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.

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;

DE LEON, JR., J.:

b. One representative of the CONTRACTOR;

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.

c. One representative acceptable to both

OWNER and CONTRACTOR. 8

Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas spanning 1,484,354
square meters.

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 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 August 9, 1998, the trial court issued the herein assailed Order dismissing petitioners' Complaint
for non-compliance with the foregoing arbitration clause.

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.

Hence this petition.

Petitioners argue, thus:

On June 10, 1989, Salas, Jr. left his home in the morning for a business trip to Nueva Ecija. He
never returned.

The petitioners' causes of action did not emanate from the Owner-Contractor
Agreement.

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

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.

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).

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

Costs against private respondents.

SO ORDERED.

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.

G.R. No. 120105 March 27, 1998

submitted a copy of the conditions of the contract containing the arbitration clause that it failed to
append to its motion to suspend proceedings.

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.

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.

ROMERO, J.:

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.

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

In a rejoinder to SPI's reply, petitioner reiterated that there was no arbitration clause in the contract
between the parties. It averred that granting that such a clause indeed formed part of the contract,
suspension of the proceedings was no longer proper. It added that defendants should be declared in
default for failure to file their answer within the reglementary period.
In its sur-rejoinder, SPI pointed out the significance of petitioner's admission of the due execution of
the "Articles of Agreement." Thus, on page D/6 thereof, the signatures of Rufo B. Colayco, SPI
president, and Bayani Fernando, president of petitioner appear, while page D/7 shows that the
agreement is a public document duly notarized on November 15, 1991 by Notary Public Nilberto R.
Briones as document No. 345, page 70, book No. LXX, Series of 1991 of his notarial register. 5
Thereafter, upon a finding that an arbitration clause indeed exists, the lower court 6 denied the
motion to suspend proceedings, thus:
It appears from the said document that in the letter-agreement dated May 30, 1991
(Annex C, Complaint), plaintiff BF and defendant Shangri-La Properties, Inc.
agreed upon the terms and conditions of the Builders Work for the EDSA Plaza
Project (Phases I, II and Carpark), subject to the execution by the parties of a
formal trade contract. Defendants have submitted a copy of the alleged trade
contract, which is entitled "Contract Documents For Builder's Work Trade
Contractor" dated 01 May 1991, page 2 of which is entitled "Contents of Contract
Documents" with a list of the documents therein contained, and Section A thereof
consists of the abovementioned Letter-Agreement dated May 30, 1991. Section C
of the said Contract Documents is entitled "Articles of Agreement and Conditions of
Contract" which, per its Index, consists of Part A (Articles of Agreement) and B
(Conditions of Contract). The said Articles of Agreement appears to have been duly
signed by President Rufo B. Colayco of Shangri-La Properties, Inc. and President
Bayani F. Fernando of BF and their witnesses, and was thereafter acknowledged
before Notary Public Nilberto R. Briones of Makati, Metro Manila on November 15,
1991. The said Articles of Agreement also provides that the "Contract Documents"
therein listed "shall be deemed an integral part of this Agreement", and one of the
said documents is the "Conditions of Contract" which contains the Arbitration
Clause relied upon by the defendants in their Motion to Suspend Proceedings.

This Court notes, however, that the 'Conditions of Contract' referred to, contains the following
provisions:
3. Contract Document.
Three copies of the Contract Documents referred to in the Articles
of Agreement shall be signed by the parties to the contract and
distributed to the Owner and the Contractor for their safe
keeping." (emphasis supplied).
And it is significant to note further that the said "Conditions of Contract" is not duly
signed by the parties on any page thereof although it bears the initials of BF's
representatives (Bayani F. Fernando and Reynaldo M. de la Cruz) without the
initials thereon of any representative of Shangri-La Properties, Inc.
Considering the insistence of the plaintiff that the said Conditions of Contract was
not duly executed or signed by the parties, and the failure of the defendants to
submit any signed copy of the said document, this Court entertains serious doubt
whether or not the arbitration clause found in the said Conditions of Contract is
binding upon the parties to the Articles of Agreement." (Emphasis supplied.)
The lower court then ruled that, assuming that the arbitration clause was valid and binding, still, it
was "too late in the day for defendants to invoke arbitration." It quoted the following provision of the
arbitration clause:
Notice of the demand for arbitration of a dispute shall be filed in writing with the
other party to the contract and a copy filed with the Project Manager. The demand
for arbitration shall be made within a reasonable time after the dispute has arisen
and attempts to settle amicably have failed; in no case, however, shall the demand
he made be later than the time of final payment except as otherwise expressly
stipulated in the contract.
Against the above backdrop, the lower court found that per the May 30, 1991 agreement, the project
was to be completed by October 31, 1991. Thereafter, the contractor would pay P80,000 for each
day of delay counted from November 1, 1991 with "liquified (sic) damages up to a maximum of 5%
of the total contract price."
The lower court also found that after the project was completed in accordance with the agreement
that contained a provision on "progress payment billing," SPI "took possession and started
operations thereof by opening the same to the public in November, 1991." SPI, having failed to pay
for the works, petitioner billed SPI in the total amount of P110,883,101.52, contained in a demand
letter sent by it to SPI on February 17, 1993. Instead of paying the amount demanded, SPI set up its
own claim of P220,000,000.00 and scheduled a conference on that claim for July 12, 1993. The
conference took place but it proved futile.
Upon the above facts, the lower court concluded:

Considering the fact that under the supposed Arbitration Clause invoked by
defendants, it is required that "Notice of the demand for arbitration of a dispute
shall be filed in writing with the other party . . . . in no case . . . . later than the time
of final payment . . . "which apparently, had elapsed, not only because defendants
had taken possession of the finished works and the plaintiff's billings for the
payment thereof had remained pending since November, 1991 up to the filing of
this case on July 14, 1993, but also for the reason that defendants have failed to
file any written notice of any demand for arbitration during the said long period of
one year and eight months, this Court finds that it cannot stay the proceedings in
this case as required by Sec. 7 of Republic Act No. 876, because defendants are in
default in proceeding with such arbitration.
The lower court denied SPI's motion for reconsideration for lack of merit and directed it and the other
defendants to file their responsive pleading or answer within fifteen (15) days from notice.
Instead of filing an answer to the complaint, SPI filed a petition for certiorari under Rule 65 of the
Rules of Court before the Court of Appeals. Said appellate court granted the petition, annulled and
set aside the orders and stayed the proceedings in the lower court. In so ruling, the Court of Appeals
held:
The reasons given by the respondent Court in denying petitioners' motion to
suspend proceedings are untenable.
1. The notarized copy of the articles of agreement attached as Annex A to
petitioners' reply dated August 26, 1993, has been submitted by them to the
respondent Court (Annex G, petition). It bears the signature of petitioner Rufo B.
Colayco, president of petitioner Shangri-La Properties, Inc., and of Bayani
Fernando, president of respondent Corporation (Annex G-1, petition). At page D/4
of said articles of agreement it is expressly provided that the conditions of contract
are "deemed an integral part" thereof (page 188, rollo). And it is at pages D/42 to
D/44 of the conditions of contract that the provisions for arbitration are found
(Annexes G-3 to G-5, petition, pp. 227-229). Clause No. 35 on arbitration
specifically provides:
Provided always that in case any dispute or difference shall arise
between the Owner or the Project Manager on his behalf and the
Contractor, either during the progress or after the completion or
abandonment of the Works as to the construction of this Contract
or as to any matter or thing of whatsoever nature arising
thereunder or in connection therewith (including any matter or
being left by this Contract to the discretion of the Project Manager
or the withholding by the Project Manager of any certificate to
which the Contractor may claim to be entitled or the measurement
and valuation mentioned in clause 30 (5) (a) of these Conditions'
or the rights and liabilities of the parties under clauses 25, 26, 32
or 33 of these Conditions), the Owner and the Contractor hereby
agree to exert all efforts to settle their differences or dispute

amicably. Failing these efforts then such dispute or difference

shall be referred to Arbitration in accordance with the rules and
procedures of the Philippine Arbitration Law.
The fact that said conditions of contract containing the arbitration clause bear only
the initials of respondent Corporation's representatives, Bayani Fernando and
Reynaldo de la Cruz, without that of the representative of petitioner Shangri-La
Properties, Inc. does not militate against its effectivity. Said petitioner having
categorically admitted that the document, Annex A to its reply dated August 26,
1993 (Annex G, petition), is the agreement between the parties, the initial or
signature of said petitioner's representative to signify conformity to arbitration is no
longer necessary. The parties, therefore, should be allowed to submit their dispute
to arbitration in accordance with their agreement.
2. The respondent Court held that petitioners "are in default in proceeding with
such arbitration." It took note of "the fact that under the supposed Arbitration
Clause invoked by defendants, it is required that "Notice of the demand for
arbitration of a dispute shall be filed in writing with the other party . . . in no case . . .
later than the time of final payment," which apparently, had elapsed, not only
because defendants had taken possession of the finished works and the plaintiff's
billings for the payment thereof had remained pending since November, 1991 up to
the filing of this case on July 14, 1993, but also for the reason that defendants have
failed to file any written notice of any demand for arbitration during the said long
period of one year and eight months, . . . ."
Respondent Court has overlooked the fact that under the arbitration
clause
Notice of the demand for arbitration dispute shall be filed in writing
with the other party to the contract and a copy filed with the
Project Manager. The demand for arbitration shall be made within
a reasonable time after the dispute has arisen and attempts to
settle amicably had failed; in no case, however, shall the demand
be made later than the time of final payment except as otherwise
expressly stipulated in the contract (emphasis supplied)
quoted in its order (Annex A, petition). As the respondent Court there said, after the
final demand to pay the amount of P110,883,101.52, instead of paying, petitioners
set up its own claim against respondent Corporation in the amount of
P220,000,000.00 and set a conference thereon on July 12, 1993. Said conference
proved futile. The next day, July 14, 1993, respondent Corporation filed its
complaint against petitioners. On August 13, 1993, petitioners wrote to respondent
Corporation requesting arbitration. Under the circumstances, it cannot be said that
petitioners' resort to arbitration was made beyond reasonable time. Neither can
they be considered in default of their obligation to respondent Corporation.
Hence, this petition before this Court. Petitioner assigns the following errors:

A
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 Appeals 8 as follows:
. . . . Countless times in the past, this Court has held that "where appeal is the
proper remedy,certiorari will not lie." The writs of certiorari and prohibition are
remedies to correct lack or excess of jurisdiction or grave abuse of discretion
equivalent to lack of jurisdiction committed by a lower court. "Where the proper
remedy is appeal, the action for certiorari will not be entertained. . . . Certiorari is
not a remedy for errors of judgment. Errors of judgment are correctible by appeal,
errors of jurisdiction are reviewable by certiorari."
Rule 65 is very clear. The extraordinary remedies of certiorari, prohibition
and mandamus are available only when "there is no appeal or any plain, 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.
word may sometimes be construed to mean to give consent to or to attest. 12

11

That

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 17 made by the arbitrator.
It should be noted that in this jurisdiction, arbitration has been held valid and constitutional. Even
before the approval on June 19, 1953 of Republic Act No. 876, this Court has countenanced the
settlement of disputes through arbitration. 18 Republic Act No. 876 was adopted to supplement the
New Civil Code's provisions on arbitration. 19 Its potentials as one of the alternative dispute
resolution methods that are now rightfully vaunted as "the wave of the future" in international
relations, is recognized worldwide. To brush aside a contractual 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 certiorariDENIED. This Decision is immediately executory. Costs against petitioner.
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.
DECISION
BELLOSILLO, J.:
This Petition for Review on certiorari assails the 17 July 1998 Decision[1] 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
courts Resolution[3] of 30 October 1998 which denied petitioners Motion for Reconsideration.
On 1 July 1994, in a Distributorship Agreement, petitioner Del Monte Corporation-USA (DMCUSA) 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 ARBITRATION[4]
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 MMIs 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 MMIs Managing Director Liong Liong C.
Sy (LILY SY) filed a Complaint[5] against petitioners DMC-USA, Paul E. Derby, Jr., [6] Daniel
Collins[7] and Luis Hidalgo,[8] and Dewey Ltd.[9] before the Regional Trial Court of Malabon, Metro
Manila. Private respondents predicated their complaint on the alleged violations by petitioners of
Arts. 20,[10] 21[11] and 23[12] 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, attorneys fees and litigation expenses.
On 21 October 1996 petitioners filed a Motion to Suspend Proceedings[13] invoking the
arbitration clause in their Agreement with private respondents.
In a Resolution[14] 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 private 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 Manifestation adopting their Motion to Suspend Proceedings of 17 October 1996 and Motion for
Reconsiderationof 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 [16] and 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.

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]

The crux of the controversy boils down to whether the dispute between the parties warrants an
order compelling them to submit to arbitration.

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.

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 876[18] 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[20] petitioner 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 here 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

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 for [25] 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, in
accordance 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 petitionersMotion 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. 115412. November 19, 1999]

HOME BANKERS SAVINGS AND TRUST COMPANY, petitioner v. COURT OF APPEALS and
FAR EAST BANK & TRUST COMPANY, Respondents.
[G.R. No. 115412. November 19, 1999]
HOME BANKERS SAVINGS AND TRUST COMPANY, petitioner v. COURT OF APPEALS and
FAR EAST BANK & TRUST COMPANY, Respondents.
DECISION
BUENA , J.:
This appeal by certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the
decision[1 of the Court of Appeals[2 dated January 21, 1994 in CA-G.R. SP No. 29725, dismissing
the petition for certiorari filed by petitioner to annul the two (2) orders issued by the Regional Trial
Court of Makati[3 in Civil Case No. 92-145, the first, dated April 30, 1992, denying petitioner's motion
to dismiss and the second, dated October 1, 1992 denying petitioner's motion for reconsideration
thereof.
The pertinent facts may be briefly stated as follows: Victor Tancuan, one of the defendants in Civil
Case No. 92-145, 0issued 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 andP8,100,000.00,
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 proceedings 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. Slolt-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
pendencia 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 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.
It would really be much easier for Us to rule to dismiss the complainant as the petitioners 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."[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,"[34and "there is even no need for the attachment as far as
HBSTC is concerned because such automatic debit/credit procedure[35 may be regarded as a
security for the transactions involved and, as jurisprudence confirms, one requirement in the
issuance of an attachment [writ of preliminary attachment] is that the debtor has no sufficient
security."[36 Petitioner asserts further that a writ of preliminary attachment is unwarranted because
no ground exists for its issuance. According to petitioner, "the only allegations against it [HBSTC] are
that it refused to refund the amounts of the checks of FEBTC and that it knew about the fraud
perpetrated by the other defendants,"[37 which, at best, constitute only "incidental fraud" and not
causal fraud which justifies the issuance of the writ of preliminary attachment.
Private respondent FEBTC, on the other hand, contends that "the cause of action for collection [of a
sum of money] can coexist in the civil suit and the arbitration [proceeding]"[38 citing section 7 of the
Arbitration Law which provides for the stay of the civil action until an arbitration has been had in
accordance with the terms of the agreement providing for arbitration. Private respondent further
asserts that following section 4(3), article VIII[39of 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 Bengsonvs. Chan,[41 hence, private
respondents 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
PROCEEDINGS."[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:
Section 14. Subpoena and subpoena duces tecum. - Arbitrators shall have the power to require any
person to attend a hearing as a witness. They shall have the power to subpoena witnesses and
documents when the relevancy of the testimony and the materiality thereof has been demonstrated
to the arbitrators. Arbitrators may also require the retirement of any witness during the testimony of
any other witness. All of the arbitrators appointed in any controversy must attend all the hearings in
that matter and hear all the allegations and proofs of the parties; but an award by the majority of
them is valid unless the concurrence of all of them is expressly required in the submission or
contract to arbitrate. The arbitrator or arbitrators shall have the power at any time, before rendering
the award, without prejudice to the rights of any party to petition the court to take measures to
safeguard and/or conserve any matter which is the subject of the dispute in arbitration. (emphasis
supplied)
Petitioner's exposition of the foregoing provision deserves scant consideration. Section 14 simply
grants an arbitrator the power to issue subpoena and subpoena duces tecum at any time before
rendering the award. The exercise of such power is without prejudice to the right of a party to file a
petition in court to safeguard any matter which is the subject of the dispute in arbitration. In the case
at bar, private respondent filed an action for a sum of money with prayer for a writ of preliminary
attachment. Undoubtedly, such action involved the same subject matter as that in arbitration, i.e., the
sum of P25,200,000.00 which was allegedly deprived from private respondent in what is known in
banking as a "kiting scheme." However, the civil action was not a simple case of a money claim
since private respondent has included a prayer for a writ of preliminary attachment, which is
sanctioned by section 14 of the Arbitration Law.
Petitioner cites the cases of Associated Bank 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.
InAssociated Bank, we declared that:
"xxx xxx. 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.[50The 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.

HI-PRECISION STEEL CENTER, INC., petitioner,

vs.
LIM KIM STEEL BUILDERS, INC., and CONSTRUCTION INDUSTRY ARBITRATION
COMMISSION,respondents.
Felix Q. Vinluan and Siguion Reyna, Montecillo & Ongsiako for petitioner.
De Castro & Cagampang Law Offices for Lim Kim teel Builders, Inc.
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 nonexistent; 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

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. . . .;

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.

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 . . .;

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:

(3)

(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 . . .;

(1)

(6)

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 . . .;

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.

(2)

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 15day 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
assumingarguendo 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

a. Amount not yet deducted

from Downpayment due
to non-completion of Project
(P24.1326%) 2,027,138.40

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

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

P38,231,927.32 30
=============
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.

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]

LM

POWER
ENGINEERING CORPORATION, petitioner,
vs. CAPITOL INDUSTRIAL CONSTRUCTION GROUPS,
INC., respondent.
DECISION

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

[7]

Upon completing its task under the Contract, petitioner billed

respondent in the amount of P6,711,813.90. Contesting the accuracy
of the amount of advances and billable accomplishments listed by the
former, the latter refused to pay. Respondent also took refuge in the
termination clause of the Agreement. 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.
[9]

Because of the dispute, petitioner filed with the Regional Trial

Court (RTC) of Makati (Branch 141) a Complaint 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, alleging that the Complaint was premature,
because there was no prior recourse to arbitration.
[10]

[11]

Before us is a Petition for Review on Certiorari under Rule 45 of

the Rules of Court, seeking to set aside the January 28, 2000 Decision
of the Court of Appeals (CA) in CA-GR CV No. 54232. The
dispositive portion of the Decision reads as follows:
[2]

[3]

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.
The Facts

[6]

[8]

PANGANIBAN, J.:

[4]

On April 25, 1985, respondent took over some of the work

contracted to petitioner. Allegedly, the latter had failed to finish it
because of its inability to procure materials.

In its Order 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.
[12]

[13]

After trial on the merits, the RTC 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.
[14]

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 respondents 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
Courts consideration:
A

Whether or not there exist[s] a controversy/dispute between petitioner and

respondent regarding the interpretation and implementation of the SubContract 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]

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 petitioners 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]

The Courts Ruling

The Petition is unmeritorious.

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 takeover was caused by petitioners 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
x

xx
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 petitioners 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
x

xx
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 [respondents] 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].

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, arbitration -- along with mediation, conciliation and
negotiation -- is encouraged by the Supreme Court. Aside from
unclogging judicial dockets, arbitration also hastens the resolution of
disputes, especially of the commercial kind. It is thus regarded as the
wave of the future in international civil and commercial disputes.
Brushing aside a contractual agreement calling for arbitration
between the parties would be a step backward.
[24]

[25]

xxx
x

xx
xxx

[26]

[27]

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
x

xx
xxx

N. OTHER CONDITIONS

Consistent with the above-mentioned policy of encouraging

alternative dispute resolution methods, courts should liberally construe
arbitration clauses. Provided such clause is susceptible of an
interpretation that covers the asserted dispute, an order to arbitrate
should be granted. Any doubt should be resolved in favor of
arbitration.
[28]

[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. We are not persuaded.
[30]

xxx
x

xx
xxx

2. All customs duties, import duties, contractors taxes, income

taxes, and other taxes that may be required by any government

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. (an extended unsigned Resolution) and reiterated
in National Irrigation Administration v. Court of Appeals, from which
we quote thus:
[32]

[33]

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. And because it covers the dispute between the
parties in the present case, either of them may compel the other to
arbitrate.
[35]

[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

Decision AFFIRMED. Costs against petitioner.

the

assailed

26 April 1999, the trial court issued a writ of attachment. On 4 June

1999 the writ was returned partially satisfied since only a parcel of land
purportedly owned by defendant Benito Sy was attached. 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 partydefendant as his whereabouts could not be located. On 21
September 1999 petitioner moved for an alias writ of attachment which
on 18 January 2000 the court a quo denied.
[2]

[3]

[4]

[5]

Petitioner did not cause the case to be set for pre-trial. 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. 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. Only respondent Nelson
Tiu affixed his signature on the letter to signify his agreement to the
terms and conditions of the restructuring.
[6]

RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs.

MAGWIN MARKETING CORPORATION, NELSON TIU,
BENITO SY and ANDERSON UY, respondents.
DECISION

[7]

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. On
[1]

[8]

[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 x x x. On 31 July 2000 petitioner moved
for reconsideration of the Order by informing the trial court of
respondentsunremitting desire to settle the case amicably through a
loan restructuring program. 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.
[10]

[11]

[12]

On
8
September
2000
the
court a
quo issued
an Order reconsidering the dismissal without prejudice of Civil Case
No. 99-518

The trial court, in an undated Order (although a date was later

inserted in the Order), denied petitioners motion to calendar Civil
Case No. 99-518 for pre-trial stating that -

Acting on plaintiffs 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.

Acting on plaintiffs [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 Uys
Opposition, and plaintiffs Reply; for failure of the plaintiff to submit a
compromise agreement pursuant to the Order dated 8 September 2000
plaintiffs motion to set case for pre-trial conference is hereby denied.

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. This motion was followed on 5 October 2000 by
petitionersSupplemental 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 x x
x. Respondent Anderson Uy opposed the foregoing submissions of
petitioner while respondents Magwin Marketing Corporation, Nelson
Tiu and Benito Sy neither contested nor supported them.
[14]

[15]

[16]

[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 petitioners 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 x x x.
[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. 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.
[19]

[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 court holding that [21]

x x x 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 petitioners complaint x x x
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 petitioners
manifestation and motion to set case for pre-trial conference and
supplemental motion x x x [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 Courts ruling in Goldloop
Properties, Inc. v. Court of Appeals where it was held that the trial
court cannot dismiss a complaint for failure of the parties to submit a
compromise agreement.
[23]

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
petitioners attack is limited to the Order dated 8 September 2000 as to
whether it is conditional as the Court of Appeals so found and the
applicability to this case of the ruling in Goldloop Properties, Inc. v.

Court of Appeals. Respondent Uy claims that the Order reconsidering

the dismissal of Civil Case No. 99-518 without prejudice is on its face
contingent upon the submission of the compromise agreement which
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 petitioners 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,
petitioners 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. 99518. 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 refiled complaint is automatically assigned to the branch to which the
original case pertained. A complaint that is re-filed leads to the reenactment 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, which in the
context of the instant case is a waste of judicial time, capital and
energy.
[25]

[26]

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 petitioners plea before this Court and the courts a quo to
advance to pre-trial conference? Indeed, to continue hereafter with
the resolution of petitioners complaint without the usual procedure for
the re-filing thereof, we will save the court a quo invaluable 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 plaintiffs 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 Uys 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 Appeals 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.
[28]

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. 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 assailedOrders, 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.
[29]

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 Order when the trial court denied the
holding of a pre-trial conference? Or must it be upon petitioners
receipt of the 16 November 2000 Orderdenying 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 petitioners 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 petitioners 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 x x x. 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.
[30]

[31]

Besides the semantic and consequential improbabilities of

respondent Uys 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 x x x
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. Hence, if only to inspire confidence in the
pursuit of a middle ground between petitioner and respondents, we
[34]

must not interpret the trial courts 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 Uys 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
courts order therein. All told, the parallelism between them is
unmistakable.
Even if we are to accept on face value respondents 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 courts refusal to call the parties to a pretrial 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
petitioners 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 Uys
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 plaintiffs 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 pretrial; (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 latters 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 petitioners 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.
Stress must also be laid upon the official directive that courts must
endeavor to convince parties in a civil case to consummate a fair
settlement, and to mitigate damages to be paid by the losing party
who has shown a sincere desire for such give-and-take. All things
considered, we see no compelling circumstances to uphold the
dismissal of petitioners complaint regardless of its characterization as
being without prejudice.
[35]

[36]

[37]

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 partys 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. 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
[38]

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 petitioners 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.

Bautista, Area Manager of RKDCCI; Mr. Avelino M. Mercado, CHATHAMs 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 xxx contract for the
construction of the Chatham House xxx for the contract 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 downpayment.

METRO
CONSTRUCTION,
INC., petitioner, vs. CHATHAM
PROPERTIES, INC., respondent.
DECISION
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.
The hearings immediately started with the presentation of MCIs 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. CHATHAMs 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
[1]

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 1.04 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 xxx RKDCCI and
approved by one of CHATHAMs 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 MCIs 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. CHATHAMs payments to MCI totaled P104,875,792.37, representing payments
for portions of MCIs progress billings and xxx 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
MCIs progress billing reasonable?
7. Is MCIs 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 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 attorneys 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, the CIAC made the
following findings and conclusions:
[4]

It was established during the hearing that the contract was awarded to MCI
through negotiation as no bidding was conducted. xxx 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 MCIs 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 CHATHAMs 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

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 xxx 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.

project without his knowledge and consent as proof that CHATHAM had
taken full control of the project.

CHATHAM claims that the interim take-over was necessitated by MCIs

delay in the progress of its work, due allegedly to MCIs lack of manpower
and equipment. During the hearings of this case, this claim of MCIs 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. CHATHAMs 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 UnOcampo) as the reason.

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.

On the other hand, Dr. Lai contends that, as explained in his letter to
CHATHAM dated 17 February 1995, (Exh. 4-A) MCIs 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 CHATHAMs purchases of
materials, fielding labor force and sub-contracting works allegedly for the

Mr. Mercado even added that while MCI is not actually entitled to this
amount, it was out of friendship that CHATHAM offered this sum to MCI
as final settlement under the contract.

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:

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.

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 (CHATHAMs) 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 MCIs 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) MCIs shortcomings, and MCIs agreement to stay on
the project under conditions set by CHATHAM, is believed a matter of mutual
benefit to both parties.
3. That CHATHAMs 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 CHATHAMs
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)
b. Cash Advance for Mobilization
c. Payments of Progress Billings up to Billing No. 19
d. Other Payments (Mar 1994 to Apr 1996)

P20,000,000.00
800,000.00
71,081,183.44
5,474,419.67

e. Advances on MCI Payrolls (April 1996 to March 1997) 8,196,755.51

Total

P104,752,358.42

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 MCIs 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 MCIs 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 23 May 1996, CHATHAMs 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% P117,655,000.00

MCI presented further documentary evidence (Exhibit E-6) the subject of

which is 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 projects completion stage, not
necessarily MCIs work accomplishment. This Tribunal therefore stands firm
on its conclusion that MCIs accomplishment is only up to the extent of
94.10%.
[5]

Add approved change orders

Total
Less payments up to 23 May 1996
Balance due MCI as of 23 May 1996

5,353,091.08
P123,008,091.08
99,002,358.42
P24,005,732.66

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 CHATHAMs suspension of further payments to MCI was because it had
been undertaking on its own, the further procurement of materials and subcontracting of various phases of works on the project.
In consideration of the above facts, this Tribunals 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 MCIs accomplishment at
94.10% but nevertheless suspended all further progress payments to MCI.

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 RKDCCIs claim that MCI was in
delay in the concreting milestone and that [it] is liable for liquidated damages
therefor. This, notwithstanding MCIs invoking that Chatham is estopped
from claiming liquidated damages after it failed to deduct the alleged
liquidated damages from MCIs 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 CHATHAMs 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.

A.4 CHB Works

A.5 Workers Bonus
A.6 Disputed
Deductions
A.7 Labor
Escalation
A.8 Attendance
Fee

1/4x1/3[(1/10xP125,000,000.00)1%]x294=P3,062,498.78.

9.68

909,484.70

Total

508,162.73
P128,394,20

Less: Total payments-Item II-6 of

TOR
104,875,792.37

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 CHATHAMs 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.

-0-

1,076,256.00

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:
[6]

1,248,654.71

Balance Due
MCI
B. AMOUNTS HELD CPI IS ENTITLED TO:
B.1. Liquidated Damages
B.2. Actual Damages

AMOUNTS HELD MCI IS ENTITLED TO:

B.3. Penalties

A.1. From the original contract: 94.12%

of P125,000,000.00 P117,650,000.00

B.4 Cash Payments in Behalf of MCI

A.2 Approved Change Orders

5,353,091.08

A.3 Pending Change Orders

1,648,560.46

P 23,518,417.31

Total Amount Due CPI

C. NET AMOUNT DUE MCI (A minus B)

P 3,062,498.78
335,994.50
1,778,285.44
2,214,715.68
P 7,391,494.40
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 Tribunals 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 MCIs 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 CHATHAMs 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, the Court of Appeals simplified the assigned
errors into one core issue, namely, the propriety of the CIACs 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 CIACs
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 CIACs disquisition of Issue No. 9 on the matter of
liquidated damages.
[9]

The Court of Appeals disagreed with the CIACs 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 CHATHAMs 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 assessment and that the
[11]

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.

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.

[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 MCIs 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 latters 15 February 1995 letter stating that
[A]lso 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

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. MCIs acceptance of the incentive offer
likewise shows that MCI was in control of the Project.
Exhibits 3, 3-I, 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. Respondents 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, 51, 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
CHATHAMs insistence to meet its own turnover dates with the buyers of the projects
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 [MCIs] lack of manpower, necessary equipment, qualified
engineers and inefficient management of the 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 3P, 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 [CHATHAMs] claim for liquidated damages. The Tribunals
Decision dated 19 October 1998 is hereby AFFIRMED with the modification
on [MCIs] liability for liquidated damages in the amount of
P24,125,000.00. Thus,

A. AMOUNTS [MCI] IS ENTITLED TO:

B.3.
Penalties

A.1. From the original contract: 94.12% of

P125,000,000.00 P117,650,000.00
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

1,778,285.44

B.4 Cash Payments in Behalf of

MCI
Total Amount Due
CPI

2,214,715.68
P 28,453,995.62

C. NET AMOUNT DUE [CHATHAM] (B minus

A)
P 4,935,578.31
Correspondingly, Respondent [MCI] is hereby directed to pay the Petitioner
[CHATHAM] the net sum of FOUR MILLION NINE HUNDRED THIRTYFIVE 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 MCIs motion for
reconsideration for lack of merit, as well as CHATHAMs Motion to Lift Garnishment
and Levy Pending Appeal, filed on 13 October 1999, for being premature.
[17]

TOR

Less: Total payments-Item ll-6 of

104,875,792.37

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 CIACs 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, which limits the review of an Arbitral Award to only questions of law, thus:

Balance Due
Respondent

P 23,518,417.31

[18]

B. AMOUNTS [CHATHAM] IS ENTITLED TO:

B.1. Liquidated
Damages
B.2. Actual
Damages

P 24,125,000.00
335,994.50

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 CIACs
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 CIACs findings of facts are
reviewable on appeal, the Court of Appeals gravely abused its discretion when it
accepted hook, line and sinker CHATHAMs 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 CIACs ascertainment on the implied take-over and
liquidated damages.
This Court shall now resolve the primary issue raised in this case.
E.O. 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.
[19]

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 CIAC 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 R.A. 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.

including the power to grant and conduct new trials or further proceedings. x
xx
Then this Court issued Administrative Circular No. 1-95, which revised Circular
No. 1-91. Relevant portions of the former reads as follows:
[21]

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 quasijudicial 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, R.A. 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

(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,

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. Where 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 quasijudicial 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. 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. The CIACs primary function is that of a quasi-judicial
[22]

[23]

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 quasijudicial agencies. The introductory words [a]mong 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
R.A. 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 Employees sheds light on the matter, thus:
[24]

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 R.A. 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--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 MCIs submission that Circular No. 1-91,
B.P. Blg. 129, as amended by R.A. 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 MCIs 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. This power is constitutionally enshrined to enhance the independence
of the Supreme Court.
[25]

[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. 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.
[27]

[28]

The foregoing discussion renders academic MCIs 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, as in this case. Hence, we have to take a closer
reexamination of this case.
[30]

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 cutoff date for delineating the fiscal liabilities of the parties is 23 May 1996 when
CHATHAM evaluated MCIs 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 CIACs assessment, MCIs
responsibility was anchored on its delay in the concreting milestone, while the Court of
Appeals evaluation concentrated on MCIs 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
disquisitions 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 CIACs conclusions, MCIs
responsibility for liquidated damages is, as already stated, P3,062,498.78. Setting this
off against CHATHAMs overall fiscal accountability would bring the latters 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
CHATHAMs 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 CIACs conclusion. The testimonies of Engr. Kapunan, Engr. Bautista, Dr. Lai, and
the letter of Engr. Ruiz, 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. Lais 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 and charging the costs to MCI. With
these glaring admissions, we can even consider that the takeover was not implied but
blatant.
[31]

Exhibits 4, 4-A, 4-C, 8A, 8, 4-D, 3, 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, E9, etc., relied upon by the Court of Appeals when considered by themselves and
singly, seemingly and initially evince MCIs 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.
[32]

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.

WHEREFORE, judgment is hereby rendered DENYING the petitions and,

accordingly, AFFIRMING in toto the CIACs decision. Costs against
petitioner.[2]
The assailed Resolution ruled in this wise:

PHILROCK, INC., petitioner, vs. CONSTRUCTION INDUSTRY

ARBITRATION COMMISSION and Spouses VICENTE and
NELIA CID,respondents.
DECISION

Considering that the matters raised and discussed in the motion for
reconsideration filed by appellants 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

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, attorneys 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:

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.

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

Ruling of the Court of Appeals

The CA upheld the jurisdiction of the CIAC [5] 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 CIACs
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.

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 Courts 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 RTCs final resolution of the dispute by arguing that the regular
court also lost jurisdiction after the arbitral tribunals 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 petitioners 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.
Petitioners 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 Philrocks 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 tribunals
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.

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, Attorneys 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 familys 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.

Awards for Retrofitting Costs, Wasted Unworkable But Delivered Concrete,

and Arbitration Fees

Petitioner also contends that nominal damages should not have been
granted, because it did not breach its obligation to respondent spouses.

Petitioner maintains that the defects in the concrete structure were due to
respondent spouses failure to secure the services of an engineer or architect

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 attorneys fees, arguing that respondent
spouses did not engage the services of legal counsel. Also, it contends that
attorneys fees and litigation expenses are awarded only if the opposing party
acted in gross and evident bad faith in refusing to satisfy plaintiffs valid, just
and demandable claim.
We disagree. The award is not only for attorneys 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.
WHEREFORE,
the
Petition
is DENIED and
the
Decision AFFIRMED; however, the award of nominal
is DELETED for lack of legal basis. Costs against petitioner.

assailed
damages

(owner, operator or charterer of containership on which the cargo is

carried).

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 CAG.R. SP No. 35777, 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.
[1]

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" (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
[2]

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.
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.
[3]

Respondent AMML filed its Answer 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 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.
[4]

[5]

On January 1, 1993, petitioner filed a Motion to Dismiss the Third

Party Complaint 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
[6]

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 with the Court of
Appeals on November 23, 1994. Meanwhile, petitioner also filed its
Answer to the Third Party Complaint in the trial court.
[7]

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, 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.
[9]

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.
xxx
32.

xxx

xxx
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. Arbitration being the mode of
settlement between the parties expressly provided for by their
Agreement, the Third Party Complaint should have been dismissed.
[11]

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-9212593. No pronouncement as to costs.

respondent Zosa was elected to a new position as MCHC's ViceChairman/Chairman for New Ventures Development. [6]

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.
DECISION
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 MCHCs 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 confidence [4]arising from alleged
violation of the resolution issued by MCHC's board of directors and of the
non-competition clause of the Employment Agreement. [5] Nevertheless,

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 nonacceptance 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 panel [9] while MCHC
designated Atty. Inigo S. Fojas [10] and MCMC nominated Atty. Enrique I.
Quiason[11] as 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 Cebu [12] 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. [15] Petitioners 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 Cautelamwith 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 Courts
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 motion 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 courts decision, petitioners filed this petition for
review on certiorari, under Rule 45 of the Rules of Court, assigning the
following errors for the Courts 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 Zosas allegation, the issue of the trial courts
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 Zosas allegation, petitioners MCMC and MCHC
are not guilty of forum shopping.

V. Contrary to respondent Zosas 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 Zosas amended
complaint focuses heavily on the illegality of the Employment
Agreements 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 courts 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 CAs decision in CAG.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 petitioners
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 courts 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 Corporation shall 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].
x x x

xxx

x x x[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
CreditCooperatives, 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.

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 FORTYEIGHT THOUSAND (P448,000.00) pesos x x x.

EODORO 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-V97, 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 FORTYEIGHT THOUSAND (P448,000.00) pesos x x x to the LESSOR on April 23,

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 hindiP150,000.00.
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 thePunong 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 RevisedKatarungang 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 CAG.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.