G.R. No.

135362 December 13, 1999

HEIRS OF AUGUSTO L. SALAS, JR., namely: TERESITA D. SALAS for herself and as legal guardian of the minor FABRICE CYRILL D. SALAS,
MA. CRISTINA S. LESACA, and KARINA TERESA D. SALAS, petitioners,
vs.
LAPERAL REALTY CORPORATION, ROCKWAY REAL ESTATE CORPORATION, SOUTH RIDGE VILLAGE, INC., MAHARAMI DEVELOPMENT
CORPORATION, Spouses THELMA D. ABRAJANO and GREGORIO ABRAJANO, OSCAR DACILLO, Spouses VIRGINIA D. LAVA and RODEL
LAVA, EDUARDO A. VACUNA, FLORANTE DE LA CRUZ, JESUS VICENTE B. CAPELLAN, and the REGISTER OF DEEDS FOR LIPA
CITY, respondents.
DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Order 1 of Branch 85 of the Regional Trial Court of Lipa City 2dismissing petitioners'
complaint 3 for rescission of several sale transactions involving land owned by Augusto L. Salas, Jr., their predecessor-in-interest, on the
ground that they failed to first resort to arbitration.
Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas spanning 1,484,354 square meters.
On May 15, 1987, he entered into an Owner-Contractor Agreement 4 (hereinafter referred to as the Agreement) with respondent Laperal
Realty Corporation (hereinafter referred to as Laperal Realty) to render and provide complete (horizontal) construction services on his land.
On September 23, 1988, Salas, Jr. executed a Special Power of Attorney in favor of respondent Laperal Realty to exercise general control,
supervision and management of the sale of his land, for cash or on installment basis.
On June 10, 1989, Salas, Jr. left his home in the morning for a business trip to Nueva Ecija. He never returned.
On August 6, 1996, Teresita Diaz Salas filed with the Regional Trial Court of Makati City a verified petition for the declaration of
presumptive death of her husband, Salas, Jr., who had then been missing for more than seven (7) years. It was granted on December 12,
1996. 5
Meantime, respondent Laperal Realty subdivided the land of Salas, Jr. and sold subdivided portions thereof to respondents Rockway Real
Estate Corporation and South Ridge Village, Inc. on February 22, 1990; to respondent spouses Abrajano and Lava and Oscar Dacillo on June
27, 1991; and to respondents Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capalan on June 4, 1996 (all of whom are hereinafter
referred to as respondent lot buyers).
On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the Regional Trial Court of Lipa City a Complaint 6 for declaration of nullity of
sale, reconveyance, cancellation of contract, accounting and damages against herein respondents which was docketed as Civil Case No. 98-
0047.
On April 24, 1998, respondent Laperal Realty filed a Motion to
Dismiss 7 on the ground that petitioners failed to submit their grievance to arbitration as required under Article VI of the Agreement which
provides:
Art. VI. ARBITRATION.
All cases of dispute between CONTRACTOR and OWNER'S representative shall be referred to the committee represented
by:
a. One representative of the OWNER;
b. One representative of the CONTRACTOR;
c. One representative acceptable to both OWNER and CONTRACTOR. 8
On May 5, 1998, respondent spouses Abrajano and Lava and respondent Dacillo filed a Joint Answer with Counterclaim and
Crossclaim 9 praying for dismissal of petitioners' Complaint for the same reason.
On August 9, 1998, the trial court issued the herein assailed Order dismissing petitioners' Complaint for non-compliance with the foregoing
arbitration clause.
Hence this petition.
Petitioners argue, thus:
The petitioners' causes of action did not emanate from the Owner-Contractor Agreement.
The petitioners' causes of action for cancellation of contract and accounting are covered by the exception under the
Arbitration Law.
Failure to arbitrate is not a ground for dismissal. 10
In a catena of cases 11 inspired by Justice Malcolm's provocative dissent in Vega v. San Carlos Milling Co. 12, this Court has recognized
arbitration agreements as valid, binding, enforceable and not contrary to public policy so much so that when there obtains a written
provision for arbitration which is not complied with, the trial court should suspend the proceedings and order the parties to proceed to
arbitration in accordance with the terms of their
agreement 13. Arbitration is the "wave of the future" in dispute resolution. 14 To brush aside a contractual agreement calling for arbitration
in case of disagreement between parties would be a step backward. 15
Nonetheless, we grant the petition.
A submission to arbitration is a contract. 16 As such, the Agreement, containing the stipulation on arbitration, binds the parties thereto, as
well as their assigns and heirs. 17 But only they. Petitioners, as heirs of Salas, Jr., and respondent Laperal Realty are certainly bound by the
Agreement. If respondent Laperal Realty had assigned its rights under the Agreement to a third party, making the former, the assignor, and
the latter, the assignee, such assignee would also be bound by the arbitration provision since assignment involves such transfer of rights as
to vest in the assignee the power to enforce them to the same extent as the assignor could have enforced them against the debtor 18 or in
this case, against the heirs of the original party to the Agreement. However, respondents Rockway Real Estate Corporation, South Ridge
Village, Inc., Maharami Development Corporation, spouses Abrajano, spouses Lava, Oscar Dacillo, Eduardo Vacuna, Florante de la Cruz and
Jesus Vicente Capellan are not assignees of the rights of respondent Laperal Realty under the Agreement to develop Salas, Jr.'s land and sell
the same. They are, rather, buyers of the land that respondent Laperal Realty was given the authority to develop and sell under the
Agreement. As such, they are not "assigns" contemplated in Art. 1311 of the New Civil Code which provides that "contracts take effect only
between the parties, their assigns and heirs".
Petitioners claim that they suffered lesion of more than one-fourth (1/4) of the value of Salas, Jr.'s land when respondent Laperal Realty
subdivided it and sold portions thereof to respondent lot buyers. Thus, they instituted action 19 against both respondent Laperal Realty and
respondent lot buyers for rescission of the sale transactions and reconveyance to them of the subdivided lots. They argue that rescission,
being their cause of action, falls under the exception clause in Sec. 2 of Republic Act No. 876 which provides that "such submission [to] or
contract [of arbitration] shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any
contract".
The petitioners' contention is without merit. For while rescission, as a general rule, is an arbitrable issue, 20 they impleaded in the suit for
rescission the respondent lot buyers who are neither parties to the Agreement nor the latter's assigns or heirs. Consequently, the right to
arbitrate as provided in Article VI of the Agreement was never vested in respondent lot buyers.
Respondent Laperal Realty, as a contracting party to the Agreement, has the right to compel petitioners to first arbitrate before seeking
judicial relief. However, to split the proceedings into arbitration for respondent Laperal Realty and trial for the respondent lot buyers, or to
hold trial in abeyance pending arbitration between petitioners and respondent Laperal Realty, would in effect result in multiplicity of suits,
duplicitous procedure and unnecessary delay. On the other hand, it would be in the interest of justice if the trial court hears the complaint
against all herein respondents and adjudicates petitioners' rights as against theirs in a single and complete proceeding.
WHEREFORE, the instant petition is hereby GRANTED. The Order dated August 19, 1998 of Branch 85 of the Regional Trial Court of Lipa City
is hereby NULLIFIED and SET ASIDE. Said court is hereby ordered to proceed with the hearing of Civil Case No. 98-0047.
Costs against private respondents.
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 court6 denied the motion to suspend proceedings, thus:
It appears from the said document that in the letter-agreement dated May 30, 1991 (Annex C, 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
THE COURT OF APPEALS ERRED IN ISSUING THE EXTRAORDINARY WRIT OF CERTIORARIALTHOUGH THE REMEDY OF
APPEAL WAS AVAILABLE TO RESPONDENTS.
B
THE COURT OF APPEALS ERRED IN FINDING GRAVE ABUSE OF DISCRETION IN THE FACTUAL FINDINGS OF THE TRIAL
COURT THAT:
(i) THE PARTIES DID NOT ENTER INTO AN AGREEMENT TO ARBITRATE.
(ii) ASSUMING THAT THE PARTIES DID ENTER INTO THE AGREEMENT TO ARBITRATE,
RESPONDENTS ARE ALREADY IN DEFAULT IN INVOKING THE AGREEMENT TO
ARBITRATE.
On the first assigned error, petitioner contends that the Order of the lower court denying the motion to suspend proceedings "is a
resolution of an incident on the merits." As such, upon the continuation of the proceedings, the lower court would appreciate the evidence
adduced in their totality and thereafter render a decision on the merits that may or may not sustain the existence of an arbitration clause.
A decision containing a finding that the contract has no arbitration clause can then be elevated to a higher court "in an ordinary appeal"
where an adequate remedy could be obtained. Hence, to petitioner, the Court of Appeals should have dismissed the petition
for certioraribecause 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, certiorariwill 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, speedy and adequate remedy in the ordinary course of law . . . ." That is why they are referred
to as "extraordinary." . . . .
The Court has likewise ruled that "certiorari will not be issued to cure errors in proceedings or correct erroneous conclusions of law or fact.
As long as a court acts within its jurisdiction, any alleged errors committed in the exercise of its jurisdiction will amount to nothing more
than errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari."9
This is not exactly so in the instant case. While this Court does not deny the eventual jurisdiction of 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.
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 17made 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 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.

G.R. No. 110434 December 13, 1993

HI-PRECISION STEEL CENTER, INC., petitioner,
vs.
LIM KIM STEEL BUILDERS, INC., and CONSTRUCTION INDUSTRY ARBITRATION COMMISSION, respondents.
RESOLUTION
FELICIANO, J.:
On 18 June 1993, a "Petition for Extension to File Petition for Review" 1 was filed before the Court, petitioner Hi-Precision Steel Center, Inc.
("Hi-Precision") stating that it intended to file a Petition for Review on Certiorari in respect of the 13 November 1992 Award 2 and 13 May
1993 Order 3 of public respondent Construction Industry Arbitration Commission ("CIAC") in Arbitration Case No. 13-90. The Petition (really
a Motion) prayed for an extension of thirty (30) days or until 21 July 1993 within which to file a Petition for Review.
An opposition 4 to the Motion was filed by private respondent Lim Kim Steel Builders, Inc. ("Steel Builders") on 5 July 1993. On the same
day, however, the Court issued a Resolution 5 granting the Motion with a warning that no further extension would be given.
The Opposition, the subsequent Reply 6 of petitioner filed on 20 July 1993 and the Petition for Review 7 dated 21 July 1993, were noted by
the Court in its Resolution 8 of 28 July 1993. The Court also required private respondent Steel Builders to file a Comment on the Petition for
Review and Steel Builders complied.
The Petition prays for issuance of a temporary restraining order 9 to stay the execution of the assailed Order and Award in favor of Steel
Builders, which application the Court merely noted, as it did subsequent Urgent Motions for a temporary restraining order. 10
Petitioner Hi-Precision entered into a contract with private respondent Steel Builders under which the latter as Contractor was to complete
a P21 Million construction project owned by the former within a period of 153 days, i.e. from 8 May 1990 to 8 October 1990. The project
completion date was first moved to 4 November 1990. On that date, however, only 75.8674% of the project was actually completed.
Petitioner attributed this non-completion to Steel Builders which allegedly had frequently incurred delays during the
original contract period and the extension period. Upon the other hand, Steel Builders insisted that the delays in the project were either
excusable or due to Hi-Precision's own fault and issuance of change orders. The project was taken over on 7 November 1990, and
eventually completed on February 1991, by Hi-Precision.
Steel Builders filed a "Request for Adjudication" with public respondent CIAC. In its Complaint filed with the CIAC, Steel Builders sought
payment of its unpaid progress buildings, alleged unearned profits and other receivables. Hi-Precision, upon the other hand, in its Answer
and Amended Answer, claimed actual and liquidated damages, reimbursement of alleged additional costs it had incurred in order to
complete the project and attorney's fees.
The CIAC formed an Arbitral Tribunal with three (3) members, two (2) being appointed upon nomination of Hi-Precision and Steel Builders,
respectively; the third member (the Chairman) was appointed by the CIAC as a common nominee of the two (2) parties. On the Chairman
was a lawyer. After the arbitration proceeding, the Arbitral Tribunal rendered a unanimous Award dated 13 November 1992, the dispositive
portion of which reads as follows:
WHEREFORE, premises considered, the Owner [petitioner Hi-Precision] is ordered to pay the Contractor [private
respondent Steel Builders] the amount of P6,400,717.83 and all other claims of the parties against each other are
deemed compensated and offset. No pronouncement as to costs.
The Parties are enjoined to abide by the award. 11
Upon motions for reconsideration filed, respectively, by Hi-Precision and Steel Builders, the Arbitral Tribunal issued an Order
dated 13 May 1993 which reduced the net amount due to contractor Steel Builders to P6,115,285.83. 12
In its Award, the Arbitral Tribunal stated that it was guided by Articles 1169, 1192 and 2215 of the Civil Code. With such guidance, the
arbitrators concluded that (a) both parties were at fault, though the Tribunal could not point out which of the parties was the first infractor;
and (b) the breaches by one party affected the discharge of the reciprocal obligations of the other party. With mutual fault as a principal
premise, the Arbitral Tribunal denied (a) petitioner's claims for the additional costs allegedly incurred to complete the project; and (b)
private respondent's claim for profit it had failed to earn because of petitioner's take over of the project.
The Tribunal then proceeded to resolve the remaining specific claims of the parties. In disposing of these multiple, detailed claims the
Arbitral Tribunal, in respect of one or more of the respective claims of the parties: (a) averaged out the conflicting amounts and
percentages claimed by the parties; 13 (b) found neither basis nor justification for a particular claim; 14 (c) found the evidence submitted in
support of particular claims either weak or non-existent; 15 (d) took account of the admissions of liability in respect of particular
claims; 16 (e) relied on its own expertise in resolving particular claims; 17 and (f) applied a "principle of equity" in requiring each party to bear
its own loss resulting or arising from mutual fault or delay (compensation morae). 18
Petitioner Hi-Precision now asks this Court to set aside the Award, contending basically that it was the contractor Steel Builders who had
defaulted on its contractual undertakings and so could not be the injured party and should not be allowed to recover any losses it may have
incurred in the project. Petitioner Hi-Precision insists it is still entitled to damages, and claims that the Arbitral Tribunal committed grave
abuse of discretion when it allowed certain claims by Steel Builders and offset them against claims of Hi-Precision.
A preliminary point needs to be made. We note that the Arbitral Tribunal has not been impleaded as a respondent in the Petition at bar.
The CIAC has indeed been impleaded; however, the Arbitral Award was not rendered by the CIAC, but rather by the Arbitral Tribunal.
Moreover, under Section 20 of Executive Order No. 1008, dated 4 February 1985, as amended, it is the Arbitral Tribunal, or the single
Arbitrator, with the concurrence of the CIAC, which issues the writ of execution requiring any sheriff or other proper officer to execute the
award. We consider that the Arbitral Tribunal which rendered the Award sought to be reviewed and set aside, should be impleaded even
though the defense of its Award would presumably have to be carried by the prevailing party.
Petitioner Hi-Precision apparently seeks review of both under Rule 45 and Rule 65 of the Rules of Court. 19 We do not find it necessary to
rule which of the two: a petition for review under Rule 45 or a petition for certiorari under Rule 65 — is necessary under Executive Order
No. 1008, as amended; this issue was, in any case, not squarely raised by either party and has not been properly and adequately litigated.
In its Petition, Hi-Precision purports to raise "legal issues," and in presenting these issues, prefaced each with a creative formula:
(1)
The public respondent [should be the "Arbitral Tribunal'] committed serious error in law, if not grave abuse of discretion,
when it failed to strictly apply Article 1191, New Civil Code, against the
contractor . . .;
(2)
The public respondent committee serious error in law, if not grave abuse of discretion, when it failed to rule in favor of
the owner, now petitioner herein, all the awards it claimed on arbitration, and when it nonetheless persisted in its
awards of damages in favor of the
respondent. . . .;
(3)
The public respondent committed serious error in law, if not grave abuse of discretion, for its abject failure to apply the
doctrine of waiver, estoppel against the contractor, the private respondent herein, when it agreed on November 16,
1990 to award termination of the contract and the owner's takeover of the project . . .;
(4)
The public respondent committed serious error in law, if not grave abuse of discretion, when it did not enforce the law
between the parties, the "technical specification[s]" which is one of the contract documents, particularly to par. (a), sub-
part 3.01, part 3, Sec. 2b, which expressly requires that major site work activities like stripping, removal and stockpiling
of top soil shall be done "prior to the start of regular excavation or backfiling work", the principal issue in arbitration
being non-compliance with the contract documents;
(5)
The public respondent committed serious error in law, if not grave abuse of discretion, when it found, in the May 13,
1993 Order, the petitioner "guilty of estoppel" although it is claimed that the legal doctrine of estoppel does not apply
with respect to the required written formalities in the issuance of change order . . .;
(6)
The exceptional circumstances in Remalante vs. Tibe, 158 SCRA 138, where the Honorable Supreme Court may review
findings of facts, are present in the instant case, namely; (a) when the inference made is manifestly absurd, mistaken or
impossible (Luna vs. Linatoc, 74 Phil. 15); (2) when there is grave abuse of discretion in the appreciation of facts (Buyco
vs. People, 95 Phil. 253); (3) when the judgment is premised on a misapprehension of facts (De la Cruz v. Sosing, 94 Phil.
26 and Castillo vs. CA, 124 SCRA 808); (4) when the findings of fact are conflicting (Casica v. Villaseca, 101 Phil. 1205); (5)
when the findings are contrary to the admissions of the parties (Evangelista v. Alto Surety, 103 Phil. 401), and therefore,
the findings of facts of the public respondent in the instant case may be reviewed by the Honorable Supreme
Court. 20 (Emphasis partly applied and partly in the original)
From the foregoing, petitioner Hi-Precision may be seen to be making two (2) basic arguments:
(a) Petitioner asks this Court to correct legal errors committed by the Arbitral Tribunal, which at the same time constitute
grave abuse of discretion amounting to lack of jurisdiction on the part of the Arbitral Tribunal; and
(b) Should the supposed errors petitioner asks us to correct be characterized as errors of fact, such factual errors should
nonetheless be reviewed because there was "grave abuse of discretion" in the misapprehension of facts on the part of
the Arbitral Tribunal.
Executive Order No. 1008, as amended, provides, in its Section 19, as follows:
Sec. 19. Finality of Awards. — The arbitral award shall be binding upon the parties. It shall be final and inappealable
except on questions of law which shall be appealable to the Supreme Court.
Section 19 makes it crystal clear that questions of fact cannot be raised in proceedings before the Supreme Court — which is not a
trier of facts — in respect of an arbitral award rendered under the aegis of the CIAC. Consideration of the animating purpose of
voluntary arbitration in general, and arbitration under the aegis of the CIAC in particular, requires us to apply rigorously the above
principle embodied in Section 19 that the Arbitral Tribunal's findings of fact shall be final and inappealable.
Voluntary arbitration involves the reference of a dispute to an impartial body, the members of which are chosen by the parties themselves,
which parties freely consent in advance to abide by the arbitral award issued after proceedings where both parties had the opportunity to
be heard. The basic objective is to provide a speedy and inexpensive method of settling disputes by allowing the parties to avoid the
formalities, delay, expense and aggravation which commonly accompany ordinary litigation, especially litigation which goes through the
entire hierarchy of courts. Executive Order No. 1008 created an arbitration facility to which the construction industry in the Philippines can
have recourse. The Executive Order was enacted to encourage the early and expeditious settlement of disputes in the construction
industry, a public policy the implementation of which is necessary and important for the realization of national development goals. 21
Aware of the objective of voluntary arbitration in the labor field, in the construction industry, and in any other area for that matter, the
Court will not assist one or the other or even both parties in any effort to subvert or defeat that objective for their private purposes. The
Court will not review the factual findings of an arbitral tribunal upon the artful allegation that such body had "misapprehended the facts"
and will not pass upon issues which are, at bottom, issues of fact, no matter how cleverly disguised they might be as "legal questions." The
parties here had recourse to arbitration and chose the arbitrators themselves; they must have had confidence in such arbitrators. The Court
will not, therefore, permit the parties to relitigate before it the issues of facts previously presented and argued before the Arbitral Tribunal,
save only where a very clear showing is made that, in reaching its factual conclusions, the Arbitral Tribunal committed an error so egregious
and hurtful to one party as to constitute a grave abuse of discretion resulting in lack or loss of jurisdiction. 22 Prototypical examples would
be factual conclusions of the Tribunal which resulted in deprivation of one or the other party of a fair opportunity to present its position
before the Arbitral Tribunal, and an award obtained through fraud or the corruption of arbitrators. 23 Any other, more relaxed, rule would
result in setting at naught the basic objective of a voluntary arbitration and would reduce arbitration to a largely inutile institution.
Examination of the Petition at bar reveals that it is essentially an attempt to re-assert and re-litigate before this Court the detailed or
itemized factual claims made before the Arbitral Tribunal under a general averment that the Arbitral Tribunal had "misapprehended the
facts" submitted to it. In the present Petition, too, Hi-Precision claims that the Arbitral Tribunal had committed grave abuse of discretion
amounting to lack of jurisdiction in reaching its factual and legal conclusions.
The first "legal issue" submitted by the Petition is the claimed misapplication by the Arbitral Tribunal of the first and second paragraphs of
Article 1911 of the Civil Code. 24 Article 1191 reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages
in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with
articles 1385 and 1388 and the Mortgage Law.
Hi-Precision contends energetically that it is the injured party and that Steel Builders was the obligor who did not comply with what was
incumbent upon it, such that Steel Builders was the party in default and the entity guilty of negligence and delay. As the injured party, Hi-
Precision maintains that it may choose between the fulfillment or rescission of the obligation in accordance with Article 1191, and is
entitled to damages in either case. Thus, Hi-Precision continues, when the contractor Steel Builders defaulted on the 153rd day of the
original contract period, Hi-Precision opted for specific performance and gave Steel Builders a 30-day extension period with which to
complete the project.
What petitioner Hi-Precision, in its above argument, disregards is that the determination of whether Hi-Precision or Steel Builders was the
"injured party" is not to be resolved by an application of Article 1191. That determination is eminently a question of fact, for it requires
ascertainment and identification of which the two (2) contending parties had first failed to comply with what is incumbent upon it. In other
words, the supposed misapplication of Article 1191, while ostensibly a "legal issue," is ultimately a question of fact, i.e., the determination
of the existence or non-existence of a fact or set of facts in respect of which Article 1191 may be properly applied. Thus, to ask this Court to
correct a claimed misapplication or non-application of Article 1191 is to compel this Court to determine which of the two (2) contending
parties was the "injured party" or the "first infractor." As noted earlier, the Arbitral Tribunal after the prolonged arbitration proceeding, was
unable to make that factual determination and instead concluded that both parties had committed breaches of their respective obligations.
We will not review, and much less reverse, that basic factual finding of the Arbitral Tribunal.
A second "legal issue" sought to be raised by petitioner Hi-Precision relates to the supposed failure of the Arbitral Tribunal to apply the
doctrines of estoppel and waiver as against Steel Builders. 25 The Arbitral Tribunal, after declaring that the parties were mutually at fault,
proceeded to enumerate the faults of each of the parties. One of the faults attributed to petitioner Hi-Precision is that it had failed to give
the contractor Steel Builders the required 15-day notice for termination of the contract. 26 This was clearly a finding of fact on the part of
the Tribunal, supported by the circumstance that per the record, petitioner had offered no proof that it had complied with such 15-day
notice required under Article 28.01 of the General Conditions of Contract forming part of the Contract Documents. Petitioner Hi-Precision's
argument is that a written Agreement dated 16 November 1990 with Steel Builders concerning the take over of the project by Hi-Precision,
constituted waiver on the part of the latter of its right to a 15-day notice of contract termination. Whether or not that Agreement dated 16
November 1990 (a document not submitted to this Court) is properly characterized as constituting waiver on the part of Steel Builders, may
be conceded to be prima facie a question of law; but, if it is, and assuming arguendo that the Arbitral Tribunal had erred in resolving it, that
error clearly did not constitute a grave abuse of discretion resulting in lack or loss of jurisdiction on the part of the Tribunal.
A third "legal issue" posed by Hi-Precision relates to the supposed failure on the part of the Arbitral Tribunal "to uphold the supremacy of
'the
law between the parties' and enforce it against private respondent [Steel Builders]." 27 The "law between that parties" here involved is the
"Technical Specifications" forming part of the Contract Documents. Hi-Precision asserts that the Arbitral Tribunal did not uphold the "law
between the parties," but instead substituted the same with "its [own] absurd inference and 'opinion' on mud." Here again, petitioner is
merely disguising a factual question as a "legal issue," since petitioner is in reality asking this Court to review the physical operations
relating, e.g., to site preparation carried out by the contractor Steel Builders and to determine whether such operations were in accordance
with the Technical Specifications of the project. The Arbitral Tribunal resolved Hi-Precision's claim by finding that Steel Builders had
complied substantially with the Technical Specifications. This Court will not pretend that it has the technical and engineering capability to
review the resolution of that factual issue by the Arbitral Tribunal.
Finally, the Petition asks this Court to "review serious errors in the findings of fact of the [Arbitral Tribunal]." 28 In this section of its Petition,
Hi-Precision asks us to examine each item of its own claims which the Arbitral Tribunal had rejected in its Award, and each claim of the
contractor Steel Builders which the Tribunal had granted. In respect of each item of the owner's claims and each item of the contractor's
claims, Hi-Precision sets out its arguments, to all appearances the same arguments it had raised before the Tribunal. As summarized in the
Arbitral Award, Contractor's Claims were as follows:
12.1. Unpaid Progress Billing 1,812,706.95
12.2. Change Order 1 0.00
12.3. -do- 2 10,014.00
12.4. -do- 3 320,000.00
12.5. -do- 4 112,300.70
12.6. -do- 5 398,398.00
12.7. -do- 6 353,050.38
12.8. -do- 7 503,836.53
12.9. -do- 8 216,138.75
12.10. -do- 9 101,621.40
12.11. -do- 10 7,200.00
12.12. -do- 11 0.00
12.13. -do- 12 7,800.00
12.14. -do- 13 49,250.00
12.15. -do- 14 167,952.00
12.16. -do- 15 445,600.00
12.17. -do- 16 92,457.30
12.18. -do- 17 1,500.00
12.19. 20,240.00
12.20. 63,518.00
12.21. 0.00
12.22. 0.00
12.23. 0.00
12.24. 0.00
12.25. 0.00
12.26. 730,201.57
12.27. 1,130,722.70
12.28. 0.00
12.29. 273,991.00
12.30. 0.00
———————
12.31. 7,318,499.28 29
=============
Upon the other hand, the petitioner's claims we are asked to review and grant are summarized as follows:
1. Actual Damages
Advance Downpayment
[at] signing of Contract
which is subject to 40%
deduction every progress
billing (40% of Contract Price) P8,406,000.00
Progress Billings 5,582,585.55
Advances made to Lim Kim
a) prior to take-over 392,781.45
b) after the take-over
Civil Works 1,158,513.88
Materials 4,213,318.72
Labor 2,155,774.79
Equipment Rental 1,448,208.90
———————
P8,974,816.45
Total Amount Paid for Construction 23,650,183.00
Less: Contract Price (21,000,000.00)
IA Excess of amount paid
over contract price 2,650,163.29
IB Other items due from Lim
Kim Steel Builders
a. Amount not yet deducted
from Downpayment due
 to non-completion of Project
(P24.1326%) 2,027,138.40
b. Due to Huey Commercial
used for HSCI Project 51,110.40
IC Additional construction expenses
a. Increases in prices since Oct. 5,272,096.81
b. Cost of money of (a) 873,535.49
ID Installation of machinery
a. Foreign exchange loss 11,565,048.37
b. Cost of money (a) 2,871,987.01
I[E] Raw Materials
a. Foreign exchange loss 4,155,982.18
b. Cost of money (a) 821,242.72
c. Additional import levy of 5% 886,513.33
d. Cost of money (c) 170,284.44
e. Cost of money on marginal
deposit on Letter of Credit 561,195.25
IF Cost of money on holding to CRC INTY 3,319,609.63
Total Actual Damages 35,295,927.32
2. Liquidated Damages 2,436,000.00
3. Attorney's Fees 500,000.00
———————
P38,231,927.3230
=============
We consider that in asking this Court to go over each individual claim submitted by it and each individual countering claim submitted by
Steel Builders to the Arbitral Tribunal, petitioner Hi-Precision is asking this Court to pass upon claims which are either clearly and directly
factual in nature or require previous determination of factual issues. This upon the one hand. Upon the other hand, the Court considers
that petitioner Hi-Precision has failed to show any serious errors of law amounting to grave abuse of discretion resulting in lack of
jurisdiction on the part of the Arbitral Tribunal, in either the methods employed or the results reached by the Arbitral Tribunal, in disposing
of the detailed claims of the respective parties.
WHEREFORE, for all the foregoing, the Petition is hereby DISMISSED for lack of merit. Costs against petitioner.
SO ORDERED.

G.R. No. 115412 November 19, 1999

HOME BANKERS SAVINGS AND TRUST COMPANY, petitioner,
vs.
COURT OF APPEALS and FAR EAST BANK & TRUST CO., INC. respondents.
BUENA, J.:
This appeal by certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the decision 1 of the Court of Appeals 2 dated
January 21, 1994 in CA-G.R. SP No. 29725, dismissing the petition for certiorari filed by petitioner to annul the two (2) orders issued by the
Regional Trial Court of Makati 3 in Civil Case No. 92-145, the first, dated April 30, 1992, denying petitioner's motion to dismiss and the
second, dated October 1, 1992 denying petitioner's motion for reconsideration thereof.
The pertinent facts may be briefly stated as follows: Victor Tancuan, one of the defendants in Civil Case No. 92-145, issued Home Bankers
Savings and Trust Company (HBSTC) check No. 193498 for P25,250,000.00 while Eugene Arriesgado issued Far East Bank and Trust
Company (FEBTC) check Nos. 464264, 464272 and 464271 for P8,600,000.00, P8,500,000.00 and P8,100,000.00, respectively, the three
checks amounting to P25,200,000.00. Tancuan and Arriesgado exchanged each other's checks and deposited them with their respective
banks for collection. When FEBTC presented Tancuan's HBSTC check for clearing, HBSTC dishonored it for being "Drawn Against Insufficient
Funds." On October 15, 1991, HBSTC sent Arriesgado's three (3) FEBTC checks through the Philippine Clearing House Corporation (PCHC) to
FEBTC but was returned on October 18, 1991 as "Drawn Against Insufficient Funds." HBSTC received the notice of dishonor on October 21,
1991 but refused to accept the checks and on October 22, 1991, returned them to FEBTC through the PCHC for the reason "Beyond
Reglementary Period," implying that HBSTC already treated the three (3) FEBTC checks as cleared and allowed the proceeds thereof to be
withdrawn. 4 FEBTC demanded reimbursement for the returned checks and inquired from HBSTC whether it had permitted any withdrawal
of funds against the unfunded checks and if so, on what date. HBSTC, however, refused to make any reimbursement and to provide FEBTC
with the needed information.
Thus, on December 12, 1991, FEBTC submitted the dispute for arbitration before the PCHC Arbitration Committee, 5 under the PCHC's
Supplementary Rules on Regional Clearing to which FEBTC and HBSTC are bound as participants in the regional clearing operations
administered by the PCHC. 6
On January 17, 1992, while the arbitration proceeding was still pending, FEBTC filed an action for sum of money and damages with
preliminary
attachment 7 against HBSTC, Robert Young, Victor Tancuan and Eugene Arriesgado with the Regional Trial Court of Makati, Branch 133. A
motion to dismiss was filed by HBSTC claiming that the complaint stated no cause of action and accordingly ". . . should be dismissed
because it seeks to enforce an arbitral award which as yet does not exist." 8 The trial court issued an omnibus order dated April 30, 1992
denying the motion to dismiss and an order dated October 1, 1992 denying the motion for reconsideration.
On December 16, 1992, HBSTC filed a petition for certiorari with the respondent Court of Appeals contending that the trial court acted with
grave abuse of discretion amounting to lack of jurisdiction in denying the motion to dismiss filed by HBSTC.
In a Decision 9 dated January 21, 1994, the respondent court dismissed the petition for lack of merit and held that "FEBTC can reiterate its
cause of action before the courts which it had already raised in the arbitration case" 10 after finding that the complaint filed by FEBTC ". . .
seeks to collect a sum of money from HBT [HBSTC] and not to enforce or confirm an arbitral award." 11 The respondent court observed that
"[i]n the Complaint, FEBTC applied for the issuance of a writ of preliminary attachment over HBT's [HBSTC] property" 12 and citing section
14 of Republic Act No. 876, otherwise known as the Arbitration Law, maintained that "[n]ecessarily, it has to reiterate its main cause of
action for sum of money against HBT [HBSTC]," 13 and that "[t]his prayer for conservatory relief [writ of preliminary attachment] satisfies
the requirement of a cause of action which FEBTC may pursue in the courts." 14
Furthermore, the respondent court ruled that based on section 7 of the Arbitration Law and the cases of National Union Fire Insurance
Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc., 15 and Bengson vs. Chan, 16 ". . . when there is a condition requiring prior submission
to arbitration before the institution of a court action, the complaint is not to be dismissed but should be suspended for
arbitration." 17 Finding no merit in HBSTC's contention that section 7 of the Arbitration Law ". . . contemplates a situation in which a party to
an arbitration agreement has filed a court action without first resorting to arbitration, while in the case at bar, FEBTC has initiated
arbitration proceedings before filing a court action," the respondent court held that ". . . if the absence of a prior arbitration may stay court
action, so too and with more reason, should an arbitration already pending as obtains in this case stay the court action. A party to a
pending arbitral proceeding may go to court to obtain conservatory reliefs in connection with his cause of action although the disposal of
that action on the merits cannot as yet be obtained." 18 The respondent court discarded Puromines, Inc. vs. Court of Appeals, 19 stating that
". . . perhaps Puromines may have been decided on a different factual basis." 20
In the instant petition, 21 petitioner contends that first, "no party litigant can file a non-existent complaint," 22 arguing that ". . . one cannot
file a complaint in court over a subject that is undergoing arbitration." 23 Second, petitioner submits that "[s]ince arbitration is a special
proceeding by a clear provision of law, 24 the civil suit filed below is, without a shadow of doubt, barred by litis pendentia and should be
dismissed de plano insofar as HBSTC is concerned." 25 Third, petitioner insists that "[w]hen arbitration is agreed upon and suit is filed
without arbitration having been held and terminated, the case that is filed should be dismissed," 26 citing Associated Bank vs. Court of
Appeals, 27 Puromines, Inc. vs. Court of Appeals, 28 as and Ledesma vs. Court of Appeals. 29 Petitioner demurs that the Puromines ruling was
deliberately not followed by the respondent court which claimed that:
xxx xxx xxx
It would really be much easier for Us to rule to dismiss the complaint as the petitioner here seeks to do, following
Puromines. But with utmost deference to the Honorable Supreme Court, perhaps Puromines may have been decided on
a different factual basis.
xxx xxx xxx 30
Petitioner takes exception to FEBTC's contention that Puromines cannot modify or reverse the rulings in National Union Fire
Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc., 31 and Bengson vs. Chan, 32 where this Court suspended the
action filed pending arbitration, and argues that "[s]ound policy requires that the conclusion of whether a Supreme Court decision
has or has not reversed or modified [a] previous doctrine, should be left to the Supreme Court itself; until then, the latest
pronouncement should prevail." 33 Fourth, petitioner alleges that the writ of preliminary attachment issued by the trial court is
void considering that the case filed before it "is a separate action which cannot exist," 34 and ". . . there is even no need for the
attachment as far as HBSTC is concerned because such automatic debit/credit procedure 35 may be regarded as a security for the
transactions involved and, as jurisprudence confirms, one requirement in the issuance of an attachment [writ of preliminary
attachment] is that the debtor has no sufficient security." 36Petitioner asserts further that a writ of preliminary attachment is
unwarranted because no ground exists for its issuance. According to petitioner, ". . . the only allegations against it [HBSTC] are
that it refused to refund the amounts of the checks of FEBTC and that it knew about the fraud perpetrated by the other
defendants," 37which, at best, constitute only "incidental fraud" and not causal fraud which justifies the issuance of the writ of
preliminary attachment.
Private respondent FEBTC, on the other hand, contends that ". . . the cause of action for collection [of a sum of money] can coexist in the
civil suit and the arbitration [proceeding]" 38 citing section 7 of the Arbitration Law which provides for the stay of the civil action until an
arbitration has been had in accordance with the terms of the agreement providing for arbitration. Private respondent further asserts that
following section 4(3), article VIII 39 of the 1987 Constitution, the subsequent case of Puromines does not overturn the ruling in the earlier
cases of National Union Fire Insurance Company of Pittsburg vs. Stolt-Nielsen Philippines, Inc., 40 and Bengson vs. Chan, 41 hence, private
respondent concludes that the prevailing doctrine is that the civil action must be stayed rather than dismissed pending arbitration.
In this petition, the lone issue presented for the consideration of this Court is:
WHETHER OR NOT PRIVATE RESPONDENT WHICH COMMENCED AN ARBITRATION PROCEEDING UNDER THE AUSPICES
OF THE PHILIPPINE CLEARING HOUSE CORPORATION (PCHC) MAY SUBSEQUENTLY FILE A SEPARATE CASE IN COURT OVER
THE SAME SUBJECT MATTER OF ARBITRATION DESPITE THE PENDENCY OF THAT ARBITRATION, SIMPLY TO OBTAIN THE
PROVISIONAL REMEDY OF ATTACHMENT AGAINST THE BANK THE ADVERSE PARTY IN THE ARBITRATION PROCEEDING. 42
We find no merit in the petition. Section 14 of Republic Act 876, otherwise known as the Arbitration Law, allows any party to the arbitration
proceeding to petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in
arbitration, thus:
 Sec. 14. Subpoena and subpoena duces tecum. — Arbitrators shall have the power to require any person to attend a
hearing as a witness. They shall have the power to subpoena witnesses and documents when the relevancy of the
testimony and the materiality thereof has been demonstrated to the arbitrators. Arbitrators may also require the
retirement of any witness during the testimony of any other witness. All of the arbitrators appointed in any controversy
must attend all the hearings in that matter and hear all the allegations and proofs of the parties; but an award by the
majority of them is valid unless the concurrence of all of them is expressly required in the submission or contract to
arbitrate. The arbitrator or arbitrators shall have the power at any time, before rendering the award, without prejudice to
the rights of any party to petition the court to take measures to safeguard and/or conserve any matter which is the
subject of the dispute in arbitration. (emphasis supplied)
Petitioner's exposition of the foregoing provision deserves scant consideration. Section 14 simply grants an arbitrator the power to issue
subpoena and subpoena duces tecum at any time before rendering the award. The exercise of such power is without prejudice to the right
of a party to file a petition in court to safeguard any matter which is the subject of the dispute in arbitration. In the case at bar, private
respondent filed an action for a sum of money with prayer for a writ of preliminary attachment. Undoubtedly, such action involved the
same subject matter as that in arbitration, i.e., the sum of P25,200,000.00 which was allegedly deprived from private respondent in what is
known in banking as a "kiting scheme." However, the civil action was not a simple case of a money claim since private respondent has
included a prayer for a writ of preliminary attachment, which is sanctioned by section 14 of the Arbitration Law.
Petitioner cites the cases of Associated Bank vs. Court of Appeals, 43 Puromines, Inc. vs. Court of Appeals, 44 and Ledesma vs. Court of
Appeals 45 in contending that "[w]hen arbitration is agreed upon and suit is filed without arbitration having been held and terminated, the
case that is filed should be dismissed." 46 However, the said cases are not in point. In Associated Bank, we affirmed the dismissal of the
third-party complaint filed by Associated Bank against Philippine Commercial International Bank, Far East Bank & Trust Company, Security
Bank and Trust Company, and Citytrust Banking Corporation for lack of jurisdiction, it being shown that the said parties were bound by the
Clearing House Rules and Regulations on Arbitration of the Philippine Clearing House Corporation. In Associated Bank, we declared that:
. . . . . .. Under the rules and regulations of the Philippine Clearing House Corporation (PCHC), the mere act of
participation of the parties concerned in its operations in effect amounts to a manifestation of agreement by the parties
to abide by its rules and regulations. As a consequence of such participation, a party cannot invoke the jurisdiction of the
courts over disputes and controversies which fall under the PCHC Rules and Regulations without first going through the
arbitration processes laid out by the body. 47 (emphasis supplied)
And thus we concluded:
Clearly therefore, petitioner Associated Bank, by its voluntary participation and its consent to the arbitration rules cannot
go directly to the Regional Trial Court when it finds it convenient to do so. The jurisdiction of the PCHC under the rules
and regulations is clear, undeniable and is particularly applicable to all the parties in the third party complaint under
their obligation to first seek redress of their disputes and grievances with the PCHC before going to the trial
court. 48 (emphasis supplied)
Simply put, participants in the regional clearing operations of the Philippine Clearing House Corporation cannot bypass the arbitration
process laid out by the body and seek relief directly from the courts. In the case at bar, undeniably, private respondent has initiated
arbitration proceedings as required by the PCHC rules and regulations, and pending arbitration has sought relief from the trial court for
measures to safeguard and/or conserve the subject of the dispute under arbitration, as sanctioned by section 14 of the Arbitration Law,
and otherwise not shown to be contrary to the PCHC rules and regulations.
Likewise, in the case of Puromines, Inc. vs. Court of Appeals, 49 we have ruled that:
In any case, whether the liability of respondent should be based on the sales contract or that of the bill of lading, the
parties are nevertheless obligated to respect the arbitration provisions on the sales contract and/or bill of lading.
Petitioner being a signatory and party to the sales contract cannot escape from his obligation under the arbitration
clause as stated therein.
In Puromines, we found the arbitration clause stated in the sales contract to be valid and applicable, thus, we ruled that the
parties, being signatories to the sales contract, are obligated to respect the arbitration provisions on the contract and cannot
escape from such obligation by filing an action for breach of contract in court without resorting first to arbitration, as agreed upon
by the parties.
At this point, we emphasize that arbitration, as an alternative method of dispute resolution, is encouraged by this Court. Aside from
unclogging judicial dockets, it also hastens solutions especially of commercial disputes. 50 The Court looks with favor upon such amicable
arrangement and will only interfere with great reluctance to anticipate or nullify the action of the arbitrator. 51
WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of the court a quo is AFFIRMED.
SO ORDERED.

G.R. No. 141833 March 26, 2003

LM POWER ENGINEERING CORPORATION, petitioner,
vs.
CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent.
PANGANIBAN, J.:
Alternative dispute resolution methods or ADRs -- like arbitration, mediation, negotiation and conciliation -- are encouraged by the
Supreme Court. By enabling parties to resolve their disputes amicably, they provide solutions that are less time-consuming, less tedious,
less confrontational, and more productive of goodwill and lasting relationships. 1
The Case
Before us is a Petition for Review on Certiorari2 under Rule 45 of the Rules of Court, seeking to set aside the January 28, 2000 Decision of
the Court of Appeals3 (CA) in CA-GR CV No. 54232. The dispositive portion of the Decision reads as follows:
"WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The parties are ORDERED to present their dispute to
arbitration in accordance with their Sub-contract Agreement. The surety bond posted by [respondent] is [d]ischarged." 4
The Facts
On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent Capitol Industrial Construction Groups Inc. entered
into a "Subcontract Agreement" involving electrical work at the Third Port of Zamboanga. 5
On April 25, 1985, respondent took over some of the work contracted to petitioner. 6 Allegedly, the latter had failed to finish it because of
its inability to procure materials.7
Upon completing its task under the Contract, petitioner billed respondent in the amount of P6,711,813.90. 8Contesting the accuracy of the
amount of advances and billable accomplishments listed by the former, the latter refused to pay. Respondent also took refuge in the
termination clause of the Agreement.9 That clause allowed it to set off the cost of the work that petitioner had failed to undertake -- due to
termination or take-over -- against the amount it owed the latter.
Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati (Branch 141) a Complaint 10 for the collection of the
amount representing the alleged balance due it under the Subcontract. Instead of submitting an Answer, respondent filed a Motion to
Dismiss,11 alleging that the Complaint was premature, because there was no prior recourse to arbitration.
In its Order12 dated September 15, 1987, the RTC denied the Motion on the ground that the dispute did not involve the interpretation or
the implementation of the Agreement and was, therefore, not covered by the arbitral clause. 13
After trial on the merits, the RTC14 ruled that the take-over of some work items by respondent was not equivalent to a termination, but a
mere modification, of the Subcontract. The latter was ordered to give full payment for the work completed by petitioner.
Ruling of the Court of Appeals
On appeal, the CA reversed the RTC and ordered the referral of the case to arbitration. The appellate court held as arbitrable the issue of
whether respondent’s take-over of some work items had been intended to be a termination of the original contract under Letter "K" of the
Subcontract. It ruled likewise on two other issues: whether petitioner was liable under the warranty clause of the Agreement, and whether
it should reimburse respondent for the work the latter had taken over. 15
Hence, this Petition.16
The Issues
In its Memorandum, petitioner raises the following issues for the Court’s consideration:
"A
Whether or not there exist[s] a controversy/dispute between petitioner and respondent regarding the interpretation and implementation
of the Sub-Contract Agreement dated February 22, 1983 that requires prior recourse to voluntary arbitration;
"B
In the affirmative, whether or not the requirements provided in Article III 1 of CIAC Arbitration Rules regarding request for arbitration ha[ve]
been complied with[.]"17
The Court’s Ruling
The Petition is unmeritorious.
First Issue:
Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the interpretation or the implementation of the Agreement. Thus, without having to
resort to prior arbitration, it is entitled to collect the value of the services it rendered through an ordinary action for the collection of a sum
of money from respondent. On the other hand, the latter contends that there is a need for prior arbitration as provided in the Agreement.
This is because there are some disparities between the parties’ positions regarding the extent of the work done, the amount of advances
and billable accomplishments, and the set off of expenses incurred by respondent in its take-over of petitioner’s work.
We side with respondent. Essentially, the dispute arose from the parties’ ncongruent positions on whether certain provisions of their
Agreement could be applied to the facts. The instant case involves technical discrepancies that are better left to an arbitral body that has
expertise in those areas. In any event, the inclusion of an arbitration clause in a contract does not ipso facto divest the courts of jurisdiction
to pass upon the findings of arbitral bodies, because the awards are still judicially reviewable under certain conditions. 18
In the case before us, the Subcontract has the following arbitral clause:
"6. The Parties hereto agree that any dispute or conflict as regards to interpretation and implementation of this Agreement which
cannot be settled between [respondent] and [petitioner] amicably shall be settled by means of arbitration x x x."19
Clearly, the resolution of the dispute between the parties herein requires a referral to the provisions of their Agreement. Within the scope
of the arbitration clause are discrepancies as to the amount of advances and billable accomplishments, the application of the provision on
termination, and the consequent set-off of expenses.
A review of the factual allegations of the parties reveals that they differ on the following questions: (1) Did a take-over/termination occur?
(2) May the expenses incurred by respondent in the take-over be set off against the amounts it owed petitioner? (3) How much were the
advances and billable accomplishments?
The resolution of the foregoing issues lies in the interpretation of the provisions of the Agreement. According to respondent, the take-over
was caused by petitioner’s delay in completing the work. Such delay was in violation of the provision in the Agreement as to time schedule:
"G. TIME SCHEDULE
 "[Petitioner] shall adhere strictly to the schedule related to the WORK and complete the WORK within the period set forth in
Annex C hereof. NO time extension shall be granted by [respondent] to [petitioner] unless a corresponding time extension is
granted by [the Ministry of Public Works and Highways] to the CONSORTIUM."20
Because of the delay, respondent alleges that it took over some of the work contracted to petitioner, pursuant to the following provision in
the Agreement:
"K. TERMINATION OF AGREEMENT
"[Respondent] has the right to terminate and/or take over this Agreement for any of the following causes:
xxx xxx xxx
‘6. If despite previous warnings by [respondent], [petitioner] does not execute the WORK in accordance with this
Agreement, or persistently or flagrantly neglects to carry out [its] obligations under this Agreement."21
Supposedly, as a result of the "take-over," respondent incurred expenses in excess of the contracted price. It sought to set off those
expenses against the amount claimed by petitioner for the work the latter accomplished, pursuant to the following provision:
"If the total direct and indirect cost of completing the remaining part of the WORK exceed the sum which would have been
payable to [petitioner] had it completed the WORK, the amount of such excess [may be] claimed by [respondent] from either of
the following:
‘1. Any amount due [petitioner] from [respondent] at the time of the termination of this Agreement." 22
The issue as to the correct amount of petitioner’s advances and billable accomplishments involves an evaluation of the manner in which the
parties completed the work, the extent to which they did it, and the expenses each of them incurred in connection therewith. Arbitrators
also need to look into the computation of foreign and local costs of materials, foreign and local advances, retention fees and letters of
credit, and taxes and duties as set forth in the Agreement. These data can be gathered from a review of the Agreement, pertinent portions
of which are reproduced hereunder:
"C. CONTRACT PRICE AND TERMS OF PAYMENT
xxx xxx xxx
"All progress payments to be made by [respondent] to [petitioner] shall be subject to a retention sum of ten percent (10%) of the
value of the approved quantities. Any claims by [respondent] on [petitioner] may be deducted by [respondent] from the progress
payments and/or retained amount. Any excess from the retained amount after deducting [respondent’s] claims shall be released
by [respondent] to [petitioner] after the issuance of [the Ministry of Public Works and Highways] of the Certificate of Completion
and final acceptance of the WORK by [the Ministry of Public Works and Highways].
xxx xxx xxx
"D. IMPORTED MATERIALS AND EQUIPMENT
"[Respondent shall open the letters of credit for the importation of equipment and materials listed in Annex E hereof after the
drawings, brochures, and other technical data of each items in the list have been formally approved by [the Ministry of Public
Works and Highways]. However, petitioner will still be fully responsible for all imported materials and equipment.
"All expenses incurred by [respondent], both in foreign and local currencies in connection with the opening of the letters of credit
shall be deducted from the Contract Prices.
xxx xxx xxx
"N. OTHER CONDITIONS
xxx xxx xxx
"2. All customs duties, import duties, contractor’s taxes, income taxes, and other taxes that may be required by any government
agencies in connection with this Agreement shall be for the sole account of [petitioner]."23
Being an inexpensive, speedy and amicable method of settling disputes,24 arbitration -- along with mediation, conciliation and negotiation --
is encouraged by the Supreme Court. Aside from unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially
of the commercial kind.25 It is thus regarded as the "wave of the future" in international civil and commercial disputes. 26 Brushing aside a
contractual agreement calling for arbitration between the parties would be a step backward.27
Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods, courts should liberally construe
arbitration clauses. Provided such clause is susceptible of an interpretation that covers the asserted dispute, an order to arbitrate should be
granted.28 Any doubt should be resolved in favor of arbitration.29
Second Issue:
Prior Request for Arbitration
According to petitioner, assuming arguendo that the dispute is arbitrable, the failure to file a formal request for arbitration with the
Construction Industry Arbitration Commission (CIAC) precluded the latter from acquiring jurisdiction over the question. To bolster its
position, petitioner even cites our ruling in Tesco Services Incorporated v. Vera.30 We are not persuaded.
Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration indeed required the submission of a request for
arbitration, as follows:
"SECTION. 1. Submission to Arbitration -- Any party to a construction contract wishing to have recourse to arbitration by the
Construction Industry Arbitration Commission (CIAC) shall submit its Request for Arbitration in sufficient copies to the Secretariat
of the CIAC; PROVIDED, that in the case of government construction contracts, all administrative remedies available to the parties
must have been exhausted within 90 days from the time the dispute arose."
Tesco was promulgated by this Court, using the foregoing provision as reference.
On the other hand, Section 1 of Article III of the new Rules of Procedure Governing Construction Arbitration has dispensed with this
requirement and recourse to the CIAC may now be availed of whenever a contract "contains a clause for the submission of a future
controversy to arbitration," in this wise:
"SECTION 1. Submission to CIAC Jurisdiction — An arbitration clause in a construction contract or a submission to arbitration of a
construction dispute shall be deemed an agreement to submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution or arbitral body in such contract or submission. When a
contract contains a clause for the submission of a future controversy to arbitration, it is not necessary for the parties to enter into
a submission agreement before the claimant may invoke the jurisdiction of CIAC."
The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. 2-91 and 3-93.31
The difference in the two provisions was clearly explained in China Chang Jiang Energy Corporation (Philippines) v. Rosal Infrastructure
Builders et al.32 (an extended unsigned Resolution) and reiterated in National Irrigation Administration v. Court of Appeals,33 from which we
quote thus:
"Under the present Rules of Procedure, for a particular construction contract to fall within the jurisdiction of CIAC, it is merely
required that the parties agree to submit the same to voluntary arbitration Unlike in the original version of Section 1, as applied in
the Tesco case, the law as it now stands does not provide that the parties should agree to submit disputes arising from their
agreement specifically to the CIAC for the latter to acquire jurisdiction over the same. Rather, it is plain and clear that as long as
the parties agree to submit to voluntary arbitration, regardless of what forum they may choose, their agreement will fall within
the jurisdiction of the CIAC, such that, even if they specifically choose another forum, the parties will not be precluded from
electing to submit their dispute before the CIAC because this right has been vested upon each party by law, i.e., E.O. No. 1008."34
Clearly, there is no more need to file a request with the CIAC in order to vest it with jurisdiction to decide a construction dispute.
The arbitral clause in the Agreement is a commitment on the part of the parties to submit to arbitration the disputes covered therein.
Because that clause is binding, they are expected to abide by it in good faith.35 And because it covers the dispute between the parties in the
present case, either of them may compel the other to arbitrate.36
Since petitioner has already filed a Complaint with the RTC without prior recourse to arbitration, the proper procedure to enable the CIAC
to decide on the dispute is to request the stay or suspension of such action, as provided under RA 876 [the Arbitration Law]. 37
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.

G.R. No. 152878 May 5, 2003

RIZAL COMMERCIAL BANKING CORPORATION, petitioner,
vs.
MAGWIN MARKETING CORPORATION, NELSON TIU, BENITO SY and ANDERSON UY, respondents.
BELLOSILLO, J.:
WE ARE PERTURBED that this case should drag this Court in the banal attempts to decipher the hazy and confused intent of the trial court
in proceeding with what would have been a simple, straightforward and hardly arguable collection case. Whether the dismissal without
prejudice for failure to prosecute was unconditionally reconsidered, reversed and set aside to reinstate the civil case and have it ready for
pre-trial are matters which should have been clarified and resolved in the first instance by the court a quo. Unfortunately, this feckless
imprecision of the trial court became the soup stock of the parties and their lawyers to further delay the case below when they could have
otherwise put things in proper order efficiently and effectively.
On 4 March 1999 petitioner Rizal Commercial Banking Corporation (RCBC) filed a complaint for recovery of a sum of money with prayer for
a writ of preliminary attachment against respondents Magwin Marketing Corporation, Nelson Tiu, Benito Sy and Anderson Uy. 1 On 26 April
1999, the trial court issued a writ of attachment. 2 On 4 June 1999 the writ was returned partially satisfied since only a parcel of land
purportedly owned by defendant Benito Sy was attached.3 In the meantime, summons was served on each of the defendants, respondents
herein, who filed their respective answers, except for defendant Gabriel Cheng who was dropped without prejudice as party-defendant as
his whereabouts could not be located.4 On 21 September 1999 petitioner moved for an alias writ of attachment which on 18 January 2000
the court a quo denied.5
Petitioner did not cause the case to be set for pre-trial.6 For about six (6) months thereafter, discussions between petitioner and
respondents Magwin Marketing Corporation, Nelson Tiu, Benito Sy and Anderson Uy, as parties in Civil Case No. 99-518, were undertaken
to restructure the indebtedness of respondent Magwin Marketing Corporation.7 On 9 May 2000 petitioner approved a debt payment
scheme for the corporation which on 15 May 2000 was communicated to the latter by means of a letter dated 10 May 2000 for the
conformity of its officers, i.e., respondent Nelson Tiu as President/General Manager of Magwin Marketing Corporation and respondent
Benito Sy as Director thereof.8 Only respondent Nelson Tiu affixed his signature on the letter to signify his agreement to the terms and
conditions of the restructuring.9
On 20 July 2000 the RTC of Makati City, on its own initiative, issued an Order dismissing without prejudice Civil Case No. 99-518 for failure
of petitioner as plaintiff therein to "prosecute its action for an unreasonable length of time . . .." 10 On 31 July 2000 petitioner moved for
reconsideration of the Order by informing the trial court of respondents' unremitting desire to settle the case amicably through a loan
restructuring program.11 On 22 August 2000 petitioner notified the trial court of the acquiescence thereto of respondent Nelson Tiu as an
officer of Magwin Marketing Corporation and defendant in the civil case. 12
On 8 September 2000 the court a quo issued an Order reconsidering the dismissal without prejudice of Civil Case No. 99-518 -
Acting on plaintiff's "Motion for Reconsideration" of the Order dated 20 July 2000 dismissing this case for failure to prosecute, it
appearing that there was already conformity to the restructuring of defendants' indebtedness with plaintiff by defendant Nelson
 Tiu, President of defendant corporation per "Manifestation and Motion" filed by plaintiff on 22 August 2000, there being
probability of settlement among the parties, as prayed for, the Order dated 20 July 2000 is hereby set aside.
Plaintiff is directed to submit the compromise agreement within 15 days from receipt hereof. Failure on the part of plaintiff to
submit the said agreement shall cause the imposition of payment of the required docket fees for re-filing of this case.13
On 27 July 2000 petitioner filed in Civil Case No. 99-518 a Manifestation and Motion to Set Case for Pre-Trial Conference alleging that "[t]o
date, only defendant Nelson Tiu had affixed his signature on the May 10, 2000 letter which informed the defendants that plaintiff [herein
petitioner] already approved defendant Magwin Marketing Corporations request for restructuring of its loan obligations to plaintiff but
subject to the terms and conditions specified in said letter." 14 This motion was followed on 5 October 2000 by petitioner's Supplemental
Motion to Plaintiffs Manifestation and Motion to Set Case for Pre-Trial Conference affirming that petitioner "could not submit a
compromise agreement because only defendant Nelson Tiu had affixed his signature on the May 10, 2000 letter . . .."15 Respondent
Anderson Uy opposed the foregoing submissions of petitioner while respondents Magwin Marketing Corporation, Nelson Tiu and Benito Sy
neither contested nor supported them.16
The trial court, in an undated Order (although a date was later inserted in the Order), denied petitioner's motion to calendar Civil Case No.
99-518 for pre-trial stating that -
Acting on plaintiff's [herein petitioner] "Manifestation and Motion to Set Case for Pre-Trial Conference," the "Opposition" filed by
defendant Uy and the subsequent "Supplemental Motion" filed by plaintiff; defendant Uy's "Opposition," and plaintiff's "Reply;"
for failure of the plaintiff to submit a compromise agreement pursuant to the Order dated 8 September 2000 plaintiff's motion to
set case for pre-trial conference is hereby denied.17
On 15 November 2000 petitioner filed its Notice of Appeal from the 8 September 2000 Order of the trial court as well as its
undated Order in Civil Case No. 99-518. On 16 November 2000 the trial court issued two (2) Orders, one of which inserted the date "6
November 2000" in the undated Order rejecting petitioner's motion for pre-trial in the civil case, and the other denying due course to
the Notice of Appeal on the ground that the "Orders dated 8 September 2000 and 6 November 2000 are interlocutory orders and therefore,
no appeal may be taken . . .."18
On 7 December 2000 petitioner elevated the Orders dated 8 September 2000, 6 November 2000 and 16 November 2000 of the trial court
to the Court of Appeals in a petition for certiorari under Rule 65 of the Rules of Civil Procedure.19 In the main, petitioner argued that the
court a quo had no authority to compel the parties in Civil Case No. 99-518 to enter into an amicable settlement nor to deny the holding of
a pre-trial conference on the ground that no compromise agreement was turned over to the court a quo.20
On 28 September 2001 the appellate court promulgated its Decision dismissing the petition for lack of merit and affirming the
assailed Orders of the trial court21 holding that -
. . . although the language of the September 8, 2000 Order may not be clear, yet, a careful reading of the same would clearly show
that the setting aside of the Order dated July 20, 2000 which dismissed petitioner's complaint . . . for failure to prosecute its action
for an unreasonable length of time is dependent on the following conditions, to wit: a) The submission of the compromise
agreement by petitioner within fifteen (15) days from notice; and b) Failure of petitioner to submit the said compromise
agreement shall cause the imposition of the payment of the required docket fees for the re-filing of the case; so much so that the
non-compliance by petitioner of condition no. 1 would make condition no. 2 effective, especially that petitioner's manifestation
and motion to set case for pre-trial conference and supplemental motion . . . [were] denied by the respondent judge in his Order
dated November 6, 2000, which in effect means that the Order dated July 20, 2000 was ultimately not set aside considering that a
party need not pay docket fees for the re-filing of a case if the original case has been revived and reinstated.22
On 2 April 2002 reconsideration of the Decision was denied; hence, this petition.
In the instant case, petitioner maintains that the trial court cannot coerce the parties in Civil Case No. 99-518 to execute a compromise
agreement and penalize their failure to do so by refusing to go forward with the pre-trial conference. To hold otherwise, so petitioner
avers, would violate Art. 2029 of the Civil Code which provides that "[t]he court shall endeavor to persuade the litigants in a civil case to
agree upon some fair compromise," and this Court's ruling in Goldloop Properties, Inc. v. Court of Appeals23 where it was held that the trial
court cannot dismiss a complaint for failure of the parties to submit a compromise agreement.
On the other hand, respondent Anderson Uy filed his comment after several extensions asserting that there are no special and important
reasons for undertaking this review. He also alleges that petitioner's attack is limited to the Order dated 8 September 2000 as to whether it
is conditional as the Court of Appeals so found and the applicability to this case of the ruling in Goldloop Properties, Inc. v. Court of Appeals.
Respondent Uy claims that the Orderreconsidering the dismissal of Civil Case No. 99-518 without prejudice is on its face contingent upon
the submission of the compromise agreement which in the first place was the principal reason of petitioner to justify the withdrawal of the
Order declaring his failure to prosecute the civil case. He further contends that the trial court did not force the parties in the civil case to
execute a compromise agreement, the truth being that it dismissed the complaint therein for petitioner's dereliction.
Finally, respondent Uy contests the relevance of Goldloop Properties, Inc. v. Court of Appeals, and refers to its incongruence with the
instant case, i.e., that the complaint of petitioner was dismissed for failure to prosecute and not for its reckless disregard to present an
amicable settlement as was the situation in Goldloop Properties, Inc., and that the dismissal was without prejudice, in contrast with the
dismissal with prejudice ordered in the cited case. For their part, respondents Magwin Marketing Corporation, Nelson Tiu and Benito Sy
waived their right to file a comment on the instant petition and submitted the same for resolution of this Court. 24
The petition of Rizal Commercial Banking Corporation is meritorious. It directs our attention to questions of substance decided by the
courts a quo plainly in a way not in accord with applicable precedents as well as the accepted and usual course of judicial proceedings; it
offers special and important reasons that demand the exercise of our power of supervision and review. Furthermore, petitioner's
objections to the proceedings below encompass not only the Order of 8 September 2000 but include the cognate Orders of the trial court
of 6 and 16 November 2000. This is evident from the prayer of the instant petition which seeks to reverse and set aside the Decision of the
appellate court and to direct the trial court to proceed with the pre-trial conference in Civil Case No. 99-518. Evidently, the substantive
issue involved herein is whether the proceedings in the civil case should progress, a question which at bottom embroils all the Orders
affirmed by the Court of Appeals.
On the task at hand, we see no reason why RTC-Br. 135 of Makati City should stop short of hearing the civil case on the merits. There is no
substantial policy worth pursuing by requiring petitioner to pay again the docket fees when it has already discharged this obligation
simultaneously with the filing of the complaint for collection of a sum of money. The procedure for dismissed cases when re-filed is the
same as though it was initially lodged, i.e., the filing of answer, reply, answer to counter-claim, including other foot-dragging maneuvers,
except for the rigmarole of raffling cases which is dispensed with since the re-filed complaint is automatically assigned to the branch to
which the original case pertained.25 A complaint that is re-filed leads to the re-enactment of past proceedings with the concomitant full
attention of the same trial court exercising an immaculate slew of jurisdiction and control over the case that was previously
dismissed,26 which in the context of the instant case is a waste of judicial time, capital and energy.
What judicial benefit do we derive from starting the civil case all over again, especially where three (3) of the four (4) defendants, i.e.,
Magwin Marketing Corporation, Nelson Tiu and Benito Sy, have not contested petitioner's plea before this Court and the courts a quo to
advance to pre-trial conference? Indeed, to continue hereafter with the resolution of petitioner's complaint without the usual procedure
for the re-filing thereof, we will save the court a quoinvaluable time and other resources far outweighing the docket fees that petitioner
would be forfeiting should we rule otherwise.
Going over the specifics of this petition and the arguments of respondent Anderson Uy, we rule that the Order of 8 September 2000 did not
reserve conditions on the reconsideration and reversal of the Order dismissing without prejudice Civil Case No. 99-518. This is quite evident
from its text which does not use words to signal an intent to impose riders on the dispositive portion -
Acting on plaintiff's "Motion for Reconsideration" of the Order dated 20 July 2000 dismissing this case for failure to prosecute, it
appearing that there was already conformity to the restructuring of defendants' indebtedness with plaintiff by defendant Nelson
Tiu, President of defendant corporation per "Manifestation and Motion" filed by plaintiff on 22 August 2000, there being
probability of settlement among the parties, as prayed for, the Order dated 20 July 2000 is hereby set aside.
Plaintiff is directed to submit the compromise agreement within 15 days from receipt hereof. Failure on the part of plaintiff to
submit the said agreement shall cause the imposition of payment of the required docket fees for re-filing of this case.27
Contrary to respondent Uy's asseverations, the impact of the second paragraph upon the first is simply to illustrate what the trial court
would do after setting aside the dismissal without prejudice: submission of the compromise agreement for the consideration of the trial
court. Nothing in the second paragraph do we read that the reconsideration is subject to two (2) qualifications. Certainly far from it, for in
Goldloop Properties, Inc. v. Court of Appeals28 a similar directive, i.e., "[t]he parties are given a period of fifteen (15) days from today within
which to submit a Compromise Agreement," was held to mean that "should the parties fail in their negotiations the proceedings would
continue from where they left off." Goldloop Properties, Inc. further said that its order, or a specie of it, did not constitute an agreement or
even an expectation of the parties that should they fail to settle their differences within the stipulated number of days their case would be
dismissed.
The addition of the second sentence in the second paragraph does not change the absolute nullification of the dismissal without prejudice
decreed in the first paragraph. The sentence "[f]ailure on the part of plaintiff to submit the said agreement shall cause the imposition of
payment of the required docket fees for re-filing of this case" is not a directive to pay docket fees but only a statement of the event that
may result in its imposition. The reason for this is that the trial court could not have possibly made such payment obligatory in the same
civil case, i.e., Civil Case No. 99-518, since docket fees are defrayed only after the dismissal becomes final and executory and when the civil
case is re-filed.
It must be emphasized however that once the dismissal attains the attribute of finality, the trial court cannot impose legal fees anew
because a final and executory dismissal although without prejudice divests the trial court of jurisdiction over the civil case as well as any
residual power to order anything relative to the dismissed case; it would have to wait until the complaint is docketed once again.29 On the
other hand, if we are to concede that the trial court retains jurisdiction over Civil Case No. 99-518 for it to issue the assailed Orders, a
continuation of the hearing thereon would not trigger a disbursement for docket fees on the part of petitioner as this would obviously
imply the setting aside of the order of dismissal and the reinstatement of the complaint.
Indubitably, it is speculative to reckon the effectivity of the Order of dismissal without prejudice to the presentation of the compromise
agreement. If we are to admit that the efficacy of the invalidation of the Order of dismissal is dependent upon this condition, then we must
inquire: from what date do we count the fifteen (15)-day reglementary period within which the alleged revival of the order of dismissal
began to run? Did it commence from the lapse of the fifteen (15) days provided for in the Order of 8 September 2000? Or do we count it
from the 6 November 2000 Orderwhen the trial court denied the holding of a pre-trial conference? Or must it be upon petitioner's receipt
of the 16 November 2000 Order denying due course to its Notice of Appeal? The court a quo could not have instituted an Order that
marked the proceedings before it with a shadow of instability and chaos rather than a semblance of constancy and firmness.
The subsequent actions of the trial court also belie an intention to revive the Order of dismissal without prejudice in the event that
petitioner fails to submit a compromise agreement. The Orders of 6 and 16 November 2000 plainly manifest that it was retaining
jurisdiction over the civil case, a fact which would not have been possible had the dismissal without prejudice been resuscitated. Surely, the
court a quo could not have denied on 6 November 2000 petitioner's motion to calendar Civil Case No. 99-518 for pre-trial if the dismissal
had been restored to life in the meantime. By then the dismissal without prejudice would have already become final and executory so as to
effectively remove the civil case from the docket of the trial court.
The same is true with the Order of 16 November 2000 denying due course to petitioner's Notice of Appeal. There would have been no basis
for such exercise of discretion because the jurisdiction of the court a quo over the civil case would have been discharged and terminated by
the presumed dismissal thereof. Moreover, we note the ground for denying due course to the appeal: the "Orders dated 8 September 2000
and 6 November 2000 are interlocutory orders and therefore, no appeal may be taken from . . .." 30 This declaration strongly suggests that
something more was to be accomplished in the civil case, thus negating the claim that the Order of dismissal without prejudice was
resurrected upon the parties' failure to yield a compromise agreement. A "final order" issued by a court has been defined as one which
disposes of the subject matter in its entirety or terminates a particular proceeding or action, leaving nothing else to be done but to enforce
by execution what has been determined by the court, while an "interlocutory order" is one which does not dispose of a case completely but
leaves something more to be decided upon.31
Besides the semantic and consequential improbabilities of respondent Uy's argument, our ruling in Goldloop Properties, Inc., is decisive of
the instant case. In Goldloop Properties, Inc., we reversed the action of the trial court in dismissing the complaint for failure of the plaintiff
to prosecute its case, which was in turn based on its inability to forge a compromise with the other parties within fifteen (15) days from
notice of the order to do so and held -
Since there is nothing in the Rules that imposes the sanction of dismissal for failing to submit a compromise agreement, then it is
obvious that the dismissal of the complaint on the basis thereof amounts no less to a gross procedural infirmity assailable by
certiorari. For such submission could at most be directory and could not result in throwing out the case for failure to effect a
compromise. While a compromise is encouraged, very strongly in fact, failure to consummate one does not warrant any
procedural sanction, much less an authority to jettison a civil complaint worth P4,000,000.00 . . . Plainly, submission of a
compromise agreement is never mandatory, nor is it required by any rule.32
As also explained therein, the proper course of action that should have been taken by the court a quo, upon manifestation of the parties of
their willingness to discuss a settlement, was to suspend the proceedings and allow them reasonable time to come to terms (a) If
willingness to discuss a possible compromise is expressed by one or both parties; or (b) If it appears that one of the parties, before the
commencement of the action or proceeding, offered to discuss a possible compromise but the other party refused the offer, pursuant to
Art. 2030 of the Civil Code. If despite efforts exerted by the trial court and the parties the negotiations still fail, only then should the action
continue as if no suspension had taken place.33
Ostensibly, while the rules allow the trial court to suspend its proceedings consistent with the policy to encourage the use of alternative
mechanisms of dispute resolution, in the instant case, the trial court only gave the parties fifteen (15) days to conclude a deal. This was, to
say the least, a passive and paltry attempt of the court a quo in its task of persuading litigants to agree upon a reasonable
concession.34 Hence, if only to inspire confidence in the pursuit of a middle ground between petitioner and respondents, we must not
interpret the trial court's Orders as dismissing the action on its own motion because the parties, specifically petitioner, were anxious to
litigate their case as exhibited in their several manifestations and motions.
We reject respondent Uy's contention that Goldloop Properties, Inc. v. Court of Appeals is irrelevant to the case at bar on the dubious
reasoning that the complaint of petitioner was dismissed for failure to prosecute and not for the non-submission of a compromise
agreement which was the bone of contention in that case, and that the dismissal imposed in the instant case was without prejudice, in
contrast to the dismissal with prejudice decreed in the cited case. To begin with, whether the dismissal is with or without prejudice if
grievously erroneous is detrimental to the cause of the affected party; Goldloop Properties, Inc. does not tolerate a wrongful dismissal just
because it was without prejudice. More importantly, the facts in Goldloop Properties, Inc. involve, as in the instant case, a dismissal for
failure to prosecute on the ground of the parties' inability to come up with a compromise agreement within fifteen (15) days from notice of
the court's order therein. All told, the parallelism between them is unmistakable.
Even if we are to accept on face value respondent's understanding of Goldloop Properties, Inc. as solely about the failure to submit a
compromise agreement, it is apparent that the present case confronts a similar problem. Perhaps initially the issue was one of failure to
prosecute, as can be observed from the Order dated 20 July 2000, although later reversed and set aside. But thereafter, in the Order of 6
November 2000, the trial court refused to proceed to pre-trial owing to the "failure of the plaintiff to submit a compromise agreement
pursuant to the Order dated 8 September 2000." When the civil case was stalled on account of the trial court's refusal to call the parties to
a pre-trial conference, the reason or basis therefor was the absence of a negotiated settlement - a circumstance that takes the case at bar
within the plain ambit of Goldloop Properties, Inc. In any event, given that the instant case merely revolves around the search for a
reasonable interpretation of the several Orders of the trial court, i.e., as to whether the dismissal without prejudice was revived upon
petitioner's helplessness to perfect an out-of-court arrangement, with more reason must we employ the ruling in Goldloop Properties,
Inc. to resolve the parties' differences of opinion.
We also find nothing in the record to support respondent Uy's conclusion that petitioner has been mercilessly delaying the prosecution of
Civil Case No. 99-518 to warrant its dismissal. A complaint may be dismissed due to plaintiff's fault: (a) if he fails to appear during a
scheduled trial, especially on the date for the presentation of his evidence in chief, or when so required at the pre-trial; (b) if he neglects to
prosecute his action for an unreasonable length of time; or (c) if he does not comply with the rules or any order of the court. None of these
was obtaining in the civil case.
While there was a lull of about six (6) months in the prosecution of Civil Case No. 99-518, it must be remembered that respondents
themselves contributed largely to this delay. They repeatedly asked petitioner to consider re-structuring the debt of respondent Magwin
Marketing Corporation to which petitioner graciously acceded. Petitioner approved a new debt payment scheme that was sought by
respondents, which it then communicated to respondent Corporation through a letter for the conformity of the latter's officers, i.e.,
respondent Nelson Tiu as President/General Manager and respondent Benito Sy as Director thereof. Regrettably, only respondent Nelson
Tiu affixed his signature on the letter to signify his concurrence with the terms and conditions of the arrangement. The momentary lag in
the civil case was aggravated when respondent Benito Sy for unknown and unexplained reasons paid no heed to the adjustments in the
indebtedness although curiously he has not opposed before this Court or the courts a quo petitioner's desire to go ahead with the pre-trial
conference.
Admittedly, delay took place in this case but it was not an interruption that should have entailed the dismissal of the complaint even if such
was designated as without prejudice. To constitute a sufficient ground for dismissal, the inattention of plaintiff to pursue his cause must not
only be prolonged but also be unnecessary and dilatory resulting in the trifling of judicial processes. In the instant case, the adjournment
was not only fleeting as it lasted less than six (6) months but was also done in good faith to accommodate respondents' incessant pleas to
negotiate. Although the dismissal of a case for failure to prosecute is a matter addressed to the sound discretion of the court, that
judgment however must not be abused. The availability of this recourse must be determined according to the procedural history of each
case, the situation at the time of the dismissal, and the diligence of plaintiff to proceed therein.35Stress must also be laid upon the official
directive that courts must endeavor to convince parties in a civil case to consummate a fair settlement 36 and to mitigate damages to be
paid by the losing party who has shown a sincere desire for such give-and-take.37 All things considered, we see no compelling circumstances
to uphold the dismissal of petitioner's complaint regardless of its characterization as being without prejudice.
In fine, petitioner cannot be said to have lost interest in fighting the civil case to the end. A court may dismiss a case on the ground of non
prosequitur but the real test of the judicious exercise of such power is whether under the circumstances plaintiff is chargeable with want of
fitting assiduousness in not acting on his complaint with reasonable promptitude. Unless a party's conduct is so indifferent, irresponsible,
contumacious or slothful as to provide substantial grounds for dismissal, i.e., equivalent to default or non-appearance in the case, the
courts should consider lesser sanctions which would still amount to achieving the desired end. 38 In the absence of a pattern or scheme to
delay the disposition of the case or of a wanton failure to observe the mandatory requirement of the rules on the part of the plaintiff, as in
the case at bar, courts should decide to dispense rather than wield their authority to dismiss. 39
Clearly, another creative remedy was available to the court a quo to attain a speedy disposition of Civil Case No. 99-518 without sacrificing
the course of justice. Since the failure of petitioner to submit a compromise agreement was the refusal of just one of herein respondents,
i.e., Benito Sy, to sign his name on the conforme of the loan restructure documents, and the common concern of the courts a quo was
dispatch in the proceedings, the holding of a pre-trial conference was the best-suited solution to the problem as this stage in a civil action is
where issues are simplified and the dispute quickly and genuinely reconciled. By means of pre-trial, the trial court is fully empowered to
sway the litigants to agree upon some fair compromise.
Dismissing the civil case and compelling petitioner to re-file its complaint is a dangerous, costly and circuitous route that may end up
aggravating, not resolving, the disagreement. This case management strategy is frighteningly deceptive because it does so at the expense of
petitioner whose cause of action, perhaps, may have already been admitted by its adverse parties as shown by three (3) of four (4)
defendants not willing to contest petitioner's allegations, and more critically, since this approach promotes the useless and thankless
duplication of hard work already undertaken by the trial court. As we have aptly observed, "[i]nconsiderate dismissals, even if without
prejudice, do not constitute a panacea nor a solution to the congestion of court dockets. While they lend a deceptive aura of efficiency to
records of individual judges, they merely postpone the ultimate reckoning between the parties. In the absence of clear lack of merit or
intention to delay, justice is better served by a brief continuance, trial on the merits, and final disposition of the cases before the court."40
WHEREFORE, the Petition for Review is GRANTED. The Decision dated 28 September 2001 and Resolution dated 2 April 2002 of the Court of
Appeals in CA-G.R. SP No. 62102 are REVERSED and SET ASIDE.
The Orders dated 8 September 2000, 6 November 2000 and 16 November 2000 of the Regional Trial Court, Branch 135, of Makati City,
docketed as Civil Case No. 99-518, are also REVERSED and SET ASIDE insofar as these Orders are interpreted to impose upon and
collect anew from petitioner RIZAL COMMERCIAL BANKING CORPORATION docket or legal fees for its complaint, or to dismiss without
prejudice Civil Case No. 99-518, or to preclude the trial court from calling the parties therein to pre-trial conference, or from proceeding
thereafter with dispatch to resolve the civil case.
Civil Case No. 99-518 is deemed REINSTATED in, as it was never taken out from, the dockets of the Regional Trial Court, Branch 135, of
Makati City. The trial court is ORDERED to exercise its jurisdiction over Civil Case No. 99-518, to CONDUCT the pre-trial conference therein
with dispatch, and to UNDERTAKE thereafter such other proceedings as may be relevant, without petitioner being charged anew docket or
other legal fees in connection with its reinstatement. Costs against respondents.
SO ORDERED.

G.R. No. 141897 September 24, 2001

METRO CONSTRUCTION, INC., petitioner,
vs.
CHATHAM PROPERTIES, INC., respondent.
DAVIDE, JR., C.J.:
The core issue in this case is whether under existing law and rules the Court of Appeals can also review findings of facts of the Construction
Industry Arbitration Commission (CIAC).
Respondent Chatham Properties, Inc. (CHATHAM) and petitioner Metro Construction, Inc. (MCI) entered into a contract for the
construction of a multi-storey building known as the Chatham House located at the corner of Herrera and Valero Streets, Salcedo Village,
Makati City, Metro Manila. In April 1998, MCI sought to collect from CHATHAM a sum of money for unpaid progress billings and other
charges and instituted a request for adjudication of its claims with the CIAC. The case was docketed as CIAC Case No. 10-98. The arbitral
tribunal was composed of Joven B. Joaquin as Chairman, and Beda G. Fajardo and Loreto C. Aquino as members.
The preliminary conference before the CIAC started in June 1998 and was concluded a month after with the signing of the Terms of
Reference (TOR) of the Case.1 The hearings immediately started with the presentation of MCI's witnesses, namely: Ms. Ma. Suzette S.
Nucum, Chief Accountant; Ms. Isabela Redito, Office Engineer; Mr. John Romulo, Field Manager; and Dr. John Y. Lai, President. CHATHAM's
witnesses were: Engr. Ruperto Kapunan III, Managing Director of RK Development and Construction Co., Inc. (RKDCCI), which was the
Construction Manager firm hired by CHATHAM to oversee the construction work of the Chatham House; Engr. Alex Bautista, Area Manager
of RKDCCI; Mr. Avelino M. Mercado, CHATHAM's Project Manager; and Engr. Jose T. Infante.
In the meantime, the TOR was amended and finalized on 19 August 1998.2
The facts, as admitted by the parties before the CIAC and incorporated in the original TOR, are as follows:
1. On 21 April 1994, the parties formally entered into a . . . contract for the construction of the "Chatham House" . . . for the
contract price of price of P50,000,000.00 inclusive of value-added tax, subject to adjustments in accordance with Article 9 of the
contract. Construction of the project, however, commenced on 15 April 1994 upon the release by CHATHAM of the down
payment
2. On 12 July 1994, a Supplemental Contract was executed by and between the parties whereby CHATHAM authorized MCI to
procure in behalf of the former materials, equipment, tools, fixtures, refurbishing, furniture, and accessories necessary for the
completion of the project.
3. Under Section I.04 of the Supplemental Contract, the total amount of procurement and transportation cost[s] and expenses
which may be reimbursed by MCI from CHATHAM shall not exceed the amount of P75, 000,000.00.
4. In the course of the construction, Change Orders No. 1, 4, 8A, 11, 12 and 13 were implemented, payment of which were
recommended by x x x RKDCCI and approved by one of CHATHAM's Project Managers, Romulo F. Sugay.
5. On 15 September 1995, CHATHAM through its Project Manager, Romulo F. Sugay, agreed to give P20,000 per floor for five (5)
floors, or a total of P100,000.00 as bonus/incentive pay to MCI's construction workers for the completion of each floor on
schedule. CHATHAM reimbursed MCI the amount of P60,000.00 corresponding to bonuses advanced to its workers by the latter
for the 14th, 16th, and 17th floors.
6. CHATHAM's payments to MCI totaled P104,875,792.37, representing payments for portions of MCI's progress billings and x x x
additional charges.
The parties then stipulated on the following issues, again, as set forth in the TOR:
1. Is MCI entitled to its claims for unpaid progress billings amounting to P21,062,339.76?
2. Were the approved Change Orders 1, 4, 8a, 11, 12 and 13 fully paid by CHATHAM? If not, is MCI entitled to its claim for the
unpaid balance?
3. Is CHATHAM liable for Change Orders 7a, 7b, 10, 14, 15, 16, 17, 19 and 20?
4. Were the CHB works from the 8th to the 31st floors part of the original contract or in the nature of extra/additional works? Is
CHATHAM liable for the same? If so, how much?
5. Is MCI entitled to an additional reimbursement of P40,000.00 for bonuses granted to workers as an incentive for the early
completion of each floor?
6. Were the deductions in the amount of P1,393,458.84 made by CHATHAM in MCI's progress billing reasonable?
7. Is MCI's claim of P1,646,502.00 for labor escalation valid?
8. Is MCI entitled to payment of attendance fee? To what extent and how much?
9. Did MCI fail to complete and/or deliver the project within the approved completion period? If so, is MCI liable for liquidated
damages and how much?
10. Whether or not CHATHAM is entitled to claim x x x actual damages? If so, to what extent and how much?
11. Whether or not CHATHAM is entitled to x x x additional counterclaims as follows:
11.1. Core testing expenses and penalty for concrete strength failure P3,630,587.38.
11.2. Expenses to rectify structural steel works for the foundation P1,331,139.74.
11.3. Cost of additional materials (concrete & rebars) supplied by CPI P5,761,457.91.
12. Are the parties entitled to their respective claims for attorney's fees and cost of litigation? If so, how much?3
In the resolution of these issues, the CIAC discovered significant data, which were not evident or explicit in the documents and records but
otherwise revealed or elicited during the hearings, which the CIAC deemed material and relevant to the complete adjudication of the case.
In its decision of 19 October 1998, 4 the CIAC made the following findings and conclusions:
It was established during the hearing that the contract was awarded to MCI through negotiation as no bidding was conducted, x x
x It was also revealed that two agreements were entered into, one is labeled Construction Contract for the total fixed amount of
P50,000,000.00 and the other a Supplemental Contract for an amount not to exceed P75,000,000.00. The latter is supposed to
cover the procurement of materials for the project. The Construction Contract provides for monthly progress billings and
payments based on actual accomplishments of the various phases of work. The Supplemental Contract provides for;
reimbursement of [the] total amount of procurement and transportation costs and expenses, upon MCI's presentation of
suppliers' invoices/receipts.
However, from testimonies of witnesses from both parties, it was revealed that the two distinct manner(s) of payment to MCI was
set aside. The earlier attempt by CHATHAM to prove that MCI was remiss in submitting suppliers' invoices and/or receipts in
support of its billings against the Supplemental Contract was in fact later on abandoned when CHATHAM's witness Mercado
admitted that the matter of adherence to the payment provision of the Supplemental Contract is a 'non-issue.' This was borne out
by the fact that progress billings and payments under both contracts were made on the basis of percentage of project completion.
Both documentary and testimonial evidence prove that, effectively, the construction contract and supplemental contract is but
one agreement for a lump sum contract amount of P125,000,000.00.
xxx xxx xxx
There was also the admitted fact that the contract was negotiated and awarded in the absence of a complete construction plan. In
any case, in support of the total contract amount of P125 million, is a Cost Breakdown (Exh. 17-L), where the estimated quantities
of owner furnished materials (OFM) are indicated. It is however, understood that these quantities are estimates, based on (an)
incomplete set of construction plans. It is likewise understood that except for the OFM, all the other costs in the Cost Breakdown
form the basis for the lump-sum agreement under the contract, subject to adjustment only if there are any significant changes in
the contract plans.
RKDCCI in its letter to MCI dated 15 Feb. 1995 (Exh. 4), informed MCI that it was confirming the agreement allegedly accepted by
Dr. Lai that the Building Committee will take over the management of the construction operations (of the project) albeit under
certain conditions. Specifically, the take over was for an interim period and will extend only after concreting of up to basement
level 5 or up to 30 May 1995 whichever is later. The letter also stated that the Building Committee . . . will be responsible for
management and direction including management of MCI engineers at the site, sequencing of work, additional labor, additional
equipment and management of the yard and staging area. The letter, however, emphasized that the intent is not a take over of
the contract or take over of the entire work and in fact, it was mentioned that MCI will still be responsible for earth anchoring and
steel fabrication work.
CHATHAM claims that the interim take-over was necessitated by MCI's delay in the progress of its work, due allegedly to MCI's
lack of manpower and equipment. During the hearings of this case, this claim of MCI's lack of manpower, necessary equipment,
qualified engineers and inefficient construction management was testified to by both Mr. Mercado [of CHATHAM] and Engr.
Kapunan of RKDCCI. CHATHAM's witnesses, however, testified that in spite of these alleged deficiencies, MCI was nevertheless
allowed to continue to take full control of the operations. When asked why termination of the contract was not resorted to if
truly, MCI was not performing its contracted obligations, witnesses Mercado and Kapunan cited "special relations" between the
owner of MCI (Dr. John Lai) and the president of CHATHAM (Mr. Lamberto Ocampo) as the reason.
On the other hand, Dr. Lai contends that, as explained in his letter to CHATHAM dated 17 February 1995, (Exh. 4-A) MCI's work
was on schedule. During the hearings, Dr. Lai also insisted that beginning 15 February 1995, MCI was relieved of full control of the
construction operations, that it was relegated to (be) a mere supplier of labor, materials and equipment, and that the alleged
interim takeover actually extended through the completion of the project. Dr. Lai cited CHATHAM's purchases of materials,
fielding labor force and sub-contracting works allegedly for the project without his knowledge and consent as proof that
CHATHAM had taken full control of the project.
To the above allegation of MCI that CHATHAM went ahead and procured materials, hired labor and entered into sub-contract
agreements with the intention of eventually charging the costs thereof to MCI, witness Mercado countered, that CHATHAM has
the right to do this under the provisions of Article 27 of the contract, dealing with 'Recision, Cancellation, Termination of
Contract.'
By way of responding to the various counterclaims of CHATHAM, MCI referred to a letter of the former addressed to MCI dated 18
January 1997 (Exhibit E-1) the first paragraph of which reads as follows:
After evaluating all the documents issued and received from both Chatham Properties Inc. and Metro Construction, Inc.,
the Building Committee of Chatham Properties, Inc. evaluated them. The Building Committee finds the total receivable of
Metro Construction is in the amount of EIGHT MILLION PESOS (P8,000,000.00) only.
When queried by the Tribunal if the said amount already took into account the costs and expenses, (Chatham) claims to have
incurred for the account of MCI, Mr. Mercado answered in the affirmative. When queried further how the amount was arrived at,
Mr. Mercado replied that it was the sum the Building Committee figured it was willing to pay MCI simply to close the issue.
Mr. Mercado even added that while MCI is not actually entitled to this amount, it was out of a friendship" that CHATHAM offered
this sum to MCI as final settlement under the contract.
It is with the above attendant circumstances that this Tribunal will be guided in the resolution of issues brought before it for
adjudication. From what this Tribunal finds as peculiar circumstances surrounding the contracting and implementation of the
CHATHAM House Project. it arrived at the following fundamental conclusions:
1. That indeed 'special friendly relations' were present between the parties in this case, although decisions by either
party on any particular issue were made not purely on the basis of such special relations. For example, this Tribunal
believes that, contrary to the allegation of (CHATHAM's) witnesses, the decision not to terminate the contract was not
due to the admitted 'special relations' only, but also due to the greater problems the project would be faced with by
terminating the MCI contract and mobilizing another contractor.
2. That while there was no official termination of the contract, the manner by which CHATHAM had taken upon
themselves the procurement of materials, the fielding of labor, the control over MCI's engineers, and the subcontracting
of various phases of work on its own, is considered by this Tribunal as implied termination of the contract. The idea of
allowing MCI to remain on the project in spite of what CHATHAM claims. (to be) MCI's shortcomings, and MCI's
agreement to stay on the project under conditions set by CHATHAM, is believed a matter of mutual benefit to both
parties.
3. That CHATHAM's invoking its rights under the provisions of Article 27 of the construction contract is believed out of
place, as it failed to observe the required antecedent acts before it can exercise its prerogative under the said contract
provision.
4. That there is no reason to believe, either party was in any way guilty of bad faith in acting as it did on certain relevant
matters. However, this Tribunal is of the belief that due perhaps to the eagerness on the part particularly of CHATHAM's
representatives to take such steps it considered necessary to insure completion of the project within the period desired
 by CHATHAM, it deviated from some generally accepted procedures in the construction industry in dealing with MCI.
One example was not giving MCI the opportunity to rectify some of what CHATHAM considered as construction
deficiencies and instead engaging the services of other parties to undertake the corrective works and later on charging
the costs thereof to MCI.
In addition to the above conclusions resulting from what this Tribunal considered peculiar of circumstances surrounding the
implementation of the project that were revealed during the proceedings of this case, this Tribunal finds the necessity of
establishing a cut-off date with regard to the fiscal liability of one party towards the other.
Mr. Avelino Mercado of CHATHAM presented a list of what he claims as its Payments to MCI (Exhibit 7) summarized as follows:
a. Down payment (Paid in two equal trances P 20,000,000.00
b. Cash Advance for Mobilization 800,000.00
c. Payments of Progress Billings up to Billing No. 19 71,081,183.44
d. Other Payments (Mar 1994 to Apr. 1996) 5,474,419.67
e. Advances on MCI Payrolls (April 1996 to March 1997) 8,196,755.51
Total P 104,752,358.42
The records of this case show that the last progress payment to MCI was in January 1996 representing payment of Progress Billing
No. 19 for the period ending 31 December 1995. The percentage of completion claimed then by MCI was 80.02%, the amount
evaluated and eventually paid to MCI was the equivalent of 77.15% work accomplishment. No further progress payments were
made thereafter, other than for advances to cover MCI payrolls from April 1996 to March 1997 in the amount of P8,196,755.51
and for various advances and payments of approved change orders in the amount of P5,474,419.67.
In the meantime, up to Billing No. 23 for the period ending 30 April 1996, MCI billed CHATHAM a total accomplishment of 95.29%.
This billing was however, evaluated by CHATHAM, and in its letter to MCI dated 27 May 1996 (Exhibit E) it confirmed that MCI's
remaining balance of work stands at P7,374,201.15 as of 23 May 1996. This amount, percentage-wise, equals roughly 5.88% of the
contract amount as testified to by Engr. Jose Infante. (Exhibit 22-B). Therefore, what was computed as MCI's work
accomplishment as of 23 May 1996 was 94.12% and it is this evaluation which this Tribunal believes MCI is entitled to as of said
date.
Applying this percentage of completion of 94.12% to the P125,000,000.00 contract amount gives a total accomplishment
equivalent to P117,650,000.00 as of 23 May 1996. Add to this amount the sum of P5,353,091.08 representing the total of
approved Change Orders as of 31 December 1995 gives a total MCI accomplishment of P123,003,091.08, as CHATHAM saw it. Of
this amount, CHATHAM admitted having paid MCI the total sum of P104,752,358.42 only (Exhibit 7) up to March 15, 1997, leaving
a balance of P18,250,732.66. It should be noted that of the total payment of P104,752,358.42, the sum of P5,750,000.00 was paid
after May 1996 so that as of 25 May 1996, CHATHAM's total payment to MCI was P99,002,358.42.
Effectively, therefore, the amount due MCI as of 23 May 1996 amounted to P24,005,732.66 computed as follows:
Total accomplishment as of 23 May 1996 at 94.12% P 117, 655, 000.00
Add approved change orders 5,353,091.08
Total P 123,008,091.08
Less payments up to 23 May 1996 99,002,358.42
Balance due MCI as of 23 May 1996 P 24,005,732.66
Of the above balance of P24,005,732.66 as of 23 May 1996, the only payments made by CHATHAM to MCI is the sum of
P5,750,000.00 from June 1996 onwards, allegedly to cover MCI payrolls. It is of course noted that CHATHAM's suspension of
further payments to MCI was because it had been undertaking on its own, the further procurement of materials and sub-
contracting of various phases of works on the project.
In consideration of the above facts, this Tribunal's conclusion that there was in fact an implied take over of the project is further
confirmed. Furthermore, this Tribunal additionally concludes that the cut-off date for purposes of delineating the financial
obligations of the parties between them should be 23 May 1996, the date when CHATHAM evaluated MCI's accomplishment at
94.10% but nevertheless suspended all further progress payments to MCI.
MCI presented further documentary evidence (Exhibit E-6) the subject of which is a PUNCHLISTING-CIVIL STRUCTURAL." In this
particular document which bears the signatures of representatives of both MCI and RKDCCI, MCI tried to prove that as of 30
August 1996 it had actually attained 99.16% work accomplishment. While it may be true that as of that date the project had
reached 99.16% completion, there is no incontrovertible evidence showing that MCI was responsible for such accomplishment.
This was in fact actually testified to by Engr. Alex Bautista of RKDCCI, when he said that it was an evaluation of the project's
completion stage, not necessarily MCI's work accomplishment. This Tribunal therefore stands firm on its conclusion that MCI's
accomplishment is only up to the extent of 94.10%.5
With those findings, the CIAC disposed of the specific money claims by either granting or reducing them. On Issue No. 9, i.e., whether
CHATHAM failed to complete and/or deliver the project within the approved completion period and, if so, whether CHATHAM is liable for
liquidated damages and how much, the CIAC ruled in this wise:
 This Tribunal holds that the provision of the contract insofar as the Overall Schedule is concerned cannot justifiably be applied in
the instant case in view of the implied take-over of the Chatham House project by CHATHAM. Accordingly, this Tribunal finds no
necessity to resolve whether or not MCI complete[d] and/or deliver[ed] the project within the approved completion period. In
fact, Mr. Mercado testified that it was CHATHAM who ultimately completed the project, with assistance of the construction
managers.
In any case, this Tribunal finds merit in RKDCCI's claim that MCI was in delay in the concreting milestone and that [it] is liable for
liquidated damages therefor. This, notwithstanding MCI's invoking that Chatham is estopped from claiming liquidated damages
after it failed to deduct the alleged liquidated damages from MCI's progress billings. This Tribunal holds that such failure to
deduct, which CHATHAM claims it did in order not to hamper progress of work in the project, is an option which [it] may or may
not exercise.
However, this Tribunal finds that CHATHAM's Exh. 11-A where the liquidated damages on delays in concreting milestone was
applied is not consistent with [its] own Exhibit 3-I. This Tribunal notes that in Exh. 11-A, CHATHAM included a projected delay of
85 days for the Helipad Concreting works, while no such projected delay was included in Exh. 3-I as it should be.
This Tribunal holds that Exh. 3-I showing a delay of 294 days in concreting milestones should rightfully be used in computing
liquidated damages. Accordingly, this Tribunal holds that MCI is liable for liquidated damages in the amount of P3,062,498.78 as
follows:
1/4 x 1/3[(1/10 x P125,000,000.00) 1%] x 294 = P3,062,498.78.6
The CIAC then decreed:
Accordingly, as presented below, all the amounts due MCI are first listed and added up and the total payment is deducted
therefrom. The admitted total payment figure as reflected in the Terms of Reference is the amount applied instead of the total
reflected in CHATHAM's Summary of Payments which incidentally reflected a lesser amount. From the 'Balance Due MCI' the
'Amounts CPI is Held Entitled To' is deducted and the 'Net Amount Due MCI' is arrived at.
A. AMOUNTS HELD CPI IS ENTITLED TO:
A.1. From the original contract: P117,650,000.00
94.12% of P125,000,000.00
A.2. Approved Change Orders 5,353,091.08
A.3 Pending Change Orders 1,648,560.46
A.4 CHB Works 1,248,654.71
A.5 Workers Bonus -0-
A.6 Disputed Deductions 909,484.70
A.7 Labor Escalation 1,076,256.00
A.8 Attendance Fee 508,162.73
Total P128,394,209.68
Less: Total payments - Item 11-6 of TOR 104,875,792.37
Balance Due MCI P 23,518,417.31
B. AMOUNTS HELD CPI IS ENTITLED TO:
B.1. liquidated Damages P3,062,498.78
B.2. Actual Damages 335,994.50
B.3. Penalties 1,778,285.44
B.4. Cash Payments in Behalf of MCI 2,214,715.68
Total Amount Due CPI 7,391,494.40
C. NET AMOUNT DUE MCI (A minus B) P16,126,922.91
WHEREFORE, judgment is hereby rendered in favor of the Claimant [MCI] directing Respondent [CHATHAM] to pay Claimant [MCI]
the net sum of SIXTEEN MILLION ONE HUNDRED TWENTY SIX THOUSAND NINE HUNDRED TWENTY TWO & 91/100
(16,126,922.91) PESOS.
SO ORDERED.7
Impugning the decision of the CIAC, CHATHAM instituted a petition for review with the Court of Appeals, which was docketed as CA-G.R. SP
No. 49429. In its petition, CHATHAM alleged that:
The Arbitral Tribunal grossly erred in failing to indicate specific reference to the evidence presented or to the transcript of
stenographic notes in arriving at its questioned Decision, in violation of the cardinal rule under Section 1, Rule 36 of the Revised
Rules of Civil Procedure that a judgment must state clearly and definitely the facts and the law on which it is based.
The Tribunal's conclusions are grounded entirely on speculations, surmises and conjectures.
 The Arbitral Tribunal grossly erred in failing to consider the evidence presented by CHATHAM and the testimony of its witnesses.
The Arbitral Tribunal gravely abused its discretion in considering arbitrarily that there was an implied takeover contrary to the
facts and evidence submitted.
The Arbitral Tribunal committed grave error and gross misapprehension of facts in holding that CHATHAM is not entitled to
liquidated damages despite failure of MCI to meet the over-all schedule of completion.
The Arbitral Tribunal manifestly erred in holding that MCI is entitled to its claim for unpaid progress billings.
The Arbitral Tribunal committed gross and reversible error in equating the percentage of MCI's work accomplishment with the
entire work in place, despite evidence to the contrary.
The Arbitral Tribunal gravely erred in making 23 May 1996 as the cut-off date for purposes of delineating the financial obligations
of the parties.
The Arbitral Tribunal erred in denying CHATHAM its claim for actual damages pursuant to Article 27.8 of the Construction
Contract.
The facts set forth in CHATHAM's Answer with Compulsory Counterclaim as well as its documentary and testamentary evidence
were not overturned or controverted by any contrary evidence.8
In its decision of 30 September 1999, 9 the Court of Appeals simplified the assigned errors into one core issue, namely, the "propriety" of
the CIAC's factual findings and conclusions. In upholding the decision of the CIAC, the Court of Appeals confirmed the jurisprudential
principle that absent any showing of arbitrariness, the CIAC's findings as an administrative agency and quasi judicial body should not only
be accorded great respect but also given the stamp of finality. However, the Court of Appeals found exception in the CIAC's disquisition of
Issue No.9 on the matter of liquidated damages.
The Court of Appeals disagreed with the CIAC's finding that there was an implied takeover by CHATHAM of the project and that it was
unnecessary for the CIAC to rule on whether MCI completed and/or delivered the project within the approved completion schedule of the
project since CHATHAM failed to observe the antecedent acts required for the termination of the contract, as set forth in the Construction
Agreement.
The Court of Appeals ascertained that the evidence overwhelmingly proved that there was no takeover by CHATHAM and that MCI
exercised complete control, authority and responsibility over the construction. In support of this conclusion, the appellate court pointed to
the following evidentiary bases:10
1. Testimony of CHATHAM's Engr. Kapunan that the interim takeover for the works on the basement was triggered by lack of
manpower and delays as early as February 1995, as evidenced by their assessment11and that the interim takeover was only with
respect to the direction or management of the field operations and was limited only to works on the basement and intended to
assist MCI to catch up with the schedule of completion, since at that time the project was very much delayed; thereafter, the MCI
was back in full control of the project.12
2. Testimony of Engr. Bautista that the takeover was only partial and temporary and limited to the management portion on the
basement only and that MCI was always in control of the project. 13
3. Testimony of Engr. Infante that MCI personnel were constantly present in the project and the "intervention" (not takeover) by
CHATHAM was justified to ensure completion of the project on time. 14
4. Documentary exhibits evincing the nature and extent of MCI's work during the takeover period which belied its claims that it
was not in control of the project because of the takeover thus:
Exhibit "4" — Letter dated 15 February 1995 of Engr. Kapunan of RKDCCI to John Lai of MCI stating that the takeover of
directions or management of the field operations is interim, i.e. while the takeover is effective immediately it will extend
only after concreting Level B-1 or approximately until 30 May 1995 which ever is later.
Exhibit "4-A" — Letter dated 17 February 1995 written by Dr. Lai of MCI to Engr. Kapunan in response to the latter's 15
February 1995 letter stating that "[Also we were assured that we will not be responsible for any errors or accidents that
may occur during this INTERIM period," indicating that Dr. Lai was very much aware of the interim period.
Exhibit "4-C" — Letter dated 18 February 1995 written by Engr. Ben C. Ruiz of RKDCCI to Dr. Lai containing the reasons
for the takeover.
Exhibit "8A" — Letter dated 5 September 1995 written by Dr. E.G. Tabujara to Dr. Lai/Romy Laron (Project Manager of
MCI) requesting for an engineer of MCI to accompany the inspector of RKDCCI to witness batching procedures. By so
doing, Dr. E.G. Tabujara acknowledged that Dr. Lai was in control of the project.
Exhibit "8" — Letter dated 4 September 1995 by Engr. Romulo R Sugay to Dr. Lai offering an incentive to the workers of
MCI to exert (their) best effort for topping off by the end of December; another clear indication that Dr. Lai was in
control of the project.
Exhibit "4-D" — Letter dated 4 January 1996 indicating that Mr. H.T. Go offered Dr Lai an incentive of P1,800,000 on the
condition that MCI meets the new schedule/milestones. MCI's acceptance of the incentive offer likewise shows that MCI
was in control of the Project.
Exhibits "5," "3-1," "3-M," "3-N," "3-W-1," 3-X," "3-Y," and "3-Z" — among others containing reminders to MCI of its
duties and shortcomings, likewise attest to the fact that MCI was in control (of) and responsible for the Project, although
markedly deficient.
Exhibits "5," "5-A," "5-B," "5-C," "5-D," "5-E," "5-F," "5-O," "C-7," and "E-9" — evidencing that MCI continued to manage
other works on the project even during the time of the interim takeover of the basement works, as seen in the series of
communications between CHATHAM or RKDCCI and MCI within the period beginning February 1995 to 30 May 1995.
 5. Respondent's Request for Adjudication, Annex G, Records, Folder No. 6 — which incorporated Change Order No. 12, among
others, dated 28 August 1995, recommended by the RKDCCI and accepted by Dr. Lai, and which request for an extension of 25
days readily showed that even after 30 May 1995, after the close of the supposed takeover period, MCI was still the contractor in
complete control of the project for it would not have otherwise accepted the said change order if it (were) no longer the
Contractor of the project due to the termination of the Construction agreement as of said date on account of the alleged
takeover.
6. Exhibits "3-J," "3-M," "3-Q," "3-R," "3-V," "3- W-1," "3-W-2," "5-F," "5-1," "6," "12-II," "12-JJ," "12-MM," and "12-NN" — tending
to prove that RKDCCI monitored the work from start to finish and had zealously pointed out to MCI the defects or improper
execution of the construction works, and gave MCI all the opportunity to rectify the construction deficiencies and complete the
works of the project.
The Court of Appeals concluded that the interim takeover was necessitated by CHATHAM's insistence to meet its own turnover dates with
the buyers of the project's units. Thus, CHATHAM was constrained to hire subcontractors with sufficient manpower and supervision and
incur various expenses to facilitate the completion of the project and/or assist MCI in making up for its delay.
The Court of Appeals then considered it imperative to determine whether MCI failed to complete the project on time for which it may be
held liable for liquidated damages based on the delays in the overall schedule of completion pursuant to Art. 13.5 of the Construction
Agreement, to wit:
13.5. Over-All Schedule — For not meeting the final completion date of the PROJECT, the OWNER will deduct from the Contract
Sum or amounts due the CONTRACTOR, the amount equivalent to 1/10 of 1% of the Contract Sum for every calendar day of delay,
provided, however, that the maximum penalty should not exceed 25% of the fee payable to the CONTRACTOR as stipulated in the
Bill of Quantities. Penalties from concreting milestones shall be deducted from the penalty of Over-All Schedule.15
The Court of Appeals disposed of the controversy in this wise:
As is extant from the records, the completion date of the Project under the Construction Contract or under the revised
construction schedule was never met by reason of [MCI's] lack of manpower, necessary equipment, qualified engineers and
inefficient management of construction works on the Project. Thus, under the Contract (Exhibit '1'), [MCI] had 780 days, or until
22 January 1996, from starting date, or April 12, 1994, to finish the project. The completion date, however, was not followed and
was revised as early as December 17, 1994, extending the milestone dates up to March 15, 1996 (Exhibits '3-G' and '3-H'). As of
December 25, 1995, the number of days delayed was already 294 days. Thus, on February 22, 1996, the contract milestones were
again revised, inclusive of 53 days extension, to May 23, 1996 (Exhibits '3-I' and '3-O'). The May 23, 1996 turnover milestone nor
the July 22, 1996 turnover of the whole project were neither met (Exhibits '3-P', '3-R', '3-S' and '3-T' but [CHATHAM] was again
constrained to allow [MCI] to continue working on the Project to complete the balance of the works (Exhibit 'M'). And all
throughout the construction of the Project, [CHATHAM] had to assist [MCI] along the way to expedite the execution and
completion of the Project (Exhibits '3-K' and '3-V').
From the foregoing disquisitions, it is clear that [MCI] is liable for liquidated damages, as per Article 13.5 of the Construction
Contract, for its failure to complete the project within the period stipulated in the Construction Contract and even despite an
extension of 53 days from the original schedule or of the overall schedule of completion. [MCI] should therefore pay [CHATHAM]
the amount of liquidated damages equivalent to P24,125,000.00 for 193 days of delay in the overall schedule of completion
counted from overall completion date on July 22, 1996 up to the date of completion on February 15, 1997, as stated in the
Certificate of Occupancy, computed as follows, to wit:
1/10[1%(P125,000,000.00)] per day x 193 days
= [1/10 (P1,250,000.00)] per day x 193 days
= P125,000.00 per day x 193 days
= P24,125,000.00
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered partially granting [CHATHAM's] claim for liquidated damages. The
Tribunal's Decision dated 19 October 1998 is hereby AFFIRMED with the modification on [MCI's] liability for liquidated damages in
the amount of P24,125,000.00. Thus,
A. AMOUNT [MCI] IS ENTITLED TO:
A.1. From the original contract: 117,650,000.00
94.12% of P125,000,000.00
A.2 Approved Change Orders 5,353,091.08
A.3 Pending Change Orders 1,648,560.46
A.4 CHB Works 1,248,654.71
A.5 Workers Bonus -0-
A.6 Disputed Deductions 909,484.70
A.7 Labor Escalation 076,256.00
A.8 Attendance Fee 508,162.73
Total P128,394,209.68
 Less: Total payments-item 11-6 of TOR 104,875,792.37
Balance Due Respondent P23,518,417.31
B. AMOUNTS [CHATHAM] IS ENTITLED TO:
B.1. liquidated Damages P24,125,000.00
B.2. Actual Damages 335,994.50
B.3. Penalties 1,778,285.44
B.4. Cash Payments in behalf of MCI I2,214,715.68
Total Amount Due CPI P28,453,995.62
C. NET AMOUNT DUE [CHATHAM] (B minus A)
Correspondingly, Respondent [MCI] is hereby directed to pay the Petitioner [CHATHAM] the net sum of FOUR MILLION NINE
HUNDRED THIRTY-FIVE THOUSAND FIVE HUNDRED SEVENTY-EIGHT & 31/100 (P4,935,578.31) PESOS.16
MCI promptly filed on 25 October 1999 a motion for reconsideration. In its Resolution of 4 February 2000, the Court of Appeals denied
MCI's motion for reconsideration for lack of merit, as well as CHATHAM's Motion to Lift Garnishment and Levy Pending Appeal, filed on 13
October 1999, for being premature.17
Thus, MCI filed the instant petition for review to challenge the decision of the Court of Appeals. MCI alleges that the Court of Appeals erred
in reviewing and reversing the CIAC's factual findings, that there was an implied takeover by CHATHAM of the project, and that MCI was not
in delay in the overall schedule. In so doing, the Court of Appeals contravened Section 19 of Executive Order (E.O.) No. 1008, 18 which limits
the review of an Arbitral Award to only questions of law, thus:
SECTION 19. Finality of Awards — The arbitral award shall be binding upon the parties. It shall be final and inappealable (sic),
except on questions of law which shall be appealable to the Supreme Court.
MCI then asserts that as signatories to the contract, it and CHATHAM complied with this legal provision when they included as part of their
TOR the stipulation that "[t]he decision of the Arbitral Tribunal shall be final and non-appealable except on questions of law." Accordingly,
the binding character of this provision upon the parties is conclusive and final.
MCI also contends that while it may be argued that recent (1) issuances by the Supreme Court, specifically, Circular No. 1-91, which
eventually became Revised Administrative Circular No. 1-95; (2) legislation in particular, Republic Act No. 7902, which amended Batas
Pambansa Blg. 129; and (3) amendments to the Rules on Civil Procedure, modifying E.O. No. 1008 in the sense that "questions of facts, of
law, or mixed questions of facts and law may be the subject of an appeal of the CIAC's decision to the Court of Appeals," it is still E.O. No.
1008 which remains to be the fundamental and substantive law that endows parties to an arbitral controversy the right to appeal. Hence,
the provisions on appeal of E.O. No. 1008 should be controlling, i.e., only questions of law should be entertained. Therefore, the only effect
of these rules on E.O. No. 1008 is the transfer of the appeal forum from the Supreme Court to the Court of Appeals.
MCI further asserts that, even assuming that the CIAC's findings of facts are reviewable on appeal, the Court of Appeals gravely abused its
discretion when it accepted "hook, line and sinker" CHATHAM's contention that MCI was in delay, and ignored competent, clear and
substantial evidence that prove the contrary, and that CHATHAM is not entitled to liquidated damages.
For its part, CHATHAM avers that the evolution on the rules governing appeals from judgments, decisions, resolutions, orders or awards of
the CIAC convincingly discloses that E.O. No. 1008 has already been superseded. With the power of the Supreme Court to promulgate rules
concerning the protection and enforcement of constitutional rights, pleadings, practice, and procedure in all courts, its issuances and
amendments to the Rules on Civil Procedure, not to mention R A. No. 7902, as enacted by Congress, effectively modified E.O. No. 1008.
Accordingly, the judgments, awards, decisions, resolutions, orders or awards of the CIAC are now appealable to the Court of Appeals on
questions of facts, mixed questions of facts and law, and questions of law, and no longer with the Supreme Court on exclusively questions
of law. Further, the TOR cannot limit the expanded jurisdiction of the Court of Appeals based on the latest rules. Thus, the Court of Appeals
did not err in reviewing the factual findings of the CIAC.
CHATHAM also contends that, even if the Court of Appeals can only review questions of law, said court did not err in rendering the
questioned decision as the conclusions therein, drawn as they were from factual determinations, can be considered questions of law. .
Finally, CHATHAM asseverates that the Court of Appeals did not commit grave abuse of discretion in reversing the CIAC's ascertainment on
the implied take-over and liquidated damages.
This Court shall now resolve the primary issue raised in this case.
EO. No. 1008 vest upon the CIAC original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by
parties involved in construction in the Philippines, whether the dispute arises before or after the completion of the contract, or after the
abandonment or breach thereof.19 By express provision of Section 19 thereof, the arbitral award of the CIAC is final and unappealable,
except on questions of law, which are appealable to the Supreme Court.
The parties, however, disagree on whether the subsequent Supreme Court issuances on appellate procedure and R.A. No. 7902 removed
from the Supreme Court its appellate jurisdiction in Section 19 of E.O. No. 1008 and vested the same in the Court of Appeals, and whether
appeals from CISC awards are no longer confined to questions of law.
On 27 February 1991, this Court issued Circular No. 1-91, which prescribes the Rules Governing Appeals to the Court of Appeals from Final
Orders or Decisions of the Court of Tax Appeals and Quasi-Judicial Agencies. Pertinent portions thereof read as follows:
1. Scope. — These rules shall apply to appeals from final orders or decisions of the Court of Tax Appeals. They shall also apply to
appeals from final orders or decisions of any quasi-judicial agency from which an appeal is now allowed by statute to the Court of
 Appeals or the Supreme Court. Among these agencies are the Securities and Exchange Commission, Land Registration Authority,
Social Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks and Technology Transfer, National
Electrification Administration, Energy Regulatory Board, National Telecommunications Commission, Secretary of Agrarian Reform
and Special Agrarian Courts under RA. No. 6657, Government Service Insurance System, Employees Compensation Commission,
Agricultural Inventions Board, Insurance Commission and Philippine Atomic Energy Commission.
2. Cases not Covered. — These rules shall not apply to decisions and interlocutory orders of the National Labor Relations
Commission or the Secretary of Labor and Employment under the Labor Code of the Philippines, the Central Board of Assessment
Appeals, and other quasi-judicial agencies from which no appeal to the courts is prescribed or allowed by statute.
3. Who may appeal and where to appeal. — The appeal of a party affected by a final order, decision, or judgment of the Court of
Tax Appeals or a quasi judicial agency shall be taken to the Court of Appeals within the period and in the manner herein provided,
whether the appeal involves questions of fact or of law or mixed questions of fact and law. From final judgments or decisions of
the Court of Appeals, the aggrieved party may appeal by certiorari to the Supreme Court as provided in Rule 45 of the Rules of
Court.
Subsequently, on 23 February 1995, RA. No. 7902 was enacted. It expanded the jurisdiction of the Court of Appeals and amended for that
purpose Section 9 of B.P. Blg. 129, otherwise known as the Judiciary Reorganization Act of 1980. 20
Section 9(3) thereof reads:
SECTION 9. Jurisdiction. — The Court of Appeals shall exercise:
xxx xxx xxx
(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards of Regional Trial Courts and
quasi-judicial agencies, instrumentalities, boards or commissions, including the Securities and Exchange Commission, the Social
Security Commission, the Employees Compensation Commission and the Civil Service Commission, except those falling within the
appellate jurisdiction of the Supreme Court in accordance with the Constitution, the Labor Code of the Philippines under
Presidential Decree No. 442, as amended, the provisions of this Act, and of subparagraph (1) of the third paragraph and
subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948.
The Court of Appeals shall have the power to try cases and conduct hearings, receive evidence and perform any and all acts
necessary to resolve factual issues raised in cases falling within its original and appellate jurisdiction, including the power to grant
and conduct new trials or further proceedings. x x x
Then this Court issued Administrative Circular No. 1-95,21 which revised Circular No. 1-91. Relevant portions of the former reads as follows:
1. Scope. — These rules shall apply to appeals from judgments or final orders of the Court of Tax Appeals and from awards,
judgments, final orders or resolutions of any quasi-judicial agency from which an appeal is authorized to be taken to the Court of
Appeals or the Supreme Court. Among these agencies are the Securities and Exchange Commission, Land Registration Authority,
Social Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks and Technology Transfer, National
Electrification Administration, Energy Regulatory Board, National Telecommunication Commission, Department of Agrarian
Reform under Republic Act No. 6657, Government Service Insurance System, Employees Compensation Commission, Agricultural
Inventions Board, Insurance Commission, Philippine Atomic Energy Commission, Board of Investments, and Construction Industry
Arbitration Commission.
SECTION 2. Cases Not Covered. — These rules shall not apply to judgments or final orders issued under the Labor Code of the
Philippines, Central Board of Assessment Appeals, and by other quasi-judicial agencies from which no appeal to the court is
prescribed or allowed.
SECTION 3. Where to Appeal. — An appeal under these rules 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.
Thereafter, this Court promulgated the 1997 Rules on Civil Procedure. Sections 1, 2 and 3 of Rule 43 thereof provides:
SECTION 1. Scope. — This Rule shall apply to appeals from judgments or final orders of the Court of Tax Appeals and from awards,
judgments, final orders or resolutions of or authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions.
Among these agencies are the Civil Service Commission, Central Board of Assessment Appeals, Securities and Exchange
Commission, Office of the President, Land Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of
Patents, Trademarks and Technology Transfer, National Electrification Administration, Energy Regulatory Board, National
Telecommunications Commission, Department of Agrarian Reform under Republic Act No. 6657, Government Service Insurance
System, Employees Compensation Commission, Agricultural Inventions Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction Industry Arbitration Commission, and voluntary arbitrators authorized by law.
SECTION 2. Cases Not Covered. — This Rule shall not apply to judgments or final orders issued under the Labor Code of the
Philippines.
SECTION 3. Were to Appeal. — An 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 question of fact, of law, or mixed questions of fact and law.
Through Circular No. 1-91, the Supreme Court intended to establish a uniform procedure for the review of the final orders or decisions of
the Court of Tax Appeals and other quasi judicial agencies provided that an appeal therefrom is then allowed under existing statutes to
either the Court of Appeals or the Supreme Court. The Circular designated the Court of Appeals as the reviewing body to resolve questions
of fact or of law or mixed questions of fact and law.
It is clear that Circular No. 1-91 covers the CIAC. In the first place, it is a quasi judicial agency. A quasi-judicial agency or body has been
defined as an organ of government other than a court and other than a legislature, which affects the rights of private parties through either
adjudication or rule-making.22 The very definition of an administrative agency includes its being vested with quasi judicial powers. The ever
increasing variety of powers and functions given to administrative agencies recognizes the need for the active intervention of
administrative agencies in matters calling for technical knowledge and speed in countless controversies which cannot possibly be handled
by regular courts.23 The CIAC's primary function is that of a quasi-judicial agency, which is to adjudicate claims and/or determine rights in
accordance with procedures set forth in E.O. No. 1008.
In the second place, the language of Section 1 of Circular No. 1-91 emphasizes the obvious inclusion of the CIAC even if it is not named in
the enumeration of quasi-judicial agencies. The introductory words "[a] among these agencies are" preceding the enumeration of specific
quasi-judicial agencies only highlight the fact that the list is not exclusive or conclusive. Further, the overture stresses and acknowledges
the existence of other quasi-judicial agencies not included in the enumeration but should be deemed included. In addition, the CIAC is
obviously excluded in the catalogue of cases not covered by the Circular and mentioned in Section 2 thereof for the reason that at the time
the Circular took effect, E.O. No. 1008 allows appeals to the Supreme Court on questions of law.
In sum, under Circular No. 1-91, appeals from the arbitral awards of the CIAC may be brought to the Court of Appeals, and not to the
Supreme Court alone. The grounds for the appeal are likewise broadened to include appeals on questions of facts and appeals involving
mixed questions of fact and law.
The jurisdiction of the Court of Appeals over appeals from final orders or decisions of the CIAC is further fortified by the amendments to
B.P. Blg. 129, as introduced by RA. No. 7902. With the amendments, the Court of Appeals is vested with appellate jurisdiction over all final
judgments, decisions, resolutions, orders or awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or
commissions, except "those within the appellate jurisdiction of the Supreme Court in accordance with the Constitution, the Labor Code of
the Philippines under Presidential Decree No. 442, as amended, the provisions of this Act, and of subparagraph (1) of the third paragraph
and subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948."
While, again, the CIAC was not specifically named in said provision, its inclusion therein is irrefutable. The CIAC was not expressly covered in
the exclusion. Further, it is a quasi-judicial agency or instrumentality. The decision in Luzon Development Bank v. Luzon Development Bank
Employees24 sheds light on the matter, thus:
Assuming arguendo that the voluntary arbitrator or the panel of voluntary arbitrators may not strictly be considered as a quasi-
judicial agency, board or commission, still both he and the panel are comprehended within the concept of a 'quasi-judicial
instrumentality.' It may even be stated that it was to meet the very situation presented by the quasi-judicial functions of the
voluntary arbitrators here, as well as the subsequent arbitrator/arbitral tribunal operating under the Construction Industry
Arbitration Commission, that the broader term 'instrumentalities' was purposely included in [Section 9 of B.P. Blg. 129 as
amended by RA. No. 7902].
An instrumentality' is anything used as a means or agency. Thus, the terms governmental 'agency' or 'instrumentality' are
synonymous in the sense that either of them is a means by which a government acts, or by which a certain government act or
function is performed. The word 'instrumentality,' with respect to a state, contemplates an authority to which the state delegates
governmental power for the performance of a state function.
Any remaining doubt on the procedural mutation of the provisions on appeal in E.O. No. 1008, vis-a-vis Circular No. 1-91 and R A. No. 7902,
was completely removed with the issuance by the Supreme Court of Revised Administrative Circular No. 1-95 and the 1997 Rules of Civil
Procedure. Both categorically include the CIAC in the enumeration of quasi-judicial agencies comprehended therein. Section 3 of the former
and Section 3, Rule 43 of the latter, explicitly expand the issues that may be raised in an appeal from quasi judicial agencies or
instrumentalities to the Court of Appeals within the period and in the manner therein provided. Indisputably, the review of the CIAC award
may involve either questions of fact, of law, or of fact and law.
In view of all the foregoing, we reject MCI's submission that Circular No. 1-91, B.P. Blg. 129, as amended by RA. 7902, Revised
Administrative Circular 1-95, and Rule 43 of the 1997 Rules of Civil Procedure failed to efficaciously modify the provision on appeals in E.O.
No. 1008. We further discard MCI's claim that these amendments have the effect of merely changing the forum for appeal from the
Supreme Court to the Court of Appeals.
There is no controversy on the principle that the right to appeal is statutory. However, the mode or manner by which this right may be
exercised is a question of procedure which may be altered and modified provided that vested rights are not impaired. The Supreme Court is
bestowed by the Constitution with the power and prerogative, inter alia, to promulgate rules concerning pleadings, practice and procedure
in all courts, as well as to review rules of procedure of special courts and quasi-judicial bodies, which, however, shall remain in force until
disapproved by the Supreme Court.25 This power is constitutionally enshrined to enhance the independence of the Supreme Court. 26
The right to appeal from judgments, awards, or final orders of the CIAC is granted in E.O. No. 1008. The procedure for the exercise or
application of this right was initially outlined in E.O. No. 1008. While R. A. No. 7902 and circulars subsequently issued by the Supreme Court
and its amendments to the 1997 Rules on Procedure effectively modified the manner by which the right to appeal ought to be exercised,
nothing in these changes impaired vested rights. The new rules do not take away the right to appeal allowed in E.O. No. 1008. They only
prescribe a new procedure to enforce the right.27 No litigant has a vested right in a particular remedy, which may be changed by
substitution without impairing vested rights; hence, he can have none in rules of procedure which relate to remedy." 28
The foregoing discussion renders academic MCI's assertion on the binding effect of its stipulation with CHATHAM in the TOR that the
decision of the CIAC shall be final and non-appealable except on questions of law. The agreement merely adopted Section 19 of E.O. No.
1008, which, as shown above, had been modified.
The TOR, any contract or agreement of the parties cannot amend, modify, limit, restrict or circumscribe legal remedies or the jurisdiction of
courts. Rules of procedure are matters of public order and interest and unless the rules themselves so allow, they cannot be altered,
changed or regulated by agreements between or stipulations of the parties for their singular convenience. 29
Having resolved the existence of the authority of the Court of Appeals to review the decisions, awards, or final orders of the CIAC, the Court
shall now determine whether the Court of Appeals erred in rendering the questioned decision of 30 September 1999.
Settled is the general rule that the findings of facts of the Court of Appeals are binding on us. There are recognized exceptions to the rule,
such as when the findings are contrary to those of the trial court 30 as in this case. Hence, we have to take a closer reexamination of this
case.
The CIAC is certain that the evidence overwhelmingly tended to prove that the manner by which CHATHAM took charge in the
procurement of materials, fielding of labor, control of MCI engineers and the subcontracting of various phases of the work, constituted an
implied takeover of the project. The CIAC then concludes that the cut-off date for delineating the fiscal liabilities of the parties is 23 May
1996 when CHATHAM evaluated MCI's work accomplishment at 94.12% and then suspended all further progress payments to MCI. For
these reasons, the CIAC found it trifling to determine whether MCI was in delay based on the Overall Schedule. However, the CIAC
discovered that MCI was in delay for 294 days in the concreting milestone and held the latter liable for liquidated damages in the amount of
P3,062,498.78.
The Court of Appeals made a contrary conclusion and declared that MCI was in delay for 193 days based on the overall schedule of
completion of the project and should incur liquidated damages in the amount of P24,125,000.00.
It is undisputed that the CIAC and the Court of Appeals found MCI liable for liquidated damages but on different premises. Based on the
CIAC's assessment, MCI's responsibility was anchored on its delay in the concreting milestone, while the Court of Appeal's evaluation
concentrated on MCI's delay in completing the project based on the overall schedule of work. The variance in the evaluation spells a
staggering difference in the party who should ultimately be held liable and the net amount involved.
A study of the final computation of the net amount due in both the final disquisition of the CIAC and the Court of Appeals shows that all the
other figures therein are constant, save for the amount of liquidated damages for which MCI should be accountable. If this Court concurs
with the CIAC's conclusions, MCI's responsibility for liquidated damages is, as already stated, P3,062,498.78. Setting this off against
CHATHAM's overall fiscal accountability would bring the latter's total liability to MCI to P16,126,922.91. If the Court of Appeals is correct,
MCI would be held liable for a much higher P24,125,000 liquidated damages. Setting this off against CHATHAM's monetary responsibilities,
MCI would still have to pay CHATHAM P4,935,578.31.
After painstakingly combing through the voluminous records, we affirm the findings of the CIAC. The evidence taken as a whole or in their
totality reveals that there was an implied takeover by CHATHAM on the completion of the project. The evidence that appears to accentuate
the Court of Appeals' decision ironically bolstered the CIAC's conclusion. The testimonies of Engr. Kapunan, Engr. Bautista, Dr. Lai, and the
letter of Engr. Ruiz,31 acknowledging the "temporary takeover" by CHATHAM of the project, underscore the palpable fact that there was
indeed a takeover. We confer particular credit to Dr. Lai's testimony that as of 15 February 1995, MCI was relieved of full control of the
construction operations, that it was relegated to a mere supplier of labor, materials and equipment, and that the alleged interim takeover
actually extended through the completion of the project. Even CHATHAM admits the takeover but sugarcoated the same with words like
"interim" did "charging the costs to MCI." With these glaring admissions, we can even consider that the takeover was not implied but
blatant.
Exhibits "4," "4-A," "4-C," "8A," "8," "4-D," '43," "3-I," "3-M," "3- N," "3-W-1," "3-X," "3-Y," "3-Z," "5,""5-A," "5-B," "5-C," "5-D," "5-E," "5-F,"
"5-O," "C-7," "E-9," etc.,32 relied upon by the Court of Appeals when considered by themselves and singly, seemingly and initially evince
MCI's control over the project. However, they eventually lose evidentiary puissance to support the Court of Appeals' conclusion when
reckoned against the totality of the evidence that CHATHAM took charge of the completion of the project, particularly, the fact that
CHATHAM suspended all progress billing payments to MCI. The continued presence and participation of MCI in the project was, as found by
the CIAC, a matter of mutual benefit to and convenience of the parties.
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the assailed 30 September 1999 decision of the Court of Appeals in CA-G.R SP No. 49429 is
hereby PARTIALLY MODIFIED by setting aside the order directing Metro Construction, Inc. to pay Chatham Properties, Inc. the amount of
P4,935,578.31. The arbitral award of the Construction Industry Arbitration Commission in CIAC Case 10-98, promulgated on 19 October
1998, directing Chatham Properties, Inc. to pay Metro Construction, Inc. the sum of SIXTEEN MILLION ONE HUNDRED TWENTY-SIX
THOUSAND NINE HUNDRED TWENTY-TWO & 91/100 (P16,126,922.91) PESOS, is accordingly REINSTATED.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 132848-49 June 26, 2001

PHILROCK, INC., petitioner,
vs.
CONSTRUCTION INDUSTRY ARBITRATION COMMISSION and Spouses VICENTE and NELIA CID, respondents.
PANGANIBAN, J.:
Courts encourage the use of alternative methods of dispute resolution. When parties agree to settle their disputes arising from or
connected with construction contracts, the Construction Industry Arbitration Commission (CIAC) acquires primary jurisdiction. It may
resolve not only the merits of such controversies; when appropriate, it may also award damages, interests, attorney’s fees and expenses of
litigation.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court. The Petition seeks the reversal of the July 9, 1997 Decision 1 and the
February 24, 1998 Resolution of the Court of Appeals (CA) in the consolidated cases docketed as CA-GR SP Nos. 39781 and 42443. The
assailed Decision disposed as follows:
"WHEREFORE, judgment is hereby rendered DENYING the petitions and, accordingly, AFFIRMING in totothe CIAC’s decision. Costs
against petitioner."2
The assailed Resolution ruled in this wise:
 "Considering that the matters raised and discussed in the motion for reconsideration filed by appellant’s counsel are substantially
the same arguments which the Court had passed upon and resolved in the decision sought to be reconsidered, and there being no
new issue raised, the subject motion is hereby DENIED."3
The Facts
The undisputed facts of the consolidated cases are summarized by the CA as follows:
"On September 14, 1992, the Cid spouses, herein private respondents, filed a Complaint for damages against Philrock and seven of
its officers and engineers with the Regional Trial Court of Quezon City, Branch 82.
"On December 7, 1993, the initial trial date, the trial court issued an Order dismissing the case and referring the same to the CIAC
because the Cid spouses and Philrock had filed an Agreement to Arbitrate with the CIAC.
"Thereafter, preliminary conferences were held among the parties and their appointed arbitrators. At these conferences,
disagreements arose as to whether moral and exemplary damages and tort should be included as an issue along with breach of
contract, and whether the seven officers and engineers of Philrock who are not parties to the Agreement to Arbitrate should be
included in the arbitration proceedings. No common ground could be reached by the parties, hence, on April 2, 1994, both the Cid
spouses and Philrock requested that the case be remanded to the trial court. On April 13, 1994, the CIAC issued an Order stating,
thus:
'x x x the Arbitral Tribunal hereby formally dismisses the above-captioned case for referral to Branch 82 of the Regional
Trial Court, Quezon City where it first originated.
SO ORDERED.'
"The Cid spouses then filed with said Branch of the Regional Trial Court of Quezon City a Motion To Set Case for Hearing which
motion was opposed by Philrock.
"On June 13, 1995, the trial court declared that it no longer had jurisdiction over the case and ordered the records of the case to
be remanded anew to the CIAC for arbitral proceedings.
"Pursuant to the aforementioned Order of the Regional Trial C[o]urt of Quezon City, the CIAC resumed conducting preliminary
conferences. On August 21, 1995, herein [P]etitioner Philrock requested to suspend the proceedings until the court clarified its
ruling in the Order dated June 13, 1995. Philrock argued that said Order was based on a mistaken premise that 'the proceedings in
the CIAC fell through because of the refusal of [Petitioner] Philrock to include the issue of damages therein,' whereas the true
reason for the withdrawal of the case from the CIAC was due to Philrock's opposition to the inclusion of its seven officers and
engineers, who did not give their consent to arbitration, as party defendants. On the other hand, private respondent Nelia Cid
manifested that she was willing to exclude the seven officers and engineers of Philrock as parties to the case so as to facilitate or
expedite the proceedings. With such manifestation from the Cid spouses, the Arbitral Tribunal denied Philrock's request for the
suspension of the proceedings. Philrock's counsel agreed to the continuation of the proceedings but reserved the right to file a
pleading elucidating the position he [had] raised regarding the Court's Order dated June 13, 1995. The parties then proceeded to
finalize, approve and sign the Terms of Reference. Philrock's counsel and representative, Atty. Pericles C. Consunji affixed his
signature to said Terms of Reference which stated that 'the parties agree that their differences be settled by an Arbitral Tribunal x
x x x' (p. 9, Terms of Reference, p. 200, Rollo).
"On September 12, 1995, [P]etitioner Philrock filed its Motion to Dismiss, alleging therein that the CIAC had lost jurisdiction to
hear the arbitration case due to the parties' withdrawal of their consent to arbitrate. The motion was denied by x x x CIAC per
Order dated September 22, 1995. On November 8, public respondent ordered the parties to appear before it on November 28,
1995 for the continuation of the arbitral proceedings, and on February 7, 1996, public respondent directed [P]etitioner Philrock to
set two hearing dates in the month of February to present its evidence and to pay all fees assessed by it, otherwise x x x Philrock
would be deemed to have waived its right to present evidence.
"Hence, petitioner instituted the petition for certiorari but while said petition was pending, the CIAC rendered its Decision dated
September 24, 1996, the dispositive portion of which reads, as follows:
'WHEREFORE, judgment is hereby rendered in favor of the Claimant, directing Respondent to pay Claimant as follows:
1. P23,276.25 representing the excess cash payment for materials ordered by the Claimants, (No. 7 of admitted facts)
plus interests thereon at the rate of 6% per annum from September 26, 1995 to the date payment is made.
2. P65,000.00 representing retrofitting costs.
3. P13,404.54 representing refund of the value of delivered but unworkable concrete mix that was laid to waste.
4. P50,000.00 representing moral damages.
5. P50,000.00 representing nominal damages.
6. P50,000.00 representing attorney's fees and expenses of litigation.
7. P144,756.80 representing arbitration fees, minus such amount that may already have been paid to CIAC by
respondent.
"Let a copy of this Decision be furnished the Honorable Salvador C. Ceguera, presiding judge, Branch 82 of Regional Trial Court of
Quezon City who referred this case to the Construction Industry Arbitration Commission for arbitration and proper disposition.'
(pp. 44-45, Rollo, CA-G.R. SP No. 42443) "4
Before the CA, petitioner filed a Petition for Review, docketed as CA-GR SP No. 42443, contesting the jurisdiction of the CIAC and assailing
the propriety of the monetary awards in favor of respondent spouses. This Petition was consolidated by the CA with CA-GR SP No. 39781, a
Petition for Certiorari earlier elevated by petitioner questioning the jurisdiction of the CIAC.
Ruling of the Court of Appeals
The CA upheld the jurisdiction of the CIAC5 over the dispute between petitioner and private respondent. Under Executive Order No. 1008,
the CIAC acquires jurisdiction when the parties agree to submit their dispute to voluntary arbitration. Thus, in the present case, its
jurisdiction continued despite its April 13, 1994 Order referring the case back to the Regional Trial Court (RTC) of Quezon City, Branch 82,
the court of origin. The CIAC’s action was based on the principle that once acquired, jurisdiction remains "until the full termination of the
case unless a law provides the contrary." No such "full termination" of the case was evident in the said Order; nor did the CIAC or private
respondents intend to put an end to the case.
Besides, according to Section 3 of the Rules of Procedure Governing Construction Arbitration, technical rules of law or procedure are not
applicable in a single arbitration or arbitral tribunal. Thus, the "dismissal" could not have divested the CIAC of jurisdiction to ascertain the
facts of the case, arrive at a judicious resolution of the dispute and enforce its award or decision.
Since the issues concerning the monetary awards were questions of fact, the CA held that those awards were inappropriate in a petition for
certiorari. Such questions are final and not appealable according to Section 19 of EO 1008, which provides that "arbitral awards shall be x x
x final and [u]nappealable except on questions of law which shall be appealable to the Supreme Court x x x." Nevertheless, the CA reviewed
the records and found that the awards were supported by substantial evidence. In matters falling under the field of expertise of quasi-
judicial bodies, their findings of fact are accorded great respect when supported by substantial evidence.
Hence, this Petition.6
Issues
The petitioner, in its Memorandum, raises the following issues:
"A.
Whether or not the CIAC could take jurisdiction over the case of Respondent Cid spouses against Petitioner Philrock after the case had been
dismissed by both the RTC and the CIAC.
"B.
Whether or not Respondent Cid spouses have a cause of action against Petitioner Philrock.
"C.
Whether or not the awarding of the amount of P23,276.75 for materials ordered by Respondent Spouses Cid plus interest thereon at the
rate of 6% from 26 September 1995 is proper.
"D.
Whether or not the awarding of the amount of P65,000.00 as retrofitting costs is proper.
"E.
Whether or not the awarding of the amount of P1,340,454 for the value of the delivered but the allegedly unworkable concrete which was
wasted is proper.
"F.
Whether or not the awarding o[f] moral and nominal damages and attorney's fees and expenses of litigation in favor of respondents is
proper.
"G.
Whether or not Petitioner Philrock should be held liable for the payment of arbitration fees." 7
In sum, petitioner imputes reversible error to the CA (1) for upholding the jurisdiction of the CIAC after the latter had dismissed the case
and referred it to the regular court, (2) for ruling that respondent spouses had a cause of action against petitioner, and (3) for sustaining the
award of damages.
This Court’s Ruling
The Petition has no merit.
First Issue:
Jurisdiction
Petitioner avers that the CIAC lost jurisdiction over the arbitration case after both parties had withdrawn their consent to arbitrate. The
June 13, 1995 RTC Order remanding the case to the CIAC for arbitration was allegedly an invalid mode of referring a case for arbitration.
We disagree. Section 4 of Executive Order 1008 expressly vests in the CIAC original and exclusive jurisdiction over disputes arising from or
connected with construction contracts entered into by parties that have agreed to submit their dispute to voluntary arbitration.8
It is undisputed that the parties submitted themselves to the jurisdiction of the Commission by virtue of their Agreement to Arbitrate dated
November 24, 1993. Signatories to the Agreement were Atty. Ismael J. Andres and Perry Y. Uy (president of Philippine Rock Products, Inc.)
for petitioner, and Nelia G. Cid and Atty. Esteban A. Bautista for respondent spouses. 9
Petitioner claims, on the other hand, that this Agreement was withdrawn by respondents on April 8, 1994, because of the exclusion of the
seven engineers of petitioners in the arbitration case. This withdrawal became the basis for the April 13, 1994 CIAC Order dismissing the
arbitration case and referring the dispute back to the RTC. Consequently, the CIAC was divested of its jurisdiction to hear and decide the
case.
This contention is untenable. First, private respondents removed the obstacle to the continuation of the arbitration, precisely by
withdrawing their objection to the exclusion of the seven engineers. Second, petitioner continued participating in the arbitration even after
the CIAC Order had been issued. It even concluded and signed the Terms of Reference 10 on August 21, 1995, in which the parties stipulated
the circumstances leading to the dispute; summarized their respective positions, issues, and claims; and identified the composition of the
tribunal of arbitrators. The document clearly confirms both parties’ intention and agreement to submit the dispute to voluntary arbitration.
In view of this fact, we fail to see how the CIAC could have been divested of its jurisdiction.
Finally, as pointed out by the solicitor general, petitioner maneuvered to avoid the RTC’s final resolution of the dispute by arguing that the
regular court also lost jurisdiction after the arbitral tribunal’s April 13, 1994 Order referring the case back to the RTC. In so doing, petitioner
conceded and estopped itself from further questioning the jurisdiction of the CIAC. The Court will not countenance the effort of any party
to subvert or defeat the objective of voluntary arbitration for its own private motives. After submitting itself to arbitration proceedings and
actively participating therein, petitioner is estopped from assailing the jurisdiction of the CIAC, merely because the latter rendered an
adverse decision.11
Second Issue:
Cause of Action
Petitioner contends that respondent spouses were negligent in not engaging the services of an engineer or architect who should oversee
their construction, in violation of Section 308 of the National Building Code. It adds that even if the concrete it delivered was defective,
respondent spouses should bear the loss arising from their illegal operation. In short, it alleges that they had no cause of action against it.
We disagree. Cause of action is defined as an act or omission by which a party violates the right of another.12 A complaint is deemed to
have stated a cause of action provided it has indicated the following: (1) the legal right of the plaintiff, (2) the correlative obligation of the
defendant, and (3) the act or the omission of the defendant in violation of the said legal right.13 The cause of action against petitioner was
clearly established. Respondents were purchasers of ready-mix concrete from petitioner. The concrete delivered by the latter turned out to
be of substandard quality. As a result, respondents sustained damages when the structures they built using such cement developed cracks
and honeycombs. Consequently, the construction of their residence had to be stopped.
Further, the CIAC Decision clearly spelled out respondents’ cause of action against petitioner, as follows:
"Accordingly, this Tribunal finds that the mix was of the right proportions at the time it left the plant. This, however, does not
necessarily mean that all of the concrete mix delivered had remained workable when it reached the jobsite. It should be noted
that there is no evidence to show that all the transit mixers arrived at the site within the allowable time that would ensure the
workability of the concrete mix delivered.
"On the other hand, there is sufficiently strong evidence to show that difficulties were encountered in the pouring of concrete mix
from certain transit mixers necessitating the [addition] of water and physically pushing the mix, obviously because the same [was]
no longer workable. This Tribunal holds that the unworkability of said concrete mix has been firmly established.
"There is no dispute, however, to the fact that there are defects in some areas of the poured structures. In this regard, this
Tribunal holds that the only logical reason is that the unworkable concrete was the one that was poured in the defective
sections."14
Third Issue:
Monetary Awards
Petitioner assails the monetary awards given by the arbitral tribunal for alleged lack of basis in fact and in law. The solicitor general
counters that the basis for petitioner’s assigned errors with regard to the monetary awards is purely factual and beyond the review of this
Court. Besides, Section 19, EO 1008, expressly provides that monetary awards by the CIAC are final and unappealable.
We disagree with the solicitor general. As pointed out earlier, factual findings of quasi-judicial bodies that have acquired expertise are
generally accorded great respect and even finality, if they are supported by substantial evidence. 15 The Court, however, has consistently
held that despite statutory provisions making the decisions of certain administrative agencies "final," it still takes cognizance of petitions
showing want of jurisdiction, grave abuse of discretion, violation of due process, denial of substantial justice or erroneous interpretation of
the law.16 Voluntary arbitrators, by the nature of their functions, act in a quasi-judicial capacity, such that their decisions are within the
scope of judicial review.17
Petitioner protests the award to respondent spouses of P23,276.25 as excess payment with six percent interest beginning September 26,
1995. It alleges that this item was neither raised as an issue by the parties during the arbitration case, nor was its justification discussed in
the CIAC Decision. It further contends that it could not be held liable for interest, because it had earlier tendered a check in the same
amount to respondent spouses, who refused to receive it.
Petitioner’s contentions are completely untenable. Respondent Nelia G. Cid had already raised the issue of overpayment even prior to the
formal arbitration. In paragraph 9 of the Terms of Reference, she stated:
"9. Claimants were assured that the problem and her demands had been the subject of several staff meetings and that Arteche
was very much aware of it, a memorandum having been submitted citing all the demands of [c]laimants. This assurance was made
on July 31, 1992 when Respondents Secillano, Martillano and Lomibao came to see Claimant Nelia Cid and offered to
refund P23,276.25, [t]he difference between the billing by Philrock’s Marketing Department in the amount of P125,586.25 and the
amount charged by Philrock's Batching Plant Department in the amount of only P102,586.25, which [c]laimant refused to accept
by saying, ‘Saka na lang’."18
The same issue was discussed during the hearing before the arbitration tribunal on December 19, 1995. 19 It was also mentioned in that
tribunal’s Decision dated September 24, 1996.20
The payment of interest is based on Article 2209 of the Civil Code, which provides that if the obligation consists of the payment of a sum of
money, and the debtor incurs delay, the indemnity for damages shall be the payment of legal interest which is six per cent per annum, in
the absence of a stipulation of the rate.
Awards for Retrofitting Costs, Wasted Unworkable
But Delivered Concrete, and Arbitration Fees
Petitioner maintains that the defects in the concrete structure were due to respondent spouses’ failure to secure the services of an
engineer or architect to supervise their project. Hence, it claims that the award for retrofitting cost was without legal basis. It also denies
liability for the wasted unworkable but delivered concrete, for which the arbitral court awarded P13,404.54. Finally, it complains against
the award of litigation expenses, inasmuch as the case should not have been instituted at all had respondents complied with the
requirements of the National Building Code.
We are unconvinced. Not only did respondents disprove the contention of petitioner; they also showed that they sustained damages due to
the defective concrete it had delivered. These were items of actual damages they sustained due to its breach of contract.
Moral and Nominal Damages, Attorney’s Fees and Costs
Petitioner assails the award of moral damages, claiming no malice or bad faith on its part.
We disagree. Respondents were deprived of the comfort and the safety of a house and were exposed to the agony of witnessing the
wastage and the decay of the structure for more than seven years. In her Memorandum, Respondent Nelia G. Cid describes her family’s
sufferings arising from the unreasonable delay in the construction of their residence, as follows: "The family lives separately for lack of
space to stay in. Mrs. Cid is staying in a small dingy bodega, while her son occupies another makeshift room. Their only daughter stayed
with her aunt from 1992 until she got married in 1996. x x x." 21 The Court also notes that during the pendency of the case, Respondent
Vicente Cid died without seeing the completion of their home.22 Under the circumstances, the award of moral damages is proper.
Petitioner also contends that nominal damages should not have been granted, because it did not breach its obligation to respondent
spouses.
Nominal damages are recoverable only if no actual or substantial damages resulted from the breach, or no damage was or can be
shown.23 Since actual damages have been proven by private respondents for which they were amply compensated, they are no longer
entitled to nominal damages.
Petitioner protests the grant of attorney’s fees, arguing that respondent spouses did not engage the services of legal counsel. Also, it
contends that attorney’s fees and litigation expenses are awarded only if the opposing party acted in gross and evident bad faith in refusing
to satisfy plaintiff’s valid, just and demandable claim.
We disagree. The award is not only for attorney’s fees, but also for expenses of litigation. Hence, it does not matter if respondents
represented themselves in court, because it is obvious that they incurred expenses in pursuing their action before the CIAC, as well as the
regular and the appellate courts. We find no reason to disturb this award.1âwphi1.nêt
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED; however, the award of nominal damages is DELETED for lack of
legal basis. Costs against petitioner.
SO ORDERED.

[G.R. No. 126212. March 2, 2000]

SEA-LAND SERVICE, INC., petitioner, vs. COURT OF APPEALS, A.P. MOLLER/MAERSK LINE and MAERSK-TABACALERA SHIPPING AGENCY
(FILIPINAS), INC., respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari seeks to annul and set aside the decision of the Court of Appeals dated September 29, 1995 in CA-G.R.
SP No. 35777,[1] dismissing the petition for certiorari filed by petitioner to annul the two (2) orders issued by the Regional Trial Court of
Quezon City, Branch 216, in Civil Case No. Q-92-12593.
The facts are as follows:
On April 29, 1991, petitioner Sea-Land Services, Inc. and private respondent A.P. Moller/Maersk Line (hereinafter referred to as "AMML"),
both carriers of cargo in containerships as well as common carriers, entered into a contract entitled, "Co-operation in the
Pacific"[2](hereinafter referred to as the "Agreement"), a vessel sharing agreement whereby they mutually agreed to purchase, share and
exchange needed space for cargo in their respective containerships. Under the Agreement, they could be, depending on the occasion,
either a principal carrier (with a negotiable bill of lading or other contract of carriage with respect to cargo) or a containership operator
(owner, operator or charterer of containership on which the cargo is carried).
During the lifetime of the said Agreement, or on 18 May 1991, Florex International, Inc. (hereinafter referred to as "Florex") delivered to
private respondent AMML cargo of various foodstuffs, with Oakland, California as port of discharge and San Francisco as place of delivery.
The corresponding Bill of Lading No. MAEU MNL110263 was issued to Florex by respondent AMML. Pursuant to the Agreement,
respondent AMML loaded the subject cargo on MS Sealand Pacer, a vessel owned by petitioner. Under this arrangement, therefore,
respondent AMML was the principal carrier while petitioner was the containership operator.
The consignee refused to pay for the cargo, alleging that delivery thereof was delayed. Thus, on June 26, 1992, Florex filed a complaint
against respondent Maersk-Tabacalera Shipping Agency (Filipinas), Inc. for reimbursement of the value of the cargo and other
charges.[3]According to Florex, the cargo was received by the consignee only on June 28, 1991, since it was discharged in Long Beach,
California, instead of in Oakland, California on June 5, 1991 as stipulated.
Respondent AMML filed its Answer[4] alleging that even on the assumption that Florex was entitled to reimbursement, it was petitioner
who should be liable. Accordingly, respondent AMML filed a Third Party Complaint [5] against petitioner on November 10, 1992, averring
that whatever damages sustained by Florex were caused by petitioner, which actually received and transported Florexs cargo on its vessels
and unloaded them.
On January 1, 1993, petitioner filed a Motion to Dismiss the Third Party Complaint[6] on the ground of failure to state a cause of action and
lack of jurisdiction, the amount of damages not having been specified therein. Petitioner also prayed either for dismissal or suspension of
the Third Party Complaint on the ground that there exists an arbitration agreement between it and respondent AMML. On September 27,
1993, the lower court issued an Order denying petitioners Motion to Dismiss. Petitioners Motion for Reconsideration was likewise denied
by the lower court in its August 22, 1994 Order.
Undaunted, petitioner filed a petition for certiorari[7] with the Court of Appeals on November 23, 1994. Meanwhile, petitioner also filed its
Answer to the Third Party Complaint in the trial court.
On September 29, 1995, respondent Court of Appeals rendered the assailed Decision dismissing the petition for certiorari. With the denial
of its Motion for Reconsideration, petitioner filed the instant petition for review, raising the following issues
I.
THE COURT OF APPEALS DISREGARDED AN AGREEMENT TO ARBITRATE IN VIOLATION OF STATUTE AND SUPREME
COURT DECISIONS HOLDING THAT ARBITRATION IS A CONDITION PRECEDENT TO SUIT WHERE SUCH AN AGREEMENT TO
ARBITRATE EXISTS.
II.
THE COURT OF APPEALS HAS RULED IN A MANNER NOT IN ACCORD WITH JURISPRUDENCE WHEN IT REFUSED TO HAVE
THE THIRD-PARTY COMPLAINT DISMISSED FOR FAILURE TO STATE A CAUSE OF ACTION AND FOR RULING THAT THE
FAILURE TO STATE A CAUSE OF ACTION MAY BE REMEDIED BY REFERENCE TO ITS ATTACHMENTS. [8]
Resolving first the issue of failure to state a cause of action, respondent Court of Appeals did not err in reading the Complaint of Florex and
respondent AMMLs Answer together with the Third Party Complaint to determine whether a cause of action is properly alleged. In Fil-
Estate Golf and Development, Inc. vs. Court of Appeals, [9] this Court ruled that in the determination of whether or not the complaint states a
cause of action, the annexes attached to the complaint may be considered, they being parts of the complaint.
Coming now to the main issue of arbitration, the pertinent clauses of the "Co-operation in the Pacific" contract entered into by the parties
provide:
16.2 For the purposes of this agreement the Containership Operator shall be deemed to have issued to the Principal
Carrier for good consideration and for both loaded and empty containers its non-negotiable memo bills of lading in the
form attached hereto as Appendix 6, consigned only to the Principal Carrier or its agents, provisions of which shall
govern the liability between the Principal Carrier and the Containership Operator and that for the purpose of
determining the liability in accordance with either Lines memo bill of lading, the number of packages or customary
freight units shown on the bill of lading issued by the Principal Carrier to its shippers shall be controlling.
16.3 The Principal Carrier shall use all reasonable endeavours to defend all in personam and in rem suits for loss of or
damage to cargo carried pursuant to bills of lading issued by it, or to settle such suits for as low a figure as reasonably
possible. The Principal Carrier shall have the right to seek damages and/or an indemnity from the Containership
Operator by arbitration pursuant to Clause 32 hereof. Notwithstanding the provisions of the Lines memo bills of lading
or any statutory rules incorporated therein or applicable thereto, the Principal Carrier shall be entitled to commence
such arbitration at any time until one year after its liability has been finally determined by agreement, arbitration
award or judgment, such award or judgment not being the subject of appeal, provided that the Containership
Operator has been given notice of the said claim in writing by the Principal Carrier within three months of the
Principal Carrier receiving notice in writing of the claim. Further the Principal Carrier shall have the right to grant
extensions of time for the commencement of suit to any third party interested in the cargo without prior reference to
the Containership Operator provided that notice of any extension so granted is given to the Containership Operator
within 30 days of any such extension being granted.
xxxxxxxxx
32. ARBITRATION
32.1 If at any time a dispute or claim arises out of or in connection with the Agreement the Lines shall endeavour to
settle such amicably, failing which it shall be referred to arbitration by a single arbitrator in London, such arbitrator to be
appointed by agreement between the Lines within 14 days after service by one Line upon the other of a notice specifying
the nature of the dispute or claim and requiring reference of such dispute or claim to arbitration pursuant to this Article.
32.2 Failing agreement upon an arbitrator within such period of 14 days, the dispute shall be settled by three Arbitrators,
each party appointing one Arbitrator, the third being appointed by the President of the London Maritime Arbitrators
Association.
32.3 If either of the appointed Arbitrators refuses or is incapable of acting, the party who appointed him shall appoint a
new Arbitrator in his place.
32.4 If one of the parties fails to appoint an Arbitrator either originally or by way of substitution for two weeks after the
other party having appointed his Arbitrator has sent the party making default notice by mail, fax or telex to make the
appointment, the party appointing the third Arbitrator shall, after application from the party having appointed his
Arbitrator, also appoint an Arbitrator in behalf of the party making default.
32.5 Any such arbitration shall be in accordance with the Arbitration Act 1950 as amended by the Arbitration Act 1979 or
any other subsequent legislation and the arbitrators award shall be final and binding upon Lines. To the extent permitted
by the Arbitration Act 1979 the Lines hereto exclude pursuant to S 3(1) of that Act the jurisdiction of the English High
Court of Justice to entertain any appeal or application under Section 1 and 2 of the Arbitration Act 1979.[10]
From the foregoing, the following matters are clear: First, disputes between the Principal Carrier and the Containership Operator arising
from contracts of carriage shall be governed by the provisions of the bills of lading issued to the Principal Carrier by the Containership
Operator. Second, the Principal Carrier shall use its best efforts to defend or settle all suits against it for loss of or damage to cargo pursuant
to bills of lading issued by it. Third, the Principal Carrier shall have the right to seek damages and/or indemnity from the Containership
Operator by arbitration, pursuant to Clause 32 of the agreement. Fourth, the Principal Carrier shall have the right to commence such
arbitration any time until one year after its liability has been finally determined by agreement, arbitration award or judgment, provided
that the Containership Operator was given notice in writing by the Principal Carrier within three months of the Principal Carrier receiving
notice in writing of said claim.
Prescinding from the foregoing matters, we find that both the trial court and the Court of Appeals erred in denying petitioners prayer for
arbitration.
To begin with, allowing respondent AMMLs Third Party Claim against petitioner to proceed would be in violation of Clause 16.2 of the
Agreement. As summarized, the clause provides that whatever dispute there may be between the Principal Carrier and the Containership
Operator arising from contracts of carriage shall be governed by the provisions of the bills of lading deemed issued to the Principal Carrier
by the Containership Operator. On the other hand, to sustain the Third Party Complaint would be to allow private respondent to hold
petitioner liable under the provisions of the bill of lading issued by the Principal Carrier to Florex, under which the latter is suing in its
Complaint, not under the bill of lading petitioner, as containership operator, issued to respondent AMML, as Principal Carrier, contrary to
what is contemplated in Clause 16.2.
The Court of Appeals ruled that the terms of the Agreement "explicitly required that the principal carriers claim against the containership
operator first be finally determined by, among others, a court judgment, before the right to arbitration accrues." However, the Court of
Appeals failed to consider that, precisely, arbitration is the mode by which the liability of the Containership Operator may be finally
determined. This is clear from the mandate of Clause 16.3 that "(T)he Principal Carrier shall have the right to seek damages and/or an
indemnity from the Containership Operator by arbitration" and that it "shall be entitled to commence such arbitration at any time until
one year after its liability has been finally determined by agreement, arbitration award or judgment".
For respondent Court of Appeals to say that the terms of the contract do not require arbitration as a condition precedent to judicial action
is erroneous. In the light of the Agreement clauses aforequoted, it is clear that arbitration is the mode provided by which respondent
AMML as Principal Carrier can seek damages and/or indemnity from petitioner, as Containership Operator. Stated differently, respondent
AMML is barred from taking judicial action against petitioner by the clear terms of their Agreement.
As the Principal Carrier with which Florex directly dealt with, respondent AMML can and should be held accountable by Florex in the event
that it has a valid claim against the former. Pursuant to Clause 16.3 of the Agreement, respondent AMML, when faced with such a suit
"shall use all reasonable endeavours to defend" itself or "settle such suits for as low a figure as reasonably possible". In turn, respondent
AMML can seek damages and/or indemnity from petitioner as Containership Operator for whatever final judgment may be adjudged
against it under the Complaint of Florex. The crucial point is that collection of said damages and/or indemnity from petitioner should be by
arbitration.
All told, when the text of a contract is explicit and leaves no doubt as to its intention, the court may not read into it any other intention that
would contradict its plain import.[11] Arbitration being the mode of settlement between the parties expressly provided for by their
Agreement, the Third Party Complaint should have been dismissed.
This Court has previously held that arbitration is one of the alternative methods of dispute resolution that is now rightfully vaunted as "the
wave of the future" in international relations, and is recognized worldwide. To brush aside a contractual agreement calling for arbitration in
case of disagreement between the parties would therefore be a step backward. [12]
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is GRANTED. The decision of the Court of Appeals in CA-
G.R. SP No. 35777 is REVERSED and SET ASIDE. The Regional Trial Court of Quezon City, Branch 77, is ordered to DISMISS Respondent
AMMLs Third Party Complaint in Civil Case No. Q-92-12593. No pronouncement as to costs.
SO ORDERED.

G.R. No. 129916 March 26, 2001

MAGELLAN CAPITAL MANAGEMENT CORPORATION and MAGELLAN CAPITAL HOLDINGS CORPORATION, petitioners,
vs.
ROLANDO M. ZOSA and HON. JOSE P. SOBERANO, JR., in his capacity as Presiding Judge of Branch 58 of the Regional Trial Court of Cebu,
7th Judicial Region, respondents.
BUENA, J.:
Under a management agreement entered into on March 18, 1994, Magellan Capital Holdings Corporation [MCHC] appointed Magellan
Capital Management Corporation [MCMC] as manager for the operation of its business and affairs. 1 Pursuant thereto, on the same month,
MCHC, MCMC, and private respondent Rolando M. Zosa entered into an "Employment Agreement" designating Zosa as President and Chief
Executive Officer of MCHC.
Under the "Employment Agreement", the term of respondent Zosa's employment shall be co-terminous with the management agreement,
or until March 1996,2 unless sooner terminated pursuant to the provisions of the Employment Agreement. 3 The grounds for termination of
employment are also provided in the Employment Agreement.
On May 10, 1995, the majority of MCHC's Board of Directors decided not to re-elect respondent Zosa as President and Chief Executive
Officer of MCHC on account of loss of trust and confidence4 arising from alleged violation of the resolution issued by MCHC's board of
directors and of the non-competition clause of the Employment Agreement. 5Nevertheless, respondent Zosa was elected to a new position
as MCHC's Vice-Chairman/Chairman for New Ventures Development.6
On September 26, 1995, respondent Zosa communicated his resignation for good reason from the position of Vice-Chairman under
paragraph 7 of the Employment Agreement on the ground that said position had less responsibility and scope than President and Chief
Executive Officer. He demanded that he be given termination benefits as provided for in Section 8 (c) (i) (ii) and (iii) of the Employment
Agreement.7
In a letter dated October 20, 1995, MCHC communicated its non-acceptance of respondent Zosa's resignation for good reason, but instead
informed him that the Employment Agreement is terminated for cause, effective November 19, 1995, in accordance with Section 7 (a) (v) of
the said agreement, on account of his breach of Section 12 thereof. Respondent Zosa was further advised that he shall have no further
rights under the said Agreement or any claims against the Manager or the Corporation except the right to receive within thirty (30) days
from November 19, 1995, the amounts stated in Section 8 (a) (i) (ii) of the Agreement.8
Disagreeing with the position taken by petitioners, respondent Zosa invoked the Arbitration Clause of the Employment Agreement, to wit:
"23. Arbitration. In the event that any dispute, controversy or claim arises out of or under any provisions of this Agreement, then
the parties hereto agree to submit such dispute, controversy or claim to arbitration as set forth in this Section and the
determination to be made in such arbitration shall be final and binding. Arbitration shall be effected by a panel of three
arbitrators. The Manager, Employee and Corporation shall designate one (1) arbitrator who shall, in turn, nominate and elect who
among them shall be the chairman of the committee. Any such arbitration, including the rendering of an arbitration award, shall
take place in Metro Manila. The arbitrators shall interpret this Agreement in accordance with the substantive laws of the Republic
of the Philippines. The arbitrators shall have no power to add to, subtract from or otherwise modify the terms of Agreement or to
grant injunctive relief of any nature. Any judgment upon the award of the arbitrators may be entered in any court having
jurisdiction thereof, with costs of the arbitration to be borne equally by the parties, except that each party shall pay the fees and
expenses of its own counsel in the arbitration."
On November 10, 1995, respondent Zosa designated his brother, Atty. Francis Zosa, as his representative in the arbitration panel9 while
MCHC designated Atty. Inigo S. Fojas10 and MCMC nominated Atty. Enrique I. Quiason11as their respective representatives in the arbitration
panel. However, instead of submitting the dispute to arbitration, respondent Zosa, on April 17, 1996, filed an action for damages against
petitioners before the Regional Trial Court of Cebu12 to enforce his benefits under the Employment Agreement.
On July 3, 1996, petitioners filed a motion to dismiss 13 arguing that (1) the trial court has no jurisdiction over the instant case since
respondent Zosa's claims should be resolved through arbitration pursuant to Section 23 of the Employment Agreement with petitioners;
and (2) the venue is improperly laid since respondent Zosa, like the petitioners, is a resident of Pasig City and thus, the venue of this case,
granting without admitting that the respondent has a cause of action against the petitioners cognizable by the RTC, should be limited only
to RTC-Pasig City.14
Meanwhile, respondent Zosa filed an amended complaint dated July 5, 1996.
On August 1, 1996, the RTC Branch 58 of Cebu City issued an Order denying petitioners motion to dismiss upon the findings that (1) the
validity and legality of the arbitration provision can only be determined after trial on the merits; and (2) the amount of damages claimed,
which is over P100,000.00, falls within the jurisdiction of the RTC. 15Petitioners filed a motion for reconsideration which was denied by the
RTC in an order dated September 5, 1996.16
In the interim, on August 22, 1996, in compliance with the earlier order of the court directing petitioners to file responsive pleading to the
amended complaint, petitioners filed their Answer Ad Cautelam with counterclaim reiterating their position that the dispute should be
settled through arbitration and the court had no jurisdiction over the nature of the action.17
On October 21, 1996, the trial court issued its pre-trial order declaring the pre-trial stage terminated and setting the case for hearing. The
order states:
"ISSUES:
"The Court will only resolve one issue in so far as this case is concerned, to wit:
"Whether or not the Arbitration Clause contained in Sec. 23 of the Employment Agreement is void and of no effect: and, if it is
void and of no effect, whether or not the plaintiff is entitled to damages in accordance with his complaint and the defendants in
accordance with their counterclaim.
"It is understood, that in the event the arbitration clause is valid and binding between the parties, the parties shall submit their
respective claim to the Arbitration Committee in accordance with the said arbitration clause, in which event, this case shall be
deemed dismissed."18
On November 18, 1996, petitioners filed their Motion Ad Cautelam for the Correction, Addition and Clarification of the Pre-trial Order
dated November 15, 1996,19 which was denied by the court in an order dated November 28, 1996.20
Thereafter, petitioners MCMC and MCHC filed a Motion Ad Cautelam for the parties to file their Memoranda to support their respective
stand on the issue of the validity of the "arbitration clause" contained in the Employment Agreement. In an order dated December 13,
1996, the trial court denied the motion of petitioners MCMC and MCHC.
On January 17, 1997, petitioners MCMC and MCHC filed a petition for certiorari and prohibition under Rule 65 of the Rules of Court with
the Court of Appeals, questioning the trial court orders dated August 1, 1996, September 5, 1996, and December 13, 1996. 21
On March 21, 1997, the Court of Appeals rendered a decision, giving due course to the petition, the decretal portion of which reads:
"WHEREFORE, the petition is GIVEN DUE COURSE. The respondent court is directed to resolve the issue on the validity or
effectivity of the arbitration clause in the Employment Agreement, and to suspend further proceedings in the trial on the merits
until the said issue is resolved. The questioned orders are set aside insofar as they contravene this Court's resolution of the issues
raised as herein pronounced.
"The petitioner is required to remit to this Court the sum of P81.80 for cost within five (5) days from notice.
"SO ORDERED."22
Petitioners filed a motions for partial reconsideration of the CA decision praying (1) for the dismissal of the case in the trial court, on the
ground of lack of jurisdiction, and (2) that the parties be directed to submit their dispute to arbitration in accordance with the Employment
Agreement dated March 1994. The CA, in a resolution promulgated on June 20, 1997, denied the motion for partial reconsideration for lack
of merit.
In compliance with the CA decision, the trial court, on July 18, 1997, rendered a decision declaring the "arbitration clause" in
the Employment Agreement partially void and of no effect. The dispositive portion of the decision reads:
 "WHEREFORE, premises considered, judgment is hereby rendered partially declaring the arbitration clause of the Employment
Agreement void and of no effect, only insofar as it concerns the composition of the panel of arbitrators, and directing the parties
to proceed to arbitration in accordance with the Employment Agreement under the panel of three (3) arbitrators, one for the
plaintiff, one for the defendants, and the third to be chosen by both the plaintiff and defendants. The other terms, conditions and
stipulations in the arbitration clause remain in force and effect."23
In view of the trial court's decision, petitioners filed this petition for review on certiorari, under Rule 45 of the Rules of Court, assigning the
following errors for the Court's resolution:
"I. The trial court gravely erred when it ruled that the arbitration clause under the employment agreement is partially void and of
no effect, considering that:
"A. The arbitration clause in the employment agreement dated March 1994 between respondent Zosa and defendants
MCHC and MCMC is valid and binding upon the parties thereto.
"B. In view of the fact that there are three parties to the employment agreement, it is but proper that each party be
represented in the arbitration panel.
"C. The trial court grievously erred in its conclusion that petitioners MCMC and MCHC represent the same interest.
"D. Respondent Zosa is estopped from questioning the validity of the arbitration clause, including the right of petitioner
MCMC to nominate its own arbitrator, which he himself has invoked.
"II. In any event, the trial court acted without jurisdiction in hearing the case below, considering that it has no jurisdiction over the
nature of the action or suit since controversies in the election or appointment of officers or managers of a corporation, such as the
action brought by respondent Zosa, fall within the original and exclusive jurisdiction of the Securities and Exchange Commission.
"III. Contrary to respondent Zosa's allegation, the issue of the trial court's jurisdiction over the case below has not yet been
resolved with finality considering that petitioners have expressly reserved their right to raise said issue in the instant petition.
Moreover, the principle of the law of the case is not applicable in the instant case.
"IV. Contrary to respondent Zosa's allegation, petitioners MCMC and MCHC are not guilty of forum shopping.
"V. Contrary to respondent Zosa's allegation, the instant petition for review involves only questions of law and not of fact."24
We rule against the petitioners.
It is error for the petitioners to claim that the case should fall under the jurisdiction of the Securities and Exchange Commission [SEC, for
brevity]. The controversy does not in anyway involve the election/appointment of officers of petitioner MCHC, as claimed by petitioners in
their assignment of errors. Respondent Zosa's amended complaint focuses heavily on the illegality of the Employment
Agreement's "Arbitration Clause" initially invoked by him in seeking his termination benefits under Section 8 of the employment contract.
And under Republic Act No. 876, otherwise known as the "Arbitration Law," it is the regional trial court which exercises jurisdiction over
questions relating to arbitration. We thus advert to the following discussions made by the Court of Appeals, speaking thru Justice Minerva
P. Gonzaga-Reyes,25 in C.A.-G.R. S.P. No. 43059, viz.
"As regards the fourth assigned error, asserting that jurisdiction lies with the SEC, which is raised for the first time in this petition,
suffice it to state that the Amended Complaint squarely put in issue the question whether the Arbitration Clause is valid and
effective between the parties. Although the controversy which spawned the action concerns the validity of the termination of the
service of a corporate officer, the issue on the validity and effectivity of the arbitration clause is determinable by the regular
courts, and do not fall within the exclusive and original jurisdiction of the SEC.
"The determination and validity of the agreement is not a matter intrinsically connected with the regulation and internal affairs of
corporations (see Pereyra vs. IAC, 181 SCRA 244; Sales vs. SEC, 169 SCRA 121); it is rather an ordinary case to be decided in
accordance with the general laws, and do not require any particular expertise or training to interpret and apply (Viray vs. CA, 191
SCRA 308)."26
Furthermore, the decision of the Court of Appeals in CA-G.R. SP No. 43059 affirming the trial court's assumption of jurisdiction over the
case has become the "law of the case" which now binds the petitioners. The "law of the case" doctrine has been defined as "a term applied
to an established rule that when an appellate court passes on a question and remands the cause to the lower court for further proceedings,
the question there settled becomes the law of the case upon subsequent appeal." 27 To note, the CA's decision in CA-G.R. SP No. 43059 has
already attained finality as evidenced by a Resolution of this Court ordering entry of judgment of said case, to wit:
"ENTRY OF JUDGMENT
This is to certify that on September 8, 1997 a decision/resolution rendered in the above-entitled case was filed in this Office, the
dispositive part of which reads as follows:
'G.R. No. 129615. (Magellan Capital Management Corporation, et al. vs. Court of Appeals, Rolando Zosa, et al.).
Considering the petitioner's manifestation dated August 11, 1997 and withdrawal of intention to file petition for review
on certiorari, the Court Resolved to DECLARE THIS CASE TERMINATED and DIRECT the Clerk of Court to INFORM the
parties that the judgment sought to be reviewed has become final and executory, no appeal therefore having been
timely perfected.'
and that the same has, on September 17, 1997, become final and executory and is hereby recorded in the Book of Entries of
Judgments."28
Petitioners, therefore, are barred from challenging anew, through another remedial measure and in any other forum, the authority of the
regional trial court to resolve the validity of the arbitration clause, lest they be truly guilty of forum-shopping which the courts consistently
consider as a contumacious practice that derails the orderly administration of justice.
Equally unavailing for the petitioners is the review by this Court, via the instant petition, of the factual findings made by the trial court that
the composition of the panel of arbitrators would, in all probability, work injustice to respondent Zosa. We have repeatedly stressed that
the jurisdiction of this Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only
errors of law, not of fact, unless the factual findings complained of are devoid of support by the evidence on record, or the assailed
judgment is based on misapprehension of facts.29
Even if procedural rules are disregarded, and a scrutiny of the merits of the case is undertaken, this Court finds the trial court's observations
on why the composition of the panel of arbitrators should be voided, incisively correct so as to merit our approval. Thus,
"From the memoranda of both sides, the Court is of the view that the defendants [petitioner] MCMC and MCHC represent the
same interest. There is no quarrel that both defendants are entirely two different corporations with personalities distinct and
separate from each other and that a corporation has a personality distinct and separate from those persons composing the
corporation as well as from that of any other legal entity to which it may be related.
"But as the defendants [herein petitioner] represent the same interest, it could never be expected, in the arbitration proceedings,
that they would not protect and preserve their own interest, much less, would both or either favor the interest of the plaintiff.
The arbitration law, as all other laws, is intended for the good and welfare of everybody. In fact, what is being challenged by the
plaintiff herein is not the law itself but the provision of the Employment Agreement based on the said law, which is the arbitration
clause but only as regards the composition of the panel of arbitrators. The arbitration clause in question provides, thus:
'In the event that any dispute, controversy or claim arise out of or under any provisions of this Agreement, then the
parties hereto agree to submit such dispute, controversy or claim to arbitration as set forth in this Section and the
determination to be made in such arbitration shall be final and binding. Arbitration shall be effected by a panel of three
arbitrators. The Manager, Employee, and Corporationshall designate one (1) arbitrator who shall, in turn, nominate and
elect as who among them shall be the chairman of the committee. Any such arbitration, including the rendering of an
arbitration award, shall take place in Metro Manila. The arbitrators shall interpret this Agreement in accordance with the
substantive laws of the Republic of the Philippines. The arbitrators shall have no power to add to, subtract from or
otherwise modify the terms of this Agreement or to grant injunctive relief of any nature. Any judgment upon the award
of the arbitrators may be entered in any court having jurisdiction thereof, with costs of the arbitration to be borne
equally by the parties, except that each party shall pay the fees and expenses of its own counsel in the arbitration.'
(Emphasis supplied).
"From the foregoing arbitration clause, it appears that the two (2) defendants [petitioners] (MCMC and MCHC) have one (1)
arbitrator each to compose the panel of three (3) arbitrators. As the defendant MCMC is the Manager of defendant MCHC, its
decision or vote in the arbitration proceeding would naturally and certainly be in favor of its employer and the defendant MCHC
would have to protect and preserve its own interest; hence, the two (2) votes of both defendants (MCMC and MCHC) would
certainly be against the lone arbitrator for the plaintiff [herein defendant]. Hence, apparently, plaintiff [defendant] would never
get or receive justice and fairness in the arbitration proceedings from the panel of arbitrators as provided in the aforequoted
arbitration clause. In fairness and justice to the plaintiff [defendant], the two defendants (MCMC and MCHC) [herein petitioners]
which represent the same interest should be considered as one and should be entitled to only one arbitrator to represent them in
the arbitration proceedings. Accordingly, the arbitration clause, insofar as the composition of the panel of arbitrators is concerned
should be declared void and of no effect, because the law says, "Any clause giving one of the parties power to choose more
arbitrators than the other is void and of no effect" (Article 2045, Civil Code).
"The dispute or controversy between the defendants (MCMC and MCHC) [herein petitioners] and the plaintiff [herein defendant]
should be settled in the arbitration proceeding in accordance with the Employment Agreement, but under the panel of three (3)
arbitrators, one (1) arbitrator to represent the plaintiff, one (1) arbitrator to represent both defendants (MCMC and MCHC)
[herein petitioners] and the third arbitrator to be chosen by the plaintiff [defendant Zosa] and defendants [petitioners].
"xxx xxx xxx"30
In this connection, petitioners' attempt to put respondent in estoppel in assailing the arbitration clause must be struck down. For one, this
issue of estoppel, as likewise noted by the Court of Appeals, found its way for the first time only on appeal. Well-settled is the rule that
issues not raised below cannot be resolved on review in higher courts. 31 Secondly, employment agreements such as the one at bar are
usually contracts of adhesion. Any ambiguity in its provisions is generally resolved against the party who drafted the document. Thus, in the
relatively recent case of Phil. Federation of Credit Cooperatives, Inc. (PFCCI) and Fr. Benedicto Jayoma vs. NLRC and Victoria Abril,32 we had
the occasion to stress that "where a contract of employment, being a contract of adhesion, is ambiguous, any ambiguity therein should be
construed strictly against the party who prepared it." And, finally, respondent Zosa never submitted himself to arbitration proceedings (as
there was none yet) before bewailing the composition of the panel of arbitrators. He in fact, lost no time in assailing the "arbitration
clause" upon realizing the inequities that may mar the arbitration proceedings if the existing line-up of arbitrators remained unchecked.
We need only to emphasize in closing that arbitration proceedings are designed to level the playing field among the parties in pursuit of a
mutually acceptable solution to their conflicting claims. Any arrangement or scheme that would give undue advantage to a party in the
negotiating table is anathema to the very purpose of arbitration and should, therefore, be resisted.
WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of the trial court dated July 18, 1997 is AFFIRMED.
SO ORDERED.

G.R. No. 136154 February 7, 2001

DEL MONTE CORPORATION-USA, PAUL E. DERBY, JR., DANIEL COLLINS and LUIS HIDALGO, petitioners,
vs.
COURT OF APPEALS, JUDGE BIENVENIDO L. REYES in his capacity as Presiding Judge, RTC-Br. 74, Malabon, Metro Manila, MONTEBUENO
MARKETING, INC., LIONG LIONG C. SY and SABROSA FOODS, INC., respondents.
BELLOSILLO, J.:
This Petition for Review on certiorari assails the 17 July 1998 Decision1 of the Court of Appeals affirming the 11 November 1997 Order 2 of
the Regional Trial Court which denied petitioners' Motion to Suspend Proceedings in Civil Case No. 2637-MN. It also questions the appellate
court's Resolution3 of 30 October 1998 which denied petitioners' Motion for Reconsideration.
On 1 July 1994, in a Distributorship Agreement, petitioner Del Monte Corporation-USA (DMC-USA) appointed private respondent
Montebueno Marketing, Inc. (MMI) as the sole and exclusive distributor of its Del Monte products in the Philippines for a period of five (5)
years, renewable for two (2) consecutive five (5) year periods with the consent of the parties. The agreement provided, among others, for
an arbitration clause which states –
12. GOVERNING LAW AND ARBITRATION4
This Agreement shall be governed by the laws of the State of California and/or, if applicable, the United States of America. All
disputes arising out of or relating to this Agreement or the parties' relationship, including the termination thereof, shall be resolved
by arbitration in the City of San Francisco, State of California, under the Rules of the American Arbitration Association. The
arbitration panel shall consist of three members, one of whom shall be selected by DMC-USA, one of whom shall be selected by
MMI, and third of whom shall be selected by the other two members and shall have relevant experience in the industry x x x x
In October 1994 the appointment of private respondent MMI as the sole and exclusive distributor of Del Monte products in the Philippines
was published in several newspapers in the country. Immediately after its appointment, private respondent MMI appointed Sabrosa Foods,
Inc. (SFI), with the approval of petitioner DMC-USA, as MMI's marketing arm to concentrate on its marketing and selling function as well as
to manage its critical relationship with the trade.
On 3 October 1996 private respondents MMI, SFI and MMI's Managing Director Liong Liong C. Sy (LILY SY) filed a Complaint 5 against
petitioners DMC-USA, Paul E. Derby, Jr.,6 Daniel Collins7 and Luis Hidalgo,8 and Dewey Ltd.9before the Regional Trial Court of Malabon,
Metro Manila. Private respondents predicated their complaint on the alleged violations by petitioners of Arts. 20, 10 2111 and 2312 of the Civil
Code. According to private respondents, DMC-USA products continued to be brought into the country by parallel importers despite the
appointment of private respondent MMI as the sole and exclusive distributor of Del Monte products thereby causing them great
embarrassment and substantial damage. They alleged that the products brought into the country by these importers were aged, damaged,
fake or counterfeit, so that in March 1995 they had to cause, after prior consultation with Antonio Ongpin, Market Director for Special
Markets of Del Monte Philippines, Inc., the publication of a "warning to the trade" paid advertisement in leading newspapers. Petitioners
DMC-USA and Paul E. Derby, Jr., apparently upset with the publication, instructed private respondent MMI to stop coordinating with
Antonio Ongpin and to communicate directly instead with petitioner DMC-USA through Paul E. Derby, Jr.
Private respondents further averred that petitioners knowingly and surreptitiously continued to deal with the former in bad faith by
involving disinterested third parties and by proposing solutions which were entirely out of their control. Private respondents claimed that
they had exhausted all possible avenues for an amicable resolution and settlement of their grievances; that as a result of the fraud, bad
faith, malice and wanton attitude of petitioners, they should be held responsible for all the actual expenses incurred by private respondents
in the delayed shipment of orders which resulted in the extra handling thereof, the actual expenses and cost of money for the unused
Letters of Credit (LCs) and the substantial opportunity losses due to created out-of-stock situations and unauthorized shipments of Del
Monte-USA products to the Philippine Duty Free Area and Economic zone; that the bad faith, fraudulent acts and willful negligence of
petitioners, motivated by their determination to squeeze private respondents out of the outstanding and ongoing Distributorship
Agreement in favor of another party, had placed private respondent LILY SY on tenterhooks since then; and, that the shrewd and subtle
manner with which petitioners concocted imaginary violations by private respondent MMI of the Distributorship Agreement in order to
justify the untimely termination thereof was a subterfuge. For the foregoing, private respondents claimed, among other reliefs, the
payment of actual damages, exemplary damages, attorney's fees and litigation expenses.
On 21 October 1996 petitioners filed a Motion to Suspend Proceedings13 invoking the arbitration clause in their Agreement with private
respondents.1âwphi1.nêt
In a Resolution14 dated 23 December 1996 the trial court deferred consideration of petitioners' Motion to Suspend Proceedings as the
grounds alleged therein did not constitute the suspension of the proceedings considering that the action was for damages with prayer for
the issuance of Writ of Preliminary Attachment and not on the Distributorship Agreement.
On 15 January 1997 petitioners filed a Motion for Reconsideration to which respondents filed their Comment/Opposition. On 31 January
1997 petitioners filed their Reply. Subsequently, private respondents filed an Urgent Motion for Leave to Admit Supplemental
Pleading dated 2 April 1997. This Motion was admitted, over petitioners' opposition, in an Order of the trial court dated 27 June 1997.
As a result of the admission of the Supplemental Complaint, petitioners filed on 22 July 1997 a Manifestationadopting their Motion to
Suspend Proceedings of 17 October 1996 and Motion for Reconsideration of 14 January 1997.
On 11 November 1997 the Motion to Suspend Proceedings was denied by the trial court on the ground that it "will not serve the ends of
justice and to allow said suspension will only delay the determination of the issues, frustrate the quest of the parties for a judicious
determination of their respective claims, and/or deprive and delay their rights to seek redress." 15
On appeal, the Court of appeals affirmed the decision of the trial court. It held that the alleged damaging acts recited in the Complaint,
constituting petitioners' causes of action, required the interpretation of Art. 21 of the Civil Code 16and that in determining whether
petitioners had violated it "would require a full blown trial" making arbitration "out of the question."17 Petitioners' Motion for
Reconsideration of the affirmation was denied. Hence, this Petition for Review.
The crux of the controversy boils down to whether the dispute between the parties warrants an order compelling them to submit to
arbitration.
Petitioners contend that the subject matter of private respondents' causes of action arises out of or relates to the Agreement between
petitioners and private respondents. Thus, considering that the arbitration clause of the Agreement provides that all disputes arising out of
or relating to the Agreement or the parties' relationship, including the termination thereof, shall be resolved by arbitration, they insist on
the suspension of the proceedings in Civil Case No. 2637-MN as mandated by Sec. 7 of RA 87618 –
Sec. 7. Stay of Civil Action. If any suit or proceeding be brought upon an issue arising out of an agreement providing for 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.
Private respondents claim, on the other hand, that their causes of action are rooted in Arts. 20, 21 and 23 of the Civil Code,19 the
determination of which demands a full blown trial, as correctly held by the Court of Appeals. Moreover, they claim that the issues before
the trial court were not joined so that the Honorable Judge was not given the opportunity to satisfy himself that the issue involved in the
case was referable to arbitration. They submit that, apparently, petitioners filed a motion to suspend proceedings instead of sending a
written demand to private respondents to arbitrate because petitioners were not sure whether the case could be a subject of arbitration.
They maintain that had petitioners done so and private respondents failed to answer the demand, petitioners could have filed with the trial
court their demand for arbitration that would warrant a determination by the judge whether to refer the case to arbitration. Accordingly,
private respondents assert that arbitration is out of the question.
Private respondents further contend that the arbitration clause centers more on venue rather than on arbitration. They finally allege that
petitioners filed their motion for extension of time to file this petition on the same date 20petitioner DMC-USA filed a petition to compel
private respondent MMI to arbitrate before the United States District Court in Northern California, docketed as Case No. C-98-4446. They
insist that the filing of the petition to compel arbitration in the United States made the petition filed before this Court an alternative
remedy and, in a way, an abandonment of the cause they are fighting for her in the Philippines, thus warranting the dismissal of the
present petition before this Court.
There is no doubt that arbitration is valid and constitutional in our jurisdiction.21 Even before the enactment of RA 876, this Court has
countenanced the settlement of disputes through arbitration. Unless the agreement is such as absolutely to close the doors of the courts
against the parties, which agreement would be void, the courts will look with favor upon such amicable arrangement and will only interfere
with great reluctance to anticipate or nullify the action of the arbitrator.22 Moreover, as RA 876 expressly authorizes arbitration of domestic
disputes, foreign arbitration as a system of settling commercial disputes was likewise recognized when the Philippines adhered to the
United Nations "Convention on the Recognition and the Enforcement of Foreign Arbitral Awards of 1958" under the 10 May 1965 Resolution
No. 71 of the Philippine Senate, giving reciprocal recognition and allowing enforcement of international arbitration agreements between
parties of different nationalities within a contracting state. 23
A careful examination of the instant case shows that the arbitration clause in the Distributorship Agreement between petitioner DMC-USA
and private respondent MMI is valid and the dispute between the parties is arbitrable. However, this Court must deny the petition.
The Agreement between petitioner DMC-USA and private respondent MMI is a contract. The provision to submit to arbitration any dispute
arising therefrom and the relationship of the parties is part of that contract and is itself a contract. As a rule, contracts are respected as the
law between the contracting parties and produce effect as between them, their assigns and heirs. 24 Clearly, only parties to the Agreement,
i.e., petitioners DMC-USA and its Managing Director for Export Sales Paul E. Derby, Jr., and private respondents MMI and its Managing
Director LILY SY are bound by the Agreement and its arbitration clause as they are the only signatories thereto. Petitioners Daniel Collins
and Luis Hidalgo, and private respondent SFI, not parties to the Agreement and cannot even be considered assigns or heirs of the parties,
are not bound by the Agreement and the arbitration clause therein. Consequently, referral to arbitration in the State of California pursuant
to the arbitration clause and the suspension of the proceedings in Civil Case No. 2637-MN pending the return of the arbitral award could be
called for25 but only as to petitioners DMC-USA and Paul E. Derby, Jr., and private respondents MMI and LILY SY, and not as to the other
parties in this case. This is consistent with the recent case of Heirs of Augusto L. Salas, Jr. v. Laperal Realty Corporation,26 which superseded
that of Toyota Motor Philippines Corp. v. Court of Appeals.27
In Toyota, the Court ruled that "[t]he contention that the arbitration clause has become dysfunctional because of the presence of third
parties is untenable" ratiocinating that "[c]ontracts are respected as the law between the contracting parties" 28 and that "[a]s such, the
parties are thereby expected to abide with good faith in their contractual commitments."29 However, in Salas, Jr., only parties to the
Agreement, their assigns or heirs have the right to arbitrate or could be compelled to arbitrate. The Court went further by declaring that in
recognizing the right of the contracting parties to arbitrate or to compel arbitration, the splitting of the proceedings to arbitration as to
some of the parties on one hand and trial for the others on the other hand, or the suspension of trial pending arbitration between some of
the parties, should not be allowed as it would, in effect, result in multiplicity of suits, duplicitous procedure and unnecessary delay. 30
The object of arbitration is to allow the expeditious determination of a dispute. 31 Clearly, the issue before us could not be speedily and
efficiently resolved in its entirety if we allow simultaneous arbitration proceedings and trial, or suspension of trial pending arbitration.
Accordingly, the interest of justice would only be served if the trial court hears and adjudicates the case in a single and complete
proceeding.32
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals affirming the Order of the Regional Trial Court of Malabon,
Metro Manila, in Civil Case No. 2637-MN, which denied petitioners' Motion to Suspend Proceedings, is AFFIRMED. The Regional Trial Court
concerned is directed to proceed with the hearing of Civil Case No. 2637-MN with dispatch. No costs.
SO ORDERED.

[G.R. No. 159411. March 18, 2005]

TEODORO I. CHAVEZ, petitioner, vs. HON. COURT OF APPEALS and JACINTO S. TRILLANA, respondents.
DECISION
PUNO, J.:
 Assailed in this petition for review is the Decision dated April 2, 2003 [1] of the Court of Appeals in CA-G.R. CV No. 59023[2] which
modified the Decision dated December 15, 1997 of the Regional Trial Court (RTC) of Valenzuela City, Branch 172, in Civil Case No. 5139-V-
97, as well as its Resolution dated August 8, 2003[3] which denied petitioners motion for reconsideration.
The antecedent facts are as follows:
In October 1994, petitioner Teodoro Chavez and respondent Jacinto Trillana entered into a contract of lease [4] whereby the former
leased to the latter his fishpond at Sitio Pariahan, Taliptip, Bulacan, Bulacan, for a term of six (6) years commencing from October 23, 1994
to October 23, 2000. The rental for the whole term was two million two hundred forty thousand (P2,240,000.00) pesos, of which one
million (P1,000,000.00) pesos was to be paid upon signing of the contract. The balance was payable as follows:
b. That, after six (6) months and/or, on or before one (1) year from the date of signing this contract, the amount of THREE HUNDRED
FORTY-FOUR THOUSAND (P344,000.00) pesos shall be paid on April 23, 1995 and/or, on or before October 23, 1995 shall be paid by the
LESSEE to the LESSOR.
c. That, the LESSEE, shall pay the amount of FOUR HUNDRED FORTY-EIGHT THOUSAND (P448,000.00) pesos x x x to the LESSOR on April 23,
1997 and/or, on or before October 23, 1997, and on April 23, 1998 and/or, on or before October 23, 1998 the amount of FOUR HUNDRED
FORTY-EIGHT THOUSAND (P448,000.00) pesos x x x.
Paragraph 5 of the contract further provided that respondent shall undertake all construction and preservation of improvements in the
fishpond that may be destroyed during the period of the lease, at his expense, without reimbursement from petitioner.
In August 1996, a powerful typhoon hit the country which damaged the subject fishpond. Respondent did not immediately undertake
the necessary repairs as the water level was still high. Three (3) weeks later, respondent was informed by a barangay councilor that major
repairs were being undertaken in the fishpond with the use of a crane. Respondent found out that the repairs were at the instance of
petitioner who had grown impatient with his delay in commencing the work.
In September 1996, respondent filed a complaint before the Office of the Barangay Captain of Taliptip, Bulacan, Bulacan. He
complained about the unauthorized repairs undertaken by petitioner, the ouster of his personnel from the leased premises and its unlawful
taking by petitioner despite their valid and subsisting lease contract. After conciliation proceedings, an agreement was reached, viz.:
KASUNDUAN
Napagkasunduan ngayong araw na to ika-17 ng Setyembre ng nagpabuwis Teodoro Chavez at bumubuwis na si G. Jay Trillana na ibabalik ni
G. Chavez ang halagang P150,000.00 kay G. Trillana bilang sukli sa natitirang panahon ng buwisan.
Ngunit kung maibibigay ni G. Chavez ang halagang P100,000.00 bago sumapit o pagsapit ng ika-23 ng Setyembre, taong kasalukuyan, to ay
nangangahulugan ng buong kabayaran at hindi P150,000.00.
Kung sakali at hindi maibigay ang P100,000.00 ang magiging kabayaran ay mananatiling P150,000.00 na may paraan ng pagbabayad ng
sumusunod:
Ang P50,000.00 ay ibibigay bago sumapit o pagsapit ng ika-31 ng Oktubre 1996 at ang balanseng P100,000.00 ay ibibigay sa loob ng isang
taon subalit magbibigay ng promissory note si G. Chavez at kung mabubuwisang ang kanyang palaisdaan ay ibibigay lahat ni G. Chavez ang
buong P150,000.00 sa lalong madaling panahon.
Kung magkakaroon ng sapat at total na kabayaran si G. Chavez kay G. Trillana ang huli ay lalagda sa kasulatan bilang waiver o walang
anumang paghahabol sa nabanggit na buwisan.
Alleging non-compliance by petitioner with their lease contract and the foregoing Kasunduan, respondent filed a complaint on
February 7, 1997 against petitioner before the RTC of Valenzuela City, docketed as Civil Case No. 5139-V-97. Respondent prayed that the
following amounts be awarded him, viz.: (a) P300,000.00 as reimbursement for rentals of the leased premises corresponding to the
unexpired portion of the lease contract; (b) P500,000.00 as unrealized profits; (c) P200,000.00 as moral damages; (d) P200,000.00 as
exemplary damages; and, (e) P100,000.00 as attorneys fees plus P1,000.00 for each court appearance of respondents counsel.
Petitioner filed his answer but failed to submit the required pretrial brief and to attend the pretrial conference. On October 21, 1997,
respondent was allowed to present his evidence ex-parte before the Acting Branch Clerk of Court.[5] On the basis thereof, a decision was
rendered on December 15, 1997[6] in favor of respondent, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered as follows:
(1) Ordering the defendant to reimburse to the plaintiff the sum of P300,000.00 representing rental payment of the leased premises for the
unused period of lease;
(2) Ordering the defendant to pay plaintiff the sum of P500,000.00 representing unrealized profit as a result of the unlawful deprivation by
the defendant of the possession of the subject premises;
(3) Ordering the defendant to pay plaintiff the sum of P200,000.00 as moral damages;
(4) Ordering the defendant to pay plaintiff the sum of P200,000.00 as exemplary damages; and
(5) Ordering the defendant to pay plaintiff the sum of P100,000.00 as and for attorneys fees, plus costs of suit.
Petitioner appealed to the Court of Appeals which modified the decision of the trial court by deleting the award of P500,000.00 for
unrealized profits for lack of basis, and by reducing the award for attorneys fees to P50,000.00.[7] Petitioners motion for reconsideration
was denied. Hence, this petition for review.
Petitioner contends that the Court of Appeals erred in ruling that the RTC of Valenzuela City had jurisdiction over the action filed by
respondent considering that the subject matter thereof, his alleged violation of the lease contract with respondent, was already amicably
settled before the Office of the Barangay Captain of Taliptip, Bulacan, Bulacan. Petitioner argued that respondent should have followed the
procedure for enforcement of the amicable settlement as provided for in the Revised Katarungang Pambarangay Law. Assuming arguendo
that the RTC had jurisdiction, it cannot award more than the amount stipulated in the Kasunduan which is P150,000.00. In any event, no
factual or legal basis existed for the reimbursement of alleged advance rentals for the unexpired portion of the lease contract as well as for
moral and exemplary damages, and attorneys fees.
 Indeed, the Revised Katarungang Pambarangay Law[8] provides that an amicable settlement reached after barangay conciliation
proceedings has the force and effect of a final judgment of a court if not repudiated or a petition to nullify the same is filed before the
proper city or municipal court within ten (10) days from its date. [9] It further provides that the settlement may be enforced by execution by
the lupong tagapamayapa within six (6) months from its date, or by action in the appropriate city or municipal court, if beyond the six-
month period.[10] This special provision follows the general precept enunciated in Article 2037 of the Civil Code, viz.:
A compromise has upon the parties the effect and authority of res judicata; but there shall be no execution except in compliance with a
judicial compromise.
Thus, we have held that a compromise agreement which is not contrary to law, public order, public policy, morals or good customs is
a valid contract which is the law between the parties themselves.[11] It has upon them the effect and authority of res judicata even if not
judicially approved,[12] and cannot be lightly set aside or disturbed except for vices of consent and forgery.[13]
However, in Heirs of Zari, et al. v. Santos,[14] we clarified that the broad precept enunciated in Art. 2037 is qualified by Art. 2041 of
the same Code, which provides:
If one of the parties fails or refuses to abide by the compromise, the other party may either enforce the compromise or regard it as
rescinded and insist upon his original demand.
We explained, viz:
[B]efore the onset of the new Civil Code, there was no right to rescind compromise agreements. Where a party violated the terms of a
compromise agreement, the only recourse open to the other party was to enforce the terms thereof.
When the new Civil Code came into being, its Article 2041 x x x created for the first time the right of rescission. That provision gives to the
aggrieved party the right to either enforce the compromise or regard it as rescinded and insist upon his original demand. Article 2041
should obviously be deemed to qualify the broad precept enunciated in Article 2037 that [a] compromise has upon the parties the effect
and authority of res judicata. (underscoring ours)
In exercising the second option under Art. 2041, the aggrieved party may, if he chooses, bring the suit contemplated or involved in his
original demand, as if there had never been any compromise agreement, without bringing an action for rescission. [15] This is because he
may regard the compromise as already rescinded[16] by the breach thereof of the other party.
Thus, in Morales v. National Labor Relations Commission[17] we upheld the National Labor Relations Commission when it heeded the
original demand of four (4) workers for reinstatement upon their employers failure to comply with its obligation to pay their monetary
benefits within the period prescribed under the amicable settlement. We reiterated the rule that the aggrieved party may either (1) enforce
the compromise by a writ of execution, or (2) regard it as rescinded and so insist upon his original demand upon the other partys failure or
refusal to abide by the compromise. We also recognized the options in Mabale v. Apalisok,[18] Canonizado v. Benitez,[19] and Ramnani v.
Court of Appeals,[20] to name a few cases.
In the case at bar, the Revised Katarungang Pambarangay Law provides for a two-tiered mode of enforcement of an amicable
settlement, to wit: (a) by execution by the Punong Barangay which is quasi-judicial and summary in nature on mere motion of the party
entitled thereto; and (b) an action in regular form, which remedy is judicial. [21] However, the mode of enforcement does not rule out the
right of rescission under Art. 2041 of the Civil Code. The availability of the right of rescission is apparent from the wording of Sec.
417[22] itself which provides that the amicable settlement may be enforced by execution by the lupon within six (6) months from its date or
by action in the appropriate city or municipal court, if beyond that period. The use of the word may clearly makes the procedure provided
in the Revised Katarungang Pambarangay Law directory[23] or merely optional in nature.
Thus, although the Kasunduan executed by petitioner and respondent before the Office of the Barangay Captain had the force and
effect of a final judgment of a court, petitioners non-compliance paved the way for the application of Art. 2041 under which respondent
may either enforce the compromise, following the procedure laid out in the Revised Katarungang Pambarangay Law, or regard it as
rescinded and insist upon his original demand. Respondent chose the latter option when he instituted Civil Case No. 5139-V-97 for recovery
of unrealized profits and reimbursement of advance rentals, moral and exemplary damages, and attorneys fees. Respondent was not
limited to claiming P150,000.00 because although he agreed to the amount in the Kasunduan, it is axiomatic that a compromise settlement
is not an admission of liability but merely a recognition that there is a dispute and an impending litigation [24] which the parties hope to
prevent by making reciprocal concessions, adjusting their respective positions in the hope of gaining balanced by the danger of
losing.[25] Under the Kasunduan, respondent was only required to execute a waiver of all possible claims arising from the lease contract if
petitioner fully complies with his obligations thereunder.[26] It is undisputed that herein petitioner did not.
Having affirmed the RTCs jurisdiction over the action filed by respondent, we now resolve petitioners remaining contention.
Petitioner contends that no factual or legal basis exists for the reimbursement of alleged advance rentals, moral and exemplary damages,
and attorneys fees awarded by the court a quo and the Court of Appeals.
The rule is that actual damages cannot be presumed, but must be proved with a reasonable degree of certainty. [27] In the case at bar,
we agree with petitioner that no competent proof was presented to prove that respondent had paid P300,000.00 as advance rentals for the
unexpired period of the lease contract. On the contrary, the lease contract itself provided that the remaining rentals of P448,000.00 shall
be paid on April 23, 1997 and/or, on or before October 23, 1997, and on April 23, 1998 and/or, on or before October 23, 1998 the
amount P448,000.00. Respondent filed his complaint on February 7, 1997. No receipt or other competent proof, aside from respondents
self-serving assertion, was presented to prove that respondent paid the rentals which were not yet due. No proof was even presented by
respondent to show that he had already paid P1,000,000.00 upon signing of the lease contract, as stipulated therein. Petitioner, in
paragraphs 2 and 7 of his answer,[28] specifically denied that respondent did so. Courts must base actual damages suffered upon competent
proof and on the best obtainable evidence of the actual amount thereof.[29]
As to moral damages, Art. 2220 of the Civil Code provides that same may be awarded in breaches of contract where the defendant
acted fraudulently or in bad faith. In the case at bar, respondent alleged that petitioner made unauthorized repairs in the leased premises
and ousted his personnel therefrom despite their valid and subsisting lease agreement. Petitioner alleged, by way of defense, that he
undertook the repairs because respondent abandoned the leased premises and left it in a state of disrepair. However, petitioner presented
no evidence to prove his allegation, as he did not attend the pretrial conference and was consequently declared in default. What remains
undisputed therefore is that petitioner had a valid and subsisting lease contract with respondent which he refused to honor by giving back
possession of the leased premises to respondent. We therefore sustain the conclusion of both the trial court and the Court of Appeals that
an award of moral damages is justified under the circumstances. We likewise sustain the award for exemplary damages considering
petitioners propensity not to honor his contractual obligations, first under the lease contract and second, under the amicable settlement
executed before the Office of the Barangay Captain. Since respondent was compelled to litigate and incur expenses to protect his interest
on account of petitioners refusal to comply with his contractual obligations, [30] the award of attorneys fees has to be sustained.
IN VIEW WHEREOF, the petition is PARTIALLY GRANTED. The assailed Decision dated April 2, 2003 of the Court of Appeals in CA-G.R.
CV No. 59023 is modified by deleting the award of P300,000.00 as reimbursement of advance rentals. The assailed Decision is AFFIRMED in
all other respects.
SO ORDERED.

WILLIAM GOLANGCO CONSTRUCTION CORPORATION, Petitioner, VS. RAY BURTON DEVELOPMENT CORPORATION,
Respondent
----------------------------------------------------------------------------------------x
DECISION
PERALTA, J.:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that the Decision[1] of the Court of Appeals
(CA) dated December 19, 2003, holding that the Construction Industry Arbitration Commission (CIAC) had no jurisdiction over the dispute
between herein parties, and the CA Resolution [2] dated May 24, 2004, denying herein petitioner's motion for reconsideration, be reversed
and set aside.
The undisputed facts, as accurately narrated in the CA Decision, are as follows.
On July 20, 1995, petitioner Ray Burton Development Corporation [herein respondent] (RBDC for brevity) and
private respondent William Golangco Construction Corporation [herein petitioner] (WGCC) entered into a Contract for the
construction of the Elizabeth Place (Office/Residential Condominium).

On March 18, 2002, private respondent WGCC filed a complaint with a request for arbitration with the Construction
Industry Arbitration Commission (hereinafter referred to as CIAC). In its complaint, private respondent prayed that CIAC
render judgment ordering petitioner to pay private respondent the amount of, to wit:

1. P24,703,132.44 for the unpaid balance on the contract price;

2. P10,602,670.25 for the unpaid balance on the labor cost adjustment;
3. P9,264,503.70 for the unpaid balance of additive works;
4. P2,865,615.10 for extended overhead expenses;
5. P1,395,364.01 for materials cost adjustment and trade contractors' utilities expenses;
6. P4,835,933.95 for interest charges on unpaid overdue billings on labor cost adjustment
and change orders.

or for a total of Fifty Three Million Six Hundred Sixty-Seven Thousand Two Hundred Nineteen and 45/xx (P53,667,219.45)
and interest charges based on the prevailing bank rates on the foregoing amount from March 1, 2002 and until such time
as the same shall be fully paid.

On April 12, 2002, petitioner RBDC filed a Motion to Dismiss the aforesaid complaint on the ground of lack of
jurisdiction. It is petitioner's contention that the CIAC acquires jurisdiction over disputes arising from or connected with
construction contracts only when the parties to the contract agree to submit the same to voluntary arbitration. In the
contract between petitioner and private respondent, petitioner claimed that only disputes by reason of differences in
interpretation of the contract documents shall be deemed subject to arbitration.

Private respondent filed a Comment and Opposition to the aforesaid Motion dated April 15, 2002. Private respondent
averred that the claims set forth in the complaint require contract interpretation and are thus cognizable by the CIAC
pursuant to the arbitration clause in the construction contract between the parties. Moreover, even assuming that the
claims do not involve differing contract interpretation, they are still cognizable by the CIAC as the arbitration clause
mandates their direct filing therewith.

On May 6, 2002, the CIAC rendered an Order the pertinent portion of which reads as follows:
 The Commission has taken note of the foregoing arguments of the parties. After due deliberations,
the Commission resolved to DENY Respondent's motion on the following grounds:

[1] Clause 17.2 of Art. XVII of the Contract Agreement explicitly provides that any dispute arising
under the construction contract shall be submitted to the Construction Arbitration Authority created
by the Government. Even without this provision, the bare agreement to submit a construction dispute
to arbitration vests in the Commission original and exclusive jurisdiction by virtue of Sec. 4 of
Executive Order No. 1008, whether or not a dispute involves a collection of sum of money or contract
interpretation as long as the same arises from, or in connection with, contracts entered into by the
parties involved. The Supreme Court jurisprudence on Tesco vs. Vera case referred to by respondent is
no longer controlling as the same was based on the old provision of Article III, Sec. 1 of the CIAC Rules
which has long been amended.

[2] The issue raised by Respondent in its Motion to Dismiss is similar to the issue set forth in CA-G.R.
Sp. No. 67367, Continental Cement Corporation vs. CIAC and EEI Corporation, where the appellate
court upheld the ruling of the CIAC thereon that since the parties agreed to submit to arbitration any
dispute, the same does not exclude disputes relating to claims for payment in as much as the said
dispute originates from execution of the works. As such, the subject dispute falls within the original
and exclusive jurisdiction of the CIAC.

WHEREFORE, in view of the foregoing, Respondent's Motion to Dismiss is DENIED for lack of
merit. Respondent is given anew an inextendible period of ten (10) days from receipt hereof within
which to file its Answer and nominees for the Arbitral Tribunal. If Respondent shall fail to comply
within the prescribed period, the Commission shall proceed with arbitration in accordance with its
Rules. x x x

Thereafter, petitioner filed a Motion to Suspend Proceedings praying that the CIAC order a suspension of the proceedings
in Case No. 13-2002 until the resolution of the negotiations between the parties, and consequently, that the period to file
an Answer be held in abeyance.

Private respondent filed an Opposition to the aforesaid Motion and a Counter-Motion to Declare respondent to Have
Refused to Arbitrate and to Proceed with Arbitration Ex Parte.

On May 24, 2002 the CIAC issued an Order, the pertinent portion of which reads:

In view of the foregoing, Respondent's (petitioner's) Motion to Suspend Proceedings

is DENIED. Accordingly, respondent is hereby given a non-extendible period of five (5) days from
receipt thereof within which to submit its Answer and nominees for the Arbitral Tribunal. In default
thereof, claimant's (private respondent's) Counter-Motion is deemed granted and arbitration shall
proceed in accordance with the CIAC Rules Governing Construction Arbitration.

SO ORDERED. x x x

On June 3, 2002, petitioner RBDC filed [with the Court of Appeals (CA)] a petition for Certiorari and Prohibition with
prayer for the issuance of a temporary restraining order and a writ of preliminary injunction. Petitioner contended that
CIAC acted without or in excess of its jurisdiction when it issued the questioned order despite the clear showing that there
is lack of jurisdiction on the issue submitted by private respondent for arbitration. [3]
On December 19, 2003, the CA rendered the assailed Decision granting the petition for certiorari, ruling that the CIAC had no jurisdiction
over the subject matter of the case because the parties agreed that only disputes regarding differences in interpretation of the contract
documents shall be submitted for arbitration, while the allegations in the complaint make out a case for collection of sum of
money. Petitioner moved for reconsideration of said ruling, but the same was denied in a Resolution dated May 24, 2004.

Hence, this petition where it is alleged that:

I.
 THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN FAILING TO DISMISS PRIVATE RESPONDENT
RBDC'S PETITION IN CA-G.R. SP NO. 70959 OUTRIGHT IN VIEW OF RBDC'S FAILURE TO FILE A MOTION FOR
RECONSIDERATION OF THE CIAC'S ORDER, AS WELL AS FOR RBDC'S FAILURE TO ATTACH TO THE PETITION THE
RELEVANT PLEADINGS IN CIAC CASE NO. 13-2002, IN VIOLATION OF THE REQUIREMENT UNDER RULE 65, SECTIONS 1
AND 2, PARAGRAPH 2 THEREOF, AND RULE 46, SECTION 3, PARAGRAPH 2 THEREOF.

II.
THE COURT OF APPEALS ERRED GRAVELY IN NOT RULING THAT THE CIAC HAS JURISDICTION OVER WGCC'S CLAIMS,
WHICH ARE IN THE NATURE OF ARBITRABLE DISPUTES COVERED BY CLAUSE 17.1 OF ARTICLE XVII INVOLVING
CONTRACT INTERPRETATION.

xxxx

III.
THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO DISCERN THAT CLAUSE 17.2 OF ARTICLE XVII CANNOT BE
TREATED AS BEING LIMITED TO DISPUTES ARISING FROM INTERPRETATION OF THE CONTRACT.

xxxx

IV.
THE COURT OF APPEALS ERRED GRAVELY IN NOT RULING THAT RBDC IS ESTOPPED FROM DISPUTING THE JURISDICTION
OF THE CIAC.

xxxx

V.
FINALLY, THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REFUSING TO PAY HEED TO THE
DECLARATION IN EXECUTIVE ORDER NO. 1008 THAT THE POLICY OF THE STATE IS IN FAVOR OF ARBITRATION OF
CONSTRUCTION DISPUTES, WHICH POLICY HAS BEEN REINFORCED FURTHER BY THE RECENT PASSAGE OF THE
ALTERNATIVE DISPUTE RESOLUTION ACT OF 2004(R.A. NO. 9285).[4]
The petition is meritorious.
The aforementioned issues boil down to (1) whether the CA acted with grave abuse of discretion in failing to dismiss the petition
for certiorari filed by herein respondent, in view of the latter's failure to file a motion for reconsideration of the assailed CIAC Order and for
failure to attach to the petition the relevant pleadings in CIAC Case No. 13-2002; and (2) whether the CA gravely erred in not upholding the
jurisdiction of the CIAC over the subject complaint.

Petitioner is correct that it was grave error for the CA to have given due course to respondent's petition for certiorari despite its
failure to attach copies of relevant pleadings in CIAC Case No. 13-2002. In Tagle v. Equitable PCI Bank,[5] the party filing the petition
for certiorari before the CA failed to attach the Motion to Stop Writ of Possession and the Order denying the same. On the ground of non-
compliance with the rules, the CA dismissed said petition for certiorari. When the case was elevated to this Court viaa petition for certiorari,
the same was likewise dismissed. In said case, the Court emphasized the importance of complying with the formal requirements for filing a
petition for certiorari and held as follows:
x x x Sec. 1, Rule 65, in relation to Sec. 3, Rule 46, of the Revised Rules of Court. Sec. 1 of Rule 65 reads:

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 or his 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 ordinary 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 reliefs as law and
justice may require.

The petition shall be accompanied by a certified true copy of the judgment, order or resolution
subject thereof, copies of all pleadings and documents relevant and pertinent thereto, and a sworn
 certification of non-forum shopping as provided in the third paragraph of Section 3, Rule 46. (Emphasis
supplied.)

And Sec. 3 of Rule 46 provides:

SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. The petition
shall contain the full names and actual addresses of all the petitioners and respondents, a concise
statement of the matters involved, the factual background of the case, and the grounds relied upon for the
relief prayed for.

In actions filed under Rule 65, the petition shall further indicate the material dates showing when
notice of the judgment or final order or resolution subject thereof was received, when a motion for new
trial or reconsideration, if any, was filed and when notice of the denial thereof was received.

It shall be filed in seven (7) clearly legible copies together with proof of service thereof on the
respondent with the original copy intended for the court indicated as such by the petitioner and shall be
accompanied by a clearly legible duplicate original or certified true copy of the judgment, order, resolution,
or ruling subject thereof, such material portions of the record as are referred to therein, and other
documents relevant or pertinent thereto. The certification shall be accomplished by the proper clerk of
court or by his duly-authorized representative, or by the proper officer of the court, tribunal, agency or
office involved or by his duly authorized representative. The other requisite number of copies of the
petition shall be accompanied by clearly legible plain copies of all documents attached to the original.

xxxx

The failure of the petitioner to comply with any of the foregoing requirements shall be sufficient
ground for the dismissal of the petition. (Emphasis supplied.)

The afore-quoted provisions are plain and unmistakable. Failure to comply with the requirement that the petition be
accompanied by a duplicate original or certified true copy of the judgment, order, resolution or ruling being challenged is
sufficient ground for the dismissal of said petition. Consequently, it cannot be said that the Court of Appeals acted with
grave abuse of discretion amounting to lack or excess of jurisdiction in dismissing the petition x x x for non-compliance
with Sec. 1, Rule 65, in relation to Sec. 3, Rule 46, of the Revised Rules of Court.[6]

In the present case, herein petitioner (private respondent below) strongly argued against the CA's granting due course to the
petition, pointing out that pertinent pleadings such as the Complaint before the CIAC, herein respondent's Motion to Dismiss, herein
petitioner's Comment and Opposition (Re: Motion to Dismiss), and the Motion to Suspend Proceedings, have not been attached to the
petition. Herein respondent (petitioner before the CA) argued in its Reply[7] before the CA that it did not deem such pleadings or documents
germane to the petition. However, in the CA Resolution[8] dated July 4, 2002, the appellate court itself revealed the necessity of such
documents by ordering the submission of copies of pleadings relevant to the petition. Indeed, such pleadings are necessary for a judicious
resolution of the issues raised in the petition and should have been attached thereto. As mandated by the rules, the failure to do so is
sufficient ground for the dismissal of the petition. The CA did not give any convincing reason why the rule regarding requirements for filing
a petition should be relaxed in favor of herein respondent. Therefore, it was error for the CA to have given due course to the petition
for certiorari despite herein respondent's failure to comply with the requirements set forth inSection 1, Rule 65, in relation to Section 3,
Rule 46, of the Revised Rules of Court.
Even on the main issue regarding the CIAC's jurisdiction, the CA erred in ruling that said arbitration body had no jurisdiction over
the complaint filed by herein petitioner. There is no question that, as provided under Section 4 of Executive Order No. 1008, also known as
the Construction Industry Arbitration Law, the CIAC has original and exclusive jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in the Philippines and all that is needed for the CIAC to acquire jurisdiction is for
the parties to agree to submit the same to voluntary arbitration. Nevertheless, respondent insists that the only disputes it agreed to submit
to voluntary arbitration are those arising from interpretation of contract documents. It argued that the claims alleged in petitioner's
complaint are not disputes arising from interpretation of contract documents; hence, the CIAC cannot assume jurisdiction over the case.

Respondent's contention is tenuous.

The contract between herein parties contained an arbitration clause which reads as follows:

17.1.1. Any dispute arising in the course of the execution of this Contract by reason of differences in interpretation of the
Contract Documents which the OWNER and the CONTRACTOR are unable to resolve between themselves, shall be
submitted by either party for resolution or decision, x x x to a Board of Arbitrators composed of three (3) members, to be
chosen as follows:

One (1) member each shall be chosen by the OWNER and the CONTRACTOR. The said two (2)
members, in turn, shall select a third member acceptable to both of them. The decision of the Board
of Arbitrators shall be rendered within fifteen (15) days from the first meeting of the Board. The
decision of the Board of Arbitrators when reached through the affirmative vote of at least two (2) of
its members shall be final and binding upon the OWNER and the CONTRACTOR.

17.2 Matters not otherwise provided for in this Contract or by special agreement of the parties shall be governed by
the provisions of the Construction Arbitration Law of the Philippines. As a last resort, any dispute which is not resolved
by the Board of Arbitrators shall be submitted to the Construction Arbitration Authority created by the government. [9]

In gist, the foregoing provisions mean that herein parties agreed to submit disputes arising by reason of differences in
interpretation of the contract to a Board of Arbitrators the composition of which is mutually agreed upon by the parties, and, as a last
resort, any other dispute which had not been resolved by the Board of Arbitrators shall be submitted to the Construction Arbitration
Authority created by the government, which is no other than the CIAC. Moreover, other matters not dealt with by provisions of the
contract or by special agreements shall be governed by provisions of the Construction Industry Arbitration Law, or Executive Order No.
1008.
The Court finds that petitioner's claims that it is entitled to payment for several items under their contract, which claims are, in
turn, refuted by respondent, involves a dispute arising from differences in interpretation of the contract. Verily, the matter of ascertaining
the duties and obligations of the parties under their contract all involve interpretation of the provisions of the contract.Therefore, if the
parties cannot see eye to eye regarding each others obligations, i.e., the extent of work to be expected from each of the parties and the
valuation thereof, this is properly a dispute arising from differences in the interpretation of the contract.

Note, further, that in respondent's letter[10] dated February 14, 2000, it stated that disputed items of work such as Labor Cost
Adjustment and interest charges, retention, processing of payment on Cost Retained by WGCC, Determination of Cost of Deletion for
miscellaneous Finishing Works, are considered unresolved dispute[s] as to the proper interpretation of our respective obligations under the
Contract, which should be referred to the Board of Arbitrators. Even if the dispute subject matter of said letter had been satisfactorily
settled by herein parties, the contents of the letter evinces respondent's frame of mind that the claims being made by petitioner in the
complaint subject of this petition, are indeed matters involving disputes arising from differences in interpretation.
Clearly, the subject matter of petitioner's claims arose from differences in interpretation of the contract, and under the terms
thereof, such disputes are subject to voluntary arbitration. Since, under Section 4 of Executive Order No. 1008 the CIAC shall have original
and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in construction in the
Philippines and all that is needed for the CIAC to acquire jurisdiction is for the parties to agree to submit the same to voluntary arbitration,
there can be no other conclusion but that the CIAC had jurisdiction over petitioner's complaint. Furthermore, Section 1, Article III of the
CIAC Rules of Procedure Governing Construction Arbitration (CIAC Rules) further provide that [a]n arbitration clause in a construction
contract or a submission to arbitration of a construction dispute shall be deemed an agreement to submit an existing or future controversy
to CIAC jurisdiction, notwithstanding the reference to a different arbitration institution or arbitral body in such contract or
submission. Thus, even if there is no showing that petitioner previously brought its claims before a Board of Arbitrators constituted under
the terms of the contract, this circumstance would not divest the CIAC of jurisdiction. In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro
Manila Tollways Corporation,[11] the Court held that:

Under Section 1, Article III of the CIAC Rules, an arbitration clause in a construction contract shall be deemed as
an agreement to submit an existing or future controversy to CIAC jurisdiction, notwithstanding the reference to a
different arbitration institution or arbitral body in such contract x x x. Elementary is the rule that when laws or rules are
clear, it is incumbent on the court to apply them. When the law (or rule) is unambiguous and unequivocal, application,
not interpretation thereof, is imperative.

Hence, the bare fact that the parties herein incorporated an arbitration clause in the EPCC is sufficient to vest
the CIAC with jurisdiction over any construction controversy or claim between the parties. The arbitration clause in the
construction contract ipso factovested the CIAC with jurisdiction. This rule applies, regardless of whether the parties
specifically choose another forum or make reference to another arbitral body. Since the jurisdiction of CIAC is conferred
by law, it cannot be subjected to any condition; nor can it be waived or diminished by the stipulation, act or omission of
the parties, as long as the parties agreed to submit their construction contract dispute to arbitration, or if there is an
arbitration clause in the construction contract. The parties will not be precluded from electing to submit their dispute to
CIAC, because this right has been vested in each party by law.

xxxx

It bears to emphasize that the mere existence of an arbitration clause in the construction contract is
considered by law as an agreement by the parties to submit existing or future controversies between them to CIAC
jurisdiction, without any qualification or condition precedent. To affirm a condition precedent in the construction
contract, which would effectively suspend the jurisdiction of the CIAC until compliance therewith, would be in
conflict with the recognized intention of the law and rules to automatically vest CIAC with jurisdiction over a dispute
should the construction contract contain an arbitration clause.
Moreover, the CIAC was created in recognition of the contribution of the construction industry to national
development goals. Realizing that delays in the resolution of construction industry disputes would also hold up the
development of the country, Executive Order No. 1008 expressly mandates the CIAC to expeditiously settle construction
industry disputes and, for this purpose, vests in the CIAC original and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by the parties involved in construction in the Philippines. [12]

Thus, there is no question that in this case, the CIAC properly took cognizance of petitioner's complaint as it had jurisdiction over
the same.

IN VIEW OF THE FOREGOING, the Petition is GRANTED. The Decision of the Court of Appeals, dated December 19, 2003, and its Resolution
dated May 24, 2004 in CA-G.R. SP No. 70959 are REVERSED and SET ASIDE. The Order of the Construction Industry Arbitration Commission
is REINSTATED.

SO ORDERED.
DEPARTMENT OF FOREIGN AFFAIRS and BANGKO SENTRAL NG PILIPINAS, Petitioners, vs. HON. FRANCO T. FALCON, IN HIS CAPACITY AS
THE PRESIDING JUDGE OF BRANCH 71 OF THE REGIONAL TRIAL COURT IN PASIG CITY and BCA INTERNATIONAL CORPORATION,
Respondents
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Certiorari and prohibition under Rule 65 of the Rules of Court with a prayer for the issuance of a
temporary restraining order and/or a writ of preliminary injunction filed by petitioners Department of Foreign Affairs (DFA) and Bangko
Sentral ng Pilipinas (BSP). Petitioners pray that the Court declare as null and void the Order [1] dated February 14, 2007 of respondent Judge
Franco T. Falcon (Judge Falcon) in Civil Case No. 71079, which granted the application for preliminary injunction filed by respondent BCA
International Corporation (BCA). Likewise, petitioners seek to prevent respondent Judge Falcon from implementing the corresponding Writ
of Preliminary Injunction dated February 23, 2007[2] issued pursuant to the aforesaid Order.

The facts of this case, as culled from the records, are as follows:
Being a member state of the International Civil Aviation Organization (ICAO), [3] the Philippines has to comply with the commitments and
standards set forth in ICAO Document No. 9303[4] which requires the ICAO member states to issue machine readable travel documents
(MRTDs)[5] by April 2010.
Thus, in line with the DFAs mandate to improve the passport and visa issuance system, as well as the storage and retrieval of its related
application records, and pursuant to our governments ICAO commitments, the DFA secured the approval of the President of the
Philippines, as Chairman of the Board of the National Economic and Development Authority (NEDA), for the implementation of the Machine
Readable Passport and Visa Project (the MRP/V Project) under the Build-Operate-and-Transfer (BOT) scheme, provided for by Republic Act
No. 6957, as amended by Republic Act No. 7718 (the BOT Law), and its Implementing Rules and Regulations (IRR). Thus, a Pre-qualification,
Bids and Awards Committee (PBAC) published an invitation to pre-qualify and bid for the supply of the needed machine readable passports
and visas, and conducted the public bidding for the MRP/V Project on January 10, 2000. Several bidders responded and BCA was among
those that pre-qualified and submitted its technical and financial proposals. On June 29, 2000, the PBAC found BCAs bid to be the sole
complying bid; hence, it permitted the DFA to engage in direct negotiations with BCA. On even date, the PBAC recommended to the DFA
Secretary the award of the MRP/V Project to BCA on a BOT arrangement.

In compliance with the Notice of Award dated September 29, 2000 and Section 11.3, Rule 11 of the IRR of the BOT Law, [6] BCA incorporated
a project company, the Philippine Passport Corporation (PPC) to undertake and implement the MRP/V Project.

On February 8, 2001, a Build-Operate-Transfer Agreement[7] (BOT Agreement) between the DFA and PPC was signed by DFA Acting
Secretary Lauro L. Baja, Jr. and PPC President Bonifacio Sumbilla. Under the BOT Agreement, the MRP/V Project was defined as follows:

Section 1.02 MRP/V Project refers to all the activities and services undertaken in the fulfillment of the Machine
Readable Passport and Visa Project as defined in the Request for Proposals (RFP), a copy of which is hereto attached as
Annex A, including but not limited to project financing, systems development, installation and maintenance in the
Philippines and Foreign Service Posts (FSPs), training of DFA personnel, provision of all project consumables (related to
the production of passports and visas, such as printer supplies, etc.), scanning of application and citizenship documents,
creation of data bases, issuance of machine readable passports and visas, and site preparation in the Central Facility and
Regional Consular Offices (RCOs) nationwide.[8]

On April 5, 2002, former DFA Secretary Teofisto T. Guingona and Bonifacio Sumbilla, this time as BCA President, signed an
Amended BOT Agreement[9] in order to reflect the change in the designation of the parties and to harmonize Section 11.3 with Section
11.8[10] of the IRR of the BOT Law. The Amended BOT Agreement was entered into by the DFA and BCA with the conformity of PPC.
 The two BOT Agreements (the original version signed on February 8, 2001 and the amended version signed April 5, 2002) contain
substantially the same provisions except for seven additional paragraphs in the whereas clauses and two new provisions Section 9.05 on
Performance and Warranty Securities and Section 20.15 on Miscellaneous Provisions. The two additional provisions are quoted below:

Section 9.05. The PPC has posted in favor of the DFA the performance security required for Phase 1 of the
MRP/V Project and shall be deemed, for all intents and purposes, to be full compliance by BCA with the provisions of this
Article 9.

xxxx

Section 20.15 It is clearly and expressly understood that BCA may assign, cede and transfer all of its rights and
obligations under this Amended BOT Agreement to PPC, as fully as if PPC is the original signatory to this Amended BOT
Agreement, provided however that BCA shall nonetheless be jointly and severally liable with PPC for the performance of
all the obligations and liabilities under this Amended BOT Agreement.[11]

Also modified in the Amended BOT Agreement was the Project Completion date of the MRP/V Project which set the completion of
the implementation phase of the project within 18 to 23 months from the date of effectivity of the Amended BOT Agreement as opposed
to the previous period found in the original BOT Agreement which set the completion within 18 to 23 months from receipt of the NTP
(Notice to Proceed) in accordance with the Project Master Plan.
On April 12, 2002, an Assignment Agreement[12] was executed by BCA and PPC, whereby BCA assigned and ceded its rights, title,
interest and benefits arising from the Amended BOT Agreement to PPC.

As set out in Article 8 of the original and the Amended BOT Agreement, the MRP/V Project was divided into six phases:

Phase 1. Project Planning Phase The Project Proponent [BCA] shall prepare detailed plans and specifications in
accordance with Annex A of this [Amended] BOT Agreement within three (3) months from issuance of the NTP (Notice to
Proceed) [from the date of effectivity of this Amended BOT Agreement]. This phase shall be considered complete upon
the review, acceptance and approval by the DFA of these plans and the resulting Master Plan, including the Master
Schedule, the business process specifications, the acceptance criteria, among other plans.

xxxx
The DFA must approve all detailed plans as a condition precedent to the issuance of the CA [Certificate of Acceptance]
for Phase 1.
Phase 2. Implementation of the MRP/V Project at the Central Facility Within six (6) months from issuance of
the CA for Phase 1, the PROJECT PROPONENT [BCA] shall complete the implementation of the MRP/V Project in the DFA
Central Facility, and establish the network design between the DFA Central Facility, the ten (10) RCOs [Regional Consular
Offices] and the eighty (80) FSPs [Foreign Service Posts].
xxxx
Phase 3. Implementation of the MRP/V Project at the Regional Consular Offices This phase represents the
replication of the systems as approved from the Central Facility to the RCOs throughout the country, as identified in the
RFP [Request for Proposal]. The approved systems are those implemented, evaluated, and finally approved by DFA as
described in Phase 1. The Project Proponent [BCA] will be permitted to begin site preparation and the scanning and
database building operations in all offices as soon as the plans are agreed upon and accepted. This includes site
preparation and database building operations in these Phase-3 offices.
 Within six (6) months from issuance of CA for Phase 2, the Project Proponent [BCA] shall complete site preparation and
implementation of the approved systems in the ten (10) RCOs, including a fully functional network connection between
all equipment at the Central Facility and the RCOs.

Phase 4. Full Implementation, including all Foreign Service Posts Within three (3) to eight (8) months from
issuance of the CA for Phase-3, the Project Proponent [BCA] shall complete all preparations and fully implement the
approved systems in the eighty (80) FSPs, including a fully functional network connection between all equipment at the
Central Facility and the FSPs. Upon satisfactory completion of Phase 4, a CA shall be issued by the DFA.
Phase 5. In Service Phase Operation and maintenance of the complete MRP/V Facility to provide machine
readable passports and visas in all designated locations around the world.
Phase 6. Transition/Turnover Transition/Turnover to the DFA of all operations and equipment, to include an
orderly transfer of ownership of all hardware, application system software and its source code and/or licenses (subject
to Section 5.02 [H]), peripherals, leasehold improvements, physical and computer security improvements, Automated
Fingerprint Identification Systems, and all other MRP/V facilities shall commence at least six (6) months prior to the end
of the [Amended] BOT Agreement. The transition will include the training of DFA personnel who will be taking over the
responsibilities of system operation and maintenance from the Project Proponent [BCA]. The Project Proponent [BCA]
shall bear all costs related to this transfer.[13] (Words in brackets appear in the Amended BOT Agreement)

To place matters in the proper perspective, it should be pointed out that both the DFA and BCA impute breach of the Amended
BOT Agreement against each other.
According to the DFA, delays in the completion of the phases permeated the MRP/V Project due to the submission of deficient
documents as well as intervening issues regarding BCA/PPCs supposed financial incapacity to fully implement the project.
On the other hand, BCA contends that the DFA failed to perform its reciprocal obligation to issue to BCA a Certificate of
Acceptance of Phase 1 within 14 working days of operation purportedly required by Section 14.04 of the Amended BOT Agreement. BCA
bewailed that it took almost three years for the DFA to issue the said Certificate allegedly because every appointee to the position of DFA
Secretary wanted to review the award of the project to BCA. BCA further alleged that it was the DFAs refusal to approve the location of the
DFA Central Facility which prevented BCA from proceeding with Phase 2 of the MRP/V Project.
Later, the DFA sought the opinion of the Department of Finance (DOF) and the Department of Justice (DOJ) regarding the
appropriate legal actions in connection with BCAs alleged delays in the completion of the MRP/V Project. In a Letter dated February 21,
2005,[14] the DOJ opined that the DFA should issue a final demand upon BCA to make good on its obligations, specifically on the warranties
and responsibilities regarding the necessary capitalization and the required financing to carry out the MRP/V Project. The DOJ used as basis
for said recommendation, the Letter dated April 19, 2004 [15] of DOF Secretary Juanita Amatong to then DFA Secretary Delia Albert stating,
among others, that BCA may not be able to infuse more capital into PPC to use for the completion of the MRP/V Project.
Thus, on February 22, 2005, DFA sent a letter[16] to BCA, through its project company PPC, invoking BCAs financial warranty under
Section 5.02(A) of the Amended BOT Agreement.[17] The DFA required BCA to submit (a) proof of adequate capitalization (i.e., full or
substantial payment of stock subscriptions); (b) a bank guarantee indicating the availability of a credit facility of P700 million; and (c)
audited financial statements for the years 2001 to 2004.

In reply to DFAs letter, BCA, through PPC, informed the former of its position that its financial capacity was already passed upon during the
prequalification process and that the Amended BOT Agreement did not call for any additional financial requirements for the
implementation of the MRP/V Project. Nonetheless, BCA submitted its financial statements for the years 2001 and 2002 and requested for
additional time within which to comply with the other financial requirements which the DFA insisted on. [18]
According to the DFA, BCAs financial warranty is a continuing warranty which requires that it shall have the necessary
capitalization to finance the MRP/V Project in its entirety and not on a per phase basis as BCA contends. Only upon sufficient proof of its
financial capability to complete and implement the whole project will the DFAs obligation to choose and approve the location of its Central
Facility arise. The DFA asserted that its approval of a Central Facility site was not ministerial and upon its review, BCAs proposed site for the
Central Facility was purportedly unacceptable in terms of security and facilities. Moreover, the DFA allegedly received conflicting official
letters and notices[19] from BCA and PPC regarding the true ownership and control of PPC.The DFA implied that the disputes among the
shareholders of PPC and between PPC and BCA appeared to be part of the reason for the hampered implementation of the MRP/V Project.

BCA, in turn, submitted various letters and documents to prove its financial capability to complete the MRP/V Project. [20]However, the DFA
claimed these documents were unsatisfactory or of dubious authenticity. Then on August 1, 2005, BCA terminated its Assignment
Agreement with PPC and notified the DFA that it would directly implement the MRP/V Project. [21]BCA further claims that the termination of
the Assignment Agreement was upon the instance, or with the conformity, of the DFA, a claim which the DFA disputed.
On December 9, 2005, the DFA sent a Notice of Termination [22] to BCA and PPC due to their alleged failure to submit proof of
financial capability to complete the entire MRP/V Project in accordance with the financial warranty under Section 5.02(A) of the Amended
BOT Agreement. The Notice states:

After a careful evaluation and consideration of the matter, including the reasons cited in your letters dated
March 3, May 3, and June 20, 2005, and upon the recommendation of the Office of the Solicitor General (OSG), the
Department is of the view that your continuing default in complying with the requisite bank guarantee and/or credit
facility, despite repeated notice and demand, is legally unjustified.

In light of the foregoing considerations and upon the instruction of the Secretary of Foreign Affairs, the
Department hereby formally TERMINATE (sic) the Subject Amended BOT Agreement dated 5 April 2005 (sic) [23] effective
09 December 2005. Further, and as a consequence of this termination, the Department formally DEMAND (sic) that you
pay within ten (10) days from receipt hereof, liquidated damages equivalent to the corresponding performance security
bond that you had posted for the MRP/V Project.

Please be guided accordingly.

On December 14, 2005, BCA sent a letter[24] to the DFA demanding that it immediately reconsider and revoke its previous notice of
termination, otherwise, BCA would be compelled to declare the DFA in default pursuant to the Amended BOT Agreement. When the DFA
failed to respond to said letter, BCA issued its own Notice of Default dated December 22, 2005 [25] against the DFA, stating that if the default
is not remedied within 90 days, BCA will be constrained to terminate the MRP/V Project and hold the DFA liable for damages.

BCAs request for mutual discussion under Section 19.01 of the Amended BOT Agreement[26] was purportedly ignored by the DFA and left
the dispute unresolved through amicable means within 90 days. Consequently, BCA filed its Request for Arbitration dated April 7,
2006[27] with the Philippine Dispute Resolution Center, Inc. (PDRCI), pursuant to Section 19.02 of the Amended BOT Agreement which
provides:

Section 19.02 Failure to Settle Amicably If the Dispute cannot be settled amicably within ninety (90) days by
mutual discussion as contemplated under Section 19.01 herein, the Dispute shall be settled with finality by an arbitrage
tribunal operating under International Law, hereinafter referred to as the Tribunal, under the UNCITRAL Arbitration
Rules contained in Resolution 31/98 adopted by the United Nations General Assembly on December 15, 1976, and
entitled Arbitration Rules on the United Nations Commission on the International Trade Law. The DFA and the BCA
undertake to abide by and implement the arbitration award. The place of arbitration shall be Pasay City, Philippines, or
such other place as may mutually be agreed upon by both parties. The arbitration proceeding shall be conducted in the
English language.[28]
As alleged in BCAs Request for Arbitration, PDRCI is a non-stock, non-profit organization composed of independent arbitrators who operate
under its own Administrative Guidelines and Rules of Arbitration as well as under the United Nations Commission on the International
Trade Law (UNCITRAL) Model Law on International Commercial Arbitration and other applicable laws and rules.According to BCA, PDRCI
can act as an arbitration center from whose pool of accredited arbitrators both the DFA and BCA may select their own nominee to become
a member of the arbitral tribunal which will render the arbitration award.
BCAs Request for Arbitration filed with the PDRCI sought the following reliefs:
1. A judgment nullifying and setting aside the Notice of Termination dated December 9, 2005 of Respondent
[DFA], including its demand to Claimant [BCA] to pay liquidated damages equivalent to the corresponding performance
security bond posted by Claimant [BCA];
2. A judgment (a) confirming the Notice of Default dated December 22, 2005 issued by Claimant [BCA] to
Respondent [DFA]; and (b) ordering Respondent [DFA] to perform its obligation under the Amended BOT Agreement
dated April 5, 2002 by approving the site of the Central Facility at the Star Mall Complex on Shaw Boulevard,
Mandaluyong City, within five days from receipt of the Arbitral Award; and
3. A judgment ordering respondent [DFA] to pay damages to Claimant [BCA], reasonably estimated
at P50,000,000.00 as of this date, representing lost business opportunities; financing fees, costs and commissions; travel
expenses; legal fees and expenses; and costs of arbitration, including the fees of the arbitrator/s. [29]

PDRCI, through a letter dated April 26, 2006,[30] invited the DFA to submit its Answer to the Request for Arbitration within 30 days
from receipt of said letter and also requested both the DFA and BCA to nominate their chosen arbitrator within the same period of time.
Initially, the DFA, through a letter dated May 22, 2006,[31] requested for an extension of time to file its answer, without prejudice to
jurisdictional and other defenses and objections available to it under the law. Subsequently, however, in a letter dated May 29, 2006,[32] the
DFA declined the request for arbitration before the PDRCI. While it expressed its willingness to resort to arbitration, the DFA pointed out
that under Section 19.02 of the Amended BOT Agreement, there is no mention of a specific body or institution that was previously
authorized by the parties to settle their dispute. The DFA further claimed that the arbitration of the dispute should be had before an ad
hoc arbitration body, and not before the PDRCI which has as its accredited arbitrators, two of BCAs counsels of record. Likewise, the DFA
insisted that PPC, allegedly an indispensable party in the instant case, should also participate in the arbitration.
The DFA then sought the opinion of the DOJ on the Notice of Termination dated December 9, 2005 that it sent to BCA with regard to the
MRP/V Project.
In DOJ Opinion No. 35 (2006) dated May 31, 2006,[33] the DOJ concurred with the steps taken by the DFA, stating that there was basis in law
and in fact for the termination of the MRP/V Project. Moreover, the DOJ recommended the immediate implementation of the project
(presumably by a different contractor) at the soonest possible time.
Thereafter, the DFA and the BSP entered into a Memorandum of Agreement for the latter to provide the former passports compliant with
international standards. The BSP then solicited bids for the supply, delivery, installation and commissioning of a system for the production
of Electronic Passport Booklets or e-Passports.[34]
For BCA, the BSPs invitation to bid for the supply and purchase of e-Passports (the e-Passport Project) would only further delay the
arbitration it requested from the DFA. Moreover, this new e-Passport Project by the BSP and the DFA would render BCAs remedies moot
inasmuch as the e-Passport Project would then be replacing the MRP/V Project which BCA was carrying out for the DFA.
Thus, BCA filed a Petition for Interim Relief[35] under Section 28 of the Alternative Dispute Resolution Act of 2004 (R.A. No. 9285), [36] with
the Regional Trial Court (RTC) of Pasig City, Branch 71, presided over by respondent Judge Falcon. In that RTC petition, BCA prayed for the
following:
WHEREFORE, BCA respectfully prays that this Honorable Court, before the constitution of the arbitral tribunal in PDRCI
Case No. 30-2006/BGF, grant petitioner interim relief in the following manner:
 (a) upon filing of this Petition, immediately issue an order temporarily restraining Respondents [DFA and BSP], their
agents, representatives, awardees, suppliers and assigns (i) from awarding a new contract to implement the Project, or
any similar electronic passport or visa project; or (ii) if such contract has been awarded, from implementing such Project
or similar projects until further orders from this Honorable Court;

(b) after notice and hearing, issue a writ of preliminary injunction ordering Respondents [DFA and BSP], their agents,
representatives, awardees, suppliers and assigns to desist (i) from awarding a new contract to implement the Project or
any similar electronic passport or visa project; or (ii) if such contract has been awarded, from implementing such Project
or similar projects, and to maintain the status quo ante pending the resolution on the merits of BCAs Request for
Arbitration; and

(c) render judgment affirming the interim relief granted to BCA until the dispute between the parties shall have been
resolved with finality.

BCA also prays for such other relief, just and equitable under the premises.[37]

BCA alleged, in support for its application for a Temporary Restraining Order (TRO), that unless the DFA and the BSP were immediately
restrained, they would proceed to undertake the project together with a third party to defeat the reliefs BCA sought in its Request for
Arbitration, thus causing BCA to suffer grave and irreparable injury from the loss of substantial investments in connection with the
implementation of the MRP/V Project.

Thereafter, the DFA filed an Opposition (to the Application for Temporary Restraining Order and/or Writ of Preliminary Injunction) dated
January 18, 2007,[38] alleging that BCA has no cause of action against it as the contract between them is for machine readable passports and
visas which is not the same as the contract it has with the BSP for the supply of electronic passports. The DFA also pointed out that the
Filipino people and the governments international standing would suffer great damage if a TRO would be issued to stop the e-Passport
Project. The DFA mainly anchored its opposition on Republic Act No. 8975, which prohibits trial courts from issuing a TRO, preliminary
injunction or mandatory injunction against the bidding or awarding of a contract or project of the national government.

On January 23, 2007, after summarily hearing the parties oral arguments on BCAs application for the issuance of a TRO, the trial court
ordered the issuance of a TRO restraining the DFA and the BSP, their agents, representatives, awardees, suppliers and assigns from
awarding a new contract to implement the Project or any similar electronic passport or visa project, or if such contract has been awarded,
from implementing such or similar projects.[39] The trial court also set for hearing BCAs application for preliminary injunction.

Consequently, the DFA filed a Motion for Reconsideration [40] of the January 23, 2007 Order. The BSP, in turn, also sought to lift the TRO and
to dismiss the petition. In its Urgent Omnibus Motion dated February 1, 2007,[41] the BSP asserted that BCA is not entitled to an injunction,
as it does not have a clear right which ought to be protected, and that the trial court has no jurisdiction to enjoin the implementation of the
e-Passport Project which, the BSP alleged, is a national government project under Republic Act No. 8975.

In the hearings set for BCAs application for preliminary injunction, BCA presented as witnesses, Mr. Bonifacio Sumbilla, its President, Mr.
Celestino Mercader, Jr. from the Independent Verification and Validation Contractor commissioned by the DFA under the Amended BOT
Agreement, and DFA Assistant Secretary Domingo Lucenario, Jr. as adverse party witness.
The DFA and the BSP did not present any witness during the hearings for BCAs application for preliminary injunction. According to the DFA
and the BSP, the trial court did not have any jurisdiction over the case considering that BCA did not pay the correct docket fees and that
only the Supreme Court could issue a TRO on the bidding for a national government project like the e-Passport Project pursuant to the
provisions of Republic Act No. 8975. Under Section 3 of Republic Act No. 8975, the RTC could only issue a TRO against a national
government project if it involves a matter of extreme urgency involving a constitutional issue, such that unless a TRO is issued, grave
injustice and irreparable injury will arise.

Thereafter, BCA filed an Omnibus Comment [on Opposition and Supplemental Opposition (To the Application for Temporary Restraining
Order and/or Writ of Preliminary Injunction)] and Opposition [to Motion for Reconsideration (To the Temporary Restraining Order dated
January 23, 2007)] and Urgent Omnibus Motion [(i) To Lift Temporary Restraining Order; and (ii) To Dismiss the Petition] dated January 31,
2007.[42] The DFA and the BSP filed their separate Replies (to BCAs Omnibus Comment) dated February 9, 2007 [43] and February 13,
2007,[44] respectively.

On February 14, 2007, the trial court issued an Order granting BCAs application for preliminary injunction, to wit:
WHEREFORE, in view of the above, the court resolves that it has jurisdiction over the instant petition and to
issue the provisional remedy prayed for, and therefore, hereby GRANTS petitioners [BCAs] application for preliminary
injunction. Accordingly, upon posting a bond in the amount of Ten Million Pesos (P10,000,000.00), let a writ of
preliminary injunction issue ordering respondents [DFA and BSP], their agents, representatives, awardees, suppliers and
assigns to desist (i) from awarding a new contract to implement the project or any similar electronic passport or visa
project or (ii) if such contract has been awarded from implementing such project or similar projects.

The motion to dismiss is denied for lack of merit. The motions for reconsideration and to lift temporary
restraining Order are now moot and academic by reason of the expiration of the TRO. [45]

On February 16, 2007, BCA filed an Amended Petition,[46] wherein paragraphs 3.3(b) and 4.3 were modified to add language to the effect
that unless petitioners were enjoined from awarding the e-Passport Project, BCA would be deprived of its constitutionally-protected right
to perform its contractual obligations under the original and amended BOT Agreements without due process of law.Subsequently, on
February 26, 2007, the DFA and the BSP received the Writ of Preliminary Injunction dated February 23, 2007.

Hence, on March 2, 2007, the DFA and the BSP filed the instant Petition for Certiorari[47] and prohibition under Rule 65 of the Rules of Court
with a prayer for the issuance of a temporary restraining order and/or a writ of preliminary injunction, imputing grave abuse of discretion
on the trial court when it granted interim relief to BCA and issued the assailed Order dated February 14, 2007 and the writ of preliminary
injunction dated February 23, 2007.

The DFA and the BSP later filed an Urgent Motion for Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction
dated March 5, 2007.[48]

On March 12, 2007, the Court required BCA to file its comment on the said petition within ten days from notice and granted the Office of
the Solicitor Generals urgent motion for issuance of a TRO and/or writ of preliminary injunction, [49] thus:

After deliberating on the petition for certiorari and prohibition with temporary restraining order and/or writ of
preliminary injunction assailing the Order dated 14 February 2007 of the Regional Trial Court, Branch 71, Pasig City, in
 Civil Case No. 71079, the Court, without necessarily giving due course thereto, resolves to require respondents
to COMMENT thereon (not to file a motion to dismiss) within ten (10) days from notice.

The Court further resolves to GRANT the Office of the Solicitor Generals urgent motion for issuance of a
temporary restraining order and/or writ of preliminary injunction dated 05 March 2007 and ISSUE a TEMPORARY
RESTRAINING ORDER, as prayed for, enjoining respondents from implementing the assailed Order dated 14 February
2007 and the Writ of Preliminary Injunction dated 23 February 2007, issued by respondent Judge Franco T. Falcon in Civil
Case No. 71079 entitled BCA International Corporation vs. Department of Foreign Affairs and Bangko Sentral ng Pilipinas,
and from conducting further proceedings in said case until further orders from this Court.

BCA filed on April 2, 2007 its Comment with Urgent Motion to Lift TRO, [50] to which the DFA and the BSP filed their Reply dated August 14,
2007.[51]
In a Resolution dated June 4, 2007,[52] the Court denied BCAs motion to lift TRO. BCA filed another Urgent Omnibus Motion dated August
17, 2007, for the reconsideration of the Resolution dated June 4, 2007, praying that the TRO issued on March 12, 2007 be lifted and that
the petition be denied.
In a Resolution dated September 10, 2007,[53] the Court denied BCAs Urgent Omnibus Motion and gave due course to the instant
petition. The parties were directed to file their respective memoranda within 30 days from notice of the Courts September 10, 2007
Resolution.

Petitioners DFA and BSP submit the following issues for our consideration:

ISSUES

I
WHETHER OR NOT THE RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN HE ISSUED THE ASSAILED ORDER, WHICH EFFECTIVELY ENJOINED THE IMPLEMENTATION OF THE E-
PASSPORT PROJECT -- A NATIONAL GOVERNMENT PROJECT UNDER REPUBLIC ACT NO. 8975.

II
WHETHER OR NOT THE RESPONDENT JUDGE ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN GRANTING RESPONDENT BCAS INTERIM RELIEF INASMUCH AS:

(I) RESPONDENT BCA HAS NOT ESTABLISHED A CLEAR RIGHT THAT CAN BE PROTECTED BY AN
INJUNCTION; AND

(II) RESPONDENT BCA HAS NOT SHOWN THAT IT WILL SUSTAIN GRAVE AND IRREPARABLE
INJURY THAT MUST BE PROTECTED BY AN INJUNCTION. ON THE CONTRARY, IT IS THE
FILIPINO PEOPLE, WHO PETITIONERS PROTECT, THAT WILL SUSTAIN SERIOUS AND SEVERE
INJURY BY THE INJUNCTION.[54]

At the outset, we dispose of the procedural objections of BCA to the petition, to wit: (a) petitioners did not follow the
hierarchy of courts by filing their petition directly with this Court, without filing a motion for reconsideration with the RTC and without
filing a petition first with the Court of Appeals; (b) the person who verified the petition for the DFA did not have personal knowledge of
the facts of the case and whose appointment to his position was highly irregular; and (c) the verification by the Assistant Governor and
General Counsel of the BSP of only selected paragraphs of the petition was with the purported intent to mislead this Court.
Although the direct filing of petitions for certiorari with the Supreme Court is discouraged when litigants may still resort to
remedies with the lower courts, we have in the past overlooked the failure of a party to strictly adhere to the hierarchy of courts on
 highly meritorious grounds. Most recently, we relaxed the rule on court hierarchy in the case of Roque, Jr. v. Commission on
Elections,[55] wherein we held:

The policy on the hierarchy of courts, which petitioners indeed failed to observe, is not an iron-clad rule. For indeed the
Court has full discretionary power to take cognizance and assume jurisdiction of special civil actions
for certiorari and mandamus filed directly with it for exceptionally compelling reasons or if warranted by the nature of
the issues clearly and specifically raised in the petition.[56](Emphases ours.)

The Court deems it proper to adopt a similarly liberal attitude in the present case in consideration of the transcendental importance of an
issue raised herein. This is the first time that the Court is confronted with the question of whether an information and communication
technology project, which does not conform to our traditional notion of the term infrastructure, is covered by the prohibition on the
issuance of court injunctions found in Republic Act No. 8975, which is entitled An Act to Ensure the Expeditious Implementation and
Completion of Government Infrastructure Projects by Prohibiting Lower Courts from Issuing Temporary Restraining Orders, Preliminary
Injunctions or Preliminary Mandatory Injunctions, Providing Penalties for Violations Thereof, and for Other Purposes. Taking into account
the current trend of computerization and modernization of administrative and service systems of government offices, departments and
agencies, the resolution of this issue for the guidance of the bench and bar, as well as the general public, is both timely and imperative.

Anent BCAs claim that Mr. Edsel T. Custodio (who verified the Petition on behalf of the DFA) did not have personal knowledge
of the facts of the case and was appointed to his position as Acting Secretary under purportedly irregular circumstances, we find that
BCA failed to sufficiently prove such allegations. In any event, we have previously held that [d]epending on the nature of the
allegations in the petition, the verification may be based either purely on personal knowledge, or entirely on authentic records, or on
both sources.[57] The alleged lack of personal knowledge of Mr. Custodio (which, as we already stated, BCA failed to prove) would not
necessarily render the verification defective for he could have verified the petition purely on the basis of authentic records.

As for the assertion that the partial verification of Assistant Governor and General Counsel Juan de Zuniga, Jr. was for the
purpose of misleading this Court, BCA likewise failed to adduce evidence on this point. Good faith is always presumed. Paragraph 3 of
Mr. Zunigas verification indicates that his partial verification is due to the fact that he is verifying only the allegations in the petition
peculiar to the BSP. We see no reason to doubt that this is the true reason for his partial or selective verification.

In sum, BCA failed to successfully rebut the presumption that the official acts (of Mr. Custodio and Mr. Zuniga) were done in
good faith and in the regular performance of official duty.[58] Even assuming the verifications of the petition suffered from some defect,
we have time and again ruled that [t]he ends of justice are better served when cases are determined on the merits after all parties are
given full opportunity to ventilate their causes and defenses rather than on technicality or some procedural imperfections.[59] In other
words, the Court may suspend or even disregard rules when the demands of justice so require.[60]
We now come to the substantive issues involved in this case.
On whether the trial court had jurisdiction to issue a writ of preliminary injunction in
the present case

In their petition, the DFA and the BSP argue that respondent Judge Falcon gravely abused his discretion amounting to lack or
excess of jurisdiction when he issued the assailed orders, which effectively enjoined the bidding and/or implementation of the e-
Passport Project. According to petitioners, this violated the clear prohibition under Republic Act No. 8975 regarding the issuance of
TROs and preliminary injunctions against national government projects, such as the e-Passport Project.
 The prohibition invoked by petitioners is found in Section 3 of Republic Act No. 8975, which reads:

Section 3. Prohibition on the Issuance of Temporary Restraining Orders, Preliminary Injunctions and Preliminary
Mandatory Injunctions. No court, except the Supreme Court, shall issue any temporary restraining order, preliminary
injunction or preliminary mandatory injunction against the government, or any of its subdivisions, officials or any person
or entity, whether public or private, acting under the governments direction, to restrain, prohibit or compel the following
acts:
(a) Acquisition, clearance and development of the right-of-way and/or site or location of any national
government project;
(b) Bidding or awarding of contract/project of the national government as defined under Section 2 hereof;
(c) Commencement, prosecution, execution, implementation, operation of any such contract or project;
(d) Termination or rescission of any such contract/project; and
(e) The undertaking or authorization of any other lawful activity necessary for such contract/project.

This prohibition shall apply in all cases, disputes or controversies instituted by a private party, including but not limited to
cases filed by bidders or those claiming to have rights through such bidders involving such contract/project. This
prohibition shall not apply when the matter is of extreme urgency involving a constitutional issue, such that unless a
temporary restraining order is issued, grave injustice and irreparable injury will arise. The applicant shall file a bond, in an
amount to be fixed by the court, which bond shall accrue in favor of the government if the court should finally decide
that the applicant was not entitled to the relief sought.

If after due hearing the court finds that the award of the contract is null and void, the court may, if appropriate under
the circumstances, award the contract to the qualified and winning bidder or order a rebidding of the same, without
prejudice to any liability that the guilty party may incur under existing laws.

From the foregoing, it is indubitable that no court, aside from the Supreme Court, may enjoin a national government project
unless the matter is one of extreme urgency involving a constitutional issue such that unless the act complained of is enjoined, grave
injustice or irreparable injury would arise.
What then are the national government projects over which the lower courts are without jurisdiction to issue the injunctive
relief as mandated by Republic Act No. 8975?
Section 2(a) of Republic Act No. 8975 provides:

Section 2. Definition of Terms.

(a) National government projects shall refer to all current and future national government infrastructure,
engineering works and service contracts, including projects undertaken by government-owned and -controlled
corporations, all projects covered by Republic Act No. 6975, as amended by Republic Act No. 7718, otherwise known as
the Build-Operate-and-Transfer Law, and other related and necessary activities, such as site acquisition, supply and/or
installation of equipment and materials, implementation, construction, completion, operation, maintenance,
improvement, repair and rehabilitation, regardless of the source of funding.

As petitioners themselves pointed out, there are three types of national government projects enumerated in Section 2(a), to
wit:

(a) current and future national government infrastructure projects, engineering works and service contracts,
including projects undertaken by government-owned and controlled corporations;
(b) all projects covered by R.A. No. 6975, as amended by R.A. No. 7718, or the Build-Operate-and-Transfer (
BOT) Law; and
(c) other related and necessary activities, such as site acquisition, supply and/or installation of equipment and
materials, implementation, construction, completion, operation, maintenance, improvement repair and
rehabilitation, regardless of the source of funding.
 Under Section 2(a) of the BOT Law as amended by Republic Act No. 7718,[61] private sector infrastructure or development
projects are those normally financed and operated by the public sector but which will now be wholly or partly implemented by the
private sector, including but not limited to, power plants, highways, ports, airports, canals, dams, hydropower projects, water supply,
irrigation, telecommunications, railroads and railways, transport systems, land reclamation projects, industrial estates or townships,
housing, government buildings, tourism projects, markets, slaughterhouses, warehouses, solid waste management, information
technology networks and database infrastructure, education and health facilities, sewerage, drainage, dredging, and other
infrastructure and development projects as may be authorized by the appropriate agency.

In contrast, Republic Act No. 9184,[62] also known as the Government Procurement Reform Act, defines infrastructure projects in Section
5(k) thereof in this manner:

(k) Infrastructure Projects - include the construction, improvement, rehabilitation, demolition, repair,
restoration or maintenance of roads and bridges, railways, airports, seaports, communication facilities, civil works
components of information technology projects, irrigation, flood control and drainage, water supply, sanitation,
sewerage and solid waste management systems, shore protection, energy/power and electrification facilities, national
buildings, school buildings, hospital buildings and other related construction projects of the government. (Emphasis
supplied.)

In the present petition, the DFA and the BSP contend that the bidding for the supply, delivery, installation and commissioning
of a system for the production of Electronic Passport Booklets, is a national government project within the definition of Section 2 of
Republic Act No. 8975. Petitioners also point to the Senate deliberations on Senate Bill No. 2038 [63] (later Republic Act No. 8975) which
allegedly show the legislatives intent to expand the scope and definition of national government projects to cover not only the
infrastructure projects enumerated in Presidential Decree No. 1818, but also future projects that may likewise be considered national
government infrastructure projects, like the e-Passport Project, to wit:

Senator Cayetano. x x x Mr. President, the present bill, the Senate Bill No. 2038, is actually an improvement of P.D. No.
1818 and definitely not a repudiation of what I have earlier said, as my good friend clearly stated. But this is really an
effort to improve both the scope and definition of the term government projects and to ensure that lower court judges
obey and observe this prohibition on the issuance of TROs on infrastructure projects of the government.

xxxx
Senator Cayetano. That is why, Mr. President, I did try to explain why I would accept the proposed amendment, meaning
the totality of the repeal of P.D. 1818 which is not found in the original version of the bill, because of my earlier
explanation that the definition of the term government infrastructure project covers all of those enumerated in Section 1
of P.D. No. 1818. And the reason for that, as we know, is we do not know what else could be considered government
infrastructure project in the next 10 or 20 years.
x x x So, using the Latin maxim of expression unius est exclusion alterius, which means what is expressly mentioned is
tantamount to an express exclusion of the others, that is the reason we did not include particularly an enumeration of
certain activities of the government found in Section 1 of P.D. No. 1818. Because to do that, it may be a good excuse for
a brilliant lawyer to say Well, you know, since it does not cover this particular activity, ergo, the Regional Trial Court may
issue TRO.

Using the foregoing discussions to establish that the intent of the framers of the law was to broaden the scope and definition of
national government projects and national infrastructure projects, the DFA and the BSP submit that the said scope and definition had
since evolved to include the e-Passport Project. They assert that the concept of infrastructure must now refer to any and all elements
that provide support, framework, or structure for a given system or organization, including information technology, such as the e-
Passport Project.

Interestingly, petitioners represented to the trial court that the e-Passport Project is a BOT project but in their petition with this Court,
petitioners simply claim that the e-Passport Project is a national government project under Section 2 of Republic Act No. 8975. This
circumstance is significant, since relying on the claim that the e-Passport Project is a BOT project, the trial court ruled in this wise:

The prohibition against issuance of TRO and/or writ of preliminary injunction under RA 8975 applies only to national
government infrastructure project covered by the BOT Law, (RA 8975, Sec 3[b] in relation to Sec. 2).

The national government projects covered under the BOT are enumerated under Sec. 2 of RA6957, as amended,
otherwise known as the BOT Law. Notably, it includes information technology networks and database infrastructure.

In relation to information technology projects, infrastructure projects refer to the civil works components thereof.
(R.A. No. 9184 [2003], Sec. 5[c]{sic}).[64]

Respondent BSPs request for bid, for the supply, delivery, installation and commissioning of a system for the production
of Electronic Passport Booklets appears to be beyond the scope of the term civil works. Respondents did not present
evidence to prove otherwise.[65](Emphases ours.)

From the foregoing, it can be gleaned that the trial court accepted BCAs reasoning that, assuming the e-Passport Project is a project
under the BOT Law, Section 2 of the BOT Law must be read in conjunction with Section 5(c) of Republic Act No. 9184 or the
Government Procurement Reform Act to the effect that only the civil works component of information technology projects are to be
considered infrastructure. Thus, only said civil works component of an information technology project cannot be the subject of a TRO
or writ of injunction issued by a lower court.

Although the Court finds that the trial court had jurisdiction to issue the writ of preliminary injunction, we cannot uphold the theory of
BCA and the trial court that the definition of the term infrastructure project in Republic Act No. 9184 should be applied to the BOT
Law.

Section 5 of Republic Act No. 9184 prefaces the definition of the terms therein, including the term infrastructure project, with the
following phrase: For purposes of this Act, the following terms or words and phrases shall mean or be understood as follows x x x.

This Court has stated that the definition of a term in a statute is not conclusive as to the meaning of the same term as used
elsewhere.[66] This is evident when the legislative definition is expressly made for the purposes of the statute containing such
definition.[67]

There is no legal or rational basis to apply the definition of the term infrastructure project in one statute to another statute enacted
years before and which already defined the types of projects it covers. Rather, a reading of the two statutes involved will readily show
that there is a legislative intent to treat information technology projects differently under the BOT Law and the Government
Procurement Reform Act.
In the BOT Law as amended by Republic Act No. 7718, the national infrastructure and development projects covered by said law are
enumerated in Section 2(a) as follows:

SEC. 2. Definition of Terms. - The following terms used in this Act shall have the meanings stated below:

(a) Private sector infrastructure or development projects - The general description of

infrastructure or development projects normally financed and operated by the public sector but which
will now be wholly or partly implemented by the private sector, including but not limited to, power
plants, highways, ports, airports, canals, dams, hydropower projects, water supply, irrigation,
telecommunications, railroads and railways, transport systems, land reclamation projects, industrial
estates of townships, housing, government buildings, tourism projects, markets, slaughterhouses,
warehouses, solid waste management, information technology networks and database
infrastructure, education and health facilities, sewerage, drainage, dredging, and other infrastructure
and development projects as may be authorized by the appropriate agency pursuant to this Act. Such
projects shall be undertaken through contractual arrangements as defined hereunder and such other
variations as may be approved by the President of the Philippines.

For the construction stage of these infrastructure projects, the project proponent may obtain
financing from foreign and/or domestic sources and/or engage the services of a foreign and/or Filipino
contractor: Provided, That, in case an infrastructure or a development facility's operation requires a
public utility franchise, the facility operator must be a Filipino or if a corporation, it must be duly
registered with the Securities and Exchange Commission and owned up to at least sixty percent (60%)
by Filipinos: Provided, further, That in the case of foreign contractors, Filipino labor shall be employed
or hired in the different phases of construction where Filipino skills are available: Provided, finally,
That projects which would have difficulty in sourcing funds may be financed partly from direct
government appropriations and/or from Official Development Assistance (ODA) of foreign
governments or institutions not exceeding fifty percent (50%) of the project cost, and the balance to
be provided by the project proponent. (Emphasis supplied.)

A similar provision appears in the Revised IRR of the BOT Law as amended, to wit:

SECTION 1.3 - DEFINITION OF TERMS

For purposes of these Implementing Rules and Regulations, the terms and phrases hereunder shall be understood as
follows:
xxxx
v. Private Sector Infrastructure or Development Projects - The general description of
infrastructure or Development Projects normally financed, and operated by the public sector but
which will now be wholly or partly financed, constructed and operated by the private sector, including
but not limited to, power plants, highways, ports, airports, canals, dams, hydropower projects, water
supply, irrigation, telecommunications, railroad and railways, transport systems, land reclamation
projects, industrial estates or townships, housing, government buildings, tourism projects, public
markets, slaughterhouses, warehouses, solid waste management, information technology networks
and database infrastructure, education and health facilities, sewerage, drainage, dredging, and other
infrastructure and development projects as may otherwise be authorized by the appropriate
Agency/LGU pursuant to the Act or these Revised IRR. Such projects shall be undertaken through
Contractual Arrangements as defined herein, including such other variations as may be approved by
the President of the Philippines.
xxxx
SECTION 2.2 - ELIGIBLE TYPES OF PROJECTS
The Construction, rehabilitation, improvement, betterment, expansion, modernization, operation, financing and
maintenance of the following types of projects which are normally financed and operated by the public sector which will
 now be wholly or partly financed, constructed and operated by the private sector, including other infrastructure and
development projects as may be authorized by the appropriate agencies, may be proposed under the provisions of the
Act and these Revised IRR, provided however that such projects have a cost recovery component which covers at least
50% of the Project Cost, or as determined by the Approving Body:

xxxx

h. Information technology (IT) and data base infrastructure, including modernization of IT,
geo-spatial resource mapping and cadastral survey for resource accounting and planning.
(Underscoring supplied.)

Undeniably, under the BOT Law, wherein the projects are to be privately funded, the entire information technology project,
including the civil works component and the technological aspect thereof, is considered an infrastructure or development project and
treated similarly as traditional infrastructure projects. All the rules applicable to traditional infrastructure projects are also applicable
to information technology projects. In fact, the MRP/V Project awarded to BCA under the BOT Law appears to include both civil works
(i.e., site preparation of the Central Facility, regional DFA offices and foreign service posts) and non-civil works aspects
(i.e.,development, installation and maintenance in the Philippines and foreign service posts of a computerized passport and visa
issuance system, including creation of databases, storage and retrieval systems, training of personnel and provision of consumables).

In contrast, under Republic Act No. 9184 or the Government Procurement Reform Act, which contemplates projects to be funded by
public funds, the term infrastructure project was limited to only the civil works component of information technology projects. The
non-civil works component of information technology projects would be treated as an acquisition of goods or consulting services as
the case may be.

This limited definition of infrastructure project in relation to information technology projects under Republic Act No. 9184 is significant
since the IRR of Republic Act No. 9184 has some provisions that are particular to infrastructure projects and other provisions that are
applicable only to procurement of goods or consulting services.[68]

Implicitly, the civil works component of information technology projects are subject to the provisions on infrastructure projects while
the technological and other components would be covered by the provisions on procurement of goods or consulting services as the
circumstances may warrant.

When Congress adopted a limited definition of what is to be considered infrastructure in relation to information technology projects
under the Government Procurement Reform Act, legislators are presumed to have taken into account previous laws concerning
infrastructure projects (the BOT Law and Republic Act No. 8975) and deliberately adopted the limited definition. We can further
presume that Congress had written into law a different treatment for information technology projects financed by public funds vis-a-
vis privately funded projects for a valid legislative purpose.

The idea that the definitions of terms found in the Government Procurement Reform Act were not meant to be applied to projects
under the BOT Law is further reinforced by the following provision in the IRR of the Government Procurement Reform Act:

Section 1. Purpose and General Coverage

 This Implementing Rules and Regulations (IRR) Part A, hereinafter called IRR-A, is promulgated pursuant to Section 75 of
Republic Act No. 9184 (R.A. 9184), otherwise known as the Government Procurement Reform Act (GPRA), for the
purpose of prescribing the necessary rules and regulations for the modernization, standardization, and regulation of the
procurement activities of the government. This IRR-A shall cover all fully domestically-funded procurement
activities from procurement planning up to contract implementation and termination, except for the following:

a) Acquisition of real property which shall be governed by Republic Act No. 8974 (R.A. 8974), entitled An Act to Facilitate
the Acquisition of Right-of-Way Site or Location for National Government Infrastructure Projects and for Other Purposes,
and other applicable laws; and

b) Private sector infrastructure or development projects and other procurement covered by Republic Act No. 7718
(R.A. 7718), entitled An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure
Projects by the Private Sector, and for Other Purposes, as amended: Provided, however, That for the portions financed
by the Government, the provisions of this IRR-A shall apply.

The IRR-B for foreign-funded procurement activities shall be the subject of a subsequent issuance. (Emphases supplied.)

The foregoing provision in the IRR can be taken as an administrative interpretation that the provisions of Republic Act No. 9184 are
inapplicable to a BOT project except only insofar as such portions of the BOT project that are financed by the government.

Taking into account the different treatment of information technology projects under the BOT Law and the Government Procurement
Reform Act, petitioners contention the trial court had no jurisdiction to issue a writ of preliminary injunction in the instant case would
have been correct if the e-Passport Project was a project under the BOT Law as they represented to the trial court.

However, petitioners presented no proof that the e-Passport Project was a BOT project. On the contrary, evidence adduced by both
sides tended to show that the e-Passport Project was a procurement contract under Republic Act No. 9184.

The BSPs on-line request for expression of interest and to bid for the e-Passport Project[69] from the BSP website and the newspaper
clipping[70] of the same request expressly stated that [t]he two stage bidding procedure under Section 30.4 of the Implementing Rules
and Regulation (sic) Part-A of Republic Act No. 9184 relative to the bidding and award of the contract shall apply. During the testimony
of DFA Assistant Secretary Domingo Lucenario, Jr. before the trial court, he admitted that the e-Passport Project is a BSP procurement
project and that it is the BSP that will pay the suppliers.[71] In petitioners Manifestation dated July 29, 2008[72] and the
Erratum[73] thereto, petitioners informed the Court that a contract for the supply of a complete package of systems design, technology,
hardware, software, and peripherals, maintenance and technical support, ecovers and datapage security laminates for the centralized
production and personalization of Machine Readable Electronic Passport was awarded to Francois Charles Oberthur Fiduciaire. In the
Notice of Award dated July 2, 2008[74] attached to petitioners pleading, it was stated that the failure of the contractor/supplier to
submit the required performance bond would be sufficient ground for the imposition of administrative penalty under Section 69 of the
IRR-A of Republic Act No. 9184.

Being a government procurement contract under Republic Act No. 9184, only the civil works component of the e-Passport Project
would be considered an infrastructure project that may not be the subject of a lower court-issued writ of injunction under Republic Act
No. 8975.
 Could the e-Passport Project be considered as engineering works or a service contract or as related and necessary activities under
Republic Act No. 8975 which may not be enjoined?

We hold in the negative. Under Republic Act No. 8975, a service contract refers to infrastructure contracts entered into by any department,
office or agency of the national government with private entities and nongovernment organizations for services related or incidental to the
functions and operations of the department, office or agency concerned. On the other hand, the phrase other related and necessary
activities obviously refers to activities related to a government infrastructure, engineering works, service contract or project under the BOT
Law. In other words, to be considered a service contract or related activity, petitioners must show that the e-Passport Project is an
infrastructure project or necessarily related to an infrastructure project. This, petitioners failed to do for they saw fit not to present any
evidence on the details of the e-Passport Project before the trial court and this Court. There is nothing on record to indicate that the e-
Passport Project has a civil works component or is necessarily related to an infrastructure project.

Indeed, the reference to Section 30.4[75] of the IRR of Republic Act No. 9184 (a provision specific to the procurement of goods) in the BSPs
request for interest and to bid confirms that the e-Passport Project is a procurement of goods and not an infrastructure project. Thus,
within the context of Republic Act No. 9184 which is the governing law for the e-Passport Project the said Project is not an infrastructure
project that is protected from lower court issued injunctions under Republic Act No. 8975, which, to reiterate, has for its purpose the
expeditious and efficient implementation and completion of government infrastructure projects.

We note that under Section 28, Republic Act No. 9285 or the Alternative Dispute Resolution Act of 2004,[76] the grant of an interim
measure of protection by the proper court before the constitution of an arbitral tribunal is allowed:

Sec. 28. Grant of Interim Measure of Protection. (a) It is not incompatible with an arbitration agreement for a
party to request, before constitution of the tribunal, from a Court an interim measure of protection and for the Court to
grant such measure. After constitution of the arbitral tribunal and during arbitral proceedings, a request for an interim
measure of protection, or modification thereof, may be made with the arbitral tribunal or to the extent that the arbitral
tribunal has no power to act or is unable to act effectively, the request may be made with the Court. The arbitral tribunal
is deemed constituted when the sole arbitrator or the third arbitrator, who has been nominated, has accepted the
nomination and written communication of said nomination and acceptance has been received by the party making the
request.

(a) The following rules on interim or provisional relief shall be observed:

(1) Any party may request that provisional relief be granted against the adverse
party.
(2) Such relief may be granted:
(i) to prevent irreparable loss or injury;
(ii) to provide security for the performance of any obligation;
(iii) to produce or preserve any evidence; or
(iv) to compel any other appropriate act or omission.
(3) The order granting provisional relief may be conditioned upon the provision of
security or any act or omission specified in the order.
(4) Interim or provisional relief is requested by written application transmitted by
reasonable means to the Court or arbitral tribunal as the case may be and the party against whom the
relief is sought, describing in appropriate detail the precise relief, the party against whom the relief is
requested, the grounds for the relief, and the evidence supporting the request.
 (5) The order shall be binding upon the parties.
(6) Either party may apply with the Court for assistance in implementing or enforcing
an interim measure ordered by an arbitral tribunal.
(7) A party who does not comply with the order shall be liable for all damages
resulting from noncompliance, including all expenses and reasonable attorneys fees, paid in obtaining
the orders judicial enforcement.

Section 3(h) of the same statute provides that the "Court" as referred to in Article 6 of the Model Law shall mean a Regional Trial
Court.
Republic Act No. 9285 is a general law applicable to all matters and controversies to be resolved through alternative dispute
resolution methods. This law allows a Regional Trial Court to grant interim or provisional relief, including preliminary injunction, to parties
in an arbitration case prior to the constitution of the arbitral tribunal. This general statute, however, must give way to a special law
governing national government projects, Republic Act No. 8975 which prohibits courts, except the Supreme Court, from issuing TROs and
writs of preliminary injunction in cases involving national government projects.

However, as discussed above, the prohibition in Republic Act No. 8975 is inoperative in this case, since petitioners failed to prove
that the e-Passport Project is national government project as defined therein. Thus, the trial court had jurisdiction to issue a writ of
preliminary injunction against the e-Passport Project.

On whether the trial courts issuance of a writ of injunction was proper

Given the above ruling that the trial court had jurisdiction to issue a writ of injunction and going to the second issue raised by
petitioners, we answer the question: Was the trial courts issuance of a writ of injunction warranted under the circumstances of this case?

Petitioners attack on the propriety of the trial courts issuance of a writ of injunction is two-pronged: (a) BCA purportedly has no
clear right to the injunctive relief sought; and (b) BCA will suffer no grave and irreparable injury even if the injunctive relief were not
granted.

To support their claim that BCA has no clear right to injunctive relief, petitioners mainly allege that the MRP/V Project and the e-
Passport Project are not the same project. Moreover, the MRP/V Project purportedly involves a technology (the 2D optical bar code) that
has been rendered obsolete by the latest ICAO developments while the e-Passport Project will comply with the latest ICAO standards (the
contactless integrated circuit). Parenthetically, and not as a main argument, petitioners imply that BCA has no clear contractual right under
the Amended BOT Agreement since BCA had previously assigned all its rights and obligations under the said Agreement to PPC.

BCA, on the other hand, claims that the Amended BOT Agreement also contemplated the supply and/or delivery of e-Passports
with the integrated circuit technology in the future and not only the machine readable passport with the 2D optical bar code
technology. Also, it is BCAs assertion that the integrated circuit technology is only optional under the ICAO issuances. On the matter of its
assignment of its rights to PPC, BCA counters that it had already terminated (purportedly at DFAs request) the assignment agreement in
favor of PPC and that even assuming the termination was not valid, the Amended BOT Agreement expressly stated that BCA shall remain
solidarily liable with its assignee, PPC.
 Most of these factual allegations and counter-allegations already touch upon the merits of the main controversy between the DFA
and BCA, i.e., the validity and propriety of the termination of the Amended BOT Agreement (the MRP/V Project) between the DFA and
BCA. The Court deems it best to refrain from ruling on these matters since they should be litigated in the appropriate arbitration or court
proceedings between or among the concerned parties.

One preliminary point, however, that must be settled here is whether BCA retains a right to seek relief against the DFA under the
Amended BOT Agreement in view of BCAs previous assignment of its rights to PPC. Without preempting any factual finding that the
appropriate court or arbitral tribunal on the matter of the validity of the assignment agreement with PPC or its termination, we agree with
BCA that it remained a party to the Amended BOT Agreement, notwithstanding the execution of the assignment agreement in favor of PPC,
for it was stipulated in the Amended BOT Agreement that BCA would be solidarily liable with its assignee. For convenient reference, we
reproduce the relevant provision of the Amended BOT Agreement here:

Section 20.15. It is clearly and expressly understood that BCA may assign, cede and transfer all of its rights and
obligations under this Amended BOT Agreement to PPC [Philippine Passport Corporation], as fully as if PPC is the original
signatory to this Amended BOT Agreement, provided however that BCA shall nonetheless be jointly and severally liable
with PPC for the performance of all the obligations and liabilities under this Amended BOT Agreement. (Emphasis
supplied.)

Furthermore, a review of the records shows that the DFA continued to address its correspondence regarding the MRP/V Project to
both BCA and PPC, even after the execution of the assignment agreement. Indeed, the DFAs Notice of Termination dated December 9, 2005
was addressed to Mr. Bonifacio Sumbilla as President of both BCA and PPC and referred to the Amended BOT Agreement executed
between the Department of Foreign Affairs (DFA), on one hand, and the BCA International Corporation and/or the Philippine Passport
Corporation (BCA/PPC). At the very least, the DFA is estopped from questioning the personality of BCA to bring suit in relation to the
Amended BOT Agreement since the DFA continued to deal with both BCA and PPC even after the signing of the assignment agreement. In
any event, if the DFA truly believes that PPC is an indispensable party to the action, the DFA may take necessary steps to implead PPC but
this should not prejudice the right of BCA to file suit or to seek relief for causes of action it may have against the DFA or the BSP, for
undertaking the e-Passport Project on behalf of the DFA.

With respect to petitioners contention that BCA will suffer no grave and irreparable injury so as to justify the grant of injunctive
relief, the Court finds that this particular argument merits consideration.

The BOT Law as amended by Republic Act No. 7718, provides:

SEC. 7. Contract Termination. - In the event that a project is revoked, cancelled or terminated by the Government
through no fault of the project proponent or by mutual agreement, the Government shall compensate the said project
proponent for its actual expenses incurred in the project plus a reasonable rate of return thereon not exceeding that
stated in the contract as of the date of such revocation, cancellation or termination: Provided, That the interest of the
Government in this instances shall be duly insured with the Government Service Insurance System [GSIS] or any other
insurance entity duly accredited by the Office of the Insurance Commissioner: Provided, finally, That the cost of the
insurance coverage shall be included in the terms and conditions of the bidding referred to above.

In the event that the government defaults on certain major obligations in the contract and such failure is not
remediable or if remediable shall remain unremedied for an unreasonable length of time, the project
proponent/contractor may, by prior notice to the concerned national government agency or local government unit
specifying the turn-over date, terminate the contract. The project proponent/contractor shall be reasonably
compensated by the Government for equivalent or proportionate contract cost as defined in the contract. (Emphases
supplied.)

In addition, the Amended BOT Agreement, which is the law between and among the parties to it, pertinently provides:
Section 17.01 Default In case a party commits an act constituting an event of default, the non-defaulting
party may terminate this Amended BOT Agreement by serving a written notice to the defaulting party specifying the
grounds for termination and giving the defaulting party a period of ninety (90) days within which to rectify the default. If
the default is not remedied within this period to the satisfaction of the non-defaulting party, then the latter will serve
upon the former a written notice of termination indicating the effective date of termination.

Section 17.02 Proponents Default If this Amended BOT Agreement is terminated by reason of the BCAs
default, the DFA shall have the following options:

A. Allow the BCAs unpaid creditors who hold a lien on the MRP/V Facility to foreclose on the
MRP/V Facility. The right of the BCAs unpaid creditors to foreclose on the MRP/V Facility
shall be valid for the duration of the effectivity of this Amended BOT Agreement; or,

B. Allow the BCAs unpaid creditors who hold a lien on the MRP/V Facility to designate a
substitute BCA for the MRP/V Project, provided the designated substitute BCA is qualified
under existing laws and acceptable to the DFA. This substitute BCA shall hereinafter be
referred to as the Substitute BCA. The Substitute BCA shall assume all the BCAs rights and
privileges, as well as the obligations, duties and responsibilities hereunder; provided,
however, that the DFA shall at all times and its sole option, have the right to invoke and
exercise any other remedy which may be available to the DFA under any applicable laws,
rules and/or regulations which may be in effect at any time and from time to time. The DFA
shall cooperate with the creditors with a view to facilitating the choice of a Substitute BCA,
who shall take-over the operation, maintenance and management of the MRP/V Project,
within three (3) months from the BCAs receipt of the notice of termination from the DFA.
The Substituted BCA shall have all the rights and obligations of the previous BCA as
contained in this Amended BOT Agreement; or

C. Take-over the MRP/V Facility and assume all attendant liabilities thereof.

D. In all cases of termination due to the default of the BCA, it shall pay DFA liquidated
damages equivalent to the applicable the (sic) Performance Security.

Section 17.03 DFAs Default If this Amended BOT Agreement is terminated by the BCA by reason of the DFAs
Default, the DFA shall:

A. Be obligated to take over the MRP/V Facility on an as is, where is basis, and shall forthwith
assume attendant liabilities thereof; and

B. Pay liquidated damages to the BCA equivalent to the following amounts, which may be
charged to the insurance proceeds referred to in Article 12:

(1) In the event of termination prior to completion of the implementation of the

MRP/V Project, damages shall be paid equivalent to the value of completed
implementation, minus the aggregate amount of the attendant liabilities
assumed by the DFA, plus ten percent (10%) thereof. The amount of such
compensation shall be determined as of the date of the notice of termination and
 shall become due and demandable ninety (90) days after the date of this notice of
termination. Under this Amended BOT Agreement, the term Value of the
Completed Implementation shall mean the aggregate of all reasonable costs and
expenses incurred by the BCA in connection with, in relation to and/or by reason of
the MRP/V Project, excluding all interest and capitalized interest, as certified by a
reputable and independent accounting firm to be appointed by the BCA and subject
to the approval by the DFA, such approval shall not be unreasonably withheld.

(2) In the event of termination after completion of design, development, and

installation of the MRP/V Project, just compensation shall be paid equivalent to
the present value of the net income which the BCA expects to earn or realize
during the unexpired or remaining term of this Amended BOT Agreement using
the internal rate of return on equity (IRRe) defined in the financial projections of
the BCA and agreed upon by the parties, which is attached hereto and made as an
integral part of this Amended BOT Agreement as Schedule 1. (Emphases supplied.)

The validity of the DFAs termination of the Amended BOT Agreement and the determination of the party or parties in default are
issues properly threshed out in arbitration proceedings as provided for by the agreement itself. However, even if we hypothetically accept
BCAs contention that the DFA terminated the Amended BOT Agreement without any default or wrongdoing on BCAs part, it is not
indubitable that BCA is entitled to injunctive relief.
The BOT Law expressly allows the government to terminate a BOT agreement, even without fault on the part of the project
proponent, subject to the payment of the actual expenses incurred by the proponent plus a reasonable rate of return.

Under the BOT Law and the Amended BOT Agreement, in the event of default on the part of the government (in this case, the
DFA) or on the part of the proponent, the non-defaulting party is allowed to terminate the agreement, again subject to proper
compensation in the manner set forth in the agreement.
Time and again, this Court has held that to be entitled to injunctive relief the party seeking such relief must be able to show grave,
irreparable injury that is not capable of compensation.

In Lopez v. Court of Appeals, [77] we held:

Generally, injunction is a preservative remedy for the protection of one's substantive right or interest. It is not a
cause of action in itself but merely a provisional remedy, an adjunct to a main suit. It is resorted to only when there is a
pressing necessity to avoid injurious consequences which cannot be remedied under any standard compensation. The
application of the injunctive writ rests upon the existence of an emergency or of a special reason before the main case
can be regularly heard. The essential conditions for granting such temporary injunctive relief are that the complaint
alleges facts which appear to be sufficient to constitute a proper basis for injunction and that on the entire showing from
the contending parties, the injunction is reasonably necessary to protect the legal rights of the plaintiff pending the
litigation. Two requisites are necessary if a preliminary injunction is to issue, namely, the existence of a right to be
protected and the facts against which the injunction is to be directed are violative of said right. In particular, for a writ of
preliminary injunction to issue, the existence of the right and the violation must appear in the allegation of the
complaint and a preliminary injunction is proper only when the plaintiff (private respondent herein) appears to be
entitled to the relief demanded in his complaint. (Emphases supplied.)

We reiterated this point in Transfield Philippines, Inc. v. Luzon Hydro Corporation,[78] where we likewise opined:

Before a writ of preliminary injunction may be issued, there must be a clear showing by the complaint that there exists a
right to be protected and that the acts against which the writ is to be directed are violative of the said right. It must be
 shown that the invasion of the right sought to be protected is material and substantial, that the right of complainant is
clear and unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious
damage. Moreover, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any standard compensation. (Emphasis supplied.)

As the Court explained previously in Philippine Airlines, Inc. v. National Labor Relations Commission [79]:

An injury is considered irreparable if it is of such constant and frequent recurrence that no fair and reasonable redress
can be had therefor in a court of law, or where there is no standard by which their amount can be measured with
reasonable accuracy, that is, it is not susceptible of mathematical computation. It is considered irreparable injury when
it cannot be adequately compensated in damages due to the nature of the injury itself or the nature of the right or
property injured or when there exists no certain pecuniary standard for the measurement of damages. (Emphases
supplied.)

It is still contentious whether this is a case of termination by the DFA alone or both the DFA and BCA. The DFA contends that BCA, by
sending its own Notice of Default, likewise terminated or abandoned the Amended BOT Agreement. Still, whether this is a termination by
the DFA alone without fault on the part of BCA or a termination due to default on the part of either party, the BOT Law and the Amended
BOT Agreement lay down the measure of compensation to be paid under the appropriate circumstances.

Significantly, in BCAs Request for Arbitration with the PDRCI, it prayed for, among others, a judgment ordering respondent [DFA] to pay
damages to Claimant [BCA], reasonably estimated at P50,000,000.00 as of [the date of the Request for Arbitration], representing lost
business opportunities; financing fees, costs and commissions; travel expenses; legal fees and expenses; and costs of arbitration, including
the fees of the arbitrator/s.[80] All the purported damages that BCA claims to have suffered by virtue of the DFAs termination of the
Amended BOT Agreement are plainly determinable in pecuniary terms and can be reasonably estimated according to BCAs own words.

Indeed, the right of BCA, a party which may or may not have been in default on its BOT contract, to have the termination of its BOT contract
reversed is not guaranteed by the BOT Law. Even assuming BCAs innocence of any breach of contract, all the law provides is that BCA
should be adequately compensated for its losses in case of contract termination by the government.
There is one point that none of the parties has highlighted but is worthy of discussion. In seeking to enjoin the government from awarding
or implementing a machine readable passport project or any similar electronic passport or visa project and praying for the maintenance of
the status quo ante pending the resolution on the merits of BCAs Request for Arbitration, BCA effectively seeks to enjoin the termination of
the Amended BOT Agreement for the MRP/V Project.

There is no doubt that the MRP/V Project is a project covered by the BOT Law and, in turn, considered a national government project under
Republic Act No. 8795. Under Section 3(d) of that statute, trial courts are prohibited from issuing a TRO or writ of preliminary injunction
against the government to restrain or prohibit the termination or rescission of any such national government project/contract.

The rationale for this provision is easy to understand. For if a project proponent that the government believes to be in default is allowed to
enjoin the termination of its contract on the ground that it is contesting the validity of said termination, then the government will be unable
to enter into a new contract with any other party while the controversy is pending litigation. Obviously, a courts grant of injunctive relief in
such an instance is prejudicial to public interest since government would be indefinitely hampered in its duty to provide vital public goods
and services in order to preserve the private proprietary rights of the project proponent. On the other hand, should it turn out that the
project proponent was not at fault, the BOT Law itself presupposes that the project proponent can be adequately compensated for the
termination of the contract. Although BCA did not specifically pray for the trial court to enjoin the termination of the Amended BOT
Agreement and thus, there is no direct violation of Republic Act No. 8795, a grant of injunctive relief as prayed for by BCA will indirectly
contravene the same statute.

Verily, there is valid reason for the law to deny preliminary injunctive relief to those who seek to contest the governments termination of a
national government contract. The only circumstance under which a court may grant injunctive relief is the existence of a matter
of extreme urgency involving a constitutional issue, such that unless a TRO or injunctive writ is issued, grave injustice and irreparable injury
will result.
Now, BCA likewise claims that unless it is granted injunctive relief, it would suffer grave and irreparable injury since the bidding out and
award of the e-Passport Project would be tantamount to a violation of its right against deprivation of property without due process of law
under Article III, Section 1 of the Constitution. We are unconvinced.

Article III, Section 1 of the Constitution provides [n]o person shall be deprived of life, liberty, or property without due process of law, nor
shall any person be denied the equal protection of the laws. Ordinarily, this constitutional provision has been applied to the exercise by the
State of its sovereign powers such as, its legislative power,[81] police power,[82] or its power of eminent domain.[83]

In the instant case, the State action being assailed is the DFAs termination of the Amended BOT Agreement with BCA. Although the said
agreement involves a public service that the DFA is mandated to provide and, therefore, is imbued with public interest, the relationship of
DFA to BCA is primarily contractual and their dispute involves the adjudication of contractual rights. The propriety of the DFAs acts, in
relation to the termination of the Amended BOT Agreement, should be gauged against the provisions of the contract itself and the
applicable statutes to such contract. These contractual and statutory provisions outline what constitutes due process in the present case. In
all, BCA failed to demonstrate that there is a constitutional issue involved in this case, much less a constitutional issue of extreme urgency.

As for the DFAs purported failure to appropriate sufficient amounts in its budget to pay for liquidated damages to BCA, this argument does
not support BCAs position that it will suffer grave and irreparable injury if it is denied injunctive relief. The DFAs liability to BCA for damages
is contingent on BCA proving that it is entitled to such damages in the proper proceedings. The DFA has no obligation to set aside funds to
pay for liquidated damages, or any other kind of damages, to BCA until there is a final and executory judgment in favor of BCA. It is illogical
and impractical for the DFA to set aside a significant portion of its budget for an event that may never happen when such idle funds should
be spent on providing necessary services to the populace. For if it turns out at the end of the arbitration proceedings that it is BCA alone
that is in default, it would be the one liable for liquidated damages to the DFA under the terms of the Amended BOT Agreement.
With respect to BCAs allegation that the e-Passport Project is grossly disadvantageous to the Filipino people since it is the government that
will be spending for the project unlike the MRP/V Project which would have been privately funded, the same is immaterial to the issue at
hand. If it is true that the award of the e-Passport Project is inimical to the public good or tainted with some anomaly, it is indeed a cause
for grave concern but it is a matter that must be investigated and litigated in the proper forum. It has no bearing on the issue of whether
BCA would suffer grave and irreparable injury such that it is entitled to injunctive relief from the courts.
In all, we agree with petitioners DFA and BSP that the trial courts issuance of a writ of preliminary injunction, despite the lack of sufficient
legal justification for the same, is tantamount to grave abuse of discretion.

To be very clear, the present decision touches only on the twin issues of (a) the jurisdiction of the trial court to issue a writ of preliminary
injunction as an interim relief under the factual milieu of this case; and (b) the entitlement of BCA to injunctive relief.The merits of the DFA
and BCAs dispute regarding the termination of the Amended BOT Agreement must be threshed out in the proper arbitration
proceedings. The civil case pending before the trial court is purely for the grant of interim relief since the main case is to be the subject of
arbitration proceedings.

BCAs petition for interim relief before the trial court is essentially a petition for a provisional remedy (i.e., preliminary injunction) ancillary
to its Request for Arbitration in PDRCI Case No. 30-2006/BGF. BCA specifically prayed that the trial court grant it interim relief pending the
constitution of the arbitral tribunal in the said PDRCI case. Unfortunately, during the pendency of this case, PDRCI Case No. 30-2006/BGF
was dismissed by the PDRCI for lack of jurisdiction, in view of the lack of agreement between the parties to arbitrate before the
PDRCI.[84] In Philippine National Bank v. Ritratto Group, Inc.,[85] we held:

A writ of preliminary injunction is an ancillary or preventive remedy that may only be resorted to by a litigant to protect
or preserve his rights or interests and for no other purpose during the pendency of the principal action. The dismissal of
the principal action thus results in the denial of the prayer for the issuance of the writ. x x x. (Emphasis supplied.)

In view of intervening circumstances, BCA can no longer be granted injunctive relief and the civil case before the trial court should be
accordingly dismissed. However, this is without prejudice to the parties litigating the main controversy in arbitration proceedings, in
accordance with the provisions of the Amended BOT Agreement, which should proceed with dispatch.

It does not escape the attention of the Court that the delay in the submission of this controversy to arbitration was caused by the ambiguity
in Section 19.02 of the Amended BOT Agreement regarding the proper body to which a dispute between the parties may be submitted and
the failure of the parties to agree on such an arbitral tribunal. However, this Court cannot allow this impasse to continue indefinitely. The
parties involved must sit down together in good faith and finally come to an understanding regarding the constitution of an arbitral tribunal
mutually acceptable to them.
WHEREFORE, the instant petition is hereby GRANTED. The assailed Order dated February 14, 2007 of the Regional Trial Court of Pasig in
Civil Case No. 71079 and the Writ of Preliminary Injunction dated February 23, 2007 are REVERSED and SET ASIDE. Furthermore, Civil Case
No. 71079 is hereby DISMISSED.
No pronouncement as to costs.
SO ORDERED.

ELPIDIO S. UY, doing business under the name and style of EDISONDEVELOPMENT & CONSTRUCTION,Petitioner,`vs.PUBLIC ESTATES
AUTHORITY ,Respondent.
x---------------------------------------------------------------------------------x

RESOLUTION
NACHURA, J.:
 Before us are (i) the Motion for Partial Reconsideration filed by petitioner Elpidio S. Uy (Uy), doing business under the name and
style of Edison Development & Construction (EDC), and (ii) the Motion for Reconsideration filed by respondent Public Estates Authority
(PEA) of our June 8, 2009 Decision, the fallo of which reads:

WHEREFORE, the petition is PARTIALLY GRANTED. The assailed Joint Decision and Joint Resolution of the Court of
Appeals in CA-G.R. SP Nos. 59308 and 59849 are AFFIRMED with MODIFICATIONS. Respondent Public Estates Authority
is ordered to pay Elpidio S. Uy, doing business under the name and style Edison Development and
Construction, P55,680,492.38 for equipment rentals on standby; P2,275,721.00 for the cost of idle manpower;
and P6,050,165.05 for the construction of the nursery shade net area; plus interest at 6% per annum to be computed
from the date of the filing of the complaint until finality of this Decision and 12% per annum thereafter until full
payment. Respondent PEA is further ordered to pay petitioner Uy 10% of the total award as attorneys fees.

SO ORDERED.[1]

Uy seeks partial reconsideration of our Decision. He argues that:

I
x x x THE HONORABLE COURT ERRED IN THE COMPUTATION OF THE DAMAGES DUE THE PETITIONER FOR THE STANDBY
EQUIPMENT COST.

II
x x x PETITIONER SHOULD BE REIMBURSED FOR COSTS INCURRED FOR ADDITIONAL HAULING DISTANCE OF TOPSOIL
ALSO BECAUSE THE EVIDENCE ON RECORD CONFIRMS THE EXISTENCE OF RESPONDENT PEAS WRITTEN CONSENT, AND
THE FACT THAT IT IS INDESPENSABLE TO COMPLETING THE PROJECT. WITHOUT SUCH ASSURANCE OF REIMBURSEMENT,
PETITIONER WOULD NOT HAVE TAKEN SUCH PRUDENT ACTION.

III
x x x PETITIONER SHOULD BE ALLOWED TO RECOVER THE COSTS HE INCURRED FOR THE MOBILIZATION OF WATER
TRUCKS ALSO BECAUSE RESPONDENT BREACHED ITS OBLIGATIONS UNDER THE CONTRACT.

IV
WITH REGARD TO THE COURT OF APPEALS ILLEGAL INJUNCTION PREVENTING PETITIONER FROM RECOVERING HIS
CLAIMS AGAINST RESPONDENT PEA IN CIAC CASE NO. 03-2001, THIS SHOULD HAVE BEEN LIFTED SINCE IT INVOLVES
CLAIMS SEPARATE AND DISTINCT FROM THE CASE A QUO.[2]

PEA, on the other hand, assails the Decision on the following grounds:

I.
THE FACTUAL FINDINGS AND CONCLUSIONS OF THE CONSTRUCTION INDUSTRY ARBITRATION COMMISSION (CIAC)
INSOFAR AS THE ARBITRAL AWARD TO PETITIONER IS CONCERNED, WHICH THE COURT OF APPEALS AND THE FIRST
DIVISION OF THIS HONORABLE COURT AFFIRMED, HAS LONG BECOME FINAL AND EXECUTORY.

II.
THE CIAC ARBITRAL AWARD HAD ALREADY BEEN IMPLEMENTED UNDER WRIT OF EXECUTION DATED 19 SEPTEMBER
2000, WRIT OF EXECUTION DATED 31 AUGUST 2001 AND SUPPLEMENTAL WRIT OF EXECUTION DATED 10 APRIL 2002. [3]
We will deal first with Uys motion.

Uy objects to the factor rate used in the computation of the award for standby equipment costs. He points out that the actual
number of equipment deployed and which remained on standby, occasioned by the delay in delivery of work areas, has not been
considered in the computation. The Association of Carriers and Equipment Lessors (ACEL) rate or the factor rate used was only the total
average rate, without regard to the actual number of equipment deployed. He, therefore, insists that an increase in the award is in order.
 We find Uys argument on this point meritorious; and this Court is swayed to modify the formula used in the computation of the
award.

The Certification,[4] dated December 6, 1996, shows that EDC mobilized the following equipment for the Heritage Park
Project, viz.:

Description Number

Road Grader 2

Pay Loader 2
Dump Trucks 10

Tractor with attachments 2

Backhoe 2
Delivery Trucks 3

Rolo-tiller 0
Concrete Mixer 4
Bar Cutter 2

Welding Machine 2
Roller 1
Bulldozer 1

Concrete Cutter 2

Plate Compactor 2
Compressor/Jack Hammer 3

Genset 5KVA 1

Electric drill/ Holesaw 4

These equipment remained in the project site on the days that EDC was waiting for the turnover of additional work areas. [5]Thus,
we agree with Uy that the actual number of equipment mobilized should be included in computing the award for standby equipment
cost. The award must, therefore, be modified using the following formula:

Actual period of delay (18.2 months) x average rate per ACEL x number of equipment

However, we cannot simply accept in full Uys claim that he is entitled to P71,009,557.95 as standby equipment cost. The records show
that not all of the equipment were operational; several were under repair. [6] Accordingly, we find it necessary to remand the records of the
case to the Construction Industry Arbitration Commission (CIAC), which decided the case in the first instance, for the proper computation of
the award of standby equipment cost based on the foregoing formula.
On the claim for costs for additional hauling distance of topsoil and for mobilization of water truck, we maintain our ruling that a written
approval of PEAs general manager was indispensable before the claim for additional cost can be granted. In this case, the additional costs
were incurred without the written approval of PEA. The denial of Uys claims was, therefore, appropriate.

We cannot sustain this claim that is premised mainly on the principle of unjust enrichment. We stress that the principle of unjust
enrichment cannot be validly invoked by a party who, through his own act or omission, took the risk of being denied payment for additional
costs by not giving the other party prior notice of such costs and/or by not securing their written consent thereto, as required by law and
their contract.[7]

Similarly, we find no cogent reason to lift the injunction issued in CIAC Case No. 03-2001. We are not persuaded by Uys argument
that the claims under CIAC Case No. 03-2001 are different from his claims in CIAC Case No. 02-2000. As we explained in our Decision, there
is only one cause of action running through Uys undertakings the violation of his alleged right under the Landscaping and Construction
Agreement. Therefore, the landscaping agreement is indispensable in the prosecution of his claims in both CIAC Cases No. 02-2000 and No.
03-2001. We reiterate that a party, either by varying the form or action or by bringing forward in a second case additional parties or
arguments, cannot escape the effects of res judicata when the facts remain the same, at least where such new parties or matter could have
been impleaded or pleaded in the prior action.

In fine, except for the claim for standby equipment costs, this Court finds no cogent reason to depart from our June 8, 2009
Decision.

We now go to PEAs motion.

PEA insists that our Decision in this case transgresses the principle of res judicata. It asserts that the propriety of Uys monetary
claims against PEA had already been considered and passed upon by this Court in G.R. Nos. 147933-34.

The argument is specious.

In G.R. Nos. 147933-34, this Court was very explicit in its declaration that its Decision was independent of, and without prejudice
to, the appeal filed by Uy, viz.:

However, in order not to prejudice the deliberations of the Courts Second Division in G.R. Nos. 147925-26, it should
be stated that the findings made in this case, especially as regards the correctness of the findings of the CIAC, are limited
to the arbitral awards granted to respondent Elpidio S. Uy and to the denial of the counterclaims of petitioner Public
Estates Authority. Our decision in this case does not affect the other claims of respondent Uy which were not granted by
the CIAC in its questioned decision, the merits of which were not submitted to us for determination in the instant
petition.[8]

Indubitably, this Courts Decision in G.R. Nos. 147933-34 will not bar the grant of additional award to Uy.

WHEREFORE, Uys Motion for Partial Reconsideration is PARTLY GRANTED. PEAs Motion for Reconsideration, on the other hand,
is DENIED with FINALITY. The assailed Decision dated June 8, 2009 is AFFIRMED with MODIFICATION as to the award of standby equipment
cost. The case is hereby REMANDED to the Construction Industry Arbitration Commission solely for the purpose of computing the exact
amount of standby equipment cost pursuant to the formula herein specified. The CIAC is DIRECTED to compute the award and effect
payment thereof within thirty (30) days from receipt of the records of this case.
No further pleadings will be entertained.
SO ORDERED.

SHINRYO (PHILIPPINES) COMPANY, INC., Petitioner, vs. RRN INCORPORATED,Respondent.

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

DECISION
PERALTA, J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that the Decision[1] of the Court of Appeals
(CA) dated February 22, 2006, affirming the Decision of the Construction Industry Arbitration Commission (CIAC), and the CA
Resolution[2] dated April 26, 2006, denying herein petitioner's motion for reconsideration, be reversed and set aside.
The facts, as accurately narrated in the CA Decision, are as follows.

Petitioner Shinryo (Philippines) Company, Inc. (hereinafter petitioner) is a domestic corporation organized under
Philippine laws. Private respondent RRN Incorporated (hereinafter respondent) is likewise a domestic corporation
organized under Philippine laws.

Respondent filed a claim for arbitration against petitioner before CIAC for recovery of unpaid account which consists of
unpaid portions of the sub-contract, variations and unused materials in the total sum of P5,275,184.17 and legal interest
in the amount of P442,014.73.Petitioner filed a counterclaim for overpayment in the amount of P2,512,997.96.

The parties admitted several facts before the CIAC. It was shown that petitioner and respondent executed an Agreement
and Conditions of Sub-contract (hereafter Agreement signed on June 11, 1996 and June 14, 1996,
respectively. Respondent signified its willingness to accept and perform for petitioner in any of its projects, a part or the
whole of the works more particularly described in Conditions of Sub-Contract and other Sub-contract documents.

On June 11, 2002, the parties executed a Supply of Manpower, Tools/Equipment, Consumables for the Electrical Works-
Power and Equipment Supply, Bus Duct Installation for the Phillip Morris Greenfield Project (hereafter Project) covered
by Purchase Order Nos. 4501200300-000274 and 4501200300-000275 amounting to P15,724,000.00 and P9,276,000.00
respectively, or a total amount of P25,000,000.00. The parties also agreed that respondent will perform variation orders
in the Project. In connection with the Project, petitioner supplied manpower chargeable against respondent.

Respondent was not able to finish the entire works with petitioner due to financial difficulties. Petitioner paid
respondent a total amount of P26,547,624.76. On June 25, 2005 [should read 2003], respondent, through its former
counsel sent a letter to petitioner demanding for the payment of its unpaid balance amounting
to P5,275,184.17. Petitioner claimed material back charges in the amount of P4,063,633.43. On September 26, 2003,
respondent only acknowledged P2,371,895.33 as material back charges. Thereafter, on October 16, 2003, respondent
sent another letter to petitioner for them to meet and settle their dispute.

On January 8, 2004, respondent sent another letter to petitioner regarding the cost of equipment rental and the use of
scaffolding.Thereafter, on August 12, 2004, petitioner sent a letter to respondent denying any unpaid account and the
failure in their negotiations for amicable settlement.

On September 3, 2004, respondent, through its new counsel, advised petitioner of their intention to submit the matter
to arbitration. Thereafter, their dispute was submitted to arbitration. During the preliminary conference, the parties
agreed in their Terms of Reference to resolve eight issues, to wit:

1. What should be the basis in evaluating the variation cost?

1.1 How much is the variation cost?

 2. Is the Respondent (petitioner in the instant case) justified in charging claimant (herein
respondent) the equipment rental fee and for the use of the scaffoldings? If so, how much should be
charged to Claimant?

3. What should be the basis in evaluating the total cost of materials supplied by Respondent
to the Project which is chargeable to Claimant?

3.1 How much is the total cost of materials supply chargeable to Claimant?

4. How much is the value of the remaining works left undone by the Claimant in the project?

5. Is the Claimant's claim for inventory of excess materials valid? If so, how much is the value
thereof?

6. Is the Respondent entitled to its claim for an overpayment in the amount

of P2,512,997.96?

7. Is Claimant entitled to its claim for interest? If so, how much?

8. Who between the parties shall bear the cost of Arbitration?

The CIAC rendered the assailed decision after the presentation of the parties' evidence. [The dispositive portion of said
decision reads as follows:

WHEREFORE, judgment is hereby rendered in favor of the claimant and respondent is ordered to pay
claimant its unpaid account in the sum of P3,728,960.54 plus legal interest of 6% reckoned from June
25, 2003 up to the filing of the case on October 11, 2004 and 12% of P3,728,960.54 from the finality of
the judgment until fully paid and arbitration cost of P104,333.82 representing claimant's share of the
arbitration cost which respondent should reimburse.

SO ORDERED.]

Petitioner accepts the ruling of the CIAC only in Issue No. 1 and Sub-Issue No. 1.1 and in Issue No. 2 in so far as
the amount of P440,000.00 awarded as back charges for the use of scaffoldings. x x x[3]

On February 22, 2006, the CA promulgated the assailed Decision affirming the decision of the CIAC. The CA upheld the CIAC ruling that
petitioner failed to adduce sufficient proof that the parties had an agreement regarding charges for respondent's use of the manlift. As to
the other charges for materials, the CA held that the evidence on record amply supports the CIAC findings. Petitioner moved for
reconsideration of said ruling, but the same was denied per Resolution dated April 26, 2006.

Hence, this petition where it is alleged that:

I. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR WHEN IT DENIED
PETITIONER'S CLAIM FOR MANLIFT EQUIPMENT RENTAL IN THE AMOUNT OF P511,000.00 DESPITE EVIDENCE ON
RECORD THAT RESPONDENT RRN ACTUALLY USED AND BENEFITED FROM THE MANLIFT EQUIPMENT.

II. IN RENDERING THE QUESTIONED DECISION AND QUESTIONED RESOLUTION, THE HONORABLE COURT OF
APPEALS HAS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND/OR WITH THE APPLICABLE
DECISIONS OF THE HONORABLE SUPREME COURT.

III. THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN AFFIRMING THE CIAC AWARD FOR THE
VALUE OF INVENTORIED MATERIALS CONSIDERING THAT:

A. RESPONDENT RRN ADMITTED THE VALIDITY OF THE DEDUCTIONS ON ACCOUNT OF MATERIAL

SUPPLY, WHICH INCLUDED THE INVENTORIED MATERIALS.
 B. RESPONDENT RRN HAS NO BASIS TO CLAIM BECAUSE ENGR. BONIFACIO ADMITTED THAT
RESPONDENT RRN FAILED TO ESTABLISH WHETHER THE MATERIALS CAME FROM RESPONDENT RRN
OR FROM PETITIONER AND THAT IT WAS PETITIONER THAT ACTUALLY INSTALLED THE SAID
MATERIALS AS PART OF REMAINING WORKS THAT PETITIONER TOOK OVER FROM RESPONDENT RRN.

C. THE CLAIM FOR THE VALUE OF INVENTORIED MATERIALS IS A DOUBLE CLAIM OR DOUBLE ENTRY
BECAUSE IN THE COMPUTATION OF THE FINAL ACCOUNT, RESPONDENT RRN WAS CREDITED THE FULL
CONTRACT PRICE AND THE COST OF VARIATIONS, WHICH INCLUDED THE INVENTORIED MATERIALS.

IV. IN RENDERING THE QUESTIONED DECISION AND QUESTIONED RESOLUTION, THE COURT OF APPEALS
COMMITTED A GRAVE REVERSIBLE ERROR IN THAT IT COMPLETELY DISREGARDED THE PROVISION OF THE
SUBCONTRACT, WHICH ALLOWED PAYMENT OF ACTUAL COST INCURRED BY PETITIONER IN COMPLETING THE
REMAINING WORKS THAT PRIVATE RESPONDENT ADMITTEDLY FAILED TO COMPLETE.

V. THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR WHEN IT COMPLETELY DISREGARDED THE
EVIDENCE ON ACTUAL COST INCURRED BY PETITIONER IN COMPLETING THE REMAINING WORKS.

VI. THE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR WHEN IT AFFIRMED THE CIAC AWARD FOR
INTERESTS AND ARBITRATION COSTS IN FAVOR OF RESPONDENT RRN.[4]
The petition is bereft of merit.
Despite petitioner's attempts to make it appear that it is advancing questions of law, it is quite clear that what petitioner seeks is
for this Court to recalibrate the evidence it has presented before the CIAC. It insists that its evidence sufficiently proves that it is entitled to
payment for respondent's use of its manlift equipment, and even absent proof of the supposed agreement on the charges petitioner may
impose on respondent for the use of said equipment, respondent should be made to pay based on the principle of unjust
enrichment. Petitioner also questions the amounts awarded by the CIAC for inventoried materials, and costs incurred by petitioner for
completing the work left unfinished by respondent.
As reiterated by the Court in IBEX International, Inc. v. Government Service Insurance System,[5] to wit:

It is settled that findings of fact of quasi-judicial bodies, which have acquired expertise because their
jurisdiction is confined to specific matters, are generally accorded not only respect, but also finality, especially when
affirmed by the Court of Appeals. In particular, factual findings of construction arbitrators are final and conclusive and
not reviewable by this Court on appeal.

This rule, however, admits of certain exceptions. In Uniwide Sales Realty and Resources Corporation v. Titan-Ikeda
Construction and Development Corporation, we said:

In David v. Construction Industry and Arbitration Commission, we ruled that, as exceptions, factual
findings of construction arbitrators may be reviewed by this Court when the petitioner proves
affirmatively that: (1) the award was procured by corruption, fraud or other undue means; (2) there
was evident partiality or corruption of the arbitrators or any of them; (3) the arbitrators were guilty of
misconduct in refusing to hear evidence pertinent and material to the controversy; (4) one or more of
the arbitrators were disqualified to act as such under Section nine of Republic Act No. 876 and willfully
refrained from disclosing such disqualifications or of any other misbehavior by which the rights of any
party have been materially prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly
executed them, that a mutual, final and definite award upon the subject matter submitted to them
was not made.

Other recognized exceptions are as follows: (1) when there is a very clear showing of grave abuse of
discretion resulting in lack or loss of jurisdiction as when a party was deprived of a fair opportunity to
present its position before the Arbitral Tribunal or when an award is obtained through fraud or the
corruption of arbitrators, (2) when the findings of the Court of Appeals are contrary to those of the
CIAC, and (3) when a party is deprived of administrative due process.[6]
 A perusal of the records would reveal that none of the aforementioned circumstances, which would justify exemption of this case
from the general rule, are present here. Such being the case, the Court, not being a trier of facts, is not duty-bound to examine, appraise
and analyze anew the evidence presented before the arbitration body.

Petitioner's reliance on the principle of unjust enrichment is likewise misplaced. The ruling of the Court in University of the
Philippines v. Philab Industries, Inc.[8] is highly instructive, thus:

Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations of others,
but instead it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally
or unlawfully.

Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that another party
knowingly received something of value to which he was not entitled and that the state of affairs are such that it would
be unjust for the person to keep the benefit. Unjust enrichment is a term used to depict result or effect of failure to
make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable
obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or
request. Unjust enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the enforcement of the
doctrine of restitution.

Article 22 of the New Civil Code reads:

Every 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.

In order that accion in rem verso may prosper, the essential elements must be present: (1) that the defendant has been
enriched, (2) that the plaintiff has suffered a loss, (3) that the enrichment of the defendant is without just or legal
ground, and (4) that the plaintiff has no other action based on contract, quasi-contract, crime or quasi-delict.

An accion in rem verso is considered merely an auxiliary action, available only when there is no other remedy on
contract, quasi-contract, crime, and quasi-delict. If there is an obtainable action under any other institution of positive
law, that action must be resorted to, and the principle of accion in rem verso will not lie.[9]

As found by both the CIAC and affirmed by the CA, petitioner failed to prove that respondent's free use of the manlift was without
legal ground based on the provisions of their contract. Thus, the third requisite, i.e., that the enrichment of respondent is without just or
legal ground, is missing. In addition, petitioner's claim is based on contract, hence, the fourth requisite − that the plaintiff has no other
action based on contract, quasi-contract, crime or quasi-delict − is also absent. Clearly, the principle of unjust enrichment is not applicable
in this case.
The other issues raised by petitioner all boil down to whether the CIAC or the CA erred in rejecting its claims for costs of some
materials.

Again, these issues are purely factual and cannot be properly addressed in this petition for review on certiorari. In Hanjin Heavy Industries
and Construction Co., Ltd. v. Dynamic Planners and Construction Corp.,[10] it was emphasized that mathematical computations, the propriety
of arbitral awards, claims for other costs and abandonment are factual questions. Since the discussions of the CIAC and the CA in their
respective Decisions show that its factual findings are supported by substantial evidence, there is no reason why this Court should not
accord finality to said findings. Verily, to accede to petitioner's request for a recalibration of its evidence, which had been thoroughly
studied by both the CIAC and the CA would result in negating the objective of Executive Order No. 1008, which created an arbitration body
to ensure the prompt and efficient settlement of disputes in the construction industry. Thus, the Court held in Uniwide Sales Realty and
Resources Corporation v. Titan-Ikeda Construction and Development Corporation,[11] that:

x x x The Court will not review the factual findings of an arbitral tribunal upon the artful allegation that such
body had "misapprehended facts" and will not pass upon issues which are, at bottom, issues of fact, no matter how
cleverly disguised they might be as "legal questions." The parties here had recourse to arbitration and chose the
arbitrators themselves; they must have had confidence in such arbitrators. The Court will not, therefore, permit the
parties to relitigate before it the issues of facts previously presented and argued before the Arbitral Tribunal, save only
where a clear showing is made that, in reaching its factual conclusions, the Arbitral Tribunal committed an error so
egregious and hurtful to one party as to constitute a grave abuse of discretion resulting in lack or loss of jurisdiction.[12]

As discussed above, there is nothing in the records that point to any grave abuse of discretion committed by the CIAC.

The awards for interests and arbitration costs are, likewise, correct as they are in keeping with prevailing jurisprudence. [13]

IN VIEW OF THE FOREGOING, the Petition is DENIED. The Decision of the Court of Appeals dated February 22, 2006 and its Resolution
dated April 26, 2006 are AFFIRMED.
SO ORDERED.

G.R. No. 177556 December 8, 2010

TRANSCEPT CONSTRUCTION AND MANAGEMENT PROFESSIONALS, INC., Petitioner,
vs.
TERESA C. AGUILAR, Respondent.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review assailing the 24 January 2007 Decision 1 and the 20 April 2007 Resolution2of the Court of Appeals in
CA-G.R. SP No. 93021.
The Antecedent Facts
From the decisions of the Court of Appeals and the Construction Industry Arbitration Commission (CIAC), we gathered the following facts:
On 18 August 2004, Teresa C. Aguilar (Aguilar) entered into an Owner-General Contractor Agreement (First Contract) with Transcept
Construction and Management Professionals, Inc. (Transcept) for the construction of a two-storey split level vacation house (the Project)
located at Phase 3, Block 3, Lot 7, Canyon Woods, Laurel, Batangas. Under the First Contract, the Project would cost ₱3,486,878.64 and was
to be completed within 2103working days from the date of the First Contract or on 7 June 2005. Aguilar paid a downpayment of ₱1 million
on 27 August 2004.
On 30 November 2004, Transcept submitted its First Billing to Aguilar for work accomplishments from start to 15 November 2004, in
accordance with the Progressive Billing payment scheme. Aguilar paid ₱566,356.
On 1 February 2005, Aguilar received the Second Billing amounting to ₱334,488 for the period of 16 November 2004 to 15 December 2004.
Transcept informed Aguilar that non-payment would force them to halt all works on the Project. Aguilar questioned the Second Billing as
unusual for being 45 days ahead of actual accomplishment. Aguilar did not pay and on 2 February 2005, Transcept stopped working on the
Project.
Thereafter, Aguilar hired ASTEC, a duly accredited testing laboratory, to test Transcept’s quality of work. The test showed substandard
works done by Transcept. In a letter dated 7 March 2005, Transcept outlined its program to reinforce or redo the substandard works
discovered by ASTEC. On 28 March 2005, ASTEC, through Engr. Jaime E. Rioflorido (Engr. Rioflorido), sent Aguilar an Evaluation of
Contractor’s Performance which showed that aside from the substandard workmanship and use of substandard materials, Transcept was
unreasonably and fraudulently billing Aguilar. Of the downpayment amounting to ₱1,632,436.29, Engr. Rioflorido’s reasonable assessment
of Transcept’s accomplishment amounted only to ₱527,875.94. Engr. Rioflorido recommended the partial demolition of Transcept’s work.
On 30 May 2005, Transcept and Aguilar entered into a Construction Contract (Second Contract) to extend the date of completion from 7
June 2005 to 29 July 2005 and to use up the ₱1.6 million downpayment paid by Aguilar. Aguilar hired the services of Engr. Edgardo
Anonuevo (Engr. Anonuevo) to ensure that the works would comply with the plans in the Second Contract.
Transcept failed to finish the Project on 29 July 2005, alleging that the delay was due to additional works ordered by Aguilar. Transcept also
asked for payment of the additional amount of ₱290,824.96. Aguilar countered that the Second Contract did not provide for additional
works.
On 2 September 2005, Aguilar sent a demand letter to Transcept asking for payment of ₱581,844.54 for refund and damages. Transcept
ignored the demand letter. On 6 September 2005, Aguilar filed a complaint against Transcept before CIAC.
The Decision of the CIAC
CIAC assessed the work accomplished with the corresponding costs, as against the downpayment of ₱1,632,436.29 which was the contract
price in the Second Contract. On 16 January 2006, the CIAC promulgated its Decision.4
For Labor and Materials of the Scope of Work, the CIAC credited the accomplishment to be ₱1,110,440.13 representing Aguilar’s estimate
which was reassessed by the CIAC after the ocular inspection conducted by the parties. For indirect costs for General Requirements of the
Scope of Work, the CIAC’s computation was ₱275,355.50. The CIAC noted that Aguilar did not submit any evidence on indirect costs and
her counsel did not cross-examine Transcept’s witnesses on the matter. For the Septic Tank, which the CIAC found to be part of the Second
Contract, the CIAC assessed the accomplishment to amount to ₱7,300. The CIAC added 5% Contingencies and 10% Contractor’s Profit which
are the minimum factors in making estimates practiced in the construction industry. The CIAC thus estimated that the total
accomplishment amounted to ₱1,602,359.97 which was ₱30,076.72 below the contract price of ₱1,632,436.29. The tabulated amount
shows:
Direct Costs for Labor and Materials ₱1,110,440.13

Indirect Costs for General Requirements 275,355.50

Septic Tank 7,300.00

Sub-Total ₱1,393,095.63

Plus 5% Contingencies 69,654.78

Add 10% of Sub-Total for Contractor's Profit 139,309.56

Total ₱1,602,359.97
The CIAC ruled that the accomplishment of ₱1,602,359.97 was 98.16% of ₱1,632,436.29, which was way above 95% and should therefore
be considered as substantial completion of the Project. As such, the CIAC ruled that liquidated damages could not be awarded to Aguilar.
The CIAC, however, ruled that Aguilar was entitled to ₱75,000 as Consultancy Expenses.
The CIAC also found that Aguilar demanded extra works which entailed additional working days. The CIAC computed that the additional
works performed over and above the Second Contract amounted to ₱189,909.91.
The dispositive portion of the CIAC’s decision reads:
In view of all the foregoing, it is hereby ordered that:
1. Respondent [Transcept] shall pay Claimant [Aguilar] the amount of ₱30,076.72, representing the unaccomplished works in the
contract, plus 6% interests from the date of the promulgation of this case, until fully paid.
2. Respondent shall pay Claimant the amount of ₱75,000.00, representing the cost of Consultancy Services, plus 6% interests from
the date of the promulgation of this case, until fully paid.
3. Claimant shall pay Respondent the amount of ₱189,909.91, representing the cost of work performed over & above the scope of
work in the contract.
4. The cost for liquidated damages and cost representing interests of construction bond, prayed for the Claimant, are denied for
being without merit.
5. Attorney’s fees prayed for by both parties are denied for being without merit.
6. Cost of Arbitration shall be shared equally by the parties.
SO ORDERED.5
Aguilar assailed the CIAC’s decision before the Court of Appeals.
The Decision of the Court of Appeals
In its 24 January 2007 Decision, the Court of Appeals reversed the CIAC’s decision.
The Court of Appeals agreed with the CIAC that Aguilar did not allege in her complaint the amount corresponding to the indirect costs for
General Requirements. However, the Court of Appeals made a recomputation of the indirect costs for General Requirements based on
₱1,632,436.29 and made the following findings:
Direct Costs for Labor and Materials ₱1,110,440.13

Indirect Costs for General Requirements 128,799.22

Septic Tank 7,300.00

Sub-Total ₱1,246,539.35

Plus 5% Contingencies 62,326.96

 Add 10% of Sub-Total for Contractor's Profit 124,653.93

Total ₱1,433,520.24
The Court of Appeals then deducted ₱1,433,520.24 from ₱1,632,436.29 and concluded that Aguilar is entitled to ₱198,916.05 instead of
₱30,076.72.
From the above computation, the Court of Appeals ruled that Transcept only accomplished 87.81% of the contract price thus entitling
Aguilar to liquidated damages equivalent to 10% of ₱1,632,436.29 or ₱163,243.63.
The Court of Appeals further ruled that Transcept was not entitled to payment for additional works because they were in fact only
rectifications of the works poorly done by Transcept. Finally, the Court of Appeals ruled that Aguilar was able to prove that she paid
₱135,000 for consultancy services.
The dispositive portion of the Court of Appeals’ decision reads:
WHEREFORE, the foregoing considered, the instant petition is hereby GRANTED and the assailed decision REVERSED AND SET ASIDE.
Accordingly, a new one is entered ordering respondent to pay petitioner the following:
1) ₱198,916.02 for unaccomplished works in the second contract, plus 6% interest from the date of the filing of the case, until fully
paid;
2) ₱135,000.00, representing the cost of consultancy services, plus 6% interest from the filing of the case, until fully paid; and
3) ₱163,243.63 as and by way of liquidated damages.
The award of ₱189,909.91 in favor of Aguilar for additional works is hereby deleted.
No costs.
SO ORDERED.6
Transcept filed a motion for reconsideration. In its 20 April 2007 Resolution, the Court of Appeals denied the motion.
Hence, the petition before this Court.
The Issues
The issues in this case are the following:
1. Whether the Court of Appeals erred in holding that Aguilar is entitled to ₱198,916.02 instead of ₱30,076.72 for unaccomplished
works;
2. Whether the Court of Appeals erred in awarding Aguilar liquidated damages;
3. Whether the Court of Appeals erred in deleting the CIAC’s award of ₱189,909.91 to Transcept representing additional works
done under the Second Contract; and
4. Whether the Court of Appeals erred in awarding Aguilar the amount of ₱135,000 for consultancy services.
The Ruling of this Court
The petition is partly meritorious.
Refund for Unaccomplished Works
The Court of Appeals ruled that CIAC erred in adopting Transcept’s computation of unaccomplished works. The Court of Appeals agreed
with Aguilar that the CIAC’s computation was based on what Transcept submitted which was based on the original contract price of
₱3,486,878.64 instead of the contract price of ₱1,632,436.29 under the Second Contract.
However, the Court of Appeals failed to consider the CIAC’s as well as its own finding that Aguilar did not present any evidence on indirect
costs for General Requirements. In addition, Aguilar’s counsel did not cross-examine Transcept’s witnesses. In short, Aguilar did not dispute
but merely accepted Transcept’s computation on indirect expenses. Aguilar did not interpose any objection to the computation until after
the CIAC ruled that Transcept substantially complied with the Project. We also note Transcept’s explanation, as well as the CIAC’s finding,
that General Requirements refer to mobilization, overhead, insurance, hoarding and protection, temporary facilities, equipment, materials
testing, line set out, as-built drawings, and clean out. They had been used up at the start of the Project. Hence, costs for General
Requirements are not dependent on the amount of the contract because they were incurred at the beginning of the Project. We should
therefore revert to the computation made by the CIAC, as follows:
Direct Costs for Labor and Materials ₱1,110,440.13

Indirect Costs for General Requirements 275,355.50

Septic Tank 7,300.00

Sub-Total ₱1,393,095.63

Plus 5% Contingencies 69,654.78

Add 10% of Sub-Total for Contractor's Profit 139,309.56

Total ₱1,602,359.97
Liquidated Damages
Section 20.11(A)(a) of the Construction Industry Authority of the Philippines (CIAP) Document No. 102 provides that "[t]here is substantial
completion when the Contractor completes 95% of the Work, provided that the remaining work and the performance of the work
necessary to complete the Work shall not prevent the normal use of the completed portion."
According to CIAC’s computation, Transcept’s accomplishment amounted to 98.16% of the contract price. It is beyond the 95% required
under CIAP Document No. 102 and is considered a substantial completion of the Project. We thus agree with CIAC’s application of Article
1234 of the Civil Code, which provides that "[i]f the obligation had been substantially performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment, less damages suffered by the obligee." 7lavvphil
There being a substantial completion of the Project, Aguilar is not entitled to liquidated damages but only to actual damages of ₱30,076.72,
representing the unaccomplished works in the Second Contract as found by the CIAC, which is the difference between the contract price of
₱1,632,436.29 and the accomplishment of ₱1,602,359.97.
Additional Works
The Second Contract excluded the construction of the following works:
1. Architectural Works - - Roofing System
2. Interior Fit-Out Works/Glass/Windows/CAB/CARP
3. Truss System
4. Supply and Installation of Plumbing Fixtures and Bathroom Accessories
5. Supply and Installation of Downspout System
6. Electrical Roughing-in and Wiring Works
7. Supply and Installation of Wiring Devices
8. Supply and Installation of Circuit Breakers
9. Testing and Commissioning.8
The CIAC found that Aguilar demanded additional works from Transcept. The CIAC found that the additional works include the balcony,
lifting of roof beams, and extra fast walls which are not covered by the Second Contract. However, we agree with the Court of Appeals that
the works done were just for correction of the substandard works done under the First Contract. During the ocular inspection, Aguilar
pointed out that the lifting of the roof beam was done because the construction was three meters short of that specified in the First
Contact.9 Hence, while the roofing system is excluded from the Second Contract, it could not be said that the lifting of the roof beam is an
additional work on the part of Transcept.
The Court notes that the Second Contract was entered into by the parties precisely to correct the substandard works discovered by ASTEC.
Hence, Aguilar should not be made to pay for works done to correct these substandard works.
Consultancy Services
The Court of Appeals correctly awarded Aguilar the cost of consultancy services amounting to ₱135,000. While Engr. Rioflorido was not
presented as a witness, it was established that Aguilar hired ASTEC, a duly accredited testing laboratory, to test Transcept’s quality of work,
and that Engr. Rioflorido represented ASTEC. As found by the Court of Appeals, Aguilar paid Engr. Rioflorido the amount of ₱65,000 for the
services, which should be added to the ₱75,000 consultancy services awarded to Aguilar. 10
WHEREFORE, we AFFIRM the 24 January 2007 Decision and the 20 April 2007 Resolution of the Court of Appeals in CA-G.R. SP No. 93021,
with the MODIFICATION that the award of ₱198,916.02 for unaccomplished works is reduced to ₱30,076.72, and the award of ₱163,243.63
for liquidated damages is deleted.
SO ORDERED.

CARGILL PHILIPPINES, INC., Petitioner, vs. SAN FERNANDO REGALA TRADING, INC.,Respondent.
x--------------------------------------------------x
DECISION
PERALTA, J.:
Before us is a petition for review on certiorari seeking to reverse and set aside the Decision[1] dated July 31, 2006 and the
Resolution[2] 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 6 [6] and 7[7] 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 certiorariunder 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.[16] R.A. No.
876[17] 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.
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, 2006of 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. 167022 April 4, 2011

LICOMCEN INCORPORATED, Petitioner,
vs.
FOUNDATION SPECIALISTS, INC., Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 169678
FOUNDATION SPECIALISTS, INC., Petitioner,
vs.
LICOMCEN INCORPORATED, Respondent.
DECISION
BRION, J.:
THE FACTS
The petitioner, LICOMCEN Incorporated (LICOMCEN), is a domestic corporation engaged in the business of operating shopping malls in the
country.
In March 1997, the City Government of Legaspi awarded to LICOMCEN, after a public bidding, a lease contract over a lot located in the
central business district of the city. Under the contract, LICOMCEN was obliged to finance the construction of a commercial complex/mall
to be known as the LCC Citimall (Citimall). It was also granted the right to operate and manage Citimall for 50 years, and was, thereafter,
required to turn over the ownership and operation to the City Government. 1
For the Citimall project, LICOMCEN hired E.S. de Castro and Associates (ESCA) to act as its engineering consultant. Since the Citimall was
envisioned to be a high-rise structure, LICOMCEN contracted respondent Foundation Specialists, Inc. (FSI) to do initial construction works,
specifically, the construction and installation of bored piles foundation. 2 LICOMCEN and FSI signed the Construction Agreement,3 and the
accompanying Bid Documents4 and General Conditions of Contract5 (GCC) on September 1, 1997. Immediately thereafter, FSI purchased
the materials needed for the Citimall6 project and began working in order to meet the 90-day deadline set by LICOMCEN.
On December 16, 1997, LICOMCEN sent word to FSI that it was considering major design revisions and the suspension of work on the
Citimall project. FSI replied on December 18, 1997, expressing concern over the revisions and the suspension, as it had fully mobilized its
manpower and equipment, and had ordered the delivery of steel bars. FSI also asked for the payment of accomplished work amounting to
₱3,627,818.00.7 A series of correspondence between LICOMCEN and FSI then followed.
ESCA wrote FSI on January 6, 1998, stating that the revised design necessitated a change in the bored piles requirement and a substantial
reduction in the number of piles. Thus, ESCA proposed to FSI that only 50% of the steel bars be delivered to the jobsite and the rest be
shipped back to Manila.8 Notwithstanding this instruction, all the ordered steel bars arrived in Legaspi City on January 14, 1998. 9
On January 15, 1998, LICOMCEN instructed FSI to "hold all construction activities on the project," 10 in view of a pending administrative case
against the officials of the City Government of Legaspi and LICOMCEN filed before the Ombudsman (OMB-ADM-1-97-0622).11 On January
19, 1998, ESCA formalized the suspension of construction activities and ordered the construction’s demobilization until the case was
resolved.12 In response, FSI sent ESCA a letter, dated February 3, 1998, requesting payment of costs incurred on account of the suspension
which totaled ₱22,667,026.97.13 FSI repeated its demand for payment on March 3, 1998.14
ESCA replied to FSI’s demands for payment on March 24, 1998, objecting to some of the claims.15 It denied the claim for the cost of the
steel bars that were delivered, since the delivery was done in complete disregard of its instructions. It further disclaimed liability for the
other FSI claims based on the suspension, as its cause was not due to LICOMCEN’s fault. FSI rejected ESCA’s evaluation of its claims in
its April 15, 1998 letter.16
On March 14, 2001, FSI sent a final demand letter to LICOMCEN for payment of ₱29,232,672.83. 17 Since LICOMCEN took no positive action
on FSI’s demand for payment,18 FSI filed a petition for arbitration with the Construction Industry Arbitration Commission (CIAC) on October
2, 2002, docketed as CIAC Case No. 37-2002.19In the arbitration petition, FSI demanded payment of the following amounts:
a. Unpaid accomplished work billings……………. P 1,264,404.12

b. Material costs at site…………………………….. 15,143,638.51

c. Equipment and labor standby costs…………….. 3,058,984.34

d. Unrealized gross profit………………………….. 9,023,575.29

e. Attorney’s fees………………………………….. 300,000.00

f. Interest expenses …………... equivalent to 15%

of the total claim
LICOMCEN again denied liability for the amounts claimed by FSI. It justified its decision to indefinitely suspend the Citimall project due to
the cases filed against it involving its Lease Contract with the City Government of Legaspi. LICOMCEN also assailed the CIAC’s jurisdiction,
contending that FSI’s claims were matters not subject to arbitration under GC-61 of the GCC, but one that should have been filed before the
regular courts of Legaspi City pursuant to GC-05.20
During the preliminary conference of January 28, 2003, LICOMCEN reiterated its objections to the CIAC’s jurisdiction, which the arbitrators
simply noted. Both FSI and LICOMCEN then proceeded to draft the Terms of Reference.21
On February 4, 2003, LICOMCEN, through a collaborating counsel, filed its Ex Abundati Ad Cautela Omnibus Motion, insisting that FSI’s
petition before the CIAC should be dismissed for lack of jurisdiction; thus, it prayed for the suspension of the arbitration proceedings until
the issue of jurisdiction was finally settled. The CIAC denied LICOMCEN’s motion in its February 20, 2003 order,22 finding that the question
of jurisdiction depends on certain factual conditions that have yet to be established by ample evidence. As the CIAC’s February 20, 2003
order stood uncontested, the arbitration proceedings continued, with both parties actively participating.
The CIAC issued its decision on July 7, 2003,23 ruling in favor of FSI and awarding the following amounts:
a. Unpaid accomplished work billings……………. ₱ 1,264,404.12

b. Material costs at site…………………………… 14,643,638.51

c. Equipment and labor standby costs…………… 2,957,989.94

d. Unrealized gross profit………………………… 5,120,000.00

LICOMCEN was also required to bear the costs of arbitration in the total amount of ₱474,407.95.
LICOMCEN appealed the CIAC’s decision before the Court of Appeals (CA). On November 23, 2004, the CA upheld the CIAC’s decision,
modifying only the amounts awarded by (a) reducing LICOMCEN’s liability for material costs at site to ₱5,694,939.87, and (b) deleting its
liability for equipment and labor standby costs and unrealized gross profit; all the other awards were affirmed. 24 Both parties moved for the
reconsideration of the CA’s Decision; LICOMCEN’s motion was denied in the CA’s February 4, 2005 Resolution, while FSI’s motion was
denied in the CA’s September 13, 2005 Resolution. Hence, the parties filed their own petition for review on certiorari before the Court.25
LICOMCEN’s Arguments
LICOMCEM principally raises the question of the CIAC’s jurisdiction, insisting that FSI’s claims are non-arbitrable. In support of its position,
LICOMCEN cites GC-61 of the GCC:
GC-61. DISPUTES AND ARBITRATION
Should any dispute of any kind arise between the LICOMCEN INCORPORATED and the Contractor [referring to FSI] or the Engineer [referring
to ESCA] and the Contractor in connection with, or arising out of the execution of the Works, such dispute shall first be referred to and
settled by the LICOMCEN, INCORPORATED who shall within a period of thirty (30) days after being formally requested by either party to
resolve the dispute, issue a written decision to the Engineer and Contractor.
Such decision shall be final and binding upon the parties and the Contractor shall proceed with the execution of the Works with due
diligence notwithstanding any Contractor's objection to the decision of the Engineer. If within a period of thirty (30) days from receipt of
the LICOMCEN, INCORPORATED's decision on the dispute, either party does not officially give notice to contest such decision through
arbitration, the said decision shall remain final and binding. However, should any party, within thirty (30) days from receipt of the
LICOMCEN, INCORPORATED's decision, contest said decision, the dispute shall be submitted for arbitration under the Construction Industry
Arbitration Law, Executive Order 1008. The arbitrators appointed under said rules and regulations shall have full power to open up, revise
and review any decision, opinion, direction, certificate or valuation of the LICOMCEN, INCORPORATED. Neither party shall be limited to the
evidence or arguments put before the LICOMCEN, INCORPORATED for the purpose of obtaining his said decision. No decision given by the
LICOMCEN, INCORPORATED shall disqualify him from being called as a witness and giving evidence in the arbitration. It is understood that
the obligations of the LICOMCEN, INCORPORATED, the Engineer and the Contractor shall not be altered by reason of the arbitration being
conducted during the progress of the Works.26
LICOMCEN posits that only disputes "in connection with or arising out of the execution of the Works" are subject to arbitration. LICOMCEN
construes the phrase "execution of the Works" as referring to the physical construction activities, since "Works" under the GCC specifically
refer to the "structures and facilities" required to be constructed and completed for the Citimall project.27 It considers FSI’s claims as mere
contractual monetary claims that should be litigated before the courts of Legaspi City, as provided in GC-05 of the GCC:
GC-05. JURISDICTION
Any question between the contracting parties that may arise out of or in connection with the Contract, or breach thereof, shall be litigated
in the courts of Legaspi City except where otherwise specifically stated or except when such question is submitted for settlement thru
arbitration as provided herein.28
LICOMCEN also contends that FSI failed to comply with the condition precedent for arbitration laid down in GC-61 of the GCC. An arbitrable
dispute under GC-61 must first be referred to and settled by LICOMCEN, which has 30 days to resolve it. If within a period of 30 days from
receipt of LICOMCEN’s decision on the dispute, either party does not officially give notice to contest such decision through arbitration, the
said decision shall remain final and binding. However, should any party, within 30 days from receipt of LICOMCEN’s decision, contest said
decision, the dispute shall be submitted for arbitration under the Construction Industry Arbitration Law.
LICOMCEN considers its March 24, 1998 letter as its final decision on FSI’s claims, but declares that FSI’s reply letter of April 15, 1998 is not
the "notice to contest" required by GC-61 that authorizes resort to arbitration before the CIAC. It posits that nothing in FSI’s April 15, 1998
letter states that FSI will avail of arbitration as a mode to settle its dispute with LICOMCEN. While FSI’s final demand letter of March 14,
2001 mentioned its intention to refer the matter to arbitration, LICOMCEN declares that the letter was made three years after its March 24,
1998 letter, hence, long after the 30-day period provided in GC-61. Indeed, FSI filed the petition for arbitration with the CIAC only on
October 2, 2002.29 Considering FSI’s delays in asserting its claims, LICOMCEN also contends that FSI’s action is barred by laches.
With respect to the monetary claims of FSI, LICOMCEM alleges that the CA erred in upholding its liability for material costs at site for the
reinforcing steel bars in the amount of ₱5,694,939.87, computed as follows 30:
2nd initial rebar requirements purchased from Pag-Asa Steel Works,
Inc……………………………….. ₱ 799,506.83
Reinforcing steel bars purchased from ARCA Industrial Sales (total net weight of
744,197.66 kilograms) – 50% of net amount due………………. 5,395,433.04

Subtotal……………………………………………. 6,194,939.87
 Less
Purchase cost of steel bars by Ramon Quinquileria…………………………………….. (500,000.00)

TOTAL LIABILITY OF LICOMCEN TO FSI FOR MATERIAL COSTS AT SITE……………... 5,694,939.87

Citing GC-42(2) of the GCC, LICOMCEN says it shall be liable to pay FSI "[t]he cost of materials or goods reasonably ordered for the
Permanent or Temporary Works which have been delivered to the Contractor but not yet used, and which delivery has been certified by
the Engineer."31 None of these requisites were allegedly complied with. It contends that FSI failed to establish that the steel bars delivered
in Legaspi City, on January 14, 1998, were for the Citimall project. In fact, the steel bars were delivered not at the site of the Citimall
project, but at FSI’s batching plant called Tuanzon compound, a few hundred meters from the site. Even if delivery to Tuanzon was allowed,
the delivery was done in violation of ESCA’s instruction to ship only 50% of the materials. Advised as early as December 1997 to suspend
the works, FSI proceeded with the delivery of the steel bars in January 1998. LICOMCEN declared that it should not be made to pay for costs
that FSI willingly incurred for itself.32
Assuming that LICOMCEN is liable for the costs of the steel bars, it argues that its liability should be minimized by the fact that FSI incurred
no actual damage from the purchase and delivery of the steel bars. During the suspension of the works, FSI sold 125,000 kg of steel bars for
₱500,000.00 to a third person (a certain Ramon Quinquileria). LICOMCEN alleges that FSI sold the steel bars for a ridiculously low price of ₱
4.00/kilo, when the prevailing rate was ₱20.00/kilo. The sale could have garnered a higher price that would offset LICOMCEN’s liability.
LICOMCEN also wants FSI to account for and deliver to it the remaining 744 metric tons of steel bars not sold. Otherwise, FSI would be
unjustly enriched at LICOMCEN’s expense, receiving payment for materials not delivered to LICOMCEN. 33
LICOMCEN also disagrees with the CA ruling that declared it solely liable to pay the costs of arbitration. The ruling was apparently based on
the finding that LICOMCEN’s "failure or refusal to meet its obligations, legal, financial, and moral, caused FSI to bring the dispute to
arbitration."34 LICOMCEN asserts that it was FSI’s decision to proceed with the delivery of the steel bars that actually caused the dispute; it
insists that it is not the party at fault which should bear the arbitration costs. 35
FSI’s Arguments
FSI takes exception to the CA ruling that modified the amount for material costs at site, and deleted the awards for equipment and labor
standby costs and unrealized profits.
Proof of damage to FSI is not required for LICOMCEN to be liable for the material costs of the steel bars. Under GC-42, it is enough that the
materials were delivered to the contractor, although not used. FSI said that the 744 metric tons of steel bars were ordered and paid for by
it for the Citimall project as early as November 1997. If LICOMCEN contends that these were procured for other projects FSI also had in
Legaspi City, it should have presented proof of this claim, but it failed to do so. 36
ESCA’s January 6, 1998 letter simply suggested that only 50% of the steel bars be shipped to Legaspi City; it was not a clear and specific
directive. Even if it was, the steel bars were ordered and paid for long before the notice to suspend was given; by then, it was too late to
stop the delivery. FSI also claims that since it believed in good faith that the Citimall project was simply suspended, it expected work to
resume soon after and decided to proceed with the shipment.37
Contrary to LICOMCEN’s arguments, GC-42 of the GCC does not require delivery of the materials at the site of the Citimall project; it only
requires delivery to the contractor, which is FSI. Moreover, the Tuanzon compound, where the steel bars were actually delivered, is very
close to the Citimall project site. FSI contends that it is a normal construction practice for contractors to set up a "staging site," to prepare
the materials and equipment to be used, rather than stock them in the crowded job/project site. FSI also asserts that it was useless to have
the delivery certified by ESCA because by then the Citimall project had been suspended. It would be unfair to demand FSI to perform an act
that ESCA and LICOMCEN themselves had prevented from happening.38
The CA deleted the awards for equipment and labor standby costs on the ground that FSI’s documentary evidence was inadequate. FSI
finds the ruling erroneous, since LICOMCEN never questioned the list of employees and equipments employed and rented by FSI for the
duration of the suspension.39
FSI also alleges that LICOMCEN maliciously and unlawfully suspended the Citimall project. While LICOMCEN cited several other cases in its
petition for review on certiorari as grounds for suspending the works, its letters/notices of suspension only referred to one case, OMB-
ADM-1-97-0622, an administrative case before the Ombudsman that was dismissed as early as October 12, 1998. LICOMCEN never notified
FSI of the dismissal of this case. More importantly, no restraining order or injunction was issued in any of these cases to justify the
suspension of the Citimall project.40 FSI posits that LICOMCEN’s true intent was to terminate its contract with it, but, to avoid paying
damages for breach of contract, simply declared it as "indefinitely suspended." That LICOMCEN conducted another public bidding for the
"new designs" is a telling indication of LICOMCEN’s intent to ease out FSI.41 Thus, FSI states that LICOMCEN’s bad faith in indefinitely
suspending the Citimall project entitles it to claim unrealized profit. The restriction under GC-41 that "[t]he contractor shall have no claim
for anticipated profits on the work thus terminated," 42 will not apply because the stipulation refers to a contract lawfully and properly
terminated. FSI seeks to recover unrealized profits under Articles 1170 and 2201 of the Civil Code.
THE COURT’S RULING
The jurisdiction of the CIAC
The CIAC was created through Executive Order No. 1008 (E.O. 1008), in recognition of the need to establish an arbitral machinery that
would expeditiously settle construction industry disputes. The prompt resolution of problems arising from or connected with the
construction industry was considered of necessary and vital for the fulfillment of national development goals, as the construction industry
provides employment to a large segment of the national labor force and is a leading contributor to the gross national product.43 Section 4
of E.O. 1008 states:
Sec. 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered
into by parties involved in construction in the Philippines, whether the dispute arises before or after the completion of the contract, or after
the abandonment or breach thereof. These disputes may involve government or private contracts. For the Board to acquire jurisdiction, the
parties to a dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship; violation of the
terms of agreement; interpretation and/or application of contractual time and delays; maintenance and defects; payment, default of
employer or contractor and changes in contract cost.
Excluded from the coverage of this law are disputes arising from employer-employee relationships which shall continue to be covered by
the Labor Code of the Philippines.
The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and the law.44 It cannot be fixed by the will of the
parties to a dispute;45 the parties can neither expand nor diminish a tribunal’s jurisdiction by stipulation or agreement. The text of Section 4
of E.O. 1008 is broad enough to cover any dispute arising from, or connected with construction contracts, whether these involve mere
contractual money claims or execution of the works.46 Considering the intent behind the law and the broad language adopted, LICOMCEN
erred in insisting on its restrictive interpretation of GC-61. The CIAC’s jurisdiction cannot be limited by the parties’ stipulation that only
disputes in connection with or arising out of the physical construction activities (execution of the works) are arbitrable before it.
In fact, all that is required for the CIAC to acquire jurisdiction is for the parties to a construction contract to agree to submit their dispute to
arbitration. Section 1, Article III of the 1988 CIAC Rules of Procedure (as amended by CIAC Resolution Nos. 2-91 and 3-93) states:
Section 1. Submission to CIAC Jurisdiction. – An arbitration clause in a construction contract or a submission to arbitration of a construction
dispute shall be deemed an agreement to submit an existing or future controversy to CIAC jurisdiction, notwithstanding the reference to a
different arbitration institution or arbitral body in such contract or submission. When a contract contains a clause for the submission of a
future controversy to arbitration, it is not necessary for the parties to enter into a submission agreement before the claimant may invoke
the jurisdiction of CIAC.
An arbitration agreement or a submission to arbitration shall be in writing, but it need not be signed by the parties, as long as the intent is
clear that the parties agree to submit a present or future controversy arising from a construction contract to arbitration.
In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila Tollways Corporation, 47 the Court declared that "the bare fact that the parties
x x x incorporated an arbitration clause in [their contract] is sufficient to vest the CIAC with jurisdiction over any construction controversy or
claim between the parties. The arbitration clause in the construction contract ipso facto vested the CIAC with jurisdiction."
Under GC-61 and GC-05 of the GCC, read singly and in relation with one another, the Court sees no intent to limit resort to arbitration only
to disputes relating to the physical construction activities.
First, consistent with the intent of the law, an arbitration clause pursuant to E.O. 1008 should be interpreted at its widest signification.
Under GC-61, the voluntary arbitration clause covers any dispute of any kind, not only arising of out the execution of the works but also in
connection therewith. The payments, demand and disputed issues in this case – namely, work billings, material costs, equipment and labor
standby costs, unrealized profits – all arose because of the construction activities and/or are connected or related to these activities. In
other words, they are there because of the construction activities. Attorney’s fees and interests payment, on the other hand, are costs
directly incidental to the dispute. Hence, the scope of the arbitration clause, as worded, covers all the disputed items.
Second and more importantly, in insisting that contractual money claims can be resolved only through court action, LICOMCEN deliberately
ignores one of the exceptions to the general rule stated in GC-05:
GC-05. JURISDICTION
Any question between the contracting parties that may arise out of or in connection with the Contract, or breach thereof, shall be litigated
in the courts of Legaspi City except where otherwise specifically stated or except when such question is submitted for settlement thru
arbitration as provided herein.
The second exception clause authorizes the submission to arbitration of any dispute between LICOMCEM and FSI, even if the dispute does
not directly involve the execution of physical construction works. This was precisely the avenue taken by FSI when it filed its petition for
arbitration with the CIAC.
If the CIAC’s jurisdiction can neither be enlarged nor diminished by the parties, it also cannot be subjected to a condition precedent. GC-61
requires a party disagreeing with LICOMCEN’s decision to "officially give notice to contest such decision through arbitration" within 30 days
from receipt of the decision. However, FSI’s April 15, 1998 letter is not the notice contemplated by GC-61; it never mentioned FSI’s plan to
submit the dispute to arbitration and instead requested LICOMCEN to reevaluate its claims. Notwithstanding FSI’s failure to make a proper
and timely notice, LICOMCEN’s decision (embodied in its March 24, 1998 letter) cannot become "final and binding" so as to preclude resort
to the CIAC arbitration. To reiterate, all that is required for the CIAC to acquire jurisdiction is for the parties to agree to submit their dispute
to voluntary arbitration:
[T]he mere existence of an arbitration clause in the construction contract is considered by law as an agreement by the parties to submit
existing or future controversies between them to CIAC jurisdiction, without any qualification or condition precedent. To affirm a condition
precedent in the construction contract, which would effectively suspend the jurisdiction of the CIAC until compliance therewith, would be
in conflict with the recognized intention of the law and rules to automatically vest CIAC with jurisdiction over a dispute should the
construction contract contain an arbitration clause.48
The CIAC is given the original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties
involved in construction in the Philippines.49 This jurisdiction cannot be altered by stipulations restricting the nature of construction
disputes, appointing another arbitral body, or making that body’s decision final and binding.
The jurisdiction of the CIAC to resolve the dispute between LICOMCEN and FSI is, therefore, affirmed.
The validity of the indefinite
suspension of the works on the
Citimall project
Before the Court rules on each of FSI’s contractual monetary claims, we deem it important to discuss the validity of LICOMCEN’s indefinite
suspension of the works on the Citimall project. We quote below two contractual stipulations relevant to this issue:
GC-38. SUSPENSION OF WORKS
The Engineer [ESCA] through the LICOMCEN, INCORPORATED shall have the authority to suspend the Works wholly or partly by written
order for such period as may be deemed necessary, due to unfavorable weather or other conditions considered unfavorable for the
prosecution of the Works, or for failure on the part of the Contractor to correct work conditions which are unsafe for workers or the
general public, or failure or refusal to carry out valid orders, or due to change of plans to suit field conditions as found necessary during
construction, or to other factors or causes which, in the opinion of the Engineer, is necessary in the interest of the Works and to the
LICOMCEN, INCORPORATED. The Contractor [FSI] shall immediately comply with such order to suspend the work wholly or partly directed.
In case of total suspension or suspension of activities along the critical path of the approved PERT/CPM network and the cause of which is
not due to any fault of the Contractor, the elapsed time between the effective order for suspending work and the order to resume work
shall be allowed the Contractor by adjusting the time allowed for his execution of the Contract Works.
The Engineer through LICOMCEN, INCORPORATED shall issue the order lifting the suspension of work when conditions to resume work shall
have become favorable or the reasons for the suspension have been duly corrected. 50
GC-41 LICOMCEN, INCORPORATED's RIGHT TO SUSPEND WORK OR TERMINATE THE CONTRACT
xxxx
2. For Convenience of LICOMCEN, INCORPORATED
If any time before completion of work under the Contract it shall be found by the LICOMCEN, INCORPORATED that reasons beyond the
control of the parties render it impossible or against the interest of the LICOMCEN, INCORPORATED to complete the work, the LICOMCEN,
INCORPORATED at any time, by written notice to the Contractor, may discontinue the work and terminate the Contract in whole or in part.
Upon the issuance of such notice of termination, the Contractor shall discontinue to work in such manner, sequence and at such time as
the LICOMCEN, INCORPORATED/Engineer may direct, continuing and doing after said notice only such work and only until such time or
times as the LICOMCEN, INCORPORATED/Engineer may direct.51
Under these stipulations, we consider LICOMCEN’s initial suspension of the works valid. GC-38 authorizes the suspension of the works for
factors or causes which ESCA deems necessary in the interests of the works and LICOMCEN. The factors or causes of suspension may
pertain to a change or revision of works, as cited in the December 16, 1997 and January 6, 1998 letters of ESCA, or to the pendency of a
case before the Ombudsman (OMB-ADM-1-97-0622), as cited in LICOMCEN’s January 15, 1998 letter and ESCA’s January 19, 1998 and
February 17, 1998 letters. It was not necessary for ESCA/LICOMCEN to wait for a restraining or injunctive order to be issued in any of the
cases filed against LICOMCEN before it can suspend the works. The language of GC-38 gives ESCA/LICOMCEN sufficient discretion to
determine whether the existence of a particular situation or condition necessitates the suspension of the works and serves the interests of
LICOMCEN.1avvphi1
Although we consider the initial suspension of the works as valid, we find that LICOMCEN wrongfully prolonged the suspension of the works
(or "indefinite suspension" as LICOMCEN calls it). GC-38 requires ESCA/LICOMCEN to "issue an order lifting the suspension of work when
conditions to resume work shall have become favorable or the reasons for the suspension have been duly corrected." The Ombudsman
case (OMB-ADM-1-97-0622), which ESCA and LICOMCEN cited in their letters to FSI as a ground for the suspension, was dismissed as early
as October 12, 1998, but neither ESCA nor LICOMCEN informed FSI of this development. The pendency of the other cases 52 may justify the
continued suspension of the works, but LICOMCEN never bothered to inform FSI of the existence of these cases until the arbitration
proceedings commenced. By May 28, 2002, the City Government of Legaspi sent LICOMCEN a notice instructing it to proceed with the
Citimall project;53 again, LICOMCEN failed to relay this information to FSI. Instead, LICOMCEN conducted a rebidding of the Citimall project
based on the new design.54LICOMCEN’s claim that the rebidding was conducted merely to get cost estimates for the new design goes
against the established practice in the construction industry. We find the CIAC’s discussion on this matter relevant:
But what is more appalling and disgusting is the allegation x x x that the x x x invitation to bid was issued x x x solely to gather cost
estimates on the redesigned [Citimall project] x x x. This Arbitral Tribunal finds said act of asking for bids, without any intention of awarding
the project to the lowest and qualified bidder, if true, to be extremely irresponsible and highly unprofessional. It might even be branded as
fraudulent x x x [since] the invited bidders [were required] to pay P2,000.00 each for a set of the new plans, which amount was non-
refundable. The presence of x x x deceit makes the whole story repugnant and unacceptable.55
LICOMCEN’s omissions and the imprudent rebidding of the Citimall project are telling indications of LICOMCEN’s intent to ease out FSI and
terminate their contract. As with GC-31, GC-42(2) grants LICOMCEN ample discretion to determine what reasons render it against its
interest to complete the work – in this case, the pendency of the other cases and the revised designs for the Citimall project. Given this
authority, the Court fails to the see the logic why LICOMCEN had to resort to an "indefinite suspension" of the works, instead of outrightly
terminating the contract in exercise of its rights under GC-42(2).
We now proceed to discuss the effects of these findings with regard to FSI’s monetary claims against LICOMCEN.
The claim for material costs at site
GC-42 of the GCC states:
GC-42 PAYMENT FOR TERMINATED CONTRACT
If the Contract is terminated as aforesaid, the Contractor will be paid for all items of work executed, satisfactorily completed and accepted
by the LICOMCEN, INCORPORATED up to the date of termination, at the rates and prices provided for in the Contract and in addition:
 1. The cost of partially accomplished items of additional or extra work agreed upon by the LICOMCEN, INCORPORATED and the
Contractor.
2. The cost of materials or goods reasonably ordered for the Permanent or Temporary Works which have been delivered to the
Contractor but not yet used and which delivery has been certified by the Engineer.
3. The reasonable cost of demobilization
For any payment due the Contractor under the above conditions, the LICOMCEN, INCORPORATED, however, shall deduct any outstanding
balance due from the Contractor for advances in respect to mobilization and materials, and any other sum the LICOMCEN, INCORPORATED
is entitled to be credited.56
For LICOMCEN to be liable for the cost of materials or goods, item two of GC-42 requires that
a. the materials or goods were reasonably ordered for the Permanent or Temporary Works;
b. the materials or goods were delivered to the Contractor but not yet used; and
c. the delivery was certified by the Engineer.
Both the CIAC and the CA agreed that these requisites were met by FSI to make LICOMCEN liable for the cost of the steel bars ordered for
the Citimall project; the two tribunals differed only to the extent of LICOMCEN’s liability because the CA opined that it should be limited
only to 50% of the cost of the steel bars. A review of the records compels us to uphold the CA’s finding.
Prior to the delivery of the steel bars, ESCA informed FSI of the suspension of the works; ESCA’s January 6, 1998 letter reads:
As per our information to you on December 16, 1997, a major revision in the design of the Legaspi Citimall necessitated a change in the
bored piles requirement of the project. The change involved a substantial reduction in the number and length of piles.
We expected that you would have suspended the deliveries of the steel bars until the new design has been approved.
According to you[,] the steel bars had already been paid and loaded and out of Manila on said date.
In order to avoid double handling, storage, security problems, we suggest that only 50% of the total requirement of steel bars be delivered
at jobsite. The balance should be returned to Manila where storage and security is better.
In order for us to consider additional cost due to the shipping of the excess steel bars, we need to know the actual dates of purchase,
payments and loading of the steel bars. Obviously, we cannot consider the additional cost if you have had the chance to delay the shipping
of the steel bars.57
From the above, it appears that FSI was informed of the necessity of suspending the works as early as December 16, 1997. Pursuant to GC-
38 of the GCC, FSI was expected to immediately comply with the order to suspend the work.58 Though ESCA’s December 16, 1997 notice
may not have been categorical in ordering the suspension of the works, FSI’s reply letter of December 18, 1997 indicated that it actually
complied with the notice to suspend, as it said, "We hope for the early resolution of the new foundation plan and the resumption of
work."59 Despite the suspension, FSI claimed that it could not stop the delivery of the steel bars (nor found the need to do so) because (a)
the steel bars were ordered as early as November 1997 and were already loaded in Manila and expected to arrive in Legaspi City by
December 23, 1997, and (b) it expected immediate resumption of work to meet the 90-day deadline.60
Records, however, disclose that these claims are not entirely accurate. The memorandum of agreement and sale covering the steel bars
specifically stated that these would be withdrawn from the Cagayan de Oro depot, not Manila 61; indeed, the bill of lading stated that the
steel bars were loaded in Cagayan de Oro on January 11, 1998, and arrived in Legaspi City within three days, on January 14, 1998.62 The
loading and delivery of the steel bar thus happened after FSI received ESCA’s December 16, 1997 and January 6, 1998 letters – days after
the instruction to suspend the works. Also, the same stipulation that authorizes LICOMCEN to suspend the works allows the extension of
the period to complete the works. The relevant portion of
GC-38 states:
In case of total suspension x x x and the cause of which is not due to any fault of the Contractor [FSI], the elapsed time between the
effective order for suspending work and the order to resume work shall be allowed the Contractor by adjusting the time allowed for his
execution of the Contract Works.63
The above stipulation, coupled with the short period it took to ship the steel bars from Cagayan de Oro to Legaspi City, thus negates both
FSI’s
argument and the CIAC’s ruling64 that there was no necessity to stop the shipment so as to meet the 90-day deadline. These circumstances
prove that FSI acted imprudently in proceeding with the delivery, contrary to LICOMCEN’s instructions. The CA was correct in holding
LICOMCEN liable for only 50% of the costs of the steel bars delivered.
The claim for equipment and
labor standby costs
The Court upholds the CA’s ruling deleting the award for equipment and labor standby costs. We quote in agreement pertinent portions of
the CA decision:
The CIAC relied solely on the list of 37 pieces of equipment respondent allegedly rented and maintained at the construction site during the
suspension of the project with the prorated rentals incurred x x x. To the mind of this Court, these lists are not sufficient to establish the
fact that indeed [FSI] incurred the said expenses. Reliance on said lists is purely speculative x x x the list of equipments is a mere index or
catalog of the equipments, which may be utilized at the construction site. It is not the best evidence to prove that said equipment were in
fact rented and maintained at the construction site during the suspension of the work. x x x [FSI] should have presented the lease contracts
or any similar documents such as receipts of payments x x x. Likewise, the list of employees does not in anyway prove that those employees
in the list were indeed at the construction site or were required to be on call should their services be needed and were being paid their
salaries during the suspension of the project. Thus, in the absence of sufficient evidence, We deny the claim for equipment and labor
standby costs.65
The claim for unrealized profit
FSI contends that it is not barred from recovering unrealized profit under GC-41(2), which states:
GC-41. LICOMCEN, INCORPORATED’s RIGHT TO SUSPEND WORK OR TERMINATE THE CONTRACT
xxxx
2. For Convenience of the LICOMCEN, INCORPORATED
x x x. The Contractor [FSI] shall not claim damages for such discontinuance or termination of the Contract, but the Contractor shall receive
compensation for reasonable expenses incurred in good faith for the performance of the Contract and for reasonable expenses associated
with termination of the Contract. The LICOMCEN, INCORPORATED will determine the reasonableness of such expenses. The Contractor [FSI]
shall have no claim for anticipated profits on the work thus terminated, nor any other claim, except for the work actually performed at the
time of complete discontinuance, including any variations authorized by the LICOMCEN, INCORPORATED/Engineer to be done.
The prohibition, FSI posits, applies only where the contract was properly and lawfully terminated, which was not the case at bar. FSI also
took pains in differentiating its claim for "unrealized profit" from the prohibited claim for "anticipated profits"; supposedly, unrealized
profit is "one that is built-in in the contract price, while anticipated profit is not." We fail to see the distinction, considering that the
contract itself neither defined nor differentiated the two terms. [A] contract must be interpreted from the language of the contract itself,
according to its plain and ordinary meaning."66 If the terms of a contract are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of the stipulations shall control.67
Nonetheless, on account of our earlier discussion of LICOMCEN’s failure to observe the proper procedure in terminating the contract by
declaring that it was merely indefinitely suspended, we deem that FSI is entitled to the payment of nominal damages. Nominal damages
may be awarded to a plaintiff whose right has been violated or invaded by the defendant, for the purpose of vindicating or recognizing that
right, and not for indemnifying the plaintiff for any loss suffered by him. 68 Its award is, thus, not for the purpose of indemnification for a
loss but for the recognition and vindication of a right. A violation of the plaintiff’s right, even if only technical, is sufficient to support an
award of nominal damages.69 FSI is entitled to recover the amount of ₱100,000.00 as nominal damages.
The liability for costs of arbitration
Under the parties’ Terms of Reference, executed before the CIAC, the costs of arbitration shall be equally divided between them, subject to
the CIAC’s determination of which of the parties shall eventually shoulder the amount. 70The CIAC eventually ruled that since LICOMCEN
was the party at fault, it should bear the costs. As the CA did, we agree with this finding. Ultimately, it was LICOMCEN’s imprudent
declaration of indefinitely suspending the works that caused the dispute between it and FSI. LICOMCEN should bear the costs of arbitration.
WHEREFORE, premises considered, the petition for review on certiorari of LICOMCEN INCORPORATED, docketed as G.R. No. 167022, and
the petition for review on certiorari of FOUNDATION SPECIALISTS, INC., docketed as G.R. No. 169678, are DENIED. The November 23, 2004
Decision of the Court of Appeals in CA-G.R. SP No. 78218 is MODIFIED to include the award of nominal damages in favor of FOUNDATION
SPECIALISTS, INC. Thus, LICOMCEN INCORPORATED is ordered to pay FOUNDATION SPECIALISTS, INC. the following amounts:
a. ₱1,264,404.12 for unpaid balance on FOUNDATION SPECIALISTS, INC. billings;
b. ₱5,694,939.87 for material costs at site; and
c. ₱100,000.00 for nominal damages.
LICOMCEN INCORPORATED is also ordered to pay the costs of arbitration. No costs.
SO ORDERED.

TUNA PROCESSING, INC.,Petitioner,vs. PHILIPPINE KINGFORD, INC.,Respondent.

x-----------------------------------------------------------------------------------------x
DECISION
PEREZ, J.:
Can a foreign corporation not licensed to do business in the Philippines, but which collects royalties from entities in the
Philippines, sue here to enforce a foreign arbitral award?

In this Petition for Review on Certiorari under Rule 45,[1] petitioner Tuna Processing, Inc. (TPI), a foreign corporation not licensed to
do business in the Philippines, prays that the Resolution [2] dated 21 November 2008 of the Regional Trial Court (RTC) of Makati City be
declared void and the case be remanded to the RTC for further proceedings. In the assailed Resolution, the RTC dismissed
petitioners Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award [3] against respondent Philippine Kingford, Inc.
(Kingford), a corporation duly organized and existing under the laws of the Philippines, [4] on the ground that petitioner lacked legal capacity
to sue.[5]

The Antecedents
On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the licensor), co-patentee of U.S. Patent No. 5,484,619,
Philippine Letters Patent No. 31138, and Indonesian Patent No. ID0003911 (collectively referred to as the Yamaoka Patent), [6] and five (5)
Philippine tuna processors, namely, Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods,
Inc., and respondent Kingford (collectively referred to as the sponsors/licensees) [7] entered into a Memorandum of Agreement
(MOA),[8] pertinent provisions of which read:

1. Background and objectives. The Licensor, co-owner of U.S.Patent No. 5,484,619, Philippine Patent No. 31138, and
Indonesian Patent No. ID0003911 xxx wishes to form an alliance with Sponsors for purposes of enforcing his three
aforementioned patents, granting licenses under those patents, and collecting royalties.

The Sponsors wish to be licensed under the aforementioned patents in order to practice the processes claimed in those
patents in the United States, the Philippines, and Indonesia, enforce those patents and collect royalties in conjunction
with Licensor.

xxx

4. Establishment of Tuna Processors, Inc. The parties hereto agree to the establishment of Tuna Processors, Inc. (TPI), a
corporation established in the State of California, in order to implement the objectives of this Agreement.
5. Bank account. TPI shall open and maintain bank accounts in the United States, which will be used exclusively to deposit
funds that it will collect and to disburse cash it will be obligated to spend in connection with the implementation of
this Agreement.

6. Ownership of TPI. TPI shall be owned by the Sponsors and Licensor. Licensor shall be assigned one share of TPI for the
purpose of being elected as member of the board of directors. The remaining shares of TPI shall be held by the
Sponsors according to their respective equity shares. [9]

xxx
The parties likewise executed a Supplemental Memorandum of Agreement[10] dated 15 January 2003 and an Agreement to Amend
Memorandum of Agreement[11] dated 14 July 2003.
Due to a series of events not mentioned in the petition, the licensees, including respondent Kingford, withdrew from petitioner
TPI and correspondingly reneged on their obligations.[12] Petitioner submitted the dispute for arbitration before the International Centre for
Dispute Resolution in the State of California, United States and won the case against respondent. [13]Pertinent portions of the award read:

13.1 Within thirty (30) days from the date of transmittal of this Award to the Parties, pursuant to the terms of this award,
the total sum to be paid by RESPONDENT KINGFORD to CLAIMANT TPI, is the sum of ONE MILLION SEVEN HUNDRED
FIFTY THOUSAND EIGHT HUNDRED FORTY SIX DOLLARS AND TEN CENTS ($1,750,846.10).
(A) For breach of the MOA by not paying past due assessments, RESPONDENT KINGFORD shall pay CLAIMANT the total
sum of TWO HUNDRED TWENTY NINE THOUSAND THREE HUNDRED AND FIFTY FIVE DOLLARS AND NINETY CENTS
($229,355.90) which is 20% of MOA assessments since September 1, 2005[;]

(B) For breach of the MOA in failing to cooperate with CLAIMANT TPI in fulfilling the objectives of the MOA,
RESPONDENT KINGFORD shall pay CLAIMANT the total sum of TWO HUNDRED SEVENTY ONE THOUSAND FOUR
HUNDRED NINETY DOLLARS AND TWENTY CENTS ($271,490.20)[;][14] and

(C) For violation of THE LANHAM ACT and infringement of the YAMAOKA 619 PATENT, RESPONDENT KINGFORD shall
pay CLAIMANT the total sum of ONE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS
($1,250,000.00).xxx

xxx[15]
To enforce the award, petitioner TPI filed on 10 October 2007 a Petition for Confirmation, Recognition, and Enforcement of
Foreign Arbitral Award before the RTC of Makati City. The petition was raffled to Branch 150 presided by Judge Elmo M. Alameda.

At Branch 150, respondent Kingford filed a Motion to Dismiss.[16] After the court denied the motion for lack of merit,[17]respondent
sought for the inhibition of Judge Alameda and moved for the reconsideration of the order denying the motion. [18]Judge Alameda inhibited
himself notwithstanding [t]he unfounded allegations and unsubstantiated assertions in the motion. [19]Judge Cedrick O. Ruiz of Branch 61, to
which the case was re-raffled, in turn, granted respondents Motion for Reconsideration and dismissed the petition on the ground that the
petitioner lacked legal capacity to sue in the Philippines.[20]

Petitioner TPI now seeks to nullify, in this instant Petition for Review on Certiorari under Rule 45, the order of the trial court
dismissing its Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award.
Issue
The core issue in this case is whether or not the court a quo was correct in so dismissing the petition on the ground of petitioners
lack of legal capacity to sue.
Our Ruling
The petition is impressed with merit.
The Corporation Code of the Philippines expressly provides:

Sec. 133. Doing business without a license. - No foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding
in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.
It is pursuant to the aforequoted provision that the court a quo dismissed the petition. Thus:
Herein plaintiff TPIs Petition, etc. acknowledges that it is a foreign corporation established in the State of
California and was given the exclusive right to license or sublicense the Yamaoka Patent and was assigned the exclusive
right to enforce the said patent and collect corresponding royalties in the Philippines. TPI likewise admits that it does not
have a license to do business in the Philippines.

There is no doubt, therefore, in the mind of this Court that TPI has been doing business in the Philippines, but
sans a license to do so issued by the concerned government agency of the Republic of the Philippines, when it collected
royalties from five (5) Philippine tuna processors[,] namely[,] Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy
Gina Tuna Resources, Santa Cruz Seafoods, Inc. and respondent Philippine Kingford, Inc. This being the real situation, TPI
cannot be permitted to maintain or intervene in any action, suit or proceedings in any court or administrative agency of the
Philippines. A priori, the Petition, etc. extant of the plaintiff TPI should be dismissed for it does not have the legal
personality to sue in the Philippines.[21]

The petitioner counters, however, that it is entitled to seek for the recognition and enforcement of the subject foreign arbitral
award in accordance with Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004),[22] the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards drafted during the United Nations Conference on International Commercial Arbitration in 1958
(New York Convention), and the UNCITRAL Model Law on International Commercial Arbitration (Model Law),[23] as none of these specifically
requires that the party seeking for the enforcement should have legal capacity to sue.It anchors its argument on the following:

In the present case, enforcement has been effectively refused on a ground not found in the [Alternative Dispute Resolution
Act of 2004], New York Convention, or Model Law. It is for this reason that TPI has brought this matter before this most
Honorable Court, as it [i]s imperative to clarify whether the Philippines international obligations and State policy to
strengthen arbitration as a means of dispute resolution may be defeated by misplaced technical considerations not found
in the relevant laws.[24]
Simply put, how do we reconcile the provisions of the Corporation Code of the Philippines on one hand, and the Alternative
Dispute Resolution Act of 2004, the New York Convention and the Model Law on the other?
 In several cases, this Court had the occasion to discuss the nature and applicability of the Corporation Code of the Philippines, a
general law, viz-a-viz other special laws. Thus, in Koruga v. Arcenas, Jr.,[25] this Court rejected the application of the Corporation Code and
applied the New Central Bank Act. It ratiocinated:

Korugas invocation of the provisions of the Corporation Code is misplaced. In an earlier case with similar
antecedents, we ruled that:
The Corporation Code, however, is a general law applying to all types of corporations, while the
New Central Bank Act regulates specifically banks and other financial institutions, including the dissolution
and liquidation thereof. As between a general and special law, the latter shall prevail generalia specialibus
non derogant. (Emphasis supplied)[26]

Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential Agrarian Reform Council,[27] this Court held:

Without doubt, the Corporation Code is the general law providing for the formation, organization and regulation
of private corporations. On the other hand, RA 6657 is the special law on agrarian reform. As between a general and special
law, the latter shall prevailgeneralia specialibus non derogant.[28]

Following the same principle, the Alternative Dispute Resolution Act of 2004 shall apply in this case as the Act, as its title - An Act
to Institutionalize the Use of an Alternative Dispute Resolution System in the Philippines and to Establish the Office for Alternative Dispute
Resolution, and for Other Purposes - would suggest, is a law especially enacted to actively promote party autonomy in the resolution of
disputes or the freedom of the party to make their own arrangements to resolve their disputes. [29] It specifically provides exclusive grounds
available to the party opposing an application for recognition and enforcement of the arbitral award.[30]

Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal law, applies in the instant petition, we do not see the
need to discuss compliance with international obligations under the New York Convention and the Model Law. After all, both already form
part of the law.
In particular, the Alternative Dispute Resolution Act of 2004 incorporated the New York Convention in the Act by specifically
providing:

SEC. 42. Application of the New York Convention. - The New York Convention shall govern the recognition and
enforcement of arbitral awards covered by the said Convention.

xxx
SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign arbitration proceeding may oppose an
application for recognition and enforcement of the arbitral award in accordance with the procedural rules to be
promulgated by the Supreme Court only on those grounds enumerated under Article V of the New York Convention. Any
other ground raised shall be disregarded by the regional trial court.
It also expressly adopted the Model Law, to wit:

Sec. 19. Adoption of the Model Law on International Commercial Arbitration. International commercial arbitration
shall be governed by the Model Law on International Commercial Arbitration (the Model Law) adopted by the United
Nations Commission on International Trade Law on June 21, 1985 xxx.
Now, does a foreign corporation not licensed to do business in the Philippines have legal capacity to sue under the provisions of
the Alternative Dispute Resolution Act of 2004? We answer in the affirmative.
Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in an application for recognition and
enforcement of the arbitral award may raise only those grounds that were enumerated under Article V of the New York Convention, to wit:
 Article V

1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only
if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:
(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or
the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon,
under the law of the country where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of
the arbitration proceedings or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration,
or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on
matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains
decisions on matters submitted to arbitration may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the
parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of
the country in which, or under the law of which, that award was made.
2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where
recognition and enforcement is sought finds that:
(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to the public policy of that country.

Clearly, not one of these exclusive grounds touched on the capacity to sue of the party seeking the recognition and enforcement of the
award.
Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution,[31] which was promulgated by the Supreme
Court, likewise support this position.
Rule 13.1 of the Special Rules provides that [a]ny party to a foreign arbitration may petition the court to recognize and enforce a
foreign arbitral award. The contents of such petition are enumerated in Rule 13.5.[32] Capacity to sue is not included.Oppositely, in the Rule
on local arbitral awards or arbitrations in instances where the place of arbitration is in the Philippines,[33] it is specifically required that a
petition to determine any question concerning the existence, validity and enforceability of such arbitration agreement[34] available to the
parties before the commencement of arbitration and/or a petition for judicial relief from the ruling of the arbitral tribunal on a preliminary
question upholding or declining its jurisdiction [35] after arbitration has already commenced should state [t]he facts showing that the persons
named as petitioner or respondent have legal capacity to sue or be sued. [36]
Indeed, it is in the best interest of justice that in the enforecement of a foreign arbitral award, we deny availment
by the losingparty of the rule that bars foreign corporations not licensed to do business in the Philippines from maintaining a suit in our
courts.When a party enters into a contract containing a foreign arbitration clause and, as in this case, in fact submits itself to arbitration,
itbecomes bound by the contract, by the arbitration and by the result of arbitration, conceding thereby the capacity of the other party to
enter into the contract, participate in the arbitration and cause the implementation of the result. Although not on all fours with the instant
case, also worthy to consider is the
wisdom of then Associate Justice Flerida Ruth P. Romero in her Dissenting Opinion in Asset Privatization Trust v. Court of
Appeals,[37] to wit:
xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and judicial circles here and
abroad. If its tested mechanism can simply be ignored by an aggrieved party, one who, it must be stressed, voluntarily and
actively participated in the arbitration proceedings from the very beginning, it will destroy the very essence of mutuality
inherent in consensual contracts.[38]
Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected not because it is favored over domestic laws
and procedures, but because Republic Act No. 9285 has certainly erased any conflict of law question.
 Finally, even assuming, only for the sake of argument, that the court a quo correctly observed that the Model Law, not the New
York Convention, governs the subject arbitral award,[39] petitioner may still seek recognition and enforcement of the award in Philippine
court, since the Model Law prescribes substantially identical exclusive grounds for refusing recognition or enforcement. [40]
Premises considered, petitioner TPI, although not licensed to do business in the Philippines, may seek recognition and
enforcement of the foreign arbitral award in accordance with the provisions of the Alternative Dispute Resolution Act of 2004.

II
The remaining arguments of respondent Kingford are likewise unmeritorious.
First. There is no need to consider respondents contention that petitioner TPI improperly raised a question of fact when it posited
that its act of entering into a MOA should not be considered doing business in the Philippines for the purpose of determining capacity to
sue. We reiterate that the foreign corporations capacity to sue in the Philippines is not material insofar as the recognition and enforcement
of a foreign arbitral award is concerned.
Second. Respondent cannot fault petitioner for not filing a motion for reconsideration of the assailed Resolution dated 21
November 2008 dismissing the case. We have, time and again, ruled that the prior filing of a motion for reconsideration is not required
in certiorari under Rule 45.[41]
Third. While we agree that petitioner failed to observe the principle of hierarchy of courts, which, under ordinary circumstances,
warrants the outright dismissal of the case,[42] we opt to relax the rules following the pronouncement in Chua v. Ang,[43] to wit:

[I]t must be remembered that [the principle of hierarchy of courts] generally applies to cases involving
conflicting factual allegations. Cases which depend on disputed facts for decision cannot be brought immediately before
us as we are not triers of facts. [44] A strict application of this rule may be excused when the reason behind the rule is not
present in a case, as in the present case, where the issues are not factual but purely legal. In these types of questions, this
Court has the ultimate say so that we merely abbreviate the review process if we, because of the unique circumstances of
a case, choose to hear and decide the legal issues outright.[45]

Moreover, the novelty and the paramount importance of the issue herein raised should be seriously considered. [46] Surely, there is a need
to take cognizance of the case not only to guide the bench and the bar, but if only to strengthen arbitration as a means of dispute
resolution, and uphold the policy of the State embodied in the Alternative Dispute Resolution Act of 2004, to wit:

Sec. 2. Declaration of Policy. - It is hereby declared the policy of the State to actively promote party autonomy in
the resolution of disputes or the freedom of the party to make their own arrangements to resolve their disputes. Towards
this end, the State shall encourage and actively promote the use of Alternative Dispute Resolution (ADR) as an important
means to achieve speedy and impartial justice and declog court dockets. xxx
Fourth. As regards the issue on the validity and enforceability of the foreign arbitral award, we leave its determination to the
court a quo where its recognition and enforcement is being sought.
Fifth. Respondent claims that petitioner failed to furnish the court of origin a copy of the motion for time to file petition for review
on certiorari before the petition was filed with this Court.[47] We, however, find petitioners reply in order. Thus:

26. Admittedly, reference to Branch 67 in petitioner TPIs Motion for Time to File a Petition for Review on
Certiorari under Rule 45 is a typographical error. As correctly pointed out by respondent Kingford, the order sought to be
assailed originated from Regional Trial Court, Makati City, Branch 61.

27. xxx Upon confirmation with the Regional Trial Court, Makati City, Branch 61, a copy of petitioner TPIs motion
was received by the Metropolitan Trial Court, Makati City, Branch 67. On 8 January 2009, the motion was forwarded to
the Regional Trial Court, Makati City, Branch 61.[48]
 All considered, petitioner TPI, although a foreign corporation not licensed to do business in the Philippines, is not, for that reason
alone, precluded from filing the Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before a Philippine
court.
WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial Court, Branch 61, Makati City in Special Proceedings
No. M-6533 is hereby REVERSED and SET ASIDE. The case is REMANDED to Branch 61 for further proceedings.
SO ORDERED.

G.R. No. 179628 January 16, 2013

THE MANILA INSURANCE COMPANY, INC., Petitioner,
vs.
SPOUSES ROBERTO and AIDA AMURAO, Respondents.
DECISION
DEL CASTILLO, J.:
The jurisdiction of the Construction Industry Arbitration Commission (CIAC) is conferred by law. Section 41 of Executive Order (E.O.) No. I
008, otherwise known as the Construction Industry Arbitration Law, "is broad enough to cover any dispute arising from, or connected with
construction contracts, whether these involve mere contractual money claims or execution of the works." 2
This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails the Decision 4 dated June 7, 2007 and the
Resolution5 dated September 7, 2007 of the Court of Appeals (CA) in CA-G.R. SP No. 96815.
Factual Antecedents
On March 7, 2000, respondent-spouses Roberto and Aida Amurao entered into a Construction Contract Agreement (CCA) 6 with Aegean
Construction and Development Corporation (Aegean) for the construction of a six-storey commercial building in Tomas Morato corner E.
Rodriguez Avenue, Quezon City.7 To guarantee its full and faithful compliance with the terms and conditions of the CCA, Aegean posted
performance bonds secured by petitioner The Manila Insurance Company, Inc. 8 (petitioner) and Intra Strata Assurance Corporation (Intra
Strata).9
On November 15, 2001, due to the failure of Aegean to complete the project, respondent spouses filed with the Regional Trial Court (RTC)
of Quezon City, Branch 217, a Complaint,10 docketed as Civil Case No. Q-01-45573, against petitioner and Intra Strata to collect on the
performance bonds they issued in the amounts of ₱2,760,000.00 and ₱4,440,000.00, respectively. 11
Intra Strata, for its part, filed an Answer 12 and later, a Motion to Admit Third Party Complaint, 13 with attached Third Party
Complaint14 against Aegean, Ronald D. Nicdao, and Arnel A. Mariano.
Petitioner, on the other hand, filed a Motion to Dismiss15 on the grounds that the Complaint states no cause of action 16 and that the filing of
the Complaint is premature due to the failure of respondent-spouses to implead the principal contractor, Aegean. 17 The RTC, however,
denied the motion in an Order18 dated May 8, 2002. Thus, petitioner filed an Answer with Counterclaim and Cross-claim,19 followed by a
Third Party Complaint20 against Aegean and spouses Ronald and Susana Nicdao.
During the pre-trial, petitioner and Intra Strata discovered that the CCA entered into by respondent-spouses and Aegean contained an
arbitration clause.21
Hence, they filed separate Motions to Dismiss22 on the grounds of lack of cause of action and lack of jurisdiction.
Ruling of the Regional Trial Court
On May 5, 2006, the RTC denied both motions.23 Petitioner and Intra Strata separately moved for reconsideration but their motions were
denied by the RTC in its subsequent Order24 dated September 11, 2006.
Aggrieved, petitioner elevated the case to the CA by way of special civil action for certiorari. 25
Ruling of the Court of Appeals
On June 7, 2007, the CA rendered a Decision 26 dismissing the petition. The CA ruled that the presence of an arbitration clause in the CCA
does not merit a dismissal of the case because under the CCA, it is only when there are differences in the interpretation of Article I of the
construction agreement that the parties can resort to arbitration. 27 The CA also found no grave abuse of discretion on the part of the RTC
when it disregarded the fact that the CCA was not yet signed at the time petitioner issued the performance bond on February 29,
2000.28 The CA explained that the performance bond was intended to be coterminous with the construction of the building. 29 It pointed out
that "if the delivery of the original contract is contemporaneous with the delivery of the surety’s obligation, each contract becomes
completed at the same time, and the consideration which supports the principal contract likewise supports the subsidiary one." 30 The CA
likewise said that, although the contract of surety is only an accessory to the principal contract, the surety’s liability is direct, primary and
absolute.31 Thus:
WHEREFORE, we resolve to DISMISS the petition as we find that no grave abuse of discretion attended the issuance of the order of the
public respondent denying the petitioner’s motion to dismiss.
IT IS SO ORDERED.32
Petitioner moved for reconsideration but the CA denied the same in a Resolution 33 dated September 7, 2007.
Issues
Hence, this petition raising the following issues:
A.
THE HONORABLE CA ERRED WHEN IT HELD THAT IT IS ONLY WHEN THERE ARE DIFFERENCES IN THE INTERPRETATION OF ARTICLE I OF THE
CONSTRUCTION AGREEMENT THAT THE PARTIES MAY RESORT TO ARBITRATION BY THE CIAC.
B.
THE HONORABLE CA ERRED IN TREATING PETITIONER AS A SOLIDARY DEBTOR INSTEAD OF A SOLIDARY GUARANTOR.
C.
THE HONORABLE [CA] OVERLOOKED AND FAILED TO CONSIDER THE FACT THAT THERE WAS NO ACTUAL AND EXISTING CONSTRUCTION
AGREEMENT AT THE TIME THE MANILA INSURANCE BOND NO. G (13) 2082 WAS ISSUED ON FEBRUARY 29, 2000.34
Petitioner’s Arguments
Petitioner contends that the CA erred in ruling that the parties may resort to arbitration only when there is difference in the interpretation
of the contract documents stated in Article I of the CCA.35 Petitioner insists that under Section 4 of E.O. No. 1008, it is the CIAC that has
original and exclusive jurisdiction over construction disputes, such as the instant case. 36
Petitioner likewise imputes error on the part of the CA in treating petitioner as a solidary debtor instead of a solidary guarantor. 37 Petitioner
argues that while a surety is bound solidarily with the obligor, this does not make the surety a solidary co-debtor.38 A surety or guarantor is
liable only if the debtor is himself liable. 39 In this case, since respondent-spouses and Aegean agreed to submit any dispute for arbitration
before the CIAC, it is imperative that the dispute between respondent-spouses and Aegean must first be referred to arbitration in order to
establish the liability of Aegean.40 In other words, unless the liability of Aegean is determined, the filing of the instant case is premature.41
Finally, petitioner puts in issue the fact that the performance bond was issued prior to the execution of the CCA.42Petitioner claims that
since there was no existing contract at the time the performance bond was executed, respondent-spouses have no cause of action against
petitioner.43 Thus, the complaint should be dismissed.44
Respondent spouses’ Arguments
Respondent-spouses, on the other hand, maintain that the CIAC has no jurisdiction over the case because there is no ambiguity in the
provisions of the CCA.45 Besides, petitioner is not a party to the CCA.46 Hence, it cannot invoke Article XVII of the CCA, which provides for
arbitration proceedings.47 Respondent-spouses also insist that petitioner as a surety is directly and equally bound with the principal. 48 The
fact that the performance bond was issued prior to the execution of the CCA also does not affect the latter’s validity because the
performance bond is coterminous with the construction of the building.49
Our Ruling
The petition has merit.
Nature of the liability of the surety
A contract of suretyship is defined as "an agreement whereby a party, called the surety, guarantees the performance by another party,
called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee. It includes official recognizances,
stipulations, bonds or undertakings issued by any company by virtue of and under the provisions of Act No. 536, as amended by Act No.
2206."50 We have consistently held that a surety’s liability is joint and several, limited to the amount of the bond, and determined strictly by
the terms of contract of suretyship in relation to the principal contract between the obligor and the obligee. 51 It bears stressing, however,
that although the contract of suretyship is secondary to the principal contract, the surety’s liability to the obligee is nevertheless direct,
primary, and absolute.52
In this case, respondent-spouses (obligee) filed with the RTC a Complaint against petitioner (surety) to collect on the performance bond it
issued. Petitioner, however, seeks the dismissal of the Complaint on the grounds of lack of cause of action and lack of jurisdiction.
The respondent-spouses have cause of action against the petitioner; the performance bond is coterminous with the CCA
Petitioner claims that respondent-spouses have no cause of action against it because at the time it issued the performance bond, the CCA
was not yet signed by respondent-spouses and Aegean.
We do not agree.
A careful reading of the Performance Bond reveals that the "bond is coterminous with the final acceptance of the project."53 Thus, the fact
that it was issued prior to the execution of the CCA does not affect its validity or effectivity.
But while there is a cause of action against petitioner, the complaint must still be dismissed for lack of jurisdiction.
The CIAC has jurisdiction over the case
Section 4 of E.O. No. 1008 provides that:
SEC. 4. Jurisdiction. – The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered
into by parties involved in construction in the Philippines, whether the dispute arises before or after the completion of the contract, or after
the abandonment or breach thereof. These disputes may involve government or private contracts. For the Board to acquire jurisdiction, the
parties to a dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship, violation of the
terms of agreement, interpretation and/or application of contractual time and delays, maintenance and defects, payment, default of
employer or contractor, and changes in contract cost.
Excluded from the coverage of the law are disputes arising from employer-employee relationships which shall continue to be covered by
the Labor Code of the Philippines.
Based on the foregoing, in order for the CIAC to acquire jurisdiction two requisites must concur: "first, the dispute must be somehow
connected to a construction contract; and second, the parties must have agreed to submit the dispute to arbitration proceedings."54
In this case, both requisites are present.
The parties agreed to submit to arbitration proceedings "any dispute arising in the course of the execution and performance of the CCA by
reason of difference in interpretation of the Contract Documents x x x which the parties are unable to resolve amicably between
themselves."55 Article XVII of the CCA reads:
ARTICLE XVII – ARBITRATION
17.1 Any dispute arising in the course of the execution and performance of this Agreement by reason of difference in interpretation of the
Contract Documents set forth in Article I which the OWNER and the CONTRACTOR are unable to resolve amicably between themselves shall
be submitted by either party to a board of arbitrators composed of Three (3) members chosen as follows: One (1) member shall be chosen
by the CONTRACTOR AND One (1) member shall be chosen by the OWNER. The said Two (2) members, in turn, shall select a third member
acceptable to both of them. The decision of the Board of Arbitrators shall be rendered within Ten (10) days from the first meeting of the
board, which decision when reached through the affirmative vote of at least Two (2) members of the board shall be final and binding upon
the OWNER and CONTRACTOR.1âwphi1
17.2 Matters not otherwise provided for in this Contract or by Special Agreement of the parties shall be governed by the provisions of the
Arbitration Law, Executive Order No. 1008.56
In William Golangco Construction Corporation v. Ray Burton Development Corporation, 57 we declared that monetary claims under a
construction contract are disputes arising from "differences in interpretation of the contract" because "the matter of ascertaining the
duties and obligations of the parties under their contract all involve interpretation of the provisions of the contract."58 Following our
reasoning in that case, we find that the issue of whether respondent-spouses are entitled to collect on the performance bond issued by
petitioner is a "dispute arising in the course of the execution and performance of the CCA by reason of difference in the interpretation of
the contract documents."
The fact that petitioner is not a party to the CCA cannot remove the dispute from the jurisdiction of the CIAC because the issue of whether
respondent-spouses are entitled to collect on the performance bond, as we have said, is a dispute arising from or connected to the CCA.
In fact, in Prudential Guarantee and Assurance, Inc. v. Anscor Land, Inc.,59 we rejected the argument that the jurisdiction of CIAC is limited
to the construction industry, and thus, cannot extend to surety contracts. In that case, we declared that "although not the construction
contract itself, the performance bond is deemed as an associate of the main construction contract that it cannot be separated or severed
from its principal. The Performance Bond is significantly and substantially connected to the construction contract that there can be no
doubt it is the CIAC, under Section 4 of E.O. No. 1008, which has jurisdiction over any dispute arising from or connected with it."60
In view of the foregoing, we agree with the petitioner that juriisdiction over the instant case lies with the CIAC, and not with the RTC. Thus,
the Complaint filed by respondent-spouses with the RTC must be dismissed.
WHEREFORE, the petition is hereby GRANTED. The Decision dated June 7, 2007 and the Resolution dated September 7, 2007 of the Court of
Appeals in CA-G.R. SP No. 96815 are hereby ANNULLED and SET ASIDE. The Presiding Judge of the Regional Trial Court of Quezon City,
Branch 217 1s DIRECTED to dismiss Civil Case No. Q-01-45573 for lack of jurisdiction.
SO ORDERED.

G.R. No. 199650 June 26, 2013

J PLUS ASIA DEVELOPMENT CORPORATION, Petitioner,
vs.
UTILITY ASSURANCE CORPORATION, Respondent.
DECISION
VILLARAMA, JR., J.:
Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the
Decision1 dated January 27,2011 and Resolution2 dated December 8, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 112808.
The Facts
On December 24, 2007, petitioner J Plus Asia Development Corporation represented by its Chairman, Joo Han Lee, and Martin E. Mabunay,
doing business under the name and style of Seven Shades of Blue Trading and Services, entered into a Construction Agreement3 whereby
the latter undertook to build the former's 72-room condominium/hotel (Condotel Building 25) located at the Fairways & Bluewaters Golf &
Resort in Boracay Island, Malay, Aklan. The project, costing ₱42,000,000.00, was to be completed within one year or 365 days reckoned
from the first calendar day after signing of the Notice of Award and Notice to Proceed and receipt of down payment (20% of contract price).
The ₱8,400,000.00 down payment was fully paid on January 14, 2008.4 Payment of the balance of the contract price will be based on actual
work finished within 15 days from receipt of the monthly progress billings. Per the agreed work schedule, the completion date of the
project was December 2008.5 Mabuhay also submitted the required Performance Bond 6 issued by respondent Utility Assurance
Corporation (UTASSCO) in the amount equivalent to 20% down payment or ₱8.4 million.
Mabunay commenced work at the project site on January 7, 2008. Petitioner paid up to the 7th monthly progress billing sent by Mabunay.
As of September 16, 2008, petitioner had paid the total amount of ₱15,979,472.03 inclusive of the 20% down payment. However, as of said
date, Mabunay had accomplished only 27.5% of the project.7
In the Joint Construction Evaluation Result and Status Report8 signed by Mabunay assisted by Arch. Elwin Olavario, and Joo Han Lee assisted
by Roy V. Movido, the following findings were accepted as true, accurate and correct:
III STATUS OF PROJECT AS OF 14 NOVEMBER 2008
1) After conducting a joint inspection and evaluation of the project to determine the actual percentage of accomplishment, the
contracting parties, assisted by their respective technical groups, SSB assisted by Arch. Elwin Olavario and JPLUS assisted by Engrs.
Joey Rojas and Shiela Botardo, concluded and agreed that as of 14 November 2008, the project is only Thirty One point Thirty Nine
Percent (31.39%) complete.
 2) Furthermore, the value of construction materials allocated for the completion of the project and currently on site has been
determined and agreed to be ONE MILLION FORTY NINE THOUSAND THREE HUNDRED SIXTY FOUR PESOS AND FORTY FIVE
CENTAVOS (₱1,049,364.45)
3) The additional accomplishment of SSB, reflected in its reconciled and consolidated 8th and 9th billings, is Three point Eighty
Five Percent (3.85%) with a gross value of ₱1,563,553.34 amount creditable to SSB after deducting the withholding tax is
₱1,538,424.84
4) The unrecouped amount of the down payment is ₱2,379,441.53 after deducting the cost of materials on site and the net
billable amount reflected in the reconciled and consolidated 8th and 9th billings. The uncompleted portion of the project is
68.61% with an estimated value per construction agreement signed is ₱27,880,419.52.9 (Emphasis supplied.)
On November 19, 2008, petitioner terminated the contract and sent demand letters to Mabunay and respondent surety. As its demands
went unheeded, petitioner filed a Request for Arbitration 10 before the Construction Industry Arbitration Commission (CIAC). Petitioner
prayed that Mabunay and respondent be ordered to pay the sums of ₱8,980,575.89 as liquidated damages and ₱2,379,441.53
corresponding to the unrecouped down payment or overpayment petitioner made to Mabunay. 11
In his Answer,12 Mabunay claimed that the delay was caused by retrofitting and other revision works ordered by Joo Han Lee. He asserted
that he actually had until April 30, 2009 to finish the project since the 365 days period of completion started only on May 2, 2008 after
clearing the retrofitted old structure. Hence, the termination of the contract by petitioner was premature and the filing of the complaint
against him was baseless, malicious and in bad faith.
Respondent, on the other hand, filed a motion to dismiss on the ground that petitioner has no cause of action and the complaint states no
cause of action against it. The CIAC denied the motion to dismiss. Respondent’s motion for reconsideration was likewise denied.13
In its Answer Ex Abundante Ad Cautelam With Compulsory Counterclaims and Cross-claims,14 respondent argued that the performance
bond merely guaranteed the 20% down payment and not the entire obligation of Mabunay under the Construction Agreement. Since the
value of the project’s accomplishment already exceeded the said amount, respondent’s obligation under the performance bond had been
fully extinguished. As to the claim for alleged overpayment to Mabunay, respondent contended that it should not be credited against the
20% down payment which was already exhausted and such application by petitioner is tantamount to reviving an obligation that had been
legally extinguished by payment. Respondent also set up a cross-claim against Mabunay who executed in its favor an Indemnity Agreement
whereby Mabunay undertook to indemnify respondent for whatever amounts it may be adjudged liable to pay petitioner under the surety
bond.
Both petitioner and respondent submitted their respective documentary and testimonial evidence. Mabunay failed to appear in the
scheduled hearings and to present his evidence despite due notice to his counsel of record. The CIAC thus declared that Mabunay is
deemed to have waived his right to present evidence. 15
On February 2, 2010, the CIAC rendered its Decision16 and made the following award:
Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby adjudges, orders and directs:
1. Respondents Mabunay and Utassco to jointly and severally pay claimant the following:
a) ₱4,469,969.90, as liquidated damages, plus legal interest thereon at the rate of 6% per annum computed from the
date of this decision up to the time this decision becomes final, and 12% per annum computed from the date this
decision becomes final until fully paid, and
b) ₱2,379,441.53 as unrecouped down payment plus interest thereon at the rate of 6% per annum computed from the
date of this decision up to the time this decision becomes final, and 12% per annum computed from the date this
decision becomes final until fully paid.
It being understood that respondent Utassco’s liability shall in no case exceed ₱8.4 million.
2. Respondent Mabunay to pay to claimant the amount of ₱98,435.89, which is respondent Mabunay’s share in the arbitration
cost claimant had advanced, with legal interest thereon from January 8, 2010 until fully paid.
3. Respondent Mabunay to indemnify respondent Utassco of the amounts respondent Utassco will have paid to claimant under
this decision, plus interest thereon at the rate of 12% per annum computed from the date he is notified of such payment made by
respondent Utassco to claimant until fully paid, and to pay Utassco ₱100,000.00 as attorney’s fees.
SO ORDERED.17
Dissatisfied, respondent filed in the CA a petition for review under Rule 43 of the 1997 Rules of Civil Procedure, as amended.
In the assailed decision, the CA agreed with the CIAC that the specific condition in the Performance Bond did not clearly state the limitation
of the surety’s liability. Pursuant to Article 137718 of the Civil Code, the CA said that the provision should be construed in favor of petitioner
considering that the obscurely phrased provision was drawn up by respondent and Mabunay. Further, the appellate court stated that
respondent could not possibly guarantee the down payment because it is not Mabunay who owed the down payment to petitioner but the
other way around. Consequently, the completion by Mabunay of 31.39% of the construction would not lead to the extinguishment of
respondent’s liability. The ₱8.4 million was a limit on the amount of respondent’s liability and not a limitation as to the obligation or
undertaking it guaranteed.
However, the CA reversed the CIAC’s ruling that Mabunay had incurred delay which entitled petitioner to the stipulated liquidated damages
and unrecouped down payment. Citing Aerospace Chemical Industries, Inc. v. Court of Appeals, 19 the appellate court said that not all
requisites in order to consider the obligor or debtor in default were present in this case. It held that it is only from December 24, 2008
(completion date) that we should reckon default because the Construction Agreement provided only for delay in the completion of the
project and not delay on a monthly basis using the work schedule approved by petitioner as the reference point. Hence, petitioner’s
termination of the contract was premature since the delay in this case was merely speculative; the obligation was not yet demandable.
The dispositive portion of the CA Decision reads:
WHEREFORE, premises considered, the instant petition for review is GRANTED. The assailed Decision dated 13 January 2010 rendered by
the CIAC Arbitral Tribunal in CIAC Case No. 03-2009 is hereby REVERSED and SET ASIDE. Accordingly, the Writ of Execution dated 24
November 2010 issued by the same tribunal is hereby ANNULLED and SET ASIDE.
SO ORDERED.20
Petitioner moved for reconsideration of the CA decision while respondent filed a motion for partial reconsideration. Both motions were
denied.
The Issues
Before this Court petitioner seeks to reverse the CA insofar as it denied petitioner’s claims under the Performance Bond and to reinstate in
its entirety the February 2, 2010 CIAC Decision. Specifically, petitioner alleged that –
A. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT HOLDING THAT THE ALTERNATIVE DISPUTE RESOLUTION ACT AND THE
SPECIAL RULES ON ALTERNATIVE DISPUTE RESOLUTION HAVE STRIPPED THE COURT OF APPEALS OF JURISDICTION TO REVIEW
ARBITRAL AWARDS.
B. THE COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE ARBITRAL AWARD ON AN ISSUE THAT WAS NOT RAISED IN THE
ANSWER. NOT IDENTIFIED IN THE TERMS OF REFERENCE, NOT ASSIGNED AS ANERROR, AND NOT ARGUED IN ANY OF THE
PLEADINGS FILED BEFORE THE COURT.
C. THE COURT OF APPEALS SERIOUSLY ERRED IN RELYING ON THE CASE OF AEROSPACE CHEMICAL INDUSTRIES, INC. v. COURT OF
APPEALS, 315 SCRA 94, WHICH HAS NOTHING TO DO WITH CONSTRUCTION AGREEMENTS.21
Our Ruling
On the procedural issues raised, we find no merit in petitioner’s contention that with the institutionalization of alternative dispute
resolution under Republic Act (R.A.) No. 9285,22 otherwise known as the Alternative Dispute Resolution Act of 2004, the CA was divested of
jurisdiction to review the decisions or awards of the CIAC. Petitioner erroneously relied on the provision in said law allowing any party to a
domestic arbitration to file in the Regional Trial Court (RTC) a petition either to confirm, correct or vacate a domestic arbitral award.
We hold that R.A. No. 9285 did not confer on regional trial courts jurisdiction to review awards or decisions of the CIAC in construction
disputes. On the contrary, Section 40 thereof expressly declares that confirmation by the RTC is not required, thus:
SEC. 40. Confirmation of Award. – The confirmation of a domestic arbitral award shall be governed by Section 23 of R.A. 876.
A domestic arbitral award when confirmed shall be enforced in the same manner as final and executory decisions of the Regional Trial
Court.
The confirmation of a domestic award shall be made by the regional trial court in accordance with the Rules of Procedure to be
promulgated by the Supreme Court.
A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided under E.O. No. 1008. (Emphasis
supplied.)
Executive Order (EO) No. 1008 vests upon the CIAC original and exclusive jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in the Philippines, whether the dispute arises before or after the completion of
the contract, or after the abandonment or breach thereof. By express provision of Section 19 thereof, the arbitral award of the CIAC is final
and unappealable, except on questions of law, which are appealable to the Supreme Court. With the amendments introduced by R.A. No.
7902 and promulgation of the 1997 Rules of Civil Procedure, as amended, the CIAC was included in the enumeration of quasijudicial
agencies whose decisions or awards may be appealed to the CA in a petition for review under Rule 43. Such review of the CIAC award may
involve either questions of fact, of law, or of fact and law.23
Petitioner misread the provisions of A.M. No. 07-11-08-SC (Special ADR Rules) promulgated by this Court and which took effect on October
30, 2009. Since R.A. No. 9285 explicitly excluded CIAC awards from domestic arbitration awards that need to be confirmed to be executory,
said awards are therefore not covered by Rule 11 of the Special ADR Rules, 24 as they continue to be governed by EO No. 1008, as amended
and the rules of procedure of the CIAC. The CIAC Revised Rules of Procedure Governing Construction Arbitration 25 provide for the manner
and mode of appeal from CIAC decisions or awards in Section 18 thereof, which reads:
SECTION 18.2 Petition for review. – A petition for review from a final award may be taken by any of the parties within fifteen (15) days from
receipt thereof in accordance with the provisions of Rule 43 of the Rules of Court.
As to the alleged error committed by the CA in deciding the case upon an issue not raised or litigated before the CIAC, this assertion has no
basis. Whether or not Mabunay had incurred delay in the performance of his obligations under the Construction Agreement was the very
first issue stipulated in the Terms of Reference 26 (TOR), which is distinct from the issue of the extent of respondent’s liability under the
Performance Bond.
Indeed, resolution of the issue of delay was crucial upon which depends petitioner’s right to the liquidated damages pursuant to the
Construction Agreement. Contrary to the CIAC’s findings, the CA opined that delay should be reckoned only after the lapse of the one-year
contract period, and consequently Mabunay’s liability for liquidated damages arises only upon the happening of such condition.
We reverse the CA.
Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by reason of a cause imputable to the former. It is
the non-fulfillment of an obligation with respect to time.27
Article 1169 of the Civil Code provides:
ART. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation.
xxxx
It is a general rule that one who contracts to complete certain work within a certain time is liable for the damage for not completing it
within such time, unless the delay is excused or waived.28
The Construction Agreement provides in Article 10 thereof the following conditions as to completion time for the project
1. The CONTRACTOR shall complete the works called for under this Agreement within ONE (1) YEAR or 365 Days reckoned from
the 1st calendar day after signing of the Notice of Award and Notice to Proceed and receipt of down payment.
2. In this regard the CONTRACTOR shall submit a detailed work schedule for approval by OWNER within Seven (7) days after
signing of this Agreement and full payment of 20% of the agreed contract price. Said detailed work schedule shall follow the
general schedule of activities and shall serve as basis for the evaluation of the progress of work by CONTRACTOR. 29
In this jurisdiction, the following requisites must be present in order that the debtor may be in default: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially or
extrajudicially.30
In holding that Mabunay has not at all incurred delay, the CA pointed out that the obligation to perform or complete the project was not
yet demandable as of November 19, 2008 when petitioner terminated the contract, because the agreed completion date was still more
than one month away (December 24, 2008). Since the parties contemplated delay in the completion of the entire project, the CA concluded
that the failure of the contractor to catch up with schedule of work activities did not constitute delay giving rise to the contractor’s liability
for damages.
We cannot sustain the appellate court’s interpretation as it is inconsistent with the terms of the Construction Agreement. Article 1374 of
the Civil Code requires that the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense
which may result from all of them taken jointly. Here, the work schedule approved by petitioner was intended, not only to serve as its basis
for the payment of monthly progress billings, but also for evaluation of the progress of work by the contractor. Article 13.01 (g) (iii) of the
Construction Agreement provides that the contractor shall be deemed in default if, among others, it had delayed without justifiable cause
the completion of the project "by more than thirty (30) calendar days based on official work schedule duly approved by the OWNER."31
Records showed that as early as April 2008, or within four months after Mabunay commenced work activities, the project was already
behind schedule for reasons not attributable to petitioner. In the succeeding months, Mabunay was still unable to catch up with his
accomplishment even as petitioner constantly advised him of the delays, as can be gleaned from the following notices of delay sent by
petitioner’s engineer and construction manager, Engr. Sheila N. Botardo:
April 30, 2008
Seven Shades of Blue
Boracay Island
Malay, Aklan
Attention : Mr. Martin Mabunay
General Manager

Thru : Engr. Reynaldo Gapasin

Project : Villa Beatriz

Subject : Notice of Delay

Dear Mr. Mabunay:
This is to formalize our discussion with your Engineers during our meeting last April 23, 2008 regarding the delay in the implementation of
major activities based on your submitted construction schedule. Substantial delay was noted in concreting works that affects your roof
framing that should have been 40% completed as of this date. This delay will create major impact on your over-all schedule as the finishing
works will all be dependent on the enclosure of the building.
In this regard, we recommend that you prepare a catch-up schedule and expedite the delivery of critical materials on site. We would highly
appreciate if you could attend our next regular meeting so we could immediately address this matter. Thank you.
Very truly yours,
Engr. Sheila N. Botardo
Construction Manager – LMI/FEPI32
October 15, 2008
xxxx
Dear Mr. Mabunay,
We have noticed continuous absence of all the Engineers that you have assigned on-site to administer and supervise your contracted work.
For the past two (2) weeks, your company does not have a Technical Representative manning the jobsite considering the critical activities
that are in progress and the delays in schedule that you have already incurred. In this regard, we would highly recommend the immediate
replacement of your Project Engineer within the week.
We would highly appreciate your usual attention on this matter.
x x x x33
November 5, 2008
xxxx
Dear Mr. Mabunay,
This is in reference to your discussion during the meeting with Mr. Joohan Lee last October 30, 2008 regarding the construction of the Field
Office and Stock Room for Materials intended for Villa Beatriz use only. We understand that you have committed to complete it November
5, 2008 but as of this date there is no improvement or any ongoing construction activity on the said field office and stockroom.
We are expecting deliveries of Owner Supplied Materials very soon, therefore, this stockroom is badly needed. We will highly appreciate if
this matter will be given your immediate attention.
Thank you.
x x x x34
November 6, 2008
xxxx
Dear Mr. Mabunay,
We would like to call your attention regarding the decrease in your manpower assigned on site. We have observed that for the past three
(3) weeks instead of increasing your manpower to catch up with the delay it was reduced to only 8 workers today from an average of 35
workers in the previous months.
Please note that based on your submitted revised schedule you are already delayed by approximately 57% and this will worsen should you
not address this matter properly.
We are looking forward for [sic] your cooperation and continuous commitment in delivering this project as per contract agreement.
x x x x35
Subsequently, a joint inspection and evaluation was conducted with the assistance of the architects and engineers of petitioner and
Mabunay and it was found that as of November 14, 2008, the project was only 31.39% complete and that the uncompleted portion was
68.61% with an estimated value per Construction Agreement as ₱27,880,419.52. Instead of doubling his efforts as the scheduled
completion date approached, Mabunay did nothing to remedy the delays and even reduced the deployment of workers at the project site.
Neither did Mabunay, at anytime, ask for an extension to complete the project. Thus, on November 19, 2008, petitioner advised Mabunay
of its decision to terminate the contract on account of the tremendous delay the latter incurred. This was followed by the claim against the
Performance Bond upon the respondent on December 18, 2008.
Petitioner’s claim against the Performance Bond included the liquidated damages provided in the Construction Agreement, as follows:
ARTICLE 12 – LIQUIDATED DAMAGES:
12.01 Time is of the essence in this Agreement. Should the CONTRACTOR fail to complete the PROJECT within the period stipulated herein
or within the period of extension granted by the OWNER, plus One (1) Week grace period, without any justifiable reason, the CONTRACTOR
hereby agrees –
a. The CONTRACTOR shall pay the OWNER liquidated damages equivalent to One Tenth of One Percent (1/10 of 1%) of the
Contract Amount for each day of delay after any and all extensions and the One (1) week Grace Period until completed by the
CONTRACTOR.
b. The CONTRACTOR, even after paying for the liquidated damages due to unexecuted works and/or delays shall not relieve it of
the obligation to complete and finish the construction.
Any sum which maybe payable to the OWNER for such loss may be deducted from the amounts retained under Article 9 or retained by the
OWNER when the works called for under this Agreement have been finished and completed.
Liquidated Damage[s] payable to the OWNER shall be automatically deducted from the contractors collectibles without prior consent and
concurrence by the CONTRACTOR.
12.02 To give full force and effect to the foregoing, the CONTRACTOR hereby, without necessity of any further act and deed, authorizes the
OWNER to deduct any amount that may be due under Item (a) above, from any and all money or amounts due or which will become due to
the CONTRACTOR by virtue of this Agreement and/or to collect such amounts from the Performance Bond filed by the CONTRACTOR in this
Agreement.36 (Emphasis supplied.)
Liability for liquidated damages is governed by Articles 2226 to 2228 of the Civil Code, which provide:
ART. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof.
ART. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or
unconscionable.
ART. 2228. When the breach of the contract committed by the defendant is not the one contemplated by the parties in agreeing upon the
liquidated damages, the law shall determine the measure of damages, and not the stipulation.
A stipulation for liquidated damages is attached to an obligation in order to ensure performance and has a double function: (1) to provide
for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of
breach.37 The amount agreed upon answers for damages suffered by the owner due to delays in the completion of the project. 38 As a
precondition to such award, however, there must be proof of the fact of delay in the performance of the obligation. 39
Concededly, Article 12.01 of the Construction Agreement mentioned only the failure of the contractor to complete the project within the
stipulated period or the extension granted by the owner. However, this will not defeat petitioner’s claim for damages nor respondent’s
liability under the Performance Bond. Mabunay was clearly in default considering the dismal percentage of his accomplishment (32.38%) of
the work he contracted on account of delays in executing the scheduled work activities and repeated failure to provide sufficient
manpower to expedite construction works. The events of default and remedies of the Owner are set forth in Article 13, which reads:
ARTICLE 13 – DEFAULT OF CONTRACTOR:
13.01 Any of the following shall constitute an Event of Default on the part of the CONTRACTOR.
xxxx
g. In case the CONTRACTOR has done any of the following:
(i.) has abandoned the Project
(ii.) without reasonable cause, has failed to commence the construction or has suspended the progress of the Project for twenty-
eight days
(iii.) without justifiable cause, has delayed the completion of the Project by more than thirty (30) calendar days based on official
work schedule duly approved by the OWNER
(iv.) despite previous written warning by the OWNER, is not executing the construction works in accordance with the Agreement
or is persistently or flagrantly neglecting to carry out its obligations under the Agreement.
(v.) has, to the detriment of good workmanship or in defiance of the Owner’s instructions to the contrary, sublet any part of the
Agreement.
13.02 If the CONTRACTOR has committed any of the above reasons cited in Item 13.01, the OWNER may after giving fourteen (14) calendar
days notice in writing to the CONTRACTOR, enter upon the site and expel the CONTRACTOR therefrom without voiding this Agreement, or
releasing the CONTRACTOR from any of its obligations, and liabilities under this Agreement. Also without diminishing or affecting the rights
and powers conferred on the OWNER by this Agreement and the OWNER may himself complete the work or may employ any other
contractor to complete the work. If the OWNER shall enter and expel the CONTRACTOR under this clause, the OWNER shall be entitled to
confiscate the performance bond of the CONTRACTOR to compensate for all kinds of damages the OWNER may suffer. All expenses
incurred to finish the Project shall be charged to the CONTRACTOR and/or his bond. Further, the OWNER shall not be liable to pay the
CONTRACTOR until the cost of execution, damages for the delay in the completion, if any, and all; other expenses incurred by the OWNER
have been ascertained which amount shall be deducted from any money due to the CONTRACTOR on account of this Agreement. The
CONTRACTOR will not be compensated for any loss of profit, loss of goodwill, loss of use of any equipment or property, loss of business
opportunity, additional financing cost or overhead or opportunity losses related to the unaccomplished portions of the work. 40 (Emphasis
supplied.)
As already demonstrated, the contractor’s default in this case pertains to his failure to substantially perform the work on account of
tremendous delays in executing the scheduled work activities. Where a party to a building construction contract fails to comply with the
duty imposed by the terms of the contract, a breach results for which an action may be maintained to recover the damages sustained
thereby, and of course, a breach occurs where the contractor inexcusably fails to perform substantially in accordance with the terms of the
contract.41
The plain and unambiguous terms of the Construction Agreement authorize petitioner to confiscate the Performance Bond to answer for all
kinds of damages it may suffer as a result of the contractor’s failure to complete the building. Having elected to terminate the contract and
expel the contractor from the project site under Article 13 of the said Agreement, petitioner is clearly entitled to the proceeds of the bond
as indemnification for damages it sustained due to the breach committed by Mabunay. Such stipulation allowing the confiscation of the
contractor’s performance bond partakes of the nature of a penalty clause. A penalty clause, expressly recognized by law, is an accessory
undertaking to assume greater liability on the part of the obligor in case of breach of an obligation. It functions to strengthen the coercive
force of obligation and to provide, in effect, for what could be the liquidated damages resulting from such a breach. The obligor would then
be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the
breach. It is well-settled that so long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon the
obligor.42
Respondent, however, insists that it is not liable for the breach committed by Mabunay because by the terms of the surety bond it issued,
its liability is limited to the performance by said contractor to the extent equivalent to 20% of the down payment. It stresses that with the
32.38% completion of the project by Mabunay, its liability was extinguished because the value of such accomplishment already exceeded
the sum equivalent to 20% down payment (₱8.4 million).
The appellate court correctly rejected this theory of respondent when it ruled that the Performance Bond guaranteed the full and faithful
compliance of Mabunay’s obligations under the Construction Agreement, and that nowhere in law or jurisprudence does it state that the
obligation or undertaking by a surety may be apportioned.
The pertinent portions of the Performance Bond provide:
The conditions of this obligation are as follows:
Whereas the JPLUS ASIA, requires the principal SEVEN SHADES OF BLUE CONSTRUCTION AND DEVELOPMENT, INC. to post a bond of the
abovestated sum to guarantee 20% down payment for the construction of Building 25 (Villa Beatriz) 72-Room Condotel, The Lodgings inside
Fairways and Bluewater, Boracay Island, Malay, Aklan.
Whereas, said contract required said Principal to give a good and sufficient bond in the above-stated sum to secure the full and faithful
performance on his part of said contract.
It is a special provision of this undertaking that the liability of the surety under this bond shall in no case exceed the sum of ₱8,400,000.00
Philippine Currency.
Now, Therefore, if the Principal shall well and truly perform and fulfill all the undertakings, covenants, terms, conditions and agreements
stipulated in said contract, then this obligation shall be null and void; otherwise to remain in full force and effect. 43 (Emphasis supplied.)
While the above condition or specific guarantee is unclear, the rest of the recitals in the bond unequivocally declare that it secures the full
and faithful performance of Mabunay’s obligations under the Construction Agreement with petitioner. By its nature, a performance bond
guarantees that the contractor will perform the contract, and usually provides that if the contractor defaults and fails to complete the
contract, the surety can itself complete the contract or pay damages up to the limit of the bond. 44 Moreover, the rule is that if the language
of the bond is ambiguous or uncertain, it will be construed most strongly against a compensated surety and in favor of the obligees or
beneficiaries under the bond, in this case petitioner as the Project Owner, for whose benefit it was ostensibly executed. 45
The imposition of interest on the claims of petitioner is likewise in order. As we held in Commonwealth Insurance Corporation v. Court of
Appeals46
Petitioner argues that it should not be made to pay interest because its issuance of the surety bonds was made on the condition that its
liability shall in no case exceed the amount of the said bonds.
We are not persuaded. Petitioner’s argument is misplaced.
Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and Union Gurantee Co. and reiterated in Plaridel Surety & Insurance
Co., Inc. vs. P.L. Galang Machinery Co., Inc., and more recently, in Republic vs. Court of Appeals and R & B Surety and Insurance Company,
Inc., we have sustained the principle that if a surety upon demand fails to pay, he can be held liable for interest, even if in thus paying, its
liability becomes more than the principal obligation. The increased liability is not because of the contract but because of the default and the
necessity of judicial collection.
Petitioner’s liability under the suretyship contract is different from its liability under the law.1âwphi1 There is no question that as a surety,
petitioner should not be made to pay more than its assumed obligation under the surety bonds. However, it is clear from the above-cited
jurisprudence that petitioner’s liability for the payment of interest is not by reason of the suretyship agreement itself but because of the
delay in the payment of its obligation under the said agreement.47 (Emphasis supplied; citations omitted.)
WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated January 27, 2011 and Resolution dated December 8,
2011 of the Court of Appeals in CA-G.R. SP No. 112808 are hereby REVERSED and SET ASIDE.
The Award made in the Decision dated February 2, 2010 of the Construction Industry Arbitration Commission Is hereby REINSTATED with
the following MODIFICATIONS:
"Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby adjudges, orders and directs:
1) Respondent Utassco to pay to petitioner J Plus Asia Development Corporation the full amount of the Performance Bond,
₱8,400,000.00, pursuant to Art. 13 of the Construction Agreement dated December 24, 2007, with interest at the rate of 6% per
annum computed from the date of the filing of the complaint until the finality of this decision, and 12% per annum computed
from the date this decision becomes final until fully paid; and
2) Respondent Mabunay to indemnify respondent Utassco of the amounts respondent Utassco will have paid to claimant under
this decision, plus interest thereon at the rate of 12% per annum computed from the date he is notified of such payment made by
respondent Utassco to claimant until fully paid, and to pay Utassco ₱100,000.00 as attorney's fees.
SO ORDERED.
With the above modifications, the Writ of Execution dated November 24, 2010 issued by the CIAC Arbitral Tribunal in CIAC Case No. 03-
2009 is hereby REINSTATED and UPHELD.
No pronouncement as to costs.
SO ORDERED.