ATTY. EVELYN J. MAGNO, A.C. No.

6296
Complainant, merely coincidental, respondent countered that she is appearing as an attorney-in-fact, not as
Present: counsel, of Lorenzo Inos.

PANGANIBAN, J., Chairman

- versus - SANDOVAL-GUTIERREZ,
CORONA, Complainant enumerated specific instances, with supporting documentation, tending to
CARPIO MORALES and prove that respondent had, in the course of the conciliation proceedings before the Punong
GARCIA, JJ.
Barangay, acted as Inos Lorenzos counsel instead of as his attorney-in-fact. This is what
ATTY. OLIVIA VELASCO-JACOBA, Promulgated:
complainant said in her complaint: [2]
Respondent. November 22, 2005
x----------------------------------------x
5. xxx Atty. Olivia Jacoba asked for an ocular inspection of the
subject matter of the complaint. A heated argument took place because
RESOLUTION Lorencito Inos said that [complainants brother] Melencio Magno,
Jr. made alterations in the lagoon . Afterwards Atty. Olivia Jacoba . . .
GARCIA, J.: returned to the barangay hall to have the incident recorded in the barangay
blotter.... attached as Annex A

In her sworn complaint, as endorsed by the President of the Integrated Bar of the
Philippines (IBP), Nueva Ecija Chapter, Atty. Evelyn J. Magno charged Atty. Olivia
Velasco-Jacoba, a member of the same IBP provincial chapter, with willful violation of (a)
Section 415 of the Local Government Code (LGC) of 1991 and (b) Canon 4 of the Code of
Professional Responsibility.
6. That on January 12, 2003, Lorenzo Inos appeared before the
hearing also with the assistance of [respondent]. When the minutes of the
proceeding (sic) was read, [respondent] averred that the minutes is partial
in favor of the complainant because only her statements were recorded for
which reason, marginal insertions were made to include what [respondent]
wanted to be put on record. She also signed as saksi in the minutes .

7. xxx In a letter (answer to the "sumbong) sent to the Punong

This disciplinary case arose out of a disagreement that complainant had with her uncle, Barangay dated December 22, 2002, she signed representing herself as
Lorenzo Inos, over a landscaping contract they had entered into. In a bid to have the Family Legal Counsel of Inos Family, a copy of the letter is attached as
Annex C . . . . (Words in bracket added.)
stand-off between them settled, complainant addressed a letter, styled Sumbong,[1] to
Bonifacio Alcantara, barangay captain of Brgy. San Pascual, Talavera, Nueva Ecija. At the
barangay conciliation/confrontation proceedings conducted on January 5, 2003, respondent,
In an Order dated February 17, 2003, Atty. Victor C. Fernandez, IBP Director for Bar
on the strength of a Special Power of Attorney signed by Lorenzo Inos, appeared for the
Discipline, directed the respondent to submit, within fifteen (15) days from notice, her
latter, accompanied by his son, Lorenzito. Complainants objection to respondents appearance
answer to the complaint, otherwise she will be considered as in default. [3]
elicited the response that Lorenzo Inos is entitled to be represented by a lawyer inasmuch as
complainant is herself a lawyer. And as to complainants retort that her being a lawyer is
 The case, docketed as CBD No. 03-1061, was assigned to Commissioner Rebecca
Villanueva-Maala, who admitted respondents answer notwithstanding her earlier order of
July 15, 2003, declaring respondent in default for failure to file an answer in due time.[4]
In her Answer, respondent alleged that the administrative complaint was filed with the
Office of the Punong Barangay, instead of before the Lupong Tagapamayapa, and heard
by Punong Barangay Bonifacio Alcantara alone, instead of the collegial Lupon or a
conciliation panel known as pangkat. Prescinding from this premise, respondent submits that
the prohibition against a lawyer appearing to assist a client in katarungan
pambarangay proceedings does not apply. Further, she argued that her appearance was not
as a lawyer, but only as an attorney-in-fact.
In her report dated October 6, 2003,[5] Commissioner Maala stated that the charge of
complainant has been established by clear preponderance of evidence and, on that basis,
recommended that respondent be suspended from the practice of her profession for a
period of six (6) months. On the other hand, the Board of Governors, IBP Commission on
Bar Discipline, while agreeing with the inculpatory finding of the investigating
commissioner, recommended in its Resolution No. XVI-2003-235,[6] a lighter penalty, to wit:
RESOLVED to ADOPT and APPROVE, as it is hereby
ADOPTED and APPROVED, the Report and Recommendation of the
Investigating Commissioner of the above-entitled case, herein made part of
this Resolution/Decision as Annex "A"; and, finding the recommendation
fully supported by the evidence on record and the applicable laws and
rules, with modification, and considering respondent's actuations was in
violation of Section 415 which expressly prohibits the presence and
representation by lawyers in the Katarungan Pambarangay, Atty. Olivia
Velasco-Jacoba is hereby ADMONISHED.
This resolution is now before us for confirmation.
Section 415 of the LGC of 1991[7], on the subject Katarungang Pambarangay,
provides:
Section 415. Appearance of Parties in Person. - In all katarungang
pambarangay proceedings, the parties must appear in person without the
assistance of the counsel or representative, except for minors and
incompetents who may be assisted by their next of kin who are not
lawyers.
The above-quoted provision clearly requires the personal appearance of the parties
in katarungan pambarangay conciliation proceedings, unassisted by counsel or
representative. The rationale behind the personal appearance requirement is to enable
the lupon to secure first hand and direct information about the facts and issues, [8] the
exception being in cases where minors or incompetents are parties. There can be no
quibbling that laymen of goodwill can easily agree to conciliate and settle their disputes
between themselves without what sometimes is the unsettling assistance of lawyers whose
presence could sometimes obfuscate and confuse issues.[9] Worse still, the participation of
lawyers with their penchant to use their analytical skills and legal knowledge tend to prolong
instead of expedite settlement of the case.
The prohibition against the presence of a lawyer in a barangay conciliation proceedings
was not, to be sure, lost on respondent. Her defense that the aforequoted Section 415 of the
LGC does not apply since complainant addressed her Sumbong to the barangay captain of
Brgy. San Pascual who thereafter proceeded to hear the same is specious at best. In this
regard, suffice it to state that complainant wrote her Sumbong with the end in view of
availing herself of the benefits of barangay justice. That she addressed her Sumbong to the
barangay captain is really of little moment since the latter chairs the Lupong
Tagapamayapa.[10]
 Lest it be overlooked, the prohibition in question applies to all katarungan
barangay proceedings. Section 412(a)[11] the LGC of 1991 clearly provides that, as a
precondition to filing a complaint in court, the parties shall go through the conciliation
process either before the lupon chairman or the lupon or pangkat. As what happened in this
case, the punong barangay, as chairman of the Lupon Tagapamayapa, conducted the
conciliation proceedings to resolve the disputes between the two parties.
G.R. No. 198075 September 4, 2013
Given the above perspective, we join the IBP Commission on Bar Discipline in its
determination that respondent transgressed the prohibition prescribed in Section 415 of the
KOPPEL, INC. (formerly known as KPL AIRCON, INC.), Petitioner,
LGC. However, its recommended penalty of mere admonition must have to be modified.
vs.
Doubtless, respondents conduct tended to undermine the laudable purpose of
MAKATI ROTARY CLUB FOUNDATION, INC., Respondent.
the katarungan pambarangay system. What compounded matters was when respondent
repeatedly ignored complainants protestation against her continued appearance in the
DECISION
barangay conciliation proceedings.

PEREZ, J.:
WHEREFORE, Atty. Olivia Velasco-Jacoba is hereby FINED in the amount of Five
Thousand Pesos (P5,000.00) for willful violation of Section 415 of the Local Government
This case is an appeal1 from the Decision2 dated 19 August 2011 of the Court of Appeals in
Code of 1991 with WARNING that commission of similar acts of impropriety on her part in
C.A.-G.R. SP No. 116865.
the future will be dealt with more severely.

SO ORDERED. The facts:

The Donation

Fedders Koppel, Incorporated (FKI), a manufacturer of air-conditioning products, was the

registered owner of a parcel of land located at Km. 16, South Superhighway, Paraaque City
(subject land).3 Within the subject land are buildings and other improvements dedicated to
the business of FKI.4
In 1975, FKI5 bequeathed the subject land (exclusive of the improvements thereon) in favor
of herein respondent Makati Rotary Club Foundation, Incorporated by way of a conditional
donation.6 The respondent accepted the donation with all of its conditions.7 On 26 May1975,
FKI and the respondent executed a Deed of Donation8 evidencing their consensus.
The Lease and the Amended Deed of Donation
One of the conditions of the donation required the respondent to lease the subject land back
to FKI under terms specified in their Deed of Donation.9 With the respondents acceptance
of the donation, a lease agreement between FKI and the respondent was, therefore,
effectively incorporated in the Deed of Donation.
Pertinent terms of such lease agreement, as provided in the Deed of Donation , were as
follows:
1. The period of the lease is for twenty-five (25) years,10 or until the 25th of May 2000;
2. The amount of rent to be paid by FKI for the first twenty-five (25) years is P40,126.00 per
annum .11
The Deed of Donation also stipulated that the lease over the subject property is renewable for
another period of twenty-five (25) years " upon mutual agreement" of FKI and the
respondent.12 In which case, the amount of rent shall be determined in accordance with item
2(g) of the Deed of Donation, viz:
g. The rental for the second 25 years shall be the subject of mutual agreement and in case of
disagreement the matter shall be referred to a Board of three Arbitrators appointed and with
powers in accordance with the Arbitration Law of the Philippines, Republic Act 878, whose
function shall be to decide the current fair market value of the land excluding the
improvements, provided, that, any increase in the fair market value of the land shall not
exceed twenty five percent (25%) of the original value of the land donated as stated in
paragraph 2(c) of this Deed. The rental for the second 25 years shall not exceed three percent
(3%) of the fair market value of the land excluding the improvements as determined by the
Board of Arbitrators.13
In October 1976, FKI and the respondent executed an Amended Deed of Donation14 that
reiterated the provisions of the Deed of Donation , including those relating to the lease of the
subject land.
Verily, by virtue of the lease agreement contained in the Deed of Donation and Amended
Deed of Donation , FKI was able to continue in its possession and use of the subject land.
2000 Lease Contract
Two (2) days before the lease incorporated in the Deed of Donation and Amended Deed of
Donation was set to expire, or on 23 May 2000, FKI and respondent executed another
contract of lease ( 2000 Lease Contract )15 covering the subject land. In this 2000 Lease
Contract, FKI and respondent agreed on a new five-year lease to take effect on the 26th of
May 2000, with annual rents ranging from P4,000,000 for the first year up to P4,900,000 for
the fifth year.16 The 2000 Lease Contract also contained an arbitration clause enforceable in
the event the parties come to disagreement about the" interpretation, application and
execution" of the lease, viz :
19. Governing Law The provisions of this 2000 Lease Contract shall be governed,
interpreted and construed in all aspects in accordance with the laws of the Republic of the
Philippines.
Any disagreement as to the interpretation, application or execution of this 2000 Lease
Contract shall be submitted to a board of three (3) arbitrators constituted in accordance with
the arbitration law of the Philippines. The decision of the majority of the arbitrators shall be
binding upon FKI and respondent.17 (Emphasis supplied)
2005 Lease Contract
After the 2000 Lease Contract expired, FKI and respondent agreed to renew their lease for
another five (5) years. This new lease (2005 Lease Contract )18 required FKI to pay a fixed
annual rent of P4,200,000.19 In addition to paying the fixed rent, however, the 2005 Lease
Contract also obligated FKI to make a yearly " donation " of money to the respondent.20
Such donations ranged from P3,000,000 for the first year up to P3,900,000for the fifth
year.21 Notably, the 2005 Lease Contract contained an arbitration clause similar to that in
the 2000 Lease Contract, to wit:
19. Governing Law The provisions of this 2005 Lease Contract shall be governed,
interpreted and construed in all aspects in accordance with the laws of the Republic of the
Philippines.
Any disagreement as to the interpretation, application or execution of this 2005 Lease
Contract shall be submitted to a board of three (3) arbitrators constituted in accordance with
the arbitration law of the Philippines. The decision of the majority of the arbitrators shall be
binding upon FKI and respondent.22 (Emphasis supplied)
The Assignment and Petitioners Refusal to Pay
From 2005 to 2008, FKI faithfully paid the rentals and " donations "due it per the 2005 Lease
Contract.23 But in June of 2008, FKI sold all its rights and properties relative to its business
in favor of herein petitioner Koppel, Incorporated.24 On 29 August 2008, FKI and petitioner
executed an Assignment and Assumption of Lease and Donation25 wherein FKI, with the
conformity of the respondent, formally assigned all of its interests and obligations under the
Amended Deed of Donation and the 2005 Lease Contract in favor of petitioner.
The following year, petitioner discontinued the payment of the rent and " donation " under
the 2005 Lease Contract.
Petitioners refusal to pay such rent and "donation " emanated from its belief that the rental
stipulations of the 2005 Lease Contract, and even of the 2000 Lease Contract, cannot be
given effect because they violated one of the" material conditions " of the donation of the
subject land, as stated in the Deed of Donation and Amended Deed of Donation.26
According to petitioner, the Deed of Donation and Amended Deed of Donation actually
established not only one but two (2) lease agreements between FKI and respondent, i.e. , one
lease for the first twenty-five (25)years or from 1975 to 2000, and another lease for the next
twenty-five (25)years thereafter or from 2000 to 2025. 27 Both leases are material conditions
of the donation of the subject land.
Petitioner points out that while a definite amount of rent for the second twenty-five (25) year
lease was not fixed in the Deed of Donation and Amended Deed of Donation , both deeds
nevertheless prescribed rules and limitations by which the same may be determined. Such
rules and limitations ought to be observed in any succeeding lease agreements between
petitioner and respondent for they are, in themselves, material conditions of the donation of
the subject land.28
In this connection, petitioner cites item 2(g) of the Deed of Donation and Amended Deed of
Donation that supposedly limits the amount of rent for the lease over the second twenty-five
(25) years to only " three percent (3%) of the fair market value of the subject land excluding
the improvements.29

For petitioner then, the rental stipulations of both the 2000 Lease Contract and 2005 Lease
Contract cannot be enforced as they are clearly, in view of their exorbitant exactions, in
violation of the aforementioned threshold in item 2(g) of the Deed of Donation and Amended
Deed of Donation . Consequently, petitioner insists that the amount of rent it has to pay
thereon is and must still be governed by the limitations prescribed in the Deed of Donation
and Amended Deed of Donation.30
The Demand Letters
On 1 June 2009, respondent sent a letter (First Demand Letter)31 to petitioner notifying the
latter of its default " per Section 12 of the 2005 Lease Contract " and demanding for the
settlement of the rent and " donation " due for the year 2009. Respondent, in the same letter,
further intimated of canceling the 2005 Lease Contract should petitioner fail to settle the said
obligations.32 Petitioner received the First Demand Letter on2 June 2009.33
On 22 September 2009, petitioner sent a reply34 to respondent expressing its disagreement
over the rental stipulations of the 2005 Lease Contract calling them " severely
disproportionate," "unconscionable" and "in clear violation to the nominal rentals mandated
by the Amended Deed of Donation." In lieu of the amount demanded by the respondent,
which purportedly totaled to P8,394,000.00, exclusive of interests, petitioner offered to pay
only P80,502.79,35 in accordance with the rental provisions of the Deed of Donation and
Amended Deed of Donation.36 Respondent refused this offer.37
On 25 September 2009, respondent sent another letter (Second Demand Letter)38 to
petitioner, reiterating its demand for the payment of the obligations already due under the
2005 Lease Contract. The Second Demand Letter also contained a demand for petitioner to "
immediately vacate the leased premises " should it fail to pay such obligations within seven
(7) days from its receipt of the letter.39 The respondent warned of taking " legal steps " in
the event that petitioner failed to comply with any of the said demands.40 Petitioner received
the Second Demand Letter on 26September 2009.41
Petitioner refused to comply with the demands of the respondent. Instead, on 30 September
2009, petitioner filed with the Regional Trial Court (RTC) of Paraaque City a complaint42
for the rescission or cancellation of the Deed of Donation and Amended Deed of Donation
against the respondent. This case is currently pending before Branch 257 of the RTC,
docketed as Civil Case No. CV 09-0346.
The Ejectment Suit
On 5 October 2009, respondent filed an unlawful detainer case43 against the petitioner
before the Metropolitan Trial Court (MeTC) of Paraaque City. The ejectment case was
raffled to Branch 77 and was docketed as Civil Case No. 2009-307.
On 4 November 2009, petitioner filed an Answer with Compulsory Counterclaim.44 In it,
petitioner reiterated its objection over the rental stipulations of the 2005 Lease Contract for
being violative of the material conditions of the Deed of Donation and Amended Deed of
Donation.45 In addition to the foregoing, however, petitioner also interposed the following
defenses:
1. The MeTC was not able to validly acquire jurisdiction over the instant unlawful detainer
case in view of the insufficiency of respondents demand.46 The First Demand Letter did not
contain an actual demand to vacate the premises and, therefore, the refusal to comply there
with does not give rise to an action for unlawful detainer.47
2. Assuming that the MeTC was able to acquire jurisdiction, it may not exercise the same
until the disagreement between the parties is first referred to arbitration pursuant to the
arbitration clause of the 2005 Lease Contract.48

3. Assuming further that the MeTC has jurisdiction that it can exercise, ejectment still would
not lie as the 2005 Lease Contract is void abinitio.49 The stipulation in the 2005 Lease
Contract requiring petitioner to give yearly " donations " to respondent is a simulation, for
they are, in fact, parts of the rent. 50 Such grants were only denominated as " donations " in
the contract so that the respondentanon-stock and non-profit corporationcould evade
payment of the taxes otherwise due thereon.51
In due course, petitioner and respondent both submitted their position papers, together with
their other documentary evidence.52 Remarkably, however, respondent failed to submit the
Second Demand Letter as part of its documentary evidence.
Rulings of the MeTC, RTC and Court of Appeals
On 27 April 2010, the MeTC rendered judgment53 in favor of the petitioner. While the
MeTC refused to dismiss the action on the ground that the dispute is subject to arbitration, it
nonetheless sided with the petitioner with respect to the issues regarding the insufficiency of
the respondents demand and the nullity of the 2005 Lease Contract.54 The MeTC thus
disposed:
WHEREFORE, judgment is hereby rendered dismissing the case x x x, without
pronouncement as to costs.
SO ORDERED.55
The respondent appealed to the Regional Trial Court (RTC). This appeal was assigned to
Branch 274 of the RTC of Paraaque City and was docketed as Civil Case No. 10-0255.
On 29 October 2010, the RTC reversed56 the MeTC and ordered the eviction of the
petitioner from the subject land:
WHEREFORE, all the foregoing duly considered, the appealed Decision of the Metropolitan
Trial Court, Branch 77, Paraaque City, is hereby reversed, judgment is thus rendered in
favor of the plaintiff-appellant and against the defendant-appellee, and ordering the latter
(1) to vacate the lease[d] premises made subject of the case and to restore the possession
thereof to the plaintiff-appellant;
(2) to pay to the plaintiff-appellant the amount of Nine Million Three Hundred Sixty Two
Thousand Four Hundred Thirty Six Pesos (P9,362,436.00), penalties and net of 5%
withholding tax, for the lease period from May 25, 2009 to May 25, 2010 and such monthly
rental as will accrue during the pendency of this case;
(3) to pay attorneys fees in the sum of P100,000.00 plus appearance fee of P3,000.00;
(4) and costs of suit.
As to the existing improvements belonging to the defendant-appellee, as these were built in
good faith, the provisions of Art. 1678of the Civil Code shall apply.
SO ORDERED.57
The ruling of the RTC is premised on the following ratiocinations:
1. The respondent had adequately complied with the requirement of demand as a
jurisdictional precursor to an unlawful detainer action.58 The First Demand Letter, in
substance, contains a demand for petitioner to vacate when it mentioned that it was a notice "
per Section12 of the 2005 Lease Contract."59 Moreover, the issue of sufficiency of the
respondents demand ought to have been laid to rest by the Second Demand Letter which,
though not submitted in evidence, was nonetheless admitted by petitioner as containing a"
demand to eject " in its Answer with Compulsory Counterclaim.60
2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contract
while, at the same time, impugn such contracts validity.61 Even assuming that it can,
petitioner still did not file a formal application before the MeTC so as to render such
arbitration clause operational.62 At any rate, the MeTC would not be precluded from
exercising its jurisdiction over an action for unlawful detainer, over which, it has exclusive
original jurisdiction.63
3. The 2005 Lease Contract must be sustained as a valid contract since petitioner was not
able to adduce any evidence to support its allegation that the same is void.64 There was, in
this case, no evidence that respondent is guilty of any tax evasion.65
Aggrieved, the petitioner appealed to the Court of Appeals.
On 19 August 2011, the Court of Appeals affirmed66 the decision of the RTC:
WHEREFORE , the petition is DENIED . The assailed Decision of the Regional Trial Court
of Paraaque City, Branch 274, in Civil Case No. 10-0255 is AFFIRMED.
xxxx
SO ORDERED.67
Hence, this appeal.
On 5 September 2011, this Court granted petitioners prayer for the issuance of a Temporary
Restraining Order68 staying the immediate implementation of the decisions adverse to it.
OUR RULING
Independently of the merits of the case, the MeTC, RTC and Court of Appeals all erred in
overlooking the significance of the arbitration clause incorporated in the 2005 Lease
Contract . As the Court sees it, that is a fatal mistake.
For this reason, We grant the petition.
Present Dispute is Arbitrable Under the
Arbitration Clause of the 2005 Lease
Agreement Contract
Going back to the records of this case, it is discernable that the dispute between the petitioner
and respondent emanates from the rental stipulations of the 2005 Lease Contract. The
respondent insists upon the enforce ability and validity of such stipulations, whereas,
petitioner, in substance, repudiates them. It is from petitioners apparent breach of the 2005
Lease Contract that respondent filed the instant unlawful detainer action.
One cannot escape the conclusion that, under the foregoing premises, the dispute between the
petitioner and respondent arose from the application or execution of the 2005 Lease
Contract . Undoubtedly, such kinds of dispute are covered by the arbitration clause of the
2005 Lease Contract to wit:
19. Governing Law The provisions of this 2005 Lease Contract shall be governed,
interpreted and construed in all aspects in accordance with the laws of the Republic of the
Philippines.

Any disagreement as to the interpretation, application or execution of this 2005 Lease
Contract shall be submitted to a board of three (3) arbitrators constituted in accordance with
the arbitration law of the Philippines. The decision of the majority of the arbitrators shall be
binding upon FKI and respondent.69 (Emphasis supplied)
The arbitration clause of the 2005 Lease Contract stipulates that "any disagreement" as to the
" interpretation, application or execution " of the 2005 Lease Contract ought to be submitted
to arbitration.70 To the mind of this Court, such stipulation is clear and is comprehensive
enough so as to include virtually any kind of conflict or dispute that may arise from the 2005
Lease Contract including the one that presently besets petitioner and respondent.
The application of the arbitration clause of the 2005 Lease Contract in this case carries with
it certain legal effects. However, before discussing what these legal effects are, We shall first
deal with the challenges posed against the application of such arbitration clause.
Challenges Against the Application of the
Arbitration Clause of the 2005 Lease
Contract
Curiously, despite the lucidity of the arbitration clause of the 2005 Lease Contract, the
petitioner, as well as the MeTC, RTC and the Court of Appeals, vouched for the
non-application of the same in the instant case. A plethora of arguments was hurled in favor
of bypassing arbitration. We now address them.
At different points in the proceedings of this case, the following arguments were offered
against the application of the arbitration clause of the 2005 Lease Contract:
1. The disagreement between the petitioner and respondent is non-arbitrable as it will
inevitably touch upon the issue of the validity of the 2005 Lease Contract.71 It was
submitted that one of the reasons offered by the petitioner in justifying its failure to pay
under the 2005 Lease Contract was the nullity of such contract for being contrary to law and
public policy.72 The Supreme Court, in Gonzales v. Climax Mining, Ltd.,73 held that " the
validity of contract cannot be subject of arbitration proceedings " as such questions are "
legal in nature and require the application and interpretation of laws and jurisprudence which
is necessarily a judicial function ." 74
2. The petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contract
while, at the same time, impugn such contracts validity.75
3. Even assuming that it can invoke the arbitration clause whilst denying the validity of the
2005 Lease Contract , petitioner still did not file a formal application before the MeTC so as
to render such arbitration clause operational.76 Section 24 of Republic Act No. 9285 requires
the party seeking arbitration to first file a " request " or an application therefor with the court
not later than the preliminary conference.77
4. Petitioner and respondent already underwent Judicial Dispute Resolution (JDR)
proceedings before the RTC.78 Hence, a further referral of the dispute to arbitration would
only be circuitous.79 Moreover, an ejectment case, in view of its summary nature, already
fulfills the prime purpose of arbitration, i.e. , to provide parties in conflict with an expedient
method for the resolution of their dispute.80 Arbitration then would no longer be necessary
in this case.81
None of the arguments have any merit.
First. As highlighted in the previous discussion, the disagreement between the petitioner and
respondent falls within the all-encompassing terms of the arbitration clause of the 2005
Lease Contract. While it may be conceded that in the arbitration of such disagreement, the
validity of the 2005 Lease Contract, or at least, of such contracts rental stipulations would
have to be determined, the same would not render such disagreement non-arbitrable. The
quotation from Gonzales that was used to justify the contrary position was taken out of
context. A rereading of Gonzales would fix its relevance to this case.
In Gonzales, a complaint for arbitration was filed before the Panel of Arbitrators of the
Mines and Geosciences Bureau (PA-MGB) seeking the nullification of a Financial Technical
Assistance Agreement and other mining related agreements entered into by private parties.82
Grounds invoked for the nullification of such agreements include fraud and
unconstitutionality.83 The pivotal issue that confronted the Court then was whether the
PA-MGB has jurisdiction over that particular arbitration complaint. Stated otherwise, the
question was whether the complaint for arbitration raises arbitrable issues that the PA-MGB
can take cognizance of.
Gonzales decided the issue in the negative. In holding that the PA-MGB was devoid of any
jurisdiction to take cognizance of the complaint for arbitration, this Court pointed out to the
provisions of R.A. No. 7942, or the Mining Act of 1995, which granted the PA-MGB with
exclusive original jurisdiction only over mining disputes, i.e., disputes involving " rights to
mining areas," "mineral agreements or permits," and " surface owners, occupants, claim
holders or concessionaires" requiring the technical knowledge and experience of mining
authorities in order to be resolved.84 Accordingly, since the complaint for arbitration in
Gonzales did not raise mining disputes as contemplated under R.A. No. 7942 but only issues
relating to the validity of certain mining related agreements, this Court held that such
complaint could not be arbitrated before the PA-MGB.85 It is in this context that we made
the pronouncement now in discussion:
Arbitration before the Panel of Arbitrators is proper only when there is a disagreement
between the parties as to some provisions of the contract between them, which needs the
interpretation and the application of that particular knowledge and expertise possessed by
members of that Panel. It is not proper when one of the parties repudiates the existence or
validity of such contract or agreement on the ground of fraud or oppression as in this case.
The validity of the contract cannot be subject of arbitration proceedings. Allegations of fraud
and duress in the execution of a contract are matters within the jurisdiction of the ordinary
courts of law. These questions are legal in nature and require the application and
interpretation of laws and jurisprudence which is necessarily a judicial function.86
(Emphasis supplied)
The Court in Gonzales did not simply base its rejection of the complaint for arbitration on
the ground that the issue raised therein, i.e. , the validity of contracts, is per se non-arbitrable.
The real consideration behind the ruling was the limitation that was placed by R.A. No. 7942
upon the jurisdiction of the PA-MGB as an arbitral body . Gonzales rejected the complaint
for arbitration because the issue raised therein is not a mining dispute per R.A. No. 7942 and
it is for this reason, and only for this reason, that such issue is rendered non-arbitrable before
the PA-MGB. As stated beforehand, R.A. No. 7942 clearly limited the jurisdiction of the
PA-MGB only to mining disputes.87
Much more instructive for our purposes, on the other hand, is the recent case of Cargill
Philippines, Inc. v. San Fernando Regal Trading, Inc.88 In Cargill , this Court answered the
question of whether issues involving the rescission of a contract are arbitrable. The
respondent in Cargill argued against arbitrability, also citing therein Gonzales . After
dissecting Gonzales , this Court ruled in favor of arbitrability.89 Thus, We held:
Respondent contends that assuming that the existence of the contract and the arbitration
clause is conceded, the CA's decision declining referral of the parties' dispute to arbitration is
still correct. It claims that its complaint in the RTC presents the issue of whether under the
facts alleged, it is entitled to rescind the contract with damages; and that issue constitutes a
judicial question or one that requires the exercise of judicial function and cannot be the
subject of an arbitration proceeding. Respondent cites our ruling in Gonzales, wherein we
held that a panel of arbitrator is bereft of jurisdiction over the complaint for declaration of
nullity/or termination of the subject contracts on the grounds of fraud and oppression
attendant to the execution of the addendum contract and the other contracts emanating from
it, and that the complaint should have been filed with the regular courts as it involved issues
which are judicial in nature.
Such argument is misplaced and respondent cannot rely on the Gonzales case to support its
argument.90 (Emphasis ours)
Second. Petitioner may still invoke the arbitration clause of the 2005 Lease Contract
notwithstanding the fact that it assails the validity of such contract. This is due to the doctrine
of separability.91
Under the doctrine of separability, an arbitration agreement is considered as independent of
the main contract.92 Being a separate contract in itself, the arbitration agreement may thus
be invoked regardless of the possible nullity or invalidity of the main contract.93
Once again instructive is Cargill, wherein this Court held that, as a further consequence of
the doctrine of separability, even the very party who repudiates the main contract may invoke
its arbitration clause.94
Third . The operation of the arbitration clause in this case is not at all defeated by the failure
of the petitioner to file a formal "request" or application therefor with the MeTC. We find
that the filing of a "request" pursuant to Section 24 of R.A. No. 9285 is not the sole means by
which an arbitration clause may be validly invoked in a pending suit.
Section 24 of R.A. No. 9285 reads:
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 that 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. [Emphasis ours; italics original]
The " request " referred to in the above provision is, in turn, implemented by Rules 4.1 to 4.3
of A.M. No. 07-11-08-SC or the Special Rules of Court on Alternative Dispute Resolution
(Special ADR Rules):
RULE 4: REFERRAL TO ADR
Rule 4.1. Who makes the request. - A party to a pending action filed in violation of the
arbitration agreement, whether contained in an arbitration clause or in a submission
agreement, may request the court to refer the parties to arbitration in accordance with such
agreement.
Rule 4.2. When to make request. - (A) Where the arbitration agreement exists before the
action is filed . - The request for referral shall be made not later than the pre-trial conference.
After the pre-trial conference, the court will only act upon the request for referral if it is made
with the agreement of all parties to the case.
(B) Submission agreement . - If there is no existing arbitration agreement at the time the case
is filed but the parties subsequently enter into an arbitration agreement, they may request the
court to refer their dispute to arbitration at any time during the proceedings.
Rule 4.3. Contents of request. - The request for referral shall be in the form of a motion,
which shall state that the dispute is covered by an arbitration agreement.
A part from other submissions, the movant shall attach to his motion an authentic copy of the
arbitration agreement.
The request shall contain a notice of hearing addressed to all parties specifying the date and
time when it would be heard. The party making the request shall serve it upon the respondent
to give him the opportunity to file a comment or opposition as provided in the immediately
succeeding Rule before the hearing. [Emphasis ours; italics original]
Attention must be paid, however, to the salient wordings of Rule 4.1.It reads: "a party to a
pending action filed in violation of the arbitration agreement x x x may request the court to
refer the parties to arbitration in accordance with such agreement."
In using the word " may " to qualify the act of filing a " request " under Section 24 of R.A.
No. 9285, the Special ADR Rules clearly did not intend to limit the invocation of an
arbitration agreement in a pending suit solely via such "request." After all, non-compliance
with an arbitration agreement is a valid defense to any offending suit and, as such, may even
be raised in an answer as provided in our ordinary rules of procedure.95
In this case, it is conceded that petitioner was not able to file a separate " request " of
arbitration before the MeTC. However, it is equally conceded that the petitioner, as early as
in its Answer with Counterclaim ,had already apprised the MeTC of the existence of the
arbitration clause in the 2005 Lease Contract96 and, more significantly, of its desire to have
the same enforced in this case.97 This act of petitioner is enough valid invocation of his right
to arbitrate. Fourth . The fact that the petitioner and respondent already under went through
JDR proceedings before the RTC, will not make the subsequent conduct of arbitration
between the parties unnecessary or circuitous. The JDR system is substantially different from
arbitration proceedings.
The JDR framework is based on the processes of mediation, conciliation or early neutral
evaluation which entails the submission of a dispute before a " JDR judge " who shall merely
" facilitate settlement " between the parties in conflict or make a " non-binding evaluation or
assessment of the chances of each partys case."98 Thus in JDR, the JDR judge lacks the
authority to render a resolution of the dispute that is binding upon the parties in conflict. In
arbitration, on the other hand, the dispute is submitted to an arbitrator/s a neutral third
person or a group of thereof who shall have the authority to render a resolution binding
upon the parties.99
Clearly, the mere submission of a dispute to JDR proceedings would not necessarily render
the subsequent conduct of arbitration a mere surplusage. The failure of the parties in conflict
to reach an amicable settlement before the JDR may, in fact, be supplemented by their resort
to arbitration where a binding resolution to the dispute could finally be achieved. This
situation precisely finds application to the case at bench.
Neither would the summary nature of ejectment cases be a valid reason to disregard the
enforcement of the arbitration clause of the 2005 Lease Contract . Notwithstanding the
summary nature of ejectment cases, arbitration still remains relevant as it aims not only to
afford the parties an expeditious method of resolving their dispute.
A pivotal feature of arbitration as an alternative mode of dispute resolution is that it is, first
and foremost, a product of party autonomy or the freedom of the parties to " make their own
arrangements to resolve their own disputes."100 Arbitration agreements manifest not only
the desire of the parties in conflict for an expeditious resolution of their dispute. They also
represent, if not more so, the parties mutual aspiration to achieve such resolution outside of
judicial auspices, in a more informal and less antagonistic environment under the terms of
their choosing. Needless to state, this critical feature can never be satisfied in an ejectment
case no matter how summary it may be.
Having hurdled all the challenges against the application of the arbitration clause of the 2005
Lease Agreement in this case, We shall now proceed with the discussion of its legal effects.
Legal Effect of the Application of the
Arbitration Clause
Since there really are no legal impediments to the application of the arbitration clause of the
2005 Contract of Lease in this case, We find that the instant unlawful detainer action was
instituted in violation of such clause. The Law, therefore, should have governed the fate of
the parties and this suit:
R.A. No. 876 Section 7. Stay of civil action. - If any suit or proceeding be brought upon an
issue arising out of an agreement providing for the arbitration thereof, the court in which
such suit or proceeding is pending, upon being satisfied that the issue involved in such suit or
proceeding is referable to arbitration, shall stay the action or proceeding until an arbitration
has been had in accordance with the terms of the agreement: Provided, That the applicant for
the stay is not in default in proceeding with such arbitration.[Emphasis supplied]
R.A. No. 9285
Section 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 that 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, in
operative or incapable of being performed. [Emphasis supplied]
It is clear that under the law, the instant unlawful detainer action should have been
stayed;101 the petitioner and the respondent should have been referred to arbitration
pursuant to the arbitration clause of the 2005 Lease Contract . The MeTC, however, did not
do so in violation of the lawwhich violation was, in turn, affirmed by the RTC and Court
of Appeals on appeal.
The violation by the MeTC of the clear directives under R.A. Nos.876 and 9285 renders
invalid all proceedings it undertook in the ejectment case after the filing by petitioner of its
Answer with Counterclaim the point when the petitioner and the respondent should have
been referred to arbitration. This case must, therefore, be remanded to the MeTC and be
suspended at said point. Inevitably, the decisions of the MeTC, RTC and the Court of
Appeals must all be vacated and set aside.
The petitioner and the respondent must then be referred to arbitration pursuant to the
arbitration clause of the 2005 Lease Contract.
This Court is not unaware of the apparent harshness of the Decision that it is about to make.
Nonetheless, this Court must make the same if only to stress the point that, in our jurisdiction,
bona fide arbitration agreements are recognized as valid;102 and that laws,103 rules and
regulations104 do exist protecting and ensuring their enforcement as a matter of state policy.
Gone should be the days when courts treat otherwise valid arbitration agreements with
disdain and hostility, if not outright " jealousy,"105 and then get away with it. Courts should
instead learn to treat alternative means of dispute resolution as effective partners in the
administration of justice and, in the case of arbitration agreements, to afford them judicial
restraint.106 Today, this Court only performs its part in upholding a once disregarded state
policy.
Civil Case No. CV 09-0346
This Court notes that, on 30 September 2009, petitioner filed with the RTC of Paraaque
City, a complaint107 for the rescission or cancellation of the Deed of Donation and
Amended Deed of Donation against the respondent. The case is currently pending before
Branch 257 of the RTC, docketed as Civil Case No. CV 09-0346.
This Court recognizes the great possibility that issues raised in Civil Case No. CV 09-0346
may involve matters that are rightfully arbitrable per the arbitration clause of the 2005 Lease
Contract. However, since the records of Civil Case No. CV 09-0346 are not before this Court,
We can never know with true certainty and only speculate. In this light, let a copy of this
Decision be also served to Branch 257of the RTC of Paraaque for its consideration and,
possible, application to Civil Case No. CV 09-0346.
c. Decision dated 27 April 2010 of the Metropolitan Trial Court, Branch 77, of Paraaque
City in Civil Case No. 2009-307; and
4. REFERRING the petitioner and the respondent to arbitration pursuant to the arbitration
clause of the 2005 Lease Contract, repeatedly included in the 2000 Lease Contract and in the
1976 Amended Deed of Donation.
Let a copy of this Decision be served to Branch 257 of the RTC of Paraaque for its
consideration and, possible, application to Civil Case No. CV 09-0346.
No costs.

WHEREFORE, premises considered, the petition is hereby GRANTED . Accordingly, We SO ORDERED.

hereby render a Decision:
JOSE PORTUGAL PEREZ
1. SETTING ASIDE all the proceedings undertaken by the Metropolitan Trial Court, Branch Associate Justice
77, of Paraaque City in relation to Civil Case No. 2009-307 after the filing by petitioner of
its Answer with Counterclaim ;

2. REMANDING the instant case to the MeTC, SUSPENDED at the point after the filing by
petitioner of its Answer with Counterclaim;

3. SETTING ASIDE the following:

a. Decision dated 19 August 2011 of the Court of Appeals in C.A.-G.R. SP No. 116865,

b. Decision dated 29 October 2010 of the Regional Trial Court, Branch 274, of Paraaque
City in Civil Case No. 10-0255,
G.R. No. 174938, October 01, 2014
GERARDO LANUZA, JR. AND ANTONIO O. OLBES, Petitioners, v. BF
CORPORATION, SHANGRI-LA PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B.
COLAYCO, MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS, Respondents.
DECISION
LEONEN, J.:
Corporate representatives may be compelled to submit to arbitration proceedings pursuant to
a contract entered into by the corporation they represent if there are allegations of bad faith
or malice in their acts representing the corporation.
This is a Rule 45 petition, assailing the Court of Appeals' May 11, 2006 decision and
October 5, 2006 resolution. The Court of Appeals affirmed the trial court's decision holding
that petitioners, as directors, should submit themselves as parties to the arbitration
proceedings between BF Corporation and Shangri-La Properties, Inc. (Shangri-La).
In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against
Shangri-La and the members of its board of directors: Alfredo C. Ramos, Rufo B. Colayco,
Antonio O. Olbes, Gerardo Lanuza, Jr., Maximo G. Licauco III, and Benjamin C.
Ramos.1cralawred
BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it
entered into agreements with Shangri-La wherein it undertook to construct for Shangri-La a
mall and a multilevel parking structure along EDSA.2cralawred
Shangri-La had been consistent in paying BF Corporation in accordance with its progress
billing statements.3 However, by October 1991, Shangri-La started defaulting in
payment.4cralawred
BF Corporation alleged that Shangri-La induced BF Corporation to continue with the
construction of the buildings using its own funds and credit despite Shangri-La's default.5
According to BF Corporation, Shangri-La misrepresented that it had funds to pay for its
obligations with BF Corporation, and the delay in payment was simply a matter of delayed
processing of BF Corporation's progress billing statements.6cralawred
BF Corporation eventually completed the construction of the buildings.7 Shangri-La
allegedly took possession of the buildings while still owing BF Corporation an outstanding
balance.8cralawred
BF Corporation alleged that despite repeated demands, Shangri-La refused to pay the balance
owed to it.9 It also alleged that the Shangri-La's directors were in bad faith in directing
Shangri-La's affairs. Therefore, they should be held jointly and severally liable with
Shangri-La for its obligations as well as for the damages that BF Corporation incurred as a
result of Shangri-La's default.10cralawred
On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco
III, and Benjamin C. Ramos filed a motion to suspend the proceedings in view of BF
Corporation's failure to submit its dispute to arbitration, in accordance with the arbitration
clause provided in its contract, quoted in the motion as follows:11cralawred
35. Arbitration
(1) Provided always that in case any dispute or difference shall arise between the Owner or
the Project Manager on his behalf and the Contractor, either during the progress or after the
completion or abandonment of the Works as to the construction of this Contract or as to any
matter or thing of whatsoever nature arising thereunder or in connection therewith (including
any matter or thing left by this Contract to the discretion of the Project Manager or the
withholding by the Project Manager of any certificate to which the Contractor may claim to
be entitled or the measurement and valuation mentioned in clause 30(5)(a) of these
Conditions or the rights and liabilities of the parties under clauses 25, 26, 32 or 33 of these
Conditions), the owner and the Contractor hereby agree to exert all efforts to settle their
differences or dispute amicably. Failing these efforts then such dispute or difference shall be
referred to arbitration in accordance with the rules and procedures of the Philippine
Arbitration Law.
xxx xxx xxx
(6) The award of such Arbitrators shall be final and binding on the parties. The decision of
the Arbitrators shall be a condition precedent to any right of legal action that either party
may have against the other. . . .12 (Underscoring in the original)
After the Regional Trial Court denied on February 11, 1994 the motion for reconsideration of
its November 18, 1993 order, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G.
Licauco III, and Benjamin Ramos filed a petition for certiorari with the Court of
Appeals.17cralawred
On April 28, 1995, the Court of Appeals granted the petition for certiorari and ordered the
submission of the dispute to arbitration.18cralawred
Aggrieved by the Court of Appeals' decision, BF Corporation filed a petition for review on
certiorari with this court.19 On March 27, 1998, this court affirmed the Court of Appeals'
decision, directing that the dispute be submitted for arbitration.20cralawred
Another issue arose after BF Corporation had initiated arbitration proceedings. BF
Corporation and Shangri-La failed to agree as to the law that should govern the arbitration
proceedings.21 On October 27, 1998, the trial court issued the order directing the parties to
conduct the proceedings in accordance with Republic Act No. 876.22cralawred

On August 19, 1993, BF Corporation opposed the motion to suspend Shangri-La filed an omnibus motion and BF Corporation an urgent motion for clarification,
proceedings.13cralawred both seeking to clarify the term, "parties," and whether Shangri-La's directors should be
included in the arbitration proceedings and served with separate demands for
In the November 18, 1993 order, the Regional Trial Court denied the motion to suspend arbitration.23cralawred
proceedings.14cralawred
Petitioners filed their comment on Shangri-La's and BF Corporation's motions, praying that
On December 8, 1993, petitioners filed an answer to BF Corporation's complaint, with they be excluded from the arbitration proceedings for being non-parties to Shangri-La's and
compulsory counterclaim against BF Corporation and cross-claim against Shangri-La.15 BF Corporation's agreement.24cralawred
They alleged that they had resigned as members of Shangri-La's board of directors as of July
15, 1991.16cralawred On July 28, 2003, the trial court issued the order directing service of demands for arbitration
upon all defendants in BF Corporation's complaint.25 According to the trial court,
Shangri-La's directors were interested parties who "must also be served with a demand for
arbitration to give them the opportunity to ventilate their side of the controversy, safeguard
their interest and fend off their respective positions."26 Petitioners' motion for WHEREFORE, the petition is DISMISSED. The assailed orders dated July 28, 2003 and
reconsideration of this order was denied by the trial court on January 19, 2005.27cralawred January 19, 2005 of public respondent RTC, Branch 157, Pasig City, in Civil Case No.
63400, are AFFIRMED.33
Petitioners filed a petition for certiorari with the Court of Appeals, alleging grave abuse of
discretion in the issuance of orders compelling them to submit to arbitration proceedings The Court of Appeals denied petitioners' motion for reconsideration in the October 5, 2006
despite being third parties to the contract between Shangri-La and BF resolution.34cralawred
Corporation.28cralawred
On November 24, 2006, petitioners filed a petition for review of the May 11, 2006 Court of
In its May 11, 2006 decision,29 the Court of Appeals dismissed petitioners' petition for Appeals decision and the October 5, 2006 Court of Appeals resolution.35cralawred
certiorari. The Court of Appeals ruled that Shangri-La's directors were necessary parties in
the arbitration proceedings.30 According to the Court of The issue in this case is whether petitioners should be made parties to the arbitration
Appeals:chanRoblesvirtualLawlibrary proceedings, pursuant to the arbitration clause provided in the contract between BF
Corporation and Shangri-La.
[They were] deemed not third-parties to the contract as they [were] sued for their acts in
representation of the party to the contract pursuant to Art. 31 of the Corporation Code, and Petitioners argue that they cannot be held personally liable for corporate acts or
that as directors of the defendant corporation, [they], in accordance with Art. 1217 of the obligations.36 The corporation is a separate being, and nothing justifies BF Corporation's
Civil Code, stand to be benefited or injured by the result of the arbitration proceedings, hence, allegation that they are solidarity liable with Shangri-La.37 Neither did they bind themselves
being necessary parties, they must be joined in order to have complete adjudication of the personally nor did they undertake to shoulder Shangri-La's obligations should it fail in its
controversy. Consequently, if [they were] excluded as parties in the arbitration proceedings obligations.38 BF Corporation also failed to establish fraud or bad faith on their
and an arbitral award is rendered, holding [Shangri-La] and its board of directors jointly and part.39cralawred
solidarity liable to private respondent BF Corporation, a problem will arise, i.e., whether
petitioners will be bound by such arbitral award, and this will prevent complete Petitioners also argue that they are third parties to the contract between BF Corporation and
determination of the issues and resolution of the controversy.31 Shangri-La.40 Provisions including arbitration stipulations should bind only the parties.41
Based on our arbitration laws, parties who are strangers to an agreement cannot be compelled
The Court of Appeals further ruled that "excluding petitioners in the arbitration to arbitrate.42cralawred
proceedings . . . would be contrary to the policy against multiplicity of suits."32cralawred

The dispositive portion of the Court of Appeals' decision reads:chanRoblesvirtualLawlibrary

Petitioners point out that our arbitration laws were enacted to promote the autonomy of
parties in resolving their disputes.43 Compelling them to submit to arbitration is against this
purpose and may be tantamount to stipulating for the parties.44cralawred
Separate comments on the petition were filed by BF Corporation, and Maximo G. Licauco
III, Alfredo C. Ramos and Benjamin C. Ramos.45cralawred
Maximo G. Licauco III Alfredo C. Ramos, and Benjamin C. Ramos agreed with petitioners
that Shangri-La's directors, being non-parties to the contract, should not be made personally
liable for Shangri-La's acts.46 Since the contract was executed only by BF Corporation and
Shangri-La, only they should be affected by the contract's stipulation.47 BF Corporation also
failed to specifically allege the unlawful acts of the directors that should make them
solidarity liable with Shangri-La for its obligations.48cralawred
Meanwhile, in its comment, BF Corporation argued that the courts' ruling that the parties
should undergo arbitration "clearly contemplated the inclusion of the directors of the
corporation[.]"49cralawred
BF Corporation also argued that while petitioners were not parties to the agreement, they
were still impleaded under Section 31 of the Corporation Code.50 Section 31 makes
directors solidarity liable for fraud, gross negligence, and bad faith.51 Petitioners are not
really third parties to the agreement because they are being sued as Shangri-La's
representatives, under Section 31 of the Corporation Code.52cralawred
BF Corporation further argued that because petitioners were impleaded for their solidary
liability, they are necessary parties to the arbitration proceedings.53 The full resolution of all
disputes in the arbitration proceedings should also be done in the interest of
justice.54cralawred
In the manifestation dated September 6, 2007, petitioners informed the court that the Arbitral
Tribunal had already promulgated its decision on July 31, 2007.55 The Arbitral Tribunal
denied BF Corporation's claims against them.56 Petitioners stated that "[they] were included
by the Arbitral Tribunal in the proceedings conducted . . . notwithstanding [their] continuing
objection thereto. . . ."57 They also stated that "[their] unwilling participation in the
arbitration case was done ex abundante ad cautela, as manifested therein on several
occasions."58 Petitioners informed the court that they already manifested with the trial court
that "any action taken on [the Arbitral Tribunal's decision] should be without prejudice to the
resolution of [this] case."59cralawred
Upon the court's order, petitioners and Shangri-La filed their respective memoranda.
Petitioners and Maximo G. Licauco III, Alfredo C. Ramos, and Benjamin C. Ramos
reiterated their arguments that they should not be held liable for Shangri-La's default and
made parties to the arbitration proceedings because only BF Corporation and Shangri-La
were parties to the contract.
In its memorandum, Shangri-La argued that petitioners were impleaded for their solidary
liability under Section 31 of the Corporation Code. Shangri-La added that their exclusion
from the arbitration proceedings will result in multiplicity of suits, which "is not favored in
this jurisdiction."60 It pointed out that the case had already been mooted by the termination
of the arbitration proceedings, which petitioners actively participated in.61 Moreover, BF
Corporation assailed only the correctness of the Arbitral Tribunal's award and not the part
absolving Shangri-La's directors from liability.62cralawred
BF Corporation filed a counter-manifestation with motion to dismiss63 in lieu of the required
memorandum.
In its counter-manifestation, BF Corporation pointed out that since "petitioners'
counterclaims were already dismissed with finality, and the claims against them were
likewise dismissed with finality, they no longer have any interest or personality in the
arbitration case. Thus, there is no longer any need to resolve the present Petition, which
mainly questions the inclusion of petitioners in the arbitration proceedings."64 The court's
decision in this case will no longer have any effect on the issue of petitioners' inclusion in the
arbitration proceedings.65cralawred
The petition must fail.
The Arbitral Tribunal's decision, absolving petitioners from liability, and its binding effect
on BF Corporation, have rendered this case moot and academic.
The mootness of the case, however, had not precluded us from resolving issues so that
principles may be established for the guidance of the bench, bar, and the public. In De la
Camara v. Hon. Enage,66 this court disregarded the fact that petitioner in that case already
escaped from prison and ruled on the issue of excessive bails:chanRoblesvirtualLawlibrary
While under the circumstances a ruling on the merits of the petition for certiorari is not
warranted, still, as set forth at the opening of this opinion, the fact that this case is moot and
academic should not preclude this Tribunal from setting forth in language clear and
unmistakable, the obligation of fidelity on the part of lower court judges to the unequivocal
command of the Constitution that excessive bail shall not be required.67
This principle was repeated in subsequent cases when this court deemed it proper to clarify
important matters for guidance.68cralawred
Thus, we rule that petitioners may be compelled to submit to the arbitration proceedings in
accordance with Shangri-La and BF Corporation's agreement, in order to determine if the
distinction between Shangri-La's personality and their personalities should be disregarded.
This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the parties to
avoid litigation and settle disputes amicably and more expeditiously by themselves and
through their choice of arbitrators.
The policy in favor of arbitration has been affirmed in our Civil Code,69 which was
approved as early as 1949. It was later institutionalized by the approval of Republic Act No.
876,70 which expressly authorized, made valid, enforceable, and irrevocable parties' decision
to submit their controversies, including incidental issues, to arbitration. This court
recognized this policy in Eastboard Navigation, Ltd. v. Ysmael and Company,
Inc.:71cralawred
As a corollary to the question regarding the existence of an arbitration agreement, defendant
raises the issue that, even if it be granted that it agreed to submit its dispute with plaintiff to
arbitration, said agreement is void and without effect for it amounts to removing said dispute
from the jurisdiction of the courts in which the parties are domiciled or where the dispute
occurred. It is true that there are authorities which hold that "a clause in a contract providing
that all matters in dispute between the parties shall be referred to arbitrators and to them
alone, is contrary to public policy and cannot oust the courts of jurisdiction" (Manila Electric
Co. vs. Pasay Transportation Co., 57 Phil., 600, 603), however, there are authorities which
favor "the more intelligent view that arbitration, as an inexpensive, speedy and amicable
method of settling disputes, and as a means of avoiding litigation, should receive every
encouragement from the courts which may be extended without contravening sound public
policy or settled law" (3 Am. Jur., p. 835). Congress has officially adopted the modern view
when it reproduced in the new Civil Code the provisions of the old Code on Arbitration.
And only recently it approved Republic Act No. 876 expressly authorizing arbitration
of future disputes.72 (Emphasis supplied)
In view of our policy to adopt arbitration as a manner of settling disputes, arbitration clauses
are liberally construed to favor arbitration. Thus, in LM Power Engineering Corporation v.
Capitol Industrial Construction Groups, Inc.,73 this court said:chanRoblesvirtualLawlibrary
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.74 (Emphasis supplied)
A more clear-cut statement of the state policy to encourage arbitration and to favor
interpretations that would render effective an arbitration clause was later expressed in
Republic Act No. 9285:75cralawred
SEC. 2. Declaration of Policy. - It is hereby declared the policy of the State to actively
promote party autonomy in the resolution of disputes, or the freedom of the party to make
their own arrangements to resolve their disputes. Towards this end, the State shall encourage
and actively promote the use of Alternative Dispute Resolution (ADR) as an important
means to achieve speedy and impartial justice and declog court dockets. As such, the State
shall provide means for the use of ADR as an efficient tool and an alternative procedure for
the resolution of appropriate cases. Likewise, the State shall enlist active private sector
participation in the settlement of disputes through ADR. This Act shall be without prejudice
to the adoption by the Supreme Court of any ADR system, such as mediation, conciliation,
arbitration, or any combination thereof as a means of achieving speedy and efficient means
of resolving cases pending before all courts in the Philippines which shall be governed by
such rules as the Supreme Court may approve from time to time.
....
SEC. 25. Interpretation of the Act. - In interpreting the Act, the court shall have due regard to
the policy of the law in favor of arbitration. Where action is commenced by or against
multiple parties, one or more of whom are parties who are bound by the arbitration
agreement although the civil action may continue as to those who are not bound by such
arbitration agreement. (Emphasis supplied)
Thus, if there is an interpretation that would render effective an arbitration clause for
purposes of avoiding litigation and expediting resolution of the dispute, that interpretation
shall be adopted.
Petitioners' main argument arises from the separate personality given to juridical persons
vis-a-vis their directors, officers, stockholders, and agents. Since they did not sign the
arbitration agreement in any capacity, they cannot be forced to submit to the jurisdiction of
the Arbitration Tribunal in accordance with the arbitration agreement. Moreover, they had
already resigned as directors of Shangri-La at the time of the alleged default.
Indeed, as petitioners point out, their personalities as directors of Shangri-La are separate and
distinct from Shangri-La.
A corporation is an artificial entity created by fiction of law.76 This means that while it is
not a person, naturally, the law gives it a distinct personality and treats it as such. A
corporation, in the legal sense, is an individual with a personality that is distinct and separate
from other persons including its stockholders, officers, directors, representatives,77 and other corporations, as the transaction of the lawful business of the corporation may reasonably
juridical entities. and necessarily require, subject to the limitations prescribed by law and the
Constitution;
The law vests in corporations rights, powers, and attributes as if they were natural persons
with physical existence and capabilities to act on their own.78 For instance, they have the 8. To enter into merger or consolidation with other corporations as provided in this Code;
power to sue and enter into transactions or contracts. Section 36 of the Corporation Code
enumerates some of a corporation's powers, thus:chanRoblesvirtualLawlibrary 9. To make reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes: Provided, That no
Section 36. Corporate powers and capacity. - Every corporation incorporated under this Code corporation, domestic or foreign, shall give donations in aid of any political party or
has the power and capacity:chanroblesvirtuallawlibrary candidate or for purposes of partisan political activity;

1. To sue and be sued in its corporate name; 10. To establish pension, retirement, and other plans for the benefit of its directors, trustees,
officers and employees; and
2. Of succession by its corporate name for the period of time stated in the articles of
incorporation and the certificate of incorporation; 11. To exercise such other powers as may be essential or necessary to carry out its purpose or
purposes as stated in its articles of incorporation. (13a)
3. To adopt and use a corporate seal;
Because a corporation's existence is only by fiction of law, it can only exercise its rights and
4. To amend its articles of incorporation in accordance with the provisions of this Code; powers through its directors, officers, or agents, who are all natural persons. A corporation
cannot sue or enter into contracts without them.
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the
same in accordance with this Code; A consequence of a corporation's separate personality is that consent by a corporation
through its representatives is not consent of the representative, personally. Its obligations,
6. In case of stock corporations, to issue or sell stocks to subscribers and to sell incurred through official acts of its representatives, are its own. A stockholder, director, or
treasury stocks in accordance with the provisions of this Code; and to admit members to the representative does not become a party to a contract just because a corporation executed a )C
corporation if it be a non-stock corporation; contract through that stockholder, director or representative.

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of other
Hence, a corporation's representatives are generally not bound by the terms of the contract
executed by the corporation. They are not personally liable for obligations and liabilities
incurred on or in behalf of the corporation.
Petitioners are also correct that arbitration promotes the parties' autonomy in resolving
their disputes. This court recognized in Heirs of Augusto Salas, Jr. v. Laperal Realty
Corporation79 that an arbitration clause shall not apply to persons who were neither parties
to the contract nor assignees of previous parties, thus:chanRoblesvirtualLawlibrary
A submission to arbitration is a contract. As such, the Agreement, containing the stipulation
on arbitration, binds the parties thereto, as well as their assigns and heirs. But only they.80
(Citations omitted)
Similarly, in Del Monte Corporation-USA v. Court of Appeals,81 this court
ruled:chanRoblesvirtualLawlibrary
The provision to submit to arbitration any dispute arising therefrom and the relationship of
the parties is part of that contract and is itself a contract. As a rule, contracts are respected as
the law between the contracting parties and produce effect as between them, their assigns and
heirs. Clearly, only parties to the Agreement . . . are bound by the Agreement and its
arbitration clause as they are the only signatories thereto.82 (Citation omitted)
This court incorporated these rulings in Agan, Jr. v. Philippine International Air Terminals
Co., Inc.83 and Stanfilco Employees v. DOLE Philippines, Inc., et al.84cralawred
As a general rule, therefore, a corporation's representative who did not personally bind
himself or herself to an arbitration agreement cannot be forced to participate in arbitration
proceedings made pursuant to an agreement entered into by the corporation. He or she is
generally not considered a party to that agreement.
However, there are instances when the distinction between personalities of directors, officers,
and representatives, and of the corporation, are disregarded. We call this piercing the veil of
corporate fiction.
Piercing the corporate veil is warranted when "[the separate personality of a corporation] is
used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, or to confuse legitimate issues."85 It is
also warranted in alter ego cases "where a corporation is merely a farce since it is a mere
alter ego or business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation."86cralawred
When corporate veil is pierced, the corporation and persons who are normally treated as
distinct from the corporation are treated as one person, such that when the corporation is
adjudged liable, these persons, too, become liable as if they were the corporation.
Among the persons who may be treated as the corporation itself under certain circumstances
are its directors and officers. Section 31 of the Corporation Code provides the instances when
directors, trustees, or officers may become liable for corporate
acts:chanRoblesvirtualLawlibrary
Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as such directors or trustees shall be
liable jointly and severally for all damages resulting therefrom suffered by the corporation,
its stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty,
any interest adverse to the corporation in respect of any matter which has been reposed in
him in confidence, as to which equity imposes a disability upon him to deal in his own behalf,
he shall be liable as a trustee for the corporation and must account for the profits which
otherwise would have accrued to the corporation, (n)
"When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarity liable with the corporation";88 and
c)
"When a director, trustee or officer is made, by specific provision of law, personally liable
for his corporate action."89

Based on the above provision, a director, trustee, or officer of a corporation may be made
solidarily liable with it for all damages suffered by the corporation, its stockholders or When there are allegations of bad faith or malice against corporate directors or
members, and other persons in any of the following cases:chanroblesvirtuallawlibrary representatives, it becomes the duty of courts or tribunals to determine if these persons and
the corporation should be treated as one. Without a trial, courts and tribunals have no basis
a) for determining whether the veil of corporate fiction should be pierced. Courts or tribunals
The director or trustee willfully and knowingly voted for or assented to a patently unlawful do not have such prior knowledge. Thus, the courts or tribunals must first determine whether
corporate act; circumstances exist to warrant the courts or tribunals to disregard the distinction between the
b) corporation and the persons representing it. The determination of these circumstances must
The director or trustee was guilty of gross negligence or bad faith in directing corporate be made by one tribunal or court in a proceeding participated in by all parties involved,
affairs; and including current representatives of the corporation, and those persons whose personalities
c) are impliedly the same as the corporation. This is because when the court or tribunal finds
The director or trustee acquired personal or pecuniary interest in conflict with his or her that circumstances exist warranting the piercing of the corporate veil, the corporate
duties as director or trustee. representatives are treated as the corporation itself and should be held liable for corporate
acts. The corporation's distinct personality is disregarded, and the corporation is seen as a
mere aggregation of persons undertaking a business under the collective name of the
Solidary liability with the corporation will also attach in the following corporation.
instances:chanroblesvirtuallawlibrary
Hence, when the directors, as in this case, are impleaded in a case against a corporation,
a) alleging malice or bad faith on their part in directing the affairs of the corporation,
"When a director or officer has consented to the issuance of watered stocks or who, having complainants are effectively alleging that the directors and the corporation are not acting as
knowledge thereof, did not forthwith file with the corporate secretary his written objection separate entities. They are alleging that the acts or omissions by the corporation that violated
thereto";87 their rights are also the directors' acts or omissions.90 They are alleging that contracts
b) executed by the corporation are contracts executed by the directors. Complainants effectively
pray that the corporate veil be pierced because the cause of action between the corporation
and the directors is the same.
In that case, complainants have no choice but to institute only one proceeding against the
parties. Under the Rules of Court, filing of multiple suits for a single cause of action is
prohibited. Institution of more than one suit for the same cause of action constitutes splitting
the cause of action, which is a ground for the dismissal of the others. Thus, in Rule
2:chanRoblesvirtualLawlibrary
Section 3. One suit for a single cause of action. A party may not institute more than one
suit for a single cause of action. (3a)
Section 4. Splitting a single cause of action; effect of. If two or more suits are instituted
on the basis of the same cause of action, the filing of one or a judgment upon the merits in
any one is available as a ground for the dismissal of the others. (4a)
It is because the personalities of petitioners and the corporation may later be found to be
indistinct that we rule that petitioners may be compelled to submit to arbitration.
However, in ruling that petitioners may be compelled to submit to the arbitration proceedings,
we are not overturning Heirs of Angus to Salas wherein this court affirmed the basic
arbitration principle that only parties to an arbitration agreement may be compelled to submit
to arbitration.
In that case, this court recognized that persons other than the main party may be compelled to
submit to arbitration, e.g., assignees and heirs. Assignees and heirs may be considered parties
to an arbitration agreement entered into by their assignor because the assignor's rights and
obligations are transferred to them upon assignment. In other words, the assignor's rights and
obligations become their own rights and obligations. In the same way, the corporation's
obligations are treated as the representative's obligations when the corporate veil is pierced.
Moreover, in Heirs of Angus to Salas, this court affirmed its policy against multiplicity of
suits and unnecessary delay. This court said that "to split the proceeding into arbitration for
some parties and trial for other parties would "result in multiplicity of suits, duplicitous
procedure and unnecessary delay."91 This court also intimated that the interest of justice
would be best observed if it adjudicated rights in a single proceeding.92 While the facts of
that case prompted this court to direct the trial court to proceed to determine the issues of that
case, it did not prohibit' courts from allowing the case to proceed to arbitration, when
circumstances warrant.
Hence, the issue of whether the corporation's acts in violation of complainant's rights, and the
incidental issue of whether piercing of the corporate veil is warranted, should be determined
in a single proceeding. Such finding would determine if the corporation is merely an
aggregation of persons whose liabilities must be treated as one with the corporation.
However, when the courts disregard the corporation's distinct and separate personality from
its directors or officers, the courts do not say that the corporation, in all instances and for all
purposes, is the same as its directors, stockholders, officers, and agents. It does not result in
an absolute confusion of personalities of the corporation and the persons composing or
representing it. Courts merely discount the distinction and treat them as one, in relation to a
specific act, in order to extend the terms of the contract and the liabilities for all damages to
erring corporate officials who participated in the corporation's illegal acts. This is done so
that the legal fiction cannot be used to perpetrate illegalities and injustices.
Thus, in cases alleging solidary liability with the corporation or praying for the piercing of
the corporate veil, parties who are normally treated as distinct individuals should be made to
participate in the arbitration proceedings in order to determine if such distinction should G.R. No. 196171 December 10, 2012
indeed be disregarded and, if so, to determine the extent of their liabilities.
RCBC CAPITAL CORPORATION, Petitioners,
In this case, the Arbitral Tribunal rendered a decision, finding that BF Corporation failed to vs.
prove the existence of circumstances that render petitioners and the other directors solidarity BANCO DE ORO UNIBANK, INC., Respondent.
liable. It ruled that petitioners and Shangri-La's other directors were not liable for the
contractual obligations of Shangri-La to BF Corporation. The Arbitral Tribunal's decision X- - - - - - - - - - - - - - - - - - - - - - - - - -X
was made with the participation of petitioners, albeit with their continuing objection. In view
of our discussion above, we rule that petitioners are bound by such decision. G.R. No. 199238

WHEREFORE, the petition is DENIED. The Court of Appeals' decision of May 11, 2006 BANCO DE ORO UNIBANK, INC., Petitioner,
and resolution of October 5, 2006 are AFFIRMED. vs.
COURT OF APPEALS and RCBC CAPITAL CORPORATION, Respondents.
SO ORDERED.cralawlawlibrary
DECISION
Velasco, Jr.,* Brion, Chairperson, Peralta,** and Mendoza, JJ., concur.
VILLARAMA, JR., J.:

Before the Court are two consolidated petitions separately filed by the parties in an
arbitration case administered by the International Chamber of Commerce-International Court
of Arbitration (ICC-ICA) pursuant to the arbitration clause in their contract.

The Case

In G.R. No. 196171, a petition for review under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, RCBC Capital Corporation (RCBC) seeks to reverse the Court of
Appeals (CA) Decision1 dated December 23, 2010 in CA-G.R. SP No. 113525 which
reversed and set aside the June 24, 2009 Order2 of the Regional Trial Court (RTC) of Makati
City, Branch 148 in SP Proc. Case No. M-6046.

In G.R. No. 199238,a petition for certiorari under Rule 65, Banco De Oro Unibank, Inc.
(BDO)assails the Resolution3 dated September 13, 2011 in CA-G.R. SP No. 120888 which
denied BDOs application for the issuance of a stay order and/or temporary restraining order
(TRO)/preliminary injunction against the implementation of the Writ of Execution4 dated
August 22, 2011 issued by the Makati City RTC, Branch 148 in SP Proc. Case No. M-6046.
Factual Antecedents
On May 24, 2000, RCBC entered into a Share Purchase Agreement5 (SPA) with
Equitable-PCI Bank, Inc. (EPCIB), George L. Go and the individual shareholders6 of
Bankard, Inc. (Bankard) for the sale to RCBC of 226,460,000 shares (Subject Shares) of
Bankard, constituting 67% of the latters capital stock. After completing payment of the
contract price (P1,786,769,400), the corresponding deeds of sale over the subject shares were
executed in January 2001.
The dispute between the parties arose sometime in May 2003 when RCBC informed EPCIB
and the other selling shareholdersof an overpayment of the subject shares, claiming there was
an overstatement of valuation of accounts amounting to P478 million and that the sellers
violated their warrantyunder Section 5(g)of the SPA.7
As no settlement was reached, RCBC commenced arbitration proceedings with the ICC-ICA
in accordance with Section 10 of the SPA which states:
Section 10.Arbitration
Should there be any dispute arising between the parties relating to this Agreement including
the interpretation or performance hereof which cannot be resolved by agreement of the
parties within fifteen (15) days after written notice by a party to another, such matter shall
then be finally settled by arbitration under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce in force as of the time of arbitration, by three arbitrators
appointed in accordance with such rules. The venue of arbitration shall be in Makati City,
Philippines and the arbitration proceedings shall be conducted in the English language.
Substantive aspects of the dispute shall be settled by applying the laws of the Philippines.
The decision of the arbitrators shall be final and binding upon the parties hereto and the
expenses of arbitration (including without limitation the award of attorneys fees to the
prevailing party) shall be paid as the arbitrators shall determine.8
In its Request for Arbitration9 dated May 12, 2004, Claimant RCBC charged Bankard with
deviating from and contravening generally accepted accounting principles and practices, due
to which the financial statements of Bankard prior to the stock purchase were far from fair
and accurate, and resulted in the overpayment of P556 million. For this violation of
sellersrepresentations and warranties under the SPA, RCBC sought its rescission, as well as
payment of actual damages in the amount of P573,132,110, legal interest on the purchase
price until actual restitution, moral damages and litigation and attorneys fees, with
alternative prayer for award of damages in the amount of at least P809,796,082 plus legal
interest.
In their Answer,10 EPCIB, Go and the other selling individual shareholders (Respondents)
denied RCBCs allegations contending that RCBCs claim is one for overpayment or price
reduction under Section 5(h) of the SPA which is already time-barred, the remedy of
rescission is unavailable, and even assuming that rescission is permitted by the SPA, RCBC
failed to file its claim within a reasonable time. They further asserted that RCBC is not
entitled to its alternative prayer for damages, being guilty of laches and failing to set out the
details of the breach as required under Section 7 of the SPA. A counterclaim for litigation
expenses and costs of arbitration in the amount of US$300,000, as well as moral and
exemplary damages, was likewise raised by the Respondents.
RCBC submitted a Reply11 to the aforesaid Answer.
Subsequently, the Arbitration Tribunal was constituted. Mr. Neil Kaplan was nominated by
RCBC; Justice Santiago M. Kapunan (a retired Member of this Court) was nominated by the
Respondents; and Sir Ian Barker was appointed by the ICC-ICA as Chairman.
On August 13, 2004, the ICC-ICA informed the parties that they are required to pay
US$350,000 as advance on costs pursuant to Article 30 (3) of the ICC Rules of Arbitration
(ICC Rules). RCBC paid its share of US$107,000, the balance remaining after deducting
payments of US$2,500 and US$65,000 it made earlier. Respondents share of the advance on
costs was thus fixed at US$175,000.
Respondents filed an Application for Separate Advances on Costs12 dated September 17,
2004 under Article 30(2) of the ICC Rules, praying that the ICC fix separate advances on the
cost of the parties respective claims and counterclaims, instead of directing them to share
equally on the advance cost of Claimants (RCBC) claim. Respondents deemed this advance
cost allocation to be proper, pointing out that the total amount of RCBCs claim is
substantially higher more than 40 times the total amount of their counterclaims, and that it
would be unfair to require them to share in the costs of arbitrating what is essentially a price
issue that is now time-barred under the SPA.
On September 20, 2004, the ICC-ICA informed Respondents that their application for
separate advances on costs was premature pending the execution of the Terms of Reference
(TOR).13 The TOR was settled by the parties and signed by the Chairman and Members of
the Arbitral Tribunal by October 11, 2004. On December 3, 2004,14 the ICC-ICA denied the
application for separate advances on costs and invited anew the Respondents to pay its share
in the advance on costs. However, despite reminders from the ICC-ICA, Respondents
refused to pay their share in the advance cost fixed by the ICC-ICA. On December 16, 2004,
the ICC-ICA informed the parties that if Respondents still failed to pay its share in the
advance cost, it would apply Article 30(4) of the ICC Rules and request the Arbitration
Tribunal to suspend its work and set a new time limit, and if such requested deposit remains
unpaid at the expiry thereof, the counterclaims would be considered withdrawn.15
In a fax-letter dated January 4, 2005, the ICC-ICA invited RCBC to pay the said amount in
substitution of Respondents.It also granted an extension until January 17, 2005 within which
to pay the balance of the advance cost (US$175,000). RCBC replied that it was not willing to
shoulder the share of Respondents in the advance on costs but nevertheless requested for a
clarification as to the effect of such refusal to substitute for Respondentsshare.16
On March 10, 2005, the ICC-ICA instructed the Arbitration Tribunal to suspend its work and
granted the parties a final time-limit of 15 days to pay the balance of the advanceon costs,
failing which the claims shall be considered withdrawn, without prejudice to their
reintroduction at a later date in another proceeding. The parties were advised that if any of
them objects to the measure, it should make a request in writing within such period.17 For
the same reason of non-receipt of the balance of the advance cost, the ICC-ICA issued
Procedural Order No. 3 for the adjournment of the substantive hearings and granting the
Respondents a two-month extension within which to submit their brief of evidence and
witnesses.
RCBC objected to the cancellation of hearings, pointing out that Respondents have been
given ample time and opportunity to submit their brief of evidence and prepare for the
hearings and that their request for postponement serves no other purpose but to delay the
proceedings. It alleged that Respondents unjustified refusal to pay their share in the advance
on costs warrants a ruling that they have lost standing to participate in the proceedings. It
thus prayed that Respondents be declared as in default, the substantive hearings be conducted
as originally scheduled, and RCBC be allowed to submit rebuttal evidence and additional
witness statements.18
On December 15, 2005, the ICC-ICA notified the parties of its decision to increase the
advances on costs from US$350,000 to US$450,000 subject to later readjustments, and again
invited the Respondents to pay the US$100,000 increment within 30 days from notice.
Respondents, however, refused to pay the increment, insisting that RCBC should bear the
cost of prosecuting its own claim and that compelling the Respondents to fund such
prosecution is inequitable. Respondents reiterated that it was willing to pay the advance on
costs for their counterclaim.19
On December 27, 2005, the ICC-ICA advised that it was not possible to fix separate
advances on costs as explained in its December 3, 2004 letter, and again invited Respondents
to pay their share in the advance on costs. Respondents response contained in the letter
dated January 6, 2006 was still the same: it was willing to pay only the separate advance on
costs of their counterclaim.20 In view of Respondents continuing refusal to pay its equal
share in the advance on costs and increment, RCBC wrote the ICC-ICA stating that the latter
should compel the Respondents to pay as otherwise RCBC will be prejudiced and the
inaction of the ICC-ICA and the Arbitration Tribunal will detract from the effectiveness of
arbitration as a means of settling disputes. In accordance with Article 30(4) of the ICC Rules,
RCBC reiterated its request to declare the Respondents as in default without any personality
to participate in the proceedings not only with respect to their counterclaims but also to the
claim of RCBC.21
Chairman Ian Barker, in a letter dated January 25, 2006, stated in part:
xxxx
2. The Tribunal has no power under the ICC Rules to order the Respondents to pay the
advance on costs sought by the ICC or to give the Claimant any relief against the
Respondents refusal to pay. The ICC Rules differ from, for example, the Rules of the LCIA
(Article 24.3) which enables a party paying the share of costs which the other party has
refused to pay, to recover "that amount as a debt immediately due from the defaulting party."
3. The only sanction under the ICC Rules is contained within Article 30 (4). Where a request
for an advance on costs has not been complied with, after consultation with the Tribunal, the
Secretary-General may direct the Tribunal to suspend its work. After expiry of a time limit,
all claims and counterclaims are then considered as withdrawn. This provision cannot assist a
Claimant who is anxious to litigate its claim. Such a Claimant has to pay the sums requested
(including the Respondents share) if it wishes the arbitration to proceed.
4. It may be possible for a Claimant in the course of the arbitral hearing (or whenever costs
are being considered by the Tribunal) to make submissions based on the failure of the
Respondents to pay their share of the costs advance.What relief, if any, would have to be
then determined by the Tribunal after having heard submissions from the Respondents.
5. I should be pleased if the Claimant will advise the Tribunal of its intention in relation to
the costs advance. If the costs are not paid, the arbitration cannot proceed.22 (Italics in the
original; emphasis supplied)
RCBC paid the additional US$100,000 under the second assessment to avert suspension of
the Arbitration Tribunals proceedings.
Upon the commencement of the hearings, the Arbitration Tribunal decided that hearings will
be initially confined to issues of liability (liability phase) while the substantial issues will be
heard on a later date (quantum phase).
Meanwhile, EPCIBs corporate name was officially changed to Banco De Oro
(BDO)-EPCIB after its merger with BDO was duly approved by the Securities and Exchange
Commission. As such, BDO assumed all the obligations and liabilities of EPCIB under the
SPA.
On September 27, 2007, the Arbitration Tribunal rendered a Partial Award23 (First Partial
Award) in ICC-ICA Case No. 13290/MS/JB/JEM,as follows:
15 AWARD AND DIRECTIONS
15.1 The Tribunal makes the following declarations by way of Partial Award:
(a) The Claimants claim is not time-barred under the provisions of this SPA.
(b) The Claimant is not estopped by its conduct or the equitable doctrine of laches from
pursuing its claim.
(c) As detailed in the Partial Award, the Claimant has established the following breaches by
the Respondents of clause 5(g) of the SPA:
i) the assets, revenue and net worth of Bankard were overstated by reason of its policy on
and recognition of Late Payment Fees;
ii) reported receivables were higher than their realisable values by reason of the bucketing
method, thus overstating Bankards assets; and
iii) the relevant Bankard statements were inadequate and misleading in that their disclosures
caused readers to be misinformed about Bankards accounting policies on revenue and
receivables.
(d) Subject to proof of loss the Claimant is entitled to damages for the foregoing breaches.
(e) The Claimant is not entitled to rescission of the SPA.
(f) All other issues, including any issue relating to costs, will be dealt with in a further or
final award.
15.2 A further Procedural Order will be necessary subsequent to the delivery of this Partial
Award to deal with the determination of quantum and in particular, whether there should be
an Expert appointed by the Tribunal under Article 20(4) of the ICC Rules to assist the
Tribunal in this regard.
15.3 This Award is delivered by a majority of the Tribunal (Sir Ian Barker and Mr. Kaplan).
Justice Kapunan is unable to agree with the majoritys conclusion on the claim of estoppel
brought by the Respondents.24 (Emphasis supplied)
On October 26, 2007, RCBC filed with the Makati City RTC, Branch 148 (SP Proc. Case No.
M-6046)amotion to confirm the First Partial Award, while Respondents filed a motion to
vacate the same.
ICC-ICA by letter25 dated October 12, 2007 increased the advance on costs from
US$450,000 to US$580,000. Under this third assessment, RCBC paid US$130,000 as its
share on the increment. Respondents declined to pay its adjudged total share of US$290,000
on account of its filing in the RTC of a motion to vacate the First Partial Award.26 The
ICC-ICA then invited RCBC to substitute for Respondents in paying the balance of
US$130,000 by December 21, 2007.27 RCBC complied with the request, making its total
payments in the amount of US$580,000.28
While RCBC paid Respondents share in the increment (US$130,000), it reiterated its plea
that Respondents be declared as in default and the counterclaimsdeemed as withdrawn.29

Chairman Barkers letter dated December 18, 2007 states in part:
xxxx
8. Contrary to the Complainants view, the Tribunal has no jurisdiction to declare that the
Respondents have no right to participate in the proceedings concerning the claim. Article
30(4) of the ICC Rules applies only to any counterclaim of the Respondents.
9. The Tribunal interprets the Claimants latest letter as an application by the Claimant to the
Tribunal for the issue of a partial award against the Respondents in respect of their failure to
pay their share of the ICCs requests for advance on costs.
10. I should be grateful if the Claimant would confirm that this is the situation. If so, the
Claimant should propose a timetable for which written submissions should be made by both
parties. This is an application which can be considered by the Tribunal on written
submissions.30 (Emphasis supplied)
RCBC, in a letter dated December 26, 2007, confirmed the Arbitration Tribunals
interpretation that it was applying for a partial award against Respondents failure to pay
their share in the advance on costs.31
Meanwhile, on January 8, 2008, the Makati City RTC, Branch 148 issued an order in SP
Proc. Case No. M-6046 confirming the First Partial Award and denying Respondents
separate motions to vacate and to suspend and inhibit Barker and Kaplan. Respondents
motion for reconsideration was likewise denied. Respondents directly filed with this Court a
petition for review on certiorari under Rule 45, docketed as G.R. No. 182248 and entitled
Equitable PCI Banking Corporation v. RCBC Capital Corporation.32 In our Decision dated
December 18, 2008, we denied the petition and affirmed the RTCs ruling confirming the
First Partial Award.
On January 18, 2008, the Arbitration Tribunal set a timetable for the filing of submission by
the parties on whether it should issue a Second Partial Award in respect of the Respondents
refusal to pay an advance on costs to the ICC-ICA.
In compliance, RCBC filed on February 7, 2008an Application for Reimbursement of
Advance on Costs Paid, praying for the issuance of a partial award directing the Respondents
to reimburse its payment in the amount of US$290,000 representing Respondents share in
the Advance on Costs and to consider Respondents counterclaim for actual damages in the
amount of US$300,000, and moral and exemplary damages as withdrawn for their failure to
pay their equal share in the advance on costs. RCBC invoked the plain terms of Article 30 (2)
and (3) to stress the liability of Respondents to share equally in paying the advance on costs
where the Arbitration Tribunal has fixed the same.33
Respondents, on the other hand, filed their Opposition34 to the said application alleging that
the Arbitration Tribunal has lost its objectivity in an unnecessary litigation over the payment
of Respondents share in the advance costs. They pointed out that RCBCs letter merely
asked that Respondents be declared as in default for their failure to pay advance costs but the
Arbitration Tribunal, while denying the request offered an alternative to RCBC: a Partial
Award for Respondents share in the advance costs even if it was clear from the language of
RCBCs December 11, 2007 letter that it had no intention of litigating for the advance costs.
Chairman Barker, after ruling earlier that it cannot grant RCBCs request to declare the
Respondents as having no right to participate in the proceedings concerning the claim,
interpreted RCBCs letter as an application for the Arbitration Tribunal to issue a partial
award in respect of such refusal of Respondents to pay their share in the advance on costs,
and subsequently directed the parties to make submissions on the matter.Aside from
violating their right to due process and to be heard by an impartial tribunal, Respondents also
argued that in issuing the award for advance cost, the ArbitrationTribunal decided an issue
beyond the terms of the TOR.
Respondents also emphasized that the parties agreed on a two-part arbitration: the first part
of the Tribunals proceedings would determine Respondents liability, if any, for alleged
violation of Section 5(g) and (h) of the SPA; and the second part of the proceedings would
determine the amounts owed by one party to another as a consequence of a finding of
liability or lack thereof. An award for "reimbursement of advances for costs" clearly falls
outside the scope of either proceedings. Neither can the Tribunal justify such proceedings
under Article 23 of the ICC Rules (Conservatory and Interim Measures) because that
provision does not contemplate an award for the reimbursement of advance on costs in
arbitration cases. Respondents further asserted that since the advances on costs have been
paid by the Claimant (RCBC), the main claim and counterclaim may both be heard by the
Arbitration Tribunal.
In his letter dated March 13, 2008, Chairman Barker advised the parties, as follows:
1. The Tribunal acknowledges the Respondents response to the Claimants application for a
Partial Award, based on the Respondents failure to pay their share of the costs, as requested
by the ICC.
2. The Tribunal notes that neither party has referred to an article by Mat[t]hew Secomb on
this very subject which appears in the ICC Bulletin Vol. 14 No.1 (Spring 2003). To assist
both sides and to ensure that the Tribunal does not consider material on which the parties
have not been given an opportunity to address, I attach a copy of this article, which also
contains reference to other scholarly works on the subject.
3. The Tribunal will give each party seven days within which to submit further written
comments as a consequence of being alerted to the above authorities.35(Additional emphasis
supplied)
The parties complied by submitting their respective comments.
RCBC refuted Respondents allegation of partiality on the part of Chairman Barker and
reiterated the prayer in its application for reimbursement of advance on costs paid to the
ICC-ICA. RCBC contended that based on Mr. Secombs article, whether the "contractual" or
"provisional measures" approach is applied, the Arbitration Tribunal is vested with
jurisdiction and authority to render an award with respect to said reimbursement of advance
cost paid by the non-defaulting party.36
Respondents, on the other hand, maintained that RCBCs application for reimbursement of
advance cost has no basis under the ICC Rules. They contended that no manifest injustice
can be inferred from an act of a party paying for the share of the defaulting party as this
scenario is allowed by the ICC Rules. Neither can a partial award for advance cost be
justified under the "contractual approach" since the matter of costs for arbitration is between
the ICC and the parties, not the Arbitration Tribunal and the parties. An arbitration tribunal
can issue decisions on costs only for those costs not fixed by the ICC.37
Respondents reiterated their position that Article 30(3) envisions a situation whereby a party
would refuse to pay its share on the advance on costs and provides a remedy therefor the
other party "shall be free to pay the whole of the advance on costs." Such partys
reimbursement for payments of the defaulting partys share depends on the final arbitral
award where the party liable for costs would be determined. This is the only remedy
provided by the ICC Rules.38
On May 28, 2008, the Arbitration Tribunal rendered the Second Partial Award,39 as follows:

7 AWARD
7.1 Having read and considered the submissions of both parties, the Tribunal AWARDS,
DECLARES AND ORDERS as follows:
(a) The Respondents are forthwith to pay to the Claimant the sum of US$290,000.
(b) The Respondents counterclaim is to be considered as withdrawn.
(c) All other questions, including interest and costs, will be dealt with in a subsequent
award.40
The above partial award was received by RCBC and Respondents on June 12, 2008.
On July 11, 2008, EPCIB filed a Motion to Vacate Second Partial Award41 in the Makati
City RTC, Branch 148 (SP Proc. Case No. M-6046). On July 10, 2008, RCBC filed in the
same court a Motion to Confirm Second Partial Award.42
EPCIB raised the following grounds for vacating the Second Partial Award: (a) the award is
void ab initio having been rendered by the arbitrators who exceeded their power or acted
without it; and (b) the award was procured by undue means or issued with evident partiality
or attended by misbehavior on the part of the Tribunal which resulted in a material prejudice
to the rights of the Respondents. EPCIB argued that there is no express agreement either in
the SPA or the ICC Rules for such right of reimbursement. There is likewise no implied
agreement because from the ICC Rules, the only inference is that the parties agreed to await
the dispositions on costs liability in the Final Award, not before.
On the ruling of the Arbitration Tribunal that Respondents application for costs are not
counterclaims, EPCIB asserted that this is contrary to Philippine law as it is basic in our
jurisdiction that counterclaims for litigation expenses, moral and exemplary damages are
proper counterclaims, which rule should be recognized in view of Section 10 of the SPA
which provides that "substantive aspects of the dispute shall be settled by applying the laws
of the Philippines." Finally, EPCIB takes issue with Chairman Barkers interpretation of
RCBCs December 11, 2007 letter as an application for a partial award for reimbursement of
the substituted payments. Such conduct of Chairman Barker is prejudicial and proves his
evident partiality in favor of RCBC.
RCBC filed its Opposition,43 asserting that the Arbitration Tribunal had jurisdiction to
consider Respondents counterclaim as withdrawn, the same having been abandoned by not
presenting any computation or substantiation by evidence, their only computation relates
only to attorneys fees which are simply cost of litigation properly brought at the conclusion
of the arbitration. It also pointed out that the Arbitration Tribunal was empowered by the
parties arbitral clause to determine the manner of payment of expenses of arbitration, and
that the Second Partial Award was based on authorities and treatiseson the mandatory and
contractual nature of the obligation to pay advances on costs.
In its Reply,44 EPCIB contended that RCBC had the option to agree to its proposal for
separate advances on costs but decided against it; RCBCs act of paying the balance of the
advance cost in substitution of EPCIB was for the purpose of having EPCIB defaulted and
the latters counterclaim withdrawn. Having agreed to finance the arbitration until its
completion, RCBC is not entitled to immediate reimbursement of the amount it paid in
substitution of EPCIB under an interim award, as its right to a partial or total reimbursement
will have to be determined under the final award. EPCIB asserted that the matter of
reimbursement of advance cost paid cannot be said to have properly arisen during arbitration.
EPCIB reiterated that Chairman Barkers interpretation of RCBCs December 11, 2007 letter
as an application for interim award for reimbursement is tantamount to a promise that the
award will be issued in due course.
After a further exchange of pleadings, and other motions seeking relief from the court in
connection with the arbitration proceedings (quantum phase), the Makati City RTC, Branch
148 issued the Order45 dated June 24, 2009 confirming the Second Partial Award and
denying EPCIBs motion to vacate the same. Said court held that since the parties agreed to
submit any dispute under the SPA to arbitration and to be bound by the ICC Rules, they are
also bound to pay in equal shares the advance on costs as provided in Article 30 (2) and (3).
It noted that RCBC was forced to pay the share of EPCIB in substitution of the latter to
prevent a suspension of the arbitration proceedings, while EPCIBs non-payment seems
more like a scheme to delay such proceedings. On the Arbitration Tribunals ruling on
EPCIBs counterclaim, no error was committed in considering it withdrawn for failure of
EPCIB to quantify and substantiate it with supporting evidence. As to EPCIBs claim for
attorneys fees, the RTC agreed that these should be brought only at the close of arbitration.
EPCIB moved to reconsider the June 24, 2009 Order and for the voluntary inhibition of the
Presiding Judge (Judge Oscar B. Pimentel) on the ground that EPCIBs new counsel
represented another client in another case before him in which said counsel assailed his
conduct and had likewise sought his inhibition. Both motions were denied in the Joint
Order46 dated March 23, 2010.
On April 14, 2010, EPCIB filed in the CA a petition for review47 with application for TRO
and/or writ of preliminary injunction (CA-G.R. SP No. 113525) in accordance with Rule 19,
Section 4 of the Special Rules of Court on Alternative Dispute Resolution48 (Special ADR
Rules). EPCIB assailed the Makati City RTC, Branch 148 in denying its motion to vacate the
Second Partial Award despite (a) said award having been rendered in excess of jurisdiction
or power, and contrary to public policy; (b) the fact that it was issued with evident partiality
and serious misconduct; (c) the award deals with a dispute not contemplated within the terms
of submission to arbitration or beyond the scope of such submission, which therefore ought
to be vacated pursuant to Article 34 of the UNCITRAL Model Law; and (d) the Presiding
Judge having exhibited bias and prejudice against BDO and its counsel as confirmed by his
pronouncements in the Joint Order dated March 23, 2010 in which, instead of recusing
himself, he imputed malice and unethical conduct in the entry of appearance of Belo Gozon
Elma Asuncion and Lucila Law Offices in SP Proc. Case No. M-6046, which warrants his
voluntary inhibition.
Meanwhile, on June 16, 2010, the Arbitration Tribunal issued the Final Award,49 as follows:
15 AWARD
15.1 The Tribunal by a majority (Sir Ian Barker & Mr. Kaplan) awards, declares and
adjudges as follows:
(a) the Respondents are to pay damages to the Claimant for breach of the sale and purchase
agreement for Bankard shares in the sum of P348,736,920.29.
(b) The Respondents are to pay to the Claimant the sum of US$880,000 in respect of the
costs of the arbitration as fixed by the ICC Court.
(c) The Respondents are to pay to the Claimant the sum of US$582,936.56 for the fees and
expenses of Mr. Best.
(d) The Respondents are to pay to the Claimant their expenses of the arbitration as follows:
(i) Experts fees P7,082,788.55
(ii) Costs of without prejudice meeting P22,571.45

(iii) Costs of arbitration hearings P553,420.66
(iv) Costs of transcription service P483,597.26
Total P8,144,377.62
(e) The Respondents are to pay to the Claimant the sum of P7,000,000 for party-and-party
legal costs.
(f) The Counterclaims of the Respondents are all dismissed.
(g) All claims of the Claimant are dismissed, other than those referred to above.
15.2 Justice Kapunan does not agree with the majority of the members of the Tribunal and
has issued a dissenting opinion. He has refused to sign this Award.50
On July 1, 2010 BDO filed in the Makati City RTC a Petition to Vacate Final Award Ad
Cautelam,51 docketed as SP Proc. Case No. M-6995, which was raffled to Branch 65.
On July 28, 2010, RCBC filed with the Makati City RTC, Branch 148 (SP Proc. Case No.
M-6046) a Motion to Confirm Final Award.52 BDO filed its Opposition With Motion to
Dismiss53 on grounds that a Petition to Vacate Final Award Ad Cautelamhad already been
filed in SP Proc. Case No. M-6995. BDO also pointed out that RCBC did not file the
required petition but instead filed a mere motion which did not go through the process of
raffling to a proper branch of the RTC of Makati City and the payment of the required
docket/filing fees. Even assuming that Branch 148 has jurisdiction over RCBCs motion to
confirm final award, BDO asserted that RCBC had filed before the Arbitration Tribunal an
Application for Correction and Interpretation of Award under Article 29 of the ICC Rules,
which is irreconcilable with its Motion to Confirm Final Award before said court. Hence, the
Motion to Confirm Award was filed precipitately.
On August 18, 2010, RCBC filed an Omnibus Motion in SP Proc. Case No. M-6995 (Branch
65) praying for the dismissal of BDOs Petition to Vacate Final Award or the transfer of the
same to Branch 148 for consolidation with SP Proc. Case No. M-6046. RCBC contended that
BDOs filing of its petition with another court is a blatant violation of the Special ADR
Rules and is merely a subterfuge to commit forum-shopping. BDO filed its Opposition to the
Omnibus Motion.54
On October 28, 2010, Branch 65 issued a Resolution55 denying RCBCs omnibus motion
and directing the service of the petition to RCBC for the latters filing of a comment thereon.
RCBCs motion for reconsideration was likewise denied in the said courts Order dated
December 15, 2010. RCBC then filed its Opposition to the Petition to Vacate Final Award
Ad Cautelam.
Meanwhile, on November 10, 2010, Branch 148 (SP Proc. Case No. M-6046) issued an
Order56 confirming the Final Award "subject to the correction/interpretation thereof by the
Arbitral Tribunal pursuant to the ICC Rules and the UNCITRAL Model Law," and denying
BDOs Opposition with Motion to Dismiss.
On December 30, 2010, George L. Go, in his personal capacity and as attorney-in-fact of the
other listed shareholders of Bankard, Inc. in the SPA (Individual Shareholders), filed a
petition in the CA, CA-G.R. SP No. 117451, seeking to set aside the above-cited November
10, 2010 Order and to enjoin Branch 148 from further proceeding in SP Proc. Case No.
M-6046. By Decision57 dated June 15, 2011, the CA dismissed the said petition. Their
motion for reconsideration of the said decision was likewise denied by the CA in its
Resolution58 dated December 14, 2011.
On December 23, 2010, the CA rendered its Decision in CA-G.R. SP No. 113525, the
dispositive portion of which states:
WHEREFORE, premises considered, the following are hereby REVERSED and SET
ASIDE:
1. the Order dated June 24, 2009 issued in SP Proc. Case No. M-6046 by the Regional Trial
Court of Makati City, Branch 148, insofar as it denied the Motion to Vacate Second Partial
Award dated July 8, 2008 and granted the Motion to Confirm Second Partial Award dated
July 10, 2008;
2. the Joint Order dated March 23, 2010 issued in SP Proc. Case No. M-6046 by the
Regional Trial Court of Makati City, Branch 148, insofar as it denied the Motion For
Reconsideration dated July 28, 2009 relative to the motions concerning the Second Partial
Award immediately mentioned above; and
3. the Second Partial Award dated May 28, 2008 issued in International Chamber of
Commerce Court of Arbitration Reference No. 13290/MS/JB/JEM.
SO ORDERED.59
RCBC filed a motion for reconsideration but the CA denied the same in its Resolution60
dated March 16, 2011. On April 6, 2011, it filed a petition for review on certiorari in this
Court (G.R. No. 196171).
On February 25, 2011, Branch 65 rendered a Decision61 in SP Proc. Case No. M-6995, as
follows:
WHEREFORE, premises considered, the Final Award dated June 16, 2010 in ICC Ref. No.
13290/MS/JB/JEM is hereby VACATED with cost against the respondent.
SO ORDERED.62
In SP Proc. Case No. M-6046, Branch 148 issued an Order63 dated August 8, 2011 resolving
the following motions: (1) Motion for Reconsideration filed by BDO, Go and Individual
Shareholders of the November 10, 2010 Order confirming the Final Award; (2) RCBCs
Omnibus Motion to expunge the motion for reconsideration filed by Go and Individual
Shareholders, and for execution of the Final Award; (3) Motion for Execution filed by RCBC
against BDO; (4) BDOs Motion for Leave to File Supplement to the Motion for
Reconsideration; and (5) Motion for Inhibition filed by Go and Individual Shareholders. Said
Order decreed:
WHEREFORE, premises considered, it is hereby ORDERED, to wit:
1. Banco De Oros Motion for Reconsideration, Motion for Leave to File Supplement to
Motion for Reconsideration, and Motion to Inhibit are DENIED for lack of merit.
2. RCBC Capitals Motion to Expunge, Motion to Execute against Mr. George L. Go and the
Bankard Shareholders, and the Motion to Execute against Banco De Oro are hereby
GRANTED.
3. The damages awarded to RCBC Capital Corporation in the amount of PhP348,736,920.29
is subject to an interest of 6% per annum reckoned from the date of RCBC Capitals
extra-judicial demand or from May 5, 2003 until the confirmation of the Final Award.
Likewise, this compounded amount is subject to 12% interest per annum from the date of the
confirmation of the Final Award until its satisfaction. The costs of the arbitration amounting
to US$880,000.00, the fees and expenses of Mr. Best amounting to US$582,936.56, the
Claimants expenses of the arbitration amounting to PhP8,144,377.62, and the
party-and-party legal costs amounting to PhP7,000,000.00 all ruled in favor of RCBC Capital
Corporation in the Final Award of the Arbitral Tribunal dated June 16, 2010 are subject to
12% legal interest per annum, also reckoned from the date of the confirmation of the Final
Award until its satisfaction.
4. Pursuant to Section 40 of R.A. No. 9285, otherwise known as the Alternative Dispute
Resolution Act of 2004 in relation to Rule 39 of the Rules of Court, since the Final Award
have been confirmed, the same shall be enforced in the same manner as final and executory
decisions of the Regional Trial Court, let a writ of execution be issued commanding the
Sheriff to enforce this instant Order confirming this Courts Order dated November 10, 2010
that judicially confirmed the June 16, 2010 Final Award.
SO ORDERED.64
Immediately thereafter, RCBC filed an Urgent Motion for Issuance of a Writ of Execution.65
On August 22, 2011, after approving the execution bond, Branch 148 issued a Writ of
Execution for the implementation of the said courts "Order dated August 8, 2011 confirming
the November 10, 2010 Order that judicially confirmed the June 16, 2010 Final Award x x
x."66
BDO then filed in the CA, a "Petition for Review (With Application for a Stay Order or
Temporary Restraining Order and/or Writ of Preliminary Injunction," docketed as CA-G.R.
SP No. 120888. BDO sought to reverse and set aside the Orders dated November 10, 2010
and August 8, 2011, and any writ of execution issued pursuant thereto, as well as the Final
Award dated June 16, 2010 issued by the Arbitration Tribunal.
In its Urgent Omnibus Motion67 to resolve the application for a stay order and/or TRO/writ
of preliminary injunction, and to quash the Writ of Execution dated August 22, 2011 and lift
the Notices of Garnishment dated August 22, 2011, BDO argued that the assailed orders of
execution (Writ of Execution and Notice of Garnishment) were issued with indecent haste
and despite the non-compliance with the procedures in Special ADR Rules of the November
10, 2010 Order confirming the Final Award. BDO was not given sufficient time to respond
to the demand for payment or to elect the method of satisfaction of the judgment debt or the
property to be levied upon. In any case, with the posting of a bond by BDO, Branch 148 has
no jurisdiction to implement the appealed orders as it would pre-empt the CA from
exercising its review under Rule 19 of the Special ADR Rules after BDO had perfected its
appeal. BDO stressed that the bond posted by RCBC was for a measly sum of P3,000,000.00
to cause execution pending appeal of a monetary award that may reach P631,429,345.29.
RCBC also failed to adduce evidence of "good cause" or "good reason" to justify
discretionary execution under Section 2(a), Rule 39 of the Rules of Court.
BDO further contended that the writ of execution should be quashed for having been issued
with grave abuse of discretion amounting to lack or excess of jurisdiction as Branch 148
modified the Final Award at the time of execution by imposing the payment of interests
though none was provided therein nor in the Order confirming the same.
During the pendency of CA-G.R. SP No. 120888, Branch 148 continued with execution
proceedings and on motion by RCBC designated/deputized additional sheriffs to replace
Sheriff Flora who was supposedly physically indisposed.68 These court personnel went to
the offices/branches of BDO attempting to serve notices of garnishment and to levy the
furniture, fixtures and equipment.
On September 12, 2011, BDO filed a Very Urgent Motion to Lift Levy and For Leave to
Post Counter-Bond69 before Branch 148 praying for the lifting of the levy of BDO Private
Bank, Inc. (BPBI) shares and the cancellation of the execution sale thereof scheduled on
September 15, 2011, which was set for hearing on September 14, 2011. BDO claimed that
the levy was invalid because it was served by the RTC Sheriffs not to the authorized
representatives of BPBI, as provided under Section 9(b), Rule 39 in relation to Section 7, be enjoined violated any right. Neither was BDO able to demonstrate that the injury to be
Rule 57 of the Rules of Court stating that a notice of levy on shares of stock must be served suffered by it is irreparable or not susceptible to mathematical computation.
to the president or managing agent of the company which issued the shares. However, BDO
was advised by court staff that Judge Sarabia was on leave and the case could not be set for BDO did not file a motion for reconsideration and directly filed with this Court a petition for
hearing. certiorari with urgent application for writ of preliminary mandatory injunction (G.R. No.
199238).
In its Opposition to BDOs application for injunctive relief, RCBC prayed for its outright
denial as BDOs petition raises questions of fact and/or law which call for the CA to The Petitions
substitute its judgment with that of the Arbitration Tribunal, in patent violation of applicable
rules of procedure governing domestic arbitration and beyond the appellate courts In G.R. No. 196171, RCBC set forth the following grounds for the reversal of the CA
jurisdiction. RCBC asserted that BDOs application has become moot and academic as the Decision dated December 23, 2010:
writ of execution was already implemented and/or enforced. It also contended that BDO has
no clear and unmistakable right to warrant injunctive relief because the issue of jurisdiction I.
was already ruled upon in CA-G.R. SP No. 117451 which dismissed the petition filed by Go
and the Individual Shareholders of Bankard questioning the authority of Branch 148 over THE COURT OF APPEALS ACTED CONTRARY TO LAW AND PRIOR RULINGS OF
RCBCs motion to confirm the Final Award despite the earlier filing by BDO in another THIS HONORABLE COURT AND COMMITTED REVERSIBLE ERROR IN
branch of the RTC (Branch 65) of a petition to vacate the said award. VACATING THE SECOND PARTIAL AWARD ON THE BASIS OF CHAIRMAN
BARKERS ALLEGED PARTIALITY, WHICH IT CLAIMS IS INDICATIVE OF BIAS
On September 13, 2011, BDO, to avert the sale of the BPBI shares scheduled on September CONSIDERING THAT THE ALLEGATIONS CONTAINED IN BDO/EPCIBS
15, 2011 and prevent further disruption in the operations of BDO and BPBI, paid under PETITION FALL SHORT OF THE JURISPRUDENTIAL REQUIREMENT THAT THE
protest by tendering a Managers Check in the amount of P637,941,185.55, which was SAME BE SUPPORTED BY CLEAR AND CONVINCING EVIDENCE.
accepted by RCBC as full and complete satisfaction of the writ of execution. BDO
manifested before Branch 148 that such payment was made without prejudice to its appeal II.
before the CA.70
THE COURT OF APPEALS ACTED CONTRARY TO LAW AND PRIOR RULINGS OF
On even date, the CA denied BDOs application for a stay order and/or TRO/preliminary THIS HONORABLE COURT AND COMMITTED REVERSIBLE ERROR WHEN IT
injunction for non-compliance with Rule 19.25 of the Special ADR Rules. The CA ruled that REVERSED THE ARBITRAL TRIBUNALS FINDINGS OF FACT AND LAW IN THE
BDO failed to show the existence of a clear right to be protected and that the acts sought to SECOND PARTIAL AWARD IN PATENT CONTRAVENTION OF THE SPECIAL ADR
RULES WHICH EXPRESSLY PROHIBITS THE COURTS, IN AN APPLICATION TO
VACATE AN ARBITRAL AWARD, FROM DISTURBING THE FINDINGS OF FACT
AND/OR INTERPRE[TA]TION OF LAW OF THE ARBITRAL TRIBUNAL.71
BDO raises the following arguments in G.R. No. 199238:
THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN PERFUNCTORILY
DENYING PETITIONER BDOS APPLICATION FOR STAY ORDER, AND/OR
TEMPORARY RESTRAINING ORDER AND PRELIMINARY INJUNCTION DESPITE
THE EXISTENCE AND CONCURRENCE OF ALL THE ELEMENTS FOR THE
ISSUANCE OF SAID PROVISIONAL RELIEFS
A. PETITIONER BDO HAS CLEAR AND UNMISTAKABLE RIGHTS TO BE
PROTECTED BY THE ISSUANCE OF THE INJUNCTIVE RELIEF PRAYED FOR,
WHICH, HOWEVER, WERE DISREGARDED BY PUBLIC RESPONDENT WHEN IT
DENIED PETITIONER BDOS PRAYER FOR ISSUANCE OF A STAY ORDER
AND/OR TRO
B. PETITIONER BDOS RIGHT TO DUE PROCESS AND EQUAL PROTECTION OF
THE LAW WAS GROSSLY VIOLATED BY THE RTC-MAKATI CITY BRANCH 148,
THE DEPUTIZED SHERIFFS AND RESPONDENT RCBC CAPITAL, WHICH
VIOLATION WAS AIDED BY PUBLIC RESPONDENTS INACTION ON AND
EVENTUAL DENIAL OF THE PRAYER FOR STAY ORDER AND/OR TRO
C. DUE TO THE ACTS AND ORDERS OF RTC BRANCH 148, PETITIONER BDO
SUFFERED IRREPARABLE DAMAGE AND INJURY, AND THERE WAS DIRE AND
URGENT NECESSITY FOR THE ISSUANCE OF THE INJUNCTIVE RELIEF PRAYED
FOR WHICH PUBLIC RESPONDENT DENIED IN GRAVE ABUSE OF DISCRETION72
Essentially, the issues to be resolved are: (1) whether there is legal ground to vacate the
Second Partial Award; and (2) whether BDO is entitled to injunctive relief in connection
with the execution proceedings in SP Proc. Case No. M-6046.
In their TOR, the parties agreed on the governing law and rules as follows:
Laws to be Applied
13 The Tribunal shall determine the issues to be resolved in accordance with the laws of the
Republic of the Philippines.
Procedure to be Applied
14 The proceedings before the Tribunal shall be governed by the ICC Rules of Arbitration (1
January 1998) and the law currently applicable to arbitration in the Republic of the
Philippines.73
As stated in the Partial Award dated September 27, 2007, although the parties provided in
Section 10 of the SPA that the arbitration shall be conducted under the ICC Rules, it was
nevertheless arbitration under Philippine law since the parties are both residents of this
country. The provisions of Republic Act No. 87674 (RA 876),as amended by Republic Act
No. 928575 (RA 9285)principally applied in the arbitration between the herein parties.76
The pertinent provisions of R.A. 9285 provide:
SEC. 40. Confirmation of Award. The confirmation of a domestic arbitral award shall be
governed by Section 23 of R.A. 876.
A domestic arbitral award when confirmed shall be enforced in the same manner as final and
executory decisions of the Regional Trial Court.
The confirmation of a domestic award shall be made by the regional trial court in accordance
with the Rules of Procedure to be promulgated by the Supreme Court.
xxxx
SEC. 41. Vacation Award. A party to a domestic arbitration may question the arbitral
award with the appropriate regional trial court in accordance with the rules of procedure to
be promulgated by the Supreme Court only on those grounds enumerated in Section 25 of
Republic Act No. 876. Any other ground raised against a domestic arbitral award shall be
disregarded by the regional trial court.
Rule 11.4 of the Special ADR Rules sets forth the grounds for vacating an arbitral award:
Rule 11.4. Grounds.(A) To vacate an arbitral award. The arbitral award may be vacated
on the following grounds:
a. The arbitral award was procured through corruption, fraud or other undue means;
b. There was evident partiality or corruption in the arbitral tribunal or any of its members;
c. The arbitral tribunal was guilty of misconduct or any form of misbehavior that has
materially prejudiced the rights of any party such as refusing to postpone a hearing upon
sufficient cause shown or to hear evidence pertinent and material to the controversy;
d. One or more of the arbitrators was disqualified to act as such under the law and willfully
refrained from disclosing such disqualification; or
e. The arbitral tribunal exceeded its powers, or so imperfectly executed them, such that a
complete, final and definite award upon the subject matter submitted to them was not made.
The award may also be vacated on any or all of the following grounds:
a. The arbitration agreement did not exist, or is invalid for any ground for the revocation of a
contract or is otherwise unenforceable; or
b. A party to arbitration is a minor or a person judicially declared to be incompetent.
xxxx
In deciding the petition to vacate the arbitral award, the court shall disregard any other
ground than those enumerated above. (Emphasis supplied)
Judicial Review
At the outset, it must be stated that a review brought to this Court under the Special ADR
Rules is not a matter of right. Rule 19.36 of said Rules specified the conditions for the
exercise of this Courts discretionary review of the CAs decision.
Rule 19.36.Review discretionary.A review by the Supreme Court is not a matter of right,
but of sound judicial discretion, which will be granted only for serious and compelling
reasons resulting in grave prejudice to the aggrieved party. The following, while neither
controlling nor fully measuring the courts discretion, indicate the serious and compelling,
and necessarily, restrictive nature of the grounds that will warrant the exercise of the
Supreme Courts discretionary powers, when the Court of Appeals:
a. Failed to apply the applicable standard or test for judicial review prescribed in these
Special ADR Rules in arriving at its decision resulting in substantial prejudice to the
aggrieved party;
b. Erred in upholding a final order or decision despite the lack of jurisdiction of the court that
rendered such final order or decision;
c. Failed to apply any provision, principle, policy or rule contained in these Special ADR
Rules resulting in substantial prejudice to the aggrieved party; and
d. Committed an error so egregious and harmful to a party as to amount to an undeniable
excess of jurisdiction.
The mere fact that the petitioner disagrees with the Court of Appeals determination of
questions of fact, of law or both questions of fact and law, shall not warrant the exercise of
the Supreme Courts discretionary power. The error imputed to the Court of Appeals must be
grounded upon any of the above prescribed grounds for review or be closely analogous
thereto.
A mere general allegation that the Court of Appeals has committed serious and substantial
error or that it has acted with grave abuse of discretion resulting in substantial prejudice to
the petitioner without indicating with specificity the nature of such error or abuse of
discretion and the serious prejudice suffered by the petitioner on account thereof, shall
constitute sufficient ground for the Supreme Court to dismiss outright the petition. (Emphasis
supplied)
The applicable standard for judicial review of arbitral awards in this jurisdiction is set forth
in Rule 19.10 which states:
Rule 19.10. Rule on judicial review on arbitration in the Philippines.--As a general rule, the
court can only vacate or set aside the decision of an arbitral tribunal upon a clear showing
that the award suffers from any of the infirmities or grounds for vacating an arbitral award
under Section 24 of Republic Act No. 876 or under Rule 34 of the Model Law in a domestic
arbitration, or for setting aside an award in an international arbitration under Article 34 of the
Model Law, or for such other grounds provided under these Special Rules.
xxxx
The court shall not set aside or vacate the award of the arbitral tribunal merelyon the ground
that the arbitral tribunal committed errors of fact, or of law, or of fact and law, as the court
cannot substitute its judgment for that of the arbitral tribunal. (Emphasis supplied)
The above rule embodied the stricter standard in deciding appeals from arbitral awards
established by jurisprudence. In the case of Asset Privatization Trust v. Court of Appeals,77
this Court held:
As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as
to the law or as to the facts.Courts are without power to amend or overrule merely because of
disagreement with matters of law or facts determined by the arbitrators.They will not review
the findings of law and fact contained in an award, and will not undertake to substitute their
judgment for that of the arbitrators, since any other rule would make an award the
commencement, not the end, of litigation.Errors of law and fact, or an erroneous decision of
matters submitted to the judgment of the arbitrators, are insufficient to invalidate an award
fairly and honestly made. Judicial review of an arbitration is, thus, more limited than judicial
review of a trial.78
Accordingly, we examine the merits of the petition before us solely on the statutory ground
raised for vacating the Second Partial Award: evident partiality, pursuant to Section 24 (b) of
the Arbitration Law (RA 876) and Rule 11.4 (b) of the Special ADR Rules.
Evident Partiality
Evident partiality is not defined in our arbitration laws. As one of the grounds for vacating an
arbitral award under the Federal Arbitration Act (FAA) in the United States (US), the term
"encompasses both an arbitrators explicit bias toward one party and an arbitrators inferred
bias when an arbitrator fails to disclose relevant information to the parties."79
From a recent decision80 of the Court of Appeals of Oregon, we quote a brief discussion of
the common meaning of evident partiality:
To determine the meaning of "evident partiality," we begin with the terms themselves. The
common meaning of "partiality" is "the inclination to favor one side."Websters Third New
Int'l Dictionary 1646 (unabridged ed 2002); see also id. (defining "partial" as "inclined to
favor one party in a cause or one side of a question more than the other: biased, predisposed"
(formatting in original)). "Inclination," in turn, means "a particular disposition of mind or
character : propensity, bent" or "a tendency to a particular aspect, state, character, or
action."Id. at 1143 (formatting in original); see also id. (defining "inclined" as "having
inclination, disposition, or tendency").
The common meaning of "evident" is "capable of being perceived esp[ecially] by sight :
distinctly visible : being in evidence : discernable[;] * * * clear to the understanding :
obvious, manifest, apparent."Id. at 789 (formatting in original); see also id. (stating that
synonyms of "evident" include "apparent, patent, manifest, plain, clear, distinct, obvious,
[and] palpable" and that, "[s]ince evident rather naturally suggests evidence, it may imply the
existence of signs and indications that must lead to an identification or inference" (formatting
in original)). (Emphasis supplied)
Evident partiality in its common definition thus implies "the existence of signs and
indications that must lead to an identification or inference" of partiality.81 Despite the
increasing adoption of arbitration in many jurisdictions, there seems to be no established
standard for determining the existence of evident partiality. In the US, evident partiality
"continues to be the subject of somewhat conflicting and inconsistent judicial interpretation
when an arbitrators failure to disclose prior dealings is at issue."82
The first case to delineate the standard of evident partiality in arbitration proceedings was
Commonwealth Coatings Corp. v. Continental Casualty Co., et al.83 decided by the US
Supreme Court in 1968. The Court therein addressed the issue of whether the requirement of
impartiality applies to an arbitration proceeding. The plurality opinion written by Justice
Black laid down the rule that the arbitrators must disclose to the parties "any dealings that
might create an impression of possible bias,"84 and that underlying such standard is "the
premise that any tribunal permitted by law to try cases and controversies not only must be
unbiased but also must avoid even the appearance of bias."85 In a separate concurring
opinion, Justice White joined by Justice Marshall, remarked that "[t]he Court does not decide
today that arbitrators are to be held to the standards of judicial decorum of Article III judges,
or indeed of any judges."86 He opined that arbitrators should not automatically be
disqualified from an arbitration proceeding because of a business relationship where both
parties are aware of the relationship in advance, or where the parties are unaware of the
circumstances but the relationship is trivial. However, in the event that the arbitrator has a
"substantial interest" in the transaction at hand, such information must be disclosed.
Subsequent cases decided by the US Court of Appeals Circuit Courts adopted different
approaches, given the imprecise standard of evident partiality in Commonwealth Coatings.
In Morelite Construction Corp. v. New York District Council Carpenters Benefit Funds,87
the Second Circuit reversed the judgment of the district court and remanded with instructions
to vacate the arbitrators award, holding that the existence of a father-son relationship
between the arbitrator and the president of appellee union provided strong evidence of
partiality and was unfair to appellant construction contractor. After examining prior
decisions in the Circuit, the court concluded that
x x x we cannot countenance the promulgation of a standard for partiality as insurmountable
as "proof of actual bias" -- as the literal words of Section 10 might suggest. Bias is always
difficult, and indeed often impossible, to "prove." Unless an arbitrator publicly announces his
partiality, or is overheard in a moment of private admission, it is difficult to imagine how
"proof" would be obtained. Such a standard, we fear, occasionally would require that we
enforce awards in situations that are clearly repugnant to our sense of fairness, yet do not
yield "proof" of anything.
If the standard of "appearance of bias" is too low for the invocation of Section 10, and "proof
of actual bias" too high, with what are we left? Profoundly aware of the competing forces
that have already been discussed, we hold that "evident partiality" within the meaning of 9
U.S.C. 10 will be found where a reasonable person would have to conclude that an
arbitrator was partial to one party to the arbitration.x x x88 (Emphasis supplied)
In Apperson v. Fleet Carrier Corporation,89 the Sixth Circuit agreed with the Morelite
courts analysis, and accordingly held that to invalidate an arbitration award on the grounds
of bias, the challenging party must show that "a reasonable person would have to conclude
that an arbitrator was partial" to the other party to the arbitration.
This "myriad of judicial interpretations and approaches to evident partiality" resulted in a
lack of a uniform standard, leaving the courts "to examine evident partiality on a
case-by-case basis."90 The case at bar does not present a non-disclosure issue but conduct
allegedly showing an arbitrators partiality to one of the parties.
EPCIB/BDO, in moving to vacate the Second Partial Award claimed that the Arbitration
Tribunal exceeded its powers in deciding the issue of advance cost not contemplated in the
TOR, and that Chairman Barker acted with evident partiality in making such award. The
RTC held that BDO failed to substantiate these allegations. On appeal, the CA likewise
found that the Arbitration Tribunal did not go beyond the submission of the parties because
the phrasing of the scope of the agreed issues in the TOR ("[t]he issues to be determined by
the Tribunal are those issues arising from the said Request for Arbitration, Answer and Reply
and such other issues as may properly arise during the arbitration")is broad enough to
accommodate a finding on the liability and the repercussions of BDOs failure to share in the
advances on costs. Section 10 of the SPA also gave the Arbitration Tribunal authority to
decide how the costs should be apportioned between them.
However, the CA found factual support in BDOs charge of partiality, thus:
On the issue on evident partiality, the rationale in the American case of Commonwealth
Coatings Corp. v. Continental Cas. Co. appears to be very prudent. In Commonwealth, the
United States Supreme Court reasoned that courts "shouldbe even more scrupulous to
safeguard the impartiality of arbitrators than judges, since the former have completely free
rein to decide the law as well as the facts, and are not subject to appellate review" in general.
This taken into account, the Court applies the standard demanded of the conduct of
magistrates by analogy. After all, the ICC Rules require that an arbitral tribunal should act
fairly and impartially. Hence, an arbitrators conduct should be beyond reproach and
suspicion. His acts should be free from the appearances of impropriety.
An examination of the circumstances claimed to be illustrative of Chairman Barkers
partiality is indicative of bias. Although RCBC had repeatedly asked for reimbursement and
the withdrawal of BDOs counterclaims prior to Chairman Barkers December 18, 2007
letter, it is baffling why it is only in the said letter that RCBCs prayer was given a
complexion of being an application for a partial award. To the Court, the said letter signaled
a preconceived course of action that the relief prayed for by RCBC will be granted.
That there was an action to be taken beforehand is confirmed by Chairman Barkers
furnishing the parties with a copy of the Secomb article. This article ultimately favored
RCBC by advancing its cause. Chairman Barker makes it appear that he intended good to be
done in doing so but due process dictates the cold neutrality of impartiality. This means that
"it is not enough[that] cases [be decided] without bias and favoritism. Nor is it sufficient
thatprepossessions [be rid of]. [A]ctuations should moreover inspire that belief." These put
into the equation, the furnishing of the Secomb article further marred the trust reposed in
Chairman Barker. The suspicion of his partiality on the subject matter deepened. Specifically,
his act established that he had pre-formed opinions.
Chairman Barkers providing of copies of the said text is easily interpretable that he had
prejudged the matter before him. In any case, the Secomb article tackled bases upon which
the Second Partial Award was founded. The subject article reflected in advance the
disposition of the ICC arbitral tribunal. The award can definitely be viewed as an affirmation
that the bases in the Secomb article were adopted earlier on. To the Court, actuations of
arbitrators, like the language of judges, "must be guarded and measured lest the best of
intentions be misconstrued."
x x x x91 (Emphasis supplied)
We affirm the foregoing findings and conclusion of the appellate court save for its reference
to the obiter in Commonwealth Coatings that arbitrators are held to the same standard of
conduct imposed on judges. Instead, the Court adopts the reasonable impression of partiality
standard, which requires a showing that a reasonable person would have to conclude that an
arbitrator was partial to the other party to the arbitration. Such interest or bias, moreover,
"must be direct, definite and capable of demonstration rather than remote, uncertain, or
speculative."92 When a claim of arbitrators evident partiality is made, "the court must
ascertain from such record as is available whether the arbitrators conduct was so biased and
prejudiced as to destroy fundamental fairness."93
Applying the foregoing standard, we agree with the CA in finding that Chairman Barkers
act of furnishing the parties with copies of Matthew Secombs article, considering the
attendant circumstances,is indicative of partiality such that a reasonable man would have to
conclude that he was favoring the Claimant, RCBC. Even before the issuance of the Second
Partial Award for the reimbursement of advance costs paid by RCBC, Chairman Barker
exhibited strong inclination to grant such relief to RCBC, notwithstanding his categorical
ruling that the Arbitration Tribunal "has no power under the ICC Rules to order the
Respondents to pay the advance on costs sought by the ICC or to give the Claimantany relief
against the Respondents refusal to pay."94 That Chairman Barker was predisposed to grant
relief to RCBC was shown by his act of interpreting RCBCs letter, which merely reiterated
its plea to declare the Respondents in default and consider all counterclaims withdrawn as
what the ICC Rules provide as an application to the Arbitration Tribunal to issue a partial
award in respect of BDOs failure to share in the advance costs. It must be noted that RCBC
in said letter did not contemplate the issuance of a partial order, despite Chairman Barkers
previous letter which mentioned the possibility of granting relief upon the parties making
submissions to the Arbitration Tribunal. Expectedly, in compliance with Chairman Barkers
December 18, 2007 letter, RCBC formally applied for the issuance of a partial award
ordering BDO to pay its share in the advance costs.
Mr. Secombs article, "Awards and Orders Dealing With the Advance on Costs in ICC
Arbitration: Theoretical Questions and Practical Problems"95 specifically dealt with the
situation when one of the parties to international commercial arbitration refuses to pay its
share on the advance on costs. After a brief discussion of the provisions of ICC Rules dealing
with advance on costs, which did not provide for issuance of a partial award to compel
payment by the defaulting party, the author stated:
4. As we can see, the Rules have certain mechanisms to deal with defaulting parties.
Occasionally, however, parties have sought to use other methods to tackle the problem of a
party refusing to pay its part of the advance on costs. These have included seeking an order
or award from the arbitral tribunal condemning the defaulting party to pay its share of the
advance on costs.1wphi1 Such applications are the subject of this article.96
By furnishing the parties with a copy of this article, Chairman Barker practically armed
RCBC with supporting legal arguments under the "contractual approach" discussed by
Secomb. True enough, RCBC in its Application for Reimbursement of Advance Costs Paid
utilized said approach as it singularly focused on Article 30(3)97 of the ICC Rules and
fiercely argued that BDO was contractually bound to share in the advance costs fixed by the
ICC.98 But whether under the "contractual approach" or "provisional approach" (an
application must be treated as an interim measure of protection under Article 23 [1] rather
than enforcement of a contractual obligation), both treated in the Secomb article, RCBC
succeeded in availing of a remedy which was not expressly allowed by the Rules but in
practice has been resorted to by parties in international commercial arbitration proceedings.
It may also be mentioned that the author, Matthew Secomb, is a member of the ICC
Secretariat and the "Counsel in charge of the file", as in fact he signed some early
communications on behalf of the ICC Secretariat pertaining to the advance costs fixed by the
ICC.99 This bolstered the impression that Chairman Barker was predisposed to grant relief
to RCBC by issuing a partial award.
Indeed, fairness dictates that Chairman Barker refrainfrom suggesting to or directing RCBC
towards a course of action to advance the latters cause, by providing it with legal arguments
contained in an article written by a lawyer who serves at the ICC Secretariat and was
involved or had participation -- insofar as the actions or recommendations of the ICC in the
case. Though done purportedly to assist both parties, Chairman Barkers act clearly violated
Article 15 of the ICC Rules declaring that "[i]n all cases, the Arbitral Tribunal shall act fairly
and impartially and ensure that each party has a reasonable opportunity to present its case."
Having pre-judged the matter in dispute, Chairman Barker had lost his objectivity in the
issuance of the Second Partial Award.
In fine, we hold that the CA did not err in concluding that the article ultimately favored
RCBC as it reflected in advance the disposition of the Arbitral Tribunal, as well as "signalled
a preconceived course of action that the relief prayed for by RCBC will be granted." This
conclusion is further confirmed by the Arbitral Tribunals pronouncements in its Second
Partial Award which not only adopted the "contractual approach" but even cited Secombs
article along with other references, thus:
6.1 It appears to the Tribunal that the issue posed by this application is essentially a
contractual one. x x x
xxxx
6.5 Matthew Secomb, considered these points in the article in 14 ICC Bulletin No. 1 (2003)
which was sent to the parties. At Para. 19, the learned author quoted from an ICC Tribunal
(Case No. 11330) as follows:
"The Arbitral Tribunal concludes that the partiesin arbitrations conducted under the ICC
Rules have a mutually binding obligation to pay the advance on costs as determined by the
ICC Court, based on Article 30-3 ICC Rules which by reference forms part of the parties
agreement to arbitration under such Rules."100
The Court, however, must clarify that the merits of the parties arguments as to the propriety
of the issuance of the Second Partial Award are not in issue here. Courts are generally
without power to amend or overrule merely because of disagreement with matters of law or
facts determined by the arbitrators. They will not review the findings of law and fact
contained in an award, and will not undertake to substitute their judgment for that of the
arbitrators. A contrary rule would make an arbitration award the commencement, not the end,
of litigation.101 It is the finding of evident partiality which constitutes legal ground for
vacating the Second Partial Award and not the Arbitration Tribunals application of the ICC
Rules adopting the "contractual approach" tackled in Secombs article.
Alternative dispute resolution methods or ADRs like arbitration, mediation, negotiation
and conciliation are encouraged by this Court. By enabling parties to resolve their disputes
amicably, they provide solutions that are less time-consuming, less tedious, less
confrontational, and more productive of goodwill and lasting relationship.102
Institutionalization of ADR was envisioned as "an important means to achieve speedy and
impartial justice and declog court dockets."103 The most important feature of arbitration,
and indeed, the key to its success, is the publics confidence and trust in the integrity of the
process.104 For this reason, the law authorizes vacating an arbitral award when there is
evident partiality in the arbitrators.
Injunction Against Execution Of Arbitral Award
Before an injunctive writ can be issued, it is essential that the following requisites are present:
(1) there must be a right inesse or the existence of a right to be protected; and (2) the act
against which injunction to be directed is a violation of such right. The onus probandi is on
movant to show that there exists a right to be protected, which is directly threatened by the
act sought to be enjoined. Further, there must be a showing that the invasion of the right is
material and substantial and that there is an urgent and paramount necessity for the writ to
prevent a serious damage.105
Rule 19.22 of the Special ADR Rules states:
Rule 19.22. Effect of appeal.The appeal shall not stay the award, judgment, final order or
resolution sought to be reviewed unless the Court of Appeals directs otherwise upon such
terms as it may deem just.
We find no reversible error or grave abuse of discretion in the CAs denial of the application
for stay order or TRO upon its finding that BDO failed to establish the existence of a clear
legal right to enjoin execution of the Final Award confirmed by the Makati City RTC,
Branch 148, pending resolution of its appeal.It would be premature to address on the merits
the issues raised by BDO in the present petition considering that the CA still has to decide on
the validity of said court's orders confirming the Final Award. But more important, since
BOO had already paid P637,941,185.55 m manager's check, albeit under protest, and which
payment was accepted by RCBC as full and complete satisfaction of the writ of execution,
there is no more act to be enjoined.
Settled is the rule that injunctive reliefs are preservative remedies for the protection of
substantive rights and interests. Injunction is not a cause of action in itself, but merely a
provisional remedy, an adjunct to a main suit. When the act sought to be enjoined has
become fait accompli, the prayer for provisional remedy should be denied. 106
Thus, the Court ruled in Gov. Looyuko107 that when the events sought to be prevented by
injunction or prohibition have already happened, nothing more could be enjoined or
prohibited. Indeed, it is a universal principle of law that an injunction will not issue to
restrain the performance of an act already done. This is so for the simple reason that nothing
more can be done in reference thereto. A writ of injunction becomes moot and academic after
the act sought to be enjoined has already been consummated.
WHEREFORE, premises considered, the petition m G.R. No. 199238 is DENIED. The NATIONAL POWER CORPORATION, petitioner, vs. HON. ROSE MARIE
Resolution dated September 13,2011 ofthe Court of Appeals in CA-G.R. SP No. 120888 is ALONZO-LEGASTO, as Presiding Judge, RTC of Quezon City, Branch 99, JOSE
AFFIRMED. MARTINEZ, Deputy Sheriff, RTC of Quezon City, CARMELO V. SISON, Chairman,
Arbitration Board, and FIRST UNITED CONSTRUCTORS CORPORATION, respondents.
The petition in G.R. No. 196171 is DENIED. The Decision dated December 23, 2010 of the DECISION
Court of Appeals in CA-G.R. SP No. 113525 is hereby AFFIRMED. TINGA, J.:

SO ORDERED. National Power Corporation (NPC) filed the instant Petition for Review[1] dated July 19,
2001, assailing the Decision[2] of the Court of Appeals dated May 28, 2001 which affirmed
MARTIN S. VILLARAMA, JR. with modification the Order[3] and Writ of Execution[4] respectively dated May 22, 2000
Associate Justice and June 9, 2000 issued by the Regional Trial Court. In its assailed Decision, the appellate
court declared respondent First United Constructors Corporation (FUCC) entitled to just
compensation for blasting works it undertook in relation to a contract for the construction of
power facilities it entered into with petitioner. The Court of Appeals, however, deleted the
award for attorneys fees having found no basis therefor.

The facts culled from the Decision of the Court of Appeals are undisputed:

On April 14, 1992, NPC and FUCC entered into a contract for the construction of power
facilities (civil works) Schedule 1 1x20 MW Bacon-Manito II Modular Geothermal Power
Plant (Cawayan area) and Schedule 1A 1x20 MW Bacon-Manito II Modular Geothermal
Power Plant (Botong area) in Bacon, Sorsogon (BACMAN II). The total contract price for
the two schedules is P108,493,966.30, broken down as follows:

SCHEDULE
1 Cawayan area P52,081,421.00
1A Botong area P56,412,545.30
______________
P108,493,966.30
Appended with the Contract is the contract price schedule which was submitted by the
respondent FUCC during the bidding. The price for grading excavation was P76.00 per cubic
meter.
Construction activities commenced in August 1992. In the latter part of September 1992 and
after excavating 5.0 meters above the plant elevation, FUCC requested NPC that it be
allowed to blast to the design grade of 495 meters above sea level as its dozers and rippers
could no longer excavate. It further requested that it be paid P1,346.00 per cubic meter
similar to the rate of NPCs project in Palinpinon.
While blasting commenced on October 6, 1992, NPC and FUCC were discussing the
propriety of an extra work order and if such is in order, at what price should FUCC be paid.
Sometime in March 1993, NPC Vice President for Engineering Construction, Hector
Campos, created a task force to review FUCCs blasting works. The technical task force
recommended that FUCC be paid P458.07 per cubic meter as such being the price agreed
upon by FUCC.
The matter was further referred to the Department of Public [W]orks and Highways (DPWH),
which in a letter dated May 19, 1993, recommended the price range of P500.00 to P600.00
per cubic meter as reasonable. It further opined that the price of P983.75 per cubic meter
proposed by Lauro R. Umali, Project Manager of BACMAN II was high. A copy of the
DPWH letter is attached as Annex C, FUCCs Exhibit EEE-Arbitration.
In a letter dated June 28, 1993, FUCC formally informed NPC that it is accepting the
proposed price of P458.07 per cubic meter. A copy of the said letter is attached as Annex D,
FUCCs Exhibit L Arbitration.
In the meantime, by March 1993, the works in Botong area were in considerable delay. By
May 1993, civil works in Botong were kept at a minimum until on November 1, 1993, the
entire operation in the area completely ceased and FUCC abandoned the project.
Several written and verbal warnings were given by NPC to FUCC. On March 14, 1994,
NPCs Board of Directors passed Resolution No. 94-63 approving the recommendation of
President Francisco L. Viray to take over the contract. President Virays recommendation to
take over the project was compelled by the need to stave-off huge pecuniary and
non-monetary losses, namely:
(a) Generation loss estimated to be at P26,546,400/month;
(b) Payment of steam penalties to PNOC-EDC the amount estimated to be at
P10,206,048.00/month;
(c) Payment of liquidated damages due to the standby of electromechanical contractor;
(d) Loss of guaranteed protection (warranties) of all delivered plant equipment and
accessories as Mitsubishi Corporation, electromechanical contractor, will not be liable after
six months of delivery.
To prevent NPC from taking over the project, on March 28, 1994, FUCC filed an action for
Specific Performance and Damages with Preliminary Injunction and Temporary Restraining
Order before Branch 99, Regional Trial Court, Quezon City.
Under paragraph 19 of its Complaint, FUCC admitted that it agreed to pay the price of
P458.07 per cubic meter.
On April 5, 1994, Judge de Guzman issued a temporary restraining order and on April 21,
1994, the trial court resolved to grant the application for issuance of a writ of preliminary
injunction.
On July 7, 1994, NPC filed a Petition for Certiorari with Prayer for Temporary Restraining
Order and Preliminary Injunction before the First Division of the Court of Appeals asserting
that no injunction may issue against any government projects pursuant to Presidential Decree
1818.
On July 8, 1994, the Court of Appeals through then Associate Justice Bernardo Pardo issued
a temporary restraining order and on October 20, 1994, the said court rendered a Decision
granting NPCs Petition for Certiorari and setting aside the lower courts Order dated April 21,
1994 and the Writ of Preliminary Injunction dated May 5, 1994.
However, notwithstanding the dissolution by the Court of Appeals of the said injunction, on
July 15, 1995, FUCC filed a Complaint before the Office of the Ombudsman against several
NPC employees for alleged violation of Republic Act No. 3019, otherwise known as the
Anti-Graft and Corrupt Practices Act. Together with the complaint was an Urgent Ex-Parte
Motion for the issuance of a cease and [d]esist [o]rder to restrain NPC and other NPC
officials involved in the BACMAN II project from canceling and/or from taking over FUCCs
contract for civil works of said project.
Then on November 16, 1994, FUCC filed before the Supreme Court a Petition for Review
assailing the Decision of the Court of [A]ppeals dated October 20, 1994. In its Comment,
NPC raised the issue that FUCC resorted to forum shopping as it applied for a cease and
desist order before the National Ombudsman despite the dissolution of the injunction by the
Court of Appeals.
Pending the petition filed by FUCC before the Supreme Court, on April 20, 1995 the NPC
and FUCC entered into a Compromise Agreement.
Under the Compromise Agreement, the parties agreed on the following:
1. Defendant shall process and pay the undisputed unpaid billings of Plaintiff in connection
with the entire project fifteen (15) days after a reconciliation of accounts by both Plaintiff
and Defendant or thirty (30) days from the date of approval of this Compromise Agreement
by the Court whichever comes first. Both parties agree to submit and include those accounts
which could not be reconciled among the issues to be arbitrated as hereunder provided;
2. Plaintiff accepts and acknowledges that Defendant shall have the right to proceed with the
works by re-bidding or negotiating the project immediately upon the signing of herein
Compromise Agreement;
3. This Compromise Agreement shall serve as the Supplemental Agreement for payment of
plaintiffs blasting works at the Botong site;
4. Upon approval of this Compromise Agreement by the Court or Plaintiffs receipt of
payment of this undisputed unpaid billings from Defendant whichever comes first, the parties
shall immediately file a Joint Manifestation and Motion for the withdrawal of the following
Plaintiffs petition from the Supreme Court, Plaintiffs Complaint from the National
Ombudsman, the Complaint and Amended Complaint from the RTC, Br. 99 of Quezon City;
5. Upon final resolution of the Arbitration, as hereunder prescribed, the parties shall
immediately execute the proper documents mutually terminating Plaintiffs contract for the
civil works of the BACMAN II Project (Contract No. Sp90DLM-918 (I & A);
6. Such mutual termination of Plaintiffs contract shall have the following effects and/or
consequences: (a) the construction works of Plaintiff at the Kawayan and Bolong sites, at its
present stage of completion, shall be accepted and/or deemed to have been accepted by
defendant; (b) Plaintiff shall have no more obligation to Defendant in respect of the
BACMAN II Project except as provided in clause (e) below; (c) Defendant shall release all
retention moneys of plaintiff within a maximum period of thirty (30) days from the date of
final Resolution of the Arbitration; (d) no retention money shall thenceforth be withheld by
Defendant in its payment to Plaintiff under this Compromise Agreement, and (e) Plaintiff
shall put up a one-year guaranty bond for its completed civil works at the Kawayan site,
retroactive to the date of actual use of the plant by defendant;
7. Plaintiffs blasting works claims and other unresolved claims, as well as the claims of
damages of both parties shall be settled through a two stage process to wit:
STAGE 1
7.1 Plaintiff and Defendant shall execute and sign this Compromise Agreement which they
will submit for approval by this Court. Under this Compromise Agreement both parties agree
that:
xxx xxx
STAGE 2
7.1 The parties shall submit for arbitration to settle: (a) the price of blasting, (b) both parties
claims for damages, delays, interests, and (c) all other unresolved claims of both parties,
including the exact volume of blasted rocks;
7.2 The arbitration shall be through a three-member commission to be appointed by the
Honorable Court. Each party shall nominate one member. The Chairman of the Arbitration
Board shall be [a] person mutually acceptable to both parties, preferably from the academe;
7.3 The parties shall likewise agree upon the terms under which the arbitrable issues shall be
referred to the Arbitration Board. The terms of reference shall form part of the Compromise
Agreement and shall be submitted by the parties to the Honorable Court within a period of
seven (7) days from the signing of the Compromise Agreement;
7.4 The Arbitration Board shall have a non-extendible period of three (3) months within
which to complete the arbitration process and submit its Decision to the Honorable Court;
7.5 The parties agree that the Decision of the Arbitration Board shall be final and executory;
7.6 By virtue of this Compromise Agreement, except as herein provided, the parties shall
mutually waive, forgo and dismiss all of their other claims and/or counterclaim in this case.
Plaintiff and defendant warrant that after approval by the Court of this Compromise
Agreement neither party shall file Criminal or Administrative cases or suits against each
other or its Board or member of its officials on grounds arising from the case.
The Compromise Agreement was subsequently approved by the Court on May 24, 1995.
The case was subsequently referred by the parties to the arbitration board pursuant to their
Compromise Agreement. On December 9, 1999 the Arbitration Board rendered its ruling the
dispositive portion of which states:
WHEREFORE, claimant is hereby declared entitled to an award of P118,681,328.28 as just
compensation for blasting works, plus ten percent (10%) thereof for attorneys fees and
expenses of litigation.

Considering that payment in the total amount of P36,550,000.00 had previously been made,
respondent is hereby ordered to pay claimant the remaining sum of P82,131,328.28 for
attorneys fees and expenses of litigation.
Pursuant to the Compromise Agreement approved by this Honorable Court, the parties have
agreed that the decision of the Arbitration Board shall be final and executory.
SO ORDERED.
On December 10, 1999 plaintiff FUCC filed a Motion for Execution while defendant NPC
filed a Motion to Vacate Award by the Arbitration Board on December 20, 1999.
On May 22, 2000 Presiding Judge Rose Marie Alonzo Legasto issued an order the
dispositive portion of which states:
WHEREFORE, the Arbitration Award issued by the Arbitration Board is hereby
APPROVED and the Motion for Execution filed by plaintiff hereby GRANTED. The Motion
to Vacate Award filed by defendant is hereby DENIED for lack of merit.
Accordingly, let a writ of execution be issued to enforce the Arbitration Award.
SO ORDERED.[5] (Bracketed words supplied)
NPC went to the Court of Appeals on the lone issue of whether respondent judge acted with
grave abuse of discretion in issuing the Order dated May 22, 2000 and directing the issuance
of a Writ of Execution.
In its assailed Decision, the appellate court declared that the court a quo did not commit
grave abuse of discretion considering that the Arbitration Board acted pursuant to its powers
under the Compromise Agreement and that its award has factual and legal bases.
The Court of Appeals gave primacy to the court-approved Compromise Agreement entered
into by the parties and concluded that they intended the decision of the arbitration panel to be
final and executory. Said the court:
For one, what the price agreed to be submitted for arbitration are pure issues of fact (i.e., the
price of blasting; both parties claims for damages, delay, interests and all other unresolved
claims of both parties, including the exact volume of blasted rocks). Also, the manner by
which the Arbitration Board was formed and the terms under which the arbitrable issues
were referred to said Board are specified in the agreement. Clearly, the parties had left to the
Arbitration Board the final adjudication of their remaining claims and waived their right to
question said Decision of the Board. Hence, they agreed in clear and unequivocal terms in
the Compromise Agreement that said Decision would be immediately final and executory.
Plaintiff relied upon this stipulation in complying with its various obligations under the
agreement. To allow defendant to now go back on its word and start questioning the
Decision would be grossly unfair considering that the latter was also a party to the
Compromise Agreement entered into part of which dealt with the creation of the Arbitration
Board.[6]
The appellate court likewise held that petitioner failed to present evidence to prove its claim
of bias and partiality on the part of the Chairman of the Arbitration Board, Mr. Carmelo V.
Sison (Mr. Sison).
Further, the Court of Appeals found that blasting is not part of the unit price for grading and
structural excavation provided for in the contract for the BACMAN II Project, and that there
was no perfected contract between the parties for an extra work order for blasting.
Nonetheless, since FUCC relied on the representation of petitioners officials that the extra
work order would be submitted to its Board of Directors for approval and that the blasting
works would be paid, the Court of Appeals ruled that FUCC is entitled to just compensation
on grounds of equity and promissory estoppel.
Anent the issue of just compensation, the appellate court took into account the estimate
prepared by a certain Mr. Lauro R. Umali (Mr. Umali), Project Manager of the BACMAN II
Project, which itemized the various costs involved in blasting works and came up with
P1,310.82 per cubic meter, consisting of the direct cost for drilling, blasting excavation,
stockpiling and hauling, and a 30% mark up for overhead, contractors tax and contingencies.
This estimate was later changed to P983.75 per cubic meter to which FUCC agreed. The
Court of Appeals, however, held that just compensation should cover only the direct costs
plus 10% for overhead expenses. Thus, it declared that the amount of P763.00[7] per cubic
meter is sufficient. Since the total volume of blasted rocks as computed by Dr. Benjamin
Buensuceso, Jr.[8] of the U.P. College of Engineering is 97,032.16 cubic meters, FUCC is
entitled to the amount of P74,035,503.50 as just compensation.
Although the Court of Appeals adjudged FUCC entitled to interest,[9] the dispositive portion
of the assailed Decision[10] did not provide for the payment of interest. Moreover, the award
of attorneys fees was deleted as there was no legal and factual ground for its imposition.
Petitioner, represented by the Office of the Solicitor General in the instant Petition, rehashes
its submissions before the Court of Appeals. It claims that the appellate court failed to pass
upon the following issues:
1. The Chairman of the Arbitration Board showed extreme bias in prejudging the case.
2. The Chairman of the Arbitration Board greatly exceeded his powers when he mediated for
settlement in the court of arbitration proceedings.
3. The Chairman of the Arbitration Board committed serious irregularity in hastily convening
the Board in two days, which thereafter released its report.
4. The Arbitration Board Committed manifest injustice prejudicial to petitioner based on the
following:
a. It rendered an award based on equity despite the mandatory provision of the law.
b. The Boards decision to justify that equity applies herein despite the fact that FUCC never
submitted its own actual costs for blasting and PHESCO, INC., the succeeding contractor,
did not employ blasting but used ordinary excavation method at P75.59 per cubic meter
which is approximately the same unit price of plaintiff (FUCC).
c. It gravely erred when the Board claimed that an award of just compensation must be given
to respondent FUCC for what it has actually spent and yet instead of using as basis P458.07
which is the price agreed upon by FUCC, it chose an estimate made by an NPC employee.
d. It gravely erred when it relied heavily on the purported letter of NPC Project Manager
Lauro R. Umali, when the same has not been identified nor were the handwritten entries in
Annex ii established to be made by him.
5. The Arbitration Board gravely erred in computing interest at 12% and from the time of
plaintiffs extrajudicial claim despite the fact that herein case is an action for specific
performance and not for payment of loan or forbearance of money, and despite the fact that it
has resolved that there was no perfected contract and there was no bad faith on the part of
defendant.
6. On June 25, 2000, NPC discovered the Sub-Contract Agreement of FUCC with a unit
price of only P430/per cubic meter.[11] [Emphasis in the original]
Specifically, petitioner asserts that Mr. Sison exhibited bias and prejudgment when he
exhorted it to pay FUCC for the blasting works after concluding that the latter was allowed
to blast. Moreover, Mr. Sison allegedly attempted to mediate the conflict between the parties
in violation of Section 20,[12] paragraph 2 of Republic Act No. 876 (R.A. 876) otherwise
known as the Arbitration Law. Petitioner also questions the abrupt manner by which the
decision of the Arbitration Board was released.
Petitioner avers that FUCCs claim for blasting works was not approved by authorized
officials in accordance with Presidential Decree No. 1594 (P.D. 1594) and its implementing
rules which specifically require the approval of the extra work by authorized officials before
an extra work order may be issued in favor of the contractor. Thus, it should not be held
liable for the claim. If at all, only the erring officials should be held liable. Further, FUCC
did not present evidence to prove the actual expenses it incurred for the blasting works. What
the Arbitration Board relied upon was the memorandum of Mr. Umali which was neither
identified or authenticated during the arbitration proceedings nor marked as evidence for
FUCC. Moreover, the figures indicated in Mr. Umalis memorandum were allegedly mere
estimates and were recommendatory at most.
Petitioner likewise claims that its succeeding contractor, Phesco, Inc. (Phesco), was able to
excavate the same rock formation without blasting.
Finally, it asserts that the award of P763.00 per cubic meter has no factual and legal basis as
the sub-contract between FUCC and its blasting sub-contractor, Dynamic Blasting
Specialists of the Philippines (Dynamic), was only P430.00 per cubic meter.
In its Comment[13] dated October 15, 2001, FUCC points out that petitioners arguments are
exactly the same as the ones it raised before the Arbitration Board, the trial court and the
Court of Appeals. Moreover, in the Compromise Agreement between the parties, petitioner
committed to abide by the decision of the Arbitration Board. It should not now be allowed to
question the decision.
FUCC likewise notes that Atty. Jose G. Samonte (Atty. Samonte), one of the members of the
Arbitration Board, was nominated by petitioner itself. If there was any irregularity in its
proceedings such as the bias and prejudgment petitioner imputes upon Mr. Sison, Atty.
Samonte would have complained. As it is, Atty. Samonte concurred in the decision of the
Arbitration Board and dissented only as to the award of attorneys fees.
As regards the issue of interest, FUCC claims that the case involves forbearance of money
and not a claim for damages for breach of an obligation in which case interest on the amount
of damages awarded may be imposed at the rate of six percent (6%) per annum.
Finally, FUCC asserts that its sub-contract agreement with Dynamic is not newly-discovered
evidence. Petitioners lawyers allegedly had a copy of the sub-contract in their possession. In
any event, the unit price of P430.00 per cubic meter appearing in the sub-contract represents
only a fraction of the costs incurred by FUCC for the blasting works.
Petitioner filed a Reply[14] dated March 18, 2002 reiterating its earlier submissions.
The parties in the present case mutually agreed to submit to arbitration the settlement of the
price of blasting, the parties claims for damages, delay and interests and all other unresolved
claims including the exact volume of blasted rocks.[15] They further mutually agreed that
the decision of the Arbitration Board shall be final and immediately executory.[16]
A stipulation submitting an ongoing dispute to arbitration is valid. As a rule, the arbitrators
award cannot be set aside for mere errors of judgment either as to the law or as to the facts.
Courts are generally without power to amend or overrule merely because of disagreement
with matters of law or facts determined by the arbitrators. They will not review the findings
of law and fact contained in an award, and will not undertake to substitute their judgment for
that of the arbitrators. A contrary rule would make an arbitration award the commencement,
not the end, of litigation. Errors of law and fact, or an erroneous decision on matters
submitted to the judgment of the arbitrators, are insufficient to invalidate an award fairly and
honestly made. Judicial review of an arbitration award is, thus, more limited than judicial
review of a trial.[17]
However, an arbitration award is not absolute and without exceptions. Where the conditions
described in Articles 2038, 2039 and 2040 of the Civil Code[18] applicable to both
compromises and arbitrations are obtaining, the arbitrators award may be annulled or
rescinded.[19] Additionally, judicial review of an arbitration award is warranted when the
complaining party has presented proof of the existence of any of the grounds for vacating,
modifying or correcting an award outlined under Sections 24 and 25 of R.A. 876, viz:
Section 24. Grounds for vacating an award. In any of the following cases, the court must
make an order vacating the award upon the petition of any party to the controversy when
such party proves affirmatively that in the arbitration proceedings:
(a) The award was procured by corruption, fraud, or other undue means; or
(b) That there was evident partiality or corruption in the arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon
sufficient cause shown, or in refusing to hear evidence pertinent and material to the
controversy; that one or more of the arbitrators was disqualified to act as such under section
nine hereof, and willfully refrained from disclosing such disqualifications or of any other
misbehavior by which the rights of any party have been materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual,
final and definite award upon the subject matter submitted to them was not made.
When an award is vacated, the court, in its discretion, may direct a new hearing either before
the same arbitrators or before a new arbitrator or arbitrators to be chosen in the manner
provided in the submission or contract for the selection of the original arbitrator or arbitrators,
and any provision limiting the time in which the arbitrators may make a decision shall be
deemed applicable to the new arbitration to commence from the date of the courts order.
Where the court vacates an award, costs not exceeding fifty pesos and disbursements may be
awarded to the prevailing party and the payment thereof may be enforced in like manner as
the payment of costs upon the motion in an action.
Section 25. Grounds for modifying or correcting an award. In any one of the following cases,
the court must make an order modifying or correcting the award, upon the application of any
party to the controversy which was arbitrated:
(a) Where there was an evident miscalculation of figures, or an evident mistake in the
description of any person, thing or property referred to in the award; or
(b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting
the merits of the decision upon the matter submitted; or
(c) Where the award is imperfect in a matter of form not affecting the merits of the
controversy, and if it had been a commissioners report, the defect could have been amended
or disregarded by the court.

The order may modify and correct the award so as to effect the intent thereof and promote
justice between the parties.
In this case, petitioner does not specify which of the foregoing grounds it relies upon for
judicial review. Petitioner avers that if and when the factual circumstances referred to in the
provisions aforementioned are present, judicial review of the award is warranted.[20] From
its presentation of issues, however, it appears that the alleged evident partiality of Mr. Sison
is singled out as a ground to vacate the boards decision.
We note, however, that the Court of Appeals found that petitioner did not present any proof
to back up its claim of evident partiality on the part of Mr. Sison. Its averments to the effect
that Mr. Sison was biased and had prejudged the case do not suffice to establish evident
partiality. Neither does the fact that a party was disadvantaged by the decision of the
arbitration committee prove evident partiality.[21]
According to the appellate court, [p]etitioner was never deprived of the right to present
evidence nor was there any showing that the Board showed signs of any bias in favor of
FUCC. As correctly found by the trial court, this Court cannot find its way to support
petitioners contention that there was evident partiality in the assailed Award of the Arbitrator
in favor of the respondent because the conclusion of the Board, which the Court found to be
well-founded, is fully supported by substantial evidence.[22]
There is no reason to depart from this conclusion.
However, we take exception to the arbitrators determination that based on promissory
estoppel per se or alone, FUCC is entitled to just compensation for blasting works for the
reasons discussed hereunder.
Section 9 of P.D. No. 1594, entitled Prescribing Policies, Guidelines, Rules and Regulations
for Government Infrastructure Contracts, provides:
SECTION 9. Change Order and Extra Work Order.A change order or extra work order may
be issued only for works necessary for the completion of the project and, therefore, shall be
within the general scope of the contract as bid[ded] and awarded. All change orders and extra
work orders shall be subject to the approval of the Minister of Public Works, Transportation
and Communications, the Minister of Public Highways, or the Minister of Energy, as the
case may be.
The pertinent portions of the Implementing Rules and Regulations of P.D. 1594 provide:
CI - Contract Implementation:
These Provisions Refer to Activities During Project Construction, i.e., After Contract Award
Until Completion, Except as May Otherwise be Specifically Referred to Provisions Under
Section II. IB - Instructions to Bidders.
CI 1 - Variation Orders - Change Order/Extra Work Order/Supplemental Agreement
4. An Extra Work Order may be issued by the implementing official to cover the
introduction of new work items after the same has been found to strictly comply with Section
CI-1-1 and approved by the appropriate official if the amount of the Extra Work Order is
within the limits of the former's authority to approve original contracts and under the
following conditions:
a. Where there are additional works needed and necessary for the completion, improvement
or protection of the project which were not included as items of work in the original contract.
b. Where there are subsurface or latent physical conditions at the site differing materially
from those indicated in the contract.
c. Where there are duly unknown physical conditions at the site of an unusual nature
differing materially from those ordinarily encountered and generally recognized as inherent
in the work or character provided for in the contract.
d. Where there are duly approved construction drawings or any instruction issued by the
implementing office/agency during the term of contract which involve extra cost.
6. A separate Supplemental Agreement may be entered into for all Change Orders and Extra
Work Orders if the aggregate amount exceeds 25% of the escalated original contract price.
All change orders/extra work orders beyond 100% of the escalated original contract cost
shall be subject to public bidding except where the works involved are inseparable from the
original scope of the project in which case negotiation with the incumbent contractor may be
allowed, subject to approval by the appropriate authorities.
7. Any Variation Order (Change Order, Extra Work Order or Supplemental Agreement) shall
be subject to the escalation formula used to adjust the original contract price less the cost of
mobilization. In claiming for any Variation Order, the contractor shall, within seven (7)
calendar days after such work has been commenced or after the circumstances leading to
such condition(s) leading to the extra cost, and within 28 calendar days deliver a written
communication giving full and detailed particulars of any extra cost in order that it may be
investigated at that time. Failure to provide either of such notices in the time stipulated shall
constitute a waiver by the contractor for any claim. The preparation and submission of
Change Orders, Extra Work Orders or Supplemental Agreements are as follows:
a. If the Project Engineer believes that a Change Order, Extra Work Order or Supplemental
Agreement should be issued, he shall prepare the proposed Order or Supplemental
Agreement accompanied with the notices submitted by the contractor, the plans therefore, his
computations as to the quantities of the additional works involved per item indicating the
specific stations where such works are needed, the date of his inspections and investigations
thereon, and the log book thereof, and a detailed estimate of the unit cost of such items of
work, together with his justifications for the need of such Change Order, Extra Work Order
or Supplemental Agreement, and shall submit the same to the Regional Director of
office/agency/corporation concerned.
b. The Regional Director concerned, upon receipt of the proposed Change Order, Extra Work
Order or Supplemental Agreement shall immediately instruct the technical staff of the
Region to conduct an on-the-spot investigation to verify the need for the work to be
prosecuted. A report of such verification shall be submitted directly to the Regional Director
concerned.
c. The Regional Director concerned after being satisfied that such Change Order, Extra Work
Order or Supplemental Agreement is justified and necessary, shall review the estimated
quantities and prices and forward the proposal with the supporting documentation to the head
of office/agency/corporation for consideration.
d. If, after review of the plans, quantities and estimated unit cost of the items of work
involved, the proper office/agency/corporation committee empowered to review and evaluate
Change Orders, Extra Work Orders or Supplemental Agreements recommends approval
thereof, the head of office/agency/corporation, believing the Change Order, Extra Work
Order or Supplemental Agreement to be in order, shall approve the same. The limits of
approving authority for any individual, and the aggregate of, Change Orders, Extra Work
Orders or Supplemental Agreements for any project of the head of office/agency/corporation
shall not be greater than those granted for an original project.
CI 3 - Conditions under which Contractor is to Start Work under Variation Orders and
Receive Payments
1. Under no circumstances shall a contractor proceed to commence work under any Change
Order, Extra Work Order or Supplemental Agreement unless it has been approved by the
Secretary or his duly authorized representative. Exceptions to the preceding rule are the
following:
a. The Regional Director, or its equivalent position in agencies/offices/corporations without
plantilla position for the same, may, subject to the availability of funds, authorize the
immediate start of work under any Change or Extra Work Order under any or all of the
following conditions:
(1) In the event of an emergency where the prosecution of the work is urgent to avoid
detriment to public service, or damage to life and/or property; and/or
(2) When time is of the essence; provided, however, that such approval is valid on work done
up to the point where the cumulative increase in value of work on the project which has not
yet been duly fully approved does not exceed five percent (5%) of the adjusted original
contract price, or P500,000 whichever is less; provided, further, that immediately after the
start of work, the corresponding Change/Extra Work Order shall be prepared and submitted
for approval in accordance with the above rules herein set. Payments for works satisfactorily
accomplished on any Change/Extra Work Order may be made only after approval of the
same by the Secretary or his duly authorized representative.
b. For a Change/Extra Work Order involving a cumulative amount exceeding five percent
(5%) of the original contract price or original adjusted contract price no work thereon may be
commenced unless said Change/Extra Work Order has been approved by the Secretary or his
duly authorized representative. [Emphasis supplied]
It is petitioners submission, and FUCC does not deny, that the claim for payment of blasting
works in Botong alone was approximately P170,000,000.00, a figure which far exceeds the
original contract price of P80,000,000.00 for two (2) project sites. Under the foregoing
implementing rules, for an extra work order which exceeds 5% of the original contract price,
no blasting work may be commenced without the approval of the Secretary or his duly
authorized representative. Moreover, the procedure for the preparation and approval of the
extra work order outlined under Contract Implementation (CI) 1(7) above should have been
complied with. Accordingly, petitioners officials should not have authorized the
commencement of blasting works nor should FUCC have proceeded with the same.
The following events, culled from the decision of the Arbitration Board and the assailed
Decision, are made the bases for the finding of promissory estoppel on the part of petitioner:
1. After claimant [respondent herein] encountered what it claimed to be massive hard rock
formation (Testimony of witness Dumaliang, TSN, 28 October 1996, pp. 41-42; Testimony
of witness Lataquin, 28 November 1996, pp. 2-3; 20-23; Exh. JJJ and sub-markings) and
informed respondent [petitioner herein] about it, respondents own geologists went to the
Botong site to investigate and confirmed the rock formation and recommended blasting (Cf.
Memorandum of Mr. Petronilo E. Pana, Acting Manager of the Geoscience Services
Department and the report of the geologists who conducted the site investigation; Exhs. F
and F-1).
2. Claimant asked for clearance to blast the rock formation to the design grade (Letter dated
28 September 1992; Exh. UU). The engineers of respondent at the project site advised
claimant to proceed with its suggested method of extraction (Order/Instruction given by Mr.
Reuel R. Declaro and Mr. Francis A. Paderna dated 29 September 1992; Exh. C).
3. Claimant requested that the intended blasting works be confirmed as extra work order by
responsible officials of respondent directly involved in the BACMAN II Project (i.e., then
BACMAN II Project Manager, Mr. Lauro R. Umali and Mr. Angelito G. Senga, Section
Chief, Civil Engineering Design of respondents Design Department which bidded the
project). These officials issued verbal instructions to the effect: (a) that claimant could blast
the rock formation down to the design grade of 495 masl; (b) that said blasting works would
be an extra work order; and (c) that claimant would be paid for said blasting works using the
price per cubic meter for similar blasting works at Palinpinon, or at P1,346.00 per cubic
meter.
4. Claimant sent two (2) confirmatory letters to respondent, both addressed to its President,
one dated 30 September 1992, and sent through Mr. Angelito Senga, Chief Civil Design
Thermal, the other dated 02 October 1992, and sent through Mr. Lauro R. Umali, Project
ManagerBacMan II (Exhs. D and E; Testimony of witness Dumaliang, TSN, 28 October
1996, pp. 43-49). The identical letters read:
We wish to confirm your instruction for us to proceed with the blasting of the Botong Plant
site to the design grade pending issuance of the relevant variation order. This is to avoid
delay in the implementation of this critical project due to the urgent need to blast rocks on
the plant site.
We are confirming further your statement that the said blasting works is an extra work order
and that we will be paid using the price established in your Palinpinon contract with Phesco.
Thank you for your timely action and we look forward to the immediate issuance of the extra
work order.
We are now mobilizing equipment and manpower for the said work and hope to start blasting
next week.
5. Respondent received the letters but did not reply thereto nor countermand the earlier
instructions given to claimant to proceed with the blasting works. The due execution and
authenticity of these letters (Exhs. D-1 and E-1) and the fact of receipt (Exhs. D-2 and E-2)
were duly proved by claimant (Testimony of witness Dumaliang, TSN, 28 October 1996,
43-49).
6. In mid-October 1992, three (3) Vice-Presidents of respondent visited the project site and
were informed of claimants blasting activities. While respondent claims that one of the
Vice-Presidents, Mr. Rodrigo Falcon, raised objections to claimants blasting works as an
extra work order, they instructed claimant to speed up the works because of the power crisis
then hounding the country. Stipulation no. 24 of the Joint Stipulation of Facts of the parties
which reads: 24. In mid-October 1992, three (3) Vice-Presidents of respondent, namely: Mr.
Hector N. Campos, Sr., of Engineering Construction, Mr. C.A. Pastoral of Engineering
Design, and Mr. Rodrigo P. Falcon, visited the project site and were likewise apprised of
claimants blasting activities. They never complained about the blasting works, much less
ordered its cessation. In fact, no official of respondent ever ordered that the blasting works be
stopped.
7. After visiting Botong, Mr. Hector N. Campos, Sr., then Vice President of Engineering
Construction, instructed Mr. Fernando A. Magallanes then Manager of the Luzon
Engineering Projects Department, to evaluate claimants blasting works and to submit his
recommendations on the proper price therefor. In a memorandum dated 17 November 1992
(Exh. G and sub-markings), Mr. Magallanes confirmed that claimants blasting works was an
extra work order and recommended that it be paid at the price for similar blasting works at
Palinpinon, or at P1,346.00 per cubic meter. Mr. Campos concurred with the findings and
recommendations of Mr. Magallanes and instructed Mr. Lauro R. Umali, then Project
Manager of BacMan II, to implement the same as shown by his instructions scribbled on the
memorandum.

8. Mr. Umali and the project team prepared proposed Extra Work Order No. 2 Blasting (Exh.
DDD Memorandum of Mr. Umali to Mr. Campos dated 20 January 1993 forwarding
proposed Extra Work Order No. 2), recommending a price of P983.75 per cubic meter for
claimants blasting works. Claimant agreed to this price (Testimony of witness Dumaliang, 7
November 1996, p. 48).
9. On 19 February 1993, claimant brought the matter of its unpaid blasting works to the
attention of the then NPC Chairman [also Secretary of the Department of Energy then]
Delfin L. Lazaro during a meeting with the multi-sectoral task force monitoring the
implementation of power plant projects, who asked then NPC President Pablo B. Malixi
what he was doing about the problem. President Malixi thereafter convened respondents
vice-presidents and ordered them to quickly document the variation order and pay claimant.
The vice-president, and specifically Mr. Campos, pledged that the variation order for
claimants blasting works would be submitted for the approval of the NPC Board during the
first week of March 1993. Claimant thereafter sent respondent a letter dated 22 February
1993 (Ex. K) to confirm this pledge (Testimony of witness Dumaliang, 7 November 1996, pp.
28-30).
10. Mr. Campos created a task force (i.e., the Technical Task Force on the Study and Review
of Extra Work Order No. 2; Exh. FFF) to review claimants blasting works. After several
meetings with the task force, claimant agreed to the lower price of P458.07 per cubic meter,
in exchange for quick payment (Testimony of witness Dumaliang, 7 November 1996, p. 30).
11. However, no variation order was issued and no payment came, although it appears from
two (2) radiograms sent by Mr. Campos to Mr. Paderna at the project site that the variation
order was being processed and that payment to claimant was forthcoming (Exhs. AAA and
BBB).
12. Respondent asked the Department of Public Works and Highways (DPWH) about the
standard prices for blasting in the projects of the DPWH. The DPWH officially replied to
respondents query in a letter dated 19 May 1993 but the task force still failed to seek Board
approval for claimants variation order. The task force eventually recommended that the issue
of grading excavation and structural excavation and the unit prices therefor be brought into
voluntary arbitration (Testimony of witness Dumaliang, 7 November 1996, pp. 30-57).
13. Claimant thereafter saw Mr. Francisco L. Viray, the new NPC President, who proposed
that claimant accept the price of P458.07 per cubic meter for its blasting works with the
balance of its claim to be the subject of arbitration. Claimant accepted the offer and sent the
letter dated 28 September 1993 (Exh. O) to formalize said acceptance. However, no variation
order was issued and the promised payment never came. (Testimony of witness Dumaliang,
7 November 1996, p. 58).
14. After some time, claimant met Mr. Viray on 19 October 1993 at the project site, and with
some NPC officers in attendance, particularly Mr. Gilberto A. Pastoral, Vice-President for
Engineering Design, who was instructed by Mr. Viray to prepare the necessary memorandum
(i.e., that claimant would be paid P458.07 per cubic meter with the balance of its claim to be
the subject of arbitration) for the approval of the NPC Board. Claimant formalized what
transpired during this meeting in its letter to Mr. Pastoral dated 22 October 1993 (Exhibit R).
But no action was taken by Mr. Pastoral and no variation order was issued by respondent
(Testimony of witness Dumaliang, 7 November 1996, pp. 57-58).[23] [Emphasis supplied
and bracketed words]
Promissory estoppel may arise from the making of a promise, even though without
consideration, if it was intended that the promise should be relied upon and in fact it was
relied upon, and if a refusal to enforce it would be virtually to sanction the perpetration of
fraud or would result in other injustice.[24] Promissory estoppel presupposes the existence of
a promise on the part of one against whom estoppel is claimed. The promise must be plain
and unambiguous and sufficiently specific so that the court can understand the obligation
assumed and enforce the promise according to its terms.[25]
In the present case, the foregoing events clearly evince that the promise that the blasting
works would be paid was predicated on the approval of the extra work order by petitioners
Board. Even FUCC acknowledged that the blasting works should be an extra work order and
requested that the extra work order be confirmed as such and approved by the appropriate
officials. Notably, even as the extra work order allegedly promised to it was not yet
forthcoming, FUCC commenced blasting.
The alleged promise to pay was therefore conditional and up to this point, promissory
estoppel cannot be established as the basis of petitioners liability especially in light of P.D.
1594 and its implementing rules of which both parties are presumed to have knowledge. In
Mendoza v. Court of Appeals, supra, we ruled that [a] cause of action for promissory
estoppel does not lie where an alleged oral promise was conditional, so that reliance upon it
was not reasonable. It does not operate to create liability where it does not otherwise exist.
Petitioners argument that it is not bound by the acts of its officials who acted beyond the
scope of their authority in allowing the blasting works is correct. Petitioner is a government
agency with a juridical personality separate and distinct from the government. It is not a
mere agency of the government but a corporate entity performing proprietary functions. It
has its own assets and liabilities and exercises corporate powers, including the power to enter
into all contracts, through its Board of Directors.
In this case, petitioners officials exceeded the scope of their authority when they authorized
FUCC to commence blasting works without an extra work order properly approved in
accordance with P.D. 1594. Their acts cannot bind petitioner unless it has ratified such acts
or is estopped from disclaiming them.[26]
However, the Compromise Agreement entered into by the parties, petitioner being
represented by its President, Mr. Guido Alfredo A. Delgado, acting pursuant to its Board
Resolution No. 95-54 dated April 3, 1995, is a confirmatory act signifying petitioners
ratification of all the prior acts of its officers. Significantly, the parties agreed that [t]his
Compromise Agreement shall serve as the Supplemental Agreement for the payment of
plaintiffs blasting works at the Botong site[27] in accordance with CI 1(6) afore-quoted. In
other words, it is primarily by the force of this Compromise Agreement that the Court is
constrained to declare FUCC entitled to payment for the blasting works it undertook.
Moreover, since the blasting works were already rendered by FUCC and accepted by
petitioner and in the absence of proof that the blasting was done gratuitously, it is but
equitable that petitioner should make compensation therefor, pursuant to the principle that no
one should be permitted to enrich himself at the expense of another.[28]
This brings us to the issue of just compensation.
The parties proposed in the terms of reference jointly submitted to the Arbitration Board that
should FUCC be adjudged entitled to just compensation for its blasting works, the price
therefor should be determined based on the payment for blasting works in similar projects of
FUCC and the amount it paid to its blasting subcontractor.[29] They agreed further that the
price of the blasting at the Botong site . . . shall range from Defendants position of P76.00
per cubic meter as per contract to a maximum of P1,144.00[30]
Petitioner contends that the Arbitration Board, trial court and the appellate court unduly
relied on the memorandum of Mr. Umali which was allegedly not marked as an exhibit. We
note, however, that this memorandum actually forms part of the record of the case as Exhibit
DDD.[31] Moreover, both the Arbitration Board and the Court of Appeals found that Mr.
Umalis proposal is the best evidence on record as it is supported by detailed cost estimates
that will serve as basis to determine just compensation.

While the Arbitration Board found that FUCC did not present evidence showing the amount
it paid to its blasting sub-contractor, it did present testimony to the effect that it incurred
other costs and expenses on top of the actual blasting cost. Hence, the amount of P430.00 per
cubic meter indicated in FUCCs Contract of Agreement with Dynamic is not controlling.
Moreover, FUCC presented evidence showing that in two (2) other projects where blasting
works were undertaken, petitioner paid the contractors P1,346 per cubic meter for blasting
and disposal of solid rocks in the Palinpinon project and P1,144.51 per cubic meter for rock
excavation in the Hermosa Balintawak project. Besides, while petitioner claims that in a
contract with Wilper Construction for the construction of the Tayabas sub-station, the price
agreed for blasting was only P96.13, petitioner itself did not present evidence in support of
this claim.[32]
Parenthetically, the point raised by petitioner that its subsequent contractor, Phesco, did not
undertake blasting works in excavating the same rock formation is extraneous and irrelevant.
The fact is that petitioner allowed FUCC to blast and undertook to pay for the blasting
works.
At this point, we hearken to the rule that the findings of the Arbitration Board, affirmed by
the trial court and the Court of Appeals and supported as they are by substantial evidence,
should be accorded not only respect but finality.[33] Accordingly, the amount of P763.00 per
cubic meter fixed by the Arbitration Board and affirmed by the appellate court as just
compensation should stand.
As regards the issue of interest, while the appellate court declared in the body of its Decision
that interest which would represent the cost of the money spent be imposed on the money
actually spent by claimant for the blasting works,[34] there is no pronouncement as to the
payment of interest in the dispositive portion of the Decision even as it specifically deleted
the award of attorneys fees.
Despite its knowledge of the appellate courts omission, FUCC did not file a motion for
reconsideration or appeal from its Decision. In failing to do so, FUCC allowed the Decision
to become final as to it.
In Edwards v. Arce,[35] we ruled that in a case decided by a court, the true judgment of legal
effect is that entered by the clerk of said court pursuant to the dispositive part of its decision.
The only portion of the decision that may be the subject of execution is that which is
ordained or decreed in the dispositive portion. Whatever may be found in the body of the
decision can only be considered as part of the reasons or conclusions of the court and serve
only as guides to determine the ratio decidendi.[36]
Even so, the Court allows a judgment which had become final and executory to be clarified
when there is an ambiguity caused by an omission or mistake in the dispositive portion of the
decision.[37] In Reinsurance Company of the Orient, Inc. v. Court of Appeals,[38] we held:
In Republic Surety and Insurance Company, Inc. v. Intermediate Appellate Court, the Court
applying the above doctrine said:
xxx We clarify, in other words, what we did affirm. What is involved here is not what is
ordinarily regarded as a clerical error in the dispositive part of the decision of the Court of
First Instance, which type of error is perhaps best typified by an error in arithmetical
computation. At the same time, what is involved here is not a correction of an erroneous
judgment or dispositive portion of a judgment. What we believe is involved here is in the
nature of an inadvertent omission on the part of the Court of First Instance (which should
have been noticed by private respondents counsel who had prepared the complaint), of what
might be described as a logical follow-through of something set forth both in the body of the
decision and in the dispositive portion thereof: the inevitable follow-through, or translation
into, operational or behavioral terms, of the annulment of the Deed of Sale with Assumption
of Mortgage, from which petitioners title or claim of title embodied in TCT 133153 flows.
(Italics supplied)[39]

In this case, the omission of the award of interest was obviously inadvertent. Correction is
therefore in order. However, we do not agree with the Arbitration Board that the interest
should be computed at 12%. Since the case does not involve a loan or forbearance of money,
goods or credit and court judgments thereon, the interest due shall be computed at 6% per
annum computed from the time the claim was made in 1992 as determined by the Arbitration
Board and in accordance with Articles 2209 and 1169 of the Civil Code. The actual base for
the computation of legal interest shall be on the amount finally adjudged.[40] Further, when
the judgment awarding a sum of money becomes final and executory, the rate of legal
interest shall be 12% per annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.[41]

WHEREFORE, the petition is GRANTED in part. The appealed decision is MODIFIED in

that the amount of P74,035,503.50 shall earn legal interest of six percent (6%) from 1992. A
twelve percent (12%) interest, in lieu of six percent (6%), shall be imposed on such amount
upon finality of this decision until the payment thereof.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

EQUITABLE PCI BANKING G.R. No. 182248 The Case
CORPORATION,[1]
GEORGE L. GO, PATRICK D. GO, Present: This Petition for Review on Certiorari under Rule 45 seeks the reversal of the January 8,
GENEVIEVE W.J. GO, 2008[2] and March 17, 2008[3] Orders of the Regional Trial Court (RTC), Branch 148 in
FERDINAND MARTIN G. QUISUMBING, J., Chairperson, Makati City in SP Proc. Case No. 6046, entitled In the Matter of ICC Arbitration Ref. No.
ROMUALDEZ, CARPIO MORALES, 13290/MS/JB/JEM Between RCBC Capital Corporation, (Claimant), and Equitable PCI
OSCAR P. LOPEZ-DEE, TINGA, Banking Corporation, Inc. et al., (Respondents). The assailed January 8, 2008 Order
RENE J. BUENAVENTURA, VELASCO, JR., and confirmed the Partial Award dated September 27, 2007[4] rendered by the International
GLORIA L. TAN-CLIMACO, BRION, JJ. Chamber of Commerce-International Court of Arbitration (ICC-ICA) in Case No.
ROGELIO S. CHUA, 13290/MS/JB/JEM, entitled RCBC Capital Corporation (Philippines) v. Equitable PCI Bank,
FEDERICO C. PASCUAL, Inc. & Others (Philippines). The March 17, 2008 Order denied petitioners motion for
LEOPOLDO S. VEROY, reconsideration of the January 8, 2008 Order.
WILFRIDO V. VERGARA,
EDILBERTO V. JAVIER, The Facts
ANTHONY F. CONWAY,
ROMULAD U. DY TANG, On May 24, 2000, petitioners Equitable PCI Bank, Inc. (EPCIB) and the individual
WALTER C. WESSMER, and shareholders of Bankard, Inc., as sellers, and respondent RCBC Capital Corporation (RCBC),
ANTONIO N. COTOCO, as buyer, executed a Share Purchase Agreement[5] (SPA) for the purchase of petitioners
Petitioners, interests in Bankard, representing 226,460,000 shares, for the price of PhP 1,786,769,400. To
- versus - expedite the purchase, RCBC agreed to dispense with the conduct of a due diligence audit on
Promulgated: the financial status of Bankard.
RCBC CAPITAL CORPORATION,
Respondent. December 18, 2008 Under the SPA, RCBC undertakes, on the date of contract execution, to deposit, as
x-----------------------------------------------------------------------------------------x downpayment, 20% of the purchase price, or PhP 357,353,880, in an escrow account. The
escrowed amount, the SPA stated, should be released to petitioners on an agreed-upon
DECISION release date and the balance of the purchase price shall be delivered to the share buyers upon
the fulfillment of certain conditions agreed upon, in the form of a managers check.
VELASCO, JR., J.:
The other relevant provisions of the SPA are:

Section 5. Sellers Representations and Warranties
The SELLERS jointly and severally represent and warrant to the BUYER that:
xxxx
The Financial Condition of Bankard
g. The audited financial statements of Bankard for the three (3) fiscal years ended December
31, 1997, 1998 and 1999, and the unaudited financial statements for the first quarter ended
31 March 2000, are fair and accurate, and complete in all material respects, and have been
prepared in accordance with generally accepted accounting principles consistently followed
throughout the period indicated and:
i) the balance sheet of Bankard as of 31 December 1999, as prepared and certified by SGV &
Co. (SGV), and the unaudited balance sheet for the first quarter ended 31 March 2000,
present a fair and accurate statement as of those dates, of Bankards financial condition and of
all its assets and liabilities, and is complete in all material respects; and
ii) the statements of Bankards profit and loss accounts for the fiscal years 1996 to 1999, as
prepared and certified by SGV, and the unaudited profit and loss accounts for the first
quarter ended 31 March 2000, fairly and accurately present the results of the operations of
Bankard for the periods indicated, and are complete in all material respects.
h. Except as disclosed in the Disclosures, and except to the extent set forth or reserved in the
audited financial statements of Bankard as of 31 December 1999 and its unaudited financial
statements as of 31 March 2000, Bankard, as of such dates and up to 31 May 2000, had and
shall have no liabilities, omissions or mistakes in its records which will have material
adverse effect on the net worth or financial condition of Bankard to the extent of more than
One Hundred Million Pesos (P100,000,000.00) in the aggregate. In the event such material
adverse effect on the net worth or financial condition of Bankard exceeds One Hundred
Million Pesos (P100,000,000.00), the Purchase Price shall be reduced in accordance with the
following formula:
Reduction in Purchase Price = X multiplied by 226,460,000
where
Amount by which negative
adjustment exceeds P100 Million
X = ------------------------------------------- (1.925)
338,000,000
xxxx
Section 7. Remedies for Breach of Warranties
a. If any of the representations and warranties of any or all of the SELLERS or the BUYER
(the Defaulting Party) contained in Sections 5 and 6 shall be found to be untrue when made
and/or as of the Closing Date, the other party, i.e., the BUYER if the Defaulting Party is any
or all of the SELLERS and the SELLERS if the Defaulting Party is the BUYER (hereinafter
referred to as the Non-Defaulting Party) shall have the right to require the Defaulting Party,
at the latters expense, to cure such breach, and/or seek damages, by providing notice or
presenting a claim to the Defaulting Party, reasonably specifying therein the particulars of
the breach. The foregoing remedies shall be available to the Non-Defaulting Party only if the
demand therefor is presented in writing to the Defaulting Party within three (3) years from
the Closing Date except that the remedy for a breach of the SELLERS representation and
warrant in Section 5 (h) shall be available only if the demand therefor is presented to the
Defaulting Party in writing together with schedules and to substantiate such demand, within
six (6) months from the Closing Date.[6]
On June 2, 2000, RCBC deposited the stipulated downpayment amount in an escrow account
after which it was given full management and operational control of Bankard. June 2, 2000 is
also considered by the parties as the Closing Date referred to in the SPA.
Thereafter, the parties executed an Amendment to Share Purchase Agreement (ASPA) dated
September 19, 2000.[7] Its paragraph 2(e) provided that:
2. Notwithstanding any provisions to the contrary in the Share Purchase Agreement and/or
any agreement, instrument or document entered into or executed by the Parties in relation
thereto (the Related Agreements), the Parties hereby agree that:
xxxx
e) Notwithstanding the provisions of Sec. 7 of the Share Purchase Agreement to the contrary,
the remedy for a breach of the SELLERS representation and warranty in Section 5(h) of the
Share Purchase Agreement shall be available if the demand therefor is presented to the
SELLERS in writing together with schedules and data to substantiate such demand, on or
before 31 December 2000. (Emphasis added.)
Sometime in September 2000, RCBC had Bankards accounts audited, creating for the
purpose an audit team led by a certain Rubio, the Vice-President for Finance of RCBC at the
time. Rubios conclusion was that the warranty, as contained in Section 5(h) of the SPA
(simply Sec. 5[h] hereinafter), was correct.
On December 28, 2000, RCBC paid the balance of the contract price. The corresponding
deeds of sale for the shares in question were executed in January 2001.
Thereafter, in a letter of May 5, 2003, RCBC informed petitioners of its having overpaid the
purchase price of the subject shares, claiming that there was an overstatement of valuation of
accounts amounting to PhP 478 million, resulting in the overpayment of over PhP 616
million. Thus, RCBC claimed that petitioners violated their warranty, as sellers, embodied in
Sec. 5(g) of the SPA (Sec. 5[g] hereinafter).
Following unsuccessful attempts at settlement, RCBC, in accordance with Sec. 10 of the
SPA, filed a Request for Arbitration dated May 12, 2004[8] with the ICC-ICA. In the request,
RCBC charged Bankard with deviating from, contravening and not following generally
accepted accounting principles and practices in maintaining their books. Due to these
improper accounting practices, RCBC alleged that both the audited and unaudited financial
statements of Bankard prior to the stock purchase were far from fair and accurate and, hence,
violated the representations and warranties of petitioners in the SPA. Per RCBC, its
overpayment amounted to PhP 556 million. It thus prayed for the rescission of the SPA,
restitution of the purchase price, payment of actual damages in the amount of PhP
573,132,110, legal interest on the purchase price until actual restitution, moral damages, and
litigation and attorneys fees. As alternative to rescission and restitution, RCBC prayed for
damages in the amount of at least PhP 809,796,092 plus legal interest.
To the Request for Arbitration, petitioners filed an Answer dated July 28, 2004,[9] denying
RCBCs inculpatory averments and setting up the following affirmative allegations: the
period for filing of the asserted claim had already lapsed by force of Sec. 7 of the SPA;
RCBC is not entitled to rescission having had ample opportunity and reasonable time to file a
claim against petitioners; RCBC is not entitled to its alternative prayer of damages, being
guilty of laches and failing to set out the details of the breach as required under Sec. 7.
Arbitration in the ICC-ICA proceeded after the formation of the arbitration tribunal
consisting of retired Justice Santiago M. Kapunan, nominated by petitioners; Neil Kaplan,
RCBCs nominee; and Sir Ian Barker, appointed by the ICC-ICA.
After drawn out proceedings with each party alleging deviation and non-compliance by the
other with arbitration rules, the tribunal, with Justice Kapunan dissenting, rendered a Partial
Award dated September 27, 2007,[10] the dispositive portion of which states:
15 AWARD AND DIRECTIONS
15.1 The Tribunal makes the following declarations by way of Partial Award:
(a) The Claimants claim is not time-barred under the provisions of this SPA.
(b) The Claimant is not estopped by its conduct or the equitable doctrine of laches from
pursuing its claim.
(c) As detailed in the Partial Award, the Claimant has established the following breaches by
the Respondents of clause 5(g) of the SPA:
i) the assets, revenue and net worth of Bankard were overstated by reason of its policy on
and recognition of Late Payment Fees;
ii) reported receivables were higher than their realizable values by reason of the bucketing
method, thus overstating Bankards assets; and
iii) the relevant Bankard statements were inadequate and misleading in that their disclosures
caused readers to be misinformed about Bankards accounting policies on revenue and
receivables.
(d) Subject to proof of loss the Claimant is entitled to damages for the foregoing breaches.
(e) The Claimant is not entitled to rescission of the SPA.
(f) All other issues, including any issue relating to costs, will be dealt with in a further or
final award.
15.2 A further Procedural Order will be necessary subsequent to the delivery of this Partial
Award to deal with the determination of quantum and in particular, whether there should be
an Expert appointed by the Tribunal under Article 20(4) of the ICC Rules to assist the
Tribunal in this regard.
15.3 This Award is delivered by a majority of the Tribunal (Sir Ian Barker and Mr. Kaplan).
Justice Kapunan is unable to agree with the majoritys conclusion on the claim of estoppel
brought by the respondents.
On the matter of prescription, the tribunal held that RCBCs claim is not time-barred, the
claim properly falling under the contemplation of Sec. 5(g) and not Sec. 5(h). As such, the
tribunal concluded, RCBCs claim was filed within the three (3)-year period under Sec. 5(g)
and that the six (6)-month period under Sec. 5(h) did not apply.
The tribunal also exonerated RCBC from laches, the latter having sought relief within the
three (3)-year period prescribed in the SPA. On the matter of estoppel suggested in
petitioners answer, the tribunal stated in par. 10.27 of the Partial Award the following:
10.27 Clearly, there has to be both an admission or representation by (in this case) the
Claimant [RCBC], plus reliance upon it by (in this case) the Respondents [herein petitioners].
The Tribunal cannot find as proved any admission/representation that the Claimant was
abandoning a 5(g) claim, any reliance by the Respondents on an admission, and any
detriment to the Respondents such as would entitle them to have the Claimant deprived of
the benefit of clause 5(g). These aspects of the claim for estoppels are rejected.[11]
Notably, the tribunal considered the rescission of the SPA and ASPA as impracticable and
totally out of the question.[12]
In his Dissenting Opinion[13] which he submitted to and which was received on September
24, 2007 by the ICC-ICA, Justice Kapunan stated the observation that RCBCs claim is
time-barred, falling as such claim did under Sec. 5(h), which prescribes a comparatively
shorter prescriptive period, not 5(g) as held by the majority of the tribunal, to wit:
Claimant admits that the Claim is for recovery of P431 million on account of alleged
overvaluation of the net worth of Bankard, allegedly for improper accounting practices
resulting in its book value per share as of 31 December 1999 [being] overstated. Claimants
witness, Dean Echanis asserts that the inadequate provisioning for Bankards doubtful
accounts result[ed] in an overstatement of its December 31, 1999 total assets and net worth
of by [sic] least P418.2 million.
In addition, Claimants demand letter addressed to the Respondents alleged that we overpaid
for the Shares to the extent of the impact of the said overstatement on the Book Value per
share.
These circumstances establish beyond dispute that the Claim is based on the alleged
overstatement of the 1999 net worth of Bankard, which the parties relied on in setting the
purchase price of the shares. Moreover, it is clear that there was an overstatement because of
improper accounting practices which led Claimant to overpay for the shares.
Ultimately, the Claim is one for recovery of overpayment in the purchase price of the shares.
xxx
As to the issue of estoppel, Justice Kapunan stated:
Moreover, Mr. Rubios findings merely corroborated the disclosures made in the Information
Memorandum that Claimant received from the Respondents prior to the execution of the
SPA. In this connection, I note that Bankards policy on provisioning and setting of
allowances using the Bucketed Method and income recognition from AR/Principal,
AR/Interest and AR/LPFs were disclosed in the Information Memorandum. Thus, these
alleged improper accounting practices were known to the Claimant even prior to the
execution of the SPA.
Thus, when Claimant paid the balance of the purchase price, it did so with full knowledge of
these accounting practices of Bankard that it now assails. By paying the balance of the
purchase price without taking exception or objecting to the accounting practices disclosed
through Mr. Rubio s review and the Information Memorandum, Claimant is deemed to have
accepted such practices as correctly reporting the 1999 net worth. x x x
xxxx
As last point, I note that my colleagues invoke a principle that for estoppels to apply there
must be positive indication that the right to sue was waived. I am of the view that there is no
such principle under Philippine law. What is applicable is the holding in Knecht and in Coca-
Cola that prior knowledge of an unfavorable fact is binding on the party who has such
knowledge; when the purchaser proceeds to make investigations by himself, and the vendor
does nothing to prevent such investigation from being as complete as the former might wish,
the purchaser cannot later allege that the vendor made false representations to him (Cf.
Songco v. Sellner, 37 Phil 254 citations omitted).
Applied to this case, the Claimant cannot seek relief on the basis that when it paid the
purchase price in December 2000, it was unaware that the accounting practices that went into
the reporting of the 1999 net worth as amounting to P1,387,275,847 were not in conformity
with GAAP [generally accepted accounting principles]. (Emphasis added.)
On October 26, 2007, RCBC filed with the RTC a Motion to Confirm Partial Award. On the
same day, petitioners countered with a Motion to Vacate the Partial Award. On November 9,
2007, petitioners again filed a Motion to Suspend and Inhibit Barker and Kaplan.
On January 8, 2008, the RTC issued the first assailed order confirming the Partial Award and
denying the adverted separate motions to vacate and to suspend and inhibit. From this order,
petitioners sought reconsideration, but their motion was denied by the RTC in the equally
assailed second order of March 17, 2008.
From the assailed orders, petitioners came directly to this Court through this petition for
review.
The Issues
This petition seeks the review, reversal and setting aside of the orders Annexes A and B and,
in lieu of them, it seeks judgment vacating the arbitrators liability award, Annex C, on these
grounds:
(a) The trial court acted contrary to law and judicial authority in refusing to vacate the
arbitral award, notwithstanding it was rendered in plain disregard of the parties contract and
applicable Philippine law, under which the claim in arbitration was indubitably time-barred.
(b) The trial court acted contrary to law and judicial authority in refusing to vacate and in
confirming the arbitral award, notwithstanding that the arbitrators had plainly and admittedly
failed to accord petitioners due process by denying them a hearing on the basic factual matter
upon which their liability is predicated.
(c) The trial court committed grave error in confirming the arbitrators award, which held
petitioners-sellers liable for an alleged improper recording of accounts, allegedly affecting
the value of the shares they sold, notwithstanding that the respondent-buyer knew before
contracting that the accounts were kept in the manner complained of, and in fact ratified and
adopted the questioned accounting practice and policies.[14]
The Courts Ruling
The petition must be denied.
On Procedural Misstep of Direct Appeal to This Court
As earlier recited, the ICC-ICAs Partial Award dated September 27, 2007 was confirmed by
the RTC in its first assailed order of January 8, 2008. Thereafter, the RTC, by order of March
17, 2008, denied petitioners motion for reconsideration. Therefrom, petitioners came directly
to this Court on a petition for review under Rule 45 of the Rules of Court.
This is a procedural miscue for petitioners who erroneously bypassed the Court of Appeals
(CA) in pursuit of its appeal. While this procedural gaffe has not been raised by RCBC, still
we would be remiss in not pointing out the proper mode of appeal from a decision of the
RTC confirming, vacating, setting aside, modifying, or correcting an arbitral award.
Rule 45 is not the remedy available to petitioners as the proper mode of appeal assailing the
decision of the RTC confirming as arbitral award is an appeal before the CA pursuant to Sec.
46 of Republic Act No. (RA) 9285, otherwise known as the Alternative Dispute Resolution
Act of 2004, or completely, 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 and became effective on
April 28, 2004 after its publication on April 13, 2004.
In Korea Technologies Co., Ltd v. Lerma, we explained, inter alia, that the RTC decision of
an assailed arbitral award is appealable to the CA and may further be appealed to this Court,
thus:
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.[15]
It is clear from the factual antecedents that RA 9285 applies to the instant case. This law was
already effective at the time the arbitral proceedings were commenced by RCBC through a
request for arbitration filed before the ICC-ICA on May 12, 2004. Besides, the assailed
confirmation order of the RTC was issued on March 17, 2008. Thus, petitioners clearly took
the wrong mode of appeal and the instant petition can be outright rejected and dismissed.
Even if we entertain the petition, the outcome will be the same.
The Court Will Not Overturn an Arbitral Award
Unless It Was Made in Manifest Disregard of the Law
In Asset Privatization Trust v. Court of Appeals,[16] the Court passed on similar issues as
the ones tendered in the instant petition. In that case, the arbitration committee issued an
arbitral award which the trial court, upon due proceedings, confirmed despite the opposition
of the losing party. Motions for reconsideration by the losing party were denied. An appeal
interposed by the losing party to the CA was denied due course. On appeal to this Court, we
established the parameters by which an arbitral award may be set aside, to wit:
As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as
to the law or as to the facts. Courts are without power to amend or overrule merely because
of disagreement with matters of law or facts determined by the arbitrators. They will not
review the findings of law and fact contained in an award, and will not undertake to
substitute their judgment for that of the arbitrators, since any other rule would make an
award the commencement, not the end, of litigation. Errors of law and fact, or an erroneous
decision of matters submitted to the judgment of the arbitrators, are insufficient to invalidate
an award fairly and honestly made. Judicial review of an arbitration is, thus, more limited
than judicial review of a trial.
Nonetheless, the arbitrators awards is not absolute and without exceptions. The arbitrators
cannot resolve issues beyond the scope of the submission agreement. The parties to such an
agreement are bound by the arbitrators award only to the extent and in the manner prescribed
by the contract and only if the award is rendered in conformity thereto. Thus, Sections 24
and 25 of the Arbitration Law provide grounds for vacating, rescinding or modifying an
arbitration award. Where the conditions described in Articles 2038, 2039 and 2040 of the
Civil Code applicable to compromises and arbitration are attendant, the arbitration award
may also be annulled.

xxxx
Finally, it should be stressed that while a court is precluded from overturning an award for
errors in determination of factual issues, nevertheless, if an examination of the record reveals
no support whatever for the arbitrators determinations, their award must be vacated. In the
same manner, an award must be vacated if it was made in manifest disregard of the law.[17]
(Emphasis supplied.)
Following Asset Privatization Trust, errors in law and fact would not generally justify the
reversal of an arbitral award. A party asking for the vacation of an arbitral award must show
that any of the grounds for vacating, rescinding, or modifying an award are present or that
the arbitral award was made in manifest disregard of the law. Otherwise, the Court is
duty-bound to uphold an arbitral award.
The instant petition dwells on the alleged manifest disregard of the law by the ICC-ICA.
The US case of Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros[18] expounded on the
phrase manifest disregard of the law in the following wise:
This court has emphasized that manifest disregard of the law is a very narrow standard of
review. Anaconda Co. v. District Lodge No. 27, 693 F.2d 35 (6th Cir.1982). A mere error in
interpretation or application of the law is insufficient. Anaconda, 693 F.2d at 37-38. Rather,
the decision must fly in the face of clearly established legal precedent. When faced with
questions of law, an arbitration panel does not act in manifest disregard of the law unless (1)
the applicable legal principle is clearly defined and not subject to reasonable debate; and (2)
the arbitrators refused to heed that legal principle.
Thus, to justify the vacation of an arbitral award on account of manifest disregard of the law,
the arbiters findings must clearly and unequivocally violate an established legal precedent.
Anything less would not suffice.
In the present case, petitioners, in a bid to establish that the arbitral award was issued in
manifest disregard of the law, allege that the Partial Award violated the principles of
prescription, due process, and estoppel. A review of petitioners arguments would, however,
show that their arguments are bereft of merit. Thus, the Partial Award dated September 27,
2007 cannot be vacated.
RCBCs Claim Is Not Time-Barred
Petitioners argue that RCBCs claim under Sec. 5(g) is based on overvaluation of Bankards
revenues, assets, and net worth, hence, for price reduction falling under Sec. 5(h), in which
case it was belatedly filed, for RCBC presented the claim to petitioners on May 5, 2003,
when the period for presenting it under Sec. 5(h) expired on December 31, 2000. As a
counterpoint, RCBC asserts that its claim clearly comes under Sec. 5(g) in relation to Sec. 7
which thus gave it three (3) years from the closing date of June 2, 2000, or until June 1, 2003,
within which to make its claim. RCBC contends having acted within the required period,
having presented its claim-demand on May 5, 2003.
To make clear the issue at hand, we highlight the pertinent portions of Secs. 5(g), 5(h), and 7
bearing on what petitioners warranted relative to the financial condition of Bankard and the
remedies available to RCBC in case of breach of warranty:
g. The audited financial statements of Bankard for the three (3) fiscal years ended
December 31, 1997, 1998 and 1999, and the unaudited financial statements for the first
quarter ended 31 March 2000, are fair and accurate, and complete in all material respects,
and have been prepared in accordance with generally accepted accounting principles
consistently followed throughout the period indicated and:
i) the balance sheet of Bankard as of 31 December 1999, as prepared and certified
by SGV & Co. (SGV), and the unaudited balance sheet for the first quarter ended 31 March
2000, present a fair and accurate statement as of those dates, of Bankards financial condition
and of all its assets and liabilities, and is complete in all material respects; and
ii) the statements of Bankards profit and loss accounts for the fiscal years 1996 to
1999, as prepared and certified by SGV, and the unaudited profit and loss accounts for the
first quarter ended 31 March 2000, fairly and accurately present the results of the operations
of Bankard for the periods indicated, and are complete in all material respects.
h. Except as disclosed in the Disclosures, and except to the extent set forth or
reserved in the audited financial statements of Bankard as of 31 December 1999 and its
unaudited financial statements for the first quarter ended 31 March 2000, Bankard, as of such
dates and up to 31 May 2000, had and shall have no liabilities, omissions or mistakes in its
records which will have a material adverse effect on the net worth or financial condition of
Bankard to the extent of more than One Hundred Million Pesos (P 100,000,000.00) in the
aggregate. In the event such material adverse effect on the net worth or financial condition of
Bankard exceeds One Hundred Million Pesos (P 100,000,000.00), the Purchase Price shall
be reduced in accordance with the following formula:
xxxx
Section 7. Remedies for Breach of Warranties
If any of the representations and warranties of any or all of the SELLERS or the BUYER
(the Defaulting Party) contained in Sections 5 and 6 shall be found to be untrue when made
and/or as of the Closing Date, the other party, i.e., the BUYER if the Defaulting is any of the
SELLERS and the SELLERS if the Defaulting Party is the BUYER (hereinafter referred to
as the Non-Defaulting Party) shall have the right to require the Defaulting Party, at the latters
expense, to cure such breach, and/or seek damages, by providing notice or presenting a claim
to the Defaulting Party, reasonably specifying therein the particulars of the breach. The
foregoing remedies shall be available to the Non-Defaulting Party only if the demand
therefor is presented in writing to the Defaulting Party within three (3) years from the
Closing Date, except that the remedy for a breach of the SELLERS representation and
warranty in Section 5 (h) shall be available only if the demand therefor is presented to the
Defaulting Party in writing together with schedules and data to substantiate such demand,
within six (6) months from the Closing Date. (Emphasis supplied.)
Before we address the issue put forward by petitioners, there is a necessity to determine the
nature and application of the reliefs provided under Sec. 5(g) and Sec. 5(h) in conjunction
with Sec. 7, thus:
(1) The relief under Sec. 5(h) is specifically for price reduction as said section explicitly
states that the Purchase Price shall be reduced in accordance with the following formula x x
x. In addition, Sec. 7 gives the aggrieved party the right to ask damages based on the
stipulation that the non-defaulting party shall have the right to require the Defaulting Party,
at the latters expense, to cure such breach and/or seek damages.
On the other hand, the remedy under Sec. 5(g) in conjunction with Sec. 7 can include
specific performance, damages, and other reliefs excluding price reduction.
(2) Sec. 5(g) warranty covers the audited financial statements (AFS) for the three (3) years
ending December 31, 1997 to 1999 and the unaudited financial statements (UFS) for the first
quarter ending March 31, 2000. On the other hand, the Sec. 5(h) warranty refers only to the
AFS for the year ending December 31, 1999 and the UFS up to May 31, 2000. It is undenied
that Sec. 5(h) refers to price reduction as it covers only the most up-to-date audited and
unaudited financial statements upon which the price must have been based.[19]
(3) Under Sec. 5(h), the responsibility of petitioners for its warranty shall exclude the
disclosures and reservations made in AFS of Bankard as of December 31, 1999 and its UFS
up to May 31, 2000. No such exclusions were made under Sec. 5(g) with respect to the
warranty of petitioners in the AFS and UFS of Bankard.
(4) Sec. 5(h) gives relief only if there is material adverse effect in the net worth in excess of
PhP 100 million and it provides a formula for price reduction.[20] On the other hand, Sec.
5(g) can be the basis for remedies like specific performance, damages, and other reliefs,
except price reduction, even if the overvaluation is less or above PhP 100 million and there is
no formula for computation of damages.
(5) Under Sec. 7, the aggrieved party shall present its written demand to the defaulting party
within three (3) years from closing date. Under Sec. 5(h), the written demand shall be
presented within six (6) months from closing date. In accordance with par. 2(c) of the ASPA,
the deadline to file the demand under Sec. 5(h) was extended to December 31, 2000.
From the above determination, it becomes clear that the aggrieved party is entitled to two (2)
separate alternative remedies under Secs. 5 and 7 of the SPA, thus:
1. A claim for price reduction under Sec. 5(h) and/or damages based on the breach of
warranty by Bankard on the absence of liabilities, omissions and mistakes on the financial
statements as of 31 December 1999 and the UFS as of 31 May 2000, provided that the
material adverse effect on the net worth exceeds PhP 100M and the written demand is
presented within six (6) months from closing date (extended to 31 December 2000); and
2. An action to cure the breach like specific performance and/or damages under Sec. 5(g)
based on Bankards breach of warranty involving its AFS for the three (3) fiscal years ending
31 December 1997, 1998, and 1999 and the UFS for the first quarter ending 31 March 2000
provided that the written demand shall be presented within three (3) years from closing date.
Has RCBC the option to choose between Sec. 5(g) or Sec. 5(h)?
The answer is yes. Sec. 5 and Sec. 7 are clear that it is discretionary on the aggrieved parties
to avail themselves of any remedy mentioned above. They may choose one and dispense
with the other. Of course, the relief for price reduction under Sec. 5(h) will have to conform
to the prerequisites and time frame of six (6) months; otherwise, it is waived.
Preliminarily, petitioners basic posture that RCBCs claim is for the recovery of overpayment
is specious. The records show that in its Request for Arbitration dated May 12, 2004, RCBC
prayed for the rescission of the SPA, restitution of the whole purchase price, and damages
not for reduction of price or for the return of any overpayment. Even in its May 5, 2000
letter,[21] RCBC did not ask for the recovery of any overpayment or reduction of price,
merely stating in it that the accounts of Bankard, as reflected in its AFS for 1999, were
overstated which, necessarily, resulted in an overpayment situation. RCBC was emphatic and
unequivocal that petitioners violated their warranty covered by Sec. 5(g) of the SPA.
It is thus evident that RCBC did not avail itself of the option under Sec. 5(h), i.e., for price
reduction or the return of any overpayment arising from the overvaluation of Bankards
financial condition. Clearly, RCBC invoked Sec. 5(g) to claim damages from petitioners
which is one of the alternative reliefs granted under Sec. 7 in addition to rescission and
restitution of purchase price.
Petitioners do not deny that RCBC formally filed its claim under Sec. 5(g) which is anchored
on the material overstatement or overvaluation of Bankards revenues, assets, and net worth
and, hence, the overstatement of the purchase price. They, however, assert that such claim
for overpayment is actually a claim under Sec. 5(h) of the SPA for price reduction which it
forfeited after December 31, 2000.
We cannot sustain petitioners position.
It cannot be disputed that an overstatement or overvaluation of Bankards financial condition
as of closing date translates into a misrepresentation not only of the accuracy and
truthfulness of the financial statements under Sec. 5(g), but also as to Bankards actual net
worth mentioned in Sec. 5(h). Overvaluation presupposes mistakes in the entries in the
financial statements and amounts to a breach of petitioners representations and warranties
under Sec. 5. Consequently, such error in the financial statements would impact on the figure
representing the net worth of Bankard as of closing date. An overvaluation means that the
financial condition of Bankard as of closing date, i.e., June 2, 2000, is overstated, a situation
that will definitely result in a breach of EPCIBs representations and warranties.
A scrutiny of Sec. 5(g) and Sec. 5(h) in relation to Sec. 7 of the SPA would indicate the
following remedies available to RCBC should it be discovered, as of closing date, that there
is overvaluation which will constitute breach of the warranty clause under either Sec. 5(g) or
(h), to wit:
(1) An overvaluation of Bankards actual financial condition as of closing date taints the
veracity and accuracy of the AFS for 1997, 1998, and 1999 and the UFS for the first quarter
of 2000 and is an actionable breach of petitioners warranties under Sec. 5(g).
(2) An overvaluation of Bankards financial condition as of May 31, 2000, encompassing the
warranted financial condition as of December 31, 1999 through the AFS for 1999 and as of
March 31, 2000 through the UFS for the first quarter of 2000, is a breach of petitioners
representations and warranties under Sec. 5(h).
Thus, RCBC has two distinct alternative remedies in case of an overvaluation of Bankards
financial condition. It may invoke Sec. 5(h) when the conditions of the threshold aggregate
overvaluation and the claim made within the six-month time-bar are present. In the
alternative, it may invoke Sec. 5(g) when it finds that a claim for curing the breach and/or
damages will be more advantageous to its interests provided it is filed within three (3) years
from closing date. Since it has two remedies, RCBC may opt to exercise either one. Of
course, the exercise of either one will preclude the other.
Moreover, the language employed in Sec. 5(g) and Sec. 5(h) is clear and bereft of any
ambiguity. The SPAs stipulations reveal that the non-use or waiver of Sec. 5(h) does not
preclude RCBC from availing itself of the second relief under Sec. 5(g). Article 1370 of the
Civil Code is explicit that if terms of a contract are clear and leave no doubt upon the
intention of the contracting parties the literal meaning of its stipulations shall control. Since
the terms of a contract have the force of law between the parties,[22] then the parties must
respect and strictly conform to it. Lastly, it is a long held cardinal rule that when the terms of
an agreement are reduced to writing, it is deemed to contain all the terms agreed upon and no
evidence of such terms can be admitted other than the contents of the agreement itself.[23]
Since the SPA is unambiguous, and petitioners failed to adduce evidence to the contrary,
then they are legally bound to comply with it.
Petitioners agreed ultimately to the stipulation that:
Each of the representations and warranties of the SELLERS is deemed to be a separate
representation and warranty, and the BUYER has placed complete reliance thereon in
agreeing to the Purchase Price and in entering into this Agreement. The representations and
warranties of the SELLERS shall be correct as of the date of this Agreement and as of the
Closing Date with the same force and effect as though such representations and warranties
had been made as of the Closing Date.[24] (Emphasis supplied.)
The Court sustains the finding in the Partial Award that Sec. 5(g) of the SPA is a free
standing warranty and not constricted by Sec. 5(h) of the said agreement.
Upon the foregoing premises and in the light of the undisputed facts on record, RCBCs claim
for rescission of the SPA and damages due to overvaluation of Bankards accounts was
properly for a breach of the warranty under Sec. 5(g) and was not time-barred. To repeat,
RCBC presented its written claim on May 5, 2003, or a little less than a month before closing
date, well within the three (3)-year prescriptive period provided under Sec. 7 for the exercise
of the right provided under Sec. 5(g).
Petitioners bemoan the fact that the arbitrators liability award (a) disregarded the 6-month
contractual limitation for RCBCs overprice claim, and [b] substituted in its place the 3-year
limitation under the contract for other claims,[25] adopting in that regard the interpretation of
the SPA made by arbitral tribunal member, retired Justice Kapunan, in his Dissenting
Opinion, in which he asserted:
Ultimately, the Claim is one for recovery of overpayment in the purchase price of the shares.
And it is in this context, that I respectfully submit that Section 5(h) and not Section 5(g),
applies to the present controversy.[26]
xxxx
True, without Section 5(h), the Claim for price recovery would fall under Section 5(g). The
recovery of the pecuniary loss of the Claimant in the form of the excess price paid would be
in the nature of a claim for actual damages by way of compensation. In that situation, all the
accounts in the 1999 financial statements would be the subject of the warranty in Section
5(g).
However, since the parties explicitly included Section 5(h) in their SPA, which assures the
Claimant that there were no omissions or mistakes in the records that would misstate the
1999 net worth account, I am left with no other conclusion but that the accuracy of the net
worth was the subject of the warranty in Section 5(h), while the accuracy or correctness of
the other accounts that did not bear on, or affect Bankards net worth, were guaranteed by
Section 5(g).
xxxx
This manner of reconciling the two provisions is consistent with the principle in Rule 130,
Section 12 of the Rules of Court that when a general and a particular provision are
inconsistent, the latter is paramount to the former [so] a particular intent will control a
general one that is inconsistent with it. This is also consistent with existing doctrines on
statutory construction, the application of which is illustrated in the case of Commissioner of
Customs vs. Court of Tax Appeals, GR No. L-41861, dated March 23, 1987 x x x.
xxxx
The Claim is for recovery of the excess price by way of actual damages.[27] x x x (Emphasis
supplied.)
Justice Kapunan noted that without Sec. 5(h), RCBCs claim would fall under Sec. 5(g),
impliedly admitting that both provisions could very well cover RCBCs claim, except that Sec.
5(h) excludes the situation contemplated in it from the general terms of Sec. 5(g).
Such view is incorrect.
While it is true that Sec. 5(h), as couched, is a warranty on the accuracy of the Bankards net
worth while Sec. 5(g), as also couched, is a warranty on the veracity, accuracy, and
completeness of the AFS in all material respects as prepared in accordance with generally
accepted accounting principles consistently followed throughout the period audited, yet both
warranties boil down to the same thing and stem from the same accounts as summarized in
the AFS. Since the net worth is the balance of Bankards assets less its liabilities, it
necessarily includes all the accounts under the AFS. In short, there are no accounts in the
AFS that do not bear on the net worth of Bankard. Moreover, as earlier elucidated, any
overvaluation of Bankards net worth is necessarily a misrepresentation of the veracity,
accuracy, and completeness of the AFS and also a breach of the warranty under Sec. 5(g).
Thus, the subject of the warranty in Sec. 5(h) is also covered by the warranty in Sec. 5(g),
and Sec. 5(h) cannot exclude such breach from the ambit of Sec. 5(g). There is no need to
rely on Sec. 12, Rule 130 of the Rules of Court for both Sec. 5(g) and Sec. 5(h) as alternative
remedies are of equal footing and one need not categorize one section as a general provision
and the other a particular provision.
More importantly, a scrutiny of the four corners of the SPA does not explicitly reveal any
stipulation nor even impliedly that the parties intended to limit the scope of the warranty in
Sec. 5(g) or gave priority to Sec. 5(h) over Sec. 5(g).
The arbitral tribunal did not find any legal basis in the SPA that Sec. 5(h) somehow cuts
down the scope of Sec. 5(g), thus:
9.10 In the opinion of the Tribunal, there is nothing in the wording used in the SPA to give
priority to one warranty over the other. There is nothing in the wording used to indicate that
the parties intended to limit the scope of the warranty in 5(g). If it be contended that, on a
true construction of the two warranties, 5(h) somehow cuts down the scope of 5(g), the
Tribunal can find no justification for such conclusion on the wording used. Furthermore, the
Tribunal is of the view that very clear words would be needed to cut down the scope of the
5(g) warranty.[28]
The Court upholds the conclusion of the tribunal and rules that the claim of RCBC under Sec.
5(g) is not time-barred.
Petitioners Were Not Denied Due Process
Petitioners impute on RCBC the act of creating summaries of the accounts of Bankard which
in turn were used by its experts to conclude that Bankard improperly recorded its receivables
and committed material deviations from GAAP requirements.[29] Later, petitioners would
assert that the arbitrators partial award admitted and used the Summaries as evidence, and
held on the basis of the information contained in them that petitioners were in breach of their
warranty in GAAP compliance.
To petitioners, the ICC-ICAs use of such summaries but without presenting the source
documents violates their right to due process. Pressing the point, petitioners had moved, but
to no avail, for the exclusion of the said summaries. Petitioners allege that they had reserved
the right to cross-examine the witnesses of RCBC who testified on the summaries, pending
the resolution of their motion to exclude. But, according to them, they were effectively
denied the right to cross-examine RCBCs witnesses when the ICC-ICA admitted the
summaries of RCBC as evidence.
Petitioners position is bereft of merit.
Anent the use but non-presentation of the source documents as the jumping board for a claim
of denial of due process, petitioners cite Compania Maritima v. Allied Free Workers
Union.[30] It may be stated, however, that such case is not on all fours with the instant case
and, therefore, cannot be applied here considering that it does not involve an administrative
body exercising quasi-judicial function but rather the regular court.
In a catena of cases, we have ruled that [t]he essence of due process is the opportunity to be
heard. What the law prohibits is not the absence of previous notice but the absolute absence
thereof and the lack of opportunity to be heard.[31]
We also explained in Lastimoso v. Asayo that [d]ue process in an administrative context
does not require trial type proceedings similar to those in courts of justice. Where an
opportunity to be heard either through oral arguments or through pleadings is accorded, there
is no denial of procedural due process.[32]
Were petitioners afforded the opportunity to refute the summaries and pieces of evidence
submitted by RCBC which became the bases of the experts opinion?
The answer is in the affirmative.
We recall the events that culminated in the issuance of the challenged Partial Award, thus:
On May 17, 2004, the ICC-ICA received the Request for Arbitration dated May 12, 2004
from RCBC seeking rescission of the SPA and restitution of all the amounts paid by RCBC
to petitioners, with actual and moral damages, interest, and costs of suit.
On August 8, 2004, petitioners filed an Answer to the Request for Arbitration dated July 28,
2004, setting up a counterclaim for USD 300,000 for actual and exemplary damages.
RCBC filed its Reply[33] dated August 31, 2004 to petitioners Answer to the Request for
Arbitration.
On October 4, 2004, the parties entered into the Terms of Reference.[34] At the same time,
the chairperson of the arbitral tribunal issued a provisional timetable[35] for the arbitration.
On October 25, 2004, as previously agreed upon in the meeting on October 4, 2004,
petitioners filed a Motion to Dismiss[36] while RCBC filed a Claimants Position Paper (Re:
[Petitioners] Assertion that RCBC CAPITAL CORPORATIONs Present Claim Is Time
Barred).[37]
Then, the tribunal issued Procedural Order No. 1 dated January 12, 2005,[38] denying the
motion to dismiss and setting the initial hearing of the case on April 11, 2005.
In a letter dated February 9, 2005,[39] petitioners requested that the tribunal direct RCBC to
produce certain documents. At the same time, petitioners sought the postponement of the
hearing on April 11, 2005 to March 21, 2005, in light of their own request.
On February 11, 2005, petitioners received RCBCs brief of evidence and supporting
documentation in accordance with the provisional timetable.[40] In the brief of evidence,
RCBC provided summaries of the accounts of Bankard, which petitioners now question.
Later, in a letter dated February 14, 2005,[41] petitioners complained to the tribunal with
regard to their lack of access to RCBCs external auditor. Petitioners sought an audit by an
accounting firm of the records of Bankard with respect to the claims of RCBC. By virtue of
such requests, petitioners also sought a rescheduling of the provisional timetable, despite
their earlier assurance to the tribunal that if they received the documents that they requested
on February 9, 2005 on or before February 21, 2005, they would abide by the provisional
timetable.
Thereafter, the tribunal issued Procedural Order No. 2 dated February 18, 2005,[42] in which
it allowed the discovery and inspection of the documents requested by petitioners that were
also scheduled on February 18, 2005. The request for an audit of Bankards accounts was
denied without prejudice to the conduct of such audit during the course of the hearings.
Consequently, the tribunal amended the provisional timetable, extending the deadline for
petitioners to file their brief of evidence and documents to March 21, 2005. The date of the
initial hearing, however, remained on April 11, 2005.
On February 18, 2005, petitioners were furnished the documents that they requested
RCBC.[43] The parties also agreed to meet again on February 23, 2005 to provide petitioners
with a walk-through of Bankards Statistical Analysis System and to provide petitioners with
a soft copy of all of Bankards cardholders.[44]
During the February 23, 2005 meeting, EPCIBs counsels/representatives were accompanied
to the Bankards Credit-MIS Group. There, Bankards representative, Amor Lazaro, described
and explained to petitioners representatives the steps involved in procuring and translating
raw data on customer transactions. Lazaro explained that Bankard captures cardholder
information and transactions through encoding or electronic data capture. Thereafter, such
data are transmitted to its main credit card administration system. Such raw data are then sent
to Bankards Information Technology Group. Using a proprietary software called SAS, the
raw data is then converted into SAS files which may be viewed, handled, and converted into
Excel files for reporting purposes. During the walk-through, petitioners representatives asked
questions which were answered in detail by Lazaro.
At the same time, another Bankard representative, Felix L. Sincoegue, accompanied two
auditors/representatives of petitioners to examine the journal vouchers and supporting
documents of Bankard consisting of several boxes. The auditors randomly sifted through the
boxes which they had earlier requested to be inspected.
In addition, petitioners were furnished with an electronic copy of the details of all
cardholders, including relevant data for aging of receivables for the years 2000 to 2003, as
well as data containing details of written-off accounts from 1999 to March 2000 contained in
compact discs.[45]
On March 4, 2005, petitioners sent a letter[46] to the tribunal requesting for a postponement
of the April 11, 2005 hearing of the case. Petitioners claim that they could not confirm the
summaries prepared by RCBC, considering that RCBC allegedly did not cooperate in
providing data that would facilitate their verification. Petitioners specifically mentioned the
following data: (1) list of names of cardholders whose accounts are sources of data gathered
or calculated in the summaries; (2) references to the basic cardholder documents from which
such data were collected; and (3) access to the underlying cardholder documents at a time
and under conditions mutually convenient to the parties. As regards the compact discs of
information provided to petitioners, it is claimed that such information could not be accessed
as the software necessary for the handling of the data could not be made immediately
available to them.
In Procedural Order No. 3 dated March 11 2005,[47] the initial hearing was moved to June
13 to 16, 2005, considering that petitioners failed to pay the advance on costs of the tribunal.
On March 23, 2005, RCBC paid the balance of the advance on costs.[48]
On April 22, 2005, petitioners sent the tribunal a letter,[49] requesting for the postponement
of the hearing scheduled on June 13 to 16, 2005 on the ground that they could not submit
their witness statements due to the volume of data that they acquired from RCBC.
In a letter dated April 25, 2005,[50] petitioners demanded from RCBC that they be allowed
to examine the journal vouchers earlier made available to them during the February 23, 2005
meeting. This demand was answered by RCBC in a letter dated April 26, 2005,[51] stating
that such demand was being denied by virtue of Procedural Order No. 2, in which it was
ruled that further requests for discovery would not be made except with leave of the
chairperson of the tribunal.
In Procedural Order No. 4,[52] the tribunal granted petitioners request for the postponement
of the hearing on June 13, 2005 and rescheduled it to November 21, 2005 in light of the
pending motions filed by EPCIB with the RTC in Makati City.
On July 29, 2005, the parties held a meeting wherein it was agreed that petitioners would be
provided with hard and soft copies of the inventory of the journal vouchers earlier presented
to its representatives, while making the journal vouchers available to petitioners for two
weeks for examination and photocopying.[53]
On September 2, 2005, petitioners applied for the postponement of the November 21, 2005
hearing due to the following: (1) petitioners had earlier filed a motion dated August 11, 2005
with the RTC, in which the issue of whether the non-Filipino members of the tribunal were
illegally practicing law in the Philippines by hearing their case, which was still pending; and
(2) the gathering and processing of the data and documents made available by RCBC would
require 26 weeks.[54] Such application was denied by the tribunal in Procedural Order No. 5
dated September 16, 2005.[55]
On October 21, 2005, the tribunal issued Procedural Order No. 6,[56] postponing the
November 21, 2005 hearing by virtue of an order issued by the RTC in Makati City directing
the tribunal to reset the hearing for April 21 and 24, 2006.
Thereafter, in a letter dated January 18, 2006,[57] petitioners wrote the tribunal requesting
that RCBC be directed to: (1) provide petitioners with information identifying the journal
vouchers and other supporting documents that RCBC used to arrive at the figures set out in
the summaries and other relevant information necessary to enable them to reconstruct and/or
otherwise understand the figures or amounts in each summary; and (2) submit to petitioners
the requested pieces of information as soon as these are or have become available, or in any
case not later than five days.
In response to such letter, RCBC addressed a letter dated January 31, 2006[58] to the tribunal
claiming that the pieces of information that petitioners requested are already known to
petitioners considering that RCBC merely maintained the systems that they inherited when it
bought Bankard from petitioners. RCBC added that the documents that EPCIB originally
transmitted to it when RCBC bought Bankard were all being made available to petitioners;
thus, any missing supporting documents from these files were never transmitted to them in
the first place.
Later, petitioners sent to the tribunal a letter dated February 10, 2006,[59] asking that it
direct RCBC to provide petitioners with the supporting documents that RCBC mentioned in
its letter dated January 31, 2006. Petitioners wrote that should RCBC fail to present such
documents, RCBCs summaries should be excluded from the records.
In a letter dated March 10, 2006,[60] petitioners requested that they be given an additional
period of at least 47 days within which to submit their evidence-in-chief with the
corresponding request for the cancellation of the hearing on April 24, 2006. Petitioners
submit that should such request be denied, RCBCs summaries should be excluded from the
records.
On April 6, 2006, petitioners filed their arbitration briefs and witness statements. By way of
reply, on April 17, 2006, RCBC submitted Volumes IV and V of its exhibits and Volume II
of its evidence-in-chief.[61]
On April 18, 2006, petitioners requested the tribunal that they be allowed to file rejoinder
briefs, or otherwise exclude RCBCs reply brief and witness statements.[62] In this request,
petitioners also requested that the hearing set for April 24, 2006 be moved. These requests
were denied.
Consequently, on April 24 to 27, 2006, the arbitral tribunal conducted hearings on the
case.[63]
On December 4, 2006, petitioners submitted rejoinder affidavits, raising new issues for the
first time, to which RCBC submitted Volume III of its evidence-in-chief by way of a reply.
On January 16, 2007, both parties simultaneously submitted their memoranda. On January 26,
2007, both parties simultaneously filed their reply to the others memorandum.[64]
Thus, on September 27, 2007, the Partial Award was rendered by the Tribunal.
Later, petitioners moved to vacate the said award before the RTC. Such motion was denied
by the trial court in the first assailed order dated January 8, 2008. Petitioners then moved for
a reconsideration of such order, but their motion was also denied in the second assailed order
dated March 17, 2008.
The foregoing events unequivocally demonstrate ample opportunity for petitioners to verify
and examine RCBCs summaries, accounting records, and reports. The pleadings reveal that
RCBC granted petitioners requests for production of documents and accounting records.
More so, they had more than three (3) years to prepare for their defense after RCBCs
submission of its brief of evidence. Finally, it must be emphasized that petitioners had the
opportunity to appeal the Partial Award to the RTC, which they in fact did. Later, petitioners
even moved for the reconsideration of the denial of their appeal. Having been able to appeal
and move for a reconsideration of the assailed rulings, petitioners cannot claim a denial of
due process.[65]
Petitioners right to due process was not breached.
As regards petitioners claim that its right to due process was violated when they were
allegedly denied the right to cross-examine RCBCs witnesses, their claim is also bereft of
merit.
Sec. 15 of RA 876 or the Arbitration Law provides that:
Section 15. Hearing by arbitrators. Arbitrators may, at the commencement of the hearing, ask
both parties for brief statements of the issues in controversy and/or an agreed statement of
facts. Thereafter the parties may offer such evidence as they desire, and shall produce such
additional evidence as the arbitrators shall require or deem necessary to an understanding and
determination of the dispute. The arbitrators shall be the sole judge of the relevancy and
materiality of the evidence offered or produced, and shall not be bound to conform to the
Rules of Court pertaining to evidence. Arbitrators shall receive as exhibits in evidence any
document which the parties may wish to submit and the exhibits shall be properly identified
at the time of submission. All exhibits shall remain in the custody of the Clerk of Court
during the course of the arbitration and shall be returned to the parties at the time the award
is made. The arbitrators may make an ocular inspection of any matter or premises which are
in dispute, but such inspection shall be made only in the presence of all parties to the
arbitration, unless any party who shall have received notice thereof fails to appear, in which
event such inspection shall be made in the absence of such party. (Emphasis supplied.)
The well-settled rule is that administrative agencies exercising quasi-judicial powers shall
not be fettered by the rigid technicalities of procedure, albeit they are, at all times required, to
adhere to the basic concepts of fair play. The Court wrote in CMP Federal Security Agency,
Inc. v. NLRC:
While administrative tribunals exercising quasi-judicial powers, like the NLRC and Labor
Arbiters, are free from the rigidity of certain procedural requirements, they are nonetheless
bound by law and practice to observe the fundamental and essential requirements of due
process. The standard of due process that must be met in administrative tribunals allows a
certain degree of latitude as long as fairness is not ignored. Hence, it is not legally
objectionable, for being violative of due process, for the Labor Arbiter to resolve a case
based solely on the position papers, affidavits or documentary evidence submitted by the
parties. The affidavits of witnesses in such case may take the place of their direct
testimony.[66]
Of the same tenor is our holding in Quiambao v. Court of Appeals:
In resolving administrative cases, conduct of full-blown trial is not indispensable to dispense
justice to the parties. The requirement of notice and hearing does not connote full adversarial
proceedings. Submission of position papers may be sufficient for as long as the parties
thereto are given the opportunity to be heard. In administrative proceedings, the essence of
due process is simply an opportunity to be heard, or an opportunity to explain ones side or
opportunity to seek a reconsideration of the action or ruling complained of. This
constitutional mandate is deemed satisfied if a person is granted an opportunity to seek
reconsideration of an action or a ruling. It does not require trial-type proceedings similar to
those in the courts of justice. Where opportunity to be heard either through oral arguments or
through pleadings is accorded, there is no denial of procedural due process.[67] (Emphasis
supplied.)
Citing Vertudes v. Buenaflor, petitioners also cry denial of due process when they were
allegedly denied the right to cross-examine the witnesses presented by RCBC. It is true that
in Vertudes, we stated: The right of a party to confront and cross-examine opposing
witnesses in a judicial litigation, be it criminal or civil in nature, or in proceedings before
administrative tribunals with quasi-judicial powers, is a fundamental right which is part of
due process.[68]
It is, however, equally true that:
[T]he right is a personal one which may be waived expressly or impliedly by conduct
amounting to a renunciation of the right of cross-examination. Thus, where a party has had
the opportunity to cross-examine a witness but failed to avail himself of it, he necessarily
forfeits the right to cross-examine and the testimony given on direct examination of the
witness will be received or allowed to remain in the record.[69] (Emphasis supplied.)
We also held in one case:
However, the right has always been understood as requiring not necessarily an actual
cross-examination but merely an opportunity to exercise the right to cross-examine if desired.
What is proscribed by statutory norm and jurisprudential precept is the absence of the
opportunity to cross-examine. The right is a personal one and may be waived expressly or
impliedly. There is an implied waiver when the party was given the opportunity to confront
and cross-examine an opposing witness but failed to take advantage of it for reasons
attributable to himself alone. If by his actuations, the accused lost his opportunity to
cross-examine wholly or in part the witnesses against him, his right to cross-examine is
impliedly waived.[70] (Emphasis supplied.)
And later in Velez v. De Vera, the Court En Banc expounded on the above rulings, adding
that in administrative proceedings, cross-examination is not indispensable, thus:
Due process of law in administrative cases is not identical with judicial process for a trial in
court is not always essential to due process. While a day in court is a matter of right in
judicial proceedings, it is otherwise in administrative proceedings since they rest upon
different principles. The due process clause guarantees no particular form of procedure and
its requirements are not technical. Thus, in certain proceedings of administrative character,
the right to a notice or hearing [is] not essential to due process of law. The constitutional
requirement of due process is met by a fair hearing before a regularly established
administrative agency or tribunal. It is not essential that hearings be had before the making
of a determination if thereafter, there is available trial and tribunal before which all
objections and defenses to the making of such determination may be raised and considered.
One adequate hearing is all that due process requires. What is required for hearing may
differ as the functions of the administrative bodies differ.
The right to cross-examine is not an indispensable aspect of due process.[71] x x x
(Emphasis supplied.)
Clearly, the right to cross-examine a witness, although a fundamental right of a party, may be
waived. Petitioners themselves admit having had the opportunity to cross-examine RCBCs
witnesses during the hearings before the tribunal, but declined to do so by reserving such
right at a later time. Having had the opportunity to cross-examine RCBCs witnesses,
petitioners were not denied their right to due process.
RCBC Is Not Estopped from Questioning
the Financial Condition of Bankard
On estoppel, petitioners contend that RCBC already knew the recording of the Bankard
accounts before it paid the balance of the purchase price and could no longer challenge the
financial statements of Bankard. RCBC, they claim, had full control of the operations of
Bankard since June 2, 2000 and RCBCs audit team reviewed the accounts in September 2000.
Thus, RCBC is now precluded from denying the fairness and accuracy of said accounts since
it did not seek price reduction under Sec. 5(h). Lastly, they asseverate that RCBC continued
with Bankards accounting policies and practices and found them to conform to the generally
accepted accounting principles, contrary to RCBCs allegations.
It also bears stating that in his dissent, retired Justice Kapunan, an arbitral tribunal member,
argued that Bankards accounting practices were disclosed in the information memorandum
provided to RCBC; hence, RCBC was supposed to know such accounting practices and to
have accepted their propriety even before the execution of the SPA. He then argued that
when it paid the purchase price on December 29, 2000, RCBC could no longer claim that the
accounting practices that went into the reporting of the 1999 AFS of Bankard were not in
accord with generally accepted accounting principles. He pointed out that RCBC was bound
by the audit conducted by a certain Rubio prior to the full payment of the purchase price of
Bankard. Anchored on these statements by Justice Kapunan, petitioners conclude that RCBC
is estopped from claiming that the former violated their warranties under the SPA.
Petitioners contention is not meritorious.
Art. 1431 of the Civil Code, on the subject of estoppel, provides: Through estoppel an
admission or representation is rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon.
The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith,
and justice; and its purpose is to forbid one to speak against ones own acts, representations,
or commitments to the injury of one to whom they were directed and who reasonably relied
on them.[72]
We explained the principle of estoppel in Philippine Savings Bank v. Chowking Food
Corporation:
x x x The equitable doctrine of estoppel was explained by this Court in Caltex (Philippines),
Inc. v. Court of Appeals:
Under the doctrine of estoppel, an admission or representation is rendered conclusive upon
the person making it, and cannot be denied or disproved as against the person relying thereon.
A party may not go back on his own acts and representations to the prejudice of the other
party who relied upon them. In the law of evidence, whenever a party has, by his own
declaration, act, or omission, intentionally and deliberately led another to believe a particular
thing true, to act upon such belief, he cannot, in any litigation arising out of such declaration,
act, or omission, be permitted to falsify it.
The principle received further elaboration in Maneclang v. Baun:
In estoppel by pais, as related to the party sought to be estopped, it is necessary that there be
a concurrence of the following requisites: (a) conduct amounting to false representation or
concealment of material facts or at least calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party subsequently attempts to assert;
(b) intent, or at least expectation that this conduct shall be acted upon, or at least influenced
by the other party; and (c) knowledge, actual or constructive of the actual facts.
Estoppel may vary somewhat in definition, but all authorities agree that a party invoking the
doctrine must have been misled to ones prejudice. That is the final and, in reality, most
important of the elements of equitable estoppel. It is this element that is lacking here.[73]
(Emphasis supplied.)
The elements of estoppel pertaining to the party estopped are:
(1) conduct which amounts to a false representation or concealment of material facts, or, at
least, which calculated to convey the impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to assert; (2) intention, or at
least expectation, that such conduct shall be acted upon by the other party; and (3)
knowledge, actual or constructive, of the actual facts.[74]
In the case at bar, the first element of estoppel in relation to the party sought to be estopped
is not present. Petitioners claim that RCBC misrepresented itself when RCBC made it appear
that they considered petitioners to have sufficiently complied with its warranties under Sec.
5(g) and 5(h), in relation to Sec. 7 of the SPA. Petitioners position is that RCBC was aware
of the manner in which the Bankard accounts were recorded, well before it consummated the
SPA by taking delivery of the shares and paying the outstanding 80% balance of the contract
price.[75]
Petitioners, therefore, theorize that in this case, the first element of estoppel in relation to the
party sought to be estopped is that RCBC made a false representation that it considered
Bankards accounts to be in order and, thus, RCBC abandoned any claim under Sec. 5(g) and
5(h) by its inaction.
Such contention is incorrect.
It must be emphasized that it was only after a second audit that RCBC presented its claim to
petitioners for violation of Sec. 5(g), within the three (3)-year period prescribed. In other
words, RCBC, prior to such second audit, did not have full and thorough knowledge of the
correctness of Bankards accounts, in relation to Sec. 5(g). RCBC, therefore, could not have
misrepresented itself considering that it was still in the process of verifying the warranties
covered under Sec. 5(g). Considering that there must be a concurrence of the elements of
estoppel for it to arise, on this ground alone such claim is already negated. As will be shown,
however, all the other elements of estoppel are likewise absent in the case at bar.
As to the second element, in order to establish estoppel, RCBC must have intended that
petitioners would act upon its actions. This element is also missing. RCBC by its actions did
not mislead petitioners into believing that it waived any claim for violation of a warranty.
The periods under Sec. 5(g) and 5(h) were still available to RCBC.
The element that petitioners relied on the acts and conduct of RCBC is absent. The Court
finds that there was no reliance on the part of petitioners on the acts of RCBC that would
lead them to believe that the RCBC will forego the filing of a claim under Sec. 5(g). The
allegation that RCBC knew that the Bankard accounts did not comply with generally
accepted accounting principles before payment and, hence, it cannot question the financial
statements of Bankard is meritless. Precisely, the SPA explicitly provides that claims for
violation of the warranties under Sec. 5(g) can still be filed within three (3) years from the
closing date. Petitioners contention that RCBC had full control of Bankard operations after
payment of the price and that an audit undertaken by the Rubio team did not find anything
wrong with the accounts could not have plausibly misled petitioners into believing that
RCBC will waive its right to file a claim under Sec. 5(g). After all, the period to file a claim
under Sec. 5(g) is three (3) years under Sec. 7, much longer than the six (6)-month period
under Sec. 5(h). Petitioners are fully aware that the warranties under Sec. 5(g) (1997 up to
March 2000) are of a wider scope than that of Sec. 5(h) (AFS of 1999 and UFS up to May 31,
2000), necessitating a longer audit period than the six (6)-month period under Sec. 5(h).
The third element of estoppel in relation to the party sought to be estopped is also absent
considering that, as stated, RCBC was still in the process of verifying the correctness of
Bankards accounts prior to presenting its claim of overvaluation to petitioners. RCBC,
therefore, had no sufficient knowledge of the correctness of Bankards accounts.
On another issue, RCBC could not have immediately changed the Bankard accounting
practices until it had conducted a more extensive and thorough audit of Bankards voluminous
records and transactions to uncover any irregularities. That would be the only logical
explanation why Bankards alleged irregular practices were maintained for more than two (2)
years from closing date. The fact that RCBC continued with the audit of Bankards AFS and
records after the termination of the Rubio audit can only send the clear message to petitioners
that RCBC is still entertaining the possibility of filing a claim under Sec. 5(g). It cannot then
be said that petitioners reliance on RCBCs acts after full payment of the price could have
misled them into believing that no more claim will be presented by RCBC.
The Arbitral Tribunal explained in detail why estoppel is not present in the case at bar, thus:
10.18 The audit exercise conducted by Mr. Legaspi and Mr. Rubio was clearly not one
comprehensive enough to have discovered the problems later unearthed by Dr. Laya and
Dean Ledesma. x x x
10.19 Although the powers of the TC [Transition Committee] may have been widely
expressed in the view of Mr. Rogelio Chua, then in charge of Bankard x x x the TC
conducted meetings only to get updated on the status and progress of Bankards operations.
Commercially, one would expect that an unpaid vendor expecting to receive 80% of a large
purchase price would not be receptive to a purchaser making vast policy changes in the
operation of the business until the purchaser has paid up its money. It is more likely that,
until the settlement date, there was a practice of maintaining the status quo at Bankard.
10.20 But neither the Claimant nor the TC did anything, in the Tribunals view, which would
have given the Respondents the impression that they were being relieved over the next three
years of susceptibility to a claim under clause 5(g). Maybe the TC could have been more
proactive in commissioning further or more in-depth audits but it was not. It did not have to
be. It is commercially unlikely that it have been done so, with the necessary degree of
attention to detail, within the relatively short time between the appointment of the TC and the
ultimate settlement date of the purchase a period of some three months. An interim
arrangement was obviously sensible to enable the Claimant and its staff to become familiar
with the practices and procedures of Bankard.
10.21 The core consideration weighing with the Tribunal in assessing these claims for
estoppel is that the SPA allowed two types of claim; one within six months under 5(h) and
one within three years under 5(g). The Tribunal has already held the present claim is not
barred by clause 5(h). It must therefore have been within the reasonable contemplation of the
parties that a 5(g) claim could surface within the three-year period and that it could be
somewhat differently assessed than the claim under 5(h). The Tribunal cannot find estoppel
by conduct either from the formation of the TC or from the limited auditing exercise done by
Mr. Rubio and Mr. Legaspi. The onus proving estoppel is on the Respondents and it has not
been discharged.
10.22 If the parties had wished the avenues of relief for misrepresentation afforded to the
Claimant to have been restricted to a claim under Clause 5(h), then they could have said so.
The special audit may have provided an answer to any claim based on clause 5(h) but it
cannot do so in respect of a claim based on Clause 5(g). Clause 5(g) imposed a positive
obligation on the Respondents from which they cannot be excused, simply by reason of
either the formation and conduct of the TC or of the limited audit.
10.23 The three-year limitation period obviously contemplated that it could take some time
to ascertain whether there had been a breach of the GAAP standards, etc. Such was the case.
A six-month limitation period under Clause 5(h), in contrast, presaged a somewhat less
stringent enquiry of the kind carried out by Mr. Rubio and Mr. Legaspi.
10.24 Clause 2(3) of the Amendment to the SPA strengthens the conclusion that the parties
were concerned only with a 5(h) claim during the TCs reign. The focus of the audit however
intense it was conducted by Mr. Rubio and Mr. Legaspi, was on establishing possible
liability under that section and thus as a possible reduction in the price to be paid on
settlement.
10.25 The fact that the purchase price was paid over in full without any deduction in terms of
clause 5(h) is not a bar to the Claimant bringing a claim under 5(g) within the three-year
period. The fact that payment was made can be, as the Tribunal has held, a barrier to a claim
for rescission and restitution ad inegrum. A claim for estoppel needs a finding of
representation by words of conduct or a shared presumption that a right would not be relied
upon. The party relying on estoppel has to show reliance to its detriment or that, otherwise, it
would be unconscionable to resile from the provision.
10.26 Article 1431 of the Civil Code states:
Through estoppel an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon.
10.27 Clearly, there has to both an admission or representation by (in this case) the Claimant,
plus reliance upon it by (in this case) the Respondents. The Tribunal cannot find as proved
any admission/representation that the Claimant was abandoning a 5(g) claim, any reliance by
Respondents on an admission, and any detriment to the Respondents such as would entitle
them to have the Claimant deprived of the benefit of clause 5(g). These aspects of the claim
of estoppel are rejected.
xxxx
10.42 The Tribunal is not the appropriate forum for deciding whether there have been any
regulatory or ethical infractions by Bankard and/or the Claimant in setting the buy-back price.
It has no bearing on whether the Claimant must be considered as having waived its right to
claim against the Respondents.
10.43 In the Tribunals view, neither any infraction by Bankard in failing to advise the
Central Bank of the experts findings, nor a failure to put a tag on the accounts nor to have
said something to the shareholders in the buy-back exercise operates as a technical knock-out
of Claimants claim.
10.44 The Tribunal notes that the conciliation process mandated by the SPA took most of
2003 and this may explain a part of the delay in commencing arbitral proceedings.

10.45 Whatever the status of Mr. Rubios and Mr. Legaspis enquiries in late 2000, the
Claimant was quite entitled to commission subsequent reports from Dr. Laya and Dr.
Echanis and, on the basis of those reports, make a timeous claim under clause 5(g) of the
SPA.
10.46 In the Tribunals view, therefore, there is no merit in Respondents various submissions
that the Claimant is debarred from prosecuting its claims on the grounds of estoppel. There is
just no proof of the necessary representation to the Respondent, nor any detriment to the
Respondent proved. The grounds of delay and laches are not substantiated.
In summary, the tribunal properly ruled that petitioners failed to prove that the formation of
the Transition Committee and the conduct of the audit by Rubio and Legaspi were
admissions or representations by RCBC that it would not pursue a claim under Sec. 5(g) and
that petitioners relied on such representation to their detriment. We agree with the findings of
the tribunal that estoppel is not present in the situation at bar.
Additionally, petitioners claim that in Knecht v. Court of Appeals[76] and Coca-Cola
Bottlers Philippines, Inc. v. Court of Appeals (Coca-Cola),[77] this Court ruled that the
absence of the element of reliance by a party on the representation of another does not negate
the principle of estoppel. Those cases are, however, not on all fours with and cannot be
applied to this case.
In Knecht, the buyer had the opportunity of knowing the conditions of the land he was
buying early on in the transaction, but proceeded with the sale anyway. According to the
Court, the buyer was estopped from claiming that the vendor made a false representation as
to the condition of the land. This is not true in the instant case. RCBC did not conduct a due
diligence audit in relation to Sec.5(g) prior to the sale due to petitioners express
representations and warranties. The examination conducted by RCBC, through Rubio, after
the execution of the SPA on June 2, 2000, was confined to finding any breach under Sec. 5(h)
for a possible reduction of the purchase price prior to the payment of its balance on
December 31, 2000. Further, the parties clearly agreed under Sec. 7 of the SPA to a three
(3)-year period from closing date within which to present a claim for damages for violation
of the warranties under the SPA. Hence, Knecht is not a precedent to the case at bar.
So is Coca-Cola. As lessee, Coca-Cola Bottlers was well aware of the nature and situation of
the land relative to its intended use prior to the signing of the contract. Its subsequent
assertion that the land was not suited for the purpose it was leased was, therefore, cast aside
for being unmeritorious. Such circumstance does not obtain in the instant case. There was no
prior due diligence audit conducted by RCBC, it having relied, as earlier stated, on the
warranties of petitioners with regard to the financial condition of Bankard under Sec. 5(g).
As such, Sec. 5(g) guaranteed RCBC that it could file a claim for damages for any mistakes
in the AFS and UFS of Bankard. Clearly, Coca-Cola also cannot be applied to the instant
case.
It becomes evident from all of the foregoing findings that the ICC-ICA is not guilty of any
manifest disregard of the law on estoppel. As shown above, the findings of the ICC-ICA in
the Partial Award are well-supported in law and grounded on facts. The Partial Award must
be upheld.
We close this disposition with the observation that a member of the three-person arbitration
panel was selected by petitioners, while another was respondents choice. The respective
interests of the parties, therefore, are very much safeguarded in the arbitration proceedings.
Any suggestion, therefore, on the partiality of the arbitration tribunal has to be dismissed.
WHEREFORE, the instant petition is hereby DENIED. The assailed January 8, 2008 and KEPPEL CEBU SHIPYARD, INC.,
March 17, 2008 Orders of the RTC, Branch 148 in Makati City are hereby AFFIRMED. Petitioner,

Costs against petitioners. - versus -

SO ORDERED. PIONEER INSURANCE AND SURETY CORPORATION,

Respondent.
X----------------------------X
PIONEER INSURANCE AND SURETY CORPORATION,
Petitioner,

- versus -

KEPPEL CEBU SHIPYARD, INC.,

Respondent.
G.R. Nos. 180880-81
 the Decision[3] dated December 17, 2004 and the Amended Decision[4] dated December 20,
G.R. Nos. 180896-97 2007 of the Court of Appeals (CA) in CA-G.R. SP Nos. 74018 and 73934.

Present: On January 26, 2000, KCSI and WG&A Jebsens Shipmanagement, Inc. (WG&A) executed a
Shiprepair Agreement[5] wherein KCSI would renovate and reconstruct WG&As M/V
YNARES-SANTIAGO, J.,* Superferry 3 using its dry docking facilities pursuant to its restrictive safety and security
Chairperson, rules and regulations. Prior to the execution of the Shiprepair Agreement, Superferry 3 was
CHICO-NAZARIO, already insured by WG&A with Pioneer for US$8,472,581.78. The Shiprepair Agreement
VELASCO, JR., reads
NACHURA, and
PERALTA, JJ. SHIPREPAIR AGREEMENT[6]

Promulgated: Company: WG & A JEBSENS SHIPMANAGEMENT INC.

Address: Harbour Center II, Railroad & Chicago Sts.
September 25, 2009 Port Area, City of Manila

x------------------------------------------------------------------------------------x We, WG & A JEBSENS SHIPMGMT. Owner/Operator of M/V SUPERFERRY 3 and

KEPPEL CEBU SHIPYARD, INC. (KCSI) enter into an agreement that the Drydocking and
Repair of the above-named vessel ordered by the Owners Authorized Representative shall be
DECISION carried out under the Keppel Cebu Shipyard Standard Conditions of Contract for Shiprepair,
guidelines and regulations on safety and security issued by Keppel Cebu Shipyard. In
NACHURA, J.: addition, the following are mutually agreed upon by the parties:

Before us are the consolidated petitions filed by the partiesPioneer Insurance and Surety
Corporation[1] (Pioneer) and Keppel Cebu Shipyard, Inc.[2] (KCSI)to review on certiorari
1. The Owner shall inform its insurer of Clause 20[7] and 22 (a)[8] (refer at the
back hereof) and shall include Keppel Cebu Shipyard as a co-assured in its insurance policy.
2. The Owner shall waive its right to claim for any loss of profit or loss of use or
damages consequential on such loss of use resulting from the delay in the redelivery of the
above vessel.
3. Owners sub-contractors or workers are not permitted to work in the yard without
the written approval of the Vice President Operations.
4. In consideration of Keppel Cebu Shipyard allowing Owner to carry out own
repairs onboard the vessel, the Owner shall indemnify and hold Keppel Cebu Shipyard
harmless from any or all claims, damages, or liabilities arising from death or bodily injuries
to Owners workers, or damages to the vessel or other property however caused.
5. On arrival, the Owner Representative, Captain, Chief Officer and Chief Engineer
will be invited to attend a conference with our Production, Safety and Security personnel
whereby they will be briefed on, and given copies of Shipyard safety regulations.
6. An adequate number of officers and crew must remain on board at all times to
ensure the safety of the vessel and compliance of safety regulations by crew and owner
employed workmen.
7. The ships officers/crew or owner appointed security personnel shall maintain
watch against pilferage and acts of sabotage.
8. The yard must be informed and instructed to provide the necessary security
arrangement coverage should there be inadequate or no crew on board to provide the
expressed safety and security enforcement.
9. The Owner shall be liable to Keppel Cebu Shipyard for any death and/or bodily
injuries for the [K]eppel Cebu Shipyards employees and/or contract workers; theft and/or
damages to Keppel Cebu Shipyards properties and other liabilities which are caused by the
workers of the Owner.
10. The invoice shall be based on quotation reference 99-KCSI-211 dated December 20,
1999 tariff dated March 15, 1998.
11. Payment term shall be as follows:
12. The Owner and Keppel Cebu Shipyard shall endeavor to settle amicably any dispute
that may arise under this Agreement. Should all efforts for an amicable settlement fail, the
disputes shall be submitted for arbitration in Metro Manila in accordance with provisions of
Executive Order No. 1008 under the auspices of the Philippine Arbitration Commission.
(Signed)
BARRY CHIA SOO HOCK _________(Signed)__________
(Printed Name/Signature Above Name) (Printed Name/Signature Above Name)
Vice President Operations Authorized Representative
Keppel Cebu Shipyard, Inc. for and in behalf of:
WG & A Jebsens Shipmgmt.
JAN. 26, 2000 . ________________________
Date Date
On February 8, 2000, in the course of its repair, M/V Superferry 3 was gutted by fire.
Claiming that the extent of the damage was pervasive, WG&A declared the vessels damage
as a total constructive loss and, hence, filed an insurance claim with Pioneer.
On June 16, 2000, Pioneer paid the insurance claim of WG&A in the amount of
US$8,472,581.78. WG&A, in turn, executed a Loss and Subrogation Receipt[9] in favor of
Pioneer, to wit:

LOSS AND SUBROGATION RECEIPT
16 June 2000
Our Claim Ref: MH-NIL-H0-99-00018
US$8,472,581.78
------------------------------------------------
RECEIVED from PIONEER INSURANCE & SURETY CORPORATION the sum of U.S.
DOLLARS EIGHT MILLION FOUR HUNDRED SEVENTY-TWO THOUSAND FIVE
HUNDRED EIGHTY-ONE & 78/100 (US$ 8,472,581.78) equivalent to PESOS THREE
HUNDRED SIXTY MILLION & 00/100 (Php 360,000,000.00), in full satisfaction,
compromise and discharge of all claims for loss and expenses sustained to the vessel
SUPERFERRY 3 insured under Policy Nos. MH-H0-99-0000168-00-D (H&M) and
MH-H0-99-0000169 (I.V.) by reason as follows:
Fire on board at Keppel Cebu Shipyard
on 08 February 2000
and in consideration of which the undersigned hereby assigns and transfers to the said
company each and all claims and demands against any person, persons, corporation or
property arising from or connected with such loss or damage and the said company is
subrogated in the place of and to the claims and demands of the undersigned against said
person, persons, corporation or property in the premises to the extent of the amount
above-mentioned.
WILLIAM, GOTHONG & ABOITIZ, INC.
&/OR ABOITIZ SHIPPING CORP.
By: (Signed)
______________________________________
Witnesses: (Signed)
______________________________________
(Signed)
______________________________________
Armed with the subrogation receipt, Pioneer tried to collect from KCSI, but the latter denied
any responsibility for the loss of the subject vessel. As KCSI continuously refused to pay
despite repeated demands, Pioneer, on August 7, 2000, filed a Request for Arbitration before
the Construction Industry Arbitration Commission (CIAC) docketed as CIAC Case No.
21-2000, seeking the following reliefs:
1. To pay to the claimant Pioneer Insurance and Surety Corporation the
sum of U.S.$8,472,581.78 or its equivalent amount in Philippine Currency, plus interest
thereon computed from the date of the Loss and Subrogation Receipt on 16 June 2000 or
from the date of filing of [the] Request for Arbitration, as may be found proper;
2. To pay to claimant WG&A, INC. and/or Aboitiz Shipping
Corporation and WG&A Jebsens Shipmanagement, Inc. the sum of P500,000,000.00 plus
interest thereon from the date of filing [of the] Request for Arbitration or date of the arbitral
award, as may be found proper;
3. To pay to the claimants herein the sum of P3,000,000.00 for and as
attorneys fees; plus other damages as may be established during the proceedings, including
arbitration fees and other litigation expenses, and the costs of suit.
It is likewise further prayed that Clauses 1 and 2 on the unsigned page 1 of the Shiprepair
Agreement (Annex A) as well as the hardly legible Clauses 20 and 22 (a) and other similar
clauses printed in very fine print on the unsigned dorsal page thereof, be all declared illegal
and void ab initio and without any legal effect whatsoever.[10]
KCSI and WG&A reached an amicable settlement, leading the latter to file a Notice of
Withdrawal of Claim on April 17, 2001 with the CIAC. The CIAC granted the withdrawal on
October 22, 2001, thereby dismissing the claim of WG&A against KCSI. Hence, the
arbitration proceeded with Pioneer as the remaining claimant.
In the course of the proceedings, Pioneer and KCSI stipulated, among others, that: (1) on
January 26, 2000, M/V Superferry 3 arrived at KCSI in Lapu-Lapu City, Cebu, for dry
docking and repairs; (2) on the same date, WG&A signed a ship repair agreement with KCSI;
and (3) a fire broke out on board M/V Superferry 3 on February 8, 2000, while still dry
docked in KCSIs shipyard.[11]
As regards the disputed facts, below are the respective positions of the parties, viz.:
Pioneers Theory of the Case:
First, Pioneer (as Claimant) is the real party in interest in this case and that Pioneer has been
subrogated to the claim of its assured. The Claimant claims that it has the preponderance of
evidence over that of the Respondent. Claimant cited documentary references on the
Statutory Source of the Principle of Subrogation. Claimant then proceeded to explain that the
Right of Subrogation:
Is by Operation of Law
exists in Property Insurance
is not Dependent Upon Privity of Contract.
Claimant then argued that Payment Operates as Equitable Assignment of Rights to Insurer
and that the Right of Subrogation Entitles Insurer to Recover from the Liable Party.
Second, Respondent Keppel had custody of and control over the M/V Superferry 3 while
said vessel was in Respondent Keppels premises. In its Draft Decision, Claimant stated:
A. The evidence presented during the hearings indubitably proves that
respondent not only took custody but assumed responsibility and control over M/V
Superferry 3 in carrying out the dry-docking and repair of the vessel.
B. The presence on board the M/V Superferry 3 of its officers and crew
does not relieve the respondent of its responsibility for said vessel.
C. Respondent Keppel assumed responsibility over M/V Superferry 3
when it brought the vessel inside its graving dock and applied its own safety rules to the
dry-docking and repairs of the vessel.
D. The practice of allowing a shipowner and its sub-contractors to
perform maintenance works while the vessel was within respondents premises does not
detract from the fact that control and custody over M/V Superferry 3 was transferred to the
yard.
From the preceding statements, Claimant claims that Keppel is clearly liable for the loss of
M/V Superferry 3.
Third, the Vessels Safety Manual cannot be relied upon as proof of the Masters continuing
control over the vessel.
Fourth, the Respondent Yard is liable under the Doctrine of Res Ipsa Loquitur. According to
Claimant, the Yard is liable under the ruling laid down by the Supreme Court in the Manila
City case. Claimant asserts that said ruling is applicable hereto as The Law of the Case.
Fifth, the liability of Respondent does not arise merely from the application of the Doctrine
of Res Ipsa Loquitur, but from its negligence in this case.
Sixth, the Respondent Yard was the employer responsible for the negligent acts of the welder.
According to Claimant;
In contemplation of law, Sevillejo was not a loaned servant/employee. The yard, being his
employer, is solely and exclusively liable for his negligent acts. Claimant proceeded to
enumerate its reasons:
A. The Control Test The yard exercised control over Sevillejo. The power
of control is not diminished by the failure to exercise control.
B. There was no independent work contract between Joniga and
Sevillejo Joniga was not the employer of Sevillejo, as Sevillejo remained an employee of the
yard at the time the loss occurred.
C. The mere fact that Dr. Joniga requested Sevillejo to perform some of
the Owners hot works under the 26 January 2000 work order did not make Dr. Joniga the
employer of Sevillejo.
Claimant proffers that Dr. Joniga was not a Contractor of the Hot Work Done on Deck A.
Claimant argued that:
A. The yard, not Dr. Joniga, gave the welders their marching orders, and
B. Dr. Jonigas authority to request the execution of owners hot works in
the passenger areas was expressly recognized by the Yard Project Superintendent Orcullo.
Seventh, the shipowner had no legal duty to apply for a hotworks permit since it was not
required by the yard, and the owners hotworks were conducted by welders who remained
employees of the yard. Claimant contends that the need, if any, for an owners application for
a hot work permit was canceled out by the yards actual knowledge of Sevillejos whereabouts
and the fact that he was in deck A doing owners hotworks.
Eight[h], in supplying welders and equipment as per The Work Order Dated 26 January 2000,
the Yard did so at its own risk, and acted as a Less Than Prudent Ship Repairer.
The Claimant then disputed the statements of Manuel Amagsila by claiming that Amagsila
was a disgruntled employee. Nevertheless, Claimant claims that Amagsila affirmed that the
five yard welders never became employees of the owner so as to obligate the latter to be
responsible for their conduct and performance.
Claimant enumerated further badges of yard negligence.
According to Claimant:
A. Yards water supply was inadequate.
B. Yard Fire Fighting Efforts and Equipment Were Inadequate.
C. Yard Safety Practices and Procedures Were Unsafe or Inadequate.
D. Yard Safety Assistants and Firewatch-Men were Overworked.
Finally, Claimant disputed the theories propounded by the Respondent (The Yard). Claimant
presented its case against:
(i) Non-removal of the life jackets theory.
(ii) Hole-in-the[-]floor theory.
(iii) Need for a plan theory.
(iv) The unauthorized hot works theory.
(v) The Marina report theory.
The Claimant called the attention of the Tribunal (CIAC) on the non-appearance of the
welder involved in the cause of the fire, Mr. Severino Sevillejo. Claimant claims that this is
suppression of evidence by Respondent.
KCSIs Theory of the Case
1. The Claimant has no standing to file the Request for Arbitration and the Tribunal
has no jurisdiction over the case:
(a) There is no valid arbitration agreement between the Yard and the
Vessel Owner. On January 26, 2000, when the ship repair agreement (which includes the
arbitration agreement) was signed by WG&A Jebsens on behalf of the Vessel, the same was
still owned by Aboitiz Shipping. Consequently, when another firm, WG&A, authorized
WG&A Jebsens to manage the MV Superferry 3, it had no authority to do so. There is, as a
result, no binding arbitration agreement between the Vessel Owner and the Yard to which the
Claimant can claim to be subrogated and which can support CIAC jurisdiction.
(b) The Claimant is not a real party in interest and has no standing because
it has not been subrogated to the Vessel Owner. For the reason stated above, the insurance
policies on which the Claimant bases its right of subrogation were not validly obtained. In
any event, the Claimant has not been subrogated to any rights which the Vessel may have
against the Yard because:
i. The Claimant has not proved payment of the proceeds of the
policies to any specific party. As a consequence, it has also not proved payment to the Vessel
Owner.
ii. The Claimant had no legally demandable obligation to pay under
the policies and did so only voluntarily. Under the policies, the Claimant and the Vessel
agreed that there is no Constructive Total Loss unless the expense of recovering and
repairing the vessel would exceed the Agreed Value of P360 million assigned by the parties
to the Vessel, a threshold which the actual repair cost for the Vessel did not reach. Since the
Claimant opted to pay contrary to the provisions of the policies, its payment was voluntary,
and there was no resulting subrogation to the Vessel.
iii. There was also no subrogation under Article 1236 of the Civil Code.
First, if the Claimant asserts a right of payment only by virtue of Article 1236, then there is
no legal subrogation under Article 2207 and it does not succeed to the Vessels rights under
the Ship [R]epair Agreement and the arbitration agreement. It does not have a right to
demand arbitration and will have only a purely civil law claim for reimbursement to the
extent that its payment benefited the Yard which should be filed in court. Second, since the
Yard is not liable for the fire and the resulting damage to the Vessel, then it derived no
benefit from the Claimants payment to the Vessel Owner. Third, in any event, the Claimant
has not proved payment of the proceeds to the Vessel Owner.
2. The Ship [R]epair Agreement was not imposed upon the Vessel. The Vessel
knowingly and voluntarily accepted that agreement. Moreover, there are no signing or other
formal defects that can invalidate the agreement.
3. The proximate cause of the fire and damage to the Vessel was not any negligence
committed by Angelino Sevillejo in cutting the bulkhead door or any other shortcoming by
the Yard. On the contrary, the proximate cause of the fire was Dr. Jonigas and the Vessels
deliberate decision to have Angelino Sevillejo undertake cutting work in inherently
dangerous conditions created by them.
(a) The Claimants material witnesses lied on the record and the Claimant
presented no credible proof of any negligence by Angelino Sevillejo.
(b) Uncontroverted evidence proved that Dr. Joniga neglected or decided
not to obtain a hot work permit for the bulkhead cutting and also neglected or refused to have
the ceiling and the flammable lifejackets removed from underneath the area where he
instructed Angelino Sevillejo to cut the bulkhead door. These decisions or oversights
guaranteed that the cutting would be done in extremely hazardous conditions and were the
proximate cause of the fire and the resulting damage to the Vessel.
(c) The Yards expert witness, Dr. Eric Mullen gave the only credible
account of the cause and the mechanics of ignition of the fire. He established that: i) the fire
started when the cutting of the bulkhead door resulted in sparks or hot molten slag which fell
through pre-existing holes on the deck floor and came into contact with and ignited the
flammable lifejackets stored in the ceiling void directly below; and ii) the bottom level of the
bulkhead door was immaterial, because the sparks and slag could have come from the cutting
of any of the sides of the door. Consequently, the cutting itself of the bulkhead door under
the hazardous conditions created by Dr. Joniga, rather than the positioning of the doors
bottom edge, was the proximate cause of the fire.
(d) The Manila City case is irrelevant to this dispute and in any case, does
not establish governing precedent to the effect that when a ship is damaged in dry dock, the
shipyard is presumed at fault. Apart from the differences in the factual setting of the two
cases, the Manila City pronouncements regarding the res ipsa loquitur doctrine are obiter
dicta without value as binding precedent. Furthermore, even if the principle were applied to
create a presumption of negligence by the Yard, however, that presumption is conclusively
rebutted by the evidence on record.
(e) The Vessels deliberate acts and its negligence created the inherently
hazardous conditions in which the cutting work that could otherwise be done safely ended up
causing a fire and the damage to the Vessel. The fire was a direct and logical consequence of
the Vessels decisions to: (1) take Angelino Sevillejo away from his welding work at the
Promenade Deck restaurant and instead to require him to do unauthorized cutting work in
Deck A; and (2) to have him do that without satisfying the requirements for and obtaining a
hot work permit in violation of the Yards Safety Rules and without removing the flammable
ceiling and life jackets below, contrary to the requirements not only of the Yards Safety
Rules but also of the demands of standard safe practice and the Vessels own explicit safety
and hot work policies.
(f) The vessel has not presented any proof to show that the Yard was
remiss in its fire fighting preparations or in the actual conduct of fighting the 8 February
2000 fire. The Yard had the necessary equipment and trained personnel and employed all
those resources immediately and fully to putting out the 8 February 2000 fire.
4. Even assuming that Angelino Sevillejo cut the bulkhead door close to the deck
floor, and that this circumstance rather than the extremely hazardous conditions created by
Dr. Joniga and the Vessel for that activity caused the fire, the Yard may still not be held
liable for the resulting damage.
(a) The Yards only contractual obligation to the Vessel in respect of the
26 January 2000 Work Order was to supply welders for the Promenade Deck restaurant who
would then perform welding work per owner[s] instruction. Consequently, once it had
provided those welders, including Angelino Sevillejo, its obligation to the Vessel was fully
discharged and no claim for contractual breach, or for damages on account thereof, may be
raised against the Yard.
(b) The Yard is also not liable to the Vessel/Claimant on the basis of
quasi-delict.
i.
The Vessel exercised supervision and control over Angelino Sevillejo when he was doing
work at the Promenade Deck restaurant and especially when he was instructed by Dr. Joniga
to cut the bulkhead door. Consequently, the Vessel was the party with actual control over his
tasks and is deemed his true and effective employer for purposes of establishing Article 2180
employer liability.
ii.
Even assuming that the Yard was Angelino Sevillejos employer, the Yard may nevertheless
not be held liable under Article 2180 because Angelino Sevillejo was acting beyond the
scope of his tasks assigned by the Yard (which was only to do welding for the Promenade
Deck restaurant) when he cut the bulkhead door pursuant to instructions given by the Vessel.
iii.
The Yard is nonetheless not liable under Article 2180 because it exercised due diligence in
the selection and supervision of Angelino Sevillejo.
5. Assuming that the Yard is liable, it cannot be compelled to pay the full amount of
P360 million paid by the Claimant.
(a) Under the law, the Yard may not be held liable to the Claimant, as
subrogee, for an amount greater than that which the Vessel could have recovered, even if the
Claimant may have paid a higher amount under its policies. In turn, the right of the Vessel to
recover is limited to actual damage to the MV Superferry 3, at the time of the fire.
(b) Under the Ship [R]epair Agreement, the liability of the Yard is limited
to P50 million a stipulation which, under the law and decisions of the Supreme Court, is
valid, binding and enforceable.
(c) The Vessel breached its obligation under Clause 22 (a) of the Yards
Standard Terms to name the Yard as co-assured under the policies a breach which makes the
Vessel liable for damages. This liability should in turn be set-off against the Claimants claim
for damages.
The Respondent listed what it believes the Claimant wanted to impress upon the Tribunal.
Respondent enumerated and disputed these as follows:
1. Claimants counsel contends that the cutting of the bulkhead door
was covered by the 26 January 2000 Work Order.
2. Claimants counsel contends that Dr. Joniga told Gerry Orcullo about
his intention to have Angelino Sevillejo do cutting work at the Deck A bulkhead on the
morning of 8 February 2000.
3. Claimants counsel contends that under Article 1727 of the Civil
Code, The contractor is responsible for the work done by persons employed by him.
4. Claimants counsel contends that [t]he second reason why there was
no job spec or job order for this cutting work, [is] the cutting work was known to the yard
and coordinated with Mr. Gerry Orcullo, the yard project superintendent.
5. Claimants counsel also contends, to make the Vessels unauthorized
hot works activities seem less likely, that they could easily be detected because Mr. Avelino
Aves, the Yard Safety Superintendent, admitted that No hot works could really be hidden
from the Yard, your Honors, because the welding cables and the gas hoses emanating from
the dock will give these hotworks away apart from the assertion and the fact that there were
also safety assistants supposedly going around the vessel.
Respondent disputed the above by presenting its own argument in its Final
Memorandum.[12]
On October 28, 2002, the CIAC rendered its Decision[13] declaring both WG&A and KCSI
guilty of negligence, with the following findings and conclusions
The Tribunal agrees that the contractual obligation of the Yard is to provide the welders and
equipment to the promenade deck. [The] Tribunal agrees that the cutting of the bulkhead
door was not a contractual obligation of the Yard. However, by requiring, according to its
own regulations, that only Yard welders are to undertake hotworks, it follows that there are
certain qualifications of Yard welders that would be requisite of yard welders against those
of the vessel welders. To the Tribunal, this means that yard welders are aware of the Yard
safety rules and regulations on hotworks such as applying for a hotwork permit, discussing
the work in a production meeting, and complying with the conditions of the hotwork permit
prior to implementation. By the requirement that all hotworks are to be done by the Yard, the
Tribunal finds that Sevillejo remains a yard employee. The act of Sevillejo is however
mitigated in that he was not even a foreman, and that the instructions to him was (sic) by an
authorized person. The Tribunal notes that the hotworks permit require[s] a request by at
least a foreman. The fact that no foreman was included in the five welders issued to the
Vessel was never raised in this dispute. As discussed earlier by the Tribunal, with the fact
that what was ask (sic) of Sevillejo was outside the work order, the Vessel is considered
equally negligent. This Tribunal finds the concurrent negligence of the Yard through
Sevillejo and the Vessel through Dr. Joniga as both contributory to the cause of the fire that
damaged the vessel.[14]
Holding that the liability for damages was limited to P50,000,000.00, the CIAC ordered
KCSI to pay Pioneer the amount of P25,000,000.00, with interest at 6% per annum from the
time of the filing of the case up to the time the decision is promulgated, and 12% interest per
annum added to the award, or any balance thereof, after it becomes final and executory. The
CIAC further ordered that the arbitration costs be imposed on both parties on a pro rata
basis.[15]
Pioneer appealed to the CA and its petition was docketed as CA-G.R. SP No. 74018. KCSI
likewise filed its own appeal and the same was docketed as CA-G.R. SP No. 73934. The
cases were consolidated.
On December 17, 2004, the Former Fifteenth Division of the CA rendered its Decision,
disposing as follows:
WHEREFORE, premises considered, the Petition of Pioneer (CA-G.R. SP No. 74018) is
DISMISSED while the Petition of the Yard (CA-G.R. SP No. 73934) is GRANTED,
dismissing petitioners claims in its entirety. No costs.
The Yard and The WG&A are hereby ordered to pay the arbitration costs pro-rata.
SO ORDERED.[16]
Aggrieved, Pioneer sought reconsideration of the December 17, 2004 Decision, insisting that
it suffered from serious errors in the appreciation of the evidence and from gross
misapplication of the law and jurisprudence on negligence. KCSI, for its part, filed a motion
for partial reconsideration of the same Decision.
On December 20, 2007, an Amended Decision was promulgated by the Special Division of
Five Former Fifteenth Division of the CA in light of the dissent of Associate Justice Lucas P.
Bersamin,[17] joined by Associate Justice Japar B. Dimaampao. The fallo of the Amended
Decision reads
WHEREFORE, premises considered, the Court hereby decrees that:
1. Pioneers Motion for Reconsideration is PARTIALLY GRANTED, ordering The Yard to
pay Pioneer P25 Million, without legal interest, within 15 days from the finality of this
Amended Decision, subject to the following modifications:
1.1 Pioneers Petition (CA-G.R. SP No. 74018) is PARTIALLY GRANTED as the Yard is
hereby ordered to pay Pioneer P25 Million without legal interest;
2. The Yard is hereby declared as equally negligent, thus, the total GRANTING of its
Petition (CA-G.R. SP No. 73934) is now reduced to PARTIALLY GRANTED, in so far as it
is ordered to pay Pioneer P25 Million, without legal interest, within 15 days from the finality
of this Amended Decision; and
3. The rest of the disposition in the original Decision remains the same.
SO ORDERED.[18]
Hence, these petitions. Pioneer bases its petition on the following grounds:
I III
THE COURT OF APPEALS ERRED IN BASING ITS ORIGINAL DECISION ON
NON-FACTS LEADING IT TO MAKE FALSE LEGAL CONCLUSIONS; NON-FACTS
REMAIN TO INVALIDATE THE AMENDED DECISION. THIS ALSO VIOLATES
SECTION 14, ARTICLE VIII OF THE CONSTITUTION.
II
THE COURT OF APPEALS ERRED IN LIMITING THE LEGAL LIABILITY OF THE
YARD TO THE SUM OF P50,000,000.00, IN THAT:
A. STARE DECISIS RENDERS INAPPLICABLE ANY INVOCATION OF LIMITED
LIABILITY BY THE YARD.
B. THE LIMITATION CLAUSE IS CONTRARY TO PUBLIC POLICY.
C. THE VESSEL OWNER DID NOT AGREE THAT THE YARDS LIABILITY FOR
LOSS OR DAMAGE TO THE VESSEL ARISING FROM YARDS NEGLIGENCE IS
LIMITED TO THE SUM OF P50,000,000.00 ONLY.
D. IT IS INIQUITOUS TO ALLOW THE YARD TO LIMIT LIABILITY, IN THAT:
(i) THE YARD HAD CUSTODY AND CONTROL OVER THE VESSEL (M/V
SUPERFERRY 3) ON 08 FEBRUARY 2000 WHEN IT WAS GUTTED BY FIRE;
(ii) THE DAMAGING FIRE INCIDENT HAPPENED IN THE COURSE OF THE
REPAIRS EXCLUSIVELY PERFORMED BY YARD WORKERS.
THE COURT OF APPEALS ERRED IN ITS RULING THAT WG&A WAS
CONCURRENTLY NEGLIGENT, CONSIDERING THAT:
A. DR. JONIGA, THE VESSELS PASSAGE TEAM LEADER, DID NOT SUPERVISE OR
CONTROL THE REPAIRS.
B. IT WAS THE YARD THROUGH ITS PROJECT SUPERINTENDENT GERMINIANO
ORCULLO THAT SUPERVISED AND CONTROLLED THE REPAIR WORKS.
C. SINCE ONLY YARD WELDERS COULD PERFORM HOT WORKS IT FOLLOWS
THAT THEY ALONE COULD BE GUILTY OF NEGLIGENCE IN DOING THE SAME.
D. THE YARD AUTHORIZED THE HOT WORK OF YARD WELDER ANGELINO
SEVILLEJO. 1. ABSENCE OF YARD RESPONSIBILITY

E. THE NEGLIGENCE OF ANGELINO SEVILLEJO WAS THE PROXIMATE CAUSE IT WAS GRIEVOUS ERROR FOR THE COURT OF APPEALS TO ADOPT, WITHOUT
OF THE LOSS. EXPLANATION, THE CIACS RULING THAT THE YARD WAS EQUALLY
NEGLIGENT BECAUSE OF ITS FAILURE TO REQUIRE A HOT WORKS PERMIT
F. WG&A WAS NOT GUILTY OF NEGLIGENCE, BE IT DIRECT OR FOR THE CUTTING WORK DONE BY ANGELINO SEVILLEJO, AFTER THE COURT
CONTRIBUTORY TO THE LOSS. OF APPEALS ITSELF HAD SHOWN THAT RULING TO BE COMPLETELY WRONG
AND BASELESS.
IV
2. NO CONSTRUCTIVE TOTAL LOSS
THE COURT OF APPEALS CORRECTLY RULED THAT WG&A SUFFERED A
CONSTRUCTIVE TOTAL LOSS OF ITS VESSEL BUT ERRED BY NOT HOLDING IT WAS EQUALLY GRIEVOUS ERROR FOR THE COURT OF APPEALS TO RULE,
THAT THE YARD WAS LIABLE FOR THE VALUE OF THE FULL CONSTRUCTIVE WITHOUT EXPLANATION, THAT THE VESSEL WAS A CONSTRUCTIVE TOTAL
TOTAL LOSS. LOSS AFTER HAVING ITSELF EXPLAINED WHY THE VESSEL COULD NOT BE A
CONSTRUCTIVE TOTAL LOSS.
V
3. FAILURE OR REFUSAL TO ADDRESS
THE COURT OF APPEALS ERRED IN NOT HOLDING THE YARD LIABLE FOR KEPPELS MOTION FOR RECONSIDERATION
INTEREST.
FINALLY, IT WAS ALSO GRIEVOUS ERROR FOR THE COURT OF APPEALS TO
HAVE EFFECTIVELY DENIED, WITHOUT ADDRESSING IT AND ALSO WITHOUT
VI EXPLANATION, KEPPELS PARTIAL MOTION FOR RECONSIDERATION OF THE
ORIGINAL DECISION WHICH SHOWED: 1) WHY PIONEER WAS NOT
THE COURT OF APPEALS ERRED IN NOT HOLDING THE YARD SOLELY LIABLE SUBROGATED TO THE RIGHTS OF THE VESSEL OWNER AND SO HAD NO
FOR ARBITRATION COSTS.[19] STANDING TO SUE THE YARD; 2) WHY KEPPEL MAY NOT BE REQUIRED TO
REIMBURSE PIONEERS PAYMENTS TO THE VESSEL OWNER IN VIEW OF THE
CO-INSURANCE CLAUSE IN THE SHIPREPAIR AGREEMENT; AND 3) WHY
On the other hand, KCSI cites the following grounds for the allowance of its petition, to wit: PIONEER ALONE SHOULD BEAR THE COSTS OF ARBITRATION.

4. FAILURE TO CREDIT FOR SALVAGE RECOVERY
EVEN IF THE COURT OF APPEALS RULINGS ON ALL OF THE FOREGOING
ISSUES WERE CORRECT AND THE YARD MAY PROPERLY BE HELD EQUALLY
LIABLE FOR THE DAMAGE TO THE VESSEL AND REQUIRED TO PAY HALF OF
THE DAMAGES AWARDED (P25 MILLION), THE COURT OF APPEALS STILL
ERRED IN NOT DEDUCTING THE SALVAGE VALUE OF THE VESSEL
RECOVERED AND RECEIVED BY THE INSURER, PIONEER, TO REDUCE ANY
LIABILITY ON THE PART OF THE YARD TO P9.874 MILLION.[20]
To our minds, these errors assigned by both Pioneer and KCSI may be summed up in the
following core issues:
A. To whom may negligence over the fire that broke out on board M/V Superferry 3 be
imputed?
B. Is subrogation proper? If proper, to what extent can subrogation be made?
C. Should interest be imposed on the award of damages? If so, how much?
D. Who should bear the cost of the arbitration?
To resolve these issues, it is imperative that we digress from the general rule that in petitions
for review under Rule 45 of the Rules of Court, only questions of law shall be entertained.
Considering the disparate findings of fact of the CIAC and the CA which led them to
different conclusions, we are constrained to revisit the factual circumstances surrounding this
controversy.[21]
The Courts Ruling
A. The issue of negligence
Undeniably, the immediate cause of the fire was the hot work done by Angelino Sevillejo
(Sevillejo) on the accommodation area of the vessel, specifically on Deck A. As established
before the CIAC
The fire broke out shortly after 10:25 and an alarm was raised (Exh. 1-Ms. Aini Ling,[22] p.
20). Angelino Sevillejo tried to put out the fire by pouring the contents of a five-liter
drinking water container on it and as he did so, smoke came up from under Deck A. He got
another container of water which he also poured whence the smoke was coming. In the
meantime, other workers in the immediate vicinity tried to fight the fire by using fire
extinguishers and buckets of water. But because the fire was inside the ceiling void, it was
extremely difficult to contain or extinguish; and it spread rapidly because it was not possible
to direct water jets or the fire extinguishers into the space at the source. Fighting the fire was
extremely difficult because the life jackets and the construction materials of the Deck B
ceiling were combustible and permitted the fire to spread within the ceiling void. From there,
the fire dropped into the Deck B accommodation areas at various locations, where there were
combustible materials. Respondent points to cans of paint and thinner, in addition to the
plywood partitions and foam mattresses on deck B (Exh. 1-Mullen,[23] pp. 7-8, 18; Exh.
2-Mullen, pp. 11-12).[24]
Pioneer contends that KCSI should be held liable because Sevillejo was its employee who, at
the time the fire broke out, was doing his assigned task, and that KCSI was solely
responsible for all the hot works done on board the vessel. KCSI claims otherwise, stating
that the hot work done was beyond the scope of Sevillejos assigned tasks, the same not
having been authorized under the Work Order[25] dated January 26, 2000 or under the
Shiprepair Agreement. KCSI further posits that WG&A was itself negligent, through its crew,
particularly Dr. Raymundo Joniga (Dr. Joniga), for failing to remove the life jackets from the
ceiling void, causing the immediate spread of the fire to the other areas of the ship.
We rule in favor of Pioneer.
First. The Shiprepair Agreement is clear that WG&A, as owner of M/V Superferry 3, entered
into a contract for the dry docking and repair of the vessel under KCSIs Standard Conditions
of Contract for Shiprepair, and its guidelines and regulations on safety and security. Thus,
the CA erred when it said that WG&A would renovate and reconstruct its own vessel merely
using the dry docking facilities of KCSI.
Second. Pursuant to KCSIs rules and regulations on safety and security, only employees of
KCSI may undertake hot works on the vessel while it was in the graving dock in Lapu-Lapu
City, Cebu. This is supported by Clause 3 of the Shiprepair Agreement requiring the prior
written approval of KCSIs Vice President for Operations before WG&A could effect any
work performed by its own workers or sub-contractors. In the exercise of this authority,
KCSIs Vice-President for Operations, in the letter dated January 2, 1997, banned any hot
works from being done except by KCSIs workers, viz.:
The Yard will restrict all hot works in the engine room, accommodation cabin, and fuel oil
tanks to be carried out only by shipyard workers x x x.[26]
WG&A recognized and complied with this restrictive directive such that, during the arrival
conference on January 26, 2000, Dr. Joniga, the vessels passage team leader in charge of its
hotel department, specifically requested KCSI to finish the hot works started by the vessels
contractors on the passenger accommodation decks.[27] This was corroborated by the
statements of the vessels hotel manager Marcelo Rabe[28] and the vessels quality control
officer Joselito Esteban.[29] KCSI knew of the unfinished hot works in the passenger
accommodation areas. Its safety supervisor Esteban Cabalhug confirmed that KCSI was
aware that the owners of this vessel (M/V Superferry 3) had undertaken their own (hot)
works prior to arrival alongside (sic) on 26th January, and that no hot work permits could
thereafter be issued to WG&As own workers because this was not allowed for the Superferry
3.[30] This shows that Dr. Joniga had authority only to request the performance of hot works
by KCSIs welders as needed in the repair of the vessel while on dry dock.
Third. KCSI welders covered by the Work Order performed hot works on various areas of
the M/V Superferry 3, aside from its promenade deck. This was a recognition of Dr. Jonigas
authority to request the conduct of hot works even on the passenger accommodation decks,
subject to the provision of the January 26, 2000 Work Order that KCSI would supply
welders for the promenade deck of the ship.
At the CIAC proceedings, it was adequately shown that between February 4 and 6, 2000, the
welders of KCSI: (a) did the welding works on the ceiling hangers in the lobby of Deck A; (b)
did the welding and cutting works on the deck beam to access aircon ducts; and (c) did the
cutting and welding works on the protection bars at the tourist dining salon of Deck B,[31] at
a rate of P150.00/welder/hour.[32] In fact, Orcullo, Project Superintendent of KCSI,
admitted that as early as February 3, 2000 (five days before the fire) [the Yard] had
acknowledged Dr. Jonigas authority to order such works or additional jobs.[33]
It is evident, therefore, that although the January 26, 2000 Work Order was a special order
for the supply of KCSI welders to the promenade deck, it was not restricted to the promenade
deck only. The Work Order was only a special arrangement between KCSI and WG&A that
meant additional cost to the latter.
Fourth. At the time of the fire, Sevillejo was an employee of KCSI and was subject to the
latters direct control and supervision.
Indeed, KCSI was the employer of Sevillejopaying his salaries; retaining the power and the
right to discharge or substitute him with another welder; providing him and the other welders
with its equipment; giving him and the other welders marching orders to work on the vessel;
and monitoring and keeping track of his and the other welders activities on board, in view of
the delicate nature of their work.[34] Thus, as such employee, aware of KCSIs Safety
Regulations on Vessels Afloat/Dry, which specifically provides that (n)o hotwork
(welding/cutting works) shall be done on board [the] vessel without [a] Safety Permit from
KCSI Safety Section,[35] it was incumbent upon Sevillejo to obtain the required hot work
safety permit before starting the work he did, including that done on Deck A where the fire
started.
Fifth. There was a lapse in KCSIs supervision of Sevillejos work at the time the fire broke
out.
It was established that no hot works could be hidden from or remain undetected by KCSI
because the welding cables and the gas hoses emanating from the dock would give the hot
works away. Moreover, KCSI had roving fire watchmen and safety assistants who were
moving around the vessel.[36] This was confirmed by Restituto Rebaca (Rebaca), KCSIs
Safety Supervisor, who actually spotted Sevillejo on Deck A, two hours before the fire,
doing his cutting work without a hot work permit, a fire watchman, or a fire extinguisher.
KCSI contends that it did its duty when it prohibited Sevillejo from continuing the hot work.
However, it is noteworthy that, after purportedly scolding Sevillejo for working without a
permit and telling him to stop until the permit was acquired and the other safety measures
were observed, Rebaca left without pulling Sevillejo out of the work area or making sure that
the latter did as he was told. Unfortunately for KCSI, Sevillejo reluctantly proceeded with his
cutting of the bulkhead door at Deck A after Rebaca left, even disregarding the 4-inch
marking set, thus cutting the door level with the deck, until the fire broke out.
This conclusion on the failure of supervision by KCSI was absolutely supported by Dr. Eric
Mullen of the Dr. J.H. Burgoyne & Partners (International) Ltd., Singapore, KCSIs own fire
expert, who observed that
4.3. The foregoing would be compounded by Angelino Sevillejo being an electric arc welder,
not a cutter. The dangers of ignition occurring as a result of the two processes are similar in
that both electric arc welding and hot cutting produce heat at the work area and sparks and
incendive material that can travel some distance from the work area. Hence, the safety
precautions that are expected to be applied by the supervisor are the same for both types of
work. However, the quantity and incendivity of the spray from the hot cutting are much
greater than those of sparks from electric arc welding, and it may well be that Angelino
Sevillejo would not have a full appreciation of the dangers involved. This made it all the
more important that the supervisor, who should have had such an appreciation, ensured that
the appropriate safety precautions were carried out.[37]
In this light, therefore, Sevillejo, being one of the specially trained welders specifically
authorized by KCSI to do the hot works on M/V Superferry 3 to the exclusion of other
workers, failed to comply with the strict safety standards of KCSI, not only because he
worked without the required permit, fire watch, fire buckets, and extinguishers, but also
because he failed to undertake other precautionary measures for preventing the fire. For
instance, he could have, at the very least, ensured that whatever combustible material may
have been in the vicinity would be protected from the sparks caused by the welding torch. He
could have easily removed the life jackets from the ceiling void, as well as the foam
mattresses, and covered any holes where the sparks may enter.
Conjunctively, since Rebaca was already aware of the hazard, he should have taken all
possible precautionary measures, including those above mentioned, before allowing Sevillejo
to continue with his hot work on Deck A. In addition to scolding Sevillejo, Rebaca merely
checked that no fire had started yet. Nothing more. Also, inasmuch as KCSI had the power to
substitute Sevillejo with another electric arc welder, Rebaca should have replaced him.
There is negligence when an act is done without exercising the competence that a reasonable
person in the position of the actor would recognize as necessary to prevent an unreasonable
risk of harm to another. Those who undertake any work calling for special skills are required
to exercise reasonable care in what they do.[38] Verily, there is an obligation all persons
have to take due care which, under ordinary circumstances of the case, a reasonable and
prudent man would take. The omission of that care constitutes negligence. Generally, the
degree of care required is graduated according to the danger a person or property may be
subjected to, arising from the activity that the actor pursues or the instrumentality that he
uses. The greater the danger, the greater the degree of care required. Extraordinary risk
demands extraordinary care. Similarly, the more imminent the danger, the higher degree of
care warranted.[39] In this aspect,
KCSI failed to exercise the necessary degree of caution and foresight called for by the
circumstances.
We cannot subscribe to KCSIs position that WG&A, through Dr. Joniga, was negligent.
On the one hand, as discussed above, Dr. Joniga had authority to request the performance of
hot works in the other areas of the vessel. These hot works were deemed included in the
January 26, 2000 Work Order and the Shiprepair Agreement. In the exercise of this authority,
Dr. Joniga asked Sevillejo to do the cutting of the bulkhead door near the staircase of Deck A.
KCSI was aware of what Sevillejo was doing, but failed to supervise him with the degree of
care warranted by the attendant circumstances.
Neither can Dr. Joniga be faulted for not removing the life jackets from the ceiling void for
two reasons (1) the life jackets were not even contributory to the occurrence of the fire; and
(2) it was not incumbent upon him to remove the same. It was shown during the hearings
before the CIAC that the removal of the life jackets would not have made much of a
difference. The fire would still have occurred due to the presence of other combustible
materials in the area. This was the uniform conclusion of both WG&As[40] and KCSIs[41]
fire experts. It was also proven during the CIAC proceedings that KCSI did not see the life
jackets as being in the way of the hot works, thus, making their removal from storage
unnecessary.[42]
These circumstances, taken collectively, yield the inevitable conclusion that Sevillejo was
negligent in the performance of his assigned task. His negligence was the proximate cause of
the fire on board M/V Superferry 3. As he was then definitely engaged in the performance of
his assigned tasks as an employee of KCSI, his negligence gave rise to the vicarious liability
of his employer[43] under Article 2180 of the Civil Code, which provides
Art. 2180. The obligation imposed by article 2176 is demandable not only for ones own act
or omission, but also for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in
any business or industry.
xxxx
The responsibility treated of in this article shall cease when the persons herein mentioned
prove that they observed all the diligence of a good father of a family to prevent damage.
KCSI failed to prove that it exercised the necessary diligence incumbent upon it to rebut the
legal presumption of its negligence in supervising Sevillejo.[44] Consequently, it is
responsible for the damages caused by the negligent act of its employee, and its liability is
primary and solidary. All that is needed is proof that the employee has, by his negligence,
caused damage to another in order to make the employer responsible for the tortuous act of
the former.[45] From the foregoing disquisition, there is ample proof of the employees
negligence.
B. The right of subrogation
Pioneer asseverates that there existed a total constructive loss so that it had to pay WG&A
the full amount of the insurance coverage and, by operation of law, it was entitled to be
subrogated to the rights of WG&A to claim the amount of the loss. It further argues that the
limitation of liability clause found in the Shiprepair Agreement is null and void for being
iniquitous and against public policy.
KCSI counters that a total constructive loss was not adequately proven by Pioneer, and that
there is no proof of payment of the insurance proceeds. KCSI insists on the validity of the
limited-liability clause up to P50,000,000.00, because WG&A acceded to the provision when
it executed the Shiprepair Agreement. KCSI also claims that the salvage value of the vessel
should be deducted from whatever amount it will be made to pay to Pioneer.
We find in favor of Pioneer, subject to the claim of KCSI as to the salvage value of M/V
Superferry 3.
In marine insurance, a constructive total loss occurs under any of the conditions set forth in
Section 139 of the Insurance Code, which provides
Sec. 139. A person insured by a contract of marine insurance may abandon the thing insured,
or any particular portion hereof separately valued by the policy, or otherwise separately
insured, and recover for a total loss thereof, when the cause of the loss is a peril insured
against:
(a) If more than three-fourths thereof in value is actually lost, or would have to be expended
to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths; x x x.
It appears, however, that in the execution of the insurance policies over M/V Superferry 3,
WG&A and Pioneer incorporated by reference the American Institute Hull Clauses 2/6/77,
the Total Loss Provision of which reads
Total Loss
In ascertaining whether the Vessel is a constructive Total Loss the Agreed Value shall be
taken as the repaired value and nothing in respect of the damaged or break-up value of the
Vessel or wreck shall be taken into account.
There shall be no recovery for a constructive Total Loss hereunder unless the expense of
recovering and repairing the Vessel would exceed the Agreed Value in policies on Hull and
Machinery. In making this determination, only expenses incurred or to be incurred by reason
of a single accident or a sequence of damages arising from the same accident shall be taken
into account, but expenses incurred prior to tender of abandonment shall not be considered if
such are to be claimed separately under the Sue and Labor clause. x x x.
In the course of the arbitration proceedings, Pioneer adduced in evidence the estimates made
by three (3) disinterested and qualified shipyards for the cost of the repair of the vessel,
specifically: (a) P296,256,717.00, based on the Philippine currency equivalent of the
quotation dated April 17, 2000 turned in by Tsuneishi Heavy Industries (Cebu) Inc.; (b)
P309,780,384.15, based on the Philippine currency equivalent of the quotation of
Sembawang Shipyard Pte. Ltd., Singapore; and (c) P301,839,974.00, based on the Philippine
currency equivalent of the quotation of Singapore Technologies Marine Ltd. All the
estimates showed that the repair expense would exceed P270,000,000.00, the amount
equivalent to of the vessels insured value of P360,000,000.00. Thus, WG&A opted to
abandon M/V Superferry 3 and claimed from Pioneer the full amount of the policies. Pioneer
paid WG&As claim, and now demands from KCSI the full amount of P360,000,000.00, by
virtue of subrogation.
KCSI denies the liability because, aside from its claim that it cannot be held culpable for
negligence resulting in the destructive fire, there was no constructive total loss, as the
amount of damage was only US$3,800,000.00 or P170,611,260.00, the amount of repair
expense quoted by Simpson, Spence & Young.
In the face of this apparent conflict, we hold that Section 139 of the Insurance Code should
govern, because (1) Philippine law is deemed incorporated in every locally executed contract;
and (2) the marine insurance policies in question expressly provided the following:
IMPORTANT
This insurance is subject to English jurisdiction, except in the event that loss or losses are
payable in the Philippines, in which case if the said laws and customs of England shall be in
conflict with the laws of the Republic of the Philippines, then the laws of the Republic of the
Philippines shall govern. (Underscoring supplied.)
The CA held that Section 139 of the Insurance Code is merely permissive on account of the
word may in the provision. This is incorrect. Properly considered, the word may in the
provision is intended to grant the insured (WG&A) the option or discretion to choose the
abandonment of the thing insured (M/V Superferry 3), or any particular portion thereof
separately valued by the policy, or otherwise separately insured, and recover for a total loss
when the cause of the loss is a peril insured against. This option or discretion is expressed as
a right in Section 131 of the same Code, to wit:
Sec. 131. A constructive total loss is one which gives to a person insured a right to abandon
under Section one hundred thirty-nine.
It cannot be denied that M/V Superferry 3 suffered widespread damage from the fire that
occurred on February 8, 2000, a covered peril under the marine insurance policies obtained
by WG&A from Pioneer. The estimates given by the three disinterested and qualified
shipyards show that the damage to the ship would exceed P270,000,000.00, or of the total
value of the policies P360,000,000.00. These estimates constituted credible and acceptable
proof of the extent of the damage sustained by the vessel. It is significant that these estimates
were confirmed by the Adjustment Report dated June 5, 2000 submitted by Richards Hogg
Lindley (Phils.), Inc., the average adjuster that Pioneer had enlisted to verify and confirm the
extent of the damage. The Adjustment Report verified and confirmed that the damage to the
vessel amounted to a constructive total loss and that the claim for P360,000,000.00 under the
policies was compensable.[46] It is also noteworthy that KCSI did not cross-examine Henson
Lim, Director of Richards Hogg, whose affidavit-direct testimony submitted to the CIAC
confirmed that the vessel was a constructive total loss.
Considering the extent of the damage, WG&A opted to abandon the ship and claimed the
value of its policies. Pioneer, finding the claim compensable, paid the claim, with WG&A
issuing a Loss and Subrogation Receipt evidencing receipt of the payment of the insurance
proceeds from Pioneer. On this note, we find as unacceptable the claim of KCSI that there
was no ample proof of payment simply because the person who signed the Receipt appeared
to be an employee of Aboitiz Shipping Corporation.[47] The Loss and Subrogation Receipt
issued by WG&A to Pioneer is the best evidence of payment of the insurance proceeds to the
former, and no controverting evidence was presented by KCSI to rebut the presumed
authority of the signatory to receive such payment.
On the matter of subrogation, Article 2207 of the Civil Code provides
Art. 2207. If the plaintiffs property has been insured and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against
the wrongdoer or the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or injury.
Subrogation is the substitution of one person by another with reference to a lawful claim or
right, so that he who is substituted succeeds to the rights of the other in relation to a debt or
claim, including its remedies or securities. The principle covers a situation wherein an
insurer has paid a loss under an insurance policy is entitled to all the rights and remedies
belonging to the insured against a third party with respect to any loss covered by the policy.
It contemplates full substitution such that it places the party subrogated in the shoes of the
creditor, and he may use all means that the creditor could employ to enforce payment.[48]
We have held that payment by the insurer to the insured operates as an equitable assignment
to the insurer of all the remedies that the insured may have against the third party whose
negligence or wrongful act caused the loss. The right of subrogation is not dependent upon,
nor does it grow out of, any privity of contract. It accrues simply upon payment by the
insurance company of the insurance claim. The doctrine of subrogation has its roots in equity.
It is designed to promote and to accomplish justice; and is the mode that equity adopts to
compel the ultimate payment of a debt by one who, in justice, equity, and good conscience,
ought to pay.[49]
We cannot accept KCSIs insistence on upholding the validity Clause 20, which provides that
the limit of its liability is only up to P50,000,000.00; nor of Clause 22(a), that KCSI stands as
a co-assured in the insurance policies, as found in the Shiprepair Agreement.
Clauses 20 and 22(a) of the Shiprepair Agreement are without factual and legal foundation.
They are unfair and inequitable under the premises. It was established during arbitration that
WG&A did not voluntarily and expressly agree to these provisions. Engr. Elvin F. Bello,
WG&As fleet manager, testified that he did not sign the fine-print portion of the Shiprepair
Agreement where Clauses 20 and 22(a) were found, because he did not want WG&A to be
bound by them. However, considering that it was only KCSI that had shipyard facilities large
enough to accommodate the dry docking and repair of big vessels owned by WG&A, such as
M/V Superferry 3, in Cebu, he had to sign the front portion of the Shiprepair Agreement;
otherwise, the vessel would not be accepted for dry docking.[50]
Indeed, the assailed clauses amount to a contract of adhesion imposed on WG&A on a
take-it-or-leave-it basis. A contract of adhesion is so-called because its terms are prepared by
only one party, while the other party merely affixes his signature signifying his adhesion
thereto. Although not invalid, per se, a contract of adhesion is void when the weaker party is
imposed upon in dealing with the dominant bargaining party, and its option is reduced to the
alternative of taking it or leaving it, completely depriving such party of the opportunity to
bargain on equal footing.[51]
Clause 20 is also a void and ineffectual waiver of the right of WG&A to be compensated for
the full insured value of the vessel or, at the very least, for its actual market value. There was
clearly no intention on the part of WG&A to relinquish such right. It is an elementary rule
that a waiver must be positively proved, since a waiver by implication is not normally
countenanced. The norm is that a waiver must not only be voluntary, but must have been
made knowingly, intelligently, and with sufficient awareness of the relevant circumstances
and likely consequences. There must be persuasive evidence to show an actual intention to
relinquish the right.[52] This has not been demonstrated in this case.
Likewise, Clause 20 is a stipulation that may be considered contrary to public policy. To
allow KCSI to limit its liability to only P50,000,000.00, notwithstanding the fact that there
was a constructive total loss in the amount of P360,000,000.00, would sanction the exercise
of a degree of diligence short of what is ordinarily required. It would not be difficult for a
negligent party to escape liability by the simple expedient of paying an amount very much
lower than the actual damage or loss sustained by the other.[53]
Along the same vein, Clause 22(a) cannot be upheld. The intention of the parties to make
each other a co-assured under an insurance policy is to be gleaned principally from the
insurance contract or policy itself and not from any other contract or agreement, because the
insurance policy denominates the assured and the beneficiaries of the insurance contract.
Undeniably, the hull and machinery insurance procured by WG&A from Pioneer named only
the former as the assured. There was no manifest intention on the part of WG&A to
constitute KCSI as a co-assured under the policies. To have deemed KCSI as a co-assured
under the policies would have had the effect of nullifying any claim of WG&A from Pioneer
for any loss or damage caused by the negligence of KCSI. No ship owner would agree to
make a ship repairer a co-assured under such insurance policy. Otherwise, any claim for loss
or damage under the policy would be rendered nugatory. WG&A could not have intended
such a result.[54]
Nevertheless, we concur with the position of KCSI that the salvage value of the damaged
M/V Superferry 3 should be taken into account in the grant of any award. It was proven
before the CIAC that the machinery and the hull of the vessel were separately sold for
P25,290,000.00 (or US$468,333.33) and US$363,289.50, respectively. WG&As claim for
the upkeep of the wreck until the same were sold amounts to P8,521,737.75 (or
US$157,809.96), to be deducted from the proceeds of the sale of the machinery and the hull,
for a net recovery of US$673,812.87, or equivalent to P30,252,648.09, at P44.8977/$1, the
prevailing exchange rate when the Request for Arbitration was filed. Not considering this
salvage value in the award would amount to unjust enrichment on the part of Pioneer.
C. On the imposition of interest
Pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,[55] the award in
favor of Pioneer in the amount of P350,146,786.89 should earn interest at 6% per annum
from the filing of the case until the award becomes final and executory. Thereafter, the rate
of interest shall be 12% per annum from the date the award becomes final and executory
until its full satisfaction.
D. On the payment for the cost of arbitration
It is only fitting that both parties should share in the burden of the cost of arbitration, on a
pro rata basis. We find that Pioneer had a valid reason to institute a suit against KCSI, as it
believed that it was entitled to claim reimbursement of the amount it paid to WG&A.
However, we disagree with Pioneer that only KCSI should shoulder the arbitration costs.
KCSI cannot be faulted for defending itself for perceived wrongful acts and conditions. KOREA TECHNOLOGIES CO., G.R. No. 143581
Otherwise, we would be putting a price on the right to litigate on the part of Pioneer. LTD.,
Petitioner,
WHEREFORE, the Petition of Pioneer Insurance and Surety Corporation in G.R. No. Present:
180896-97 and the Petition of Keppel Cebu Shipyard, Inc. in G.R. No. 180880-81 are - versus - QUISUMBING, J., Chairperson,
PARTIALLY GRANTED and the Amended Decision dated December 20, 2007 of the Court CARPIO,
of Appeals is MODIFIED. Accordingly, KCSI is ordered to pay Pioneer the amount of CARPIO MORALES,
P360,000,000.00 less P30,252,648.09, equivalent to the salvage value recovered by Pioneer HON. ALBERTO A. LERMA, in TINGA, and
from M/V Superferry 3, or the net total amount of P329,747,351.91, with six percent (6%) his capacity as Presiding Judge of VELASCO, JR., JJ.
interest per annum reckoned from the time the Request for Arbitration was filed until this Branch 256 of Regional Trial
Decision becomes final and executory, plus twelve percent (12%) interest per annum on the Court of Muntinlupa City, and
said amount or any balance thereof from the finality of the Decision until the same will have PACIFIC GENERAL STEEL Promulgated:
been fully paid. The arbitration costs shall be borne by both parties on a pro rata basis. Costs MANUFACTURING
against KCSI. CORPORATION,
Respondents. January 7, 2008
x-----------------------------------------------------------------------------------------x

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 Contract[1] 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, 1997[2] 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 plants 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 Lease[3] with Worth Properties,
Inc. (Worth) for use of Worths 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 Certificate[4] 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 letter[6] to PGSMC threatening
criminal action for violation of Batas Pambansa Blg. 22 in case of nonpayment. On the same
date, the wife of PGSMCs 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. 98-117[8] 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 plaintiffs 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 PGSMCs 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
PGSMCs memorandum of July 22, 1998 and seeking dismissal of PGSMCs counterclaims,
KOGIES, on August 4, 1998, filed its Motion for Reconsideration[14] 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 Things[16] 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 PGSMCs motion for
inspection; (2) denying KOGIES motion for reconsideration of the July 23, 1998 RTC Order;
and (3) denying KOGIES motion to dismiss PGSMCs 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
PGSMCs 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 certiorari[18] 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 Petition[20] 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 Sheriffs 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 Decision[22] affirming the RTC Orders and Petitioner posits that the appellate court committed the following errors:
dismissing the petition for certiorari filed by KOGIES. The CA found that the RTC did not a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY AND
gravely abuse its discretion in issuing the assailed July 23, 1998 and September 21, 1998 FACILITIES AS A QUESTION OF FACT BEYOND THE AMBIT OF A PETITION FOR
Orders. Moreover, the CA reasoned that KOGIES contention that the total contract price for CERTIORARI INTENDED ONLY FOR CORRECTION OF ERRORS OF JURISDICTION
USD 1,530,000 was for the whole plant and had not been fully paid was contrary to the OR GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF (SIC) EXCESS OF
finding of the RTC that PGSMC fully paid the price of USD 1,224,000, which was for all the JURISDICTION, AND CONCLUDING THAT THE TRIAL COURTS FINDING ON THE
machineries and equipment. According to the CA, this determination by the RTC was a SAME QUESTION WAS IMPROPERLY RAISED IN THE PETITION BELOW;
factual finding beyond the ambit of a petition for certiorari.
b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE 15
On the issue of the validity of the arbitration clause, the CA agreed with the lower court that OF THE CONTRACT BETWEEN THE PARTIES FOR BEING CONTRARY TO PUBLIC
an arbitration clause which provided for a final determination of the legal rights of the parties POLICY AND FOR OUSTING THE COURTS OF JURISDICTION;
to the contract by arbitration was against public policy.
c. DECREEING PRIVATE RESPONDENTS COUNTERCLAIMS
On the issue of nonpayment of docket fees and non-attachment of a certificate of non-forum TO BE ALL COMPULSORY NOT NECESSITATING PAYMENT OF DOCKET FEES
shopping by PGSMC, the CA held that the counterclaims of PGSMC were compulsory ones AND CERTIFICATION OF NON-FORUM SHOPPING;
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 d. RULING THAT THE PETITION WAS FILED PREMATURELY
also not required. WITHOUT WAITING FOR THE RESOLUTION OF THE MOTION FOR
RECONSIDERATION OF THE ORDER DATED SEPTEMBER 21, 1998 OR WITHOUT
Furthermore, the CA held that the petition for certiorari had been filed prematurely since GIVING THE TRIAL COURT AN OPPORTUNITY TO CORRECT ITSELF;
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. e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND
According to the CA, the RTC must be given the opportunity to correct any alleged error it SEPTEMBER 21, 1998 NOT TO BE PROPER SUBJECTS OF CERTIORARI AND
has committed, and that since the assailed orders were interlocutory, these cannot be the PROHIBITION FOR BEING INTERLOCUTORY IN NATURE;
subject of a petition for certiorari.
f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED
Hence, we have this Petition for Review on Certiorari under Rule 45. FOR IN HE (SIC) PETITION AND, INSTEAD, DISMISSING THE SAME FOR
ALLEGEDLY WITHOUT MERIT.[23]
The Issues The Courts 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, PGSMCs Answer is not an
initiatory pleading which requires a certification against forum shopping under Sec. 5[24] 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 PGSMCs
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 RTCs 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 2040[33] 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 Codes 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, arbitrationalong with
mediation, conciliation and negotiationis 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 preparatories and 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. 35[43] 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 partys
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 Angeles[47] 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 PGSMCs 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.
Petitioners 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 RTCs 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
orders 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 Worths 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 family[51] 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 CARPIO, J.,
ASIDE; Chairperson,
BRION,
(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-117 are PEREZ,
REVERSED and SET ASIDE; SERENO, and
REYES, JJ.
(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 Promulgated:

(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and machineries, February 29, 2012
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. x----------------------------------------------------------------------------------------- x

No pronouncement as to costs. DECISION

SO ORDERED. PEREZ, J.:

TUNA PROCESSING, INC.,
Petitioner, Can a foreign corporation not licensed to do business in the Philippines, but which collects
royalties from entities in the Philippines, sue here to enforce a foreign arbitral award?
-versus-
In this Petition for Review on Certiorari under Rule 45,[1] petitioner Tuna Processing, Inc.
PHILIPPINE KINGFORD, INC., (TPI), a foreign corporation not licensed to do business in the Philippines, prays that the
Respondent. Resolution[2] dated 21 November 2008 of the Regional Trial Court (RTC) of Makati City be
declared void and the case be remanded to the RTC for further proceedings. In the assailed
G.R. No. 185582 Resolution, the RTC dismissed petitioners Petition for Confirmation, Recognition, and
Enforcement of Foreign Arbitral Award[3] against respondent Philippine Kingford, Inc.
(Kingford), a corporation duly organized and existing under the laws of the Philippines,[4]
Present: on the ground that petitioner lacked legal capacity to sue.[5]
The Antecedents
On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the licensor),
co-patentee of U.S. Patent No. 5,484,619, Philippine Letters Patent No. 31138, and
Indonesian Patent No. ID0003911 (collectively referred to as the Yamaoka Patent),[6] and
five (5) Philippine tuna processors, namely, Angel Seafood Corporation, East Asia Fish Co.,
Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc., and respondent Kingford
(collectively referred to as the sponsors/licensees)[7] entered into a Memorandum of
Agreement (MOA),[8] pertinent provisions of which read:
1. Background and objectives. The Licensor, co-owner of U.S.Patent No. 5,484,619,
Philippine Patent No. 31138, and Indonesian Patent No. ID0003911 xxx wishes to form an
alliance with Sponsors for purposes of enforcing his three aforementioned patents, granting
licenses under those patents, and collecting royalties.
The Sponsors wish to be licensed under the aforementioned patents in order to practice the
processes claimed in those patents in the United States, the Philippines, and Indonesia,
enforce those patents and collect royalties in conjunction with Licensor.
xxx
4. Establishment of Tuna Processors, Inc. The parties hereto agree to the establishment of
Tuna Processors, Inc. (TPI), a corporation established in the State of California, in order to
implement the objectives of this Agreement.
5. Bank account. TPI shall open and maintain bank accounts in the United States, which will
be used exclusively to deposit funds that it will collect and to disburse cash it will be
obligated to spend in connection with the implementation of this Agreement.
6. Ownership of TPI. TPI shall be owned by the Sponsors and Licensor. Licensor shall be
assigned one share of TPI for the purpose of being elected as member of the board of
directors. The remaining shares of TPI shall be held by the Sponsors according to their
respective equity shares. [9]
xxx
The parties likewise executed a Supplemental Memorandum of Agreement[10] dated 15
January 2003 and an Agreement to Amend Memorandum of Agreement[11] dated 14 July
2003.
Due to a series of events not mentioned in the petition, the licensees, including respondent
Kingford, withdrew from petitioner TPI and correspondingly reneged on their
obligations.[12] Petitioner submitted the dispute for arbitration before the International
Centre for Dispute Resolution in the State of California, United States and won the case
against respondent.[13] Pertinent portions of the award read:
13.1 Within thirty (30) days from the date of transmittal of this Award to the Parties,
pursuant to the terms of this award, the total sum to be paid by RESPONDENT KINGFORD
to CLAIMANT TPI, is the sum of ONE MILLION SEVEN HUNDRED FIFTY
THOUSAND EIGHT HUNDRED FORTY SIX DOLLARS AND TEN CENTS
($1,750,846.10).
(A) For breach of the MOA by not paying past due assessments, RESPONDENT
KINGFORD shall pay CLAIMANT the total sum of TWO HUNDRED TWENTY NINE
THOUSAND THREE HUNDRED AND FIFTY FIVE DOLLARS AND NINETY CENTS
($229,355.90) which is 20% of MOA assessments since September 1, 2005[;]
(B) For breach of the MOA in failing to cooperate with CLAIMANT TPI in fulfilling the
objectives of the MOA, RESPONDENT KINGFORD shall pay CLAIMANT the total sum
of TWO HUNDRED SEVENTY ONE THOUSAND FOUR HUNDRED NINETY
DOLLARS AND TWENTY CENTS ($271,490.20)[;][14] and
(C) For violation of THE LANHAM ACT and infringement of the YAMAOKA 619
PATENT, RESPONDENT KINGFORD shall pay CLAIMANT the total sum of ONE
MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS
($1,250,000.00). xxx
xxx[15]
To enforce the award, petitioner TPI filed on 10 October 2007 a Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award before the RTC of Makati City.
The petition was raffled to Branch 150 presided by Judge Elmo M. Alameda.
At Branch 150, respondent Kingford filed a Motion to Dismiss.[16] After the court denied
the motion for lack of merit,[17] respondent sought for the inhibition of Judge Alameda and
moved for the reconsideration of the order denying the motion.[18] Judge Alameda inhibited
himself notwithstanding [t]he unfounded allegations and unsubstantiated assertions in the
motion.[19] Judge Cedrick O. Ruiz of Branch 61, to which the case was re-raffled, in turn,
granted respondents Motion for Reconsideration and dismissed the petition on the ground
that the petitioner lacked legal capacity to sue in the Philippines.[20]
Petitioner TPI now seeks to nullify, in this instant Petition for Review on Certiorari under
Rule 45, the order of the trial court dismissing its Petition for Confirmation, Recognition, and
Enforcement of Foreign Arbitral Award.
Issue
The core issue in this case is whether or not the court a quo was correct in so dismissing the
petition on the ground of petitioners lack of legal capacity to sue.
Our Ruling
The petition is impressed with merit.
The Corporation Code of the Philippines expressly provides:
Sec. 133. Doing business without a license. - No foreign corporation transacting business in
the Philippines without a license, or its successors or assigns, shall be permitted to maintain
or intervene in any action, suit or proceeding in any court or administrative agency of the
Philippines; but such corporation may be sued or proceeded against before Philippine courts
or administrative tribunals on any valid cause of action recognized under Philippine laws.
It is pursuant to the aforequoted provision that the court a quo dismissed the petition. Thus:
Herein plaintiff TPIs Petition, etc. acknowledges that it is a foreign corporation established in
the State of California and was given the exclusive right to license or sublicense the
Yamaoka Patent and was assigned the exclusive right to enforce the said patent and collect
corresponding royalties in the Philippines. TPI likewise admits that it does not have a license
to do business in the Philippines.
There is no doubt, therefore, in the mind of this Court that TPI has been doing business in the
Philippines, but sans a license to do so issued by the concerned government agency of the
Republic of the Philippines, when it collected royalties from five (5) Philippine tuna
processors[,] namely[,] Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina
Tuna Resources, Santa Cruz Seafoods, Inc. and respondent Philippine Kingford, Inc. This
being the real situation, TPI cannot be permitted to maintain or intervene in any action, suit
or proceedings in any court or administrative agency of the Philippines. A priori, the Petition,
etc. extant of the plaintiff TPI should be dismissed for it does not have the legal personality
to sue in the Philippines.[21]

The petitioner counters, however, that it is entitled to seek for the recognition and
enforcement of the subject foreign arbitral award in accordance with Republic Act No. 9285
(Alternative Dispute Resolution Act of 2004),[22] the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards drafted during the United Nations Conference on
International Commercial Arbitration in 1958 (New York Convention), and the UNCITRAL
Model Law on International Commercial Arbitration (Model Law),[23] as none of these
specifically requires that the party seeking for the enforcement should have legal capacity to
sue. It anchors its argument on the following:
In the present case, enforcement has been effectively refused on a ground not found in the
[Alternative Dispute Resolution Act of 2004], New York Convention, or Model Law. It is for
this reason that TPI has brought this matter before this most Honorable Court, as it [i]s
imperative to clarify whether the Philippines international obligations and State policy to
strengthen arbitration as a means of dispute resolution may be defeated by misplaced
technical considerations not found in the relevant laws.[24]
Simply put, how do we reconcile the provisions of the Corporation Code of the Philippines
on one hand, and the Alternative Dispute Resolution Act of 2004, the New York Convention
and the Model Law on the other?
In several cases, this Court had the occasion to discuss the nature and applicability of the
Corporation Code of the Philippines, a general law, viz-a-viz other special laws. Thus, in
Koruga v. Arcenas, Jr.,[25] this Court rejected the application of the Corporation Code and
applied the New Central Bank Act. It ratiocinated:
Korugas invocation of the provisions of the Corporation Code is misplaced. In an earlier case
with similar antecedents, we ruled that:
The Corporation Code, however, is a general law applying to all types of corporations, while
the New Central Bank Act regulates specifically banks and other financial institutions,
including the dissolution and liquidation thereof. As between a general and special law, the
latter shall prevail generalia specialibus non derogant. (Emphasis supplied)[26]
Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential Agrarian Reform
Council,[27] this Court held:
Without doubt, the Corporation Code is the general law providing for the formation,
organization and regulation of private corporations. On the other hand, RA 6657 is the
special law on agrarian reform. As between a general and special law, the latter shall
prevailgeneralia specialibus non derogant.[28]
Following the same principle, the Alternative Dispute Resolution Act of 2004 shall apply in
this case as the Act, as its title - An Act to Institutionalize the Use of an Alternative Dispute
Resolution System in the Philippines and to Establish the Office for Alternative Dispute
Resolution, and for Other Purposes - would suggest, is a law especially enacted to actively
promote party autonomy in the resolution of disputes or the freedom of the party to make
their own arrangements to resolve their disputes.[29] It specifically provides exclusive
grounds available to the party opposing an application for recognition and enforcement of the
arbitral award.[30]
Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal law, applies in the
instant petition, we do not see the need to discuss compliance with international obligations
under the New York Convention and the Model Law. After all, both already form part of the
law.
In particular, the Alternative Dispute Resolution Act of 2004 incorporated the New York
Convention in the Act by specifically providing:
SEC. 42. Application of the New York Convention. - The New York Convention shall
govern the recognition and enforcement of arbitral awards covered by the said Convention.
xxx
SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign arbitration proceeding
may oppose an application for recognition and enforcement of the arbitral award in
accordance with the procedural rules to be promulgated by the Supreme Court only on those
grounds enumerated under Article V of the New York Convention. Any other ground raised
shall be disregarded by the regional trial court.
It also expressly adopted the Model Law, to wit:
Sec. 19. Adoption of the Model Law on International Commercial Arbitration. International
commercial arbitration shall be governed by the Model Law on International Commercial
Arbitration (the Model Law) adopted by the United Nations Commission on International
Trade Law on June 21, 1985 xxx.
Now, does a foreign corporation not licensed to do business in the Philippines have legal
capacity to sue under the provisions of the Alternative Dispute Resolution Act of 2004? We
answer in the affirmative.
Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in
an application for recognition and enforcement of the arbitral award may raise only those
grounds that were enumerated under Article V of the New York Convention, to wit:
Article V
1. Recognition and enforcement of the award may be refused, at the request of the party
against whom it is invoked, only if that party furnishes to the competent authority where the
recognition and enforcement is sought, proof that:
(a) The parties to the agreement referred to in article II were, under the law applicable to
them, under some incapacity, or the said agreement is not valid under the law to which the
parties have subjected it or, failing any indication thereon, under the law of the country
where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of the
appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to
present his case; or
(c) The award deals with a difference not contemplated by or not falling within the terms of
the submission to arbitration, or it contains decisions on matters beyond the scope of the
submission to arbitration, provided that, if the decisions on matters submitted to arbitration
can be separated from those not so submitted, that part of the award which contains decisions
on matters submitted to arbitration may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance
with the agreement of the parties, or, failing such agreement, was not in accordance with the
law of the country where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set aside or suspended
by a competent authority of the country in which, or under the law of which, that award was
made.
2. Recognition and enforcement of an arbitral award may also be refused if the competent
authority in the country where recognition and enforcement is sought finds that:
(a) The subject matter of the difference is not capable of settlement by arbitration under the
law of that country; or
(b) The recognition or enforcement of the award would be contrary to the public policy of
that country.
Clearly, not one of these exclusive grounds touched on the capacity to sue of the party
seeking the recognition and enforcement of the award.
Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution,[31]
which was promulgated by the Supreme Court, likewise support this position.
Rule 13.1 of the Special Rules provides that [a]ny party to a foreign arbitration may petition
the court to recognize and enforce a foreign arbitral award. The contents of such petition are
enumerated in Rule 13.5.[32] Capacity to sue is not included. Oppositely, in the Rule on
local arbitral awards or arbitrations in instances where the place of arbitration is in the
Philippines,[33] it is specifically required that a petition to determine any question
concerning the existence, validity and enforceability of such arbitration agreement[34]
available to the parties before the commencement of arbitration and/or a petition for judicial
relief from the ruling of the arbitral tribunal on a preliminary question upholding or declining
its jurisdiction[35] after arbitration has already commenced should state [t]he facts showing
that the persons named as petitioner or respondent have legal capacity to sue or be sued.[36]
Indeed, it is in the best interest of justice that in the enforecement of a foreign arbitral award,
we deny availment by the losing party of the rule that bars foreign corporations not licensed
to do business in the Philippines from maintaining a suit in our courts. When a party enters
into a contract containing a foreign arbitration clause and, as in this case, in fact submits
itself to arbitration, it becomes bound by the contract, by the arbitration and by the result of
arbitration, conceding thereby the capacity of the other party to enter into the contract,
participate in the arbitration and cause the implementation of the result. Although not on all
fours with the instant case, also worthy to consider is the
wisdom of then Associate Justice Flerida Ruth P. Romero in her Dissenting Opinion in Asset
Privatization Trust v. Court of Appeals,[37] to wit:
xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and
judicial circles here and abroad. If its tested mechanism can simply be ignored by an
aggrieved party, one who, it must be stressed, voluntarily and actively participated in the
arbitration proceedings from the very beginning, it will destroy the very essence of mutuality
inherent in consensual contracts.[38]
Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected not
because it is favored over domestic laws and procedures, but because Republic Act No. 9285
has certainly erased any conflict of law question.
Finally, even assuming, only for the sake of argument, that the court a quo correctly
observed that the Model Law, not the New York Convention, governs the subject arbitral
award,[39] petitioner may still seek recognition and enforcement of the award in Philippine
court, since the Model Law prescribes substantially identical exclusive grounds for refusing
recognition or enforcement.[40]
Premises considered, petitioner TPI, although not licensed to do business in the Philippines,
may seek recognition and enforcement of the foreign arbitral award in accordance with the
provisions of the Alternative Dispute Resolution Act of 2004.
II
The remaining arguments of respondent Kingford are likewise unmeritorious.
First. There is no need to consider respondents contention that petitioner TPI improperly
raised a question of fact when it posited that its act of entering into a MOA should not be
considered doing business in the Philippines for the purpose of determining capacity to sue.
We reiterate that the foreign corporations capacity to sue in the Philippines is not material
insofar as the recognition and enforcement of a foreign arbitral award is concerned.
Second. Respondent cannot fault petitioner for not filing a motion for reconsideration of the
assailed Resolution dated 21 November 2008 dismissing the case. We have, time and again,
ruled that the prior filing of a motion for reconsideration is not required in certiorari under
Rule 45.[41]
Third. While we agree that petitioner failed to observe the principle of hierarchy of courts,
which, under ordinary circumstances, warrants the outright dismissal of the case,[42] we opt
to relax the rules following the pronouncement in Chua v. Ang,[43] to wit:
[I]t must be remembered that [the principle of hierarchy of courts] generally applies to cases
involving conflicting factual allegations. Cases which depend on disputed facts for decision
cannot be brought immediately before us as we are not triers of facts.[44] A strict application
of this rule may be excused when the reason behind the rule is not present in a case, as in the
present case, where the issues are not factual but purely legal. In these types of questions,
this Court has the ultimate say so that we merely abbreviate the review process if we,
because of the unique circumstances of a case, choose to hear and decide the legal issues
outright.[45]
Moreover, the novelty and the paramount importance of the issue herein raised should be
seriously considered.[46] Surely, there is a need to take cognizance of the case not only to
guide the bench and the bar, but if only to strengthen arbitration as a means of dispute
resolution, and uphold the policy of the State embodied in the Alternative Dispute Resolution
Act of 2004, to wit:
Sec. 2. Declaration of Policy. - It is hereby declared the policy of the State to actively
promote party autonomy in the resolution of disputes or the freedom of the party to make
their own arrangements to resolve their disputes. Towards this end, the State shall encourage
and actively promote the use of Alternative Dispute Resolution (ADR) as an important
means to achieve speedy and impartial justice and declog court dockets. xxx
Fourth. As regards the issue on the validity and enforceability of the foreign arbitral award,
we leave its determination to the court a quo where its recognition and enforcement is being
sought.
Fifth. Respondent claims that petitioner failed to furnish the court of origin a copy of the
motion for time to file petition for review on certiorari before the petition was filed with this
Court.[47] We, however, find petitioners reply in order. Thus:
26. Admittedly, reference to Branch 67 in petitioner TPIs Motion for Time to File a Petition
for Review on Certiorari under Rule 45 is a typographical error. As correctly pointed out by
respondent Kingford, the order sought to be assailed originated from Regional Trial Court,
Makati City, Branch 61.
27. xxx Upon confirmation with the Regional Trial Court, Makati City, Branch 61, a copy of
petitioner TPIs motion was received by the Metropolitan Trial Court, Makati City, Branch 67.
On 8 January 2009, the motion was forwarded to the Regional Trial Court, Makati City,
Branch 61.[48]
All considered, petitioner TPI, although a foreign corporation not licensed to do business in
the Philippines, is not, for that reason alone, precluded from filing the Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before a Philippine
court.
WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial Court, Branch
61, Makati City in Special Proceedings No. M-6533 is hereby REVERSED and SET ASIDE.
The case is REMANDED to Branch 61 for further proceedings.
SO ORDERED.