Heirs of Augusto Salas vs.

Laperal Realty

FACTS:

Augusto Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas. He entered into
an Owner-Contractor Agreement with Respondent Laperal Realty Corporation to render and provide
complete (horizontal) construction services on his land. Said agreement contains an arbitration
clause, to wit:
ARTICLE VI. ARBITRATION.

All cases of dispute between CONTRACTOR and OWNERS representative shall be referred to the
committee represented by:

1.One representative of the OWNER;

2.One representative of the CONTRACTOR;

3. One representative acceptable to both OWNER and CONTRACTOR.

Salas, Jr. then executed a Special Power of Attorney in favor of Respondent Laperal Realty to exercise
general control, supervision and management of the sale of his land, for cash or on installment basis. By
virtue thereof, Respondent Laperal Realty subdivided said land and sold portions thereof to
Respondents Rockway Real Estate Corporation and South Ridge Village, Inc. in 1990; to Respondent
spouses Abrajano and Lava and Oscar Dacillo in 1991; and to Respondents Eduardo Vacuna, Florante de
la Cruz and Jesus Vicente Capalan in 1996 (Respondent Lot Buyers hereinafter).
Back in 1989, Salas, Jr. left his home in the morning for a business trip to Nueva Ecija. He, however,
never returned on that unfaithful morning. Seven years later or in 1996, his wife, Teresita Diaz-Salas
filed with the RTC of Makati City a verified Petition for the Declaration of Presumptive Death, which
Petition was granted.
In 1998, Petitioners, as heirs of Salas, Jr. filed in the RTC of Lipa City a Complaint for Declaration of
Nullity of Sale, Reconveyance, Cancellation of Contract, Accounting and Damages against Respondents.
Respondent Laperal Realty filed a Motion to Dismiss on the ground that Petitioners failed to submit their
grievance to arbitration as required under Article VI of the Owner-Contractor Agreement. Respondent
spouses Abrajano and Lava and Respondent Dacillo filed a Joint Answer with Counterclaim and
Crossclaim praying for dismissal of Petitioners Complaint for the same reason.
The RTC then issued the herein assailed Order dismissing Petitioners Complaint for non-compliance
with the foregoing arbitration clause.

Hence the present Petition for Review on Certiorari under Rule 45.

ISSUE:

Whether or not the arbitration clause under Article VI of the Owner-Contractor Agreement is binding
upon the Respondent Lot Buyers?
ARGUMENTS:

Petitioners argue that (1) their causes of action did not emanate from the Owner-Contractor Agreement,
(2) that their causes of action for cancellation of contract and accounting are covered by the exception
under the Arbitration Law, and (3) that failure to arbitrate is not a ground for dismissal.
Petitioners claim that they suffered lesion of more than one-fourth (1/4) of the value of Salas, Jr.s land
when Respondent Laperal Realty subdivided it and sold portions thereof to Respondent Lot Buyers.
Thus, they instituted action against both Respondent Laperal Realty and Respondent Lot Buyers for
rescission of the sale transactions and reconveyance to them of the subdivided lots. They argue that
rescission, being their cause of action, falls under the exception clause in Sec. 2 of Republic Act No.
876 which provides that such submission [to] or contract [of arbitration] shall be valid, enforceable and
irrevocable, save upon such grounds as exist at law for the revocation of any contract.

RULING:

NO. Respondent Lot Buyers are neither parties to the Agreement nor the latters assigns or heirs.
Consequently, the right to arbitrate as provided in Article VI of the Agreement was never vested in
Respondent Lot Buyers.

Respondent Laperal Realty, on the other hand, as a contracting party to the Agreement, has the right to
compel Petitioners to first arbitrate before seeking judicial relief. However, to split the proceedings into
arbitration for Respondent Laperal Realty and trial for the Respondent Lot Buyers, or to hold trial in
abeyance pending arbitration between Petitioners and Respondent Laperal Realty, would in effect result
in multiplicity of suits, duplicitous procedure and unnecessary delay. On the other hand, it would be in
the interest of justice if the trial court hears the complaint against all herein Respondents and
adjudicates Petitioners rights as against theirs in a single and complete proceeding.

Petition is GRANTED. The assailed Order of RTC of Lipa City is NULLIFIED and SET ASIDE.

RATIO DECIDENDI:

In a catena of cases inspired by Justice Malcolms provocative dissent in Vega v. San Carlos Milling Co.
[1924], the SC has recognized arbitration agreements as valid, binding, enforceable and not contrary to
public policy so much so that when there obtains a written provision for arbitration which is not
complied with, the trial court should suspend the proceedings and order the parties to proceed to
arbitration in accordance with the terms of their agreement. Arbitration is the wave of the future in
dispute resolution. To brush aside a contractual agreement calling for arbitration in case of
disagreement between parties would be a step backward.
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. Petitioners, as
heirs of Salas, Jr., and Respondent Laperal Realty are certainly bound by the Agreement. If Respondent
Laperal Realty, had assigned its rights under the Agreement to a third party, making the former, the
assignor, and the latter, the assignee, such assignee would also be bound by the arbitration provision
since assignment involves such transfer of rights as to vest in the assignee the power to enforce them to
the same extent as the assignor could have enforced them against the debtor or, in this case, against the
heirs of the original party to the Agreement. However, Respondent Lot Buyers are NOT assignees of the
rights of Respondent Laperal Realty under the Agreement to develop Salas, Jr.s land and sell the same.
They are, rather, buyers of the land that Respondent Laperal Realty was given the authority to develop
and sell under the Agreement. As such, they are NOT assigns contemplated in Art. 1311 of the New
Civil Code which provides that contracts take effect only between the parties, their assigns and heirs.

In the same vein, Petitioners contention that rescission, being their cause of action, falls under the
exception clause in Sec. 2 of Republic Act No. 876 is without merit. For while rescission, as a general
rule, is an arbitrable issue, they impleaded in the suit for rescission the Respondent Lot Buyers who are
neither parties to the Agreement nor the latters assigns or heirs. Consequently, the right to arbitrate as
provided in Article VI of the Agreement was never vested in Respondent Lot Buyers.
ORMOC SUGARCANE PLANTERS' ASSOCIATION, INC. (OSPA),OCCIDENTAL LEYTE FARMERS MULTI-
PURPOSE COOPERATIVE, INC. (OLFAMCA), UNIFARM MULTI-PURPOSE COOPERATIVE, INC. (UNIFARM)
AND ORMOC NORTH DISTRICT IRRIGATION MULTI-PURPOSE COOPERATIVE, INC. (ONDIMCO),
PETITIONERS, VS. THE COURT OF APPEALS (SPECIAL FORMER SIXTH DIVISION), HIDECO SUGAR
MILLING CO., INC., AND ORMOC SUGAR MILLING CO., INC., RESPONDENTS.
IRST DIVISION
[ G.R. NO. 156660, August 24, 2009 ]

FACTS:

Petitioners are associations organized by and whose members are individual sugar planters (Planters).
The membership of each association follows: 264 Planters were members of OSPA; 533 Planters belong
to OLFAMCA; 617 Planters joined UNIFARM; 760 Planters enlisted with ONDIMCO; and the rest belong
to BAP-MPC which did not join the lawsuit.

Respondents Hideco Sugar Milling Co., Inc. (Hideco) and Ormoc Sugar Milling Co, Inc. (OSCO) are sugar
centrals engaged in grinding and milling sugarcane delivered to them by numerous individual sugar
planters, who may or may not be members of an association such as petitioners.

Petitioners assert that the relationship between respondents and the individual sugar planters is
governed by milling contracts. To buttress this claim, petitioners presented representative samples of
the milling contracts.

Notably, Article VII of the milling contracts provides that 34% of the sugar and molasses produced from
milling the Planter's sugarcane shall belong to the centrals (respondents) as compensation, 65% thereof
shall go to the Planter and the remaining 1% shall go the association to which the Planter concerned
belongs, as aid to the said association. The 1% aid shall be used by the association for any purpose that
it may deem fit for its members, laborers and their dependents. If the Planter was not a member of any
association, then the said 1% shall revert to the centrals. Article XIV, paragraph B[4] states that the
centrals may not, during the life of the milling contract, sign or execute any contract or agreement that
will provide better or more benefits to a Planter, without the written consent of the existing and
recognized associations except to Planters whose plantations are situated in areas beyond thirty (30)
kilometers from the mill. Article XX provides that all differences and controversies which may arise
between the parties concerning the agreement shall be submitted for discussion to a Board of
Arbitration, consisting of five (5) members--two (2) of which shall be appointed by the centrals, two (2)
by the Planter and the fifth to be appointed by the four appointed by the parties.

On June 4, 1999, petitioners, without impleading any of their individual members, filed twin petitions
with the RTC for Arbitration under R.A. 876, Recovery of Equal Additional Benefits, Attorney's Fees and
Damages, against HIDECO and OSCO, docketed as Civil Case Nos. 3696-O and 3697-O, respectively.

Petitioners claimed that respondents violated the Milling Contract when they gave to independent
planters who do not belong to any association the 1% share, instead of reverting said share to the
centrals. Petitioners contended that respondents unduly accorded the independent Planters more
benefits and thus prayed that an order be issued directing the parties to commence with arbitration in
accordance with the terms of the milling contracts. They also demanded that respondents be penalized
by increasing their member Planters' 65% share provided in the milling contract by 1%, to 66%.
Respondents filed a motion to dismiss on ground of lack of cause of action because petitioners had no
milling contract with respondents. According to respondents, only some eighty (80) Planters who were
members of OSPA, one of the petitioners, executed milling contracts. Respondents and these 80
Planters were the signatories of the milling contracts. Thus, it was the individual Planters, and not
petitioners, who had legal standing to invoke the arbitration clause in the milling contracts. Petitioners,
not being privy to the milling contracts, had no legal standing whatsoever to demand or sue for
arbitration.

On August 26, 1999, the RTC issued a Joint Order denying the motion to dismiss, declaring the existence
of a milling contract between the parties, and directing respondents to nominate two arbitrators to the
Board of Arbitrators, to wit:
When these cases were called for hearing today, counsels for the petitioners and respondents argued
their respective stand. The Court is convinced that there is an existing milling contract between the
petitioners and respondents and these planters are represented by the officers of the associations. The
petitioners have the right to sue in behalf of the planters.

This Court, acting on the petitions, directs the respondents to nominate two arbitrators to represent
HIDECO/HISUMCO and OSCO in the Board of Arbitrators within fifteen (15) days from receipt of this
Order. xxx

However, if the respondents fail to nominate their two arbitrators, upon proper motion by the
petitioners, then the Court will be compelled to use its discretion to appoint the two (2) arbitrators, as
embodied in the Milling Contract and R.A. 876.

Their subsequent motion for reconsideration having been denied by the RTC in its Joint Order dated
October 29, 1999, respondents elevated the case to the CA through a Petition for Certiorari with Prayer
for the Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction.

On December 7, 2001, the CA rendered its challenged Decision, setting aside the assailed Orders of the
RTC. The CA held that petitioners neither had an existing contract with respondents nor were they privy
to the milling contracts between respondents and the individual Planters. In the main, the CA concluded
that petitioners had no legal personality to bring the action against respondents or to demand for
arbitration.

Petitioners filed a motion for reconsideration, but it too was denied by the CA in its Resolution dated
October 30, 2002. Thus, the instant petition.

At the outset, it must be noted that petitioners filed the instant petition for certiorari under Rule 65 of
the Rules of Court, to challenge the judgment of the CA.

ISSUE:

Whether or not petitioners sugar planters' associations are clothed with legal personality to file a suit
against, or demand arbitration from, respondents in their own name without impleading the individual
Planters.
RULING:

On this point, SC agrees with the findings of the CA.

Section 2 of R.A. No. 876 (the Arbitration Law) pertinently provides:

Sec. 2. Persons and matters subject to arbitration. - Two or more persons or parties may submit
to the arbitration of one or more arbitrators any controversy existing between them at the
time of the submission and which may be the subject of an action, or the parties to any
contract may in such contract agree to settle by arbitration a controversy thereafter arising
between them. Such submission or contract shall be valid, enforceable and irrevocable, save
upon such grounds as exist at law for the revocation of any contract. xxx (Emphasis ours)

The foregoing provision speaks of two modes of arbitration: (a) an agreement to submit to arbitration
some future dispute, usually stipulated upon in a civil contract between the parties, and known as an
agreement to submit to arbitration, and (b) an agreement submitting an existing matter of difference to
arbitrators, termed the submission agreement. Article XX of the milling contract is an agreement to
submit to arbitration because it was made in anticipation of a dispute that might arise between the
parties after the contract's execution.

Except where a compulsory arbitration is provided by statute, the first step toward the settlement of a
difference by arbitration is the entry by the parties into a valid agreement to arbitrate. An agreement to
arbitrate is a contract, the relation of the parties is contractual, and the rights and liabilities of the
parties are controlled by the law of contracts. In an agreement for arbitration, the ordinary elements of
a valid contract must appear, including an agreement to arbitrate some specific thing, and an agreement
to abide by the award, either in express language or by implication.

The requirements that an arbitration agreement must be written and subscribed by the parties thereto
were enunciated by the Court in B.F. Corporation v. CA.

During the proceedings before the CA, it was established that there were more than two thousand
(2,000) Planters in the district at the time the case was commenced at the RTC in 1999. The CA further
found that of those 2,000 Planters, only about eighty (80) Planters, who were all members of petitioner
OSPA, in fact individually executed milling contracts with respondents. No milling contracts signed by
members of the other petitioners were presented before the CA.

By their own allegation, petitioners are associations duly existing and organized under Philippine law, i.e.
they have juridical personalities separate and distinct from that of their member Planters. It is likewise
undisputed that the eighty (80) milling contracts that were presented were signed only by the member
Planter concerned and one of the Centrals as parties. In other words, none of the petitioners were
parties or signatories to the milling contracts. This circumstance is fatal to petitioners' cause since they
anchor their right to demand arbitration from the respondent sugar centrals upon the arbitration clause
found in the milling contracts. There is no legal basis for petitioners' purported right to demand
arbitration when they are not parties to the milling contracts, especially when the language of the
arbitration clause expressly grants the right to demand arbitration only to the parties to the contract.

Simply put, petitioners do not have any agreement to arbitrate with respondents. Only eighty (80)
Planters who were all members of OSPA were shown to have such an agreement to arbitrate, included
as a stipulation in their individual milling contracts. The other petitioners failed to prove that any of their
members had milling contracts with respondents, much less, that respondents had an agreement to
arbitrate with the petitioner associations themselves.

Even assuming that all the petitioners were able to present milling contracts in favor of their members,
it is undeniable that under the arbitration clause in these contracts it is the parties thereto who have the
right to submit a controversy or dispute to arbitration.

Section 4 of R.A. 876 provides:

Section 4. Form of Arbitration Agreement - A contract to arbitrate a controversy thereafter

arising between the parties, as well as a submission to arbitrate an existing controversy, shall be
in writing and subscribed by the party sought to be charged, or by his lawful agent.

The making of a contract or submission for arbitration described in section two hereof, providing
for arbitration of any controversy, shall be deemed a consent of the parties to the jurisdiction of
the Court of First Instance of the province or city where any of the parties resides, to enforce
such contract of submission.

The formal requirements of an agreement to arbitrate are therefore the following: (a) it must be in
writing and (b) it must be subscribed by the parties or their representatives. To subscribe means to write
underneath, as one's name; to sign at the end of a document. That word may sometimes be construed
to mean to give consent to or to attest.

Petitioners would argue that they could sue respondents, notwithstanding the fact that they were not
signatories in the milling contracts because they are the recognized representatives of the Planters.

This claim has no leg to stand on since petitioners did not sign the milling contracts at all, whether as a
party or as a representative of their member Planters. The individual Planter and the appropriate central
were the only signatories to the contracts and there is no provision in the milling contracts that the
individual Planter is authorizing the association to represent him/her in a legal action in case of a dispute
over the milling contracts.

Moreover, even assuming that petitioners are indeed representatives of the member Planters who have
milling contracts with the respondents and assuming further that petitioners signed the milling contracts
as representatives of their members, petitioners could not initiate arbitration proceedings in their own
name as they had done in the present case. As mere agents, they should have brought the suit in the
name of the principals that they purportedly represent. Even if Section 4 of R.A. No. 876 allows the
agreement to arbitrate to be signed by a representative, the principal is still the one who has the right to
demand arbitration.

Indeed, Rule 3, Section 2 of the Rules of Court requires suits to be brought in the name of the real party
in interest, to wit:

Sec. 2. Parties in interest. A real party in interest is the party who stands to be benefited or
injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless
otherwise authorized by law or these Rules, every action must be prosecuted or defended in the
name of the real party in interest.
As held in Oco v. Limbaring that:

As applied to the present case, this provision has two requirements: 1) to institute an action, the
plaintiff must be the real party in interest; and 2) the action must be prosecuted in the name of the real
party in interest. Necessarily, the purposes of this provision are 1) to prevent the prosecution of actions
by persons without any right, title or interest in the case; 2) to require that the actual party entitled to
legal relief be the one to prosecute the action; 3) to avoid a multiplicity of suits; and 4) to discourage
litigation and keep it within certain bounds, pursuant to sound public policy.

Interest within the meaning of the Rules means material interest or an interest in issue to be affected
by the decree or judgment of the case, as distinguished from mere curiosity about the question
involved. One having no material interest to protect cannot invoke the jurisdiction of the court as the
plaintiff in an action. When the plaintiff is not the real party in interest, the case is dismissible on the
ground of lack of cause of action.
xxx xxx xxx

The parties to a contract are the real parties in interest in an action upon it, as consistently held by the
Court. Only the contracting parties are bound by the stipulations in the contract; they are the ones who
would benefit from and could violate it. Thus, one who is not a party to a contract, and for whose
benefit it was not expressly made, cannot maintain an action on it. One cannot do so, even if the
contract performed by the contracting parties would incidentally inure to one's benefit. (emphasis
ours)

In Uy v. Court of Appeals, it was held that the agents of the parties to a contract do not have the right to
bring an action even if they rendered some service on behalf of their principals. To quote from that
decision:

...[Petitioners] are mere agents of the owners of the land subject of the sale. As agents, they
only render some service or do something in representation or on behalf of their principals. The
rendering of such service did not make them parties to the contracts of sale executed in behalf
of the latter. Since a contract may be violated only by the parties thereto as against each other,
the real parties-in-interest, either as plaintiff or defendant, in an action upon that contract
must, generally, either be parties to said contract. (emphasis and words in brackets ours)

The main cause of action of petitioners in their request for arbitration with the RTC is the alleged
violation of the clause in the milling contracts involving the proportionate sharing in the proceeds of the
harvest. Petitioners essentially demand that respondents increase the share of the member Planters to
66% to equalize their situation with those of the non-member Planters. Verily, from petitioners' own
allegations, the party who would be injured or benefited by a decision in the arbitration proceedings will
be the member Planters involved and not petitioners. In sum, petitioners are not the real parties in
interest in the present case.

Assuming petitioners had properly brought the case in the name of their members who had existing
milling contracts with respondents, petitioners must still prove that they were indeed authorized by the
said members to institute an action for and on the members' behalf. In the same manner that an officer
of the corporation cannot bring action in behalf of a corporation unless it is clothed with a board
resolution authorizing an officer to do so, an authorization from the individual member planter is a sine
qua non for the association or any of its officers to bring an action before the court of law. The mere fact
that petitioners were organized for the purpose of advancing the interests and welfare of their members
does not necessarily mean that petitioners have the authority to represent their members in legal
proceedings, including the present arbitration proceedings.

As we see it, petitioners had no intention to litigate the case in a representative capacity, as they
contend. All the pleadings from the RTC to this Court belie this claim. Under Section 3 of Rule 3, where
the action is allowed to be prosecuted by a representative, the beneficiary shall be included in the title
of the case and shall be deemed to be the real party in interest. As repeatedly pointed out earlier, the
individual Planters were not even impleaded as parties to this case. In addition, petitioners need a
power-of-attorney to represent the Planters whether in the lawsuit or to demand arbitration. None was
ever presented here.
JORGE GONZALES and PANEL OF ARBITRATORS vs. CLIMAX MINING LTD., CLIMAX-ARIMCO MINING
CORP. and AUSTRALASIAN PHILIPPINES MINING INC., G.R. No. 161957, January 22, 2007

Facts: This is a consolidation of two petitions rooted in the same disputed Addendum Contract entered
into by the parties.

In one case, the Court held that the DENR Panel of Arbitrators had no jurisdiction over the complaint for
the annulment of the Addendum Contract on grounds of fraud and violation of the Constitution and that
the action should have been brought before the regular courts as it involved judicial issues.

Gonzales averred that the DENR Panel of Arbitrators Has jurisdiction because the case involves a mining
dispute that properly falls within the ambit of the Panels authority.

Respondents Climax Mining Ltd., et al., on the other hand, seek reconsideration/clarification on the
decision holding that the case should not be brought for arbitration under R.A. No. 876. They argued
that the arbitration clause in the Addendum Contract should be treated as an agreement independent
of the other terms of the contract, and that a claimed rescission of the main contract does not avoid the
duty to arbitrate.

On another case, Gonzales challenged the order of the RTC requiring him to proceed with the
arbitration proceedings while the complaint for the nullification of the Addendum Contract was pending
before the DENR Panel of Arbitrators. He contended that any issue as to the nullity, inoperativeness, or
incapability of performance of the arbitration clause/agreement raised by one of the parties to the
alleged arbitration agreement must be determined by the court prior to referring them to arbitration.

While Climax-Arimco contended that an application to compel arbitration under Sec. 6 of R.A. No. 876
confers on the trial court only a limited and special jurisdiction, i.e., a jurisdiction solely to determine (a)
whether or not the parties have a written contract to arbitrate, and (b) if the defendant has failed to
comply with that contract.

Issue: Whether or not arbitration is proper even though issues of validity and nullity of the Addendum
Contract and, consequently, of the arbitration clause were raised.

Ruling: Positive.

In La Naval Drug Corporation v. Court of Appeals, the Court held that R.A. No. 876 explicitly confines the
court's authority only to the determination of whether or not there is an agreement in writing providing
for arbitration. In the affirmative, the statute ordains that the court shall issue an order "summarily
directing the parties to proceed with the arbitration in accordance with the terms thereof." If the court,
upon the other hand, finds that no such agreement exists, "the proceeding shall be dismissed." The cited
case also stressed that the proceedings are summary in nature.

Implicit in the summary nature of the judicial proceedings is the separable or independent character of
the arbitration clause or agreement.

The doctrine of separability or severability enunciates that an arbitration agreement is independent of

the main contract. The arbitration agreement is to be treated as a separate agreement and the
arbitration agreement does not automatically terminate when the contract of which it is part comes to
an end.

The separability of the arbitration agreement is especially significant to the determination of whether
the invalidity of the main contract also nullifies the arbitration clause. Indeed, the doctrine denotes that
the invalidity of the main contract, also referred to as the container contract, does not affect the
validity of the arbitration agreement. Irrespective of the fact that the main contract is invalid, the
arbitration clause/agreement still remains valid and enforceable.

The validity of the contract containing the agreement to submit to arbitration does not affect the
applicability of the arbitration clause itself. A contrary ruling would suggest that a partys mere
repudiation of the main contract is sufficient to avoid arbitration. That is exactly the situation that the
separability doctrine, as well as jurisprudence applying it, seeks to avoid.

The Court added that when it declared that the case should not be brought for arbitration, it should be
clarified that the case referred to is the case actually filed by Gonzales before the DENR Panel of
Arbitrators, which was for the nullification of the main contract on the ground of fraud, as it had already
been determined that the case should have been brought before the regular courts involving as it did
judicial issues.
EQUITABLE PCI BANKING CORPORATION,1 GEORGE L. GO, PATRICK D. GO, GENEVIEVE W.J. GO,
FERDINAND MARTIN G. ROMUALDEZ, OSCAR P. LOPEZ-DEE, RENE J. BUENAVENTURA, GLORIA L. TAN-
CLIMACO, ROGELIO S. CHUA, FEDERICO C. PASCUAL, LEOPOLDO S. VEROY, WILFRIDO V. VERGARA,
EDILBERTO V. JAVIER, ANTHONY F. CONWAY, ROMULAD U. DY TANG, WALTER C. WESSMER, and
ANTONIO N. COTOCO vs. RCBC CAPITAL CORPORATION

The Facts

Petitioners Equitable PCI Bank, Inc. (EPCIB) and the individual shareholders of Bankard, Inc., as sellers,
and respondent 5 RCBC Capital Corporation (RCBC), as buyer, executed a Share Purchase Agreement
(SPA) for the purchase of petitioners interests in Bankard, representing 226,460,000 shares, for the
price of PhP 1,786,769,400. To expedite the purchase, RCBC agreed to dispense with the conduct of a
due diligence audit on the financial status of Bankard. 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.
Sometime in September 2000, RCBC had Bankards accounts audited, creating for the purpose an audit
team and the conclusion was that the warranty, as contained in Section 5(h) of the SPA (simply Sec. 5[h]
hereinafter), was correct. RCBC paid the balance of the contract price. The corresponding deeds of sale
for the shares in question were executed in January 2001. Thereafter 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). RCBC, in accordance with Sec. 10 of the SPA, filed a Request for
Arbitration dated May 12, 2004 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. 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; an d 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 . 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.
Notably, the tribunal considered the rescission of the SPA and ASPA as impracticable and "totally out of
the question." RCBC filed with the RTC a Motion to Confirm Partial Award. 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 .

Issue:

WON there is manifest disregard of the law by the ICC-ICA

Held:

The petition must be denied.

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 Cour t.

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.

The Court Will Not Overturn an Arbitral Award Unless It Was Made in Manifest Disregard of the Law
Following Asset Privatization Trust vs CA, , 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 law" in the following wise:

18

expounded on the phrase "manifest disregard of the

This court has emphasized that manifest disregard of the law is a very narrow standard of review.
Anaconda Co. th v. District Lodge No. 27, 693 F.2d 35 (6 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. A
review of petitioners arguments would, however, show that their arguments are bereft of merit. Thus,
the Partial Award cannot be vacated. RCBCs Claim Is Not Time-Barred 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 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." Petitioners position is bereft of merit. The
petitioners afforded the opportunity to refute the summaries and pieces of evidence submitted by RCBC
which became the bases of the experts opinion. Petitioners right to due process was not breached. 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 right to cross-examine is not an indispensable aspect of due process. RCBC Is Not Estopped
from Questioning the Financial Condition of Bankard On estoppel, petitioners contend that 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 ass everate that RCBC continued with Bankards

71

x x x (Emphasis supplied.)

accounting policies and practices and found them to conform to the generally accepted accounting
principles, contrary to RCBCs allegations. Petitioners contention is not meritorious. 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 72 directed and who reasonably relied on them. 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 74 the other party; and (3) knowledge, actual or
constructive, of the actual facts. In the case at bar, the first element of estoppel in relation to the party
sought to be estopped is not present. Petitioners position is that "RCBC was aware of the manner in
which the Bankard accounts were recorded, well before it 75 consummated the SPA by taking delivery
of the shares and paying the outstanding 80% balance of the contract price." The Arbitral Tribunal
explained in detail why estoppel is not present in the case at bar. 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. The SC
agrees with the findings of the tribunal that estoppel is not present in the situation at bar. 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. The member of the three-person
arbitration panel was selected by petitioners, while another was respondents cho ice. 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. #
BENGUET CORPORATION v DENR-MAB (Natural Resources)
BENGUET CORPORATION v DENR-MAB

G.R. No. 163101

February 13, 2008

FACTS:

On June 1, 1987, Benguet and J.G. Realty entered into a RAWOP, wherein J.G. Realty was acknowledged
as the owner of four mining claims respectively named as Bonito-I, Bonito-II, Bonito-III, and Bonito-IV,
with a total area of 288.8656 hectares, situated in Barangay Luklukam, Sitio Bagong Bayan, Municipality
of Jose Panganiban, Camarines Norte.

Thus, on August 9, 1989, the Executive Vice-President of Benguet, Antonio N. Tachuling, issued a letter
informing J.G. Realty of its intention to develop the mining claims. However, on February 9, 1999, J.G.
Realty, through its President, Johnny L. Tan, then sent a letter to the President of Benguet informing the
latter that it was terminating the RAWOP on the following grounds:

a. The fact that your company has failed to perform the obligations set forth in the RAWOP, i.e., to
undertake development works within 2 years from the execution of the Agreement; b. Violation of
the Contract by allowing high graders to operate on our claim. c. No stipulation was provided with
respect to the term limit of the RAWOP. d. Non-payment of the royalties thereon as provided in the
RAWOP.

On June 7, 2000, J.G. Realty filed a Petition for Declaration of Nullity/Cancellation of the RAWOP with
the Legaspi City POA, Region V, docketed as DENR Case No. 2000-01 and entitled J.G. Realty v. Benguet.

DECISION OF LOWER COURTS: *POA: declared the RAWOP cancelled. *MAB: affirmed POA.

ISSUES: (1) Should the controversy have first been submitted to arbitration before the POA took
cognizance of the case?; (2) Was the cancellation of the RAWOP supported by evidence?; and (3) Did
the cancellation of the RAWOP amount to unjust enrichment of J.G. Realty at the expense of Benguet?

HELD: On correctness of appeal: Petitioner having failed to properly appeal to the CA under Rule 43, the
decision of the MAB has become final and executory. On this ground alone, the instant petition must be
denied.

(1) YES, the case should have first been brought to voluntary arbitration before the POA.

Secs. 11.01 and 11.02 of the RAWOP pertinently provide:

11.01 Arbitration
Any disputes, differences or disagreements between BENGUET and the OWNER with reference to
anything whatsoever pertaining to this Agreement that cannot be amicably settled by them shall not be
cause of any action of any kind whatsoever in any court or administrative agency but shall, upon notice
of one party to the other, be referred to a Board of Arbitrators consisting of three (3) members, one to
be selected by BENGUET, another to be selected by the OWNER and the third to be selected by the
aforementioned two arbitrators so appointed.

xxxx

11.02 Court Action

No action shall be instituted in court as to any matter in dispute as hereinabove stated, except to
enforce the decision of the majority of the Arbitrators

A contractual stipulation that requires prior resort to voluntary arbitration before the parties can go
directly to court is not illegal and is in fact promoted by the State.

To reiterate, availment of voluntary arbitration before resort is made to the courts or quasi-judicial
agencies of the government is a valid contractual stipulation that must be adhered to by the parties.

In other words, in the event a case that should properly be the subject of voluntary arbitration is
erroneously filed with the courts or quasi-judicial agencies, on motion of the defendant, the court or
quasi-judicial agency shall determine whether such contractual provision for arbitration is sufficient and
effective. If in affirmative, the court or quasi-judicial agency shall then order the enforcement of said
provision.

In sum, on the issue of whether POA should have referred the case to voluntary arbitration, we find
that, indeed, POA has no jurisdiction over the dispute which is governed by RA 876, the arbitration law.

HOWEVER, ESTOPPEL APPLIES. the Court rules that the jurisdiction of POA and that of MAB can no
longer be questioned by Benguet at this late hour. What Benguet should have done was to immediately
challenge the POA's jurisdiction by a special civil action for certiorari when POA ruled that it has
jurisdiction over the dispute. To redo the proceedings fully participated in by the parties after the lapse
of seven years from date of institution of the original action with the POA would be anathema to the
speedy and efficient administration of justice.

(2) The cancellation of the RAWOP was supported by evidence.

(3) There is no unjust enrichment in the instant case. There is no unjust enrichment when the person
who will benefit has a valid claim to such benefit.

The principle of unjust enrichment under Article 22 requires two conditions: (1) that a person is
benefited without a valid basis or justification, and (2) that such benefit is derived at another's expense
or damage.

Clearly, there is no unjust enrichment in the instant case as the cancellation of the RAWOP, which left
Benguet without any legal right to participate in further developing the mining claims, was brought
about by its violation of the RAWOP. Hence, Benguet has no one to blame but itself for its predicament.

OBITER DICTA:

(1) Difference between compulsory & voluntary arbitration --

In Reformist Union of R.B. Liner, Inc. vs. NLRC, compulsory arbitration has been defined both as the
process of settlement of labor disputes by a government agency which has the authority to investigate
and to make an award which is binding on all the parties, and as a mode of arbitration where the parties
are compelled to accept the resolution of their dispute through arbitration by a third party. While a
voluntary arbitrator is not part of the governmental unit or labor department's personnel, said
arbitrator renders arbitration services provided for under labor laws.

There is a clear distinction between compulsory and voluntary arbitration. The arbitration provided by
the POA is compulsory, while the nature of the arbitration provision in the RAWOP is voluntary, not
involving any government agency.
BF Corporation v. CA, 288 SCRA 267 (1998)

Facts:
Petitioner and respondent Shangri-la Properties, Inc. entered into an agreement whereby the
latter engaged the former to construct the main structure of the "EDSA Plaza Project," a shopping mall
complex in Mandaluyong. Petitioner incurred delay in the construction work that SPI considered as
"serious and substantial." On the other hand, according to petitioner, the construction works
"progressed in faithful compliance with the First Agreement until a fire broke out damaging Phase I" of
the Project. Hence, SPI proposed the re-negotiation of the agreement between them.
Petitioner and SPI entered into a written agreement denominated as "Agreement for the Execution of
Builder's Work for the EDSA Plaza Project." Said agreement would cover the construction work on said
project as of May 1, 1991 until its eventual completion. According to SPI, petitioner "failed to complete
the construction works and abandoned the project." This resulted in disagreements between the parties
as regards their respective liabilities under the contract.

Petitioner filed with the RTC of Pasig a complaint for collection of the balance due under the
construction agreement. SPI and its co-defendants filed a motion to suspend proceedings instead of
filing an answer. The motion was anchored on defendants' allegation that the formal trade contract for
the construction of the project provided for a clause requiring prior resort to arbitration before judicial
intervention could be invoked in any dispute arising from the contract. Petitioner opposed said motion
claiming that there was no formal contract between the parties although they entered into an
agreement defining their rights and obligations in undertaking the project.

Thereafter, upon a finding that an arbitration clause indeed exists, the lower court denied the
motion to suspend proceedings as the Conditions of Contract was not duly executed or signed by the
parties, and the failure of the defendants to submit any signed copy of the said document,.

The lower court then ruled that, assuming that the arbitration clause was valid and binding, still,
it was "too late in the day for defendants to invoke arbitration. Considering the fact that under the
supposed Arbitration Clause invoked by defendants, it is required that "Notice of the demand for
arbitration of a dispute shall be filed in writing with the other party . . . . in no case . . . . later than the
time of final payment . . . "which apparently, had elapsed because defendants have failed to file any
written notice of any demand for arbitration during the said long period of one year and eight months.
The CA annulled the orders of the RTC.

Issue: WON a petition for certiorari is proper

Held:

Yes. The rule that the special civil action of certiorari may not be invoked as a substitute for the
remedy of appeal. The Court has likewise ruled that "certiorari will not be issued to cure errors in
proceedings or correct erroneous conclusions of law or fact. As long as a court acts within its
jurisdiction, any alleged errors committed in the exercise of its jurisdiction will amount to nothing more
than errors of judgment which are reviewable by timely appeal and not by a special civil action of
certiorari."

The question of jurisdiction, which is a question of law depends on the determination of the
existence of the arbitration clause, which is a question of fact. In the instant case, the lower court found
that there exists an arbitration clause. However, it ruled that in contemplation of law, said arbitration
clause does not exist. It is that mode of appeal taken by private respondents before the CA that is being
questioned by the petitioners before this Court. But at the heart of said issue is the question of whether
there exists an Arbitration Clause because if an Arbitration Clause does not exist, then private
respondents took the wrong mode of appeal before the CA.

For this Court to be able to resolve the question of whether private respondents took the proper
mode of appeal, which, incidentally, is a question of law, then it has to answer the core issue of whether
there exists an Arbitration Clause which, admittedly, is a question of fact.

Moreover, where a rigid application of the rule that certiorari cannot be a substitute for appeal
will result in a manifest failure or miscarriage of justice, the provisions of the Rules of Court which are
technical rules may be relaxed. As we shall show hereunder, had the CA dismissed the petition for
certiorari, the issue of whether or not an arbitration clause exists in the contract would not have been
resolved in accordance with evidence extant in the record of the case. Consequently, this would have
resulted in a judicial rejection of a contractual provision agreed by the parties to the contract.

In the same vein, this Court holds that the question of the existence of the arbitration clause in
the contract between petitioner and private respondents is a legal issue that must be determined in this
petition for review on certiorari.
ABS-CBN v. World Interactive Network Systems (G.R. No. 169332)

Facts:

Petitioner ABS-CBN Broadcasting Corporation entered into a licensing agreement with respondent
World Interactive Network Systems (WINS) Japan Co., Ltd., a foreign corporation licensed under the laws
of Japan, in that the former granted respondent the exclusive license to distribute and sublicense the
distribution of the television service known as The Filipino Channel (TFC) in Japan. By virtue thereof,
petitioner undertook to transmit the TFC programming signals to respondent which the latter received
through its decoders and distributed to its subscribers. A dispute arose between the parties when
petitioner accused respondent of inserting nine episodes of WINS WEEKLY, a weekly 35-minute
community news program for Filipinos in Japan, into the TFC programming. Petitioner claimed that
these were unauthorized insertions constituting a material breach of their agreement. Consequently,
petitioner notified respondent of its intention to terminate the agreement. Thereafter, respondent filed
an arbitration suit pursuant to the arbitration clause of its agreement with petitioner. The parties
appointed Professor Alfredo F. Tadiar to act as sole arbitrator who then rendered a decision in favor of
respondent holding that petitioner gave its approval for the airing of WINS WEEKLY as shown by a series
of written exchanges between the parties and that petitioner threatened to terminate the agreement
due to its desire to compel respondent to re-negotiate the terms thereof for higher fees. He then
allowed respondent to recover temperate damages, attorneys fees and one-half of the amount it paid
as arbitrators fee. Petitioner filed in the CA a petition for review under Rule 43 of the Rules of Court or,
in the alternative, a petition for certiorari under Rule 65 of the same Rules, with application for
temporary restraining order and writ of preliminary injunction. Respondent, on the other hand, filed a
petition for confirmation of arbitral award. The CA rendered the assailed decision dismissing ABS-CBNs
petition for lack of jurisdiction. Petitioner moved for reconsideration but the same was denied.

Issue:

The issue before us is whether or not an aggrieved party in a voluntary arbitration dispute may avail of,
directly in the CA, a petition for review under Rule 43 or a petition for certiorari under Rule 65 of the
Rules of Court, instead of filing a petition to vacate the award in the RTC when the grounds invoked to
overturn the arbitrators decision are other than those for a petition to vacate an arbitral award
enumerated under RA 876.
Ruling:

RA 876 itself mandates that it is the Court of First Instance, now the RTC, which has jurisdiction over
questions relating to arbitration, such as a petition to vacate an arbitral award. As RA 876 did not
expressly provide for errors of fact and/or law and grave abuse of discretion (proper grounds for a
petition for review under Rule 43 and a petition for certiorari under Rule 65, respectively) as grounds for
maintaining a petition to vacate an arbitral award in the RTC, it necessarily follows that a party may not
avail of the latter remedy on the grounds of errors of fact and/or law or grave abuse of discretion to
overturn an arbitral award. Adamson v. Court of Appeals gave ample warning that a petition to vacate
filed in the RTC which is not based on the grounds enumerated in Section 24 of RA 876 should be
dismissed.

In cases not falling under any of the aforementioned grounds to vacate an award, the Court has already
made several pronouncements that a petition for review under Rule 43 or a petition for certiorari under
Rule 65 may be availed of in the CA. Which one would depend on the grounds relied upon by petitioner.

Nevertheless, although petitioners position on the judicial remedies available to it was correct, we
sustain the dismissal of its petition by the CA. The remedy petitioner availed of, entitled alternative
petition for review under Rule 43 or petition for certiorari under Rule 65, was wrong. Time and again, we
have ruled that the remedies of appeal and certiorari are mutually exclusive and not alternative or
successive.

A careful reading of the assigned errors reveals that the real issues calling for the CAs resolution were
less the alleged grave abuse of discretion exercised by the arbitrator and more about the arbitrators
appreciation of the issues and evidence presented by the parties. Therefore, the issues clearly fall under
the classification of errors of fact and law questions which may be passed upon by the CA via a
petition for review under Rule 43. Petitioner cleverly crafted its assignment of errors in such a way as to
straddle both judicial remedies, that is, by alleging serious errors of fact and law (in which case a petition
for review under Rule 43 would be proper) and grave abuse of discretion (because of which a petition
for certiorari under Rule 65 would be permissible).

Wherefore, the petition is hereby denied. The decision and resolution of the CA directing the RTC to
proceed with the trial of the petition for confirmation of arbitral award is affirmed.
UNIWIDE SALES REALTY AND RESOURCES CORP v. TITAN-IKEDA CONSTRUCTION
G.R. No. 126619; December 20, 2006
Ponente: J. Tinga

FACTS:

The case originated from an action for a sum of money filed by Titan-Ikeda Construction and
Development Corporation (Titan) against Uniwide Sales Realty and Resources Corporation (Uniwide)
with the Regional Trial Court (RTC), Branch 119, Pasay City arising from Uniwides non-payment of
certain claims billed by Titan after completion of three projects covered by agreements they entered
into with each other.

Upon Uniwides motion to dismiss/suspend proceedings and Titans open court manifestation agreeing
to the suspension, Civil Case No. 98-0814 was suspended for it to undergo arbitration. Titans complaint
was thus re-filed with the CIAC. Before the CIAC, Uniwide filed an answer which was later amended and
re-amended, denying the material allegations of the complaint, with counterclaims for refund of
overpayments, actual and exemplary damages, and attorneys fees.

An Arbitral Tribunal consisting of a chairman and two members was created in accordance with the CIAC
Rules of Procedure Governing Construction Arbitration. It conducted a preliminary conference with the
parties and thereafter issued a Terms of Reference (TOR) which was signed by the parties. The tribunal
also conducted an ocular inspection, hearings, and received the evidence of the parties consisting of
affidavits which were subject to cross-examination.

On 17 April 1995, the Arbitral Tribunal promulgated a Decision, the decretal portion of which is as
follows:

WHEREFORE, judgment is hereby rendered as follows:

On Project 1 Libis:

[Uniwide] is absolved of any liability for the claims made by [Titan] on this Project.

Project 2 Edsa Central:

[Uniwide] is absolved of any liability for VAT payment on this project, the same being for the
account of the [Titan]. On the other hand, [Titan] is absolved of any liability on the counterclaim for
defective construction of this project.

[Uniwide] is held liable for the unpaid balance in the amount of P6,301,075.77 which is ordered to
be paid to the [Titan] with 12% interest per annum commencing from 19 December 1992 until the date
of payment.

On Project 3 Kalookan:
 [Uniwide] is held liable for the unpaid balance in the amount of P5,158,364.63 which is ordered to
be paid to the [Titan] with 12% interest per annum commencing from 08 September 1993 until the date
of payment.

[Uniwide] is held liable to pay in full the VAT on this project, in such amount as may be computed
by the Bureau of Internal Revenue to be paid directly thereto. The BIR is hereby notified that [Uniwide]
Sales Realty and Resources Corporation has assumed responsibility and is held liable for VAT payment
on this project. This accordingly exempts Claimant Titan-Ikeda Construction and Development
Corporation from this obligation.

ISSUE:

Whether the award given by CIAC is final

HELD:

As a rule, findings of fact of administrative agencies and quasi-judicial bodies, which have acquired
expertise because their jurisdiction is confined to specific matters, are generally accorded not only
respect, but also finality, especially when affirmed by the Court of Appeals. In particular, factual findings
of construction arbitrators are final and conclusive and not reviewable by this Court on appeal. This rule,
however admits of certain exceptions.

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

Other recognized exceptions are as follows:

(1) when there is a very clear showing of grave abuse of discretion resulting in lack or loss of jurisdiction
as when a party was deprived of a fair opportunity to present its position before the Arbitral Tribunal or
when an award is obtained through fraud or the corruption of arbitrators,
(2) when the findings of the Court of Appeals are contrary to those of the CIAC, and
(3) when a party is deprived of administrative due process.
NATIONAL POWER CORPORATION, PETITIONER
V.
HON. ROSE MARIE ALONZO-LEGASTO AS PRESIDING JUDGE, RTC QC BR 99 ET AL1
GR no.148318 November 22, 2004
Tinga, J.
SV: NPC and FUCC Entered into a project for excavation. FUCC needed to do blasting works to continue
with the project. NPC agreed that it will issue an extra work order for the blasting works and
subsequently pay FUCC but this did not happen. The two entered into a compromise agreement and
agreed that NPC will pay the undisputed unpaid claims and that they will submit the agreement to an
arbitration board to settle the amount to be paid. After the arbitration issued its ruling, NPC questioned
the award which included the blasting works (no extra work order issued for it) allegedly due to
promissory estoppel.
SC: no basis for applying promissory estoppel. The payment was conditional on the issuance of the extra
work order. The acts of the officials of NPC exceeded their authority and should not bind NPC unless the
latter ratifies these acts. Unfortunately, NPC did when it signed the compromise agreement. Hence,
FUCC was entitled for payment for the blasting works.

1. NPC and First United Constructors Corporation (FUCC) entered into a construction of power
facilities, one in Cawayan area and the other in Bacon, Sorsogon. The price for grading
excavation was P76.00 per cubic meter.
2. After commencement of the excavation, FUCC requested 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
also requested that it be paid P1346 per cubic meter
3. NPC, after creating a task force to review the blasting works, offered to pay P458.07 per cubic
meter, which FUCC accepted in a letter.
4. FUCC eventually abandoned the project. NPC decided to take over the project to stave-off huge
pecuniary and non-monetary losses. FUCC, in order to prevent this filed an action for specific
performance and damages with preliminary injunction and TRO against NPC.
5. RTC qc issued a TRO and later a writ of preliminary injunction.
a. NPC filed a petition for certiorari before the CA. CA granted petition and set aside the
lower courts order
6. FUCC filed before the SC a petition for review assailing the decision of the CA but pending the
resolution of the SC, NPC and FUCC entered into a compromise agreement.
a. In the compromise agreement, NPC shall pay the undisputed unpaid billings of FUCC in
connection with the project; that NPC shall have the right to preceed with the works by
re-bidding it; upon final resolution of the arbitration, the parties shall mutually
terminate the contract among others
b. That the claims will be settled through 2 stages
i. One is the signing of the compromise agreement which they whill submit for
approval by this court
 ii. It shall submit by arbitration to settle the price of the blasting, damages and all
other unresolved claims by the parties. The 3-man commission was headed by
Mr. Carmelo Sison
7. The compromise agreement was approved by the court and the case was then referred to
arbitration where it was held that an award of P118,681,328.28 as just compensation plus 10%
thereof for attorneys fees and expenses of litigation was due. (NPC already paid 36,550,000 so
they only owe FUCC P82,131,328.28)
8. FUCC filed a motion for execution while NPC filed a motion to vacate award by the arbitration
board. Judge Alonzo-LEgasto approved the motion for execution.
9. NPC went to the CA alleging GAD.
a. CA: no GAD. The arbitration board acted pursuant to its powers under the compromise
agreement. That NPC failed to prove by evidence that Mr. Sison was biased. That
although the blasting was not part of the unit price for the project and that there was no
perfected contract for it, FUCC relied on the representation of NPCs officials that the
extra work order should be submitted to its board of directors for approval and that the
blasting works would be paid. CA ruled that
FUCC is entitled to just compensation on grounds of equity and promissory estoppel
10. NPC went up to the SC with basically the same arguments before the CA. one of these
arguments is that the claim for blasting works was not approved by authorized officials, that the
approval of extra work by authorized officials is required for an extra work order is issued.

ISSUE: Is FUCC entitled to the payment for the extra work done on the project?

there was a discussion on arbitration and vacating an award. In the end SC held that NPCs
only ground was the alleged bias of Mr. Sison, which it failed to prove by evidence at the
lower court. Hence they cannot depart from the ruling upholding the award

the court looked at Sec. 9 of PD 1594 (Prescribing Policies, Guidelines, Rules and
Regulations for Government Infrastructure Contracts,) which provides that 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 SC also considered the facts which were used as bases for promissory estoppel and held
that although it appeared that NPC made promises that an extra work order will be issued in
connection with the blasting projects, none came to existence.
o 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. 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.
o There was no basis for promissory estoppel since both parties knew that the
payment for the blasting works was dependent on the issuance of an extra work
 order. The promise of NPC to pay was conditional (upon the issuance of the work
order) and FUCC knew of this fact.
o Mendoza v. CA: 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.
NPCs argument that it is not bound by the acts of its officials is correct. It is a corporate
entity performing proprietary functions and not a mere agency of the government.
The officials exceeded the scope of their authority when they authorized FUCC to
commence blasting without an extra work order. Their acts cannot bind NPC unless it has
ratified such acts or it is estopped from disclaiming them
NPC RATIFIED THOSE ACTS! The compromise agreement is a confirmatory act signifying
NPCs ratification of all the prior acts of its officers (the president who signed it was acting
pursuant to a board resolution)

SC in the end upheld the award of the arbitration except for the rate of interest which was decreased
from 12% to 6%.
Agan v PIATCO G.R. No. 155001. May 5, 2003

Facts: In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct a
comprehensive study of the Ninoy Aquino International Airport (NAIA) and determine whether the
present airport can cope with the traffic development up to the year 2010.

On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of Asia's Emerging
Dragon Corp. (unsolicited proposal dated Oct. 5, 1994) to the National Economic and Development
Authority (NEDA). A revised proposal, however, was forwarded by the DOTC to NEDA on December 13,
1995. On January 5, 1996, the NEDA Investment Coordinating Council (NEDA ICC) Technical Board
favorably endorsed the project to the ICC Cabinet Committee which approved the same, subject to
certain conditions, on January 19, 1996. On February 13, 1996, the NEDA passed Board Resolution No. 2
which approved the NAIA IPT III Project.

On August 29, 1996, the Second Pre-Bid Conference was held where certain clarifications were made.
Upon the request of prospective bidder People's Air Cargo & Warehousing Co., Inc (Paircargo), the PBAC
warranted that based on Sec. 11.6, Rule 11 of the Implementing Rules and Regulations of the BOT Law,
only the proposed Annual Guaranteed Payment submitted by the challengers would be revealed to
AEDC, and that the challengers' technical and financial proposals would remain confidential. The PBAC
also clarified that the list of revenue sources contained in Annex 4.2a of the Bid Documents was merely
indicative and that other revenue sources may be included by the proponent, subject to approval by
DOTC/MIAA. Furthermore, the PBAC clarified that only those fees and charges denominated as Public
Utility Fees would be subject to regulation, and those charges which would be actually deemed Public
Utility Fees could still be revised, depending on the outcome of PBAC's query on the matter with the
Department of Justice.

On September 26, 1996, AEDC informed the PBAC in writing of its reservations as regards the
Paircargo Consortium, which include:

a. The lack of corporate approvals and financial capability of PAIRCARGO;

b. The lack of corporate approvals and financial capability of PAGS;
c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the amount that
Security Bank could legally invest in the project;

d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for prequalification
purposes; and
e. The appointment of Lufthansa as the facility operator, in view of the Philippine requirement in
the operation of a public utility.
 The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the issues raised
by the latter, and that based on the documents submitted by Paircargo and the established
prequalification criteria, the PBAC had found that the challenger, Paircargo, had prequalified to
undertake the project. The Secretary of the DOTC approved the finding of the PBAC.

On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the Paircargo
Consortium containing their respective financial proposals. Both proponents offered to build the NAIA
Passenger Terminal III for at least $350 million at no cost to the government and to pay the government:
5% share in gross revenues for the first five years of operation, 7.5% share in gross revenues for the next
ten years of operation, and 10% share in gross revenues for the last ten years of operation, in
accordance with the Bid Documents.

As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary Amado
Lagdameo, on December 11, 1996, issued a notice to Paircargo Consortium regarding AEDC's failure to
match the proposal. AEDC subsequently protested the alleged undue preference given to PIATCO and
reiterated its objections as regards the prequalification of PIATCO.

On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO,
through its President, Henry T. Go, signed the "Concession Agreement for the Build-Operate-and-
Transfer Arrangement of the Ninoy Aquino International Airport Passenger Terminal III" (1997
Concession Agreement). The Government granted PIATCO the franchise to operate and maintain the
said terminal during the concession period and to collect the fees, rentals and other charges in
accordance with the rates or schedules stipulated in the 1997 Concession Agreement. The Agreement
provided that the concession period shall be for twenty-five (25) years commencing from the in-service
date, and may be renewed at the option of the Government for a period not exceeding twenty-five (25)
years. At the end of the concession period, PIATCO shall transfer the development facility to MIAA.

During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on November
29, 2002, in her speech at the 2002 Golden Shell Export Awards at Malacaang Palace, stated that she
will not "honor (PIATCO) contracts which the Executive Branch's legal offices have concluded (as) null
and void."

Issue: Whether the petitioners and the petitioners-in-intervention have standing;

Whether this Court has jurisdiction; and

Whether the BOT and contracts therein are unconstitutional.

Held: YES.
Ratio: Messrs. Lopez et al. are employees of the MIAA. These petitioners (Messrs. Agan et al. and
Messrs. Lopez et al.) are confronted with the prospect of being laid off from their jobs and losing their
means of livelihood when their employer-companies are forced to shut down or otherwise retrench and
cut back on manpower. Such development would result from the imminent implementation of certain
provisions in the contracts that tend toward the creation of a monopoly in favor of Piatco, its
subsidiaries and related companies.

Petitioners-in-intervention are service providers in the business of furnishing airport-related services

to international airlines and passengers in the NAIA and are therefore competitors of Piatco as far as
that line of business is concerned. On account of provisions in the Piatco contracts, petitioners-in-
intervention have to enter into a written contract with Piatco so as not to be shut out of NAIA Terminal
III and barred from doing business there. Since there is no provision to ensure or safeguard free and fair
competition, they are literally at its mercy. They claim injury on account of their deprivation of property
(business) and of the liberty to contract, without due process of law.

By way of background, two monopolies were actually created by the Piatco contracts. The first and
more obvious one refers to the business of operating an international passenger terminal in Luzon, the
business end of which involves providing international airlines with parking space for their aircraft, and
airline passengers with the use of departure and arrival areas, check-in counters, information systems,
conveyor systems, security equipment and paraphernalia, immigrations and customs processing areas;
and amenities such as comfort rooms, restaurants and shops.

In furtherance of the first monopoly, the Piatco Contracts stipulate that the NAIA Terminal III will be
the only facility to be operated as an international passenger terminal; that NAIA Terminals I and II will
no longer be operated as such; and that no one (including the government) will be allowed to compete
with Piatco in the operation of an international passenger terminal in the NAIA Complex. Given that, at
this time, the government and Piatco are the only ones engaged in the business of operating an
international passenger terminal, I am not acutely concerned with this particular monopolistic situation.

There was however another monopoly within the NAIA created by the subject contracts for Piatco
in the business of providing international airlines with the following: groundhandling, in-flight catering,
cargo handling, and aircraft repair and maintenance services. These are lines of business activity in
which are engaged many service providers (including the petitioners-in-intervention), who will be
adversely affected upon full implementation of the Piatco Contracts, particularly Sections 3.01(d) and (e)
of both the ARCA and the CA.

Should government pay at all for reasonable expenses incurred in the construction of the Terminal?
Indeed it should, otherwise it will be unjustly enriching itself at the expense of Piatco and, in particular,
its funders, contractors and investors both local and foreign. After all, there is no question that the
State needs and will make use of Terminal III, it being part and parcel of the critical infrastructure and
transportation-related programs of government.
 The rule on hierarchy of courts will not also prevent this Court from assuming jurisdiction over the
cases at bar. The said rule may be relaxed when the redress desired cannot be obtained in the
appropriate courts or where exceptional and compelling circumstances justify availment of a remedy
within and calling for the exercise of this Court's primary jurisdiction. Thus, considering the nature of the
controversy before the Court, procedural bars may be lowered to give way for the speedy disposition of
the instant cases.

In sum, this Court rules that in view of the absence of the requisite financial capacity of the Paircargo
Consortium, predecessor of respondent PIATCO, the award by the PBAC of the contract for the
construction, operation and maintenance of the NAIA IPT III is null and void.

Is PIATCO a qualified bidder?

Public respondents argue that the Paircargo Consortium, PIATCO's predecessor, was not a duly pre-
qualified bidder on the unsolicited proposal submitted by AEDC as the Paircargo Consortium failed to
meet the financial capability required under the BOT Law and the Bid Documents. They allege that in
computing the ability of the Paircargo Consortium to meet the minimum equity requirements for the
project, the entire net worth of Security Bank, a member of the consortium, should not be considered.
R.A. No. 337, as amended or the General Banking Act that a commercial bank cannot invest in any single
enterprise in an amount more than 15% of its net worth.

We agree with public respondents that with respect to Security Bank, the entire amount of its net
worth could not be invested in a single undertaking or enterprise, whether allied or non-allied in
accordance with the provisions of R.A. No. 337

The PBAC should not be allowed to speculate on the future financial ability of the bidder to undertake
the project on the basis of documents submitted. This would open doors to abuse and defeat the very
purpose of a public bidding.

Is the 1997 Concession Agreement valid?

Petitioners and public respondents contend that the 1997 Concession Agreement is invalid as it
contains provisions that substantially depart from the draft Concession Agreement included in the Bid
Documents. They maintain that a substantial departure from the draft Concession Agreement is a
violation of public policy and renders the 1997 Concession Agreement null and void.

If the winning bidder is allowed to later include or modify certain provisions in the contract awarded
such that the contract is altered in any material respect, then the essence of fair competition in the
public bidding is destroyed. A public bidding would indeed be a farce if after the contract is awarded;
the winning bidder may modify the contract and include provisions which are favorable to it that were
not previously made available to the other bidders.

With respect to terminal fees that may be charged by PIATCO, as shown earlier, this was included
within the category of "Public Utility Revenues" under the 1997 Concession Agreement. This
classification is significant because under the 1997 Concession Agreement, "Public Utility Revenues" are
subject to an "Interim Adjustment" of fees upon the occurrence of certain extraordinary events
specified in the agreement. However, under the draft Concession Agreement, terminal fees are not
included in the types of fees that may be subject to "Interim Adjustment."

Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except terminal fees, are
denominated in US Dollars while payments to the Government are in Philippine Pesos. In the draft
Concession Agreement, no such stipulation was included. By stipulating that "Public Utility Revenues"
will be paid to PIATCO in US Dollars while payments by PIATCO to the Government are in Philippine
currency under the 1997 Concession Agreement, PIATCO is able to enjoy the benefits of depreciations of
the Philippine Peso, while being effectively insulated from the detrimental effects of exchange rate
fluctuations.

Under the draft Concession Agreement, default by PIATCO of any of its obligations to creditors who
have provided, loaned or advanced funds for the NAIA IPT III project does not result in the assumption
by the Government of these liabilities. In fact, nowhere in the said contract does default of PIATCO's
loans figure in the agreement. Such default does not directly result in any concomitant right or
obligation in favor of the Government.

It is clear from the above-quoted provisions that Government, in the event that PIATCO defaults in its
loan obligations, is obligated to pay "all amounts recorded and from time to time outstanding from the
books" of PIATCO which the latter owes to its creditors. These amounts include "all interests, penalties,
associated fees, charges, surcharges, indemnities, reimbursements and other related expenses." This
obligation of the Government to pay PIATCO's creditors upon PIATCO's default would arise if the
Government opts to take over NAIA IPT III. It should be noted, however, that even if the Government
chooses the second option, which is to allow PIATCO's unpaid creditors operate NAIA IPT III, the
Government is still at a risk of being liable to PIATCO's creditors should the latter be unable to designate
a qualified operator within the prescribed period. In effect, whatever option the Government chooses
to take in the event of PIATCO's failure to fulfill its loan obligations, the Government is still at a risk of
assuming PIATCO's outstanding loans.

As such the Government is virtually at the mercy of PIATCO (that it would not default on its loan
obligations to its Senior Lenders), the Senior Lenders (that they would appoint a qualified nominee or
transferee or agree to some other arrangement with the Government) and the existence of a qualified
nominee or transferee who is able and willing to take the place of PIATCO in NAIA IPT III.

In view of regulation of monopolies

The operation of an international passenger airport terminal is no doubt an undertaking imbued with
public interest. In entering into a Build-Operate-and-Transfer contract for the construction, operation
and maintenance of NAIA IPT III, the government has determined that public interest would be served
better if private sector resources were used in its construction and an exclusive right to operate be
granted to the private entity undertaking the said project, in this case PIATCO. Nonetheless, the privilege
given to PIATCO is subject to reasonable regulation and supervision by the Government through the
MIAA, which is the government agency authorized to operate the NAIA complex, as well as DOTC, the
department to which MIAA is attached.

While it is the declared policy of the BOT Law to encourage private sector participation by "providing
a climate of minimum government regulations," the same does not mean that Government must
completely surrender its sovereign power to protect public interest in the operation of a public utility as
a monopoly. The operation of said public utility cannot be done in an arbitrary manner to the detriment
of the public which it seeks to serve.

In contrast to the arrastre and stevedoring service providers in the case of Anglo-Fil Trading
Corporation v. Lazaro whose contracts consist of temporary hold-over permits, the affected service
providers in the cases at bar, have a valid and binding contract with the Government, through MIAA,
whose period of effectivity, as well as the other terms and conditions thereof cannot be violated.

Should the dispute be referred to arbitration prior to judicial recourse?

Respondent Piatco claims that Section 10.02 of the Amended and Restated Concession Agreement
(ARCA) provides for arbitration under the auspices of the International Chamber of Commerce to settle
any dispute or controversy or claim arising in connection with the Concession Agreement, its
amendments and supplements. The government disagrees; however, insisting that there can be no
arbitration based on Section 10.02 of the ARCA, since all the Piatco contracts are void ab initio.
FACTS:

-Aug 26, 1995: Diesel and UPSI entered into a Construction Agreement for the interior architectural
construction works of the 14th to the 16th floors of UPSI Building 3 Meditel/Condotel Project located in
Ermita, Manila. The agreement contained provisions on contract works and completion, extension of
contract period, change or extra work orders, etc.

-Under the agreement, Diesel for 12.7M agreed to take the project payable by progress billing. As
stipulated, Diesel posted through FGU Insurance Corp, a bond in favor of UPSI.

-Under the agreement, the project was to start on Aug 2, 1999 to run for a period of 90 days, or until
Nov. 8, 1999. But they later agreed to move the commencement date to Aug 21 and the completion to
Nov 20, 1999.

-There was also a section in the agreement obliging Diesel in case of unjustifiable delay, to pay the
owner liquidated damages in the amount equivalent to 1/5 of 1% of the total project cost for every
calendar day of delay.

-During the project implementation, change orders and extensions were sought because of the several
delaying factors such as: 1) manual hauling of the materials from 14th to 16th floor, 2)delayed supply of
marble, 3) various change orders, 4) delay in the installation of shower assembly.

-UPSI disapproved the extensions putting Diesel in a state of default and assessed Diesel for liquidated
damages, deducting from his progress payments.

-Diesel, through its project manager, sent a letter of notice to UPSI, on March 16, 2000, stating that the
project has been completed as of that date. UPSI disregarded such and refused to accept the delivery
claiming that Diesel abandoned the project unfinished, withholding the 10% retention money and
refusing to pay the balance of the contract price.

-Diesel filed a complaint before CIAC (Construction Industry Arbitration Commission), praying that UPSI
be compelled to pay the balance plus damages and attorneys fees.

-UPSIs counterclaim denied liability and prayed for the repayment of expenses it incurred for
completing the project and for a declaration that the deductions it made for liquidated damages were
proper.

-CIAC rendered a judgment ordering UPSI to pay Diesel about 4M covering the unpaid balance and
attorneys fees, dismissing UPSIs counterclaim.

-UPSI went to CA on a petition for review. CA modified the ruling of CIAC, granting the claim of UPSI for
liquidated damages (1.3M) representing 45days of delay. CA also ruled that Diesel complied with the
contract and is entitled to 100% payment of contract price (2.4M unpaid balance). In sum, UPSI is held
liable to Diesel in the amount of 1.1M.
-Both parties sought reconsideration. CA denied UPSI but partially granted Diesels motion, reducting
the liquidated damages. UPSI was held to be liable to Diesel for 2.5M.

-Parties filed separate petitions before the SC.

ISSUE:

Whether or not Diesel can be entitled to full payment of the contract amount.

HELD:

-The CIAC found Diesel not to have incurred delay, thus negating UPSIs entitlement to liquidated
damages. The CA, on the other hand, found Diesel to have been in delay for 45 days.

-In determining whether or not Diesel was in delay, they considered the fact that Diesel had the Project
period extended beyond 90-day completion period. Both agreed that there were factors that gave
Diesel the right to an extension but differed on the matter of length of the extension, and on the nature
of the delay, that is,

whether the delay is excusable or not.

-Diesel explained that there was no place for its own hoisting machine at the Project site. Diesel could
not use the site elevator of the General Contractor as its personnel were only permitted to use the same
for one hour every day at PhP 600 per hour.

-There were provisions on the agreement on excusable delays for which the contractor shall inform the
owner in a timely manner. This includes: acts of god, civil disturbance, govt acts, wars, delays initiated
by owner or his personnel. The delaying event should be unforeseeable and beyond the control of
Diesel. The lack of location for the hoisting machine can be hardly tagged as foreseeable event.

-Delay caused by the manual hauling of materials is not excusable and cannot be a ground for extension.
This only granted Diesel an extension period of 85 days which was a delay of 45 days in the completion
of project. It was unfair to charge Diesel with 240 days of delays where UPSI was responsible for some of
the delay.

[ CA: The records will show that while the original target date for the completion x x x was 19 November
1999 x x x, there is a total of eighty-five (85) days of extension which are justifiable and sanctioned by
[UPSI], to wit: thirty (30) days as authorized on 27 January 2000 by UPSIs Construction Manager x x x;
thirty (30) days as again consented to by the same Construction Manager on 24 February 2000 x x x; and
twenty-five (25) days on 16 March 2000 by Rider Hunt and Liacom x x x. The rest of the days claimed by
Diesel were, of course, found by Us to be unjustified in the main opinion. Hence, the project should have
been finished by February 12, 2000. However, by 22 March 2000, as certified to by Grace S. Reyes
Designs, Inc. the project was only 97.56% finished, meaning while it was substantially finished, it was not
wholly finished. By 25 March 2000, the same consultant conditionally accepted some floors but were still
punch listed, so that from 12 February 2000 to 25 March 2000 was a period of forty-one (41) days.
Allowing four (4) more days for the punch listed items to be accomplished, and for the general cleaning
mentioned by Grace S. Reyes Designs, Inc., to be done, which to Us is a reasonable length of time, equals
forty-five (45) days. ]

-The CA completely failed to factor in the change orders of UPSI to Dieselthe directives effectively
extending the Project completion time at the behest of UPSI.

-UPSI issued Change Order (CO) Nos. 1 to 4 on February 3, 2, 8, and 9, 2000 respectively. Thereafter,
Diesel submitted a Schedule of Completion of Additional Works under which Diesel committed to
undertake CO No. 1 for 30 days from February 10, 2000; CO No. 2 for 21 days from January 6, 2000; CO
No. 3 for 15 days, subject to UPSIs acceptance of Diesels proposal; and CO No. 4 for 10 days after the
receipt of the items from UPSI. Thus, as correctly held by the CIAC, UPSI, no less, effectively moved the
completion date, through the various COs, to April 7, 2000.

Moreover, as evidenced by UPSIs Progress Report No. 19 for the period ending March 22, 2000,
Diesels scope of work, as of that date, was already 97.56% complete. Such level of work
accomplishment would, by any rational norm, be considered as substantial to warrant full payment of
the contract amount, less actual damages suffered by UPSI. Article 1234 of the Civil Code says as much,
If the obligation had been substantially performed in good faith, the obligor may recover as though
there had been a strict and complete fulfillment, less damages suffered by the obligee.

The fact that the laborers of Diesel were still at the work site as of March 22, 2000 is a reflection of its
honest intention to keep its part of the bargain and complete the Project. Thus, when Diesel attempted
to turn over the premises to UPSI, claiming it had completed the Project on March 15, 2000, Diesel
could no longer be considered to be in delay. No liquidated damages for delay beyond the completion
time shall accrue after the date of substantial completion ofthe work.

In all, Diesel cannot be considered as in delay and, hence, is not amenable under the Agreement for
liquidated damages.

Diesel was not strictly in delay in the completion of the Project. No valid reason, therefore, obtains for
UPSI to withhold the retention money or to refuse to pay the unpaid balance of the contract price.
Indeed, the retention and nonpayment were, to us, as was to the CIAC, resorted to by UPSI out of whim,
thus forcing the hand of Diesel to sue to recover what is rightfully due. Thus, the grant of attorneys fees
would be justifiable under Art. 2208 of the Civil Code. The foregoing notwithstanding and considering
that Diesel may only be credited for 97.56% work accomplishment, UPSI ought to be compensated, by
way of damages, in the amount corresponding to the value of the 2.44% unfinished portion (100%
97.56% = 2.44%). In absolute terms, 2.44% of the total Project cost translates to PhP 310,834.01. This
disposition is no more than adhering to the command of Art. 1234 of the Civil Code.
KOREA TECHNOLOGIES CO. LTD VS LERMA (GR NO. 143581 JANUARY 7, 2008)
Korea Technologies Co. Ltd vs Lerma
GR No. 143581 January 7, 2008

Facts:
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 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
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 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 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.

When KOGIES deposited the checks, these were dishonored for the reason PAYMENT STOPPED. Thus, on
May 8, 1998, KOGIES sent a demand letter 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.

Issue: Whether or not the arbitration clause in the contract of the parties should govern.

Held: Yes. 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.
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., 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.
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.

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.
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.
Home Bankers Savings and Trust Company v. CA (G.R. No. 115412)

Facts:

Victor Tancuan issued Petitioner Home Bankers Savings and Trust Company a check while Eugene
Arriesgado issued Private Respondent Far East Bank and Trust Company three checks; both checks
totaling the amount of P25,250,000.00. Tancuan and Arriesgado exchanged each others checks and
deposited them with their respective banks for collection. When FEBTC presented Tancuans HBSTC
check for clearing, it was dishonored for being DAIF. Meanwhile, HBSTC sent Arriesgados 3 FEBTC
checks through the Philippine Clearing House Corporation (PCHC) to FEBTC but was returned for being
DAIF.

HBSTC receive the notice of dishonor but refused to accept the checks and returned them to FEBTC
through the PCHC for the reason Beyond Reglementary Period, implying that HBSTC already treated
the 3 checks as cleared and allowed the proceeds thereof to be withdrawn. FEBTC demanded
reimbursement for the returned checks and inquired from HBSTC whether it had permitted any
withdrawal of funds against the unfunded checks. HBSTC, however refused to make any reimbursement
and to provide FEBTC with the needed information.

Thus, FEBTC submitted the dispute for arbitration before the PCHC Arbitration Committee, under its
Supplementary Rules on Regional Clearing to which FEBTC and HBSTC are bound as participants in the
regional clearing operations administered by the PCHC. While the arbitration proceeding was still
pending, FEBTC filed an action for sum of money and damages with preliminary attachment against
HBSTC. HBSTC moved to dismiss on the ground that there is no cause of action and because it seeks to
enforce an arbitral award which as yet does not exist. The trial court denied the motion to dismiss and
the motion for reconsideration. Petitioner then filed a petition for certiorari with respondent CA to
which it had dismissed.

Issue:

Whether or not private respondent which commenced an arbitration proceeding under the auspices of
the PCHC may subsequently file a separate case in court over the same subject matter despite the
pendency of that arbitration, simply to obtain the provisional remedy of attachment against the adverse
party in the arbitration proceeding.
Ruling:

We find no merit in the petition. Section 14 of Republic Act 876, otherwise known as the Arbitration
Law, allows any party to the arbitration proceeding to petition the court to take measures to safeguard
and/or conserve any matter which is the subject of the dispute in arbitration.

Petitioners exposition of the foregoing provision deserves scant consideration. Section 14 simply grants
an arbitrator the power to issue subpoena and subpoena duces tecum at any time before rendering the
award. The exercise of such power is without prejudice to the right of a party to file a petition in court to
safeguard any matter which is the subject of the dispute in arbitration. In the case at bar, private
respondent filed an action for a sum of money with prayer for a writ of preliminary attachment.
Undoubtedly, such action involved the same subject matter as that in arbitration, i.e., the sum of
P25,200,000.00 which was allegedly deprived from private respondent in what is known in banking as a
kiting scheme. However, the civil action was not a simple case of a money claim since private
respondent has included a prayer for a writ of preliminary attachment, which is sanctioned by section 14
of the Arbitration Law.

Simply put, participants in the regional clearing operations of the Philippine Clearing House
Corporation cannot bypass the arbitration process laid out by the body and seek relief directly from the
courts. In the case at bar, undeniably, private respondent has initiated arbitration proceedings as
required by the PCHC rules and regulations, and pending arbitration has sought relief from the trial
court for measures to safeguard and/or conserve the subject of the dispute under arbitration, as
sanctioned by section 14 of the Arbitration Law, and otherwise not shown to be contrary to the PCHC
rules and regulations.

At this point, we emphasize that arbitration, as an alternative method of dispute resolution, is

encouraged by this Court. Aside from unclogging judicial dockets, it also hastens solutions especially of
commercial disputes. The Court looks with favor upon such amicable arrangement and will only
interfere with great reluctance to anticipate or nullify the action of the arbitrator. Wherefore, premises
considered, the petition is hereby dismissed and the decision of the court a quo is affirmed.
INTERNATIONAL COMMERCIAL ARBITRATION

Jurisprudence: Tuna Processing, Inc. vs. Philippine Kingford, Inc. [2012]

G.R. No. 185582 (February 29, 2012)

PEREZ, J.:

FACTS:

Kanemitsu Yamaoka, co-patentee of a US Patent, Philippine Letters Patent, and an Indonesian Patent,
entered into a Memorandum of Agreement (MOA) with five Philippine tuna processors including
Respondent Philippine Kingford, Inc. (KINGFORD). The MOA provides for the enforcing of the
abovementioned patents, granting licenses under the same, and collecting royalties, and for the
establishment of herein Petitioner Tuna Processors, Inc. (TPI).

Due to a series of events not mentioned in the Petition, the tuna processors, including Respondent
KINGFORD, withdrew from Petitioner TPI and correspondingly reneged on their obligations. Petitioner
TPI 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 KINGFORD.

To enforce the award, Petitioner TPI filed a Petition for Confirmation, Recognition, and Enforcement of
Foreign Arbitral Award before the RTC of Makati City. Respondent KINGFORD filed a Motion to Dismiss,
which the RTC denied for lack of merit. Respondent KINGFORD then sought for the inhibition of the RTC
judge, Judge Alameda, and moved for the reconsideration of the order denying the Motion. Judge
Alameda inhibited himself notwithstanding [t]he unfounded allegations and unsubstantiated assertions
in the motion. Judge Ruiz, to which the case was re-raffled, in turn, granted Respondent KINGFORDSs
Motion for Reconsideration and dismissed the Petition on the ground that Petitioner TPI lacked legal
capacity to sue in the Philippines. Petitioner TPI is a corporation established in the State of California and
not licensed to do business in the Philippines.

Hence, the present Petition for Review on Certiorari under Rule 45.
ISSUE:

Whether or not 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?

ARGUMENT:

Petitioner TPI contends that it is entitled to seek for the recognition and enforcement of the subject
foreign arbitral award in accordance with RA No. 9285 (Alternative Dispute Resolution Act of 2004), 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), as none of these specifically
requires that the party seeking for the enforcement should have legal capacity to sue.

RULING:

YES. 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. A foreign corporations capacity to sue in the Philippines is not material insofar
as the recognition and enforcement of a foreign arbitral award is concerned.

The Resolution of the RTC is REVERSED and SET ASIDE.

RATIO DECIDENDI:

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;

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;
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;

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.

Not one of the abovementioned 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, 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. 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, it is specifically required that a petition
to determine any question concerning the existence, validity and enforceability of such arbitration
agreement 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 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.
Indeed, it is in the best interest of justice that in the enforcement of a foreign arbitral award, the
Court 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 Philippine 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 [1998], 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.

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 RTC correctly observed that the Model
Law, not the New York Convention, governs the subject arbitral award, Petitioner TPI 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.