyDr.
LayaandDeanLedesma.xxx

10.19AlthoughthepowersoftheTC[TransitionCommittee]
mayhavebeenwidelyexpressedintheviewofMr.
RogelioChua,theninchargeofBankardxxxthe
TCconductedmeetingsonlytogetupdatedonthe
status and progress of Bankards operations.
Commercially, one would expect that an unpaid

vendorexpectingtoreceive80%ofalargepurchase
pricewouldnotbereceptivetoapurchasermaking
vastpolicychangesintheoperationofthebusiness
untilthepurchaserhaspaidupitsmoney.Itismore
likely that, until the settlement date, there was a
practiceofmaintainingthestatusquoatBankard.

10.20ButneithertheClaimantnortheTCdidanything,in
the Tribunals view, which would have given the
Respondents the impression that they were being
relievedoverthenextthreeyearsofsusceptibilityto
aclaimunderclause5(g).MaybetheTCcouldhave
been more proactive in commissioning further or
moreindepthauditsbutitwasnot.Itdidnothaveto
be.Itiscommerciallyunlikelythatithavebeendone
so,withthenecessarydegreeofattentiontodetail,
within the relatively short time between the
appointment of the TC and theultimate settlement
dateofthepurchaseaperiodofsomethreemonths.
An interim arrangement was obviously sensible to
enabletheClaimantanditsstafftobecomefamiliar
withthepracticesandproceduresofBankard.

10.21ThecoreconsiderationweighingwiththeTribunalin
assessingtheseclaimsforestoppel isthattheSPA
allowedtwotypesofclaim;onewithinsixmonths
under5(h)andonewithinthreeyearsunder5(g).The
Tribunal has already held the present claim is not
barred by clause 5(h). It must therefore have been
within the reasonable contemplation of the parties
thata5(g)claimcouldsurfacewithinthethreeyear
period and that it could be somewhat differently
assessed than the claim under 5(h). The Tribunal
cannot find estoppel by conduct either from the
formation of the TC or from the limited auditing
exercisedonebyMr.RubioandMr.Legaspi.The
onusprovingestoppelisontheRespondentsandit
hasnotbeendischarged.

10.22If the parties had wished the avenues of relief for

misrepresentation afforded to the Claimant to have
been restricted to a claim under Clause 5(h), then
theycouldhavesaidso.Thespecialauditmayhave
providedananswertoanyclaimbasedonclause5(h)
butitcannotdosoinrespect ofaclaimbasedon
Clause 5(g). Clause 5(g) imposed a positive
obligation on the Respondents from which they
cannot be excused, simply by reason of either the
formationandconductoftheTC orofthelimited
audit.

10.23The threeyear limitation period obviously

contemplatedthatitcouldtakesometimetoascertain
whether there had been a breach of the GAAP
standards, etc. Such was the case. A sixmonth
limitation period under Clause 5(h), in contrast,
presaged a somewhat less stringent enquiry of the
kindcarriedoutbyMr.RubioandMr.Legaspi.

10.24Clause2(3)oftheAmendmenttotheSPAstrengthens
theconclusionthatthepartieswereconcernedonly
witha5(h)claimduringtheTCsreign.Thefocusof
theaudithoweverintenseitwasconductedby
Mr. Rubio and Mr. Legaspi, was on establishing
possible liability under that section and thus as a
possible reduction in the price to be paid on
settlement.

10.25Thefactthatthepurchasepricewaspaidoverinfull
withoutanydeductionintermsofclause5(h)isnota
bar to the Claimant bringing a claim under 5(g)
withinthethreeyearperiod.Thefactthatpayment
wasmadecanbe,astheTribunalhasheld,abarrier
toaclaimforrescissionandrestitutionadinegrum.
Aclaimforestoppelneedsafindingofrepresentation
bywordsofconductorasharedpresumptionthata
rightwouldnotbereliedupon.Thepartyrelyingon
estoppelhastoshowreliancetoitsdetrimentorthat,

otherwise,itwouldbeunconscionabletoresilefrom
theprovision.

10.26Article1431oftheCivilCodestates:

Through estoppel an admission or representation is

renderedconclusiveuponthepersonmakingit,and
cannotbedeniedordisprovedasagainsttheperson
relyingthereon.

10.27Clearly, there has to both an admission or

representation by (in this case) the Claimant, plus
reliance upon it by (in this case) the Respondents.
The Tribunal cannot find as proved any
admission/representation that the Claimant was
abandoning a 5(g) claim, any reliance by
Respondentsonanadmission,andanydetrimentto
theRespondentssuchaswouldentitlethemtohave
theClaimantdeprivedofthebenefitofclause5(g).
Theseaspectsoftheclaimofestoppelarerejected.

xxxx
10.42TheTribunalisnottheappropriateforumfordeciding
whether there have been any regulatory or ethical
infractionsbyBankardand/ortheClaimantinsetting
thebuybackprice.Ithasnobearingonwhetherthe
Claimant must be considered as having waived its
righttoclaimagainsttheRespondents.

10.43In the Tribunals view, neither any infraction by

BankardinfailingtoadvisetheCentralBankofthe
experts findings,nor afailuretoput atag onthe
accounts nor to have said something to the
shareholdersinthebuybackexerciseoperatesasa
technicalknockoutofClaimantsclaim.

10.44The Tribunal notes that the conciliation process

mandated by the SPA took most of 2003 and this

may explain a part of the delay in commencing

arbitralproceedings.

10.45WhateverthestatusofMr.RubiosandMr.Legaspis
enquiriesinlate2000,theClaimantwasquiteentitled
tocommissionsubsequentreportsfromDr.Layaand
Dr.Echanisand,onthebasisofthosereports,makea
timeousclaimunderclause5(g)oftheSPA.

10.46IntheTribunalsview,therefore,thereisnomeritin
RespondentsvarioussubmissionsthattheClaimant
is debarred from prosecuting its claims on the
grounds of estoppel. There is just no proof of the
necessaryrepresentationtotheRespondent,norany
detrimenttotheRespondentproved.Thegroundsof
delayandlachesarenotsubstantiated.

Insummary,thetribunalproperlyruledthatpetitionersfailedtoprove
thattheformationoftheTransitionCommitteeandtheconductoftheauditby
RubioandLegaspiwereadmissionsorrepresentationsbyRCBCthatitwould
not pursue a claim under Sec. 5(g) and that petitioners relied on such
representationtotheirdetriment.Weagreewiththefindingsofthetribunalthat
estoppelisnotpresentinthesituationatbar.

Additionally, petitioners claim that inKnecht v. Court of

[76]
Appeals andCocaColaBottlersPhilippines,Inc.v.CourtofAppeals(Coca
Cola),[77]thisCourtruledthattheabsenceoftheelementofreliancebyaparty
ontherepresentationofanotherdoesnotnegatetheprincipleofestoppel.Those
casesare,however,notonallfourswithandcannotbeappliedtothiscase.

InKnecht,thebuyerhadtheopportunityofknowingtheconditionsof
thelandhewasbuyingearlyoninthetransaction,butproceededwiththesale
anyway.AccordingtotheCourt,thebuyerwasestoppedfromclaimingthatthe
vendormadeafalserepresentationastotheconditionoftheland.Thisisnot
trueintheinstantcase.RCBCdidnotconductaduediligenceauditinrelation
to Sec.5(g) prior to the sale due to petitioners express representations and
warranties. The examination conducted by RCBC, through Rubio, after the
executionoftheSPAonJune2,2000,wasconfinedtofindinganybreachunder

Sec.5(h)forapossiblereductionofthepurchasepricepriortothepaymentof
itsbalanceonDecember31,2000.Further,thepartiesclearlyagreedunderSec.
7oftheSPAtoathree(3)yearperiodfromclosingdatewithinwhichtopresent
a claim for damages for violation of the warranties under the SPA.
Hence,Knechtisnotaprecedenttothecaseatbar.

SoisCocaCola.Aslessee,CocaColaBottlerswaswellawareofthe
natureandsituationofthelandrelativetoitsintendedusepriortothesigningof
thecontract.Itssubsequentassertionthatthelandwasnotsuitedforthepurpose
it was leased was, therefore, cast aside for being unmeritorious. Such
circumstance does not obtain in the instant case. There was no prior due
diligenceauditconductedbyRCBC,ithavingrelied,asearlierstated,onthe
warrantiesofpetitionerswithregardtothefinancialconditionofBankardunder
Sec.5(g).Assuch,Sec.5(g)guaranteedRCBCthatitcouldfileaclaimfor
damages for any mistakes in the AFS and UFS of Bankard. Clearly,Coca
Colaalsocannotbeappliedtotheinstantcase.

ItbecomesevidentfromalloftheforegoingfindingsthattheICCICA
isnotguiltyofanymanifestdisregardofthelawonestoppel.Asshownabove,
thefindingsoftheICCICAinthePartialAwardarewellsupportedinlawand
groundedonfacts.ThePartialAwardmustbeupheld.

Weclosethisdispositionwiththeobservationthatamemberofthe
threepersonarbitrationpanel wasselectedbypetitioners,whileanotherwas
respondentschoice.Therespectiveinterestsoftheparties,therefore,arevery
muchsafeguardedinthearbitrationproceedings.Anysuggestion,therefore,on
thepartialityofthearbitrationtribunalhastobedismissed.

WHEREFORE, the instant petition is herebyDENIED. The

assailedJanuary8,2008andMarch17,2008OrdersoftheRTC,Branch148
inMakatiCityareherebyAFFIRMED.

Costsagainstpetitioners.

SOORDERED.

SUPREMECOURT
Manila
THIRDDIVISION

contractorcommittedtoconstructandfinishonDecember31,1989,petitioner
corporation'sindustrial/factorycomplexinTanawan,Tanza,Caviteforandin
considerationofP42,000,000.00.Intheeventofdisputesarisingfromthe
performanceofsubjectcontract,itwasstipulatedthereinthattheissue(s)shall
besubmittedforresolutionbeforeasinglearbitratorchosenbybothparties.

G.R.No.96283February25,1992
CHUNGFUINDUSTRIES(PHILIPPINES)INC.,itsDirectorsand
Officersnamely:HUANGKUOCHANG,HUANGANCHUNG,JAMES
J.R.CHEN,TRISTANA.CATINDIG,VICENTEB.AMADOR,ROCK
A.C.HUANG,JEMS.C.HUANG,MARIATERESASOLIVENand
VIRGILIOM.DELROSARIO,petitioners,
vs.
COURTOFAPPEALS,HON.FRANCISCOX.VELEZ(PresidingJudge,
RegionalTrailCourtofMakati[Branch57])andROBLECOR
PHILIPPINES,INC.,respondents.

ROMERO,J.:
ThisisaspecialcivilactionforcertiorariseekingtoannultheResolutionsof
theCourtofAppeals*datedOctober22,1990andDecember3,1990upholding
theOrdersofJuly31,1990andAugust23,1990oftheRegionalTrialCourtof
Makati,Branch57,inCivilCaseNo.901335.RespondentCourtofAppeals
affirmedtherulingofthetrialcourtthathereinpetitioners,aftersubmitting
themselvesforarbitrationandagreeingtothetermsandconditionsthereof,
providingthatthearbitrationawardshallbefinalandunappealable,are
precludedfromseekingjudicialreviewofsubjectarbitrationaward.
ItappearsthatonMay17,1989,petitionerChungFuIndustries(Philippines)
(ChungFuforbrevity)andprivaterespondentRoblecorPhilippines,Inc.
(Roblecorforshort)forgedaconstructionagreement1wherebyrespondent

Apartfromtheaforesaidconstructionagreement,ChungFuandRoblecor
enteredintotwo(2)otherancillarycontracts,towit:onedatedJune23,1989,
fortheconstructionofadormitoryandsupportfacilitieswithacontractpriceof
P3,875,285.00,tobecompletedonorbeforeOctober31,1989;2andtheother
datedAugust12,1989,fortheinstallationofelectrical,waterandhydrant
systemsattheplantsite,commandingapriceofP12.1millionandrequiring
completionthereofonemonthaftercivilworkshavebeenfinished.3
However,respondentRoblecorfailedtocompletetheworkdespitetheextension
oftimealloweditbyChungFu.Subsequently,thelatterhadtotakeoverthe
constructionwhenithadbecomeevidentthatRoblecorwasnotinapositionto
fulfillitsobligation.
ClaiminganunsatisfiedaccountofP10,500,000.00andunpaidprogressbillings
ofP2,370,179.23,RoblecoronMay18,1990,filedapetitionforCompulsory
ArbitrationwithprayerforTemporaryRestrainingOrderbeforerespondent
RegionalTrialCourt,pursuanttothearbitrationclauseintheconstruction
agreement.ChungFumovedtodismissthepetitionandfurtherprayedforthe
quashingoftherestrainingorder.
Subsequentnegotiationsbetweenthepartieseventuallyledtotheformulationof
anarbitrationagreementwhich,amongothers,provides:
2.Thepartiesmutuallyagreethatthearbitrationshallproceed
inaccordancewiththefollowingtermsandconditions:
xxxxxxxxx
d.Thepartiesmutuallyagreethattheywill
abidebythedecisionofthearbitrator
includinganyamountthatmaybeawarded
toeitherpartyascompensation,

consequentialdamageand/orinterest
thereon;

judgmentinconformitytherewith.Moreover,itgrantedthemotionforthe
issuanceofawritofexecutionfiledbyrespondent.

e.Thepartiesmutuallyagreethatthe
decisionofthearbitratorshallbefinaland
unappealable.Therefore,thereshallbeno
furtherjudicialrecourseifeitherparty
disagreeswiththewholeoranypartofthe
arbitrator'saward.

ChungFuelevatedthecaseviaapetitionforcertioraritorespondentCourtof
Appeals.OnOctober22,1990theassailedresolutionwasissued.Therespondent
appellatecourtconcurredwiththefindingsandconclusionsofrespondenttrial
courtresolvingthatChungFuanditsofficers,assignatoriestotheArbitration
Agreementareboundtoobservethestipulationsthereofprovidingforthe
finalityoftheawardandprecludinganyappealtherefrom.

f.Asanexceptiontosubparagraph(e)
above,thepartiesmutuallyagreethateither
partyisentitledtoseekjudicialassistance
forpurposesofenforcingthearbitrator's
award;

Amotionforreconsiderationofsaidresolutionwasfiledbypetitioner,butit
wassimilarlydeniedbyrespondentCourtofAppealsthruitsquestioned
resolutionofDecember3,1990.

xxxxxxxxx4
(Emphasissupplied)
RespondentRegionalTrialCourtapprovedthearbitrationagreementthruits
OrderofMay30,1990.Thereafter,Engr.WillardoAsuncionwasappointedas
thesolearbitrator.
OnJune30,1990,ArbitratorAsuncionorderedpetitionerstoimmediatelypay
respondentcontractor,thesumofP16,108,801.00.Hefurtherdeclaredthe
awardasfinalandunappealable,pursuanttotheArbitrationAgreement
precludingjudicialreviewoftheaward.
Consequently,Roblecormovedfortheconfirmationofsaidaward.Ontheother
hand,ChungFumovedtoremandthecaseforfurtherhearingandaskedfora
reconsiderationofthejudgmentawardclaimingthatArbitratorAsuncion
committedtwelve(12)instancesofgraveerrorbydisregardingtheprovisionsof
theparties'contract.
RespondentlowercourtdeniedChungFu'sMotiontoRemandthuscompelling
ittoseekreconsiderationtherefrombuttonoavail.Thetrialcourtgranted
Roblecor'sMotionforConfirmationofAwardandaccordingly,entered

Hence,theinstantpetitionanchoredonthefollowinggrounds:
First
RespondentsCourtofAppealsandtrialJudgegravelyabused
theirdiscretionand/orexceededtheirjurisdiction,aswellas
denieddueprocessandsubstantialjusticetopetitioners,(a)
byrefusingtoexercisetheirjudicialauthorityandlegalduty
toreviewthearbitrationaward,and(b)bydeclaringthat
petitionersareestoppedfromquestioningthearbitrationaward
allegedlyinviewofthestipulationsintheparties'arbitration
agreementthat"thedecisionofthearbitratorshallbefinaland
unappealable"andthat"thereshallbenofurtherjudicial
recourseifeitherpartydisagreeswiththewholeoranypartof
thearbitrator'saward."
Second
RespondentCourtofAppealsandtrialJudgegravelyabused
theirdiscretionand/orexceededtheirjurisdiction,aswellas
denieddueprocessandsubstantialjusticetopetitioner,bynot
vacatingandannullingtheawarddated30June1990ofthe
Arbitrator,onthegroundthattheArbitratorgrosslydeparted
fromthetermsoftheparties'contractsandmisappliedthelaw,

andtherebyexceededtheauthorityandpowerdelegatedto
him.(Rollo,p.17)
Allowustotakealeaffromhistoryandbrieflytracetheevolutionofarbitration
asamodeofdisputesettlement.
Becauseconflictisinherentinhumansociety,muchefforthasbeenexpended
bymenandinstitutionsindevisingwaysofresolvingthesame.Withthe
progressofcivilization,physicalcombathasbeenruledoutandinstead,more
specificmeanshavebeenevolved,suchasrecoursetothegoodofficesofa
disinterestedthirdparty,whetherthisbeacourtoraprivateindividualor
individuals.
Legalhistorydisclosesthat"theearlyjudgescalledupontosolveprivate
conflictswereprimarilythearbiters,personsnotspeciallytrainedbutinwhose
morality,probityandgoodsensethepartiesinconflictreposedfulltrust.Thus,
inRepublicanRome,arbiterandjudge(judex)weresynonymous.The
magistrateorpraetor,afternotingdowntheconflictingclaimsoflitigants,and
clarifyingtheissues,referredthemfordecisiontoaprivatepersondesignatedby
theparties,bycommonagreement,orselectedbythemfromanappositelisting
(thealbumjudicium)orelsebyhavingthearbiterchosenbylot.Thejudges
proper,asspeciallytrainedstateofficialsendowedwithownpowerand
jurisdiction,andtakingcognizanceoflitigationsfrombeginningtoend,only
appearedundertheEmpire,bythesocalledcognitioextraordinem."5

IndustrialRelations,intimesuchamodalitygavewaytovoluntaryarbitration.
Whilenotcompletelysupplantingcompulsoryarbitrationwhichuntiltodayis
practicedbygovernmentofficials,theIndustrialPeaceActwhichwaspassedin
1953asRepublicActNo.875,favoredthepolicyoffreecollectivebargaining,
ingeneral,andresorttogrievanceprocedure,inparticular,asthepreferred
modeofsettlingdisputesinindustry.Itwasacceptedandenunciatedmore
explicitlyintheLaborCode,whichwaspassedonNovember1,1974as
PresidentialDecreeNo.442,withtheamendmentslaterintroducedbyRepublic
ActNo.6715(1989).
Whetherutilizedinbusinesstransactionsorinemployeremployeerelations,
arbitrationwasgainingwideacceptance.Aconsensualprocess,itwaspreferred
toordersimposedbygovernmentuponthedisputants.Moreover,court
litigationstendedtobetimeconsuming,costly,andinflexibleduetotheir
scrupulousobservanceofthedueprocessoflawdoctrineandtheirstrict
adherencetorulesofevidence.
Asearlyasthe1920's,thisCourtdeclared:

Suchmeansofreferringadisputetoathirdpartyhasalsolongbeenanaccepted
alternativetolitigationatcommonlaw.6

InthePhilippinesfortunately,theattitudeofthecourtstoward
arbitrationagreementsisslowlycrystallizingintodefiniteand
workableform....Therulenowisthatunlesstheagreement
issuchasabsolutelytoclosethedoorsofthecourtsagainst
theparties,whichagreementwouldbevoid,thecourtswill
lookwithfavoruponsuchamicablearrangementsandwill
onlywithgreatreluctanceinterferetoanticipateornullifythe
actionofthearbitrator.10

Sparsethoughthelawandjurisprudencemaybeonthesubjectofarbitrationin
thePhilippines,itwasnonethelessrecognizedintheSpanishCivilCode;
specifically,theprovisionsoncompromisesmadeapplicabletoarbitrations
underArticles1820and1821.7Althoughsaidprovisionswererepealedby
implicationwiththerepealoftheSpanishLawofCivilProcedure,8theseand
additionaloneswerereinstatedinthepresentCivilCode.9

Thattherewasagrowingneedforalawregulatingarbitrationingeneralwas
acknowledgedwhenRepublicActNo.876(1953),otherwiseknownasthe
ArbitrationLaw,waspassed."SaidActwasobviouslyadoptedto
supplementnottosupplanttheNewCivilCodeonarbitration.Itexpressly
declaresthat"theprovisionsofchaptersoneandtwo,TitleXIV,BookIVofthe
CivilCodeshallremaininforce."11

Arbitrationfoundafertilefieldintheresolutionoflabormanagementdisputes
inthePhilippines.Althoughearlyon,CommonwealthAct103(1936)provided
forcompulsoryarbitrationasthestatepolicytobeadministeredbytheCourtof

Inrecognitionofthepressingneedforanarbitralmachineryfortheearlyand
expeditioussettlementofdisputesintheconstructionindustry,aConstruction
IndustryArbitrationCommission(CIAC)wascreatedbyExecutiveOrderNo.
1008,enactedonFebruary4,1985.
Inpracticenowadays,absentanagreementofthepartiestoresolvetheir
disputesviaaparticularmode,itistheregularcourtsthatremaintheforato
resolvesuchmatters.However,thepartiesmayoptforrecoursetothirdparties,
exercisingtheirbasicfreedomto"establishsuchstipulation,clauses,termsand
conditionsastheymaydeemconvenient,providedtheyarenotcontrarytolaw,
morals,goodcustoms,publicorderorpublicpolicy."12Insuchacase,resortto
thearbitrationprocessmaybespelledoutbytheminacontractinanticipation
ofdisputesthatmayarisebetweenthem.Orthismaybestipulatedina
submissionagreementwhentheyareactuallyconfrontedbyadispute.Whatever
bethecase,suchrecoursetoanextrajudicialmeansofsettlementisnotintended
tocompletelydeprivethecourtsofjurisdiction.Infact,theearlycaseson
arbitrationcarefullyspelledouttheprevailingdoctrineatthetime,thus:"...a
clauseinacontractprovidingthatallmattersindisputebetweenthepartiesshall
bereferredtoarbitratorsandtothemaloneiscontrarytopublicpolicyand
cannotoustthecourtsofJurisdiction."13
Butcertainly,thestipulationtoreferallfuturedisputestoanarbitratororto
submitanongoingdisputetooneisvalid.Beingpartofacontractbetweenthe
parties,itisbindingandenforceableincourtincaseoneofthemneglects,fails
orrefusestoarbitrate.Goingastepfurther,intheeventthattheydeclaretheir
intentiontorefertheirdifferencestoarbitrationfirstbeforetakingcourtaction,
thisconstitutesaconditionprecedent,suchthatwhereasuithasbeeninstituted
prematurely,thecourtshallsuspendthesameandthepartiesshallbedirected
forthwithtoproceedtoarbitration.14
Acourtactionmaylikewisebeprovenwherethearbitratorhasnotbeenselected
bytheparties.15
Underpresentlaw,maythepartieswhoagreetosubmittheirdisputesto
arbitrationfurtherprovidethatthearbitrators'awardshallbefinal,unappealable
andexecutory?
Article2044oftheCivilCoderecognizesthevalidityofsuchstipulation,thus:

Anystipulationthatthearbitrators'awardordecisionshallbe
finalisvalid,withoutprejudicetoArticles2038,2039and
2040.
Similarly,theConstructionIndustryArbitrationLawprovidesthatthearbitral
award"shallbefinalandinappealableexceptonquestionsoflawwhichshallbe
appealabletotheSupremeCourt."16
UndertheoriginalLaborCode,voluntaryarbitrationawardsordecisionswere
final,unappealableandexecutory."However,voluntaryarbitrationawardsor
decisionsonmoneyclaims,involvinganamountexceedingOneHundred
ThousandPesos(P100,000.00)orfortypercent(40%)ofthepaidupcapitalof
therespondentemployer,whicheverislower,maybeappealedtotheNational
LaborRelationsCommissiononanyofthefollowinggrounds:(a)abuseof
discretion;and(b)grossincompetence."17Itistobenotedthattheappealinthe
instancescitedweretobemadetotheNationalLaborRelationsCommission
andnottothecourts.
WiththesubsequentdeletionoftheabovecitedprovisionfromtheLaborCode,
thevoluntaryarbitratorisnowmandatedtorenderanawardordecisionwithin
twenty(20)calendardaysfromthedateofsubmissionofthedisputeandsuch
decisionshallbefinalandexecutoryafterten(10)calendardaysfromreceiptof
thecopyoftheawardordecisionbytheparties.18
Wherethepartiesagreethatthedecisionofthearbitratorshallbefinaland
unappealableasintheinstantcase,thepivotalinquiryiswhethersubject
arbitrationawardisindeedbeyondtheambitofthecourt'spowerofjudicial
review.
Weruleinthenegative.ItisstatedexplicitlyunderArt.2044oftheCivilCode
thatthefinalityofthearbitrators'awardisnotabsoluteandwithoutexceptions.
WheretheconditionsdescribedinArticles2038,2039and2040applicableto
bothcompromisesandarbitrationsareobtaining,thearbitrators'awardmaybe
annulledorrescinded.19Additionally,underSections24and25ofthe
ArbitrationLaw,therearegroundsforvacating,modifyingorrescindingan
arbitrator'saward.20Thus,ifandwhenthefactualcircumstancesreferredtoin
theabovecitedprovisionsarepresent,judicialreviewoftheawardisproperly
warranted.

Whatifcourtsrefuseorneglecttoinquireintothefactualmilieuofan
arbitrator'sawardtodeterminewhetheritisinaccordancewithlaworwithinthe
scopeofhisauthority?Howmaythepowerofjudicialreviewbeinvoked?
ThisiswheretheproperremedyiscertiorariunderRule65oftheRevised
RulesofCourt.Itistobeborneinmind,however,thatthisactionwilllieonly
whereagraveabuseofdiscretionoranactwithoutorinexcessofjurisdiction
onthepartofthevoluntaryarbitratorisclearlyshown.For"thewrit
ofcertiorariisanextraordinaryremedyandthatcertiorarijurisdictionisnotto
beequatedwithappellatejurisdiction.Inaspecialcivilactionofcertiorari,the
Courtwillnotengageinareviewofthefactsfoundnorevenofthelawas
interpretedorappliedbythearbitratorunlessthesupposederrorsoffactorof
lawaresopatentandgrossandprejudicialastoamounttoagraveabuseof
discretionoranexcesdepouvoironthepartofthearbitrator."21
Evendecisionsofadministrativeagencieswhicharedeclared"final"bylaware
notexemptfromjudicialreviewwhensowarranted.Thus,inthecase
ofOceanicBicDivision(FFW),etal.v.FleridaRuthP.Romero,etal.,22this
Courthadoccasiontorulethat:
...Inspiteofstatutoryprovisionsmaking"final"thedecisions
ofcertainadministrativeagencies,wehavetakencognizance
ofpetitionsquestioningthesedecisionswherewantof
jurisdiction,graveabuseofdiscretion,violationofdue
process,denialofsubstantialjusticeorerroneous
interpretationofthelawwerebroughttoour
attention...23(Emphasisours).
Itshouldbestressed,too,thatvoluntaryarbitrators,bythenatureoftheir
functions,actinaquasijudicialcapacity.24Itstandstoreason,therefore,that
theirdecisionsshouldnotbebeyondthescopeofthepowerofjudicialreviewof
thisCourt.
Inthecaseatbar,petitionersassailedthearbitralawardonthefollowing
grounds,mostofwhichallegeerroronthepartofthearbitratoringranting
compensationforvariousitemswhichapparentlyaredisputedbysaid
petitioners:

1.TheHonorableArbitratorcommittedgraveerrorinfailing
toapplythetermsandconditionsoftheConstruction
Agreement,DormitoryContractandElectricalContract,and
inusinginsteadthe"practices"intheconstructionindustry;
2.TheHonorableArbitratorcommittedgraveerroringranting
extracompensationtoRoblecorforlossofproductivitydueto
adverseweatherconditions;
3.TheHonorableArbitratorcommittedgraveerroringranting
extracompensationtoRoblecorforlossduetodelayed
paymentofprogressbillings;
4.TheHonorableArbitratorcommittedgraveerroringranting
extracompensationtoRoblecorforlossofproductivitydueto
thecementcrisis;
5.TheHonorableArbitratorcommittedgraveerroringranting
extracompensationtoRoblecorforlossesallegedlysustained
onaccountofthefailedcoupd'tat;
6.TheHonorableArbitratorcommittedgraveerroringranting
toRoblecortheamountrepresentingtheallegedunpaid
billingsofChungFu;
7.TheHonorableArbitratorcommittedgraveerroringranting
toRoblecortheamountrepresentingtheallegedextended
overheadexpenses;
8.TheHonorableArbitratorcommittedgraveerroringranting
toRoblecortheamountrepresentingexpensesforchange
orderforsitedevelopmentoutsidetheareaofresponsibilityof
Roblecor;
9.TheHonorableArbitratorcommittedgraveerroringranting
toRoblecorthecostofwarehouseNo.2;

10.TheHonorableArbitratorcommittedgraveerrorin
grantingtoRoblecorextracompensationforairductchangein
dimension;

anteuntilsuchtimeasthetrialcourtshallhavepasseduponthemeritsofthis
case.Nocosts.
SOORDERED.

11.TheHonorableArbitratorcommittedgraveerrorin
grantingtoRoblecorextracompensationforairduct
plastering;and
12.TheHonorableArbitratorcommittedgraveerrorin
awardingtoRoblecorattorney'sfees.
Aftercloselystudyingthelistoferrors,aswellaspetitioners'discussionofthe
sameintheirMotiontoRemandCaseForFurtherHearingandReconsideration
andOppositiontoMotionforConfirmationofAward,wefindthatpetitioners
haveamplymadeoutacasewherethevoluntaryarbitratorfailedtoapplythe
termsandprovisionsoftheConstructionAgreementwhichformspartofthelaw
applicableasbetweentheparties,thuscommittingagraveabuseofdiscretion.
Furthermore,ingrantingunjustifiedextracompensationtorespondentfor
severalitems,heexceededhispowersallofwhichwouldhaveconstituted
groundforvacatingtheawardunderSection24(d)oftheArbitrationLaw.
Buttherespondenttrialcourt'srefusaltolookintothemeritsofthecase,
despiteprimafacieshowingoftheexistenceofgroundswarrantingjudicial
review,effectivelydeprivedpetitionersoftheiropportunitytoproveor
substantiatetheirallegations.Insodoing,thetrialcourtitselfcommittedgrave
abuseofdiscretion.Likewise,theappellatecourt,innotgivingduecoursetothe
petition,committedgraveabuseofdiscretion.Respondentcourtsshouldnot
shirkfromexercisingtheirpowertoreview,whereundertheapplicablelaws
andjurisprudence,suchpowermayberightfullyexercised;moresowherethe
objectionsraisedagainstanarbitrationawardmayproperlyconstitutegrounds
forannulling,vacatingormodifyingsaidawardunderthelawsonarbitration.
WHEREFORE,thepetitionisGRANTED.TheResolutionsoftheCourtof
AppealsdatedOctober22,1990andDecember3,1990aswellastheOrdersof
respondentRegionalTrialCourtdatedJuly31,1990andAugust23,1990,
includingthewritofexecutionissuedpursuantthereto,areherebySETASIDE.
Accordingly,thiscaseisREMANDEDtothecourtoforiginforfurtherhearing
onthismatter.Allincidentsarisingtherefromarerevertedtothestatusquo

RepublicofthePhilippines
SUPREMECOURT
Manila

SECONDDIVISION

KOREATECHNOLOGIESCO.,G.R.No.143581
LTD.,
Petitioner,
Present:

versusQUISUMBING,J.,Chairperson,
CARPIO,
CARPIOMORALES,
HON.ALBERTOA.LERMA,inTINGA,and
hiscapacityasPresidingJudgeofVELASCO,JR.,JJ.
Branch256ofRegionalTrial
CourtofMuntinlupaCity,and
PACIFICGENERALSTEELPromulgated:
MANUFACTURING
CORPORATION,
Respondents.January7,2008
xx

DECISION

VELASCO,JR.,J.:

Inourjurisdiction,thepolicyistofavoralternativemethodsofresolving
disputes,particularlyincivilandcommercialdisputes.Arbitrationalongwith
mediation, conciliation, and negotiation, being inexpensive, speedy and less
hostilemethodshavelongbeenfavoredbythisCourt.Thepetitionbeforeus
putsatissueanarbitrationclauseinacontractmutuallyagreeduponbythe
partiesstipulatingthattheywouldsubmitthemselvestoarbitrationinaforeign

country.Regrettably,insteadofhasteningtheresolutionoftheirdispute,the
partieswittinglyorunwittinglyprolongedthecontroversy.

Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean

corporation which is engaged in the supply and installation of Liquefied
PetroleumGas(LPG)Cylindermanufacturingplants,whileprivaterespondent
PacificGeneralSteelManufacturingCorp.(PGSMC)isadomesticcorporation.

OnMarch 5, 1997, PGSMC and KOGIES executed a

Contract[1]whereby KOGIES would set up an LPG Cylinder Manufacturing
Plant in Carmona,Cavite.The contract was executed in
thePhilippines.OnApril7,1997,thepartiesexecuted,inKorea,anAmendment
for Contract No. KLP970301 datedMarch 5, 1997[2]amending the terms of
payment.ThecontractanditsamendmentstipulatedthatKOGIESwillshipthe
machineryandfacilitiesnecessaryformanufacturingLPGcylindersforwhich
PGSMC would pay USD 1,224,000.KOGIES would install and initiate the
operationoftheplantforwhichPGSMCbounditselftopayUSD306,000upon
the plants production of the 11kg. LPG cylinder samples.Thus, the total
contractpriceamountedtoUSD1,530,000.

OnOctober14,1997,PGSMCenteredintoaContractofLease [3]with
WorthProperties,Inc.(Worth)foruseofWorths5,079squaremeterproperty
witha4,032squaremeterwarehousebuildingtohousetheLPGmanufacturing
plant.The monthly rental was PhP 322,560 commencing onJanuary 1,
1998with a 10% annual increment clause.Subsequently, the machineries,
equipment,andfacilitiesforthemanufactureofLPGcylinderswereshipped,
delivered, and installed in the Carmona plant.PGSMC paid KOGIES USD
1,224,000.

However, gleaned from the Certificate [4]executed by the parties on

January22,1998,aftertheinstallationoftheplant,theinitialoperationcould
not be conducted as PGSMC encountered financial difficulties affecting the
supplyofmaterials,thusforcingthepartiestoagreethatKOGIESwouldbe
deemed to have completely complied with the terms and conditions of the
March5,1997contract.

For the remaining balance of USD306,000 for the installation and

initial operationoftheplant,PGSMC issuedtwopostdated checks: (1)BPI

CheckNo.0316412datedJanuary30,1998forPhP4,500,000;and(2)BPI
CheckNo.0316413datedMarch30,1998forPhP4,500,000.[5]

WhenKOGIESdepositedthechecks,theseweredishonoredforthe
reason PAYMENT STOPPED.Thus, onMay 8, 1998, KOGIES sent a
demand letter[6]toPGSMC threateningcriminal actionfor violation ofBatas
Pambansa Blg.22 in case of nonpayment.On the same date, the wife of
PGSMCs President faxed a letter datedMay 7, 1998toKOGIESPresident
whowasthenstayingataMakatiCityhotel.Shecomplainedthatnotonlydid
KOGIESdeliveradifferentbrandofhydraulicpressfromthatagreeduponbut
ithadnotdeliveredseveralequipmentpartsalreadypaidfor.

OnMay 14, 1998, PGSMC replied that the two checks it issued
KOGIES were fully funded but the payments were stopped for reasons
previouslymadeknowntoKOGIES.[7]

OnJune 1, 1998, PGSMC informed KOGIES that PGSMC was

cancelingtheirContractdatedMarch5,1997onthegroundthatKOGIEShad
alteredthequantityandloweredthequalityofthemachineriesandequipmentit
delivered to PGSMC, and that PGSMC would dismantle and transfer the
machineries,equipment,andfacilitiesinstalledintheCarmonaplant.Fivedays
later,PGSMC filedbefore theOffice ofthePublicProsecutor anAffidavit
Complaint forEstafadocketed as I.S. No. 9803813 against Mr. Dae Hyun
Kang,PresidentofKOGIES.

OnJune15,1998,KOGIESwrotePGSMCinformingthelatterthat
PGSMCcouldnotunilaterallyrescindtheircontractnordismantleandtransfer
themachineriesandequipment onmereimaginedviolationsbyKOGIES.It
alsoinsistedthattheirdisputesshouldbesettledbyarbitrationasagreeduponin
Article15,thearbitrationclauseoftheircontract.

OnJune 23, 1998, PGSMC again wrote KOGIES reiterating the

contentsofitsJune1,1998letterthreateningthatthemachineries,equipment,
andfacilitiesinstalledintheplantwouldbedismantledandtransferredonJuly
4, 1998.Thus, onJuly 1, 1998, KOGIES instituted an Application for
Arbitration before the Korean Commercial Arbitration Board (KCAB)
inSeoul,KoreapursuanttoArt.15oftheContractasamended.

OnJuly3,1998,KOGIESfiledaComplaintforSpecificPerformance,
docketed as Civil Case No. 98117[8]against PGSMC before the Muntinlupa
City Regional Trial Court (RTC).The RTC granted a temporary restraining
order(TRO)onJuly4,1998,whichwassubsequentlyextendeduntilJuly22,
1998.Initscomplaint,KOGIESallegedthatPGSMChadinitiallyadmittedthat
thechecksthatwerestoppedwerenotfundedbutlateronclaimedthatitstopped
paymentofthechecksforthereasonthattheirvaluewasnotreceivedasthe
formerallegedlybreachedtheircontractbyalteringthequantityandlowering
thequalityofthemachineryandequipmentinstalledintheplantandfailedto
maketheplantoperationalalthoughitearliercertifiedtothecontraryasshown
in a January 22, 1998 Certificate.Likewise, KOGIES averred that PGSMC
violatedArt.15oftheirContract,asamended,byunilaterallyrescindingthe
contractwithoutresortingtoarbitration.KOGIESalsoaskedthatPGSMCbe
restrained from dismantling and transferring the machinery and equipment
installedintheplantwhichthelatterthreatenedtodoonJuly4,1998.

OnJuly9,1998,PGSMCfiledanoppositiontotheTROarguingthat
KOGIESwasnotentitledtotheTROsinceArt.15,thearbitrationclause,was
null and void for being against public policy as it ousts the local courts of
jurisdictionovertheinstantcontroversy.

On July 17, 1998, PGSMC filed its Answer with Compulsory

Counterclaim[9]assertingthatithadthefullrighttodismantleandtransferthe
machineriesandequipmentbecauseithadpaidfortheminfullasstipulatedin
thecontract;thatKOGIESwasnotentitledtothePhP9,000,000coveredbythe
checksforfailingtocompletelyinstallandmaketheplantoperational;andthat
KOGIESwasliablefordamagesamountingtoPhP4,500,000foralteringthe
quantityandloweringthequalityofthemachineriesandequipment.Moreover,
PGSMCaverredthatithasalreadypaidPhP2,257,920inrent(coveringJanuary
toJuly1998)toWorthanditwasnotwillingtofurthershoulderthecostof
renting the premises of the plant considering that the LPG cylinder
manufacturingplantneverbecameoperational.

After the parties submitted their Memoranda, onJuly 23, 1998, the
RTC issued an Order denying the application for a writ of preliminary
injunction,reasoningthatPGSMChadpaidKOGIESUSD1,224,000,thevalue
ofthemachineriesandequipmentasshowninthecontractsuchthatKOGIES
nolongerhadproprietaryrightsoverthem.Andfinally,theRTCheldthatArt.
15oftheContractasamendedwasinvalidasittendedtooustthetrialcourtor

any other court jurisdiction over any dispute that may arise between the
parties.KOGIESprayerforaninjunctivewritwasdenied.[10]Thedispositive
portionoftheOrderstated:

WHEREFORE,inviewoftheforegoingconsideration,
thisCourtbelievesandsoholdsthatnocogentreasonexists
for thisCourttogrant thewrit ofpreliminaryinjunctionto
restrain and refrain defendant from dismantling the
machineries and facilities at the lot and building of Worth
Properties,IncorporatedatCarmona,Caviteandtransferthe
same to another site: and therefore denies plaintiffs
applicationforawritofpreliminaryinjunction.

OnJuly29,1998,KOGIESfileditsReplytoAnswerandAnswerto
Counterclaim.[11]KOGIESdeniedithadalteredthequantityandloweredthe
qualityofthemachinery,equipment,andfacilitiesitdeliveredtotheplant.It
claimedthatithadperformedalltheundertakingsunderthecontractandhad
alreadyproducedcertifiedsamplesofLPGcylinders.Itaverredthatwhatever
wasunfinishedwasPGSMCsfaultsinceitfailedtoprocurerawmaterialsdue
to lack of funds.KOGIES, relying onChung Fu Industries (Phils.), Inc. v.
Court of Appeals,[12]insisted that the arbitration clause was without question
valid.

After KOGIES filed a Supplemental Memorandum with Motion to

Dismiss[13]answering PGSMCs memorandum of July 22, 1998 and seeking
dismissalofPGSMCscounterclaims,KOGIES,onAugust4,1998,filedits
MotionforReconsideration[14]oftheJuly23,1998Orderdenyingitsapplication
foraninjunctivewritclaimingthatthecontractwasnotmerelyformachinery
and facilities worth USD 1,224,000 but was for the sale of an LPG
manufacturingplantconsistingofsupplyofallthemachineryandfacilities
andtransferoftechnologyforatotalcontractpriceofUSD1,530,000such
thatthedismantlingandtransferofthemachineryandfacilitieswouldresultin
thedismantlingandtransferoftheveryplantitselftothegreatprejudiceof
KOGIES as the still unpaid owner/seller of the plant.Moreover, KOGIES
pointsoutthatthearbitrationclauseunderArt.15oftheContractasamended

wasavalidarbitrationstipulationunderArt.2044oftheCivilCodeandasheld
bythisCourtinChungFuIndustries(Phils.),Inc.[15]

Inthemeantime,PGSMCfiledaMotionforInspectionofThings [16]to
determinewhethertherewasindeedalterationofthequantityandloweringof
quality of the machineries and equipment, and whether these were properly
installed.KOGIES opposed the motion positing that the queries and issues
raisedinthemotionforinspectionfellunderthecoverageofthearbitration
clauseintheircontract.

OnSeptember21,1998,thetrialcourtissuedanOrder(1)granting
PGSMCs motion for inspection; (2) denying KOGIES motion for
reconsiderationoftheJuly23,1998RTCOrder;and(3)denyingKOGIES
motiontodismissPGSMCscompulsorycounterclaimsasthesecounterclaims
fellwithintherequisitesofcompulsorycounterclaims.

On October 2, 1998, KOGIES filed an Urgent Motion for

Reconsideration[17]oftheSeptember21,1998RTCOrdergrantinginspectionof
theplantanddenyingdismissalofPGSMCscompulsorycounterclaims.

Tendaysafter,onOctober12,1998,withoutwaitingfortheresolution
ofitsOctober2,1998urgentmotionforreconsideration,KOGIESfiledbefore
theCourtofAppeals(CA)apetitionforcertiorari [18]docketedasCAG.R.SP
No.49249,seekingannulmentoftheJuly23,1998andSeptember21,1998
RTCOrdersandprayingfortheissuanceofwritsofprohibition,mandamus,and
preliminary injunction to enjoin the RTC and PGSMC from inspecting,
dismantling,andtransferringthemachineriesandequipmentintheCarmona
plant,andtodirecttheRTCtoenforcethespecificagreementonarbitrationto
resolvethedispute.

In the meantime, onOctober 19, 1998, the RTC denied KOGIES

urgentmotionforreconsiderationanddirectedtheBranchSherifftoproceed
withtheinspectionofthemachineriesandequipmentintheplantonOctober28,
1998.[19]

Thereafter,KOGIESfiledaSupplementtothePetition [20]inCAG.R.
SPNo.49249informingtheCAabouttheOctober19,1998RTCOrder.Italso
reiterateditsprayerfortheissuanceofthewritsofprohibition,mandamusand
preliminaryinjunctionwhichwasnotacteduponbytheCA.KOGIESasserted

thattheBranchSheriffdidnothavethetechnicalexpertisetoascertainwhether
ornotthemachineriesandequipmentconformedtothespecificationsinthe
contractandwereproperlyinstalled.

OnNovember 11, 1998, the Branch Sheriff filed his Sheriffs

Report[21]findingthattheenumeratedmachineriesandequipmentwerenotfully
andproperlyinstalled.

TheCourtofAppealsaffirmedthetrialcourtanddeclared
thearbitrationclauseagainstpublicpolicy

OnMay30,2000,theCArenderedtheassailedDecision [22]affirming
theRTCOrdersanddismissingthepetitionforcertiorarifiledbyKOGIES.The
CA found that the RTC did not gravely abuse its discretion in issuing the
assailedJuly 23, 1998andSeptember 21, 1998Orders.Moreover, the CA
reasoned that KOGIES contention that the total contract price for USD
1,530,000wasforthewholeplantandhadnotbeenfullypaidwascontraryto
thefindingoftheRTCthatPGSMCfullypaidthepriceofUSD1,224,000,
whichwasforallthemachineriesandequipment.AccordingtotheCA,this
determinationbytheRTCwasafactualfindingbeyondtheambitofapetition
forcertiorari.

Ontheissueofthevalidityofthearbitrationclause,theCAagreed
with the lower court that an arbitration clause which provided for a final
determinationofthelegalrightsofthepartiestothecontractbyarbitrationwas
againstpublicpolicy.

Ontheissueofnonpaymentofdocketfeesandnonattachmentofa
certificate of nonforum shopping by PGSMC, the CA held that the
counterclaimsofPGSMCwerecompulsoryonesandpaymentofdocketfees
was not required since the Answer with counterclaim was not an initiatory
pleading.Forthesamereason,theCAsaidacertificateofnonforumshopping
wasalsonotrequired.

Furthermore,theCAheldthatthepetitionforcertiorarihadbeenfiled
prematurelysinceKOGIESdidnotwaitfortheresolutionofitsurgentmotion
forreconsiderationoftheSeptember21,1998RTCOrderwhichwastheplain,

speedy,andadequateremedyavailable.AccordingtotheCA,theRTCmustbe
giventheopportunitytocorrectanyallegederrorithascommitted,andthat
sincetheassailedorderswereinterlocutory,thesecannotbethesubjectofa
petitionforcertiorari.

Hence,wehavethisPetitionforReviewonCertiorariunderRule45.

TheIssues

Petitioner posits that the appellate court committed the following

errors:
a.PRONOUNCING THE QUESTION OF
OWNERSHIP OVER THE MACHINERY AND
FACILITIES AS A QUESTION OF FACT BEYOND
THE AMBIT OF A PETITION FOR CERTIORARI
INTENDEDONLYFORCORRECTIONOFERRORSOF
JURISDICTION OR GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF (SIC) EXCESS OF
JURISDICTION,ANDCONCLUDINGTHATTHETRIAL
COURTS FINDING ON THE SAME QUESTION WAS
IMPROPERLYRAISEDINTHEPETITIONBELOW;

b.DECLARING AS NULL AND VOID THE

ARBITRATION CLAUSE IN ARTICLE 15 OF THE
CONTRACT BETWEEN THE PARTIES FOR BEING
CONTRARYTOPUBLICPOLICYANDFOROUSTING
THECOURTSOFJURISDICTION;

c.DECREEING PRIVATE RESPONDENTS

COUNTERCLAIMS TO BE ALL COMPULSORY NOT
NECESSITATING PAYMENT OF DOCKET FEES AND
CERTIFICATIONOFNONFORUMSHOPPING;

d.RULINGTHATTHEPETITIONWASFILED
PREMATURELY WITHOUT WAITING FOR THE
RESOLUTION OF THE MOTION FOR
RECONSIDERATION OF THE ORDER DATED
SEPTEMBER 21, 1998 OR WITHOUT GIVING THE

TRIAL COURT AN OPPORTUNITY TO CORRECT

ITSELF;

e.PROCLAIMINGTHETWOORDERSDATED
JULY 23 ANDSEPTEMBER 21, 1998NOT TO BE
PROPER SUBJECTS OF CERTIORARI AND
PROHIBITION FOR BEING INTERLOCUTORY IN
NATURE;

f.NOT GRANTING THE RELIEFS AND

REMEDIESPRAYEDFORINHE(SIC)PETITIONAND,
INSTEAD, DISMISSING THE SAME FOR ALLEGEDLY
WITHOUTMERIT.[23]

TheCourtsRuling

Thepetitionispartlymeritorious.

Beforewedelveintothesubstantiveissues,weshallfirsttacklethe
proceduralissues.

Therulesonthepaymentofdocketfeesforcounterclaims
andcrossclaimswereamendedeffectiveAugust16,2004

KOGIESstronglyarguesthatwhenPGSMCfiledthecounterclaims,it
shouldhavepaiddocketfeesandfiledacertificateofnonforumshopping,and
thatitsfailuretodosowasafataldefect.

WedisagreewithKOGIES.

As aptly ruled by the CA, the counterclaims of PGSMC were

incorporated in its Answer with Compulsory Counterclaim datedJuly 17,
1998inaccordancewithSection8ofRule11,1997RevisedRulesofCivil
Procedure,therulethatwaseffectiveatthetimetheAnswerwithCounterclaim
wasfiled.Sec.8onexistingcounterclaimorcrossclaimstates,Acompulsory
counterclaimoracrossclaimthatadefendingpartyhasatthetimehefileshis
answershallbecontainedtherein.

OnJuly17,1998,atthetimePGSMCfileditsAnswerincorporatingits
counterclaims against KOGIES, it was not liable to pay filing fees for said
counterclaims being compulsory in nature.We stress, however, that
effectiveAugust16,2004underSec.7,Rule141,asamendedbyA.M.No.04
204SC,docketfeesarenowrequiredtobepaidincompulsorycounterclaimor
crossclaims.

Astothefailuretosubmitacertificateofforumshopping,PGSMCs
Answerisnotaninitiatorypleadingwhichrequiresacertificationagainstforum
shoppingunderSec.5[24]ofRule7,1997RevisedRulesofCivilProcedure.Itis
aresponsivepleading,hence,thecourtsaquodidnotcommitreversibleerrorin
denyingKOGIESmotiontodismissPGSMCscompulsorycounterclaims.

Interlocutoryorderspropersubjectofcertiorari

CitingGamboav.Cruz,[25]theCAalsopronouncedthatcertiorariand
Prohibitionareneithertheremediestoquestiontheproprietyofaninterlocutory
order of the trial court.[26]The CA erred on its reliance
onGamboa.Gamboainvolvedthedenialofamotiontoacquitinacriminal
casewhichwasnotassailableinanactionforcertiorarisincethedenialofa
motiontoquashrequiredtheaccusedtopleadandtocontinuewiththetrial,and
whateverobjectionstheaccusedhadinhismotiontoquashcanthenbeusedas
partofhisdefenseandsubsequentlycanberaisedaserrorsonhisappealifthe
judgment of the trial court is adverse to him.The general rule is that
interlocutoryorderscannotbechallengedbyanappeal. [27]Thus,inYamaokav.
PescarichManufacturingCorporation,weheld:

The proper remedy in such cases is an ordinary

appealfromanadversejudgmentonthemerits,incorporating
in said appeal the grounds for assailing the interlocutory
orders.Allowing appeals from interlocutory orders would
result in the sorry spectacle of a case being subject of a
counterproductivepingpongtoand from theappellatecourt
asoftenasatrialcourtisperceivedtohavemadeanerrorin
anyofitsinterlocutoryrulings.However,wheretheassailed
interlocutoryorderwasissuedwithgraveabuseofdiscretion
or patently erroneous and the remedy of appeal would not

afford adequate and expeditious relief, the Court allows

certiorariasamodeofredress.[28]

Also,appealsfrominterlocutoryorderswouldopenthefloodgatesto
endlessoccasionsfordilatorymotions.Thus,wheretheinterlocutoryorderwas
issuedwithoutorinexcessofjurisdictionorwithgraveabuseofdiscretion,the
remedyiscertiorari.[29]

The alleged grave abuse of discretion of the respondent court

equivalent to lack of jurisdiction in the issuance of the two assailed orders
coupledwiththefactthatthereisnoplain,speedy,andadequateremedyinthe
ordinarycourseoflawamplyprovidesthebasisforallowingtheresorttoa
petitionforcertiorariunderRule65.

PrematurityofthepetitionbeforetheCA

Neitherdowethinkthat KOGIESwas guiltyofforumshoppingin

filingthepetitionforcertiorari.NotethatKOGIESmotionforreconsideration
oftheJuly23,1998RTCOrderwhichdeniedtheissuanceoftheinjunctivewrit
hadalreadybeendenied.Thus,KOGIESonlyremedywastoassailtheRTCs
interlocutoryorderviaapetitionforcertiorariunderRule65.

WhiletheOctober2,1998motionforreconsiderationofKOGIESof
theSeptember21,1998RTCOrderrelatingtotheinspectionofthings,andthe
allowance of the compulsory counterclaims has not yet been resolved, the
circumstances in this case would allow an exception to the rule that before
certiorari may be availed of, the petitioner must have filed a motion for
reconsiderationandsaidmotionshouldhavebeenfirstresolvedbythecourta
quo.The reason behind the rule is to enable the lower court, in the first
instance,topassuponandcorrectitsmistakeswithouttheinterventionofthe
highercourt.[30]

The September 21,1998 RTC Order directingthe branch sheriff to

inspect the plant, equipment, and facilities when he is not competent and
knowledgeable on said matters is evidently flawed and devoid of any legal
support.Moreover, there is an urgent necessity to resolve the issue on the
dismantlingofthefacilitiesandanyfurtherdelaywouldprejudicetheinterests
ofKOGIES.Indeed,thereisrealandimminentthreatofirreparabledestruction

or substantial damage to KOGIES equipment and machineries.We find the

resorttocertioraribasedonthegravelyabusiveordersofthetrialcourtsansthe
rulingontheOctober2,1998motionforreconsiderationtobeproper.

TheCoreIssue:Article15oftheContract

WenowgotothecoreissueofthevalidityofArt.15oftheContract,
thearbitrationclause.Itprovides:

Article15.Arbitration.Alldisputes,controversies,
ordifferenceswhichmayarisebetweentheparties,outofor
inrelationtoorinconnectionwiththisContractorforthe
breachthereof,shallfinallybesettledbyarbitrationinSeoul,
KoreainaccordancewiththeCommercialArbitrationRules
of the Korean Commercial Arbitration Board.The award
rendered by the arbitration(s) shall befinal and
bindinguponbothpartiesconcerned.(Emphasissupplied.)

Petitioner claims the RTC and the CA erred in ruling that the
arbitrationclauseisnullandvoid.

Petitioneriscorrect.

Established in this jurisdiction is the rule that the law of the place
wherethecontractismadegoverns.Lexlocicontractus.Thecontractinthis
case was perfected here in thePhilippines.Therefore, our laws ought to
govern.Nonetheless, Art. 2044 of the Civil Code sanctions the validity of
mutuallyagreedarbitralclauseorthefinalityandbindingeffectofanarbitral
award.Art.2044provides,Anystipulationthatthearbitratorsawardor
decisionshallbefinal,isvalid,withoutprejudicetoArticles2038,2039and
2040.(Emphasissupplied.)

Arts.2038,[31]2039,[32]and2040[33]abovecitedrefertoinstanceswhere
acompromiseoranarbitralaward,asappliedtoArt.2044pursuanttoArt.
2043,[34]maybevoided,rescinded,orannulled,butthesewouldnotdenigrate
thefinalityofthearbitralaward.

Thearbitrationclausewasmutuallyandvoluntarilyagreeduponbythe
parties.Ithasnotbeenshowntobecontrarytoanylaw,oragainstmorals,good
customs,publicorder,orpublicpolicy.Therehasbeennoshowingthat the
partieshavenotdealtwitheachotheronequalfooting.Wefindnoreasonwhy
the arbitration clause should not be respected and complied with by both
parties.InGonzales v. Climax Mining Ltd.,[35]we held that submission to
arbitrationisacontractandthataclauseinacontractprovidingthatallmatters
in dispute between the parties shall be referred to arbitration is a contract.
[36]
AgaininDelMonteCorporationUSAv.CourtofAppeals,welikewiseruled
that[t]heprovisiontosubmittoarbitrationanydisputearisingtherefromand
therelationshipofthepartiesispartofthatcontractandisitselfacontract. [37]

Arbitrationclausenotcontrarytopublicpolicy

Thearbitrationclausewhichstipulatesthatthearbitrationmustbedone
inSeoul,Koreain accordance with the Commercial Arbitration Rules of the
KCAB,andthatthearbitralawardisfinalandbinding,isnotcontrarytopublic
policy.This Court has sanctioned the validity of arbitration clauses in
acatenaof cases.In the 1957 case ofEastboard Navigation Ltd. v. Juan
YsmaelandCo.,Inc.,[38]thisCourthadoccasiontorulethatanarbitrationclause
to resolve differences and breaches of mutually agreed contractual terms is
valid.InBF Corporation v. Court of Appeals, we held that [i]n this
jurisdiction,arbitrationhasbeenheldvalidandconstitutional.Evenbeforethe
approval onJune 19, 1953of Republic Act No. 876, this Court has
countenancedthesettlementofdisputesthrougharbitration.RepublicActNo.
876 was adopted to supplement the New Civil Codes provisions on
arbitration.[39]AndinLMPowerEngineeringCorporationv.CapitolIndustrial
ConstructionGroups,Inc.,wedeclaredthat:

Beinganinexpensive,speedyandamicablemethod
of settling disputes,arbitrationalong with mediation,
conciliationandnegotiationisencouragedbytheSupreme
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
arbitrationbetweenthepartieswouldbeastepbackward.

Consistent with the abovementioned policy of

encouraging alternative dispute resolution methods, courts
should liberally construe arbitration clauses. Provided such
clause is susceptible of an interpretation that covers the
asserteddispute,anordertoarbitrateshouldbegranted.Any
doubtshouldberesolvedinfavorofarbitration.[40]

Having said that the instant arbitration clause is not against public
policy,wecometothequestiononwhatgovernsanarbitrationclausespecifying
thatincaseofanydisputearisingfromthecontract,anarbitralpanelwillbe
constitutedinaforeigncountryandthearbitrationrulesoftheforeigncountry
wouldgovernanditsawardshallbefinalandbinding.

RA9285incorporatedtheUNCITRALModellaw
towhichweareasignatory

Fordomesticarbitrationproceedings,wehaveparticularagenciesto
arbitratedisputesarisingfromcontractualrelations.Incaseaforeignarbitral
bodyischosenbytheparties,thearbitrationrulesofourdomesticarbitration
bodies would not be applied.As signatory to the Arbitration Rules of the
UNCITRAL Model Law on International Commercial Arbitration[41]of
theUnitedNationsCommissiononInternationalTradeLaw(UNCITRAL)in
theNewYorkConventiononJune21,1985,thePhilippinescommitteditselfto
beboundbytheModelLaw.WehaveevenincorporatedtheModelLawin
Republic Act No. (RA) 9285, otherwise known as theAlternative Dispute
Resolution Act of 2004entitledAn Act to Institutionalize the Use of an
AlternativeDisputeResolutionSysteminthePhilippinesandtoEstablishthe
OfficeforAlternativeDisputeResolution,andforOtherPurposes,promulgated
on April 2, 2004.Secs. 19and 20 ofChapter 4of the Model Law are the
pertinentprovisions:

CHAPTER4INTERNATIONALCOMMERCIAL
ARBITRATION

SEC. 19.Adoption of the Model Law on

International Commercial Arbitration.International

commercialarbitrationshallbegovernedbytheModelLaw
onInternationalCommercialArbitration(theModelLaw)
adoptedbytheUnitedNationsCommissiononInternational
Trade Law on June 21, 1985 (United Nations Document
A/40/17) and recommended for enactment by the General
AssemblyinResolutionNo.40/72approvedonDecember11,
1985,copyofwhichisheretoattachedasAppendixA.

SEC. 20.Interpretation of Model Law.In

interpreting the Model Law, regard shall be had to its
international origin and to the need for uniformity in its
interpretation and resort may be made to thetravaux
preparatoriesandthereportoftheSecretaryGeneralofthe
UnitedNationsCommissiononInternationalTradeLawdated
March 25, 1985 entitled, International Commercial
Arbitration:AnalyticalCommentaryonDraftTradeidentified
byreferencenumberA/CN.9/264.

WhileRA9285waspassedonlyin2004,itnonethelessappliesinthe
instantcasesinceitisaprocedurallawwhichhasaretroactiveeffect.Likewise,
KOGIES filed its application for arbitration before the KCAB onJuly 1,
1998and itis still pending because no arbitral award has yet been
rendered.Thus,RA9285isapplicabletotheinstantcase.Wellsettledisthe
rulethatprocedurallawsareconstruedtobeapplicabletoactionspendingand
undeterminedatthetimeoftheirpassage,andaredeemedretroactiveinthat
sense and to that extent.As a general rule, theretroactive application of
procedurallawsdoesnotviolateanypersonalrightsbecausenovestedrighthas
yetattachednorarisenfromthem.[42]

AmongthepertinentfeaturesofRA9285applyingandincorporating
theUNCITRALModelLawarethefollowing:

(1)TheRTCmustrefertoarbitrationinpropercases

UnderSec.24,theRTCdoesnothavejurisdictionoverdisputesthat
are properly the subject of arbitration pursuant to an arbitration clause, and
mandatesthereferraltoarbitrationinsuchcases,thus:

SEC. 24.Referral to Arbitration.A court before

whichanactionisbroughtinamatterwhichisthesubject
matterofanarbitrationagreementshall,ifatleastonepartyso
requestsnot laterthanthepretrial conference,oruponthe
request of both parties thereafter, refer the parties to
arbitrationunlessitfindsthatthearbitrationagreementisnull
andvoid,inoperativeorincapableofbeingperformed.

(2)ForeignarbitralawardsmustbeconfirmedbytheRTC

Foreignarbitralawardswhilemutuallystipulatedbythepartiesinthe
arbitrationclausetobefinalandbindingarenotimmediatelyenforceableor
cannotbeimplementedimmediately.Sec.35[43]oftheUNCITRALModelLaw
stipulatestherequirementforthearbitralawardtoberecognizedbyacompetent
courtforenforcement,whichcourt underSec.36oftheUNCITRALModel
Lawmayrefuserecognitionorenforcementonthegroundsprovidedfor.RA
9285incorporatedtheseprovisostoSecs.42,43,and44relativetoSecs.47and
48,thus:

SEC.42.ApplicationoftheNewYorkConvention.
TheNewYorkConventionshallgoverntherecognitionand
enforcementofarbitralawardscoveredbysaidConvention.

The recognition and enforcement of such arbitral

awards shall be filed with theRegional Trial Courtin
accordancewiththerulesofproceduretobepromulgatedby
theSupremeCourt.Saidprocedural rulesshallprovidethat
thepartyrelyingontheawardorapplyingforitsenforcement
shallfilewiththecourttheoriginalorauthenticatedcopyof
the award and the arbitration agreement.If the award or
agreementisnotmadeinanyoftheofficiallanguages,the
partyshallsupplyadulycertifiedtranslationthereofintoany
ofsuchlanguages.

The applicant shall establish that the country in

whichforeignarbitrationawardwasmadeinpartytotheNew
YorkConvention.

xxxx

SEC.43.RecognitionandEnforcement of Foreign
ArbitralAwardsNotCoveredbytheNewYorkConvention.
The recognitionand enforcement of foreign arbitral awards
notcoveredbytheNewYorkConventionshallbedonein
accordance with procedural rules to be promulgated by the
SupremeCourt.TheCourt may,ongroundsofcomityand
reciprocity,recognizeandenforceanonconventionawardas
aconventionaward.
SEC. 44.Foreign Arbitral Award Not Foreign
Judgment.A foreign arbitral award when confirmed by a
courtofaforeigncountry,shallberecognizedandenforcedas
aforeignarbitralawardandnotasajudgmentofaforeign
court.

A foreign arbitral award, when confirmed by the

RegionalTrialCourt,shallbeenforcedinthesamemanneras
final and executory decisions of courts of law of
thePhilippines

xxxx

SEC.47.VenueandJurisdiction.Proceedingsfor
recognitionandenforcementofanarbitrationagreementorfor
vacations, setting aside, correction or modification of an
arbitralaward,andanyapplicationwithacourtforarbitration
assistance and supervision shall be deemed as special
proceedingsandshallbefiledwiththeRegionalTrialCourt
(i)wherearbitrationproceedingsareconducted;(ii)wherethe
assettobeattachedorleviedupon,ortheacttobeenjoinedis
located;(iii)whereanyofthepartiestothedisputeresidesor
has his place of business; or (iv) in the National Judicial
CapitalRegion,attheoptionoftheapplicant.

SEC. 48.Notice of Proceeding to Parties.In a

special proceeding for recognition and enforcement of an
arbitral award, the Court shall send notice tothe parties at
theiraddressofrecordinthearbitration,orifanypartcannot
beservednoticeatsuchaddress,atsuchpartyslastknown
address.The notice shall be sent al least fifteen (15) days
beforethedatesetfortheinitialhearingoftheapplication.

ItisnowclearthatforeignarbitralawardswhenconfirmedbytheRTC
aredeemednotasajudgmentofaforeigncourtbutasaforeignarbitralaward,
andwhenconfirmed,areenforcedasfinalandexecutorydecisionsofourcourts
oflaw.

Thus,itcanbegleanedthattheconceptofafinalandbindingarbitral
awardissimilartojudgmentsorawardsgivenbysomeofourquasijudicial
bodies,liketheNationalLaborRelationsCommissionandMinesAdjudication
Board,whosefinal judgmentsarestipulatedtobefinalandbinding,butnot
immediatelyexecutoryinthesensethattheymaystillbejudiciallyreviewed,
upontheinstanceofanyparty.Therefore,thefinalforeignarbitralawardsare
similarlysituatedinthattheyneedfirsttobeconfirmedbytheRTC.

(3)TheRTChasjurisdictiontoreviewforeignarbitralawards

Sec.42inrelationtoSec.45ofRA9285designatedandvestedthe
RTC withspecific authorityandjurisdictiontoset aside, reject,orvacate a
foreignarbitralawardongroundsprovidedunderArt.34(2)oftheUNCITRAL
ModelLaw.Secs.42and45provide:

SEC.42.ApplicationoftheNewYorkConvention.
TheNewYorkConventionshallgoverntherecognitionand
enforcementofarbitralawardscoveredbysaidConvention.

The recognition and enforcement of such arbitral

awards shall be filed with theRegional Trial Courtin
accordancewiththerulesofproceduretobepromulgatedby
theSupremeCourt.Saidprocedural rulesshallprovidethat

thepartyrelyingontheawardorapplyingforitsenforcement
shallfilewiththecourttheoriginalorauthenticatedcopyof
the award and the arbitration agreement.If the award or
agreementisnotmadeinanyoftheofficiallanguages,the
partyshallsupplyadulycertifiedtranslationthereofintoany
ofsuchlanguages.

The applicant shall establish that the country in

whichforeignarbitrationawardwasmadeispartytotheNew
YorkConvention.

If the application for rejection or suspension of

enforcementofanawardhasbeenmade,theRegionalTrial
Courtmay,ifitconsidersitproper,vacateitsdecisionand
mayalso,ontheapplicationofthepartyclaimingrecognition
or enforcement of the award, order the party to provide
appropriatesecurity.

xxxx

SEC.45.RejectionofaForeignArbitralAward.A
party to a foreign arbitration proceeding may oppose an
application for recognition and enforcement of the arbitral
award in accordance with the procedures and rules to be
promulgated by the Supreme Court only on those grounds
enumerated under Article V of the New York
Convention.Anyothergroundraisedshallbedisregardedby
theRegionalTrialCourt.

Thus,whiletheRTCdoesnothavejurisdictionoverdisputesgoverned
by arbitration mutually agreed upon by the parties, still the foreign arbitral
awardissubjecttojudicialreviewbytheRTCwhichcansetaside,reject,or
vacateit.Inthissense,whatthisCourtheldinChungFuIndustries(Phils.),
Inc.relieduponbyKOGIESisapplicableinsofarastheforeignarbitralawards,
whilefinalandbinding,donotoustcourtsofjurisdictionsincethesearbitral
awards are not absolute and without exceptions as they are still judicially
reviewable.Chapter7ofRA9285hasmadeitclearthatallarbitralawards,

whetherdomesticorforeign,aresubjecttojudicialreviewonspecificgrounds
providedfor.
(4)Groundsforjudicialreviewdifferentindomesticandforeignarbitral
awards

Thedifferencesbetweenafinalarbitralawardfromaninternationalor
foreignarbitraltribunalandanawardgivenbyalocalarbitraltribunalarethe
specificgroundsorconditionsthatvestjurisdictionoverourcourtstoreviewthe
awards.

For foreign or international arbitral awards which must first be

confirmedbytheRTC,thegroundsforsettingaside,rejectingorvacatingthe
award by the RTC are provided under Art. 34(2)of the UNCITRAL Model
Law.

Forfinaldomesticarbitralawards,whichalsoneedconfirmationbythe
RTCpursuant toSec.23ofRA876 [44]andshallberecognizedasfinal and
executorydecisionsoftheRTC,[45]theymayonlybeassailedbeforetheRTC
andvacatedonthegroundsprovidedunderSec.25ofRA876.[46]

(5)RTCdecisionofassailedforeignarbitralawardappealable

Sec. 46 of RA 9285 provides for an appeal before the CA as the

remedyofanaggrievedpartyincaseswheretheRTCsetsaside,rejects,vacates,
modifies,orcorrectsanarbitralaward,thus:

SEC. 46.Appeal from Court Decision or Arbitral

Awards.AdecisionoftheRegionalTrialCourtconfirming,
vacating, setting aside, modifying or correcting an arbitral
awardmaybeappealedtotheCourtofAppealsinaccordance
with the rules and procedure to be promulgated by the
SupremeCourt.

Thelosingpartywhoappealsfromthejudgmentof
thecourtconfirminganarbitralawardshallberequiredbythe
appellatecourttopostacounterbondexecutedinfavorofthe
prevailing party equal to the amount of the award in

accordancewiththerulestobepromulgatedbytheSupreme
Court.

Thereafter, the CA decision may further be appealed or reviewed

beforethisCourtthroughapetitionforreviewunderRule45oftheRulesof
Court.
PGSMChasremediestoprotectitsinterests

Thus, based on the foregoing features of RA 9285, PGSMC must

submit to the foreign arbitration as it bound itself through the subject
contract.While it may have misgivings on the foreign arbitration done
inKoreabytheKCAB,ithasavailableremediesunderRA9285.Itsinterests
aredulyprotectedbythelawwhichrequiresthatthearbitralawardthatmaybe
rendered by KCAB must be confirmed here by the RTC before it can be
enforced.

Withourdisquisitionabove,petitioneriscorrectinitscontentionthat
anarbitrationclause,stipulatingthatthearbitralawardisfinalandbinding,does
notoustourcourtsofjurisdictionastheinternationalarbitralaward,theaward
ofwhichisnotabsoluteandwithoutexceptions,isstilljudiciallyreviewable
undercertainconditionsprovidedforbytheUNCITRALModelLawonICAas
appliedandincorporatedinRA9285.

Finally,itmustbenotedthatthereisnothinginthesubjectContract
whichprovidesthatthepartiesmaydispensewiththearbitrationclause.

Unilateralrescissionimproperandillegal

Havingruledthatthearbitrationclauseofthesubjectcontractisvalid
and binding on the parties, and not contrary to public policy; consequently,
beingboundtothecontractofarbitration,apartymaynotunilaterallyrescindor
terminatethecontractforwhatevercausewithoutfirstresortingtoarbitration.
What this Court held inUniversity of the Philippines v. De Los
[47]
Angeles andreiteratedinsucceedingcases,[48]thattheactoftreatingacontract
asrescindedonaccountofinfractionsbytheothercontractingpartyisvalid
albeitprovisionalasitcanbejudiciallyassailed,isnotapplicabletotheinstant
caseonaccountofavalidstipulationonarbitration.Whereanarbitrationclause
inacontractisavailing,neitherofthepartiescanunilaterallytreatthecontract

asrescindedsincewhateverinfractionsorbreachesbyapartyordifferences
arisingfromthecontractmustbebroughtfirstandresolvedbyarbitration,and
notthroughanextrajudicialrescissionorjudicialaction.

TheissuesarisingfromthecontractbetweenPGSMCandKOGIESon
whethertheequipmentandmachineriesdeliveredandinstalledwereproperly
installed and operationalin the plant in Carmona, Cavite; the ownership of
equipmentandpaymentofthecontractprice;andwhethertherewassubstantial
compliancebyKOGIESintheproductionofthesamples,giventheallegedfact
thatPGSMCcouldnotsupplytherawmaterialsrequiredtoproducethesample
LPGcylinders,aremattersproperforarbitration.Indeed,wenotethatonJuly1,
1998, KOGIES instituted an Application for Arbitration before the KCAB
inSeoul,Koreapursuant to Art. 15 of the Contract as amended.Thus, it is
incumbentuponPGSMCtoabidebyitscommitmenttoarbitrate.

Corollarily, the trial court gravely abused its discretion in granting

PGSMCs Motion for Inspection of Things onSeptember 21, 1998, as the
subjectmatterofthemotionisundertheprimaryjurisdictionofthemutually
agreedarbitralbody,theKCABinKorea.
In addition, whatever findings and conclusions made by the RTC
BranchSherifffromtheinspectionmadeonOctober28,1998,asorderedbythe
trialcourtonOctober19,1998,isofnoworthassaidSheriffisnottechnically
competenttoascertaintheactualstatusoftheequipmentandmachineriesas
installedintheplant.

Forthesereasons,theSeptember21,1998andOctober19,1998RTC
Orders pertaining to the grant of the inspection of the equipment and
machinerieshavetoberecalledandnullified.

Issueonownershipofplantproperforarbitration

PetitionerassailstheCArulingthattheissuepetitionerraisedonwhether
the totalcontract price of USD 1,530,000 was for the whole plant and its
installationisbeyondtheambitofaPetitionforCertiorari.

Petitionerspositionisuntenable.

Itissettledthatquestionsoffactcannotberaisedinanoriginalactionfor
certiorari.[49]Whether or not there was full payment for the machineries and
equipmentandinstallationisindeedafactualissueprohibitedbyRule65.

However,whatappearstoconstituteagraveabuseofdiscretionisthe
orderoftheRTCinresolvingtheissueontheownershipoftheplantwhenitis
thearbitralbody(KCAB)andnottheRTCwhichhasjurisdictionandauthority
overthesaidissue.TheRTCsdeterminationofsuchfactualissueconstitutes
graveabuseofdiscretionandmustbereversedandsetaside.

RTChasinterimjurisdictiontoprotecttherightsoftheparties

AnenttheJuly23,1998Orderdenyingtheissuanceoftheinjunctive
writpavingthewayforPGSMCtodismantleandtransfertheequipmentand
machineries, we find it to be in order considering the factual milieu of the
instantcase.

Firstly,whiletheissueoftheproperinstallationoftheequipmentand
machineriesmightwellbeundertheprimaryjurisdictionofthearbitralbodyto
decide,yettheRTCunderSec.28ofRA9285hasjurisdictiontohearandgrant
interim measures to protect vested rights of the parties.Sec. 28 pertinently
provides:

SEC.28.GrantofinterimMeasureofProtection.
(a)Itisnotincompatiblewithan arbitrationagreement
forapartytorequest,beforeconstitutionofthetribunal,
fromaCourttograntsuchmeasure.Afterconstitutionof
thearbitraltribunalandduringarbitralproceedings,arequest
foraninterimmeasureofprotection,ormodificationthereof,
may be made with the arbitralor to the extent that the
arbitraltribunalhasnopowertoactorisunabletoact
effectivity,therequestmaybemadewiththeCourt.The
arbitraltribunalisdeemedconstitutedwhenthesolearbitrator
orthethirdarbitrator,whohasbeennominated,hasaccepted
thenominationandwrittencommunicationofsaidnomination

and acceptance has been received by the party making the

request.

(b) The following rules on interim or provisional

reliefshallbeobserved:

Any party may request that provisional relief be

grantedagainsttheadverseparty.

Suchreliefmaybegranted:

(i)topreventirreparablelossorinjury;
(ii)to provide security for the performance of
anyobligation;
(iii)toproduceorpreserveanyevidence;or
(iv)to compel any other appropriate act or
omission.

(c)The order granting provisional relief may be

conditioned upon the provision of security or any act or
omissionspecifiedintheorder.

(d)Interim or provisional relief is requested by

written application transmitted by reasonable means to the
Court orarbitral tribunal asthecasemaybeandtheparty
againstwhomthereliefissought,describinginappropriate
detailthepreciserelief,thepartyagainstwhomthereliefis
requested, the grounds for the relief, and the evidence
supportingtherequest.

(e)Theordershallbebindingupontheparties.

(f)Either party may apply with the Court for

assistanceinimplementingorenforcinganinterimmeasure
orderedbyanarbitraltribunal.

(g)Apartywhodoesnotcomplywiththeordershall
be liable for all damages resulting from noncompliance,

includingallexpenses,andreasonableattorney'sfees,paidin
obtainingtheordersjudicialenforcement.(Emphasisours.)

Art.17(2)oftheUNCITRALModelLawonICAdefinesaninterim
measureofprotectionas:

Article17.Powerofarbitraltribunaltoorderinterim
measures

xxxxxxxxx

(2) Aninterimmeasureisanytemporarymeasure, whether

intheformofanawardorinanotherform,bywhich,atany
timepriortotheissuanceoftheawardbywhichthedisputeis
finallydecided,thearbitraltribunalordersapartyto:

(a)Maintainorrestorethestatusquopendingdeterminationof
thedispute;

(b)Take action that would prevent, or refrain from taking

action that is likely to cause, current or imminent harm or
prejudicetothearbitralprocessitself;

(c)Provide a means of preserving assets out of which a

subsequentawardmaybesatisfied;or

(d)Preserveevidencethatmayberelevantandmaterialtothe
resolutionofthedispute.

Art.17JofUNCITRALModelLawonICAalsograntscourtspower
andjurisdictiontoissueinterimmeasures:

Article17J.Courtorderedinterimmeasures

A court shall have the same power of issuing an

interim measure in relation to arbitration proceedings,
irrespectiveofwhethertheirplaceisintheterritoryofthis

State,asithasinrelationtoproceedingsincourts.Thecourt
shall exercise such power in accordance with its own
procedures in consideration of the specific features of
internationalarbitration.

Intherecent2006caseofTransfieldPhilippines,Inc.v.LuzonHydro
Corporation,wewereexplicitthateventhependencyofanarbitralproceeding
doesnotforecloseresorttothecourtsforprovisionalreliefs.Weexplicatedthis
way:

Asafundamentalpoint,thependencyofarbitralproceedings
doesnotforecloseresorttothecourtsforprovisionalreliefs.
The Rules of the ICC, which governs the parties arbitral
dispute,allowstheapplicationofapartytoajudicialauthority
forinterimorconservatorymeasures.Likewise,Section14of
Republic Act (R.A.) No. 876 (The Arbitration Law)
recognizestherightsofanypartytopetitionthecourttotake
measurestosafeguardand/orconserveanymatterwhichisthe
subjectofthedisputeinarbitration.Inaddition,R.A.9285,
otherwiseknownastheAlternativeDisputeResolutionAct
of2004,allowsthefilingofprovisionalorinterimmeasures
withtheregularcourtswheneverthearbitraltribunalhasno
powertoactortoacteffectively.[50]

ItisthusbeyondcavilthattheRTChasauthorityandjurisdictionto
grantinterimmeasuresofprotection.

Secondly,consideringthattheequipmentandmachineriesareinthe
possessionofPGSMC,ithastherighttoprotectandpreservetheequipmentand
machineriesinthebestwayitcan.ConsideringthattheLPGplantwasnon
operational,PGSMChastherighttodismantleandtransfertheequipmentand
machinerieseitherfortheirprotectionandpreservationorforthebetterwayto
makegooduseofthemwhichisineluctablywithinthemanagementdiscretion
ofPGSMC.

Thirdly, and of greater import is the reason that maintaining the

equipmentandmachineriesinWorthspropertyisnottothebestinterestof

PGSMC due to the prohibitive rent while the LPG plant as setup is not
operational.PGSMCwaslosingPhP322,560asmonthlyrentalsorPhP3.87M
for 1998 alone without considering the 10% annual rent increment in
maintainingtheplant.

Fourthly, and corollarily, while the KCAB can rule on motions or

petitions relating to the preservation or transfer of the equipment and
machineriesasaninterimmeasure,yetonhindsight,theJuly23,1998Orderof
theRTCallowingthetransferoftheequipmentandmachineriesgiventhenon
recognitionbythelowercourtsofthearbitralclause,hasaccordedaninterim
measure of protection to PGSMC which would otherwise been irreparably
damaged.

Fifth, KOGIES is not unjustly prejudiced as it has already been

paidasubstantialamountbasedonthecontract.Moreover,KOGIESisamply
protectedbythearbitralactionithasinstitutedbeforetheKCAB,theawardof
whichcanbeenforcedinourjurisdictionthroughtheRTC.Besides,byour
decision,PGSMCiscompelledtosubmittoarbitrationpursuanttothevalid
arbitrationclauseofitscontractwithKOGIES.

PGSMCtopreservethesubjectequipmentandmachineries

Finally,whilePGSMCmayhavebeengrantedtherighttodismantle
andtransferthesubjectequipmentandmachineries,itdoesnothavetherightto
conveyordisposeofthesameconsideringthependingarbitralproceedingsto
settle the differences of the parties.PGSMC therefore must preserve and
maintainthesubjectequipmentandmachinerieswiththediligenceofagood
father of a family[51]until final resolution of the arbitral proceedings and
enforcementoftheaward,ifany.

WHEREFORE,thispetitionisPARTLYGRANTED,inthat:

(1)The May 30, 2000CA Decision in CAG.R. SP No. 49249

isREVERSEDandSETASIDE;

(2)TheSeptember21,1998andOctober19,1998RTCOrdersin
CivilCaseNo.98117areREVERSEDandSETASIDE;

(3)ThepartiesareherebyORDEREDtosubmitthemselvestothe
arbitration of their dispute and differences arising from the subject Contract
beforetheKCAB;and

(4)PGSMC is herebyALLOWEDto dismantle and transfer the

equipmentandmachineries,ifithadnotdoneso,andORDEREDtopreserve
andmaintainthemuntilthefinalityofwhateverarbitralawardisgiveninthe
arbitrationproceedings.

Nopronouncementastocosts.

SOORDERED.