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G.R. No.

121227 August 17, 1998


VICENTE
SAN
JOSE,
petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and
OCEAN TERMINAL SERVICES, INC., respondent.
Before the Court is a Petition for Certiorari seeking to
annul a Decision of the National Labor Relations
Commission dated April 20, 1995 in NLRC-NCR-CA-No.
00671-94 which reversed, on jurisdictional ground, a
Decision of the Labor Arbiter dated January 19, 1994 in
NLRC-NCR Case No. 00-03-02101-93 a case for a money
claim underpayment of retirement benefit. Records do
not show that petitioner presented a Motion for
Reconsideration of subject Decision of the National Labor
Relations Commission, which motion is, generally
required before the filing of Petition for Certiorari.
While the rule prescribing the requisite motion for
reconsideration is not absolute and recognizes some
exceptions, there is no showing that the case at bar
constitutes an exception. Nevertheless, we gave due
course to the petition to enable the Court to reiterate and
clarify the jurisdictional boundaries between Labor
Arbiters and Voluntary Arbitrator or Panel of Voluntary
Arbitrators over money claims, and to render substantial
and speedy justice to subject aged stevedore retiree who
first presented his claim for retirement benefit in April
1991, or seven years ago.
Labor law practitioners and all lawyers, for that matter,
should be fully conversant with the requirements for the
institution of certiorari proceedings under Rule 65 of the
Revised Rules of Court. For instance, it is necessary that a
Motion for Reconsideration of the Decision of the National
Labor Relations Commission must first be resorted to. The
ruling in Corazon Jamer v. National Labor Relations
Commission, G.R. No. 112630, September 5, 1997, comes
to the fore and should be well understood and observed.
An ordinary allegation ". . . and there is no appeal, nor
any plain, speedy, and adequate remedy in the ordinary
course of law" (Rule 65, Sec. 1, Revised Rules of Court) is
not
a
foolproof
substitute
for
a
Motion
for
Reconsideration, absence of which can be fatal to a
Petition for Certiorari. Petitioner cannot and should not
rely on the liberality of the Court simply because he is a
working man.
In the Jamer case, this court said:
. . . This premature action of petitioners
constitutes a fatal infirmity as ruled in a
long line of decisions, most recently is the
case of Building Care Corporation v.
National Labor Relations Commission
The filing of such motion
is intended to afford
public
respondent
an
opportunity to correct any
actual or fancied error
attributed to it by way of
a re-examination of the
legal and factual aspects
of the case. Petitioner's
inaction or negligence
under the circumstances

is
tantamount
to
a
deprivation of the right
and opportunity of the
respondent
commission
to cleanse itself of an
error
unwittingly
committed or to vindicate
itself of an act unfairly
imputed. . . .
Likewise, a motion for reconsideration is
an adequate remedy; hence certiorari
proceedings, as in this case, will not
prosper.
As stated in the Decision of the Labor Arbiter in NLRCNCR-Case No. 00-03-0201-93, dated January 19, 1994,
the facts of this case are undisputed. The Labor Arbiter
reported, thus:
Complainant, in his position paper
(Record, pages 11 to 14) states that he
was hired sometime in July 1980 as a
stevedore continuously until he was
advised in April 1991 to retire from
service considering that he already
reached 65 years old (sic); that
accordingly, he did apply for retirement
and was paid P3,156.39 for retirement
pay . . . (Rollo, pp. 15, 26-27, 58-59).
Decision of the Labor
Arbiter
in
NLRC-NCRCase No. 00-03-0210193, January 9, 1994
(Rollo, pp. 15017, at pp.
16-17).
The Labor Arbiter decided the case solely on the merits of
the complaint. Nowhere in the Decision is made mention
of or reference to the issue of jurisdiction of the Labor
Arbiter (Rollo, pp. 15-17). But the issue of jurisdiction is
the bedrock of the Petition because, as earlier intimated,
the Decision of the National Labor Relations Commission,
hereinbelow quoted, reversed the Labor Arbiter's
Decision on the issue of jurisdiction. Reads subject
Decision of the Labor Arbiter:
Respondents,
in
their
Reply
to
complainant's position paper, allege
(Record,
pages
18
to
21)
that
complainant's latest basic salary was
P120.34 per day; that he only worked on
rotation basis and not seven days a week
due to numerous stevedores who can not
all be given assignments at the same
time; that all stevedores only for paid
every time they were assigned or actually
performed
stevedoring;
that
the
computation used in arriving at the
amount of P3,156.30 was the same
computation applied to the other
stevedores; that the use of divisor 303 is
not applicable because complainant
performed stevedoring job only on call, so
while he was connected with the
company for the past 11 years, he did not
actually render 11 years of service; that

the burden of proving that complainant's


latest salary was P200.00 rests upon him;
that he already voluntarily signed a
waiver of quitclaim; that if indeed
respondent took advantage of his
illiteracy into signing his quitclaim, he
would have immediately filed this
complaint but nay, for it took him two (2)
years to do so.

The National Labor Relations Commission reversed on


jurisdictional ground the aforesaid Decision of the Labor
Arbiter; ruling, as follows:

The issue therefore is whether or not


complainant is entitled to the claimed
differential of separation pay.

. . . ANY UNION member shall be


compulsory retired (sic) by the company
upon reaching the age of sixty (60) years,
unless otherwise extended by the
company for justifiable reason. He shall
be paid his retirement pay equivalent to
one-half (1/2) month salary for every year
of service, a fraction of at least six
months being considered as one (1)
whole year.

We find for the complainant.


entitled to differential.

He

is

We cannot sustain a computation of


length of service based on the ECC
contribution
records.
Likewise,
the
allegation that complainant rendered
service for only five days a month for the
past 11 years is statistically improbable,
aside from the fact that the best evidence
thereof are complainant's daily time
records which respondent are (sic) duty
bound to keep and make available
anytime in case of this.
The late filing has no bearing. The
prescription period is three years. It is
suffice (sic) that the filing falls within the
period.
Whether or not complainant worked on
rotation basis is a burden which lies upon
the employer. The presumption is that the
normal working period is eight (8) hours a
day and six (6) days a week, or 26 days a
month, unless proven otherwise.
Also, the burden of proving the amount of
salaries paid to employees rests upon the
employer not on the employee. It can be
easily proven by payrolls, vouchers, etc.
which the employers are likewise duty
bound to keep and present. There being
non, we have to sustain complainant's
assertion that his latest salary rate was
P200 a day or P5,200 a month. Therefore,
his retrenchment pay differential is
P25,443.70 broken down as follows:
P200 x 26 days = P5,200 x 11 years
2
= (P2,600 x 11 years) - P3,156.30
= P28,600 - P3,156.30
= P25,443.70
The Decision of the
National Labor Relations
Commission
in
NLRCNCR-CA No. 06701-94
April 20, 1995 (Rollo, pp.
18-21).

. . . His claim for separation pay


differential is based on the Collective
Bargaining Agreement (CBA) between his
union and the respondent company, the
pertinent portion of which reads:

. . . The company agrees that in case of


casual employees and/or workers who
work on rotation basis the criterion for
determining their retirement pay shall be
303 rotation calls or work days as
equivalent to one (1) year and shall be
paid their retirement pay equivalent to
one half (1/2) month for every year of
service.
xxx xxx xxx
Since the instant case arises from
interpretation or implementation of a
collective bargaining agreement, the
Labor Arbiter should have dismissed it for
lack of jurisdiction in accordance with
Article 217 (c) of the Labor Code, which
reads: (Emphasis supplied)
Art. 217. Jurisdiction of Labor Arbiter and
the Commission.
xxx xxx xxx
(c) Cases arising from the interpretation
or
implementation
of
collective
bargaining agreement and those arising
from the interpretation or enforcement of
company procedure/policies shall be
disposed of by the Labor Arbiter by
referring the same to the grievance
machinery and voluntary arbitrator as
may be provided in said agreements.
Petitioner contends that:
I. THE PUBLIC RESPONDENT NLRC
GRAVELY ABUSED ITS DISCRETION IN
GIVING DUE COURSE TO THE APPEAL
DESPITE THE FACT 4 (SIC) THAT IT WAS
FILED OUT OF TIME AND THERE IS NO
SHOWING THAT A SURETY BOND WAS
POSTED.
II. THE PUBLIC RESPONDENT NLRC
GRAVELY ABUSED ITS DISCRETION IN
SETTING ASIDE THE DECISION OF . . .
DATED
19
JANUARY
1994
AND

DISMISSING THE CASE ON THE GROUND


OF LACK OF JURISDICTION WHEN THE
ISSUE
DOES
NOT
INVOLVE
ANY
PROVISION
OF
THE
COLLECTIVE
BARGAINING AGREEMENT. (Rollo, pp. 7-8)
The Manifestation and Motion (In Lieu of Comment) sent
in on December 6, 1995 by the Office of the Solicitor
General support the second issue, re: jurisdiction raised
by the Petitioner (Rollo, pp. 26-33, at pp. 38-32).
Labor Arbiter Decision
Labor Arbiters should exert all efforts to cite statutory
provisions and/or judicial decision to buttress their
dispositions. An Arbiter cannot rely on simplistic
statements, generalizations, and assumptions. These are
not substitutes for reasoned judgment. Had the Labor
Arbiter exerted more research efforts, support for the
Decision could have been found in pertinent provisions of
the Labor Code, its implementing Rules, and germane
decisions of the Supreme Court. As this Court said in Juan
Saballa, at al. v. NLRC, G.R. No. 102472-84, August 22,
1996:
. . . This Court has previously held that
judges and arbiters should draw up their
decisions and resolutions with due care,
and make certain that they truly and
accurately reflect their conclusions and
their final dispositions. A decision should
faithfully comply with Section 14, Article
VIII of the Constitution which provides
that no decision shall be rendered by any
court without expressing therein clearly
and distinctly the facts of the case and
the law on which it is based. If such
decision had to be completely overturned
or set aside, upon the modified decision,
such resolution or decision should
likewise state the factual and legal
foundation relied upon. The reason for
this is obvious: aside from being required
by the Constitution, the court should be
able to justify such a sudden change of
course; it must be able to convincingly
explain the taking back of its solemn
conclusions and pronouncements in the
earlier decision. The same thing goes for
the findings of fact made by the NLRC, as
it is a settled rule that such findings are
entitled to great respect and even finality
when supported by substantial evidence;
otherwise, they shall be struck down for
being whimsical and capricious and
arrived at with grave abuse of discretion.
It is a requirement of due process and fair
play that the parties to a litigation be
informed of how it was decided, with an
explanation of the factual and legal
reasons that led to the conclusions of the
court. A decision that does not clearly
and distinctly state the facts and the law
on which it is based leaves the parties in
the dark as to how it was reached and is
especially prejudicial to the losing party,
who is unable to pinpoint the possible

errors of the court for review by a higher


tribunal. . . .
This is not an admonition but rather, advice and a critique
to stress that both have obligations to the Courts and
students of the law. Decisions of the Labor Arbiters, the
National Labor Relations Commission, and the Supreme
Court serve not only to adjudicate disputes, but also as
an educational tool to practitioners, executives, labor
leaders and law students. They all have a keen interest in
methods of analysis and the reasoning processes
employed in labor dispute adjudication and resolution. In
fact, decisions rise or fall on the basis of the analysis and
reasoning processes of decision makers or adjudicators.
On the issues raised by the Petitioner, we rule:
1.
Timeliness
of
And Filing of Appeal Bond

Appeal

The Court rules that the appeal of the respondent


corporation was interposed within the reglementary
period, in accordance with the Rules of the National Labor
Relations Commission, and an appeal bond was duly
posted. We adopt the following Comment dated August
14, 1996, submitted by the National Labor Relations
Commission, to wit:
. . . While it is true that private
respondent company received a copy of
the decision dated January 19, 1994 of
the Labor Arbiter . . . and filed its appeal
on February 14, 1994, it is undisputed
that the tenth day within which to file an
appeal fell on a Saturday, the last day to
perfect an appeal shall be the next
working day.
Thus, the amendments to the New Rules
of Procedure of the NLRC, Resolution No.
11-01-91 which took effect on January 14,
1992, provides in part:
xxx xxx xxx
1. Rule VI, Sections 1 and 6 are hereby
amended to read as follows:
Sec. 1. Period of Appeal Decisions,
awards or orders of the Labor Arbiter . . .
shall be final and executory unless
appealed to the Commission by any or
both parties within ten (10) calendar days
from receipt of such decisions, awards or
orders of the Labor Arbiter . . . . . . If the
10th day . . . falls on a Saturday, Sunday
or a Holiday, the last day to perfect the
decision shall be the next working day.
(Emphasis supplied)
Hence, it is crystal clear that the appeal
was filed within the prescriptive period to
perfect
an
appeal.
Likewise,
the
petitioner's
contention
that
private
respondent did not post the required
surety
bond,
deserves
scant
consideration, for the simple reason that
a surety bond was issued by BF General
Insurance Company, Inc., in the amount
of P25,443.70 (Rollo, pp. 63-64).

2. Jurisdictional Issue
The jurisdiction of Labor Arbiters and Voluntary Arbitrator
or Panel of Voluntary Arbitrators is clearly defined and
specifically delineated in the Labor Code. The pertinent
provisions of the Labor Code, read:
A. Jurisdiction of Labor Arbiters
Art. 217. Jurisdiction of Labor Arbiter and
the Commission. (a) Except as
otherwise provided under this Code the
Labor Arbiter shall have original and
exclusive jurisdiction to hear and decide,
within thirty (30) calendar days after the
submission of the case by the parties for
decision without extension, even in the
absence of stenographic notes, the
following cases involving all workers,
whether agricultural or non-agricultural:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for
reinstatement, those cases that workers
may file involving wages, rates of pay,
hours of work and other terms and
conditions of employment;
4. claims for actual, moral, exemplary
and other forms of damages arising from
the employer-employee relations;
5. Cases arising from any violation of
Article 264 of this Code, including
questions involving the legality of strikes
and lockouts; and,
6.
Except
claims
for
Employees
Compensation, Social Security, Medicare
and maternity benefits, all other claims,
arising
from
employer-employee
relations, including those of persons in
domestic or household service, involving
an amount exceeding five thousand
pesos (P5,000) regardless of whether
accompanied
with
a
claim
for
reinstatement.
xxx xxx xxx
(c) Cases arising from the interpretation
or
implementation
of
collective
bargaining agreement and those arising
from the interpretation or enforcement of
company procedure/policies shall be
disposed of by the Labor Arbiter by
referring the same to the grievance
machinery and voluntary arbitrator so
maybe provided in said agreement.
B. Jurisdiction of Voluntary Arbitrator or
Panel of Voluntary Arbitrators
Art. 261. Jurisdiction of Voluntary
Arbitrators
or
panel
of
Voluntary
Arbitrators. The Voluntary Arbitrator or
panel of Voluntary Arbitrators shall have
original and exclusive jurisdiction to hear

and decide all unresolved grievances


arising from the interpretation or
implementation
of
the
Collective
Bargaining Agreement and those arising
from the interpretation or enforcement of
company personnel policies referred to in
the
immediately
preceding
article.
Accordingly, violations of a Collective
Bargaining Agreement, except those
which are gross in character, shall no
longer be treated as unfair labor practice
and shall be resolved as grievances under
the collective bargaining agreement. For
purposes of this Article, gross violations
of Collective Bargaining Agreement shall
mean flagrant and/or malicious refusal to
comply with the economic provisions of
such agreement.
The Commission, its Regional Offices and
the Regional Directors of the Department
of Labor and Employment shall not
entertain disputes, grievances or matters
under
the
exclusive
and
original
jurisdiction of the Voluntary Arbitrator or
panel of Voluntary Arbitrators and shall
immediately dispose and refer the same
to the Grievance Machinery or Voluntary
Arbitration provided in the Collective
Bargaining Agreement.
Art. 262. Jurisdiction over other labor
disputes. The Voluntary Arbitrator or
panel of Voluntary Arbitrators, upon
agreement of the parties, shall also hear
and decide all other labor disputes
including unfair labor practices and
bargaining deadlocks.
The aforecited provisions of law cannot be read in
isolation or separately. They must be read as a whole and
each Article of the Code reconciled one with the other. An
analysis of the provisions of Articles 217, 261, and 262
indicates, that:
1. The jurisdiction of the Labor Arbiter and Voluntary
Arbitrator or Panel of Voluntary Arbitrators over the cases
enumerated in Articles 217, 261 and 262, can possibly
include money claims in one form or another.
2. The cases where the Labor Arbiters have original and
exclusive jurisdiction are enumerated in Article 217, and
that of the Voluntary Arbitrator or Panel of Voluntary
Arbitrators in Article 261.
3. The original and exclusive jurisdiction of Labor Arbiters
is qualified by an exception as indicated in the
introductory sentence of Article 217 (a), to wit:
Art. 217. Jurisdiction of Labor Arbiters . . .
(a) Except as otherwise provided under
this Code the Labor Arbiter shall have
original and exclusive jurisdiction to hear
and decide . . . the following cases
involving all workers. . . .
The phrase "Except as otherwise provided under this
Code" refers to the following exceptions:

A. Art. 217.
Arbiters . . .

Jurisdiction

of

Labor

xxx xxx xxx


(c) Cases arising from the interpretation
or
implementation
of
collective
bargaining agreement and those arising
from the interpretation or enforcement of
company procedure/policies shall be
disposed of by the Labor Arbiter by
referring the same to the grievance
machinery and voluntary arbitrator as
may be provided in said agreement.
B. Art. 262. Jurisdiction over other labor
disputes. The Voluntary Arbitrator or
panel of Voluntary Arbitrators, upon
agreement of the parties, shall also hear
and decide all other labor disputes
including unfair labor practices and
bargaining deadlocks.
Parenthetically, the original and exclusive
jurisdiction of the Labor Arbiter under Article 217
(c), for money claims is limited only to those
arising from statutes or contracts other than a
Collective Bargaining Agreement. The Voluntary
Arbitrator or Panel of Voluntary Arbitrators will
have original and exclusive jurisdiction over
money claims "arising from the interpretation or
implementation of the Collective Bargaining
Agreement and, those arising from the
interpretation or enforcement of company
personnel policies", under Article 261.
4. The jurisdiction of Voluntary Arbitrator or Panel of
Voluntary Arbitrators is provided for in Arts. 261 and 262
of the Labor Code as indicated above.
1. A close reading of Article 261 indicates that the original
and exclusive jurisdiction of Voluntary Arbitrator or Panel
of Voluntary Arbitrators is limited only to:
. . . unresolved grievances arising from
the interpretation or implementation of
the Collective Bargaining Agreement and
those arising from the interpretation or
enforcement of company personnel
policies . . . Accordingly, violations of a
collective bargaining agreement, except
those which are gross in character, shall
no longer be treated as unfair labor
practice and shall be resolved as
grievances
under
the
Collective
Bargaining Agreement. . . . .
2. Voluntary Arbitrators or Panel of Voluntary Arbitrators,
however, can exercise jurisdiction over any and all
disputes between an employer and a union and/or
individual worker as provided for in Article 262.
Art. 262. Jurisdiction over other labor
disputes. The voluntary arbitrator or
panel of voluntary arbitrators, upon
agreement of the parties, shall also hear
and decide all other labor disputes
including unfair labor practices and
bargaining deadlocks.

It must be emphasized that the jurisdiction of the


Voluntary Arbitrator or Panel of Voluntary Arbitrators
under Article 262 must be voluntarily conferred upon by
both labor and management. The labor disputes referred
to in the same Article 262 can include all those disputes
mentioned in Article 217 over which the Labor Arbiter has
original and exclusive jurisdiction.
As shown in the above contextual and wholistic analysis
of Articles 217, 261, and 262 of the Labor Code, the
National Labor Relations Commission correctly ruled that
the Labor Arbiter had no jurisdiction to hear and decide
petitioner's money-claim-underpayment of retirement
benefits, as the controversy between the parties involved
an
issue
"arising
from
the
interpretation
or
implementation" of a provision of the collective
bargaining agreement. The Voluntary Arbitrator or Panel
of Voluntary Arbitrators has original and exclusive
jurisdiction over the controversy under Article 261 of the
Labor Code, and not the Labor Arbiter.
3. Merits of the Case
The Court will not remand the case to the Voluntary
Arbitrator or Panel of Voluntary Arbitrators for hearing.
This case has dragged on far too long eight (8) years.
Any further delay would be a denial of speedy justice to
an aged retired stevedore. There is further the possibility
that any Decision by the Voluntary Arbitrator or Panel of
Voluntary Arbitrators will be appealed to the Court of
Appeals, and finally to this Court. Hence, the Court will
rule on the merits of the case.
We adopt as our own the retirement benefit computation
formula of the Labor Arbiter, and the reasons therefor as
stated in the decision abovequoted.
The simple statement of the Labor Arbiter that "we
cannot sustain a computation of length of service based
on ECC contribution records", was not amply explained by
the Labor Arbiter; however, there is legal and factual
basis for the same. It is unrealistic to expect a lowly
stevedore to know what reports his employer submits to
the Employee's Compensation Commission under Book
IV, Health, Safety and Welfare Benefits, Title II,
Employees Compensation and State Insurance Fund, of
the Labor Code, simply because the insurance fund is
solely funded by the employer and the rate of employer's
contribution varies according to time and actuarial
computations. (See Articles 183-184; Labor Code). The
worker has no ready access to this employer's record. In
fact, it is farthest from his mind to inquire into the
amount of employer's contribution, much less whether
the employer remits the contributions. The worker is at all
times entitled to benefits upon the occurrence of the
defined contingency even when the employer fails to
remit the contributions. (See Article 196 (b), Labor Code).
All employers are likewise required to keep an
employment record of all their employees, namely:
payrolls; and time records. (See Book III, Rule X,
specifically Secs. 6, 7, 8, 1 and 12, Omnibus Rules
Implementing the Labor Code).
The respondent-employer was afforded the opportunity to
show proof of the petitioner's length of service and pay
records. In both instances, the respondent-employer
failed. By its own folly, it must therefore suffer the

consequences of such failure. (South Motorists


Enterprises v. Tosoc, 181 SCRA 386, [1990]) From the
very beginning by the provision of the retirement
provision of the Collective Bargaining Agreement, i.e., the
length of service as requirement for retirement, and
salary as a basis for benefit computation the employer
was forewarned of the need for accurate record keeping.
This is precisely the basis of retirement, and the
computation of benefits based on years of service and
monthly wage.
To recapitulate; the Court hereby rules
1. That the National Labor Relations Commission correctly
ruled that the Labor Arbiter had no jurisdiction over the
case, because the case involved an issue "arising from
the interpretation or implementation" of a Collective
Bargaining Agreement;
2. That the appeal to the National Labor Relations
Commission was filed within the reglementary period and
that the appeal bond was filed; and
3. That we adopt the computation formula for the
retirement benefits by the Labor Arbiter, and the basis
thereof, The respondent must therefore pay the petitioner
the additional amount of Twenty-Five Thousand Four
Hundred Forty-Three and Seventy Centavos P25,443.70)
Pesos.
In view of the long delay in the disposition of the case,
this decision is immediately executory.
SO ORDERED.

G.R. No. 108001 March 15, 1996


SAN MIGUEL CORPORATION, ANGEL G. ROA and
MELINDA
MACARAIG,
petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (Second
Division), LABOR ARBITER EDUARDO J. CARPIO,
ILAW AT BUKLOD NG MANGGAGAWA (IBM), ET AL.,
respondents.

HERMOSISIMA, JR., J.:p


In the herein petition for certiorari under Rule 65,
petitioners question the jurisdiction of the Labor Arbiter
to hear a complaint for unfair labor practice, illegal
dismissal, and damages, notwithstanding the provision
for grievance and arbitration in the Collective Bargaining
Agreement.
Let us unfurl the facts.
Private respondents, employed by petitioner San Miguel
Corporation (SMC) as mechanics, machinists, and
carpenters, were and still are, bona fide officers and
members of private respondent Ilaw at Buklod ng
Manggagawa.
On or about July 31, 1990, private respondents were
served a Memorandum from petitioner Angel G. Roa,
Vice-President and Manager of SMC's Business Logistics
Division (BLD), to the effect that they had to be
separated from the service effective October 31, 1990 on
the ground of "redundancy or excess personnel."
Respondent union, in behalf of private respondents,
opposed the intended dismissal and asked for a dialogue
with management.
Accordingly, a series of dialogues were held between
petitioners and private respondents. Even before the
conclusion of said dialogues, the aforesaid petitioner
Angel Roa issued another Memorandum on October 1,
1990 informing private respondents that they would be
dismissed from work effective as of the close of business
hours on November 2, 1990. Private respondents were in
fact purged on the date aforesaid.
Thus, on February 25, 1991, private respondents filed a
complaint against petitioners for Illegal Dismissal and
Unfair Labor Practices, with a prayer for damages and
attorney's fees, with the Arbitration Branch of respondent
National Labor Relations Commission. The complaint 1
was assigned to Labor Arbiter Eduardo F. Carpio for
hearing and proper disposition.
On April 15, 1991, petitioners filed a motion to dismiss
the complaint, alleging that respondent Labor Arbiter had
no jurisdiction over the subject matter of the complaint,
and that respondent Labor Arbiter must defer
consideration of the unfair labor practice complaint until
after the parties have gone through the grievance
procedure provided for in the existing Collective
Bargaining Agreement (CBA). Respondent Labor Arbiter
denied this motion in a Resolution, dated September 23,
1991.
The petitioners appealed the denial to respondent
Commission on November 8, 1991. Unimpressed by the
grounds therefor, respondent Commission dismissed the

appeal in its assailed Resolution, dated August 11, 1992.


Petitioners promptly filed a Motion for Reconsideration
which, however, was denied through the likewise assailed
Resolution, dated October 29, 1992.
Hence, the instant petition for certiorari alleging the
following grounds was filed by the petitioners:
I
RESPONDENT LABOR ARBITER CANNOT
EXERCISE
JURISDICTION
OVER
THE
ALLEGED ILLEGAL TERMINATION AND
ALLEGED ULP CASES WITHOUT PRIOR
RESORT
TO
GRIEVANCE
AND
ARBITRATION PROVIDED UNDER THE CBA.
II
THE STRONG STATE POLICY ON 'THE
PROMOTION OF VOLUNTARY MODES OF
SETTLEMENT
OF
LABOR
DISPUTES
CRAFTED IN THE CONSTITUTION AND THE
LABOR CODE DICTATES THE SUBMISSION
OF THE CBA DISPUTE TO GRIEVANCE AND
ARBITRATION. 2
Petitioners posit the basic principle that a collective
bargaining
agreement
is
a
contract
between
management and labor that must bind and be enforced in
the first instance as between the parties thereto. In this
case, the CBA between the petitioners and respondent
union provides, under Section 1, Article V entitled
ARBITRATION, that "wages, hours of work, conditions of
employment and/or employer-employee relations shall be
settled by arbitration." Petitioners' thesis is that the
dispute as to the termination of the union members and
the unfair labor practice should first be settled by
arbitration, and not directly by the labor arbiter, following
the above provision of the CBA, which ought to be treated
as the law between the parties thereto.
The argument is unmeritorious. The law in point is Article
217 (a) of the Labor Code. It is elementary that this law is
deemed written into the CBA. In fact, the law speaks in
plain and unambiguous terms that termination disputes,
together with unfair labor practices, are matters falling
under the original and exclusive jurisdiction of the Labor
Arbiter, to wit:
Art. 217 Jurisdiction of Labor Arbiters and
the
Commission (a) Except as otherwise
provided under this Code, the Labor
Arbiters shall have original and exclusive
jurisdiction to hear and decide . . . the
following cases involving all workers,
whether agricultural or non-agricultural:
(1) Unfair labor practice
cases;
(2) Termination disputes;
xxx xxx xxx
The sole exception to the above rule can be found under
Article 262 of the same Code, which provides:
Art. 262. Jurisdiction over other labor
disputes The voluntary arbitrator or

panel of voluntary arbitrators, upon


agreement of the parties, shall also hear
and decide all other labor disputes
including unfair labor practices and
bargaining dead locks. (As added by RA
6715).
We subjected the records of this case, particularly
the CA to meticulous scrutiny and we find no
agreement between SMC and the respondent
union that would state in unequivocal language
that petitioners and the respondent union
conform to the submission of termination
disputes and unfair labor practices to voluntary
arbitration. Section 1, Article V of the CBA, cited
by the herein petitioners, certainly does not
provide so. Hence, consistent with the general
rule under Article 217 (a) of the Labor Code, the
Labor Arbiter properly has jurisdiction over the
complaint filed by the respondent union on
February 25, 1991 for illegal dismissal and unfair
labor practice.
Petitioners point however to Section 2, Article III
of the CBA, under the heading Job Security, to
show that the dispute is a proper subject of the
grievance procedure, viz:
. . . The UNION, however, shall have the
right to seek reconsideration of any
discharge, lay-off or disciplinary action,
and such requests for reconsideration
shall be considered a dispute or
grievance to be dealt with in accordance
with the procedure outlined in Article IV
hereof [on Grievance Machinery] . . . 3
(Emphasis ours)
Petitioners
allege
that
respondent
union
requested management for a "reconsideration
and review" of the company's decision to
terminate the employment of the union
members. By this act, petitioners argue,
respondent union recognized that the questioned
dismissal is a grievable dispute by virtue of
Section 2, Article III of the CBA. This allegation
was strongly denied by the respondent union. In a
Memorandum filed for the public respondent
NLRC, the Solicitor General supported the position
of the respondent union that it did not seek
reconsideration from the SMC management in
regard to the dismissal of the employees.
Petitioners fail miserably to prove that, indeed, the
respondent union requested for a reconsideration or
review of the management decision to dismiss the private
respondents. A punctilious examination of the records
indubitably reveals that at no time did the respondent
union exercise its right to seek reconsideration of the
company's move to terminate the employment of the
union members, which request for reconsideration would
have triggered the application of Section 2, Article III of
the CBA, thus resulting in the treatment of the dispute as
a grievance to be dealt with in accordance with the
Grievance Machinery laid down in Article IV of the CBA.
Stated differently, the filing of a request for
reconsideration by the respondent union, which is the
condition sine qua non to categorize the termination

dispute and the ULP complaint as a grievable dispute,


was decidedly absent in the case at bench. Hence, the
respondent union acted well within their rights in filing
their complaint for illegal dismissal and ULP directly with
the Labor Arbiter under Article 217 (a) of the Labor Code.
Second. Petitioners insist that involved in the controversy
is the interpretation and implementation of the CBA
which is grievable and arbitrable by law under Article 217
(c) of the Labor Code, viz:
Art. 217 (c). Cases arising from the
interpretation or implementation of
collective bargaining agreements and
those arising from the interpretation or
enforcement of company personnel
policies shall be disposed of by the Labor
Arbiter by referring the same to the
grievance machinery and voluntary
arbitration as may be provided in said
agreements. (As amended by RA 6715).
Petitioners theorize that since respondents questioned
the discharges, the main question for resolution is
whether SMC had the management right or prerogative
to effect the discharges on the ground of redundancy,
and this necessarily calls for the interpretation or
implementation of Article III (Job Security) in relation to
Article IV (Grievance Machinery) of the CBA. 4
Petitioner's theory does not hold water. There is no
connection whatsoever between SMC's management
prerogative
to
effect
the
discharges
and the
interpretation or implementation of Articles III and IV of
the CBA. The only relevant provision under Article III that
may need interpretation or implementation is Section 2
which was cited herein. However, as patiently pointed out
by this court, said provision does not come into play
considering that the union never exercised its right to
seek reconsideration of the discharges effected by the
company. It would have been different had the union
sought reconsideration. Such recourse under Section 2
would have been treated as a grievance under Article IV
(Grievance Machinery) of the CBA, thus calling for the
possible interpretation or implementation of the entire
provision on Grievance Machinery as agreed upon by the
parties. This was not the case however. The union
brought the termination dispute directly to the Labor
Arbiter rendering Articles III and IV of the CBA
inapplicable for the resolution of this case.
The discharges, petitioners also contend, call for the
interpretation or enforcement of company personnel
policies, particularly SMC's personnel policies on lay-offs
arising from redundancy, and so, they may be considered
grievable and arbitrable by virtue of Article 217 (c). Not
necessarily so. Company personnel policies are guiding
principles stated in broad, long-range terms that express
the philosophy or beliefs of an organization's top
authority regarding personnel matters. They deal with
matters affecting efficiency and well being of employees
and include, among others, the procedure in the
administration of wages, benefits, promotions, transfer
and other personnel movements which are usually not
spelled out in the collective agreement. The usual source
of grievances, however, is the rules and regulations
governing disciplinary actions. 5 Judging therefrom, the
questioned discharges due to alleged redundancy can

hardly be considered company personnel policies and


therefore need not directly be subject to the grievance
machinery nor to voluntary arbitration.
Third. Petitioners would like to persuade us that
respondents' ULP claims are merely conclusory and
cannot serve to vest jurisdiction to the Labor Arbiters.
Petitioners argue with passion: "How was the employee
discharges' (sic) right to self-organization restrained by
their termination? Respondent did not show. There is no
allegation of the existence of anti-union animus or of the
ultimate facts showing how the discharges affected the
rights to self-organization of individual respondents." 6 In
short, petitioners maintain that respondents complaint
does not allege a genuine case for ULP.
The Court is not convinced.
The complaint alleges that:
5. Individual complainants are bona fide
officers and members of complainant Ilaw
at Buklod ng Manggagawa (IBM). They
are active and militant in the affairs and
activities of the union.
xxx xxx xxx
23. The dismissal or lock-out from work of
the
individual
complainants
clearly
constitutes an act of unfair labor
practices in the light of the fact that the
work being performed by the individual
complainants are being contracted out by
the respondent company, and, therefore,
deprives individual complainants of their
right to work and it constitutes a criminal
violation of existing laws.
xxx xxx xxx
25. The acts of the respondent company
in economically coercing employees to
accept payment of separation and/or
retirement
benefits,
pending
final
resolution of the labor disputes between
the parties constitute acts of unfair labor
practice in the light of the fact that there
is undue interference, restraint, and
coercion of employees in the exercise of
their right to self-organization and
collective bargaining. 7
Short of pre-empting the proceedings before the Labor
Arbiter, the above complaint, makes out a genuine case
for ULP.
In Manila Pencil Co. v. CIR, 8 this Court had occasion to
observe that even where business conditions justified a
lay-off of employees, unfair labor practices were
committed in the form of discriminatory dismissal where
only unionists were permanently dismissed. This was
despite the valid excuse given by the Manila Pencil
Company that the dismissal of the employees was due to
the reduction of the company's dollar allocations for
importation and that both union members and non-union
members were laid-off. The Court, thru Justice Makalintal,
rebuffed the petitioner Company and said:

. . . The explanation, however, does not


by any means account for the permanent
dismissal of five of the unionists, where it
does not appear that non-unionists were
similarly dismissed.
xxx xxx xxx
And the discrimination shown by the
Company strongly is confirmed by the
fact that during the period from October
1958 to August 17, 1959 it hired from
fifteen to twenty new employees and ten
apprentices. It says these employees
were for its new lead factory, but is (sic)
not shown that the five who had been
permanently dismissed were not suitable
for work in that new factory.
A similar ruling was made by this Court in People's Bank
and Trust Co. v. People's Bank and Trust Co. Employees
Union 9 involving the lay-off by a bank of sixty-five (65)
employees who were active union members allegedly by
reason of retrenchment. The Court likewise found the
employer in that case to have committed ULP in effecting
the discharges.
This Court was more emphatic however in Bataan
Shipyard and Engineering Co., Inc. v. NLRC, et al.: 10
Under the circumstances obtaining in this
case, We are inclined to believe that the
company had indeed been discriminatory
in selecting the employees who were to
be retrenched. All of the retrenched
employees are officers and members of
the NAFLU. The record of the case is
bereft of any satisfactory explanation
from the Company regarding this
situation. As such, the action taken by the
firm becomes highly suspect. It leads Us
to conclude that the firm had been
discriminating against membership in the
NAFLU, an act which amounts to
interference in the employees' exercise
of their right of self-organization. Under
Art. 249 (now Art. 248) of the Labor Code
of the Philippines, such interference is
considered an act of unfair labor practice
on the part of the Company . . .
(Emphasis ours).
It matters not that the cause of termination in the above
cited cases was retrenchment while that in the instant
case was redundancy. The important fact is that in all of
these cases, including the one at bar, all of the dismissed
employees were officers and members of their respective
unions, and their employers failed to give a satisfactory
explanation as to why this group of employees was
singled out.
It may be the case that employees other than union
members may have been terminated also by petitioner
SMC on account of its redundancy program. If that is true,
the discharges may really be for a bona fide authorized
cause under Article 283 11 of the Labor Code. On the
other hand, it is also possible that such may only be a
clever scheme of the petitioner company to camouflage

its real intention of discriminating against union members


particularly the private respondents. In any case, these
matters will be best ventilated in a hearing before the
Labor Arbiter.
It is for the above reason that we cannot hold the
petitioners guilty of the ULP charge. This will be the task
of the Labor Arbiter. We however find that based on the
circumstances surrounding this case and settled
jurisprudence on the subject, the complaint filed by the
private respondents on February 25, 1991 alleges facts
sufficient to constitute a bona fide case of ULP, and
therefore properly cognizable by the Labor Arbiter under
Article 217 (a) of the Labor Code. This is consistent with
the rule that jurisdiction over the subject matter is
determined by the allegations of the complaint. 12
Finally, petitioners try to impress on this Court the strong
State policy on the promotion of voluntary modes of
settlement of labor disputes crafted in the Constitution
and the Labor Code which dictate the submission of the
CBA dispute to grievance and arbitration. 13
In this regard, the response of the Solicitor General is apt:
Petitioners deserve commendation for
divulging
and
bringing
to
public
respondents'
attention
the
noble
legislative
intent
behind
the
law
mandating the inclusion of grievance and
voluntary arbitration provisions in the
CBA. However, in the absence of an
express
legal
conferment
thereof,
jurisdiction cannot be appropriated by an
official or tribunal (sic) no matter how
well-intentioned it is, even in the pursuit
of
the
dearest
substantial
right
(Concurring Opinion of Justice Barredo,
Estanislao v. Honrado, 114 SCRA 748, 29
June 1982). 14
In the same manner, petitioners cannot
arrogate into the powers of voluntary
arbitrators the original and exclusive
jurisdiction of Labor Arbiters over unfair
labor practices, termination disputes, and
claims for damages, in the absence of an
express agreement between the parties
in order for Article 262 15 of the Labor Law
to apply in the case at bar. 16
WHEREFORE, the instant petition is DISMISSED for lack of
merit and the resolutions of the National Labor Relations
Commission dated August 11, 1992 and October 29, 1992
are hereby AFFIRMED.
SO ORDERED.

10

G.R. No. 138094

May 29, 2003

MARILOU
GUANZON
APALISOK,
petitioner,
vs.
RADIO PHILIPPINES NETWORK RADIO STATION
DYKC and STATION MANAGER GEORGE SUAZO,
respondents.
CARPIO MORALES, J.:
Before this Court is a petition for review on certiorari
under Rule 45 assailing the Court of Appeals Decision 1 of
October 30, 1998 and Resolution 2 of February 26, 1999.
On May 15, 1995, Marilou Gaunzon Apalisok (petitioner),
then Production Chief of Radio Philippines Network (RPN)
Station DYKC, received a Memorandum 3 from Branches
Operations Manager Gilito Datoc asking her to submit a
written explanation why no disciplinary action should be
taken against her for performance of acts hostile to RPN,
and arrogant, disrespectful and defiant behavior towards
her superior Station Manager George Suazo.
Complying, petitioner submitted on May 16, 1995 her
Answer4 to the memorandum.
On May 31, 1995, petitioner received another
memorandum from the Administrative Manager of RPN,
informing her of the termination of her services effective
the close of regular office hours of June 15, 1995.
By letter of June 5, 1995, petitioner informed RPN, by
letter of June 5, 1995, of her decision to waive her right to
resolve her case through the grievance machinery of RPN
as provided for in the Collective Bargaining Agreement
(CBA) and to lodge her case before the proper
government forum. She thereafter filed a complaint
against RPN DYKC and Suazo (respondents) for illegal
dismissal
before
the
National
Labor
Relations
Commission, Regional Arbitration Branch of Region 7
which referred it to the National Conciliation and
Mediation Board.
By Submission Agreement 5 dated June 20, 1995 signed
by their respective counsels, petitioner and respondents
agreed to submit for voluntary arbitration the issue of
whether petitioner's dismissal was valid and to abide by
the decision of the voluntary arbitrator.
In her position paper6 submitted before the voluntary
arbitrator, petitioner prayed that her dismissal be
declared invalid and that she be awarded separation pay,
backwages and other benefits granted to her by the
Labor Code since reinstatement is no longer feasible due
to strained relations. She also prayed that she be
awarded P2,000,000.00 for moral damages and
P500,000.00 for exemplary damages.
Respondents on the other hand prayed for the dismissal
of the complaint, arguing that the voluntary arbitrator
had no jurisdiction over the case and, assuming that he
had, the complaint is dismissible for lack of merit as
petitioner was not illegally dismissed.7
On October 18, 1995, the voluntary arbitrator rendered
an Award8 in favor of petitioner, the dispositive portion of
which reads:
WHEREFORE, above premises considered, this
Voluntary Arbitrator rules that the dismissal of
complainant was invalid.

However, considering the impracticality of


reinstatement because of proven strained relation
between the parties, respondents, instead shall
pay complainant the amount of FOUR HUNDRED
ELEVEN THOUSAND ONE HUNDRED TWENTY SIX
PESOS & SEVENTY-SIX CENTAVOS (P411,126.76)
itemized as follows:
In summary,
itemized:

the

total

award

is

hereunder

1. SEPARATION PAY (P14,600.00 divide by 30 day


multiplied by 15 days per year of service x 19
years) .........................................
2.
BACKWAGES
(P14,600
months) .............................
3.
MORAL
AND
DAMAGES ...........................

EXEMPLARY

4. SERVICE INCENTIVE LEAVES (P14,600 divide by


30 days = P486.67 x 5 days = P2,433.35 x 19
years .......
5. ATTORNEY'S FEES (10%) ...........................
All other claims are hereby denied.
SO ORDERED. (Emphasis supplied)
Respondents' motion for reconsideration 9 of the Award
having been denied by the voluntary arbitrator by Order
of November 21, 1995, they filed a petition for certiorari
before this Court, docketed as G.R. No. 122841.
By Resolution10 of December 13, 1995, the Third Division
of this Court referred G.R. No. 122841 to the Court of
Appeals, following the case of Luzon Development Bank
v. Association of Luzon Development Bank Employees, et
al.11 holding that decisions or awards of a voluntary
arbitrator or panel of arbitrators in labor cases are
reviewable by the Court of Appeals.
The Court of Appeals, finding that the option of petitioner
not to subject the dispute to the grievance machinery
provided for in the CBA was tantamount to relinquishing
her right to avail of the aid of a voluntary arbitrator in
settling the dispute which "likewise converted an
unresolved grievance into a resolved one," held that the
voluntary arbitrator did not have jurisdiction over
petitioner's complaint and accordingly nullified and set
aside, by Decision of October 30, 1998, the voluntary
arbitration award.
Petitioner's Motion for Reconsideration 12 of the
Court of Appeals Decision having been denied by
Resolution13 of February 26, 1999, the present
petition was filed which raises the following
issues:
1. Whether or not the Voluntary Arbitrator had
jurisdiction over petitioner's complaint, and
2. Whether or not respondents are guilty of
estoppel.14
Petitioner, citing Article 262 of the Labor Code of the
Philippines, as amended which reads:

11

ARTICLE 262. JURISDICTION OVER OTHER LABOR


DISPUTES. The Voluntary Arbitrator or panel of
Voluntary Arbitrators, upon agreement of the
parties, shall hear and decide all other labor
disputes including unfair labor practices and
bargaining deadlocks. (Emphasis and italics
supplied),
contends that her option not to subject the dispute to the
grievance machinery of RPN did not amount to her
relinquishing of her right to avail of voluntary arbitration
as a mode of settling it for she and respondents in fact
agreed to have the dispute settled by a voluntary
arbitrator when they freely executed the above-said
Submission Agreement. She thus concludes that the
voluntary
arbitrator
has
jurisdiction
over
the
controversy.15
Petitioner contends in any event that even assuming that
the voluntary arbitrator had no jurisdiction over the case,
it would not be in keeping with settled jurisprudence to
allow a losing party to question the authority of the
voluntary arbitrator after it had freely submitted itself to
its authority.16
The petition is impressed with merit.
The above quoted Article 262 of the Labor Code provides
that upon agreement of the parties, the voluntary
arbitrator can hear and decide all other labor disputes.
Contrary to the finding of the Court of Appeals, voluntary
arbitration as a mode of settling the dispute was not
forced upon respondents. Both parties indeed agreed
to submit the issue of validity of the dismissal of
petitioner to the jurisdiction of the voluntary arbitrator by
the Submission Agreement duly signed by their
respective counsels.
As the voluntary arbitrator had jurisdiction over the
parties' controversy, discussion of the second issue is no
longer necessary.
WHEREFORE, the Court of Appeals Decision of October
30, 1998 is hereby SET ASIDE and the voluntary
arbitration Award of October 18, 1995 is hereby
REINSTATED.
SO ORDERED.

12

G.R. No. 140960

January 20, 2003

employees of the respondents six (6)


months from the first day of service at
CLAS;

LUDO
&
LUYM
CORPORATION,
petitioner,
vs.
FERDINAND SAORNIDO as voluntary arbitrator and
LUDO EMPLOYEES UNION (LEU) representing 214 of
its officers and members, respondents.

b. the said complainants, being entitled


to the CBA benefits during the regular
employment, are awarded a) sick leave,
b) vacation leave & c) annual wage and
salary increases during such period in the
amount of FIVE MILLION SEVEN HUNDRED
SEVEN THOUSAND TWO HUNDRED SIXTY
ONE PESOS AND SIXTY ONE CENTAVOS
(P5,707,261.61) as computed in "Annex
A";

QUISUMBING, J.:
This petition for review on certiorari seeks to annul and
set aside the decision1 of the Court of Appeals
promulgated on July 6, 1999 and its Order denying
petitioners motion for reconsideration in CA-G.R. SP No.
44341.

c. the respondents shall pay attorneys


fees of ten (10) percent of the total
award;

The relevant facts as substantially recited by the Court of


Appeals in its decision are as follows:
Petitioner LUDO & LUYM CORPORATION (LUDO for brevity)
is a domestic corporation engaged in the manufacture of
coconut oil, corn starch, glucose and related products. It
operates a manufacturing plant located at Tupas Street,
Cebu City and a wharf where raw materials and finished
products are shipped out.

d. an interest of twelve (12) percent per


annum or one (1) percent per month shall
be imposed to the award from the date of
promulgation until fully paid if only to
speed up the payment of these long over
due CBA benefits deprived of the
complaining workers.

In the course of its business operations, LUDO engaged


the arrastre services of Cresencio Lu Arrastre Services
(CLAS) for the loading and unloading of its finished
products at the wharf. Accordingly, several arrastre
workers were deployed by CLAS to perform the services
needed by LUDO.
These arrastre workers were subsequently hired, on
different dates, as regular rank-and-file employees of
LUDO every time the latter needed additional manpower
services. Said employees thereafter joined respondent
union, the LUDO Employees Union (LEU), which acted as
the exclusive bargaining agent of the rank-and-file
employees.
On April 13, 1992, respondent union entered into a
collective bargaining agreement with LUDO which
provides certain benefits to the employees, the amount
of which vary according to the length of service rendered
by the availing employee.
Thereafter, the union requested LUDO to include in its
members period of service the time during which they
rendered arrastre services to LUDO through the CLAS so
that they could get higher benefits. LUDO failed to act on
the request. Thus, the matter was submitted for
voluntary arbitration.
The parties accordingly executed a submission
agreement raising the sole issue of the date of
regularization of the workers for resolution by the
Voluntary Arbitrator.
In its decision dated April 18, 1997, the Voluntary
Arbitrator ruled that: (1) the respondent employees were
engaged in activities necessary and desirable to the
business of petitioner, and (2) CLAS is a labor-only
contractor of petitioner.2 It disposed of the case thus:
WHEREFORE, in view of the foregoing, this
Voluntary Arbitrator finds the claims of the
complainants meritorious and so hold that:
a. the 214 complainants, as listed in the
Annex A, shall be considered regular

Accordingly, all separation and/or retirement


benefits shall be construed from the date of
regularization aforementioned subject only to the
appropriate government laws and other social
legislation.
SO ORDERED.3
In due time, LUDO filed a motion for reconsideration,
which was denied. On appeal, the Court of Appeals
affirmed in toto the decision of the Voluntary Arbitrator,
thus:
WHEREFORE,
finding
no
reversible
error
committed by respondent voluntary arbitrator,
the instant petition is hereby DISMISSED.
SO ORDERED.4
Hence this petition. Before us, petitioner raises the
following issues:
I
WHETHER OR NOT BENEFITS CONSISTING OF
SALARY INCREASES, VACATION LEAVE AND SICK
LEAVE BENEFITS FOR THE YEARS 1977 TO 1987
ARE ALREADY BARRED BY PRESCRIPTION WHEN
PRIVATE RESPONDENTS FILED THEIR CASE IN
JANUARY 1995;
II
WHETHER OR NOT A VOLUNTARY ARBITRATOR
CAN AWARD BENEFITS NOT CLAIMED IN THE
SUBMISSION AGREEMENT.5
Petitioner contends that the appellate court gravely erred
when it upheld the award of benefits which were beyond
the terms of submission agreement. Petitioner asserts
that the arbitrator must confine its adjudication to those
issues submitted by the parties for arbitration, which in
this case is the sole issue of the date of regularization of

13

the workers. Hence, the award of benefits by the


arbitrator was done in excess of jurisdiction. 6

malicious refusal to comply with the economic


provisions of such agreement.

Respondents, for their part, aver that the three-year


prescriptive period is reckoned only from the time the
obligor declares his refusal to comply with his obligation
in clear and unequivocal terms. In this case, respondents
maintain that LUDO merely promised to review the
company records in response to respondents demand for
adjustment in the date of their regularization without
making a categorical statement of refusal.7 On the matter
of the benefits, respondents argue that the arbitrator is
empowered to award the assailed benefits because
notwithstanding the sole issue of the date of
regularization, standard companion issues on reliefs and
remedies are deemed incorporated. Otherwise, the whole
arbitration process would be rendered purely academic
and the law creating it inutile.8

The Commission, its Regional Offices and the


Regional Directors of the Department of Labor
and Employment shall not entertain disputes,
grievances or matters under the exclusive and
original jurisdiction of the Voluntary Arbitrator or
panel of Voluntary Arbitrators and shall
immediately dispose and refer the same to the
Grievance Machinery or Voluntary Arbitration
provided in the Collective Bargaining Agreement.

The jurisdiction of Voluntary Arbitrator or Panel of


Voluntary Arbitrators and Labor Arbiters is clearly defined
and specifically delineated in the Labor Code. The
pertinent provisions of the Labor Code, read:
Art. 217. Jurisdiction of Labor Arbiters and the
Commission. --- (a) Except as otherwise provided
under this Code the Labor Arbiters shall have
original and exclusive jurisdiction to hear and
decide, within thirty (30) calendar days after the
submission of the case by the parties for decision
without extension, even in the absence of
stenographic notes, the following cases involving
all workers, whether agricultural or nonagricultural:
1. Unfair labor practice cases:
2. Termination disputes;
3. If accompanied with a claim for
reinstatement, those cases that workers
may file involving wage, rates of pay,
hours of work and other terms and
conditions of employment;
4. Claims for actual, moral, exemplary
and other forms of damages arising from
the employer-employee relations;
xxx
Art. 261. Jurisdiction of Voluntary Arbitrators or
panel of Voluntary Arbitrators. The Voluntary
Arbitrator or panel of Voluntary Arbitrators shall
have original and exclusive jurisdiction to hear
and decide all unresolved grievances arising from
the interpretation or implementation of the
Collective Bargaining Agreement and those
arising from the interpretation or enforcement of
company personnel policies referred to in the
immediately preceding article. Accordingly,
violations of a Collective Bargaining Agreement,
except those which are gross in character, shall
no longer be treated as unfair labor practice and
shall be resolved as grievances under the
Collective Bargaining Agreement. For purposes of
this article, gross violations of Collective
Bargaining Agreement shall mean flagrant and/or

Art. 262. Jurisdiction over other labor disputes.


The Voluntary Arbitrator or panel of Voluntary
Arbitrators, upon agreement of the parties, shall
also hear and decide all other labor disputes
including unfair labor practices and bargaining
deadlocks."
In construing the above provisions, we held in San Jose
vs. NLRC, 9 that the jurisdiction of the Labor Arbiter and
the Voluntary Arbitrator or Panel of Voluntary Arbitrators
over the cases enumerated in the Labor Code, Articles
217, 261 and 262, can possibly include money claims in
one form or another.10 Comparatively, in Reformist Union
of R.B. Liner, Inc. vs. NLRC,11 compulsory arbitration has
been defined both as "the process of settlement of labor
disputes by a government agency which has the
authority to investigate and to make an award which is
binding on all the parties, and as a mode of arbitration
where the parties are compelled to accept the resolution
of their dispute through arbitration by a third party
(emphasis supplied)."12 While a voluntary arbitrator is not
part of the governmental unit or labor departments
personnel, said arbitrator renders arbitration services
provided for under labor laws.
Generally, the arbitrator is expected to decide only those
questions expressly delineated by the submission
agreement. Nevertheless, the arbitrator can assume that
he has the necessary power to make a final settlement
since arbitration is the final resort for the adjudication of
disputes.13 The succinct reasoning enunciated by the CA
in support of its holding, that the Voluntary Arbitrator in a
labor controversy has jurisdiction to render the
questioned arbitral awards, deserves our concurrence,
thus:
In general, the arbitrator is expected to decide
those questions expressly stated and limited in
the submission agreement. However, since
arbitration is the final resort for the adjudication
of disputes, the arbitrator can assume that he has
the power to make a final settlement. Thus,
assuming that the submission empowers the
arbitrator to decide whether an employee was
discharged for just cause, the arbitrator in this
instance can reasonable assume that his powers
extended beyond giving a yes-or-no answer and
included the power to reinstate him with or
without back pay.
In one case, the Supreme Court stressed that
"xxx the Voluntary Arbitrator had plenary
jurisdiction and authority to interpret the
agreement to arbitrate and to determine the
scope of his own authority subject only, in a

14

proper case, to the certiorari jurisdiction of this


Court. The Arbitrator, as already indicated,
viewed his authority as embracing not merely the
determination of the abstract question of whether
or not a performance bonus was to be granted
but also, in the affirmative case, the amount
thereof.
By the same token, the issue of regularization
should be viewed as two-tiered issue. While the
submission agreement mentioned only the
determination of the date or regularization, law
and jurisprudence give the voluntary arbitrator
enough leeway of authority as well as adequate
prerogative to accomplish the reason for which
the law on voluntary arbitration was created
speedy labor justice. It bears stressing that the
underlying reason why this case arose is to settle,
once and for all, the ultimate question of whether
respondent employees are entitled to higher
benefits. To require them to file another action for
payment of such benefits would certainly
undermine labor proceedings and contravene the
constitutional mandate providing full protection
to labor14
As regards petitioners contention that the money claim
in this case is barred by prescription, we hold that this
contention is without merit. So is petitioners stance that
the benefits claimed by the respondents, i.e., sick leave,
vacation leave and 13th-month pay, had already
prescribed, considering the three-year period for the
institution of monetary claims.15 Such determination is a
question of fact which must be ascertained based on the
evidence, both oral and documentary, presented by the
parties before the Voluntary Arbitrator. In this case, the
Voluntary Arbitrator found that prescription has not as yet
set in to bar the respondents claims for the monetary
benefits awarded to them. Basic is the rule that findings
of fact of administrative and quasi-judicial bodies, which
have acquired expertise because their jurisdiction is
confined to specific matters, are generally accorded not
only great respect but even finality. 16 Here, the Voluntary
Arbitrator received the evidence of the parties first-hand.
No compelling reason has been shown for us to diverge
from the findings of the Voluntary Arbitrator, especially
since the appellate court affirmed his findings, that it took
some time for respondent employees to ventilate their
claims because of the repeated assurances made by the
petitioner that it would review the company records and
determine therefrom the validity of the claims, without
expressing a categorical denial of their claims. As
elucidated by the Voluntary Arbitrator:

arbitration, the respondents had not refused to


comply with their duty. They just wanted the
complainants to present some proofs. The
complainants cause of action had not therefore
accrued yet. Besides, in the earlier voluntary
arbitration case aforementioned involving exactly
the same issue and employees similarly situated
as the complainants, the same defense was
raised and dismissed by Honorable Thelma
Jordan, Voluntary Arbitrator.
In fact, the respondents promised to correct their
length of service and grant them the back CBA
benefits if the complainants can prove they are
entitled rendered the former in estoppel, barring
them from raising the defense of laches or
prescription. To hold otherwise amounts to
rewarding the respondents for their duplicitous
representation and abet them in a dishonest
scheme against their workers. 17
Indeed, as the Court of Appeals concluded, under the
equitable principle of estoppel, it will be the height of
injustice if we will brush aside the employees claims on a
mere technicality, especially when it is petitioners own
action that prevented them from interposing the claims
within the prescribed period.
WHEREFORE, the petition is denied. The appealed
decision of the Court of Appeals in CA-G.R. SP No. 44341
and the resolution denying petitioners motion for
reconsideration, are AFFIRMED. Costs against petitioner.
SO ORDERED.

The respondents had raised prescription as


defense. The controlling law, as ruled by the High
Court, is:
"The cause of action accrues until the party
obligated refuses xxx to comply with his duty.
Being warded off by promises, the workers not
having decided to assert [their] right[s], [their]
causes of action had not accrued" (Citation
omitted.)
Since the parties had continued their negotiations
even after the matter was raised before the
Grievance
Procedure
and
the
voluntary

15

G.R. No. 121171 December 29, 1998


ASSET
PRIVATIZATION
TRUST,
petitioner,
vs.
COURT OF APPEALS, JESUS S. CABARRUS, SR.,
JESUS S. CABARRUS, JR., JAIME T. CABARRUS, JOSE
MIGUEL CABARRUS, ALEJANDRO S. PASTOR, JR.,
ANTONIO U. MIRANDA, and MIGUEL M. ANTONIO,
as Minority Stock-Holders of Marinduque Mining
and Industrial Corporation, respondents.

KAPUNAN, J.:
The petition for review on certiorari before us seeks to
reverse and set aside the decision of the Court of Appeals
which denied due course to the petition for certiorari filed
by the Asset Privatization Trust (APT) assailing the order
of the Regional Trial Court (RTC) Branch 62, Makati City.
The Makati RTC's order upheld and confirmed the award
made by the Arbitration Committee in favor of
Marinduque Mining and Industrial Corporation (MMIC) and
against the Government, represented by herein petitioner
APT for damages in the amount of P2.5 BILLION (or
approximately P4.5 BILLION, including interest).
Ironically, the staggering amount of damages was
imposed on the Government for exercising its legitimate
right of foreclosure as creditor against the debtor MMIC
as a consequence of the latter's failure to pay its overdue
and unpaid obligation of P22 billion to the Philippine
National Bank (PNB) and the Development Bank of the
Philippines (DBP).
The
of the case.

antecedent

facts

The development, exploration and utilization of the


mineral deposits in the Surigao Mineral Reservation have
been authorized by Republic Act No. 1528, as amended
by Republic Acts Nos. 2077 and 4167, by virtue of which
laws, a Memorandum of Agreement was drawn on July 3,
1968, whereby the Republic of the Philippines thru the
Surigao Mineral Reservation Board, granted MMIC the
exclusive right to explore, develop and exploit nickel,
cobalt and other minerals in the Surigao mineral
reservation. 1 MMIC is a domestic corporation engaged in
mining with respondent Jesus S. Cabarrus, Sr. as
President and among its original stockholders.
The Philippine Government undertook to support the
financing of MMIC by purchase of MMIC debenture bonds
and extension of guarantees. Further, the Philippine
Government obtained a firm commitment form the DBP
and/or other government financing institutions to
subscribe in MMIC and issue guarantee/s for foreign loans
or deferred payment arrangements secured from the US
Eximbank, Asian Development Bank, Kobe Steel, of
amount not exceeding US$100 Million. 2
DBP approved guarantees in favor of MMIC and
subsequent requests for guarantees were based on the
unutilized portion of the Government commitment.
Thereafter, the Government extended accommodations
to MMIC in various amounts.
On July 13, 1981, MMIC, PNB and DBP executed a
Mortgage Trust Agreement 3 whereby MMIC, as
mortgagor, agreed to constitute a mortgage in favor or

PNB and DBP as mortgagees, over all MMIC's assets;


subject of real estate and chattel mortgage executed by
the mortgagor, and additional assets described and
identified, including assets of whatever kind, nature or
description, which the mortgagor may acquire whether in
substitution of, in replenishment, or in addition thereto.
Article IV of the Mortgage Trust Agreement provides for
Events of Default, which expressly includes the event that
the MORTGAGOR shall fail to pay any amount secured by
this Mortgage Trust Agreement when due. 4
Article V of the Mortgage Trust Agreement prescribes in
detail, and in addition to the enumerated events of
defaults, circumstances by which the mortgagor may be
declared in default, the procedure therefor, waiver of
period to foreclose, authority of Trustee before, during
and after foreclosure, including taking possession of the
mortgaged properties. 5
In various requests for advances/remittances of loans if
huge amounts, Deeds of Undertaking, Promissory Notes,
Loan Documents, Deeds of Real Estate Mortgages, MMIC
invariably committed to pay either on demand or under
certain terms the loans and accommodations secured
from or guaranteed by both DBP and PNB.
By 1984, DBP and PNB's financial both in loans and in
equity in MMIC had reached tremendous proportions, and
MMIC was having a difficult time meeting its financial
obligations. MMIC had an outstanding loan with DBP in
the amount of P13,792,607,565.92 as of August 31, 1984
and with PNB in the amount of P8,789,028,249.38 as July
15, 1984 or a total Government expose of Twenty Two
Billion Six Hundred Sixty-Eight Million Five Hundred
Thirty-Seven Hundred Seventy and 05/100 (P22,
668,537,770.05), Philippine Currency. 6 Thus, a financial
restructuring plan (FRP) designed to reduce MMIC's
interest expense through debt conversion to equity was
drafted by the Sycip Gorres Velayo accounting firm. 7 On
April 30, 1984, the FRP was approved by the Board of
Directors of the MMIC. 8 However, the proposed FRP had
never been formally adopted, approved or ratified by
either PNB or DBP. 9
In August and September 1984, as the various loans and
advances made by DBP and PNB to MMIC had become
overdue and since any restructuring program relative to
the loans was no longer feasible, and in compliance with
the directive of Presidential Decree No. 385, DBP and PNB
as mortgagees of MMIC assets, decided to exercise their
right to extrajudicially foreclose the mortgages in
accordance with the Mortgage Trust Agreement. 10
The foreclosed assets were sold to PNB as the lone bidder
and were assigned to three newly formed corporations,
namely, Nonoc Mining Corporation, Maricalum Mining and
Industrial Corporation, and Island Cement Corporation. In
1986, these assets were transferred to the Asset
Privatization Trust (APT). 11
On February 28, 1985, Jesus S. Cabarrus, Sr., together
with the other stockholders of MMIC, filed a derivative
suit against DBP and PNB before the RTC of Makati,
Branch 62, for Annulment of Foreclosures, Specific
Performance and Damages. 12 The suit, docketed as Civil
Case No. 9900, prayed that the court: (1) annul the
foreclosures, restore the foreclosed assets to MMIC, and

16

require the banks to account for their use and operation


in the interim; (2) direct the banks to honor and perform
their commitments under the alleged FRP; and (3) pay
moral and exemplary damages, attorney's fees, litigation
expenses and costs.

(b) Whether or not the actions leading to,


and including,. the PNB-DBP foreclosure
of the MMIC assets were proper, valid and
in
good
faith. 14

In the course of the trial, private respondents and


petitioner APT, as successor of the DBP and the PNB's
interest in MMIC, mutually agreed to submit the case to
arbitration by entering into a "Compromise and
Arbitration Agreement," stipulating, inter alia:

This agreement was presented for approval to the trial


court. On October 14, 1992, the Makati RTC, Branch 61,
issued an order, to wit:

NOW
THEREFORE,
for
and
in
consideration of the foregoing premises
and the mutual covenants contained
herein the parties agree as follows:

1. Substituting PNB and


DBP
with
the
Asset
Privatization
Trust
as
party defendant.

1. Withdrawal and Compromise. The


parties have agreed to withdraw their
respective claims from the Trial Court and
to
resolve
their
dispute
through
arbitration by praying to the Trial Court to
issue a Compromise Judgment based on
this
Compromise
and
Arbitration
Agreement.

2.
Approving
the
Compromise
and
Arbitration
Agreement
dated October 6, 1997,
attached as Annex "C" of
the Omnibus Motion.

In withdrawing their dispute from the


court and in choosing to resolve it
through arbitration, the parties have
agreed that:
(a) their respective money claims shall be
reduced to purely money claims; and
(b) as successor and assignee of the PNB
and DBP interests in MMIC and the MMIC
accounts, APT shall likewise succeed to
the rights and obligations of PNB and DBP
in respect of the controversy subject of
Civil Case No. 9900 to be transferred to
arbitration and any arbitral award/order
against either PNB and/or DBP shall be
the responsibility be discharged by and
be enforceable against APT, the parties
having agreed to drop PNB and DBP from
the arbitration.
2. Submission. The parties hereby agree
that (a) the controversy in Civil Case No.
9900 shall be submitted instead to
arbitration under RA 876 and (b) the
reliefs prayed for in Civil Case No. 9900
shall, with the approval of the Trial Court
of this Compromise and Arbitration
Agreement, be transferred and reduced
to pure pecuniary/money claims with the
parties waiving and foregoing all other
forms of reliefs which they prayed for or
should have prayed for in Civil Case No.
9900. 13
The Compromise and Arbitration Agreement limited the
issues to the following:
5. Issues The issues to be submitted for
the Committee's resolution shall be (a)
Whether PLAINTIFFS have the capacity or
the personality to institute this derivative
suit in behalf of the MMIC or its directors,

WHEREFORE, this Court orders:

3.
Approving
the
Transformation
of
the
reliefs prayed for [by] the
plaintiffs in this case into
pure money claims; and
4. The Complaint
hereby DISMISSED. 15

is

The Arbitration Committee was composed of retired


Supreme Court Justice Abraham Sarmiento as Chairman,
Atty. Jose C. Sison and former Court of Appeals Justice
Magdangal Elma as Members. On November 24, 1993,
after conducting several hearings, the Arbitration
Committee rendered a majority decision in favor of MMIC,
the pertinent portions of which read as follows:
Since, as this Committee finds, there is no
foreclosure at all as it was not legally and
validly done, the Committee holds and so
declares that the loans of PNB and DBP to
MMIC. for the payment and recovery of
which the void foreclosure sales were
undertaken,
continue
to
remain
outstanding and unpaid. Defendant APT
as the successor-in-interest of PNB and
DBP to the said loans is therefore entitled
and retains the right, to collect the same
from MMIC pursuant to, and based on the
loan documents signed by MMIC, subject
to the legal and valid defenses that the
latter may duly and seasonably interpose.
Such loans shall, however, be reduced by
the amount which APT may have realized
from the sale of the seized assets of MMIC
which by agreement should no longer be
returned even if the foreclosures were
found to be null and void.
The documentary evidence submitted
and adopted by the parties (Exhibits "3",
"3-B"; Exhibit "100"; and also Exhibit
"ZZZ") as their exhibits would show that
the total outstanding obligation due to

17

DBP and PNB as of the date of foreclosure


is P22,668,537,770.05, more or less.
Therefore defendant APT can, and is still
entitled to, collect the outstanding
obligations of MMIC to PNB and DBP
amounting to P22,668,537,770.05, more
or less, with interest thereon as stipulated
in the loan documents from the date of
foreclosure up to the time they are fully
paid less the proportionate liability of DBP
as owner of 87% of the total
capitalization of MMIC under the FRP.
Simply put, DBP shall share in the award
of damages to, and in the obligations of,
MMIC in proportion to its 87% equity in
tile total capital stock of MMIC.
xxx xxx xxx
As this Committee holds that the FRP is
valid, DBP's equity in MMIC is raised to
87%. So pursuant to the above provision
of the Compromise and Arbitration
Agreement, the 87% equity of DBP is
hereby
deducted
from the actual
damages of P19,486,118,654.00 resulting
in
the
net
actual
damages
of
P2,531,635,425.02 plus interest.
DISPOSITION
WHEREFORE,
premises
considered,
judgment is hereby rendered:
1. Ordering the defendant to pay to the
Marinduque
Mining
and
Industrial
Corporation, except the DBP, the sum of
P2,531,635,425.02 with interest thereon
at the legal rate of six per cent (6%) per
annum reckoned from August 3, 9, and
24, 1984, pari passu, as and for actual
damages. Payment of these actual
damages shall be offset by APT from the
outstanding and unpaid loans of MMIC
with DBP and PNB, which have not been
converted into equity. Should there be
any balance due to MMIC after the
offsetting, the same shall be satisfied
from the funds representing the purchase
price of the sale of the shares of Island
Cement Corporation in the amount of
P503,000,000.00 held under escrow
pursuant to the Escrow Agreement dated
April 22, 1988 or to such subsequent
escrow agreement that would supercede
[sic] it pursuant to paragraph (9) of the
Compromise and Arbitration Agreement;
2. Ordering the defendant to pay to the
Marinduque
Mining
and
Industrial
Corporation, except the DBP, the sum of
P13,000.000.00, as and for moral and
exemplary damages. Payment of these
moral and exemplary damages shall be
offset by APT from the outstanding and
unpaid loans of MMIC with DBP and PNB,
which have not been converted into

equity. Should there be any balance due


to MMIC after the offsetting, the same
shall be satisfied from the funds
representing the purchase price of the
sale of the shares of Island Cement
Corporation
in
the
amount
of
P503,000,000.00 held under escrow
pursuant to the Escrow Agreement dated
April 22, 1988 or to such subsequent
escrow agreement that would supercede
[sic] it pursuant to paragraph (9) of the
Compromise and Arbitration Agreement;
3. Ordering the defendant to pay to the
plaintiff, Jesus S. Cabarrus, Sr., the sum of
P10,000,000.00, to be satisfied likewise
from the funds held under escrow
pursuant to the Escrow Agreement dated
April 22, 1988 or to such subsequent
escrow agreement that would supersede
it, pursuant to paragraph (9) of the
Compromise and Arbitration Agreement,
as and for moral damages; and
4. Ordering the
arbitration costs.

defendant

to

pay

This Decision is FINAL and EXECUTORY.


IT IS SO ORDERED.

16

Motions for reconsideration were filed by both parties, but


the same were denied.
On October 17, 1993, private respondents filed in the
same Civil Case No. 9900 an "Application/Motion for
Confirmation of Arbitration Award." Petitioner countered
with an "Opposition and Motion to Vacate Judgment"
raising the following grounds.
1. The plaintiffs Application/Motion is
improperly filed with this branch of the
Court, considering that the said motion is
neither a part nor the continuation of the
proceedings in Civil Case No. 9900 which
was dismissed upon motion of the
parties. In fact, the defendants in the said
Civil
Case
No.
9900
were
the
Development Bank of the Philippines and
the Philippine National Bank (PNB);
2. Under Section 71 of Rep. Act 876, an
arbitration under a contract or submission
shall be deemed a special proceedings
and a party to the controversy which was
arbitrated may apply to the court having
jurisdiction, (not necessarily with this
Honorable Court) for an order confirming
the award;
3. The issues submitted for arbitration
have been limited to two: (1) propriety of
the plaintiffs filing the derivative suit and
(2) the regularity of the foreclosure
proceedings.
The
arbitration
award
sought to be confirmed herein, far
exceeded the issues submitted and even
granted moral damages to one of the
herein plaintiffs;

18

4. Under Section 24 of Rep. Act 876, the


Court must make an order vacating the
award where the arbitrators exceeded
their powers, or so imperfectly executed
them, that a mutual, final and definite
award upon the subject matter submitted
to them was not made. 17
Private respondents filed a "REPLY AND OPPOSITION"
dated November 10, 1984, arguing that a dismissal of
Civil Case No. 9900 was merely a "qualified dismissal" to
pave the way for the submission of the controversy to
arbitration and operated simply as "a mere suspension of
the proceedings" They denied that the Arbitration
Committee had exceeded its powers.
In an Order dated November 28, 1993, the trial court
confirmed the award of the Arbitration Committee. The
dispositive portion of said order reads:
WHEREFORE, premises considered, and in
the light of the parties [sic] Compromise
and Arbitration Agreement dated October
6, 1992, the Decision of the Arbitration
Committee promulgated on November
24, 1993, as affirmed in a Resolution
dated July 26, 1994, and finally settled
and clarified in the Separate Opinion
dated September 2, 1994 of Committee
Member
Elma,
and
the
pertinent
provisions of RA 876, also known as the
Arbitration Law, this Court GRANTS
PLAINTIFFS' APPLICATION AND THUS
CONFIRMS THE ARBITRATION AWARD,
AND JUDGMENT IS HEREBY RENDERED:
(a) Ordering the defendant APT to the
Marinduque
Mining
and
Industrial
Corporation (MMIC), except the DBP, the
sum of P3,811,757,425.00, as and for
actual damages, which shall be partially
satisfied from the funds held under
escrow in the amount of P503,000,000.00
pursuant to the Escrow Agreement dated
April 22, 1988. The balance of the award,
after the escrow funds are fully applied,
shall be executed against the APT;
(b) Ordering the defendant to pay to the
MMIC, except the DBP, the sum of
P13,000,000.00 as and for moral and
exemplary damages;
(c) Ordering the defendant to pay to Jesus
S.
Cabarrus,
Sr.,
the
sum
of
P10,000,000.00
as
and
for moral
damages; and
(d) Ordering the defendant to pay the
herein plaintiffs/applicants/movants the
sum of P1,705,410.23 as arbitration
costs.
In reiteration of the mandates of
Stipulation No. 10 and Stipulation No. 8
paragraph 2 of the Compromise and
Arbitration Agreement, and the final edict
of the Arbitration Committee's decision,
and with this Court's Confirmation, the

issuance of the Arbitration Committee's


Award shall henceforth be final and
executory.
SO ORDERED.

18

On December 27, 1994, petitioner filed its motion for


reconsideration of the Order dated November 28, 1994.
Private respondents, in turn, submitted their reply and
opposition thereto.
On January 18, 1995, the trial court handed down its
order denying APT's motion for reconsideration for lack of
merit and for having been filed out of time. The trial court
declared that "considering that the defendant APT,
through counsel, officially and actually received a copy of
the Order of this Court dated November 28, 1994 on
December 6, 1994, the Motion for Reconsideration
thereof filed by the defendant APT on December 27,
1994, or after the lapse of 21 days, was clearly filed
beyond the 15-day reglementary period prescribed or
provided for by law for the filing of an appeal from final
orders, resolutions, awards, judgments or decisions of
any court in all cases, and by necessary implication for
the filing of a motion for reconsideration thereof."
On February 7, 1995, petitioner received private
respondents' Motion for Execution and Appointment of
Custodian of Proceeds of Execution dated February 6,
1995.
Petitioner thereafter filed with the Court of Appeals a
special civil action for certiorari with temporary
restraining order and/or preliminary injunction dated
February 13, 1996 to annul and declare as void the
Orders of the RTC-Makati dated November 28, 1994 and
January 18, 1995 for having been issued without or in
excess of jurisdiction and/or with grave abuse of
discretion. 19 As ground therefor, petitioner alleged that:
I
THE RESPONDENT JUDGE HAS NOT
VALIDLY ACQUIRED JURISDICTION MUCH
LESS, HAS THE COURT AUTHORITY, TO
CONFIRM
THE
ARBITRAL
AWARD
CONSIDERING THAT THE ORIGINAL CASE,
CIVIL CASE NO. 9900, HAD PREVIOUSLY
BEEN DISMISSED.
II
THE RESPONDENT JUDGE COMMITTED
GRAVE ABUSE OF DISCRETION AND
ACTED WITHOUT OR IN EXCESS OF
JURISDICTION,
IN
ISSUING
THE
QUESTIONED ORDERS CONFIRMING THE
ARBITRAL AWARD AND DENYING THE
MOTION FOR RECONSIDERATION OF
ORDER OF AWARD.
III
THE
RESPONDENT
JUDGE
GROSSLY
ABUSED HIS DISCRETION AND ACTED
WITHOUT OR IN EXCESS OF AND
WITHOUT JURISDICTION IN RECKONING
THE COUNTING OF THE PERIOD TO FILE
MOTION FOR RECONSIDERATION, NOT
FROM THE DATE OF SERVICE OF THE

19

COURT'S COPY CONFIRMING THE AWARD,


BUT FROM RECEIPT OF A XEROX COPY OF
WHAT PRESUMABLY IS THE OPPOSING
COUNSEL'S COPY THEREOF. 20
On July 12, 1995, he Court of Appeals, through its FifthDivision, denied due course and dismissed the petition for
certiorari.
Hence, the instant petition for review on certiorari
imputing to the Court of Appeals the following errors:
ASSIGNMENT OF ERRORS
I
THE COURT OF APPEALS ERRED IN NOT
HOLDING THAT THE MAKATI REGIONAL
TRIAL COURT, BRANCH 62 WHICH HAS
PREVIOUSLY DISMISSED CIVIL CASE NO.
9900 HAD LOST JURISDICTION TO
CONFIRM THE ARBITRAL AWARD UNDER
THE SAME CIVIL CASE AND NOT RULING
THAT
THE
APPLICATION
FOR
CONFIRMATION SHOULD HAVE BEEN
FILED AS A NEW CASE TO BE RAFFLED
OFF AMONG THE DIFFERENT BRANCHES
OF THE RTC.
II
THE COURT OF APPEALS LIKEWISE ERRED
IN HOLDING THAT PETITIONER WAS
ESTOPPED FROM QUESTIONING THE
ARBITRATION AWARD, WHEN PETITIONER
QUESTIONED THE JURISDICTION OF THE
RTC-MAKATI, BRANCH 62 AND AT THE
SAME TIME MOVED TO VACATE THE
ARBITRAL AWARD.
III
THE COURT OF APPEALS ERRED IN NOT
HOLDING THAT THE RESPONDENT TRIAL
COURT
SHOULD
HAVE
EITHER
DISMISSED/DENIED
PRIVATE
RESPONDENTS' MOTION/PETITION FOR
CONFIRMATION OF ARBITRATION AWARD
AND/OR SHOULD HAVE CONSIDERED THE
MERITS OF THE MOTION TO VACATE
ARBITRAL AWARD.
IV
THE COURT OF APPEALS ERRED IN NOT
TREATING PETITIONER APT'S PETITION
FOR CERTIORARI AS AN APPEAL TAKEN
FROM THE ORDER CONFIRMING THE
AWARD.
V
THE COURT OF APPEALS ERRED IN NOT
RULING ON THE LEGAL ISSUE OF WHEN
TO RECKON THE COUNTING OF THE
PERIOD TO FILE A MOTION FOR
RECONSIDERATION. 21
The petition is impressed with merit.
I

The RTC of Makati, Branch 62,


did not have jurisdiction to confirm
the arbitral award.
The use of the term "dismissed" is not "a mere semantic
imperfection". The dispositive portion of the Order of the
trial court dated October 14, 1992 stated in no uncertain
terms:
4. The Complaint is hereby DISMISSED.

22

The term "dismiss" has a precise definition in law.


"To dispose of an action, suit, or motion without
trial
on
the
issues
involved.
Conclude,
discontinue, terminate, quash." 23
Admittedly, the correct procedure was for the parties to
go back to the court where the case was pending to have
the award confirmed by said court. However, Branch 62
made the fatal mistake of issuing a final order dismissing
the case. While Branch 62 should have merely suspended
the case and not dismissed it, 24 neither of the parties
questioned said dismissal. Thus, both parties as well as
said court are bound by such error.
It is erroneous then to argue, as private respondents do,
that petitioner APT was charged with the knowledge that
the "case was merely stayed until arbitration finished," as
again, the order of Branch 62 in very clear terms stated
that the "complaint was dismissed." By its own action,
Branch 62 had lost jurisdiction over the case. It could not
have validly reacquired jurisdiction over the said case on
mere motion of one of the parties. The Rules of Court is
specific on how a new case may be initiated and such is
not done by mere motion in a particular branch of the
RTC. Consequently, as there was no "pending action" to
speak of, the petition to confirm the arbitral award should
have been filed as a new case and raffled accordingly to
one of the branches of the Regional Trial Court.
II
Petitioner was not estopped from
questioning the jurisdiction of
Branch 62 of the RTC of Makati.
The Court of Appeals ruled that APT was already
estopped to question the jurisdiction of the RTC to
confirm the arbitral award because it sought affirmative
relief in said court by asking that the arbitral award be
vacated.
The rule is that "Where the court itself clearly has no
jurisdiction over the subject matter or the nature of the
action, the invocation of this defense may be done at any
time. It is neither for the courts nor for the parties to
violate or disregard that rule, let alone to confer that
jurisdiction this matter being legislative in character." 25
As a rule then, neither waiver nor estoppel shall apply to
confer jurisdiction upon a court barring highly meritorious
and exceptional circumstances. 26 One such exception
was enunciated in Tijam vs. Sibonghanoy, 27 where it was
held that "after voluntarily submitting a cause and
encountering an adverse decision on the merits, it is too
late for the loser to question the jurisdiction or power of
the court."

20

Petitioner's situation is different because from the outset,


it has consistently held the position that the RTC, Branch
62 had no jurisdiction to confirm the arbitral award;
consequently, it cannot be said that it was estopped from
questioning the RTC's jurisdiction. Petitioner's prayer for
the setting aside of the arbitral award was not
inconsistent with its disavowal of the court's jurisdiction.
III
Appeal of petitioner to the
Court of Appeals thru certiorari
under Rule 65 was proper.
The Court of Appeals in dismissing APT's petition for
certiorari upheld the trial court's denial of APT's motion
for reconsideration of the trial court's order confirming
the arbitral award, on the ground that said motion was
filed
beyond
the
15-day
reglementary
period;
consequently, the petition for certiorari could not be
resorted to as substitute to the lost right of appeal.
We do not agree.
Section 99 of Republic Act No. 876,

28

provides that:

. . . An appeal may be taken from an


order made in a proceeding under this
Act, or from a judgment entered upon an
award through certiorari proceedings, but
such appeals shall be limited to questions
of law. . . ..
The aforequoted provision, however, does not preclude a
party aggrieved by the arbitral award from resorting to
the extraordinary remedy of certiorari under Rule 65 of
the Rules of Court where, as in this case, the Regional
Trial Court to which the award was submitted for
confirmation has acted without jurisdiction or with grave
abuse of discretion and there is no appeal, nor any plain,
speedy remedy in the course of law.
Thus, Section 1 of Rule 65 provides:
Sec 1. Petition for Certiorari: When any
tribunal, board or officer exercising
judicial functions, has acted without or in
excess of its or his jurisdiction, or with
grave abuse of discretion and there is no
appeal, nor any plain, speed, and
adequate remedy in the ordinary course
of law, a person aggrieved thereby may
file a verified petition in the proper court
alleging the facts with certainty and
praying that judgment be rendered
annulling or modifying the proceedings,
as the law requires, of such tribunal,
board or officer.
In the instant case, the respondent court erred in
dismissing the special civil action for certiorari, it being
clear from the pleadings and the evidence that the trial
court lacked jurisdiction and/or committed grave abuse of
discretion in taking cognizance of private respondents'
motion to confirm the arbitral award and, worse, in
confirming said award which is grossly and patently not in
accord with the arbitration agreement, as will be
hereinafter demonstrated.

IV
The nature and limits of the
Arbitrators' power.
As a rule, the award of an arbitrator cannot be set aside
for mere errors of judgment either as to the law or as to
the facts. 29 Courts are without power to amend or
overrule merely because of disagreement with matters of
law or facts determined by the arbitrators. 30 They will not
review the findings of law and fact contained in an award,
and will not undertake to substitute their judgment for
that of the arbitrators, since any other rule would make
an award the commencement, not the end, of litigation.
31
Errors of law and fact, or an erroneous decision of
matters submitted to the judgment of the arbitrators, are
insufficient to invalidate an award fairly and honestly
made. 32 Judicial review of an arbitration is thus, more
limited than judicial review of a trial. 33
Nonetheless, the arbitrators' award is not absolute and
without exceptions. The arbitrators cannot resolve issues
beyond the scope of the submission agreement. 34 The
parties to such an agreement are bound by the
arbitrators' award only to the extent and in the manner
prescribed by the contract and only if the award is
rendered in conformity thereto. 35 Thus, Sections 24 and
25 of the Arbitration Law provide grounds for vacating,
rescinding or modifying an arbitration award. Where the
36
conditions
described
in
Articles
2038,
2039, 37 and 1040 38 of the Civil Code applicable to
compromises and arbitration are attendant, the
arbitration award may also be annulled.
In Chung Fu Industries (Phils.) vs. Court of Appeals,
held:

39

we

. . . . It is stated explicitly under Art. 2044


of the Civil Code that the finality of the
arbitrators' award is not absolute and
without exceptions. Where the conditions
described in Articles 2038, 2039 and
2040 applicable to both compromises and
arbitrations are obtaining, the arbitrator's
award may be annulled or rescended.
Additionally, under Sections 24 and 25 of
the Arbitration Law, there are grounds for
vacating, modifying or rescinding an
arbitrator's award. Thus, if and when the
factual circumstances referred to the
above-cited
provisions
are present,
judicial review of the award is properly
warranted.
According, Section 20 of R.A. 876 provides:
Sec. 20. Form and contents of award.
The award must be made in writing and
signed and acknowledge by a majority of
the arbitrators, if more than one; and by
the sole arbitrator, if there is only only.
Each party shall be furnished with a copy
of the award. The arbitrators in their
award may grant any remedy or relief
which they deem just and equitable and
within the scope of the agreement of the
parties, which shall include, but not be

21

limited to, the specific performance of a


contract.

affecting the merits of the decision upon


the matter submitted; or

xxx xxx xxx

(c) Where the award is imperfect in a


matter of form not affecting the merits of
the controversy, and if it had been a
commissioner's report, the defect could
have been amended or disregarded by
the court.

The arbitrators shall have the power to


decide only those matters which have
been submitted to them. The terms of
the award shall be confined to such
disputes. (Emphasis ours).

xxx xxx xxx

xxx xxx xxx


Sec. 24 of the same law enumerating the grounds for
vacating an award states:
Sec. 24. Grounds for vacating award. In
any one of the following cases, the court
must make an order vacating the award
upon the petition of any party to the
controversy when such party proves
affirmatively that in the arbitration
proceeding:
(a) The award was procured by
corruption, fraud, or other undue means;
or

Finally, it should be stressed that while a court is


precluded from overturning an award for errors in the
determination of factual issues, nevertheless, if an
examination of the record reveals no support whatever
for the arbitrators determinations, their award must be
vacated. 40 in the same manner, an award must be
vacated if it was made in "manifest disregard of the law."
41

Against the backdrop of the foregoing provisions and


principles, we find that the arbitrators came out with an
award in excess of their powers and palpably devoid of
factual and legal basis.
V

(b) That there was evident partiality or


corruption in the arbitrators or any of
them; or

There was no financial

(c) That the arbitrators were guilty of


misconduct in refusing to postpone the
hearing upon sufficient cause shown, or
in refusing to hear evidence pertinent and
material to the controversy; that one or
more of the arbitrators was disqualified to
act as such under section nine hereof,
and willfully refrained from disclosing
such disqualifications or any other
misbehavior by which the rights of any
party have been materially prejudiced; or

foreclosure of mortgage

(d) That the arbitrators exceeded their


powers, or so imperfectly executed them,
that a mutual, final and definite award
upon the subject matter submitted to
them was not made. (Emphasis ours)
xxx xxx xxx.
Section 25 which enumerates the grounds for modifying
the award provides:
Sec. 25. Grounds for modifying or
correcting award In anyone of the
following cases, the court must make an
order modifying or correcting the award,
upon the application of any party to the
controversy which was arbitrated:
(a) Where there was an evident
miscalculation of figures, or an evident
mistake in the description of any person,
thing or property referred to in the award;
or
(b) Where the arbitrators have awarded
upon a matter not submitted to them, not

structuring program:

was fully justified.


The point need not be belabored that PNB and DBP had
the legitimate right to foreclose of the mortgages of MMIC
whose obligations were past due. The foreclosure was not
a wrongful act of the banks and, therefore, could not be
the basis of any award of damages. There was no
financial restructuring agreement to speak of that could
have constituted an impediment to the exercise of the
banks' right to foreclose.
As correctly stated by Mr. Jose C. Sison, a member of the
Arbitration Committee who wrote a separate opinion:
1. The various loans and advances made
by DBP and PNB to MMIC have become
overdue and remain unpaid. The fact that
a FRP was drawn up is enough to
establish that MMIC has not been
complying with the terms of the loan
agreement.
Restructuring
simply
connotes that the obligations are past
due that is why it is "restructurable";
2. When MMIC thru its board and the
stockholders agreed and adopted the
FRP, it only means that MMIC had been
informed or notified that its obligations
were past due and that foreclosure is
forthcoming;
3. At that stage, MMIC also knew that
PNB-DBP had the option of either
approving the FRP or proceeding with the
foreclosure. Cabarrus, who filed this case
supposedly in behalf of MMIC should have

22

insisted on the FRP. Yet Cabarrus himself


opposed the FRP;
4. So when PNB-DBP proceeded with the
foreclosure, it was done without bad faith
but with the honest and sincere belief
that foreclosure was the only alternative;
a decision further explained by Dr. Placido
Mapa who testified that foreclosure was,
in the judgment of PNB, the best move to
save MMIC itself.
Q : Now in this portion of Exh. "L" which
was marked as Exh. "L-1", and we
adopted as Exh. 37-A for the respondent,
may I know from you, Dr. Mapa what you
meant by "that the decision to foreclose
was neither precipitate nor arbitrary"?
A : Well, it is not a whimsical decision but
rather decision arrived at after weighty
consideration of the information that we
have received, and listening to the
prospects which reported to us that what
we had assumed would be the premises
of the financial rehabilitation plan was not
materialized nor expected to materialize.
Q : And this statement that "it was
premised upon the known fact" that
means, it was referring to the decision to
foreclose, was premised upon the known
fact that the rehabilitation plan earlier
approved by the stockholders was no
longer feasible, just what is meant "by no
longer feasible"?

because they were already due and


unpaid, they are likewise "forecloseable".
The option is with the PNB-DBP on what
steps to take.
The mere fact that MMIC adopted the FRP
does not mean that DBP-PNB lost the
option to foreclose. Neither does it mean
that the FRP is legally binding and
implementable. It must be pointed that
said FRP will, in effect, supersede the
existing and past due loans of MMIC with
PNB-DBP. It will become the new loan
agreement between the lenders and the
borrowers. As in all other contracts, there
must therefore be a meeting of minds of
the parties; the PNB and DBP must have
to validly adopt and ratify such FRP
before they can be bound by it; before it
can be implemented. In this case, not an
iota of proof has been presented by the
PLAINTIFFS showing that PNB and DBP
ratified and adopted the FRP. PLAINTIFFS
simply relied on a legal doctrine of
promissory estoppel to support its
allegations in this regard. 42
Moreover, PNB and DBP had to initiate foreclosure
proceedings as mandated by P.D. No. 385, which took
effect on January 31, 1974. The decree requires
government financial institutions to foreclose collaterals
for loans where the arrearages amount to 20% of the
total outstanding obligations. The pertinent provisions of
said decree read as follow:

Which brings me to my last point in this


separate opinion. Was PNB and DBP
absolutely unjustified in foreclosing the
mortgages?

Sec. 1. It shall be mandatory for


government financial institutions, after
the lapse of sixty (60) days from the
issuance of this Decree, to foreclose the
collaterals and/or securities for any loan,
credit,
accommodation,
and/or
guarantees granted by them whenever
the arrearages on such account, including
accrued interest and other charges,
amount to at least twenty percent (20%)
of the total outstanding obligations,
including interest and other charges, as
appearing in the books of account and/or
related
records
of
the
financial
institutions concerned. This shall be
without prejudice to the exercise by the
government financial institutions of such
rights and/or remedies available to them
under their respective contracts with their
debtors, including the right to foreclosure
on loans, credits, accommodations and/or
guarantees on which the arrearages are
less than twenty percent (20%).

In this connection, it can readily be seen


and it cannot quite be denied that MMIC
accounts in PNB-DBP were past due. The
drawing up of the FRP is the best proof of
this. When MMIC adopted a restructuring
program for its loan, it only meant that
these loans were already due and unpaid.
If these loans were restructurable

Sec. 2. No restraining order temporary or


permanent injunction shall be issued by
the court against any government
financial institution in any action taken by
such institution in compliance with the
mandatory
foreclosure
provided
in
Section
1
hereof,
whether
such
restraining
order,
temporary
or

A : Because the revenue that they were


counting on to make the rehabilitation
plan possible, was not anymore expected
to be forthcoming because it will result in
a short fall compared to the prices that
were actually taking place in the market.
Q : And I suppose that was what you were
referring to when you stated that the
production targets and assumed prices of
MMIC's
products,
among
other
projections,
used
in
the
financial
reorganization program that will make it
viable were not met nor expected to be
met?
A : Yes.
xxx xxx xxx

23

permanent injunction is sought by the


borrower(s) or any third party or parties,
except after due hearing in which it is
established by the borrower and admitted
by the government financial institution
concerned that twenty percent (20%) of
the outstanding arrearages has been paid
after the filing of foreclosure proceedings.
(Emphasis supplied.)
Private respondents' thesis that the foreclosure
proceedings were null and void because of lack of
publication in the newspaper is nothing more than a mere
unsubstantiated aliegation not borne out by the evidence.
In any case, a disputable presumption exists in favor of
petitioner that official duty has been regularly performed
and ordinary course of business has been followed. 43
VI
Not only was the foreclosure rightfully exercised by the
PNB and DBP, but also, from the facts of the case, the
arbitrators in making the award went beyond the
arbitration agreement.
In their complaint filed before the trial court, private
respondent Cabarrus, et al. prayed for judgment in their
favor:
1. Declaring the foreclosures effected by
the defendants DBP and PNB on the
assets of MMIC null and void and
directing said defendants to restore the
foreclosed assets to the possession of
MMIC, to render an accounting of their
use and/or operation of said assets and to
indemnify MMIC for the loss occasioned
by its dispossession or the deterioration
thereof;
2. Directing the defendants DBP and PNB
to honor and perform their commitments
under the financial reorganization plan
which was approved at the annual
stockholders' meeting of MMIC on 30 April
1984;
3. Condemning the defendants DBP and
PNB, jointly and severally to pay the
plaintiffs actual damages consisting of
the loss of value of their investments
amounting to not less than P80,000,000,
the damnum emergens and lucrum
cessans in such amount as may be
established during the trial, moral
damages in such amount as this
Honorable Court may deem just and
equitable in the premises, exemplary
damages in such amount as this
Honorable
Court
may
consider
appropriate for the purpose of setting an
example for the public good, attorney's
fees and litigation expenses in such
amounts as may be proven during the
trial, and the costs legally taxable in this
litigation.

Further, plaintiffs pray for such other


reliefs as may be just and equitable in the
premises. 44
Upon submission for arbitration, the Compromise and
Arbitration Agreement of the parties clearly and explicitly
defined and limited the issues to the following:
(a) whether PLAINTIFFS have the capacity
or the personality to institute this
derivative suit in behalf of the MMIC or its
directors;
(b) whether or not the actions leading to,
and including, the PNB-DBP foreclosure of
the MMIC assets were proper, valid and in
good faith. 45
Item No. 8 of the Agreement provides for the period by
which the Committee was to render its decision, as well
as the nature thereof:
8. Decision. The committee shall issue a
decision on the controversy not later than
six (6) months from the date of its
constitution.
In the event the committee finds that
PLAINTIFFS have the personality to file
this suit and the extra-judicial foreclosure
of the MMIC assets wrongful, it shall make
an award in favor of the PLAINTIFFS
(excluding DBP), in an amount as may be
established or warranted by the evidence
which shall be payable in Philippine Pesos
at the time of the award. Such award
shall be paid by the APT or its successorin-interest within sixty (60) days from the
date of the award in accordance with the
provisions of par. 9 hereunder. . . . . The
PLAINTIFFS' remedies under this Section
shall be in addition to other remedies that
may be available to the PLAINTIFFS, all
such remedies being cumulative and not
exclusive of each other.
On the other hand, in case the arbitration
committee finds that PLAINTIFFS have no
capacity to sue and/or that the extrajudicial foreclosure is valid and legal, it
shall also make an award in favor of APT
based on the counterclaims of DBP and
PNB in an amount as may be established
or warranted by the evidence. This
decision of the arbitration committee in
favor of APT shall likewise finally settle all
issues regarding the foreclosure of the
MMIC assets so that the funds held in
escrow mentioned in par. 9 hereunder will
thus be released in full in favor of
APT. 46
The clear and explicit terms of the submission
notwithstanding, the Arbitration Committee clearly
exceeded its powers or so imperfectly executed them: (a)
in ruling on and declaring valid the FRP; (b) in awarding
damages to MMIC which was not a party to the derivative
suit; and (c) in awarding moral damages to Jesus S.
Cabarrus, Sr.

24

The arbiters overstepped


their powers by declaring as
valid the proposed Financial
Restructuring Program.
The Arbitration Committee went beyond its mandate and
thus acted in excess of its powers when it ruled on the
validity of, and gave effect to, the proposed FRP.
In submitting the case to arbitration, the parties had
mutually agreed to limit the issue to the "validity of the
foreclosure" and to transform the relief prayed for therein
into pure money claims.
There is absolutely no evidence that the DBP and PNB
agreed, expressly or impliedly, to the proposed FRP. It
cannot be overemphasized that a FRP, as a contract,
requires the consent of the parties thereto. 47 The
contract must bind both contracting parties. 48 Private
respondents even by their own admission recognized that
the FRP had yet not been carried out and that the loans
of MMIC had not yet been converted into equity. 49
However, the Arbitration Committee not only declared
the FRP valid and effective, but also converted the loans
of MMIC into equity raising the equity of DBP to 87%. 50
The Arbitration Committee ruled that there was "a
commitment to carry out the FRP" 51 on the ground of
promissory estoppel.
Similarly, the principle of promissory
estoppel applies in the present case
considering as we observed, the fact that
the government (that is, Alfredo Velayo)
was the FRP's proponent. Although the
plaintiffs are agreed that the government
executed no formal agreement, the fact
remains that the DBP itself which made
representations that the FRP constituted
a "way out" for MMIC. The Committee
believes that although the DBP did not
formally agree (assuming that the board
and stockholders' approvals were not
formal enough), it is bound nonetheless if
only for its conspicuous representations.
Although the DBP sat in the board in a
dual capacity as holder of 36% of
MMIC's equity (at that time) and as
MMIC's creditor the DBP can not validly
renege on its commitments simply
because at the same time, it held
interests against the MMIC.
The fact, of course, is that as APT itself
asserted, the FRP was being "carried out"
although apparently, it would supposedly
fall short of its targets. Assuming that the
FRP would fail to meet its targets, the
DBP and so this Committee holds
can not, in any event, brook any denial
that it was bound to begin with, and the
fact is that adequate or not (the FRP), the
government is still bound by virtue of its
acts.

The FRP, of course, did not itself promise


a resounding success, although it raised
DBP's equity in MMIC to 87%. It is not an
excuse, however, for the government to
deny its commitments. 52
Atty. Sison, however,
observed that:

did

not

agree

and

correctly

But the doctrine of promissory estoppel


can hardly find application here. The
nearest that there can be said of any
estoppel being present in this case is the
fact that the board of MMIC was, at the
time the FRP was adopted, mostly
composed
of
PNB
and
DBP
representatives.
But
those
representatives, singly or collectively, are
not themselves PNB or DBP. They are
individuals with personalities separate
and distinct from the banks they
represent. PNB and DBP have different
boards with different members who may
have different decisions. It is unfair to
impose upon them the decision of the
board of another company and thus pin
them down on the equitable principle of
estoppel. Estoppel is a principle based on
equity and it is certainly not equitable to
apply it in this particular situation.
Otherwise the rights of entirely separate
distinct and autonomous legal entities
like PNB and DBP with thousands of
stockholders will be suppressed and
rendered nugatory. 53
As a rule, a corporation exercises its powers, including
the power to enter into contracts, through its board of
directors. While a corporation may appoint agents to
enter into a contract in its behalf, the agent should not
exceed his authority. 54 In the case at bar, there was no
showing that the representatives of PNB and DBP in MMIC
even had the requisite authority to enter into a debt-forequity swap. And if they had such authority, there was no
showing that the banks, through their board of directors,
had ratified the FRP.
Further, how could the MMIC be entitled to a big amount
of moral damages when its credit reputation was not
exactly something to be considered sound and
wholesome. Under Article 2217 of the Civil Code, moral
damages include besmirched reputation which a
corporation may possibly suffer. A corporation whose
overdue and unpaid debts to the Government alone
reached a tremendous amount of P22 Billion Pesos
cannot certainly have a solid business reputation to brag
about. As Atty. Sison in his separate opinion persuasively
put it:
Besides, it is not yet a well settled
jurisprudence that corporations are
entitled to moral damages. While the
Supreme Court may have awarded moral
damages to a corporation for besmirched
reputation in Mambulao vs. PNB, 22 SCRA
359, such ruling cannot find application in
this case. It must be pointed out that
when the supposed wrongful act of

25

foreclosure was done, MMIC's credit


reputation was no longer a desirable one.
The company then was already suffering
from serious financial crisis which
definitely
projects
an
image
not
compatible with good and wholesome
reputation. So it could not be said that
there was a "reputation" besmirched by
the act of foreclosure. 55
The arbiters exceeded their
authority in awarding damages
to MMIC, which is not impleaded
as a party to the derivative suit.
Civil Case No. 9900 filed before the RTC being a
derivative suit, MMIC should have been impleaded as a
party. It was not joined as a party plaintiff or party
defendant at any stage of the proceedings. As it is, the
award of damages to MMIC, which was not a party before
the Arbitration Committee, is a complete nullity.
Settled is the doctrine that in a derivative suit, the
corporation is the real party in interest while the
stockholder filing suit for the corporation's behalf is only
a nominal party. The corporation should be included as a
party in the suit.
An individual stockholder is permitted to
institute a derivative suit on behalf of the
corporation wherein he holds stock in
order to protect or vindicate corporate
rights, whenever the officials of the
corporation refuse to sue, or are the ones
to be sued or hold the control of the
corporation. In such actions, the suing
stockholder is regarded as a nominal
party, with the corporation as the real
party in interest. . . . . 56
It is a condition sine qua non that the corporation be
impleaded as a party because
. . . Not only is the corporation an
indispensable party, but it is also the
present rule that it must be served with
process. The reason given is that the
judgment must be made binding upon the
corporation in order that the corporation
may get the benefit of the suit and may
not bring a subsequent suit against the
same defendants for the same cause of
action. In other words the corporation
must be joined as party because it is its
cause of action that is being litigated and
because judgment must be a res
ajudicata against it. 57
The reasons given for not allowing direct individual suit
are:
(1) . . . "the universally recognized
doctrine that a stockholder in a
corporation has no title legal or equitable
to the corporate property; that both of
these are in the corporation itself for the
benefit of the stockholders." In other

words, to allow shareholders to


separately would conflict with
separate corporate entity principle;

sue
the

(2) . . . that the prior rights of the


creditors may be prejudiced. Thus, our
Supreme Court held in the case of
Evangelista
v.
Santos,
that
"the
stockholders may not directly claim those
damages for themselves for that would
result in the appropriation by, and the
distribution among them of part of the
corporate assets before the dissolution of
the corporation and the liquidation of its
debts and liabilities, something which
cannot be legally done in view of section
16 of the Corporation Law . . .;
(3) the filing of such suits would conflict
with the duty of the management to sue
for the protection of all concerned;
(4) it would produce wasteful multiplicity
of suits; and
(5) it would involve confusion in a
ascertaining the effect of partial recovery
by an individual on the damages
recoverable by the corporation for the
same act. 58
If at all an award was due MMIC, which it was not, the
same should have been given sans deduction, regardless
of whether or not the party liable had equity in the
corporation, in view of the doctrine that a corporation has
a personality separate and distinct from its individual
stockholders or members. DBP's alleged equity, even if it
were indeed 87%, did not give it ownership over any
corporate property, including the monetary award, its
right over said corporate property being a mere
expectancy or inchoate right. 59 Notably, the stipulation
even had the effect of prejudicing the other creditors of
MMIC.
The arbiters, likewise,
exceeded their authority
in awarding moral damages
to Jesus Cabarrus, Sr.
It is perplexing how the Arbitration Committee can in one
breath rule that the case before it is a derivative suit, in
which the aggrieved party or the real party in interest is
supposedly the MMIC, and at the same time award moral
damages to an individual stockholder, to wit:
WHEREFORE,
premises
considered,
judgment is hereby rendered:
xxx xxx xxx
3. Ordering the defendant to pay to the
plaintiff, Jesus S. Cabarrus, Sr., the sum of
P10,000,000.00, to be satisfied likewise
from the funds held under escrow
pursuant to the Escrow Agreement dated
April 22, 1988 or to such subsequent
escrow agreement that would supersede
it,
pursuant
to
paragraph
(9),

26

Compromise and Arbitration Agreement,


as and for moral damages; . . . 60

Pascual vs. Oresco, 14 Phil. 83). In


Ganzon & Sons vs. Register of Deeds, 6
SCRA 373, the rule has been reiterated
that "a stockholder is not the co-owner of
corporate property." Since the property or
assets foreclosed belongs [sic] to MMIC,
the wrong committed, if any, is done
against
the
corporation.
There
is
therefore no direct injury or direct
violation of the rights of Cabarrus et al.
There is no way, legal or equitable, by
which Cabarrus et al. could recover
damages in their personal capacities
even assuming or just because the
foreclosure is improper or invalid. The
Compromise and Arbitration Agreement
itself and the elementary principles of
Corporation Law say so. Therefore, I am
constrained to dissent from the award of
moral damages to Cabarrus. 64

The majority decision of the Arbitration Committee


sought to justify its award of moral damages to Jesus S.
Cabarrus, Sr. by pointing to the fact that among the
assets seized by the government were assets belonging
to Industrial Enterprise Inc. (IEI), of which Cabarrus is the
majority stockholder. It then acknowledged that Cabarrus
had already recovered said assets in the RTC, but that "he
won no more than actual damages. While the Committee
cannot possibly speak for the RTC, there is no doubt that
Jesus S. Cabarrus, Sr., suffered moral damages on
account of that specific foreclosure, damages the
Committee believes and so holds, he, Jesus S. Cabarrus,
Sr., may be awarded in this proceeding." 61
Cabarrus cause of action for the seizure of the assets
belonging to IEI, of which he is the majority stockholder,
having been ventilated in a complaint he previously filed
with the RTC, from which he obtained actual damages, he
was barred by res judicata from filing a similar case in
another court, this time asking for moral damages which
he failed to get from the earlier case. 62 Worse, private
respondents violated the rule against non-forum
shopping.
It is a basic postulate that a corporation has a personality
separate and distinct from its stockholders. 63 The
properties foreclosed belonged to MMIC, not to its
stockholders. Hence, if wrong was committed in the
foreclosure, it was done against the corporation. Another
reason is that Jesus S. Cabarrus, Sr. cannot directly claim
those damages for himself that would result in the
appropriation by, and the distribution to, him part of the
corporation's assets before the dissolution of the
corporation and the liquidation of its debts and liabilities.
The Arbitration Committee, therefore, passed upon
matters nor submitted to it. Moreover, said cause of
action had already been decided in a separate case. It is
thus quite patent that the arbitration committee
exceeded the authority granted to it by the parties'
Compromise and Arbitration Agreement by awarding
moral damages to Jesus S. Cabarrus, Sr.

From the foregoing discussions, it is evident that, not only


did the arbitration committee exceed its powers or so
imperfectly execute them, but also, its findings and
conclusions are palpably devoid of any factual basis, and
in manifest disregard of the law.
We do not find it necessary to remand this case to the
RTC for appropriate action. The pleadings and
memoranda filed with this Court, as well as in the Court
of Appeals, raised and extensively discussed the issues
on the merits. Such being the case, there is sufficient
basis for us to resolve the controversy between the
parties anchored on the records and the pleadings before
us. 65
WHEREFORE, the Decision of the Court of Appeals dated
July 17, 1995, as well as the Orders of the Regional Trial
Court of Makati, Branch 62, dated November 28, 1994
and January 19, 1995, is hereby REVERSED and SET
ASIDE, and the decision of the Arbitration Committee is
hereby VACATED.
SO ORDERED.

Atty. Sison, in his separate opinion, likewise expressed


befuddlement to the award of moral damages to Jesus S.
Cabarrus, Sr.:
It is clear and it cannot be disputed
therefore that based on these stipulated
issues, the parties themselves have
agreed that the basic ingredient of the
causes of action in this case is the wrong
committed on the corporation (MMIC) for
the alleged illegal foreclosure of its
assets. By agreeing to this stipulation,
PLAINTIFFS themselves (Cabarrus, et al.)
admit that the cause of action pertains
only to the corporation (MMIC) and that
they are filing this for and in behalf of
MMIC.
Perforce this has to be so because it is
the basic rule in Corporation Law that
"the shareholders have no title, legal or
equitable to the property which is owned
by the corporation (13 Am. Jur. 165;

27

CELESTINO VIVIERO, petitioner, vs. COURT OF APPEALS,


HAMMONIA MARINE SERVICES, and HANSEATIC SHIPPING
CO., LTD. respondents.
DECISION
BELLOSILLO, J.:
CELESTINO VIVERO, in this petition for review, seeks the
reversal of the Decision of the Court of Appeals of 26 May
1999 setting aside the Decision of the National Labor
Relations Commission of 28 May 1998 as well as its
Resolution of 23 July 1998 denying his motion for its
reconsideration, and reinstating the decision of the Labor
Arbiter of 21 January 1997.

Sec. 7. The COMMITTEE shall resolve any dispute within


seven (7) days from and after the same is submitted to it
for resolution and if the same cannot be settled by the
COMMITTEE or if the COMMITTEE fails to act on the
dispute within the 7-day period herein provided, the same
shall be referred to a VOLUNTARY ARBITRATION
COMMITTEE.
An "impartial arbitrator" will be appointed by mutual
choice and consent of the UNION and the COMPANY who
shall hear and decide the dispute or issue presented to
him and his decision shall be final and unappealable x x x
x
As found by the Labor Arbiter -

Petitioner Vivero, a licensed seaman, is a member of the


Associated Marine Officers and Seamen's Union of the
Philippines
(AMOSUP).
The
Collective
Bargaining
Agreement entered into by AMOSUP and private
respondents provides, among others -

Complainant was hired by respondent as Chief Officer of


the vessel "M.V. Sunny Prince" on 10 June 1994 under the
terms and conditions, to wit:

ARTICLE XII

Basic Monthly Salary - - - - US $1,100.00

GRIEVANCE PROCEDURE

Hours of Work - - - - 44 hrs./week

xxxx

Overtime - - - - 495 lump O.T.

Sec. 3. A dispute or grievance arising in connection with


the terms and provisions of this Agreement shall be
adjusted in accordance with the following procedure:

Vacation leave with pay - - - - US $220.00/mo.

1. Any seaman who feels that he has been unjustly


treated or even subjected to an unfair consideration shall
endeavor to have said grievance adjusted by the
designated representative of the unlicensed department
abroad the vessel in the following manner:
A. Presentation of the complaint to his immediate
superior.
B. Appeal to the head of the department in which the
seaman involved shall be employed.
C. Appeal directly to the Master.
Sec. 4. If the grievance cannnot be resolved under the
provision of Section 3, the decision of the Master shall
govern at sea x x x x in foreign ports and until the vessel
arrives at a port where the Master shall refer such dispute
to either the COMPANY or the UNION in order to resolve
such dispute. It is understood, however, if the dispute
could not be resolved then both parties shall avail of the
grievance procedure.
Sec. 5. In furtherance of the foregoing principle, there is
hereby created a GRIEVANCE COMMITTEE to be
composed of two COMPANY REPRESENTATIVES to be
designated by the COMPANY and two LABOR
REPRESENTATIVES to be designated by the UNION.
Sec. 6. Any grievance, dispute or misunderstanding
concerning any ruling, practice, wages or working
conditions in the COMPANY, or any breach of the
Employment Contract, or any dispute arising from the
meaning or the application of the provision of this
Agreement or a claim of violation thereof or any
complaint that any such crewmembers may have against
the COMPANY, as well as complaint which the COMPANY
may have against such crewmembers shall be brought to
the attention of the GRIEVANCE COMMITTEE before either
party takes any action, legal or otherwise.

Duration of Contract - - - - 10 months

On grounds of very poor performance and conduct,


refusal to perform his job, refusal to report to the Captain
or the vessels Engineers or cooperate with other ship
officers about the problem in cleaning the cargo holds or
of the shipping pump and his dismal relations with the
Captain of the vessel, complainant was repatriated on 15
July 1994.
On 01 August 1994, complainant filed a complaint for
illegal dismissal at Associated Marine Officers and
Seamans Union of the Philippines (AMOSUP) of which
complainant was a member. Pursuant to Article XII of the
Collective Bargaining Agreement, grievance proceedings
were conducted; however, parties failed to reach and
settle the dispute amicably, thus, on 28 November 1994,
complainant filed [a] complaint with the Philippine
Overseas Employment Administration (POEA).
The law in force at the time petitioner filed his Complaint
with the POEA was EO No. 247.
While the case was pending before the POEA, private
respondents filed a Motion to Dismiss on the ground that
the POEA had no jurisdiction over the case considering
petitioner Vivero's failure to refer it to a Voluntary
Arbitration Committee in accordance with the CBA
between the parties. Upon the enactment of RA 8042, the
Migrant Workers and Overseas Filipinos Act of 1995, the
case was transferred to the Adjudication Branch of the
National Labor Relations Commission.
On 21 January 1997 Labor Arbiter Jovencio Ll. Mayor Jr.,
on the basis of the pleadings and documents available on
record, rendered a decision dismissing the Complaint for
want of jurisdiction. According to the Labor Arbiter, since
the CBA of the parties provided for the referral to a
Voluntary Arbitration Committee should the Grievance
Committee fail to settle the dispute, and considering the
mandate of Art. 261 of the Labor Code on the original and
exclusive jurisdiction of Voluntary Arbitrators, the Labor
Arbiter clearly had no jurisdiction over the case.

28

Petitioner (complainant before the Labor Arbiter)


appealed the dismissal of his petition to the NLRC. On 28
May 1998 the NLRC set aside the decision of the Labor
Arbiter on the ground that the record was clear that
petitioner had exhausted his remedy by submitting his
case to the Grievance Committee of AMOSUP. Considering
however that he could not obtain any settlement he had
to ventilate his case before the proper forum, i.e., the
Philippine Overseas Employment Administration. The
NLRC further held that the contested portion in the CBA
providing for the intercession of a Voluntary Arbitrator
was not binding upon petitioner since both petitioner and
private respondents had to agree voluntarily to submit
the case before a Voluntary Arbitrator or Panel of
Voluntary Arbitrators. This would entail expenses as the
Voluntary Arbitrator chosen by the parties had to be paid.
Inasmuch however as petitioner chose to file his
Complaint originally with POEA, then the Labor Arbiter to
whom the case was transferred would have to take
cognizance of the case.
The NLRC then remanded the case to the Labor Arbiter
for further proceedings. On 3 July 1998 respondents filed
a Motion for Reconsideration which was denied by the
NLRC on 23 July 1998.
Thus, private respondents raised the case to the Court of
Appeals contending that the provision in the CBA
requiring a dispute which remained unresolved by the
Grievance Committee to be referred to a Voluntary
Arbitration Committee, was mandatory in character in
view of the CBA between the parties. They stressed that
"since it is a policy of the state to promote voluntary
arbitration as a mode of settling labor disputes, it is clear
that the public respondent gravely abused its discretion
in taking cognizance of a case which was still within the
mantle of the Voluntary Arbitration Commitees
jurisdiction."
On the other hand, petitioner argued (A)s strongly suggested by its very title, referral of cases
of this nature to the Voluntary Arbitration Committee is
voluntary in nature. Otherwise, the committee would not
have been called Voluntary Arbitration Committee but
rather, a Compulsory Arbitration Committee. Moreover, if
the referral of cases of similar nature to the Voluntary
Arbitration Committee would be deemed mandatory by
virtue of the provisions in the CBA, the [NLRC] would then
be effectively deprived of its jurisdiction to try, hear and
decide termination disputes, as provided for under Article
217 of the Labor Code. Lastly, [respondents] ought to be
deemed to have waived their right to question the
procedure followed by [petitioner], considering that they
have already filed their Position Paper before belatedly
filing a Motion to Dismiss x x x x
But the Court of Appeals ruled in favor of private
respondents. It held that the CBA "is the law between the
parties and compliance therewith is mandated by the
express policy of the law." Hence, petitioner should have
followed the provision in the CBA requiring the
submission of the dispute to the Voluntary Arbitration
Committee once the Grievance Committee failed to settle
the controversy. According to the Court of Appeals, the
parties did not have the choice to "volunteer" to refer the
dispute to the Voluntary Arbitrator or a Panel of
Arbitrators when there was already an agreement

requiring them to do so. "Voluntary Arbitration" means


that it is binding because of a prior agreement or
contract, while "Compulsory Arbitration" is when the law
declares the dispute subject to arbitration, regardless of
the consent or desire of the parties.
The Court of Appeals further held that the Labor Code
itself enumerates the original and exclusive jurisdiction of
the Voluntary Arbitrator or Panel of Voluntary Arbitrators,
and prohibits the NLRC and the Regional Directors of the
Department of Labor and Employment (DOLE) from
entertaining cases falling under the same. Thus, the fact
that private respondents filed their Position Paper first
before filing their Motion to Dismiss was immaterial and
did not operate to confer jurisdiction upon the Labor
Arbiter, following the well-settled rule that jurisdiction is
determined by law and not by consent or agreement of
the parties or by estoppel.
Finally, the appellate court ruled that a case falling under
the jurisdiction of the Labor Arbiter as provided under Art.
217 of the Labor Code may be lodged instead with a
Voluntary Arbitrator because the law prefers, or gives
primacy, to voluntary arbitration instead of compulsory
arbitration. Consequently, the contention that the NLRC
would be deprived of its jurisdiction to try, hear and
decide termination disputes under Art. 217 of the Labor
Code, should the instant dispute be referred to the
Voluntary Arbitration Committee, is clearly bereft of
merit. Besides, the Voluntary Arbitrator, whether acting
solely or in a panel, enjoys in law the status of a quasijudicial agency independent of, and apart from, the NLRC
since his decisions are not appealable to the latter.
Celestino Vivero, in his petition for review assailing the
Decision of the Court of Appeals, alleges that the
appellate court committed grave abuse of discretion in
holding that a Voluntary Arbitrator or Panel of Voluntary
Arbitrators, and not the Adjudication Branch of the NLRC,
has jurisdiction over his complaint for illegal dismissal. He
claims that his complaint for illegal dismissal was
undeniably a termination dispute and did not, in any way,
involve an "interpretation or implementation of collective
bargaining
agreement"
or
"interpretation"
or
"enforcement" of company personnel policies. Thus, it
should fall within the original and exclusive jurisdiction of
the NLRC and its Labor Arbiter, and not with a Voluntary
Arbitrator, in accordance with Art. 217 of the Labor Code.
Private respondents, on the other hand, allege that the
case is clearly one "involving the proper interpretation
and implementation of the Grievance Procedure found in
the Collective Bargaining Agreement (CBA) between the
parties" because of petitioners allegation in his
claim/assistance request form submitted to the Union, to
wit:
NATURE OF COMPLAINT
3. Illegal Dismissal - Reason: (1) That in this case it was
the master of M.V. SUNNY PRINCE Capt. Andersen who
created the trouble with physical injury and stating false
allegation; (2) That there was no proper procedure of
grievance; (3) No proper notice of dismissal.
Is there a Notice of dismissal? _x_ Yes or ____ No
What date? 11 July 1994

29

Is there a Grievance Procedure observed? ____ Yes or _x_


No
Private respondents further allege that the fact that
petitioner sought the assistance of his Union evidently
shows that he himself was convinced that his Complaint
was within the ambit of the jurisdiction of the grievance
machinery and subsequently by a Panel of Voluntary
Arbitrators as provided for in their CBA, and as explicitly
mandated by Art. 261 of the Labor Code.
Thus, the issue is whether the NLRC is deprived of
jurisdiction over illegal dismissal cases whenever a CBA
provides for grievance machinery and voluntary
arbitration proceedings. Or, phrased in another way, does
the dismissal of an employee constitute a "grievance
between the parties," as defined under the provisions of
the CBA, and consequently, within the exclusive original
jurisdiction of the Voluntary Arbitrators, thereby rendering
the NLRC without jurisdiction to decide the case?
On the original and exclusive jurisdiction of Labor
Arbiters, Art. 217 of the Labor Code provides Art. 217. Jurisdiction of Labor Arbiters and the
Commission. - (a) Except as otherwise provided under
this Code, the Labor Arbiters shall have original and
exclusive jurisdiction to hear and decide within thirty (30)
calendar days after the submission of the case by the
parties for decision without extension, even in the
absence of stenographic notes, the following cases
involving all workers, whether agricultural or nonagricultural: (1) Unfair labor practice cases; (2)
Termination disputes; (3) If accompanied with a claim for
reinstatement, those cases that workers may file
involving wages, rates of pay, hours of work and other
terms and conditions of employment; (4) Claims for
actual, moral, exemplary and other forms of damages
arising from the employer-employee relations; (5) Cases
arising from any violation of Article 264 of this Code,
including questions involving the legality of strikes and
lockouts; and, (6) Except claims for Employees
Compensation, Social Security, Medicare and maternity
benefits, all other claims arising from employer-employee
relations, including those of persons in domestic or
household service, involving an amount exceeding five
thousand pesos (P5,000.00) regardless of whether
accompanied with a claim for reinstatement.
(b) The Commission shall have exclusive appellate
jurisdiction over all cases decided by Labor Arbiters.
(c) Cases arising from the interpretation of collective
bargaining agreements and those arising from the
interpretation or enforcement of company personnel
policies shall be disposed of by the Labor Arbiter by
referring the same to the grievance machinery and
voluntary arbitration as may be provided in said
agreements (emphasis supplied).
However, any or all of these cases may, by agreement of
the parties, be submitted to a Voluntary Arbitrator or
Panel of Voluntary Arbitrators for adjudication. Articles
261 and 262 of the Labor Code provide Art. 261. Jurisdiction of Voluntary Arbitrators or Panel of
Voluntary Arbitrators. - The Voluntary Arbitrator or panel
of Voluntary Arbitrators shall have original and exclusive
jurisdiction to hear and decide all unresolved grievances

arising from the interpretation or implementation of the


Collective Bargaining Agreement and those arising from
the interpretation or enforcement of company personnel
policies referred to in the immediately preceding article.
Accordingly, violations of a Collective Bargaining
Agreement, except those which are gross in character,
shall no longer be treated as unfair labor practice and
shall be resolved as grievances under the Collective
Bargaining Agreement. For purposes of this article, gross
violations of Collective Bargaining Agreement shall mean
flagrant and/or malicious refusal to comply with the
economic provisions of such agreement.
The Commission, its Regional Offices and the Regional
Directors of the Department of Labor and Employment
shall not entertain disputes, grievances or matters under
the exclusive and original jurisdiction of the Voluntary
Arbitrator or panel of Voluntary Arbitrators and shall
immediately dispose and refer the same to the Grievance
Machinery or Voluntary Arbitration provided in the
Collective Bargaining Agreement.
Art. 262. Jurisdiction Over Other Labor Disputes. - The
Voluntary Arbitrator or panel of Voluntary Arbitrators,
upon agreement of the parties, shall also hear and decide
all other labor disputes including unfair labor practices
and bargaining deadlocks (emphasis supplied).
Private respondents attempt to justify the conferment of
jurisdiction over the case on the Voluntary Arbitrator on
the ground that the issue involves the proper
interpretation and implementation of the Grievance
Procedure found in the CBA. They point out that when
petitioner sought the assistance of his Union to avail of
the grievance machinery, he in effect submitted himself
to the procedure set forth in the CBA regarding
submission of unresolved grievances to a Voluntary
Arbitrator.
The argument is untenable. The case is primarily a
termination dispute. It is clear from the claim/assistance
request form submitted by petitioner to AMOSUP that he
was challenging the legality of his dismissal for lack of
cause and lack of due process. The issue of whether there
was proper interpretation and implementation of the CBA
provisions comes into play only because the grievance
procedure provided for in the CBA was not observed after
he sought his Unions assistance in contesting his
termination. Thus, the question to be resolved necessarily
springs from the primary issue of whether there was a
valid termination; without this, then there would be no
reason to invoke the need to interpret and implement the
CBA provisions properly.
In San Miguel Corp. v. National Labor Relations
Commission this Court held that the phrase "all other
labor disputes" may include termination disputes
provided that the agreement between the Union and the
Company states "in unequivocal language that [the
parties] conform to the submission of termination
disputes and unfair labor practices to voluntary
arbitration." Ergo, it is not sufficient to merely say that
parties to the CBA agree on the principle that "all
disputes" should first be submitted to a Voluntary
Arbitrator. There is a need for an express stipulation in
the CBA that illegal termination disputes should be
resolved by a Voluntary Arbitrator or Panel of Voluntary
Arbitrators, since the same fall within a special class of

30

disputes that are generally within the exclusive original


jurisdiction of Labor Arbiters by express provision of law.
Absent such express stipulation, the phrase "all disputes"
should be construed as limited to the areas of conflict
traditionally within the jurisdiction of Voluntary
Arbitrators,
i.e.,
disputes
relating
to
contractinterpretation, contract-implementation, or interpretation
or enforcement of company personnel policies. Illegal
termination disputes - not falling within any of these
categories - should then be considered as a special area
of interest governed by a specific provision of law.
In this case, however, while the parties did agree to make
termination disputes the proper subject of voluntary
arbitration, such submission remains discretionary upon
the parties. A perusal of the CBA provisions shows that
Sec. 6, Art. XII (Grievance Procedure) of the CBA is the
general agreement of the parties to refer grievances,
disputes or misunderstandings to a grievance committee,
and henceforth, to a voluntary arbitration committee. The
requirement of specificity is fulfilled by Art. XVII (Job
Security) where the parties agreed Sec. 1. Promotion, demotion, suspension, dismissal or
disciplinary action of the seaman shall be left to the
discretion of the Master, upon consultation with the
Company
and
notification
to
the
Union.
This
notwithstanding, any and all disciplinary action taken on
board the vessel shall be provided for in Appendix B of
this Agreement x x x x
Sec. 4. x x x x Transfer, lay-off or discipline of seamen for
incompetence, inefficiency, neglect of work, bad
behavior,
perpetration
of
crime,
drunkenness,
insubordination, desertion, violation of x x x regulations
of any port touched by the Companys vessel/s and other
just and proper causes shall be at Masters discretion x x
x in the high seas or foreign ports. The Master shall refer
the case/dispute upon reaching port and if not
satisfactorily settled, the case/dispute may be referred to
the grievance machinery or procedure hereinafter
provided (emphasis supplied).
The use of the word "may" shows the intention of the
parties to reserve the right to submit the illegal
termination dispute to the jurisdiction of the Labor
Arbiter, rather than to a Voluntary Arbitrator. Petitioner
validly exercised his option to submit his case to a Labor
Arbiter when he filed his Complaint before the proper
government agency.
Private respondents invoke Navarro III v. Damasco
wherein the Court held that "it is the policy of the state to
promote voluntary arbitration as a mode of settling
disputes." It should be noted, however, that in Navarro III
all the parties voluntarily submitted to the jurisdiction of
the Voluntary Arbitrator when they filed their respective
position papers and submitted documentary evidence
before him. Furthermore, they manifested during the
initial conference that they were not questioning the
authority of the Voluntary Arbitrator. In the case at bar,
the dispute was never brought to a Voluntary Arbitrator
for resolution; in fact, petitioner precisely requested the
Court to recognize the jurisdiction of the Labor Arbiter
over the case. The Court had held in San Miguel Corp. v.
NLRC that neither officials nor tribunals can assume
jurisdiction in the absence of an express legal
conferment. In the same manner, petitioner cannot

arrogate into the powers of Voluntary Arbitrators the


original and exclusive jurisdiction of Labor Arbiters over
unfair labor practices, termination disputes, and claims
for damages, in the absence of an express agreement
between the parties in order for Art. 262 of the Labor
Code to apply in the case at bar. In other words, the Court
of Appeals is correct in holding that Voluntary Arbitration
is mandatory in character if there is a specific agreement
between the parties to that effect. It must be stressed
however that, in the case at bar, the use of the word
"may" shows the intention of the parties to reserve the
right of recourse to Labor Arbiters.
The CBA clarifies the proper procedure to be followed in
situations where the parties expressly stipulate to submit
termination disputes to the jurisdiction of a Voluntary
Arbitrator or Panel of Voluntary Arbitrators. For when the
parties have validly agreed on a procedure for resolving
grievances and to submit a dispute to voluntary
arbitration then that procedure should be strictly
observed. Non-compliance therewith cannot be excused,
as petitioner suggests, by the fact that he is not wellversed with the "fine prints" of the CBA. It was his
responsibility to find out, through his Union, what the
provisions of the CBA were and how they could affect his
rights. As provided in Art. 241, par. (p), of the Labor Code
(p) It shall be the duty of any labor organization and its
officers to inform its members on the provisions of its
constitution
and
by-laws,
collective
bargaining
agreement, the prevailing labor relations system and all
their rights and obligations under existing labor laws.
In fact, any violation of the rights and conditions of union
membership is a "ground for cancellation of union
registration or expulsion of officer from office, whichever
is appropriate. At least thirty percent (30%) of all the
members of a union or any member or members
especially concerned may report such violation to the
Bureau [of Labor Relations] x x x x"
It may be observed that under Policy Instruction No. 56 of
the Secretary of Labor, dated 6 April 1993, "Clarifying the
Jurisdiction Between Voluntary Arbitrators and Labor
Arbiters Over Termination Cases and Providing Guidelines
for the Referral of Said Cases Originally Filed with the
NLRC to the NCMB," termination cases arising in or
resulting from the interpretation and implementation of
collective bargaining agreements and interpretation and
enforcement of company personnel policies which were
initially processed at the various steps of the plant-level
Grievance Procedures under the parties' collective
bargaining agreements fall within the original and
exclusive jurisdiction of the voluntary arbitrator pursuant
to Art. 217 (c) and Art. 261 of the Labor Code; and, if filed
before the Labor Arbiter, these cases shall be dismissed
by the Labor Arbiter for lack of jurisdiction and referred to
the concerned NCMB Regional Branch for appropriate
action towards an expeditious selection by the parties of
a Voluntary Arbitrator or Panel of Arbitrators based on the
procedures agreed upon in the CBA.
As earlier stated, the instant case is a termination dispute
falling under the original and exclusive jurisdiction of the
Labor Arbiter, and does not specifically involve the
application, implementation or enforcement of company
personnel policies contemplated in Policy Instruction No.

31

56. Consequently, Policy Instruction No. 56 does not


apply in the case at bar. In any case, private respondents
never invoked the application of Policy Instruction No. 56
in their Position Papers, neither did they raise the
question in their Motion to Dismiss which they filed nine
(9) months after the filing of their Position Papers. At this
late stage of the proceedings, it would not serve the ends
of justice if this case is referred back to a Voluntary
Arbitrator considering that both the AMOSUP and private
respondents have submitted to the jurisdiction of the
Labor Arbiter by filing their respective Position Papers
and ignoring the grievance procedure set forth in their
CBA.
After the grievance proceedings have failed to bring
about a resolution, AMOSUP, as agent of petitioner,
should have informed him of his option to settle the case
through voluntary arbitration. Private respondents, on
their part, should have timely invoked the provision of
their CBA requiring the referral of their unresolved
disputes to a Voluntary Arbitrator once it became
apparent that the grievance machinery failed to resolve it
prior to the filing of the case before the proper tribunal.
The private respondents should not have waited for nine
(9) months from the filing of their Position Paper with the
POEA before it moved to dismiss the case purportedly for
lack of jurisdiction. As it is, private respondents are
deemed to have waived their right to question the
procedure followed by petitioner, assuming that they
have the right to do so. Under their CBA, both Union and
respondent companies are responsible for selecting an
impartial arbitrator or for convening an arbitration
committee; yet, it is apparent that neither made a move
towards this end. Consequently, petitioner should not be
deprived of his legitimate recourse because of the refusal
of both Union and respondent companies to follow the
grievance procedure.
WHEREFORE, the Decision of the Court of Appeals is SET
ASIDE and the case is remanded to the Labor Arbiter to
dispose of the case with dispatch until terminated
considering the undue delay already incurred.
SO ORDERED.

32

G.R. No. 129169 November 17, 1999


NATIONAL IRRIGATION ADMINISTRATION (NIA),
petitioner,
vs.
HONORABLE COURT OF APPEALS (4th Division),
CONSTRUCTION
INDUSTRY
ARBITRATION
COMMISSION,
and
HYDRO
RESOURCES
CONTRACTORS CORPORATION, respondents.

DAVIDE, JR., C.J.:


In this special civil action for certiorari under Rule 65 of
the Rules of Court, the National Irrigation Administration
(hereafter NIA), seeks to annul and set aside the
Resolutions 1 of the Court of Appeals in CA-GR. SP No.
37180 dated 28 June 1996 and 24 February 1997, which
dismissed respectively NIA's petition for certiorari and
prohibition against the Construction Industry Arbitration
Commission (hereafter CIAC), and the motion for
reconsideration thereafter filed.
Records show that in a competitive bidding held by NIA in
August 1978, Hydro Resources Contractors Corporation
(hereafter HYDRO) was awarded Contract MPI-C-2 for the
construction of the main civil works of the Magat River
Multi-Purpose Project. The contract provided that HYDRO
would be paid partly in Philippine pesos and partly in U.S.
dollars. HYDRO substantially completed the works under
the contract in 1982 and final acceptance by NIA was
made in 1984. HYDRO thereafter determined that it still
had an account receivable from NIA representing the
dollar rate differential of the price escalation for the
contract. 2
After unsuccessfully pursuing its case with NIA, HYDRO,
on 7 December 1994, filed with the CIAC a Request for
Adjudication of the aforesaid claim. HYDRO nominated six
arbitrators for the arbitration panel, from among whom
CIAC appointed Engr. Lauro M. Cruz. On 6 January 1995,
NIA filed its Answer wherein it questioned the jurisdiction
of the CIAC alleging lack of cause of action, laches and
estoppel in view of HYDRO's alleged failure to avail of its
right to submit the dispute to arbitration within the
prescribed period as provided in the contract. On the
same date, NIA filed a Compliance wherein it nominated
six arbitrators, from among whom CIAC appointed Atty.
Custodio O. Parlade, and made a counterclaim for
P1,000,000 as moral damages; at least P100,000 as
exemplary damages; P100,000 as attorney's fees; and
the costs of the arbitration. 3
The two designated arbitrators appointed Certified Public
Accountant Joven B. Joaquin as Chairman of the
Arbitration Panel. The parties were required to submit
copies of the evidence they intended to present during
the proceedings and were provided the draft Terms of
Reference. 4
At the preliminary conference, NIA through its counsel
Atty. Joy C. Legaspi of the Office of the Government
Corporate Counsel, manifested that it could not admit the
genuineness of HYDRO's evidence since NIA's records had
already been destroyed. NIA requested an opportunity to
examine the originals of the documents which HYDRO
agreed to provide. 5

After reaching an accord on the issues to be considered


by the arbitration panel, the parties scheduled the dates
of hearings and of submission of simultaneous
memoranda. 6
On 13 March 1995, NIA filed a Motion to Dismiss 7
alleging lack of jurisdiction over the disputes. NIA
contended that there was no agreement with HYDRO to
submit the dispute to CIAC for arbitration considering that
the construction contract was executed in 1978 and the
project completed in 1982, whereas the Construction
Industry Arbitration Law creating CIAC was signed only in
1985; and that while they have agreed to arbitration as a
mode of settlement of disputes, they could not have
contemplated submission of their disputes to CIAC. NIA
further argued that records show that it had not
voluntarily submitted itself to arbitration by CIAC citing
TESCO Services, Inc. v. Hon. Abraham Vera, et al., 8
wherein it was ruled:
CIAC did not acquire jurisdiction over the
dispute arising from the sub-contract
agreement between petitioner TESCO and
private respondent LAROSA. The records
do not show that the parties agreed to
submit the disputes to arbitration by the
CIAC . . . . While both parties in the subcontract had agreed to submit the matter
to arbitration, this was only between
themselves, no request having been
made by both with the CIAC. Hence, as
already stated, the CIAC, has no
jurisdiction over the dispute. . . . .
Nowhere in the said article (sub-contract)
does it mention the CIAC, much less, vest
jurisdiction with the CIAC.
On 11 April 1995, the arbitral body issued an order 9
which deferred the determination of the motion to
dismiss and resolved to proceed with the hearing of the
case on the merits as the grounds cited by NIA did not
seem to be "indubitable." NIA filed a motion for
reconsideration of the aforesaid Order. CIAC in denying
the motion for reconsideration ruled that it has
jurisdiction over the HYDRO's claim over NIA pursuant to
E.O 1008 and that the hearing should proceed as
scheduled. 10
On 26 May 1996, NIA filed with the Court of Appeals an
original action of certiorari and prohibition with prayer for
restraining order and/or injunction, seeking to annul the
Orders of the CIAC for having been issued without or in
excess of jurisdiction. In support of its petition NIA alleged
that:
A
RESPONDENT CIAC HAS NO AUTHORITY
OR JURIDICTION TO HEAR AND TRY THIS
DISPUTE BETWEEN THE HEREIN PARTIES
AS E.O. NO. 1008 HAD NO RETROACTIVE
EFFECT.
B
THE DISPUTE BETWEEN THE PARTIES
SHOULD BE SETTLED IN ACCORDANCE
WITH GC NO. 25, ART. 2046 OF THE CIVIL
CODE AND R.A. NO. 876 THE GOVERNING

33

LAWS AT THE TIME CONTRACT


EXECUTED AND TERMINATED.

WAS

C
E.O. NO. 1008 IS A SUBSTANTIVE LAW,
NOT MERELY PROCEDURAL AS RULED BY
THE CIAC.
D
AN INDORSEMENT OF THE AUDITOR
GENERAL DECIDING A CONTROVERSY IS A
DECISION BECAUSE ALL THE ELEMENTS
FOR
JUDGMENT
ARE
THERE;
THE
CONTROVERSY, THE AUTHORITY TO
DECIDE AND THE DECISION. IF IT IS NOT
APPEALED SEASONABLY, THE SAME
BECOMES FINAL.
E
NIA HAS TIMELY RAISED THE ISSUE OF
JURISDICTION. IT DID NOT WAIVE NOR IS
IT ESTOPPED FROM ASSAILING THE SAME.
F
THE LEGAL DOCTRINE THAT JURISDICTION
IS DETERMINED BY THE STATUTE IN
FORCE
AT
THE
TIME
OF
THE
COMMENCEMENT OF THE ACTION DOES
NOT ONLY APPLY TO THE INSTANT CASE.
11

The Court of Appeals, after finding that there was no


grave abuse of discretion on the part of the CIAC in
issuing the aforesaid Orders, dismissed the petition in its
Resolution dated 28 June 1996. NIA's motion for
reconsideration of the said decision was likewise denied
by the Court of Appeals on 26 February 1997.
On 2 June 1997, NIA filed before us an original action for
certiorari and prohibition with urgent prayer for
temporary restraining order and writ of preliminary
injunction, praying for the annulment of the Resolutions
of the Court of Appeals dated 28 June 1996 and 24
February 1997. In the said special civil action, NIA merely
reiterates the issues it raised before the Court of Appeals.
12

We take judicial notice that on 10 June 1997, CIAC


rendered a decision in the main case in favor of HYDRO.
13
NIA assailed the said decision with the Court of
Appeals. In view of the pendency of the present petitions
before us the appellate court issued a resolution dated 26
March 1998 holding in abeyance the resolution of the
same until after the instant petitions have been finally
decided. 14
At the outset, we note that the petition suffers from a
procedural defect that warrants its outright dismissal. The
questioned resolutions of the Court of Appeals have
already become final and executory by reason of the
failure of NIA to appeal therefrom. Instead of filing this
petition for certiorari under Rule 65 of the Rules of Court,
NIA should have filed a timely petition for review under
Rule 45.
There is no doubt that the Court of Appeals has
jurisdiction over the special civil action for certiorari

under Rule 65 filed before it by NIA. The original


jurisdiction of the Court of Appeals over special civil
actions for certiorari is vested upon it under Section 9(1)
of B.P. 129. This jurisdiction is concurrent with the
Supreme Court 15 and with the Regional Trial Court. 16
Thus, since the Court of Appeals had jurisdiction over the
petition under Rule 65, any alleged errors committed by it
in the exercise of its jurisdiction would be errors of
judgment which are reviewable by timely appeal and not
by a special civil action of certiorari. 17 If the aggrieved
party fails to do so within the reglementary period, and
the decision accordingly becomes final and executory, he
cannot avail himself of the writ of certiorari, his
predicament being the effect of his deliberate inaction. 18
The appeal from a final disposition of the Court of
Appeals is a petition for review under Rule 45 and not a
special civil action under Rule 65 of the Rules of Court,
now Rule 45 and Rule 65, respectively, of the 1997 Rules
of Civil Procedure. 19 Rule 45 is clear that decisions, final
orders or resolutions of the Court of Appeals in any case,
i.e., regardless of the nature of the action or proceedings
involved, may be appealed to this Court by filing a
petition for review, which would be but a continuation of
the appellate process over the original case. 20 Under
Rule 45 the reglementary period to appeal is fifteen (15)
days from notice of judgment or denial of motion for
reconsideration. 21
In the instant case the Resolution of the Court of Appeals
dated 24 February 1997 denying the motion for
reconsideration of its Resolution dated 28 June 1997 was
received by NIA on 4 March 1997. Thus, it had until 19
March 1997 within which to perfect its appeal. NIA did not
appeal. What it did was to file an original action for
certiorari before this Court, reiterating the issues and
arguments it raised before the Court of Appeals.
For the writ of certiorari under Rule 65 of the Rules of
Court to issue, a petitioner must show that he has no
plain, speedy and adequate remedy in the ordinary
course of law against its perceived grievance. 22 A
remedy is considered "plain, speedy and adequate" if it
will promptly relieve the petitioner from the injurious
effects of the judgment and the acts of the lower court or
agency. 23 In this case, appeal was not only available but
also a speedy and adequate remedy.
Obviously, NIA interposed the present special civil action
of certiorari not because it is the speedy and adequate
remedy but to make up for the loss, through omission or
oversight, of the right of ordinary appeal. It is elementary
that the special civil action of certiorari is not and cannot
be a substitute for an appeal, where the latter remedy is
available, as it was in this case. A special civil action
under Rule 65 of the Rules of Court will not be a cure for
failure to timely file a petition for review on certiorari
under Rule 45 of the Rules of Court. 24 Rule 65 is an
independent action that cannot be availed of as a
substitute for the lost remedy of an ordinary appeal,
including that under Rule 45, 25 especially if such loss or
lapse was occasioned by one's own neglect or error in the
choice of remedies. 26
For obvious reasons the rules forbid recourse to a special
civil action for certiorari if appeal is available, as the
remedies of appeal and certiorari are mutually exclusive

34

and not alternative or successive. 27 Although there are


exceptions to the rules, none is present in the case at bar.
NIA failed to show circumstances that will justify a
deviation from the general rule as to make available a
petition for certiorari in lieu of taking an appropriate
appeal.
Based on the foregoing, the instant petition should be
dismissed.
In any case, even if the issue of technicality is
disregarded and recourse under Rule 65 is allowed, the
same result would be reached since a review of the
questioned resolutions of the CIAC shows that it
committed no grave abuse of discretion.
Contrary to the claim of NIA, the CIAC has jurisdiction
over the controversy. Executive Order No. 1008,
otherwise known as the "Construction Industry Arbitration
Law" which was promulgated on 4 February 1985, vests
upon 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. The disputes may involve government or
private contracts. For the Board to acquire jurisdiction,
the parties to a dispute must agree to submit the same to
voluntary arbitration. 28
The complaint of HYDRO against NIA on the basis of the
contract executed between them was filed on 7
December 1994, during the effectivity of E.O. No. 1008.
Hence, it is well within the jurisdiction of CIAC. The
jurisdiction of a court is determined by the law in force at
the time of the commencement of the action. 29
NIA's argument that CIAC had no jurisdiction to arbitrate
on contract which preceded its existence is untenable.
E.O. 1008 is clear that the CIAC has jurisdiction over all
disputes arising from or connected with construction
contract whether the dispute arises before or after the
completion of the contract. Thus, the date the parties
entered into a contract and the date of completion of the
same, even if these occurred before the constitution of
the CIAC, did not automatically divest the CIAC of
jurisdiction as long as the dispute submitted for
arbitration arose after the constitution of the CIAC. Stated
differently, the jurisdiction of CIAC is over the dispute, not
the contract; and the instant dispute having arisen when
CIAC was already constituted, the arbitral board was
actually exercising current, not retroactive, jurisdiction.
As such, there is no need to pass upon the issue of
whether E.O. No. 1008 is a substantive or procedural
statute.
NIA also contended that the CIAC did not acquire
jurisdiction over the dispute since it was only HYDRO that
requested for arbitration. It asserts that to acquire
jurisdiction over a case, as provided under E.O. 1008, the
request for arbitration filed with CIAC should be made by
both parties, and hence the request by one party is not
enough.
It is undisputed that the contracts between HYDRO and
NIA contained an arbitration clause wherein they agreed
to submit to arbitration any dispute between them that
may arise before or after the termination of the

agreement. Consequently, the claim of HYDRO having


arisen from the contract is arbitrable. NIA's reliance with
the ruling on the case of Tesco Services Incorporated v.
Vera, 30 is misplaced.
The 1988 CIAC Rules of Procedure which were applied by
this Court in Tesco case had been duly amended by CIAC
Resolutions No. 2-91 and 3-93, Section 1 of Article III of
which read as follows:
Submission to CIAC Jurisdiction An
arbitration clause in a construction
contract or a submission to arbitration of
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.
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. 31
Moreover, it is undeniable that NIA agreed to submit the
dispute for arbitration to the CIAC. NIA through its
counsel
actively
participated
in
the
arbitration
proceedings by filing an answer with counterclaim, as
well as its compliance wherein it nominated arbitrators to
the proposed panel, participating in the deliberations on,
and the formulation of, the Terms of Reference of the
arbitration proceeding, and examining the documents
submitted by HYDRO after NIA asked for the originals of
the said documents. 32
As to the defenses of laches and prescription, they are
evidentiary in nature which could not be established by
mere allegations in the pleadings and must not be
resolved in a motion to dismiss. Those issues must be
resolved at the trial of the case on the merits wherein
both parties will be given ample opportunity to prove
their respective claims and defenses. 33 Under the rule 34
the deferment of the resolution of the said issues was,
thus, in order. An allegation of prescription can effectively
be used in a motion to dismiss only when the complaint
on its face shows that indeed the action has already

35

prescribed. 35 In the instant case, the issue of prescription


and laches cannot be resolved on the basis solely of the
complaint. It must, however, be pointed that under the
new rules, 36 deferment of the resolution is no longer
permitted. The court may either grant the motion to
dismiss, deny it, or order the amendment of the pleading.
WHEREFORE, the instant petition is DISMISSED for lack of
merit. The Court of Appeals is hereby DIRECTED to
proceed with reasonable dispatch in the disposition of
C.A. G.R. No. 44527 and include in the resolution thereof
the issue of laches and prescription.
SO ORDERED.

36

[G.R. No. 141897. September 24, 2001]


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. [1
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 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:

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?

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.

10. Whether or not CHATHAM is entitled to claim x x


actual damages? If so, to what extent and how much?

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.

11.2. Expenses to rectify structural steel works


for the foundation P1,331,139.74.

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

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

11.3. 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

37

decision of 19 October 1998, [4 the CIAC made the


following findings and conclusions:

was mentioned that MCI will still be responsible for earth


anchoring and steel fabrication work.

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.

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.

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

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 project without his knowledge and consent as
proof that CHATHAM had taken full control of the project.
To the above allegation of MCI that CHATHAM went ahead
and procured materials, hired labor and entered into subcontract agreements with the intention of eventually
charging the costs thereof to MCI, witness Mercado
countered, that CHATHAM has the right to do this under
the provisions of Article 27 of the contract, dealing with
Recision, Cancellation, Termination of Contract.
By way of responding to the various counterclaims of
CHATHAM, MCI referred to a letter of [the former]
addressed to MCI dated 18 January 1997 (Exhibit E-1) the
first paragraph of which reads as follows:
After evaluating all the documents issued and received
from both Chatham Properties Inc. and Metro
Construction, Inc., the Building Committee of Chatham
Properties, Inc. evaluated them. The Building Committee
finds the total receivable of Metro Construction is in the
amount of EIGHT MILLION PESOS (P8,000,000.00) only.
When queried by the Tribunal if the said amount already
took into account the costs and expenses (Chatham)
claims to have incurred for the account of MCI, Mr.
Mercado answered in the affirmative. When queried
further how the amount was arrived at, Mr. Mercado
replied that it was the sum the Building Committee
figured it was willing to pay MCI simply to close the issue.
Mr. Mercado even added that while MCI is not actually
entitled to this amount, it was out of friendship that
CHATHAM offered this sum to MCI as final settlement
under the contract.
It is with the above attendant circumstances that this
Tribunal will be guided in the resolution of issues brought
before it for adjudication. From what this Tribunal finds as

38

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
P20,000,000.00

(Paid

in

two

equal

trances)

b. Cash Advance for Mobilization 800,000.00


c. Payments of Progress Billings up to Billing No. 19
71,081,183.44
d. Other Payments (Mar 1994 to Apr 1996) 5,474,419.67

e. Advances on MCI Payrolls (April 1996 to March 1997)


8,196,755.51
Total 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
Add approved change orders 5,353,091.08
Total P123,008,091.08
Less payments up to 23 May 1996 99,002,358.42
Balance due MCI as of 23 May 1996 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 sub-contracting 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

39

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.
MCI presented further documentary evidence (Exhibit E6) 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
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:

1/4x1/3[(1/10xP125,000,000.00)1%]x294=P3,062,498.78
.[6
The CIAC then decreed:
Accordingly, as presented below, all the amounts due MCI
are first listed and added up and the total payment is
deducted therefrom. The admitted total payment figure
as reflected in the Terms of Reference is the amount
applied instead of the total reflected in 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. AMOUNTS HELD MCI IS ENTITLED TO:
A.1.
From
the
original
contract:
P125,000,000.00 P117,650,000.00

94.12%

of

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 -0A.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

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.

Less: Total payments-Item II-6 of TOR 104,875,792.37

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.

Total Amount Due CPI P 7,391,494.40

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.

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:

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:

Balance Due MCI P 23,518,417.31


B. AMOUNTS HELD CPI IS ENTITLED TO:
B.1. Liquidated Damages P 3,062,498.78
B.2. Actual Damages 335,994.50
B.3. Penalties 1,778,285.44
B.4 Cash Payments in Behalf of MCI 2,214,715.68

C. NET AMOUNT DUE MCI (A minus B) P16,126,922.91


WHEREFORE, judgment is hereby rendered in favor of the
Claimant [MCI] directing Respondent [CHATHAM] to pay
Claimant [MCI] the net sum of SIXTEEN MILLION ONE
HUNDRED TWENTY SIX THOUSAND NINE HUNDRED
TWENTY TWO & 91/100 (16,126,922.91) PESOS.
SO ORDERED. [7

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.

40

The Arbitral Tribunal grossly erred in failing to consider


the evidence presented by CHATHAM and the testimony
of its witnesses.

time the project was very much delayed; thereafter, the


MCI was back in full control of the project. [12

The Arbitral Tribunal gravely abused its discretion in


considering arbitrarily that there was an implied takeover
contrary to the facts and evidence submitted.

2. Testimony of Engr. Bautista that the takeover was only


partial and temporary and limited to the management
portion on the basement only and that MCI was always in
control of the project.[13

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.

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

The Arbitral Tribunal manifestly erred in holding that MCI


is entitled to its claim for unpaid progress billings.

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:

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, [9 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 quasijudicial 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.
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[11 and that the interim
takeover was only with respect to the direction or
management of the field operations and was limited only
to works on the basement and intended to assist MCI to
catch up with the schedule of completion, since at that

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 MCI to accompany the
inspector of RKDCCI to witness batching procedures. By
so doing, Dr. E.G. Tabujara acknowledged that Dr. Lai was
in control of the project.
Exhibit 8 Letter dated 4 September 1995 by Engr. Romulo
R. Sugay to Dr. Lai offering an incentive to the workers of
MCI to exert (their) best effort for topping off by the end
of December; another clear indication that Dr. Lai was in
control of the project.
Exhibit 4-D Letter dated 4 January 1996 indicating that
Mr. H.T. Go offered Dr Lai an incentive of P1,800,000 on
the
condition
that
MCI
meets
the
new
schedule/milestones. 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

41

No. 12, among others, dated 28 August 1995,


recommended by the RKDCCI and accepted by Dr. Lai,
and which request for an extension of 25 days readily
showed that even after 30 May 1995, after the close of
the supposed takeover period, MCI was still the
contractor in complete control of the project for it would
not have otherwise accepted the said change order if it
(were) no longer the Contractor of the project due to the
termination of the Construction agreement as of said
date on account of the alleged takeover.
6. Exhibits 3-J, 3-M, 3-Q, 3-R, 3-V, 3-W-1, 3-W-2, 5-F, 5-1,
6, 12-II, 12-JJ, 12-MM, and 12-NN tending to prove that
RKDCCI monitored the work from start to finish and had
zealously pointed out to MCI the defects or improper
execution of the construction works, and gave MCI all the
opportunity to rectify the construction deficiencies and
complete the works of the project.
The Court of Appeals concluded that the interim takeover
was necessitated by 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:

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:

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

A.1.
From
the
original
contract:
P125,000,000.00 P117,650,000.00

The Court of Appeals disposed of the controversy in this


wise:

A.7 Labor Escalation 1,076,256.00

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 3-P, 3-R, 3-S and 3-T
but [CHATHAM] was again constrained to allow [MCI] to
continue working on the Project to complete the balance

94.12%

of

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 -0A.6 Disputed Deductions 909,484.70

A.8 Attendance Fee 508,162.73


Total P128,394,209.68
Less: Total payments-Item ll-6 of TOR 104,875,792.37
Balance Due Respondent P 23,518,417.31
B. AMOUNTS [CHATHAM] IS ENTITLED TO:
B.1. Liquidated Damages P 24,125,000.00
B.2. Actual Damages 335,994.50
B.3. Penalties 1,778,285.44
B.4 Cash Payments in Behalf of MCI 2,214,715.68
Total Amount Due CPI P 28,453,995.62
C. NET AMOUNT
4,935,578.31

DUE

[CHATHAM]

(B

minus

A)

Correspondingly, Respondent [MCI] is hereby directed to


pay the Petitioner [CHATHAM] the net sum of FOUR
MILLION NINE HUNDRED THIRTY-FIVE THOUSAND FIVE

42

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
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, [18 which limits the review of an Arbitral Award to
only questions of law, thus:
Section 19. Finality of Awards The arbitral award shall be
binding upon the parties. It shall be final and
inappealable (sic) except on questions of law which shall
be appealable to the Supreme Court.
MCI then asserts that as signatories to the contract, it
and CHATHAM complied with this legal provision when
they included as part of their TOR the stipulation that
[t]he decision of the Arbitral Tribunal shall be final and
non-appealable except on questions of law. Accordingly,
the binding character of this provision upon the parties is
conclusive and final.
MCI also contends that while it may be argued that recent
(1) issuances by the Supreme Court, specifically, Circular
No.
1-91,
which
eventually
became
Revised
Administrative Circular No. 1-95; (2) legislation, in
particular, Republic Act No. 7902, which amended Batas
Pambansa Blg. 129; and (3) amendments to the Rules on
Civil Procedure, modifying E.O. No. 1008 in the sense that
questions of facts, of law, or mixed questions of facts and
law may be the subject of an appeal of the 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. [19 By express provision
of Section 19 thereof, the arbitral award of the CIAC is
final and unappealable, except on questions of law, which
are appealable to the Supreme Court.
The parties, however, disagree on whether the
subsequent Supreme Court issuances on appellate
procedure and R.A. No. 7902 removed from the Supreme
Court its appellate jurisdiction in Section 19 of E.O. No.
1008 and vested the same in the Court of Appeals, and
whether appeals from 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

43

Relations Commission or the Secretary of Labor and


Employment under the Labor Code of the Philippines, the
Central Board of Assessment Appeals, and other quasijudicial agencies from which no appeal to the courts is
prescribed or allowed by statute.
3. Who may appeal and where to appeal. -- The appeal of
a party affected by a final order, decision, or judgment of
the Court of Tax Appeals or a quasi-judicial agency shall
be taken to the Court of Appeals within the period and in
the manner herein provided, whether the appeal involves
questions of fact or of law or mixed questions of fact and
law. From final judgments or decisions of the Court of
Appeals, the aggrieved party may appeal by certiorari to
the Supreme Court as provided in Rule 45 of the Rules of
Court.
Subsequently, on 23 February 1995, 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,
including the power to grant and conduct new trials or
further proceedings. x x x
Then this Court issued Administrative Circular No. 1-95,
[21 which revised Circular No. 1-91. Relevant portions of
the former reads as follows:
1. Scope. --These rules shall apply to appeals from
judgments or final orders of the Court of Tax Appeals and
from awards, judgments, final orders or resolutions of any
quasi-judicial agency from which an appeal is authorized
to be taken to the Court of Appeals or the Supreme Court.
Among these agencies are the Securities and Exchange
Commission, Land Registration Authority, Social Security
Commission, Civil Aeronautics Board, Bureau of Patents,
Trademarks
and
Technology
Transfer,
National
Electrification Administration, Energy Regulatory Board,
National Telecommunication Commission, Department of
Agrarian Reform under Republic Act No. 6657,
Government Service Insurance System, Employees

Compensation Commission, Agricultural Inventions Board,


Insurance
Commission,
Philippine
Atomic
Energy
Commission, Board of Investments, and Construction
Industry Arbitration Commission.
Section 2. Cases Not Covered. These rules shall not apply
to judgments or final orders issued under the Labor Code
of the Philippines, Central Board of Assessment Appeals,
and by other quasi-judicial agencies from which no
appeal to the court is prescribed or allowed.
Section 3. Where to Appeal. -- An appeal under these
rules may be taken to the Court of Appeals within the
period and in the manner herein provided, whether the
appeal involves questions of fact, of law, or mixed
questions of fact and law.
Thereafter, this Court promulgated the 1997 Rules on
Civil Procedure. Sections 1, 2 and 3 of Rule 43 thereof
provides:
Section 1. Scope. -- This Rule shall apply to appeals from
judgments or final orders of the Court of Tax Appeals and
from awards, judgments, final orders or resolutions of or
authorized by any quasi-judicial agency in the exercise of
its quasi-judicial functions. Among these agencies are the
Civil Service Commission, Central Board of Assessment
Appeals, Securities and Exchange Commission, Office of
the President, Land Registration Authority, Social Security
Commission, Civil Aeronautics Board, Bureau of Patents,
Trademarks
and
Technology
Transfer,
National
Electrification Administration, Energy Regulatory Board,
National Telecommunications Commission, Department of
Agrarian Reform under Republic Act No. 6657,
Government Service Insurance System, Employees
Compensation Commission, Agricultural Inventions Board,
Insurance
Commission,
Philippine
Atomic
Energy
Commission, Board of Investments, Construction Industry
Arbitration Commission, and voluntary arbitrators
authorized by law.
Section 2. Cases Not Covered. This Rule shall not apply to
judgments or final orders issued under the Labor Code of
the Philippines.
Section 3. 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 quasi-judicial agency. A quasi-judicial
agency or body has been defined as an organ of
government other than a court and other than a
legislature, which affects the rights of private parties
through either adjudication or rule-making. [22 The very
definition of an administrative agency includes its being
vested with quasi-judicial powers. The ever increasing

44

variety of powers and functions given to administrative


agencies recognizes the need for the active intervention
of administrative agencies in matters calling for technical
knowledge and speed in countless controversies which
cannot possibly be handled by regular courts. [23 The
CIACs primary function is that of a quasi-judicial agency,
which is to adjudicate claims and/or determine rights in
accordance with procedures set forth in E.O. No. 1008.
In the second place, the language of Section 1 of Circular
No. 1-91 emphasizes the obvious inclusion of the CIAC
even if it is not named in the enumeration of quasijudicial agencies. The introductory words [a]mong these
agencies are preceding the enumeration of specific quasijudicial 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 [24 sheds light on the matter, thus:
Assuming arguendo that the voluntary arbitrator or the
panel of voluntary arbitrators may not strictly be
considered as a quasi-judicial agency, board or
commission, still both he and the panel are
comprehended within the concept of a quasi-judicial
instrumentality. It may even be stated that it was to meet
the very situation presented by the quasi-judicial
functions of the voluntary arbitrators here, as well as the
subsequent arbitrator/arbitral tribunal operating under
the Construction Industry Arbitration Commission, that
the broader term instrumentalities was purposely
included in [Section 9 of B.P. Blg. 129 as amended by 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 quasijudicial bodies, which, however, shall remain in force until
disapproved by the Supreme Court. [25 This power is
constitutionally enshrined to enhance the independence
of the Supreme Court. [26
The right to appeal from judgments, awards, or final
orders of the CIAC is granted in E.O. No. 1008. The
procedure for the exercise or application of this right was
initially outlined in E.O. No. 1008. While R. A. No. 7902
and circulars subsequently issued by the Supreme Court
and its amendments to the 1997 Rules on Procedure
effectively modified the manner by which the right to
appeal ought to be exercised, nothing in these changes
impaired vested rights. The new rules do not take away
the right to appeal allowed in E.O. No. 1008. They only
prescribe a new procedure to enforce the right. [27 No
litigant has a vested right in a particular remedy, which
may be changed by substitution without impairing vested
rights; hence, he can have none in rules of procedure
which relate to remedy. [28
The foregoing discussion renders academic 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.

45

The agreement merely adopted Section 19 of E.O. No.


1008, which, as shown above, had been modified.
The TOR, any contract or agreement of the parties cannot
amend, modify, limit, restrict or circumscribe legal
remedies or the jurisdiction of courts. Rules of procedure
are matters of public order and interest and unless the
rules themselves so allow, they cannot be altered,
changed or regulated by agreements between or
stipulations of the parties for their singular convenience.
[29
Having resolved the existence of the authority of the
Court of Appeals to review the decisions, awards, or final
orders of the CIAC, the Court shall now determine
whether the Court of Appeals erred in rendering the
questioned decision of 30 September 1999.
Settled is the general rule that the findings of facts of the
Court of Appeals are binding on us. There are recognized
exceptions to the rule, such as when the findings are
contrary to those of the trial court, [30 as in this case.
Hence, we have to take a closer reexamination of this
case.
The CIAC is certain that the evidence overwhelmingly
tended to prove that the manner by which CHATHAM took
charge in the procurement of materials, fielding of labor,
control of MCI engineers and the subcontracting of
various phases of the work, constituted an implied
takeover of the project. The CIAC then concludes that the
cut-off date for delineating the fiscal liabilities of the
parties is 23 May 1996 when CHATHAM evaluated 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.

would be
liquidated
monetary
CHATHAM

held liable for a much higher P24,125,000


damages. Setting this off against CHATHAMs
responsibilities, MCI would still have to pay
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, [31
acknowledging the temporary takeover by CHATHAM of
the project, underscore the palpable fact that there was
indeed a takeover. We confer particular credit to Dr. 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.
Exhibits 4, 4-A, 4-C, 8A, 8, 4-D, 3, 3-I, 3-M, 3-N, 3-W-1, 3X, 3-Y, 3-Z, 5,5-A, 5-B, 5-C 5-D, 5-E, 5-F, 5-O, C-7, E-9,
etc., [32 relied upon by the Court of Appeals when
considered by themselves and singly, seemingly and
initially evince 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.
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the
assailed 30 September 1999 decision of the Court of
Appeals in CA-G.R. SP No. 49429 is hereby PARTIALLY
MODIFIED by setting aside the order directing Metro
Construction, Inc. to pay Chatham Properties, Inc. the
amount of P4,935,578.31. The arbitral award of the
Construction Industry Arbitration Commission in CIAC
Case 10-98, promulgated on 19 October 1998, directing
Chatham Properties, Inc. to pay Metro Construction, Inc.
the sum of SIXTEEN MILLION ONE HUNDRED TWENTY-SIX
THOUSAND NINE HUNDRED TWENTY-TWO & 91/100
(P16,126,922.91) PESOS, is accordingly REINSTATED.
No pronouncement as to costs.
SO ORDERED.

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

46

G.R. No. 110434 December 13, 1993


HI-PRECISION STEEL CENTER, INC., petitioner,
vs.
LIM
KIM
STEEL
BUILDERS,
INC.,
and
CONSTRUCTION
INDUSTRY
ARBITRATION
COMMISSION, respondents.
Felix Q. Vinluan and Siguion Reyna, Montecillo
Ongsiako for petitioner.

&

De Castro & Cagampang Law Offices for Lim Kim teel


Builders, Inc.
RESOLUTION

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.

FELICIANO, J.:
On 18 June 1993, a "Petition for Extension to File Petition
for Review" 1 was filed before the Court, petitioner HiPrecision 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 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.
6

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 noncompletion 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

The Parties are enjoined to abide by the


award. 11
Upon
motions
for
reconsideration
filed,
respectively, by Hi-Precision and Steel Builders,
the Arbitral Tribunal issued an Order dated 13
May 1993 which reduced the net amount due to
contractor Steel Builders to P6,115,285.83. 12
In its Award, the Arbitral Tribunal stated that it was
guided by Articles 1169, 1192 and 2215 of the Civil Code.
With such guidance, the arbitrators concluded that (a)
both parties were at fault, though the Tribunal could not
point out which of the parties was the first infractor; and
(b) the breaches by one party affected the discharge of
the reciprocal obligations of the other party. With mutual
fault as a principal premise, the Arbitral Tribunal denied
(a) petitioner's claims for the additional costs allegedly
incurred to complete the project; and (b) private
respondent's claim for profit it had failed to earn because
of petitioner's take over of the project.
The Tribunal then proceeded to resolve the remaining
specific claims of the parties. In disposing of these
multiple, detailed claims the Arbitral Tribunal, in respect
of one or more of the respective claims of the parties: (a)
averaged out the conflicting amounts and percentages
claimed by the parties; 13 (b) found neither basis nor
justification for a particular claim; 14 (c) found the
evidence submitted in support of particular claims either
weak or non-existent; 15 (d) took account of the
admissions of liability in respect of particular claims; 16
(e) relied on its own expertise in resolving particular
claims; 17 and (f) applied a "principle of equity" in
requiring each party to bear its own loss resulting or
arising from mutual fault or delay (compensation morae).
18

Petitioner Hi-Precision now asks this Court to set aside


the Award, contending basically that it was the contractor
Steel Builders who had defaulted on its contractual
undertakings and so could not be the injured party and
should not be allowed to recover any losses it may have

47

incurred in the project. Petitioner Hi-Precision insists it is


still entitled to damages, and claims that the Arbitral
Tribunal committed grave abuse of discretion when it
allowed certain claims by Steel Builders and offset them
against claims of Hi-Precision.
A preliminary point needs to be made. We note that the
Arbitral Tribunal has not been impleaded as a respondent
in the Petition at bar. The CIAC has indeed been
impleaded; however, the Arbitral Award was not rendered
by the CIAC, but rather by the Arbitral Tribunal. Moreover,
under Section 20 of Executive Order No. 1008, dated 4
February 1985, as amended, it is the Arbitral Tribunal, or
the single Arbitrator, with the concurrence of the CIAC,
which issues the writ of execution requiring any sheriff or
other proper officer to execute the award. We consider
that the Arbitral Tribunal which rendered the Award
sought to be reviewed and set aside, should be
impleaded even though the defense of its Award would
presumably have to be carried by the prevailing party.
Petitioner Hi-Precision apparently seeks review of both
under Rule 45 and Rule 65 of the Rules of Court. 19 We do
not find it necessary to rule which of the two: a petition
for review under Rule 45 or a petition for certiorari under
Rule 65 is necessary under Executive Order No. 1008,
as amended; this issue was, in any case, not squarely
raised by either party and has not been properly and
adequately litigated.
In its Petition, Hi-Precision purports to raise "legal issues,"
and in presenting these issues, prefaced each with a
creative formula:
(1)
The public respondent [should be the
"Arbitral Tribunal'] committed serious
error in law, if not grave abuse of
discretion, when it failed to strictly apply
Article 1191, New Civil Code, against the
contractor . . .;
(2)
The public respondent committee serious
error in law, if not grave abuse of
discretion, when it failed to rule in favor
of the owner, now petitioner herein, all
the awards it claimed on arbitration, and
when it nonetheless persisted in its
awards of damages in favor of the
respondent. . . .;
(3)
The public respondent committed serious
error in law, if not grave abuse of
discretion, for its abject failure to apply
the doctrine of waiver, estoppel against
the contractor, the private respondent
herein, when it agreed on November 16,
1990 to award termination of the contract
and the owner's takeover of the project . .
.;
(4)
The public respondent committed serious
error in law, if not grave abuse of

discretion, when it did not enforce the law


between the parties, the "technical
specification[s]" which is one of the
contract documents, particularly to par.
(a), sub-part 3.01, part 3, Sec. 2b, which
expressly requires that major site work
activities like stripping, removal and
stockpiling of top soil shall be done "prior
to the start of regular excavation or
backfiling work", the principal issue in
arbitration being non-compliance with the
contract documents;
(5)
The public respondent committed serious
error in law, if not grave abuse of
discretion, when it found, in the May 13,
1993 Order, the petitioner "guilty of
estoppel" although it is claimed that the
legal doctrine of estoppel does not apply
with respect to the required written
formalities in the issuance of change
order . . .;
(6)
The
exceptional
circumstances
in
Remalante vs. Tibe, 158 SCRA 138,
where the Honorable Supreme Court may
review findings of facts, are present in
the instant case, namely; (a) when the
inference made is manifestly absurd,
mistaken or impossible (Luna vs. Linatoc,
74 Phil. 15); (2) when there is grave
abuse of discretion in the appreciation of
facts (Buyco vs. People, 95 Phil. 253); (3)
when the judgment is premised on a
misapprehension of facts (De la Cruz v.
Sosing, 94 Phil. 26 and Castillo vs. CA,
124 SCRA 808); (4) when the findings of
fact are conflicting (Casica v. Villaseca,
101 Phil. 1205); (5) when the findings are
contrary to the admissions of the parties
(Evangelista v. Alto Surety, 103 Phil. 401),
and therefore, the findings of facts of the
public respondent in the instant case may
be reviewed by the Honorable Supreme
Court. 20 (Emphasis partly applied and
partly in the original)
From the foregoing, petitioner Hi-Precision may be seen
to be making two (2) basic arguments:
(a) Petitioner asks this Court to correct
legal errors committed by the Arbitral
Tribunal, which at the same time
constitute grave abuse of discretion
amounting to lack of jurisdiction on the
part of the Arbitral Tribunal; and
(b) Should the supposed errors petitioner
asks us to correct be characterized as
errors of fact, such factual errors should
nonetheless be reviewed because there
was "grave abuse of discretion" in the
misapprehension of facts on the part of
the Arbitral Tribunal.

48

Executive Order No. 1008, as amended, provides, in its


Section 19, as follows:

arbitration and would reduce arbitration to a largely


inutile institution.

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.

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.

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

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, HiPrecision 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 HiPrecision 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

49

is to compel this Court to determine which of the two (2)


contending parties was the "injured party" or the "first
infractor." As noted earlier, the Arbitral Tribunal after the
prolonged arbitration proceeding, was unable to make
that factual determination and instead concluded that
both parties had committed breaches of their respective
obligations. We will not review, and much less reverse,
that basic factual finding of the Arbitral Tribunal.
A second "legal issue" sought to be raised by petitioner
Hi-Precision relates to the supposed failure of the Arbitral
Tribunal to apply the doctrines of estoppel and waiver as
against Steel Builders. 25 The Arbitral Tribunal, after
declaring that the parties were mutually at fault,
proceeded to enumerate the faults of each of the parties.
One of the faults attributed to petitioner Hi-Precision is
that it had failed to give the contractor Steel Builders the
required 15-day notice for termination of the contract. 26
This was clearly a finding of fact on the part of the
Tribunal, supported by the circumstance that per the
record, petitioner had offered no proof that it had
complied with such 15-day notice required under Article
28.01 of the General Conditions of Contract forming part
of the Contract Documents. Petitioner Hi-Precision's
argument is that a written Agreement dated 16
November 1990 with Steel Builders concerning the take
over of the project by Hi-Precision, constituted waiver on
the part of the latter of its right to a 15-day notice of
contract termination. Whether or not that Agreement
dated 16 November 1990 (a document not submitted to
this Court) is properly characterized as constituting
waiver on the part of Steel Builders, may be conceded to
be prima facie a question of law; but, if it is, and
assuming arguendo that the Arbitral Tribunal had erred in
resolving it, that error clearly did not constitute a grave
abuse of discretion resulting in lack or loss of jurisdiction
on the part of the Tribunal.
A third "legal issue" posed by Hi-Precision relates to the
supposed failure on the part of the Arbitral Tribunal "to
uphold
the
supremacy
of
'the
law between the parties' and enforce it against private
respondent [Steel Builders]." 27 The "law between that
parties" here involved is the "Technical Specifications"
forming part of the Contract Documents. Hi-Precision
asserts that the Arbitral Tribunal did not uphold the "law
between the parties," but instead substituted the same
with "its [own] absurd inference and 'opinion' on mud."
Here again, petitioner is merely disguising a factual
question as a "legal issue," since petitioner is in reality
asking this Court to review the physical operations
relating, e.g., to site preparation carried out by the
contractor Steel Builders and to determine whether such
operations were in accordance with the Technical
Specifications of the project. The Arbitral Tribunal
resolved Hi-Precision's claim by finding that Steel Builders
had
complied
substantially
with
the
Technical
Specifications. This Court will not pretend that it has the
technical and engineering capability to review the
resolution of that factual issue by the Arbitral Tribunal.
Finally, the Petition asks this Court to "review serious
errors in the findings of fact of the [Arbitral Tribunal]." 28
In
this
section
of
its
Petition,
Hi-Precision asks us to examine each item of its own
claims which the Arbitral Tribunal had rejected in its
Award, and each claim of the contractor Steel Builders

which the Tribunal had granted. In respect of each item of


the owner's claims and each item of the contractor's
claims, Hi-Precision sets out its arguments, to all
appearances the same arguments it had raised before
the Tribunal. As summarized in the Arbitral Award,
Contractor's Claims were as follows:
12.1.
Unpaid
1,812,706.95

Progress

12.2.
Change
12.3.
-do12.4.
-do12.5.
-do12.6.
-do12.7.
-do12.8.
-do12.9.
-do12.10.
-do12.11.
-do12.12.
-do12.13.
-do12.14.
-do12.15.
-do12.16.
-do12.17.
-do12.18.
-do12.19.
12.20.
12.21.
12.22.
12.23.
12.24.
12.25.
12.26.
12.27.
12.28.
12.29.
12.30. 0.00

Billing

Order
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

1
0.00
10,014.00
320,000.00
112,300.70
398,398.00
353,050.38
503,836.53
216,138.75
101,621.40
7,200.00
0.00
7,800.00
49,250.00
167,952.00
445,600.00
92,457.30
1,500.00
20,240.00
63,518.00
0.00
0.00
0.00
0.00
0.00
730,201.57
1,130,722.70
0.00
273,991.00

12.31. 7,318,499.28

29

=============
Upon the other hand, the petitioner's claims we are asked
to review and grant are summarized as follows:
1. Actual Damages
Advance
Downpayment
[at]
signing
of
Contract
which
is
subject
to
40%
deduction
every
progress
billing
(40%
of
Contract
Price)
P8,406,000.00
Progress Billings 5,582,585.55
Advances made to Lim Kim
a)
prior
to
take-over
b) after the take-over

392,781.45

Civil
Works
1,158,513.88
Materials
4,213,318.72
Labor
2,155,774.79
Equipment Rental 1,448,208.90

50

P8,974,816.45

SO ORDERED.

Total Amount Paid for Construction


23,650,183.00
Less: Contract Price (21,000,000.00)
IA
Excess
of
amount
over contract price 2,650,163.29
IB
Other
items
Kim Steel Builders

due

a.
Amount
not
yet
from
Downpayment
to
non-completion
of
(P24.1326%) 2,027,138.40

from

paid
Lim

deducted
due
Project

b.
Due
to
Huey
Commercial
used for HSCI Project 51,110.40
IC Additional construction expenses
a. Increases
5,272,096.81

in

prices

since

Oct.

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.

51

G.R. No. 74917 January 20, 1988


BANCO DE ORO SAVINGS AND MORTGAGE BANK,
petitioner,
vs.
EQUITABLE BANKING CORPORATION, PHILIPPINE
CLEARING HOUSE CORPORATION, AND REGIONAL
TRIAL COURT OF QUEZON CITY, BRANCH XCII (92),
respondents.

GANCAYCO, J.:
This is a petition for review on certiorari of a decision of
the Regional Trial Court of Quezon City promulgated on
March 24, 1986 in Civil Case No. Q-46517 entitled Banco
de Oro Savings and Mortgage Bank versus Equitable
Banking Corporation and the Philippine Clearing House
Corporation after a review of the Decision of the Board of
Directors of the Philippine Clearing House Corporation
(PCHC) in the case of Equitable Banking Corporation
(EBC) vs. Banco de Oro Savings and Mortgage (BCO),
ARBICOM Case No. 84033.
The undisputed facts are as follows:
It appears that some time in March, April,
May and August 1983, plaintiff through its
Visa Card Department, drew six crossed
Manager's check (Exhibits "A" to "F", and
herein referred to as Checks) having an
aggregate amount of Forty Five Thousand
Nine Hundred and Eighty Two & 23/100
(P45,982.23) Pesos and payable to
certain member establishments of Visa
Card. Subsequently, the Checks were
deposited with the defendant to the
credit of its depositor, a certain Aida
Trencio.
Following normal procedures, and after
stamping at the back of the Checks the
usual endorsements. All prior and/or lack
of
endorsement
guaranteed
the
defendant sent the checks for clearing
through the Philippine Clearing House
Corporation (PCHC). Accordingly, plaintiff
paid the Checks; its clearing account was
debited for the value of the Checks and
defendant's
clearing
account
was
credited for the same amount,
Thereafter, plaintiff discovered that the
endorsements appearing at the back of
the Checks and purporting to be that of
the
payees
were
forged
and/or
unauthorized or otherwise belong to
persons other than the payees.
Pursuant to the PCHC Clearing Rules and
Regulations,
plaintiff
presented
the
Checks directly to the defendant for the
purpose of claiming reimbursement from
the latter. However, defendant refused to
accept such direct presentation and to
reimburse the plaintiff for the value of the
Checks; hence, this case.

In its Complaint, plaintiff prays for


judgment to require the defendant to pay
the plaintiff the sum of P45,982.23 with
interest at the rate of 12% per annum
from the date of the complaint plus
attorney's fees in the amount of
P10,000.00 as well as the cost of the suit.
In accordance with Section 38 of the
Clearing House Rules and Regulations,
the dispute was presented for Arbitration;
and
Atty.
Ceasar
Querubin
was
designated as the Arbitrator.
After an exhaustive investigation and
hearing the Arbiter rendered a decision in
favor of the plaintiff and against the
defendant ordering the PCHC to debit the
clearing account of the defendant, and to
credit the clearing account of the plaintiff
of the amount of P45,982.23 with interest
at the rate of 12% per annum from date
of the complaint and Attorney's fee in the
amount of P5,000.00. No pronouncement
as to cost was made. 1
In a motion for reconsideration filed by the petitioner, the
Board of Directors of the PCHC affirmed the decision of
the said Arbiter in this wise:
In view of all the foregoing, the decision
of the Arbiter is confirmed; and the
Philippine Clearing House Corporation is
hereby ordered to debit the clearing
account of the defendant and credit the
clearing account of plaintiff the amount of
Forty Five Thousand Nine Hundred Eighty
Two & 23/100 (P45,982.23) Pesos with
interest at the rate of 12% per annum
from date of the complaint, and the
Attorney's fee in the amount of Five
Thousand (P5,000.00) Pesos.
Thus, a petition for review was filed with the Regional
Trial Court of Quezon City, Branch XCII, wherein in due
course a decision was rendered affirming in toto the
decision of the PCHC.
Hence this petition.
The petition is focused on the following issues:
1. Did the PCHC have any jurisdiction to give due course
to and adjudicate Arbicom Case No. 84033?
2. Were the subject checks non-negotiable and if not,
does it fall under the ambit of the power of the PCHC?
3. Is the Negotiable Instrument Law, Act No. 2031
applicable in deciding controversies of this nature by the
PCHC?
4. What law should govern in resolving controversies of
this nature?
5. Was the petitioner bank negligent and thus responsible
for any undue payment?
Petitioner maintains that the PCHC is not clothed with
jurisdiction because the Clearing House Rules and
Regulations of PCHC cover and apply only to checks that

52

are genuinely negotiable. Emphasis is laid on the primary


purpose of the PCHC in the Articles of Incorporation,
which states:
To provide, maintain and render an
effective,
convenient,
efficient,
economical and relevant exchange and
facilitate service limited to check
processing and sorting by way of
assisting member banks, entities in
clearing checks and other clearing items
as defined in existing and in future
Central Bank of the Philippines circulars,
memoranda, circular letters, rules and
regulations and policies in pursuance to
the provisions of Section 107 of R.A.
265. ...
and Section 107 of R.A. 265 which provides:
xxx xxx xxx
The deposit reserves maintained by the
banks in the Central Bank, in accordance
with the provisions of Section 1000 shall
serve as a basis for the clearing of
checks, and the settlement of interbank
balances ...
Petitioner argues that by law and common sense, the
term check should be interpreted as one that fits the
articles of incorporation of the PCHC, the Central Bank
and the Clearing House Rules stating that it is a
negotiable instrument citing the definition of a "check" as
basically a "bill of exchange" under Section 185 of the NIL
and that it should be payable to "order" or to "bearer"
under Section 126 of game law. Petitioner alleges that
with the cancellation of the printed words "or bearer from
the face of the check, it becomes non-negotiable so the
PCHC has no jurisdiction over the case.
The Regional Trial Court took exception to this stand and
conclusion put forth by the herein petitioner as it held:
Petitioner's theory cannot be maintained.
As will be noted, the PCHC makes no
distinction as to the character or nature
of the checks subject of its jurisdiction.
The pertinent provisions quoted in
petitioners memorandum simply refer to
check(s). Where the law does not
distinguish, we shall not distinguish.
In the case of Reyes vs. Chuanico (CAG.R. No. 20813 R, Feb. 5, 1962) the
Appellate Court categorically stated that
there are four kinds of checks in this
jurisdiction; the regular check; the
cashier's check; the traveller's check; and
the crossed check. The Court, further
elucidated, that while the Negotiable
Instruments Law does not contain any
provision on crossed checks, it is coon
practice in commercial and banking
operations to issue checks of this
character, obviously in accordance with
Article 541 of the Code of Commerce.
Attention is likewise called to Section 185
of the Negotiable Instruments Law:

Sec. 185. Check defined.


A check is a bill of
exchange drawn on a
bank payable on demand.
Except
as
herein
otherwise provided, the
provisions of this act
applicable to a bill of
exchange
payable
on
demand apply to a check
and the provisions of Section 61 (supra)
that the drawer may insert in the
instrument
an
express
stipulation
negating or limiting his own liability to the
holder. Consequently, it appears that the
use of the term "check" in the Articles of
Incorporation of PCHC is to be perceived
as not limited to negotiable checks only,
but to checks as is generally known in
use
in
commercial
or
business
transactions.
Anent Petitioner's liability on said
instruments, this court is in full accord
with the ruling of the PCHC Board of
Directors that:
In presenting the Checks
for
clearing
and
for
payment, the defendant
made
an
express
guarantee on the validity
of
"all
prior
endorsements."
Thus,
stamped at the back of
the
checks
are
the
defendant's
clear
warranty;
ALL
PRIOR
ENDORSEMENTS AND/OR
LACK OF ENDORSEMENTS
GUARANTEED. With. out
such warranty, plaintiff
would not have paid on
the checks.
No amount of legal jargon
can reverse the clear
meaning of defendant's
warranty. As the warranty
has proven to be false
and
inaccurate,
the
defendant is liable for any
damage arising out of the
falsity
of
its
representation.
The principle of estoppel,
effectively prevents the
defendant from denying
liability for any damage
sustained by the plaintiff
which, relying upon an
action or declaration of
the defendant, paid on
the Checks. The same
principle
of
estoppel
effectively prevents the

53

defendant from denying


the existence of the
Checks.
(Pp.
1011
Decision; pp. 4344, Rollo)
We agree.
As provided in the aforecited articles of incorporation of
PCHC its operation extend to "clearing checks and other
clearing items." No doubt transactions on non-negotiable
checks are within the ambit of its jurisdiction.
In a previous case, this Court had occasion to rule: "Ubi
lex non distinguish nec nos distinguere debemos." 2 It
was enunciated in Loc Cham v. Ocampo, 77 Phil. 636
(1946):
The rule, founded on logic is a corollary of
the principle that general words and
phrases in a statute should ordinarily be
accorded their natural and general
significance. In other words, there should
be no distinction in the application of a
statute where none is indicated.
There should be no distinction in the application of a
statute where none is indicated for courts are not
authorized to distinguish where the law makes no
distinction. They should instead administer the law not as
they think it ought to be but as they find it and without
regard to consequences. 3
The term check as used in the said Articles of
Incorporation of PCHC can only connote checks in general
use in commercial and business activities. It cannot be
conceived to be limited to negotiable checks only.
Checks are used between banks and bankers and their
customers, and are designed to facilitate banking
operations. It is of the essence to be payable on demand,
because the contract between the banker and the
customer is that the money is needed on demand. 4
The participation of the two banks, petitioner and private
respondent, in the clearing operations of PCHC is a
manifestation of their submission to its jurisdiction. Sec. 3
and 36.6 of the PCHC-CHRR clearing rules and regulations
provide:
SEC. 3. AGREEMENT TO THESE RULES.
It is the general agreement and
understanding that any participant in the
Philippine Clearing House Corporation,
MICR clearing operations by the mere fact
of their participation, thereby manifests
its agreement to these Rules and
Regulations
and
its
subsequent
amendments."
Sec 36.6. (ARBITRATION) The fact that
a bank participates in the clearing
operations of the PCHC shall be deemed
its written and subscribed consent to the
binding
effect
of
this
arbitration
agreement as if it had done so in
accordance with section 4 of the Republic
Act No. 876, otherwise known as the
Arbitration Law.
Further Section 2 of the Arbitration Law mandates:

Two or more persons or parties may


submit to the arbitration of one or more
arbitrators any controversy existing
between them at the time of the
submission and which may be the subject
of an action, or the parties of any
contract may in such contract agree to
settle by arbitration a controversy
thereafter arising between them. Such
submission or contract shall be valid and
irrevocable, save upon grounds as exist
at law for the revocation of any contract.
Such submission or contract may include
question arising out of valuations,
appraisals or other controversies which
may be collateral, incidental, precedent
or subsequent to any issue between the
parties. ...
Sec. 21 of the same rules, says:
Items which have been the subject of
material alteration or items bearing
forged
endorsement
when
such
endorsement is necessary for negotiation
shall be returned by direct presentation
or demand to the Presenting Bank and
not through the regular clearing house
facilities within the period prescribed by
law for the filing of a legal action by the
returning bank/branch, institution or
entity sending the same. (Emphasis
supplied)
Viewing these provisions the conclusion is clear that the
PCHC Rules and Regulations should not be interpreted to
be applicable only to checks which are negotiable
instruments but also to non-negotiable instruments and
that the PCHC has jurisdiction over this case even as the
checks subject of this litigation are admittedly nonnegotiable.
Moreover, petitioner is estopped from raising the defense
of non-negotiability of the checks in question. It stamped
its guarantee on the back of the checks and subsequently
presented these checks for clearing and it was on the
basis of these endorsements by the petitioner that the
proceeds were credited in its clearing account.
The petitioner by its own acts and representation can not
now deny liability because it assumed the liabilities of an
endorser by stamping its guarantee at the back of the
checks.
The petitioner having stamped its guarantee of "all prior
endorsements and/or lack of endorsements" (Exh. A-2 to
F-2) is now estopped from claiming that the checks under
consideration are not negotiable instruments. The checks
were accepted for deposit by the petitioner stamping
thereon its guarantee, in order that it can clear the said
checks with the respondent bank. By such deliberate and
positive attitude of the petitioner it has for all legal
intents and purposes treated the said cheeks as
negotiable instruments and accordingly assumed the
warranty of the endorser when it stamped its guarantee
of prior endorsements at the back of the checks. It led
the said respondent to believe that it was acting as

54

endorser of the checks and on the strength of this


guarantee said respondent cleared the checks in question
and credited the account of the petitioner. Petitioner is
now barred from taking an opposite posture by claiming
that the disputed checks are not negotiable instrument.
This Court enunciated in Philippine National Bank vs.
Court of Appeals 5 a point relevant to the issue when it
stated the doctrine of estoppel is based upon the grounds
of public policy, fair dealing, good faith and justice and its
purpose is to forbid one to speak against his own act,
representations or commitments to the injury of one to
whom they were directed and who reasonably relied
thereon.
A commercial bank cannot escape the liability of an
endorser of a check and which may turn out to be a
forged endorsement. Whenever any bank treats the
signature at the back of the checks as endorsements and
thus logically guarantees the same as such there can be
no doubt said bank has considered the checks as
negotiable.
Apropos the matter of forgery in endorsements, this
Court has succinctly emphasized that the collecting bank
or last endorser generally suffers the loss because it has
the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the
check for payment to the drawee is an assertion that the
party making the presentment has done its duty to
ascertain the genuineness of the endorsements. This is
laid down in the case of PNB vs. National City Bank. 6 In
another case, this court held that if the drawee-bank
discovers that the signature of the payee was forged
after it has paid the amount of the check to the holder
thereof, it can recover the amount paid from the
collecting bank. 7
A truism stated by this Court is that "The doctrine of
estoppel precludes a party from repudiating an obligation
voluntarily assumed after having accepted benefits
therefrom. To countenance such repudiation would be
contrary to equity and put premium on fraud or
misrepresentation". 8
We made clear in Our decision in Philippine National Bank
vs. The National City Bank of NY & Motor Service Co. that:
Where a check is accepted or certified by
the bank on which it is drawn, the bank is
estopped to deny the genuineness of the
drawers signature and his capacity to
issue the instrument.
If a drawee bank pays a forged check
which was previously accepted or
certified by the said bank, it can not
recover from a holder who did not
participate in the forgery and did not
have actual notice thereof.
The payment of a check does not include
or imply its acceptance in the sense that
this word is used in Section 62 of the
Negotiable Instruments Act. 9
The point that comes uppermost is whether the drawee
bank was negligent in failing to discover the alteration or
the forgery. Very akin to the case at bar is one which

involves a suit filed by the drawer of checks against the


collecting bank and this came about in Farmers State
Bank 10 where it was held:
A cause of action against the (collecting
bank) in favor of the appellee (the
drawer) accrued as a result of the bank
breaching its implied warranty of the
genuineness of the indorsements of the
name of the payee by bringing about the
presentation of the checks (to the drawee
bank) and collecting the amounts thereof,
the right to enforce that cause of action
was not destroyed by the circumstance
that another cause of action for the
recovery of the amounts paid on the
checks would have accrued in favor of
the appellee against another or to others
than the bank if when the checks were
paid they have been indorsed by the
payee. (United States vs. National
Exchange Bank, 214 US, 302, 29 S
CT665, 53 L. Ed 1006, 16 Am. Cas. 11 84;
Onondaga County Savings Bank vs.
United States (E.C.A.) 64 F 703)
Section 66 of the Negotiable Instruments ordains that:
Every indorser who indorsee without
qualification, warrants to all subsequent
holders in due course' (a) that the
instrument is genuine and in all respects
what it purports to be; (b) that he has
good title to it; (c) that all prior parties
have capacity to contract; and (d) that
the instrument is at the time of his
indorsement valid and subsisting. 11
It has been enunciated in an American case particularly
in American Exchange National Bank vs. Yorkville Bank 12
that: "the drawer owes no duty of diligence to the
collecting bank (one who had accepted an altered check
and had paid over the proceeds to the depositor) except
of seasonably discovering the alteration by a comparison
of its returned checks and check stubs or other
equivalent record, and to inform the drawee thereof." In
this case it was further held that:
The real and underlying reasons why
negligence of the drawer constitutes no
defense to the collecting bank are that
there is no privity between the drawer
and the collecting bank (Corn Exchange
Bank vs. Nassau Bank, 204 N.Y.S. 80) and
the drawer owe to that bank no duty of
vigilance (New York Produce Exchange
Bank vs. Twelfth Ward Bank, 204 N.Y.S.
54) and no act of the collecting bank is
induced by any act or representation or
admission of the drawer (Seaboard
National Bank vs. Bank of America
(supra) and it follows that negligence on
the part of the drawer cannot create any
liability from it to the collecting bank, and
the drawer thus is neither a necessary
nor a proper party to an action by the
drawee bank against such bank. It is
quite true that depositors in banks are

55

under the obligation of examining their


passbooks and returned vouchers as a
protection against the payment by the
depository bank against forged checks,
and negligence in the performance of
that obligation may relieve that bank of
liability for the repayment of amounts
paid out on forged checks, which but for
such negligence it would be bound to
repay. A leading case on that subject is
Morgan vs. United States Mortgage and
Trust Col. 208 N.Y. 218, 101 N.E. 871
Amn. Cas. 1914D, 462, L.R.A. 1915D, 74.
Thus We hold that while the drawer generally owes no
duty of diligence to the collecting bank, the law imposes
a duty of diligence on the collecting bank to scrutinize
checks deposited with it for the purpose of determining
their genuineness and regularity. The collecting bank
being primarily engaged in banking holds itself out to the
public as the expert and the law holds it to a high
standard of conduct.
And although the subject checks are non-negotiable the
responsibility of petitioner as indorser thereof remains.
To countenance a repudiation by the petitioner of its
obligation would be contrary to equity and would deal a
negative blow to the whole banking system of this
country.
The court reproduces with approval
disquisition of the PCHC in its decision

the

following

II. Payments To Persons Other


Than The Payees Are Not
Valid
And Give
Obligation

Rise

To
Return
Received

To

An

Amounts

Nothing is more clear than that neither


the defendant's depositor nor the
defendant is entitled to receive payment
payable for the Checks. As the checks are
not payable to defendant's depositor,
payments to persons other than payees
named therein, their successor-in-interest
or any person authorized to receive
payment are not valid. Article 1240, New
Civil
Code
of
the
Philippines
unequivocably provides that:
"Art. 1240. Payment shall
be made to the person in
whose
favor
the
obligation
has
been
constituted,
or
his
successo-in-interest,
or
any person authorized to
receive it. "
Considering that neither the defendant's
depositor nor the defendant is entitled to
receive payments for the Checks,
payments to any of them give rise to an

obligation
to
return
the
amounts
received. Section 2154 of the New Civil
Code mandates that:
Article 2154. If something
is received when there is
no right to demand it, and
it was unduly delivered
through
mistake,
the
obligation to return it
arises.
It is contended that plaintiff should be
held responsible for issuing the Checks
notwithstanding that the underlying
transactions
were
fictitious
This
contention
has
no
basis
in
our
jurisprudence.
The nullity of the underlying transactions
does
not
diminish,
but
in
fact
strengthens, plaintiffs right to recover
from the defendant. Such nullity clearly
emphasizes the obligation of the payees
to return the proceeds of the Checks. If a
failure of consideration is sufficient to
warrant a finding that a payee is not
entitled to payment or must return
payment already made, with more reason
the defendant, who is neither the payee
nor the person authorized by the payee,
should be compelled to surrender the
proceeds of the Checks received by it.
Defendant does not have any title to the
Checks; neither can it claim any
derivative title to them.
III. Having Violated Its Warranty
On
Validity
Endorsements,
Collecting
Deny
liability
Relied

To

Bank

Of

All

Cannot

Those

Who

On Its Warranty
In presenting the Checks for clearing and
for payment, the defendant made an
express guarantee on the validity of "all
prior endorsements." Thus, stamped at
the bank of the checks are the
defendant's clear warranty: ALL PRIOR
ENDORSEMENTS
AND/OR
LACK
OF
ENDORSEMENTS GUARANTEED. Without
such warranty, plaintiff would not have
paid on the checks.
No amount of legal jargon can reverse the
clear meaning of defendant's warranty. As
the warranty has proven to be false and
inaccurate, the defendant is liable for any
damage arising out of the falsity of its
representation.
The principle of estoppel effectively
prevents the defendant from denying

56

liability for any damages sustained by the


plaintiff which, relying upon an action or
declaration of the defendant, paid on the
Checks. The same principle of estoppel
effectively prevents the defendant from
denying the existence of the Checks.
Whether the Checks have been issued for
valuable considerations or not is of no
serious moment to this case. These
Checks have been made the subject of
contracts of endorsement wherein the
defendant made expressed warranties to
induce payment by the drawer of the
Checks; and the defendant cannot now
refuse liability for breach of warranty as a
consequence
of
such
forged
endorsements. The defendant has falsely
warranted in favor of plaintiff the validity
of all endorsements and the genuineness
of the cheeks in all respects what they
purport to be.
The damage that will result if judgment is
not rendered for the plaintiff is
irreparable. The collecting bank has
privity with the depositor who is the
principal culprit in this case. The
defendant knows the depositor; her
address and her history, Depositor is
defendant's client. It has taken a risk on
its depositor when it allowed her to
collect on the crossed-checks.
Having accepted the crossed checks from
persons other than the payees, the
defendant is guilty of negligence; the risk
of wrongful payment has to be assumed
by the defendant.
On the matter of the award of the interest
and attorney's fees, the Board of
Directors finds no reason to reverse the
decision of the Arbiter. The defendant's
failure to reimburse the plaintiff has
constrained the plaintiff to regular the
services of counsel in order to protect its
interest notwithstanding that plaintiffs
claim
is
plainly
valid
just
and
demandable. In addition, defendant's
clear obligation is to reimburse plaintiff
upon direct presentation of the checks;
and it is undenied that up to this time the
defendant has failed to make such
reimbursement.
WHEREFORE, the petition is DISMISSED for lack of merit
without pronouncement as to costs. The decision of the
respondent court of 24 March 1986 and its order of 3 June
1986 are hereby declared to be immediately executory.
SO ORDERED.

57

CASE

DIGEST:

Commercial
Instruments,

G.

Law,

R.

No.

123793,

June

Corporation, Merger,
Promissory

29,

1998

Negotiable
Note

FACTS:
Associated Banking Corporation and Citizens Bank and
Trust Company (CBTC) merged to form just one banking
corporation known as Associated Citizens Bank (later
renamed Associated Bank), the surviving bank. After the
merger agreement had been signed, but before a
certificate of merger was issued, respondent Lorenzo
Sarmiento, Jr. executed in favor of Associated Bank a
promissory note, promising to pay the bank P2.5 million
on or before due date at 14% interest per annum, among
other accessory dues. For failure to pay the amount due,
Sarmiento
was
sued
by
Associated
Bank.
Respondent argued that the plaintiff is not the proper
party in interest because the promissory note was
executed in favor of CBTC. Also, while respondent
executed the promissory note in favor of CBTC, said note
was a contract pour autrui, one in favor of a third person
who may demand its fulfillment. Also, respondent claimed
that he received no consideration for the promissory note
and, in support thereof, cites petitioner's failure to submit
any proof of his loan application and of his actual receipt
of
the
amount
loaned.
ISSUE:
1.) Whether or not Associated Bank, the surviving
corporation, may enforce the promissory note made by
private respondent in favor of CBTC, the absorbed
company, after the merger agreement had been signed,
but before a certificate of merger was issued?

pertaining to the surviving bank, herein petitioner. Such


must have been deliberately included in the agreement in
order to avoid giving the merger agreement a farcical
interpretation aimed at evading fulfillment of a due
obligation. Thus, although the subject promissory note
names CBTC as the payee, the reference to CBTC in the
note shall be construed, under the very provisions of the
merger agreement, as a reference to petitioner bank.
On the issue that the promissory note was a contract
pour autrui and was issued without consideration, the
Supreme Court held it was not. In a contract pour autrui,
an incidental benefit or interest, which another person
gains, is not sufficient. The contracting parties must have
clearly and deliberately conferred a favor upon a third
person. The "fairest test" in determining whether the
third person's interest in a contract is a stipulation pour
autrui or merely an incidental interest is to examine the
intention of the parties as disclosed by their contract. It
did not indicate that a benefit or interest was created in
favor of a third person. The instrument itself says nothing
on the purpose of the loan, only the terms of payment
and the penalties in case of failure to pay.
Private respondent also claims that he received no
consideration for the promissory note, citing petitioner's
failure to submit any proof of his loan application and of
his actual receipt of the amount loaned. These arguments
deserve no merit. Res ipsa loquitur. The instrument,
bearing the signature of private respondent, speaks for
itself. Respondent Sarmiento has not questioned the
genuineness and due execution thereof. That he partially
paid his obligation is itself an express acknowledgment of
his
obligation.
WHEREFORE, the petition is GRANTED.

2.) Whether or not the promissory note was a contract


pour autrui and was issued without consideration?
HELD:
The

petition

is

impressed

with

merit.

Associated Bank assumed all the rights of CBTC. Although


absorbed corporations are dissolved, there is no winding
up of their affairs or liquidation of their assets, because
the surviving corporation automatically acquires all their
rights, privileges and powers, as well as their liabilities.
The merger, however, does not become effective upon
the mere agreement of the constituent corporations. The
Securities and Exchange Commission (SEC) and majority
of the respective stockholders of the constituent
corporations must have approved the merger. (Section
79, Corporation Code) It will be effective only upon the
issuance by the SEC of a certificate of merger. Records do
not show when the SEC approved the merger.
But assuming that the effectivity date of the merger was
the date of its execution, we still cannot agree that
petitioner no longer has any interest in the promissory
note. The agreement itself clearly provides that all
contracts irrespective of the date of execution
entered into in the name of CBTC shall be understood as

58

G.R. No. 123793 June 29, 1998


ASSOCIATED
BANK,
petitioner,
vs.
COURT OF APPEALS and LORENZO SARMIENTO JR.,
respondents.

PANGANIBAN, J.:
In a merger, does the surviving corporation have a right
to enforce a contract entered into by the absorbed
company subsequent to the date of the merger
agreement, but prior to the issuance of a certificate of
merger by the Securities and Exchange Commission?
The Case
This is a petition for review under Rule 45 of the Rules of
Court, seeking to set aside the Decision 1 of the Court of
Appeals 2 in CA-GR CV No. 26465 promulgated on January
30, 1996, which answered the above question in the
negative. The challenged Decision reversed and set aside
the October 17, 1986 Decision 3 in Civil Case No. 8532243, promulgated by the Regional Trial Court of Manila,
Branch 48, which disposed of the controversy in favor of
herein petitioner as follows: 4
WHEREFORE,
judgment
is
hereby
rendered in favor of the plaintiff
Associated Bank. The defendant Lorenzo
Sarmiento, Jr. is ordered to pay plaintiff:
1. The amount of P4,689,413.63 with
interest thereon at 14% per annum until
fully paid;
2. The amount of P200,000.00 as and for
attorney's fees; and
3. The costs of suit.
On the other hand, the Court of Appeals resolved the
case in this wise: 5
WHEREFORE, premises considered, the
decision appealed from, dated October
17, 1986 is REVERSED and SET ASIDE and
another judgment rendered DISMISSING
plaintiff-appellee's complaint, docketed
as Civil Case No. 85-32243. There is no
pronouncement as to costs.
The Facts
The undisputed factual antecedents, as narrated by the
trial court and adopted by public respondent, are as
follows: 6
. . . [O]n or about September 16, 1975
Associated Banking Corporation and
Citizens Bank and Trust Company merged
to form just one banking corporation
known as Associated Citizens Bank, the
surviving bank. On or about March 10,
1981, the Associated Citizens Bank
changed
its
corporate
name
to
Associated Bank by virtue of the
Amended Articles of Incorporation. On
September 7, 1977, the defendant
executed in favor of Associated Bank a

promissory note whereby the former


undertook to pay the latter the sum of
P2,500,000.00 payable on or before
March 6, 1978. As per said promissory
note, the defendant agreed to pay
interest at 14% per annum, 3% per
annum in the form of liquidated damages,
compounded interests, and attorney's
fees, in case of litigation equivalent to
10% of the amount due. The defendant,
to date, still owes plaintiff bank the
amount of P2,250,000.00 exclusive of
interest and other charges. Despite
repeated demands the defendant failed
to pay the amount due.
xxx xxx xxx
. . . [T]he defendant denied all the
pertinent allegations in the complaint and
alleged as affirmative and[/]or special
defenses that the complaint states no
valid cause of action; that the plaintiff is
not the proper party in interest because
the promissory note was executed in
favor of Citizens Bank and Trust
Company; that the promissory note does
not accurately reflect the true intention
and agreement of the parties; that terms
and conditions of the promissory note are
onerous and must be construed against
the creditor-payee bank; that several
partial payments made in the promissory
note are not properly applied; that the
present action is premature; that as
compulsory counterclaim the defendant
prays for attorney's fees, moral damages
and expenses of litigation.
On May 22, 1986, the defendant was
declared as if in default for failure to
appear at the Pre-Trial Conference despite
due notice.
A Motion to Lift Order of Default and/or
Reconsideration of Order dated May 22,
1986 was filed by defendant's counsel
which was denied by the Court in [an]
order dated September 16, 1986 and the
plaintiff was allowed to present its
evidence before the Court ex-parte on
October 16, 1986.
At the hearing before the Court ex-parte,
Esteban C. Ocampo testified that . . . he is
an accountant of the Loans and Discount
Department of the plaintiff bank; that as
such, he supervises the accounting
section of the bank, he counterchecks all
the transactions that transpired during
the day and is responsible for all the
accounts and records and other things
that may[ ]be assigned to the Loans and
Discount Department; that he knows the
[D]efendant
Lorenzo
Sarmiento,
Jr.
because he has an outstanding loan with
them as per their records; that Lorenzo
Sarmiento, Jr. executed a promissory note

59

No. TL-2649-77 dated September 7, 1977


in the amount of P2,500,000.00 (Exhibit
A); that Associated Banking Corporation
and the Citizens Bank and Trust Company
merged to form one banking corporation
known as the Associated Citizens Bank
and is now known as Associated Bank by
virtue of its Amended Articles of
Incorporation; that there were partial
payments made but not full; that the
defendant has not paid his obligation as
evidenced by the latest statement of
account (Exh. B); that as per statement of
account the outstanding obligation of the
defendant
is
P5,689,413.63
less
P1,000,000.00 or P4,689,413.63 (Exh. B,
B-1); that a demand letter dated June 6,
1985 was sent by the bank thru its
counsel (Exh. C) which was received by
the defendant on November 12, 1985
(Exh. C, C-1, C-2, C-3); that the defendant
paid only P1,000,000.00 which is
reflected in the Exhibit C.
Based on the evidence presented by petitioner, the trial
court ordered Respondent Sarmiento to pay the bank his
remaining balance plus interests and attorney's fees. In
his appeal, Sarmiento assigned to the trial court several
errors, namely: 7
I The [trial court] erred in denying
appellant's motion to dismiss appellee
bank's complaint on the ground of lack of
cause of action and for being barred by
prescription and laches.
II The same lower court erred in admitting
plaintiff-appellee
bank's
amended
complaint while defendant-appellant's
motion to dismiss appelle bank's original
complaint and using/availing [itself of]
the new additional allegations as bases in
denial of said appellant's motion and in
the interpretation and application of the
agreement of merger and Section 80 of
BP Blg. 68, Corporation Code of the
Philippines.
III The [trial court] erred and gravely
abuse[d] its discretion in rendering the
two as if in default orders dated May 22,
1986 and September 16, 1986 and in not
reconsidering the same upon technical
grounds which in effect subvert the best
primordial interest of substantial justice
and equity.
IV The court a quo erred in issuing the
orders dated May 22, 1986 and
September 16, 1986 declaring appellant
as if in default due to non-appearance of
appellant's attending counsel who had
resigned from the law firm and while the
parties [were] negotiating for settlement
of the case and after a one million peso
payment had in fact been paid to
appellee bank for appellant's account at
the start of such negotiation on February

18, 1986 as act of earnest desire to settle


the obligation in good faith by the
interested parties.
V The lower court erred in according
credence to appellee bank's Exhibit B
statement of account which had been
merely requested by its counsel during
the trial and bearing date of September
30, 1986.
VI The lower court erred in accepting and
giving credence to appellee bank's 27year-old witness Esteban C. Ocampo as of
the date he testified on October 16, 1986,
and therefore, he was merely an
eighteen-year-old minor when appellant
supposedly incurred the foisted obligation
under the subject PN No. TL-2649-77
dated September 7, 1977, Exhibit A of
appellee bank.
VII The [trial court] erred in adopting
appellee
bank's
Exhibit
B
dated
September 30, 1986 in its decision given
in open court on October 17, 1986 which
exacted eighteen percent (18%) per
annum on the foisted principal amount of
P2.5 million when the subject PN, Exhibit
A, stipulated only fourteen percent (14%)
per annum and which was actually
prayed for in appellee bank's original and
amended complaints.
VIII The appealed decision of the lower
court erred in not considering at all
appellant's affirmative defenses that (1)
the subject PN No. TL-2649-77 for P2.5
million dated September 7, 1977, is
merely an accommodation pour autrui of
any actual consideration to appellant
himself and (2) the subject PN is a
contract of adhesion, hence, [it] needs
[to] be strictly construed against appellee
bank assuming for granted that it has
the right to enforce and seek collection
thereof.
IX The lower court should have at least
allowed appellant the opportunity to
present
countervailing
evidence
considering the huge amounts claimed by
appellee bank (principal sum of P2.5
million which including accrued interests,
penalties and cost of litigation totaled
P4,689,413.63)
and
appellant's
affirmative defenses pursuant to
substantial justice and equity.
The appellate court, however, found no need to tackle all
the assigned errors and limited itself to the question of
"whether [herein petitioner had] established or proven a
cause of action against [herein private respondent]."
Accordingly, Respondent Court held that the Associated
Bank had no cause of action against Lorenzo Sarmiento
Jr., since said bank was not privy to the promissory note
executed by Sarmiento in favor of Citizens Bank and Trust
Company (CBTC). The court ruled that the earlier merger

60

between the two banks could not have vested Associated


Bank with any interest arising from the promissory note
executed in favor of CBTC after such merger.
Thus, as earlier stated, Respondent Court set aside the
decision of the trial court and dismissed the complaint.
Petitioner now comes to us for a reversal of this ruling. 8
Issues
In its petition, petitioner cites the following "reasons":

I The Court of Appeals erred in reversing


the decision of the trial court and in
declaring that petitioner has no cause of
action against respondent over the
promissory note.
II The Court of Appeals also erred in
declaring that, since the promissory note
was executed in favor of Citizens Bank
and Trust Company two years after the
merger between Associated Banking
Corporation and Citizens Bank and Trust
Company, respondent is not liable to
petitioner because there is no privity of
contract
between
respondent
and
Associated Bank.
III The Court of Appeals erred when it
ruled that petitioner, despite the merger
between petitioner and Citizens Bank and
Trust Company, is not a real party in
interest insofar as the promissory note
executed in favor of the merger.
In a nutshell, the main issue is whether Associated Bank,
the surviving corporation, may enforce the promissory
note made by private respondent in favor of CBTC, the
absorbed company, after the merger agreement had
been signed.
The Court's Ruling
The petition is impressed with merit.
The
Associated
All Rights of CBTC

Main
Bank

Issue:
Assumed

Ordinarily, in the merger of two or more existing


corporations, one of the combining corporations survives
and continues the combined business, while the rest are
dissolved and all their rights, properties and liabilities are
acquired by the surviving corporation. 10 Although there is
a dissolution of the absorbed corporations, there is no
winding up of their affairs or liquidation of their assets,
because the surviving corporation automatically acquires
all their rights, privileges and powers, as well as their
liabilities. 11
The merger, however, does not become effective upon
the mere agreement of the constituent corporations. The
procedure to be followed is prescribed under the
Corporation Code. 12 Section 79 of said Code requires the
approval by the Securities and Exchange Commission
(SEC) of the articles of merger which, in turn, must have
been duly approved by a majority of the respective
stockholders of the constituent corporations. The same
provision further states that the merger shall be effective
only upon the issuance by the SEC of a certificate of

merger. The effectivity date of the merger is crucial for


determining when the merged or absorbed corporation
ceases to exist; and when its rights, privileges, properties
as well as liabilities pass on to the surviving corporation.
Consistent with the aforementioned Section 79, the
September 16, 1975 Agreement of Merger, 13 which
Associated Banking Corporation (ABC) and Citizens Bank
and Trust Company (CBTC) entered into, provided that its
effectivity "shall, for all intents and purposes, be the date
when the necessary papers to carry out this [m]erger
shall have been approved by the Securities and Exchange
Commission." 14 As to the transfer of the properties of
CBTC to ABC, the agreement provides:
10. Upon effective date of the Merger, all
rights, privileges, powers, immunities,
franchises, assets and property of [CBTC],
whether real, personal or mixed, and
including
[CBTC's]
goodwill
and
tradename, and all debts due to [CBTC]
on whatever act, and all other things in
action belonging to [CBTC] as of the
effective date of the [m]erger shall be
vested in [ABC], the SURVIVING BANK,
without need of further act or deed,
unless by express requirements of law or
of a government agency, any separate or
specific deed of conveyance to legally
effect the transfer or assignment of any
kind of property [or] asset is required, in
which case such document or deed shall
be executed accordingly; and all property,
rights, privileges, powers, immunities,
franchises
and
all
appointments,
designations and nominations, and all
other rights and interests of [CBTC] as
trustee, executor, administrator, registrar
of stocks and bonds, guardian of estates,
assignee, receiver, trustee of estates of
persons mentally ill and in every other
fiduciary capacity, and all and every
other interest of [CBTC] shall thereafter
be effectually the property of [ABC] as
they were of [CBTC], and title to any real
estate, whether by deed or otherwise,
vested in [CBTC] shall not revert or be in
any way impaired by reason thereof;
provided, however, that all rights of
creditors and all liens upon any property
of [CBTC] shall be preserved and
unimpaired and all debts, liabilities,
obligations, duties and undertakings of
[CBTC], whether contractual or otherwise,
expressed
or
implied,
actual
or
contingent, shall henceforth attach to
[ABC] which shall be responsible therefor
and may be enforced against [ABC] to the
same extent as if the same debts
liabilities,
obligations,
duties
and
undertakings
have
been
originally
incurred or contracted by [ABC], subject,
however,
to
all
rights,
privileges,
defenses, set-offs and counterclaims
which [CBTC] has or might have and
which shall pertain to [ABC]. 15

61

The records do not show when the SEC approved the


merger. Private respondent's theory is that it took effect
on the date of the execution of the agreement itself,
which was September 16, 1975. Private respondent
contends that, since he issued the promissory note to
CBTC on September 7, 1977 two years after the
merger agreement had been executed CBTC could not
have conveyed or transferred to petitioner its interest in
the said note, which was not yet in existence at the time
of the merger. Therefore, petitioner, the surviving bank,
has no right to enforce the promissory note on private
respondent; such right properly pertains only to CBTC.
Assuming that the effectivity date of the merger was the
date of its execution, we still cannot agree that petitioner
no longer has any interest in the promissory note. A
closer perusal of the merger agreement leads to a
different conclusion. The provision quoted earlier has this
other clause:
Upon the effective date of the [m]erger,
all references to [CBTC] in any deed,
documents, or other papers of whatever
kind or nature and wherever found shall
be deemed for all intents and purposes,
references to [ABC], the SURVIVING
BANK, as if such references were direct
references to [ABC]. . . . 6 (Emphasis
supplied)
Thus, the fact that the promissory note was executed
after the effectivity date of the merger does not militate
against petitioner. The agreement itself clearly provides
that all contracts irrespective of the date of execution
entered into in the name of CBTC shall be understood
as pertaining to the surviving bank, herein petitioner.
Since, in contrast to the earlier aforequoted provision, the
latter clause no longer specifically refers only to contracts
existing at the time of the merger, no distinction should
be made. The clause must have been deliberately
included in the agreement in order to protect the
interests of the combining banks; specifically, to avoid
giving the merger agreement a farcical interpretation
aimed at evading fulfillment of a due obligation.
Thus, although the subject promissory note names CBTC
as the payee, the reference to CBTC in the note shall be
construed, under the very provisions of the merger
agreement, as a reference to petitioner bank, "as if such
reference [was a] direct reference to" the latter "for all
intents and purposes."
No other construction can be given to the unequivocal
stipulation. Being clear, plain and free of ambiguity, the
provision
must
be
given
its
literal
meaning 17 and applied without a convoluted
interpretation. Verba lelegis non est recedendum. 18
In light of the foregoing, the Court holds that petitioner
has a valid cause of action against private respondent.
Clearly, the failure of private respondent to honor his
obligation under the promissory note constitutes a
violation of petitioner's right to collect the proceeds of
the loan it extended to the former.
Secondary
Prescription,
Laches,
Pour Autrui, Lack of Consideration

Issues:
Contract

No
or Laches

Prescription

Private respondent's claim that the action has prescribed,


pursuant to Article 1149 of the Civil Code, is legally
untenable. Petitioner's suit for collection of a sum of
money was based on a written contract and prescribes
after ten years from the time its right of action arose. 19
Sarmiento's obligation under the promissory note became
due and demandable on March 6, 1978. Petitioner's
complaint was instituted on August 22, 1985, before the
lapse of the ten-year prescriptive period. Definitely,
petitioner still had every right to commence suit against
the payor/obligor, the private respondent herein.
Neither is petitioner's action barred by laches. The
principle of laches is a creation of equity, which is applied
not to penalize neglect or failure to assert a right within a
reasonable time, but rather to avoid recognizing a right
when to do so would result in a clearly inequitable
situation 20 or in an injustice. 21 To require private
respondent to pay the remaining balance of his loan is
certainly not inequitable or unjust. What would be
manifestly unjust and inequitable is his contention that
CBTC is the proper party to proceed against him despite
the fact, which he himself asserts, that CBTC's corporate
personality has been dissolved by virtue of its merger
with petitioner. To hold that no payee/obligee exists and
to let private respondent enjoy the fruits of his loan
without liability is surely most unfair and unconscionable,
amounting to unjust enrichment at the expense of
petitioner. Besides, this Court has held that the doctrine
of laches is inapplicable where the claim was filed within
the prescriptive period set forth under the law. 22
No
Pour Autrui

Contract

Private respondent, while not denying that he executed


the promissory note in the amount of P2,500,000 in favor
of CBTC, offers the alternative defense that said note was
a contract pour autrui.
A stipulation pour autrui is one in favor of a third person
who may demand its fulfillment, provided he
communicated his acceptance to the obligor before its
revocation. An incidental benefit or interest, which
another person gains, is not sufficient. The contracting
parties must have clearly and deliberately conferred a
favor upon a third person. 23
Florentino vs. Encarnacion Sr. 24 enumerates the
requisites for such contract: (1) the stipulation in favor of
a third person must be a part of the contract, and not the
contract itself; (2) the favorable stipulation should not be
conditioned or compensated by any kind of obligation;
and (3) neither of the contracting parties bears the legal
representation or authorization of the third party. The
"fairest test" in determining whether the third person's
interest in a contract is a stipulation pour autrui or merely
an incidental interest is to examine the intention of the
parties as disclosed by their contract. 25
We carefully and thoroughly perused the promissory note,
but found no stipulation at all that would even resemble a
provision in consideration of a third person. The
instrument itself does not disclose the purpose of the
loan contract. It merely lays down the terms of payment

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and the penalties incurred for failure to pay upon


maturity. It is patently devoid of any indication that a
benefit or interest was thereby created in favor of a
person other than the contracting parties. In fact, in no
part of the instrument is there any mention of a third
party at all. Except for his barefaced statement, no
evidence was proffered by private respondent to support
his argument. Accordingly, his contention cannot be
sustained. At any rate, if indeed the loan actually
benefited a third person who undertook to repay the
bank, private respondent could have availed himself of
the legal remedy of a third-party complaint. 26 That he
made no effort to implead such third person proves the
hollowness of his arguments.
Consideration
Private respondent also claims that he received no
consideration for the promissory note and, in support
thereof, cites petitioner's failure to submit any proof of
his loan application and of his actual receipt of the
amount loaned. These arguments deserve no merit. Res
ipsa loquitur. The instrument, bearing the signature of
private respondent, speaks for itself. Respondent
Sarmiento has not questioned the genuineness and due
execution thereof. No further proof is necessary to show
that he undertook to pay P2,500,000, plus interest, to
petitioner bank on or before March 6, 1978. This he failed
to do, as testified to by petitioner's accountant. The latter
presented before the trial court private respondent's
statement of account 27 as of September 30, 1986,
showing an outstanding balance of P4,689,413.63 after
deducting P1,000,000.00 paid seven months earlier.
Furthermore, such partial payment is equivalent to an
express acknowledgment of his obligation. Private
respondent can no longer backtrack and deny his liability
to petitioner bank. "A person cannot accept and reject
the same instrument." 28
WHEREFORE, the petition is GRANTED. The assailed
Decision is SET ASIDE and the Decision of RTC-Manila,
Branch 48, in Civil Case No. 26465 is hereby REINSTATED.
SO ORDERED.

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