Republic of the Philippines Mid-Pasig, however, denied it accepted Rocklands offer and claimed that no check was
SUPREME COURT attached to the said letter. It also vehemently denied receiving the P1 million check, much less
Manila
SECOND DIVISION
G.R. No. 164587 February 4, 2008
ROCKLAND CONSTRUCTION COMPANY, INC., petitioner,
vs.
MID-PASIG LAND DEVELOPMENT CORPORATION, respondent.
DECISION
QUISUMBING, J.:
This petition for review seeks the reversal of the Decision 1 and Resolution2 dated February 27,
2004 and July 21, 2004, respectively, of the Court of Appeals in CA-G.R. CV No. 76370. The
appellate court had reversed and set aside the Decision 3 dated September 2, 2002 of the
Regional Trial Court (RTC), Branch 67 of Pasig City, in Civil Case No. 68350; dismissed
petitioners complaint; and held that there was no perfected contract of lease between the
parties.
The antecedents facts, culled from the records, are as follows:
4 as stated in plaintiffs June 8, 2000 letter (Exh. D), to wit:
Rockland Construction Company, Inc. (Rockland), in a letter dated March 1, 2000, offered to
lease from Mid-Pasig Land Development Corporation (Mid-Pasig) the latters 3.1-hectare
property in Pasig City. This property is covered by Transfer Certificate of Title Nos. 469702 and
337158 under the control of the Presidential Commission on Good Government (PCGG). Upon
instruction of Mid-Pasig to address the offer to the PCGG, Rockland wrote the PCGG on April
15, 2000. The letter,5 addressed to PCGG Chairman Magdangal Elma, included Rocklands
proposed terms and conditions for the lease. This letter was also received by Mid-Pasig on
April 18, 2000, but Mid-Pasig made no response.
Again, in another letter6 dated June 8, 2000 addressed to the Chairman of Mid-Pasig, Mr.
Ronaldo Salonga, Rockland sent a Metropolitan Bank and Trust Company Check No.
29300501687 for P1 million as a sign of its good faith and readiness to enter into the lease
agreement under the certain terms and conditions stipulated in the letter. Mid-Pasig received
this letter on July 28, 2000.
In a subsequent follow-up letter8 dated February 2, 2001, Rockland then said that it presumed
that Mid-Pasig had accepted its offer because the P1 million check it issued had been credited
to Mid-Pasigs account on December 5, 2000.9
depositing it in its account.
In its letter10 dated February 6, 2001, Mid-Pasig replied to Rockland that it was only upon
receipt of the latters February 2 letter that the former came to know where the check came
from and what it was for. Nevertheless, it categorically informed Rockland that it could not
entertain the latters lease application. Mid-Pasig reiterated its refusal of Rocklands offer in a
letter11 dated February 13, 2001.
Rockland then filed an action for specific performance docketed as Civil Case No. 68350 in the
RTC, Branch 67 of Pasig City. Rockland sought to compel Mid-Pasig to execute in Rocklands
favor, a contract of lease over a 3.1-hectare portion 12 of Mid-Pasigs property in Pasig City.
On September 2, 2002, the trial court rendered a decision, the dispositive portion of which
reads in part:
WHEREFORE, judgment is rendered, as follows:
1. Declaring that the plaintiff and the defendant have duly agreed upon a valid and
enforceable lease agreement of subject portions of [defendants] properties designated
in Exh. A as areas "A", "B" and "C", comprising an area of 5,000 square meters, 11,000
square meters and 15,000 square meters, or a total of 31,000 square meters;
2. Holding that the principal terms and conditions of the aforesaid lease agreement are
xxxx
3. Ordering the defendant to execute a written lease contract in favor of the plaintiff
containing the principal terms and conditions mentioned in the next-preceding
paragraph, within sixty (60) days from finality of this judgment, and likewise ordering
the plaintiff to pay rent to the defendant as specified in said terms and conditions;
4. Ordering the defendant to keep and maintain the plaintiff in the peaceful possession
and enjoyment of the leased premises during the term of said contract;
5. Ordering the defendant to pay plaintiff [attorneys] fees in the sum of One Million
Pesos (P1,000,000.00), plus P2,000.00 for every appearance made by counsel in
court;
6. The temporary restraining order dated April 2, 2001 is hereby made PERMANENT;
7. Dismissing defendants counterclaim.
 With costs against the defendant.
SO ORDERED.13
On appeal, the Court of Appeals reversed and set aside the trial courts decision on the
following grounds: (1) there was no meeting of the minds as to the offer and acceptance
between the parties; (2) there was no implied acceptance of the P1 million check as Mid-Pasig
was not aware of its source at the time Mid-Pasig discovered the existence of the P1 million in
its account; and (3) Rocklands subsequent acts and/or omissions contradicted its claim that
there was already a contract of lease, as it neither took possession of the property, nor did it
pay for the corresponding monthly rentals. Accordingly, the Court of Appeals dismissed
Rocklands complaint, as well as Mid-Pasigs counterclaim. Rockland sought reconsideration,
but it was denied.
Petitioner Rockland now comes before us raising a complex issue:
. . . WHETHER OR NOT RESPONDENTS ACT OF DEPOSITING INTO ITS
CORPORATE BANK ACCOUNT PETITIONERS P1 MILLION CHECK AND
COLLECTING THE PROCEEDS THEREOF: (A) PRODUCES THE LEGAL EFFECT
OF AN ACCEPTANCE OF PETITIONERS OFFER AND CONSIDERED AS CONSENT
TO THE PAYMENT FOR WHICH IT WAS INTENDED; AND/OR [(B)] CONSTITUTES
IN LEGAL CONTEMPLATION ESTOPPEL IN PAIS, SUFFICIENT TO APPRECIATE
RESPONDENTS CONSENT TO THE LEASE.14
Simply stated, the issue may be rephrased into two questions: Was there a perfected contract
of lease? Had estoppel in pais set in?
Rockland contends that the contract of lease had been perfected and that Mid-Pasig is in
estoppel in pais because it impliedly accepted its offer when the P1 million check was credited
to Mid-Pasigs account.
Mid-Pasig counters that it never accepted Rocklands offer. It avers it immediately rejected
Rocklands offer upon learning of the mysterious deposit of the P1 million check in its account.
Since the re-stated issues are intertwined, we shall discuss them jointly.
A contract has three distinct stages: preparation, perfection, and consummation. Preparation or
negotiation begins when the prospective contracting parties manifest their interest in the
contract and ends at the moment of their agreement. Perfection or birth of the contract occurs
when they agree upon the essential elements thereof. Consummation, the last stage, occurs
when the parties "fulfill or perform the terms agreed upon in the contract, culminating in the
extinguishment thereof."15
Negotiation is formally initiated by an offer. Accordingly, an offer that is not accepted, either
expressly or impliedly,16precludes the existence of consent, which is one of the essential
elements17 of a contract. Consent, under Article 1319 of the Civil Code, is manifested by the
meeting of the offer and acceptance upon the thing which are to constitute a contract. To
produce a contract, the offer must be certain and the acceptance absolute. 18
A close review of the events in this case, in the light of the parties evidence, shows that there
was no perfected contract of lease between the parties. Mid-Pasig was not aware that
Rockland deposited the P1 million check in its account. It only learned of Rocklands check
when it received Rocklands February 2, 2001 letter. Mid-Pasig, upon investigation, also
learned that the check was deposited at the Philippine National Bank (PNB) San Juan Branch,
instead of PNB Ortigas Branch where Mid-Pasig maintains its account. Immediately, Mid-Pasig
wrote Rockland on February 6, 2001 rejecting the offer, and proposed that Rockland apply
the P1 million to its other existing lease instead. These circumstances clearly show that there
was no concurrence of Rocklands offer and Mid-Pasigs acceptance.
Mid-Pasig is also not in estoppel in pais. The doctrine of estoppel is based on the grounds of
public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak
against his own act, representations, or commitments to the injury of one to whom they were
directed and who reasonably relied thereon.19 Since estoppel is based on equity and justice, it
is essential that before a person can be barred from asserting a fact contrary to his act or
conduct, it must be shown that such act or conduct has been intended and would unjustly
cause harm to those who are misled if the principle were not applied against him. 20
From the start, Mid-Pasig never falsely represented its intention that could lead Rockland to
believe that Mid-Pasig had accepted Rocklands offer. Mid-Pasig consistently rejected
Rocklands offer. Further, Rockland never secured the approval of Mid-Pasigs Board of
Directors and the PCGG to lease the subject property to Rockland. As noted by the Court of
Appeals, if indeed Rockland believed that Mid-Pasig impliedly accepted the offer, then it should
have taken possession of the property and paid the monthly rentals. But it did not. For estoppel
to apply, the action giving rise thereto must be unequivocal and intentional because, if
misapplied, estoppel may become a tool of injustice.21
WHEREFORE, the instant petition is DENIED. The Decision and Resolution dated February
27, 2004 and July 21, 2004, respectively, of the Court of Appeals in CA-G.R. CV No. 76370
are AFFIRMED. Costs against the petitioner.
SO ORDERED.
G.R. No. 175404 January 31, 2011
CARGILL PHILIPPINES, INC., Petitioner,
vs.
SAN FERNANDO REGALA TRADING, INC., Respondent.
 DECISION
PERALTA, J.:
Before us is a petition for review on certiorari seeking to reverse and set aside the
Decision1 dated July 31, 2006 and the Resolution2 dated November 13, 2006 of the Court of
Appeals (CA) in CA G.R. SP No. 50304.
The factual antecedents are as follows:
On June 18, 1998, respondent San Fernando Regala Trading, Inc. filed with the Regional Trial
Court (RTC) of Makati City a Complaint for Rescission of Contract with Damages 3 against
petitioner Cargill Philippines, Inc. In its Complaint, respondent alleged that it was engaged in
buying and selling of molasses and petitioner was one of its various sources from whom it
purchased molasses. Respondent alleged that it entered into a contract dated July 11, 1996
with petitioner, wherein it was agreed upon that respondent would purchase from petitioner
12,000 metric tons of Thailand origin cane blackstrap molasses at the price of US$192 per
metric ton; that the delivery of the molasses was to be made in January/February 1997 and
payment was to be made by means of an Irrevocable Letter of Credit payable at sight, to be
opened by September 15, 1996; that sometime prior to September 15, 1996, the parties
agreed that instead of January/February 1997, the delivery would be made in April/May 1997
and that payment would be by an Irrevocable Letter of Credit payable at sight, to be opened
upon petitioner's advice. Petitioner, as seller, failed to comply with its obligations under the
contract, despite demands from respondent, thus, the latter prayed for rescission of the
contract and payment of damages.
On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend Proceedings and To Refer
Controversy to Voluntary Arbitration,4 wherein it argued that the alleged contract between the
parties, dated July 11, 1996, was never consummated because respondent never returned the
proposed agreement bearing its written acceptance or conformity nor did respondent open the
Irrevocable Letter of Credit at sight. Petitioner contended that the controversy between the
parties was whether or not the alleged contract between the parties was legally in existence
and the RTC was not the proper forum to ventilate such issue. It claimed that the contract
contained an arbitration clause, to wit:
ARBITRATION
Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be
settled by arbitration in the City of New York before the American Arbitration Association. The
Arbitration Award shall be final and binding on both parties. 5
that respondent must first comply with the arbitration clause before resorting to court, thus, the
RTC must either dismiss the case or suspend the proceedings and direct the parties to
proceed with arbitration, pursuant to Sections 66 and 77 of Republic Act (R.A.) No. 876, or the
Arbitration Law.
Respondent filed an Opposition, wherein it argued that the RTC has jurisdiction over the action
for rescission of contract and could not be changed by the subject arbitration clause. It cited
cases wherein arbitration clauses, such as the subject clause in the contract, had been struck
down as void for being contrary to public policy since it provided that the arbitration award shall
be final and binding on both parties, thus, ousting the courts of jurisdiction.
In its Reply, petitioner maintained that the cited decisions were already inapplicable, having
been rendered prior to the effectivity of the New Civil Code in 1950 and the Arbitration Law in
1953.
In its Rejoinder, respondent argued that the arbitration clause relied upon by petitioner is
invalid and unenforceable, considering that the requirements imposed by the provisions of the
Arbitration Law had not been complied with.
By way of Sur-Rejoinder, petitioner contended that respondent had even clarified that the issue
boiled down to whether the arbitration clause contained in the contract subject of the complaint
is valid and enforceable; that the arbitration clause did not violate any of the cited provisions of
the Arbitration Law.
On September 17, 1998, the RTC rendered an Order,8 the dispositive portion of which reads:
Premises considered, defendant's "Motion To Dismiss/Suspend Proceedings and To Refer
Controversy To Voluntary Arbitration" is hereby DENIED. Defendant is directed to file its answer
within ten (10) days from receipt of a copy of this order.9
In denying the motion, the RTC found that there was no clear basis for petitioner's plea to
dismiss the case, pursuant to Section 7 of the Arbitration Law. The RTC said that the provision
directed the court concerned only to stay the action or proceeding brought upon an issue
arising out of an agreement providing for the arbitration thereof, but did not impose the sanction
of dismissal. However, the RTC did not find the suspension of the proceedings warranted,
since the Arbitration Law contemplates an arbitration proceeding that must be conducted in the
Philippines under the jurisdiction and control of the RTC; and before an arbitrator who resides
in the country; and that the arbitral award is subject to court approval, disapproval and
modification, and that there must be an appeal from the judgment of the RTC. The RTC found
that the arbitration clause in question contravened these procedures, i.e., the arbitration clause
contemplated an arbitration proceeding in New York before a non-resident arbitrator (American
Arbitration Association); that the arbitral award shall be final and binding on both parties. The
RTC said that to apply Section 7 of the Arbitration Law to such an agreement would result in
disregarding the other sections of the same law and rendered them useless and mere
surplusages.
Petitioner filed its Motion for Reconsideration, which the RTC denied in an Order 10 dated
November 25, 1998.
Petitioner filed a petition for certiorari with the CA raising the sole issue that the RTC acted in
excess of jurisdiction or with grave abuse of discretion in refusing to dismiss or at least
suspend the proceedings a quo, despite the fact that the party's agreement to arbitrate had not
been complied with.
Respondent filed its Comment and Reply. The parties were then required to file their respective
Memoranda.
On July 31, 2006, the CA rendered its assailed Decision denying the petition and affirming the
RTC Orders.
In denying the petition, the CA found that stipulation providing for arbitration in contractual
obligation is both valid and constitutional; that arbitration as an alternative mode of dispute
resolution has long been accepted in our jurisdiction and expressly provided for in the Civil
Code; that R.A. No. 876 (the Arbitration Law) also expressly authorized the arbitration of
domestic disputes. The CA found error in the RTC's holding that Section 7 of R.A. No. 876 was
inapplicable to arbitration clause simply because the clause failed to comply with the
requirements prescribed by the law. The CA found that there was nothing in the Civil Code, or
R.A. No. 876, that require that arbitration proceedings must be conducted only in the
Philippines and the arbitrators should be Philippine residents. It also found that the RTC ruling
effectively invalidated not only the disputed arbitration clause, but all other agreements which
provide for foreign arbitration. The CA did not find illegal or against public policy the arbitration
clause so as to render it null and void or ineffectual.
Notwithstanding such findings, the CA still held that the case cannot be brought under the
Arbitration Law for the purpose of suspending the proceedings before the RTC, since in its
Motion to Dismiss/Suspend proceedings, petitioner alleged, as one of the grounds thereof, that
the subject contract between the parties did not exist or it was invalid; that the said contract
bearing the arbitration clause was never consummated by the parties, thus, it was proper that
such issue be first resolved by the court through an appropriate trial; that the issue involved a
question of fact that the RTC should first resolve. Arbitration is not proper when one of the
parties repudiated the existence or validity of the contract.
Petitioner's motion for reconsideration was denied in a Resolution dated November 13, 2006.
Hence, this petition.
Petitioner alleges that the CA committed an error of law in ruling that arbitration cannot proceed
despite the fact that: (a) it had ruled, in its assailed decision, that the arbitration clause is valid,
enforceable and binding on the parties; (b) the case of Gonzales v. Climax Mining Ltd.11 is
inapplicable here; (c) parties are generally allowed, under the Rules of Court, to adopt several
defenses, alternatively or hypothetically, even if such
defenses are inconsistent with each other; and (d) the complaint filed by respondent with the
trial court is premature.
Petitioner alleges that the CA adopted inconsistent positions when it found the arbitration
clause between the parties as valid and enforceable and yet in the same breath decreed that
the arbitration cannot proceed because petitioner assailed the existence of the entire
agreement containing the arbitration clause. Petitioner claims the inapplicability of the
cited Gonzales case decided in 2005, because in the present case, it was respondent who had
filed the complaint for rescission and damages with the RTC, which based its cause of action
against petitioner on the alleged agreement dated July 11, 2006 between the parties; and that
the same agreement contained the arbitration clause sought to be enforced by petitioner in this
case. Thus, whether petitioner assails the genuineness and due execution of the agreement,
the fact remains that the agreement sued upon provides for an arbitration clause; that
respondent cannot use the provisions favorable to him and completely disregard those that are
unfavorable, such as the arbitration clause.
Petitioner contends that as the defendant in the RTC, it presented two alternative
defenses, i.e., the parties had not entered into any agreement upon which respondent as
plaintiff can sue upon; and, assuming that such agreement existed, there was an arbitration
clause that should be enforced, thus, the dispute must first be submitted to arbitration before
an action can be instituted in court. Petitioner argues that under Section 1(j) of Rule 16 of the
Rules of Court, included as a ground to dismiss a complaint is when a condition precedent for
filing the complaint has not been complied with; and that submission to arbitration when such
has been agreed upon is one such condition precedent. Petitioner submits that the
proceedings in the RTC must be dismissed, or at least suspended, and the parties be ordered
to proceed with arbitration.
On March 12, 2007, petitioner filed a Manifestation 12 saying that the CA's rationale in declining
to order arbitration based on the 2005 Gonzales ruling had been modified upon a motion for
reconsideration decided in 2007; that the CA decision lost its legal basis, because it had been
ruled that the arbitration agreement can be implemented notwithstanding that one of the parties
thereto repudiated the contract which contained such agreement based on the doctrine of
separability.
In its Comment, respondent argues that certiorari under Rule 65 is not the remedy against an
order denying a Motion to Dismiss/Suspend Proceedings and To Refer Controversy to
Voluntary Arbitration. It claims that the Arbitration Law which petitioner invoked as basis for its
Motion prescribed, under its Section 29, a remedy, i.e., appeal by a petition for review
on certiorari under Rule 45. Respondent contends that the Gonzales case, which was decided
in 2007, is inapplicable in this case, especially as to the doctrine of separability enunciated
therein. Respondent argues that even if the existence of the contract and the arbitration clause
is conceded, the decisions of the RTC and the CA declining referral of the dispute between the
parties to arbitration would still be correct. This is so because respondent's complaint filed in
Civil Case No. 98-1376 presents the principal issue of whether under the facts alleged in the
complaint, respondent is entitled to rescind its contract with petitioner and for the latter to pay
damages; that such issue constitutes a judicial question or one that requires the exercise of
judicial function and cannot be the subject of arbitration.
Respondent contends that Section 8 of the Rules of Court, which allowed a defendant to adopt
in the same action several defenses, alternatively or hypothetically, even if such defenses are
inconsistent with each other refers to allegations in the pleadings, such as complaint,
counterclaim, cross-claim, third-party complaint, answer, but not to a motion to dismiss. Finally,
respondent claims that petitioner's argument is premised on the existence of a contract with
respondent containing a provision for arbitration. However, its reliance on the contract, which it
repudiates, is inappropriate.
In its Reply, petitioner insists that respondent filed an action for rescission and damages on the
basis of the contract, thus, respondent admitted the existence of all the provisions contained
thereunder, including the arbitration clause; that if respondent relies on said contract for its
cause of action against petitioner, it must also consider itself bound by the rest of the terms and
conditions contained thereunder notwithstanding that respondent may find some provisions to
be adverse to its position; that respondents citation of the Gonzales case, decided in 2005, to
show that the validity of the contract cannot be the subject of the arbitration proceeding and
that it is the RTC which has the jurisdiction to resolve the situation between the parties herein,
is not correct since in the resolution of the Gonzales' motion for reconsideration in 2007, it had
been ruled that an arbitration agreement is effective notwithstanding the fact that one of the
parties thereto repudiated the main contract which contained it.
We first address the procedural issue raised by respondent that petitioners petition
for certiorari under Rule 65 filed in the CA against an RTC Order denying a Motion to
Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary Arbitration was a wrong
remedy invoking Section 29 of R.A. No. 876, which provides:
Section 29.
x x x An appeal may be taken from an order made in a proceeding under this Act, or from a
judgment entered upon an award through certiorari proceedings, but such appeals shall be
limited to question of law. x x x.
To support its argument, respondent cites the case of Gonzales v. Climax Mining
Ltd.13 (Gonzales case), wherein we ruled the impropriety of a petition for certiorari under Rule
65 as a mode of appeal from an RTC Order directing the parties to arbitration.
We find the cited case not in point.
In the Gonzales case, Climax-Arimco filed before the RTC of Makati a petition to compel
arbitration under R.A. No. 876, pursuant to the arbitration clause found in the Addendum
Contract it entered with Gonzales. Judge Oscar Pimentel of the RTC of Makati then directed
the parties to arbitration proceedings. Gonzales filed a petition for certiorari with Us contending
that Judge Pimentel acted with grave abuse of discretion in immediately ordering the parties to
proceed with arbitration despite the proper, valid and timely raised argument in his Answer with
counterclaim that the Addendum Contract containing the arbitration clause was null and void.
Climax-Arimco assailed the mode of review availed of by Gonzales, citing Section 29 of R.A.
No. 876 contending that certiorari under Rule 65 can be availed of only if there was no appeal
or any adequate remedy in the ordinary course of law; that R.A. No. 876 provides for an appeal
from such order. We then ruled that Gonzales' petition for certiorari should be dismissed as it
was filed in lieu of an appeal by certiorari which was the prescribed remedy under R.A. No. 876
and the petition was filed far beyond the reglementary period.
We found that Gonzales petition for certiorari raises a question of law, but not a question of
jurisdiction; that Judge Pimentel acted in accordance with the procedure prescribed in R.A. No.
876 when he ordered Gonzales to proceed with arbitration and appointed a sole arbitrator after
making the determination that there was indeed an arbitration agreement. It had been held that
as long as a court acts within its jurisdiction and does not gravely abuse its discretion in the
exercise thereof, any supposed error committed by it will amount to nothing more than an error
of judgment reviewable by a timely appeal and not assailable by a special civil action
of certiorari.14
In this case, petitioner raises before the CA the issue that the respondent Judge acted in
excess of jurisdiction or with grave abuse of discretion in refusing to dismiss, or at least
suspend, the proceedings a quo, despite the fact that the partys agreement to arbitrate had not
been complied with. Notably, the RTC found the existence of the arbitration clause, since it said
in its decision that "hardly disputed is the fact that the arbitration clause in question
contravenes several provisions of the Arbitration Law x x x and to apply Section 7 of the
Arbitration Law to such an agreement would result in the disregard of the afore-cited sections
of the Arbitration Law and render them useless and mere surplusages." However,
notwithstanding the finding that an arbitration agreement existed, the RTC denied petitioner's
motion and directed petitioner to file an answer.
In La Naval Drug Corporation v. Court of Appeals,15 it was held that R.A. No. 876 explicitly
confines the courts authority only to the determination of whether or not there is an agreement
in writing providing for arbitration. In the affirmative, the statute ordains that the court shall
issue an order summarily directing the parties to proceed with the arbitration in accordance
with the terms thereof. If the court, upon the other hand, finds that no such agreement exists,
the proceedings shall be dismissed.
In issuing the Order which denied petitioner's Motion to Dismiss/Suspend Proceedings and to
Refer Controversy to Voluntary Arbitration, the RTC went beyond its authority of determining
only the issue of whether or not there is an agreement in writing providing for arbitration by
directing petitioner to file an answer, instead of ordering the parties to proceed to arbitration. In
so doing, it acted in excess of its jurisdiction and since there is no plain, speedy, and adequate
remedy in the ordinary course of law, petitioners resort to a petition for certiorari is the proper
remedy.
We now proceed to the substantive issue of whether the CA erred in finding that this case
cannot be brought under the arbitration law for the purpose of suspending the proceedings in
the RTC.
We find merit in the petition.
Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted
in our jurisdiction.16R.A. No. 87617 authorizes arbitration of domestic disputes. Foreign
arbitration, as a system of settling commercial disputes of an international character, is likewise
recognized.18 The enactment of R.A. No. 9285 on April 2, 2004 further institutionalized the use
of alternative dispute resolution systems, including arbitration, in the settlement of disputes. 19
A contract is required for arbitration to take place and to be binding. 20 Submission to arbitration
is a contract 21 and a clause in a contract providing that all matters in dispute between the
parties shall be referred to arbitration is a contract. 22 The provision to submit to arbitration any
dispute arising therefrom and the relationship of the parties is part of the contract and is itself a
contract.23
In this case, the contract sued upon by respondent provides for an arbitration clause, to wit:
ARBITRATION
Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be
settled by arbitration in the City of New York before the American Arbitration Association, The
Arbitration Award shall be final and binding on both parties.
The CA ruled that arbitration cannot be ordered in this case, since petitioner alleged that the
contract between the parties did not exist or was invalid and arbitration is not proper when one
of the parties repudiates the existence or validity of the contract. Thus, said the CA:
Notwithstanding our ruling on the validity and enforceability of the assailed arbitration clause
providing for foreign arbitration, it is our considered opinion that the case at bench still cannot
be brought under the Arbitration Law for the purpose of suspending the proceedings before the
trial court. We note that in its Motion to Dismiss/Suspend Proceedings, etc, petitioner Cargill
alleged, as one of the grounds thereof, that the alleged contract between the parties do not
legally exist or is invalid. As posited by petitioner, it is their contention that the said contract,
bearing the arbitration clause, was never consummated by the parties. That being the case, it
is but proper that such issue be first resolved by the court through an appropriate trial. The
issue involves a question of fact that the trial court should first resolve.
Arbitration is not proper when one of the parties repudiates the existence or validity of the
contract. Apropos is Gonzales v. Climax Mining Ltd., 452 SCRA 607, (G.R.No.161957), where
the Supreme Court held that:
The question of validity of the contract containing the agreement to submit to arbitration
will affect the applicability of the arbitration clause itself. A party cannot rely on the
contract and claim rights or obligations under it and at the same time impugn its
existence or validity. Indeed, litigants are enjoined from taking inconsistent positions....
Consequently, the petitioner herein cannot claim that the contract was never consummated
and, at the same time, invokes the arbitration clause provided for under the contract which it
alleges to be non-existent or invalid. Petitioner claims that private respondent's complaint lacks
a cause of action due to the absence of any valid contract between the parties. Apparently, the
arbitration clause is being invoked merely as a fallback position. The petitioner must first
adduce evidence in support of its claim that there is no valid contract between them and should
the court a quo find the claim to be meritorious, the parties may then be spared the rigors and
expenses that arbitration in a foreign land would surely entail. 24
However, the Gonzales case,25 which the CA relied upon for not ordering arbitration, had been
modified upon a motion for reconsideration in this wise:
x x x The adjudication of the petition in G.R. No. 167994 effectively modifies part of the
Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the
validity of the contract containing the agreement to submit to arbitration does not affect
the applicability of the arbitration clause itself. A contrary ruling would suggest that a
party's mere repudiation of the main contract is sufficient to avoid arbitration. That is
exactly the situation that the separability doctrine, as well as jurisprudence applying it,
seeks to avoid. We add that when it was declared in G.R. No. 161957 that the case should
not be brought for arbitration, it should be clarified that the case referred to is the case actually
filed by Gonzales before the DENR Panel of Arbitrators, which was for the nullification of the
main contract on the ground of fraud, as it had already been determined that the case should
have been brought before the regular courts involving as it did judicial issues. 26
In so ruling that the validity of the contract containing the arbitration agreement does not affect
the applicability of the arbitration clause itself, we then applied the doctrine of separability, thus:
The doctrine of separability, or severability as other writers call it, enunciates that an arbitration
agreement is independent of the main contract. The arbitration agreement is to be treated as a
separate agreement and the arbitration agreement does not automatically terminate when the
contract of which it is a part comes to an end.
The separability of the arbitration agreement is especially significant to the determination of
whether the invalidity of the main contract also nullifies the arbitration clause. Indeed, the
doctrine denotes that the invalidity of the main contract, also referred to as the "container"
contract, does not affect the validity of the arbitration agreement. Irrespective of the fact that
the main contract is invalid, the arbitration clause/agreement still remains valid and
enforceable.27
Respondent argues that the separability doctrine is not applicable in petitioner's case, since in
the Gonzales case, Climax-Arimco sought to enforce the arbitration clause of its contract with
Gonzales and the former's move was premised on the existence of a valid contract; while
Gonzales, who resisted the move of Climax-Arimco for arbitration, did not deny the existence of
the contract but merely assailed the validity thereof on the ground of fraud and oppression.
Respondent claims that in the case before Us, petitioner who is the party insistent on
arbitration also claimed in their Motion to Dismiss/Suspend Proceedings that the contract
sought by respondent to be rescinded did not exist or was not consummated; thus, there is no
room for the application of the separability doctrine, since there is no container or main contract
or an arbitration clause to speak of.
We are not persuaded.
Applying the Gonzales ruling, an arbitration agreement which forms part of the main contract
shall not be regarded as invalid or non-existent just because the main contract is invalid or did
not come into existence, since the arbitration agreement shall be treated as a separate
agreement independent of the main contract. To reiterate. a contrary ruling would suggest that
a party's mere repudiation of the main contract is sufficient to avoid arbitration and that is
exactly the situation that the separability doctrine sought to avoid. Thus, we find that even the
party who has repudiated the main contract is not prevented from enforcing its arbitration
clause.
Moreover, it is worthy to note that respondent filed a complaint for rescission of contract and
damages with the RTC. In so doing, respondent alleged that a contract exists between
respondent and petitioner. It is that contract which provides for an arbitration clause which
states that "any dispute which the Buyer and Seller may not be able to settle by mutual
agreement shall be settled before the City of New York by the American Arbitration Association.
The arbitration agreement clearly expressed the parties' intention that any dispute between
them as buyer and seller should be referred to arbitration. It is for the arbitrator and not the
courts to decide whether a contract between the parties exists or is valid.
Respondent contends that assuming that the existence of the contract and the arbitration
clause is conceded, the CA's decision declining referral of the parties' dispute to arbitration is
still correct. It claims that its complaint in the RTC presents the issue of whether under the facts
alleged, it is entitled to rescind the contract with damages; and that issue constitutes a judicial
question or one that requires the exercise of judicial function and cannot be the subject of an
arbitration proceeding. Respondent cites our ruling in Gonzales, wherein we held that a panel
of arbitrator is bereft of jurisdiction over the complaint for declaration of nullity/or termination of
the subject contracts on the grounds of fraud and oppression attendant to the execution of the
addendum contract and the other contracts emanating from it, and that the complaint should
have been filed with the regular courts as it involved issues which are judicial in nature.
Such argument is misplaced and respondent cannot rely on the Gonzales case to support its
argument.
In Gonzales, petitioner Gonzales filed a complaint before the Panel of Arbitrators, Region II,
Mines and Geosciences Bureau, of the Department of Environment and Natural Resources
(DENR) against respondents Climax- Mining Ltd, Climax-Arimco and Australasian Philippines
Mining Inc, seeking the declaration of nullity or termination of the addendum contract and the
other contracts emanating from it on the grounds of fraud and oppression. The Panel
dismissed the complaint for lack of jurisdiction. However, the Panel, upon petitioner's motion for
reconsideration, ruled that it had jurisdiction over the dispute maintaining that it was a mining
dispute, since the subject complaint arose from a contract between the parties which involved
the exploration and exploitation of minerals over the disputed area.1wphi1 Respondents
assailed the order of the Panel of Arbitrators via a petition for certiorari before the CA. The CA
granted the petition and declared that the Panel of Arbitrators did not have jurisdiction over the
complaint, since its jurisdiction was limited to the resolution of mining disputes, such as those
which raised a question of fact or matter requiring the technical knowledge and experience of
mining authorities and not when the complaint alleged fraud and oppression which called for
the interpretation and application of laws. The CA further ruled that the petition should have
been settled through arbitration under R.A. No. 876 the Arbitration Law as provided under
the addendum contract.
On a review on certiorari, we affirmed the CAs finding that the Panel of Arbitrators who, under
R.A. No. 7942 of the Philippine Mining Act of 1995, has exclusive and original jurisdiction to
hear and decide mining disputes, such as mining areas, mineral agreements, FTAAs or permits
and surface owners, occupants and claimholders/concessionaires, is bereft of jurisdiction over
the complaint for declaration of nullity of the addendum contract; thus, the Panels' jurisdiction is
limited only to those mining disputes which raised question of facts or matters requiring the
technical knowledge and experience of mining authorities. We then said:
In Pearson v. Intermediate Appellate Court, this Court observed that the trend has been to
make the adjudication of mining cases a purely administrative matter. Decisions of the
Supreme Court on mining disputes have recognized a distinction between (1) the primary
powers granted by pertinent provisions of law to the then Secretary of Agriculture and Natural
Resources (and the bureau directors) of an executive or administrative nature, such as
granting of license, permits, lease and contracts, or approving, rejecting, reinstating or
canceling applications, or deciding conflicting applications, and (2) controversies or
disagreements of civil or contractual nature between litigants which are questions of a judicial
nature that may be adjudicated only by the courts of justice. This distinction is carried on even
in Rep. Act No. 7942.28
We found that since the complaint filed before the DENR Panel of Arbitrators charged
respondents with disregarding and ignoring the addendum contract, and acting in a fraudulent
and oppressive manner against petitioner, the complaint filed before the Panel was not a
dispute involving rights to mining areas, or was it a dispute involving claimholders or
concessionaires, but essentially judicial issues. We then said that the Panel of Arbitrators did
not have jurisdiction over such issue, since it does not involve the application of technical
knowledge and expertise relating to mining. It is in this context that we said that:
Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between
the parties as to some provisions of the contract between them, which needs the interpretation
and the application of that particular knowledge and expertise possessed by members of that
Panel. It is not proper when one of the parties repudiates the existence or validity of such
contract or agreement on the ground of fraud or oppression as in this case. The validity of the
contract cannot be subject of arbitration proceedings. Allegations of fraud and duress in the
execution of a contract are matters within the jurisdiction of the ordinary courts of law. These
questions are legal in nature and require the application and interpretation of laws and
jurisprudence which is necessarily a judicial function.29
In fact, We even clarified in our resolution on Gonzales motion for reconsideration that "when
we declared that the case should not be brought for arbitration, it should be clarified that the
case referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators,
which was for the nullification of the main contract on the ground of fraud, as it had already
been determined that the case should have been brought before the regular courts involving as
it did judicial issues." We made such clarification in our resolution of the motion for
reconsideration after ruling that the parties in that case can proceed to arbitration under the
Arbitration Law, as provided under the Arbitration Clause in their Addendum Contract.
WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2006 and the
Resolution dated November 13, 2006 of the Court of Appeals in CA-G.R. SP No. 50304
are REVERSED and SET ASIDE. The parties are hereby ORDERED to SUBMIT themselves
to the arbitration of their dispute, pursuant to their July 11, 1996 agreement.
SO ORDERED.
G.R. No. 156660 August 24, 2009
ORMOC SUGARCANE PLANTERS' ASSOCIATION, INC. (OSPA),OCCIDENTAL LEYTE
FARMERS MULTI-PURPOSE COOPERATIVE, INC. (OLFAMCA), UNIFARM MULTI-
PURPOSE COOPERATIVE, INC. (UNIFARM) and ORMOC NORTH DISTRICT IRRIGATION
MULTI-PURPOSE COOPERATIVE, INC. (ONDIMCO), Petitioners,
vs.
THE COURT OF APPEALS (Special Former Sixth Division), HIDECO SUGAR MILLING
CO., INC., and ORMOC SUGAR MILLING CO., INC., Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a special civil action for certiorari assailing the Decision 1 dated December 7,
2001 and the Resolution dated October 30, 2002 of the Court of Appeals (CA) in CA-G.R. SP
No. 56166 which set aside the Joint Orders 2 dated August 26, 1999 and October 29, 1999
issued by the Regional Trial Court (RTC) of Ormoc City, Branch 12 upholding petitioners legal
personality to demand arbitration from respondents and directing respondents to nominate two
arbitrators to represent them in the Board of Arbitrators.
Petitioners are associations organized by and whose members are individual sugar planters
(Planters). The membership of each association follows: 264 Planters were members of OSPA;
533 Planters belong to OLFAMCA; 617 Planters joined UNIFARM; 760 Planters enlisted with
ONDIMCO; and the rest belong to BAP-MPC which did not join the lawsuit.
Respondents Hideco Sugar Milling Co., Inc. (Hideco) and Ormoc Sugar Milling Co, Inc.
(OSCO) are sugar centrals engaged in grinding and milling sugarcane delivered to them by
numerous individual sugar planters, who may or may not be members of an association such
as petitioners.
Petitioners assert that the relationship between respondents and the individual sugar planters
is governed by milling contracts. To buttress this claim, petitioners presented representative
samples of the milling contracts.3
Notably, Article VII of the milling contracts provides that 34% of the sugar and molasses
produced from milling the Planters sugarcane shall belong to the centrals (respondents) as
compensation, 65% thereof shall go to the Planter and the remaining 1% shall go the
association to which the Planter concerned belongs, as aid to the said association. The 1% aid
shall be used by the association for any purpose that it may deem fit for its members, laborers
and their dependents. If the Planter was not a member of any association, then the said 1%
shall revert to the centrals. Article XIV, paragraph B 4 states that the centrals may not, during the
life of the milling contract, sign or execute any contract or agreement that will provide better or
more benefits to a Planter, without the written consent of the existing and recognized
associations except to Planters whose plantations are situated in areas beyond thirty (30)
kilometers from the mill. Article XX provides that all differences and controversies which may
arise between the parties concerning the agreement shall be submitted for discussion to a
Board of Arbitration, consisting of five (5) memberstwo (2) of which shall be appointed by the
centrals, two (2) by the Planter and the fifth to be appointed by the four appointed by the
parties.
On June 4, 1999, petitioners, without impleading any of their individual members, filed twin
petitions with the RTC for Arbitration under R.A. 876, Recovery of Equal Additional Benefits,
Attorneys Fees and Damages, against HIDECO and OSCO, docketed as Civil Case Nos.
3696-O and 3697-O, respectively.
Petitioners claimed that respondents violated the Milling Contract when they gave to
independent planters who do not belong to any association the 1% share, instead of reverting
said share to the centrals. Petitioners contended that respondents unduly accorded the
independent Planters more benefits and thus prayed that an order be issued directing the
parties to commence with arbitration in accordance with the terms of the milling contracts. They
also demanded that respondents be penalized by increasing their member Planters 65% share
provided in the milling contract by 1%, to 66%.
Respondents filed a motion to dismiss on ground of lack of cause of action because petitioners
had no milling contract with respondents. According to respondents, only some eighty (80)
Planters who were members of OSPA, one of the petitioners, executed milling contracts.
Respondents and these 80 Planters were the signatories of the milling contracts. Thus, it was
the individual Planters, and not petitioners, who had legal standing to invoke the arbitration
clause in the milling contracts. Petitioners, not being privy to the milling contracts, had no legal
standing whatsoever to demand or sue for arbitration.
On August 26, 1999, the RTC issued a Joint Order5 denying the motion to dismiss, declaring
the existence of a milling contract between the parties, and directing respondents to nominate
two arbitrators to the Board of Arbitrators, to wit:
When these cases were called for hearing today, counsels for the petitioners and respondents
argued their respective stand. The Court is convinced that there is an existing milling contract
between the petitioners and respondents and these planters are represented by the officers of
the associations. The petitioners have the right to sue in behalf of the planters.
This Court, acting on the petitions, directs the respondents to nominate two arbitrators to
represent HIDECO/HISUMCO and OSCO in the Board of Arbitrators within fifteen (15) days
from receipt of this Order. xxx
However, if the respondents fail to nominate their two arbitrators, upon proper motion by the
petitioners, then the Court will be compelled to use its discretion to appoint the two (2)
arbitrators, as embodied in the Milling Contract and R.A. 876.
xxx
Their subsequent motion for reconsideration having been denied by the RTC in its Joint
Order6 dated October 29, 1999, respondents elevated the case to the CA through a Petition for
Certiorari with Prayer for the Issuance of Temporary Restraining Order and/or Writ of
Preliminary Injunction.
On December 7, 2001, the CA rendered its challenged Decision, setting aside the assailed
Orders of the RTC. The CA held that petitioners neither had an existing contract with
respondents nor were they privy to the milling contracts between respondents and the
individual Planters. In the main, the CA concluded that petitioners had no legal personality to
bring the action against respondents or to demand for arbitration.
Petitioners filed a motion for reconsideration, but it too was denied by the CA in its
Resolution7 dated October 30, 2002. Thus, the instant petition.
At the outset, it must be noted that petitioners filed the instant petition for certiorari under Rule
65 of the Rules of Court, to challenge the judgment of the CA. Section 1 of Rule 65 states:
Section 1. Petition for Certiorari. When any tribunal, board or officer exercising judicial or
quasi-judicial functions has acted without or in excess of its jurisdiction, or with grave abuse of
discretion amounting to lack or excess of its or his jurisdiction and there is no appeal, or any
plain, speedy and adequate remedy in the course of law, a person aggrieved thereby may file a
verified petition in the proper court, alleging the facts with certainty and praying that judgment
be rendered annulling or modifying the proceedings of such tribunal, board or officer, and
granting such incidental relief as law and justice require. xxx xxx xxx (emphasis ours)
The instant recourse is improper because the resolution of the CA was a final order from which
the remedy of appeal was available under Rule 45 in relation to Rule 56. The existence and
availability of the right of appeal proscribes resort to certiorari because one of the requirements
for availment of the latter is precisely that there should be no appeal. It is elementary that for
certiorari to prosper, it is not enough that the trial court committed grave abuse of discretion
amounting to lack or excess of jurisdiction; the requirement that there is no appeal, nor any
plain, speedy and adequate remedy in the ordinary course of law must likewise be
satisfied.8 The proper mode of recourse for petitioners was to file a petition for review of the
CAs decision under Rule 45.
Petitioners principally argue that the CA committed a grave error in setting aside the
challenged Joint Orders of the RTC which allegedly unduly curtailed the right of petitioners to
represent their planters-members and enforce the milling contracts with respondents.
Petitioners assert the said which orders were issued in accordance with Article XX of the Milling
Contract and the applicable provisions of Republic Act (R.A.) No. 876.
Where the issue or question involved affects the wisdom or legal soundness of the decision
not the jurisdiction of the court to render said decision the same is beyond the province of a
special civil action for certiorari. Erroneous findings and conclusions do not render the
appellate court vulnerable to the corrective writ of certiorari. For where the court has jurisdiction
over the case, even if its findings are not correct, they would, at most constitute errors of law
and not abuse of discretion correctable by certiorari. 9
Moreover, even if this Court overlooks the procedural lapse committed by petitioners and
decides this matter on the merits, the present petition will still not prosper.
Stripped to the core, the pivotal issue here is whether or not petitioners sugar planters
associations are clothed with legal personality to file a suit against, or demand arbitration
from, respondents in their own name without impleading the individual Planters.
On this point, we agree with the findings of the CA.
Section 2 of R.A. No. 876 (the Arbitration Law) 10 pertinently provides:
Sec. 2. Persons and matters subject to arbitration. Two or more persons or parties may
submit to the arbitration of one or more arbitrators any controversy existing between them at
the time of the submission and which may be the subject of an action, or the parties to any
contract may in such contract agree to settle by arbitration a controversy thereafter arising
between them. Such submission or contract shall be valid, enforceable and irrevocable, save
upon such grounds as exist at law for the revocation of any contract. xxx (Emphasis ours)
The foregoing provision speaks of two modes of arbitration: (a) an agreement to submit to
arbitration some future dispute, usually stipulated upon in a civil contract between the parties,
and known as an agreement to submit to arbitration, and (b) an agreement submitting an
existing matter of difference to arbitrators, termed the submission agreement. Article XX of the
milling contract is an agreement to submit to arbitration because it was made in anticipation of
a dispute that might arise between the parties after the contracts execution.
Except where a compulsory arbitration is provided by statute, the first step toward the
settlement of a difference by arbitration is the entry by the parties into a valid agreement to
arbitrate. An agreement to arbitrate is a contract, the relation of the parties is contractual, and
the rights and liabilities of the parties are controlled by the law of contracts. 11 In an agreement
for arbitration, the ordinary elements of a valid contract must appear, including an agreement to
arbitrate some specific thing, and an agreement to abide by the award, either in express
language or by implication.
The requirements that an arbitration agreement must be written and subscribed by the parties
thereto were enunciated by the Court in B.F. Corporation v. CA. 12
During the proceedings before the CA, it was established that there were more than two
thousand (2,000) Planters in the district at the time the case was commenced at the RTC in
1999. The CA further found that of those 2,000 Planters, only about eighty (80) Planters, who
were all members of petitioner OSPA, in fact individually executed milling contracts with
respondents. No milling contracts signed by members of the other petitioners were presented
before the CA.
By their own allegation, petitioners are associations duly existing and organized under
Philippine law, i.e. they have juridical personalities separate and distinct from that of their
member Planters. It is likewise undisputed that the eighty (80) milling contracts that were
presented were signed only by the member Planter concerned and one of the Centrals as
parties. In other words, none of the petitioners were parties or signatories to the milling
contracts. This circumstance is fatal to petitioners' cause since they anchor their right to
demand arbitration from the respondent sugar centrals upon the arbitration clause found in the
milling contracts. There is no legal basis for petitioners' purported right to demand arbitration
when they are not parties to the milling contracts, especially when the language of the
arbitration clause expressly grants the right to demand arbitration only to the parties to the
contract.
Simply put, petitioners do not have any agreement to arbitrate with respondents. Only eighty
(80) Planters who were all members of OSPA were shown to have such an agreement to
arbitrate, included as a stipulation in their individual milling contracts. The other petitioners
failed to prove that any of their members had milling contracts with respondents, much less,
that respondents had an agreement to arbitrate with the petitioner associations themselves.
Even assuming that all the petitioners were able to present milling contracts in favor of their
members, it is undeniable that under the arbitration clause in these contracts it is the parties
thereto who have the right to submit a controversy or dispute to arbitration.
Section 4 of R.A. 876 provides:
Section 4. Form of Arbitration Agreement A contract to arbitrate a controversy thereafter
arising between the parties, as well as a submission to arbitrate an existing controversy, shall
be in writing and subscribed by the party sought to be charged, or by his lawful agent.
The making of a contract or submission for arbitration described in section two hereof,
providing for arbitration of any controversy, shall be deemed a consent of the parties to the
jurisdiction of the Court of First Instance of the province or city where any of the parties resides,
to enforce such contract of submission.
The formal requirements of an agreement to arbitrate are therefore the following: (a) it must be
in writing and (b) it must be subscribed by the parties or their representatives. To subscribe
means to write underneath, as ones name; to sign at the end of a document. That word may
sometimes be construed to mean to give consent to or to attest. 13
Petitioners would argue that they could sue respondents, notwithstanding the fact that they
were not signatories in the milling contracts because they are the recognized representatives of
the Planters.
This claim has no leg to stand on since petitioners did not sign the milling contracts at all,
whether as a party or as a representative of their member Planters. The individual Planter and
the appropriate central were the only signatories to the contracts and there is no provision in
the milling contracts that the individual Planter is authorizing the association to represent
him/her in a legal action in case of a dispute over the milling contracts.
Moreover, even assuming that petitioners are indeed representatives of the member Planters
who have milling contracts with the respondents and assuming further that petitioners signed
the milling contracts as representatives of their members, petitioners could not initiate
arbitration proceedings in their own name as they had done in the present case. As mere
agents, they should have brought the suit in the name of the principals that they purportedly
represent. Even if Section 4 of R.A. No. 876 allows the agreement to arbitrate to be signed by a
representative, the principal is still the one who has the right to demand arbitration.
Indeed, Rule 3, Section 2 of the Rules of Court requires suits to be brought in the name of the
real party in interest, to wit:
Sec. 2. Parties in interest. A real party in interest is the party who stands to be benefited or
injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless
otherwise authorized by law or these Rules, every action must be prosecuted or defended in
the name of the real party in interest.
We held in Oco v. Limbaring14 that:
As applied to the present case, this provision has two requirements: 1) to institute an action,
the plaintiff must be the real party in interest; and 2) the action must be prosecuted in the name
of the real party in interest. Necessarily, the purposes of this provision are 1) to prevent the
prosecution of actions by persons without any right, title or interest in the case; 2) to require
that the actual party entitled to legal relief be the one to prosecute the action; 3) to avoid a
multiplicity of suits; and 4) to discourage litigation and keep it within certain bounds, pursuant to
sound public policy.
Interest within the meaning of the Rules means material interest or an interest in issue
to be affected by the decree or judgment of the case, as distinguished from mere curiosity
about the question involved. One having no material interest to protect cannot invoke the
jurisdiction of the court as the plaintiff in an action. When the plaintiff is not the real party in
interest, the case is dismissible on the ground of lack of cause of action.
xxx xxx xxx
The parties to a contract are the real parties in interest in an action upon it, as
consistently held by the Court. Only the contracting parties are bound by the stipulations in
the contract; they are the ones who would benefit from and could violate it. Thus, one who
is not a party to a contract, and for whose benefit it was not expressly made, cannot maintain
an action on it. One cannot do so, even if the contract performed by the contracting
parties would incidentally inure to ones benefit. (emphasis ours)
In Uy v. Court of Appeals,15 this Court held that the agents of the parties to a contract do not
have the right to bring an action even if they rendered some service on behalf of their
principals. To quote from that decision:
[Petitioners] are mere agents of the owners of the land subject of the sale. As agents, they
only render some service or do something in representation or on behalf of their principals. The
rendering of such service did not make them parties to the contracts of sale executed in
behalf of the latter. Since a contract may be violated only by the parties thereto as against each
other, the real parties-in-interest, either as plaintiff or defendant, in an action upon that
contract must, generally, either be parties to said contract. (emphasis and words in
brackets ours)
The main cause of action of petitioners in their request for arbitration with the RTC is the
alleged violation of the clause in the milling contracts involving the proportionate sharing in the
proceeds of the harvest. Petitioners essentially demand that respondents increase the share of
the member Planters to 66% to equalize their situation with those of the non-member Planters.
Verily, from petitioners' own allegations, the party who would be injured or benefited by a
decision in the arbitration proceedings will be the member Planters involved and not
petitioners. In sum, petitioners are not the real parties in interest in the present case.
Assuming petitioners had properly brought the case in the name of their members who had
existing milling contracts with respondents, petitioners must still prove that they were indeed
authorized by the said members to institute an action for and on the members' behalf. In the
same manner that an officer of the corporation cannot bring action in behalf of a corporation
unless it is clothed with a board resolution authorizing an officer to do so, an authorization from
the individual member planter is a sine qua non for the association or any of its officers to bring
an action before the court of law. The mere fact that petitioners were organized for the purpose
of advancing the interests and welfare of their members does not necessarily mean that
petitioners have the authority to represent their members in legal proceedings, including the
present arbitration proceedings.
As we see it, petitioners had no intention to litigate the case in a representative capacity, as
they contend. All the pleadings from the RTC to this Court belie this claim. Under Section 3 of
Rule 3, where the action is allowed to be prosecuted by a representative, the beneficiary shall
be included in the title of the case and shall be deemed to be the real party in interest. As
repeatedly pointed out earlier, the individual Planters were not even impleaded as parties to
this case. In addition, petitioners need a power-of-attorney to represent the Planters whether in
the lawsuit or to demand arbitration.16 None was ever presented here.
Lastly, petitioners theorize that they could demand and sue for arbitration independently of the
Planters because the milling contract is a contract pour autrui under Article 1311 of the Civil
Code.
ART. 1311. Contracts take effect only between the parties, their assigns and heirs, except in
case where the rights and obligations arising from the contract are not transmissible by their
nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the
property he received from the decedent.
If a contract should contain some stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance to the obligor before its revocation. A
mere incidental benefit or interest of a person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a third person.
To summarize, the requisites of a stipulation pour autrui or a stipulation in favor of a third
person are the following: (1) there must be a stipulation in favor of a third person, (2) the
stipulation must be a part, not the whole, of the contract, (3) the contracting parties must have
clearly and deliberately conferred a favor upon a third person, not a mere incidental benefit or
interest, (4) the third person must have communicated his acceptance to the obligor before its
revocation, and (5) neither of the contracting parties bears the legal representation or
authorization of the third party.17 These requisites are not present in this case.
Article VI of the Milling Contract is the solitary provision that mentions some benefit in favor of
the association of which the planter is a member and we quote:
VI
SHARE IN THE SUGAR
Thirty four per centrum (34%) of the sugar ad molasses resulting from the milling of the
PLANTERs sugarcane, as computed from the weight and analysis of the sugarcane delivered
by the PLANTER, shall belong to the CENTRAL; sixty five per centum (65%) thereof to the
PLANTER, and one per centum (1%) as aid to the association of the PLANTER; provided that,
if the PLANTER is not a member of any association recognized by the CENTRAL, said one per
centum (1%) shall revert to the CENTRAL. The 1% aid shall be used by the association for any
purpose that it may deem fit for its members, laborers and their dependents, or for its other
socio-economic projects.
The foregoing provision cannot, by any stretch of the imagination, be considered as a
stiputation pour autrui or for the benefit of the petitioners. The primary rationale for the said
stipulation is to ensure a just share in the proceeds of the harvest to the Planters. In other
words, it is a stipulation meant to benefit the Planters. Even the 1% share to be given to the
association as aid does not redound to the benefit of the association but is intended to be used
for its member Planters. Not only that, it is explicit that said share reverts back to respondent
sugar centrals if the contracting Planter is not affiliated with any recognized association.
To be considered a pour autrui provision, an incidental benefit or interest, which another person
gains, is not sufficient. The contracting parties must have clearly and deliberately conferred a
favor upon a third person.18 Even the clause stating that respondents must secure the consent
of the association if respondents grant better benefits to a Planter has for its rationale the
protection of the member Planter. The only interest of the association therein is that its member
Planter will not be put at a disadvantage vis a vis other Planters. Thus, the associations
interest in these milling contracts is only incidental to their avowed purpose of advancing the
welfare and rights of their member Planters.
In all, the Court finds no grave abuse of discretion nor reversible error committed by the CA in
setting aside the Joint Orders issued by the RTC.
WHEREFORE, petition is hereby DISMISSED.
Costs against petitioners.
SO ORDERED.
G.R. No. 163101 February 13, 2008
BENGUET CORPORATION, petitioner,
vs.
DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES -MINES ADJUDICATION
BOARD and J.G. REALTY AND MINING CORPORATION, respondents.
DECISION
VELASCO, JR., J.:
The instant petition under Rule 65 of the Rules of Court seeks the annulment of the December
2, 2002 Decision1and March 17, 2004 Resolution2 of the Department of Environment and
Natural Resources-Mining Adjudication Board (DENR-MAB) in MAB Case No. 0124-01 (Mines
Administrative Case No. R-M-2000-01) entitled Benguet Corporation (Benguet) v. J.G. Realty
and Mining Corporation (J.G. Realty). The December 2, 2002 Decision upheld the March 19,
2001 Decision3 of the MAB Panel of Arbitrators (POA) which canceled the Royalty Agreement
with Option to Purchase (RAWOP) dated June 1, 19874 between Benguet and J.G. Realty, and
excluded Benguet from the joint Mineral Production Sharing Agreement (MPSA) application
over four mining claims. The March 17, 2004 Resolution denied Benguets Motion for
Reconsideration.
The Facts
On June 1, 1987, Benguet and J.G. Realty entered into a RAWOP, wherein J.G. Realty was
acknowledged as the owner of four mining claims respectively named as Bonito-I, Bonito-II,
Bonito-III, and Bonito-IV, with a total area of 288.8656 hectares, situated in Barangay
Luklukam, Sitio Bagong Bayan, Municipality of Jose Panganiban, Camarines Norte. The
parties also executed a Supplemental Agreement5 dated June 1, 1987. The mining claims were
covered by MPSA Application No. APSA-V-0009 jointly filed by J.G. Realty as claimowner and
Benguet as operator.
In the RAWOP, Benguet obligated itself to perfect the rights to the mining claims and/or
otherwise acquire the mining rights to the mineral claims. Within 24 months from the execution
of the RAWOP, Benguet should also cause the examination of the mining claims for the
purpose of determining whether or not they are worth developing with reasonable probability of
profitable production. Benguet undertook also to furnish J.G. Realty with a report on the
examination, within a reasonable time after the completion of the examination. Moreover, also
within the examination period, Benguet shall conduct all necessary exploration in accordance
with a prepared exploration program. If it chooses to do so and before the expiration of the
examination period, Benguet may undertake to develop the mining claims upon written notice
to J.G. Realty. Benguet must then place the mining claims into commercial productive stage
within 24 months from the written notice.6 It is also provided in the RAWOP that if the mining
claims were placed in commercial production by Benguet, J.G. Realty should be entitled to a
royalty of five percent (5%) of net realizable value, and to royalty for any production done by
Benguet whether during the examination or development periods.
Thus, on August 9, 1989, the Executive Vice-President of Benguet, Antonio N. Tachuling,
issued a letter informing J.G. Realty of its intention to develop the mining claims. However, on
February 9, 1999, J.G. Realty, through its President, Johnny L. Tan, then sent a letter to the
President of Benguet informing the latter that it was terminating the RAWOP on the following
grounds:
a. The fact that your company has failed to perform the obligations set forth in the
RAWOP, i.e., to undertake development works within 2 years from the execution of the
Agreement;
b. Violation of the Contract by allowing high graders to operate on our claim.
c. No stipulation was provided with respect to the term limit of the RAWOP.
d. Non-payment of the royalties thereon as provided in the RAWOP.7
In response, Benguets Manager for Legal Services, Reynaldo P. Mendoza, wrote J.G. Realty a
letter dated March 8, 1999,8 therein alleging that Benguet complied with its obligations under
the RAWOP by investing PhP 42.4 million to rehabilitate the mines, and that the commercial
operation was hampered by the non-issuance of a Mines Temporary Permit by the Mines and
Geosciences Bureau (MGB) which must be considered as force majeure, entitling Benguet to
an extension of time to prosecute such permit. Benguet further claimed that the high graders
mentioned by J.G. Realty were already operating prior to Benguets taking over of the
premises, and that J.G. Realty had the obligation of ejecting such small scale miners. Benguet
also alleged that the nature of the mining business made it difficult to specify a time limit for the
RAWOP. Benguet then argued that the royalties due to J.G. Realty were in fact in its office and
ready to be picked up at any time. It appeared that, previously, the practice by J.G. Realty was
to pick-up checks from Benguet representing such royalties. However, starting August 1994,
J.G. Realty allegedly refused to collect such checks from Benguet. Thus, Benguet posited that
there was no valid ground for the termination of the RAWOP. It also reminded J.G. Realty that it
should submit the disagreement to arbitration rather than unilaterally terminating the RAWOP.
On June 7, 2000, J.G. Realty filed a Petition for Declaration of Nullity/Cancellation of the
RAWOP9 with the Legaspi City POA, Region V, docketed as DENR Case No. 2000-01 and
entitled J.G. Realty v. Benguet.
On March 19, 2001, the POA issued a Decision,10 dwelling upon the issues of (1) whether the
arbitrators had jurisdiction over the case; and (2) whether Benguet violated the RAWOP
justifying the unilateral cancellation of the RAWOP by J.G. Realty. The dispositive portion
stated:
WHEREFORE, premises considered, the June 01, 1987 [RAWOP] and its
Supplemental Agreement is hereby declared cancelled and without effect. BENGUET
is hereby excluded from the joint MPSA Application over the mineral claims
denominated as "BONITO-I", "BONITO-II", "BONITO-III" and "BONITO-IV".
SO ORDERED.
Therefrom, Benguet filed a Notice of Appeal 11 with the MAB on April 23, 2001, docketed as
Mines Administrative Case No. R-M-2000-01. Thereafter, the MAB issued the assailed
December 2, 2002 Decision. Benguet then filed a Motion for Reconsideration of the assailed
Decision which was denied in the March 17, 2004 Resolution of the MAB. Hence, Benguet filed
the instant petition.
The Issues
1. There was serious and palpable error when the Honorable Board failed to rule that
the contractual obligation of the parties to arbitrate under the Royalty Agreement is
mandatory.
2. The Honorable Board exceeded its jurisdiction when it sustained the cancellation of
the Royalty Agreement for alleged breach of contract despite the absence of evidence.
3. The Questioned Decision of the Honorable Board in cancelling the RAWOP
prejudice[d] the substantial rights of Benguet under the contract to the unjust
enrichment of JG Realty.12
Restated, the issues are: (1) Should the controversy have first been submitted to arbitration
before the POA took cognizance of the case?; (2) Was the cancellation of the RAWOP
supported by evidence?; and (3) Did the cancellation of the RAWOP amount to unjust
enrichment of J.G. Realty at the expense of Benguet?
The Courts Ruling
Before we dwell on the substantive issues, we find that the instant petition can be denied
outright as Benguet resorted to an improper remedy.
The last paragraph of Section 79 of Republic Act No. (RA) 7942 or the "Philippine Mining Act of
1995" states, "A petition for review by certiorari and question of law may be filed by the
aggrieved party with the Supreme Court within thirty (30) days from receipt of the order or
decision of the [MAB]."
However, this Court has already invalidated such provision in Carpio v. Sulu Resources
Development Corp.,13 ruling that a decision of the MAB must first be appealed to the Court of
Appeals (CA) under Rule 43 of the Rules of Court, before recourse to this Court may be had.
We held, thus:
To summarize, there are sufficient legal footings authorizing a review of the MAB
Decision under Rule 43 of the Rules of Court. First, Section 30 of Article VI of the 1987
Constitution, mandates that "[n]o law shall be passed increasing the appellate
jurisdiction of the Supreme Court as provided in this Constitution without its advice and
consent." On the other hand, Section 79 of RA No. 7942 provides that decisions of the
MAB may be reviewed by this Court on a "petition for review by certiorari." This
provision is obviously an expansion of the Courts appellate jurisdiction, an expansion
to which this Court has not consented. Indiscriminate enactment of legislation
enlarging the appellate jurisdiction of this Court would unnecessarily burden it.
Second, when the Supreme Court, in the exercise of its rule-making power, transfers to
the CA pending cases involving a review of a quasi-judicial bodys decisions, such
transfer relates only to procedure; hence, it does not impair the substantive and vested
rights of the parties. The aggrieved partys right to appeal is preserved; what is
changed is only the procedure by which the appeal is to be made or decided. The
parties still have a remedy and a competent tribunal to grant this remedy.
Third, the Revised Rules of Civil Procedure included Rule 43 to provide a uniform rule
on appeals from quasi-judicial agencies. Under the rule, appeals from their judgments
and final orders are now required to be brought to the CA on a verified petition for
review. A quasi-judicial agency or body has been defined as an organ of government,
other than a court or legislature, which affects the rights of private parties through
either adjudication or rule-making. MAB falls under this definition; hence, it is no
different from the other quasi-judicial bodies enumerated under Rule 43. Besides, the
introductory words in Section 1 of Circular No. 1-91"among these agencies are"
indicate that the enumeration is not exclusive or conclusive and acknowledge the
existence of other quasi-judicial agencies which, though not expressly listed, should be
deemed included therein.
 Fourth, the Court realizes that under Batas Pambansa (BP) Blg. 129 as amended by
RA No. 7902, factual controversies are usually involved in decisions of quasi-judicial
bodies; and the CA, which is likewise tasked to resolve questions of fact, has more
elbow room to resolve them. By including questions of fact among the issues that may
be raised in an appeal from quasi-judicial agencies to the CA, Section 3 of Revised
Administrative Circular No. 1-95 and Section 3 of Rule 43 explicitly expanded the list of
such issues.
According to Section 3 of Rule 43, "[a]n appeal under this Rule may be taken to the
Court of Appeals within the period and in the manner herein provided whether the
appeal involves questions of fact, of law, or mixed questions of fact and law." Hence,
appeals from quasi-judicial agencies even only on questions of law may be brought to
the CA.
Fifth, the judicial policy of observing the hierarchy of courts dictates that direct resort
from administrative agencies to this Court will not be entertained, unless the redress
desired cannot be obtained from the appropriate lower tribunals, or unless exceptional
and compelling circumstances justify availment of a remedy falling within and calling
for the exercise of our primary jurisdiction.14
The above principle was reiterated in Asaphil Construction and Development Corporation v.
Tuason, Jr. (Asaphil).15However, the Carpio ruling was not applied to Asaphil as the petition in
the latter case was filed in 1999 or three years before the promulgation of Carpio in 2002.
Here, the petition was filed on April 28, 2004 when the Carpio decision was already applicable,
thus Benguet should have filed the appeal with the CA.
Petitioner having failed to properly appeal to the CA under Rule 43, the decision of the MAB
has become final and executory. On this ground alone, the instant petition must be denied.
Even if we entertain the petition although Benguet skirted the appeal to the CA via Rule 43,
still, the December 2, 2002 Decision and March 17, 2004 Resolution of the DENR-MAB in MAB
Case No. 0124-01 should be maintained.
First Issue: The case should have first been brought to
voluntary arbitration before the POA
Secs. 11.01 and 11.02 of the RAWOP pertinently provide:
11.01 Arbitration
Any disputes, differences or disagreements between BENGUET and the OWNER with
reference to anything whatsoever pertaining to this Agreement that cannot be amicably
settled by them shall not be cause of any action of any kind whatsoever in any court or
administrative agency but shall, upon notice of one party to the other, be referred to a
Board of Arbitrators consisting of three (3) members, one to be selected by BENGUET,
another to be selected by the OWNER and the third to be selected by the
aforementioned two arbitrators so appointed.
xxxx
11.02 Court Action
No action shall be instituted in court as to any matter in dispute as hereinabove stated,
except to enforce the decision of the majority of the Arbitrators. 16
Thus, Benguet argues that the POA should have first referred the case to voluntary arbitration
before taking cognizance of the case, citing Sec. 2 of RA 876 on persons and matters subject
to arbitration.
On the other hand, in denying such argument, the POA ruled that:
While the parties may establish such stipulations clauses, terms and conditions as they may
deem convenient, the same must not be contrary to law and public policy. At a glance, there is
nothing wrong with the terms and conditions of the agreement. But to state that an aggrieved
party cannot initiate an action without going to arbitration would be tying ones hand even if
there is a law which allows him to do so.17
The MAB, meanwhile, denied Benguets contention on the ground of estoppel, stating:
Besides, by its own act, Benguet is already estopped in questioning the jurisdiction of
the Panel of Arbitrators to hear and decide the case. As pointed out in the appealed
Decision, Benguet initiated and filed an Adverse Claim docketed as MAC-R-M-2000-02
over the same mining claims without undergoing contractual arbitration. In this
particular case (MAC-R-M-2000-02) now subject of the appeal, Benguet is likewise in
estoppel from questioning the competence of the Panel of Arbitrators to hear and
decide in the summary proceedings J.G. Realtys petition, when Benguet itself did not
merely move for the dismissal of the case but also filed an Answer with counterclaim
seeking affirmative reliefs from the Panel of Arbitrators. 18
Moreover, the MAB ruled that the contractual provision on arbitration merely provides for an
additional forum or venue and does not divest the POA of the jurisdiction to hear the case. 19
In its July 20, 2004 Comment,20 J.G. Realty reiterated the above rulings of the POA and MAB. It
argued that RA 7942 or the "Philippine Mining Act of 1995" is a special law which should prevail
over the stipulations of the parties and over a general law, such as RA 876. It also argued that
the POA cannot be considered as a "court" under the contemplation of RA 876 and that
jurisprudence saying that there must be prior resort to arbitration before filing a case with the
courts is inapplicable to the instant case as the POA is itself already engaged in arbitration.
On this issue, we rule for Benguet.
 Sec. 2 of RA 876 elucidates the scope of arbitration:
Section 2. Persons and matters subject to arbitration.Two or more persons or
parties may submit to the arbitration of one or more arbitrators any controversy
existing between them at the time of the submission and which may be the
subject of an action, or the parties to any contract may in such contract agree to
settle by arbitration a controversy thereafter arising between them. Such
submission or contract shall be valid, enforceable and irrevocable, save upon
such grounds as exist at law for the revocation of any contract.
Such submission or contract may include question[s] arising out of valuations,
appraisals or other controversies which may be collateral, incidental, precedent or
subsequent to any issue between the parties. (Emphasis supplied.)
In RA 9285 or the "Alternative Dispute Resolution Act of 2004," the Congress reiterated the
efficacy of arbitration as an alternative mode of dispute resolution by stating in Sec. 32 thereof
that domestic arbitration shall still be governed by RA 876. Clearly, a contractual stipulation that
requires prior resort to voluntary arbitration before the parties can go directly to court is not
illegal and is in fact promoted by the State. Thus, petitioner correctly cites several cases
whereby arbitration clauses have been upheld by this Court. 21
Moreover, the contention that RA 7942 prevails over RA 876 presupposes a conflict between
the two laws. Such is not the case here. To reiterate, availment of voluntary arbitration before
resort is made to the courts or quasi-judicial agencies of the government is a valid contractual
stipulation that must be adhered to by the parties. As stated in Secs. 6 and 7 of RA 876:
Section 6. Hearing by court.A party aggrieved by the failure, neglect or refusal of
another to perform under an agreement in writing providing for arbitration may
petition the court for an order directing that such arbitration proceed in the
manner provided for in such agreement. Five days notice in writing of the hearing of
such application shall be served either personally or by registered mail upon the party
in default. The court shall hear the parties, and upon being satisfied that the
making of the agreement or such failure to comply therewith is not in issue, shall
make an order directing the parties to proceed to arbitration in accordance with
the terms of the agreement. If the making of the agreement or default be in issue
the court shall proceed to summarily hear such issue. If the finding be that no
agreement in writing providing for arbitration was made, or that there is no
default in the proceeding thereunder, the proceeding shall be dismissed. If the
finding be that a written provision for arbitration was made and there is a default
in proceeding thereunder, an order shall be made summarily directing the
parties to proceed with the arbitration in accordance with the terms thereof.
xxxx
Section 7. Stay of civil action.If any suit or proceeding be brought upon an issue
arising out of an agreement providing for the arbitration thereof, the court in which such
suit or proceeding is pending, upon being satisfied that the issue involved in such suit
or proceeding is referable to arbitration, shall stay the action or proceeding until an
arbitration has been had in accordance with the terms of the agreement: Provided,
That the applicant, for the stay is not in default in proceeding with such arbitration.
(Emphasis supplied.)
In other words, in the event a case that should properly be the subject of voluntary arbitration is
erroneously filed with the courts or quasi-judicial agencies, on motion of the defendant, the
court or quasi-judicial agency shall determine whether such contractual provision for arbitration
is sufficient and effective. If in affirmative, the court or quasi-judicial agency shall then order the
enforcement of said provision. Besides, in BF Corporation v. Court of Appeals, we already
ruled:
In this connection, it bears stressing that the lower court has not lost its jurisdiction
over the case. Section 7 of Republic Act No. 876 provides that proceedings therein
have only been stayed. After the special proceeding of arbitration has been pursued
and completed, then the lower court may confirm the award made by the arbitrator.22
J.G. Realtys contention, that prior resort to arbitration is unavailing in the instant case because
the POAs mandate is to arbitrate disputes involving mineral agreements, is misplaced. A
distinction must be made between voluntary and compulsory arbitration. In Ludo and Luym
Corporation v. Saordino, the Court had the occasion to distinguish between the two types of
arbitrations:
Comparatively, in Reformist Union of R.B. Liner, Inc. vs. NLRC, compulsory arbitration
has been defined both as "the process of settlement of labor disputes by a
government agency which has the authority to investigate and to make an
award which is binding on all the parties, and as a mode of arbitration where the
parties are compelled to accept the resolution of their dispute through arbitration by a
third party." While a voluntary arbitrator is not part of the governmental unit or labor
departments personnel, said arbitrator renders arbitration services provided for
under labor laws.23 (Emphasis supplied.)
There is a clear distinction between compulsory and voluntary arbitration. The arbitration
provided by the POA is compulsory, while the nature of the arbitration provision in the RAWOP
is voluntary, not involving any government agency. Thus, J.G. Realtys argument on this matter
must fail.
As to J.G. Realtys contention that the provisions of RA 876 cannot apply to the instant case
which involves an administrative agency, it must be pointed out that Section 11.01 of the
RAWOP states that:
[Any controversy with regard to the contract] shall not be cause of any action of any
kind whatsoever in any court or administrative agency but shall, upon notice of one
party to the other, be referred to a Board of Arbitrators consisting of three (3) members,
 one to be selected by BENGUET, another to be selected by the OWNER and the third
to be selected by the aforementioned two arbiters so appointed. 24 (Emphasis supplied.)
There can be no quibbling that POA is a quasi-judicial body which forms part of the DENR, an
administrative agency. Hence, the provision on mandatory resort to arbitration, freely entered
into by the parties, must be held binding against them. 25
In sum, on the issue of whether POA should have referred the case to voluntary arbitration, we
find that, indeed, POA has no jurisdiction over the dispute which is governed by RA 876, the
arbitration law.
However, we find that Benguet is already estopped from questioning the POAs jurisdiction. As
it were, when J.G. Realty filed DENR Case No. 2000-01, Benguet filed its answer and
participated in the proceedings before the POA, Region V. Secondly, when the adverse March
19, 2001 POA Decision was rendered, it filed an appeal with the MAB in Mines Administrative
Case No. R-M-2000-01 and again participated in the MAB proceedings. When the adverse
December 2, 2002 MAB Decision was promulgated, it filed a motion for reconsideration with
the MAB. When the adverse March 17, 2004 MAB Resolution was issued, Benguet filed a
petition with this Court pursuant to Sec. 79 of RA 7942 impliedly recognizing MABs jurisdiction.
In this factual milieu, the Court rules that the jurisdiction of POA and that of MAB can no longer
be questioned by Benguet at this late hour. What Benguet should have done was to
immediately challenge the POAs jurisdiction by a special civil action for certiorari when POA
ruled that it has jurisdiction over the dispute. To redo the proceedings fully participated in by the
parties after the lapse of seven years from date of institution of the original action with the POA
would be anathema to the speedy and efficient administration of justice.
Second Issue: The cancellation of the RAWOP
was supported by evidence
The cancellation of the RAWOP by the POA was based on two grounds: (1) Benguets failure
to pay J.G. Realtys royalties for the mining claims; and (2) Benguets failure to seriously
pursue MPSA Application No. APSA-V-0009 over the mining claims.
As to the royalties, Benguet claims that the checks representing payments for the royalties of
J.G. Realty were available for pick-up in its office and it is the latter which refused to claim
them. Benguet then thus concludes that it did not violate the RAWOP for nonpayment of
royalties. Further, Benguet reasons that J.G. Realty has the burden of proving that the former
did not pay such royalties following the principle that the complainants must prove their
affirmative allegations.
With regard to the failure to pursue the MPSA application, Benguet claims that the lengthy time
of approval of the application is due to the failure of the MGB to approve it. In other words,
Benguet argues that the approval of the application is solely in the hands of the MGB.
Benguets arguments are bereft of merit.
Sec. 14.05 of the RAWOP provides:
14.05 Bank Account
OWNER shall maintain a bank account at ___________ or any other bank from time to
time selected by OWNER with notice in writing to BENGUET where BENGUET shall
deposit to the OWNERs credit any and all advances and payments which may
become due the OWNER under this Agreement as well as the purchase price herein
agreed upon in the event that BENGUET shall exercise the option to purchase
provided for in the Agreement. Any and all deposits so made by BENGUET shall be
a full and complete acquittance and release to [sic] BENGUET from any further
liability to the OWNER of the amounts represented by such deposits. (Emphasis
supplied.)
Evidently, the RAWOP itself provides for the mode of royalty payment by Benguet. The fact that
there was the previous practice whereby J.G. Realty picked-up the checks from Benguet is
unavailing. The mode of payment is embodied in a contract between the parties. As such, the
contract must be considered as the law between the parties and binding on both. 26 Thus, after
J.G. Realty informed Benguet of the bank account where deposits of its royalties may be made,
Benguet had the obligation to deposit the checks. J.G. Realty had no obligation to furnish
Benguet with a Board Resolution considering that the RAWOP itself provided for such payment
scheme.
Notably, Benguets claim that J.G. Realty must prove nonpayment of its royalties is both
illogical and unsupported by law and jurisprudence.
The allegation of nonpayment is not a positive allegation as claimed by Benguet. Rather, such
is a negative allegation that does not require proof and in fact transfers the burden of proof to
Benguet. Thus, this Court ruled in Jimenez v. National Labor Relations Commission:
As a general rule, one who pleads payment has the burden of proving it. Even where
the plaintiff must allege non-payment, the general rule is that the burden rests on the
defendant to prove payment, rather than on the plaintiff to prove non-payment. The
debtor has the burden of showing with legal certainty that the obligation has
been discharged by payment.27 (Emphasis supplied.)
In the instant case, the obligation of Benguet to pay royalties to J.G. Realty has been admitted
and supported by the provisions of the RAWOP. Thus, the burden to prove such obligation
rests on Benguet.
It should also be borne in mind that MPSA Application No. APSA-V-0009 has been pending
with the MGB for a considerable length of time. Benguet, in the RAWOP, obligated itself to
perfect the rights to the mining claims and/or otherwise acquire the mining rights to the mineral
claims but failed to present any evidence showing that it exerted efforts to speed up and have
the application approved. In fact, Benguet never even alleged that it continuously followed-up
the application with the MGB and that it was in constant communication with the government
agency for the expeditious resolution of the application. Such allegations would show that,
indeed, Benguet was remiss in prosecuting the MPSA application and clearly failed to comply
with its obligation in the RAWOP.
Third Issue: There is no unjust enrichment in the instant case
Based on the foregoing discussion, the cancellation of the RAWOP was based on valid
grounds and is, therefore, justified. The necessary implication of the cancellation is the
cessation of Benguets right to prosecute MPSA Application No. APSA-V-0009 and to further
develop such mining claims.
In Car Cool Philippines, Inc. v. Ushio Realty and Development Corporation, we defined unjust
enrichment, as follows:
We have held that "[t]here is unjust enrichment when a person unjustly retains a
benefit to the loss of another, or when a person retains money or property of another
against the fundamental principles of justice, equity and good conscience." Article 22 of
the Civil Code provides that "[e]very person who through an act of performance by
another, or any other means, acquires or comes into possession of something at the
expense of the latter without just or legal ground, shall return the same to him." The
principle of unjust enrichment under Article 22 requires two conditions: (1) that a
person is benefited without a valid basis or justification, and (2) that such benefit is
derived at anothers expense or damage.
There is no unjust enrichment when the person who will benefit has a valid claim
to such benefit.28(Emphasis supplied.)
Clearly, there is no unjust enrichment in the instant case as the cancellation of the RAWOP,
which left Benguet without any legal right to participate in further developing the mining claims,
was brought about by its violation of the RAWOP. Hence, Benguet has no one to blame but
itself for its predicament.
WHEREFORE, we DISMISS the petition, and AFFIRM the December 2, 2002 Decision and
March 17, 2004 Resolution of the DENR-MAB in MAB Case No. 0124-01 upholding the
cancellation of the June 1, 1987 RAWOP. No costs.
SO ORDERED.
G.R. No. 120105 March 27, 1998
BF CORPORATION, petitioner,
vs.
COURT OF APPEALS, SHANGRI-LA PROPERTIES, INC., RUFO B. COLAYCO, ALFREDO
C. RAMOS, MAXIMO G. LICAUCO III and BENJAMIN C. RAMOS, respondents.
ROMERO, J.:
The basic issue in this petition for review on certiorari is whether or not the contract for the
construction of the EDSA Plaza between petitioner BF Corporation and respondent Shangri-la
Properties, Inc. embodies an arbitration clause in case of disagreement between the parties in
the implementation of contractual provisions.
Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an agreement whereby
the latter engaged the former to construct the main structure of the "EDSA Plaza Project," a
shopping mall complex in the City of Mandaluyong. The construction work was in progress
when SPI decided to expand the project by engaging the services of petitioner again. Thus, the
parties entered into an agreement for the main contract works after which construction work
began.
However, petitioner incurred delay in the construction work that SPI considered as "serious and
substantial."1 On the other hand, according to petitioner, the construction works "progressed in
faithful compliance with the First Agreement until a fire broke out on November 30, 1990
damaging Phase I" of the Project.2 Hence, SPI proposed the re-negotiation of the agreement
between them.
Consequently, on May 30, 1991, petitioner and SPI entered into a written agreement
denominated as "Agreement for the Execution of Builder's Work for the EDSA Plaza Project."
Said agreement would cover the construction work on said project as of May 1, 1991 until its
eventual completion.
According to SPI, petitioner "failed to complete the construction works and abandoned the
project."3 This resulted in disagreements between the parties as regards their respective
liabilities under the contract. On July 12, 1993, upon SPI's initiative, the parties' respective
representatives met in conference but they failed to come to an agreement. 4
Barely two days later or on July 14, 1993, petitioner filed with the Regional Trial Court of Pasig
a complaint for collection of the balance due under the construction agreement. Named
defendants therein were SPI and members of its board of directors namely, Alfredo C. Ramos,
Rufo B. Calayco, Antonio B. Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III and
Benjamin C. Ramos.
On August 3, 1993, SPI and its co-defendants filed a motion to suspend proceedings instead of
filing an answer. The motion was anchored on defendants' allegation that the formal trade
contract for the construction of the project provided for a clause requiring prior resort to
arbitration before judicial intervention could be invoked in any dispute arising from the contract.
The following day, SPI submitted a copy of the conditions of the contract containing the
arbitration clause that it failed to append to its motion to suspend proceedings.
Petitioner opposed said motion claiming that there was no formal contract between the parties
although they entered into an agreement defining their rights and obligations in undertaking the
project. It emphasized that the agreement did not provide for arbitration and therefore the court
could not be deprived of jurisdiction conferred by law by the mere allegation of the existence of
an arbitration clause in the agreement between the parties.
In reply to said opposition, SPI insisted that there was such an arbitration clause in the existing
contract between petitioner and SPI. It alleged that suspension of proceedings would not
necessarily deprive the court of its jurisdiction over the case and that arbitration would expedite
rather than delay the settlement of the parties' respective claims against each other.
In a rejoinder to SPI's reply, petitioner reiterated that there was no arbitration clause in the
contract between the parties. It averred that granting that such a clause indeed formed part of
the contract, suspension of the proceedings was no longer proper. It added that defendants
should be declared in default for failure to file their answer within the reglementary period.
In its sur-rejoinder, SPI pointed out the significance of petitioner's admission of the due
execution of the "Articles of Agreement." Thus, on page D/6 thereof, the signatures of Rufo B.
Colayco, SPI president, and Bayani Fernando, president of petitioner appear, while page D/7
shows that the agreement is a public document duly notarized on November 15, 1991 by
Notary Public Nilberto R. Briones as document No. 345, page 70, book No. LXX, Series of
1991 of his notarial register.5
Thereafter, upon a finding that an arbitration clause indeed exists, the lower court 6 denied the
motion to suspend proceedings, thus:
It appears from the said document that in the letter-agreement dated May 30,
1991 (Annex C, Complaint), plaintiff BF and defendant Shangri-La Properties,
Inc. agreed upon the terms and conditions of the Builders Work for the EDSA
Plaza Project (Phases I, II and Carpark), subject to the execution by the
parties of a formal trade contract. Defendants have submitted a copy of the
alleged trade contract, which is entitled "Contract Documents For Builder's
Work Trade Contractor" dated 01 May 1991, page 2 of which is entitled
"Contents of Contract Documents" with a list of the documents therein
contained, and Section A thereof consists of the abovementioned Letter-
Agreement dated May 30, 1991. Section C of the said Contract Documents is
entitled "Articles of Agreement and Conditions of Contract" which, per its
Index, consists of Part A (Articles of Agreement) and B (Conditions of
Contract). The said Articles of Agreement appears to have been duly signed by
President Rufo B. Colayco of Shangri-La Properties, Inc. and President Bayani
F. Fernando of BF and their witnesses, and was thereafter acknowledged
before Notary Public Nilberto R. Briones of Makati, Metro Manila on November
15, 1991. The said Articles of Agreement also provides that the "Contract
Documents" therein listed "shall be deemed an integral part of this
Agreement", and one of the said documents is the "Conditions of Contract"
which contains the Arbitration Clause relied upon by the defendants in their
Motion to Suspend Proceedings.
This Court notes, however, that the 'Conditions of Contract' referred to, contains the following
provisions:
3. Contract Document.
Three copies of the Contract Documents referred to in the
Articles of Agreement shall be signed by the parties to the
contract and distributed to the Owner and the Contractor for
their safe keeping." (emphasis supplied).
And it is significant to note further that the said "Conditions of Contract" is not
duly signed by the parties on any page thereof although it bears the initials
of BF's representatives (Bayani F. Fernando and Reynaldo M. de la Cruz)
without the initials thereon of any representative of Shangri-La Properties, Inc.
Considering the insistence of the plaintiff that the said Conditions of Contract
was not duly executed or signed by the parties, and the failure of the
defendants to submit any signed copy of the said document, this Court
entertains serious doubt whether or not the arbitration clause found in the said
Conditions of Contract is binding upon the parties to the Articles of
Agreement." (Emphasis supplied.)
The lower court then ruled that, assuming that the arbitration clause was valid and binding, still,
it was "too late in the day for defendants to invoke arbitration." It quoted the following provision
of the arbitration clause:
Notice of the demand for arbitration of a dispute shall be filed in writing with the
other party to the contract and a copy filed with the Project Manager. The
demand for arbitration shall be made within a reasonable time after the dispute
has arisen and attempts to settle amicably have failed; in no case, however,
shall the demand he made be later than the time of final payment except as
otherwise expressly stipulated in the contract.
Against the above backdrop, the lower court found that per the May 30, 1991 agreement, the
project was to be completed by October 31, 1991. Thereafter, the contractor would pay
P80,000 for each day of delay counted from November 1, 1991 with "liquified (sic) damages up
to a maximum of 5% of the total contract price."
The lower court also found that after the project was completed in accordance with the
agreement that contained a provision on "progress payment billing," SPI "took possession and
started operations thereof by opening the same to the public in November, 1991." SPI, having
failed to pay for the works, petitioner billed SPI in the total amount of P110,883,101.52,
contained in a demand letter sent by it to SPI on February 17, 1993. Instead of paying the
amount demanded, SPI set up its own claim of P220,000,000.00 and scheduled a conference
on that claim for July 12, 1993. The conference took place but it proved futile.
Upon the above facts, the lower court concluded:
Considering the fact that under the supposed Arbitration Clause invoked by
defendants, it is required that "Notice of the demand for arbitration of a dispute
shall be filed in writing with the other party . . . . in no case . . . . later than the
time of final payment . . . "which apparently, had elapsed, not only because
defendants had taken possession of the finished works and the plaintiff's
billings for the payment thereof had remained pending since November, 1991
up to the filing of this case on July 14, 1993, but also for the reason that
defendants have failed to file any written notice of any demand for arbitration
during the said long period of one year and eight months, this Court finds that
it cannot stay the proceedings in this case as required by Sec. 7 of Republic
Act No. 876, because defendants are in default in proceeding with such
arbitration.
The lower court denied SPI's motion for reconsideration for lack of merit and directed it and the
other defendants to file their responsive pleading or answer within fifteen (15) days from notice.
Instead of filing an answer to the complaint, SPI filed a petition for certiorari under Rule 65 of
the Rules of Court before the Court of Appeals. Said appellate court granted the petition,
annulled and set aside the orders and stayed the proceedings in the lower court. In so ruling,
the Court of Appeals held:
The reasons given by the respondent Court in denying petitioners' motion to
suspend proceedings are untenable.
1. The notarized copy of the articles of agreement attached as Annex A to
petitioners' reply dated August 26, 1993, has been submitted by them to the
respondent Court (Annex G, petition). It bears the signature of petitioner Rufo
B. Colayco, president of petitioner Shangri-La Properties, Inc., and of Bayani
Fernando, president of respondent Corporation (Annex G-1, petition). At page
D/4 of said articles of agreement it is expressly provided that the conditions of
contract are "deemed an integral part" thereof (page 188, rollo). And it is at
pages D/42 to D/44 of the conditions of contract that the provisions for
arbitration are found (Annexes G-3 to G-5, petition, pp. 227-229). Clause No.
35 on arbitration specifically provides:
Provided always that in case any dispute or difference shall
arise between the Owner or the Project Manager on his behalf
and the Contractor, either during the progress or after the
completion or abandonment of the Works as to the
construction of this Contract or as to any matter or thing of
whatsoever nature arising thereunder or in connection
therewith (including any matter or being left by this Contract to
the discretion of the Project Manager or the withholding by the
Project Manager of any certificate to which the Contractor may
claim to be entitled or the measurement and valuation
mentioned in clause 30 (5) (a) of these Conditions' or the
rights and liabilities of the parties under clauses 25, 26, 32 or
33 of these Conditions), the Owner and the Contractor hereby
agree to exert all efforts to settle their differences or dispute
amicably. Failing these efforts then such dispute or difference
shall be referred to Arbitration in accordance with the rules
and procedures of the Philippine Arbitration Law.
The fact that said conditions of contract containing the arbitration clause bear
only the initials of respondent Corporation's representatives, Bayani Fernando
and Reynaldo de la Cruz, without that of the representative of petitioner
Shangri-La Properties, Inc. does not militate against its effectivity. Said
petitioner having categorically admitted that the document, Annex A to its reply
dated August 26, 1993 (Annex G, petition), is the agreement between the
parties, the initial or signature of said petitioner's representative to signify
conformity to arbitration is no longer necessary. The parties, therefore, should
be allowed to submit their dispute to arbitration in accordance with their
agreement.
2. The respondent Court held that petitioners "are in default in proceeding with
such arbitration." It took note of "the fact that under the supposed Arbitration
Clause invoked by defendants, it is required that "Notice of the demand for
arbitration of a dispute shall be filed in writing with the other party . . . in no
case . . . later than the time of final payment," which apparently, had elapsed,
not only because defendants had taken possession of the finished works and
the plaintiff's billings for the payment thereof had remained pending since
November, 1991 up to the filing of this case on July 14, 1993, but also for the
reason that defendants have failed to file any written notice of any demand for
arbitration during the said long period of one year and eight months, . . . ."
Respondent Court has overlooked the fact that under the arbitration
clause
Notice of the demand for arbitration dispute shall be filed in
writing with the other party to the contract and a copy filed with
the Project Manager. The demand for arbitration shall be
made within a reasonable time after the dispute has arisen
and attempts to settle amicably had failed; in no case,
however, shall the demand be made later than the time of final
 payment except as otherwise expressly stipulated in the
contract (emphasis supplied)
quoted in its order (Annex A, petition). As the respondent Court there said,
after the final demand to pay the amount of P110,883,101.52, instead of
paying, petitioners set up its own claim against respondent Corporation in the
amount of P220,000,000.00 and set a conference thereon on July 12, 1993.
Said conference proved futile. The next day, July 14, 1993, respondent
Corporation filed its complaint against petitioners. On August 13, 1993,
petitioners wrote to respondent Corporation requesting arbitration. Under the
circumstances, it cannot be said that petitioners' resort to arbitration was made
beyond reasonable time. Neither can they be considered in default of their
obligation to respondent Corporation.
Hence, this petition before this Court. Petitioner assigns the following errors:
A speedy and adequate remedy in the ordinary course of law . . . ." That is why
THE COURT OF APPEALS ERRED IN ISSUING THE EXTRAORDINARY
WRIT OF CERTIORARI ALTHOUGH THE REMEDY OF APPEAL WAS
AVAILABLE TO RESPONDENTS.
B errors of judgment which are reviewable by timely appeal and not by a special civil action
THE COURT OF APPEALS ERRED IN FINDING GRAVE ABUSE OF
DISCRETION IN THE FACTUAL FINDINGS OF THE TRIAL COURT THAT:
(i) THE PARTIES DID NOT ENTER INTO AN
AGREEMENT TO ARBITRATE.
(ii) ASSUMING THAT THE PARTIES DID
ENTER INTO THE AGREEMENT TO
ARBITRATE, RESPONDENTS ARE
ALREADY IN DEFAULT IN INVOKING THE
AGREEMENT TO ARBITRATE.
On the first assigned error, petitioner contends that the Order of the lower court denying the
motion to suspend proceedings "is a resolution of an incident on the merits." As such, upon the
continuation of the proceedings, the lower court would appreciate the evidence adduced in
their totality and thereafter render a decision on the merits that may or may not sustain the
existence of an arbitration clause. A decision containing a finding that the contract has no
arbitration clause can then be elevated to a higher court "in an ordinary appeal" where an
adequate remedy could be obtained. Hence, to petitioner, the Court of Appeals should have
dismissed the petition for certiorari because the remedy of appeal would still be available to
private respondents at the proper time.7
The above contention is without merit.
The rule that the special civil action of certiorari may not be invoked as a substitute for the
remedy of appeal is succinctly reiterated in Ongsitco v. Court of Appeals8 as follows:
. . . . Countless times in the past, this Court has held that "where appeal is the
proper remedy, certiorari will not lie." The writs of certiorari and prohibition are
remedies to correct lack or excess of jurisdiction or grave abuse of discretion
equivalent to lack of jurisdiction committed by a lower court. "Where the proper
remedy is appeal, the action for certiorari will not be
entertained. . . . Certiorari is not a remedy for errors of judgment. Errors of
judgment are correctible by appeal, errors of jurisdiction are reviewable
by certiorari."
Rule 65 is very clear. The extraordinary remedies of certiorari, prohibition
and mandamus are available only when "there is no appeal or any plain,
they are referred to as "extraordinary." . . . .
The Court has likewise ruled that "certiorari will not be issued to cure errors in proceedings or
correct erroneous conclusions of law or fact. As long as a court acts within its jurisdiction, any
alleged errors committed in the exercise of its jurisdiction will amount to nothing more than
of certiorari."9
This is not exactly so in the instant case. While this Court does not deny the eventual
jurisdiction of the lower court over the controversy, the issue posed basically is whether the
lower court prematurely assumed jurisdiction over it. If the lower court indeed prematurely
assumed jurisdiction over the case, then it becomes an error of jurisdiction which is a proper
subject of a petition for certiorari before the Court of Appeals. And if the lower court does not
have jurisdiction over the controversy, then any decision or order it may render may be
annulled and set aside by the appellate court.
However, the question of jurisdiction, which is a question of law depends on the determination
of the existence of the arbitration clause, which is a question of fact. In the instant case, the
lower court found that there exists an arbitration clause. However, it ruled that in contemplation
of law, said arbitration clause does not exist.
The issue, therefore, posed before the Court of Appeals in a petition for certiorari is whether
the Arbitration Clause does not in fact exist. On its face, the the question is one of fact which is
not proper in a petition for certiorari.
The Court of Appeals found that an Arbitration Clause does in fact exist. In resolving said
question of fact, the Court of Appeals interpreted the construction of the subject contract
documents containing the Arbitration Clause in accordance with Republic Act No. 876
(Arbitration Law) and existing jurisprudence which will be extensively discussed hereunder. In
effect, the issue posed before the Court of Appeals was likewise a question of law. Being a
question of law, the private respondents rightfully invoked the special civil action of certiorari.
It is that mode of appeal taken by private respondents before the Court of Appeals that is being
questioned by the petitioners before this Court. But at the heart of said issue is the question of
whether there exists an Arbitration Clause because if an Arbitration Clause does not exist, then
private respondents took the wrong mode of appeal before the Court of Appeals.
For this Court to be able to resolve the question of whether private respondents took the proper
mode of appeal, which, incidentally, is a question of law, then it has to answer the core issue of
whether there exists an Arbitration Clause which, admittedly, is a question of fact.
Moreover, where a rigid application of the rule that certiorari cannot be a substitute for appeal
will result in a manifest failure or miscarriage of justice, the provisions of the Rules of Court
which are technical rules may be relaxed. 10 As we shall show hereunder, had the Court of
Appeals dismissed the petition for certiorari, the issue of whether or not an arbitration clause
exists in the contract would not have been resolved in accordance with evidence extant in the
record of the case. Consequently, this would have resulted in a judicial rejection of a
contractual provision agreed by the parties to the contract.
In the same vein, this Court holds that the question of the existence of the arbitration clause in
the contract between petitioner and private respondents is a legal issue that must be
determined in this petition for review on certiorari.
Petitioner, while not denying that there exists an arbitration clause in the contract in question,
asserts that in contemplation of law there could not have been one considering the following
points. First, the trial court found that the "conditions of contract" embodying the arbitration
clause is not duly signed by the parties. Second, private respondents misrepresented before
the Court of Appeals that they produced in the trial court a notarized duplicate original copy of
the construction agreement because what were submitted were mere photocopies thereof. The
contract(s) introduced in court by private respondents were therefore "of dubious authenticity"
because: (a) the Agreement for the Execution of Builder's Work for the EDSA Plaza Project
does not contain an arbitration clause, (b) private respondents "surreptitiously attached as
Annexes "G-3" to "G-5" to their petition before the Court of Appeals but these documents are
not parts of the Agreement of the parties as "there was no formal trade contract executed," (c)
if the entire compilation of documents "is indeed a formal trade contract," then it should have
been duly notarized, (d) the certification from the Records Management and Archives Office
dated August 26, 1993 merely states that "the notarial record of Nilberto Briones . . . is
available in the files of (said) office as Notarial Registry Entry only," (e) the same certification
attests that the document entered in the notarial registry pertains to the Articles of Agreement
only without any other accompanying documents, and therefore, it is not a formal trade
contract, and (f) the compilation submitted by respondents are a "mere hodge-podge of
documents and do not constitute a single intelligible agreement."
In other words, petitioner denies the existence of the arbitration clause primarily on the ground
that the representatives of the contracting corporations did not sign the "Conditions of Contract"
that contained the said clause. Its other contentions, specifically that insinuating fraud as
regards the alleged insertion of the arbitration clause, are questions of fact that should have
been threshed out below.
This Court may as well proceed to determine whether the arbitration clause does exist in the
parties' contract. Republic Act No. 876 provides for the formal requisites of an arbitration
agreement as follows:
Sec. 4. Form of arbitration agreement. A contract to arbitrate a controversy
thereafter arising between the parties, as well as a submission to arbitrate an
existing controversy, shall be in writing and subscribed by the party sought to
be charged, or by his lawful agent.
The making of a contract or submission for arbitration described in section two
hereof, providing for arbitration of any controversy, shall be deemed a consent
of the parties of the province or city where any of the parties resides, to
enforce such contract of submission. (Emphasis supplied.).
The formal requirements of an agreement to arbitrate are therefore the following: (a) it must be
in writing and (b) it must be subscribed by the parties or their representatives. There is no
denying that the parties entered into a written contract that was submitted in evidence before
the lower court. To "subscribe" means to write underneath, as one's name; to sign at the end of
a document. 11 That word may sometimes be construed to mean to give consent to or to
attest.12
The Court finds that, upon a scrutiny of the records of this case, these requisites were complied
with in the contract in question. The Articles of Agreement, which incorporates all the other
contracts and agreements between the parties, was signed by representatives of both parties
and duly notarized. The failure of the private respondent's representative to initial the
"Conditions of Contract" would therefor not affect compliance with the formal requirements for
arbitration agreements because that particular portion of the covenants between the parties
was included by reference in the Articles of Agreement.
Petitioner's contention that there was no arbitration clause because the contract incorporating
said provision is part of a "hodge-podge" document, is therefore untenable. A contract need not
be contained in a single writing. It may be collected from several different writings which do not
conflict with each other and which, when connected, show the parties, subject matter, terms
and consideration, as in contracts entered into by correspondence. 13 A contract may be
encompassed in several instruments even though every instrument is not signed by the parties,
since it is sufficient if the unsigned instruments are clearly identified or referred to and made
part of the signed instrument or instruments. Similarly, a written agreement of which there are
two copies, one signed by each of the parties, is binding on both to the same extent as though
there had been only one copy of the agreement and both had signed it. 14
The flaw in petitioner's contentions therefore lies in its having segmented the various
components of the whole contract between the parties into several parts. This notwithstanding,
petitioner ironically admits the execution of the Articles of Agreement. Notably, too, the lower
court found that the said Articles of Agreement "also provides that the 'Contract Documents'
therein listed 'shall be deemed an integral part of this Agreement,' and one of the said
documents is the 'Conditions of Contract' which contains the Arbitration Clause.'" It is this
Articles of Agreement that was duly signed by Rufo B. Colayco, president of private respondent
SPI, and Bayani F. Fernando, president of petitioner corporation. The same agreement was
duly subscribed before notary public Nilberto R. Briones. In other words, the subscription of the
principal agreement effectively covered the other documents incorporated by reference therein.
agreement calling for arbitration in case of disagreement between the parties would therefore
be a step backward.
WHEREFORE, the questioned Decision of the Court of Appeals is hereby AFFIRMED and the
petition for certiorari DENIED. This Decision is immediately executory. Costs against petitioner.
SO ORDERED.

This Court likewise does not find that the Court of Appeals erred in ruling that private
respondents were not in default in invoking the provisions of the arbitration clause which states
that "(t)he demand for arbitration shall be made within a reasonable time after the dispute has
arisen and attempts to settle amicably had failed." Under the factual milieu, private respondent
SPI should have paid its liabilities tinder the contract in accordance with its terms. However,
misunderstandings appeared to have cropped up between the parties ostensibly brought about
by either delay in the completion of the construction work or by force majeure or the fire that
partially gutted the project. The almost two-year delay in paying its liabilities may not therefore
be wholly ascribed to private respondent SPI.

Besides, private respondent SPI's initiative in calling for a conference between the parties was
a step towards the agreed resort to arbitration. However, petitioner posthaste filed the
complaint before the lower court. Thus, while private respondent SPI's request for arbitration on
August 13, 1993 might appear an afterthought as it was made after it had filed the motion to
suspend proceedings, it was because petitioner also appeared to act hastily in order to resolve
the controversy through the courts.

The arbitration clause provides for a "reasonable time" within which the parties may avail of the
relief under that clause. "Reasonableness" is a relative term and the question of whether the
time within which an act has to be done is reasonable depends on attendant
circumstances. 15 This Court finds that under the circumstances obtaining in this case, a one-
month period from the time the parties held a conference on July 12, 1993 until private
respondent SPI notified petitioner that it was invoking the arbitration clause, is a reasonable
time. Indeed, petitioner may not be faulted for resorting to the court to claim what was due it
under the contract. However, we find its denial of the existence of the arbitration clause as an
attempt to cover up its misstep in hurriedly filing the complaint before the lower court.

In this connection, it bears stressing that the lower court has not lost its jurisdiction over the
case. Section 7 of Republic Act No. 876 provides that proceedings therein have only been
stayed. After the special proceeding of arbitration 16 has been pursued and completed, then the
lower court may confirm the award 17 made by the arbitrator.

It should be noted that in this jurisdiction, arbitration has been held valid and constitutional.
Even before the approval on June 19, 1953 of Republic Act No. 876, this Court has
countenanced the settlement of disputes through arbitration. 18 Republic Act No. 876 was
adopted to supplement the New Civil Code's provisions on arbitration. 19 Its potentials as one of
the alternative dispute resolution methods that are now rightfully vaunted as "the wave of the
future" in international relations, is recognized worldwide. To brush aside a contractual