You are on page 1of 26

G.R. No.

138822 January 23, 2001

EVANGELINE ALDAY, petitioner,


vs.
FGU INSURANCE CORPORATION, respondent.

GONZAGA-REYES, J.:

On 5 May 1989, respondent FGU Insurance Corporation filed a complaint with the Regional Trial Court of Makati 1alleging
that petitioner Evangeline K. Alday owed it P114,650.76, representing unliquidated cash advances, unremitted costs of
premiums and other charges incurred by petitioner in the course of her work as an insurance agent for
respondent.2 Respondent also prayed for exemplary damages, attorney's fees, and costs of suit. 3Petitioner filed her
answer and by way of counterclaim, asserted her right for the payment of P104,893.45, representing direct commissions,
profit commissions and contingent bonuses earned from 1 July 1986 to 7 December 1986, and for accumulated premium
reserves amounting to P500,000.00. In addition, petitioner prayed for attorney's fees, litigation expenses, moral damages
and exemplary damages for the allegedly unfounded action filed by respondent.4 On 23 August 1989, respondent filed a
"Motion to Strike Out Answer With Compulsory Counterclaim And To Declare Defendant In Default" because petitioner's
answer was allegedly filed out of time.5However, the trial court denied the motion on 25 August 1989 and similarly
rejected respondent's motion for reconsideration on 12 March 1990. 6 A few weeks later, on 11 April 1990, respondent filed
a motion to dismiss petitioner's counterclaim, contending that the trial court never acquired jurisdiction over the same
because of the non-payment of docket fees by petitoner.7 In response, petitioner asked the trial court to declare her
counterclaim as exempt from payment of docket fees since it is compulsory and that respondent be declared in default for
having failed to answer such counterclaim.8

In its 18 September 1990 Order, the trial court9 granted respondent's motion to dismiss petitioner's counterclaim and
consequently, denied petitioner's motion. The court found petitioner's counterclaim to be merely permissive in nature and
held that petitioner's failure to pay docket fees prevented the court from acquiring jurisdiction over the same. 10The trial
court similar denied petitioner's motion for reconsideration on 28 February 1991.1âwphi1.nêt

On 23 December 1998, the Court of Appeals11 sustained the trial court, finding that petitioner's own admissions, as
contained in her answer, show that her counterclaim is merely permissive. The relevant portion of the appellate court's
decision12 is quoted herewith -

Contrary to the protestations of appellant, mere reading of the allegations in the answer a quo will readily show
that her counterclaim can in no way be compulsory. Take note of the following numbered paragraphs in her
answer:

"(14) That, indeed, FGU's cause of action which is not supported by any document other than the self-
serving 'Statement of Account' dated March 28, 1988 x x x

(15) That it should be noted that the cause of action of FGU is not the enforcement of the Special Agent's
Contract but the alleged 'cash accountabilities which are not based on written agreement x x x.

x x x x

(19) x x x A careful analysis of FGU's three-page complaint will show that its cause of action is not for
specific performance or enforcement of the Special Agent's Contract rather, it is for the payment of the
alleged cash accountabilities incurred by defendant during the period form [sic] 1975 to 1986 which claim
is executory and has not been ratified. It is the established rule that unenforceable contracts, like this
purported money claim of FGU, cannot be sued upon or enforced unless ratified, thus it is as if they have
no effect. x x x."

To support the heading "Compulsory Counterclaim" in her answer and give the impression that the counterclaim
is compulsory appellant alleged that "FGU has unjustifiably failed to remit to defendant despite repeated demands
in gross violation of their Special Agent's Contract x x x." The reference to said contract was included purposely to
mislead. While on one hand appellant alleged that appellee's cause of action had nothing to do with the Special
Agent's Contract, on the other hand, she claim that FGU violated said contract which gives rise of [sic] her cause
of action. Clearly, appellant's cash accountabilities cannot be the offshoot of appellee's alleged violation of the
aforesaid contract.
On 19 May 1999, the appellate court denied petitioner's motion for reconsideration, 13 giving rise to the present petition.

Before going into the substantive issues, the Court shall first dispose of some procedural matters raised by the parties.
Petitioner claims that respondent is estopped from questioning her non-payment of docket fees because it did not raise
this particular issue when it filed its motion - the "Motion to Strike out Answer With Compulsory Counterclaim And To
Declare Defendant In Default" - with the trial court; rather, it was only nine months after receiving petitioner's answer that
respondent assailed the trial court's lack of jurisdiction over petitioner's counterclaims based on the latter's failure to pay
docket fees.14 Petitioner's position is unmeritorious. Estoppel by laches arises from the negligence or omission to assert a
right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned or
declined to assert it.15 In the case at bar, respondent cannot be considered as estopped from assailing the trial court's
jurisdiction over petitioner's counterclaim since this issue was raised by respondent with the trial court itself - the body
where the action is pending - even before the presentation of any evidence by the parties and definitely, way before any
judgment could be rendered by the trial court.

Meanwhile, respondent questions the jurisdiction of the Court of Appeals over the appeal filed by petitioner from the 18
September 1990 and 28 February 1991 orders of the trial court. It is significant to note that this objection to the appellate
court's jurisdiction is raised for the first time before this Court; respondent never having raised this issue before the
appellate court. Although the lack of jurisdiction of a court may be raised at any stage of the action, a party may be
estopped from raising such questions if he has actively taken part in the very proceedings which he questions, belatedly
objecting to the court's jurisdiction in the event that the judgment or order subsequently rendered is adverse to him. 16 In
this case, respondent actively took part in the proceedings before the Court of Appeals by filing its appellee's brief with the
same.17 Its participation, when taken together with its failure to object to the appellate court's jurisdiction during the entire
duration of the proceedings before such court, demonstrates a willingness to abide by the resolution of the case by such
tribunal and accordingly, respondent is now most decidedly estopped from objecting to the Court of Appeals' assumption
of jurisdiction over petitioner's appeal.18

The basic issue for resolution in this case is whether or not the counterclaim of petitioner is compulsory or permissive in
nature. A compulsory counterclaim is one which, being cognizable by the regular courts of justice, arises out of or is
connected with the transaction or occurrence constituting the subject matter of the opposing party's claim and does not
require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction. 19

In Valencia v. Court of Appeals,20 this Court capsulized the criteria or tests that may be used in determining whether a
counterclaim is compulsory or permissive, summarized as follows:

1. Are the issues of fact and law raised by the claim and counterclaim largely the same?

2. Would res judicata bar a subsequent suit on defendant's claim absent the compulsory counterclaim rule?

3. Will substantially the same evidence support or refute plaintiff's claim as well s defendant's counterclaim?

4. Is there any logical relation between the claim and the counterclaim?

Another test, applied in the more recent case of Quintanilla v. Court of Appeals,21 is the "compelling test of
compulsoriness" which requires "a logical relationship between the claim and counterclaim, that is, where conducting
separate trials of the respective claims of the parties would entail a substantial duplication of effort and time by the parties
and the court."

As contained in her answer, petitioner's counterclaims are as follows:

(20) That defendant incorporates and repleads by reference all the foregoing allegations as may be material to
her Counterclaim against FGU.

(21) That FGU is liable to pay the following just, valid and legitimate claims of defendant:

(a) the sum of at least P104,893.45 plus maximum interest thereon representing, among others, direct
commissions, profit commissions and contingent bonuses legally due to defendant; and

(b) the minimum amount of P500,000.00 plus the maximum allowable interest representing defendant's
accumulated premium reserve for 1985 and previous years,
which FGU has unjustifiably failed to remit to defendant despite repeated demands in gross violation of their
Special Agent's Contract and in contravention of the principle of law that "every person must, in the exercise of his
rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good
faith."

(22) That as a result of the filing of this patently baseless, malicious and unjustified Complaint, and FGU's
unlawful, illegal and vindictive termination of their Special Agent's Contract, defendant was unnecessarily dragged
into this litigation and to defense [sic] her side and assert her rights and claims against FGU, she was compelled
to hire the services of counsel with whom she agreed to pay the amount of P30,000.00 as and for attorney's fees
and stands to incur litigation expenses in the amount estimated to at least P20,000.00 and for which FGU should
be assessed and made liable to pay defendant.

(23) That considering further the malicious and unwarranted action of defendant in filing this grossly unfounded
action, defendant has suffered and continues to suffer from serious anxiety, mental anguish, fright and
humiliation. In addition to this, defendant's name, good reputation and business standing in the insurance
business as well as in the community have been besmirched and for which FGU should be adjudged and made
liable to pay moral damages to defendant in the amount of P300,000.00 as minimum.

(24) That in order to discourage the filing of groundless and malicious suits like FGU's Complaint, and by way of
serving [as] an example for the public good, FGU should be penalized and assessed exemplary damages in the
sum of P100,000.00 or such amount as the Honorable Court may deem warranted under the circumstances. 22

Tested against the abovementioned standards, petitioner's counterclaim for commissions, bonuses, and accumulated
premium reserves is merely permissive. The evidence required to prove petitioner's claims differs from that needed to
establish respondent's demands for the recovery of cash accountabilities from petitioner, such as cash advances and
costs of premiums. The recovery of respondent's claims is not contingent or dependent upon establishing petitioner's
counterclaim, such that conducting separate trials will not result in the substantial duplication of the time and effort of the
court and the parties. One would search the records in vain for a logical connection between the parties' claims. This
conclusion is further reinforced by petitioner's own admissions since she declared in her answer that respondent's cause
of action, unlike her own, was not based upon the Special Agent's Contract. 23 However, petitioner's claims for damages,
allegedly suffered as a result of the filing by respondent of its complaint, are compulsory. 24

There is no need for need for petitioner to pay docket fees for her compulsory counterclaim.25 On the other hand, in order
for the trial court to acquire jurisdiction over her permissive counterclaim, petitioner is bound to pay the prescribed docket
fees.26 The rule on the payment of filing fees has been laid down by the Court in the case of Sun Insurance Office, Ltd. V.
Hon. Maximiano Asuncion27-

1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the payment of the prescribed
docket fee, that vests a trial court with jurisdiction over the subject-matter or nature of the action. Where the filing
of the initiatory pleading is not accompanied by payment of the docket fee, the court may allow payment of the fee
within a reasonable time but in no case beyond the applicable prescriptive or reglementary period.

2. The same rule applies to permissive counterclaims, third-party claims and similar pleadings, which shall not be
considered filed until and unless the filing fee prescribed therefor is paid. The court may allow payment of said fee
within a reasonable time but also in no case beyond its applicable prescriptive or reglementary period.

3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate pleading and payment of
the prescribed filing fee but, subsequently, the judgment awards a claim not specified in the pleading, or if
specified the same has been left for determination by the court, the additional filing fee therefor shall constitute a
lien on the judgment. It shall be the responsibility of the Clerk of Court or his duly authorized deputy to enforce
said lien and assess and collect the additional fee.

The above mentioned ruling in Sun Insurance has been reiterated in the recent case of Susan v. Court of
Appeals.28In Suson, the Court explained that although the payment of the prescribed docket fees is a jurisdictional
requirement, its non-payment does not result in the automatic dismissal of the case provided the docket fees are paid
within the applicable prescriptive or reglementary period. Coming now to the case at bar, it has not been alleged by
respondent and there is nothing in the records to show that petitioner has attempted to evade the payment of the proper
docket fees for her permissive counterclaim. As a matter of fact, after respondent filed its motion to dismiss petitioner's
counterclaim based on her failure to pay docket fees, petitioner immediately filed a motion with the trial court, asking it to
declare her counterclaim as compulsory in nature and therefore exempt from docket fees and, in addition, to declare that
respondent was in default for its failure to answer her counterclaim. 29However, the trial court dismissed petitioner's
counterclaim. Pursuant to this Court's ruling in Sun Insurance, the trial court should have instead given petitioner a
reasonable time, but in no case beyond the applicable prescriptive or reglementary period, to pay the filing fees for her
permissive counterclaim.

Petitioner asserts that the trial court should have declared respondent in default for having failed to answer her
counterclaim.30 Insofar as the permissive counterclaim of petitioner is concerned, there is obviously no need to file an
answer until petitioner has paid the prescribed docket fees for only then shall the court acquire jurisdiction over such
claim.31 Meanwhile, the compulsory counterclaim of petitioner for damages based on the filing by respondent of an
allegedly unfounded and malicious suit need not be answered since it is inseparable from the claims of respondent. If
respondent were to answer the compulsory counterclaim of petitioner, it would merely result in the former pleading the
same facts raised in its complaint.32

WHEREFORE, the assailed Decision of the Court of Appeals promulgated on 23 December 1998 and its 19 May 1999
Resolution are hereby MODIFIED. The compulsory counterclaim of petitioner for damages filed in Civil Case No. 89-3816
is ordered REINSTATED. Meanwhile, the Regional Trial Court of Makati (Branch 134) is ordered to require petitioner to
pay the prescribed docket fees for her permissive counterclaim (direct commissions, profit commissions, contingent
bonuses and accumulated premium reserves), after ascertaining that the applicable prescriptive period has not yet set
in.33

SO ORDERED.1âwphi1.nêt

G.R. No. 143581 January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner,


vs.
HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256 of Regional Trial Court of
Muntinlupa City, and PACIFIC GENERAL STEEL MANUFACTURING CORPORATION, respondents.

DECISION

VELASCO, JR., J.:

In our jurisdiction, the policy is to favor alternative methods of resolving disputes, particularly in civil and commercial
disputes. Arbitration along with mediation, conciliation, and negotiation, being inexpensive, speedy and less hostile
methods have long been favored by this Court. The petition before us puts at issue an arbitration clause in a contract
mutually agreed upon by the parties stipulating that they would submit themselves to arbitration in a foreign country.
Regrettably, instead of hastening the resolution of their dispute, the parties wittingly or unwittingly prolonged the
controversy.

Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is engaged in the supply and installation
of Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants, while private respondent Pacific General Steel
Manufacturing Corp. (PGSMC) is a domestic corporation.

On March 5, 1997, PGSMC and KOGIES executed a Contract1 whereby KOGIES would set up an LPG Cylinder
Manufacturing Plant in Carmona, Cavite. The contract was executed in the Philippines. On April 7, 1997, the parties
executed, in Korea, an Amendment for Contract No. KLP-970301 dated March 5, 19972 amending the terms of payment.
The contract and its amendment stipulated that KOGIES will ship the machinery and facilities necessary for manufacturing
LPG cylinders for which PGSMC would pay USD 1,224,000. KOGIES would install and initiate the operation of the plant
for which PGSMC bound itself to pay USD 306,000 upon the plant’s production of the 11-kg. LPG cylinder samples. Thus,
the total contract price amounted to USD 1,530,000.

On October 14, 1997, PGSMC entered into a Contract of Lease3 with Worth Properties, Inc. (Worth) for use of Worth’s
5,079-square meter property with a 4,032-square meter warehouse building to house the LPG manufacturing plant. The
monthly rental was PhP 322,560 commencing on January 1, 1998 with a 10% annual increment clause. Subsequently,
the machineries, equipment, and facilities for the manufacture of LPG cylinders were shipped, delivered, and installed in
the Carmona plant. PGSMC paid KOGIES USD 1,224,000.

However, gleaned from the Certificate4 executed by the parties on January 22, 1998, after the installation of the plant, the
initial operation could not be conducted as PGSMC encountered financial difficulties affecting the supply of materials, thus
forcing the parties to agree that KOGIES would be deemed to have completely complied with the terms and conditions of
the March 5, 1997 contract.

For the remaining balance of USD306,000 for the installation and initial operation of the plant, PGSMC issued two
postdated checks: (1) BPI Check No. 0316412 dated January 30, 1998 for PhP 4,500,000; and (2) BPI Check No.
0316413 dated March 30, 1998 for PhP 4,500,000.5

When KOGIES deposited the checks, these were dishonored for the reason "PAYMENT STOPPED." Thus, on May 8,
1998, KOGIES sent a demand letter6 to PGSMC threatening criminal action for violation of Batas Pambansa Blg.22 in
case of nonpayment. On the same date, the wife of PGSMC’s President faxed a letter dated May 7, 1998 to KOGIES’
President who was then staying at a Makati City hotel. She complained that not only did KOGIES deliver a different brand
of hydraulic press from that agreed upon but it had not delivered several equipment parts already paid for.

On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully funded but the payments were
stopped for reasons previously made known to KOGIES.7

On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their Contract dated March 5, 1997 on the
ground that KOGIES had altered the quantity and lowered the quality of the machineries and equipment it delivered to
PGSMC, and that PGSMC would dismantle and transfer the machineries, equipment, and facilities installed in the
Carmona plant. Five days later, PGSMC filed before the Office of the Public Prosecutor an Affidavit-Complaint
for Estafa docketed as I.S. No. 98-03813 against Mr. Dae Hyun Kang, President of KOGIES.

On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not unilaterally rescind their contract
nor dismantle and transfer the machineries and equipment on mere imagined violations by KOGIES. It also insisted that
their disputes should be settled by arbitration as agreed upon in Article 15, the arbitration clause of their contract.

On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1, 1998 letter threatening that the
machineries, equipment, and facilities installed in the plant would be dismantled and transferred on July 4, 1998. Thus, on
July 1, 1998, KOGIES instituted an Application for Arbitration before the Korean Commercial Arbitration Board (KCAB) in
Seoul, Korea pursuant to Art. 15 of the Contract as amended.

On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as Civil Case No. 98-1178 against
PGSMC before the Muntinlupa City Regional Trial Court (RTC). The RTC granted a temporary restraining order (TRO) on
July 4, 1998, which was subsequently extended until July 22, 1998. In its complaint, KOGIES alleged that PGSMC had
initially admitted that the checks that were stopped were not funded but later on claimed that it stopped payment of the
checks for the reason that "their value was not received" as the former allegedly breached their contract by "altering the
quantity and lowering the quality of the machinery and equipment" installed in the plant and failed to make the plant
operational although it earlier certified to the contrary as shown in a January 22, 1998 Certificate. Likewise, KOGIES
averred that PGSMC violated Art. 15 of their Contract, as amended, by unilaterally rescinding the contract without
resorting to arbitration. KOGIES also asked that PGSMC be restrained from dismantling and transferring the machinery
and equipment installed in the plant which the latter threatened to do on July 4, 1998.

On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled to the TRO since Art. 15,
the arbitration clause, was null and void for being against public policy as it ousts the local courts of jurisdiction over the
instant controversy.

On July 17, 1998, PGSMC filed its Answer with Compulsory Counterclaim 9 asserting that it had the full right to dismantle
and transfer the machineries and equipment because it had paid for them in full as stipulated in the contract; that KOGIES
was not entitled to the PhP 9,000,000 covered by the checks for failing to completely install and make the plant
operational; and that KOGIES was liable for damages amounting to PhP 4,500,000 for altering the quantity and lowering
the quality of the machineries and equipment. Moreover, PGSMC averred that it has already paid PhP 2,257,920 in rent
(covering January to July 1998) to Worth and it was not willing to further shoulder the cost of renting the premises of the
plant considering that the LPG cylinder manufacturing plant never became operational.

After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an Order denying the application for a writ
of preliminary injunction, reasoning that PGSMC had paid KOGIES USD 1,224,000, the value of the machineries and
equipment as shown in the contract such that KOGIES no longer had proprietary rights over them. And finally, the RTC
held that Art. 15 of the Contract as amended was invalid as it tended to oust the trial court or any other court jurisdiction
over any dispute that may arise between the parties. KOGIES’ prayer for an injunctive writ was denied. 10 The dispositive
portion of the Order stated:
WHEREFORE, in view of the foregoing consideration, this Court believes and so holds that no cogent reason
exists for this Court to grant the writ of preliminary injunction to restrain and refrain defendant from dismantling the
machineries and facilities at the lot and building of Worth Properties, Incorporated at Carmona, Cavite and
transfer the same to another site: and therefore denies plaintiff’s application for a writ of preliminary injunction.

On July 29, 1998, KOGIES filed its Reply to Answer and Answer to Counterclaim. 11 KOGIES denied it had altered the
quantity and lowered the quality of the machinery, equipment, and facilities it delivered to the plant. It claimed that it had
performed all the undertakings under the contract and had already produced certified samples of LPG cylinders. It averred
that whatever was unfinished was PGSMC’s fault since it failed to procure raw materials due to lack of funds. KOGIES,
relying on Chung Fu Industries (Phils.), Inc. v. Court of Appeals,12 insisted that the arbitration clause was without question
valid.

After KOGIES filed a Supplemental Memorandum with Motion to Dismiss 13 answering PGSMC’s memorandum of July 22,
1998 and seeking dismissal of PGSMC’s counterclaims, KOGIES, on August 4, 1998, filed its Motion for
Reconsideration14 of the July 23, 1998 Order denying its application for an injunctive writ claiming that the contract was
not merely for machinery and facilities worth USD 1,224,000 but was for the sale of an "LPG manufacturing plant"
consisting of "supply of all the machinery and facilities" and "transfer of technology" for a total contract price of USD
1,530,000 such that the dismantling and transfer of the machinery and facilities would result in the dismantling and
transfer of the very plant itself to the great prejudice of KOGIES as the still unpaid owner/seller of the plant. Moreover,
KOGIES points out that the arbitration clause under Art. 15 of the Contract as amended was a valid arbitration stipulation
under Art. 2044 of the Civil Code and as held by this Court in Chung Fu Industries (Phils.), Inc.15

In the meantime, PGSMC filed a Motion for Inspection of Things16 to determine whether there was indeed alteration of the
quantity and lowering of quality of the machineries and equipment, and whether these were properly installed. KOGIES
opposed the motion positing that the queries and issues raised in the motion for inspection fell under the coverage of the
arbitration clause in their contract.

On September 21, 1998, the trial court issued an Order (1) granting PGSMC’s motion for inspection; (2) denying KOGIES’
motion for reconsideration of the July 23, 1998 RTC Order; and (3) denying KOGIES’ motion to dismiss PGSMC’s
compulsory counterclaims as these counterclaims fell within the requisites of compulsory counterclaims.

On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration 17 of the September 21, 1998 RTC Order
granting inspection of the plant and denying dismissal of PGSMC’s compulsory counterclaims.

Ten days after, on October 12, 1998, without waiting for the resolution of its October 2, 1998 urgent motion for
reconsideration, KOGIES filed before the Court of Appeals (CA) a petition for certiorari18 docketed as CA-G.R. SP No.
49249, seeking annulment of the July 23, 1998 and September 21, 1998 RTC Orders and praying for the issuance of writs
of prohibition, mandamus, and preliminary injunction to enjoin the RTC and PGSMC from inspecting, dismantling, and
transferring the machineries and equipment in the Carmona plant, and to direct the RTC to enforce the specific agreement
on arbitration to resolve the dispute.

In the meantime, on October 19, 1998, the RTC denied KOGIES’ urgent motion for reconsideration and directed the
Branch Sheriff to proceed with the inspection of the machineries and equipment in the plant on October 28, 1998. 19

Thereafter, KOGIES filed a Supplement to the Petition20 in CA-G.R. SP No. 49249 informing the CA about the October 19,
1998 RTC Order. It also reiterated its prayer for the issuance of the writs of prohibition, mandamus and preliminary
injunction which was not acted upon by the CA. KOGIES asserted that the Branch Sheriff did not have the technical
expertise to ascertain whether or not the machineries and equipment conformed to the specifications in the contract and
were properly installed.

On November 11, 1998, the Branch Sheriff filed his Sheriff’s Report 21 finding that the enumerated machineries and
equipment were not fully and properly installed.

The Court of Appeals affirmed the trial court and declared


the arbitration clause against public policy

On May 30, 2000, the CA rendered the assailed Decision22 affirming the RTC Orders and dismissing the petition for
certiorari filed by KOGIES. The CA found that the RTC did not gravely abuse its discretion in issuing the assailed July 23,
1998 and September 21, 1998 Orders. Moreover, the CA reasoned that KOGIES’ contention that the total contract price
for USD 1,530,000 was for the whole plant and had not been fully paid was contrary to the finding of the RTC that
PGSMC fully paid the price of USD 1,224,000, which was for all the machineries and equipment. According to the CA, this
determination by the RTC was a factual finding beyond the ambit of a petition for certiorari.

On the issue of the validity of the arbitration clause, the CA agreed with the lower court that an arbitration clause which
provided for a final determination of the legal rights of the parties to the contract by arbitration was against public policy.

On the issue of nonpayment of docket fees and non-attachment of a certificate of non-forum shopping by PGSMC, the CA
held that the counterclaims of PGSMC were compulsory ones and payment of docket fees was not required since the
Answer with counterclaim was not an initiatory pleading. For the same reason, the CA said a certificate of non-forum
shopping was also not required.

Furthermore, the CA held that the petition for certiorari had been filed prematurely since KOGIES did not wait for the
resolution of its urgent motion for reconsideration of the September 21, 1998 RTC Order which was the plain, speedy, and
adequate remedy available. According to the CA, the RTC must be given the opportunity to correct any alleged error it
has committed, and that since the assailed orders were interlocutory, these cannot be the subject of a petition for
certiorari.

Hence, we have this Petition for Review on Certiorari under Rule 45.

The Issues

Petitioner posits that the appellate court committed the following errors:

a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY AND FACILITIES AS "A
QUESTION OF FACT" "BEYOND THE AMBIT OF A PETITION FOR CERTIORARI" INTENDED ONLY FOR
CORRECTION OF ERRORS OF JURISDICTION OR GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OF (SIC) EXCESS OF JURISDICTION, AND CONCLUDING THAT THE TRIAL COURT’S FINDING ON THE
SAME QUESTION WAS IMPROPERLY RAISED IN THE PETITION BELOW;

b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE 15 OF THE CONTRACT
BETWEEN THE PARTIES FOR BEING "CONTRARY TO PUBLIC POLICY" AND FOR OUSTING THE COURTS
OF JURISDICTION;

c. DECREEING PRIVATE RESPONDENT’S COUNTERCLAIMS TO BE ALL COMPULSORY NOT


NECESSITATING PAYMENT OF DOCKET FEES AND CERTIFICATION OF NON-FORUM SHOPPING;

d. RULING THAT THE PETITION WAS FILED PREMATURELY WITHOUT WAITING FOR THE RESOLUTION
OF THE MOTION FOR RECONSIDERATION OF THE ORDER DATED SEPTEMBER 21, 1998 OR WITHOUT
GIVING THE TRIAL COURT AN OPPORTUNITY TO CORRECT ITSELF;

e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND SEPTEMBER 21, 1998 NOT TO BE PROPER
SUBJECTS OF CERTIORARI AND PROHIBITION FOR BEING "INTERLOCUTORY IN NATURE;"

f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN HE (SIC) PETITION AND, INSTEAD,
DISMISSING THE SAME FOR ALLEGEDLY "WITHOUT MERIT."23

The Court’s Ruling

The petition is partly meritorious.

Before we delve into the substantive issues, we shall first tackle the procedural issues.

The rules on the payment of docket fees for counterclaims


and cross claims were amended effective August 16, 2004

KOGIES strongly argues that when PGSMC filed the counterclaims, it should have paid docket fees and filed a certificate
of non-forum shopping, and that its failure to do so was a fatal defect.
We disagree with KOGIES.

As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in its Answer with Compulsory Counterclaim
dated July 17, 1998 in accordance with Section 8 of Rule 11, 1997 Revised Rules of Civil Procedure, the rule that was
effective at the time the Answer with Counterclaim was filed. Sec. 8 on existing counterclaim or cross-claim states, "A
compulsory counterclaim or a cross-claim that a defending party has at the time he files his answer shall be contained
therein."

On July 17, 1998, at the time PGSMC filed its Answer incorporating its counterclaims against KOGIES, it was not liable to
pay filing fees for said counterclaims being compulsory in nature. We stress, however, that effective August 16, 2004
under Sec. 7, Rule 141, as amended by A.M. No. 04-2-04-SC, docket fees are now required to be paid in compulsory
counterclaim or cross-claims.

As to the failure to submit a certificate of forum shopping, PGSMC’s Answer is not an initiatory pleading which requires a
certification against forum shopping under Sec. 524 of Rule 7, 1997 Revised Rules of Civil Procedure. It is a responsive
pleading, hence, the courts a quo did not commit reversible error in denying KOGIES’ motion to dismiss PGSMC’s
compulsory counterclaims.

Interlocutory orders proper subject of certiorari

Citing Gamboa v. Cruz,25 the CA also pronounced that "certiorari and Prohibition are neither the remedies to question the
propriety of an interlocutory order of the trial court."26 The CA erred on its reliance on Gamboa. Gamboa involved the
denial of a motion to acquit in a criminal case which was not assailable in an action for certiorari since the denial of a
motion to quash required the accused to plead and to continue with the trial, and whatever objections the accused had in
his motion to quash can then be used as part of his defense and subsequently can be raised as errors on his appeal if the
judgment of the trial court is adverse to him. The general rule is that interlocutory orders cannot be challenged by an
appeal.27 Thus, in Yamaoka v. Pescarich Manufacturing Corporation, we held:

The proper remedy in such cases is an ordinary appeal from an adverse judgment on the merits, incorporating in
said appeal the grounds for assailing the interlocutory orders. Allowing appeals from interlocutory orders would
result in the ‘sorry spectacle’ of a case being subject of a counterproductive ping-pong to and from the appellate
court as often as a trial court is perceived to have made an error in any of its interlocutory rulings. However,
where the assailed interlocutory order was issued with grave abuse of discretion or patently erroneous and the
remedy of appeal would not afford adequate and expeditious relief, the Court allows certiorari as a mode of
redress.28

Also, appeals from interlocutory orders would open the floodgates to endless occasions for dilatory motions. Thus, where
the interlocutory order was issued without or in excess of jurisdiction or with grave abuse of discretion, the remedy is
certiorari.29

The alleged grave abuse of discretion of the respondent court equivalent to lack of jurisdiction in the issuance of the two
assailed orders coupled with the fact that there is no plain, speedy, and adequate remedy in the ordinary course of law
amply provides the basis for allowing the resort to a petition for certiorari under Rule 65.

Prematurity of the petition before the CA

Neither do we think that KOGIES was guilty of forum shopping in filing the petition for certiorari. Note that KOGIES’ motion
for reconsideration of the July 23, 1998 RTC Order which denied the issuance of the injunctive writ had already been
denied. Thus, KOGIES’ only remedy was to assail the RTC’s interlocutory order via a petition for certiorari under Rule 65.

While the October 2, 1998 motion for reconsideration of KOGIES of the September 21, 1998 RTC Order relating to the
inspection of things, and the allowance of the compulsory counterclaims has not yet been resolved, the circumstances in
this case would allow an exception to the rule that before certiorari may be availed of, the petitioner must have filed a
motion for reconsideration and said motion should have been first resolved by the court a quo. The reason behind the rule
is "to enable the lower court, in the first instance, to pass upon and correct its mistakes without the intervention of the
higher court."30

The September 21, 1998 RTC Order directing the branch sheriff to inspect the plant, equipment, and facilities when he is
not competent and knowledgeable on said matters is evidently flawed and devoid of any legal support. Moreover, there is
an urgent necessity to resolve the issue on the dismantling of the facilities and any further delay would prejudice the
interests of KOGIES. Indeed, there is real and imminent threat of irreparable destruction or substantial damage to
KOGIES’ equipment and machineries. We find the resort to certiorari based on the gravely abusive orders of the trial court
sans the ruling on the October 2, 1998 motion for reconsideration to be proper.

The Core Issue: Article 15 of the Contract

We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration clause. It provides:

Article 15. Arbitration.—All disputes, controversies, or differences which may arise between the parties, out of or
in relation to or in connection with this Contract or for the breach thereof, shall finally be settled by arbitration in
Seoul, Korea in accordance with the Commercial Arbitration Rules of the Korean Commercial Arbitration
Board. The award rendered by the arbitration(s) shall be final and binding upon both parties concerned.
(Emphasis supplied.)

Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null and void.

Petitioner is correct.

Established in this jurisdiction is the rule that the law of the place where the contract is made governs. Lex loci contractus.
The contract in this case was perfected here in the Philippines. Therefore, our laws ought to govern. Nonetheless, Art.
2044 of the Civil Code sanctions the validity of mutually agreed arbitral clause or the finality and binding effect of an
arbitral award. Art. 2044 provides, "Any stipulation that the arbitrators’ award or decision shall be final, is valid,
without prejudice to Articles 2038, 2039 and 2040." (Emphasis supplied.)

Arts. 2038,31 2039,32 and 204033 abovecited refer to instances where a compromise or an arbitral award, as applied to Art.
2044 pursuant to Art. 2043,34 may be voided, rescinded, or annulled, but these would not denigrate the finality of the
arbitral award.

The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not been shown to be contrary to
any law, or against morals, good customs, public order, or public policy. There has been no showing that the parties have
not dealt with each other on equal footing. We find no reason why the arbitration clause should not be respected and
complied with by both parties. In Gonzales v. Climax Mining Ltd.,35 we held that submission to arbitration is a contract and
that a clause in a contract providing that all matters in dispute between the parties shall be referred to arbitration is a
contract.36 Again in Del Monte Corporation-USA v. Court of Appeals, we likewise ruled that "[t]he provision to submit to
arbitration any dispute arising therefrom and the relationship of the parties is part of that contract and is itself a contract."37

Arbitration clause not contrary to public policy

The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea in accordance with the
Commercial Arbitration Rules of the KCAB, and that the arbitral award is final and binding, is not contrary to public policy.
This Court has sanctioned the validity of arbitration clauses in a catena of cases. In the 1957 case of Eastboard
Navigation Ltd. v. Juan Ysmael and Co., Inc.,38 this Court had occasion to rule that an arbitration clause to resolve
differences and breaches of mutually agreed contractual terms is valid. In BF Corporation v. Court of Appeals, we held
that "[i]n this jurisdiction, arbitration has been held valid and constitutional. Even before the approval on June 19, 1953 of
Republic Act No. 876, this Court has countenanced the settlement of disputes through arbitration. Republic Act No. 876
was adopted to supplement the New Civil Code’s provisions on arbitration."39 And in LM Power Engineering Corporation
v. Capitol Industrial Construction Groups, Inc., we declared that:

Being an inexpensive, speedy and amicable method of settling disputes, arbitration––along with mediation,
conciliation and negotiation––is encouraged by the Supreme Court. Aside from unclogging judicial dockets,
arbitration also hastens the resolution of disputes, especially of the commercial kind. It is thus regarded as the
"wave of the future" in international civil and commercial disputes. Brushing aside a contractual agreement calling
for arbitration between the parties would be a step backward.

Consistent with the above-mentioned policy of encouraging alternative dispute resolution methods, courts should
liberally construe arbitration clauses. Provided such clause is susceptible of an interpretation that covers the
asserted dispute, an order to arbitrate should be granted. Any doubt should be resolved in favor of arbitration. 40
Having said that the instant arbitration clause is not against public policy, we come to the question on what governs an
arbitration clause specifying that in case of any dispute arising from the contract, an arbitral panel will be constituted in a
foreign country and the arbitration rules of the foreign country would govern and its award shall be final and binding.

RA 9285 incorporated the UNCITRAL Model law


to which we are a signatory

For domestic arbitration proceedings, we have particular agencies to arbitrate disputes arising from contractual relations.
In case a foreign arbitral body is chosen by the parties, the arbitration rules of our domestic arbitration bodies would not
be applied. As signatory to the Arbitration Rules of the UNCITRAL Model Law on International Commercial Arbitration 41 of
the United Nations Commission on International Trade Law (UNCITRAL) in the New York Convention on June 21, 1985,
the Philippines committed itself to be bound by the Model Law. We have even incorporated the Model Law in Republic Act
No. (RA) 9285, otherwise known as the Alternative Dispute Resolution Act of 2004 entitled An Act to Institutionalize the
Use of an Alternative Dispute Resolution System in the Philippines and to Establish the Office for Alternative Dispute
Resolution, and for Other Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of Chapter 4 of the Model Law are the
pertinent provisions:

CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION

SEC. 19. Adoption of the Model Law on International Commercial Arbitration.––International commercial
arbitration shall be governed by the Model Law on International Commercial Arbitration (the "Model Law")
adopted by the United Nations Commission on International Trade Law on June 21, 1985 (United Nations
Document A/40/17) and recommended for enactment by the General Assembly in Resolution No. 40/72 approved
on December 11, 1985, copy of which is hereto attached as Appendix "A".

SEC. 20. Interpretation of Model Law.––In interpreting the Model Law, regard shall be had to its international
origin and to the need for uniformity in its interpretation and resort may be made to the travaux preparatoriesand
the report of the Secretary General of the United Nations Commission on International Trade Law dated March
25, 1985 entitled, "International Commercial Arbitration: Analytical Commentary on Draft Trade identified by
reference number A/CN. 9/264."

While RA 9285 was passed only in 2004, it nonetheless applies in the instant case since it is a procedural law which has a
retroactive effect. Likewise, KOGIES filed its application for arbitration before the KCAB on July 1, 1998 and it is still
pending because no arbitral award has yet been rendered. Thus, RA 9285 is applicable to the instant case. Well-settled is
the rule that procedural laws are construed to be applicable to actions pending and undetermined at the time of their
passage, and are deemed retroactive in that sense and to that extent. As a general rule, the retroactive application of
procedural laws does not violate any personal rights because no vested right has yet attached nor arisen from them. 42

Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL Model Law are the following:

(1) The RTC must refer to arbitration in proper cases

Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the subject of arbitration pursuant to an
arbitration clause, and mandates the referral to arbitration in such cases, thus:

SEC. 24. Referral to Arbitration.––A court before which an action is brought in a matter which is the subject matter
of an arbitration agreement shall, if at least one party so requests not later than the pre-trial conference, or upon
the request of both parties thereafter, refer the parties to arbitration unless it finds that the arbitration agreement is
null and void, inoperative or incapable of being performed.

(2) Foreign arbitral awards must be confirmed by the RTC

Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause to be final and binding are not
immediately enforceable or cannot be implemented immediately. Sec. 3543 of the UNCITRAL Model Law stipulates the
requirement for the arbitral award to be recognized by a competent court for enforcement, which court under Sec. 36 of
the UNCITRAL Model Law may refuse recognition or enforcement on the grounds provided for. RA 9285 incorporated
these provisos to Secs. 42, 43, and 44 relative to Secs. 47 and 48, thus:
SEC. 42. Application of the New York Convention.––The New York Convention shall govern the recognition and
enforcement of arbitral awards covered by said Convention.

The recognition and enforcement of such arbitral awards shall be filed with the Regional Trial Court in
accordance with the rules of procedure to be promulgated by the Supreme Court. Said procedural rules shall
provide that the party relying on the award or applying for its enforcement shall file with the court the original or
authenticated copy of the award and the arbitration agreement. If the award or agreement is not made in any of
the official languages, the party shall supply a duly certified translation thereof into any of such languages.

The applicant shall establish that the country in which foreign arbitration award was made in party to the New
York Convention.

xxxx

SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not Covered by the New York Convention.––
The recognition and enforcement of foreign arbitral awards not covered by the New York Convention shall be
done in accordance with procedural rules to be promulgated by the Supreme Court. The Court may, on grounds
of comity and reciprocity, recognize and enforce a non-convention award as a convention award.

SEC. 44. Foreign Arbitral Award Not Foreign Judgment.––A foreign arbitral award when confirmed by a court of a
foreign country, shall be recognized and enforced as a foreign arbitral award and not as a judgment of a foreign
court.

A foreign arbitral award, when confirmed by the Regional Trial Court, shall be enforced in the same manner as
final and executory decisions of courts of law of the Philippines

xxxx

SEC. 47. Venue and Jurisdiction.––Proceedings for recognition and enforcement of an arbitration agreement or
for vacations, setting aside, correction or modification of an arbitral award, and any application with a court for
arbitration assistance and supervision shall be deemed as special proceedings and shall be filed with the
Regional Trial Court (i) where arbitration proceedings are conducted; (ii) where the asset to be attached or levied
upon, or the act to be enjoined is located; (iii) where any of the parties to the dispute resides or has his place of
business; or (iv) in the National Judicial Capital Region, at the option of the applicant.

SEC. 48. Notice of Proceeding to Parties.––In a special proceeding for recognition and enforcement of an arbitral
award, the Court shall send notice to the parties at their address of record in the arbitration, or if any part cannot
be served notice at such address, at such party’s last known address. The notice shall be sent al least fifteen (15)
days before the date set for the initial hearing of the application.

It is now clear that foreign arbitral awards when confirmed by the RTC are deemed not as a judgment of a foreign court
but as a foreign arbitral award, and when confirmed, are enforced as final and executory decisions of our courts of law.

Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to judgments or awards given by
some of our quasi-judicial bodies, like the National Labor Relations Commission and Mines Adjudication Board, whose
final judgments are stipulated to be final and binding, but not immediately executory in the sense that they may still be
judicially reviewed, upon the instance of any party. Therefore, the final foreign arbitral awards are similarly situated in that
they need first to be confirmed by the RTC.

(3) The RTC has jurisdiction to review foreign arbitral awards

Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with specific authority and jurisdiction to set
aside, reject, or vacate a foreign arbitral award on grounds provided under Art. 34(2) of the UNCITRAL Model Law. Secs.
42 and 45 provide:

SEC. 42. Application of the New York Convention.––The New York Convention shall govern the recognition and
enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards shall be filed with the Regional Trial Court in
accordance with the rules of procedure to be promulgated by the Supreme Court. Said procedural rules shall
provide that the party relying on the award or applying for its enforcement shall file with the court the original or
authenticated copy of the award and the arbitration agreement. If the award or agreement is not made in any of
the official languages, the party shall supply a duly certified translation thereof into any of such languages.

The applicant shall establish that the country in which foreign arbitration award was made is party to the New
York Convention.

If the application for rejection or suspension of enforcement of an award has been made, the Regional Trial Court
may, if it considers it proper, vacate its decision and may also, on the application of the party claiming recognition
or enforcement of the award, order the party to provide appropriate security.

xxxx

SEC. 45. Rejection of a Foreign Arbitral Award.––A party to a foreign arbitration proceeding may oppose an
application for recognition and enforcement of the arbitral award in accordance with the procedures and rules to
be promulgated by the Supreme Court only on those grounds enumerated under Article V of the New York
Convention. Any other ground raised shall be disregarded by the Regional Trial Court.

Thus, while the RTC does not have jurisdiction over disputes governed by arbitration mutually agreed upon by the parties,
still the foreign arbitral award is subject to judicial review by the RTC which can set aside, reject, or vacate it. In this
sense, what this Court held in Chung Fu Industries (Phils.), Inc. relied upon by KOGIES is applicable insofar as the
foreign arbitral awards, while final and binding, do not oust courts of jurisdiction since these arbitral awards are not
absolute and without exceptions as they are still judicially reviewable. Chapter 7 of RA 9285 has made it clear that all
arbitral awards, whether domestic or foreign, are subject to judicial review on specific grounds provided for.

(4) Grounds for judicial review different in domestic and foreign arbitral awards

The differences between a final arbitral award from an international or foreign arbitral tribunal and an award given by a
local arbitral tribunal are the specific grounds or conditions that vest jurisdiction over our courts to review the awards.

For foreign or international arbitral awards which must first be confirmed by the RTC, the grounds for setting aside,
rejecting or vacating the award by the RTC are provided under Art. 34(2) of the UNCITRAL Model Law.

For final domestic arbitral awards, which also need confirmation by the RTC pursuant to Sec. 23 of RA 876 44 and shall be
recognized as final and executory decisions of the RTC,45 they may only be assailed before the RTC and vacated on the
grounds provided under Sec. 25 of RA 876.46

(5) RTC decision of assailed foreign arbitral award appealable

Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved party in cases where the RTC
sets aside, rejects, vacates, modifies, or corrects an arbitral award, thus:

SEC. 46. Appeal from Court Decision or Arbitral Awards.—A decision of the Regional Trial Court confirming,
vacating, setting aside, modifying or correcting an arbitral award may be appealed to the Court of Appeals in
accordance with the rules and procedure to be promulgated by the Supreme Court.

The losing party who appeals from the judgment of the court confirming an arbitral award shall be required by the
appellate court to post a counterbond executed in favor of the prevailing party equal to the amount of the award in
accordance with the rules to be promulgated by the Supreme Court.

Thereafter, the CA decision may further be appealed or reviewed before this Court through a petition for review under
Rule 45 of the Rules of Court.

PGSMC has remedies to protect its interests

Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign arbitration as it bound itself
through the subject contract. While it may have misgivings on the foreign arbitration done in Korea by the KCAB, it has
available remedies under RA 9285. Its interests are duly protected by the law which requires that the arbitral award that
may be rendered by KCAB must be confirmed here by the RTC before it can be enforced.

With our disquisition above, petitioner is correct in its contention that an arbitration clause, stipulating that the arbitral
award is final and binding, does not oust our courts of jurisdiction as the international arbitral award, the award of which is
not absolute and without exceptions, is still judicially reviewable under certain conditions provided for by the UNCITRAL
Model Law on ICA as applied and incorporated in RA 9285.

Finally, it must be noted that there is nothing in the subject Contract which provides that the parties may dispense with the
arbitration clause.

Unilateral rescission improper and illegal

Having ruled that the arbitration clause of the subject contract is valid and binding on the parties, and not contrary to
public policy; consequently, being bound to the contract of arbitration, a party may not unilaterally rescind or terminate the
contract for whatever cause without first resorting to arbitration.

What this Court held in University of the Philippines v. De Los Angeles47 and reiterated in succeeding cases,48 that the act
of treating a contract as rescinded on account of infractions by the other contracting party is valid albeit provisional as it
can be judicially assailed, is not applicable to the instant case on account of a valid stipulation on arbitration. Where an
arbitration clause in a contract is availing, neither of the parties can unilaterally treat the contract as rescinded since
whatever infractions or breaches by a party or differences arising from the contract must be brought first and resolved by
arbitration, and not through an extrajudicial rescission or judicial action.

The issues arising from the contract between PGSMC and KOGIES on whether the equipment and machineries delivered
and installed were properly installed and operational in the plant in Carmona, Cavite; the ownership of equipment and
payment of the contract price; and whether there was substantial compliance by KOGIES in the production of the
samples, given the alleged fact that PGSMC could not supply the raw materials required to produce the sample LPG
cylinders, are matters proper for arbitration. Indeed, we note that on July 1, 1998, KOGIES instituted an Application for
Arbitration before the KCAB in Seoul, Korea pursuant to Art. 15 of the Contract as amended. Thus, it is incumbent upon
PGSMC to abide by its commitment to arbitrate.

Corollarily, the trial court gravely abused its discretion in granting PGSMC’s Motion for Inspection of Things on September
21, 1998, as the subject matter of the motion is under the primary jurisdiction of the mutually agreed arbitral body, the
KCAB in Korea.

In addition, whatever findings and conclusions made by the RTC Branch Sheriff from the inspection made on October 28,
1998, as ordered by the trial court on October 19, 1998, is of no worth as said Sheriff is not technically competent to
ascertain the actual status of the equipment and machineries as installed in the plant.

For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders pertaining to the grant of the inspection of
the equipment and machineries have to be recalled and nullified.

Issue on ownership of plant proper for arbitration

Petitioner assails the CA ruling that the issue petitioner raised on whether the total contract price of USD 1,530,000 was
for the whole plant and its installation is beyond the ambit of a Petition for Certiorari.

Petitioner’s position is untenable.

It is settled that questions of fact cannot be raised in an original action for certiorari. 49 Whether or not there was full
payment for the machineries and equipment and installation is indeed a factual issue prohibited by Rule 65.

However, what appears to constitute a grave abuse of discretion is the order of the RTC in resolving the issue on the
ownership of the plant when it is the arbitral body (KCAB) and not the RTC which has jurisdiction and authority over the
said issue. The RTC’s determination of such factual issue constitutes grave abuse of discretion and must be reversed and
set aside.

RTC has interim jurisdiction to protect the rights of the parties


Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving the way for PGSMC to dismantle and
transfer the equipment and machineries, we find it to be in order considering the factual milieu of the instant case.

Firstly, while the issue of the proper installation of the equipment and machineries might well be under the primary
jurisdiction of the arbitral body to decide, yet the RTC under Sec. 28 of RA 9285 has jurisdiction to hear and grant interim
measures to protect vested rights of the parties. Sec. 28 pertinently provides:

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

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

Any party may request that provisional relief be granted against the adverse party.

Such relief may be granted:

(i) to prevent irreparable loss or injury;

(ii) to provide security for the performance of any obligation;

(iii) to produce or preserve any evidence; or

(iv) to compel any other appropriate act or omission.

(c) The order granting provisional relief may be conditioned upon the provision of security or any act or omission
specified in the order.

(d) Interim or provisional relief is requested by written application transmitted by reasonable means to the Court or
arbitral tribunal as the case may be and the party against whom the relief is sought, describing in appropriate
detail the precise relief, the party against whom the relief is requested, the grounds for the relief, and the evidence
supporting the request.

(e) The order shall be binding upon the parties.

(f) Either party may apply with the Court for assistance in implementing or enforcing an interim measure ordered
by an arbitral tribunal.

(g) A party who does not comply with the order shall be liable for all damages resulting from noncompliance,
including all expenses, and reasonable attorney's fees, paid in obtaining the order’s judicial enforcement.
(Emphasis ours.)

Art. 17(2) of the UNCITRAL Model Law on ICA defines an "interim measure" of protection as:

Article 17. Power of arbitral tribunal to order interim measures

xxx xxx xxx

(2) An interim measure is any temporary measure, whether in the form of an award or in another form, by which,
at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal orders a
party to:

(a) Maintain or restore the status quo pending determination of the dispute;
(b) Take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or
prejudice to the arbitral process itself;

(c) Provide a means of preserving assets out of which a subsequent award may be satisfied; or

(d) Preserve evidence that may be relevant and material to the resolution of the dispute.

Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction to issue interim measures:

Article 17 J. Court-ordered interim measures

A court shall have the same power of issuing an interim measure in relation to arbitration proceedings,
irrespective of whether their place is in the territory of this State, as it has in relation to proceedings in courts. The
court shall exercise such power in accordance with its own procedures in consideration of the specific features of
international arbitration.

In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro Corporation, we were explicit that even "the
pendency of an arbitral proceeding does not foreclose resort to the courts for provisional reliefs." We explicated this way:

As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to the courts for
provisional reliefs. The Rules of the ICC, which governs the parties’ arbitral dispute, allows the application of a
party to a judicial authority for interim or conservatory measures. Likewise, Section 14 of Republic Act (R.A.) No.
876 (The Arbitration Law) recognizes the rights of any party to petition the court to take measures to safeguard
and/or conserve any matter which is the subject of the dispute in arbitration. In addition, R.A. 9285, otherwise
known as the "Alternative Dispute Resolution Act of 2004," allows the filing of provisional or interim measures with
the regular courts whenever the arbitral tribunal has no power to act or to act effectively.50

It is thus beyond cavil that the RTC has authority and jurisdiction to grant interim measures of protection.

Secondly, considering that the equipment and machineries are in the possession of PGSMC, it has the right to protect and
preserve the equipment and machineries in the best way it can. Considering that the LPG plant was non-operational,
PGSMC has the right to dismantle and transfer the equipment and machineries either for their protection and preservation
or for the better way to make good use of them which is ineluctably within the management discretion of PGSMC.

Thirdly, and of greater import is the reason that maintaining the equipment and machineries in Worth’s property is not to
the best interest of PGSMC due to the prohibitive rent while the LPG plant as set-up is not operational. PGSMC was
losing PhP322,560 as monthly rentals or PhP3.87M for 1998 alone without considering the 10% annual rent increment in
maintaining the plant.

Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating to the preservation or transfer of the
equipment and machineries as an interim measure, yet on hindsight, the July 23, 1998 Order of the RTC allowing the
transfer of the equipment and machineries given the non-recognition by the lower courts of the arbitral clause, has
accorded an interim measure of protection to PGSMC which would otherwise been irreparably damaged.

Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial amount based on the contract.
Moreover, KOGIES is amply protected by the arbitral action it has instituted before the KCAB, the award of which can be
enforced in our jurisdiction through the RTC. Besides, by our decision, PGSMC is compelled to submit to arbitration
pursuant to the valid arbitration clause of its contract with KOGIES.

PGSMC to preserve the subject equipment and machineries

Finally, while PGSMC may have been granted the right to dismantle and transfer the subject equipment and machineries,
it does not have the right to convey or dispose of the same considering the pending arbitral proceedings to settle the
differences of the parties. PGSMC therefore must preserve and maintain the subject equipment and machineries with the
diligence of a good father of a family51 until final resolution of the arbitral proceedings and enforcement of the award, if
any.

WHEREFORE, this petition is PARTLY GRANTED, in that:


(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET ASIDE;

(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-117 are REVERSED and SET
ASIDE;

(3) The parties are hereby ORDERED to submit themselves to the arbitration of their dispute and differences arising from
the subject Contract before the KCAB; and

(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and machineries, if it had not done so,
and ORDERED to preserve and maintain them until the finality of whatever arbitral award is given in the arbitration
proceedings.

No pronouncement as to costs.

SO ORDERED.

G.R. No. L-14342 May 30, 1960

CIRIACO L. MERCADO, petitioner,


vs.
THE COURT OF APPEALS, MANUEL QUISUMBING, JR., ET AL., respondents.

Abad Santos and Pablo for petitioner.


Sycip, Quisumbing, Salazar and Associates for respondents.

LABRADOR, J.:

This is a petition to review a decision of the Court of Appeals, which condemned petitioner to pay P2,000 as moral
damages and P50 for medical expenses, for a physical injury caused by the son of petitioner, Augusto Mercado, on a
classmate, Manuel Quisumbing, Jr., both pupils of the Lourdes Catholic School, Kanlaon, Quezon City. The case had
originated in the Court of First Instance of Manila, Hon. Bienvenido A. Tan, presiding, which dismissed the complaint filed
by Manuel Quisumbing, Jr. and his father against petitioner, father of the above-mentioned Mercado. The facts found by
the Court of Appeals are as follows:

Plaintiff-appellant Manuel Quisumbing, Jr. is the son of his co-plaintiff-appellants Ana Pineda and Manuel L.
Quisumbing, while Augusto Mercado is the son of defendant-appellee Ciriaco L. Mercado, Manuel Quisumbing,
Jr. and Augusto Mercado were classmates in the Lourdes Catholic School on Kanlaon, Quezon City. A "pitogo",
which figures prominently in this case, may be described as an empty nutshell used by children as a piggy bank.
On February 22, 1956, Augusto Mercado and Manuel Quisumbing, Jr. quarrelled over a "pitogo". As a result,
Augusto wounded Manuel, Jr. on the right cheek with a piece of razor.

xxx xxx xxx

The facts of record clearly show that it was Augusto Mercado who started the aggression. Undeniably, the
"pitogo" belonged to Augusto Mercado but he lent it to Benedicto P. Lim and in turn Benedicto lent it to Renato
Legaspi. Renato was not aware that the "pitogo" belonged to Augusto, because right after Benedicto gave it to
him, Benedicto ran away to get a basket ball with which they could play. Manuel Quisumbing, Jr. was likewise
unaware that the "pitogo" belonged to Augusto. He thought it was the "pitogo" of Benedicto P. Lim, so that when
Augusto attempted to get the "pitogo" from Renato, Manuel, Jr. told him not to do so because Renato was better
at putting the chain into the holes of the "pitogo". However, Augusto resented Manuel, Jr.'s remark and he
aggresively pushed the latter. The fight started then. After Augusto gave successive blows to Manuel, Jr., and the
latter was clutching his stomach which bore the brunt of Augusto's anger, Augusto seeing that Manuel, Jr. was in
a helpless position, cut him on the right check with a piece of razor.

xxx xxx xxx

Although the doctor who treated Manuel Quisumbing, Jr., Antonio B. Past, testified for plaintiffs-appellants, he did
not declare as to the amount of fees he collected from plaintiff-appellants for the treatment of Manuel, Jr. the child
was not even hospitalized for the wound. We believe that the sum of P50.00 is a fair approximation of the medical
expenses incurred by plaintiffs-appellants.

xxx xxx xxx

The damages specified in paragraphs C and D of the aforequoted portion of plaintiffs-appellant's complaint come
under the class of moral damages. The evidence of record shows that the child suffered moral damages by
reason of the wound inflicted by Augusto Mercado. Though such kind of damages cannot be fully appreciated in
terms of money, we believe that the sum of P2,000.00 would fully compensate the child.

As second cause of action, plaintiffs-appellants pray for P5,000.00 covering the moral damages they allegedly
suffered due to their son's being wounded; and the sum of P3,000.00 as attorney's fees. The facts of record do
not warrant the granting of moral damages to plaintiffs-appellants Manuel Quisumbing and Ana Pineda. "In law
mental anguish is restricted, as a rule, to such mental pain or suffering as arises from an injury or wrong to the
person himself, as distinguished from that form of mental suffering which is the accompaniment of sympathy or
sorrow for another's suffering of which arises from a contemplation of wrong committed on the person of another.
Pursuant to the rule stated, a husband or wife cannot recover for mental suffering caused by his or her sympathy
for the other's suffering. Nor can a parent recover for mental distress and anxiety on account of physical injury
sustained by a child or for anxiety for the safety of his child placed in peril by the negligence of another." (15 Am.
Jur. 597). Plaintiffs-appellants are not entitled to attorney's fees, it not appearing that defendant-appellee had
wantonly disregarded their claim for damages.

In the first, second and third assignments of error, counsel for petitioner argues that since the incident of the inflicting of
the wound on respondent occurred in a Catholic School (during recess time), through no fault of the father, petitioner
herein, the teacher or head of the school should be held responsible instead of the latter. This precise question was
brought before this Court in Exconde vs. Capuno and Capuno, 101 Phil., 843, but we held, through Mr. Justice Bautista:

We find merit in this claim. It is true that under the law above-quoted, "teachers or directors of arts and trades are
liable for any damage caused by their pupils or apprentices while they are under their custody", but this provision
only applies to an institution of arts and trades and not to any academic educational institution (Padilla, Civil Law,
1953 Ed., Vol. IV, p. 841; See 12 Manresa, 4th Ed., p. 557)

The last paragraph of Article 2180 of the Civil Code, upon which petitioner rests his claim that the school where his son
was studying should be made liable, is as follows:

ART. 2180. . . .

Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils
and students or apprentices, so long as they remain in their custody.

It would be seem that the clause "so long as they remain in their custody," contemplates a situation where the pupil lives
and boards with the teacher, such that the control, direction and influence on the pupil supersedes those of the parents. In
these circumstances the control or influence over the conduct and actions of the pupil would pass from the father and
mother to the teacher; and so would the responsibility for the torts of the pupil. Such a situation does not appear in the
case at bar; the pupils appear to go to school during school hours and go back to their homes with their parents after
school is over. The situation contemplated in the last paragraph of Article 2180 does not apply, nor does paragraph 2 of
said article, which makes father or mother responsible for the damages caused by their minor children. The claim of
petitioner that responsibility should pass to the school must, therefore, be held to be without merit.

We next come to the claim of petitioner that the moral damages fixed at P2,000 are excessive. We note that the wound
caused to respondent was inflicted in the course of an ordinary or common fight between boys in a grade school. The
Court of Appeals fixed the medical expenses incurred in treating and curing the wound at P50. Said court stated that the
wound did not even require hospitalization. Neither was Mercado found guilty of any offense nor the scar in Quisumbing's
face pronounced to have caused a deformity, unlike the case of Araneta, et al. vs. Arreglado, et al., 104 Phil., 529; 55 Off.
Gaz. (9) 1561. Petitioner's counsel argues that if death call for P3,000 to P6,000, certainly the incised wound could cause
mental pain and suffering to the tune of P2,000.

In the decision of the Court of Appeals, said court pronounces that the child Quisumbing suffered moral damages "by
reason of the wound inflicted by Augusto Mercado." While moral damages included physical suffering, which must have
been caused to the wounded boy Quisumbing (Art. 2217, Civil Code), the decision of the court below does not declare
that any of the cases specified in Article 2219 of the Civil Code in which moral damages may be recovered, has attended
or occasioned the physical injury. The only possible circumstance in the case at bar in which moral damages are
recoverable would be if a criminal offense or a quasi-delict has been committed.

It does not appear that a criminal action for physical injuries was ever presented. The offender, Augusto Mercado, was
nine years old and it does not appear that he had acted with discernment when he inflicted the physical injuries on Manuel
Quisumbing, Jr.

It is possible that the Court of Appeals may have considered Augusto Mercado responsible for or guilty, of a quasi-delict
causing physical injuries, within the meaning of paragraph 2 of Article 2219. Even if we assume that said court considered
Mercado guilty of a quasi-delict when it imposed the moral damages, yet the facts found by said court indicate that
Augusto's resentment, which motivated the assault, was occasioned by the fact that Manuel, Jr. had tried to intervene in
or interfere with the attempt of Mercado to get "his pitogo from Renato." This is, according to the decision appealed from,
the reason why Mercado was incensed and pushed Quisumbing who, in turn, also pushed Mercado. It is, therefore,
apparent that the proximate cause of the injury caused to Quisumbing was Quisumbing's own fault or negligence for
having interfered with Mercado while trying to get the pitogo from another boy. (Art. 2179, Civil Code.)

After considering all the facts as found by the Court of Appeals, we find that none of the cases mentioned in Article 2219
of the Civil Code, which authorizes the grant of moral damages, was shown to have existed. Consequently, the grant of
moral damages is not justified.

For the foregoing considerations, the decision appealed from is hereby reversed and the petitioner is declared exempt or
free from the payment of moral damages. The award of P50 for medical expenses, however, is hereby affirmed. Without
costs.

Paras, C.J., Bengzon, Montemayor, Barrera, and Gutierrez David, JJ., concur.
Bautista Angelo and Concepcion, JJ., concur in the result.

G.R. No. 151242 June 15, 2005

PROTON PILIPINAS CORPORATION, AUTOMOTIVE PHILIPPINES, ASEA ONE CORPORATION and


AUTOCORP, Petitioners,
vs.
BANQUE NATIONALE DE PARIS,1 Respondent.

DECISION

CARPIO MORALES, J.:

It appears that sometime in 1995, petitioner Proton Pilipinas Corporation (Proton) availed of the credit facilities of herein
respondent, Banque Nationale de Paris (BNP). To guarantee the payment of its obligation, its co-petitioners Automotive
Corporation Philippines (Automotive), Asea One Corporation (Asea) and Autocorp Group (Autocorp) executed a corporate
guarantee2 to the extent of US$2,000,000.00. BNP and Proton subsequently entered into three trust receipt agreements
dated June 4, 1996,3 January 14, 1997,4 and April 24, 1997.5

Under the terms of the trust receipt agreements, Proton would receive imported passenger motor vehicles and hold them
in trust for BNP. Proton would be free to sell the vehicles subject to the condition that it would deliver the proceeds of the
sale to BNP, to be applied to its obligations to it. In case the vehicles are not sold, Proton would return them to BNP,
together with all the accompanying documents of title.

Allegedly, Proton failed to deliver the proceeds of the sale and return the unsold motor vehicles.

Pursuant to the corporate guarantee, BNP demanded from Automotive, Asea and Autocorp the payment of the amount of
US$1,544,984.406 representing Proton's total outstanding obligations. These guarantors refused to pay, however. Hence,
BNP filed on September 7, 1998 before the Makati Regional Trial Court (RTC) a complaint against petitioners praying that
they be ordered to pay (1) US$1,544,984.40 plus accrued interest and other related charges thereon subsequent to
August 15, 1998 until fully paid and (2) an amount equivalent to 5% of all sums due from petitioners as attorney's fees.
The Makati RTC Clerk of Court assessed the docket fees which BNP paid at ₱352,116.307 which was computed as
follows:8

First Cause of Action $ 844,674.07

Second Cause of Action 171,120.53

Third Cause of Action 529,189.80

$1,544,984.40

5% as Attorney's Fees $ 77,249.22

TOTAL ………….. $1,622,233.62

Conversion rate to peso x 43_

TOTAL ………….. ₱69,756,000.00


(roundoff)

Computation based on Rule 141:

COURT JDF

₱ 69,756,000.00 ₱ 69.606.000.00

- 150,000.00 x .003

69,606,000.00 208,818.00

x .002 + 450.00

139,212.00 ₱ 209,268.00

+ 150.00

₱ 139,362.00

LEGAL : ₱139,362.00

+ 209,268.00

₱348,630.00 x 1% = ₱3,486.30

₱ 139,362.00

+ 209,268.00

3,486.00

₱ 352,116.30 - Total fees paid by the plaintiff

To the complaint, the defendants-herein petitioners filed on October 12, 1998 a Motion to Dismiss 9 on the ground that
BNP failed to pay the correct docket fees to thus prevent the trial court from acquiring jurisdiction over the case. 10 As
additional ground, petitioners raised prematurity of the complaint, BNP not having priorly sent any demand letter.11

By Order12 of August 3, 1999, Branch 148 of the Makati RTC denied petitioners' Motion to Dismiss, viz:

Resolving the first ground relied upon by the defendant, this court believes and so hold that the docket fees were properly
paid. It is the Office of the Clerk of Court of this station that computes the correct docket fees, and it is their duty to assess
the docket fees correctly, which they did.1avvphi1.zw+
Even granting arguendo that the docket fees were not properly paid, the court cannot just dismiss the case. The Court has
not yet ordered (and it will not in this case) to pay the correct docket fees, thus the Motion to dismiss is premature, aside
from being without any legal basis.

As held in the case of National Steel Corporation vs. CA, G.R. No. 123215, February 2, 1999, the Supreme Court said:

xxx

Although the payment of the proper docket fees is a jurisdictional requirement, the trial court may allow the plaintiff in an
action to pay the same within a reasonable time within the expiration of applicable prescription or reglementary period. If
the plaintiff fails to comply with this requirement, the defendant should timely raise the issue of jurisdiction or else he
would be considered in estoppel. In the latter case, the balance between appropriate docket fees and the amount actually
paid by the plaintiff will be considered a lien or (sic) any award he may obtain in his favor.

As to the second ground relied upon by the defendants, in that a review of all annexes to the complaint of the plaintiff
reveals that there is not a single formal demand letter for defendants to fulfill the terms and conditions of the three (3) trust
agreements.

In this regard, the court cannot sustain the submission of defendant. As correctly pointed out by the plaintiff, failure to
make a formal demand for the debtor to pay the plaintiff is not among the legal grounds for the dismissal of the case.
Anyway, in the appreciation of the court, this is simply evidentiary.

xxx

WHEREFORE, for lack of merit, the Motion to Dismiss interposed by the defendants is hereby DENIED.13(Underscoring
supplied)

Petitioners filed a motion for reconsideration14 of the denial of their Motion to Dismiss, but it was denied by the trial court
by Order15 of October 3, 2000.

Petitioners thereupon brought the case on certiorari and mandamus 16 to the Court of Appeals which, by Decision17of July
25, 2001, denied it in this wise:

… Section 7(a) of Rule 141 of the Rules of Court excludes interest accruing from the principal amount being claimed in
the pleading in the computation of the prescribed filing fees. The complaint was submitted for the computation of the filing
fee to the Office of the Clerk of Court of the Regional Trial Court of Makati City which made an assessment that
respondent paid accordingly. What the Office of the Clerk of Court did and the ruling of the respondent Judge find support
in the decisions of the Supreme Court in Ng Soon vs. Alday and Tacay vs. RTC of Tagum, Davao del Norte. In the latter
case, the Supreme Court explicitly ruled that "where the action is purely for recovery of money or damages, the docket
fees are assessed on the basis of the aggregate amount claimed, exclusive only of interests and costs."

Assuming arguendo that the correct filing fees was not made, the rule is that the court may allow a reasonable time for the
payment of the prescribed fees, or the balance thereof, and upon such payment, the defect is cured and the court may
properly take cognizance of the action unless in the meantime prescription has set in and consequently barred the right of
action. Here respondent Judge did not make any finding, and rightly so, that the filing fee paid by private respondent was
insufficient.

On the issue of the correct dollar-peso rate of exchange, the Office of the Clerk of Court of the RTC of Makati pegged it at
₱ 43.21 to US$1. In the absence of any office guide of the rate of exchange which said court functionary was duty bound
to follow, the rate he applied is presumptively correct.

Respondent Judge correctly ruled that the matter of demand letter is evidentiary and does not form part of the required
allegations in a complaint. Section 1, Rule 8 of the 1997 Rules of Civil Procedure pertinently provides:

"Every pleading shall contain in a methodical and logical form, a plain, concise and direct statement of the ultimate facts
on which the party pleading relies for his claim or defense, as the case may be, omitted the statement of mere evidentiary
facts."
Judging from the allegations of the complaint particularly paragraphs 6, 12, 18, and 23 where allegations of imputed
demands were made upon the defendants to fulfill their respective obligations, annexing the demand letters for the
purpose of putting up a sufficient cause of action is not required.

In fine, respondent Judge committed no grave abuse of discretion amounting to lack or excess of jurisdiction to warrant
certiorari and mandamus.18 (Underscoring supplied)

Their Motion for Reconsideration19 having been denied by the Court of Appeals,20 petitioners filed the present petition for
review on certiorari21 and pray for the following reliefs:

WHEREFORE, in view of all the foregoing, it is most respectfully prayed of this Honorable Court to grant the instant
petition by REVERSING and SETTING ASIDE the questioned Decision of July 25, 2001 and the Resolution of December
18, 2001 for being contrary to law, to Administrative Circular No. 11-94 and Circular No. 7 and instead direct the court a
quo to require Private Respondent Banque to pay the correct docket fee pursuant to the correct exchange rate of the
dollar to the peso on September 7, 1998 and to quantify its claims for interests on the principal obligations in the first,
second and third causes of actions in its Complaint in Civil Case No. 98-2180.22(Underscoring supplied)

Citing Administrative Circular No. 11-94,23 petitioners argue that BNP failed to pay the correct docket fees as the said
circular provides that in the assessment thereof, interest claimed should be included. There being an underpayment of the
docket fees, petitioners conclude, the trial court did not acquire jurisdiction over the case.

Additionally, petitioners point out that the clerk of court, in converting BNP's claims from US dollars to Philippine pesos,
applied the wrong exchange rate of US $1 = ₱43.00, the exchange rate on September 7, 1998 when the complaint was
filed having been pegged at US $1 = ₱43.21. Thus, by petitioners' computation, BNP's claim as of August 15, 1998 was
actually ₱70,096,714.72,24 not ₱69,756,045.66.

Furthermore, petitioners submit that pursuant to Supreme Court Circular No. 7, 25 the complaint should have been
dismissed for failure to specify the amount of interest in the prayer.

Circular No. 7 reads:

TO: JUDGES AND CLERKS OF COURT OF THE COURT OF TAX APPEALS, REGIONAL TRIAL COURTS,
METROPOLITAN TRIAL COURTS IN CITIES, MUNICIPAL TRIAL COURTS, MUNICIPAL CIRCUIT TRIAL COURTS,
SHARI'A DISTRICT COURTS;AND THE INTEGRATED BAR OF THE PHILIPPINES

SUBJECT: ALL COMPLAINTS MUST SPECIFY AMOUNT OF DAMAGES SOUGHT NOT ONLY IN THE BODY OF THE
PLEADING, BUT ALSO IN THE PRAYER IN ORDER TO BE ACCEPTED AND ADMITTED FOR FILING. THE
AMOUNT OF DAMAGES SO SPECIFIED IN THE COMPLAINT SHALL BE THE BASIS FOR ASSESSING THE
AMOUNT OF THE FILING FEES.

In Manchester Development Corporation vs. Court of Appeals, No. L-75919, May 7, 1987, 149 SCRA 562, this Court
condemned the practice of counsel who in filing the original complaint omitted from the prayer any specification of the
amount of damages although the amount of over P78 million is alleged in the body of the complaint. This Court observed
that "(T)his is clearly intended for no other purpose than to evade the payment of the correct filing fees if not to mislead
the docket clerk, in the assessment of the filing fee. This fraudulent practice was compounded when, even as this Court
had taken cognizance of the anomaly and ordered an investigation, petitioner through another counsel filed an amended
complaint, deleting all mention of the amount of damages being asked for in the body of the complaint. xxx"

For the guidance of all concerned, the WARNING given by the court in the afore-cited case is reproduced hereunder:

"The Court serves warning that it will take drastic action upon a repetition of this unethical practice.

To put a stop to this irregularity, henceforth all complaints, petitions, answers and other similar pleadings should specify
the amount of damages being prayed for not only in the body of the pleading but also in the prayer, and said
damages shall be considered in the assessment of the filing fees in any case. Any pleading that fails to comply
with this requirement shall not be accepted nor admitted, or shall otherwise be expunged from the record.

The Court acquires jurisdiction over any case only upon the payment of the prescribed docket fee. An amendment of the
complaint or similar pleading will not thereby vest jurisdiction in the Court, much less the payment of the docket fee based
on the amount sought in the amended pleading. The ruling in the Magaspi case (115 SCRA 193) in so far as it is
inconsistent with this pronouncement is overturned and reversed."

Strict compliance with this Circular is hereby enjoined.

Let this be circularized to all the courts hereinabove named and to the President and Board of Governors of the Integrated
Bar of the Philippines, which is hereby directed to disseminate this Circular to all its members.

March 24, 1988.

(Sgd). CLAUDIO TEEHANKEE


Chief Justice

(Emphasis and underscoring supplied)

On the other hand, respondent maintains that it had paid the filing fee which was assessed by the clerk of court, and that
there was no violation of Supreme Court Circular No. 7 because the amount of damages was clearly specified in the
prayer, to wit:

2. On the FIRST CAUSE OF ACTION -

(c) Defendant PROTON be ordered to pay the sum of (i) US DOLLARS EIGHT HUNDRED FORTY FOUR THOUSAND
SIX HUNDRED SEVENTY FOUR AND SEVEN CENTS (US$ 844,674.07), plus accrued interests and other related
charges thereon subsequent to August 15, 1998, until fully paid; and (ii) an amount equivalent to 5% of all sums due from
said Defendant, as and for attorney's fees;

3. On the SECOND CAUSE OF ACTION -

(d) Defendant PROTON be ordered to pay the sum of (i) US DOLLARS ONE HUNDRED TWENTY AND FIFTY THREE
CENTS (US$171,120.53), plus accrued interests and other related charges thereon subsequent to August 15, 1998 until
fully paid; and (ii) an amount equivalent to 5% of all sums due from said Defendant, as and for attorney's fees;

4. On the THIRD CAUSE OF ACTION -

(e) Defendant PROTON be ordered to pay the sum of (i) US DOLLARS FIVE HUNDRED TWENTY NINE THOUSAND
ONE HUNDRED EIGHTY NINE AND EIGHTY CENTS (US$529,189.80), plus accrued interests and other related
charges thereon subsequent to August 15, 1998 until fully paid; and (ii) an amount equivalent to 5% or all sums due from
said Defendant, as and for attorney's fees;

5. On ALL THE CAUSES OF ACTION -

Defendants AUTOMOTIVE CORPORATION PHILIPPINES, ASEA ONE CORPORATION and AUTOCORP GROUP to be
ordered to pay Plaintiff BNP the aggregate sum of (i) US DOLLARS ONE MILLION FIVE HUNDRED FORTY FOUR
THOUSAND NINE HUNDRED EIGHTY FOUR AND FORTY CENTS (US$1,544,984.40) (First through Third Causes of
Action), plus accrued interest and other related charges thereon subsequent to August 15, 1998 until fully paid; and (ii) an
amount equivalent to 5% of all sums due from said Defendants, as and for attorney's fees.26

Moreover, respondent posits that the amount of US$1,544,984.40 represents not only the principal but also interest and
other related charges which had accrued as of August 15, 1998. Respondent goes even further by suggesting that in light
of Tacay v. Regional Trial Court of Tagum, Davao del Norte27 where the Supreme Court held,

Where the action is purely for the recovery of money or damages, the docket fees are assessed on the basis of the
aggregate amount claimed, exclusive only of interests and costs.28 (Emphasis and underscoring supplied),

it made an overpayment.

When Tacay was decided in 1989, the pertinent rule applicable was Section 5 (a) of Rule 141 which provided for the
following:
SEC. 5. Clerks of Regional Trial Courts. - (a) For filing an action or proceeding, or a permissive counter-claim or cross-
claim not arising out of the same transaction subject of the complaint, a third-party complaint and a complaint in
intervention and for all services in the same, if the sum claimed, exclusive of interest, of the value of the property in
litigation, or the value of the estate, is:

1. Less than ₱ 5,000.00 ….……………………………… ₱ 32.00

2. ₱ 5,000.00 or more but less than ₱ 10,000.00 ………… 48.00

3. ₱ 10,000.00 or more but less than ₱ 20,000.00 ……….. 64.00

4. ₱ 20,000.00 or more but less than ₱ 40,000.00 ……….. 80.00

5. ₱ 40,000.00 or more but less than ₱ 60,000.00 ……….. 120.00

6. ₱ 60,000.00 or more but less than ₱ 80,000.00 ………. 160.00

7. ₱ 80,000.00 or more but less than ₱ 150,000.00 ……… 200.00

8. And for each ₱ 1,000.00 in excess of ₱ 150,000.00 ..... 4.00

9. When the value of the case cannot be estimated ……… 400.00

10. When the case does not concern property


(naturalization, adoption, legal separation, etc.) ..……... 64.00

11. In forcible entry and illegal detainer cases


appealed from inferior courts …………………………………. 40.00

If the case concerns real estate, the assessed value thereof shall be considered in computing the fees.

In case the value of the property or estate or the sum claim is less or more in accordance with the appraisal of the court,
the difference of fees shall be refunded or paid as the case may be.

When the complaint in this case was filed in 1998, however, as correctly pointed out by petitioners, Rule 141 had been
amended by Administrative Circular No. 11-9429 which provides:

BY RESOLUTION OF THE COURT, DATED JUNE 28, 1994, PURSUANT TO SECTION 5 (5) OF ARTICLE VIII OF THE
CONSTITUTION, RULE 141, SECTION 7 (a) AND (d), and SECTION 8 (a) and (b) OF THE RULES OF COURT ARE
HEREBY AMENDED TO READ AS FOLLOWS:

RULE 141
LEGAL FEES

xxx

Sec. 7. Clerks of Regional Trial Courts

(a) For filing an action or a permissive counterclaim or money claim against an estate not based on judgment, or for filing
with leave of court a third-party, fourth-party, etc. complaint, or a complaint in intervention, and for all clerical services in
the same, if the total sum claimed, inclusive of interest, damages of whatever kind, attorney's fees, litigation
expenses, and costs, or the stated value of the property in litigation, is:

1. Not more than ₱ 100,000.00 …………………………… ₱ 400.00

2. ₱ 100,000.00, or more but not more than ₱ 150,000.00 … 600.00

3. For each ₱ 1,000.00 in excess of ₱ 150,000.00 …………. 5.00

xxx
Sec. 8. Clerks of Metropolitan and Municipal Trial Courts

(a) For each civil action or proceeding, where the value of the subject matter involved, or the amount
of the demand, inclusive of interest, damages or whatever kind, attorney's fees, litigation
expenses, and costs, is:

1. Not more than ₱ 20,000.00 …………………………… ... ₱ 120.00

2. More than ₱ 20,000.00 but not more than ₱ 100,000.00 …. 400.00

3. More than ₱ 100,000.00 but not more than ₱ 200,000.00 … 850.00

(Emphasis and underscoring supplied)

The clerk of court should thus have assessed the filing fee by taking into consideration "the total sum claimed, inclusive of
interest, damages of whatever kind, attorney's fees, litigation expenses, and costs, or the stated value of the property in
litigation." Respondent's and the Court of Appeals' reliance then on Tacay was not in order.

Neither was, for the same reason, the Court of Appeals' reliance on the 1989 case of Ng Soon v. Alday,30 where this Court
held:

…The failure to state the rate of interest demanded was not fatal not only because it is the Courts which ultimately fix
the same, but also because Rule 141, Section 5(a) of the Rules of Court, itemizing the filing fees, speaks of "the
sum claimed, exclusive of interest." This clearly implies that the specification of the interest rate is not that
indispensable.

Factually, therefore, not everything was left to "guesswork" as respondent Judge has opined. The sums claimed were
ascertainable, sufficient enough to allow a computation pursuant to Rule 141, section 5(a).

Furthermore, contrary to the position taken by respondent Judge, the amounts claimed need not be initially stated
with mathematical precision. The same Rule 141, section 5(a) (3rd paragraph), allows an appraisal "more or
less."31 Thus:

"In case the value of the property or estate or the sum claimed is less or more in accordance with the appraisal of the
court, the difference of fee shall be refunded or paid as the case may be."

In other words, a final determination is still to be made by the Court, and the fees ultimately found to be payable will either
be additionally paid by the party concerned or refunded to him, as the case may be. The above provision clearly allows an
initial payment of the filing fees corresponding to the estimated amount of the claim subject to adjustment as to what later
may be proved.

". . . there is merit in petitioner's claim that the third paragraph of Rule 141, Section 5(a) clearly contemplates a situation
where an amount is alleged or claimed in the complaint but is less or more than what is later proved. If what is proved is
less than what was claimed, then a refund will be made; if more, additional fees will be exacted. Otherwise stated, what is
subject to adjustment is the difference in the fee and not the whole amount" (Pilipinas Shell Petroleum Corp., et als., vs.
Court of Appeals, et als., G.R. No. 76119, April 10, 1989).32 (Emphasis and underscoring supplied)

Respecting the Court of Appeals' conclusion that the clerk of court did not err when he applied the exchange rate of US
$1 = ₱43.00 "[i]n the absence of any office guide of the rate of exchange which said court functionary was duty bound to
follow,[hence,] the rate he applied is presumptively correct," the same does not lie. The presumption of regularity of the
clerk of court's application of the exchange rate is not conclusive.33 It is disputable.34 As such, the presumption may be
overturned by the requisite rebutting evidence.35 In the case at bar, petitioners have adequately proven with documentary
evidence36 that the exchange rate when the complaint was filed on September 7, 1998 was US $1 = ₱43.21.

In fine, the docket fees paid by respondent were insufficient.

With respect to petitioner's argument that the trial court did not acquire jurisdiction over the case in light of the insufficient
docket fees, the same does not lie.
True, in Manchester Development Corporation v. Court of Appeals,37 this Court held that the court acquires jurisdiction
over any case only upon the payment of the prescribed docket fees, 38 hence, it concluded that the trial court did not
acquire jurisdiction over the case.

It bears emphasis, however, that the ruling in Manchester was clarified in Sun Insurance Office, Ltd. (SIOL) v.
Asuncion39 when this Court held that in the former there was clearly an effort to defraud the government in avoiding to pay
the correct docket fees, whereas in the latter the plaintiff demonstrated his willingness to abide by paying the additional
fees as required.

The principle in Manchester could very well be applied in the present case. The pattern and the intent to defraud the
government of the docket fee due it is obvious not only in the filing of the original complaint but also in the filing of the
second amended complaint.

However, in Manchester, petitioner did not pay any additional docket fee until the case was decided by this Court on May
7, 1987. Thus, in Manchester, due to the fraud committed on the government, this Court held that the court a
quo did not acquire jurisdiction over the case and that the amended complaint could not have been admitted
inasmuch as the original complaint was null and void.

In the present case, a more liberal interpretation of the rules is called for considering
that, unlikeManchester, private respondent demonstrated his willingness to abide by the rules by paying the
additional docket fees as required. The promulgation of the decision in Manchester must have had that sobering
influence on private respondent who thus paid the additional docket fee as ordered by the respondent court. It triggered
his change of stance by manifesting his willingness to pay such additional docket fee as may be ordered.

Nevertheless, petitioners contend that the docket fee that was paid is still insufficient considering the total amount of the
claim. This is a matter which the clerk of court of the lower court and/or his duly authorized docket clerk or clerk in charge
should determine and, thereafter, if any amount is found due, he must require the private respondent to pay the same.

Thus, the Court rules as follows:

1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the payment of the prescribed
docket fee, that vests a trial court with jurisdiction over the subject-matter or nature of the action. Where the filing
of the initiatory pleading is not accompanied by payment of the docket fee, the court may allow payment of the fee
within a reasonable time but in no case beyond the applicable prescriptive or reglementary period.

2. The same rule applies to permissive counterclaims, third-party claims and similar pleadings, which shall not be
considered filed until and unless the filing fee prescribed therefor is paid. The court may also allow payment of
said fee within a reasonable time but also in no case beyond its applicable prescriptive or reglementary period.

3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate pleading and payment of
the prescribed filing fee but, subsequently, the judgment awards a claim not specified in the pleading, or if
specified the same has been left for determination by the court, the additional filing fee therefor shall constitute a
lien on the judgment. It shall be the responsibility of the Clerk of Court or his duly authorized deputy to enforce
said lien and assess and collect the additional fee.40 (Emphasis and underscoring supplied)

The ruling in Sun Insurance Office was echoed in the 2005 case of Heirs of Bertuldo Hinog v. Hon. Achilles Melicor:41

Plainly, while the payment of the prescribed docket fee is a jurisdictional requirement, even its non-payment at the time of
filing does not automatically cause the dismissal of the case, as long as the fee is paid within the applicable prescriptive or
reglementary period, more so when the party involved demonstrates a willingness to abide by the rules prescribing such
payment. Thus, when insufficient filing fees were initially paid by the plaintiffs and there was no intention to
defraud the government, the Manchester rule does not apply. (Emphasis and underscoring supplied; citations
omitted)

In the case at bar, respondent merely relied on the assessment made by the clerk of court which turned out to be
incorrect. Under the circumstances, the clerk of court has the responsibility of reassessing what respondent must pay
within the prescriptive period, failing which the complaint merits dismissal.
Parenthetically, in the complaint, respondent prayed for "accrued interest… subsequent to August 15, 1998 until fully
paid." The complaint having been filed on September 7, 1998, respondent's claim includes the interest from August 16,
1998 until such date of filing.

Respondent did not, however, pay the filing fee corresponding to its claim for interest from August 16, 1998 until the filing
of the complaint on September 7, 1998. As priorly discussed, this is required under Rule 141, as amended by
Administrative Circular No. 11-94, which was the rule applicable at the time. Thus, as the complaint currently stands,
respondent cannot claim the interest from August 16, 1998 until September 7, 1998, unless respondent is allowed by
motion to amend its complaint within a reasonable time and specify the precise amount of interest petitioners owe from
August 16, 1998 to September 7, 199842 and pay the corresponding docket fee therefor.

With respect to the interest accruing after the filing of the complaint, the same can only be determined after a final
judgment has been handed down. Respondent cannot thus be made to pay the corresponding docket fee therefor.
Pursuant, however, to Section 2, Rule 141, as amended by Administrative Circular No. 11-94, respondent should be
made to pay additional fees which shall constitute a lien in the event the trial court adjudges that it is entitled to interest
accruing after the filing of the complaint.

Sec. 2. Fees as lien. - Where the court in its final judgment awards a claim not alleged, or a relief different or more than
that claimed in the pleading, the party concerned shall pay the additional fees which shall constitute a lien on the
judgment in satisfaction of said lien. The clerk of court shall assess and collect the corresponding fees.

In Ayala Corporation v. Madayag,43 in interpreting the third rule laid down in Sun Insurance regarding awards of claims not
specified in the pleading, this Court held that the same refers only to damages arising after the filing of the
complaint or similar pleading as to which the additional filing fee therefor shall constitute a lien on the judgment.

… The amount of any claim for damages, therefore, arising on or before the filing of the complaint or any pleading should
be specified. While it is true that the determination of certain damages as exemplary or corrective damages is left to the
sound discretion of the court, it is the duty of the parties claiming such damages to specify the amount sought on the basis
of which the court may make a proper determination, and for the proper assessment of the appropriate docket fees. The
exception contemplated as to claims not specified or to claims although specified are left for determination of the
court is limited only to any damages that may arise after the filing of the complaint or similar pleading for then it
will not be possible for the claimant to specify nor speculate as to the amount thereof. 44 (Emphasis and
underscoring supplied; citation omitted)1avvphi1.zw+

WHEREFORE, the petition is GRANTED in part. The July 25, 2001 Decision and the December 18, 2001 Resolution of
the Court Appeals are hereby MODIFIED. The Clerk of Court of the Regional Trial Court of Makati City is ordered to
reassess and determine the docket fees that should be paid by respondent, BNP, in accordance with the Decision of this
Court, and direct respondent to pay the same within fifteen (15) days, provided the applicable prescriptive or reglementary
period has not yet expired. Thereafter, the trial court is ordered to proceed with the case with utmost dispatch.

SO ORDERED.

You might also like